State Investment House, Inc. Bonds Not Issued as Money Market Instruments Not "Commercial Papers"; Hence, Not Subject to 35% Transaction Tax

July 3, 1980 BIR RULING NO. 089-80 State Investment House, Inc. P. O. Box 339 M a n i l a Attention: Mr . Santiago Sy, Jr . Manager Gentlemen : This refers to your letters dated April 10, 1979 and January 9, 1980 requesting that your issuance of collateral trust bonds, be exempt from the 35% transaction tax imposed by Section 210(b) of the Tax Code, as amended. It is represented that your corporation State Investment House, Inc. will issue to the public Twenty Million Pesos (P20,000,000.00) worth of collateral trust bonds; that the bonds will be issued after the closing of the Offering Period and will mature after five (5) years from date of issuance; that the bonds will be issued in registered forms without coupons in denominations of P20,000.00, P50,000.00, P100,000.00 and P500,000.00 each; that the bonds will bear an interest at the rate of sixteen (16%) percent per annum on the principal amount outstanding; that the bonds are secured by notes, accounts and lease contract receivables guaranteed by the Home Financing Commission; that the bonds may be redeemed at the option of the bondholder anytime after the end of the 4th year from date of issue; and that said bonds may be used as collateral for loans that shall be repayable within one (1) year. In reply, I have the honor to inform you that under the abovestated facts, the State Investment House, Inc. Bonds will not be issued as money market instruments; hence, said bonds do not come within the purview of the term "commercial paper" intended to be subjected to the 35% transaction tax prescribed by Section 210(b) of the Tax Code of 1977, as amended. Accordingly, State Investment House, Inc. is not subject to the 35% transaction tax on its issue of the aforesaid bonds. However, those buying the said bonds should be made aware of the fact that the transaction tax is not being imposed on the issuer of such notes by printing or stamping thereon in bold letters, the following statement; "ISSUER NOT SUBJECT TO TRANSACTION TAX UNDER SECTION 210 (b), TAX CODE OF 1977, AS AMENDED." Bondholders purchasers of said notes are however subject to income tax on interest and/or gains derived from their investment or transaction in said bonds, and therefore, income payments by the State Investment House, Inc. to the holders thereof shall be subject to the expanded withholding tax of 15%, pursuant to Section 1(h) of Revenue Regulations No. 13-78 as supplemented by Revenue Regulations No. 6-79. In complying with the withholding requirements of the abovementioned Regulations, State Investment House, Inc. is required to furnish each individual payee a written statement (BIR Form 1743) showing the income payment made by it and the amount of taxes deducted and withheld therefrom, pursuant to Section 6 of Revenue Regulations No. 13-78 as supplemented by Revenue Regulations No. 6-79. Very truly yours, RUBEN B. ANCHETA Acting Commissioner