Interest Payments on Bonds or Similar Indebtedness

July 31, 1981 BIR RULING NO. 141-81 053-f 000-00 141-81 BF Homes, Incorporated First Intramuros, BF Condominium Bldg. Metro Manila Attention: Mr . Ramon G . Henares Vice-President, Finance Gentlemen : This refers to your letters dated June 3, 1980 and October 2, 1980, inquiring whether the 5% premium per annum that you pay, in addition to 10% interest per annum , on the P125 million worth of mortgages bonds which were floated in 1978 and would mature in 1985, is subject to the expanded withholding tax. It appears that in March and September, 1980, you deducted a 15% withholding tax from the premium payments to the holders of the abovementioned bonds. In reply, please be informed that the 5% premiums that you pay in addition to the 10% interest on the abovestated mortgage bonds partake of the nature of interest, said premiums being essentially income or earnings accruing to these bonds. "By 'interest' is understood the compensation for the use or detention of money; thus the term includes a 5% payment designated as the 'premium' on a note, and required in addition to the regular interest specified." (33 Words and Phrases 566, citing Seastrunk, v. Pioneer Savings & Loan Co., tax. Civ. App., 34 S.W. 466, 467). Consequently, these premium payments fall within the coverage of interest payments on bonds or similar indebtedness. Accordingly, the premium payments due to the holders of the mortgage bonds are subject to the 15% withholding tax prescribed by paragraph (h) of Section 1 of Revenue Regulations No. 13-78 as amended by Revenue Regulations No. 6-79, implementing Presidential Decree No. 1351. Moreover, if your interest and premium payments to the said bondholders for 1980 amounted, or in the future will amount to P1,800.00 or more, you are required to render a true and accurate return (Form 1701-B) to this Office, setting forth the amount of the interests and premiums paid, and the names and addresses of the recipients of such payments, in accordance with Section 77 of the Tax Code of 1977, as amended. Very truly yours, RUBEN B. ANCHETA Acting Commissioner