20% Final Withholding Tax on Interest Earnings on Trust Deposits

July 12, 1989 BIR RULING NO. 141-89 24 (e) (1) 000-00 141-89 Gentlemen : This refers to your letter dated August 23, 1988 requesting exemption from the 20% final withholding tax on interest earnings on your trust deposits with the Philippine National Bank and other government depository banks. cdtech It is represented that you are the trustee of the National Government in the disposal of assets transferred to it; that proceeds from the sale or disposition of assets are remitted to the National Treasury; that however, certain sale proceeds are held in escrow and/or placed in trust deposits pending resolution of legal constraints and/or marketing arrangements; that interest earnings while in float pending actual remittance also accrues to the National Treasury; that it is your understanding that the Bureau of Treasury is not subject to withholding tax for its investment placements; and that it is in this context that you are requesting for an exemption since your deposits are mostly proceeds from assets sales and technically may be considered as treasury funds. In reply, please be informed that your request is hereby denied. Under Section 34 of Proclamation No. 50 creating the Committee on Privatization and The Asset Privatization Trust, the provisions of any law to the contrary notwithstanding, the Trust as well as the corporations and assets held by it, shall be exempt from all taxes, fees, charges, imposts, and assessments arising from or occasioned by the passing of title over such corporations or assets from the government institutions to the Trust and/or from the Trust to a private acquisitor or buyer imposed by the National government or any subdivision thereof including but not limited to stock transfer taxes, capital gains taxes, documentary stamps, registration fees and the like. In other words, your exemption from all taxes, fees, charges, imposts, and assessments does not include exemption from the 20% final withholding tax on interest imposed under Section 24(e)(1) of the Tax Code relative to your trust deposit with the Philippine National Bank and other government depository bank since the imposition of the same is not occasioned by the passing of title over such assets from the government institutions to you and/or from you to a private acquisitor or buyer. Moreover, it is a cardinal rule in taxation that exemptions therefrom are highly disfavored in law and he who claims tax exemption must be able to justify his claim or right. The exemption cannot be established by mere implication but must be clearly expressed. (Wander Mechanical Engineering Corporation vs. Court of Tax Appeals, et al., 64 SCRA 555). Very truly yours, (SGD.) JOSE U. ONG Commissioner