Expanded Withholding Tax on Interest Payments

July 31, 1990 BIR RULING NO. 141-90 50 (b) 056-89 141-90 Gentlemen : This refers to your letter dated January 15, 1990 stating that you are a licensed lending investor operating in Quezon City; that due to limited capital you have resorted to borrowings from various sources to augment said capital. In view of the foregoing, you request a ruling as to whether the interest paid on said borrowings or loans from other sources are subject to withholding tax. In reply, please be informed that only payments to persons enumerated in Revenue Regulations No. 6-85, implementing Section 50 (b) of the Tax Code, as amended, are subject to the expanded withholding tax. Considering that interest payments for loans and other borrowings are not among those specified in said Regulations, such payments are not, therefore, subject to the expanded withholding tax. However, borrowings of lending investors thru commercial papers issued as evidence of indebtedness whether or not registered with the Securities and Exchange Commission, regardless of maturity period and with or without recourse basis are considered deposit substitutes pursuant to Section 2 (h)(ii) of Revenue Regulations No. 17-84; hence, earnings or yield from such deposit substitutes are subject to 20% withholding tax imposed under Section 21 (c)(1) or 24 (e) both of the Tax Code as amended. cdt Very truly yours, (SGD.) JOSE U. ONG Commissioner