15% Withholding Tax — Interest on Bank Deposits

September 11, 1981 BIR RULING NO. 174-81 53-e 000-00 174-81 Carpio Villaraza Barza Cruz & Rosell 5th Floor, APMC Building Amorsolo corner Gamboa Streets Legaspi Village, Makati, Metro Manila Attention: Mr . Antonio T . Carpio Gentlemen : This refers to your letter dated April 8, 1981 in behalf of your client, the Commercial Bank of Manila (COMBANK), requesting a ruling on whether or not the withholding tax on interest on bank deposits shall apply where the interest was earned prior to Presidential Decree No. 1156. It is represented that Combank (formerly the Overseas bank of Manila), was closed from August, 1968 up to January, 1981 due to suspension of its banking license. When the Central bank reinstated its banking license, this January, 1981, Combank agreed to pay the deposits of depositors of record as of August, 1968, plus all accrued interest up to August, 1968. In reply, please be informed that although it may seem that the interests in question were accrued as of August 1968, strictly speaking such accrual became effective only in January 1981 when the Central Bank reinstated Combank's banking license, and Combank decided to pay the deposits plus the interests accruing thereon as of August 1968. Before January 1981, the issue of whether or not such deposits will eventually be paid, and the extent of the interests, if any, to be paid thereon, was still unresolved; and thus, there were no accrued interests to speak of prior to January 1981. The use of the term "accrued interest up to August 1968" in this case was only for the purpose of fixing the amount to which depositors are entitled pursuant to the decision made by Combank in January 1981. Such being the case, the aforesaid interests are subject to the withholding tax at the rate of 15% in the case of savings deposit and 20% in the case of time deposit pursuant to Section 24(cc), in relation to Section 53(e), both of the Tax Code, as amended by Presidential Decree Nos. 1156 and 1739, and implemented by Revenue Regulations No. 12-80. Very truly yours, RUBEN B. ANCHETA Acting Commissioner