Building and Loan Associations Guaranteed by Home Guaranty Corp. Exempt from Corporate Income Tax

November 9, 1995 BIR RULING NO. 177-95 21 (c) (1), 24 (e) (1)-000-00-177-95 Atty. Caridad Valdehuesa Treasurer, Bureau of Treasury Palacio del Gobernador Bldg. Intramuros, Manila This refers to the faxed message sent by Acting Secretary Ms. Cecilia G. Soriano dated October 30, 1995 requesting for reconsideration of our Ruling No. UN 330-95 dated September 18, 1995 on a proposed DOF Circular which states in part as follows: "The final withholding tax collected at issue date of government securities shall be inclusive of all taxes in the secondary market trading of government securities, e.g., income tax, capital gains tax, transaction tax and documentary stamp tax." In reply, please be informed that after a careful restudy made on the said request, this Office has finally decided to modify our opinion in BIR No. UN-330-95 dated September 18, 1995. The total discount of coupon bearing government securities and other similar instruments with maturities of more than one (1) year shall be considered earned in the year of sales based on current values. It shall be the duty of the issuing agency to remit the corresponding 20% final income tax withheld on discounts valued at present value on every original sales in the primary market within the period specified under Revenue Regulations No. 17-84. For this purpose, the withholding tax therein shall be accompanied by a statement showing, among others, the face value of the notes, the selling price, the discount sales, the volume of transactions for the day and the aggregate volume of the authorized government notes issued. The final tax and the interest due as evidenced by internal coupon shall be due and payable upon payment on every date of payment stipulated in the covenants for its issuance and the corresponding documentary stamp tax on original issue shall be collected by the issuing agency within the prescribed period. As regards long-term government securities, the series of which have already been authorized and sold, the discounts applicable to future years shall continue to be valued at future values and the corresponding final tax shall be withheld and remitted every anniversary date of issue or on the specified maturity dates of the said security. (BIR Ruling dated June 16, 1987) By and large, the 20% final withholding tax on discounts on the said government securities (which are considered as deposit substitutes under Section 21(c)(1) and Section 24(e)(1), in relation to Section 50 (a), all of the Tax Code, as amended, collected at issue date (for government securities with maturity date of more than one year) and on the discounts applicable to future years (as regards long-term government securities), every anniversary date of issue shall be imposed only on every original sales in the primary market but shall no longer be collected in the secondary market trading of the said securities. However, we would like to reiterate our opinion in our Ruling No. UN-330-95 that since the subject government securities are considered as deposit substitutes which are alternative forms of obtaining funds from the public, their original issue shall be subject to the documentary stamp tax of Thirty centavos (P0.30) on each Two Hundred pesos, or fractional part thereof, of the face value of such government securities pursuant to Section 100 of the Tax Code, as amended. If the said government securities are in bearer form, their transfer in the secondary market by way of simple delivery to the buyer is not subject to the documentary stamp tax. (Secs. 6 and 10, Documentary Stamp Tax Regulations). prLL In other words, unless the transfer of the said government securities carries with it the renewal or issuance of new government securities in the name of the transferee to replace the old ones, no documentary stamp tax shall accrue on such transfer. (BIR Ruling No. 119-91 dated June 25, 1991). Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue