BIR Ruling No. 190-82

June 3, 1982 BIR RULING NO. 190-82 24 (a) 000-00 190-82 Bank of the Philippine Islands Makati, Metro Manila Attention: Mr . Manuel Q . Bengson Senior Vice-President-Treasurer Mr . Cesar A . Guce Senior Assistant Manager Treasury & Financial Institutions Division Gentlemen : This refers to your letters dated July 31 and August 11, 1981, requesting for a ruling to the effect that the payment of the 35% transaction tax imposed by Sec. 210(b) of the Tax Code shall continue until the maturity dates of commercial papers issued prior to the repeal of said provision by P.D. No. 1739 on September 17, 1980. It is represented that certain long-term commercial papers were sold and in most cases thereafter purchased or participated in by third parties when the 35% transaction tax was still in effect; and that the basic assumption upon which this long-term commercial papers were floated and subsequently sold in the open-market was that any change in the law or regulation will only have prospective effect. In reply, I have the honor to quote hereunder the repealed provision of Section 210(b) of the Tax Code: " Commercial paper transactions . There shall be levied, assessed, collected and paid on every commercial paper issued in the primary market as principal instrument, a transaction tax equivalent to thirty five per cent (35%) based on the gross amount of interest thereto as defined hereunder, which shall be paid by the borrower/issuer: Provided, however , That in case of a long-term commercial paper whose maturity exceeds one year, the borrower shall pay the tax based on the amount of interest corresponding to one year, and thereafter, shall pay the tax upon accrual or actual payment (whichever is earlier) of the untaxed portion of the interest which corresponds to a period not exceeding one year. The transaction tax imposed in this section shall be a final tax to be paid by the borrower and shall be allowed as a deductible item for purposes of computing the borrower's taxable income." cdt Under the abovequoted provision, it seems clear that the 35% transaction tax is due upon the issuance of the commercial paper. (Sec. 3, Rev. Regulations No. 7-77). Consequently, interest earned on short-term commercial paper issued before the repeal of the said provision on September 17, 1980 is subject to the 35% transaction tax, even if the note matures after said date. This conclusion finds support in the fact that in the case of said short-term commercial paper maturing for one year, which includes one issued before September 17, 1980 and maturing thereafter, the 35% transaction tax is a final tax based on the amount of interest corresponding to one year to be paid by the borrower at the time of the issuance of the commercial paper. In the case of a long-term commercial paper issued prior to September 17, 1980 and maturing thereafter for over one (1) year, the 35% transaction tax shall be paid by the borrower based on the interest for the first year. Thereafter, if the untaxed portion of the interest accrued or was actually paid after September 17, 1980, the same shall be subject to the 20% final tax to be paid by the lender/placer in accordance with P.D. No. 1739. cdtech Very truly yours, RUBEN B. ANCHETA Acting Commissioner