Person Having the Receipt of Interest Income from Funds of a Client is Liable to Withhold the 20% Final Tax on Yeld or Income

December 17, 1987 BIR RULING NO. 403-87 25 (a) (6) (A) 51 (a) 089-87 403-87 Gentlemen : This refers to your letters dated December 8 and 10, 1987 requesting a ruling as to whether you are authorized to withhold the 20% final tax on interest income from funds (money market placement) placed with you by a multinational client. It is represented that you are a financial services company engaged primarily in investment packaging, trading of securities and financial consultancy; and that the money market placement will be secured by an assignment of receivables and will earn interest at 18% p.a. and will have a maturity of 90 days renewable every 90 days at your client's option. In reply thereto, I have the honor to inform you that pursuant to Section 20(y), of the Tax Code, as amended, deposit substitutes shall mean an alternative form of obtaining funds from the public other than deposits, through the issuance, endorsement, or acceptance of debt instruments for the borrower's own account, for the purpose of relending or purchasing of receivables, and other obligations, or financing their own needs or the needs of their agent or dealer. These instruments may include but need not be limited to banker's acceptance, promissory notes, repurchase agreements, certificates of assignment or participation and similar instruments with recourse as may be authorized by the Central Bank of the Philippines, for banks and non-bank financial intermediaries or by the Securities and Exchange Commission for commercial, industrial, finance companies and other non-financial companies. Moreover, pursuant to Section 25(a)(6)(A) in relation to Section 51(a) of the Tax Code as amended by Executive Order No. 37, interest on Philippine currency bank deposits and yield or any other monetary benefits from deposit substitutes and from trust fund and similar arrangements and royalties derived by resident foreign corporations from sources within the Philippines shall be subject to a final withholding tax of 20%. Likewise, every individual, corporation, partnership or association, in whatever capacity acting having the control, receipt, custody, disposal and payment of such interest income shall deduct and withhold the 20% final tax on such interest income before paying such income to the person entitled thereto pursuant to Section 25(a) (6)(A) in relation to Section 51(a) of the Tax Code, as amended by Executive Order No. 37, (see also Sec. 53, Tax Code) Accordingly, as the person having the receipt, control, custody, disposal and payment of said interest income, you are liable to withhold the 20% final tax on said yield or income before paying the same to the person entitled thereto. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner