BIR Ruling [UN-051-95]

February 5, 1995 BIR RULING [UN-051-95] Hon. Jose F. Rodriguez Municipal Mayor San Marcelino, Zambales S i r : This refers to your letter dated September 5, 1994 stating that your Local Government Agency is maintaining a deposit with the Land Bank of the Philippines-Olongapo Branch; that the corresponding interest income earned therefrom are being subjected to a 20% final withholding tax; that said withholding tax is obviously in violation of Section 50 of the National Internal Revenue code, in relation to Section 4 of the Regulations on Expanded Withholding Tax, which states as follows: cd "SEC. 4. Exemptions from withholding . The withholding of tax herein prescribed shall not apply to income payments to the following: (a) National government and its instrumentalities, including Provincial, City or Municipal government, as well as government-owned or controlled corporation." and that you have discussed this problem with certain officials of the Land Bank of the Philippines Olongapo Branch and conflicting views were expressed on the matter. Based on the foregoing representation, you are now requesting, in effect, for a ruling as to whether or not the interest income being derived by your Local Government Agency on its deposit with the Land Bank of the Philippines Olongapo Branch is exempt from the 20% final withholding tax. In reply, please be informed that under Section 24(e)(1) of the Tax Code, as amended, in relation to Section 24(c) of the same Code, interest on Philippine currency bank deposits and yield or any other monetary benefit from deposit substitutes and from trust fund and similar arrangements received by domestic corporations; and royalties, derived from sources within the Philippines, shall be subject to a 20% tax. Accordingly, the interest income being derived by your Local Government Agency on its deposit with the Land Bank of the Philippines Olongapo Branch is therefore subject to the 20% final withholding tax imposed under Section 24(e)(1) of the tax Code, as amended. (BIR Ruling No. 011-91 dated January 29, 1991) The exemption from withholding tax you have cited in your said letter refers to the creditable withholding tax required under Section 50(b) of the Tax Code, as amended, as distinguished from the final withholding tax required under Section 50(a) of the Tax Code, as amended. cdi Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service)