BIR Ruling [UN-213-94]

July 14, 1994 BIR RULING [UN-213-94] Atty. Caridad Valdehuesa Treasurer Bureau of the Treasury Palacio del Gobernador Bldg. Intramuros, Metro Manila M a d a m : In connection with the proposed formula on the computation of the 20% withholding tax on the yield and/or interest income on the proposed 2-year fixed rate treasury notes presented by the Authorized Government Securities Dealers, enclosed herewith is BIR Ruling dated June 10, 1987 addressed to the Treasurer of the Philippines and the Director, Government Securities Department, Central Bank of the Philippines and the Interagency Committee on Government Securities Market also of the CBP where this Office ruled that the total discount of coupon-bearing government securities and other similar instruments (with maturity of more than one (1) year) can be considered earned in the year of sales based on present values to enable your Office and that of the CBP to consider the discount and the corresponding tax "at front" thereby facilitating the marketability of such securities both in the primary and secondary market, subject to the terms and conditions stated herein. Said ruling should be followed in subsequent issuances of treasury notes. The yield or any other monetary benefit from paid treasury notes is subject to the 20% final withholding tax under Section 21(c)(1) or Section 24(e) (1) in relation to Section (a) all of the Tax Code, as amended. Moreover, the premium or income from trading of said treasury notes is subject to income tax at the rates prescribed under Section 21(f) of the Tax Code in case of a citizen or resident trader, or as prescribed under Section 24(a) in case of a domestic corporation trader. Furthermore, since the treasury notes to be issued by the National Government are considered as deposit substitutes which are alternative forms of obtaining funds from the public, other than deposits through the issuance, endorsement or acceptance of debt instruments for the purpose of financing its own needs (public expenditures), [Sec. 20(y), Tax Code, as amended by P.D. No. 1959; Secs. 2(b) and (h), Revenue Regulations No. 17-84 dated October 12, 1984], their original issue shall be subject to the documentary stamp tax of thirty centavos on each two hundred pesos or fractional part thereof, of the face value of such treasury notes pursuant to Section 180 of the Tax Code, as amended. However, if the treasury notes are in bearer form, the transfer of said notes 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). In other words, unless the transfer of treasury notes carries with it the renewal or issuance of new treasury notes 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) cdtech Very truly yours, ALICIA P. CLEMENO Acting Assistant Commissioner (Legal Service)