BIR Ruling [UN-330-95]

September 12, 1995 BIR RULING [UN-330-95] Atty. Caridad Valdehuesa Treasurer Bureau of Treasury Palacio del Gobernador Bldg. Intramuros, Manila M a d a m : This refers to your letter dated August 29, 1995 requesting opinion relative to the query of Acting Secretary Romeo L. Bernardo as to whether a DOF Circular can provide 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 thereto, please be informed that a DOF Circular can not incorporate the aforementioned provision for lack of legal basis. The aforesaid provision probably refers to coupon-bearing government securities and other similar instruments (with maturity of more than one (1) year), the total discount of which are considered earned in the year of sales based on present values. The yield or any other monetary benefit from said government securities is subject to the 20% final withholding tax under Section 21 (c) (1) or Section 24 (e) (1) in relation to Section 50 (a) all of the Tax Code, as amended. Moreover, the premium or income from trading of said government securities is subject to income tax at the rates prescribed under Section 21 (f) of the Tax Code in the case of a citizen or resident trader, or as prescribed under Section 24 (a) in the case of a domestic corporation lender. HaECDI Furthermore, since the government securities 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 fractional part thereof, of the face value of such government securities pursuant to Section 180 of the Tax Code, as amended. However, if the government securities are in bearer form, the transfer of said government securities 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 the 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). IEAHca Very truly yours, (SGD.) ALICIA P. CLEMENO Assistant Commissioner (Legal Service)