Bangko Sentral ng Pilipinas (BSP) Circular Letter on the Imposition of Local Business Tax on Banks and Other Banking Institutions

August 10, 2018 BLGF MEMORANDUM CIRCULAR NO. 016-18 TO : All Regional Directors for Local Government Finance; All Provincial, City and Municipal Assessors and Treasurers; and Others Concerned SUBJECT : Bangko Sentral ng Pilipinas (BSP) Circular Letter on the Imposition of Local Business Tax on Banks and Other Banking Institutions This Memorandum Circular is issued to inform and enjoin the compliance by all concerned on the proper guidelines governing the imposition of local business tax (LBT) on banks and other financial institutions to ensure compliance by banks of relevant and existing policies of the Department of Finance (DOF) on situs of local taxation. HTcADC It has come to the attention of this Bureau and the DOF that there are Head Offices of banks that are not complying with the rule on situs of the tax on banks and banking institutions for purposes of local taxation. This was likewise raised by legislators in various committee hearings on local finance issues. Pursuant to Article 287 of the Implementing Rules and Regulations (IRR) of the Local Government Code (LGC) of 1991, the DOF issued Local Finance Circular (LFC) 1-93, dated 16 June 1993, prescribing the guidelines governing the power of municipalities and cities to impose business tax on banks and other banking institutions pursuant to Sections 143 (f) and 151 thereof. Section 5 of the LFC provides, as follows: " Section 5 . Situs of the Tax . For purposes of collection of the tax, the following shall apply (a) All transactions filed with or negotiated in the branch shall be recorded in said branch and the gross receipts derived from said transactions shall be taxable by the city or municipality where such branch is located. This rule shall be applied to: (1) Transactions negotiated with and approved by the branch manager under his own authority; or (2) Transactions filed and negotiated in the branch but being beyond the approving authority of the branch manager, are forwarded to the head office for final approval. (b) The gross receipts derived from transactions made by the Head Office, except gross receipts recorded in the branches shall be taxable by the city or municipality where said head office is located." On 26 February 2007, the DOF, thru this Bureau, issued LFC No. 2-07, amending Sections 2 and 5 of LFC No. 1-93, quoted as follows: CAIHTE " Section 2 . Tax on Gross Receipts of Banks and Banking Institutions . x x x . . . At the time of the annual payment of the tax due, the Head Office or branch of a bank shall submit to the LGU concerned a notarized Joint Statement of Annual Income [Schedule of Annual Income] for the preceding calendar year, in accordance with a sample form hereto attached as 'Annex A' which shall be signed by a designated Officer of the Head Office and by the Branch Manager . xxx xxx xxx Section 5. Situs of the Tax . x x x . . . (3) transaction where the stated address in the loan application of the borrower is the city or municipality where the Bank has a branch, in which case the Head Office upon approval of the loan shall credit the transaction to the Bank Branch." It appears, however, that the gross receipts derived from loans approved by the Head Office are recorded thereat and taxable by the LGU where such Head Office is located, disregarding the address in the loan application, thus, depriving the LGU where its branch office is located the revenues due the said LGU to fund the delivery of basic services to their respective constituents. In view of this, the BSP issued Circular Letter No. CL-2017-009, copy hereto attached, reminding all banks under its supervisory and regulatory powers to ensure compliance with the existing regulations set forth by the DOF. The Regional Directors of this Bureau are hereby instructed to immediately and widely disseminate the contents of this Circular to all Provincial, City and Municipal Treasurers and others concerned within their respective jurisdictions for information and guidance. Be guided accordingly. (SGD.) NIO RAYMOND B. ALVINA OIC Executive Director ATTACHMENT BANGKO SENTRAL NG PILIPINAS Office of Supervisory Policy Development January 5, 2018 MR. NIO RAYMOND B. ALVINA OIC Executive Director Bureau of Local Government Finance Department of Finance 8th Floor, EDPC Building, BSP Complex, Roxas Boulevard, 1004 Manila Dear Mr. Alvina: Subject: Situs of Taxation on Banks and Banking Institutions This refers to the letter of the Bureau of Local Government Finance (BLGF) requesting the assistance of the Bangko Sentral ng Pilipinas (BSP) to ensure compliance by banks of relevant Department of Finance (DOF) Circulars on situs of local taxation. aScITE In this regard, kindly find attached Circular Letter No. CL-2017-079 dated 27 December 2017 addressed to all the BSP-Supervised Financial Institutions reminding said institutions of the provisions of DOF Local Finance Circular No. 2-07 dated 26 February 2007 on the imposition of local business tax. A copy of Circular Letter No. CL-2017-079 is attached. It may likewise be accessed at http://www.bsp.gov.ph/regulations/regulations.asp?type=2&id=3904. We hope that the BSP has been of assistance to the BLGF. Very truly yours, (SGD.) VERONICA B. BAYANGOS Director ATTACHMENT December 27, 2017 BSP CIRCULAR LETTER NO. CL-2017-079 TO : All BSP-Supervised Financial Institutions SUBJECT : Department of Finance Local Finance Circular No. 2-07 Dated 26 February 2007 on the Imposition of Local Business Tax All BSP-supervised financial institutions are reminded of the provisions of Local Finance Circular (LFC) No. 2-07 dated 26 February 2007, amending LFC No. 1-93 dated 16 June 2003, issued by the Department of Finance, prescribing the guidelines governing the imposition of local business tax on banks and other banking institutions by municipalities and cities pursuant to Sections 143 (f) and 151 of the Local Government Code. A copy of LFC No. 2-07 is hereto attached for reference. For information and guidance. aDSIHc (SGD.) LYN I. JAVIER Sector-in-Charge ATTACHMENT DOF Local Finance Circular No. 002-07 February 26, 2007