Revised Implementing Rules and Regulations of RA No. 7076, Otherwise Known as the "People's Small-Scale Mining Act of 1991"

November 20, 2000 BIR RULING NO. 063-00 Rizal Commercial Banking Corporation RCBC Building, 333 Sen. Gil J. Puyat Avenue Makati City Attention: Attys . Federico P . Tancongco Assistant Vice-President-Trust Legal Counsel and Alberto L. Monreal First Vice President-Trust Officer Gentlemen : This refers to your letter dated January 24, 2000 requesting for a ruling as to whether or not the interest income from long term deposit in the form of common trust fund established by Rizal Commercial Banking Corporation (RCBC), through its Trust and Investments Division, is exempt from the 20% final withholding tax imposed under Section 24(B)(1) of the Tax Code of 1997. It appears that the RCBC Long Term Common Trust Plan is a common trust fund (CTF) established and administered by RCBC, through its Trust and Investments Division, as a medium through which trust funds from individual investors are pooled together for collective long-term investment and reinvestment; that the participation of individual investors shall be held under the conditions provided in Section 24(B)(1) of the Tax Code of 1997; that the Plan Rules governing the establishment and administration of the CTF has already been approved by the Bangko Sentral ng Pilipinas (BSP); that an individual investor shall become a participant in the CTF upon the execution of the Trust Agreement and delivery to RCBC of the trust fund; that in the administration and management of the Fund, RCBC, as Trustee, shall have the exclusive power and authority to hold, manage, administer, convert, sell, assign, invest, reinvest, deal with the assets of the Fund and additions thereto to the same extent and with the same effect as might legally be done by owners of property; that the discretion of the Trustee is limited by the terms and conditions of the Trust Agreement and of the Plan Rules; that the beneficial ownership of the trust fund remains with the individual investor; that all taxes incident to the investment activities of the fund will be borne by the investor; that as Trustee, RCBC will not participate in the risks or in the income derived from the investment activities of the CTF; that RCBC's remuneration under the CTF shall be limited to trust fees; and that RCBC's application for a certificate of tax exemption is made in connection with Section 5 of the Memorandum dated January 3, 2000 issued by the Bangko Sentral ng Pilipinas (BSP) to all banks performing trust, other fiduciary business and investment management activities, amending for this purpose Monetary Board Resolution No. 1748 dated December 10, 1999 to include long term investment certificates in the form of common trust funds (CTFs), individual trust and investment management accounts that may qualify for tax exemption under Section 24(B)(1) of the Tax Code of 1997. TcADCI In reply thereto, please be informed that Section 24(B)(1) of the Tax Code of 1997 provides that a final tax at the rate of twenty percent (20%) is hereby imposed upon the amount of interest from any currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangements; . . .: Provided, further, That interest income from long term deposit or investment in the form of savings, common or individual trust funds, deposit substitutes, investment management accounts and other investments evidenced by the certificates in such form prescribed by the Bangko Sentral ng Pilipinas (BSP) shall be exempt from the tax imposed under this Subsection: Provided, finally, That should the holder of the certificate preterminate the deposit or investment before the fifth (5th) year, a final tax shall be imposed on the entire income and shall be deducted and withheld by the depository bank from the proceeds of the long-term deposit or investment certificate based on the remaining maturity thereof: "Four (4) years to less than five (5) years 5% Three (3) years to less than four (4) years 12%; and Less than three (3) years 20% Under Section 2 of the Memorandum to All Banks Performing Trust, Other Fiduciary Business and Investment Management Activities, dated January 3, 2000, the following shall be the feature/requirements of CTFs which may qualify for exemption from the 20% final tax under Section 24(B)(1) of the 1997 Tax Code: "a. The tax exemption shall apply to CTFs established on or after the effective date of this Memorandum; "b. The CTF indenture or plan as well as evidences of participation shall clearly indicate that participants shall be limited to individual trustors/investors who are Filipino citizens or resident aliens and that participation is non-negotiable and non-transferable; "c. The date of contributions to the CTF shall be clearly indicated in the evidence of participation for tax exemption purposes; "d. The CTF indenture/plan as well as the evidence of participation shall indicate that pursuant to Section 24(B)(1) of R.A. 8424, interest income of the CTF derived from investments in interest-bearing instruments (e.g. time deposits, government securities, loans and other debt instruments) which are otherwise subject to the 20% final tax shall be exempt from said final tax provided participation in the CTF is for a period of at least five (5) years. If participation is for a period less than five (5) years, interest income shall be subject to a final tax which shall be deducted and withheld based on the following schedule Participation Period Rate of Tax Four (4) years to less than five (5) years 5% Three (3) years to less than four (4) years 12% Less than three (3) years 20% Necessarily, the date of contribution shall be clearly indicated in the evidence of participation which shall serve as basis for determining the participation period of each participant; and STHAaD "xxx xxx xxx" It appears that the Common Trust Fund (CTF) established by the RCBC conforms with the features of CTFs which may qualify for exemption from the 20% final withholding tax under Sections 24(B)(1) and 25(A)(2) of the Tax Code. Such being the case, the interest income derived by individual citizens, individual resident aliens and non-resident alien individuals engaged in trade or business within the Philippines from the 5-year Long Term Common Trust Fund established by RCBC through its Trust and Investment Division shall be exempt from the final withholding tax of 20% imposed under Sections 24(B)(1) and 25(A)(2), both of the Tax Code of 1997. Consequently, the interest income derived by the RCBC Common Trust Fund is also exempt from such final withholding tax provided that the fund was held by the trustee-bank for at least five (5) years. However, if the participation is for a period of less than 5 years, the interest income shall be subject to a final withholding tax which shall be deducted and withheld from the proceeds of said investment and which shall be computed in accordance with the pre-termination rate schedule under Secs. 24(B)(1) and 25(A)(2) of the Code. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) DAKILA B. FONACIER Commissioner of Internal Revenue