Bank Tax Regulations

July 29, 1927 DOF REGULATIONS NO. 057-27 1 SUBJECT : Bank Tax Regulations TO : All Internal Revenue Officers and Others Concerned SECTION 1. Promulgation of Regulations. In accordance with the provisions of section 79 (B) of the Administrative Code, as amended by section 2 of Act No. 2803, and Article VII, sections 1499 to 1506 of the same Code, the following regulations regarding the administration of the law on taxes on resources of banks, are hereby promulgated, and all circulars, rulings, and precedents inconsistent therewith are hereby revoked. These regulations shall be known as the "Bank Tax Regulations" or Regulations No. 57. SECTION 2. Bank Defined. For the purposes of these regulations, the term "bank" includes every incorporated or other bank, and every person, association, or company having a place of business where credits are opened by the deposit or collection of money or currency subject to be paid or remitted upon draft, check or order, or where money is advanced or loaned on stocks, bonds, bullion, bills of exchange, or promissory notes are received for discount or for sale. (Sec. 1499, Administrative Code.) PART I Tax on Capital SEC. 1499. Tax on capital, deposits, and circulation of banks. Subject to the exemptions herein made there shall be collected from banks the following taxes on capital, deposits, and circulations: (a) Upon the capital employed by the bank, for each month, one twenty-fourth of one per centum. xxx xxx xxx "Capital employed" does not include money borrowed or received from time to time in the usual course of business from any person not a partner of or interested in such bank; and no tax shall be imposed on the capital employed by any person whose sole business is lending money on real-estate security. SEC. 1502. Computing resources of bank incorporated abroad. The amount of capital used by a bank within the Philippine Islands, when such bank is a branch of a bank incorporated under laws of the United States or a foreign country, shall, for the purposes of assessment hereunder, be determined in the following manner: The total amount of the capital of the bank shall be ascertained, and, likewise, the total amount of the net earnings of the bank accruing during the preceding six months, and also the total amount of the net earnings accruing from the bank's business conducted in the Philippine Islands; and such a proportion of the total capital of the bank shall be deemed to have been employed in the Philippine Islands as the net earnings in the Philippine Islands bear to the total net earnings of the bank. SECTION 3. "Capital Employed" Defined. "Capital employed" by a bank, as herein used, includes, for the first month of the half-year period, the paid-up capital, reserves, surplus and undivided profits (except dividends declared during the period), and all moneys borrowed or received from persons who are partners of or are interested in such bank; and for subsequent months of the period, the same capital plus the net profits earned and all moneys received from persons who are partners of or are interested in such bank, during the month preceding that for which the tax is computed. aDcHIS SECTION 4. What is Not Included in the Term "Capital Employed." In accordance with the provisions of the last paragraph of section 1499 of the Administrative Code, the term "capital employed" does not include money borrowed or received from time to time in the usual course of business from any person not a partner of or interested in such bank; and no tax shall be imposed on the capital employed by any person whose sole business is lending money on real-estate security. The amounts coming within the purview of this section (of these regulations) are not subject to the tax on "capital employed." SECTION 5. Proportion of "Capital Employed" in the Philippines by Banks Incorporated Abroad. The amount of capital used by a bank incorporated in the Philippine Islands can be readily ascertained from its books, and no special method is prescribed for ascertaining such amount of capital. In computing, for the purposes of this tax, the amount of capital employed by a bank in the Philippine Islands, when such bank is a branch of a bank incorporated under the laws of the United States or a foreign country, take the ratio of the net earnings of the branch in the Philippine Islands to the total net earnings of the bank within and without the Philippine Islands. Such ratio will then be deemed to be the proportion of capital employed in the Philippine Islands to the total capital of the bank. To illustrate, suppose: A represents the net earnings in the Philippine Islands; B the net earnings within and without the Philippine Islands; C the total capital of the bank; and X the capital employed in the Philippine Islands which is to be found; the proportion would be: B: A: : C: X. Let us say: A P1,000,000 B 10,000,000 C 120,000,000 Then the proportion of capital employed in the Philippine Islands would be: P10,000,000: P1,000,000: : P120,000,000: X or X P12,000,000 In this example, the capital employed in the Philippine Islands is P12,000,000. SECTION 6. Computing Tax Due When Proportion of Earnings of Local Branch of a Foreign Bank has been Ascertained. Since the tax on capital is computed on the capital employed each month, and it being impracticable to ascertain said capital monthly, the net gain of the bank for the entire six-month period is divided by six to obtain the average monthly gain. The capital of the first month of the period is that ascertained in the following manner: For the first month of the half-year period the capital employed is the paid-up capital, reserves, surplus, and undivided profits (except dividends declared during the preceding month). For the second month, the capital employed is the total capital for the first month plus the average net profit for that month. The capital for the third month is that ascertained for the second month plus the average net profit for that month, and so on up to the last month of the period. The total of the monthly capitals so ascertained is then divided by six to obtain the average capital employed during the half-year period under consideration, and from that amount the proportion of capital employed in the Philippines is computed in accordance with the ratio obtained under section 5 hereof. EXAMPLE At the close of the second half of the year 1922 Bank A of New York, of which Bank B in Manila was a branch, had a paid-up capital of $10,000,000, reserves aggregating $16,000,000, a surplus of $3,000,000, and undivided profits amounting to $3,000,000, or a total capital of $32,000,000. Its total net profits during the first half of the year 1923 amounted to $3,000,000, while those of Bank B in Manila amounted to P510,000 or $255,000. The proportion that the net earnings of Bank B bears to those of Bank A is then ascertained to be 8-1/2%. The average capital of Bank A, from which the 8-1/2% will be taken as the taxable proportion used by Bank B, is then ascertained as follows, the average monthly profit being $500,000 ($3,000,000 divided by 6): Bank's capital on January 1, 1923 $32,000,000.00 January profits (average) 500,000.00 Capital for February, 1923 32,500,000.00 February profits (average) 500,000.00 Capital for March, 1923 33,000,000.00 March profits (average) 500,000.00 Capital for April, 1923 33,500,000.00 April profits (average) 500,000.00 Capital for May, 1923 34,000,000.00 May profits (average) 500,000.00 Capital for June, 1923 34,500,000.00 SUMMARY Capital employed in January 32,000,000.00 Capital employed in February 32,500,000.00 Capital employed in March 33,000,000.00 Capital employed in April 33,500,000.00 Capital employed in May 34,000,000.00 Capital employed in June 34,500,000.00 Total 199,500,000.00 Average capital employed by Bank A during the period ($199,500,000 divided by 6) $33,250,000. Capital used by Bank B (8-1/2% of $33,250,000) during period $2,826,250, or P5,652,500. Tax (1/24 of 1%) P2,355.21 for 1 month, or P14,131.26 for the six months. SCHcaT PART II Tax on Deposits SEC. 1499. Tax on capital, deposits, and circulation of banks. Subject to the exemptions herein made there shall be collected from banks the following taxes on capital, deposits, and circulation: xxx xxx xxx (b) Upon the average amount of deposits of money, subject to payment by check or draft, or represented by certificates of deposit or otherwise, whether payable on demand or at some future day, for each month, one-eighteenth of one per centum. SEC. 1503. Exemption of savings institutions. The deposits in associations or companies known as provident institutions, savings banks, savings funds, or savings institutions, having no capital stock and which do no other business than receiving deposits to be loaned or invested for the sole benefit of the parties making such deposits and without profit or compensation to the association or company, shall be exempt from this tax on so much of their deposits as such institutions have invested in securities satisfactory to the Insular Treasurer and on all deposits, not exceeding four thousand pesos, made in the name of any one person. SECTION 7. Deposits Defined. The term "deposit" includes such account as the following, or their equivalent, different banks using different names for some of these accounts: Demand Certificates of Deposit; Time Certificates of Deposits; Certified or Accepted Checks; Manager's, Treasurer's, and Cashier's Checks (when issued in lieu of certified or accepted checks); Due to Provincial Governments; Due to Individuals and Firms or Current Accounts; Due to Domestic Banks (Clearing Accounts); Due to Foreign Banks ("Their Account" or "Inward"); and all other accounts that represent amounts held by the bank subject to payment by check or draft, or represented by certificates of deposit, or otherwise, whether payable on demand or at some future time. SECTION 8. Balances Due to Foreign Banks. Balances due to foreign banks, which are the result of overdrafts incurred by the local banks in their accounts with such foreign banks, are not taxable, it being understood that such balances are not subject to check or draft. However, should there be an arrangement whereby such balances would be subject to check or draft, then they would fall under the meaning of "deposits" as defined in section 7 hereof, and would then be subject to tax. SECTION 9. Exemption of Savings Institutions. According to the provisions of section 1503 of the Administrative Code aforequoted, savings institutions known as provident institutions, savings banks, savings funds, or savings institutions with no capital stock and doing no other business than receiving deposits to be loaned or invested for the sole benefit of the parties making such deposits and without profit or compensation to the institution, are exempt from this tax on that amount of their deposits invested in securities satisfactory to the Insular Treasurer and on all deposits not exceeding P4,000 made in the name of any one person. PART III Tax on Circulation SEC. 1499. Tax on capital, deposits, and circulation of banks. Subject to the exemptions herein made there shall be collected from banks the following taxes on capital, deposits, and circulation: xxx xxx xxx (e) Upon the average amount of circulation issued by the bank, including as circulation all notes and other obligations calculated or intended to circulate or be used as money, but not including such as may be retained in the vault of the bank or redeemed and on deposit for said bank, for each month, one-twelfth of one per centum. SEC. 1504. Exemption in case of reduced circulation. When the outstanding circulation of any bank is reduced to an amount not exceeding five per centum of the chartered or declared capital existing at the time the same was issued, such circulation shall be free from taxation; and when any bank which has ceased to issue notes for circulation deposits with the Insular Treasurer, in lawful money, the amount of its outstanding circulation to be redeemed at par, under such regulations as the Insular Treasurer may prescribe, it shall be exempt from any tax upon said circulation. ISCHET SECTION 10. Tax on Circulation. The tax on circulating notes issued by a bank is one-twelfth of 1 per centum for each month upon the average amount. The tax is based on the value of all notes and other obligations calculated or intended to be circulated or used as money issued by the bank, but excluding such as are actually retained in its vaults or redeemed and on deposit for said bank. SECTION 11. Exemption in Case of Reduced Circulation. A bank which has reduced its circulation is exempt from the payment of the tax on circulation ( a ) when its outstanding circulation is reduced to 5 per centum or less of the chartered or declared capital existing at the time the circulation was issued, or ( b ) when, having ceased to issue notes for circulation, it deposits with the Insular Treasurer, in lawful money, the amount of its outstanding circulation to be redeemed at par, under such regulations as may be prescribed by the Insular Treasurer. PART IV General Administrative Provisions SEC. 1500. Time for payment of tax. Increase of tax in case of delinquency. These taxes shall be due at intervals of six months namely, on the first of January and July for the respective preceding half-year periods; and if any such tax remains unpaid for four months thereafter the amount of the tax shall be increased by twenty-five per centum, the increment to be a part of the tax. cHDaEI SEC. 1501. Banker's semiannual report of business done. A report of the monthly amount of capital, deposits, and circulation shall be rendered on or before the first of May and first of November of each year by each bank subject to the tax above prescribed, with a declaration annexed thereto under oath of the president, cashier, manager, or proprietor to the effect that such report contains a true, faithful, and correct statement of the amounts subject to tax as aforesaid for the period therein covered. SECTION 12. Time for Payment of Tax. The taxes on capital employed, deposits or circulation are due and payable at intervals of six months, namely, on the 1st day of January and July, for the respective preceding half-year periods. SECTION 13. Increase of Tax in Case of Delinquency. If any such tax remains unpaid for four months after it has become due and payable, the amount thereof shall be increased by 25 per centum, the increment being considered as part of the tax. No extension of time can be granted for the payment of these taxes. SECTION 14. Banker's Semiannual Report. Every bank subject to these taxes shall render on or before the 1st day of May and the 1st day of November of each year a report of its monthly amount of capital, deposits, and circulation during the respective preceding half-year period, with a declaration under oath of the president, manager, cashier, or proprietor, to the effect that such report contains a true, faithful, and correct statement of the amounts subject to tax for the period covered. This report is required to be rendered in duplicate in B.I.R. Form No. 6.01 (old B.I.R. Form No. 34), and may be filed either with the Collector of Internal Revenue directly or with the treasurer of the municipality or city in which the bank or branch bank has its principal office in the Philippine Islands. Branches of foreign banks doing business in the Philippine Islands shall fill the blanks on the reverse side of said form. As in the case of payment of taxes, no extension can be granted for filing this report. SECTION 15. Banker's Semiannual Report When No Tax on Capital Accrues. In the case of branches of foreign banks doing business in the Philippine Islands, when there has been no profit during the period covered, so that no tax on capital accrues, that fact must be indicated by a brief statement on the line provided for in said B.I.R. Form No. 6.01 for the average amount of capital employed, by writing therein "Not subject to capital tax operated at loss," or words to that effect, and a profit and loss statement shall be attached. The blanks on the reverse side of said form should also be filled in. SECTION 16. Documentary Stamp Tax. The documentary stamp taxes due on documents issued by banks or bankers in connection with their banking operations are specified in sections 31-35, 38-44, 46-50, and 203 of Regulations No. 26 of the Department of Finance, known as the Documentary Stamp Tax Regulations. The manner of paying the documentary stamp taxes is described in sections 204 and 210 of said Regulations No. 26. SECTION 17. Merchant's Tax. Banks are exempt from the payment of the merchant's tax on the sale of goods which come into their possession by virtue or as a result of banking transactions, inasmuch as they pay special taxes as banks under the Internal Revenue Law. However, if such sales are effected for the banks by a subsidiary corporation different and distinct from those operating said banks, the corresponding tax should be paid by such subsidiary corporation, the kind of tax depending upon the manner in which it effects its sales. Sales of goods acquired by banks not in pursuance or as result of ordinary banking operations are subject to the merchants' tax. SECTION 18. Income Tax. Banks are subject to the payment of income tax upon their net income, the same as any other corporation. The regulations governing this tax are promulgated in Regulations No. 20 of this Department. SECTION 19. Special Charter Banks. Banks or bankers operating under special charters are governed by the provisions of their respective charters in all that relate to taxes and the form and manner of their payment. If such charters do not contain provisions relating to matters mentioned in these Regulations then these Regulations should govern. SECTION 20. General Provision. Nothing in these Regulations should be construed as impliedly exempting banks and bankers from the payment of other taxes, not mentioned herein arising from transactions not purely of a banking nature, or of taxes, license fees and charges on properties expressly imposed by law. acHTIC PART V Penal Provisions SECTION 21. Delinquencies. Section 2723 of the Administrative Code penalizing failure or neglect to file returns of receipts, sales, or business in due time, and the filing of false or fraudulent returns, has application to similar delinquencies against the Bank Tax Law. Likewise such delinquencies may be settled extrajudicially under the authority of section 1582 as amended by section 14 of Act No. 2835. For accounting of fines imposed under section 2721, as amended by section 16, of Act No. 2835, see section 205 of Regulations No. 26. Other violations not specifically provided for are penalized under section 2741. Final Provisions SECTION 22. These Regulations shall take effect upon their promulgation in the Official Gazette. Manila, July 29, 1927. MIGUEL UNSON Acting Secretary of Finance Footnotes 1. Promulgated August 18, 1927, XXV Off. Gaz., 99, page 2107.