Clarifying the Provisions of Revenue Regulations No. 10-86, Amending Revenue Regulations No. 17-84 on Income Taxation of Interest Income from Deposits and Yield from Deposit substitutes

August 11, 1986 REVENUE MEMORANDUM CIRCULAR NO. 28-86 SUBJECT : Clarifying the Provisions of Revenue Regulations No. 10-86, Amending Revenue Regulations No. 17-84 on Income Taxation of Interest Income from Deposits and Yield from Deposit substitutes TO : All Internal Revenue Officers and Others Concerned For the guidance of all concerned, the following guidelines are hereby promulgated: 1. Revenue Regulations No. 10-86, amended Section 3 of Revenue Regulations No. 17-84. The coverage includes a final withholding tax on interest from Philippine Currency bank deposits and yield or any other monetary benefits from deposit substitutes and from trust fund and similar arrangements received by citizens, resident alien individuals, and domestic and foreign resident corporations at the rate of 20%, effective August 1, 1986 . acd 2. The exemptions from the imposition of the 20% final withholding tax are the following. a) Yield on debt instruments with maturity of not more than five (5) days, issued specifically on interbank call or loans to cover deficiency in reserves against deposit liabilities as evidenced by interbank loan advice or repayment transfer tickets. b) Income received from their investments in the Philippines in loans, stocks, bonds or other domestic securities, or from interest on their deposits in banks in the Philippines (1) foreign governments, (2) financing institutions owned, controlled, or enjoying refinancing from them, and (3) international or regional financing institutions established by foreign governments. 3. In conformity with the procedures established in Revenue Regulations No. 17-84 and Revenue Memorandum Circular No. 39-85, the following rules of implementation shall be adopted: a) Interest on savings and time deposit . In general, the rate of final withholding tax to be imposed shall be 20%, based on gross interest earned or accrued beginning August 1, 1986. b) Yield on deposit substitutes . In general, the final withholding tax shall be 20% of the interest and/or yield on deposit substitute instruments issued, beginning August 1, 1986. acd c) Transitory Rules Notwithstanding the general rules above, the specific rules set forth below, shall be applied: (1) For deposits, deposit substitutes, and from trust funds and similar arrangements, the yield from which were paid in advance and where the prevailing rate of withholding tax at the time of placement have already been discounted or deducted, no additional withholding tax shall be imposed. (2) For deposits, deposit substitutes, and from trust funds and similar arrangements, the maturities of which fall after August 1, 1986, on which no withholding tax has been discounted or deducted, the tax shall be applied as follows: a) Interest/yield earned or accrued from October 15, 1984 up to December 31, 1985 subject to 15% withholding tax; b) Interest/yield earned or accrued from January 1, 1986 to July 31, 1986 subject to 17.5% final withholding tax; and c) Interest/yield earned or accrued from August 1, 1986 subject to 20% withholding tax. cd All internal revenue officers and others concerned are enjoined to give this Revenue Memorandum Circular the widest publicity possible. (SGD.) BIENVENIDO A. TAN, JR. Commissioner of Internal Revenue