Publishing Sections 30(b) (1) and 53(c), (e) of the National Internal Revenue Code of 1977

August 4, 1977 REVENUE MEMORANDUM CIRCULAR NO. 37-77 SUBJECT : Publishing Sections 30(b) (1) and 53(c), (e) of the National Internal Revenue Code of 1977 TO : All Internal Revenue Officers and others concerned For the information and guidance of all concerned, there is quoted below Section 30(b)(1) and 53(c), (e) of the National Internal Revenue Code of 1977 as promulgated under Presidential Decree No. 1158. "SEC. 30. . . . "(b) Interest : "(1) In general . The amount of interest paid within the taxable year on indebtedness, except on indebtedness incurred or continued to purchase or carry obligations the interest upon which is exempt from taxation as income under this Title: Provided , however , that interest on deposits paid by authorized agent banks of the Central Bank of the Philippines to depositors shall be allowed as a deduction only if it is shown that the tax on such interest was withheld and paid in accordance with the provisions of Sections 53 and 54 of this Code. "SEC. 53. Withholding of tax at source . (a) Tax-free covenant bonds . (1) Requirements of withholding. xxx xxx xxx (2) Benefit of exemption against net income . (b) Nonresident aliens and foreign corporations . (1) Nonresident aliens . xxx xxx xxx "(c) Resident alien individuals and corporations . Dividends received by individuals residing in the Philippines from a domestic corporation, as well as royalties in any form received by such individuals and domestic and/or resident foreign corporations from any person whether natural or juridical shall be subject to withholding tax at source at the rate of 10% thereof. The tax shall be withheld by the payor-corporation and/or person and paid in the same manner and subject to the same conditions as provided in section 54 of the National Internal Revenue Code, Provided , however , That the tax withheld under this sub-paragraph shall be credited against the income tax liability of the recipient taxpayer for the taxable year. "(d) Withholding on certain dividends. xxx xxx xxx "(e) Withholding tax on interest on bank deposits . (1) Rate of withholding tax . Every bank or banking institution shall deduct and withhold from the interest on bank deposits (except interest paid or credited to nonresident alien individuals and foreign corporations) a tax equal to fifteen per cent of the said interest: Provided , however , That no withholding of tax shall be made if the aggregate amount of the interest on all deposit accounts maintained by a depositor alone or together with another in any one bank at any time during the taxable period does not exceed three hundred fifty pesos a year or eighty-seven pesos and fifty centavos per quarter. For this purpose, interest on a deposit account maintained by two persons shall be deemed to be equally owned by them. "(2) Treatment of bank deposit interest. The interest income shall be included in the gross income in computing the depositor's income tax liability in accordance with existing law. "(3) Depositors enjoying tax exemption privileges or preferential tax treatment . In all cases where the depositor is tax-exempt or is enjoying preferential income tax treatment under existing law, the withholding tax imposed in this paragraph shall be refunded or credited as the case may be upon submission to the Commissioner of Internal Revenue of proof that the said depositor is a tax-exempt entity or enjoys a preferential income tax treatment. "(4) Manner of withholding . Without divulging the names of the depositors, the tax shall be withheld by the bank and paid in the same manner and subject to the same conditions provided in section 54 of this Code. "(f) Other cases of withholding tax at source . xxx xxx xxx" FEATURES OF THE AMENDMENT Section 30(b) (1) In addition to the statutory requirements for the deductibility of interest, authorized agent banks of the Central Bank of the Philippines are required to show that the tax of 15% on interest on bank deposits was withheld and paid in accordance with the provisions of Section 53 and 54 of the Tax Code, before they can be allowed to deduct such interest from gross income. Section 53 1. Dividends paid by a domestic corporation to individuals residing in the Philippines are subject to withholding tax at the rate of 10%. Also, royalties in any form paid by a natural or juridical person is subject to withholding tax at the same rate. The tax so withheld is creditable against the income tax liability of the recipient taxpayer. 2. Interest on bank deposits is subject to a creditable withholding tax of 15%. The bank is not obliged to withhold the tax on interest which does not exceed P350 a year or P87.50 per quarter. Since the withholding tax is creditable, the depositor is required to include his interest income in his gross income in computing his income tax liability. The withholding tax shall be refunded or credited to a depositor which is tax exempt or is enjoying preferential income tax treatment under existing laws upon submission to the Commissioner of Internal Revenue of proof that the said depositor is actually tax exempt or actually enjoys a preferential tax treatment. The tax shall be withheld and paid in the same manner as provided in Sections 53 and 54, except that the names of the depositors shall not be divulged by the bank. EFFECTIVITY The above quoted provisions took effect on June 3, 1977. ENFORCEMENT All internal revenue officers and others concerned are enjoined to be guided accordingly and to give this circular as wide a publicity as possible. aisa dc EFREN I. PLANA Acting Commissioner of Internal Revenue TAN-P4519-F2828-A-8