Regulations governing the taxation of interest on deposits paid by authorized agent banks of the Central Bank of the Philippines

June 15, 1977 REVENUE REGULATIONS NO. 08-77 SUBJECT : Regulations governing the taxation of interest on deposits paid by authorized agent banks of the Central Bank of the Philippines TO : All internal revenue officers and others concerned Pursuant to the provisions of Section 326 in relation to Section 4 of the National Internal Revenue Code of 1977, the following regulations are hereby promulgated. SECTION 1. Scope . These regulations are hereby promulgated to govern the manner of taxation of interest paid on deposits by authorized agent banks of the Central Bank of the Philippines as provided in Presidential Decree No. 1156. SECTION 2. Definition of terms . For the purpose of these regulations, unless the context otherwise indicates, the following definitions of terms are hereby adopted: cdt (a) "Interest" shall mean the amount paid on savings and time deposits as prescribed by the Central Bank of the Philippines. (b) "Savings deposit" is a deposit which may be withdrawn by the depositor at any time, subject to the right of the depository bank to require reasonable prior notice in writing before withdrawal may be made. (c) "Time deposit" is a deposit which has a definite time of maturity and can not be withdrawn by the depositor until maturity except in cases of authorized pre-termination. (d) "Withholding agent" shall mean any person required to deduct and withhold any tax due under the provisions of Section 53 of the National Internal Revenue Code of 1977. SECTION 3. Rate of withholding tax to be imposed . In general, the rate of withholding tax to be imposed shall be fifteen (15%) per cent based on adjusted gross interest paid on savings and time deposits. However, where the recipient/depositor is enjoying preferential income tax treatment under existing laws the withholding tax rate to be applied shall in no case exceed the tax rate applicable to said class of taxpayer or to such type of income as shown in the certificate of preferential tax treatment issued by the Commissioner of Internal Revenue. In cases where the interest earning of a depositor exceeds P350.00 per calendar year or P87.50 per quarter thereof, the entire amount of interest earning shall be subject to withholding tax. The withholding tax herein imposed shall not apply to (i) interest on deposits in foreign currency under the Foreign Currency Deposit Law (RA 6426), the Offshore Banking Act (PD 1034) or the Expanded Currency Deposit Law (PD 1035). (ii) interest paid on deposits maintained by tax-exempt entitles as certified by the Commissioner of Internal Revenue. (iii) interest paid on all deposit accounts maintained by a depositor alone or together with another in any one bank not exceeding three hundred fifty pesos (P350.00) per calendar year or eighty seven pesos and fifty centavos (P87.50)per quarter thereof. SECTION 4. Manner of computation of tax base . The withholding tax shall be based on the adjusted gross interest paid by authorized agent banks on all savings and time deposits as computed in the manner described below. The adjusted gross interest paid is arrived at after deducting from the total interest paid the sum of (i) all interest paid to tax-exempt entities, and (ii) all interest paid on all deposit accounts maintained by a depositor alone or together with another in any one bank at any time not exceeding three hundred fifty pesos (P350.00) per calendar year or eighty seven and fifty centavos (P87.50) per quarter thereof. For this purpose, interest on a deposit account maintained by two or more persons shall be deemed to be equally owned by them. The interest accruing thereto shall be added to the interest paid on all other deposits accounts maintained by said depositors in one bank to determine whether the aggregate interest payment is subject to withholding tax. SECTION 5. Manner of filing return and payment of taxes . Within twenty-five (25) days after the end of each quarter of the calendar year, a return of the adjusted gross interest expense of the agent banks subject to withholding tax, as computed in Section 4 hereof, shall be filed with the Bureau of Internal Revenue and the withholding tax due thereon, accompanied by a corresponding return, paid to the Commissioner of Internal Revenue, Revenue Regional Director, Revenue District Officer or the Collection Agent of the City or Municipality where the authorized agent bank's principal office is located and where its books of accounts are kept. For this purpose, BIR Form No. 17-45 together with the accompanying schedules shall be used. SECTION 6. Allowability of the interest expense by banks . Only interest paid or accrued on bank deposits declared in the appropriate return (BIR Form No. 17-45 ) for purposes of determining the authorized agent banks' withholding tax liabilities under PD 1156 shall be allowed as interest expense deductible for purposes of computing its taxable income. SECTION 7. Treatment of interest earned by depositors . The aggregate interest income on bank deposits of a depositor, whether subjected to withholding tax or not, shall be included in the gross income in computing the depositor's income tax liability, in accordance with the provisions of Section 29(a) of the Tax Code of 1977. In the case of a non-resident alien individual and a non-resident corporation, the interest earned on bank deposits in foreign currency need not be declared as part of its gross income as the same is exempt from income taxation under existing laws. SECTION 8. Nature and treatment of withholding tax . The taxes deducted and withheld by the withholding agent shall be held as a special fund in trust for the government until paid to the collecting officer. With reference to the recipient/depositor, the withholding tax herein imposed shall be allowed as a credit against the amount of income tax due from said depositor. If the tax withheld from a depositor exceeds the income tax due from him, the excess shall be refunded or credited to him subject to the provisions of Section 295 of the Tax Code of 1977. However, if the tax withheld is less than the tax due from the depositor, the difference shall be paid in accordance with the provisions of Section 51 of the Tax Code of 1977. SECTION 9. Procedures in requesting for tax credit and/or a tax credit or refund of the tax withheld from his interest earning or part thereof, no bank shall issue any statement relative to the withholding tax in order to safeguard the secrecy of bank deposits. Where a depositor desires the refund or credit of the tax withheld from him or part thereof, he shall make an application in writing with the authorized agent bank on or before the 20th day of the month following the close of his accounting period and, on the basis of such application, said authorized agent shall issue a certification as to the amount of tax withheld during the taxable year. The depositor shall attach such certification to his income tax return and include as part of his gross income the interest income upon which the tax has been withheld. His income tax return shall, thereafter, be processed by the Bureau as a refundable case. The certification issued by the bank to the depositor stating the amount of tax withheld on interest earning shall only be used to prove the amount so withheld so that the same may be credited to the taxpayer. In no case shall it be used for any other purpose. Where, notwithstanding the provisions of Section 3 hereof, tax has been withheld from interest on deposit accounts maintained by a tax-exempt entity, and in the case of an entity enjoying preferential income tax treatment, the withholding tax rate applied is more than the applicable rate pertaining to said class of taxpayer or to such type of income, the total or the excess withholding tax so withheld shall be refunded or credited, as the case may be, upon filing of the appropriate tax return together with proof of tax exemption or enjoyment of a preferential income tax treatment. Thereafter, such return shall be processed by the Bureau as a refundable case. SECTION 10. Statement to be attached to the corporate tax return . There shall be attached to the final consolidated corporate return of the authorized agent bank for each taxable year, a statement setting forth in summarized form the pertinent information required by these regulations with respect to the computation of the aggregate interests paid on savings and time deposits and taxes withheld and paid to the Bureau, the specimen form of which is hereto attached. SECTION 11. Records to be kept . Every authorized agent bank shall maintain records as well as all the supporting data used in preparing the statement required to be filed under Section 10 hereof which must be made readily available at its principal place of business. SECTION 12. Declaration under penalties of perjury . The returns required to be filed by the withholding agent under these regulations shall contain a written declaration that they have been made under the penalties of perjury. SECTION 13. Penalties . In addition to civil and criminal penalties for violations of the Income Tax Laws as provided for under Sections 73, 74 and 337 of the Tax Code of 1977, the following administrative penalties incident to delinquency or deficiency prescribed in Sections 51 and 72 of the Tax Code of 1977 shall be imposed. These penalties shall be collected at the same time, in the same manner and as part of the tax. (a) Surcharges . In case of any failure to make and file a return within the time prescribed by law, not due to willful neglect, there shall be added to the tax twenty-five (25%) per centum of its amount, except that when a return is voluntarily and without notice from the Commissioner or any other revenue officer filed after such time, and it is shown that the failure to file it was due to a reasonable cause, no such addition shall be made to the tax; In case of failure to make and file a return due to willful neglect or in case a fraudulent return is willfully made, there shall be added to the tax or to the deficiency tax, in case any payment has been made on the basis of such return before the discovery of the falsity or fraud, a surcharge of fifty (50%) per centum of the amount of such tax or deficiency tax. (b) Interest on deficiency tax . Where a deficiency tax is determined to exist, there shall be collected as part of the tax, deficiency interest at the rate of fourteen (14%) per centum per annum from the date prescribed for the payment of the tax to the date the deficiency is assessed: Provided , That the maximum amount of interest that may be collected as interest on deficiency shall in no case exceed the amount corresponding to a period of three (3) years. (c) Additions to tax in case of non-payment . (1) Tax shown on the return . Where the amount determined by the taxpayer as the withholding tax is not paid on or before the date prescribed for its payment, there shall be collected as part of the tax, interest upon such unpaid amount at the rate of fourteen (14%) per centum per annum from the date prescribed for its payment until it is paid: Provided , That the amount that may be collected as interest on deficiency shall in no case exceed the amount corresponding to a period of three (3) years. (2) Deficiency . Where a deficiency, or any interest assessed in connection therewith, or any addition to the withholding tax provided herein is not paid in full within thirty days from the date of notice and demand from the Commissioner of Internal Revenue, there shall be collected upon the unpaid amount, as part of the tax, interest at the rate of fourteen (14%) per centum per annum from the date of such notice and demand until it is paid: Provided , That the maximum amount that may be collected as interest on deficiency shall in no case exceed the amount corresponding to a period of three years. (3) Surcharge . If any amount of the withholding tax included in the notice and demand from the Commissioner of Internal Revenue is not paid in full within thirty days after notice and demand, there shall be collected in addition to the interest prescribed herein and in paragraph (b) above and as part of the tax a surcharge of five (5%) per centum of the amount of tax unpaid. SECTION 14. Repealing Clause . All regulations, rules, orders or portions thereof which are inconsistent with the provisions of these regulations are hereby revoked. SECTION 15. Effectivity . These regulations shall take effect as of the date of effectivity of PD 1156. aisa dc CESAR VIRATA Secretary of Finance Recommended by : EFREN I. PLANA Acting Commissioner ANNEX INSTRUCTIONS A. This schedule must always be accomplished and attached to the quarterly declaration of total interests paid on deposits and the withholding tax at source withheld therefrom (BIR Form No. 17.45). B. This schedule must be properly filled up by the bank as withholding agent in accordance with Revenue Regulations No. 8-77 dated June 15, 1977, and any omission or misstatement of facts shall make the person signing this statement liable to the penalties for perjury. C. The amount of interests shown under this schedule must equal the interests paid or accrued on time deposits claimed as deductions in filing the bank's quarterly corporate income tax return under BIR Form No. 1702Q. B.I.R. Form No. 17.45 DECLARATION OF TOTAL INTEREST PAID SUBJECT TO WITHHOLDING TAX (Under Sections 53 & 54 of the Tax Code of 1977) For the Quarter Ending _____________________ of the Calendar Year Ending _________________ Name of Bank _________________________ Taxpayer Account No. ______________ Address ______________________________ Date _____________________________ SUMMARY Interests Paid Preferential Rates Full Rate This Quarter Total To Date 10% 15% I. Total adjusted gross interest paid on savings deposit (Schedule __________)P_______P_______P_______P_______P_______ II. Total adjusted gross interest paid on time deposit (Schedule __________)P_______P_______P_______P_______P_______ Tax due thereon P======= P======= P======= P======= P======= Surcharge ___________ Interest ___________ Compromise ___________ TOTAL AMOUNT DUE AND COLLECTIBLE P========= I declare under the penalties of perjury that his return has been verified by me and to the best of my knowledge is a true, correct and complete return pursuant to the provisions of the National Internal Revenue Code and the regulations issued under authority thereof. _____________________________ Authorized Signature TAN: To be accomplished by Collection Agent receiving payment: Revenue Tax Receipt Number Date Amount Paid Signature _______________________ _________ ____________ ____________ INSTRUCTIONS A. WHO MUST FILE. This return must be filed in duplicate by every banking institution required to deduct and withhold interests paid on savings and time deposits in accordance with Revenue Regulations No. 8-77 dated June 15, 1977. B. WHEN AND WHERE TO FILE. This return must be filed within 25 days after the close of each calendar quarter with the Commissioner of Internal Revenue or the Collection Agent in the province, city or municipality where the withholding agent has its principal place of business. C. WHEN AND WHERE TO PAY. Upon filing the return, the tax due must be paid to the Collection Agent. In places where payment thru banks is the prescribed procedure, payment must be made to any authorized agent bank. IMPORTANT : 1. This return must always be accompanied by BIR Form Nos. 17.45A and 17.45B showing the amounts of savings and time deposits during the quarter and the amounts of interests paid thereon. 2. On or before January 31 of the following calendar year, an annual return on BIR Form No. ______ must be filed with the Bureau of Internal Revenue showing the summary of the interests payments on savings and time deposits during the preceding calendar year and the amount of tax withheld, therefrom. B.I.R. Form No. 17.45A SCHEDULE _______________ DECLARATION OF INTEREST PAID ON SAVINGS DEPOSIT For the Quarter Ending_________ of the Calendar Year Ending_______ Name of Bank _________________________ Taxpayer Account No. ______________ Address ______________________________ Date _____________________________ SAVINGS DEPOSIT Number of INTEREST PAID INTEREST PAID SIZE OF DEPOSITS Accounts Amounts THIS QUARTER TO DATE 0 to P500 _________ P_________ P_______________ P_______________ 501 to 1,000 _________ _________ _______________ _______________ 1,001 to 5,000 _________ _________ _______________ _______________ 5,001 to 10,000 _________ _________ _______________ _______________ 10,001 to 50,000 _________ _________ _______________ _______________ 50,001 to Over _________ _________ _______________ _______________ TOTAL ======== ======== ============= ============= RECONCILIATION OF INTEREST PAYMENTS THIS QUARTER TOTAL TO DATE Total interest paid on savings deposit (above _______________ _______________ Less: (a) Interest paid on all savings deposit maintained by one depositor not exceeding P550.00 per annum or P87.50 per quarter _______________ _______________ (b) Interest paid on time deposits maintained by tax-exempt entities _______________ _______________ Adjusted gross interest paid on savings deposit (To Annex I) =========== ============= I declare under the penalties of perjury that this return has been verified by me and to the best of my knowledge is a true, correct and complete return pursuant to the provisions of the National Internal Revenue Code and the regulations issued under authority thereof. ____________________________ Authorized Signature TAN: ____________________ INSTRUCTIONS This annual statement shall be accomplished by any authorized agent bank required to deduct and withhold tax at source on interests paid upon savings and time deposits imposed by Presidential Decree No. 1156 in accordance with Revenue Regulations No. 8-77 dated June 15, 1977. The authorized agent bank shall summarize under this statement its total interests payment on savings and time deposits during the preceding calendar year and the amount of tax withheld therefrom and remitted to the Bureau of Internal Revenue. The statement shall be attached by the authorized agent bank to its annual corporate income tax return (BIR FORM NO. 1702), in addition to other schedules required to be attached therewith by existing laws, rules and regulations. IMPORTANT : 1. The interests on savings and time deposits reported in this statement must equal the interests expense claimed as deductions in the authorized agent bank's annual corporate income tax return. If the amount claimed in the annual corporate return is more than the interests shown in this statement, the excess shall be disallowed as deduction from gross income. 2. In the event the accounting period of the authorized agent bank ends on a month other than the ending month of a calendar quarter, the authorized agent bank should reconcile the interests expense claimed as deductions for the taxable year with the total of interests paid on the four (4) quarters falling within the authorized agent bank's taxable year. INSTRUCTIONS A. This schedule must always be accomplished and attached to the quarterly declaration of total interests paid on deposits and the withholding tax at source withheld therefrom (BIR FORM NO. 17.45) B. This schedule must be properly filled up by the bank as withholding agent and any omission or mis-statement of facts shall make the person signing this statement liable to the penalties for perjury. C. The amount of interests shown under this schedule must equal to interests paid or accrued on time deposits claimed as deductions in filing the bank's quarterly corporate income tax return under B.I.R. Form 1702Q.