The Bureau of Internal Revenue (BIR) has clarified the following provisions of Revenue Regulations No. 14-2012 on the tax treatment of interest income on certain financial instruments:
1. On the tax treatment of interest income from government debt securities (Section 2, RR 14-2012)
Mere issuance of government debt instruments and securities is deemed falling within the coverage of "deposit substitutes" (regardless of the number of lenders at the time of origination), hence subject to the 20% final withholding tax (FWT) on interest income. In case of zero-coupon government debt instruments and securities, the FWT is payable upon original issuance while in case of interest-bearing government debt instruments and securities, the FWT shall be payable upon payment of the interest.
2. On the imposition of 20% CWT on interest income from other debt instruments not classified as "deposit substitutes" (Section 7, RR 14-2012)
Under the new subsection (Y) of Sec, 2.57.2 of RR 2-98, a 20% creditable withholding tax (CWT) shall be imposed on Interest from all debt instruments, other than from deposit substitutes or those subject to the 20% final withholding tax. The 20% CWT shall apply to each interest payment to be made beginning on November 23, 2012 (date of effectivity of RR 14-2012), regardless of when the instruments or securities were issued. The 20% CWT shall cover all interest income from current outstanding instruments, securities, or accounts as of November 23, 2012.
3. On the tax treatment of interest income from long-term deposits of domestic and resident foreign corporations (Section 3(6), RR 14-2012)
Interest income derived by domestic and resident foreign corporations from long-term deposits not issued by banks or investment certificates that are not considered deposit substitutes shall be subject to 20% CWT, and reported as part of taxable income of the domestic and resident foreign corporations subject to 30% regular corporate income tax.
4. On DST on assignments or re-assignments of debt instruments (Section 8, RR 14-2012)
The DST on assignment or re-assignment of debt instruments pursuant to Section 198 shall apply only in case when the assignment or re-assignment of the debt instrument entails changing the maturity date or remaining period of coverage from the original instrument or carries with it a renewal or issuance of new instruments in the name of the transferee to replace the old ones. Otherwise, the assignment or re-assignment without any change in maturity date shall be exempt from DST as provided under Section 199(f) or (g) of the Tax Code.
Please see attached copy of RMC 77-2012 for your reference and guidance.
