Further clarification on the coverage of 20% CWT on interest income
You would recall that under RR 14-2012, a 20% creditable withholding tax (CWT) was imposed on interest income from all other debt instruments which do not fall within the coverage of “deposit substitutes”. In RMC 77-2012, the BIR clarified that the 20% CWT covers all interest income payment made beginning November 23, 2012 irrespective of when the instruments or securities were issued.
As further clarified by the BIR, the 20% creditable withholding tax (and 20% final withholding tax) on interest income imposed under the Tax Code and existing regulations cover interest arising from or paid out of debt securities. Hence, the 20% CWT should not cover interest payments made by Top 20,000 corporations to banks for individual loans that are not securitized, assigned or participated out which should remain to be subject to 2% creditable withholding tax. This rule likewise covers interest payments made by banks (designated as Top 20,000 corporation) for their loans that are not securitized, assigned or participated out which shall continue to be subject to 2% CWT.
For reference and guidance, please see attached copy of RMC 84-2012.