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BIR Ruling DA 836-09 (UITF)

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16 views3 pages

BIR Ruling DA 836-09 (UITF)

Uploaded by

carloskristine34
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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December 23, 2009

BIR RULING [DA-(FIT-025) 836-09]

S-24 (B) (1); DA-064-02, DA-(FIT-


04)117-09

ING Bank N.V. Manila Branch


20/F Tower One & Exchange Plaza
Ayala Triangle, Ayala Avenue, Makati City

Attention: Ms. Maria Paz Agojo-Garcia


Head, Legal & Trust Administration
and
Ms. Elvie Y. Reyes
Trust Compliance Officer

Gentlemen :

This refers to your letter dated July 23, 2009 requesting for
confirmation on the tax exemption from the 20% final withholding tax under
Section 24 (B) (1) of the 1997 Tax Code on the interest income earned by a
tax exempt long term Unit Investment Trust Fund ("UITF"), which as per BSP
Circular No. 447 is synonymous with Common Trust Fund ("CTF") which you
intend to launch and offer to individual clients who are citizens and/or
resident aliens of the Philippines.
It is represented that ING Bank N.V. Manila Branch is a banking
corporation duly organized and existing under and by the virtue of the laws
of the Netherlands, duly licensed to operate as a universal bank and to
perform fiduciary functions by the Bangko Sentral ng Pilipinas.
The provisions of the Declaration of Trust provide, among others, that
the purpose of this UITF is to create a medium through which investible
funds are pooled together for collective investment and to provide clients
access to higher yielding investment instruments, investment diversification
and higher yield potential due to the benefits of tax exemption. The UITF
shall be administered and maintained exclusively for the collective
investment and reinvestment of funds in investment outlets which are not
commonly available to participants or investors. The trustee shall have
exclusive management, administration, operation and control of the Fund as
well as the full power and authority on the matter of investment and
reinvestment of the same. The Fund shall be limited to individual
trustors/investors who are Filipino citizens or resident aliens. Participation in
the Fund shall be non-negotiable and non-transferable.
The date of the contribution to the Fund shall be clearly indicated in
the confirmation of participation to serve as basis for the Trustee to
determine the period of participation. The Declaration of Trust and
Participation Trust Agreement also provides that the interest income earned
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by a Filipino citizen or resident alien-investor from the Fund derived from
investments interest bearing instruments which are otherwise subject to
20% final withholding tax shall be exempt from such tax, provided
participation in the Fund is for a period of at least five (5) years. If the
participation is for a period less than five (5) years, client's interest income
shall be subject to a final tax which shall be deducted and withheld based on
the schedule contained in Section 24 (B) (1) of the 1997 Tax Code. prLL

In reply, please be informed that this Office has, on several occasions,


ruled that interest income derived by individual citizens and individual
resident aliens, as well as non-resident aliens engaged in trade or business
in the Philippines from long-term deposit or investment in the form of
savings, common or individual trust funds, deposit substitutes, investment
management accounts and other investments evidenced by certificates in
such form prescribed by the Bangko Sentral ng Pilipinas (BSP) shall be
exempt from the tax imposed under Sections 24 (B) (1) and 25 (A) (2), both
of the 1997 Tax Code, as amended. (BIR Ruling No. 101-98 dated June 29,
1998; BIR Ruling No. 63-00 dated Nov. 20, 2000; BIR Ruling No. 3-05 dated
July 22, 2005)
Section 22 (FF) of the Tax Code of 1997 defines the term "long term
deposit or investment certificate" as follows:
"The term 'long term deposit or investment certificate' shall
refer to certificate of time deposit or investment in the form of
savings, common or individual trust funds, deposit substitutes,
investment management accounts and other investments with a
maturity period of not less than five (5) years, the form of which shall
be prescribed by the Bangko Sentral ng Pilipinas (BSP) and issued by
banks only (not by non-bank financial intermediaries and finance
companies) to individuals in denominations of Ten thousand pesos
(P10,000) and other denominations may be prescribed by the BSP."
In relation to this, Sections 24 (B) (1) and 25 (A) (2), both of the 1997
Tax Code, as amended, provide that interest income derived by individual
citizens and individual resident aliens, as well as non-resident aliens
engaged in trade or business in the Philippines, from long-term deposit or
investment in the form of savings, common or individual trust funds, deposit
substitutes, investment management accounts and other investments
evidenced by certificates in such form prescribed by the Bangko Sentral ng
Pilipinas (BSP) shall be exempt from the tax imposed under this Subsections:
Provided finally, That should the holder of the certificate preterminate the
deposit or investment before the fifth (5th) year, a final tax shall be imposed
on the entire income and shall be deducted and withheld by the depository
bank from the proceeds of the long-term deposit or investment certificate
based on the remaining maturity thereof:
Four (4) years to less than five (5)
— 5%
years
Three (3) years to less than four (4)
— 12% and
years
Less than three (3) years — 20%

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In view thereof, and considering that your proposed long term Unit
Investment Trust Fund (UITF) as described above are in full compliance with
the requisites of "long-term deposit or investment certificate" as defined
under Section 22 (FF) of the 1997 Tax Code, as amended, the interest
income to be derived therein by your individual clients, who are Filipino
citizens, resident aliens, as well as non-resident aliens engaged in trade or
business within the Philippines, shall be exempt from the 20% final
withholding tax under Sections 24 (B) (1) and 25 (A) (2) of the Tax Code of
1997, as amended. ATSIED

A meticulous study of the above-cited section disclosed further that


there is nothing which would prohibit your individual clients who are holders
of the certificates to pre-terminate the deposit or investment before the fifth
(5th) year period. However, the withdrawal of the principal
deposit/investment before the 5th would subject the said entire earnings to a
final withholding tax depending on the holding period of the instrument as
stated above.
Finally, for better monitoring purposes, the bank shall have to set up a
separate numbering system in its books for these proposed long term Unit
Investment Trust Fund (UITF) you will now be offering to your individual
clients.
This ruling is being issued on the basis of the foregoing facts as
represented. However, if upon investigation, it will be disclosed that the
facts are different, then this ruling shall be considered null and void.

Very truly yours,

Commissioner of Internal Revenue


By:

(SGD.) JAMES H. ROLDAN


Assistant Commissioner
Legal Service

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