Tax returns required for interest income earned from BSP

BANKS AND non-banks performing quasi-banking functions must submit proof of their remittance of taxes paid on the interest income derived from their deposits with the Bangko Sentral ng Pilipinas (BSP).

Memorandum No. 031-2013, issued by the BSP's supervision and examination sector last July 1, said these entities must submit to the central bank documents proving their remittance to the Bureau of Internal Revenue (BIR) of gross receipts taxes (GRT) paid on interest income received from the BSP.

The central bank pays interest on banks' and non-banks' placements in its facilities. These, among others, include its repurchase and reverse repurchase facilities, which are currently paid 5.5% and 3.5% in interest, respectively.

Placements in the special deposit account (SDA) facility, meanwhile, are paid 2% in interest.

According to the Tax Code, banks and non-banks conducting quasi-banking functions, such as the issuance of financial instruments to borrow funds, are subject to the GRT.

GRT is a form of percentage tax, which is defined as a business tax imposed on persons or entities who sell or lease goods or services in the course of trade or business in the Philippines.

Banks lend funds out of clients' deposits while non-bank financial intermediaries lend funds or purchase receivables.

The Tax Code states that banks must pay the GRT on their income resulting from interest, commissions and discounts from their lending activities as well as income from financial leasing.

The rate of the tax due is computed on the basis of remaining maturities of instruments from which such receipts are derived: 5% for income derived from instruments with a maturity period of five years or less, and 1% from those that mature in more than five years.

The issuance said the documents to be submitted to the BSP may be in the form of "tax returns and breakdown/schedules," among others, providing proof that the institutions concerned have settled the tax liabilities due on the interest income.

The BSP required entities to submit proof of remittance of taxes received during the calendar or fiscal year 2009 by July 22.

The deadlines for income earned in other years are: Oct. 31, 2013 for 2010; Dec. 31, 2013 for 2011; March 31, 2014 for 2012; and June 30, 2014 for 2013. -- Bettina Faye V. Roc

source:  Businessworld