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Friday, October 19, 2007

Are Deposits Other Than Share Capital Subject to Withholding Tax?

Exemption of interest income on members' deposit (over and above the share capital holdings) from the 20% Final Withholding Tax (BIR Ruling No. [DA-591-2006] dated October 5, 2006).

The National Internal Revenue Code states that "a final tax at the rate of twenty percent (20%) is hereby imposed upon the amount of interest on currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and similar arrangement...." for individuals under Section 24(B)(1) and for domestic corporations under Section 27(D)(1). Considering the members deposits with the cooperatives are not currency bank deposits’ nor deposits substitutes, Section 24(B)(1) and Section 27(D)(1), therefore do not apply to members of cooperatives and to deposits of primaries with federations respectively.

4 comments:

Joseph said...

Could you please clarify if this ruling (DA 591-2006) is superseded by a Court of Tax Appeals decision in Dumaguete Cathedral Credit Cooperative v. Commissioner of Internal Revenue, CTA Case 6827, February 6, 2007?

Here, the CTA ruled that cooperatives are liable to withhold the 20% final withholding tax. Please see a summary in the tax brief of P&A at:

http://www.punongbayan-araullo.com/pnawebsite/pnahome.nsf/section_docs/YA151P_10-5-07/$file/spdf_April%202007.pdf

Toti said...

Joseph...

There is no indication in the DA-591-2006 ruling regarding your question of whether it superseded the CTA decision on DCC Cooperative or not.

Can you tell me progress now of the case? I mean if the DCCCO has elevated this to Supreme Court?

Joseph said...

hi, just got word a couple of weeks ago that Dumaguete Cathedral Credit Cooperative is appealing the ruling due to a technicality. apparently only one member of the CTA signed the ruling.

may i invite you to join the picpa coop development yahoo groups? we are inviting people from the coop sector to join and give feedback re coop and accounting concerns. pls log onto http://asia.groups.yahoo.com/group/picpa_coopdev/

Toti Patrimonio said...

hi, just got word a couple of weeks ago that Dumaguete Cathedral Credit Cooperative is appealing the ruling due to a technicality. apparently only one member of the CTA signed the ruling.

The Dumaguete Cathedral should get a copy to cite technicalities observe in the decision of the CTA. It's easy for them to have it signed by the other members. On the other hand, If you carefully study the provisions under similar arrangements cited by the BIR, they are actually out of context.