BIR REGULATIONS NO. 18-99, December 21, 1999
IMPLEMENTING SECTION 5 OF REPUBLIC ACT NO. 8424, OTHERWISE KNOWN AS THE TAX REFORM ACT OF 1997, AND OTHER PERTINENT PROVISIONS OF THE NATIONAL INTERNAL REVENUE CODE OF 1997 IMPO…
Section 244 in relation to Section 108 of the National Internal Revenue
Code of 1997, these Regulations are hereby promulgated to govern the
imposition of VAT on banks, non-bank financial intermediaries and
finance companies in accordance with Section 5 of Republic Act No. 8424.
SECTION 2. Definition of Terms. — For purposes of these Regulations, the terms enumerated hereunder shall have the following meaning:
1. Financial Institutions — shall refer to banks, non-bank financial intermediaries and finance companies.
2. Banks or Banking Institutions — shall refer to those
entities duly authorized by the Monetary Board of the Bangko Sentral ng
Pilipinas to engage in the lending of funds obtained from the public
through the receipt of deposits of any kind. The terms “banks” or
“banking institutions” are synonymous and interchangeable and
specifically include universal bank, commercial banks, savings banks,
mortgage banks, development banks, rural banks, stock savings and loan
associations, and branches and agencies in the Philippines of foreign
banks.
3. Non-bank Financial Intermediaries — shall refer to
persons or entities whose principal functions include the lending,
investing or placement of funds or evidences of indebtedness or equity
deposited with them, acquired by them or otherwise coursed through them,
either for their own account or for the account of others;
4. Finance Companies — shall refer to corporations, or
partnerships, except those regulated by the Bangko Sentral ng Pilipinas,
the Insurance Commissioner and the Cooperatives Administration Office
which are primarily organized for the purpose of extending credit
facilities to consumers and to industrial, commercial, or agricultural
enterprises, either by discounting or factoring commercial papers or
accounts receivables, or by buying and selling contracts, leases,
chattel mortgages, or other evidences of indebtedness, or by leasing of
motor vehicles, heavy equipment and industrial machinery, business and
office machines and equipment, appliances and other movable property.
5. Treasury Bill Rate (T-Bill rate) — Shall refer to the interest rate charged by the BSP on the 91-day Treasury Bills floated in the primary market.
6. Gross Receipts — For purposes of these Regulations, the
term shall refer to the compensation for all financial and non-financial
services, or combination thereof, performed by banks, non-bank
financial intermediaries and finance companies, whether the fees charged
are implicit or explicit, which compensation or fees are actually or
constructively received during the month or quarter, which include:
| a. Financial intermediation services, which is equivalent to the net spread between the interest received and interest expense based on T-Bill rate; |
e. Service charges and other fees; |
| b. Rentals on properties, real or personal; | f. Net trading gains; |
| c. Royalties; | g. Net forex gains; |
| d. Commissions; | h. Trust fees; |
| i. Estate planning fees; and | |
| j. Other charges or fees received as compensation for services. |
For purposes of determining the compensation for financial
intermediation services, the net spread between interest income received
and interest expense computed by applying the T-Bill rate shall be
considered as the implicit fee received by the financial institution.
This is the fee received for bringing depositors/funders and borrowers
together with the financial institution acting as broker or intermediary
in the lending of funds.
SECTION 3. Computation of the Output Tax. —
3.1. On Financial Intermediation Services. — The output tax
on the services rendered by banks including commercial banks, savings
banks, mortgage banks, development banks, rural banks, stock savings and
loan associations, and branches and agencies in the Philippines of
foreign banks, non-bank financial intermediaries and finance companies
for financial intermediation which is an implicit fee hidden in the
interest income and interest expense shall be computed by multiplying
the gross receipts from financial intermediation services by 1/11. The
gross receipts is measured by deducting from the interest income
actually or constructively received during the month, the interest
expense computed by applying the average T-Bill rate of the previous
month. Provided, however, that for the month of January 2000, the T-Bill
rate to be applied is 8.895% per annum.
Illustration:
A loan amounting to P1 million was extended on March 2, 2000 by A
Bank and Trust Company to Abel Mfg. Corporation at an interest rate of
18% p.a. to mature within 1 year from contract date. The interest was
paid in advance. The average T-Bill rate for the previous month
(February 2000) as certified by the BSP is 10%. The output tax due on
the intermediation services is computed as follows:
Interest Received at contact rate P 180,000 18%
Less: Interest Expense at Ave. T-Bill rate 100,000 10%
Service fee/Net Spread P 80,000 8%
vvvvvvvvv vvvvv
The output tax on the financial intermediation services of P80,000
shall be computed by multiplying said figure with the factor 1/11 which
results to P7,272.72.
Since the T-Bill rate is more elastic than the actual lending rate,
the net spread on interest received shall be determined on a per
contract of loan basis applying the following formula:
Percentage of net spread divided by the interest
rate per contract of loan = Rate of Spread to Total Interest Received
(ROS to TIR)Interest received multiplied by the ROS to TIR rate = Net Spread
Applying the above formula, the ROS to TIR is 44.44%. Applying this
rate to total interest received of P180,000, the net spread is
equivalent to P80,000.
In using the above formula, the spread/service fee is readily determinable as a ratio or percentage of the interest received.
The net spread computed above multiplied by the factor 1/11 will be
the Output Tax due on the financial intermediation services which shall
be the same amount that can be claimed as input tax credit by the
VAT-registered borrower other than a Financial Institution.
3.2 Other Services. — The output tax on the sale of other
services, by banks, non-bank financial intermediaries and finance
companies, the compensation of which is explicitly charged from their
customers, i.e. Service Charges, Commissions, rentals, etc., shall be
computed by multiplying the total amount of gross receipts during the
month or quarter by 1/11.
SECTION 4. Treatment of the Output Tax Shifted to the Buyer of Services
. — In general, the payor of the income/fee who is a VAT-registered
person shall be entitled to claim the output tax paid by the financial
institution as an input tax credit. On the other hand, if the payor is
not a VAT-registered person, the VAT passed on by the payee shall form
part of his cost. Provided, that a VAT receipt/invoice shall be issued
by the payee for all the compensation for services received which shall
be used as the evidence for the claim of input tax.
In the case of a borrower who pays interest expense to the financial
institution, the input tax shall be equivalent to the output tax paid
on the intermediation services computed by the financial institution on a
per contract-of-loan basis. Since the basis for the output tax on the
part of the financial institution/lender is only the net spread referred
to in Section 3 hereof rather than the total interest income, the
VAT-registered borrower is entitled only to claim as input tax the
amount of output tax paid by the lender which must be covered by a VAT
receipt issued by the financial institution. Provided, however that if
the borrower is another financial institution, no input tax on the
intermediation services shall be allowed.
SECTION 5. Allowable Input Taxes . — The financial
institution shall be entitled to claim as credit against the output tax
all input taxes evidenced by a VAT invoice or official receipt issued in
accordance with Section 113 of the Tax Code. This includes the VAT on
importation or local purchase of goods and properties and the VAT on
purchase of services. Provided, that, for purchase of services, the VAT
must have been actually paid by the financial institution as evidenced
by an official receipt.
The Financial Institution rendering financial intermediation
services pays interest for the use of the funds loaned to borrowers.
These interest payments will not give rise to input tax credit because
the Output Tax is based only on the net spread effectively imposing the
VAT on the value-added received. As a proxy for the input tax on
interest expense, the cost of funds computed at average T-Bill rate is
instead allowed to be deducted from the interest income. Also, if a
Financial Institution pays interest to another Financial Institution, no
input tax credit shall be recognized even though the lender bills
output tax on the net spread as determined under Section 3 hereof.
Instead, the borrowing Financial Institution will be allowed to deduct
from its interest income the cost of fund computed at the average T-Bill
rate.
SECTION 6. Registration . — All financial
institutions shall be deemed to be a VAT-registered taxpayer and shall
be liable to the value-added tax on their gross receipts as herein
defined beginning January 1, 2000, and shall then be entitled to input
taxes on their purchases of goods, properties, and services, provided
they shall register as VAT taxpayers on or before January 31, 2000 with
the appropriate Revenue District Officer. They shall likewise pay an
annual registration fee imposed under Sec. 236 of the Tax Code, for
every separate or distinct establishment or place of business and for
every year thereafter on or before the 31st day of January.
SECTION 7. Transitory Provisions —
7.1 Transitional Input Tax on Beginning Inventories. —
Financial institutions becoming liable to VAT under these Regulations
shall be entitled to a presumptive input tax on the inventory of office
supplies on hand as of December 31, 1999. The transitional Input tax
shall be 8% of the value of the inventory of actual VAT paid, whichever
is higher, which amount may be allowed as tax credit against the output
tax of the VAT-registered person. The value allowed for income tax
purposes on inventories shall be the basis for the computation of the 8%
transitional input tax.
7.2 Loan Transactions entered prior to Jan. 1, 2000. — The
computation of the output tax on financial intermediation services
actually or constructively received on or after Jan. 1, 2000 on loans
entered into prior to Jan. 1, 2000 shall be computed in the same manner
as in Sec. 3.1 of this Regulation. However, for purposes of computing
the net spread, the T-Bill rate to be used in determining for the
imputed interest expense shall be 9.988%.
SECTION 8. Invoicing Requirements. — All financial institutions shall for each transaction subject to VAT, issue duly registered receipts which must show:
1. the name, TIN and address of the financial institution;
2. the date of transaction;
3. the name, TIN, business style, if any, and address of the VAT-registered client;
4. the invoice value or consideration.
For explicit charges received by the financial institution, the
invoice must show the total amount charged and the VAT-registered payor
shall be entitled to an input tax determined by multiplying the total
amount charged by the factor 1/11.
For financial intermediation services, since the basis of the VAT is
only the net spread as determined under Section 3 of these Regulations,
the invoice, to be issued by the financial institution for the interest
received from the borrower must also show the following, provisions of
Revenue Regulations No. 8-99 to the contrary notwithstanding:
1. the amount of the interest received from the borrower;
2. the rate of spread to total interest received;
3. the amount of net spread; and
4. the amount of input tax to be claimed by the borrower.
Illustration : On February 2000, ABC Banking
Corporation received P30,000 from Mr. X as interest for the loan
contracted in January 2000 at the rate of 20% per annum. The average
T-Bill rate for the month of December 1999 is 11%. In this example, the
invoice to be issued by the ABC Banking Corporation to Mr. X, in
addition to the general information required to be indicated therein,
shall likewise show the following:
Amount of Interest Received for the Month P30,000.00
x % of Net Spread (20% – 11%) = 9% divide by 20% .45Amount of Net Spread P13,500.00
Output Tax (1/11) (P13,500.00 x 1/11) P1,227.27
Provided, however, that for interest received on loans granted by a
financial institution to another financial institution, no input taxes
may be allowed as credit against the output tax of the borrowing
financial institution.
For purposes of these Regulations, all financial institutions shall
be given a grace period of sixty (60) days within which to cause the
printing and registration of VAT invoices and receipts in conformity
with Sections 113 and 237 of the Tax Code, provided, that all invoices
and receipts issued within this period are considered to be VAT
invoices/receipts if clearly stamped with the words “VAT INCLUSIVE”.
SECTION 9. Incorporation Clause . — All regulations,
ruling, orders or portions thereof which are not inconsistent with the
provisions of these regulations are hereby adopted and incorporated as
part of these regulations.
SECTION 10. Effectivit y. — These Regulations shall take effect beginning January 1, 2000
Adopted: 21 Dec. 1999
(SGD.) SOLOMON S. CUA
Undersecretary of Finance Officer in Charge
Recommending Approval:
(SGD.) BEETHOVEN L. RUALO
Commissioner of Internal Revenue