Question & AnswerQ&A (BIR REVENUE MEMORANDUM CIRCULAR NO. 69-2003)
The tax base for the percentage (gross receipts) tax is the entire gross amount inclusive of the final withholding tax, meaning the full amount earned by the recipient, not just the net amount received after withholding tax.
Interest refers to the gross amount paid by the borrower to the lender as consideration for the use of the lender's money, without any deduction, as per Section 2(h) of Revenue Regulations No. 12-80 (now Section 2(I) of Revenue Regulations No. 17-84).
No, the final withholding tax cannot be deducted from the gross receipts. The gross receipts include the full amount of interest income before withholding tax, as the withholding tax is merely a payment made on behalf of the recipient to the government.
Constructive receipt means that the lending bank is considered to have received the interest income including the amount withheld as final tax even if not physically received. The tax withheld is deemed part of the gross receipts since the amount withheld belongs to the taxpayer before remittance to the government.
Because the withholding tax comes from the income earned by the taxpayer, it constitutes income that the taxpayer owns before paying it as tax. Therefore, it logically forms part of the gross receipts subject to tax.
No, the gross receipts tax is levied on the interest income amount that includes the portion withheld as the final tax, not on the final withholding tax as a separate entity.
This means that unless there is an explicit statutory provision exempting or excluding certain amounts from gross receipts, the entire gross income including amounts withheld as final withholding tax must be included in the gross receipts for tax purposes.
Banks must include the gross interest income (inclusive of the portion withheld as tax) in their gross receipts and pay the corresponding gross receipts tax on the full amount. Deducting the withheld tax from gross receipts is not allowed.
The Supreme Court denied China Banking Corporation's petition for review and granted the Commissioner of Internal Revenue's petition, setting aside the prior decisions of the Court of Tax Appeals and Court of Appeals.
It enjoins all internal revenue officers and employees to widely publicize the clarification that gross receipts tax should be computed on the gross amount inclusive of the final withholding tax, for consistent tax enforcement.