QuestionsQuestions (BIR REVENUE REGULATIONS NO. 13-2000)
It is issued to implement Section 34(B) of the Tax Code of 1997, specifically under the mandate of Section 244, providing the requirements for deductibility of interest expense from a taxpayer’s gross income.
Interest is the payment for the use or forbearance or detention of money, regardless of its name, including amounts paid for the borrower’s use during the loan term and for detention after due date.
A person (natural or juridical) engaged in trade, business, or the practice of profession, except one earning compensation income under an employer-employee relationship.
Generally: (a) there is indebtedness; (b) interest expense is paid or incurred; (c) indebtedness is that of the taxpayer; (d) indebtedness is connected with the taxpayer’s trade/business/profession; (e) interest is paid or incurred during the taxable year; (f) stipulated in writing; (g) interest is legally due; (h) not between related taxpayers as prohibited; (i) not incurred to finance petroleum operations; and (j) in case of interest to acquire property used in business, it must not be treated as capital expenditure.
The interest expense from an existing indebtedness shall be reduced by a percentage of the interest income subjected to final withholding tax earned during the taxable year: 41% for 1998, 39% for 1999, and 38% for 2000 and thereafter.
Yes. RR No. 13-2000 states the limitation applies regardless of whether a tax arbitrage scheme was entered into.
Yes. The rule applies irrespective of the currency the loan was contracted in and/or the currency of investments or deposits.
Net income before interest: 1,000,000. Interest expense: 150,000. Interest income subject to final tax: 180,000. Limitation: 41% × 180,000 = 73,800. Deductible interest expense = 150,000 − 73,800 = 76,200.
Interest incurred or paid on all unpaid business-related taxes is fully deductible from gross income and is not subject to the limitation percentage rule.
No interest expense is allowed as a deduction if incurred to finance petroleum exploration in the Philippines, specifically referring to service contractors under the Oil Exploration and Development Act provisions referenced in RR No. 13-2000.
If the individual taxpayer reports income on a cash basis and incurs an indebtedness where interest is paid in advance through discount or otherwise within the taxable year, the interest is not deductible in that year; it is deductible only in the year the indebtedness is paid, except that where payable in periodic amortization, only the portion corresponding to principal amortized/paid during the year is deductible.
Because Mr. Cruz is a cash-basis individual and the interest was paid in advance at the time of loan; RR No. 13-2000 requires that such advance interest is deductible only when the liability is fully paid, which was in 1999.
Non-deductibility applies if the debtor and payee fall under Sec. 36(B) specified persons: (i) family members (limited to brothers/sisters, spouse, ancestors, lineal descendants); (ii) individual and corporation where individual owns >50% of outstanding stock (direct/indirect); (iii) two corporations where the same individual owns >50% of each; (iv) grantor and fiduciary of a trust; (v) fiduciary of one trust and fiduciary of another trust if same grantor for both; and (vi) fiduciary and beneficiary of the same trust.
In general, interest expense paid or incurred within the taxable year on indebtedness connected with the taxpayer’s trade, business, or profession is deductible from gross income, subject to limitations.
At the taxpayer’s option, interest expense on a capital expenditure incurred to acquire property used in trade/business/profession may be (1) allowed as a full deduction in the year incurred, notwithstanding Sec. 36(A)(2) and (3), or (2) treated as a capital expenditure so only periodic amortization is deductible.
It took effect immediately upon adoption (20 Nov. 2000). Practically, for taxable periods after effectivity, taxpayers must apply its rules for determining deductibility of interest expense for those periods.
It includes a repealing clause: provisions of prior revenue regulations/issuances/rulings inconsistent with RR No. 13-2000 are repealed, amended, or modified accordingly.