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December 14, 1976 REVENUE REGULATIONS NO. 10-76 SUBJECT : Regulations Governing Taxation of Offshore Banks and Foreign Currency Deposit Units of Depository Banks Established under P.D. 1034 and 1035, respectively TO
All Internal Revenue Officers and Others Concerned
SECTION 1. Scope. — Pursuant to Section 338 of the National Internal Revenue Code, as amended, the following regulations are hereby promulgated to govern the manner of taxation of offshore banks and the expanded Foreign Currency Deposit Units of depository banks established under Presidential Decrees No. 1034 and 1035, respectively. These regulations shall be known as Revenue Regulations No. 10-76. SECTION 2.
Definition of Terms. —
(1) "Offshore Banking" shall refer to the conduct of banking transactions in foreign currencies involving the receipt of funds principally from external sources and the utilization of such funds as provided in Presidential Decree No. 1034. (2) "Offshore Banking Unit" hereinafter referred to as OBU, shall mean a branch, subsidiary or affiliate of a foreign banking corporation which is duly authorized by the Central Bank of the Philippines, as a separate accounting unit, to transact offshore banking business in the Philippines in accordance with the provisions of P.D. 1034 as implemented by Central Bank Circular No. 546. (3) "Deposits" shall mean funds in foreign currencies which are accepted and held by an off-shore banking unit in the regular course of business, with the obligation to return an equivalent amount to the owner thereof, with or without interest. (4) "Resident" shall mean — (a) an individual citizen of the Philippines residing therein; or (b) an individual who is not a citizen of the Philippines but is permanently residing therein; or (c)a corporation or other juridical person organized under the laws of the Philippines. (d) a branch, subsidiary, affiliate, extension office or any other unit of corporations or juridical persons organized under the laws of any foreign country operating in the Philippines. (5) "Non-resident" shall mean an individual, corporation or other juridical person not included in the above definition of "residents". (6) "Foreign Currency Deposit Unit" (FCDU) shall mean an accounting unit or department in a local bank or in an existing local branch of foreign banks, which is authorized by the Central Bank of the Philippines to operate under the expanded foreign currency deposit system, in accordance with the provisions of P.D. 1035, as implemented by Central Bank Circular No. 547. The FCDU authority shall be distinguished from the authority to accept foreign currency deposits under R.A. No. 6426, as implemented by Central Bank Circular No. 343. (7) "Gross offshore income" shall mean all income arising from transactions allowed by the Central Bank of the Philippines conducted by and between — (a) in the case of an offshore banking unit with another offshore banking unit or with an expanded Foreign Currency Deposit unit or with a non-resident; (b) in the case of an expanded Foreign Currency Deposit Unit with another expanded Foreign Currency Deposit Unit or with an Offshore Banking Unit or with a non-resident. (8) "Gross onshore income" shall mean gross interest income arising from foreign currency loans and advances to and/or investments with residents made by Offshore Banking Units or expanded Foreign Currency Deposit Units. Such gross interest income shall include all fees, commissions and other charges which are integral parts of the income from the above transactions. SECTION 3. Rates of income tax to be imposed. — The rates or income tax to be imposed, which shall be in lieu of all other taxes such as, but not limited to privilege tax, gross receipts tax, documentary and science stamp tax and profit remittance tax, are as followers: (a) On offshore income, there shall be imposed an income tax of five percent (5%) based on net offshore income as computed in Section 4. Income realized by offshore banking units on transactions with local commercial banks including branches of foreign banks that may be authorized by the Central Bank of the Philippines to transact business with offshore banking units shall likewise be subject to the same tax, except net income from such transactions as may be specified by the Secretary of Finance, upon recommendation of the Monetary Board, to be subject to the usual income tax payable by banks. (b) In the case of gross onshore income as defined in Section 2(h) above, the tax shall be ten percent (10%) thereof and shall be a final tax. (c) Income not covered by paragraphs (a) and (b) above shall be subject to the usual corporate taxes imposed by the National Internal Revenue Code, as amended. SECTION 4. Manner of computation of net income. — (1) Net offshore income for purposes of Section 3, paragraph (a) above, shall be the amount remaining after deducting from the gross offshore income during the taxable year the following items: (a) the proportion of total interest expenses for the same period based on the ratio of offshore interest income which bears to the total gross interest income; (b) the proportion of general administrative expenses based on the ratio of net offshore income which bears to the total net income after deducting only interest expenses mentioned in sub-paragraph (1) above. (c)Likewise, there shall be allowed a reasonable amount of head office expenses in accordance with the ratio specified in subparagraph (2) above. (2) In the case of onshore income, the gross interest income without the benefit of any deduction corresponding to the allocable onshore income, shall be the amount upon which the ten percent (10%) withholding income tax shall be computed. SECTION 5.
Manner of filing returns and payment of taxes. —
Within sixty (60) days after the end of each of the first three quarters of the calendar or fiscal year. (a) for offshore income and other income mentioned In Section 3(c) —a return of net taxable offshore income shall be filed with, and the tax due thereon paid, to the Commissioner of Internal Revenue, Revenue Regional Director, Revenue District Officer or the Collection Agent of the City or Municipality where the corporation's principal office is located and where its books of accounts and other data from which the return is prepared are kept, by every offshore banking units and expanded Foreign
Currency Deposit Units, regardless of whether there is tax due or not. For these purposes, B.I.R. Form No. 17.02-Q shall be used and the appropriate rates, as enumerated in Section 3 above, shall be applied accordingly. (b) for onshore income —in the case of onshore income realized by an offshore banking unit or by an expanded Foreign Currency Deposit Unit, the income need not be included in the quarterly income tax return to be filed as required above as the payor-borrower under Section 53, in relation to Section 54, of the National Internal Revenue Code, is constituted as the withholding agent charged with the obligation of deducting, withholding and remitting to the Commissioner of Internal Revenue the income tax due thereon within the period prescribed by law with the appropriate return in accordance with existing revenue and Central Bank regulations. A copy of the quarterly return filed, together with the copy of the official receipt denoting payments thereon, shall be furnished direct to the offshore banking unit or foreign currency deposit unit concerned, which shall in turn submit to the Bureau of Internal Revenue said documents accompanied by statement showing a list of all its domestic borrowers, amount borrowed and interest income thereon. The statement with its attachments, shall be filed together with the quarterly return required above. A final consolidated return or an adjustment return on B.I.R. Form 1702 covering the total taxable onshore and offshore income for the preceding calendar or fiscal year shall be filed on or before the 15th day of the fourth month following the close of the calendar or fiscal year. The return shall include all the items of gross income and deductions for the whole taxable year. The tax shown on the final or adjustment return, after deducting therefrom the quarterly income taxes paid and withheld during the preceding three quarters of the same taxable year, shall either be paid upon filing, or refunded as the case may be. SECTION 6.
Statement to be attached to the return. —
There shall be attached to the final consolidated return or adjustment return of the taxpayer for such taxable year a sworn statement, a specimen form of which is hereto attached, by a responsible officer setting forth in summarized form the pertinent information required by these regulations with respect to the computation of the net offshore income, gross onshore income and taxes paid or withheld. SECTION 7.
Records to be kept. —
Every offshore banking unit, as well as expanded Foreign Currency Deposit Unit, which is duly authorized by the Central Bank of the Philippines to transact offshore banking business in the Philippines shall maintain books of account which shall be kept in the place of its principal place of business for inspection. In addition, all the supporting data which were used in compiling the summary statement required to be attached to the income tax returns to be filed as prescribed under Section 6 hereof must likewise be made readily available at its principal place of business. SECTION 8.
Income of non-resident. —
Any income of non-residents from transactions with either an offshore banking unit or with an expanded Foreign Currency Deposit Unit shall be exempt from any and all taxes. SECTION 9.
Income of foreign personnel. —
There shall be levied, collected and paid for each taxable year upon the gross income received by every alien individual employed by offshore banking units in the Philippines as salaries, wages, annuities, compensations, remunerations and emoluments from such offshore banking units a tax equal to fifteen (15%) percent of such gross income. The aforesaid tax shall be deducted and withheld at source in the same manner and condition as that provided under Supplement "A" — Withholding on Wages of Commonwealth Act No. 466, as amended. SECTION 10.
Privileges of the offshore banking units. —
The offshore banking units shall be exempt from all forms of local licenses, fees, dues, imposts or any other local taxes or burdens. The license fee paid by offshore banking units shall be allowed as a deduction in accordance with Section 4 of these regulations. SECTION 11.
Offshore a Banking Units and expanded Foreign Currency Deposit Units shall, upon receipt of advice from the Central Bank, register with the Bureau of Internal Revenue its business name for the purpose of — a.
registering its trade name;
registering as an employer pursuant to the provision of R. A. 466;
registering its name for the purpose of securing its taxpayer account number (TAN).
Repealing Clause. —
All regulations, rulings or orders or portion thereof, which are inconsistent with the provisions of these regulations are hereby revoked. SECTION 13.
These regulations shall apply to income received beginning with taxable year starting after January 1, 1977.
CESAR VIRATA Secretary of Finance Recommended by: EFREN I. PLANA Acting Commissioner of Internal Revenue TAN 1456-040-3
ANNEX A ______________________ (NAME OF BANK) SCHEDULE OF COMPUTATION OF ONSHORE AND OFFSHORE INCOME AND THE CORRESPONDING INCOME TAX FOR THE YEAR ENDED _____ TOTAL OFFSHORE __ ONSHORE ___ INCOME: Total Interest All Others (Percentage of interest income) ==% ==% ==% ==% ==% Interest P__ P__ P__ P__ P__ Discount ___ ___ ___ ___ ___ Gov't. Securities Interest ___ ___ ___ ___ ___ Foreign Exchange Dealings ___ ___ ___ ___ ___ Others ___ ___ ___ ___ ___ ________ ___ ___ ___ ___ ___ ________ ___ ___ ___ ___ ___ Total P__ P__ P__ P__ P__ Less: Interest Expense ___ ___ ___ ___ ___ (Percentage of gross income == == == == == Gross Income P___ P___ P___ P___ P___ Less: (1) Gen. & Adm. Expenses P__ P__ P__ P__ P__ (2) Head office Expenses P__ P__ P__ P__ P__ Total Expenses P__ P__ P__ P__ P__ Net Profit Before Taxes P__ P__ P__ P__ P__ Provision for taxes (see computation below) __ __ __ __ __ NET PROFIT TO SURPLUS P== P== P== P== P== COMPUTATION OF TAX Tax Base Tax RateAmount of Tax 1) Offshore income P_____ 5% P_________ 2) Onshore income — (a) gross interest income ______ 10% __________ (b) All others ______ 25%-35% __________ Total Tax due (see above) P========