Opinion of BIR Deputy Commissioner Jose Mario C. Bunag clarifying whether or not "Bills Payables" in the books of RBs are considered as "Deposit Substitutes" as it is defined in the Tax Code of 1997

Danakc ra m 2as

OFFICE OF THE DEPUTY GOVERNOR SUPERVISION AND EXAMINATION SECTOR

CIRCULAR LETTER

Series of 2003

TO ALL RURAL AND COOPErAtIVE BAnKS

12, 2003 ciarifying whether or not "Bills Payabies" in the books of rural banks are Deputy Commissioner (Legal and Inspection Group) Jose Mario C. Bufag dated August considered as "Deposit Substitutes" as it is defined in the Tax Code of 1997. For your information and guidance, quoted hereunder is the opinion of BIR

1997 provides that: "In reply, please be informed that Section 2z(Y) of the Tax Code of

borrowing from twenty [20] or more individual or corporate purchasing of receivables and other obligations, or financing their own needs or the needs of their agent or dealer. x x x x x x form of obtaining funds from the public (the term 'public' means lenders at any one time), other than deposits, through the issuance, endorsement, or acceptance of debt instruments for the borrower's own account, for the purpose of relending or (Y) The term 'deposit substitutes' shall mean an alternative

"Revenue Regulations (RR) No. 8-84 specifically identified the following borrowings as deposit substitutes:

X X X X X X X X X

e) All borrowings of thrift and rural banks through the credit

facilities of the Certral Bank of the Philippines, Philippine National Bank, Development Bank of the Philippines, Government Service Insurance System, evidence by deposit substitutes instruments.

borrowings was made in line with the previous definition of deposit substitutes in the Tax Code of 1997. In the old Tax Code, there was no qualification as to what the term 'public' constitutes. Thus, under the above "Please note that the foregoing enumeration of what constitutes

MAG-IMPOK SA BANGKO

MAYNILA, PILIPINAS 1004 : Tel No. 524-70-11 trunkline - URL: www.bsp.gov.ph c-mail: [email protected]

contrast, the 'Bills Payable-Deposit Substitutes' account in the books of commercial banks and expanded commercial banks refer to obligations resulting from all types of money market borrowings of such banks, hence, clearly public in nature and rightfully considered as deposit substitutes. individual or corporate lenders at any one time, it is clear that the obligations of the rural banks to BSP, which are entered in their books as 'Bills Payable- BSP,' do not presently fall under the category of deposit substitutes. In enumeration. the obligations of rural banks arising from availments of rediscounting facilities and other borrowings from the BSP, will be considered as deposit substitutes. However, with the gualification in the Tax Code of 1997 that the term 'public' means borrowing from twenty (20) or more

byrura banks. "This clarifies the characterization of the term 'Bills Payables' as used

ALBERTO Deputy Governor IREYES

September 2003

A