20% final withholding tax applies to PEACe Bonds

The 20 percent final withholding tax is applicable to the PEACe Bonds which will mature this month, according to the Bureau of Internal Revenue in its earlier rulings. The BIR said the Bureau of Treasury should withhold the applicable tax of P5 billion from the PEACe Bonds or Poverty Eradication and Alleviation Certificates when they mature and become redeemable on Oct. 18. The P35-billion worth of bonds were issued by the Treasury Bureau in 2001. Responding to a query from the, The BIR confirmed, in response to a Department of Finance query, that BIR Ruling Nos. DA-491-04 and 008-05, dated Sept. 13, 2004 and July 28, 2005, respectively, apply to the PEACe Bonds. The BIR rulings specifically noted that all government securities issued by the Treasury Bureau are “deposit substitutes" and thus subject to the 20 percent withholding tax. The 2004 and 2005 rulings reversed a 2001 BIR ruling that declared the PEACe Bonds exempted from the final withholding tax. BIR rulings confirm existing regulations Finance Secretary Cesar Purisima said Thursday the recent BIR rulings confirm existing regulations on the tax treatment of Treasury bills and bonds that apply to the PEACe Bonds, and form legal basis for the Treasury Bureau apply the withholding tax. “The PEACe Bonds are very unique among government securities. They are the only outstanding government securities where there were some questions as to the applicable tax," Purisima said. “Normally, deposit substitutes, like the forthcoming Retail Treasury Bond offering, are subject to the 20% final withholding tax," Purisima noted. The questions arose since there was a 2001 ruling that the PEACe Bonds were subject to ordinary income tax, an issue that was “superseded by BIR rulings in 2004 and 2005," Purisima said. “The recent BIR Ruling makes it clear that the PEACe bonds are treated the same way as all other government securities for tax purposes," he added. Purisima, BIR Commissioner Kim Jacinto-Henares, and National Treasurer Roberto Tan on Friday met with eligible government securities dealers to discuss the matter and agreed to coordinate on its implementation. — VS, GMA News