New PDEx guidelines ok’d

THE SECURITIES and Exchange Commission has allowed the Philippine Dealing & Exchange Corp. (PDEx) to adopt more comprehensive guidelines on the trading and settlement of bondholders subjected to different tax structures.

Based on the guidelines approved by the SEC, the transfer of securities from tax-exempt entities to non-tax-exempt entities may not be allowed except on interest payment dates that fall on a business day.

Transfers from a tax-exempt category on a non-interest payment date will only be allowed if the tax-exempt entity will be treated on the same tax category as its non-tax-exempt counterpart for the interest period within which the transfer occurred.

Entities which are exempted from the withholding tax on interest income derived from bonds include the state-owned institutions Government Service Insurance System, Social Security System, Philippine Health Insurance Corp., Home Development Mutual Fund and Philippine Deposit Insurance Corp.

The provisions approved by the SEC are in line with the old PDEx guidelines on the transfers from tax-exempt category to the 20-percent tax-withheld entity. The old PDEx guidelines, however, did not cover transfers of non-resident foreign individuals which were subject to 25 percent final withholding tax and non-resident foreign corporations subject to a 30-percent withholding tax.

Based on documents from the SEC, there’s now a growing number of accounts belonging to the 25-percent and 30-percent tax-withheld category, thereby now making the issuance of the new guidelines a necessity.

The new guidelines approved by the SEC thus covered these 25-percent and 30-percent tax-withheld series in its trading system.

The Tax Code of the Philippines provides that interest-bearing obligations of Philippine residents are locally sourced income subject to income tax.

Interest income derived by Philippine resident individuals from bonds is subject to the 20 percent income tax withheld at source. Generally, the interest on bonds received by non-resident foreign individuals doing trade or business in the Philippines is also subject to a 20 percent withholding tax while that received by non-resident foreign individuals not doing any local trade or business is taxed at 25 percent.

For institutional investors such as domestic corporations and foreign corporations with local operations, interest income is taxed at 20 percent. Interest income received by foreign corporations without any local presence is sibject to a 30 percent final withholding tax.

The tax withheld constitutes a final settlement of Philippine income tax liability.

Bondholders who are exempt from the final withholding tax on interest income may claim such exemption by submitting the necessary documents.