Treasury bars trading of PEACe bonds

MANILA, Philippines—The Bureau of the Treasury has disallowed the trading of the so-named PEACe bonds after the Bureau of Internal Revenue affirmed its ruling that the securities were subject to the 20-percent withholding tax.

In a memorandum to eligible dealers of government securities and to bondholders, National Treasurer Roberto B. Tan said no transfer of the bonds was allowed to be recorded in the registry of scripless securities (RoSS) starting October 12 until the redemption payment date on October 18.

“Bondholders of record as appearing in RoSS as of [that period] will be treated by the [Treasury] as the beneficial owners of such securities for the relevant payments,” Tan said.

Asked why a change of hands has been prohibited, Tan told the Inquirer that this was done “so that uninformed investors who might be offered to buy can be protected.”

In the recently issued Revenue Ruling No. 370-2011, the BIR affirmed earlier rulings that the controversial PEACe bonds maturing this month were subject to a 20-percent final withholding tax.

The BIR estimated that the government could earn about P5 billion from the 10-year, zero coupon debt paper that carry a face value of P35 billion.

The Treasury issued the so-named “poverty eradication and alleviation certificates” in 2001 at a discounted price of about P10 billion.

Through the recent ruling, The BIR confirmed two previous issuances—RR Nos. 491-04 dated Sept. 14, 2004, and 008-05 dated July 28, 2005,—which superseded Ruling No. 020-2001. The 2001 ruling states that the PEACe bonds were exempt from the 20-percent withholding tax and income tax.

On Wednesday, Internal Revenue Commissioner Kim S. Henares said that the 2001 ruling meant that interest income on the bonds should be reported as part of the bondholders’ total income, which were presumed as corporate owners who are subject to either 35- or 30-percent income tax depending on the year.

“But this presumes that the income on the PEACe bonds is reported,” Henares said.

On the other hand, the 2004 and 2005 rulings stated that all government securities that the Treasury issues—including the PEACe bonds—were subject to the 20-percent withholding tax since these were deposit substitutes. Ronnel W. Domingo