FINAL TAX

1. The payor of the income is constituted as the government’s withholding agent

with the obligation to withhold the tax and remit the same to the BIR. In the
case of interest income on a bank deposit, the bank must withhold the tax.
2. The income subject to final withholding tax (“WT”) must be derived from
sources within the Philippines.
3. The income subject to final WT is not returnable. This means that the interest
income from from a bank deposit does not have to be reported or included in
the income tax return of the depositor.
4. Under a final withholding tax system, the amount of income tax that is withheld
by a withholding agent is constituted as a full and final payment of the income tax
due from the payee on said income. The liability of the tax primarily rests upon the
payor as the withholding agent.
INTEREST INCOME
In case of pre-termination of the long-term deposit or investment, depending on
the holding period:
ROYALTIES
DIVIDENDS
PRIZES and WINNINGS
On January 1, 2014, Lorna invested P1,000,000 to BDO’s 5-year, tax-free time
deposit. The long-term deposit pays 10% annual interest every January . In need
of cash, Lorna pre-terminated on July 1, 2017. How much is the final tax due?
On January 1, 2014, ABC Co, invested P1,000,000 to BDO’s 5-year, tax-free time
deposit. The long-term deposit pays 10% annual interest every January . In need
of cash, ABC Co. pre-terminated on July 1, 2017. How much is the final tax due on
the year of pre-termination?
Lebron James received royalty fee from Viva Records, a domestic corporation, for
his musical compositions under the album “Whatever it Takes”. James is an
American composer and has never set foot in the Philippines. The royalty fee shall
be subject to:
Ms. Sandara, a non resident Korean stockholder, received a dividend income of
P300,000 in 2018 from ABC Corp., a foreign corporation doing business in the
Philippines. The gross income of the foreign corporation from sources within and
without the Philippines for the past three years preceding 2018 is provided as
follows:
Interest on Foreign Currency Bank Deposits
An OCW or OFW shall be exempt from the 15% final tax on interest income from
a depository bank under the expanded foreign currency deposit system upon
presentation of proof of non-residency such as the Overseas Employment
Certificate (“OEC”) or the Seaman’s Book.

However, if the account is jointly in the name of the OCW or a Filipino Seaman,
and an individual (spouse or dependent) who is living in the Philippines, 50% of
the interest income will be treated as exempt while the other 50% shall be subject
to the 15% final withholding tax.
Interest Income of Member’s Deposit with a
Credit Cooperative
Interest income from savings and time deposits of members with their credit
cooperatives is exempt from the 20% final tax. Necessarily, the cooperative is not
required to withhold any tax on such interest income.
Final Tax on Informer’s Reward
An informer is any qualified person who voluntarily provides DEFINITE and SWORN
INFORMATION not yet in the possession of the BIR nor of public knowledge which:

1. Leads to the discovery of frauds upon the tax laws, and results in the recovery of
revenues, surcharges, and fees, or in the imposition of fines or penalties, and/or in
the conviction of the guilty party;
2. Leads to an offer by an offender to compromise the violation of law committed by
him, and such offer is accepted by the Commissioner and collected from the
offender; or
3. Leads to the discovery and seizure of smuggled goods

In exchange for such information, the informer shall receive a reward from the
government.
Tax Base (Amount of Reward) and Tax Rate

The amount of the reward shall be the LOWER of the following sums:

1. Ten percent (10%) of the tax revenues, sucharges, or fees recovered and/or
fine, or penalty imposed and collected, or market value of the smuggled and
confiscated goods,
2. One Million Pesos (1,000,000) per case

The reward shall be subject to a 10% final withholding tax.

Disqualified Informers

The following are disqualified to avail of the informer’s reward:

1. A BIR official or employee, or any other incumbent public official or employee.

2. Relative within the sixth (6th) civil degree of consanguinity of a BIR official or
employee, or other public official or employee; and
3. Though already retired or otherwise separated from service, BIR officials or
employees or other public officials who acquired the information in the course
of the performance of their duties during their incumbency.
A corporation has the following income for 2018
Interest on bank deposit, BDO, Manila P100,000

Interest, US Dollar deposit, BDO, Manila 50,000

Royalty, Philippines 600,000

Royalty, US 200,000

Compute for the final withholding tax if the taxpayer is a:

a. Domestic corporation
b. Resident foreign corporation
c. Non-resident foreign corporation
Intercorporate Dividends Received by a NRFC
In availing of the reduced rate of 15% on intercorporate dividends received by a
NRFT, the NRFC shall file a separate application with the International Tax Affairs
Division (“ITAD”) of the BIR with the following supporting documents:

1. Application Letter
2. Authenticated proof of residency
3. A consularized copy of the law of the country in which the NRFS is domiciled.
4. Certification from the Corporate Secretary of the domestic corporation stating
the important details of the dividend declaration; and
5. Special power of Attorney, if applicable
Jing and Dodoy formed a joint venture. They agreed to share profit or loss in the
ratio of 70% and 30%, respectively. The results of operations for 2018 taxable
year were provided: GROSS INCOME - 5,000,000 and BUSINESS EXPENSES -
3,000,000.

Compute for the final tax to be paid by Jing.