Vat On Banks

REPUBLIC OF THE PHILIPPINES
DEPARTMENT OF FINANCE
BUREAU OF INTERNAL REVENUE
Quezon City
June 2, 2003
REVENUE REGULATIONS NO. 20-2003
SUBJECT : Amending Certain Provisions of Revenue Regulations No. 18-99, as

amended by Revenue Regulations No. 12-2003, Implementing
Section 5 of Republic Act No. 8424, Otherwise Known as the Tax
Reform Act of 1997, and Other Pertinent Provisions of the National
Internal Revenue Code of 1997 imposing VAT on Services of Banks,
Non-bank Financial Intermediaries, and Finance Companies,
beginning January 1, 2003 pursuant to Section 1 of Republic Act
No. 9010.
TO : All Internal Revenue Officers and Others Concerned.

_______________________________________________________________________
SECTION 1. SCOPE. - Pursuant to the provisions of Section 244 in relation

to Section 108 and Section 106, on certain cases, of the National Internal Revenue Code
of 1997, these Regulations are hereby promulgated to amend certain provisions of
Revenue Regulations No. 18-99, as amended by Revenue Regulations No. 12-2003,
governing the imposition of VAT on banks, non-bank financial intermediaries and
finance companies in accordance with Section 5 of Republic Act No. 8424 which
imposition was last deferred by Section 1 of Republic Act No. 9010.
SECTION 2. DEFINITION OF TERMS – Section 2 of Revenue Regulations

No. 18-99, as amended by Revenue Regulations No. 12-2003, is hereby further amended
by adding Sub-sections 2.12, 2.13, and 2.14 to read as follows:
“SECTION 2. Definition of Terms – For purposes of these Regulations,

the terms enumerated hereunder shall have the following meaning:
xxx xxx xxx
2.12. Securities – shall include shares of stock in a corporation and

rights to subscribe for or to receive such shares; and bonds,
debentures, notes or certificates, or other evidence of
indebtedness issued by any corporation, including those issued
by the government, with interest coupons or in registered form.
1
2.13. Government Securities – shall refer to securities issued by the
Republic of the Philippines or any of its agencies,
instrumentalities, and political subdivisions.
2.14. Private Securities – shall refer to securities not covered by Sub-

section 2.13. hereof.
SECTION 3. COMPUTATION OF OUTPUT TAX - Section 3 of Revenue

Regulations No. 18-99, as amended by Revenue Regulations No. 12-2003, is hereby
further amended by adding a new paragraph after Sub-section 3.7 to read as follows:
“SECTION 3. Computation of the Output Tax –

3.1. xxx xxx xxx
xxx xxx xxx
3.7. xxx xxx xxx
Provided, however, that with respect to income, including net trading

gains, on government securities where the financial institution-
lender/investor primarily liable for paying the VAT thereon does not pass-
on or shift to the government-borrower part or whole of the output tax
(output VAT) due, the recognizable income of the said financial institution-
lender/investor shall be net of the output tax (output VAT) assumed or not
shifted to the customer/client which will be remitted by the financial
institution-lender/investor to the Bureau of Internal Revenue (BIR). On the
other hand, any output VAT passed-on or shifted to the government-
borrower shall be remitted directly by the government-borrower to the
BIR in the form of or as a withholding tax creditable against the value-
added tax liability of the financial institution-lender/investor, as provided
and allowed under Section 114 and Section 245 of the Tax Code of 1997.
The creditable amount shall, nonetheless, be evidenced by a Certificate of
Creditable Tax Withheld and Paid/Payable (BIR Form No. 2307) issued by
the government-borrower.
Provided, the payment by the financial institution-lender/investor of

the assumed part of the output tax (output VAT) shall be deemed
payment by said financial institution-lender/investor of the VAT due from
it on its interest income and net trading gains on government securities, it
being understood that it is the government-borrower/withholding agent
which shall be liable to pay and remit to the BIR the output VAT passed-
on/shifted to and duly acknowledged by it, as evidenced by duly issued
Certificate of Creditable Tax Withheld at Source, on said interest income
and net trading gains.
2
Provided, furthermore, that if the output tax (output VAT) on the
income of the financial institution is wholly or partly assumed by the said
financial institution, the amount of its recognizable income is always net of
the output tax (output VAT) assumed and not passed-on to
customers/clients.
SECTION 4. TREATMENT OF OUTPUT TAX SHIFTED TO THE

BUYER OF SERVICES - Section 4 of Revenue Regulations No. 18-99, as amended by
Revenue Regulations No. 12-2003, is hereby further amended to read as follows:
“ Section 4. Treatment of the Output Tax Shifted to the Buyer of

Services.- In general, the payor of the income/fee who is a VAT-registered
person shall be entitled to claim as input tax credit the output tax paid and
passed-on by the financial institution. On the other hand, if the payor is not a
VAT-registered person, the VAT passed-on by the payee shall form part of his
cost. Provided, that a VAT receipt/invoice reflecting/showing separately the
passed-on VAT shall be issued by the payee for all the received compensation
for services rendered, or goods sold in certain cases, which shall be used as
the evidence by the payor for the claim of input tax.
The output tax shifted by the financial institutions must be separately

billed in the invoice/receipt, the provisions of Revenue Regulations No. 8-99 to
the contrary notwithstanding.”
SECTION 5. INVOICING AND RECEIPT REQUIREMENT – Section 7 of

Revenue Regulations No. 12-2003, as renumbered, is hereby further amended to read as
follows:
“SECTION 7. Invoicing/Receipt Requirements – Unless otherwise
allowed under pertinent provisions of the laws, rules/regulations, or permitted
by the Commissioner in meritorious cases, financial institutions shall for each
transaction subject to VAT, issue duly registered receipts (for sale of services)
or duly registered invoice (for sale of goods) which must show the –
(a) name, TIN (with suffix of the word VAT), business style, if any,
and address of the financial institution;
(b) date of transaction;
(c) name, TIN, business style, if any, and address of the VAT-
registered client;
(d) description of the nature of transaction;
(e) the invoice value or consideration showing the VAT separately;
(f) total amount billed or received; and
(g) such other information as required in Sections 237 and 113 of
the Code.
“For income/fees/charges received by the financial institution, the

invoice/receipt must show the details of the transaction and the total amount
3
charged/paid and the VAT-registered payor shall be entitled to an input tax for
the VAT reflected separately in the receipt/invoice.
“Provided, however, that with respect to net trading gains from

instruments other than government securities, net foreign exchange gains, and
all other small items of income such as miscellaneous fees on returned checks,
below minimum balances, dormant accounts, ATM withdrawals, etc., the
financial institution shall be required to issue just one VAT Official Receipt
reflecting the total transactions/net gains for the month and the corresponding
total output tax due thereon. The word “various” shall be indicated in the space
provided for the name of the customer in the invoice/receipt. However, the
aforesaid Official Receipt cannot be used as basis in claiming input tax credits.
On the other hand, VAT invoice/receipt covering client’s transactions with
the bank or other FI other than those mentioned under this sub-paragraph
can be issued on a consolidated basis per client on a monthly basis provided
all the information required in Sections 237 and 113 of the Tax Code of
1997 and under this Section are reflected in the invoice/receipt and
provided further that the specific type of transaction is enumerated
individually and the passed-on VAT reflected separately in the
invoice/receipt.
Moreover, it is to be emphasized that with respect to financial lease,

the treatment shall be similar to that of the gross receipts of banks on
financial intermediation services.
SECTION 6. REPEALING CLAUSE. – Any revenue issuances inconsistent

herewith are considered amended, modified or revoked accordingly.
SECTION 7. EFFECTIVITY CLAUSE – These Regulations shall take effect

beginning January 1, 2003, unless otherwise provided herein.
(Original Signed)
JOSE ISIDRO N. CAMACHO
Secretary of Finance
Recommending Approval:
(Original Signed)
GUILLERMO L. PARAYNO, JR.
Commissioner of Internal Revenue

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REPUBLIC OF THE PHILIPPINES

REVENUE REGULATIONS NO. 20-2003

SUBJECT : Amending Certain Provisions of Revenue Regulations No. 18-99, as

TO : All Internal Revenue Officers and Others Concerned.

SECTION 1. SCOPE. - Pursuant to the provisions of Section 244 in relation

SECTION 2. DEFINITION OF TERMS – Section 2 of Revenue Regulations

“SECTION 2. Definition of Terms – For purposes of these Regulations,

xxx xxx xxx

2.12. Securities – shall include shares of stock in a corporation and

2.14. Private Securities – shall refer to securities not covered by Sub-

SECTION 3. COMPUTATION OF OUTPUT TAX - Section 3 of Revenue

“SECTION 3. Computation of the Output Tax –

xxx xxx xxx

3.7. xxx xxx xxx

Provided, however, that with respect to income, including net trading

Provided, the payment by the financial institution-lender/investor of

SECTION 4. TREATMENT OF OUTPUT TAX SHIFTED TO THE

“ Section 4. Treatment of the Output Tax Shifted to the Buyer of

The output tax shifted by the financial institutions must be separately

SECTION 5. INVOICING AND RECEIPT REQUIREMENT – Section 7 of

“For income/fees/charges received by the financial institution, the

“Provided, however, that with respect to net trading gains from

Moreover, it is to be emphasized that with respect to financial lease,

SECTION 6. REPEALING CLAUSE. – Any revenue issuances inconsistent

SECTION 7. EFFECTIVITY CLAUSE – These Regulations shall take effect

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