Tuesday, May 15, 2007 Tax notes: Interests subject to withholding tax
COOPERATIVES are liable to withhold the 20 percent final withholding tax on interest paid on savings and time deposits maintained by its members.
The Tax Code of 1997 imposes the final withholding tax on interest from any currency bank deposit and yield or any other monetary benefit from deposit substitutes and from trust funds and “similar arrangements.”
Cooperatives’ acceptance of savings and time deposits constitutes activities under “similar arrangements” and interests paid on such deposits are therefore subject to the 20 percent final withholding tax.
The exemption of cooperatives does not extend to its members or to its liability as a withholding agent. (Dumaguete Cathedral Credit Cooperative v. Commissioner of Internal Revenue, CTA Case 6827, February 6, 2007)
Furthermore, such interests from savings and time deposits are not the same as the interest received by the members on their capital contributions which, under the cooperative law, are no longer taxable after the lapse of the 10-year income tax exemption of the cooperative. (Source: Punongbayan & Araullo)
