SEC approves new rules for corporate papers

MANILA, Philippines - The Securities and Exchange Commission (SEC) has approved an expanded list of corporate bondholders who can trade with each other under new guidelines meant to boost capital market liberalization.

Under the new guidelines submitted by the Philippine Dealing and Exchange Corp. (PDEx) last year, holders of securities subject to 25 percent and 30 percent final withholding tax will be allowed to trade with tax-exempt individuals.

PDEx operates the country’s fixed income exchange.

At present, only entities subject to 20-percent withholding tax are allowed to trade with tax-exempt entities only when interest payment is already due.

These guidelines, however, do not cover transfers of non-resident foreign individuals not engaged in trade or business, which are subject to 25-percent final withholding tax.

They also do not include non-resident foreign corporations subject to 30-percent final withholding tax.

The PDEx said a growing number of accounts belonging to the 25-percent and 30-percent tax-withheld categories necessitate the crafting of new guidelines.

“The proposed guidelines provide that transfers across different tax categories shall not be allowed except on interest payment dates that fall on a business day,” PDEx said in its letter to the Philippine Stock Exchange.

“However, transfers from a tax-exempt category to a taxable category (25 percent and 30 percent) on a non-interest payment date shall be allowed, but the tax-exempt entity will be treated as being of the same tax category of its counterpart (25 percent and 30 percent) for the interest period within which the transfer occurred,” it added.

The proposed guidelines effectively add two new series names for listed corporate bondholders: the 25-percent Tax-Withheld Series Name and the 30 percent Tax-Withheld Series Name.

At present, the Tax Code provides that interest-bearing obligations of Philippine residents are subject to income tax.

Consequently, interest income derived by Philippine resident individuals from bonds is subject to income tax at the rate of 20 percent and that interest on bonds received by non-resident foreign individuals engaged in trade or business in the Philippines is subject to a 20 percent withholding tax, while that received by non-resident foreign individuals not engaged in trade or business in the Philippines is taxed at the rate of 25 percent.

Meanwhile, interest income received by domestic corporations and resident foreign corporations is taxed at the rate of 20 percent while interest income received by non-resident foreign corporations is subject to a 30 percent final withholding tax.

Bondholders who are exempt from or not subject to final withholding tax on interest income may claim such exemption by submitting the necessary documents.