RR No. 4-2011: Prescribes the rules on the proper allocation of costs and expenses amongst income earnings of banks and other financial institutions for Income Tax reporting purposes

Summary

RR No. 4-2011 prescribes the rules on proper allocation of costs and expenses among the income earnings of banks and other financial institutions for Income Tax reporting.

Key points

1. RBU deductions. Only costs and expenses attributable to the Regular Banking Unit (RBU) may be deducted to arrive at RBU taxable income subject to regular Income Tax. Costs or expenses of the FCDU/EFCDU or OBU may not be deducted from RBU taxable income.
2. Specific identification. Expenses that can be specifically identified to a unit (RBU, FCDU/EFCDU or OBU) are reported as that unit’s expenses.
3. Allocation of common expenses. Common expenses are allocated by each unit’s percentage share of gross income earnings in the total gross income earnings subject to regular Income Tax and Final Tax, including those exempt from Income Tax.
4. Other financial institutions. The same allocation method applies to other financial institutions among income from active business subject to regular Income Tax, passive activities subject to Final Tax, and exempt income.
5. Penalties. A person who willfully files a declaration, return or statement with untrue or incorrect material information faces the penalties under pertinent law, rules and regulations. Applicable criminal offenses under the NIRC of 1997, as amended, such as failure to supply correct information, will be filed.

Who is affected

• Banks and other financial institutions
• Regular Banking Units, FCDU/EFCDU and Offshore Banking Units

Summary by Tax Resources PH. It is not a substitute for the full text of the issuance or professional advice.