Sunday, May 20, 2018
  • share this

Deductible expense

/ 07:32 AM December 07, 2012

SECTION 34(B)(1) of the Tax Code of 1997, as implemented by Revenue Regulations No.13-2000, provides that the amount of interest paid or incurred within a taxable year on indebtedness in connection with the taxpayer’s profession, trade or business shall be allowed as deduction from gross income.

The term “interest” shall refer to the payment for the use or forbearance or detention of money, regardless of the name it is called or denominated (BIR Ruling No. 196-03 dated 20 June 2003).



For interest to be deductible from gross income, the following are the requisites:

1.There must be an indebtedness; 2.There should be an interest expense paid or incurred upon such indebtedness; 3. The indebtedness must be that of the taxpayer; 4. The indebtedness must be connected with the taxpayer’s trade, business or exercise of profession; 5. The interest expense must have been paid or incurred during the taxable year;

6. The interest must have been stipulated in writing; 7. The interest must be legally due; 8. The interest payment arrangement must not be between related taxpayers as mandated in Section 34(B)(2), in relation to Section 36(B), both of the Tax Code of 1997;

9. The interest must not be incurred to finance petroleum operations; and 10. In case of interest incurred to acquire property used in trade, business or exercise of profession, the same was not treated as a capital expenditure. (Sec. 3, Revenue Regulations No. 13-2000).

no deductions

Section 36(B) of the Tax Code provides for the instances of related taxpayers who are not allowed to claim deductions for losses from sales or exchanges of property incurred by and between them. This provision on related taxpayer is also made applicable to deductions for interest and bad debts as provided in the same Code. Section 36(B) includes the following:

1. Between members of a family. For purposes of this paragraph, the family of an individual shall include only his brothers and sisters (whether by the whole or half-blood), spouse, ancestors, and lineal descendants; or 2. Except in the case of distributions in liquidation, between an individual and a corporation more than 50 percent in value of the outstanding stock of which is owned, directly or indirectly, by or for such individual; or



3. Except in the case of distributions in liquidation, between two corporations more than 50 percent in value of the outstanding stock of each of which is owned, directly or indirectly, by or for the same individual, if either one of such corporations, with respect to the taxable year of the corporation preceding the date of the sale or exchange was, under the law applicable to such taxable year, a personal holding company or a foreign personal holding company;

4. Between the grantor and a fiduciary of any trust; or 5. Between the fiduciary of a trust and the fiduciary of another trust if the same person is a grantor with respect to each trust; or 6. Between a fiduciary of a trust and a beneficiary of such trust. (To be continued)

* **

You may contact the author at

Don't miss out on the latest news and information.
View comments

Subscribe to INQUIRER PLUS to get access to The Philippine Daily Inquirer & other 70+ titles, share up to 5 gadgets, listen to the news, download as early as 4am & share articles on social media. Call 896 6000.

For feedback, complaints, or inquiries, contact us.

© Copyright 1997-2018 | All Rights Reserved