RMC No. 19-2024

RMC No. 19-2024 clarifies the income tax treatment of interest expense on indebtedness incurred in connection with a taxpayer's profession, trade or business, contrasting it with the accounting treatment under PAS 23. Interest is deductible from gross income only if the requisites under Section 34(B)(2) of the NIRC (as implemented by RR No. 13-2000 and RR No. 5-2021) are met: the debt must be the taxpayer's, the interest must be stipulated in writing, legally due, not between related taxpayers, not for petroleum operations, not treated as capital expenditure, and reduced by 20% of interest income subjected to final tax; the taxpayer must also have withheld the appropriate tax. Interest to acquire property used in trade, business or profession may be expensed or capitalized (the option is irrevocable per asset and proportionate for loans covering several properties). Cash-basis taxpayers deduct interest in the year the indebtedness is paid, and interest between related parties is not deductible.