Introduction

The death of a bank depositor triggers a complex interplay of tax obligations, banking regulations, and estate settlement procedures in the Philippines. Central to this is the handling of bank deposits, which form part of the deceased's gross estate and are subject to estate tax. Once estate taxes are settled, questions arise regarding any withholding taxes imposed by banks on the deposits or accrued interest upon withdrawal by heirs or estate administrators. This withholding is not arbitrary but governed by specific provisions of the National Internal Revenue Code (NIRC) of 1997 (Republic Act No. 8424, as amended), Bureau of Internal Revenue (BIR) regulations, and banking laws.

This article exhaustively examines the bank withholding tax on deceased depositor deposits after estate tax payment, within the Philippine legal context. It covers the legal framework, types of deposits affected, withholding tax rates and applications, procedural requirements for release, exemptions and exceptions, liabilities for non-compliance, administrative guidelines, jurisprudential insights, and practical considerations for heirs and banks. The discussion highlights the government's aim to ensure tax compliance while facilitating orderly estate distribution, balancing revenue collection with the rights of beneficiaries.

Legal Framework

Key Tax Laws

National Internal Revenue Code (RA 8424, as amended by RA 10963 or TRAIN Law, RA 11534 or CREATE Law, and subsequent amendments): Section 84 imposes a flat 6% estate tax on the net estate value exceeding PHP 5 million (pre-TRAIN thresholds differed). Bank deposits are included in the gross estate under Section 85(A). Post-estate tax, Section 24(B)(1) mandates a final withholding tax on interest income from deposits, but the principal deposit itself is not subject to additional income tax upon withdrawal if already taxed as part of the estate.
Withholding Tax on Interest: For individual depositors (including estates), banks withhold a final tax of 20% on interest from peso savings/time deposits and 15% on long-term deposits under Section 24(B)(1). For estates, the estate administrator is treated as the taxpayer, and withholding applies to post-death interest accruals.
Release of Deposits: Section 97 requires banks to obtain BIR certification that estate taxes have been paid or that no tax is due before releasing funds. This is implemented via Revenue Regulations (RR) No. 12-2018 (estate tax amnesty) and RR No. 6-2018 (TRAIN amendments), ensuring no release without clearance.
Banking Regulations: Republic Act No. 8791 (General Banking Law) and Bangko Sentral ng Pilipinas (BSP) Circular No. 1111, series of 2021, mandate banks to freeze accounts upon notice of death and withhold taxes as fiscal agents of the BIR. BSP Manual of Regulations for Banks (MORB) Section 421 reinforces compliance.
Other Relevant Laws: Republic Act No. 10607 (amending the Insurance Code) for deposit insurance via Philippine Deposit Insurance Corporation (PDIC), which covers up to PHP 500,000 per depositor but requires estate tax clearance for claims. The Civil Code (Articles 774-793) governs succession, treating deposits as inheritable property.

Amendments under the CREATE Law reduced certain withholding rates, but estate-related withholdings remain aligned with NIRC provisions.

Types of Deposits Affected

Savings and Time Deposits: Principal amounts are estate assets; post-death interest is subject to 20% final withholding tax upon accrual or withdrawal.
Foreign Currency Deposits: Under Republic Act No. 6426 (Foreign Currency Deposit Act), these are confidential and exempt from estate tax attachment, but interest is subject to 15% final withholding tax (Section 24(B)(1)). Release requires BIR clearance for estate tax on the peso equivalent.
Joint Accounts: Survivorship agreements (and/or accounts) allow surviving co-depositors to withdraw without immediate tax, but the deceased's share is estate-taxable. Withholding on interest applies proportionally.
Trust Accounts or In Trust For (ITF) Accounts: If revocable, included in the estate; withholding on income follows trust taxation rules under Section 61.
Investment Deposits: Such as bonds or securities in bank custody, subject to capital gains tax (6%) if sold post-death, with banks withholding accordingly.

Deposits in cooperatives or rural banks follow similar rules, adapted under Republic Act No. 9520 (Cooperative Code).

Withholding Tax Rates and Application After Estate Tax

After BIR issues a Certificate Authorizing Registration (CAR) or Electronic Certificate Authorizing Registration (eCAR) confirming estate tax payment:

Principal Deposit: No additional withholding tax; it's considered distributed estate property. Heirs withdraw tax-free, as estate tax covers it.
Accrued Interest: Banks withhold final tax on interest earned from death until withdrawal:
- 20% on peso deposit interest (Section 24(B)(1)).
- 15% on foreign currency interest.
- Exempt if under tax treaties or for certain long-term deposits (5 years or more).
Timing of Withholding: Applied at source upon crediting interest or withdrawal, whichever comes first (RR No. 2-98, as amended). For estates, interest during administration is reported in the estate's income tax return (BIR Form 1701), with withholding credited against any income tax due.
Estate as Taxpayer: During settlement (up to 5 years, extendable), the estate files separate returns; banks remit withheld taxes via BIR Form 1601-F.

If estate tax is unpaid, banks cannot release, and no withholding occurs until clearance.

Procedural Requirements for Release and Withholding

Notification of Death: Banks freeze accounts upon death certificate presentation.
Estate Tax Filing: Executor/administrator files BIR Form 1801 within one year (extendable), paying estate tax.
BIR Clearance: Obtain CAR/eCAR after audit/verification.
Bank Submission: Present CAR, death certificate, affidavit of settlement, and heir identifications. Bank computes and withholds on interest, issues BIR Form 2307 (Certificate of Tax Withheld).
Withdrawal: Funds released net of withholding.

For amounts below PHP 20,000, simplified procedures under RR No. 12-2001 allow release without CAR, but withholding still applies to interest.

Exemptions and Exceptions

Deposits Below De Minimis: Interest up to PHP 5,000 annually exempt from withholding (RR No. 14-2018), but estate inclusion remains.
Tax-Exempt Entities: If deceased was a non-resident alien with reciprocal exemptions, or deposits in tax-free instruments (e.g., government bonds).
Pre-Death Arrangements: Automatic transfer on death (TOD) clauses in some accounts bypass withholding if not estate-taxable.
Indigent Estates: No estate tax if net estate < PHP 5 million; withholding limited to interest.
Amnesty Programs: Past amnesties (RA 11213) forgave unpaid estate taxes, facilitating releases without retroactive withholding.

Liabilities for Non-Compliance

Banks: Penalties for premature release include 20% interest, surcharges (25-50%), and fines up to PHP 10,000 (Section 251). Bank officers face criminal charges under Section 269.
Heirs/Administrators: Failure to report interest income leads to deficiency assessments, with penalties up to 50% plus interest.
BIR Enforcement: Audits via Letter of Authority; compromises available under Section 204.

Administrative Guidelines and BIR Rulings

BIR Revenue Memorandum Orders (RMOs) like RMO No. 15-2019 standardize eCAR issuance. RMC No. 62-2021 clarifies withholding on digital banking. BSP Circulars ensure banks integrate tax compliance in core systems.

Jurisprudential Insights

Commissioner of Internal Revenue v. Estate of Benigno Toda (G.R. No. 147188, 2004): Emphasized deposits as taxable estate assets, with withholding on income post-death.
Bank of the Philippine Islands v. CIR (G.R. No. 137002, 2003): Upheld bank liability for non-withholding, stressing fiscal agent role.
Heirs of Lim v. BIR (various rulings): Clarified that principal is not re-taxed upon withdrawal if estate tax paid.

Cases under TRAIN amendments affirm flat rates reduce disputes.

Practical Considerations

For Heirs: Engage tax lawyers for filings; use joint accounts for liquidity.
For Banks: Train staff on compliance; automate withholding calculations.
Challenges: Delays in BIR processing (up to 6 months); disputes over interest attribution.
Digital Deposits: E-wallets (e.g., GCash) follow similar rules per BSP Circular No. 1164.

Conclusion

Bank withholding tax on deceased depositor deposits after estate tax in the Philippines primarily targets post-death interest income, ensuring revenue from estate earnings while allowing principal distribution. This mechanism, rooted in the NIRC and banking laws, protects fiscal interests without unduly burdening heirs. Proper compliance minimizes penalties and expedites settlements, reflecting the system's evolution toward efficiency and equity in estate taxation. Stakeholders must stay abreast of amendments to navigate this intricate process effectively, ultimately facilitating the smooth transfer of wealth across generations.