BIR Ruling [DA-016-98]

January 27, 1998 BIR RULING [DA-016-98] Joaquin Cunanan & Co. 14/F Multinational Bancorporation Center 6805 Ayala Ave. Makati City Attention: Atty . George J . Lavadia Principal Gentlemen : This refers to your follow-up letter received by this Office on June 17, 1997 requesting for our opinion as to whether or not the income derived by a domestic corporation from the marketing of pharmaceutical products of another domestic corporation is subject to the expanded withholding tax under Revenue Regulations (RR) No. 6-85, as amended, otherwise known as the "Expanded Withholding Tax (EWT) Regulations." It is represented that your client, Med-Asia, Inc. (MAI), a domestic corporation, entered into an exclusive marketing service agreement with Armedic Philippines, Inc. (API), likewise a domestic corporation; that pursuant to the said agreement, MAI shall promote the latter's pharmaceutical products in the Philippines, which are being distributed by Zuellig Pharma Corporation (ZPC); that MAI bills API for all expenses related to the marketing activities plus a service fee amounting to 5% of such actual costs on a monthly basis. In reply, please be informed that your opinion that your client, Med-Asia, Inc., should not be subject to the 1% expanded withholding tax applicable to advertising agencies on the ground that it is not an advertising agency is without any merit because the act of marketing a product is in itself advertising regardless of whether or not the company doing it is an advertising agency. Accordingly, it is the opinion of this Office that the income payments made to Med-Asia, Inc. by Armedic Philippines, Inc. for promoting the latter's pharmaceutical products in the Philippines shall be subject to the 1% expanded withholding tax under Section 1(e)(2)(h) of RR No. 6-85, as amended, otherwise known as the Revised and Consolidated Expanded Withholding Tax Regulations implementing Sec. 50(b) of the Tax Code, as amended, based on its gross income, exclusive of the amount paid or payable to media (BIR Ruling No. 361-92 dated December 17, 1992). LLpr Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)