BIR Ruling [DA-028-04]

January 16, 2004 BIR RULING [DA-028-04] Section 57 (B) BIR Ruling No. 141-94; 166-94 & 017-98 College Assurance Plan Phils., Inc. 126 Amorsolo cor. Herrera Sts. Legaspi Village, Makati City Attention: Mr. Alfeo S. Pelayo Vice President Gentlemen : This refers to your letter dated September 10, 2003 indorsed to this Office on September 11, 2003 by the Chief of Withholding Tax Division Marilou L. Del Rosario requesting, in effect, for a clarificatory ruling on whether or not you are required to withhold the 2% creditable withholding tax on income payments to PLDT pursuant to Section 3 of Revenue Regulations No. 17-2003. It is represented that your company has been reclassified by the Commissioner as one of the Top Ten Thousand (10,000) private corporations; that as such, and in compliance with Revenue Regulations (Rev. Regs.) No. 17-2003, you subject all income payments to supplier of services to the 2% creditable withholding tax including your payment of telephone billing to PLDT; that you received a notice from PLDT stating that under BIR Ruling No. DA-036-98 dated February 4, 1998 signed by then Deputy Commissioner Sixto S. Esquivias IV, payments to PLDT are not subject to expanded withholding tax (EWT); that all payments net of EWT are therefore treated by PLDT as partial payments and the EWT amounts are forwarded to next billing as unpaid previous billings; that unlike in previous pertinent revenue regulations, Revenue Regulations No. 17-2003 states that the top ten thousand (10,000) corporations shall withhold the 2% creditable withholding tax on income payments to their regular supplier of services; and that your interpretation therefore is that BIR Ruling No. DA-036-98 is repealed by Rev. Regs. No. 17-2003. In reply, please be informed that BIR Ruling No. DA-036-98 dated February 4, 1998 was anchored on Revenue Regulations (Rev. Regs.) No. 6-85. We note that Rev. Regs. No. 6-85 implementing Section 57(B) of the Tax Code of 1997 (then Section 50(b) of the Tax Code, as amended) did not contain any provision on income payments made by the top ten thousand (10,000) corporations. On the other hand, Rev. Regs. No. 12-94 dated June 27, 1994 which amended Rev. Regs. No. 6-85 provides as follows, viz : "SEC. 1. Section 1 of Revenue Regulations No. 6-85, as amended, is hereby further amended to read as follows: Section 1. Income payments subject to creditable withholding tax and rates prescribed thereon . Except as herein otherwise provided, there shall be withheld a creditable income tax at the rates herein specified for each class of payee from the following items of income payments to persons residing in the Philippines HEDaTA xxx xxx xxx (m) Income payments by top 5,000 corporation. Income payments made by any of the top five thousand (5,000) corporations, as determined by the Commissioner of Internal Revenue, to their local suppliers of goods one percent (1%)" The same Rev. Regs. No. 6-85 as amended by Rev. Regs. No. 12-94 was further amended by Rev. Regs. No. 2-98 dated April 17, 1998 by defining the terms "goods" and "local suppliers of goods"; providing the requirement of notification by the Commissioner that the taxpayer has been selected as one of the top five thousand (5,000) now ten thousand (10,000) corporations; and the submission of a list of regular suppliers of goods to the concerned RDO. Rev. Regs. No. 2-98 was further amended by Rev. Regs. No. 17-2003 dated March 31, 2003 to include not only suppliers of goods but also of services. Section 2.57.2(M) of Rev. Regs. No. 2-98, as amended by Rev. Regs. No. 17-2003 now reads: "Sec. 2.57.2 Income payments subject to creditable withholding tax and rates prescribe thereon Except as herein otherwise provided, there shall be withheld a creditable income tax at the rates herein specified for each class of payee from the following items of income payments to persons residing in the Philippines: xxx xxx xxx "(M) Income payments made by the top ten thousand (10,000) private corporations to their local/resident supplier of goods and local/resident supplier of services other than those covered other rates of withholding tax . Income payments made by any of the top ten thousand (10,000) private corporations, as determined by the Commissioner, to their local/resident supplier of goods and local/resident supplier of services, including non-resident alien engaged in trade or business in the Philippines Supplier of goods One percent (1%) Supplier of services Two percent (2%) xxx xxx xxx The term 'local/ resident supplier of goods' pertains to a supplier from whom any of the top ten thousand (10,000) private corporations, as determined by the Commissioner, regularly makes its purchases of goods. As a general rule, this term does not include a casual purchase of goods, that is, purchases made from non-regular suppliers and oftentimes involving single purchases. However, a single purchase which involves ten thousand pesos (P10,000.00) or more shall be subject to a withholding tax. The term 'regular suppliers' refers to suppliers who are engaged in business or exercise of profession/calling with whom the taxpayer-buyer has transacted at least six (6) transactions, regardless of amount per transaction, either in the previous year or current year. The same rules apply to local/resident supplier of services other than those covered by separate rates of withholding tax . xxx xxx xxx" Based on the foregoing provisions, in order that income payments to PLDT will be subject to the 2% creditable withholding tax, CAP must be among the top ten thousand (10,000) private corporations, as notified by the Commissioner, and has transacted at least six (6) transactions with PLDT, regardless of amount per transaction, either in the previous year or current year (BIR Ruling No. 141-94 dated September 20, 1994). Thus, under Revenue Memorandum Circular No. 28-94, a taxpayer will be subject to the withholding provisions when he receives a notice that he is included in the list of the top 5,000 (now 10,000) corporations (BIR Ruling No. 166-94 dated December 5, 1994) . It appearing that PLDT is embraced within the meaning of "regular suppliers" of CAP and CAP being one of the top ten thousand (10,000) private corporations, CAP is duty bound to withhold the 2% creditable withholding tax on its income payments to PLDT. Under the Tax Code and implementing regulations, CAP is constituted as withholding agent with the duty to withhold the 2% creditable withholding tax under pain of punishment/penalty as provided for by law. Moreover, under Section 2 of Rev. Regs. No. 3-94 amending Section 3(a) of Rev. Regs. No. 12-93, implementing Section 58(A) of the Tax Code of 1997, withholding taxes of Large Taxpayers shall continue to be paid at venues in accordance with existing laws and regulations applicable to non-large taxpayers (cited in BIR Ruling No. 017-98 dated February 6, 1998). Section 4(3.2) of Rev. Regs. No. 1-98 amending Rev. Regs. No. 12-93, as amended by Rev. Regs. No. 3-94 provides, viz : "3.2 Withholding Tax Remittance and Information Returns . All withholding taxes of the Head Office and/or any branch/unit of a Large Taxpayer shall be covered by a consolidated return, and remitted within twenty five (25) days after the close of each month. An accompanying schedule (Annex B) shall be attached to the return filed with the following information: a. Month covered; b. Name and addresses of Head Office and branches/units; and c. Amount of withholding taxes to be remitted. TcDIaA Annual information returns on final withholding taxes shall be filed on or before January 31 of the succeeding year, and for creditable withholding taxes, not later than March 1 of the year following the year for which the annual report is being submitted." In relation to the above provisions, Section 6 of Rev. Regs. No. 1-98 and Section 8 of Rev. Regs. No. 17-2003 further provides that all rules and regulations or parts thereof which are inconsistent with the provisions of the above mentioned regulations are revoked, repealed or amended accordingly. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered as null and void. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group