BIR Ruling [DA-036-98]

February 4, 1998 BIR RULING [DA-036-98] Philippine Long Distance Telephone Company, Inc. Makati City Attention: Mr. Benjamin V. Simbahan Senior Manager Gentlemen : This refers to your letter dated August 5, 1996 requesting for confirmation of your opinion that entities (whether private or government), including government-owned and controlled corporations, are not required to withhold the 1% expanded withholding tax provided for under Revenue Regulations No. 6-85, as amended, and the 3% franchise tax provided for under Revenue Regulations No. 21-67, as amended, based on the following: "1. Services provided by franchise grantees of telephone and telegraph are not among those covered by Revenue Regulations No. 6-85, as amended, otherwise known as the Expanded Withholding Tax Regulations. RR No. 6-85, as amended, is an "all inclusive" list of payees subject to withholding tax. However, since franchise grantees are not enumerated in the list, payments to them are not covered by the expanded withholding tax regulations and therefore exempt from withholding. "2. Government entities including government-owned and controlled corporations are no longer required to withhold the 3% franchise tax since franchise grantees of telephone are no longer subject to franchise tax. Franchise grantees are now covered by the expanded value added tax law under R.A. 7716 beginning January 1, 1996. Government entities including government-owned and controlled corporations however, are allowed to withhold a 6% tax. The 6% withholding tax is based on the amount excluding the VAT for services rendered by persons, covered by the VAT law. The 6% withheld shall be claimed as tax credit against the output VAT liability of the seller of the service." In reply, please be informed that pursuant to Revenue Regulations No. 6-85, as amended, otherwise known as the Revised and Consolidated Expanded Withholding Tax Regulations implementing then Section 50 (b) of the Tax Code, as amended (now Section 57 (B) of the Tax Code of 1997), only income payments to payees enumerated therein are subject to the creditable expanded withholding tax prescribed under the said Regulations. Accordingly, and since income payments for services provided by telephone and telegraph companies are not among those enumerated as subject to the creditable expanded withholding tax under the said Regulations, such income payments are not therefore subject to expanded creditable withholding tax. Hence, your opinion that such entities (whether private or government), including government-owned or controlled corporations, are not required to withhold the 1% creditable withholding tax provided for under Revenue Regulations No. 6-85, as amended, is hereby confirmed. (BIR Ruling No. 049-92 dated February 13, 1992) Moreover, under Revenue Memorandum Circular No. 5-96, beginning January 1, 1996, services provided by telephone and telegraph companies are subject to the value-added tax imposed under then Section 102 (a) of the Tax Code, as amended (now Sec. 108 (A) of the Tax Code of 1997), hence, no longer subject to franchise tax. Such being the case, your opinion to the effect that entities (whether private or government), including government-owned or controlled corporations, are not required to withhold the 3% franchise tax provided for under Revenue Regulations No. 21-67, as amended, is likewise hereby confirmed. (BIR Ruling No. 027-97 dated March 31, 1997). However, under then Section 110 (c) of the Tax Code, as amended (now Sec. 114 (c) of the Tax Code of 1997), the Government or any of its political subdivisions, instrumentalities or agencies, including government-owned or controlled corporations (GOCCs) shall, before making payment on account of its purchases from sellers of goods and services rendered by contractors which are subject to the value-added tax imposed in now Sections 106 (A) and 108 (A) of the Tax Code of 1997, deduct and withhold the value-added tax due at the rate of three percent (3%) of the gross payment for the purchase of goods and six percent (6%) on gross receipts for services rendered by contractors on every release or installment payment which shall be creditable against the value-added tax liability of the seller or contractor (BIR Ruling No. 70-96 dated March 8, 1996). Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)