BIR Ruling [DA-089-00]

February 10, 2000 BIR RULING [DA-089-00] RR 2-98 167-85 Sam Sung Philippines Co., Inc. Block 5, Lot 12, Phase IB, No. 8 Santa Veronica Street Pacita Complex I, San Pedro Laguna Attention: Mr . Paul B . Sang General Manager Gentlemen : This refers to your letter dated October 27, 1999 requesting clarification if payment of insurance premium is covered by Revenue Regulations No. 2-98 or only the payment to insurance agent. In reply, please be informed that Sec. 2.57.2(G) of Revenue Regulations No. 2-98 provides viz: Sec. 2.57.2. Income payment 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: xxx xxx xxx "(G) Income payments to certain brokers and agents On gross commissions of customs, insurance, real estate and commercial brokers and fees of agents of professional entertainers Five percent (5%) xxx xxx xxx" Moreover, Section 2.57.3 of Revenue Regulations No. 2-98 provides as follows: "Section 2.57.3. Persons required to deduct and withhold The following persons are hereby constituted as withholding agents for purposes of creditable tax required to be withheld on income payments enumerated in Section 2.57.2: (A) In general, any juridical person, whether or not engaged in trade or business; SaIEcA (B) An individual, with respect to payments made in connection with his trade or business. However, insofar as taxable sale, exchange or transfer of real property is concerned, individual buyers who are not engaged in trade or business are also constituted as withholding agents; C) All government offices including government-owned or controlled corporations, as well as provincial, city and municipal governments. Thus, gross payments to insurance brokers and agents are the ones subject to the 5% expanded withholding tax. For purposes of the said expanding withholding tax, the basis shall be the whole commission or compensation received by the insurance broker or agent excluding insurance premiums which are payments due to the insurance company. (BIR Ruling No. 167-85.) The insurance companies are constituted as the withholding agents who shall withhold the corresponding withholding tax on the commission paid to the insurance brokers/agents. The insurance companies being the payor-corporations are required to withhold the expanded withholding tax on such commission or compensation. 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 null and void. SCaEcD Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group