BIR Ruling [DA-089-01]

May 16, 2001 BIR RULING [DA-089-01] S32; RR 2-98 016-2001 Paseguruhan ng mga Naglilingkod sa Pamahalaan (GSIS) Financial Center, Pasig City Attention: Atty . Nora M . Salundares Manager, Underwriting Department II General Insurance Group Gentlemen : This refers to your letter dated December 6, 2000 requesting for an opinion on the appropriate withholding tax to be deducted from the notarial fee earned by a Notary Public. You represent that a government employee who is receiving a fixed salary is permitted to earn extra income through the exercise of his legal profession as a Notary public. However, being a Notary Public is not part of his usual functions/job in the office. For the convenience of his employer's clients, this Notary Public notarized the documents executed/prepares by his employer. The Client pays the notarial fee through the employer. The employer received 50% or of the notarial fee paid by the client and eventually reimbursed the remaining 50% or of the said notarial fee less 10% withholding tax to the Notary Public. In reply, please be informed that Section 32 of the 1997 Tax Code specifically provides that: "SEC. 32. Gross Income . (A) General Definition . Except when otherwise provided in this Title, gross income means all income derived from whatever source, including (but not limited to) the following items: (1) Compensation for services in whatever form paid, including, but not limited to fees, salaries, wages, commissions, and similar items; xxx xxx xxx (Emphasis supplied.) Accordingly, the notary fees earned by a Notary Public, in the exercise of his profession, is considered compensation for services rendered, and is part of his gross income. Even your representations admit that the notary fees are considered "extra income through the exercise of his legal profession as a Notary Public" . As such, the said notarial fees shall be subject to 10% withholding tax in accordance with Section 2.57.2(A)(1) of Revenue Regulations No. 2-98, which clearly states that: "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: (A) Professional fees, talent fees, etc . , for services rendered by individuals On the gross professional, promotional and talent fees or any other form or remuneration for the services of the following individuals Ten percent (10%); (1) Those individually engaged in the practice of professions or callings : lawyers , certified public accountants; doctors of medicine; architects; civil, electrical, chemical, mechanical, structural, industrial, mining, sanitary, metallurgical and geodetic engineers; marine surveyors; doctors of veterinary science; dentist; professional appraisers; connoisseurs of tobacco; actuaries; and interior decorators; xxx xxx xxx" (Emphasis supplied.) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different then this ruling shall be considered void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal and Inspection Group