BIR Ruling [DA-106-97]

March 19, 1997 BIR RULING [DA-106-97] San Miguel Corporation 40 San Miguel Avenue Mandaluyong City Attention: Atty. P. Clinton L. Laudencia, Jr. Gentlemen : This refers to your letter dated August 13, 1996 requesting, in effect, for confirmation of your opinion that charges/billings made by you to your subsidiaries for their use of utilities, common facilities and services purely at cost and without any profit but merely reimbursements are not subject to the expanded withholding tax. It is represented that San Miguel Corporation (SMC), a corporation organized and existing under the laws of the Philippines is engaged in various lines of business such as food, beverage, packaging and real property; that it has (3) three main operating divisions namely, beer, packaging and food; that SMC has several subsidiaries mostly wholly owned or with majority interest; that in a few locations, two or more subsidiaries share the same building with SMC which may be covered by Lease Agreements with SMC, as the only nominal party-lessee; that the rental may be paid in advance by SMC alone to the lessor and then charged the other co-lessees an amount equivalent to the proportionate share of each lessee without any profit or mark-up; that SMC does not take the role of a sub-lessor but is only one of the co-lessees; that the subsidiaries merely reimburse the rental advanced by SMC; that similarly, in order to save on various common expenses such as security, building maintenance, and utilities SMC first makes the payments to the service suppliers and then bills the other service users the allocated expenses at cost; that the amount so charged is actually a mere reimbursement of the expenses directly incurred by SMC for and in behalf of the subsidiary; and that no profit is made nor is there any intention on the part of SMC to make a profit from the transaction. DCAHcT In reply, please be informed that your opinion is hereby confirmed. The reimbursement by the subsidiaries for the rentals as well as for the common expenses such as security, building maintenance and utilities advanced by SMC for and in behalf of its subsidiaries are not income payments to SMC but reimbursement of costs advanced by it. Such being the case, the same are not subject to the expanded withholding tax under Revenue Regulations No. 6-85 as amended by Revenue Regulations No. 12-94 implementing Section 50 (b) of the Tax Code, as amended. (BIR Ruling No. 129-92 dated April 20, 1992) 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. Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service) By: (SGD.) ALICIA L. TOMACRUZ Head Revenue Executive Asst. (Legal Service)