BIR Ruling [DA-123-05]

April 6, 2005 BIR RULING [DA-123-05] RR 6-2001 DA-249-02 Equitable PCI Bank Equitable PCI Bank Towers Makati Avenue cor. H.V. de la Costa Sts. Makati City Attention: Mr. Ricardo V. Martin Vice-President and Chief Financial Officer Gentlemen : This refers to your letter dated December 6, 2004 requesting for a ruling whether or not the commission paid by Equitable PCI Life Insurance Company to Equitable PCI Bank for business generated is subject to withholding tax. It is represented that Equitable PCI Life Insurance Company is a domestic insurer established under the laws of the Philippines; that Equitable PCI Bank is a domestic corporation registered with the Securities and Exchange Commission and is duly licensed/authorized by Bangko Sentral ng Pilipinas to do banking business in the Philippines; and that on July 31, 2003, Equitable PCI Bank and Equitable PCI Life Insurance Company executed an agreement which provides among others the following: "1. Equitable PCI Bank wishes to retain and strengthen its vast customer base in the midst of an increasingly competitive banking environment by meeting the needs of its customers by introducing and offering non-banking products and services; 2. Equitable PCI Bank wishes to leverage its existing relationship network by cross-selling and marketing life insurance products and services; 3. Equitable PCI Bank wishes to increase its revenue and non-interest income through enhanced, efficient, and maximized use of its head office and branch network; 4. Equitable PCI Life through its various shareholders and affiliates is experienced in selling and cross-selling a comprehensive range of innovative and competitive Life Products; 5. Equitable PCI Life has high value, efficient and effective product and service delivery experience and expertise that will be beneficial for cross-selling and marketing; 6. Equitable PCI Life wishes to leverage, the extensive branch network and customer base of Equitable and benefit from Equitable PCI Bank physical presence in almost all parts of the Philippines; 7. Equitable PCI Life is willing to provide Equitable with its expertise and experience in bancassurance ,including, but not limited to, providing, marketing, and cross-selling certain of its agreed Life Products (also called "specified, insurance products" which are defined in Attachment A) to the customers directly and through Equitable PCI Bank network; 8. Equitable PCI Life is willing to endeavor to generate income from selling and cross-selling Specified Insurance Products to the customers; 9. Equitable PCI Life is willing to provide training and education to Equitable Bank's Officers and employees; 10. Equitable PCI Life is willing to commit financial sales executives who will be employees or agents of Equitable PCI Life and will be placed in the head office and the branch network of Equitable Bank; 11. Equitable PCI Life is willing to actively market the Specified Insurance Products to the customers to generate commission income under an Agreement; 12. Equitable PCI Life is willing to maintain an active corporate relationship with Equitable Bank by using Equitable Bank as one of its major depository institutions in the Philippines; 13. Equitable PCI Bank and Equitable PCI Life are affiliated companies which qualify them to enter into this Agreement; 14. Equitable PCI Life shall pay Equitable PCI Bank a commission for business generated (as discussed in the attached Agreement)." In reply thereto, please be informed that pursuant to Section 3(G) of Revenue Regulations No. 6-2001, as amended, amending Revenue Regulations No. 2-98 which provides, viz : "Sec. 3. Revised Rates of Creditable Withholding Tax. Section 2.57.2 of Revenue Regulations No. 2-98, as amended, is hereby further amended to read as follows: "Section 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- Ten percent, (10%)." Accordingly, considering that premium payments are received from the insured by Equitable PCI Bank for and in behalf of the insurance company and since the insurance company is the party who determines and pays the commission to Equitable PCI Bank, the insurance company shall withhold the 10% withholding tax on gross commission paid to Equitable PCI Bank. (BIR Ruling No. DA-249-02 dated December 18, 2002) TIEHSA 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, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group