BIR Ruling [DA-124-99]

March 4, 1999 BIR RULING [DA-124-99] OMNI Insurance Brokers Suite 405, 4th Floor, Kalaw-Ledesma Bldg. 117 Gamboa St., Legaspi Village, Makati Attention: Ms . Veronica A . Torrefiel Representative Gentlemen : This refers to your letter dated August 27, 1998 stating that your company, OMNI Insurance Brokers , is a licensed insurance brokerage; that as an insurance broker you secure insurance coverage for individual or corporate clients; that your clients either pays the insurance premiums directly to the insurance companies or they make their payments through your company; that the premium payments received by your company are remitted to the insurance companies, net of commissions; that the 5% withholding tax on said commission income being retained is remitted together with the premiums due to the insurance companies; and that recently, some of your clients insisted on deducting the 5% withholding tax from their premium payments due to their interpretation of Section 2.57.2 (G) of Revenue Regulations No. 2-98. In this connection, you are now requesting in effect, for a clarification regarding the correct interpretation of Section 2.57.2 (G) of Revenue Regulations No. 2-98, specifically, on who has the duty to withhold the 5% tax imposed on gross commissions of insurance brokers. In reply, please be informed that Section 2.57.2 (G) of Revenue Regulations No. 2-98, which provides viz.: "SEC. 2.57.2. Income payment subject to creditable withholding tax and rates prescribed thereon . "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: "SEC. 2.57.3. Persons required to deduct and withhold . The following persons are hereby constituted as withholding agents for purposes of the 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; (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 are subject to the 5% expanded withholding tax. For purposes of the said expanded withholding tax, the basis shall be the whole commission or compensation received by the insurance broker 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 5% withholding tax on the commission paid to the insurance brokers. The insurance companies being the payor-corporations are required to withhold the expanded withholding tax on the commissions or compensations paid to the insurance brokers. llcd Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)