Pilipino Cable Corporation

March 2, 2007 BIR RULING [DA-130-07] DA 507-06 Pilipino Cable Corporation Unit 1304-A-C West Tower PSEC Building, Exchange Road Ortigas, Pasig City Attention: Mr. Cornelio V. Caedo Chief Finance Officer Gentlemen : This refers to your letter dated January 31, 2007 stating that Pilipino Cable Corporation (PCC), its subsidiaries and affiliates are corporations incorporated primarily to operate, install and maintain cable television systems in various cities and municipalities in the Philippines; that to facilitate the purchase of goods and services which are common among PCC and its subsidiaries and affiliates, as well as, to optimize PCC's connection with its suppliers of goods and services, there are instances when purchases are centralized with PCC; that this enable PCC to obtain the lowest cost possible and facilitates transactions with suppliers who do not want to deal with multiple customers for a single and/or same transactions, nor invoice separately; that with centralized purchases, PCC pays for the purchases of common goods and services, claims the input tax, withholds and remits applicable withholding taxes, and issues withholding tax certificates to its suppliers on behalf of its subsidiaries and affiliates; that invoices of all common purchases made by PCC are in its name; that PCC allocates the goods (assets) and services, as well as, the corresponding expenses to its subsidiaries and affiliates; that PCC's subsidiaries and affiliates recognize assets and expenses only to the extent of their respective share; and that payments received by PCC from its subsidiaries and affiliates for assets and expenses allocated to the latter are not recognized by PCC as revenue and income. Based on the foregoing representations, you now request confirmation of your opinion that 1. The payments received by PCC from its subsidiaries and affiliates for the latter's share in common purchases are not subject to withholding tax as these are: (i) funds merely held in trust; (ii) are not in the nature of a fee or consideration for PCC's service; (iii) are for eventual remittance to the supplier of goods and services; and (iv) do not fall within the meaning of gross receipts; and 2. Considering that PCC has control over the payment of suppliers, the withholding of taxes by PCC on the entire payment to suppliers, in lieu of its subsidiaries and affiliates for their respective share, and the remittance thereof to the BIR is deemed substantial compliance with the withholding tax requirements insofar as the correct amount of taxes were withheld and remitted to the government. Hence, the said remittance may be credited to the account of PCC's subsidiaries and affiliates, as actual payors. In reply thereto, please be informed that this Office had already occasioned to rule on the matter, when it said in BIR Ruling No. DA507-06 dated August 22, 2006 , that ". . . the payments received by ATSC from ATG for the latter's share in the common purchase are not subject to withholding tax as these are funds merely held in trust and not in the nature of a fee or consideration by ATSC's services but instead for eventual remittance to the supplier of goods and services. The same do not fall within the definition of gross receipts under Section 108 of the Tax Code of 1997. ". . . in the case of Commissioner of Internal Revenue vs. Tours Specialists, Inc. and the Court of Tax Appeals, 183 SCRA 402 , the Supreme Court held that gross receipts subject to tax under the Tax Code do not include monies or receipts entrusted to the taxpayer which do not belong to them and do not redound to the taxpayer's benefit; and it is not necessary that there must be a law or regulation which would exempt such monies and receipts within the meaning of gross receipts under the Tax Code. ". . . inasmuch as the money received by ATSC from ATG, for the latter's share in the common purchases does not represent income to ATSC, the said amount, therefore, shall not likewise be subject to income tax and consequently to withholding tax. ". . . Section 2.57.3 of Revenue Regulations No. 2-98, as amended by Section 5 of Revenue Regulations No. 30-03 dated November 12, 2003, agents or any person purchasing goods or services/paying for and in behalf of withholding agents shall likewise withhold in their behalf, provided that the official receipts of payment/sales invoices shall be issued in the name of the person whom the former represents and the corresponding certificate of tax withheld (BIR Form No. 2307) shall immediately be issued upon withholding of the tax. "In the instant case, withholding and remittance by ATSC for its account of the withholding tax on gross payments made by ATG to the suppliers, insofar as the correct amount of taxes has been withheld and remitted to the BIR, shall constitute substantial compliance with the withholding tax requirements under the said regulations. Thus, upon proof of the withholding and remittance of taxes by ATSC, the said amount may, therefore, be credited for the account of ATG, being the withholding agent-payor." TCaADS At this juncture, observation has to be made of the fact that since the above-mentioned circumstances are similar in all fours to the instant case, this Office hereby confirms your opinion that 1. The payments received by PCC from its subsidiaries and affiliates for the latter's share in the common purchases are not subject to withholding tax as these are funds merely held in trust and are not in the nature of a fee or consideration for PCC's service but for eventual remittance to the supplier of goods and services. Moreover, the payments do not fall within the meaning of gross receipts as defined in the Tax Code. 2. Inasmuch as PCC has control over the payment to the suppliers, the withholding of taxes by PCC on the entire payment to the suppliers, in lieu of its subsidiaries and affiliates for their respective share, and the remittance thereof to the BIR is deemed substantial compliance with the withholding tax requirement. Consequently, the remittance may be credited to the account of PCC's subsidiaries and affiliates, as the actual payors. 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, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service