BIR Ruling [DA-158-97]

April 14, 1997 BIR RULING [DA-158-97] Pacific Banking Corporation Employees Organization (PABCEO) Rm. 310 Pacific Bank Bldg. 460 Quintin Paredes Street Binondo, Manila Attention: Ms . Paula S . Paug President Gentlemen : This refers to your letter dated December 23, 1996 requesting for a ruling whether the reimbursement of the litigation and miscellaneous expenses of Pacific Banking Corporation Employees Organization (PABCEO) is subject to 10% withholding tax value added tax. It is represented that Pacific Bank was closed by the Central Bank on July 5, 1985, and was sold to Far East Bank but its employees were not absorbed; that Pacific Bank was placed under liquidation by the Central Bank; that due to the closure of Pacific Bank in 1985, the union. PABCEO, filed a class suit to recover all the benefits due to about 1,199 Pacific Bank employees; that on July 1, 1991, Philippine Deposit Insurance Corporation (PDIC) was appointed as the new liquidator of Pacific Bank replacing Central Bank; that on October 29, 1996, PDIC started paying the monetary claims of the Pacific Bank employees, including an amount voluntarily given to the union then PDIC from the individual monetary claims for the reimbursement of PABCEO's litigation and miscellaneous expenses; that on December 19, 1996, an amount of P142,556.18 was collected of which 10% was deducted therefrom in the amount of P14,655.67 representing withholding tax/VAT thereby remitting the net amount of P128,300.56 to PABCEO. In reply thereto, please be informed that the reimbursement of actual expenses being mere return of capital does not constitute income. Such being the case, the reimbursement for litigation and miscellaneous expenses advanced by PABCEO which has the obligation to represent the Pacific Bank employees in their suit against the bank for collection of all the benefits due to them as a result of its closure are not subject to the withholding tax prescribed by Revenue Regulations No. 6-85, as amended, otherwise known as the Expanded Withholding Tax Regulations. Moreover, said reimbursements are not also subject to VAT. (BIR Ruling No. 202-81 dated October 22, 1981) cdtech Very truly yours, ALICIA L. TOMACRUZ Head Revenue Executive Assistant (Legal Service)