BIR Ruling [DA-160-02]

September 16, 2002 BIR RULING [DA-160-02] 57; RR 2-98 (2.57.5) DA-575-12-98; DA-223-6-17-97 National Development Company NDC Building, 116 Tordesillas St. Salcedo Village, Makati City Attention: Ofelia B. Roxas Assistant General Manager Finance Group Gentlemen : This refers to your letter dated 23 October 2001 requesting for a ruling that the National Development Company (NDC) is exempt from withholding tax on rental base payments as provided under Section 2.74.5(sic) of Revenue Regulations No. 2-98 which exempts income payments to the government and its instrumentalities from withholding tax and BIR Ruling No. DA-575-98 which classifies NDC as a government instrumentality. It is represented that NDC is a government owned and controlled corporation created by Commonwealth Act No. 182 (C.A. No. 182) and its revised charter is embodied in Presidential Decree No. 1648 (PD No. 1648), as amended by Presidential Decree No. 1846 (PD No. 1846); that NDC's lessors have been withholding 5% from their lease payments to the former. You now seek to clarify NDC's exemption from withholding tax. In reply, please be informed that Section 2.57.5 of Revenue Regulations No. 2-98 as amended provides: "SEC. 2.57.5. Exemption from withholding. The withholding of creditable withholding tax prescribed in these Regulations shall not apply to income payments made to the following: "(A) National government and its instrumentalities, including provincial, city or municipal governments; xxx xxx xxx" As cited in the case of National Development Company vs. Cebu City, et al (G.R. 54593, November 5, 1992), a separate opinion by Justice Bautista-Angelo in the case of Gonzales vs. Hechanova (G.R. No. L-21897, October 22, 1963) defined a government instrumentality as referring to ". . . corporations owned or controlled by the government to promote certain aspects of the economic life of our people." It is also defined as "any agency of the national Government, not integrated within the department framework, vested with special functions or jurisdiction by law, endowed with some if not all corporate powers, administering special funds and enjoying operational autonomy, usually through a charter. This term includes regulatory agencies, chartered instructions and government-owned or controlled corporations." (Sec. 2(10), Introductory Provisions, Executive Order 292, otherwise known as the "Administrative Code of 1987") As represented and by virtue of its charter, the National Development Company falls within the definition of a government instrumentality having been created to serve as an agency of the government in the furtherance of its economic policies (C.A. No. 182) and as a corporate vehicle of the government designed to pursue commercial, industrial, agricultural or mining ventures ( P.D. No. 1648, as amended by P.D. No. 1846 ). In view of all the foregoing, lease/rental payments made to NDC by its lessees are not subject to creditable withholding tax under Section 57 of the Tax Code of 1997, as implemented by Revenue Regulations No. 2-98, as amended. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal & Inspection Group