BIR Ruling [DA-176-04]

April 6, 2004 BIR RULING [DA-176-04] DA-158-4-14-97 Meinan Philippines Inc. 107 East Main Avenue, SPEZ Laguna Technopark, Bian Laguna Attention: Mr. Akiyoshi Takakuwa President Gentlemen : This refers to your letter dated April 4, 2001 requesting for a ruling on whether expenses, such as freight and other charges incurred by your supplier MEINANSEIMITSU (Japan), which in return is being reimbursed to you, is subject to withholding tax. It is your position that the said reimbursements of actual expenses are in the nature of a return of your capital and not income of the recipients. In reply, please be informed that in BIR Ruling No. DA-158-4-14-97 dated April 14, 1997, citing BIR Ruling No. 202-81 dated October 22, 1981, this Office had the occasion to rule that reimbursement of actual expenses being mere return of capital does not constitute income, and therefore, not subject to the withholding tax. Thus, "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 )" (Emphasis supplied.) Applying the precept laid down in the said Ruling and considering that the expenses being incurred are reimbursed by your supplier, this Office holds and rules that the said reimbursements of expenses are in the nature of a return of your capital and not income of the recipients, and thus, not subject to withholding tax. IaHCAD 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.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group