Hon. Elpidio F. Barzaga, Jr.

March 30, 2007 BIR RULING [DA-195-07] BIR Ruling No. DA-390-06 Hon. Elpidio F. Barzaga, Jr. Office of the Mayor Municipality of Dasmarias Cavite S i r : This refers to your letter dated March 29, 2006 indorsed to this Office by OIC-Regional Director Araceli L. Francisco on September 19, 2006 requesting for a ruling that the Manila Electric Company (MERALCO) refund to the Municipality of Dasmarias is not subject to the twenty-five percent (25%) creditable withholding tax under Revenue Regulations No. 8-2005. In reply, pleased be informed that the Municipality of Dasmarias is a government agency who is exempt from withholding tax under Section 2.57.5 of Revenue Regulations (Rev. Regs.) No. 2-98, as amended, viz: "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 agencies and its instrumentalities including provincial, city, municipal governments and barangays except government-owned and controlled corporations. xxx xxx xxx" The Municipality of Dasmarias is a government agency under the Department of the Interior and Local Government. Being a government agency, income payments to it are not subject to the withholding tax prescribed under Section 2.57.2 of Rev. Regs. No. 2-98, as amended. The case of the Municipality of Dasmarias is similar to the case in BIR Ruling No. DA-390-2006 dated June 23, 2006. The facts of the case are as follows: LSHA is a corporation exempt from income tax. It has a refund of the excess utility payments with MERALCO covering the period 1995 to 2003. It is not engaged in any profitable activities that would result in the imposition of income taxes, consequently, it has not claimed the above utility payments as deductions for income tax purposes. It is not subject to income tax, thus, it has not claimed the utility payments as deductions resulting in a benefit. This Office ruled in said case that ". . . considering that LSHA is an organization exempt from income tax and it has not been engaged in any profitable activities that would result in the imposition of taxes, thereby it has not claimed the above utility payments as deductions for income tax purposes, the refund of the excess utility payments in its favor, therefore, will not give rise to or create a taxable income. Consequently, said refund is not subject to the withholding tax prescribed under RR No. 8-2005." cATDIH Since the Municipality of Dasmarias is exempt from withholding tax under Section 2.57.5 of Rev. Regs. No. 2-98, as amended, the refund of the excess utility payments in its favor will not give rise to or create a taxable income. Consequently, said MERALCO refund is not subject to withholding tax. 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 as null and void. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service