BIR Ruling [DA-197-04]

April 6, 2004 BIR RULING [DA-197-04] Clorox International Philippines, Inc. 15/F, The JMT Corporate Condominium ADB Avenue, Ortigas Center Pasig City Attention: Ms. Maria Luisa L. Quizon Finance and Admin. Director Gentlemen : This refers to your letter dated August 7, 2003 and October 6, 2003 requesting for a clarificatory ruling on the following: 1) When will your authority as withholding agent under Section 2.57.2(M) of Revenue Regulations (Rev. Regs.) No. 2-98, as amended, start? A: Pursuant to Section 2.57.2(M) of the above regulations, your authority as withholding agent shall be effective on June 19, 2003 or the date you received a written notice from the Commissioner that you have been classified as one of the Top Ten Thousand (10,000) Private Corporations and not on July 22, 2003 when various issues on the said regulations were made clear to you in the briefing held at the BIR National Training Center. 2) How do you compute the withholding tax for premiums on insurance policies of motor vehicles based on the billing that you receive from your insurance broker? A: The 10% creditable withholding tax under Section 2.57.2(A)(5) of Rev. Regs. No. 2-98, as amended by Section (G) of Rev. Regs. No. 17-2003 is based on the gross commissions or service fees received by the insurance broker excluding insurance premiums which are payments due to the insurance company. Accordingly, considering that payments are received from you (the insured) by your insurance broker for and in behalf of your insurance company and since your insurance company is the party who determines and pays your insurance broker's commission, your insurance company and not you (the insured), is considered the withholding agent for purposes of the 10% creditable withholding tax on gross payments to your insurance broker ( BIR Ruling No. 167-85 dated September 24, 1985 and BIR Ruling No. 044-87 dated February 12, 1987 ). 3) Your fire policy is a global insurance coverage, wherein your parent company in the U.S. secures the policy for its subsidiaries. Your allocated share of the premium is being paid through its local office here. Is the allocated premium which you pay to the local office here subject to tax? If yes, what is the tax base and rate? A: Section 124 of the Tax Code of 1997 provides, viz : "SEC. 124. Tax on Agents of Foreign Insurance Companies . Every fire, marine or miscellaneous insurance agent authorized under the Insurance Code to procure policies of insurance as he may have previously been legally authorized to transact on risks located in the Philippines for companies not authorized to transact business in the Philippines shall pay a tax equal to twice the tax imposed in Section 123: Provided, That the provisions of this Section shall not affect the right of an owner of property to apply for and obtain for himself policies in foreign companies in cases where said owner does not make use of the services of any agent, company or corporation residing or doing business in the Philippines. In all cases where owners of property obtain insurance directly with foreign companies, it shall be the duty of said owners to report to the Insurance Commissioner and to the Commissioner each case where insurance has been so effected, and shall pay the tax of five percent (5%) on premiums paid, in the manner required by Section 123 . (Emphasis ours.) The 5% premium tax payable by every person, company or corporation (except purely cooperative companies or associations) doing insurance business of any sort in the Philippines is based on the total premium collected pursuant to Section 123 in relation to Section 124 of the Tax Code of 1997 ( BIR Ruling No. 040-93 dated January 20, 1993 ). Based on the foregoing, your allocated share of the premium being paid through a local office here is subject to the 5% premium tax based on the total premium collected. 4) Are the payments for the hotel charges and use of the facilities of the golf clubs as well as meals incurred on these subject to the 2% creditable withholding tax (CWT)? A: No, they are not subject to CWT since the income payments for the hotel charges, use of the facilities of the golf clubs and meals are not among those listed as subject to creditable withholding tax under Revenue Regulations No. 2-98, as amended. However, the sale of goods or services is subject to the 10% value-added tax (VAT) pursuant to Section 106 and 108 of the Tax Code of 1997. The VAT is an indirect tax, payable by the seller and not by the purchaser of goods or services. Being an indirect tax, the amount of the tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services ( Section 105, Tax Code of 1997 ). Once shifted, it is no longer a tax but an additional cost which the purchaser has to pay to obtain the goods or services ( Philippine Acetylene Co. vs. Commissioner of Internal Revenue , G.R. No. L-19707, August 17, 1967). 5) Are payments to companies engaged in conducting trainings and seminars subject to the 2% or 10% creditable withholding tax? A: Where no employer-employee relationship exists, the company engaged in conducting the training or seminar, as withholding agent, is required to deduct and withhold the creditable tax on income payments to lecturers/instructors/resource persons at the rate of 10% or 5%, as the case may be, pursuant to Section 2.57.2 (A)(8) and (B) of Revenue Regulations No. 2-98, as amended. The withholding taxes or money/income payments are required to be paid/remitted on or before the 10th day of the month following the month in which withholding was made. The amounts subject to withholding tax shall include not only fees, but also per diems, allowances and any other form of income payments not subject to withholding tax on compensation . However, if an employer-employee relationship exists between the company engaged in conducting the training or seminar and the lecturers/instructors/resource persons, the professional fees, teaching or lecture fees or honoraria form part of their gross compensation and subject to income tax on wages under Revenue Regulations No. 2-98, as amended, shall be computed pursuant to Section 24(A)(1)(c) of the Tax Code of 1997, in accordance with and at the rates established in the following schedule: Not over P10,000 5% Over P10,000 but not over P30,000 P500 + 10% of the excess over P10,000 Over P30,000 but not over P70,000 P2,500 + 15% of the excess over P30,000 Over P70,000 but not over P140,000 P8,500 + 20% of the excess over P70,000 Over P140,000 but not over P250,000 P22,500 + 25% of the excess over P140,000 Over P250,000 but not over P500,000 P50,000 + 30% of the excess over P250,000 Over P500,000 P125,000 + 34% of the excess over P500,000 in 1998 provided, that effective January 1, 1999, the top marginal rate shall be thirty three percent (33%) and effective January 1, 2000, the said rate shall be thirty two percent (32%) [ BIR Ruling No. DA-676-99 dated December 10, 1999 ]. 6) There are payments that have to be done in cash such as hotel bills, car repairs, etc. where you have no existing credit limits on these establishments/shops or at times, casual purchases in cash exceeding P10,000. In such cases, no taxes have been withheld since the payments were not done through company checks. What will be the best thing to do on these kind of transactions? A: Your hotel and car repair bills, etc. are subject to VAT. The amount appearing in the sales invoices/receipts issued to you is inclusive of the VAT due thereon pursuant to Revenue Regulations (Rev. Regs.) No. 8-99. On the other hand, Rev. Regs. No. 6-85 implementing Section 57(B) of the Tax Code of 1997 (then Section 50(b) of the Tax Code, as amended), as amended by Rev. Regs. No. 12-94, as further amended by Rev. Regs. No. 2-98, as further amended by Rev. Regs. No. 17-2003 now reads: "Sec. 2.57.2 Income payments subject to creditable withholding tax and rates prescribed thereon Except as herein otherwise provided, there shall be withheld a creditable income tax at the rates herein specified for each class of payee from the following items of income payments to persons residing in the Philippines: xxx xxx xxx "(M) Income payments made by the top ten thousand (10,000) private corporations to their local/resident supplier of goods and local/resident supplier of services other than those covered by other rates of withholding tax. Income payments made by any of the top ten thousand (10,000) private corporations, as determined by the Commissioner, to their local/resident supplier of goods and local/resident supplier of services, including non-resident alien engaged in trade or business in the Philippines . Supplier of goods One percent (1%) Supplier of services Two percent (2%) xxx xxx xxx The term 'local/ resident supplier of goods' pertains to a supplier from whom any of the top ten thousand (10,000) private corporations, as determined by the Commissioner, regularly makes its purchases of goods. As a general rule, this term does not include a casual purchase of goods, that is, purchases made from non-regular suppliers and oftentimes involving single purchases. However, a single purchase which involves ten thousand pesos (P10,000.00) or more shall be subject to a withholding tax. The term 'regular suppliers' refers to suppliers who are engaged in business or exercise of profession/calling with whom the taxpayer-buyer has transacted at least six (6) transactions, regardless of amount per transaction, either in the previous year or current year. The same rules apply to local/resident supplier of services other than those covered by separate rates of withholding tax . xxx xxx xxx" In view of the foregoing provisions, in order for you to subject to the 2% creditable withholding tax your income payments to hotels, automobile repair shops, and other establishments, you must have transacted at least six (6) transactions with said hotels, shops, or establishments regardless of the amount per transaction, either in the previous year or current year ( BIR Ruling No. 141-94 dated September 20, 1994 ). Moreover, under Section 2 of Rev. Regs. No. 3-94 amending Section 3(a) of Rev. Regs. No. 12-93, implementing Section 58(A) of the Tax Code of 1997, withholding taxes of Large Taxpayers shall continue to be paid at venues in accordance with existing laws and regulations applicable to non-large taxpayers (cited in BIR Ruling No. 017-98 dated February 6, 1998). Section 4(3.2) of Rev. Regs. No. 1-98 amending Rev. Regs. No. 12-93, as amended by Rev. Regs. No. 3-94 provides, viz : EaIDAT "3.2 Withholding Tax Remittance and Information Returns All withholding taxes of the Head Office and/or any branch/unit of a Large Taxpayer shall be covered by a consolidated return, and remitted within twenty-five (25) days after the close of each month. An accompanying schedule (Annex B) shall be attached to the return filed with the following information: a. Month covered; b. Name and addresses of Head Office and branches/units; and c. Amount of withholding taxes to be remitted. Annual information returns on final withholding taxes shall be filed on or before January 31 of the succeeding year, and for creditable withholding taxes, not later than March 1 of the year following the year for which the annual report is being submitted." Please be guided accordingly. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group