BIR Ruling [DA-226-02]

November 29, 2002 BIR RULING [DA-226-02] RR 6-2001; 12-2001; 56-89; DA 564-99 Sycip, Gorres, Velayo & Co. 6760 Ayala Avenue Makati, Metro Manila Attention: Atty. R. M. C. Vinzon Tax Division Gentlemen : This refers to your letter dated October 11, 2001, requesting for a ruling that the lease of telecommunications equipment forming part of Radio Communication Philippines, Inc. (RCPI) network to Bayan Telecommunications, Inc. (Bayantel) is not subject to creditable withholding tax. It is represented that RCPI is duly empowered by the National Telecommunications Commission (NTC) to operate and maintain Inter-Exchange Carrier Service (IXC) and to charge rates therefor pursuant to a provisional authority; that Bayantel is also empowered by the NTC to operate and maintain IXC service pursuant to a provisional authority; that RCPI will lease telecommunications equipment forming part of its network to Bayantel; and that the properties to be leased by RCPI to Bayantel consist of the following: 1. Radio and telecommunications equipment including antenna, rectifier and solar system, inverter and genset and batteries; 2. Switching equipment; 3. Cables and wires; 4. Tools and test equipment; 5. Terminal equipment; 6. Power and electrical equipment; 7. Computer software and hardware; 8. Office equipment; 9. Furniture; 10. Transportation equipment. In reply, please be informed that Revenue Regulations No. 2-98, which provides for the rules for the withholding of taxes, enumerates the income payments subject to creditable withholding tax and pursuant to BIR Ruling No. DA-564-99, only payments made to persons enumerated in Revenue Regulations No. 2-98, as amended by RR 6-2001 and RR 12-2001, are subject to the creditable withholding tax. However, pursuant to Revenue Regulations No. 14-2002 dated September 9, 2002, effective October 1, 2002, the lease of telecommunications equipments such as the above-mentioned properties leased by RCPI to Bayantel, which were not subject to the creditable withholding tax under RR No. 2-98, as amended, are now subject to the five percent (5%) creditable withholding tax. However, the ten thousand pesos (P10,000.00) threshold shall not apply when the accumulated gross rental or lease paid by the lessee to the same lessor exceeds or is reasonably expected to exceed P10,000.00 within the year. In which case, the lessee shall withhold the five percent (5%) withholding tax on the entire amount. 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 null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal and Inspection Group