BIR Ruling [DA-246-04]

May 7, 2004 BIR RULING [DA-246-04] Rev. Reg. 2-98; BIR Ruling No. 128-99 Consolidated Insurance Co., Inc . 3/F Salamin Building 197 Salcedo St., Legaspi Village Makati City Attention: Mr. Edwin B. Celino President and CEO Gentlemen : This refers to your letter dated August 6, 1999 requesting in behalf of ISAP, Inc. , (ISAP) for a ruling as to whether ISAP is liable as a withholding agent for its failure to withhold and remit tax. It is represented that BIR, Revenue District Office No. 3 is holding ISAP liable for its failure to withhold and remit the tax due on salaries of its employees; that ISAP maintains that it is not liable as a withholding agent of the Bureau of Internal Revenue (BIR), the Social Security System (SSS), the MEDICARE and the PAG-IBIG because it is not the registered employer of said employees; that it is PIRA, Inc. (PIRA), its sister association, which is the registered employer of said employees; that as registered employer, PIRA had withheld and paid the correct withholding tax on the salaries that were for its account and which were charged to ISAP; ISAP and PIRA are two umbrella associations of all the non-life insurance companies licensed and operating in the Philippines; the main functions of ISAP, Inc., aside from being the Secretariat, are to protect the interest of the members and assist the public in their insurance affairs; that the functions of PIRA, as the technical association, involved premium rating, policy wordings and practice of insurance, aside from being the Secretariat; that both associations do not derive income for their services, either from their members or the public; that the associations collect membership dues from members to pay for their expenses; that budgets for expenses to be incurred during a particular year are prepared and the total budget is collected from the members as membership dues; that for ISAP, the year's budget is divided equally by the number of members so that the members pay the same amount of membership dues; that for PIRA, the members with more income (or the larger companies) pay a bigger amount of membership dues as they derive more benefit, aside from subsidizing the operations of the association in some way; that PIRA's membership dues are therefore allocated among its members on the basis of premium income; that any savings in the budget are carried over to the next year as deduction; both associations share the same members, hence, both maintain common employees and common office premises for efficient and economical operation of the two associations; all employees perform duties benefiting both ISAP and PIRA except that PIRA has a technical staff (engineers and architects) who work more for PIRA, accordingly, their salaries are directly charged to PIRA; that the general expenses are shared between the two associations according to an agreed sharing depending on the benefit derived; that since the functions of PIRA are more delineated and with specific projects and it has a bigger budget, it was agreed among the members for purposes of easy identification of just one entity when it comes to matters concerning the employees and the government, that PIRA should be designated as the employer and therefore PIRA was registered as the employer with the BIR, SSS, MEDICARE and PAG-IBIG (HDMF); that all general expenses are paid by PIRA and PIRA charges ISAP of its share of the salaries and the general expenses; and that there is no intention on the part of ISAP to evade taxes. ESHAIC In reply, please be informed that Section 2.78.4(C) of Revenue Regulations No. 2-98, as amended, provides "(C) If a payment of compensation is made to an employee by an employer through an agent, fiduciary, or other person who has the control, receipt, custody, or disposal of, or pays the compensation payable by another employer to such employee, the amount of tax required to be withheld on each compensation payment made through such agent, fiduciary, or person shall, whether the compensation is paid separately on behalf of each employer or paid in lump-sum on behalf of all such employers, be determined based on the aggregate amount of such compensation payment or payments in the same manner as if such aggregate amount had been paid by one employer. Hence, the tax shall be determined based on the aggregate amount of the compensation paid. In any such case, each employer shall be liable for the return and payment of a pro-rata portion of the tax so determined in accordance with the ratio of the amount contributed by each employer relative to the aggregate of such compensation. A fiduciary, agent, or other person acting for two or more employers may be authorized to withhold the tax under these regulations with respect to the wages of the employees of such employers. Such fiduciary, agent, or other person may also be authorized to make and file returns of the tax withheld at source on such compensation and furnish the receipts required under these Regulations. Application for the authorization to perform such act should be addressed to the Commissioner or his duly authorized representative. If such authority is granted by the Commissioner, all provisions of the law (including penalties) and regulations prescribe in pursuance of the law applicable in respect of an employer for whom such fiduciary, agent or other person acts shall remain subject to all provisions of law (including penalties) and regulations prescribed in pursuance of the law applicable in respect of employers." Accordingly, if PIRA, Inc. has authority from the Commissioner to withhold the tax on compensation of the employees of ISAP, Inc., PIRA, Inc. may make and file returns of the tax withheld at source on such compensation and pay the tax (including penalties) thereon. On the other hand, if PIRA, Inc. has no such authority from the Commissioner, PIRA., Inc. and ISAP, Inc. shall be liable for the return and payment of a pro-rata portion of the tax (including penalties) so determined in accordance with the ratio of the amount contributed by each relative to the aggregate of such compensation pursuant to Section 2.78.4(C) of Revenue Regulations No. 2-98, as amended. Moreover, Sections 251 and 255 of the Tax Code of 1997, specifically provides that "SEC. 251. Failure of a Withholding Agent to Collect and Remit Tax . Any person required to withhold, account for and remit any tax imposed by this Code or who willfully fails to withhold such tax, or account for and remit such tax, or aids or abets in any manner to evade any such tax or the payment thereof, shall, in addition to other penalties provided for under this Chapter, be liable upon conviction to a penalty equal to the total amount of the tax not withheld, or not accounted for and remitted." xxx xxx xxx "SEC. 255. Failure to File Return, Supply Correct and Accurate information, Pay Tax, Withhold and Remit Tax and Refund Excess Taxes Withheld on Compensation . Any person required under this Code or by rules and regulations promulgated thereunder to pay any tax, make a return, keep any record, or supply correct and accurate information, who willfully fails to pay such tax, make such return, keep such record, or supply such correct and accurate information, or withhold or remit taxes withheld, or refund excess taxes withheld on compensation, at the time or times required by law or rules and regulations shall, in addition to other penalties provided by law, upon conviction thereof, be punished by a fine of not less than Ten thousand pesos (P10,000) and suffer imprisonment of not less than one (1) year but not more than ten (10) years." It is clear that the imposition of the penalties prescribed therein for failure to remit taxes withheld is mandatory, as shown from the language and content, and therefore, cannot be waived. AIDSTE Finally, any person required to collect, account for, and remit any tax imposed by the Tax Code of 1997, who willfully fails to collect such tax, or account for and remit such tax or willfully assists in any manner to evade any such tax or the payment thereof, shall, in addition to other penalties provided for in Chapter I and II, Title X of the Tax Code of 1997, be liable to a penalty equal to the total amount of the tax not collected, or not accounted for and remitted. Please be guided accordingly. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group