BIR Ruling [DA-249-02]

December 18, 2002 BIR RULING [DA-249-02] RR 6-2001 167-85 Lacson & Lacson Insurance Brokers, Inc. 15th Floor Burgundy Corporate Tower 252 Sen. Gil Puyat Avenue Makati City Attention: Mr. Salvador L. Lacson Managing Director Gentlemen : This refers to your letter dated August 23, 2002 requesting confirmation of your opinion that no tax shall be withheld on the insurance premiums paid to you by the buyer of the insurance policy and that the buyer of the insurance policy is not obligated to withhold any tax on insurance premiums. It is represented that Lacson and Lacson Insurance Brokers, Inc. is a corporation organized and existing by virtue of the laws of the Philippines, with principal office address at 15th Floor, Burgundy Corporate Tower at 252 Sen. Gil Puyat Avenue, Makati City; that the Company is licensed by the Insurance Commission as an insurance and re-insurance broker; that you derive your income mainly from commissions for insurance policies that you place with various insurance companies for and on behalf of your clients; that commissions are usually a percentage of the premiums for insurance policies and vary according to the kind of policy; that you collect the insurance premiums from the insured, who are your clients; that your commissions are paid to you by the insurance companies when you remit said premiums to them; that some of your clients who are the insured think that they have to withhold a 10% tax from the premiums that they pay to you pursuant to Section 3(G) of Revenue Regulations No. 6-2001; that when the insurance companies pay your commission, they deduct 10% withholding tax from said commissions in compliance with the same Revenue Regulations; that you become subject to two deductions, i.e., by the insurance company and by your client, thus the latter being larger since the same is not based on the commission but on the premium which you remit to the insurance company. In reply, please be informed that pursuant to Section 3(G) of Revenue Regulations No. 6-2001, as amended, amending Revenue Regulations No. 2-98 which provides, viz: "Sec. 3. Revised Rates of Creditable Withholding Tax . Section 2.57.2 of Revenue Regulations No. 2-98, as amended, is hereby further amended to read as follows: "Section 2.57.2. Income payment 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 (G) Income payments to certain brokers and agents On gross commissions of customs, insurance, real estate and commercial brokers and fees of agents of professional entertainers ten percent (10%) gross payments to insurance brokers and agents are the ones subject to the 10% withholding tax. For purposes of the said withholding tax, the basis shall be the whole commission or compensation received by the insurance broker or agent excluding insurance premiums which are payments due the insurance companies ( BIR Ruling No. 167-85 ). The insurance companies are constituted as the withholding agents which shall withhold the corresponding withholding tax on the commission paid to the insurance brokers/agents. The insurance companies, being the payor-corporations, are required to withhold the tax on such commission or compensation paid to the insurance brokers. Accordingly, considering that premium payments are received from the insured by the insurance broker for and in behalf of the insurance company and since the insurance company is the party who determines and pays the insurance broker's commission, the insurance company and not the insured, is considered the withholding agent for purposes of the 10% withholding tax on gross payments to an insurance broker. Hence, there should only be one deduction, i.e., that of the insurance companies. Your clients should make no deductions from the premiums. 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.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group