BIR Ruling [DA-276-06]

April 24, 2006 BIR RULING [DA-276-06] Frabelle Fishing Corporation 1051 North Bay Boulevard Navotas, Metro Manila Attention: Mr. Valentino C. Labanda Accounting Department Head Gentlemen : This refers to your letter dated March 21, 2006 requesting for clarification as to the effectivity of the 2% creditable withholding tax on the sale of services prescribed in Section 3(M) of Revenue Regulations No. 17-2003, as amplified in Revenue Memorandum Circular No. 72-2004; and whether or not the freight and transportation expenses such as airfare, seafare and land fare are likewise subject to the 2% creditable withholding tax prescribed in Revenue Regulations No. 17-2003. It appears that Section 3(M) of Revenue Regulations No. 17-2003 dated March 31, 2003 which was published on May 8, 2003 in Manila Bulletin, provides that income payments made by the top ten thousand (10,000) private corporations to their local/resident supplier of goods and services shall be subject to 1% and 2% creditable withholding tax, respectively; that the word "services" mentioned therein was so broad as to leave room for doubt as to whether or not a particular service is subject to the 2% creditable withholding tax; and that it was only in Revenue Memorandum Circular No. 72-2004 dated November 16, 2004, that the services mentioned in Revenue Regulations No. 17-2003 were clarified to include bank interest, insurance premium, electricity, water, telecommunications and other utility services. In reply thereto, please be informed that it is a common principle in taxation that if the intent or meaning of the tax statute is not clear, or is doubtful as to whether a taxpayer is covered by the tax obligation, the tax law shall be construed against the Government because revenue laws impose special burdens. ( Marinduque Iron Mines Agents, Inc. vs. Collector, 57 O.G. 2490, Commissioner vs. Filipinas Cia de Seguros, L-14880, April 26, 1960 ) Corollarily, Section 2 of Revenue Regulations No. 13-01 provides the INSTANCES WHEN THE PENALTIES AND/OR INTEREST IMPOSED ON THE TAXPAYER MAY BE ABATED OR CANCELLED ON THE GROUND THAT THE IMPOSITION THEREOF IS UNJUST OR EXCESSIVE "xxx xxx xxx "2.4. When the assessment is brought about or the result of taxpayer's non-compliance with the law due to a difficult interpretation of said law. TIHCcA "xxx xxx xxx" From the foregoing circumstances, it is clear that while Revenue Regulations No. 17-2003 subjects to 2% creditable withholding tax the income payments made by the top ten thousand (10,000) corporations to their local/resident supplier of services including non-resident alien engaged in trade or business in the Philippines, there is no specific mention that the services rendered by the local banks and other utility companies are likewise subject to the aforesaid rate. It was only in Revenue Memorandum Circular No. 72-2004 that the services mentioned in Revenue Regulations No. 17-2003 were clarified to include the services rendered by banks and other utility companies and therefore subject to the 2% creditable withholding tax. Thus, in view of the obvious conflict between the Revenue Regulations and the Revenue Memorandum Circular, the taxpayer is justified in not subjecting to withholding tax the services rendered by banks, insurance premiums and other utility companies before the issuance of the Revenue Memorandum Circular. The RMC being the later issuance, it is reasonable and logical to assume that such was the current manifestation of the BIR's intent on the matter. SUCH BEING THE CASE, this Office is of the opinion that the 2% creditable withholding tax on income payments made by the top ten thousand (10,000) corporations on the services rendered by the banks, insurance premiums and other utility companies took effect only upon the effectivity of Revenue Memorandum Circular No. 72-2004 dated November 16, 2004. However, with respect to the freight charges and transportation expenses, since they are not included among those enumerated in Revenue Regulations No. 2-98, as amended, the same are not subject to the creditable withholding tax prescribed in Revenue Regulations No. 17-2003, as amended. 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, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service