SGV & Co.

May 2, 2008 BIR RULING [DA-280-08] 019-05 SGV & Co. 6760 Ayala Avenue Makati City Attention: R.C. Vinzon Tax Services Gentlemen : This refers to your letter dated April 16, 2008 stating that your client, Cebuana Lhuillier Services Corporation (CLSC), is a domestic corporation organized and existing under the laws of the Philippines with principal office address at 821 J.P. Rizal Street, Makati City; that it is a remittance company authorized to accept remittances from individuals and institutions within and outside the Philippines; that in order to render such services to its customers, CLSC engaged four (4) pawnshop companies ( i.e. , P.J. Lhuillier, Inc., Pawncare Services, Inc., Pawnsafe Services Corporation and Verite Pawn Corporation) [pawnshop companies] to be its payout/sending/servicing stations; that pursuant to the Service Contracts entered into by CLSC with the pawnshop companies, the pawnshop companies shall accept monies from senders; shall pay such monies received to its intended beneficiaries; and shall negotiate for terms on behalf of CLSC; that CLSC, on the other hand, shall pay the pawnshop companies service fees at the rate of 40% of the total fees collected from remitters; that CLSC is not among the top ten thousand (10,000) private corporations duly notified by the BIR as such; and that in paying the subject service fees, CLSC is not required by Revenue Regulations No. 2-98, as amended, to withhold the expanded withholding tax (EWT) therefrom. Based on the foregoing representations, you now request for confirmation of your opinion that CLSC is not required by law or regulations to withhold the EWT from the said service fees paid to the four (4) pawnshop companies. In reply thereto, please be informed that Section 2.57.2 (M) of Revenue Regulations No. 2-98, as amended, provides that "(M) Income payments made by the top ten thousand (10,000) private corporations to their local/resident supplier of goods and local/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/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%) Top ten thousand (10,000) private corporations shall include a corporate taxpayer who has been determined and notified by the Bureau of Internal Revenue (BIR) as having satisfied any of the following criteria: xxx xxx xxx (3) A corporation shall not be considered a withholding agent for purposes of this Section, unless such corporation has been determined and duly notified in writing by the Commissioner that it has been selected as one of the top ten thousand (10,000) private corporations. xxx xxx xxx" Prescinding from the above-cited provisions, it is undisputed that in order that the income payments made to the local/resident supplier of goods and/or services, the payor must be notified in writing by the Commissioner that it has been selected as one of the top ten thousand (10,000) corporations. Conversely, if the payor is not one of those top ten thousand corporations, it is not required to withhold the corresponding 1% or 2% withholding tax. In stressing the rationale of the above-cited principles, this Office had elucidated the matter in BIR Ruling No. 019-05 dated September 21, 2005 as follows ". . . in order that income payments to the SME/Supplier will be subject to the 1% or 2% creditable withholding tax (CWT), as the case may be, Big Brother must be among the top ten thousand (10,000) private corporations, as determined by the Commissioner, and has transacted at least six (6) transactions with the SME/Supplier, regardless of the amount per transaction, either in the previous year or current year (BIR Ruling No. 141-94 dated September 20, 1994). Thus, under Revenue Memorandum Circular No. 28-94, a taxpayer will be subject to the withholding provisions when he receives a notice that he is included in the list of the top 10,000 corporations (BIR Ruling No. 166-94 dated December 5, 1994). Accordingly, Big Brother shall be constituted as withholding agent of its suppliers, the SME/Suppliers." ITSCED Considering that CLSC is not included in the list of the top ten thousand (10,000) private corporations nor has it received any notice, in writing, from the Commissioner that it has been included in said list, it is not considered as a withholding agent for purposes of Section 2.57.2 (M) of Revenue Regulations No. 2-98, as amended. SUCH BEING THE CASE, this Office holds that CLSC is not required to withhold the EWT from its income payments, in the form of service fees, to the pawnshop companies. 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. SEIDAC Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service