BIR Ruling [DA-288-03]

September 1, 2003 BIR RULING [DA-288-03] RR 2-98 Caltex (Philippines), Inc . 6/F 6750 Ayala Avenue Makati City Attention: Atty. Nigel T. Avila Tax Manager Finance and Accounting Services Gentlemen : This refers to your letter dated March 27, 2003 stating that Caltex (Philippines) Inc. (Caltex), is engaged primarily in the business of manufacture, distribution and wholesale of petroleum products; that as part of its marketing strategy to ensure continuous expansion in the fleet segment of the business. Caltex has launched the STARCARD Program by introducing the Caltex Starcard (Starcard) Fleet Cards to selected customers; that Starcard allows the cardholder to purchase fuels and other petroleum products, vehicle maintenance services from participating retail stations and items from Caltex Star Mart Stores; that a Retailer Agreement and a Caltex Starcard Agreement were put in place to effect the program. Retailer Agreement Caltex entered into a Retail Agreement with designated retail service stations nationwide: that pursuant to said Agreement, the service station retailer is required to (a) honor the StarCard issued by Caltex by selling products or services to cardholders; (b) issue its own official receipt and card transaction slip to the cardholders; (c) prepare the Sales Draft which evidences the sale transaction between the card holder and the retail station; and (d) sell and assign to Caltex all valid Sales Drafts arising from the StarCard transactions; that Caltex's responsibility include the (a) purchase without recourse all valid sales drafts from retail service stations; (b) pay the retail station within seven (7) days from transaction date upon complete submission of transaction slip to Caltex net of a service fee; and (c) generate monthly statement to the StarCard holders. HCETDS Caltex StarCard Agreement Caltex StarCard Agreement is entered into between Caltex and a third party who has a number of company-owned or company supported vehicles; that the agreement requires Caltex to issue an agreed number of StarCard to the company-designated employees; that the StarCard enables the cardholders to purchase from designated Caltex Retail Service Stations petroleum products, StarMart items and services and to charge such purchase to StarCard; that when Caltex purchase the StarCard-generated sales drafts from the retail service stations, receivables are legally transferred from the retail service stations to Caltex giving the latter right to collect from the third party company: and that as part of the services offered to the StarCard holders, Caltex undertakes the preparation of the Statement of Account to the card members which becomes the basis for the payment of the receivables. Based on the foregoing representations, you now request for a ruling that the purchase of receivables by Caltex from the retail service stations and the consequent payment of these receivables by the third party company who are duly accredited Large Taxpayers is not subject to the 1% creditable withholding tax prescribed under Section 2.57.2(M) of Revenue Regulations No. 2-98, as amended. In reply thereto, please be informed that Section 2.57.2(M) of Revenue Regulations No. 2-98, as amended, provides that income payments made by the top five thousand (5,000) corporations, as determined by the Commissioner, to their local supplier of goods shall be subject to 1% creditable withholding tax. TIEHDC The term "goods" pertains to tangible personal property. It does not include intangible personal property as well as real property. The term "local suppliers of goods" pertains to a supplier from whom any of the top five thousand (5,000) corporations, as determined by the Commissioner, regularly makes its purchases of goods. As a general rule, this term does not include a casual purchase of goods, that is, purchases made from non-regular suppliers and oftentimes involving single purchases. However, a single purchase which involves one hundred thousand pesos (P100,000.00) or more shall be subject to a withholding tax. 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 five thousand (5,000) corporations. It is clear that the purpose and spirit of the above-cited Section of Revenue Regulations No. 2-98, as amended, the creditable withholding tax is imposed only to ensure advance partial remittance of income tax payments due from the income recipient. In the instant case, it is actually the retail stations who sold the products to the StarCard holders. The sale and purchase was consummated between them, at no instance wherein Caltex sold any tangible personal property to the StarCard holders. Moreover, since the sale or purchase of receivables is not one of those transactions subject to creditable withholding tax, this Office holds that the purchase by Caltex of the receivables from the retail service stations and its subsequent payments by the third party is not subject to the 1% creditable withholding tax prescribed in Section 2.57.2(M) of Revenue Regulations No. 2-98, as amended. In BIR Ruling No. 209-99 dated December 28, 1999, this Office had the occasion to rule on the matter, when it said that "The merchant fees paid by the Shell dealers to PSPC for brokering the sale, helping generate higher sale, and for assuming the risk of collecting from the Fleet Cardholders which represent various fees such as annual fees, joining fees, late payment penalties and others, shall be considered as payments for services rendered in the Philippines. Thus, the same shall be subject to the 10% VAT prescribed under Section 108 of the Tax Code of 1997. "Accordingly, since the merchant service fee and charges are payment for services rendered in the Philippines and PSPC is not a financing company, the 5% gross receipts tax prescribed under Section 122 of the Tax Code of 1997 shall not be imposed." IN VIEW OF THE FOREGOING, this Office holds that the purchase of receivables by Caltex from the retail service stations and its subsequent payments by the third party company is not subject to the 1% creditable withholding tax under Section 2.57.2(M) of Revenue Regulations No. 2-98, 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. cAHITS Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group