BIR Ruling [DA-334-00]

August 30, 2000 BIR RULING [DA-334-00] RR 2-98; VAT 98-90; DA-334-2000 Joaquin Cunanan & Co . 14th Floor, Multinational Bancorporation Centre 6805 Ayala Avenue Makati City, Philippines Attention: Ms . Mary Assumption S . Bautista Principal Tax Services Department Gentlemen : This refers to your letter dated September 27, 1999 requesting for a ruling on whether the 1% expanded withholding tax (EWT) being withheld by Mercury Drug Corporation (MDC) on payments made to your client, Bristol Myers Squibb Philippines, Inc. (BMS), should be based on the total amount paid net of value added tax (VAT). It is represented that BMS is a corporation organized and existing under Philippine laws; that it is licensed to engage in the manufacturing, preparing, compounding, purchasing, selling, importing and exporting drugs, medicines, chemicals, pharmaceuticals, surgical dressings and physicians and hospital supplies of every kind, nature and description; manufacture, propagate, sell, import and export serums, vaccines, toxins, antitoxins, and biological and bacteriological products generally; printing, publication and sale of medical and pharmaceutical pamphlets, periodicals, journals, books and magazines; that all business incident to such manufacture, sale, importation, exportation, printing and publication; that MDC is likewise a domestic corporation engaged in the retail sale of pharmaceutical drugs and medicines; that it is included in the BIR's list of the Top Five Thousand Corporations; that BMS sells its products to MDC; that in compliance with Section 2.57.2(M) of Revenue Regulations No. 2-98, otherwise known as the Withholding Tax Regulations, MDC deducts from its payments to BMS the 1% EWT; that MDC computes the 1% EWT using as base the total amount paid to BMS gross of the 10% VAT; that finally, this method of computation may be illustrated as follows: Sales value P100.00 VAT 10.00 Total P110.00 MDC withholding (1% of P110.00) P1.10 Net Remittance to BMS (P110.00-1.10) P108.90 and that it is your opinion that the 1% EWT should be based on total selling price net of the 10% VAT. In reply, please be informed that your opinion is hereby confirmed. For purposes of the expanded creditable withholding tax under Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 2-98, the 1% tax is based on the whole amount, net of VAT (VAT Ruling No. 098-90 dated May 2, 1990). Thus, using the above example, the tax base of the 1% EWT shall be the sales value of P100.00 and not the gross amount of P110.00. Accordingly, the 1% EWT should be P1.00 and not P1.10. cASEDC This ruling is being issued in 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.) LILIAN B. HEFTI Deputy Commissioner Legal and Inspection Group