BIR Ruling [DA-360-04]

June 28, 2004 BIR RULING [DA-360-04] RR 17-2003 SGV & Co. 6760 Ayala Avenue 1226 Makati City Attention: C.P. Noel Head, Tax Division Gentlemen : This refers to your letter dated November 19, 2003 requesting in behalf of your client, Tupperware Philippines, Inc. (TWP) and its distributors for confirmation of your opinion on the following: 1. The commission and bonus paid by the Distributors to their Managers for meeting their group sales are subject to the expanded withholding tax at the rate of ten percent (10%) under section 2.57.2 (O) of Revenue Regulations No. 2-98, as amended by Section 3 of Revenue Regulation No. 17-2003; 2. Section 2.57.2 (O) of Revenue Regulations No. 2-98, as amended by Section 3 of Revenue Regulations No. 17-2003 only applies to rebates, discounts and other similar considerations paid/granted where there is no transfer of title over the goods from the seller the agent sales representative but does not apply to rebates, discounts and other similar considerations paid/granted where there is transfer of title over the goods from the seller to the agents/sales representatives as in the straight sale of Tupperware products by TWP to the Distributors and then to the Managers and Dealers; 3. The mark up of TPI (through TWP) the Distributors and Managers on the sale of Tupperware products to the next level are not subject to the 10% creditable withholding tax (CWT) and as such, TWP, the Distributors and Managers have no obligation to withhold the 10% CWT under Section 2.57.2(O) of Revenue Regulations No. 2-98, as amended by Section 3 of Revenue Regulations No. 17-2003. In reply, please, be informed that Section 3 of Revenue Regulations No. 17-2003 provides viz : "SEC. 3. INCOME PAYMENTS SUBJECT TO CREDITABLE WITHHOLDING TAX Sec. 2.57.2 of Revenue Regulations No. 2-98, as amended, is hereby further amended to read as follows: xxx xxx xxx (O) Commissions of independent and/or exclusive sales representatives, and marketing agents of companies. On gross commissions, rebates, discounts and other similar considerations paid/granted to independent and/or exclusive, sales representatives and marketing agents and sub-agents of companies, including multi-level marketing companies, on their sale of goods or services by way of direct selling or similar arrangements where there is no transfer of title over the goods from the seller to the agent/seller representative. Ten percent (10%) (emphasis supplied) Thus, the commission and bonus paid by the Distributors to their Managers for meeting their group sales are subject to the expanded withholding tax at the rate of ten percent (10%) pursuant to Section 2.57.2 (O) of Revenue Regulations No. 98, as amended by Section 3 of Revenue Regulations No. 17-2003 considering that title over the goods was not transferred from the Distributors to the Managers by virtue of the group sales. Moreover, where there is transfer of title over the goods from the seller to the agent/seller representative the ten percent (10%) creditable withholding tax does not apply, as in the straight sales transactions of tupperware products by TPI (through TWP) to the Distributors and then to the Managers and Dealers. ICTDEa Likewise, said ten percent (10%) creditable withholding tax does not apply to the mark up of TPI, the distributors and managers on the sale of tupperware products to the next level, hence, TWP, the distributors and managers have no obligation to withhold the 10% CWT under Section 2.57.2(Q) of Revenue Regulations No. 2-98 as amended by Section 3 of Revenue Regulations No. 17-2003. 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