BIR Ruling [DA-396-99]

July 9, 1999 BIR RULING [DA-396-99] KSY Land Development Corporation 18th Floor, Pacific Star Building Sen. Gil Puyat Avenue, Makati City Attention: Ms. Celeste C. Salazar Executive Assistant Gentlemen : This refers to your letter dated March 21, 1997 requesting, in effect, for a ruling as do the tax base to be used in computing the 5% creditable expanded withholding tax on rental. As represented, the facts gathered are as follows: 1) KSY Land Dev. Corp. - Lessor VAT registered company RCBC - Lessee Non-VAT company 2) Sample billing charges Sample how RCBC pays of KSY Non-VAT VAT Registered Net Rental P223,273.20 P223,273.20 Add: 10% VAT 22,327.32 22,327.32 Gross Rental P245,600.52 P245,600.52 Less: 5% w/t of P23,273.20/P245,600.52 1,163.66 12,280.03 Amount Due P234,436.86 P233,520.49 ========= ========= that you have different opinion with RCBC regarding the basis of withholding tax; that last February 28, 1997, RCBC furnished you with a copy of a 1993 VAT ruling given by SGV; that it was stated therein that the basis for withholding tax is the gross amount; that not being satisfied, your Executive Assistant sought the opinion of Ms. Beth Santos of BIR Makati North Office and furnished her a copy of this VAT ruling; that she told your Executive Assistant that most of them and their Assistant RDO opined that the 5% withholding tax is based on net of VAT; that they gave you a photo copy of pages 929 and 928 of the Tax Code to support your claim; and that however, when this was discussed last March 18, 1997, RCBC claims that: a) The 1993 VAT, ruling is not yet suspended and that SGV, their external auditors, advised them that this is the right basis of withholding tax. b) They say that there is a separate BIR Ruling for banking institutions for withholding tax purposes. EASCDH In reply, please be informed that Revenue Regulations No. 6-85, as amended, otherwise known as the Revised and Consolidated Expanded Withholding Tax Regulations was promulgated to implement then Section 50(b) [now Section 57(B)] of the Tax Code, as amended, as the withholding of creditable income taxes from certain income payments and the additional requirement for deductibility of such income payments which are otherwise deductible from gross income of the payor. Hence, in computing the 5% expanded creditable withholding tax on rental imposed under Section 1(c) of Revenue Regulations No. 6-85, as amended, the VAT is excluded from the tax base. [BIR Ruling No. 073-89 dated April 12, 1989; VAT Ruling No. 283-89 dated November 15, 1989] Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)