BIR Ruling [DA-512-99]

September 3, 1999 BIR RULING [DA-512-99] Atty. Alenn Fernando A. Nidea No. 11 R. Brosas Street B.F. Resort Village Las Pias City S i r : This refers to your letter dated May 15, 1999 requesting on behalf of your client, Ms. Elna A. Nidea-Chia, for a clarificatory ruling on the proper basis of computing the five percent (5%) expanded withholding tax (EWT) on rental payments. LexLib It is represented that your client's lessor computes the 5% EWT based on the rental amount inclusive of VAT, while your client believes that the same should be exclusive of VAT, that as an example, you gave the following different computations as follows: Per Lessor Per Lessee Regular monthly rental P5,200 P5,200 VAT 520 520 Less: 5% EWT 286 260 Total amount paid to lessor P5,434 P5,460 ===== ===== and that the lessor is demanding from your client the total difference in amounts for the entire year of 1998 since the amount representing the unpaid difference is a deficiency EWT which the lessor failed to remit to the BIR. cdlex In reply, please be informed that your client's (lessee) computation is correct since the basis of computing the 5% EWT on rental payment to the lessor is based on gross rental payment, excluding the passed-on VAT. (VAT Ruling No. 073-97, dated December 15, 1997) The expanded withholding tax is based on income payment representing the purchase/contract price, net of the VAT. It should be noted that from the point of view of the recipient of income, that portion of the purchase/contract price which pertains to the value-added tax is not considered as income but the same is treated as a liability. For this reason, since the subject of the EWT covers income payments, only that portion of the purchase/contract price, exclusive of the VAT, shall be the basis of the withholding. (VAT Ruling No. 067-97, dated November 12, 1997). prcd Please be guided accordingly. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)