BIR Ruling [DA-526-03]

December 22, 2003 BIR RULING [DA-526-03] RR 2-98; RR14-02 Philippine Chamber of Commerce & Industry 19th Floor, Salcedo Towers 169 H.V. De la Costa Street Salcedo Village, Makati City Attention: Florecita P. Flores Director General Gentlemen : This refers to your letter dated August 20, 2003, requesting for the opinion of this Office as to whether or not the Bureau of Customs (BOC) is exempt from the withholding tax imposed on the income generated from the lease of their office spaces. It is represented that the Philippine Chamber of Commerce & Industry (PCCI) through the Automated Systems for Customs Data (ASYCUDA), was the winning bidder for the operation of Entry Encoding Centers (EEC) for BOC. As such, ASYCUDA occupies and pays in full the corresponding rent for office spaces in the respective BOC buildings/compound where it operates the EEC for BOC nationwide. The rental payment was not subjected to withholding tax, so that on November 12, 2002 the BIR issued an assessment against PCCI for deficiency withholding tax on its rental payments to BOC for the year 2000. The succeeding rental payments were then subjected to withholding tax but BOC objected alleging as basis Section 2.57.5 of Revenue Regulations No. 2-98. Hence this request. In reply thereto, please be informed of the provisions of Sections 3 and 4 of Revenue Regulations No. 14-02 which provide: "SEC. 3. Persons required to deduct and withhold . Section 2.57.3 of Revenue Regulations No. 2-9R is hereby amended to read as follows: "Sec. 2.57.3. Persons required to deduct and withhold . The following persons are hereby constituted as withholding agents for purposes of the creditable tax required to be withheld on income payments enumerated in Section 2.57.2: (A) In general, any juridical person, whether or not engaged in trade or business; (B) An individual, with respect to payments made in connection with his trade or business. However, insofar as taxable sale, exchange or transfer of real property is concerned, individual buyers who are not engaged in trade or business are also constituted as withholding agents; (C) All government offices including government-owned or controlled corporations, as well as provincial, city and municipal governments and barangays. SEC. 4. Exemption from Withholding . Section 2.57.5 of Revenue Regulations No. 2-98 is hereby amended to read as follows: "Sec. 2.57.5. Exemption from Withholding . The withholding of creditable withholding tax prescribed in these Regulations shall not apply to income payments made to the following: (A) National government agencies and its instrumentalities including provincial, city, municipal governments and barangays except government-owned and controlled corporations." (Emphasis supplied) xxx xxx xxx It is worth mentioning that PCCI is constituted under the law, as withholding agent to income payments subject to withholding tax like rental payments. However, payments to government agencies and instrumentalities are exempt from the withholding tax prescribed under Section 2.57.2 of Revenue Regulations No. 2-98. AcSHCD The Bureau of Customs is a government agency under the Department of Finance. Being a government agency, the rent for the office spaces paid to it is not subject to the withholding tax prescribed under Section 2.57.2 of Revenue Regulations 2-98 as amended by Section 4 of Revenue Regulations No. 14-02. Consequently, the objection of the Bureau of Customs that the rental payments should not be subjected to the withholding tax is meritorious and well taken. For your information. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group