Cavite Cable TV

June 24, 2009 BIR RULING [DA-(C-103) 321-09] Section 108, NIRC; DA(C-136)444-2008; DA-153-99; DA-113-2003; DA-484-2004; DA-507-2006 Cavite Cable TV Km. 23 National Road, Tabon Cawit, Cavite Attention: Ms. Eloisa D. Balmoris VP-Finance/President of Provincial Operations Gentlemen : This refers to your letter dated November 12, 2008, requesting confirmation of your opinion that: 1. The payments received by Cavite Cable Corporation (CCC), from its co-subsidiaries for the latter's share in common purchases are not subject to withholding tax as these are: i) funds merely held in trust, ii) are not in the nature of a fee or consideration for CCC's service, iii) are for eventual remittance to the supplier of goods and services, and iv) do not fall within the meaning of gross receipts under the Tax Code. 2. Considering that CCC has control over the payment to suppliers, the withholding of taxes by CCC on the entire payment to suppliers, in lieu of its co-subsidiaries for their respective share, and the remittance thereof to the BIR is deemed substantial compliance with the withholding tax requirements insofar as the correct amount of taxes were withheld and remitted to the government. Hence, the said remittance may be credited to the account of CCC's co-subsidiaries, as actual payors. IcTCHD It is represented that Cavite Cable Corporation (CCC, for short) charged shared costs with its co-subsidiaries, to wit: 1) Home Cable Network, Inc.; 2) Satellite Cable TV, Inc.; 3) Isla Cable TV Services, Inc.; 4) Tarlac Cable Television Network, Inc.; 5) Home Lipa Cable; 6) Brightmoon Cable Networks, Inc.; 7) Discovery Cable, Inc.; 8) Suburban Cable Network, Inc.; 9) HM CATV, Inc.; 10) JMY Advantage Corporation; and 11) Cepsil Consultancy & Management Corporation; that CCC and the above-mentioned companies are all subsidiaries of Sky Cable Corporation (formerly Central CATV, Inc.); that CCC, and its co-subsidiaries are corporations incorporated primarily to operate, install and maintain cable television systems in various cities and municipalities in the Philippines; that to facilitate the purchase of goods and services which are common among CCC and its co-subsidiaries, as well as, to optimize CCC's relationship with its suppliers of goods and services, there are instances when purchases are centralized with CCC; that this enables CCC to obtain the lowest cost possible and facilitates transactions with suppliers who do not want to deal with multiple customers for a single and/or same transactions, nor invoice separately; that with centralized purchases, CCC pays for the purchases of common goods and services, claims the input tax, withholds and remits applicable withholding taxes, and issues withholding tax certificates to its suppliers on behalf of its co-subsidiaries; that invoices of all common purchases made by CCC are in its name; that CCC allocates the goods (assets) and services, as well as, the corresponding expenses to its co-subsidiaries; that CCC's co-subsidiaries do not claim any input tax and do not withhold taxes; that CCC, and its co-subsidiaries recognize assets and expenses only to the extent of their respective share; that payments received by CCC from its co-subsidiaries for assets and expenses allocated to the latter are not recognized by CCC as revenue and income. In reply to the following, we proceed to rule as follows: Firstly, the payments received by CCC, its co-subsidiaries and co-affiliates for the latter's share in the common purchases are not subject to withholding tax as these are funds merely held in trust and not in the nature of a fee or consideration by services but instead for eventual remittance to the supplier of goods and services. The same do not fall within the definition of gross receipts under Section 108 of the Tax Code of 1997. Further, in the case of Commissioner of Internal Revenue vs. Tours Specialist, Inc. and The Court of Tax Appeals , 183 SCRA 402, the Supreme Court held that gross receipts subject to tax under the Tax Code do not include monies or receipts entrusted to the taxpayer which do not belong to them and do not redound to the taxpayer's benefit; and it is not necessary that there must be a law or regulation which would exempt such monies and receipts within the meaning of gross receipts under the Tax Code. Finally, under Section 2.57.3 of Revenue Regulations No. 2-98 as amended by Section 5 of Revenue Regulations No. 30-03 dated November 12, 2003, agents or any person purchasing goods or services/paying for and in behalf of withholding agents shall likewise withhold in their behalf, provided that the official receipts of payments/sales invoices shall be issued in the name of the person whom the former represents and the corresponding certificate of tax withheld (BIR Form No. 2307) shall immediately be issued upon withholding of the tax. In the instant case, withholding and remittance by CCC for its account of the withholding tax on gross payments made by its co-subsidiaries and co-affiliates to the suppliers, insofar as the correct amount of taxes has been withheld and remitted to the BIR, shall constitute substantial compliance with the withholding tax requirements under the regulations. Thus, upon proof of the withholding and remittance of taxes by CCC, the said amount may, therefore, be credited for the account of its co-subsidiaries and co-affiliates, being the withholding agent-payor. DcCIAa Accordingly, inasmuch as the money received by CCC from its co-subsidiaries and co-affiliates for the latter's share in the common purchases does not represent income to CCC, the said amount, therefore, shall not likewise be subject to income tax and consequently to withholding tax, PROVIDED, the suppliers issue sales invoice/official receipts to each and respective subsidiary. 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. IDEHCa Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service