Skycable Corp.

November 19, 2008 BIR RULING [DA-(C-136) 444-08] Section 108; DA-507-06 dtd. 8/22/06 Skycable Corp. 33/F East Tower, Phil. Stock Exchange Center Exchange Road, Ortigas, Pasig City Attention: Eloisa D. Balmores Chief Finance Officer Gentlemen : This refers to your letter dated August 11, 2008, requesting confirmation of your opinion that: 1. The payment received by Skycable from its subsidiaries and affiliates 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 Skycable'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 Skycable has control over the payment to suppliers, the withholding taxes by PCC on the entire payment to suppliers, in lieu of its subsidiaries and affiliates 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 Skycable's subsidiaries and affiliates, as actual payors. It is represented that Skycable Corp., its subsidiaries and affiliates 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 Skycable and its subsidiaries and affiliates, as well as, to optimize Skycable's connection with its suppliers of goods and services, there are instances when purchases are centralized with Skycable; that this enables Skycable 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, Skycable 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 subsidiaries and affiliates; that invoices of all common purchases made by Skycable are in its name; that Skycable allocates the goods (assets) and services, as well as, the corresponding expenses to its subsidiaries and affiliates; that Skycable's subsidiaries and affiliates do not claim any input tax and do not withhold taxes; that Skycable, its subsidiaries and affiliates recognize assets and expenses only to the extent of their respective share; that payments received by Skycable from its subsidiaries and affiliates for assets and expenses allocated to the latter are not recognized by Skycable as revenue and income. TaISEH In reply to the following, we proceed to rule as follows: Firstly, the payments received by Skycable, its subsidiaries and 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. Accordingly, inasmuch as the money received by Skycable from its subsidiaries and affiliates for the latter's share in the common purchases does not represent income to Skycable, the said amount, therefore, shall not likewise be subject to income tax and consequently to withholding tax. 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 Skycable for its account of the withholding tax on gross payments made by its subsidiaries and 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 Skycable, the said amount may, therefore, be credited for the account of its subsidiaries and affiliates, being the withholding agent-payor. However, Skycable is required to issue VAT receipts/invoices to its subsidiaries and affiliates for payments received by Skycable from them. This is to ensure that the input VAT relative to the common purchases are also allocated to its subsidiaries and affiliates. 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. cEaSHC Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service