Payments to Suppliers for Goods and Services Procured by Borrower Cooperatives Subject to Withholding Taxes

January 2, 1996 BIR RULING NO. 002-96 110 (c) 000-00 002-96 Landbank Calbayog Field Office Calbayog City Attention: Mr . Teofilo U . Sison, Jr . CALFO Head Gentlemen : This refers to your letters dated April 28 and September 27, 1994 and October 10, 1995 requesting for a ruling on whether your payments to suppliers for goods and services procured by your borrower cooperatives are subject to withholding taxes. cdpr It is represented that you financed loans ( i.e. , motorcycle loan with sidecar to Basul Multi-Purpose Cooperative, for implements, machineries to be used in agriculture and farm inputs), to cooperatives; that the cooperatives got said objects of financing from suppliers; that you paid directly the suppliers; and that the said suppliers do not want that withholding taxes be collected from them because they claimed that it is the cooperative which actually bought the items. In reply, please be informed that Section 110(c) of the Tax Code, as amended by Republic Act No. 7649 provides: "(c) Withholding of Creditable Value-Added Tax . The Government or any of its political subdivisions, instrumentalities or agencies, including government owned or controlled corporations (GOCCs) shall, before making payment on account of its purchase of goods from sellers and services rendered by contractors which are subject to the value-added tax imposed in Sections 100 and 102 of this Code, deduct and withhold the value-added tax due at the rate of three percent (3%) of the gross payment for the purchase of goods and six percent (6%) on gross receipts for services rendered by contractors on every sale or installment payment which shall be creditable against the value-added tax liability of the seller or contractor: . . ." While it is the borrower cooperative which actually bought the items, yet the payment for such purchase(s) came from you by virtue of the said loan. In fact, the payment made by you direct to the supplier, is the payment for and in behalf of the borrower. Such being the case, as the payor, you are the withholding agent for the government, and should, therefore, withhold the corresponding creditable value-added tax from your payments to suppliers for goods and services procured by your borrower cooperatives. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue