5% Withholding Tax on the Payment Made to Insurance Brokers

February 12, 1987 BIR RULING NO. 044-87 53 (f) 000-00 044-87 Gentlemen : This refers to your letter dated April 12, 1986 requesting in effect, confirmation of your opinion that the insured person is not the proper party to withhold the 5% withholding tax on the payment they made to insurance brokers and that the correct withholding agents are the insurance companies who are the actual payers of commissions to the insurance brokers. It appears that for purposes of computing the 5% withholding tax, the basis shall be the whole commissions received by the insurance broker excluding the insurance premiums which are paid to the insurance company that when an insurance broker collects and receives payment from an insured in consideration of the insurance contract, the payments received are for premiums the whole of which are held by the broker in a fiduciary capacity for and in behalf of the insurance company, that some of your insured clients have decided to play it safe and withhold the 5% from their payments of premiums coursed through insurance brokers intermediaries; that your insured clients have no way of determining what your commission are because the rates of commission vary with the different kinds of insurance business involved and it is not possible for your insured clients to determine beforehand the amount of commissions you are entitled to on the insurance for which they pay premiums and that what they do is to withhold the 5% on the full payment made through your intermediary which is erroneous because that is necessarily the whole premium, from which only a small percentage is taken as basis for the broker's commission, against which, in turn, the 5% withholding tax should properly be computed. In reply, please be informed that your opinion is hereby confirmed in the affirmative. Under Section 1 (g) of Revenue Regulations No. 6-85 implementing Section 51(f) of the Tax Code, otherwise known as the Revised and Consolidated Expanded Withholding Tax Regulations, gross payments to insurance brokers are subject to the 5% expanded withholding tax. For purposes of the said expanded withholding tax, the basis shall be the whole commission or compensation received by the insurance broker excluding insurance premiums which are payments due to the insurance company. Accordingly, considering that payments are received from the insured by the insurance broker for and in behalf of the insurance company and since the insurance company is the party who determines and pay the insurance broker's commission, the insurance company and not the insured, is considered the withholding agent for purposes of the 5% withholding tax on gross payments to an insurance broker. cdta Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner