BIR Ruling No. 047-10

September 1, 2010 BIR RULING NO. 047-10 RR 17-2003 Social Housing Finance Corporation Banco de Oro Plaza 8737 Paseo de Roxas Makati City Attention: Atty. Ghelynne Avril D. Del Rosario Attorney IV, Legal Department Gentlemen : This refers to your letter dated December 3, 2008 stating that the Social Housing Finance Corporation (SHFC) is a government owned and controlled corporation (GOCC) mandated by law to undertake housing programs that caters to the formal and informal sectors in the low-income and impoverished bracket; that it is charged with the development and administration of low-cost and social housing program schemes; that SHFC is a lessee/occupant of office space units in Banco de Oro (BDO) Plaza Building which is being managed by First e-Bank (formerly Producers Bank); that the electric meter for the entire building is registered in the name of Producers Bank, so that the MERALCO makes the monthly billing directly to First e-Bank for the electricity consumption of the whole building, and the latter charges SHFC for its proportionate share of the entire amount of the electricity bill; that SHFC in return, pays to First e-Bank the amount representing its proportionate share in the entire building's electricity charges; that SHFC withholds the creditable withholding tax (CWT) and final VAT at the rates of 2% and 5%, respectively, on its payment for electricity to First e-Bank, remits the tax withheld directly to the BIR, and issues BIR Form Nos. 2307 and 2306 directly to MERALCO; that as a matter of due course, the First e-Bank pays MERALCO the total electricity charges for the entire building, net of 2% CWT and 5% final VAT withheld by SHFC; that not being a top Ten Thousand corporation or Large Taxpayer or Government-Owned and Controlled Corporation, the First e-Bank does not withhold the CWT or Final VAT on the portion of electricity charges billed to SHFC; that consequently, MERALCO asserts that it has outstanding receivables from First e-Bank representing the amount of CWT and final VAT withheld by SHFC; and that as a result, First e-Bank now demands from SHFC the same amount withheld and remitted by the latter to the BIR. Based on the foregoing representations, you now request for an opinion as to whether or not SHFC, a GOCC, is legally correct to withhold the 2% creditable withholding tax prescribed in Revenue Regulations No. 17-2003; and to the corresponding 5% final VAT as prescribed in Revenue Regulations No. 16-2005, on its payment to First e-Bank representing its proportionate share in the entire building's electricity charges. In reply thereto, please be informed that Section 3 of Revenue Regulations No. 17-2003, amending Section 2.57.2 (M) of Revenue Regulations No. 2-98, provides that "(M) Income payments made by the top ten thousand (10,000) private corporations to their local/resident supplier of goods and local/resident supplier of services other than those covered by other rates of withholding tax. Income payments made by any of the top ten thousand (10,000) private corporations, as determined by the Commissioner, to their local/resident supplier of goods and local/resident supplier of services, including non-resident alien engaged in trade or business in the Philippines: Supplier of goods One percent (1%) Supplier of services Two percent (2%) xxx xxx xxx A government-owned or controlled corporation previously classified as one of the top five thousand (5,000) corporations under RR 12-94, as amended, shall cease to be a withholding agent or included in the top ten thousand (10,000) private corporations for purposes of these regulations but rather shall be treated as one under the succeeding sub-section (N) since it is already withholding two percent (2%) of the amount paid for the purchase of goods/services from local/resident suppliers. cHAIES xxx xxx xxx (N) Income payments made by the government to its local/resident supplier of goods and local/resident supplier of services other than those covered by other rates of withholding tax. Income payments, except any casual or single purchase of P10,000.00 and below, which are made by a government office, national or local, including barangays, or their attached agencies or bodies, and government-owned or controlled corporations, on their purchases of goods and purchases of services from local/resident suppliers Two percent (2%). A government-owned and controlled corporation shall withhold the tax in its capacity as a government-owned and controlled corporation rather than as a corporation stated in Subsection (M) hereof." The above-mentioned provisions is amplified in Revenue Memorandum Circular No. 72-2004 as follows "TTC/GO/LT-lessee shall withhold the 2% EWT whether or not the electric meter is in its name provided that valid proof that payment of a particular expense is being shouldered by the payor claiming the expense. The lessee shall present the contract of lease together with the photocopy of the notice from the BIR designating the corporation as one of the top 10,000 private corporations to MERALCO, PLDT and other utility companies through the lessor and shall likewise issue the corresponding BIR Form No. 2307 in the name of the utility companies." In the same vein, Section 4.114-2 of Revenue Regulations No. 16-2005, as amended, provides that "SEC. 4.114-2. Withholding of VAT on Government Money Payments and Payments to Non-Residents. (a) The government or any of its political subdivisions, instrumentalities or agencies including government-owned and controlled corporations (GOCCs) shall, before making payment on account of each purchase of goods and/or services taxed at twelve percent (12%) VAT pursuant to Sections 106 and 108 of the Tax Code, deduct and withhold a final VAT due at the rate of five percent (5%) of the gross payment thereof." It is undisputed that since SHFC is a GOCC, income payments made to MERALCO which are coursed through First e-Bank, relative to its proportionate share in the entire building, are subject to the 2% CWT and 5% final VAT. However, SHFC shall issue the corresponding Form Nos. 2306 and 2307, through First e-Bank, in the name of MERALCO, so that MERALCO can apply whatever amount withheld as creditable withholding tax against its income tax liability and the final withholding VAT pertaining to the portion paid by SHFC. 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. SHacCD Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue