Puncak Niaga, Inc.. (PNI) Required to Deduct and Withhold Taxes on Payments Made to Philippine Residents by Parent Company

May 7, 1997 BIR RULING NO. 055-97 50 (a) 000-00 055-97 Puncak Niaga, Inc. Unit 1702-A East Tower Philippine Stock Exchange Bldg. Exchange Road Pasig City Attention: Mr . Charles Ng Country Manager Gentlemen : This refers to your faxed letters dated March 11 and 20, 1997 requesting for a ruling as to whether or not PUNCAK NIAGA, INC. (PNI) is required to deduct and withhold taxes on the payments made to Philippine residents by your parent company, PUNCAK NIAGA OVERSEAS CAPITAL (PNOC) in Malaysia. It is represented that PNI, a corporation incorporated under the laws of the Republic of the Philippines, is fully owned by a Malaysian firm PNOC, which is a company incorporated in Malaysia and is not a registered withholding agent in the Philippines; that the latter made payments directly from Malaysia to its consultants here in the Philippines via telegraphic transfers/bank drafts; that it also made payments to a certain MR. FRANCISCO ALMAZORA for the rental of apartment, which contract was executed by and between the said lessor and PNI; that it wishes to charge these payments to PNI's accounts but PNI did not have the custody of PNOC's money. cdti In reply, please be informed that Section 1 of Revenue Regulations No. 6-85, as amended, provides as follows: "SEC. 1. Income payments subject to creditable withholding tax and rates prescribed thereon . Except as herein otherwise provided, there shall be withheld a creditable income tax at the rates herein specified for each class of payee from the following items of income payments TO PERSONS RESIDING IN THE PHILIPPINES. "a. Professional fees, talent fees, etc., paid to individuals. . . . xxx xxx xxx "6. Management and technical consultants; xxx xxx xxx "b. Professional fees, talent fees, etc. paid to taxable juridical persons. On the gross professional, promotional and talent fees, or any other form of remuneration enumerated in the preceding subparagraph paid to taxable juridical persons. five percentum (5%); "c. Rentals. "1. Business property. Where the gross rental paid or payable for the continued use or possession of real property to which the payor or obligor has not taken or is not taking title or in which he has no equity amounts to at least Five hundred pesos (P500.00) five percentum (5%); "2. Non-business/residential property. Where the gross monthly rental paid or payable by the lessee for the use or possession of real property amounts to at least Ten thousand pesos (P10,000.00) five percentum (5%). (As last amended by Sec. 1 of RR 8-90 dated October 15, 1990 which took effect on December 1, 1990.)" Based on the above-stated provisions of the Expanded Withholding Tax Regulations, the subject payments, i.e., consultancy fees and rentals, are both subject to the expanded withholding tax. However, considering that PNOC, is a non-resident foreign corporation, it is not required to withhold taxes from the payments it makes to Philippine residents. Nevertheless, the subject Philippine residents/citizens who receive those income payments are required to pay their respective income taxes. On the other hand, considering that the lease contract was executed by and between PNI and MR. FRANCISCO ALMAZORA, it is our opinion that the said rental payments are subject to the 5% withholding tax to be withheld and remitted to the Government by PNI. cdta Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue