Tax Liability of a Sub-distributor of Cinematographic Films

April 19, 1991 BIR RULING NO. 068-91 50 (b) 044-90 068-91 Gentlemen : This refers to your letter dated November 29, 1989 requesting in effect a ruling as to the basis of the 5% expanded withholding tax on the film rentals due to you and Warner Bros. (F.E.), Inc. (Warner) under your sub-distribution agreement. cdta It is represented that you are engaged in the business of leasing or distributing motion pictures in the Philippines; that Warner is also engaged in the film distribution in the Philippines for theatrical and non-theatrical exhibition by prints (including video cassettes) of all feature motion pictures, including their trailers, as to which you have distribution rights in the Philippines; that as subdistributor, Warner shall arrange for exhibition contracts and bookings in the best available theater and other places of exhibition; order prints and accessories as soon as practicable; assist in clearing each print from customs; assist in representing each picture for censorship; arrange for checking of box office reports; submit accounting statements and make payments as required; inspect, preserve and store each print in good condition in adequate vaults; maintain all records which are customary in the motion picture business; and perform such other services as may be necessary or useful for the exercise of its duties as a subdistributor; that for the services rendered as a subdistributor, Warner shall be entitled to a flat distribution fee equivalent to 15% of the gross receipts or film rentals collected from theater owners; and that the balance of 85% of such gross receipts or film rentals is remitted to you after deducting the direct costs of the pictures, which includes the 10% value-added tax (VAT) on the 15% distribution fee of Warner. In reply, please be informed that under Section 1(d) of Revenue Regulations No. 6-85, as amended, otherwise known as the Expanded Withholding Tax Regulations implementing Section 50(b) of the Tax Code gross payments to resident individuals and corporate cinematographic film owners, lessors or distributors are subject to the 5% expanded withholding tax. It is noted that under the terms of the Sub-distribution Agreement between you and Warner, 15% of the film rental of gross receipts has been earmarked to Warner while the balance of 85% has been earmarked to you. Such being the case, the respective percentages of the film rentals or gross receipts constitutes the gross payments subject to the 5% withholding tax. Accordingly, as a sub-distributor, Warner is subject to the 5% withholding tax based on the distribution fee of 15% of the film rental or gross-receipts collected by it from the theaters, excluding VAT while you shall, likewise, be subject to the 5% expanded withholding tax based on the balance of 85% of the film rentals or gross receipts held by Warner on your behalf, also excluding VAT (BIR Ruling No. 073-89), without any deduction with respect to distribution expenses. It will be noted that said balance is considered the gross payment which under the regulations, constitute the basis of the 5% expanded withholding tax. (BIR Ruling No. 044-90) Very truly yours, (SGD.) JOSE U. ONG Commissioner