Exemption from Withholding Tax — Income Payments

April 24, 1981 BIR RULING NO. 077-81 053-f 000-00 077-81 Laguna Estates Development Corporation L.V. Locsin Building 448 E. de los Santos Avenue Makati, Metro Manila Attention: Mr . Arturo M . Hilado Finance Manager Gentlemen : This refers to your letter dated August 25, 1980 stating that pursuant to a Lease Agreement dated December 6, 1976, you have been leasing various equipment from Far East Chemco Leasing and Finance Corporation (Far East Chemco) each lease being documented by sequentially numbered Lease Schedules; that since the effectivity of P.D. No. 1351 on the Expanded Withholding Tax System, you have been deducting from your monthly lease payments or rentals to Far East Chemco a 5% withholding tax; and that on April 1, 1980 you were informed by Far East Chemco that a number of the Lease Schedules were purchased by or transferred to, under the pertinent Deeds of Assignment, certain trust accounts of Far East Bank and Trust Co. (FEBTC) which are represented to you as tax exempt in its own certification. cdtech Requesting opinion on whether the rentals payable by you for these Lease Schedules are subject to withholding tax, you pose the following questions: "1. Can we remit monthly lease payments without withholding any tax, on Lease Schedules assigned by Far East Chemco to FEBTC's tax exempt trust accounts? Can such monthly lease payments be made either to Far East Chemco, as collecting agent for FEBTC, or directly to FEBTC? "2. If so, what document should be required from FEBTC, especially with regard to trust accounts whose confidentiality they wish to preserve? Is a sworn certification from FEBTC that these accounts are tax-exempt, sufficient to authorize us to remit the full payment without withholding any tax? Or is it necessary that they provide as with letters of exemptions for each specific account." In reply, please be informed as follows: 1. If, true to the certifications furnished you by FEBTC, the assignees/purchasers of the Lease Schedules are trust accounts qualified for and are enjoying tax exemption under R.A. 4917 and Section 56(b) of the Tax Code of 1977, as amended, that, as lessee, you can remit the rentals owing from you to the lessor, without deducting or withholding from said payments any withholding tax. The stipulation in the original lease contract between you and Far East Chemco, the provisions of the Deeds of Assignment between Far East Chemco and FEBTC, and/or any private agreement among you must govern on how or to whom payments should be coursed. 2. Section 4 of Revenue Regulations No. 6-79 amending Revenue Regulations No. 13-78 provides that the withholding tax therein prescribed shall not apply to income payments to persons enjoying income tax exemptions, after the said payee shall have presented to the payor a certificate of exemption issued by the Commissioner of Internal Revenue. Accordingly, you must require from FEBTC individual certificate of income tax exemption for each of these trust accounts. cdta Very truly yours, RUBEN B. ANCHETA Acting Commissioner