BIR Ruling No. 096-13

March 20, 2013 BIR RULING NO. 096-13 Sec. 2.57.2 (N) of Rev. Regs. 2-98 Caguinguin, Diwa, Ambanta and Associates 3F Unit 307, AD Center Square A. Rodriguez Avenue cor. Evangelista St. Santolan, Pasig City Attention: Rizal C. Ambanta Auditor Gentlemen : This refers to your letter dated May 22, 2012 requesting on behalf of your client, RESOURCES, ENVIRONMENT AND ECONOMICS CENTER FOR STUDIES, INC. for the confirmation of your opinion that the correct creditable withholding tax on income payments by a government office, national or local including government owned and controlled corporations, except any casual or single purchase of P10,000.00 and below, on their purchases of goods and of service is at the rate of two percent (2%). SCEDaT It is represented that RESOURCES, ENVIRONMENT AND ECONOMICS CENTER FOR STUDIES, INC. is a corporation duly registered with the Securities and Exchange Commission and primarily engaged in providing services as research, training and consultancy services in areas generally for health, environment and economics projects both for private companies and government entities; that RESOURCES, ENVIRONMENT AND ECONOMICS CENTER FOR STUDIES, INC. has been and at present had several contracts of professional services to various companies and government entities, such as the Department of Natural Resources (DENR) and Department of Health (DOH); and that based on the terms and conditions of the contracts, the payment of the billing statements were to be observed, either of progress billing or final billing of the professional services rendered, minus the required deductions which is 15% withholding tax. Based on the foregoing, it is your opinion that the amount of 15% withholding tax deducted from the RESOURCES, ENVIRONMENT AND ECONOMICS CENTER FOR STUDIES, INC. billing of research projects is a misinterpretation of the Revenue Regulations for withholding taxes and that the correct creditable withholding tax rate should be 2% on the income payments made by government to its local/resident supplier of goods and services pursuant to Revenue Regulations No. 17-2003. In reply, we regret to inform you that your request cannot be granted for lack of factual and legal basis. Please be informed that the professional services performed by RESOURCES, ENVIRONMENT AND ECONOMICS CENTER FOR STUDIES, INC. cannot qualify under Section 2.57.2 (N) of Rev. Regs. 2-98, as amended by Rev. Regs. 30-2003 and 17-2003, which states (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. Supplier of goods One percent (1%) Supplier of services Two percent (2%) xxx xxx xxx This provision applies only if the transaction is not covered by other rates of withholding tax. The sale of services of RESOURCES, ENVIRONMENT AND ECONOMICS CENTER FOR STUDIES, INC. falls under paragraph (B) of Section 2.57.2 of RR No. 2-98, as amended, which reads: SEC. 3. Income Payments Subject to Creditable Withholding Tax . Sec. 2.57.2 of Revenue Regulations No. 2-98, as amended, is hereby further amended to read as follows: "Sec. 2.57.2. Income payments subject to creditable withholding tax and rates prescribed thereon. . . . xxx xxx xxx (B) Professional fees, talent fees, etc., for services of taxable juridical persons . On the gross professional, promotional and talent fees, or any other form of remuneration enumerated in the preceding subparagraph for the services of taxable juridical persons Fifteen percent (15%), if the gross income for the current year exceeds P720,000; and Ten percent (10%), if otherwise;" HSATIC xxx xxx xxx Such being the case, the amount of 15% withholding tax deducted from the RESOURCES, ENVIRONMENT AND ECONOMICS CENTER FOR STUDIES, INC. billing of research projects is valid. Income payments in the form of professional fees received for services rendered by taxable juridical persons, as in the instant case, are subject to the expanded withholding tax at the rate of 10% or 15% pursuant to Section 2.57.2 of RR No. 2-98, as amended by RR 30-2003. In view of the foregoing, your request for the confirmation of your opinion that the correct creditable withholding tax on the income payments made by government offices to RESOURCES, ENVIRONMENT AND ECONOMICS CENTER FOR STUDIES, INC. should be at the rate of two percent (2%) is hereby denied for lack of legal basis. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue