Request for Exemption from the Withholding Tax Provision Covering Payments by Credit Card Companies

September 6, 1995 BIR RULING NO. 136-95 Duty Free Philippines DCG Building 167 Legaspi St. cor. Dela Rosa St. Legaspi Village Makati City Attention: Mr . Rufino G . Parfan Accounting Manager Gentlemen : This refers to your letter dated June 7, 1995 requesting for exemption from the withholding tax provision covering payments by credit card companies. It is represented that DUTY FREE PHILIPPINES (DFP) is a tax exempt establishment as stated in Section 1 of Executive Order No. 46, dated September 4, 1986, which reads in part as follows: "SEC. 1. The Ministry of Tourism, through the Philippine Tourism Authority (PTA), is hereby authorized to establish a duty and tax free merchandising system in the Philippines to augment the service facilities for tourists and to generate foreign exchange and revenue for the government. . . . ."; llcd that pursuant to Section 1(1) of Revenue Regulations No. 6-94, certain income payments made by credit card companies are subject to 1 1/2% withholding tax; and that accordingly, remittance of said credit card companies to DFP are currently subjected to the said expanded withholding tax. You are therefore requesting for exemption from the above provision of RR No. 6-94 and for the procedure on how you can request for refund of accumulated taxes withheld by credit card companies amounting to P1.8 million as of December 31, 1994. In reply, please be informed that although there is no doubt that DFP was established by the PTA pursuant to its exclusive authority to operate tax and duty-free stores and shops under E.O. No. 46, it is nevertheless subject to the taxes provided for under the National Internal Revenue Code, as amended, pursuant to Section 1 of Executive Order No. 93, signed on December 17, 1986, which withdrew all tax and duty incentives granted to government and private entities EXCEPT to the following: (a) those covered by any non-impairment clause of the Constitution; (b) those conferred by effective international agreements to which the Government of the Republic of the Philippines is a signatory; (c) those enjoyed by enterprises registered with; (i) the Board of Investments pursuant to PD No. 1789, as amended; (ii) the Export Processing Zone Authority pursuant to PD No. 66, as amended; (iii) the Philippine Veterans Investment Development Corporation Industrial Authority pursuant to PD No. 538, as amended; (d) those enjoyed by the copper mining industry pursuant to the provisions of LOI No. 1416; (e) those conferred under the four basic codes namely; (i) the Tariff and Customs Code, as amended; (ii) the National Internal Revenue Code, as amended; (iii) the Local Tax Code, as amended; (iv) the Real Property Tax Code, as amended; (f) those approved by the President upon the recommendation of the Fiscal Incentives Review Board. This provision is clarified by Section 24(c) of the Tax Code, as amended, which imposes income tax on all corporations, agencies, or instrumentalities owned or controlled by the Government (except those corporate taxpayers exempt under Section 26 of the Tax Code) as are imposed upon associations or corporations engaged in a similar business, industry or activity upon their taxable income. cdtech It is clearly stated in Opinion No. 63 of the Department of Justice, S. 1993 dated May 13, 1993 that PTA was created under PD No. 189 to implement the policies and programs of the Department of Tourism relative to the development of the country's tourism industry. The said decree expressly declares the functions of the PTA to be "governmental" in character. In addition, PD. No. 564, which modified PD No. 189, revised the PTA charter and transformed it into a body corporate, but confirmed its role as implementing arm of the Department of Tourism as regards the development, promotion and supervision of tourism. In other words, PTA is an instrumentality of the Philippine Government and because the operation of the DFP is merely one of the public functions of the PTA, any tax or charge imposed on its business operation is actually a tax upon PTA. And PTA, being a government instrumentality is now subject to income tax as provided for in the foregoing provisions of the law. Accordingly, in view of the fact that DFP is not tax-exempt entity, it is not as well exempted from the questioned withholding tax provision on certain income payments made by credit card companies. However, it may be worthwhile for you to know that RR No. 16-94 amended RR 6-94 subjecting said income payments made by credit card companies to 50% of 1% (instead of 1 1/2%) of the gross amount paid to any business entity, whether a natural or juridical person, representing the sales of goods and services made by the aforesaid business entity to cardholders. Your request No. 1 therefore is denied for lack of legal basis. Your request No. 2 cannot likewise be granted for the same reason. cdll Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue