Manufacturing and Repacking Services Not Subject to Withholding Tax

October 20, 1999 BIR RULING NO. 164-99 58 (B), 78-000-00-164-99 Balmeo Bautista & Peasales Law Offices Rm. 309 Margarita Building J. P. Rizal cor. Cardona Streets Makati City Attention: Atty . Leonides F . Balmeo Gentlemen : This refers to your letter dated September 30, 1999 stating that your client, Croley Foods Manufacturing Corp. (Croley) is a company that manufactures and sells biscuits; that Croley engaged the services of Hebron Food Industries, Inc. (Hebron) and Biles Gen. Merchandise and Repacking (Biles); that Hebron manufactures and bakes for Croley based on Croley's order and Croley is billed by Hebron based on the input of certain raw materials; that Hebron bakes for Croley in their premises and all raw materials are supplied by Croley; that other items like liquified petroleum gas, electricity, water, etc. are supplied by Hebron; that in other instances, Hebron delivers to Croley the products already packed; that Hebron at times delivers to Croley in an unwrapped form and Croley packs them and sells the products; that for repacking services, Biles wraps for Croley certain biscuits manufactured by Croley and the same is billed based on the quantity of goods packed; that Biles packs for Croley in their premises but all the packaging materials are supplied by Croley; and that they deliver to Croley the packed goods and Croley sells the products. Based on the foregoing. you now request for a ruling whether or not Hebron and Biles are subject to the expanded withholding tax. In reply thereto, please be informed that pursuant to Revenue Regulations No. 2-98 implementing Section 57(B) of the Tax Code of 1997, payments only to persons enumerated therein are subject to the expanded withholding tax. Even prior to the promulgation of the said Regulations, income payments for manufacturing and repacking services, particularly of biscuits, are not one of them. It is well settled in our jurisprudence that what the law does not include, it excludes. Such being the case, since manufacturing and repacking services are not among those specified in said Regulations, the amount which Croley pays to Hebron and Biles are not, therefore, subject to withholding tax. However, since the aforesaid payments are not subject to withholding, the payor shall render an information return on such payments pursuant to Section 78 of the Tax Code of 1997. (BIR Ruling No. 042-96 dated March 21, 1996). LexLib This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue