Tax Liability of High Desert Philippines, Inc.

September 25, 1990 BIR RULING NO. 190-90 101, 248 (3),249 (a) 000-00 190-90 S i r : This refers to your letter dated August 10, 1990 stating that High Desert Philippines, Inc. is an importer-distributor of High Desert Products which consists of vitamins for the upliftment of the physical and mental health care of the people; and that said products are distributed by independent distributors who are paid commissions and who are not employees. You are now requesting a ruling on the following: cd 1. Whether those independent distributors who receive commissions are subject to the corresponding privilege tax like insurance agents and other commission agents; 2. Whether the company is subject to the value-added tax and the rate thereof; and 3. Liability of the company for failure to withhold tax on commissions and non-payment of VAT. In reply, please be informed as follows: 1. The Tax Code no longer imposes the privilege tax. Then Section 161 of the Tax Code was among those repealed by Executive Order No. 273 otherwise known as the Value-Added Tax Law which took effect on January 1, 1988. Such being the case, those independent distributors of High Desert Products and who are paid commissions by High Desert Philippines, Inc. are not subject to any fixed tax. 2. Definitely, High Desert Philippines, Inc. which is an importer-distributor of High Desert Products is subject to the value-added tax of 10% pursuant to Section 101 of the Tax Code, as amended. 3. High Desert Philippines, Inc. does not incur any liability for failure to deduct and withhold tax on income payments to the independent distributors in the form of commissions. This is so because said commissions are not subject to the expanded withholding tax prescribed in Revenue Regulations No. 6-85 nor to the withholding tax on wages under Section 72 (formerly Section 82 of the Tax Code, as amended. However, said payments form part of the taxable income of the independent distributors subject to tax under Section 21(a) of the Tax Code. On the other hand, High Desert Philippines, Inc. will be subject to 25% surcharge and 20% interest if it fails to pay the 10% value-added tax, pursuant to Sections 248(3) and 249(a), both of the Tax Code, as amended. cdtech Very truly yours, (SGD.) JOSE U. ONG Commissioner