Deductibility of the 5% Expanded Withholding Tax from the Rental Payment

June 3, 1988 BIR RULING NO. 233-88 50 (b) 420-87 233-88 Gentlemen : This refers to your letter dated March 22, 1988 requesting a ruling as to whether you should deduct the 5% expanded withholding tax from the rental payment you are remitting to the Rural Bankers Association of the Philippines. It is represented that the Rural Bankers Association of the Philippines, a tax-exempt organization under Section 26(f) of the Tax Code, as amended, owns and manages the building you are partly renting but that it does not want your rental payment of P2,250.00 a month, subjected to the 5% expanded withholding tax. cdtech In reply, please be informed that your request is answerable in the affirmative. The gross rental payment for the lease of real property amounting to at least P500.00 is subject to the 5% expanded withholding tax under Section 1(c) of Revenue Regulations No. 6-85 otherwise known as the Revised and Consolidated Expanded Withholding Tax Regulations implementing Section 50(b) of the Tax Code, as amended. Moreover, although your lessor, Rural Bankers Association of the Philippines, is exempt from income tax under then Section 27(f) [now Section 26(f)] of the Tax Code, as amended, as a business league, however, beginning June 11, 1978, the effective date of P.D. No. 1457, it is subject to the corresponding internal revenue taxes imposed under the National Internal Revenue Code on its income derived from any of its properties, real or personal, or any activity conducted for profit regardless of the disposition thereof. In other words, while the Association is exempt from income tax only, in respect to the income received by it as a business league, it is still subject to income tax on its income derived from its property, such as the above rental income. Hence, said rental income is subject to the 5% expanded withholding tax which is creditable against the income tax due from the Association. In this connection, the aforesaid rental payment may be claimed by you as deduction in your income tax return only if it is shown that the tax required to be deducted and withheld therefrom has been paid to this Bureau. [Sec. 29(j), Tax Code, as amended by Executive Order No. 273.] cdt Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner