BIR Ruling No. 294-15

September 7, 2015 BIR RULING NO. 294-15 RR No. 2-98 & RR No. 16-05; 000-00 Department of Agrarian Reform Elliptical Road, Diliman Quezon City Attention: Felix Perry A. Villanueva Undersecretary, FPAO Gentlemen : This refers to your letter dated July 8, 2015 requesting confirmatory ruling on which agency is the proper withholding agent relative to the procurement of equipment/common service facilities for distribution to agrarian reform organizations. cDHAES It is represented that the Department of Agrarian Reform (DAR) and the Procurement Service-Department of Budget and Management (PS-DBM) entered into a Memorandum of Agreement (MOA) in CY 2013 whereby DAR engaged the services of PS-DBM for the procurement of equipment/common service facilities for distribution to agrarian reform organizations. The payment for said procurement was done by PS-DBM out of the funds transferred by the DAR to PS-DBM, based on Approved Procurement Request (APR), subject to liquidation per existing accounting and auditing rules. It is further represented that an opinion was issued by Revenue District Office (RDO) No. 38, North Quezon City, on above subject matter where it held: "It is unequivocal from the aforequoted provisions of the Tax Code and its Implementing Revenue Regulations that such income payments are subject to creditable (for income tax) and final (for VAT) withholding tax and the designated withholding agent of the government is the payor, which is in this case is the DAR. The foregoing conclusion is derived at based on your representation in your letter that PS-DBM is designated procurement agent , thus, while it is the PS-DBM which actually bought the items, yet the payment for such purchase(s) came from you by virtue of the fund transfer from your office, as the funding agency, to PS-DBM as your procurement agent. Therefore, the payment made by PS-DBM, is the payment for and in behalf of your office. In principal-agent arrangement, your Office, as the principal, is still the income payor, and therefore, the designated withholding agent, PS-DBM, which facilitates the bidding and payment to the winning bidder, did so as your agent." In reply, please be informed that the above opinion is in accordance with existing laws and rules and regulations. The payor, which, in this case, is the DAR, is the one constituted as the withholding agent of the government to deduct and withhold the appropriate taxes due on its purchases of goods and services. However, the DAR is not precluded to enter into an agreement with the PS-DBM for the latter to deduct and withhold the taxes due on the purchases made on behalf of the DAR. Considering that PS-DBM has already in its custody the funds transferred by DAR in connection with the procurement of equipment/common service facilities subject of the MOA, PS-DBM can already act as the withholding agent of the DAR and remit the withholding taxes to the Bureau on behalf of the DAR. It must be noted, however, that the liability in case of failure to withhold the proper taxes would fall on the DAR, being the principal, and not on PS-DBM it being only the procurement agent. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered null and void. ASEcHI Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue