Exemption of Payments for Leasehold Right under a Contract of Lease from Expanded Withholding Tax

July 13, 1988 BIR RULING NO. 322-88 50 (b) 328-87 322-88 S i r : This refers to your letter dated June 14, 1988 requesting a ruling as to whether or not payments by your client, Multiplex Marketing Corporation (Multiplex) to Tourist Trade and Travel Corporation (TT & TC) on the following are subject to the expanded withholding tax: "1. Payment pursuant to a Contract of Sublease covering Six Thousand Four Hundred Eighty (6,480) Square Meters more or less located along A. Mabini Street entered into by and between TT & TC, the lessee of the property covering the same under a Contract of Lease it entered into with the City of Manila, the owner-Lessor of the leased land covered by TCT No. 934/T2-B, TCT No. 1987/TA-B, TCT No. 7503 and TCT No. 32110, and Multiplex, the sublessee. "2. Payment on the sale of TT & TC of its leasehold rights over a building space leased to Rustan's by TT & TC involving a total floor area of Twelve Thousand Nine Hundred Sixty (12,960) Square Meters, located on the land area subleased to Multiplex, in favor of Multiplex." It is represented that a Contract of Lease was entered into by and between TT & TC and the City of Manila covering a certain area covered by TCT No. 934/T2-B, TCT No. 1987/T4-B, TCT No. 7503 and TCT No. 32110; that under said Contract of Lessee, TT & TC may sublease the same; that a Contract of Sublease covering 6,480 square meters located along A. Mabini St. was entered into by and between TT & TC and Multiplex, which was approved by the City of Manila represented by then Mayor Ramon D. Bagatsing; that a Contract of Lease was likewise entered into by TT & TC and Rustan's covering a building space with a total floor area of 12,960 square meters located on the land area subleased to Multiplex; that Multiplex has extended financial assistance to TT & TC to enable the latter to complete the construction of the building leased to Rustan's; that for value received including the financial assistance extended by Multiplex to TT & TC, TT & TC assigned all its rights, ownership, interest and obligations over the building leased to Rustan's in favor of Multiplex such that the latter shall assume all rights and obligations of TT & TC as lessor in the aforesaid Contract of Lease between TT & TC and Rustan's; and that all the financial obligations of TT & TC to Multiplex are extinguished as a consequence of said assignment. In reply, please be informed that under Revenue Regulations No. 13-78, as amended by Revenue Regulations Nos. 6-79 and 6-85, implementing Section 50(b) [formerly Sec. 51(f)] of the Tax Code, payments only to persons enumerated therein are subject to the expanded withholding tax. Considering that payments for leasehold right under a contract of lease are not among those specified in said Regulations, the payments of Multiplex to TT & TC pursuant to their Contract of Sublease of the land leased to TT & TC by the City of Manila as well as the payment on the sale of TT & TC to Multiplex of its leasehold rights over the buildings space being leased to Rustan's by TT & TC are not therefore, subject to the expanded withholding tax. However, since the aforesaid payments are not subject to withholding tax, the payor, Multiplex, shall render an information return on such payments pursuant to section 61 (formerly Section 71) of the Tax Code, as amended by Batas Pambansa Blg. 135 and as implemented by Section 21 of Revenue Regulations No. 1-82 dated March 18, 1982. aisadc Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner