Taxes Required to be Withheld on Income Payments and Percentage Taxes Payable by a Dealer in Securities

November 19, 1987 BIR RULING NO. 367-87 21, 51 (b) 161 (3) (z) 175 000-00 367-87 M a d a m : This refers to your letter dated September 25, 1987 stating that your client is engaged in selling pre-need educational plans and licensed by the Securities and Exchange Commission as securities dealer. You are requesting information as to the taxes required to be withheld on income payments as well as the percentage taxes your client has to pay more specifically on the following: 1. Income of contracted sales associates who are non-salaried employees and income of sales associates who are employees or under payroll, viz: a. Commissions b. Incentives, prizes and awards c. Bonuses like Christmas, Midyear, Anniversary and Retirement d. Transportation and representation allowances which are not subject to liquidation e. Other benefits; 2. Gross amount paid to advertising, janitorial/messengerial services, printers, persons engaged in installation of water system and electrical light, etc. which have contract with them; i 3. Percentage Tax: and 4. Value-Added-Tax In reply, I have the honor to inform you as follows: 1. Commissions, incentives, awards, Christmas, mid-year and anniversary bonuses as well as transportation and representation expenses which are not subject to liquidation paid by your client to non-salaried contracted sales associates are not subject to the expanded withholding tax prescribed in Revenue Regulations No. 6-85 nor to the withholding tax on wages under Section 81 of the Tax Code as amended. However, said payments form part of the taxable income of the non-salaried sales associates subject to tax under Section 21 of the Tax Code. The cash prizes given by your client to employee's as well as to non-salaried personnel amounting to more than P3,000.00 shall be subject to a final tax of 20% pursuant to Section 21(c) (1) of the Tax Code as amended by Executive Order No. 37, while cash prizes amounting to P3,000.00 or less shall be subject to tax under Section 21(a) of the same Code. Retirement pay paid to non-salaried personnel are not subject to the withholding tax on wages under Section 81 of the Tax Code nor to the expanded withholding tax prescribed under Revenue Regulations No. 6-85. However, said retirement pay forms part of the taxable income of the non-salaried personnel subject to tax under Section 21 of the Tax Code. Moreover, retirement pay paid to non-salaried employees constitute compensation subject to withholding except the following: atdc 1. Retirement benefits received by officials and employees under a reasonable private benefit plan maintained by the employer, if the following requirements are met: (i) The benefit plan must be approved by the BIR; (ii) The retiring official or employee must have been in the service of the same employer for at least ten (10) years and not less than fifty (50) years of age at the time of retirement; and (iii) The retiring official or employee shall not have previously availed of the privilege under the retirement benefit plan of the same or another employer. On the other hand, the income of sales associates who are employees of the company are subject to the withholding tax on wages under Section 81 of the Tax Code as amended. 2. The gross payments made by your client to persons engaged in the installation of water system and electrical lights, printers, janitorial/messengerial services and advertising agencies are subject to the 1% expanded withholding tax under Section (1)(e)(1)(c),(2)(g) and (h) of Revenue Regulations No. 6-85 implementing Section 51(b) (formerly Section 51(f) of the Tax Code. 3. Since your client is a dealer in securities, it is subject to the fixed tax of P300.00 imposed by Section 161(3)(z) of the Tax Code and to the 6% tax on its gross income pursuant to Section 175 of the same Code. 4. Being subject to the percentage tax, your client is not subject to the Value-Added-Tax (VAT) pursuant to Section 9(b)(10) of Revenue Regulations No. 5-87 implementing Executive Order No. 273. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner