5% Expanded Withholding Tax Imposed on Gross Rental Payment for the Lease of Real Property

October 4, 1988 BIR RULING NO. 478-88 50 (b) 233-88 478-88 Gentlemen : This refers to your letter dated May 25, 1988 inquiring whether the income tax exemption under then Section 27(f) of the Tax Code issued by this Office on October 30, 1959 in favor of Cement Institute of the Philippines (now Philippine Cement Manufacturers Corp.) is still enforceable, and whether or not you should continue withholding the 5% expanded withholding tax on your rental payments on the Office space you are renting from them. In reply, please be informed that 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. Accordingly, even assuming that your lessor, Philippine Cement Manufacturers Corporation, is still exempt from income tax under then Section 27(f) [now Section 26(f)] of the Tax Code, as a business league, nevertheless, 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 Philippine Cement Manufacturers Corporation is exempt from income tax in respect to the income derived by it as a business league, it is subject to income tax on its income derived from its property, such as the abovementioned rental income. Hence, said rental income is subject to the 5% expanded withholding tax which is creditable against the income tax due from it. In this connection, the aforesaid payment may be claimed by you as deduction in your income tax return only if it is shown that the required tax deducted and withheld therefrom has been paid to this Bureau. [Sec. 29(j), Tax Code, as amended by Executive Order No. 273] aisadc Very truly yours, (SGD.) EUFRACIO D. SANTOS Deputy Commissioner