5% Expanded Withholding Tax Imposed on Commission Paid to Sub-Brokers

December 19, 1988 BIR RULING NO. 593-88 50 (b) 000-00 593-88 Gentlemen : This refers to your letter dated May 3, 1988 stating as follows: "Pacific Plaza, Inc. (PPI for short) is a corporation organized under the laws of the Philippines and engaged in the construction of condominium buildings and in the sale of the units therein. "In the sale of its said condominium units, PPI engages the services of First Pacific Davies (Philippines), Inc. (FPDI for short), as its exclusive broker, which is another domestic corporation engaged in the business as a real estate broker whereby PPI pays FPDI a certain commission for every condominium unit sold. "FPDI in turn, in the sale of PPI condominium units, retains the services of other real estate brokers as its sub-brokers and likewise, pay its sub-brokers part of the commission that FPDI receives from PPI for every PPI condominium unit sold by said sub-brokers. "When PPI pays FPDI the latter's commission, PPI withholds from said commission the amount equivalent to 5% thereof in compliance with the Expanded Withholding Tax Regulations No. 6-85." In connection therewith, you now request a ruling, as to whether or not the commission paid by your client, FPDI to its sub-brokers which is part of the commission which FPDI received from PPI is subject to the 5% expanded withholding tax. In reply, please be informed that under Section 1(g) of Revenue Regulations No. 6-85 as amended by Revenue Regulations Nos. 8-85 and 13-86 otherwise known as the Revised and Consolidated Expanded Withholding Tax Regulations implementing Section 50(b) of the Tax Code, as amended, gross payments to customs, insurance, real estate and commercial brokers and agents of professional entertainers are subject to the 5% expanded withholding tax. Accordingly, and since in the instant case, both your client, FPDI and its sub-brokers receive income payments for rendering real estate brokerage services, the commission being paid by your client, FPDI to its sub-brokers is subject to the said 5% expanded withholding tax, although the same is part of the commission received by your client, FPDI from PPI and for which the 5% expanded withholding tax was already withheld by PPI. cdtech Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner