An Ordinance Amending Sec. 4H.02, Art. H, Chapter IV of Ordinance No. 020-S. 2017 also Known as the Updated Local Revenue Code of the City of El Salvador

January 12, 2004 BIR RULING [DA-015-04] 6-2001 Asia Traders Insurance Corporation 15th Floor, Tytana Plaza Building Plaza Lorenzo Ruiz Binondo, Manila Attention: Ms. Salvacion Ana R. Cruz Accounting Manager Gentlemen : This refers to your letter dated September 26, 2002 requesting for clarification of BIR Ruling No. DA171-2002 dated September 18, 2002 where this Office ruled that cHDAIS ". . . pursuant to Section 2.57.2(A)(5) of Revenue Regulations No. 2-98, as amended, a creditable withholding tax at the rate of 10% shall be withheld on the gross professional and talent fees or any form of remuneration for the services of insurance agents and insurance adjusters. However, if the services are performed by juridical persons, the rate of tax to be withheld is 5%, pursuant to said Section 2.57.2(B), in relation to Section 2.57.2(A)(5), both of Revenue Regulations No. 2-98, as amended. Accordingly, the income payments to Goldwings Insurance Agency, Inc., a juridical person, is subject only to 5% creditable withholding tax." In your aforesaid letter, you stated that Goldwings Insurance Agency is a sister company of your agent, RSG Insurance Agency, Inc., which is also engaged in the same line of business; that because of the above-cited ruling, RSG Insurance Agency, Inc. is now claiming for a refund of the alleged over-withholding of the creditable withholding tax which you withheld from its income: and that it is your contention that the said ruling has now been superseded by Revenue Regulations No. 12-2001 which subjects the income payments to insurance agents to ten (10%) percent creditable withholding tax. In reply thereto, please be informed that after a careful re-study of the applicable laws and regulations, particularly Revenue Regulations Nos. 6-2001 and 12-2001, this Office modifies BIR Ruling No. DA171-2002 dated September 18, 2002 as regards the creditable withholding tax rate applicable to insurance agents that are juridical persons, Section 3 of Revenue Regulations No. 6-2001, as amended by Revenue Regulations No. 12-2001, amended Section 2.57.2 of Revenue Regulations No. 2-98, as amended, by providing for a 10% creditable withholding tax on gross income payments paid or payable to insurance agents and insurance adjusters starting October 2001. Even assuming that the tax withheld is in excess of the prescribed rate, still, the payee can recover the alleged over withholding considering that taxes withheld pursuant to Section 2.57.2 of Revenue Regulations No. 2-98, as amended, are creditable in nature. Whatever taxes that have been withheld can be offset against the tax due at the end of the year. Moreover, the provisions of Revenue Regulations that have been promulgated by the Secretary of Finance have the force and effect of law. Therefore, they prevail over a ruling that contradicts them. This being so, there is no legal basis for RSG Insurance Agency, Inc. to claim a refund for your alleged over-withholding from your income payments to the said entity. WHEREFORE, your company is correct in your uniform application of a 10% creditable withholding rate on your gross income payments to insurance agents and insurance adjusters that are juridical persons, paid or payable starting October 2001 and remitted to the Bureau of Internal Revenue in November 2001, pursuant to the provisions of Section 2.57.2 of Revenue Regulations No. 2-98, as amended by Revenue Regulations Nos. 6-2001 and 12-2001. Very truly yours, (SGD.) GUILLERMO L. PARAYNO, JR. Commissioner of Internal Revenue