Guidelines for the Implementation of Revenue Regulations No. 8-90, as Amended by Revenue Regulations No. 2-91, Pertaining to the Withholding of Tax on Income Payments from the Sale, Exchange or Transfer of Motor Vehicles

June 1, 1991 REVENUE MEMORANDUM CIRCULAR NO. 35-91 SUBJECT : Guidelines for the Implementation of Revenue Regulations No. 8-90, as Amended by Revenue Regulations No. 2-91, Pertaining to the Withholding of Tax on Income Payments from the Sale, Exchange or Transfer of Motor Vehicles TO : All Internal Revenue Officers, Withholding Agents and Others Concerned Revenue Regulations 8-90 requires the withholding of a creditable income tax of 2% on the gross selling price or total amount of consideration or its equivalent paid or payable to the seller/owner for the sale, exchange or transfer of motor vehicles, prior to its registration by the Land Transportation Office (LTO). The tax rate was reduced to 1% under Revenue Regulations No. 2-91 for sales, exchanges or transfers of motor vehicles that are considered as "brand new." This Circular setting forth the guidelines to be followed in the enforcement of Revenue Regulations Nos. 8-90 and 2-91 is hereby prescribed in order to have a uniform and consistent application of the rules. 1. Coverage . All sales, exchanges or transfers of motor vehicles, whether brand new or second hand, including transactions between two individuals not engaged in trade or business, on or after June 1, 1991, shall be subject to the creditable withholding tax, except the following: a. Motor vehicle sold, exchanged or transferred for P50,000 or less, which is of 1978 or earlier model. Both conditions must be satisfied to be exempt from withholding tax. b. Motorcycles and similar vehicles; c. Motor vehicles sold by manufacturers who participate in the Car Development Program (CDP) or Commercial Vehicle Development Program (CVDP) to their franchised dealers. But when such vehicle is sold to the person other than its franchised dealer, the same shall be subject to the creditable withholding tax. Illustrations : a. "A" purchased a car in 1988; he sold it to "B" in 1989; "B" sold it to "C" in 1990; "C" sold it to "D" in March, 1991 and "D" sold it to "E" on June 15,1991. No registration of the vehicle was made in all, the above transactions except the last one. Only the sale of the car by D to E is subject to the creditable withholding tax, since the regulations become effective only on June 1, 1991. If the series of transactions happened after June 1, 1991, each and every sale or transfer of motor vehicle shall be subject to the withholding tax. b. "A" purchased engine chassis, body and other parts from car parts dealers and have them assembled by "B" for a fee. To register the vehicle with the LTO, he executes an Affidavit of Assembly and submits copy of the Contract to Assemble and invoices covering purchases of engine, chassis, body and other parts in the name of the owner. In this case, no withholding tax shall accrue because there is no sale of motor vehicle. However, if the above assembler/contractor supplies all the materials and labor, there is a sale of motor vehicle, which sale is subject to the 2% creditable withholding tax. c. "A" bought a new car as a gift to his son, "B." This donation is not subject to the creditable withholding tax, although it is subject to donor's tax. d. "A" exchanges his car with "B's" jeepney in June, 1991. In this case, there are two taxable transactions; both are subject to creditable withholding tax. Basis is the fair market value at the time of the exchange. e. "A" won in the public auction sale of motor vehicles conducted by the Bureau of Customs. Such sale is not subject to the withholding tax because the Bureau of Customs is a government agency exempt from income tax. However, foreclosure sales of motor vehicles shall be subject to the creditable withholding tax. 2. Withholding Tax Rates, Sales, exchanges or transfers of motor vehicles that are considered as "brand new" by persons participating in the government CDP or CVDP shall be entitled to the preferential rate of 1%. Thus, sales, exchanges, or transfers of motor vehicles assembled by a person who is not a participant to either of the above program shall be subject to the 2% creditable withholding tax. Sale of repossessed motor vehicles by franchised dealers shall be considered as "sale of second hand vehicles" and therefore subject to 2% of the gross selling price. 3. Tax Base . The 1% or 2% withholding tax shall be based on the gross selling price; i.e., without deducting discount or price adjustments, or the total amount of consideration or its equivalent. The value added tax (whether indicated as a separate item in the VAT invoice or not) passed on by the seller to the buyer shall not form part of the tax base. acd The gross selling price shall be the consideration so stated in the sales documents or the official Schedule of Values of Motor Vehicles, whichever is higher. In an exchange, the fair market value of the vehicles at the time of the exchange shall be used. 4. Time of Withholding and Remittance . The tax should be deducted and withheld by the buyer-withholding agent at the time the income payment is paid or payable and the tax withheld shall be remitted to the BIR within ten (10) days after the end of the month. 5. BIR Forms . The amount of withholding tax paid to the Bureau of Internal Revenue as evidenced by Confirmation/Official Receipts and covered by BIR Form No. 1743W is creditable against the income tax liabilities of the seller. In turn, the buyer shall furnish the seller a Certificate of Income Tax Withheld At Source (BIR Form No. 1743.1). 6. Venue of Filing of Tax Return . As provided in Revenue Regulations No. 6-85, the withholding tax return shall be filed with Revenue District Officer where the withholding agent's principal place of business is located. For purposes of Revenue Regulations No. 2-91 and as an exception to the above regulations, the withholding agent may file the withholding tax return and pay the tax in the Revenue District Office where the motor vehicle is or shall be registered. 7. Issuance of Certificates Authorizing Registration . The Land Transportation Office shall be requested not to register any sale, transfer or exchange of motor vehicle without a Certificate Authorizing Registration (CAR) indicating the Payment Order/Confirmation Receipt or Official Receipt number, date of payment and amount of creditable withholding tax, issued by the appropriate Revenue District Officer, unless the certificate indicates that the transaction is exempt from the withholding tax. 8. Monthly Report . In order to effectively implement the provisions of the regulations, all officials authorized to issue certificate authorizing registration are instructed to include in their monthly report to the Chief, Withholding Tax Division, Diliman, Quezon City, all withholding payments on the sale or transfer of motor vehicles, such report to be submitted not later than the 7th day of the following month. 9. Date of Effectivity . This Circular shall take effect on June 1, 1991. Subject to the rule against ante-dating of documents prescribed in Revenue Memorandum Circular No. 34-91 dated April 8, 1991, documents notarized before June 1, 1991 and presented to the BIR after said date shall be exempt from the coverage of this Circular. cd i This Circular should be given as wide a publicity as possible. (SGD.) JOSE U. ONG Commissioner of Internal Revenue