BIR Ruling No. 003-2025

BUREAUOF TENALREVENUE REPUBLIC OF THE PHILIPPINES DEPARTMENT OF FINANCE Quezon City

Sections 251 and 255 the Tax Code; Sections 1998, as amended 2.57.2, 2.57.3, 2.57.4 and 2.57.5 of Revenue Regulations No. 2- S 003-2075 Person to Contact: Chief, Law & Legislative Tel. Nos. 926-55-36/927-09-63 Division

Date: JAN_O_62025

ENERGY REGULATORY COMMISSION Pacific Center Building San Miguei Avenue, Ortigas Center 1605, Pasig City

Attention: ATTY. ALEXIS M. LUMBATAN Commissioner

Gentlemen:

relating to the claim filed by SKK Steel Corporation ("SKK") against the Power Sector to PSALM for late payment, or a total amount of PhP percent (2%) expanded withholding tax ("EWT") amounting to Phf paid to the Bureau of Internal Revenue (BIR"); and (2) interest charge of PhP Assets and Liabilities Management Corporation ("PSALM") for the refund of: (1) the two This refers to your letter on behalf of the Energy Regulatory Commission ("ERC") it allegediy paid

Background

1. On July 21, 2005, SKK and the National Power Corporation ("NPC") executed a Contract for Supply of Electricity Energy ("CSEE"). Conisidering that NPC is exempt from payment 'of income tax, sales by the same to SKK. were not subjected to withholding tax.

2 On May 11, 2009, NPC assigned to PSALM, a goyernment-owned and controlled corporation ("GOCC"), all its rights and obligations in, to and under its contracts for including that of SKK, pursuant to Section 49 of Republic Act No. 9136, otherwise CSEE and other similarly or substantially equivalent power supply contracts, known as thc EPIRA (the."Assignment"). After the Assignment, SKK was not withholding any tax from its income payments to PSALM.

3. In July 2014, pursuant to the audit conducted by the BIR, it was revealed that SKK, being an entity belonging to the Top 10,000 corporations in the Philippines, is mandated to withhold tax from all its suppliers, including PSALM.

GT- 0 0 3 - 20 25 JAN 0 6 2025

In accordance with Republic Act No. 9337, otherwise known as the E-VAT Law, sale of electricity by generation companies, transmission and distribution companies is subject to value-added tax ("VAT"). The BIR issued.Revenue Memorandum Circular ("RMC") No. 11-2012 wherein it confirmed that the transactions of PSALM are subject to the twelve percent (12%) VAT.

5 Per computation of SKK, the total amount of taxes that it shonld have withheld from December 2014 billing of PSALM. SKK claimed that it remitted the same to the BIR. its income payments to PSALM amounted to PhP Tax"). Consequently, SKK deducted the said Back-Withholding Tax from the ("Back-Withholding

6. PSALM disallowed the deductions made bv SKK and billed the: same for such amount plus interest charge of PHF "Outstanding Balance"). for late payment (collectively, the

7. On February 5, 2015, SKK paid under protest the Outstanding Balance.

supplier of goods and local/resident supplier of services at the time such income payment is paid or payable, or the income payment is accrued or recorded as an expense or asset, are required or have the duty to withhold EWT from its income payments to its local/resident whichever is applicable, in the payor's books, whichever comes first, pursuant to Sections 2.57.2, 2.57.3, and 2.57.4 of Revenue Regulations ("RR") No. 2-1998, as amended.2 The obligation to withhold applies on the income payments to "regular suppliers," which refers to suppliers with whom such income-payor has transacted at least six (6) times, regardless of the amount per transaction, either in the .previous or current year.3 Further, a single purchase percent (1%) or two (2%) EWT, as the case may be. Please note that GOCCs are not exempt which involves ten thousand pesos (PhP10,000.00) or more shall also be subject to the one from withholding taxes. In reply, please be informed that entities belonging to the Top 10,000 Corporations'

1998, as amended, provides that the obligation to withhold lies with SKK (as the buyer- and a GOCC, is required to withhold two percent (2%) EWT from its income payments to PSALM at the time it is paid or payable. It bears stressing that Section 2.57.3 of RR No. 2. payor). Applied in this case, it is clear that SKK, being one of the Top l0,000 Corporations

Back-Withholding Taxes relating to its previous transactions with PSALM from the December 2014 billing of PSALM. The issuc now to resolve is, whether SKK was correct when it withheld all the

1 Pursuant to RR No. 14-2008, the number of top private corporations was increased to 20,000 and RR No. 6- 2009 included the top 5,000 individual taxpayers; Revenue Memorandum Circular No. 143-19, Clarifications on the Inclusion of Taxpayers as Top Withholding Agents Who are Obliged to Remit the 1% and 2% CWT Pursuant to the Criteria Of RR No. 7-2019, December 16, 2019. 2 As amended by RR Nos. 6-2001, 12-2001, 14-2002, 30-2003 and 1 1-2018. Scction 2.57.5 of RR No. 2-1998, a3 amcndcd. Secticn 2.57.2 (1) of RR No. 2-1998, as amended.

Page 2 of 4

0r- 0 03 - 2 0 2 5

JAN 0 6 2025

asset, whichever is applicable, in the payor's books, whichever comes first. Moreover, once of BIR Form No. 2307 within twenty (20) days from the cfose of the quarter, which will be Used by the latter to support its claim for tax credit.s payment is paid or payable, or the income payment is accrued or recorded as an expense or withhe!d, Section 58 of the National Internal Revenue Code of 1997, as amended, ("Tax Code") and Section 2.58 (B) of RR No. 2-1998, as amended, provide that the income-payor (withholding agent), has to furnish the income-recipient, a withholding statement in the form As mentioned earlier, the withholding of taxes should be made at the time the income

applicable penalties.5 Likewise, considering that the obligation to withhold tax lies on the buyer-payor, the relating expense (income payment) of the buyer-payor will be disallowed as a deduction from its gross income for income tax purposes thereby resulting to an assessment for deficiency income tax pius applicable penalties. Failure to withhold the required taxes may be assessed of deficiency EWT plus

(4) PSALM claimed that SKK did not provide PSALM withholding tax statement in the form of BIR Form No. 2307 evidencing the remittance of the taxcs withheld as averred by SKK] BiR that it should have withheld such taxes, SKK deducted all the Back-Withholding Taxes from the December 2014 billing of PSALM and allegedly remitted the same to the BIR; and made to PSALM relating to its previous transactions; (2) PSALM included the said income payments of SKK in its tax returns without any deductions; (3) When SKK was advised by the Records show that: (1) SKK admitted that it did not withhold EWT on the payments i:

remitted properly and on % timely basis. Revenue Memorandum Circular ("RMC") No. 061- and not on the withholding agent, which merely collects and remits the tax to the government, 147 elucidated that the incidence and burden of taxation fall solely on the statutory taxpayer to wit: Withholding of. taxes is a method used by the government to ensure that taxes are

taxation fall on the same entity. the statutory taxpayer. The burden of taxation is not the government. " (Underscoring supplied) "On the other hand, in case of withholding taxes, the incidence and_burden of shified to the withholding agent who merely collects. by withholding._ the tax due from income payments to entities arising from certain transactions and remits the same to

the same to the government. PSALM, falls solely on PSALM. SKK merely collects (by withholding) the tax due and remits Thus, the liability'of paying the income tax due on the income payments of SKK to

to withhold EWT from its income payments to PSALM, however, such income payments have. paid the appropriate income taxes thereon. Such being the case, this Office holds that there is substantial compliance with RR No. 2-98, as amended, implementing Sections 57 (A) and (B) been reported in PSALM's income tax returns without any deductions in the year of sale and Considering the purpose of the withholding tax system, while it is truc that SKK failed

$ Section 2.58.3 (A) of RR No. 2-1998, as amended. Scctions 251 and 255 of the Tax Code. Revocation of BIR Ruling No. DA(OSL-f 1-2008 dated Octo r 17, 2008, July 28, 2014.

Page 3 of 4

OT-003-2025

JAN 9 6 2025

of the Tax Code, without prejudice however to the imposition of penalties upon SKK for failure to withhold said taxes pursuant to Sections 251 and 255 of the Tax Code.

relating interest to SKK. Accordingly, PSALM has no liability to refund the Back-Withholding Taxes and the

Back-Withholding Taxes to the BIR (i.e., BIR Form No. 2307), it may claim for a tax refund of such taxes from the BIR, subject to the existing laws, rules and regulations. Further, if SKK can prove with supporting documents that it remitted the deducted

upon investigation it shall be disclosed that the facts are different, then this ruling shall be considered null and void. This ruling is issued on the basis of the foregoing facts as represented. However, if

Very truly yours,

Commssioner of Internal Revenue R6MEUMAUI,JR.

Page 4 of 4