BIR Ruling No. 306-2017

REPUBLIC OF THE PHILIPPINES

DEPARTMENT OF FINANCE BUREAU OF INTERNAL REVENUE

Quezon City

Secs.28B1;114C RR 2-98; RR 4-07 BIR Ruling No.015-10

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METALS INDUSTRY RESEARCH & DEVELOPMENT CENTER DEPARTMENT OF SCIENCE & TECHNOLOGY MIRDC Compound, Gen. Santos Avenue Bicutan,Taguig City

Attention: Mr. Robert O. Dizon Assistant Secretary, DOST and Officer-In-Charge

Gentlemen:

or not the sale of goods to a government agency by a non-resident foreign corporation is subject to the final value-added tax (VAT) and final income tax. This refers to your letter dated March 5, 2015 requesting clarification on whether

(MIRDC), an attached agency of the Department of Science and Technology (DOST), and High Speed Vertical Machining; the contracts for said purchases were awarded to Makino Asia Pte. Ltd (Makino Asia), a non-resident foreign corporation based in requirements of the bidding process and to facilitate the transactions; that the VAT on conducted a public bidding for the purchase of Integrated Manual/CNC Milling Machine Singapore; that Makino Asia sent a representative to the Philippines to attend to the importation has been paid and the equipment was delivered to MIRDC; and that the Singapore office of Makino Asia issued an invoice therefor. It is represented that the Metals Industry Research and Development Center

Regulations (RR) No. 2-98, as amended, provide: In reply, please be informed that Sections 2.57.1(l) and 2.57.3 of Revenue

"(I) Income Derived From all Sources Within the Philippines by Non- Resident Foreign Corporation. - The following shall be subject to final withholding tax based on the gross amount of income and at the rate of tax prescribed therefor:

(1) In general -- On gross income derived from all sources within the Philippines such as interests, dividends, rents, royalties, salaries, premiums (except reinsurance premiums), annuities, emoluments, or other fixed or determinable annual, periodic or casual gains, profits and income and capital gains (except capital gains realized from sale, exchange, disposition of shares of stock in any domestic corporation

S

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which is subject to capital gains tax under Sec. 28(B)(5)(c) -- at the following rates:

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[now 30% effective January 1, 2009] (Emphasis supplied) 32% - beginning January 1, 2000 and thereafter

"SECTION 2.57.3. Persons Required to Deduct and Withhold. -- The following persons are hereby constituted as withholding agents for purposes of the creditable tax required to be withheld on income payments enumerated in Section 2.57.2:

barangays. (C) All government offices including government-owned or controlled (B).. corporations, as well as provincial, city and municipal governments and (A).

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Section 4.114-2 of RR No. 16-05, as amended by RR 4-07, provides, viz: In relation to the afore-quoted provisions of RR No. 2-98, as amended,

Payments and Payments to Non-Residents. "SECTION 4.114-2. Withholding of VAT on Government Money

a The government or any of its politicalsubdivisions instrumentalities or agencies, including government-owned or

account of each purchase of goods and/or of services taxed at i2% VAT controlled corporations (GOCCs) shall, before making payment on final VAT due at the rate of five percent (5%) of the gross payment pursuant to Secs. 106 and 108 of the Tax Code, deduct and withhold a thereof."

as amended, it is clear that MIRDC is constituted as the withholding agent of the Section 2.57.1(I) of RR No. 2-98, as amended. that the sale of the subject equipment by Makino Asia to MIRDC is subject to the final withholding tax on income at the rate of 30% of the gross payment made, pursuant to government with respect to the money payments it made to Makino Asia. Please take note From the afore-quoted provisions of RR No. 2-98, as amended, and RR No. 16-05.

for the standard input VAT for sales of goods to MIRDC in lieu of the actual input VAT attributable to sale to MIRDC is less than seven percent (7% of gross payment, the of 5% of the gross payment thereof. The 5% final VAT withholding rate shall represent the net VAT payable by Makino Asia. The remaining seven percent (7%) effectively accounts directly attributable or ratably apportioned to such sales. Should actual input VAT attributable to sale to MIRDC exceeds seven percent (7%) of gross payments, the excess may form part of the Makino Asia's expense or cost.On the other hand, if actual input VAT difference must be closed to expense or cost.(RR No.16-05, as amended by RR No.4-2007) In addition, the aforesaid sale is subject to the final withholding on VAT at the rate

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mandated to withhold final income tax at 30% and final VAT at 5% on its gross payments made to Makino Asia for the purchase of the subject equipment. In sum, MIRDC, being a government owned and controlled corporation, is

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

Very truly yours,

1awaulya

CAESAR R. DULAY Commissioner of Internal Revenue

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