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BIR Ruling 023-09
BIR Ruling 023-09
RR 2-98; 000-00
Gentlemen :
This refers to your letter dated January 29, 2009 requesting on behalf
of your client, Credit Card Association of the Philippines, Inc. (CCAP), for
confirmation of your opinion that payments made by credit card companies
to merchants and service establishments (M/SE) for the purchase of
receivables are not subject to 1% or 2% withholding tax imposed on
payments for goods or services under Section 2.57.2 (M) of Revenue
Regulations 2-98, but rather to the 1% of 1/2 under Section 2.57.2 (L) of the
same revenue regulations; and that the amount upon which the withholding
tax rate shall be based is the gross amount paid to the M/SE representing
the purchases made by the cardholders, as indicated in the charge slip,
including VAT, if any, that may have been included in the goods/services
purchased.
It is represented that CCAP is a non-stock, non-profit organization of
corporations or entities engaged in the business of issuing credit card in the
Philippines. It was incorporated with the principal purpose of establishing,
maintaining, and perpetuating mutual confidence and closer cooperation
among its members as regards the management and protection of the credit
card industry with the idea of bringing about mutual improvement, greater
security and certainty in business customs and usages. Incidental to its
purpose is to ensure unanimous and uniform application and implementation
of rules and procedures among its members.
In this regard, CCAP now requests a clarification as to the appropriate
withholding tax rate and the proper tax base for purposes of computing the
withholding tax on the payments made by credit card companies to M/SE. In
particular, you would like to request for a confirmation of your opinion as
follows:
1. Payments made by credit card companies to M/SE for the purchase
of receivables are not subject to 1% or 2% withholding tax under
Section 2.57.2 (M) of Revenue Regulations No. 2-98 but rather to
1% of the 1/2 of the gross amount paid under Section 2.57.2 (L)
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of the said revenue regulations; and aIEDAC
It has been settled that credit card companies like banks and/or
financial institution fall within the purview of finance companies, or similar to
it (BIR Ruling No. 151-90 dated August 16, 1990 and BIR Ruling No. DA-411-
07 dated July 26, 2006).
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The sales of receivables by M/SE to credit card companies being in the
nature or a financing arrangement and a collection alternative to the M/SE,
the payments made by credit card companies to M/SE for the sale and
purchase of receivables from cardholders are not subject to VAT. Clearly, the
gross amounts paid by credit card companies to M/SE are understood to be
without any VAT component, although the first transaction from which the
receivables arose may have a VAT component in it.
Stated otherwise, unlike in the case of goods and services where the
withholding tax is based on the amount net of VAT, the payments of credit
card companies to M/SE which are only settlements or payments of the
cardholder's debt (and not a purchase of goods and services) should be
based on the total amount paid without any deduction of VAT.
Accordingly, this Office confirms your opinion that the 1/2 of 1%
withholding tax imposed on payments made by the credit card companies to
M/SE should be based on the gross amount indicated in the charge slip
without deducting the VAT component, if any, that may have been
incorporated in the said amount which arose from the sales of goods or
services.
WHEREFORE, this Office holds that payments made by credit card
companies to M/SE for the purchase of receivables are not subject to 1% or
2% withholding tax imposed on payments for goods or services under
Section 2.57.2 (M) of RR No. 2-98, but rather to the 1% of 1/2 under Section
2.57.2 (L); and that the amount upon which the withholding tax rate shall be
based is the gross amount paid to the M/SE representing the purchases
made by the cardholders, as indicated in the charge slip, including VAT, if
any, that may have been included in the goods/services purchased.
This ruling is being issued on the basis of the foregoing facts as
represented. However, if upon investigation, it will be disclosed that the
facts are different, then this ruling shall be considered null and void.