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Gentlemen :
This refers to your letter dated February 18, 2010 requesting, on behalf of your
client, SWEDISH MATCH PHILIPPINES, INC. (SMPI), confirmation of your
opinion on the following: (1) that SMPI is not required to withhold 1% or 2% EWT
upon presentation of the credit card to the supplier; and (2) that SMPI is required to
withhold 2% EWT on the interest payment and/or service fee and other charges
imposed by the credit card company.
"Q20. If the payment for the purchase of goods or services to their regular
suppliers by the TTC/GO/LT is through credit card or through company
issued credit card to officers/employees for purposes of reimbursements,
will the TTC/GO/LT be required to withhold the tax when it presents the
credit card to the supplier?
A20. The TTC/GO/LT is not required to withhold the tax upon presentation of
the credit card to the supplier. The TTC/GO/LT, however, is required to
withhold the 2% expanded withholding tax corresponding to the interest
payment and/or service fee and other charges imposed by the credit card
company. The credit card company, on the other hand, shall withhold
1% of 50% of the gross amount paid to any business entity pursuant to
Section 2.57.2(L) of RR 2-98, as amended." (Emphasis supplied)
On the other hand, Sec. 2.57.2 (M) of Revenue Regulations (RR) No. 2-98, as
amended by RR No. 14-2008, provides:
Supplier of goods - 1%
Supplier of services - 2%
The 1% and 2% tax rate on income payments will only apply in cases of
income payments made by top 20,000 corporations to supplier of goods or services
Copyright 2014 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia First Release 2014 2
which are not subject to any specific withholding tax rates provided in the said
revenue regulations. (BIR Ruling No. 023-09 dated November 26, 2009)
In BIR Ruling No. 151-90 dated August 16, 2006, this Office illustrated the
nature of the business of credit cards, to wit:
"In reply, please be informed that based on the foregoing facts, the credit
card company generates revenues principally from discount granted by the
establishment and incidentally from fees paid by the cardholder; and that the
credit card company finances the cardholder for the latter's purchases on credit,
since said purchases are paid by the company prior to billing the cardholder.
Accordingly, these activities fall within the purview of finance companies, or
similar to it, as defined in Section 11 of P.D. No. 1739, which reads as follows:
aIcSED
Considering that it has been settled in several BIR Rulings that a credit card
business is engaged in financing activities with respect to its discounting of
receivables (BIR Ruling No. 023-09 citing BIR Ruling No. 151-06 and BIR Ruling No.
UN-170-95 dated April 19, 1995) and that the credit card company generates revenues
Copyright 2014 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia First Release 2014 3
principally from the discount granted by the establishment and incidentally from fees
paid by the cardholder, therefore, the cardholder is then required to withhold the 2%
expanded withholding tax on the interest payment and/or service fee and other charges
imposed by the credit card company when it subsequently pays the credit card
company.
On the part of the credit card company, Section 2.57.2 (L) of RR 2-98 provides
that a withholding tax of 1% shall be withheld on the 1/2 of the gross amounts paid by
any credit card company in the Philippines to any business entity, whether natural or
juridical person, representing the sales of goods or services made by the aforesaid
business entity to card holders. (BIR Ruling No. 023-09)
From the foregoing, this Office hereby confirms your opinion that for payment
transactions of SMPI for the purchase of goods or services from its regular suppliers
through credit card:
(2) that SMPI is, however, required to withhold the 2% EWT on the
interest payment and/or service fee and other charges imposed by
the credit card company.
This ruling is being issued on the basis of the foregoing facts as represented.
However, if upon investigation, it will be ascertained that the facts are different, then
this ruling shall be considered null and void.
Copyright 2014 CD Technologies Asia, Inc. and Accesslaw, Inc. Philippine Taxation Encyclopedia First Release 2014 5