BIR Ruling No. 456-2011 dated November 16, 2011 EWT on payments through Credit Cards

Facts:

►   S Co. is a domestic corporation classified by the BIR as one of the Top 10,000 (now Top 20,000) private corporations. S Co. purchases goods and services from suppliers and pays them through credit card. The suppliers collect payment from the credit card company, which in turn collects payment from S Co.

Issues:

1.   Is S Co. required to withhold 1 % or 2% EWT imposed under Section 2.57.2 of RR No: 2-98 on payments to suppliers upon presentation of the credit card?

2.   Is S Co. required to withhold 2% EWT on interest payment and/or service fee and other charges imposed by the credit card company?

3.   Is the credit card company required to withhold any tax on payments to the suppliers of S Co?

Ruling:

1.   No. Under RMC No. 72-2004, a Top 20,000 corporation is not required to withhold 1 % or 2% EWT on payments to suppliers upon presentation of the credit card. In a credit card transaction, the merchant/service establishment allows the cardholderto make the purchases on credit The merchant/service establishment assigns its receivables from the cardholderto the credit card company at a discount for early payment or settlement of the transaction. What is being sold to and purchased by the credit card company are the receivables from the cardholder. Hence, payments made by S Co. to the credit card company, which are termed "settlement of accounts", are for those receivables assigned to them by the merchant/service establishment. Clearly, the payments are not payments for the purchase of goods or services.

2.   Yes. Under RMC No. 72-2004, a Top 20,000 corporation is required to withhold 2% EWT on interest payments and/or service fees and other charges imposed by the credit card company. Considering that a credit card company is engaged in financing activities with respect Id discounting of receivables, and that it generates revenues principally from the discount granted by the merchant/service establishment and incidentally from fees paid by the cardholder, the cardholder is required to withhold 2% EWT on interest payments and/or service fees and other charges imposed by the credit card company.

3    Yes. Under Section 2.57.2(L) of RR No. 2-98 and RMC No. 72-2004, a credit card company in the Philippines shall withhold 1 % tax on one half of the gross amounts paid to any business entity, whether natural or juridical, representing sales of goods or services made by the business entity to the cardholder

BIR Ruling No. 456-2011 dated November 16, 2011
EWT on payments through Credit Cards