March 5, 2008

BIR RULING [DA-128-08]

Sec. 2.57.2 Rev. Regs. 2-98; BIR Ruling No.

098-97 dtd 8/28/97

Planters Products, Inc.

109 Esteban St., Legaspi Village,
Makati City

Attention: Ms. Carol P. Buagas

Finance Analyst

Gentlemen :

This refers to your letter dated February 26, 2008 requesting an opinion whether
or not the payment of the consideration for the pre-termination of a lease contract
between Planters Products, Inc., (PPI), and Limay Bulk Handling Terminal, Inc. (LBHTI)
is subject to withholding tax.
It is represented that PPI is a corporation duly organized and existing under
Philippine laws with o ce address at 109 Esteban St., Legaspi Village, Makati City; that
it is engaged in the purchasing, acquiring, manufacturing, trading and generally dealing
in any and all kinds of arti cial manures and agri-chemical products and by-products;
that LBHTI, on the other hand, is a corporation duly organized and existing under
Philippine laws with principal o ce at 2nd Floor, Eurovilla Condominium, Legaspi
corner Herrera Sts., Legaspi Village, Makati City.
It is further represented that PPI owns an industrial estate located at Limay,
Bataan covering eighteen (18) contiguous parcels of land with a total aggregate land
area of 580,424 square meters; that LBHTI is one of the lessees of PPI in said property;
that their Lease Contract had an original lease term of twenty (20) years which period
was subsequently extended for another ten (10) years; that the duration of the contract
is from March 1990 to July 20, 2020; that on February 7, 2007, prior to the expiration of
the contract, PPI and LBHTI mutually agreed to pre-terminate the lease contract under
the terms and conditions set forth in a duly-notarized Memorandum of Agreement
(MOA) executed by the parties; and that under the MOA, the consideration for the pre-
termination of the lease contract to be paid by PPI to the LBHTI shall amount to
Seventy Five Million Pesos (Php75,000,000.00).
It is nally represented that PPI undertakes to pay the consideration subject to
the terms set forth in the MOA but would like to be certain as to whether the payment
shall be subject to withholding taxes. Hence, this request for opinion.
In reply, please be informed that this Office had previously ruled that payments of
consideration for pre-termination of lease contracts are not subject to withholding tax.
Thus, in BIR Ruling 098-97 dated August 28, 1997, it was held that:
"Pursuant to Revenue Regulations No. 6-85, as amended, otherwise
known as the Revised and Expanded Withholding Tax Regulations
implementing Section 50(b) of the Tax Code, only payments to persons
enumerated therein are subject to the expanded withholding tax. (BIR Ruling
Nos. 101-94 dated May 3, 1994 and 12-83 dated February 3, 1983;) Accordingly,
CD Technologies Asia, Inc. © 2018 cdasiaonline.com
 your opinion is hereby con rmed that since the payment to be received by the
lessee, Read Rite, from the lessors, Philamlife and PERF, as consideration for
the pre-termination of the lease contracts, cancellation of options to purchase
and indemnity for the disturbance and damages arising from such pre-
termination and cancellation is not among those speci ed in Revenue
Regulations No. 6-85, as amended, such payment is not subject to the expanded
withholding tax."
Following the same principle, this O ce stated in BIR Ruling DA 532-2007 dated
October 10, 2007 that only payments to persons enumerated under the withholding tax
regulations are subject to withholding tax. In the said ruling, the BIR held that tuition
fees collected by schools in rendering educational services to students are not subject
to the creditable withholding tax since payments of such nature are not among those
payments subject to withholding as specified in Rev. Regs. 2-98, as amended.
Thus, inasmuch as the payment to be received by LBHTI from PPI under the MOA
represents consideration for the pre-termination of their lease contract, it is, therefore,
not subject to the creditable withholding tax imposed under Section 2.57.2. of Rev.
Regs. 2-98, as amended. However, such payment is taxable to the recipient as ordinary
income in the year of receipt.
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.

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) JAMES H. ROLDAN

Assistant Commissioner
Legal Service

CD Technologies Asia, Inc. © 2018 cdasiaonline.com