May 25, 2010
BIR RULING [DA-(C-018) 075-10]
RMC 26-09 & Sec. 2.57.2 (E) (4) (g), RR 2-98, as amended; BIR Ruling Nos. 028-80, VAT-085-89, DA-565-04, DA-122-08 & DA-219-08 Wistron InfoComm (Philippines) Corporation #4 Rizal Highway cor. Aim High Avenue Subic Bay Industrial Park Phase I Subic Bay Freeport Zone Attention: Mr. Attention: Mr. Peter Kang Finance Director Gentlemen : This refers to your letter dated September 25, 2008 stating that Wistron InfoComm (Philippines) Corporation ("Wistron") will be entering into a contract with a manpower agency to support its requirement during peak season. Based on the foregoing, you now inquire on the following: 1.
What What will will be be the the basi basiss of of the the with withho hold ldin ing g tax tax?? Wou Would ld it be the the gross billing or only the agency fee?
2.
For For purp purpos oses es of of bill billin ing, g, is is the the age agenc ncy y req requi uire red d to to sepa separa rate te the the actual salaries from the mark up?
3.
What What are are the the req requi uire rem ments ents the the age agenc ncy y has has to subm submit it to your our company?
In reply, please be informed that Revenue Memorandum Circular No. 26-2009 emphasized that the basis of withholding tax whether creditable or final, is the gross income without any qualification. In the case of Protector's Services, Inc. vs. Court of Appeals and Commissioner of Internal Revenue, Revenue, G.R. No. 118176 dated April 12, 2000, the Supreme Court held that the term "gross receipts" means all amounts received by received by Copyright 2016
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the prime or principal contractor as the total price, undiminished by the amount paid to the subcontractor under a subcontract arrangement. Hence, gross receipts could not be diminished by employer's SSS, SIF and Medicare contributions. The salaries form part of the taxable gross receipts of the agency for purposes of the 2% withholding tax and the 12% VAT. The reason is that the salaries are actually the liability of the agency and that the employees are considered the agency's employees. Hence, for tax purposes, the salaries are includible in the agency's gross receipts. TCIHSa
But this is not true in the case of security agencies because of Section 1, Rule XIV of the 1994 Revised Rules and Regulations implementing Republic Act No. 5487, as amended, governing the "Organization and Operation of Private Security Agencies and Company Security Forces throughout the Philippines," which places the primary obligation on the client to pay the salaries of the security guards and requires that the monies received by the security agency representing salaries shall be earmarked and segregated for the said guards, and not form part of the security agency's gross income and taxable gross receipts when actually or constructively received. For purposes of computing the withholding tax, this Office had occasion to rule in BIR Ruling No. DA-122-2008 dated March 4, 2008, as follows: "In reply, please be informed that for purposes of creditable withholding tax on such income payments, the tax base shall be the gross income embracing the cost of personnel and agency income, etc., but exclusive of the VAT, of the payee. VAT as a tax cannot be subject to another tax. Such being the case, the VAT when included in the gross income payment of the payor-buyer of the goods or services must be excluded in computing the creditable withholding tax. Likewise, the tax base in computing the value-added tax on the sale of services is gross receipts which means the total amount of money or its equivalent representing the contract price, compensation or service fee, including the amount charged for materials supplied with the services and deposits or advance payments, actually or constructively received during the taxable quarter for the services performed or to be performed for another person. Accordingly, for CRR Service Corporation's income payment received from its clients, the tax base shall be the gross income payment net of value-added tax. As such, it is subject to 2% withholding tax pursuant to Section 2.57.2 (E) (4) (g) of Revenue Regulations (RR) No. 2-98 as amended by RR No. 6-2001, and 12% VAT based on the total gross receipts or gross income pursuant to Section 108 of the Tax Code of 1997, as amended."
In view of the foregoing, clients of service providers, other than security Copyright 2016
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agencies, are required to deduct and withhold the 2% creditable tax on its income payments to manpower agencies inclusive of salaries, SSS, Philhealth and Pag-ibig contributions pursuant to Section 2.57.2 (E) (3) (k) of Revenue Regulations (RR) No. 2-98, as amended by RR No. 17-2003. The 2% withholding tax is based on the gross receipts received by the business agencies which include the agency commission plus salaries and the aforesaid contributions net of VAT. Questions nos. 2 and 3 do not involve legal issues, hence, beyond our jurisdiction. You may, however, address your queries to the Operations Group. Please be guided accordingly.
DSHTaC
Very truly yours, Commissioner of Internal Revenue By:
(SGD.) GREGORIO V. CABANTAC Deputy Commissioner Legal and Inspection Group Bureau of Internal Revenue
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