BIR Ruling

April 12, 1977 The Honorable Commissioner Office of the Insurance Commission PPL Building, United Nations Avenue Manila M a d a m : This refers to your letter dated March 8, 1977, requesting a ruling on behalf of Mr. Jose I. Pueo, Manager, Insurance Department, Smith Bell & Company, Inc., whether insurance brokers, like insurance agents should also be subject to the 3% contractor's tax, and not the 6% broker's tax. Your office opined that both the insurance agents and the insurance brokers should be subject to the 3% contractors tax inasmuch as they perform similar functions, except that the insurance brokers represent the assured, and the insurance agents represent the insurance company. In reply, I have the honor to inform you that the term "independent contractor" is now defined in the last paragraph of Section 191 as amended by Presidential Decree No. 69 as follows: "The term independent contractors include persons (Juridical or natural) not enumerated above (but not including individuals subject to the occupation tax under Section 182(B) of this Code) whose activities consists essentially of the sale of all kinds of services for a fee regardless of whether or not the performance of the service calls for the exercise or use of the physical or mental faculties of such contractors or their employees." It is clear from the foregoing that insurance brokers whose activity consists in the rendition of services for the assured are subject to the 3% contractor's tax imposed in Section 191 of the Tax Code, since an insurance broker does not fall within the definition of a commercial broker as defined in Section 194(t) also of the same Code which states: "(t) 'Commercial broker' includes all persons, other than importers, manufacturers, producers, or bona fide employees, who, for compensation or profit, sells or brings about sales or purchases of merchandise for other persons, or bring proposed buyers and sellers together, or negotiate freights or other business for owners of vessels, or other means of transportations, or for the shippers, or consignors or consignees of freight carried by vessels or other means of transportation. The term includes commission merchants." As regards insurance agents, if the insurance agent is a natural person, he is not subject to the 3% contractor's tax, but to the occupation tax of P75.00 pursuant to Section 12(a) of Presidential Decree No. 231 otherwise known as the Local Tax Code. If the insurance agent is a corporation, it is subject to the 3% contractor's tax prescribed under Section 191 of the Tax Code, and to the annual fixed tax of P50.00 prescribed by Section 182(a)(1) of the same Code. cdti Very truly yours, EFREN I. PLANA Acting Commissioner of Internal Revenue TAN-P4519-F2828-A-8