BIR Ruling

March 16, 1973 Supersonic Services Incorporated Shellborne Arms Hotel, Roxas Blvd. Manila Attention: Miss Diva S . Abad Santos Manager Gentlemen : This refers to your letter dated March 7, 1973, stating the following: "We request your good office to give us an opinion on the following: As provided for by the Internal Revenue Code, Percentage tax is due on gross commission. Our office, Supersonic Services, Inc. is the General Sales Agent for Pakistan International Airlines and Varig Brazilian Airlines. Our contract with our principals provides: "The agent shall be paid Sales Commission on Sales made in his own office at the rates specified in IATA Resolution 810A and 810B (1) the rate of commission for sales of international passenger transportation shall be 7% of the Applicable published (2) the rate of commission for sale of charter transportation shall not exceed 5% of the agreed charter price including ferry. . . . Over-riding commission shall be paid to the Agent at the rate of 3% on passenger traffic when the normal rate of commission is 7% and 2 % where commission is payable at a different rate including cargo on all sales in the area. . . ." The 7% and 5% commission mentioned in the first paragraph of the provision quoted above are paid to IATA Travel Agencies and Cargo Agencies unless the sale is made direct in which case we get these commission. But this happens seldomly. The travel agencies and cargo agencies pay us net of these commission. The actual income of our office is only the over-riding commission of 3% of 2 % referred to in the second paragraph of the provision quoted above. To summarize the whole procedure, the travel agencies or cargo agencies pay us net of 7% or 5% commission, as the case may be. We, Supersonic Services, pay our principals net of 10% or 7 % commission, as the case may be. QUESTION : Per Internal Revenue Provision on percentage tax, are we required to pay said percentage tax on gross commission of 10% and 7 % even if our actual income is only our over-riding commission of 3% or 2 %? Please note that the travel agencies and cargo agencies deduct from their remittances the 7% and 5% commission respectively, which is their income and accordingly they are required to pay percentage tax on these." In reply, I have the honor to inform you that the 6% broker's tax imposed in Section 195 of the Tax Code is based on the gross compensation actually received. Hence, the 6% tax shall be based on the 3% or 2 % commission actually received by you. aisa dc Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue