BIR Ruling

October 10, 1974 Philippine Society of Travel Agencies Taxes and Licenses Committee 2nd Floor, Front Page Bldg. Plaza Ferguzon, Ermita Manila Attention: Mrs . Alicia S . Padlan Chairman Gentlemen : This refers to your letter dated September 27, 1974 requesting reclassification of IATA approved Travel Agencies as brokers to services agents in the nature of independent contractors. It is your opinion that IATA Travel Agencies should be levied the contractor's tax of 3% (not the present 6% broker's tax) on the 7% commission you receive from your principals the airline and shipping companies; and that considering that the airline and shipping companies already pay their respective common carrier's tax, you submit that, reclassifying IATA Travel Agencies as independent contractors and not brokers is in order. In support of your request you stated that: "a) Our members are licensed by the Department of Tourism as Travel Agents (handling Outbound travel only) and simultaneously appointed passengers agents for more than ten (10) IATA airline operating in the Philippines or licensed to do business in the Philippines. "b) With the current travel restrictions, we are the most affected. Unlike other businesses who can decide, adjust and build-in their mark-up or profits when circumstances warrant, we are PEGGED to published International Tariffs on International passage fares and our commissions are LIMITED to 7% of each basic passage fare we sell for and in behalf of our principals. "c) Other marketing establishments can arrange credits or make flexible financial agreements with their principals, in accordance with existing and accepted credit conditions, from time to time or on case to case basis. By virtue of our appointment as passenger agents for IATA carriers, we are governed by existing IATA regulations, enforced uniformly for this area-ASIA, which requires, we make remittances every fifteen days to our principals." In reply, I have the honor to inform you that under Section 194(t) of the Tax Code, "Commercial broker includes all persons, other than importers, manufacturers, products, or bona fide employees, who, for compensation or profit, . . ., negotiate freights or other business for owners of vessels, or consignors or consignees of freight carried by vessels or other means of transportation." In our ruling dated January 22, 1967 (Int. Rev. Bull., Vol. II, No. 1) which we have consistently applied, it was ruled that travel agencies are considered commercial brokers and, therefore, subject to the annual fixed tax of P150.00 (now P300.00) imposed under Section 182(A)(3)(bb) of the Tax Code and to the 6% tax imposed in Section 195 of the same Code. It being admitted in your letter that members of the Philippine Society of Travel Agencies are appointed operating in the Philippines, handling outbound travel of their passengers, then the members of that Society are commercial brokers under the definition aforecited. In view of the foregoing and there being no legal basis to reclassify travel agencies from brokers to independent contractors, your request is hereby denied. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue TAN 1601-593-5