BIR Ruling

April 22, 1997 MEMORANDUM FOR: The Commissioner This refers to the protested tax case of FIRST ASIAN TRANSPORT SHIPPING CORPORATION involving the sum of P73,485.78 as deficiency broker's tax for taxable year 1986, including increments, covered by Assessment No. FAS-86-88-003168 dated October 15, 1988. LexLib FACTS OF THE CASE Investigation disclosed that the subject taxpayer is a duly registered Filipino corporation engaged in the recruitment and deployment of Filipino seamen for enrolled vessels of its accredited foreign shipping principals. The BIR examiner assigned to investigate the business tax liabilities of the said taxpayer erroneously considered it as a shipping agent of various shipping companies plying the Philippine ocean route subject to 7% broker's tax. On the other hand, the taxpayer contended that its business falls under the term "contractor" and as such, they are subject only to the 4% contractor's tax provided under the then Section 205 of the 1983 Tax Code. (Section 170 of the 1986 NIRC pursuant to the amendment introduced by P.D. No. 1994). Based on the foregoing conflicting contentions, the sole issue to be resolved here is, whether herein taxpayer is a "broker" or a "contractor". DISCUSSION By way of resolving the issue, it is but imperative that previous rulings issued by the Bureau squarely dealing on the same subject matter should be considered. Foremost of the said rulings are the following: BIR Ruling No . 66-015 October 28, 1966 "Recruitment company Where a Filipino company engaged in recruiting Filipino Technicians in the Philippines for employment in Vietnam retains for itself the difference between the actual amount paid to the technicians and the amount received from the American contractor, it is considered as business agent as the term is defined in Section 194 (v) (now Section 187 (v) of the Tax Code). As such, it is subject to annual fixed tax and to the 3% (now 4%) contractor's tax." BIR Ruling No . 72-027 October 26, 1972 "A firm which engages in the business of recruiting prospective industrial and office employees for the account and employ of its clientele-companies is an employment agency; hence, it will fall within the purview of a business agent as defined in Section 194 (v) of the Tax Code. As such, it is subject to the payment of the fixed annual tax of P50.00 and 3% tax on its monthly gross receipts pursuant to Section 182 (A) (1) and Section 191 (18), respectively, of the Tax Code.' Moreover, it is observed by this Division that the above assessment suffers legal infirmity. At the September 11, 1989 hearing of this case, it was established that the above deficiency assessment was premised only on a mere presumption and not on hard evidence. This is contrary to the doctrine laid down by the Supreme Court in Collector of Internal Revenue vs. Benipayo, 4 SCRA 182, wherein the Highest Tribunal declared that "for an assessment to stand the test of judicial scrutiny, the assessment must be based on actual facts. Assessment should not be based on mere presumptions no matter how reasonable or logical said presumptions may be. The presumption of correctness of assessment being a mere presumption cannot be made to rest on another presumption". It was also established during the hearing and by evidence already on record that the taxpayer is not engaged in any other business aside from the manning and crewing business for which it faithfully and religiously paid the corresponding contractor's tax due. Considering that and based on the aforecited rulings, this Division finds the subject assessment to be without basis in fact and in law. In the light of all the foregoing, it is recommended that the above deficiency broker's tax assessment issued against the FIRST ASIAN TRANSPORT SHIPPING CORPORATION for taxable year 1986 be cancelled and withdrawn and that this case considered closed and terminated. Respectfully submitted: (SGD . ) RODULFO L. SALAZAR Chief, Appellate Division I CONCUR: (SGD.) SIXTO S. ESQUIVIAS OIC, Assistant Commissioner Legal Service Recommendation-APPROVED: (SGD.)LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue