BIR Ruling

January 26, 1973 Ortigas, Reyes, Lat & Co. Stock & Bond Brokers 4th Floor, Makati Stock Exchange Bldg. Ayala Ave., Makati, Rizal Attention: Mr . Aristeo L . Lat Managing Partner Gentlemen : This refers to your letter dated December 19, 1972, stating the following: "We are one of the stock brokers dealing with the Makati Stock Exchange. As such and for the purpose of enhancing our business and our dealings with our clients, we have employed sub-agents. To these sub-agents we pay 40% of our gross compensation and retain 60% for ourselves. The 40% commission given to our sub-agents is intended to give them an incentive so that they may be able to service our clients up to the extent that they do the following up and collection of our clients' due and unpaid accounts. aisa dc As a stock broker, we are required by law, particularly Sec. 195 of the National Internal Revenue Code to pay 6% stock broker's tax. Our query circles around the following points: 1. Must our sub-agents pay the 6% stock broker's tax though they do not fall within the definition of the law of a stock broker? 2. If ever our sub-agents are required to pay the 6% tax, must the same be based on the 40% we give them as commission? 3. Would it not constitute double taxation if ever our sub-agent are required to pay the 6% tax when we have already paid the same? We will appreciate your early reply to our query." In reply, we have the honor to inform you as follows: 1. Your sub-agents are considered sub-brokers and as such they are subject to the 6% stock brokers tax based on the payment they actually receive as commissions. 2. A stock broker is liable to the 6% tax based on the gross compensation actually received by him pursuant to Section 195 of the Tax Code. Whatever amounts, therefore, actually received by him shall be the tax base in the computation of the six (6%) tax imposed by the Tax Code. Stock brokerage is a sale of service. The percentage tax is imposed both on the principal broker and the sub-broker of a single and the same stock transaction. The sub-broker's tax liability is computed on the gross sum received by him from the principal broker and the principal broker's liability is based on the total commission he received in effecting the stock transaction without deducting the amount paid to the sub-broker. (See P. J. Kiener Co., Limited vs. Antonio J. Araneta, G. R. No. L-16417, January 31, 1963) Actually, therefore, no double taxation exists. cdta Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue