BIR Ruling

August 2, 1966 Joaquin Cunanan & Co. Certified Public Accountants P.O. Box 2288 Manila Gentlemen : This refers to your letter dated June 17, 1966 requesting a ruling on the following query: cdtech "One of our clients, a resident foreign corporation, plans to act as its own insurer for losses sustained by the Company from shortages of field sales personnel. Under this plan, the Company will collect from each sales employee P60.00 per year and against the fund thus created, the shortages of those personnel which are not recovered will be charged. "Before adopting the above plan, our clients wishes to secure a ruling from your office on whether or not the above-described activity would be subject to any internal revenue tax." In reply, I have the honor to inform you that under the plan above-described, the amounts so collected are neither gross receipts nor income of the company before any shortage occurs since before this happens the company is a mere trustee of the fund. However, in the event that a shortage occurs and the company fails to recover the amount of the shortage, the portion appropriated by the company from the fund should be included as part of its gross sales. This is for the reason that the amount appropriated by the company is replacement of the proceeds from the sales of the employee incurring the shortage, or the proceeds itself in case the shortage is not in the proceeds but in the merchandise. Any and all amounts debited from the fund and credited to the company's account constitute sales of the company which should be considered for the sales or graduated fixed tax, as the case may be, and the income tax. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue