Pelaez Gregorio Gregorio & Lim

March 21, 2007 BIR RULING [DA-166-07] 108 (A); VAT Ruling Nos. 283-88; 220-90; 002-89; 036-99; DA-154-2007; DA-316-2003 Pelaez Gregorio Gregorio & Lim Padilla Building, Emerald Avenue Ortigas Center, 1605 Pasig City Attention: Atty. Vicente G. Gregorio Counsel Gentlemen : This refers to your letter dated November 13, 2006 requesting on behalf of your client, Kidney Center and Institute of the Philippines, Inc. ("Kidney Center"), for confirmation of your opinion that the income derived by Kidney Center for services rendered, which is a commission amounting to five percent (5%) of the total cost of its services, is the only amount subject to the expanded value-added tax, percentage tax and/or income tax. It is represented that Kidney Center is representing overseas companies and is engaged in coordinating, providing, facilitating and/or assisting patients both foreign and local who are afflicted with kidney diseases, and whenever necessary, to secure the required medical and hospital care including transplantation of organs and pre/post operation medical treatment; that for said services, Kidney Center charges and/or derives a five percent (5%) commission/service fee of the total medical costs and expenses of the foreign patients sent directly or indirectly by its principal client, Quahira Ltd., with address at 3082 Limassol, Cyprus, which has been sending patients to the Philippines for said medical treatment, by virtue of a Memorandum of Agreement covering the said commission/fee; that Kidney Center has been coordinating, facilitating and/or assisting patients sent by and referred by Quahira Ltd. who are afflicted with kidney diseases and are treated and operated at local hospitals; that for the said services, Kidney Center is paid a commission/service fee of five percent (5%) of the total billings and/or charges made by doctors, hospitals, accommodations and costs of transportation of patients and other persons that may accompany them; and that as part of Kidney Center's services, the latter, for records purposes, bills either the patient/s or Quahira Ltd for medical and other expenses based on the official receipts issued by the hospital, doctors, hotels and transportation companies; and that Kidney Center in turn issues receipts covering the service fee it rendered in the name of the patient/s and/or in the name of its overseas clients including Quahira Ltd., as the case may be. In reply, please be informed that in the foregoing transaction, Kidney Center only represents its clients (foreign patients, overseas companies, Quahira Ltd.) and the billing for medical and other related expenses based on official receipts it charges to its clients are merely held by them in trust for its principal. The amounts for medical and other expenses, therefore, should not form part of Kidney Center's taxable gross receipts. ( Tours Specialists, Inc. vs. CM. CTA Case No. 31II. Nov. 18, 1983, citing Manila Jockey Club, Inc. vs. Col. of Int. Revenue. (G.R. No. 1-13887. 108 Phil. 821) The term gross receipts under Section 108 of the Tax Code of 1997, as amended, refers to the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services and deposits and advanced payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person, excluding value-added tax. The gross receipts in the foregoing transaction refers to the 5% fee for services rendered which does not include money received from non-resident clients as such amounts are earmarked for payment for medical and other related expenses, amounts of which are subsequently liquidated and accounted for. ( BIR Ruling No. DA-316-2003 dated September 29, 2003 ) Such being the case, considering that Kidney Center merely holds the payment for medical and other related expenses for and in behalf of its clients (foreign patients, overseas companies, Quahira Ltd.), the same should not be included in its gross receipts for purposes of value-added tax and income tax. It is only the commission/service fee of 5% based on the total medical and other related expenses that should be recognized as revenue for Kidney Center includible in its gross receipts. TSEcAD This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service