BIR Ruling [DA-249-04]

May 12, 2004 BIR RULING [DA-249-04] Mr. Jesse A. Cosme 817 A. Maceda St. Sampaloc, Manila S i r : This refers to your letter dated October 1, 2003 indorsed to this Office on October 7, 2003, by Revenue District Officer Benito B. Wong of Revenue District Office No. 32 requesting, in effect, for an opinion on whether your business of rendering drug testing services is subject to value-added tax or percentage tax. It is represented that you own and manage Pharma C-T Drug Testing Services with TIN No. 110-422-716; that your laboratory caters to the testing of human specimen to determine the presence/absence of particular drugs in the body; and that a medical technologist performs the service and issues the result of the test to your client. In reply, please be informed that pursuant to Section 109(l) of the Tax Code of 1997, your clinic is exempt from VAT as far as medical services are concerned, but the professional fees received by your medical technologist are subject to VAT. The 10% VAT or the 3% percentage tax, whichever is applicable, is a tax on the business transaction or activity and is an indirect tax which the seller (Pharma C-T Drug Testing Services) may pass on or shift to the customer (patient) who ultimately bears or assumes the burden of the tax. However, RMC No. 6-2003 clarified that the performance of services rendered by individual professional practitioners ( i.e. , medical technologists) who are subject to VAT or the 3% percentage tax, whichever is applicable, beginning January 1, 2003, should not be in the pursuit of an employer employee relationship between the service provider and the service recipient. Accordingly, if the services of your medical technologist are rendered under an employer-employee relationship, all remuneration received on account thereof, whether these be in the form of salaries, wages, emoluments, honoraria or fees, are considered as compensation income exempt from the imposition of VAT to Section 109(o) of the Tax Code of 1997 (RMC No. 6-2003). However, the remuneration paid for services rendered by your medical technologist in the course of the business of Pharma C-T Drug Testing Services is compensation subject to withholding tax on salaries of said employee pursuant to Section 2.79 of Revenue Regulations No. 2-98, as amended. Such being the case, you, as a withholding agent, are liable to withhold the tax on the income of your employee-medical technologist every 20th day following the close of the taxable quarter. 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 as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group