BIR Ruling [DA-305-04]

June 2, 2004 BIR RULING [DA-305-04] 105; 108; RR 8-99; 006-96 Soriano Torres Yap & Belmonte Suite 511 Pasda Mansions 77 Panay Avenue Quezon City Attention: Jaime N. Soriano Counsel Gentlemen : This refers to your letter dated February 2, 2004 requesting on behalf of the members of the Philippine Association of Service Exporters Inc. (PASEI for brevity), for a definitive ruling relative to the imposition of the value-added tax in addition to the placement fee charged by the overseas employment providers (OEPs). It is represented that OEPs derive revenue either from placement fees or service fees. Accordingly, placement fee refers to the amount charged to the overseas contract workers (OCWs) for recruitment and placement services. The Governing Board in its Resolution No. 02 (Series of 1998), adopted a uniform placement fee ceiling of one month salary exclusive of documentation and processing costs for all landbased workers. Corollarily, Section 108 of the Tax Code of 1997 considers the recruitment service fee charged by the recruitment agencies as subject to the value-added tax. Considering the aforementioned provision of the Tax Code and the Governing Board Resolution of the Philippine Overseas Employment Administration relative to the imposition of the placement fee ceiling, you now advance this query, viz : "May OEPs shift or pass on to the OCW the 10% VAT imposed on placement fees by clearly reflecting the VAT separately in the invoice or official receipt issued by the OEPs to OFWs inasmuch as VAT is a money due to the government and not intended as part of the gross receipts of the OEPs?" In reply, please be informed that the placement fees charged by recruitment agencies from applicants or would be contract workers shall form part of gross receipts from the sale of service subject to the 10% value-added tax (VAT) pursuant to Section 108 of the National internal Revenue Code of 1997. ( VAT Ruling No. 006-96 dated May 14, 1996 ) aDcETC In addition, VAT is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services as part of cost under Section 105 of the same Code. Consequently, Section 1 of Revenue Regulations 8-99 provides: "SEC. 1. Scope . All VAT-registered taxpayers who are required under Section 237 of the 1997 Tax Code to issue receipts or sales or commercial invoices are no longer allowed to separately bill the value-added tax corresponding thereto. The amount appearing in the sales invoices/receipts is thus deemed inclusive of the value-added tax due thereon." By virtue of the aforecited provisions of the Tax Code and Revenue Regulations No. 8-99, this Office is of the considered opinion that the OEPs can shift or pass on the 10% VAT imposed on the placement fee as part of its gross receipt. However, said OEPs are not allowed to separately bill the value-added tax corresponding thereto. The amount appearing on the sales invoice is presumed to include the value-added tax due thereon. It is worth mentioning that the value-added tax does not form part of the gross receipts. And in determining the amount of the value-added tax which is presumed included in the invoice, the same shall be computed by multiplying the total amount indicated in the official receipt by one-eleventh (1/11) [ see Section 108 (C) 1997 Tax Code ] The ten-eleventh (10/11), therefore, would constitute as the gross receipts of the particular OEP. 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.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group