BIR Ruling [DA-426-03]

November 25, 2003 BIR RULING [DA-426-03] 2.57.2 (G) RR 17-2003 198-90; VAT Ruling No. 070-90 Central Azucarera de Bais 5th Floor, Legaspi Towers 200 Paseo de Roxas, Makati City Attention: Ms. Agnes B. Catacutan Import Department Gentlemen : This refers to your letter dated July 24, 2003 addressed to the Commissioner of Internal Revenue, Attention: Deputy Commissioner Estelita C. Aguirre, Large Taxpayers Service, which was referred to this Office for appropriate reply thereto. You are requesting, in effect, for a ruling as to the proper treatment of certain items billed by brokers and whether these items are subject to the withholding tax rates under Revenue Regulations (RR) No. 17-2003. In your letter, you wanted to clarify whether expenses billed by the broker, such as documentation, processing, forms and stamps, notaries and photocopies, delivery and trucking, handling fees and representation/facilitation expenses shall be deducted a 10% withholding tax, as well as reimbursable expenses which are receipted as breakbulk, Designated Examination Area (DEA), Value Classification Review Committee (VCRC), asycuda, storage and wharfage dues, Less Container Load (LCL), warehousing, stripping and terminal handling charges. In reply, please be informed that Section 2.57.2(G) of RR No. 17-2003, which amends RR No. 2-98, provides that income payments to customs, insurance, stock, real estate, immigration and commercial brokers and agents shall be subject to the 10% creditable withholding tax on gross commissions or service fees. As a matter of principle, advance payments for expenses of brokers are not subject to withholding tax since these are not considered as income payments. The brokers merely collect what they have advanced in behalf of their clients and hence, they do not derive any income from collecting such advances. In BIR Ruling No. 198-90 dated October 16, 1990, it was held that: "In reply, please be informed that pursuant to VAT Ruling No. 070-90 gross income payment for purpose of the expanded withholding tax shall have the same scope as the gross receipts of a customs broker as defined in Section 102(a)(3) of the Tax Code, as amended, to wit: "Gross receipts means the total amount of money or its equivalent representing the contract price, compensation or service fee, including the amount charged for materials supplied with the services and deposits or advance payments actually or constructively received during the taxable quarter for the services performed for another person excluding the value-added tax." Deposits or advance payments of the customs broker's compensation or service fee shall form part of the gross receipts for purposes of the VAT and the expanded withholding tax. However, advance payments by the customs broker for expenses such as arrastre, wharfage, form and waybills, magna scale, documentation fee, trucking and handling charges shall not form part of the broker's gross receipts if invoiced directly in the name of the broker's clients by the person performing such service and if the reimbursement to the broker is not invoiced with the broker's VAT invoice/official receipt. Advance payment for transportation, overtime and facilitation fee being expenses obviously incurred for the customs broker's benefit to facilitate the clearing of goods through customs, shall form part of the broker's gross receipts notwithstanding that the same is reimbursed by the client." ICcDaA In view of the foregoing, the items billed by the broker which constitute reimbursable expenses such as documentation and processing fees that were invoiced in the name of the broker's clients shall not form part of the broker's gross receipts and hence, not subject to the 10% withholding tax under RR No. 17-2003. On the other hand, reimbursable expenses that were incurred for the broker's benefit in order to facilitate the clearing of goods through customs such as the expenses for DEA and VCRC and invoiced in the name of the broker, shall form part of the broker's gross receipts subject to the withholding tax notwithstanding that the same is reimbursed by the client. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group