BIR Ruling [DA-462-06]

July 28, 2006 BIR RULING [DA-462-06] Columbia Transport, Inc. 2253 Aurora Blvd. (Tramo) Pasay City Attention: Ms. Ma. Lydia Duquesa L. Mallari President Gentlemen : This refers to your letter requesting for confirmation of your opinion that advance payments to the Bureau of Customs on behalf of the clients of Columbia Transport Inc. (COLTRANS) should not be reported as COLTRANS' input taxes. EHcaAI As represented, COLTRANS is a logistics company involved in international freight forwarding, customs brokerage and exhibition cargo handling. Its clients who use COLTRANS' Customs Intelligence and Investigation Service (CIIS) Number (No.) importer's license are companies who join international exhibitions and normally do not have representation in the Philippines, first time importers and shipments which are sent on a door to door basis. The bulk of COLTRANS' input VAT comes from payment of duties and taxes which are paid on behalf of exhibitors joining various international and local trade exhibitions in Manila. It has been actively involved in the exhibition industry as a forwarder/broker. These trade exhibitions are international in scope and being held in venues such as the World Trade Center, Philippine International Convention Center, Philippine Trade Training Center and various hotels. For example, an organizer of a trade exhibition appoints COLTRANS as an official forwarder, broker and on-site handler to carry out the logistics requirements of the exhibitors who almost always are new-to-market and therefore do not have any office, agent or representation in the Philippines. When the exhibitors send a cargo from abroad for display during an exhibition on a temporary basis (6-month period), a re-export bond and an exemption from the Department of Finance is required by the Bureau of Customs. These cargoes are normally consigned to COLTRANS being the official forwarder/broker to facilitate trade and expedite the release of goods from customs because they do not have a CIIS No. or Importer's License. But even if temporary in nature, the cargo can be converted to permanent importation provided duties and input taxes are paid to the Bureau of Customs. Since COLTRANS is the official forwarder/broker, its company name always appears to be the consignee of the cargo as stipulated in the airway bill or bill of lading or customs entry since its CIIS No. is being used. The Bureau of Customs issues official receipt in the name of COLTRANS upon the latter's payment of taxes. After COLTRANS advance the payments of duties and input taxes of the cargo, its clients reimburse COLTRANS at cost based on official receipts issued by the Bureau of Customs. COLTRANS does not gain income in these transactions. It derives income only from the services it renders. In reply, please be informed that in BIR Ruling No. 045-2002 dated July 24, 2002, a domestic corporation who is a local service provider was designated to receive and install computers to a client in the Philippines of a non-resident foreign corporation. All shipments of computer hardware and software systems will be consigned to the local service provider who shall advance the payment for the various expenses to be incurred such as freight, duties and taxes. Thereafter, the non-resident foreign corporation will reimburse the local service provider for all expenses incurred in the shipment. This Office ruled ". . . MACRO (local service provider) will not be entitled to input VAT credit representing the amount of VAT it will advance on the shipment of the computers from Australia to the Philippines for the reason that while it is the consignee, yet MACRO is not the real importer. This is shown by the fact that MACRO will only be reimbursed by LEYMAR, the shipper and the real importer. Section 110 of the Tax Code of 1997 provides that the input tax shall be creditable to the importer upon payment of the value-added tax prior to the release of the goods from the custody of the Bureau of Customs. . . ." Incidentally, in reimbursement-at-cost transactions, expenses which are incurred by the advancing party for the benefit and for the account of the party accommodated, can be considered reimbursable expenses not forming part of gross receipts of the advancing party subject to tax. Since the party seeking reimbursement does not sell, barter, exchange, nor lease any good or property and neither does it render any service to the party accommodated, the reimbursement transactions are not subject to the 10% VAT. The mere collection of purely reimbursable costs billed, for instance, in the name of a client but collected through a broker or agent shall not be subject to the 10% VAT provided that such fact of reimbursement is clearly shown in the billing and/or official receipt and being reimbursement of expenses without any mark-up or profit element and not charges for services, should not be considered as part of gross receipts for purposes of the expanded withholding tax (cited in BIR Ruling No. DA-304-2004 dated June 2, 2004). In view of the foregoing, this Office confirms your opinion that advance payments to the Bureau of Customs on behalf of the clients of COLTRANS should not be reported as COLTRANS' input taxes. 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. DSEIcT Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service