BIR Ruling [DA-515-03]

December 16, 2003 BIR RULING [DA-515-03] Tokyo Tokyo 85 P. Tuazon Street Cubao, Quezon City Attention: Mr. Eduardo M. Pineda Administrative Manager Gentlemen : This refers to your letter dated September 15, 2002 stating that you are a fast food chain operating a number of stores within and around Metropolitan Manila. In connection therewith, you now request an opinion as to whether or not such activity can be considered as engaged in the sale of services for purposes of computing the gross income. In reply thereto, please be informed that the phrase "sale of services' shall mean the performance of all kinds of services in the Philippines for others for a fee, which includes the proprietors or operators of restaurants, refreshment parlors, cafes and other eating places. (Sec. 108(A) of the Tax Code of 1997) Corollarily, Revenue Memorandum Circular No. 4-2003 provides that for food service establishments, their gross receipts shall mean actual or constructive receipts derived from the operation of such restaurant, such that their costs of services shall refer to those incurred directly and exclusively in the preparation and serving/selling of foods and drinks and other requirements of the customers, and shall be limited to the following: 1. Cost of raw/cooked foods and drinks prepared and served/sold; 2. Salaries, wages and other employee benefits of personnel directly engaged in the said activities; 3. Depreciation/amortization, rentals, repairs and maintenance of properties, buildings, furniture and fixtures, and equipment directly used in the performance of said activities; 4. Cost of cooking oil, condiments and other ingredients used in cooking the food; and 5. Royalties paid by franchisee. SUCH BEING THE CASE, this Office holds that the operation of fast food chain shall be considered as engaged in the sale of services for purposes of computing the gross income. ISaTCD Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group