Ms. Flor F. Caballa

October 10, 2007 BIR RULING [DA-533-07] RMC No. 39-2007 Ms. Flor F. Caballa B4 L35 Tiera Nova Royale Phase 3 Bagumbong, Caloocan City M a d a m : This refers to your letter dated July 26, 2007 requesting for a ruling on whether or not Revenue Memorandum Circular (RMC) No. 39-2007, clarifying the income tax and VAT treatment of agency fees/gross receipts of security agencies which is comprised of the agency fee and the amount reserved for the salaries of the security guards, including the withholding taxes due thereon, is applicable to manpower agencies (janitorial/clerical services). HSTAcI In reply, please be informed that it is basic in statutory construction that when the words of a statute are clear and unambiguous they must be held to mean what they plainly express. The statute must be literally construed ( Swarts vs. Siegel, 117 Fed. 13). Statutes creating a new liability or increasing an existing liability shall be strictly construed ( Millar vs. Town of Irondequot , 276 N.Y.S., 2d, 100). This is because tax laws operate to impose burdens on the public, or to restrict them in the enjoyment of their property and the pursuit of their occupations ( Alvea-Nichols vs. U.S. , 12 F. 2d., 998). Thus, in the interpretation of such statutes it is the established rule not to extend their provisions by implication, beyond the clear import of the language employed, or to enlarge their scope as to include matters not specifically pointed out. There is nothing in the context of RMC No. 39-2007 that would manifest or suggest the intention to have the RMC apply to manpower agencies i.e., janitorial and clerical services, other than security agencies. In fact, the RMC citing Section 1, Rule XIV of the 1994 Revised Rules and Regulations implementing Republic Act No. 5487, as amended, governing the "Organization and Operation of Private Security Agencies and Company Security Forces throughout the Philippines," places the primary obligation on the client to pay the salaries of the security guards and requires that the monies received by the security agency representing salaries shall be earmarked and segregated for the said guards, and not form part of the security agency's gross income and taxable gross receipts when actually or constructively received. On such basis, the security agency is placed on a tax situation different from other service providers . Thus, unless expressly mentioned in the issuance, the RMC cannot apply to agencies other than security agencies as specifically and expressly provided in its subject. ESHcTD Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service