Sodexho Pass, Inc.

October 25, 2007 BIR RULING [DA-566-07] BIR Ruling No. 038-2002 & DA-147-2006 Sodexho Pass, Inc. Emerald Avenue Ortigas Centre, Pasig City Attention: Ms. Janel M. Bea Finance and Admin Manager Gentlemen : This refers to your letter dated April 30, 2007 requesting for confirmation of your opinion that the face value of the vouchers is not subject to expanded withholding tax. HEDaTA As represented, Sodexho Pass, Inc. ("Sodexho" for brevity) is a company engaged in operating innovative systems (systems vouchers) to manage benefits given by private and public companies. In the Philippines, Sodexho administers the benefits provided by its client corporations through a voucher system, better known in the Philippines as "Gift Certificate", which involves the following procedures: 1. Client company transfers to Sodexho the amount allotted for its beneficiaries' specific benefit; 2. Sodexho issues vouchers and delivers the same to client company; TAHCEc 3. Client company distributes these vouchers to receive their benefit at an accredited establishment of their choice; 4. Beneficiaries use these vouchers to receive their benefit at an accredited establishment of their choice; 5. Outlets send back used vouchers to Sodexho for reimbursement; and 6. Sodexho reimburses the store outlet. In summary, Sodexho issues vouchers to client companies with specific value printed in each voucher. Client companies distribute these vouchers to their beneficiaries. The latter in turn, uses such vouchers in accredited establishments. Merchants return the vouchers to Sodexho for reimbursement. Since the value of the voucher does not constitute income on the part of the Company but a fund held in trust to be used for reimbursing accredited merchants, such amount was not subject to value-added tax (VAT). prcd In the issuance of such vouchers, Sodexho earns revenue by charging service fees to the client companies. A typical example of its transaction with a client would be as follows: Value of the voucher 500.00 (amount reserved for merchant reimbursement) Value of the voucher 500.00 (amount reserved for merchant reimbursement) Service fee 5.00 (Sodexho income) VAT on service fee .60 (VAT on income) Total amount for collection 505.60 ===== Since the value of the voucher does not constitute income on the part of the company but a fund held in trust to be used for reimbursing accredited merchants, such amount was not subjected to VAT. Service fees on the other hand, being an income on the part of the Company has been subjected VAT. IDTSaC On the issue of expanded withholding tax, it is your opinion that the basis for computing the same should be the service fees and not the whole amount including the value of the voucher since such value does not constitute income on the part of the Company. Service fees on the other hand, which forms part of the gross receipts of the Company should be subjected to expanded withholding tax. In reply, please be informed that BIR Ruling No. DA-147-06 dated March 17, 2006 citing BIR Ruling No. DA-484-2004 which in turn cited the cases of McCann Erickson (Philippines), Inc. vs. Commissioner of Internal Revenue , CTA Case No. 5966, March 13, 2003 and Commissioner of Internal Revenue vs. Tours Specialists, Inc., G.R. No. 66416 dated March 21, 1990 held as follows: "xxx xxx xxx With regard to the amount received by Sodexho from the client companies for the face value of the vouchers and for which Sodexho shall have to issue separate non-VAT official receipts, the same does not fall within the purview of the term gross income. This is because the money received by Sodexho from its client companies is not compensation for services rendered by Sodexho but a liability/deposit for reimbursement to the participating establishments. HCaIDS xxx xxx xxx In the instant case, since the monies received by Sodexho from its clients represent advance payment to third parties and, therefore, do not redound to the benefit of Sodexho, said amounts shall not form part of its gross receipts subject to income tax imposed under Section 27(A) of the Tax Code of 1997. (BIR Ruling No. DA-238-2005 dated June 1, 2005) xxx xxx xxx" In view of the foregoing, this Office hereby confirms your opinion that the face value of the vouchers is not subject to expanded withholding tax. 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. TAHIED Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service