M Power Service Solutions, Inc.

January 29, 2010 BIR RULING [DA-(C-003) 020-10] RR No. 17-2003; BIR Ruling No. 049-85 M Power Service Solutions, Inc. Units 201-202, La Fuerza Plaza II 2241 Don Chino Roces Avenue Makati City Attention: Ms. Isabelita G. Bajacan Office Manager Gentlemen : This refers to your letter dated November 3, 2008 requesting for clarification on whether M Power Service Solutions, Inc. ("M Power"), engaged in providing personnel, manpower and general maintenance services, is covered under Revenue Memorandum Circular (RMC) No. 39-2007. It is represented that M Power is engaged in providing qualified and properly trained personnel to address manpower and general maintenance needs of its clients, more specifically, janitorial and similar needs. In reply, please be informed that in the case of Protector's Services, Inc. vs. Court of Appeals and Commissioner of Internal Revenue, G.R. No. 118176 dated April 12, 2000, the Supreme Court held as follows: "Contractor's tax on gross receipts imposed on business agents including private detective watchman agencies was a tax on the sale of services or labor, imposed on the exercise of a privilege. The term "gross receipts" means all amounts received by the prime or principal contractor as the total price, undiminished by the amount paid to the subcontractor under a subcontract arrangement. Hence, gross receipts could not be diminished by employer's SSS, SIF and Medicare contributions. Furthermore, it has been consistently ruled by the BIR that the salaries paid to security guards should form part of the gross receipts, subject to tax, to wit: SDTIHA '. . . This Office has consistently ruled that salaries of security guards form part of the taxable gross receipts of a security agency for purposes of the 4% [formerly 3%] contractors tax under Section 205 of the Tax Code, as amended. The reason is that the salaries of the security guards are actually the liability of the agency and that the guards are considered their employees; hence, for percentage tax purposes, the salaries of the security guards are includible in its gross receipts. (BIR Ruling No. 271-81 citing BIR Ruling No. 69-002)' These rulings were made by the CIR in the exercise of his power to 'make judgments or opinions in connection with the implementation of the provisions of the internal revenue code.' The opinions and rulings of officials of the government called upon to execute or implement administrative law, command respect and weight. We see no compelling reason in this case to rule otherwise. WHEREFORE, the assailed decision of the Court of Appeals, in CA-G.R. SP 31825, is AFFIRMED. Costs against petitioner." However, 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. Unlike in the case of security agencies wherein the primary obligation to pay the salaries of the security guards rests on the clients, the primary obligation to pay the salaries of the workers of other service providers rests not on their clients but on the service providers themselves. This places the security agencies on a tax situation different from other service providers. IHCESD Moreover, in the interpretation of 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. 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. In view of all the foregoing, clients of service providers are considered withholding agents required to deduct and withhold the 2% creditable tax on its income payments to business agencies inclusive of salaries, SSS, Philhealth and Pag-ibig contributions pursuant to Section 2.57.2 (E) (3) (k) of Revenue Regulations (RR) No. 2-98, as amended. The 2% withholding tax is based on the gross receipts received by the business agencies which include the agency commission plus salaries and the aforesaid contributions. 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. Very truly yours, Commissioner of Internal Revenue By: (SGD.) GREGORIO V. CABANTAC Deputy Commissioner Legal and Inspection Group