Easytrip Services Corporation

July 30, 2008 BIR RULING [DA-(C-016) 085-08] Easytrip Services Corporation Unit 701, City State Tower, 709 Shaw Boulevard, Pasig City, Metro Manila Attention: Mr. Honesto C. Tabligan II Finance Comptroller Gentlemen : This refers to your letter dated June 1, 2008 requesting legal opinion on whether or not the acceptance and issuance of Official Receipts by Manila North Tollways Corporation for the reloads made by customers of Easytrip Services Corporation shall constitute MNTC's "Gross Receipts" under Section 4, 108-4, Rev. Regs. 4-2007. It is represented that Easytrip Services Corporation ("ESC") is a domestic corporation duly organized and existing under Philippine laws; that its purpose is to provide service to Manila North Tollways Corporation ("MNTC") by affording technical services on electronic toll collection through the use of the ESC systems, electronic payment through transponders (Tag Pass) which allows interoperability or enables the commuters to gain access to residential villages; that ESC will receive corresponding service fees based on ESC's collection performance with respect to electronic toll collection penetration rate; that ESC's service to MNTC will have the following processes inherent to its operations: a) Rental scheme of gadget (Tag Pass) to commuters: The gadget is available to commuters only on rental basis. Since this gadget is a rental, ownership of the gadget remains with ESC. This gadget is used in accessing tolls and in tendering other transaction payments (such as interoperability). It is also in this gadget where loads are being maintained. ISTDAH These rental payments are considered by ESC as "Service Income-rental". b) Loads and reloads maintenance: ESC's business process will facilitate the loading/reloading schemes which will utilize different facilities available in the market such as: a. WEB; accepting debit and credit card b. POS; accepting cash, debit and credit card c. Over-the-counter's bank facilities; direct cash deposit to ESC's bank account The amount involved in the above loads and reloads are recorded and recognized as "refundable deposits" as evidenced by Official Acknowledgment (OAR) issued to customers. These deposits can be refunded anytime should customers decide to return the gadgets (Tag Pass). Aside from the available reloading facilities as mentioned in the preceding paragraph, customers can reload through toll plazas along North Luzon Expressway. Such reloads are accepted and acknowledged by MNTC by issuing their own Official Receipts. However, such reloads are to be reverted to ESC. Thus, MNTC's collection for these reloads is an amount held in trust for the account of ESC. c) Toll fees consumption: Each and every usage of the North Luzon Expressway, corresponding toll fees will be deducted from the individual account's refundable deposits and the corresponding amount for the total consumption will be facilitated/paid by ESC to MNTC. Based on the Service Agreement, the consumption of ESC's accounts should be settled within two (2) business days. that the toll fees collection made by ESC does not redound to ESC's benefit; and that in support of your request, you submitted your Service Agreement with MNTC dated December 5, 2007. TCIEcH In reply, please be informed that Section 11 of Revenue Regulations No. 04-2007 1 dated February 7, 2007 provides viz.: "SEC. 11. Gross Receipts. Sec. 4.108-4 of RR No. 16-2005 is hereby amended to read as follows: "SEC. 4.108-4. Definition of Gross Receipts. 'Gross receipts' refers to the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for materials supplied with the services and deposits applied as payments for services rendered and advance payments actually or constructively received during the taxable period for the services performed or to be performed for another person, excluding the VAT, except those amounts earmarked for payment to unrelated third (3rd) party or received as reimbursement for advance payment on behalf of another which do not redound to the benefit of the payor. A payment is a payment to a third (3rd) party if the same is made to settle an obligation of another person, e.g., customer or client, to the said third party, which obligation is evidenced by the sales invoice/official receipt issued by said third party to the obligor/debtor ( e.g., customer or client of the payor of the obligation)." In the case of Commissioner of Internal Revenue vs. Tours Specialists, Inc., G.R. No. 66416 dated March 21, 1990 citing the case of Commissioner of Internal Revenue vs. Manila Jockey Club, Inc., 108 Phil. 882, the Supreme Court declared that: "Gross receipts subject to tax under the Tax Code do not include monies or receipts entrusted to the taxpayer which do not belong to them and do not redound to the taxpayer's benefit; and it is not necessary that there must be a law or regulation which would exempt such monies and receipts within the meaning of gross receipts under the Tax Code." According to the operational process delineated above, ESC customers may avail of reloading facilities through Toll Plazas along the North Luzon Expressway (NLEX) whereby the reloads are accepted and acknowledged by MNTC by issuing its own receipts therefor although the amount is subsequently remitted to ESC. It is clear therefore, that the amount received by MNTC for ESC's customer reloads is only held in trust by MNTC for ESC's account and does not form part of its gross receipts from operations. cSIACD In view of the foregoing, this Office is of the opinion and hereby holds that the reloads purchased by ESC customers through the toll plazas along the NLEX for which MNTC is issuing its own official receipts do not form part of its (MNTC) gross receipts since said amounts do not belong to MNTC or redound to its benefit for it shall be remitted to ESC per agreement. 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 null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service Footnotes 1. Amending Certain Provisions of Revenue Regulations No. 16-2005, As Amended, Otherwise Known as the Consolidated Value-Added Tax Regulations of 2005. IcHTAa