Crofil Manpower Services Corp.

August 29, 2008 BIR RULING [DA-(C-051) 181-08] RMC 39-07; BIR Ruling No. 533-07 Crofil Manpower Services Corp. 3rd Flr. Baucam Building, #3 Malihan St. Zone 1, Dasmarias Cavite Attention: Ms. Ella B. Canto HR Manager Gentlemen : This refers to your letter dated May 12, 2008 requesting for a clarificatory ruling on whether the 2% withholding tax should be computed based on the admin fee or the gross pay. DCESaI As represented, your Company is engaged in manpower services. It has various clients who deduct the 2% withholding tax computed based on the gross pay which includes government deductions such as SSS, Philhealth, Pag-ibig and the 13th Month Pay. 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: aEHAIS "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: '. . . 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)' AEHTIC 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." The above decision applies to all service providers except security agencies in view of Republic Act (R.A.) 5487. Pursuant to Section 1, Rule XIV of the 1994 Revised Rules and Regulations implementing R.A. 5487, as amended, governing the "Organization and Operation of Private Security Agencies and Company Security Forces throughout the Philippines", the primary obligation to pay the salaries of the security guards rests on the client of the security agency. This law further 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. This places the security agencies on a tax situation different from other service providers. aESICD RMC 39-07 clarifies that the security agency has no control or dominion over that portion of the payment received from its client which is intended or earmarked as salaries of the security guards. Accordingly, the security agency does not own the funds such that it cannot use the funds for any other purpose i.e., payment of rentals, utilities and taxes. R.A. 5487 and RMC 39-07, which state that the salaries of security guards do not form part of the security agency's gross income which is the basis for computing the withholding tax, cannot apply to other service providers like your Company because 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 either R.A. 5487 or RMC 39-07 that would manifest or suggest the intention to have the law or the circular apply to other service providers or manpower agencies i.e., janitorial and clerical services, other than security agencies. Thus, unless expressly mentioned in the issuance, R.A. 5487 and RMC 39-07 cannot apply to agencies other than security agencies as specifically and expressly provided in its subject. HaSEcA In view of all the foregoing, your clients are considered withholding agents required to deduct and withhold the 2% creditable withholding tax on their income payments to you based on the gross receipts received by your Company which include the agency commission plus salaries and other contributions pursuant to Section 2.57.2 (E) (3) (k) of Revenue Regulations (RR) No. 2-98, as amended by RR 17-2003. 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. ScAaHE Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service