JEJ International Manpower Services

November 18, 2009 BIR RULING [DA-(VAT-098) 680-09] Secs. 105; 108; RR 8-99; 006-96, 305-2004 JEJ International Manpower Services JEJ Bldg., 1137-A, J. Nakpil St. Malate, Manila Attention: Atty. Benedicto T. Javier Gentlemen : This refers to your letter dated October 27, 2009 requesting for clarification relative to the applicability of Value-Added Tax (VAT) on manpower services, particularly Overseas Contract Workers (OCW). Specifically, you requested clarification on the following issues: 1. Whether or not VAT is applicable to OCWs who are not paying placement fees because the said fees are paid for by their employer(s); 2. If VAT is applicable, who is liable to pay the same; and 3. What is the tax base for VAT on placement or services fees; In reply, please be informed that Section 108 of the National Internal Revenue Code of 1997 (NIRC), as amended, considers the recruitment service fee, representing consideration for recruitment services rendered and charged by the overseas employment providers/recruitment agencies, as subject to the Value-Added Tax (VAT). Section 108 imposes VAT on gross receipts derived from the sale of services. The phrase "sale of services" means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration. In VAT Ruling No. 006-96 dated May 14, 1996, this Office ruled that the placement fees charged by recruitment agencies from applicants or would be contract workers shall form part of gross receipts from the sale of service subject to VAT. ScAIaT Corollarily, the general rule is that even if the placement fees are paid for by the prospective employer/s on behalf of the applicants, the sale of services by the placement agencies are still subject to VAT. It must be emphasized that VAT is an indirect tax and the amount of tax may be shifted or passed on to the buyer, transferee or lessee of the goods, properties or services as part of the cost under Section 105 of the same Code. Thus, by virtue of the aforesaid provisions of the Tax Code, the overseas employment providers/recruitment agencies can shift or pass on the 12% VAT imposed on the placement fee as part of its gross receipt to the applicant worker. Considering the foregoing, the placement fees paid for by the prospective employer on behalf of the applicants shall be subject to the 12% VAT based on the gross receipts derived from the sale of such service pursuant to Section 108 (a) of the NIRC, as amended. As to the computation of the VAT imposed on the recruitment/placement services, the basis of the tax is the amount of placement fee which will not include reimbursement of expenses which shall be limited to fees for passport/visa, medical examination, clearances, inoculation trade and skill testing, airport terminal, performance bond premiums and notary public provided that these expenses are supported by receipts issued by the supplying company or government agency in the name of the applicant. On the other hand, the agency is required to pay the 12% VAT on the entire amount of placement fee if the abovementioned reimbursable expenses are supported by receipts issued in the name of the agency (VAT Ruling No. 087-88, 209-90 and Ruling No. 163-88). 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