BIR Ruling No. 004-61

January 16, 1961 BIR RULING NO. 004-61 This is with reference to the pending internal revenue case of the J. Walter Thompson Company (Philippines) Inc. involving the amount of P141,757.70 as business agent's percentage tax. cdta A perusal of the records of the case discloses to us the absence of sufficient facts upon which a decision may be rendered. So much is spoken of the taxable gross receipts of the taxpayer but how these receipts were derived and how the taxpayer operates are not at all spoken of. The taxable gross receipts of the taxpayer must be determined in accordance with the circumstances surrounding its business. On the question of law posed, we have the following to say: The P. J. Kiener case has certainly no application to business agents especially advertising agents for the media. We suppose that as advertising agents for the media, herein taxpayer must be operating in the same manner as Philprom, Inc. Philprom, Inc., for its advertising services to the media, receives a fixed 17.65% commission. A customer, however, pays the total advertising fees to Philprom. Philprom remits 62.35% to the media and retains 17.65% as its compensation. In B.I.R. Ruling No. 148, s. of 1959, we held that the gross receipts of Philprom consist only of the 17.65% commission. Undoubtedly, the 17.65% of commission is the taxable receipts of Philprom because it is this amount that is actually its own as payment for its services. The entire 100% of the fees paid by customers is actually the gross receipts of the media. Philprom receives it only as agent of the media. It is not its money. It is the media's money in its entirety. It could be demanded entirely by the media, but since the media will pay 17.65% to Philprom, there is certainly no sense why the full amount should still be remitted to the media and the media on the other hand shall remit to the agent the 17.65% commission. Hence, in BIR Ruling No. 148, s. of 1959, we said that such payments are coursed thru Philprom only for convenience to facilitate the collection of their 17.65% commission. cdti If the business of the J. Walter Thompson Company (Philippines), Inc. is the same as Philprom, we believe that the assessment against it is without basis in fact and in law. In the P. J. Kiener case, the original and principal contractor receives the entire amount from the contractor as its own. The advertising agent receives the advertising fee not as its own but for the media. There are three parties in an agency transaction, the principal, the agent, and the customer. There are only two parties in a construction contract, like the P. J. Kiener case, the contractor and contractee. The contract between contractor and a subcontractor is an entirely separate contract. The amount received by the subcontractor is also his own in its entirety and not anybody's. Hence, we believe that the P. J. Kiener case has no application whatever in the instant case. A person can and should be taxed only on his income. He cannot and should not be made to pay the tax on somebody else income. It does not require much deliberation in arriving at the conclusion that the income of the advertising agent is only his commission. It is a fact glaring and simple. The entire amount of such income constitutes his gross receipts under Section 191 of the Tax Code. The foregoing considered, it is respectfully recommended that the case of the J. Walter Thompson Company (Philippines), Inc., be reinvestigated in accordance therewith. cdt