Whether the "Reimbursable Costs" of Consultancy Contracts are Subject to the 1% Expanded Withholding Tax

April 20, 1992 BIR RULING NO. 129-92 50 (b) 000-00 129-92 Department of Public Works and Highways Manila Attention: Mr . Joel L . Altea Asst . Sec . for Comptrollership and Financial Management Gentlemen : This refers to your letter dated January 7, 1992 requesting for clarification as to whether "reimbursable costs" of consultancy contracts are subject to the 1% expanded withholding tax. It appears that you have availed of the services of Basic Technology and Management Corporation as Consultant for the Master Planning, Detailed Eng'g. Design and Construction Supervision for the Nationwide Feeder Ports Program; that according to the consultant, its previous monthly billings consisted of (1) Fixed Cost on Consultants Remuneration and (2) Reimbursable Costs; that the item "Reimbursable Cost" allegedly represents payment advanced by the consultant in order not to delay the execution of a given project but later collected from your Office in the form of reimbursement; and that despite the contention of the consultant that the withholding tax should be based only on the amount representing Fixed Cost on Consultants Remuneration, you deducted the 1% expanded withholding tax on all progress billings based on gross receipts, inclusive of the reimbursable costs. In reply, please be informed that reimbursable costs of consultancy contracts, being reimbursement of expenses and not charges for services, should not be considered as part of the gross receipts for purposes of the 1% expanded withholding tax. In other words, only that portion of the monthly billing properly classified as Fixed Cost on Consultants Remuneration should be subject to the expanded withholding tax provided under Section 50 (b) of the Tax Code, as implemented by Revenue Regulations No. 6-85 otherwise known as the Revised and Expanded Withholding Tax Regulations. cdpr Very truly yours, JOSE U. ONG Commissioner of Internal Revenue