BIR Ruling No. 139-84

August 10, 1984 BIR RULING NO. 139-84 205-16-115-84-139-84 Gentlemen : This refers to your letter dated July 11, 1984 requesting clarification regarding BIR Ruling No. 205-16-000-00-115-84 dated July 6, 1984 to the effect that since the "tips are merely collected from the porters and held by the company only for distribution among the porters, employees and supervisors, and since no part of the amount goes into the funds of the company, said tips should not form part of the gross receipts of the company for purposes of the 3% contractor's tax imposed under Section 205 of the Tax Code." It is represented that 80% of the tips given by the travellers is returned to the porters at the end of the day or shift; that the 20% of the tips however, is retained by the Company and appropriated for certain expenses directly benefitting the porters and other employees; that although the 20% is generally spent for the direct benefit of the porters and other employees, its disposition is entirely at the discretion of the management; and that since the nature of the expenses with respect to 20% fund is not exact, the possibility is that the whole amount may or may not be spent, in which case, the balance if any, is commingled with the funds of the company upon which the income tax shall be paid. Based on the foregoing facts, you now ask whether or not the 20% of the tips or the unspent portion thereof, is subject to the 3% contractor's tax. In reply, please be informed that said 20% of the tips given to the porters by the travellers which is retained by the company, whether it is spent in whole or in part for the benefit of the employees is subject to the 3% contractor's tax imposed under Section 205 of the Tax Code. This is so, because although the said portion (20% of the tips) is for distribution to supervisors and for expenses to benefit the employees, the same however, actually forms part of the funds of the company since its disposition is entirely left to the discretion of the company. Accordingly, said 20% of the tips should form part of the gross receipts of the company for purposes of the 3% contractor's tax. BIR Ruling No. 205-16-000-00-115-84 dated July 6, 1984 is therefore modified insofar as the taxability of the 20% of the tips is concerned. Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner