Tax Treatment of Commission's Privilege Fund (CPF)

October 19, 1998 BIR RULING NO. 154-98 50 (b)-000-00-154-98 Pacific East Asia Cargo Manila Domestic Airport Domestic Road, Pasay City Attention: Ms . Jocelyn P . Latoga Gentlemen : This refers to your letter dated March 25, 1997 requesting, in effect, for a ruling on how you are going to treat Commission ' s Privilege Fund (CPF) for tax purposes. prcd It is represented that you are a government-owned and controlled corporation; that one of your supplier's method of invoicing is that aside from the total amount of charges, you are also being charged with a certain percentage of CPF and 10% VAT which are both based on the total amount of charges; that for purposes of tax remittances, you normally deduct 1% expanded creditable withholding tax and 6% creditable VAT on government payments which are based on the total amount plus CPF; and that your supplier is now claiming that the basis of withholding taxes should be the total amount only since the CPF is not part of their income and said amount is directly remitted to Manila International Airport Authority (MIAA) which is stated in the contract between your supplier and MIAA. In reply, please be informed that under Section 1(e)(2)(i) of Revenue Regulations No. 6-85, as amended, and Section 5 of Revenue Regulation No. 10-93, the tax base in computing the 1% expanded creditable withholding tax on income payments to forwarding contractors and the 6% creditable VAT on payments made by the government to sellers of services shall be on gross payments. Thus, for purposes of tax remittances, the 1% expanded creditable withholding tax imposed under Section under Section 1(e)(2)(i) of Revenue Regulations No. 6-85, as amended, and the 6% creditable VAT prescribed under Section 3 of Revenue Regulations No. 10-93 shall be computed based on gross payments, which means total payments inclusive of the said Commission Privilege Fund . This is so since like other Funds of the same nature, the said funds will ultimately redound to the benefit of your said supplier. Hence, a corresponding charge for benefits derived thereby is deemed included in the imposition of said taxes. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue