Application of VAT on Overriding Commissions Charged by a Ceding Company to a Reinsurer

April 19, 1988 BIR RULING NO. 155-88 155-88 Gentlemen : This is in connection with your verbal inquiries on the application of VAT on overriding commissions charged by a ceding company to a reinsurer. The position taken by your organization is that the said overriding commission is not really a charge for services but a reimbursement of expenses attached to the act of ceding a portion of the insurance originally covered by the reinsuring company. On the basis of the above facts, please be informed that the opinion of this Office declaring the applicability of VAT to overriding commissions only refers to that portion of the amount that can properly be classified as charges for services and not as reimbursement of expenses. Consequently, in the examination of your books by the BIR it should be shown that the income from all overrides was in fact reimbursement of expense in connection with the said re-insurance, in which case there shall be no VAT charged. However, when services are performed for others, as an insurance broker, the fees charged for such services are subject to VAT. cdta Very truly yours, (SGD.) EUFRACIO D. SANTOS Deputy Commissioner