BIR Ruling No. 209-99

December 28, 1999 BIR RULING NO. 209-99 108; 108-000-00-209-99 SGV & Co. 6760 Ayala Avenue 1226 Makati City Philippines Attention: Mr . Jose A . Osana Partner, Tax Division Gentlemen : This refers to your letter dated August 31, 1999 requesting on behalf of your client, Pilipinas Shell Petroleum Corporation (PSPC) for a ruling on whether or not it is subject to the 10% value-added tax (VAT) on the merchant service fees and other service charges that it receives from its dealers and Fleet Card customers, respectively, pursuant to Sections 105 and 108 (A) and not to the 5% gross receipts tax (GRT) under Section 122 all of the Tax Code of 1997. cdll It is represented that PSPC is a domestic corporation primarily engaged in the manufacture of petroleum products; that as part of its marketing strategy to ensure continuous expansion in the fleet segment, it will issue Fleet Cards to selected customers (top 5,000 corporations and other preferred accounts) which are acceptable only to Shell participating retail stations for the purchase of fuels, lubricants and greases, vehicle maintenance services and items from Select stores; that the Fleet Card transactions shall work as follows: First. The Fleet Cardholder purchases fuel of non-fuel products from a participating Shell retail station on credit. Second. The Shell retail station will transmit all Fleet Card transactions to the Shell Fleet Card Center, at the end of the day. Third. PSPC will reimburse the Shell dealer of the purchases made by the Fleet Card customers subject to merchant fees of 0.75% and 3% of the purchases, for fuel and non-fuel products, respectively, on a weekly basis. Fourth. PSPC will generate a billing statement representing fuels and other purchases plus other charges (joining fees, late payment charges, annual fees, etc.) to the Fleet Card customers, every month. that the merchant service fee is a form of commission charged to the dealers for brokering the sale or helping generate higher sale; and that it is also being charged as a fee for assuming the risk of collecting from the Fleet Cardholders and the attendant administrative burden; that on the other hand, the charges collected by PSPC from the Fleet Cardholders represent various fees such as annual fees, joining fees, late payment penalties and others. In reply, please be informed that Sections 105 and 108 of the Tax Code of 1997 provide as follows: "SEC. 105. Persons Liable . Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code. LibLex "SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties . Rate and Base of Tax . There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties. The phrase 'sale or exchange of services' means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration, . . . ." The merchant service fees paid by the Shell dealers to PSPC for brokering the sale, helping generate higher sale and for assuming the risk of collecting from the Fleet Cardholders and the attendant administrative burden, and the charges collected by PSPC from the Fleet Cardholders which represent various fees such as annual fees, joining fees, late payment penalties and others, shall be considered as payments for services rendered in the Philippines. Thus, the same shall be subject to the 10% VAT prescribed under Section 108 of the Tax Code of 1997. Accordingly, since the merchant service fees and charges are payments for services rendered in the Philippines and PSPC is not a financing company, the 5% gross receipts tax prescribed under Section 122 of the Tax Code of 1997 shall not be imposed. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue