Clarification on VAT-Registered Entity Engaged in the Business of Providing Security Services

June 2, 1988 BIR RULING NO. 230-88 102 (a) 000-00 230-88 Gentlemen : This refers to your letter dated February 12, 1988 requesting clarification on certain problems regarding implementation of the VAT law insofar as they affect you as a VAT-registered entity engaged in the business of providing security services to different kinds of industries. You also provide security services to VAT exempt companies and persons. cdt It appears that as part of your business, you engage in security escort service wherein you provide service vehicle, driver and security personnel to escort your client's shipment of goods from one place to another; and that for these services, you charge your client a fixed fee of P40.00 per hour, to include therein the cost of gasoline and oil of the vehicle, salaries of the drivers and security personnel, maintenance and your agency share. In reply, please be informed as follows: 1. The 10% VAT is levied on gross receipts (Sec. 102, Tax Code) which "means the total amount of money or its equivalent representing the contract price, compensation or service fee, including the amount charged for materials supplied with the services and deposits or advance payments actually or constructively received during the taxable quarter for the services performed or to be performed for another person, excluding the value-added tax." [Sec. 2(m), Revenue Regulations No. 5-87] Accordingly, the 10% VAT, is based on the amount of P40.00 per hour which constitutes your gross receipts and not on the agency share which is arrived at after deducting the gasoline and oil expenses, salaries and maintenance cost. 2. Your VAT exempt clients are not required to pay you the 10% billed VAT. However, while you can pass on the VAT to them, it is entirely left to their discretion to accept or reject to billing of the 10% VAT. Likewise, you are subject to 10% VAT on the gross amount you received from your clients. However, if under any special law or international agreement to which the Philippines is a signatory, your client enjoys tax exemption privilege not only on taxes for which they are directly liable but also on taxes to the cost of their purchase of goods or services, you need not bill or add the 10% VAT to the cost of your service provided that you have previously applied for zero-rating which was approved by this Office pursuant to Section 8(d) of Revenue Regulations No. 5-87. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner