10% VAT Imposed on Management Services

June 7, 1988 BIR RULING NO. 250-88 102 000-00 250-88 Gentlemen : This refers to your letter dated March 1, 1988 requesting that the management services rendered to your managed companies be exempted from the value-added tax. It is represented that you are engaged in professional and management services and as such is presently the General Managers of several companies, among which are Atlas Consolidated Mining and Development Corporation (ACMDC), Atlas Fertilizer Corporation (AFC), Paper Industries Corporation of the Philippines (PICOP), Phelps Dodge Philippines, Inc. (POPI); that you perform your functions as General Manager through your officers who hold key decision-making positions in the said companies; that said officers, are subject to the overall control and supervision of the Board of Directors of the managed companies; and that they participate in the various aspects of managing the affairs of the managed companies like financial, technical, operational, legal, marketing and others. It is further represented that you receive no other compensation from the managed companies except management fees. In reply, please be informed that any person who, in the course of trade or business renders service is subject to the value-added tax imposed in Section 102 of the Tax Code. (Sec. 99, Tax Code, as amended by Executive Order No. 273) Under Section 102, 10% value-added tax is levied on any person engaged in the sale of service. The phrase "sale of service" means performance of all kinds of services for others for a fee regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties. Undoubtedly, by performing professional and management services to your managed companies, you are engaged in the sale of services to them. Hence, as you are rendering service for a fee, you are subject to the 10% value-added tax. You do not fall within the purview of Section 103(r) of the Tax Code which exempt from VAT services performed in the exercise of profession or calling subject to the occupation tax under the Local Tax Code and professional services performed by a registered general professional partnership. This is so because your management services are not subject to the occupation tax under the Local Tax Code and that you are a corporation and not a partnership. cdt Very truly yours, (SGD.) EUFRACIO D. SANTOS Deputy Commissioner