10% VAT on the Contract Adopting Reimbursement Scheme of Payment for Services

December 19, 1988 BIR RULING NO. 592-88 102 (a) 000-00 592-88 Gentlemen : This refers to your letter dated August 4, 1988 stating that you are a non-stock, non-profit organization which provides assistance in the form of research, training and management consultancy services to groups and institutions involved in rural development programs and projects; that you entered into a contract with NEDA and USAID to provide an interim technical assistance to its local resource management project in Eastern Samar; that said contract adopts the reimbursement scheme of payment for services rendered; that under such schemes, payment is to be made only for actual disbursements incurred by the contractor on the accomplishment of its contract and only upon the submission of legitimate receipts and other documents; and that the contract does not provide for a fixed contractor's fee. cdt Based on the foregoing facts, you are requesting exemption from the 10% VAT on the ground that your organization does not expect to realize a profit from said contract. In reply, please be informed that based on the foregoing facts, you are engaged in the sale of services within the purview of Section 2(j) of Revenue Regulations No. 5-87 implementing the VAT law. "Sale of services means the performance of all kinds of services for others for a fee, remuneration or consideration, . . . regardless of whether or not the performance thereof calls for the exercise or use of the physical or mental faculties. Such being the case, you are subject to the value-added tax of 10% pursuant to Section 102(a) of the Tax Code, as amended by Executive Order No. 273. With respect to your contention that you do not expect to realize a profit under a reimbursement scheme of payment, please be informed that VAT is a tax on transaction. It arises from the performance of a VAT taxable activity regardless whether or not the person liable thereto has realized any gain or profit. Accordingly, your request for exemption has to be, as it is hereby denied for lack of legal basis. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner