BIR Ruling [UN-153-94]

May 23, 1994 BIR RULING [UN-153-94] Sycip Gorres Velayo & Co. 6760 Ayala Avenue Makati, Metro-Manila Attention: Atty . Victoria A . Villaluz Tax Division Gentlemen : This refers to your letter dated February 22, 1994 requesting confirmation of your opinion that the interconnection charges billed to customers by your client, SMART COMMUNICATIONS, INC. (SMART), which are earmarked and paid to Philippine Long Distance Telephone Company (PLDT) are not included in the gross receipts of SMART for franchise tax purposes. cdtech It is represented that SMART is a domestic corporation primarily engaged in telecommunications business; that it is a grantee of a legislative franchise under Republic Act No. 7429 dated March 27, 1992; and that among the taxes it is made liable to pay under the legislative franchise is 3% franchise tax based on gross receipts; that the National Telecommunications Commission (NTC) granted SMART provisional authority to establish, install, maintain, lease and operate nationwide a cellular mobile telephone system (CMTS); that it is mandated by the NTC that SMART must be interconnected with the Public Switch Telephone Network of PLDT to be effective in the delivery of its services; and that its customers pay the interconnection charges in addition to its regular charges which are collected by SMART but are actually earmarked and paid to PLDT. In reply, please be informed that the term "gross receipts", for franchise tax purposes, does not include money which in fact belongs to another person. Accordingly, since the interconnection charges of SMART's billing are earmarked and actually paid to PLDT, the franchise tax due from SMART should be based on actual gross receipts excluding the PLDT interconnection charges. (BIR Ruling No. 140-90 dated July 24, 1990). cdi Very truly yours, ALICIA P. CLEMENO Acting Assistant Commissioner (Legal Service)