VAT Ruling No. 017-00

March 20, 2000 VAT RULING NO. 017-00 081-89 Department of Public Works and Highways Office of the Secretary Manila Attention: Ms . Teresita de Vera Department Chief Accountant Gentlemen : This refers to your indorsement dated November 29, 1999 regarding the letter of Mr. Homobono C Pique, General Manager and CEO of Pertconsult International (Pertconsult), requesting for a copy of pertinent Memorandum from the Bureau of Internal Revenue (BIR) to the Department of Public Works and Highways (DPWH) or vice versa regarding the exemption of value-added tax (VAT) on the contract item "REIMBURSABLE". It is represented that Pertconsult provides consultancy services to the DPWH; that the Income Tax Returns for 1995-1996 of Pertconsult is under investigation by the BIR under Teodoro Huelva, Group Supervisor, Tax Fraud Division; that Perconsult submitted all the pertinent documents needed for the investigation including their contracts; that under question is contract item "REIMBURSABLE" which according to the BIR should also be charged with value-added tax as in contract item "REMUNERATION"; that Perconsult informed the BIR that both the DPWH and BIR have since been requiring the VAT on "REMUNERATION" only and not on "REIMBURSABLE" as the latter merely represents the actual and reimbursable expenses incurred by Perconsult in providing the consultancy services to the DPWH. In reply, please be informed that reimbursable costs of consultancy contracts, being reimbursements of expenses and not charges for services should not be considered part of gross receipts for purposes of the withholding tax. As such, it is not subject to the VAT. However, in order that a contractor's receipts for reimbursable expenses will not be considered part of its gross receipts subject to VAT, all invoices for said expenses must be in the name of the government agency concerned.. Accordingly, Pertconsult's receipts for reimbursable expenses will not be considered subject to VAT provided all invoices for said expenses are in the name of DPWH. (VAT Ruling No. 081-89) LexLib Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal & Enforcement Group