VAT Ruling No. 027-92

March 11, 1992 VAT RULING NO. 027-92 NIRC Sec. 102 (a) Precedent Ruling 166-90 Metropolitan Waterworks and Sewerage System Katipunan Road, Balara Quezon City Attention: Loida S. Dino DA, Finance S i r s : This refers to your letter dated November 28, 1991 seeking clarification on the imposition of value-added tax (VAT) on services rendered pursuant to Consultancy Contracts. As represented, your Company is acquiring the services of a consulting firm to undertake hydrogeological services for your proposed Manila North East Water Supply Project. The cost of services is divided into two (2) component parts, namely, remuneration and reimbursable costs (the latter representing non-personnel cost expenses that are actually incurred in the execution of the study including, office establishment costs, office running costs, local travel and explanatory well drilling). It is stated that you are amenable to paying VAT on the remuneration component of the contract. You are now inquiring if the reimbursable component is also subject to value-added tax. In reply, please be informed that Sec. 2(m) of Revenue Regulations 5-87 defines "gross receipts" as 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 service and deposits or advance payments actually or constructively received during the taxable year. Since this definition includes the payment for reimbursable costs incurred for the service contract, said payments are subject to 10% VAT. ADaSET Very truly yours, (SGD.) JOSE U. ONG Commissioner of Internal Revenue