VAT Ruling No. 038-91

May 29, 1991 VAT RULING NO. 038-91 Fil-Generis Corporation Room 215 Asian Player I Tordesillas St., Salcedo Village Makati, Metro Manila Attention: Ms . Merla B . Bobis Accountant S i r s : This has reference to your letter dated September 1, 1989. As represented, your company is a VAT-registered entity engaged in the trading of chemicals with sales group composed of account executives receiving commission income from the sales of chemicals. Based on the foregoing, you now request clarification on whether such commission income is subject to VAT or withholding tax for income tax payments; and whether or not a non-VAT individual working in the capacity of an account executive who paid VAT to a VAT-registered entity can claim refund or tax credit. cdta In reply, please be informed as follows: 1. If the account executive is in fact an employee of the company, there being employer-employee relationship, his commission income shall be exempted from VAT under Section 103(s) of the Tax Code, as amended. However, the employer shall deduct and withhold the withholding tax on wages. 2. If there is no employer-employee relationship, he shall be subject to the 10% VAT, as a seller of service in the course of his business or practice of profession pursuant to Section 102(a) of the same Code. He shall not be subject to the expanded withholding tax because a commission agent is not included under the Expanded Withholding Tax Regulations No. 6-85, as amended. The payor is neither allowed by law to impose 10% VAT nor is he allowed to withhold the same from the payee vis-a-vis his income payment to the latter, whether or not such payee is a VAT or a non-VAT person. Accordingly, the aforesaid Account Executive cannot claim for a refund or credit of any purported 10% VAT imposed and withheld from him by his employer. Rather, his recourse is to make a demand from his employer of such amount which his said employer purportedly imposed and withheld from his compensation. Before engaging in the practice of his profession, a commission agent has an option either to: a) register as a non-VAT person, if his gross commissions for the next 12-month period is estimated not to exceed P200,000, provided, that if during the said 12-month period his gross commission exceeds the P200,000 ceiling, he shall register as a VAT person. As a non-VAT registered person, he shall be liable for payment of the 2% percentage tax, based on his gross receipts, rather than the 10% VAT, but without the benefit of input tax credit vis-a-vis his purchases or; b) register as a VAT person, after which shall be liable for payment of the 10% VAT, regardless of the amount of his gross receipts against which he can deduct from his output taxes any input tax attributable to his purchases. cdti Very truly yours, JOSE U. ONG Commissioner of Internal Revenue