VAT Ruling No. 050-90

February 20, 1990 VAT RULING NO. 050-90 Philippine International Insurance Brokers, Inc. 7th Floor, Republic Glass Bldg. 196 Salcedo Street Legaspi Village Makati, Metro Manila Attention: Ms . Lutgarda Gamboa General Manager S i r s : This refers to your letter dated February 8, 1989 stating that an insurance broker, in servicing the insurance requirements of the assured, earns a commission which he receives from the insurance company; that one of the services rendered is the collection and remittance of the premium payments to the insurance company and that in the collection service it prepares a billing through a VAT invoice/billing (which is usually in the name of the assured) in the following format: llcd Premium P3,230.40 Doc. Stamps 243.60 Premium tax 32.31 Total P3,506.31 Add: 10% VAT on commission 53.30 Amount due P 3,559.61 ======== On the basis of the foregoing, you now request for a confirmation that the above procedure justifies the shifting of the VAT to the assured. In reply, please be informed that the service of collecting premiums by the broker is rendered for the insurance company as an incident to its brokerage activity. Such being the case, whatever VAT is imposed on the commission may be shifted to the insurance company and not to the assured. In this connection, in order that the VAT will not be shouldered by the assured, all receipts evidencing payment of commission (inclusive or exclusive of VAT) shall be issued in the name of the insurance company. On the other hand, if the invoice is in the name of the assured (as shown in the above format through a VAT invoice), the VAT cannot be based on the amount of P533.02 since the commission was not received from the assured. Moreover, the VAT cannot be based on the insurance premium charges plus taxes (in the total amount of P3,506.31) because under Section 103(j) of the Tax Code, as amended, insurance premiums are exempt from VAT. Thus, for invoicing purposes, whatever amount is received by you as premiums plus taxes in behalf of the insurance company shall be evidenced by a non-VAT receipt issued in the name of the assured, and the VAT shall be based on the actual commission received from the insurance company. LLjur Very truly yours, JOSE U. ONG Commissioner of Internal Revenue