VAT Ruling No. 075-97

December 29, 1997 VAT RULING NO. 075-97 Section 102; 070-97; 075-97 Consumer Thrust Marketing Services 155 Iriga St., La Loma Quezon City Attention: Ms . Bernadette Lee-Pardo General Manager Gentlemen : This refers to your letter dated November 25, 1996 stating that your company is engaged in promotional, merchandising, surveys, traffic count and other related services; that all expenses incurred in relation to the contracted projects such as salaries, supplies and materials, communication and other miscellaneous expenses are billed to your clients plus the corresponding agency fee; that you are charging your clients the value-added tax based on the sum of the project cost, described as reimbursable expenses in your billings, and agency service fee; that one of your clients has questioned the basis of the VAT you are charging; and that according to your said client, the VAT should be based on the agency service fee only. You also submitted a sample of your billing invoice wherein the estimated cost of doing business broken down into salaries, commissions, gasoline expenses and pipe welding is described as reimbursable expenses upon which you base your mark-up which describe as agency service fee. On the basis of these facts, you now request for an opinion on the basis of the imposition of the value-added tax. In reply, please be informed that according to Section 102 of the National Internal Revenue Code (NIRC), as amended, the sale or exchange of service as well as the use of lease of properties, shall be subject to the value-added tax bases on gross receipts. moreover, the term "gross receipts" means the total amount of money or its equivalent representing the contract price, compensation, service fee, rental or royalty, including the amount charged for the materials supplied with the services and deposits and advance payments actually and constructively received during the taxable quarter for the service performed or to be performed for another person, excluding the value-added tax. The sum or expenses/cost of doing business and the 15% agency fee you are charging your clients represent the contract price which shall be your gross receipts for value-added tax purposes. Such being the case, your basis of computing the value-added tax shifted to your client as illustrated in your sample billing is correct. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal & Enforcement Group