VAT Ruling No. 076-92

June 2, 1992 VAT RULING NO. 076-92 NIRC Sec. 102 (a) Precedent Ruling 000-00 D.M. Consunji, Inc. 1881 Pres. Quirino Ave. Ext. Pandacan, Metro Manila Attention: Mr. Herbert M. Consunji Controller Gentlemen : This refers to your letter dated January 21, 1991 concerning your request for information as to what shall form part of your taxable gross receipts for purposes of the 10% value-added tax (VAT) based on your contract entered into with J.C. Resources Development, Inc., denominated as "Contract For the Cost of the Work Plus a Fee", a copy of which was furnished with your said letter. It is represented that your said contractee is a VAT-exempt company; that, you were engaged "to manage and supervise the construction of your contractee's fifty nine (59) residential buildings in Bahay Toro, Quezon City; pertinent provisions of your contract provide that you shall undertake the construction of the Project on a "cost of work plus a fee basis; that, your undertaking consists of furnishing the materials, except those supplied by your contractee, plants, tools and equipment to carry out your structural and architectural works to the end that the buildings shall be fully and successfully constructed; that, you shall pay for the "Cost of the Work" which, in a nutshell, consists of your labor and material costs; that, your purchases of materials are accordingly receipted by your suppliers in your name rather than in the name of your contractee; that, you render an accounting to your contractee for the said "Cost of the Work" the amount of which is periodically "reimbursed" by your contractee after the latter's scrutiny; that, for your services denominated in the contract as "management" services your management fee, per building constructed, shall be at P500,000.00; that, while your labor costs shall be subject to accounting before your contractee may reimburse costs incurred and paid by you, however, your contract expressly provides that said stipulation shall not be construed as constituting your contractee as employer of the personnel for whom said labor costs have been incurred and paid; that, the said labor costs stipulation shall not arise to any employer-employee relationship between your contractee and the said personnel hence, it follows, the said personnel shall be constituted as your own employees; that you consider your purchases of materials as your own purchases and your recognize input taxes thereon and, when you request for reimbursement thereof, you treat the amount claimed as part of your taxable gross receipts hence, your billing includes the 10% output tax; that, as far as your billing for labor and equipment costs is concerned, you record the same as part of your taxable sales hence, included in your billing is the corresponding 10% output tax; and that, however, your contractee objects to your manner of billing for the reimbursements of your material, equipment and labor costs, specifically against the 10% output tax included in your said billings, on the ground that the same are merely "reimbursements" of your contractee's expenditures the costs for which were merely advanced by your company hence, should not form part of your taxable sales of services. Based on the foregoing, your questions are: 1. Whether your "management fee" is subject to the 10% VAT. 2. Whether the periodic reimbursements your receive for your materials, labor and equipment costs incurred and paid, may also be considered part of your taxable receipts subject to the 10% VAT. In reply, please be informed that you are engaged in the business of building construction services. Pursuant to Sections 99 and 102, NIRC, as amended by the VAT Law (E.O. No. 273) you are taxable based on your "gross receipts" from your contractee. The term "gross receipts" means "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 services and deposits or advance payments actually or constructively received . . . for the services performed or to be performed for another person, excluding value-added tax." ( Sec. 102(a), NIRC ) 1. Your said management fee for your sales of building construction services is subject to the 10% VAT, pursuant to Section 102, NIRC. 2. Your receipts of alleged reimbursements for labor and equipment costs also form part of your taxable gross receipts subject to the said 10% VAT. The purported reimbursements by contractee of labor and equipment costs are, in reality, part of your contract price. Accordingly, your receipts of such reimbursements form part of your taxable gross receipts, pursuant to Section 102, NIRC. 3. Your receipts of alleged reimbursements for cost of materials you purchased in your own name and for which you recognized input tax credits in paying your output taxes also form part of your taxable gross receipts, since the aforesaid statutory definition of "gross receipts" of a contractor embraces amounts received for materials supplied with the services. Accordingly, this ruling confirms the correctness of your action, treating your entire receipts from this contract as part of your taxable gross receipts. Your billing of the 10% output tax for the mentioned reimbursements is therefore proper and legal. Very truly yours, (SGD.) JOSE U. ONG Commissioner of Internal Revenue