November 25, 2003

BIR RULING [DA-426-03]

2.57.2 (G) RR 17-2003 198-90;

VAT Ruling No. 070-90

Central Azucarera de Bais

5th Floor, Legaspi Towers 200
Paseo de Roxas, Makati City

Attention: Ms. Agnes B. Catacutan

Import Department

Gentlemen :

This refers to your letter dated July 24, 2003 addressed to the Commissioner of
Internal Revenue, Attention: Deputy Commissioner Estelita C. Aguirre, Large Taxpayers
Service, which was referred to this O ce for appropriate reply thereto. You are
requesting, in effect, for a ruling as to the proper treatment of certain items billed by
brokers and whether these items are subject to the withholding tax rates under
Revenue Regulations (RR) No. 17-2003.
In your letter, you wanted to clarify whether expenses billed by the broker, such
as documentation, processing, forms and stamps, notaries and photocopies, delivery
and trucking, handling fees and representation/facilitation expenses shall be deducted
a 10% withholding tax, as well as reimbursable expenses which are receipted as
breakbulk, Designated Examination Area (DEA), Value Classi cation Review Committee
(VCRC), asycuda, storage and wharfage dues, Less Container Load (LCL), warehousing,
stripping and terminal handling charges.
In reply, please be informed that Section 2.57.2(G) of RR No. 17-2003, which
amends RR No. 2-98, provides that income payments to customs, insurance, stock, real
estate, immigration and commercial brokers and agents shall be subject to the 10%
creditable withholding tax on gross commissions or service fees.
As a matter of principle, advance payments for expenses of brokers are not
subject to withholding tax since these are not considered as income payments. The
brokers merely collect what they have advanced in behalf of their clients and hence,
they do not derive any income from collecting such advances.
In BIR Ruling No. 198-90 dated October 16, 1990, it was held that:
"In reply, please be informed that pursuant to VAT Ruling No. 070-90 gross
income payment for purpose of the expanded withholding tax shall have the
same scope as the gross receipts of a customs broker as de ned in Section
102(a)(3) of the Tax Code, as amended, to wit:

"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 during the taxable quarter for the
services performed for another person excluding the value-added tax."
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 Deposits or advance payments of the customs broker's compensation or service
fee shall form part of the gross receipts for purposes of the VAT and the
expanded withholding tax. However, advance payments by the customs broker
for expenses such as arrastre, wharfage, form and waybills, magna scale,
documentation fee, trucking and handling charges shall not form part of the
broker's gross receipts if invoiced directly in the name of the broker's clients by
the person performing such service and if the reimbursement to the broker is not
invoiced with the broker's VAT invoice/o cial receipt. Advance payment for
transportation, overtime and facilitation fee being expenses obviously incurred
for the customs broker's bene t to facilitate the clearing of goods through
customs, shall form part of the broker's gross receipts notwithstanding that the
same is reimbursed by the client." ICcDaA

In view of the foregoing, the items billed by the broker which constitute
reimbursable expenses such as documentation and processing fees that were invoiced
in the name of the broker's clients shall not form part of the broker's gross receipts and
hence, not subject to the 10% withholding tax under RR No. 17-2003. On the other hand,
reimbursable expenses that were incurred for the broker's bene t in order to facilitate
the clearing of goods through customs such as the expenses for DEA and VCRC and
invoiced in the name of the broker, shall form part of the broker's gross receipts
subject to the withholding tax notwithstanding that the same is reimbursed by the
client.

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) JOSE MARIO C. BUÑAG

Deputy Commissioner
Legal & Inspection Group

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