Mabini Corporation availed the following services for the year ended December 31, 20A1:

Magdiwang Maaliwalas Maligalig

Corporation – Corporation – Corporation –
Security services Janitorial services Manpower services
Salaries of personnel P 300,000 P 250,000 P 500,000
Agency fees P 30,000 P 25,000 P 50,000
Additional information:
Services of Mayaman Corporation - advertising agency:
- Agency commission (payable to Mayaman) – 15% P 150,000
Maligaya Broadcasting Company - media supplier:
- Advertising charges (payable to Maligaya) – 85% P 850,000
Required:
Determine the deductible expense on the part of Mabini and the other party or parties for the
year ended December 31, 20A1. Indicate the nature of the expense.

Section 1 of Rule XIV of the 1994 Revised Rules and Regulations implementing
Republic Act No. 5487 which governs the “Organization and Operation of Private Security
Agencies and Company Security Forces throughout the Philippines” provides that “No
watchman, security guard or private detective shall be paid a salary or compensation less than
prescribed by existing laws, rules and regulations including those that may be promulgated
relative thereto. The amount prescribed therein shall be earmarked and set aside for the
purpose foretasted; thus, the same shall thereafter be segregated from the monies received
by the agency from its clients as an amount reserved for the remuneration of the guard or
detective.” From the perspective of Mabini Corporation, the expense they incurred for the
security agency must be identified between salaries and agency fees. This is due to how both the
salaries and agency fees intended for the security agency cannot be recorded as a deductible for
the corporation. Moreover, it is important to note that this law is specific to security agencies
only. As such, the salaries intended for other types of agencies can be listed as a deductible for
the corporation. To summarize the aforementioned and to ascertain the differences between
security agencies, other agencies, and employees in terms of what should be part of their
deductibles, the following table is presented.
Security agency Other agencies Employee
Salaries Nondeductible Deductible expense Nondeductible
expense expense
Agency fees Nondeductible Nondeductible Nondeductible
expense expense expense

Deductible expenses for the parties involved:

 Involved parties Deductible Expense
Magdiwang (security agency) P0
Maaliwalas (janitor agency) Salaries expense P 250,000
Maligalig (manpower agency) Salaries P 500,000
expense
Mayaman (advertising agency) P0
Maligaya (media supplier agency) P0

As for Mayaman and Maligaya, neither of the expenses they incur is considered deductible as
they do not fall under salaries or agency fees.

Expenses by their nature

Mabini Salary Agency Fee Others Total
Corporation
Security services P 300,000 P 300,000
– salaries expense
Security services P 30,000 30,000
– agency fees
Janitorial 250,000 25,000 275,000
expenses
Manpower 500,000 50,000 550,000
services expense
Advertising P 850,000 850,000
expense
Service fee 150,000 150,000
expense
Total P 2,155,000

References:
http://philtax.blogspot.com/2007/11/revenue-memorandum-circular-no-39-2007.html