BIR Ruling

March 17, 2006
BIR RULING [DA-143-06]
Rev. Regulations No. 17-2003; DA-426-2003
Bernaldo Mirador & Directo Law Offices

Unit 1807 Cityland Condominium 10 Tower 1
6815 Ayala Avenue cor H.V. de la Costa St.,
Makati City
Attention: Atty. Rosario S. Bernaldo

Managing Partner
Gentlemen :
This refers to your letter dated April 20, 2005 requesting in behalf of your client,
GEOLOGISTICS, INC. for con rmation of your opinion that reimbursable expenses are
not considered as income payments, hence, not subject to withholding tax.
It is represented that GEOLOGISTICS, INC. is a domestic corporation formed and
organized under the laws of the Philippines, engaged in the business of providing
logistics services, speci cally, to provide total solutions to various logistics
requirements of the clients such as airfreight forwarding, sea freight forwarding,
customs clearance, warehouse and distribution, vendor-managed inventory, domestic
freight forwarding and project cargo; that in the course of providing services as a
customs broker, GEOLOGISTICS, INC. incur certain expenses such as arrastre,
wharfage dues, form and waybills, magna scale, documentation fee, trucking and
handling charges, customs duties, toll fees, and other similar fees, which actually are for
the account of its clients; that you opine that, as enunciated in the various rulings,
advances made by the customs broker for and in behalf of its clients to pay expenses
such as arrastre, wharfage dues, form and waybills, magna scale, documentation fee,
trucking and handling charges shall not form part of the customs broker's gross
receipts for withholding tax purposes provided that the above expenses are invoiced
directly in the name of the broker's client by the person performing such service, and
such reimbursements are not invoiced with the broker's VAT invoice/o cial receipt;
that in compliance with the requirements of the BIR, GEOLOGISTICS, INC. issues and
prepares two (2) kinds of invoices when it bills its clients; that the rst invoice is a VAT-
invoice, which bills the customs broker's fee, and expenses for transportation, overtime,
facilitation fee, and other expenses incurred to facilitate the clearing of goods through
customs; that the second invoice is a non-VAT invoice, which bills expenses such as
arrastre, wharfage dues, form and waybills, magna scale, documentation fee, trucking
and handling charges, customs duties, toll fees, and other similar fees, and which are
directly receipted in the name of the clients.
In reply, please be informed that Section 2.57.2 (E) (3) of Revenue Regulations
No. 2-98 dated April 17, 1998, as amended by Revenue Regulations No. 6-2001 which
enumerates the transactions subject to creditable withholding tax, provides as follows:
TDEASC
Sec. 2.57.2 Income payments subject to creditable withholding tax and

rates prescribed thereon. — Except as herein otherwise provided, there shall be
withheld a creditable withholding income tax at the rates herein speci ed for
CD Technologies Asia, Inc. © 2019 cdasiaonline.com
each class of payee from the following items of income payments to persons
residing in the Philippines:
xxx xxx xxx
(E) Income payments to certain contractors — On gross payments to the
following contractors, whether individual or corporate — Two percent (2%)
xxx xxx xxx
Pursuant to Revenue Memorandum Circular No. 9-2006 dated January 25, 2006,
as a rule, all income payments which are required to be subjected to withholding of
income tax shall be subject to the corresponding withholding tax rate to be withheld by
the person having control over the payment and who, at the same time, claims the
expenses. However, it has been observed that while the brokers, as agents of their
Customers (importers/exporters), have control over payment of reimbursable
expenses and/or advance payments, they do not claim the same as their own expenses.
Thus, considering the peculiarity of the said situation, the Customers who are ultimately
claiming the same as their own expenses shall be the ones primarily responsible for
remitting the withholding taxes due thereon although the issuance of the corresponding
Certi cates of Taxes Withheld (BIR Form No. 2307) shall be the responsibility of the
brokers who should issue the same, on behalf of the Customers as payors, in the name
of or to the Third Party Service Providers as payees upon payment by the brokers to the
said third-party service providers of the reimbursable expenses, net of the Expanded
Withholding Tax. In other words, upon making the payments to the third-party service
providers (the persons to whom the advance payments have been made by the
brokers), the brokers shall pay or advance the prescribe amount net of the required
expanded withholding tax (EWT), which net amount is the amount that should be
requested for reimbursement from the Customers while the retained amount pertaining
to the Expanded Withholding Tax shall be remitted to the BIR by the said Customers.
The Certi cate of Tax Withheld (BIR Form No. 2307) shall re ect the name of the
Customer as the payor of the billed income payment, the name of the broker as the
agent of the real payor who is the Customer, and the name of the third-party service
provider as the payee of the billed income payment. DcTSHa
With respect to the reimbursement to the brokers by their Customers of the

reimbursable expenses and/or advanced payments of the former in favor of the latter
following the prescribed procedures of Revenue Memorandum Circular No. 9-2006, the
same shall no longer by subject to EWT since the payments do not form part of the
gross receipts of the brokers. They merely collect what they advanced on behalf of
their Customers and hence, they do not derive income from collecting such advances.
However, for reimbursable expenses and/or advanced payments redounding to
the bene t of the brokers, and all other reimbursable expenses covered by VAT o cial
receipts of the brokers, the same shall, upon reimbursement by the customers, form
part of the broker's gross receipts and shall therefore be subject to EWT
notwithstanding that such reimbursements are for payments for reimbursable
expenses and/or advanced payments made by brokers on behalf of their Customers.
Finally, a reading of the above regulations disclose that indeed, income payments
to certain contractors are subject to the 2% creditable withholding tax. In the case of
freight forwarding however, income payments do not include reimbursable expenses,
since no income is generated from these reimbursements. Advances made by the
customs broker for and in behalf of its clients to pay expenses such as arrastre,
wharfage dues, form and waybills, magna scale, documentation fee, trucking and
handling charges shall not form part of the customs broker's gross receipts for
withholding tax purposes provided that the above expenses are invoiced directly in the
name of the broker's client by the person performing such service, and such
reimbursements are not invoiced with the broker's VAT invoice/o cial receipt and all
the conditions set forth in Revenue Memorandum Circular No. 9-2006 are complied
with.
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 as null and void.
Very truly yours,

Commissioner of Internal Revenue
By:
(SGD.) JAMES H. ROLDAN

Assistant Commissioner
Legal Service

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March 17, 2006

BIR RULING [DA-143-06]

Rev. Regulations No. 17-2003; DA-426-2003

Bernaldo Mirador & Directo Law Offices

Attention: Atty. Rosario S. Bernaldo

Sec. 2.57.2 Income payments subject to creditable withholding tax and

With respect to the reimbursement to the brokers by their Customers of the

Very truly yours,

(SGD.) JAMES H. ROLDAN

CD Technologies Asia, Inc. © 2019 cdasiaonline.com

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