Bir Ruling (Da-147-06) - Gcs

March 17, 2006
BIR RULING [DA-147-06]
27 (A); DA-238-2005; DA-404-2004
SM Group of Companies
Building A, SM Corporate Office
Bay City, Pasay City
Attention: Ms. Cecilia R. Patricio

VP-Corporate Tax Division
Gentlemen :
This refers to your letter dated June 16, 2005 requesting confirmation of your
opinion that payment of vouchers ordered from Sodexho Pass, Inc. is not subject to
income tax and consequently, to expanded withholding tax.
It is represented that Sodexho is a corporation organized and existing under the

laws of the Philippines with the following primary purposes: To set-up and fully
manage services, improve and add value to the administration of benefits, privilege
and/or subsidies given or granted by private or public organizations to their respective
employees, business partners or beneficiaries including but not limited to the issuance
and processing of service vouchers, cards and other innovative processes and
generally to perform any and all acts connected with the business aforementioned or
arising therefrom and/or incidental thereto, as may be allowed by existing laws, rules
and regulations; that Sodexho administers the meal and food allowance benefits given
by the employer (client company) to its employees through vouchers system which
involves the following procedures:
1. Client company transfers to Sodexho the amount allotted for its

employees' specific benefit (e.g., meal, rice subsidy) with instruction on
the amount to be allotted per employee;
2. Sodexho issues vouchers (for each employee with the value allotted for
the respective employees' benefit) and delivers the same to client
Copyright 1994-2016 CD Technologies Asia, Inc. Taxation 2015 1
company;
3. Client company distributes these vouchers to its employees;
4. Employees use these vouchers to receive their benefit at an accredited

establishment (e.g., Restaurant/food outlets) of their choice;
5. Outlets send back used vouchers to Sodexho for reimbursement;
6. Sodexho reimburses the store outlet
is because the money received by Sodexho from its client companies is not
compensation for services rendered by Sodexho but a liability/deposit for
reimbursement to the participating establishments.
In BIR Ruling No. DA-484-2004, Telecoms Infrastructure Corporation of the

Philippines (Telicphil) was appointed attorney-in-fact of the Management Committee
tasked to exercise the responsibilities, duties and powers in connection with the
construction, service and maintenance of the National Digital Transmission Network
(NDTN). Under the set-up, Telicphil received money from the NDTN co-workers for
payment of costs related to services it rendered (Telicphil costs) which Telicphil
reported as Sales for tax purposes. It also received money from the NDTN co-owners
for maintenance costs of NDTN (NDTN Costs). Based on the cases of the McCann
Erickson (Philippines), Inc. vs. Commissioner of Internal Revenue, C.T.A. Case No.
5966, March 13, 2003 and Commissioner of Internal Revenue vs. Tours Specialists,
Inc., G.R. No. 66416 dated March 21, 1990, this Office ruled that money received
from the NDTN co-owners for payment of NDTN costs are funds merely held in trust
by Telicphil for eventual remittance to the supplier of goods and contractors for
services . . . The money received, therefore, is not in the nature of fee or consideration
for the services of Telicphil. The ruling states:
"Accordingly, inasmuch as the money received by Telicphil for NDTN

costs does not represent income to Telicphil, said amount, therefore, shall not
likewise be subject to income tax and consequently to withholding tax." EHSITc
In the case of Commissioner of Internal Revenue vs. Tours Specialists, Inc.,

G.R. No. 66416 dated March 21, 1990 citing the case of Commissioner of Internal
Revenue vs. Manila Jockey Club, Inc., 108 Phil. 882, the Supreme Court declared that:
"Gross receipts subject to tax under the Tax Code do not include monies or receipts
entrusted to the taxpayer which do not belong to them and do not redound to the
taxpayer's benefit and it is not necessary that there must be a law or regulation which
would exempt such monies and receipts within the meaning of gross receipts under
the Tax Code."
In the foregoing case, the Supreme Court affirmed the decision of the Court of
Tax Appeals which excluded from the gross receipts of a local travel agency amounts
received by the latter from foreign tourist agencies which form part of the package fee
paid by the tourists but were intended or earmarked for hotel room accommodations
and accordingly paid by the local travel agency to the hotels. In said case, the Court
found that the hotel charges paid by the local travel agency were taken out of funds
entrusted to it by the foreign tour correspondent agency. As such, the said receipts
never belonged to the local travel agency, but only formed sums for payment to the
hotels, without any portion thereof being diverted to its own fund.
In the instant case, since the monies received by Sodexho from its clients
represent advance payment to third parties and, therefore, do not redound to the
benefit of Sodexho, said amounts shall not form part of its gross receipts subject to
income tax that Sodexho does not claim any input tax on its payment of the face value
of the used vouchers presented by participating establishments; that such amount is
intended to compensate the member establishments for the meals/food items
purchased by the voucher holders; that accordingly, Sodexho issues non-VAT official
receipts to the client company and recognizes in its books a liability upon receipt of
the payment for the face value of the vouchers; that on the other hand, the
participating establishments which accepted the vouchers as payment for meal or
purchase of food items issue non-VAT official receipts to Sodexho upon payment of
the vouchers by Sodexho; that consequently, no input VAT is shifted to and claimed
by Sodexho; that moreover, inasmuch as the employees use the vouchers as cash in
their purchase of meals/food items, the participating establishments issue VAT
invoices and/or VAT official receipts to the voucher holders similar to their
customers; that Sodexho charges management fee to its client company; that in
addition, Sodexho charges marketing fee to the participating establishments for the
added turnover generated by the voucher system and for the verification of the
voucher's validity and the processing, as well as monitoring, of certain percentage of
the amount of sales made through Sodexho's vouchers; and that accordingly, Sodexho
issues VAT invoices and/or VAT official receipts to these client companies and to the
participating establishments, upon receipt of the management fees and marketing fees
respectively.
In reply, please be informed that Section 27(A) of the Tax Code of 1997
provides, viz.:
"Sec. 27. Rates of Income Tax on Domestic Corporations. —
"(A) In General. — Except as otherwise provided in this Code, an

income tax of thirty-five (35%) is hereby imposed upon the taxable income
derived during each taxable year from all sources within and without the
Philippines by every corporation, as defined in Section 22(B) of this Code and
taxable under this Title as a corporation, organized in, or existing under the
laws of the Philippines: Provided, That effective January 1, 1998, the rate of
income tax shall be thirty-four percent (34%); effective January 1, 1999, the
rate shall be thirty-three percent (33%); and effective January 1, 2000 and
thereafter, the rate shall be thirty-two percent (32%).
xxx xxx xxx"
Based on the foregoing, the management and service fees paid to Sodexho by
its clients which are payments for services rendered in the Philippines constitute gross
income subject to income tax, pursuant to Section 27(A) of the Tax Code of 1997.
With regard to the amount received by Sodexho from the client companies for
the face value of the vouchers and for which Sodexho shall have to issue separate
non-VAT official receipts, the same does not fall within the purview of the term gross
income. This imposed under Section 27(A) of the Tax Code of 1997. (BIR Ruling No.
DA-238-2005 dated June 1, 2005)
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. DTIaCS
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-147-06]

27 (A); DA-238-2005; DA-404-2004

Attention: Ms. Cecilia R. Patricio

It is represented that Sodexho is a corporation organized and existing under the

1. Client company transfers to Sodexho the amount allotted for its

3. Client company distributes these vouchers to its employees;

4. Employees use these vouchers to receive their benefit at an accredited

5. Outlets send back used vouchers to Sodexho for reimbursement;

6. Sodexho reimburses the store outlet

In BIR Ruling No. DA-484-2004, Telecoms Infrastructure Corporation of the

"Accordingly, inasmuch as the money received by Telicphil for NDTN

In the case of Commissioner of Internal Revenue vs. Tours Specialists, Inc.,

"(A) In General. — Except as otherwise provided in this Code, an

xxx xxx xxx"

Very truly yours,

Commissioner of Internal Revenue

(SGD.) JAMES H. ROLDAN

Copyright 1994-2016 CD Technologies Asia, Inc. Taxation 2015 4

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