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Does payment to a reimbursement still taxable?

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Does payment to a reimbursement still taxable?

Post by engrjhez® on Wed Jun 17, 2009 9:26 pm

Suppose we have an ideal situation where the vehicle on its official trip suddenly gone wrong, and that needed immediate (on-the spot) repair. A legal business nearby provided parts and services (say amounting to P5,600.00 na lang) to solve the problem, only to realize a bigger problem.

Upon reimbursement, the rich guy who shouldered the payment received only a paycheck equal to P5,000. The Accounting Office explained that reimbursements are still subject to VAT as per "COA findings" and recent "BIR guidelines" (daw). But looking back to the official receipt:

Sale: P5,000.00
12%VAT: P600.00
Total Sale: P5,600.00

Which means, tax had already been deducted in the course of payment. Regardless of that fact, the Accounting Office insisted they had no choice but to abide by the rules (rules which were not properly disseminated for everyone's info Mad ). The rich guy (now poor) had lost P600.00 for nothing. For me, this seemed like double-taxation.

Can someone explain if such "ruling" exists? Or if there is a similar issuance simply misinterpreted? scratch
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Re: Does payment to a reimbursement still taxable?

Post by sunriser431 on Wed Jun 17, 2009 9:58 pm

Additional info regarding computation on VAT
1. VAT for Goods (Parts) 12%
2. VAT on Services (Labor) 6%
The Official receipt should be properly identified how much is the cost for parts and the cost of labor, so the computation of VAT can be properly identified.
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Re: Does payment to a reimbursement still taxable?

Post by misty on Thu Jun 18, 2009 9:06 am

i am not aware of any ruling of the BIR which limits the reimbursement only to the taxable amount.

anyway, why would the agency w/hold the reimbursement of the (P600) VAT? if the purpose is to remit it to the BIR, then in whose favor/name will it be remitted? i think withholding in this case was not done properly.

withholding of taxes is upon payment to the supplier; w/hold just a portion of it and not the full amount of 600.00. and then the agency, after remitting to the BIR the withheld amount, will provide the supplier with a certificate of tax withheld.

your rich guy should clear this matter with the accounting office, preferably in writing. otherwise, well-meaning rich guys in your agency will not shell out money in cases of emergencies.
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Re: Does payment to a reimbursement still taxable?

Post by sunriser431 on Fri Jun 19, 2009 2:52 pm

The Legal Business which received the Payment for parts and services are called the Seller of goods and Services. The VAT now is called OUTPUT TAX. The Rich guy who paid the cost for the parts and Services are now called the Buyer of Goods and Services. The VAT now is called INPUT TAX.

Since the transaction was paid in full to the Legal Business, the VAT called OUTPUT TAX will now be the responsibility of the LEGAL BUSINESS to remit it to the BIR. However for the RICH GUY who shouldered the cost of the repair, will reimbursed in full including the VAT called INPUT TAX. In my understanding the INPUT TAX is already paid. So the question now why your Accounting Office still insist on witholding VAT again (INPUT TAX). So the question now whose name will appear on the Certificate of Creditable Tax Withheld at source? As Misty have correcly pointed it out, I believe its internal problem now lies with the Accounting office, have them explain it in writting. Cool
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Re: Does payment to a reimbursement still taxable?

Post by engrjhez® on Fri Jun 19, 2009 6:23 pm

sunriser431 wrote:x x x
Since the transaction was paid in full to the Legal Business, the VAT called OUTPUT TAX will now be the responsibility of the LEGAL BUSINESS to remit it to the BIR. However for the RICH GUY who shouldered the cost of the repair, will reimbursed in full including the VAT called INPUT TAX. In my understanding the INPUT TAX is already paid. So the question now why your Accounting Office still insist on witholding VAT again (INPUT TAX). So the question now whose name will appear on the Certificate of Creditable Tax Withheld at source? As Misty have correcly pointed it out, I believe its internal problem now lies with the Accounting office, have them explain it in writting. Cool
The problem is, the Accounting Office does not give any written statement on the real issue. As per her verbal explanation, the BIR is demanding unpaid taxes (c/o the Municipal Government) due to untaxed reimbursements. The Accountant insisted that she contested that "BIR memo", but can do nothing more.

I would agree this must be held as an internal problem. But in the absence of info (which the Accountant may never wanted to be disclosed) i am posting this question hoping someone from the BIR may clarify this issue. pig
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Re: Does payment to a reimbursement still taxable?

Post by sunriser431 on Sat Jun 20, 2009 4:09 pm

engrjhez wrote:
sunriser431 wrote:x x x
Since the transaction was paid in full to the Legal Business, the VAT called OUTPUT TAX will now be the responsibility of the LEGAL BUSINESS to remit it to the BIR. However for the RICH GUY who shouldered the cost of the repair, will reimbursed in full including the VAT called INPUT TAX. In my understanding the INPUT TAX is already paid. So the question now why your Accounting Office still insist on witholding VAT again (INPUT TAX). So the question now whose name will appear on the Certificate of Creditable Tax Withheld at source? As Misty have correcly pointed it out, I believe its internal problem now lies with the Accounting office, have them explain it in writting. Cool

The problem is, the Accounting Office does not give any written statement on the real issue. As per her verbal explanation, the BIR is demanding unpaid taxes (c/o the Municipal Government) due to untaxed reimbursements. The Accountant insisted that she contested that "BIR memo", but can do nothing more.

I would agree this must be held as an internal problem. But in the absence of info (which the Accountant may never wanted to be disclosed) i am posting this question hoping someone from the BIR may clarify this issue. pig

The Government Accountants are duty bound to follow the prescribe guidelines of the National Internal Revenue Code, (actually they are Authorized/Accredited Tax agents/ Tax collectors ), if they will not follow the prescribe guidelines matters that affect the taxes( ex. witholding taxes on wages, bonuses, Honoraria, payment to contractors etc.) they could be administratively held liable. The BIR has the power to conduct audit if the agency correctly witholding the taxes and remit it to the government.
To solve the issue I would suggest to the RICH GUY, to formally write letter asking the Accountant clarification on the witholding of VAT.
Additional information for your perusal
Republic act no. 6713
Section 5. Duties of Public officials and Employees.
In the performance of their duties, all public officials and employees are under obligations to;
a.) ACT PROMPTLY ON LETTERS AND REQUESTAll public officials and employees shall within fifteen (15) working days from receipt thereof, respond to letters, telegrams, or other means of communicatins sent by the public. The reply must contain the action taken on the request.
b.) xxxx
The burden of proving now is with the Accounting office. pig
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Re: Does payment to a reimbursement still taxable?

Post by engrjhez® on Sat Jun 20, 2009 10:34 pm

sunriser431 wrote:
The Government Accountants are duty bound to follow the prescribe guidelines of the National Internal Revenue Code, (actually they are Authorized/Accredited Tax agents/ Tax collectors ), if they will not follow the prescribe guidelines matters that affect the taxes( ex. witholding taxes on wages, bonuses, Honoraria, payment to contractors etc.) they could be administratively held liable. The BIR has the power to conduct audit if the agency correctly witholding the taxes and remit it to the government.
To solve the issue I would suggest to the RICH GUY, to formally write letter asking the Accountant clarification on the witholding of VAT.
Additional information for your perusal
Republic act no. 6713
Section 5. Duties of Public officials and Employees.
In the performance of their duties, all public officials and employees are under obligations to;
a.) ACT PROMPTLY ON LETTERS AND REQUESTAll public officials and employees shall within fifteen (15) working days from receipt thereof, respond to letters, telegrams, or other means of communicatins sent by the public. The reply must contain the action taken on the request.
b.) xxxx
The burden of proving now is with the Accounting office. pig
AGREE, and well aware of. In addition, actions of offices was already amended by RA.9485:

Sec.8 x x x
(b) Action of Offices
(1) All applications and/or requests submitted shall be acted upon by the assigned officer or employee during the period stated in the Citizen's Charter which shall not be longer than five working days in the case of simple transactions and ten (10) working days in the case of complex transactions from the date the request or application was received. x x x


But still, no effect. Sleep
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Re: Does payment to a reimbursement still taxable?

Post by sunriser431 on Sun Jun 21, 2009 8:26 am

After exhausting the remedy available, why not ask from the accounting office the Certificate of Creditable Tax Withheld at source. The RICH GUY is entitled to it anyway. no more no less. Cool
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Re: Does payment to a reimbursement still taxable?

Post by timbong on Fri Aug 26, 2011 7:05 pm

Analogously, these BIR Rulings might be of help... ;-)

REIMBURSEMENT OF EXPENSES UNDER A COST-SHARING AGREEMENT
IS NOT SUBJECT TO INCOME TAX, EXPANDED WITHHOLDING TAX AND
VAT.

Expenses which are incurred by the advancing party for the benefit and for the account of the party accommodated can be considered reimbursable expenses not forming part of gross receipts of the advancing party subject to tax. Moreover, since the party seeking reimbursement does not sell, barter, exchange, nor lease any good or property and neither does it render any service to the party accommodated, the reimbursement transactions are not subject to VAT, provided that such fact of reimbursement be clearly shown in the billing and/or official receipt. BIR Ruling DA-058-2008 dated February 1, 2008.

and/or

MONIES RECEIVED BY A CORPORATION LEASING COMMERCIAL
SPACES FROM ITS TENANTS AS PAYMENTS FOR DIRECT UTILITIES AND
SERVICES ARE NOT SUBJECT TO VAT AND EXPANDED WITHHOLDING
TAX (“EWT”).

N Corp manages shopping mall complexes and is engaged in leasing commercial spaces. As an incident to the operation of its business, N Corp incurs common usage and service area expenses, including but not limited to, electricity/light, water, chilled water, and common usage & service area expenses (e.g., security and janitorial fees, preventive maintenance of exhaust ducts, and repairs of panel boards). As an industry practice, these expenses are billed by the utility or service providers (i.e. Meralco, Maynilad, contractors) and N Corp issues billing statements to its tenants to charge the above expenses at cost on a pro-rata basis. The Commissioner held that payments received by N Corp from its tenants as payments for such expenses are not subject to VAT and EWT. In reimbursement-at-cost transactions, expenses which are incurred by the advancing party for the benefit and for the account of the party accommodated can be considered reimbursable expenses not forming part of gross receipts of the advancing party subject to tax. BIR Ruling No. DA-109-2007 dated February 19, 2007.

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Re: Does payment to a reimbursement still taxable?

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