Tuesday, August 23, 2005
Advance payments not subject to VAT
Amounts received by a company from its clients representing advance payment for third parties for expenses to be incurred in the projects shall not be subject to income tax and the value-added tax. Such monies are merely entrusted to the company for payment to third parties without any benefit to the company.
Moreover, the amounts are invoiced directly by the payees in the name of the client and are not covered by official receipts of the company. (BIR Ruling DA 238-2005, June 1, 2005)
In one of its decisions, the Supreme Court ruled that gross receipts subject to tax do not include monies or receipts entrusted to the taxpayer which do not belong to them and do not redound to their benefit. (Source: Punongbayan & Araullo)
(August 23, 2005 issue)
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