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Tuesday, June 06, 2006
Tax notes: Treatment of tax on reimbursements
Based on Revenue Memorandum Circular 9-2006 dated Feb. 2, 2006, the treatment for withholding tax of reimbursements paid by customers to the broker for such expenses and advance payments may differ depending upon the procedures in the issuance of official receipts (ORs) by both the broker and the third-party service providers (TPSP).
Customers may withhold the appropriate withholding tax from the broker from all payments for which the broker issues its OR.
In cases where the ORs of TPSP are properly issued to customers, the following procedures shall be followed:
1. It shall be the responsibility of the broker to instruct the TPSP to issue the OR in the name of the customer.
2. The broker shall be responsible for computing and deducting the withholding tax due on the payment to the TPSP.
The broker shall issue the Certificate of Tax Withheld (Bureau of Internal Revenue or BIR Form 2307) reflecting the name of the TPSP as payee and the name of the customer as payor, indicating in parenthesis the name of the broker as the agent of the customer.
3. The broker shall bill the customer only the amount of advances actually paid to the TPSP (that is, net of the withholding tax), with instruction to the customer to remit to the BIR the corresponding amount of withholding tax.
4. The customer shall remit to the BIR the amount of withholding tax in accordance with the existing rules and procedures.
The due date for remittance shall, however, be reckoned from the time the reimbursement is claimed by the broker from the customer.
The subject matter of the circular suggests that these procedures apply to “others similarly situated,” such as other authorized agents making payments on behalf of a company. (Source: Punongbayan & Araullo)
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