Abraham Lincoln once said, “You cannot escape the responsibility of tomorrow by evading it today.” Duties have long been part of human life. It is inevitable and ever-present. And as you grow older, you will realize that responsibilities multiply, and that they can be found in almost all facets of our lives. Children are taught to honor their parents; lovers are expected to be faithful to their partners; and professionals are required to practice due diligence in delivering their work. Even as citizens of our country, we are expected to pay our taxes. 

Duties can also be found in our everyday lives. A common example is when your customer asks you to buy something on his behalf and you have to advance first the funds and later seek reimbursement from him. This arrangement is not new to businesses. However, it is best that we be reminded of our duties as taxpayers when engaging in this practice.

Guidance has been provided by the Bureau of Internal Revenue (“BIR”) in Revenue Memorandum Circular (“RMC”) No. 09-2006 dated 25 January 2006 on the Value-Added Tax (“VAT”) and Expanded Withholding Tax (“EWT”) implications of such arrangements and duties of one --- the agent --- tasked by the customer to buy something on behalf of the customer.

For the purposes of VAT, the general rule is that if the VAT invoice/official receipt is issued directly by the agent to the customer, any reimbursable expenses and/or advanced payments including the agent’s fees that are lumped/billed will be subject to VAT. Consequently, the agent has the obligation to report the 12% output VAT on the total amount in his VAT return.

However, if a VAT invoice/official receipt covering the advanced payments is directly issued by the third-party provider in the name of the customer, the agent should then issue a non-VAT acknowledgement receipt once the customer reimburses him for the advanced payment.

The above-mentioned non-VAT acknowledgement receipt must contain the value of the advanced payments and should include the name of the third-party provider. For liquidation purposes, the non-VAT acknowledgement receipt must be forwarded to the customer together with the VAT invoice/official receipt issued by the third-party provider.

Based on the foregoing, the agent shall not be liable for any output tax on the collection of the reimbursable expenses from the customer except those incurred for the benefit of the agent (e.g. transportation, overtime, etc.). In effect, the customer may claim the input tax in relation to the VATable purchases from the third-party provider.

With respect to the EWT, as a general rule, EWT on all income payments which are deemed subject to withholding tax shall be withheld and remitted by the person having control over the payment and who, at the same time, claims the expenses under Section 5 of Revenue Regulations No. 03-03.

While the agent of the customer has the control over the payment of the reimbursable expenses, he does not claim the same as his own expenses. Notwithstanding this, the agent is mandated to instruct the third-party provider to issue invoice/official receipt directly in the name of the customer. The agent shall also compute and deduct the applicable EWT due on the said payments to the third-party provider. Further, the agent should instruct the customer to remit the applicable EWT to the BIR. This is because the duty to remit the withholding taxes due remains in the hands of the customer.

On the other hand, the duty to issue Certificates of Taxes Withheld (BIR Form No. 2307) to the third-party provider lies in the hands of the agent. The BIR Form No. 2307 to be issued for the amount of EWT deducted upon making the payments to the third-party provider shall include the name of the customer as the real payor of the income payment with parenthetical mention of the name of the agent as such of the customer and other information as required under existing rules and regulations.

The duty of the agent is to act as an intermediary between the third-party provider and the customer. Hence, the third-party provider undertakes to issue the invoice/official receipt in the name of customer as the buyer and its name as the third-party provider. The amount of payment indicated in the invoice/official receipt must be the net amount of the applicable EWT.

Note that the agent can only demand from the customer the amount actually paid to the third-party provider. As proof, the agent shall attach to the non-VAT acknowledgement receipt the original copy of the invoice/official receipt under the name of the customer. The reimbursement of expenses to the agent by their customers will no longer be subject to applicable EWT.

In the event that the third-party provider issued the invoice/official receipt directly in the name of the agent, the duty to remit the applicable EWT would be in the hands of the agent since the reimbursable expenses and/or advanced payments of expenses will redound to his benefit. Hence, all other reimbursable expenses covered by VAT invoice/official receipt of the agent to the customer will form part of the taxable base of agent and therefore be subject to the applicable EWT upon reimbursement.

Under the law, every person obliged to deliver something is also obliged to take care of it with proper diligence of a good father of a family unless the law or the stipulation of the parties requires another standard of care. The agent, in its capacity to provide services to its customer, must be knowledgeable of its duty and thus, must always observe proper diligence. Absent such diligence, he may affect the customer’s right to claim deductions or input VAT credits. If the agent did not perform such duties, can the agent be considered as non-compliant?

These duties now lie in your hands. With all else being considered, it all boils down to “Are you doing your part?”

_{James Russel L. Malaca is a Supervisor from the Tax Group of KPMG R.G. Manabat & Co. (KPMG RGM&Co.), the Philippine member firm of KPMG International. KPMG RGM&Co. has been recognized as a Tier 1 tax practice and Tier 1 transfer pricing practice by the International Tax Review.}

_{This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.}

_{The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or KPMG RGM&Co. For comments or inquiries, please email ph-inquiry@kpmg.com or rgmanabat@kpmg.com.}