April 20, 1992

BIR RULING NO. 129-92

50 (b) 000-00 129-92

Department of Public Works and Highways

Manila
Attention: Mr. Joel L . Altea
Asst. Sec. for Comptrollership
and Financial Management

Gentlemen :

This refers to your letter dated January 7, 1992 requesting for clarification as to
whether "reimbursable costs" of consultancy contracts are subject to the 1% expanded
withholding tax.

It appears that you have availed of the services of Basic Technology and
Management Corporation as Consultant for the Master Planning, Detailed Eng'g.
Design and Construction Supervision for the Nationwide Feeder Ports Program; that
according to the consultant, its previous monthly billings consisted of (1) Fixed Cost
on Consultants Remuneration and (2) Reimbursable Costs; that the item
"Reimbursable Cost" allegedly represents payment advanced by the consultant in
order not to delay the execution of a given project but later collected from your Office
in the form of reimbursement; and that despite the contention of the consultant that
the withholding tax should be based only on the amount representing Fixed Cost on
Consultants Remuneration, you deducted the 1% expanded withholding tax on all
progress billings based on gross receipts, inclusive of the reimbursable costs.

In reply, please be informed that reimbursable costs of consultancy contracts,

being reimbursement of expenses and not charges for services, should not be
considered as part of the gross receipts for purposes of the 1% expanded withholding
tax. In other words, only that portion of the monthly billing properly classified as
Fixed Cost on Consultants Remuneration should be subject to the expanded
withholding tax provided under Section 50 (b) of the Tax Code, as implemented by

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 Revenue Regulations No. 6-85 otherwise known as the Revised and Expanded
Withholding Tax Regulations. cdpr

Very truly yours,

JOSE U. ONG
Commissioner of Internal Revenue

April 20, 1992

BIR RULING NO. 128-92

28 (b) (7) (B) 177-91 128-92

Edward Keller (Philippines), Inc.

1890 Domestic Road
Pasay City
Attention: Mr. Dieter Lehmam
President

Gentlemen :

This refers to your request for a ruling as to whether or not the separation
benefit to be paid to your employee, Mr. Gregorio S. Capulong by reason of health
condition is exempt from income and consequently from the withholding tax pursuant
to Section 28 (b) (7) (B) of the Tax Code, as amended.

Documents submitted show that your employee was certified by your company

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 physician, Dr. Damaso de Castro to be suffering from compulsive asthma and is
advised to take a complete rest, avoid polluted environment and refrain from
strenuous activities, considering the nature of Mr. Capulong's asthma may be severely
complicated by his existing heart ailment; that his illness affects the performance of
his duties and would endanger his physical well-being if he will continue working;
and that by reason of the said findings, he was declared to be unfit for work and
advised by the said physician to retire from his work.

In reply, please be informed that pursuant to Section 28 (b) (7) (B) of the Tax
Code, as amended, any amount received by an official or employee or by his heirs
from the employer as a consequence of separation of such official or employee from
the service of the employer due to death, sickness or other physical disability or for
any cause beyond the control of the said official or employee shall not be included in
gross income and shall be exempt from taxation under Title II of the Tax Code. cdasia

In view, thereof, this Office is of the opinion as it hereby holds that any and all
amounts which your employee will receive from your company as a result of his
separation from the service of your company due to his ill health (sickness) is exempt
from income tax and consequently, from withholding tax prescribed by Section 72,
Chapter 10, Title II of the Tax Code, as amended by B.P. Blg. 135 and implemented
by Revenue Regulations No. 6-82, as amended.

Very truly yours,

JOSE U. ONG
Commissioner of Internal Revenue

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