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Date Filed: 11 December 2015
SECTION 1- Coverage

This   Circular   deals   with   the   tax   incidence   of   the   business   of   land transportation, particularly transport network companies (TNCs), such as but not limited to the likes of UBER, GRAB TAXI, their Partners/suppliers and similar arrangements.

SECTION 2 - Business Description

A TNC is a pool of land transportation  vehicles  whose  accessibility  to the riding public is facilitated  through  the use of a common  point of contact which maybe   in  the  form  of  text,  telephone   and/or   cellular   calls,  email,   mobile applications or by other means. The payment of fares by the passenger/s may be made  through  the same  platform  or maybe  made  to the driver  of the vehicle directly and maybe paid for in cash, debit card, credit card, mobile payment or any other mode of payment. The vehicles used in transporting passenger and/or goods in the TNC maybe owned by other people and/or entities other than the TNC,  and  shall  be  referred  to  herein  as  “Partners”.  Payments  between  and among TNCs and their Partners, may take the form of either (1) the TNC paying its Partner(s) a portion of the proceeds it receives from its customers, or (2) the Partner(s) paying the TNC an amount out of each contract of carriage received from its customers,  in accordance  with the rate agreed upon between the TNC and the Partner. The vehicles in the pool may either be owner-driven or driven by employees of the owner/partner.

The  TNC  mayor   may  not  have  been  granted   a  Certificate   of  Public Convenience (CPC). If it is a holder of a valid and current CPC, it is known as a common  carrier  and  its gross  receipts  are subject  to the Three  Percent  (3%) common carriers tax under Section 117 of the National Internal Revenue Code of 1997,  as amended  (NIRC).  Otherwise,  it is classified  as a land  transportation service contractor and is subject to the Twelve Percent (12%) Value Added Tax (VAT) under the NIRC.

The CPC referred to herein is the one issued by the Land Transportation Franchising and Regulatory Board (LTFRB) granting land transportation vehicles for hire a franchise to operate as such and shall be evidenced by the issuance of a certificate with the same title. An Accreditation  issued by the LTFRB is not in itself a CPC and will not make said operation that of a common carrier.

The Partners forming part of the network of a TNC, may or may not be a common carrier, depending on whether the Partners(s) itself/themselves are holders of a CPC. A mere Accreditation given by LTFRB is not an equivalent to a CPC and will not make said holder a common carrier. If the Partner is a holder of a CPC,  said  Partner  is a common  carrier  and  is subject  to the  3%  common carriers tax provided for under Section 117 of the NIRC. However, if the Partner is not a holder of a CPC, said Partner is merely a land transportation service contractor and under the VAT system, the transportation service contractor, at its option   if   the   gross   annual   sales   and/or   gross   receipts   do   not   exceed P1,919.500.00,  may register either as a VAT taxpayer, and be liable to the 12% VAT, or as non-VAT taxpayer, for it is mandated to pay the 3% percentage  tax under  Section  116  of the Tax  Code.  The  Partners  of the TNC  belong  to this category.

SECTION 3 - Tax Compliance Rules

Pursuant to RMC No. 55-2013, and other existing provisions of the law and implementing  regulations,  each  TNCs  and  each  of  their  Partners,  like  other business establishments, have the obligation to:

a.     Register   the   business   at   the   Revenue   District   Office   (RDO)   having jurisdiction  over the principal place of business/head  office (or residence in case  of individuals),  by  accomplishing  BIR  Form  1901  (for  individuals)  or 1903 (for corporations or partnerships), and pay the registration fee to any Authorized Agent Bank (AAB) located within the RDO. A BIR Certificate of Registration  shall  be  issued  by  the  RDO,  reflecting  therein  the  tax  types required of the concerned taxpayer for filing and payment, which shall be displayed conspicuously in the business establishment:

If  the  TNC,  or  any  of  its  Partners,  is  already  registered  as  engaged  in business, either for goods and services, or practice of profession, it needs to file a registration update using BIR Form No. 1905. But if deriving income as an employee, there is a need to register using BIR Form 1901.

b.     Secure  the  required  Authority  to  Print  (ATP)  official  receipts  and  register books of accounts for use in business, which may either be:

a.   Manual  books of accounts,  booklets  of receipts,  accounting  records  or loose-leaf of such;

b.   Computerized    Accounting    System    (CAS)    and/or    its   components including e-Invoicing System under Revenue Memorandum Order (RMO) No. 21-2000 as amended by RMO No. 29-02.

The TNC shall register and obtain an ATP under the e-Invoicing System for the  Official  Receipts  (ORs)  issued  to  the  passengers.  Its  Partners  shall likewise follow in so far as the ORs they will issue to the TNC for the use or rental of the vehicle, if such is the case.

c.     Issue registered  official receipts, either manually or electronically,  for every sale, barter, or exchange of service, Said official receipt shall conform to the information  requirements  prescribed  under existing revenue issuances,  and shall  be  prepared  at  least  in  duplicate,  the  original  to  be  given  to  the passenger and the duplicate to be retained by the service provider as part of the latter’s accounting records;

Scenario One - Payment is Made to TNC and TNC pays its Partners.

The  TNC  shall  issue  an  OR  to  the  passenger/customer   for  the  total amount of money received from the passenger/customer.  If the TNC is a holder of a valid and current CPC, it shall issue a non-VAT OR to the passenger/customer. The TNC is liable for the 3% common carriers tax under Section 117 of the NIRC on its gross receipts. If the TNC is not a holder of a valid and current CPC, it shall issue a VAT OR to its passenger/customer  and  as  a  land  transportation  service  contractors, shall be subject to the 12% VAT

Upon receipt of payment by the Partner from the TNC, the Partner, to acknowledge receipt of the money payment from the TNC, shall issue an OR to the TNC for the amount received from the TNC. If the Partner is a holder  of a valid and current  CPC, it is a common  carrier  and it shall issue a non-VAT OR and shall be liable for the 3% common carrier tax under Section 117 of the NIRC on the gross amount received from the TNC. If the Partner is not a holder of a valid and current CPC, it is a land transportation  service  contractor,  and  should  issue  either  a  VAT  OR, when  it  is  a  VAT-registered  taxpayer  or  a  non-VAT  OR  if  it  has  not exceeded the threshold of P1,919,500.00 and has not opted for VAT registration.

Scenario Two - Payment is Made to Partner and Partner pays TNC.

The Partner shall issue an OR to the passenger/customer for the total amount of money received from the passenger/customer.  If the Partner is a holder of a valid and current CPC, it shall issue a non-VAT OR to the passenger/customer.  The Partner is liable for the 3% common  carriers tax under Section 117 of the NIRC on its gross receipts. If the Partner is not a holder of a valid and current CPC, it is a land transportation service contractor,  and  should  issue  either  a  VAT  OR,  when  it  is  a  VAT- registered taxpayer or a non-VAT OR if it has not exceeded the threshold of P1,919,500.00 and has not opted for VAT registration.

Upon receipt of payment by the TNC from the Partner, the TNC to acknowledge receipt of the money payment from the Partner, shall issue an OR to the Partner  for the amount  received  from the Partner.  If the TNC is a holder of a valid and current CPC, it is a common carrier and it shall issue a non-VAT OR and shall be liable for the 3% common carrier tax under Section 117 of the NIRC on the gross amount received from the Partner. If the TNC is not a holder of a valid and current CPC, it is a service contractor, and should issue either a VAT OR, when it is a VAT- registered   taxpayer,  or  a  non-VAT  OR  if  it  has  not  exceeded  the threshold of P1,919,500.00 and has not opted for VAT registration.

d.     Withhold  required  creditable/expanded   withholding  tax,  final  tax,  tax  on compensation of employees, and other withholding taxes. Remit the same to the Bureau at the time or times required, and issue to the concerned payees the  necessary  Certificate  of  Tax  Withheld.  Payments  made  by  TNCs  to Partners, or payments made by Partners to TNCs, as the case maybe, are subject to creditable/expanded  withholding tax;

e.     File applicable  tax returns on or before the due dates, pay correct internal revenue  taxes,  and  submit  information  returns  and  other  tax  compliance reports  such  as  the  Summary   List  of  Sales/Purchases   (SLS/P)  where applicable, Annual Alpha List of Payees, etc., at the time or times required by existing rules and regulations; and

f.     Keep books  of accounts  and other business/accounting  records  within the time  prescribed  by  law,  and  such  shall  be  made  available  any  time  for inspection  and  verification  by  duly  authorized  Revenue  Officer/s  for  the purpose of ascertaining compliance with tax rules and regulations.

The  existing  tax  laws  and  revenue  issuances  on  the  tax  treatment  of purchases (local or imported) and sale (local or international)  of goods (tangible or intangible) or services shall be equally applied with no distinction on whether or  not  the  marketing  channel  is  the  internet/digital  media  or  the  typical  and customary physical medium.

SECTION 4. Other Reminders.

a.     The TNCs and Partners are reminded that payments made are not allowed as a deductible expense unless properly substantiated, evidenced by a valid OR,  and  for  which  withholding  taxes  have  been  properly  withheld  and remitted to the BIR.

b.     Credit card companies  are reminded  that payments  made to TNCs and/or Partners should follow existing laws, rules and regulations including but not limited to the requirement of withholding taxes due thereon.

c.     All payments  received  from a passenger/customer  must be issued  an OR
without need of demand for the issuance of the same.

d.     Non-registration  of a business, non-issuance of ORs and non-withholding  of taxes among others are subject to both civil and criminal liabilities under the NIRC.

This Circular shall be given as wide a publicity as possible.

(SGD) KIM S. JACINTO-HENARES
Commissioner  of Internal Revenue