April 8, 2008

BIR RULING [DA-219-08]

RR 6-01 & 30-03; DA-272-03

Business Process Outsourcing International, Inc.

7/F SGV II Building
6758 Ayala Avenue
Makati City

Attention: Mr. Paul C. Pilao

President and CEO

Gentlemen :

This refers to your letter dated September 18, 2007 stating that your company,
Business Process Outsourcing International, Inc. ("BPO"), with business address at 7/F
SGV II Building, 6758 Ayala Avenue, Makati City, is a domestic company engaged in the
business of performing outsourced services for various clients. BPO is registered with
the Department of Labor and Employment ("DOLE") as a contractor/subcontractor.
BPO provides the following services:
a. Bookkeeping — BPO records transactions based on supporting
documents supplied by clients; maintains accounting records;
prepares trial balances and nancial reports/statements; and assists
in the preparation of tax returns and annual renewal of permits and
licenses.
b. Internal Audit — BPO renders internal audit work to clients by using either
the clients' audit plan and programs or BPO's own audit programs or
a combination of both. BPO checks compliance with established
procedures and processes; performs substantive testing through
examination of supporting documents and reports; and provides
recommendations for the deviations and weaknesses identi ed. BPO
also renders xed-asset and inventory veri cation and reconciliation.
ADHCSE

c. Payroll Processing — BPO processes the payroll of clients using its own
payroll system. It uses as basis the data supplied by clients such as
attendance information, new hires, resignations, additional earnings,
deductions, and other relevant payroll data necessary for the
computation of net pays of clients' employees. BPO also computes
the nal pay of resigning employees and prepares the alphabetical
listing, certi cates of withholding tax and all the reports related to
Social Security System ("SSS"), Philippine Health Insurance
Corporation ("Philhealth") and Home Development Mutual Fund
("HDMF") premium contributions and loan repayments.
d. Human Resources ("HR") Bene t Administration — BPO assists in the
processing of the applications for Bureau of Internal Revenue ("BIR")
tax identi cation number and SSS, Philhealth and HDMF membership
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 of clients' new hires. BPO also assists in processing the applications
of clients' employees for (a) medical bene t, housing, salary and other
loans with the SSS and HDMF and (b) employee loans with the clients.
CaHcET

e. Data Processing — BPO processes payable transactions by matching

invoices to related purchase and receipt documents or service
contracts, and generating report of items for payment. It also
processes billing, collection and remittance transactions. BPO also
processes expense/claims reports by verifying supports to
expenses/claims for reimbursements. Finally, BPO processes data
related to attendance and leave availments of clients' employees.
f. Staff Outsourcing — BPO assigns its staff to clients for a temporary
period (mostly short to medium term) to provide speci c services
such as inventory-taking; procurement, sales and inventory
monitoring; bank and third party reconciliation of accounts; HR
administrative work; data processing; and other nance and non-
nance related work. BPO staff is made to work in the client's
premises, following the client's work schedule. BPO staff submit their
work output to the client's designated o cer. If, for any reason, the
assigned staff are unable to complete the service period or if their
performance do not meet client's expectations, BPO endeavors to
provide replacements. The assigned staff will remain the employees
of BPO. ESHcTD

BPO has adequate capitalization. It performs activities which are not directly
related to the business of its clients. BPO assigned staff are selected, hired and
terminated by BPO and not by their clients. Salaries and other bene ts are also drawn
directly from BPO and not from the clients. BPO carries on an independent business
and undertakes the performance of its contract according to its own manner and
method, free from the control and supervision of its clients.
BPO is engaged by clients to provide speci c and special jobs or services such
as inventory-taking; procurement, sales and inventory monitoring; bank and third party
reconciliation of accounts; HR administrative work; data processing and other nance
and non- nance related work. It does not act as a recruitment agency to provide
manpower for all types of services to its clients. It provides manpower services
requiring specialized skills in accountancy, human resources, procurement, sales and
related fields; ICcaST

In connection therewith, you are requesting confirmation of your opinion that —

1. The income payments to BPO for bookkeeping and internal audit services
are subject to 10% or 15% CWT on professionals pursuant to Section
3 of Revenue Regulations ("RR") No. 30-03; and
2. The income payments to BPO for payroll processing, HR bene t
administration, data processing services, and staff outsourcing
services are subject to 2% CWT on contractors pursuant to Section 3
of RR No. 6-01.
In reply, please be informed that your opinion is hereby confirmed as follows:
A. Bookkeeping and Internal Audit Services
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 BPO's bookkeeping and internal audit services fall under the category of
professional services mentioned in Section 3 of RR No. 30-03. This provision states:
"SEC. 2.57.2. Income Payment Subject to Creditable Withholding Tax and
Rates Prescribed Thereon. — Except as herein otherwise provided, there shall be
withheld a creditable income tax at the rates herein speci ed for each class of
payee from the following items of income payments to persons residing in the
Philippines:

(A) Professional fees, talent fees, etc., for services rendered by individuals
— On the gross professional, promotional and talent fees or any other form of
remuneration for the services of the following individuals — Fifteen percent (15%),
if the gross income for the current year exceeds P720,000; and Ten percent (10%),
if otherwise;

xxx xxx xxx

(6) Management and technical consultants

(7) Bookkeeping agents and agencies

xxx xxx xxx

(B) Professional fees, talent fees, etc. for services of taxable juridical
persons — On the gross professional, promotional and talents fees, or any other
form of remuneration enumerated in the preceding subparagraph for the services
of taxable juridical persons — Fifteen percent (15%), if the gross income for the
current year exceeds P720,000; and Ten percent (10%), if otherwise; . . . ."
(Emphasis supplied)

Bookkeeping services are expressly subject to 10% or 15% CWT on

professionals. In rendering internal audit services, BPO provides advice or guidance to
clients to ensure that the client's processes comply with established procedures
relating to accounting-related transactions. Thus, BPO's internal audit services may be
considered as management and technical consultancy services which are likewise
subject to 10% or 15% CWT on professionals, 15% if the gross income for the current
year exceeds 720,000, and 10% if otherwise, pursuant to Sec. 2.57.2 (B) of RR No. 30-
2003. (BIR Ruling No. DA-272-03 dated August 20, 2003)
B. Payroll Processing, HR Bene t Administration, Data Processing, and Staff Outsourcing
Services
BPO's payroll processing, HR bene t administration, data processing services,
and staff outsourcing services qualify under the category of contractual services
mentioned in Section 3 (E) of RR No. 6-01, which states:
(E) Income payments to certain contractors — On gross payments to the
following contractors, whether individual or corporate — Two percent (2%)
xxx xxx xxx
(4) Other contractors —

xxx xxx xxx

(g) Managerial, janitorial, private detective and/or security agencies, credit
and/or collection agencies and other business agencies; . . . ." (Emphasis
supplied)
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 Accordingly, the above-mentioned services rendered by BPO to its clients qualify
BPO under the category of a service contractor covered by the phrase "other business
agencies" pursuant to Sec. 3 (E) (g) of RR No. 6-01, thus, income payments for said
services are subject to the 2% CWT.
This ruling is being issued on the basis of the foregoing facts as represented.
However, if upon investigation, it will be disclosed that the facts are different, then this
ruling shall be considered null and void.cCTAIE

Very truly yours,

Commissioner of Internal Revenue

By:

(SGD.) JAMES H. ROLDAN

Assistant Commissioner
Legal Service

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