October 25, 2007

BIR RULING [DA-566-07]

BIR Ruling No. 038-2002 & DA-147-2006

Sodexho Pass, Inc.

Unit 2004 The Orient Square
Emerald Avenue
Ortigas Centre, Pasig City

Attention: Ms. Janel M. Bea

Finance and Admin Manager

Gentlemen :

This refers to your letter dated April 30, 2007 requesting for confirmation
of your opinion that the face value of the vouchers is not subject to expanded
withholding tax. HEDaTA

As represented, Sodexho Pass, Inc. ("Sodexho" for brevity) is a company

engaged in operating innovative systems (systems vouchers) to manage benefits
given by private and public companies. In the Philippines, Sodexho administers
the benefits provided by its client corporations through a voucher system, better
known in the Philippines as "Gift Certificate", which involves the following
procedures:

1. Client company transfers to Sodexho the amount allotted for its

beneficiaries' specific benefit;

2. Sodexho issues vouchers and delivers the same to client company;

TAHCEc

3. Client company distributes these vouchers to receive their benefit at

an accredited establishment of their choice;

4. Beneficiaries use these vouchers to receive their benefit at an

accredited establishment of their choice;

5. Outlets send back used vouchers to Sodexho for reimbursement; and

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 6. Sodexho reimburses the store outlet.

In summary, Sodexho issues vouchers to client companies with specific

value printed in each voucher. Client companies distribute these vouchers to their
beneficiaries. The latter in turn, uses such vouchers in accredited establishments.
Merchants return the vouchers to Sodexho for reimbursement.

Since the value of the voucher does not constitute income on the part of the
Company but a fund held in trust to be used for reimbursing accredited merchants,
such amount was not subject to value-added tax (VAT). prcd

In the issuance of such vouchers, Sodexho earns revenue by charging

service fees to the client companies. A typical example of its transaction with a
client would be as follows:

Value of the voucher 500.00 (amount reserved for merchant reimbursement)

Service fee 5.00 (Sodexho income)
VAT on service fee .60 (VAT on income)
––––––
Total amount for collection 505.60
=====

Since the value of the voucher does not constitute income on the part of the
company but a fund held in trust to be used for reimbursing accredited merchants,
such amount was not subjected to VAT. Service fees on the other hand, being an
income on the part of the Company has been subjected VAT. IDTSaC

On the issue of expanded withholding tax, it is your opinion that the basis
for computing the same should be the service fees and not the whole amount —
including the value of the voucher since such value does not constitute income on
the part of the Company. Service fees on the other hand, which forms part of the
gross receipts of the Company should be subjected to expanded withholding tax.

In reply, please be informed that BIR Ruling No. DA-147-06 dated March
17, 2006 citing BIR Ruling No. DA-484-2004 which in turn cited the cases of
McCann Erickson (Philippines), Inc. vs. Commissioner of Internal Revenue, CTA
Case No. 5966, March 13, 2003 and Commissioner of Internal Revenue vs. Tours
Specialists, Inc., G.R. No. 66416 dated March 21, 1990 held as follows:

"xxx xxx xxx

With regard to the amount received by Sodexho from the client

companies for the face value of the vouchers and for which Sodexho shall
have to issue separate non-VAT official receipts, the same does not fall
within the purview of the term gross income. This is because the money

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 received by Sodexho from its client companies is not compensation for
services rendered by Sodexho but a liability/deposit for reimbursement to
the participating establishments. HCaIDS

xxx xxx xxx

In the instant case, since the monies received by Sodexho from its
clients represent advance payment to third parties and, therefore, do not
redound to the benefit of Sodexho, said amounts shall not form part of its
gross receipts subject to income tax imposed under Section 27(A) of the
Tax Code of 1997. (BIR Ruling No. DA-238-2005 dated June 1, 2005)

xxx xxx xxx"

In view of the foregoing, this Office hereby confirms your opinion that the
face value of the vouchers is not subject to expanded withholding tax.

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 as null and void. TAHIED

Very truly yours,

(SGD.) JAMES H. ROLDAN

Assistant Commissioner
Legal Service
Bureau of Internal Revenue

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