GIVEN the increasing popularity of the transportation business called transport network companies (TNCs), the Bureau of Internal Revenue (BIR) recently issued guidelines for the taxability of TNCs, such us Uber, GrabTaxi, their partners/suppliers and similar arrangements.
Under Revenue Memorandum Circular (RMC) 70-2015 dated October 29, the BIR defined a TNC as a pool of land-transportation vehicles whose accessibility to the riding public is facilitated through the use of a common point of contact, which may be in the form of text, telephone and/or cellular calls, e-mail, mobile applications or by other means. The payment of fares by the passengers may be made through the same platform or may be 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 BIR has identified at least five types of taxpayers that are engaged in the TNCs, each of which has taxability different from the others. They are 1) a TNC classified as common carrier; 2) a TNC classified as a service contractor; 3) a Partner classified as a common carrier; 4) a Partner classified as a transportation service contractor; and 5) employees.
The BIR referred to as “Partner” is the person and/or entity that owns the vehicles used in transporting passenger and/or goods other than the TNC itself. Payments between and among TNCs and their Partners may take the form of either (1) The TNC paying its Partners a portion of the proceeds it receives from its customers; or (2) The Partners paying the TNC an amount out of each contract of carriage received from its customers. The vehicles in the pool may either be driven by the owner or partner, or driven by the driver-employees of the owner or partner. In other words, if the owner or partner does not drive the vehicle himself but engages the services of a driver, the latter is considered as an employee, subject to the applicable taxes on employer-employee relationship.
In cases where the TNC itself owns the vehicle, TNC shall issue an official receipt (OR) to the passenger or customer for the total amount of money received from the passenger or customer. If the TNC is a holder of a valid and current certificate of public convenience (CPC) duly issued by the Land Transportation Franchising and Regulatory Board (LTFRB), the TNC is classified as a common carrier and should issue a nonvalue-added tax (VAT) OR and is liable for the 3-percent common carriers tax under Section 117 of the Tax Code on its gross receipts. If the TNC is not a holder of a valid and current CPC, it is classified as a land-transportation service contractor and should issue a VAT OR and is subject to the 12-percent VAT.
In cases where the Partner owns the vehicle, the Partner shall issue to the passenger or customer for the total amount of money received from the passenger or customer. If the Partner is a holder of a valid and current CPC, it is classified as a common carrier and should issue a non-VAT OR and is subject to the 3-percent common carriers tax. However, if the Partner is not a holder of a valid and current CPC, said Partner is classified as 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 amount of P1,919,500 and has not opted for VAT registration.
Upon receipt of payment by the partner from the TNC, or receipt of payment by the TNC from the partner, an OR shall be issued, which may again either be a VAT or non-VAT OR, depending upon the classification of the income recipient, that is, whether the recipient is classified as a common carrier or a land-transportation service contactor. In addition, the BIR, likewise, emphasized proper compliance with the applicable creditable/expanded withholding tax, final tax, tax on compensation of employees and other withholding taxes made by TNCs to partners, or payments made by partners to TNCs, as the case may be, are subject to creditable/expanded withholding tax.
The BIR emphasized the need for the registration of business, issuance of ORs and proper withholding of taxes as noncompliance therefrom, and are subject to both civil and criminal liabilities under the Tax Code. With the issuance of RMC 70-2015, business entrants in the TNC as defined in the circular are expected to observe proper tax compliance and contribute a fair share to the government coffers.
The author is a senior associate of Du-Baladad and Associates Law Offices, a member-firm of World Tax Services Alliance. The article is for general information only and is not intended, nor should be construed as a substitute for tax, legal or financial advice on any specific matter. Applicability of this article to any actual or particular tax or legal issue should be supported therefore by a professional study or advice. If you have any comments or questions concerning the article, you may e-mail the author at rodel.unciano@bdblaw.com.ph or call 403-2001 local 140.
1 comment
Hi!
My husband is an UBER partner since February 2016 and he owns the vehicle that he is using. He is not yet registered as a self-employed taxpayer since he was retrench from employment late 2015. We are not even aware that we need to do so. Thus he is not able to issue an OR to UBER upon receipt of payment of his share of proceeds from transport services. Though there is non-Issuance of OR, my husband is willing to file an annual income tax for all proceeds received in 2016. We are currently completing all the requirements for self employment registration. Is he obliged/liable to pay penalties/surcharges in filing percentage taxes?