Comparing apples and oranges: The different withholding tax treatment for service contractors

Comparing apples and oranges does not often result in similar treatment, as not all similar objects are treated alike. A common question from income payors or withholding agents is whether they should adopt the same tax treatment on payments to all kinds of service contractors, such as security agencies and manpower agencies providing messengerial, janitorial and other services.

With the issuance of RMC 39-2007, there were taxpayers who wondered if the RMC could likewise apply to other service contractors. A supplier of janitorial and messengerial services requested for the application of RMC 39-2007 on the treatment of its agency fees/gross receipts.

In a 2023 BIR Ruling, the tax authorities echoed their earlier rulings that RMC 39-2007 should only apply to security agencies given that the circumstances for security agencies is different from that of other service contractors. While both security agencies and other service contractors involved in these rulings offer manpower services, the tax authorities have been consistent in ruling that they operate in a distinct context. Considering the earlier rulings are quite dated, the 2023 BIR Ruling is a helpful reminder to minimize confusion in tax compliance.

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