SECOND DIVISION

[C.T.A. CASE NO. 8704. August 11, 2015.]

GLOBAL QUICKSERVICE RESTAURANT, INC., petitioner, vs. COMMISSIONER OF INTERNAL REVENUE;

OFFICE OF THE REGIONAL DIRECTOR, BUREAU OF INTERNAL REVENUE, REVENUE REGION NO. 7 —
QUEZON CITY; BUREAU OF INTERNAL REVENUE, REVENUE DISTRICT OFFICE NO. 43A, EAST PASIG,
respondents.

2. On taxable service charges

and charge tips

With respect to the subject collected tips of P5,294.02, petitioner concedes and admits the obligation to
pay the tax due on the same. EATCcI

However, petitioner denies any liability as to the alleged taxes accruing to petitioner's share in the
service charges amounting to P438,020.09.

According to petitioner, it collects service charges from its customers for the following periods in a
month: (a) first (1st) day until the fifteenth (15th) day of the month, and (b) sixteenth (16th) until the
last day of the month. The collected service charges in every given period are distributed to the
employees in their next payday during the following 15-day period. The rationale behind it is that the
exact amounts to be divided and received by the employees cannot as yet be ascertained at the last day
of the given period. Such amounts will only be determinable in the following period of the month or of
the next month.

Petitioner insists, in its Petition for Review, that the subject service charges were collected during the
period of December 15-31, 2009, and that the same were only distributed to the employees on January
15 of the following year (2010). Petitioner concludes that respondents' assessment on amounts not yet
distributed to the employees is erroneous to say the least considering that petitioner has yet to
distribute them.

Petitioner's argument is bereft of merit.

In support of its claim, petitioner offered its Service Charge Payroll Summary and Payroll Registers. 49
The payroll summary merely shows the computation of the service charges allocated to petitioner's
employees, Restaurant Support Center employees and commissary employees as a whole. On the other
hand, the payroll register, as manifested by GRCI's Comptroller, Ms. Marissa R. Tagle, merely indicates
the earnings each employee receives per cut-off which includes, among others, service charges.
Otherwise put, these documents merely show that petitioner had allocated each employee its share in
the service charges. The same do not support petitioner's claim that it had distributed the subject
service charge to its employees only on the following year 2010. Thus, respondent's assessment with
regard to service charges shall be upheld. ISHCcT

April 26, 1994

BIR RULING [UN-143-94]

The Red Kettle Company, Inc.

Rm. 305 A Bonaventure Plaza

Ortigas Avenue, San Juan

Metro Manila

Attention: Ms. Carole O. Guevarra

President

Gentlemen :

This refers to your letter dated April 11, 1994 stating that your company is engaged in the food and
restaurant business; that as part of your invoice, you collect the equivalent of 10% service charge; that
eighty five (85%) percent of the service charge collected is subsequently distributed among your
employees who are entitled to receive a share on a monthly basis and that currently, as an authorized
withholding agent of the BIR, you are deducting the corresponding withholding tax from the
amount/share received by your employees. cdtech

In connection therewith, you are requesting opinion on the following:

(1) Whether or not the 85% service charge share of the employees is subject to the withholding tax
on wages; and

(2) Whether or not the 15% share of management allotted for breakages is subject to withholding
tax.

In reply thereto, please be informed that for purposes of withholding tax, the term "compensation"
means all remuneration for services performed by an employee for his employer unless specifically
excepted under Section 29 of the Tax Code, as amended. The name of which the remuneration for
services is designated is immaterial. Thus, salaries, wages, emoluments and honoraria, bonuses,
allowances (such as transportation, representation, entertainment and the like), fringe benefits
(monetary and non-monetary) fees, including director's fees, taxable pensions, retirement pay and
other income of a similar nature constitute compensation income. (Revenue Regulations No. 18-86
amending Revenue Regulations No. 6-82 as amended otherwise known as the Withholding Tax
Regulations on Compensation).

Accordingly, the 85% service charge share of your employees are subject to the withholding tax on
wages.

Moreover, your 15% share allotted for breakages is considered as part of your gross income subject to
the 35% corporate income tax under Section 24 of the Tax Code, as amended. (BIR Ruling No. 175-89
dated April 17, 1989) aisadc

Very truly yours,

JAIME M. MAZA

Assistant Commissioner

(Legal Services)