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 Withholding Tax & VAT on internet service 

Questions:
The Company jointly invested with the Investor (e.g. shopping mall) to provide internet services to public customers both in the form of a normal set of computer (with desk and table) and automatic machine (similar to ATM). Both of which required a smart card as a means for payment and only customers with smart cards could use the Company's computers. Equipment such as the computers, card reader, smart card, hub and automatic machine was owned by the Company and the Company gave profit sharing to the Investor at the ratio of 40/60. In the case where the Company leased equipment to the Investor, the Investor would get a higher percentage of the profit sharing. 

The customers had to purchase smart cards from the Company. If the Investor wished to sell smart cards, it had to purchase the same from the Company too. Customers could add value to the smart cards at the pay points arranged by the Company, which could also be the Investor. In the latter case, the Investor had to purchase necessary equipment from the Company and received 5% commission. The Investor had to remit the amount received from the customers to the Company on days 15 and 30 of every month. 

In providing services, the Company had to pay Company A for an internet link per the number of hours. The Company raised the following questions: 

1. Whether Company A had to pay VAT on the number of hours used by the Company or the actual service fees received from the Company. 

2. Whether the commission fee and the profit sharing received by the Investor from the Company should be treated as an agent or brokerage fee. 

3. Whether the Company was entitled to treat the internet services as given to a number of persons whereby the Company could issue a short form VAT invoice. 

4. Whether the contract between the Company and the Investor should be subject to stamp duty. 

The Legal Division of the Revenue Department ruled as follows: 
1. Company A was required to pay VAT and to include service fees for the internet link received from the Company in the tax base for calculation of corporate income tax pursuant to Section 65 of the Revenue Code and the Departmental Instruction Taw Paw 1/1985. The Company had to withhold 3% as for hire of work under Clause 8(2) of the Departmental Instruction Taw. Paw. 4/1985. 
2. The Investor was required to treat 60% of the profit sharing and 5% commission fees as income from a service business and was therefore subject to VAT. The Company was not required to withhold tax pursuant to Clauses 18-20 of the Departmental Regulation Paw 90/1999. 
3. The Company was liable to pay VAT upon receiving payments from customers and was allowed to issue a short form tax invoice; provided that if any customer demanded the full form of VAT invoice, the Company had the obligation to do so. 

4. No stamp duty was required to be affixed as the contract reflected the joint investment.