BIR Ruling

October 28, 1977 2n Indorsement Respectfully returned to the Chairman, Commission on Audit Attn.: The Manager, National Government Audit Office, Quezon City, the within basic letter of the Resident Auditor, Philippine General Hospital dated July 29, 1976 together with enclosures, with the following comment and recommendation. It appears that on November 19, 1975 a letter-agreement was entered into by and between the Llewelyn-Davies Weeks Forester Walker & Bor of London and the Philippine Medical Center Committee, Inc. represented by Dr. Gabriel G. Carreon, whereby the former bound itself to render consultant's services in the Philippines and the letter to pay the amounts of US $244,000 and US $25,000 as consultant's fees. A provision in the letter-agreement reads as follows: "The fees quoted are based on the assumption that all taxes, duties or other levies other than personal income tax of team members, will be borne by you (Philippine Medical Center Committee, Inc.,)." It is the opinion of the Resident Auditor of the Philippine General Hospital that, for purposes of the assumption of the 3% contractors tax and the withholding of income tax, the aforequoted provision of the letter-agreement cannot be enforced because of the provisions of the Civil Code that, the contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient provided they are not contrary to law, moral, good customs, public order or public policy. Irrespective of whether or not the above-quoted stipulation is enforceable said Committee as withholding agent is liable for the payment of the 35% withholding tax on the consultant's fees derived by the abovenamed Company from service rendered by it within the Philippines, pursuant to Section 24(b)(1) of the Tax Code of 1977, in relation to Sections 53 and 54 of the same Code. In rendering services under the agreement, Llewelyn-Davies & Co. is subject to the 3% contractor's tax imposed by Section 205 (formerly Section 191) of the Tax Code of 1977. Accordingly, the Committee shall withhold the 3% tax due on the contract price paid to the contractor and remit the name to this Bureau in accordance with Republic Act No. 1051. CONRADO P. DIAZ Acting Commissioner of Internal Revenue TAN-D2567-D1025-A-2e