BIR Ruling

February 2, 1976 Atty. Pedro S. Velasquez Certified Public Accountant 290 Atlanta Street Port Area, Manila S i r : This refers to your letter dated October 17, 1975 stating that your client, Messrs. Estate of Vicente Hermoso of Meycauayan, Bulacan is a leather tannery, producing various types of finished leather, such as show uppers, linings, belt leather, upholstery leather and case leather; that your aforesaid client was approached recently by Glenwood Leather Corporation with address at 702 South Perry St., Johnstown, New York, through their representative in the Philippines, Messrs. Kalinisan, Inc. of Makati, Rizal, to process for them their imported raw hides into Glove Leather, which the latter manufactures into gloves and exclusively export the same to the United States. It is also represented that in the processing of the raw materials, your client utilizes chemicals such as sulphuric acid, salt, lime and soda ash, while other chemicals needed to complete processing are supplied by Glenwood Leather Corporation through its representative, Kalinisan, Inc. In other words, your client in addition to the labor and technical Know-how supplies also chemicals; that your client was also requested by Glenwood Leather Corporation through Kalinisan, Inc. to do various jobs, such as application of fashion finish to their glove leather into the desired weight and thickness. In these processes, all materials, chemicals and/or ingredients are supplied by Glenwood Leather Corporation thru their representative, Kalinisan, Inc.; and that your client supplies only labor and technical know-how. With the foregoing as a premise, you would like to know the tax or taxes your client will pay. In reply, I have the honor to inform you that under the foregoing facts your client is a contractor, subject to the P50.00 annual fixed tax prescribed in Section 182 (a)(1) of the Tax Code, and its receipts derived from the activities as hereinabove presented is subject to the 3% contractor's tax prescribed in Section 191 of the same Code. Although your client is a manufacturer of leather products such as shoe uppers, linings, belt leather, upholstery leather and case leather for which it pays the manufacturer's sales tax, the activities it perform for Glenwood Leather Corporation fall under the category of a contract for a piece of work. (See Article 1467, Civil Code of the Philippines.) aisadc Very truly yours, EFREN I. PLANA Acting Commissioner of Internal Revenue TAN-1456-040-3 "TAXPAYERS SHOULD INDICATE THEIR TAN IN ALL COMMUNICATIONS TO THE BIR."