BIR Ruling

December 19, 1973 Standard (Philippines) Fruit Corporation Post Office Box 362 Commercial Center Post Office Makati, Rizal Attention: Mr . Jose V . David Director & Manager Makati Office Gentlemen : This refers to your letter dated December 14, 1973 stating that you propose to enter into a Farm Management Contract with a farm owner in accordance with Presidential Decree No. 151 the terms of which are provided for in the draft of the proposed contract; that the contract provide for the manner by which your company is to be compensated for its services as Manager as follows: "VI. The Owner shall pay the Manager a fee as compensation for services. This fee shall be equal to that portion of the net earnings of the Farm over and above the share of the net earnings due the Owner. "VII. After covering all farm costs of production, direct and indirect, the Owner shall share in the earnings from the sale of the produce from his Farm. The Owner shall be entitled to a profit of P0.420 Philippine currency per hundred weight sold, but in no case shall the Owner's share of the profit be less than Six Hundred Pesos (P600.00) per hectare per annum." The above-quoted sections of the proposed contract may be illustrated as follows: Gross income of Farm P1,000,000 Direct & Indirect Expenses of Farm 700,000 Net Income of Farm 300,000 Minimum Guaranteed Income of Farm Owner 100,000 Fee of Manager 200,000 Under the foregoing circumstances, you would like to request our opinion of the following: acd "1. Whether or not the relationship established under the proposed agreement is one of independent contractor's within the meaning of Section 191 of the Tax Code as would make the company liable for the contractor's tax of 3%. "2. If our company would be liable to pay the contractor's tax, how would the tax be applied? We respectfully submit that using the hypothetical illustration provided above the contractor's tax if at all should be applied only to the manager's fee of P200,000, this being the actual total fee that our company would be receiving under the contemplated Farm Management Contract." In reply, I have the honor to inform you that under the foregoing circumstances, you are an independent contractor, subject to the P50.00 annual fixed tax prescribed in Section 182(A)(1) of the Tax Code and to the 3% tax on your quarterly gross receipts pursuant to Section 191 of the same Code. Under the illustration above, your gross receipts for purposes of the 3% contractor's tax is P200,000, your fee under the management contract. cdi Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue TAN-1601-593-5