BIR Ruling

June 6, 1973 Mr. Pedro Q. Roldan 46 Gold St., SSS Village Marikina, Rizal S i r : This refers to your letter dated February 7, 1973 requesting advice on the tax consequences in the cases described therein as follows: "A' Co., a domestic corporation residing in Manila, contracted to manage "B" Co.'s operation, a foreign corporation residing in Indonesia. A job contract was made between "C" (an employee to work in Indonesia) and "A" Company. The contracted salary is P500.00 60% of which should be prepared by "A" Co.'s payroll sheet in Philippine currency and 40% should be prepared by "B" Co., in Indonesia in terms of Rupiah; "B" Co. remits the 60% to "A" Co. in terms of pesos as being converted at the bank, likewise "A" Co. pays "C's" authorized representative in the Philippines. In addition to the preceding facts, "A" Co. pays the Manpower Services Division a license to recruit employees under Republic Act No. 2486. "A" Co. does not charge the recruited employees. Questions: "1. Does "A" Co. have the authority to withhold an income tax from the wage of "C"? "2. If "A" Co. is authorized to withhold, to what extent? To the 60% or the 100% based on the contracted salary. "3. What withholding tax table will "A" Co. use?" Case II ""X" Co., a domestic corporation, residing in Manila, a franchised grantee and paying its PTR as a common carrier. Its main business is to haul logs of "Y" Co., a domestic corporation residing in Manila but whose operation is located in Mindanao. aisadc "X" Co. has its own warehouse in the area where spare parts and other supplies are being stored for its own use, but sometimes "Y" Co. withdraws spare parts and other supplies from the warehouse of "X" Co. where "X" Co. allows that practice for the simple reason that logging production of "Y" Co. will not be disrupted in the same token, that there must be also continuity of hauling logs on the part of "X" Company. "X" Co. bills "Y" Co. for the supplies taken from the warehouse at cost. Questions: "1. Is "X" Co. liable to the Graduated Fixed Tax on the billed supplies taken by "Y" Co. at cost? "2. What are the other tax liabilities that "X" Co. may incur?" In reply, I have the honor to inform you as follows: Case I A perusal of the sample of the contract of employment allegedly entered into by and between "A" Co. and "C", an employee hired to work in Indonesia disclosed that "A" Co. is a Philippine corporation engaged in logging business in Indonesia; that under the Management Agreement (sample attached), "A" Co. is also the manager of "B" Co., a foreign logging firm; that "C" possessing the necessary technical qualifications, skills and experience is employed and agrees to work under a term contract for "A" Co. in its logging project in Indonesia where "A" Co. may assign him; that "A" Co. shall pay the salary of "C" as follows: 40% in equivalent Rupiah money and 60% to be paid or remitted to the person designated in the said contract of employment; the "A" Co. agrees to grant "C" compensation benefits for injury or illness deemed compensable in accordance with the Philippine Workmen's Compensation Act (Act No. 3428, as amended); that "A" Co. will provide "C" quarters and subsistence at the site of operations, free hospitalization, medicine and free medical and emergency dental facilities in the area of assignment; that "A" Co. will provide "C" with free passage to the site of employment and/or return to the point of hire, including expenses for passport and other travel requirements; and, that in the case of death, "A" Co. will provide free transportation of the employee's remains and properties to the point of origin. It is clear from the aforementioned terms and conditions set forth in the Contract of Employment that "A" Co. and not "B" Co. is the employer of "C", who is a non-resident citizen deriving income from sources abroad on account of personal services performed by him outside the Philippines. 'Sec. 21, Tax Code as amended by Presidential Decree No. 69; see also Sec. 37(c)(3), N.I.R.C.). Accordingly, "C" Should file BIR Form No. 17.01-C for the whole amount of remuneration paid to him on account of his services rendered outside the Philippines which includes the 40% paid to him in equivalent Rupiah money and 60% to be paid or remitted to "C"'s authorized representative in the Philippines. Under Article 2, Supplement A to Title II of the Tax Code, "A" Co. as the employer in this case, should deduct and withhold the corresponding income tax on "C"'s entire salary per contract computed at the rates applicable to non-resident citizens, considering that "C" is being taxed on the basis of his gross income. (Sec. 21 supra ) "C" may, however, deduct the amount of tax withheld, from his income tax computed and arrived at in B.I.R. Form No. 17.01-C. Case II 1. "X" Company is not liable to the graduated fixed tax on the supplies billed at cost to "Y" Company since "X" is not regularly engaged in the business of buying and selling of such supplies. 2. "X" Company is only liable to the annual fixed tax of P50.00 and the 2% tax on its quarterly gross receipts pursuant to Sections 182(A)(1) and 192 of the Tax Code. cdta Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue