BIR Ruling

April 12, 1977 Pacific Engineering Co., Inc. 123 Quirino Avenue, Baesa Quezon City Attention: Mr . Catalino O . Luciano President & Chairman of the Board Gentlemen : With reference to your claim for refund of P38,329.40 as alleged erroneously paid 3% contractor's tax relative to your contract with Neptunia Corporation, Ltd. of Hongkong, for the complete fabrication, lining, insulation, export crating and delivery, FOB, Port of Manila, of seventy-one (71) units brewey steel tanks in 1974, I regret to inform you that, after a careful review of the facts of the instant case, as well as the law applicable thereto, this Office finds no legal basis upon which to grant the same. You contend that the transaction under the Construction Agreement out of which partial drawings of payments had been effected in your favor and the corresponding contractor's tax paid, is not subject to the 3% contractor's tax pursuant to Section 188, paragraph (e) of the National Internal Revenue Code. We find no merit in your contention; Section 188(e) does not apply to transaction by Contractors. Thus the pertinent provisions of said law states: "Section 188. Transactions and persons not subject to percentage tax . In computing the tax imposed in Sections one hundred eighty four, one hundred eighty four-A, one hundred eighty five, one hundred eighty five-B and one hundred eighty six, and one hundred eighty six-B, transactions in the following commodities shall be excluded: (a) . . . (e) Articles shipped or exported abroad by the manufacturer or producer, irrespective of any shipping arrangement that may be agreed upon which may influence or determine the transfer of ownership of the article so exported;" (emphasis supplied) It will be noted from the abovequoted provisions of law, that the exemption covers only transactions by manufacturers or producers who are subject to the sales tax imposed by Sections 184, 185 and 187 of the Tax Code on their gross sales of the articles manufactured or produced by them. It does not cover transactions by a contractor subject to the 3% tax imposed by Section 191 of the Tax Code. As you are a contractor undertaking the fabrication or construction of brewery steel tanks for Neptunia Corporation, Ltd. of Hongkong, you are subject to the 3% tax. The amount of P38,329.40 was, therefore, legally paid as 3% tax on your gross receipts in 1974. In view thereof, your claim for refund of P38,329.40 which you paid as 3% contractor's tax is hereby denied. Very truly yours, EFREN I. PLANA Acting Commissioner of Internal Revenue TAN-P4519-F2828-A-8