BIR Ruling [DA-068-04]

February 12, 2004 BIR RULING [DA-068-04] P.D. 1354 BIR Ruling No. 24-00 International Refinery Services Phils, Inc. LRI Building 210 Nicanor Garcia Makati City Attention: Mr. Shukor Yatim General Manager Gentlemen : This refers to your letter dated July 1, 2003 requesting for a ruling confirming your opinion that International Refinery Services Phils., Inc. ("IRS") is considered as a subcontractor under Presidential Decree No. 1354 insofar as its contract with Flour Amec on its Malampaya project is concerned and therefore, subject to the final tax of 8% of its gross income derived from such contract. It is represented that your company is a domestic corporation organized and existing under the laws of the Philippines that its primary purpose, among others, is "to provide services and technical support such as industrial maintenance, vessel inspection and integrity assessment piping and pipelines and storage internal tanks corrosion and erosion monitoring and refinery operations and maintenance, design and project, management to local and foreign companies engaged in petroleum, petrochemical, power plant industries and other related business"; that IRS entered into a contract with Flour Amec, a subcontractor of Shell Philippines Exploration B.V. (SPEX), a petroleum serve contractor engaged in oil exploration activities; that Flour Amec is organized and existing under the laws of the United Kingdom and licensed by the Securities and Exchange Commission (SEC) to engage in business in the Philippines through its branch office which is located at the 10th Floor, Asian Star Condominium Building, Asean Drive Corner Singapore Lane, Filinvest Corporate City, Alabang, Muntinlupa City; that SPEX is a company organized and existing under the laws of the Netherlands and is licensed by the SEC to engage in business in the Philippines through a branch office which is located at the 10th Floor, Asian Star Condominium Building, Asean Drive Corner Singapore Lane, Filinvest Corporate City, Alabang, Muntinlupa City; that SPEX is a petroleum service contractor of the Philippine Government pursuant to Presidential Decree (P.D.) No. 87, as amended, otherwise known as "The Oil Exploration and Development Act"; that in its capacity as a petroleum service contractor of the Philippine Government, SPEX and its co-ventures perform petroleum operations for the exploration and development of Malampaya natural gas field located in offshore Palawan (Project); that SPEX implements the Project under the supervision and control of the Philippine Government through the Department of Energy (DOE); that the major components of the project include: (1) installation of five development wells and a subsea manifold to bring gas to a shallow water platform; (2) the construction of a shallow water platform to process the gas, and to separate and store condensate; (3) the installation of a buoy that will be used by tankers to lift condensate from the platform; (4) the installation of a 504-kilometer pipeline on the seabed to connect the platform to the gas landfall site in Batangas City; and (5) the construction of an onshore gas plant to treat and process gas prior to sale; that in the course of developing the Malampaya natural field, SPEX enters into contracts on subcontracts with other persons or entities for the local supply not only of goods and materials relating to certain portions of the work described in the immediately preceding paragraph but also of labor that are required by and that are inherently necessary to petroleum operations of SPEX in the Malampaya natural gas field including, among others; general inspection and integrity assessment, piping and pipelines and storage internal tanks corrosion and erosion monitoring. In reply, please be informed that the term "subcontractor" as used in Presidential Decree No. 1354 includes subcontractors at whatever tier, who perform "Petroleum Operations" as defined under PD 87 (also known as the Oil Exploration and Development Act), and therefore, the 8% final tax which is in lieu of all taxes, is applicable to subcontractors at whatever tier. It shall be understood, however, that any income earned by such sub-contractors from all other sources within the Philippines shall be subject to the regular income tax imposed under the Tax Code of 1997 (BIR Ruling No. 024-2000 dated May 24, 2000) . In view of the foregoing, this Office hereby confirms your opinion that International Refinery Services Phils., Inc. is considered as a subcontractor under Presidential Decree No. 1354 insofar as its contract with Flour Amec on its Malampaya project is concerned and therefore, subject to the final tax of 8% of its gross income derived from such contract, which tax shall be in lieu of all taxes, whether national or local. caTESD This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group