BIR Ruling [DA-084-99]

February 11, 1999 BIR RULING [DA-084-99] Balmeo Bautista & Peasales Law Offices Room 309 Margarita Building J. P. Rizal cor. Cardona Streets 1208 Makati City Attention: Atty . Leonides F . Balmeo Gentlemen : This refers to your letter dated January 26, 1999 stating that Lexmark Phils. is a PEZA registered processor of Computer components in Cebu which will build a factory inside Mactan Export Processing Zone II located in Mactan, Lapu-lapu City, Cebu; that the contractor of the factory is HPM Philippines; that since HPM Philippines is presently short of funds, manpower and equipment, it assigned the structure/site, mechanical, fire protection, electrical and other engineering works to various construction companies in Cebu which specializes on such areas of construction and engineering work; that the construction contract between Lexmark Phils. and HPM Philippines allows the assignment by the latter of any portion of the construction contract to a third party; that the assignments are made prior to the commencement of the project; that HPM Philippines will bill and issue the invoices directly to Lexmark Phils. only those works done and performed by such company; and that the assignees will bill and issue invoices directly to Lexmark Phils. only those works assigned to and performed by them in favor of Lexmark Phils. llcd Based on the foregoing, you now in effect request for a ruling as to whether or not Lexmark Phils. has the obligation to withhold the 1% expanded withholding tax due from the Contractor-Assignees and if in the affirmative, the basis of computing the 1% tax to be withheld by Lexmark Phils. from the Contractors-Assignees. In reply, please be informed that by virtue of the Deeds of Assignments executed by HPM Philippines in favor of various contractors of the different aspects of contract works, the contract between Lexmark Phils. and HPM Philippines is deemed to have ceased prior to the commencement of the project, except that portion where HPM Philippines handles the work directly. In BIR Ruling No. 198-90 dated October 16, 1990, this Office ruled that persons performing service who invoiced directly in the name of the person in whose favor the service is performed and who pays for such service rendered, has the duty to withhold the tax. Accordingly, Lexmark Phils. has the obligation to withhold the 1% expanded withholding tax due from such Contractors-Assignees pursuant to Section 57(B) of the Tax Code of 1997 based on the gross payments to the Contractors-Assignees, whether individual or corporate (Section 1(e), Revenue Regulations No. 6-85, as amended by Revenue Regulations No. 8-90). (BIR Ruling No. 187-93 dated May 5, 1993) 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 null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)