BIR Ruling [DA-122-99]

March 1, 1999 BIR RULING [DA-122-99] 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 February 19, 1999 requesting further clarification of BIR Ruling No. DA-084-99 dated February 11, 1999 issued to your goodselves, holding that your client, Lexmark Phils. is required to withhold from HPM Philippines and the Contractor-Assignees the expanded withholding tax of 1% based on the gross payments to such contractors, as there were certain facts and information which you failed to mention in your previous request. cdtech It is represented that HPM Philippines being the principal and primary contractor and project manager would like to assure that the various Contractor-Assignees will perform the portion of the Construction Contract assigned to them correctly and in accordance with the plans and specifications spelled out in the construction contract and that such Contractor-Assignees will finish the portion assigned to them on time, thus, HPM Philippines will enter into joint venture agreements with such Contractor-Assignees in respect of the portion of the construction contract assigned to such Contractor-Assignees; that no separate corporation will be formed by virtue of the joint venture agreements; that the said joint venture agreements will govern the relationship of the participants of the joint venture; that the joint venture is not a separate corporation because it will not be incorporated; that it will just be an agreement among the participants thereof who as joint venture participants will be acting jointly and severally; that the joint ventures will be the agents of the respective venture participants for purposes of billing and collection; that the proper powers-of-attorney will be executed in favor of the joint ventures; that the joint ventures will send the bill to HPM Philippines for and on behalf of the participants to the joint venture agreements, the Contractor-Assignees being major participants therein; and that HPM Philippines will consolidate the collective progress billings of the joint ventures and send its bill to Lexmark Philippines. Based on the foregoing, you now request for a ruling on who are subject to expanded withholding tax, who should withhold such tax and what is the rate of withholding tax. In reply, please be informed that Section 2.57.3 of Revenue Regulations No. 2-98 dated April 17, 1998 provides as follows: SEC. 2.57.3. Persons required to deduct and withhold . The following persons are hereby constituted as withholding agents for purposes of the creditable tax required to be withheld on income payment's enumerated in Section 2.57.2. "(A) In general, any juridical person, whether or not engaged in trade or business; "(B) An individual, with respect to payments made in connection with his trade or business. However, insofar as taxable sale, exchange or transfer of real property is concerned, individual buyers who are not engaged in trade or business are also constituted as withholding agents, "(C) All government offices including government-owned or controlled corporation, as well as provincial city and municipal governments." Furthermore, Section 2.57.2(E) of the same Regulations provides, viz: "SEC. 2.57.2(E) Income payment to certain contractors . On gross payments to the following contractors, whether individual or corporation One percent (1%)" In view thereof, this Office is of the opinion that Lexmark Phils., income payor has the obligation to withhold the 1% expanded withholding tax due from HPM Philippines on billings made by said corporation to Lexmark Phils. and likewise HPM Philippines is also required to withhold 1% expanded withholding tax from the participants of the joint venture agreements (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. (BIR Ruling No. 187-93 dated May 5, 1993)(BIR Ruling No. DA-083-99 dated February 11, 1999) LLcd 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)