Ms. Marinela P. de Austria

March 19, 2008 BIR RULING [DA-185-08] BIR Ruling No. DA-499-06 Ms. Marinela P. de Austria 410 BSA Mansions, Benavidez St. Legaspi Village, Makati City M a d a m : This refers to your letters dated December 13, 2007 and January 28, 2008 requesting for a ruling on the tax you should withhold from your hired consultant whom you deployed to work for your local client. Documents show that Manila Exposition Inc. ("ManilaExpo" for brevity) is a corporation duly organized and existing under Philippine law with office address at 2214 Cityland Herrera Tower, V.A. Rufino corner Valero Streets, Salcedo Village, Makati City. It is a Technical Services Provider and Consultant engaged in the business of providing information technology solutions and services to various clients such as but not limited to data programming and technical support including technical advisory and consultancy. On July 24, 2007, ManilaExpo and Ms. Marilou Alberto ("Ms. Alberto" for brevity), a technical consultant entered into a Consultancy Agreement whereby the former engaged the services of the latter in relation to a specific project and which services shall be performed at the offices of ManilaExpo's client. Her services include performing advanced software repair and installations on computers by troubleshooting, undertake analysis, diagnosis and resolution of client problems, escalate unresolved problems to appropriate area, log, troubleshoot and track problems. In reply, please be informed that Section 2.78.1 (B) (4) of Revenue Regulations (RR) No. 2-98, as amended provides, viz. : "(4) Remuneration for casual labor not in the course of an employer's trade or business. The term 'casual labor includes labor which is occasional, incidental or irregular. The expression 'not in the course of the employer's trade or business' includes labor that does not promote or advance the trade or business of the employer. Thus, any remuneration paid for labor which is occasional, incidental or irregular, and does not promote or advance the employer's trade or business, is not considered as compensation. xxx xxx xxx Any remuneration paid for casual labor, that is, labor which is occasional, incidental or irregular, but which is rendered in the course of the employer's trade or business, is considered compensation. xxx xxx xxx Any remuneration paid for casual labor performed for a corporation is considered as compensation." Applying the foregoing, it would appear that Ms. Alberto is actually an employee of ManilaExpo despite the "no employer-employee relationship" provision in the Consultancy Agreement. While her services as consultant may be casual, they are rendered in the course of ManilaExpo's business of providing information technology and related services and therefore the remuneration paid for such services is considered as compensation. Such being the case, it is incumbent upon ManilaExpo to withhold from Ms. Alberto's salaries the income tax due thereon pursuant to Section 2.79 of RR No. 2-98, as amended. On the other hand, the client shall withhold 10% (then 5%) expanded withholding tax on its income payments to ManilaExpo pursuant to Section 2.57.2 (B) of RR No. 2-98, as amended by RR 6-2001 and RR 12-2001, viz. : "Sec. 2.57.2 Income payment subject to creditable withholding and rates prescribed thereon. Except as herein otherwise provided, there shall be withheld a creditable income tax at the rates herein specified for each class of payee from the following items of income payments to persons residing in the Philippines: xxx xxx xxx (B) Professional fees, talent fees, etc. for services of taxable juridical persons On the gross professional, promotional and talent fees, or any other form of remuneration enumerated in the preceding subparagraph for the services of taxable juridical persons Ten percent (10%)." 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, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service