BIR Ruling [DA-272-03]

August 20, 2003 BIR RULING [DA-272-03] Rev. Regs. No. 6-2001; 040-01 Puyat Jacinto & Santos Law 12th Floor, Manilabank Building 6772 Ayala Avenue Makati Attention: Virginia B. Viray Tax Counsel Gentlemen : This refers to your letter dated July 25, 2002, requesting confirmation of your opinion that your client, FPD Savills Philippines, Inc. (FPD for convenience), is subject to contractors' tax of 2% and professional tax of 10% as imposed, under Revenue Regulations No. 6-2001. It is represented that FPD provides, among others, the following services: 1. Administering, operating, maintaining, developing, preserving, preparing and cleaning buildings, hotels, dwelling houses and such other structures or improvements; 2. Rendering janitorial services and additional carpentry works, including all such service for the maintenance, repair and beautification of the building; 3. Installing, repairing, and maintaining building equipment and facilities; 4. Providing messengerial and other labor services for the administration of the building; and 5. Providing management, planning, technical advice and consultancy services on building management and administration and construction projects. In furtherance of these services, FPD hires the services of technical personnel ( e.g. , electricians and elevator technicians) and professionals ( e.g. , electrical and mechanical engineers and architects), depending on the type of service to which it is being engaged. It is your contention that the gross receipts of FPD from its clients for the rendition of management, administration, maintenance and janitorial services is subject to the creditable withholding tax of two percent (2%), whereas, the rendition of consultancy services is subject to the creditable withholding tax of ten percent (10%). Hence, this request for confirmation. In reply thereto, please be informed that we hereby confirm your opinion that FPD is subject to the respective rates of withholding taxes from the gross payments of its (FPD) clients with whom it engages its services. The services enumerated in Nos. 1 to 4 above fall under the category mentioned in the provisions of Section 3(E) of Revenue Regulations 6-2001, thus: "(E) Income payments to certain contractors On gross payments to the following contractors, whether individual or corporate Two percent (2%). (2) General Building Contractors Those whose principal contracting business is in connection with any structure built, for the support, shelter and enclosure of persons, animals, chattels, or movable property of any kind, requiring in its construction the use of more than two unrelated building trades or crafts, or to do or superintend the whole or any part thereto. Such structures includes sewers and sewerage disposal plants and systems, parks, playgrounds, and other recreational works, refineries, chemical plants and similar industrial plants requiring specialized engineering knowledge and skills, powerhouse, power plants and other utility plants and installation, mines and metallurgical plants, cement and concrete works in connection with the above-mentioned fixed works. (3) Specialty Contractors Those whose operations pertain to the performance of construction work requiring special skill and whose principal contracting business involves the use of specialized building trades or crafts. (4) Other contractors xxx xxx xxx (c) Persons engaged in the installation of water system, and gas electric light, heat or power; xxx xxx xxx (g) Messengerial, janitorial, private detective and/or collection agencies and other business agencies; (1) Persons engaged in the installation of elevators, central air conditioning units, computer machines and other equipment and machineries and the maintenance services thereon. xxx xxx xxx On the other hand, the 10% withholding tax rate on the management, planning, technical advice and consultancy services is founded on the provisions of Section 3(A)(6) and Section 3(B) of the same regulations, viz. : "(A) Professional fees, talent fees, etc. for services rendered by individuals On the gross professional, promotional and talent fees or any other form of remuneration for the services of the following individuals xxx xxx xxx (6) Management and technical consultants Ten percent (10%). xxx xxx xxx (B) Professional fees, talent fees, etc. for services of taxable juridical persons On the gross professional, and talent fees, or any other form of remuneration enumerated in the preceding subparagraph for the services of taxable juridical persons Ten percent (10%). Hence, in BIR Ruling No. 040-2001 dated September 18, 2001, it has been ruled that "pursuant to Section 2.57.2(B) of Revenue Regulations 2-98, income payment to juridical persons for services rendered as management and technical consultants are subject to the five percent (5%) (now 10% as amended by Revenue Regulations No. 6-2001) CWT." 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, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group