BIR Ruling [DA-499-06]

August 15, 2006 BIR RULING [DA-499-06] Revenue Regulations No. 2-98 SGV & Co. 6760 Ayala Avenue 1226 Makati City Attention: R.C. Vinzons Gentlemen : This refers to your letter dated March 24, 2006, requesting in behalf of your client, DCCD Engineering Corporation (DCCD for short),confirmation of your opinion that its payments of salaries and professional fees to its employees/corporate officers, who, aside from their duties as employees/corporate officers, also render professional services to the company, are subject to withholding tax on compensation and to expanded withholding tax, respectively. cIETHa It is represented that DCCD is a domestic corporation duly organized and existing under the laws of the Philippines with business address at 122 Amorsolo St., Legaspi Village, Makati City; that it is engaged in technical consultancy for construction, repair, alteration, restoration, development, management, supervision and special studies of any technical work, plan or project; that it is likewise engaged in general construction and other allied business; that DCCD has employees / or corporate officers who at the same time are independent consultants for the company in their exercise of their engineering professions, since Republic Act Nos. 544 and 545, otherwise known as "Civil Engineering Law" and "An Act to Regulate the Practice of Architecture in the Philippines" respectively prohibit firm, company, partnership, association or corporation to be registered or licensed as such for the practice of engineering and architecture; that as such, they receive professional fees as independent consultants and compensation as corporate officers/employees: that it is your opinion that the compensation received by the subject employees/corporate officers are subject to withholding tax on compensation while the professional fees they receive as independent consultants are subject to expanded withholding tax. In reply, please be informed that the remuneration for services which their employees receive in their capacity as corporate officers/employees are subject to withholding tax on compensation in accordance with Sections 24(A) and 31 of the Tax Code of 1997, as implemented by Revenue Regulations No. 2-98, Section 2.78 thereof as amended. The withholding tax on compensation income is a method of collecting the income tax at source upon receipt of the income. It applies to all employed individuals whether citizens or aliens deriving income from compensation for services rendered in the Philippines. On the other hand, the professional fees they receive in their capacities as independent consultants are subject to the expanded withholding tax at the rate of 10% pursuant to Section 2.57.2 of Revenue Regulations No. 2-98, as amended. This ruling 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service