BIR Ruling [DA-519-03]

December 16, 2003 BIR RULING [DA-519-03] Section 50 (B); BIR Ruling No. 87-92; 233-92 & DA-098-2001 Philippine Survey and Research Center, Inc. PSRC Bldg., Calbayog St., Highway Hills Mandaluyong City Attention: Mr. Peth G. Cabalquinto Finance Manager Gentlemen : This refers to your letter dated August 14, 2003 requesting, in effect, for a ruling on whether the services rendered by translators and transcribers who are not your employees and whose services are not continuous should be taxed under the 2% expanded withholding tax for contractors or the withholding tax table for employees. It is represented that on December 18, 1974, the Securities and Exchange Commission approved the incorporation of the Philippine Survey and Research Center, Inc. ("PSRC") with the primary purpose, viz: "To gather, collate and analyze data which may be useful to individuals, companies, entities, institutions, societies, organizations, etc. for informational and/or decision-making aims, as well as to provide research consultancy and partial or limited services such as interview work, tabulation, and project feasibility studies, suitable data gathering and collating methods as well as technical expertise which will be utilized to achieve this purpose which may include personal interviews, depth interviews, consumer panels, observation recording for the purpose of gathering information on products, packaging, premiums, consumer attitudes and attributes, buying habits, media preferences, consumer profiles, advertising effectiveness, characteristics of specific market on population segments, copy testing, qualitative and quantitative media research, sales research and opinion research; to provide other marketing services that will be needed for marketing decisions or such activities based on such decisions which can effectively utilize our technical expertise, methods and manpower"; that the nature of your business, which is research, requires the services of translators and transcribers from time to time; that these persons are not professional translators and transcribers; that neither are their services engaged continuously; and that you are confused whether to withhold 2% from their income or you are correct in applying the Tax Table for Employees. ADSTCa In reply, please be informed that Section 2.78.3 of Revenue Regulations (Rev. Regs.) No. 2-98, as amended, provides for the legal parameters in determining the existence of employer-employed relationship, as follows: "In general, the relationship of the employer and employee exists when the person for whom services were performed has the right to control and direct the individual who performs the services, not only as to the result to be accomplished by the work but also as to the details and means by which the result is accomplished. An employee is subject to the will and control of the employer not only as to what shall be done, but how it shall be done. In this connection, it is not necessary that the employer actually directs or controls the manner in which the services are performed. It is sufficient that he has the right to do so. The right to dismiss an employee is also an important factor indicating that the person possessing that right is an employer. Other factors or characteristics of an employer, which may not be necessarily present in every case, are furnishing the tools and furnishing of a place to work, to the individual who performs the services. In general, an individual is not considered an employee if he is subject to the control or direction of another merely as to the result to be accomplished by the work, and not as to the means and methods for accomplishing the result. In general, individuals who follow an independent trade, business, or profession, in which they offer their services to the public, are not employees. The measurement, method or designation of compensation is also immaterial if the relationship of employer and employee in fact exists. No distinction is made between classes or grades of employees. Thus, superintendents, managers, and others belonging to similar levels are employees. An officer of a corporation is an employee of the corporation. An individual, performing services for a corporation, both as an officer and director, is an employee subject to withholding on compensation, including director's fees." CaEATI On the other hand, Sec. 2.78.4 of Rev. Regs. 2-98, as amended defines "employer" to mean, viz: . . . any person for whom an individual performs or performed any service, of whatever nature, under an employer-employee relationship. It is not necessary that the services be continuing at the time the wages are paid in order that the status of employer may exist. Thus, for purposes of withholding, a person for whom an individual has performed past services and from whom he is still receiving compensation is an 'employer'." MISSING PAGE 3