BIR Ruling [DA-575-06]

September 22, 2006 BIR RULING [DA-575-06] Rev. Regs. Nos. 6-2001 & 2-98 BIR Ruling No. 006-2003 dated 08/15/03 MP Batoon & Associates Certified Public Accountants 1561 Blumentritt St., Sampaloc Manila Attention: Marjorie Ines P. Batoon, CPA Gentlemen : This refers to your letter dated September 6, 2006, requesting a confirmatory ruling on your opinion that CONSTECH MANAGEMENT GROUP, INC. (CMGI, for short), is a specialty contractor, and accordingly, the professional fees that it received from construction management services are subject to creditable withholding tax at the rate of 2% effective October 2, 2001. It is represented that Constech Management Group, Inc. (CMGI), with principal address at Rm. 603, West Trade Center Building, West Avenue, Quezon City, is a domestic corporation duly registered with the Securities and Exchange Commission (SEC), under SEC Registration No. AS091-195741 dated September 16, 1991; that the company is an independent firm of construction managers and supervisors, cost engineers, construction cost specialist and construction evaluators; that under its Articles of Incorporation, its primary purpose is "to engage in the full scope of research, project studies, consultations and property management in the field of electrical, mechanical, fire protection, sanitary, electronics and structural systems; that as such, it carries on the business of project managers, advisers, technicians, investigators and researchers in the field of industrial, commercial, residential and infrastructure development and commerce of all and every description; that in the pursuit of this objective, CMGI renders services in building and other civil works projects including, but not limited to, initial design, tendering procedures and contract arrangements, cost studies and planning, master development programming, tender contract analysis and report, construction progress financial statement preparation, advisory contract administration, valuation of construction work in progress, and cost and material supervision in each and every work phase of construction; that it is your position that for purposes of creditable withholding tax, CMGI is a specialty contractor, notwithstanding the fact that CMGI does not perform actual construction work, because the services it renders pertain to the performance of construction work requiring special skill; that CMGI's principal contracting business involves the use of specialized building trades or crafts; and that CMGI, being a specialty contractor, is subject to a creditable withholding tax rate of 2% effective October 1, 2001 (formerly 1%) pursuant to Section 3 of Revenue Regulations No. 6-2001, amending Section 2.57.2 (E)(3) of Revenue Regulations No. 2-98 on the professional fees it receives from its clients. IEAacS In reply thereto, please be informed that Section 3 of Revenue Regulations No. 6-2001, amending Section 2.57.2 (E)(3) of Revenue Regulations No. 2-98 defines the term "Specialty Contractor" as "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." Gross payments to such persons are subject to creditable withholding tax at the rate of 2% (formerly 1%). In the case of Commissioner of Internal Revenue vs. the Court of Tax Appeals and Avecilla Building Corporation, 134 SCRA 49 (1985) , the Supreme Court ruled that a domestic corporation authorized to render "general scientific, engineering and technological services in all the various branches thereof including but not limited to evaluation, appraisal, market studies, project reports, management, consultation, construction supervision, training and/or engagement in any work or plan", is considered a specialty contractor under then Section 191 of the Tax Code, which lists the persons subject to the then contractor's tax. The aforementioned decision quoted the case of Hon. Efren I. Plana, in his capacity as Commissioner of Internal Revenue, petitioner, vs. Court of Tax Appeals and Engineering Development Corporation of the Philippines, G.R. No. L-52018, February 23, 1990 . Based on the foregoing, this Office hereby confirms your opinion that CMGI is a specialty contractor. Accordingly, as a specialty contractor, the professional fees that CMGI receives for quantity surveying services are subject to a creditable withholding tax at the rate of 2% effective October 1, 2001 (formerly 1%), in accordance with Section 3 of Revenue Regulations No. 6-2001, amending Section 2.57.2(E) of Revenue Regulations No. 2-98. 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service