University of Santo Tomas Hospital

February 4, 2010 BIR RULING [DA-(C-004) 024-10] RR 2-98, 6-01 & 30-03; 012-86 University of Santo Tomas Hospital House Staff Organization Espaa, Manila Attention: John Kenneth B. Domingo, M.D. President Gentlemen : This refers to your letter dated August 24, 2008 requesting, in effect, for a ruling as to whether the University of Santo Tomas (UST) Hospital is correct in subjecting the stipends received by its resident physicians to the 10% creditable withholding tax. The facts as culled from the documents submitted are as follows: Under a Memorandum of Residency Training Agreement executed by and between a resident trainee, a duly licensed physician, and the University of Santo Tomas, the resident-trainee has applied for intensive training in the Residency Program under the Postgraduate Training Program offered by the hospital which aims to produce specialists who shall also be teachers and researchers in all branches of medicine. The resident trainee undertakes and agrees to perform, render and participate in all aspects of work, service and discipline as may be required of him to perform, render or assimilate as a Postgraduate Training Resident Physician, on such schedules prepared and approved by the hospital. The resident trainee is given a stipend of P10,000.00. In reply, please be informed that in BIR Ruling No. 012-86 dated February 18, 1986, this Office had the opportunity to issue a ruling in favor of the UST House Staff Organization regarding the taxability of the stipends received by its members. The ruling states as follows: IHCSET "In reply thereto, I have the honor to inform you that an employer-employee relationship exists when the person for whom services are performed has the right to control and direct the individual who performs the services, not only as to the result to be accomplished. It is not necessary that the employer actually directs or controls the manner in which the service is performed; it is sufficient if it has the right to do so. If the employer-employee relationship exists, the designation or description of the relationship by the parties as anything other than that of employer and employee is immaterial. Considering that under the Memorandum of Agreement, the resident trainee undertakes and agrees to perform, render and participate in all aspects of work, service and discipline as may be required of him by the hospital, an employer-employee relationship exists between the hospital and the resident trainee notwithstanding the stipulations in the agreement that the relationship is "that of Trainor and Trainee, and hence, there is no employer-employee relationship between them." Such being the case, since the stipend and allowances received by members of that Organization as resident trainees were received as a result of an employer-employee relationship, the same are considered gross compensation income subject to the withholding tax on wages under Chapter XI, Title II of the Tax Code, as amended by Batas Pambansa Blg. 135 and not to the expanded withholding tax under Section 53(f) (now Sec. 51(f) of the Tax Code, as implemented by Revenue Regulations No. 6-85 or the Revised and Consolidated Expanded Withholding Tax Regulations." (Underscoring supplied) The taxability of stipends received by resident physicians is much apparent under the recent withholding tax regulations, Revenue Regulations (RR) No. 2-98, as amended. Pertinent portion of Section 2.57.2 (A) (1) of RR 2-98, as amended, states as follows: "SECTION 2.57.2. Income Payment Subject to Creditable Withholding Tax 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: (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 Fifteen percent (15%), if the gross income for the current year exceeds P720,000; and Ten percent (10%), if otherwise; (Revenue Regulations Nos. 06-01, 12-2001 and 30-2003) (1) Those individually engaged in the practice of profession or callings: lawyers; certified public accountants; doctors of medicine ; architects; civil, electrical, chemical, mechanical, structural, industrial, mining, sanitary, metallurgical and geodetic engineers; marine surveyors; doctors of veterinary science; dentist; professional appraisers; connoisseurs of tobacco; actuaries; interior decorators, designers and all other profession requiring government licensure examinations and/or regulated by the Professional Regulations Commission, Supreme Court, etc.; ASHECD xxx xxx xxx The amounts subject to withholding under this paragraph shall include not only fees, but also per diems, allowances and any other form of income payments not subject to withholding tax on compensation (Revenue Regulations No. 12-2001, issued on September 07, 2001). . . . ." (Underscoring supplied) It is clear, from the foregoing, that income payments derived by individuals engaged in the practice of profession or calling, that of doctors of medicine in particular, and referring to licensed physicians, such as in the case of the resident physicians who are members of the UST House Staff Organization, are subject to the creditable withholding tax as above prescribed. The foregoing treatment applies even in the absence of an employer-employee relationship, as per requisite in BIR Ruling No. 012-86, supra, since in the present withholding tax regulations, any other form of income payments not subject to the withholding tax on compensation are now subject to the creditable withholding tax at the rate as above prescribed. Such being the case, and since the resident physicians/trainees, who are members of the UST House Staff Organization, are receiving stipends in the amount of P10,000.00 per month, or a gross annual income less than the amount of P720,000.00, the said amount they received as stipends, therefore, is subject to the creditable withholding tax at the rate of ten percent (10%). The said resident physicians/trainees, however, are entitled to the allowed basic personal exemption and additional exemption for dependents as provided for under Section 35 of the Tax Code of 1997, as amended by Republic Act No. 9504, by the time he/she shall file his/her income tax return. Please be guided accordingly. Commissioner of Internal Revenue By: (SGD.) GREGORIO V. CABANTAC Deputy Commissioner