Atienza-Nippi Planning Limited, Inc.

August 13, 2008 BIR RULING [DA-(C-039) 146-08] RR 17-2003 Atienza-Nippi Planning Limited, Inc. 2/F Win Bank Building Bo. Maduya, Gov. Drive Carmona, Cavite Attention: Mr. Art Bonifacio Chief Accountant Gentlemen : This refers to your letter dated May 15, 2008 requesting for a ruling to the effect that the appropriate withholding tax percentage for Atienza-Nippi Planning Limited, Inc. (ANPLI) as contractor of services should only be 2% against the gross sales. It is represented that Atienza-Nippi Planning Limited, Inc. is a domestic corporation duly registered with the Securities and Exchange Commission (SEC) under SEC. Reg. No. CS200502974 dated February 28, 2005; that the purpose for which it was incorporated is to engage in the business of contracting, enlisting, recruiting professionals and workers both skilled and unskilled for local work and to act as agents of individuals or firms in the supply of manpower; that currently, it dispatched employees of ROHM and IMI, with offices and plant sites in Carmona, Cavite and Sta. Rosa, respectively; that said employees are regular employees of ANPLI and their work designations with ANPLI's clients were as interpreters and translators rendering regular eight (8) working hours a day and receiving overtime pay based on the contract/dispatch agreement; and that ANPLI's clients are presently applying 10-15% tax withholding rate based on BIR Regulations No. 30-2003 under the classification for professional or talent fees instead of 2% withholding rate for contractors of services which ANPLI believes and understands, is applicable based on the following grounds: 1. The nature of ANPLI's business with ROHM and IMI is labor-contracting and its contract and the status of the dispatched employees with them is purely to render interpretation and translation services on contractual basis, which by the way makes its employees no different from those who render janitorial, messengerial, etc. services. It only so happened that they understand, speak and read Japanese; DTCSHA 2. ANPLI's interpreters/translators are not really professionals in that, legally speaking, no such profession is recognized by the Republic as evidenced by the lack of licensure exams for the same; 3. A prior BIR Ruling upholding the application of the 2% withholding rate in favor of RADIX, an IT firm that provides IT and computer software services, must be considered precedent since they also render technical services despite the fact that their technicians are not professionally licensed. In that respect, ANPLI's interpreters are no different from their technicians; 4. The classification, Management or Technical consultant does not apply either because of the contractual nature of the job, the requirement to be physically present during the regular work days for regular nature of the job, the requirement to be physically present during the regular work days for regular work hours from 8am-5pm, the fact that overtime accrues as per occurrence, and that they do not render auditing, evaluation, guidance nor give any corrective or preventive advice to any matter whatsoever because they are only used as mediums of communication and not allowed to interfere with the progress of the matter at hand nor in any way control its outcome or result. In reply, please be informed that Section 3 of Revenue Regulations No. 17-2003 provides viz. : SEDICa "SEC. 3. Income Payments Subject to Creditable Withholding Tax . Sec. 2.57.2 of Revenue Regulations No. 2-98, as amended, is hereby further amended to read as follows: "Sec. 2.57.2. Income payments 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: xxx xxx xxx (E) Income payments to certain contractors On gross payments to the following contractors, whether individual or corporate Two percent (2%) xxx xxx xxx (3) Other contractors xxx xxx xxx (k) Labor recruiting agencies and/or "labor-only" contractors. For this purpose, any person who undertakes to supply workers to an employer shall be deemed to be engaged in "labor-only" contracting where such person does not have substantial capital or investment in the form of tools, equipment, machineries, work premises and other materials and the workers recruited and placed by such person are performing activities which are directly related to the principal business or operations of the employer in which the workers are habitually employed." Inasmuch as ANPLI is engaged in the business of contracting, enlisting, recruiting professionals and workers both skilled and unskilled for local work and to act as agents of individuals or firms in the supply of manpower and performing activities which are directly related to the principal business or operations of the employer in which the workers are habitually employed, ANPLI is deemed to be a labor recruiting agency and/or labor-only contractor subject to two (2%) percent creditable withholding tax. 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, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service