House of Representatives Electoral Tribunal

July 10, 2009 BIR RULING [DA-(C-125) 366-09] BIR Ruling No. 87-92, 233-92, DA-098-01, DA-519-03, DA-049-05, DA-185-08 House of Representatives Electoral Tribunal Electoral Tribunal Building Commonwealth Avenue Quezon City Attention: Mr. Ivanhoe S. Rojo Chief Gentlemen : This refers to your letter dated March 27, 2009 requesting for legal opinion on the following: 1. What is the appropriate tax, if ever, shall be imposed on their compensation? 2. Under what category of compensation do they fall under? 3. Are they allowed to exercise the option, that their compensation income will not be subject to withholding tax, but they will be filing annual tax return? As represented, the House of Representatives Electoral Tribunal (the "Tribunal" for brevity), through a committee constituted for the purpose of selecting the qualified applicants, hires persons who will serve as Head Revisors of the Revision teams for a particular Congressional Term. As Head Revisors, they are required to attend an orientation/training before their assumption to duty. The services of the Head Revisors are not contracted to perform a particular kind of work for a specific fee. Their compensations are in the nature of payments by results based on the number of ballot boxes that will be finished for revision of ballots in a particular case. Notably, their individual compensation cannot be computed on a daily, weekly, or monthly basis as they are paid by results and their workload depends on the availability of the project, particularly the revision of ballots and the number of ballot boxes they can finish. As such, their total compensation for the year cannot be determined at this time. HICcSA In reply, please be informed that Section 2.78.3 of Revenue Regulations (RR) No. 2-98, as amended, provides for the legal parameters in determining the existence of employer-employee 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." On the other hand, Sec. 2.78.4 of RR 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". Paragraphs 4 and 6 of Section 2.78.1 (B) (4) provide that any remuneration paid for casual labor, that is, labor which is occasional, incidental or regular, but which is rendered in the course of the employer's trade or business is considered compensation. Any remuneration paid for casual labor performed for a corporation is considered as compensation. Moreover, the basis upon which the remuneration is paid is immaterial in determining whether the remuneration constitutes compensation. Thus, it may be paid on the basis of piece-work or a percentage of profits; and may be paid hourly, daily, weekly, monthly or annually (Section 2.78.1, RR 2-98, as amended). In one case, a company engaged in the business of research requires the services of translators and transcribers from time to time. The translators and transcribers are not professionals. Their services are not engaged continuously. This Office ruled in BIR Ruling No. DA-519-03 dated December 16, 2003 that the translators and transcribers whose services are not continuous are actually employees of the Company. While their services may be casual, they are rendered in the course of the trade or business of the Company and therefore the remuneration paid for such services is considered as compensation. TIaCAc Applying the foregoing, your Head Revisors are actually casual employees of HRET. Under the undertaking they signed, it appears that they were hired by HRET and may be terminated by HRET for any reason. Most importantly, HRET has the right to control and direct them not only as to the result to be accomplished but also as to the means and methods by which the result is accomplished. In fact, they are required to attend orientation/training before assuming their duty as Head Revisors in order to familiarize them on the revision proceedings as well as their duties and responsibilities (Memorandum by the Selection Committee addressed to The Chairperson of the Tribunal dated August 14, 2007). In view of the foregoing, it is required to withhold from the salaries of said employees the income tax due thereon pursuant to Section 2.79 of RR No. 2-98, as amended by applying the Tax Table for Employees. However, if the total taxable income of each of the Head Revisors does not exceed P60,000.00 or the poverty level for the entire year, their respective remunerations are exempt from income tax and consequently, from withholding tax and HRET shall be exempt from the duty to withhold the corresponding tax on their remunerations but the Head Revisors are required to file their respective income tax returns and pay the tax due thereon, annually. 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