BIR Ruling No. 002-10

March 23, 2010 BIR RULING NO. 002-10 RR 2-98; DA272-04 Welders Testing Laboratories (Phils.), Inc. S-7 Sunvar Plaza Pasay Road, corner Amorsolo Street Makati City Attention: Ms. Leila V. Tenefrancia Comptroller Gentlemen : This refers to your letter dated October 13, 2009, which was referred to this Office by Revenue Region No. 8, Makati City, by way of its 2nd Indorsement dated October 29, 2009, requesting for certification that the Welders Testing Laboratories (Phils.), Inc. is classified as other contractors subject to the 2% creditable withholding tax prescribed in Section 2.57.2 (E) of Revenue Regulations No. 2-98, as amended by Revenue Regulations No. 17-2003. It is represented that Welders Testing Laboratories (Phils.), Inc. with TIN 000-153-275-000 is a corporation duly registered with the Securities and Exchange Commission (SEC) under SEC Registration No. 0099392 dated June 9, 1981; that it is primarily organized "To engage in, conduct, and carry a general welding, and consulting business, including inspection, estimating, testing, appraising, surveys, counselling, recruiting, selection, supervision of laboratories, construction, maintenance, repair and to engage in all related activities such as, but not limited to, the preparation of feasibility studies, bids, schedules, material control, whether for private or public projects, domestic or foreign, and to this end to enter into agreements or contracts, whether as principal or otherwise allied to or related with the aforesaid purpose or purposes." and that it is a value-added tax (VAT) registered entity with Tax Identification Number (TIN) 000-153-275-000. In reply thereto, please be informed that Section 2.57.2 (B) of Revenue Regulations No. 2-98, as amended, provides that "(B) Professional fees, talent fees, etc. for services of taxable juridical persons. On the gross professional, promotional and talent fees, or any other form of remuneration enumerated in the preceding subparagraph for the services of taxable juridical persons Fifteen percent (15%), if the gross income for the current year exceeds P720,000; and Ten percent (10%), if otherwise." HAaDTE It is to be noted that to determine the applicable tax rate (10% or 15%) to be applied/withheld by the withholding agent, the taxable juridical person shall periodically disclose its gross income for the current year to the Bureau of Internal Revenue (BIR), by submitting a notarized sworn declaration to be executed by the president/managing partner of the corporation/company, copy furnished all the current payors of the declaration duly stamped received by the BIR. The disclosure should be filed on June 30 of each year or within fifteen (15) days after the end of the month the taxable juridical person's income reaches P720,000, whichever comes earlier. In case its total gross income is less than P720,000 as of June 30, it shall submit a second disclosure within fifteen (15) days after the end of the month that its gross income for the current year to date reaches P720,000. The taxable juridical entity shall furnish each payor a copy of the BIR duly stamped received sworn declaration not later than five (5) days from the date of receipt by the BIR. In case of failure to submit the June 30 annual declaration/disclosure to the BIR, and to furnish the payor/s a copy thereof, the payor shall withhold the tax at the rate of 15%. The Collection Division/Large Taxpayers Collection Division/LTDO shall transmit one (1) copy of the duly submitted notarized sworn declaration, to the Withholding Tax Division within five (5) days from receipt thereof. The remaining copy shall be the file copy of the concerned Regional Office/Large Taxpayers Service/LTDO for monitoring purpose. Prescinding from the above-cited provisions, it is undisputed that Welders Testing Laboratories (Phils.), Inc. being a taxable juridical entity its fee for services rendered shall be subject to the rate of 10% or 15% creditable withholding tax, as the case may be. Thus, in the absence of a showing that it has submitted an annual declaration/disclosure to the BIR and furnished a copy to the payor thereof, a 15% creditable withholding tax shall be withheld by the payor. Accordingly, this Office holds that Welders Testing Laboratories (Phils.), Inc. cannot be classified as other contractors for purposes of the 2% creditable withholding tax but instead shall be subject to the 15% creditable withholding tax as prescribed in Section 2.57.2 (B) of Revenue Regulations No. 2-98, as amended by Revenue Regulations No. 17-2003. 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. IHEDAT Very truly yours, (SGD.) JOEL L. TAN-TORRES Commissioner of Internal Revenue