Professional Fees of Specialty Contractors Subject to 2% Creditable Withholding Tax Effective October 1, 2001

August 15, 2003 BIR RULING NO. 006-03 RR 6-2001 000-00 Punongbayan & Araullo Ernst & Young International 20th Floor, Tower I, The Enterprise Center 6766 Ayala Avenue, 1200 Makati City Attention: Ms. Marivic Espao Tax Partner Gentlemen : This refers to your letter dated September 3, 2001 requesting on behalf of your client, DAVIS LANGDON AND SEAH PHILIPPINES, INC. ("DLS"), for a ruling that the professional fees that DLS receives from its clients are subject to the creditable withholding tax at the 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. It is represented that DLS, with principal address at 4th Floor King's Court I, 2129 Pasong Tamo, Makati City, is a domestic corporation duly registered with the Securities and Exchange Commission (SEC) under SEC Registration No. 180404 dated August 17, 1990; that DLS is an independent firm of quantity surveyors, cost engineers and construction cost specialists; that under its Articles of Incorporation, its primary purpose is "to carry on the business of quantity surveyors, 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 pursuit of its objective, DLS renders quantity surveying 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, DLS is a specialty contractor, notwithstanding that DLS does not perform actual construction work, because the quantity surveying services it renders pertain to the performance of construction work requiring special skill; that DLS' principal contracting business involves the use of specialized building trades or crafts; that DLS, being a specialty contractor, is subject to 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. 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 "(T)hose 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 . CaATDE Based on the foregoing, this Office hereby confirms your opinion that DLS is a specialty contractor. Accordingly, as a specialty contractor, the professional fees that DLS 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.) GUILLERMO L. PARAYNO, JR. Commissioner of Internal Revenue