Valuation for Estate Tax Purposes of Shares of Stock of Certain Companies

February 18, 1986 BIR RULING NO. 012-86 82 000-00 012-86 Gentlemen : This refers to your letter dated July 12, 1985, requesting a ruling as to whether the UST Hospital is correct in subjecting the stipends and allowances received by the members of that Organization to the 10% expanded withholding tax. It is represented that members of that Organization are resident trainees of the UST Hospital, that a Memorandum of Residency Training Agreement is executed by the resident trainee, a duly licensed physician, and the University of Santo Tomas, whereby the resident-trainee has applied for intensive training and residency 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; that 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; and that the resident trainee is given a stipend of P400.00 and a food allowance of P1,200.00. 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. Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner