BIR Ruling No. 016-63

March 7, 1963 BIR RULING NO. 016-63 The Angle Bros. 1228-24 Rizal Ave., Manila Gentlemen : This has reference to your letter dated September 6, 1962, requesting a ruling on the following facts: cdta "We are manufacturers of mens' apparel and are also in the business of receiving orders as contractors. Just recently, we were contacted by a clothing company from New York who desires that we do the following for them: "(a) Make into finished slacks the materials they will furnish us and reship to them said finished products. The materials will come from abroad and for our services, we will receive from them the corresponding service charges for converting their textile materials into finished slacks. "(b) Inasmuch as they are willing to furnish us the relative materials coming from abroad, we were able to induce them to get the necessary raw materials from our local mills. In this case, they are to make the orders with the mill chargeable against our account. They will, in turn, pay us thru the bank, the equivalent amount of the cost of the materials. Payment to the mill will be made directly by us under the domestic letter of credit. Said materials will be processed by us into finished products which will be exported to them. Our selling price will include the cost of materials and the corresponding service charge. cdti "We were made to understand that income derived from services rendered in converting materials into finished products is not subject to any kind of taxes except income tax if said materials are furnished by an importer from abroad. If our information is true, are we also entitled to such an exemption should we carry our business transaction with a foreign importer under the condition mentioned under (2) above? To further our inquiries, please advice us what kind of taxes are we to pay on above conditions?" In answer thereto, I have the honor to inform you that pursuant to Section 191 of the Tax Code, as amended by Republic Act 2072, the abovementioned undertaking is not subject to any internal revenue business or occupation tax. The importation of the raw materials are neither subject to advance sales tax nor to compensating tax prescribed in Sections 183 and 190 of the Tax Code, but the same is subject to the rules prescribed by the Bureau of Customs. The re-exportation of the finished products is likewise not subject to sales tax under Section 188(c) of the same Code. cdt It is, however, understood that the income to be derived from the business are subject, in proper cases, to the income and additional residence taxes. Very truly yours, (SGD.) JOSE B. LINGAD Acting Commissioner of Internal Revenue The above ruling was duly signed by the Acting Commissioner of Internal Revenue on March 7, 1963. cdll (SGD.) P. F. LANDAS Revenue Operations Head (Legal)