Whether or Not the Prime Contractor may Deduct the 3% Contractor's Tax Corresponding to the Amount Paid to the Sub-contractor is a Matter for Contractual Agreement Between Them

January 20, 1982 BIR RULING NO. 017-82 205-00 000-00 017-82 Filipino Pipe and Foundry Corporation Bo. Hulo, Mandaluyong, Metro Manila P.O. Box No. 1329, Manila Attention: Mr . Esteban S . Silva Gentlemen : This refers to your letter dated October 10, 1981, requesting the opinion of this Office whether a prime contractor is lawfully allowed to deduct without prior agreement a 3% per cent contractor's tax on gross receipts paid to a sub-contractor, and if not, whether the amounts already deducted by the contractor from the sub-contractor be considered a valid tax credit for the sub-contractor. It is represented that a prime contractor withheld from your company (the sub-contractor) an equivalent 3% on gross receipts as contractor's tax from the year 1978 to 1980 on a construction project of the government part of which was sub-contracted to your company. In reply, I have the honor to inform you that Section 205 of the Tax Code imposed a 3% contractor's tax on the gross receipts which includes all the amounts received by the prime or principal contractor as the total contract price undiminished by the amount paid to the sub-contractor under a subcontract arrangement. The portion of the total contract price which is paid to the sub-contractor shall be excluded from the taxable gross receipts of the sub-contractor is the party directly liable for the payment of the 3% contractor's tax based on the total contract price and which tax includes the 3% tax corresponding to the amount paid to the sub-contractor. Consequently, the issue of whether or not the prime contractor may deduct the 3% contractor's tax corresponding to the amount paid to the sub-contractor is a matter for contractual agreement between them. aisadc However, if such deduction has been made by the prime contractor, the amount deducted which supposedly represents the 3% contractor's tax, cannot be validly claimed by the sub-contractor as tax credit since as far as this Bureau is concerned said tax is imposed on the prime contractor and not on the sub-contractor. Very truly yours, RUBEN B. ANCHETA Acting Commissioner