BIR Ruling No. 021-83

February 15, 1983 BIR RULING NO. 021-83 Gentlemen : This refers to your letter dated November 29, 1982 requesting in behalf of your client, DCCD ENGINEERING CORPORATION, exemption from the 3% contractor's tax, as sub-contractor providing local personnel to perform services for the construction management of the implementation of the Light Rail Transit System of Metro Manila. The records disclose that in August, 1980, the Ministry of Transportation and Communication (MOTC) entered into an agreement with Electrowatt Engineering Services Ltd. (EW), a Swiss corporation, whereby the latter, as foreign consultant, will also provide construction management services for the implementation of the Light Rail Transit (LRT) project; that Article 5 of the said Basic Agreement provides that through MOTC the Government of the Philippines shall exempt EW and its expatriate personnel other than Philippine national from any taxes, duties, levies and other impositions imposed under the laws and regulations in effect in the Philippines on foreign consultants and expatriate personnel on payments made to them in connection with the carrying out of the services; and in the event that the Philippine Government cannot provide such tax exemptions to EW and its expatriate personnel, MOTC shall assume the responsibility for the payment thereof; and that said EW entered into a sub-contract agreement with your client, DCCD Engineering Corporation, whereby the latter will provide the local personnel and other services for the Light Rail Transit project under the general direction and supervision of EW's resident manager. In reply, please be informed that under Section 205 of the Tax Code, that portion of the total contract price which is paid to the sub-contractor by the prime contractor are excluded from the taxable gross receipts of the former. The fact that the 3% contractor's tax shall not be paid by EW as the principal contractor, because the MOTC shall assume the payment thereof, the obligation of paying the same remains principally with the prime contractor and is not shifted to the sub-contractor. Accordingly, your client, DCCD Engineering Corporation, is not subject to the contractor's tax under its sub-contract agreement with EW. This ruling serves as a certification to your client, DCCD Engineering Corporation, that it is exempt from contractor's tax on gross receipts derived from EW for services rendered pursuant to the aforesaid agreement. Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner Bureau of Internal Revenue