Taxability of a Contractor Engaged in the Supply of Labor Services

October 31, 1968 BIR RULING NO. 031-68 Messrs. Garcia, Matienzo, Alon & Co. 611 Manila Banking Corporation Building Ayala Avenue, Makati, Rizal Attention : Mr . Patricio A . Garcia Gentlemen : This refers to your letter dated April 1, 1968 stating that your client, the Industrial Services is a sole proprietorship engaged in the supply of labor services; that it entered into a contract with the Reynolds Philippine Corporation whereby it will supply and supervise the labor requirements of the said corporation; that for such services, the latter will pay your client the rate of P1.00 per hour for every laborer supplied; that based on the aforesaid contract your client receives from Reynolds Philippine Corporation the total amount equivalent to the sum of the number of laborers multiplied by the number of hours worked and then multiplied by P1.00 plus overtime and/or Sunday premium pay, if any; and that of this amount your client pays the laborers a basic pay of P6.20 a day plus overtime and/or Sunday premium pay, if any. You now request clarification as to whether or not the amount is allegedly held by your client in trust for distribution as salaries of its laborers is part of its gross receipts subject to the 3% contractor's tax. In reply thereto, I have the honor to inform you that inasmuch as your client is engaged in the supply of labor services, it is deemed a contractor. As such contractor, the entire amount it receives from the Reynolds Philippine Corporation constitutes its gross receipts, subject to the 3% tax prescribed by Section 191 of the Tax Code. Your contention that the amount equivalent to the salaries paid by your client to the laborers should not be considered as part of its taxable gross receipts as said amount is merely held in trust for distribution as salaries to the laborers is without legal basis. LLphil Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue