BIR Ruling No. 063-65

June 3, 1965 BIR RULING NO. 063-65 Mr. Jorge S. Sadiua Attorney-at-Law Room 205 Santos Building 287 E. de los Santos Avenue Mandaluyong, Rizal S i r : This refers to your letter dated May 11, 1965 stating as follows: cdtech " 'A' is a C-13 holder selling locally purchased perfumes and other toilet articles. 'A' was able to secure a license from a foreign company to produce locally a certain brand of its well known products. 'A' will pay, according to the agreement, a certain per cent as royalty to the foreign company. 'A' however, has no factory so he hired 'B' a locally licensed manufacturer to produce the licensed product. 'A' supplies the materials and 'B' the labor and the facilities of his factory. "Questions "First Who is the manufacturer between the two, A or B? "Second If A is the manufacturer, what is B or vice versa? "Third What is the tax liability, if there is, of the foreign company to our government? "Fourth If the foreign company is liable to pay taxes to the government, what is the obligation of 'A' regarding the same, if any? "Fifth What is the tax liability of 'B' for furnishing the labor and the facilities of his factory?" In reply thereto, I have the honor to inform you the following: "A", as the licensee to manufacture locally the products of the foreign company is the manufacturer of said products subject to the fixed and percentage taxes prescribed by Sections 182(A)(1) and 184 of the Tax Code. "B" in manufacturing the products for "A" is constituted an independent contractor subject to the fixed and percentage taxes, pursuant to Sections 182(A)(1) and 191 of the aforesaid Code. The royalties to be paid by "A" to the foreign company constitutes income from sources in this country subject to Philippine income tax prescribed by Section 24(b)(1) of the Tax Code. It is the obligation of "A" to withhold said tax, pursuant to Section 54, in relation to Section 53, both of the same Code. Very truly yours, (SGD.) BENJAMIN N. TABIOS Acting Commissioner of Internal Revenue