Tax Liabilities of Contractors Who Have Contracts with the Officer-in-Charge of Construction, U.S. Government

May 8, 1985 BIR RULING NO. 066-85 260-A 017-85 066-85 Gentlemen : This refers to your letter dated November 19, 1984 requesting the following: 1. That all contractors who have contracts with the Officer-in-Charge of Construction (OICC), U.S. Government, be exempt from the 1% tax imposed by Revenue Regulations No. 16-84 in accordance with Article XVIII of the P.I.-U.S. Military Bases Agreement; and 2. The all on-going projects/contracts prior to the effectivity of Revenue Memorandum Circular No. 28-84 increasing the percentage tax rates on service rendered by contractors from 3% to 4% be exempt from the application thereof. In reply, please be informed as follows: 1. Under Section 260-A of the Tax Code as amended by P.D. No. 1959 and as implemented by Revenue Regulations No. 16-84, the additional 1% gross receipts tax is imposed on the sale or purchase of foreign exchange. The parties liable to the payment of the tax are the banks, non-bank financial intermediaries and other authorized foreign exchange dealers or agents. (Revenue Memorandum Circular No. 30-84; BIR Ruling No. 01785). Therefore, the foreign exchange transactions entered into by contractors having contracts with the United States Government under the RP-US Military Bases Agreement are not exempt from the payment of the said tax. 2. The 4% (formerly 3%) contractor's tax prescribed by Section 205 of the Tax Code, as amended by P.D. No. 1959, is an excise tax based on the gross amounts actually received by the contractors not including accounts receivables, on the sale of services, or labor. (See Philippine Long Distance Telephone Co. vs. Collector, 90 Phil. 674) Accordingly, all payments made to contractors on contracts entered into or renegotiated after October 15, 1984, date of effectivity of P.D. No. 1959, are subject to the 4% tax based on gross receipts. cdtech Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner