BIR Ruling No. 076-64

December 23, 1964 BIR RULING NO. 076-64 Messrs. Stewart, Cunanan & Co. Certified Public Accountants P. O. Box 2288 Manila Gentlemen : Reference is made to your letter dated May 13, 1964 requesting information on the following facts: "One of our clients, a foreign corporation licensed and engaged in business in the Philippines as drilling contractors, acquired from a sister foreign corporation certain oil well drilling equipment, spare and replacement parts, automotive equipment and auxiliary equipment located in the Philippines, all of which equipment and parts are hereinafter collectively called the equipment. Prior to acquisition by our client, its sister foreign corporation was leasing the equipment to all companies engaged in oil exploration in the Philippines at a fixed daily rate when the equipment is used and at a standby rate per month when the equipment is idle. Our client is now contemplating to continue leasing the equipment to the same oil companies operating in the Philippines for the same daily rate and standby rate stated above. "When the equipment was being leased by the sister company of our clients, the rentals derived therefrom was not subject to any business tax. However, it may happen that the oil company to whom our client may lease the equipment may also enter into a drilling contract with our client. In this eventuality, the question posed by our client are: "1. Will your office consider the equipment lease and rental agreement and the drilling contract as one indivisible contract such that both the equipment rentals and the drilling fees would be subject to the 3% contractors' tax. "2. Or, will your office consider the equipment lease and rental agreement separate and distinct from the drilling contract so that the equipment rentals would not be subject to the 3% contractors' tax and only the drilling fees would be subject to this tax?" In answer thereto, I have the honor to inform you as follows: The drilling contract in effect nullifies the so-called lease contract because, in understanding the actual drilling work for a fee, your client will remain in actual possession if the drilling apparatus and enjoy the beneficial use thereof which consists of its use thereof in the accomplishment of its contractual obligation. Since your client will actually receive an amount under the drilling contract composing of both the supposed rental and the drilling fee, necessarily the entire amount constitutes its gross receipts subject to the 3% tax. cdti Very truly yours, (SGD.) BENJAMIN N. TABIOS Acting Commissioner of Internal Revenue