BIR Ruling No. 077-65

July 7, 1965 BIR RULING NO. 077-65 The President University of the Philippines Quezon City S i r : Reference is made to your letter dated May 27, 1965, stating substantially as follows: cdtech The University of the Philippines (University for short) is a recipient of a grant from the Ford Foundation to establish and maintain a Science Teaching Center (Center for short) in the University. The Center has for its main function the printing and publishing of books, manuals and teaching guides in the sciences and mathematics for elementary and secondary schools. In the preparation of such books, manuals and teaching guides, the University will utilize the services of qualified science and mathematics professors in private Universities. A contract for a piece of work is proposed for execution between each of these professors and the University. Under the contract, the professor concerned has the obligation of preparing and producing a specified text, manual or guidebook in his own field of specialty. Subject to specified specifications in the contract, the professor concerned has full control over the manner of performance as well as over the details of the project. The work is to be done by the professor at the hours of his own choosing; with materials of his own choosing; at any place of his own choosing; and with any assistant or assistants of his own choosing on such terms of employment as he chooses to prescribe. The choice of assistants, however, is subject to the requirement of previous consultation with the Center, which is essential for maintaining standards and for reasonable assurance that the stipulations of the contract will be observed. Apart from this, the University exercises no supervision or control over the manner or details of performance. Its primary concern is with the end product or final result of the work contracted for. As long as the prescribed standards and specifications are satisfactorily met, the University will accept the piece of work and fulfill its corresponding obligations. Upon the submission of a satisfactory manuscript the University will pay the lump sum price or compensation stated in the contract. It is provided in the contract that upon final payment of such compensation or price, all rights in the manuscript (including copyright) shall vest unconditionally and exclusively in the University. Thereafter, the University shall undertake the publishing and printing of the textbooks, manuals and teacher's guides in cooperation with the Department of Education, the NSDB, and possibly the Agency for International Development. These materials will be distributed at or below cost to interested parties, particularly teachers and school children. You now pose the following questions: "1. Is the University required to withhold the contractor's tax due, if any, on the price or compensation paid the other contracting party? "2. Is the University required to withhold any income tax which may be due on the price or compensation paid under each contract? "3. What other obligations does the University incur under existing revenue laws under the above arrangement?" In reply, I have the honor to inform you as follows: Re query No . 1 . The professors are not deemed contractors within the contemplation of Section 191 of the Tax Code, and, therefore, the 3% contractor's tax need not be withheld from the money payments which the University will make to them. Re query No . 2 . The professors concerned shall not be considered employees of the University, and, therefore, the University shall not be under obligation to withhold the income tax on the compensation to be paid to them. Re query No . 3 . As the University is a quasi-public corporation performing governmental function (Sinco, Phil. Law on Local Governments, 1959 Ed., p. 21) it is exempt from the payment of business taxes considering that the printing and sale to the public of said textbooks, manuals and guides is incidental to the performance of its governmental functions. Very truly yours, (SGD.) BENJAMIN N. TABIOS Acting Commissioner of Internal Revenue