Taxes Relevant to Labor Recruiting Agencies

July 8, 1980 BIR RULING NO. 096-80 Far East Mineral Ventures, Inc. 508 A.I.U. Building 6797 Ayala Avenue Makati, Metro Manila Gentlemen : This refers to your letter dated April 25, 1979 requesting confirmation of your opinion that you are subject to the 8% final tax imposed by P.D. No. 1354. It appears that on January 24, 1979, you entered into an agreement with Philippine Cities Service, Inc., (Cities) a service contractor engaged in oil exploration in the Philippines under P.D. No. 87. In said agreement, you agreed to supply CITIES qualified National Filipino personnel in various job categories and that as compensation, Cities shall pay you an amount equal to your actual cost for salary and wage disbursements paid to or on behalf of the labor supplied plus 20% thereof. In reply, please be informed that, pursuant to Section 2(b) of Revenue Regulations No. 15-78 implementing P.D. No. 1354, a subcontractor "means a foreign or domestic entity engaged by a service contractor for a specific undertaking in pursuance of a service contract under Presidential Decree No. 87, excluding administrative contract defined under subparagraph (f) hereof." (Emphasis ours) In the instant case, by merely supplying labor to Cities, you were not engaged by Cities for a specific undertaking. In other words, you were not engaged by Cities to perform a portion of the work which was supposed to be performed by Cities. The work is still being done by Cities but only with the employment of labor supplied by you. Accordingly, you are not a subcontractor within the purview of P.D. No. 1354; hence, not entitled to the 8% preferential income tax rate prescribed therein. In this connection, since under the foregoing facts, you are a labor recruiting agency, 15% of the income payments to you are subject to the withholding tax of 3% pursuant to Section 1(e)(2)(m) of Revenue Regulations No. 13-78, as amended by Revenue Regulations No. 6879, implementing P.D. No. 1351. Moreover, as an independent contractor, you are subject to the fixed and percentage taxes imposed by Sections 192 and 205 of the Tax Code of 1977, as amended. cdta Finally, as an employer, you should withhold income taxes on wages paid to your employees, pursuant to Revenue Regulations No. V-8, as amended, implementing Section 91 of the Tax Code. Very truly yours, RUBEN B. ANCHETA Acting Commissioner