Management Fees Paid Under Operating Agreement Entered into on June 11, 1984 Subject to 3% Contractor's Tax

July 11, 1986 BIR RULING NO. 107-86 170 134-85 107-86 Gentlemen : This refers to your letter dated December 23, 1985 stating that your firm, Meralco Transit Organization, Inc. (METRO, Inc.), a wholly owned subsidiary of Manila Electric Company (MERALCO), has been contracted by the government through Light Rail Transit Authority (LRTA) to manage, operate, and maintain the entire Light Rail Transit (LRT) system; that your operating agreement with LRTA was approved on June 11, 1984; that as the operator, manager, and maintainer of the system you are compensated monthly in the form of management fee; and that 4% of said management fee is withheld by LRTA. Based on the foregoing representation, you now request information as to the applicable rate of contractor's tax due on your management fees derived from such operating agreement. In reply, please be informed that the 4% contractor's tax imposed under Section 170 (formerly Sec. 205) of the Tax Code, as amended by P.D. No. 1959 shall be applied on gross receipts derived from contracts entered into or renegotiated on or after October 15, 1984 . Gross receipts derived from contracts entered into or renegotiated prior to October 15, 1984 shall still be subject to the 3% contractor's tax. (Revenue Regulations No. 7-85 dated May 14, 1985) Such being the case, management fees paid to you under the operating agreement entered into on June 11, 1984 are still subject to contractor's tax at the rate of 3%. cdtech Since your gross receipt under said agreement entered into with LRTA prior to October 15, 1984, have been subjected to the 4% contractor's tax, you should file with this Bureau: Attn.: Appellate Division, a written claim for tax credit of the excess 1% tax withheld, within two (2) years from the payment thereof under Section 246 (formerly Sec. 295) of the Tax Code, as amended. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner