BIR Ruling No. 127-84

July 30, 1984 BIR RULING NO. 127-84 205-182-83-127-84 Gentlemen : This refers to your letter dated June 14, 1984 requesting a ruling as to whether or not you are subject to the 3% contractor's tax on your Contract to render construction management services to the Philippine National Bank (PNB). Documentary evidence submitted show that for and in consideration of a professional fee of not exceeding Two Hundred Fifty Six Thousand Two Hundred Fifty Pesos (P256,250.00) per month, depending upon the manpower requirements as computed in accordance with the amended Contract executed on January 5, 1984 by and between PNB and the Avecilla Building Corporation (ABC) the latter has been engaged by PNB to render construction management services in connection with construction of the PNB Building Complex at the Financial Center Site, Roxas Boulevard, Metro Manila consisting of the following: "(a) Plan, program and monitor the various activities and act as adviser on material cost and construction method; "(b) Update and keep current the PERT/CPM schedule; "(c) Recommend purchase of specified items of equipment and materials that required long lead time for procurement and delivery and expedite purchase in general; "(d) Review all bids for compliance with stipulated conditions and recommend award with concurrence of Architects/Engineers and PNB; "(e) Manage the general coordination and scheduling of work; "(f) Maintain the supervisory and inspection staff at the jobsite; "(g) Assist PNB and the various contractors in the development and administration of an overall labor relations program for the project; "(h) Maintain records of all contracts, shop drawings and samples, purchases, sub-contractors, materials and equipment; "(i) Keep accurate progress reports; "(j) Review all request for change orders and submit recommendation to the Architect/Engineer and PNB; "(k) Set up joint inspection of the whole Project at some specified internal prior to completion in company with the Architects/Engineers and PNB's representatives; and "(l) Prepare and submit Certificates of Final Acceptance." In reply, please be informed that for rendering construction management services to PNB, you are considered an independent contractor subject to P100.00 annual fixed tax and to the 3% contractor's tax on your gross receipts derived therefrom pursuant to Section 192(1) and 205(16) both of the Tax Code, as amended. Said Section 205 defines the term "independent contractor" as including "persons (juridical or natural) not enumerated above (but not including individuals subject to the occupation tax under Section 12 of the local Tax Code) whose activity consists essentially of the sale of all kinds of services for a fee regardless of whether or not the performance of the service calls for the exercise or use of the physical or mental faculties of such contractors or their employees." Under this definition, which was incorporated in Section 191 (now Section 205) of the Tax Code by P.D. No. 69 effective January 1, 1973, any person who, without being included in the enumeration renders physical or mental service for a fee is considered an independent contractor. (Revenue Memorandum Circular No. 5-73) Hence, said definition squarely applies to your case. The decision of the Court of Tax Appeals in CTA Case No. 1827 entitled "Avecilla Building Corporations vs. BIR Commissioner", November 10, 1975, (now on appeal in the Supreme Court under G.R. No. L-42394) which ruled that you are not an independent contractor with respect to your business of furnishing technical services in the construction of buildings, cannot be cited as authority so as to exempt you from the payment of the fixed and percentage taxes in question. It should be noted that said court case involves refund of the 3% contractor's tax for the period from September 1964 to September 1966. During said period, the aforesaid definition of the term "independent contractor" was not yet a part of Section 191 (now Section 205) of the Tax Code; hence, the same cannot be applied in the aforecited court case. Under Republic Act No. 1051 as implemented by Revenue Regulations No. 4-83 dated March 15, 1983, PNB shall deduct and withhold 3% contractor's tax before making money payment to you under said management contract. Moreover, for rendering management construction services, the service fee paid to you is subject to the 5% withholding tax, in accordance with Section 1(b) in relation to Section 1(a)(5) of Revenue Regulations No. 13-78 as amended by Revenue Regulations No. 6-79, implementing Section 53(f) of the Tax Code, as amended by P.D. No. 1351. atdc Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner