BIR Ruling No. 153-10

December 22, 2010 BIR RULING NO. 153-10 RR 6-2001; BIR Ruling No. DA-06-2003; BIR Ruling No. DA-380-2004 Danilo C. Mancita, Inc. (DCMI) Suit 312 J&L Building 251 EDSA Mandaluyong City Attention: Danilo Mario C. Mancita President Gentlemen : This refers to your letter dated March 5, 2010, requesting a confirmation of your opinion that the professional fees received by Danilo C. Mancita, Inc. (DCMI) from its clients are subject to the creditable withholding tax at the rate of two percent (2%) pursuant to Section 2.57.2 (E) (3) of Revenue Regulations (Rev. Regs.) No. 2-98 (Withholding Tax Regulations), as amended by Section 3 of Rev. Regs. No. 6-2001. HAcaCS Documents submitted disclosed that Danilo C. Mancita, Inc., (DCMI, for short), with TIN 007-131-255, is a domestic corporation registered with the Securities and Exchange Commission (SEC) on September 23, 2008, bearing Company Reg. No. CS200815076; that its primary purpose is to engage in construction management, consultancy and general contracting services, for private person, establishment and government departments, and generally to carry on any activities in conjunction with and related to any of the services mentioned; that per nature and scope of its contract with its client, Arthaland Corporation, DCMI serves its client, as a specialty contractor, using special skills and it likewise uses specialized building trades and crafts in its general building business; that as such, it is your position that the professional fees it received from its client are subject to the 2% creditable withholding tax pursuant to Section 2.57.2 (E) (3) of Rev. Regs. 2-98, as amended. In reply, please be informed that Section 3 of Rev. Regs. No. 6-2001, amending Section 2.57.2 (E) (3) of Rev. Regs. No. 2-98, defines the term "Specialty Contractor" as "(T)hose whose operations pertain to the performance of construction work requiring special skill and whose contracting business involves the use of specialized building trades or crafts". Gross payments to such persons are subject to creditable withholding tax at the rate of 2%. In BIR Ruling No. 006-03 dated August 15, 2003, this office ruled that for purposes of withholding tax, Davis Langdon and Seah Philippines, ("DLS"), an independent firm of quantity surveyors, cost engineers and construction cost specialists, is considered a specialty contractor. DLS renders quantity surveying services in building and other civil works projects including, but not limited to, initial design, tendering procedures and contract arrangements, cost studies and planning, Master development programming, tender contract analysis and report, construction progress financial statement preparation, advisory contract administration, valuation of construction work in progress and cost and material supervision in each and every work phase of construction, which services pertain to the performance of construction work requiring special skill. Notwithstanding the fact that DLS does not perform actual construction work, DLS is considered a specialty contractor, because its principal contracting business involves the use of specialized building trades or crafts. Accordingly, said ruling states that "as a specialty contractor, the professional fees that DLS receives for quantity surveying services are subject to creditable withholding tax at the rate of 2% effective October 1, 2001 (formerly 1%), in accordance with Section 3 of Rev. Regs. No. 6-2001, amending Section 2.57.2 (E) of Revenue Regulations No. 2-98." The same ruling likewise cited the case of Commissioner of Internal Revenue vs. The Court of Tax Appeals and Avecilla Building Corporation , 134 SCRA 49 (1985), wherein the Supreme Court ruled that a domestic corporation engaged in the business of "general engineering and contracting all kinds of constructions and structure; employing and contracting with architects, engineers, surveyors, chemists and other technical men, to perform engineering and architectural works, including the preparation of surveys, plans, specifications, estimates, etc. and to act as consulting and/or supervising engineers and architects, . . . in connection with the said contracting and building business" is considered a contractor under Section 191 of the Tax Code, which lists the persons subject to the then contractor's tax. The previous aforementioned decision was also quoted in the case of Hon. Efren I. Plana, in his capacity as Commissioner of Internal Revenue, petitioner, vs. Court of Tax Appeals and Engineering Development Corporation of the Philippines ,G.R. No. L-52018, February 23, 1990, which considers a corporation engaged in providing "general scientific, engineering and technological services in all the various branches thereof including but not limited to evaluation, appraisal, market studies, project reports, management, consultation, construction supervision, training and/or engagement in any work or plan" a specialty contractor. The Court stated that "it does not matter if no actual construction work was performed; what is important and determinative is that [the company] sold services, the exercise of which activity is a privilege taxable under the law." Based on the foregoing, this Office hereby confirms your opinion that DCMI is a specialty contractor since it is engaged in construction management, consultancy and general contracting services for private persons, establishment and government departments, and generally carrying any activities in conjunction with and related to any of the services mentioned. Accordingly, the professional fees that DCMI receives as construction project specialist are subject to creditable withholding tax at the rate of 2% pursuant to Section 2.57.2 (E) (3) of Rev. Regs. 2-98, as amended by Rev. Regs. 6-2001. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. SACEca Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue