3% Contractor's Tax — Research Work

September 11, 1981 BIR RULING NO. 175-81 205 000-00 175-81 The Executive Director Commission on Population Makati, Metro Manila S i r : This refers to the letter dated July 24, 1981 of POPCOM Legal Officer Edgardo E. Sauco, requesting for opinion on whether private educational institutions are subject to the 3% contractor's tax for contracts involving research work they render in your favor. It is represented that you have been in the practice of withholding 3% contractor's tax due from the payments you make to religious and private educational institutions for the research work contracts you enter with them; that lately, however, the aforesaid private educational institutions have started to question the legality of your withholding the said tax claiming that it would constitute double taxation considering that they are paying their income tax equivalent to 10% of their net income, which includes their income from contracts with the POPCOM. In reply, I have the honor to inform you that for rendering research work to that Commission, the aforesaid private educational institutions are considered independent contractors, subject to the 3% contractor's tax imposed by Section 205 of the Tax Code. Accordingly, as a government agency, you shall deduct and withhold 3% contractor's tax from the gross payment to them and remit the same to this Bureau pursuant to Revenue Regulations No. 16-77, implementing Republic Act No. 1051. Their contention that said withholding of the contractor's tax would constitute double taxation is untenable because the order tax being imposed on them is income tax based on their net income in accordance with Section 24(a) of the Tax Code. Very truly yours, RUBEN B. ANCHETA Acting Commissioner