Applicability of Section 170 to a Company who is Neither a Business Agenct Nor an Independent Contractor

June 29, 1987 BIR RULING NO. 179-87 170 000-00 179-87 Gentlemen : This refers to your letter dated November 20, 1986 requesting a ruling as to the applicability of Section 170 of the Tax Code on your transactions described as follows: "Time Incorporated, a U.S. Corporation and Publisher of Time Magazine, entered into an agreement with Mediamark Limited, a HongKong entity, whereby the latter "is prepared to purchase advertising space for insertion in the Magazine". Subsequently, Mediamark Limited entered into an agreement with B and S Management and Investment Company whereby the latter was appointed as "exclusive distributor of advertising spaces of Time Magazine throughout the Philippines" and shall be solely responsible for marketing and sale in the Philippines of advertising spaces with Mediamark Limited having no control whatsoever on selling prices. Also, the Agreement provides that B and S shall pay for all advertising spaces irrespective of whether or not it fails to sell all or some of such spaces to its Philippine customers". You contended that you can not be considered as a business agent because in the Distribution Agreement between you and Mediamark Limited, the selling prices are determined solely by you and that you have to pay the latter all ordered advertising spaces whether or not such advertising spaces are sold to your Philippine clients. You also contended that you are not an independent contractor because you do not sell service but advertising spaces. In reply, please be informed that based on the foregoing facts, your contention is correct. You can not be considered a business agent within the contemplation of Section 157(v) of the Tax Code as amended. Neither can you be considered a contractor because by buying and selling advertising spaces you are not rendering any service. The theory of the 4% contractor's tax is that it is a sale of service or labor. However, you are subject to income tax on income derived from your business of selling advertising spaces. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner