BIR Ruling No. 182-83

October 17, 1983 BIR RULING NO. 182-83 Gentlemen : This refers to your letter dated June 30, 1983 requesting a ruling as to the applicable rate of expanded withholding tax on the professional fees paid by you to Planning Resources and Operations Systems, Inc. (PROS). It is represented that Public Estates Authority (PEA) entered into an agreement for professional services with PROS whereby the latter shall undertake multi-disciplinary planning studies required for the development and disposition of Manila-Cavite Coastal Road and Reclamation Project (MCCRRP) for a total professional fee of P2,000,000.00; that PROS shall perform for PEA the preparation of General Framework Plan (GFP), which is intended to be the official instrument to guide the final development of the MCCRRP and expected to cover three (3) general phases of works, namely, review and assessment phase, restatement of goals and objectives phase and general framework planning phase; that the work shall be undertaken by PROS through a team of planners and consultants and backed up by the resources of PROS and its affiliated firms; that PROS shall use the best technical knowledge and according to the best accepted professional standards; and that you are presently withholding a 5% tax from the said professional fees, but PROS maintains that such payments should only be subject to an expanded withholding tax of 3% of 15% on the gross amount thereof. In reply, I have the honor to inform you that professional fees paid to taxable juridical persons engaging as management and technical consultants are subject to the 5% withholding tax in accordance with paragraph (a)(5), in relation to paragraph (b), both of Section 1 of Revenue Regulations No. 13-78, as amended by Revenue Regulations No. 6-79, implementing Section 53(f) of the Tax Code as amended. Under the foregoing facts, PROS is performing technical consultancy services. Accordingly, and since PROS is a taxable juridical person, the progress payments of the professional fees you made to it are subject to the 5% withholding tax. Moreover, in performing technical consultancy services, PROS is an independent contractor subject to the fixed and percentage taxes imposed by Sections 192(1) and 205(16) of the Tax Code. Accordingly, since PEA is a government corporation, the 3% contractor's tax due on the professional fees paid to PROS shall be deducted, withheld and remitted to this Bureau by PEA, in accordance with Revenue Regulations No. 4-83 implementing Republic Act No. 1051. cd Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner Bureau of Internal Revenue