Liabilities of Stainless Steel Industries, Inc.

September 18, 1986 BIR RULING NO. 189-86 170 000-00 189-86 Gentlemen : This refers to your letter dated July 31, 1986 stating that you are a registered corporation with direct contracts with engineers, architects and contractors as a sub-contractor; that the contracts specify the designs, measurements and materials to be used which conform with the specific portions of the building sub-contracted; that the materials are either brass, steel metals, stainless steel or G.I. sheet which are designed according to specifications; that performance bonds are required in most contracts; and specification of works are enumerated according to building structures. cdti You now request a ruling as to your tax liabilities under the following additional facts: "Case I A residential unit owner builds a house and constructed by a general contractor. Per Plans prepared by the owner's architect the main entrance including canopy should be constructed from metal section and panels whose profiles are all custom built. The general contractor, knowing the Stainless Steel Industries, Inc. (Stainless) as specialty contractor with specification on this line hired the services of Stainless to supply the materials, labor and tools to construct said entrance and canopy. Under above case how is as specialty contractor with specification on this line hired the services of Stainless to supply the materials, labor and tools to construct said entrance and canopy. Under above case how is Stainless to be categorized? "Case II A residential unit owner builds a house and instructed his architect to design his kitchen and has to use building materials that are clean looking and highly resilient to decomposition and requiring the least maintenance works. Relative to this the architect decided to use metals, for all kitchen cabinets, doors, counters and tables, Stainless being a specialist in the construction of such requirements is hired by the owner to execute the plan. Under what status is Stainless per above? "Case III A general contractor is commissioned to construct a commercial building. The specifications on the columns covered by sheet metal instead of poured or concrete hallow blocks. Stainless being a specialist on this, is hired to construct the columns including the metal cladding. Under what category Stainless should be? "Case IV Stainless is commissioned to undertake any of the above, however, the site is in a country other than the Philippines. Under what category Stainless should be? "Case V Stainless with the above activities decides to register under BOI to avail itself on export incentives. Under what category Stainless should fall? In reply, please be informed as follows: 1. Under Section 170 of the Tax Code, as amended, any portion of the total contract price which is paid to the sub-contractor by the prime contractor shall be excluded from the taxable gross receipts of the former. Accordingly, since under case I and case III you are considered a sub-contractor, you are not subject to the 4% contractor's tax under your sub-contract agreement with the general (prime) contractor adverted to in your query. (BIR Ruling No. 101-85 dated June 25, 1985). 2. Under Case II, you are subject to the annual fixed tax of P200.00 prescribed in Section 161(1) of the Tax Code, as amended, and to the 4% contractor's tax on your gross receipts imposed under Section 170 of the same Code. 3. Contract for services totally executed, consummated and perfected outside of the Philippines is not subject to the 4% contractor's tax for the Philippine Government cannot reach the same by taxation for lack of territorial jurisdiction. (BIR Ruling No. 091-83). Therefore, under your Case IV facts, you are not subject to the 4% contractor's tax under Section 170 of the Tax Code, as amended. cdtech 4. The exemption privilege of pioneer enterprises from all national internal revenue taxes shall cover only such direct tax liabilities as may be imposed in connection with the operation of the registered pioneer project and shall exclude such taxes as may be transferred or passed on to the registered enterprises either by business practice or mere contractual arrangement. Such being the case, this Office cannot categorically rule on your availment of export incentives unless you are granted the tax exemption on your particular registered operation by the Board of Investments. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner