Publishing a Supreme Court Decision Holding a Construction Firm Which Provides "Technical Services" in the Construction of Buildings as Contractor Pursuant to Section 191 (now 205) of the National Internal Revenue Code, as Amended

May 15, 1985 REVENUE MEMORANDUM CIRCULAR NO. 12-85 SUBJECT : Publishing a Supreme Court Decision Holding a Construction Firm Which Provides "Technical Services" in the Construction of Buildings as Contractor Pursuant to Section 191 (now 205) of the National Internal Revenue Code, as Amended TO : All Internal Revenue Officers and Others Concerned The Supreme Court in a decision dated 17 January 1985, rendered in the case of "Commissioner of Internal Revenue vs. Avecilla Building Corporation and the Court of Tax Appeals, G.R. No. L-42394, upheld the action of this Office in collecting the 3% (now 4%) contractor's tax imposed by Section 191 (now 205) of the Tax Code from a construction firm for providing "technical services," supervisory in nature, for a fixed fee in the construction of buildings, pertinent portions of the ruling hereunder quoted " . . . The lower court stated that Avecilla Corporation did not perform any construction work for PNB, DBP, or SSS. It was hired to supervise the construction of buildings but actual construction was done by other contractors. casia "It can be gleaned from its articles of incorporation that the respondent corporation is principally engaged in the construction of buildings and other structures. It offers actual as well as technical services through its 'work engineers' to the Philippine National Bank, Development Bank of the Philippines and the Social Security System in the construction of their buildings. The respondent corporation's 'work engineers' acted as overseers of the building constructors engaged by the three government agencies. The 'work engineers' rendered their professional services as employees of the respondent corporation . They did not render services in their individual capacities but as extensions of the firm which was hired to oversee the construction. Thus, licensed engineers did not go there as hired professionals of the PNB, DBP, or SSS but as employees of Avecilla Building Corporation. The private respondent had a district personality from the work engineers tax wise and in other aspects . xxx xxx xxx "The contractor's tax as contemplated by the Revenue Code is in the nature of an excise tax on the exercise of a privilege. The tax is imposed on the sale of services or labor. It is an indirect tax and whether or not the contractor is exempt from internal revenue taxes is immaterial . The tax imposed on Avecilla Building Corporation is, therefore, a tax on its business and privilege of selling the services and labor of its employees and not on the professional services of those employees themselves. (Emphasis, supplied) xxx xxx xxx The law imposes a 3% percentage tax on among others, ' building . . . and other construction work contractors '. (emphasis supplied). The law does not distinguish actual from technical services performed by the contractor. Where the law does not distinguish the court should not distinguish. (Robles v. Zambales Chromite Mining Co., 104 Phil 688) Hence, a building or any other construction work contractor like the Avecilla Building Corporation whether engaged in actual or technical services in relation to its construction business is liable to the contractor's tax under Section 191 of the National Internal Revenue Code, as amended." It is desired that this Circular be given the widest publicity possible. RUBEN B. ANCHETA Acting Commissioner