BIR Ruling No. 354-2021

BUREAU OF INTERNAL REVENUE REPUBLIC OF THE PHILIPPINES DEPARTMENT OF FINANCE

Quezon City

CIR vs CTA 134 SCRA 49: Plana vs CTA, G.R. No. L-52018 RR No. 2-98, as amended BIR Ruling No. 006-03

jv.354-2121 OCT 0 4 2021

Legazpi Village, 1229 Makati City Sol Building I 12 Amorsolo St. DCCD-PRIMEX-ALAI-EDCOP-SYSTRA JOINT VENTURE

Gentlemen: Attention: Patricia Lee Alexandra Bautista JV Legal Counsel

Management and Capacity Buiiding for PNR Capital Improvement Projects ("PNR VENTURE ("Joint Venture") with the Philippine National Railways ("PNR"), to wit: (2) issues relative to the Consulting Services for Program Management, Construction Project") entered into by DCCD-PRIMEX-ALAI-EDCOP-SYSTRA JOINT This refers to your letter dated January l !, 20 1 6 requesting confirmation on two

2 1. that the above Joint Venture is a specialty contractor subject to the two that the reimbursables or amounts advanced by the Joint Venture for and on percent (2%) expanded withholding tax (EWT); and

behalf of PNR are not income payments to the Joint Venture. hence. not subject to EWT and VAT.

It is represented that the Joint Venture comprises five (5) companies, namely:

2. Pacific Rim Innovation and Management Exponents. Inc. (PRIMEX) (TIN: 1.DCCD Engineering Corporation (DCCD) (TIN:

4. Engineering and Deveiopment Corporation of the Philippines (EDCOP) 3. Angel Lazaro & Associates International (ALAI) (TIN: 5. SYSTRA Philippines, Inc. (SYSTRA) (TIN: (TIN: t}

services ranging from pre-feasibility to feasibility studies, conceptual to basic to that the above companies are engineering consulting firms that provide technical detailed engineering designs. value engineering/value assessments. program

DCCD-PRINEX-ALAI-SYSTRA- JOINT UENTURE Page 2 of 4

Construction Management and Capacity Building for PNR Capital Improvement Projects for and in consideration of : that said Contract is limited to the fotlowing works: management, construction supervision and management, independent consultant/ engineer services, among others; that said companies entered into a Joint Venture Agreement (JV Agreement) on June 18, 204 5 whereby the parties agreed to join their resources, equipment and what is needed to participate in the eligibility, bidding and undertaking of the PNR Project; that on August 13, 2015, PNR and the Joint Venture entered into a Contract for the Consulting Services for Program Management. (Php >, inclusive of all applicable taxes;

1. Track Rehabilitation from Tutuban to Los Banios, Laguna 2 Double Tracking from Sucat to Alabang 3 Track ballasting for Hondagua Division 4. Railway Bridges Repair and Rehabilitation 5 Restoration of Station Building including platform and passenger shelter

6. 1 Rehabilitation of Rolling Stock/Locomotives Repair of Six (6) Diesel Multiple Units (DMUs) improvements

and that the scope of work relative to the PNR Project includes the following:

I. Assistance to Bidding 2 3. 4 Field Inspection Project Scheduling Construction Quality Assurance

5 Contract Dispute Assistance and Resolution 1 Constructability/Value Engineering Reviews 1 Factory Inspection 8 9 Job Site Safety Capacity Buiiding for Financial Management/Asset Management Consulting

Services.

contractors and specialty contractors. Under the said regulations. the applicable withholding tax rate for the above contractors is two percent (2%). individual or corporate, such as general engineering contractors. generat buiiding tax rate to be imposed on gross payments made to certain contractors, whether (RR) No. 2-98, as amended by RR No. 06-2001, provides the applicable withholding In reply, piease be informed that Section 2.57.2 (E) (3) of Revenue Reguiations

follows: rate, a description and/or enumeration of the activities undertaken by entities falling under each of these categories are provided in the above-mentioned regulations, as For purposes of defining the businesses covered by the said withholding tax

creditable withholding tax and rates prescribed thereon. "Section 2.57.2 Income payment subject to

V

DGCD-PRIMEX-ALAI-SYSTRA- JOINT VENTURE Page 3 of 4

class of payee from the following items of income payments to persons residing in the Philippines: Except as herein otherwise provided, there shall he withheld a creditable income tax at the rates herein specified for each

XXX XXX XXX

On gross payments to the following contractors, whether individual or corporate -- (E Income payments to certain contractors. Two percent (2%)

whose principal contracting business in connection with fixed including the following divisions or subjects: works requiring specialized engineering knowledge and skill. ( General engineering contractors Those

( (d) (a Highways, streets and roads; Reclamation works; Railroads.

XXX XXX XXX

principal contracting husiness is in connection with any playgrounds, and other recreational works, refineries. chemical plants and similar industrial plants requiring Specialized engineering knowledge and skills, powerhouse. power plants and other utility plants and installation, mines and metallurgical plants. cement and concrete works in connection with the above-mentioned fixed works. structure built. for the support, shelter and enclosure of persons, animals, chattels, or movable property of any kind, requiring in its construction the use of more than two unrelated building trades or crafts, or to do or superintend the whole or any part thereto. Such structure includes sewers and sewerage disposal plants and systems, parks, { General building contractors -- Those whose

crafts. " requiring special skill and whose principal contracting operations pertain to the performance of construction work business involves the use of specialized building trades or 3 Specialty Contractors Those whose

corporation with the primary purpose to carry on the business of quantity surveyors. project managers, advisers, technicians. investigators and researchers in the field of In BIR Ruling No. 006-03 dated August 15, 2003, this Office ruled that a

D((CD-PRIMEN-ALA-SYSTRA- JOINT FENTURE Page 4 of 4

authorized to render general engineering and contracting of all kinds of constructions and structures, employing and contracting with architects, engineers, surveyors. chemists and other technical men to perform engineering and architectural work. including the preparation of surveys, plans, specifications, estimates, etc., and to act as consulting and or supervising engineers and architects in connection with the said contracting and building business is considered a contractor under then Section 191 of the Tax Code, which lists the persons subject to the then contractor's tax. industrial, commercial, residential and infrastructure development and commerce of all and every description is considered a specialty contractor. The aforesaid Ruling cited the case of Commissioner of Internal Revenue vs. The Court of Tax Appeals and Avecilla Building Corporation, 134 SCRA 49, in which it was ruled that a corporation

training and/or engagement in any work or plan is deemed a specialty contractor all the various branches thereof, including but not limited to evaluation, appraisal, market studies, project reports, management, consultation, construction supervision, 23, 1990), the Supreme Court likewise had the occasion to rule that a corporation which is engaged in providing "general scientific, engineering and technological services in Engineering Development Corporation of the Philippines, G.R. No. L-52018 (February Further, in the case of Hon. Efren I. Plana vs. Court of Tax Appeals and

skills, this Office hereby confirms your opinion that the Joint Venture is a specialty contractor within the purview of Section 2.57.2 (E) (3) of RR No. 2-98, as amended. fees it will receive from PNR. Accordingly, it is subject to creditable withholding tax at the rate of 2% on the service In the instant case, since the Joint Venture will render services requiring special

Joint Venture. and therefore exempt from the EWT and VAT, provided that said of the PNR must be properly subjected to applicable EWT and 5% final VAT in accordance with existing rules and regulations. and on behalf of PNR, the same shall not constitute taxable income payments to the amounts are invoiced directly in the name of the PNR and the reimbursement to the Joint Venture is not invoiced with the Joint Venture's VAT invoice/official receipt. Moreover, payments for goods and services made by the Joint Venture for and on behalf With regard to the reimbursables or amounts advanced by the Joint Venture for

However, if upon investigation, it will be disclosed that the facts are different. then this ruling shall be considered null and void. This ruling is being issued on the basis of the foregoing facts as represented.

Very truly yours.

Commissioner of Internal Revenue CAESAR R. DULAY

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