BIR Ruling No. 278-2022

FEPUBLIC OF THE PHILIPPINES

BUREAU OF INTERNAL REVENUE DEPARTMENT OF FINANCE Quezon City

RR No. 2-98, as amended: BIR VA7 Ruling No.0l7-00

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9th Floor The Excelsior Building Pertconsult International 161 Roxas Blvd., Paranaque City

Attention: Homobono C. Pique

General Manager

Gentlenen:

to the Department of Public Works and Highways (DPWH). services rendered by Pertconsult International (Pertconsult) as an engineering consulting firm This refers to your request for rufing on the correct withholding tax for the payment of

contracted professionals or hired subcontractors who specialize in specific fields of expertise in the accomplishment of the project stated in the contract agreement with the DPWH. It is represented that Pertconsult provided consulting services to the DPWH; and that it

the income payments made to Pertconsult pursuant to DPWH Order No. 95, Series of 2020. in relation to Section 2.57.2 of Revenue Regulations (RR) No. 2-98, as amended'. Moreover. the reimbursable costs of the consultancy contract were included in the computation of gross receipts for purposes of withholding tax. Records show that the DPWH, as withholding agent, withheld fifteen percent (15%) on

the reimbursable costs should not be"part of Pertconsult's gross receipts subject to withholding tax. tax should only be two percent (2%) since Pertconsult is a general engineering contractor, and that In this regard, you request for confirmation of your opinion that the imposable withholding

the following items of income payments to persons resiaing in the Philippines: herein otherwise provided. there shall be withheid a creditnble income tax at the rates herein specified for each class of payee from SEC TION 2.57.2. Income Payments Subje'ct to Cretitable W'ithholding Tux and kates Prescribed Thereon. --- Except as

(A) Professional fees, talent fees, etc. for services rendered form of remuneration for the services rendered fy the follnwing: - On the gross professional. oromotional. and talent fees or any other

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If gross income for the current year did not exi eed P720.000 If gross income exceeds P 720.000 Non-individual pavee: Fiftecr_percet (15%) Ten rercent (0%): Co

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In reply. Section 2.57.2 (C)(1) of RR No. 2-98, as umended. states that:

class of payee from the following items of income payments to persons residing and Rates Prescribed Thereon. --- Except as herein otherwise provided, there in the Philippines: shall be withheld a creditable income tax at the rutes herein specified for each "SECTION 2.57.2. Income Payments Subject to Creuirable Withholding Tax

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gross payments to the folloving contractors, whether irdividual or corporate (C) Income payments to certain contractors [formerly under letter (E)] On --- Two percent (2%).

business in connection w:th fixed works requiring specialized engineering knowledge and skill including the jollowing divisions or subjects: (l) General engineering contractors - Those whose principal contracting

(c d {a {b Railroads: Highwuys. streets and roads: Tunnels: Reclamation works:

0 {e Waste reduction plants: Airports and airway's.

liguid or gaseous substances: ) k Land leveling. Excavating: Trenching: Pipelines and other sy'stems for the transmission of petroleum and other Bridges. overpasses. underpusses and other similar works;

(m) Surfacing work." (L) Paving: and

engineering contractor since it uses special skills in the furtherance of the project with the DPWH In applying the aforequoted provision. it is ciear that Pertconsult is indeed a general

and it carried out its services based on sound engineering theories and practices as stated in the cor:tract agreement.

Accordingly, all income payments received by Pertconsult as a general engineering cor.tractor are subject to the creditable withhelding tax rate of two percent (2%) as provided under Section 2.57.2 (C)(1) of RR No. 2-98. as anended.

As to the reimbursable contract itenis, please be informed that income means ali wealth which flows into the taxpayer other than as a mere return of capita:. In Commissioner of Internal

co:stitute income: Revenue (CIR) vs. Agrinurture, Inct. the C'FA held that the following elements must be met to

"The three (3) elements for the imposition of income tax are: (1) there must be

: CTA EB No. 8345. January 13. 2015 gain or profit. (2) that the gain or profit is realized or received, actually or PAGE 2 of3 G H

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constructively. and (3) it is not exempted by law or treaty from income tax. Income tax is assessed on oncome received from any property. activity or service.

017-00 that reimbursement of actuai expenses does not constitute income. viz: In connection therewith. this Office had the occasion to, rule in BIR VAT Ruling No.

reimbursable expenses wili not be considered part of its gross receipts subject to I AT. all invoices for said expetses must be in the name of the government it is not subject to the VAT: However. in order thuat a contractor's receipts for agency concerned. " (Underscoring and emphasis ours) being reimbursements of expenses and not charges for services should not be considered part of gross receipts for purposes of the withholding tax. As such. "In reply, please be informed that reimbursable costs of consultancy contracts.

part of its gross receipts subject to w'ithholding tax. provided, however, that the invoices for said costs are in the name of the DPWH. Therefore, based on the above discussions. Pertconsult's re:mbursable costs shall not form

it shall be disclosed that the actual facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. This ruling is issued on the basis of the facts as represented. However, if upon investigation

Very truly yours.

CAESAR R. DULAY Commissioner of Internal Revenue

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