BIR Ruling

1977 Development Academy of the Philippines (DAP) P. O. Box 5160 Makati, Metro Manila Attention: Mr . Onofre D . Corpuz President Gentlemen : This refers to your letter dated July 22 1977 bearing on DAP's contract for consultancy services with Bancom Institute of Development Technology (BIDTECH), whereby BIDTECH as the Philippine representative of the Development Dimensions, Inc. (DDI), a non-resident U.S. corporation, will supply consultancy services to DAP using DDI's materials and exercises or training aids. In consideration for the said services, DAP bound itself under the contract to pay BIDTECH, in representation of DDI, a fixed amount in US Dollars, convertible in Philippine currency, based on the prevailing exchange rate at the time of payment. You also stated that after entering into the contract, DAP through the National Economic Development Authority (NEDA), obtained the agreement of the USAID/Philippines whereby USAID will pay the costs of the consultancy services. Under this arrangement, USAID, instead of giving the money to DAP, will remit payment in US Dollars directly to DDI in the United States. You now request information whether said BIDTECH will be vitiating any foreign exchange laws, Central Bank Circulars, rules and regulations by agreeing to such manner of payment. In reply, please be advised that since your query involves implementation of foreign exchange laws, Central Bank Circulars, rules and regulations, the same should be directed to the Central Bank. It may be stated in this connection, that under the abovementioned facts, the payment to be made by USAID to DDI is income derived from sources within the Philippines and is, therefore, subject to Philippine income tax. Hence, inasmuch as DDI is a foreign corporation not engaged in trade or business in the Philippines USAID shall deduct and withhold the 35% withholding tax and pay the same to this Office in accordance with Sections 53(b) (2) and 54 of the Tax Code. FURTHERMORE, BIDTECH, shall be subject to the 3% contractor's tax imposed by Section 191 of the Tax Code on the fees to be derived by it out of the abovementioned consultancy agreement. Very truly yours, CONRADO P. DIAZ Deputy Commissioner of Internal Revenue TAN-D2567-D1025-A-2