BIR Ruling

March 14, 1977 Messrs. Sycip, Salazar, Feliciano Hernandez & Castillo 3rd Floor, Far East Building Buendia Avenue, Makati, Rizal Attention: Atty . Sofronio A . Larcia Gentlemen : This refers to your letters dated September 16 and November 4, 1976 requesting a ruling in as to whether or not the transfer of profits by a branch office in the Philippines of your client, American Express International, Inc., to the Regional or area headquarters in the Philippines, of the American Express International Banking Corporation, is subject to the 20% remittance tax imposed by Section 24(b)(2) of the Tax Code, as amended by Presidential Decree No. 778. It is represented that your client, the American Express International, Inc. (AEII) is a subsidiary of American Express International Banking Corporation (AEIBC) which is multinational company; that AEII and AEIBC are foreign corporations organized and existing under and by virtue of the laws of New York, U.S.A.; that AEII has branch office in the Philippines duly licensed to do business in this country by the Securities and Exchange Commission; that AEIBC has a Regional or area headquarters in the Philippines which acts as supervisory, communications and conducting centers for their affiliates, subsidiaries or branches in the Asia-Pacific Region established in Manila under P.D. 218; and that said branch office of AEII intends to transfer to the AEIBC Regional or area headquarters in the Philippines its profits in an amount necessary for the operational expenses of the latter. In reply thereto, I have the honor to inform you that the pertinent portion of Section 15 of Revenue Regulations No. 2 as amended by Revenue Regulations No. 8-75 dated October 29, 1975 implementing Section 24 of the Tax Code, as amended by Presidential Decree No. 778, provides as follows: "(b)(2) Profit remitted abroad by a branch office to its mother company shall be subject to 20% tax, except those registered with the Export Processing Zone Authority. The herein tax is in addition to the regular tax imposed under subsection (a) of this section. For purposes of this subsection any form of remittance, direct or indirect, made to the mother company abroad shall be presumed to have been made from the accumulated profits of the branch." Under the above-quoted provision of the regulations, to be subject to the 20% remittance tax the profits must be remitted to the mother company abroad, whether directly or indirectly. On the other hand, multinational company shall remit into this country such amount as may be necessary to cover the operational expenses of its regional headquarters here, which amount should be less than $50,000.00 or its equivalent in other foreign currencies annually. (Sec. 8(c), P.D. 218) Ordinarily, the Philippine branch remits profits abroad to AEII, its mother company, which is subsidiary of AEIBC, the multinational company and said remittance is subject to the 20% remittance tax. On the other hand, AEIBC will remit dollars here for the operational expenses of its regional headquarters. However, in this case, instead of AEIBC making its inward remittance to its regional headquarters, the Philippines branch of AEII (AEIBC's subsidiary abroad) will turn over its profits to its regional headquarters. Under such circumstances, and considering that AEII and AEIBC are interrelated corporations, such transfer of profits is considered an indirect remittance of profits and, therefore, the branch is subject to the 20% remittance tax. The regional headquarters of AEIBC is not however subject to income tax for receiving the profits of the branch as said profits cannot be considered income earned by the regional headquarters from an activity or transaction within the Philippines. Very truly yours, EFREN I. PLANA Acting Commissioner of Internal Revenue TAN-1456-040-3