BIR Ruling

August 6, 1969 Mr. Manuel B. Syquio Chairman-President Phil. Communication Satellite Corp. 10th Floor, V. Madrigal Bldg. Ayala Avenue, Makati Rizal S i r : This refers to your letter dated March 9, 1969 requesting that Communication Satellite Corporation (COMSAT) of the United States be exempted from the payment of the withholding tax on income received by it from sources within the Philippines. You represented in your letter that the Philippine Government is a party to the agreement creating the International Telecommunications Satellite Consortium (INTELSAT); that said agreement establishes certain arrangements for a global commercial communication system; that the member-countries of the INTELSAT is represented by its government or by an entity created by each government; that COMSAT was authorized to be created by the United States Congress with power to own and operate satellite terminal stations; that under the INTELSAT agreement, COMSAT acts as the manager of INTELSAT in the design, development, construction, establishment, operation and maintenance of the space segment; that the Philippines is represented in the INTELSAT by the Philippine Communication Satellite Corporation (PHILCOMSAT); that on December 16, 1966, PHILCOMSAT and Philippine Overseas Telecommunications Corporation (POTC) entered into an agreement wherein the former appointed the latter as the Manager of its satellite communication project; that the POTC as Manager of the PHILCOMSAT, borrowed from COMSAT an interim portable earth station pending the establishment of a permanent one, which interim portable earth station was installed by COMSAT and placed in operation on April 1, 1967, in accordance with the commitment of the Philippine Government with the INTELSAT; that the POTC in behalf of PHILCOMSAT pays for this interim portable earth station to COMSAT in the total amount of US$1,250,000.00 for one year, from April 1, 1967 to March 31, 1968. The foregoing representations were verified by the examiners of this Office and were found to be in accordance with existing facts. Further verification conducted by the examiners of this Office revealed that the amount of US$1,250,000 represents reimbursement only of the expenses which were incurred in setting up the interim portable earth station by COMSAT; to wit: amortization, operation and maintenance personnel, maintenance supplies, transportation/material and personnel, general and administrative expense, return and taxes, initial movement of equipment, initial movement of personnel and provision of primary power. Likewise, the arrangement undertaken by and between POTC, in behalf of PHILCOMSAT, and COMSAT was temporary in nature pending the establishment of a permanent station due to the urgent need of the United States Government services located in the Philippines, the principal lessee of PHILCOMSAT, and to comply with the agreement entered into by the Philippine Government with the INTELSAT Consortium to set up and make available the earth station on April 7, 1967. In view of the foregoing, this Office is of the opinion and so holds that the amount paid to COMSAT by POTC in behalf of PHILCOMSAT, being merely a reimbursement, is not subject to the 30% withholding tax, as the aforesaid amount is not a fixed and determinable income as determined under Section 54 of the National Internal Revenue Code. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue