BIR Ruling

February 9, 1970 Philippine Industrial Export Associates, Inc. P. O. Box 1421 Manila Attention: Mr . M . Goldenberg 1st Vice-President Gentlemen : This refers to your letter dated August 5, 1969 stating the following: "We are duly registered 100% Filipino Corporation doing business under the name and style of 'Philippine Industrial Export Associates, Inc.', with Offices at Isla de Provisor, Paco, Manila. At present we are the authorized manufacturers of Helen Curtis Products in the Philippines for which we pay Helene Curtis Industries of Chicago, Illinois, Royalties on Licensing Fees as provided in our Technical Service Agreement, photo copy of which is hereto attached for your reference. cdi "One of the lines we manufacture is the Hair Spray Line wherein we encounter stiff competition from Cottage Industries registered with 'NACIDA', and who are exempt from payment of taxes, whereas, we have to pay 50% sales tax on said line. "In order not to lose our market on Hair Sprays, we are planning to enter into a contract with a cottage Industry to be its sole distributor of Hair Sprays and at the same time amend our Technical Service Agreement with Helene Curtis Industries whereby we are going to pay them (Helene Curtis) a 5% Fee on net sales for marketing techniques instead of our present 61/2% for both manufacturing and selling Hair Sprays. Drafts of the proposed contract and the letter agreement with Helene Curtis are also attached for your perusal. "As per the facts stated above, we would like to request your good Offices for a ruling on the following questions: "1. Are we not subject to the 50% sales tax on our sales of Hair Sprays that we purchased from a Cottage Industry? "2. Is the 5% Fee to Helene Curtis Industries under the set-up permissible?" In reply, I have the honor to inform you that on the basis of the foregoing facts and the terms and conditions set forth in the draft of the contract between that firm and Alpha Industries, Philippine Industrial Export Associates, Inc., is the manufacturer of the hair sprays and, therefore, subject to the 70% sales tax on its sales of hair sprays pursuant to Section 184(c) of the Tax Code. The term manufacturer applies not only to one who makes the manufactured articles, but also to one who causes the manufactured articles to be made, (Hancock vs. States, 144 Ga. 439, 441, 40 S.E. 317). acd Alpha Industries, which manufactured the products for your firm, is an independent contractor within the purview of Section 191(18) of the Tax Code, subject to the P50.00 annual fixed tax and to the 3% tax imposed by Sections 182(A)(1) and 191(18) respectively, of the Tax Code, as amended by Republic Act. No. 6110. The question as to whether the 5% Fee payable to Helene Curtis Industries under the set-up is permissible is not within the jurisdiction of this Office to determine. However, if said fee is paid to Helene Curtis Industries, it is income from sources in this country subject to Philippine income tax prescribed by Section 24(b)91) of the Tax Code. It is the obligation of that company to withhold said tax, pursuant to Section 54, in relation to Section 53, both of the Tax Code. Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue