BIR Ruling

August 27, 1973 Mr. German B. Araez President German B. Araez, Incorporated 3rd Floor, R & G Tirol Bldg. 889 E. de los Santos Avenue Quezon City S i r : This refers to your letter dated August 11, 1973 stating, among others, that German B. Araez, Inc., a domestic corporation and engaged in logging operation, contracted under a management agreement with Marubeni-Iida Co., Ltd., a foreign corporation with principal office at Tokyo, Japan, to manage a logging operation in Indonesia, duly licensed by the Republic of Indonesia of P. T. Jubarsons Trading Co., an Indonesian corporation; that since German B. Araez is a logging corporation and has the necessary management and technical personnel for such logging operation, its main business is to send from time to time its management and technical staff from its Quezon City office to observe, make recommendations and implement changes for the improvement of the logging operations in the forest concession of P. T. Jubarsons in Indonesia; that in consideration of the management services/advice which are all performed in Indonesia, Marubeni-Iida Co., Ltd. shall compensate that firm the sum of fifty cents ($0.50) per cubic meter for the actual volume of logs exported by P. T. Jubarsons Trading Co. to Marubeni-Iida Co., Ltd., or its designated buyers as produced from said logging area of P.T. Jubarsons Trading Co.; and that the basis of payment of the management fee shall be the export invoices of P.T. Jubarsons Trading Co. copies of which shall be furnished your firm thru your staff in Indonesia. Under the foregoing facts, you would like to be informed whether your quarterly gross receipts derived from the foregoing operations is subject to the 3% contractors tax. In reply, I have the honor to inform you that the management fee derived by that firm for management services performed in Indonesia under the foregoing facts is not subject to the 3% contractor's tax prescribed in Section 191 of the Tax Code the said services being rendered outside the jurisdiction of the Philippine Government. However, said fees form part of the gross income of the corporation and should be returned in its income tax return for income tax purposes. (BIR Ruling No. 65-001, dated January 8, 1965). aisadc Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue TAN 1601-593-5 "TAXPAYERS SHOULD INDICATE THEIR TAN IN ALL COMMUNICATIONS TO THE BIR."