BIR Ruling

September 10, 1970 Messrs. Sycip, Gorres, Velayo & Co. P. O. Box 589, Manila Gentlemen : This refers to your letter dated August 14, 1970 requesting a certification to the effect that the monthly dollar remittances of your client, Borden Chemical Company of the Philippines, Inc., to its Area Representative in Singapore where your client has opened an office to handle its sales of plywood adhesives to the mills in Singapore, Malaysia & Thailand are not subject to income tax. It is represented that your client, Borden Chemical Company of the Philippines, Inc., remits monthly to its area representative in Singapore the amount of $820; that this amount is intended to cover the compensation of said representative as well as to reimburse him of the expenses he has incurred in promoting the business of your client in Singapore; and that the area representative is an alien and a resident of Singapore. In reply thereto, I have the honor to inform you that the test of the taxability of an income is the "source" or situs of the activities or property which produce the income. In the case of an income derived from labor (services) the factor which determines the source of the income is not the residence of the payor, or the place where the contract for the services is entered into, or the place of payment. It is the place where the services are actually rendered. (par. 45.33 Vol. 8 Mertens Law of Federal Income Taxation). In the instant case, the services rendered by your area representative for your client are performed in Singapore. Accordingly, the amount remitted to your are representative constitute compensation for services performed without the Philippines. The portion of the amount remitted by your client intended to reimburse your representative of the expenses he has incurred in promoting the business of your client in Singapore, Malaysia & Thailand are not subject to tax inasmuch as they are not considered an income of your representative but an expense of your client which is deductible from its gross income under Section 30(a)(1) of the Tax Code. In view thereof, this Office is of the opinion and so holds that the compensation paid to your area representative in Singapore, are income from sources without the Philippines. Accordingly, they are not subject to the 35% withholding tax prescribed by Section 24(b)(1) in relation to Section 35(b)(2), both of the Tax Code, as amended. A portion of the amount intended for reimbursement of the expenses of your area representative in promoting your client's business are not subject to tax. Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue