BIR Ruling

March 19, 1970 Messrs. Sycip, Gorres, Velayo & Co. P. O. Box 589 Manila Gentlemen : This refers to your letter dated February 7, 1970 requesting confirmation of your opinion to the effect that the commissions paid by your client, Ed A. Keller & Co., Ltd. to Marsh & Mclennan International, Inc. a non-resident foreign insurance correspondent for soliciting insurance business for your client abroad through the foreign offices of companies authorized to operate in the Philippines are not subject to income tax. It is represented that your client, Ed. A. Keller & Co. Ltd., has an existing arrangement with Marsh & Mclennan International, Inc. whereby the latter could solicit and obtain insurance business for the former abroad through the foreign offices of companies authorized to operate in the Philippines; that Marsh & Mclennan International, Inc. will receive commissions in consideration of the services rendered. 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, services given by Marsh & Mclennan International, Inc. which consist of soliciting and obtaining insurance business for your client were actually rendered abroad. Consequently, the commissions paid to the former constitute compensation for services performed without the Philippines. In view thereof, this Office is of the opinion and so holds that the commissions received by Marsh & Mclennan International, Inc. 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. Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue