BIR Ruling

July 12, 1973 Messrs. Joaquin Cunanan & Co. P. O. Box 2288, Manila Gentlemen : This refers to your letter dated June 29, 1973 requesting a ruling as to whether or not the compensation which your client, La Playa Mining Corporation will pay to Bravo Corporation, a non-resident foreign corporation not engaged in trade or business in the Philippines for services rendered in favor of your client is subject to tax. acd It is represented that your client, La Playa "Mining Corporation has engaged the services of Bravo Corporation, a non-resident American corporation, not engaged in trade or business in the Philippines, to undertake a Preliminary Engineering Study and an Order of Magnitude Capital Cost Estimate for their proposed beach sand iron ore project in the Philippines. That in accordance with the Service Contract entered into by and between La Playa Mining Corporation and Bravo Corporation dated April 12, 1973, the scope of work to be performed by the latter in favor of the former are as follows: A. Review completed test work done by test work done by Friez Magnetion and Wedag. B. Prescribe and conduct additional test work if required to define the parameters for flow sheet development. La Playa is to provide samples where and when required. It is not presently contemplated that additional test work will be required and therefore, no cost for test were included in the estimate. C. Prepare the following: 1. Flowsheet 2. Material Balance 3. Design criteria to size major process equipment 4. Motor List 5. Equipment List 6. Preliminary Equipment Specifications 7. Plot Plan 8. General Arrangement Drawings 9. One Line Electrical Distribution Diagram 10. Instrumentation Control Diagram D. Issue specifications to suppliers to obtain equipment information, dimensions and price information. E. Prepare Order of Magnitude Estimate of Capital Costs for the complete facility including: 1. Concentrator 2. Offices 3. Warehouse 4. Product Storage 5. Load-out System The above information will be prepared and presented in an Engineering Study Report consisting of the following sections: 1. Process & Engineering Design and criteria 2. Equipment List & Motor Lists 3. Service Facilities 4. Capital and Operating Cost Estimates 5. Diagrams and Drawings That the services to be rendered in accordance with the abovementioned Contract will be done at Bravo Corporation's home office in the U.S.A. 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 to be rendered by Bravo Corporation for La Playa Mining Corporation will be performed in the U.S.A. Consequently, the compensation to be paid by La Playa Mining Corporation to Bravo Corporation constitute compensation for services performed without the Philippines. In view thereof, this Office is of the opinion and so holds that the compensation to be paid by La Playa Mining Corporation to Bravo Corporation are not subject to Philippine income tax and consequently to the 35% withholding tax prescribed by Section 24(b)(1) in relation to Section 53(b)(2) both of the Tax Code, as amended. It should emphasized, however, that the above ruling is based on the representation that the actual services are performed by Bravo corporation outside the Philippines and this Office may reverse or modify this ruling if upon investigation, it will appear that the facts are different from that upon which the ruling is predicated. cdtech Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue TAN 1601-593-5 July 12, 1973 1st Indorsement Returned to the Regional Director, Revenue Region No. 7, North Manila, the within docket bearing on the 1963 income tax case of L. R. Pascual & Sons, Inc., 984 Ilaya St., Tondo, Manila, involving the amount of P7,762.04, his attention being invited to our letter of even date to the Continental Bank, which is self-explanatory. cdta He is, therefore, instructed to see to it that the Bank complies with the warrant of garnishment issued by that Office on September 8, 1972. Furthermore, since the right to collect the tax in this case will prescribe on March 15, 1964, judicial action should be instituted to enforce collection if summary remedies is found ineffective. (SGD.) MISAEL P. VERA Commissioner of Internal Revenue TAN 1601-593-5 "TAXPAYERS SHOULD INDICATE THEIR TAN IN ALL COMMUNICATIONS TO THE BIR"