BIR Ruling

December 18, 1970 Messrs. Sycip, Gorres, Velayo & Co. P. O. Box 589, Manila Gentlemen : This refers to your letter dated December 11, 1970 requesting confirmation of your opinion to the effect that the commissions paid by Lianga Bay Logging Company, Inc. to Kinsey Trading Co., Ltd., Tokyo, Japan, for soliciting foreign buyers of all the exportable logs of your client abroad are not subject to income tax. It is represented that your client, a log exporter utilizes the services of Kinsey Trading Co., Ltd., of Tokyo, Japan, a non-resident foreign corporation not engaged in trade or business in the Philippines as its agent for the sale of all its exportable logs abroad by soliciting foreign buyers for the same; that Kinsey Trading Co., Ltd. receives 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 or 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). aisadc In the instant case, the services given by Kinsey Trading Co., Ltd. which consist of soliciting buyers for the logs of your client are 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 Kinsey Trading Co., Ltd. of Tokyo, Japan are income from sources without the Philippines. Accordingly, they are not subject to the 35% withholding tax prescribed by Sec. 24(b)(1) in relation to Section 53(b)(2) both of the Tax Code, as amended. Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue