BIR Ruling

October 18, 1972 Reynolds Philippine Corporation E. de los Santos Avenue Mandaluyong, Rizal Attention: The Controller Gentlemen : This refers to your letter dated September 22, 1972 requesting certification to the effect that the remittances by your company, hereinafter referred to as Reyphil of so-called technical service fees to Reynolds Metals Company, Richmond, Virginia, U.S.A., hereinafter referred to as Metals, are not subject to withholding tax. The Technical Service Agreement between yourselves disclose the following alleged technical assistance to be rendered by Metals to you: aisadc (1) In establishing and maintaining effective manufacturing processes and techniques, including information on manufacturing presently possessed by Metals and used in commercial production and information on improvements (improved techniques in costs of operation, quality of production or efficiency of machine operation, utilization or maintenance); (2) To teach and train personnel of Reyphil in its plants by direct observation of their layout, the plant machinery and equipment and the systems, procedures, practices and methods used by it in the manufacture of aluminum products; (3) Furnish by correspondence technical information concerning No. 2 above; and (4) Test and analyze at its plants occasional samples of products manufactured by Reyphil and report the results thereof. In consideration for the foregoing services, Reyphil shall pay Metals annually a fee equal to 10% of its net profits before income tax up to the Peso equivalent of $300,000 and 7% in excess of $300,000. Should Reyphil have subsidiaries engaged along the same line of business, the computation of Metals' fee shall include the net profits of the subsidiaries. In addition, Reyphil shall refund to Metals the latter's expenses in rendering the so-called technical services. cd In reply, I have the honor to inform you that, after a careful and profound analysis of the circumstances surrounding your so-called technical service agreement with Metals, it is the opinion of this Office as it hereby holds that the fees you pay to Metals are income from sources within the Philippines of the category more or less of royalties for the use of or for the privilege of using in the Philippines patents, copyrights, secret processes and formulas, goodwill, trademarks, and trade brands within the purview of Section 37(A)(4) of the Tax Code. Accordingly, such royalties that you are remitting to Reynolds Metals Company, Richmond, Virginia, are subject to withholding tax pursuant to Section 53(b)(2) of the Tax Code. acd Very truly yours, MISAEL P. VERA Commissioner of Internal Revenue