BIR Ruling

October 21, 1969 Fernando, Vera & Co. Certified Public Accountants Rm. 505 Insurance Center Bldg. General Luna, Intramuros Manila Gentlemen : This refers to your letter dated September 23, 1969, requesting information on the tax obligations of your client, C. Itoh & Co. (America) Inc., a foreign corporation created under the laws of America and C. Itoh & Co. Ltd., Manila Branch, a branch office in the Philippines of C. Itoh & Co. Ltd., a corporation formed and organized under the laws of Japan, should the former (C. Itoh & Co. (America) Inc.) establish a branch in the Philippines. It is represented that "the three major business transactions being carried out at present by C. Itoh & Co., (America) Inc. with business firms in the Philippines are financing and some import and export activities; that its financing activities consist in extending long term credit payable on deferred payment basis for heavy machinery and equipment exported to the Philippines, for which it earns interest; and that C. Itoh & Co., Ltd., Manila Branch, receives commissions from the intercession of their import and export trade." In reply, I have the honor to inform you that should C. Itoh & Co., (America) Inc. succeed in establishing a branch office in the Philippines and, thru said branch, undertake the same business activities it is presently engaged in thru C. Itoh & Co. Ltd., Manila Branch, it shall be taxed as an importer and a dealer. As an importer, it should pay the annual fixed tax of P20.00 prescribed by Section 182 (A) (1) of the Tax Code and the advance sales tax of 7%, 30% and 50% prescribed in Sections 184, 185 and 186 of the Tax Code, said tax to be based on the total landed cost thereof, plus the corresponding mark-up prescribed in Section 183(b) of the same Code. As an exporter of locally produced articles, C. Itoh & Co. (America) Inc. is subject to the graduated annual fixed tax imposed in Section 182(A)(2) of the Tax Code. Having branch offices in the Philippines, thru which they do business here, the American and Japanese corporations shall be considered resident foreign corporations engaged in business in this country. However, if as represented, the two corporation are separate and distinct entities, the tax liability of one shall not be considered the tax liability of the other. The said foreign corporations, thru their respective branches, shall file separate income tax returns declaring therein all income derived by them from sources within the Philippines which income shall be subject to the corporate income tax in accordance with Section 24(b)(2) of the Tax Code. They are also subject to the residence tax imposed by Section 2 of Commonwealth Act No. 465. Finally, each of the abovementioned foreign corporations shall pay its own fixed annual taxes and shall provide itself with its own set of books of accounts and other records, although both of them will be engaging in the same line of business. As regards your query on the legal implication and other possible effects upon C. Itoh & Co., Ltd., Manila Branch, as a result of the establishment by C. & Itoh Co. (America) Inc. of its branch in the Philippines, you are advised to pose said query to the Department of Commerce and Industry and the Securities and Exchange Commission, the government agencies competent to answer queries on such matters. llcd Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue