BIR Ruling

December 6, 1977 Swisstime Phils., Inc. A7-16 Edison Avenue, Kilomater 14 South Superhighway, Paraaque, Rizal Attention: Mr . Rolf W . Schynder President Gentlemen : This refers to your letter dated October 22, 1977 requesting a ruling as to whether or not your remittance to a watch repair service company in Switzerland, and to your office in said country are subject to tax. It is represented that you are a BOI-Pioneer registered company producing precision watchcases for export; that all orders have to be solicited and worked out concerning the specifications and tolerances for each order with individual customers abroad; that to be able to render satisfactory services to your customers abroad, you have engaged the services of Joseph Gaignat S.A., CH-2943 Vendlincourt, Rue La Gasse, Switzerland, a watch repair service company to make the construction drawings for difficult cases and to repaid cases rejected by customers for minor defects; that it is cheaper to repair minor defects in Switzerland than to air freight the whole shipment to the Philippines and then back to Switzerland again; that you are also maintaining an Office in Switzerland under the name of Production Advisers Ltd., to solicit orders abroad; and that you will remit to your Office in Switzerland the cost of maintaining said office such as salaries, rent, car expenses, insurance, telephone and telexes. In reply, I have the honor to inform you that if, as represented, the services to be rendered by the watch repair service company will be performed in Switzerland, the fee to be paid and remitted to said nonresident foreign corporation is considered income earned from sources without the Philippines, pursuant to Section 37(c)(3) of the Tax Code and therefore, not subject to Philippine income tax as nonresident foreign corporation are subject to income tax only on income from sources within the Philippines (Section 24(b), Tax Code). As such fee is not subject to income tax, it is likewise not subject to the 35% withholding tax prescribed in Section 53(b)(2) of the Tax Code. As regards the amounts to be remitted to your office in Switzerland for the maintenance of said Office which incurs expenses for salaries rent, insurance, telephone, telexes, cars, and other remittance is exempt from tax shall be resolved upon receipt by this Office of the findings of our examiners assigned to verify the expenses in question. Very truly yours, EFREN I. PLANA Acting Commissioner of Internal Revenue TAN-P4519-F2828-A-8