BIR Ruling

October 20, 1971 MEMORANDUM FOR: The Chief, Service & Miscellaneous (Audit) Division The letter of Messrs. Sycip, Gorres, Velayo & Co., P. O. Box 589, Manila, dated March 17, 1971, is referred to you with instructions to cause an investigation to be made with a view to (1) Verifying the allegations in the said letter of Messrs. Sycip, Gorres, Velayo & Co. (2) Ascertaining the details of the services rendered by R. F. J. Alexander. Is there a need for such services? Describe each service in detail. How much is paid by Allied Thread Co., Inc. for the services rendered by the foreign corporations? (3) Ascertaining the relationship between the R. F. J. Alexander and Allied Thread Co., Inc. Is one a stockholder of the other? If so, how many shares are owned by one in the other? How much percentagewise? Or do they have the same stockholders? Name them, indicating the shares of each stockholder in the two corporations? (4) Determining what percent of the net income of the domestic corporation is being paid as fees for services of the foreign corporations. Is such ratio the same as the ratio of the stockholdings of the foreign corporation in the domestic corporation to the capital stock of the latter? You are further instructed to secure, and submit the following with your report. (a) A copy of the Service Agreement entered into by and between Allied Thread Co., Inc. and R. F. J. Alexander. (b) Copies of the latest Articles of Incorporation and By-laws of the aforenamed corporations. cdta (c) List of stockholders of the two corporations, indicating their stockholdings therein and the percentage of their stockholdings in the said corporations. (d) The names of the members of the Board of Directors of the two corporations, their stockholdings in said corporation, indicating percentage of their stockholdings therein. (e) A copy of the income tax return filed by the Allied Thread Co., Inc. for the year 1970, together with its balance sheet and profit and loss statement. (f) Copies of the letters, cablegrams, memoranda and other communications sent by the corporations to each other. In this connection your attention is invited to the fact that under Section 24(b)(1) of the Tax Code, as amended by Republic Act No. 5431, remunerations for technical services rendered by foreign corporations not engaged in trade or business in the Philippines, including a foreign life insurance company not engaged in life insurance business in the Philippines, are subject to income tax equal to 35% of the gross income received during each taxable year from all sources within the Philippines, and consequently, those paying to such non-resident foreign corporations should withhold from the amounts payable to the latter 35% thereof, pursuant to Section 53(b)(2) of the Tax Code. Attention is also invited to the ruling of this Office in the case of Kraft Food, Ltd. (see attached copy of letter to Messrs. Sycip, Gorres, Velayo & Co., dated February 12, 1970). Report hereon should be submitted on or before December 15, 1971. aisa dc MISAEL P. VERA Commissioner of Internal Revenue