BIR Ruling [DA-024-98]

January 29, 1998 BIR RULING [DA-024-98] Pacific Golf Bago Pacific Golf, Inc. Bayview Tower I, Suite 2106 Roxas Blvd., Paraaque Metro Manila Attention: Ms . Concepcion Protacio President Gentlemen : This refers to your letter dated August 5, 1997 requesting confirmation of your opinion to the effect that the consultancy fees received by Mr . Terry Carroll (Mr. Carroll) from Bago Pacific Golf, Inc . (Bago Pacific) are exempt from income tax imposed under Section 22(b) of the Tax Code, as amended. LLpr It is represented that Mr. Carroll is an Australian national who is not engaged in trade or business in the Philippines; that he has no employees or personnel in the Philippines and does not maintain any place of business in the Philippines; that he entered into a service contract with Bago Pacific, a corporation duly organized and existing under the laws of the Philippines whereby Mr. Carroll will render consultancy and technical assistance services related to golf course construction for a total consultancy fee in the amount of Nine Thousand Eight Hundred Australian Dollars ($9,800.00); and that Mr. Carroll has rendered the said services for a total period of Forty Six (46) days. In reply, please be informed that Article 14 of the RP-Australia Tax Treaty provides as follows: "ARTICLE 14 INDEPENDENT PERSONAL SERVICES (1) Income derived by an individual who is a resident of one of the Contracting States in respect of professional services or other independent activities of a similar character shall be taxable only in that State. However, if such an individual a) has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities; or b) in a year of income or taxable year, as the case may be, stays in the other Contracting state for a period or periods aggregating 183 days for the purpose of performing his activities; or c) . . . (2) . . . (3) The term "professional services" includes services performed in the exercise of independent scientific, literary, artistic, educational or teaching activities as well as in the exercise of independent activities of physicians, lawyers, engineers, architects, dentists and accountants, Moreover, Article 5, paragraphs (1) and (2) of the said treaty provide viz: "Article 5 PERMANENT ESTABLISHMENT (1) For the purposes of this Agreement, the term "permanent establishment" means a fixed place of business through which the business of the enterprise is wholly or partly carried on. (2) The term " permanent establishment " includes especially: a) a place of management; b) a branch; c) an office; d) a factory; e) a workshop; f) a mine, an oil or gas well, a quarry or other place of extraction of natural resources; g) an agricultural, pastoral or forestry property; h) a building site or construction, installation or assembly project, or supervisory activities in connection therewith where such site, project or activity continues for more than six months; i) premises used as a sales outlet; j) a warehouse, in relation to a person providing storage facilities for others; k) a place in one of the Contracting States through which an enterprise of the other Contracting State furnishes services including consultancy services, for a period or periods aggregating more than six months in any taxable year or year of income, as the case may be, in relation to a particular project, or to any project connected therewith. (3) . . ." (4) . . ." (5) . . ." (6) . . ." (7) The fact that a company which is a resident of one of the Contracting States controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other State (whether through a permanent establishment or otherwise) shall not of itself make either company a permanent establishment of the other. Under the aforequoted provisions of the RP-Australia Tax Treaty, Mr. Carroll does not have a permanent establishment in the Philippines for the purpose of performing his activities and the number of his working days for the golf course project is only 46 days. Accordingly, the consultancy fee received by Mr. Carroll is not subject to Philippine income tax and consequently to the withholding tax under Section 22(b) in relation to Section 50(a) both of the Tax Code, as amended. (BIR Ruling No. 081-96 dated July 30, 1996) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. aisadc Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)