BIR Ruling [DA-029-03]

January 31, 2003 BIR RULING [DA-029-03] RAMO 1-95 173-98 dated December 10, 1998 Laya Managhaya & Co. 22/F Philamlife Tower 8767 Paseo de Roxas Makati City Attention: Attys. Francisco G. Tagao Partner, Tax & Corporate Services and Charlene O. Ang Manager, Tax & Corporate Services Gentlemen : This refers to your letter dated September 6, 2002 stating that your client, NZMP (SEA) Pte Ltd., is a non-resident foreign corporation duly organized and existing under the laws of the Republic of Singapore; that it is planning to expand its trading operations in the Philippines by establishing a branch therein; that the proposed operational process of the branch will be as follows: 1. The branch shall solicit and receive sales orders from the Philippine customers; 2. The branch will then forward the sales orders to its head office, NZMP (SEA) Pte Ltd. in Singapore; 3. The sales transaction will be between NZMP (SEA) Pte; Ltd. head office and the customer and NZMP (SEA) Pte Ltd. head office will issue sales invoice directly to said customers; 4. Shipping documents will show NZMP (SEA) Pte. Ltd. head office as the seller and the Philippine customer as the buyer; 5. Title over the goods passes outside the Philippines; 6. Customers will act as importer of said items and pay the necessary duties and value added tax; and 7. The branch will receive service fee from NZMP (SEA) Pte Ltd. In connection therewith, you now request confirmation of your opinion that NZMP (SEA) Pte. Ltd., shall be considered as doing business in the Philippines and therefore, shall be taxed as a resident foreign corporation engaged in trade or business in the Philippines at the rate of 32% on its solicitation activities; and that the attribution formula prescribed in Revenue Audit Memorandum Order (RAMO) No. 1-95, to wit: (Worldwide Operating Sales to the Philippines attribution tax) (income X Worldwide Sales X rate X rate) shall likewise apply to NZMP (SEA) Pte Ltd. relative to its sales made directly to the Philippine customers which is under similar circumstances as that of the Japanese trading firms under the aforesaid RAMO. In reply thereto, please be informed that in the event that NZMP (SEA) Pte. Ltd. forms a branch office in the Philippines, it will be considered to have a permanent establishment in the Philippines. Consequently, NZMP (SEA) Pte. Ltd. shall be deemed a resident foreign corporation engaged in trade or business in the Philippines subject to the 32% corporate income tax pursuant to Section 28(A)(1) of the Tax Code of 1997. However, it is to be emphasized that since the proposed activities of NZMP (SEA) Pte. Ltd. branch office are in the nature of solicitation and brokering activities, this Office holds that the said activities are within the contemplation of RAMO No. 1-95 as above stated: DAcSIC Similarly situated is BIR Ruling No. 173-98 dated December 10, 1998, where this Office ruled that ". . . One of the objects of operation of Mitsubishi Corporation Philippine Branch per its amended articles of incorporation is "agency, brokerage and wholesale . . ." with respect to its business in the Philippines, like that of the instant case. The activities of a branch office are covered by item III(a) of Revenue Audit Memorandum Order No. 1-95 which states that: "(a) This order shall apply to Philippine branches and liaison offices of Japanese Trading firms which are members of the Sogo Shoshas and registered with the Japanese Chamber of Commerce and Industry (JCCI) and all other foreign trading companies similarly situated as determined by the Commissioner of Internal Revenue." Accordingly, since the situation of the Philippine branch office of NZMP (SEA) Pte. Ltd. is clearly similar to the above-cited case, this Office holds that the attribution formula prescribed in RAMO No. 1-95, to wit: (Worldwide Operating Sales to the Philippines attribution tax) (Income X Worldwide Sales X rate X rate) shall likewise apply to the sales made directly by the head office to the Philippine customers. This ruling is being issued on the basis of the foregoing facts a represented. However, if upon investigation, it will be disclosed that the facts are different, this ruling shall be considered null and void. Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group