BIR Ruling [DA-030-99]

January 20, 1999 BIR RULING [DA-030-99] Joaquin Cunanan & Co. 14/F Multinational Bancorporation Centre 6805 Ayala Avenue Makati City Attention: Mrs . Tomasa H . Lipana Partner Gentlemen : This refers to your letters dated January 21, 1998 and February 27, 1998 requesting for a ruling that the payments made by your client, Reckitt & Colman (Philippines), Inc . (RCP) [formerly L & F Products Philippines, Inc.] to Reckitt & Colman Singapore Pte Ltd (R&C) under the Support Services Agreement (Agreement) between the parties are not subject to Philippine income tax, withholding tax and value-added tax (VAT); and that said payments are considered ordinary and necessary in the conduct of your client's trade or business and as such, are deductible from gross income under Section 29(a)(1) of the Tax Code, as amended. LibLex It is represented that RCP is a corporation duly organized and existing under the laws of the Philippines; that it is engaged in the sale of household, toiletry and pharmaceutical products; that R&C is a company incorporated under the laws of Singapore and engaged in rendering management, marketing, technical and financial services to its affiliated companies located in East Asia; that it is a non-resident foreign corporation not engaged in trade or business in the Philippines; that for purposes of obtaining efficiency and business expertise, RCP and R&C entered into an Agreement on December 20, 1995 wherein R&C shall provide to RCP assistance needed by RCP in the areas of finance, procurement, information systems, marketing, planning and personnel; that the Agreement does not involve any know-how, technology transfer or other intellectual property rights; that the services under the Agreement cannot be rendered by a local consultant; that R & C shall not be required to physically provide any support services in the Philippines where the activity will continue for a period exceeding 183 days; that the Agreement is to remain in force and effect from January 1, 1996 and shall continue until terminated by either party by giving three (3) months notice in writing; that under the Agreement, the services shall include but not be limited to the following: In the light of the foregoing, such payments made by RCP to R & C are exempt from Philippine income tax. 3) The above-mentioned payments being mere reimbursements of actual costs and expenses, are not also subject to the 10% VAT in accordance with the decision of the Court of Appeals in the two cases involving the same parties, Commonwealth Management Services Corporation vs. Commissioner of Internal Revenue (CA-GR SP No. 34032 December 21, 1995 and CA-GR SP No. 37930 May 13, 1996). 4) Lastly, the payments made by RCP to R&C under the Agreement are deductible from RCP's gross income provided RCP can show that said expenses qualify as ordinary and necessary expenses incurred in the conduct of RCP's trade or business in the Philippines, pursuant to Section 34(A)(1) of the Tax Code of 1997. (BIR Ruling No. DA-482-98 dated, November 9, 1998) This ruling is being issued on the basis of the foregoing facts as presented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered as null and void. cdtech Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group