BIR Ruling [DA-053-98]

February 11, 1998 BIR RULING [DA-053-98] Joaquin Cunanan & Co. Price Waterhouse 14F Multinational Bancorporation Centre 6805 Ayala Avenue, Makati City Attention: Atty . George J . Lavadia Partner Gentlemen : This refers to your letter dated January 21, 1998 requesting confirmation of your opinion that the fee received by your client, International Management Inc . (IMI ), for services rendered in the Philippines for less than one month is exempt from Philippine income tax under the RP-US Tax Treaty. It is represented that your client, IMI, is a non-resident corporation organized and existing under the laws of the US with no permanent establishment in the Philippines; that it is experienced in providing sports logistics services, such as organizing, staging and conducting of golf tournaments; that pursuant to a management contract executed by and between IMI and two domestic corporations, Mondragon Leisure and Resorts Corp. (MLRC) and Smart Communications, Inc. (Smart), IMI had provided the following services in connection with the golf exhibition tournament held at the Mimosa Country Club on January 18, 1998, viz: cdtech 1. obtaining commitments from professional golfers to participate in the exhibition; 2. overseeing publicity and media efforts relative to the exhibition; 3. organizing and managing exhibition site; 4. obtaining insurance for the exhibition; 5. designing promotional materials; and 6. supervising/coordinating with personnel assigned to the exhibition; that in consideration for the above services, MLRC and Smart paid IMI the amount of US$1,020,000 as compensation for the services provided in the Agreement; that IMI fee includes the amount of US$770,000 payable to Mr. Tiger Woods as his fee for his participation as professional golfer in the aforesaid golf exhibition; and that IMI rendered services in the Philippines for a period of less than one (1) month. In reply thereto, please be informed that paragraph (1), Article 8 of the RP-US Tax Treaty provides as follows: "ARTICLE 8 " Business Profits "1. Business profits of a resident of one of the Contracting States shall be taxable only in that State unless the resident has a permanent establishment in the other Contracting State. If the resident has a permanent establishment in that other Contracting State, tax may be imposed by that other Contracting State on the business profits of the resident but only on so much of them as are attributable to the permanent establishment." Moreover, Article 5(1) and (2) of the said treaty provides, viz: "ARTICLE 5 " Permanent Establishment "(1) For the purpose of this Convention, the term "permanent establishment" means a fixed place of business through which a resident of one of the Contracting States engages in a trade or business. (2) The term "fixed place of business" includes but is not limited to: (a) A seat of management; (b) A branch; (c) An office; (d) A store or other sales outlet; (e) A factory; (f) A workshop; (g) A warehouse; (h) A mine, quarry, or other place of extraction of natural resources; (i) A building site or construction or assembly project or supervisory activities in connection therewith, provided such site, project or activity continues for a period of more than 183 days; and (j) The furnishing of services, including consultancy services, by a resident of one of the Contracting States through employees or other personnel, provided activities of that nature continue (for the same or connected project) within the other Contracting State for a period or periods aggregating more than 183 days." Considering that IMI rendered services in the Philippines for a period of less than one (1) month and it does not have a permanent establishment in the Philippines to which its business profits/income are attributable, payments received by it under its contract with MLRC and Smart are not subject to Philippine income tax and consequently to the 7 % final withholding tax prescribed under Section 28(B)(1), in relation to Section 57(A), both of the Tax Code of 1997. Moreover, MLRC and Smart as the payors of the income are not under obligation to withhold the 7 % final withholding tax prescribed under Section 28(B)(1) of the Tax Code of 1997. However, payments made to Mr. Tiger Woods (a US citizen or non-resident alien not doing business in the Philippines) for US$770,000 of the contract price shouldered by IMI shall be subject to a 25% income/withholding tax pursuant to the Tax Code of 1997, in relation to Article 17 of the RP-US Tax Treaty which reads as follows: "ARTICLE 17 " Artists and Athletes "(1) Notwithstanding the provisions of Articles 15 (Independent Personal Services) and 16 (Dependent Personal Services), income derived by public entertainers such as theatre, motion picture, radio or television artists, and musicians, and by athletes, from their personal activities as such may be taxed in the Contracting State in which these activities are exercised provided that "a) Such income exceeds 100 United States dollars or its equivalent in Philippine pesos per day, or "b) Such income exceeds in the aggregate 3,000 United States dollars or its equivalent in Philippine pesos during the taxable year. "xxx xxx xxx." Finally, the compensation income of the expatriates assigned by IMI to the Philippines arising from its contract with MLRC and Smart are not taxable in the Philippines pursuant to Article 16(2)(a) of the RP-US Tax Treaty. cdpr 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. Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)