BIR Ruling [DA-071-97]

February 19, 1997 BIR RULING [DA-071-97] Laya Mananghaya Salgado & Co. 3/F Chemphil Building Legaspi Village, Makati City Attention: Mr . Zayber John B . Protacio Tax Manager Gentlemen : This refers to your letter dated January 8, 1996 stating that your client, GPT International Limited (GPTI) is a corporation organized and existing under the laws of the United Kingdom, where it also has its legal residence; that sometime in October of last year, GPTI was contracted to render engineering consultancy services in the Philippines with respect to the installation and commissioning of telecommunications switching and transmission equipment on behalf of a local telecommunications company; that the engagement is expected to last for at least nine (9) months or until April of 1997, although there is a probability that the period may be extended for a few more months, that for the moment, GPTI is uncertain if any of its engineers and supporting personnel tasked to oversee the installation and testing of the equipment will be in the Philippines for the on-line duration of the project period, but it is likely that the GPTI engineers and personnel will stay in the Philippines on a fly-in and fly-out basis and that the duration of services (GPTI is expected to render in the Philippines is at least nine (9) months or approximately two hundred seventy days (270). cdtech In connection therewith, you are requesting confirmation of your opinion that "(a) As the business activities of GPTI in the Philippines, consisting of engineering consultancy and general contracting, will extend for at least two hundred seventy (270) days, a "permanent establishment" will be created in the Philippines, as defined under Article 5 of the RP-UK Tax Treaty; "(b) The permanent establishment of GPTI shall be subject to the 35% corporate income tax rate on its taxable profits, as provided under Article 7 of the RP-UK Tax Treaty in relation to Section 25(a) (1) of the National Internal Revenue Code (BIR Ruling No. 031-95 dated 14 February 1995); "(c) Payments made by local taxpayers to GPTI's permanent establishment shall be subject to creditable withholding tax at the rates prescribed under Revenue Regulation No. 6-85 in conformity with Article 22 of the RP-UK Tax Treaty." Moreover, you are requesting clarification as to the procedural requirements so that the permanent establishment of GPTI should be able to obtain for itself a Tax Identification Number of TIN; have itself registered as (a) a withholding agent with respect to certain income payments made to Philippine Taxpayers; and as a VAT entity. In reply thereto, please be informed that your following opinion, viz: "(a) As the business activities of GPTI in the Philippines, consisting of engineering consultancy and general contracting, will extend for at least two hundred seventy (270) days, a "permanent establishment" will be created in the Philippines, as defined under Article 5 of the RP-UK Tax Treaty; "(b) The permanent establishment of GPTI shall be subject to the 35% corporate income tax rate on its taxable profits, as provided under Article 7 of the RP-UK Tax Treaty in relation to Section 25(a) (1) of the National Internal Revenue Code (BIR Ruling No. 031-95 dated 14 February 1995); "(c) Payments made by local taxpayers to GPTI's permanent establishment shall be subject to creditable withholding tax at the rates prescribed under Revenue Regulation No. 6-85 in conformity with Article 22 of the RP-UK Tax Treaty." are hereby confirmed. Finally the permanent establishment of GPTI shall register with the proper Revenue District Officer as a withholding agent and as such shall withhold taxes (1) on wages of its employees; (2) income payment to individuals or corporations subject to the expanded withholding tax provided for Section 50 (b) of the Tax Code, as amended; and (3) on government money payments pursuant to R.A. No. 1051 as implemented by Revenue Regulations No. 4-88 as amended by Revenue Regulation No. 10-93. Furthermore, the permanent establishment of GPTI shall register its VAT activity with the RDO which has jurisdiction over the place where its office is located. Moreover, the Taxpayer Identification Number (TIN) can be secure in the Revenue District office which has jurisdiction over the permanent establishment of GPTI (RMO 48-94). cdll This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigations, it will be disclosed that the facts are different, then this ruling shall be null and void. Very truly yours, ALICIA L. TOMACRUZ Head Revenue Executive Assistant (Legal Service)