BIR Ruling [DA-100-98]

March 23, 1998 BIR RULING [DA-100-98] Jan De Nul N.V. Philippine Branch The Excelsior Building, Room 303 161 Roxas Boulevard, Baclaran Paraaque, Metro Manila Attention: Mr . Stefan Baeyens Financial Manager Gentlemen : This refers to your letter dated December 17, 1996 requesting confirmation of your opinion to the effect that the payment of reclamation fees to Jan De Nul Singapore Pte. Ltd. (JDN Singapore), a Singapore corporation is not subject to Philippine income/withholding tax in accordance with the RP-Singapore Tax Treaty. cd It is represented that JDN Singapore is a corporation duly organized and existing under the laws of Singapore; that on February 3, 1996, Jan De Nul N.V. Philippine Branch entered into a Reclamation Subcontract Agreement with JDN Singapore for the partial reclamation of the Smokey Mountain Development and Reclamation Program Phase I Area with its hopper suction dredger JFJ De Nul; that in accordance with the plans and specifications of the Reclamation Subcontract Agreement, the whole project was performed and completed within the months of February to April 1996, which is less than 183 days; that JDN Singapore has no permanent establishment in the Philippines; and that apart from said project, it has no other business in the Philippines. In reply, please be informed that paragraph (1), Article 7 of the RP-Singapore Tax Treaty provides as follows: "ARTICLE 7 " BUSINESS PROFITS "1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on or has carried on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment." Moreover, Article 5(1) and (2) of the said treaty provides, viz: "ARTICLE 5 " PERMANENT ESTABLISHMENT "1. For the purposes of this Convention, the term "permanent establishment" means a fixed place of business in which the business of the enterprise is wholly or partly carried on. "2. The term 'permanent establishment'' includes specially but is not limited to a) A seat of management; b) A branch; c) An office; d) A store of (sic) other sales outlet; e) A factory; xxx xxx xxx" Thus, considering that JDN Singapore rendered services in the Philippines for less than One hundred eighty three (183) days for the duration of the project, and that it has no permanent establishment in the Philippines, payments by Jan De Nul N.V. Philippines Branch for services rendered in the Philippines are not subject to tax pursuant to the above-quoted provisions of the RP-Singapore Tax Treaty. (BIR Ruling No. 174-92 dated May 29, 1992). However, beginning January 1, 1996, said payments to Jan De Nul Singapore for the services rendered in the Philippines shall be subject to 10% value-added tax pursuant to R.A. No. 7716, otherwise known as the "Expanded Value-Added Tax Law". LLjur 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 & Enforcement Group)