BIR Ruling [DA-102-98]

March 20, 1998 BIR RULING [DA-102-98] Filinvest Alabang, Inc. 173 P. Gomez St., San Juan, Metro Manila Attention: Aurelia G . Floria Comptroller Gentlemen : This refers to your letter dated December 8, 1997 requesting confirmation of your opinion to the effect that the business profits to be earned by J.I. Company, Ltd., a Thai corporation, from a construction contract with Filinvest Alabang, Inc. (FAI) are exempt from Philippine income tax pursuant to the RP-Thailand Tax Treaty. It is represented that J.I. Company, Ltd. (JIC), is a corporation organized and existing under the laws of Thailand, having its principal office at 152/9, Moo 3 Rangsit Thanyaburi Pathumthani, Bangkok, Thailand; that JIC does not have any office, branch, factory, workshop, place of management or permanent establishment in the Philippines; that FAI is a domestic corporation and will be building and operating Themed Amusement Facilities at Filinvest Festival Super Mall in Alabang, Muntinlupa; that FAI has engaged the services of JIC to design, build, construct and complete the Themed Amusement Facilities within 120 calendar days. cdt In reply, please be informed that your opinion is hereby confirmed. Article 7(1) of the Tax Treaty concluded by the Philippines with Thailand provides as follows: "ARTICLE 7 Business Profits (1) The profits of an enterprise of a Contracting State shall be taxable only in the 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) provides, viz: "ARTICLE 5 Permanent Establishment 1) For the purposes of this Convention, the term "permanent establishment" means a fixed place of business through which the business of the enterprise is wholly or partly carried on. 2) The term "permanent establishment" includes especially: (a) a place of management: (b) a branch; (c) an office; (d) a factory; (e) a workshop; (f) a mine, an oil or gas well, a quarry or any other place of natural resources; (g) a building site or construction project where such site or project continues for a period of more than six months; (h) an assembly or installation project which exists for more than three months; (i) premises used as a sales outlet; (j) a warehouse, in relation to a person providing storage facilities; (k) 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 a connected project) within the other Contracting State for a period or periods aggregating more than 183 days." Considering that, as represented, JIC does not have a permanent establishment in the Philippines as it has no office in the country and that the construction of the Themed Amusement Facilities will not exceed six (6) months, the profits to be realized by JIC from the construction project are, therefore, exempt from Philippine income tax and consequently, to the final withholding tax as imposed under Section 57(A) of the Tax Code of 1997. (BIR Ruling No. 068-88 dated March 3, 1988) cdta 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)