BIR Ruling [DA-112-97]

March 19, 1997 BIR RULING [DA-112-97] Laya Mananghaya Salgado & Co. 3/F Chemphil Bldg., 851 Arnaiz Avenue, Legaspi Village Makati City Attention: Atty. Mariano C. Ereso, Jr. Gentlemen : This refers to your letter dated February 26, 1997 stating that your client, Coopers & Lybrand Consultants (Holding) Pte. Ltd., (C & LCHP) is a corporation organized under the laws of Singapore with principal office address at 9 Pasong Road, 11-19 Park Mall, Singapore 238459, has a contract with the Board of Investments for the preparation of Masterplan for the Electronics and Allied Industries in the Philippines, (Masterplan); that C & LCHP has no office or fixed place of business in the Philippines; that for the preparation of the Masterplan, C & LCHP will send to the Philippines technical consultants, who are its employees, that the services to be rendered by C & LCHP under its contract with BOI for a single project, will be for a period of less than six (6) months; that the engagement will be completed in less than six (6) months; that the services to be rendered by C & LCHP in the Philippines under its contracts with BOI for a single project will be for less than 183 days; that all the technical consultants and other staff, who are all employees of C & LCHP and residents of Singapore and who will be assigned to perform the services under its contract with BOI, will be present in the Philippines for short period but in no case will anyone be present in the Philippines for more than 183 days; and that while in the Philippines, the salaries or compensation of these technical consultants and other staff will be paid by C & LCHP. In connection therewith, you are requesting confirmation of your opinion to the effect that (1) Inasmuch as the services to be rendered by C & LCHP in the Philippines under its contract with BOI for a single project will be for less than 183 days; a "permanent establishment" will not be created under Art. 5 (2) (j), of the RP-Singapore Tax Treaty. Accordingly, the fees to be derived by C & LCHP under the contract are not subject to Philippine income tax and consequently to the MISSING PAGE 2 employees or other personnel, provided activities of that nature continue (for the same or other connected project) within the other Contracting State for a period or periods of aggregating more than 183 days. Moreover, Article 7 (1) of the RP-Singapore Tax Treaty provides, viz: "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 in attributable to that permanent establishment. "2. . . . "3. . . . "4. . . . "5. . . . "6. . . . Such being the case, since as represented the services to be rendered by C & LCHP in the Philippines under its contract with BOI for a single project will be for less than 183, it is deemed not to be engaged in business in the Philippines by providing services through a permanent establishment. (Article 5 in relation to Article 7 of the RP-Singapore Tax Treaty) The fees to be derived by C & LCHP under the contract are not subject to Philippine income tax and consequently to the withholding tax prescribed under Section 25 (b) (1) of the Tax Code, as amended. The fees are taxable only in Singapore pursuant to Article 7 (1) of the RP-Singapore Tax Treaty. Furthermore, the salaries or compensation of the technical consultants and other staff during their stay in the Philippines which will be for less than 183 days are not subject to Philippine income tax and will be taxable only in Singapore pursuant to Article 14 (2) of the RP-Singapore Tax Treaty (BIR Ruling No. 088-86 dated June 24, 1986) Very truly yours, (SGD.) ALICIA L. TOMACRUZ Head Revenue Executive Assistant (Legal Service)