BIR Ruling [DA-180-03]

June 5, 2003 BIR RULING [DA-180-03] 28 (B) (1); 42 (c) (3); 57 (a); 36-90; 484-93 Development Bank of the Philippines (Property & Security Management) Gil Puyat Ave. cor. Makati Avenue Makati Attention: Eduardo T. Mendoza Vice President Gentlemen : This refers to your letter dated March 18, 2003 requesting this Office to issue a ruling as to the tax consequence of your transaction with ST Aerospace Engineering Pte. Ltd., (Aerospace for convenience), relative to the repair of Super Kingair 200, an aircraft owned by the Development Bank of the Philippines (DBP). It is represented that DBP contracted the services of Aerospace for the repair of aircraft SUPER KINGAIR 200 owned by the former. Aerospace is a foreign corporation existing under the laws of Singapore. It does not maintain an office here in the Philippines. DBP took the proposal of Aerospace to be more advantageous to the bank in terms of money, time and effort compared to the in-country repair proposals of other firms. As a consequence, the aircraft was flown to Singapore where the company is based and provided all the services and parts needed to put the plane back to its airworthy condition. On the other hand, DBP committed to pay Aerospace in US Dollar denomination to be remitted abroad through telegraphic transfer to be credited to its account. Based on this arrangement, you now request for a ruling whether or not the foregoing transaction is subject to tax under the provisions of the National Internal Revenue Code of 1997. In reply thereto, please be informed that pursuant to Section 28(B)(1) of the Tax Code of 1997, a foreign corporation not engaged in trade or business in the Philippines shall pay a tax equal to thirty two percent (32%) effective January 1, 2000, only of the gross income derived from all sources within the Philippines. For the source of income to be considered as coming from the Philippines, it is sufficient that the income is derived from an activity conducted within the Philippines pursuant to Section 42(c)(3) of the same, Code ( BIR Ruling No. 36-90 dated March 27, 1990 ), In view thereof, since the services rendered to DBP by Aerospace was done outside the territorial jurisdiction of the Philippines, the service fees derived therefrom will be considered as income from sources without the Philippines. EIAHcC Accordingly, inasmuch as a non-resident foreign corporation is subject to tax only on income from sources within the Philippines, the payments to be made by DBP for services rendered by Aerospace which was done outside the Philippine jurisdiction are not subject to Philippine income tax and consequently to the withholding tax under Section 57(a) of the Tax Code ( BIR Ruling No. 484-93 dated December 10, 1993 ). However, the payment for services rendered which will be through telegraphic transfer is subject to documentary stamp tax imposed under Section 182 of the same Code ( BIR Ruling DA-139-3-31-97 dated August 14, 1996 ). 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.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group