BIR Ruling [DA-210-98]

June 1, 1998 BIR RULING [DA-210-98] SyCip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City Attention: Atty . Ma . Victoria A . Villaluz Tax Division Gentlemen : This refers to your letter dated January 6, 1998 requesting confirmation of your opinion to the effect that your client, SB Leasing (Singapore) Pte. Ltd. (SBLPL), is exempt from the Philippine income tax including the withholding tax of 7 1/2 % on the gross rentals or fees imposed under Section 28 (B)(4) on non-resident lessor of machineries and other equipment in accordance with Articles 5 and 7 of the RP-Singapore Tax Treaty. It is represented that your client, SB Leasing (Singapore) Pte. Ltd. (SBLPL), is a foreign corporation organized and existing under the laws of Singapore; that SBLPL is not engaged in trade or business in the Philippines and does not maintain any branch office or any other place of business in the Philippines that SBLPL entered into a a contract with Omron Mechatronics of the Philippines Corporation (OMPC), a domestic corporation registered as a Subic Bay Freeport (SBF) enterprise, whereby SBLPL agreed to lease out certain machinery to OMPC to enable the latter to engage in business; and that OMPC paid rentals to SBLPL on the lease of equipment made thereon. 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 said treaty provides, viz: "ARTICLE 5 "PERMANENT ESTABLISHMENT 1. For the purpose 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 or other sales outlet; (e) A factory; (f) A workshop; (g) A warehouse, in relation to a person providing storage facilities for others; (h) A mine, quarry, or other place of extraction of natural resources; prcd (i) A building site or construction or assembly project or installation project or supervisory activities in connection therewith, provided such site, project or activity continues for a period more than 183 days; and (j) 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 SBLPL does not have a permanent establishment here in the Philippines to which its business profits/income are attributable, your opinion that the rental payments made by OMPC to SBLPL are not subject to Philippine income tax and to the withholding taxes is hereby confirmed.(BIR Ruling No. 174-92 dated May 29, 1992; BIR Ruling No. 049-96 dated April 11, 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. aisadc Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV (Legal & Enforcement Group)