BIR Ruling [DA-326-99]

May 28, 1999 BIR RULING [DA-326-99] Joaquin Cunanan & Co . 14th Floor, Multinational Bancorporation Centre 6805 Ayala Avenue, Makati City Attention: Mr. George J. Lavadia Principal Tax and Corporate Services Gentlemen : This refers to your letter dated October 20, 1997 requesting on behalf of your client, Lindberg Philippines, Inc. (LPI) for tax treaty relief of business profits pursuant to Article 7 of the RP-Singapore Tax Treaty. It is represented that LPI, a domestic corporation organized under the laws of the Philippines, entered into a Management Support Services Agreement with Lindeteves-Jacoberg Limited (LJL) , a corporation duly organized and existing under the laws of Singapore; that LJL shall provide services outside the Philippines and make occasional visits to the Philippines which shall not exceed 30 days in the aggregate during the year; and that in consideration for the said services, LPI will pay LJL 3% of its total net sales payable semi-annually. In reply, please be informed that Article 5(1) and (2) and Article 7(1) of the RP-Singapore Tax Treaty, provides, viz: CcADHI "Article 5 Permanent Establishment 1. For the purpose of this agreement, 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) seat of management; b) a branch ; c) an office xxx xxx xxx j) The furnishing of services, including consultancy services, by a resident of one of the Contracting States (Singapore) through employees or other personnel, provided activities of that nature continue (for the same or connected project) within the other Contracting States for a period or periods aggregating more than 183 days. aCITEH xxx xxx xxx "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." xxx xxx xxx Considering that LJL will render services generally outside the Philippines or if there are any services rendered in the Philippines, they shall not exceed six (6) months or for a period or periods aggregating more than 183 days for the same or connected project, it has therefore no permanent establishment in the Philippines. Accordingly, payments received by it under its Management Support Services Agreement with LPI are not subject to Philippine income tax and consequently to the final withholding tax provided under Section 57(A) of the Tax Code of 1997. Furthermore, for income tax purposes, LPI is entitled to claim as deduction from its gross income its income payments made to LJL as a business expense pursuant to Section 34(A)(1) of the Tax Code of 1997. However, any services rendered in the Philippines by LJL pursuant to the Support Services Agreement shall be subject to the 10% VAT imposed under Section 102 of the Tax Code, as amended [now Section 108 of the Tax Code of 1997]. (BIR Ruling No. DA-487-98 dated November 11, 1998) EIaDHS This ruling is being issued on 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)