BIR Ruling [DA-377-06]

June 16, 2006 BIR RULING [DA-377-06] Secs. 28 (A), 75 & 76, NIRC Enclos Technical Services Corp . 1601/1610 Robinson Equitable Tower 2 ADB Ave. cor. Poveda St., Ortigas Center Pasig City 1600 Attention: Edwin D. Castro Technical Services Manager Gentlemen : This refers to your letter dated February 2, 2006, seeking opinion on whether or not your company should file Income Tax Return or any tax type not enumerated in your BIR Certificate of Registration. It is represented that ENCLOS TECHNICAL SERVICES CORP. (Enclos, for short) was incorporated in Minnesota, U.S.A.; that it is duly licensed on August 16, 2004, by the Securities and Exchange Commission (SEC) to establish a branch office here in the Philippines; that the Phil. Branch Office was set up to provide drafting and curtain wall drawings to its Minnesota office for the construction projects in the United States; that to date, Enclos Phil. Branch Office has not engaged in any business in the Philippines since its registration with SEC; that it currently employs 13 personnel and is renting office spaces at Equitable Robinson Tower, ADB Ave., Ortigas Center, Pasig City; that its Minnesota office directly pays its employees' salaries, office rents and all other expenses through ABN Amro Bank, Inc., Makati City; that this set up was explained to the BIR Revenue District Office #43 (Pasig) when Enclos Phil. Branch Office applied for registration with the BIR on August 24, 2004; that its registration was approved on the same date, with the following tax type in accordance with its registered activities, to wit: Registration, Fees, Expanded Withholding Taxes on Rentals and Compensation (1601-E & 1601-C); that since August 16, 2004, Enclos Phil. Branch Office religiously paid and remitted all the above-mentioned tax type to the BIR; and that it is confused on whether or not to file an Income Tax Return or other taxes viz-a-viz the registered tax types indicated in its Certificate of Registration due to conflicting unsolicited opinions; hence this request. In reply, please be informed that pursuant to Sections 75 and 76, in relation to Section 28 (A), all of the Tax Code of 1997, as amended, every corporation shall file a quarterly summary declaration of its gross income and deductions in a cumulative basis for the preceding quarter or quarters, and a final adjusted return covering the total taxable income therefor upon which the income tax shall be derived, collected and paid. The taxable income subject to an income tax equivalent to 32% (35% effective Nov. 2005) shall include all income derived from all sources in the Philippines. Thus, a branch office of a foreign corporation deriving income from sources within the Philippines is required to make a return of such income. On the other hand, a non-resident foreign corporation not engaged in business in this country is also required to make a return and pay the tax on income received from sources within the Philippines as provided for under Section 28 (B), in relation to Sections 75 and 76, all of the Tax Code of 1997, in the absence of a treaty between the Philippines and the country of said enterprise. AECIaD Inasmuch as Enclos is a branch office in the Philippines duly licensed to transact business by the SEC, specifically to engage in drafting and creating construction curtain wall drawings to be used for construction projects primarily for its Minnesota Head Office, the same is subject to income tax on income derived from all sources within the Philippines pursuant to Sec. 28 (B) of the Tax Code, as amended. However, considering that from the date of its registration, it has not yet engaged in any business in the Philippines as it exclusively caters to clients in the United States, and therefore, does not derive income from within the Philippines, Enclos is not required to file income tax return. As regards its duty as a withholding agent, Enclos is required to deduct and withhold taxes under Sec. 57 of the same Tax Code and thus, should have file an annual information return containing the list of payees and income payments, amount of taxes withheld from each payee and such other pertinent information as may be required by the Commissioner, pursuant to Sec. 58 of the Tax Code. 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service