BIR Ruling [DA-487-98]

November 11, 1998 BIR RULING [DA-487-98] Joaquin Cunanan & Company 14/F Multinational Ban Corporation 6805 Ayala Avenue, Makati City Attention: Alexander B . Cabrera Partner Tax and Corporate Services Gentlemen : This refers to your letter dated May 27, 1998 applying for and in behalf of your client, Builders Federal Philippines, Inc. (BFP), a tax relief in compliance with Revenue Memorandum Order (RMO) No. 10-92. It is represented that BFP, a corporation organized and existing under the laws of the Philippines, entered into a Service Agreement with Builders Federal (Singapore) Pte. Ltd. (BFP), a Singapore company, whereby the latter shall provide support services relative to the former's business of installing curtain wall facades for high-rise buildings in the Philippines. Under the service agreement, BFS shall render services to BFP such as providing assistance in establishing tender price of a project and designing the materials used in the project which shall be carried out in Singapore and sent through telephone, fax or other means of electronic communication, or by mail. In case BFS is required to visit the project(s), such visits shall not exceed 180 days in the aggregate during the term of the Agreement. In consideration for the said services, BFP will pay BFS a service fee determined and payable every six-month based on the time incurred by the former in carrying out the services requested. Considering that BFS will have no permanent establishment in the Philippines since its services will be rendered outside the Philippines or if rendered in the Philippines, the same will not exceed 183 day, it is your opinion that the payments by BFP to BFS are not subject to Philippine income tax. In reply, please be informed that the payments made by BFP to BFS are not subject to Philippine income tax pursuant to Article 5 (2) (j) in relation to Article 7 of the RP-Singapore Tax Treaty which reads as follows : "ARTICLE 5 Permanent Establishment 2. The term "permanent establishment" includes especially but is not limited to : . . . (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. xxx xxx xxx" ARTICLE 7 Business Profits The profits of an enterprise of a Contracting State shall be taxable only in the 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. xxx xxx xxx" In view thereof, this office is of the opinion that the payments made by BFP to BFS are not subject to Philippine income tax. Accordingly, your client's Application for Tax Treaty Relief is hereby granted. However, BFS shall be subject to 10% VAT for services rendered in the Philippines. BFP must withhold and remit such 10% VAT to the BIR within 10 days from the month the services fees are paid by using a separate VAT return. BFP may claim such 10% VAT using the machine Validated VAT Return. 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. (BIR Ruling No. 174-92 dated May 29, 1992 and DA-147 dated April 7, 1997) Very truly yours, Commissioner of Internal Revenue By : (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner Legal and Enforcement Group