Nagase Philippines Corporation

September 21, 2007 BIR RULING [DA-505-07] 108 (B) (2) DA-319-2003 Nagase Philippines Corporation 18-B Trafalgar Plaza, H.V. Dela Costa Street Salcedo Village, Makati City Attention: Ms. Ma. Laarni Natividad Gentlemen : This refers to your letter dated May 29, 2007 requesting confirmation of your position, viz: 1. The sales made by Nagase overseas affiliates (Nagase affiliates) are sales consummated abroad and should not be considered as sales by Nagase Philippines Corporation (Nagase Philippines) as it only acts as an agent for and in behalf of these affiliates and in consideration of the indent commission it receives; 2. The indent commission received by Nagase Philippines is subject to value added tax at zero percent rate in accordance with the provisions of Section 108 (B) (2) of the National Internal Revenue Code. It is represented that Nagase Philippines Corporation is a domestic company and is 99% owned by Nagase & Co. Ltd.; that it is a member firm of the Nagase Group of Companies; that it has its offices at 18B Trafalgar Plaza, HV dela Costa St., Salcedo Village, Makati City with TIN No. 005-040-053; that its activities include the following: a. importation of goods from all over the world thru its affiliates and distributes/sells the same to local Philippine customers; b. acts as agent for certain local Philippine customers whose goods requirements are not readily available from the local warehouse and facilitates importation of these goods from overseas Nagase affiliates. These local customers directly place the order to Nagase overseas affiliates and after which payments are directly remitted to overseas offices by these customers; c. under this arrangement, in consideration for the services rendered, NPH will earn an indent commission as follows: IDCHTE chemicals 2 to 5% plastic resins 1.25% to 2.25% dyes and electronic parts 3% to 5% electronic machineries 4% to 10% that after receiving payment from local customers, Nagase overseas affiliates facilitates the delivery of said goods directly to Philippine Customers CIF shipping point requiring the following documents: 1. Purchase Order named after the Nagase overseas office identifying the name of the local customer as the consignee; 2. The consignee then takes care of the logistic requirements for the release of goods from the Bureau of Customs that every end of each month, Nagase receives payment from Nagase affiliates for the indent commission for facilitation of importation of goods; that these payments in US Dollars are directly remitted to the account of Nagase at Bank of Tokyo Mitsubishi-Manila Branch; and that following are the Nagase overseas affiliates with whom Nagase transacts importation of goods for local distribution and sales whom certain local customers directly import goods which are not available from local warehouse: 1. Nagase & Co. Ltd. is a Japanese company incorporated under the Japanese laws, engaged in trading which has representations all over the world and is the mother Company of the local Philippine office. All member firms in the Nagase group are trading Companies which imports and exports plastic resin, chemical, dyes, electronics machineries and components to any clients. Their activities include after-sales service and maintenance for the mentioned products. EAcIST 2. Nagase Singapore (Pte.) is a Singaporean Company which is the regional headquarter in Asia of Nagase member affiliates. It serves as the Asian information center for the Nagase Group and one of the established distributor/trader in Singapore. 3. Nagase Thailand Co. Inc/Nagase Malaysia/Shanghai Nagase other member firms in Asia. In reply, please be informed that based on the facts as represented, we confirm your opinion that such sales by Nagase affiliates, though facilitated by Nagase Philippines, cannot be made as part of the sales of Nagase Philippines. Following the ruling in Kanematsu vs. CIR , C.T.A. Case No. 4531, dated March 27, 1995, it can be said that Nagase Philippines is merely a broker who is generally defined as one who is engaged, for others, on a commission, negotiating contracts relative to property with the custody of which he has no concern; the negotiator between other parties, never acting in his own name, but in the name of those who employed him; he is strictly a middleman and for some purposes, the agent of both parties ( Beth Meyer & Co., Ltd. vs. Nolting and Garcia , 35 Phil. 274, November 18, 1916). The broker, unlike the commission merchant, has no relation with the thing he sells or buys. He is merely an intermediary between the purchaser and the vendor. He acquires neither the possession nor the custody of the things sold. His only office is to bring together the parties to the transaction ( Pacific Commercial Co. vs. Yatco , 68 Phil. 398, July 20, 1939). The chief feature which distinguishes a broker from other classes of agents is that it is the intermediary of middleman and, in effecting a sale or exchange of property, acts in a certain sense as the agent of both parties to the transaction. Another distinction is that the idea of exclusiveness enters into an employment agency, while in respect of a broker there is a holding out of oneself generally for employment in matter of trade, commerce and navigation and on this principle, a broker is distinguished from a clerk. (12 C.J.S. pp. 8-9, citing cases emphasis supplied) "[ Kuenzle & Streiff, Inc. vs. Commissioner of Internal Revenue , 12 SCRA 300; Collector of Internal Revenue vs. Tan Eng Hong , SCRA 431]" Hence, the sales of Nagase affiliates that were facilitated by Nagase Philippines upon the orders of the customers in the Philippines to Nagase affiliates are not and should not be included as part of the sales of Nagase Philippines. Under this arrangement, Nagase Philippines' only role in the transaction is to place the orders thereby acting as an agent in facilitating such transaction. TaEIcS This Office likewise confirms your opinion that the indent commission to be received by Nagase Philippines from Nagase & Co. Ltd. is subject to the value-added tax of zero percent (0%), considering that it complies with the requirement of Section 108 (B) (2) of the National Internal Revenue Code of 1997 such that the consideration for services rendered is paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP). (VAT Ruling No. 346-88 dated August 1, 1988) 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, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service