SGV & Co.

October 24, 2008 BIR RULING [DA-(C-110) 349-08] 28 (A); 164-95; DA-432-06 SGV & Co. 6760 Ayala Avenue Makati City Attention: Attys. Luis Jose P. Ferrer and Cirilo P. Noel Gentlemen : This refers to your letter dated September 15, 2008 requesting on behalf of your client, Tupperware Products, Inc. (TPI for brevity), for confirmation of opinion that TPI-Philippine Branch is subject to Philippine income tax and that TPI may transfer to its Philippine branch, as part of the Philippine branch's assigned capital, the entire assets and business of TPI's Philippine operations. It is represented that TPI is a nonresident foreign corporation duly organized and existing under and by virtue of the laws of the United States of America (USA) with principal office address at 14901 S. Orange Blossom Trail, Orlando, Florida, USA, and is engaged in the manufacture and sale of Tupperware products which includes plastic wares, kitchen and household effects. In 2005, TPI secured ITAD Ruling No. 106-05 dated September 21, 2005 where the BIR ruled that since TPI does not have a permanent establishment in the Philippines, it is not subject to Philippine income tax and consequently, to withholding tax. TPI was required to register as a VAT-taxpayer with Revenue District Office (RDO) No. 50. As a VAT taxpayer, TPI declares output VAT on its sales of Tupperware products in the Philippines and recognizes input VAT on its purchases of goods and services attributable to its sales in the Philippines. aDIHTE However, in 2006, as part of its corporate expansion and pursuant to its strategic business decision, Tupperware Brands Corporation (TBC), the ultimate parent company of TPI, undertook the worldwide acquisition of the direct selling business of Sara Lee, the world renowned maker and seller of high quality body care, skin care, garments and intimate apparel products. TBC, through its Philippine company, Dart Philippines, Inc. (DPI), acquired the direct selling business of Sara Lee in the Philippines, namely, Sara Lee Direct Selling Philippines, Inc. (SLDPI), as part of the said global acquisition. Due to the exigencies of this business acquisition and the new marketing strategy that will be implemented by Tupperware in selling the said skin care, garments and intimate apparel products acquired from Sara Lee, alongside its own Tupperware products, it is no longer commercially viable to maintain the present structure. Thus, the establishment of a Philippine branch by TPI becomes a necessity. Under the new business model, therefore, TPI-Phil. Branch shall be the importer of record of the Tupperware products and will sell the same for its own account to Fuller Life Direct Selling Philippines, Inc. (FLDSPI), the merged entity of DPI and SLDPI. Having formally established a Philippine branch, TPI-Phil. Branch will become subject to income tax in the Philippines. In establishing the said Philippine branch, the assets of TPI pertaining to its Philippine operations consisting of receivables, intangibles and input VAT shall be transferred to the branch as part of its assigned capital, on top of the US$200,000.00 capital requirement under the Foreign Investments Act (FIA) of 1991. In addition, the liabilities of TPI pertaining to its Philippine operations shall likewise be transferred to the branch. In reply thereto, please be informed that based on the well-entrenched single entity concept, the general rule is that the head office and the branch are treated as a single entity. Hence, "intra-company transfer of assets will show neither an increase nor a decrease in total assets, precisely because the transferred assets merely changed location from one unit of the same entity to another; that is, from the home office to any of its branches or vice versa." ( Commissioner of Internal Revenue vs. American Express International Inc.-Philippine Branch, G.R. No. 152609 dated June 29, 2005; Philipp Brothers Oceanic, Inc. (Philippine Branch) vs. The Commissioner of Internal Revenue, Court of Tax Appeals (CTA) Case No. 3140 dated March 8, 1984; BIR Ruling No. DA-432-06 dated July 18, 2006; and BIR Ruling No. 164-95 dated October 23, 1995). SCaIcA Such being the case, and considering that TPI and its Philippine branch are one and the same entity following the single entity concept, this Office hereby confirms your opinion that TPI may transfer its receivables, intangibles and input VAT to its Philippine branch as part of the latter's assigned capital. However, since TPI will be establishing a Philippine branch, the said Philippine branch will now become subject to Philippine income tax on its Philippine source income under Section 28 (A) of the 1997 Tax Code, as amended. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service