Ms. Rowena V. Besa

December 16, 2008 BIR RULING [DA-(C-175) 536-08] DA361-08 Ms. Rowena V. Besa Unit 2410-Jollibee Plaza Building Emerald Avenue Ortigas Center Pasig City Madam : This refers to your letter dated December 5, 2008 stating that Hubbel-Taian Co., Ltd. is a representative office duly license to transact business in the Philippines per Securities and Exchange Commission (SEC) Registration No. A200001459 dated May 23, 2000; that it is licensed to promote and perform liaison work for the products of the company to distributors, dealers, contractors and end-users, including but not limited to government institutions and entities; to entertain and refer inquiry on the products from authorizing agencies, and users and customers; and that as a representative office it derives no income from its activities. Based on the foregoing representations, you now request for a ruling that as a representative office of Hubbel-Taian Co., Ltd. it is exempt from the payment of corporate income tax, value-added tax (VAT) and withholding tax. In reply thereto, please be informed that a representative office is a non-resident foreign corporation not engaged in any income generating business in the Philippines. As can be viewed by its licensed activities, it is a representative office. Accordingly, it is not subject to income tax. Hence, it is exempt from filing of the corporate income tax return. (BIR Ruling No. 136-89 dated July 4, 1989) IHDCcT A person is subject to VAT if it renders service 'in the course of trade or business' (Section 105, Tax Code of 1997). Inasmuch as the operation of the representative office is similar to regional or area headquarters of multinational corporations which are exempt from VAT under Section 109 (p) of the Tax Code of 1997, representative offices are also exempt from VAT. Moreover, since Hubbel-Taian Co., Ltd. is a representative office that merely acts to enable the overseas head office to maintain some presence in the country, and is not engaged in any income-generating activity in the Philippines, it is qualified for exemption from VAT. However, this exemption applies only to VAT directly due from representative offices (VAT Ruling No. 234-88 dated May 25, 1988 and BIR Ruling No. 136-89 dated July 4, 1989). On the other hand, if it will remit technical service fees to its parent company, the said fees are considered royalties (Section 42 (A) (4) (f), 1997 Tax Code). Being Philippine source income of a representative office, the technical service fees are subject to Philippine corporate income tax under Section 28 (B) (1) of said Code which you will withhold as the payor-corporation and paid in the same manner and subject to the same conditions as provided in Section 59 of the Tax Code of 1997. Moreover, as a representative office, if you have employees, they are subject to the following income tax rates pursuant to Section 2.57.1 (D) of Revenue Regulations No. 2-98, as amended by Revenue Regulations No. 6-2001, as further amended by Revenue Regulations No. 12-2001, implementing Section 58 of the Tax Code of 1997: cTECHI a. If a Filipino citizen, whether resident or non-resident, or a resident alien graduated tax rates 5%-32%; b. If a non-resident alien engaged in trade or business in the Philippines graduated tax rates of 5%-32%; c. If a non-resident alien not engaged in trade or business in the Philippines 25% (BIR Ruling No. DA032-02 dated March 7, 2002) 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