Whether Payments Received by AT&T Singapore Pte. Ltd. for Services Rendered to AT&T Philippines, Inc. Relative to their Payroll Services Agreement are Not Subject to Philippine Income Tax and Consequently to Any Withholding Tax

February 4, 1994 BIR RULING NO. 033-94 36 (c) (3) 36-90 033-94 Joaquin Cunanan & Co. 8th Floor, BA-Lepanto Building 8747 Paseo de Roxas Makati, Metro Manila Attention: Mr . Jose S . Tayag, Jr . Partner Gentlemen : This refers to your letter dated August 12, 1993 requesting confirmation of your opinion to the effect that payments received by your client, AT&T Singapore Pte. Ltd. (AT&T-Sing) for services rendered to AT&T Philippines, Inc. (AT&T-Phil) relative to their Payroll Services Agreement are not subject to Philippine income tax and consequently to any withholding tax. It is represented that AT&T-Sing is a corporation duly organized and existing under and by virtue of the laws of Singapore while AT&T-Phil is a domestic corporation; that both corporations are servicing the telecommunication companies in their respective countries; that AT&T-Phil entered into a Payroll Service Agreement with AT&T-Sing dated August 6, 1993 relative to the persons to be employed by the former who are Singapore residents and expert in modern telecommunication technology and who want their salaries and benefits to be paid and/or rendered in Singapore; that AT&T-Sing will pay the salaries and benefits of the said Singaporeans being employed by AT&T-Phil since the former has the capability to coordinate and administer such services, which include breakdowns of all compensation paid, all government reporting forms and foreign tax; that all services to be rendered by AT&T-Sing shall be rendered in Singapore; and that AT&T-Phil shall pay AT&T-Sing a monthly fixed fee per employee for such services. cdtech In reply thereto, I have the honor to inform you that Section 36(c)(3) of the Tax Code, as amended, provides as follows: "Sec. 36. Income from Sources within the Philippines . xxx xxx xxx (c) Gross income from sources without the Philippines . The following items of gross income shall be treated as income from sources without the Philippines: xxx xxx xxx (3) Compensation for labor or personal service performed without the Philippines; xxx xxx xxx Thus, since the services of AT&T-Sing, a non-resident foreign company, will be rendered wholly in Singapore, the compensation for such services is considered as derived from services without the Philippines. Hence, the said income of AT&T-Sing is not subject to income tax and consequently to the 35% withholding tax prescribed by Section 25(b)(1), in relation to Section 50(a) of the Tax Code, as amended. (BIR Ruling No. 036-90 dated March 27, 1990). It is however, understood that the income earned by the Singaporean employees of AT&T-Phil for services rendered in the Philippines will be subject to Philippine income tax. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue