Taxability of the Consultancy fee of a US Citizen Who Was Hired by the Women's Health and Safe Motherhood Project of the Department of Health

April 3, 1997 BIR RULING NO. 036-97 50 (a) 000-00 036-97 Women's Health and Safe Motherhood Project Department of Health 3rd Floor, Bldg. No. 12, San Lazaro Compound Sta. Cruz, Manila Attention: Ms . Rebecca B . Infantado, MD . , MPH Acting Assistant Secretary, OPHS Gentlemen : This refers to your letter dated July 19, 1996 requesting for a ruling as to whether or not the consultancy fee of Dr. Rabin M. Sarda, a US citizen with temporary address at 1555 M. Adriatico, Apt. 410 Ermita, Manila, Philippines, who was hired by the Womens Health and Safe Motherhood Project of the Department of Health as a consultant is exempt from tax. It is represented that a Contract of Services was entered into by and between the Republic of the Philippines thru the Department of Health and Dr. Rabin M. Sarda, relative to the urgent need to address key issues concerning Women's Health in the Philippines otherwise known as the Women's Health and Safe Motherhood Project; that said project is financed by the International Bank for Reconstruction and Development (IBRD Loan No. 3852 PH.); that the aforementioned project has an RTI/STD as its subcomponent; that you have found Dr. Rabin M. Sarda as the most qualified to render the services needed for the said project; that the duration of this contract shall be equivalent to five months which shall be divided to two equal periods; that the contract shall be divided to two equal periods; that the contract shall be completed between December 15, 1995 until December 31, 1996; that payments to Dr. Rabin M. Sarda shall not exceed US$45,000 inclusive of two round trip airfares to New York, USA and Manila, Philippines; and that said amount shall be paid in the following manner: a) Twenty five percent (25%) of the aforesaid amount to be paid upon submission to and approval by the DOH of the plan of action for the implementation and management of the project; b) Twenty five (25%) of the same amount to be paid upon submission of accomplishment reports which will include activities accomplished, problems encountered, actions undertaken and future activities; c) Thirty percent (30%) of the aforesaid amount to be paid upon submission of mid-term accomplishments and progress reports; d) Twenty percent (20%) of the said amount to be paid upon submission of final report and completion of consultancy. In reply, please be informed that Article 15 of the RP-US Tax Treaty provides viz.: "Article 15 "INDEPENDENT PERSONAL SERVICES (1) Income derived by an individual who is a resident of one of the Contracting State from the performance of personal services in an independent capacity may be taxed by that Contracting State. Except as provided in paragraph (2), such income shall be exempt from tax by the other Contracting State, (2) Income derived by an individual who is a resident of one of the Contracting States from the performance personal services in an independent capacity in the other Contracting State may be taxed by that other Contracting State, if: a) He has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities; in that case, only so much of the income as is attributable to that fixed base may be taxed in that other Contracting State; b) He is present in that other Contracting State for a period of periods aggregating 90 days or more in the taxable year; or c) The gross remuneration derived in the taxable year from residents of that other Contracting State for the performance of such services in the other Contracting State exceeds 10,000 United States dollars or its equivalent in Philippine pesos or such higher amount as may be specified and agreed in letters exchanged between the competent authorities of the Contracting States. Although Dr. Rabin M. Sarda has no fixed base regularly available to him in the Philippines for the purpose of performing his activities but will be actually staying in the Philippines for five months which shall be divided into two equal periods, until the duration of the contract and the gross remuneration to be derived by him is in excess of US$10,000 or its equivalent in Philippine pesos, the payments by the Department of Health to Dr. Rabin M. Sarda amounting to US$45,000 shall be subject to Philippine income/withholding tax imposed under Section 22(b) in relation to Section 50(a) both of the Tax Code, as amended. cdti Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue