Payment of Service Fees to be Paid by Hotel Corporations to Service Companies Subject to 5% Creditable Expanded Withholding Tax Imposed under Revenue Regulations No. 6-85, as amended

April 4, 1997 BIR RULING NO. 040-97 Sec. 50 (b) RR 6-85 000-00 040-97 SGV & Co. 6760 Ayala Avenue Makati City Attention: Atty . C . P . Noel Gentlemen : This refers to your request in behalf of your client, Days Hotel Philippines, Inc. (DHP) for confirmation of your opinion that payment of service fees to be paid by hotel corporations to service companies are subject to the 5% creditable expanded withholding tax imposed under Revenue Regulations No. 6-85, as amended. It is represented that your client, Days Hotel Philippines (DHP) shall acquire a license from Days Inn, USA and that such license grants DHP the right to franchise the right to use: (1) the "Days Inn" name; (2) "Days Inn" standards, and (3) the "Days Inn" Worldwide Guest Reservation System; that pursuant to the agreement between DHP and Days Inn, USA, the former shall pay a license fee to the latter; that DHP shall then grant franchises to local hotel corporations who shall have the right to use: (1) the "Days Inn" name; (2) "Days Inn" standards, and (3) the "Days Inn" Worldwide Guest Reservation System; that pursuant to the franchise each hotel corporation shall pay a franchise fee to DHP; that in order to assist in the implementation of the standards set forth in the franchise, the hotel corporations shall in turn enter into service contracts with various service companies; and that the latter will give assistance to the hotel corporations in the following areas of activity: human resource development, quality assurance, marketing and reservation system operation; that there is no transfer of technology in the quality assurance, human resource training, marketing assistance and customer reservation service agreement; and that the purpose of hiring the service organization is to give assistance to the hotel corporations in implementing the standards set forth in their respective franchises, and that each service company will be paid by the hotel corporations a fee for the assistance it will render. In reply, please be informed that your opinion is hereby confirmed, that service fees to be paid to the juridical persons are subject to the 5% expanded withholding tax prescribed under Section 1(b) of Revenue Regulations No. 6-85, as amended, otherwise known as the Revised and Consolidated Expanded Withholding Tax Regulations implementing Section 50(b) of the 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 disclosed that the facts are different, then this ruling shall be considered null and void. aisadc Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue