Factors in Determining Whether a Person is Engaged in Business in the Philippines

January 15, 1959 BIR RULING NO. 045-59 Mr. Virgilio S. Farcon c/o Oceanic Commercial, Inc. 2155 Pasong Tamo, Makati, Rizal S i r : This has reference to your letter of November 29, 1958, requesting opinion on the following queries; "(A) Facts X Inc. is a nonresident alien corporation, who is a stockholder in Y, Inc. a Philippine corporation. In 1957, the Board of Directors at its meeting held, declared cash dividends of which P20,000.00 was the share of X Inc. (1) What is the income tax liability of X Inc. on the P20,000.00 dividends received? (2) How much income tax of X Inc. will be withheld by Y Inc.? "(B) Facts Mr. A is an American but not residing in the Philippine. He is a controlling stockholder and at the same time the President of B Inc. a domestic corporation. He does not supervise nor maintain an office here, but instead delegated all business activities to the General Manager of B Inc. Once a year he comes here to study the condition of the business. In the preceding year, he received cash dividends in the amount of P17,000.00. llcd (1) How much income tax is he suppose to pay? (2) How much if any will be withheld? "(C) The mere fact that non-resident aliens whether individual or corporation are stockholders in the Philippines, are they considered as having engaged in trade or business within the Philippines? If not, will you please give circumstances which will serve as guiding factors in determining as to who could be considered as having engaged in business or trade within the Philippines? In reply thereto, I have the honor to inform you as follows: As regards query A., the income tax liability of X, Inc. on the P20,000.00 dividends is P4,000.00 pursuant to Section 24 of the National Internal Revenue Code. Y, Inc. should withhold a tax equal to 24% of the P20,000.00 pursuant to Section 54 of the same Code. Anent query B, Mr. A is liable to pay P2,070.00 as income tax on the P17,000.00 cash dividends received by him (rate of tax prescribed under Section 21 of the National Internal Revenue Code). The amount of tax which should be withheld from Mr. A is 12% of P17,000.00 pursuant to Section 53(b) of the same Code. With respect to query C, the mere fact that a non-resident alien, whether an individual or a corporation, is a stockholder in the Philippines, is not sufficient basis for considering him or it as having engaged in trade or business in the Philippines. cdll The following definitions will serve as guiding factors in determining whether a person is engaged in business in the Philippines: 'To engage' is to embark in a business or to employ oneself therein (Webster's New International Dictionary). The word 'engage' connotes more than a single act or a single transaction; it involves some continuity of action (Day v. Equitable Life Assur. Soc. of the United States, 83 F. 2d 147, 148). 'To engage in business' is uniformly construed as signifying to follow the employment or occupation which occupied the time, attention, and labor for the purpose of a livelihood or profit (Semple v. Schwarz, 109 S.W. 633, 636, citing Seichler v. Guenther, 93 N.R. 895, 896). The expressions 'engage in business', 'carrying on business' or 'doing business' do not have different meanings, but separately or connectedly convey the idea of progression, continuity, or sustained activity, and 'engaged in business' means occupied or employed in business, 'carrying on business' does not mean the performance of a single disconnected act, but means conducting, prosecuting, and continuing business by performing progressively all the acts normally incident thereto while 'doing business' conveys the idea of business being done, not from time to time, but all the time.' (Lewellyn v. Pittsburgh, B. & E.E. Co., C.C.N. Pa., 222 F. 177, 185). prll Very truly yours, (SGD.) MELECIO R. DOMINGO Acting Commissioner of Internal Revenue