Philippine Income Tax and 35% Withholding Tax — Technical Service Fee

May 13, 1980 BIR RULING NO. 053-80 Tanjuatco, Oreta, Tanjuatco & Factoran 4th Floor, Equitable Bank Bldg. Paseo de Roxas and Buendia Avenue Makati, Metro Manila Gentlemen: This refers to your letter dated December 18, 1979 requesting a ruling as to whether or not the technical service fee to be paid by your client, the Marbella Club (Manila) Inc. to International Marbella Club Establishment, Vaduz, Liechtenstein, hereinafter referred to as International, for services rendered in favor of the former is subject to tax. It is represented that International shall provide your client technical assistance services in the design, planning, construction, financing, decoration and equipping of a Marina and Club Development Project and all its parts, and such services shall be performed wholly outside the Philippines; that the assistance shall consist of making available to you and to your architects, contractors, engineers and decorators, the expertise and experience of the Marbella Club Group as well as the services of its key personnel, recruitment of additional technical personnel as may be required by the Project development; and that in consideration of the services to be rendered by International, your client shall pay technical service fees. In reply thereto, I have the honor to inform you that under the foregoing facts, the technical service fees are considered royalties for "the supply of scientific, technical, industrial or commercial knowledge or information;" hence said fees are considered income from sources within the Philippines, subject to Philippine income tax and consequently to the 35% withholding tax prescribed by Section 24(b)(1) in relation to Section 53(b)(2) of the Tax Code, as amended. [Sec. 37(a)(4)(C), Tax Code as amended by P.D. No. 1457.] Very truly yours, EFREN I. PLANA Acting Commissioner