Tax Exemption Privilege of Accessa B.V. Pursuant to Article 5, Paragraph 2-h of the RP-Netherlands Tax Treaty

May 21, 1998 BIR RULING NO. 058-98 Art. 5 (1), (2) RP-Netherlands Tax Treaty-000-00-058-98 Kagawaran ng Kalakalan at Industriya Trade and Industry Building 361 Sen. Gil Puyat Avenue Makati City Attention: Ms . Marcella C . Acuesta Caretaker General Administrative Services Gentlemen : This refers to your letter dated April 28, 1997 requesting for a ruling on the tax exemption privilege of Accessa B.V. pursuant to Article 5, Paragraph 2-h of the RP-Netherlands Tax Treaty. It is represented that the Department of Trade and Industry (DTI) through the Regional Operations Group (DTI-ROG) is currently implementing a GATT-related Technical Assistance and Consultancy Project for the Philippine Costume Jewelry Industry; that part of the project is the hiring of a foreign consultant who will be in charge in drawing up a training curriculum, conduct seminars and a one-on-one consultancy for costume jewelry exporters; that Accessa B.V., a jewelry consultant based in Netherlands has been awarded the bid; that since this is a locally-funded undertaking and is part of the DTI-GATT Crafts and Production Center Projects, DTI will pay for the consultancy fee; and that the number of consultancy days in the Philippines for the Project is 166 days only. In reply, please be informed that Article 5(1) & (2) of the RP-Netherlands Tax Treaty provides as follows: "Article 5 "Permanent Establishment "1) For the purposes of this Convention, the term, "permanent establishment" means a fixed place of business in which the business of the enterprise is wholly or partly carried on. "2) The term "permanent establishment" includes especially: a) a place of management; b) a branch; c) an office; d) a factory; e) a workshop; f) a mine, quarry or other place of exploration or extraction of natural resources; g) a building site or construction or assembly project or supervisory activities in connection therewith, where such site, project or activity continues for a period of more than 183 days; h) the furnishing of services including consultancy services by an enterprise through an employee or other personnel which activities of that nature continue (for the same or a connected project) for a period or periods exceeding in the aggregate 183 days within the twelve-month period." Under the aforequoted provisions of the RP-Netherlands Tax Treaty, Accessa B.V. does not have a permanent establishment in the Philippines for the purpose of performing its activities. Furthermore, the aggregate number of 183 working days as required under the Treaty for the purpose of determining whether an enterprise has a "permanent establishment" in the Philippines was not met in this case, because the consultancy days for the Project would last only for 166 days. Such being the case, the consultancy fee to be paid to Accessa B.V. is not subject to Philippine income tax and consequently to the withholding tax under Section 25(b)(1), in relation to Section 50(a) of the Tax Code, as amended. [now Sections 28(B)(1) and 57(A), respectively, both of the Tax Code of 1997.) prLL 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. Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue