BIR Ruling No. 059-80

December 10, 1980 BIR RULING NO. 059-80 037-c-3 000-00 59-80 Ozaeta, Romulo, De Leon, Mabanta, Buenaventura, Sayoc & De Los Angeles Second Floor, Corinthian Plaza 121 Paseo de Roxas, Makati Metro Manila Attention : Atty . Exequiel B . Javier Gentlemen: This refers to your letter dated July 2, 1979 requesting confirmation of your opinion to the effect that the amount representing the 5% sales commission which will be paid by your client, Unidex Garments (Phil.), Inc. to Unidex International A/S is not subject to income tax and consequently to the 35% withholding tax and to the percentage tax of 6% imposed on commercial brokers. It is represented that your client, Unidex Garments (Phil.), Inc. (Garments) is a new corporation duly organized and existing under and by virtue of the laws of the Philippines; that it is primarily engaged in the manufacture, production and export of garments; that Unidex International A/S (International) is a non-resident foreign corporation duly organized and existing under and by virtue of the laws of Denmark; that on March 16, 1979 Garments and International entered into an "Exclusive Marketing Agreement" whereby Garments appointed International as its sole and exclusive agent to market and sell outside the Philippines all products of Garments; that the products will be shipped directly by Garments to its foreign buyers which in turn will directly pay Garments; that International undertakes to establish and maintain sales organizations in other parts of the world outside the Philippines, in addition to existing markets for the products manufactured by Garments; and that in consideration for the services to be rendered by International, Garments agrees to pay the former a sales commission of 5% on all sales outside the Philippines of products manufactured by Garments. cdti In reply thereto, I have the honor to inform you that considering that the services to be rendered by International in favor of Garments will be done outside the Philippines, the income earned by International representing the 5% sales commission on all sales of products manufactured by Garments is income from sources without the Philippines, pursuant to Section 37(c)(3) of the Tax Code. Since International is a non-resident foreign corporation, it is subject to income tax only on income from sources within the Philippines pursuant to Section 24(b)(1) of the Tax Code. Accordingly, the 5% sales commission earned by International for services rendered outside the Philippines is not subject to Philippine income tax; and consequently, not also subject to the 35% withholding tax prescribed in Section 53(b)(2) of the Tax Code. Moreover, it is not also subject to a percentage tax equivalent to 6% imposed on commercial brokers pursuant to Section 208 of the Tax Code, as amended. Very truly yours, RUBEN B. ANCHETA Acting Commissioner