Whether a Corporation Duly Organized and Existing under and by Virtue of Philippine Laws is Required to Withhold the Tax from Commission Payments it Made to Case Logic, Inc., Liaison, a Non-Resident Foreign Corporation, Based in Seoul, Korea

March 9, 1994 BIR RULING NO. 074-94 36 (c) (3) 074-90 074-94 Joaquin Cunanan & Co. 8th Floor, B-A Lepanto Building 8747 Paseo de Roxas Makati, Metro Manila Attention: Tomasa H . Lipana Partner Gentlemen : This refers to your letter dated December 4, 1991 requesting for a reconsideration of BIR Ruling No. 244-91, to the effect that your client, HYCL Philippines, Inc., a corporation duly organized and existing under and by virtue of Philippine laws, is required to withhold the tax from commission payments it made to Case Logic, Inc., Liaison, a non-resident foreign corporation, based in Seoul, Korea. It is your contention that the business of Case Logic, Inc. is very similar to that of a merchandise broker and that pursuant to the Agreement it entered into with HYCL, on November 12, 1990, its services are rendered outside of Philippine territorial jurisdiction. cdti It is represented that HYCL Philippines, Inc. (HYCL) is a corporation duly organized and existing under and by virtue of the laws of the Philippines; that it undertakes, among others, to carry on and engage in the manufacture, export, production and design of cassette tapes, compact disc cases made of nylon fabric, urethane sponge, zippers and other related products and goods, whether acting as principal or labor contractor, within or outside the Philippines; that its export sales abroad is primarily due to the representations and services made by Case Logic, Inc., a Korean firm with business address at 31-7 Jung Gok 2-Dong, Sung Dong-Ku, Seoul, Korea, whose line of business is very similar to that of a merchandise broker, a middleman or negotiator between parties whose obligation is to bring HYCL and the buyer together; that Case Logic has no office or branch, nor has it appointed a resident agent in the Philippines; that for its services of giving a portion or a whole of the purchase order received from the (Foreign) Buyer/Importer of goods, HYCL agreed to pay and remit to Case Logic, Inc. in Seoul, Korea, the equivalent amount in US dollars of five (5) percent of each purchase order given on a quarterly basis effective January 1, 1990 pursuant to their Agreement. It is your contention that since the services of Case Logic, Inc. a Korean broker, are rendered outside of the Philippine territorial jurisdiction, the commission/fees paid by your client (HYCL) to the former are not subject to Philippine income tax and consequently exempt from withholding tax. In reply, please be informed that after a restudy of the facts represented in your letter, this Office hereby confirms your opinion that your client is not required to withhold any tax from the commissions it paid to Case Logic, Inc.. Section 25(b)(1) of the Tax Code, as amended provides in general that "Unless otherwise provided, a foreign corporation not engaged in trade or business in the Philippines shall pay a tax equal to 35% of the gross income received during each taxable year from all sources within the Philippines such as interest, dividends, rents, royalties, salaries, premiums (except reinsurance premiums), annuities, emoluments or other fixed or determinable annual, periodical or casual gains, profits and income, and capital gains, except capital gains subject to tax under subparagraph 5(c) [of the same Section 25]." (Emphasis supplied) For the source of income to be considered as coming from the Philippines, it is sufficient that the income is derived from an activity within the Philippines . (Commissioner vs. BOAC & CTA GR Nos. 65773-74, April 30, 1987). Since the services rendered by Case Logic, Inc. are done outside the territorial jurisdiction of the Philippines, the commission/fees derived therein are considered as income from without the Philippines, pursuant to Section 36(c)(3) of the Tax Code, as amended. Accordingly, inasmuch as a non-resident foreign corporation is subject to tax only on income from sources within the Philippines, commission payments made by HYCL Philippines Inc. to Case Logic, Inc. are not subject to income tax, and consequently, your client is not required to withhold any tax from such income payments under Section 50(a) of the Tax Code. cdtech This revokes BIR Ruling No. 244-91 dated November 12, 1991. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue