Branch Profit Remittance Tax

April 25, 1989 BIR RULING NO. 080-89 25 (a) (1) & (5); 102 (a) 000-00 080-89 Gentlemen : This refers to your letter dated November 2, 1988 stating that your client, the Philippine Branch of Hitachi, Ltd. is duly registered with the Board of Investments (BOI) and with the Securities and Exchange Commission (SEC); that the National Power Corporation (NPC) has commissioned Marubeni Corporation (MC) to do some works on the Malaya THERMAL Power Plant and Sucat Thermal Power Plant; that MC has sub-contracted some of those works to Hitachi, Ltd.; that MC pays direct to Hitachi, Tokyo in Yen for services rendered by its branch in the Philippines; that Hitachi, Tokyo then remits to the Philippine Branch approximately 4% of the total receipts from MC for payment of various expenses incurred in the Philippines. Based on the foregoing representation, you now request a ruling from this Office as to (1) whether Hitachi, Ltd. (Philippine Branch) is subject to the branch profit remittance tax and (2) whether Hitachi, Tokyo is subject to VAT on the receipts remitted to it by MC for services rendered by its Philippine Branch. In reply, please be informed that Hitachi, Ltd. (Philippine Branch) is subject to the 15% branch profit remittance tax. While there is no direct remittance of profits made by the branch to its head office in Tokyo there is indirect remittance. This is so because direct payment made by MC to Hitachi, Tokyo obviously includes profit attributable to the latter. For purposes of the 15% profit remittance tax, "any form of remittance, direct or indirect, made to the mother company abroad shall be presumed to have been made from the accumulated profits of the branch." (Sec. 15, Revenue Regulations No. 2, as amended) Moreover, as regards the direct payment made by MC to Hitachi, Tokyo for services rendered by the latter's branch in the Philippines, since said services were rendered in this country, the direct payments are considered Philippine source income, "regardless of the residence of the payor, of the place in which the contract of services was made, or of the place of payment." (Sec. 155, Revenue Regulations No. 2) Accordingly, the Philippine Branch shall be subject to the income tax at 35% of its taxable income based on the total receipts derived by MC and not merely 4% thereof pursuant to Section 25(a)(1) of the Tax Code. Likewise, the Philippine branch is subject to the 10% VAT under Section 102(a) of the same Code. cd Very truly yours, (SGD.) JOSE U. ONG Commissioner