Consultancy Fee of Grant Walker Ltd., Hired by the Bureau of Export Trade Promotion-Department of Trade and Industry as Jewelry Consultant Exempt from Tax

July 30, 1996 BIR RULING NO. 081-96 28 (b) (6) 000-00 081-96 Department of Trade and Industry 361 Sen. Gil J. Puyat Avenue Makati City Attention: Mr . Amando T . Alvis Director-GAS Gentlemen : This refers to your letter dated April 15, 1996 requesting for a ruling as to whether or not the consultancy fee of Grant Walker Ltd., who was hired by the Bureau of Export Trade Promotion-Department of Trade and Industry (BETP-DTI) as a jewelry consultant is exempt from tax. It is represented that BETP-DTI, is currently implementing the "Export Development Project for Fine Jewelry"; that part of the Project component is to hire a foreign jewelry consultant who is in charge of conducting a survey of the fine jewelry industry in the Philippines and trainings and seminars for fine jewelry manufacturers; that Grant Walker Ltd., a jewelry design, technical and marketing consultant based in the UK and without a permanent establishment in the Philippines, won the bidding, hence, on September 19, 1995 a Consultancy Agreement was entered into by and between the BETP-DTI and Grant Walker Ltd.,; that the latter is now already in the process of implementing the final phase of the Project, which is a locally-funded undertaking; that DTI thru BETP shall pay the consultancy firm a total consultancy fee of US$141,909 consisting of US$100,398.00 covering the period September 1995 to April 1996; US$24,900.00 per diems for a total of 166 days at US$150/man-day, and US$16,611.00 for the cost of air fare both for international and local travels; and that the duration of the Project is only for 166 days. In reply, please be informed that Article 5(1), (2) and (3)(b) of the RP-UK 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" shall include specially: a) a place of management; b) a branch; c) an office; d) a factory; e) a workshop; f) a mine, oil well, quarry or other place of extraction of natural resources; g) an installation or structure used for the exploration of natural resources; cdta h) a building site or construction or assembly project which exists for more than 183 days. "(3) An enterprises of a Contracting State shall likewise be deemed to have a permanent establishment in the other Constructing State if: xxx xxx xxx b) it furnishes services, including consultancy services, in that other Contracting State through its employees or other personnel (other than agents of an independent status within the meaning of paragraph (7) of this Article) for a period exceeding in the aggregate 183 days within any twelve-month period. xxx xxx xxx" Under the aforequoted provisions of the RP-UK Tax Treaty, Grant Walker Ltd., does not have a permanent establishment in the Philippines for the purpose of performing its activities and the number of working days for the Project is only for 166 days. Accordingly, the consultancy fee to be paid to Grant Walker Ltd., 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. 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. casia Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue