Application for Relief from Double Taxation

June 15, 1998 BIR RULING NO. 089-98 32 (B) (5) 108 (A)-000-00-089-98 ATS Construction International, Inc. 7th Floor JAKA II Bldg., 150 Legaspi St. Legaspi Village, Makati City Attention: Mr . Gregorio B . Forcadela Manager-Finance & Admin . Gentlemen : This refers to your letter dated March 13, 1997 requesting approval of your application for relief from double taxation on income payment made by ATS Construction International , Inc . to Showa Astec Co ., Ltd . Documents submitted show that Showa Astec Co., Ltd. is a non resident foreign corporation organized and existing under the laws of Japan; that ATS Construction International, Inc. had an electrical construction service for the Laguna Factory project of Isuzu Philippines Corporation which required the technical supervision of Showa Astec Co., Ltd.; that the technical supervision job took place during the period from July 25 to October 31, 1996; and that for the said technical supervision job, Showa Astec Co., Ltd. was paid the amount of JPY 4,200,000.00. In reply, please be informed that Article 14(1) and (2) of the RP-Japan Tax Treaty provides as follows: "Article 14 "1. Income derived by a resident of a Contracting State in respect of professional services or other activities of an independent character shall be taxable only in that Contracting State unless he has a fixed base regularly available to him in the other contracting State for the purpose of performing his activities or he is present in that other Contracting State for a period or periods exceeding in the aggregate 120 days in the calendar year concerned. If he has such a fixed based or remains in that other Contracting State for the aforesaid period or periods, the income may be taxed in that other Contracting State but only so much of it as is attributable to that fixed base or is derived in that other Contracting State during the aforesaid period or periods. "2. The term, "professional services" includes, especially, independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, lawyers, engineers, architects, dentists and accountants." Such being the case, the income payment made to Showa Astec Co., Ltd. for the technical supervision it rendered during the period of July 25 to October 31, 1996, which is equivalent to 98 days, shall only be subject to tax in Japan. However, the sale of services by Showa Astec Co., Ltd., to ATS Construction International, Inc. is subject to the 10% value-added tax pursuant to Section 102 of the Tax Code, as amended by R.A. No. 7716, otherwise known as the "Expanded Value Added Tax Law" and further amended by R.A. No. 8241 (now Sec. 108(A) of the Tax Code of 1997). This ruling is 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 will be considered as null and void. cdll Very truly yours, (SGD.) LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue