Compensation Paid by Non-Resident Foreign Corporations for Labor or Personal Services Performed Without the Philippines Not Subject to Income Tax

July 8, 1980 BIR RULING NO. 097-80 Mr. Earl Gaberman Makati Imports-Exports Suite 411, Sarmiento Bldg. Ayala Avenue, Makati Metro Manila S i r : This refers to your letter dated February 19, 1979 requesting a ruling as to whether or not your dollar remittance to Trade Media Ltd., 25th Floor, Leighton Center, 77 Leighton Road, Causeway Bay, HongKong of 70% of the total advertising sales of Makati Imports-Exports placed in the "Asian Sources" and "Export Market Review" magazines is subject to tax. Investigation conducted by this Office disclosed that Trade Media, Ltd. (hereinafter referred to as TML) is a foreign corporation engaged in the publication of the "Asian Sources" and "The Export Market Review" magazines; that Makati Imports-Exports (hereinafter referred to as MIE) a domestic corporation entered into a contract with TML whereby MIE shall solicit in the Philippines, advertisements to be published in the said magazines; that MIE shall pay TML 70% of the advertising sales realized; that MIE agreed to furnish TML with the necessary photographs and information necessary for the printing of the advertisements; and that the complete layout, programming, editing and actual printing of the advertisement are undertaken entirely in HongKong. In reply thereto, I have the honor to inform you that considering that the complete layout, programming, editing and actual printing of the advertisements in the "Asian Sources" and "Export Market Review" magazines is performed in HongKong, the situs of the income earned by TML for said services, representing 70% of the advertising sales, is HongKong, pursuant to Section 37(c)(3) of the Tax Code, as amended, which provides that compensation for labor or personal services performed without the Philippines is income from sources without the Philippines. And since TML 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 70% of the advertising sales which is the fee earned by TML for services rendered in HongKong is not subject to income tax and consequently, not also subject to the 35% withholding tax prescribed in Section 53(b)(2) of the Tax Code. cdt Very truly yours, RUBEN B. ANCHETA Acting Commissioner