Remittance of Maintenance Service Fees to Non-Resident Foreign Corporation Not Subject to Income Tax

July 9, 1999 BIR RULING NO. 100-99 000-00-100-99 C & E Corporation Meralco Avenue corner General Araneta Street Pasig City Attention: Ms . Lourdes P . Reyes Finance/Administrative Manager & Treasurer Gentlemen : This refers to your letter dated October 13, 1998 requesting for a ruling as to whether or not the remittance of maintenance service fees to Intergraph Systems South East Asia Pte. Ltd.,a non-resident foreign corporation, is exempt from Philippine income tax and consequently from withholding tax pursuant to Article 14 of the RP-Singapore Tax Treaty. prLL It is represented that C & E Corporation is a domestic corporation duly registered with the Securities and Exchange Commission (SEC) with SEC Reg. No. ASO95-001483 dated February 15, 1995 and the Board of Investments (BOI) with Certificate of Registration No. 96-168 dated August 9, 1996 on a pioneer status as a new service exporter in the fields of design and construction of industrial plants; that on May 28, 1998, C & E Corporation entered into two (2) Service Agreements with Intergraph, a non-resident foreign corporation not engaged in trade or business in the Philippines for Basic Hardware Maintenance Agreement and Complete Software Maintenance Agreement; and that in support of your request, you submitted the following documents; (a) BIR Form TC 001; (b) BOI Certificate of Registration; (c) SEC Registration; (d) Articles of Incorporation and By-Laws; (e) Service Agreements and Invoices; (f) SEC Certificate for Intergraph Systems South East Asia Pte. Ltd. not engaging in trade or business in the Philippines; and (g) Photocopy of the certificate of incorporation and change of name of the Company from Intergraph Pte. Ltd. to Intergraph System South East Asia Pte. Ltd. In reply, please be informed that Article 14 of the RP-Singapore Tax Treaty provides as follows: "ARTICLE 14 " Personal Services "1. Subject to the provision of Articles 15, 17, 18, and 19, salaries, wages and other similar remuneration or income for personal (including professional) services derived by a resident of a Contracting State, shall be taxable only in that Contracting State, unless the services are performed in the other Contracting State. If the services are so performed, such remuneration or income as is derived therefrom may be taxed in that other Contracting State. "2. Notwithstanding the provisions of paragraph 1, remuneration or income derived by a resident of a Contracting State for personal (including professional) services performed in the other Contracting State shall be taxable only in the first-mentioned Contracting State if (a) the recipient is present in the other Contracting State for a period or periods not exceeding in the aggregate 90 days in the case of professional services and 183 days in other cases, in the calendar year concerned; and (b) the remuneration or income is paid by, or on behalf of, a person who is a resident of the first-mentioned Contracting State; and (c) the remuneration or income is not borne directly by a permanent establishment which that person has in the other Contracting State. "3. The term "professional services" includes independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, lawyers, engineers, architects, dentists and accountants. "4. Notwithstanding the preceding provisions of this Article, remuneration in respect of employment as a member of the regular crew or complement of a ship or aircraft operated in international traffic by an enterprise of a Contracting State shall be taxable only in the State." Moreover, Article 5 of said 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" includes specially but is not limited to a) A seat of management; b) A branch; c) An office; d) A store or other sales outlet; e) A factory; f) A workshop; g) A warehouse, in relation to a person providing storage facilities for others; h) A mine, quarry, or other place of extraction of natural resources; i) A building site or construction or assembly project or installation project or supervisory activities in connection therewith, provided such site, project or activity continues for a period more than 183 days; and j) The furnishing of services, including consultancy services, by a resident of one of the contracting States through employees or other personnel, provided activities of that nature continue (for the same or a connected project) within the other Contracting State for a period or periods aggregating more than 183 days. xxx xxx xxx" Such being the case, since Intergraph does not have a permanent establishment in the Philippines and does not perform maintenance services in this country for a period exceeding 90 days, this Office is of the opinion as it hereby holds that the remittance by C & E Corporation of the maintenance service fees to Intergraph is not subject to Philippine income tax and consequently to the withholding tax imposed under Section 28(B)(1), in relation to Section 57(A), both of the Tax Code of 1997. LexLib 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. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue