Whether Payments to be Made by the ASEAN-Phil. Copper Holdings Are Exempt from Withholding Tax

May 25, 1984 BIR RULING NO. 101-84 37-a-207-82-101-84 Gentlemen : This refers to your letter dated September 3, 1982 requesting a ruling to the effect that payments to be made by the ASEAN-PHILIPPINE COPPER HOLDINGS, INCORPORATED for services rendered by Seltrust Engineering, Limited of London (SEL) are exempt from Philippine withholding tax. It is represented that pursuant to an agreement entered into in Bali by the ASEAN Heads of Government, the Philippines has been charged with the implementation of the ASEAN Copper Fabrication Project (Philippines); that in order to implement the project, the Ministry of Trade and Industry formed the ASEAN-Philippine Copper Holdings, Incorporated (hereinafter referred to as corporation) of which the Republic of the Philippines, specifically the National Development Company (NDC) is the majority stockholder; that in implementing the said project, the corporation entered into a contract for engineering services with the British Firm, Seltrust Engineering, Limited of London (SL), wherein the Philippines shall remit its payments to the firm's bank in England; that the scope of the services to be entered by SEL in the United Kingdom to the corporation cover the final selection of technology, basic engineering, preparation of tender invitation documents (except financial offers) for the supply and construction of the fabrication plant and evaluation of tenders; and that, in this connection, SEL will submit their recommendations to the corporation for its approval prior to commencing with the basic engineering design work; provide information on the criteria to be considered for site selection and specifications for site surveying and soil tests, and provide guidance to the corporation on the design criteria recommended for the basic civil and structural design work to be performed by an organization in the Philippines. In reply thereto, I have the honor to inform you that Article II of the RP-UK Tax Treaty provides, viz: "Article II Royalties "(1) Royalties arising in a contracting state which are derived and beneficially owned by a resident of the other Contracting State may be taxed in that other State. "(2) Such royalties may also be taxed in the contracting state in which they arise, and according to the law of that state. However, the tax so charged shall not exceed: (a) 15 per cent of the gross amount of the royalties, where the royalties are paid: (i) by an enterprise registered with the Philippine Board of Investments and engaged in preferred areas of activity or (ii) in respect of cinematographic films and films or tapes for television or radio broadcasting; (b) In all other cases, 25 per cent of the gross amount of the royalties. "(3) The term "royalties" as used in this Article means payment of any kind received as a consideration for . . . information concerning industrial, commercial or scientific experience " (Emphasis ours). Moreover, under Section 37(a)(4)(C) of the Tax Code, among those considered royalties are payments for "the supply of scientific, technical, industrial, or commercial knowledge or information." Such being the case, payments for services performed by Seltrust Engineering, Limited of London shall be considered royalties subject to the 25% withholding tax pursuant to Article II, paragraphs 2(b) and 3 of the RP-UK Tax Treaty. Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner