BIR Ruling No. 109-83

June 20, 1983 BIR RULING NO. 109-83 S i r : This refers to your letter dated June 26, 1981 requesting a ruling on what are the income tax liabilities of foreign artists for income derived from their performance at the Folk Arts Theatre (FAT), which is a division of the Cultural Center of the Philippines (CCP). cdti It appears in the contract between you (for Southeast Asia Concert Investors Association) and the Tony Bennett Enterprises, Inc. dated August 29, 1980 that you have engaged the services of foreign artist Mr. Tony Bennett to perform at the Manila Hotel Ballroom and Folk Arts Theatre from December 30-31, 1980 and January 2-4, 1981, respectively; that you have agreed to pay said Artist the sum of U.S. $25,000 (converted and paid in Philippine Currency) free of all local foreign taxes and without deductions of any kind except as required by law; and that you shall furnish said Artist and his travelling party at your sole cost and expense first class hotel accommodations commencing upon Artist's arrival for the engagement and continuing until Artist's departure at the conclusion of the engagement. You also have alleged that the performance of the said Artist at the FAT from January 2-4, 1981 is under a co-production with CCP and therefore said Artist should be exempt from income tax as he is covered by the Presidential Decree exempting foreign artists from said tax when they perform for the CCP; and that as withholding agent, an assessment is proposed to be issued against you in the amount of P63,000.00 based on your gross payment/compensation to Mr. Tony Bennett, for his services in performing at the Manila Hotel and FAT during the periods December 30-31, 1980 and January 2-4, 1981. In reply, I have the honor to inform you the under the foregoing facts, Mr. Tony Bennett, for having stayed in the Philippines for an aggregate period of l ess than 180 days, is deemed a non-resident alien not engaged in trade or business within the Philippines ; hence, he is subject to a flat rate tax of 30% on his entire income received from all sources within the Philippines , pursuant to Section 22(b) of the Tax Code, as implemented by Section 8 of Revenue Regulations No. 2, as amended. Consequently, for engaging his services and agreeing to pay his compensation, you are subject to withholding tax of 30% based on the gross amount of said compensation, the same to be withheld and paid by you, pursuant to Section 53 and 54 of the Tax Code. cdta Your allegation that Mr. Tony Bennett should be exempt from income tax because of a Presidential Decree exempting foreign artists from the said tax when they perform for the CCP is without legal basis. Section 13 of Presidential Decree No. 15, as amended by Presidential Decree Nos. 179, 1444 and 1815 which is quoted, in part, hereunder provides that: "Section 13. Tax Exemption . . . . the Center shall be exempt from all forms of taxation whatever including withholding taxes on fees paid to foreign artists passed on to the Center by contract, and from duties and all other imposts on any equipment, articles, goods or services that it may import from abroad, which may be reasonably necessary for use in or part of its operations . This exemption shall not apply to business ventures of the Center." It is clear from the aforequoted provision of law that the tax exemption applies to only to all forms of taxes including withholding taxes on fees paid to foreign artist which are passed on to CCP by contract. This means that the liability for the payment of the withholding tax, which is in reality income tax due from the foreign artist has, by contract, been shifted to and assumed by CCP which thus become the party liable for the payment thereof. In the instant case, the assumption of the tax liability by CCP is nowhere to be found. Neither can such assumption be inferred from the alleged fact that the performance of Mr. Tony Bennett was under a co-production with the FAT. Accordingly, the compensation paid to Mr. Tony Bennett is subject to withholding tax. Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner Bureau of Internal Revenue