Exemption from Philippine Income Tax and Consequently to the 35% Withholding

June 6, 1990 BIR RULING NO. 113-90 25 242-89 113-90 Gentlemen : This refers to your letter dated April 23, 1990 stating that your client, Ringling Bros. and Barnum & Bailey International, Inc. (Ringling) a corporation incorporated under the laws of the US is the producer of an ice show entitled the "Walt Disney's World on Ice" with principal office at 8607 Westwood Center Drive, Vienna, Virginia, U.S.A.; that from the period February to May 1990, the ice show will tour key cities of Asia, like Manila, Bangkok and Singapore, contracted by the various promoters in these cities; that for its show in Manila, your client was contracted by the local promoter Uniprom, Inc. (Uniprom) a domestic corporation; that they agreed that the "Walt Disney's World on Ice" will run from February 13, 1990 to March 11, 1990 at the Araneta Coliseum a total of 25 days; that as a consideration for the show, Uniprom shall pay Ringling a show guarantee fee and an additional amount equal to 10% of the net receipts (after deducting the guarantee fee and other expenses) received from the sale of tickets; and that aside from the guarantee fee and the additional 10% share, your client shall be paid by Uniprom rental fee for the ice-making equipment necessary for the ice show. In connection therewith, you now request confirmation of your opinion to the effect that your client is not subject to Philippine income tax on the guarantee fee, additional 10% share as well as the rental income from the portable ice-making machine considering that your client is a non-resident US corporation with no permanent establishment in the Philippines. In reply thereto, please be informed that paragraph (1) Article 8 of the RP-US Tax Treaty provides as follows: "ARTICLE 8 " BUSINESS PROFITS "(1) Business profits of a resident of one of the Contracting States shall be taxable only in that State unless the resident has a permanent establishment in that other Contracting State. If the resident has a permanent establishment in that other Contracting State on the business profits of the resident but only on so much of them as are attributable to the permanent establishment." Moreover, Article 5(1) and (2) of the said treaty provides, viz: "ARTICLE 5 " PERMANENT ESTABLISHMENT "(1) For the purposes of this Convention, the term "permanent establishment" means a fixed place of business through which a resident of one of the Contracting States engages in a trade or business. "(2) The term "fixed place of business" includes 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 (h) A mine, quarry, or other place of extraction of natural resources; (i) A building site or construction or assembly project or supervisory activities in connection therewith, provided such site, project or activity continues for a period of 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) with the other Contracting State for a period or periods aggregating more than 183 days." Considering that the "Walt Disney's World on Ice" will run from February 13, 1990 to March 11, 1990 at the Araneta Coliseum or a total of 25 days, Ringling does not have a permanent establishment to which its show guarantee fee, its additional amount equal to 10% of the net profits (after deducting the guarantee fee and other expenses) received from the sale of tickets and its rental fee for the ice making equipment necessary for the ice show could be attributable. Such being the case, the show guarantee fee, the additional amount equal to 10% of the net profits (after deducting the guarantee fee and other expenses) received from the sale of tickets and the rental fee for the ice making equipment to be paid by Uniprom to Ringling are not subject to Philippine income tax and consequently to the 35% withholding tax prescribed under Section 25(b)(1) of the Tax Code, as amended. Very truly yours, (SGD.) JOSE U. ONG Commissioner