Request for Relief from Double Taxation Pursuant to the RP-Japan Tax Treaty

November 4, 1996 BIR RULING NO. 117-96 24 000-00 117-96 Sanyo Semi-Conductor Manufacturing Phils. Corporation Luisita Industrial Park Special Export Processing Zone San Miguel, Tarlac Attention: Mr . Masaharu Nishii President Gentlemen : This refers to your letter dated May 31, 1996 requesting in behalf of APA Associates relief from double taxation pursuant to Article 5(6) of the RP-Japan Tax Treaty. LLpr Documents submitted show that APA Associates, a corporation duly organized and existing under and by virtue of the laws of Japan with principal office at 8th Floor Izumikan Ichiban-cho 9 Ichiban-cho Chiyoda-ku, Tokyo, Japan entered into an Engineering Services Contract with Sanyo Semi-Conductor Manufacturing Philippines, Corp., a corporation duly organized and existing under and by virtue of the laws of the Philippines, with principal office address at Luisita Industrial Park, San Miguel, Tarlac to extend its engineering services for the construction of the factory project of Sanyo Semi-Conductor Manufacturing Philippines, Corp.; and that the said contract is from April 7, 1996 to May 7, 1996 or for a period of one (1) month. In reply, please be informed that Article 5(6) of the RP-Japan Tax Treaty provides, viz: "Article 5 "(6) An enterprise of a Contracting State shall be deemed to have a permanent establishment in the other Contracting State if it furnishes in that other Contracting State consultancy services, or supervisory services in connection with a contract for a building, construction or installation project through employees or other personnel other than an agent of an independent status to whom paragraph (7) applies , provided that such activities continue (for the same project or two or more connected projects) for a period or periods aggregation more than six months within any taxable year . However, if the furnishing of such services is effected under an agreement between the Governments of the two Contracting States regarding economic or technical cooperation, that enterprise shall, notwithstanding any provisions of this Article, not be deemed to have a permanent establishment in that other Contracting State." (Emphasis supplied) It seems clear from the foregoing that APA Associates has no permanent establishment in the Philippines, the contract it entered into with Sanyo Semi-Conductor Manufacturing Philippines, Corp., being for a period of one (1) month only. Accordingly, income derived by APA Associates from the engineering services for the construction of the factory project of Sanyo Semi-Conductor Manufacturing Philippines, Corp. is not subject to income tax in the Philippines, pursuant to the above-cited provisions of the RP-Japan Tax Treaty. Neither is APA Associates subject to any other internal revenue tax prescribed by the Tax Code, as amended, However, it is required to deduct, withhold and remit to the Bureau of Internal Revenue income taxes due on the salaries of its employees in accordance with Section 21 (a) of the Tax Code, as amended. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue