Tax Imposed on the Profit to be Remitted by a Branch in the Philippines

July 11, 1989 BIR RULING NO. 138-89 24 000-00 138-89 S i r : This refers to your letter dated June 15, 1989 requesting confirmation of your opinion to the effect that the profit to be remitted by a branch in the Philippines of your client, Hitachi, Ltd. a Japanese firm to its head office in Japan is subject to a tax of 10%. cdtech In reply thereto, I have the honor to inform you that Paragraph 5 of the Protocol which forms an integral part of the RP-Japan Tax Treaty provides, viz: "5. Nothing in the Convention shall be construed as preventing the Republic of the Philippines from imposing on the earnings (other than those derived from the operation of ships or aircraft in international traffic) of a company being a resident of Japan attributable to a permanent establishment which it has in the Republic of the Philippines, a tax in addition to the tax which would be chargeable on the income of a company being a resident of the Republic of the Philippines, provided that any additional tax so imposed shall not exceed 10 per cent of the amount of the part of such earnings which is remitted abroad . For the purposes of this paragraph, the term "earnings" means the amount remaining after deducting from the profits attributable to a permanent establishment in the Republic of the Philippines in a year and years preceding that year all taxes other than the additional tax referred to in this paragraph, imposed on such profits by the Republic of the Philippines." (Emphasis ours) Under Article 5, paragraph (2) of the RP-Japan Tax Treaty, the term "permanent establishment" includes a branch . Accordingly, under the above-quoted provision of the tax treaty, the profit to be remitted by the Philippine branch of your client to its head office in Japan is subject to a tax of 10% of the profit remitted abroad. The 15% rate prescribed by Section 25(a)(5) of the Tax Code imposed on profits remitted by a branch to its head office abroad does not, therefore, apply in this particular instance. cd Very truly yours, (SGD.) JOSE U. ONG Commissioner