BIR Ruling No. 150-83

August 30, 1983 BIR RULING NO. 150-83 Gentlemen : This refers to your letter dated January 13, 1983 requesting a ruling as to whether or not the income derived by Zilog, Inc., (ZUS) a U.S. corporation, from the direct shipment of finished goods processed by Zilog Philippines (ZPI) to foreign customers of ZUS is subject to Philippine income tax. It is represented that ZPI is a Philippine subsidiary of ZUS; that ZPI is engaged in the semi-conductor electronics industry duly registered with the Board of Investments on a pioneer status; that its present business activity consists of receiving raw materials shipped to by ZUS on consignment basis, and processing or manufacturing the same into finished goods; that it charges ZUS a processing fee for the service; that upon instruction of ZUS, ZPI will ship the finished goods processed by it directly to ZUS customers in U.S.A., Europe, Asia and Japan; that ZPI will be ZUS for the shipment and ZUS will bill its customers separately; and that said customers will deal with and pay directly to ZUS. In reply, I have the honor to inform you that since ZUS is a non-resident foreign corporation, the income derived by it from billing its foreign customers who directly deal and pay to them are considered income from sources outside the Philippines and therefore not subject to Philippine income tax. Moreover, as a registered firm in the semi-conductor electronics industry, ZPI is exempt from the 3% contractor's tax imposed by Section 205 of the Tax Code. [Sec. 2(b), Executive Order No. 815]. However, although ZPI is a BOI registered enterprise, it is subject to the corporate income tax prescribed under Section 24(a) of the Tax Code, as amended, on the fees received from ZUS for processing raw materials into finished goods. Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner Bureau of Internal Revenue