Exemption from the Philippine Income Tax and Consequently to the 8% Final Tax

July 19, 1989 BIR RULING NO. 151-89 25 014-88 151-89 Gentlemen : This refers to your letter dated May 30, 1989 requesting confirmation of your opinion to the effect that you are exempt from income tax specifically the 8% final tax imposed on petroleum subcontractors under P.D. No. 1354. It is represented that you are a corporation duly organized and existing under the laws of the State of Delaware, U.S.A; that you had been engaged by Occidental Philippines Inc., to render services in connection with the latter's drilling program for its service contract covering the northwest coast of Palawan; and that the duration of the contract is only seventy (70) days. In reply thereto, I have the honor to inform you that paragraph (1), Article 8 of the RP-US Tax Treaty provides as follows: "Article 8 " BUSINESS PROFITS "(1) Business profit of a resident of one of the Contracting States shall be taxable only in that State unless the resident has a permanent establishment in the other Contracting State. If the resident has a permanent establishment in the 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) within the other Contracting State for a period or periods aggregating more than 183 days. "(3) . . . "(4) . . . "(5) . . . "(6) . . . "(7) . . . "(8) . . . Considering that Global Marine Bismarck Sea Inc. will render services in the Philippines for a period of only 70 days, it does not have a permanent establishment in the Philippines to which its business profits/income are attributable. Accordingly, payments received by it under its contract with Occidental Philippines, Inc. are not subject to Philippine income tax and consequently to the 8% final tax under Presidential Decree No. 1354. Very truly yours, (SGD.) EUFRACIO D. SANTOS Deputy Commissioner