Commission Paid by Norgate Apparel Manufacturing, Inc. to Nanko Apparel Co., Ltd. Not Subject to Income Tax

September 24, 1985 BIR RULING NO. 164-85 37-c-3 013-83 164-85 Gentlemen : This refers to your letter dated August 20, 1985 requesting confirmation of your opinion to the effect that commission paid by Norgate Apparel Manufacturing, Inc. (Principal) to Nanko Apparel Co., Ltd. (Agent), a Japanese establishment with offices at Osaka, Japan is not subject to withholding tax. It is represented that the principal is registered with the Board of Investments (BOI) as an export producer engaged in the business of manufacturing and exporting garments; that the agent is an individual establishment registered in Commercial Register of Osaka, Japan; that on March 30, 1981 the principal and the agent entered into an agreement which shall continue in full force and effect for a term of five (5) years from said date, whereby the principal designated and appointed the agent to perform abroad the following services, viz: (a) To look for foreign buyers for the products of the principal to solicit and obtain confirmed orders for such products from foreign buyers; (b) To act as liaison between the principal and the foreign buyers in negotiations for orders, for the purpose of fixing the terms, prices, items, specifications, dates of shipment, opening of letters of credit and similar matters; (c) To look for sources abroad of suitable and reasonably priced quality materials needed by the principal in filling the orders of the foreign buyers; (d) To do any and all acts incidental to, and necessary for, the performance of the above-mentioned services. that in consideration of the aforementioned services, the principal shall pay commission to the agent, in U.S. dollars, the equivalent of 6% of the F.O.B. invoice amount of each shipment against confirmed orders solicited by the agent, such amount to be remitted to the agent thru the Kyowa Bank Ltd., Dojima Branch, Osaka, Japan monthly on or before the 15th day of the preceding month. In reply thereto, I have the honor to inform you that pursuant to Section 37(c)(3) of the Tax Code, payment for agency services performed abroad are considered income derived from sources outside the Philippines. Accordingly, and since a non-resident foreign corporation is subject to income tax only on income derived from sources within the Philippines, the commission paid by Norgate Apparel Manufacturing, Inc. to Nanko Apparel Co., Ltd. in accordance with their agreement is not subject to income tax and consequently, to the 35% withholding tax prescribed by Section 24(b)(1) in relation to Section 53(e)(2) of the Tax Code, as amended. cdtech Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner