Tax Consequence of the Services Rendered by a Foreign Corporation Which Has a Branch in the Philippines

December 10, 1998 BIR RULING NO. 173-98 52-000-00-173-98 Tobishima Corporation 2 2nd Floor, Classica Condominium 112 H. V. dela Costa Street Salcedo Village Makati City Attention: Mr . Tim A . Acedo Filipino Resident Officer Gentlemen : This refers to your letter dated September 28, 1998 requesting in effect for a ruling on the tax consequence of the services rendered by a foreign corporation which has a branch in the Philippines. It is represented that Tobishima Philippines, Inc., a domestic corporation engaged the services of Mitsubishi Corporation in Japan for the procurement of a project in the Philippines; and that Mitsubishi Corporation Japan alleged that the services rendered in Japan for and in behalf of Tobishima Philippines, Inc. are not within the scope of services of Mitsubishi Corporation Philippine Branch Office. In reply, please be informed that since Mitsubishi Corporation has a branch office in the Philippines, it is considered to have a permanent establishment in the Philippines. Therefore Mitsubishi Corporation is a resident foreign corporation. One of the objects of operation of Mitsubishi Corporation Philippine Branch per its Amended Articles of Incorporation is "agency, brokerage and wholesale . . ." with respect to its business in the Philippines, like that of the instant case. The activities of a branch office are covered by item III(a) of Revenue Audit Memorandum Order No. 1-95 which states that: (a) This order shall apply to Philippine branches and liaison offices of Japanese Trading firms which are members of the Sogo Shoshas and registered with the Japanese Chamber of Commerce and Industry (JCCI) and also all other foreign trading companies similarly situated as determined by the Commissioner of Internal Revenue. Verily, the purpose of RAMO 1-95 is to make taxation of Philippine branch offices and liaison offices of Multi-National Enterprises engaged in soliciting orders, purchases, service contracts, trading, construction and other activities more practical, easy and equitable. Accordingly, pursuant to Section 2.57.2 (B) of Revenue Regulations No. 2-98, this Office is of the opinion as it hereby holds that the commission to be paid to Mitsubishi Corporation in Japan is subject to the expanded withholding tax of 5% applicable to technical and management consultants. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void from the date of issue. prLL Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue