Tax Exemption of a Non-resident Foreign Corporation Engaged as Petroleum Service Contractor

May 29, 1992 BIR RULING NO. 174-92 25 192-91 174-92 Joaquin Cunanan & Co. 8th Floor, Ba Lepanto Building 8747 Paseo de Roxas Makati, Metro Manila Attention: Ms . Tomasa H . Lipana Partner Gentlemen : This refers to your letter dated February 14, 1992 requesting confirmation of your opinion to the effect that your client, Drommond Shipping PTE, Ltd., is exempt from Philippine income tax including the 8% final income tax imposed on sub-contractors of a petroleum service contractor under P.D. No. 1354 and that the income of its expatriates-employees assigned in the Philippines in connection with such contract is likewise not taxable in the Philippines. LLphil It is represented that Drommond Shipping PTE, Ltd. is a non-resident foreign corporation duly organized and existing under the laws of Singapore; that it was engaged by Alcorn (Production) Philippines, Inc., a petroleum service contractor for the charter of its vessel called "Pacific Champion" in connection with the latter's (Alcorn) West Linapacan Project in Palawan; that the services to be provided by the said vessel will only be for a period of 120 days: and that Drommond Shipping PTE Ltd. has no fixed place of business in the Philippines. In reply, please be informed that paragraph 1, Article 7 of the RP-Singapore Tax Treaty provides as follows: "Article 7 " BUSINESS PROFITS "1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on or has carried on business as aforesaid the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment" Moreover, Article 5(1) and (2) of 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 in which the business of the enterprise is wholly or partly carried on. "2. The term "permanent establishment" includes specially 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, in relation to a person providing storage facilities for others; (h) A mine, quarry, or other place of extraction of natural resources; (i) A building site or construction or assembly project or installation project or supervisory activities in connection therewith, provided such site, project or activity continues for a period 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. . . .". Considering that Drommond Shipping PTE, Ltd. will render service in the Philippine for a period of only 120 days and that it does not have a permanent establishment in the Philippines to which its business profits/income are attributable, your opinion that the payments received by your client from Alcorn (Production) Philippines, Inc. are not subject to Philippine income tax and consequently to the 8% final tax under P.D. No. 1354 is hereby confirmed. Finally, the compensation income of the expatriates assigned in Drommond Shipping PTE, Ltd. to the Philippines arising from its contract with Alcorn (Production) Philippines, Inc. are not taxable in the Philippines pursuant to Article 14(2) of the RP-Singapore Tax Treaty. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation it will be ascertained that the facts are different, then this ruling shall be considered null and void. Very truly yours, JOSE U. ONG Commissioner of Internal Revenue