Manila Representative Office of Toyota Motor Corp. Not Subject to Income Tax

September 30, 1985 BIR RULING NO. 175-85 024 000-00 175-85 Gentlemen : This refers to your letter dated July 6, 1984 requesting a ruling as to the nature of the business which you are going to register with this Office and the taxes that may be due thereon, if any. cdti It is represented that the Toyota Motor Corporation of Japan is licensed by the Securities and Exchange Commission on June 1, 1984 under Registration No. 1093 to establish a representative office in the Philippines, the Toyota Motor Corporation (Manila Representative Office), which is duly registered with the Board of Investments (BOI) under Certificate of Authority No. 1572 dated May 22, 1984 to undertake the following activities: 1. To study and investigate export feasibility; 2. To cope with customers' complaints and to coordinate after sales service for Toyota customers; 3. To coordinate warranty claims; and 4. To research the automotive market of the Philippines. subject to the following conditions: 1) That it shall not engage in any other line of business activity without prior Board authority; 2) That it shall not avail itself of domestic credit resources; 3) That it may employ a maximum of ten (10) personnel of which not more than two (2) may be expatriates who will be subject to local immigration and labor laws and whose employment will be strictly in accordance with the laws on the practice of their professions; 4) That it shall post a bond or bank guaranty in the sum of P100,000.00 to answer for its liabilities to resident creditors; 5) That it shall inwardly remit at least US$50,000.00 a year for operating expenses proof of which shall be submitted to the BOI at the end of the year; 6) That it shall not derive any income in the Philippines in the exercise of its business activities; and 7) That it shall submit an annual report of its business activities (using the prescribed BOI Form No. 5032) within sixty (60) days from the filing with the Bureau of Internal Revenue of its income tax returns for each preceding calendar/fiscal year. and that its operating expenses are to be sustained thru monthly remittances from your Head Office in Japan. Investigation conducted by this Office disclosed that for the two months of operations (June and July 1994), that Office has actually adhered to the prescribed BOI condition; that it has eight (8) employees, one (1) of whom is an expatriate and all others are citizens of the Philippines; that during the period, it has registered with this Bureau as a withholding agent with I.D. No. 32-4B-00184 dated July 11, 1984 and had caused to withhold and remit the withholding tax on wages and the creditable tax at source. In reply, please be informed that Article 7 (1) of the RP-Japan Tax Treaty provides that the profits of an enterprise of Japan shall be taxable in Japan unless the enterprise carries on business in the Philippines through a permanent establishment situated therein. Article 5 (4) of the same treaty also provides: "Notwithstanding the preceding provisions of this Article, the term "permanent establishment shall be deemed not to include: (a) . . .; (b) . . .; (c) . . .; (d) the maintenance of a fixed place of business solely for the purpose of . . . collecting information, for the enterprise; (e) the maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory or auxiliary character; (f) the maintenance of a fixed place of business solely for any combination of activities mentioned in sub-paragraphs (a) to (e), provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character. cdtech Under the foregoing activities of the Manila representative Office of the Toyota Motor Corporation it seems clear that, that Office is being maintained for the purpose of collecting information and/or said activities are of a preparatory or auxiliary character. Accordingly, said Office is not considered a permanent establishment and therefore; it is not subject to income tax in the Philippines, pursuant to the above-cited provisions of the RP-Japan Tax Treaty. Neither is that Office subject to any other internal revenue tax prescribed by the National Internal Revenue Code, as amended. However, that Office is required to deduct, withhold and remit to the Bureau of Internal Revenue income taxes due on the salaries of its employees in accordance with Section 21(a) in relation to Section 91 of the Tax Code, as amended by Batas Pambansa Blg. 135, as implemented by Revenue Regulations No. 6-82. That Office is likewise required to secure its tax account number (TAN) from this Office. It is however, understood in this connection, that you shall be subject to the corresponding taxes prescribed under the Tax Code, as amended, should you undertake any activity other than those of the above-enumerated. cd Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner