Tax Liabilities of a Corporation Not Registered/Licensed to Engage in Trade or Business in the Philippines

December 20, 1994 BIR RULING NO. 183-94 22 (a) (1) 25 (a) (1) 000-00 183-94 Pambansang Korporasyon Sa Elektrisidad Office of the Corporate Auditor Diliman, Quezon City Attention: Ms . Iluminada M . V . Fabroa Director III Corporate Auditor Gentlemen : This refers to your letter dated July 15, 1994 stating that in the course of your post audit work, you came across payments you made to a certain Mr. Peter Stitt amounting to P138,562.50 a month for services rendered under a service contract with Utility Power Service Corporation (UPSC); that this contract originally started in July 1987 and had been renewed since then until June 30, 1994; that documents relative to the said service contract show that UPSC is located at 1730 Pine Valley Drive, Melbourne, Florida; that confirmation from the Securities and Exchange Commission (SEC) revealed that UPSC is not registered to engage in trade or business in the Philippines; that as such, Mr. Stitt holds office at the NAPOCOR Complex in Diliman and payments were made directly to him; that however, instead of official receipts, only computerized acknowledgment receipts were issued; and that total payments made to Mr. Stitt from July 1, 1987 to April 30, 1994 amounted to P12.58M for which no taxes were withheld by NPC. LibLex Based on the foregoing representations, you now request, in effect for a ruling on the tax liabilities of Mr. Stitt and UPSC in order that the proper deductions from the former's last claim still pending with NPC, or from the performance bond due to be released to him on July 20, 1994 could be made. In reply, please be informed that under Section 25(a)(1) of the Tax Code, as amended, a corporation organized, authorized, or existing under the laws of any foreign country, engaged in trade or business within the Philippines shall be subject to a tax equivalent to 35% of its taxable income derived in the preceding taxable year from all sources within the Philippines. However, unless otherwise provided, a foreign corporation not engaged in trade or business in the Philippines shall pay a tax equal to 35% of the gross income received during each taxable year from all sources within the Philippines. [Section 25(b)(1), NIRC] Such being the case, and since as confirmed by the SEC, UPSC is not registered/licensed to engage in trade or business in the Philippines, it is subject to the 35% income tax on its gross income/receipt derived from all sources within the Philippines, including those that were derived from its aforesaid service contract with NPC. For this purpose, NPC, as withholding agent of the Government, should withhold the corresponding internal revenue taxes from its gross payments without deduction to UPSC as a consequence of the aforesaid service contract. Moreover, Mr. Peter Stitt, being the representative here in the Philippines of UPSC, and in fact, the person undertaking the service in behalf of UPSC under said service contract with NPC, is subject to Philippine income tax on whatever compensation he may have received pursuant to said service contract of NPC with UPSC. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue