Liaison Office of a Foreign Corporation Not Engaged in Trade or Business in the Philippines is Not Subject to Corporate Income Tax

July 2, 1987 BIR RULING NO. 191-87 25 (b) 129-87 191-87 Gentlemen : This refers to your letter to the Department of Finance dated April 10, 1987 requesting exemption from corporate income tax and other national and local taxes. The records disclosed that in accordance with the agreement between the Philippines and Japan, Nippon Koei Co., Ltd., whose head office is at No. 4, Kojimachi 5-Chome, Chiyuda-ku, Tokyo, Japan, entered into a contract with the Philippine Atmospheric, Geophysical and Astronomical Services Administration (PAGASA) and the National Irrigation Administration (NIA) to provide engineering consultancy services to two projects undertaken by the two government agencies with funds provided by the Overseas Economic Cooperation Fund (OECF) of the Japanese Government; that the liaison office in the Philippines of said Nippon Koei Co., Ltd., provides backup support to the staff of the firm assigned to the project and to handle coordination work among the various Government offices, the Manila office of the OQGF and the various Japanese Government offices in Tokyo for the smooth implementation of the project; that said liaison office is maintained without cost to the Philippine Government and is dependent on dollar remittances from its head office in Tokyo, and that it has no plans of expanding the scope of its work or compete with Filipino firms in the implementation of locally funded projects. In reply, please be informed that under Article 7(1) of the RP-Japan Tax Treaty, "the profits of an enterprise of a Contracting State shall be taxable only in the Contracting State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein." Section 6 of said treaty also states that "an enterprise of a Contracting State shall be deemed to have a permanent establishment in the other Contracting State if it furnishes in that other Contracting State consultancy services, . . . ." However, if the furnishing of such service is affected under an agreement between the Governments of two Contracting States regarding economic or technical cooperation, that enterprise shall, notwithstanding any provisions of this article, not be deemed to have a permanent establishment in that other Contracting State ." (Emphasis supplied) aisadc In view thereof, this Office is of the opinion as it hereby holds that you are deemed not engaged in trade or business in the Philippines; hence, you are not subject to Philippine corporate income tax or other internal revenue tax on business. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner