Subscription Payments by Philippine subscribers to the Publication of a Non-Resident Corporation are Not Subject to Philippine Income Tax

October 30, 1991 BIR RULING NO. 218-91 25 50 000-00 218-91 Gentlemen : This refers to your letter dated August 29, 1991 stating that the Economist Newspaper Limited (ENL) is a corporation organized and existing under the laws of the United Kingdom with offices at 25 St. James St., London, U.K.; that it is a resident of the United Kingdom and it does not have any office in the Philippines; that the distribution of its publication "The Economist" in the Philippines is handled by Asia Pacific Circulation Exponents, Inc. (APCEI) its authorized distributor; that APCEI is a corporation organized and existing under the laws of the Philippines; that it is wholly owned by citizens of the Philippines; and that its business consists of promoting and selling subscriptions and single copies (thru newsstand) of foreign publications such as "The Economist". The Asian Wall Street Journal, USA Today International, Far Eastern Economic Review, Business-week International etc. to end consumers. In connection therewith, you now request confirmation of your opinion to the effect that the subscription payments by Philippine subscribers to the publication of ENL "The Economist" are not subject to Philippine income tax and consequently to the 35% withholding tax pursuant to Article 7 in relation to Articles 5 and 13 of the RP-UK Tax Treaty. In reply thereto, I have the honor to inform you that paragraph 1, Article 7 of the RP-UK 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 business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as in directly or indirectly attributable to that permanent establishment." Moreover, Article 5 (1) and (2) of the 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' shall include especially: (a) a place of management; (b) a branch; (c) an office; (d) a factory; (e) a workshop; (f) a mine, oil well, quarry or other place of extraction of natural resources; (g) an installation or structure used for the exploration of natural resources; (h) a building site or construction or assembly project which exists for more than 183 days. "(3) . . . "(4) . . . "(5) . . . "(6) . . . "(7) . . . "(8) . . . Under the aforequoted provisions of the RP-UK Tax Treaty ENL does not have a permanent establishment in the Philippines. Accordingly, the business profits derived by it in the nature of subscription payments to the publication "The Economist" by Philippine subscribers are not subject to Philippine income tax and consequently to the withholding tax under Section 25 in relation to Section 50(a) of the Tax Code, as amended. Very truly yours, (SGD.) JOSE U. ONG Commissioner