35% Tax on Resident Foreign Corporation

December 19, 1990 BIR RULING NO. 237-90 25, 50 (b) 000-00 237-90 Gentlemen : This refers to your letter dated May 27, 1990 stating that your client, Nynex International Company (Nynex) and Philippine Long Distance Telephone Company (PLDT) executed on May 28, 1990 a Project Engineering Support Services Contract (Engineering Contract) and a Strategic Marketing Plan Services Contract (Marketing Contract); that under the two contracts, Nynex will send its personnel to the Philippines to render services to PLDT; that the services to be rendered by Nynex under the Engineering Contract shall include, but will not be limited to, the following: (a) Monitoring all aspects of the X-5 Network Expansion Project from a project engineering support perspective and reviewing all progress to date; (b) monitoring and trucking the progress report status of the X-5 Project. This includes reviewing and commenting on the activities included in the master schedule developed by the prime contractor; (c) Nynex will assist in reviewing all master schedule activities to determine whether PLDT and the prime contractor are meeting all scheduled project activities. In addition, Nynex will assist identifying those areas where the prime contractor is not meeting deadlines to help determine the causes of delays; and (d) Nynex will work closely with PLDT to mechanize the monitoring of the X-5 report status. This will include assisting in developing a system that will automatically highlight and identify problem areas from a project engineering support perspective; that the services under the Marketing Contract will include, but will not be limited to the following: (a) Nynex will share their expertise by reassessing PLDT's existing short-term marketing plan and making specific recommendation to PLDT on how to optimize and improve its existing service offerings; (b) Nynex will evaluate and make specific recommendations on PLDT's action plans for identifying new and value-added services to increase profitability; (c) Nynex will analyze the key issues relevant to PLDT's market, customer, regulatory and competitive environment; that Nynex personnel rendering the services under the Engineering Contract will be staying in the Philippines for three (3) years; that Nynex personnel rendering services under the Marketing Contract shall stay in the Philippines for eight (8) months; and that Nynex has registered a Philippine branch which will book the service fees paid under the above contracts as part of its gross income. aisadc In connection therewith, you now request confirmation of your opinion to the effect that the payments by PLDT for services rendered in the Philippines by Nynex are subject to the 35% tax on resident foreign corporation under Section 25 (a)(l) of the Tax Code, as amended and to the expanded withholding tax under Revenue Regulations No. 6-85, as amended. In reply thereto, please be informed that your opinion is hereby confirmed. Since Nynex, a company duly organized and existing under the laws of Delaware, U.S.A. has been granted Certificate of Authority No. 2167 by the Board of Investments on October 19, 1990 to establish a branch office in the Philippines to render specialized engineering and marketing support consultancy services to the Philippine telecommunications industry, particularly the PLDT, it is considered a resident foreign corporation subject to a tax equivalent to 35% of its taxable income derived in the preceding taxable year from all sources within the Philippines pursuant to Section 25 (a)(l) of the Tax Code, as amended. Moreover, gross payments made by PLDT to Nynex relative to the Project Engineering Support Services Contract as well as the Strategic Marketing Plan Services Contract shall be subject to the 1% and 5% expanded withholding tax pursuant to Section 1 (e)(1) and Section 1 (b) respectively of Revenue Regulations No. 6-85, as amended otherwise known as the Revised and Consolidated Expanded Withholding Tax Regulations implementing Section 50 (b) of the Tax Code, as amended. Finally, gross receipts derived by your client under both engineering and marketing contracts shall be subject to 10% VAT pursuant to Section 102 (s) of the Tax Code, as amended, payment of which shall be made by filing a quarterly return of gross receipts in accordance with Section 110 also of the Tax Code. As a VAT taxable entity, your client is required to register as a VAT taxpayer pursuant to Section 107 of the same Code. cd Very truly yours, (SGD.) VICTOR A. DEOFERIO, JR. Deputy Commissioner