Commission Income Remitted to a Non-resident Foreign Corporation by a Domestic Corporation is Subject to Withholding Tax

November 12, 1991 BIR RULING NO. 244-91 25 98-90 244-91 Gentlemen : This refers to your letter dated January 10, 1991 requesting for a ruling on whether or not the commission income remitted to a non-resident foreign corporation by a domestic corporation is subject to withholding tax. cdt It is represented that HYCL Philippines, Inc. (HYCL) is a corporation duly organized and existing under and by virtue of the laws of the Philippines with principal place of business at 426 Bulalakaw Street, Mandaluyong, Metro Manila; that it undertakes, among others, to carry on and engage in the manufacture, production and design of cassette tapes, compact disc cases made of nylon fabric, urethane sponge, zippers and other related products and goods, whether acting as principal or labor contractor, within or outside the Philippines, and to sell, distribute and assign by export, on wholesale, such products to the trade; that on November 12, 1990, HYCL entered into an agreement with Case Logic, Inc. Liaison, Seoul, Korea (Case Logic, Liaison), a corporation duly organized and existing under the laws of the Republic of Korea, with principal place of business at 31-7 Jung Gok 2-Dong, Sung Dong-Ku, Seoul, Korea; that according to such agreement, Case Logic, Liaison commits itself, to give to HYCL a portion or the whole of any purchase order received by it from Case Logic, Inc., a corporation based in Colorado, U.S.A.; that finally, HYCL commits itself in return to remit to Case Logic, Liaison the equivalent amount in U.S. Dollars of five percent (5%) of each purchase order given on a quarterly basis effective January 1, 1990 (Sic). In reply, please be informed that Section 25 (b) (1) of the Tax Code, as amended, provides in general that "[u]nless otherwise provided, a foreign corporation not engage 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 such as interest, dividends, rents, royalties, salaries, premiums (except reinsurance premium), annuities, emoluments or other fixed or determinable annual, periodical or casual gains, profits and income , and capital gains, except capital gains subject to tax under subparagraph 5 (c) [of the same Section 25]." (Emphasis supplied) Relatedly, Section 50 of the Tax Code, as amended by Executive Order No. 37, provides that the tax imposed or prescribed by, among other, Section 25 (b) (1), Supra, of the Tax Code, as amended, on specified items of income shall be withheld by payor-corporation and/or person and paid in the same manner and subject to the same conditions as provided in Section 51 of the National Internal Revenue Code, as amended. Such being the case, this Office hereby holds that HYCL, Philippines, Inc. is under obligation to withhold at source 35% of the gross commission income derived by Case Logic, Inc. Liaison, Seoul, Korea from sources within the Philippines. cdta Very truly yours, (SGD.) JOSE U. ONG Commissioner