BIR Ruling No. 253-11

July 26, 2011 BIR RULING NO. 253-11 Section 2 (r), Revenue Bulletin No. 01-03; BIR Ruling No. DA-394-04 dated July 21, 2004 Reyes Francisco Tecson & Associates Law Office Unit 1701 Cityland 10 Tower 1 H. V. Dela Costa Street, Salcedo Village 1200, Makati City Attention: Atty. Pastor M. Reyes, Jr. Gentlemen : This refers to your letter dated 15 February 2011, requesting confirmation of your opinion that services rendered outside the Philippines by ACS International Recruitment PTY Ltd.,a juridical entity registered under the Corporation Act of 2011 of Western Australian and Worksmart International Ltd.,likewise a juridical entity registered under the Territory of the British Virgin Islands BVI Companies Act, are not subject to Philippine Income Tax. The facts as represented are as follows: InterAsia Outsource, Inc. (IOI) is a duly registered Recruitment and Placement Agency. It is registered with the Securities and Exchange Commission (SEC) and with Philippine Overseas Employment Administration (POEA) License No. 024-LB-061708-UL. On September 22, 2008, IOI entered into a Marketing Agreement with ACS International Recruitment PTY. Ltd.,an Australian entity with address at Suite 4, 90 Goodwood Parade, Burswood, Western Australia 6100. On December 18, 2008, IOI also entered into a Marketing Agreement with Worksmart International Ltd.,a corporation registered under the Territory of the British Virgin Islands with address at PO 957, Offshore Incorporation Centre, Road Town, Tortola, British Virgin Island. Under both Marketing Agreements, ACS International Recruitment PTY. Ltd. and Worksmart International, Ltd. obligated themselves to market the services of IOI in Australia and Africa. ACS and Worksmart shall seek and obtain principals/employers in Australia and Africa where the recruits of IOI may be placed or employed in certain projects abroad. IOI's Marketing Agreement with ACS International Recruitment PTY. Ltd.,provides: "Article 2. Obligations of FIRST PARTY. For services rendered in accordance with this Agreement, InterAsia shall compensate ACS International, as follows: a. For clients, principal and projects located in Africa, InterAsia shall refund in favor of ACS International One Hundred Percent (100%) of all approved expenses. All Recruitment fees for these clients, principals and projects shall pertain to InterAsia in full; b. For clients, principal and projects located in Australia, InterAsia shall pay ACS International an amount equivalent to Fifty Percent (50%) of all PLACEMENT fees. ACS International may not bill InterAsia for any other amount other than those stated in this Agreement." On the other hand, Article 2 of the Marketing Agreement with Worksmart International, Ltd.,provides: CIcEHS "Article 2. Obligations of FIRST PARTY. For services rendered in accordance with this Agreement, InterAsia shall compensate Worksmart International, Ltd.,as follows: a. For clients, principal and projects located in AFRICA, InterAsia shall pay Worksmart International, Ltd. an amount equivalent to One and a half Percent (1.5%) of the total Contract Price of each client. The compensation state in this Agreement may not be increased or reduced unless in a written document duly executed by the parties and their respective representatives. Worksmart International, Ltd. may not bill InterAsia for any other amount other than those stated in this Agreement ". IOI's Income Tax Return for the year 2008 shows the following payment to the Non-Resident Foreign Corporations: 1. Payment to ACS International Recruitment PTY.,Ltd. P2,394,146.82 2. Payment to Worksmart International, Ltd. 2,587,016.16 In its Audit Report of the company's book for the year 2008, the BIR RDO 50 ruled that the afore-stated payments should be subject to withholding tax of 35% on income payment made to non-resident foreign corporation, citing Sec. 2.57.1 (I) of Revenue Regulations 2-98 which states: "Income derived from all sources within the Philippines by Non-Resident Foreign Corporation shall be subject to final withholding tax based on the gross amount of income and at the rate of tax prescribed therefore ..." In reply, please be informed that this Office cannot issue a determinative ruling on the above matter considering that the issue is now subject to an on-going audit, which is considered as a "No-Ruling Area" pursuant to Section 2 (r) of Revenue Bulletin 01-03. (BIR Ruling No. DA-394-04 dated July 21, 2004) Section 2 (r) of Revenue Bulletin 01-03 provides: "SECTION 2. List of No-Ruling Areas. The following shall hereby be construed and identified as "No-Ruling Areas": r) Issue/s or transactions involving directly or indirectly the same taxpayer/s which is/are the subject of an investigation, on-going audit, administrative protest, claim for refund or issuance of tax credit certificate, collection proceedings, or a judicial appeal subject to Section 3 hereunder. Accordingly, the taxpayer must submit and include the following statement in the request for ruling: "The issue/s or transaction subject of the request is not under investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceedings, or a judicial appeal of the taxpayer/s involved." Please be guided accordingly. SEDICa Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue