Situs of the Income Derived by the Publisher of Far Eastern Economic Review

June 28, 1988 BIR RULING NO. 278-88 25 (b) (1) 312-87 278-88 Gentlemen : This refers to your letter dated January 29, 1988 requesting a ruling on behalf of your client, Review Publishing Company Limited, on whether or not it is exempt from income tax and consequently, from withholding tax on revenues derived from sale to Philippine subscribers of subscription copies of the Far Eastern Economic Review which it publishes. cdt It is represented that your abovenamed client is a corporation duly organized and existing under the laws of HongKong with principal Office at 80 Gloucester Road, HongKong; that it is the publisher of the Far Eastern Economic Review; that it prints and publishes the magazine in HongKong and ships copies thereof to Philippine subscriber pursuant to a subscription agreement; that the agreement is reached after a prospective Philippine subscribers fills out a subscription form which is addressed and forwarded, through Asia/Pacific Circulation Exponents, Inc. to the Far Eastern Economic Review subscription department in HongKong which either accepts or rejects the subscription application; that if the subscription application is accepted, the subscription department enters the name of the new subscriber in its computer and pre-addresses a subscription copy of the Far Eastern Economic Review; that it then ships such pre-addressed subscription copy, along with other pre-addressed subscription copies of the Far Eastern Economic Review to Asia/Pacific Circulation Exponents, Inc. for delivery or mailing to the addressee-subscribers in the Philippines; that the copies are air shipped FOB HongKong; that your client does not assume any liability in case the subscription copies are lost in transit; that as a matter of goodwill, your client may replace any lost copy, upon request; that Asia/Pacific Circulation Exponents, Inc. is a corporation duly organized and existing under the laws of the Philippines; that its only functions are to receive and forward all subscription applications and payments under the subscription contract to the Far Eastern Economic Review's subscription department in HongKong; that for such services, Asia/Pacific Circulation Exponents, Inc. is paid by your client a commission; and that Asia/Pacific Circulation Exponents, Inc. does not enter into a subscription contract with the Philippine subscriber for and on behalf of your client or the Far Eastern Economic Review. In reply thereto, I have the honor to inform you that considering that the printing and publication of the Far Eastern Economic Review is done in HongKong, the situs of the income derived by the publisher, Review Publishing Company Limited from the sale to Philippine subscribers of subscription copies of the magazine is HongKong. Such being the case, said income is considered income from sources without the Philippines, since the same constitutes compensation for labor or personal services performed without the Philippines. [Sec. 36(c)(3), Tax Code, as amended] And since the publisher is a non-resident foreign corporation subject to income tax only on income from sources within the Philippines [Sec. 24(b)(1), Tax Code as amended], sail income earned by said publisher for services rendered in HongKong is not subject to income tax and consequently, not also subject to the 35% withholding tax prescribed in Section 52(e)(2) of the Tax Code as amended. On the other hand, Asia/Pacific Circulation Exponents, Inc. shall be subject to the corporate income tax of 35% imposed under Section 24(a) of the Tax Code, as amended, on its commission paid by your client; and to the 0% value-added tax imposed under Section 102(a)(2) of the Tax Code, as amended by Executive Order No. 273, if the former is VAT-registered, said commission is paid for in acceptable foreign currency remitted inwardly to the Philippines and accounted for in accordance with the rules and regulations of the Central Bank of the Philippines. This ruling is being issued on the basis of the foregoing facts as presented. However, if upon investigation it will be disclosed that the facts are different, then this ruling shall be considered as null and void. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner