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

June 28, 1988 BIR RULING NO. 279-88 25 (b) (1) 219-85 279-88 Gentlemen : This refers to your letter dated February 4, 1988 requesting a ruling in 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 advertisements placed by Philippine advertisers in the magazine, Far Eastern Economic Review, published by it. It is represented that your abovenamed client is a non-resident foreign 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 magazine, Far Eastern Economic Review; that any person or entity in the Philippines who desires to place an advertisement in the Far Eastern Economic Review buys advertising space in the said magazine through local advertising agencies; that these local advertising agencies are corporations duly organized and existing under the laws of the Philippines; that advertising materials, prepared by the Philippine advertiser, are sent through the local advertising agencies to Far Eastern Economic Review's advertising Office in HongKong for editing, programming, printing and eventual publication in the said magazine; that the editing, programming, printing and publication of the advertisement as well as all other services in connection therewith are all performed in HongKong; that the advertising Office of Far Eastern Economic Review in HongKong may refuse to accept any advertising materials sent to it through the local advertising agencies if, in its opinion, the content of such advertising material would contravene a policy of Far Eastern Economic Review; that the local advertising agencies have no authority to accept or enter into an advertising contract for and in behalf of Far Eastern Economic Review or your said client, it being understood between Far Eastern Economic Review and the local advertising agencies that advertising contract may be made and accepted only by the Far Eastern Economic Review; and that the local advertising agencies collect payments under the advertising contracts from the Philippine advertisers and remit said payments, net of their commission, to the Far Eastern Economic Review in HongKong. In reply, please be informed that considering that the editing, programming, printing and publication of the advertisements in the Far Eastern Economic Review Magazine are performed in HongKong, the situs of the income earned by your client as publisher of said magazine for said services, representing the fees paid for the advertisements is HongKong. Such being the case, said fees are considered income from sources without the Philippines, since the same constitute compensation for labor or personal services performed without the Philippines. [Sec. 36(c)(3), Tax Code, as amended] And since your client as publisher is a non-resident foreign corporation subject to income tax only on income from sources within the Philippines [Sec. 25(b)(1) Tax Code, as amended], said fees earned by your client as publisher for services rendered in HongKong are not subject to income tax and consequently, not also subject to the 35% withholding tax prescribed in Section 25(b)(1) in relation to Section 50(a) of the Tax Code, as amended. cdtech Moreover, effective January 1, 1989, local advertising agencies are now subject to the value-added tax of 10% on their gross receipts pursuant to Section 102(a) of the Tax Code as amended by E.O. No. 273. (BIR Ruling No. 085-88) Accordingly, the commission of said local advertising agencies derived out of the said arrangement is subject to the 10% value-added tax prescribed under Section 102(a) of the Tax Code, as amended. 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 revoked. cd Very truly yours, (SGD.) EUFRACIO D. SANTOS Deputy Commissioner