BIR Ruling No. 310-61

July 13, 1961 BIR RULING NO. 310-61 2nd Indorsement Respectfully returned to the Chief, Investigation Division, the income tax case of the . . . Tire and Rubber Company. The question to be resolved in this case is whether or not the taxpayer is subject to withholding tax on the service fee of one and one-half U.S.A. cents per pound on all products manufactured by . . . Philippines. The amount paid by . . . Philippines is in consideration of the services rendered by . . . Akron pursuant to the following agreement: "1. . . . AKRON agrees to furnish . . . PHILIPPINES management, administrative, auditing, and technical services and agrees to supply . . . PHILIPPINES from time to time, with reasonable diligence, the results of its general research, product development, engineering and layout, machine design, testing, comparative cost accounting, and time study, and to furnish information, plans, blue prints, and technical data necessary to enable . . . PHILIPPINES to employ and practice the rights and processes set out herein and agrees to supply . . . PHILIPPINES with its secret processes and formulas necessary to enable . . . PHILIPPINES to manufacture any of the products manufactured by . . . AKRON and its subsidiaries. All such information and data as furnished by AKRON, under the terms of this paragraph, shall be used only in the business of . . . PHILIPPINES and shall not be disclosed or disposed of otherwise by . . . PHILIPPINES." cdta It is obvious that this amount represents both consideration for services rendered and royalty for the use of the name "Firestone" and its secret processes and formulas necessary to enable it to manufacture the products manufactured by . . . Akron and its subsidiaries. Royalty is defined as follows: "The term 'royalty' ordinarily envisages a duty to make, and a corresponding right to receive, payment proportionate to the use of patented methods or machines." Eastman Oil Moll Survey Corp. v. Laneman Oil Wells Co. 136 P 2d, 564, 565, 21 Cal 2d 872 Words and Phrases 37 at p. 597) The taxpayer, however, contends that the services are rendered in the United States and not in the Philippines, hence no income tax is due. While it is true that the researches and studies are made in the United States, the results of those studies are made available to the corporation in the Philippines. In order to comply with its agreement to furnish technical services, . . . Akron sends to the Philippines its own officers, for management purposes and its technicians for production purposes. It cannot, therefore, be denied that services were actually rendered here in the Philippines. In view of the foregoing, this Office is of the opinion that the amount paid by . . . Philippines to . . . Akron as royalty and as compensation for services rendered in the Philippines, is subject to the income tax. Accordingly, . . . Philippines is subject to withholding tax on the amount remitted to . . . Akron, Ohio, U.S.A. LLjur