BIR Ruling No. 369-12

May 31, 2012 BIR RULING NO. 369-12 23 (F); 42 (C) (3); 108 (A) NIRC of 1997, as amended; BIR Ruling No. 345-2011 Fujitsu Philippines, Inc. 2nd Floor United Life Building 837 Arnaiz Avenue Legaspi Village, Makati City Attention: Peter G. Tan Rodolfo R. Nicolas, Jr. Gentlemen : This refers to your letter dated January 27, 2010 requesting on behalf of FUJITSU PRO-NES (ASIA) PTE. LTD. ("FPAP") confirmation that the payment of service fees by FUJITSU PHILIPPINES, INC. ("FPI") to FPAP for the support services rendered in Singapore is exempt from Philippine income tax and value added tax (VAT). TCIEcH It is represented that FPAP is a nonresident foreign corporation organized and existing under the laws of Singapore with registered office address at 45 Cantonment Road, Singapore 089748 per Certificate of Residence issued by the Inland Revenue Authority of Singapore dated September 8, 2010; that FPAP is not registered as a corporation or as a partnership in the Philippines as evidenced by the Certification of Non-Registration of Company issued by the Securities and Exchange Commission dated January 5, 2010; and that, on the other hand, FPI is a domestic corporation with office address at 2nd Floor United Life Building, 837 Arnaiz Avenue, Legaspi Village, Makati City. It is also represented that on June 4, 2007, FPAP and FPI entered into an Off-Shore Services Agreement ("Agreement") whereby for and in consideration of the amount of Twelve Thousand Nine Hundred Forty US Dollars (US$12,940.00), FPAP shall render off-shore support services to FPI for Remote Reports Design ; that all services shall be rendered by FPAP in Singapore; and that, the Agreement shall continue to be in force and effect until terminated by either of the parties thereto. Lastly, per Sworn Statement of FPI dated March 12, 2010, the subject transaction is not subject of an investigation, on-going audit, administrative protest, and claim for refund or issuance of a tax credit certificate, collection proceedings, or judicial appeal. In reply, please be informed that under Section 23 (F) of the National Internal Revenue Code of 1997 ( "Tax Code" ), as amended, a foreign corporation, like FPAP, whether or not engaged in trade or business in the Philippines, is subject to income tax only with respect to income derived from sources in the Philippines , to wit: " SEC. 23. General Principles of Income Taxation in the Philippines. Except when otherwise provided in this Code: xxx xxx xxx (F) A foreign corporation , whether engaged or not in trade or business in the Philippines, is taxable only on income derived from sources within the Philippines . " (Emphasis ours) Concerning income from the provision of services, under Section 42 (A) (3) of the Tax Code, income is considered derived in the Philippines only if the services are actually performed in the Philippines , to wit: " Section 42. Income from Sources Within the Philippines. (A) Gross Income from Sources Within the Philippines. The following items of gross income shall be treated as gross income from sources within the Philippines: cDCSET xxx xxx xxx (3) Services. Compensation for labor or personal services performed in the Philippines ; " (Emphasis ours) Such being the case and since the support services are rendered or will be rendered by FPAP outside the Philippines, particularly, in Singapore, the service fees to be paid therefor by FPAP to FPI are exempt from income tax. (BIR Ruling No. 345-2011 dated September 22, 2011) Finally, with respect to value-added tax ("VAT"), payments for the sale or exchange of services, including the use or lease of properties are subject to VAT only if the services are performed in the Philippines. Section 108 (A) of the Tax Code, as amended, provides: "SEC. 108. Value-added Tax on Sale of Services and Use or Lease of Properties. (A) Rate and Base of Tax. There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties: Provided, that the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, 1 raise the rate of value-added tax to twelve percent (12%) . . . The phrase 'sale or exchange of services' means the performance of all kinds of services in the Philippine for others for a fee, remuneration or consideration . . ." Accordingly, since such services are performed by FPAP outside the Philippines, the service fees to be paid therefor by FPI to FPAP are likewise exempt from VAT. (BIR Ruling No. 345-2011 dated September 22, 2011) This ruling is issued on the basis of the facts as represented. However, if upon investigation, it shall be disclosed that the actual facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. The VAT rate was increased to 12 percent beginning February 1, 2006, in accordance with the Memorandum of the Executive Secretary to the Secretary of Finance dated January 31, 2006, as circularized by Revenue Memorandum Circular No. 7-2006 (Publishing the Full Text of the Memorandum from Executive Secretary Eduardo R. Ermita dated January 31, 2006 Approving the Recommendation of the Secretary of Finance to Increase the Value Added Tax Rate from Ten Percent to Twelve Percent) dated January 31, 2006.