Representative Office in the Philippines of a Foreign Corporation Not Deriving Income from the Philippines is Exempt from Income Tax

November 19, 1987 BIR RULING NO. 370-87 24 000-00 370-87 Gentlemen : This refers to your letter dated May 28, 1987 requesting exemption from the payment of income tax considering that as a representative office in the Philippines, you do not earn or derive income from the Philippines. Investigation disclosed that you are a corporation organized and existing under the laws of Japan; that you have been authorized under Board of Investments (BOI) Certificate of Authority No. 1277 dated November 14, 1980 to establish a representative office in the Philippines to undertake the following activities in accordance with Republic Act. No. 5455 as amended, viz: 1. To act as a message center, to provide and facilitate communication and coordination between the Head Office and Philippine customers, distributors, importers and exporters; 2. To conduct and make surveys and studies for the further promotion and development of Philippine exports abroad, especially to Japan and other Asian countries, and to look into the possibility and prospects of investing in petrochemical manufacturing industries in the Philippines; 3. To look for prospective/potential Philippine exportable products, especially raw materials for chemicals that are needed and required by the Head Office in Japan and/or elsewhere and to facilitate their exports; 4. To extend and render necessary technical advice and assistance to Philippine customers and arrange possible technical transfer to the Philippines; and 5. To undertake such other activities incidental and/or analogous to the foregoing. that the aforementioned authority granted to you by the BOI is subject to the following conditions: adc 1. That you shall not engage in any other line of business activity without prior Board Authority; 2. That you shall not avail of domestic credit resources; 3. That you may employ a maximum of ten (10) personnel of which not more than two (2) may be expatriates who shall be subject to local immigration and labor laws and whose employment shall be strictly in accordance with the laws on the practice of their professions; 4. That you shall post a bond or bank guaranty in the sum of P100,000.00 to answer for your liabilities to resident creditors; 5. That you shall inwardly remit at least US$50,000.00 a year for operating expenses proof of which shall be submitted to BOI at the end of each year; 6. That you shall not derive any income in the Philippines in the exercise of your business activities; and 7. That you shall submit an annual report of your business activities (using the prescribed BOI Form No. 5032) within thirty (30) days from the filing with the Bureau of Internal Revenue of your income tax returns for each preceding calendar/fiscal year. that you have been licensed by the Securities and Exchange Commission to undertake the aforementioned activities; and that aside from an inward remittance to you of US$50,000.00, you do not derive or earn income from the Philippines. In reply thereto, I have the honor to inform you that since under the foregoing findings, you do not derive any income from the Philippines; and that you will just act as message center to provide and facilitate communication and coordination between your head office and Philippine customers, distributors, importers and exporters, you are exempt from Philippine income tax as well as from the filing of the corresponding corporate income tax return, pursuant to Article 63 of Executive Order No. 226 otherwise known as the Omnibus Investments Code of 1987 (formerly Section 24(b)(1)(vi) of the Tax Code, prior to its amendment by Executive Order No. 37) reading as follows: "ART. 63. Exemption from Income Tax . Regional or area headquarters established in the Philippines by multinational corporations and which headquarters do not earn or derive income from the Philippines and which act as supervisory, communications and coordinating center for their affiliates, subsidiaries, or branches in the Asia-Pacific Region shall not be subject to income tax." Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner