A Subsidiary Company is Not Subject to Business Taxes

September 7, 1960 BIR RULING NO. 385-60 Messrs. Stewart, Cunanan & Co. 107 13th Street, Port Area P. O. Box 2288 M a n i l a Gentlemen : Reference is made to your letter dated January 28, 1959, wherein you requested for a ruling on the following query: "Our client, Westinghouse Electric Company, Limited, Manila Branch, desires to know if it is subject to any internal revenue business tax for undertaking the following activities in the Philippines: "1. At a remuneration of P9,000 per month, it has assumed the obligation of fulfilling the undertaking of its parent company, Westinghouse Electric Company, Limited, New York, to Westinghouse Electric International Company, New York, with respect to the Philippines, under the service agreement between the two companies which provides as follows: "2. Westinghouse, Ltd. shall furnish in South Africa, the Philippines and Lebanon, engineering, technical and other similar advice and assistance to distributes and purchasers of such 'Westinghouse' products, apparatus, devices and appliances heretofore or hereafter sold by Westinghouse International in the United States for export to South Africa, the Philippines and Lebanon." "2. In a Lamp Machinery Service Agreement executed between it and the Philippine Electric Manufacturing Company, it agreed to supervise the installation in the manufacturing plant or PEMCO of the lamp making machinery and to assist and advise in the manufacture of electric lamps at an annual fee of $10,000.00 payable in equal semi-annual installments of $5,000.00 upon the first day of April and October of each year." In reply thereto, I have the honor to inform you that inasmuch as the contracts entered into by Westinghouse Electric Co., Ltd., New York, with Westinghouse Electric International Company, New York, and the Philippine Electric Manufacturing Company call for the exercise or use the mental and not the physical or manual faculties of its employee or employees, this Office is, therefore, of the opinion that under such circumstances aforequoted, your client, a subsidiary company is not subject to business taxes. However, the renumerations received by your client should be included in its income tax return for purposes of income, and basic and additional residence taxes as prescribed by Section 24 of the Tax Code, as amended and by Section 2 of Commonwealth Act No. 465, respectively. cdta Very truly yours, MELECIO R. DOMINGO Commissioner of Internal Revenue