35% Withholding Tax on Service Fees to PLDT

September 7, 1988 BIR RULING NO. 434-88 24 000-00 434-88 Gentlemen : This refers to your letter dated August 11, 1988 requesting confirmation of your opinion to the effect that the payments of the Philippine Long Distance Telephone Company (PLDT) to Marubeni-Head Office, Tokyo for services rendered in the Philippines which are remitted directly to it are subject to the expanded withholding tax. It is represented that Marubeni-Head Office, Tokyo will send Japanese personnel to the Philippines to render services to PLDT; that the services consist of training of PLDT personnel, engineering and operation maintenance services; that the personnel will stay in the Philippines for a period of one to two months only; that Marubeni-Philippine branch will book the service fees as part of its gross income; and that PLDT proposes to withhold 35% withholding tax on said service fees. In reply thereto, please be informed that your opinion is hereby confirmed. Marubeni-Head Office, Tokyo is a resident foreign corporation as the term is defined in Section 20(h) of the Tax Code, as amended, since it is a foreign corporation engaged in trade or business in the Philippines through its Philippine branch. Although the aforementioned service fees of PLDT will be remitted directly to Marubeni-Head Office, Tokyo, nevertheless since said service fees will be booked by Marubeni-Philippine branch as part of its gross income, said service fees are subject to the 1% expanded withholding tax under Section 1(c)(1)(a) of Revenue Regulations No. 6-85 otherwise known as the Revised and Consolidated Expanded Withholding Tax Regulations implementing Section 50(b) of the Tax Code, as amended and not to the 35% withholding tax under Section 25(b)(1) of the Tax Code, as amended. (See Marubeni Corporation vs. The Acting Commissioner of Internal Revenue, CTA Case No. 3605 dated February 12, 1986) cdti Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner