Proceeds of Sales of Goods in the Philippines thru the Allied Manufacturing & Trading Co., Inc.

September 11, 1959 BIR RULING NO. 435-59 Allied Manufacturing & Trading Co., Inc. Bonifacio Drive cor. 20th Street Port Area, Manila Attention : Mr . Jose Tiosejo Gentlemen : Reference is made to your letter dated May 26, 1959, requesting for reconsideration of BIR Ruling No. 254 dated May 4, 1959, holding your principal, Farbenfabriken Bayer, A. G., Leverkusen Bayerwerk, West Germany, liable to income taxes on the proceeds of sales of goods in the Philippines thru the Allied Manufacturing & Trading Co., Inc. The facts of the case, as further elaborated in your letter, are as follows: "Allied Manufacturing & Trading Co. Inc., is a corporation organized under the laws of the Philippines with stockholders consisting entirely of Filipino citizens. It is totally different from the German Corporation. During all the years since this Company has been incorporated in 1956, we have been acting as Agents of the abovementioned German concern, namely, Farbenfabriken Bayer, A. G., Leverkusen-Bayerwerk, West Germany, in the sales of their products in the Philippines. We are paid a commission for such service. As such agents of the German Corporation, we have duly provided ourselves with a commercial broker's privilege tax-receipt and have been paying the 6% broker's tax on our gross compensation. Under the set-up which we are now proposing to establish, there will, in effect, be no change in our relationship with our German principals. Neither will there be any change in our business operations. The domestic buyers for whom we place the orders will remain as the direct importers, who will themselves open the letters of credit in favour of Farbenfabriken Bayer, A. G., Leverkusen-Bayerwerk, and apply for their own dollar allocation. The only difference is that as soon as we locate domestic buyers and their respective orders placed with us, we immediately cable our principals, the German Corporation, who even prior to the receipt of the letter of credit, will advance the goods which shall be stored in a Customs Bonded Warehouse. We shall not even have a Bonded Warehouse of our own. The only purpose of this proposed set-up is expediency. Under this plan, the buyer can secure delivery of the goods as soon as the corresponding letter of credit is opened. In most cases, the goods will not even be placed under the situation contemplated above, because it might be that whilst on transit, all requirements of importation will have been duly complied with. . . ." After a careful analysis of the facts and law involved in this case, I have the honor to inform you that since your principal, Farbenfabriken Bayer, A. G., Leverkusen-Bayerwerk will ship only the merchandise ordered by prospective buyers, it is not subject to income tax on the aforesaid sales, thereby over-ruling, as it is hereby overruled, our BIR Ruling No. 254 dated May 4, 1959. cdta Very truly yours, (SGD.) MELECIO R. DOMINGO Commissioner of Internal Revenue