Income of Non-Resident Aliens Not Doing Business in the Phils. Not Subject to Income Tax

November 19, 1993 BIR RULING NO. 464-93 INCOME OF NON-RESIDENT ALIENS NOT DOING BUSINESS IN THE PHILS. NOT SUBJECT TO INCOME TAX 25 (b) (10) 279-88 464-93 R.P. Calma & Co. P.O. Box No. 3307 Makati, Metro Manila Attention: Mr . Ruperto P . Calma Managing Partner This refers to your letter dated March 15, 1993 requesting for a ruling as to whether or not revenues derived by a non-resident foreign corporation not doing business in the Philippines are exempt from Philippine income tax and consequently from the withholding tax. prcd It is represented that Koonitex International Corporation (Koonitex) is a non-resident foreign corporation duly organized and existing under the laws of HongKong; that its line of business is advertising, marketing and promotions of garment products abroad, like Canada, U.S.A. & Europe; that Marquee Mills Manufacturing, Inc. (MMMI) is a domestic corporation duly organized and existing under the laws of the Philippines, engaged in the manufacture of garments exclusively for export (no local sales); that it is also a quota holder allocated by the Garments Textile Embroidery Board, and operating in a customs bonded warehouse premises; that as such, it engages the services of Koonitex to do all the advertising, promotions and marketing of all the MMMI garments products abroad; that Koonitex as marketing agent of your client, solicits orders abroad and communicates the orders to MMMI which in turn manufactures, ships and invoices such orders direct to the buyers; that for every shipment/export sales of MMMI thru the services of Koonitex, which are entirely rendered abroad, the latter receives commission income thru outward remittance; and that Koonitex has no investment or shares of stock in MMMI. In reply, please be informed that considering that the advertising, promotions and marketing of the garment products of MMMI by Koonitex are performed abroad (i.e., Canada, U.S.A. & Europe), the situs of the income earned by Koonitex for the said services, representing the fees paid for the advertisements, promotions and marketing, is abroad (i.e. Canada, USA & Europe). Such being the case, the said fees are considered income from sources without the Philippines, because the same constitutes compensation for labor or personal services performed without the Philippines (Sec. 36(c)(3), Tax Code as amended). And since Koonitex is a non-resident foreign corporation subject to income tax only on income from sources within the Philippines (Sec. 25(b)(1), Tax Code, as amended), said fees earned by Koonitex for services rendered abroad (i.e. Canada, USA & Europe) are not subject to income tax and consequently, not also subject to the 35% withholding tax prescribed in Section 25(b)(1) in relation to Section 50(a) of the Tax Code, as amended. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation it will be disclosed that the facts are different, then this ruling shall be null and void. cdpr LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue