Payments by GSIS to Non-Resident Foreign Company (Richards Hogg Int'l.) Not Subj. to Phil. Taxes

December 10, 1993 BIR RULING NO. 484-93 PAYMENTS BY GSIS TO NON-RESIDENT FOREIGN COMPANY (RICHARDS HOGG INT'L.) NOT SUBJ. TO PHIL. TAXES 34 (c) (2) (c) 193-93 317-93 Leynes, Gravante T-11 Sunver Plaza Pasay Road, Makati Metro Manila Attention: Atty . Ma . Lourdes L . Guillargan This refers to your letter dated September 9, 1993, requesting for a ruling on behalf of your client, the Richards Hogg Group, on whether payments made to a non-resident foreign corporation for services performed abroad are subject to Philippine taxes and consequently, to the withholding tax. It is represented that Richards Hogg is a group of companies with subsidiaries and affiliates worldwide; that these companies are engaged in adjustment of claims on insurance policies, marine insurance, and claims consultancy services; that one of its affiliates is in the Philippines rendering limited services mostly involving casualties occurring in Philippine jurisdiction only; that its clients in the Philippines whose vessels/ships meet accidents/casualties in foreign lands, directly engage the services of foreign affiliates, particularly in the place where accidents/casualties occur; that these foreign affiliates are paid directly by them; that one of its Philippine clients is the Government Service Insurance System (GSIS) which engages the services of foreign affiliates to act as adjuster/consultant to determine its liabilities under various forms of insurance policies; that at present, there are some payments due and payable to a Hongkong affiliate, Richards Hogg International (Pacific) Adjusters, Ltd., a non-resident foreign corporation, by the GSIS for services rendered entirely abroad. In reply, please be informed that under the provision of Section 25(b) (1) of the Tax Code, as amended, a foreign corporation not engaged in trade or business in the Philippines shall pay a tax equal to 35% only of the gross income derived from all sources within the Philippines. For the source of income to be considered as coming from the Philippines, it is sufficient that the income is derived from an activity conducted within the Philippines pursuant to Section 36(c) (3) of the Tax Code, as amended (BIR Ruling No. 36-90, dated March 27, 1990). Since the services rendered by Richards Hogg International (Pacific) Adjusters, Ltd., are done outside the territorial jurisdiction of the Philippines, the service fees derived therefrom are considered as income from sources without the Philippines. Accordingly, inasmuch as a non-resident foreign corporation is subject to tax only on income from sources within the Philippines, payments made by GSIS to Richards Hogg International (Pacific) Adjusters, Ltd., and to all other foreign affiliates of Richards Hogg under similar circumstances, are not subject to Philippine income tax, and consequently to the withholding tax under Section 50(a) of the Tax Code. 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 considered null and void. aisadc LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue