Tax Exemption on the Income from the Sale of Subscription Copies of Newsweek Magazine

November 24, 1988 BIR RULING NO. 557-88 50 (a) 278-88 557-88 Gentlemen : This refers to your letter dated November 16, 1987 requesting confirmation of your opinion that income from the sale of subscription copies of Newsweek Magazine is considered income derived from sources outside the Philippines and as such it is exempt from the 35% withholding tax under then Section 53(b)(2) of the Tax Code. It is represented that your client is a Philippine Branch of Newsweek Inc.,a corporation organized and existing under the laws of the State of New York, U.S.A.;that in accordance with the license granted by the Securities and Exchange Commission, it is authorized to engage in soliciting the sale of and circulation of the Newsweek magazines; that in soliciting subscription, a prospective subscriber fills out a subscription order card enclosed in any issue of Newsweek Magazine and pre-addressed to Prudential Bank, Malate Branch, San Martin Bldg.,1560 A. Mabini corner Pedro Gil St.,Ermita, Manila; and that he attaches a check or money order as payment for the subscription pursuant to an agreement executed by and between Prudential Bank and your client; that the subscription order and payment are sent by Prudential Bank to your client; that there are instances where the subscriber elects to forward the subscription order and payment to your client; that all subscription contracts are then transmitted to Newsweek Inc.'s branch in Tokyo-Japan where the contracts are either accepted or rejected; that approved subscriptions are then relayed to Newsweek Inc.,HongKong branch which prints the magazines and subsequently ships copies of the magazines to the Manila Post Office, preaddressed to the Philippine subscriber for transmittal as a second class mail to the latter. In reply, please be informed that under the foregoing facts, there is labor or personal service done abroad; hence, the income derived therefrom is considered income from source without the Philippines [Sec. 36(c)(3), Tax Code, as amended by Executive Order No. 273]. Such being the case, since the publishers of the Newsweek Magazine are non-resident foreign corporations subject to income tax only on income from sources in the Philippines (Section 25, Tax Code) the income earned by said Publisher for labor or services rendered abroad is not subject to Philippine income tax and consequently, not also subject to the 35% withholding tax prescribed in Section 50(a) of the Tax Code, as amended. In this connection, the income of the publishers of Newsweek Magazine which is not subject to Philippine income tax shall consist of subscription payments made by Philippine subscribers. Accordingly, income derived from non-subscribers, e.g.,from newsstand sales is subject to tax. Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner