Tax Exemption of Japanese Company Acting as Sales Representative

December 3, 1959 BIR RULING NO. 621-59 Atty. Porfirio Latorre Tax Service of the Philippines, Inc. Floor 3, MRS Bldg., Plaza Cervantes M a n i l a S i r : This is in reply to your letter dated November 28, 1959, wherein you requested this Office to issue a ruling and/or opinion on the following query: cdt "A Japanese company is acting as sales representative in Japan and other foreign countries of various local corporation who are exporting commodities to foreign countries. The services of the Japanese company are wholly rendered in Japan or other foreign countries and no part of such service is rendered in the Philippines. "The Japanese company is paid its commission in dollars in Japan. It is now contemplating to accept commission in pesos payable in the Philippines which it intends to invest here. The query is whether the commission to be paid in pesos in the Philippines would be subject to Philippine income tax." As a general rule, non-resident foreign corporations are taxable only upon income from sources within the Philippines. Pursuant to Sec. 37(c) of the Tax Code, compensation received for labor or services performed by such corporations outside the territorial limits of the Philippines, is income from sources without the Philippines. In other words, compensation for services rendered constitutes taxable income in the place where rendered, irrespective of the place where such compensation is payable. Accordingly, the Japanese company acting as sales representative in Japan and other foreign countries obviously for the purpose of handling and promoting the business in that country of various local corporations is exempt from Philippine income tax on the commissions it earns as such, irrespective of the place where the commissions are paid, said commissions having been paid for services performed outside this country. As regards the commercial broker's tax raised in your supplemental letter also dated November 28, 1959, please be informed that the Japanese corporation, being a foreign broker, is not subject to the broker's tax even if payment of its compensation is made in this country. casia Very truly yours, (SGD.) MELECIO R. DOMINGO Commissioner of Internal Revenue