BIR Ruling [UN-006-95]

January 4, 1995 BIR RULING [UN-006-95] Meer, Meer & Meer 9/F PLDT Building Legaspi St., Makati Metro Manila Attention: Atty . Ernest T . Tan Gentlemen : This refers to your letter dated November 26, 1994 stating that your client, Wessex Productions Ltd. (Producer), a corporation incorporated under the laws of the United States of America with no permanent establishment in the Philippines, is the producer of a circus entitled "The Great Moscow Circus"; that the circus will tour Manila, Philippines; that it has been contracted by the local promoter, Uniprom Incorporated (Promoter), a domestic corporation, to produce and present the circus; that the parties have agreed that "The Great Moscow Circus" shall run for a period of three (3) week from December 15, 1994 to January 8, 1995 at the Araneta Coliseum, Quezon City; that as a consideration, the Promoter shall pay the Producer a circus guarantee fee of US $240,000.00 with the applicable Philippine taxes, if any, to be deducted therefrom; and that further, the Promoter shall pay to the Producer an additional amount equivalent to the latter's share of the net profit derived from the sale of tickets (gross ticket sales less the agreed expenses), namely 30% on the first US $100,000.00 net profit, and 50% of net profit over US $100,000.00. cdtech Based on the foregoing representations, you are now requesting for a ruling confirming your opinion that the circus guarantee fee, the additional equivalent to your client's share of the net profits received from the sale of tickets are not subject to Philippine income tax and/or the applicable withholding taxes as prescribed under the Tax Code, as amended pursuant to paragraph (1), Article 8 of the RP-US Tax Treaty. In reply, please be informed that paragraph (1), Article 8 of the RP-US Tax Treaty provides, viz: "Article 8 " BUSINESS PROFITS "(1) Business profits of a resident of one of the Contracting States shall be taxable only in that State unless the resident has a permanent establishment in the other Contracting State. If the resident has a permanent establishment in that other Contracting State, tax may be imposed by that other Contracting State on the business profits of the resident but only on so much of them as are attributable to the permanent establishment." In this connection, paragraphs (1) and (2) of Article 5 of the RP-US Tax Treaty provides, viz: "Article 5 " PERMANENT ESTABLISHMENT "(1) For the purpose of this Convention, the term "permanent establishment" means a fixed place of business through which a resident of one of the Contracting States engages in a trade or business. "(2) The term "fixed place of business" includes but is not limited to: (a) A seat of management; (b) A branch; (c) An office; (d) A store or other sales outlet; (e) A factory; (f) A workshop; (g) A warehouse; (h) A mine, quarry, or other place of extraction of natural resources; (i) A building site or construction or assembly project or supervisor activities in connection therewith, provided such site, project or activity continues for a period of 183 days; and (j) The furnishing of services, including consultancy services, by a resident of one of the Contracting States though employees or other personnel, provided activities of that nature continue (for the same or a connected project) within the other Contracting States for a period or periods aggregating more than 183 days." Considering that the "The Great Moscow Circus" will run from December 15, 1994 to January 8, 1995 at the Araneta Coliseum or a total of three (3) weeks, the Producer does not have a permanent establishment to which its show guarantee fee of US $240,000.00, its additional amount equivalent to the Producer's share of the net profit derived from the sale of tickets (gross ticket sales less the agreed expenses), namely: 30% on the first US $100,000.00 net profit, and 50% of net profit over US $100,000.00 could be attributable. Such being the case, your opinion to the effect that the circus guarantee fee, the additional amount equivalent to your client's share of the net profits received from the sale of tickets are not subject to Philippine income tax and consequently to 35% withholding tax prescribed under Section 25 (b) (1) of the Tax Code, as amended is hereby confirmed. (BIR Ruling No. 113-90 dated June 6, 1990) cdt Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service)