BIR Ruling [UN-117-95]

March 23, 1995 BIR RULING [UN-117-95] SGV & Co. 6760 Ayala Avenue Makati, Metro Manila Attention: Mr . E . C . Alcantara Tax Division Gentlemen : This refers to your letter dated March 9, 1995 requesting confirmation of your opinion to the effect that commission paid by the Science Park of the Philippines, Inc. (SPPI) to Mitsui & Co., Ltd., (Mitsui) a non-resident Japanese company with offices at Tokyo, Japan is not subject to income tax and, consequently, to withholding tax. cdtech It is represented that SPPI manages that Light Industry and Science Park; that SPPI wishes to sell or lease certain parcels of land at the Park; that on August 14, 1991, an Agency Agreement was executed between SPPI as Principal and Mitsui as Agent whereby the latter, for a commission based on the net sales price of the land, undertook to perform the following services in Japan, viz.: 1. Solicit offers for the sale or lease of parcels of land within the Park; 2. Provide advertisement; 3. Conduct promotional campaigns including seminars, if necessary; and 4. Arrange meetings between SPPI and customers identified by Mitsui to enable SPPI to better orient such customers about the parcels of land. In reply thereto, please be informed that your opinion is hereby confirmed. The services to be performed by Mitsui involved rendering of personal services to be performed in Japan; hence, the fees to be paid by SPPI, in the form of commission are considered income derived from sources outside the Philippines, pursuant to Section 36(c) (3) of the Tax Code. Accordingly, since a non-resident foreign corporation is subject to income tax only on income derived from sources within the Philippines, the commission paid by the Science Park of the Philippines, Inc, to Mitsui & Co., Ltd. in accordance with their Agency Agreement is not subject to income tax and consequently, to the 35% withholding tax prescribed by Section 25(b) (1), in relation to Section 50(a) of the Tax Code, as amended. (BIR Ruling Nos. 221-89; 036-90). Very truly yours, ALICIA P. CLEMENO Assistant Commissioner (Legal Service) By: ALICIA L. TOMACRUZ Head Rev. Executive Assistant Legal Service