BIR Ruling [UN-144-94]

April 27, 1994 BIR RULING [UN-144-94] Mr. George T. Jao Lavadia Joaquin Cunanan & Co., Inc. 8th Floor, BA Lepanto Bldg. 8747 Paseo de Roxas Street Makati, Metro Manila S i r : This refers to your application for relief from double taxation, pursuant to Revenue Memorandum Order No. 10-92, for and on behalf of your client CLOUGH STENA (ASIA) JOINT VENTURE (CLOUGH STENA), together with the request for refund of the amount of P6,844,946.05, representing the 8% final income tax erroneously withheld from the payments made to it and remitted to the Bureau of Internal Revenue (BIR) by ALCORN PRODUCTION Philippines, Inc. (ALCORN), pursuant to the contract between the parties dated January 16, 1992 for the installation of the Flexible Flowliness and Risers in the West Linapacan Field Development Project of Alcorn. cdtech It is represented that your client is a foreign based joint venture between Clough Construction Queensland Pty. Ltd., an Australian Company, and Stena Offshore Limited, a United Kingdom Company, while ALCORN is a domestic corporation and a service contractor engaged in petroleum operation in the Philippines; that pursuant to the subject contract dated January 16, 1992, your client's vessel "MVS ESSAR STENA I" actually arrived in the Philippines last April 12, 1992 and departed on June 21, 1992 upon completion of the job; that your client completed its job within seventy (70) days only as shown in the certification issued by Alcorn. Based on the foregoing, it is your opinion that Clough Stena is not subject to any Philippine income tax (either the 8% final tax or the 35% corporate income tax) pursuant to the Philippines-Australia and Philippines-United Kingdom Tax Treaties, since your client partners are residents of Australia and the U.K. respectively, and have no fixed place of business in the Philippines; and that since your client rendered services in the Philippines within a period of seventy (70) days or less than three (3) months only, it is not considered as having a permanent establishment in the Philippines to which its business income/profits are attributable. Accordingly, you claim that any payment received by your client, Clough Stena, from its contract with Alcorn is not subject to Philippine income tax. In reply, please be informed that pursuant to Article 7 (Business Profits) in relation to Article 5 (Permanent Establishment) of both the RP-Australia, and RP-UK Tax Treaties, the income derived by your client, CLOUGH STENA (Asia) Joint Venture from the installation services rendered pursuant to its Contract with ALCORN, dated January 16, 1992, for a duration of seventy (70) days is not subject to Philippine income tax, and consequently to the 8% final final withholding tax under P.D. 1354, there being no permanent establishment where profits could be attributed in the Philippines. (BIR Ruling No. 151-89, dated July 19, 1989, and BIR Ruling No. UN-096-94, dated March 22, 1994). In view thereof, and since it was confirmed by Revenue Enforcement Officer, Ms. Ma. Dolores C. Matias [RDO 50 (South Makati), Revenue Region No. 482] in her investigation report dated March 24, 1994 that the installation and repair work was undertaken and completed within ninety-two (92) days, and that your client has no permanent establishment in the Philippines, there is no legal basis for withholding the amount of P6,844,946.05 as 8% final tax on the income derived by your client from the said Contract. Very truly yours, JAIME M. MAZA Assistant Commissioner (Legal Service)