BIR Ruling [UN-212-94]

July 14, 1994 BIR RULING [UN-212-94] AVON Cosmetics, Inc. 2/F Fortune Bldg. 160 Legazpi St. Legazpi Village Makati, Metro Manila Attention: Mr . Teodoro P . Estacio Controller Gentlemen : This refers to your letter dated April 8, 1994 requesting for a confirmation of your opinion that the payments made by you to a non-resident foreign corporation for services performed abroad are not subject to Philippine taxes and consequently to the withholding tax. It is represented that Avon Cosmetics, Inc. (ACI) is a locally registered corporation engaged in the sale of cosmetics and other related products; that as a part of ACI's operations, certain raw materials and merchandise that ACI uses are imported from various companies abroad; that you are planning to engage the services of a Hongkong Company, Avon Cosmetics (Far East Buying Office), Ltd. (AVON-FEBO) to facilitate the purchases being made by ACI from various suppliers abroad and such other services, such as competitive sourcing of new products, project management, technical development, testing and evaluation, commercialization of new products, quality assurance and transportation; and that in consideration of the above services to be rendered by AVON-FEBO to ACI, the former will charge a 15% service fee based on the value of importation for transactions consummated between the foreign supplier and ACI. In reply thereto, please be informed that pursuant to Section 25(b) (1) of the Tax Code, as amended, a foreign corporation not engaged in trade or business in the Philippines shall pay a tax equal to 35% only of the gross income derived from all sources within the Philippines. For the source of income to be considered as coming from the Philippines, it is sufficient that the income is derived from an activity CONDUCTED WITHIN THE PHILIPPINES pursuant to Section 36(c) (3) of the same Code (BIR Ruling No. 36-90 dated March 27, 1990). In view thereof, since the services to be rendered to you by AVON-FEBO will be done outside the territorial jurisdiction of the Philippines, the service fees derived therefrom will be considered as income from sources without the Philippines. Accordingly, inasmuch as a non-resident foreign corporation is subject to tax only on income from sources, within the Philippines, subject payments to be made by ACI to AVON-FEBO for services rendered by the latter to the former done outside the Philippine jurisdiction are not subject to Philippine income tax and consequently to the withholding tax under Section 50(a) of the Tax Code. (BIR Ruling No. 484-93 dated December 10, 1993) This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different from the aforementioned representations and/or any of the conditions set forth in this letter are not complied with, then this ruling shall be considered null and void. cdtech Very truly yours, ALICIA P. CLEMENO Acting Assistant Commissioner Legal Service