DA ITAD BIR Ruling No. 128-07

December 28, 2007 DA ITAD BIR RULING NO. 128-07 Articles 5 & 7 of the Philippines-Singapore Tax Treaty; BIR Ruling No. DA-ITAD 070-01 Sycip Gorres Velayo & Co. 6760 Ayala Avenue 1226 Makati City Attention: Joel L. Tan-Torres Partner, Tax Services Gentlemen : This refers to your letter dated June 5, 2007 requesting confirmation of your opinion that the payments made by Cummins Sales and Service Philippines Inc. (Cummins-Philippines) to Cummins Power Generation Pte Ltd. (Cummins-Singapore) for its purchase of Gen Rental Fleet are not subject to Philippine income tax pursuant to Article 7 in relation to Article 5 of the Philippines-Singapore tax treaty. It is represented that Cummins-Singapore is a corporation organized and existing under the laws of Singapore as confirmed by the Certificate of Incorporation on Change of Name of Company issued by Mrs. Ng-Lou Geok Choo, Assistant Registrar of Companies and Businesses, Singapore; that its principal office address is at No. 44 Pioneer Sector 2 Singapore 628395; that Cummins-Singapore is not registered either as a corporation or as a partnership in the Philippines per Certification of Non-Registration dated May 8, 2007 issued by the Securities and Exchange Commission; that Cummins-Philippines is a domestic corporation with principal office address at Lots 1 & 2, Blk. 15, LIIP Ave., LIIP Mamplasan, Bian, Laguna. It is further represented that on April 10, 2007, Cummins-Philippines formally accepted and purchased the 25 units of Cummins Power Gen Rental Fleet in the total amount of US$541,l42.00; and that the issue or transaction subject of the above application is not under investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceedings, or a judicial appeal. HECaTD In reply, please be informed that Article 7 and in relation thereto, Article 5 of the Philippines-Singapore tax treaty provide: "Article 7 BUSINESS PROFITS 1. The profits of art enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on or has carried on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment. xxx xxx xxx." "Article 5 PERMANENT ESTABLISHMENT 1. For the purposes of this Convention, the term "permanent establishment" means a fixed place of business in which the business of the enterprise is wholly or partly carried on. 2. The term "permanent establishment" includes specially 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, in relation to a person providing storage facilities for others; h) A mine, quarry, or other place of extraction of natural resources; i) A building site or construction or assembly project or installation project or supervisory activities in connection therewith, provided such site, project or activity continues for a period more than 183 days; and j) The furnishing of services, including consultancy services, by a resident of one of the Contracting States through employees or other personnel, provided activities of that nature continue (for the same or a connected project) within the other Contracting State for a period or periods aggregating more than 183 days. CSAcTa xxx xxx xxx." In view of the foregoing, the profits of a Singapore enterprise shall be taxable only in Singapore unless such enterprise carries on business in the Philippines through a permanent establishment situated therein. If the Singapore enterprise carries on business as aforesaid, the profits of such enterprise may be taxed in the Philippines but only so much of them as is attributable to that permanent establishment. For this purpose, a corporation which is a resident of Singapore may be deemed to have a permanent establishment in the Philippines if, among others, it has a seat of management or a branch, a factory, an office, a store or a sales outlet in the sale of its goods its the Philippines. Considering that Cummins-Singapore does not carry on business in the Philippines as aforesaid, as evidenced by the Certificate of Non-Registration, it is deemed not to have a permanent establishment in the Philippines to which its business profits may be attributed to. Therefore, the income derived by Cummins-Singapore from the sale of the 25 units of Cummins Power Gen Rental Fleet to Cummins-Philippines is not subject to Philippine income tax pursuant to Article 7 in relation to Article 5 of the Philippines-Singapore tax treaty. (BIR Ruling No. DA-ITAD 070-01 dated August 16, 2001) Moreover, such importation of goods is subject to 12% value-added tax (VAT) pursuant to Section 107 of the Tax Code of 1997, as amended by Republic Act (RA) No. 9337. Accordingly, Cummins-Philippines, being the resident withholding agent and payor in control of payment shall be responsible for the withholding of the 12% final VAT on such fees before making any payment to Cummins-Singapore. In remitting the VAT withheld, Cummins-Philippines shall use BIR Form No. 1600 (Monthly Remittance Return of Value-Added Tax & Other Percentage Taxes Withheld). The duly filed BIR Form No. 1600 and proof of payment thereof shall serve as documentary substantiation for the claim of input tax to be applied against the output tax that may be due from Cummins-Singapore if it is a VAT-registered taxpayer. In addition, Cummins-Philippines is required to issue in quadruplicate the relevant Certificate of Final Creditable Tax Withheld at Source (BIR Form No. 2306), the first three copies for Cummins-Singapore and the fourth copy for Cummins-Philippines as its file copy. [Section 4.110-3 (b), Revenue Regulations (RR) No. 7-95, as amended by RR Nos. 4-02, 8-02, and 14-02 (now Section 4, 114-2 (b), RR No. 16-05); Section 4.1.14 (D), RR No. 2-98, as last amended by RR No. 28-03) This ruling is issued on the basis of the facts as represented. However, if upon investigation it shall be disclosed that the actual facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. cIECaS Very truly yours, Commissioner of Internal Revenue By: (SGD.) GREGORIO V. CABANTAC Deputy Commissioner