DA ITAD BIR Ruling No. 162-06

December 18, 2006 DA ITAD BIR RULING NO. 162-06 Section 23 (F) in relation to Section 42 (A) (3) and Section 108 (A) National Internal Revenue Code of 1997; BIR Ruling No. DA-ITAD 105-05 Latitude Broadband, Inc . U2101 21st Floor, Citibank Tower Paseo de Roxas, Makati City Attention: Mr. Federico S. Payot Vice President for Finance & Operations Gentlemen : This refers to your letter dated August 7, 2006, requesting exemption from Philippine income tax the payments of Latitude Broadband, Inc. (Latitude-Philippines) to IQPC Worldwide PTE Ltd (IQPC-Singapore) pursuant to the provisions of the Philippines-Singapore tax treaty. It is represented that IQPC-Singapore with address at 61 Robinson Road, # 14-01 Robinson Centre, Singapore and is a resident of Singapore for income tax purposes as confirmed by the Certificate of Residence issued by Sabina H B Cheong (Mrs), Assistant Commissioner, Corporate Tax Division for Comptroller of Income Tax, Inland Revenue Authority of Singapore; that IQPC-Singapore is not registered either as a corporation or as a partnership in the Philippines as shown in the Certification of Non-Registration of Corporation/Partnership issued by the Securities and Exchange Commission on November 30, 2006; that IQPC-Singapore is engaged in organizing international events; that Latitude-Philippines is a domestic company with principal office located at 21-A Citibank Tower, 8741 Paseo de Roxas, Makati City. THSaEC It is further represented that on May 10, 2006, IQPC-Singapore and Latitude-Philippines entered into a Sponsorship Agreement whereby the latter will participate as a sponsor in Wireless Broadband Week, an international event organized by IQPC-Singapore, from October 3 to October 4, 2006 in Singapore; that the sponsorship cost of Latitude-Philippines for the said event is US$16,600; 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. In reply, please be informed that Section 23(F) of the National Internal Revenue Code of 1997, as amended, (Tax Code of 1997) provides: "Section 23. General Principles of Income Taxation in the Philippines. Except when otherwise provided in this Code: xxx xxx xxx "(F) A foreign corporation, whether engaged or not in trade or business in the Philippines, is taxable only on income derived from sources within the Philippines." xxx xxx xxx" According to Section 23(F), a foreign corporation like IQPC-Singapore is taxable only on income derived from sources within the Philippines. With respect to income from the provision of services, such income is considered as derived from sources within the Philippines if the services are performed in the Philippines, as stated in Section 42(A)(3) of the Tax Code of 1997, quoted below: "Section 42. Income from Sources Within the Philippines. A. Gross Income From Sources Within the Philippines. The following items of gross income shall be treated as gross income from sources within the Philippines: xxx xxx xxx (3) Services. Compensation for labor or personal services performed in the Philippines; xxx xxx xxx" Such being the case and since the subject international event will be held in Singapore, the sponsorship fee to be paid therefor by Latitude-Philippines to IQPC-Singapore, being income not derived from sources within the Philippines by a foreign corporation, is exempt from Philippine income tax. (BIR Ruling No. DA-ITAD 105-05 dated August 24, 2005) Similarly, the subject sponsorship fee is not subject to the twelve percent (12%) VAT imposed under Section 108(A) of the Tax Code of 1997, as amended: "Section 108. Value-Added Tax on Sale of Services and Use or Lease of Properties. (A) Rate and Base of Tax. There shall be levied, assessed and collected, a value-added tax equivalent to ten percent (10%) 1 of gross receipts derived from the sale or exchange of services, including the use or lease of properties: Provided, That the President, upon recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%), HaEcAC xxx xxx xxx The phrase 'sale or exchange of services' means the performance of all kinds of services in the Philippines for others for a fee, remuneration or consideration . . . xxx xxx xxx" Section 108(A) above clearly states that the sale or exchange of services subject to VAT include only those services that are performed in the Philippines. Accordingly, since the said international event will not be performed in the Philippines, the sponsorship fee to be paid by Latitude-Philippines to IQPC-Singapore is therefore exempt from VAT. 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. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service