Sycip Gorres Velayo and Co.

March 5, 2018 ITAD BIR RULING NO. 025-18 Articles 5 (Permanent Establishment) and 7 (Business Profits) Philippines- Singapore tax treaty Sycip Gorres Velayo and Co. 6760 Ayala Avenue 1226 Makati City Attention: AAA ________________ Gentlemen : This refers to your request for review of BIR Ruling No. ITAD 294-12 issued on July 26-2012 where this Bureau ruled that service fees paid by Globe Telecom, Inc. (" Globe ") to A.T. Kearney Pte. Ltd. (" A.T. Kearney ") under a Service Agreement dated June 29, 2011 are subject to income tax pursuant to the Convention between the Republic of the Philippines and the Republic of Singapore for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (" Philippines-Singapore tax treaty "). The request for review was originally submitted to the Department of Finance, which indorsed the same to this Bureau on November 3, 2014, for further evaluation and appropriate action. TIEHSA As background, on June 29, 2011, Globe , a domestic corporation, and A.T. Kearney , a nonresident foreign corporation based in Singapore, entered into a Service Agreement where A.T. Kearney agreed to provide consultancy services to Globe for the B/OSS Transformation Program and Global Cost Benchmarking. This program seeks to align or re-engineer the information technology structure of Globe for business acceleration, bottom-line performance increase and improving customer service. The specific business objectives of the program are as follows: 1. Establishing retention and loyalty initiatives for customers, representatives and dealers of Globe . 2. Meeting and exceeding desired customers' expectations across every channel and every interaction with Globe . 3. Adopting first-mover initiatives to capture market and ensuring lean processes are in place, supported by convergent system automation and waste elimination. 4. Driving stickiness through bundling, innovative products and services, which customers will find to be value-for-money and be proud to recommend. The program has a contract price of S$ ___________ , payable based on the amount of progress A.T. Kearney has done on the program. A.T. Kearney will invoice Globe supported by a Certificate of Completion and Acceptance and such other documents required by the latter. Globe will pay the amount indicated in the invoice within thirty days from receipt thereof. The Agreement took effect on March 28, 2011 to August 19, 2011. Based on a certification issued by A.T. Kearney , the following personnel will be sent by it to provide consultancy services to Globe relative to the program: Personnel Date of Arrival Date of Departure BBB May 23, 2011 July 22, 2011 CCC March 28, 2011 September 2, 2011 DDD February 24, 2011 July 13, 2011 EEE July 26, 2011 August 12, 2011 FFF April 4, 2011 July 27, 2011 Total 191 days Based on the additional information submitted, particularly the dates of arrival and departure in the Philippines stamped in the passports of the above personnel, the total number of days of physical presence in the Philippines of these personnel is 135 days . The period of 191 days in the certification of A.T. Kearney and used in BIR Ruling No. ITAD 294-12 failed to take into account the days of absence in the Philippines of the personnel when they had to regularly return to their head office in Singapore. This being so, we quote again paragraph 1, Article 7 and paragraphs 1 and 2, Article 5 of the Philippines-Singapore tax treaty, thus: "Article 7 BUSINESS PROFITS 1. The profits of an 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." " 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 of 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." Under Article 7, profits derived in the Philippines by an enterprise of Singapore may be taxed in the Philippines if attributable to a permanent establishment situated therein. The term permanent establishment means a fixed place of business in which the business of an enterprise is wholly or partly carried on, and includes especially, a seat of management, a branch, an office, a store or other sales outlet, and a factory. It includes also the furnishing of services, including consultancy services, by a resident of Singapore (through employees or other personnel) where such activity continues within the Philippines for a period or periods aggregating more than 183 days. TDAcCa Accordingly, since A.T. Kearney is not engaged in trade or business in the Philippines, it does not have a branch, an office or other fixed place of business in the Philippines, and it did not furnish services in the country for more than an aggregate of 183 days but for 135 days only, A.T. Kearney does not have a permanent establishment with respect to consultancy services it rendered to the B/OSS Transformation Program and Global Cost Benchmarking, pursuant to paragraphs 1 and 2, Article 5 of the Philippines-Singapore tax treaty. This being the case, service fees paid by Globe to A.T. Kearney for such services are exempt from income tax under paragraph 1, Article 7 of the tax treaty. This ruling revokes BIR Ruling No. ITAD 294-12. 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, (SGD.) CAESAR R. DULAY Commissioner of Internal Revenue