Creads Philippines, Inc.

March 11, 2020 ITAD BIR RULING NO. 038-20 Articles 5 & 7, Philippines-Singapore tax treaty Creads Philippines, Inc. Unit 17-07 Tower 1 Entrata Urban Complex, Filinvest Corporate City Alabang, Muntinlupa Attention: AAA _______________ Gentlemen : This refers to your tax treaty relief application filed on December 23, 2013, on behalf of Cread Advertising Pte. Ltd. ("Cread") , requesting confirmation that its income from Sharp (Philippines) Corporation ("Sharp") is exempt from Philippine 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") . It is represented that Cread is a resident of Singapore within the meaning of the Philippines-Singapore tax treaty based on the Certificate of Residency issued by the Assistant Commissioner, Corporate Tax Division for Comptroller of Income Tax, Inland Revenue Authority of Singapore; that based on its Articles of Association, Cread is a company duly incorporated and registered under the laws of Singapore; that it is engaged in the business of creative content development, programming, strategic marketing consultancy, mobile advertising, digital advertising and promotions; that Cread is not registered either as a corporation or as a partnership in the Philippines as shown in the Certification of Non-Registration of Company issued by the Securities and Exchange Commission; that, on the other hand, Sharp is a domestic corporation duly organized and existing under Philippine laws; and that it is engaged in the manufacture of electronics and home appliances. It is further represented that on December 18, 2013, Sharp and Cread entered into a Pinoyon9 E-Commerce Website Development Agreement ("Agreement") where Cread shall provide the following services: 1. Project management and Consultancy; 2. E-Commerce Website Execution and Development; 3. Application Development and CMS Setup Integration; 4. Mark up Codings-XHTML/CSS/JS Codings; and 5. Social Media Integration-Facebook. Based on the Certification as to the Duration of Service issued by SVP-Finance and Administration of Sharp the contract duration is three (3) months which started on December 1, 2013 and will run until February 28, 2014; that the development of the e-commerce website under the contract will be done in Singapore; and that payment for service was made to Cread on December 30, 2013 as evidenced by a certification issued by Sharp on March 17, 2014. CAIHTE Finally, it is represented that the issue or transaction subject of the above request for ruling 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 of the taxpayers involved per Sworn Statement issued by Sharp dated January 27, 2013. In reply, please be informed that Section 28 (B) (1) of the National Internal Revenue Code (Tax Code) of 1997, as amended, applies, in general, to income received by nonresident foreign corporation. It provides: " Section 28. Rates of Income Tax on Foreign Corporations . xxx xxx xxx (B) Tax on Nonresident Foreign Corporation. (1) In General. Except as otherwise provided in this Code, a foreign corporation not engaged in trade or business in the Philippines shall pay a tax equal to thirty-five percent (35%) of the gross income received during each taxable year from all sources within the Philippines such as interests, dividends, rents, royalties, salaries, premiums (except reinsurance premiums), annuities, emoluments or other fixed or determinable annual, periodic or casual gains, profits and income, and capital gains, except capital gains subject to tax under subparagraphs (c) and (d): Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%). xxx xxx xxx" However, Section 32 (B) (5) of the Tax Code of 1997, as amended, provides: " Section 32. Gross Income. xxx xxx xxx (B) Exclusions from Gross Income. The following items shall not be included in gross income and shall be exempt from taxation under this Title: xxx xxx xxx (5) Income Exempt under Treaty. Income of any kind, to the extent required by any treaty obligation binding upon the Government of the Philippines. xxx xxx xxx" In relation thereto, Articles 7 and 5 of the Philippines-Singapore tax treaty provide, to wit: "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. 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; DETACa 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; xxx xxx xxx 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. xxx xxx xxx." Based on the foregoing provisions, a corporation which is a resident of Singapore and does not carry on business in the Philippines through a permanent establishment situated therein shall not be subject to Philippine income tax for profits derived in the Philippines. For this purpose, a Singaporean corporation may be deemed to have a permanent establishment in the Philippines if, among others, the furnishing of services through its employees or other personnel continue for the same or a connected project within the Philippines for a period or periods aggregating more than 183 days. Accordingly, considering that the services under the subject contract are rendered entirely outside the Philippines as represented in the Certification issued by Sharp , this Office is of the opinion and so holds that the service fees to be paid by Sharp to Cread under the subject Agreement shall be exempt from Philippine income tax based on Article 7, in relation to Article 5, of the Philippines-Singapore tax treaty. Similarly, the service fees are not subject to twelve percent (12%) value-added tax (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 of 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%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties: . . . 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 . . ." Section 108 (A) 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 subject services will be done entirely outside the Philippines, the service fees to be paid by Cread to Sharp are 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, (SGD.) CAESAR R. DULAY Commissioner of Internal Revenue