Gorriceta Africa Cauton & Saavedra

March 26, 2018 ITAD BIR RULING NO. 048-18 Articles 5 (Permanent Establishment) and 7 (Business Profits) Philippines- Singapore tax treaty Gorriceta Africa Cauton & Saavedra 15th Floor and 4th Floor, Strata 2000 F. Ortigas Jr. Road Ortigas Center 1605 Pasig City Attention: AAA BBB CCC Gentlemen : This refers to your tax treaty relief application filed on September 27, 2016, on behalf of RP International Resources Pte. Ltd. (" RP Resources "), requesting confirmation that service fees paid by Amdocs Philippines, Inc. (" Amdocs Philippines ") to RP Resources are exempt from 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 RP Resources is a foreign corporation organized and existing under the laws of Singapore and a resident thereof based on the Certificate Confirming Incorporation of Company issued by the Accounting and Corporate Regulatory Authority of Singapore, and the Certificate of Residence issued by the Inland Revenue Authority of Singapore; that RP Resources is a specialist recruiter to global telecommunication, media, and technology industries, and provides specialist executive search, contingent, contract and launch and transformation resource solutions; 1 that it is not registered as a corporation or partnership in the Philippines based on the Certificate of Non-Registration of Company issued by the Securities and Exchange Commission; and that, on the other hand, Amdocs Philippines is a domestic corporation organized and existing under the laws of the Philippines. CScaDH It is also represented that on May 15, 2011, RP Resources and Amdocs Billing Pte. Ltd. (" Amdocs Singapore ") entered into a Professional Services Agreement (" Agreement ") where RP Resources agreed to provide professional services to Amdocs Singapore with regard to specific projects; that procurement by Amdocs Singapore of professional services from RP Resources will be made by placement of professional services orders to the latter; that affiliates of Amdocs Singapore are entitled to place such orders with RP Resources under the terms and conditions of the Agreement; that in consideration, Amdocs Singapore will pay RP Resources in accordance with the actual number of hours of professional services performed by RP Resources ' employees and their rates per hour; that the Agreement takes effect on May 15, 2011 for an initial period of two years; that the Agreement was amended on June 26, 2013 for the purpose of extending the term of the Agreement until May 14, 2014; on May 20, 2014 for the purpose of extending the term until May 14, 2016; and on April 15, 2016 for the purpose of extending the term until May 14, 2018. It is further represented that based on a sworn certification issued by Amdocs Philippines and the work orders placed by Amdocs Philippines with RP Resources , the following employees of RP Resources will be providing services to Amdocs Philippines ; Work Order Name and Nationality Nationality Job Description Beginning Date Ending Date 6765937 DDD Filipino Technology Engineer December 15, 2015 June 12, 2017 7156945 EEE Filipino Radio Frequency Engineering Expert April 4, 2016 April 3, 2017 7156943 FFF Indonesian Radio Frequency Engineering Expert April 4, 2016 April 3, 2017 7156457 GGG Filipino Consultant May 9, 2016 May 8, 2017 7300804 HHH Filipino Technology Specialist June 13, 2016 June 12, 2017 8243438 III Filipino Project Management Office Professional December 12, 2016 June 11, 2018 Based on the work orders, RP Resources (through five Filipinos and one Indonesian) will be providing services for a period of 910 days: 17 days in 2015; 365 days in 2016; 365 days in 2017; and 162 days in 2018. Based on a sworn statement issued by Amdocs Philippines , the income subject of this ruling is not under investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceeding, or judicial appeal. aHSTID RULING In reply, please be informed that under Section 28 (B) (1) of the National Internal Revenue Code of 1997, as amended (" Tax Code "), income derived in the Philippines by a foreign corporation not engaged in trade or business is subject to income tax at the rate of 30%, to wit: " SEC. 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 subparagraph 5 (c) and (d) above: n Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%)." However, under Section 32 (B) (5) of the Tax Code, income is exempt or partially exempt to the extent required by any treaty obligation on the Philippine government, to wit: " SEC. 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." For this purpose, you invoke paragraph 1, Article 7 of the Philippines-Singapore tax treaty, which provides: " 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." Under Article 7, profits derived by an enterprise of a Contracting State in the other Contracting State may be taxed in the other State if the profits are attributable to a permanent establishment situated therein. In relation to a permanent establishment, paragraphs 1 and 2, Article 5 of the treaty provides: " 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 5, a permanent establishment means a fixed place of business through 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, a factory, and a workshop. It includes also the furnishing of services by an enterprise of a Contracting State in the other Contracting State (through employees or other personnel thereof) for a period or period aggregating more than 183 days. Accordingly, since RP Resources (through employees thereof) will be furnishing professional services in the Philippines for more than 183 days, specifically, for 910 days from 2015 to 2018, RP Resources is deemed to have a permanent establishment in the Philippines under paragraph 2 (j), Article 5 of the Philippines-Singapore tax treaty. This being the case, service fees paid by Amdocs Philippines to RP Resources for such rendered in the Philippines are subject to income tax in the Philippines under paragraph 1, Article 7 of the treaty; specifically, the fees are subject to a rate of 30% under Section 28 (B) (1) of the Tax Code. Moreover, since the services are rendered in the Philippines, the service fees paid by Amdocs Philippines to RP Resources are subject to value-added tax (" VAT ") under Section 108 (A) of the Tax Code, to wit: " SEC. 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%) of gross receipts derived from the sale or exchange of services, including the use or lease of properties: Provided, that the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 2006, raise the rate of value-added tax to twelve percent (12%) . . ." Pursuant to Section 4.114-2 of Revenue Regulations No. 16-2005, 2 Amdocs Philippines shall withhold VAT on the fees at the rate of 12% before remitting them to RP Resources . Amdocs Philippines shall use BIR Form No. 1600 (Monthly Remittance Return of Value-Added Tax and Other Percentage Taxes Withheld). The duly filed form and accompanying proof of payment shall serve as documentary substantiation for Amdocs Philippines ' claim of input VAT on the fees; otherwise, if Amdocs Philippines is not a VAT-registered taxpayer, the passed-on VAT shall form part of the cost of purchased services and treated either as an asset or expense, whichever is applicable. VAT withheld shall be remitted within ten days following the end of the month the withholding was made. ISCDEA 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 Footnotes 1. https://www.jobstreet.com.sg/en/companies/668785-rp-international-resources-pte-ltd . 2. Entitled Revenue Regulations No. 16-2005 (Consolidated Value-Added Tax Regulations of 2005) , as amended by Revenue Regulations No. 4-2007 (Amending Certain Provisions of Revenue Regulations No. 16-2005, As Amended, Otherwise Known as the Consolidated Value-Added Tax Regulations of 2005) . n Note from the Publisher: Copied verbatim from the official document.