ITAD BIR Ruling No. 056-12

February 15, 2012 ITAD BIR RULING NO. 056-12 Ibiden Philippines, Inc. First Philippine Industrial Park Barangay Sta. Anastacia, Sto. Tomas Batangas Attention: Ms. Shinichi Sugamata Group Manager Gentlemen : This refers to your Tax Treaty Relief Application ("TTRA") filed on April 29, 2010 requesting confirmation that service fees paid by IBIDEN PHILIPPINES, INC. ("Ibiden") to JIPM-SOLUTIONS CO., LTD. ("JIPM Solutions"), under a Total Productive Maintenance Consulting Agreement effective January 1 to December 31, 2008 are exempt from income tax, pursuant to the Convention between the Republic of the Philippines and Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income. 1 Pursuant to the Agreement, JIPM solution has sent its personnel, Mr. Shigeji Hiraga, to the Philippines to provide services to Ibiden on August 10-22, September 14-20, October 12-24, November 12-20 and December 8-20, 2008, for a total of 55 days. JIPM solutions shall issue an invoice for the service fees for each month and Ibiden shall pay the fees within 30 days after it received invoice. Relative thereto, please be informed that under Section III (2) of Revenue Memorandum Order No. 1-00 (Procedures for Processing Tax Treaty Relief Application) ("RMO 1-2000"), any availment of tax treaty relief (exemption from income tax or reduction of tax) shall be preceded by an application filed at the International Tax Affairs Division ("ITAD") of this Bureau at least 15 days before the intended transaction or payment of income, thus: "III. Policies: In order to achieve the above-mentioned objectives, the following policies shall be observed: DcCHTa xxx xxx xxx 2. Any availment of the tax treaty relief shall be preceded by an application by filing BIR Form No. 0901 (Application for Relief from Double Taxation) with ITAD at least 15 days before the transaction i.e., payment of dividends, royalties, etc., accompanied by supporting documents justifying the relief. . ." (Emphasis ours) This condition was emphasized by the Court of Tax Appeals in Mirant (Philippines) Operations Corporation vs. Commissioner of Internal Revenue (C.T.A. Case No. 6382 dated June 7, 2005) where it ruled: "However, it must be remembered that a foreign corporation wishing to avail of the benefits of the tax treaty should invoke the provisions of the tax treaty and prove that indeed the provisions of the tax treaty applies to it, before the benefits may be extended to such corporation. In other words, a resident or non-resident foreign corporation shall be taxed according to the provisions of the National Internal Revenue Code, unless it is shown that the treaty provisions apply to the said corporation, and that, in cases the same are applicable, the option to avail of the tax benefits under the tax treaty has been successfully invoked. Under Revenue Memorandum Order 01-2000 of the Bureau of Internal Revenue, it is provided that the availment of a tax treaty provision must be preceded by an application for a tax treaty relief with its International Tax Affairs Division (ITAD). This is to prevent any erroneous interpretation and/or application of the treaty provisions with which the Philippines is a signatory to. The implementation of the said Revenue Memorandum Order is in harmony with the objectives of the contracting state to ensure that the granting of the benefits under the tax treaties are enjoyed by the persons or corporations duly entitled to the same. The Court notes that nowhere in the records of the case was it shown that petitioner indeed took the liberty of properly observing the provisions of the said order. Petitioner quotes various BIR, as well as ITAD, Rulings issued to several foreign corporations seeking for a tax relief from the office of the respondent. However, not any one of these rulings pertains to the petitioner. It must be stressed that BIR rulings are issued based on the facts and circumstances surrounding particular issue/issues in question and are resolved on a case-to-case basis. It would be thus erroneous to invoke the ruling of the respondent in specific cases, which have no bearing to the case of petitioner." (Emphasis ours) CDHacE This decision was also upheld by the Supreme Court in a Resolution (G.R. No. 168531) dated February 18, 2008. Furthermore, the necessary requirement laid down in RMO 1-2000 is reiterated in subsequent rulings of the Court of Tax Appeals: Deutsche Bank AG Manila Branch vs. Commissioner of Internal Revenue (C.T.A. Case No. EB 456 dated May 29, 2009), CBK Power Company Ltd. vs. Commissioner of Internal Revenue (C.T.A. Case Nos. 6699, 6884 and 7166 dated March 29, 2010) and Manila North Tollways Corporation vs. Commissioner of Internal Revenue (C.T.A. Case No. 7864 dated April 12, 2011). In view of the foregoing, since the service performed by JIPM solutions in the Philippines in August, September, October, November and December 2008, and since under the Agreement, Ibiden shall pay the services for each month within 30 days from the receipt of the invoice or at the most in the first quarter of 2009, but since the TTRA for this purpose was filed only on April 29, 2010, this Office hereby DENIES the TTRA for having been filed beyond the 15-day period prescribed in the RMO. Consequently, such fees shall be subject to income tax rate at the rate of 35 percent prior to 2009 under Section 28 (B) (1) of the National Internal Revenue Code, as amended. Please be guided accordingly. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. As amended by the Protocol Amending the Convention between the Republic of the Philippines and Japan for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income effective January 1, 2009 .