ITAD BIR Ruling No. 086-12

February 16, 2012 ITAD BIR RULING NO. 086-12 Pan Century Surfactants, Inc. Barangay Osmea, Jose Panganiban Camarines Norte Attention: Ms. Mary Dina Tacbianan Commercial Manager Gentlemen : This refers to your Tax Treaty Relief Application ("TTRA") filed on July 26, 2007 , requesting confirmation that service fees paid by Pan Century Surfactants, Inc. ("Pan Century") to Diesel Technology Pvt. Ltd. ("Diesel Technology") are exempt from income tax pursuant to the Convention between the Republic of the Philippines and the Republic of India for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income. Diesel Technology is a corporation organized and existing under the laws of India as evidenced by its Memorandum of Association and by the Certificate of Incorporation issued on April 18, 2006 by the Assistant Registrar of Companies in Maharashtra, Mumbai in India. Diesel Technology is situated at Plot R-5, TCC Industrial Area, Rabale MIDC, Navi Mumbai 400 701, India. Diesel Technology is not registered as a corporation or partnership in the Philippines based on the Certificate of Non-Registration of Corporation/Partnership issued by the Securities and Exchange Commission on April 11, 2007. On the other hand, Pan Century is a domestic corporation situated at Barangay Osmea, Jose Panganiban, Camarines Norte, Philippines. On October 19, 2006, Pan Century and Diesel Technology entered into Contract No. WO 421 where Pan Century agreed to supervise and control the dismantling, installation and commissioning of work of Wartsila 9R 32 Engine Diesel Generator Set along with its auxiliaries and accessories which was shifted from Laguna to Pan Century' s site in Jose Panganiban, Camarines Norte, Philippines. In consideration, Pan Century will pay service fees to Diesel Technology equivalent to US$150.00 per day and made every two weeks on a progressive basis. Based on the Sworn Statement issued by Pan Century on August 2, 2007, the project lasted for four months, from October 11, 2006 to February 15, 2007. EcAISC 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: 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. CSEHIa 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 hearing to the case of petitioner." (Emphasis ours) This decision was upheld by the Supreme Court in a Resolution (G.R. No. 168531) dated February 18, 2008. Furthermore, the necessary requirement 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, 6844 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 project involving the supervision, control, dismantling, installation and commissioning of the diesel generator set was carried out by Diesel Technology from October 11, 2006 to February 15, 2007 , and the service fees therefor were paid every two weeks on a progressive basis, and at the latest, on February 28, 2007 , but the subject TTRA was filed on July 26, 2007 , this Office hereby DENIES the TTRA for having been filed beyond the fifteen-day period prescribed in the RMO. Accordingly, the services fees paid by Pan Century to Diesel Technology shall be subject to the income tax rate of 35 percent under Section 28 (B) (1) of the National Internal Revenue Code of 1997, as amended, 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: Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%)." Please be guided accordingly. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue