ITAD BIR Ruling No. 090-12

February 16, 2012 ITAD BIR RULING NO. 090-12 Follosco Morallos & Herce Attorneys at Law Suite 2500, 25th Floor, 88 Corporate Center 141 Valero Street corner Sedeo Street Salcedo Village, Makati City Attention: Atty. Rachel P. Follosco Gentlemen : This refers to your tax treaty relief application ("TTRA") filed on January 17, 2007 requesting confirmation that consultancy fees paid by Imperial Consulting, Inc. ("Imperial Philippines") to Imperial Consulting Group Pte. Ltd. ("Imperial") 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. Imperial is a corporation organized and existing under the laws of Singapore based on the Certificate Confirming Incorporation of a Company issued by the Accounting and Corporate Regulatory Authority of Singapore on May 30, 2005. Imperial is located at 45 Cantonment Road, Singapore. Imperial 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 January 9, 2007. On the other hand, Imperial Philippines is a domestic corporation located at 19th Floor, Philippine Axa Life Center, Sen. Gil Puyat Avenue, Makati City, Philippines. On January 2, 2006, Imperial Philippines and Imperial entered into a Consultancy Agreement where Imperial agreed to render consultancy services to Imperial Philippines by conducting or facilitating the client programs of Imperial Philippines through facilitators, lecturers, resource speakers, or experts designated or chosen by Imperial for this purpose. In consideration, Imperial Philippines shall pay consultancy fees to Imperial as quoted and agreed upon for each specific client program. The fee shall be in United States dollars and payable within ten days from receipt of the corresponding invoice. The Agreement took effect on January 2, 2006 and remained in effect for an initial period of one year, and shall be subject to automatic annual renewal by the parties, unless terminated. DAHaTc Based on the Certification issued by the President of Imperial Philippines on November 23, 2006, Imperial sent or appointed the following personnel to provide consultancy services to Imperial Philippines in 2006: Date Seminar Title Speaker/Trainer Nationality January 29-30 UNILEVER Negotiating to Win Sasheedran Raman Malaysian February 13-14 Managing Chaos: Dynamic time Grace Orena Filipino Management, Recall, Reading and Stress Management for Administrative Professionals February 13-14 UNILAB CLS The Voice of Leadership Beth MacDonald American February 27-28 UNILAB CLS The Voice of Leadership Beth MacDonald American March 8-10 Coaching: A Strategic Tool for Effective Peter Hawe British Leadership March 14-15 How to Communicate with Diplomacy, Grace Orena Filipino Tact and Credibility March 20-21 Fundamentals of Finance and Alfred Chan Singaporean Accounting for Non-Financial Managers March 27-28 UNILAB CLS The Voice of Leadership Beth MacDonald American April 4-5 Moving from an Operational Manager Judy Qua Filipino to a Strategic Thinker May 8-10 UNILAB CLS The Voice of Leadership Beth MacDonald American May 15-17 UNILAB CLS The Voice of Leadership Beth MacDonald American May 23-24 UNILEVER Team Development Rob Schilling American Program June 8-9 UNILEVER Fundamentals of Finance Richard Jacob Malaysian June 20-22 Effective Executive Speaking Dups delos Reyes Filipino July 28-29 GSK Management for New Managers Rob Schilling American August 14-15 UNILAB CLS The Voice of Leadership Beth MacDonald American August 21-24 CITIGROUP Mastering Political Rob Schilling American Alliances August 23-24 Get Sharp: Smarter decision Making Grace Orena Filipino and Critical Thinking for Administrative Professionals August 24-25 Moving from an Operational Manager Dan Lachica Filipino to a Strategic Thinker August 28-29 UNILAB CLS The Voice of Leadership Beth MacDonald American August 31- MERCK People Management Beth MacDonald American September 1 September 11-12 UNILAB CLS The Voice of Leadership Beth MacDonald American September 20 AMA's One Day Sarbanes-Oxley William Bailey British Workshop October 25-26 Greater Productivity through Improved Grace Orena Filipino Work Processes: A Guide for Administrative Professionals October 26-27 UNILEVER Negotiating to Win Sasheedran Raman Malaysian Total: 49 days 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, to wit: "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. cCaATD 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) This decision was upheld by the Supreme Court in a Resolution (G.R. No. 168531) dated February 18, 2008. Furthermore, this requirement 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. 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 Imperial rendered consultancy services to Imperial Philippines from January to October 2006, and the fees therefor were paid in the month following the month when the services are rendered, or at the latest on or before December 31, 2006 , but the subject TTRA was filed on January 17, 2007 , this Office hereby DENIES relief on those fees paid by Imperial Philippines to Imperial in 2006 for having been filed beyond the fifteen-day period required in RMO 1-2000. Accordingly, said consultancy fees shall be subject to income tax at the 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