ITAD BIR Ruling No. 166-11

May 27, 2011 ITAD BIR RULING NO. 166-11 Revenue Bulletin No. 1-2003 (No-ruling areas 001) Isla Lipana & Co. 29th Floor Philamlife Tower 8767 Paseo de Roxas 1226 Makati City Attention: Alexander B. Cabrera Managing Partner Tax Services Gentlemen : This refers to your letter on behalf of your client, Philip Morris Philippines Manufacturing, Inc. (PMPMI), dated November 16, 2009, which was received by this Office on January 12, 2010, requesting for confirmation: 1. That Philip Morris International Management S.A. (PMIM) will not have a permanent establishment (PE) in the Philippines on account of maintenance of tobacco leaf inventory in Subic, pursuant to Article 5 of the Philippines-Switzerland tax treaty; and 2. That the payments to be made by PMPMI to PMIM as consideration for the purchase of tobacco leaf are exempt from Philippine income tax and, consequently, from withholding tax pursuant to Article 7 (1) in relation to Article 5 of the Philippines-Switzerland tax treaty. In reply, please be informed that Section 2 (t) of Revenue Bulletin 1-2003 dated July 14, 2003, provides as follows: "Section 2. List of No-ruling Areas. The following shall be construed and identified as 'No-ruling Areas': xxx xxx xxx t) Request for rulings on issue/s or transactions based on hypothetical situations ; (Emphasis ours) IEHSDA Based on the above, Application of Tax Treaty Relief which is based on hypothetical situation would fall under "No-Ruling Areas". Moreover, Section 1 of the same Revenue Bulletin provides that: ". . ., the ruling function need not be exercised where the law, rule or regulation is clear, thereby dispensing with the need for the interpretation thereof. Accordingly, this Revenue Bulletin is issued for the purpose of declaring certain issues or subject matter as 'No Ruling Areas', on which the appropriate office of the Bureau is hereby instructed not to accept any request for rulings covered by this Revenue Bulletin or any amendment thereto." In view of thereof, since your request evidently falls within the cases covered by Section 2, particularly paragraph (t) of Revenue Bulletin 1-2003, inasmuch as it is based on situations which are yet to happen ( i.e. , a warehouse facility still to be constructed; services which will still be engaged), hence, hypothetical, this Office declines to issue the requested confirmatory ruling. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue