ITAD BIR Ruling No. 211-11

August 15, 2011 ITAD BIR RULING NO. 211-11 Articles 5 and 7, Philippines-Thailand tax treaty; BIR Ruling No. ITAD 159-00; BIR Ruling No. ITAD 030-03; BIR Ruling No. ITAD 083-03; BIR Ruling No. DA-ITAD 157-04 Philippine Polypropylene, Inc. PNOC-AFC Petrochemicals Estate, Brgy. Batangas Dos, Mariveles, Bataan, Philippines Attention: Joel Angelo C. Cruz Corporate Secretary Gentlemen : This refers to your tax treaty application filed on February 28, 2011 requesting confirmation that the service fees payable to IRPC Public Company Limited ("IRPC") by Philippine Polypropylene, Inc. ("PPI") are not subject to income tax in the Philippines pursuant to the Convention between the Government of the Republic of the Philippines and the Government of the Kingdom of Thailand for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income ("Philippines-Thailand tax treaty"). 1 Facts It is represented that IRPC is a corporation duly organized and existing under the laws of Thailand with principal business address at 299 Moo 5 Sukhumvit Road, Tambol Cherng Noen, Amphur Muang, Rayong 21000, Thailand per its Certificate of Incorporation; that it is a fiscal resident of Thailand for purposes of taxation as certified by the Director of the Bureau of Large Business Tax Administration of the Revenue Department of Thailand on November 11, 2010; that it is not registered as a corporation or as a partnership in the Philippines based on the Certification of Non-Registration of Company dated February 21, 2011 issued by the Securities and Exchange Commission; and that PPI, on the other hand, is a domestic corporation duly organized and existing under Philippine laws with office address at PNOC-AFC Petrochemicals Estate, Brgy. Batangas Dos, Mariveles, Bataan. EHSAaD It is further represented that on July 7, 2010, IRPC and PPI entered into a Maintenance, Commissioning and Start Up Service Agreement ("Service Agreement") whereby IRPC will train PPI's engineers and other personnel in IRPC's plant in Thailand and thereafter, during the turnaround and rehabilitation, commissioning and start-up of PPI's facility, IRPC will send its experts or dispatched personnel to provide technical support and advice to PPI for the operation of PPI's polypropylene plant in Mariveles, Bataan; that the training in Thailand will be for the months of August to September 2010; that to provide the technical support for PPI's plant, IRPC will send engineers and technical personnel to PPI's polypropylene plant in Mariveles, Bataan from November 2010 to February 2011 or for less than one hundred eighty-three (183) days for each taxable year as certified by the General Manager of PPI on February 24, 2011; that for and in consideration of the training services to be rendered by IRPC in Thailand, PPI will pay IRPC fixed service fees for training; and that the technical support, advice and services rendered in the Philippines will also be subject to service fees which shall be calculated based on the number of days work performed by the IRPC personnel including overtime pay plus preparation of costs and mobilization expenses. It is finally represented that the transaction subject of the application is not under investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceedings, or judicial appeal, based on the Sworn Statement issued by the General Manager of PPI on February 10, 2011. Ruling In reply, please be informed that Section 14 of Revenue Memorandum Order ("RMO") No. 72-2010 2 which was published in the Manila Bulletin on October 20, 2010, provides that: TAaEIc "SECTION 14. When and Where to File the TTRA. All tax treaty relief applications (updated BIR Forms Nos. 0901-D, 0901-I, 0901-R, 0901-P, 0901-S, 0901-T, 0901-O and 0901-C) relative to the implementation and interpretation of the provisions of Philippine tax treaties shall only be submitted to and received by the International Tax Affairs Divisions (ITAD). If the forms of any necessary documents are submitted to any other BIR office, the application shall be considered as improperly filed. Filing should always be made BEFORE the transaction. Transaction for purposes of filing the TTRA shall mean before the occurrence of the first taxable event. Failure to properly file the TTRA with ITAD within the period prescribed herein shall have the effect disqualifying the TTRA under this RMO." 3 The profits earned by IRPC in the Philippines were for services rendered from November 2010 to February 2011 pursuant to the Service Agreement executed on July 7, 2010. Nonetheless, the TTRA filed for and on behalf of IRPC was filed only on February 28, 2011 or at the end of the agreed date of service and more than 7 months after the execution of the Service Agreement in violation of the foregoing provisions of RMO 72-2010, which categorically mandate the filing of the TTRA before the transaction. In view of the foregoing, the TTRA for the exemption from Philippine income tax of the service fees paid to IRPC by PPI is hereby denied for having been filed beyond the period prescribed by the RMO. This ruling is issued on the basis of the foregoing 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. aETASc Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Signed on July 14, 1982 and effective as of April 11, 1983. 2. Guidelines on the Processing of Tax Treaty Relief Applications ("TTRA") pursuant to existing Philippines Tax Treaties dated August 25, 2010. 3. Emphasis and underscoring supplied.