ITAD BIR Ruling No. 216-12

May 29, 2012 ITAD BIR RULING NO. 216-12 Sycip Gorres Velayo and Co . 6760 Ayala Avenue 1226 Makati City Attention: Antonette C. Tionko Tax Services Gentlemen : This refers to your tax treaty relief application ("TTRA") filed on August 27, 2009 requesting confirmation that service fees paid by Quezon Power (Philippines) Limited Company ("Quezon Power") to Engineered Products and Services Pte. Ltd. ("Engineered Products") 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. Facts Engineered Products is a corporation organized and existing under the laws of Singapore based on its Memorandum and Articles of Association. Engineered Products is situated at 9 Benoi Sector, Level 4, Singapore. Engineered Products is not registered as a corporation or partnership in the Philippines based on the Certification of Non-Registration of Corporation issued by the Securities and Exchange Commission on January 9, 2009. On the other hand, Quezon Power is a domestic partnership situated at 62 H. dela Costa, Barangay Daungan, Mauban, Quezon, Philippines. Quezon Power, through its duly authorized representative, Covanta Philippines Operating, Inc. ("Covanta"), issued the following purchase orders to Engineered Products which called for the latter to provide services to Quezon Power in the Philippines: Purchase Date Scope of Work Amount Order No. (in US Dollars) CPO10607212 July 25, 2006 Water treatment 1,000.00 CPO10708151 August 14, 2007 Ammonia breakthrough project 12,500.00 CPO10709243 October 2, 2007 Resins (cat-ion and an-ion) analysis 9,000.00 including sampling CPO10712141 December 13, Replacement of worn-out resins for 6,500.00 2007 polisher system CPO10804184 April 21, 2008 Relining of resin separation tank, cat- 33,000.00 ion regeneration tank and an-ion regeneration tank and additional work on polishers CPO10805287 May 24, 2008 Relining of resin separation tank, cat- 2,800.00 ion regeneration tank and an-ion regeneration tank and additional work on polishers CPO10805317 May 28, 2008 Relining of resin separation tank, cat- 6,900.00 ion regeneration tank and an-ion regeneration tank and additional work on polishers CPO10811137 November 12, Water treatment 6,500.00 2008 Based on the Commercial Invoices issued by Engineered Products, the service fees for the above works were also paid in the same year in 2006, 2007 and 2008. AcDaEH Ruling In reply, 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 relief shall be preceded by an application filed at the International Tax Affairs Division ("ITAD") of this Bureau at least fifteen days before the intended transaction or payment of income subject of the TTRA, 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 is 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) This decision is upheld by the Supreme Court in a Resolution (G.R. No. 168531) dated February 18, 2008. Furthermore, the necessary 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. 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 services covered by the Purchase Orders and the Commercial Invoices were performed in 2006, 2007 and 2008 and service fees therefor were paid in the same years also, but since the subject TTRA was filed on August 27, 2009, this Office hereby DENIES relief on such fees for having the TTRA filed beyond the prescribed period of at least fifteen days before the payment of the income, as required in Section III (2) of RMO 1-2000. Accordingly, said fees paid by Quezon Power to Engineered Product s 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: ETaHCD "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