ITAD BIR Ruling No. 313-14

November 7, 2014 ITAD BIR RULING NO. 313-14 Articles 5 and 7, Philippines-Singapore Tax Treaty Isla Lipana & Co. 29th Floor Philamlife Tower 8767 Paseo de Roxas, Makati City Attention: Brando C. Cabalsi Gentlemen : This refers to your tax treaty relief application filed on August 23, 2012, on behalf of APL Logistics Ltd. ("APL SG"), requesting confirmation that payments to be made by APL Logistics Philippines, Inc. ("APL PH") are not subject to income tax in the Philippines 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 ("Philippines-Singapore tax treaty"). It is represented that APL SG is a resident of Singapore with principal address at 456 Alexandra Road #06-00 NOL Building, Singapore, based on the Certificate of Residence issued by the Assistant Commissioner of the Corporate Tax Division of the Inland Revenue Authority of Singapore on July 27, 2012; that APL SG is not registered either as a corporation or as a partnership in the Philippines, as shown in the Certification of Non-Registration of Company dated July 3, 2012 issued by the Securities and Exchange Commission; and that on the other hand, APL PH is a domestic corporation with principal address at the 9th Floor, North Quadrant, One E-Com Center, Harbor Drive, Mall of Asia Complex, Pasay City. It is further represented that on January 1, 2009, APL SG and APL PH entered into an APL Logistics Ltd Consolidation Services Agreement ("Agreement") whereby APL SG agreed to provide APL marketing and selling services for cargoes being shipped around the world, cargo consolidation, deconsolidation, freight forwarding, documentation, drayage and warehouse services, among others; that for and in consideration of the same, APL SG shall pay APL PH service fee equivalent to base costs plus a five percent mark-up; that an initial or partial remittance made by APL PH to APL SG on September 17, 2012 based on the Affidavit executed by the Controller of APL PH on September 21, 2012; and that pursuant to said Agreement, APL SG will not send any personnel or employee in the Philippines during the entire duration of the Agreement based on the Certification executed by the Controller of APL PH on September 21, 2012. HcTEaA It is finally represented that the income payments subject of this ruling are 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 executed by the Controller of APL PH on July 31, 2012. In reply, please be informed that Section 28 (B) (1) of the National Internal Revenue Code (Tax Code) of 1997, as amended, applies, in general, to income derived in the Philippines by a non-resident foreign corporation: "Section 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): n Provided, That effective January 1, 2009, the rate of income tax shall be thirty percent (30%). xxx xxx xxx" However, Section 32 (B) (5) of the Tax Code of 1997, as amended, provides: "Section 32. Gross Income. xxx xxx xxx (B) Exclusions from Gross Income. The following items shall not be included in gross income and shall be exempt from taxation under this Title: xxx xxx xxx (5) Income Exempt under Treaty. Income of any kind, to the extent required by any treaty obligation binding upon the Government of the Philippines. SacTAC xxx xxx xxx" As you have invoked the provisions of the Philippines-Singapore tax treaty, we apply Article 7 and, in relation thereto, Article 5 of the same tax treaty on the subject fees, which provide: "Article 7 Business Profits 1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on or has carried on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment. xxx xxx xxx" "Article 5 Permanent Establishment 1. For the purposes of this Convention, the term 'permanent establishment' means a fixed place of business in which the business of the enterprise is wholly or partly carried on. 2. The term 'permanent establishment' includes specially but is not limited to: a) A seat of management; b) A branch; c) An office; d) A store or other sales outlet; e) A factory; f) A workshop; g) A warehouse, in relation to a person providing storage facilities for others; h) A mine, quarry, or other place of extraction of natural resources; i) A building site or construction or assembly project or installation project or supervisory activities in connection therewith, provided such site, project or activity continues for a period more than 183 days; and j) The furnishing of services, including consultancy services, by a resident of one of the Contracting States through employees or other personnel, provided activities of that nature continue (for the same or a connected project) within the other Contracting State for a period or periods aggregating more than 183 days. ADaEIH xxx xxx xxx ." (Underscoring supplied) Based on the aforequoted, the profits of a Singapore enterprise shall be taxable only in Singapore unless such enterprise carries on business in the Philippines through a permanent establishment situated therein. If the Singapore enterprise carries on business as aforesaid, the profits of such enterprise may be taxed in the Philippines but only so much of them as is attributable to that permanent establishment. Applying this to the instant case, the fees received by APL SG from APL PH for the services pursuant to the Agreement, shall be taxable in the Philippines only if it has a permanent establishment in the Philippines in connection with the activities giving rise to such income. Inasmuch as it is represented that the services shall not be performed in the Philippines for the entire duration of the Agreement based on the Certification executed by the Controller of APL PH on September 21, 2012, then APL SG is deemed not to have a permanent establishment in the Philippines to which payment of the service fees may be attributed and is therefore exempt from Philippine income tax. This ruling is issued on the basis of the 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. HTASIa Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner Bureau of Internal Revenue Footnotes n Note from the Publisher: The phrase "and (d) above" no longer appears in RA 9337, the law amending this provision.