ITAD BIR Ruling No. 366-12

October 24, 2012 ITAD BIR RULING NO. 366-12 Sycip Gorres Velayo and Co. 6760 Ayala Avenue 1226 Makati City Attention: Antonette C. Tionko Partner, Tax Services Gentlemen : This refers to your tax treaty relief application ("TTRA") filed on September 9, 2009 requesting confirmation that service fees paid by Quezon Power (Philippines) Limited Company ("Quezon Power") to Medina International Corporation ("Medina") are exempt from income tax pursuant to the Convention between the Government of the Republic of the Philippines and the Government of the United States of America with Respect to Taxes on Income . Medina is a United States corporation located at 10204 Khyber Road, El Paso, Texas, United States. Medina is not registered as a corporation or partnership in the Philippines. On the other hand, Quezon Power is a domestic partnership located at 62 H. dela Costa, Barangay Daungan, Mauban, Quezon, Philippines. Quezon Power (through its authorized representative, Covanta Philippines Operating, Inc. ) issued the following purchase orders which called for Medina to provide services to Quezon Power at its coal-powered electric generation facility in the Philippines, to wit: Purchase Order No. Period Covered Services Estimate Service Fee (in US Dollars) CPOI0510197 January 15-28, 2006 Study for the repair of 20,000.00 the stacker and reclaimer rail CPOI0510199 July 24-29, 2006 Study for the repair of 19,000.00 the stacker and reclaimer rail CPOI0612140 July 24-29, 2006 Study for the repair of 14,196.19 the stacker and reclaimer rail CPOI0612141 September 10-16, 2006 Study for the repair of 21,320.00 the stacker and reclaimer rail CPOI0701175 August 24- Material estimate and 21,800.00 September 1, 2007 specification for Study for the repair of the stacker and reclaimer rail, and study for sea water intake. CPOI0701176 August 24- Material estimate and 20,800.00 September 1, 2007 specification for Study for the repair of the stacker and reclaimer rail, and study for sea water intake. CPOI0712185 August 24- Material estimate and 3,664.51 September 1, 2007 specification for Study for the repair of the stacker and reclaimer rail, and study for sea water intake. CPOI0708259 August 24- Material estimate and 14,500.00 September 1, 2007 specification for Study for the repair of the stacker and reclaimer rail, and study for sea water intake. CPOI0812189 January 4-10, 2009 Design, specification 53,000.00 and construction increase in height of coal yard embarkment. Based on the invoices issued by Medina thereafter, the service fees for services rendered by Quezon Power in 2006 and 2007 were also paid in the same years. The service fees for services rendered on January 4-10, 2009 were paid in installments on January 15, 2009 ($15,000.00),March 3, 2009 ($10,998.96) and April 6, 2009 ($7,700.00). CDHAcI 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 . AIaSTE 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 Resolution G.R. No. 168531 on 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 service fees subject of the Purchase Orders and the Invoices were paid in 2006, 2007 and on January 15, 2009, March 3, 2009 and April 6, 2009 ,but the TTRA for this purpose was filed only on September 9, 2009 ,this Office hereby DENIES relief on all fees paid by Quezon Power to Medina for having the TTRA filed beyond the prescribed period of filing, which should be at least fifteen days before the intended payment of income , under Section 111 (2) of RMO 1-2000. Accordingly, said fees paid shall be subject to income tax 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%)." CETIDH Please be guided accordingly. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue