ITAD Ruling No. 003-04

January 22, 2004 ITAD RULING NO. 003-04 Article 2&3, RP-US tax treaty Section 22, NIRC BIR Ruling No. DA-ITAD-177-03 BIR Ruling No. DA-ITAD-099-03 Phelps Dodge Exploration Corp. Regional Headquarters 7th Floor Legaspi Suites 178 Salcedo Street, Legaspi Village, Makati City, Philippines Attention: Mr. Michael Huenne Authorized Signatory Gentlemen : This refers to your application for a Certificate of Residency dated October 10, 2003. It is represented that Phelps Dodge Exploration Corp. Regional Headquarters (Phelps Dodge for brevity) is a multinational company organized and existing under the laws of the State of Delaware, USA located at 7th Floor Legaspi Suites, 178 Salcedo Street Legaspi Village, Makati City, Philippines, with Taxpayer Identification Number (TIN) 004-832-762 that the Securities and Exchange Commission (SEC) issued a Certificate of Registration and License under SEC License No. FM-132 to Phelps Dodge on January 16, 1996, for the establishment of a regional or area headquarters in the Philippines, pursuant to the Omnibus Investments Code of 1987 and its implementing rules and regulations; and that Phelps Dodge's business involves supervision and coordination of affiliates, branches and subsidiaries. In reply, please be informed that Article 3 of the RP-US tax treaty provides as follows: "Article 3 " FISCAL RESIDENCE "1. In this Convention : a) The term 'resident of the Philippines' means: (i) A Philippine corporation, and (ii) Any other person (except a corporation or any entity treated as a corporation for Philippine tax purposes) resident in the Philippines for purposes of Philippine tax, but in the case of a professional partnership, estate, or trust only to the extent that the income derived by such partnership, estate, or trust is subject to Philippine tax as the income of a resident either in the hands of the respective entity or of its partners or beneficiaries. b) The term 'resident of the United States' means: (i) A United States corporation , and (emphasis supplied) (ii) Any other person (except a corporation or any entity treated as a corporation for United States tax purposes) resident in the United States for purposes of United States tax, but in the case of a partnership, estate, or trust only to the extent that the income derived by such partnership, estate, or trust is subject to United State tax as the income of a resident either in the hands of the respective entity or of its partners or beneficiaries. HEITAD In this connection, Article 2(1)[e](i) of the same treaty provides, viz : "Article 2 " GENERAL DEFINITIONS "1. In this Convention, unless the context otherwise-requires: "xxx xxx xxx" "(e)(i) The term 'United States corporation' means a corporation (or any unincorporated entity treated as a corporation for United States tax purposes) which is created or organized in or under the laws of the United States or any state thereof or the District of Columbia;" Based on the above treaty provisions, the term "resident of the United States''' includes a corporation created or organized in or under the laws of the USA or in any state thereof. As represented by your Office and based on the documents submitted, the fact that Phelps Dodge is organized and existing under the laws of the United States more particularly in the State of Delaware, confirms that Phelps Dodge is a resident of the United States and not of the Philippines. (BIR Ruling No. DA-ITAD-177-03 dated November 24, 2003) It is noteworthy that Phelps Dodge's office in the Philippines and operating therein is merely a regional headquarters of a United States corporation. Under Philippine laws, the term "regional or area headquarters" is within the purview " branch " (Section 22(DD)) 1 of the Tax Code of 1997. The rule shaped out by jurisprudence is that we follow the single entity concept wherein the head office and the branch are considered one and the same juridical personality. The branch is considered a mere extension of the head office. Consequently, Phelps Dodge has no separate and distinct juridical personality from its head office residing in the United States. Accordingly, the tax treatment of Phelps Dodge follows that of its head office and is not in any way affected by the location of its office or operation. (BIR Ruling No. DA-ITAD-99-03 dated July 16, 2003) Such being the case, since Phelps Dodge is a duly registered regional headquarters of a United States corporation and has no separate and distinct personality from the latter, this office is of the opinion and so holds that Phelps Dodge Exploration Corp. Regional Headquarters is within the purview of the term "resident of the United States" under the RP-United States tax treaty and, therefore, a resident of the United States and not of the Philippines. In view thereof, your request for a certificate of residency is hereby denied for lack of legal basis. Any certificate of residency issued in favor of Phelps Dodge is hereby revoked and set aside. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service Footnotes 1. (DD) The term ' regional or area headquarters ' shall mean a branch established in the Philippines by multinational companies and which headquarters do not earn or derive income from the Philippines and which act as supervisory, communications and coordinating center for their affiliates, subsidiaries, or branches in the Asia-Pacific Region and other foreign markets.