ITAD Ruling No. 018-99

August 16, 1999 ITAD RULING NO. 018-99 Art. 14, RP-Japan Art. 14, RP-Korea NNA Philippines Co. Inc. Unit 1814, Cityland Herrera Tower 98 Herrera cor. Valero Sts. Makati City Attention.: Ms . Miriam E . Lecciones Executive Secretary Gentlemen : This refers to your letter dated April 26,1999, requesting for a ruling on the correct tax rate applicable to a Japanese national and a Japan-born Korean who: 1. has temporarily entered the Philippines without a visa under Executive Order No. 408 and rendered professional or skilled services to a domestic multinational company for a fee; 2. has secured an Alien Employment Permit from the Department of Labor and Employment and has been present in the Philippines for an aggregate period of less than 180 days; likewise, the correct tax rate, if they are present in the Philippines for an aggregate period exceeding 180 days; and LexLib 3. has secured both an Alien Employment Permit from the Department of Labor and Employment and 9 g Visa from the Bureau of Immigration and Deportation. In reply, please be informed as follows: 1. Article 14 (1) of the RP-Japan Tax Treaty provides, viz: "Article 14 "1. Income derived by a resident of a Contracting State in respect of professional services or other activities of an independent character shall be taxable only in that Contracting State unless he has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities or he is present in that other Contracting State for a period or periods exceeding in the aggregate 120 days in the calendar year concerned. If he has such a fixed base or remains in that other Contracting State for the aforesaid period or periods, the income may be taxed in that other Contracting State but only so much of it as is attributable to that fixed base or is derived in that other Contracting State during the aforesaid period or periods". prcd Moreover, Article 14(1) of the RP-Korea Tax Treaty provides, viz: "Article 14 Independent Personal Services "1. Income derived by a resident of a Contracting State in respect of professional services or other activities of an independent character shall be taxable in that State. However, such income may be taxed in the other Contracting State: a) if he has a fixed base regularly available to him in that other State for the purpose of performing his activities but only so much of the income as is attributable to that fixed base; or b) if his stay in that other State is for a period or periods aggregating 120 days or more in the calendar year". Such being the case, and since the Japanese national and the Korean national have no fixed base regularly available to them in the Philippines, for the purpose of performing their professional activities, their remuneration or fee received from a domestic multinational company shall be taxable only in Japan and Korea as the case may be. Moreover, if the Japanese and Korean nationals are present in the Philippines for a period or periods aggregating less than 121 days and 120 days, respectively, their remuneration or fee shall likewise be taxable only in Japan and Korea as the case may be. However, if the said nationals are present in the Philippines for a period or periods aggregating 121 days or more for a Japanese and 120 days or more for a Korean, their remuneration or fee shall be subject to tax in the Philippines. They may either be taxed as nonresident alien engaged in trade or business in the Philippines under Section 25 (A)(1) of the Tax Code of 1997 if their stay in the Philippines is for an aggregate period or periods of more than 180 days during any calendar year or as a nonresident alien not engaged in trade or business in the Philippines if their stay is for an aggregate period of 121 days or more for the Japanese and 120 days or more for the Korean but not more than 180 days in a calendar year under Section 25 (B) of the Tax Code of 1997. cdlex 2. Articles 14(1) and also 14(1) of the RP-Japan and RP-Korea Tax Treaties, clearly provide that if the stay of a Japanese and a Korean national in the Philippines is for a period aggregating 121 days and 120 days, respectively, in the calendar year, their remuneration or income in respect of professional services or other activities of an independent character derived in the Philippines shall be taxable in this country. If their stay in the Philippines is for a period or periods aggregating less than 121 days for Japanese and less than 120 days for Korean, in a calendar year, their remuneration or fee in respect of professional services rendered in the Philippines shall be taxable only in Japan or Korea as the case may be. Accordingly, if the Japanese and Korean nationals are present in the Philippines for an aggregate period or periods exceeding 180 days in a calendar year, their income derived in the Philippines shall be subject to tax under Section 25(A)(1) of the Tax Code of 1997. Moreover, if their stay in the Philippines is for an aggregate period or periods of less than 180 days in a calendar year but exceeding 121 days or 120 days as the case may be, their income derived in the Philippines shall be subject to tax under Section 25(B) of the Tax Code of 1997. However, if their stay is for an aggregate period or periods of less than 180 days which is also less than 121 days (Japanese) or 120 days (Korean) in a calendar year, their income derived in the Philippines shall be taxable only in Japan and Korea as the case may be. 3. The taxability of the income derived by a Japanese and a Korean national in the Philippines who have secured an Alien Employment Permit from the Department of Labor and Employment and a Pre-arranged Employment Visa from the Bureau of Immigration and Deportation will depend on their aggregate length of stay in the Philippines during a calendar year pursuant to the RP-Japan and RP-Korea Tax Treaties. prcd Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue