ITAD Ruling No. 030-01

March 13, 2001 ITAD RULING NO. 030-01 Sections 5 & 7, RP-Australia Tax Treaty BIR Ruling No. ITAD 2 - 00 Peter Wallace President The Economist Intelligence Unit Philippines, Inc. 14th Floor, Sagittarius Building H.V. de la Costa Street, Salcedo Village Makati City S i r : This refers to the application for relief from double taxation dated June 15, 1999 of Mr. Paul Anderson, Manager for Finance and Legal, Geothermal Engineering International Pty. Ltd. (GEI) and your follow-up letter dated June 5, 2000, requesting on behalf of the GEI for a tax refund, representing the tax withheld by ABS-CBN Broadcasting Corporation (ABS-CBN), pursuant to the RP-Australia Tax Treaty. It is represented that GEI is a corporation organized and existing under the laws of Australia and is not registered as a corporation or partnership licensed to do business in the Philippines as per Certification of Non-Registration of Corporation / Partnership dated July 26, 2000 issued by the Securities and Exchange Commission; that GEI is an engineering consultancy firm providing services internationally and domestically; that ABS-CBN is a corporation organized and existing under the laws of the Philippines; that GEI entered into multiple contracts (for energy audit, schematic design, design documentation, etc.) with ABS-CBN relative to the ABS-CBN Project 9501 Building ; that pursuant to said contracts, GEI rendered said services, beginning March 1996 until October 1999; that GEI sent, during the said period, its staff to Manila; that the duration of each visit did not last for more than four (4) days per visit; that collectively, within any particular year, the visits did not exceed one (1) month; that all the design work was done by GEI in Australia; that the purpose of the visits were to discuss either client's requirements or completed designs; that no office was provided for said GEI staff as all meetings were held either at the office conference rooms or at the Robinson's Galleria Suites conference center; that in consideration of said services, ABS-CBN periodically paid service fees upon being billed by GEI; and that ABS-CBN withheld taxes thereon at five-percent (5%). In reply, please be informed that paragraph (1) of Article 7 of the RP-Australia Tax Treaty provides as follows: "ARTICLE 7 "Business Profits "(1) The profits of an enterprise of one of the Contracting States 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 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 (a) that permanent establishment; or (b) sales within that other Contracting State of goods or merchandise of the same or a similar kind as those sold or other business activities of the same or a similar kind as those carried on through that permanent establishment if the sale or the business activities had been made or carried on in that way with a view to avoiding taxation in that other State." Moreover, Article 5 of the same Tax Treaty provides, viz : "ARTICLE 5 "Permanent Establishment "(1) For the purposes of this Agreement, the term 'permanent establishment' means a fixed place of business through which the business of an enterprise is wholly or partly carried on. "(2) The term permanent establishment 'shall include especially (a) a place of business; (b) a branch; (c) an office; (d) a factory; (e) a workshop; (f) a mine oil or gas well, quarry or other place of extraction of natural resources; (g) an agricultural, pastoral or forestry property; (h) a building site or construction installation or assembly project or supervisory activities in connection therewith where such site project of activity continues for more than six months; (i) premises used as a sales outlet; (j) a warehouse, in relation to a person providing storage facilities for others; (k) a place in one of the Contracting States through which an enterprise of the other Contracting State furnishes services, including consultancy services, for a period or periods aggregating more than six months in any taxable year or year of income, as the case may be, in relation to a particular project, or to any project connected therewith. xxx xxx xxx Based on the foregoing provisions, the profits of a corporation which is a resident of Australia is taxable only in Australia, unless the Australian corporation carries on business in the Philippines through a permanent establishment situated therein. An Australian corporation may be deemed to have a permanent establishment in the Philippines if, among others, it furnishes services in the latter through its employees or personnel for a period or periods aggregating more than six months in any taxable year, in relation to a particular project, or to any project connected therewith. Considering that the services rendered by GEI in ABS-CBN Project 9501 Building did not exceed a period of six months, GEI cannot be considered to have had a permanent establishment in the Philippines. (BIR Ruling ITAD No. 2 - 00) Such being the case, the service fees paid by ABS-CBN to GEI are not subject to Philippine income tax, pursuant to the RP-Australia tax Treaty. This ruling is issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal and Inspection Group