ITAD Ruling No. 042-00

February 10, 2000 ITAD RULING NO. 042-00 RP-Singapore Art. 5 (1) and (2) (j); SEC. 34 (A) (1) 1997 tax code 110-90; 174-92; DA-147-4-7-97 Joaquin Cunanan & Co. 14th Floor Multinational Bancorporation Centre 6805 Ayala Ave., 1226 Makati City Attention: Ms . Mary Assumption S . Bautista Principal, Tax Services Department Gentlemen : This refers to your letter dated June 8, 1999 on behalf of Jardine Lloyd Thompson Pte., Ltd. (JLT) requesting for a confirmation of your opinion that the services paid by Jardine Aboitiz Insurance Brokers, Inc. (JAIB) to JLT are not subject to Philippine income tax and consequently to withholding tax. LexLib It is represented that JLT is a limited liability corporation duly organized and existing under the laws of Singapore; that it is neither registered as a corporation nor as a partnership in the Philippines as per Securities and Exchange Commission's certification dated June 28, 1999; that it entered into a Management Service Agreement with JAIB, a domestic corporation and is primarily engaged in the insurance brokerage business. Under such agreement JLT shall provide for its provision, upon JAIB's request, various management support services which aimed at improving JAIB's insurance brokerage activities in the Philippines. Where portion of the services will have to be rendered in the Philippines through JLT's employees or personnel, it is agreed that such activities will not exceed 183 days during the entire duration of the Agreement. In reply, please be informed that Article 7(1) in relation to Article 5(1) and (2)(j) of the RP-Singapore tax treaty provides: "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." "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. cdll 2. The term permanent establishment includes especially but is not limited to: a) . . . b) . . . c) . . . d) . . . e) . . . f) . . . g) . . . h) . . . i) . . . 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. Accordingly, this Office hereby confirms that the service fees paid by JAIB to JLT are not subject to income tax and withholding tax under the above-mentioned provisions. Further, such fees are considered ordinary and necessary/expenses considering the nature of services rendered under the provision of Chapter VII, Section 34 (A) (1) of the 1997 tax code of the Philippines which reads as follows: "CHAPTER VII (Allowable Deductions) Sec. 34. Deduction from Gross Income Except for taxpayers earning compensation income arising from personal services rendered under an employer-employee relationship where no deductions shall be allowed under this Section other than under Subsection (M) hereof, in computing taxable income subject to income tax under Sections 24 (A); 25(A); 26; 27(A), (B) and (C); and 28(A)(1), there shall be allowed the following deductions from gross income: (A) Expenses (1) Ordinary and Necessary Trade, Business or Professional Expenses xxx xxx xxx" This ruling is being issued on the basis of the foregoing facts as presented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue