ITAD Ruling No. 042-05

May 11, 2005 ITAD RULING NO. 042-05 Article 14, Philippines-Norway tax treaty; Sections 25 (A) (1) and 51 (A) (1) (d) of the Tax Code of 1997 Norconsult Management Services Phils., Inc. Unit 506, East Tower, Philippine Stock Exchange Centre Exchange Road, Ortigas Center, Pasig City 1605 Attention: Mr. Age Cato Skinnes Kristiansen Gentlemen : This refers to your letter dated March 18, 2005, filed on behalf of Mr. Age Cato Skinnes Kristiansen, requesting for a ruling that the remuneration paid by Norconsult Management Services Phils., Inc. to Mr. Kristiansen for the latter's work to the former as an Independent Certification Engineer for the North Luzon Tollway Project, is subject to Philippine withholding tax on income, pursuant to the Philippines-Norway tax treaty. It is represented that Norconsult Management Services Phils., Inc. (Norconsult Phils.) is a domestic corporation organized and existing under Philippine laws with business address at Unit 506, East Tower, Philippine Stock, Exchange Centre, Exchange Road, Ortigas Center, Pasig City 1605; that on February 12, 2003, Norconsult Phils. executed a Contract of Employment with Mr. Age Cato Skinnes-Kristiansen, a Norwegian with Alien Certificate of Registration No. E289673; that Mr. Kristiansen is employed as a Senior Highway Engineer/Deputy Project Manager on the North Luzon Tollway Project (NLTP) Independent Design Checker and Independent Certification Engineer (IDC/ICE); that the duration of employment is "not expected to be for a period less than 22 months", 1 the effective starting date thereof is February 14, 2003; that Mr. Kristiansen will be paid a monthly remuneration in the total sum of NOK 55,322 comprising of basic salary NOK 38,850.00 plus overseas allowance NOK 16,472.00; that his stay in the Philippines exceeded 183 days in the twelve-month period for the year 2003; that the Assistant Revenue District Officer of Revenue Region No. 8, Revenue District Office No. 47, East Makati, Bureau of Internal Revenue, issued a Certification that Mr. Kristiansen has a taxable compensation income of Four Million Three Hundred Forty-Two Thousand Two Hundred Seven Pesos and 21/100 (P4,342,207.21); (that he has paid in full the withholding tax due on his income in the total amount of One Million Three Hundred Fifty-Four Thousand Five Hundred Six Pesos and 31/100 (P1,354,506.31); that as reflected in the Certificate of Compensation Payment/Tax Withheld (BIR Form No. 2316) for the year 2004, Mr. Kristiansen has a taxable compensation income of Five Million Six Hundred Ninety-One Thousand Four Hundred Forty-Seven Pesos and 57/100 (P5,691,447.57); that he has paid in full the withholding tax due on his income in the total amount of One Million Seven Hundred Eighty-Six Thousand Two Hundred Sixty-Three Pesos and 22/100 (P1,786,263.22); that Mr. Kristiansen and Norconsult Phils. executed a Joint Certification dated February 29, 2005 pursuant to the provisions of Revenue Regulations No. 2-98, as amended, which permits employees qualified under said Regulations not to file BIR Form No. 1700 (Annual Income Tax Return for Individuals Earning Purely Compensation Income); that in filing his tax declaration forms in Norway, the Tax Department of the Norwegian government requires him to submit an official certification confirming that he has paid taxes due in the Philippines, thus, this request for ruling. In reply, please be informed that Article 14 of the Philippines-Norway tax treaty provides as follows: "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 only in that State unless: a) he has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities. If he has such a fixed base, the income may be taxed in the other Contracting State but only so much of it as is attributable to that fixed base; or b) he is present in the other State for a period or periods exceeding in the aggregate 183 days in any twelve-month period in which case the income derived by the individual during such a period or periods may be taxed in the other State. However, to the extent the abovementioned remuneration is not taxed in the State where the recipient is a resident the remuneration may be taxed in the other State. 2. The term `professional services' includes especially independent scientific, literary artistic, educational or teaching activities as well as the independent activities of physicians, lawyers, engineers, architects, dentists and accountants. HCTDIS xxx xxx xxx" Based on the aforequoted provision, it is clear that a resident of Norway who renders professional services in the Philippines may not be taxed on income derived from such services if he has no fixed base in the Philippines regularly available to him for purposes of rendering his services or if he is present in the Philippines for less than or equal to 183 days in a taxable year. Such being the case, since Mr. Kristiansen's aggregate length of stay in the Philippines exceeds 183 days for taxable years 2003 and 2004, this Office is of the opinion and so holds that his income derived as a Senior Highway Engineer/Deputy Project Manager of the tollway project from Norconsult Phils. shall be subject to Philippine income tax, and consequently, withholding tax, pursuant to the Philippines-Norway tax treaty. For taxation purposes, therefore, he shall be treated as a " nonresident alien doing business in the Philippines " under Section 25(A)(1) of the National Internal Revenue Code of 1997, and thus, shall be subject to tax in the same manner as an individual Filipino citizen and individual resident alien on taxable income received from all sources within the Philippines. Accordingly, the amount withheld from his income by Norconsult Phils. shall be constituted as the full and final payment of the income tax due therefrom pursuant to Section 51(A)(1)(d) and Section 4 of Revenue Regulations (RR) No. 3-2002. 2 In view thereof, this Office is of the opinion and so holds that the income of Mr. Kristiansen is subject to Philippine income tax pursuant to Article 14 paragraph (1)(b) of the Philippines-Norway Tax Treaty. Tax withheld on Mr. Kristiansen's income is evidenced by the duly accomplished Certificates of Compensation Payment/Tax Withheld (BIR Form No. 2316) for taxable years 2003 and 2004. This ruling is issued on the basis of the facts as represented. However, if upon investigation it shall be disclosed that the facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service Footnotes 1. Contract of Employment between Norconsult Management Services Phils., Inc. and Mr. Age Cato Skinnes-Kristiansen dated February 12, 2003. 2. Revenue Regulations (RR) No. 3-2002 Amending Section 2.58 and further amending Sec. 2.83 of RR No. 2-98 as Amended, Relative to the Submission of the Alphabetical List of Employees/Payees in Diskette Form and the Substituted Filing of Income Tax Returns of Employees/Payees Receiving Purely Compensation Income from Only One Employer for One Taxable Year Where Tax Due is Equal to Tax Withheld and Individual Payee Whose Compensation Income is Subject to Final Withholding Tax.