ITAD Ruling No. 064-02

April 24, 2002 ITAD RULING NO. 064-02 RP-Singapore Art. 12 (2) (c) Sec. 34 (A) (1) Tax Code of 1997 BIR Ruling No. ITAD 102-00/16-01 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 application for relief from double taxation dated June 8, 1999, on behalf of Jardine Insurance Brokers Pte., Ltd. (JIB) of Singapore, requesting for confirmation of your opinion that the installation fees paid by Jardine Aboitiz Insurance Brokers (JAIB) to JIB are not subject to Philippine income tax, and consequently, to the withholding tax: It is represented that JIB is a limited liability corporation duly organized and existing under the laws of Singapore; that it is not registered either as a corporation or as a partnership licensed to do business in the Philippines per Securities and Exchange Commission certification dated June 28, 1999; that it entered into a Software Installation Agreement with JAIB, a corporation organized and existing under Philippine laws and is primarily engaged in the insurance brokerage business; that the said Software Installation Agreement has complied with Sections 87 and 88 of the Intellectual Property Code on Voluntary Licensing as per Certificate of Compliance No. 5-1999-00040 dated May 21, 1999 and Sept. 2, 1999 issued by the Intellectual Property Office's of the Department of Trade and Industry; that under such agreement JAIB contracted the services of JIB to install the BOSS System Software for JAIB's own use; that the BOSS System is owned by Jardine Lloyd Thompson Asia Pte Ltd. (JLTA), a limited liability corporation duly organized and existing under the laws of Singapore, which granted JAIB a personal, non-transferable, non-assignable and non-exclusive license for its use in the Phils.; that under the agreement, JIB shall provide its appropriate personnel to JAIB who will render initial and continued training and installation support services with respect to the use and operation of the BOSS System and assistance regarding installation and testing of said system; that the training and installation support services will be rendered in accordance with the approved schedule of the licensor (JLTA), which will not exceed a period of 183 days for the entire duration of the Agreement; that in consideration for the training and installation services rendered by JIB, JAIB shall pay JIB an installation fee consisting of the expenses incurred in the provision of such services, excluding the cost of the hardware supplied, and ten (10) percent mark-upon the expenses so incurred. Based on the representations, and pursuant to Article 7(1) in relation to Article 5 of the RP-Singapore tax treaty which respectively provides, viz : "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." aIDHET "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.' 2. The term "permanent establishment" includes specially but is not limited to: "xxx xxx xxx "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. this Office is of the opinion and so holds that the installation fees paid by JAIB to JIB are not subject to income tax and withholding tax considering that JIB's personnel's stay in the Philippines to render installation and support services to JAIB as stipulated in your Software Installation Agreement, shall not exceed 183 days within any twelve month period, and therefore shall not constitute permanent establishment for JIB in the Philippines to which any profits may be attributed to. ( BIR Ruling No. 102-00 and 16-01 ) However, the payments of training and installation fees to JIB for the furnishing of services in the Philippines shall be subject to the ten per cent (10%) value-added tax (VAT) pursuant to Section 108 of the Tax Code of 1997. Accordingly, JAIB being the payor in control of the payment shall be responsible for the withholding of VAT on such fees on behalf of JIB by filing a separate VAT return for on behalf of JIB using BIR Form No. 1600 (Monthly Remittance Return of Value-Added Tax and Other Percentage Taxes Withheld). The duly filed BIR Form 1600 and proof of payment thereof shall serve as sufficient basis for the claim of input tax to be applied against the output tax that may be due from JAIB. In addition, JAIB is required to issue the Certificate of Creditable Tax Withheld at Source (BIR form 2307) in quadruplicate upon request of JIB, the first three copies thereof to be given to JIB and the fourth copy to be retained by JAIB as its file copy. This, ruling is issued on the basis of the foregoing facts as presented. However, if upon investigation, it shall be disclosed that the facts are different, then this ruling shall be considered null and void. EATCcI Very truly yours, (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service