ITAD Ruling No. 070-01

August 16, 2001 ITAD RULING NO. 070-01 RP-Singapore, Art. 5 & 7 BIR Ruling No. ITAD-144-00 Pricon Microelectronics, Inc. 1st Ave. Cor. Antonio St., Maalac Industrial Estate Km. 16, East Service Road, South Expressway Taguig, Metro Manila Attention: Alfredo C. Pacho President Gentlemen : This refers to your letter dated March 23, 2001 relative to your request for a ruling whether the income derived by SB Leasing Singapore Pte. Ltd. (SB Leasing) from its sale of one complete line of surface mount machines to Pricon Microelectronics, Inc. (Pricon), is exempt from Philippine taxes pursuant to the RP-Singapore Tax Treaty. It is represented that SB Leasing is a corporation organized and existing under the laws of Singapore with principal office address at 1, Shenton Way #19-05, Singapore 068803; that it is not registered as a corporation/partnership licensed to do business in the Philippines per certification dated June 21, 2000 issued by the Securities and Exchange Commission (SEC); that Pricon is a corporation organized and existing under the laws of the Philippines and is primarily engaged in the manufacture and export of electronic and telecommunications products; that on November 2, 2000, SB Leasing and Pricon executed a Deed of Sale whereby the former conveyed to the latter one complete line of surface mount machines enumerated in the said deed; and that in consideration for the aforementioned; machines, Pricon shall pay SB Leasing a fee in the amount of Two Million Eight Thousand Nine Hundred and Eighty Five U.S. Dollars and Ninety Five Cents (US$2,008,985.95) payable in installment. In reply, please be informed that Article 7 of the RP-Singapore Tax Treaty provides as follows: " 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 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. "xxx xxx xxx" Moreover, Article 5 of the above treaty provides: " 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: SEAHID a) A seat of management; b) A branch; c) An office; d) A store or other sales outlet; e) A factory; f) A workshop; g) A warehouse, in relation to a person providing storage facilities for others: h) A mine, quarry, or other place of extraction of natural resources; i) A building site or construction or assembly project or installation project or supervisory activities in connection therewith, provided such site, project or activity continues for a period more than 183 days; and 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." "xxx xxx xxx" Based on the aforequoted provisions, it is clear that if a corporation which is a resident of Singapore carries on business in the Philippines through a permanent establishment situated therein, the profits of the same shall be subject to Philippine income tax, but only so much of them as is attributable to that permanent establishment. For this purpose, a corporation which is a resident of Singapore may be deemed to have a permanent establishment in the Philippines if; among others, it has a seat of management or a branch, a factory, an office, a store or a sales outlet in the sale of its goods in the Philippines. Considering that SB Leasing does not carry on business in the Philippines as aforesaid, as evidenced by the certificate of non-registration of corporate/partnership issued by the SEC, it is deemed not to have a permanent establishment in the Philippines to which its business profits may be attributed to. Therefore, the income derived by SB Leasing from the sale of one complete line of surface mount machines to Pricon is not subject to Philippine tax pursuant to Article 7(1) in relation to Article 5 of the RP-Singapore Tax Treaty. (BIR Ruling No. ITAD-144-00 dated September 28, 2000) This ruling is issued on the basis of the foregoing facts as represented. However, if upon investigation it shall be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal and Inspection Group