ITAD Ruling No. 074-03

May 27, 2003 ITAD RULING NO. 074-03 NIRC-Sections 28 & 42 BIR Ruling No. DA-ITAD-166-02 BIR Ruling No. DA-ITAD-223-02 Amcor White Cap Southeast Asia Canlubang Industrial Estate 4028 Calamba City Attention: Editha A. Reyes Finance and Administration Manager Gentlemen : This refers to your letter dated January 20, 2003 requesting confirmation of your opinion that the commission fees to be paid by Amcor White Cap Southeast Asia (Amcor) to Vimoni India Private, Ltd. (Vimoni) are not subject to Philippine income tax pursuant to the pertinent provisions of the RP-India tax treaty. It is represented that Vimoni is a corporation duly organized and existing under the laws of India with principal office address at D-302 Defense Colony, New Delhi 110024, India; that it is not registered either as a corporation or as a partnership and has not been licensed to do business in the Philippines per certification issued by the Securities and Exchange Commission dated December 5, 2002; that Amcor is a corporation organized and existing under the laws of the Philippines; that on November 15, 2002, Vimoni and Amcor entered into a Distributorship Agreement (Agreement) whereby Vimoni will act as the sole and exclusive agent and distributor of Amcor's products in the territory of India; that Amcor's products to be sold by Vimoni include vacuum metal and plastic closures and sealing equipment and auxiliaries; and that in consideration for the above services, Amcor shall pay Vimoni a 15% commission on the sale of Amcor's products in India. aTcIAS In reply, please be informed that inasmuch as the fees are in consideration for services rendered entirely in India, then such fees are considered income derived from sources outside the Philippines, which shall be governed by Section 28(B)(1), in relation to Section 42(A)(3), both of the 1997 Tax Code, to wit; "SEC. 28. Rates of Income on Foreign Corporations. "xxx xxx xxx" "(B) Tax on Nonresident Foreign Corporation. "(1) In General. Except as otherwise provided in this Code, a foreign corporation not engaged in trade or business in the Philippines shall pay a tax equal to thirty-five percent (35%) of the gross income received during each taxable year from all sources within the Philippines, such as interests, dividends, rents, royalties, salaries, premiums (except reinsurance premiums), annuities, emoluments or other fixed or determinable annual, periodic or casual gains, profits and income, and capital gains, except capital gains subject to tax under subparagraphs 5(c) and (d): Provided , That effective January 1, 1998, the rate of income tax shall be thirty-four percent (34%); effective January 1, 1999, the rate shall be thirty-three percent (33%); and effective January 1, 2000 and thereafter; the rate shall be thirty-two percent (32%). (Emphasis supplied) "xxx xxx xxx" "SEC. 42. Income from Sources Within the Philippines. "(A) Gross Income From Sources Within the Philippines . The following items of gross income shall be treated as gross income from sources within the Philippines: "xxx xxx xxx" "(3) Services . Compensation for labor or personal services performed in the Philippines; "xxx xxx xxx" It is clear from the aforequoted provisions that a non-resident foreign corporation is taxable only on income derived from sources within the Philippines. Therefore, since the services to be rendered by Vimoni to Amcor shall be performed entirely in India, the commission fees to be paid to Vimoni are considered income derived from sources outside the Philippines and therefore are not taxable in the Philippines. (BIR Ruling No. DA-ITAD-166-02 dated September 23, 2002; BIR Ruling No. DA-ITAD-223-02 dated December 27, 2002) It is noteworthy that since the subject transaction between Amcor and Vimoni is not taxable in the Philippines, the RP-India tax treaty finds no application inasmuch as the transaction does not result in double taxation for which a tax treaty relief may be sought. 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 in so far as the herein parties are concerned. Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service