ITAD Ruling No. 089-00

August 1, 2000 ITAD RULING NO. 089-00 RP-Australia Article 14 036-97 R.S. Bernaldo and Associates Unit 1810 Cityland Condominium 10 Tower 1 6815 Ayala Avenue cor. H.V. dela Costa Ext. 1200 Makati City This refers to your letter dated December 6, 2000 requesting confirmation that the consultancy fees to be paid by your client, James Hardie Philippines, Inc. (JHPI), to Mr. Noel Tink (Mr. Tink), is not subject to Philippine income tax and withholding tax pursuant to the RP-Australia Tax Treaty. llcd It is represented that JHPI is a domestic corporation duly organized and existing under Philippines laws; that Mr. Tink is a resident of Australia who is not engaged in trade or business in the Philippines; that JHPI and Mr. Tink entered into a service contract which stipulated that the latter will render commissioning assistance in accordance with the terms and conditions of the formal offer dated September 15, 1998; that in consideration of: the aforementioned services, JHPI paid Mr. Tink a total consultancy fee in the amount of Twelve Thousand Australian Dollars ($12,000); and that Mr. Tink has rendered the said services from September 18 to October 15, 1998, covering a total period of twenty eight (28) days. In reply, please be informed that Article 14 of the RP-Australia Tax Treaty provides: "Article 14 Independent Personal Services (1) Income derived by an individual who is a resident of one of the Contracting States in respect of professional services or other independent activities of a similar character shall be taxable only in that State. However, if such an individual (a) has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities; or (b) in a year of income or taxable year, as the case may be, stays in the other Contracting State for a period or periods aggregating 183 days for the purpose of performing his activities; or (c) derives, in a year of income or taxable year, as the case may be, from residents of the other Contracting State gross remuneration in that State exceeding ten thousand Australian dollars or its equivalent in Philippine pesos from performing his activities , (emphasis supplied) LexLib so much of the income derived by him as is attributable to activities so performed may be taxed in the other State . (emphasis supplied) Based on your representations, Mr. Tink received a total amount of Twelve Thousand Australian Dollars ($12,000) as payment for his services. Such being the case, this amount received by Mr. Tink for the consultancy services he rendered, which falls within the purview of the exception under letter (c) of the aforequoted provision, is income which is taxable in the Philippines. In view of all the foregoing, your request is hereby denied. The consultancy fees paid by James Hardie Philippines, Inc. (JHPI) to Mr. Noel Tink is subject to Philippine income tax pursuant to Article 14 par. 1(c) of the RP-Australia Tax Treaty. Moreover, the said consultancy fees shall be subject to Philippine income tax and consequently to withholding tax at the rate of 25 per cent as provided for under Sections 25(b) and 58 of the National Internal Revenue Code (NIRC) of 1997. (BIR Ruling No. 036-97 dated April 3, 1997) prcd Very truly yours, (SGD.) LILIAN B. HEFTI OIC, Deputy Commissioner Legal & Inspection Group