ITAD Ruling No. 092-01

October 18, 2001 ITAD RULING NO. 092-01 Art. 14, RP-Australia Tax Treaty BIR Ruling No. ITAD-89-00 Saigon Company Phils. Inc. 6/F S&L Building 1500 Roxas Blvd., Ermita, Manila Attention: Ms. Concepcion C. Santos Financial Controller Gentlemen : This refers to your application dated August 10, 2000, on behalf of MS. SUZANNE STROUT, for the availment of the preferential withholding tax rate on her income as Deputy for the Principal Costume Designer of your company for a musical play entitled "Miss Saigon" pursuant to the RP-Australia Tax Treaty. It is represented that Ms. Strout is an Australian citizen and a holder of an Australian passport with no. K0207460 issued by Australian Government; that she is a resident of No. 9 Hilcot Street, Ashbury NSW 2193 Australia; that on May 23, 2000, Ms. Strout entered into a contract with your Company as Deputy for the Principal Costume Designer (Andreane Neofitou); that pursuant to the said contract, Ms. Strout will carry out all the duties of a first class professional Associate Costume Designer for a first class live stage production of "Miss Saigon", which includes the duties to incorporate into the production the existing London designs created by Andreane Neofitou and for this purpose to make herself available on location as and when required in accordance with the production schedule; that in consideration for such services, your company will pay Ms. Strout a fee of Twenty Five Thousand Australian Dollars ($AUD 25,000.00), fifty percent (50%) of which is payable upon signing of the contract and the other half will be payable on the first preview of "Miss Saigon"; and that Ms. Strout will stay in the Philippines for an approximate period of forty four (44) 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, so much of the income derived by him as is attributable to activities so performed may be taxed in the other State. 2. The Treasurer of Australia and the Minister of Finance of the Philippines may agree in letters exchanged for the purpose to variations in the amount specified in sub-paragraph (c) of paragraph (1) and any variations so agreed shall have effect according to the tenor of the letters. 3. The term "professional services" includes services performed in the exercise of independent scientific, literary, artistic, educational or teaching activities, as well as in the exercise of independent activities of physicians, lawyers, engineers, architects, dentists and accountants." Under the above-quoted provision of the RP-Australia Tax Treaty, the presence of at least one of the three conditions is sufficient to make the income from sources within the Philippines of a resident of Australia taxable in the Philippines: i.e., a) presence of a fixed base, b) stay in the Philippines for a period of at least 183 days, and c) the income exceeds ten thousand Australian dollars. In the instant case, the third condition is present inasmuch as Ms. Strout's income exceeds ten thousand Australian dollars ($AUD10,000) in a year. Hence, the said income (amounting $ AUD 25,000.00) of Ms. Strout as a nonresident alien not engaged in trade or business in the Philippines is subject to a final withholding tax in the Philippines at the rate of 25% pursuant to Section 25 (B) of the Tax Code of 1997 as implemented by Revenue Regulations No. 2.98, Section 2.57-1(c)(1) in relation to Art. 14(1)(c) of the RP-Australia Tax Treaty. (BIR Ruling No. ITAD 89-00) Under the final withholding tax system, the amount of income tax withheld by your company is constituted as a full and final payment of the income tax due from Ms. Strout on the said income. The liability for payment of the tax rests primarily on your company as a withholding agent. Thus, in case of your company's failure to withhold the tax or in case of under withholding, the deficiency tax shall be collected from your company since Ms. Strout is not required to file an income tax return for the particular income pursuant to Section 51(A)(2)(c) of the Tax Code of 1997. [Revenue Regulations No. 2.98, Section 2.57(A)] Very truly yours, Commissioner of Internal Revenue By: (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal & Enforcement Group