ITAD Ruling No. 096-02

May 21, 2002 ITAD RULING NO. 096-02 Article 14, RP-Singapore Sec. 24 (A) (1) (c) & Sec. 25 (A) (1) of the Tax Code of 1997 ITAD Ruling No. 18-99 Daniel Co Law Office 35 Madison St., North Greenhills 1503 San Juan, Metro Manila Attention: Mr. D. Enrique O. Co Tax Partner Gentlemen : This refers to your letter dated April 27, 2001, on behalf of your client Halmode Apparel Phils. (Halmode Phils.) requesting confirmation that the income received by Mr. Sivaraja Al Arumugam, a Malaysian national, as General Manager of Halmode Phils. from sources within the Philippines is subject to Philippine income tax under Section 24(A)(1)(c) and Section 25(A)(1) of the Tax Code of 1997, and that his income as a Quality Control Coordinator for Southeast Asia derived from sources without the Philippines is not subject to Philippine income tax, pursuant to Article 14 of the RP-Singapore Tax Treaty. It is represented that Halmode Apparel (Singapore) Pte. Ltd. is a non-resident foreign corporation duly organized and existing under and by virtue of the laws of Singapore with principal address at 100 Beach Road #12-01/02 Shaw Towers, Singapore 189702; that its principal business activity is to source and procure garments in Asia for sale to customers and other purchasers in North America; that as of December 1999, Mr. Al Arumugam holds the position of Quality Control Coordinator for Southeast Asia and is generally responsible for the management and control of the quality of garments procured and purchased in Southeast Asia, except the Philippines; that as per S.E.C. License No. A199914453 dated September 24, 1999, the Securities and Exchange Commission has authorized Halmode Singapore to establish its representative office in the Philippines under the business name Halmode Apparel (Phils.) Inc. to act as liaison office for various Philippine suppliers of garment products; that having an extensive experience in other Southeast Asian countries, Mr. Al Arumugam was appointed as General Manager of Halmode Phils. in addition to his current position as Quality Control Coordinator for Southeast Asia, as a result of which, Mr. Al Arumugam now holds dual positions namely, as Quality Control Coordinator for Southeast Asia and General Manager for Halmode Philippines; that pursuant to his employment as General Manager of Halmode Phils.,Mr. Al Arumugam has obtained an Alien Employment Permit from the Department of Labor and Employment, and has likewise obtained a Pre-arranged Employee's Visa from the Department of Immigration and Deportation; and that Mr. Al Arumugam is present in the Philippines for periods exceeding 183 days in a calendar year. In reply, please be informed that Article 14 of the RP-Singapore Tax Treaty provides, viz : "Article 14 PERSONAL SERVICES 1. Subject to the provisions of Articles 15, 17, 18, and 19, salaries, wages and other similar remuneration or income for personal (including professional) services derived by a resident of a Contracting State, shall be taxable only in that Contracting State, unless the services are performed in the other Contracting State. If the services are so performed, such remuneration or income as is derived therefrom may be taxed in that other Contracting State. 2. Notwithstanding the provisions of paragraph 1, remuneration or income derived by a resident of a Contracting State for personal (including professional) services performed in the other Contracting State shall be taxable only in the first-mentioned Contracting State if: a) the recipient is present in the other Contracting State for a period or periods not exceeding in the aggregate 90 days in the case of professional services and 183 days in other cases, in the calendar year concerned; and b) the remuneration or income is paid by, or on behalf of, a person who is a resident of the first-mentioned Contracting State; and c) the remuneration or income is not borne directly by a permanent establishment which that person has in the other Contracting State. xxx xxx xxx" Based on the aforequoted provision, a resident of Singapore is not taxable in the Philippines if his presence therein is merely for 183 days or less in a year and the remuneration of such resident "is paid by, or on behalf of, a person who is a resident of Singapore and the remuneration or income is not borne directly by a permanent establishment which that person has in the Philippines." ( ITAD Ruling No. 18-99 dated August 16, 1999 ) Since Mr. Al Arumugam's stay in the Philippines exceeds 183 days in a calendar year, he becomes taxable here for his income derived from sources within the Philippines as a "nonresident alien doing business in the Philippines" pursuant to Section 25(A)(1) of the Tax Code of 1997. Such being the case, the remuneration or income he receives as General Manager of Halmode Phils. shall be subject to the graduated tax of 5% to 32% in the same manner as an individual citizen pursuant to Section 24(A)(1)(c) of the Tax Code of 1997. Accordingly, Mr. Al Arumugam's income from sources within the Philippines is subject to creditable withholding tax on compensation income pursuant to Section 57 of the Tax Code of 1997 as implemented by Revenue Regulations No. 2-98 specifically Sections 2.78 thereof. As such, Mr. Al Arumugam should file an income tax return for his income in the year 2000 pursuant to Section 51(A)(1)(d) of the Tax Code of 1997 and pay the tax due therefrom. On the other hand, an alien individual, whether a resident of the Philippines or not, is taxable only on income derived from sources within the Philippines pursuant to Section 23(D) of the Tax Code of 1997. For this purpose, Sec. 42(C) enumerates the items of income that are treated as derived from sources outside the Philippines, to wit: "xxx xxx xxx (3) Compensation for labor or personal services performed without the Philippines; xxx xxx xxx" Since the remuneration or income received by Mr. Al Arumugam as Quality Control Coordinator for Southeast Asia are derived from sources outside the Philippines for services performed abroad, as represented, the same shall not be subject to Philippine income tax. This ruling is issued on the basis of the foregoing facts as represented. However, if upon investigation, it will 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.) MILAGROS V. REGALADO Assistant Commissioner Legal Service