ITAD Ruling No. 104-03

July 24, 2003 ITAD RULING NO. 104-03 RP-Singapore, Art. 5&7 BIR Ruling No. DA-ITAD 96-02 Tungaloy Seimitsu Philippines, Inc. Lot No. B2-1C(a) Carmelray Industrial Park II Calamba, Laguna 4027, Philippines Attention: Mr. Joel G. Bolinao Administrator Gentlemen : This refers to your application for relief from double taxation dated January 28, 2002, on behalf of Mr. Wong Kok Chiu and Mr. Lim Teck Chuan, both Singaporean citizens, requesting for a tax refund pursuant to the RP-Singapore tax treaty on the service income paid by Tungaloy Seimitsu Philippines, Inc. (TSPI). It is represented that Mr. Chuan is a resident of Singapore with correspondence address at 468 Tagore Industrial Avenue, S787836; that Mr. Chiu is also a resident of Singapore with correspondence address Apt. Blk. 961 Hougang Avenue 9 05-570 Singapore; that TSPI is a corporation organized and existing under the laws of the Philippines with principal office address at Mactan Export Processing Zone, Lapu-Lapu City, Cebu; that TSPI is primarily engaged in the manufacture and assembly of car stereos, video tape recorders and riveted audio-visual equipment, components and spare parts of such products; that TSPI was granted by the Philippine Economic Zone Authority on May 29, 2001 the authority to employ foreign nationals in Zone Registered Enterprise under P.D. No. 66; that pursuant to the same authority, TSPI appointed Mr. Chuan and Mr. Chiu as their Head of the Manufacturing and Technical Services and as the President of TSPI, respectively for a period of three (3) years; that an Affidavit of Support and Guaranty was executed by TSPI to guarantee the financial support of Mr. Chuan and Mr. Chiu during the entire duration of their employment with TSPI; that the company started operating in June 2001 but due to the decline in the export demand of semiconductor and as aggravated by the September 11 World Trade Center bombing in New York, TSPI's head office in Singapore opted to temporarily shutdown its operations in the Philippines; that due to the temporary cessation of operations, Mr. Chuan and Mr. Chiu were recalled to Singapore and respectively left the Philippines in November 11, 2001 and December 2001; that TSPI certifies that Mr. Chiu and Mr. Chuan were employed in TSPI from July 1, 2001 to December 21, 2001 and June 15, 2001 to November 10, 2001, respectively; and that, as such, both of them stayed in the Philippines for less than 183 days. In reply, please be informed that Article 14 of the RP-Singapore tax treaty provides as follows: "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. aACHDS "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. "3. The term "professional services" includes independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, lawyers, engineers, architects, dentists and accountants. xxx xxx xxx." Based on the aforequoted provisions of the RP-Singapore tax treaty, remuneration or income derived by a resident of Singapore for personal (including professional) services performed in the Philippines shall be taxable only in Singapore when all these three (3) requirements are met, viz : a) the recipient's stay in the Philippine does not exceed 90 days for professional services and 183 days in other cases, b) the remuneration or income is paid by, or on behalf of, a person who is resident of Singapore, and c) such remuneration or income is not borne directly by a permanent establishment of the Singaporean resident. Thus, failure to comply with at least one of the three conditions is sufficient to make the income derived by the Singaporean resident from sources within the Philippines taxable in the latter. Considering that Mr. Chuan and Mr. Chiu were employees of TSPI and that their remuneration or income were paid by said Philippine corporation which is not a permanent establishment of the Singaporean corporation, it is clear that the requirements stated under paragraphs (b) and (c) of Article 14 (Personal Services) of the RP-Singapore tax treaty were not complied with. Such being the case, the income derived by Mr. Chuan and Mr. Chiu from TSPI are taxable in the Philippines. ( BIR Ruling No. DA-ITAD 96-02 dated May 21, 2002 ) In view of all the foregoing, your request is hereby denied. The service income derived by Mr. Chuan and Mr. Chiu for services rendered to TSPI is subject to Philippine income tax pursuant to Article 14(2) of the RP-Singapore tax treaty. Moreover, the said service income shall be subject to withholding tax at the rate of twenty, five percent (25%) as provided for under Sections 25(B) and 58 of the National Internal Revenue Code of 1997. CSTDEH Very truly yours, (SGD.) MILAGROS V. REGALADO Legal Service Assistant Commissioner