ITAD Ruling No. 167-00

October 30, 2000 ITAD RULING NO. 167-00 RP-UK-Arts. 5-7 NIRC-Sec. 108 218-91 P.M. Communications Ltd. South Audley St, London, WlA 5DH Attention: Mr . Martin H . Howse Financial Manager and Ms . Denise Estrada Company Supervisor Gentlemen : This refers to your request dated July 15, 1999, for tax exemption of the income derived from the advertising contract of P.M. Communications Ltd. (P.M Com.) with the Department of Tourism (DOT) and the Philippine Tourism Authority (PTA) pursuant to the RP-UK Tax Treaty. It is represented that P.M. Com. is a nonresident foreign corporation organized and existing under the laws of the United Kingdom of Great Britain and Northern Ireland; that it has no permanent establishment in the Philippines; and that P.M Com entered into two separate Advertising Contracts, whereby P.M.Com offered publication services, with the following: Agency Date Amount Department of Tourism (DOT) November 05, 1998 US$ 65,600.00 Philippine Tourism Authority (PTA) March 16, 1999 US$ 28,000.00 In reply, please be informed that Article 7(1) of the RP-UK Tax Treaty provides, "Article 7 Business Profits "1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is directly or indirectly attributable to that permanent establishment." Relative thereto, Article 5 of the same Treaty provides, viz,: "Article 5 Permanent Establishment "1. For the purposes of this Convention, the term "permanent establishment" means a fixed place of business in which the business of the enterprise is wholly or partly carried on. TCaSAH "2. The term "permanent establishment" shall include especially: "(a) a place of management; "(b) a branch; "(c) an office; "(d) a factory "(e) a workshop; "(f) a mine, oil well, quarry or other place of extraction of natural resources; "(g) an installation or structure used for the exploration of natural resources; "(h) a building site or construction or assembly project which exists for more than 183 days. "3. An enterprise of a Contracting State shall likewise be deemed to have a permanent establishment in the other Contracting State if: "(a) it carries on supervisory activities within that other Contracting State for more than 183 days in connection with a building site, or a construction or assembly project which is being undertaken, in that other Contracting State; or "(b) it furnishes services, including consultancy services, in that other Contracting State through its employees or other personnel (other than agents of an independent status within the meaning of paragraph 7 of this Article) for a period exceeding in the aggregate 183 days within any twelve-month period. "xxx xxx xxx" Under the aforequoted provisions, it is clear that if a resident corporation of UK carries on business in the Philippines through a permanent establishment situated in the latter, the profits of the said corporation attributable to such permanent establishment shall be subject to Philippine income tax. Considering that P.M.Com. does not have a permanent establishment in the Philippines to which its business profits could be attributable the income derived by P.M.Com. from its advertising contract with the DOT and the PTA is exempt from Philippine income tax. DAHaTc This ruling is being issued on the basis of the foregoing representations. However if upon investigation it will be disclosed or discovered that the facts are different then this ruling shall be considered null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) LILIAN B. HEFTI Deputy Commissioner Legal & Inspection Group