itax baniqued i and ii

8/9/2019 ITax Baniqued I and II

1/25

INCOME TAXATION OF ALIENS

A. GENERAL RULE

RRs: Sec. 7, Income Tax Regula!ons "Re#. Regs. No. $%

Sec. &, !'.

SECTION 7. Taxa!on o( al!ens !n gene)al. For purposes of income tax, alienindividuals are divided generally into two classes, namely, resident aliens and non-

resident aliens. Resident aliens are taxable in the same manner as citizens of thePhilippines, that is, a resident alien is taxable on income derived from all sourcesincluding sources without the Philippines. on-resident aliens are taxable only onincome from sources within the Philippines.

SECTION &. Taxa!on o( non*)es!'en al!ens+ class!(!ca!on. on-residentalien individuals are divided into two classes! "#$ %hose engaged in trade or businesswithin the Philippines, and "&$ those not engaged in trade or business within thePhilippines. on-resident aliens falling within the first class are sub'ect to thegraduated rates established in (ection with respect to their net income fromsources within the Philippines. on-resident aliens falling within the second class aresub'ect to a flat rate of &) per cent on their total income from sources within thePhilippines, if such total income does not exceed P&*,+)), otherwise, the graduated

rates established in (ection will apply to the total income if it exceeds P&*,+))."onforms with amendments by R.. &**, effective /une &), #010.$

%he phrase 2engaged in trade or business within the Philippines2 includes theperformance of personal services within the Philippines. 3hether a non-resident alienhas an 2office or place of business,2 however, implies a place for the regulartransaction of business and does not include a place where casual or incidentaltransactions might be, or are, effected. either the beneficiary nor the grantor of atrust, whether revocable or irrevocable, is deemed to be engaged in trade or businessin the Philippines or to have an office or place of business therein, merely because thetrustee is engaged in trade or business in the Philippines or has an office or place ofbusiness therein. "%est of 2office or place of business2 was deleted by R.. &**.$

IR Rul!ng No. -A*&, /an. 00, $&

/anua)1 00, $&IR RULING 2-A*&*&3

%eresa 4arble orporation##5 (haw 6oulevardPasig ityttention! 4s. nnie 7. 8ee7entlemen !

%his refers to your letter dated 9ctober &&, &))5 stating that %eresa 4arbleorporation "%4$ is a domestic corporation engaged in mining, supply, distributionand installation of marble and marble products to local and foreign buyers. :n a

onsultancy and (ales ommission greement between %4 and 4r. ;im ;ihyun, anational and resident of (outh ;orea, whose principal address is at +1-5

*. Provide technical advice to %4 on the designs and ?uality of marbleproducts acceptable by (outh ;orean clients>

. Provide technical as well as mar=et advice to %4 on the latter@s marble

and marble products for sale and distribution to the Philippine-based(outh ;orean clients or buyers with approving offices in ;orea> and1. From time to time, attend consultancy meetings with %4 not exceeding

#&) days in a given year.

%he foregoing services are to be performed in (outh ;orea but from time to time, 4r.;im would need to visit the Philippines for consultancy meetings and other purposeswhich stay does not exceed *) days at any given period and does not exceed #&)days in any given year. :n the course of the greement, and through the efforts of 4r.;im, %4 marbles were pre-?ualified and approved in (outh ;orea as to their designand ?uality, resulting in the sales and subse?uent installation of the same with (2

ccording to (ection &* "8$, an alien individual li=e 4r. ;im is taxable only on incomederived from sources within the Philippines. :n the case of income from the provision ofservices, such income is considered derived from sources without the Philippines if theservices are performed outside the Philippines, as stated in (ection & "$ "*$ of the#005 %ax ode below!


2/25


3/25

accomplishment, and to that end the alien ma=es his home temporarily in thePhilippines, he becomes a resident, though it may be his intention at all times to returnto his domicile abroad when the purpose for which he came has been consummatedor abandoned.

SECTION . Loss o( )es!'ence 81 al !en. n alien who has ac?uiredresidence in the Philippines retains his status as a resident until he abandons thesame and actually departs from the Philippines. n intention to change his residencedoes not change his status as a resident alien to that of a nonresident alien. %hus an

alien who has ac?uired a residence in the Philippines is taxable as a resident for theremainder of his stay in the Philippines.

Cases: separate file

(utton v. G.(., * F%R &d 50-**ommissioner v. ubar, #+1 F. &d 1+%ongsun Par= v. ommissioner, 50 G(% &1&ommissioner v. Robertson, D-5)##C-#0, ug. #&, #0+C, #* (R *057arrison v. , 7.R. os. 1)#-)1, /uly #0, #00), #+5 (R 1&1 "#00)$

IR Rul!ng No. $7*&7

Se9em8e) 7, 0&7IR RULING NO. $7*&7&0 "b$ "5$ "$ )))-)) &C5-+57entlemen !

%his refers to your letter dated 4arch *), #0+5 stating that the Philippine Retirementuthority is a government corporation created under and by virtue of Axecutive 9rdero. #)*5 dated /uly , #0+1> that one of its basic ob'ectives is the development andpromotion of the Philippines as a retirement haven for foreign nationals> that theretirement program is open to overseas Filipinos who have become permanentresidents or citizens of another country and have resided abroad continuously for aperiod of at least seven "5$ years and to foreign nationals who are 1) years old andover, who deposited G(H1),))) or its e?uivalent in other acceptable foreign

currencies with a commercial ban= accredited with the uthority> and that aside frominterest income from the said G( H1),))) deposit re?uirement, the retirees mayreceive pensions, gratuities and other income from their respective countries of originor other foreign countries.

:n this connection, you now re?uest a ruling on the following!2"#$ :s income of whatever nature received by a retiree from a foreign sourcesub'ect to taxI

2"&$ :n particular, assuming that a retiree has investments in


4/25

exempt from taxes on any pensions received by him> that 3estfalKDarsen J o. K(has applied with the (ecurities and Axchange ommission permission to do businessin the Philippines by putting up a representative office here in 4anila> and that 4r.7'uvsland was appointed as representativeKgeneral manager of the said office forwhich he will receive a monthly salary from 3estfal-Darsen@s head office in orway.

6ased on the foregoing representations, you now re?uest in effect a ruling as towhether or not your said client is liable to pay any tax in the Philippines, and in theaffirmative, the =ind of tax he should pay> and whether he is still liable to pay taxes in

orway if he is already paying the same taxes in the Philippines.:n reply, please be informed that as a conse?uence of the amendmentKchange of 4r.7erhard 7'uvsland@s temporary visitor@s visa to that of a (pecial Retiree Residents visaas a result of his admission to the Philippine Retirement Program of the PhilippineRetirement uthority created under and by virtue of Axecutive 9rder o. #)*5, one ofthe basic ob'ectives of which is the development and promotion of the Philippines as aretirement haven for foreign nationals, his status for Philippine tax purposes wasconverted to that of a resident alien sub'ect to Philippine income tax under (ection"a$ of the %ax ode, as amended. ccordingly, your said client is liable to payPhilippine income tax on his taxable compensation, business and other income asdefined in (ection &+ of the %ax ode, other than the income sub'ect to tax underparagraphs "c$, "d$ and "e$ of (ection +# of the said ode received during eachtaxable year from all sources. 4r. 4ar= %a=euchi, a /apanese national is planning toinvest in the Philippines> that with his planned investment, he will be ?ualified to applyfor a special investor@s resident visa pursuant to P.8. o. #+1#, as amended> and that

a special investor@s resident visa is a permanent resident visa permitting a ?ualifiedalien to reside in the Philippines for definite period while hisKher special investment inthe Philippines is not withdrawn.

:n reply thereto, : have the honor to inform you that the rationale behind Presidential8ecree o. #+1# is the government@s policy to attract foreign investment into ourcountry by providing incentives such as the issuance of a special investor@s residentvisa to aliens who are willing and able to invest the amount of at least G( H51,))) inthe Philippines> and that should the alien withdraw his said investment from thePhilippines the special investor@s resident visa issued to him will automatically expire.%hus, the special investor@s resident visa is issued to entitle an alien who has investedG( H51,))) to reside in the Philippines while his investment subsists and not for thepurpose of determining his status for tax purposes.

onsidering that the tax status of your client under the aforementioned circumstancesis not treated in the RP-/apan %ax %reaty then the pertinent provisions of the ational:nternal Revenue ode shall govern. Gnder (ection &&"a$"#$ of the %ax ode, a non-resident alien individual who shall come to the Philippines and stay therein for anaggregate period of more than #+) days during any calendar year shall be deemed anon-resident alien doing business in the Philippines, (ection &)"g$ of the %ax odenotwithstanding. s such, he is sub'ect to tax in the same manner as resident citizensand aliens on taxable income received from all sources within the Philippines. 9n theother hand, if the stay in the Philippines does not exceed #+) days during anycalendar year, the individual is considered a non-resident alien not engaged in trade orbusiness in the Philippines> hence, his entire gross income received from all sourceswithin the Philippines is sub'ect to income tax at the rate of *)E. "(ec. &&"b$, %axode$

(uch being the case, since your client who has been issued a special investor@sresident visa is not intending or has not decided to actually reside in the Philippines,your client is considered a non-resident alien not engaged in trade or business in thePhilippines sub'ect to a tax of *)E on his entire gross income received from allsources within the Philippines, pursuant to (ection &&"b$ of the %ax ode, asamended.

ery truly yours,"(78.$ /9(A G. 97ommissioner

IR Rul!ng No. 0;*&7

Ma1 $7, 0&7


5/25

IR RULING NO. 0;*&71 "a$ "#$ "6$ )))-)) #*C-+5

(ir!

%his refers to your letter dated February ##, #0+5 re?uesting a ruling as to whether ornot your clients who are foreign missionaries residing in the Philippines, are re?uiredto file income tax returns.

:t is represented that the foreign missionaries are receiving donations and supportfrom the Gnited (tates, that they are in the Philippines to spread the word of 7od toour countrymen and assist in any way people in need, that they depend upon saiddonations and support for their sustenance, that they do not receive any salary orincome in any form in the Philippines> and that their support financing sent through aPhilippine 6an= in the form of telegraphic transfer.

:n reply, please be informed that every alien residing in the Philippines, regardless ofwhether the gross income was derived from sources within or without the Philippinesare re?uired to file income tax returns L(ec. 1 "a$"#$"6$, %ax ode as amended byAxecutive 9rder o. *5M ccordingly, the said foreign missionaries are re?uired to filetheir income tax returns for the support which is considered income being received bythem pursuant to (ection &0 of the same ode.

ery truly yours,"(78.$ AGFR:9 8. (%9(8eputy ommissioner

IR Rul!ng No. 7*7

/ul1 0, 07IR RULING NO. 7*7 "f$ )))-)) )5C-05ultural enter of the PhilippinesP omplex, Roxas 6oulevardPasay ity

ttention! 4s. 4yrna . Dopez, 4.8.Axecutive 8irectorK4anagerPhilippine Philharmonic 9rchestra

7entlemen!

%his refers to your undated fax letter stating that the ultural enter of the Philippines"P$ hired 4aestro Ruggero 6arbieri of 6ergamo, :taly, as 8eputy 4usic 8irectorand Principal 7uest onductor of the Philippine Philharmonic 9rchestra by virtue of aDetter greement dated (eptember #, #00C> that his appointment commenced on(eptember #, #00C and ends on 8ecember *#, &)))> that he has agreed to performthe following responsibilities, to wit!

#. Provides for the artistic direction of the orchestra>

&. Plans and submits orchestra training and developmental program tomanagement for study and implementation>

*. Plans and implements the future (eason oncerts of the orchestra>. 8ecides the general programming of all PP9 concerts>1. s the need arises, schedules andKor conducts daily rehearsals of the

orchestra> puts a program for the training of assistant conductors and assignperformances to them>

C. Performs such other related tas=s for the upliftment of the PP9 and theenter@s functions>

that in consideration of the forgoing functions of 4aestro Ruggero 6arbieri, the Pagreed to pay a monthly professional fee of (ix %housand Five


6/25

2*. %he term 2professional services2 includes, especially, independent scientific,literary, artistic, educational or teaching activities as well as independent activities ofphysicians, lawyers, engineers, architects, dentists and accountants.xxx xxx xxx

(uch being the case, 4aestro Ruggero 6arbieri, who has been engaged by theultural enter of the Philippines as 8eputy 4usic 8irector and Principal 7uestonductor of the Philippine Philharmonic 9rchestra from (eptember #, #00C to8ecember *#, &))), shall be considered as a resident alien for income tax purposes.s a resident alien, who pursues his profession in the field of arts, he shall be sub'ectto tax under (ection "f$ of the %ax ode, as amended, on his taxable income asdetermined in (ection &5 also of the %ax ode, as amended.

(tated hereunder are the pertinent provisions of the %ax ode, to guide 4r. 6arbieri inthe computation of his come tax liability!

2(A. . %ax on c it izens or residents. xxx xxx xxx2"f$ (implified et :ncome %ax for the (elf-Amployed and for ProfessionalsAngaged in the Practice of Profession. tax is hereby imposed upon the taxablenet income as determined in (ection &5 received during the taxable year from allsources, other than income covered by paragraphs "b$, "c$, "d$ and "e$ of this sectionby every individual whether a citizen of the Philippines or an alien residing in the

Philippines who is self-employed or practices his profession herein determined inaccordance with the following schedule!ot over P#),))) *E9ver P#),))) but not over P*),))) P*)) O 0E of excess over P#),)))9ver P*),))) but not over P#&),))) P&,#)) O #1E of excess over P*),)))9ver P#&),))) but not over P*1),))) P#1,C)) O &)E of excess over P#&),)))9ver P*1),))) PC#,C)) O *)E of excess over P*1),)))

Furthermore, the deductions from gross income of self-employed and professionalsare those provided for under (ection &0 of the %ax ode, as amended, namely!

2(A. &0. 8eductions from gross income. xxx xxx xxx

2"a$ Raw materials, supplies and direct labor>2"b$ (alaries of employees directly engaged in activities in the course of orpursuant to the business or practice of profession>2"c$ %elecommunications, electricity, fuel, light and water>2"d$ 6usiness rentals>2"e$ 8epreciation>2"f$ ontributions made to the 7overnment and accredited relief organizations forthe rehabilitation of calamity stric=en areas declared by the President> and2"g$ :nterest paid or accrued within a taxable year on loans contracted fromaccredited financial institutions which must be proven to have been incurred inconnection with the conduct of a taxpayer@s profession, trade or business.

2For individuals whose cost of goods sold and direct costs are difficult to determine, amaximum of forty percent ")E$ of their gross receipts shall be allowed as deductions

to answer for business or professional expenses as the case may be.2

fter deducting the applicable items enumerated in the preceding allowabledeductions, the applicable personal exemptions shall li=ewise be deducted, as follows!

2(ection &0. 8eductions from gross income. xxx xxx xxx2"#$ Personal exemptions allowable to individuals. "#$ 6asic personalexemption. For the purpose of determining the tax provided in (ection "a$ of this%itle, there shall be allowed a basic personal exemption as follows!

For single individual or married individual 'udicially decreed as legally separated withno ?ualified dependents P0,))).))For head of a family P#&,))).))For each married individual P#+,))).))

Provided, %hat in case one of the spouses is deriving taxable income, only saidspouse shall be allowed to avail of the aforesaid basic personal exemption for marriedindividual.

2For purposes of this paragraph, the term 2 Provided, further, %hatthe additional exemption for dependents shall be claimed by only one of the spousesin the case of married individuals.

2:n case of legally separated spouses, additional exemptions may be claimed only bythe spouse who was awarded custody of the child or children! Provided, %hat the totalamount of additional exemptions that may be claimed by both shall not exceed themaximum additional exemptions herein allowed.2For purposes of this paragraph, a dependent means a legitimate, recognized naturalor legally adopted child chiefly dependent upon and living with the taxpayer if suchdependent is not more than twenty-one "$ years of age, unmarried and not gainfullyemployed or if such dependent, regardless of age, is incapable of self-supportbecause of mental or physical defect.xxx xxx xxx2

fter deducting the applicable basic personal exemption and additional exemption, theresulting amount shall be the taxable income, which shall be the tax base to which theaforementioned rates shall be applied in computing the tax due.


7/25

For an easier understanding of the aforementioned provisions, please ta=e note of thefollowing computation!

7ross :ncome from 6usinessKProfession P xxx"less$ 8eductions from 7ross :ncome "(ection &0, %ax ode, as amended$ xxx

et :ncome from 6usinessKProfession P xxx"less$ Personal Axemptions "6asic Personal J dditional$ "(ection &0"#$xxx

et %axable :ncome P xxx

Please be guided accordingly.ery truly yours,D:3Q3Q :B9(- or

"*$ certificate of the contract of employment of an overseas contract wor=er

which is duly registered with the Philippine 9verseas Amployment gency"P9A$> or a (eaman@s ertificate, in the case of a Filipino seaman> or"$ certification from the 6ureau of :mmigration of the Philippines that a non-

resident alien is not a resident of the Philippines> or"1$ certification from the 8epartment of Foreign ffairs "8F$ of the Philippines

that the individual is a regular member of the diplomatic corps of a foreigngovernment and is entitled to income tax exemption under an internationalagreement to which the Philippines is a signatory "(ection &.&"6$ of Rev.Regs. o. #)-0+$.

4oreover, the Foreign urrency 6an= ccount must be in the name of the non-resident individual.

:n case of failure to comply with the above re?uirements, the 5.1E final withholding tax

will be imposed on interest income from foreign currency deposit of the non-residentindividual pursuant to (ection &"6$"#$ of the %ax ode of #005. :f the ban= account is


8/25

'ointly in the name of a non-resident citizen and his spouse or dependent who is aresident in the Philippines, 1)E of the interest income from such ban= deposit shall betreated as exempt while the other 1)E shall be sub'ect to the 5.1E final withholdingtax sub'ect to compliance of the above re?uirements.

3hether the interest earned from the foreign currency deposits of Romana 4. Reyesis sub'ect to the 5.1E final withholding tax would depend on whether or not shecomplied with the re?uirements in the availment of the exemption under Rev. Regs.o. #)-0+.

%his ruling is being issued on the basis of the foregoing facts as represented. 6:R Ruling )#&-+04r. (teinar ;ristensenPaseo Par= iewsuites, %ower # Gnit #5#& alero (treet#&&5 4a=ati

(ir!

%his refers to your letter dated /une #5, &)#) re?uesting for a ruling that you may beclassified as resident alien for tax purposes for taxable year &))5.

:t is represented that you are a orwegian citizen> that you came to the Philippines inFebruary &))5> that you applied for and were admitted to the Philippine RetirementProgram of the Philippine Retirement uthority> that on /une #*, &))5, you obtained a(pecial Retiree Residents isa> that you have been staying in 4a=ati from &))5 up tothe present as evidenced by your ontracts of Dease for the years &))5 and &))+>and that you paid your taxes for the years &))5 and &))+ in the Philippines as aresident alien according to Philippine tax laws.

6ased on the foregoing representations, you now re?uest, in effect, for a ruling thatyou should be properly classified as a resident alien and, as such, should be liable forPhilippine income tax under (ec. & "$ of the #005 %ax ode, as amended.

:n reply, please be informed that as a conse?uence of obtaining the (pecial RetireeResidents isa as a result of your admission to the Philippine Retirement Programunder Axecutive 9rder o. #)*5, your status for Philippine tax purposes was in fact

converted to that of a resident alien sub'ect to Philippine income tax under (ection &"$ of the #005 %ax ode, as amended. "6:R Ruling #&-+0 dated February *, #0+0$

Relative thereto, paragraph # of rticle of the RP-orway %ax %reaty defines2resident of a ontracting (tate2 as one who, under the laws of the (tate, is liable totax therein by reason of his domicile, residence, place of management or any othercriterion of a similar nature. 6y reason of being a holder of a (pecial Retiree Residentsisa, you are considered to be a resident of the Philippines and as such meet thecriterion of the above provision of the %ax %reaty. :nasmuch as you have paid yourincome taxes for &))5 in the Philippines, you have been taxed as a resident alien for&))5 both under Philippine tax law and under the rticle of the RP-orway tax treaty.

ccordingly, as a resident alien, you are liable to pay Phil ippine income tax on yourtaxable compensation, business and other income in the Philippines as defined in(ection *& of the #005 %ax ode.


9/25

6ased on the foregoing representations, you now re?uest for an opinion as to whetheror not the li?uidating dividends to be received by 4r. ;oelman, as a resident alien,from a corporation in etherlands is sub'ect to income tax in the Philippines> andwhether the sale of the said shares is li=ewise taxable in the Philippines.

:n reply thereto, please be informed that this 9ffice had already occasioned to rule onthe matter, when it said in 6:R Ruling o. 8&0)-)1 dated /une &5, &))1, as follows!

2. . . (ection &&"F$ of the %ax ode of #005 defines the term @resident alien@ as anindividual whose residence is within the Philippines and who is not a citizen thereof.onversely, (ection 1 of Regulations o. &, otherwise =nown as the :ncome %axRegulations defines a @non-resident alien individual@ as an individual

"a$ 3hose residence is not within the Philippines> and"b$ 3ho is not a citizen of the Philippines.

n alien actually present in the Phil ippines who is not a mere transient or so'ourner isa resident of the Philippines for purposes of the income tax. 3hether he is a transientor not is determined by his intentions with regard to the length and nature of his stay. mere floating intention indefinite as to time, to return to another country is not sufficientto constitute him a transient. :f he lives in the Philippines and has no definite intentionas to his stay, he is a resident. 9ne who comes to the Philippines for a definitepurpose which in its nature may be promptly accomplished is a transient. 6ut if his

purpose is of such a nature that an extended stay may be necessary for itsaccomplishment, and to that end the alien ma=es his home temporarily in thePhilippines, he becomes a resident, though it may be his intention at all times to returnto his domicile abroad when the purpose for which he came has been consummatedor abandoned.2

careful scrutiny of the above-cited laws disclosed that 4r. ;oi=e is considered aresident alien for purposes of his income tax liability in the Philippines as he haspassed the re?uisites for a resident alien. s represented, he has been involved withthe ompany since #00C when it was incorporated. :n fact, when 6laze started itsoperations in February #00+, he has served as its ice President and subse?uently on9ctober &+, #00+, obtained a special non-immigrant visa. 4oreover, being thePresident of the ompany he is re?uired to be in the Philippines most of the time since

he manages the day-to-day operations.. . . this 9ffice holds that he is deemed a resident alien for Philippine incometax purposes.2

orollarily, (ection & "$ "#$ "c$ of the %ax ode of #005 provides that on the taxableincome defined in (ection *# of this ode, other than income sub'ect to tax under(ubsections "6$, "$ and "8$ of this (ection, derived for each taxable year from allsources within the Philippines by an individual alien who is a resident of the Philippinesshall be taxed at the rates of 1E to *&E.

ccordingly, having established 4r. ;oelman@s status as a resident alien, his incometherefore in the form of li?uidating dividends derived from his investment in a foreigncompany is considered as income from sources derived outside the Philippines,hence, not sub'ect to income tax and conse?uently to withholding tax on

compensation.

9n the other hand, the sale of his shares in a etherlands corporation is sub'ect torticle #* "$ of the RP-etherlands %ax %reaty which provides that gains from thealienation of any property other than those mentioned in paragraphs #, & and *, shallbe taxable only in the (tate of which the alienator is a resident. :nasmuch as 4r.;oelman is deemed a resident alien for Philippine income tax purposes, the net gainfrom the sale of his shares in a etherlands corporation is sub'ect to the Philippineincome tax under (ection & of the %ax ode of #005.

%his ruling is being issued on the basis of the foregoing facts as represented.


10/25

7entlemen!

:n reply to your letter dated ovember #C, #0+&, please be informed that 4r. 4andorFastad, a orwegian assigned in the Philippines for approximately one year as4ar=eting (pecialist on the orthern Palawan Fisheries 8evelopment Pro'ectassigned to orconsult .(. by the Philippine Fish 4ar=eting uthority is considered anon-resident alien engaged in trade or business in this country.


11/25

IR Rul!ng No. ;0*6

Fe8)ua)1 0 that the A8 7uidelines for the


12/25

%his refers to your letters dated ugust 0 and (eptember &&, #00 re?uesting onbehalf of your client, 4oore 4c;enzie, :nc., "44:$, for a ruling on whether the servicefees received by foreign consultant, 4r. harles 7reenwood, whose services areengaged by 44: are sub'ect to income tax under (ection "a$ or (ection "f$ of the%ax ode, as amended.

:t is represented that 44: is a corporation organized and existing under the laws of thePhilippines, with office address at Gnits #& and &&, #st and &nd Floors, Degaspi (uites6uilding #5+ (alcedo (treet, Degaspi illage, 4a=ati, 4etro 4anila> that 44: is dulyregistered and licensed with the (A as a securities bro=er with ertificate ofRegistration o. )&01 and its ma'or ob'ective is to tap various investment mar=etswithin the sia-Pacific Region> that in order to do so, 44: must engage the expertservices of individual foreign consultants who are familiar with and have contacts inthe various targets countries such as, but not limited to, (ingapore and thatsaid foreign consultants will be paid fixed fees for their services> that 44: will have nocontrol over the activities of the individual foreign consultants> that 44: is onlyconcerned with the results of their services> that said foreign consultants have clientsother than 44:> that the foreign consultants shall most probably be in the Philippinesfor at least #+* days in a year> and that 44: shall, for convenience, ma=e availablereasonable use of certain 44: facilities "such as fax machines, telephones andcomputers$ to the consultants while they are in the Philippines, but the consultantsmay elect to use their own facilities.

:n reply, please be informed that under (ection &&"a$ "#$ of the %ax ode, as amended,foreign consultants "e.g. 4r. 7reenwood$ are considered non resident alien individualsengaged in trade or business in the Philippines and are sub'ect to Philippine incometax in the same manner as resident citizens and aliens on taxable income receivedfrom all sources within the Philippines.

ccordingly, considering the nature of their business engagement, and length ofaggregate stay in the Philippines, their taxable income from 44: is sub'ect to thegraduated rates under (ection "f$ of the %ax ode, as amended by Republic ct o.50C. Further, under (ection &0 of the %ax ode, as amended by Republic ct o.50C, the said foreign consultants may deduct from their gross income received fromall sources within the Philippines, only the following direct costs!

"a$ Raw materials, supplies and direct labor>

"b$ (alaries of employees directly engaged in activities in the course of orpursuant to the business or practice of their profession>"c$ %elecommunications, electricity, fuel, light and water>"d$ 6usiness rentals>"e$ 8epreciation>"f$ ontributions made to the 7overnment and accredited relief organizations for

the rehabilitation of calamity stric=en areas declared by the President> and"g$ :nterest paid or accrued within the taxable year on loans contracted from

accredited financial institutions which most be proven to have been incurredin connection with the conduct of a taxpayers profession, trade or business.

For individuals whose cost of goods sold and direct cost are difficult to determine, amaximum of forty percent ")E$ of their gross receipts shall be allowed as deductionsto answer for business or professional expenses as the case may be.

ery truly yours,

D:3Q3Q :B9(-


13/25

IR RULING NO. *&RR #-01 "(ec. * "#$ )))-))-))C-0+tty. Avaristo 9. 7ana79D8D:; (%A4( that all transactions pertaining to

the sub'ect goods are made outside the Philippines> and that the transshipment isbeing resorted to only because of the lower cost in storage, transport and handlingagent in fees in the Philippines.

:n reply, please be informed that under (ection *"#$ of Revenue Regulations o. #-01dated /anuary &, #001, 2transshipment2 is defined as follows, viz!

2%ransshipment refers to transshipment of articles discharged at ports or airports ofentry located in ustoms territory destined for delivery to the zone, and articles comingfrom the latter intended for export through a Philippine ustoms portKairport of entrywhich articles may be transported under bond, upon examination, and consigned tothe ollector at the port of destinationKexport, who will allow the consignor orconsignee, as the case may be, to ma=e entry for exportation.2

%hus, applying the foregoing definition, no literal transshipment has transpired on theactivities of 79D8 ;%A D%8. "


14/25

electronics automated e?uipment> and that in sworn certification issued by itsorporate (ecretary dated /une #1, &))5, 4i=uni-Phils. is not under investigation, on-going audit, administrative protest, claim for refund or issuance of a tax creditcertificate, collection proceedings, or a 'udicial appeal.

:t is further represented that on /anuary *#, &)), 4i=uni-/apan and 4i=uni-Phils.entered into a (ervice ontract greement "ontract$ whereby 4i=uni-/apan shallprovide the following services to 4i=uni-Phils.!

#. Promotion or mar=eting of goods in /apan and other foreign clients, of whichincludes ma=ing regular visits and representations with relevant corporateofficers of such clients>

&. dvice and assistance in attracting new customers>*. dvice on business plan for the succeeding years and mar=eting strategy>. dvice and assistance in maintaining and assuring product ?uality in

accordance with the specifications of /apanese customers>1. dvice on the selection of suppliers from /apan for ?uality assurance and

cost efficiency> andC. ssistance in the procurement of materials needed for production>

that 4i=uni-/apan shall not be under any obligation to send its employees orrepresentatives to the Philippines> that as a consideration for the said services, 4i=uni-Phils. will pay 4i=uni-/apan a fee in the amount of %wo 4illion Five


15/25

KF 6ee Du 6uilding#)*-##* (en. /. 7il Puyat venue#*)C Pasay ityttention! tty. 6rigido /. 8ulay

7entlemen!

%his refers to your letter dated /anuary , &))+ re?uesting on behalf of your clientyber ity %eleservices "Phils.$, :nc. "%P$ for confirmation of your opinion that%P@s income payments in the form of service fees, to % 7roup Dtd. "%7$ arenot sub'ect to!

#. :ncome %ax under (ections &* "F$ and &+ "6$ "#$ of the %ax ode andconse?uently to 3ithholding %ax under (ection 15 "$ of the same ode> and

&. alue-dded %ax "%$ pursuant to (ection #)+ "$ of the same ode.*. :t is represented that %P is a domestic corporation duly organized and

registered under the laws of the Republic of the Philippines> that it is locatedat &1&+ orporate 9ffice, yber ity :% Par=, po ourt, (ergio 9smeTaRoad, lar= Freeport Bone, Pampanga, Philippines> that it is a lar=8evelopment orporation registered service enterprise> that it is dulyregistered with the 6oard of :nvestments and entitled to the income taxholiday incentive> that %7, on the other hand, is a foreign corporationorganized and existing under the laws of ayman :slands with address at


16/25

:t is represented that 48%P is a corporation duly organized and existing under thelaws of the Philippines with office address at 4ain venue cor. *rd (treet, aviteAconomic Bone, Rosario, avite> that 48%P is a Philippine Aconomic Bone uthority"PAB$-registered Acozone Axport Anterprise with Registration ertificate o. )-55dated ovember &, &))> that 48%P is engaged in the business of manufacturingchips on flexible printed circuit "9F$ for li?uid crystal display "D8$ and organicelectronic luminescence display "9AD8$ of communication products and other relateddevices> that 4%8P employs expatriate employees who by virtue of their positionsreside in the Philippines> that as expatriate employees, they have no definite intentionof returning to their home countries> that their salaries are being paid under a split-payarrangement, that is, a portion of their salaries are being paid in /apan and theremaining portion paid in the Philippines> and that the portions of their salaries paid in/apan were never recorded in the boo=s of 48%P and were not included in thecomputation of the withholding tax on compensation in the Philippines since 48%Phad no control over their payment.

:n this regard, you are re?uesting confirmation of your opinion that the portions of therespective income of the expatriate employees should be included in their incomesub'ect to Philippine income tax> that however since your client has no control over theportion paid in /apan, your client cannot be constituted as the withholding agent for theportion of the compensation paid in /apan> and that therefore the expatriateemployees have to file their respective income tax returns at the end of the taxableyear and include therein the portion paid in /apan and pay the income tax due

thereon.

:n reply, please be informed that under (ection && "F$ of the %ax ode of #005, asamended, the term 2resident alien2 means an individual whose residence is within thePhilippines and who is not a citizen thereof.

:n relation thereto, (ection of Revenue Regulations o. & ":ncome %ax Regulations$provides as follows, viz.!

2n alien actually present in the Philippines who is not a mere transient or so'ourner isa resident of the Philippines for purposes of the income tax. 3hether he is a transientor not is determined by his intentions with regard to the length and nature of his stay. mere floating intention indefinite as to time, to return to another country is not sufficientto constitute him a transient. :f he lives in the Philippines and has no definite intentionas to his stay, he is a resident. 9ne who comes to the Philippines for a definitepurpose which in its nature may be promptly accomplished is a transient. 6ut if hispurpose is of such a nature that an extended stay may be necessary for itsaccomplishment, and to that end the alien ma=es his home temporarily in thePhilippines, he becomes a resident, though it may be his intention at all times to returnto his domicile abroad when the purpose for which he came has been consummatedor abandoned.2

6ased on the foregoing, it can be deduced that an alien "or one who is not a citizen ofthe Philippines$ may be considered a resident of the Philippines for income taxpurposes if! "#$ he or she is not a mere transient or so'ourner, "&$ he or she has nodefinite intention as to his stay, or "*$ his or her purpose is of such a nature that anextended stay may be necessary for its accomplishment, and to that end the alien

ma=es his or her home temporarily in the Philippines.

%hus, the 48%P@s expatriate employees are considered residents of the Philippines forpurposes of our income tax laws.

(ection &* "8$ of the %ax ode provides that, 2"a$n alien individual, whether a residentor not of the Philippines, is taxable only on income derived from sources within thePhilippines2.

Furthermore, (ection & "$ "#$ "c$ of the same ode provides that 2"a$n income tax ishereby imposed! . . . "o$n the taxable income defined in (ection *# of this ode, otherthan income sub'ect to tax under (ubsections "6$, "$ and "8$ of this (ection, derivedfor each taxable year from all sources within the Philippines by an individual alien whois a resident of the Philippines2.

ccordingly, the compensations received by 48%P@s expatriate employees for labor orpersonal services performed in the Philippines are treated as their gross income fromsources within the Philippines under (ection & "$ of the %ax ode which providesthat!2(A. &. :ncome from (ources 3ithin the Philippines. "$ 7ross :ncome from (ources 3ithin the Philippines. %he following items ofgross income shall be treated as gross income from sources within the Philippines!xxx xxx xxx"*$ (ervices. ompensation for labor or personal services performed in thePhilippines>

xxx xxx xxx2

6ased on the foregoing, the expatriate employees should include their wages orsalaries directly paid in /apan "under the split-pay arrangement$ in computing theirindividual income tax liabilities in the Philippines. :n earning such wages or salaries,the said individuals render personal services in the Philippines as expatriateemployees and thus, payment received in consideration thereof is gross income fromsources within the Philippines. %he expatriate employees shall remit additional incometax upon filing of their respective Philippine annual income tax returns because theoffshore portions thereof "being paid in /apan$ were not sub'ected to withholding taxessince 48%P has no control over its payments.

ccordingly, the portions of the expatriates@ salaries paid in /apan are sub'ect toPhilippine income tax.


17/25

Degal (ervice

INCOME TAXATION OF FOREIGN COR>ORATIONS

A. Mean!ng o( 4Res!'en Fo)e!gn Co)9o)a!on5 an' 4Non*Res!'en Fo)e!gnCo)9o)a!on5

Cases:separate file

(:< v. itiban= et. al. and , &)* (R 0 "#00#$

IR Rul!ng No. $;7*

-ecem8e) 0, 0IR RULING NO. $;7*&1, 1) "b$ )))-)) &*5-0)

7entlemen!

%his refers to your letter dated 4ay &5, #00) stating that your client, ynex:nternational ompany "ynex$ and Philippine Dong 8istance %elephone ompany

"PD8%$ executed on 4ay &+, #00) a Pro'ect Angineering (upport (ervices ontract"Angineering ontract$ and a (trategic 4ar=eting Plan (ervices ontract "4ar=etingontract$> that under the two contracts, ynex will send its personnel to the Philippinesto render services to PD8%> that the services to be rendered by ynex under theAngineering ontract shall include, but will not be limited to, the following! "a$4onitoring all aspects of the -1 etwor= Axpansion Pro'ect from a pro'ectengineering support perspective and reviewing all progress to date> "b$ monitoring andtruc=ing the progress report status of the -1 Pro'ect. %his includes reviewing andcommenting on the activities included in the master schedule developed by the primecontractor> "c$ ynex will assist in reviewing all master schedule activities to determinewhether PD8% and the prime contractor are meeting all scheduled pro'ect activities. :naddition, ynex will assist identifying those areas where the prime contractor is notmeeting deadlines to help determine the causes of delays> and "d$ ynex will wor=closely with PD8% to mechanize the monitoring of the -1 report status. %his willinclude assisting in developing a system that will automatically highlight and identifyproblem areas from a pro'ect engineering support perspective> that the services underthe 4ar=eting ontract will include, but will not be limited to the following! "a$ ynexwill share their expertise by reassessing PD8%@s existing short-term mar=eting planand ma=ing specific recommendation to PD8% on how to optimize and improve itsexisting service offerings> "b$ ynex will evaluate and ma=e specific recommendationson PD8%@s action plans for identifying new and valued-added services to increaseprofitability> "c$ ynex will analyze the =ey issues relevant to PD8%@s mar=et, customer,regulatory and competitive environment> that ynex personnel rendering the servicesunder the Angineering ontract will be staying in the Philippines for three "*$ years>that ynex personnel rendering services under the 4ar=eting ontract shall stay in thePhilippines for eight "+$ months> and that ynex has registered a Philippine branchwhich will boo= the service fees paid under the above contracts as part of its gross

income.

:n connection therewith, you now re?uest confirmation of your opinion to the effect thatthe payments by PD8% for services rendered in the Philippines by ynex are sub'ectto the *1E tax on resident foreign corporation under (ection &1 "a$"l$ of the %ax ode,as amended and to the expanded withholding tax under Revenue Regulations o. C-+1, as amended.

:n reply thereto, please be informed that your opinion is hereby confirmed. (inceynex, a company duly organized and existing under the laws of 8elaware, G.(..has been granted ertificate of uthority o. C5 by the 6oard of :nvestments on9ctober #0, #00) to establish a branch office in the Philippines to render specializedengineering and mar=eting support consultancy services to the Philippinetelecommunications industry, particularly the PD8%, it is considered a resident foreigncorporation sub'ect to a tax e?uivalent to *1E of its taxable income derived in thepreceding taxable year from all sources within the Philippines pursuant to (ection &1"a$"l$ of the %ax ode, as amended. 4oreover, gross payments made by PD8% toynex relative to the Pro'ect Angineering (upport (ervices ontract as well as the(trategic 4ar=eting Plan (ervices ontract shall be sub'ect to the #E and 1Eexpanded withholding tax pursuant to (ection # "e$"#$ and (ection # "b$ respectively ofRevenue Regulations o. C-+1, as amended otherwise =nown as the Revised andonsolidated Axpanded 3ithholding %ax Regulations implementing (ection 1) "b$ ofthe %ax ode, as amended.

Finally, gross receipts derived by your client under both engineering and mar=eting

contracts shall be sub'ect to #)E % pursuant to (ection #)& "s$ of the %ax ode, asamended, payment of which shall be made by filing a ?uarterly return of gross receiptsin accordance with (ection ##) also of the %ax ode. s a % taxable entity, yourclient is re?uired to register as a % taxpayer pursuant to (ection #)5 of the sameode.

ery truly yours,"(78.$ :%9R . 8A9FAR:9, /R.8eputy ommissioner

IR Rul!ng No. *

/une $, 0

IR RULING NO. *&1 )))-)) CC-0C4eer, 4eer J 4eer0%< Floor, PD8% 6uildingDegaspi (treet4a=ati ityttention! tty. Damberto 4eer

7entlemen!

%his refers to 6:R Ruling o. G-*)*-0 which was issued to you by this 9ffice onovember , #00 in response to your letter dated /une #, #00 re?uesting forconfirmation of your opinion to the effect that your client, 8AD 49%A FRA( that it has a shipping agent in agayan de 9ro ity> and that it has alsocontracted 8avao 4ulti 4aritime J 4ar=eting orporation "8444$ as its

husbanding or shipping agent in 8avao ity for an indefinite period of time, thus,

showing that it has long resided and is intending to continuously stay and engage inbusiness here in the Philippines.

:t is clear from the foregoing, that both 8AD 49%A FRA(< PR98GA:%AR%:9D :. "84FP: and 7D96D RAAFAR RR:AR( D%8. "7R$ areresident foreign corporations, with their respective offices and places of business inthe Philippines. :n order that a foreign corporation may be regarded as doing businesswithin a (tate, there must be continuity of conduct and intention to establish acontinuous business, such as the appointment of a local agent, and not one of atemporary character. "Pacific 4icronesian Dine, :nc. vs. 8el Rosario and Peligon, 0CPhil. &*, *) citing %hompson on orporations, ol. +, *rd ed., pp. +-+5 and Fisher@sPhilippine Daw of (toc= orporation, p. #1$ s resident foreign corporations, they aresub'ect to Philippine income tax on taxable income derived from all sources within thePhilippines. :n other words, the test of taxability is the 2source2, and the source of anincome is the property, activity or service that produced the income. L:R vs. 6ritish9verseas irways orporation "69$ et. al., 7.R. os. C155*-5, pril *), #0+5>4ertens@ Daw of Federal :ncome %axation, ol. + cited in


19/25

(en. 7il Puyat corner 4a=ati venue4a=ati ityttention! 4r. 8emosthenes 6. 8onato, As?.

7entlemen!

%his refers to your letter dated 4arch #1, #00C stating that you represent two foreigncorporations each of which has purchased two separate condominium properties"hereafter 2ondocorp 9ne and ondocorp %wo2 and collectively referred to as2:nvestors2$> that the two condominium properties purchased "hereafter 2Realtyssets2$ all fall within the forty percent limit which a condominium corporation can sellto foreign corporations such as the :nvestors> that the :nvestors have identicalshareholders and directors and all have leased their Realty ssets to local tenants andthus the :nvestors generate rental income from their Realty ssets situated within thePhilippines> that ondocorp 9ne and ondocorp %wo are willing to apply for andregister to do business in the Philippines with the (ecurities and Axchangeommission "2(A2$ but both are unli=ely to be approved to register to do business inthe Philippines because of present laws and the regulations of the (A promulgatedthereunder relating to the minimum capitalization of foreign corporations "G(H1)),)))$ and the debt to e?uity re?uirements for such foreign corporations thatondocorp 9ne and ondocorp %wo now want to lodge their corporate income taxreturns but are unable to do so because under the prevailing rules of the 6ureau of:nternal Revenue, ondocorp 9ne and ondocorp %wo cannot secure %ax

:dentification umbers "%:$ and thus cannot file their returns> that both corporationscannot secure their %: because of the rules of the (A.

:t is further represented that the problem stated is not an isolated one. %here areliterally hundreds perhaps thousands of foreign corporations who have purchasedcondominium properties and who want to lodge returns for the rental income theyderive from their condominium properties, but are unable to do it because they do nothave a %: as they are not (A registered since they are not ?ualified to so register,before the (A> hence, and the investors, i.e. ondocorp 9ne and ondocorp %woare contemplating the appointment of a Fiduciary under the following conditions!

#. %he assets to be accounted for by the Fiduciary will be all the income derivedby the :nvestors from the Realty ssets.

&. %he Fiduciary will be a Daw Firm and the beneficiaries will be both the:nvestors.

*. %he rental income received by the Fiduciary from the Realty ssets will becurrently distributed to the :nvestors and therefore such income distributedcan be classified as taxable income falling under (ection 1* "a$ "&$ of the:R.

. o deduction shall be ta=en by the Fiduciary for any distribution it currentlyma=es to the :nvestors in computing taxable income of the assets under thecontrol of the Fiduciary.

:n reply, please be informed that based on the foregoing facts, the investors have thestatus of non-resident foreignKcorporation doing business in the Philippines ascontemplated under (ection &) of the %ax ode.

ccordingly, your ?ueries are answered as follows!

#. %he tax return for the foreign investors to be filed by the designated fiduciaryshall be the %ax return of the non-resident foreign corporation doing businessin the Philippines. "(ection &1, %ax ode$

&. 9nly rental income shall be indicated in the :ncome %ax Return. cdphil*. %he %: of the fiduciary will suffice to effect the withholding of the income tax

from the remittances of rental income to the foreign investors.

ery truly yours,D:3Q3Q :B9(-


20/25

:n relation thereto, (ection &.15.# "8$ of Revenue Regulations o. &-0+, as amendedby Revenue Regulations C-&))#, also provides that a final withholding tax e?uivalentto fifteen percent "#1E$ shall be withheld by the withholding agent from the grossincome received by every alien individual occupying managerial and technicalpositions in regional or area head?uarters and Regional 9perating 6usiness planning and coordination> (ourcingKprocurement of raw materials and components> orporate finance and advisory services> 4ar=eting control and sales promotion> %raining and personnel management> Dogistic services> Research and development services, and product development> %echnical support and maintenance> 8ata processing and communication> and business development,

which functions are applicable to a Regional 9perating 8-*&-)&issho "(ingapore$ Pte. Dtd."Philippine Representative 9ffice$Gnit 5), 5KF labang 6usiness %ower#C cacia ve., 46P, yala labang4untinlupa ityttention! 4s. 8oris g7eneral 4anager

7entlemen!

%his refers to your letter dated 8ecember #5, &))5 re?uesting for a ruling exemptingissho "(ingapore$ Pte. Dtd. from the payment of corporate income tax, value-addedtax and withholding taxes.

:t is represented that issho "(ingapore$ Pte. Dtd. W"Philippine Representative 9ffice$"issho$X is duly licensed to transact business in the Philippines under (ARegistration o. F(&))5)+###> that issho is registered with 6:R R89 )1* with %ax:dentification o. &1&-&)-0#0> that issho acts only as a Representative 9ffice ofissho "(ingapore Pte., Dtd., a foreign corporation organized under the laws of theRepublic of (ingapore> that as a representative office, it only acts as a liaison office,deals directly with the clients of the parent company and underta=es activities such asinformation dissemination, promotion of products and services and ?uality control> andthat as a representative office it derives no income from its activities.


21/25

:n reply, please be informed that a representative office is a non-resident foreigncorporation not engaged in any income generating business in the Philippines. s canbe viewed by its licensed activities, issho is a representative office. ccordingly,issho is not sub'ect to income tax. participating in the management, supervision or control of any domesticbusiness, firm, entity or corporation in the Philippines> and any other act or acts thatimply a continuity of commercial dealings or arrangements, and contemplate to that

extent the performance of acts or wor=s, or the exercise of some of the functionsnormally incident to, and in progressive prosecution of, commercial gain or of thepurpose and ob'ect of the business organization! Provided, however, %hat the phrase2doing business! shall not be deemed to include mere investment as a shareholder bya foreign entity in domestic corporations duly registered to do business, andKor theexercise of rights as such investor> nor having a nominee director or officer torepresent its interests in such corporation> nor appointing a representative ordistributor domiciled in the Philippines which transacts business in its own name andfor its own account>

SECTION 0. Definition of Terms. - For the purpose of these Rules and Regulations!

(. "Doing business"shall include soliciting orders, service contracts, opening offices,

whether liaison offices or branches> appointing representatives or distributors,operating under full control of the foreign corporation, domiciled in the Philippines orwho in any calendar year stay in the country for a period totaling one hundred eightyL#+)M days or more> participating in the management, supervision or control of anydomestic business, firm, entity or corporation in the Philippines> and any other act oracts that imply a continuity of commercial dealings or arrangements, and contemplateto that extent the performance of acts or wor=s, or the exercise of some of thefunctions normally incident to and in progressive prosecution of commercial gain or ofthe purpose and ob'ect of the business organization.

%he following acts shall not be deemed "doing business"in the Philippines!#. 4ere investment as a shareholder by a foreign entity in domestic

corporations duly registered to do business, andKor the exercise of rights assuch investor>

&.

*. ppointing a representative or distributor domiciled in the Philippines whichtransacts business in the representative@s or distributor@s own name andaccount>

. %he publication of a general advertisement through any print or broadcastmedia>

1. 4aintaining a stoc= of goods in the Philippines solely for the purpose ofhaving the same processed by another entity in the Philippines>

C. onsignment by a foreign entity of e?uipment with a local company to beused in the processing of products for export>

5. ollecting information in the Philippines> and+. Performing services auxiliary to an existing isolated contract of sale which are

not on a continuing basis, such as installing in the Philippines machinery it


22/25

has manufactured or exported to the Philippines, servicing the same, trainingdomestic wor=ers to operate it, and similar incidental services.

Cases:separate file4arubeni orporation v. ommissioner, 7.R. o. 5C15*, (ept. #, #0+0, #55 (R1))ommissioner v. 6ritish 9verseas irways orp., #0 (R *01(permacet 3haling and (hipping o., *) %.. C#+.. Reedei' YmsterdamZ v. ommissioner, #C& (R +5

4irant Philippines 9perations orporation vs. :R "% ase o. C*+&, 4ay &5,&))$:R v. 6urmeister and 3ain (candinavian ontractor 4indanao, :nc., 7.R. o.#1*&)1, /an. &&, &))5, 1#& (R #&(outh frican irways v. :R, 7.R. o. #+)*1C, Feb. #C, &)#), C#& (R CC1

IR Rul!ng No. &0*&7

Ma)c= 0, 0&7IR RULING NO. &0*&7& )))-)) )+#-+57entlemen !%his refers to your letter dated 8ecember 0, #0+C re?uesting clarification of themeaning of the term 2doing business2 as defined in (ection #"#$ of R.. o. 111 and?uoted in Revenue udit 4emorandum 9rder o. #-+C as follows!2@doing business@ shall include soliciting orders purchases, service contracts, openingoffices, whether called @liaison@ offices or branches . . . any other act or acts that implya continuity of commercial dealings or arrangements, and contemplate to that extentthe performance of acts or wor=s, or the exercise of some of the functions normallyincident to, and in progressive prosecution of, commercial gain or of the purpose andob'ect of the business organization.2:n reply, please be informed that this 9ffice agrees with your opinion that the above-?uoted provision covers only branches of foreign corporations engaged in business inthe Philippines and does not apply to representative offices of foreign corporations notauthorized to engage in any business activity in the Philippines. cdaRepresentative offices which merely facilitate the orders of local distributors to their

head offices without in any manner intervening or ta=ing part in pricing, distributing ormar=eting of products are not considered 2doing business2 as defined in Revenueudit 4emorandum 9rder o. #-+C.ery truly yours,"(78.$ 6:AA:89 . %, /R.ommissioner

IR Rul!ng No. 076*&6

Se9em8e) ;, 0&6IR RULING NO. 076*&6)& )))-)) #51-+1

7entlemen!

%his refers to your letter dated /uly C, #0+ re?uesting a ruling as to the nature of thebusiness which you are going to register with this 9ffice and the taxes that may be duethereon, if any.

:t is represented that the %oyota 4otor orporation of /apan is licensed by the(ecurities and Axchange ommission on /une #, #0+ under Registration o. #)0* toestablish a representative office in the Philippines, the %oyota 4otor orporation"4anila Representative 9ffice$, which is duly registered with the 6oard of :nvestments"69:$ under ertificate of uthority o. #15& dated 4ay &&, #0+ to underta=e thefollowing activities!

#. %o study and investigate export feasibility>&. %o cope with customers@ complaints and to coordinate after sales service for

%oyota customers>*. %o coordinate warranty claims> and. %o research the automotive mar=et of the Philippines.

sub'ect to the following conditions!#$ %hat it shall not engage in any other line of business activity without prior

6oard authority>&$ %hat it shall not avail itself of domestic credit resources>*$ %hat it may employ a maximum of ten "#)$ personnel of which not more than

two "&$ may be expatriates who will be sub'ect to local immigration and laborlaws and whose employment will be strictly in accordance with the laws on

the practice of their professions>$ %hat it shall post a bond or ban= guaranty in the sum of P#)),))).)) toanswer for its liabilities to resident creditors>

1$ %hat it shall inwardly remit at least G(H1),))).)) a year for operatingexpenses proof of which shall be submitted to the 69: at the end of the year>

C$ %hat it shall not derive any income in the Philippines in the exercise of itsbusiness activities> and

5$ %hat it shall submit an annual report of its business activities "using theprescribed 69: Form o. 1)*&$ within sixty "C)$ days from the filing with the6ureau of :nternal Revenue of its income tax returns for each precedingcalendarKfiscal year.

and that its operating expenses are to be sustained thru monthly remittances fromyour


23/25

"a$ . . .>"b$ . . .>"c$ . . .>"d$ the maintenance of a fixed place of business solely for the purpose of . . .collecting information, for the enterprise>"e$ the maintenance of a fixed place of business solely for the purpose ofcarrying on, for the enterprise, any other activity of a preparatory or auxiliary character>"f$ the maintenance of a fixed place of business solely for any combination ofactivities mentioned in sub-paragraphs "a$ to "e$, provided that the overall activity ofthe fixed place of business resulting from this combination is of a preparatory or

auxiliary character.

Gnder the foregoing activities of the 4anila representative 9ffice of the %oyota 4otororporation it seems clear that, that 9ffice is being maintained for the purpose ofcollecting information andKor said activities are of a preparatory or auxiliary character.ccordingly, said 9ffice is not considered a permanent establishment and therefore> itis not sub'ect to income tax in the Philippines, pursuant to the above-cited provisionsof the RP-/apan %ax %reaty.

either is that 9ffice sub'ect to any other internal revenue tax prescribed by theational :nternal Revenue ode, as amended.


24/25

IR Rul!ng No. *

/une $, 0IR RULING NO. *&1 )))-)) CC-0C4eer, 4eer J 4eer0%< Floor, PD8% 6uildingDegaspi (treet4a=ati ity

ttention! tty. Damberto 4eer7entlemen!%his refers to 6:R Ruling o. G-*)*-0 which was issued to you by this 9ffice onovember , #00 in response to your letter dated /une #, #00 re?uesting forconfirmation of your opinion to the effect that your client, 8AD 49%A FRA( that it has a shipping agent in agayan de 9ro ity> and that it has alsocontracted 8avao 4ulti 4aritime J 4ar=eting orporation "8444$ as itshusbanding or shipping agent in 8avao ity for an indefinite period of time, thus,showing that it has long resided and is intending to continuously stay and engage inbusiness here in the Philippines.

:t is clear from the foregoing, that both 8AD 49%A FRA(< PR98GA:%AR%:9D :. "84FP: and 7D96D RAAFAR RR:AR( D%8. "7R$ areresident foreign corporations, with their respective offices and places of business inthe Philippines. :n order that a foreign corporation may be regarded as doing business

within a (tate, there must be continuity of conduct and intention to establish acontinuous business, such as the appointment of a local agent, and not one of atemporary character. "Pacific 4icronesian Dine, :nc. vs. 8el Rosario and Peligon, 0CPhil. &*, *) citing %hompson on orporations, ol. +, *rd ed., pp. +-+5 and Fisher@sPhilippine Daw of (toc= orporation, p. #1$ s resident foreign corporations, they aresub'ect to Philippine income tax on taxable income derived from all sources within thePhilippines. :n other words, the test of taxability is the 2source2, and the source of anincome is the property, activity or service that produced the income. L:R vs. 6ritish9verseas irways orporation "69$ et. al., 7.R. os. C155*-5, pril *), #0+5>4ertens@ Daw of Federal :ncome %axation, ol. + cited in


25/25

:n fine, 6:R Ruling o. G-*)*-0 dated ovember , #00, is hereby revo=ed anddeclared void ab initio, insofar as the exemption from Philippine taxes on any incomethat would be derived by 7R and 84FP: under the harter greement adverted to inthe aforesaid ruling is concerned. casia

ery truly yours,

D:3Q3Q :B9(-

itax baniqued i and ii

Documents