ITax Baniqued I and II

INCOME TAXATION OF ALIENS
A.
GENERAL RULE
RRs:
Sec. 7, Income Tax Regulations (Rev. Regs. No. 2)

Sec. 8, id.
SECTION 7.
Taxation of aliens in general. For purposes of income tax, alien
individuals are divided generally into two classes, namely, resident aliens and nonresident aliens. Resident aliens are taxable in the same manner as citizens of the
Philippines, that is, a resident alien is taxable on income derived from all sources
including sources without the Philippines. Non-resident aliens are taxable only on
income from sources within the Philippines.
SECTION 8.
Taxation of non-resident aliens; classification. Non-resident
alien individuals are divided into two classes: (1) Those engaged in trade or business
within the Philippines, and (2) those not engaged in trade or business within the
Philippines. Non-resident aliens falling within the first class are subject to the
graduated rates established in Section 21 with respect to their net income from
sources within the Philippines. Non-resident aliens falling within the second class are
subject to a flat rate of 20 per cent on their total income from sources within the
Philippines, if such total income does not exceed P23,800, otherwise, the graduated
rates established in Section 21 will apply to the total income if it exceeds P23,800.
(Conforms with amendments by R.A. 2343, effective June 20, 1959.)
The phrase "engaged in trade or business within the Philippines" includes the
performance of personal services within the Philippines. Whether a non-resident alien
has an "office or place of business," however, implies a place for the regular
transaction of business and does not include a place where casual or incidental
transactions might be, or are, effected. Neither the beneficiary nor the grantor of a
trust, whether revocable or irrevocable, is deemed to be engaged in trade or business
in the Philippines or to have an office or place of business therein, merely because the
trustee is engaged in trade or business in the Philippines or has an office or place of
business therein. (Test of "office or place of business" was deleted by R.A. 2343.)
BIR Ruling No. DA-008, Jan. 11, 2008
January 11, 2008
BIR RULING [DA-008-08]
Teresa Marble Corporation
117 Shaw Boulevard
Pasig City
Attention: Ms. Annie G. Dee
Gentlemen :
This refers to your letter dated October 22, 2007 stating that Teresa Marble
Corporation (TMC) is a domestic corporation engaged in mining, supply, distribution
and installation of marble and marble products to local and foreign buyers. In a
Consultancy and Sales Commission Agreement between TMC and Mr. Kim Kihyun, a
national and resident of South Korea, whose principal address is at 85-7 Hyun Hi
Dong, Seodaemum-Gu, Seoul, Republic of Korea, the latter will provide TMC with the
following services:
1. Perform market research and analysis in South Korea for TMC produced
marble and marble products;
2. Promote TMC products by presentation and introduction of TMC made
marbles to South Korean buyers;
3. Provide technical advice to TMC on the designs and quality of marble
products acceptable by South Korean clients;
4. Provide technical as well as market advice to TMC on the latter's marble
and marble products for sale and distribution to the Philippine-based
South Korean clients or buyers with approving offices in Korea; and
5. From time to time, attend consultancy meetings with TMC not exceeding
120 days in a given year.
The foregoing services are to be performed in South Korea but from time to time, Mr.
Kim would need to visit the Philippines for consultancy meetings and other purposes
which stay does not exceed 30 days at any given period and does not exceed 120
days in any given year. In the course of the Agreement, and through the efforts of Mr.
Kim, TMC marbles were pre-qualified and approved in South Korea as to their design
and quality, resulting in the sales and subsequent installation of the same with SH
Enterprise, Inc., a South Korean company with operations at Subic Bay Freeport Zone.
TMC as a result shall pay Mr. Kim in South Korea the sum of P4,008,782.64
representing his consultancy and commission fee as agreed upon in their Agreement.
It is your opinion that payments made by TMC to Mr. Kim are not subject to Philippine
income tax and so, TMC as the payor-corporation is not duty bound to withhold the
taxes from the said income payment. Likewise, Mr. Kim being a non-resident alien
individual not doing business in the Philippines and his professional fees deemed as
income derived from sources outside the Philippines, the same should not be
subjected to income tax and as such TMC need not file the BIR Form 1604-E (Annual
Information Return of Creditable Income Taxes Withheld) for the said transaction.
In reply, please be informed that Section 25 (B) of the Tax Code of 1997, as amended
provides:
"(B)
Nonresident Alien Individual Not Engaged in Trade or Business Within the
Philippines. There shall be levied, collected and paid for each taxable year upon the
entire income received from all sources within the Philippines by every non-resident
alien individual not engaged in trade or business within the Philippines as . . . salaries,
wages, premiums, annuities, compensation, remuneration, . . . a tax equal to twentyfive percent (25%) of such income."
Moreover, Sec. 23 (D) of the same Tax Code states that:
"(D)
An alien individual, whether a resident or not of the Philippines, is taxable
only on income derived from sources within the Philippines;"
According to Section 23 (D), an alien individual like Mr. Kim is taxable only on income
derived from sources within the Philippines. In the case of income from the provision of
services, such income is considered derived from sources without the Philippines if the
services are performed outside the Philippines, as stated in Section 42 (C) (3) of the
1997 Tax Code below:
"Sec. 42(C)(3). Gross Income From Sources Without the Philippines. The
following items of gross income shall be treated as income from sources without the
Philippines:
xxx
xxx
xxx
(3)
Compensation for labor or personal services performed without the
Philippines;"
Accordingly, since Mr. Kim is a non-resident alien individual not doing business in the
Philippines and since his professional fees constitute income derived from sources
outside the Philippines, it can be said that the same are not subject to income tax.
It is to be noted that under Sec. 25 (A) (1) of time Tax Code of 1997, portions of which
states that:
". . . A non-resident alien individual who shall come to the Philippines and stay therein
for an aggregate period of more than one hundred eighty (180) days during any
calendar year shall be deemed a 'non-resident alien doing business in the Philippines',
Section 22 (G) of this Code notwithstanding."
The converse of the above-mentioned rule would mean that Mr. Kim is a non-resident
alien individual who is not doing business in the Philippines, inasmuch as he had not
stayed here for an aggregate period of 100 days during any calendar year.
(B)
Persons enjoying exemption from payment of income taxes pursuant to the
provisions of any law, general or special, . . ."
The payor-corporation is not duty-bound to file the BIR Form 1604-E on income
subject to the expanded withholding tax, if the income is not in effect subject to income
tax. The very purpose of requiring the filing of BIR Form 1604-E covering income
payment which is not subject to the expanded withholding tax is to provide the BIR
with a means to monitor the income taxation of taxable income. The requirement to file
BIR Form 1604-E, however, with respect in particular to the income payments to Mr.
Kim is unnecessary and redundant because, in the event that the nature of his income
is changed to Philippine-source income and which correspondingly will change his
status to that of a non-resident alien individual subject to Philippine income tax, TMC,
under existing rules, is required to make an update of his registration status. (BIR
Ruling No. DA-175-07 dated March 23, 2007)
In view of the foregoing, this Office hereby confirms your opinion that: (1) the income
payments to Mr. Kim are not subject to Philippine income tax; (2) the same are not
subject to the expanded withholding tax; and, (3) TMC is not required to file BIR Form
1604-E (Annual Information Return of Creditable Income Taxes Withheld), with respect
to such non-taxable income payments.
In addition, the provisions of Article 14 of the RP-Republic of Korea Tax Treaty will
show that the latter country was given the primary right to tax income derived by its
residents from independent personal services, thus:
This ruling is being issued on the basis of the foregoing facts as represented.
However, if upon investigation, it will be ascertained that the facts are different, then
this ruling shall be considered as null and void.
"ARTICLE 14
INDEPENDENT PERSONAL SERVICES
1.
Income derived by a resident of a Contracting State in respect of professional
services or other activities of an independent character shall be taxable in that State.
However, such income may be taxed in the other Contracting State:
a)
if he has a fixed base regularly available to him in that other State
for the purpose of performing his activities but only so much of the income as
is attributable to that fixed base; or
b)
if his stay in that other State is for a period or periods aggregating
120 days or more in the calendar year.
Very truly yours,

Commissioner of Internal Revenue
By:
(SGD.) JAMES H. ROLDAN
Assistant Commissioner
Legal Service
2.
The term "professional services" includes especially independent scientific,
literary, artistic, educational or teaching activities as well as the independent activities
of physicians, lawyers, engineers, architects, dentists and accountants."
In the light of the foregoing, this Office is of the opinion that since the remuneration
paid to Mr. Kim is not subject to Philippine income tax, TMC is not therefore mandated
to deduct and withhold the income tax from the said income payment.
Corollary to the non-taxability of the income payment which, under both the 1997 Tax
Code and the aforesaid Tax Treaty was not derived from sources within the
Philippines, TMC is not required to withhold income tax from the amount of such
payment under RR 2-98, as amended, thus:
"Sec. 2.57.5.
Exemption from Withholding The withholding of creditable
withholding tax prescribed in these Regulations shall not apply to income payments
made to the following:
B.
Meaning of Resident and Non-Resident
RRs:
Sec. 5, Income Tax Regulations

Sec. 6, id.
SECTION 5.
Definition. A "non-resident alien individual" means an individual
(a)
Whose residence is not within the Philippines; and
(b)
Who is not a citizen of the Philippines.
An alien actually present in the Philippines who is not a mere transient or sojourner is
a resident of the Philippines for purposes of the income tax. Whether he is a transient
or not is determined by his intentions with regard to the length and nature of his stay. A
mere floating intention indefinite as to time, to return to another country is not sufficient
to constitute him a transient. If he lives in the Philippines and has no definite intention
as to his stay, he is a resident. One who comes to the Philippines for a definite
purpose which in its nature may be promptly accomplished is a transient. But if his
purpose is of such a nature that an extended stay may be necessary for its
accomplishment, and to that end the alien makes his home temporarily in the
Philippines, he becomes a resident, though it may be his intention at all times to return
to his domicile abroad when the purpose for which he came has been consummated
or abandoned.
"(4)
Assuming that the distribution of a decedent retirees' estate is governed by a
will executed in the Philippines, what is the tax treatment of said estate insofar as the
estate tax is concerned? Will properties or assets of the retiree situated abroad form
part of his estate for purposes of the estate tax?
SECTION 6.
Loss of residence by alien. An alien who has acquired
residence in the Philippines retains his status as a resident until he abandons the
same and actually departs from the Philippines. An intention to change his residence
does not change his status as a resident alien to that of a nonresident alien. Thus an
alien who has acquired a residence in the Philippines is taxable as a resident for the
remainder of his stay in the Philippines.
In reply thereto, I have the honor to inform you as follows:
Cases: separate file

Sutton v. U.S., 43 AFTR 2d 79-33
Commissioner v. Nubar, 185 F. 2d 584
Tongsun Park v. Commissioner, 79 USTC 252
Commissioner v. Robertson, L-70116-19, Aug. 12, 1986, 143 SCRA 397
Garrison v. CA, G.R. Nos. 44501-05, July 19, 1990, 187 SCRA 525 (1990)
BIR Ruling No. 267-87
September 7, 1987
BIR RULING NO. 267-87
29 (b) (7) (C) 000-00 267-87
Gentlemen :
(1)
Pursuant to Section 21(a) of the Tax Code as amended, the retiree, whether
a Filipino citizen or resident alien shall be subject to Philippine income tax on income
received during each taxable year from all sources.
However, social security benefits, retirement gratuities, pensions and other similar
benefits received by the retirees, resident or non-resident citizens of the Philippines or
aliens who come to reside permanently in the Philippines from foreign government
agencies and other institutions, private or public are not subject to income tax. (Sec.
29 (b)(7)(c) of the Tax Code, as amended).
(2)
Profits derived by a retiree from his investments in HongKong or other foreign
countries are subject to Philippine income tax.
(3)
All properties real or personal, tangible or intangible wherever situated shall
form part of the gross estate of the retiree and shall be subject to the estate tax
prescribed by Section 87 of the Tax Code as amended. (Sec. 88, Tax Code as
amended).
(4)
Properties or assets of the retirees situated abroad shall form part of his
gross estate for estate tax purposes.
This refers to your letter dated March 30, 1987 stating that the Philippine Retirement
Authority is a government corporation created under and by virtue of Executive Order
No. 1037 dated July 4, 1985; that one of its basic objectives is the development and
promotion of the Philippines as a retirement haven for foreign nationals; that the
retirement program is open to overseas Filipinos who have become permanent
residents or citizens of another country and have resided abroad continuously for a
period of at least seven (7) years and to foreign nationals who are 50 years old and
over, who deposited US$50,000 or its equivalent in other acceptable foreign
currencies with a commercial bank accredited with the Authority; and that aside from
interest income from the said US $50,000 deposit requirement, the retirees may
receive pensions, gratuities and other income from their respective countries of origin
or other foreign countries.
Very truly yours,

(SGD.) EUFRACIO D. SANTOS
Deputy Commissioner
In this connection, you now request a ruling on the following:

"(1)
Is income of whatever nature received by a retiree from a foreign source
subject to tax?
This refers to your letter dated December 19, 1988 stating that your client Mr. Gerhard
Gjuvsland, a Norwegian citizen, is 62 years old; that he came to the Philippines in
November 1988 as a representative of Westfal-Larsen & Co. A/S to look into the
possibility of putting up a representative office in Manila, which will be a
communication and coordination office; that being eligible to become a member of the
Philippine Retirement Program of the Philippine Retirement Authority he applied and
was admitted to the Philippine Retirement Program of the Philippine Retirement
Authority; that on December 8, 1988, his temporary visitor's visa was
amended/changed to a Special Retiree Residents visa; that you secured in his behalf
Tax Account No. G2121-H2226-A-6; that per Philippine Retirement Program, he is
"(2)
In particular, assuming that a retiree has investments in HongKong or other
foreign countries, are profits derived therefrom subject to tax?
"(3)
Are the properties of the retirees situated in the Philippines or abroad subject
to estate tax upon his or her death?

February 3, 1989
21 (a) 000-00 012-89
Madam:
exempt from taxes on any pensions received by him; that Westfal/Larsen & Co. A/S
has applied with the Securities and Exchange Commission permission to do business
in the Philippines by putting up a representative office here in Manila; and that Mr.
Gjuvsland was appointed as representative/general manager of the said office for
which he will receive a monthly salary from Westfal-Larsen's head office in Norway.
This refers to your letter dated March 29, 1989 requesting confirmation of your opinion
to the effect that an alien investing in the Philippines, having been granted a special
investor's resident visa under P.D. No. 1851 but not intending or not having decided to
actually reside therein, will still be considered a non-resident alien for income tax
purposes.
Based on the foregoing representations, you now request in effect a ruling as to

whether or not your said client is liable to pay any tax in the Philippines, and in the
affirmative, the kind of tax he should pay; and whether he is still liable to pay taxes in
Norway if he is already paying the same taxes in the Philippines.
It is represented that your client; Mr. Mark Takeuchi, a Japanese national is planning to
invest in the Philippines; that with his planned investment, he will be qualified to apply
for a special investor's resident visa pursuant to P.D. No. 1851, as amended; and that
a special investor's resident visa is a permanent resident visa permitting a qualified
alien to reside in the Philippines for definite period while his/her special investment in
the Philippines is not withdrawn.
In reply, please be informed that as a consequence of the amendment/change of Mr.

Gerhard Gjuvsland's temporary visitor's visa to that of a Special Retiree Residents visa
as a result of his admission to the Philippine Retirement Program of the Philippine
Retirement Authority created under and by virtue of Executive Order No. 1037, one of
the basic objectives of which is the development and promotion of the Philippines as a
retirement haven for foreign nationals, his status for Philippine tax purposes was
converted to that of a resident alien subject to Philippine income tax under Section
21(a) of the Tax Code, as amended. Accordingly, your said client is liable to pay
Philippine income tax on his taxable compensation, business and other income as
defined in Section 28 of the Tax Code, other than the income subject to tax under
paragraphs (c), (d) and (e) of Section 81 of the said Code received during each
taxable year from all sources. However, social security benefits, retirement, gratuities,
pensions and other similar benefits received by resident or non-resident citizen of the
Philippines or aliens who come to reside permanently in the Philippines from foreign
government agencies and other institutions, private or public are not subject to income
tax. (Sec. 28 (b) (7) (c). Tax Code, as amended)
Moreover, it is suggested that, your query on whether your said client is still liable to
pay taxes in Norway if he is already paying the same taxes in the Philippines, be
referred to the tax authority of Norway since they are in a better position to answer the
same. However, under Section 29(c)(3)(3) of the Tax Code, as amended, if the
taxpayer signifies in his return his desire to have the benefits of paragraph 3 of said
Section 29(c) of the Tax Code, the tax imposed by Title II of the same Code shall be
credited with, in case of an alien residents of the Philippines, the amount of any such
taxes paid or accrued during the taxable year to any foreign country, if the foreign
country of which such alien resident is a citizen or subject, in imposing such taxes
allows a similar credit to citizens of the Philippines residing in such country.
Very truly yours,
(SGD.) JOSE U. ONG
Commissioner
April 18, 1989
22 (b) 000-00 079-89
In reply thereto, I have the honor to inform you that the rationale behind Presidential
Decree No. 1851 is the government's policy to attract foreign investment into our
country by providing incentives such as the issuance of a special investor's resident
visa to aliens who are willing and able to invest the amount of at least US $75,000 in
the Philippines; and that should the alien withdraw his said investment from the
Philippines the special investor's resident visa issued to him will automatically expire.
Thus, the special investor's resident visa is issued to entitle an alien who has invested
US $75,000 to reside in the Philippines while his investment subsists and not for the
purpose of determining his status for tax purposes.
Considering that the tax status of your client under the aforementioned circumstances
is not treated in the RP-Japan Tax Treaty then the pertinent provisions of the National
Internal Revenue Code shall govern. Under Section 22(a)(1) of the Tax Code, a nonresident alien individual who shall come to the Philippines and stay therein for an
aggregate period of more than 180 days during any calendar year shall be deemed a
non-resident alien doing business in the Philippines, Section 20(g) of the Tax Code
notwithstanding. As such, he is subject to tax in the same manner as resident citizens
and aliens on taxable income received from all sources within the Philippines. On the
other hand, if the stay in the Philippines does not exceed 180 days during any
calendar year, the individual is considered a non-resident alien not engaged in trade or
business in the Philippines; hence, his entire gross income received from all sources
within the Philippines is subject to income tax at the rate of 30%. (Sec. 22(b), Tax
Code)
Such being the case, since your client who has been issued a special investor's
resident 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 the
Philippines subject to a tax of 30% on his entire gross income received from all
sources within the Philippines, pursuant to Section 22(b) of the Tax Code, as
amended.
Very truly yours,
(SGD.) JOSE U. ONG
Commissioner
Gentlemen:
May 27, 1987

45 (a) (1) (B) 000-00 136-87
2.
3.
4.
5.
Sir:
This refers to your letter dated February 11, 1987 requesting a ruling as to whether or
not your clients who are foreign missionaries residing in the Philippines, are required
to file income tax returns.
It is represented that the foreign missionaries are receiving donations and support
from the United States, that they are in the Philippines to spread the word of God to
our countrymen and assist in any way people in need, that they depend upon said
donations and support for their sustenance, that they do not receive any salary or
income in any form in the Philippines; and that their support financing sent through a
Philippine Bank in the form of telegraphic transfer.
In reply, please be informed that every alien residing in the Philippines, regardless of
whether the gross income was derived from sources within or without the Philippines
are required to file income tax returns [Sec. 45 (a)(1)(B), Tax Code as amended by
Executive Order No. 37] Accordingly, the said foreign missionaries are required to file
their income tax returns for the support which is considered income being received by
them pursuant to Section 29 of the same Code.
Very truly yours,
(SGD.) EUFRACIO D. SANTOS
Deputy Commissioner

July 10, 1997
21 (f) 000-00 076-97
Cultural Center of the Philippines
CCP Complex, Roxas Boulevard
Pasay City
Attention: Ms. Myrna A. Lopez, M.D.
Executive Director/Manager
Philippine Philharmonic Orchestra
Gentlemen:
This refers to your undated fax letter stating that the Cultural Center of the Philippines
(CCP) hired Maestro Ruggero Barbieri of Bergamo, Italy, as Deputy Music Director
and Principal Guest Conductor of the Philippine Philharmonic Orchestra by virtue of a
Letter Agreement dated September 1, 1996; that his appointment commenced on
September 1, 1996 and ends on December 31, 2000; that he has agreed to perform
the following responsibilities, to wit:
1.
Provides for the artistic direction of the orchestra;
6.
Plans and submits orchestra training and developmental program to

management for study and implementation;
Plans and implements the future Season Concerts of the orchestra;
Decides the general programming of all PPO concerts;
As the need arises, schedules and/or conducts daily rehearsals of the
orchestra; puts a program for the training of assistant conductors and assign
performances to them;
Performs such other related tasks for the upliftment of the PPO and the
Center's functions;
that in consideration of the forgoing functions of Maestro Ruggero Barbieri, the CCP
agreed to pay a monthly professional fee of Six Thousand Five Hundred U.S. Dollars
($6,500.00) and other applicable allowances attendant to the former's contractual
appointment with the Center plus living accommodation including board and lodging;
that in the supplemental contract with the CCP, as represented by Mr. Baltazar N.
Endriga, the following provisions have been agreed upon, to wit:
1. Vacation Leave with Pay
25 days inclusive of 4 days for travel during Christmas season
18 days inclusive of 4 days for travel during Easter
2. Vacation Leave without Pay
45 days during the months of July-August
3. While PPO is priority during the PPO Concert Seasons, Mr. Barbieri has the
option to accept conducting concert abroad during this time should there be a
need, since this will allow him to establish connection with other
orchestras/conductors/diplomats/cultural
offices/agents
performing
companies which he considers a "fundamental element for the image of the
PPO"
4. Invitational performances and Outreach performances in the Philippines are
considered part of Mr. Barbieri's functions as stated in #6 of the LetterAgreement "perform such other related tasks for the upliftment of the PPO
and the Center's function". Should the orchestra be invited for performances
abroad, Mr. Barbieri's professional fee shall be undertaken by the negotiating
party.
Based on the foregoing, you now request for a ruling on whether Maestro Ruggero
Barbieri can be considered as a non-resident or a resident alien for income tax
purposes and tax he has to pay.
In reply, please be informed that Article 14 of the RP-Italy Tax Treaty provides as
follows:
"Article 14
Personal Services
"1.
Subject to the provisions of Article 15, 17 and 18, 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 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 State.
"2.
...
"3.
The term "professional services" includes, especially, independent scientific,
literary, artistic, educational or teaching activities as well as independent activities of
physicians, lawyers, engineers, architects, dentists and accountants.
xxx
xxx
xxx
Such being the case, Maestro Ruggero Barbieri, who has been engaged by the
Cultural Center of the Philippines as Deputy Music Director and Principal Guest
Conductor of the Philippine Philharmonic Orchestra from September 1, 1996 to
December 31, 2000, shall be considered as a resident alien for income tax purposes.
As a resident alien, who pursues his profession in the field of arts, he shall be subject
to tax under Section 21(f) of the Tax Code, as amended, on his taxable income as
determined in Section 27 also of the Tax Code, as amended.
Stated hereunder are the pertinent provisions of the Tax Code, to guide Mr. Barbieri in
the computation of his come tax liability:
"SEC. 21.
Tax on citizens or residents.
xxx
xxx
xxx
"(f)
Simplified Net Income Tax for the Self-Employed and for Professionals
Engaged in the Practice of Profession. A tax is hereby imposed upon the taxable
net income as determined in Section 27 received during the taxable year from all
sources, other than income covered by paragraphs (b), (c), (d) and (e) of this section
by 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 in
accordance with the following schedule:
Not over P10,000 3%
Over P10,000 but not over P30,000 P300 + 9% of excess over P10,000
Over P30,000 but not over P120,000
P2,100 + 15% of excess over P30,000
Over P120,000 but not over P350,000
P15,600 + 20% of excess over P120,000
Over P350,000 P61,600 + 30% of excess over P350,000
Furthermore, the deductions from gross income of self-employed and professionals
are those provided for under Section 29 of the Tax Code, as amended, namely:
"SEC. 29.
Deductions from gross income.
xxx
xxx
xxx
"(a)
Raw materials, supplies and direct labor;
"(b)
Salaries of employees directly engaged in activities in the course of or
pursuant to the business or practice of profession;
"(c)
Telecommunications, electricity, fuel, light and water;
"(d)
Business rentals;
"(e)
Depreciation;
"(f)
Contributions made to the Government and accredited relief organizations for
the rehabilitation of calamity stricken areas declared by the President; and
"(g)
Interest paid or accrued within a taxable year on loans contracted from
accredited financial institutions which must be proven to have been incurred in
connection with the conduct of a taxpayer's profession, trade or business.
"For individuals whose cost of goods sold and direct costs are difficult to determine, a
maximum of forty percent (40%) of their gross receipts shall be allowed as deductions
to answer for business or professional expenses as the case may be."
After deducting the applicable items enumerated in the preceding allowable

deductions, the applicable personal exemptions shall likewise be deducted, as follows:
"Section 29.
Deductions from gross income.
xxx
xxx
xxx
"(1)
Personal exemptions allowable to individuals. (1) Basic personal
exemption. For the purpose of determining the tax provided in Section 21(a) of this
Title, there shall be allowed a basic personal exemption as follows:
For single individual or married individual judicially decreed as legally separated with
no qualified dependents P9,000.00
For head of a family
P12,000.00
For each married individual
P18,000.00
Provided, That in case one of the spouses is deriving taxable income, only said
spouse shall be allowed to avail of the aforesaid basic personal exemption for married
individual.
"For purposes of this paragraph, the term "Head of Family" means an unmarried or
legally separated man or woman with one or both parents, or with one or more
brothers and sisters, or with one or more legitimate, recognized natural or legally
adopted children living with and dependent upon him for their chief support, where
such brothers or sisters or children are not more than twenty-one (21) years of age,
unmarried and not gainfully employed or where such children, brothers or sisters,
regardless of age are incapable of self-support because of mental or physical defect.
cda
"(2)
Additional exemption
"(A)
Taxpayers with dependents. A married individual or a head of a family shall
be allowed an additional exemption of five thousand pesos (P5,000.00) for each
dependent: Provided, That the total number of dependents for which additional
exemptions may be claimed shall not exceed four dependents; Provided, further, That
the additional exemption for dependents shall be claimed by only one of the spouses
in the case of married individuals.
"In case of legally separated spouses, additional exemptions may be claimed only by
the spouse who was awarded custody of the child or children: Provided, That the total
amount of additional exemptions that may be claimed by both shall not exceed the
maximum additional exemptions herein allowed.
"For purposes of this paragraph, a dependent means a legitimate, recognized natural
or legally adopted child chiefly dependent upon and living with the taxpayer if such
dependent is not more than twenty-one (21) years of age, unmarried and not gainfully
employed or if such dependent, regardless of age, is incapable of self-support
because of mental or physical defect.
xxx
xxx
xxx"
After deducting the applicable basic personal exemption and additional exemption, the
resulting amount shall be the taxable income, which shall be the tax base to which the
aforementioned rates shall be applied in computing the tax due.
For an easier understanding of the aforementioned provisions, please take note of the
following computation:
Gross Income from Business/Profession
P xxx
(less) Deductions from Gross Income (Section 29, Tax Code, as amended)
Net Income from Business/Profession

P xxx
(less) Personal Exemptions (Basic Personal & Additional) (Section 29(1)xxx
Net Taxable Income

P xxx
====
permanently in the Philippines shall likewise be treated as a non-resident

citizen for the taxable year in which he arrives in the Philippines with respect
to his income derived from sources abroad until the date of his arrival in the
Philippines. . . .
xxx
Please be guided accordingly.

Very truly yours,
LIWAYWAY VINZONS-CHATO
BIR Ruling No. DA-390-04
July 20, 2004
Sections 23 (B) & 24 (B) (1)
Mr. Francisco M. Reyes
#500 Del Pilar St., Manggahan
Pasig City 1611
Sir:
This refers to your letter dated March 26, 2004 requesting on behalf of your sister,
Romana M. Reyes, for exemption from the 7.5% final withholding tax on interest
earned from her foreign currency deposits and information on other tax privileges
accorded to OFWs and non-resident Filipinos.
It is represented that Romana M. Reyes is a non-resident Filipino citizen; and that she
acquired her permanent resident status in the U.S.A. in October of 2001.
In reply, please be informed that Section 22(E) as implemented by Section 2 of
Revenue Regulations (Rev. Regs.) No. 9-99 defines non-resident citizen as follows:
(1) A citizen of the Philippines who establishes to the satisfaction of the
Commissioner the fact of his physical presence abroad with a definite
intention to reside therein.
(2) A citizen of the Philippines who leaves the Philippines during the taxable year
to reside abroad, either as an immigrant or for employment on a permanent
basis.
(3) A citizen of the Philippines who works and derives income from abroad and
whose employment thereat requires him to be physically present abroad most
of the time during the taxable year.
(4) A citizen who has been previously considered as non-resident citizen and
who arrives in the Philippines at any time during the taxable year to reside
It appears that your sister, Romana M. Reyes is a non-resident citizen under group #2
above. As a non-resident citizen, she is taxable only on income derived from sources
within the Philippines pursuant to Section 23(B) of the Tax Code of 1997. Moreover,
she is exempt from filing income tax returns. However, she is required to make an
information return with respect to her income derived from sources within the
Philippines by accomplishing BIR Form No. 1701C or the new computerized Form No.
1703, properly labeling among others the appropriate "tax due space" as EXEMPT.
The accomplished BIR Form No. 1701C or new BIR Form No. 1703 whichever is
applicable, together with other relevant supporting papers (e.g. Employer's Declaration
of Income Earned, Financial Statements), shall be filed not later than April 15 following
the taxable year, with the Foreign Post or the Revenue District Office which has
jurisdiction over her place of residence.
Pursuant to Section 24(B)(1) of the Tax Code of 1997, interest income received by an
individual taxpayer, except a non-resident individual, from a depository bank under the
expanded foreign currency deposit system shall be subject to a final income tax at the
rate of seven and one-half percent (7.5%) of such interest income (cited in BIR Ruling
No. 042-2000 dated September 15, 2000). To avail of the exemption from the tax on
interest income from foreign currency deposit, the depositor is required to execute a
written permission allowing its depository bank to inform the Commissioner of Internal
Revenue that as a non-resident, the depositor is exempt from the tax. A depositor who
fails to comply with this requirement, which constitutes a limited waiver of the
confidentiality of foreign currency deposits, shall not be entitled to the exemption
privilege (Section 2.58, Rev. Regs. No. 10-98). The non-resident individual must
present evidence that he is not a resident of the Philippines, which evidence shall
consist of the original or certified copy of any of the following:
(1) An immigration visa issued by the foreign government in the country where
he is a resident of; or
(2) A certificate of residency which is issued by the Philippine Embassy or
Consulate in the foreign country of his residence; or
(3) A certificate of the contract of employment of an overseas contract worker
which is duly registered with the Philippine Overseas Employment Agency
(POEA); or a Seaman's Certificate, in the case of a Filipino seaman; or
(4) A certification from the Bureau of Immigration of the Philippines that a nonresident alien is not a resident of the Philippines; or
(5) A certification from the Department of Foreign Affairs (DFA) of the Philippines
that the individual is a regular member of the diplomatic corps of a foreign
government and is entitled to income tax exemption under an international
agreement to which the Philippines is a signatory (Section 2.24(B) of Rev.
Regs. No. 10-98).
Moreover, the Foreign Currency Bank Account must be in the name of the nonresident individual.
In case of failure to comply with the above requirements, the 7.5% final withholding tax
will be imposed on interest income from foreign currency deposit of the non-resident
individual pursuant to Section 24(B)(1) of the Tax Code of 1997. If the bank account is
jointly in the name of a non-resident citizen and his spouse or dependent who is a
resident in the Philippines, 50% of the interest income from such bank deposit shall be
treated as exempt while the other 50% shall be subject to the 7.5% final withholding
tax subject to compliance of the above requirements.
Whether the interest earned from the foreign currency deposits of Romana M. Reyes
is subject to the 7.5% final withholding tax would depend on whether or not she
complied with the requirements in the availment of the exemption under Rev. Regs.
No. 10-98.
However, if upon investigation, it will be disclosed that the facts are different, then this
ruling shall be considered as null and void.
Very truly yours,
By:
(SGD.) JOSE MARIO C. BUAG
Deputy Commissioner
Legal & Inspection Group
BIR Ruling No. 053-2010, Sept. 14, 2010
September 14, 2010
24 (A); BIR Ruling 012-89
Mr. Steinar Kristensen
Paseo Park Viewsuites, Tower 1 Unit 17N
142 Valero Street
1227 Makati
Sir:
This refers to your letter dated June 17, 2010 requesting for a ruling that you may be
classified as resident alien for tax purposes for taxable year 2007.
It is represented that you are a Norwegian citizen; that you came to the Philippines in
February 2007; that you applied for and were admitted to the Philippine Retirement
Program of the Philippine Retirement Authority; that on June 13, 2007, you obtained a
Special Retiree Residents Visa; that you have been staying in Makati from 2007 up to
the present as evidenced by your Contracts of Lease for the years 2007 and 2008;
and that you paid your taxes for the years 2007 and 2008 in the Philippines as a
resident alien according to Philippine tax laws.
Based on the foregoing representations, you now request, in effect, for a ruling that
you should be properly classified as a resident alien and, as such, should be liable for
Philippine income tax under Sec. 24 (A) of the 1997 Tax Code, as amended.
In reply, please be informed that as a consequence of obtaining the Special Retiree
Residents Visa as a result of your admission to the Philippine Retirement Program
under Executive Order No. 1037, your status for Philippine tax purposes was in fact
converted to that of a resident alien subject to Philippine income tax under Section 24
(A) of the 1997 Tax Code, as amended. (BIR Ruling 12-89 dated February 3, 1989)
Relative thereto, paragraph 1 of Article 4 of the RP-Norway Tax Treaty defines
"resident of a Contracting State" as one who, under the laws of the State, is liable to
tax therein by reason of his domicile, residence, place of management or any other
criterion of a similar nature. By reason of being a holder of a Special Retiree Residents
Visa, you are considered to be a resident of the Philippines and as such meet the
criterion of the above provision of the Tax Treaty. Inasmuch as you have paid your
income taxes for 2007 in the Philippines, you have been taxed as a resident alien for
2007 both under Philippine tax law and under the Article of the RP-Norway tax treaty.
Accordingly, as a resident alien, you are liable to pay Philippine income tax on your
taxable compensation, business and other income in the Philippines as defined in
Section 32 of the 1997 Tax Code. However, social security benefits, retirement
gratuities, pensions and other similar benefits you receive from foreign government
agencies and other institutions, private or public are not subject to income tax pursuant
to Sec. 32 (b) (6) (c) 1997 Tax Code.
Very truly yours,
(SGD.) KIM S. JACINTO-HENARES
BIR Ruling No. DA (I-034) 376-2008, Oct. 31, 2008
October 31, 2008
BIR RULING [DA-(I-034) 376-08]
DA290-05
Lobrido Lapore Ponde Villa Distrito Causapin
Suite No. 2, 3rd Floor, Prudential Life Building
Luzuriage San Juan Street
Bacolod City
Attention: Atty. Arnel L. Lapore
Gentlemen:
This refers to your letter dated June 17, 2008 stating that your client, Mr. Johannes
Cornelis Koelman (Mr. Koelman), is a Dutch National and a resident of Talisay City,
Negros Occidental; that he entered in the Philippines in August 1998 and since then
lived in the Philippines as a resident alien having been married to a Filipina, Portia
Parcon Koelman of Isabela, Negros Occidental; that Mr. Koelman obtained his Alien
Certificate of Registration with No. E157995 renewed on October 19, 2007 and has
been in possession thereof since the time of its acquisition, and is unblemished of any
derogatory records; that Mr. Koelman while in Netherlands has invested in the
corporation as a stockholder; and that the corporation intends to undergo a liquidation
process and his investment shall be accordingly returned to him in the form of
liquidating dividends.
Based on the foregoing representations, you now request for an opinion as to whether
or not the liquidating dividends to be received by Mr. Koelman, as a resident alien,
from a corporation in Netherlands is subject to income tax in the Philippines; and
whether the sale of the said shares is likewise taxable in the Philippines.
In reply thereto, please be informed that this Office had already occasioned to rule on
the matter, when it said in BIR Ruling No. DA290-05 dated June 27, 2005, as follows:
". . . Section 22(F) of the Tax Code of 1997 defines the term 'resident alien' as an
individual whose residence is within the Philippines and who is not a citizen thereof.
Conversely, Section 5 of Regulations No. 2, otherwise known as the Income Tax
Regulations defines a 'non-resident alien individual' as an individual
(a) Whose residence is not within the Philippines; and
(b) Who is not a citizen of the Philippines.
An alien actually present in the Philippines who is not a mere transient or sojourner is
or abandoned."
A careful scrutiny of the above-cited laws disclosed that Mr. Koike is considered a
resident alien for purposes of his income tax liability in the Philippines as he has
passed the requisites for a resident alien. As represented, he has been involved with
the Company since 1996 when it was incorporated. In fact, when Blaze started its
operations in February 1998, he has served as its Vice President and subsequently on
October 28, 1998, obtained a special non-immigrant visa. Moreover, being the
President of the Company he is required to be in the Philippines most of the time since
he manages the day-to-day operations.
. . . this Office holds that he is deemed a resident alien for Philippine income
tax purposes."
Corollarily, Section 24 (A) (1) (c) of the Tax Code of 1997 provides that on the taxable
income defined in Section 31 of this Code, other than income subject to tax under
Subsections (B), (C) and (D) of this Section, derived for each taxable year from all
sources within the Philippines by an individual alien who is a resident of the Philippines
shall be taxed at the rates of 5% to 32%.
Accordingly, having established Mr. Koelman's status as a resident alien, his income
therefore in the form of liquidating dividends derived from his investment in a foreign
company is considered as income from sources derived outside the Philippines,
hence, not subject to income tax and consequently to withholding tax on
compensation.
On the other hand, the sale of his shares in a Netherlands corporation is subject to
Article 13 (4) of the RP-Netherlands Tax Treaty which provides that gains from the
alienation of any property other than those mentioned in paragraphs 1, 2 and 3, shall
be taxable only in the State of which the alienator is a resident. Inasmuch as Mr.
Koelman is deemed a resident alien for Philippine income tax purposes, the net gain
from the sale of his shares in a Netherlands corporation is subject to the Philippine
income tax under Section 24 of the Tax Code of 1997.
ruling shall be considered null and void
Very truly yours,
Legal Service
C.
Meaning of Engage in Trade or Business
RRs:
Sec.8
SECTION 8.
Taxation of non-resident aliens; classification. Non-resident
alien individuals are divided into two classes: (1) Those engaged in trade or business
within the Philippines, and (2) those not engaged in trade or business within the
Philippines. Non-resident aliens falling within the first class are subject to the
graduated rates established in Section 21 with respect to their net income from
sources within the Philippines. Non-resident aliens falling within the second class are
subject to a flat rate of 20 per cent on their total income from sources within the
Philippines, if such total income does not exceed P23,800, otherwise, the graduated
rates established in Section 21 will apply to the total income if it exceeds P23,800.
(Conforms with amendments by R.A. 2343, effective June 20, 1959.)
The phrase "engaged in trade or business within the Philippines" includes the
performance of personal services within the Philippines. Whether a non-resident alien
has an "office or place of business," however, implies a place for the regular
transaction of business and does not include a place where casual or incidental
transactions might be, or are, effected. Neither the beneficiary nor the grantor of a
trust, whether revocable or irrevocable, is deemed to be engaged in trade or business
in the Philippines or to have an office or place of business therein, merely because the
trustee is engaged in trade or business in the Philippines or has an office or place of
business therein. (Test of "office or place of business" was deleted by R.A. 2343.)
Chang Hsiao Liang v. Commissioner, 23 T.C. 1040
April 26, 1984
22-a-51-81-080-84
Gentlemen:
In reply to your letter dated November 16, 1982, please be informed that Mr. Mandor
Fastad, a Norwegian assigned in the Philippines for approximately one year as
Marketing Specialist on the Northern Palawan Fisheries Development Project
assigned to Norconsult A.S. by the Philippine Fish Marketing Authority is considered a
non-resident alien engaged in trade or business in this country. Hence, he is subject to
income tax imposed by Section 21 of the Tax Code based on his entire net income
received from all sources in the Philippines. (Sec. 22(a), Tax Code)
Very truly yours,
(SGD.) RUBEN B. ANCHETA
Acting Commissioner

April 26, 1984
022-a-043-81-081-84
Sir:
In reply to your letter dated October 19, 1983, please be informed that since you are a
Norwegian citizen employed as field coordinator of Norconsult in Janopol Hydro Power
Development Project of the National Electrification Administration for the period from
July 30, 1982 to December 31, 1984 you are considered a non-resident alien engaged
in trade or business in the Philippines. Hence, you are subject to income tax imposed
by Section 21 of the Tax Code based on your entire net income received from all
sources in the Philippines. (Sec. 22(a), Tax Code)
Very truly yours,
Acting Commissioner
April 26, 1984
022-a-043-81-082-84
Gentlemen:
In reply to your letter dated October 1, 1983, please be informed that Mr. Stein Hanser,
a Norwegian citizen employed as Transport Economist on the IBRD financed
Interisland Passenger Transport Study assigned to Norconsult A.S. by Philippine Ports
Authority for the period from October, 1982 to November, 1983 is considered a nonresident alien engaged in trade or business in the Philippines. Hence, he is subject to
income tax imposed by Section 21 of the Tax Code based on his entire net income
received from all sources in the Philippines. (Sec. 22(a), Tax Code)
Very truly yours,

Acting Commissioner

August 26, 1985
22-a-1 082-84 143-85
Sir:
This refers to your letter dated May 27, 1985 requesting a ruling as to whether your
client, Mr. George F. McBride is subject to income tax imposed by Section 21 of the
Tax Code based on his entire net income received from all sources in the Philippines.
It is represented that Mr. George McBride, an American citizen came to the Philippines
under a temporary visitor's visa which admission status was later on changed to that of
a pre-arranged employee during his stay in the Philippines for the period from
September 28, 1984 to September 28, 1985, employed by International Flavors and
Fragrances (Philippines), Inc. as its Director of Flavor Technical Services to train
Filipino Technicians on flavor technology.
In reply, please be informed that under the foregoing representation, Mr. George F.
McBride is considered a non-resident alien engaged in trade or business in the
Philippines and is, therefore, subject to income tax imposed by Section 21 of the Tax
Code based on his entire net income received from all sources in the Philippines.
(Sec. 22(a)(1), Tax Code)
Very truly yours,
Acting Commissioner
January 31, 1986
022-a 082-84 008-86
Gentlemen:
In reply to your letter dated June 15, 1984, please be informed that Mr. Kjell
Heggelund, a Norwegian citizen engaged as Resident Engineer in the Rural
Electrification Programme of the National Electrification Administration for the period
from June 28, 1983 to December 31, 1984, is considered non-resident alien engaged
in trade or business in the Philippines. Hence, he is subject to income tax imposed by
Section 21 of the Tax Code based on his entire net income received from all sources in
the Philippines (Sec. 22(a), Tax Code).
Very truly yours,
Acting Commissioner

February 14, 1995
28 (b)-(6) 102 000-00 031-95
Department of Transportation & Communications
Philcomcen Bldg., Ortigas Avenue
Pasig, Metro-Manila
Gentlemen:
This refers to your letter dated October 6, 1994 stating that in connection with the
implementation of the EDSA LRT Project, you have engaged the services of Societe
Francaise d'Studes et de Realisations de Transports Urbains (SOFRETU) as your
technical consultants; that SOFRETU, a French company and a subsidiary of the Paris
Transit Authority, shall provide you with the technical support and expertise which is
vital in the implementation of the Project; that the NEDA Guidelines for the Hiring of
Consultants for Government infrastructure projects provide that you may be allowed to
seek exemption from all taxes, duties, fees, levies and other impositions under the
laws and regulations of the Philippines; and that the said provision was incorporated in
your agreement with SOFRETU.
Based on the foregoing representations, you are now requesting, in effect, for a ruling
exempting SOFRETU and its experts from the payment of all taxes, duties, fees or
levies that should be imposed on the consultants during the duration of their contract
with you.
It is noted that under Article 13.2 of the Deed of Agreement you executed with
SOFRETU the duration of the services will be thirty-three (33) months for the
construction period and five (5) years for the operations period.
In reply, please be informed that Article 6 paragraph 2(i) of the RP-French Republic
Tax Treaty provides, viz:
"Article 5
"1.
....
"2.
The term "permanent establishment" shall include especially:
"a)
...
xxx
xxx
xxx
"i)
the furnishing of services including consultancy services by an enterprise
through employees or other personnel, where activities that by nature continue (for the
same or a connected project) within a Contracting State for a period or periods
aggregating more than six months within any twelve-month period."
In connection therewith, Article 7, paragraph 1 of the RP-French Republic Tax Treaty
provides, viz:
"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 or has carried
on business as aforesaid, the profits of the enterprise may be taxed in the other State
but only so much of them as is attributable to that permanent establishment."
Moreover, Article 15 paragraph 1 of the RP-French Republic Tax Treaty provides, viz:
"Article 15
"DEPENDENT PERSONAL SERVICES
"1.
Subject to the provisions of Article 16, 18 and 19, salaries, wages and other
similar remuneration derived by a resident of a Contracting State in respect of an
employment shall be taxable only in that State unless the employment is exercised in
the other Contracting State. If the employment is so exercised, such remuneration as
is derived therefrom may be taxed in that other State."
Such being the case, and since SOFRETU falls within the purview of a permanent
establishment as defined in Article 5 paragraph 2(i) of the RP-French Republic Tax
Treaty, the business profits it will derive as your technical consultant in the
implementation of the EDSA LRT Project are subject to the 35% income tax imposed
under Section 25(a) (1) of the Tax Code, as amended.
On the other hand, the salaries, wages and other similar remuneration derived by
SOFRETU's personnel (its experts) are likewise subject to the income tax imposed
under Section 22(a) (1) of the Tax Code, as amended, and consequently, to the
withholding tax prescribed under Section 72 of the Tax Code, as amended.
Moreover, under Section 102 of the Tax Code, as amended, SOFRETU shall be
subject to the 10% value-added tax on its gross receipts from consultancy services
pursuant to the Deed of Agreement you entered into with the said company.
Accordingly, your request is hereby denied for lack of legal basis.
Very truly yours,
December 13, 1994
22 (a) (1) 000-00 177-94
Ermitao, Manzano & Associates
Suites 1403, 6776 Ayala Avenue
Condominium, Makati
Metro Manila
Attention: Atty. Luis Manuel D. Ermitao
Gentlemen:
This refers to your letters dated August 9 and September 22, 1994 requesting on
behalf of your client, Moore McKenzie, Inc., (MMI), for a ruling on whether the service
fees received by foreign consultant, Mr. Charles Greenwood, whose services are
engaged by MMI are subject to income tax under Section 21(a) or Section 21(f) of the
Tax Code, as amended.
It is represented that MMI is a corporation organized and existing under the laws of the
Philippines, with office address at Units 12 and 22, 1st and 2nd Floors, Legaspi Suites
Building 178 Salcedo Street, Legaspi Village, Makati, Metro Manila; that MMI is duly
registered and licensed with the SEC as a securities broker with Certificate of
Registration No. 0295 and its major objective is to tap various investment markets
within the Asia-Pacific Region; that in order to do so, MMI must engage the expert
services of individual foreign consultants who are familiar with and have contacts in
the various targets countries such as, but not limited to, Singapore and Hongkong; that
said foreign consultants will be paid fixed fees for their services; that MMI will have no
control over the activities of the individual foreign consultants; that MMI is only
concerned with the results of their services; that said foreign consultants have clients
other than MMI; that the foreign consultants shall most probably be in the Philippines
for at least 183 days in a year; and that MMI shall, for convenience, make available
reasonable use of certain MMI facilities (such as fax machines, telephones and
computers) to the consultants while they are in the Philippines, but the consultants
may elect to use their own facilities.
In reply, please be informed that under Section 22(a) (1) of the Tax Code, as amended,
foreign consultants (e.g. Mr. Greenwood) are considered non resident alien individuals
engaged in trade or business in the Philippines and are subject to Philippine income
tax in the same manner as resident citizens and aliens on taxable income received
from all sources within the Philippines.
Accordingly, considering the nature of their business engagement, and length of
aggregate stay in the Philippines, their taxable income from MMI is subject to the
graduated rates under Section 21(f) of the Tax Code, as amended by Republic Act No.
7496. Further, under Section 29 of the Tax Code, as amended by Republic Act No.
7496, the said foreign consultants may deduct from their gross income received from
all sources within the Philippines, only the following direct costs:
(a) Raw materials, supplies and direct labor;
(b) Salaries of employees directly engaged in activities in the course of or
pursuant to the business or practice of their profession;
(c) Telecommunications, electricity, fuel, light and water;
(d) Business rentals;
(e) Depreciation;
(f) Contributions made to the Government and accredited relief organizations for
the rehabilitation of calamity stricken areas declared by the President; and
(g) Interest paid or accrued within the taxable year on loans contracted from
accredited financial institutions which most be proven to have been incurred
in 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, a
maximum of forty percent (40%) of their gross receipts shall be allowed as deductions
to answer for business or professional expenses as the case may be.
Very truly yours,
October 9, 1991
123 000-00 207-91
Gentlemen:
This refers to your letter dated September 23, 1991 stating that you are scheduled to
promote the forthcoming World Boxing (WBA) title bout in the bantamweight division
between the current champion, Luisito Espinosa (Filipino) and the number one
challenger, Israel Contreras of Venezuela.
In view thereof, you now request for a ruling that the purses of the champion, the
challenger, and the other boxers participating in said promotion be exempted from
withholding and/or income taxes in the same manner that the ticket sales for the event
are exempted from amusement tax.
In reply, please be informed that pursuant to Section 1 of Executive Order No. 225
issued on July 16, 1987 reading
"Section 1.
Section 228 (now Sec. 123), paragraph (3) of the National Internal
Revenue Code, as amended, is hereby further amended to read as follows:
"3.
Ten per centum in the case of boxing exhibitions: Provided, however, that
boxing exhibitions wherein World or Oriental Championship in any division is at stake
shall be exempt from amusement tax: Provided, further, That at least one of the
contenders of the World or Oriental Championship is a citizen of the Philippines, and
said exhibitions are promoted by a citizen/s of the Philippines or by a corporation or
association at least sixty per cent of the capital of which is owned by such citizens."
The gross receipts derived by you in promoting the title fight between the current
champion Luisito Espinosa (Filipino) and the number one challenger, Israel Contreras
of Venezuela shall be exempt from amusement tax.
However, the purses of the challenger, or any of the participants who are considered
non-resident aliens not engaged in trade or business in the Philippines (because their
stay in the Philippines is for 180 days or less) shall be subject to tax at the rate of 30%
pursuant to Section 22 (b) of the Tax Code, as amended by Executive Order No. 37.
This is true even if their purses are not paid in the Philippines but elsewhere. On the
other hand, the purse of the current champion Luisito Espinosa who is a resident
Filipino shall be subject to income tax at the rate prescribed under Section 21 (a) of
the same Code.
Very truly yours,
(SGD.) JOSE U. ONG
Commissioner
February 4, 1998

RR 1-95 (Sec. 3 (1) 000-00-006-98
Atty. Evaristo O. Gana
GOLDLINK STEAMSHIP, INC.
Suite 502, Z & H Apartelle
545 Arquiza Street, Ermita
Manila
This ruling is being issued on the basis of the 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,
(SGD.) LIWAYWAY VINZONS-CHATO
Sir:
This refers to your letter dated June 10, 1997 requesting for our opinion on the tax
liabilities, if any, of a foreign-based corporation which ships goods via the Philippines
through the Subic Bay Special Economic Zone (SBSEZ) for transshipment purposes.
It was stated in your letter that Gold Link Steamship, Inc. is an agent of GOLD KATE
LTD. (HK), a Hongkong based corporation that ships goods to the Philippines via
Subic merely for transshipment purposes through SBSEZ; that the goods are not
intended to be introduced in the Philippine market; that such goods are temporarily
stored in a warehouse at Subic and is being transhipped for a fee to consignees in
other countries such as Thailand, Korea and Singapore by the Subic Warehouseman
upon the instructions of the Hongkong-based corporation; that at the time of the arrival
of the goods, there is no consignee present in Subic, hence, there is no danger that
they would be introduced in the Philippine market; that all transactions pertaining to
the subject goods are made outside the Philippines; and that the transshipment is
being resorted to only because of the lower cost in storage, transport and handling
agent in fees in the Philippines.
In reply, please be informed that under Section 3(1) of Revenue Regulations No. 1-95
dated January 24, 1995, "transshipment" is defined as follows, viz:
"Transshipment refers to transshipment of articles discharged at ports or airports of
entry located in Customs territory destined for delivery to the zone, and articles coming
from the latter intended for export through a Philippine Customs port/airport of entry
which articles may be transported under bond, upon examination, and consigned to
the Collector at the port of destination/export, who will allow the consignor or
consignee, as the case may be, to make entry for exportation."
Thus, applying the foregoing definition, no literal transshipment has transpired on the
activities of GOLD KATE LTD. (HK) when it ships its goods to the Philippines via Subic
through the Subic Bay Special Economic Zone (SBSEZ) because the shipped articles
are not destined for delivery to the zone nor do they consist of articles coming from the
zone intended for export through a Philippine customs port/airport of entry. SBZES is a
freeport zone outside customs territory and therefore goods discharged thereto has
never entered the Philippines customs territory at all.
Such being the case, the shipper of the goods, i.e., GOLD KATE LTD. (HK), not being
engaged in any taxable activity in the Philippines, is not subject to any Philippine tax.
The presence of its agent, i.e., GOLD LINK STEAMSHIP INC ., is merely for purposes
of monitoring its activities. Furthermore, in transshipment, bond is being collected, in
lieu of duties and taxes imposable.
RRs:
Sec. 15(b), first paragraph

Sec. 15(c), first paragraph
SECTION 15.
Income tax on corporations. The law imposes an annual
income tax of 22 per centum upon that portion of the net income of every corporation
not in excess of P100,000 and 30 per cent on the excess. The term "corporation"
includes partnership no matter how created or organized, joint-stock companies, jointaccount (cuentas en participacion), association, or insurance companies but does not
include duly registered general co-partnership (companias colectivas). The tax is upon
net income, which is undetermined by subtracting from the gross income, as defined in
the law, the allowable deductions. (Conforms with amendments by R.A. 2343, effv.
June 20, 1959.)
BIR Ruling No. DA-ITAD 4-08, Jan. 8, 2008
January 8, 2008
DA ITAD BIR RULING NO. 004-08
Section 23 (F) in relation to Section 42 (A) (3) and
Section 108 (A) of the National Internal Revenue Code of 1997
BIR Ruling No. DA-ITAD-163-06
Mikuni Electronics Corp.
Lot 10, Block 6, Phase II
Cavite Export Processing Zone
Rosario, Cavite
Attention: Mr. Shogo Kiga
President
Gentlemen:
This refers to your tax treaty relief application received by this Office on June 26, 2007,
for the services fees that will be paid by Mikuni Electronics Corp. (Mikuni-Phils.) to
Mikuni Asia Corporation (Mikuni-Japan).
It is represented the Mikuni-Japan is a nonresident corporation organized and existing
under the laws of Japan with principal office address at 4-5-30 Chome Sakawa,
Odawa City, Kanagawa, Japan; that Mikuni-Japan is not registered either as a
corporation or as a partnership in the Philippines as shown in the Certification of NonRegistration issued by the Securities and Exchange Commission on June 20, 2007;
that Mikuni-Phils. is a domestic corporation with principal address located Lot 10,
Block 6, Phase II, Cavite Export Processing Zone, Rosario, Cavite; that Mikuni-Phils.
is a PEZA-registered enterprise under Certificate of Registration No. 01-068 as an
Ecozone Export Enterprise at the Cavite Economic Zone; that Mikuni Phils. is engaged
in the manufacturing of assembly of large automated deposit system units and other
electronics automated equipment; and that in sworn certification issued by its

Corporate Secretary dated June 15, 2007, Mikuni-Phils. is not under investigation, ongoing audit, administrative protest, claim for refund or issuance of a tax credit
certificate, collection proceedings, or a judicial appeal.
It is further represented that on January 31, 2004, Mikuni-Japan and Mikuni-Phils.
entered into a Service Contract Agreement (Contract) whereby Mikuni-Japan shall
provide the following services to Mikuni-Phils.:
1. Promotion or marketing of goods in Japan and other foreign clients, of which
includes making regular visits and representations with relevant corporate
officers of such clients;
2. Advice and assistance in attracting new customers;
3. Advice on business plan for the succeeding years and marketing strategy;
4. Advice and assistance in maintaining and assuring product quality in
accordance with the specifications of Japanese customers;
5. Advice on the selection of suppliers from Japan for quality assurance and
cost efficiency; and
6. Assistance in the procurement of materials needed for production;
that Mikuni-Japan shall not be under any obligation to send its employees or
representatives to the Philippines; that as a consideration for the said services, MikuniPhils. will pay Mikuni-Japan a fee in the amount of Two Million Five Hundred Thousand
Japanese Yen (JPY2,500,000.00) per month; that the Contract shall be valid and
binding for a period of one (1) year from the effective date, and, unless terminated in
writing by either party at least thirty (30) days prior to the date of expiration, shall be
automatically renewed for successive periods of one (1) year. IDSEAH
In reply, please be informed that Section 23 (F) of the National Internal Revenue Code
of 1997, as amended, (Tax Code of 1997) provides:
"Section 23.
General Principles of Income Taxation in the Philippines. Except
when otherwise provided in this Code:
xxx
xxx
xxx
(F)
A foreign corporation whether engaged or not in trade or business in the
Philippines, is taxable only on income derived from sources within the Philippines.
xxx
xxx
xxx"
According to Section 23 (F), a foreign corporation like Mikuni-Japan is taxable only on
income derived from sources within the Philippines. With respect to income from the
provision of services, such income is considered as derived from sources within the
Philippines if the services are performed in the Philippines, as started in Section 42 (A)
(3) of the Tax Code of 1997, quoted below:
"Section 42.
Income from Sources Within the Philippines.
A.
Gross Income from Sources Within the Philippines. The following items of
gross income shall be treated as gross income from sources within the Philippines:
xxx
xxx
xxx
(3)
Services. Compensation for labor or personal services performed in the
Philippines; CAScIH
xxx
xxx
xxx
Such being the case and since the subject will be rendered outside the Philippines, the
service fees to be paid therefor by Mikuni-Phils. to Mikuni-Japan, being income not
derived from sources within the Philippines by a foreign corporation, is exempt from
Philippine income tax. (BIR Ruling DA-ITAD-163-06 dated December 18, 2006)
Similarly, the service fees are not subject to the twelve percent (12%) VAT imposed
under Section 108 (A) of the Tax Code of 1997, as amended:
"SEC. 108.
Value-added Tax on Sale of Services and Use or Lease of
Properties.
(A)
Rate and Based of Tax. There shall be levied, assessed and collected, a
value-added tax equivalent to ten percent (10%) 1 of gross receipts derived from the
sale or exchange of services, including the use or lease of the properties: Provided,
That the President, upon recommendation of the Secretary of Finance, shall, effective
January 1, 2006, raise the rate of value-added tax to twelve percent (12%).
xxx
xxx
xxx"
The phrase 'sale or exchange of services' means the performance of all kinds of
services in the Philippines for others for a fee, remuneration or consideration. . . . .
xxx
xxx
xxx"
Section 108 (A) above clearly states that the sale or exchange of services subject to
VAT include only those services that are performed in the Philippines. Accordingly,
since the said services will not be performed in the Philippines, the service fees to be
paid by Mikuni-Phils. to Mikuni-Japan for services actually rendered are therefore
exempt from VAT.
This ruling is issued on the basis of the facts as represented. However, if upon
investigation it shall be disclosed that the actual facts are different, then this ruling
shall be without force and effect insofar as the herein parties are concerned.
Very truly yours,
By:
(SGD.) GREGORIO V. CABANTAC
Deputy Commissioner
Footnotes
1.
Revenue Memorandum Circular No. 7-2006 (Publishing the Full Text of the
Memorandum from Executive Secretary Eduardo R. Ermita dated January 31, 2006
Approving the Recommendation of the Secretary of Finance to Increase the ValueAdded Tax Rate from Ten Percent to Twelve Percent).
BIR Ruling No. DA-024-2008, Jan. 21, 2008

January 21, 2008
23 (F); (28) (B) (1); 57 (A); 108 (A)
173-01
Dulay Pagunsan & Ty Law Offices
4/F Bee Lu Building

103-113 Sen. J. Gil Puyat Avenue
1306 Pasay City
Attention: Atty. Brigido J. Dulay
Gentlemen:
This refers to your letter dated January 21, 2008 requesting on behalf of your client
Cyber City Teleservices (Phils.), Inc. (CCTP) for confirmation of your opinion that
CCTP's income payments in the form of service fees, to CCT Group Ltd. (CCTG) are
not subject to:
1. Income Tax under Sections 23 (F) and 28 (B) (1) of the Tax Code and
consequently to Withholding Tax under Section 57 (A) of the same Code; and
2. Value-Added Tax (VAT) pursuant to Section 108 (A) of the same Code.
3. It is represented that CCTP is a domestic corporation duly organized and
registered under the laws of the Republic of the Philippines; that it is located
at 2528 Corporate Office, Cyber City IT Park, Apo Court, Sergio Osmea
Road, Clark Freeport Zone, Pampanga, Philippines; that it is a Clark
Development Corporation registered service enterprise; that it is duly
registered with the Board of Investments and entitled to the income tax
holiday incentive; that CCTG, on the other hand, is a foreign corporation
organized and existing under the laws of Cayman Islands with address at
HSBC Financial Services (Cayman) Limited, 2nd Floor Strathvale House, 90
North Church Street, P.O. Box 1109, Grand Cayman KY1-1102, Cayman
Islands; that it is engaged in the business of holding investments; that it has
no permanent establishment in the Philippines; that on September 21, 2007,
CCTP entered into an Agreement with CCTG whereby CCTG will provide
investments services to CCTP and for which CCTG shall receive service
fees; and that under the said agreement, CCTG shall perform all the services
under the Agreement entirely in the Cayman Islands.
In reply, please be informed as follows:
1.
As a general rule, Section 23 (F) of the 1997 Tax Code in relation to Section
28 thereof, provides that a foreign corporation, whether engaged or not in trade or
business in the Philippines, is taxable only on income derived from sources within the
Philippines and received during the taxable year, at the rate equal to thirty five percent
(35%) of the gross income.
For the purpose of determining which income is considered not of Philippine source,
Section 42 of the Tax Code enumerates the following items of gross income as income
from sources without the Philippines, to wit:
1.
Interests other than those derived from sources within the Philippines as
provided in paragraph (1) of Subsection (A) of this Section;
2.
Dividends other than those derived from sources within the Philippines as
provided in paragraph (2) of Subsection (A) of this Section;
3.
Compensation for labor or personal services performed without the
Philippines;
4.
Rentals or royalties from property located without the Philippines or from any
interest in such property including rentals or royalties for the use of or got the privilege
of using without the Philippines patents, copyrights, secret processes and formulas,
goodwill, trademarks, trade brands, franchises and other like properties; and
5.
Gains, profits and income from the sale of real property located without the
Philippines.
Thus, income derived by non-resident foreign corporations for services rendered
outside the Philippines is not subject to Philippine income tax and consequently to
withholding tax. (BIR Ruling No. 173-01 dated September 24, 2001)
Accordingly, since CCTG shall perform all the services under the Agreement entirely in
the Cayman Islands, outside of the Philippine taxing jurisdiction, income payments
received by them from CCTP are considered income from without the Philippines,
hence exempt from income tax and consequently from the withholding tax.
2.
Pursuant to Section 108 (A) of the 1997 Tax Code, a value-added tax (VAT)
equivalent to 12 percent (12%) shall be imposed on the gross receipts derived by any
person engaged in the sale of goods or services in the Philippines. The phrase "sale or
exchange of services" means the performance of all kinds of services in the
Philippines for others for a fee, remuneration or consideration. Conversely, services
performed outside the Philippines are not subject to VAT.
In the instant case, since the services to be rendered by CCTG will be done outside
the Philippines, they shall not be liable to pay the VAT. Hence, since the service fees
therefore shall not be subject to the twelve percent (12%) VAT, no VAT may be passed
on by CCTG to CCTP. IHEaAc
However, if upon investigation, it shall be disclosed that the facts are different, then
this ruling shall be considered null and void.
Very truly yours,
By:
Legal Service
BIR Ruling No. DA-192-2008, March 24, 2008
March 24, 2008
23 (D); 24 (A); 42(A); ITAD Ruling No. 153-06
Sycip Gorres Velayo & Co.
6760 Ayala Avenue, Makati
Metro Manila
Attention: Atty. R. C. Vinzon
Partner, Tax Services
Gentlemen:
This refers to your letter dated February 18, 2008, requesting on behalf of your client,
MD Tech Phils., Incorporated (MDTP), for confirmation of your opinion on the correct
tax treatment of the income earned out of employment in the Philippines by MDTP's
expatriate employees but paid in Japan.
It is represented that MDTP is a corporation duly organized and existing under the
laws of the Philippines with office address at Main Avenue cor. 3rd Street, Cavite
Economic Zone, Rosario, Cavite; that MDTP is a Philippine Economic Zone Authority
(PEZA)-registered Ecozone Export Enterprise with Registration Certificate No. 04-77
dated November 24, 2004; that MDTP is engaged in the business of manufacturing
chips on flexible printed circuit (COF) for liquid crystal display (LCD) and organic
electronic luminescence display (OELD) of communication products and other related
devices; that MTDP employs expatriate employees who by virtue of their positions
reside in the Philippines; that as expatriate employees, they have no definite intention
of returning to their home countries; that their salaries are being paid under a split-pay
arrangement, that is, a portion of their salaries are being paid in Japan and the
remaining portion paid in the Philippines; and that the portions of their salaries paid in
Japan were never recorded in the books of MDTP and were not included in the
computation of the withholding tax on compensation in the Philippines since MDTP
had no control over their payment.
In this regard, you are requesting confirmation of your opinion that the portions of the
respective income of the expatriate employees should be included in their income
subject to Philippine income tax; that however since your client has no control over the
portion paid in Japan, your client cannot be constituted as the withholding agent for the
portion of the compensation paid in Japan; and that therefore the expatriate
employees have to file their respective income tax returns at the end of the taxable
year and include therein the portion paid in Japan and pay the income tax due
thereon.
In reply, please be informed that under Section 22 (F) of the Tax Code of 1997, as
amended, the term "resident alien" means an individual whose residence is within the
Philippines and who is not a citizen thereof.
In relation thereto, Section 4 of Revenue Regulations No. 2 (Income Tax Regulations)
provides as follows, viz.:
"An alien actually present in the Philippines who is not a mere transient or sojourner is
or abandoned."
Based on the foregoing, it can be deduced that an alien (or one who is not a citizen of
the Philippines) may be considered a resident of the Philippines for income tax
purposes if: (1) he or she is not a mere transient or sojourner, (2) he or she has no
definite intention as to his stay, or (3) his or her purpose is of such a nature that an
extended stay may be necessary for its accomplishment, and to that end the alien
makes his or her home temporarily in the Philippines.
Thus, the MDTP's expatriate employees are considered residents of the Philippines for
purposes of our income tax laws.
Section 23 (D) of the Tax Code provides that, "(a)n alien individual, whether a resident
or not of the Philippines, is taxable only on income derived from sources within the
Philippines".
Furthermore, Section 24 (A) (1) (c) of the same Code provides that "(a)n income tax is
hereby imposed: . . . (o)n the taxable income defined in Section 31 of this Code, other
than income subject to tax under Subsections (B), (C) and (D) of this Section, derived
for each taxable year from all sources within the Philippines by an individual alien who
is a resident of the Philippines".
Accordingly, the compensations received by MDTP's expatriate employees for labor or
personal services performed in the Philippines are treated as their gross income from
sources within the Philippines under Section 42 (A) of the Tax Code which provides
that:
"SEC. 42.
Income from Sources Within the Philippines.
(A)
Gross Income from Sources Within the Philippines. The following items of
gross income shall be treated as gross income from sources within the Philippines:
xxx
xxx
xxx
(3)
Services. Compensation for labor or personal services performed in the
Philippines;
xxx
xxx
xxx"
Based on the foregoing, the expatriate employees should include their wages or
salaries directly paid in Japan (under the split-pay arrangement) in computing their
individual income tax liabilities in the Philippines. In earning such wages or salaries,
the said individuals render personal services in the Philippines as expatriate
employees and thus, payment received in consideration thereof is gross income from
sources within the Philippines. The expatriate employees shall remit additional income
tax upon filing of their respective Philippine annual income tax returns because the
offshore portions thereof (being paid in Japan) were not subjected to withholding taxes
since MDTP has no control over its payments.
Accordingly, the portions of the expatriates' salaries paid in Japan are subject to
Philippine income tax. However, since MDTP is not the withholding agent for the
portions of the salaries of the expatriates paid in Japan, the expatriate employees,
therefore, will have to file individual income tax return at the end of the year to include
the portion of their salaries paid in Japan as subject to Philippine income tax and pay
the taxes due upon filing of said returns. (BIR DA ITAD Ruling No. 153-06 dated
December 12, 2006)
Very truly yours,
By:
Legal Service
INCOME TAXATION OF FOREIGN CORPORATIONS
A.
Meaning of Resident Foreign Corporation and Non-Resident Foreign

Corporation

SIH v. Citibank et. al. and CA, 203 SCRA 9 (1991)

December 19, 1990
25, 50 (b) 000-00 237-90
Gentlemen:
This refers to your letter dated May 27, 1990 stating that your client, Nynex
International Company (Nynex) and Philippine Long Distance Telephone Company
(PLDT) executed on May 28, 1990 a Project Engineering Support Services Contract
(Engineering Contract) and a Strategic Marketing Plan Services Contract (Marketing
Contract); that under the two contracts, Nynex will send its personnel to the Philippines
to render services to PLDT; that the services to be rendered by Nynex under the
Engineering Contract shall include, but will not be limited to, the following: (a)
Monitoring all aspects of the X-5 Network Expansion Project from a project
engineering support perspective and reviewing all progress to date; (b) monitoring and
trucking the progress report status of the X-5 Project. This includes reviewing and
commenting on the activities included in the master schedule developed by the prime
contractor; (c) Nynex will assist in reviewing all master schedule activities to determine
whether PLDT and the prime contractor are meeting all scheduled project activities. In
addition, Nynex will assist identifying those areas where the prime contractor is not
meeting deadlines to help determine the causes of delays; and (d) Nynex will work
closely with PLDT to mechanize the monitoring of the X-5 report status. This will
include assisting in developing a system that will automatically highlight and identify
problem areas from a project engineering support perspective; that the services under
the Marketing Contract will include, but will not be limited to the following: (a) Nynex
will share their expertise by reassessing PLDT's existing short-term marketing plan
and making specific recommendation to PLDT on how to optimize and improve its
existing service offerings; (b) Nynex will evaluate and make specific recommendations
on PLDT's action plans for identifying new and valued-added services to increase
profitability; (c) Nynex will analyze the key issues relevant to PLDT's market, customer,
regulatory and competitive environment; that Nynex personnel rendering the services
under the Engineering Contract will be staying in the Philippines for three (3) years;
that Nynex personnel rendering services under the Marketing Contract shall stay in the
Philippines for eight (8) months; and that Nynex has registered a Philippine branch
which will book the service fees paid under the above contracts as part of its gross
income.
In connection therewith, you now request confirmation of your opinion to the effect that
the payments by PLDT for services rendered in the Philippines by Nynex are subject
to the 35% tax on resident foreign corporation under Section 25 (a)(l) of the Tax Code,
as amended and to the expanded withholding tax under Revenue Regulations No. 685, as amended.
In reply thereto, please be informed that your opinion is hereby confirmed. Since
Nynex, a company duly organized and existing under the laws of Delaware, U.S.A.
has been granted Certificate of Authority No. 2167 by the Board of Investments on
October 19, 1990 to establish a branch office in the Philippines to render specialized
engineering and marketing support consultancy services to the Philippine
telecommunications industry, particularly the PLDT, it is considered a resident foreign
corporation subject to a tax equivalent to 35% of its taxable income derived in the
preceding taxable year from all sources within the Philippines pursuant to Section 25
(a)(l) of the Tax Code, as amended. Moreover, gross payments made by PLDT to
Nynex relative to the Project Engineering Support Services Contract as well as the
Strategic Marketing Plan Services Contract shall be subject to the 1% and 5%
expanded withholding tax pursuant to Section 1 (e)(1) and Section 1 (b) respectively of
Revenue Regulations No. 6-85, as amended otherwise known as the Revised and
Consolidated Expanded Withholding Tax Regulations implementing Section 50 (b) of
the Tax Code, as amended.
Finally, gross receipts derived by your client under both engineering and marketing
contracts shall be subject to 10% VAT pursuant to Section 102 (s) of the Tax Code, as
amended, payment of which shall be made by filing a quarterly return of gross receipts
in accordance with Section 110 also of the Tax Code. As a VAT taxable entity, your
client is required to register as a VAT taxpayer pursuant to Section 107 of the same
Code.
Very truly yours,
(SGD.) VICTOR A. DEOFERIO, JR.
Deputy Commissioner
June 20, 1996
25 000-00 66-96
Meer, Meer & Meer
9TH Floor, PLDT Building
Legaspi Street
Makati City
Attention: Atty. Lamberto Meer
Gentlemen:
This refers to BIR Ruling No. UN-303-94 which was issued to you by this Office on
November 4, 1994 in response to your letter dated June 1, 1994 requesting for
confirmation of your opinion to the effect that your client, DEL MONTE FRESH
PRODUCE INTERNATIONAL, INC. (DMFPI) is not subject to the 2 1/2% tax on gross
Philippine Billings, and to the 3% common carrier's tax, the dispositive portion of which
reads thus;
showing that it has long resided and is intending to continuously stay and engage in
business here in the Philippines.
". . . Considering that your client will be carrying cargo solely for its own account and
shall not carry cargo for any third party, it is not subject to the 2 1/2% income tax on
gross Philippine billings imposed by Section 25 (a) (2) of the Tax Code, as amended,
as it cannot derive income in carrying its own cargo. It cannot also be subjected to the
3% common carrier's tax imposed by Section 115 of the same Code, (BIR Ruling No.
401-87 dated September 15, 1987)
It is clear from the foregoing, that both DEL MONTE FRESH PRODUCE
INTERNATIONAL INC. (DMFPI and GLOBAL REEFER CARRIERS LTD. (GRC) are
resident foreign corporations, with their respective offices and places of business in
the Philippines. In order that a foreign corporation may be regarded as doing business
within a State, there must be continuity of conduct and intention to establish a
continuous business, such as the appointment of a local agent, and not one of a
temporary character. (Pacific Micronesian Line, Inc. vs. Del Rosario and Peligon, 96
Phil. 23, 30 citing Thompson on Corporations, Vol. 8, 3rd ed., pp. 844-847 and Fisher's
Philippine Law of Stock Corporation, p. 415) As resident foreign corporations, they are
subject to Philippine income tax on taxable income derived from all sources within the
Philippines. In other words, the test of taxability is the "source", and the source of an
income is the property, activity or service that produced the income. [CIR vs. British
Overseas Airways Corporation (BOAC) et. al., G.R. Nos. 65773-74, April 30, 1987;
Mertens' Law of Federal Income Taxation, Vol. 8 cited in Howden & Co. Ltd. vs.
Collector of Internal Revenue, 13 SCRA 601 (1965)] Investigation conducted in this
case disclosed "that GRC is a "Tonnage Provider" for DMFPPI. This means that they
provide ships on which the fresh fruits cargoes of DMFPPI are loaded for export to the
Far East countries, like Korea, Japan, etc. They mobilize Twenty Six (26) ships for this
purpose." The word "source" conveys one essential idea, that of origin, and the origin
of the income herein is the Philippines. (BOAC case supra; Manila Gas Corporation
vs. Collector of Internal Revenue, 62 Phil. 895)
Moreover, any income to the charter agreement between the two (2) offshore
companies, DMFPI and GRC, shall not be subject to Philippine taxes, the taxable
transaction/activity being performed outside our taxing jurisdiction. (BIR Ruling No.
464-93 dated November 19, 1993)".
It appears that said ruling was based on your representation that your client, Del
Monte Fresh Produce International, Inc. (DMFPI), is a Liberian corporation with
principal office of 80 Broad St., Monrovia, Liberia, primarily engaged, among others, in
the purchase of bananas from Philippine growers for export to the international
overseas market; that DMFPI shall be chartering vessels from GLOBAL REEFER
CARRIERS, LTD. (GRC), also a Liberian corporation, to carry cargo solely for its
(DMFPI) own account; that the charter agreement between the two (2) offshore
companies, DMFPI and GRC, shall be executed abroad, involving vessels of foreign
registry, and all charter payments thereon shall take place abroad.
In connection therewith, please be informed that according to the final report dated
August 28, 1995, submitted by agents of the Economic Intelligence & Investigation
Bureau (EIIB), who conducted an investigation on the alleged tax evasion case of
GRC upon orders of the Secretary of Finance as evidenced by Mission Order No. 19295 dated April 18, 1995, it was ascertained that GRC is a Liberian Corporation holding
office at the Powerhouse Building, owned and occupied by DEL MONTE FRESH
PRODUCE PHILIPPINES, INC. (DMFPPI) at J.P. Laurel Avenue, Km. 9, Bo.
Pampanga, Sasa, Davao City under Contract of Lease executed on March 8, 1994 by
and between DMFPPI as Lessor and GRC as Lessee; that as of August 28, 1995, the
date of said report, GRC "is not yet registered with the Securities and Exchange
Commission (SEC), although it has a reservation for registration"; that the office is
manned by a full staff of foreign and Filipino employees, complete with such office
equipment as computers, telephones, cabinets, typewriters, office tables, etc.; that it is
engaged in the shipping business more specifically in transporting fresh fruits of
various fruit growers of Mindanao, like Del Monte Fresh Produce (Phils.) Inc.,
(DMFPPI) Del Monte Philippines, Inc., Evergreen Farms, Inc., Marsman Estate
Plantation, AMS Farming Corporation, F.S. Dizon & Sons, Inc., Camval Tropical Fruits,
Inc., Soriano Fruits, Inc., Farmingtown Agri. Dev. Corp., Lapanday Agri Dev. Corp.,
Guining Agri Dev. Corp., Gameco Agri Dev. (Phils.), Inc., Tagum Agri Dev. Co., Davao
Agri Ventures Corporation and etc. from the ports of Cagayan de Oro City and Davao
City to Korea, Japan and other Far East Countries (per outward Foreign Manifest); that
it started its shipping operations on December 29, 1993 with twenty six (26) foreign
registered ships at its service and even up to the present it has effectively pursued its
business; that it has a shipping agent in Cagayan de Oro City; and that it has also
contracted Davao Multi Maritime & Marketing Corporation (DMMMC) as its
husbanding or shipping agent in Davao City for an indefinite period of time, thus,
Based on the abovementioned findings, and contrary to your representation, GRC is a

resident foreign corporation doing business here in the Philippines and is therefore
subject to the 2 1/2% income tax on gross Philippine billings imposed by Section 25
(a) (2) of the Tax Code, as amended and the 3% common carrier's tax imposed by
Section 115 of the same Code reckoned from the time, it started its shipping
operations in the Philippines on December 29, 1993 up to the present. However
beginning January 1, 1998, GRC as an international shipping company (on its
international cargo vessels) will be subject to the 10% value-added tax, instead of the
3% common carrier's tax under Section 102 as amended by Republic Act No. 7716.
In fine, BIR Ruling No. UN-303-94 dated November 4, 1994, is hereby revoked and
declared void ab initio, insofar as the exemption from Philippine taxes on any income
that would be derived by GRC and DMFPI under the Charter Agreement adverted to in
the aforesaid ruling is concerned.
Very truly yours,
September 17, 1996
25 000-00 101-96
A.A. Amador & Associates
18F Pacific Star Building
Sen. Gil Puyat corner Makati Avenue

Makati City
Attention: Mr. Demosthenes B. Donato, Esq.
Gentlemen:
This refers to your letter dated March 15, 1996 stating that you represent two foreign
corporations each of which has purchased two separate condominium properties
(hereafter "Condocorp One and Condocorp Two" and collectively referred to as
"Investors"); that the two condominium properties purchased (hereafter "Realty
Assets") all fall within the forty percent limit which a condominium corporation can sell
to foreign corporations such as the Investors; that the Investors have identical
shareholders and directors and all have leased their Realty Assets to local tenants and
thus the Investors generate rental income from their Realty Assets situated within the
Philippines; that Condocorp One and Condocorp Two are willing to apply for and
register to do business in the Philippines with the Securities and Exchange
Commission ("SEC") but both are unlikely to be approved to register to do business in
the Philippines because of present laws and the regulations of the SEC promulgated
thereunder relating to the minimum capitalization of foreign corporations (US$
500,000) and the debt to equity requirements for such foreign corporations that
Condocorp One and Condocorp Two now want to lodge their corporate income tax
returns but are unable to do so because under the prevailing rules of the Bureau of
Internal Revenue, Condocorp One and Condocorp Two cannot secure Tax
Identification Numbers (TIN) and thus cannot file their returns; that both corporations
cannot secure their TIN because of the rules of the SEC.
It is further represented that the problem stated is not an isolated one. There are
literally hundreds perhaps thousands of foreign corporations who have purchased
condominium properties and who want to lodge returns for the rental income they
derive from their condominium properties, but are unable to do it because they do not
have a TIN as they are not SEC registered since they are not qualified to so register,
before the SEC; hence, and the investors, i.e. Condocorp One and Condocorp Two
are contemplating the appointment of a Fiduciary under the following conditions:
1. The assets to be accounted for by the Fiduciary will be all the income derived
by the Investors from the Realty Assets.
2. The Fiduciary will be a Law Firm and the beneficiaries will be both the
Investors.
3. The rental income received by the Fiduciary from the Realty Assets will be
currently distributed to the Investors and therefore such income distributed
can be classified as taxable income falling under Section 53 (a) (2) of the
NIRC.
4. No deduction shall be taken by the Fiduciary for any distribution it currently
makes to the Investors in computing taxable income of the assets under the
control of the Fiduciary.
In reply, please be informed that based on the foregoing facts, the investors have the
status of non-resident foreign/corporation doing business in the Philippines as
contemplated under Section 20 of the Tax Code.
Accordingly, your queries are answered as follows:
1.
2.
3.
The tax return for the foreign investors to be filed by the designated fiduciary
shall be the Tax return of the non-resident foreign corporation doing business
in the Philippines. (Section 25, Tax Code)
Only rental income shall be indicated in the Income Tax Return. cdphil
The TIN of the fiduciary will suffice to effect the withholding of the income tax
from the remittances of rental income to the foreign investors.
Very truly yours,

BIR Ruling No. 024-2002, June 21, 2002
June 21, 2002
22 (DD); 28 (A) (6) (a)
047-2001
Board of Investments
Industry & Investments Building
385 Sen. Gil J. Puyat Avenue,
Makati City
Attention: Adelina E. Batallones
OIC Director
One-Stop Action Center
Gentlemen:
This refers to your letter dated 27 February 2002 forwarding the request of Philippine
Australia Business Council regarding the assistance sought by Indophil Resources
Head Office (Melbourne).
It is represented that Indophil Resources Head Office (Melbourne) ("Indophil" for
brevity) is an Australian Company licensed by the Securities and Exchange
Commission in 1999 to establish a Regional Headquarters. Based on this, Indophil
requests the issuance of a certification/statement from the Bureau of Internal Revenue
on the following:
1. Expats/alien executives occupying managerial and technical positions
employed by Regional or Area Headquarters (RHQ) and Regional Operating
Headquarters (ROHQ) are subject to withholding tax of 15% on
compensation income.
2. Regional or Area Headquarters are exempt from payment of corporate
income taxes.
In reply, please be informed that
1. Section 10 of the Rules and Regulations Implementing Article 61 of R.A. 8756
provides that alien executives occupying managerial and technical positions
employed by the regional or area headquarters and regional operating
headquarters of multinational companies shall be subject for each taxable
year upon their gross income received as salaries, wages, annuities,
compensations, remuneration and emoluments to a final tax equal to fifteen
percentum (15%) of such gross income.
In relation thereto, Section 2.57.1 (D) of Revenue Regulations No. 2-98, as amended
by Revenue Regulations 6-2001, also provides that a final withholding tax equivalent
to fifteen percent (15%) shall be withheld by the withholding agent from the gross
income received by every alien individual occupying managerial and technical
positions in regional or area headquarters and Regional Operating Headquarters
established in the Philippines by multinational companies as salaries, wages,
annuities, compensation, remuneration and other emoluments, such as honoraria and
allowances, except income which is subject to the fringe benefits tax, from such
regional or area headquarters and regional operating headquarters.
Thus, expats/alien executives occupying managerial and technical positions employed
by regional or area headquarters and regional operating headquarters are subject to
withholding tax of 15% on compensation income.
2.
Section 28 (A) (6) (a) of the Tax Code of 1997 provides that regional or area
headquarters as defined in Section 22 (DD) of the said Code shall not be
subject to income tax.
Section 22 (DD) of the Tax Code of 1997 defined the term "regional or area
headquarters" as "a branch established in the Philippines by multi-national companies
and which headquarters do not earn or derive income from the Philippines and which
act as a supervisory, communications and coordinating center for their affiliates,
subsidiaries or branches in the Asia-Pacific Regional and other foreign markets."
Likewise, Article 63 of Executive Order No. 226, otherwise known as the Omnibus
Investments Code as amended by R.A. 8756, provides that regional or area
headquarters established in the Philippines by multinational companies and which
headquarters do not earn or derive income from within the Philippines and do not
participate in any manner in the management of any subsidiary or branch office it
might have in the Philippines nor solicit or market goods and services whether on
behalf of its mother company or its branches, affiliates, subsidiaries and any other
company and which acts as supervisory, communications and coordinating centers for
their affiliates, subsidiaries, or branches in the Asia Pacific Region and other foreign
markets shall not be subject to income tax.
It must be noted that for tax purposes, a regional or area headquarters, in acting as a
supervisory, communications and coordinating center for its affiliates in the region,
shall not render any of the following qualifying services:
General administration and planning;
Business planning and coordination;
Sourcing/procurement of raw materials and components;
Corporate finance and advisory services;
Marketing control and sales promotion;
Training and personnel management;
Logistic services;
Research and development services, and product development;
Technical support and maintenance;
Data processing and communication; and business development,
which functions are applicable to a Regional Operating Headquarters pursuant to

Section 4(b) of the Rules and Regulations implementing R.A. No. 8756.
Accordingly, Indophil will not be subject to income tax as long as in performing its
functions and in acting as a supervisory, communications and coordinating center for
its affiliates in the region, it shall not render any of the foregoing qualifying services.
Otherwise, it shall be taxed as a regional Operating Headquarters.
It is understood that Indophil's books of accounts and other pertinent records shall be
subject to periodic examination by revenue enforcement officers of this Bureau for the
purpose of ascertaining whether Indophil is complying with the conditions under which
it is granted tax exemption or tax incentives and its tax liability, if any, pursuant to
Section 235 of the Tax Code of 1997.
However, if upon investigation, it will be ascertained that the facts are different, then
this ruling shall be considered void.
Very truly yours,
(SGD.) REN G. BAEZ
BIR Ruling No. DA-361-2008, June 13, 2008
June 13, 2008
22 (I); 28 (B) (1); 42 (A) (4) (1); DA-32-02
Nissho (Singapore) Pte. Ltd.
(Philippine Representative Office)
Unit 704, 7/F Alabang Business Tower
1216 Acacia Ave., MBP, Ayala Alabang
Muntinlupa City
Attention: Ms. Doris Ng
General Manager
Gentlemen:
This refers to your letter dated December 17, 2007 requesting for a ruling exempting
Nissho (Singapore) Pte. Ltd. from the payment of corporate income tax, value-added
tax and withholding taxes.
It is represented that Nissho (Singapore) Pte. Ltd. {(Philippine Representative Office)
(Nissho)} is duly licensed to transact business in the Philippines under SEC
Registration No. FS200708111; that Nissho is registered with BIR RDO 053 with Tax
Identification No. 252-204-919; that Nissho acts only as a Representative Office of
Nissho (Singapore Pte., Ltd., a foreign corporation organized under the laws of the
Republic of Singapore; that as a representative office, it only acts as a liaison office,
deals directly with the clients of the parent company and undertakes activities such as
information dissemination, promotion of products and services and quality control; and
that as a representative office it derives no income from its activities.
In reply, please be informed that a representative office is a non-resident foreign

corporation not engaged in any income generating business in the Philippines. As can
be viewed by its licensed activities, Nissho is a representative office. Accordingly,
Nissho is not subject to income tax. Hence, it is exempt from filing of the corporate
income tax return (BIR Ruling No. 136-89 dated July 4, 1989).
A person is subject to VAT if it renders service "in the course of trade or business"
(Section 105, 1997 Tax Code). Inasmuch as the operation of the representative office
is similar to regional or area headquarters of multinational corporations which are
exempt from VAT under Section 109 (p) of the 1997 Tax Code, representative offices
are also exempt from VAT. Moreover, since Nissho Representative Office merely
enables the overseas head office to maintain some presence in the country, and is not
engaged in any income-generating activity in the Philippines, it is qualified for
exemption from VAT. However, this exemption applies only to VAT directly due from
representative offices (VAT Ruling No. 234-88 dated May 25, 1988 and BIR Ruling No.
136-89 dated July 4, 1989).
On the other hand, please be advised that if you will remit technical service fees to
your parent company, the said fees are considered royalties (Section 42 (A) (4) (f),
1997 Tax Code). Being Philippine source income of a representative office, the
technical service fees are subject to Philippine corporate income tax at the rate of 32%
(Section 28 (B) (1), Ibid.) which you will withhold as the payor-corporation and paid in
the same manner and subject to the same conditions as provided in Section 59 of the
1997 Tax Code (Section 58, Ibid.) (BIR Ruling No. 136-89 dated July 4, 1989).
Moreover, you are further advised that if you have employees, they are subject to the
following income tax rates pursuant to Section 2.57.1 (D) of Revenue Regulations
(Rev. Regs.) No. 2-98, as amended by Rev. Regs. 6-2001, as further amended by
Rev. Regs. No. 12-2001, implementing Section 58 of the 1997 Tax Code:
a. If a Filipino citizen, whether resident or non-resident, or a resident
alien graduated tax rates of 5%-32%;
b. If a non-resident alien engaged in trade or business in the
Philippines graduated tax rates of 5%-32%;
c. If a non-resident alien not engaged in trade or business in the
Philippines 25% (BIR Ruling No. DA032-02 dated March 7,
2002).
Very truly yours,
By:
Legal Service
B.
Meaning of Engaged in Trade or Business
Statutes: Foreign Investments act of 1991, Sec. 3(d),as Implementing Rules, Sec.
1(f)
Section 3. Definitions. - As used in this Act:

d) The phrase "doing business" shall include soliciting orders, service contracts,
opening offices, whether called "liaison" offices or branches; appointing
representatives or distributors domiciled in the Philippines or who in any calendar year
stay in the country for a period or periods totaling one hundred eighty (180) days or
more; participating in the management, supervision or control of any domestic
business, firm, entity or corporation in the Philippines; and any other act or acts that
imply a continuity of commercial dealings or arrangements, and contemplate to that
extent the performance of acts or works, or the exercise of some of the functions
normally incident to, and in progressive prosecution of, commercial gain or of the
purpose and object of the business organization: Provided, however, That the phrase
"doing business: shall not be deemed to include mere investment as a shareholder by
a foreign entity in domestic corporations duly registered to do business, and/or the
exercise of rights as such investor; nor having a nominee director or officer to
represent its interests in such corporation; nor appointing a representative or
distributor domiciled in the Philippines which transacts business in its own name and
for its own account;
SECTION 1. Definition of Terms. - For the purpose of these Rules and Regulations:
f. "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 or
who in any calendar year stay in the country for a period totaling one hundred eighty
[180] days or more; participating in the management, supervision or control of any
domestic business, firm, entity or corporation in the Philippines; and any other act or
acts that imply a continuity of commercial dealings or arrangements, and contemplate
to that extent the performance of acts or works, or the exercise of some of the
functions normally incident to and in progressive prosecution of commercial gain or of
the purpose and object of the business organization.
The following acts shall not be deemed "doing business" in the Philippines:
1. Mere investment as a shareholder by a foreign entity in domestic
corporations duly registered to do business, and/or the exercise of rights as
such investor;
2. Having a nominee director or officer to represent its interest in such
corporation;
3. Appointing a representative or distributor domiciled in the Philippines which
transacts business in the representative's or distributor's own name and
account;
4. The publication of a general advertisement through any print or broadcast
media;
5. Maintaining a stock of goods in the Philippines solely for the purpose of
having the same processed by another entity in the Philippines;
6. Consignment by a foreign entity of equipment with a local company to be
used in the processing of products for export;
7. Collecting information in the Philippines; and
8. 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
has manufactured or exported to the Philippines, servicing the same, training

domestic workers to operate it, and similar incidental services.
Marubeni Corporation v. Commissioner, G.R. No. 76573, Sept. 14, 1989, 177 SCRA
500
Commissioner v. British Overseas Airways Corp., 149 SCRA 395
Spermacet Whaling and Shipping Co., 30 T.C. 618
N.V. Reedeij Amsterdam v. Commissioner, 162 SCRA 487
Mirant Philippines Operations Corporation vs. CIR (CTA Case No. 6382, May 27,
2004)
CIR v. Burmeister and Wain Scandinavian Contractor Mindanao, Inc., G.R. No.
153205, Jan. 22, 2007, 512 SCRA 124
South African Airways v. CIR, G.R. No. 180356, Feb. 16, 2010, 612 SCRA 665
March 19, 1987
24 000-00 081-87
Gentlemen :
This refers to your letter dated December 9, 1986 requesting clarification of the
meaning of the term "doing business" as defined in Section 1(1) of R.A. No. 5455 and
quoted in Revenue Audit Memorandum Order No. 1-86 as follows:
"'doing business' shall include soliciting orders purchases, service contracts, opening
offices, whether called 'liaison' offices or branches . . . any other act or acts that imply
a continuity of commercial dealings or arrangements, and contemplate to that extent
the performance of acts or works, or the exercise of some of the functions normally
incident to, and in progressive prosecution of, commercial gain or of the purpose and
object of the business organization."
In reply, please be informed that this Office agrees with your opinion that the abovequoted provision covers only branches of foreign corporations engaged in business in
the Philippines and does not apply to representative offices of foreign corporations not
authorized to engage in any business activity in the Philippines. cda
Representative offices which merely facilitate the orders of local distributors to their
head offices without in any manner intervening or taking part in pricing, distributing or
marketing of products are not considered "doing business" as defined in Revenue
Audit Memorandum Order No. 1-86.
Very truly yours,
(SGD.) BIENVENIDO A. TAN, JR.
Commissioner
September 30, 1985
024 000-00 175-85
Gentlemen:
This refers to your letter dated July 6, 1984 requesting a ruling as to the nature of the
business which you are going to register with this Office and the taxes that may be due
thereon, if any.
It is represented that the Toyota Motor Corporation of Japan is licensed by the
Securities and Exchange Commission on June 1, 1984 under Registration No. 1093 to
establish a representative office in the Philippines, the Toyota Motor Corporation
(Manila Representative Office), which is duly registered with the Board of Investments
(BOI) under Certificate of Authority No. 1572 dated May 22, 1984 to undertake the
following activities:
1. To study and investigate export feasibility;
2. To cope with customers' complaints and to coordinate after sales service for
Toyota customers;
3. To coordinate warranty claims; and
4. To research the automotive market of the Philippines.
subject to the following conditions:
1) That it shall not engage in any other line of business activity without prior
Board authority;
2) That it shall not avail itself of domestic credit resources;
3) That it may employ a maximum of ten (10) personnel of which not more than
two (2) may be expatriates who will be subject to local immigration and labor
laws and whose employment will be strictly in accordance with the laws on
the practice of their professions;
4) That it shall post a bond or bank guaranty in the sum of P100,000.00 to
answer for its liabilities to resident creditors;
5) That it shall inwardly remit at least US$50,000.00 a year for operating
expenses proof of which shall be submitted to the BOI at the end of the year;
6) That it shall not derive any income in the Philippines in the exercise of its
business activities; and
7) That it shall submit an annual report of its business activities (using the
prescribed BOI Form No. 5032) within sixty (60) days from the filing with the
Bureau of Internal Revenue of its income tax returns for each preceding
calendar/fiscal year.
and that its operating expenses are to be sustained thru monthly remittances from
your Head Office in Japan.
Investigation conducted by this Office disclosed that for the two months of operations
(June and July 1994), that Office has actually adhered to the prescribed BOI condition;
that it has eight (8) employees, one (1) of whom is an expatriate and all others are
citizens of the Philippines; that during the period, it has registered with this Bureau as
a withholding agent with I.D. No. 32-4B-00184 dated July 11, 1984 and had caused to
withhold and remit the withholding tax on wages and the creditable tax at source.
In reply, please be informed that Article 7 (1) of the RP-Japan Tax Treaty provides that
the profits of an enterprise of Japan shall be taxable in Japan unless the enterprise
carries on business in the Philippines through a permanent establishment situated
therein.
Article 5 (4) of the same treaty also provides:
"Notwithstanding the preceding provisions of this Article, the term "permanent
establishment shall be deemed not to include:
(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 of
carrying 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 of
activities mentioned in sub-paragraphs (a) to (e), provided that the overall activity of
the fixed place of business resulting from this combination is of a preparatory or
auxiliary character.
1.
Under the foregoing activities of the Manila representative Office of the Toyota Motor
Corporation it seems clear that, that Office is being maintained for the purpose of
collecting information and/or said activities are of a preparatory or auxiliary character.
Accordingly, said Office is not considered a permanent establishment and therefore; it
is not subject to income tax in the Philippines, pursuant to the above-cited provisions
of the RP-Japan Tax Treaty.
4.
Neither is that Office subject to any other internal revenue tax prescribed by the
National Internal Revenue Code, as amended. However, that Office is required to
deduct, withhold and remit to the Bureau of Internal Revenue income taxes due on the
salaries of its employees in accordance with Section 21(a) in relation to Section 91 of
the Tax Code, as amended by Batas Pambansa Blg. 135, as implemented by Revenue
Regulations No. 6-82. That Office is likewise required to secure its tax account number
(TAN) from this Office.
It is however, understood in this connection, that you shall be subject to the
corresponding taxes prescribed under the Tax Code, as amended, should you
undertake any activity other than those of the above-enumerated.
Very truly yours,
Acting Commissioner
January 24, 1984
22-c-000-00-011-84
Sir:
This refers to your letters dated September 2 and 19, 1983 stating that your client, The
Development Consultants International, Ltd., (DCIL), a foreign corporation organized
under the laws of HongKong was licensed by the Securities and Exchange
Commission to establish a Regional/Area Headquarters in the Philippines under P.D.
218; and that said Regional Office will not derive any income from sources within the
Philippines.
Based on the foregoing facts, you request information on the following queries:
2.
3.
Is it necessary for the Regional Office to file an Income Tax Return at the end
of the year, as required by the Internal Revenue Code for foreign
corporation? If it is not so required, what reportorial requirements, if there is
any, need be filed with the BIR?
Is the fifteen per centum tax imposed on the gross income of the officers of
the Regional Office payable at the end of year or, is it payable within the
period prescribed for the payment of withholding tax?
(a) Is the tax mentioned under (2) a final tax? If not, are the officers of
the Regional Office entitled to claims for exemptions and
deductions?
Are the Regional officers required to file Income Tax Return at the end of the
calendar year?
If the answer under No. 3 is in the affirmative, what is the BIR prescribed
Form to be used and Date of Filing of said Income Tax Return?"
In reply, please be informed as follows:

1. Pursuant to Section 24(b)(1)(vi) of the Tax Code, as amended, regional or area
headquarters established in the Philippines by multinational corporations and
which headquarters do not earn or derive income from the Philippines and which
act as supervisory, communications and coordinating centers for their affiliates,
subsidiaries or branches in the Asia Pacific Region shall not be subject to tax.
Accordingly, if as represented, your client's regional/area headquarters in the
Philippines will not derive any income therefrom, it shall be exempt from Philippine
income tax as well as from the filing of the corresponding corporate income tax
return.
2. In the case of aliens employed by regional or area headquarters established in the
Philippines by multinational corporations, there shall be deducted and withheld a
tax of 15% on their gross salaries, wages, annuities, compensations,
remunerations and emoluments received from such regional headquarters in
accordance with the withholding tax on wages provisions of Chapter XI, Title II of
the Tax Code as amended, by B.P. Blg. 135. (See also Sec. 22(c), Tax Code, Sec.
4, P.D. 218.) Pursuant to Section 7, paragraph III of Revenue Regulations No. 682 the responsibility of withholding, returning and paying the tax and furnishing
the statements required are governed by said regulations. Hence, the 15%
withholding tax is not payable at the end of the year but within the period
prescribed in said regulations. Moreover, since the alien employees are subject to
15% tax based on their gross income, they are not entitled to claim personal and
additional exemptions as well as deductions.
The 15% tax is not a final tax. Since the gross income of aliens employed by regional
or area headquarters established in the Philippines by multinational corporations is
subject to the withholding tax on wages provisions of the National Internal Revenue
Code and their implementing regulations, they are therefore, required to file an income
tax return (BIR Form 1701) on or before the 18th day of March of each year, covering
income which should be at least P3,000.00 for the preceding taxable year pursuant to
Section 45(a)(1)(B) and (c)(1) of the Tax Code as amended.
Very truly yours,
Acting Commissioner

June 20, 1996
25 000-00 66-96
Meer, Meer & Meer
9TH Floor, PLDT Building
Legaspi Street
Makati City
Attention: Atty. Lamberto Meer
Gentlemen:
This refers to BIR Ruling No. UN-303-94 which was issued to you by this Office on
November 4, 1994 in response to your letter dated June 1, 1994 requesting for
confirmation of your opinion to the effect that your client, DEL MONTE FRESH
PRODUCE INTERNATIONAL, INC. (DMFPI) is not subject to the 2 1/2% tax on gross
Philippine Billings, and to the 3% common carrier's tax, the dispositive portion of which
reads thus;
". . . Considering that your client will be carrying cargo solely for its own account and
shall not carry cargo for any third party, it is not subject to the 2 1/2% income tax on
gross Philippine billings imposed by Section 25 (a) (2) of the Tax Code, as amended,
as it cannot derive income in carrying its own cargo. It cannot also be subjected to the
3% common carrier's tax imposed by Section 115 of the same Code, (BIR Ruling No.
401-87 dated September 15, 1987)
Moreover, any income to the charter agreement between the two (2) offshore
companies, DMFPI and GRC, shall not be subject to Philippine taxes, the taxable
transaction/activity being performed outside our taxing jurisdiction. (BIR Ruling No.
464-93 dated November 19, 1993)".
It appears that said ruling was based on your representation that your client, Del
Monte Fresh Produce International, Inc. (DMFPI), is a Liberian corporation with
principal office of 80 Broad St., Monrovia, Liberia, primarily engaged, among others, in
the purchase of bananas from Philippine growers for export to the international
overseas market; that DMFPI shall be chartering vessels from GLOBAL REEFER
CARRIERS, LTD. (GRC), also a Liberian corporation, to carry cargo solely for its
(DMFPI) own account; that the charter agreement between the two (2) offshore
companies, DMFPI and GRC, shall be executed abroad, involving vessels of foreign
registry, and all charter payments thereon shall take place abroad.
In connection therewith, please be informed that according to the final report dated
August 28, 1995, submitted by agents of the Economic Intelligence & Investigation
Bureau (EIIB), who conducted an investigation on the alleged tax evasion case of
GRC upon orders of the Secretary of Finance as evidenced by Mission Order No. 19295 dated April 18, 1995, it was ascertained that GRC is a Liberian Corporation holding
office at the Powerhouse Building, owned and occupied by DEL MONTE FRESH
PRODUCE PHILIPPINES, INC. (DMFPPI) at J.P. Laurel Avenue, Km. 9, Bo.
Pampanga, Sasa, Davao City under Contract of Lease executed on March 8, 1994 by
and between DMFPPI as Lessor and GRC as Lessee; that as of August 28, 1995, the
date of said report, GRC "is not yet registered with the Securities and Exchange
Commission (SEC), although it has a reservation for registration"; that the office is
manned by a full staff of foreign and Filipino employees, complete with such office
equipment as computers, telephones, cabinets, typewriters, office tables, etc.; that it is
engaged in the shipping business more specifically in transporting fresh fruits of
various fruit growers of Mindanao, like Del Monte Fresh Produce (Phils.) Inc.,
(DMFPPI) Del Monte Philippines, Inc., Evergreen Farms, Inc., Marsman Estate
Plantation, AMS Farming Corporation, F.S. Dizon & Sons, Inc., Camval Tropical Fruits,
Inc., Soriano Fruits, Inc., Farmingtown Agri. Dev. Corp., Lapanday Agri Dev. Corp.,
Guining Agri Dev. Corp., Gameco Agri Dev. (Phils.), Inc., Tagum Agri Dev. Co., Davao
Agri Ventures Corporation and etc. from the ports of Cagayan de Oro City and Davao
City to Korea, Japan and other Far East Countries (per outward Foreign Manifest); that
it started its shipping operations on December 29, 1993 with twenty six (26) foreign
registered ships at its service and even up to the present it has effectively pursued its
business; that it has a shipping agent in Cagayan de Oro City; and that it has also
contracted Davao Multi Maritime & Marketing Corporation (DMMMC) as its
husbanding or shipping agent in Davao City for an indefinite period of time, thus,
showing that it has long resided and is intending to continuously stay and engage in
business here in the Philippines.
It is clear from the foregoing, that both DEL MONTE FRESH PRODUCE
INTERNATIONAL INC. (DMFPI and GLOBAL REEFER CARRIERS LTD. (GRC) are
resident foreign corporations, with their respective offices and places of business in
the Philippines. In order that a foreign corporation may be regarded as doing business
within a State, there must be continuity of conduct and intention to establish a
continuous business, such as the appointment of a local agent, and not one of a
temporary character. (Pacific Micronesian Line, Inc. vs. Del Rosario and Peligon, 96
Phil. 23, 30 citing Thompson on Corporations, Vol. 8, 3rd ed., pp. 844-847 and Fisher's
Philippine Law of Stock Corporation, p. 415) As resident foreign corporations, they are
subject to Philippine income tax on taxable income derived from all sources within the
Philippines. In other words, the test of taxability is the "source", and the source of an
income is the property, activity or service that produced the income. [CIR vs. British
Overseas Airways Corporation (BOAC) et. al., G.R. Nos. 65773-74, April 30, 1987;
Mertens' Law of Federal Income Taxation, Vol. 8 cited in Howden & Co. Ltd. vs.
Collector of Internal Revenue, 13 SCRA 601 (1965)] Investigation conducted in this
case disclosed "that GRC is a "Tonnage Provider" for DMFPPI. This means that they
provide ships on which the fresh fruits cargoes of DMFPPI are loaded for export to the
Far East countries, like Korea, Japan, etc. They mobilize Twenty Six (26) ships for this
purpose." The word "source" conveys one essential idea, that of origin, and the origin
of the income herein is the Philippines. (BOAC case supra; Manila Gas Corporation
vs. Collector of Internal Revenue, 62 Phil. 895)
Based on the abovementioned findings, and contrary to your representation, GRC is a
resident foreign corporation doing business here in the Philippines and is therefore
subject to the 2 1/2% income tax on gross Philippine billings imposed by Section 25
(a) (2) of the Tax Code, as amended and the 3% common carrier's tax imposed by
Section 115 of the same Code reckoned from the time, it started its shipping
operations in the Philippines on December 29, 1993 up to the present. However
beginning January 1, 1998, GRC as an international shipping company (on its
international cargo vessels) will be subject to the 10% value-added tax, instead of the
3% common carrier's tax under Section 102 as amended by Republic Act No. 7716.
In fine, BIR Ruling No. UN-303-94 dated November 4, 1994, is hereby revoked and
declared void ab initio, insofar as the exemption from Philippine taxes on any income
that would be derived by GRC and DMFPI under the Charter Agreement adverted to in
the aforesaid ruling is concerned. casia
Very truly yours,
SEC Opinion (May 6, 1992)

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INCOME TAXATION OF ALIENS

Sec. 7, Income Tax Regulations (Rev. Regs. No. 2)

Very truly yours,

Meaning of Resident and Non-Resident

Sec. 5, Income Tax Regulations

In reply thereto, I have the honor to inform you as follows:

Cases: separate file

Very truly yours,

In this connection, you now request a ruling on the following:

BIR Ruling No. 12-89

Based on the foregoing representations, you now request in effect a ruling as to

In reply, please be informed that as a consequence of the amendment/change of Mr.

BIR RULING NO. 136-87

BIR Ruling No. 076-97

Provides for the artistic direction of the orchestra;

Plans and submits orchestra training and developmental program to

After deducting the applicable items enumerated in the preceding allowable

Net Income from Business/Profession

Net Taxable Income

permanently in the Philippines shall likewise be treated as a non-resident

Please be guided accordingly.

Meaning of Engage in Trade or Business

BIR Ruling No. 081-84

(SGD.) RUBEN B. ANCHETA

BIR Ruling No. 143-85

BIR Ruling No. 31-95

BIR RULING NO. 006-98

Sec. 15(b), first paragraph

electronics automated equipment; and that in sworn certification issued by its

BIR Ruling No. DA-024-2008, Jan. 21, 2008

4/F Bee Lu Building

Meaning of Resident Foreign Corporation and Non-Resident Foreign

Cases: separate file

BIR Ruling No. 237-90

Based on the abovementioned findings, and contrary to your representation, GRC is a

Sen. Gil Puyat corner Makati Avenue

Very truly yours,

General administration and planning;

Business planning and coordination;

Sourcing/procurement of raw materials and components;

Corporate finance and advisory services;

Marketing control and sales promotion;

Training and personnel management;

Research and development services, and product development;

Technical support and maintenance;

Data processing and communication; and business development,

which functions are applicable to a Regional Operating Headquarters pursuant to

In reply, please be informed that a representative office is a non-resident foreign

Meaning of Engaged in Trade or Business

Section 3. Definitions. - As used in this Act:

has manufactured or exported to the Philippines, servicing the same, training

In reply, please be informed as follows:

BIR Ruling No. 066-96

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