BIR Ruling No. 001-2022

TITCTTULITPINE

BUREAU OF INTERNAL REVENUE DEPARTMENT OF FINANCE Quezon City

Sections 28B1)42C),98,99,101 (B of the 1997 Tax Code, as amended; Section 2.57.1 of DA-514-06; BIR Ruling No. [DA-272-08] Revenue Regulations No. 2-98, as amended. BIR Ruling No.[DA-054-08]; BIR Ruling No. O001-2022 JAN 0 3T202Z

4th & 5th Floor,NF A Building NFA Compound, Visayas Avenue ANTI-RED TAPE AUTHORITY Brgy. Vasra, Dilima n, Quezon City Philippines 1128

Attention: SECRETARY JEREMIAH B.BELGICA

Director General

Gentiemen:

guidance on the taxation aspect of the following items relating to the ARTA's training and This refers to your request on behalf of Anti-Red Tape Authority ("ARTA") for

capacity-huilding program for its personnel:

Exemption from Donor's tax of the New Zealand counterpart amounting to

and

2.ARTA's counterpart amounting to sourced from its FY 2021 General

Appropriations Act (GAA)(Regular Fund 101)-MOOE Allot nent.

Background:

1.ARTA receied a proposal from Creative HQ CHQ,a whoily owned subsidiary of Wellington, NZ, to conduct the T7 Masterclass in Innovation, a training and

capacity-building program for its personnel (the Program).

2. CHQ is Ne Zealand's leading provider of structured innovation and capabilty building whose purpose is to deliver transformative innovation programs for start-ups.

entrepreneurs, ahd' large organizations, including Government. It has delivered services to public and private stakeholders both in NewZealand and overseas jurisdictions including Australia, Singapore, Japan, Sri Lanka, Indonesia, and the

Philippines.

3 ARTA met w ith the representatives from CHQ,New Zealand2G Partnerships(NZ G2G, andAmbassador Peter Kell, Ambassador of New Zealand in the Philippines,

to discuss the Prdgram (collectively, the Parties.

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4. The Parties agree that the New Zealand Government, through NZ G2G, would co- Seventy percent (70%) of the total cost of the Program (NZ Funds) and ARTA will fund the Program up to NZD cost of training. shoulder the remaining or approximately thirty percent (30%) of the million) or approximately

5. The NZ Funds will be paid directly by the New Zealand Government to CHQ while MOOE. ARTA's counterpart will be sourced from its FY 2021 GAA (Regular Fund 101) -

6.The Program will be facilitated by CHQ remotely, i.e., outside the Philippines In reply, please be informed as follows:

exempt from Donor's Tax Donation Governmentof by NewZealand to ARTA iS

amended ("Tax Code) provide that a tax of six percent (6%) shall be levied, assessed, collected and paid upon the transfer by any person, resident or nonresident, of a property (real or personal) by gift, to wit Sections 98 and 99 of the 1997 National Internal Revenue Code of the Philippines, as

"Section 98. Imposition of Tax.

any person, resident or nonresident, of the property by gift, a tax, computed as provided in Section99. (A There shall be levied, assessed, collected and paid upon the transfer by

the gift is direct dr indirect, and whether the property is real or personal, tangible or intangible. (B The tax shall apply whether the transfer is in trust or otherwise, whether

Section 99. Rates of Tax Payable by Donor. --

pesos (P250,000) e.empt gift made during the calendar year. computed on the basis of the total gifts in excess of Two hundred fifty thousand (A) In General -- The tax for each calendar year shall be six percent (6%)

coalition of parties\for campaign purposes shali be governed by the Election Code, as amended. B Any contribution in cash or in kind to any candidate, political party or

not conducted for profit, shall be exempt from payment of Donor's Tax, to wit: for the use of the National Government or any entity created by any of its agencies which is However, please note that Section 101 (B) of the Tax Code states that gifts made to or

shall be exempt from the tax provided for in this Chapter: "Section 101. Exemption of Certain Gifts. -- The following gifts or donations

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political subdivision of the said Government. " (Underscoring supplied) (B) In the Case of Gifts Made by a Nonresident not a Citizen of the Philippines. created by any of its agencies which is not conducted for profit, or to any (1) Gifis made to or for the use of the National Government or any entity

attached to the Office of the President, to wupiement the Program. directly paid to CHQ, it is clear that the intention of the parties is for the New Zealand Government to donate NZD In this case, while it is true that the funds of the New Zealand Government will be to ARTA, a government agency

income tax pursuant to Section 32(B)(3) of the Tax Code. million) to ARTA is exempt from Donor's Tax. And, on the part of the donee agency ARTA, the donated amount shall be excluded from its gross income and shall be exempt from Thus, the donation by the New Zealand Government of

to CHQ is exempt from Philippine income tax,expanded withholding tax and value added tax ARTA's payment

1.Income Tax

are subject to income tax only on income derived from all sources within the Philippines, to Wit: Section 28 (B) (1) of the Tax Codel provides that non-resident foreign corporations

"Section 28. Pates of Income Tax on Foreign Corporations.

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"(B) Tax on Nonresident Foreign Corporation. -

(1) In General -- Except as otherwise provided in this Code, a foreign to tax under subparagraph 5(c)" (Underscoring supplied) gains, profits and income, and capital gains, except capital gains subject corporation not engaged in trade or business in the Philippines, effective the gross income received during each taxable year from all sources within thePhilippines, such as interests, dividends, rents, royalties, salaries,premiums(except reinsurancepremiums),annuities, emoluments or other fixed or determinable annual, periodic or casual January 1,2021, shall pay a tax equal to twenty-five percent (25%) of

income derived from sources outside the Philippines. Conversely, non-resident foreign corporations are not subject to income tax on

As amended by Section 7 of Republic Act No. 11534, otherwise known as the CREATE,"An Act 28, 29, 34, 40,57, 109, 116, 204 and 290 of the National Internal Revenue Code of 1997 as Amendedand Reforming the Corporate Income Tax and Incentives System, Amending for the Purpose Sections 20, 22, 25, 27 Creating Therein New Title XIII, and For Other Purposes, March 26, 2021. Y

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which provides, viz.: The above provision should be read together with Section 42 (C) of the Tax Code

"Section 42. Income from Sources Within the Philippines.

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items of gross income shall be treated as income from sources without the Philippines: (C) Gross Income from Sources Without the Philippines. -- The following

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without the Philippines: " (Underscoring supplied) "(3) Services. - Compensation for labor or personal services performed

performed remotely, i.e. outside the Philippines, particularly in New Zealand, then, the service fees to be paid to CHQ by ARTA are not subject to Philippine income tax.2 In fact, even the Double Taxation Agreement between the Philippines and New Zealand3 provides that the profits of an enterprise of one of the Contracting States shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein -- a scenario which the parties did not contemplate in their agreement. Considering thatthe Program to be conducted by CHQ will be facilitated or

that the said income payment is considered taxable income to the payee. Therefore, reference must necessarily be made to the income source rules under our tax system. withholding tax systern, taxes withheld on certain income payments are intended to equal or withholding of income/creditable withholding tax on a certain income payment presupposes tax under Revenue Regulations ("RR") No. 2-98, as amended.4 Under the creditable at least approximate the tax due of the payee on said income.5 Needless to state, the Further, such services to be performed abroad by CHQ are not subject to withholding

corporations are subject to final withholding tax on their income derived from sources sources within the Philippines. The said section does not provide that non-resident foreign Without the Philippines. foreign corporations are subject to final withholding tax only on their income derived from all Corollarily, Sectioh 2.57.1 (I) of RR No. 2-98, as amended, provides that non-resident

subject to the expanded withholding tax prescribed in RR No. 2-98, as amended. the said regulations, consequently, services rendered abroad by these corporations are not Since payments to foreign corporations, like CHQ, are not among those specified in

2 BIR Ruling [DA-054-08], Janary 30, 2008; BIR Ruling DA-514-06, dated 25 August 2006; BIR Ruling [DA 4 Implementing Republic Act No. 8424, "An Act Amending the National Internal Revenue Code, as Amended" Relative to the Withholding onIncome Subject to the Expanded Withholding Tax and Final Withholding Tax, Withholding of Income Tax on Compensation, Withholding of Creditable Value-Added Tax and Other 272-08], April 25, 2008. 3 Took effect on January 1, 198 Percentage Taxes, April 17, 1998. 5 Section 2.57 (B), Revenu Regulations No. 2-98, as amended. K

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2.Value Added Tax

Section 108 (A) of the Tax Code6 states:

"Section 108. Value Added Tax on Sale of Services and Use or Lease of Properties. --

(A) Rate and Base of Tax. -- There shall be levied, assessed and collected, a derived frcm the sale or exchange of services, including the use or lease value-added tax equivalent to twelve percent (12%) of gross receipts of properties.

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.1. " (Underscoring supplied)

("VAT) applies only to services performed in the Philippines and not to services rendered outside the Philippines. Hence, since CHQ will be conducting the Program outside the Philippines, the service fees payable by ARTA to CHQ are not subject to VAT.7 Prescinding from the above-cited provisions, it is undisputed that the value-added tax

upon investigation it shall be disclosed that the facts are different, then this ruling shall be considered null and void. This ruling is issued on the basis of the foregoing facts as represented. However, if

Very truly yours,

1&usaMuea

Commissioner of Internal Revenue CAESAR R. DULAY 048313

6 As amended by Section 33 of Republic Act No. 10963, otherwise known as the "Tax Reform for Acceleration 7 BIR Ruling [DA-272-08]. April 25, 2008. and Inclusion (TRAIN), January i, 2018.