BIR Ruling No. 004-2025

BUREAU OF INTERNAL REVENUE REPUBLIC OF THE PHILIPPINES DEPARTMENT OF FINANCE

National Office Building Quezon City

Sections 23 (F), 23 (B)(1), 42 (A)(3), (A) (4),(C)(3), and 108 (A) (3) of the National internal' Revenue Code' of 1997, as amended;

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PUNONGBAYAN AND ARAULLC 19th and 20th Floors, Tower I 6766 Ayala Avenue, 1200 Makati City The Enterprise Center

Attention: Head, Tax Advisory and Compliance ATTY. ELEANOR L. ROOUE

Gentlemen:

Advantage Plus Philippines, Inc. ("AAPPI") to Allegiance Marketing Pty. Limited ("AMPL") pursuant to a Technical Services Agreement, are not subject to income tax, withholding tax, and value-added tax ("VAT") as it was made in consideration of the key technical services rendered outside the Philippines in accordance with Section 28 (B) (1) and 42 (C) (3) of the National Internal Revenue Code of 1997, as amended ("Tax Code"). This refers to your request for a ruling confirming that technical fees paid made by Accor

Background

I. AAPPI, a domestic corporation existing and established under Philippine laws and with principal address at Sofitel Philippine Plaza, CCP Complex, Roxas Boulevard, Pasay City 1300, is a company engaged in the business of telemarketing of a membership program for dining and accommodation benefits of its member hotels.

2. AMPL, a non-resident foreign corporation organized and existing under the laws of Australia, is engaged in the sale and management of membership'program offered by AAPC Limited, a group of companies where AAPPI and AMPL are members. 3. AAPPI entered into a Technical Services Agreement with AMPL on January l, 2012 whereby the latter will provide key technical services in support of the former's operation, to wit:

b. Maintaining IT Help Desk Support for general and netwoik services; c.Maintaining GP and FRX Accounting Software Support; a. Telecommunication equipment maintenance and ongoing support;

e.IT Management Support, Project Management, and General Administration. d. Maintain All Mark member database software technical support; and OTr 0 0 L, - 2 0 2 5 JAN 0 6 7025

4. Under the said Agreement, all services rendered by AMPL for AAPPI shall be performed in its entirety in Australia via remote access. It was further agreed that in no case would there be an employee who will be sent to the Philippines or travel outside Australia to render services pursuant to the said Agreement.

5. In consideration of the key technical services to be rendered for AAPPI, it was agreed that be invoiced on'a biannual basis. This was later agreed' to be increased to AU AMPL will be paid by the former annual technical fees in the amount of AUD : Stated in the cover letter dated March 18, 2013. to A

6. The "Certification of Non Rendition of Services in the Philippine Territory" dated March 21, 2023 submitted by AMPL shows that the services rendered in Australia include: (1) Software/Database Support and (2) Project Management, IT, and Telecommunication Support.

7. AAPPI claims that the payments made for the key technical services provided by AMPL pursuant to the aforementioned Agreement are not subject to income tax, withholding tax, and VAT for being rendered outside the Philippines.

Hence, this request. In reply, please be informed as follows:

Sections 23 (F) and 28 (B) of the Tax Code provide:

when otherwise provided in this Code: "SEC. 23. General Principles of Income Taxation in the Philippines. Except

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(F) A foreign corporation, whether engaged or not in trade or business in the Phitippines, is taxable only on income derived from sources within the Philippines. (Emphasis supplied)

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"SEC. 28. Rates of Income Tax on Foreign Corporations.

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(B) Tax on Non-resident Foreign Corporation. -

(1) In General. -- Except as otherwise provided in this Code, a foreign corporation from all sources within the Philippines xxx...xxx. Provided, that effective January 1, 2009, the. rate of income tax shall be thirty percent (30%).1 not engaged in trade or business in the Philippines shall pay a tax equal to thirty-five percent (35%) of the gross income received during each taxable year (Emphasis supplied) 1 This was reduced to twenty-five percent (25%) by Republic Act No. 11534 starting January I, 2020

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the Philippines, to wit: " Code states that compensation for labor or personal services is derived from sources within the Philippines if the services are performed therein, and outside if the services are performed outside In relation to the previously cited provisions, Section 42 (A) (3) and (C) (3) of the Tax

"SEC. 42. Income from Sources within the Philippines

(A) Gross Income from Sources within the Philippines. of gross income shall be treated as gross income from sources within the Philippines: .- The following items

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(3) Services. in the Philippines; (Emphasis supplied) -- Compensation for labor or personal services performed

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

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(3) Compensation for tabor or personal services performed without the Philippines;" (Emphasis supplied)

they are not subject to income tax on income derived from sources outside the Philippines. The subject to income tax only on income derived from all sources within the Philippines. Conversely, services claimed to be exempted must be of a nature that can be reasonably performed abroad. In accordance with the aforementioned provisions, non-resident foreign corporations are

and Information Technology, the completion or delivery of said services relies upon the supply Philippines which are considered royalties under the Tax Code and thus subject to applicable .shows that.the services rendered in Australia include: (1) Software/Database Support and (2) Project Management, IT, and Telecommunication Support. Although these services can be reasonably performed abroad with the continuing emergence of the Business Process Outsourcing of technical knowledge or information involving interests in properties or facilities located in the taxes. The submitted "Certification of Non Rendition of Services in the Philippine Territory"

percent (30%) of the gross income received during each taxable year from all sources within the technical, industrial or commercial knowledge or information" are treated as gross income from sources within the Philippines; hence, it is subject to Philippine income tax at a rate of thirty Philippines in accordancc with Section 28 (B) (1) of the samc Code. Section 42 (A) (4) (c) of the Tax Code provides that royalties for "the supply of scientific,

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Or information" constitute income derived from sources within the Philippines; hence, the same are subject to income tax, and consequently, to the withholding tax. the technical fees paid to it by AAPPI for services involving "the supply of technical knowledge Applying the foregoing discussions, AMPL, though a non-resident foreign corporation, JAN 0 6 2025

of services subject to VAT include only those services that are performed in the Philippines, viz.: On the other hand, Section 108(A) of the Tax Code clear!y reads that the sale or exchange

"SEC. 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 value- the sale or exchange of services, including the use or lease of properties. added tax equivalent to twelve percent (12%) of gross receipts derived from

The phrase 'sale or exchange of services'means the performance of all kinds include: of services in the Philippines for others for a fee, remuneration or consideration....... The phrase sale or exchange'of services' shall likewise

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(3) The supply of scientific, technical, industrial, or commercial knowledge or information; (Emphasis supplied)

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income from sources within the Philippines, are subject to VAT equivalent to 12% of gross receipts derived from the sale or exchange of service. Accordingly, the technical fees paid by the AAPPI to AMPL, which are considered as gross

by AAPPI for services involving the supply of technical knowiedge or information, are subject to Philippine income tax, withholding tax, and VAT. IN VIEW OF THE FOREGOING, this Office hereby states that the technical fees paid

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

Very truly yours,

K-1-EACRIT Commissioner of Internal Revenue ROM D.LUMAGUI, JR.

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