BIR Ruling No. 333-2020

BUREAU OF INTERNALREVENUE REPUBLICOF THE PHILIPPINES DEPARTMENT OF FINANCE Quezon City

SYCIP GORRES VELAYO & CO. 6760 Ayala Avenue 1226 Makati City as amended Secs.23F,42A3,C3 BIR Ruling No.068-2013 VAT0333-202 and 108A,all of the National Internal Revenue Code of 1997. JUN 1 6 2020

Gentlemen: Attention: Principal, Tax Advisory and Advocacy Group ATTY.JULES E.RIEGO

Newrest Group International S.A.S NGI for brevity)for confirmation of your opinion that service fees to be received by NGI for consultancy services to be rendered outside the Philippines is not subject to Philippine income tax and consequently to withholding tax as well as the twelve percent (12%) value added tax (VAT). This refers to your letter dated January 18, 2013 requesting on behalf of your client.

Background:

and beverage distribution, and food handling safety, among others. registration number of management and operation of canteens, restaurants, and catering services as well as in research and consultancy relating to the supply chain, management and operation of food France with business address at NGI is a non-resident foreign cornoration organized and existing under the laws of It is engaged in the business of operation with

local companies (collectively referred to herein as the Companies) which are engaged in the business of rendering integrated on-shore and off-shore manpower supply, logistics and support services to the oil and gas companies in the Philippines: On December 17, 2012, NGI executed a Consultancy Agreement with the following

4. 3 2 Supply Oilfield & Marine Personnel Services, Inc. SOS Marine & Environmental Services, Inc. Supply Oilfield Services, Inc. SOS Transport & Logistics, Inc.

5 Supply Oilfield Services (Subic), Inc. 6. Oiifield Institute of Learning in Asia (Oil-Asia), Inc.

The Consultancy Agreement is for the provision of the following services:

2 Advice on industry best practices; Provide advice on the development and implementation of business strategy, techniques and negotiation of commercial agreements;

3 Evaluate the qualifications and experience of key staff for recruitment

4. Assist in the formulation of policies relating to compensation, pensions and on-line conduct of applicants' interview;

5.Assist in the secondment of employees between group companies; and other employee benefits;

NEWREST GROUP INTERNATIONAL S.A.S VAT-0333-2020 JUN 1 6 2020

6. Assist in the negotiation and formulation of any agreement involving 7. Assist in the handling of international disputes and procedures before international transactions;

8. Provide international marketing support services including the review of international courts or arbitration proceedings;

9. marketing strategy; and Assist in the encouragement of internal communications despite the

Group newsletter and Internet.

Service fees based on actual cost of man-hours spent by NGI staff for said services which corresponding to their respective parts in the service fees. enumerated services outside the Philippines. For the services rendered, NGI shall receive shall be paid on the basis of separate invoices issued to each of the Companies, Under the terms of the Consultancy Agreement, NGI will render the above-

Revenue Code of 1997. as amended, a foreign corporation, like NGI, whether or not engaged in trade or business in the Philippines, is subiect to income tax only with respect to income derived from sources in the Philippines, to wit: In reply, please be informed that under Section 23 (F) of the National Internal

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

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

(C) (3) of the National Internal Revenue Code of 1997. as amended. income is considered derived in the Philippines only if the services are actually performed in the Philippines, to Wit: Concerning income from the provision of services, under Sections 42 (A) (3) and

"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:

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

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

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

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NEWREST GROUP INTERNATIONAL S.A.S VAr-0 3 33 - 2 0 2 0 JUN 1 6 2020

held that only services rendered in the Philippines under a single contract are subiect to the taxing iurisdiction of the Philippines and consequently subject to Philippine income tax. The Supreme Court ruled in this wise: In Commissioner of Internal Revenue v. Marubeni Corporation', the Supreme Court

engineering and manufacture of the materials and eauipment under construction. erection and installation, supervision, direction and control of proiect and ammonia storage tanks and refrigeration units were made and therefore_not subject to contractor's tax." (Emphasis and underscoring testing and commissioning, coordination. . ." of two proiects involved two taxing iurisdictions. These acts occurred in two countries -- Japan and the within the Philippines. the evidence is clear that some pieces of eauipment and supplies were completely designed and engineered in Japan. The two sets of ship unloader and loader, the boats and mobile eauipment of the NDC completed in Japan. They were alreadv finished products when shipped to portion such as the steel sheets. pipes and structures. electrical and instrumental apparatus, these were not finished products when shipped to the Philippines. Thev. however. were likewise fabricated and manufactured by the sub-contractors in Japan. All services for the design. fabrication. Japanese Yen Portion I were made and completed in Japan. These services were rendered outside the taxing iurisdiction of the Philippines and are "Clearlv. the service of design and engineering. supply and deliverv. Philippines. While the construction and installation work were completed the Philippines. The other construction supplies listed under the offshore supplied)

rendered by NGI outside the Philippines are exempt from income tax and consequently from withholding tax. (BIR Ruling 068-2013 dated February 18, 2013) Such being the case. the service fees to be paid by the Companies for the services

use or lease of properties are subject to VAT only if the services are performed in the Philippines. Section 108 (A) of the National Internal Revenue Code of 1997, as amended, provides that: With respect to VAT, payments for the sale or exchange of services, including the

"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 of properties: Provided, that the President, upon the recommendation of the Secretary of Finance, shall, effective January 1, 20062, raise the rate of value-added tax to twelve percent (12%).. : value-added tax equivalent to ten percent (10%) of gross receipts derived from the sale or exchange of services, including the use or lease

consideration. .. " (Emphasis and underscoring supplied) kinds of services in the Philippines for others for a fee, remuneration or The phrase 'sale or exchange of services' means the performance of all

: G.R. No. 1-37377. 18 December 2001 The VAT rate was increased to 12 percent beginning February 1, 2006, in accordance with the Memorandum of the from Ten Percent to Twelve Percent dated January 31, 2006. Executive Secretary to the Secretary of Finance dated January 31, 2006, as circularized by 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 Value Added Tax Rate

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NEWREST GROUP INTERNATIONAL S.AS VAT0333-2020 JUN 1 6 2020

by NGI outside the Philippines are likewise exempt from VAT.(BIR Ruling 068-2013 dated February 18, 2013) Accordingly, the service fees to be paid by the Companies for the services performed

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

Very truly yours,

1ausanrrta

K-1-LMAT Commissioner of Internal Revenue CAESAR R. DULAY

034109

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