At present, there is no clear and categorical ruling by the courts or by the BIR

which can answer the question. However, some BIR rulings may be used as
basis to argue that services performed online may be considered as
performed outside the Philippines. In ITAD Ruling No. 014-01, the BIR ruled
that if the editing, programming, designing and dissemination of the
advertisement are done using facilities located abroad, the situs of the income
is abroad. On the other hand, in several rulings, the BIR held that services
done through electronic means such as through telephone calls and e-mails
may be considered rendered outside of the Philippines. 

If it is discovered during audit that there are management services being

performed in the Philippines, can the company still insist on the exemption
under the tax treaty even without a TTRA? In the case of Deutsche Bank AG
Manila Branch v. Commissioner of Internal Revenue, the Supreme Court
declared the failure to apply for tax treaty relief within the prescribed period
should not operate to divest the entitlement to the relief as it would constitute
a violation of the duty required in good faith in complying with a tax treaty. 

Notwithstanding, this doctrinal pronouncement of the Supreme Court is a

proactive measure, so it is prudent to file a TTRA to confirm that the
management fees are exempted from Philippine tax. This process will not only
aid the tax authorities in their tax investigation but it will also help the NRFC
and the withholding agent in case of a tax audit. 

Transfer pricing issues may also be raised on the management services.

Among others, there may be issues on whether the fees were set on an arm’s
length basis, or whether the services were needed by and benefit the
Philippine affiliate. Transfer pricing documentation should be able to support
these. 

Taxing the management fee depends upon a variety of factors; much will
depend upon the wording of the contract and the actual performance of the
service. The evidentiary aspect is extremely critical; thus, it is imperative on
the part of the taxpayer to ensure that they are not exposed to deficiency tax
assessment considering the complexity of the rules affecting the tax treatment
of the management fees.