February 16, 2012

ITAD BIR RULING NO. 092-12

Isla Lipana & Co.

29th Floor, Philamlife Tower
8767 Paseo de Roxas, Makati City

Attention: Alexander B. Cabrera

Managing Partner
Tax Services

Gentlemen :

This refers to your Tax Treaty Relief Application ("TTRA") filed on

December 28, 2007 requesting confirmation that service fees paid by STEAG
Aktiengesellschaft-Philippine Regional Operating Headquarters ("STEAG
ROHQ") to One TÜV BV Technische Inspektions GmbH ("One TÜV") are
exempt from income tax pursuant to the Agreement between the Republic of
the Philippines and the Federal Republic of Germany for the Avoidance of
Double Taxation with Respect to Taxes on Income and Capital.
One TÜV is a corporation organized and existing under the laws of
Germany and is a resident thereof based on the Confirmation of Registration
issued by the Inland Revenue Office of Essen-North/East in Germany on May
7, 2008. One TÜV is situated at Langemarckstr. 20, 45141 Essen, Germany.
One TÜV is not registered as a corporation or partnership in the Philippines
based on the Certification of Non-Registration issued by the Securities and
Exchange Commission on October 1, 2007. On the other hand, STEAG ROHQ
is the regional operating headquarters in the Philippines of STEAG
Aktiengesellschaft, is situated at Barangay Balacanas, Misamis Oriental,
Philippines.
On October 7, 2005, One TÜV a n d STEAG ROHQ entered into a
Consultancy Agreement where One TÜV agreed to provide consultancy and
advisory services to STEAG ROHQ relating to, among others, the supervision
of boiler pressure tests as specified in the Mindanao Project Contracts,
especially with regard to the application of all ASME regulations as requested
in the Superior Technical Specification and Power Purchase Agreement as
amended, at the construction site of the Mindanao Power Project. In
consideration, STEAG ROHQ will pay service fees to One TÜV amounting to
US$7,000.00 for services rendered for the first 10 days and US$700.00 for
each succeeding day. The service fees will be paid within 30 days from the
date of receipt of the invoice by STEAG ROHQ. The Agreement took effect on
October 7, 2005, and remained in effect up to December 31, 2006. cDIaAS

Based on the Affidavit issued by the Resident Agent and Manager of

STEAG ROHQ on October 5, 2007, One TÜV has only sent one personnel to
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 the Philippines to provide services to STEAG ROHQ in the person of Mr.
Surachai Burasothicul. He provided these services for 21 days in 2005
(October 12-19, 28-31 and December 7-10, 21-25) and for 9 days in 2006
(January 11-12, 31, February 1-3 and July 18-20).
Relative thereto, please be informed that under Section III (2) of
Revenue Memorandum Order No. 1-00 (Procedures for Processing Tax Treaty
Relief Application) ("RMO 1-2000") , any availment of tax treaty relief
(exemption from income tax or reduction of tax) shall be preceded by an
application filed at the International Tax Affairs Division ("ITAD") of this
Bureau at least 15 days before the intended transaction or payment of
income, to wit:
"III. Policies:

In order to achieve the above-mentioned objectives, the following

policies shall be observed:

xxx xxx xxx

2. Any availment of the tax treaty relief shall be preceded by an

application by filing BIR Form No. 0901 (Application for Relief from
Double Taxation) with ITAD at least 15 days before the transaction i.e.,
payment of dividends, royalties, etc., accompanied by supporting
documents justifying the relief. . ." (Emphasis ours)

This condition was emphasized by the Court of Tax Appeals in Mirant

(Philippines) Operations Corporation vs. Commissioner of Internal Revenue
(C.T.A. Case No. 6382 dated June 7, 2005) where it ruled:
"However, it must be remembered that a foreign corporation
wishing to avail of the benefits of the tax treaty should invoke the
provisions of the tax treaty and prove that indeed the provisions of the
tax treaty applies to it, before the benefits may be extended to such
corporation. In other words, a resident or non-resident foreign
corporation shall be taxed according to the provisions of the National
Internal Revenue Code, unless it is shown that the treaty provisions
apply to the said corporation, and that, in cases the same are
applicable, the option to avail of the tax benefits under the tax treaty
has been successfully invoked. cCaATD

Under Revenue Memorandum Order 01-2000 of the Bureau of

Internal Revenue, it is provided that the availment of a tax treaty
provision must be preceded by an application for a tax treaty relief
with its International Tax Affairs Division (ITAD). This is to prevent any
erroneous interpretation and/or application of the treaty provisions
with which the Philippines is a signatory to. The implementation of the
said Revenue Memorandum Order is in harmony with the objectives of
the contracting state to ensure that the granting of the benefits under
the tax treaties are enjoyed by the persons or corporations duly
entitled to the same.
The Court notes that nowhere in the records of the case was it
shown that petitioner indeed took the liberty of properly observing the
provisions of the said order. Petitioner quotes various BIR, as well as
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 ITAD, Rulings issued to several foreign corporations seeking for a tax
relief from the office of the respondent. However, not any one of these
rulings pertains to the petitioner. It must be stressed that BIR rulings
are issued based on the facts and circumstances surrounding particular
issue/issues in question and are resolved on a case-to-case basis. It
would be thus erroneous to invoke the ruling of the respondent in
specific cases, which have no bearing to the case of petitioner."
(Emphasis ours)

This decision was upheld by the Supreme Court in a Resolution (G.R.

No. 168531) dated February 18, 2008.
Furthermore, this requirement in RMO 1-2000 is reiterated in
subsequent rulings of the Court of Tax Appeals: Deutsche Bank AG Manila
Branch vs. Commissioner of Internal Revenue (C.T.A. Case No. 456 dated
May 29, 2009), CBK Power Company Ltd. vs. Commissioner of Internal
Revenue (C.T.A. Case Nos. 6699, 6844 and 7166 dated March 29, 2010) and
Manila North Tollways Corporation vs. Commissioner of Internal Revenue
(C.T.A. Case No. 7864 dated April 12, 2011).
In view of the foregoing, since One TÜV rendered the above-mentioned
services in the Philippines in October and December 2005 and in January,
February and July 2006 , and the service fees therefor were paid within 30
days from the date of receipt of the invoice by STEAG ROHQ, which could be
the month following the month when the services were rendered, but since
the subject TTRA was filed on December 28, 2007, this Office hereby DENIES
relief on these paid by STEAG ROHQ to One TÜV for having been filed
beyond the fifteen-day period required in RMO 1-2000. Accordingly, said fees
shall be subject to income tax at the rate of 35 percent under Section 28 (B)
(1) of the National Internal Revenue Code of 1997, as amended, to wit: DTIaHE

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

xxx xxx xxx

(B) Tax on Nonresident Foreign Corporation. —

(1) In General. — Except as otherwise provided in this

Code, a foreign corporation 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 from all
sources within the Philippines, such as interests, dividends, rents,
royalties, salaries, premiums (except reinsurance premiums),
annuities, emoluments or other fixed or determinable annual,
periodic or casual gains, profits and income, and capital gains,
except capital gains subject to tax under subparagraph 5(c) and
(d) above: Provided, That effective January 1, 2009, the rate of
income tax shall be thirty percent (30%)."
Please be guided accordingly.

Very truly yours,

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 (SGD.) KIM S. JACINTO-HENARES
Commissioner of Internal Revenue

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