REPUBLIC OF THE PHILIPPINES

DE,PARTMENT OF FINANCE
BUREAU OF INTERNAL RE\TENUE

Articles 5 (Permanent
Establishment) an d 7 (Business
Profits)
Phi lippines-S ingapore tax treafy
BIR Rulins No. ITAD L:4$**;

$*p*sn*sr tS * il*i:t

SYCIP GORRE,S VE,LAYO AND CO.

6760 Ayala Avenue
1226 Makati City

Attention:
Principal, Tax Services

Gentlemen:

This refers to your tax treaty relief application filed on October 19, 2016 requesting
confirmation that the'service fee paid by Loc&Stor 2417,Inc. (Loc&Stor) to Alpine Pte.
Ltd. (Alpine) is exempt from income tax pursuant to the Convention between the Republic
of the Philippines and the Republic of Singapore for the Avoidance of Double Taxation and
the Prevention of Fiscal Evasion with Respect to Taxes on lncome (Philippines-Singapore
Tax Treaty).

FACTS

Alpine is a foreign corporation organized and existing under the laws of Singapore
based on its Memorandum and Articles of Association and Business Profile issued by the
Accounting and Corporate Regulatory Authority of Singapore. As certified by the Inland
Revenue Authority of Singapore, it is a resident of the said jurisdiction for assessment year
2017 for the purpose of claiming benefit under the Philippines-Singapore Tax Treaty.

Alpine is not registered as a corporation or partnership in the Philippines based on the

Certificate of Non-Registration of Company issued by the Securities and Exchange
Commission. On the other hand, Loc&Stor is a domestic corporation engaged in operating
secure storage facilities.

On April 1, 2014, Loc&Stor and Alpine entered into a Design, Construction and
Management Agreement (the Agreement) whereby the latter agreed to provide the following
services in Singapore and, if necessary, in the Philippines beginning May 1, 2014 until
December 31,2014:.

l. Design and setup advisory for self-storage facility;

2. Construction and commissioning consultation; and
-
J. Operational practice consultation.

In turn, Loc&Stor shall pay Alpine a service fee amounting to Singapore

Dollars or its equivalent in US Dollars. q.,
I
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0a3 21
 Based on the Affidavit executed by Mr. el n n (Mr. n) on
February 22, 2019, he admitted that he was assigned to render consultancy services to
Loc&Stor in the Philippines on separate dates starting from May l, 2014 until December 28,
2014, and that after the conclusion of the contract on December 31, 2014, no Alpine
personnel or consultant was assigned to render consultancy and management services for
Loc&Stor in the Philippines.

A careful examination of the records reveals that Mr. P is the sole shareholder
and director of Alpine,l was the President/Chairman of Loc&Stor as of April 17, 20172 and
the Managing Director of Loc&Stor as of February 15, 2019.3 Moreover, based on his
passport, he was in the Philippines on the following dates:

Year Date of arrival Date of departure Number of days

2014 January 2 January 24 23
February 3 Febru ary 6 4
Febru ary 10 Febru ary I 5 6
March 5 March 17 l3
April 6 April 18 l3
April 28 May 9 t2
May 19,2014 June 5, 2014 18
July 4,2014 July 18,2014 l5
July 27,2014 August 7,2014 t2
August 19,2014 August 30, 2014 t2
September 8,2014 September 20,2014 l3
October 5 ,2A14 October I 0,2014 6
October 1 1,2014 October 19,2014 9
Octob er 27 , 2014 November 6,2014 11

November 12,2014 November 19,2014 8

December 1,2014 December 28,2014 28

Total 203 days
2015 January 5 ,2015 January 16,2015 l2
January 26,2015 February 6,2015 t2
Febru ary 10, 201 5 Febru ary I 8, 201 5 9
Febru ary 23, 2015 March 8, 2015 t4
March 16,2015 March 20,2015 5

March 30, 2015 April 2,2015 4

April 6,2015 April 17,2015 l2
April 27,2015 May 10, 201 5 t4
May I 8, 201 5 May 28,2015 1l
June 9,2015 June 13, 2015 5

July 26,2015 August 10, 2015 t6

August 27, 2015 October 23,2015 58
Octob er 25, 2015 October 3 l, 2015 7
November 7,2015 November 26,2015 26
November 29,2015 December 28,2015 30

I Based on the Memorandum of Association of Alpine Pte. [.td.

2 Based on the Statement of Management's Responsibility for Financial Statements dated April 17,2017 .
3 Based on the Statement of Management's Responsibility for Financial Statements dated f'ebru ary 15, 2019 . +
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 Total 235 davs
2016 January 11, 2016 March 10,2016 60
March 13,2016 April 5, 2016 24
April 7,2016 May 10,2016 34
May 14,2016 June 10,2016 28
June 12,2016 July l, 2016 20
July 3,2076 July 10,2016 8
August l, 2016 Octob er 9, 2016 70
October ll,2016 November 27,2016 48
November 29,2016 December 30, 2016 32
Total 324 davs
-a
2017 January 1,2017 February 2,2017 JJ
Febru ary 5, 2017 Febru ary 17 , 2017 l3
April 27,2017 May 16,2017 20
May 18,2017 June 15, 2017 29
June 16,2017 June 20,2017 5
October 15,2017 November 19,2017 36
Total 136 days
201 8 January 2,2018 February 1,2018 3l
February 4,2018 February 9,2418 6
Febru ary 1 l, 201 8 March 9,2018 27
March 10, 201 8 April 12,2018 34
July 7,2018 July 14,2018 8

July 16,2018 August 24,201 8 40

Total 146 days

RULING

In reply, please be informed that under Section 28(BXl) of the National Internal
Revenue Code of 1997 (Tax Code), as amended, income derived by a nonresident foreign
corporation is subject to income tax at the rate of 30Yo:

"SEC. 28. Rotes of Income Tax on Foreign Corporations. -

(B) Tax on Nonresidenl Foreign Corporation. -

(I) 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 7,2009, the rate ofincome tax shall
a
be thirty percent (30o/o)."

a The income tax rate for nonresident foreign corporations was reduced to25Vo under Republic Act (RA) No'
11534, otherwise known as An Act Reforming the Corporate Income Tax and Incentives System, Amending for
the Purpose Sections 20, 22, 25, 27, 28, 29, 34, 40, 57 , 109, 116, 204 and 290 of the National Internal Revenue
Code ot' 1997, as Amended, and Creating Therein New Title Xlll, and for Other Purposes" or the CREATE
Law' +
rug"sorX 6
 However, under Section 32(BX5) of the Tax Code, such income is exempt to the
extent required by any treaty obligation binding upon the Philippine government:

"SEC. 32. Gross Income. -

(B) Exclusions from Gross Income -

The following items shall not be included in gross
income and shall be exempt from taxation under this Title:

(5) Income Exempt under Treafit. - Income of any kind, to the extent required by any
treaty obligation binding upon the Government of the Philippines.

xxx"

Believing that it is entitled to treaty benefits, Alpine invoked paragraph 1, Article 7,

and paragraphs I and 2, Article 5 of the Philippines-Singapore Tax Treaty, which provide as
follows:

"Article 7
BUSINESS PROFITS

L The profits ofan enterprise ofa Contracting State shall be taxable only in that State unless
the enterprise carries on business in the other Contracting State through a permanent
establishment situated therein. If the enterprise carries on or has carried on business as
aforesaid, the profits of the enterprise may be taxed in the other State but only so much of
them as is attributable to that permanent establishment."

"Article 5
PERMANENT ESTABLISHMENT

1. For the purposes of this Convention, the term 'permanent establishment' means a fixed
place ofbusiness in which the business ofthe enterprise is wholly or partly carried on.

2. The term opermanent establishment' includes specially but is not limited to:

a) A seat of management;

b) A branch;

c) An office;

d) A store or other sales outlet;

e) A f'actory;

f) A workshop;

g) A warehouse, in relation to a person providing storage facilities for others;

h) A mine, quany, or other place of extraction of natural resources;

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t\r,*A+l
 i) A building site or construction or assembly project or installation project or
supervisory activities in connection therewith, provided such site, project or activity
continues for a period more than 183 days; and

j) The furnishing of services, including consultancy services, by a resident of one of the

Contracting States through employees or other personnel, provided activities of that
nature continue (for the same or a connected project) within the other Contracting
State for a period or periods aggregating more than 183 days.

xxxtt

Under Article 7,the profits of an enterprise of a Contracting State shall be taxable

only in that State unless the enterprise carries on business in the other Contracting State
through a permanent establishment situated therein. If the enterprise carries on or has carried
on business as aforesaid, the profits of the enterprise may be taxed in the other State but only
so much of them as is attributable to that permanent establishment.

Article 5, on the other hand, defines a permanent establishment as a fixed place in

which the business of an enterprise is wholly or partly carried ono and includes especially, a
seat of management, a branch, an office, a store or other sales outlet, a factory, and a
workshop. It also includes the furnishing of services, including consultancy services, by a
resident of a Contracting State through employees or other personnel, provided activities of
that nature continue (for the same or a connected project) within the other Contracting State
for a period or periods aggregating more than 183 days.

After evaluating the documents submitted, this Office believes, and so holds, that the
service fees derived by Alpine from the Philippines are subject to the regular income tax
rate of 30o/" as provided under Section 28(BXl) of the Tax Code.

The tax treaty does not apply to a

person who is not resident of one of
both ofthe contracting states

The Tax Residency Certificate (TRC) duly issued by the tax authority of Singapore
clearly states that Alpine is a resident of Singapore for assessment year 2017. Alpine did not
present, however, a TRC duly issued by the taxing authority of Singapore stating that it is
likewise a resident of such country for assessment years'2014 to 2016 for purposes of the tax
teaty being invoked. In other words, Alpine was a resident of Singapore in 2017 but not in
2014, 2015 and 2016 when the services were provided or the service fees were derived, or in
2016 when such fees were paid.-

Article I(Personal Scope) of the Philippines-Singapore Tax Treaty provides that the
Convention shall apply to persons who are residents of one or both of the Contracting States.
ln this case, Alpine is neither a resident of Singapore nor the Philippines in 2014 to 2016;
therefore, it cannot claim any of the benefits provided under the Singapore-Philippines Tax
Treaty for such taxable years.

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The furnishing of services in the
Philippines for more than 183 days
created a permanent establishment

Even assuming for the sake of argument that Alpine was a resident of Singapore for
taxable years 2014, 2015 and 2016, still its claim that the service fees are exempt from
income tax under of Article 7 of the Philippines-Singapore Tax Treaty cannot stand.

Under Article 5 of the treaty, a permanent establishment means a fixed place in

which the business of an enterprise is wholly or partly carried on, and includes especially, a
seat of management, a branch, an office, a store or other sales outlet, a factory, and a
workshop

In the commentary of the Organisation for Economic Cooperation and Development

(OECD) on paragraph 1, Article 5 of its Model Tax Convention on Income and on Capital,s it
emphasized the following conditions that must be satisfied before a foreign enterprise may be
deemed to have a permanent establishment in the other contracting state:

"Paragraph I
6. Paragraph 1 gives a general definition of the term'permanent establishment' which brings
out its essential characteristics of a permanent establishment in the sense of the Convention,
i.e. a distinct'situs,' a'fixed place of business.' The paragraph defines the term 'permanent
establishment' as a fixed place of business, through which the business of an enterprise is
wholly or partly carried on. This definition, therefore, contains the following conditions:

the existence ofa 'place ofbusiness', i.e. a facility such as premises or, in certain instances,
-machinery or equipment;
this place of business must be'fixed,' i.e. it must be established at a distinct place with a
-certaindegree of permanence;
the carrying on ofthe business ofthe enterprise through this fixed place ofbusiness. This
-means usuallv that persons who. in one way or another" are dependent on the enterprise
(personnel) conduct the business of the enterprise in the State in which the fixed place is
situated.'o

XXX
10. The term "place of business'o covers any premises, facilities or installations used for
carrying on the business of the enterprise whether or not they are used exclusively for that
purpose. A place of business mav also exist where no premises are available or required for
carrying on the business of the enterprise and it simply has a certain amount of space at its
disposal. It is immaterial whether the premises, facilities or installations are owned or rented
by or are otherwise at the disposal of the enterprise. A place of business may thus be
constituted by a pitch in a market place, or by a certain permanently used area in a customs
depot (e.g. for the storage of dutiable goods). Again. the place of business may be situated in
the business facilities of another enterprise. This may be the case for instance where the
foreign enterprise has at its constant disposal certain premises or a part thereofowned by the
other enterprise. (Underscoring supplied)

The foregoing commentaries mentioned the characteristics of a permanent

establishment, namely:

a) a place of business;
b) such place of business must be fixed or with a certain degree of
perrnanence; and

s Model Tax Convention on Income and Capital as published by the OECD on November 2l' 2077. v
Page 6 of 8 f
 c) the business of the enterprise must be partially or wholly carried on
through such fixed place ofbusiness.

The place of business covers any premises used for carrying on the business of the enterprise.
Where no premises exist, the enterprise must at least have a certain amount of space at its
disposal.

In this case, while Mr. P is the sole shareholder, director and employee of
Alpine, he also appears to be a high-ranking employee of Loc&Stor as evidenced by the
Statements of Management's Responsibility for Financial Statements dated Aprll 17,2017
and February 15,2019, which he signed in his capacity as PresidenVChairman and Managing
Director of Loc&Stor, respectively. Certainly, the office of Loc&Stor which he occupies as
the President or Managing Director may likewise be said to be at the disposal of Mr. P
where he could freely carry on the business of Alpine. Again, Alpine was contracted by
Loc&Stor to provide the necessary services for the start-up storage business of Loc&Stor.
Under the circumstances, it is safe to assume that he rendered the said services in the
premises of Loc&Stor.

Moreover, although Alpine may not have a fixed place of business in the Philippines,
it, nonetheless, created a permanent establishment when it furnished services in the
Philippines through its employee, Mr. P o for a period or periods aggregating more than
183 days. Tcr reiterate, Mr. P was in the Philippines for203 days in 2014,235 days
in2Al5, and324 days in 2016. It is evident, therefore, that the parties intended the contract
to continue beyond its original term (May 1,2014 until December 31, 2014) and that Alpine
wanted to continue its business in the Philippines for such periods of time through Loc&Stor.
Moreover, the length of stay of Mr. P in the Philippines and the fact that he is the
President or Managing Director of Loc&Stor lead to no other conclusion than that the
companies are one and the same or that Loc&Stor was dependent on Alpine.

ln view of the foregoing, this Office hereby rules that the service fees paid by
Loc&Stor to Alpine under the Agreement are subject to income tax at the regular rate of 3 0%
under Section2S(BXI) of the Tax Code.

Finally, the gross receipts derived from the sale of services are also subject to value-
added tax (VAT) at the rate 12% under Section 108(A), in relation to Section 105, of the Tax
Code, to wit:

"SEC. 108. Value-added Tox on Sale of Semices and Use or Leose of Properties. -
(A) Rate and Base of Tox - There shall be levied, assessed and collected, a value-added tax
equivalent to ten percent (10%) ofgross receipts derived from the sale or exchange ofservices,
including the use or lease of properties: Provided, that the President, upon the recommendation of
the SecretarJ of Finance, shall, effective January 1,2006, raise the rate of value-added tax to
twelve percent (l2o/o)...*

"SEC. 105. Persons Liable. - Any person who, in the course of trade or business, sells,
barters, exchanges, leases goods or properties, renders services, and any person who imports
goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this
Code.

The value-added tax is an indirect tax and the amount oftax may be shifted or passed on to the
buyer, transferee or lessee ofthe goods, properties or services. This rule shall likewise apply

?
PageTofs t(
 to existing contracts of sale or lease of goods, properties or services at the time of the
effectivity of Republic Act No. 7716.

The phrase 'in the course of trade or business' means the regular conduct or pursuit of a
commercial or an economic activity, including transactions incidental thereto, by any person
regardless of whether or not the person engaged therein is a non-stock, nonprofit private
organization (irrespective of the disposition of its net income and whether or not it sells
exclusively to members or their guests), or government entity.

The rule of regularity, to the contrary notwithstanding, services as defined in this Code
rendered in the Philippines by nonresident foreign persons shall be considered as being
rendered in the course oftrade or business'"

Pursuant to Section 4.114-2 of Revenue Regulations No. 16-2005,6 Loc&Stor shall

withhold VAT on the service fee at the rate of l2yo percent before remitting it to Alpine.
Loc&Stor shall use BIR Form No. 1600 (Monthly Remittance Retum of Value-Added Tax
and Other Percentage Taxes Withheld) and shall remit the VAT withheld within l0 days
following the end of the month the withholding was made.

This ruling is issued on the basis of the facts as represented. However, if it will be
disclosed upon investigation that the facts are different, then this ruling shall be without force
and effect insofar as the herein parties are concerned.

Very truly yours,

;ffi;-lx^%
CAESARR. I)ULAY
Commissioner of Internal Revenue
$r o4ssso
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6 Consolidated Value-Added Tax Regulations of2005), as amended by Revenue Regulations No. 4-2007 (Amending Certain
Provisions
of Revenue Regulations No. I 6-2005, As A."nded, Otherwise Known as the Consolidated Value-Added Tax Regulations of2005).

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