April 20, 2007

DA ITAD BIR RULING NO. 54-07

Articles 5 & 8, Philippines-United States Tax

Treaty
Sections 23 (F) & 42 (A) (3), NIRC
BIR Ruling No. DA-ITAD-63-06

Dulay Pagunsan & Ty

Law Offices
4F Bee Lu Building
103-113 Sen. J. Puyat Avenue
1306 Pasay City

Attention : Mr. Brigido J. Dulay

Gentlemen :

This refers to your letter dated August 28, 2006, and received by this Office
January 18, 2007, on behalf of your client, CYBER CITY TELESERVICES
LIMITED (hereinafter referred to as "CCTL"), requesting confirmation that service
fees paid by CCTL to CCT MARKETING LLC (hereinafter referred to as "CML")
are not subject to Philippine income tax as business profits attributable to a permanent
establishment in the Philippines, pursuant to Article 8 (1) in relation to Article 5 of
the Philippines-United States tax treaty and Sections 23(F), 28(B)(1) and (42)(A)(3)
of the National Internal Revenue Code of 1997 (NIRC).

It is represented that CML (formerly "Network Management Service LLC") is

a nonresident foreign corporation organized and existing under the laws of the State
of Delaware, USA, with address at the Continental Plaza, 401 Hackensack Avenue,
Hackensack, New Jersey, 07601, USA, as evidenced by a certification issued by the
Secretary of the State of Delaware dated October 4, 2006; that it is not registered
either as a partnership or a corporation in the Philippines pursuant to a Certification of
Non-registration issued by the Securities and Exchange Commission dated September
19, 2006; that it is engaged in the business of providing marketing and customer
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activation services for call centers and business process outsourcing companies; that,
on the other hand, CCTL is a corporation existing under the laws of the Philippines
and is duly registered with the Clark Special Economic Zone, Clark Development
Corporation, with office address at 2528 Corporate Office, Cyber City Park, Apo
Court along Sergio Osmeña Road, CSEZ, Clark Field Pampanga; that it is engaged in
the operation of a Call Center, Teleservices and other Information Technology related
services to the foreign market.

It is further represented that on August 17, 2001, CML and CCTL entered into
a Marketing Services Agreement (Agreement) whereby CCTL appoints and engages
the services of CML as its exclusive marketing representative to solicit clients and
customers located in the United States of America who could utilize CCTL's call
center and business process outsourcing services (hereinafter referred to as "the
Services"), to include, but not limited to, the following:

a) Hiring and retaining sales and marketing personnel in the United States
(US), as employees, agents or independent contractors, on a full time or
part basis, to promote, market, and sell the Services, upon such terms
and conditions as CML may deem necessary and appropriate to meet its
obligations;

b) Attending and sponsoring marketing booths at US trade shows for the

applicable industries to promote the Services, subject to the approval of
CCTL;

c) Developing and preparing necessary and appropriate marketing

materials promote the Services to US-based clients or customers;

d) Advising CCTL in connection with its compliance with applicable US

legal requirements under Federal and State laws. Rules and regulations
in offering the Services to US-based clients or customers;

e) Utilizing the form agreements approved by CCTL to memorialize

contract arrangements with US customers and to utilize the agreements
of US customers, all subject to the continuing review and comment
thereon and final approval thereof by CCTL authorized personnel;

f) Establishing a limited liaison staff in the US, with appropriate available

technical equipment, to initialize agreements and follow-on procedures
between clients or customers in the United States and CCTL's
operations personnel in the Philippines who will be directing and
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 rendering e-Services, and to coordinate, when necessary and from time
to time during the term of any such agreement, actions between CCTL
and said clients or customers to help ensure the smooth and efficient
commencement and ongoing performance of CCTL;

g) Paying any item to US vendors of products and services sold or

rendered to CCTL or any of its affiliates subject to receipt of copies of
invoices from such vendors or CCTL; and

h) Contracting for and procuring insurance coverage for CCTL where

applicable and necessary, at the request of CCTL.

And that, in return for providing its services, CCTL shall pay CML one
hundred percent (100%) of all costs (Expenses) incurred by CML in performing its
marketing and customer activation services and other related and ancillary services
stipulated in the Agreement, and, an amount of six percent (6%) of the said Expenses;
and that the Agreement shall have an initial term of ten (10) years and shall
automatically be renewed for additional five (5) year terms unless other party notifies
the other at least thirty (30) days in advance of its intention not to renew.

Finally, it is asserted that, as the Agreement does not provide for CML to
render services in the Philippines, CML will not be sending any of its personnel in the
Philippines.

In reply, please be informed that Article 5, and in relation thereto, Article 8 of

the Philippines-United States tax treaty provide, viz:

"Article 8

BUSINESS PROFITS

1. Business profits of a resident of one of the Contracting States shall be

taxable only in that State unless the resident has a permanent
establishment in the other Contracting State. If the resident has a
permanent establishment in that other Contracting State, tax may be
imposed by that other Contracting State on the business profits of the
resident but only on so much of them as are attributable to the
permanent establishment.

Article 5

PERMANENT ESTABLISHMENT

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 1. For the purposes of this Convention, the term "permanent
establishment" means a fixed place of business through which a
resident of one of the Contracting States engages in a trade or
business. acTDCI

2. The term "fixed place of business" includes 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 factory;

f) A workshop;

g) A warehouse;

h) A mine, quarry, or other place of extraction of natural

resources;

i) A building site or construction or assembly project or

supervisory activities in connection therewith, provided
such site, project or activity continues for a period of
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.

xxx xxx xxx"

Based on the foregoing, the service fees of CCTL to CML shall not be subject
to Philippine income tax if CML, being a resident of the US, does not have a fixed
place of business in the Philippines; or if it has such a fixed place, said fee is not
attributable to such fixed place. However, should employees of CML be required to
render services in the Philippines and such furnishing of services continue within the
Philippines for a period of more than 183 days within any twelve-month period, such
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shall be deemed to constitute as a permanent establishment of CML in the
Philippines. Accordingly, such service fees shall be subject to Philippine income tax.

In addition thereto, Section 23 (F) and, in relation thereto, Section 42 (A) (3)
of the NIRC provide, viz:

"SEC. 23. General Principles of Income Taxation in the

Philippines. — Except when otherwise provided in this Code:

xxx xxx xxx

(F) A foreign corporation, whether engaged or not in trade or business in the

Philippines, is taxable only on income derived from sources within the
Philippines."

"SEC. 42. Income from Sources Within the Philippines. —

(A) Gross income From Sources Within the Philippines. —

xxx xxx xxx

(3) Services. — Compensation for labor or personal services

performed in the Philippines;"

Based on the above provision, income from services of a foreign corporation is

taxable in the Philippines only if such services are performed within the Philippines.

From the herein representations, it can be ascertained that CML does not have
a fixed place of business in the Philippines to which its income may be attributed to,
and that no personnel of CML will come to the Philippines to render services. In view
thereof, this Office is of the opinion and hereby rules that income for services by
CML to CCTL under the subject Agreement shall not be subject to Philippine income
tax pursuant to Article 8 in relation to Article 5 of the Philippines-United States tax
treaty. (BIR Ruling No. ITAD-63-06 dated June 1, 2006) HTCaAD

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

Very truly yours,

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 Commissioner of Internal Revenue

By:

(SGD.) JAMES H. ROLDAN

Assistant Commissioner, Legal Service

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