BIR Ruling DA 393-03 International Legal Advocates 2.

A person is subject to VAT if it renders service "in the course of trade or

Nov. 4, 2003 | Branch office
SUMMARY: Obtech, a corporation organized under Singaporean laws set up an
office in Makati mainly to disseminate information about its products, to
promote them and to refer orders and technical assistance to have requisite
knowledge. BIR ruled that Obtech is exempt from income tax and vat except for
their technical fees remitted to their parent company which will be taxed at the
corporate income tax rate. Employees shall also be taxed according to individual
income tax rates based on citizenship and residence.
business." Inasmuch as the operation of the representative office is similar to AHQ /
ROHQ of multinational corporations which are exempt from VAT, representative
offices are also exempt from VAT.
3. Obtech only enables the overseas head office to maintain some presence in the
country and does not perform any income-generating activities, thus it is exempt
from income taxes and VAT. This exemption applies only to VAT directly due from
rep offices.

DOCTRINE: Obtech only enables the overseas head office to maintain some 4. If technical service fees will be remitted to the parent company, the said fees are
presence in the country and does not perform any income-generating activities, considered royalties. Thus, being Philippine-source income, the fees would subject to
thus it is exempt from income taxes and VAT. This exemption applies only to corporate income tax of 32% which the payor-corporation must withhold and pay in
VAT directly due from rep offices. the same manner and conditions as under Section 59.

FACTS:
1. International Legal Advocates sent a letter to the BIR requesting a ruling
exempting its client, Obtech AsiaPacific Pte. Ltd. from payment of the value-added
and withholding taxes.
5. If there are employees, they are subject to the following income tax rates:
1. Filipino citizen, whether resident or non-resident, or a resident alien — 5%–32%;
2. Non-resident alien engaged in trade or business in the Philippines — 5%–32%;

2. Obtech is a foreign corporation organized under the laws of Singapore and 3. Non-resident alien not engaged in trade or business in the Philippines — 25%
licensed to transact business in the Philippines and the Foreign Investments Act.
They have an office in Pacific Star Building, Makati City.

3. The client conducts the following activities in this office:

1. conferences and dialogues for the purpose disseminating information

regarding the company and its products;

2. promotion of the products and services of the company, through the

process of demonstrations; and

3. referral of orders and technical assistance to persons or personnel who

have the requisite,expertise and knowledge

ISSUE:
Is Obtech subject to income tax and VAT? Not subject to VAT but remittances
are subject to income tax.
Ruling:

1. Obtech is a representative office. Accordingly ,it is exempt from filing corporate

income tax return.