September 30, 1980

BIR RULING NO. 018-80

37-e 000-78 18-80

Messrs. Belo, Abiera, San Jose,

Pagunsan & Guinto

6th Floor, Cibeles Building

6780 Ayala Avenue

Makati, Metro Manila

Gentlemen:

This refers to your letter dated August 22, 1979 requesting a ruling as to whether the remittances by
Prudential Bank (Malate Branch) to your client, Time, Inc., a non-resident foreign corporation which has
its principal office in Rockefeller Center, New York, U.S.A., of payments for subscription and sale of Time
Magazine to Philippine subscribers are subject to Philippine income tax.

Investigation conducted by this Office disclosed that copies of Time Magazine are sold to a Philippine
subscriber who first fills out a subscription order card enclosed in any issue of the Time Magazine which
order card is pre-addressed to Prudential Bank, Malate Branch, San Martin Building, 1560 A. Mabini Cor.
Pedro Gil, Ermita, Metro Manila, Philippines, or a subscription may be ordered through an authorized
subscription agency in the Philippines, and as payment for subscription, the Philippine subscriber
encloses a check or money order in the said subscription form; that pursuant to an Agreement executed
by and between Prudential Bank and Time, Inc., the former upon receipt of the subscription order, issues
a receipt to the Philippine subscriber, for and in behalf of Time, Inc.; that since Prudential Bank is not
authorized to accept or enter into a subscription contract with a Philippine subscriber, the subscription
order is forwarded to Time, Inc. branch office in Tokyo, Japan for acceptance or rejection; that if the
subscription order is accepted, Time, Inc. branch in Tokyo, Japan enters the subscription into the
computer and instruct Time, Inc., HongKong branch, where the magazines are printed, to ship the
subscription issue to the Manila Post Office pre-addressed to the Philippine subscriber and the
subscription issue is subsequently sent as a second class mail matter to the Philippine subscriber by the
Manila Post Office; that the payment for subscription from individual subscribers are consolidated at the
Prudential Bank which in turn remits said payments to Time, Inc. head office in New York; and that if the
payment is not received in New York within the agreed period, the subscription is cancelled. cda

In reply, I have the honor to inform you that income derived from the purchase and sale of personal
property is income derived from the place in which it is sold. (Sec. 37(e), Tax Code; Sec. 159,
Revenue Regulations No. 2)

In the instant case, the perfection as well as the consummation of the sale took place abroad. The
acceptance or rejection of the subscription order is made in the Time, Inc. branch office in Tokyo,
Japan. Moreover, the payment for subscriptions from individual subscribers are remitted by the
Prudential Bank, Malate Branch or any authorized subscription agency in the Philippines for that
matter, to Time, Inc. head office in New York. Consequently, title over the subscription copies
passed to the Philippine subscribers abroad from the moment they were posted in the HongKong
Post Office by Time Inc. HongKong branch pre-addressed to a Philippine subscriber.

In view of all the foregoing, this Office is of the opinion as it hereby holds that inasmuch as the
sale of the subscription copies of the Time Magazine took place abroad, the income derived by
Time, Inc. from the sale thereof to Philippine subscribers is deemed income from sources not
within the Philippines, thus, not subject to Philippine income tax and consequently, not also
subject to the 35% withholding tax prescribed in Section 53(b)(2) of the Tax Code, as amended.
cdt

Very truly yours,

RUBEN B. ANCHETA

Acting Commissioner

08-15-1980 BIR Ruling No. 017-80

May 28, 1990

BIR RULING NO. 098-90

25 (b) (1) 000-

00 098-90
Gentlemen :

This refers to BIR Ruling No. 266-88 dated June 28, 1988 to the effect that since the printing and
publication of the Asiaweek Magazine is done in HongKong, the situs of the income derived by
the publisher, Asiaweek Limited from the sale to the Philippine subscribers of subscription copies
of the magazine is HongKong; that as compensation for labor or personal services performed
without the Philippines, under then Section 37(c) (3) [now Sec. 36(c)(3)] of the Tax Code, said
subscription payments are considered income from sources without the Philippines; and that,
since the publisher is a non-resident foreign corporation subject to income tax only on income
from sources within the Philippines, said income consisting of subscription payments, earned by
said publisher for services rendered in HongKong is not subject to Philippine income tax and
consequently, not also subject to the 35% withholding tax prescribed under then Section 53(e)
(2) [now Secs. 50(a) and 51] of the Tax Code as amended. cda

In connection thereto, please be informed that after a re-study of the above ruling, this Office
finds the
same devoid of legal basis. The source of an income is the property, activity or service that
produced the income. For the source of income to be considered as coming from the Philippines,
it is sufficient that the income is derived from an activity within the Philippines. (Commissioner vs.
British Overseas Airways Corporation (BOAC) and Court of Tax Appeals, G.R. Nos. 65773-74,
April 30, 1987) Thus, the filling up of the subscription form by the Philippine subscriber to the
Asiaweek Magazine is the activity that produced the income consisting of the subscription
payments. Since the subscription payments were made here and therefore came from the
Philippines, the source of the income is this country. The word "source" conveys one essential
idea, that of origin, and the origin of the income herein is the Philippines. (Commissioner vs.
British Overseas Airways Corp. (BOAC) and CTA, supra, citing Manila Gas Corp. vs. Collector, 62
Phil. 895)

The fact that the foreign publisher, Asiaweek Limited, printed and published the magazine in
HongKong, does not determine the source of income and the situs of Philippine taxation. Said
BOAC case citing Howden & Co., Ltd. vs. Collector, 13 SCRA 601, said that the test of the
taxability is the "source" and the source of an income is that activity which produced the income.
As heretofore stated, the activity that produced the income is the filling up of the subscription
form by the Philippine subscriber, as well as the payments for subscription also in the
Philippines.

In view thereof, the above ruling insofar as the income derived from the Philippines by the said
foreign publisher is concerned consisting of the subscription payments by Philippine subscribers,
has to be, as it is hereby revoked/modified. The subscription payments for the Asiaweek
Magazines by Philippine subscribers are considered Philippine source income; hence, subject to
Philippine income tax, and consequently to the 35% withholding tax prescribed by Section 25(b)
(1) of the Tax Code in relation to Sections 50(a) and 51 of the same Code. aisadc

Very truly yours,

(SGD.) JOSE U. ONG

Commissioner

05-28-1990 BIR Ruling No. 097