https://kittelsoncarpo.

com/taxes/income-tax/

Philippine Income Tax Rate for Foreign Companies

Foreign corporations are taxed only on their Philippine source income.
Corporate income is taxed when earned by the corporation and again when
profits are received by shareholders. Inter-corporate dividends between
domestic corporations or received from a domestic corporation by a
resident foreign corporation are not subject to tax. Depending on the
business activity involved, the starting point for Philippine taxation is
whether a foreign business has Philippine source income.

The Philippines also has several double taxation treaties with different
countries, which relinquish taxing rights over business profits to the state
of residence if no permanent establishment “PE” exists or should reduce
the applicable rates of tax imposed on Philippine source income.

Generally, active business income earned by individuals is subject to

graduated rates of tax between 5 to 32% in the Philippines. The active
business income of Corporations, on the other hand, is subject to a flat
30% tax rate. Passive income such as interest, royalties, and dividends are
subject to final withholding taxes which are withheld at source. The
applicable rates of final withholding tax vary depending on the type of
income involved and the taxpayer in the Philippines.

A foreign-owned company considered “doing business” in the Philippines must be licensed by the Securities and Exchange Com

Foreign and local businesses in the Philippines that qualify and are
registered for tax incentives can avail of income tax holidays and this may
be followed by a special tax rate of 5% in lieu of any and all taxes if the
business is located in a Philippine Special Economic Zone (PEZA).
https://www.inhousecommunity.com/article/taxability-of-service-fees-received-by-non-resident-foreign-companies-from-onlin

Taxability of service fees received by non-resident foreign companies from online advertising in the Philippines

The use of the internet for the promotion of goods and services, particularly social media (Facebook, Twitter and
Instagram to name a few), has grown in the recent years. Internet or online advertising has helped increase the
revenues of local companies and of media and advertising companies. This trend, of course, has caught the attention
of the Bureau of Internal Revenue (BIR) for potential sources of government revenue.
While local revenue issuances provide for fairly detailed rules on the tax obligations of online media companies and
of advertisers, it failed to consider that most online media companies are foreign corporations located abroad.
Generally, whenever a transaction involves foreign corporations, the situs of taxation of the income or transaction
becomes an issue. For online advertising, the usual questions are: if all the services are performed, and all the
facilities used for such services (ie, computers, servers, among others) are located outside the Philippines, are the
service fees still taxable in the Philippines? Is it enough that online advertisements are viewable and accessible in the
Philippines by the intended market/customer to make the service fees taxable here?
At present, no Philippine law categorically imposes tax on online media/advertising services rendered by non-
resident foreign corporations. Admittedly, however, the provisions of the National Internal Revenue Code (Tax
Code), a number of BIR rulings and the existing jurisprudence may provide for bases to treat such transactions as
either exempt from or subject to Philippine taxes.
Possible bases to exempt from Philippine taxes — Under Section 42(C)(3) of the Tax Code, payments for services
performed outside the country are considered income from sources outside the Philippines. In ITAD Ruling No. 014-
01 (February 16, 2001), the BIR ruled that if the editing, programming, designing and dissemination of
advertisements are done using the facilities located abroad, the situs of the income is abroad.
It may be argued that views or access within the Philippines do not make advertising service taxable in the country. In
BIR Ruling No. 009-05 (August 2, 2005), services rendered abroad through the internet (ie, registration and
maintenance of domain names), even if the same are for clients located in the Philippines (ie, domain name holders in
the Philippines), are considered rendered outside the country. Further, in CIR v. American Express International, Inc.
(G.R. No. 152609, June 29, 2005), the Supreme Court held that, for value-added tax (VAT) purposes, the service is
distinct from the product/output that arises from the performance of the service. What determines jurisdiction is the
place where the service is rendered, not the place where the output of the service is ultimately used.

Possible bases to subject to Philippine taxes — The Supreme Court’s decision in CIR v. British Overseas Airways
Corporation (G.R. No. 65773-74, April 30, 1987) may be used to argue that views/access in the Philippines may be
considered as the activity that produces the income. Considering that media companies are paid for the promotion of
products in the Philippine market, it is the visibility of the advertisement in the country that makes the transaction
taxable here. Moreover, consumption, in the context of a service, means the performance or completion of a
contractual duty, releasing the performer from future liability. If the company will not be paid unless advertisements
are viewable or accessible in the Philippines, then consumption, arguably, happens in the Philippines.

Unless a new law is passed or a Supreme Court decision covering the above issues is promulgated, the taxability of
the service fees received by non-resident foreign companies from online advertising in the Philippines will remain
unsettled. As such, local companies availing of these services are constantly exposed to the risk of being pursued by
the BIR. In case the BIR will take the strict position, the exposure may include the assessment of: a) deficiency 30
percent final withholding income tax; b) 12 percent final withholding VAT; c) 30 percent income tax on the
disallowed advertising expenses due to failure to withhold taxes; d) 20 percent annual interest for late payment; and
e) 25 percent surcharge for non-filing of return and non-payment of taxes.
ing in the Philippines
Pressreader

Playing and streaming

The Philippine Star
19-Jun-18
JULIUS PATRICK C. ACOSTA
In the past several months, majority of my weeknights have been dedicated to two things: Playing Defense of the
Ancients (DotA) 2, an online battle arena; and streaming random TV series, reality shows, or movies
online.
I believe that one of the best ways to relieve stress is by immersing myself in a world where I can plant
Remote
Mines and blow up other players, repeatedly watch Phoebe Buffay sing different versions of Smelly Cat, or root
for drag queens lip syncing for their lives to an Ariana Grande or Whitney Houston song. These are the
wonders
brought about by the advent of digital services. What a great time to be alive indeed…save for the current
political climate.

As a tax practitioner, I cannot help but think about the tax treatment of digital services. This pondering is
amplified by the fact that no fixed rules have been laid down yet by the Bureau of Internal Revenue (BIR)
with
regard to the tax treatment of digital services rendered by a non-resident foreign corporation (NRFC) to its
Filipino consumers. It is a basic rule in Philippine taxation that a foreign corporation is subject to income
tax
only on income derived from sources within the Philippines. For example, compensation for services performed
in the Philippines is treated as income derived from sources within the Philippines. On the other hand,
compensation for services performed outside the Philippines is treated as income derived from sources
outside
the Philippines.

If the services are performed in the Philippines, the NRFC shall generally be subject to an income tax of 30
percent on gross income. Since an NRFC is not registered in the Philippines, the mechanism by which the
BIR
collects the income tax due from the NRFC is through the withholding of tax by the withholding
agent/income
payor. Thus, the income derived by the NRFC from sources within the Philippines will generally be subject
to
final withholding tax of thirty 30 percent on gross income.

Further, a value-added tax (VAT) of 12 percent shall be imposed on gross receipts derived from the sale of
services performed in the Philippines. Conversely, if the services are performed outside the Philippines, the sale
will not be subject to VAT. Similarly, if the services are performed in the Philippines, the payment to the NRFC
will be subject to final withholding VAT of 12 percent on gross receipts.

However, conflict lies in determining where digital services are actually rendered for purposes of taxation,
not
only in the Philippines, but also in other jurisdictions. In the case of Aces Philippines Cellular Satellite
Corporation vs. Commissioner of Internal Revenue (CTA EB Case No. 8567, June 8, 2016), the Court of
Tax
Appeals (CTA) en banc ruled that the service of providing satellite air transmission by an NRFC to a Philippine
entity is considered income from sources within the Philippines because such service could not have been
consummated without the use of a gateway facility/server located in the Philippines, even though all services
were actually rendered by the NRFC outside the Philippines (i.e., in Indonesia and in outer space).

Based on the above decision, does it necessarily mean that if a gateway facility/server in the Philippines is
needed to consummate a sale of digital services, will the same be considered as a source of income within the
Philippines, thus subject to taxes, even if all services were actually performed outside the Philippines? Only
Supreme Court decisions form part of the law of the land. Hence, the above CTA decision cannot be considered
to be set in stone just yet.

But assuming that digital services provided by NRFCs are indeed subject to Philippine taxes, who will be
required to withhold? Generally, whoever bears the cost is the one responsible for the withholding.
Theoretically speaking, for digital services provided by NRFCs (such as online gaming and online streaming
services), the obligation to withhold from income payments and remit the same to the BIR lies with the
Filipino consumers, which are mostly individuals. The question now is how will the BIR obligate
these individuals (some of whom may still be in high school) to withhold and remit the taxes due for
every purchase of digital services? Bluntly speaking, I think it is an administratively difficult, but not an
impossible task.

The Organization for Economic Co-operation and Development (OECD) was able to shed some light on this
matter in its report entitled “Tax Challenges Arising from Digitalization – Interim Report 2018” on March 16.
The OECD is an intergovernmental organization which provides a forum for governments to work together in
seeking solutions to common problems, including the taxation of digital services rendered by foreign entities.
Although the Philippines is not part of the OECD, our courts sometimes use the OECD guidelines to interpret
tax laws.

The report stated that different countries have already taken actions/measures outside the framework of income
taxes to assert their respective taxing rights over NRFCs that supply digital products and services. In France,
transactions are taxed primarily on the basis of their final destination, such as the location of the “public
audience” for the online supply of digital content. In Hungary, the scope of advertisement tax is ultimately
dependent on the location of the targeted public. For online activities, the location is deemed to be in Hungary
when the advertisement is displayed predominantly in Hungarian language. In India and Italy, transactions are
taxed on the basis of the location of the payor. These measures generally face a number of administrative and
compliance issues, particularly in relation to the challenge of trying to collect tax from NRFCs with no physical
presence in the jurisdiction of taxation. As of the date of the report, the levels of revenue collected from these
measures appear to have been inconsequential.

It is important
services to note
provided that although
by NRFCs, thenot
this does Philippines does
necessarily not that
imply havethe
fixed
BIRrules yet regarding
is precluded from the taxation
asserting itsof digital
right
to tax such digital services based on the CTA decision and the measures adopted by other countries. But
while waiting for the BIR to come up with clear rules and regulations on this matter, all we can really do now
is to keep on playing and streaming.
g Defense of the

lly Cat, or root

ices performed

ppines, the sale

t to the NRFC

to a Philippine
have been
gh all services
 me within the
pines? Only
t be considered

e streaming

Electronic Extreme

ight on this
on March 16.
k together in
eign entities.
s to interpret

ork of income
. In France,

e in Hungary
nsactions are
istrative and
ith no physical
d from these

xation of digital

eally do now
Hi Ms. Ar,

In connection with the transactions made with global suppliers, please see attached herewith related BIR regulations and expla

In general, Corporations are taxed on their Income either earned within the Philippines are abroad. The taxability of which dep
registration in the Philippines, on whether Domestic or Forein Corporation.
Otherwise if not registered, they are considered as not engaged and not doing business in the Philippines and falls under Non-
[see Section 22, Tax Code, as amended. Definitions (C ) (D) (H) (I)]
(C) The term 'domestic', when applied to a corporation, means created or organized in the Philippines or under its laws.
(D) The term 'foreign', when applied to a corporation, means a corporation which is not domestic
(H) The term 'resident foreign corporation' applies to a foreign corporation engaged in trade or business within the Philippines.
(I) The term 'nonresident foreign corporation' applies to a foreign corporation not engaged in trade or business within the Philippines

In reference to Section 28 (B) of the tax code, Non-resident Foreign Corporation who provided services and earned correspond
Foreign corporation, whether engaged in business or not in the Philippines, is taxable only on income derived from sources wit
[see Section 28 Rates of Income Tax on Foreign Corporations]
(B) Tax on Nonresident Foreign Corporation. (NRFC)
Except as otherwise provided in this Code, a foreign corporation not engaged in trade or business in the Philippines shall pay a tax equ

We can also refer to Court Decisions regarding jurisdiction of BIR on the situs/place of taxation. Example is in the case of Aces P
(CTA EB Case No. 1242, June 8, 2016), where the primary issue is:

The Court ruled that the service of providing satellite air transmission by an NRFC to a Philippine
entity is considered income from sources within the Philippines because such service could not have been
consummated without the use of a gateway facility/server located in the Philippines, even though all services
were actually rendered by the NRFC outside the Philippines (i.e., in Indonesia and in outer space).

The motion for reconsideration was denied by CTA with the below decision:
(CTA EB Case No. 8567, August 16, 2016)
Considering above regulations and rulings, it may be referred that the situs or place where the service is rendered is what dete
Since NRFC are not registered corporation here, the BIR puts responsibility to the withholding agent in collecting the 30% final
(BIR 1601F ATC WC230 - 30%)

Likewise, if the said transaction is subject to VAT wherein the situs of transaction is in the Philippines, a 12% final withholding V

Lower rates or exemption on the above income may be available under an applicable tax treaty which is to be applied to BIR vi
Applying the general rule, I think below are the points to be considered with the current set up of Uniwiz to its Global Supplier.
1. Can Uniwiz/MOLph provide audit trails/evidence that loads or epins are directly sold to customer
If yes, the burden of withholding is passed on to consumer. Regardless if consumer withhelds and remits taxes may not be con
it acts as collector in behalf of global supplier.
Buyer -
Global Consume
Supplier Uniwiz r

2. However if this is the representation of the Company that it merely acts as collector of remittances/payment and receives co
another point maybe to consider is if it still within the license of Uniwiz's as a Corporation, granted by the Securities and Excha
Although I am not really an expert on the legality issues pertaining to this I just want to raise this matter as well so it could also
If it is shown in substance and in form that Uniwiz acts as a remittance/collector, following the primary and secondary license g
by SEC to Uniwiz as a Corporation, does it violate its license and will it provide concerns with the ruling govt?

Also, if the company acts as intermediary as collector it may be deemed as an extension of this NRFC?
related BIR regulations and explanation below for your reference.

oad. The taxability of which depends on the classification of a Corporation upon

Philippines and falls under Non-resident Foreign Corporation.

nes or under its laws.

siness within the Philippines.

e or business within the Philippines.

services and earned corresponding income within the Philippines are subject at 30% final withholding tax of its GROSS INCOME and not on
ncome derived from sources within the Philippines.

n 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 Philip

. Example is in the case of Aces Philippines Cellular Satellite Corporation vs. Commissioner of Internal Revenue

t have been
ugh all services
 service is rendered is what determines the power of the BIR to tax, not the place where the output of the service is ultimately used.
agent in collecting the 30% final tax and remitting the same from the NRFC. In this case, through the income payor/consumer or the one w

ppines, a 12% final withholding VAT shall also apply.

y which is to be applied to BIR via Tax Treaty Relief Applications (TTRA).

 of Uniwiz to its Global Supplier.

nd remits taxes may not be concern of Uniwiz as

ttances/payment and receives commission;

nted by the Securities and Exchange Commission.
his matter as well so it could also be taken into consideration.
primary and secondary license granted
he ruling govt?
of its GROSS INCOME and not on its Net Income.

ear from all sources within the Philippines, such as interests, dividends, rents, royalties, salaries, premiums (except reinsurance premiums), annuities, emo
service is ultimately used.
e payor/consumer or the one whe bears the cost (acting as withholding agent).
nsurance premiums), annuities, emoluments or other fixed or determinable annual, periodic or casual gains, profits and income, and capital gains, except
d income, and capital gains, except capital gains subject to tax under subparagraph 5 ( c ): Provided, That effective January 1, 2009, the rate of income ta
nuary 1, 2009, the rate of income tax shall be thirty percent (30%)