Payment of management and consultancy fees to a foreign corporation without a permanent establishment in the Philippines is not subject to withholding taxes.

The taxpayer was assessed for deficiency final withholding taxes on management and consultancy fees paid to a foreign corporation based in Spain. The same fee was disallowed as deduction for income tax purposes for failure to withhold. The Court agreed with the taxpayer that the said management and consultancy fee is not subject to withholding tax, considering that the recipient of the income is a resident of Barcelona, Spain. In this case, the Court applied Article 7 and Article 5 of the Philippines – Spain Tax Treaty, and held that in the absence of a permanent establishment in the Philippines, the fees are not subject to tax in the Philippines. (Penn Philippines, Inc. vs. Commissioner of Internal Revenue, C.T.A. Case No. 7686, December 11, 2012)