News & Updates

Supreme Court rules on required evidence of non-resident foreign corporation status for tax purposes (CIR v. Deutsche Knowledge Services)

Under the National Internal Revenue Code (“NIRC”), services rendered “to a person engaged in business conducted outside the Philippines or to a non-resident person not engaged in business who is outside the Philippines when the services are performed” are zero-rated under Section 108(B)(2). In Commissioner of Internal Revenue v. Deutsche Knowledge Services Pte. Ltd. (“DKS”), G.R. No. 234445 (15 July 2020), the Supreme Court expounded on what is sufficient evidence of non-resident foreign corporation (“NRFC”) status for tax purposes.


The issue in the case was whether or not DKS’s foreign affiliates-clients were NRFCs doing business outside the Philippines, particularly whether or not the Philippine Securities and Exchange Commission (“SEC”) Certifications and articles/certificates of association/incorporation submitted were sufficient proof of NRFC status as to entitle respondent DKS to its claim of zero-rated sales of services.


In this regard, the Supreme Court ruled that for purposes of zero-rating under Section 108(B)(2) of the NIRC, there must be sufficient proof of two components, showing not only that the clients are foreign corporations, but that they are also not doing business in the Philippines. The Supreme Court ultimately found that the SEC Certifications of Non-Registration submitted by respondent DKS show that its affiliates are foreign corporations. On the other hand, the articles of association/certificates of incorporation stating that these affiliates are registered to operate in their respective home countries, i.e., outside the Philippines, are prima facie evidence that their clients are not engaged in trade or business in the Philippines.