Royalties, Technical Service Agreements, Etc.
Source:
"How to Invest in the Philippines" by PricewaterhouseCoopers Philippines (printed with permission from author)

IPO Registration of Technology Transfer Agreements, Taxation of Royalties and Service Fees

1) Can we charge royalties and similar fees?

Royalties and similar fees can be charged to operations provided payments for said fees are covered by a technology transfer agreement (TTA) certified by the Documentation, Information and Technology Transfer Bureau (DITTB) of the Intellectual Property Office (IPO) that said technology transfer agreement conforms with the provisions of the Intellectual Property Code (IPC).

The IPC provides certain restrictions in the terms and conditions of the TTA particularly those that will adversely affect free competition and trade. It also prescribes certain mandatory provisions that should be included in the TTA. Non-conformity with any of these provisions of the IPC shall render the TTA unenforceable, subject to some exceptions. For instance, if the agreement contains one or two of the restrictive clauses, the licensing contract must be approved by and registered with the DITTB.

2) Are these taxable in the Philippines?

Royalties and similar fees are taxable at the rate of 32% when payable to a non-resident foreign corporation. However, the tax rates for the royalties payable to residents of foreign countries with which the Philippines has a tax treaty vary according to the terms of the respective treaties.

3) What rules govern the reimbursement of costs incurred abroad?

Reimbursements of actual cost incurred abroad for operations such as maintaining offices, advertising, commission, etc. are allowed provided they are duly supported by documents and that benefits are actually derived by the paying company.

4) What constitute ''technology transfer arrangements''?

''Technology transfer arrangements'' refer to contracts or agreements involving the: transfer of systematic knowledge for the manufacture of a product or the application of a process, rendering of a service, including management contracts; and the transfer, assignment or licensing of all forms of intellectual property rights, including licensing of computer software, except computer software developed for mass market.

5) How long does it take to obtain government approval?

Within ten (10) days from the filing of the request for certification of compliance, the DITTB conducts a summary evaluation of the TTA. If the TTA conforms with the Prohibited Clauses and Mandatory Provisions of the IPC, the DITTB issues a Certificate of Compliance. Otherwise, the DITTB notifies the parties of any violation and requires them to comply with the IPC if they wish to obtain a Certificate of Compliance.

6) Do we have to get the Bangko Sentral approval to remit the royalty or agreed fees to the foreign company? What documentary support is required?

With the liberalization of foreign exchange rules, remittance of royalties, fees or similar payments to a foreign company, net of the applicable taxes, may be made through AABs without need of BSP approval.

The following documents may be required by the AABs to prove the legitimacy of the transaction: a) copy of the certification by DITTB of the IPO; and b) proof of payment of withholding tax.