Investigation of Income Tax Returns of Seconded Employees/Expatriates Working in Subsidiaries of Foreign Companies

April 24, 2007 BIR MEMORANDUM TO : Assistant Commissioner Large Taxpayer Service Regional Directors Revenue District Officers Chiefs of Large Taxpayer District Offices Chiefs of Large Taxpayer Audit and Investigation Division I & II All Internal Revenue Officers Concerned SUBJECT : Investigation of Income Tax Returns of Seconded Employees/Expatriates Working in Subsidiaries of Foreign Companies or Other Companies Operating in the Philippines It has been observed that some abatement dockets forwarded to this office for approval involve cases of seconded employees ( i.e., persons dispatched from abroad to render service here in the Philippines) who are working in subsidiaries of multinational companies who have incurred deficiencies due to under withholding of taxes. Such under withholding of taxes often result from deliberate or non-deliberate non inclusion of their entire income from such employment, particularly with respect to the portion that are being directly disbursed to them (for example, to their families) in their home countries, sometimes even in foreign currencies. It should be noted that said income received by/paid to such employees in their home countries are exempt from taxation in their home countries, but are taxable here in the Philippines where they are rendering the services. In view of the foregoing, you are hereby directed to conduct a comprehensive verification on the withholding tax compliance of all corporations, especially subsidiaries of multinationals and other similarly situated organizations, with the purpose of determining the following: a. Number of seconded employees in these corporations and their taxability; b. The total income received by the seconded employee within and without the Philippines for the services rendered here in the Philippines; c. Whether or not the correct amount of taxes has been withheld on such income/s. aAHDIc Following the gathering of such information on seconded employees, you (except Large Taxpayers Service [LTS]) are to investigate the income tax returns of the aforesaid individuals who are registered taxpayers within your respective jurisdiction, to verify whether or not the correct amount of taxes due on their said income received have been properly paid. The information gathered by the LTS on the abovementioned individuals shall be submitted to the Office of the Commissioner not later than May 30, 2007. Regional Directors, are required to submit a summary report of investigation on this matter to the Office of the Commissioner of Internal Revenue, copy furnished the Deputy Commissioner Operations Group, not later than June 30, 2007. Each concerned office is likewise enjoined to maintain a database of these taxpayers for easy verification of the withholding compliance of the employers. aTEADI For your compliance. (SGD.) JOSE MARIO C. BUAG Commissioner of Internal Revenue