BIR Ruling

April 4, 1966 Mr. Marcelo M. Lingao Revenue Attache Embassy of the Philippines Tokyo, Japan S i r : This refers to your query requesting legal opinion on the question of whether or not the living and quarter allowances of officials and employees of the Philippine Reparations Mission in Japan are subject to the payment of Philippine income tax. In reply thereto, I have the honor to inform you that the aforementioned allowances like those being granted to officials and employees of the Department of Foreign Affairs who are assigned abroad are exempt from tax. Section 2 of R. A. No. 2611 which took effect on July 20, 1959, amending paragraph (e) of R. A. No. 1789, the law creating the Philippine Reparations Mission in Japan, provides as follows: "(e) The officials and employees of the mission shall be granted allowances and benefits similar to those granted members of the foreign service of equal rank pursuant to the provisions of the Foreign Service Act, except the chief of Mission who shall enjoy allowances equal to that of a minister." (Emphasis Supplied) Title VI of R. A. No. 708 known as the Foreign Service Act is divided into four Parts Part A on allowances, Part B on per diems, Part C on travel expenses, and Part D on benefits. Section 6 of Part D of the same act provides as follows: " Exemption from taxation All supplemental allowances, per diems, benefits, and the like received by officer and employees of the service in consideration of their services, except their basic salaries, shall be exempt from Philippine income tax." It is therefore evident that when R. A. No. 2611 extended similar benefits to officials and employees of the Reparations Mission in Japan therefore granted to officials and employees of our diplomatic mission abroad, the legislators were precisely referring to those privileges under Part D of R. A. No. 708, which includes, among other things, exemption of living and quarter allowances from Philippine income tax. In this connection it may be stated that the basic salaries of the Filipino employees of the Mission are subject to withholding tax since such salaries do not come under the exemptions enumerated under Art. I of Supplement A of the Tax Code. The salaries of said employees cannot come under the third exemption, namely, remuneration for services rendered for a foreign government, since the employees of the Mission in Japan are employees of the Philippine Government. Although the amounts paid as salaries to these employees may have been provided for by the Japanese Government pursuant to the Reparation Agreement between the two countries, this does not make them employees of the Japanese Government. The fact that the salaries are paid in Japanese yen is not a sufficient reason for exemption from withholding tax since the tax may be computed based on the peso equivalent of the yen. Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue