BIR Ruling

May 8, 1967 The International Executive Service Corps 720 Fifth Avenue, New York New York, U.S.A. Gentlemen : This refers to your letter of August 16, 1966 requesting a ruling on the treatment, for purposes of Philippine income taxes, of per diem allowances received by certain individual under the allowances received by certain individual under the following facts and circumstances. cdta You represented that the International Executive Service Corpos (IESC) is a non-profit corporation organized under the Membership Corporation Law of the State of New York with its principal office at 720 Fifth Avenue, New York, New York. Its purpose is to assist developing countries by providing enterprises located therein, upon their request, experienced American business executives to assist and advice them with respect to the management of their affairs, with the objective of contributing to the economic growth and development of such countries. Executives serve as volunteers, receiving no compensation either from IESC or the enterprises they advise. The enterprises assisted make modest payments to IESC to assist in meeting the expenses of providing volunteer services (including the local living and transportation costs of executives on project assignments), but these payments do not cover the full cost of IESC's activities. IESC makes a grant by way of per diem allowances to each Executive, this amount is designed to defray the reasonable expenses he incurs during and by reason of his IESC activity. The grant is stated as a flat dollar amount per day, but the amount will vary with the circumstances of each situation, since it will be computed with reference to living costs in a will particular locale and adjusted, if necessary, on the basis of further experience. The per diem grant is intended as advance reimbursement to the Executive for the cost of housing, food, laundry and other expenses incidental to his presence abroad in connection with IESC project. In addition to the grant, an Executive may be furnished with housing or other facilities, such as an automobile, by the enterprise which he is assisting, in exceptional cases where such facilities are not available commercially, due to the location of the enterprises. Either IESC or the enterprise to be assisted will furnish the Executive with transportation to the project location and back to the United States, as well as the cost of transporting an appropriate amount of personal effects. cdti The IESC Executives will fall in three general categories, namely; 1. Mid-Career Executive . Some of the Executives will be active businessman participating in the IESC program "on loan" from their regular employers, who wish in this way to contribute to IESC's objectives. These Executives will normally return to their regular employment at the end of the IESC project. During his participation in the IESC project, in an area away from his regular place of employment, the mid-career Executive will continue in the employment of his employer and participate in all employee benefit plans. 2. Semi-Retired Executive . This type of Executive will be a businessman who for either personal or business reasons has withdrawn from full time business activity but is receiving compensation by reason of an agreement under which he has agreed to refrain from entering the service of the employer's competitors and to be available for consultation. Although the IESC project will be at a location away from his former employer's regular place of business as well as the Executive's residence, the Executive will serve with the expectation that his relationship with his former employer will continue on a limited basis during, and fully resume upon termination of, such assignment. 3. Retired Executive . The third group of IESC Executives will be composed of businessmen who have severed relations with their former employers. Such an Executive will not be currently employed and will not receive current compensation although he may receive pension, profit-sharing or other payments on account of past employment. cdt It is the general policy of IESC not to undertake projects extending beyond a period of six months; and, in most cases, the project will last for a period of less than six months. In unusual circumstances, a particular project may extend beyond the six-month period. At the time of agreement between IESC and the Executive, there is no expectation that the Executive's offer of services will extend beyond the designated time or that IESC will ask the Executive to participate in additional projects. However, should later circumstances arise, the Executive may again offer his services and participate in another project. The Executive will maintain his home and other social and business connections in his regular area of "operation" during the period of the project. In reply, I have the honor to inform you as follows: (1) The per diem allowances given to the Executives by the IESC are not subject to the Philippine income tax, such allowances not being income earned by him during his stay in the Philippines and they do not redound to his benefit. He is therefore, not required to report such amounts in any income tax return in the Philippines except to the extent that the payments are not expended for reasonable ordinary and necessary expenses incurred in the performance of such gratuitous services. cdll (2) Where housing accommodation or other facilities are furnished to the Executive by the local company assisted for the benefit and convenience of the latter and as a necessary incident to the proper performance of his duties, the same are not taxable (BIR Ruling dated January 21, 1954; Araas, Vol. 1, p. 118). Very truly yours, (SGD.) MISAEL P. VERA Commissioner of Internal Revenue