BIR Ruling [DA-032-02]

March 07, 2002 BIR RULING [DA-032-02] RR's 2-98, 6-2001 and 12-2001 Quasha Ancheta Pea & Nolasco Don Pablo Building 114 Amorsolo Street 1229 Makati City Attention: Attys. Pompeyo C. Nolasco and Alfredo Z. Pio de Roda, III Gentlemen : This refers to your letter dated March 2, 2001 requesting on behalf of your client, Barber Ship Management Limited ( "Barber Ship" ) for a clarificatory ruling on the tax imposed on income derived by individuals from their employment in a representative office of a multinational company. It is represented that "Barber Ship" is a multinational corporation organized and existing under the laws of Hong Kong; that on February 16, 2000, it was issued SEC License No. A200001629 to operate a representative office in the Philippines, for the purpose of coordinating and planning the crewing requirements of Barber Ship's head office with various manning agencies in the Philippines; that it is likewise registered with the BIR and was issued Tax Identification Number 203-932-801-000 dated July 19, 2000; that on September 1, 2000, Captain Jon Bjorheim, a Norwegian national, was appointed by Barber Ship Hong Kong as Head Office Representative of the Philippine representative office and as such, acts as Country Head; that as Country Head, he occupies a managerial, confidential and/or highly technical position; that Captain Bjorheim's duties as Country Head include providing recommendations on crew selection with manning requests from principals of the Head Office, advising and suggesting actions to be taken on matters related to planning, staffing, organizing, leading and controlling of crew requirements from manning agencies, ensuring that the system used by manning agencies for crewing is of good quality and functions properly, and reporting to the Head Office on the results; that Ms. Erlinda E. Boughton, Filipino, was appointed as the General Manager of Barber Ship Representative Office in Manila; that her appointment became effective on May 1, 2001; and that as General Manager, Ms. Boughton is responsible for the overall efficiency of the operation of the representative office, develops corporate policies, implements decisions, instructions and policies of the Board of Directors of the head office, controls the day to day management of the representative office and reports directly to the Board of Directors. In reply, please be informed that Section 2.57.1 (D) of Revenue Regulation No. 2-98, as amended by Revenue Regulations No. 6-2001, as further amended by Revenue Regulations No. 12-2001, now reads: "(D) Income Derived by Alien Individuals Employed by Regional or Area Headquarters and Regional Operating Headquarters of Multinational Companies. xxx xxx xxx The same tax treatment is applicable to Filipinos employed and occupying the same positions as those aliens employed by regional or area headquarters and regional operating headquarters of multinational companies, regardless of whether or not there is an alien executive occupying the same position. Provided, that such Filipinos shall have the option to be taxed at either 15% of gross income or at the regular tax rate on their taxable income in accordance with the Tax Code of 1997 if the employer (Regional Operating Headquarters/Regional or Area Headquarters) is governed by Book III of E.O. 226 as amended by R.A. 8756. In case the Filipino opted to be taxed at the regular tax rate under Section 24 of the Tax Code of 1997, the provisions of Section 2.79 (A) to (D) of Revenue Regulations No. 2-98 shall apply. xxx xxx xxx." It will be noted that the amendatory regulations have deleted "representative offices" from the enumeration. Accordingly, since employees of representative offices are no longer entitled to the preferential rate of 15% final withholding tax, pursuant to Revenue Regulations 6-2001 as further amended by Revenue Regulations No. 12-2001, the income payments to Captain Jon Bjorheim and Ms. Erlinda E. Boughton would, thus, be subject to the following rates imposed under the Tax Code of 1997, to wit: a. If a Filipino citizen, whether resident or non-resident, or a resident alien graduated tax rates of 5%-32%; b. If a non-resident alien engaged in trade or business in the Philippines graduated tax rates of 5%-32%; c. If a non-resident alien not engaged in trade or business in the Philippines 25%. However, considering that employees are being taxed on a calendar year basis, the 15% final withholding tax on the gross income of alien individuals occupying managerial and technical positions in representative offices, as well as of Filipinos occupying the same position as such aliens shall continue to be imposed until December 31, 2001. Thereafter, the pertinent provisions of the Tax Code of 1997 shall apply to these taxpayers depending upon their classification as taxpayers, pursuant to the Transitory Provision of Revenue Regulations No. 12-2001. Accordingly, the income payments to Captain Jon Bjorheim and Ms. Erlinda E. Boughton will be subject to the preferential rate of 15% final withholding tax until the end of 2001. This ruling is being issued in the basis of the foregoing facts as represented. However, if upon investigation it will be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) EDMUNDO P. GUEVARA Deputy Commissioner Legal and Inspection Group