BIR Ruling [DA-091-04]

March 1, 2004 BIR RULING [DA-091-04] 22 (E); DA-554-99 Philippine Long Distance Telephone Company Tax Planning Center 15/F Ramon Cojuangco Building Makati Avenue, Makati City Attention: Atty. Erwin Anthony E. Ortuoste Tax Management Executive Tax Planning Center Gentlemen : This refers to your letter dated August 8, 2002 requesting for confirmation of your opinion that the compensation income by Ms. Dinia N. Chavez, an employee of the Philippine Long Distance Telephone Company seconded to ACASIA Communications Sdn Bhd, a company located and registered in Malaysia, is not subject to Philippine income taxes pursuant to Section 23(B) in relation to Section 42(A)(3) of the Tax Code of 1997. The facts, as represented are as follows: ACASIA Communications Sdn Bhd (Acasia) is a corporation duly organized and registered with the laws of Malaysia. It is not registered in nor engaged in business in the Philippines. Launched in June 1997, it provides a comprehensive range of communications offerings. Its vision is to provide a seamless and ubiquitous data network services for business enterprises and global network operations in the ASEAN. It is a consortium composed of the following stockholders: (a) The Communications Authority of Thailand, (b) PT Indosat (Indosat), (c) Jabaton Telekom Brunei (JTB), (d) Philippine Long Distance Telephone Company (PLDT), (e) Singapore Telecom (Singtel), and (f) Telekom Malaysia Berhad (TM). Ms. Chavez, a regular employee of the PLDT, was seconded to Acasia as a Senior Manager of Finance and Billing Group (Regional) effective June 15, 2002 for a period of two (2) years with option to renew for another year. She shall be relocated and will perform all services in Malaysia. She shall remain and be recognized as a regular employee of PLDT without loss of continuity in service. She shall also continue to receive compensation and benefits from PLDT for the services rendered to Acasia. In reply, please be informed that in BIR Ruling No. DA-554-99 dated September 27, 1999, this Office ruled as follows: "Section 22(E)(3) of the Tax Code, as amended by Republic Act No. 8424, states that the term "non-resident citizen" means "a non-resident of the Philippines who works and derives income from abroad and whose employment thereat requires him to be physically present abroad most of the time during the taxable year." The phrase "most of the time" has been settled to mean being away for 183 days or more. (BIR ruling No. 050-80 dated May 13, 1980). Considering that the period October 1997 to June 30, 1999 is definitely more than 183 days, and considering further that the Tax Reform Act of 1997 took effect only on January 1, 1998, then it is our opinion that indeed Mr. Cabugao, under the provisions of Section 22(E)(3) of the Code, was a non-resident citizen from January 1, 1998 to June 30, 1999. Section 23(B) of the Tax Code, as amended, unequivocally states the rule that a non-resident citizen is taxable only on income derived from sources within the Philippines. By correlation with Sections 42(A)(3) and 42(C)(3) of the Tax Code, compensation for labor or, personal services performed in the Philippines constitutes income from sources within the Philippines, while compensation for labor or personal services performed without the Philippines constitutes income from sources without the Philippines. Further to this, Section 22(E)(4) of the Code states the rule that a citizen who has been previously considered as a non-resident citizen and who arrives in the Philippines at anytime during the taxable year to reside permanently in the Philippines shall still be treated as a non-resident citizen for the taxable year in which he arrives in the Philippines with respect to his income derived from sources abroad until the date of his arrival in the Philippines. Applying the stated rules to the given facts, we accordingly confirm that pursuant to Section 23(B) in relation to Sections 22(E)(3) & (E)(4) and 42(A)(3) and 42(C)(3) of the Tax Code of 1997, Mr. Cabugao was a non-resident citizen from January 1, 1998 to June 30, 1999, and therefore, he is not subject to income tax on his compensation income derived during his assignment as such Regional Audit Manager for Asia-Pacific Region in Bangkok, Thailand by Caltex Corporation for the said period January 1, 1998 to June 30, 1999, the date of his arrival in the Philippines. Consequently, no withholding tax should have been collected by CPI on the said compensation income during the period covering January 1, 1998 to June 30, 1999." Applying the foregoing ruling to the case under consideration, Ms. Chavez is a non-resident citizen of the Philippines as her work requires her to be in Malaysia for more than 183 days. Accordingly, her income for services rendered in Malaysia is not subject to Philippine income tax. aAHDIc This ruling is being issued on the basis of the facts represented. If, however, it is found out, upon, investigation, that the facts are different, then this ruling shall be considered null and void and therefore, of no legal effect. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group