BIR Ruling [DA-092-03]

March 25, 2003 BIR RULING [DA-092-03] 22, 28, E.O. 226, R.A. 8756; 011-84, 370-87, 24-02 Les Laboratoires Servier Regional Headquarters Office 15/F Pacific Star Building Sen. Gil Puyat Avenue, Makati 1200 Metro Manila Attention: G. Goullencourt Regional Manager Gentlemen : This refers to your letter dated April 6, 2002 seeking clarification as to whether or not your Regional Headquarters in Manila is exempt from filing an Annual Income Tax Return. It is represented that your company, LES LABORATOIRES SERVIER, obtained approval from the Securities and Exchange Commission to establish a Regional Headquarters Office in Manila on January 24, 1979 subject to several terms and conditions, one of which states that: "The Regional Headquarters of the foreign entity in the Philippines will not derive income from sources within the Philippines, its expenses being financed by its parent company or head office." that it does not derive income except interests income from its savings account, which is already subjected to tax; and that you have received a Notice of Non-Filing of Form 1702 for the year 2000. You assert in your letter that the Regional Headquarters in Manila is exempt from income tax. Thus, you seek clarification as to whether or not the Regional Headquarters is also exempt from filing of Annual Income Tax Return. In reply, please be informed that Section 28(A)(6)(a) of the Tax Code of 1997 provides that regional or area headquarters as defined in Section 22(DD) of the said Code shall not be subject to income tax. Section 22(DD) of the Tax Code of 1997 defined the term "regional or area headquarters" as "a branch established in the Philippines by multinational companies and which headquarters do not earn or derive income from the Philippines and which act as supervisory, communications and coordinating center for their affiliates, subsidiaries or branches in the Asia-Pacific Regional other foreign markets." Likewise, Article 63 of Executive Order No. 226, otherwise known as the Omnibus Investments Code, as amended by Republic Act No. 8756 (R.A. 8756), provides that regional or area headquarters established in the Philippines by multinational companies and which headquarters do not earn or derive income from within the Philippines and do not participate in any manner in the management of any subsidiary or branch office it might have in the Philippines nor solicit or market goods and service whether on behalf of its mother company or its branches, affiliates, subsidiaries and any other company and which acts as supervisory, communications and coordinating centers for their affiliates, subsidiaries, or branches in the Asia Pacific Region and other foreign markets shall not be subject to income tax. AEIcTD It must be noted that for tax purposes, a regional or area headquarters, in acting as a supervisory, communications and coordinating center for its affiliates in the region, shall not render any of the following qualifying services: General administration and planning; Business planning and coordination; Sourcing/procurement of raw materials and components; Corporate finance and advisory services; Marketing control and sales promotion; Training and personnel management; Logistic services; Research and development services, and product development; Technical support and maintenance; Data processing and communication; and Business development, which functions are applicable to a Regional Operating Headquarters pursuant to Section 4(b) of the Rules and Regulations implementing R.A. No. 8756. Accordingly, your regional headquarters in Manila will not be subject to income tax as long as in performing its functions and in acting as a supervisory, communications and coordinating center for its affiliates in the region, it shall not render any of the foregoing qualifying services. Otherwise, it shall be taxed as a Regional Operating Headquarters. ( BIR Ruling 24-02 dated June 21, 2002 ) Further, it is understood that your regional headquarters' books of accounts and other pertinent records are subject to periodic examination by revenue enforcement officers of this Bureau for the purposes of ascertaining whether the regional headquarters is complying with the conditions under which it is granted tax exemption or tax incentives and its tax liability, if any, pursuant to Section 235 of the Tax Code of 1997. In view of the foregoing and since, as represented, your regional headquarters in Manila does not derive any income from the Philippines, said regional headquarters of LES LABORATOIRES SERVIER is exempt from Philippine income tax as well as from the filing of the corresponding corporate income tax return. ( BIR Ruling No. 011-84 dated January 24, 1984, BIR Ruling No. 370-87 dated November 19, 1987 ) However; said regional headquarters is required to file an Annual Information Return pursuant to the provisions of Revenue Regulations No. 2, as amended by Revenue Regulations 07-64. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group