BIR Ruling [DA-116-05]

April 6, 2005 BIR RULING [DA-116-05] R.A. 8756; 25 (E); DA-061-2004 Bernaldo Mirador & Directo Unit 1807 Cityland Condominium 10-Tower 6815 Ayala Avenue cor. H.V. dela Costa St., Makati City Attention: Atty. Rosario S. Bernaldo Managing Partner Gentlemen : This refers to your letter dated March 21, 2005 requesting on behalf of your client, AMEC Services Limited Philippine Branch Office (AMEC-Branch) , confirmation of your opinion that all employees, whether foreigners or Filipinos, employed and assigned by a foreign service subcontractor engaged in petroleum operations in the Philippines are subject to the 15% tax of the salaries, wages annuities, compensation, remuneration and other emoluments, such as honoraria and allowances, received from such subcontractor. It is represented that AMEC Services Limited is a foreign company formed and organized under the laws of the United Kingdom; that it operates in the Philippines through a branch that is duly licensed by the Securities and Exchange Commission under Company Registration No. A200117641 issued on December 04, 2004; that AMEC Branch is engaged in the provision of the necessary maintenance services to Malampaya Deep Water Gas-to-Power Project as a second-tier service subcontractor of Shell Philippines Exploration B.V. which in turn a service contractor of the Government of the Philippines under Presidential Decree No. 87, as amended, otherwise known as the Oil Exploration and Development Act; that for AMEC Branch, being a petroleum service subcontractor, it requires all its employees to have technical proficiency and initiatives as well as specialized knowledge and skills prior to their employment. In reply thereto, please be informed that Section 25(E) of the Tax Code of 1997, reads: "(E) Alien Individual Employed by Petroleum Service Contractor and Subcontractor. An alien individual who is a permanent resident of a foreign country but who is employed and assigned in the Philippines by a foreign service contractor or by a foreign service subcontractor engaged in petroleum operations in the Philippines shall be liable to a tax of fifteen percent (15%) of the salaries, wages, annuities, compensation, remuneration and other emoluments, such as honoraria and allowances, received from such contractor or subcontractor: Provided, however, That the same tax treatment shall apply to a Filipino employed and occupying the same position as an alien employed by petroleum service contractor and subcontractor. "Any income earned from all other sources within the Philippines by the alien employees referred to under Subsections (C), (D) and (E) hereof shall be subject to the pertinent income tax, as the case may be, imposed under this Code." In addition, Section 2(F) of Revenue Regulations No. 6-2001, as amended by Revenue Regulations No. 12-2001 provides that: "(F) Income of Aliens Employed by Foreign Petroleum Service Contractors and Subcontractors. A final withholding tax equivalent to fifteen percent (15%) shall be withheld from the gross income of an alien individual who is a permanent resident of a foreign country but who is employed and assigned in the Philippines by a foreign service contractor or by a foreign service subcontractor who is engaged in petroleum operations in the Philippines. His gross income includes salaries, wages, annuities, compensation, remuneration, and other emoluments, such as honoraria and. allowances received from such contractor or subcontractor." " The same tax treatment is applicable to Filipinos employed and occupying the same positions as those aliens employed by foreign petroleum service contractors and subcontractors, regardless of whether or not there is an alien executive occupying the same position. " (Emphasis ours) Corollary, Section 2.57.1(D) of Revenue Regulations No. 2-98, as amended by Revenue Regulations No. 6-2001, and as further amended by Revenue Regulations No. 12-2001 and Section 10 of the Rules and Regulations Implementing Article 61 of R.A. No. 8756 provide that alien executives occupying managerial and technical positions employed by the regional or area headquarters and regional operating headquarters of multinational companies shall be subject for each taxable year upon their gross income received as salaries, wages, annuities, compensation, remuneration and emoluments to a final tax equal to fifteen percent (15%) of such gross income and that the same tax treatment is applicable to Filipinos employed and occupying the same provisions as those aliens, regardless of whether or not there is an alien executive occupying the same position. However, qualified Filipino employees 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. In case of the latter, the withholding tax rates under Sections 2.78 and 2.79 of Revenue Regulations No. 2-98 shall apply. IN THE LIGHT OF ALL FOREGOING, this Office is of the opinion that since AMEC-Branch Filipino personnel clearly fall within the condition set by Revenue Regulations No. 6-2001 as amended by Revenue Regulations No. 12-2001, inasmuch as its employees have technical proficiency and initiatives as well as specialized knowledge and skills, prior to their employment, the same tax treatment is applicable to Filipinos employed and occupying the same positions as to those aliens employed by foreign petroleum service contractors and subcontractors, regardless of whether or not there is an alien executive occupying the same position. Hence, this Office holds that such employees shall be subject to either the preferential tax rate of 15% or to the regular tax rate based on their taxable income, regardless of whether there is an alien similarly occupying such technical or managerial positions. (BIR Ruling No. 118-2003 dated April 14, 2003) AIcaDC This ruling is being issued on 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.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group