BIR Ruling [DA-118-03]

April 14, 2003 BIR RULING [DA-118-03] R.A. 8756; 047-01 Joaquin Cunanan & Co. 29th Floor Philamlife Tower 8767 Paseo de Roxas Makati City Attention: Ms. Tomasa H. Lipana Managing Partner Gentlemen : This refers to your letter dated January 28, 2003 requesting on behalf of your client, Cypress Semiconductor Philippine Headquarters Ltd. (Cypress), for a ruling that its Filipino executives and managers who are occupying the same position as those of aliens/expatriates employed by regional operating headquarters are entitled to the 15% preferential tax rate. It is represented that Cypress is a multinational company organized and existing under the laws of Cayman Island with a regional operating headquarters in the Philippines registered with the Securities and Exchange Commission (SEC) under SEC Registration No. A200114939; that as stated in its certificate of registration, the regional operating headquarters (ROHQ) shall engage in general administration and planning, business planning and coordination, corporate finance advisory services, training and personnel management, research and development services, and product development, technical support and maintenance, data processing and communication and business development; that in order to carry out these operations, Cypress has engaged the services of certain Filipinos to occupy the following managerial and technical positions in the regional operating headquarters: 1. Controller of the Shared Service Center responsible for processing financial transactions pertaining to payroll accounts payable, fixed assets, cost accounting, accounts receivable and cost accounting of the Cypress plants in Minnesota, Texas and San Jose, USA and responsible for the overall administration of the ROHQ office in Makati; 2. Finance Manager responsible for consolidating the financial statements of the affiliates in Asia Pacific and Europe; 3. Payroll Manager responsible for the payroll of the Cypress Plants in Minnesota, Texas and San Jose; 4. Accounts Payable Manager responsible for processing the accounts payable of the Cypress plants in Minnesota, Texas and San Jose; 5. Credit & Collection Manager responsible for credit evaluation and collection of Asia Pacific accounts; 6. IT Manager responsible for web development of the Cypress sites. In reply thereto, please be informed that 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, now reads: "(D) Income Derived by Alien Individual 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 of 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. In case of the latter, the withholding rates under Sections 2.78 and 2.79 of Revenue Regulations No. 2-98 shall apply. xxx xxx xxx" Corollarily, Section 10 of the Rules and Regulations Implementing Article 61 of R.A. No. 8756 provides 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, compensations, remuneration, and emoluments to a final tax equal to fifteen percentum (15%) of such gross income and that the same tax treatment is applicable to Filipinos employed and occupying the same positions as those aliens employed by multinational companies, regardless of whether or not there is an alien executive occupying the same positions. 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 pursuant to Article 61 of Executive Order No. 226, as amended by Section 5 of R.A. No. 8756. In BIR Ruling No. 047-01 dated September 28, 2001, which is a deviation from BIR Ruling No. 147-98 dated October 16, 1998, this Office ruled ". . . Filipino employees of the proposed RHQ, occupying managerial and technical positions equivalent to alien executives will be subject either to the preferential tax of 15% or to the regular tax rate based on their taxable income in accordance with the tax table under Section 24(A)(1)(c) of the Tax Code of 1997, regardless of whether there is an alien executive occupying the same position." IN THE LIGHT OF ALL FOREGOING, since Cypress is in all fours similarly situated as that of the above-mentioned case, this Office holds that Filipino employees of Cypress who are occupying managerial and technical positions equivalent to alien executives 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 occupying the position similar to that of the Filipino employee. 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. TcCEDS Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group