BIR Ruling [DA-127-04]

March 24, 2004 BIR RULING [DA-127-04] 42 (C) (3); 23 (C); 033-2000 JGC Philippines, Inc. JGC Phil., Bldg. 2109 Prime St. Madrigal Business Park Ayala Alabang, Muntinlupa City Attention: Ms. Eugene K. Baria VP/Admin. Division Manager Gentlemen : This refers to your letter dated December 10, 2003 requesting for a clarification as to whether or not BIR Ruling No. 033-2000 dated September 5, 2000 will still apply to JGC Philippines, Inc. (JPHIL) formerly Technoserve International Co ., based on substantially similar factual setting as earlier presented, though with minor modifications. In BIR Ruling No. 033-2000, it was represented that JGC Philippines, Inc. (JPHIL) (formerly Technoserve International Co., Inc.) is a domestic foreign corporation engaged in rendering specialty and technical services for overseas or domestic projects in the areas of engineering, procurement service and construction management and other related fields; that the bulk of its revenue comes from work order contracts for design and engineering works for overseas projects being awarded by its main client and parent company, JGC Corporation, having its principal office at Yokohama, Japan; that the design works are being done here at the Alabang Office, but there are also cases wherein it is required to send its qualified staff to Japan and other site office for design and engineering works, thus the Secondment Agreement with its client; that the employee shall be stationed at JGC offices for certain period of time and shall perform his duties according to client's instruction and without losing the status of employment with JPHIL; that usually, Intra-company Transference Visas are being secured by the client and the work contracts pass thru Philippine Overseas Employment (POEA); that the client will provide for the accommodation, transportation, meal and site allowances and other necessities while on overseas assignment; that the salaries, which are stated in US dollar, are being paid here in the Philippines by JPHIL converted to pesos using the prevailing exchange rate at the time of payment; that as stated in the Secondment Agreement, the manhour spent by the overseas' assignees are billed to client at an agreed manhour billing rate based on their position level and salaries; that the client then remits the payment and JPHIL converts the same to pesos through the Philippine Banking System; that in effect, the client or JGC Corporation is actually the one paying the salaries of overseas' assignees through JPHIL; that for income tax purposes, all the employees who are assigned overseas for at least 183 days in a taxable year were classified as non-resident since the situs of income whether within or without is determined by the place where the services are rendered. You now represent that the foregoing have been modified as follows 1) The Secondment Agreement has been discontinued per Philippine Overseas & Employment Agency (POEA) mandate, nonetheless, the work contracts of employees being sent abroad has still to pass thru and be registered with POEA and thus issued Overseas' Employment Certificate (OEC) and are considered as Overseas' Filipino Workers (OFW's); 2) The overseas' assignees shall be stationed in the client's site offices and perform their jobs according to the client's instruction without losing the employment status with JPHIL; 3) The overseas compensation has been revised to conform with POEA requirements The agreed and accepted employees' compensation in US dollar prior to his departure will remain unchanged until completion of overseas' assignment. Any change in the local salary will not affect the employees overseas compensation. Processing and payment of overseas' salary are being done here in the Philippines by JPHIL once a month. Portion of the overseas compensation may be paid in US dollar currency based on employees option. The manner of disbursements will be split up into 50% US dollar and 50% pesos using the prevailing exchange rate at the time of payroll preparation. 4) The man-hour spent by the overseas' assignees are billed to client at a fixed US dollar rate based on the Service Agreement. The client then remits the payment to the bank account of JPHIL and the same are converted to pesos through the Philippine Banking System. In reply, please be informed that this Office would like to confirm BIR Ruling No. 033-2000 dated September 5, 2000 is still applicable to JPHIL since the minor modifications in the current work contracts of the overseas assignees are almost the same as the conditions in the former Secondment Agreement and no substantial change is effected with respect to the rendition of the services outside the Philippines. Thus, the income derived from abroad by the employees of JPHIL is considered as income from without the Philippines as provided for under Section 42(C)(3) of the Tax Code of 1997, hence, exempt from payment of income tax pursuant to Section 23(C) of the Tax Code of 1997. 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. HTSaEC Very truly yours, (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group