BIR Ruling [DA-128-06]

March 16, 2006 BIR RULING [DA-128-06] RR 2-98; 198-99 Conservation International Foundation #6 Maalalahanin Street Teacher's Village, Quezon City Attention: Ms. Gizelle De Lara-Zapata Finance Manager Gentlemen : This refers to your letter dated January 9, 2006 requesting for the issuance of certificate of exemption from withholding taxes on compensation for the employees and staff of Conservation International Foundation . It is represented that the Conservation International Foundation is a branch office formed under the California Non-profit Public Benefit Corporation Law on January 28, 1987 and a U.S. based environmental non-profit organization; that your mission is to conserve the earth's living natural heritage, global biodiversity and to demonstrate that human societies are able to live harmoniously with nature; that it applies innovations in science, economics, policy and community participation to protect the earth's richest regions of plants and animal diversity in the hotspots, major tropical wilderness areas and key marine ecosystem; that it is your belief that the earth's natural heritage must be maintained if future generations are to thrive spiritually, culturally, and economically; that with headquarters in Washington, D.C., it works in more than 40 countries worldwide including Philippines; that in the Philippines, its strategy is to promote effective conservation action in the most valuable remaining terrestrial and marine ecosystems by working with key decision makers at the national level and by demonstrating models of ecosystem; that partnership with key NGOs private sectors and government institutions ensure that its effort have long term sustainability; that it was granted license to transact business by the Securities and Exchange Commission on May 04, 1995 under SEC Registration No. AF095-048; and that no part of its income is derived here in the Philippines. In reply, please be informed that pursuant to Section 2.78.1(B)(5) of Revenue Regulations 2-98 implementing Section 78 of the Tax Code of 1997, remuneration paid for services performed as an employee of a foreign government or an international organization is exempt from withholding tax on compensation. SICDAa " International Organizations " are associations of States, established by treaties between two or more States, whose functions transcend national boundaries and which are for certain purposes subjects of international law. Public international organizations (as distinguished from "private" or "non-governmental" organizations) include global, all-purpose organizations; specialized agencies of the United Nations; other global functional organizations; and regional organizations. Thus, international organizations like Asian Development Bank (ADB) and International Rice Research Institute (IRRI) created out of an international agreement to which the Philippines is a signatory, are not required to withhold any tax on compensation payments made by it to its Filipino employees. (BIR Ruling No. 228-92 dated August 21, 1992) On the other hand, Non-Governmental Organizations (NGO's) are private, international organizations that serve as a mechanism for cooperation among private national groups in international affairs, particularly in economic, social, cultural, humanitarian, and technical fields Under Art. 71 of the UN Charter, the Economic and Social Council is empowered to make suitable arraignments for consultation with NGO's on matters within its competence. Except for limited purposes under international humanitarian law . NGO's are not subjects of international law. Examples of NGO's include the International Committee of the Red Cross (ICRC); consumer and producer associations; religious groups; teacher organizations; professional, legal, civic, (e.g. Rotary Club of Manila), and medical societies; and trade unions. (International Law and World Politics by Edgardo L. Paras, Sr. and Edgardo C. Paras, Jr. 1994 Revised Edition) Based on the above, Conservation International Foundation is not an international organization or entity having international personality as contemplated under the aforequoted Section 2.78(B)(5) of Revenue Regulations 2-98 but rather an international non-government private voluntary organization (NGO) which was duly granted a license to transact business by the Securities and Exchange Commission. It is therefore required to withhold the corresponding withholding tax on compensation for the salaries and wages it pays to its employees. AETcSa In view thereof, your request for a certificate of exemption from withholding taxes on compensation for the employees and staff of Conservation International Foundation is hereby denied for lack of legal basis. Accordingly, Conservation International Foundation shall withhold and remit to BIR the corresponding withholding tax on compensation for the salaries and wages it pays to its employees in accordance with Section 2.79 in relation to Section 2.78.1 of Revenue Regulations No. 2-98, as amended. Very truly yours, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service