BIR Ruling [DA-154-98]

April 17, 1998 BIR RULING [DA-154-98] PunongBayan & Araullo 6th Floor, Vernida IV Bldg. Alfaro St., Salcedo Village Makati City Attention: Atty . Vic C . Mamalateo Tax Partner Gentlemen : This refers to your letter dated February 12, 1997 requesting on behalf of your client, the Philippines representative office of Anglo Eastern Ship Management Ltd. (Anglo), for a ruling that is expatriate employee shall be taxes only at the preferential rate of 15% on the gross compensation income pursuant to then Section 22(c) of the Tax Code, as amended. [now Section 25(C) of the Tax Code of 1997] It is represented that Anglo is organized under the laws of Hong Kong with principal office address at 20/F Dominion Center, 43 Queen's Road East, Wanchai, Hong Kong; that it has subsidiaries in Hong Kong and Singapore; that on August 31, 1995, it was granted by the Philippine Securities and Exchange Commission (SEC) a license to operate a representative office in the Philippines; that the Philippine representative office serves as a liaison office between the local crewing agent and the head office in Hong Kong by acting as a coordinating center providing ship management services for its clients located in the region; that it does not derive any income in the Philippines and complies with the requirements of SEC to legally operate as a representative office in the Philippines; and that said Philippine representative office has in its employ only one Belgian citizen who acts as its general manager. In reply, please be informed that under then Sec. 22 (c) of the Tax Code, as amended, [now Sec. 25(C) of the Tax Code of 1997] pertinent portion of which is quoted, viz.: "SEC. 22. Tax on non-resident alien individuals. "a. . . . "b. . . . "c. Aliens employed by regional or area headquarters of multi-national corporations. There shall be levied, collected and paid for each taxable year upon the gross income received by every alien individual employed by regional or area headquarters established in the Philippines, by multi-national corporations as salaries, wages, annuities, compensation, remuneration and other emoluments, such as honoraria and allowances from such regional or area headquarters, a tax equal to 15% of such gross income: Provided, that the activities of the said regional headquarters or area headquarters shall be limited to acting as supervisory, communications and coordinating center for their affiliates, subsidiaries or branches of such multi-national corporations. For purposes of this chapter, the term "multi-national corporation" means a foreign firm or entity engaged in international trade with affiliates or subsidiaries or branch offices in the Asia Pacific Region. xxx xxx xxx Considering that the Philippine representative office of Anglo acts as a liaison and coordinating center by providing ship management services for its clients located in the region, its only expatriate employee who acts as the general manager is therefore subject to income tax at the rate of 15% on his gross compensation income as imposed under the above-quoted provision. (BIR Ruling No. 179-88 dated May 4, 1988) LLpr 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.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)