Isla Lipana & Co.

March 26, 2007 BIR RULING [DA-179-07] DA 061-04 Isla Lipana & Co. 29th Floor Philamlife Tower 8767 Paseo de Roxas Makati City Attention: Atty. Mary Assumption S. Bautista-Villareal Principal Gentlemen : This refers to your letter dated November 20, 2006 stating that your client, Convergys Customer Management Group, Inc., is a corporation organized and existing under the laws of the State of Ohio, USA; that it established the Regional Operating Headquarters (CCMGI-ROHQ) in the Philippines pursuant to Republic Act (R.A.) No. 8756, engaged in general administration and planning, business planning and coordination, sourcing/procurement of raw materials and components, corporate finance advisory services, marketing control and sales promotion, training and personnel management, logistic services, research and development services and product development, technical support and maintenance, data processing and communication, business development for affiliates in the Philippines, in the Asia-Pacific and in North America; that CCMGI-ROHQ is registered and licensed with the Philippine Securities and Exchange Commission (SEC) under SEC Registration No. FS200613350; that CCMGI-ROHQ was established in the Philippines to render any or all of the above services to affiliates, branches and subsidiaries of Convergys Customer Management Group, Inc., in the Philippines, Asia-Pacific and North American territories, among others; and that in order to perform such qualifying services, CCMGI-ROHQ will be employing several individual personnel to occupy the following managerial and/or technical positions in the ROHQ, to wit: POSITION JOB DESCRIPTION SENIOR DIRECTOR-BUSINESS Conducts regular meetings and conference PLANNING AND COORDINATION calls with affiliates; submits monthly billings as well as profit and loss statements; coordinates with and assists affiliates in penetrating the Philippine market; and reviews and monitors the performance of certain affiliates. Involved in general administrative and planning, business planning and coordination or business development which are merely advisory and support in character. DIRECTOR-BUSINESS PLANNING Coordinates with North American AND COORDINATION affiliates, particularly, in the submission of metrics on operations. DIRECTORS-BUSINESS PLANNING Site leaders who regularly coordinate with AND COORDINATION client service teams and supports the North American affiliates through, among others, the submission of regular (monthly, weekly and daily) reports to said affiliates on the different client accounts. FINANCE DIRECTOR-CORPORATE Reports directly to the Vice-President for FINANCE ADVISORY SERVICES Global Operations in the US: submits regular reports to the US relative to pricing computations and assumptions; constantly coordinates with counterparts in the different affiliates abroad. FINANCE MANAGERS-BUSINESS Prepare forecasts and analysis of ANALYSIS variances; submit regular reports on matters relating to workstation utilization, workstation v. FTE, savings, monthly variance analysis, forecast variance analysis, and similar reports to the US affiliates, particularly, CVG (North America) Finance. FINANCE MANAGER-SOURCING Sources and procures materials upon AND PROCUREMENT request for affiliates and/or units in the Asia-Pacific region; coordinates and submits purchasing metrics to the North American affiliates. FINANCE MANAGER-ACCOUNTING, Handles taxation, disbursement and cash TAXATION AND CASH management, and provides services to MANAGEMENT affiliates abroad including Singapore and the Netherlands in the preparation of accounting entries; submits regular reports to US affiliates, i.e., quarterly tax reports, quarterly tax forecasts, transaction uploads, cash flow forecast, and statutory reports; and submits certain inter-company transactions to North American and Asian affiliates. FINANCE MANAGER-INTERNAL Performs internal and audit functions. CONTROL ASSURANCE Regularly reports to the Finance Director and to the Vice-President for Global Operations in the US. DIRECTOR-BUSINESS Provides marketing support to the DEVELOPMENT international sales group connected with the UK affiliate in the sale of contact center tools and solutions to clients in the Far East region. MANAGERS-TRAINING AND Perform operational training of personnel PERSONNEL MANAGEMENT of Asia-Pacific affiliates; report directly to the affiliate in India which is responsible for establishing the Annual Training Plan for Convergys affiliates. Eighty percent (80%) of working time is spent with affiliates abroad. MANAGERS-TRAINING AND Develop structured career path materials; PERSONNEL MANAGEMENT conduct review of operations for the continuous improvement of processes, implement programs to ensure local talent base, implement "best practices" from affiliates abroad based on pre-determined factors; prepares and submits various reports, i.e., Continuous improvement goal status report, the monthly status report, and Continuous improvement updates, to affiliates in US and India. DIRECTOR-GLOBAL Provides regular on-line monitoring via IMPLEMENTATION electronic mail or through telephone of the implementation of client programs anywhere around the globe upon the request of North American or European affiliates; reports to Global Implementation based in the United Kingdom. SENIOR MANAGER-GLOBAL Monitors capacity management; regularly IMPLEMENTATION coordinates with North American affiliates relative to the availability of seats and submits monthly reports on the same such as those which relate to hiring and ramp plans to program directors, recruitment, TQID, capacity management personnel in North American and Asia. DIRECTOR-BUSINESS PLANNING Handles the management and monitoring AND COORDINATION of regional facilities of affiliates in the Asia-Pacific region, particularly the Philippines and China. SENIOR MANAGER AND Perform global network services which MANAGERS-TECHNICAL SUPPORT involve handling of all network AND MAINTENANCE requirements of Far East Asia affiliates. Accordingly, they are accountable for the service level to the Far East Asian region; exercise supervisory functions over affiliates in the Far East region; and regularly report to North American affiliates. DIRECTOR-TRAINING AND Monitors and evaluates the compliance of PERSONNEL MANAGEMENT affiliates with the HR-mandated standards of the Convergys group including payroll and compensation, internal communications and management development programs; and regularly submits reports on HR matters to North American affiliates. SENIOR MANAGERS-TRAINING AND Monitor the HR situation in the various PERSONNEL MANAGEMENT sites of affiliates and prepare reports on HR related matters geared towards monitoring specific client concerns, i.e., headcount, attrition report, payroll data, fill rates and attrition rates. MANAGERS-TRAINING AND Collectively undertake the administration PERSONNEL MANAGEMENT of the shared services center, HR operations and recruitment. For the shared services center, they initiate recommendations on how to customize programs as well as draft guidelines on policies, monitor the payroll of affiliates and review the payroll reports which are centrally prepared by outsourced entities in either Malaysia or Singapore. For operations, they review and monitor reports on HR concerns. For recruitment, they submit reports on fill rates and attrition. Reports prepared are submitted to North American affiliates and the outsourced payroll provider. MANAGER-TRAINING AND Assists a North American affiliate in the PERSONNEL MANAGEMENT preparation of internal communications. MANAGERS-TRAINING AND Undertake training in accordance with the PERSONNEL MANAGEMENT training program and talent management standards set; monitor, review and ensure compliance with said programs during the training sessions and in the actual rendering of the service; prepare client specific reports, i.e., weekly evaluation summary reports, EOM reports, program dashboard reports, curriculum feedback tracker reports and guidelines updates, for submission to the North American and Asian affiliates; and provide recommendations on how to develop a more structured career path, which is distributed to North American and Asian affiliates In connection therewith, you now request confirmation of your opinion of the following 1. CCMGI-ROHQ employees (both aliens and Filipinos) occupying the managerial and/or technical positions and/or performing the qualifying services are entitled to the 15% preferential tax rate on gross income; and 2. The Filipino employees occupying the managerial and/or technical positions and/or performing the qualifying services stated have the option to be taxed at either 15% of their gross income or at the regular graduated individual income tax rates based on their taxable income in accordance with the Tax Code of 1997, as amended, regardless of whether there are aliens similarly occupying such positions. cHDaEI In reply thereto, please be informed that Section 25 (C) of the Tax Code of 1997 provides that "(C) Alien Individual Employed by Regional or Area Headquarters and Regional Operating Headquarters of Multinational Companies . 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 and regional operating headquarters established in the Philippines by multinational companies as salaries, wages, annuities, compensation, remuneration and other emoluments, such as honoraria and allowances, from such regional or area headquarters and, regional operating headquarters, a tax equal to fifteen percent (15%) of such gross income: Provided, however, That the same tax treatment shall apply to Filipinos employed and occupying the same position as those of aliens employed by these multinational companies. . . . " Corollarily, 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 positions 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 VIEW OF THE FOREGOING, since the positions of the ROHQ personnel enumerated above clearly require technical proficiency and initiative from the individuals occupying such position, this Office hereby confirms your opinion that 1. CCMGI-ROHQ employees (both aliens and Filipinos) occupying the managerial and/or technical positions and/or performing the qualifying services are entitled to the 15% preferential tax rate on gross income; and 2. The Filipino employees occupying the managerial and/or technical positions and/or performing the qualifying services have the option to be taxed at either 15% of their gross income or at the regular graduated individual income tax rates based on their taxable income, regardless of whether there are aliens similarly occupying such positions. HTDcCE 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service