BIR Ruling [DA-214-99]

April 7, 1999 BIR RULING [DA-214-99] Diaz Murillo Dalupan 5 F Don Jacinto Building Dela Rosa corner Salcedo Sts. Legaspi Village, Makati City Attention: Mr . Alberto V . Igrubay For Newbridge Networks (Asia) Ltd . Philippine Representative Office Gentlemen : This refers to your letter dated July 8, 1998 requesting for a ruling, on behalf of your client, Newbridge Networks (Asia) Ltd. (Newbridge), that the Filipino employees employed and occupying the same position as those of aliens/expatriates employed by multinational companies shall be taxed at the rate of 15% base on their gross compensation income, remuneration and other emoluments pursuant to Section 25 (C) of the Tax Code of 1997. aisadc It is represented that Newbridge is a corporation organized and existing under the laws of Hongkong; that it established a representative office in the Philippines to introduce its products to local customers and to support existing Newbridge distributor in its market; that it has appointed Roy John P. Javier, a Filipino citizen and resident, as the designated representative of Newbridge; and that he shall act as the agent of the company to whom summons and other legal processes may be served on behalf of Newbridge. In reply, please be informed that Section 25 (C) of the Tax Code of 1997 provides that: "SEC. 25. Tax on Nonresident Alien Individual . "(A) . . . "(B) . . . "(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 . For purposes of this Chapter, the term 'multinational company' means a foreign firm or entity engaged in international trade with affiliates or subsidiaries or branch offices in the Asia-Pacific Region and other foreign markets." (Emphasis supplied) In view thereof, Filipinos employed and are occupying the same position as those of aliens employed by multinational companies are subject to the preferential tax rate of 15% on their gross income. Clearly, the rationale for the aforementioned proviso is to equalize the enjoyment of the preferential tax rate accorded to an alien employed by a multinational with a Filipino who is occupying a similar position in the same multinational company. However, the preferential tax treatment shall apply only in cases where concurrently an alien holds a position similar to that of the Filipino shall no longer apply in a situation where there is no alien employed. Such being the case, this Office is of the opinion as it hereby holds that where there is no expatriate present and working in the establishment, there being no disparity to speak of with respect to the tax rate imposed on the income earned by the Filipinos, said Filipino employee who shall act as representative of Newbridge, shall be liable to the normal income tax rates imposed under Section 24 (A)(1)(c) of the Tax Code of 1997. (BIR Ruling No. 147-98 dated October 16, 1998) Very truly yours, Commissioner of Internal Revenue By: (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal and Enforcement Group)