BIR Ruling [DA-236-06]

April 11, 2006 BIR RULING [DA-236-06] 25 (C); DA-118-03 SGV & Co . 6750 Ayala Avenue 1226 Makati city Attention: Atty. Emmanuel C. Alcantara Co-Head, Tax Services Gentlemen : This refers to your letter dated September 12, 2005 requesting on behalf of your client, Johnson & Johnson International (Singapore) PTE. LTD-Regional Operating Headquarters (JJIS-ROHQ), a regional operating headquarters duly registered with Securities and Exchange Commission (SEC), confirmation on the following: 1. The positions held by certain JJIA-ROHQ alien and Filipino employees qualify as managerial and technical positions and are thus entitled to the 15% preferential tax rate on their gross income under Section 25(C) of the Tax Code, as amended and Article 61 of Republic Act No. 8756; and 2. The said JJIS-ROHQ Filipino employees have the option to be taxed at either 15% of their gross income or the regular tax rate based on their taxable income, regardless of whether there is an alien similarly occupying such technical or managerial positions. It is represented that Johnson & Johnson International (Singapore) Pte. Ltd. (JJIS) is a multinational company organized and existing under the laws of Singapore with a ROHQ in the Philippines registered with the SEC under SEC Registration No. FS200511014 dated June 27, 2005; that under its license, JJIS-ROHQ may engaged in general administration and planning, business planning and coordination, corporate finance advisory services, training and personnel management, research and development services, product development, technical support and maintenance, data processing and communication, and business development; that JJIS-ROHQ was established in the Philippines to render any or all of the above services to its affiliates, branches and subsidiaries in the Philippines, in the Asia Pacific Region and other foreign markets; that to carry out its various functions as an ROHQ, JJIS-ROHQ employed personnel in accordance with the demands of the reorganizations; that the details of the various managerial and/or technical positions and the corresponding principal responsibilities of each are incorporated in the employment contracts of the employee involved as provided for in Annexes "A-1" to "A-36" attached to the letter-request; and in addition, all the individuals transferred to the ROHQ are occupying managerial or technical positions which are entitled to the 15% preferential rate. In reply thereto, please be informed that Section 2.57.1(D) of Revenue Regulations No. 2-98, as amended, now reads: "(D) Income Derived by Alien Individual Employed by Regional or Area Headquarters and Regional Operating Headquarters of Multinational Companies. xxx xxx xxx The same tax treatment is applicable to Filipinos employed and occupying the same positions as those of aliens employed by regional or area headquarters and regional operating headquarters of multinational companies, regardless of whether or not there is an alien executive occupying the same position, provided, that such Filipinos 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 rates under Sections 2.78 and 2.79 of Revenue Regulations No. 2-98 shall apply. xxx xxx xxx" Corollarily, Section 10 of the Rules and Regulations Implementing Article 61 of R.A. No. 8756 provides 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, remunerations and emoluments to a final tax equal to fifteen percentum (15%) of such gross income and that the same tax treatment is applicable to Filipinos employed and occupying the same positions as those aliens employed by multinational companies, regardless of whether or not there is an alien occupying the same positions. 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 pursuant to Article 61 of Executive Order No. 226, as amended by Section 5 of R.A. No. 8756. In view thereof, this Office holds that that JJIS-ROHQ's alien and Filipino employees who will occupy managerial and technical positions are qualified for the 15% preferential tax rate on their gross income. Moreover, JJIS-ROHQ Filipino employees have the option to be taxed at either fifteen (15%) of their gross income or the regular tax rate based on their taxable income, regardless of whether there is an alien similarly occupying such technical or managerial positions (BIR Ruling No. 118-03 dated April 14, 2003). 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 as null and void. HETDAa Very truly yours, Commissioner of Internal Revenue By: (SGD.) PABLO M. BASTES, JR. OIC-Head Revenue Executive Assistant Legal Service