Sycip Gorres Velayo & Co.

April 18, 2008 BIR RULING [DA-250-08] 25 (C); RR 12-2001; DA-444-07 Sycip Gorres Velayo & Co. 6760 Ayala Avenue Makati City Attention: Mr. Joel L. Tan-Torres Partner Gentlemen : This refers to your letter dated March 13, 2008 stating that your client, Sun Life Group of Companies ("Sun Life Group") is a leading international financial services organization providing a diverse range of protection and wealth accumulation products and services to individuals and corporate customers; that it has operations in key markets worldwide, including Canada, the United States, the United Kingdom, Ireland, Hong Kong, the Philippines, Japan, Indonesia, India, China and Bermuda; that with the expanding Asian operations, the Sun Life Group intends to register a Philippine regional operating headquarters (the ROHQ) capable of rendering activities including: general administration and planning, business planning and coordination, corporate finance advisory, marketing control, sales promotion, training and personnel management, logistic services, research and development, technical support and maintenance, data processing and communication, and business development; that the proposed ROHQ will initially render governance services covering internal audit and accounting and control; and that to carry out these activities, Sun Life Group intends to engage Filipinos and foreigners to occupy key managerial or technical positions, to wit: Generic Titles Job Description Internal Audit Head Develops, installs and administers the organization's overall audit program. Provides management with a review of accounting, financial, information systems and other operations by measuring and evaluating the effectiveness of accounting and management controls. Audit Manages the independent appraisal activity Manager/Specialist within the organization. Reviews accounting, financial, and other operations by measuring and evaluating the effectiveness of accounting and managerial controls. Contributes to the formulation of audit policy and procedures. Recommends policy and systems changes to senior management in the light of audit reviews. Regional Accounting Responsible for Asia's Canadian and US GAAP & Control (RAC) books through well-controlled/managed Head financial systems, proper close processes, sound account reconciliation and management of the SOX sign-off process, harmonizing and bringing to a high standard Asian accounting policies as well as practices for products, distribution channels, specialty F/S lines, key controls like account reconciliation, etc. while meeting Corporate requirements and compliance with evolving GAAP, budgeting/planning/analysis of SLF shares in the Asia joint venture companies as well as good controls over fund flows (sale of company, share buybacks, capital injections, dividend payments, etc.). Prime support to Region's CFO on accounting and control special projects including accounting system projects. Key contact for liaising with external auditors so SLF Asia financial statement account balance variances across periods are explained. AIDTHC RAC Oversees the consolidation of Canadian and US Manager/Specialist GAAP books for Asia, intercompany process in Asia including billing and settlement with US, Canada and UK, harmonization of accounting policies in SLF Asia. Acts Control Analyst for Asia BUs SOX in-scope processes and ensures timely completion of activities based on the agreed timeline. Conducts product review and provides accounting and control sign-off for all new products of Asia. Maintains the integrity in Regional Accounting System and ensure reconciliation with the Corporate Office GL system. Works with Corporate's Financial Reporting Standards team in researching/studying emerging GAAPs and determines applicability of these standards to Asia. Manages the Account Reconciliation function for all SLF Asia business units. In connection therewith, you now request confirmation of your opinion of the following: 1. The Sun Life ROHQ employees (both aliens and Filipinos) occupying the managerial and/or technical positions and/or performing the qualifying services indicated above 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. 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. . . . " ITHADC 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. The Sun Life ROHQ employees (both aliens and Filipinos) occupying the managerial and/or technical positions and/or performing the qualifying services indicated above 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. 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