BIR Ruling [DA-260-99]

April 29, 1999 BIR RULING [DA-260-99] JC Penney Purchasing Corporation 2nd Floor Prince Building 117 Rada St., Legaspi Village Makati City Attention: Ms . Angelita Yap Pua Gentlemen : This refers to your letter dated April 7, 1999 requesting for a clarificatory ruling on the tax on income derived from employment in a representative office of a multinational company. It is represented that you are the Manager of JC Penny Purchasing Corporation (JCPPC) in the Philippines; that JCPPC is duly registered with the Securities and Exchange Commission as a representative office in the Philippines on April 8, 1996 with SEC Registration No. AF096-022; that a Certificate of Assistant Secretary dated March 19, 1996 was issued stating a resolution by the Board of Directors of JCPPC authorizing you, as the General Manager, to sign all documents that may be required by all governmental agencies; that as per Sec. 2.57(D) of Revenue Regulations No. 2-98, a final withholding tax equivalent to fifteen percent (15%) shall be withheld by the withholding agent from the gross income received by every alien individual occupying managerial and technical positions in regional or area headquarters and regional operating headquarters and representative offices established in the Philippines by multinational companies; and that as a General Manager of a representative offices established in the Philippines by a multinational company organized and existing under the laws of the State of New York, U.S.A., it is your contention that the same tax treatment shall apply to Filipinos 'employed and occupying managerial and technical positions. In reply, please be informed that in BIR Ruling No. 029-99 dated March 11, 1999, this Office citing BIR Ruling No. 147-98 dated October 16, 1998, ruled that Filipinos employed and are occupying managerial and technical position as those of aliens employed by the Asian Development Bank which is not only a Regional or Area Headquarters but the Headquarters itself, are subject to the preferential tax rate of 15% on their gross compensation income pursuant to Section 25(C) of the Tax Code of 1997. Since, as represented you are the Manager of JC Penny Purchasing Corporation which is a representative office of a multinational company organized and existing under the laws of the State of New York, U.S.A., you are subject to the preferential tax rate of 15% on your gross income. It must be emphasized however, that the preferential tax treatment apply only in cases where concurrently an alien holds a position similar to you. Furthermore, this preferential tax treatment shall not apply where the counterpart expatriate is recalled to the head office or reassigned elsewhere, whether temporary or otherwise, and only Filipinos are the ones so employed by an ROH/RAH) for the time being or where the post vacated by the expatriate is subsequently assumed by a Filipino to replace the expatriate and as a result all top posts are now being occupied Filipinos. In short, in all instances where there is no expatriate present and working in the establishment, the Filipino manager like you employed by an ROH/RAH shall be liable to the normal tax rates imposed under Sec. 24(A)(1)(c) of the Tax Code of 1997. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it shall be disclosed that the facts are different, then this ruling shall be considered null and void. LLjur Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue