BIR Ruling [DA-262-04]

May 17, 2004 BIR RULING [DA-262-04] RR 2-98, 6-2001 & 12-2001 BIR Ruling No. DA 032-02 Ms. Normita L. Villaruz Suite 412 J & F Divino Arcade 961 Aurora Blvd., Cubao Quezon City M a d a m : This refers to your letter dated September 19, 2001 indorsed to this Office by Chief of legal Division Cesar A. Pangilinan of Revenue Region No. 8, Makati City, requesting, in effect, for a ruling on whether or not alien individuals employed by the representative offices of multinational companies are entitled to the preferential rate of 15% final withholding tax pursuant to Section 2.57.1(D) of Revenue Regulations No. 2-98, as amended. In reply, please be informed that Section 25(C) of the Tax Code of 1997, as implemented by Section 2.57.1(D) of Revenue Regulations No. 2-98, as amended by Revenue Regulations No. 6-2001, as further amended by Revenue Regulations No. 12-2001, now reads: "(D) Income Derived by Alien Individuals Employed by Regional or Area Headquarters and Regional Operating Headquarters of Multinational Companies and Those Employed by Offshore Banking Units and Petroleum Service Contractors and Subcontractors . 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 established in the Philippines by multinational companies as salaries, wages, annuities, compensation, remuneration, and other emoluments, such as honoraria and allowances, except income which is subject to the fringe benefits tax, from such regional or area headquarters and regional operating headquarters. xxx xxx xxx The same tax treatment is applicable to Filipinos employed and occupying the same positions as those 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 if the employer (Regional Operating Headquarters/Regional or Area Headquarters) is governed by Book III of E.O. 226 as amended by R.A. 8756. In case the Filipino opted to be taxed at the regular tax rate under Section 24 of the Tax Code of 1997, the provisions of Section 2.79(A) to (D) of Revenue Regulations No. 2-98 shall apply." It will be noted that the amendatory regulations have deleted "representative offices" from the enumeration. Accordingly, employees of representative offices are no longer entitled to the preferential rate of 15% final withholding tax beginning January 1, 2002, pursuant to Revenue Regulations No. 6-2001 as further amended by Revenue Regulations No. 12-2001. The income payments to employees of representative offices would, thus, be subject to the following rates imposed under the Tax Code of 1997, to wit: a. If a Filipino citizen, whether resident or non-resident, or a resident alien graduated tax rates of 5%-32%; b. If a non-resident alien engaged in trade or business in the Philippines graduated tax rates of 5%-32%; c. If a non-resident alien not engaged in trade or business in the Philippines 25%. Please be guided accordingly. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group