BIR Ruling [DA-281-04]

May 18, 2004 BIR RULING [DA-281-04] RR 2-98; 6-2001; 12-2001; DA 032-02 dated March 7, 2002 Joaquin Cunanan & Co. 14th Floor Multinational Bancorporation Center 6805 Ayala Avenue Makati City Attention: Ms. Myrna M. Fernando Partner Gentlemen : This refers to your letter dated August 6, 1999 stating that your client, Commonwealth Development Corporation (CDC), is a corporate public institution established by the Act of Parliament of the United Kingdom for the purpose of assisting in the economic development of certain countries with address at 5th Floor, Taipan Place, Emerald Avenue, Ortigas Center, Pasig City; that CDC is empowered to operate in the Philippines and maintains a Representative Office (RO) for this purpose; that the RO employs five (5) Filipino employees and one (1) expatriate, four (4) of whom are holding managerial positions; and that these managerial positions in CDC belong to the category of "top management" as they are vested with powers to execute management policies and formulate major decisions within their areas of expertise and responsibilities. In connection therewith, you now request for a ruling that your client's alien executive employee as well as Filipino employees occupying the position of Senior Investment Executive are subject to income tax at the rate of 15% pursuant to Section 25(C) of the Tax Code of 1997. In reply thereto, please be informed that this Office had already occasioned to rule, in BIR Ruling No. DA032-02 dated March 7, 2002, on the matter, when it said that ". . . Section 2.57.1(D) of Revenue Regulations No. 2-98, 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. xxx xxx xxx The same tax treatment is applicable to Filipinos employed and occupying the same positions as those aliens employed or 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. aTEHIC xxx xxx xxx It will be noted that the amendatory regulations have deleted "representative offices" from the enumeration. Accordingly, since employees of representative offices are no longer entitled to the preferential rate of 15% final withholding tax, pursuant to Revenue Regulations No. 6-2001, as further amended by Revenue Regulations No. 12-2001, the income payments to Captain Jon Bjorheim and Ms. Erlinda E. Boughton 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%. However, considering that employees are being taxed on a calendar year basis, the 15% final withholding tax on the gross income of alien individuals occupying managerial and technical positions in representative offices, as well as of Filipinos occupying the same position as such aliens shall continue to be imposed until December 31, 2001. Thereafter, the pertinent provisions of the Tax Code of 1997 shall apply to these taxpayers depending upon their classification as taxpayers, pursuant to the Transitory Provision of Revenue Regulations No. 12-2001. Accordingly, the income payments to Captain Jon Bjorheim and Ms. Erlinda E. Boughton will be subject to the preferential rate of 15% final withholding tax until the end of 2001." IN VIEW OF THE FOREGOING, this Office holds that the income tax rate applicable to alien executive employee as well as Filipino employees occupying the position of Senior Investment Executive is subject to the regular income tax rate of 32% prescribed in Section 24 of the Tax Code of 1997, pursuant to Revenue Regulations No. 6-2001, as amended by Revenue Regulations No. 12-2001. 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.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group