BIR Ruling [DA-294-04]

May 31, 2004 BIR RULING [DA-294-04] 51 (A) (1) (a) and (c); DA-217-95 Southeast Asian Regional Center for Agriculture Los Baos, Laguna Attention: Atty. Ma. Celia H. Fernandez Counsel for SEARCA Gentlemen : This refers to your letter dated April 14, 2004 requesting for exemption of the officials and employees of the Southeast Asian Regional Center for Agriculture (SEARCA) from income tax. The facts as you represented are as follows: On February 7, 1968, the Ministers of Education of Indonesia, Laos, Malaysia, Philippines, Singapore and Thailand signed the Charter of the Southeast Asian Ministers of Education Organization (SEAMEO), in order to promote cooperation among Southeast Asian nations through education, science and agriculture. On August 31, 1972, the Philippine Senate concurred in the acceptance of the President of the Philippines of the Charter of SEAMEO. Pursuant to the SEAMEO Charter, SEARCA was organized through an enabling instrument SEARCA is a non-stock, non-profit educational institution based in Los Baos, Laguna. Subsequent to its organization, the Court of Tax Appeals and the Bureau of Internal Revenue have ruled in numerous instances that: SEARCA is an international organization. (CTA Case No. 4982, June 1996); SEARCA is exempt from withholding taxes of its employees. (BIR Ruling No. UN-217-95 dated June 15, 1995) SEARCA is exempt from the final withholding tax of 20% on its interest income from its savings and time deposits. (BIR Ruling No. DA-017-99 dated January 11, 1999) SEARCA is exempt from VAT. (BIR Ruling dated March 31, 1992) On June 21, 1994, you filed a request for an opinion with the BIR exempting your employees from income tax and withholding tax at source. The BIR issued its Ruling on June 15, 1995 finding SEARCA exempt from withholding tax on employees' income. Particularly, the said BIR Ruling states that: "Considering the foregoing and in view of the fact that the Government of the Republic of the Philippines recognizes SEARCA as an international organization under the Letter of Agreement Regarding the Southeast Asian Regional Center for Agriculture in Los Baos, Philippines between the Southeast Asian Ministers of Education Council (SEAMEC), the Government of the Philippines and the Government of the United States, SEARCA is not required to withhold any tax on compensation payments made by it to its Filipino employees. "However, the employees who are citizens or residents are required to declare such income earned from SEARCA in the income tax returns which they are required to file pursuant to Section 44 of the Tax Code, as amended. (BIR Ruling No. 228-92 dated August 21, 1992)" You further represent that the organization of SEARCA is composed of: one (1) Director two (2) Deputy Directors four (4) Managers nine (9) Unit Heads Staff Support It is your considered view that SEARCA officials and employees are exempt from the payment of income tax pursuant to Section 2, Article XIV of the Enabling Instrument of SEAMEO SEARCA, which reads: "2. The Center shall enjoy in the territory of each of its member states such privileges and immunities as are normally accorded United Nations institutions." On the basis of the foregoing, you now seek exemption from income tax payments for SEARCA officials and employees, including advisers and technical experts and experts performing missions for SEARCA. In reply, please be informed that Article V, Section 18 of the Convention on the Privileges and Immunities of the United Nations, adopted by the General Assembly of the United Nations on February 13, 1946, exempts all United Nations officials from paying any taxes on their salaries, thus: "Section 18. Officials of the United Nations shall: "a) . . . "b) be exempt from taxation on the salaries and emoluments paid to them by the United Nations; "c) . . ." However, the Secretary of Justice in DOJ Opinion No. 86, S. of 1980 (June 3, 1980), opines that: ". . . the Convention on the Privileges and Immunities of the United Nations accord certain privileges and immunities only to: (1) representatives (which include, among others, advisers and technical experts) of members of the principal and subsidiary organs of the United Nations; (2) officials of the United Nations, and (3) experts performing missions for the United Nations ." (italics supplied) While it is true that SEARCA has been given the privileges and immunities of the United Nations following the provision of Section 2, Article XIV of the Enabling Instrument of SEAMEO SEARCA, the aforestated DOJ Opinion, however, has clarified that only representatives, officials and experts performing missions for UN are the one's afforded with such privileges. Hence, it can be said that no more than the officials of SEARCA are the one's exempt from taxation on their salaries and emoluments. Accordingly, only the Director, the 2 Deputy Directors, the 4 Managers and the 9 Unit Heads, if ever they can be treated as advisers and technical experts performing missions for SEARCA, are considered exempt from the payment of income tax on their salaries and emoluments received as such. It shall be understood therefore, that SEARCA's employees or support staffs who are citizens or residents of the Philippines are subject to income tax and are required to declare such income earned from SEARCA in the income tax returns which they are required to file pursuant to Section 51 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 will be ascertained that the facts are different, then this ruling shall be considered null and void. CcADHI Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal and Inspection Group