Manabat Delgado Amper & Co.

August 6, 2007 BIR RULING [DA-430-07] DA 607-04 Manabat Delgado Amper & Co . 3rd, 6th Floor, Salamin Building 197 Salcedo Street, Legaspi Village Makati City Attention: Ms. Michelle Cordero-Garcia Manager Human Resource Development and Ms. Maria Rebecca Chua Villamayor Gentlemen : This refers to your letter dated March 20, 2007 stating that your client, SGS Gulf Limited (SGS Gulf), is a corporation organized and existing under and by virtue of the laws of Switzerland with principal office at the 20/F Citibank Tower, 8741 Paseo de Roxas, Makati City; that SGS Gulf is duly registered with the Securities and Exchange Commission (SEC) as a regional operating headquarters (ROHQ) in the Philippines under Registration Certificate No. A200300049 dated July 4, 2003 pursuant to the Omnibus Investments Code of 1987, as amended by Republic Act No. 8756, and its implementing rules and regulations to engage in general administration and planning; business planning and coordination; sourcing/procurement of raw materials and components; corporate finance advisory services; marketing control and sales promotion; training and personnel management; logistic services; research and development services and product development; technical support and maintenance; data processing and communications; and business development; and that certain regular employees of SGS Gulf based on the nature of their work, are required to be physically present in a certain foreign country most of the time during any given taxable year to render the services. Based on the foregoing representations, you now request for ruling that the employees of SGS Gulf assigned outside the Philippines qualify as 'non-resident citizens', therefore, exempt from income taxes and consequently from withholding taxes in the Philippines for compensation on services rendered outside the Philippines. In reply thereto, please be informed that Section 22 (E) of the Tax Code of 1997, as implemented by Revenue Regulations No. 9-99, defines the term non-resident citizen as: (1) A citizen of the Philippines who establishes to the satisfaction of the Commissioner the fact of his physical presence abroad with a definite intention to reside therein; (2) A citizen of the Philippines who leaves the Philippines during the taxable year to reside abroad, either as an immigrant or for employment on a permanent basis; (3) A citizen of the Philippines who works and derives income from abroad and whose employment thereat requires him to be physically present abroad most of the time during the taxable year ; (emphasis supplied) THAECc xxx xxx xxx Corollarily, Section 23 (B), Ibid, provides "(B) A non-resident citizen is taxable only on income derived from sources within the Philippines; xxx xxx xxx A careful scrutiny of the above-mentioned Sections disclosed that the regular employees who are assigned abroad during the taxable year qualify as "non-resident citizens" and therefore exempt from income tax and consequently from withholding tax. This is so because a non-resident citizen is taxable only on income derived from sources within the Philippines. This is fortified in BIR Ruling No. DA554-99 dated September 27, 1999 , which was later reiterated in BIR Ruling No. DA607-04 dated November 26, 2004 , as follows: ". . . we accordingly confirm that pursuant to Section 23(B) in relation to Sections 22(E)(3) & (E)(4) and 42(A)(3) and 42(C)(3) of the Tax Code of 1997, Mr. Cabulgao was a non-resident citizen from January 1, 1998 to June 30, 1999, and therefore, he is not subject to income tax on his compensation income derived during his assignment as such Regional Audit Manager for Asia-Pacific Region in Bangkok, Thailand by Caltex Corporation for the said period January 1, 1998 to June 30, 1999, the date of his arrival in the Philippines. Consequently, no withholding tax should have been collected by CPI on the said compensation income during the period covering January 1, 1998 to June 30, 1999." IN VIEW OF THE FOREGOING, this Office hereby confirms your opinion that the employees SGS Gulf assigned abroad would qualify as non-resident citizens and therefore are exempt from income tax and consequently from withholding tax. 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