BIR Ruling [DA-474-04]

September 9, 2004 BIR RULING [DA-474-04] SGV & Co. 6760 Ayala Avenue Makati City Attention: Atty. R.C. Vinzon Partner, Tax Division Gentlemen : This refers to your letter dated July 20, 2004 requesting confirmation of your opinion that Filipinos employed by a multinational company's regional operating head quarters in the Philippines occupying the same position as aliens employed by such multinational company shall have the option to be taxed at the preferential tax rate of 15% even if he is not paid at least the equivalent of US$12,000 a year. It is represented that your client, Cypress Semiconductor Philippine Headquarters Ltd.-Regional Operating Headquarters (CSPHL-ROHQ) is an ROHQ of a multinational company; and that it employs Filipino executives who occupy managerial and technical positions. In reply thereto, please be informed that Sections 9 and 10 of Republic Act No. 8756, as amended, provide that "Section 9. Multiple Entry Visa . Upon submission of all necessary documents, the Bureau of Immigration shall issue the multiple entry special visa to foreign personnel of regional or area headquarters and regional operating headquarters of multinational companies, their respective spouses and unmarried children under twenty-one (21) years of age, if accompanying them or if following to join them after their admission into the Philippines as non-immigrant within seventy-two (72) hours upon submission of all required documents. This is without prejudice to the authority of the Department of Foreign Affairs to issue visas. "The foregoing documents shall include a duly authenticated certificate issued by a responsible officer of the applicant company stating to the effect that the person who seeks entry into the Philippines is an executive of the applicant company and will work exclusively for applicant's regional or area headquarters or regional operating headquarters which is duly licensed to operate in the Philippines, and that he will receive a salary and will be paid by the headquarters in the Philippines an amount equivalent to at least twelve thousand United States dollars ($12,000), or the equivalent in other foreign currencies per annum ." On the other hand, "Section 10. Withholding Tax of 15% on Compensation Income . Alien executives occupying managerial and technical positions employed by the regional or area headquarters and regional operating headquarters of multinational companies shall be subject for each taxable year upon their gross income received as salaries, wages, annuities, compensations, remunerations and emoluments to a final tax equal to fifteen per centum (15%) of such income. "The same tax treatment is applicable to Filipinos employed and occupying the same positions as those aliens employed by multinational companies, regardless of whether or not there is an alien executive occupying the same position. "Qualified Filipino employees shall have the option to be taxed at either 15% gross income or at the regular tax rate on their taxable income in accordance with the National Internal Revenue Code, as amended by R.A. No. 8424." It is clear from the afore-cited Sections of R.A. No. 8756 that foreign personnel employed as executive of the applicant company which is duly licensed to operate in the Philippines as regional or area headquarters or regional operating headquarters should receive a salary of at least $12,000 per annum or its equivalent in other foreign currencies. However, there is nothing therein that requires Filipino employee occupying the same position as that of an alien executive to receive an annual salary of at least $12,000 in order to avail of the privilege of the 15% preferential tax rate. It merely provides that said Filipino employee is given the option to be taxed at either 15% of gross income or at the regular tax rate prescribed in the Tax Code of 1997. SUCH BEING THE CASE, this Office holds that a Filipino employed by a multinational company's regional or area headquarters and regional operating headquarters in the Philippines occupying the same position as alien employed by such multinational company shall have the option to be taxed at the preferential tax rate of 15% even if he is not paid at least the equivalent of US$12,000 per annum . SHacCD 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