American International Underwriters Corporation

September 14, 2007 BIR RULING [DA-486-07] DA-061-2004 Sec. 25 (C), NIRC; Section 2.57.1 (D), RR 2-98 American International Underwriters Corporation Regional Deployment Center Manila Attention: Maria Bernardita B. Ignacio Assistant Vice-President, Finance and Accounting Gentlemen : This refers to your letter dated July 5, 2007 requesting for a ruling on whether the positions held by certain Filipino personnel of the company qualify as managerial and/or technical positions and are therefore entitled to the 15% preferential tax rate under Section 25 (C) of the Tax Code of 1997 and Section 61 of R.A. No. 8756. It is represented that your company, American International Underwriters Corporation, (AIUC) is registered with the Philippine Securities and Exchange Commission under SEC Registration No. 152, dated September 13, 1977 as a regional headquarters of AIU Corp. in New York; and that AIUC provides information technology (IT) development and production support to AIG non-life companies to countries in the South East Asia region. It is further represented that AIUC is currently applying a preferential 15% withholding tax rate from the gross income of some of its employees, particularly those occupying managerial positions. As it is a technology center, AIUC employs a number of people in the IT field which perform the following functions: EScIAa 1. Systems Analyst primarily responsible for evaluating user requests for new or re-engineered applications to determine their feasibility, time they will require, and their compatibility with current systems and architecture standards. They recommend solutions, develop and build applications. 2. Analyst Programmer primarily responsible for evaluating user requests for new or modified applications to determine their feasibility, interpret specifications, develop coding, analyze production problems and debug. 3. Senior Analyst primary responsibility is to act as an internal technology consultant on systems design to all AIG segments, subsidiaries and affiliate companies in the area of advanced technologies or those considered complex and their successful implementation requires an understanding of many interrelated disciplines and concepts. Consult with Business executives a subject matter expert, understanding company operations requirements and maintaining a broad view of how the latest technological innovations can be put into practice for the company. 4. Business Systems Analyst primary responsibility must be to analyze business requirements and recommend systems solutions to management. 5. Database Administrator primary responsibility must be to design and develop database solutions in a client/server environment. Applies a broad knowledge of database technology to provide consultation to the applications staff to help identify and analyze complex business requirements. 6. Network Engineer primary responsibility must be to provide in-depth technical design expertise to integrate client server applications into local and wide area networks. 7. Technical Architect primary responsibility will be to serve as an internal architectural technology consultant and to work with technology vendors on developing and positioning development tools and techniques for adoption in the AIG design and development lifecycle. This position is a high level, individual contributor generalist in one or more advanced architecture technologies. CSHDTE 8. Senior Resource Analyst Primary responsibility must be to manage staff in the analysis, design, and implementation of resource control and software distribution systems. Coordinate the work of various disparate technical teams (such as developers) to ensure product and process standardization, and distribute product to the appropriate business client(s). In reply thereto, please be informed that Section 25 (C) of the Tax Code of 1997, as amended by RA 9337, reads: "(C) Alien individual Employed by Regional or Area Headquarters and Regional Operating Headquarters of Multinational Companies. There shall be levied, collected and paid for each taxable year upon the gross income received by every alien individual employed by 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, from such regional or are headquarters and regional operating headquarters, a tax equal to fifteen percent (15%) of such gross income: Provided, however, That the same tax treatment shall apply to Filipinos employed and occupying the same position as those of aliens employed by these multinational companies, . . ." Corollarily, Section 2.57.1 (D) of Revenue Regulations No. 2-98, as amended by Revenue Regulations No. 6-2001, and as further amended by Revenue Regulations No. 12-2001 and Section 10 of the Rules and Regulations Implementing Article 61 of R.A. No. 8756 provide that 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, compensation, remuneration and emoluments to a final tax equal to fifteen percent (15%) of such gross income and that the same tax treatment is applicable to Filipinos employed and occupying the same positions as those aliens, regardless of whether or not there is an alien executive occupying the same position. However, qualified Filipino employees 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. In case of the latter, the withholding tax rates under Sections 2.78 and 2.79 of Revenue Regulations No. 2-98 shall apply. It appears that in the course of its operations as a regional headquarters of AIU Corp. New York, AIUC also employs Filipino personnel occupying managerial and technical positions. As the positions of personnel enumerated above clearly require technical proficiency and initiative from the individuals occupying such position, this Office holds that such employees shall be subject to either the preferential tax rate of 15% or to the regular tax rate based on their taxable income, regardless of whether there is an alien similarly occupying such technical or managerial positions. (BIR Ruling No. 118-2003, dated April 14, 2003) TcCEDS 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, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service