BIR Ruling [DA-520-05]

December 23, 2005 BIR RULING [DA-520-05] 25 (C); DA-118-03 SGV & Co . 6750 Ayala Avenue 1226 Makati City Attention: Atty. Emmanuel C. Alcantara Co-Head, Tax Services Gentlemen : This refers to your letter dated September 12, 2005 requesting on behalf of your client, Johnson & Johnson International (Singapore) PTE. LTD Regional Operating Headquarters (JJIS-ROHQ), a regional operating headquarters duly registered with Securities and Exchange Commission (SEC), confirmation that JJIS-ROHQ's alien and Filipino employees who will occupy managerial and technical positions are qualified for the 15% preferential tax rate on their gross income and JJIS-ROHQ Filipino employees have the option to be taxed at either fifteen percent (15%) of their gross income or the regular tax rate based on their taxable income, regardless of whether there is an alien similarly occupying such technical or managerial positions. It is represented that Johnson & Johnson International (Singapore) Pte. Ltd. (JJIS) is a multinational company organized and existing under the laws of Singapore with a ROHQ in the Philippines registered with the SEC under SEC Registration No. FS200511014 dated June 27, 2005; that the license issued to JJIS-ROHQ provides that it may engage in general administration and planning, business planning and coordination, corporate finance advisory services, training and personnel management, research and development services, product development, technical support and maintenance, data processing and communication, and business development; that consequently, JJIS-ROHQ was established in the Philippines to render any or all of the above services to its affiliates, branches and subsidiaries in the Philippines, in the Asia Pacific Region and other foreign markets; that to carry out these operations, JJIS-ROHQ employed individual personnel to occupy managerial and/or technical positions, viz: Division Position Asia Pacific Supply Chain Director for Special Projects; Regional Supply Chain Manager Legal & External Affairs Legal & External Affairs Director Finance Finance Director; Sr. Finance accounting Manager; Sr. Financial Accounting Manager; Sr. Cost & Inventory Manager; Sr. Funds and Credit Manager; Consolidation and Business Planning Manager; Credit Manager; Associate Finance Manager for Financial Accounting; Associate Finance Manager for Cost & Inventory Management; Associate Funds Manager Non-Stock Non-stock Purchasing Manager; Associate Non- Stock Purchasing Manager Human Resources HR Director - Philippines & ASEAN; Sr. HR Manager - Training, OD and Recruitment; Sr. HR Manager - Compensation & Benefits; HR Manager - Training; HR Manager - Job & Work Design/Employee Communications; Associate HR Manager - Benefits Planning & Design / Admin Services; Associate HR Manager - Recruitment; Regional HR Director Operations Operations Director - Phils. & Indonesia; Operations Manager - Indonesia; Senior Safety & Security, CIP, NPD and Projects Manager; Sr. Demand Manager; Sr. Logistics Manager; Sr. Supply Manager; CIP and NPD Manager; Supply Manager; Associate Deployment Manager; Associate Logistics Manager; Associate Supply Manager; Contract Mfg. Associate Manager Process Excellence Business Processes Director; Process Excellence Manager Quality Assurance Quality and Technical Assurance Director; Principal Packaging Engineer; Principal Quality Engineer; Staff Quality Engineer Regional Consumer Science Consumer Science Director; Vice President R&D; Staff Scientist Regional R & D R&D Manager; and R&D Director Regional Franchise Operations Franchise Director; Franchise Operations Manager Regional Human Resource Program Office Director Regional IM IM Manager; SAP Validation/Regional Security Manager; Service Delivery Manager; Philippines Site Services Manager Regional MRD Market Research Director Regional Non-Stock Senior Non-stock Purchasing Manager Regional Process Excellence Director, Process Excellence Regional Purchasing Regional Purchasing Manager Regional QT&A Q&TA Director; QTA Franchise Director; Regional Q&TA Director Regional Safety Director, Safety & IH; Ergonomics Manager / Health Services Resources Manager / Industrial Hygiene Manager (3 separate positions) In reply thereto, please be informed that Section 2.57.1(D) of Revenue Regulations No. 02-98, as amended, now reads: "(D) Income Derived by Alien Individual 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 of aliens employed by 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. In case of the latter, the withholding rates under Sections 2.78 and 2.79 of Revenue Regulations No. 2-98 shall apply. DHIcET xxx xxx xxx" Corollarily, Section 10 of the Rules and Regulations Implementing Article 61 of R.A. No. 8756 provides 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, remunerations and emoluments to a final tax equal to fifteen percentum (15%) of such gross income and that 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 occupying the same positions. 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 pursuant to Article 61 of Executive Order No. 226, as amended by Section 5 of R.A. No. 8756. In view thereof, this Office holds that that JJIS-ROHQ's alien and Filipino employees who will occupy managerial and technical positions are qualified for the 15% preferential tax rate on their gross income. Moreover, JJIS-ROHQ Filipino employees have the option to be taxed at either fifteen percent (15%) of their gross income or 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. 118-03 dated April 14, 2003). 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 as null and void. Very truly yours, (SGD.) JOSE MARIO C. BUAG Commissioner of Internal Revenue