BIR Ruling [DA-555-98]

December 4, 1998 BIR RULING [DA-555-98] Laya Mananghaya & Co. Certified Public Accountants & Management Consultants 22/F Antel 1000 Corporate Centre 139 Valero Street, Salcedo Village Makati City Metro Manila Attention: Attys . Mariano C . Ereso and Ronald L . Carreon Gentlemen : This refers to your letter dated September 2, 1998 requesting on behalf of your client, the regional headquarters of Caltex (Asia) Ltd., for a clarificatory ruling on the application of the proviso of Section 25(C) of the Tax Code of 1997 that " Provided, however, That the same tax treatment shall apply to Filipinos employed and occupying the same [managerial or technical] position as those of aliens employed by these multinational companies. For purposes of this Chapter, the term 'multinational company' means a foreign firm or entity engaged in international trade with affiliates or subsidiaries or branch offices in the Asia-Pacific Region and other foreign markets." LLjur It is represented that the regional operating headquarters (ROH) of Caltex (Asia) Ltd. (CalAsia ROH for brevity) is a company organized and existing under the laws of Delaware, U.S.A., and engaged in the petroleum business and other related business; that the reason for the establishment of the CalAsia regional operating headquarters in the Philippines was that it has other affiliates, subsidiaries and branch offices in the Asia Pacific region; that the Chief Financial Officer (CFO) who is an expatriate, will head CalAsia ROH; that under the CFO are several positions whose occupants are directly answerable to him and whose positions are co-equal in nature; that these positions are the LHS Coordinator, Revenue Coordinator Reporting Coordinator, Cost Coordinator, Disbursement Coordinator, SSC Coordinator, and the Human Relations Coordinator; that none of the foregoing are under the supervision of any other lateral coordinator of equal rank; that all these positions are open for expatriate hiring but presently expatriates are hired only for the positions of LHS and Cost Coordinator; that all other coordinator positions are occupied by Philippine nationals; that below is a diagram of the positions within the ROH and the SEC papers of CalAsia, viz: that it is your opinion that all Filipino citizens who occupy the coordinator positions or ranks can avail of the 15% tax on gross income under Section 25 (C) of the Tax Code of 1997. Hence, this request. In reply, please be informed that pursuant to above-cited proviso of Sec. 25(C) of the Tax Code of 1997, i.e., " Provided, however, That the same tax treatment shall apply to Filipinos employed and occupying the same [ managerial or technical ] position as those of aliens employed by these multinational companies. For purposes of this Chapter, the term 'multinational company' means a foreign firm or entity engaged in international trade with affiliates or subsidiaries or branch offices in the Asia-Pacific Region and other foreign markets." Filipinos employed and are occupying managerial or technical positions as those of aliens employed by the regional or area headquarters (R/AH) or regional operating headquarters (ROH) of multinational companies are subject to a preferential tax rate of 15% on their gross compensation income. Clearly, the rationale for this proviso is to equalize the enjoyment of the preferential tax rate accorded to an alien manager of an R/AH or ROH with a Filipino who is occupying a similar position in the same R/AH or ROH. However, the preferential tax treatment shall apply only in cases where concurrently an alien holds a position similar to that of the Filipino employee. The objective of the law, i.e., to equalize the tax treatment of an alien and a Filipino is no longer applicable in a situation where there is no alien employed. Furthermore, this preferential tax treatment shall not apply where the counterpart expatriate is recalled to the head office or reassigned elsewhere, whether temporarily or otherwise, and only Filipinos are the ones so employed by a R/AH or ROH for the time being. The same answer obtains where the post vacated by the expatriate is subsequently assumed by a Filipino to replace the expatriate and as a result of which all top management posts are now being occupied by Filipinos. Therefore, this Office hereby holds that in all instances where there is no expatriate present and working in the establishment, there being no disparity to speak of with respect to the tax rate imposed on the income earned by the Filipinos, said Filipino managers employed by regional or area headquarters and regional operating headquarters of multinational companies shall be liable to the normal income tax rates imposed under Sec. 24 (A)(1)(c) of the Tax Code of 1997. [BIR Ruling No. 147-98 dated October 16, 1998] This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it shall be disclosed that the facts are different, then this ruling shall be considered null and void. Very truly yours, (SGD.) SIXTO S. ESQUIVIAS IV Deputy Commissioner (Legal & Enforcement Group)