Manabat San Agustin & Co.

September 19, 2008 BIR RULING [DA-(C-076) 244-08] 25 (C); R.A. 8756; RR 2-98; DA-174-07, DA-179-07 Manabat San Agustin & Co. 22/F, Philamlife Tower, 8767 Paseo de Roxas Makati City 1226, Metro Manila Attention: Atty. Ronald L. Carreon Principal, Tax & Corporate Service Gentlemen : This refers to your letter dated June 17, 2008 requesting for confirmation that any alien or Filipino employee of Macquarie Offshore Services Pty Ltd. Philippine Branch occupying managerial and technical positions are entitled to the 15% preferential income tax rate on gross income consistent with Section 25 (C) of the Tax Code of 1997. It is represented that Macquarie Offshore Services Pty Ltd. Philippine Branch (Macquarie ROHQ) is registered with the Securities and Exchange Commission (SEC) as a Regional Operating Headquarters (ROHQ) with Certificate of Registration No. FS200805155. Macquarie is a branch of Macquarie Offshore Services Pte. Ltd., registered in Australia, and in turn a wholly-owned subsidiary of the Macquarie Group Limited. Macquarie ROHQ does not offer qualifying services to entities other than its affiliates, branches or subsidiaries, as declared in its registration with the SEC nor shall it directly and indirectly solicit or market goods and services whether on behalf of their mother company, branches, affiliates, subsidiaries or any other company. For purposes of its operations in the Philippines, Macquarie ROHQ has the following managerial and technical positions open to both alien and Filipino nationals: A. Managerial Positions 1. Associate Director Responsible for the definition and development of services available to various Macquarie affiliates; ADSTCI Develops, recommends and executes internal control, quality control and other policies of the company; Performs over-all oversight, provides direction and manages department/s in the organization; Makes major decision, including the hiring and firing of employees; Facilitates personnel movement, succession planning and career development processes, including recruitment, development and retention of highly qualified personnel; Coordinates with business partners on risk identification, audit programs and resolution of exception items; Ensures continuous improvement in work processes by assessing quality of group's and individual's work; Ensures resolution of both internal and external customer requests, queries and complaints, in order to provide a high level of customer satisfaction, necessary to support the achievement of defined group and company goals. 2. Operations manager Responsible for overall operational environment and teams such as security administration, system operations and monitoring; Leads and guides operational team leaders to ensure a standard strategy for current and future operational facilities is established; Reports status of the operations facility to other Macquarie managers, globally; Responsible for promoting the facility within Macquarie and increasing the footprint of the operation to cover new business areas and applications; Budgets for and tracks costs associated with running the operations group. 3. Testing manager Responsible for the entire testing facility including all test teams; CcEHaI Leads and guides testing team leaders to ensure a standard strategy for current and future testing facilities; Reports status of the testing facility to other senior managers in Macquarie, globally; Responsible for promoting the facility within Macquarie and increasing the footprint of testing to cover new business areas and applications; Budgets for and tracks cost associated with running the testing facility. 4. Development manager Responsible for all software and application development performed at Macquarie; Leads and guides software development team leaders to ensure a common strategy is adopted and executed for the Centre; Reports status of development initiatives to other senior managers within Macquarie, globally; Budgets for and tracks costs associated with running the testing facility. 5. Financial administrator Responsible for the financial well-being of the company in Manila; Ensuring that local regulatory changes are noted and acted upon in the best interest of the company to ensure continued compliance; Maintaining and managing monetary flow in and out of any associated bank accounts; Determine and ensure internal approvals are met and within agreed limits for internal transaction processing; Reporting to internal management on the financial status of the company accounts on a regular basis. 6. HR administrator Responsible to the leaders of Macquarie for reviewing and approving HR matters of policy, objectives, strategies, plans and programs affecting the various aspects of Company operations; cDTHIE The job involves management responsibility and overall administration of all HR systems, which include managing succession planning and development, talent identification, selection and retention, organization development, performance management, employee relations, and compensation and benefits programs; Assisting with and coordinating the entire hiring process from job description definition to the inception of new staff; Maintain working relationships with local hiring agencies and associated advertising bodies relating to the hiring of staff; Maintaining a detailed understanding of local hiring regulations and to take action on any changes affecting employment regulations within the Macquarie. 7. Recruitment administrator Responsible to the leaders of Macquarie for managing the recruitment process of new employees; Works to determine appropriate hiring strategies as well as observing and enforcing Macquarie's hiring policies; Central point of liaison between Macquarie and external recruitment agencies and consultants, including initiating and implementing standard terms and conditions; Creates and runs graduate hiring programs with local universities, employing appropriate numbers of new staff and planning training; Initial point of contact for all employment candidates for initial screening and interviewing; Responsible for booking interviews and associated testing times for all candidates. B. Technical Positions 1. Testing team leader Overall responsibility for more than one test teams; Assessing and planning overall staffing levels, seeking approval for the hiring of new staff where required; CSHEca Planning for training of staff and maintaining an appropriate training program; Assessment of testing teams' quality levels, planning and executing improvement programs where required; Ongoing assessment of staff performance. 2. Senior test analyst Responsible for leading the testing of one or more major components or upgrades to a component; Assisting test analysts to plan work; Quality assurance surrounding the production and execution of test scripts; ensuring test scripts are produced and executed according to set time-lines; Recommending and implementing new scripting methodologies, creating automated test scripts/programs where possible to reduce manual effort; Coaching and training of new staff and assisting with ongoing assessment of performance. 3. Test analyst Responsible for testing all aspects of a given Macquarie application to ensure application upgrades and patches are compatible and continue operation in the production environment; Planning, creating, maintaining and executing test cases against software applications and upgrades destined for the Macquarie businesses; Development of automated test scripts; Executing component testing, system testing, integration testing, regression testing performance testing, end-to-end testing and user acceptance testing in accordance with agreed test cases and test plans; Defect Tracking recording and follow-up to resolution; Assisting in standardization of testing processes and methodologies including making suggestions on improvements to test practices and efforts. IAcTaC 4. Monitoring team leader Responsible for leading a group of monitoring analysts either relating to one product set or one shift; Determines appropriate staffing requirements based on team load and client expectations; Acts as a central point of contact for serious incidents and manages the communication chain under such conditions; Determines possible monitoring enhancements and implements where appropriate. 5. Monitoring analyst Responsible for the continuous monitoring of software applications used within the Macquarie organization; Ensure applications are working seamlessly; Log and escalate issues that are detected to support teams; Monitor systems and log requests, issues and incidents arising from day-to-day operations; Determine failure trends and the root-cause; Track system performance and capacity trends; Prepare regular operational reports and do in-depth service analysis/follow-up. 6. Senior analyst programmer Responsible for gathering end-user requests for development work and sharing workload amongst programming team resources; Senior development/coding capability in multiple languages and acts as a go-to person for the junior analysts when they cannot resolve issues; Evaluates more complex requests and application upgrades that may involve the co-ordination of several analyst programmers. 7. Analyst programmer Responsible for evaluating requests for new or modified applications to determine their feasibility, interpret specifications, develop coding, analyze production problems and debug; cADTSH Work with business analysts in other countries to determine most appropriate development modules to provide a solution. 8. Security administration team leader Responsible for leading a group of security administrators or one shift of staff; Determines appropriate staffing requirements based on team load and client expectations; Assesses peak-hour requirements and burst requirements due to on-/off-lining of certain countries and regions; Acts as a central point of contact for serious incidents and manages the communication chain under such conditions; Determines possible monitoring enhancements and implements where appropriate. 9. Security administration analyst Responsible for technology security administration for access to global IT systems and applications; Taking action on requests from ITG and the business units for network and systems access; Administering these requests through the central security administration tool, Control SA, as well as native tools where applicable; Ensuring adherence to the 'User Access Management' Policy; Carrying out reporting on non-compliance to the Policy; Administer processes around implementation of generic accounts; Ensuring adherence to the 'Chinese Walls' Policy; Reporting for System Access Reviews as per documented policy; Advising and educating the business users on security standards and policies; Reviewing and striving for improvement of the Security Administration processes; CDcaSA Identifying and managing Security exposures in the business and ensuring either compliance or dispensation; Participating in ongoing security reviews and audits and taking action on associated items. 10. System operations team leader Responsible for one group or shift of the systems operation team; Determines workload and plans for appropriate staffing levels; Provides reporting of the overall status of the systems operation group; Works with requesters of service to determine task requirements and feedback/report requirements and translates the task into operational actions for the team; Determines and sets team schedule; Ensures quality assurance of all system operations tasks. 11. System operations analyst Responsible for the continued operation of background tasks and processes required to support Macquarie businesses; Runs overnight and end-of-day batch processes and reports according to team schedule; Monitor tape backups and take action on failures where they are noticed; Provide reporting and feedback on tape backup process and associated failing action taken on a daily basis; Manage capacity and determine when and where tapes are to be replaced. Report to central Storage Team when capacity is reached. acTDCI 12. Process automation team leader Responsible for the group of process automation analysts; Evangelizes process automation for all current manual processes that exist, and seeks to promote improvement of existing automated processes that the team owns; Owns and manages current operational toolset including monitoring tools and process flow/automation tools; 13. Process automation analyst Responsible for developing and improving processes relating to daily operational work; Seek to automate as many operational processes as possible in order to minimize user intervention and drive up quality and speed of delivery; Develop testing automation tools in accordance with Testing Team requirements; Determines end-user process automation requirements and develops code to service the request 14. Infrastructure support team leader Responsible for leading and coordinating one group or shift of infrastructure support engineers; Determines appropriate staffing requirements based on team load and client expectations; Assesses peak-hour requirements and burst requirements due to on-/off-lining of certain countries and regions; Acts as a central point of contact for serious incidents and manages the communication chain under such conditions; Determines appropriate tools that may be need to aid support of the remote environments. 15. Infrastructure support engineer Responsible for the support and maintenance of Infrastructure components within the global organization such as networks, fileservers, operating systems, etc.; Providing platform systems management; aSDHCT Second-line resolution and/or escalation of production issues; Ongoing upgrade and maintenance of associated platform hardware; Maintaining relationships with the ISD Account Team and business users; Determination of failure trends and root-cause; Preparation of operational reports relating to the platforms. 16. Network support specialist Responsible for 3rd line support and management of the network environment within Macquarie; Acts as a point of escalation for technical issues that cannot be solved by the Helpdesk or Infrastructure support teams; System builds and platform development; Offers consultancy and hands-on support for the planning and implementation of new solutions anywhere in the world; Provides remote assistance to infrastructure and application support teams based in other countries within Macquarie. 17. UNIX support specialist Responsible for 3rd line support and management of the UNIX and Linux based environments within Macquarie; Acts as a point of escalation for technical issues that cannot be solved by the Helpdesk or Infrastructure support teams; System builds and platform development; Offers consultancy and hands-on support for the planning and implementation of new solutions anywhere in the world; Provides remote assistance to infrastructure and application support teams based in other countries within Macquarie. aIETCA 18. Database administrator Responsible for 3rd line support and management of the various database environments within Macquarie; Acts as a point of escalation for technical issues that cannot be solved by the Helpdesk or Infrastructure support teams; System builds and platform development; Offers consultancy and hands-on support for the planning and implementation of new solutions anywhere in the world; Provides remote assistance to infrastructure and application support teams based in other countries within Macquarie. 19. Windows support specialist Responsible for 3rd line support and management of the Windows-based infrastructure within Macquarie; Acts as a point of escalation for technical issues that cannot be solved by the Helpdesk or Infrastructure support teams; System builds and platform development; Offers consultancy and hands-on support for the planning and implementation of new solutions anywhere in the world; Provides remote assistance to infrastructure teams based in other countries within Macquarie. 20. Helpdesk team leader Responsible for one group or one shift of the Helpdesk; Acts as a first escalation point for Helpdesk support analysts where the issue may be more technical; Is responsible for highlighting training needs for individuals within the Helpdesk. TcIHDa 21. Helpdesk support analyst Responsible for providing first-line telephone support to the global Macquarie user community; Logging of trouble-tickets for continued problem resolution and tracking; Maintaining one-to-one contact with users throughout the lifecycle of a problem; Providing initial diagnostics of a technical fault and suggested first-time-fix; Escalating urgent or critical issues to pre-determined escalation points within the Macquarie IT management chain. In reply thereto, please be informed that Section 25 (C) of the NIRC, reads as follows: "(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 area 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, . . ." In relation therewith, Article 61 of R.A. No. 8756 provides: "Art. 61. Withholding Tax of 15% on Compensation Income. Aliens 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, remuneration and emoluments to a tax equal to fifteen percent (15%) of such gross income. The same tax treatment is applicable to Filipinos employed and occupying the same positions as those aliens employed by multinational companies: Provided, That said Filipinos shall have the option to be taxed at either 15% of gross income or at the regular rate tax on their taxable income in accordance with the National Internal Revenue Code." Corollarily, Section 2.57.1 (D) of Revenue Regulation No. 2-98, as amended by Revenue Regulation No. 6-2001 and as further amended by Revenue Regulation No. 12-2001 and Section 10 of the Rules and Regulations Implementing Article 61 of R.A. No. 8756 provide that aliens 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, 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 rate tax 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. TEIHDa It appears that in the course of its operation as a regional headquarters of Macquarie Offshore Services Pte. Ltd., Australia, Macquarie-ROHQ also employs Filipino personnel occupying managerial and technical positions. Since the positions of the 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) 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. AaSIET Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service