Baniqued & Baniqued

July 27, 2009 BIR RULING [DA-(C-150) 411-09] R.A. 8756; RR 6-2001; 25 (C); DA-061-2004; DA-594-2004; DA-179-2007; DA-444-2007; DA-250-2008; DA-(C-076)244-2008; DA-(C-095)293-2008 Baniqued & Baniqued 8/F Jollibee Centre, San Miguel Avenue Pasig City Attention: Attys. Terence Conrad H. Bello and Cheryll Ann R. Trinidad Gentlemen : This refers to your letter dated April 22, 2009 requesting on behalf of your client, Coca-Cola Far East Ltd. ("CCFEL"), for confirmation of your opinion that pursuant to Article 61 of Republic Act No. 8756 ("R.A. 8756") and Revenue Regulations No. ("Rev. Regs.") 6-2001, Filipino employees to be employed by CCFEL to occupy managerial and technical positions are entitled to avail of either the 15% final withholding tax on gross income or the regular tax rate on their taxable income in accordance with the National Internal Revenue Code of 1997 ("1997 NIRC"). Background CCFEL is a multinational company organized and existing under the laws of Hong Kong and is licensed to do business in the Philippines through a regional operating headquarters ("ROHQ") and duly registered as such with the Securities and Exchange Commission ("SEC") under SEC Registration No. BSFM-250 dated July 24, 2000. Under its license, CCFEL may engage in the following functions: general administration and planning; business planning and coordination; sourcing/procurement of raw materials and components; corporate finance advisory services; marketing control and sales promotion; training and personnel management; logistics services; research and development services, and product development; technical support and maintenance; data processing and communication; and business development. The 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. aDECHI In this regard, you now request for confirmation of your opinion that the following employees are considered managerial and technical employees entitled to exercise the option to be taxed at 15% of gross income or at the regular tax rate under the 1997 NIRC: 1. Global Solutions Services (GSS) Global Solutions Services Center of Excellence (COE) Director 2. Global Production Support Manager 3. Global Shared Services Manager Pacific IT 4. Project Management and Governance Manager 5. IT Infrastructure Services Manager 6. Finance Services Manager Systems Management Center (SMC) 7. Global SMC Manila Manager 8. Duty Manager Financial Shared Services Center (FSC) 9. General Manager 10. Accounting and Treasury Manager 11. Accounts Payable Manager 12. Planning Shared Services Manager 13. Financial Services and Compliance Manager Because the tasks and responsibilities pertaining to the above positions involve the exercise of discretion, judgment, initiative and technical proficiency, it is your position that the said positions to be occupied by Filipino employees of CCFEL are managerial and technical in nature, regardless of whether there is an alien occupying the position similar to that of the Filipino employee. In reply, please be informed that the preferential tax treatment currently enjoyed by qualified ROHQ employees is provided under Article 61 of R.A. 8756, to wit: "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 per centum (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 tax rate on their taxable income in accordance with the National Internal Revenue Code, as amended by Republic Act No. 8424." Section 10 of the Rules and Regulations Implementing ("IRR") Article 61 of R.A. 8756 further provides, to wit: "Sec. 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 gross 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% of 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. 8424." (Emphasis supplied) Rev. Regs. 6-01 and 12-2001 amending Rev. Regs. 2-98, adopted the provisions of the IRR of R.A. 8756, as follows: "A final withholding tax of 15% shall be withheld by the withholding agent from the gross income received by every alien individual occupying managerial and technical positions in 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, except income which is subject to the fringe benefits tax, from such regional or area headquarters and regional operating headquarters. The same tax treatment is applicable to Filipinos employed and occupying the same positions as those 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 if the employer (Regional Operating Headquarters/Regional or Area Headquarters) is governed by Book III of E.O. 226 as amended by R.A. 8756. In case the Filipino opted to be taxed at the regular tax rate under Section 24 of the Tax Code of 1997, the provisions of Section 2.79 (A) to (D) of Revenue Regulations No. 2-98 shall apply." (Emphasis supplied) Applying the foregoing law and regulations, it is clear that regardless of whether or not there is an alien executive occupying the same position, the 15% preferential tax rate also applies to Filipinos employed by ROHQs. In BIR Ruling No. 047-01 dated September 28, 2001, it was ruled that Filipino employees employed by ROHQs of multinational companies are entitled to the 15% preferential tax on income regardless of whether concurrently an alien holds a position similar to that of the Filipino employee, to wit: "Section 10 of the Rules and Regulations Implementing Article 61 of R.A. 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, compensations, remuneration, and emoluments to a final tax equal to fifteen per centum (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 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 pursuant to Article 61 of Executive Order No. 226, as amended by Section 5 of R.A. 8756. Such being the case, Filipino employees of the proposed RHQ occupying managerial and technical positions equivalent to alien executives will be subject either to the preferential tax of 15% or to the regular tax rate based on their taxable income in accordance with the tax table under Section 24 (A)(1)(c) of the Tax Code of 1997, regardless of whether there is an alien executive occupying the same position. This is a deviation from BIR Ruling No. 147-98 dated October 16, 1998 to the effect that the preferential tax treatment shall apply in cases where concurrently an alien holds a position similar to that of the Filipino employee." ACcEHI Furthermore, in BIR Ruling No. DA-118-03 dated April 14, 2003, the following positions were held to be managerial or technical: (a) Controller of the Shared Service Center responsible for processing financial transactions pertaining to payroll accounts payable, fixed assets, cost accounting, accounts receivable and cost accounting of the Cypress plants in Minnesota, Texas and San Jose, USA and responsible for the overall administration of the ROHQ office in Makati; (b) Finance Manager responsible for consolidating the financial statements of the affiliates in Asia Pacific and Europe; (c) Payroll Manager responsible for the payroll of the Cypress plants in Minnesota, Texas and San Jose; (d) Accounts Payable Manager responsible for processing the accounts payable of the Cypress plants in Minnesota, Texas and San Jose; (e) Credit & Collection Manager responsible for credit evaluation and collection of Asia Pacific accounts; and (f) IT Manager responsible for web development of the Cypress sites. Likewise, in BIR Ruling DA-301-08 dated May 19, 2008, Branders.Com (ROHQ), Inc., an established ROHQ of Branders.Com, Inc., requested for confirmation of its opinion that the following positions require technical proficiency and initiative: a.) Direct Finance and Financial Planning and Analysis Manager oversees, directs and manages the areas of Accounts Receivable, Accounts Payable and Financial Planning Sections; b.) Marketing Manager responsible for managing the entire Marketing Department and initiating strategic marketing projects; c.) Director of Office Processing mainly responsible in the overall productivity, efficiency, accuracy, motivation and management of the Order Management, Closers, Graphic Arts, Sample Desk and Customer Resolution Departments; d.) Software Engineer responsible for managing the Software Solution for continued infusion of new technologies to improve cost effectiveness and for the development of strategies to maintain Market Position and support Business Growth. The BIR confirmed that the positions of the ROHQ personnel enumerated above required technical proficiency and initiative from the individuals occupying such positions and therefore such employees shall be subject to the preferential tax rate of 15% of gross income or, at their option, to the regular tax rate based on their taxable income, regardless of whether there is an alien occupying such technical or managerial position. aDSAEI Since the positions to be occupied by Filipino employees of CCFEL are similar to, if not the same as, the positions described in the above-cited rulings, the said positions are considered managerial and technical employees, hence, entitled to elect either the 15% final withholding tax on gross income or the regular tax rate under the 1997 NIRC. Accordingly, this Office confirms your opinion that the afore-mentioned positions to be occupied by Filipino employees of CCFEL are managerial and technical in nature, regardless of whether there is an alien occupying the position similar to that of the Filipino employee and thereby entitled to elect either the 15% final withholding tax on gross income or the regular tax rate under the 1997 NIRC, as amended. 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, and/or any of the requirements imposed in this letter is not complied with, 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