Concepcion S. Pias, CPA

December 4, 2008 BIR RULING [DA-(C-162) 497-08] 25 (c); DA-254-07 Concepcion S. Pias, CPA #5 Buensuceso Homes II Merville, Paraaque City Madam : This refers to your letter dated October 22, 2008 requesting in behalf of your client, the representative office of Read Co. Ltd. in the Philippines, for a ruling that it is in effect an area or regional headquarters in the Philippines of a multinational corporation and as such, its expatriate resident manager may be taxed only at the rate of 15% on his gross compensation income pursuant to Section 25 (c) of the Tax Code of 1997. Documents submitted disclosed that Read Co. Ltd. is a company organized under the laws of Japan with principal office located at Towa Shinyokihama Building, 5/F 2-18-13 Shinyokohama, Kohoku-ku, Yokohama-shi, Kanagawa-ken, Japan and subsidiaries in Hongkong and Thailand; that your client was granted License No. A199916259 dated October 20, 1991 by the Securities and Exchange Commission to establish a representative office in the Philippines to undertake activities such as but not limited to information, dissemination, promotion of parent company's products and quality control thereof; that it does not derive any income in the Philippines; and that it has inwardly remitted US$31,000 upon its establishment. In reply thereto, please be informed that Section 25 (C) of the Tax Code of 1997, provides: AaDSEC "Section 25. Tax on Non-Resident Alien Individual. xxx xxx xxx (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 or regional operating headquarters, a tax equal to 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. " (Emphasis ours) Corollary thereto, Section 25 (C) of the 1997 Tax Code also states that the same tax treatment shall apply to Filipinos employed and occupying the same position as those of aliens employed by an ROHQ. The rationale for the same treatment is to equalize the enjoyment of the preferential tax rate accorded to an alien with a Filipino who is occupying a similar position in an ROHQ. In this regard, Article 61, of Executive Order No. 226 (Omnibus Investment Code of 1987), as amended by R.A. No. 8756 clarifies the tax treatment of the income of Filipinos employed by an ROHQ and occupying the same positions as aliens, to wit: "Article 61. Withholding Tax of 15% on Compensation Income. Aliens employed by the regional or area headquarters or regional operating headquarters 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 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." TDCAHE In relation thereto, Section 10 of the Rules and Regulations Implementing Article 61 of R.A. No. 8756 provides: "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." Based on the above quoted provisions, its expatriate resident manager shall be subject to a final withholding tax equal to 15% of his gross compensation income. 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 are not complied with, then this ruling shall be considered null and void. HEAcDC Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service