Thome Ship Management Pte., Ltd.

January 15, 2009 BIR RULING [DA-(ECB-001) 017-09] BIR Ruling No. DA-524-07 Thome Ship Management Pte., Ltd. 1751 Dian Street Palanan, Makati City Attention: Capt. Ivar Tomasli Managing Director-ROHQ Gentlemen : This refers to your letters dated March 17, 2008 and May 12, 2008 requesting for legal opinion on whether the following positions are considered Managerial and Technical for purposes of the 15% special tax rate under Section 25 (C) of the National Internal Revenue Code (NIRC) of 1997, as amended and as implemented by Section 2.57.1 (D) of Revenue Regulations (RR) No. 2-98, as amended by RR No. 6-01: DHACES Managing Director-ROHQ Acts as head of Thome Ship Management Pte. Ltd. Regional Operating Headquarter (ROHQ) Philippines and owner's representative in the Philippines Finance Manager In charge of supervision/employment of junior accounting staff in the Philippines Checks the work of Accounting Supervisors and makes sure that deadlines set by Thome Ship S'pore is religiously met by all concerned accounting staff Accounting Supervisors Responsible for timely preparation of monthly financial reports for his portfolio of vessels and daily supervision of accounting staff assigned to her fleet of vessels and takes over the work of Accounting Manager during the latter's leave of absence IT Supervisor Provides IT support, maintenance and training in the office and for the vessels Responsible for daily back-ups and daily checking of office communication system IT Assistant Performs and/or oversees a variety of associated administrative, fiscal, staff support and planning activities, some of which require advanced or specialized knowledge and skills Technical Purchasers In charge of handling incoming purchase orders from vessels, send orders to relevant suppliers for quotation after approval of technical superintendents/fleet group manager or higher authority Marine Insurance Assistant Arranges appropriate insurance conditions and covers (H&M, P&I, etc.) with Thome, TSMI and crewing agents. DTAESI Coordinates with various in-house departments and sections and insurance underwriters and brokers in the event of a hull and machinery claim and its eventual submission and or settlement and closure of claim files Plan Maintenance System Encoder Constructs database for client vessels such as encoding spare parts, components makers/suppliers, technical description and maintenance routine on AMOS-WIN system Assigns code for every spare parts, components, vendors, alarm lists, etc. for its vessel AMOS-WIN is going to be installed In reply, please be informed that pursuant to Article 212 of the Labor Code of the Philippines, as amended, "managerial employee" refers to one who is vested with powers or prerogatives to lay down and execute management policies and/or hire, transfer, suspend, lay off, recall, discharge, assign or discipline employees whereas "technical position" has been described as a position which clearly requires technical proficiency and initiative from the individuals occupying such position. This Office, in a long line of rulings, has applied the foregoing principles and ruled that Filipino employees occupying managerial and/or technical positions may avail of the 15% preferential tax rate provided under Section 25 (C) of the NIRC as implemented by Section 2.57.1 (D) of RR No. 2-98, as amended by RR No. 6-01 which provides as follows: "(D) Income Derived by Alien Individuals 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 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." and Article 61 of Executive Order (E.O.) No. 226 (Omnibus Investments Code of 1987) as amended by Republic Act (R.A.) No. 8756 and as implemented by Section 10 of the Rules and Regulations Implementing Article 61 of R.A. No. 8756, viz. : TAacIE "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." In BIR Ruling No. 147-98 dated October 16, 1998, this Office concurred with the representation that managerial and technical positions belong to the category of positions known as "top management" and are attached to executive functions, subject to the control and supervision of higher authorities, making major plans and policies, to formulate major decisions affecting such matters as finance, treasury, marketing, research, operations, product development, external relations and similar high level activities. The top positions go by such names as "general manager", "branch manager", "country head", "senior country officer", "country manager", "OBU manager", "chief executive officer" and their deputies, who are on rank below in the line of organizational chart which are known as "Head of _________" pertaining to the different major departments, such as credit, operations, correspondent banking, private banking, treasury, financial institutions, financial management, finance, marketing, human resources, corporate finance, compliance and audit, special projects, correspondent banking, or as Deputy/Assistant Manager for ____________; and their ranks are usually Vice President and above. Moreover, this Office had occasion to rule that the directors of ROHQ performing managerial and technical services are entitled to the 15% preferential tax rate prescribed in Section 25 (C) of the NIRC and Article 61 of E.O. No. 226 (BIR Ruling No. DA-475-04 dated September 9, 2004). On the other hand, local managers assigned to both finance/administration and production ( i.e. , accounting, treasury, knitting, warping and dyeing) involved in the operation/management were also considered qualified to avail of the preferential tax rate of 15% (BIR Ruling No. DA-450-99 dated August 4, 1999). It appearing that your Company's Managing Director-ROHQ and the Finance/Accounting Manager belong to the category of positions known as "top management" performing executive functions, they are entitled to the 15% preferential tax rate. Likewise, since the positions of Accounting Supervisor, IT Supervisor clearly require technical proficiency and initiative from the individuals occupying such positions, the said employees may avail of the 15% preferential tax rate (BIR Ruling No. DA-061-04 dated February 12, 2004 and BIR Ruling No. DA-444-07 dated August 10, 2007). cACDaH On the other hand, while the positions of Technical Purchaser, IT Assistant, Marine Insurance Assistant and Plan Maintenance System Encoder may be technical in nature, the specific functions of the personnel involved are mechanical in nature and do not belong to the category of positions known as "top management". 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.) GREGORIO V. CABANTAC Deputy Commissioner