Romulo, Mabanta, Buenaventura Sayoc & De Los Angeles

January 22, 2009 BIR RULING [DA-(ECB-001) 034-09] Sec. 25 (C); Sec. 61 R.A. 8756; DA 061-04; DA 179-07; DA 444-07 Romulo, Mabanta, Buenaventura Sayoc & De Los Angeles 30/F Citibank Tower 8741 Paseo de Roxas, Makati City Attention: Atty. Jason L. Fernandez Partner Gentlemen : This refers to your letter dated September 18, 2008 stating that your client, Citibank, N.A. , is a global banking and financial services institution incorporated under the laws of the State of Delaware, U.S.A.; that it is licensed to operate a Regional Operating Headquarters (Citibank ROHQ) by the Philippine Securities and Exchange Commission under SEC Amended License No. F-9 dated 27 February 2003, with office address at 11/F Citibank Tower, 8741 Paseo de Roxas, Makati City; that as stated in its SEC Registration, Citibank ROHQ shall engage in general administration and planning, business planning and coordination, sourcing and procurement of raw materials and components, corporate finance advisory services, marketing control and sales promotion, training and personnel management, logistic services, research and development services and product development, technical support and maintenance, data processing and communication, and business development; that it acts as a global center for financial and management reporting, payment services, and employee services supporting the Citi network over 60 countries in Asia, Americas, Europe, Middle East, and Africa; that in order to carry out these functions, Citibank ROHQ employs both Filipinos and non-Filipinos to occupy various managerial and/or technical positions in Citibank ROHQ with the following principal functions: I. Senior Leadership Team a. Head of Center (CBS) Performs overall oversight, provides strategic direction for all departments in the center and in Asia-Pacific countries Promotes the center as destination for offshore services/processes for the Citi network Overall responsibility for ensuring delivery of service level agreements in all work streams Drives Asia-Pacific implementation of global strategic projects b. Head-Financial Reporting Operations Provides leadership and strategic direction for the financial reporting operations group Ensures that all businesses serviced by the Manila Center are properly supported in their Financial and Management Reporting processes HASDcC Drives implementation of global strategic projects involving migration of work to the Manila Center Ensures that training, implementation, and technical support are adequately provided and process improvement initiatives are rolled out and implemented as planned Ensures appropriate controls are in place and potential risks are anticipated and planned for c. Head-Payment Services Operations Provides leadership and strategic direction for the Payment Services Operations in the region Ensures business goals are linked to payment services operations performance Regionally drives the operations and delivery of service level commitments; the management of customer noise through process maintenance, improvement and or reengineering; and the management of stakeholders' expectations Drives resource utilization per capacity plan (resource deployment to projects vs. business-as-usual requirement, people development, staffing plans) Ensures appropriate controls are in place and potential risks are anticipated and planned for d. Head-Finance Leads the Finance function, directs activity related to funds management, cash flow, tax management, budget and financial control/reporting Develops, communicates and implements the strategic direction of the operation Regularly leads regional initiatives Provides the highest level of business advice and recommendations to the business head or global function head DIEcHa e. Head-Human Resource Regionally responsible for the strategic planning of the human resource function of the supported businesses Provides overall direction for recruitment, training and development; compensation, and data management Leads organization development and culture building Formulates policy, supervises implementation and labor law compliance Drives delivery of service level agreement with supported business/geographies Ensures alignment of human resources goals with business priorities f. Head-Risk and Control Responsible for the business' risk and control management across the region Periodically and regularly reviews and evaluates internal control system, interpreting the bank's various policies and governing regulations Proactively manages control issues and assists the business in addressing these issues until they are closed and control measures are put in place for their non-recurrence Proactively raises the level of awareness of employees and educates them to establish internal controls to avoid risks g. Head-Business Management Office (Project Management Office, Communications, Reengineering) Ensures successful realization of projects within cost, time and quality constraints Reviews implementation model to identify areas where efficiency and effectiveness can be improved Collaborates closely with internal clients at each phase of the project/product cycle TDAcCa h. Head-Office and Facilities Management Oversees the day-to-day operation of the office, responds to inquiries from internal and external customers, investigates and recommends corrective action to resolve customer complaints and concerns. Administrative liaison with other units and external vendors, initiates meetings for any complaints, billings problem, and updates Ensures consistency in the implementation of policies across different teams, ensures excellence in the service delivery Formulation of policies for stricter internal controls and better demand management of various expenses makes cost-effective recommendations Oversees the management of office facilities and is responsible for addressing maintenance and minor enhancement i. Head-General Services Management Provides leadership and strategic direction for the General Services Operations in the region. Ensures business goals are linked to general services operations performance Regionally drives the operations and delivery of service level commitments; the management of customer noise through process maintenance, improvement and or reengineering; and the management of stakeholders' expectations Drives resource utilization per capacity plan (resource deployment to projects vs. business-as-usual requirement, people development, staffing plans) Ensures appropriate controls are in place and potential risks are anticipated and planned for j. Head-Projects and Systems Implementation and Operations Oversees the implementation of projects or systems which includes but not limited to WebT&E and P2P in the region Manages systems enhancement and efficient operations TEcHCA Regionally drives the operations and delivery of service level commitments; the management of customer noise through process maintenance, improvement and or reengineering; and the management of stakeholders' expectations Drives resource utilization per capacity plan (resource deployment to projects vs. business-as-usual requirement, people development, staffing plans) Ensures appropriate controls are in place and potential risks are anticipated and planned for II. Work Stream Leads/Leads of Centers of Excellence a. Head-Financial Reporting Operations Institutional Clients Group b. Head-Financial Reporting Operations Global Consumer Group c. Head-Financial Reporting Operations General Ledger Operations d. Head-Financial Reporting Operations Europe, Middle East and Africa e. Head-Product Control Group f. Head-Business Planning & Analysis g. Program Manager-Migration Process Puts in place service delivery plans for respective work streams Overall supervision of execution of work stream/center of excellence (COE) plans and deployment/development of resources (both financial/people resources) Ensures that key metrics, service levels and customer expectations are met and managed Ensures that key processes are maintained and improved and proper controls are observed Drives initiatives that promotes process improvement III. Key Process/Country Cluster Leads (Managerial-Technical) a. Risk and Control Officers b. Financial Analysts Regional Operating Headquarter Controllership, Business Planning and Analysis, Customer Billing & Reporting cEDaTS c. Human Resource Generalists/Regional Human Resource Specialists Manpower Planning and Recruitment, Compensation, Projects, Learning & Development d. General Services Officers e. Project Management Officers f. Fixed Assets Team Lead g. Service Center Team Lead h. Payments Country Managers (Taiwan, Singapore, Hong Kong, Australia, Philippines, among others) i. US Web Time and Expense & E-Invoice Team Lead j. Vendor Maintenance Unit/General Ledger Reconciliation & Proofing Team Lead k. Information Center/Production Support Team Lead l. Financial Reporting Operations Team/Process Leads Team Leads for Institutional Clients Group; Global Consumer Group; Europe, Middle East and Africa; General Ledger Operations, Business Planning and Analysis, Product Control Group Ensures timely delivery of services per plan, timeline and budget for respective process/team/geographies Ensures that the right resource is sourced and deployed per plan Monitors key metrics and service level agreements Ensures that customer feedback, issues and concerns are properly addressed and escalated as necessary Collaborates with other units/related processes to ensure seamless execution of processes Reviews processes and recommends initiatives and projects that will improve service delivery and minimize/mitigate risks For Lead roles, manages people development and concerns. Escalates when appropriate IV. Technical Positions a. Business Process Analyst Provides business process and system support on core and advanced head office financial and management reporting during the reporting cycles. Ensures delivery of timely and accurate reporting requirements for the Asian countries HSDaTC Initiates process improvement activities Develop the necessary controls to ensure integrity and quality of the reports Support implementation project tasks for any finance-related system migration affecting head office reporting Maintain awareness of compliance related policies and guidelines b. Financial Reporting Analyst Takes responsibility for the integrity of the head office reporting process and for the reasonableness of the various financial head office reports. These reports include Financial Data Load (financial statements), Quarterly Memo cable, Country Exposure or Cross Border Reporting, and Cash Flow Assists in the management of the flow of information needed to monitor, enrich, and influence the business decision process Provides detailed analytical support on head office financial reporting Provides support in interpreting and setting accounting policy, maintaining a rigid system of internal controls in the record-to-report process, ensuring compliance of head office reporting requirements, and providing pertinent financial information reports to facilitate needs of the business c. Business Planning Analyst Provides business planning and analysis, budgeting, forecasting and executive management reporting Coordinates with country and regional finance controllers for monitoring monthly numbers, tracking action items, and reporting on results d. General Ledger Analyst Manages Citi's general ledger by enforcing regional and global standards, analyzing errors, designing process improvements and handling system enhancement projects TcCEDS e. Data Standards Analyst Provides analysis and maintenance of Citi's Finance Data Standards, which covers system set-ups, process design, research on internal and external benchmarks, coordination with global partners, and implementation of approved standards across Citi's database. f. Data Maintenance Unit Analyst/Specialist Provides maintenance of global standard for customer identification (GFCID). Maintains GFCIDs' legal and credit attributes in CDMS/Customer Directory Management System, as well as their marketing attributes and hierarchy in another global system CIS/Customer Information Server. Maintains some internal cross-functional standard tables in Global Finance Data Standards Server-Data Standards Hub (GFDSS-DSH). g. Payment Specialist Handles review of transactions against policies, posting of journals; investigation and resolution of issues encountered on a day-to-day basis; and coordination and communication with the different businesses supported Processes vendor invoices and employee expense reports on a global scale for numerous Citi businesses h. Fixed Assets Specialist Reviews FA invoices based on Citigroup's Accounting Policy and Condicable Manual Decides on rejection of invoices for non-adherence to capitalization policies and adequate documentation, therefore deferring processing until the appropriate level of approval or proper documentation is obtained, or re-classing outright to expense Performs testing for system enhancements or resolutions to ensure that updates/changes will not disrupt the production process once implemented i. Reconciliation Specialist Reviews accounting items that cause un-reconciled balances between the Subsidiary ledger and the General Ledger these mainly are suspense, interco-liability and inter-bank accounts cCDAHE Performs P2P table maintenance such as the Regional Chart of Accounts (including corp codes, account codes, expense codes), and account-expense code combinations Ensures that errors and issues for assigned accounts are identified, properly escalated and reported in a timely manner Coordinates with AP units and Businesses for corrective action, and advises them of preventive actions Performs testing for system enhancements or resolutions to ensure that updates/changes will not disrupt the production process once implemented j. Information Center (IC) Specialist Ensures that all invoices and T&E reports are properly batched and documented prior to release to the production teams, and that these batches are properly secured, stored and accounted for after processing of daily payments; Assists Payment Services in RCSA activities as to the retrieval and return of sample batches for internal audit Manages user inquiries by reviewing and investigating the queries/issues then advising the concerned parties or referring the users accordingly to both in-country and AP Provides reports/metrics to management on both business-as-usual (BAU) and ad-hoc basis Management Information Systems (MIS) and Database tracking k. Vendor Maintenance Specialist Ensures that production is performed and executed within Service Level Agreement (SLA) to maintain customer satisfaction Compliances checks vendor update requests according to Citi policies, and executes valid requests in the Procure-to-Pay (P2P) Vendor Maintenance tables Performs P2P table maintenance such as the P2P Approval Hierarchy and P2P Entitlements for MPSC staff Performs testing for system enhancements or resolutions to ensure that updates/changes will not disrupt the production process once implemented CAIHaE l. Proofing Specialist Reviews accounting items that cause un-reconciled balances between the Subsidiary ledger and the General Ledger; the review also includes other balance sheet issues such as aging, unsupported and unconfirmed items, and abnormal balances Prepares registers for assigned accounts, reviews the details of the outstanding balance and identifies and escalates issues, if any Coordinates with AP units and Businesses for corrective action, and advises them of preventive actions Performs testing for system enhancements or resolutions to ensure that updates/changes will not disrupt the production process once implemented m. System (P2P) Production Support and Business Integration Officer Provides systemic support to the Asia Payment Service Center and Asia Pacific Regional Procurement teams on the P2P system Exercise troubleshooting expertise cross functionally to the P2P application Authors technical documents for system enhancements Introduces process improvement activities Spearheads and monitors P2P cross functional system enhancement initiatives Coordinates and monitors cross-system projects (inclusive of implementation) that all of the above positions require technical proficiency in accounting, IT, Finance, various business/financial systems or software and the interrelationships thereof, business process risks and controls, process implementations, among others; that certain positions likewise require deep analytical and leadership skills, and the exercise of initiative to drive work direction to team members; that the above-described managerial and/or technical employees perform work that is not merely routinary or clerical, but their positions require the exercise of discretion and judgment within their respective groups or departments; that due to the technical nature of the banking and financial services industry, such employees are also required to have extensive knowledge and experience in the overall business of Citibank and the regulatory functions that apply to it globally as well as in the specific jurisdictions within which the bank operates. ICTHDE Based on the foregoing representations, you now request for confirmation of your opinion that 1. The Filipino managerial and/or technical personnel of Citibank's ROHQ in the Philippines occupying the positions enumerated above are entitled to the 15% preferential tax rate provided under Section 25 (3) (c) of the Tax Code of 1997, in relation to Republic Act (R.A.) No. 8756; and 2. The ROHQ's Filipino managerial and technical employees have the option to be taxed at either fifteen percent (15%) of their gross income or the regular tax rate based on their taxable income, regardless of whether there is an alien similarly occupying such technical or managerial positions. In reply thereto, please be informed that Section 25 (C) of the Tax Code of 1997 provides: "(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) Corollarily, Section 2.57.1 (D) of Revenue Regulations No. 2-98, as amended by Revenue Regulations No. 6-2001, and as further amended by Revenue Regulations No. 12-2001 and Section 10 of the Rules and Regulations Implementing Article 61 of R.A. No. 8756 provide 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, compensation, 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 tax rate 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. In view of the foregoing, since the positions of the ROHQ personnel enumerated above are either managerial in nature or clearly require technical proficiency and initiative from the individuals occupying such position, this Office hereby confirms your opinion that 1. Citibank ROHQ employees (both aliens and Filipinos) occupying the managerial and/or technical positions and/or performing the qualifying services described above are entitled to the 15% preferential tax rate under Section 25 (C) of the Tax Code of 1997, in relation to R.A. No. 8756; and HAECID 2. The Filipino employees occupying the managerial and/or technical positions and/or performing the qualifying services have the option to be taxed at either 15% of their gross income or at the regular graduated individual income tax rates based on their taxable income, regardless of whether there are aliens similarly occupying such positions. (BIR Ruling Nos. DA-179-07 dated March 26, 2007; DA-444-07 dated August 10, 2007) 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. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service