UPS International General Services Co.

January 23, 2009 BIR RULING [DA-(ECB-002) 035-09] DA 061-04 UPS International General Services Co. 19th & 20th Floors, Tower 2 Insular Life Corporate Centre Insular Drive, Filinvest Corporate City Alabang, Muntinlupa City Attention: Mr. Rolando A. Nierva Human Resources Manager Gentlemen : This refers to your letter dated June 18, 2007 stating that your company with Tax Identification Number (TIN) 005-130-595-00 is registered in the Philippines as Regional Operating Headquarters (ROHQ) of a multinational company; that as ROHQ, it is allowed to derive income in the Philippines by performing qualifying services to its affiliates, subsidiaries or branches in the Philippines, in the Asia Pacific Region and in other foreign markets, as 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 and data processing and communication; and that in order to carry out these functions, UPS has engaged the services of certain Filipinos and foreigners to occupy the following managerial and/or technical positions in the ROHQ: Managing Director/Country Manager responsible for the overall management and supervision of the company's affiliates within the Philippines and/or Asia Pacific Region; Department Managers responsible for the day to day management and supervision of major functions such as finance, accounting, credit and collection, business development, human resources, logistics, transportation, supply chain operations, technical services, marketing, warehousing, systems development and legal. These functions provide services to affiliates within the Philippines and/or Asia Pacific Region; Confidential, Technical and Professional Supervisors responsible for the day to day supervision of functions requiring the handling of confidential and sensitive business information, high technical knowledge, and high communication proficiency, such as finance, accounting, credit and collection, business development, human resources, logistics, transportation, supply chain operations, technical services, marketing, warehousing, systems development, and legal. These functions provide services to affiliates within the Philippines and/or Asia Pacific Region; Confidential, Technical and Professional Staff responsible for the day to day non-management non-supervisory tasks that require handling of confidential and sensitive business information, high technical knowledge, and communication proficiency, such as human resources specialist, accounting assistant, accounting coordinator, accounting specialist, credit and collection assistant, credit and collection specialist, programmer, network and computer technician, and legal and administrative specialist. These positions provide services to affiliates within the Philippines and/or Asia Pacific Region. ETaHCD Based on the foregoing representations, you now request confirmation of your opinion that 1. The Filipino and foreign managers and/or technical personnel of UPS, which is registered as an ROHQ in the Philippines, 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 UPS Filipino 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, reads: "(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 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. TEacSA In stressing the above-cited provisions, this Office elucidated the matter in BIR Ruling No. DA 061-04 dated February 12, 2004, as follows: ". . . since the positions of the CSPHL-ROHQ personnel enumerated above clearly require technical proficiency and initiative from the individuals occupying such position, hence, 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)" IN VIEW OF THE FOREGOING, this Office hereby confirms your opinion that 1. The Filipino and foreign managers and/or technical personnel of UPS, which is registered as an ROHQ in the Philippines, are entitled to the 15% preferential tax rate provided under Section 25 (C) of the Tax Code of 1997, in relation to R.A. No. 8756; and 2. The UPS Filipino 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. 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, (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service