PLDT Global (Phils.) Corporation

May 25, 2009 BIR RULING [DA-(ECB-012) 250-09] 25 (C); DA-061-04; DA-(C-076)244-08 PLDT Global (Phils.) Corporation 2nd Floor PLDT Tower I, 6799 Ayala Avenue, Makati City Philippines Attention: Atty. Divina Gracia U. Cabildo-Yap Head-Legal Division Gentlemen : This refers to your letter dated May 8, 2009 requesting for confirmation of your opinion on the tax matters relating to the operation of PLDT Global Corporation ("PLDT Global BVI") in the Philippines, as a regional operating headquarters (ROHQ), to wit: EIAHcC 1. That the positions of the PLDT Global-ROHQ personnel enumerated below qualify as managerial and technical positions and are therefore entitled to the 15% preferential tax rate under Section 25(C) of the Tax Code of 1997 and Article 61 of Republic Act No. 8756; and 2. The Filipino employees occupying the managerial and technical positions stated below 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 in accordance with the Tax Code of 1997, as amended, regardless of whether there are aliens similarly occupying such positions. As represented, PLDT Global Corporation ("PLDT Global BVI") is a multinational corporation organized and existing under and by virtue of the laws of British Virgin Islands engaged in sales and marketing of telecommunications and mobile consumer services to Filipinos overseas for the PLDT Group of Companies and in international trade with affiliates, subsidiaries or branch offices in the Asia-Pacific Region and other foreign markets. PLDT Global BVI is 100% owned by Philippine Long Distance Telephone Company ("PLDT"), a corporation duly organized and existing under Philippine laws. On 30 January 2009, PLDT Global BVI established the Regional Operating Headquarters (PLDT Global-ROHQ) in the Philippines and registered the same with the Securities and Exchange Commission under SEC Registration No. FS200901033. Under its license, PLDT Global-ROHQ may engage in general administration and planning, business planning and coordination, 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. PLDT Global-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 such as its foreign subsidiaries: PLDT (HK) Ltd., PLDT Singapore, etc. On 23 February 2009, the BIR confirmed the tax incentives to which PLDT Global-ROHQ is entitled. However, in order to efficiently perform such qualifying services, PLDT Global-ROHQ employed additional Filipino personnel to occupy the following managerial and technical positions: ATCaDE POSITION JOB DESCRIPTION Network Primarily accountable to operate and maintain all the Operations equipments available on site. Engineer Installs, commissions and performs acceptance test of new equipment that may be delivered on site. Maintain an updated inventory of all the facilities on site, whether installed or not. Senior HR Responsible for overall technical implementation of Specialist HR business process in support of the HR initiatives of the Head of Human Resources Division. Head Online Responsible for the strategic direction and planning Division process of the online webtool, including operational efficiency, service delivery, and relationship management, in accordance with the agreed operational, financial and commercial objectives for the Online Division. Provides operational leadership for the Online Division to ensure continued growth of the Company's client base through internet website accessibility and reliability. In charge of coordinating with various public and private business groups for the purpose of updating web content and services. Ensures current relationship with content and server providers for maintenance of accessible webpage and webtools. Head Network Responsible for network/communications planning, Development & research, evaluation and development. Implementation Division Reviews and analyzes business requirements and communications solutions designed and installed in line with company strategies. Manages the implementation of new systems and facilities. Head Directs and controls the information technology of the Information company, including systems development, operation Technology and support of the infrastructure that assists the Division attainment of business objectives. Coordinates the integration of present office operations and data processing into electronic data processing. Responsible for both hardware and software contracts. In reply, please be informed as follows: PLDT Global-ROHQ personnel employees occupying managerial and technical positions are entitled to the 15% preferential tax rate under Section 25 (C) of the Tax Code of 1997 and Article 61 of Republic Act No. 8756. 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 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. . . ." 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 BIR Ruling No. DA-061-04, the BIR held that the 15% preferential tax rate provided under Article 61 of R.A. 8756 is applicable to ROHQ employees holding managerial or technical positions. Thus, CSPHL-ROHQ's tax analyst, credit analyst, financial analyst, product line financial analyst, fixed assets supervisor, senior accountant, and senior buyer are subject to either the 15% preferential tax rate or to the regular tax rate, regardless of whether there is an alien similarly occupying such technical or managerial positions. SIacTE Subsequently, in BIR Ruling No. DA-(C-076) 244-08, the BIR held that the employees of Macquarie Offshore Services Pty Ltd. who are holding technical positions are subject to either the 15% preferential tax rate or to the regular tax rate, regardless of whether there is an alien similarly occupying such technical or managerial positions. Since the positions of the PLDT Global-ROHQ personnel enumerated above clearly require technical proficiency and initiative from the individuals occupying such position, the said 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. 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, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service