Puyat Jacinto & Santos

May 28, 2009 BIR RULING [DA-(ECB-014) 263-09] RR 2-98; 25 (C); DA-061-2004; DA-594-2004; DA-179-2007; DA-444-2007; DA-250-2008; DA-(C-076) 244-2008; DA-(C-095) 293-2008 Puyat Jacinto & Santos 12th Floor, Manilabank Bldg. 6772 Ayala Avenue, Makati City Philippines Attention: Atty. Virginia B. Viray and Atty. Arnaldo M. Cario Gentlemen : This refers to your letter dated February 5, 2009 requesting on behalf of your client, Hewlett-Packard AP (Hong Kong) Limited-Philippine Regional Operating Headquarters ("HPAP-ROHQ" for brevity) for confirmation of your opinion on the following: cITAaD 1. That the positions of the HPAP-ROHQ personnel enumerated below qualify as managerial and/or 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/or 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. It is represented that Hewlett-Packard Company ("HP") is a multinational corporation organized and existing under and by virtue of the laws of Delaware U.S.A engaged in the business of manufacturing, assembling, and trading of computer and electronic components and parts, computer systems and equipment; that on August 1, 2003, HP established the Regional Operating Headquarters (HPAP-ROHQ) in the Philippines and registered the same with the Securities and Exchange Commission under SEC Registration No. A200300061, that under its license, HPAP-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; that HPAP-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; that in order to perform such qualifying services, HPAP-ROHQ employed Filipino personnel to occupy the following technical positions: Position Job Description Financial 1. Works on assignments that are moderately complex in Associate II nature which requires problem resolution and independent Job Code: judgment. 00F20B 2. Requires good understanding of the general/technical aspects of the job. 3. Initiates the gathering of financial data and performs financial analysis using company established financial techniques. Financial 1. Applies developed knowledge of the job skills and Associate III company policies and procedures to complete a variety Job Code: of assignments/tasks; 00F20C 2. Requires thorough understanding of the general/technical aspects of the job. 3. Works on assignments that are moderately complex in nature and require problem resolution and independent judgment. 4. Initiates and supervises the review of financial data and financial analysis using company established financial techniques. Financial 1. Applies extensive knowledge of job skills, company Associate IV policies and procedures to complete complex, specialized Job Code: assignments/tasks in creative and effective ways. 00F20D 2. Requires comprehensive understanding of the general/technical aspects of the job. 3. Works on assignments that are complex in nature and require judgment, initiative, and technical/specialized knowledge to resolve problems and/or develop recommended solutions. Financial 1. Uses ability as a skilled specialist to contribute to the Associate V development of new concepts/techniques and to complete Job Code: assignments/tasks in innovative and effective ways. 00F20E 2. Works on assignments that are highly complex in nature where a strong degree of independent judgment, initiative and technical knowledge are required to resolve problems. 3. Work is completed independently and has ability to handle most unique situations. In reply thereto, please be informed that Section 25 (C) of the Tax Code of 1997 provides that: (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. . . ." ITESAc 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. Since the positions of the HPAP-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 null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service