Puyat Jacinto & Santos

June 3, 2009 BIR RULING [DA-(ECB-016) 268-09] Section 25 (C); DA-061-2004; DA-591-2001; 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 April 24, 2009, on behalf of your client, Hewlett-Packard AP (Hong Kong) Limited-Philippine Regional Operating Headquarters ("HPAP-ROHQ"), requesting for confirmation of your opinion on the following: CEaDAc 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. As represented, 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. On 1 August 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. 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. 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. In order to perform such qualifying services, HPAP-ROHQ employed Filipino personnel to occupy the following managerial and/or technical positions: Position Job Description Manager 1. Manages non-exempt/exempt individual Finance I contributors. 2. Recruits and supports development of direct staff members. 3. Leads moderate to complex financial analysis for a global sub-business or finance function. Manager 1. Manages activities of non-exempt/exempt Finance II individual contributors. 2. Recrmuits and supports development of direct staff members. 3. Leads moderate to complex financial analysis for a global sub-business or finance function. Supervisor 1. Manages non-exempt individual contributors in a Finance I single functional area. 2. Responsible for hiring, setting and monitoring of annual performance, plans, coaching, and career development. 3. Ensures the accuracy and timeliness of accounting support. Supervisor 1. Manages highly-skilled non-exempt individual Finance II contributors in a single functional area. 2. Applies specialized subject matter knowledge to solve moderately complex issues within established guidelines. 3. Responsible for hiring, setting and monitoring of annual performance, plans, coaching, and career development. Commodity 1. Acts as project leader by managing and providing Manager I direction to team activities. 2. Applies developed subject matter knowledge to solve common and complex business issues within established guidelines and recommends appropriate alternatives. 3. Responsible for overseeing activities related to the procurement of materials, parts, components and equipment. Commodity 1. Leads and provides expertise to functional project Manager II teams and participates in cross-functional initiatives. 2. Responsible for overseeing activities related to the procurement of materials, parts, components and equipment. 3. Works on complex problems/projects where analysis of situations or data requires an in-depth evaluation of multiple factors. Commodity 1. Acts as a functional manager within area of Manager III expertise. 2. Leads large, cross-division functional teams or projects that affect the organization's long-term goals and objectives. 3. Responsible for overseeing activities related to the procurement of materials, parts, components and equipment. Financial 1. Utilizes professional concepts and theoretical Analyst I knowledge acquired through specialized training, education or previous experience. 2. Provides information, technical analysis, and recommendations relating to financial reports using the SAP system. 3. Develops expertise and practical knowledge of applications within business environment. Financial 1. Works on problems/projects of moderately Analyst II complex scope using financial software solutions. 2. Provides moderately complex financial analysis that is either transactional or analytical for a financial function or a business. 3. Exercises independent judgment within defined practices and procedures to determine appropriate action. Financial 1. Works on problems/projects of diverse complexity Analyst III and scope. 2. Provides complex financial analysis for a financial function or a business. 3. Provides analytics to business initiatives, typically representing a sub-function within finance for a particular business. Senior 1. Provides complex and high complex financial Financial analysis for a financial function or a business. Analyst I 2. Works on complex problems/projects where analysis of situations or data requires an in depth evaluation of multiple factors. 3. Leads and/or provides expertise to functional project teams and may participate in cross-functional initiatives. Senior 1. Provides highly innovative solutions. Financial Analyst II 2. Leads large cross-functional teams or projects that affect the organization's long-term goals. 3. Provides the most complex financial analysis for a financial function or a business, typically exercising a unique understanding of the business to determine the best method for achieving objectives. Financial 1. Documents system design requirements during Systems project implementation and tests new systems. Analyst I 2. Applies functional principles, theories, and concepts to financial process/system improvement. 3. Evaluates business requirements and scope, fit gap analysis of requirements and process design and re-engineering. Financial 1. Drives the implementation of a system solution Systems and performs functional and unit testing. Analyst II 2. Leads financial system/process improvement or acts as a resource on a project. 3. Researches external sources to analyze new trends and solutions in the external market. Financial 1. Manages the implementation of a system solution Systems and creates a plan for testing new systems. Analyst III 2. Leads and/or provides expertise to functional project teams and may participate in cross-functional initiatives. 3. Solves moderately complex multiple systems problems. Senior 1. Provides expertise to project teams during the Financial implementation of a system solution. Systems Analyst I 2. Examines moderately to highly complex issues or concerns to find a solution. 3. Uses expert subject matter knowledge and research to identify and develop the business potential of a given project. Senior 1. Independently leads project teams in the design Financial and implementation of a system solution. Systems Analyst II 2. Uses in-depth knowledge and research to generate and implement innovative new ideas that will be integral in driving future success for HP across the globe. 3. Solves problems independently and articulates complex issues across functions and businesses. Business 1. Applies advanced subject matter knowledge to Development complex business issues and is regarded as a Consultant III subject matter expert. 2. Leads and/or provides expertise to account teams. 3. Works on complex problems/projects where analysis of situations or data requires an in depth evaluation of local market factors. Business 1. Develops the business justification for complex Development service solutions to ensure a successful Consultant IV engagement. 2. Works on complex problems/projects where analysis of situations or data requires an in depth evaluation of multiple factors. 3. Manages the lead generation activities of the business program. Business 1. Acts as a functional manager within area of Development expertise. Consultant V 2. Unique mastery and recognized authority on relevant subject matter knowledge including technologies, theories, or techniques. 3. Develops strategies that masterfully guide account team to pursuit activities across often lengthy sales cycles. Business 1. Provides innovative solutions to complex and Development critically sensitive issues affecting multiple Consultant VI disciplines and work groups. 2. Integrates advanced technology, theories or techniques that have a significant continued impact across disciplines and business units. 3. Leverages market research to intelligently focus resources and effort on large winnable opportunities. Supervisor 1. Manages non-exempt individual contributors who Delivery deliver Facilities Operations and corporate services Operations I in single functional area. 2. Provides immediate supervision to a small tactical team. 3. Applies intermediate subject matter knowledge to solve issues within established guidelines. Supervisor 1. Manages highly-skilled non-exempt individual Delivery contributors in a single functional area. Operations II 2. Applies specialized subject matter knowledge to solve moderately complex issues within established guidelines. 3. Provides direction and expertise to departmental teams and participates in cross-department initiatives. Manager 1. Manages exempt individual contributors. Delivery Operations I 2. Plans, directs and monitors operational/tactical activities of staff. 3. Recruits and supports development of direct staff members. Manager 1. Manages activities of individual contributors. Delivery Operations II 2. Plans, directs and monitors high-end operational/tactical activities of staff. 3. Recruits and supports development of direct staff members. Logistics 1. Provides expertise on logistics system Manager III infrastructure including the use of SCOUT database, LES, and Athena. 2. Manages activities of individual contributors. Buyer II 1. Utilizes professional concepts and theoretical knowledge acquired through specialized training and education. 2. Analyzes spending and savings data using software solutions in order to prepare spending and savings report and provides purchasing-related financial analysis and forecasting. 3. Provides risk analysis on the procurement of products and manages vendor requirements using the following software solutions: GRMS, DNB, VDM, VSAT, and MyPIM. Buyer III 1. Works on projects/problems of moderately complex scope. 2. Analyzes spending and savings data using software solutions in order to prepare spending and savings report and provides purchasing-related financial analysis and forecasting. 3. Provides risk analysis on the procurement of products and manages vendor requirements using the following software solutions: GRMS, DNB, VDM, VSAT, and MyPIM. Buyer V 1. Works on projects/problems of diverse complexity and scope. 2. Analyzes spending and savings data using software solutions in order to prepare spending and savings report and provides purchasing-related financial analysis and forecasting. 3. Provides risk analysis on the procurement of products and manages vendor requirements using the following software solutions: GRMS, DNB, VDM, VSAT, and MyPIM. Workplace 1. Utilizes professional concepts and theoretical Services Program knowledge acquired through specialized training Administrator I and education. 2. Provides information, analysis and recommendations relative to international quality standards and legal regulatory requirements. 3. Exercises independent judgment within defined practices and procedures to determine appropriate action. Workplace 1. Ability to apply intermediate level of subject Services matter knowledge to solve a variety of common Program business issues. Administrator II 2. Provides information, analysis and recommendations relative to international quality standards and legal regulatory requirements. 3. Works on problems/projects of moderately complex scope. Workplace 1. Acts as project leader providing direction to team Services activities facilitate information validation and Program team decision-making process. Manager I 2. Works on problems/projects of diverse complexity and scope. 3. Exercises independent judgment within defined policies and practices to identify and select solution. Workplace 1. Manages and Leads functional project teams. Services Program 2. Acts as an expert providing direction and guidance Manager II to process improvements and establishing policies. 3. Exercises independent judgment within defined policies and practices to determine best method for accomplishing work and achieving objectives. Workplace 1. Manages and Leads large functional project teams Services that affect the organization's long-term goals and Program objectives. Manager III 2. Develops strategy and sets functional policy and direction. 3. Exercises independent judgment within defined policies and practices to determine best method for accomplishing work and achieving objectives. Sales Support 1. Conducts market research and analysis in order to Specialist I & II establish sales indices. 2. Provides analysis on trends, efficiencies and effectiveness of marketing/sales program. 3. Utilizes professional concepts and theoretical knowledge acquired through specialized training and education. Sales Support 1. Acts as project leader providing direction to team Manager I activities facilitate information validation and team decision-making process. 2. Works on problems/projects of diverse complexity and scope. 3. Exercises independent judgment within defined policies and practices to identify and select solution. Sales Support 1. Manages and Leads functional project teams. Manager II 2. Acts as an expert providing direction and guidance to process improvements and establishing policies. 3. Exercises independent judgment within defined policies and practices to determine best method for accomplishing work and achieving objectives. Sales Support 1. Manages and Leads large functional project teams Manager III that affect the organization's long-term goals and objectives. 2. Develops strategy and sets functional policy and direction. 3. Exercises independent judgment within defined policies and practices to determine best method for accomplishing work and achieving objectives. Staffing 1. Manages the beginning to end staffing process Advisors within the sub-region. 2. Responsible for the sourcing of employees, candidate screening, and interview coordination using HP TALEO global recruitment support system solution. 3. Utilizes professional concepts and theoretical knowledge acquired through specialized technical training and education in order to provide research data and analysis in the HP recruitment system. Manager 1. Manages non-exempt/exempt individual Staffing I contributors and/or supervisors. 2. Recruits and supports development of direct staff members. 3. Applies advanced subject matter knowledge to manage staff activities in solving common and complex business/technical issues within established policies. Manager 1. Manages activities of non-exempt/exempt Staffing II individual contributors and/or supervisors. 2. Recruits and supports development of direct staff members. 3. Applies expert subject matter knowledge to manage staff activities in solving most complex business/technical issues within established policies. Manager 1. Manages non-exempt/exempt individual Human contributors and/or supervisors. Resources I 2. Recruits and supports development of direct staff members. 3. Applies advanced subject matter knowledge to manage staff activities in solving common and complex business/technical issues within established policies. Manager 1. Manages activities of non-exempt/exempt Human individual contributors and/or supervisors. Resources II 2. Recruits and supports development of direct staff members. 3. Applies expert subject matter knowledge to manage staff activities in solving most complex business/technical issues within established policies. HR Analyst II 1. Provides intermediate level of technical support to employees and managers for complex contract HR cases. 2. Develops program delivery and presentation materials to support program delivery and implementation through the use of research data and technical analysis. 3. Analyzes employee data using HP proprietary solutions to provide research for human resources programs and report findings to support HR program development and delivery. HR Analyst III 1. Manages the delivery of multiple programs simultaneously across a given geography. 2. Communicates HR policies to business managers and employees. 3. Analyzes employee data using HP proprietary solutions to provide research for human resources programs and report findings to support HR program development and delivery. HR Analyst IV 1. Leads and/or provides expertise to functional project teams and may participate in cross-functional initiatives. 2. Directs and drives HR decisions on complex cases with significant financial and/or legal risk. 3. Consults with business leaders to deliver complex human resources policies and programs within business and local environment. HR Analyst V 1. Leads regional or global priority project teams. 2. Directs and drives HR decisions in the most complex cases with significant financial and legal risk. 3. Represents HP to both internal and external stakeholders and develops communications strategies for new program development. 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. . . ." 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. aCcADT 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. 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 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 as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service