Allowances Paid to PITC Employees Assigned Abroad as Overseas Trading Officers Not Subject to Withholding Tax

April 18, 1984 BIR RULING NO. 068-84 21-a-000-00-068-84 Gentlemen : This refers to your letter dated January 24, 1984 requesting a ruling as to whether the allowances of local employees of that Corporation who are assigned abroad to act as overseas trading officers with the diplomatic status of Commercial Attache are subject to withholding tax under the present Gross Income Tax System. It appears that the assignment of said officers as Commercial Attaches is approved by the Ministry of Foreign Affairs and authorized by the Office of the President; and that they are provided with allowances of foreign service personnel assigned abroad. In reply thereto, I have the honor to inform you that Section 9 of Presidential Decree No. 1285 and paragraphs 13.0 and 13.1 of Letter of Implementation No. 63 provide, viz: "Sec. 9. Income Taxes . The basic salary and allowances of foreign service personnel shall be subject to income tax under applicable internal revenue laws: Provided , that overseas allowance shall be considered as being paid to and received by the personnel concerned in furtherance of the interests of the Republic of the Philippines, for purposes of determining the tax status of said overseas allowance ." "13.0 Taxation "13.1 Pursuant to Section 9 of Presidential Decree No. 1285, all allowances and privileges except basic salary are hereby declared as being paid to and received by the personnel concerned in furtherance of the interests of the Republic of the Philippines ." (Emphasis Supplied) and Section 5 of P.D. No. 1285 enumerates the allowances of foreign service personnel as follows: "Sec. 5. Allowances . The President shall establish a system of allowances for foreign service personnel which shall include the following: (a) Overseas allowance to adjust take-home pay of foreign service personnel for any changes in cost of living abroad which arise from changes in foreign currency conversion rates, differentials in cost of living between the Philippines and foreign posts, and extra-ordinary and necessary expenses not otherwise compensated for, which are incurred by officers or employees in the foreign service; (b) Living quarters allowance to enable personnel to whom those are granted, to live in a manner befitting their representative capacity but not for purposes of augmenting basic salary; (c) Clothing allowance to compensate for increased cost of clothing incurred by foreign service personnel assigned to posts whose climates are different from that of the Philippines or where unusual circumstances exist; (d) Post allowance to defray unusual expenses incident to the operation and maintenance of an official residence suitable for the chief diplomatic or consular representative of the Philippines at his post; (e) Representation allowance to enable Chiefs of Missions, special envoys, Ministers, permanent delegates or representatives to international bodies, principal officers and foreign service officers and ranking staff officers to uphold the prestige of the Republic of the Philippines and otherwise to represent the country with distinction and dignity; (f) Education allowance to compensate for additional education cost incurred by officers and employees assigned abroad for legal dependent children not exceeding three in number, who are enrolled in the primary and elementary grades, where free public education and/or English as a medium of instruction is absent; (g) Medical allowance intended to cover the cost of medical insurance in countries were medical care is unusually expensive, including cost of hospitalization and medical treatment for foreign service personnel and legal dependents giving with the officer and employee at the posts as may be approved by the President; (h) Family allowance to assist foreign service personnel living with their families at the post of assignment, in meeting the incremental expenses arising from foreign assignment, computed for the dependent spouse and for unmarried legal minor dependent children not exceeding three in number." From the foregoing provisions, the allowances are declared paid to and received by the personnel concerned in furtherance of the interests of the Philippine Government. This means that said allowances are considered not for the personal benefit of the foreign service personnel which includes officials and personnel of the Ministry of Foreign Affairs, Ministry of Finance and Ministry of Trade, e.g., commercial attaches stationed abroad (Sec. 3(b), P.D. 1285). Such being the case, the allowances are not considered additional compensation or wage subject to the withholding tax. Since the local employees of PITC who are assigned abroad to act as its overseas trading officers are considered foreign service personnel within the contemplation of Presidential Decree No. 1285, allowances paid to and received by them while assigned abroad, are not considered wages and are, therefore, not subject to the withholding tax under Section 91 in relation to Section 21(a) of the Tax Code as amended by B.P. Blg. 135 and as implemented by Revenue Regulations No. 6-82 dated October 1, 1982. iatdc Very truly yours, (SGD.) RUBEN B. ANCHETA Acting Commissioner