Facilities/Privileges Furnished or Offered by The British School in the Form of Inconvenience/Relocation Fee to Its Teachers Subject to Philippine Income Tax

June 25, 1996 BIR RULING NO. 069-96 18 (b) (c) 000-00 69-96 Diaz Murillo Dalupan 3/F Don Jacinto Building Dela Rosa Corner Salcedo Sts. Legaspi Village, Makati Attention: Mr . Rogelio R . Nacorda Gentlemen : This refers to your letter dated April 3, 1995 requesting for confirmation of your opinion that the facilities/privileges furnished or offered by your client, The British School (TBS) in the form of inconvenience/relocation fee to its teachers are generally not considered as compensation, subject to Philippine income tax. casia It is represented, that The British (TBS) is an educational institution in the United Kingdom (UK); that it has a branch in the Philippines located at Normad, Madrid Street, Merville Part, Paraaque, Metro Manila; that TBS is recruiting from the UK some teachers to teach in the Philippines; that they will be paid on the basis of teachers pay scale now obtaining in UK and that they will be given a premium of 25% as relocation/inconvenience fee for leaving their homes and coming to the Philippines; that the said "inconvenience/relocation fee that will be given to the UK teachers is to attract them to accept their Manila assignment and to serve as well as their readily available money to buy for their necessities during the first few weeks of their stay in Manila"; that the 25% premium would amount to L3,652 Sterling per annum which is paid to the teachers offshore before they arrived in the Philippines; and that by UK Standard, this is very small/minimal in value. In reply, please be informed that pursuant to Article 14(1) and (2) of RP-UK Tax Treaty, which reads, viz: "Article 14 DEPENDENT PERSONAL SERVICES (1) Subject to the provisions of Articles 15, 16, 17, 18, 19 and 20, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived therefrom may be taxed in that other State. (2) Notwithstanding the provisions of paragraph (1) of this Article, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first-mentioned State if: (a) the resident is present in the other State for a period of periods not exceeding in the aggregate 183 days in the fiscal year concerned; (b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State; and (c) the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other State." In view thereof, and although the premium of 25% as inconvenience/relocation fee will be paid by TBS to the UK teachers offshore before they arrive in the Philippines, but the employment will be exercised in the Philippines and their stay will be more than 183 days, the said inconvenience/relocation fee shall be considered part of their Philippine compensation income and, therefore, subject to income tax in the Philippines. Very truly yours, LIWAYWAY VINZONS-CHATO Commissioner of Internal Revenue