BIR Ruling No. 110-13

March 21, 2013 BIR RULING NO. 110-13 Sections 22 (DD); 28 (6) (a); 105 of the Tax Code of 1997; BIR Ruling No. 047-01 Birgma China, Inc. Unit 1504, 15th Floor The One Executive Office Bldg. West Ave., corner Col. Martinez Ave. Quezon City, Philippines Attention: Gabriel Marcelo L. Torre Resident Agent Gentlemen : This refers to your letter dated July 10, 2012 requesting for the issuance of a certificate of tax exemption of BIRGMA CHINA, INC. (RHQ) on its income as regional area headquarters. It is represented that BIRGMA CHINA, INC. (RHQ) with Taxpayer's Identification No. 418-678-604-000, is the duly established regional or area headquarter in the Philippines of BIRGMA CHINA, INC.; that BIRGMA CHINA, INC., a foreign company organized and existing under the laws of Samoa, is registered with the Securities and Exchange Commission (SEC) under Registration No. FS 201201477 dated 7 February 2012; that BIRGMA CHINA, INC. is engaged in the business of "trading and an international trade with affiliates, subsidiaries, or branch offices in the Asia-Pacific Region; that the BIRGMA CHINA, INC. (RHQ), as a regional or area headquarter in the Philippines of BIRGMA CHINA, INC., acts as communications and coordinating center for BIRGMA CHINA, INC. affiliates, subsidiaries, or branch offices in the region; and that BIRGMA CHINA, INC. (RHQ) shall not derive any income from sources within the Philippines and shall not participate in any manner in the management of any subsidiary or branch office BIRGMA CHINA, INC. might have in the Philippines. In reply, please be informed as follows: HcISTE Income Tax Section 22 (DD) of the Tax Code of 1997, as amended provides, viz. : "SEC. 22. Definitions. When used in this Title: xxx xxx xxx (DD) The term 'regional or area headquarters' shall mean a branch established in the Philippines by multinational companies and which headquarters do not earn or derive income from the Philippines and which act as supervisory, communications and coordinating center for their affiliates, subsidiaries, or branches in the Asia-Pacific Region and other foreign markets." Further, Section 28 (6) (a) of the Tax Code states: "SEC. 28. Rates of Income Tax on Foreign Corporations. (6) Regional or Area Headquarters and Regional Operating Headquarters of Multinational Companies. (a) Regional or area headquarters as defined in Section 22(DD) shall not be subject to income tax." Based on the foregoing, this Office is of the opinion and so holds that BIRGMA CHINA, INC. (RHQ) falls within the purview of a regional or area headquarters contemplated under the above cited provision. Accordingly, since BIRGMA CHINA, INC. (RHQ) does not engage in any income generating activity, it is not subject to income tax. Consequently, it is exempt from the filing of the corporate income tax return. However, it should be understood that the said regional or area headquarter shall be constituted as withholding agent of the government if it acts as an employer and its employees receive compensation income subject to the withholding tax under Section 79 (A), Chapter XIII, Title II of the Tax Code of 1997, as implemented by Revenue Regulations (Rev. Regs.) No. 2-98, as amended, or if it makes income payments to individuals or corporations subject to the expanded withholding tax provided for in Section 57 (B) of the Tax Code of 1997, also as implemented by Rev. Regs. No. 2-98, as amended. Value Added Tax Furthermore, pursuant to paragraph (E) Section 14 the Rules and Regulations implementing Republic Act No. 8756, amending Executive Order No. 226, otherwise known as the Omnibus Investments Code provides that: ESCacI "Section 14. Value-Added Tax. Regional or area headquarters shall be exempted from the value-added tax. The sale or lease of goods and property and the rendition of services to regional or area headquarters shall be subject to zero percent (0%) VAT rate as provided for in the National Internal Revenue Code, as amended." A person is subject to VAT if it renders service "in the course of trade or business" (Section 105, 1997 Tax Code). Since BIRGMA CHINA, INC. (RHQ) merely acts as communications and coordinating center for BIRGMA CHINA, INC. affiliates, subsidiaries, or branch offices in the country, and is not engaged in any income-generating activity in the Philippines, it is, therefore, exempt from payment of VAT. Moreover, since BIRGMA CHINA, INC. (RHQ) has been granted tax exemption privileges based on its status as a regional or area headquarters by the Board of Investments, any sale to it shall be subject to zero percent-rate (0%) VAT pursuant to paragraph (E) Section 14 the Rules and Regulations implementing Republic Act No. 8756. It is of course understood that your client's books of accounts and other pertinent records shall be subject to periodic examination by revenue enforcement officers of this Bureau for the purposes of ascertaining whether you have been complying with the conditions under which you have been granted tax exemption or tax incentives and your tax liability, if any, pursuant to Section 235 of the Tax Code of 1997. (BIR Ruling No. 047-01 dated September 28, 2001) 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, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue