15% on Gross Compensation Income on a Representative Office of a Multinational Corporation in the Philippines

May 4, 1988 BIR RULING NO. 179-88 32 (c) 000-00 179-88 Gentlemen : This refers to your letter dated January 4, 1988 requesting in behalf of your client, the representative office of Northern Telecom (Asia) Ltd. in the Philippines, for a ruling that it is in effect an area or regional headquarters in the Philippines of a multinational corporation and such, its expatriate employee may be taxed only at the rate of 15% on his gross compensation income pursuant to Section 22(c) of the Tax Code. cdt It is represented that Northern Telecom Limited is a company organized under the laws of Canada with principal offices located at Mississauga, Ontario, Canada; that it is a multinational corporation having subsidiaries in the United States of America, Europe and the Asia/Pacific region; that in the Asia/Pacific region, it has subsidiaries in Japan, New Zealand, Australia; that Northern Telecom (Asia) Limited was organized under the laws of HongKong and has a branch in Singapore and a representative office in the Philippines; that your aforesaid client was granted Certificate of Authority No. 1484 by the Board of Investments on April 13, 1983, to operate as such representative office; that it serves as a coordinating center wherein technical and marketing assistance are or may be availed of by its distributors; that it does not derive any income in the Philippines; that it has inwardly remitted US$50,000 upon its establishment; and that it has in its employ only one Canadian expatriate who acts as its general manager. In reply, I have the honor to inform you that under Section 22(c) of the Tax Code, as amended, 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 established in the Philippines, by multinational corporations as salaries, wages, annuities, compensation, remunerations and other emoluments, such as honoraria and allowances, from such regional or area headquarters, a tax equal to 15% of such gross income; Provided, That the activities of the said regional headquarters shall be limited to acting as supervisory, communications and coordinating center for their affiliates, subsidiaries or branches of such multinational corporations. The term "multinational corporation" means a foreign firm or entity engaged in international trade with affiliates or subsidiaries or branch offices in the Asia Pacific Region. Such being the case, and since your client is a representative office of a multinational corporation in the Philippines serving as a coordinating center wherein technical and marketing assistance are or may be availed of by its distributors, its only expatriate employee who acts as its general manager is therefore, subject to tax at the rate of 15% on his gross compensation income. cdta Very truly yours, (SGD.) BIENVENIDO A. TAN, JR. Commissioner