Denial of Request for Issuance of Certificate of Exemption from Withholding Taxes on Compensation

December 10, 1999 BIR RULING NO. 198-99 R.R. 2-98-000-00-198-99 Helen Keller International, Inc . Rm. S-358-372 3rd Floor Secretariat Building Philippine International Convention Center (PICC) CCP Complex, Roxas Boulevard Pasay City Attention: Ms . Rosanna C . Santos Finance Officer/Representative Gentlemen: This refers to your letter dated May 25, 1999 requesting for the issuance of a certificate of exemption from withholding taxes on compensation for the employees and staff of Helen Keller International, Inc. It is represented that the Helen Keller International, Inc., is an international non-government private voluntary organization existing under the laws of New York, USA whose main mission in the Philippines is to work hand in hand with the Department of Health (DOH) and Nutrition Council of the Philippines by virtue of a Memorandum of Agreement between Helen Keller International, Inc. and the Department of Health; that it was granted license to transact business by the Securities and Exchange Commission on August 13, 1992 under SEC Registration No. AP0S2000048; that its main program is to help prevent blindness, restore sight, rehabilitate and educate the incurably blind through the development of indigenous capacity where the need is great; that in the last seven years, the organization has been receiving, grants from the USAID through your head office in New York;: and that no part of its income is derived here in the Philippines. In reply, please be informed that pursuant to Section 2.78.1(B)(5) of Revenue Regulations 2-98 implementing Section 78 of the Tax Code of 1997, remuneration paid for services performed as an employee of a foreign government or an international organization is exempt from withholding tax on compensation. "International Organizations" are associations of States, established by treaties between two or more States whose functions transcend national boundaries and which are for certain purposes subjects of international law. Public international organizations (as distinguished from "private" or "non-governmental" organizations) include global, all-purpose organizations; specialized agencies of the United Nations; other global functional organizations; and regional organizations. Thus, international organizations like Asian Development Bank (ADB) and International Rice Research Institute (IRRI) created out of an international agreement to which the Philippines is a signatory, are not required to withhold any tax on compensation payments made by it to its Filipino employees. (BIR Ruling No. 228-92 dated August 21, 1992) On the other hand, Non-Governmental Organizations (NGO's) are private, international organizations that serve as a mechanism for cooperation among private national groups in international affairs, particularly in economic, social, cultural, humanitarian, and technical fields. Under Art. 71 of the UN Charter, the Economic and Social Council is empowered to make suitable arrangements for consultation with NGO's on matters within its competence. Except for limited purposes under international humanitarian law. NGO's are not subjects of international law. Examples of NGO's include the International Committee of the Red Cross (ICRC); consumer and producer associations; religious groups; teacher organizations; professional, legal, civic (e.g. Rotary Club of Manila), and medical societies; and trade unions. (International Law and World Politics by Edgardo L. Paras Sr. and Edgardo C. Paras Jr. 1994 Revised Edition) Based on the above, Helen Keller International, Inc. is not an international organization or entity having international personality as contemplated under the aforequoted Section 2.78 (B)(5) of Revenue Regulations 2-98 but rather an international non-government private voluntary organization (NGO) which was duly granted a license to transact business by the Securities and Exchange Commission. It is therefore required to withhold the corresponding withholding tax on compensation for the salaries and wages it pays to its employees. LexLib In view thereof, your request for a certificate of exemption from withholding taxes on compensation for the employees and staff of Helen Keller International, Inc. is hereby denied for lack of legal basis. Accordingly, Helen Keller International, Inc. shall withhold and remit to BIR the corresponding withholding tax on compensation for the salaries and wages it pays to its employees in accordance with Section 2.79 in relation to Section 2.78.1 of Revenue Regulations No. 2-98. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue