IRRI Not Required to Withhold Any Tax on Compensation Payments Made to Its Filipino Employees

August 21, 1992 BIR RULING NO. 228-92 71 000-00 228-92 Joaquin Cunanan and Co. 8th Floor, BA-Lepanto Building 8747 Paseo de Roxas Makati, Metro Manila Attention: Mr . Rene G . Baez Gentlemen : This refers to your letter dated July 18, 1991 requesting for a confirmation of your opinion that the International Rice Research Institute (IRRI) is not required to withhold any tax on compensation payments made to its Filipino employees nor submit an information return of income payments. It is represented that IRRI was created on December 8, 1959 by virtue of a Memorandum of Understanding between the Ford and Rockefeller Foundations, and the Philippine Government; that it was incorporated under Philippine laws as a non-stock, non-profit and philanthropic corporation to establish, maintain and operate an international rice research institute designed to pursue specific objectives; and finally, that on April 19, 1979, it was granted the status, prerogatives, privileges and immunities of an international organization with the issuance of Presidential Decree No. 1620. In reply, please be informed that Section 71 (a)(4) of the Tax Code, as amended, provides as follows: "Sec. 71. Definitions . As used in this Chapter (Withholding on Wages). (a) Wages . The term "wages" means all remuneration (other than fees paid to a public official) for services performed by an employee for his employer, including the cash value of all remunerations paid in any medium other than cash, except that such term shall not include remuneration paid xxx xxx xxx "(4) For services by a citizen, or resident of the Philippines for a foreign government or an international organization. To implement the above-quoted provision, Revenue Regulations No. 12-86 likewise provides in Section 3 thereof that: "Sec. 3. Exceptions from Withholding . The following income payments are excepted from the requirement of withholding: xxx xxx xxx e. Compensation for services by citizen or resident of the Philippines for a foreign government or an international organization . Remuneration paid for services performed as an employee of a foreign government or an international organization is excepted. xxx xxx xxx All such employees who are citizens or residents are required to file their income tax returns in compliance with Section 45 (now Section 44) of the Tax Code." Considering the foregoing and in view of the fact that the Government of the Republic of the Philippines recognizes the IRRI as an international organization (Article 1, PD 1680), the latter is not required to withhold any tax on compensation payments made by it to its Filipino employees. However, the employees who are citizens or residents are required to declare such income earned from IRRI in the income tax returns which they are required to file pursuant to Section 44 of the Tax Code, as amended. cdt Very truly yours, JOSE U. ONG Commissioner of Internal Revenue