Salaries Paid to Employees are Not Subject to Withholding Tax on Wages

November 20, 1989 BIR RULING NO. 232-89 71 (a) 037-89 232-89 Gentlemen : This refers to your letter dated October 24, 1989 requesting in behalf of your client, the American Bureau of Shipping, Inc., (ABS), confirmation of your opinion that the salaries it pays to its employees are not subject to withholding tax on wages, pursuant to Section 71(a)(4) of the Tax Code, on the ground that it is an international organization. It is represented that ABS is a non-stock, non-profit corporation duly organized in accordance with the laws of the State of New York, U.S.A.; that the principal purpose of ABS is the protection of life and property at sea by establishing safety standards for the construction and maintenance of ocean-going vessels and testing materials to assure compliance with said standards; that to attain said purpose, ABS reviews plans and specifications in connection with ship construction, classification of vessels, testing of materials used in the construction, maintenance and repair of vessels to assure their sea worthiness; that in the aforementioned undertakings, ABS derives fees which constitute its source of income; that its income is credited to its working fund and no part of its net income inures to the benefit of any private individual or member; that to pursue the above objectives, ABS employs regional managers, field staff and representatives, field surveyors and other employees all over the world including the Philippines. In reply, please be informed that your opinion to the effect that the salaries being paid by your client, the American Bureau of Shipping, Inc., (ABS), an international organization, to its employees are not subject to the withholding tax on wages is hereby confirmed. Under Section 71(a) of the Tax Code, as amended, the term "wages" means all remuneration (other than fees paid to a public official) for the cash value of all remuneration paid in any medium other than cash, except that such term shall not include remuneration paid, among others, for services by a citizen or resident of the Philippines for a foreign government or an international organization. However, said Filipino employees are required to file their income tax returns in compliance with Section 44 of the Tax Code, as amended by Executive Order No. 273 [Sec. 3(e), Revenue Regulations No. 6-82]. cdta Very truly yours, (SGD.) VICTOR A. DEOFERIO, JR. Deputy Commissioner