Tax Liabilities of Expatriate Employees of Geophysical Survey Contractors

December 11, 1981 BIR RULING NO. 267-81 22-00 000-00 267-81 Guerrero and Torres Attorneys-at-Law 638 Phil. Banking Bldg. Ayala Avenue, Makati Metro Manila Attention: Mr . Luis Ma . Guerrero Philippine Counsel SEDCO Exploration of the Philippines, Inc . Gentlemen : This refers to your letter dated June 1, 1981 in behalf of your client, Sedco Exploration Company of the Philippines, Inc. (SEDCO), requesting confirmation that expatriate employees of geophysical survey contractors like Sedco are entitled to avail of 15% tax on gross income under Presidential Decree No. 1354. It is represented that under Section 2 of Presidential Decree No. 1354, expatriate employees of service contractors under Presidential Decree No. 87 and their subcontractors are taxed at 15% of gross income; that since the enactment of Presidential Decree No. 1354, the Bureau of Energy Development has modified the undertakings of service contractors by entering into geophysical survey contracts; that these contracts are similar to service contractors except that the commitment of the geophysical contractor is less than the minimum commitments under a service contract; that geophysical contractor always has the option to convert the geophysical contract to a service contract; that in effect there is no intrinsic difference between a geophysical contractor and a service contractor; that there is no reason why the expatriate employee of a geophysical contractor should not receive the same tax benefits as those of a service contractor since both contractors are engaged in oil exploration operations under Presidential Decree No. 87. In reply, please be informed that since geophysical survey contracts are incidental to petroleum operations as defined in Section 3(d) of Presidential Decree No. 87 and it is not an administrative contract pursuant to Section 2(f) of Revenue Regulations No. 15-78, the expatriate personnel who are employed and assigned in the Philippines by geophysical survey contractors or by subcontractors engaged in petroleum operations are entitled to the tax benefits under Section 2 of Presidential Decree No. 1354 imposing a final income tax equal to fifteen percent (15%) of their salaries, wages, annuities, compensation, remunerations and emoluments received from such contractors or subcontractors. The Director of the Bureau of Energy Development in his letter dated June 4, 1981 states that: "While it is true that the petroleum geophysical survey contract granted by the Ministry of Energy, thru the Bureau of Energy Development consist mainly in the seismic survey of possible petroleum potentials in the country, the contractor is first prequalified financially and technically and is required to perform definite work and financial commitments similar to a regular service contractor for petroleum exploration and development. The seismic survey operations are necessary requisite in petroleum exploratory activities to pinpoint specific areas where oil reserves may be further explored and eventually exploited. Moreover, the geophysical survey contract which in itself is in the nature of a preparatory and separate service contract, may be converted into a full-pledged service as dictated by the seismic data gathered during the geophysical survey activities." Moreover, any income earned from all other sources within the Philippines by said alien employees shall be subject to the income tax imposed under the National Internal Revenue Code. cdti Very truly yours, RUBEN B. ANCHETA Acting Commissioner