BIR Ruling No. 449-13

November 27, 2013 BIR RULING NO. 449-13 RA 8756; Secs. 28 A (6) (a) and 109 (1) (J) of the Tax Code, as amended Sycip Salazar Hernandez & Gatmaitan SSHG Law Centre 105 Paseo De Roxas, Makati City Attention: Thaddeus R. Alvizo Gentlemen : This refers to your letter dated January 27, 2012 duly indorsed by Revenue Region 13-Cebu City requesting, in behalf of Inserve Marine Technical Services LTD (Representative Office), for amendment of its Certificate of Registration, in effect a request for a ruling of exemption from income tax and value-added tax (VAT). It is represented that Inserve Marine Technical Services LTD (Representative Office) is a foreign company organized and existing under the laws of England and duly licensed by the Securities and Exchange Commission under SEC Registration No. FS201108626 dated May 27, 2011 with TIN 411-442-606-000; and that the purposes which it intends to pursue in the transacting of its business in the Philippines is to act are communication office and to promote and disseminate information about the company with marine insurance companies, insurance brokers and shipping industries. In reply, please be informed that Republic Act (RA) No. 8756 1 provides the following as regards the licensing of Regional or Area Headquarters: "Chapter I LICENSING OF REGIONAL OR AREA HEADQUARTERS Art. 58. Qualification of Regional or Area Headquarters. Any foreign business entity formed, organized and existing under any laws other than those of the Philippines, whose purpose, as expressed in its organizational documents or by resolution of its Board of Directors or its equivalent, is to supervise, superintend, inspect or coordinate its own affiliates, subsidiaries or branches in the Asia-Pacific Region and other foreign markets may establish a regional or area headquarters in the Philippines, by securing a license therefor from the Securities and Exchange Commission, upon the favorable recommendation of the Board of Investments. aSAHCE The Securities and Exchange Commission shall, within thirty (30) days from the effectivity of this Code, issue the implementing rules and regulations. The following minimum requirements shall, however, be complied with by the said foreign entity:" (emphasis supplied) In relation to this, Sec. 28 (A) (6) and Sec. 109 (1) (J) of the Tax Code of 1997, as amended, provide tax exemptions to regional or area headquarters, to wit: "Sec. 28. Rates of Income Tax on Foreign Corporations. A. Tax on Resident Foreign Corporations. xxx xxx xxx (6) Regional or Area Headquarters and Regional Operating Headquarters of Multinational Companies. (a) Regional or area headquarters as defined in Section 22 (DD) 2 shall not be subject to income tax. xxx xxx xxx" "Sec. 109. Exempt Transactions. (1) Subject to the provisions of Subsection (2) hereof, the following transactions shall be exempt from the value-added tax. xxx xxx xxx (J) Services rendered by regional or area headquarters established in the Philippines by multinational corporations which act as supervisory, communications and coordinating centers for their affiliates, subsidiaries or branches in the Asia-Pacific Region and do not earn or derive income from the Philippines; xxx xxx xxx" Clearly, the above-quoted provisions are tax exemptions given to regional or area headquarters and do not grant the same to a representative office as in the case of Inserve Marine Technical Services LTD (Representative Office). It is apparent that the tax code provisions, granting exemption from income tax and VAT, is limited to regional or area headquarters. It should be remembered that laws and statutes granting tax exemptions are strictly construed against the taxpayer. Exemptions are never presumed and the burden is upon the taxpayer to establish his right to exemption beyond reasonable doubt. 2 In the case of Mactan Cebu International Airport Authority v. Marcos , 3 the Supreme Court held: TcDaSI "Accordingly, tax statutes must be construed strictly against the government and liberally in favor of the taxpayer. But since taxes are what we pay for civilized society, or are the lifeblood of the nation, the law frowns against exemptions from taxation and statutes granting the exemptions are thus construed strictissimi juris against the taxpayer and liberally in favor of the taxing authority. A claim of exemption from tax payments must be clearly shown and based on language in the law too plain to be mistaken. Elsewise stated, taxation is the rule, exemption therefrom is the exception." In view of the foregoing, the request for amendment of Inserve Marine Technical Services LTD (Representative Office)'s Certificate of Registration, in effect a request for a ruling of exemption from income tax and value-added tax (VAT), is hereby denied for lack of legal basis. Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. AN ACT PROVIDING FOR THE TERMS, CONDITIONS AND LICENSING REQUIREMENTS OF REGIONAL OR AREA HEADQUARTERS, REGIONAL OPERATING HEADQUARTERS, AND REGIONAL WAREHOUSES OF MULTINATIONAL COMPANIES, AMENDING FOR THE PURPOSE CERTAIN PROVISIONS OF EXECUTIVE ORDER NO. 226, OTHERWISE KNOWN AS THE OMNIBUS INVESTMENTS CODE OF 1987. 2. A branch established in the Philippines by multinational companies and which headquarters do not earn or derive income from the Philippines and which act as supervisory, communications and coordinating center for their affiliates, subsidiaries, or branches in the Asia-Pacific Region and other foreign markets. 2. Dimaampao, Japar B., Tax Principles and Remedies, Second Edition (2005). 3. G.R. No. 120082, 11 September 1996, 261 SCRA 667.