DA ITAD BIR Ruling No. 153-06

December 12, 2006 DA ITAD BIR RULING NO. 153-06 Article 4, Philippines-Spain tax treaty Laya Mananghaya & Co . Certified Public Accountants and Management Consultants 22/F Philamlife Tower 8767 Paseo de Roxas Makati City 1226 Attention: Raymund S. Gallardo Partner, Tax and Corporate Services Melea B. Solis-Cruz Manager, Tax and Corporate Services Gentlemen : This refers to your letters dated 17 October 2005 and 28 December 2005, on behalf of your client, Solid Cement Corporation (SCC), requesting for the correct tax treatment of income earned in the Philippines of its expatriate employee by the name of Mr. Jaime Ruiz de Haro , and his spouse, Mrs. Esther Sulis Massana . It is represented that Mr. De Haro , a Spanish national, has been employed by SCC, a member of the CEMEX Philippine Group of Companies, since May 5, 2003 up to the present with no definite intention of returning to his home country; that he is the President and Chief Executive Officer of SCC; that by virtue of his position in SCC, the spouses have been staying in the Philippines since the said date; that as an alien individual working in the Philippines for an indefinite period of time, Mr. De Haro filed his 2003 and 2004 income tax returns with the Philippine Bureau of Internal Revenue; that Mr. De Haro's wages are being paid under a split-pay arrangement, i.e ., a portion of his income is being paid in Spain and the remaining portion is being paid in the Philippines; that as can be noted in his 2004 (but not in his 2003) Philippine income tax return, Mr. De Haro remitted additional income tax upon filing thereof because the offshore portion (being paid in Spain) was not subjected to withholding taxes, since SCC has no control over its payment; that in computing his income tax liability, he has been treated as a resident alien for income tax purposes pursuant to Section 5 of Revenue Regulations No. 2; that Mrs. Massana has not been deriving income from Philippine sources; that she is a plain housewife; and that Mr. De Haro and Mrs. Massana are holders of Alien Certificates of Registration and Certificates of Residence (Temporary) which are issued by the Philippine Bureau of Immigration. In reply, please be informed that under Section 22(F) of the National Internal Revenue Code (Tax Code) of 1997, the term " resident alien " means an individual whose residence is within the Philippines and who is not a citizen thereof. HDTSIE In relation thereto, Section 4 of Revenue Regulations No. 2 (Income Tax Regulations) provides as follows, viz : "An alien actually present in the Philippines who is not a mere transient or sojourner is a resident of the Philippines for purposes of the income tax. Whether he is a transient or not is determined by his intentions with regard to the length and nature of his stay. A mere floating intention indefinite as to time, to return to another country is not sufficient to constitute him a transient. If he lives in the Philippines and has no definite intention as to his stay, he is a resident. One who comes to the Philippines for a definite purpose which in its nature may be promptly accomplished is a transient. But if his purpose is of such a nature that an extended stay may be necessary for its accomplishment, and to that end the alien makes his home temporarily in the Philippines, he becomes a resident, though it may be his intention at all times to return to his domicile abroad when the purpose for which he came has been consummated or abandoned." Based on the foregoing, it can be deduced that an alien (or one who is not a citizen of the Philippines) may be considered a resident of the Philippines for income tax purposes if: (1) he or she is not a mere transient or sojourner, (2) he or she has no definite intention as to his stay, or (3) his or her purpose is of such a nature that an extended stay may be necessary for its accomplishment, and to that end the alien makes his or her home temporarily in the Philippines. Thus, Mr. De Haro and Mrs. Massana are considered residents of the Philippines for purposes of our income tax laws. Section 23(D) of the Tax Code provides that, "(a)n alien individual, whether a resident or not of the Philippines, is taxable only on income derived from sources within the Philippines ". Furthermore, Section 24(A)(1)(c) of the same Code provides that "(a)n income tax is hereby imposed: . . . (o)n the taxable income defined in Section 31 of this Code, other than income subject to tax under Subsections (B), (C) and (D) of this Section, derived for each taxable year from all sources within the Philippines by an individual alien who is a resident of the Philippines". Accordingly, compensation received by Mr. De Haro for labor or personal services performed in the Philippines is treated as his gross income from sources within the Philippines under Section 42(A) of the Tax Code which provides that: "SEC. 42. Income from Sources Within the Philippines . (A) Gross Income From Sources Within the Philippines . The following items of gross income shall be treated as gross income from sources within the Philippines: xxx xxx xxx (3) Services . Compensation for labor or personal services performed in the Philippines; xxx xxx xxx" Based on the foregoing, Mr. De Haro is correct in including his wages or salaries coming from Spain (under the split-pay arrangement) in computing his income tax liability in the Philippines, because in earning such wages or salaries, he renders personal service in the Philippines as President and Chief Executive Officer of SCC and thus, payments received in consideration thereof is gross income from sources within the Philippines. cDCEIA In sum, this Office is of the opinion as it hereby holds that Mr. De Haro and Mrs. Massana ( once gainfully employed ), are resident aliens under the Tax Code of 1997 and are liable to tax in the Philippines " in respect only of income from sources therein ". This ruling is issued based on the facts as represented. However, if upon investigation it shall be disclosed that the facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. Very truly yours, (SGD.) JOSE MARIO C. BUAG Commissioner of Internal Revenue