AAA

January 23, 2018 ITAD BIR RULING NO. 005-18 Sections 22 (E), 23 (B) and 42 [(A) (3) and (C) (3)]; National Internal Revenue Code of 1997, as amended AAA ____________________ ____________________ ____________________ Gentlemen : This refers to AAA 's email dated September 19, 2014 requesting clarification on his taxation treatment as a citizen of the Philippines currently deployed in Taiwan. SDHTEC FACTS It is represented that AAA is an employee of Banco De Oro Unibank, Inc. (" BDO "), a domestic corporation organized and existing under the laws of the Philippines; that on July 15, 2011, AAA and BDO entered into an Agreement where AAA was assigned by BDO to work as Marketing Officer in BDO's Representative Office in Taipei, Taiwan (" Taipei Representative Office "); that the agreement has an effectivity of one year from the date of execution thereof, and renewable automatically for the same period under the same terms and conditions of the agreement; that if AAA terminates the agreement but has not served an aggregate of at least five years in his overseas assignment, he will reimburse BDO of all costs and expenses incurred in his deployment amounting to 300,000 pesos, and that BDO will cancel or cause the cancellation of his visa; that reimbursement may be deducted from AAA 's retirement or separation benefits; that as an overseas employee, AAA is entitled to salaries and other benefits including a monthly allowance of __________ Taiwanese dollars to cover his rental cost, utilities, meals, local transport, and overtime entitlements; that AAA is also entitled to uniforms, home leave, and special allowance equivalent to one month's overseas allowance or 13th month pay; that BDO will shoulder AAA 's visa and work permits and roundtrip airfare for his annual leave; that while on overseas assignment, AAA will report to his immediate supervising officer in Taipei Representative Office and likewise to his home base unit in the Philippines, unless otherwise advised; and that AAA will submit his daily timesheet and leave form to the human resources department of his home unit. It is further represented that based on certification issued by BDO on October 29, 2014, AAA is now holding a position of Manager 1 at the Remittance Distribution, Business Support and Administration Support of the Taipei Representative Office; and that AAA 's salaries, benefits and allowances had been subjected to income tax in Taiwan as supported by his 2013 Aliens Individual Income Tax E-Filing Receipt, and in the Philippines as evidenced by his 2013 BIR Form 2316 (Certificate of Compensation Payment/Tax Withheld). It is finally represented that in 2011, AAA did not pay income tax in Taiwan by reason of his non-residency in that country where he stayed for less than 185 days; that, however, in 2012, 2013 and 2014, AAA , by reason of his residence, had been subjected to income tax in Taiwan with respect to salaries, benefits and allowances received from BDO; and that, likewise, those salaries, benefits and allowances had been subjected to income tax in the Philippines by reason of AAA being an employee of BDO and included in its payroll. RULING In reply, please be informed that on account of one's independence, a territory has the power of taxation where it can tax its subjects by reason of their residence therein, or tax income or capital arising or situated therein by reason of situs. In the case of AAA , his salaries, benefits and allowances were taxed in Taiwan because of his residence in that country, and his work that gave rise to such income was exercised in that territory. On AAA 's concern that the same salaries, benefits and allowances were taxed in the Philippines, this is logical since he is an employee of BDO and included in its alphalist of employees whose salaries and other compensation are automatically subjected to creditable withholding tax. Nonetheless, given AAA 's circumstances, we believe that his income in 2012, 2013 and 2014 should not be taxed in the Philippines based on the relevant provisions of the National Internal Revenue Code of 1997, as amended (" Tax Code "). First , in 2012, 2013 and 2014 and in the succeeding years covered by AAA 's overseas agreement with BDO, he is considered a nonresident citizen of the Philippines, as defined below in Section 22 (E)[(2) and (3)] of the Tax Code, which provides: " SEC. 22. Definitions. When used in this Title: xxx xxx xxx (E) The term ' nonresident citizen ' means; (1) A citizen of the Philippines who establishes to the satisfaction of the Commissioner the fact of his physical presence abroad with a definite intention to reside therein. (2) A citizen of the Philippines who leaves the Philippines during the taxable year to reside abroad , either as an immigrant or for employment on a permanent basis . AScHCD (3) A citizen of the Philippines who works and derives income from abroad and whose employment thereat requires him to be physically present abroad most of the time during the taxable year . (4) A citizen who has been previously considered as nonresident citizen and who arrives in the Philippines at any time during the taxable year to reside permanently in the Philippines shall likewise be treated as a nonresident citizen for the taxable year in which he arrives in the Philippines with respect to his income derived from sources abroad until the date of his arrival in the Philippines. (5) The taxpayer shall submit proof to the Commissioner to show his intention of leaving the Philippines to reside permanently abroad or to return to and reside in the Philippines as the case may be for purpose of this Section." (Emphasis ours) Under the agreement, AAA is obliged to reside in Taiwan for an aggregate of at least five years thereby making him absent in the Philippines in the taxable years concerned. This period which does not run merely in days but years makes AAA 's employment and assignment in Taiwan of a permanent character rather than temporary. In 2012, 2013 and 2014, AAA is considered already a resident of Taiwan because his stay in that country in each year is more than 185 days. Second , under Section 23 (B) of the Tax Code below, AAA , as nonresident citizen, is subject to income tax in the Philippines only on income derived from sources in the Philippines, to wit: " SEC. 23. General Principles of Income Taxation in the Philippines . Except when otherwise provided in this Code: xxx xxx xxx ( B) A nonresident citizen is taxable only on income derived from sources within the Philippines;" Third , under Section 42 [(A) (3) and (C) (3)] of the Tax Code below, in the case of income from personal services, it defines clearly when such income is derived from sources within or outside the Philippines, thus: " 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 (C) Gross Income From Sources Without the Philippines. The following items of gross income shall be treated as income from sources without the Philippines: xxx xxx xxx (3) Compensation for labor or personal services performed without the Philippines;" Under this section, compensation for labor or personal services is derived from sources within the Philippines if the services are performed therein, and outside if the services are performed outside the Philippines. In view of the foregoing, since AAA is a nonresident citizen in 2012, 2013 and 2014 and his work in those years was exercised in Taiwan and not the Philippines, his salaries, benefits and allowances received from BDO in those years and until the final year of his overseas assignment in Taiwan are not considered derived from sources within the Philippines. This being so, such salaries, benefits and allowances are exempt from income tax in the Philippines pursuant to Section 23 (B) of the Tax Code. Finally, AAA is entitled to refund the amount of creditable withholding tax imposed on his salaries, benefits and allowances in those years but subject to the two-year limitation under Section 229 of the Tax Code below: " SEC. 229. Recovery of Tax Erroneously or Illegally Collected . No suit or proceeding shall be maintained in any court for the recovery of any national internal revenue tax hereafter alleged to have been erroneously or illegally assessed or collected, or of any penalty claimed to have been collected without authority, of any sum alleged to have been excessively or in any manner wrongfully collected without authority, or of any sum alleged to have been excessively or in any manner wrongfully collected, until a claim for refund or credit has been duly filed with the Commissioner; but such suit or proceeding may be maintained, whether or not such tax, penalty, or sum has been paid under protest or duress. AcICHD In any case, no such suit or proceeding shall be filed after the expiration of two (2) years from the date of payment of the tax or penalty regardless of any supervening cause that may arise after payment : Provided, however, That the Commissioner may, even without a written claim therefor, refund or credit any tax, where on the face of the return upon which payment was made, such payment appears clearly to have been erroneously paid." (Emphasis ours) This ruling is issued on the basis of the facts as represented. However, if upon investigation it shall be disclosed that the actual facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. Very truly yours, (SGD.) CAESAR R. DULAY Commissioner of Internal Revenue