Philkoie International, Inc.

January 9, 2020 ITAD BIR RULING NO. 008-20 Section 32 (B) (5), NIRC of 1997, as amended; Section 56 (2), ADB Charter; Article XII, Section 45, Headquarters Agreement Philkoie International, Inc. Unit 1701, 17th Floor, The Orient Square Building F. Ortigas Jr. Road, Ortigas Center, San Antonio 1605 Pasig City Attention: AAA _______________ Gentlemen : This refers to your letter dated 29 March 2019 requesting an opinion on whether or not the salaries and emoluments paid by the Asian Development Bank (" ADB ") to its _______________, BBB (hereinafter referred to as " BBB ") are exempt from income tax. aDSIHc Documents submitted show that the ADB issued a Certification confirming that BBB is a ___________ for the joint venture of Nippon Koie Co., Ltd. and Professional Research and Consultancy which the ADB has retained as a consultant for TA-9248 MYA: Rural Productivity and Ecosystems Services Enhanced in Central Dry Zone Forest Reserves-TA Implementation Consultant from 12 November 2018 to 31 January 2022; that with reference to the Agreement Establishing the Asian Development Bank (" ADB Charter "), BBB is an expert performing a mission for ADB and as such, is entitled to privileges, immunities and exemptions set forth in Articles 55 and 56 (2) of the ADB Charter, including exemption from taxation in respect of salaries and emoluments paid by ADB; and finally, that the exemption from taxation under Article 56 (2) of the ADB Charter is subject to a member country's right to tax the salaries and emoluments paid by ADB to its citizens or nationals if at the time it joined the ADB, such member country retained the right to do so. In reply, please be informed of Section 32 (B) (5) of the National Internal Revenue Code (NIRC) of 1997, as amended, to wit: SEC. 32. Gross Income. xxx xxx xxx (B) Exclusions from Gross Income. The following items shall not be included in gross income and shall be exempt from taxation under this Title: xxx xxx xxx (5) Income Exempt under Treaty. Income of any kind, to the extent required by any treaty obligation binding upon the Government of the Philippines. In relation thereto, Article 56 (2) of the ADB Charter provides, viz. : "Article 56 EXEMPTION FROM TAXATION xxx xxx xxx 2. No tax shall be levied on or in respect of salaries and emoluments paid by the Bank to Directors, alternates, officers or employees of the Bank, including experts performing missions for the Bank, except where a member deposits with its instrument of ratification or acceptance a declaration that such member retains for itself and its political subdivisions the right to tax salaries and emoluments paid by the Bank to citizens or nationals of such member. x x x" Based on the above provision, salaries paid to experts performing missions for ADB are exempt from tax. However, where a member, Philippines in the instant case, deposits with its instrument of ratification or acceptance a declaration that the Philippines retains for itself and its political subdivisions the right to tax salaries and emoluments paid by the ADB to citizens or nationals of the Philippines, then the salaries paid by the ADB to such experts, who are Philippine nationals, are not exempt from tax. ATICcS Pursuant to the above provision, the Philippines made a declaration when it ratified and accepted the ADB Charter on 05 July 1966, to wit : "The Government of the Philippines declares that it retains for itself and its political subdivisions the right to tax salaries and emoluments paid by the Bank to citizens or nationals of the Philippines." 1 In connection thereto, the Agreement Between the Asian Development Bank and the Government of the Republic of the Philippines Regarding the Headquarters of the Asian Development Bank 2 (" Headquarters Agreement ") was entered into between the Philippines and the ADB on 22 December 1966. Article XII, Section 45 of the Headquarters Agreement provides, viz. : "Article XII PRIVILEGES AND IMMUNITIES OF GOVERNORS AND OTHER REPRESENTATIVES OF MEMBERS, DIRECTORS, PRESIDENT, VICE-PRESIDENT AND OTHERS Section 45 Officers and staff of the Bank, including for the purposes of this Article experts and consultants performing missions for the Bank, shall enjoy the following privileges and immunities: xxx xxx xxx (b) Exemption from taxation on or in respect of the salaries and emoluments paid by the Bank subject to the power of the Government to tax its nationals ; x x x (Underscoring ours) Based on the above provisions, as clarified under Revenue Memorandum Circular ("RMC") No. 31-2013, 3 only officers and staff of the ADB, who are not Philippine nationals, are exempt from tax in respect of salaries and emoluments paid by ADB. ETHIDa In view of all the foregoing, this Office is of the opinion as it hereby rules that the herein request for tax exemption of BBB cannot be granted for lack of legal basis. Being a Philippine national, she is not covered by the exemption from tax on salaries and emoluments paid by the ADB to experts performing missions for the bank pursuant to Section 56 (2) of the ADB Charter and Section 45, Article XII of the ADB Headquarters Agreement. Accordingly, BBB is required to file her income tax return and pay the corresponding tax due on such income. Please be guided accordingly. Very truly yours, (SGD.) CAESAR R. DULAY Commissioner of Internal Revenue Footnotes 1. https//treaties.un.org/doc/Publication/MTDSG/Volume%201/Chapter%20X/X-4.en.pdf . 2. On 18 May 1967, the Senate of the Philippines, under Senate Resolution No. 386 concurred in the ratification of the Headquarters Agreement. 3. Guidelines on the Taxation of Compensation Income of Philippine Nationals and Alien Individuals Employed by Foreign Governments/Embassies/Diplomatic Missions and International Organizations Situated in the Philippines.