ITAD BIR Ruling No. 010-15

January 21, 2015 ITAD BIR RULING NO. 010-15 Article 21 (Teachers), Philippines-United States of America tax treaty International School Manila, Inc. University Parkway Fort Bonifacio Taguig City Attention: Atty. Ma. Karina H. Tanega General Counsel Gentlemen : This refers to your tax treaty relief application ("TTRA") filed on November 15, 2013 requesting confirmation that salaries and other remuneration paid by International School Manila, Inc. ("International School") to Ms. Christine Miyuki Yamanaka are exempt from income tax pursuant to the Convention between the Government of the Republic of the Philippines and the Government of the United States of America with Respect to Taxes on Income ("Philippines-United States tax treaty") . Facts Ms. Yamanaka is a citizen and resident of the United States based on her United States passport and driver's license and the Certificate of Residence issued by the Internal Revenue Service on May 28, 2013. She resides at 6401 W. Lupine Avenue Glendale, Arizona, United States. On the other hand, International School is a domestic non-stock corporation located at University Parkway, Fort Bonifacio, Taguig City, Philippines. On August 22, 2013, International School and Ms. Yamanaka entered into an Overseas Hire Contract where International School hired Ms. Yamanaka as teacher for school year 2013-2014. As compensation, Ms. Yamanaka is entitled to receive an annual salary of US$46,500.00 and other monetary and non-monetary benefits from International School. Based on the Certification issued by International School on August 14, 2013, Ms. Yamanaka has been invited by and is under contract to teach at the school for two years from August 2013 to July 2015. Ms. Yamanaka arrived in the country on July 25, 2013 . Ruling In reply, please be informed that under Section 25 (A) (1), in relation to Section 24 (A) (1) (c), of the National Internal Revenue Code of 1997 ("Tax Code") , as amended, the salaries and other remuneration paid to Ms. Yamanaka , a teacher, are subject to income tax as follows: EACTSH "SEC. 25. Tax on Nonresident Alien Individual. (A) Nonresident Alien Engaged in Trade or Business Within the Philippines. (1) In General A nonresident alien individual engaged in trade or business in the Philippines shall be subject to an income tax in the same manner as an individual citizen and a resident alien individual, on taxable income received from all sources within the Philippines. A nonresident alien individual who shall come to the Philippines and stay therein for an aggregate period of more than one hundred eighty (180) days during any calendar year shall be deemed a 'nonresident alien doing business in the Philippines' , Section 22(G) of this Code notwithstanding." "SEC. 24. Income Tax Rates. (A) Rates of Income Tax on Individual Citizen and Individual Resident Alien of the Philippines. (1) An income tax is hereby imposed: xxx xxx xxx (c) On 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. The tax shall be computed in accordance with and at the rates established in the following schedule: Not over P10,000 5% Over P10,000 but not over P30,000 P500+10% of the excess over P10,000 Over P30,000 but not over P70,000 P2,500+15% of the excess over P30,000 Over P70,000 but not over P140,000 P8,500+20% of the excess over P70,000 Over P140,000 but not over P250,000 P22,500+25% of the excess over P140,000 Over P250,000 but not over P500,000 P50,000+30% of the excess over P250,000 Over P500,000 P125,000+32% of the excess over P500,000 "For married individuals, the husband and wife, subject to the provision of Section 51(D) hereof, shall compute separately their individual income tax based on their respective total taxable income: Provided, That if any income cannot be definitely attributed to or identified as income exclusively earned or realized by either of the spouses, the same shall be divided equally between the spouses for the purpose of determining their respective taxable income. Provided, That minimum wage earners as defined in Section 22(HH) of this Code shall be exempt from the payment of income tax on their taxable income. Provided, further, That the holiday pay overtime pay and hazard pay received by such minimum wage earners shall likewise be exempt from income tax." However, under Section 32 (B) (5) of the Tax Code, such income may be exempt from income tax or subject to a reduced rate to the extent required by any treaty obligation on the Philippines, thus: CaTcSA "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." With respect to a treaty, you invoke the Philippines-United States tax treaty. Paragraph 1, Article 21 thereof provides: "Article 21 Teachers 1. Where a resident of one of the Contracting States is invited by the Government of the other Contracting State, a political subdivision or local authority thereof, or by a university or other recognized educational institution in that other Contracting State to come to that other Contracting State for a period not expected to exceed 2 years for the purpose of teaching or engaging in research, or both, at a university or other recognized educational institution and such resident comes to that other Contracting State primarily for such purpose, his income from personal services for teaching or research at such university or educational institution shall be exempt from tax by that other Contracting State for a period not exceeding 2 years from the date of his arrival in that other Contracting State." Based on the above-mentioned provision, income derived by a resident of the United States from teaching at a university or other recognized educational institution in the Philippines pursuant to an invitation of the Government of the Philippines or a political subdivision or local authority of the Philippines, or of the university or the educational institution itself, shall be exempt from income tax in the Philippines for a period of two years from the date of his first arrival in the Philippines. Accordingly, since Ms. Yamanaka has been invited and is under contract to teach at International School, salaries, allowances, and other monetary and non-monetary benefits received for this purpose by Ms. Yamanaka for a period of two years from July 25, 2013 to July 24, 2015 are exempt from Philippine income tax pursuant to paragraph 1, Article 21 of the Philippines-United States tax treaty. This ruling is issued on the basis of the foregoing facts as represented. However, if upon investigation it shall be disclosed or discovered that the actual facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. HaSEcA Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner Bureau of Internal Revenue