Siguion Reyna Montecillo & Ongsiako Law Office

March 15, 2018 ITAD BIR RULING NO. 040-18 Article 21, Philippines- Korea Tax Treaty Siguion Reyna Montecillo & Ongsiako Law Office 4th & 6th Floors, Citibank Center 8741 Paseo de Roxas Makati City Attention: AAA BBB Gentlemen : This refers to your tax treaty relief applications filed on June 5, 2012 requesting confirmation that salaries and other remuneration paid to CCC (" CCC ") and DDD (" DDD ") paid to them by the International School Manila, Inc. (" International School ") are exempt from income tax pursuant to Article 21 of the Convention between the Republic of the Philippines and the Republic of Korea for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income (" Philippines-Korea tax treaty "). CTIEac It is represented that CCC and DDD are citizens of the Korea and residents thereof for tax purposes based on the Certificate of Fiscal Residence issued by HM Revenue and Customs; that per Certifications issued by the Department of Trade and Industry, CCC and DDD do not show registration under their names; that International School invited CCC and DDD to teach for period of two years from August 2011 to July 2013; that in consideration of the personal services for teaching, CCC will be paid a salary of _______________ US dollars (__________) for the school year 2011-2012 and for DDD will be _______________ US dollars (__________) per Overseas Hire Contracts dated October 5, 2011; and that based on their passports, CCC and DDD arrived in the Philippines on July 22, 2011 and July 24, 2011, respectively. In reply, please be informed that under Section 24 (A) (1) (c), in relation to Section 25 (A) (1) 1 of the National Internal Revenue Code of 1997 ("Tax Code"), as amended, remuneration paid to non-resident aliens deemed engaged in trade or business in the Philippines are subject to income tax as follows: " 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+34% of the excess over P500,000 in 1998. Provided, That effective January 1, 1999, the top marginal rate shall be thirty-three percent (33%) and effective January 1, 2000, the said rate shall be thirty-two percent (32%). xxx xxx xxx" However, under Section 32 (B) (5) of the Tax Code, such remuneration may be exempt or subject to a reduced rate of income tax to the extent required by any treaty obligation on the Philippines, thus: "SEC. 32. Gross Income. xxx xxx xxx (1) 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 Article 21 of the Philippines-Korea tax treaty. It provides: "Article 21 PROFESSORS AND TEACHERS 1. Remuneration which a professor or a teacher , who is or was a resident of one of the Contracting States and who visits the other Contracting State for a period not exceeding two years for the purpose of teaching or carrying out advanced study or research at a university, college, school or other educational institution, receives for those activities shall be taxable only in the first-mentioned State . 2. For the purposes of paragraph 1 of this Article, the term "remuneration" shall include remittances from sources outside the other State sent to enable the professor or teacher to carry out the purposes referred to in paragraph 1. (emphasis supplied)" Based on the aforequoted provision, remuneration which a professor or teacher, who is or was a resident of Korea immediately before visiting the Philippines to research or to teach at a university, college, school or other educational institution in the Philippines, shall be exempt from income tax for a period not exceeding two years. SaCIDT Such being the case, this Office is of the opinion and so holds that the salaries and other remunerations paid by International School to CCC and DDD , who were residents of Korea when they arrived in the Philippines at the invitation of the International School to teach for a period not exceeding two (2) years or from August 1, 2011 to July 31, 2013 for CCC , from July 22, 2011 to July 21, 2013, and for DDD , from July 24, 2011 to July 23, 2013, shall be exempt from Philippine income tax pursuant to Article 21 of the Philippines-Korea 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. Very truly yours, (SGD.) CAESAR R. DULAY Commissioner of Internal Revenue Footnotes 1. "SECTION 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.