International School Manila

March 28, 2018 ITAD BIR RULING NO. 054-18 Article 21 (Teachers) Philippines- United States of America tax treaty International School Manila University Parkway, Fort Bonifacio 1634 Taguig City Attention: AAA __________ Gentlemen : This refers to your tax treaty relief applications filed on November 15, 2012 requesting confirmation that remuneration paid by International School Manila, Inc. (" International School ") to the following teachers: BBB, CCC, DDD, EEE , and FFF (collectively, " the teachers "), 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-US tax treaty "). ITCcAD FACTS It is represented that the above-named teachers are American citizens and holders of American passports and residents of the United States based on their respective Certificates of Residence issued by the Internal Revenue Service; that the names of those teachers are not registered business names in the Philippines based on the respective certifications issued by the Department of Trade and Industry; that they have Overseas Hire Contracts with International School where they were contracted to teach for school years August 2012 to July 2014 (in the case of one teacher), August 2013 to July 2014 (one teacher) and August 2012 to July 2014 (three teacher); and that International School is a private, non-profit, non-sectarian day school for boys and girls from Preschool to Grade 12. 1 RULING In reply, please be informed that the above-named teachers, by reason of their stay in the Philippines for more than 180 days in calendar years 2012, 2013, 2014 and 2015, as the case may be, as a result of their employment in the country, are considered nonresident alien individuals engaged in trade or business under Section 25 (A) (1) of the National Internal Revenue Code of 1997, as amended (" Tax Code "), to wit: " 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." Under Section 25 (A) (1), income of those teachers is taxed in the same manner as that derived by resident Filipino citizens and resident aliens in the Philippines, particularly: " TAX ON INDIVIDUALS SEC. 24. Income Tax Rates. (A) Rates of Income Tax on Individual Citizen and Individual Resident Alien of the Philippines. xxx xxx xxx (2) Rates of Tax on Taxable Income of Individuals. 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, night shift differential 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 is exempt to the extent required by any treaty obligation on the Philippine government, 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: aHECST 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 this regard, Article 21 of the Philippines-United States tax treaty provides relief to visiting teachers from the United States at the invitation of a university or other recognized educational institution in the Philippines, thus: " 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." Accordingly, pursuant to Article 21 of the Philippines-United States tax treaty, considering that the above-named teachers were residents of the United States before coming to the Philippines, remuneration paid to them by International School are exempt from income tax for a period of 2 years from the date of their first arrival in the Philippines. Based on the date of arrival stamped on their passports, their exemption is valid as follows: Name From Until BBB July 21, 2012 July 20, 2014 CCC July 24, 2013 July 23, 2015 DDD July 25, 2013 July 24, 2015 EEE July 27, 2013 July 26, 2015 FFF July 25, 2013 July 24, 2015 After the lapse of 2 years, the remuneration of those teachers are subject to income tax at the rates described in Section 24 (A) (2) of the Tax Code. 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 Footnotes 1. http://www.ismanila.org/About-Us .