ITAD BIR Ruling No. 067-10

November 30, 2010 ITAD BIR RULING NO. 067-10 Article 20, Philippines-Germany tax treaty; BIR Ruling No. DA-ITAD-85-05; BIR Ruling No. DA-ITAD-30-06 European International School, Inc. 75, Swaziland Street, Better Living Subdivision 1711 Paraaque City, Metro Manila Attention: Mr. Giuseppe Violante Administrator Gentlemen : This refers to your letter dated September 19, 2008 applying for tax treaty relief on the salaries and/or other emoluments received by teachers in the Deutsche Schule Manila (German School Manila) (GES) namely: Ms. Imken Kristin Osburg and Mr. Matthias Flling , for a period not exceeding two (2) years pursuant to Article 20 of the Philippines-Germany tax treaty. It is represented that GES is the German component of the European International School with principal address at 75, Swaziland Street, Better Living Subdivision, 1711 Paraaque City, Metro Manila; that the above-named teachers are residents of the Federal Republic of Germany as confirmed by the Embassy of the Federal Republic of Germany in Manila in its letter dated September 17, 2008; that GES entered into a Contract of Local Employment with the above-named teachers for a period not exceeding two years, as follows: Name Duration of Contract 1) Ms. Imken Kristin Osburg August 1, 2008-June 30, 2010 2) Mr. Matthias Flling August 1, 2008-July 31, 2010 In reply, please be informed that Section 23 (D) of the National Internal Revenue Code (Tax Code) of 1997, as amended, provides that an alien individual, whether a resident or not of the Philippines is taxable only on his income derived from sources within the Philippines. An alien individual classified either as a resident alien 1 or nonresident alien individual engaged in trade or business in the Philippines 2 is liable to Philippine taxation based on his taxable income. 3 DIEACH On the other hand, an alien individual classified as a nonresident alien not engaged in trade or business in the Philippines is liable to Philippine taxation based on his gross income. 4 It is noteworthy that a nonresident alien individual who shall come to the Philippines and stay therein for an aggregate period of 180 days during any calendar year shall be deemed a nonresident alien doing business in the Philippines, Section 22 (G) notwithstanding. 5 All told however, Section 32 (B) (5) of the same, as amended provides: "Section 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. xxx xxx xxx" In accordance with the foregoing, Article 20 of the Philippines-Germany tax treaty provides as follows, to wit: "Article 20 TEACHERS AND RESEARCHERS 1. Remuneration which a professor or teacher, who is or immediately before was a resident of a Contracting State and who visits the other Contracting State for a period not exceeding two years for the purpose of carrying out advanced study or research or for teaching at a university, college, school or other educational institution, receives for such work shall not be taxed in that Contracting State. 2. This Article shall not apply to income from research if such research is undertaken not in the general interest but primarily for the private benefit of a specific person or persons." Thus, based on the aforequoted provisions, it is clear that the remuneration paid to teachers, who are or immediately before, were residents of Germany and who stay in the Philippines for the purpose of teaching for a period not exceeding two years shall not be subject to Philippine income tax. CTSHDI In view of the foregoing, this Office is of the opinion and so holds that the subject salaries and/or emoluments of Ms. Imken Kristin Osburg and Mr. Matthias Flling , for teaching in GES for a period not exceeding two (2) years pursuant to their respective Contract of Local Employment with GES shall not be subject to Philippine income tax. (BIR Ruling No. DA-ITAD 85-05 dated August 23, 2005; BIR Ruling No. DA-ITAD-30-06 dated March 16, 2006) 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.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue Footnotes 1. Sec. 22 (F) of the Tax Code of 1997, as amended. 2. Secs. 22 (G), 25 (A) (1), supra. 3. Sec. 24 (A), supra. 4. Sec. 25 (B), supra. 5. Sec. 25 (A) (1), last sentence.