ITAD BIR Ruling No. 071-10

December 6, 2010 ITAD BIR RULING NO. 071-10 Article 20 (Teachers and Researchers) Philippines-Germany tax treaty; BIR Ruling No. ITAD-85-05 European International School, Inc. German School Manila 75 Swaziland St., Better Living Subdivision 1711 Paraaque City Attention: Giuseppe Violante Administrator, European International School Gentlemen : This refers to your letter dated September 19, 2008 requesting for a Certificate of Tax Exemption for the visiting teaching staff, namely: (1) Ms. Lucia Thiel, (2) Ms. Freya Mareike Beyer, (3) Ms. Ulrike Lohse , and (4) Ms. Nadine Julia Gegner of the European International School, Inc., German School Manila (hereinafter referred to as the German School ), pursuant to Article 20 of the Agreement between the Republic of the Philippines and the Federal Republic of Germany for the Avoidance of Double Taxation with Respect to Taxes on Income and Capital (hereinafter referred as the Philippines-Germany tax treaty ). It is represented that the German School is the German component of the European International School in the Philippines with principal office at 75 Swaziland St., Better Living Subdivision, Paraaque City; that the above-named teaching staff are, at present or immediately before, were residents of the Federal Republic of Germany as evidenced by the certification letters issued by the Press and Cultural Affairs of the Embassy of the Federal Republic of Germany dated September 17, 2008; that German School entered into Contract for Local Employment with each of the above-named teaching staff as follows: DIETcC Name Address Germany Start of End of Registered Contract Contract Tax No. Ms. Lucia Thiel Schillingstrabe 32 5314 1 August 31 July 44139 Dortmund 2008 2010 Ms. Freya Mareike Lange Str. 51 - 1 August 31 July Beyer 21255 Kakenstort 2008 2010 Ms. Ulrike Lohse Albert-Kohler-Str. 10 3214/446/02551 1 August 31 July 09211 Chemnitz 2008 2010 Ms. Nadine Julia Fliederweg 3 69508/61038 1 August 30 June Gegner 73235 Weilheim 2008 2010 That their employment ends on the end contract date without requiring a written termination of contract or resignation; and that in consideration of teaching services, the teachers shall receive a monthly salary and will receive a 13th month pay in December; and that the issue or transaction subject of the above request for ruling is not under investigation, on going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceedings, or a judicial appeal of the taxpayer/s involved. In reply, please be informed that Section 25 (A) (1) of the National Internal Revenue Code (Tax Code) of 1997, as amended, applies in general. It provides: "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." In accordance with the foregoing, Article 20 of the Philippines-Germany tax treaty provides as follows: DTcACa "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." Based on the aforequoted provision, it is clear that the remuneration paid to teaching staff who are or immediately before their visit in the Philippines are residents of Germany and who stay in the Philippines for the purpose of teaching for a period not exceeding two (2) years shall not be subject to Philippine income tax. Such being the case, this Office is of the opinion and so holds that the subject remuneration of (1) Ms. Lucia Thiel, (2) Ms. Freya Mareike Beyer, (3) Ms. Ulrike Lohse, and (4) Ms. Nadine Julia Gegner received for teaching in the German School pursuant to their contract entered into with the latter for a period not exceeding two (2) years, shall not be subject to Philippine income tax pursuant to Article 20 of the Philippines-Germany tax treaty. (BIR Ruling No. ITAD-085-05 dated 23 August 2005) 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. cHAIES Very truly yours, (SGD.) KIM S. JACINTO-HENARES Commissioner of Internal Revenue