Chato & Vinzons-Chato Law Offices

August 30, 2018 ITAD BIR RULING NO. 078-18 Sections 23 and 42 of NIRC of 1997, as amended; Section 45, Article XII of the ADB Headquarters Agreement Chato & Vinzons-Chato Law Offices 8th Floor, Strata 2000, F. Ortigas Jr. Road Ortigas Center, 1605 Pasig City Gentlemen : This refers to your letter dated 07 March 2018 requesting for a confirmation of the following: 1. Tax treatment of the salaries and emoluments received by AAA ("AAA" for brevity), as a consultant of the Asian Development Bank (ADB); 2. Tax treatment of the salaries and emoluments received by AAA from her contract with Luxembourg Development Cooperation Agency (LuxDev) of the Government of Luxembourg as an Expert and other contracts similar thereto; 3. Tax treatment of the salaries and emoluments that will be received in the future by AAA from ADB and such other foreign organizations and entities enumerated in Revenue Memorandum Circular (RMC) No. 31-2013. It is represented that AAA is a Swedish national, with Philippine address at ____________________; and that AAA is employed by ADB as a consultant for the following projects: acEHCD a. Contract No. 131800-S92603, GRANT-9173 REG: Greater Mekong Subregion: Livelihood Support for Corridor Towns Regional Cooperation Specialist (46074-001) for the period 30 January 2017 to 06 May 2018; and b. Contract No. 136824-S95710, TA-9166 PHI: Financial Inclusion Framework Strengthening International Digital Finance Specialist (Monitoring and Evaluation) (49386-001) for the period 29 September 2017 to 29 October 2018. Furthermore, it is represented that AAA has been engaged as an Expert by Luxembourg Development Cooperation Agency (LuxDev) of the Government of Luxembourg through Short-Term Expert Contract Number: LAO/029 17 111, Title: S/T International M&E Expert, for the period 02 May 2017 to 31 December 2018; that LAO PDR is the country where the services shall be performed; and that one of LuxDev's Project Offices is located in Vientiane, Lao PDR. In reply, please be informed of the following: 1. Tax treatment of the salaries and emoluments received by AAA from ADB Section 45 (b), Article XII of the Agreement between the Asian Development Bank and the Government of the Republic of the Philippines regarding the Headquarters of the Asian Development Bank (ADB Headquarters Agreement) provides: "ARTICLE XII Privileges and Immunities of Governors and Other Representatives of Members, Directors, President, Vice-President and Others xxx xxx xxx Section 45 Officers and staff of the Bank, including for the purposes of this Article experts and consultants performing missions for the Bank, shall enjoy the following privileges and immunities: xxx xxx xxx (b) Exemption from taxation on or in respect of the salaries and emoluments paid by the Bank subject to the power of the Government to tax its nationals;" (Underscoring ours) Based on the foregoing, a consultant like AAA who performs missions for ADB, shall be exempt from income tax on the salaries and emoluments paid by ADB. Thus, salaries and emoluments which will be received by AAA from Contract No. 131800-S92603 and Contract No. 136824-S95710, shall be exempt from tax pursuant to Section 45, Article XII of the ADB Headquarters Agreement. This was reiterated upon the issuance of RMC No. 31-2013, 1 which clarifies that, "only officers and staff of the ADB who are not Philippine nationals shall be exempt from Philippine income tax." 2. Tax treatment of the salaries and emoluments received by AAA from LuxDev Section 23 of the National Internal Revenue Code (NIRC) of 1997, as amended, states that: " SEC. 23. General Principles of Income Taxation in the Philippines. Except when otherwise provided in this Code: (A) A citizen of the Philippines residing therein is taxable on all income derived from sources within and without the Philippines; xxx xxx xxx (D) An alien individual, whether a resident or not of the Philippines, is taxable only on income derived from sources within the Philippines; xxx xxx xxx" Moreover, Section 42 of the NIRC of 1997, as amended, provides that: "SEC. 42. Income from Sources Within the Philippines. (A) Gross Income from Sources Within the Philippines. The following items of gross income shall be treated as gross income from sources within the Philippines: xxx xxx xxx (3) Services. Compensation for labor or personal services performed in the Philippines;" In view of the foregoing, a resident alien or non-resident alien is taxable only on income derived from sources within the Philippines. Sources within the Philippines include compensation for personal services which are performed in the Philippines. Since the service with regard Short-Term Expert Contract Number: LAO/029 17 111, will be performed in LAO PDR, and not in the Philippines, then the income of AAA from such contract, which is derived from sources outside the Philippines is, accordingly, not taxable in the Philippines. 3. Tax treatment of the salaries and emoluments that will be received in the future by AAA from ADB and such other foreign organizations and entities enumerated in RMC No. 31-2013 Item (t) of Revenue Bulletin No. 1-2003 for the proper handling of requests for rulings which are determined as "No-Ruling Areas," states, to wit: "t) Request for rulings on issue/s or transactions based on hypothetical situations." Thus, transactions which are still hypothetical such as salaries and emoluments that will be received in the future, are considered as "No-Ruling Areas." This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be ascertained that the facts are different, then this ruling shall be considered null and void. SDHTEC Very truly yours, (SGD.) CAESAR R. DULAY Commissioner of Internal Revenue Footnotes 1. Guidelines on the Taxation of Compensation Income of Philippine Nationals and Alien Individuals Employed by Foreign Governments/Embassies/Diplomatic Missions and International Organizations Situated in the Philippines.