ITAD BIR Ruling No. 102-16

June 22, 2016 ITAD BIR RULING NO. 102-16 Article 20, Philippines-China tax treaty International School Manila University Parkway, Fort Bonifacio 1634 Taguig City Attention: Atty. Ma. Karina H. Tanega General Counsel Gentlemen : This refers to your Tax Treaty Relief Applications filed on November 13, 2012, on behalf of Mr. Robert Charles Anderson ("Mr. Anderson"), Ms. Catherine Anne-Marie Rankin ("Ms. Rankin") and Mr. John Joseph Van Gaalen ("Mr. Gaalen") requesting confirmation that salaries and other remuneration paid to them by the International School Manila ("International School") are exempt from income tax pursuant to Article 20 of the Agreement between the Government of the Republic of the Philippines and the Government of the People's Republic of China for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income ("Philippines-China tax treaty") . It is represented that Mr. Anderson, Ms. Rankin and Mr. Gaalen are residents of China for tax purposes as certified by the Director of Beijing, SAT/Local Taxation Bureau on February 27, 2012 for Mr. Anderson and Ms. Rankin , and the Director of Pudong New Area, SAT/Local Taxation on March 23, 2012, for Mr. Gaalen ; that, as per certified by the Department of Trade and Industry on October 8, 2012, Mr. Anderson, Ms. Rankin and Mr. Gaalen do not show any business registration in the Philippines under their names; and that International School is organized and existing under the laws of the Philippines with business address at University Parkway, Forth Bonifacio, 1634 Taguig City. It is further represented that Mr. Anderson, Ms. Rankin and Mr. Gaalen entered into an Overseas Hire Contract with International School to teach for a period of two years from August 2012-July 2014, for a consideration of Forty Six Thousand US Dollars (US$46,000) for Mr. Anderson , and Forty-Four Thousand US Dollars (US$44,000) for Ms. Rankin and Mr. Gaalen ; and that based on their passports, Mr. Anderson and Ms. Rankin arrived in the Philippines on July 20, 2012 and Mr. Gaalen arrived on July 23, 2012. HSCATc 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) n 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 20 of the Philippines-China tax treaty. It provides: "Article 20 Teachers and Researchers 1. Remuneration which an individual who is or was immediately before visiting a Contracting State, a resident of the other Contracting State and who is present in the first-mentioned State for the primary purpose of teaching , giving lectures or conducting research at a university, college, school or educational institution or scientific research institution recognized by the Government of the first-mentioned State derives for the purpose of such teaching, lectures or research shall not be taxed in the first-mentioned State, for a period of two years from the date of his first arrival in the first-mentioned State. 2. The provisions of paragraph 1 of this Article shall not apply to income from research if such research is undertaken not in the public interest but primarily for the private benefit of a specific person or persons. xxx xxx xxx" Based on the afore-quoted provision, it is clear that the remuneration paid to teacher who is a resident of China and who shall stay in the Philippines for the primary purpose of teaching shall be exempt from tax by the Philippines for a period not exceeding two (2) years from the date of his first arrival in the Philippines. Such being the case, this Office is of the opinion and so holds that the salaries and other remunerations paid by International School to Mr. Anderson and Ms. Rankin , who were residents of China when they arrived in the Philippines at the invitation of the International School to teach for a period not exceeding two (2) years from the dates of their first arrival in the Philippines from July 20, 2012 to July 20, 2014 , for Mr. Anderson and Ms. Rankin ; and from July 23, 2012 to July 23, 2014 for Mr. Gaalen shall be exempt from Philippine income tax pursuant to Article 20 of the Philippines-China tax treaty. IDTSEH 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.) KIM S. JACINTO-HENARES 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. n Note from the Publisher: Copied verbatim from the official document. Item "(1)" should be "(B)".