ITAD BIR Ruling No. 109-16

June 22, 2016 ITAD BIR RULING NO. 109-16 Article 21 (Teachers), Philippines-United States of America tax treaty Siguion Reyna Montecillo and Ongsiako 4th and 6th Floors, Citibank Center 8741 Paseo de Roxas Makati City Attention: Ma. Corazon U. Del Castillo Ferdinand M. Hidalgo Gentlemen : This refers to the tax treaty relief applications all dated March 31, 2011, originally filed by the International School of Manila ("International School") , requesting confirmation that salaries and other remuneration paid by the International School to (1) Jennifer Lynn Etherton , (2) Maya India McCoy , (3) Michelle Nicole Monroe , and (4) Andrea Merlene Thompson (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-United States tax treaty") . Facts It is represented that the Teachers are all residents of the United States based on their respective Certificates of Residence issued by the Internal Revenue Service of the United States on April 26, June 21, August 16 and September 7, 2010; that their addresses in the United States are at Jennifer Lynn Etherton : 1165 Sunset Drive, East Peoria, Illinois Maya India McCoy : 8346 Gaynor Avenue, North Hills, California Michelle Nicole Monroe : 9131 Gracious End Court, Columbia, Maryland Andrea Merlene Thompson : 3928 Siytg Neadiew Drive, Middleton, Wisconsin That the International School has entered into Overseas Hire Contracts with the Teachers on September 3 and 13, October 11, and November 8, 2010, for school year 2010-2011 , where each is entitled to receive salaries, allowances, and other monetary and non-monetary benefits from the International School ; that the International School is located at University Parkway, Fort Bonifacio, Taguig City, Philippines; and that based on the Certifications issued by the Director for Human Resources of the International School on February 25, 2011, the Teachers have been invited by and are under contract with the International School to teach thereat for a period of two years from August 2010 to July 2012 ; and that the Teachers arrived at the Philippines on the following dates based on their respective passports: Name Date of Arrival Etherton, Jennifer Lynn July 21, 2010 Monroe, Michelle Nicole July 24, 2010 Thompson, Andrea Merlene July 21, 2010 It is finally represented that the income subject of this ruling is not under investigation, on-going audit, administrative protest, claim for refund or issuance of a tax credit certificate, collection proceedings, or judicial appeal, based on the Certification issued by the Superintendent of the International School on January 14, 2011. ETHIDa In reply, please be informed that under Section 25 (A) (1), in relation to Section 24 (A) (1) (c), of the National Internal Revenue Code of 1997 ("Tax Code") , as amended, the salaries and other remuneration paid to the Teachers are subject to income tax as follows: "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." However, under Section 32 (B) (5) of the Tax Code, such income may be exempt from income tax or subject to a reduced rate to the extent required by any treaty obligation on the Philippines, thus: "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: 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 the Philippines-United States tax treaty. Paragraph 1, Article 21 thereof provides: "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." Based on paragraph 1 above, income derived by a resident of the United States from teaching at a university or other recognized educational institution in the Philippines pursuant to an invitation of the Government of the Philippines or a political subdivision or local authority of the Philippines, or of the university or the educational institution itself, shall be exempt from income tax in the Philippines for a period of two years from the date of his first arrival in the Philippines. Accordingly, the salaries, allowances, and other monetary and non-monetary benefits paid or given by the International School to the Teachers for a period of two years from August 2010 to July 2012 are exempt from income tax pursuant to paragraph 1, Article 21 of the Philippines-United states tax treaty. Such being the case, this Office is of the opinion and so holds that salaries and other remuneration paid by the International School to the Teachers for a period not exceeding two (2) years from your date of arrival in the Philippines or from July 21, 2010 to July 21, 2012 for Etherton, Jennifer Lynn and Thompson, Andrea Merlene and July 24, 2010 to July 24, 2012 for Monroe, Michelle Nicole , shall not be subject to Philippine income tax pursuant to Article 21 of the Philippines-US tax treaty. cSEDTC 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