ITAD BIR Ruling No. 137-15

May 4, 2015 ITAD BIR RULING NO. 137-15 Article 20, Philippines-US Tax Treaty Mr. Charles Yuji Horioka University of the Philippines School of Economics Room 223, Encarnacion Hall Diliman, Quezon City Dear Sir : This refers to your Tax Treaty Relief Application filed on March 19, 2014 requesting confirmation that the income you derive from teaching at University of the Philippines ("UP") is exempt from income tax for a period of two (2) years from date of arrival in the Philippines pursuant to Article 21 of 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-US tax treaty "). You represent that you are a citizen of the United States of America ("US") and a resident thereof for tax purposes with address at 1050 Massachusetts Avenue, Cambridge, Massachusetts, US, based on the Certificate issued by Internal Revenue of Service of the US Department of Treasury on January 27, 2014; that you were recommended by the School of Economics of UP to render personal services as Professor 12; that based on Basic Paper for Faculty and Reps your contract shall be effective June 1, 2013 until May 31, 2014 and renewed for period of June 1, 2014 to May 31, 2015; that in consideration of your personal services for teaching, you will be paid a salary of Nine Hundred Forty-Six Thousand Nine Hundred Ninety-two Pesos (946,992.00) per Notification of Approval of Appointment dated July 1, 2013 by the Secretary of the University and of the Board of Regents of UP; that per Certification issued by the Department Chair of School of Economics, you shall perform as Professor at the UP School of Economics for from June 1, 2013 to June 2015 or two years; and that based on your passport you arrived in the Philippines on June 6, 2013 for teaching services. 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 (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-US tax treaty. 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 . (emphasis supplied) xxx xxx xxx" Based on the afore-quoted provision, the income of a US resident who is invited to teach in the Philippines by a Philippine university or other educational institution, shall be exempt from tax by the Philippines for a period not exceeding two (2) years from the date of his arrival. Such being the case, this Office is of the opinion and so holds that salaries and other remuneration paid by UP to Mr. Charles Yuji Horioka , for his teaching services in the Philippines for a period not exceeding two (2) years from June 6, 2013 to June 5, 2015, shall be exempt from Philippine income tax pursuant to Article 21 of the Philippines-US tax treaty. 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.