ITAD BIR Ruling No. 310-14

October 27, 2014 ITAD BIR RULING NO. 310-14 Article 20 (Teachers and Researchers) Philippines-China tax treaty Law Offices of Siguion Reyna Montecillo and Ongsiako 4th and 6th Floors, Citibank Center 8741 Paseo de Roxas Makati City Attention: Atty. Ferdinand M. Hidalgo Atty. Ma. Corazon U. Del Castillo Gentlemen : This refers to your tax treaty relief application filed on May 11, 2012 requesting confirmation that income derived by Mr. Robert Guy Winters and Ms. Holly Elaine Elwell as teachers of the International School Manila, Inc. ("International School") are exempt from income tax pursuant to 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"). Facts Mr. Winters is a resident of China based on the Certificate of Chinese Fiscal Resident issued by the State Administration of Taxation of China on April 25, 2011. Mr. Winters is a United States citizen and holder of a United States passport. On September 21, 2011, Mr. Winters and the International School entered into an Overseas Hire Contract where Mr. Winters was hired by the International School as teacher for school year 2011-2012. In consideration, he will receive an annual salary of US$44,500.00 and other monetary and non-monetary benefits. Based on the Certification issued by the International School, Mr. Winters has been invited and is under contract to teach at the school for two years from August 2011 to July 2013. He arrived in the Philippines on July 14, 2011. International School is a non-stock and nonprofit educational institution in the Philippines located at University Parkway, 1634 Fort Bonifacio, Taguig City, Philippines. Ms. Elwell is also a resident of China based on the Certificate of Chinese Fiscal Resident issued by the State Administration of Taxation of China on June 6, 2011. Ms. Elwell is a United States citizen and holder of a United States passport. On September 21, 2011, Ms. Elwell and the International School entered into an Overseas Hire Contract where Ms. Elwell was hired by the International School as teacher for school year 2011-2012. In consideration, she will receive an annual salary of US$44,000.00 and other monetary and non-monetary benefits. Based on the Certification issued by the International School, Mr. Winters has been invited and is under contract to teach at the International School for two years from August 2011 to July 2013. She arrived in the Philippines on July 22, 2011. SDTcAH Ruling In reply, please be informed that under Section 24 (A) of the National Internal Revenue Code of 1997, as amended, income derived in the Philippines by resident alien individuals is subject to income tax as follows: "CHAPTER III Tax on Individuals 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: (a) 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 and without the Philippines by every individual citizen of the Philippines residing therein; (b) 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 citizen of the Philippines who is residing outside of the Philippines including overseas contract workers referred to in Subsection (C) of Section 23 hereof; and (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: TacSAE 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+32% of the excess over P500,000 "For married individuals, the husband and wife, subject to the provision of Section 51(D) hereof, shall compute separately their individual income tax based on their respective total taxable income: Provided, That if any income cannot be definitely attributed to or identified as income exclusively earned or realized by either of the spouses, the same shall be divided equally between the spouses for the purpose of determining their respective taxable income. Provided, That minimum wage earners as defined in Section 22(HH) of this Code shall be exempt from the payment of income tax on their taxable income. Provided, further, That the holiday pay overtime pay and hazard pay received by such minimum wage earners shall likewise be exempt from income tax." However, under Section 32 (B) (5) of the Tax Code, such income is exempt or partially exempt to the extent required by any treaty obligation on the Philippines, to wit: "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." IaHCAD In this regard, Article 20 of the Philippines-China tax treaty provides relief to a visiting teacher in the Philippines and who was a resident of China immediately before coming to the Philippines: "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." Under Article 20, remuneration derived by such teacher from teaching at a university, college, school or educational institution in the Philippines is exempt from income tax for a period of two years from the date of his first arrival. Accordingly, since Mr. Winters and Ms. Elwell are residents of China immediately before coming to the Philippines and their primary purpose in the country is to teach at the International School, being an educational institution in the Philippines, salaries and other benefits received by Mr. Winters and Ms. Elwell from the International School are exempt from income tax from the date of their first arrival in the Philippines, pursuant to Article 20 of the Philippines-China tax treaty. For Mr. Winters, the exemption is from July 14, 2011 to July 13, 2013, and for Ms. Elwell, from July 22, 2011 to July 21, 2013. This ruling is issued on the basis of the facts as represented. However, if upon investigation it shall be disclosed 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