ITAD BIR Ruling No. 340-14

December 29, 2014 ITAD BIR RULING NO. 340-14 Article 20, Philippines-UK Tax Treaty Siguion Reyna Montecillo & Ongsiako Law Office 4th & 6th Floors, Citibank Center 8741 Paseo de Roxas Makati City Attention: Atty. Ma. Corazon U. Del Castillo Atty. Ferdinand M. Hidalgo Gentlemen : This refers to your Tax Treaty Relief Applications filed on June 5, 2014, on behalf of the International School Manila ("International School") requesting confirmation that salaries and other remuneration paid to Mr. Sean Michael Bizley ("Mr. Bizley") and Ms. Hooly Elizabeth Chapman ("Ms. Chapman") by the International School are exempt from income tax pursuant to Article 20 of the Convention between the Government of the Republic of the Philippines and the Government of the United Kingdom of Great Britain and Northern Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains ("Philippines-United Kingdom tax treaty"). It is represented that Mr. Bizley and Ms. Chapman are citizens of the United Kingdom and residents thereof for tax purposes based on the Certificate of Fiscal Residence issued by HM Revenue and Customs dated May 4, 2011 and July 5, 2011, respectively; that per Certifications issued by the Department of Trade and Industry, Mr. Bizley and Ms. Chapman do not show registration under their names; that International School invited Mr. Bizley and Ms. Chapman to teach for period of two years from August 2011 to July 2013; that in consideration of their personal services for teaching, they will be paid a salary of Forty-one Thousand Five Hundred US dollars (41,500) for the school year 2011-2012 per Overseas Hire Contracts for Mr. Bizley and Ms. Chapman dated September 21, 2011 and October 5, 2011, respectively; and that based on their passports, Mr. Bizley and Ms. Chapman arrived in the Philippines on July 23, 2011. 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 cADEIa (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 50,000+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) 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-UK tax treaty. It provides: EaDATc "Article 20 Teachers An individual who, at the invitation of a university, college, school or other similar recognised educational institution in one of the Contracting States, visits that Contracting State for a period not exceeding two years solely for the purpose of teaching at such educational institution and who is, or was immediately before that visit, a resident of the other Contracting State shall be exempt from tax in the first-mentioned Contracting State on any remuneration for such teaching in respect of which he is subject to tax in the other Contracting State. xxx xxx xxx" Based on the afore-quoted provision, the income of a UK resident who is invited to teach in the Philippines by a Philippine school 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 the salaries and other remunerations paid by International School to Mr. Bizley and Ms. Chapman, who were residents of UK when they arrived in the Philippines at the invitation of the International School to teach for a period not exceeding two (2) years or from August 1, 2012 to July 31, 2013, shall be exempt from Philippine income tax pursuant to Article 20 of the Philippines-UK 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 Bureau 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.