The Fiduciary and Consulting International Co. Inc. (RHQ)

February 6, 2009 VAT RULING NO. 003-09 22; 28; E.O. 226; R.A. 8756; DA-109-2003; DA-167-2005 The Fiduciary and Consulting International Co. Inc. (RHQ) No. 504 Anita Building 1300 Quezon Ave. cor. Timog Ave. Quezon City Attention: Ms. Armina A. La Torre Director Gentlemen : This refers to your letter dated January 26, 2007 requesting for a ruling regarding the tax exemptions of your company as a Regional Headquarters under the National Internal Revenue Code and the Omnibus Investments Code. EHCDSI From the documents submitted, it appears that The Fiduciary and Consulting International Company, Inc. (RHQ) ("FIDCO", for brevity) is the regional headquarters ("RHQ") of a multinational company operating in the Asia-Pacific Region and other foreign markets. It was registered with the Securities and Exchange Commission on December 18, 2006 under Company Reg. No. FS200619615. In reply, please be informed that Section 28 (A) (6) (a) of the Tax Code of 1997, as amended, provides that regional or area headquarters as defined in Section 22 (DD) of the said Code shall not be subject to income tax. Section 22 (DD) of the Tax Code of 1997, as amended, defines the term "regional or area headquarters" as "a branch established in the Philippines by multinational companies and which headquarters do not earn or derive income from the Philippines and which act as supervisory, communications and coordinating center for their affiliates, subsidiaries or branches in the Asia-Pacific Region and other foreign markets." Likewise, Article 63 of Executive Order No. 226, otherwise known as the Omnibus Investments Code, as amended by Republic Act (R.A.) No. 8756, provides that regional or area headquarters established in the Philippines by multinational companies and which headquarters do not earn or derive income from within the Philippines and do not participate in any manner in the management of any subsidiary or branch office it might have in the Philippines nor solicit or market goods and services whether on behalf of its mother company or its branches, affiliates, subsidiaries and any other company and which acts as supervisory, communications and coordinating centers for their affiliates, subsidiaries, or branches in the Asia Pacific Region and other foreign markets shall not be subject to income tax. It must be noted that for tax purposes, a regional or area headquarters, in acting as a supervisory, communications and coordinating center for its affiliates in the region, shall not render any of the following qualifying services: 1. General administration and planning; 2. Business planning and coordination; 3. Sourcing/procurement of raw materials and components; 4. Corporate finance and advisory services; 5. Marketing control and sales promotion; 6. Training and personnel management; 7. Logistic services; 8. Research and development services, and product development; 9. Technical support and maintenance; 10. Data processing and communication; and business development CSHEAI which functions are applicable to a Regional Operating Headquarters pursuant to Section 4 (b) of the Rules and Regulations implementing R.A. No. 8756. Hence, the regional headquarters of FIDCO in the Philippines will not be subject to income tax as long as in performing its functions and in acting as a supervisory, communications and coordinating center for its affiliates in the region, it shall not render any of the foregoing qualifying services. Otherwise, it shall be taxed as Regional Operating Headquarters. (BIR Ruling No. DA-092-2003, dated March 25, 2003) . Services rendered by regional or area headquarters established in the Philippines by multinational companies which act as supervisory, communications and coordinating centers for their affiliates, subsidiaries or branches in the Asia-Pacific region and do not earn or derive income from the Philippines are exempted from the value-added tax pursuant to Section 109 (p) of the Tax Code of 1997, as amended by R.A. No. 9337 and as implemented by Revenue Regulations (RR) No. 16-2005, as amended by RR No. 4-2007. Furthermore, Article 65 of R.A. No. 8756, which amended certain provisions of Executive Order No. 226 otherwise known as the Omnibus Investments Code of 1987, provides that: "Art. 65. Value-Added Tax. The regional or area headquarters established in the Philippines by multinational companies shall be exempted from the value-added tax. In addition, the sale or lease of goods and property and the rendition of services to regional or area headquarters shall be subject to zero percent (0%) VAT rate as provided for in the National Internal Revenue Code, as amended. Regional operating headquarters shall be subject to the ten percent (10%) value-added tax as provided for under the National Internal Revenue Code, as amended." The tax and duty free importation of equipment and materials for training and conferences which are needed and used solely for their functions provided they are not locally available and subject to prior approval of the Board of Investments are likewise exempt from value added tax pursuant to Section 107 (B) of the Tax Code of 1997, as amended, in relation to Art. 67 of R.A. No. 8756. However, where such goods are subsequently sold, transferred or exchanged in the Philippines to non-exempt persons or entities, the purchasers, transferees or recipients shall be considered the importers thereof, who shall be liable for any internal revenue tax on such importation pursuant to the same provision of the same Tax Code. cSTDIC With respect to the Filipino staff who work in the Philippines, Section 25 (C) of the same Code provides that: "Sec. 25. Tax on Nonresident Alien Individual. (A) . . . (B) . . . (C) Alien Individual Employed by Regional or Area Headquarters and Regional Operating Headquarters of Multinational Companies. There shall be levied, collected and paid for each taxable year upon the gross income received by every alien individual employed by regional or area headquarters and area regional operating headquarters established in the Philippines by multinational companies as salaries, wages, annuities, compensation, remuneration and other emoluments, such as honoraria and allowance from such regional or area headquarters and regional operating headquarters, a tax equal to fifteen percent (15%) of such gross income: Provided, however, That the same tax treatment shall apply to Filipinos employed and occupying the same position as those of aliens employed by these multinational companies. For purposes of this Chapter, the term multinational company means a foreign firm or entity engaged in international trade with affiliates or subsidiaries or branch offices in the Asia-Pacific Region and other foreign markets." With respect to Filipinos employed and occupying the same positions as the aliens employed by multinational companies, Article 61 of R.A. 8756 provides that: "Art. 61. Withholding Tax of 15% on Compensation Income. Aliens employed by the regional or area headquarters and regional operating headquarters of multinational companies shall be subject for each taxable year upon their gross income received as salaries, wages, annuities, compensations, remuneration and emoluments to a tax equal to fifteen percent (15%) of such gross income. The same tax treatment is applicable to Filipinos employed and occupying the same position as, those aliens employed by multinational companies: Provided, That said Filipinos shall have the option to be taxed at either 15% of gross income or at the regular tax rate on their taxable income in accordance with the National Internal Revenue Code, as amended by Republic Act No. 8424." Said Filipinos shall have the option to be taxed at either 15% of gross or at the regular tax rate on their taxable income in accordance with the Tax Code of 1997, as amended by R.A. No. 9337. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered null and void. IaDTES Very truly yours, Commissioner of Internal Revenue By: (SGD.) GREGORIO V. CABANTAC Deputy Commissioner