AURE, LELILA G.

Pertinent Laws and Regulation

TAXATION

1. Section 25 (C) of the NIRC

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 regional operating headquarters established in the Philippines by multinational companies as salaries, wages, annuities, compensation, remuneration and other emoluments, such as honoraria and allowances, 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. 2. Article 61 of RA 8756 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 percentum (15%) of such gross income. The same tax treatment is applicable to Filipinos employed and occupying the same positions 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. 3. RMC 41-2009 The RMC deals with the entitlement of certain individuals to the preferential tax treatment provided under Section 25(C) of the Tax Code, as implemented by existing regulations. Specifically stating that: only Filipinos employed and occupying managerial and highly technical positions as defined above similar to the positions of the aliens employed by regional or area headquarters and regional operating headquarters of multinational companies shall be entitled to the option to be taxed at either 15% of gross income or at regular income tax rate on their taxable income in accordance with Section 25(c) of the Tax Code Comments In view of the provision in Section 25 (c) providing 15% tax to gross income of alien individual employed by regional or area headquarters and regional operating headquarters of multinational companies, R.A. 8756 was further promulgated to provide a preferential tax rate of 15% applies to the gross compensation income received by alien individuals and the same tax treatment applicable to Filipinos employed and occupying the same positions as those aliens, regardless of the presence of such alien executives. Such Filipinos may choose to be taxed either at 15% on gross income or at the regular graduated rates of 5%-32% on taxable income, in accordance with the National Internal Revenue Code, as amended by Republic Act No. 8424. Similarly, the RMC 41-2009 deals with the entitlement of certain individuals to the preferential tax treatment provided under Section 25(C) of the Tax Code, as implemented by existing regulations. A preferential tax rate of 15% applies to the gross compensation income received by alien individuals occupying managerial and technical positions in regional/area headquarters (RHQs) and regional operating headquarters (ROHQs) established in the Philippines by multi-national companies.

The same tax treatment is granted to Filipinos occupying the same positions, regardless of the presence of such alien executives. Such Filipinos may choose to be taxed either at 15% on gross income or at the regular graduated rates of 5%-32% on taxable income. The RMC make clear on the term, "managerial and technical positions," by citing a BIR Ruling No. DA-450-99. In that ruling, the Bureau held that alien employees occupying the said positions, being expatriate employees, refer only to those employed in "managerial, confidential or highly technical positions". The ruling provide further that under the Labor Code, the requirement is there must be no person in the country who is competent, able and willing to perform the same job as the alien desired. Accordingly, the RMC declares that the term "technical position" is limited only to those which are highly technical in nature or where there are no qualified and willing Filipino equivalents. Consequently, only Filipinos occupying managerial and/or highly technical positions in RHQs/ROHQs are entitled to the 15% preferential tax treatment or at regular income tax rate. All existing rulings that do not meet these conditions are thus revoked. This subsequent regulation and ruling of the BIR create many questions as to its tax implications and applicability: 1. How to determine and evaluate the positions and functions of Filipinos who are currently enjoying the 15% rate? The term "managerial and technical positions" is found in the implementing regulations alone, and not in the law itself. 2. Does revocation of previous BIR ruling that is inconsistent with the provisions of the RMC, should be applied prospectively? Section 246 of the Tax Code provides the indubitable protection that generally, any revocation, modification or reversals of any tax rules and regulations, rulings or circulars shall not be given retroactive application if doing so will be prejudicial to the taxpayer. RHQs/ROHQs which did not secure rulings but are applying the 15% final withholding tax on its Filipino personnel should also assess the propriety of their current tax treatment in light of the RMC.