MONTERO // 2A TAX DIGESTS
ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • CHENG • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • ONG • PASCUAL • PEREZ • REGIS • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA
BRANCH OFFICE REMITTANCE TAX
BANK OF AMERICA NT & SA v. CA (Perez)
[GR. No. 103092; July 21, 1994]
“profit remitted abroad”
Recit-Ready:
Facts: In June 1982, petitioner foreign corporation paid 15% branch profit
remittance tax on profit from its regular banking unit operations
and on profit from its foreign currency deposit unit operations. The
tax was based on net profits after income tax without deducting
the amount corresponding to the 15% tax. Petitioner filed a claim
for refund with the Bureau of Internal Revenue of that portion of
the payment which corresponds to the 15% branch profit
remittance tax, on the ground that the tax should have been
computed on the basis of profits actually remitted, which is
P45,244,088.85, and not on the amount before profit remittance
tax, which is P53,228,339.82.
Issue/s:
WON refund may be claimed by bank
Held: Section 24 of the NIRC specifies its own tax base to be on the
"profit remitted abroad." There is nothing uncertain about the
language of the provision. The tax is imposed on the amount sent
abroad, and the law (then in force) calls for nothing further. The
taxpayer is a single entity, and it should be understandable if,
such as in this case, it is the local branch of the corporation,
using its own local funds, which remits the tax to the Philippine
Government. CTA is correct in contending that the use of the
word remitted may well be understood as referring to that part of
the said total branch profits which would be sent to the head
office as distinguished from the total profits of the branch (not all
of which need be sent or would be ordered remitted abroad). If
the legislature indeed had wanted to mitigate the harshness of
successive taxation, it would have been simpler to just lower the
INCOME TAX
rates without in effect requiring the relatively novel and
complicated way of computing the tax, as envisioned by the
private respondent. To avert unequal tax treatment, a 20%, later
reduced to 15%, profit remittance tax was imposed on local
branches on their remittances of profits abroad.
Facts:
• Petitioner is a foreign corporation duly licensed to engage in business in
the Philippines with Philippine branch office. On July 20, 1982 it paid 15%
branch profit remittance tax in the amount of P7,538,460.72 on profit from
its regular banking unit operations and P445,790.25 on profit from its
foreign currency deposit unit operations or a total of P7,984,250.97. The
tax was based on net profits after income tax without deducting the
amount corresponding to the 15% tax.
• Petitioner filed a claim for refund with the Bureau of Internal Revenue of
that portion of the payment which corresponds to the 15% branch profit
remittance tax, on the ground that the tax should have been computed on
the basis of profits actually remitted, which is P45,244,088.85, and not on
the amount before profit remittance tax, which is P53,228,339.82.
Subsequently, without awaiting respondent's decision, petitioner filed a
petition for review with CTA for the recovery of the amount of
P1,041,424.03. CTA upheld refund, which CTA later on set aside.
• CTA sought to deduce legislative intent of Section 24 of the NIRC, which
to their minds reveal an intent “to mitigate at least the harshness of
successive taxation.” The provision provides the following:
“Rates of tax on corporations. x x x
(b) Tax on foreign corporations. x x x
"(2) (ii) Tax on branch profit and remittances.
"Any profit remitted abroad by a branch to its head office shall be
subject to a tax of fifteen per cent (15%) x x x."
• CTA contends that the use of the word remitted may well be understood
as referring to that part of the said total branch profits which would be
sent to the head office as distinguished from the total profits of the
branch (not all of which need be sent or would be ordered remitted
 MONTERO // 2A TAX DIGESTS
ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • CHENG • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • ONG • PASCUAL • PEREZ • REGIS • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

abroad). If the legislature indeed had wanted to mitigate the harshness tax pari-passu ends between domestic branches and subsidiaries of
of successive taxation, it would have been simpler to just lower the rates foreign corporations.
without in effect requiring the relatively novel and complicated way of
computing the tax, as envisioned by the private respondent.
COMPANIA GENERAL DE TABACOS
Issue/s:
DE FILIPINAS v. CIR (Regis)
WON refund may be claimed by bank
[C.T.A. CASE No. 4141; November 17, 1993]
—YES
“1, 2, 3 go lang refund; 4 and 5 awat na uy”

Held/Ratio: Petition GRANTED. Decision of CTA appealed from reversed

Recit-Ready:
and set aside, and that of the CA reinstated.
Facts: Petitioner, a foreign corporation engaged in the business as leaf
tobacco dealer, importer, and general merchants, filed a request
YES.
for refund of the branch profit remittance taxes paid by it for the
o In the 15% remittance tax, the law specifies its own tax base to be on
years 1980-85. It claims that the tax base for computing the
the "profit remitted abroad." There is nothing uncertain about the
language of the provision. The tax is imposed on the amount sent branch remittance tax is the amount actually remitted abroad. The
abroad, and the law (then in force) calls for nothing further. The petitioner relied on the case of CIR v Burroughs which was based
taxpayer is a single entity, and it should be understandable if, such as on a Jan. 1980 BIR ruling that says tax base to which 15% BPR
in this case, it is the local branch of the corporation, using its own local tax shall be imposed is the profit actually remitted abroad.
funds, which remits the tax to the Philippine Government. Respondent CIR counters that the ruling in Burroughs case is
o The remittance tax was conceived in order to equalize the income tax
inapplicable because of the Memo Circular 8-82 which took effect
burden on foreign corporations maintaining, on one hand, local branch
in 1982. In the said Memo, the rule is that the amount to which
offices and organizing, and on the other hand, subsidiary domestic
the BPR tax shall be imposed is that which was actually applied
corporations where at least a majority of all the latter's shares of stock
by the branch with the Central Bank of the Philippines.
are owned by such foreign corporations.
o Prior to the amendatory provisions of the Revenue Code, local
Issue/s:
branches were made to pay only the usual corporate income tax of
1) WON the right to claim for refund of payments has already prescribed
25%-35% on net income (now a uniform 35%) applicable to resident
2) WON the petitioner is legally entitled to the refund on alleged excess
foreign corporations (foreign corporations doing business in the
branch profit remittance taxes paid during the years 1980 to 1983. (MAIN
Philippines). While Philippine subsidiaries of foreign corporations were
ISSUE)
subject to the same rate of 25%-35% (now also a uniform 35%) on
3) WON the petitioner is legally entitled to the refund on alleged excess
their net income, dividend payments, however, were additionally
branch profit remittance taxes paid during the years 1984-1985. (MAIN
subjected to a 15% (withholding) tax (reduced conditionally from
ISSUE)
35%). To avert what would otherwise appear to be an unequal tax
treatment on such subsidiaries vis-a-vis local branch offices, a 20%,
Held:
later reduced to 15%, profit remittance tax was imposed on local
1) Yes. The law provides that in a petition for tax refund, one cannot bring
branches on their remittances of profits abroad. But this is where the
an action after the expiration of 2 years from date of payment of tax. In

INCOME TAX
 MONTERO // 2A TAX DIGESTS
ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • CHENG • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • ONG • PASCUAL • PEREZ • REGIS • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA
this case, the tax was paid prior to February 7, 1984 and the case was
filed only on April 9,1987, thus, action had prescribed.
2) Yes. The rule is that interests and dividends received by foreign
corporation during a taxable year from all sources within shall not be
considered as branch profits unless the same are effectively
connected with the conduct of trade and business of the
corporation. The phrase “effectively connected” was interpreted to
mean income derived from the business activity in which the
corporation is engaged. In this case, the corporation is engaged in
business of leaf tobacco dealer. In its corporate quarterly income tax
returns submitted to respondent, petitioner argues that the interests it
received from savings deposit of Philtrust, or those from Land Bank
bonds are not effectively connected with the business it is engaged in
hence, not subject to tax.
3) NO. As to the 1984 and 1985 branch profit remittance taxes, no refund
or tax credit is due the petitioner since the latter did not present any
proof of passive income it received during the period. Considering that
the 15% branch profit remittance tax is imposed and collected at
source, necessarily the tax base should be the amount ACTUALLY
APPLIED for by the branch with the Central Bank of the Philippines as
profit to be remitted abroad.
Facts:
• Petitioner, a foreign corporation duly licensed by Philippine laws to
engage in business through its branch office, filed a request before the
respondent Commissioner of Internal Revenue for the refund of the sum
of P1, 447,295.62, as alleged over paid branch profit remittance taxes at
the years 1980 to 1983.
• Thereafter or on April 8, 1987, petitioner filed another request for the
refund of P321, 635.40, this time for the years 1984 and 1985.
• Since respondent has not acted on petitioner's request, the latter filed the
instant petition on April 9, 1987 to interrupt the running of the prescriptive
period for claims for refund.
INCOME TAX
Issue/s:
1) WON the right to claim for refund of payments has already
prescribed
—YES
2) WON the petitioner is legally entitled to the refund on alleged
excess branch profit remittance taxes paid during the years 1980 to
1983. (MAIN ISSUE)
—YES
3) WON the petitioner is legally entitled to the refund on alleged
excess branch profit remittance taxes paid during the years 1984-
1985. (MAIN ISSUE)
—NO
Held/Ratio: Wherefore, in view of the foregoing, respondent CIR is hereby
ordered to refund in favor of petitioner, the amount of P152,590.50
representing overpaid 15% branch profit remittance taxes on dividends,
interests and capital gain received during the years 1981 to 1983. No
pronouncement as to cost.
1) YES. According to Sec. 230 of the Tax Code, for the recovery of tax
erroneously collected, “In any case, no such suit or proceeding
shall be begun after the expiration of two years from the date of
payment of the tax or penalty regardless of any supervening cause
that may arise after payment.”
o It is evident that payment made prior to April 9, 1985, had already
prescribed. The profit remittance tax corresponding to branch profit for
1980 was paid on February 7, 1984. When this case was filed on April
9,1987, more than two years have lapsed from the time the payment
of the tax was made.
2) YES. WITH THE TAX PAID FOR YEARS 1981-1983: After considering
the facts and issues of the case, this Court holds the petitioner
entitled to a refund or tax credit in the amount of Pl52, 690.61
corresponding to over paid branch profit remittance taxes during
the years from 1981 to 1983.
 MONTERO // 2A TAX DIGESTS
ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • CHENG • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • ONG • PASCUAL • PEREZ • REGIS • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA
o The rule is that interests and dividends received by foreign
corporation during a taxable year from all sources within shall not be
considered as branch profits unless the same are effectively
connected with the conduct of trade and business of the
corporation. The phrase “effectively connected” was interpreted to
mean income derived from the business activity in which the
corporation is engaged. In this case, the corporation is engaged in
business of leaf tobacco dealer. In its corporate quarterly income tax
returns submitted to respondent, petitioner argues that the interests
it received from savings deposit of Philtrust, or those from Land
Bank bonds are not effectively connected with the business it is
engaged in hence, not subject to tax.
3) NO. As to the 1984 and 1985 branch profit remittance taxes, no
refund or tax credit is due the petitioner since the latter did not
present any proof of passive income it received during the period.
Considering that the 15% branch profit remittance tax is imposed
and collected at source, necessarily the tax base should be the
amount ACTUALLY APPLIED for by the branch with the Central
Bank of the Philippines as profit to be remitted abroad.
o Petitioner contends that the tax base for computing the branch profit
remittance tax is the profit actually remitted abroad net of income
already subjected to final tax.
! In support of his contention, he brought to the attention of the Court
about its previous ruling in the case of CIR v. Burroughs which
based its judgment in its BIR Ruling dated Jan. 1980. It was held in
that case that the tax base to which the 15% branch profit
remittance tax shall be imposed is profit actually remitted abroad
and not on the total branch profits out of which remittance is to be
made.
o Respondent, on the other hand, contends that the case of Burroughs
is not applicable to the instant case because of Revenue
Memorandum Circular No.8- 8 2, dated March 17, 1982, which
states that since the "tax is imposed and collected at source,
necessarily the tax base should be the amount actually applied for by
INCOME TAX
the branch with the Central Bank of the Philippines as profit to be
remitted abroad."
o In the instant case the branch profit remittance taxes were paid after
the effectivity of the Memorandum Circular No. 8-82. We hold that
what should therefore apply is Memo Circular No. 8-82 as correctly
advanced by the respondent. (Dun sa Burroughs case, di pa in effect
ung Memo 8-82 kaya ung Jan.1980 ruling ang inapply which says na
ung profit actually remitted aborad ung tax base pero sa case na ‘to,
in effect na ang Memo 8-82 which says na ung amount actually
applied sa CB ang tax base kaya ito na ung iaapply)
o Furthermore, in the CIR v. Bank of America, the Court had the chance
to discuss the rationale behind the Memo Circular No. 8-82. It said
“"The use of the word remitted may well be understood as referring to
that part of the said total branch profits which would be sent to the
Head office as distinguished from the total profits of the branch (not all
of which need be sent or would be ordered remitted abroad). If the
legislature indeed had wanted to mitigate the harshness of successive
taxation, it would have been simpler to just lower the rates without in
effect requiring the relative novel and complicated way of computing
the tax, as envisioned by the herein private respondent. The same
result would have been achieved. NIMIA SUBTILITAS IN JURE
REPROBATUR, ET TALIS CERTITUDO CERTITUDIMEM
CONFUNDIT (The laws does not allow of a captious and strained
intendtment, for such nice pretence of certainty confounds true and
legal certainty)
o Having found that the questioned taxes were paid when the applicable
ruling is Revenue Memorandum Circular No. 8 - 82, "then what should
apply as taxable base in computing the 15% branch profit remittance
tax is the amount applied for with the Central Bank as profit to be
remitted abroad”.
 MONTERO // 2A TAX DIGESTS
ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • CHENG • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • ONG • PASCUAL • PEREZ • REGIS • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA
COMPANIA GENERAL DE TABACOS
DE FILIPINAS v. CIR (Regis)
[C.T.A. CASE No. 4451; October 23, 1993]
“Same ruling as above; Yes to Refund for year 1985-1986; Income NOT
connected with trade or business NOT included in computation for BPR tax”
Recit-Ready:
Facts: Petitioner, a foreign corporation engaged in the business as leaf
tobacco dealer, importer, and general merchants, paid the 15%
BPR tax for years 1985 (partial) and 1986 in the amount of P3,
148,267.96. Thereafter, it filed a request for refund of the branch
profit remittance taxes paid by it for the years 1985-86.
Issue/s:
1.) WON the BPR taxes are computed based on the profits actually
remitted abroad or on the total branch profits out of which remittance is
made
2.) WON passive income which are already subjected to the final tax are
still included for purposes of computing the BPR tax
Held:
1.) In ruling for the respondent CIR, the Court ruled that the tax base
should be the amount which was applied for with the Central Bank of the
Philippines. Since there is a new Memo Circular issued which is more
applicable in this case, such is the appropriate rule to use. The Memo
Circular 8-82 was issued only on March 17, 1982. The respondent
Burroughs paid its remittance tax on March 14, 1982. Under Sec. 327 of
NIRC, it cannot be given retroactive effect. In view of the fact that
petitioner's branch profit remittance tax for 1985 (partial) and 1986 were
paid on May 3, 1988, after the effectivity of Revenue Memorandum
Circular 8-82, then what should apply as taxable base in computing the
15% BPR tax is the amount applied for with the Central Bank as profit to
be remitted abroad and not the total amount of branch profits.
2.) In ruling for the petitioner, the Court ruled that pursuant to Section
24(c) and (d) of the NIRC, dividends and interest are subject to final tax.
INCOME TAX
To include them again as subject to branch profit remitance tax under the
same Section 24 (b)(2)(ii) would be contrary to law. As worded in the
previously mentioned provision, the rule is that interests and dividends
received by foreign corporation during a taxable year from all sources
within shall not be considered as branch profits unless the same are
effectively connected with the conduct of trade and business of the
corporation. The phrase “effectively connected” was interpreted to mean
income derived from the business activity in which the corporation is
engaged. In this case, the corporation is engaged in business of leaf
tobacco dealer. In its corporate quarterly income tax returns submitted to
respondent, petitioner argues that the interests it received from savings
deposit of Philtrust, or those from Land Bank bonds and cash dividends
from received from PLDT and Tabacalera Industrial Dev’t Corporation of
the Philippines are not effectively connected with the business it is
engaged in hence, not subject to tax
Facts:
• Petitioner is a foreign corporation duly licensed by Philippine laws to
engage in business through its branch office.
• On May 3, 1988, petitioner paid the 15% BPR tax for years 1985 (partial)
and 1986 in the amount of P3, 148,267.96.
• Thereafter, petitioner filed a claim for refund with respondent in the
amount of P593K representing alleged overpaid BPR taxes.
• However, up to the filing of the petition for review, respondent has not
acted on petitioner’s claim.
Issue/s:
1.) WON the BPR taxes are computed based on the profits actually
remitted abroad or on the total branch profits out of which remittance
is made
—NO
2.) WON passive income which are already subjected to the final tax
are still included for purposes of computing the BPR tax
—NO
 MONTERO // 2A TAX DIGESTS
ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • CHENG • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • ONG • PASCUAL • PEREZ • REGIS • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA
Held/Ratio: Wherefore, in view of the foregoing, respondent CIR is hereby
ordered to refund in favor of petitioner, the amount of P121,696.34
representing overpaid 15% branch profit remittance tax on interest and
dividends received. No costs.
1.) NO. (As discussed in the previous Compania case), the petitioner to
support its claim cited the Burroughs case which has a ruling that
applied the BIR ruling dated Jan. 1980. Since there is a new Memo
Circular issued which is more applicable in this case, such is the
appropriate rule to use. The Memo Circular 8-82 was issued only on
March 17, 1982. The respondent Burroughs paid its remittance tax on
March 14, 1982. Under Sec. 327 of NIRC, it cannot be given retroactive
effect.
o If such Memo was issued prior to the Burroughs case, then it should
have been the rule to be applied. But it is not. It cannot be given
retroactive effect. Thus, the reliance on the Burroughs case is not
tenable since the Memo Circular is really the correct rule to be applied.
o Thus, in view of the fact that petitioner's branch profit remittance
tax for 1985 (partial) and 1986 were paid on May 3, 1988 , after the
effectivity of Revenue Memorandum Circular 8-82, then what
should apply as taxable base in computing the 15% BPR tax is
the amount applied for with the Central Bank as profit to be
remitted abroad and not the total amount of branch profits.
2.) NO. (Same as the ruling in above case)
o As worded in Section 21(b)(2)(ii) the rule is that interests and
dividends received by foreign corporation during a taxable year from
all sources within shall not be considered as branch profits unless
the same are effectively connected with the conduct of trade and
business of the corporation. The phrase “effectively connected” was
interpreted to mean income derived from the business activity in which
the corporation is engaged. In this case, the corporation is engaged in
business of leaf tobacco dealer. In its corporate quarterly income tax
returns submitted to respondent, petitioner argues that the interests it
received from savings deposit of Philtrust, or those from Land Bank
bonds and cash dividends from received from PLDT and Tabacalera
INCOME TAX
Industrial Dev’t Corporation of the Philippines are not effectively
connected with the business it is engaged in hence, not subject to tax.
o Furthermore, pursuant to Section 24(c) and (d) of the NIRC, dividends
and interest are subject to final tax. To include them again as subject
to branch profit remitance tax under the same Section 24 (b)(2)(ii)
would be contrary to law.
ITAD BIR RULING NO. 018-09 (Reyes)
[Det Norske Inquiry; June 23, 2009]
“Norwegian company; additional tax to the BPRT of a domestic branch office
is valid and is not discriminatory”
Recit-Ready:
Facts: Det Norske is a Norwegian corporation licensed to do business in
the Philippines. For the years 1998 to 2004, its Philippine branch
remitted branch profits to the head office in Norway, thus, the
corresponding branch profits remittance taxes (BPRT) were
withheld. The country manager of Det Norske now claims that it
should be exempt from the tax pursuant to Article 25 of the
Philippines-Norway tax treaty.
Issue/s:
WON the branch profits remitted by Det Norske Philippines to Det Norske
Norway are exempt from the 15% BPRT pursuant to Article 25 of the
Philippines-Norway tax treaty.
Held: In ruling against Det Norske, the BIR noted that the Philippines-
Norway tax treaty recognizes the BPRT and gives way to its
imposition as paragraph 7, Article 10 of the tax treaty provides
that branch profits remitted by a branch office of a Norwegian
corporation in the Philippines to its head office in Norway may be
subject to an additional tax like the BPRT at a rate not to exceed
15 percent. It is not discriminatory since Det Norske is not a
resident corporation within the view of the treaty.
 MONTERO // 2A TAX DIGESTS
ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • CHENG • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • ONG • PASCUAL • PEREZ • REGIS • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA

Facts: favorably levied in that other State than the taxation levied on
• Det Norske is a corporation organized and existing under the laws of enterprises of that other State carrying on the same activities. This
Norway. provision shall not be construed as obliging a Contracting State to
o It is a tax resident of Norway. grant to residents of the other Contracting State any personal
o It is also licensed by the SEC to establish a branch office in the allowances, reliefs and reductions for taxation purposes on account
Philippines (Det Norske Philippine Branch),whose office is of civil status or family responsibilities which it grants to its own
located at the Ground Floor, G-5, Velco Center, corner Ocampo residents."
and Delgado Streets, Port Area, Manila, Philippines. • Det Norske claims that under the domestic tax laws of the Philippines,
• Det Norske Philippine Branch had remitted branch profits to Det Norske no withholding tax is imposed on the remittance of the after-tax profits of
for taxable years 1998 to 2004, and also withheld the corresponding a branch of a domestic corporation in the Philippines to its head office in
branch profits remittance tax (BPRT): the Philippines, and that applying the principles of non-discrimination in
the tax treaty, no BPRT should likewise be imposed on the remittance of
Taxable Year Branch Profits Applied BPRT Withheld the after-tax profits of a branch of a Norwegian corporation in the
for Remittance Philippines to its head office in Norway.
2004 PHP10,789,599.96 PHP1,618,440.00 o The BPRT imposed on the remittance of branch profits by a
2003 16,482,540.00 2,472,381.00 local branch of a Norwegian corporation to its head office in
2002 15,534,149.00 2,330,122.35 Norway is more burdensome (or less favorable) than the tax
treatment on the local branch of a domestic corporation whose
2000 11,128,536.00 1,669,280.40
remittance of profits is not subject to the BPRT.
1999 2,500,550.00 375,082.50
1998 1,310,642.00 196,596.30 Issue/s:
WON the branch profits remitted by Det Norske Philippine Branch to
• The country manager of Det Norske wrote to the BIR, contending that Det Norske Norway are exempt from the 15% BPRT pursuant to Article
the imposition of the BPRT is contrary to the provisions of paragraphs 1 25 of the Philippines-Norway tax treaty.
and 2, Article 25 of the Convention between the Republic of the —NO
Philippines and the Kingdom of Norway for the Avoidance of Double
Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Held/Ratio: Petition GRANTED. In applying the doctrine of animation, Court
Income and on Capital (Philippines-Norway tax treaty), which provide: rules for the Applicant.

Article 25 – Non-Discrimination
1. Nationals of a Contracting State shall not be subjected in the other
Contracting State to any taxation or any requirement connected
therewith, which is other or more burdensome than the taxation and
connected requirements to which nationals of that other State in the
same circumstances are or may be subjected.
2. The taxation on a permanent establishment which an enterprise of a
Contracting State has in the other Contracting State shall not be less
NO. The BIR emphasized the doctrine of proper interpretation of the
laws and of equal treatment between a permanent establishment of a
foreign (Norwegian) enterprise and a domestic enterprise.
o The law which relates to this case is Section 28(A)(5) of the Tax Code
of 1997, which provides:
SEC. 28. Rates of Income Tax on Foreign Corporations. —

INCOME TAX
 MONTERO // 2A TAX DIGESTS
ARCAINA • AUSTRIA • BAÑADERA • BANTA • BELLO • BUGAY • CARAAN • CHENG • COLOQUIO • CUALOPING • DE LUIS • DIPLOMA • FAJARDO • GO
LIM, J. • LIM, Q. • LUNA • ONG • PASCUAL • PEREZ • REGIS • REYES • TRIAS • TUAZON • VANSLEMBROUCK • VILLARIN, L. • VILLARIN, P. • VILLARIVERA
(A)Tax on Resident Foreign Corporations. —
(5) Tax on Branch Profits Remittances. — Any profit remitted
by a branch to its head office shall be subject to a tax of fifteen
percent (15%) which shall be based on the total profits applied or
earmarked for remittance without any deduction for the tax
component thereof (except those activities which are registered with
the Philippine Economic Zone Authority). The tax shall be collected
and paid in the same manner as provided in Sections 57 and 58 of
this Code: Provided, That interests, dividends, rents, royalties,
including remuneration for technical services, salaries, wages,
premiums, annuities, emoluments or other fixed or determinable
annual, periodic or casual gains, profits, income and capital gains
received by a foreign corporation during each taxable year from all
sources within the Philippines shall not be treated as branch profits
unless the same are effectively connected with the conduct of its
trade or business in the Philippines.
Purpose of the BPRT
! The reason why the BPRT was introduced is to put into the same or
similar footing the tax treatment of foreign corporations engaged in
trade or business in the Philippines through local branches with
foreign corporations not engaged in trade or business in the
Philippines but maintaining ownership in domestic corporations in the
Philippines (subsidiaries).
o Without the BPRT, the first type of foreign corporations might
have an undue advantage over the second type of foreign
corporations because dividends remitted to the latter
corporations by their subsidiaries would be subjected to a
second layer of income taxation even if the profits of the
subsidiaries out of which the dividends were paid were
already subjected to a first layer of income taxation
(corporate income tax). Thus the BPRT was introduced.
The BPRT is permitted under the Philippines-Norway tax treaty
! Despite it being an additional income tax, it is noteworthy that the
Philippines-Norway tax treaty recognizes the BPRT and gives way to
INCOME TAX
its imposition, as Article 10 (Dividends), paragraph 7 thereof,
provides:
7. Nothing in this Convention shall be construed as
preventing a Contracting State from imposing in accordance
with its internal law, a tax apart from the corporate income
tax on remittances of profits by a branch to its head office
provided that the tax so imposed shall not exceed fifteen
per cent of the amount remitted.
• According to paragraph 7, branch profits remitted by a branch
office of a Norwegian corporation in the Philippines to its head
office in Norway may be subject to an additional tax like the
BPRT at a rate not to exceed 15 of the amount remitted.
The BPRT in relation to Article 25 of the tax treaty
• Paragraph 1, Article 25 of the Philippines-Norway tax treaty provides
that nationals of Norway shall not be subjected in the Philippines to
any taxation, or any requirement connected therewith, which is other
or more burdensome than the taxation and connected requirements
to which nationals of the Philippines in the same circumstances are
or may be subjected. According to the OECD Model Convention on
Income and Capital, the scope of this paragraph would be
limited to residents of the Philippines only.
• Under the definition of a ‘resident’ in the said law, Det Norske is a
resident of the State where it is liable to tax by reason of its domicile,
residence, place of management, or any other similar criterion of a
similar nature.
o Det Norske's domicile, residence, or place of
management is in Norway and as such is a resident of
Norway for purposes of the Philippines-Norway tax
treaty.
o While Det Norske is licensed to establish a branch office in
the Philippines, this alone will not suffice to say that Det
Norske's domicile, residence, or place of management is
also in the Philippines thereby not making Det Norske a
resident of the Philippines for purposes of the tax treaty.
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o Relative thereto, paragraph 1, Article 25 of the Philippines-
Norway tax treaty does not provide a legal basis for the non-
imposition of the BPRT.
• Paragraph 2 of the Philippines-Norway tax treaty provides that the
taxation on a permanent establishment which an enterprise of
Norway has in the Philippines shall not be less favorably levied in
the Philippines than the taxation levied on enterprises of the
Philippines carrying on the same activities.
o According to the OECD Model Convention, the purpose of
paragraph 2 is to end all discrimination in the treatment of
permanent establishments as compared with resident
enterprises belonging to the same sector of activities, as
regards taxes based on business activities, and especially
taxes on business profits.
o However, the Convention likewise noted that the experience
of the OECD member countries have shown that there was a
difficulty in defining clearly and completely the substance of
the principle of equal treatment envisaged in paragraph 2,
which has led to wide differences of opinion with regard to
the many implications of this principle.
o The main reason for the difficulty seems to reside in the
actual nature of the permanent establishment, which is not a
separate legal entity but only part of an enterprise that has
its head office in another State.
o The situation of the permanent establishment is different
from that of a domestic enterprise, which constitutes a single
entity all of whose activities, including its fiscal affairs, can be
fully brought within the purview of the State where it has its
head office. The implications of the equal treatment clause
will be examined under several aspects of the levying of tax.
• The BIR is of the opinion and so holds that, as far as the Philippines
is concerned, as long as the aggregate taxes imposed by the
Philippines on a permanent establishment of a foreign
enterprise in the Philippines are not greater than the taxes
imposed by the Philippines on a domestic enterprise, it cannot
be said that the permanent establishment is treated less
favorably in the Philippines than the domestic enterprise.
INCOME TAX
• Thus, the BPRT, the corporate income tax on taxable profits, the
withholding tax on certain types of income, and other similar taxes
on income, can be imposed by the Philippines on a permanent
establishment without going against the principle of equal treatment
envisaged in paragraph 2, Article 25 of the Philippines-Norway tax
treaty provided that the aggregate taxes levied on the
permanent establishment are not greater than the taxes levied
on a domestic enterprise.
Taxation of permanent establishments in the form of a branch and
taxation of domestic enterprises
• In most cases, and in relation to Philippines tax treaties and the Tax
Code of 1997, a foreign enterprise is considered to have a
permanent establishment in the Philippines when it is engaged in
trade or business in the Philippines through a branch or
branches. For this type of permanent establishment, a foreign
enterprise (like Det Norske) is registered with and licensed by the
Securities and Exchange Commission to establish a branch
office and engage in trade or business in the Philippines.
• In terms of tax liability alone, a foreign enterprise, whether or not
engaged in trade or business in the Philippines, is in a more
advantageous position as compared to a domestic enterprise
because it is taxable only on income derived from sources within the
Philippines. A domestic enterprise is, on the other hand, taxable on
income derived from sources within and without the Philippines.
o Also, in terms of rate and structure of tax, there are
preferential tax regimes that are or can be enjoyed only by
foreign enterprises engaged in trade or business in the
Philippines and which are not available to domestic
enterprises.
• Summary
o The Philippines-Norway tax treaty recognizes the BPRT
and gives way to its imposition as paragraph 7, Article
10 of the tax treaty provides that branch profits remitted
by a branch office of a Norwegian corporation in the
Philippines to its head office in Norway may be subject
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to an additional tax like the BPRT at a rate not to exceed
15 percent.
o Paragraph 1, Article 25 of the Philippines-Norway tax treaty
does not provide a legal basis for the non-imposition of the
BPRT. The principle of equal treatment intended by this
paragraph is limited to nationals of the Philippines and of
Norway who are both residents of the Philippines. While Det
Norske is a national of Norway, it is not, however, a resident
of the Philippines under paragraph 1, Article 4 of the tax
treaty.
o Paragraph 2, Article 25 of the Philippines-Norway tax treaty
lays down a principle of equal treatment between a
permanent establishment of a Norwegian enterprise in the
Philippines and a domestic enterprise. Similar with the
United States, the Philippines is of the view that as long as
the aggregate taxes imposed by the Philippines on a
permanent establishment are not greater than the taxes
imposed by the Philippines on a domestic enterprise, it
cannot be considered that the permanent establishment is
treated less favorably in the Philippines than the domestic
enterprise. In this connection, while the BPRT is imposed
only on permanent establishments and not on domestic
enterprises, the burden of this tax upon a permanent
establishment is, however, mitigated by the current tax
regimes which greatly favor the permanent establishment
over the domestic enterprise.
REGIONAL OR AREA HEADQUARTERS AND ROHQS
NATIONAL INTERNAL REVENUE CODE
SECTION 22. Definitions. – When used in the Title:
(DD) The term 'regional or area headquarters' shall mean a branch
established in the Philippines by multinational companies and which
headquarters do not earn or derive income from the Philippines and which
INCOME TAX
act as supervisory, communications and coordinating center for their
affiliates, subsidiaries, or branches in the Asia-Pacific Region and other
foreign markets.
(EE) The term 'regional operating headquarters' shall mean a branch
established in the Philippines by multinational companies which are engaged
in any of the following services: general administration and planning;
business planning and coordination; sourcing and procurement of raw
materials and components; corporate finance advisory services; marketing
control and sales promotion; training and personnel management; logistic
services; research and development services and product development;
technical support and maintenance; data processing and communications;
and business development.
REVENUE REGULATIONS NO. 11 – 2010
October 26, 2010
SUBJECT : Further Clarifying the Term "Managerial and
Technical Positions" Under Section 2.57.1 (D) of Revenue Regulations
(RR) No. 2-98, as Amended, by RR No. 12-2001, Implementing Section
25 (C) of the National Internal Revenue Code of 1997 (Tax Code), as
Amended and Modifying for this Purpose Revenue Memorandum Circular
(RMC) No. 41-09 Including Guidelines on Availment of the Fifteen Percent
(15%) Preferential Income Tax Rate for Qualified Filipino Personnel
Employed by Regional or Area Headquarters (RHQs) and Regional
Operating Headquarters (ROHQs) of Multinational Companies
TO : All Revenue Officials and Personnel and Others
Concerned
SECTION 1. Background. — On July 23, 2009 Revenue
Memorandum Circular (RMC) No. 41-09 was issued essentially defining
the terms managerial and/or technical positions of Filipino personnel
employed by Regional or Area Headquarters (RHQs) and Regional
Operating Headquarters (ROHQs) of multinational companies. The phrase
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"managerial and technical positions" appears in Section 2.57.1 (D) of
Revenue Regulations (RR) No. 2-98, as amended by, among others, RR
No. 12-2001, implementing Section 25 (C) of the Tax Code. Thus:
"(D) Income Derived by Alien Individuals Employed by Regional or
Area Headquarters and Regional Operating Headquarters of Multinational
Companies. — A final withholding tax equivalent to fifteen percent (15%)
shall be withheld by the withholding agent from the gross income received
by every alien individual occupying managerial and technical positions in
regional or area headquarters and regional operating headquarters and
representative offices established in the Philippines by multinational
companies as salaries, wages, annuities, compensation, remuneration,
and other emoluments, such as honoraria and allowances, except income
which is subject to fringe benefits tax, from such regional or area
headquarters and regional operating headquarters.
The same tax treatment shall apply to Filipinos employed and occupying
the same positions as those aliens employed by regional or area
headquarters and regional operating headquarters of multinational
companies, regardless of whether or not there is an alien executive
occupying the same position. Provided, that such Filipinos shall have the
option to be taxed at either 15% of gross income or at the regular rate on
their taxable income in accordance with the Tax Code of 1997, if the
employer (Regional or Operating headquarters/Regional or Area
headquarters) is governed by Book III of E.O. 226, as amended by R.A.
No. 8756. In case the Filipino opted to be taxed at the regular tax rate
under Sec. 24 of the Tax Code of 1997, the provisions of Sec. 2.79(A) to
(D) of Revenue Regulations No. 2-98 shall apply.
The term "multinational company" means a foreign firm or entity engaged
in international trade with its affiliates or subsidiaries or branch offices in
the Asia-Pacific Region and other foreign markets." (emphasis supplied)
In defining the term "managerial employee", RMC No. 41-09 cited
Philippine Appliance Corp. vs. Laguesma, 226 SCRA 730 (1993) and
Villuga vs. NLRC, 225 SCRA 537 (1993).
RMC No. 041-09 also defined the term "technical position" as being limited
INCOME TAX
only to positions that are highly technical in nature or where there are no
Filipinos who are competent, able and willing to perform the services for
which the aliens are desired.
Finally, the language of RMC No. 41-09 implied that in order to enjoy the
fifteen percent (15%) final income tax rate on their gross compensation
income, Filipino nationals in ROHQs or RHQs must be employed in a
managerial and highly technical position.
Thus, the issuance of RMC No. 41-09 has resulted in some confusion
among the tax treatment of Filipinos employed by ROHQs or RHQs.
These regulations are therefore being issued to clarify the provisions of
Section 2.57-1 (D) of RR No. 2-98, as amended.
SECTION 2. Who Are Qualified. — Filipinos employed by ROHQs or
RHQs in a managerial or technical position shall have the option to be
taxed at either fifteen percent (15%) of their gross income or at the regular
income tax rate on taxable compensation income in accordance with
Section 24 of the Tax Code, if the employer is governed by Book III of
Executive Order (EO) No. 226, as amended by Republic Act (RA) No.
8756. All other employees are considered as regular employees who are
subject to the regular income tax rate on their taxable compensation
income.
SECTION 3. Eligibility to the 15% Preferential Tax Rate. —
Filipinos exercising the option to be taxed at fifteen percent (15%)
preferential rate for occupying the same managerial or technical position
as that of an alien employed in an ROHQ or RHQ must meet all the
following requirements:
(a) Position and Function Test — The employee must occupy a
managerial position or technical position AND must actually be
exercising such managerial or technical functions pertaining to
said position;
(b) Compensation Threshold Test — In order to be considered a
managerial or technical employee for income tax purposes, the
employee must have received, or is due to receive under a
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contract of employment, a gross annual taxable compensation of
at least PhP975,000.00 (whether or not this is actually received);
Provided that, a change in compensation as a consequence of
which, such employee subsequently receiving less than the
compensation threshold stated in this section shall, for the
calendar year when the change becomes effective, result in the
employee being subject to the regular income tax rate.
Beginning December 31, 2013 and on December 31 every three years
thereafter, the compensation threshold shall be adjusted to its present
value using the Philippine Consumer Price Index (CPI), as published by
the National Statistics Office. The adjusted compensation, shall take effect
not earlier than the first day of the calendar month immediately following
the issuance of a corresponding Revenue Memorandum Circular (RMC)
on the matter.
For clarity in the implementation hereof, the formula for determining the
adjusted compensation threshold shall be:
Adjusted Previous CPI for the current year
threshold = threshold x ––––––––––––––––––
–––––––––––––
amount amount CPI for the previous revaluation
year
(c) Exclusivity Test — The Filipino managerial or technical
employee must be exclusively working for the RHQ or ROHQ as a
regular employee and not just a consultant or contractual
personnel. Exclusivity means having just one employer at a time.
SECTION 4. Gross Compensation. — Under Section 2.78.1 (A) of
RR No. 2-98, as amended, gross compensation includes salaries, wages,
emoluments and honoraria, allowances, commissions and fees (including
director's fees if the director is at the same time an employee of the
employer), taxable bonuses, and fringe benefits (except those that are
subject to fringe benefits tax).
INCOME TAX
Section 2.79 (B) (3) of RR No. 2-98, as amended, categorizes taxable
compensation income into regular taxable compensation income and
supplementary compensation income. Under the said regulations, regular
taxable compensation income includes basic salary, fixed allowances for
representation, transportation and other allowances paid to an employee
per payroll period. Supplementary compensation is defined by the same
regulations as payments made to an employee in addition to the regular
compensation such as commission, overtime pay, taxable bonus and
other taxable benefits, with or without regard to a payroll period.
For purposes of determining the compensation threshold under Section 3
(b) of these regulations, gross compensation shall not include retirement
and/or separation pay/benefits (whether or not taxable), as well as items
considered as de minimis benefits. Provided that the foregoing shall be
considered in determining the income tax due at the time of the
employee's retirement or separation.
SECTION 5. Manner of Computation of Tax. — At the start of the
year or at the start of the employee's employment, as the case may be, it
is important to determine whether the employee shall receive, or is due to
receive under a contract of employment, a gross annual compensation
equivalent to or above the compensation threshold stated in Section 3 (b)
of these regulations. The determination should, as far as practicable,
include both regular taxable compensation income and supplementary
compensation income.
The withholding tax regime applicable to employees who opted to
subjected to the fifteen percent (15%) final withholding tax rate is different
from the withholding tax on compensation imposable on regular
employees. This is primarily evidenced by the reporting requirements for
final withholding tax (BIR Form No. 1601-F), applicable to employees
subject to the final withholding tax of fifteen percent (15%), as
differentiated from the reporting requirements for withholding tax on
compensation (BIR Form No. 1601-C).
Consequently, where an employee who is subject to the fifteen percent
(15%) final withholding tax rate works for more than one employer which
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are both ROHQs or RHQs at any one time in a taxable year, then such
employers need not annualize the employees compensation. The
annualized withholding method as provided under Section 2.79 (B) (5) (b)
of RR No. 2-98, as amended, will only apply the case of employees,
having more than one employer in a calendar year, whose income is
subject withholding tax on compensation. On the other hand, when during
the same year, an employee is subject to both the fifteen percent (15%)
final withholding tax rate and the regular income tax rate, then the
employer under whom the employee is subject to the regular income tax
rates shall annualize that employee's compensation that was subject to
the regular income tax rates.
The determination of whether or not the employee qualifies for the final
withholding tax rate of fifteen percent (15%) is shall be made on a yearly
basis.
In cases where the total compensation cannot be determined at the start
of the year or employment, the option to be taxed at fifteen percent (15%)
cannot be exercised.
EXAMPLE 1: At the start of the year, Mr. A, a Filipino holding a
managerial position in an RHQ, receives a monthly salary and cost of
living allowance in the amount of PhP70,000.00 and PhP7,000.00
respectively. His employment contract also states that he may receive a
performance bonus at the end of the year which amount is not presently
determinable. Since Mr. A is due to receive, under an employment
contract, a regular taxable compensation income of PhP994,000.00
composed of PhP840,000.00 (PhP70,000.00 x 12 months) basic pay,
PhP70,000.00 13th month pay and PhP84,000.00 (PhP7,000.00 x 12
months) cost of living allowance, placing him above the compensation
threshold of PhP975,000.00, then he has the option to be taxed at the rate
of 15% of his gross income or at the regular income tax rate.
Since the employer knows that the annual gross compensation of the
employee is above the compensation threshold of PhP975,000.00 at the
start of the year, then the employer may, at the option of the employee,
INCOME TAX
withhold income tax at the rate of 15% of gross income. It is immaterial
that he may receive a bonus of an indeterminate amount because his
regular compensation income already places him above the compensation
threshold of PhP975,000.00. Thus, the employer should, in addition to the
other reportorial requirements stated in Section 7 hereof, accomplish the
Monthly Remittance Return of Final Income Taxes Withheld (BIR Form
No. 1601-F) and the Annual Information Return of Income Taxes Withheld
on Compensation and Final Withholding Taxes (BIR Form No. 1604-CF).
EXAMPLE 2: At the start of the year, Mr. A, a Filipino employed by an
ROHQ, receives a monthly salary and cost of living allowance in the
amount of PhP65,000.00 and PhP5,000.00 respectively. His employment
contract also states that he may receive a performance bonus at the end
of the year which amount is not presently determinable. Since Mr. A's
regular compensation income of PhP905,000.00 composed of
PhP780,000.00 (PhP65,000.00 x 12 months) basic pay, PhP65,000.00
13th month pay and Php60,000.00 (PhP5,000.00 x 12 months) cost of
living allowance, is below the compensation threshold of PhP975,000.00
then his employer shall, on every pay period from the start of the year
withhold from Mr. A income tax at the regular rate of withholding tax on
compensation. However, if at the end of the year Mr. A receives a
performance incentive bonus of PhP100,000.00, thus making his annual
gross compensation income total PhP1,005,000.00 and he opts to be
taxed at the rate of 15% of his gross income, his employer shall make the
necessary adjustments to the income tax rate.
More particularly:
a. The employer shall refund to the employee the excess of the tax
withheld at the regular rate of withholding tax on compensation over
the tax required to be withheld at the rate of 15% of gross income;
b. The adjustment for the excess tax withheld at the regular income tax
rate shall be reflected in the Monthly Remittance Return of Income
Taxes Withheld on Compensation (BIR Form No. 1601-C) for the
month of December;
c. The tax required to be withheld at the rate of 15% of gross income
shall be reported in the Monthly Remittance Return of Final Income
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Taxes Withheld (BIR Form No. 1601-F) for the month of December;
and
d. The adjustments will also be summarized in the Annual Information
Return of Income Taxes Withheld on Compensation (BIR Form No.
1601-C) and Final Withholding Taxes (BIR Form No. 1604-CF).
The above requirement shall be in addition to the other reportorial
requirements stated in Section 7 herein.
The resulting aggregate excess remittance by the ROHQ/RHQ of
withholding compensation (WC) shall be credited and applied in the
succeeding month/s withholding tax remittances (WC) only until fully
applied and utilized.
EXAMPLE 3: Mr. A, a Filipino employed by a regional area
headquarters in the Philippines begins his employment on June 1. His
employment contract stipulates that he shall receive an annual
compensation of PhP975,000.00 inclusive of 13th month pay. At the end
of the year, he would have received only Php568,750.00, composed of
PhP525,000.00 (PhP975,000.00/13 x 7 months) basic pay and
PhP43,750.00 (PhP975,000.00/13 x 7/12 months) 13th month pay.
However, since his employment contract states that he shall receive an
annual compensation of PhP975,000.00, whether he actually receives this
or not, then his employer shall, at the option of Mr. A, withhold income tax
at the rate of 15% of actual gross compensation received.
EXAMPLE 4: Mr. A, a Filipino employed by a regional area
headquarters in the Philippines begins his employment at the start of the
year. His contract stipulates that he shall receive an annual compensation
of PhP988,000.00, inclusive of 13th month pay. Since this amount is
above the compensation threshold his employer shall, at the option of Mr.
A, withhold income tax at the rate of 15% of gross income. However, at
the end of June, Mr. A leaves his job for employment with another ROHQ.
At this time, Mr. A would have received total compensation of
Php494,000.00 composed of PhP456,000.00 (988,000.00/13 x 6 months)
basic pay and PhP38,000.00 (988,000.00/13 x 6/12 months) 13th month
pay.
INCOME TAX
Mr. A has the option to be taxed at 15% of gross income for his
employment under his first employment because Mr. A was due to
receive, under a contract of employment, an amount in excess of the
compensation threshold of PhP975,000.
If under his second employment with another ROHQ within the same year,
Mr. A's annual compensation is below the threshold, then the regular
income tax rates will apply to his compensation under his second
employment.
There is no need for the second employer to consolidate Mr. A's income
from his previous employer (where Mr. A qualified for the tax rate of 15%
of gross income) which was under a different tax regime.
EXAMPLE 5: Mr. A, a Filipino employed by a regional area
headquarters in the Philippines begins his employment at the start of the
year. His contract stipulates that he shall receive an annual compensation
of PhP988,000.00. Since this amount is above the compensation
threshold criteria, his employer shall, at the option of Mr. A, withhold
income tax at the rate of 15% of gross income. However, at the end of
June, for one reason or another (e.g., reduction of compensation due to
business reverses), Mr. A's compensation is reduced such that his annual
compensation will be reduced to an amount that is less than the
compensation threshold.
In this case, while the final withholding tax rate was applied to Mr. A during
the year, an adjustment should be made at the end of the year subjecting
the entire annual compensation of Mr. A to the regular income tax rates.
The employer should make the necessary adjustments at the end of the
year in the following forms:
1. BIR Form No. 1601-C for the correct taxes to be withheld at the
regular income tax rates; and
2. BIR Form No. 1601-F for excess taxes withheld and for over-
remittance;
3. Annual Information Return of Income Taxes Withheld on
Compensation and Final Withholding Taxes (BIR Form No. 1604-
CF).
The resulting excess remittance of fifteen percent (15%) final withholding
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tax, if any shall be credited and applied in the succeeding month/s fifteen
percent (15%) final withholding tax only under ATC Code WI 320 and not
against any other form of final tax remittances. Crediting shall be allowed
only against the same type of final tax (ATC Code WI 320) until fully
applied and utilized.
EXAMPLE 6: Mr. A, Filipino employed by a ROHQ is a manager of the
company for a long time now. His contract stipulates that he shall receive
an annual compensation of PhP888,000.00. During the year, he received
an increase in his salary which brings him now to more than the annual
compensation threshold of Php975,000. Because of the salary increase,
he is now qualified to exercise the option to be taxed at the rate of 15% of
his gross income. If Mr. A opts to be subject to the 15% preferential rate,
he shall be covered by said 15% rate from the effectivity of his salary
increase. However, his previous compensation (prior to the salary
increase) shall remain to be subjected to the regular income tax rate. The
same rules apply in instances of promotions made during the year where
a promotion or change in job assignment qualifies the Filipino manager or
technical employee to exercise the option to be taxed at 15% preferential
rate.
EXAMPLE 7: Mr. A is an employee of ROHQ 1 at the start of the year.
His annual gross compensation meets the compensation threshold at the
beginning of the year. During the year, Mr. A is employed by ROHQ 2. His
new contract provides for a gross annual compensation that meets the
compensation threshold.
In this case, Mr. A is subject to the final withholding tax rate of 15% of
gross income for both the ROHQ 1 and ROHQ 2. However, there is no
need to annualize Mr. A's income from either ROHQ 1 or 2 because the
annualized withholding tax method does not apply to the final withholding
tax regime. Mr. A will not be required to file an annual ITR consolidating
his income for the year under both employment which is subject to final
withholding tax.
EXAMPLE 8: Mr. A is an employee of ROHQ 1 at the start of the year.
His annual gross compensation is below the compensation threshold at
INCOME TAX
the beginning of the year. During the year, Mr. A is employed by ROHQ 2.
His new contract provides for a gross annual compensation that meets the
compensation threshold.
For ROHQ 1, the applicable tax rate would be the regular tax on
compensation income. For ROHQ 2, at the option of Mr. A, the applicable
tax rate would be the final withholding tax rate of 15% of gross income.
There is no need for ROHQ 2 to consolidate Mr. A's income from his
previous employer (ROHQ 1) since this was covered under a different tax
regime. However, if Mr. A, did not opt to be taxed using the 15%
preferential rate, he will be subjected to regular income tax rate on
compensation in which case there is a need to consolidated compensation
earnings from ROHQ 1 and ROHQ 2 for a proper year-end adjustments on
compensation.
EXAMPLE 9: Mr. A is an employee of ROHQ 1 at the start of the year.
His annual gross compensation meets the compensation threshold at the
beginning of the year. During the year, Mr. A is employed by ROHQ 2. His
new contract provides for a gross annual compensation that is below the
compensation threshold.
For purposes of ROHQ 1, at the option of Mr. A, the applicable tax rate
would be the final tax of 15% of gross income.
For purposes of ROHQ 2, the applicable tax rate would be the regular
income tax on compensation income. ROHQ 2 shall be required to
annualize such regular income but there is no need for ROHQ 2 to
consolidate Mr. A's income from ROHQ 1, since this was covered under a
different tax regime.
EXAMPLE 10: At the start of the year, Mr. A is an employee of ROHQ 1.
His annual gross compensation at ROHQ 1 did not meet the
compensation threshold at the beginning of the year. During the year, Mr.
A left ROHQ 1 and transferred to ROHQ 2. His new contract provides for a
gross annual compensation that is likewise below the compensation
threshold.
For purposes of ROHQ 1, the applicable tax rate would be the regular
income tax rates.
For purposes of ROHQ 2, the applicable tax rate would still be the regular
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income tax on compensation income. However, ROHQ 2 shall be required
to annualize such regular income for purposes of making a year-end
adjustment for withholding on compensation. Even if the total
compensation income of Mr. A, when annualized, would exceed the
compensation threshold, Mr. A's income would still remain under the
regular income tax regime and will not change to the 15% final income tax
regime.
EXAMPLE 11: Mr. A is a long-serving employee of an ROHQ. He is an
executive secretary to the General Manager for which he receives an
annual compensation of PhP988,000.00.
Even if Mr. A's annual gross compensation is above the compensation
threshold of PhP975,000.00, he does not qualify for the rate of 15% on
gross income because he is neither exercising managerial nor technical
functions.
EXAMPLE 12: Mr. A, a Filipino employed by a regional area
headquarters in the Philippines receives a monthly salary and cost of
living allowance in the amount of PhP65,000.00 and PhP5,000.00,
respectively. His employment contract also states that he may receive a
performance bonus at the end of the year the amount is not yet presently
determinable. Since Mr. A's regular compensation income of
PhP905,000.00 composed of PhP780,000.00 (PhP65,000.00 x 12
months) basic pay, PhP65,000.00 13th month pay, and Php60,000.00
(PhP5,000.00 x 12 months) cost of living allowance, is below the
compensation threshold of PhP975,000.00, then his employer shall, on
every pay period from the start of the year, withhold from Mr. A income tax
at the regular rate of withholding tax on compensation.
During the year, Mr. A either retires, or is separated from work. He
receives a retirement or separation pay of PhP100,000.00, thus making
his annual gross compensation income for the year in the total amount of
PhP1,005,000.00. Notwithstanding that Mr. A's annual gross
compensation now exceeds the compensation threshold, Mr. A shall be
subject to income tax at the regular rate of withholding tax on
compensation, since retirement and/or separation pay, whether or not
subject to tax, shall not be considered in determining whether an
INCOME TAX
employee meets the compensation threshold.
SECTION 6. Imposition of Fringe Benefits Tax. — The determinant
test whether a Filipino employee has the option to avail of the fifteen
percent (15%) preferential rate as a manager or technical employee is
independent of the criteria in the imposition of fringe benefits tax under
Section 33 of the Tax Code, as implemented by Revenue Regulations No.
3-98, as amended.
Pursuant to Revenue Regulations No. 3-98, the term, "RANK AND FILE
EMPLOYEES" means all employees who are holding neither managerial
nor supervisory position. On the other hand, the Labor Code of the
Philippines, as amended, defines "MANAGERIAL EMPLOYEE" as one
who is vested with powers or prerogatives to lay down and execute
management policies and/or to hire, transfer, suspend, lay-off, recall,
discharge, assign or discipline employees; while "SUPERVISORY
EMPLOYEES" are those who, in the interest of the employer, effectively
recommend such managerial actions if the exercise of such authority is
not merely routinary or clerical in nature but requires the use of
independent judgment.
Inasmuch as the option to be subject to fifteen percent (15%) preferential
rate and the coverage of fringe benefits tax are independent of each other,
there would be instances where a Filipino employee shall enjoy a fifteen
percent (15%) preferential rate as a technical employee but may not be
covered by the fringe benefits tax not being a supervisory employee.
SCENARIO 1: Mr. A is a General Manager of an ROHQ. He is expected
to receive an annual compensation of PhP988,000.00. He will likewise
receive PhP200,000 fringe benefits for the year.
Mr. A's annual gross compensation is above the compensation threshold
of PhP975,000.00, he opted for the fifteen percent (15%) final preferential
rate.
As he opted for the fifteen percent (15%) final preferential tax rate, his
fringe benefits shall likewise be subjected to the fifteen percent (15%) tax
rate which shall be imposed on the grossed-up monetary value of the
fringe benefit. The said tax base shall be computed by dividing the
monetary value of the fringe benefit by eighty-five percent (85%).
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SCENARIO 2: Mr. B, is a General Manager of an ROHQ, is expected to
receive an annual compensation of PhP888,000.00. He will likewise
receive PhP100,000 fringe benefits for the year.
Mr. B's annual gross compensation is below the compensation threshold
of PhP975,000.00. The fringe benefits subject to fringe benefits tax are not
included in determining gross compensation as defined under Section 4 of
these regulations; thus, he does not qualify for the rate of fifteen percent
(15%) final preferential income tax rate on gross income but the same will
be subjected to regular income tax rate.
Moreover, being a manager, a fringe benefits tax of thirty two percent
(32%) shall be imposed on the grossed-up monetary value of his fringe
benefit. The said tax base shall be computed by dividing the monetary
value of the fringe benefit by sixty eight percent (68%).
SCENARIO 3: Mr. C is a long-serving employee of an ROHQ. He is an
executive secretary to the General Manager for which he is receiving an
annual compensation of PhP988,000.00. He is likewise receiving
PhP100,000 fringe benefits.
Even if Mr. C's annual gross compensation is above the compensation
threshold of PhP975,000.00, he does not qualify for the rate of fifteen
percent (15%) on gross income because he is neither exercising
managerial nor technical functions. Thus, he is subject to the regular
income tax on both his compensation income and fringe benefits.
SCENARIO 4: Mr. D is a technical employee for which he receives an
annual compensation of PhP988,000.00. He likewise receives
PhP100,000 fringe benefits for the year.
Mr. D's annual gross compensation is above the compensation threshold
of PhP975,000.00, hence he is qualified for the rate of fifteen percent
(15%) on gross income.
However, he is not subject to fringe benefits tax as he is neither exercising
managerial or supervisory function, thus he is subject to the fifteen percent
(15%) preferential income tax rate on both his compensation and fringe
benefits.
INCOME TAX
SECTION 7. Reporting Requirements. — For a Filipino managerial
or technical employee to have the option to be taxed at fifteen percent
(15%) of his or her gross income, it shall no longer be necessary for the
RHQ or ROHQ to file a request for ruling with the BIR National Office.
Instead, the RHQ or ROHQ must file the following documents with the
Revenue District Office having jurisdiction over it or, for ROHQs or RHQs
that are considered large taxpayers, with the LT Assistance Division/LT
Regulatory Division/LTDOs:
a. Declaration of Employees' Availment of the 15% Preferential Tax
Rate of every qualified employee (BIR Form No. 1947 herein
attached as Annex "A")
Declaration of Employees' Availment of the 15% Preferential Tax
Rate shall be filed within 15 days from the date of effectivity of this
Revenue Regulations, for employees currently employed with ROHQ
or RHQ or within 15 days from the date of employment for those who
will just be employed. Thereafter, the filing shall only be made
whenever there are changes in the employment status of the
employee (i.e., change of employer, change in salary package,
promotion) in which case the newly accomplished BIR Form must be
submitted not later than January 31st of the succeeding year.
b. Employer's sworn declaration, stating under oath:
i. the names of its employees who received, or are due to receive,
under an employment contract, a gross annual compensation
equivalent to or more than PhP975,000.00 or its adjusted amount;
ii. the inclusive dates for the relevant calendar year when the
employee received, or are due to receive, gross annual
compensation equivalent to or more than PhP975,000.00 or its
adjusted amount;
iii. that the employees received compensation solely from the
ROHQs or RHQs and not from the company of which it is a
branch, or from any other entity which may be an affiliate or
subsidiary of the said company; and
iv. that such employees exercise managerial or technical functions.
c. Employee's sworn declaration, stating under oath:
i. his complete name, Taxpayer Identification Number (TIN);
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ii. job title and brief job description and responsibility;
iii. the equivalent amount of gross annual compensation which he
received or is due to receive must be at least PhP975,000.00 or
its adjusted amount;
iv. the inclusive dates of the calendar year when he received or is
due to receive gross annual compensation of at least
PhP975,000.00 or its adjusted amount;
v. that he is exclusively employed by the ROHQ or RHQ;
vi. that he does not have any other employer other than the ROHQ
or RHQ;
vii. that he does not receive compensation from sources other than
the ROHQ or RHQ where he is employed; and
viii. that he exercises managerial or technical functions.
The declarations mentioned in subsections b & c above must be
submitted not later than January 31st of the succeeding year.
d. Monthly Remittance Return of Final Income Taxes Withheld (BIR
Form No. 1601-F) and Annual Information Return of Income Taxes
Withheld on Compensation and Final Withholding Taxes (BIR Form
No. 1604-CF) shall be filed within the applicable time periods and in
the manner set forth in Sections 2.58 (A) (1) & (2) and 2.83.2 of RR
No. 2-98, as amended. The employer's Annual Information Return of
Income Taxes Withheld on Compensation and Final Withholding
Taxes (BIR Form No. 1604-CF) shall have an additional schedule to
reflect declaration of information pertaining to employees covered by
the fifteen percent (15%) preferential tax regime. The revised format
of BIR Form 1604-CF shall be covered by a separate Revenue
Memorandum Order (RMO).
In case of failure to file any of the requirement stated under this Section or
the filing of false information, the regular income tax shall be imposed on
the employee.
SECTION 8. Penalty Clause. — Any person who willfully files a
declaration, return or statement containing information which is not true
and correct as to every material matter shall, upon conviction, be subject
to the penalties prescribed for perjury under the Revised Penal Code.
Moreover, any and all applicable criminal offense (e.g., tax evasion) under
INCOME TAX
the National Internal Revenue Code, as amended, shall be charged
against any person who is discovered to have committed any false
declaration or misrepresentation.
SECTION 9. Transitory Provisions. — In as much as this regulations
was issued later in the year, the following transitory provisions shall apply:
a. Coverage:
The transitory provision shall cover compensation payments
made from January 1, 2010.
b. Deadline for Adjustments:
All affected taxpayers are allowed to make necessary
adjustments in their withholding tax remittances (withholding tax on
compensation or fifteen percent (15%) final withholding tax on
compensation) without penalties, but in no case beyond January 31,
2011. However, compliance to existing rules and regulations on the
availment of abatement of penalties should be complied by the
ROHQ/RHQ.
c. Manner of declaring adjustments:
To properly segregate and isolate adjustments to be made on
withholding tax on compensation or fifteen percent (15%) final
withholding tax, all taxpayers affected are required to file an amended
BIR Form 1601C and/or BIR Form 1601F to cover adjustments
necessary as a result of these regulations.
d. Rules/Guidelines in changes in classification of employee:
1. For employees qualified and opted to avail the fifteen percent (15%)
preferential rate under these regulations but was covered by regular
withholding tax on compensation:
The employer is required:
a. To re-compute the appropriate fifteen percent (15%) final tax on
compensation paid from January 1, 2010.
b. File amended BIR Forms 1601-F to reflect the monthly
adjustments covering the fifteen percent (15%) final tax on
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compensation paid to qualified/availing Filipino individuals from
January 1, 2010 and every month thereafter. Please note that the
appropriate ATC Code to be used in BIR Form 1601-F should be
WI 320 for payments to qualified Filipinos or aliens employed in
an RHQ or ROHQ.
c. File amended BIR Forms 1601-C to correct the monthly
declarations for withholding tax on compensation from January 1,
2010 and every month thereafter.
d. Refund to the employee concerned any differential withholding tax
made (regular withholding compensation for the regular income
tax vis-a-vis fifteen percent (15%) final tax on compensation).
e. The resulting aggregate excess remittance by the ROHQ/RHQ of
withholding compensation (WC) shall be credited and applied in
the succeeding month/s withholding tax remittances (WC) until
fully utilized.
2. For employees not qualified to avail the fifteen percent (15%)
preferential rate but was still subjected thereto instead of the regular
withholding tax on compensation:
The employer is required:
ATC Code WI 320 and not against any other form of final tax
remittances. Crediting shall be allowed only against the same
type of final tax (ATC Code WI 320), i.e., only for transactions
covered by the transitory provisions of these regulations and only
until fully applied and utilized.
3. For employees who are no longer in the employ of the ROHQ or RHQ,
i.e., all those managerial or technical employees no longer working with
the current ROHQ or RHQ at the time of approval of these regulations,
their original withholding tax classification (regular or fifteen percent (15%)
final tax as the case may be, made by the ROHQ or RHQ's payroll master)
shall be deemed correct and shall no longer be re-evaluated or
reclassified in accordance with these regulations.
4. The employer must file a Sworn listing of compensation payment
subjected to adjustment as a result of these regulations following the
herein listing format:

a. To re-compute for appropriate withholding tax on compensation

on salary payments made from January 1, 2010.
b. File amended BIR Forms 1601-C to correct the monthly
declarations for withholding tax on compensation from January 1,
2010 and monthly thereafter.
c. File amended BIR Forms 1601-F to reflect the monthly
adjustments covering the fifteen percent (15%) final tax on !
compensation paid to qualified/availing Filipino individuals from
January 1, 2010 and monthly thereafter. Please note that the
appropriate ATC Code to be used in BIR Form 1601-F should be
WI 320 for payments to qualified Filipinos or aliens employed in
RHQ or ROHQ.
d. The resulting excess remittance of fifteen percent (15%) final
withholding tax shall be credited and applied in the succeeding
month/s fifteen percent (15%) final withholding tax only under

INCOME TAX
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!
SECTION 10. Repealing Clause. — All Orders, memoranda and other
revenue issuances inconsistent with these regulations are hereby
revoked, modified or amended accordingly.

SECTION 11. Effectivity. — These Revenue Regulations shall take

effect immediately.

INCOME TAX