PHILIPPINE nationals and alien individuals
employed by foreign governments, embassies, diplomatic missions and
international organizations based in the Philippines have this
impression that the salaries they receive from their employment are
exempt from income tax.
Apparently, this view is anchored on their
misunderstanding of the rule that foreign governments, embassies,
diplomatic missions and international organizations situated in the
Philippines acting as employers enjoy immunity from collecting taxes on
salaries and emoluments of their employees, whether they are foreigners
or Philippine nationals.
The immunity referred to under this rule refers actually to immunity
from being constituted as withholding agents of the Philippine
government, which is accorded said foreign entities on the basis of
international comity as embodied in several international agreements to
which the Philippines is a signatory, e.g., Vienna Convention for
International Relations, Convention on the Privileges and Immunities of
the United Nations.
This immunity from the withholding tax obligation is further reiterated
in Section 2.78.1(B)(5) of Revenue Regulations (RR) No. 2-98, otherwise
known as the Withholding Tax Regulations, which exempts from the
withholding tax system the remunerations paid by foreign governments and
international organizations to their employees who are resident or
nationals of the Philippines.
The confusion created by the above provision has prompted the Bureau of
Internal Revenue (BIR) to issue Revenue Memorandum Circular (RMC) No.
31-2013 to further clarify the tax treatment of this transaction.
Under RMC No. 31-2013, it has been clarified that the exemption from
withholding taxes on compensation of officials and employees applies to
foreign governments, embassies, diplomatic missions, and international
organizations, and that such exemption refers only to the obligation to
collect tax, and therefore does not equate to the exemption from paying
the income tax itself.
Section 23 of the Tax Code clearly subjects resident citizens of the
Philippines on all income derived from all sources, and alien
individuals, whether resident or non-resident, on income derived from
Philippine sources, to Philippine income tax.
However, most international agreements which grant withholding tax
immunity to foreign governments, embassies, diplomatic missions, and
international organizations also grant exemption to their officials
and employees who are foreign nationals and/or non-Philippine residents
from paying income tax on their salaries and emoluments.
In these instances, RMC 31-2013 emphasizes that the exemption granted
should apply only to those individuals who are expressly and
unequivocally identified in said international agreements or laws, and
shall not extend to those not specifically mentioned as tax exempt.
In other words, employees who are not specifically mentioned as tax
exempt in the international agreement or law shall be subject to the
general rule on taxability of Philippine nationals and alien individuals
as espoused in Section 23 of the Tax Code.
Accordingly, their compensation and emoluments are subject to Philippine
income tax, but exempt from withholding tax because their employer is
exempt from the obligation to withhold tax.
Consequently, it shall be incumbent upon the individual employees to
report their income to the BIR and pay the taxes due thereon as required
under Section 24 of the Tax Code.
RMC No.31-2013 has further identified the specific individuals who are
exempt from income tax as mentioned in the various international
agreements, which I have enumerated briefly as follows:
1. Those employed by foreign embassies/foreign missions, who are:
• Diplomatic agents who are not nationals or permanent residents of the Philippines;
• Members of the family of the diplomatic agent forming part of his/her household who are not Philippine nationals;
• Members of the administrative and technical staff of the mission
together with members of their families forming part of their respective
households who are not nationals or permanent residents of the
Philippines;
• Members of the service staff of the mission who are not nationals or permanent residents of the Philippines; and
• Private servants of members of the mission who are not nationals or permanent residents of the Philippines.
2. Those employed by aid agencies of foreign governments, as identified in the agreement in place;
3. Those employed by the United Nations and its specialized agencies, as identified in the agreement in place;
4. Those employed by organizations covered by separate international
agreements or specific provisions of law, as identified in the agreement
in place; and
5. Employees of other aid agencies or international organizations, as identified in the agreement in place;
Exemption of employees of aid agencies or international organizations
who are not mentioned in RMC No. 31-2013 will be evaluated based on the
terms of the applicable articles of agreement, charters or host
agreements; or existing laws granting tax exemptions or privileges to
said agencies or organizations.
Employees, whether Philippine nationals and non-residents, who are not
specifically identified under duly recognized international agreements
or local laws are required to file their annual income tax returns on or
before the 15th day of April of each year using BIR Form No. 1700 or
1701, whichever is applicable, declaring their respective compensation
income for the preceding taxable year for services performed for such
foreign entity or international organization.
Employees who failed to file their annual tax returns for the taxable
year 2012 because of the confusion on the proper tax treatment of their
compensation income, are allowed up to May 15, 2013 to file their 2012
income tax returns and pay the taxes due on their compensation income
without surcharge, interest, and compromise penalty for late payment, as
provided under RR No. 7-2013.
Abatement of surcharge, interest, and compromise penalty shall apply
provided the foreign governments, embassies, diplomatic missions and
international organizations acting as employers of these individuals
filed a summary list of their employees who are not tax exempt as of
Dec. 31, 2012 before May 10, 2013.
Although the deadline prescribed by RR No. 7-2013 has lapsed, RMC No.
31-2013 serves as an effective guidance to individual employees of
foreign governments, embassies, diplomatic missions, and international
organizations on the proper tax treatment of their compensation income.
I believe that the BIR should further intensify the dissemination of RMC
No. 31-2013 to ensure full compliance of these individual taxpayers
with their tax obligations, moving forward.
The author is a manager at the Tax Services Department of Isla Lipana
& Co., the Philippine member firm of PricewaterhouseCoopers global
network. Readers may send inquiries or feedback to larissa.c.dalistan@ph.pwc.com.
source: Businessworld
No comments:
Post a Comment