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In Re RR 1-79

The document discusses the tax treatment of employees of Technoserve International Co. (TIC) who are assigned to work abroad in Japan for their client, JGC Corporation. The Bureau of Internal Revenue (BIR) Commissioner ruled that TIC employees who work abroad for at least 183 days in a taxable year qualify as non-resident citizens and are therefore exempt from Philippine income tax. Their salaries are paid by JGC in US dollars and converted to Philippine pesos. As their services are performed overseas, their incomes are not subject to tax in the Philippines.

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37 views

In Re RR 1-79

The document discusses the tax treatment of employees of Technoserve International Co. (TIC) who are assigned to work abroad in Japan for their client, JGC Corporation. The Bureau of Internal Revenue (BIR) Commissioner ruled that TIC employees who work abroad for at least 183 days in a taxable year qualify as non-resident citizens and are therefore exempt from Philippine income tax. Their salaries are paid by JGC in US dollars and converted to Philippine pesos. As their services are performed overseas, their incomes are not subject to tax in the Philippines.

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RayBradleyEduardo
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© © All Rights Reserved
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Download as DOCX, PDF, TXT or read online on Scribd
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Section 2 of the Revenue Regulation 1-79 of the BIR defines what a non-resident citizen is in

connection with income taxation.

Non-resident citizens, upon the review by the Commissioner whether his physical presence
abroad is for definite intention to live or reside in a foreign country, shall include:
1. Immigrant – who resides abroad with a foreign visa.
2. Permanent Employee – who resides abroad for employment more or less permanent
3. Contract Worker – who resides abroad for contractual employment which is renewed from
time to time under circumstances as to require him to be “physically present most of the time
during the taxable year”.

Note: Physically present most of the time during the taxable year means a contract worker must
have been outside the Philippines for not less than 183 days during such taxable year.

How is a person qualified to be a non-resident citizen for the taxable year?


- His income is derived from foreign sources from the date he actually departed from the
Philippines.

For returning non-resident citizens, they are considered as non-resident citizens for the taxable
year in which they arrived in the Philippines with respect to his income derived from sources
abroad until the date of his arrival.

How can a person express his intention to leave the Philippines?


- Sec. 3 provides that he must submit to the CIR a proof of his intention. If immigrant, photostat
or a copy of his foreign visa. If permanent, a certificate from his employer showing the nature
and duration of his employment. If contract worker, certificate of the employer, copy of contract,
other documentary evidence. If returning non-resident, copy of his passport with the stamp of
PH immigration showing that he is a returning and not a mere Balikbayan.

The BIR Ruling 033-00 further explains the nature of Sec. 2 of the Revenue Regulation and the
purpose of this section in the law. Here, Technoserve International Co. (TIC) sought the
clarification of the CIR with regards to the tax classification of its employees assigned abroad
with its overseas client. Such inquiry will determine whether its employees are exempt from
income taxation.

That with the implementation of the Comprehensive Tax Reform Program as of January 1,
1998, TIC sought clarifications as the proper tax treatment of TIC’s employees assigned abroad.

The CIR stated the facts of its employment. Their main client and parent company is JGC
Corporation, situated at Yokohama, Japan. They entered into a Secondary Agreement for
engineering, procurement service and constructions management. Now, since JGC is located in
Japan, TIC’s employees or qualified staff shall be sent to Japan for a certain period of time.
Design works are being done here at TIC’s Alabang office but there are also cases wherein it is
required to send its employees to Japan and other site office for design and engineering works.

JGC secured their visas thru the Philippine Overseas Employment Agency (POEA). Their
salaries were remitted by JGC in US Dollar to TIC which then later are converted to PH Peso
through the Philippine Banking System. The CIR recognized that it was indeed JGC who pays
them salaries.
Moreover, the CIR stated that for income tax purposes, all TIC’s employees who are assigned
overseas for at least 183 days in a taxable year were classified as non-residents since the situs
of income whether within or without was determined by the place where the service was
rendered.

With the implementation of the Comprehensive Tax Reform Program as of January 1,


1998, TIC’s employees shall be exempt from income tax because all of its employees
whose services are rendered abroad for being seconded or assigned overseas for at
least 183 days as contract workers. Their income was derived from overseas paid by JGC
Corporation, having its principal office at Yokohama, Japan. While it is true that their salaries
were converted to PH Peso, it did not derive from the services rendered locally by TIC, having
its office at Alabang.

The CIR also elucidated that term “most of the time” as stated in Sec. 2 of Rev
Regs 1-79. It means that the said citizen shall have stayed abroad for at least 183 days in
a taxable year, which, in this case, the employees were indeed qualified.

Note, however, the time spent abroad is not material for tax exemption purposes. All that
is required is for the worker's employment contract to pass through and be registered with the
Philippine Overseas Employment Agency (POEA).

For purposes of Sec. 2© and for qualification as non-resident citizens during the
taxable year, TIC’s employees who derived their income abroad as a contract worker are
exempt from income tax.

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