8/3/2019 Tax on Compensation Received by Employees of Rohqs

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TAX ON COMPENSATION RECEIVED BY EMPLOYEES OF ROHQs Revenue Memorandum Circular No. 41 2009 dated July 23, 2009 (RMC 41-2009) wasissued to clarify the meaning of Managerial and Technical Positions under Section 25(C) of the Tax Code, as amended. This RMC sets out the qualifications and requirements in order that an alien employee (or Filipino employees) of a Regional Headquarters (RHQ) or RegionalOperating Headquarters (ROHQ) of a multinational corporation shall be eligible for the 15%income tax rate on its gross compensation income. Hereunder is the summary of the RMC. Compared to the normal tax rate of 5-32% bracket 5-32%, if a resident alien or non-residentalien engaged in trade or business, or 25%, if a non-resident alien not engaged in trade or business, the 15% rate is a good break because of a material rate gap on rates of income taxon compensation of approximately 17% (32%-15%), and 10% (25%-15%), respectively. Thus,the BIR saw the need to clarify the bounds of the term Managerial and Technical Positions toavoid abuse and misapplication of the above rule to minimize taxes, if not escape or evade. Under the Labor Code, employment of non-resident aliens commonly referred to as expatriateemployees, is limited to positions which are managerial, confidential, or highly technical innature, or where there are no Filipinos who are competent, able and willing to perform theservices for which aliens are desired. To be considered managerial employee, it must possessauthority to act in the interest of its employer requiring the use of independent judgment and notmerely routinary or clerical in nature. The case of Villuga vs. NLRC , 225 SCRA 537 provides thefollowing elements to be considered managerial employee : a. primary duty consist of performance o work directly related to management policies;b. customarily and regularly exercise discretion and independent judgment;c. regularly and directly assist in the management of the establishment;d. does not devote 20% of his time to work other than those prescribed above. The employees are not managerial employees if they only execute approved and established

policies, leaving little or no discretion at all whether to implement said policies or not. On theother hand, RMC did not elaborate very well on technical position other than saying that it islimited to positions which are highly technical in nature or where there are no Filipinos who arecompetent, able and willing to perform the services for which aliens are desired. By implication, all other BIR rulings issued inconsistent with the RMC are revoked accordingly.As a matter of fact, BIR Ruling No. DA-061-04 is revoked by the RMC. Thus, it is suggested thata review of existing employee structure and job descriptions in relation to their tax treatment isrecommended to ensure that the same is in compliance with the RMC. Suggested reading:a. Villuga vs. NLRC, 225 SCRA 537

b. Republic Act No. 8756, amending E.O. No. 226c. RMC 41-2009