Taxation of Compensation Income of Philippine Nationals and Alien Individuals Employed by Foreign Governments/Embassies/ Diplomatic Missions and International Organizations Situated in the Philippines - RMC 31-2013

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REVENUE MEMORANDUM CIRCULAR NO. 31-2013. - Guidelines on the Taxation of Compensation Income of Philippine Nationals and Alien Individuals Employed by Foreign Governments/Embassies/ Diplomatic Missions and International Organizations Situated in the Philippines

Date : April 12, 2013

SECTION 1. BACKGROUND.—

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. This immunity from being constituted as withholding agents of the Philippine Government is accorded to these entities on the basis of international comity as embodied in several international agreements to which the Philippines is a signatory, such as, the Vienna Convention for International Relations (for embassies and diplomatic missions), Convention on the Privileges and Immunities of the United Nations, Convention on the Privileges and Immunities of Specialized Agencies (for the various agencies of the United Nations), Asian Development Bank Headquarters Agreement (for ADB), Articles of Agreement of the International Finance Corporation, among others.

In recognition of this immunity, the Withholding Tax Regulations (Revenue Regulations No. 2-98, as amended), clearly reiterate the exemption from the withholding tax system of the remunerations being paid by foreign governments and international organizations to their employees who are residents or nationals of the Philippines. Section 2.78.1(B)(5) provides thus:
“Sec. 2.78. WITHHOLDING TAX ON COMPENSATION. — . . .
Sec. 2.78.1. Withholding of Income Tax on Compensation Income. —
xxx
(B) Exemptions from withholding tax on compensation. — The following income payments are exempted from the requirement of withholding tax on compensation:
xxx

(5) Compensation for services by a citizen or resident of the Philippines for a foreign government or an international organization. — Remuneration paid for services performed as an employee of a foreign government or an international organization is exempted. The exemption includes not only remuneration paid for services performed by ambassadors, ministers and other diplomatic officers and employees but also remuneration paid for services performed as consular or other officer or employee of a foreign government or as a non-diplomatic representative of such government.”

However, it has been observed that the foregoing provisions have been a source of confusion on the correct tax treatment of the compensation income earned by Philippine nationals and alien individuals employed by foreign governments/embassies/diplomatic missions and international organizations. To clarify, the exemption from withholding taxes on the compensation of officials and employees applies to foreign governments/embassies/ diplomatic missions and international organizations. Since the withholding of tax is merely a method of tax collection, the exemption from withholding taxes does not equate to the exemption from paying the income tax itself.

Section 23 of the National Internal Revenue Code (Tax Code) lays down the general principles in the taxations of citizens and alien individuals, to wit:

"SECTION 23. General Principles of Income Taxation in the Philippines.— Except when otherwise provided in this Code:
(A) A citizen of the Philippines residing therein is taxable on all income derived from sources within and without the Philippines;
xxx
(D) An alien individual, whether a resident or not of the Philippines, is taxable only on income derived from sources within the Philippines; xxx”

As an exemption to the general rule, it is noted that most international agreements which grant withholding tax immunity to foreign governments/embassies/diplomatic missions and international organizations also provide exemption to their officials and employees who are foreign nationals and/or non-Philippine residents from paying income taxes on their salaries and other emoluments.
The tax consequence of compensation income received by those employed by foreign governments/embassies/ diplomatic missions situated in the Philippines hinges on the provisions of the duly recognized international agreements or local laws granting tax privileges to employees of said institutions. It bears to emphasize that the exemption should only cover those individuals who were expressly and unequivocally identified in said international agreements or laws. Those not covered shall be subject to the general rule on taxability of Philippine nationals and alien individuals. Thus with respect to those not exempted by the provisions of applicable international agreements or laws, although their compensation income is exempt from withholding tax under the international agreements or the Withholding Tax Regulations, they are not relieved of their duty to report their

compensation income to the Bureau and pay the taxes due thereon pursuant to Section 24 of the National Internal Revenue Code of 1997, as amended (“Tax Code”).

This Circular is being issued to evoke compliance by Philippine nationals and individual aliens who are liable to Philippine income tax under the provisions of the Tax Code and who were not given exemption under the terms of duly recognized international agreements or other Philippine laws.

SECTION 2. TAX TREATMENT OF COMPENSATION INCOME
The tax treatment of Philippine nationals and alien individuals on compensation income received by them from foreign governments/embassies and missions and international organizations shall be as follows:
(a) Those employed by Foreign Embassies/Diplomatic Missions
Articles 34 and 37 of the Vienna Convention on Diplomatic Relations cover the tax exemption of diplomatic agents, and the technical, administrative and service staff of diplomatic mission, to wit:
“ARTICLE 34
A diplomatic agent shall be exempt from all dues and taxes, personal or real, national, regional or municipal, except: xxx”
ARTICLE 37
1. The members of the family of a diplomatic agent forming part of his household shall, if they are not nationals of the receiving State, enjoy the privileges and immunities specified in articles 29 to 36.
2. Members of the administrative and technical staff of the mission, together with members of their families forming part of their respective households, shall, if they are not nationals of or permanently resident in the receiving State, enjoy the privileges and immunities specified in articles 29 to 35, except that the immunity from civil and administrative jurisdiction of the receiving State specified in paragraph 1 of article 31 shall not extend to acts performed outside the course of their duties. They shall also enjoy the privileges specified in article 36, paragraph 1, in respect of articles imported at the time of first installation.
3. Members of the service staff of the mission who are not nationals of or permanently resident in the receiving State shall enjoy immunity in respect of acts performed in the course of their duties, exemption from dues and taxes on the emoluments they receive by reason of their employment and the exemption contained in article 33.
4. Private servants of members of the mission shall, if they are not nationals of or permanently resident in the receiving State, be exempt from dues and taxes on the emoluments they receive by reason of their employment. In other respects, they may enjoy privileges and immunities only to the extent admitted by the receiving State. However, the receiving State must exercise its jurisdiction over those persons in such a manner as not to interfere unduly with the performance of the functions of the mission.” Underscoring supplied

Moreover, Article 38 of the Convention states:
“ARTICLE 38
1. Except insofar as additional privileges and immunities may be granted by the receiving State, a diplomatic agent who is a national of or permanent resident in that State shall enjoy only immunity from jurisdiction, and inviolability, in respect of official acts performed in the exercise of his functions. xxx” Underscoring supplied
Thus, from the above provisions, only the following shall be exempt from Philippine income tax:

1. (1)  Diplomatic agents who are not nationals or permanent residents of the Philippines;
   
2. (2)  Members of family of the diplomatic agent forming part of his/her household who are not Philippine nationals;
   
3. (3)  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;
   
4. (4)  Members of the service staff of the mission who are not nationals or permanent residents of the Philippines; and
   
5. (5)  Private servants of members of the mission who are not nationals or permanent residents of the Philippines.
   

(b) Those Employed by Aid Agencies of Foreign Governments 1. Japan International Cooperation Agency (JICA)
Paragraphs 1 and 2, Article XI of the Agreement on Technical Cooperation between the Government of Japan and the Government of the Republic of the Philippines provide:
“Article XI
1. It is confirmed that JICA may maintain its overseas office in the Republic of the Philippines (hereinafter referred to as the “Office”) with a resident representative and his/her staff to be dispatched from Japan (hereinafter referred to as the “Representative” and the “Staff” respectively) who perform the duties to be assigned to them by JICA relative to the technical cooperation programs under this Agreement in the Republic of the Philippines. Underscoring supplied
2. The Government of the Republic of the Philippines shall:
(1) (a) exempt the Representative and the Staff from taxes including income tax and fiscal charges imposed on or in connection with salaries and any allowances remitted to them from abroad concerning the performance of their duties under this Agreement;” Underscoring supplied

Accordingly, only JICA resident representatives and his/her staff who were “dispatched from Japan” shall not be subject to Philippine income tax.
2. Deutsche Gessellschaft für Internationale Zusammenarbeit (GIZ)
Paragraph 2, Article 5 of the Agreement between the Government of the Federal Republic of Germany and the Government of the Republic of the Philippines concerning Technical Co-operation states:
“Article 5
The Government of the Republic of the Philippines shall:
xxx
(1) Levy no taxes or other fiscal charges on any emoluments paid from German public funds to German specialists of German construction and consulting firms for services rendered within the framework of the present Agreement.” Underscoring supplied
Based on above provisions, therefore, only German specialists of German construction and consulting firms shall be exempt from Philippine income tax.
3. Australian Agency for International Development (AUSAID)
Section 13 of the Memorandum of Subsidiary Arrangement between the Government of the Republic of the Philippines and the Government of Australia Relating to the Philippines-Australia Governance Facility provides:
“13. TAXES ON INCOME
The [Government of the Philippines] will exempt payment of income taxes and other similar taxes on fees, salaries, wages and other similar remuneration paid for by the [Government of Australia] and incurred by the Australian personnel, firms, institutions and organizations derived from work performed under this Memorandum in the Philippines. Furthermore, Australian personnel and Australian firms, institutions and organizations shall be exempt from these taxes on income derived from work performed outside the Philippines which income is not transferred in the Philippines.” Underscoring supplied
Based on the foregoing, salaries, wages and other similar remuneration paid by the Government of Australia or by Australian personnel, firms, institutions and organizations to any person performing work under the Memorandum shall be exempt from Philippine income tax.

 

4. Canadian International Development Agency (CIDA)

Article VIII of the Resolution Concurring in the General Agreement on Development Cooperation between the Government of the Republic of the Philippines and the Government of Canada provides:
“Article VIII
The Government of the Republic of the Philippines shall exempt Canadian firms and Canadian personnel and their dependents from taxes imposed on income, provided such income arises from sources outside of the Philippines or from Canadian aid funds as provided for in any subsidiary arrangement. In addition, the Government of the Republic of the Philippines shall exempt Canadian firms and Canadian personnel, including their dependents, from any obligations to present written declarations in relation to these exemptions.” Underscoring supplied
Item (b) of Article VI of the same Agreement provides for the definition of Canadian personnel as follows:
“Article VI For the purposes of this Agreement:
xxx
(b) “Canadian personnel” means Canadians or non-Philippine citizens, who are working in the Philippines on any project established under a subsidiary arrangement;” Underscoring supplied
Accordingly, only “Canadian personnel” as defined therein who derive income from Canadian aid funds as may be provided under a subsidiary agreement shall be exempt from Philippine income tax.
5. Advisory Committee on Voluntary Foreign AID - USA
The agreement between the Philippines and the United States of America covered by the Exchange of Notes between the two countries (Note No. 1071 and Note No. 30011) entitles eligible agencies registered with the Advisory Committee on Voluntary Foreign Aid to duty-free privileges and internal tax revenue exemptions on certain relief items and other supplies and equipment meant to carry out the operations of said agencies in the country. It is noted, however, that the exemption does not cover salaries and emoluments paid to employees of said agencies which are situated in the Philippines. In regard to the latter, any exemption from Philippine income tax must be granted under the terms of other international agreements or particular provisions of existing law covering the same. Some of these agencies are as follows:

a. Cooperative for American Relief Everywhere (CARE)

b. Paragraph 3(b)(2) of the Agreement Between the Government of the Philippines and Cooperative for American Everywhere, Inc. provides:

“3. The Government will: xxx
(b) Levy no taxes: xxx
(2) On CARE, its assets, property, receipts, operations, or the salaries or other remuneration for personnel services paid by CARE to its personnel of non-Philippine nationality.” Underscoring supplied
As stated in the Agreement, only CARE employees who are not Philippine nationals are exempt from Philippine income tax.
FosterParentsPlanInternational,Inc.(FPPIorPLAN)
Paragraph Nos. 3 & 5, Article III of the Memorandum of Agreement between Foster Parents Plan International, Inc. and the Government of the Republic of the Philippines2 provides:
“Article III
OFFICIALS AND ALIEN EMPLOYEES
xxx
3. That non-Filipino citizens serving as the staff of PLAN, shall be exempted from payment of income tax on salaries and stipends in dollars received solely and by reason of services rendered under the PLAN, programs.
xxx
5. These privileges shall not be enjoyed by locally hired Filipino
nationals or resident aliens working with PLAN.” Underscoring supplied
Under the aforesaid provisions, only non-Filipino staff members of the PLAN who receive salaries and stipends in U.S. dollars shall be exempt from Philippine income tax. In addition, however, it is provided that the privilege shall not apply to locally- hired Filipino nationals and resident aliens working with the PLAN.

6. Aid Agencies and Other Organizations Exempt Under Philippines Laws

a. Ford Foundation, Rockefeller Foundation, Agricultural Development Council, Inc. and Asia Foundation
Section 2 of Republic Act (RA) No. 3538, as amended by Presidential Decree (PD) No. 11273, provides:
“Sec. 2 Non-Filipino citizens serving on the staff of the Ford Foundation, the Rockefeller Foundation, the Agricultural Development Council, Inc., the Foster Parents Plan, Inc., or the Asia Foundation grants shall be exempted from the payment of income tax on salaries and stipends in dollars received solely and by reason of service rendered under the Ford Foundation, the Rockefeller Foundation, the Agricultural Development Council, Inc. [or] the Foster parents Plan, Inc. or the Asia Foundation programs.” Underscoring supplied
As provided, therefore, only non-Filipino staff members of the foregoing organizations, receiving salaries and stipends in U.S. dollars, shall be exempt from Philippine income tax. In regard to the staff members of the Foster Parents Plan, Inc., the terms of the aforementioned Memorandum of Agreement between Foster Parents Plan International, Inc. and the Government of the Republic of the Philippines which was executed after the promulgation of PD 1127 shall govern.
b. InternationalInstituteofRuralReconstruction(IIRR)
Section 2 of PD No. 7284, which also amended RA No. 3538 (as amended by PD No. 1127) but was not incorporated in the said PD No. 1127, provided tax exemptions and other privileges to the IIRR, as follows:
“Section 2. Section 2 of the same Act is hereby amended to include non-Filipino citizens serving on the staff of the International Institute of Rural Reconstruction as beneficiaries of the exemptions and privileges provided in said section.” Underscoring supplied
Applying the said Section in relation to the provisions of RA 3538, only non-Filipino staff members of the IIRR, receiving salaries and stipends in U.S. dollars, are exempt from Philippine income tax.

c. Catholic Relief Services – NCWC and Tools for Freedom Foundation
Section 2 of RA No. 4481, entitled An Act Exempting the Catholic Relief Services – NCWC and the Tools for Freedom Foundation from the Payment of Certain Taxes, states:
“Sec. 2 Non-Filipino citizens serving on the staff of Catholic Relief Services – NCWC and the Tools for Freedom Foundation shall be exempt from the payment of taxes on salaries and stipends in dollars received solely and by reason of service rendered under Catholic Relief Service – NCWC and the Tools for Freedom Foundation programs.” Underscoring supplied
Accordingly, only non-Filipino staff members of the Catholic Relief Services – NCWC and the Tools for Freedom Foundation who receive salaries and stipends in U.S. dollars shall be exempt from Philippine income tax.
(c) Those Employed by the United Nations and its Specialized Agencies - 1. United Nations
Sections 17 and 18, Article V of the Convention on the Privileges and Immunities of the United Nations5 provide:
“ARTICLE V Officials
SECTION 17. The Secretary-General will specify the categories of officials to which the provisions of this Article and Article VII shall apply. He shall submit these categories to the General Assembly. Thereafter these categories shall be communicated to the Governments of all Members. The names of the officials included in these categories shall from time to time be made known to the Governments of Members.

SECTION 18. Officials of the United Nations shall: xxx
(b)
e exempt from taxation on the salaries and emoluments paid to them by the United Nations; xxx” Underscoring supplied
Based on above provisions, officials of the United Nations shall be exempt from Philippine income tax, regardless of their nationality or place of residence.
5 Convention on the Privileges and Immunities of the United Nations adopted by the General Assembly of the United Nations on 13 February 1946

B

 

Applying Section 17 of the Convention, however, only those officials whose names have been communicated to the Philippine government (through the Department of Foreign Affairs) shall be covered by the tax exemption.
2. Specialized Agencies of the United Nations
Sections 18 and 19, Article VI of the Convention on the Privileges and
Immunities of the Specialized Agencies of the United Nations6 provide: ARTICLE VI
Officials SECTION 18
Each specialized agency will specify the categories of officials to which the provisions of this article and of article VIII shall apply. It shall communicate them to the Governments of all States parties to this Convention in respect of that agency and to the Secretary-General of the United Nations. The names of the officials included in these categories shall from time to time be made known to the above-mentioned Governments.
SECTION 19 Officials of the specialized agencies shall:
xxx
(b) Enjoy the same exemptions from taxation in respect of the salaries and emoluments paid to them by the specialized agencies and on the same conditions as are enjoyed by officials of the United Nations;” Underscoring supplied
The Specialized Agencies of United Nations are enumerated under Section 1(ii) of Article I of the same Convention as follows:

1. 1)  International Labour Organization
   
2. 2)  The Food and Agriculture Organization of the United Nations
   
3. 3)  The United Nations Educational, Scientific and Cultural Organization
   
4. 4)  The International Civil Aviation Organization
   
5. 5)  The International Monetary Fund
   
6. 6)  The International Bank for Reconstruction and Development7
   
7. 7)  The World Health Organization
   
8. 8)  The Universal Postal Union
   
9. 9)  The International Telecommunication Union
   
10. 10)  Any other agency in relationship with the United Nations8
    

6 Convention on the Privileges and Immunities of the Specialized Agencies approved by the General Assembly of the United Nations on 21 November 1947
7 Or the World Bank
8For example: United Nations International Children’s Emergency Fund (UNICEF), United Nations Development Program (UNDP), United Nations High Commissioner for Refugees (UNHCR), United Nations Industrial

Applying Section 19(b) of the above Convention, in relation to Section 18(b) of the Convention on the Privileges and Immunities of the United Nations, officials of Specialized Agencies of the United Nations shall be exempt from Philippine income tax, regardless of their nationality or place of residence. This serves as the general rule on the tax treatment of officials of the Specialized Agencies. Regardless of such rule, however, Specialized Agencies with separate host agreements, charters or articles of agreement shall be governed by the provisions of said agreements or charters.
In accordance with Section 18 of the Convention on the Privileges and Immunities of the Specialized Agencies, it shall be understood that the names of officials of the enumerated Specialized Agencies must be properly communicated to the Philippine Government (through the Department of Foreign Affairs). This shall apply notwithstanding the absence of similar provisions in their respective host agreements, charters or articles of agreement.
3. Food and Agriculture Organization (FAO)
Paragraph 4 of the Exchange of Letters9 agreed upon between the FAO and
the Government of the Republic of the Philippines, reads as follows:
“4. To the extent that it is not already bound to do so, the Government agrees to apply to the Organization, its staff, funds, property and assets, the provisions of the Convention on the Privileges and Immunities of the Specialized Agencies. The FAO Representative shall be accorded the treatment provided for in Section 21 of the said Convention. The Government also agrees to grant FAO, and to the FAO Representative and his staff, privileges, and immunities not less favourable than those granted to a representative of any other specialized agency or similar United Nations body in the Philippines.” Underscoring supplied
Based on the above, the FAO representative and his staff are granted privileges and immunities not less favorable than those enjoyed by other Specialized Agencies of the United Nations. Thus, according to Section 19(b) of the Convention on the Privileges and Immunities of the Specialized Agencies and with further reference to Section 18(b) of the Convention on the Privileges and Immunities of the United Nations, the FAO representative and his staff, regardless of nationality or place of residence, shall be exempt from Philippine income tax.
4. International Monetary Fund (IMF)
Section 9(b) of the Articles of Agreement of the International Monetary
Fund provides:
“Article IX
Status, Immunities, and Privileges
Development Organization (UNIDO), United Nations Population Fund (UNFPA), World Food Program (WFP), International Committee of the Red Cross (ICRC) and the United Nations Information Centre (UNIC)
9 Exchange of Letters dated 02 November 1977 and 14 November 1977

Section 9. Immunities from Taxation

(b) No tax shall be levied on or in respect of salaries and emoluments paid by the Fund to Executive Directors, Alternates, officers, or employees of the Fund who are not local citizens, local subjects, or other local nationals. Underscoring supplied
Based on the foregoing, only executive directors, alternates, officers or employees of the IMF who are not local citizens, local subjects or local nationals are exempt from Philippine income tax.
5. International Bank for Reconstruction and Development (IBRD)
Section 9(b), Article VII of the Articles of Agreement of the International
Bank for Reconstruction and Development provides: “ARTICLE VII
Status, Immunities and Privileges
SECTION 9. Immunities from Taxation
xxx
(b) No tax shall be levied on or in respect of salaries and emoluments paid by the Bank to executive directors, alternates, officials or employees of the Bank who are not local citizens, local subjects, or other local nationals.” Underscoring supplied
Accordingly, only IBRD executive directors, alternates, officials or employees who are not local citizens, local subjects or local nationals shall be exempt from Philippine income tax.
6. World Health Organization (WHO)
Section 22 of Article VIII of the Agreement between the World Health Organization and the Government of the Republic of the Philippines pertinently provides:
“Article VIII Officials
xxx
Section 22: Officials of the Organization shall: xxx (b) be exempt from taxation
in respect of the salaries and emoluments paid to them by the Organization. Underscoring supplied

xxx

Page 12 of 24

Under the Agreement, officials of the WHO are exempt from Philippine income tax, regardless of their nationality or residence.
7. United Nations International Children’s Emergency Fund (UNICEF)
Paragraph (b), Article VI of the Agreement between the UNICEF and the Government of the Philippines Concerning the Activities of the UNICEF in the Philippines states:
“ARTICLE VI IMMUNITY FROM TAXATION
xxx
(b) No tax, fee, toll or duty shall be levied by the Government or any political sub-division thereof or any other public authority on or in respect of salaries or remuneration for personal services paid by the Fund to its officers, employees, or other Fund personnel who are not subjects of the Republic of the Philippines or permanent residents thereof.” Underscoring supplied
From the above provisions, only officers, employees or other UNICEF personnel who are not nationals or permanent residents of the Philippines are exempt from income tax.
8. United Nations Development Programme (UNDP)
Under paragraphs 1, 2 and 3, Article IX of the Agreement between the Government of the Philippines and the United Nations Development Programme, it is provided that:
“Article IX Privileges and Immunities
“1. The Government shall apply to the United Nations and its organs, including the UNDP and U.N. subsidiary organs acting as UNDP Executing Agencies, their property, funds and assets, and to their officials, including the resident representative and other members of the UNDP mission in the country, the provisions of the Convention on the Privileges and Immunities of the United Nations.
2. The Government shall apply to each Specialized Agency acting as an Executing Agency, its property, funds and assets, and to its officials, the provisions of the Convention on the Privileges and Immunities of the Specialized Agencies, including any Annex to the Convention applicable to such Specialized Agency. In case the International Atomic Energy Agency (IAEA) acts as an Executing Agency, the Government shall apply to its property, funds and assets, and to its officials and experts, the Agreement on the Privileges and Immunities of the IAEA.
xxx

Page 13 of 24

4. (a) Except as the Parties may otherwise agree in Project Documents relating to specific projects, the Government shall grant all persons, other than Government nationals employed locally, performing services on behalf of the UNDP, a Specialized Agency, or the IAEA who are not covered by paragraphs 1 and 2 above the same privileges and immunities as officials of the United Nations, the Specialized Agency concerned or the IAEA under Sections 18, 19 or 18 respectively of the Conventions on the Privileges and Immunities of the United Nations or of the Specialized Agencies, or of the Agreement on the Privileges and Immunities of the IAEA.” Underscoring supplied
From the above provisions, the following officials shall not be subject to Philippine income tax:

1. (1)  Officials, including resident representatives and other member of the missions, of the UNDP and UN subsidiary organs acting as UNDP executing agencies, regardless of nationality or residence;
   
2. (2)  Officials of the Specialized Agencies, acting as executing agency of UNDP projects, regardless of nationality or residence;
   
3. (3)  Officials and experts of the IAEA, acting as executing agency of UNDP projects, regardless of nationality or residence; and
   
4. (4)  Other persons performing services on behalf of the UNDP and the Specialized Agency or IAEA, acting as executing agencies, who are not Philippine nationals employed locally.
   

9. United Nations Population Fund (UNFPA)
Based on the Exchange of Letters between the UNFPA and the Government of the Republic of the Philippines, as confirmed in the letter signed by then Acting Secretary of the Department of Foreign Affairs Federico M. Macaranas dated 21 October 1996, the provisions of the aforementioned agreement between the Philippines and the UNDP shall apply to the UNFPA. The pertinent portion of the said letter reads:
“It is my honor to inform you that the Philippine government agrees with your proposal to have the Philippines-UNDP Agreement apply to the UNFPA, mutatis mutandi, and that this reply and its enclosures, together with your abovementioned letter, shall be regarded as constituting an agreement on the matter.” Underscoring supplied
In accordance with the said agreement, officials of the UNFPA or of any UN subsidiary organs/specialized agencies acting as executing agencies of the UNFPA, shall be exempt from Philippine income tax. The exemption shall apply also to other persons performing services on behalf of the UNFPA and its executing agencies who are not Philippine nationals employed locally.
10. International Committee of the Red Cross (ICRC)

Page 14 of 24

Paragraphs 2, 3 and 4 of Article 5 of the Headquarters Agreement between the Government of the Republic of the Philippines and the International Committee of the Red Cross provides as follows:

2.
3.
4.

“Article 5
ICRC DELEGATES AND ALIEN EMPLOYEES
xxx
ICRC Delegates, who by definition are Swiss nationals, and alien employees, their spouses and dependent members of their families shall enjoy a status similar to that accorded to members and employees of missions of international and intergovernmental organizations and shall enjoy the privileges and immunities provided in the present Agreement.
The ICRC Delegates and alien employees shall:
(a) be immune from the jurisdiction of the judicial or administrative authorities of the Philippines in respect to acts performed in the exercise of their official functions;
(b) not be obliged to give evidence as witness in matters relating to their official function;
(c) be exempt from taxation in respect of the salaries and emoluments paid to them by the ICR; xxx”
It is understood that these privileges and immunities shall not be enjoyed by Filipino nationals working for the ICRC except for paragraphs 3(a) and 3(b).” Underscoring supplied

Thus, only Swiss nationals and alien employees, including their spouses and dependent members of their families, shall be exempt from Philippine income tax.
11. International Finance Corporation (IFC)
Section 9(b), Article VI of the Articles of Agreement of the International

Finance Corporation provides:
Status, Immunities and Privileges
SECTION 9. Immunities from Taxation
xxx
(b) No tax shall be levied on or in respect of salaries and emoluments paid by the Corporation to Directors, Alternates, officials or employees of the Corporation who are not local citizens, local subjects, or other local nationals. Underscoring supplied
As above, only directors, alternates, officials or employees of the IFC who are not local citizens, local subjects, or other local nationals shall be exempt from Philippine income tax.

“ARTICLE VI

Page 15 of 24

(d) Those Employed by Organizations Covered by Separate International Agreements or Specific Provisions of Law-
1. Asian Development Bank (ADB)
Section 45(b), Article XII of the Agreement between the Asian Development Bank and the Government of the Republic of the Philippines regarding the Headquarters of the Asian Development Bank provides:
“ARTICLE XII xxx
Section 45
Officers and staff of the Bank, including for the purposes of this Article experts and consultants performing missions for the Bank, shall enjoy the following privileges and immunities:
xxx
(b) Exemption from taxation on or in respect of the salaries and emoluments
paid by the Bank subject to the power of the Government to tax its nationals;” Underscoring supplied
From the above, only officers and staff of the ADB who are not Philippine nationals shall be exempt from Philippine income tax.
2. ASEAN Centre For Biodiversity (ACB)
Article VIII (D)(1) and (3) of the Host Country Agreement between the Government of the Republic of the Philippines and the ASEAN Centre for Biodiversity pertinently provides that:
“Article VIII IMMUNITIES AND PRIVILEGES
D. Taxation and Customs
1. xxx ACB shall also be exempt from the duty to withhold taxes on its income payments to other entities, including payments of compensation to its Filipino staff and/or employees. However, its Filipino staff and/or employees are still required to file their income tax returns and to pay the corresponding income tax due thereon as required under existing laws and regulations. xxx
3. Non-Filipino citizens serving on the staff of the ACB shall be exempt from the payment of income tax on salaries and stipends in foreign currency received by them solely and by reason of services rendered to ACB.” Underscoring supplied

Page 16 of 24

As stated, only non-Filipino citizens serving as staff of the ACB who receive salaries and stipends in foreign currency shall be exempt from Philippine income tax.
3. International Rice Research Institute (IRRI)
Section 4.5.3, Article IV of the Headquarters Agreement between the Government of the Republic of the Philippines and the International Research Institute provides:
“5. Taxation, Customs and Quarantine
xxx
Section 4.5.3. Non-Filipino members of the staff of the Institute shall be exempt from the payment of income tax on salaries and stipends in U.S. dollars or other foreign currency received by them solely by reason of service rendered to the Institute.” Underscoring supplied
Accordingly, only non-Filipino members of the staff of IRRI who receive salaries and stipends in U.S. dollars or other foreign currency are exempt from Philippine income tax.
4. Southeast Asian Regional Center for Graduate Study and Research in Agriculture (SEARCA)
Section 1 of Presidential Decree No. 117110 dated 12 July 1977 provides as follows:
“Section 1. Tax Exemption. – xxx Provided, finally, That non-Filipino citizens or non-resident aliens who are experts in their respective fields and are serving in the staff of the Regional Center shall be exempt from the payment of Philippines income tax on all salaries and stipends, wages or other income derived solely and by reason of service under SEARCA.” Underscoring supplied
Under the said Presidential Decree, only non-Filipino citizens or non-resident aliens serving as expert staff members of the SEARCA shall be exempt from Philippine income tax.
5. Southeast Asian Ministers of Education Organization (SEAMEO)
Paragraphs (3)(d) and (4), Article XI of the Agreement between the Government of the Republic of the Philippines and the Southeast Asian Ministers of Education Organization Regarding the Temporary Operation of the SEAMEC Regional Centre for Educational Innovation and Technology (INNOTECH) provides:
10 Providing Certain Tax Exemptions to the Southeast Asian Regional Center for Graduate Study and Research in Agriculture and For Other Purposes

Page 17 of 24

“Article XI Immunities and Privileges
xxx
“3. Officers of the Regional Centre shall enjoy, within or with respect to the Philippines, the following privileges and immunities:
xxx
d. exemption from income tax on the salaries of Officers of the Organization excluding citizens of the Philippines and those technical persons who are contracted by the Regional Centre or by other international organizations to work for the Regional Centre, xxx.”
“4. The names of the Officers of the Organization on duty in the Philippines shall be communicated to the appropriated Philippine authorities within a reasonable time. xxx” Underscoring supplied
Based on the above Agreement, only officers Regional Centre who are not Philippine nationals shall be exempt from Philippine income tax. As a condition for the tax exemption, however, the names of the aforementioned officers must be communicated to the Philippine government (through the Department of Foreign Affairs).
6. Southeast Asian Fisheries Development Center Aquaculture Department (SEAFDEC)
Section 3 of Presidential Decree No. 29211 dated September 13, 1973 provides:
“SECTION 3. Non-Filipino citizens serving on the technical and scientific staff of the SEAFDEC Aquaculture Department shall be exempted from the payment of income tax salaries and stipends received solely and by reason of service rendered to the Department.” Underscoring supplied
Under the said Section, only non-Filipino citizens who are employed as technical and scientific staff of the SEAFDEC Aquaculture Department are exempt from Philippine income tax.
7. International Organization for Migration (IOM)
Article 4 of the Cooperation Agreement between the Government of the Republic of the Philippines and the International Organization for Migration provides:
“Article 4
11 Defining the Status of, and Authorizing the Grant of Tax Exemption and Other Privileges to, the Aquaculture Department of the Southeast Asian Fisheries Development Center in the Philippines

Page 18 of 24

The Director and the Deputy Director General of the Organization, on the one hand, and, on the other hand, the staff of the Organization shall enjoy in the Republic of the Philippines the same privileges and immunities as those granted to executive heads and to the staff respectively, of specialized agencies of the United Nations by virtue of the Convention on the privileges and immunities of the specialized agencies of 21 November 1947.” Underscoring supplied
Applying the said Article 4 in relation to Section 19(b) of the Convention on the Privileges and Immunities of the Specialized Agencies of the United Nation, the Director General, the Deputy Director General and the staff of the IOM shall be exempt from Philippine income tax, regardless of their nationality or place of residence.
8. International Seabed Authority (ISBA)
Article 8(2)(c) and Article 9(1)(e) of the Protocol on the Privileges and
Immunities of the International Seabed Authority (ISBA) provide: “Article 8. Officials
1. The Secretary-General will specify the categories of officials to which the provisions of paragraph 2 of this article shall apply. The Secretary-General shall submit these categories to the Assembly. Thereafter, these categories shall be communicated to the Governments of all members of the Authority. The names of officials included in these categories shall from time to time be made known to the Governments of members of the Authority.
2. Officials of the Authority, regardless of nationality, shall: xxx
(c) be exempt from tax in respect of salaries and emoluments paid or any other form of payment made by the Authority;”
“Article 9. Experts on mission for the Authority xxx
1.Experts (other than officials coming within the scope of Article 8) performing missions for the Authority shall be accorded such privileges and immunities as are necessary for the independent exercise of their functions during the period of their missions, including the time spent on journeys in connection with their missions. In particular, they shall be accorded:
xxx
(e) exemption from tax in respect of salaries and emoluments paid or any other form of payment made by the Authority. This provision is not applicable as between an expert and the member of the Authority of which he or she is a national;” Underscoring supplied
Under the above provisions, officials of the ISBA, whether Philippine nationals or not, are exempt from Philippine income tax. The names of these

Page 19 of 24

officials must be communicated to the Philippine Government, through the Department of Foreign Affairs. With respect to experts and members of the ISBA which are not considered officials thereof, only foreign nationals shall be entitled to tax exemption.
9. Partnerships in Environmental Management for the Seas of East Asia (PEMSEA)
Section 1 of Article VI(D) of the Agreement between the Government of the Republic of the Philippines and the Partnerships in Environmental Management for the Seas of East Asia (PEMSEA) Establishing the PEMSEA Resource Facility Center provides:
“ARTICLE VI
PRIVILEGES AND IMMUNITIES OF REPRESENTATIVE OF PEMSEA PARTNERS, MEMBERS OF THE EXECUTIVE COMMITTEE, EXECUTIVE DIRECTOR, CONSULTANTS, AND PEMSEA STAFF
xxx
D. Taxation and Customs
Section 1. The non-Filipino PEMSEA Officials, Officers and Staff, shall be exempt from taxation in respect of the salaries, emoluments and indemnities paid to them in US Dollars or other foreign currency by PEMSEA. Benefits in US dollars or other foreign currency in any circumstances by a pension fund or provident scheme shall likewise be exempt from taxation in the Philippines at the time their payment as well as all benefits paid in US dollars or other foreign currency for sickness, accidents and so forth.” Underscoring supplied
Under the said Article, only non-Filipino officials, officers and staff of PEMSEA who receive salaries, emoluments, indemnities and pension/provident benefits in U.S. dollars or other foreign currency are exempt from Philippine income tax.
10. Press Foundation of Asia, Inc. (PFA)
Section 1 of Republic Act No. 5469 An Act Exempting the Trustees of the Press Foundation of Asia, Inc., and its Grants from the Payment of Income, Gift, Compensating and Real Property Taxes, Duties and Fees provides:
“SECTION 1. xxx Provided, finally, That non-Filipino citizens or non-resident aliens who are experts in their respective fields and who are serving in the staff of said Foundation shall be exempted from the payment of income tax on all salaries, wages or other income derived by reason of their services with said Foundation.” Underscoring supplied
Under the said Section, only non-Filipino and non-resident experts who are serving in the staff of PFA are exempt from Philippine income tax.
11. International Development Law Institute (IDLI)

Page 20 of 24

Section 22, Article 4 of the Agreement between the Government of the Republic of the Philippines and the International Development Law Institute Relating to the IDLI/Asia Regional Training Office provides:
“Article IV IMMUNITIES AND PRIVILEGES

D. Freedom from Taxation

xxx
xxx

Section 22. Officials of the IDLI/ARTO who are not Filipino citizens shall be exempt from the payment of income tax on salaries and stipends, whether in local or in foreign currency, received solely and by reason of services rendered to the IDLI/ARTO. xxx” Underscoring supplied
From the foregoing Section, only non-Filipino citizens who are officials of the IDLI/ARTO are exempt from Philippine income tax.
12. World Organization of Scout Movement (WOSM)
Paragraph Nos. 3 and 5 of Article IV of the Memorandum of Agreement between the Government of the Philippines and the World Organization of Scout Movement pertinently provide:
“Article IV
Officials and Alien Employees
xxx
3. Non-Filipino citizens serving as the staff of the SCOUT MOVEMENT shall be exempted from the payment of income tax on salaries and stipends in U.S. dollars received solely and by reason of services rendered under the SCOUT MOVEMENT.
xxx
5. These privileges shall not be enjoyed by Filipino citizens or locally hired resident aliens who are officials of or who are working with the SCOUT MOVEMENT.” Underscoring supplied
Based on the above, non-Filipino staff members of WOSM who receive salaries and stipends in U.S. dollars are exempt from Philippine income tax. In addition, however, the Article stated that the privilege shall not apply to locally- hired resident aliens.
13. International Center for Living Aquatic Resources Management (ICLARM)
Section 33 Article IV of the Agreement between the Government of the Republic of the Philippines and International Center for Living Aquatic Resources

Page 21 of 24

Management to establish and office of the Worldfish Center in the Philippines

states:

“Article IV Immunities and Privileges

xxx
I. Immunities and Facilities Accorded to Officials and Staff of the Office
Section 33. The non-Filipino members of the Staff of the Office shall be exempt from taxation in respect of the salaries, emoluments and indemnities paid to them in U.S. dollars or other foreign currency by the Office. Benefits paid in U.S. dollars or other foreign currency in any circumstances by a pension fund or provident scheme shall also be exempt in the Philippines from taxation at the time of their payment, as shall all benefits paid in U.S. dollars or other foreign currency for sickness, accidents and so forth.” Underscoring supplied

Thus, only non-Filipino members of the staff of the ILCLARM office in the Philippines are exempt from Philippine income tax on their salaries, emoluments, indemnities and pension/provident benefits which are received in U.S. dollars or other foreign currency.
14. Colombo Plan Staff College (CPSC)
No. 2 (c) & (e) and No. 3 of Article VII of the Memorandum of Agreement between the Government of the Republic of the Philippines and the Colombo Plan Staff College Regarding the Operation of the College in the Philippines provides:
“Article VII IMMUNITIES AND PRIVILEGES
xxx
2. Officers, faculty and staff of the College except Filipino nationals shall enjoy, within or with respect to the Philippines, the following privileges and immunities:
xxx
c. Exemption from income tax on the salaries of the Officers, Faculty members, consultants and such senior professional and administrative staff designated by the Director and approved by the Minister of Education, Culture and Sports and the privilege to convert foreign currencies authorized by the Central Bank of the Philippines into pesos which may be re-converted into other foreign currencies authorized by the Central Bank and which may be taken out of the Philippines in accordance with the rules and regulations of the Central Bank;
xxx Page 22 of 24

3. The names of the Officers and Faculty members of the College on duty in the Philippines shall be communicated to the appropriate Philippine authorities within one month from assuming duties.” Underscoring supplied
As provided under the above Memorandum, only officers, faculty members, consultants, senior and administrative staff of CPSC who are not Philippine nationals shall be exempt from Philippine income tax. However, it is also provided that the names of said officers and faculty members must be approved by the Department of Education, Culture and Sports and must be communicated to the Philippine Government (through the Department of Foreign Affairs).
(e) Employees of Other Aid Agencies or International Organizations
The taxation of salaries and emoluments received by employees of aid agencies or international organizations not discussed under this Circular shall be evaluated based on the terms of existing articles of agreement, charters or host agreements or on the provisions of existing laws granting tax exemptions or privileges to said agencies or organizations.
SECTION3. FILING OF INCOME TAX RETURNS AND DECLARATION OF COMPENSATION INCOME.— Philippine nationals and alien individuals who were not granted tax exemption or immunities under duly recognized international agreements or local laws shall file their annual income tax returns on or before the 15th day of April each year using BIR Form No. 1700 or 1701, as may be applicable12, declaring therein the amount of their respective compensation income for the preceding taxable year for services rendered or performed for such foreign government embassy/diplomatic mission, agency or international organization.
The annual income tax return shall be filed with the Revenue District Office, Authorized Agent bank, or other proper office which has jurisdiction over the employee’s legal residence or principal place of business. It may also be filed with the Revenue District Office or Authorized Agent Bank where the principal office of his/her employer is situated.
SECTION 4. CONSEQUENCES OF THE NON-FILING AND/OR NON-PAYMENT OF TAX RETURNS BY COVERED INDIVIDUALS.— Failure of the covered taxpayers to file the annual income tax returns and to pay the income tax due thereon constitutes a violation of Sections 25413 and 25514 of the Tax Code of 1997. Consequently, the concerned BIR office shall issue the corresponding tax assessments, inclusive of surcharges and penalties; and in proper cases, initiate the pertinent criminal actions.
12 BIR Form No. 1700 for individuals earning purely compensation income and BIR Form No. 1701 for individuals earning both business and compensation income
13 Attempt to Evade or Defeat Tax
14 Failure to File Return, Supply Correct and Accurate Information, Pay Tax, Withhold and Remit Tax and Refund Excess Taxes Withheld on Compensation.

Page 23 of 24

SECTION 5. CONFIRMATION OF TAX EXEMPTION.— Philippine nationals claiming exemption from income tax under the terms and provisions of international agreements or under laws granting privileges to employees of international organizations shall file an application for confirmation of tax exemption with the International Tax Affairs Division (ITAD) of the Bureau of Internal Revenue.
SECTION 6. REPEALING CLAUSE. — Any revenue issuance which is inconsistent with this Circular is deemed revoked, repealed, or modified accordingly.
SECTION 7. EFFECTIVITY. – This Circular shall take effect immediately. All concerned are hereby enjoined to be guided accordingly and give this Circular a wide publicity as possible.

K-5

Page 24 of 24

(Original Signed)
KIM S. JACINTO-HENARES
Commissioner of Internal Revenue 

Guidelines in the Filing, Receiving and Processing of Taxable Year 2012 Income Tax Returns (ITRs) and Prescribing the Additional Attachment of the Regular Allowable Itemized Deductions to BIR Form November 2011 ENCS versions - RMC 27-2013

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0998 979 3922

March 15, 2013

REVENUE MEMORANDUM CIRCULAR NO. 27-2013.. Guidelines in the Filing, Receiving and Processing of Taxable Year 2012 Income Tax Returns (ITRs) and Prescribing the Additional Attachment of the Regular Allowable Itemized Deductions to BIR Form November 2011 ENCS versions

This Circular is issued to provide guidelines in the filing, receiving and processing of 2012 ITRs (BIR Form Nos. 1700, 1701 and 1702) which are due for filing on or before April 15, 2013, as well as define policies for the filing of ITRs, and prescribing the additional attachment of the regular allowable itemised deductions thereto.

Individual taxpayers who are availing of itemized method of deductions are required to attach the Mandatory Attachment to BIR Form No. 1701 (Annex A). For eFPS filers, fill up the interactive BIR Form No. 1701 and attach the accomplished form to the online BIR form 1701 in eFPS together with the Annex A, see Annex C for detailed procedures.

All Non-Individual taxpayers whether availing of optional standard deductions or itemized deductions are required to attach the Mandatory Attachment to BIR Form No. 1702 (Annex B). Those using the eFPS facility, e.g. Large Taxpayers, Top 20,000 Corporations, Government bidders, etc. shall use the BIR Form No. 1702 November 2011 ENCS version and electronically attach the newly-prescribed and, as well as the ITRs starting with those covered under ending January 31, 2013. For Non-eFPS user, shall be manually attached to the income tax form.

For expediency, ease and convenience in filling up the ITRs, all non-eFPS taxpayers are encouraged to use the interactive BIR Forms. These interactive BIR Forms can be accessed and are downloadable from the BIR website (http://www.bir.gov.ph) under the provided in the BIR Form, a separate sheet will have to be attached to the BIR Form using the format in the pertinent schedule/s, as indicated in the header portion/s of the on the last line of the pertinent part(s)/schedule(s) on the face of the ITR.
The duly filled-up ITRs and additional sheet/s, if any, including the newly-prescribed additional attachment of the regular allowable itemized deductions shall be submitted as follows:

1. FOR NON-eFPS TAXPAYERS, the duly accomplished ITRs shall be printed in folio size bond paper , landscape orientation/layout, signed by the taxpayer/authorized officers/representatives and shall be filed manually as follows:
-with payment to any Authorized Agent Bank (AAB) located within the territorial jurisdiction of the Revenue District Office (RDO) where the taxpayer is registered or if there is no AAB, to the concerned Revenue Collection Officer (RCO) under the jurisdiction of the RDO.
to the Revenue District Office (RDO) where the taxpayer is registered or to the concerned Revenue Collection Officer (RCO) under the same RDO.
2. FOR eFPS TAXPAYERS of BIR Form Nos. 1700 and 1701, the duly accomplished ITRs shall be filed using the C Immediately upon the availability of the facility, all eFPS taxpayers are required to electronically file (eFile) the contents of the manually filed ITRs within ten (10) days from the announcement of the eFPS availability via the BIR website.
Further for 1701 efilers, the accompanying schedules and attachments (i.e Financial Statements, Statement of Management Responsibility, BIR Form 2307, etc.) may still be filed with the concerned LT office/RDO where they are registered within fifteen (15) days after the manual filing of the return. Together with the said schedule/s and attachments, the taxpayers shall also submit the duly accomplished signed hardcopy of the ITR interactive form attached when making their initial filing. For purpose of determining when returns are filed, it shall be when the initial efiling was duly accomplished.
For taxpayers who have filed and opted to use the itemized method of deduction before the issuance of this circulars, are also mandated to amend and attach the mandatory attachment.
The ITRs filed by non-eFPS taxpayers shall be encoded by the concerned RDO or the Document Processing Division (DPD), whichever is applicable, under Operations Memo Nos. 12-02-005 and 12-02-006 and other pertinent existing revenue issuances.
All concerned are hereby enjoined to give this Circular as wide a publicity as possible.

Tax Implications and Recording of Deposits/Advances for Expenses Received by Taxpayers not covered by Revenue Memorandum Circular No. 89-2012 - RMC 16-2013

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February 8, 2013

REVENUE MEMORANDUM CIRCULAR NO. 16-2013 - Clarifying the Tax Implications and Recording of Deposits/Advances for Expenses Received by Taxpayers not covered by Revenue Memorandum Circular No. 89-2012

TO : All Internal Revenue Officers and Others Concerned ___________________________________________________________________
This Circular is being issued to provide guidelines to be observed in accounting and recording of deposits/advances for the payment of the pertinent expenses received by taxpayers other than General Professional Partnerships (GPP) covered by Revenue Memorandum Circular (RMC) No. 89-2012 dated December 28, 2012.

I. Policies and Guidelines
Deposits/Advances Part of Gross Receipts
When cash deposits or advances are received by taxpayers other than GPP covered by RMC 89-2012 from the Client/Customer, a corresponding Official Receipt shall be issued. The amount received shall be booked as Income and shall form part of the Gross Receipts and subject to Value-added Tax (VAT) or Percentage Tax (Gross Receipt Tax), if applicable, and shall in turn be deductible as expense by the Client/Customer provided that it is duly substantiated by Official Receipts pursuant to Section 34 (A) (1) of the Tax Code.

Claim for Deduction of Expenses
Receipts incurred, paid for and issued in the name of the taxpayer shall be recorded as its own expenses for income tax purposes. These expenses shall be claimed as deductions from gross income provided these are duly substantiated by Official Receipts/Invoices issued by third-party establishments.

Income Payments are subject to appropriate Withholding Taxes
All Client/Customer shall, upon payment of deposits/advances, withhold tax at the rate prescribed in Revenue Regulations No. (RR) 2-98, as amended, which shall be remitted/paid on or before the 10th day of the following month using the Monthly Remittance Return of Creditable Income Taxes Withheld (Expanded) [BIR Form No. 1601E] except for taxes withheld for the month of December of each year, which shall be filed on or before January 15 of the following year pursuant to RR 2-98, as amended. For those filing using the Electronic Filing and Payment System (EFPS), the regulations pertaining to EFPS filers shall apply.

Issuing Official Receipts for the Deposit and Advances
An Official Receipt shall be issued for every deposit and advances pursuant to Section 113 of the Tax Code. The Official Receipt shall cover the entire amount which the Client/Customer pays.

For VAT Taxpayers, the VAT Official Receipt will constitute the Output Tax for taxpayers other than GPP and in turn, the input tax of its client/customer.

II. PRO-FORMA ENTRIES
Upon receipt of the deposit/advances, the same shall be treated and recorded as outright Income.

Accounting entries in the Books of the Taxpayer other than GPP

1. For VAT Taxpayers
   Dr. Cash
   Dr. Prepaid Income Tax (Creditable)
   Cr. Income 
   Cr. Output VAT
   
   
2. For Non-VAT Taxpayers
   Dr. Cash
   Dr. Prepaid Income Tax (Creditable)
   Cr. Income

In turn, upon making deposit/advances for the necessary expenses, the Client/Customer shall treat such deposit/advances as an outright expense.
Accounting entries in the Books of the Client/Customer

1. For VAT Taxpayers
   Dr. Expense 
   Dr. Input VAT
   Cr. Cash
   Cr. Withholding Tax Payable
   
2. For Non-VAT Taxpayers
   Dr. Expense 
   Cr. Cash
   Cr. Withholding Tax Payable

All revenue officials and employees are enjoined to give this Revenue Memorandum Circular as wide a publicity as possible.

This Circular shall take effect immediately.

Taxability of Association Dues, Membership Fees, and Other Assessments/Charges Collected by Homeowners’ Associations - RMC 9-2013

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January 29, 2013

REVENUE MEMORANDUM CIRCULAR NO. 9-2013 - Clarifying the Taxability of Association Dues, Membership Fees, and Other Assessments/Charges Collected by Homeowners’ Associations

TO : All Internal Revenue Officials, Employees and Others Concerned

This Circular is issued to clarify the taxability of association dues, membership fees, and other assessments/charges collected by homeowners’ associations from its homeowner-members and other entities.

BACKGROUND
Republic Act No. 9904, otherwise known as the "Magna Carta for Homeowners and Homeowners' Associations", grants tax incentives to homeowners’ associations subject to certain conditions. Section 18 of RA No. 9904 reads:

SECTION 18. Relationship with LGUs. — Homeowners' associations shall complement, support and strengthen LGUs in providing vital services to their members and help implement local government policies, programs, ordinances, and rules.

Associations are encouraged to actively cooperate with LGUs in furtherance of their common goals and activities for the benefit of the residents of the subdivisions/villages and their environs.

Where the LGUs lack resources to provide for basic services, the associations shall endeavor to tap the means to provide for the same. In recognition of the associations' efforts to assist the LGUs in providing such basic services, association dues and income derived from rentals of their facilities shall be tax-exempt: Provided, That such income and dues shall be used for the cleanliness, safety, security and other basic services needed by the members, including the maintenance of the facilities of their respective subdivisions or villages. xxx”

The Bureau has issued several rulings exempting from income tax the assessments/charges collected by homeowners’ associations from its homeowner-members, on the ground that the collection of association dues and other assessments/charges are merely held in trust to be used solely for administrative expenses in implementing its purposes i.e., to manage and maintain the homeowners’ associations, establish, manage, maintain and operate adequate community facilities and services for its members, and from which a homeowners’ associations could not realise any gain or profit as a result of its receipt thereof. Other homeowners’ associations were given exemption under Section 30(C) of the National Internal Revenue Code (NIRC) as mutual aid associations.

In addition, the same rulings exempted association dues from value-added tax for the reason that a homeowners’ associations does not sell, barter, exchange, nor lease any goods or property and neither does it render any service for a fee, but merely implements the administration of the required services to collect the association dues from the homeowners pursuant to its corporate purpose(s) as trustee of the fund thereof.

CLARIFICATION
The taxability of association dues, membership fees, and other assessments/charges collected by a homeowners’ association from its homeowner- members and other entities are discussed hereunder.

I. Income Tax – Section 18 of R.A. No. 9904 which exempts from taxation the association dues and income derived from rental subject to certain conditions is an implied recognition by Congress that such receipts are subject to tax under existing laws. Thus, the amounts paid in as dues or fees by homeowner-members of a homeowners’ association form part of the gross income of the latter subject to income tax. This is because a homeowners’ association furnishes its members with benefits, advantages, and privileges in return for such payments. For tax purposes, the association dues, membership fees, and other assessments/charges collected by a homeowners’ association constitute income payments or compensation for beneficial services it provides to its members and tenants. The previous interpretation that the assessment dues are funds which are merely held in trust by a homeowners’ association lacks legal basis and is hereby abandoned.

Moreover, since a homeowners’ association is subject to income tax, income payments made to it are subject to applicable withholding taxes under existing regulations.

II. Value-Added Tax (VAT) and Percentage Tax – Association dues, membership fees, and other assessments/charges collected by a homeowners’ association are subject to VAT since they constitute income payment or compensation for the beneficial services it provides to its homeowner-members.
Section 105 of the NIRC, as amended, provides:

"SECTION 105. Persons Liable. — Any person who, in the course of trade or business, sells, barters, exchanges, leases goods or properties, renders services, and any person who imports goods shall be subject to the value-added tax (VAT) imposed in Sections 106 to 108 of this Code.

xxx

The phrase 'in the course of trade or business' means the regular conduct or pursuit of a commercial or an economic activity, including transactions incidental thereto, by any person regardless of whether or not the person engaged therein is a nonstock, nonprofit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests), or government entity.” (Emphasis supplied)

The above provision is clear -- even a non-stock, non-profit organization or government entity is liable to pay VAT on the sale of goods or services. This conclusion was affirmed by the Supreme Court in Commissioner of Internal Revenue v. Court of Appeals and Commonwealth Management and Services Corporation, (G.R. No. 125355, March 30, 2000). In this case, the Supreme Court held:
“(E)ven a non-stock, non-profit organization or government entity, is liable to pay VAT on the sale of goods or services. VAT is a tax on transactions, imposed at every stage of the distribution process on the sale, barter, exchange of goods or property, and on the performance of services, even in the absence of profit attributable thereto. The term "in the course of trade or business" requires the regular conduct or pursuit of a commercial or an economic activity, regardless of whether or not the entity is profit-oriented.

The definition of the term "in the course of trade or business" incorporated in the present law applies to all transactions even to those made prior to its enactment. Executive Order No. 273 stated that any person who, in the course of trade or business, sells, barters or exchanges goods and services, was already liable to pay VAT. The present law merely stresses that even a nonstock, nonprofit organization or government entity is liable to pay VAT for the sale of goods and services.

Section 108 of the National Internal Revenue Code of 1997 defines the phrase "sale of services" as the "performance of all kinds of services for others for a fee, remuneration or consideration." It includes "the supply of technical advice, assistance or services rendered in connection with technical management or administration of any scientific, industrial or commercial undertaking or project."

On February 5, 1998, the Commissioner of Internal Revenue issued BIR Ruling No. 010-98 emphasizing that a domestic corporation that provided technical, research, management and technical assistance to its affiliated companies and received payments on a reimbursement-of-cost basis, without any intention of realizing profit, was subject to VAT on services rendered. In fact, even if such corporation was organized without any intention of realizing profit, any income or profit generated by the entity in the conduct of its activities was subject to income tax.

Hence, it is immaterial whether the primary purpose of a corporation indicates that it receives payments for services rendered to its affiliates on a reimbursement-on-cost basis only, without realizing profit, for purposes of determining liability for VAT on services rendered. As long as the entity provides service for a fee, remuneration or consideration, then the service rendered is subject to VAT.”

Accordingly, the gross receipts of homeowners’ associations including association dues, membership fees, and other assessments/charges are subject to VAT, income tax and income payments made to it are subject to applicable withholding taxes under existing regulations.
Those exempt from the payment of VAT under Section 109(V) are liable to pay percentage tax. Section 116 provides:

"SEC. 116. Tax on Persons Exempt from Value-Added Tax (VAT). — Any person whose sales or receipts are exempt under Section 109 (V) of this Code from the payment of value- added tax and who is not a VAT-registered person shall pay a tax equivalent to three percent (3%) of his gross quarterly sales of receipts: Provided, That cooperatives shall be exempt from the three percent (3%) gross receipts tax herein imposed."

As clearly stated in the law, non-VAT registered entities exempt under Section 109 (1) (V) of the NIRC, as amended, are covered by percentage taxes.

EXEMPTION UNDER REPUBLIC ACT NO. 9904
Pursuant to Section 18 of RA No. 9904, the association dues and income derived from rentals of the homeowners’ association’s properties may be exempted from income tax, VAT and percentage tax subject to the following conditions:
a. The homeowners’ association must be a duly constituted “Association” as defined under Section 3(b) of RA No. 9904;
b. The local government unit having jurisdiction over the homeowners’ association must issue a certification identifying the basic services being rendered by the homeowners’ association and therein stating its lack of resources to render such services notwithstanding its clear mandate under applicable laws, rules and regulations. Provided further, that such services must fall within the purview of the “basic community services and facilities” which is defined under Section 3(d) of RA No. 9904 as those referring to services and facilities that redound to the benefit of all homeowners and from which, by reason of practicality, no homeowner may be excluded such as, but not limited to: security; street and vicinity lights; maintenance, repairs and cleaning of streets; garbage collection and disposal; and other similar services and facilities.; and

c. The homeowners’ association must present proof (i.e. financial statements) that the income and dues are used for the cleanliness, safety, security and other basic services needed by the members, including the maintenance of the facilities of their respective subdivisions or villages.
All concerned revenue officials and employees are hereby enjoined to give this Circular as wide a publicity as possible.

This Circular takes effect immediately. 

Taxpayers’ Concerns on the Audit Program and Their Responsibility in Engaging Tax Agents/Practitioners - RMC 6-2013

REPUBLIC OF THE PHILIPPINES DEPARTMENT OF FINANCE 

BUREAU OF INTERNAL REVENUE 

Quezon City

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December 19, 2012

REVENUE MEMORANDUM CIRCULAR NO. 6-2013 - Clarifying Taxpayers’ Concerns on the Audit Program and Their Responsibility in Engaging Tax Agents/Practitioners 

"IGNORANCE OF THE TAX ACCOUNTING RULES IS THE MOST EXPENSIVE LIFESTLYE"

TO : All Internal Revenue Officers and Others Concerned

This Circular is issued to clarify certain concerns of taxpayers regarding the audit program and their responsibility in selecting tax agents/practitioners to make representation in the Bureau of Internal Revenue (BIR) in their behalf.

BACKGROUND
Item H(7) of Revenue Administrative Order (RAO) No. 10-2000 states that:

“The Revenue District Officer shall supervise/undertake audit of tax cases within the RDO’ s jurisdiction, in accordance with the audit program developed and prescribed by the National Office.” (italics and emphasis supplied)

This function in the RAO is one of the reasons cited by some taxpayers and practitioners in questioning the validity of an issued electronic Letter of Authority (eLA) in case of non-issuance of a Revenue Memorandum Order (RMO) providing for an annual audit program.
Further, it has been observed that there are certain tax agents/practitioners who write in behalf of the taxpayer and/or represent the taxpayer questioning the validity of the eLA issued and/or certain procedures related to audit such as issuance of Subpoena Duces Tecum and assessment notices. However, it has been found out that many of these tax agents/practitioners are not accredited by the BIR as required under Revenue Regulations (RR) No. 11-2006, as amended by RR Nos. 4-2010 and 14-2010.

CLARIFICATION
A. On the Audit Program
In the absence of an annual audit program, the Commissioner has the authority to make assessments pursuant to Section 6(A) of the Tax Code, as amended, to wit:

"SEC. 6. Power of the Commissioner to Make Assessments and Prescribe Additional Requirements for Tax Administration and Enforcement. – (A) Examination of Returns and Determination of Tax Due. - After a return has been filed as required under the provisions of this Code, the Commissioner or his duly authorised representative may authorize the examination of any taxpayer and the assessment of the correct amount of tax: Provided, however; That failure to file a return shall not prevent the Commissioner from authorizing the examination of any taxpayer. xxx xxx xxx"

B. On Tax Agents/Practitioners
Tax agents/practitioners who are engaged in the regular preparation, certification, audit and filing of tax returns, information returns or other statements or reports required by the Code or Regulations; those who are engaged in the regular preparation of requests for ruling, petitions for reinvestigation, protests, requests for refund or tax credit certificates, compromise settlement and/or abatement of tax liabilities and other official papers and correspondence with the BIR, and other similar or related activities; or those who regularly appear in meetings, conferences, and hearings before any office of the BIR officially on behalf of a taxpayer or client in all matters relating to a client's rights, privileges, or liabilities under laws or regulations administered by the BIR, shall be deemed to be engaged in tax practice and are required to apply for accreditation pursuant to Section 2(e) of RR No. 11-2006, as amended.
Hence, the BIR, in accordance with the above RR, can refuse to transact official business with tax agents/practitioners who are not accredited before it. Therefore, all taxpayers are enjoined to ensure that the tax agents/practitioners whom they will engage are accredited with the BIR. Further, taxpayers should be aware of their responsibilities which are as follows:

1. Before engaging the service of a tax agent/practitioner, they should secure a copy of his/its BIR certificate of accreditation and take note of the following:

1. Taxpayer Identification Number (TIN);
   
2. Accreditation number;
   
3. Date of issuance; and
   
4. Date of expiry
   

2. Constantly visit the BIR website for the publication of the updated master list of the accredited tax agents/practitioners.
All concerned revenue officials and employees are hereby enjoined to give this Circular as wide a publicity as possible.

This Circular takes effect immediately.

(Original Signed)
KIM S. JACINTO-HENARES
Commissioner of Internal Revenue 

Danger That Business Owners/Stockholders Must Overcome .. www.Facebook.com/Kataxpayer

Danger That Business Owners/Stockholders Must Overcome
www.Facebook.com/Kataxpayer

The Fear now becomes a Reality.

Alarming and agitating, as #Katax feels it, what the #BIR is doing to many #stockholdersof #SEC-registered #corporations.

#EmelinoTMaestro had warned so many taxpayers about the clear and present danger that the new BIR Form #1702 (Schedule 11, Page 7) would bring (see the attached file).

In the recent #TaxEvasion case that the BIR had filed against a poor and uninformed taxpayer, the basis thereof is the fact that this taxpayer has substantial investments in several corporations which the said taxpayer had voluntarily supplied/provided the BIR (see the attached file).

#ETM is preaching that the information stated in the new BIR Income Tax Returns would expose many taxpayers, investors and stockholders from tax evasion charges.

To mitigate the effect of this unwanted and deadly situation, #Kataxpayer is inviting all owners and stockholders of all corporations in the Philippines to bind themselves together and find a concrete and clear solution.

On June 24, 2014, a seminar 'HOW TO HANDLE an electronic Letter of Authority issued under the RUN AFTER TAX EVADER Program' shall be held at Sofitel Hotel. For details, please call ETM TAX AGENT OFFICE at the numbers shown in the attached files.

Subject to
1. change without notice and obligation
2. terms and conditions
3. ETM-discretion and decision

Sharing this is More Fun.

BIR-Rules that You Don't Know? TCC for Bidding Purposes (Now A Book)

Tax Clearance Certificate for Bidding Purposes. Problems and Opportunities.... www.Facebook.com/Kataxpayer
#TCCforBiddingPurposes

#Katax is giving away (FREE OF CHARGE) a book that is entitled "BIR-Rules that You Don't Know? TCC for bidding purposes"

#TheTaxBook presents the common problems that an applicant-taxpayer is encountering from securing a #TaxClearanceCertificate from the #BIR. For those whose job description and businesses are to secure for their clients a TCC, it can be a guide in facilitating its release.

Only 50 persons would be given a copy. To secure a copy, please place your name, mobile, landline, company and email address in the space called 'Comment' or email Eric at katax.erick@gmail.com or Boyet at katax.boyet@gmail.com or Mario at mariocalica@maestrotaxation.org

<<<<<<IMPORTANT UPCOMING EVENTS>>>>>
Sofitel Philippine Plaza Manila

1. June 13, HOW TO CANCEL BIR-ELECTRONIC LETTER OF AUTHORITY

2. June 16-17, TAX ACCOUNTING COURSE FOR LOCAL MANPOWER CONTRACTORS

3. June 18-19, TAX ACCOUNTING COURSE FOR THOSE WHO ARE AVAILING THE OPTIONAL STANDARD DEDUCTION (VAT/NONVAT REGISTERED BUSINESSES/PROFESSIONALS)

4. Jun 24, HOW TO HANDLE A TAX EVASION ELECTRONIC LETTER OF AUTHORITY (RATE PROGRAM)

5. JUNE 26-27, TAX CONSULTING COURSE (LEVEL 101) ON ELECTRONIC LETTER OF AUTHORITY, LETTER NOTICE AND SUBPOENA DUCES TECUM

Investment fee: (plus 12% VAT)
Referrer/s - P8,000
Repeater/s - P11,000
Early-bird/s - P15,000
Late-registrant/s - P20,000

Katax's contact details
Kataxpayer.Juliet@gmail.com
Katax.Jocelyn@gmail.com
katax.boyet@gmail.com
katax.erick@gmail.com
katax.toto@gmail.com
katax.sonia@gmail.com
katax.juliet@gmail.com
02-439 3918
02-921 6107
0922 801 0922
0998 979 3922
Unit 419 Corporate 101, Mother Ignacia, Quezon City

Subject to
a. change without notice and obligation
b. applicable terms and conditions
c. ETM-discretion and decision