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September 5, 2000


22 (E) (3) 23 (c) 000-00
Technoserve International Company, Inc.
TIC Inc. Bldg., 1606 Trada St. cor. Investment Drive
Madrigal Business Park, Ayala Alabang
Muntinlupa City
Attention: Ms. B.K. Baria
VP & Administration Manager
Gentlemen :
This refers to your letter dated November 23, 1999 requesting for a
clarification or ruling with regard to the proper tax classification of your
employees assigned abroad thru Secondment Agreement with your overseas client.
It is represented that your company, Technoserve International Co., Inc.
(TIC), is a domestic foreign corporation engaged in rendering specialty and
technical services for overseas or domestic projects in the areas of engineering,
procurement service and construction management and other related fields; that the
bulk of your revenue comes from work order contracts for design and engineering
works for overseas projects being awarded to you by your main client and parent
company, JGC Corporation, having its principal office at Yokohama, Japan; that
the design works are being done here at your Alabang office but there are also
cases wherein you are required to send your qualified staff to Japan and other site
office for design and engineering works, thus the Secondment Agreement with
your client; that the employee shall be stationed at JGC offices for a certain period
of time and shall perform his duties according to client's instruction and without
losing the status of employment with TIC; that usually, Intra-company
Transference Visas are being secured by the client and the work contracts pass
thru Philippine Overseas Employment Agency (POEA); that the client will provide
for the accommodation, transportation, meal and site allowances and other
necessities while on overseas assignment; that the salaries, which are stated in US
dollar, are being paid here in the Philippines by TIC converted to pesos using the
prevailing exchange rate at the time of payment.
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Philippine Taxation Encyclopedia 2013

Consequently, and as stated in the Secondment Agreement, the manhour

spent by the overseas' assignees are billed to client at an agreed manhour billing
rate based on their position level and salaries; that the client then remits the
payment and TIC converts the same to pesos through the Philippine Banking
System; that, in effect, of client of JGC Corporation is actually the one paying the
salaries of overseas' assignees through TIC; that for income tax purposes, all your
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; that the income thus
earned, even if paid locally, were taxed based on the preferential rates of 1-2-3%
before the taxable year 1998; that with the implementation of the Comprehensive
Tax Reform Program as of January 1, 1998, you now seek clarifications as the
proper tax treatment of your employees assigned abroad.
In reply, please be advised that Section 23(C) of the Tax Code of 1997
which took effect on January 1, 1998, provides as follows:
"(C) An individual citizen of the Philippines who is working and
deriving income from abroad as an overseas contract workers is taxable only
on income from sources within the Philippines. . . " (Emphasis supplied)

Corollary thereto, Section 22(E)(3) of the same Code provides one of the
definitions of the term 'non-resident citizen' of the Philippines, viz:
"(3) A citizen of the Philippines who works and derives income from
abroad and whose employment thereat requires him to be physically present
abroad most of the time during the taxable year."

Thus, for purposes of exemption from income tax, a citizen must be

deriving foreign-sources income for being a non-resident citizen or for being an
overseas contract worker (OCW). All your employees whose services are rendered
abroad for being seconded or assigned overseas for at least 183 days may fall
under the first category and are therefore exempt from payment of Philippine
income tax. In this connection, the phrase "most of the time" which is used in
determining when a citizen's physical presence abroad will qualify him as
non-resident, shall mean that the said citizen shall have stayed abroad for at least
183 days in a taxable year. (Sec. (2) (c), Rev. Regs. 1-79)
The same exemption applies to an overseas contract worker but as such
worker, 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).
You may, therefore, recognize the income tax exemption of your employees
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CD Technologies Asia, Inc. and Accesslaw, Inc.

Philippine Taxation Encyclopedia 2013

assigned abroad based on either of the foregoing premises.

This ruling is being issued on the basis of the foregoing facts as
represented. If upon investigation, it will be disclosed that the facts are different,
then this ruling shall be considered null and void.

Very truly yours,

Commissioner of Internal Revenue

Copyright 2014

CD Technologies Asia, Inc. and Accesslaw, Inc.

Philippine Taxation Encyclopedia 2013