September 5, 2000

BIR RULING NO. 033-00

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

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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.

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.

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(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
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,

(SGD.) DAKILA B. FONACIER

Commissioner of Internal Revenue

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