December 22, 2011

BIR RULING NO. 517-11

Secs. 22 (E); 23 (B) of the Tax
Code; RR 2-98
Feria Tantoco Robeniol Santiago Law Offices
8th Floor, DPC Place
2322 Chino Roces Avenue
Makati City 1231
Attention: Michael B. Tantoco and George O. Ortha II
Gentlemen :
This refers to your letter dated March 2, 2010 requesting in behalf of your
client, SIDEL SALES AND CONVEYOR INDUSTRIES PHILIPPINES, INC.,
for the confirmation of your opinion that the compensation income of Sidel's Field
Service Engineers derived in relation to their assignment abroad shall not be
subject to Philippine income tax, and consequently from withholding tax, if their
employment requires them to be present in that foreign country most of the time
during the taxable year, i.e., they stay there for at least one hundred eighty-three
(183) days.
CTHDcE

It is represented that SIDEL SALES AND CONVEYOR INDUSTRIES

PHILIPPINES, INC. ("SIDEL" for brevity), formerly Sidel Conveying Philippines
Corporation, is a corporation duly organized and existing under Philippine laws
registered with the Securities and Exchange Commission under Certificate of
Registration No. A1996-09051 dated November 8, 1996 and with Tax
Identification Number (TIN) 005-178-833. Its principal place of business is at
Bldg. 8 & 9 Don Mariano Lim Industrial Complex, Almanza, Las Pias City.
Under its Amended Articles of Incorporation, the primary purposes for which
Sidel is formed are: "To engage in the assembly, manufacture, sales, marketing,
distribution, design, commissioning or installation of production assembly line
machinery or products, including but not limited to high speed conveyors and
assembly lines used in the food and beverage industries and other similar
establishments which require the use of a production assembly line, as well as
other products related to such type of machineries or products" and "To engage in
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importation and exportation of various conveyor parts and spare parts, assembly,
sales, marketing, distribution, design, commissioning or installation of production
assembly line machinery or products, including but not limited to high speed
conveyors and assembly lines used in the foods and beverage industries and other
similar establishments which require the use of a production assembly line, as well
as other products related to such type of machineries or products."
It is further represented that SIDEL sends its Field Service Engineers to
Korea, Vietnam, India, Cambodia, Malaysia, Thailand, China and Japan for a
maximum period of two hundred fourteen (214) days per calendar year. The
employment of these Field Service Engineers requires them to be present abroad
most of the time during the taxable year. The following entries show the number of
days as revealed by the photocopies of passport of sample Field Service Engineers:
Allan Rhey Malibiran (2008 Travel)
Country
Indonesia
Indonesia
China
India
Indonesia
Vietnam

From

Until

Days

29-Jan-08
2-Apr-08
22-Apr-08
20-Sep-08
13-Nov-08
16-Dec-08

26-Feb-08
21-Apr-08
2-Jul-08
29-Oct-08
26-Nov-08
23-Dec-08

29
20
72
40
14
8

183
===

Total

Ryan Espinosa (2008 Travel)

Country
China
India
Thailand
Malaysia
Malaysia
Vietnam

From

Until

Days

23-Jan-08
3-Mar-08
27-Jul-08
28-Sep-08
20-Oct-08
25-Nov-08

20-Feb-08
11-Jun-08
12-Aug-08
3-Oct-08
2-Nov-08
10-Dec-08

29
101
17
6
14
16

183
===

Total

Esraelito V. Mallare (2008 Travel)

Country
Australia
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From

Until

11-Jan-08

18-Jan-08

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8

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Pakistan
Indonesia
New Zealand
Pakistan
India

9-Feb-08
16-Apr-08
21-Apr-08
7-May-08
5-Nov-08

3-Apr-08
19-Apr-08
28-Apr-08
18-Sep-08
21-Dec-08
Total

55
4
8
135
47

257
===

Allanger Arellano Cayanan (2008 Travel)

Country
Indonesia
India
Thailand
India/
Indonesia
Vietnam
Indonesia
France

From

Until

29-Jan-08
9-Mar-08
20-May-08
31-May-08

26-Feb-08
30-Apr-08
26-May-08
25-Jun-08

29
53
7
26

15-Jul-08
6-Sep-08
15-Nov-08

5-Aug-08
1-Oct-08
15-Dec-08

22
26
31

194
===

Total

Days

Jonathan DJ. Almiraez (2008 Travel)

Country
Thailand
Pakistan
Cambodia
India

From

Until

Days

7-Jan-08
15-Mar-08
1-Oct-08
9-Dec-08

29-Feb-08
6-Aug-08
15-Nov-08
22-Dec-08

54
145
46
14

259
===

Total

However, these Field Service Engineers who are working overseas are still
in the Philippine office's payroll.
THEDcS

In support of your client's request, you have submitted the following

documents:

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1)

Certified Machine Copy of SEC Certificate of Filing of

Amended Articles of Incorporation dated December 20, 2007;

2)

Certified Machine Copy of Amended Articles of Incorporation;

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3)

Certified Machine Copy of 2009 General Information Sheet;

4)

Certified Machine Copy of SEC Certificate of Filing of

Amended By-Laws dated June 21, 2007;

5)

Certified Machine Copy of Directors' Certificate dated April 26,

2007;

6)

Copy of BIR Certificate of Registration;

7)

Copy of Audited Financial Statements for Fiscal Years Ending

December 31, 2008 and 2007 and December 31, 2006 and
2005;

8)

Copy of sample contracts for services abroad;

9)

Copy of sample Letter of Appointment containing employment

terms and conditions including assignment to Sidel's operations
in countries like China, Thailand, Malaysia, Pakistan, Australia,
or as management may decide; and

10)

Photocopies of sample passports of some of the Field Service

Engineers (Allan Rhey Malibiran, Ryan Espinosa, Estraelito
Mallare, Allanger A. Cayanan and Jonathan Almiraez).

In reply, please be informed that Section 22 (E) of the Tax Code of 1997, as
amended, provides:
"Sec. 22.

Definitions. When used in this Title:

xxx

xxx

xxx

(E) The term 'nonresident citizen' means:

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(1)

A citizen of the Philippines who establishes to the satisfaction

of the Commissioner the fact of his physical presence abroad
with a definite intention to reside therein.

(2)

A citizen of the Philippines who leaves the Philippines during

the taxable year to reside abroad, either as an immigrant or
for employment on a permanent basis.

(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

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taxable year.
(4)

A citizen who has been previously considered as nonresident

citizen and who arrives in the Philippines at any time during
the taxable year to reside permanently in the Philippines shall
likewise be treated as a nonresident citizen for the taxable
year in which he arrives in the Philippines with respect to his
income derived from sources abroad until the date of his
arrival in the Philippines.
xxx

xxx

xxx"

From the above-cited provision, SIDEL's employees cannot be qualified as

"non-resident citizen" under any of the enumeration. The listed personnel are
employees of a domestic corporation who are only on temporary assignment
abroad. From their employment contracts, it appears that they do not have any
intention to reside at the places where they are delegated to either as immigrants or
on a permanent basis. Hence, they will not fall under the first and second
classification.
Under the third classification, in order for a citizen of the Philippines to be
considered a "non-resident citizen", he must work and derive income from abroad
and that his employment abroad requires him to be physically present abroad most
of the time during the taxable year.
The phrase "whose employment thereat requires him to be physically
present abroad" is significant such that it is also consistent with the general
principle of income taxation stated in Section 23 (C) of the Tax Code, where an
individual citizen of the Philippines who is working and deriving income abroad as
an overseas contract worker is taxable only on income from sources within the
Philippines.
cDICaS

Moreover, such provision speaks of the individual's "employment thereat"

which means that he must be employed in such country.
Section 2.78.3 of Revenue Regulations (RR) 2-98, as amended, defines an
"employee" as an individual performing services under an employer-employee
relationship. It further states that an employer-employee relationship exists when
the person for whom the services were performed has the right to control and
direct the individual who performs the services, not only as to the result to be
accomplished, but also as to the details and means by which such results are
accomplished.
In the case of the herein listed personnel, they are employed as a full-time
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staff in SIDEL and the assignment to the SIDEL's operations in countries like
China, Thailand, Malaysia, Pakistan, Australia, or as management may decide, is
part of the employee's appointment. It is clear from the contract as Field Service
Engineers that the salary shall be paid by SIDEL, whether while in the Philippines
or while on overseas assignment. Hence, their temporary assignment abroad does
not make them employees of the companies for which they render their services.
The compensation that the aforementioned Field Service Engineers
continue to receive from SIDEL during their period of overseas assignment cannot
be considered as income derived abroad since they are not rendering service for
another corporation, but compensation derived from services rendered under their
employer-employee relationship with SIDEL. "Compensation Income" means all
remuneration for services performed by an employee for his employer under an
employer-employee relationship, unless specifically excluded by the Code. (BIR
Ruling No. 043-01 dated September 21, 2001)
Hence, SIDEL, the employer corporation shall withhold income tax on said
compensation income pursuant to Section 79 (A) of the Tax Code of 1997, as
implemented by Revenue Regulations (RR) No. 2-98, as amended.
In view of the foregoing, this Office is of the opinion and hereby holds that
SIDEL's employees assigned to render the company's services abroad, do not
qualify as "non-resident citizens" under the definitions laid down under Section 22
(E) of the Tax Code of 1997, as amended. They will be treated as resident citizens
for income tax purposes. As such, their compensation income shall be subject to
creditable withholding tax under Section 2.78.1 of RR 2-98, as amended.
This ruling is being issued on the basis of the foregoing facts as
represented. However, if upon investigation, it will be ascertained that the facts are
different, then this ruling shall be considered null and void.

Very truly yours,

(SGD.) KIM S. JACINTO-HENARES

Commissioner
Bureau of Internal Revenue

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