MANILA – The Bureau of Internal Revenue (BIR) has issued a reminder that employees of regional operating headquarters of multinational firms, including those in business process outsourcing, will no longer enjoy special personal income tax rates as a result of the tax reform package that took effect last month.
The Tax Reform for Acceleration and Inclusion (TRAIN) had originally maintained the special personal tax rates – 15 percent of gross income – for these groups of workers, but that provision was among those vetoed by President Rodrigo Duterte when he signed the law.
In a tax advisory on January 31, the BIR clarified that the preferential treatment for the personal income tax rates of employees of regional headquarters and regional operating
headquarters of multinational companies, offshore banking units, and petroleum service contractors is gone under the new tax regime.
BPO companies, which continue to grow, are included in the lifting of the preferential treatment.
With such preferential treatment of their personal income tax gone, they must pay regular rates of personal income tax, like all other workers in the country.
The BIR tax advisory read: “All employees of regional headquarters and regional operating headquarters of multinational companies; offshore banking units; and petroleum service contractors and subcontractors, enjoying preferential tax treatment prior to 2018, are now subject to regular income tax rates. Thus, withholding
taxes on compensation of these employees shall be enforced based on withholding tax table per Revenue Memorandum Circular No. 1-2018.”
In vetoing the TRAIN provision that maintained the special tax rate, Duterte said such violated
the equal protection clause of the Constitution, as well as the rule that the burden of taxation must be uniform.
PAMURI’S APPEAL
Meanwhile, the Philippine Association of Multinational Companies Regional Headquarters Inc. (PAMURI) has appealed to the Department of Finance to retain the status quo on the special tax rates of the BPO regional headquarters’ employees and similar companies.
“Our belief is that that status quo should prevail for the existing ROHQs/RHQs and their present and future employees. The TRAIN law still maintains and provides for the preferential tax rate for ROHQ/RHQ employees under paragraph (c) of the NIRC [National Internal Revenue Code],” said the PAMURI board of directors statement.
According to PAMURI, the special tax rates had been a big incentive for the multinational companies and BPOs in the country, and they are hopeful that the lower tax rates will be kept because these are still in the law.
“There was good reason behind it that had convinced our lawmakers—multinational companies (MNCs) that have chosen to locate their ROHQs/RHQs in the country relied heavily on the PTR in making their business decision and, understandably, took these incentives to have the strength and the binding force of law much like how it is in other jurisdictions. With the issuance of the BIR advisory last Saturday —there is confusion on the true intent of the Philippine government with respect to promoting the ROHQ/RHQ industry and recognizing the broader gains it has and can continue to give the Philippine economy,” said PAMURI.
