Restricting 15% Preferential Tax Rate for ROHQ Employees
Here is I don't understand why BIR would implement such ruling if not for their own selfish purposes. There are only limited ROHQ offices here in the Philippines and each of this companies has only 5-10 who holds both managerial and technical positions. One more thing, this type of employees has already high salary so what's the reason why they need to shield them. Compare it to the number who only holds technical positions (Software Engineers / Software Engineer Leads, QA Engineers and the list goes on from other technical-related industries)While an ordinary Filipino employee’s withholding-tax rate can go as high as 32 percent, some employees of the Regional Operating Headquarters (ROHQ) are entitled to a 15-percent preferential-tax rate under the Tax Code.
In several rulings, the Bureau of Internal Revenue (BIR) has confirmed that to qualify for the 15-percent preferential-tax rate, an ROHQ employee should hold a managerial and/or a technical position. In Revenue Memorandum Circular (RMC) No. 41-2009, the BIR not only defined a managerial and a technical position, but also clarified whether or not an employee should be holding a managerial and technical position or whether it is enough that an employee is holding a position that is either managerial or technical to qualify for the 15-percent preferential-tax rate. The BIR made these clarifications by revoking a ruling it issued in 2004 (BIR Ruling DA -61-04, Cypress Semiconductor Philippine Headquarters, Ltd.) where employees who hold positions as tax or a data analysts were declared as not qualified to avail themselves of the 15-percent preferential-tax rate.
In the RMC, the BIR defines a managerial employee by citing Philippines Alliance Corp. v. Laguesma, 226 SCRA 730, where the Supreme Court held that a managerial employee is one who is vested with powers or prerogatives to lay down and execute management policies and/or to hire, transfer, suspend, lay-off, recall, discharge, assign or discipline employees. The test of managerial status depends on whether a person possesses authority to act in the interest of his employer and whether such authority is not merely routine or clerical in nature, but requires the use of independent management. Where such recommendatory powers are subject to evaluation, review and final action by the department heads and other higher executives of the company, the person having such recommendatory powers is not a managerial employee. The fact that his work description is either manager or supervisor is of no moment considering that it is the nature of his functions and not the nomenclature of title which determines his status.
On the other hand, a technical position is limited to positions which are highly technical in nature or where there are no Filipinos who are competent, able and willing to perform the services for which the aliens are desired. By adding the descriptive word highly, the BIR has set another standard which unfortunately they failed to squarely define in the RMC. Utilizing the intricacies of the features of Microsoft Excel may be highly technical for an ordinary person but not to a certified public accountant. In other words, what is highly technical is very subjective such that the parameters thereof should be clearly established. Since the BIR revoked its ruling on Cypress, employees of an ROHQ who do the work of a tax and data analyst, by definition, are not highly technical employees who can enjoy the preferential-tax rate of 15 percent. Consequently, similar employees of ROHQs who do the same work and who currently enjoy the preferential rate should expect to receive 17 percent less on their net pay.
Another issue that is addressed by the RMC is whether or not an employee should be holding a managerial and highly technical position or whether it is enough that an employee is holding a position that is either managerial or highly technical, to qualify for the 15-percent preferential-tax rate. The RMC clarified that an employee should be both holding a position that is managerial and technical to enjoy the preferential rate. Thus, an employee who is holding a technical position but is not performing managerial functions is not qualified to avail himself/herself of the preferential-tax rate. This twin requirement has far reaching implications since this would affect salaries of employees who are currently enjoying the preferential rate. ROHQs should be wary of possible tax assessments by the BIR if they will continue to give the preferential rates to their employees who are only holding either managerial or technical positions.
An RMC is meant to clarify laws for better enforcement and tax collection. Unfortunately, RMC 41-2009 only clarified the obvious, i.e. the tests of what a managerial employee is gave birth to the term “highly technical employees” in the process. It is a new species that would invite subjective interpretations.
More important, many employees of an ROHQ are at risk to be burdened by a maximum deduction of 32 percent from their net pay. The impending additional tax deductions of these people whose earnings are hard earned should be avoided. The BIR should find other sources of revenue that will not directly share in the pie of a common Filipino worker.
Source: Restricting 15% Preferential Tax Rate for ROHQ Employees
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