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For clients that want to do business in the Philippines, we assist in determining the appropriate and tax-efficient operating business or investment vehicle and structure to address the objectives of the investor, as well as related incorporation issues.
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Our advocacy work focuses on clarifying the interpretation of laws and regulations, suggesting measures to increasingly ease tax compliance, and protecting taxpayer’s rights.
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Our business risk services cover a wide range of solutions that assist you in identifying, addressing and monitoring risks in your business. Such solutions include external quality assessments of your Internal Audit activities' conformance with standards as well as evaluating its readiness for such an external assessment.
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Transaction advisory includes all of our services specifically directed at assisting in investment, mergers and acquisitions, and financing transactions between and among businesses, lenders and governments. Such services include, among others, due diligence reviews, project feasibility studies, financial modelling, model audits and valuation.
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Our forensic advisory services include assessing your vulnerability to fraud and identifying fraud risk factors, and recommending practical solutions to eliminate the gaps. We also provide investigative services to detect and quantify fraud and corruption and to trace assets and data that may have been lost in a fraud event.
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Our focus is to help you identify and manage the cyber risks you might be facing within your organization. Our team can provide detailed, actionable insight that incorporates industry best practices and standards to strengthen your cybersecurity position and help you make informed decisions.
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Accounting services
At P&A Grant Thornton, we handle accounting services for several companies from a wide range of industries. Our approach is highly flexible. You may opt to outsource all your accounting functions, or pass on to us choice activities.
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Staff augmentation services
We offer Staff Augmentation services where our staff, under the direction and supervision of the company’s officers, perform accounting and accounting-related work.
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Payroll Processing
Payroll processing services are provided by P&A Grant Thornton Outsourcing Inc. More and more companies are beginning to realize the benefits of outsourcing their noncore activities, and the first to be outsourced is usually the payroll function. Payroll is easy to carve out from the rest of the business since it is usually independent of the other activities or functions within the Accounting Department.
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Can expatriate employees assigned to the Philippines qualify for personal income tax exemptions under tax treaties? This is a question often asked by foreign corporations sending employees to the Philippines for various purposes.
Most tax treaties to which the Philippines is a signatory require compliance with all three conditions to be exempt for income tax in the`Philippines, namely:
a. The employee stays in the Philippines for a period or periods not exceeding 90 or 180 days in a calendar or taxable year;
b. The employee is paid by, or on behalf of, a nonresident employer, and
c. The compensation is not borne by a permanent establishment or a fixed base that the employer has in the Philippines.
Many expatriate employees sent to the Philippines could easily qualify for exemption from Philippine income tax under the treaty provisions mentioned earlier.
To avail of the exemption, however, the applicant should submit the following:
a. application form for treaty relief and a consularized certificate of residency issued by their home country. The Bureau of Internal Revenue (BIR) has not issued guidelines on the acceptability of an apostille in lieu of consularization
b. a certificate from the Department of Trade and Industry that they are not registered to engage in business in the Philippines
c. a certificate of no pending case. The said certificate must attest that the transaction applied for ruling is not subject to investigation, an ongoing audit, administrative protest, claim for refund or issuance of tax credit certificate, collection proceedings, or subject of a judicial appeal
d. copy of the contract of work
e. passport showing the dates of entry to and exit from the Philippines to allow the checking of compliance with the threshold on the number of days of stay in the country
f. confirmation from the Philippine company with whom the expatriate will work on the duration of the service to be performed by the employee in the Philippines
g. a special power of attorney for the tax agent who will process the application in behalf of the employee.
Applications are filed with and evaluated by the International Tax Affairs Division (ITAD) of the BIR, and the confirmatory rulings are signed by the Commissioner of Internal Revenue.
The reality is that very few apply for treaty relief under this provision. The database of BIR rulings shows that, from 2010 to 2017, only one ruling was issued by ITAD, confirming the qualification of the expatriate employees who applied for exemption. Many decisions to send employees to the Philippines are made on short notice, and the preparation of the treaty availment documents does not become a priority. In addition to the documentary requirements, it takes time-sometimes years-for the rulings to be issued, making it irrelevant as the assignment of the expat is often already completed. The latest ITAD ruling that I researched from our database took three years to be approved.
The reality is that there is a limited paper trail available for the BIR to enforce taxation. The Philippines is a visa-free country to residents of more than 150 territories, and the list includes most of our trading partners. On the other hand, a temporary visitor visa is available for foreigners travelling to the Philippines as tourists or businessmen. Since these employees are being paid by their home office, there are no payments for compensation appearing in the books of the Philippine hosts that would trigger enforcement of the tax.
Under these circumstances, most companies would just disregard both the application for treaty relief and the payment of Philippine income tax for their employees. A few companies would require their employees to declare and pay income tax in the Philippines, while ensuring that such taxes are credited against the income tax payable by the employees in their home country.
A tax treaty relief application would be most useful only for those regularly sending employees to the Philippines.
If the application for treaty relief could be simplified, the requirement can, at least, be acknowledged and respected. An application or notification system similar to that being implemented for tax treaty relief for interest, dividends, and royalties can be adopted. The certificate of residency and the number of days worked in the Philippines would easily be documented. While it may not be easy to show proof that the compensation was not paid by a Philippine company, we can trust our withholding tax system to ensure that such income would have been covered by withholding taxes.
Whether under a simplified system or the regular application for treaty relief, the timelines should conform to the requirements under the law on ease of doing business.
In this way, we can say that we are able respect and uphold the integrity of the privileges we agreed to implement under international agreements.
Let’s Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.
Lina P. Figueroa is a principal of Tax Advisory & Compliance division of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.
As published in BusinessWorld, dated 02 July 2019