RR No. 11-2010: Further clarifies the term “Managerial and Technical Positions” under RR No. 2-98, as amended and modifies for this purpose RMC No. 41-09, including guidelines on availment of the 15% preferential Income Tax rate for qualified Filipino personnel employed by Regional or Area Headquarters and Regional Operating Headquarters of multinational companies

Key points

1. Option for managerial and technical staff. Filipinos in a managerial or technical position at a Regional or Area Headquarters (RHQ) or Regional Operating Headquarters (ROHQ) may be taxed at 15% of gross income or at the regular rate under Section 24 of the Tax Code. This applies if the employer is governed by Book III of EO No. 226, as amended by RA No. 8756, and all other employees are taxed at the regular rate.
2. Three tests. The employee must pass the Position and Function Test and the Compensation Threshold Test, which requires gross annual taxable compensation of at least PhP 975,000.00. The third test is the Exclusivity Test: regular employment with one employer at a time, not a consultant or contractual.
3. Threshold details. Falling below the threshold after a compensation change means the regular rate applies for the calendar year the change takes effect. Beginning December 31, 2013 and every three years after, the threshold is adjusted using the Philippine Consumer Price Index. Retirement or separation pay and benefits, and de minimis benefits, are excluded from gross compensation for the threshold.
4. Withholding and yearly determination. Eligibility is determined yearly, and if total compensation cannot be determined at the start of the year or employment, the 15% option cannot be exercised. Employers need not annualize compensation of an employee under the 15% Final Withholding Tax who works for more than one ROHQ or RHQ in a year. The test is independent of the fringe benefits tax criteria under Section 33 of the Tax Code.
5. Filing and false information. The RHQ or ROHQ files the documents in the Regulations with its RDO, or with the LT Assistance Division, LT Regulatory Division or LTDOs if a large taxpayer. Failure to file the requirements under Section 7, or filing false information, results in the regular Income Tax. Willfully false declarations are subject to perjury penalties under the Revised Penal Code and other Tax Code offenses such as tax evasion.
6. Transitory provision. The transitory provision covers compensation payments from January 1, 2010. Affected taxpayers may adjust withholding tax remittances without penalties but not beyond January 31, 2011, and must file an amended BIR Form 1601C and/or BIR Form 1601F.

Who is affected

• Filipino managerial and technical employees of RHQs and ROHQs of multinational companies
• RHQs and ROHQs as employers

Deadlines and effectivity

• Compensation threshold: at least PhP 975,000.00 gross annual taxable compensation
• Threshold adjustment: beginning December 31, 2013 and every three years after
• Transitory provision: compensation payments from January 1, 2010
• Withholding adjustments without penalties: not beyond January 31, 2011