RMC No. 83-2020: Addresses the issues and concerns of taxpayers regarding the tax implications of measures being implemented to prevent the spread of COVID-19 on cross-border matters

Key points

1. Employment income under treaties. The residence State has the exclusive right to tax a resident’s employment income, unless the work is done in the other Contracting State. Employment exercised in the Philippines is not taxed here if the employee was present for no more than 183 days (more than 120 days for residents of Poland; at least 90 days for residents of the United States of America) in the period set by the applicable DTA. The pay must also come from a non-resident employer and not be deductible against the profits of a PE the foreign employer has in the Philippines.
2. When the Philippines may tax. The Philippines may tax a resident of another contracting state only if one of three tests is met. The employee is present for more than 183 days (more than 120 for Poland, at least 90 for the USA), or the employer is a Philippine resident, or a non-resident employer’s PE in the Philippines bears the pay.
3. Travel restrictions and residence. An individual who cannot leave on the scheduled departure date because of government COVID-19 travel restrictions is not treated as present in the Philippines after that date. The BIR treats this as force majeure, provided the person leaves as soon as circumstances permit. Residence is a question of fact, and each case is assessed on factual and unaltered evidence.
4. Permanent establishment rules. A PE needs a place of business with some permanency through which the enterprise’s business is wholly or partly carried on. Working from home does not create a PE, and intermittent home-office work due to COVID-19 does not put the home at the enterprise’s disposal. If the home office is used continuously after the crisis and the enterprise required it, it may be at the enterprise’s disposal. Temporary interruptions of construction work count in computing the duration of a site.
5. Dependent agent PE. This requires a person acting for the enterprise who habitually concludes contracts, or plays the principal role in concluding them, in the enterprise’s name or for property or services of the enterprise. Presence caused by COVID-19 travel restrictions is disregarded for the foreign company’s income tax. No PE arises if the company had no PE before COVID-19 and nothing else changed except the extended stay, and the person leaves as soon as circumstances permit. A different approach applies if the person was habitually concluding contracts before the crisis.
6. Records and proof. Records on the circumstances are kept and submitted in support of any relief from double taxation. Proof includes an authenticated sworn certification, duly executed contracts (consularized or apostillized if signed abroad), and certified flight bookings, itineraries and the airline’s cancellation advisory. It also includes a certified boarding pass, a certified passport copy with blank pages, and other documents the BIR deems necessary.

Who is affected

• Employees and foreign enterprises affected by COVID-19 travel restrictions in the Philippines
• Residents of countries with Philippine tax treaties

Deadlines and effectivity

• Day thresholds: more than 183 days (more than 120 for Poland, at least 90 for the USA)