NON-RESIDENTS stranded in the Philippines due to the coronavirus travel bans are not liable for income tax in the Philippines, subject to certain conditions, according to the Bureau of Internal Revenue (BIR).
BIR Commissioner Caesar R. Dulay issued Revenue Memorandum Circular No. 83-2020 to clarify that non-resident individuals who were not able to leave the country due to travel bans will not be regarded as being present in the Philippines for tax residence purposes during their stay.
“The bureau will consider this as ‘force majeure’ for the purpose of establishing such individual’s tax residence, provided that he or she leaves the Philippines as soon as the circumstances permit (or) when the travel restriction or quarantine measures have been lifted,” according to the circular, published Tuesday.
The BIR said the ongoing restrictions have raised international tax issues involving cross-border workers or those stranded in places that are not their country of residence. Since some employees extended their stay in the Philippines, this may result in the unintended creation of permanent establishment (PE) of foreign enterprises.
It said a PE will not be realized if a non-resident foreign firm did not hold such status prior to the pandemic; there are no changes in the company except for the extended stay of its employees; and if the stranded individuals leave the country as soon as possible.
Under current tax treaties, the BIR may tax the income of a non-resident individual if he or she is either present for more than 183 days in the country, the employer is a resident of the Philippines, or if the non-resident employer has a PE.
The bureau said the treaty provisions “will not be strictly applied” during the pandemic to minimize potential burdens. However, determining whether a taxpayer is a resident for tax purposes in the country will need to be assessed on a case-to-case basis.
Individuals will have to prove to the BIR that their extended stay was due to travel bans or other restrictions related to the coronavirus pandemic. This includes a sworn certification stating their situation; duly executed contracts; a copy of confirmed flight bookings; the itinerary for the original and re-booked flight, as well as a copy of the employee’s passport, among others. — Beatrice M. Laforga