Taxes on compensation of officials employed by the United Nations

The Bureau of Internal Revenue (BIR) has previously issued Revenue Memorandum Circular (RMC) No. 031-13, dated 12 April 2013, which provided guidelines on the taxation of salaries and emoluments received by alien and Filipino officials of foreign governments and international organizations operating in the Philippines.

Foreign governments and international organizations, the United Nations included, are accorded immunity from Philippine taxes on the basis of international comity and international agreements, to which the Philippines is a signatory.  In recognition of this immunity, they are also exempt from being constituted as withholding agents of the Philippine Government for the taxes to be collected from compensation of their employees.  This is where confusions were made to which the RMC 031-13 and this new guideline are now seeking to correct. 

Prior to RMC 031-13, it was assumed, albeit incorrectly, that exemption from withholding taxes on compensation received from foreign governments and international organizations equates to the exemption from paying the income tax itself.  It should be noted however that the international agreements which grants withholding tax immunity, also separately provides express and unequivocal exemptions to identified officials and employees.  Thus, with respect to those employees not identified under the applicable international agreements, they are not relieved from the duty of reporting their compensation income to the BIR and paying the taxes due thereon, even if their compensation is not subject to withholding taxes.

The BIR had now recently issued RMC No. 73-2013, dated Nov. 26, 2013, which amends certain provision of RMC No. 31-13 in order to provide further guidelines on the tax filing obligations of those employed by the United Nations, its Specialized Agencies (SA) and the International Committee of the Red Cross.

Under RMC No. 73-13, the tax treatment of the compensation income of those employed by the United Nations and its Specialized Agencies are as follows:

Compensation received by officials employed by the United Nations, regardless of their nationality or place of residence, shall be not be subject to withholding taxes and exempt from Philippine income taxes, provided their names have been duly communicated to the Philippine government.

Compensation received by officials employed by SAs of the United Nations (whereby the Philippine government had previously acceded to its terms as indicated in the SA’s instrument of accession) are also not subject to withholding taxes and exempt from Philippine income taxes, provided their names have been duly communicated to the Philippine government.  The SAs covered by instrument of accession are as follows: a.) International Labour Organization; b.) The Food and Agriculture Organization of the United Nations; c.) The United Nations Educational, Scientific and Cultural Organization; d.) The International Civil Aviation Organization; e.) The International Monetary Fund; f.) The International Bank of Reconstruction and Development; g.) The World Health Organization; h.) The Universal Postal Union; i.) The International Telecommunication Union and the j.) International Finance Corporation.

Officials employed by SAs not covered by a proper instrument of accessions cannot claim tax exemptions and privileges beyond those provided in their constitutional instruments.

Only delegates of the International Committee of the Red Cross who are Swiss nationals and alien employees, including their spouses and their dependent members, shall be exempt from Philippine income tax.

Even with the tax exemption, the above mentioned officials are still enjoined to file their income tax returns, indicating the tax exemption pursuant to a specific international agreement.

Therefore, Philippine nationals and alien individuals who are not covered by tax exemptions or immunities under duly recognized international agreements or local laws are required to file their annual income tax return using BIR Form No. 1700 (for individuals earning purely compensation income) and BIR Form No. 1701 (for individuals earning both business and compensation income), as may be applicable, and pay the appropriate income taxes on or before the 15th day of April each year.

International Organizations, may, at its option, act as withholding agent and file the income tax returns of their respective employees who are not exempt from the payment of income taxes and the filing of their income tax return.

Lastly, international organizations and/or their employees (not mentioned under RMC No. 31-13 and RMC No. 73-13,) wishing to claim tax exemptions pursuant to the terms and provisions of an international agreement or law should first apply for a confirmation of their tax exemptions/tax treatment with the International Tax Affairs Division of the BIR before the same can be enjoyed.

John Dominee A. Reyes is a Supervisor from the Tax Group of Manabat Sanagustin & Co. (MS&Co.), the Philippine member firm of KPMG International.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.

The view and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or MS&Co. For comments or inquiries, please email [email protected] or [email protected].

Manabat Sanagustin & Co. will hold a one-day seminar on tax and corporate laws and regulations issued by the Bureau of Internal Revenue, Securities and Exchange Commission, Department of Finance, including Supreme Court and Court of Tax Appeals decisions/resolutions entitled 2014 Tax and Corporate Updates on Jan. 29, 2014 from 9 a.m. to 4:30 p.m. at Mandarin Oriental, Makati City. The speakers for the seminar are from MS&Co.’s roster of experienced tax professionals, namely, Tax Principals Herminigildo Murakami and Maria Georgina Soberano, and Senior Manager for Tax Evelyn Garcia-Cantre.

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Interested parties can call (02) 885-7000 local 768 and 473

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