Business is business

Business is business, so they say. Business owners prefer to put their businesses in areas where they expect to have many benefits and more profit.

The adage was put to the test when the COVID pandemic struck. While businesses struggled to stay afloat, companies also had to think of the health of their personnel. As such, alternative work arrangements existed to balance business needs and employees’ health and welfare. Included among these work arrangements was work-from-home wherein personnel would work during office hours in their own homes. Later, this evolved into a hybrid set-up where employees were required to report to the office on some days.

The hybrid setup worked to serve both the interests of the employer and the employees. However, for Information Technology and Business Process Outsourcing (IT-BPO) enterprises registered with the Philippine Economic Zone Authority (PEZA), the setup had its limitations. Under the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, business enterprises registered with PEZA only appreciate the incentives while they are operating within the economic zones (ecozones). As a temporary measure during the pandemic, the PEZA and the Fiscal Incentives Review Board (FIRB) passed several issuances allowing hybrid set-up for IT-BPO enterprises. However, the issuances only allowed a limited percentage of employees for the hybrid set-up and were only effective until 2022.

The above arrangement did not receive a favorable response from various groups representing IT-BPO employees, as many employees were ordered to return to their physical offices.

Despite the negative feedback, the FIRB issued Resolution 26-2022, which allowed the IT-BPO registered enterprises to transfer their registration from the PEZA to the Bureau of Investments (BOI) until Dec. 31, 2022 and adopt a 100 percent work-from-home arrangement. However, the monitoring of “transferee” registered business enterprises (RBEs) shall remain with the Investment Promotion Agency (IPA) where they are registered.

FIRB Resolution 26-2022 issued guidelines on how the transfer of the registration for RBEs shall be conducted. First, the RBEs in the IT-BPO sector shall signify to the concerned IPA, particularly the one administering the ecozone where the RBEs are located and their intention to transfer to the BOI. Thereafter, the concerned IPA shall prepare an endorsement of the transfer to the BOI with the following basic information: IPA or PEZA registration details, remaining tax incentives, and status of compliance with registration terms and conditions. The BOI will then issue a BOI Certificate of Registration (CR) indicating the remaining tax incentives of the RBE’s project. The current cost-benefit analysis for new projects shall no longer be applied to the transferee RBEs. Despite the transfer of registration, it will be the IPA or the PEZA that must monitor compliance of transferee RBEs and submit a report to the BOI concerning the BOI CRs issued.

FIRB Resolution 17-2022 also defined “affected RBEs” as those transferee RBEs that have remaining tax incentives under Section 311 of the National Internal Revenue Code, as amended, or those with approved incentives on or before Sept. 14 , 2022 under the CREATE Act with the concerned IPA.

The said resolution further authorized the BOI and the concerned IPA, in coordination with the FIRB Secretariat, to provide additional procedures and mechanisms to effectively and expeditiously carry out the said transfer of registration in the IT-BPO sector. However, it also stated that, after the lapse of the periods of the remaining tax incentives, the existing registered project of the transferee RBEs shall not be entitled to additional incentives, but may be eligible to apply if the activity is listed in the Strategic Investment Priority Plan and there is a new investment or qualified expansion.

The FIRB Resolution 26-2022 appears to provide a reasonable solution to the dilemma. On paper, there would be a transfer from the PEZA to the BOI, which does not pose the same operational requirements as the former. The RBEs can also keep their offices within the ecozones, thereby saving money in terms of relocation and other administrative expenses.

The BOI appears to be a good choice for the RBEs’ transfer of registration. Under the Omnibus Investment Code, the BOI is authorized to provide fiscal incentives to enterprises without imposing any locational requirement for the enjoyment of such incentives. As such, the IT-BPO RBEs can still enjoy certain fiscal incentives without worrying about geographical restrictions.

In view of the foregoing, the Department of Trade and Industry issued DTI Memorandum Circular 22-19 that gave more specific instructions on the transfer of registration from PEZA to BOI such as: providing the prescribed form for the transfer of registration (Request to Register BOI Form), template for the IPA endorsement (IPA List of Endorsed RBEs) with the necessary attachments (scanned copies of the RBE’s original Certificate of Registration with Terms and Conditions or Agreement issued by the IPA and the duly accomplished Request to Register BOI Form). The DTI MC also prescribed the registration fee and the information stated in the BOI Certificate of Registration. At the time of writing, the PEZA has already issued Memorandum Circular 2022-67, which provides the guidelines on the registration with BOI of existing RBEs in the IT-BPM sector pursuant to DTI MC 22-19.

While the old adage remains true in some areas, recent developments have made people realize that there should always be balance. It should rely upon the business profits and the welfare of the employees.

Lynn Margarita O. Palis is asupervisor from the tax group of KPMG in the Philippines (R.G. Manabat & Co.), the Philippine partnership and member firm of KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. The firm has been recognized as a Tier 1 in transfer pricing practice and in general corporate tax practice by the international tax review. For more information, you may reach out to tax supervisor Lynn O. Palis through [email protected], social media or visit www.home.kpmg/ph.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity. The views and opinions expressed herein are those of the author and do not necessarily represent KPMG International or KPMG in the Philippines.