Lost perks under TRAIN force reg’l HQs to shelve Phl entry

About five multinational companies are shelving plans to set up regional headquarters in the country due to concerns on the removal of their special tax rate.

The Philippine Association of Multinational Companies Regional Headquarters Inc. (PAMURI) said four to five regional operating headquarters (ROHQs) have “refused to enter the Philippine market due to the threat of removal of the said incentives.”

Pamuri was referring to the 15 percent special tax rate on the gross income of employees of ROHQs.

According to the European Chamber of Commerce of the Philippines (ECCP), the Joint Foreign Chambers (JFC) of the Philippines believes the status quo on the subject of ROHQ incentives should be maintained, with the 15 percent preferential tax rate retained for existing ROHQs.

“Preferential tax rate is one of the biggest incentives for ROHQs. The removal of this incentive will reduce operations and employment, decrease spending and incur losses in terms of income tax, and lower competitive advantage,” the ECCP, a member of the JFC, said.

ECCP said ROHQs are now awaiting the issuance of revenue regulations within this month for “final word and basis of next steps.“

The JFC and the government, through the Department of Finance and the Bureau of Internal Revenue, have different interpretations to the ROHQ provisions related to the Tax Reform for Acceleration and Inclusion (TRAIN) law.

Finance Secretary Carlos Dominguez said last week the 15 percent special tax rate on the gross income of employees of ROHQs is no longer applicable after President Duterte vetoed the provision granting the preferential rate under the TRAIN.

Duterte vetoed the provision in the tax reform law granting a special tax rate of 15 percent on the gross income of employees of regional headquarters, regional operating headquarters, offshore banking units, and petroleum service contractors and subcontractors.

The President said the provision violates the Equal Protection Clause under Section 1, Article III of the 1987 Constitution, as well as the rule of equity and uniformity in the application of the burden of taxation.

PAMURI, however, said there were two citations in the TRAIN law regarding the preferential tax rate.

The group pointed out that the President’s veto only applied to the second citation, which stated the tax perk would only be applied to ROHQs already existing before 2018.

The Tax Management Association of the Philippines, for its part, said the President’s veto on the preferential tax rate of ROHQ employees does not automatically remove the perks they enjoy as it does not amend Section 25 (C), (D), and (E) of the Tax Code.

Foreign businessmen have earlier warned that regional headquarters of multinational companies in the Philippines may shut down or relocate to other countries once looming changes in the ROHQ tax rate are implemented under the first package of the tax reform program, putting thousands of jobs at risk.