REVENUE MEMORANDUM CIRCULAR NO. 83-2020 issued on August 17, 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.

Under the effective tax treaties of the Philippines with other countries, the residence State has an exclusive right to tax the employment income derived by its resident taxpayers, except when the employment is exercised in another Contracting State, in which case, the latter State may tax the employment income subject to the provision of relief by the former State.
However, even if employment is exercised in the Philippines, the employment income will not be subject to tax in the Philippines if the following conditions concur:
a. The employee has not been present in the Philippines for 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 aggregate in the year of income, fiscal year, calendar year, or any twelvemonth period, depending on the applicable DTA;
b. His/her remuneration is paid to him/her by, or on behalf of, an employer that is not a resident of the Philippines; and
c. His/her remuneration is not deductible against the profits of a permanent establishment which the foreign employer has in the Philippines.

Conversely, the Philippines may tax the employment income of an individual who is a resident of another contracting state only if any of the following three tests is met:
a. The employee is present for 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 Philippines; or
b. The employer is a resident of the Philippines; or
c. A non-resident employer has a permanent establishment in the Philippines which bears the remuneration.
Due to the continuing implementation of measures to prevent COVID-19, treaty provisions will not be strictly applied to mitigate potential tax burdens related to compliance with certain reporting and filing obligations, and the satisfaction of tax-related conditions. Thus, where an individual is prevented from leaving the Philippines on his or her scheduled day of departure as a result of the travel restrictions imposed by the government as a safety measure to contain COVID19, the individual will not be regarded as being present in the Philippines for tax residence purposes for the period after the scheduled day of departure. The BIR 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 would permit, such as when the travel restrictions and/or quarantine measures have been lifted.

Whether a taxpayer is a resident for tax purposes in the Philippines is a question of fact that requires consideration of all surrounding circumstances. Each case will be assessed and evaluated independently based on factual and unaltered evidence.

For a permanent establishment (PE) to exist, there must be a place of business with some degree of permanency (not merely temporary or transitory), and through which the business of an enterprise is wholly or partly carried on.

The words “through which” must be given a wide meaning so as to apply to any situation where business activities are carried on at a particular location that is at the disposal of the enterprise for that purpose. Whether a location may be considered to be at the disposal of an enterprise in such a way that it may constitute a “place of business through which the business of that enterprise is wholly or partly carried on” will depend on that enterprise having the effective power to use that location as well as the extent of the presence of the enterprise at that location and the activities that it performs there.

The BIR is of the view that working from home would not create a PE of the foreign enterprise in the Philippines because the conduct of business activities thereat lacks a certain degree of permanency and the home office is not at the disposal of the foreign enterprise. The intermittent conduct of business of the foreign enterprise at the home office of its employees in the Philippines due to COVID-19 will not, in any way, make such home office a location at the disposal of the enterprise.

If, however, the home office is used on a continuous basis for carrying on the business activities of the foreign enterprise even after the COVID-19 crisis, and it is clear from the facts and circumstances that the enterprise has required the individual to use that location to carry on its business, the home office may be considered to be at the disposal of the enterprise.

A site should not be regarded as ceasing to exist when work is temporarily discontinued. Therefore, temporary interruptions of construction activities due to the COVID-19 pandemic should be included in computing the duration of a site and in determining whether such construction site constitutes a PE.

For a “dependent agent PE” to apply, the following conditions must be met:
a. A person acts in a Contracting State on behalf of an enterprise;
b. That person habitually concludes contracts, or habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the enterprise. It must be established that the presence of a foreign enterprise in the Philippines is not merely transitory; and
c. These contracts are either in the name of the enterprise or for the transfer of the ownership of, or for the granting of the right to use, property owned by that enterprise or that the enterprise has the right to use, or for the provision of services by that enterprise.

Thus, where an employee, partner or agent of a non-resident foreign corporation continues to be present in the Philippines and that presence is shown to result from travel restrictions related to COVID-19, the BIR shall disregard such presence in the Philippines for Income Tax purposes for the company on whose behalf the employee, partner or agent has been acting. In other words, the extended period of stay of the employee, partner or agent shall not be considered in counting
the taxable presence of the non-resident foreign corporation in the Philippines.

In sum, the effects of COVID-19 will not result in the creation of a PE if the following requirements are met:
a. The non-resident foreign company did not have a permanent establishment in the Philippines before the effects of COVID-19;
b. There are no other changes in the company’s circumstances save for the extended stay of its employee, partner or agent in the Philippines because of travel restrictions; and
c. The employee, partner or agent should leave the country as soon as the circumstances would permit.

A different approach will be applied, however, if the employee, partner or agent was habitually concluding contracts on behalf of enterprise in the Philippines before the COVID19 crisis.

In all cases where restrictions imposed by COVID-19 affect the applicability of Philippine tax laws and tax treaties on a taxpayer’s tax position, records shall be maintained outlining the circumstances and submitted to the BIR in support of the taxpayer’s application for relief from double taxation.

In order to prove that the extended presence in the Philippines was due to COVID-related travel restrictions, the concerned individual or company shall submit to the satisfaction of the BIR relevant documents, including but not limited to:
a. Authenticated sworn certification stating the relevant facts and circumstances of the bona fide presence of the employee in the Philippines;
b. Duly executed contract/s (must be consularized or apostillized if executed/signed in a foreign country);
c. Certified true copy of the confirmed booking or flight itinerary for the original flight;
d. Certified true copy of the confirmed booking or flight itinerary for the re-booked flight;
e. Certified copy of the travel advisory on the cancellation of flight issued by the airline company;
f. Certified true copy of boarding pass;
g. Certified true copy of the employee’s passport, including blank pages thereof; and
h. Other documents that the BIR shall deem necessary depending on the circumstances.