Among the many things that the pandemic taught us is our ability to work efficiently at home. We have discovered the joys and challenges of just rolling out of bed and barely combing our hair to join our early morning teams or Zoom call. The ability to work without the horrendous sacrifice of hurdling though traffic nor stuffing ourselves in a jam-packed MRT are but a couple of the perks of working from home.
Clearly, working from home (WFH) is here to stay. No other sector is more affected than the Information Technology and Business Process Management (IT-BPM) sector. Hence, when the government announced that their employees must go back to their registered offices, the whole industry was in tumult.
Fortunately, the Fiscal Incentives Review Board (FIRB) through Resolution No. 026-22 allowed registered business enterprises (RBEs) in the IT-BPM sector to transfer their registration to the Board of Investments (BOI) which allows them to adopt up to 100% WFH arrangements without their tax incentives being adversely affected.
Various government agencies have already issued implementing guidelines and procedures for the transfer and some RBEs have already submitted their applications pursuant to these guidelines. However, there are still some lingering questions on the consequences of transferring or not transferring. Recently, I have attended a webinar on the shift of the IT-BPM sector to WFH and here are some of the issues that were discussed.
What happens to the PEZA registration upon transfer?
FIRB Resolution No 026-22 described the application as a transfer of registration. It stated that “affected RBEs in the IT-BPM sector may be allowed to transfer their registration to the BOI from the IPA administering an economic zone or freeport zone where their project is located until 31 December 2022 and adopt up to 100% WFH arrangement; Provided that the monitoring of these “transferee” RBEs’ compliance and the availment of their remaining incentives shall remain with the concerned IPA administering such economic zone or freeport zone where they are located.”
The Resolution denotes that the registration is being transferred to the BOI and the PEZA would only be a monitoring agency. However, instead of a transfer of registration, the application would allow a dual registration where the RBE is registered with both the BOI and the PEZA. In this case, the PEZA is not just a monitoring agency but remains as the regulator for the PEZA incentives being enjoyed by the RBE.
Hence, even if the Certificate of Registration is issued by the BOI in favor of the RBE, its PEZA registration is not cancelled. PEZA will still be in charge of issuing the Certificate of Entitlement to Tax Incentives (CETI) and VAT Zero Rating Certificate to the RBE.
What happens to the PEZA specific incentives upon transfer to BOI?
Since the PEZA registration is not cancelled, all incentives specific to PEZA RBEs are retained. Nothing is expected to change after the BOI registration other than the ability of employees to work from home.
DTI Memorandum Circular No. 22-19 specifically stated that “(N)othing herein shall affect the other incentives and non-fiscal incentives that the covered RBEs are enjoying under their original registration with the concerned IPA, or under the NIRC or other laws, provided that the registration with the concerned IPA is maintained by the covered RBE.”
Hence, the benefit of branch profit remittance tax exemption under Section 28 of the NIRC for PEZA RBEs will remain. Likewise, the PEZA Visas of the expatriates, among other non-fiscal incentives, will subsist.
Moving forward, where must the IT-BPM RBE register their new or expansion projects?
The ability to avail of the dual registration is time-bound to until 31 December 2022. Hence, according to current rules, the ability of PEZA to endorse to BOI will terminate on the same date. Moving forward, new projects or expansion projects which will adopt the WFH model shall now apply for registration with the BOI. This necessitates that the RBEs comply with two rules for their various projects. Old, registered projects will be under the dual registration of PEZA and BOI while new projects will be exclusively with the BOI.
Why is there a deadline for the transfer?
Much had been discussed as to the reason why the ability to transfer to BOI is a time-bound offer. Some RBEs are claiming that the timeline is too tight. This may be the reason why the PEZA has not yet received the deluge of application it was expecting despite the deadline for filing which is 16 December being less than a month away. As of 14 November, PEZA has received only 154 applications of which 56 have been endorsed to the BOI.
Note that the State of Calamity as extended by Presidential Proclamation No. 57-2022 will end on 31 December 2022. Similarly, the 70-30 WFH allowed to the RBEs will also end on the same date. Hence, any transfer to BOI to relieve the WFH issue of the RBEs is required to be resolved not later than the same date.
However, does it really have to be a limited window when RBEs may transfer to the BOI? Currently, RBEs not compliant with the WFH rules are subject to the regular corporate income tax as a penalty. Would it be possible to adopt this penalty system for RBEs unable to transfer before deadline and while the RBEs are still sorting their requirements or getting their internal corporate approvals?
What happens to RBEs registered after 14 September 2022?
FIRB Resolution No 026-22 dated 14 September 2022 allowed the transfer by RBEs to BOI. In the same Resolution, it defined affected RBEs as “those transferee RBEs that have remaining tax incentives under Section 311 of the NIRC of 1997, as amended, or those with approved incentives on or before 14 September 2022 under the CREATE Act with the concerned IPA.”
Considering that the guidelines were issued sometime in late October, what happens to RBEs registered after 14 September 2022 but before the issuance of the guidelines? Are they not allowed to avail of the WFH? Can they not file their application to be registered with BOI so that they too can also be allowed to adopt WFH?
Are the RBEs still required to farm in and farm out their equipment?
BOI registration does not require the registered entity to operate within a particular zone or territory. Hence, the BOI does not require the farming in and farming out of equipment which PEZA entities are required to do. Some RBEs expected that once they are registered with the BOI, they will no longer be required to comply with this cumbersome requirement.
However, within 30 days from the issuance of the BOI Certificate of Registration, the covered RBE shall submit to PEZA the list of all equipment and assets with required details. Thereafter, the covered RBEs shall submit to the PEZA (or their respective IPAs) within 5 days after the end of each month a report containing the (a) additional equipment/assets brough out of the ecozones and (b) total number of employees and number of employees under the WFH arrangement.
Further, considering that they remain to be under PEZA, the requirement of farming in and farming out of equipment will remain. The good news is that a bond will no longer be imposed on the movement of capital equipment under the WFH arrangement.
As RBEs shift to this new concept of dual registration which allows them to adopt WFH, new issues and questions may surface. Indeed, there will always be birth pains at the start of anything new. Fortunately, the government agencies involved in implementing this transfer are proactive and working together with the IT-BPM sector to iron out any creases in the implementation. With any luck, we may be even given an early Christmas gift of either the relaxation of the WFH rules or additional issuances that clarify the remaining issues.
Let's Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.
As published in BusinessWorld, dated 22 November 2022