Let's Talk Tax

Working from home, fiscal incentives, and transferring from PEZA to the BOI

Gemmalu O. Molleno-Placido
By:
Gemmalu O. Molleno-Placido
Contents

At the onset of the Covid 19-pandemic, working from home (WFH) was a temporary solution for businesses to survive. This setup was not widely popular in the Philippine business setting prior to the pandemic; thus, many business entities grappled with how to continue their operations while the whole world is on lock-down. The Philippine government allowed companies who are granted with tax incentives for operating within economic zones to adopt this setup while being allowed to operate outside the zones.

While several issues came up with the WFH setup, including concerns of certain employees on lack of boundaries between work and home, adopting to this work setup has apparently now become the norm. People are starting to get the hang of this setup and have been slowly adjusting. However, among the things that remain unresolved at this point is whether this WFH setup could be permanently adopted by Informational Technology (IT) registered business enterprises (RBEs) registered with the Philippine Economic Zone Authority (PEZA).

Per MC No. 2021-049, in relation to FIRB Resolution No. 19-2021, PEZA initially allowed IT registered business enterprises to operate outside the economic zone on the condition that only up to 90% of the employees shall be working from home from September 13, 2021 to December 31, 2021, and beginning January 1, 2022, only up to 75% of the total employees are allowed under the WFH arrangement until  March 2022. PEZA subsequently requested from the FIRB that its RBEs be exempted from the required 90% WFH arrangement threshold. However, the FIRB later denied such request per Resolution No. 23-21 emphasizing that BPO companies and export enterprises are authorized to operate 100% on-site in line with the government’s strategy to gradually and safely open the economy.

On March 10, 2022, PEZA issued MC No. 2022-018 informing all IT RBEs that the FIRB denied the proposed measure to extend the work-from-home arrangement beyond March 31, 2022. MC No 2022-018 stated that Section 309 of the National Internal Revenue Code (NIRC) as amended by the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Law shall apply effective April 1, 2022. Section 309 essentially provides that a qualified registered project or activity under an Investment Promotion Agency (IPA), administering an economic zone or freeport must be conducted within that zone to avail the incentives granted to them.

IT RBEs grappled once again with how to cope up with the above pronouncement as there are corresponding penalties for violating the conditions prescribed by the issuances. A lot of investors were worried that their companies will not be able to comply with the requirement of 100% on-site reporting. Based on several feedbacks from the business community, most of the employees preferred the convenience of WFH arrangement and to avoid the possibility of being infected with Covid-19 on site. Management of IT RBEs started to assess the advantages and disadvantages of continuing its registration vis-à-vis losing their employees who would rather find another employer with permanent WFH arrangement.

Subsequently, on April 6, 2022, PEZA issued Board Resolution (BR) No. 22-052, allowing all kinds of RBEs to adopt a WFH arrangement not exceeding thirty (30%) of its total workforce and 70% shall be reporting on-site. Thereafter, the FIRB issued Resolution No. 17-2022 recognizing the contribution of the IT-BPM sector as a key employment generator in the country and that the adoption of WFH arrangements in that sector has contributed to the creation and preservation of jobs during the pandemic. In the same Resolution, the FIRB pronounced that as a temporary measure under Rule 23 of the CREATE Act IRR, RBEs of the IT-BPM sector are allowed to continue implementing WFH arrangements without adversely affecting their fiscal incentives under the CREATE Act from April 1, 2022 until September 12, 2022. Per FIRB Advisory 007-2022, the FIRB issued a memorandum provisionally extending the implementation of the 30% WFH arrangement.

At this point, even with the extension of the above 70%-30% ratio until September 12, 2022, many IT RBEs are still considering the possibility of deregistration from PEZA. The possible transfer of certain IT RBEs from PEZA to the Board of Investments (BOI) is being explored for some time now. The BOI is an IPA which grants incentives but is not restricted by a particular zone or geographical boundaries. Hence, during inquiries from investors who intend to establish local entities, the BOI option is being presented. On the other hand, for the existing PEZA IT RBEs, they are already considering the transfer from PEZA to BOI, even though it may be noted, that there are no definite written guidelines yet on the said transfer without adversely affecting the incentives of the said PEZA IT RBEs.

Recently, Finance Secretary Benjamin Diokno announced that relevant to the FIRB’s thrust to provide a more permanent solution to the WFH arrangement issue, IT-BPM enterprises shall be allowed to continue availing fiscal incentives without violating Section 309 of the NIRC as amended.  Many will certainly be expecting that the FIRB will formulate clear guidelines to facilitate the smooth transition of IT RBEs which intend to transfer their registration from PEZA to BOI. Needless to say, clarity in the guidelines will help resolve the concerns of both existing and potential investors in making business decisions that would ultimately affect the Philippine economy.

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 27 September 2022

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