Line Of Sight

The special case of IT-BPM companies

Wendell Ganhinhin
By:
Wendell Ganhinhin
Contents

Work from home (WFH), a term widely used during the early days of the Covid-19 pandemic, is the solution by companies in various sectors to continue their business where work is done in the comfort of employees’ homes. Such became the norm especially for the Information Technology and Business Process Management (IT-BPM) sector.

The IT-BPM sector is one of the best-performing and employment-generating sector in the Philippines. Given that the Philippines is one of the top English-speaking nations in the world and that Filipinos are widely known for their hospitality and strong work ethic, it is a competitive industry on the world stage.

Many companies in the IT-BPM sector clamored to continue the WFH or hybrid work set-up as the same is cost efficient, enabling companies to save on rent expense and employees to cut back on travel expense when going to work.

Pursuant to Sec. 309 of the CREATE Law, a qualified registered project or activity under an Investment Promotion Agency (IPA) administering an economic zone or freeport shall be exclusively conducted or operated within the geographical boundaries of the zone or freeport being administered by the Investment Promotion Agency in which the project or activity is registered. As such, the Philippine Economic Zone Authority (PEZA) required various PEZA-registered IT-BPM companies to return to office after the Fiscal Incentives Review Board (FIRB) denied its request to extend the WFH arrangement for these firms.

The President, in Presidential Proclamation No. 57 s. 2022, extended the existing State of Calamity due to the Covid-19 pandemic throughout the Philippines effective 13 September 2022 until 31 December 2022 and the FIRB recognized that registered business enterprises (RBEs) in the IT-BPM sector have already adopted WFH as part of their business model.

The FIRB noted that there is a pressing need to address the request of RBEs in the IT-BPM sector to allow them to adopt, on a long-term basis, flexible work arrangements without adverse effects on their tax incentives. FIRB Resolution No. 026-22, addressed this request.

FIRB Resolution No. 026-22

As a temporary measure, the FIRB allowed RBEs in the IT-BPM sector to adopt WFH arrangement not exceeding thirty percent (30%) of their total workforce without adversely affecting their income tax incentives.

Further, the FIRB allowed the transfer of registration of RBEs in the IT-BPM sector from the IPA-administered economic zone or freeport zone to the Board of Investments (BOI) to allow 100% WFH arrangement, provided that there is monitoring of these transferee RBEs’ compliance with the concerned IPA administering such economic zone or freeport zone where they are located.

FIRB Resolution No. 026-22 provides for the following guidelines in the transfer:

1.) RBEs in the IT-BPM sector shall signify to the concerned IPA of their intention to transfer to BOI;

2.) The concerned IPA shall prepare an endorsement to BOI, which shall contain the following basic information:

a.) Registration Details;

b.) Remaining Tax Incentives; and

c.) Status of compliance with registration terms and conditions;

3.) BOI shall issue the BOI Certificate of Registration (CR) indicating the remaining tax incentives of the project, provided that the current Cost Benefit Analysis for new projects shall no longer be applied to the transferee RBEs;

4.) The concerned IPA shall monitor compliance of transferee RBEs and submit a report to the BOI in relation to the BOI CRs issued.

Note that these rules will apply only to affected RBEs that have remaining tax incentives under Sec. 311 of the Tax Code or those with approved incentives on or before 14 September 2022 under the CREATE Act with the concerned IPA.

Department of Trade and Industry (DTI) and PEZA issuances provide the specific guidelines on the step-by-step process for the transfer to implement the FIRB Resolution.

DTI Memorandum Circular (MC) 22-19

On 18 October 2022, the DTI issued Memorandum Circular (MC) 22-19 to provide guidelines to FIRB Resolution No. 26-22 on the registration with the BOI of existing RBEs in the IT-BPM sector.

Cited below is the summary of the guidelines under MC 22-19:

First, the RBE shall file its request for transfer using the prescribed form with the concerned IPA.

Second, the concerned IPA shall endorse to the BOI Infrastructure and Services Industries Service (ISIS) the request of affected RBEs using the prescribed template and provide the following documents:

a.) Scanned copy of the RBE’s original Certificate of Registration with Terms and Conditions or Agreement issued by the concerned IPA; and

b.) Scanned copy of “Request to Register with BOI Form” duly accomplished by the RBE.

MC 22-19 further provides that the endorsement by the concerned IPA shall be treated as a certification of its non-objection on the registration with the BOI and that the RBEs endorsed are compliant with terms and conditions of registration and are in good standing.

After compliance with the above requirements and payment of the applicable fee, the BOI will issue the certificate of registration to the duly endorsed RBEs and specify the remaining incentives and period of entitlement therein. 

It is important to note, however, that the monitoring of the covered RBEs’ compliance with the terms and conditions of their registration shall be maintained with the concerned IPA.

PEZA Memorandum Circular 2022-070

In connection with the above circular, PEZA issued supplemental guidelines and the template for the application form in connection with the registration of existing RBEs in the IT-BPM sector with the BOI.

Under the supplemental guidelines, while the RBEs have until 31 December 2022 within which to transfer their registration to the BOI, the deadline of submitting the application forms to PEZA is on or before 16 December 2022. To qualify for registration, PEZA must be able to endorse all applications for registration to BOI on or before 31 December 2022.

Per the PEZA supplemental guidelines, the reason for the earlier deadline is to ensure that PEZA will have sufficient time to review the applications before endorsing the RBEs’ application with the BOI. PEZA encourages all RBEs to submit as early as possible their application forms to PEZA.

The PEZA supplemental guidelines provide an email address where the RBEs intending to transfer will submit their applications including attachments. Further, RBEs who already submitted their application with the PEZA Office of the Director General (ODG) shall re-submit the application to the email provided for in the supplemental guidelines. Also, concerned RBEs are reminded that PEZA will not accept hard copies of the applications and attachments.

What’s the latest?

In a recent public forum, the BOI clarified that existing PEZA-registered IT-BPM companies will have two IPA registrations if they will register with the BOI for the 100% WFH arrangement.  Effectively, such is not deemed a transfer to the BOI as the company continues to enjoy all its PEZA fiscal and non-fiscal incentives. However, the company should retain its office location in order to continue enjoying its incentives.

Under this arrangement, the RBE which transferred to the BOI can have the best of both worlds: the 100% WFH arrangement and enjoyment of the fiscal and non-fiscal incentives as a PEZA-registered entity. However, since the transfer is in effect a “paper transfer”, the RBEs still remain in a PEZA office and there will be no physical relocation or transfer of business operations.

With this recent development, affected IT-BPM companies must ensure that they have filed the necessary application on or before the deadlines discussed above.

 

As published in Mindanao Times, dated 16 December 2022

Related Articles

View more