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Tax Notes

Rules on tax residency and creation of permanent establishment due to effects of Covid-1.....

In cases where restrictions imposed by Covid-19 affect the applicability of Philippine tax laws and tax treaties on taxpayer’s tax position, the following rules shall be considered.

Tax Residency

Individuals prevented from leaving the Philippines on their scheduled day of departure because of the travel restrictions imposed by the government will not be regarded as being present in the Philippines for the period after the scheduled day of departure until his actual departure. The said individuals should leave the Philippines as soon as the travel restrictions and/or quarantine measures have been lifted.

Individuals who are supposed to be in the Philippines under a contract but were not able to travel to the Philippines due to travel restrictions will be subject to tax in the Philippines. The BIR will consider the circumstances that would have occurred absent such travel restrictions.

Creation of permanent establishments (PE)

Employees of foreign enterprise who are working from home in the Philippines in compliance with government’s home quarantine measures would not create a PE of the foreign enterprise in the Philippines. However, if an employee’s home is used as continuous basis for carrying business activities of the foreign enterprise even after Covid-19, it may be considered a PE of the foreign enterprise.

Temporary interruptions of construction activities due to Covid-19 should be included in computing the duration of a site in determining whether such construction site constitutes a PE.

Where an employee, partner or agent of a foreign enterprise, who are not habitually concluding contracts on behalf of a foreign enterprise before the Covid-19 crisis, continue to be present in the Philippines due to travel restrictions related to Covid-19, such presence in the Philippines shall also be disregarded in counting the period of stay or presence of the foreign enterprise in the Philippines.

To prove that extended presence in the Philippines was due to Covid-19 related restrictions, records shall be maintained outlining the circumstances and submitted to the BIR in support of the taxpayer’s application for relief from double taxation.


P&A Grant Thornton

Certified Public Accountants


As published in SunStar Cebu, dated 02 September 2020