Philippines: ‘Scrapping HQs’ tax rate will hurt investments’
REMOVING the preferential tax rate (PTR) for multinational companies’ regional headquarters (RHQs) and regional operating headquarters (ROHQs) are not only confusing investors on the government’s plans for them, but also risk reducing foreign investments in the country, two business groups warned on Wednesday.
“With the issuance of the Bureau of Internal Revenue (BIR) advisory last Saturday, there is confusion on the true intent of the Philippine government with [regard]to promoting the ROHQ and RHQ industry and recognize the broader gains it has and can continue to give to the Philippine economy,” the Philippine Association of Multinational Companies Regional Headquarters Inc. (Pamuri) told The Manila Times.
Under the advisory, ROHO/RHQ employees would be subjected to regular income taxes. They previously enjoyed a 15-percent PTR, which was introduced as a way to increase foreign investments by attracting multinational companies to relocate to the country.
Initially limited to foreigners in managerial or highly technical positions, it was later extended to similarly competent and qualified Filipino RHQ/ROHQ workers.
“These employees, insofar as they were tied to the economic goal of attracting foreign investments, may be seen as a class of their own,” Pamuri said.
Their relocation to and retention of these workers in the Philippines are needed to help bring the industry higher in the value chain of ROHQ and RHQ services, it added.
According to Pamuri, these rates must remain on a par with those in Southeast Asia.
“This is the very reason the law has put the PTR in place,” the organization said.
“If any comparison should be made, it should be between ROHQ/RHQ employees in the Philippines and their counterparts in countries like Hong Kong, Singapore and even Malaysia,” [which]is now promoting itself as an ROHQ/RHQ hub,” it added.
They would continue to appeal to the Department of Finance (DoF) to implement the provisions of the Tax Reform for Acceleration and Inclusion (Train) Act, Pamuri said.
“We noted that the veto message only deletes a part of Paragraph (f) and not the whole of it, which said ROHQs/RHQs registering with the Securities and Exchange Commission after January 1 shall no longer be entitled to the PTR,” it added.
“In order to give effect to Paragraph (c) of Section 25 that still remained in the law, as well as the veto message, the correct interpretation should be that ROHQ/RHQs registered before January 1 shall continue to be entitled to the PTR,” Pamuri said.
Also on Wednesday, the European Chamber of Commerce of the Philippines (ECCP) said the tax agency’s PTR move would likely lead to reduced investments, employment and spending, as well as losses when it comes to income tax.”
“If we lose these jobs, we might also run the risk of significantly reducing the emerging middle class that has been rising out of a well-paying business process outsourcing industry,” ECCP President Guenter Taus said in a statement.
“These PTRs are one of the biggest incentives for ROHQs to relocate in the country. The removal of this incentive would reduce the attractiveness of setting up a headquaters in the Philippines versus its competitors around the region,” he added.
“Along with the Joint Foreign Chambers, we at ECCP believe that the country should maintain the status quo on ROHQs when it comes to incentives,” the ECCP official said.