BIR creates task force to incentivize back-to-work office practices

The Bureau of Internal Revenue (BIR) of the Philippines has formed a task force that will ensure the compliance of registered business enterprises (RBEs) operating within the information technology-business process management (IT-BPM) sectors regarding the government’s return-to-office orders, according to a report.

The task force aims to check if all RBEs that are currently reaping the benefits of the tax incentives that have been previously mandated by the Fiscal Incentives Review Board (FIRB) on April 1, 2022, are compliant with the law that requires them to do business in-office or within the special economic zones (SEZs) or freeports where these firms are located and registered, at the same time bringing their employees back to the office as well.

The enforcement of this rule is in part due to the conditions stated in the National Internal Revenue Code of 1997, as amended by the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act. Where it was emphasized that RBEs may only make use of these tax incentives and tax perks if they operate their designated SEZs or on the freeports where the firms were originally created and registered.

These tax incentives have been suspended since March 9, 2022, due to the implementation of Revenue Memorandum Circular (RMC) 23-2022, which explicitly states that all Income Tax Incentives given to RBEs of the IT-BPMs sector that are uncompliant to the work-from-home (WFH) threshold as prescribed by the Fiscal Incentives Review Board (FIRB) are to be discontinued.

In an announcement from the Department of Finance (DOF), BIR Deputy Commissioner Arnel Guballa addressed Finance Secretary Carlos Dominguez III about the bureau issuing a Mission Order (MO) that allows the operation of ocular inspections on the business locations of an RBE to assess if they truly complying with the back-to-office mandate of the CREATE act.

These IT-BPMS firms were temporarily allowed by the FIRB to utilize work-from-home arrangements without losing incentives granted to them as ecozone locators due to the heightened effects of the pandemic. This arrangement was allowed for RBEs up until March 31, 2022.

The DOF explained that the country’s pandemic situation had already been alleviated and allowed workers to safely return to their offices.

Dominguez then clarified that the return-to-office arrangement isn’t being prohibited for RBEs in the IT-BPM sectors; they still have the option of continuing their work-from-home arrangements. However, the tax benefits of these firms will be suspended if they choose this option. Since the decision on a corporation’s work arrangement is at the discretion of corporate management.

“No one is prohibiting them or impinging on their management prerogative to continue implementing their WFH (work from home) setups. However, they must give up the tax incentives they currently enjoy because the law is clear on this,” stated Dominguez.

It was then explained that separate customs territories, economic zones and freeports were created so that export activities would be given more attention and would allow the free flow of goods and services, including IT-BPM services, within the boundaries of said zones or freeports.

These clarifications were done by DOF Assistant Secretary and FIRB Secretariat head Juvy Danofrata, who also stated that tax incentives would be given to priority projects or activities located in these zones. 

“Given the increasing vaccination rate of Filipinos nationwide, we can now undertake safety measures for the physical reporting of employees," she said in a statement.

She also made the following comments "In fact, the president has ordered all government agencies and instrumentalities to adhere to the one hundred percent on-site workforce under Alert Level 1.".

The DOF secretary made these statements during calls from various sectors questioning the continued adoption of flexible or off-site work arrangements for the IT-BPM sector while still retaining their tax perks, which, as explained earlier, is only a privilege of RBEs operating in SEZs or freeports.

As of now, most of the areas in the Philippines, including the National Capital Region, are placed under the least restrictive Alert Level 1 as COVID-19 cases remain low. So, the continuance of these tax benefits seems to be unfair to the RBEs operating within their designated SEZ or original place of operations.