Agility has been key in surviving this pandemic. This characteristic is not only seen in individuals as we all strive to stay safe, but we have also seen businesses take on a lesson or two on staying afloat despite the lockdowns, travel restrictions and quarantines. The rise of work from home (WFH) arrangements may be attributable to the business sector’s search for sustainability and profitability given limitations due to the COVID-19 situation. Indeed, WFH, when done right, can be effective to keep business operations running while ensuring employee safety.
While the PEZA law requires that registered activities of PEZA registered business enterprises (RBEs) should be performed within the Ecozone, RBEs in the Information Technology - Business Process Management (IT-BPM) industry are able to enjoy the benefit of WFH during the pandemic through the issuance of PEZA Memorandum Circular (MC) No. 2020-11. Under this MC and related PEZA issuances, said RBEs can avail of WFH until 12 September 2021, but subject to an allowed 90% WFH threshold based on total annual revenue.
Last 02 August 2021, the Fiscal Incentives Review Board (FIRB) issued FIRB Resolution No. 19-2021 allowing PEZA IT enterprises to continue implementing the WFH arrangement for its employees, subject to 90% WFH threshold based, this time, on total workforce. The said issuance provides that the number of employees under WFH arrangement shall not exceed 90% of the total workforce of the RBE, which will then be reduced to 75% beginning 01 January 2022. However, since the State of Calamity due to COVID-19 was extended until 12 September 2022 through Presidential Proclamation No. 1218, the ceiling shall be maintained at 90% until 31 March 2022.
PEZA appealed to essentially reinstate the basis of the threshold of the WFH arrangement to total revenue instead of the total workforce and impose the penalty, in case of breach of the 90% threshold, only to the revenue attributable to the excess over the said threshold.
Issuance of FIRB Resolution No. 23-2021
Last 15 October 2021, the FIRB issued FIRB Resolution No. 23-2021 denying PEZA’s appeal. The said resolution states that the 90% threshold based on the total workforce of the RBEs shall remain in force, in line with the government’s economic strategy to gradually and safely open the economy. The term “total workforce” means the total employees that are directly or indirectly engaged in the registered project or activity of the RBE but excludes third party contractors rendering janitorial or security services and other similar services. The FIRB resolution further states that non-compliance with the conditions under FIRB Resolution No. 19-21 shall be meted with suspension of the income tax incentive applied on the revenue corresponding to the month/s of non-compliance.
Areas for Clarification
While FIRB’s decision on the matter is clear, i.e. the 90% WFH threshold shall be based on total workforce and the penalty for non-compliance is suspension of the income tax incentives, it would be best if there will be more guidance on (i) how the regulators intend to operationalize the shift from 90% WFH based on revenue until 12 September 2021 to 90% WFH based on total workforce from 13 September 2021, (ii) how the penalty provision of FIRB Resolution No. 23-2021 will be applied in taxable year 2021 and reflected in the tax return considering that the said resolution became effective on 13 September 2021; and (iii) the interpretation of the “revenue corresponding to the month/s of non-compliance” for purposes of computing the possible penalty in case of breach of the 90% WFH threshold.
At the close of the past year, tax return filings and other compliance requirements are also just around the corner. While FIRB’s efforts to further extend WFH is indeed praiseworthy, additional guidance from PEZA and the Bureau of Internal Revenue (BIR) on how to arrive at proper taxes due considering the updated WFH rules will assist affected IT-BPM RBEs plan and prepare for their tax return filing obligations.
John Paul G. Penales is a Supervisor from the Tax Group of KPMG R.G. Manabat & Co. (RGM&Co.), the Philippine member firm of KPMG International. The firm has been recognized in 2021 as a Tier 1 in Transfer Pricing Practice and in General Corporate Tax Practice by the International Tax Review.
This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity. The views and opinions expressed herein are those of the author and do not necessarily represent KPMG International or KPMG RGM&Co.
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