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The
business-process outsourcing (BPO) industry is regarded
as one of the fastest-growing industries in the
Philippines. The demand for outsourcing services is
reaching new heights, with the call-center services,
finance and accounting, human resource and even legal
outsourcing taking up the biggest portions of the pie.
There
has also been an emerging shift from cost-effectiveness
(call centers) to skills quality and competence (finance
and accounting, etc.), which strengthens the
Philippines’ position as a global leader in the BPO
industry.
The
recent growth in the BPO industry has been characterized
not by traditional call centers but by more skilled and
technical outsourcing. Although call centers still form
the largest part of the BPO sector, the Philippines has
begun boosting its technically skilled talent pool,
including lawyers and its professionals in accounting
and finance. To achieve and sustain this rapid growth,
the Philippine government has taken concrete steps in
ensuring that the industry is protected by airtight tax
rules.
On April
8, 2008, the Bureau of Internal Revenue (BIR) issued BIR
Ruling DA-219-2008 to clarify the applicable
withholding-tax rate on various services offered by BPOs.
Generally, for this ruling to apply, the BPO must be
characterized by the following corporate background:
a. It
performs activities which are not directly related to
the business of its clients;
b. Its
assigned staff are selected, hired and terminated by the
BPO and not by their clients;
c.
Salaries and other benefits are also drawn directly from
the BPO and not from its clients; and
d. The
BPO carries on an independent business and undertakes
the performance of its contract according to its own
manner and method, free from the control and supervision
of its clients.
The
outsourcing activities covered by the ruling are: (a)
bookkeeping; (b) internal audit; (c) payroll processing;
(d) HR benefit administration; (e) data processing; and
(f) staff outsourcing.
The BIR
ruled that bookkeeping services are expressly subject to
10- percent or 15-percent corporate withholding tax
(CWT) on professionals.
On its
internal audit services, BPOs provide advice or guidance
to clients to ensure that their processes comply with
established procedures relating to accounting-related
transactions. For such services, a BPO’s internal audit
service may be considered as management and technical
consultancy services which are likewise subject to a
10-percent or 15-percent CWT on professionals; 15
percent if the gross income for the current year exceeds
P720,000 and 10 percent if otherwise.
On the
other hand, there is a different tax treatment for
payroll processing, HR benefit administration, data
processing and staff outsourcing services. They qualify
under the category of contractual services. Thus, a BPO
that provides these kinds of services may be classified
under the category of a service contractor. Income
payments for such services are subject to the 2-percent
CWT.
With the
accelerating growth of the global offshore outsourcing
market, the foregoing BIR ruling on BPOs is timely and
instructive. Investors will no longer be in a quandary
as to how they should be classified for tax purposes.
This would then bring better business outlooks and
prevent unnecessary tax assessments in the future.
With
this, the government and the investors may just focus on
toiling the rich potential of the Philippine BPO
industry.
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The author is an associate of BDB Law. If you have any
comments or questions concerning the article, you can
e-mail the author at irwin.c.nidea@bdblaw.com.ph or call
856-2952. |
