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100% WFH for the IT-BPO industry: The best is yet to come

By   /  September 28, 2022  /  No Comments

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Since the Fiscal Incentives Review Board (FIRB) issued its resolution requiring one hundred percent (100%) onsite work for the Information Technology-Business Process Outsourcing (IT-BPO) industry effective April 1, significant developments and discussions have taken place left and right. This is understandable considering the industry’s contributions to our economy — policymakers take care not to make bad decisions on matters concerning the sector.

First, the Philippine Economic Zone Authority (PEZA) turned “no” into “on” by issuing PEZA Board Resolution 22-052, allowing up to 30% of the workforce of IT-BPO Registered Business Enterprises (IT-BPO RBEs) to continue working from home (WFH) beginning April 1, provided a prior Letter of Authority (LoA) is secured and the latter’s conditions are satisfied.

The LoAs issued were effective only until Sept. 12, which was then the last day of the state of calamity before it was extended to Dec. 31 via Proclamation 57.

As mentioned above, the LoA sets forth conditions. Specifically, IT-BPO RBEs adopting the 30% WFH scheme are required to submit the following:

1. PEZA Farm-out Form (Form 8106) for all IT equipment taken out of the premises;

2. Surety bond for all IT equipment taken out for WFH purposes to cover taxes and duties that may be payable if they are not returned to the IT zone after the termination of the WFH arrangement;

3. Certified list with complete details of all IT equipment brought out of the site for WFH use;

4. Total number of employees and the number of employees working from home;

5. Notarized Undertaking to adhere to the IATF, labor, data protection and PEZA rules while adopting the WFH arrangement.

As proof of compliance, every fifth day of the following month, IT-BPO RBEs must submit online the WFH monitoring form to PEZA’s Information Technology Sector – Report Compliance System.

Pending the FIRB’s confirmation of the PEZA-issued LoAs, the BIR had tried to run after potential violators by issuing mission orders authorizing revenue officers to check compliance with 100% onsite requirement, taking the view that allowing IT-BPO RBEs to engage in their registered activity outside the economic zone with continued incentives lacks legal basis. For the same reason, the Bureau of Customs required payment of taxes and duties upon withdrawal of IT equipment for use in WFH.

To resolve this standoff, the FIRB issued memorandum 17-2022 which confirmed the PEZA resolution allowing WFH up to 30% until Sept. 12. The FIRB recognized the authority of Investment Promotion Agencies like PEZA to adopt temporary measures in the event of exceptional circumstances like the pandemic and the contribution of the IT-BPO sector to employment generation and job preservation.

Following the FIRB’s confirmation, the BIR issued Revenue Memorandum Circular No. 102-2022 to implement the FIRB memorandum.

In anticipation of their expiration, PEZA requested the FIRB to extend the validity of the WFH LoAs. On Sept. 9, the FIRB extended the WFH policy, not for just one day, but indefinitely until such time that a conclusive resolution is reached on PEZA’s request for extension. The extension was recently announced to be effective until the end of this year to coincide with the extended end of the state of calamity, but the formal memorandum on this has yet to be issued.

In any case, this extension has certainly given IT-BPO RBEs a brief reprieve from worrying about how to structure their operations going forward. Considering the uncertain nature of the WFH setup, the industry is wary of the danger of losing their incentives. Revenues in excess of the 30% threshold are subject to regular corporate income tax and local business tax. Because of this, most IT BPO RBEs have considered the possibility of canceling their registration with PEZA, as the demand for WFH from their clients and employees continues to grow.

The good news is, the FIRB recently announced that IT-BPO RBEs will be allowed 100% WFH while retaining their incentives, by allowing their registrations to be transferred from PEZA to the Board of Investments (BoI). Unlike PEZA RBEs which are required to operate within a PEZA-registered IT building/facility, BoI registrants are not subject to such requirements. This is a welcome development as previously, the policy was to disallow the direct transfer of registration from PEZA to BoI without the loss of incentives.

The IT-BPO industry is now eagerly anticipating the release of the FIRB memorandum to officially document the recent announcement, as well as to lay down the guidelines for the transfer from PEZA to BoI. Once issued, the guidelines are expected to provide more detailed information on the administrative procedures and requirements for the transfer, the transition from PEZA to BoI once the transfer application is approved, availment of incentives, among others.

What was once a temporary measure brought on by a contagious disease has since reinvented our way of working and doing business not just for the IT BPO industry.

As life goes on with us living through the pandemic, it seems WFH is most likely here to stay.

The views or opinions expressed in this article are solely those of the author and do not necessarily represent those of Isla Lipana & Co. The content is for general information purposes only, and should not be used as a substitute for specific advice.

 

Aimee Rose Dela Cruz is a director at the Tax Services department of Isla Lipana & Co., a Philippine member firm of the PwC network.

+63 (2) 845-2728

aimee.rose.d.dela.cruz@pwc.com

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  • Published: 2 months ago on September 28, 2022
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  • Last Modified: September 28, 2022 @ 12:23 pm
  • Filed Under: Economy, Editor's Pick

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