Solomonic action on ecozone BPOs

The decision of the Fiscal Incentives Review Board (FIRB) on work-from-home (WFH) arrangements for business process outsourcing (BPO) firms located in ecozones was Solomonic.

Recall that as the Duterte administration was drawing to a close, its economic managers ordered those BPOs to terminate the WFH scheme they adopted at the height of the pandemic and to resume physical operation in the ecozones under pain of losing their tax breaks.

The order assumed that requiring the BPOs to resume on-site operation would help jump-start economic activities around their worksites and contribute to the normalization of the economy.

The objections of the ecozone administrator and the BPOs to that order were peremptorily (if not arrogantly) ignored.

Never mind if the compulsory relocation may result in the resignation of many BPO employees, or some BPOs may opt to operate underground to avoid regulatory supervision, or BPOs that find that order unreasonable may decide to move their operation elsewhere.

No dice. The order had to be obeyed without any complaints. It was as if it was issued along the lines of the local saying “ang utos ng hari hindi mababali (the king’s order cannot be disobeyed).”

Fortunately, the present leadership of the FIRB came out with a cost-effective and financially sound solution to the issue: transfer the registration of the BPOs from the ecozones to the Board of Investments (BOI).

The change in registration would remove them from the coverage of the law and tax regulation that require the physical location of a percentage of their staff in ecozones as a condition for the enjoyment of their tax privileges.

Note that the BOI, which was created in 1967 or long before ecozones were established, is authorized to grant tax incentives to local and foreign businesses operating in the Philippines.

Putting the BPOs under the BOI’s umbrella and, in the process, make them eligible to apply for and avail of certain tax incentives it has the power to grant was a deft move.

That arrangement satisfactorily addresses the concerns earlier raised about the possible adverse effects of requiring the BPOs to return to physical on-site operation in the ecozones.

Under different circumstances, the standard action in addressing the relocation issue would be to ask Congress or the Bureau of Internal Revenue to amend the law and regulation that require the BPOs to maintain actual presence in the ecozones to be able to continue to enjoy their tax incentives.

The FIRB wisely skipped that approach because it would have been time-consuming and, worse, there is no assurance the desired amendments could be promptly made.

With the government strapped for cash and thousands of Filipinos unemployed, it was essential that the BPOs continue to operate in the country.

The FIRB’s move is a mirror of the strategy that lawyers and financial advisers take when dealing with transactions that have no precedent or are novel.

After the desired result is agreed on, the manner by which it shall be achieved is often guided by the mantra “if something is not prohibited, directly or indirectly, by law, then it is legally permissible.”

In effect, that means looking for gray areas (or loopholes) in the applicable laws or regulations that can be invoked to justify the intended course of action.

Note that there is nothing in the tax laws or regulations that bar BPOs from transferring registration from one investment promotion agency to another for holiday purposes, or otherwise engage in “tax benefit shopping.”

Neither has the power of the BOI to give tax incentives to local and foreign companies been reduced or curtailed.

What’s more, the FIRB has plenary authority to take such actions it believes are necessary to achieve its objective of promoting investments in the country and the case of the BPOs in ecozones clearly comes within that mandate.

The FIRB has set the example on thinking out of the box or being creative in addressing economic or financial issues. Hopefully, other government offices that have similar or related functions would have the same mindset. INQ

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