DOJ Legal Opinion No. 02-24: Effect of WFH Arrangements to the Tax Incentives of Registered Business Enterprises

Section 309 of the Corporate Recovery and Tax Incentives for Enterprises Act (hereinafter referred to as “CREATE”) requires registered projects and activities under an Investment Promotion Agency (“IPA”) administering an economic zone (“ecozone”) or freeport to be exclusively conducted or operated within the geographical boundaries of the zone or freeport being administered by the IPA in which the projects or activities are registered. Any project or activity conducted or performed outside the ecozone or freeport shall not be entitled to the incentives under CREATE, unless such project or activity is conducted or operated under another IPA. IPAs are government entities in charge of promoting investments, administering tax and non-tax incentives, and/or overseeing the operations of economic zones and freeports, such as the Board of Investments (“BOI“), the Philippine Economic Zone Authority, and the Subic Bay Metropolitan Authority. 

Following the enactment of CREATE, multiple government agencies have made conflicting interpretations of the implication of Section 309 to the tax incentives of registered business enterprises (“RBE”) employing work from home (“WFH”) arrangement. This prompted the Department of Justice (“DOJ”) to issue DOJ Legal Opinion 02-24. 

According to the DOJ, Section 309 of CREATE must be given its literal meaning without attempted interpretation since it is clear and free from ambiguity. Hence, the DOJ affirmed that a RBE in an ecozone or freeport must continue to conduct their activities within the geographical boundaries of the zone if they wish to continue availing tax incentives under CREATE. Likewise, RBEs are not prohibited from adopting a WFH arrangement, but if they do decide to adopt such arrangement, then they will no longer be eligible to avail themselves of the tax incentives.

It is noteworthy, however, that Section 309 expressly limits the said requirement to IPAs administering ecozones or freeports. Consequently, the locational prohibition does not apply to enterprises registered with the BOI as it does not administer an ecozone or freeport.

The DOJ also discussed the resolutions issued by the Fiscal Incentives Review Board (“FIRB”) allowing RBEs in the Information Technology and Business Process Management or IT-BPM sector to maintain WFH arrangement without losing their tax incentives. The DOJ explained that the resolutions were not inconsistent with Section 309, as Rule 23 of the Implementing Rules and Regulations of CREATE provides that the FIRB, an entity empowered under CREATE to exercise policy making and oversight functions on the administration and grant of tax incentives, may approve temporary measures to support RBEs’ recovery from exceptional circumstances (e.g., pandemic, war, major disasters, and regional financial crisis). Such temporary measures shall only be effective from the time of declaration of such exceptional circumstance by the President, the relevant government agency, or the World Health Organization until the same has ended. In the case of the resolutions, they were issued as a temporary measure in light of the declaration of the State of Public Health Emergency throughout the country. Hence, they ceased to be effective when the State of Public Health Emergency was lifted by Proclamation No. 297 dated 21 July 2023.