Income Tax Syllabus Notes I

of 46
All materials on our website are shared by users. If you have any questions about copyright issues, please report us to resolve them. We are always happy to assist you.
Information Report
Category:

Articles & News Stories

Published:

Views: 6 | Pages: 46

Extension: PDF | Download: 0

Share
Description
income tax
Transcript
  1 | INCOME TAXATION REVIEW II. INCOME TAX    A. GENERAL PRINCIPLES ON INCOME TAXATION 1. General Situs Rules: Sec. 23 of the NIRC: 2. Specific Situs Rules: a.   Sec. 42 of the NIRC: Source of income rules in the Philippines INTERESTS   –  The source of an interest payment is the place of residence of the person obligated to make that payment ( residence-of-the-obligor/debtor rule)   it is income within the PH if the obligor resides therein; DIVIDENDS   –  General Rule: residence of the corporation paying the dividend. if a dividend is received from a domestic corporation; it is income within the Philippines Exception: when a foreign corporation derives 50% of its gross income from sources within the Philippines for a three-year period SERVICES   –  Income from services is sourced in the country where the services are performed.   it is income within the PH if the services are performed in the PH; RENTS    AND   ROYALTIES   –  Incomes from rents and royalties are sourced where the property is used or located.   it is income within the PH if rents and royalties are derived from property located in the PH; SALE   OF   REAL   PROPERTY    –  Income from sale of real property is sourced in the country where the property is located.   it is income within the PH if the property is located in the PH; SALE   OF   PERSONAL   PROPERTY    –  it depends: (1) Personal property produced, wholly or partly, by the taxpayer within the PH and sold without or produced, wholly or partly, by the taxpayer without and sold within the PH –  income shall be treated as derived A. Resident Citizen Taxable on all income derived from sources within and outside the Philippines E. Domestic Corporation B. Non-Resident Citizen Taxable only on income derived from sources within the Philippines C. Overseas Contract Worker D. Resident Alien D. Non-Resident Alien F. Foreign Corporation  2 | INCOME TAXATION REVIEW partly from sources within PH and partly from sources outside PH; (2) Purchase of personal property within and its sale without the PH or purchase of personal property without and its sale within the PH –  income shall be treated as derived entirely from sources within the country in which sold; and (3) Shares of stock in a domestic corporation –  gains from sale of the same shall be treated as derived entirely from sources within the PH regardless of where the said shares are sold. b. NDC vs CIR: Residence of Obligor who pays the interest determined the source of interest income. FACTS: The National Development Company (NDC) entered into contracts in Tokyo with several Japanese shipbuilding companies for the construction of 12 ocean-going vessels. The purchase price was to come from the proceeds of bonds issued by Cental Bank. Initial payments were made in cash and through irrevocable letters of credit. 14 promissory notes were signed for the balance by NDC and , as required by the shipbuilders, guaranteed by the Republic of The Phils. When the vessels were completed and delivered to the NDC in Tokyo, the latter remitted to the shipbuilders the amount of US$ 4,066,580.70 as interest on the balance of the purchase price . No tax was withheld. The Commissioner then held the NDC liable on such tax in the total sum of P5,115,234.74. Negotiations followed but failed. NDC went to CTA. BIR was sustained by CTA. BIR was sustained by CTA. Hence, this petition for certiorari. ISSUE: Is NDC liable for tax? RULING: Yes. The Japanese shipbuilders were liable to tax on the interest remitted to them under Section 37 of the Tax Code. Thus: SEC. 37. Income from sources within the Philippines. —   (a) Gross income from sources within the Philippines. —  The following items of gross income shall be treated as gross income from sources within the Philippines: (1) Interest. —   Interest derived from sources within the Philippines, and interest on bonds, notes, or other interest-bearing obligations of residents, corporate or otherwise; NDC is not the one taxed but the Japanese shipbuilders who were liable on the interest remitted to them under Section 37 of the Tax Code. The imposition of the deficiency taxes on NDC is a penalty for its failure to withhold the same from the Japanese shipbuilders. Such liability is imposed by Section 53c of the Tax Code. NDC was remiss in the discharge of its obligation as the withholding agent of the government and so should be liable for the omission. It is also incorrect to suggest that the Republic of the Philippines could not collect taxes on the interest remitted because of the undertaking signed by the Secretary of Finance in each of the promissory notes that. There is nothing in the PN guaranteed by the state exempting the interests from taxes. Petitioner has not established a clear waiver therein of the right to tax interests. Tax exemptions cannot be merely implied but must be categorically and unmistakably expressed. Any doubt concerning this question must be resolved in favor of the taxing power. c. CIR vs British Overseas Airways Corporation: Sale Of The Tickets Taxable As Income From Sources Within The Philippines. FACTS: BOAC is a British Government-owned corporation organized and existing under the laws of the UK. It is engaged in the international airline business but did not carry passengers or cargo to or from the Philippines, although during the period covered by the  3 | INCOME TAXATION REVIEW assessments, it maintained a general sales agent in the PH —  Wamer Barnes and Company, Ltd., and later Qantas Airways —  which was responsible for selling BOAC tickets covering passengers and cargoes. It is admitted that BOAC had no landing rights for traffic purposes in the Philippines, and was not granted a Certificate of public convenience, except for a nine-month period, partly in 1961 and partly in 1962, when it was granted a temporary landing permit. Petitioner assessed BOAC for deficiency income taxes covering the years 1959 to 1963. BOAC paid the assessment under protest.  CTA DECISION:  The Tax Court held that the proceeds of sales of BOAC passage tickets in the Philippines do not constitute BOAC income from Philippine sources since no service of carriage of passengers or freight was performed by BOAC within the Philippines and, therefore, said income is not subject to Philippine income tax. RESPONDENT’S MAIN ARGUMENT:  BOAC's service of transportation is performed outside the Philippines, the income derived is from sources without the Philippines and, therefore, not taxable under our income tax laws. ISSUES: Whether the revenue derived by BOAC from sales of tickets in the Philippines for air transportation, while having no landing rights here, constitute income of BOAC from Philippine sources, and, accordingly, taxable. RULING : YES. Sales of tickets in the Philippines is taxable . The source of an income is the property, activity or service that produced the income. For the source of income to be considered as coming from the Philippines, it is sufficient that the income is derived from activity within the Philippines. The absence of flight operations to and from the Philippines is not determinative of the source of income or the site of income taxation.   In BOAC's case, the sale of tickets in the Philippines is the activity that produces the income: 1.   The tickets exchanged hands and payments for fares were also made in Philippine currency. 2.   The site of the source of payments is the Philippines. 3.   The flow of wealth proceeded from, and occurred within, Philippine territory, enjoying the protection accorded by the Philippine government. 4.   In consideration of such protection, the flow of wealth should share the burden of supporting the government. The definition of gross income under section 32 of tax code is broad and comprehensive to include proceeds from sales of transport documents. d. CIR vs Juliane Baier-Nickel: NRA are subject to Philippine Income Tax on their income derived from sources within the PH FACTS:  Respondent Juliane Baier-Nickel, a non-resident German citizen, is the President of JUBANITEX, Inc., a domestic corporation engaged in manufacturing and marketing textile products. The General Manager, Marina Q. Guzman, is the commission agent. It was agreed that respondent will receive 10% sales commission on all sales actually concluded and collected through her efforts. In 1995, respondent received the 10% sales commission income from which JUBANITEX withheld the corresponding 10% withholding tax and remitted the same to the BIR.  4 | INCOME TAXATION REVIEW On April 14, 1998, respondent filed a claim to refund for the withheld tax remitted to the BIR alleging mistake on the part of JUBANITEX. Later, she filed a petition for review with the CTA contending that no action was taken by the BIR on her claim for refund. The CTA rendered a decision denying her claim holding that the commissions received by the respondent were actually her remuneration in the performance of her duties as President of JUBANITEX and not as a mere sales agent thereof. ISSUES:  whether or not respondent's sales commission income is taxable in the Philippines. RULING:  Yes, the sales commission income is taxable in the Philippines. The NIRC provides that non-resident aliens, whether or not engaged in trade or business, are subject to Philippine income taxation on their income received from all sources within the Philippines. The source of an income is the property, activity or service that produced the income. For the source of income to be considered as coming from the Philippines, it is sufficient that the income is derived from activity within the Philippines. In this case, Respondent’s sales commission is an income derived within the Philippines . B. INDIVIDUAL INCOME TAXATION  1. Resident Citizens vs Non-Resident Citizen  Resident    Citizen   –  a citizen of the PH who stays therein without the intention of transferring his physical existence abroad, whether to stay permanently or temporarily as overseas worker. Taxable on all income derived from worldwide sources. Non - Resident    Citizen   –  it means a citizen of the Philippines: 1.   Who establishes to the satisfaction of the Commissioner the fact of his physical presence abroad with intention to reside therein; 2.   Who leaves the PH during the taxable year to reside abroad either as an immigrant, or for an employment on a permanent basis; 3.   One who works and derives income from abroad and whose employment thereat requires him to be physically present abroad most of the time* during the taxable year; or 4.   Who has been previously considered as a NRC and who arrives in the PH at any time during the taxable year to reside permanently in the PH with respect to his income derived from sources abroad. ( Sec. 22 (E) NIRC  ) *to be physically present abroad most of the time during the taxable year, a contract worker must have been outside the PH for at least 183 days during such taxable year. ( RR No. 01-79, this applies to contract workers ) 2. Non-Resident Citizens vs Overseas Contract Workers a. Sec. 22 (E) of the NIRC ( see above definition of NRC  ) b. BIR Ruling No. 033-00 dated September 5, 2000: CIR held that for overseas contract workers, the time spent abroad is not material as all that is required is for the worker’s employment contract to pass through and be registered with the POEA. c. RR No. 1-2011 dated February 24, 2011: An OCW or OFW's income arising out of his overseas employment is exempt from Income Tax. However, if an OCW or OFW has income earnings from business activities or properties within the Philippines, such income earnings are subject to Philippine Income Tax.
We Need Your Support
Thank you for visiting our website and your interest in our free products and services. We are nonprofit website to share and download documents. To the running of this website, we need your help to support us.

Thanks to everyone for your continued support.

No, Thanks