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Situs of Taxation

The test of taxability is the source, and the source of an income is that property, activity or service
which produced the income. (CIR vs British Overseas Airways Corp)

Income from sources within the Philippines


1. Interest derived from sources within the Philippines and interest on bonds, notes or other
interest-bearing obligations of residents, corporate or otherwise.

2. Dividends received from:


a. Domestic Corporation
b. Foreign Corporation, provided that at least 50% of its gross income for the 3-year period
ending with the close of its taxable year preceding the declaration of such dividends was
derived from sources within the Philippines

3. Compensation for labor or personal service performed in the Philippines

Note: The important factor which determines the source of income of personal services is not
the residence of the payor, or the place where the contract for service is entered into,
or the place of payment, but the place where the services were actually rendered.

4. Rentals and royalties from property located in the Philippines or from any interest in such
property

5. Gains, profits and income from the sale of real property located in the Philippines

6. Gains, profits and income from the sale of personal property, subject to the following rules:

a. Income is treated as derived ENTIRELY from sources within the country where the property is
SOLD if:
i. Purchased within and sold outside the Philippines (Not taxable in the PH)
ii. Purchased outside and sold within the Philippines (Taxable in the PH)

Exception: Gain from the sale of shares of stock issued by a domestic corporation is treated
as DERIVED ENTIRELY FROM SOURCES WITHIN the Philippines regardless of the place where
the shares are sold

PURCHASE SALE TAXABILITY OF INCOME


within within Entirely in PH
within without Entirely where sold
without within Entirely in PH
without without Entirely where sold
b. Income is treated as PARTLY FROM SOURCES WITHIN and PARTLY FROM SOURCES WITHOUT
the Philippines if:
i. Produced, in whole or in part, within and sold outside the Philippines
ii. Produced, in whole or in part, outside and sold within the Philippines

PRODUCTION SALE TAXABILITY OF INCOME


within within Taxed entirely in PH
within without Partly in PH, partly without
without within Partly in PH, partly without
without without Not taxable in PH (taxable where produced)

Income from sources without the Philippines


1. Interests other than those derived from sources within the Philippines
e.g. interest earned from deposits on banks located outside the Philippines, interest in loans
where the debtor is not a resident of the Philippines

2. Dividends other than those derived from sources within the Philippines
e.g. dividends received from a foreign corporation which derives less than 50% of its gross
income from sources within the Philippines

3. Compensation for labor or personal services performed outside the Philippines

4. Rentals or royalties from property located outside the Philippines, or royalties for the use of or
for the privilege of using outside the Philippines patents, copyrights, secret processes and
formulas, goodwill, trademarks, trade brands, franchises and other like properties

5. Gains, profits and income from the sale of real property located outside the Philippines

• Income of Seamen
The situs of the income of seamen is not determined based on the citizenship of the vessel in
which they are on board. Income is considered earned in the place where the service was
actually rendered or where the vessel is docked for the purpose of rendering services.

In case of income of Filipino Seamen working on foreign vessels that touch Philippine ports to
load and unload cargoes, their services are considered rendered partly within and partly
without the Philippines.

• Foreign Airline Company Selling Tickets


Any foreign air carrier not certificated by the Civil Aeronautics Board, but who maintains offices
or who has designated or appointed agents or employees in the Philippines, who sells or offers for
sale any air transportation in behalf of said foreign air carrier is considered a resident foreign
corporation doing, transacting or engaging business in the Philippines. Therefore, income derived
from sources within the Philippines are taxable in the Philippines.
Factors to consider in determining the source
TYPE OF INCOME FACTORS TO CONSIDER

Salaries, wages and other compensation Where services are performed

Income from service business Where services are performed

Sale of personal property (purchased) Where it is sold

Sale of personal property (produced) Where produced, where sold

Interest Residence of the debtor


Whether distributed by a domestic or foreign
Dividends
corporation
Rents Location of property
Royalties (natural resources) Location of property

Royalties (patents, copyrights, etc) Where the property is used

Sale of real property Location of real property


Whether issued by a domestic or foreign
Sale of stocks
corporation
Sale of natural resources Location of property