2.

3.
 4.

EC. 21. Sources of Revenue. - The following taxes, fees and charges are deemed to be national
internal revenue taxes: (a) Income tax; (b) Estate and donor's taxes; (c) Value-added tax; (d) Other
percentage taxes; (e) Excise taxes; (f) Documentary stamp taxes; and (g) Such other taxes as are or
hereafter may be imposed and collected by the Bureau of Internal Revenue.

Patrick is a successful businessman in the United States and he is a sole proprietor of a supermarket
which has a gross sales of $10 million and an annual income of $3 million. He went to the
Philippines on a visit and, in a party, he saw Atty. Agaton who boasts of being a tax expert. Patrick
asks Atty. Agaton: if he (Patrick) decides to reacquire his Philippine citizenship under RA 9225,
establish residence in this country, and open a supermarket in Makati City, will the BIR tax him on
the income he earns from his U.S. business? If you were Atty. Agaton, what advice will you give
Patrick? (5%) (2016 BAR) SUGGESTED ANSWER: I will advise Patrick that once he re-acquires
his Philippine citizenship and establishes his residence in this country, his income tax classification
would then be a 'resident citizen'. A resident citizen is taxable on all his - income, whether derived
within or without the Philippines; accordingly, the income he earns from his business abroad will
now be subject to the Philippine income tax (Sec. 23, NIRC). ALTERNATIVE ANSWER: if Patrick
becomes a dual citizen under RA 9225 in our country, he shall be allowed to acquire real properties
and engage himself in business here just like an ordinary Filipino without renouncing his foreign
citizenship. In addition, his income abroad will not be taxed here. These are among the incentives we
have extended to former Filipinos under the Dual Citizenship Law so that they will be encouraged to
come home and invest their money in our country. i. Non-resident citizens b. Taxation on
compensation income i. Inclusions a. Monetary compensation 1. Regular salary/wage 2. Separation
pay/retirement benefit not otherwise exempt 3. Bonuses, 13th month pay, and other benefits not
exempt 4. Director’s fees b. Non-monetary compensation 1. Fringe benefit not subject to tax ii.
Exclusions a. Fringe benefit subject to tax b. De minimis benefits

Mr. A, a citizen and resident of the Philippines, is a professional boxer. In a professional boxing
match held in 2013, he won prize money in United States (US) dollars equivalent to P300,000,000. a)
Is the prize money paid to and received by Mr. A in the US taxable in the Philippines? Why? b) May
Mr. A's prize money qualify as an exclusion from his gross income? Why? c) The US already
imposed and withheld income taxes from Mr. A's prize money. How may Mr. A use or apply the
income taxes he paid on his prize money to the US when he computes his income tax liability in the
Philippines for 2013? (2015 Bar Question) SUGGESTED ANSWER: a. Yes. Under the Tax Code,
the income within and without of a resident citizen is taxable. Since Mr. A is a resident Filipino
citizen, his income worldwide is taxable in the Philippines. b. No. Under the law, all prizes and
awards granted to athletes in local and international sports competitions whether held in the
Philippines or abroad and sanctioned by their national sports association are excluded from gross
income. However, in this case, there is no showing that the boxing match was sanctioned by the
Philippine National Sports Commission. Therefore, the prize money is not excluded. c. Mr. A may
avail of tax credit against his tax liability in the Philippines for taxes paid in foreign countries. He has
to signify in his income tax return his desire to avail the deduction. 6. Under special laws a. Personal
Equity and Retirement Account g. Deductions from gross income 1. General rules a. Deductions
must be paid or incurred in connection with the taxpayer’s trade, business or profession

Ms. C, a resident citizen, bought ready-to-wear goods from Ms. B, a nonresident citizen. a) If the
goods were produced from Ms. B's factory in the Philippines, is Ms. B's income from the sale to Ms.
C taxable in the Philippines? Explain. b) If Ms. B is an alien individual and the goods were produced
in her factory in China, is Ms. B's income from the sale of the goods to Ms. C taxable in the
Philippines? Explain. (2015 Bar Question) SUGGESTED ANSWER: a. Yes, the income of Ms. B
from the sale of ready-to-wear goods to Ms. C is taxable. A nonresident citizen is taxable only on
income derived from sources within the Philippines. In line with the source rule of income taxation,
since the goods are produced and sold within the Philippines, Ms. B’s Philippine-sourced income is
taxable in the Philippines. b. Yes, but only a proportionate part of the income. Gains, profits and
income from the sale of personal property produced by the taxpayer without and sold within the
Philippines, shall be treated as derived partly from sources within and partly without the Philippines.
8. Shares of stock of domestic corporation f. Exclusions from gross income 1. Rationale for the
exclusions 2. Taxpayers who may avail of the exclusions 3. Exclusions distinguished from
deductions and tax credit 4. Under the Constitution a. Income derived by the government or its
political subdivisions from the exercise of any essential governmental function 5. Under the Tax
Code a. Proceeds of life insurance policies b. Return of premium paid c. Amounts received under life
insurance, endowment or annuity contracts
Triple Star, a domestic corporation, entered into a Management Service Contract with Single Star, a
non-resident foreign corporation with no property in the Philippines. Under the contract, Single Star
shall provide managerial services for Triple Star’s Hongkong branch. All said services shall be
performed in Hongkong. Is the compensation for the services of Single Star taxable as income from
sources within the Philippines? Explain. (2014 Bar Question) SUGGESTED ANSWER: No.
Pursuant to the case of Commissioner of Internal Revenue v. Baier-Nickel (G.R. No. 153793, August
29, 2006), the factor which determines the source of income for personal services is the place where
the services were actually rendered. Since Single Star, a non-resident foreign corporation, will
perform all the managerial services for Triple Star’s branch in Hong Kong, all compensation income
arising from the performance of such services will be considered income from sources outside the
Philippines, and therefore not subject to Philippine income tax. 3. Income partly within and partly
without the Philippines c. Situs of property taxes 1. Taxes on real property 2. Taxes on personal
property d. Situs of excise tax 1. Estate tax 2. Donor’s tax e. Situs of business tax 1. Sale of real
property 2. Sale of personal property 3. Value-Added Tax (VAT) d. International comity