STEPHANIE LUZETTE M. MACAPAGAL
TAXATION LAW DIGESTS FOR CASES SUGGESTED BY EXCELLENT
subject to tax upon its total net income received in the preceding taxable year from all sources within the Philippines,according to Section 24(b)(2) of the same Code.2.
N the revenue of British Airways from ticket sales in the Philippines for air transportation constituteincome of British Airways subject to taxation in the Philippines, although they did not actually carry passengers and
or cargo to or from the Philippines within the stated period. YES. The absence of flight operations to and from the Philippines is not determinative of the source of income or thesite of income taxation. The test of taxability is the ³source,´ and the source of an income is that activity whichproduced the income. Even if the British Airways tickets sold covered the ³transport of passengers and cargo to andfrom foreign cities,´ it cannot alter the fact that income from the sale of tickets was derived from the Philippines. Thepassage documentations in these cases were sold in the Philippines and the revenue therefrom was derived from anactivity regularly pursued within the Philippines. The word ³source´ conveys one essential idea, that of origin, and theorigin of the income herein is the Philippines.
Although there is no specific criterion as to what constitutes ³doing´ or ³engaging in´ or ³transacting´ business asstated under Section 20(h) of the 1977 Tax Code, the terms imply a continuity of commercial dealings andarrangements, and contemplates, to that extent, the performance of acts or works or the exercise of some functionsnormally incident to, and in progressive prosecution of, commercial gain or for the purpose and object of the businessorganization.
Topic: When does the liability to hold tax at source on income payments accrue? Facts:
Filipinas Synthetic Fiber Corp., a domestic corporation, is protesting part of the deficiency withholding tax assessedupon it by the Commissioner of Internal Revenue which pertains to interest and compromise penalties for the allegedlate payment of withholding taxes due on interest loans, royalties, and guarantee fees paid by Filipinas SyntheticFiber Corp. to non-resident corporations.
Issue and Ruling:
hether the liability to withhold tax at source on income payments to non-resident foreign corporationsarises upon remittance of the amounts due to the foreign creditors or upon accrual thereof.The Tax Code is silent as to when the duty to withhold the taxes arise. Thus, to determine the same, an inquiry as tothe nature of the accrual method of accounting (which is the method used by the petitioner) must be made. Under theaccrual basis method, it is the right to receive income, and not the actual receipt, that determines when to include theamount in gross income. Therefore, the liability arises UPON REMITTANCE OF THE AMOUNTS, and not uponaccrual thereof.
Under the accrual basis method of accounting, income is reportable when all the events have occurred that fix thetaxpayer¶s right to receive the income, and the amount can be determined with reasonable certainty.Requisites of the accrual method of accounting:a.
That the right to receive the amount must be valid, unconditional and enforceable; b.
The amount must be reasonably susceptible of accurate estimate; andc.
There must be a reasonable expectation that the amount will be paid in due course.