TAKE-HOME TAX QUIZ:

1. Magandang Loob Charity Inc. hired the services of John Doe a

foreigner singer for a two-day concert at Limketkai Mall, Cagayan de
Oro City. The warbler was paid P250,000 for his services. The
charitable foundation use the net proceeds of P500,000 actually,
directly, and exclusively for charitable purposes.
Who are liable to pay income tax? Explain.

It shall be John Doe, the foreigner singer, who earned P250,000 during his trip
here in the Philippines.
Engaged in trade or business within the Philippines includes the
performance of the functions of a public office or the performance of personal
services within the Philippines. (Sec. 8, Rev. Regs. No. 2)
To engage in business is uniformly construed as signifying to follow the
employment or occupation which occupies the time, attention, and labor for the
purpose of a livelihood or profit.
A nonresident alien who shall come to the Philippines and stay there in an
aggregate period of more than one hundred eighty days during any calendar year
shall be deemed a nonresident alien doing business in the Philippines. (Sec. 25A)
The length of stay is the criterion. Hence, a non-resident alien shall not be
considered engaged in trade or business in the Philippines if he stays in the
Philippines for less than 180 days notwithstanding the fact that during such stay he
actually performs personal services, or engages in a commercial activity therein.
And the whole period of more than 180 days must cover a calendar year.
The entire gross income of non-resident aliens not engaged in trade or
business received from all sources within the Philippines is subject to income tax.
He must not be engaged in trade or business in the Philippines.
Exclusion from Gross Income an income can be exempted from taxes based on the
following reasons:

Exemption by the fundamental law of the land;

Exempted by the statute;
It does not come within the definition of income

2. Distinguish the tax treatment of a resident citizen doing business in

the Philippines and a non-resident alien not doing business in the
Philippines.
A. resident citizen doing business in the Philippines
Resident citizens are taxed on worldwide income

Sec. 23 (A) states A citizen of the Philippines residing therein is taxable on all
income derived from sources within and without the Philippines
B. non-resident alien not doing business in the Philippines.

Sec 25 (A) states There shall be levied, collected and paid for each taxable year
upon the entire income received from all sources within the Philippines by every
nonresident aline individual not engaged in trade or business in the Philippines as
interest, cash and/or property dividends, rents, salaries, wages, premiums,
annuities, compensation, remuneration, emoluments, or other fixed or determinable
annual or periodic or casual gains, profits, and income, and capital gains, a tax
equal to 25% of such income.
Capital gains relizard by a nonresident alien individual not engaged in trade or
business in the Philippines from the sale of shares of stock in any domestic
corporation and real property shall be subject to income tax prescribed under
Subsections and (D) of Section 24.
Non-resident aliens, whether or not engaged in trade or business, are subject to
Philippine income tax on their income received from all sources with the Philippines.
The underlying theory is that the consideration for taxation is protection of life and
property and that the income rightly to be levied upon to defray the burdens of the
Government is that income which is created by activities and property protected by
the Government or obtained by persons enjoying that protection. The important
factor, therefore, 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, of the place of payment, but the place where the services were actually
rendered

1. What are the requisites that prizes and awards will not be subjected
to income tax?
Prizes and Awards conditions to exempt from income tax:
I.

The award is primarily:

(1) religious;
(2) Charitable;
(3) Scientific;
(4) Educational;
(5) Artistic;
(6) Literary;
(7) Or civic achievement;
II. There was involuntary participation by the recipient
III. The award is unconditional meaning he is not required to render
substantial future service as a condition to receiving the prize or
award.