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 recipientIII. The award is unconditional meaning he is not required to render substantial future

service as a condition to receiving the prize or award.