BIR Ruling [DA-079-04]

February 23, 2004 BIR RULING [DA-079-04] Sections 81 & 82; BIR Ruling No. 080-97 Department of Trade and Industry Trade and Industry Building 361 Sen. Gil J. Puyat Avenue Makati City Attention: Ms. Mila P. Gabriel Caretaker Financial Management Service Gentlemen : This refers to your letter dated February 26, 2001 requesting on behalf of Jinny Beltran for waiver of the 1% withholding tax on compensation of local hire. It is represented that Jinny L. Beltran is a Philippine Trade and Investment Center (PTIC) Madrid's local hire; that she has established her legal resident status in Spain and like the rest of the local hires in the embassy, files and/or pays her income taxes in Madrid; and that she receives her salaries from the government of the Philippines via Department of Trade and Industry (DTI)-Land Bank account monthly remittance to PTIC's account in Madrid. In reply, please be informed that the source of income is the property, activity of service that produced the income (8 Mertens, Law of Federal Income Taxation, Section 45.27 cited in Howden & Co., Ltd. vs. Collector of Internal Revenue, 13 SCRA 601). For the source of income to be considered as coming from the Philippines, it is sufficient that the income is derived from service within the Philippines. In Jinny L. Beltran's case, the service was rendered within the Philippine embassy and payments for her services were paid for by the Philippine government via the DTI-Land Bank account in the Philippines which in turn remitted the said payments to PTIC's account in Madrid. The situs of the source or origin of payments/income is the Philippines. Since the Philippine embassy is an extension of the territorial jurisdiction of the Philippines, the flow of wealth proceeded from and occurred, within Philippine territory enjoying the protection accorded by the Philippine government or obtained by a person enjoying that protection. In consideration of such protection, the flow of wealth should share the burden of the supporting government. IaDcTC In other words, compensation for labor or personal services performed within the Philippine embassy is considered as income from within the Philippines. Such being the case, that embassy is subject to the requirements of the withholding tax provisions with respect to the compensation received by Jinny L. Beltran. Since it is DTI-Land Bank which has the control, custody, disposal and payment of the compensation of Jinny L. Beltran, it, in place of the embassy, shall deduct and withhold the 1% tax from her salaries or wages and pay the same to the BIR, pursuant to Sections 81 and 82 of the 1997 Tax Code. Accordingly, your request that she be exempt from withholding tax on compensation is hereby denied for lack of legal basis. This ruling is being issued on the basis of the foregoing facts as represented. However, if upon investigation, it will be disclosed that the facts are different, then this ruling shall be considered as null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group