BIR Ruling [DA-081-06]

March 6, 2006 BIR RULING [DA-081-06] DA-364-98; Sec 23 (D) Diokno and Diokno Law Office 4298-C Emilia Cor. Bautista Sts. Makati City Attention: Atty . Roberto C . Diokno Gentlemen : This refers to your letter dated October 28, 2005, requesting for confirmation from this Office that Mr . Matthias Wagner is exempt from the payment of taxes to the government on his income earned from sources outside the Philippines. It is represented that Mr. Matthias Wagner, a German national, is an employee of KRONES Corporation, a corporation duly organized under the laws of the Federal Republic of Germany; that KRONES is not licensed to do business in the Philippines and does not render any service, nor does it have a. permanent establishment in the Philippines; and that it only sold machines/equipment to a Philippine company. It is further represented that KRONES sent Mr. Wagner to the country to supervise and program how to run the machine/equipment supplied to the abovementioned Philippine company; that he was not paid compensation for his services by that company; and that he stayed in the Philippines intermittently for less than four (4) months in 2004. In reply, please be informed that Section 23 (D) of the Tax Code of 1997 provides that: "Sec 23. General Principles of Income Taxation in the Philippines Except when otherwise provided in this Code: xxx xxx xxx (D) An alien individual, whether a resident or not of the Philippines, is taxable only on income derived from sources within the Philippines;" Based on the above-mentioned provision, it is clear that alien individuals, whether residents or not of the Philippines, are subject to Philippine income tax only on taxable income derived from all sources within the Philippines. In other words, income derived by aliens from sources without the Philippines shall not be subject to Philippine income tax. Furthermore, this Office held in BIR Ruling No. DA-364-98 that a nonresident alien not deriving income from sources within the Philippines and whose stay herein does not exceed 180 days in a calendar year, is not required to file an income tax return and to pay Philippine income tax. Since Mr. Wagner was not paid for his work by the Philippine company and that he stayed for less than 180 days, he is deemed to have met both conditions necessary to avail of income tax exemption under this ruling. Accordingly, this Office confirms your opinion that Mr. Wagner's income is not subject to Philippine income tax and he is not required to file an income tax return for said income. 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 null and void. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JAMES H. ROLDAN Assistant Commissioner Legal Service