BIR Ruling [DA-122-06]

March 17, 2006 BIR RULING [DA-122-06] Section 23; BIR Ruling No. DA-095-2005 Mr. Leo P. Patubo 3314 Van Eeden CT Stockton, California 95206-5551 U.S.A. S i r : This refers to your letter dated January 6, 2006 requesting for a ruling on whether or not your retirement benefits in the United States of America (USA) is subject to Philippine income tax. As represented, you are sixty-nine (69) years old and a resident citizen of the USA married to an American. You left the Philippines for the USA on December 2, 1962. The Philippine Bureau of Immigration sent you a copy of Memorandum Circular Aff. 05-002, The Revised Rules Governing R.A. No. 9225 re: Philippine Dual Citizenship and Administrative Order No. 91, Series of 2004. You are very interested and have decided to reacquire your Philippine citizenship. You have no sources of income in the Philippines. In reply, please be informed that Section 23(A) of the Tax Code of 1997 provides, viz: "SEC. 23. General Principles of Income Taxation in the Philippines . Except as otherwise provided in this Code: (A) A citizen of the Philippines residing therein is taxable on all income derived from sources within and without the Philippines; (B) A nonresident citizen is taxable only on income derived from sources within the Philippines;" TDcHCa Section 23 of the Philippine Tax Code espouses the source rule of income taxation, except for resident citizens and domestic corporations that remain taxable on their worldwide income. In line with the source rule, nonresident citizens and resident aliens are now taxed only on their Philippine-sourced income. Under this provision, resident citizens are subject to Philippine tax on their income derived within and without the Philippines, hence, income earned in the United States is subject to income tax in the Philippines. On the other hand, nonresident citizens such as your self are subject to Philippine tax only on their income within the Philippines. Under the inherent limitation of territoriality of taxation, a state can only tax properties, activities or services within its territory. If the flow of wealth proceeded from and occurred within U.S. territory enjoying the protection accorded by the U.S. Government or obtained by a person enjoying that protection, the situs of the source of income is the United States of America. In consideration of such protection, the flow of wealth should share the burden of the supporting government which is the U.S. Government. Since income was derived without the Philippines, the situs of the income is without the Philippines; hence, the Philippine Government has no jurisdiction over income derived outside the Philippines by nonresident citizens not engaged in trade or business within the Philippines. In view of the foregoing and since you will be a nonresident citizen, you will not be required to pay Philippine tax for income (i.e., retirement benefits) earned in the United States. 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.) JAMES H. ROLDAN Assistant Commissioner Legal Service