BIR Ruling [DA-314-04]

June 8, 2004 BIR RULING [DA-314-04] Sec. 20 (e) (1) & (2) BIR Ruling No. 5-95 Mrs. Rosemarie O. Serrano #8 Maharlika Street Plainview Subdivision Mandaluyong City M a d a m : This refers to your letter dated April 9, 1997 indorsed to this Office requesting that your husband, Jaime S. Serrano be considered as non-resident taxpayer during his two-year study leave in the Philippines and for a refund of the tax the latter paid representing the difference between a resident citizen and a non-resident citizen taxpayer. It is represented that Mr. Serrano is a seaman and overseas contract worker employed by ESSO International Shipping (Bahamas) Co., Ltd. who was given a scholarship grant to finish his course in Associate in Marine Engineering at the NAMEI Polytechnic Institute in Mandaluyong City; that during his two-year study leave from year 1991 to 1993, he was provided a monthly allowance equivalent to his basic wage in Philippine currency in the amount of US$1,965.00 computed at the prevailing exchange rate; that withholding tax from his compensation in the amount of then US$35 per month became P14,000 to P22,000 monthly, depending on the current dollar exchange rate; and that from a non-resident taxpayer he was categorized as a resident taxpayer which resulted to a higher amount of withholding tax as shown in and computed in accordance with the schedule of withholding tax deduction under the withholding tax certificate (W-2). In reply, please be informed that the Tax Code of 1977, as amended, is the law applicable at the time. For income tax purposes, a "resident citizen" is one who establishes to the satisfaction of the Commissioner the fact of his physical presence in the Philippines with the intention to reside therein. On the other hand, a citizen leaving the Philippines during the taxable year to reside abroad, either as an immigrant or for employment on a more or less permanent basis and contract workers whose contract of employment are renewed from time to time within or during the taxable year under such circumstances as to require them to be physically present abroad most of the time during the taxable year, shall be considered as a non-resident for such taxable year with respect to the income he derived from foreign sources from the date he actually departed from the Philippines (Section 20(e)(1) and (2) of the Tax Code of 1977, as amended). TcDaSI Moreover, under the old Tax Code, citizens, whether residing in the Philippines or abroad, are taxable at the graduated rates on their income from sources within and without the Philippines. The mere fact of Philippine citizenship is sufficient to support the power of Government to subject a person to income tax even though neither such person nor any of his property has a situs within the Philippines. The basic reason for the taxation of citizens residing abroad on their income from sources without the Philippines is that the Government affords them due protection and has personal jurisdiction on them ( Cook vs. Tait, 265, U.S. 47, 68 L. Ed. 895, 44, Law of Federal Income Taxation, Mertens, Vol I, p. 149 and Vol. VIII, p. 243; U.S. vs. Bennett, 232 U.S. 299, Philippine Political Law, Cinco, p. 473 ). Since your husband was physically present in the Philippines during his stay here on study leave, he became a resident citizen again (BIR Ruling No. 005-95 dated January 11, 1995), Such being the case, the allowance he received during his two-year study leave in the Philippines is subject to Philippine income tax. Consequently, it is also subject to withholding tax under Section 72 of the same Code. Very truly yours, Commissioner of Internal Revenue By: (SGD.) JOSE MARIO C. BUAG Deputy Commissioner Legal & Inspection Group