BIR Ruling [DA-344-99]

June 10, 1999 BIR RULING [DA-344-99] Atty. Manuel R. Sanchez No. 11 Imao Street Corinthian Gardens Quezon City S i r : This refers to your letter dated May 8, 1999 requesting in effect, for ruling as to whether or not you are obliged to withhold the corresponding tax on the alimony and support payments to your wife and child. You stated that you were divorced from your first wife in early 1970 in the United States; that at that time, you were a resident in New York while your wife and children remained in the Philippines; that since the divorce, you have been paying alimony and child support to your former wife; that the U.S. Internal Revenue Service claims, that under their tax laws, you are obliged to deduct from the alimony and support payments the corresponding withholding tax for remittance to their office; that it is your Position that under Philippine laws, support payments are not considered taxable income and any withholding tax deduction will constitute a diminution of the court ordered support payment to the prejudice of the wife and children; and that alimony is likewise an additional support payment hence, not taxable as income as well. In reply thereto, please be informed that Article 18(3) of the RP-US Tax Treaty provides that child support payments made by an individual who is a resident of one of the contracting states to an individual who is a resident of the other contracting state shall be exempt from tax in that other contracting state. The term "child support payments" means periodic payments for the support of a minor child made pursuant to a written separation agreement or a decree of divorce, separate maintenance, or compulsory support. (Art. 18(6), RP-US Tax Treaty) Thus, the child support payments made pursuant to a court order to your children who were minors and residing in the Philippines while you were resident of New York, U.S.A. is exempt from Philippine income tax. Alimony which is an allowance given to a woman for her support out of the income of her husband upon her legal separation or divorce from him or during a suit for the same is not considered as taxable income to the wife. Such being the case, both the alimony and child support given by you to your former wife and children not being considered as taxable income are not subject to the withholding tax at source. Enclosed, as requested, is copy of the RP-US Tax Treaty. Very truly yours, (SGD.) BEETHOVEN L. RUALO Commissioner of Internal Revenue