Non-Resident Alien Individuals Entitled to Personal Exemption by Reciprocity

June 11, 1968 BIR RULING NO. 006-68 1st Indorsement Returned to the Revenue Operations Head (Assessment), the papers relative to the income tax case of Messrs. Kenneth Pritchett and James Wadsworth for the year 1966. LLjur It is represented that both taxpayers are non-resident aliens; that taxpayers were here in the Philippines in 1966 for a definite tour of duty which Chicago Bridge (Phil), Inc.; that during the taxable year 1966, the taxpayers rendered personal service to Chicago Bridge (Phil.), Inc., for which they were paid salaries; and that the amounts received were reflected in their respective income tax returns for said taxable year. The principal issues raised for consideration is whether or not the aforementioned taxpayers may be considered non-resident aliens engaged in trade or business within the Philippines; and whether or not they are entitled to personal exemptions. The weight of authorities is to the effect that carrying on a trade or business involves "holding one's self out to others as engaged in the selling of goods or services" (Mertens, LFIT, Vol. 4, p. 310). The phrase "engaged in trade or business within the Philippines includes the performance of personal services within the Philippines." (Sec. 8, Rev. Reg. No. 2). Likewise, every person who works for compensation is engaged in the business of earning his pay. Being an executive Officer of a corporation is a trade or business (Mertens, Vol. 4. Chap. 25, pp. 21-22). Accordingly, having been temporary residents in the Philippines and having rendered personal services to Chicago Bridge (Phil.) Inc., corporation doing business in the Philippines, Messrs. Pritchett and Wadsworth are considered non-resident aliens engaged in trade or business in the Philippines in 1966. As such, they are subject to the Philippine income tax at the graduated rates prescribed by Section 21 of the Tax Code with respect to their entire net income from sources within the Philippines. Moreover, non-resident alien individuals are entitled to a personal exemption in an amount equal to the exemptions allowed by the income tax law in the country of which they are citizens or subject to citizens of the Philippines not residing in such country, but not to exceed the amount fixed as exemption for citizens or residents of the Philippines under section 23 of the Tax Code. Since the Income Tax Laws of the United States of which Messrs. Wadsworth and Pritchett are citizens allow a Filipino citizen who is not a resident of the United States but engaged in trade or business therein a personal exemption of $600, subject taxpayers, by reciprocity, are therefore entitled to a personal exemption in an amount not exceeding P1,800 each regardless of status and number of dependents. Be guided accordingly. LLphil (SGD.) MISAEL P. VERA Commissioner of Internal Revenue