ITAD Ruling No. 093-04

August 31, 2004 ITAD RULING NO. 093-04 Articles 4 & 18, Philippines-Netherlands tax treaty Secs. 23 and 51, Tax Code of 1997 BIR Ruling No. ITAD-017-03 BIR Ruling No. 116-97 Mr. Jan Lambertus Van de Velde 718, 7th Street, Brgy. Lakandula Mabalacat, Pampanga Dear Mr. Van de Velde : This refers to your letter dated May 31, 2004 seeking clarification on the taxability of your annuities received from The Netherlands. Documents submitted show that you are a citizen of The Netherlands; that your immigrant status in the Philippines has been made permanent per Immigrant Certificate of Residence issued by the Bureau of Immigration dated October 29, 2002; that you are married to Flordeliza S. Usoria and blessed with three (3) children; that from September 24, 2000 to date, you have been residing with your family in the Philippines at No. 718 7th Street, Lakandula, Mabalacat, Pampanga; that you have neither properties nor other addresses outside the Philippines; and that your only source of income are the two annuities coming from The Netherlands. In reply, please be informed that Articles 18 and 4 of the Philippines-Netherlands tax treaty provide as follows: "Article 18 "PENSIONS AND ANNUITIES 1. Subject to the provisions of paragraph 2 of this Article and paragraph 1 of Article 19, pensions and other similar remuneration paid in consideration of past employment to a resident of one of the States and any annuity paid to such a resident, shall be taxable only in that State." DACTSH "xxx xxx xxx" "Article 4 "FISCAL DOMICILE 1. For the purposes of this Convention, the term "resident of one of the States " means any person who, under the law of that State, is liable to taxation therein by reason of his domicile, residence, place of management or any other criterion of a similar nature. 2. For the purposes of this Convention an individual, who is a member of a diplomatic or consular mission of one of the States in the other State or in a third State and who is a national of the sending State, shall be deemed to be a resident of the sending State. 3. Where by reason of the provisions of paragraph 1 an individual is a resident of both States, then this case shall be determined in accordance with the following rules: a) he shall be deemed to be a resident of the State in which he has a permanent home available to him. If he has a permanent home available to him in both States, he shall be deemed to be a resident of the State with which the personal and economic relations are closer (centre of vital interest); (emphasis supplied) b) if the State in which he has his centre of vital interests cannot be determined, or if he has not a permanent home available to him in either State, he shall be deemed to be a resident of the State in which he has an habitual abode, c) if he has an habitual abode in both States or in neither of them, he shall be deemed to be a resident of the State of which he is a national; d) if he is a national of both States or of neither of them, the competent authorities of the States shall settle the question by mutual agreement." Based on the afore-cited provisions, pensions, annuities and other similar remuneration derived by a resident of either the Philippines or The Netherlands shall be taxable only in the state where he is a resident. For this purpose, an individual who is a resident of both Netherlands and the Philippines shall be deemed to be a resident of the country, firstly, in which he has his permanent home, secondly, where his center of vital interest is closer and thirdly, where he has an habitual abode and lastly, where he is a national. Such being the case, and since you are maintaining your family residence in the Philippines and has been granted permanent residency therein, you are deemed a resident of the Philippines under the provisions of the Philippines-Netherlands tax treaty. (BIR Ruling No. ITAD-017-03 dated January 30, 2003) Therefore, it is the Philippines, and not The Netherlands, which has taxing jurisdiction over the subject annuities pursuant to the same treaty. ASTcaE However, Section 23 (D) of the Tax Code of 1997 provides, viz : "Sec. 23. General Principles of Income Taxation in the Philippines . Except when otherwise provided in this Code: "xxx xxx xxx" "(D) A alien individual, whether a resident or not of the Philippines, is taxable only on income derived from sources within the Philippines; (Emphasis supplied) "xxx xxx xxx" Based on the above-mentioned provisions, it is clear that alien individuals, whether resident 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. Accordingly, as the subject annuities are considered income derived from sources without the Philippines, more specifically, from The Netherlands, the said annuities are not subject to Philippine income tax. (BIR Ruling No. 116-97 dated November 6, 1997) In view of the foregoing, while the Philippines has taxing jurisdiction over the subject annuities under the Philippines-Netherlands tax treaty, the Tax Code of 1997 however, provides that only income derived by resident and non-resident alien from sources within the Philippines are subject to tax. Accordingly, since the subject annuities are considered income derived from sources without the Philippines, these are not subject to Philippine income tax, and consequently, you are not required to file an income tax return in the Philippines for the said income in accordance with Section 51 (A) (2) (d) of the Tax Code of 1997. This ruling is issued on the basis of the facts as represented. However, if upon investigation it shall be disclosed that the facts are different, then this ruling shall be without force and effect insofar as the herein parties are concerned. DCAHcT Very truly yours, Commissioner of Internal Revenue By: (SGD.) MILAGROS V. REGALADO Assistant Commissioner Legal Service