March 29, 2005

BIR RULING [DA-095-05]

Section 23; BIR Ruling No. 094-98
Mr. Jose O. Borromeo
15707 Pinyon Crk. Dr.
Houston, Texas 77095
U.S.A.
Sir:
This refers to your letter dated October 19, 2004 stating that you are very
interested to apply for Philippine Dual Citizenship under Republic Act No. 9225.
You now pose the question whether you are required to pay taxes for
income earned in the United States (U.S.).
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;"

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 world-wide 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 U.S. is subject to
income tax in the Philippines. On the other hand, non-resident citizens 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
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Philippine Taxation Encyclopedia 2013

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 earned in the United States.
STaIHc

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,

(SGD.) JOSE MARIO C. BUAG

Deputy Commissioner
Legal & Inspection Group

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Philippine Taxation Encyclopedia 2013