Situs of Taxation: Online Sales

Online Shopping has rapidly grown throughout the years wherein Garcia, C. (2016) in The
Manila Times described it as one of the most disruptive changes in the field of commerce which
has grown exponentially around the world over the past years, including in the Philippines.
According
According to FullSuite Team (2014), sale of goods and services through online channels
has grown rapidly in recent years wherein there are many people who have discovered the ease
and convenience of buying in the comfort of their own home, office, or even Internet cafes.
Business owners, ranging from big to small-sized enterprises, has also realized the advantage of
being online and now almost every kind of business sell their products or services in the world
wide web. Furthermore, even those who do not have physical stores are encouraged to sell online
upon realizing such trend and now online retailing has become unstoppable may it be through
virtual shopping malls, web stores, online marketplaces, and most recently through social media
like Instagram and Facebook.
The rising trend of doing businesses online did not go unnoticed by the Bureau of Internal
Revenue in its yearly attempt of increasing collections. Accordingly, the BIR stands by the law
that states all Filipinos earning income within the country are subject to pay corresponding taxes.
The bureau adds that online business offering goods and services are no different from merchants
with physical stores or offices, thus must be subjected to paying taxes. Thus, Revenue
Memorandum Circular No. 55-2013 was issued on August 22, 2013 with the subject of Reiterating
Taxpayers’ Obligations in Relation to Online Business Transactions.
“Given the continuing advances in information technology, the internet has become the
vogue medium not only for business advertisements but also for the conduct of online business
transactions, including online retailing through virtual shopping malls, online market places,
webstores, and similar websites (or “online stores”). An increasing number of consumers are
visiting and purchasing goods and services from such online stores primarily because of the high
level of convenience inherent in online shopping which can be done within the confines of one’s
home, office, and even in public places offering internet access. In view of the foregoing, it has
become imperative to remind the parties in these online business transactions of their tax
obligations, hence this circular.” (Revenue Memorandum Circular No. 55-2013)
 In the memorandum, the following kinds of online business transactions, classified as to
their participating parties, were enumerated; (1) Business to Consumer, involving online stores
selling goods and services to final consumers; (2) Consumer to Consumer; and (3) Business to
Business that encompasses job recruitment, online advertising, credit, sales, market research,
technical support, procurement and different types of training. It also listed the 4 most common
types of online business transactions in the Philippines which are Online Shopping or Online
Retailing, Online Intermediary Service, Online Advertisement/Classified Ads, and Online
Auction.
Just like any other business establishments, persons who conduct business through the
described and listed online transactions and its permutations in the memorandum have the
obligations to register with the BIR; secure an Authority to Print (ATP) invoices/official receipts;
register books of account for use in the business; issue registered invoices or receipts; withhold
required creditable/expanded withholding tax, final tax, withholding tax on compensation and
other withholding taxes; and file the applicable tax returns on due dates and pay the corresponding
taxes.
Stated in the RMC No. 55-2013, the existing tax laws and revenue issuances on the tax
treatment of purchases (local or imported) and sale (local or international) of goods (tangible or
intangible) or services shall be equally applied with no distinction on whether or not the marketing
channel is the internet/digital media or the typical and customary physical medium.
‘Situs of Taxation’ has the literal meaning of ‘Place of Taxation’, and the general rule is
the taxing power cannot go beyond the territorial limits of the taxing authority. Basically, the state
where the subject to be taxed has a situs may rightfully levy and collect the tax and the situs is
necessarily in the state which has jurisdiction or which exercises dominion over the subject in
question. Income tax may properly be exacted from persons who are residents or citizens in the
taxing jurisdiction and even from those who are neither residents nor citizens, provided the income
is derived from sources within the taxing state. Thus, resident citizens and domestic corporations
are taxable on all income derived from sources within or without the Philippines. A nonresident
citizen is taxable on all income derived from sources within the Philippines. An alien, whether a
resident or not of the Philippines, and a foreign corporation, whether engaged or not in trade or
business in the Philippines are also taxable only from sources within the Philippines. The taxable
situs will depend upon the nature of income. (Gargoles, N., 2011)
 According to Garcia, C. (2016), tax-wise, the total amount of taxes that an online retailer
would pay should be the same as a seller with a brick-and-mortar store. As a general rule, any
person or entity who, in the course of trade or business, sells, exchanges, or leases goods or
properties, or renders services, and any person who imports goods, shall be liable to value-added
tax (VAT). Thus, for both an online seller and a store owner, the sale transaction shall generally
be subject to 12 percent VAT.
It was further explained that for the part of the buyers, they should expect to receive a
VAT-registered invoice that conforms to the BIR’s invoicing requirements and they should also
be aware of their tax obligations when transacting online. For instance, a top 20,000 buyer-
corporation is required to withhold 1 percent expanded withholding tax (EWT) for purchase of
goods. If the payment for the purchase of a product online by a top 20,000 buyer-corporation is
through credit card or through company-issued credit card to officers or employees for purposes
of reimbursements, RMC No. 72-2004 clarifies that the buyer-corporation is not required to
withhold the 1 percent EWT upon presentation of the credit card, but is required to withhold the 2
percent EWT corresponding to the interest payment and/or service fee and other charges imposed
by the credit card company. The credit card company, on the other hand, shall withhold 1 percent
of 50 percent of the gross amount paid to the online seller, pursuant to Section 2.57.2 (L) of
Revenue Regulations No. (RR) 2-98, as amended, and receive the agreed commission from the
online seller, net of 10 percent EWT. Furthermore, under RR 2-98, if the buyer is a registered
withholding agent, it is likewise required to furnish the online seller, in triplicate, with a Certificate
of Creditable Tax Withheld at Source (BIR Form No. 2307) showing the amount of payment and
amount of taxes withheld. The said certificate shall serve as proof of withholding, which shall be
used by the online seller to claim tax credit. This withholding tax requirement does not apply to
individuals, who are not registered withholding agents, purchasing online.
Accordingly, purchase of goods through an international (non-resident) online seller is
subject to 12 percent VAT on importation. VAT on importation is imposed on goods brought into
the Philippines, whether for use in business or not. The tax shall be based on the total value used
by the Bureau of Customs (BOC) in determining tariff and customs duties, plus customs duties,
excise tax, if any, and other charges, such as postage, commission, and similar charges, prior to
the release of the goods from customs custody.
 Garcia, C. (2016) further explained that in case the valuation used by the BOC in
computing customs duties is based on volume or quantity of the imported goods, the landed cost
shall be the basis for computing VAT. Landed cost consists of the invoice amount, customs duties,
freight, insurance and other charges. If the goods imported are subject to excise tax, the excise tax
shall form part of the tax base. Furthermore, payment to a non-resident online seller for the
purchase of goods is not subject to the 30 percent final tax. Under the Civil Code Article 1475, the
perfection of the contract of sale happens when there is a meeting of minds upon the thing, which
is the object of the contract and upon the price. Thus, it can be presumed that the perfection of the
contract of sale between the international online seller and local buyer happened outside the
Philippines when the seller acknowledged the order of the buyer and agreed on the price.
“Any person engaged in internet commerce who fails to comply with applicable tax laws,
rules and regulations shall be subject to the imposition of penalties provided for under the existing
laws, rules, and regulations, in addition to the imposition of penalties pursuant to the applicable
Section/s under Chapters II and IV, Title X of the National Internal Revenue Code of 1997, as
amended.” (Revenue Memorandum Circular No. 55-2013)

References:
Bureau of Internal Revenue (2013). Revenue Memorandum Circular No. 55-2013. Retrieved from:
https://www.bir.gov.ph/images/bir_files/old_files/pdf/73941RMC%20No%2055-2013.pdf
FullSuite Team (2014). Do I Need To Pay Taxes For My Online Business? Retrieved from:
https://www.full-suite.com/blog/need-pay-taxes-online-business/
Garcia, C. (2016). The Manila Times: Taxes on buying and selling goods online. Retrieved from:
https://www.manilatimes.net/2016/01/31/business/columnists-business/taxes-on-buying-and-
selling-goods-online/242379/242379/
Gargoles, N. (2011). Let’s Talk Tax: Situs of Taxation. Retrieved from:
https://www.bworldonline.com/content.php?section=4&title=Situs-of-taxation&id=34945