SOURCES OF INCOME

1. Income derived in full from sources within

2. Income derived in full from sources outside
3. Income derived partly from sources within and partly from sources without

Determination of income
(whether within or outside the Philippines)
Income Test of Source of income
Income from services Place of Performance
Rent Location of property
Royalties Place of use of intangible
Gain on sale of real property Location of property
Gain on sale of personal property
purchased in one country and sold in
another
Place of sale
Gain on sale of domestic shares of
stock Income within
Interest Residence of debtor
Dividend
from domestic company Income within
Foreign company  Income within IF 50% or more
of the gross income of the
company for preceding three
years prior to declaration of
dividend was derived from
sources within
 Income without if less than 50%
of the gross income of the
company for the preceding
three years prior to declaration
of dividend was derived from
sources within.
0% to 50% The Dividend income is purely foreign
51% to 85% The dividend income is partly
Philippines and partly foreign

Example:
Problem 1
Luto Corporation, a domestic corporation, was granted a loan pf
$500,000.00 by Wells Fargo Bank. The interest earned by the bank was P 250,000.00
Is the interest an income within or without?
 The test of source of income on interest is dependent upon the residence
of the debtor. Considering Luto Corporation is a domestic corporation, its residence is
within the Philippines, Hence the interest in within.
Problem 2
In 2018, Pako Corporation, a domestic corporation, received a dividend of
P 150,000.00 from Geneva corp, a Swiss Corp., whose gross income from 2014
to 2017 are as follows:
Year Philippines Switzerland Total
2015 1,600,000.00 1,500,000.00 3,100,000.00
2016 1,300,000.00 1,200,000.00 2,500,000.00
2017 1,940,000.00 1,260,000.00 3,300,000.00
Total 4,840,000.00 3,960,000.00 8,800,000.00

How much of the dividend income is classified as income from Philippine

sources?
Dividend income within 4,840,000.00
Dividend Total 8,800,000.00
= 55% (SINCE IT IS MORE THAN 50% THEN
DIVIDEND INCOME IS PARTLY PHILIPPINES AND PARTLY FOREIGN)
55% X 150,000.00
= P 82,500.00