Manila * Cavite * Laguna * Cebu * Cagayan De Oro * Davao

Since 1977

TAX.3403 NARANJO/SIAPIAN/WONG/GUDANI
SOURCES OF INCOME MAY 2023

LECTURE NOTES
CLASSIFICATION OF INCOME AS TO SOURCES
1. Income derived from sources within
2. Income derived from sources without
3. Income derived from sources partly within and partly without
RULES IN DETERMINING SOURCE OF INCOME
Type of Income
a. Interest
b. Dividends
• From domestic corporation
• From foreign corporation (based
on the ratio of the gross income of
the foreign corporation for the
preceding 3 years prior to
declaration of dividends)
c. Income from services
d. Rent
e. Royalties
f. Gain on sale of real property
g. Gain on sale of personal property
Rule
Residence of the debtor:
1. Within - if debtor is a resident of the Philippines
2. Without - if debtor is a non-resident
Within
Predominant test is applied:
1. Within - If predominant income is from the Philippines,
i.e. more than 50%
2. Without - If predominant income is from without the
Philippines, i.e. more than 50%
Place where service is rendered:
1. Within - if rendered within
2. Without – if rendered without
Location of property:
1. Within – if property is located within
2. Without – if property is located without
Where employed or place of use:
1. Within – if royalty is used within
2. Without – if royalty is use without
Location of property:
1. Within – if property is located within
2. Without – if property is located without
G.R. Place of sale
1. Within – if property is sold within
2. Without – if property is sold without

(purchased in one country and sold in Exception: If taxpayer is PRODUCER/MANUFACTURER, the source
another ) is partly within, partly without
1. Partly Within, Partly Without – if manufactured/produced
within, but sold without
2. Partly Within, Partly Without – if manufactured/produced
without but sold within
h. Gain on sale of shares of stocks in a 1. Within - if the issuer of shares of stock is a domestic
domestic corporation (personal property) corporation
2. Without – if the issuer of shares is a foreign corporation
NOTE:
• The "source of income" relates not to the physical sourcing of a flow of money or the physical situs of
payment but rather to the "property, activity or service which produced the income.
• The list above is NOT exclusive. The source can be based on “activity”.
END

Page 1 of 3 www.teamprtc.com.ph TAX.3403

TEAM PRTC

DISCUSSION QUESTIONS

Transaction Within or Taxable or Final tax

Without Exempt or Normal
tax or N/A
1. Nicanor, a Filipino citizen residing in the Philippines borrowed
money from Inday, a Filipino working abroad. Interest
income is Php 10,000.00
2. Nicanor, a Filipino citizen residing in the United States
borrowed money from Inday, a Filipino working abroad.
Interest income is Php 10,000.00
3. Nicanor, a Filipino citizen residing in the United States
borrowed money from Inday, a Filipino working in Makati
City, Philippines. Interest income is Php 10,000.00
4. Nicanor, a Filipino citizen residing in the United States
invested in XYZ Corporation established under the laws of
the Philippines. The Corporation, which earned gross income
(for the last three years) in the United States amounting to
Php 100M and another Php 200M within the Philippines
declared dividends. Nicanor will receive Php 100,000.00
5. Nicanor, a Filipino citizen residing in the Philippines invested
in XYZ Corporation established under the laws of the United
States. The Corporation, which earned gross income (for the
last three years) in the United States amounting to Php
200M and another Php 100M within the Philippines declared
dividends. Nicanor will receive Php 100,000.00
6. BlackPink, a popular band in Korea held a one-night concert
in the Philippines and were paid Php 1 Million.
7. Sarah G, a Filipina singer/actress held a one-night concert in
Canada. She was paid Php 1 Million ($20,000). Tax withheld
and paid is Php 300,000.00 ($6,000).
8. Jordan Clarkson, with Filipino descent playing in the NBA, was
paid $1M for playing with Utah Jazz.
9. Nicanor, a Filipino citizen residing in the United States
invested in XYZ Corp., a corporation established under the
laws of the Philippines. He sold the shares of stocks with a
gain of Php 1M in the Philippines.
10. Lui Viton Corp. sold LV bags in the Philippines. Gross income
amounted to Php 10 Million.
11. Lui Viton Corp. sold LV bags in the United States. Gross
income amounted to Php 10 Million.
12. Marikina Shoe Corp sold shoe products in the Philippines.
Gross profit amounted to Php 10 Million.
13. Marikina Shoe Corp exported shoe products to the United
States. Gross profit amounted to Php 10 Million ($200,000)
14. Nicanor, a Filipino citizen residing in the Philippines invested
in ABC Corp, a corporation established under the laws of the
Philippines. He sold the shares of stocks with a gain of Php
1M in the Philippines to Bryan, an NRC.
15. Bryan, an NRC bought shares of stocks of ABC Corp, a
domestic corporation, from Nicanor, a resident citizen for
Php 1 Million. He sold the same shares in the US to Rian, an
American Citizen. Bryan earned Php 1Million.
16. Rian, an American citizen residing in the US, bought shares
of stocks of ABC Corp, a domestic corporation from Bryan, a
non-resident citizen. He had a gain of Php 1 Million.
17. Nicanor, a Filipino citizen residing in the Philippines invested
in ABC Corp, a corporation established under the laws of the
US. He sold the shares of stocks with a gain of Php 1M in the
Philippines to Bryan, an NRC.
18. Nicanor, a Filipino citizen residing in the United States
invested in ABC Corp, a corporation established under the
laws of the US. He sold the shares of stocks with a gain of
Php 1M in the Philippines to Bryan, a resident citizen.
19. The National Basketball Association opened an NBA store in
the Philippines. It earned Php 1M.

Page 2 of 3 www.teamprtc.com.ph TAX.3403

TEAM PRTC

20. ABC Corp., a domestic corporation, opened a Jolibae fastfood

restaurant in Manila. It paid Jolibae Foods Corp Php 1 Million
as franchise fee.
21. Albert, a Filipino citizen living in Canada, opened a Jolibae
fastfood restaurant in Edmonton, Alberta, Canada. He paid
Jolibae Foods Corp Php 1 Million as franchise fee.
22. Albert, a Filipino citizen residing in Quezon City, sold a parcel
of land located in Macababy, Pampanga in the amount of Php
3M. Zonal value is Php 2M while assessed value is 1M. Land
is classified as capital asset.
23. Albert, a Filipino citizen who migrated in Canada, sold a
parcel of land located in Edmonton, Alberta in the amount of
$ 100,000.
24. Albert, a Filipino citizen residing in Quezon City, sold a parcel
of land located in Edmonton, Alberta in the amount of $
100,000. He bought the property last year for Php $ 50,000.
Tax paid on capital gains in Canada is $ 5,000.
25. The Wakanda Overseas Airways Corp., a non-resident
foreign corporation, offers flight going to the US and back to
Wakanda. In between flights, it stops-over the Philippines to
pick passengers up going to the US or Wakanda. WOAC’s
ticketing agent sold tickets in the amount of Php 1M.

End of TAX.3403

Page 3 of 3 www.teamprtc.com.ph TAX.3403