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Module 3 - Sources of Income

This document provides an overview of the classification and determination of sources of income under Philippine tax law. It discusses various types of income like interest, dividends, income from services, rent, royalties, and capital gains. For each type of income, it outlines the relevant rules to determine whether the source is within or without the Philippines. The source of income relates to the property, activity, or service that produced the income, not just the physical location of payment. Location of the debtor, place of rendering services, location of property, place of employment or use of royalties, and location of sale are some of the factors considered in classifying the source.

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76 views1 page

Module 3 - Sources of Income

This document provides an overview of the classification and determination of sources of income under Philippine tax law. It discusses various types of income like interest, dividends, income from services, rent, royalties, and capital gains. For each type of income, it outlines the relevant rules to determine whether the source is within or without the Philippines. The source of income relates to the property, activity, or service that produced the income, not just the physical location of payment. Location of the debtor, place of rendering services, location of property, place of employment or use of royalties, and location of sale are some of the factors considered in classifying the source.

Uploaded by

krisha millo
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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INSTITUTE OF ACCOUNTS BUSINESS AND FINANCE

2nd Sem
Department of Accountancy 2020-2021
INCOME TAXATION

MODULE 3 – SOURCES OF INCOME

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
APPLICATION OF CONCEPTS AND EXERCISES
Types of Income Rule to Determine Source of Income
a. Interest Residence of the debtor:
1. Within - if debtor is a resident of the Philippines
2. Without - if debtor is a non-resident
b. Dividends
1. From domestic corporation Within
2. From foreign corporation (based Predominant test is applied:
on the ratio of the gross income 1. Within - If predominant income is from the Philippines,
of the foreign corporation for i.e. more than 50%
the preceding 3 years prior to 2. Without - If predominant income is from without the
declaration of dividends) Philippines, i.e. more than 50%
c. Income from services Place where service is rendered:
1. Within - if rendered within
2. Without – if rendered without
d. Rent Location of property:
1. Within – if property is located within
2. Without – if property is located without
e. Royalties Where employed or place of use:
1. Within – if royalty is used within
2. Without – if royalty is use without
f. Gain on sale of real property Location of property:
1. Within – if property is located within
2. Without – if property is located without
g. Gain on sale of personal property 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


another ) source 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. Hence, the list
above is NOT exclusive. The source can be based on “activity”.

References:
1. Republic Act No. 8424 – National Internal Revenue Code of 1997 (NIRC)
2. British Overseas Airways Corporation vs Commissioner of Internal Revenue

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