CTA Case No. 2913

DECISI ON

CTA CASE NO. 29 13 - 2 - from Januar y l, 1975 t o February 27, 1975, she re ported said income in an income tax r eturn which she filed with the Phi l ippine Embas s y in Vie nna, Aus t r i a (p. 24, BIR rec.) on March 23 , 1976, simul- taneous with the f iling of another sepa r ate income tax return , wherein she reported the sum of $3,843.75 which she ear ned in Vienna, Austria for t he period fr om Jv'tay 25 , 1975 to December 31, 1975. (p. 25, BIR r ec . )

In the fir st income t ax r eturn (QQ. cit,

p. 24) f iled, it shows that petiti oner i s exempt fr om the payment of income tax.

I n the se co nd in- come t ax r eturn (.QQ. ,£it, p. 25 ) file d , it wa s shown that s he is also exe mpt fr om t he payment of income ta x.

Subseque nt ly , based upon an investigation conducted , petiti oner was sent a letter dated August 9, 1977 from As sistant Commissioner Lauro D. Abra ham, whi ch s hows that pet i tioner's income fr om the Phi l i ppines and ab:;-oad for 1975 was con- solidated, and on that basis, her income tax lia- bi l i ty wa s computed, and was subjected to a defi- ci ency income tax in t he amount of r l,247.26 (p. 28 , BIR r ec. ) , compute d as follows:

US $

to Gros s i ncome per return $3 ,653.54 Add: Income from Phil.

Tota l Gross Income P25,567.78 --=5=8-~ f>2~...t1-.~~ 78

DECISION -

CIA CASE NO. 2913 - 3 - Tota l Gross Income ~26,147.78 Les s 10% optional standard deduction~~l4~78 Net income per investigat ion P23,533.00 Less: Personal & addition~! exempt. 3,000.00 Amount subject to tax f'20,5}_3.00 Tax due thereon Less: Amount of foreign tax credit

Balance

Add: 14% interest per annum from April 16 to August 31, 1977 Amount still due and collectible p 3 ,024. 00 1• 2 1 L..2.2.

~ 1,045.92 201.34 p 1,247.26 The above assessment was arrived at by adding , as aforesaid , petiti oner's income of P580.00 from the Philippines and her i ncome earned from Vienna, Austria in the sum of $3,653.54 (not $3,843.75}, the latter income computed at the prevailing rate of exchange at the time which was P7.00 to $1.00, and subjecting the s ame to the progressive incorr~ tax rates of 3% to 7a%, under Section 21 of the Nat ional Internal Revenue Code, and not in the manner petitioner filed her two (2) separate in- come tax returns and computed her tax liability, i.e. at the progressive rates of 3% to 70% with respe ct to her income of ?'580.00 in the Philippines and with r espe ct to her income from abroad of $3,843.75 (shou l d be $3 ,653.54) at the progressive rates of 1% to 3% based upon the adjusted gross income thereon, because petitioner was not con- sidered by respondent as a non-resident citizen contempl ated in Section 21, as amended by P.D. 323 .

Assistant Cornmissioner Abraham stated in 1 1 <) .l.. ("' - 4 - his assessment that the "Taxpayer (petitioner herein) is not qualified as a non-resident citizen.

Her

physica l presence abroad for 1975 was less than an entire taxable year." (p. 28, !_bid.) Upon receipt of the assessment, petitioner, through her counsel, protested on Septenber 27, 1977 ( p. 29, BIR rec.) the said assessment in the amount of Fl,247.26 and requested the cancellation thereof on the grounds that Section 21 only requires that the citizen establishes tothe satisfaction of the Commissioner the .fact of his physical presence abroad for an uninterrupted period; that P.D. 323 does not provide tha t in order for a Filipino to be a non-resicent citizen, he must stay abroad for one whole taxable year, or from January to Decem- ber; that it is enough that the stay abroad of a citizen is uninterrupted from the time that he leaves the Philippines; that the term "taxable year", under Section 84 of the Tax Code, includes, in the case of a return made for a fractional part of a year , only the period or the year for which such return is made , and, therefore, "taxable year" does not necessarily mean a twelve (12) months period; and that the reason for imposing different rates of tax (1% on the 1st $6,000; 2% on the next $14,000; and 3% on the excess over $20 ,000 ) , under P.D. 323, ame nding Section 21 of

DECISION

CIA CASE NO. 2913 - 5 - the Tax Code, is to enable Filipinos abroad to better meet their obligations considering the heavy burden being paid by the non-resident Filipinos who have established their residences abroad. The request of petitioner for reconsideration was denied in a letter of Fortunato P. Aguas, Chief, Internationa l Operations Division of the Bureau of Internal Revenue dated November 10, 1977. ( p. 30, BlP. rec.)

Hence, this appeal.

The only issue involved in this case is whe- ther or not petitioner may be considered as a non- resident cit izen and, therefore, her incorre abroad is subject to tax at the preferential rates of 1% to 3% under the provisions of Section 21, as amen- ded by P.D. 323, which provides as follows: Sec. 21. Rates. . o.f_ :t.ax___QD_..£i t.!_zens or resi.Q~rrts. -A tax is hereby imposed up ~ n the taxable net income received during each tax- able year from all sources by every indivi- dual, whether a citizen of the Philippines residing therein or an alien residing in the Philippi~es, determined in accordance with the f ollowing schedule:

Provid_~ _g_, however, That non-resident citizens shall be subject to tax under this schedule only on income derived by them from sources within the Philippines. Not over fi'2,000 Over fi'2 ,000 but not over fi'4,000 plus 6% of ex ces s ovei' fi 2,000. Over f-4,000 but not over P6,000 plus 9% of excess over P4,000.

Over P6,000 but not over ¥8,000 plus 12% of exces s over ~6,000.

Over ~8,000 but not over ~10,000 plus 14% of excess over P8,000.

Over PlO,OOO but not over Pl2,000 plcs 16% of excess over PlO,OOO.

1 -{ 1 JL 1. ' 3%

P60

¥'180

P360

P600

P880

DECISION-

CIA CASE NO. 29 13 - 6 - Over ~12,000 but not over Pl4,000 Pl,200 plus 18% of excess over Pl2,000.

Over Pl4,000 but not over Pl6,000 Pl,560 plus 20% of excess over ¥14,000.

Over ? 16,000 but not over Pl8,000 Pl,960 plus 22% of excess over Pl6,000.

Over PlB,OOO but not over P20,000 P2,400 plus 24% of excess over fll8,000. Over P20,000 but not over ~24,000 P2,880 plus 27% of excess over P20,000.

X X X

X X X

X X X

Provided , further, That on the i ncome of non- resident citizens from all sources without the Phili ppi nes, there is hereby imposed a tax on t he gross amount of such income after deducting there from t he followi ng:

(a) An allowance for personal exemp- tion i n the amount of two thousand dollars (U. S. $2,000. 00), if t he person making the return is a sing le person or a married per- s on legally separated from his or her s pouse; or four thousand dollars (U.S. $4 ,000.00), if the person making the return is a marr ied man or a head of the family, as defined in section 23 of this Code; and

(b) The t otal amount of the national income tax actually paid to the government of the forei gn country of his residence. The Philippi ne · income tax on the adjusted gr oss income shall be computed in ?ccor- da nce with t he fol l owi ng s che dule: If the amount subject t o tax is: Not over $6,000. 00 . . . . . . . .

1% Over $6 ,000.00 but not over $20,000. 00 2% Over $20 ,000.00 . .. ...

. .... 3% .r_;r_ovided , furt h?,_;r_rnore, That f or purposes of this secti on , a non- res i dent cit i ze n i s one who estab l i - shes to the satisfi3ction of the Commis s i oner the f act of hi s physica l presence abroad for an uninterrupted per i od whi..£h __ i n£l~Jj_~~_i3 n_?,_r:rt_i r e i 9..!S. a b_l~ __ yg_ a r . ( Under l ill i n £1.2.b!.QR lie d . )

X X X

X X X

X X X

Petitioner contends that she is a non- res i dent Filipino inasmuch as the "only r equi s i te to be a non- resident citi zen i s t hat t he citizen establiShes

DECISION-

CIA CAS E NO. 29 13 - 7 - t o the satisfaction of the Commissioner (of Inter- nal Revenue) the fact of his (her) physical pre- s ence abroad for an uninterrupted period which includes an entire taxable year" and having estab- lished that fact, the act of respondent , therefore, in assessing her inc ome tax liability in the sum of Pl, 24 7. 26 runs courfter to the provisions of Sect ion 21, as amended by P.D. 323. On the other hand , respondent contends that during the per iod in contr oversy, petitioner have not qua li fied as a non-resident citize n because "her phys i cal presence abroad for 1975 was less thJn an entire taxable year."

VIe agree with respondent.

The law is clear that in order to qualify as a non-resident citizen and avail of t he preferential income tax rates under Sect ion 21, one must have actually and phy- sically stayed or resi ded abroad for an uninter- rupted period of one entire taxable year, i.e. for the period starting from January 1 and ending December 31 , of a given year .

Otherwise, if the period of the ta xpayer's stay abroad is less than one year , t he inco r.1e earne d abroad during that period of less than one year wil l subj ect the same to the progressive i ncor:~e tax rates of 3% to 70%, and to this income abroad shall be included the income earned in the Phi lippines during that s a~e

JiG

DECISION-

CIA CASE NO . 29 13 - 8 - per iod of less than one year, just like the in- comes of petit i oner in question. This must be so be cause the term "taxab le ye ar~· in Section 21 , as amended by P.D. 323, means the calendar year , which begins on January 1 and ends on Decem- ber 31, of each year.

Petitioner, not being con- sidered a non-res ident citizen who had established her physical presence abr oad for an uninterrupted period of an entire taxable year, her income earned abroa d for the period of les s than one tax- able year, or fror~ N\a y 1, 1975 to December 31, 1975, including that income earned in the Philippines for the peri od from J anuary l to February 27, 1975, should be subjected to the progressive tax rates of from 3% t o 70% pursuant to Section 21, as amended by P. D. 323 .

There being no dispute as to the mathematical computation made by respondent of the income tax liab ility of petitioner ba$ed on the progressive i ncome ta x rates imposed on the net inco me earned from t he Philippines of P580.00, and fr om abroad or Austria, i n the sum of $3 ,843.76 (should be $3 ,653 . 54, as shown in the assessment which is pre- sumed to be corre c t) , petitioner is, therefore , liable for the payment of the sum of Yl,247.26.

WHEREFORE , the decision appea l ed fro m is here- by affirmed .

Petiti oner is hereby ordered to pay 117

DECISION-

CIA CASE NO. 2913 - 9 - within 30 days from receipt of this decision, the amount of ~1,247.26 as de fi ciency income tax for the year 1975, and 5% surcharge thereon, plus 14% interest per annum from September 1, 1977 until the basic deficiency income tax and the 5% surcharge the reon is paid, but said interest should not exceed a period of three years, pur- suant to Se ction 51 (d) and (e ) (3) of the Nati o- nal Interna l Revenue Code, as amended. Wi th costs against petitioner.

WE CONCUR:

AMANTE F LI.ER Pres idirg Judge

Associate Judge

) co~RoAourN f(ssociate Judge 113