Foreign investments thrive in a fairly predictable and reasonable international investment climate, and the protection against double taxation is crucial in creating such a climate. Income tax treaties are among the tools against international double taxation.
In Commissioner of Internal Revenue v. S.C. Johnson and Son, Inc.. (GR 127105, June 25, 1999), a decision which was reiterated in the more recent case of Cargill Philippines, Inc. v. Commissioner of Internal Revenue (GR. 203346, Sept. 9, 2020), our Supreme Court recognized that tax treaties aim to reconcile the national fiscal legislation of the contracting parties to avoid simultaneous taxation in two different jurisdictions, and, thus, eliminate international juridical double taxation, which is defined as the imposition of comparable taxes in two or more states on the same taxpayer for the same subject matter and for identical periods. It takes place when a person who is a resident of a contracting state derives income from, or owns capital in, the other contracting state, and both states impose tax on that same income or capital. The rationale for doing away with double taxation is to encourage the free flow of goods and services and the movement of capital, technology, and persons between countries, conditions deemed vital in creating robust and dynamic economies, and, thus, let foreign investments thrive.
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