THERE are many factors affecting the taxability of a certain transaction, one of which is the situs of taxation. A taxing power cannot go beyond the territorial limits of its taxing authority, that is, there must be an established nexus between the subject (e.g., person, property, income or business) and the state that intends to tax it. The existence of a nexus acts as a check, ensuring that the taxing power does not overreach.
Under the Philippine income tax law, this nexus is established by one's residence and source of income. While resident individuals and domestic corporations are taxed on their worldwide income, the National Internal Revenue Code of 1997, as amended (1997 Tax Code), provides that any "foreign corporation, whether engaged or not in trade or business in the Philippines, is taxable only on income derived from sources within the Philippines." In particular, a non-resident foreign corporation (NRFC) is subject to a 25 percent final tax on its "gross income received during each taxable year from all sources within the Philippines." Any tax due should be withheld at source by the income payor (withholding agent), who will also be responsible for filing the applicable return and remitting the tax withheld to the BIR.
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