CTA Case No. 2913 (Decision)

lliPUBLJC. OF . ~ u ,. i'l ll l . ll't' l '\ oa CXMJRT OF TAX APPEAl" .UIZOM ern .. CARNU:NCITA P. PATIO, r e p- C. T.A. CASE NO . 2913 re sente d he rein by her Attorney-in-fact, BERNARDO PATIO, Petitioner, - vers us - CONJ\'i!SSIONER OF INTERNAL REVE t-..U E, Respondent. X- - - - - - - - - - - X DECI S I 0 N Petiti oner Carmencita P. Patio appealed from the decision of respondent Commissioner of Internal Re venue assessing against and demanding from her the amount of f 'l,212.53 (should be �'1,247.25), repre- s enti ng deficiency income tax allegedly due from her for the year 1975. The records show that taxpayer-petitioner, Car mencita P. Patio, worked as a nurse in the Singian Memori al Hospital in ll'ianila an d had re ceived therefrom as sa lary for the peri od from January 1, 1975 to February 27 , 1975 the su m of f580. 00. Sorne- time in May, 1975 , she left the Philippines for Vi e nna , Austria a nd there she worked from MiJ.y 25, 1975 to Dec ember 31 , 1975. She had received a gr oss incon~ of $3 ,843 .75 for her work in Austria for the aforesaid period. It appears that up to the present, she conti nues to st ay and work in Austria. In con nect ion with her salary for the per i od 11 J

DECIS I ON CTA CASE NO . 29 13 - 2- f rom Januar y l, 1975 t o February 27, 1975, she re ported said income in an income tax r eturn which she f ile d with the Phi l ippine Embas s y in Vie nna, Aus t r i a (p. 24, BIR rec.) on Mar ch 23 , 1976, simul- taneous wit h the f ili ng of anot he r sepa r ate income tax re tur n , wher e in she reporte d the sum of $3,843.75 whi ch she e ar ned in Vienna, Austria for t he peri od fr om Jv'ta y 25 , 1975 to December 3 1, 1975. (p. 25, BI R r ec . ) In the fir s t income t a x r eturn (QQ. cit, p. 24) f iled, it shows that petit i oner i s exe mpt fr om the payme nt of in come tax. I n the se co nd in - come t a x r eturn (.QQ. ,�it, p. 25 ) file d , it wa s shown that s he is also exe mpt fr om t he payme nt of inc ome ta x . Subseque nt ly , base d upon a n inv es tigation conduct e d , pe titi one r was s ent a lette r dat ed Au gu st 9, 1977 fro m As s istant Commi ssio ner Lauro D. Abra ha m, whi ch s hows that pet i ti oner's income f r om the Phi l i ppines and ab:;-oad for 1975 was con- solidated, a nd on that basis, her inc ome tax lia- bi l i ty wa s compute d, and was subjected to a defi- ci en cy inc ome tax in t he a mount of r l,247.26 (p. 28 , BIR r ec. ) , compute d a s follows: US $ to Gros s i ncome per return $3 ,653 .54 P25,567.78 Add: Income from Phil. --=5=8-~ Tota l Gross Income 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 investiga t ion P23,533.00 Less: Personal & addition~! exempt. 3,000.00 Amount subject to tax f'20,5}_3.00 Tax due thereon p 3 ,024. 00 Less: Amount of foreign tax credit Balance 1� 21 L..2.2. Add: 14% interest per annum from ~ 1,045.92 April 16 to August 3 1, 1977 201.34 Amount still due and collectible p 1,247.26 The above assessment was arrived at by adding , as aforesaid , pet iti 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%, un de r Section 21 of the Nat ional Inte rnal 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 adjust ed gross income thereon, because petitioner was not con- sidered by respondent as a non-resident citizen contemp l ated in Section 21, as amended by P.D. 323 . Assistant Cornmissioner Abraham stated in 1 1 <) .l.. ("'

DECISION CTA CASE NO. 2913 - 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.) Upo n 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 ye ar , only the period or the year for which such return is made , and, there for e, "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 Filipi nos abroad to better meet their obligations considering the heavy burden bei ng 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, Internati ona 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 iz en and, therefore, her incorre abroad is subject to tax at the preferential rates of 1% to 3% un der the provisions of Section 21, as amen- ded by P.D. 323, which provides as follows: Sec. 21. Rates. . o.f_ :t.ax___QD_..�it.!_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 o llowing 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 3% Ove r fi'2 ,000 but not over fi'4,000 P60 �' 180 plus 6% of ex ces s ovei' fi 2,000. P360 Ove r f-4,000 but not over P6,000 P600 P880 plus 9% of excess over P4,000. Ove r 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 ov er PlO,OOO. 1 1JL -1{. '

DECIS ION- CIA CASE NO . 29 13 - 6- Over ~12,000 but not over Pl4,000 Pl,200 plus 18% of e xcess 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 e xcess over P20,000. XXX XXX XXX Provi de d , 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 gr oss amount of such inco me after deducting there from t he followi ng: (a) An allowa nce for personal exemp- tion i n the amount of two thousand dollars (U. S . $ 2 , 000 . 00 ), if t he person making the re turn 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 ie d man or a hea d of the family, as defined in section 23 of this Code; and (b) The t otal amount of the national in come tax actually paid to the government of the forei gn country of his residence. The Phili ppi ne � income tax on the adjusted gr oss income shall be comput ed in ? ccor- da nce with t he fol l owi ng s che dule: If the amou nt s ubjec t 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_ovi ded , furt h?,_;r_rnor e, That f or purpos es of thi s sec ti on , a non - res i dent cit i ze n i s one who e st ab l i - shes to the sa ti sfi3ction of the Commis s i oner the f a ct of hi s physica l pr e sence abroad for an uninterrupted per i od whi..�h__i n�l~Jj_~~_i3 n_?,_r:rt_i r e i 9..!S.ab_l~__yg_ar . (Unde r l illi n�1.2.b!.QR lie d . ) XXX XXX XXX Pe titi one r contends that s he 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 e s ta bliShe s

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 P l, 247. 26 runs courfter to the provisions of Se ct ion 2 1, as a mended by P.D. 323. On the other hand , respon dent contends that dur ing the per iod in contr oversy, petitioner have not qua li fied as a non-resident citi ze n because "her phys i cal presence abroad for 19 75 was less thJn an entire taxable year." VIe agre e 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 2 1, 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 per iod star ting from January 1 and ending December 31 , of a giv en year . Otherwise, if the period of the ta xpaye r's st a y ab ro ad is less than one year , t he inco r.1e earne d abroad during that period of less than one year wil l subj e ct the same to the pr ogressi ve i ncor:~e tax rates of 3% to 70%, and to this income abro ad shall be included the income earne d in the Phi lip pines during that s a~e JiG

DECISI ON- CIA CASE NO . 29 13 - 8- pe r iod of less than one year, just like the in- comes of petit i oner in question. This must be so be caus e the term "taxab le ye ar~� in Section 21 , as ame nded by P.D. 323, means the calendar year , which b e gins on Janu ary 1 and ends on Decem- ber 31, of each year. Petitioner, not being con- sidered a non-re s ident ci tiz en 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, 19 75 to December 31, 1975, including that in come ea rned 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 . Ther e being no dispute as to the mathematical computati on made by respondent of the inco me tax li ab ility of pet itioner ba$ed on the progressive i ncome ta x rates impos ed 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) , pe titio ner is, theref ore , li able fo r the payment of the sum of Yl,247.26. WHEREFORE , the decision appe a l ed fro m is here- by affirmed . Pet iti one r is hereby ordere d to pay 117

DECISION- CIA CASE NO. 2913 -9- within 30 days fro m receipt of this decision, the amount of ~1,247.26 as de fi ciency income tax for the ye ar 1975, and 5% surcharge thereon, plus 14% interest per annum from Septe mber 1, 1977 unt il the b asic defici e ncy inc ome tax a nd the 5% sur char ge the reon is paid, but s aid interest shoul d not e xceed a period of three year s, pur- suant to Se ction 51 (d) and (e ) (3) of the Nati o- na l Interna l Revenue Code, as amended. Wi th costs against petiti oner. SO ORDERED. Quezo City, Metro Manila, February 26, 198 1. ) co~RoAourN f(ssociate Judge WE CONCUR: AMANTE F LI.ER Pres idirg Judge Associate Judge 113