The Supreme Court in a recent decision has defined the income source and the situs for tax purposes of satellite communication. This decision is of particular interest because the legal principles that it espouses may be applicable to the digital economy.
Under our income tax law, any foreign corporation is taxable only on income derived from sources within the Philippines. It is subject to final tax on its gross income received during each taxable year from all sources within the Philippines. The tax due shall be withheld at source by the income payor , who shall be responsible for filing the applicable return and remitting the tax withheld to the BIR.
The set up is very similar to digital platforms. Amazon or Netflix are based in another country. But they are able to cater to their local subscribers directly or through their branches or offices in the Philippines. Clearly, they enjoy economic benefits. By analogy with the Aces Philippines case, the situs of the income-producing activity is in the Philippines.
Are Netflix, Amazon, and Youtube liable to income tax? Yes, if we follow the principles laid down in the Aces Philippines case.