Taxation, 2019 Bar — Question B.12

QUESTION

JKL-Philippines is a domestic corporation affiliated with JKL-Japan, a Japan-based information technology company with affiliates across the world. Mr. F is a Filipino engineer employed by JKL-Philippines. In 2018, Mr. F was sent to the Tokyo branch of JKL-Japan based on a contract entered into between the two (2) companies. Under the said contract, Mr. F would be compensated by JKL-Philippines for the months spent in the Philippines, and by JKL-Japan for months spent in Japan. For the entirety of 2018, Mr. F spent ten (10) months in the Tokyo branch. On the other hand, Mr. J, a Japanese engineer employed by JKL-Japan, was sent to Manila to work with JKL-Philippines as a technical consultant. Based on the contract between the two (2) companies, Mr. J's annual compensation would still be paid by JKL-Japan. However, he would be paid additional compensation by JKL-Philippines for the months spent working as a consultant. For 2018, Mr. J stayed in the Philippines for five (5) months. In 2019, the Bureau of Internal Revenue (BIR) assessed JKL-Philippines for deficiency withholding taxes for both Mr. F and Mr. J for the year 2018. As to Mr. F, the BIR argued that he is a resident citizen; hence, his income tax should be based on his worldwide income. As to Mr. J, the BIR argued that he is a resident alien; hence, his income tax should be based on his income from sources within the Philippines at the schedular rate under Section 24 (A) (2) of the Tax Code, as amended by Republic Act No. 10963, or the "Tax Reform for Acceleration and Inclusion" Law. (a) Is the BIR correct in basing its income tax assessment on Mr. F's worldwide income? Explain. (3%) (b) Is the BIR correct in basing its income tax assessment on Mr. J's income within the Philippines at the schedular rate? Explain. (3%)

You can write freely without an account. Sign in to reveal the suggested answer and track your progress.