CIR v. Juliane Baier-Nickel / Taxation

The Juliane Baier-Nickel, a non-resident German citizen, was appointed and engaged as commission agent of a domestic corporation.  It was agreed that respondent will receive 10% sales commission on all sales actually concluded and collected through her efforts.  Juliane contends that her sales commission income is not taxable in the Philippines because the same was a compensation for her services rendered in Germany and therefore considered as income from sources outside the Philippines.  DECIDE.

SUGGESTED ANSWER: The important factor which determines the source of income of personal services is not the residence of the payor, or the place where the contract for service is entered into, or the place of payment, but the place where the services were actually rendered.

 The rule is that “source of income” relates to the property, activity or service that produced the income.  With respect to rendition of labor or personal service, as in the instant case, it is the place where the labor or service was performed that determines the source of the income.  There is no merit in the interpretation which equates source of income in labor or personal service with the residence of the payor or the place of payment of the income.

The decisive factual consideration here is not the capacity in which Juliane Baier-Nickel received the income, but the sufficiency of evidence to prove that the services she rendered were performed in Germany to entitle her to tax exemption since she is a non-resident German citizen.

          Juliane did not prove by substantial evidence, or that relevant evidence that a reasonable mind might accept as adequate to support the conclusion that it was in Germany where she performed the income producing service.  She thus failed to discharge the burden of proving that her income was from sources outside the Philippines and exempt from the application of our income tax law.   (CIR v. Baier-Nickel, G.R. No. 153793, August 29, 2006, Ynares-Santiago, J., 1st Div.)


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