Tax Law for Business

actions, and the question of who might lead a viable challenge to Lula’s Workers Party in 2026 is being openly discussed.

“Bolsonaro seems to be on his way toward an inevitable end of his career,” political columnist Merval Pereira wrote in newspaper O Globo this month.

Sao Paulo state Gov. Tarcísio de Freitas, Bolsonaro’s former infrastructure minister and a close ally who backed his reelection bid, is among the politicians floated as potential standard-bearers for the right.

Some scoff at the conclusion that Bolsonaro has no shot of returning to the nation’s highest office less than a year after he received 58 million votes against Lula’s 60 million. But Geraldo Tadeu, a political scientist from the State University of Rio de Janeiro, said Bolsonaro’s rise to power in 2018 could be mostly explained by a confluence of one-off factors.

Brazil had just suffered its worst recession in almost a century, and t he Car Wash corruption probe implicated dozens of politicians, opening space for an outsider. Lula—who had been leading the polls—was ejected from the race by corruption and money-laundering convictions, and imprisoned. His convictions were later annulled.

“The circumstances left a vacuum that Bolsonaro filled,” said Tadeu. Bolsonaro’s lack of “leadership and negotiation skills” and inability to maintain political support undermine his odds of a comeback, Tadeu said.

Since returning to Brazil from the US, Bolsonaro has been ordered to provide testimony to the Federal Police on several occasions, and criminal convictions could extend the ban on him running for office and subject him to imprisonment. Bolsonaro denies any wrongdoing.

Bolsonaro’s lawmaker son Eduardo in February launched an online store selling Bolsonaro merchandise. Boosters can snap up notebooks bearing the president’s smiling face, key rings and mugs with his silhouette, or wall calendars marking milestones of his administration. Eduardo Bolsonaro celebrated his own July 10 birthday with a party featuring the store’s Bolsonaro-themed decor.

Cursive on his cake read: “Our dream remains more alive than ever!”

“The shop is a form of propaganda, a way of maintaining Bolsonaro alive as a symbol,” said Caio Marcondes, a political scientist from the University of Sao Paulo. “He’s a brand, a product that represents the right in Brazil.” AP reporter Carla Bridi contributed from Brasilia will be under threat from those who control the dollar payments systems.

UNtIl such time as existing tax treaties and tax laws are revised and revisited to account for the digital economy, the Courts must apply the laws as they currently are (Saint Wealth LTD. v. Bureau of Internal Revenue, GR 252965, December 7, 2021). the Supreme Court made this pronouncement when it declared that there was no basis to impose tax on offshore-based gaming operators.

The reason for that decision—no income is derived by these offshore gaming licensees from sources within the Philippines, based on the laws existing at that time. Our laws have changed where we now have specific provisions dealing with the imposition on offshore gaming licensees of gaming taxes on their gaming revenues and income taxes on nongaming revenues derived from within the Philippines.

While the Court made that decision, it also observed that “with the proliferation of digital and online commerce, it had become more complicated and less straightforward to determine where the activity which produces the income occurs, as when the transaction is conducted over the Internet.” Indeed there are challenges in taxing the digital economy, many of which were already identified by international organizations like the OECD.

Why am I mentioning this? Because these observations will remain as we are not expecting any change soon. At least for VAT, there is a move to modify the law to include digital transactions in the coverage of our VAT system. The final version of the law is not yet clear, but definitely it would include non-resident providers transacting with consumers in the Philippines. But for income tax, there is none. And that is because there are complications related to the modification of the income tax system. What does that mean? Our current income tax rules will continue to govern, including the income taxation of digital transactions.

As in the Saint Wealth LTD case, we may never have the right to impose tax, even if we Filipinos are among the consumers of digital services provided by foreign suppliers. Compared to domestic corporations that are taxed on their worldwide income, foreign corporations are liable to income tax in the country only on their income derived from sources within the Philippines. Hence, there is a need to determine the source of their income.

Our current domestic law is clear that for services, the related income is considered derived from sources within the Philippines if the service is performed in the Philippines. On the other hand, income for services performed without the Philippines is considered income derived from sources without the Philippines. Thus, we simply refer to the place where the service is rendered in determining the source of the income. Jurisprudence had further explained the “source of income” as relating to the property, activity or service that produced the income.

Compared to traditional services, there may indeed be a challenge in determining the source of income for digital transactions and other business activities transacted online or electronically. But again, applying the Saint Wealth LTD case, as long as the property, activity or service is not located or done in the Philippines, then the country has no right to impose tax. Our tax authority had in fact made pronouncements that if the servers, websites and other related facilities are located outside the country, the income generated from the activity should be treated as sourced from outside the Philippines and therefore not taxable in the Philippines.

There are some views that the recent case of Aces Philippines Cellular Satellite Corp. v. CIR, GR 226680 could be basis for imposing income tax on digital transactions consummated outside the Philippines but provided with Philippine subscribers/consumers. That is misplaced. In that case, there are two segments in providing the services—the transmission of communication time by the satellite located in outer space and the delivery of the communica- tion time to the gateway located in the Philippines. The gateway’s receipt of the call in the Philippines signifies the completion of the service by the non-resident service provider. In this case, the Court determined that the source of the income is associated with the gateway that is located in the Philippines. In other words, the property, activity and service that produce the income are located in the Philippines. That makes the income subject to Philippine income tax.

That cannot be said to apply to all types of digital transactions. Transactions conducted over the Internet have varying business models. But most of the facilities used to provide the services are located outside the Philippines. The delivery and completion of services transpire outside the Philippines. As in the Saint Wealth LTD case, incomes generated from these services by foreign providers are not subject to Philippine income taxes. If we want to impose tax, we have to change the laws.

Indeed, until such time as existing tax treaties and tax laws are revised and revisited to account for the digital economy, we will continue to lose our rightful share in the digital economy.

The author is the Managing Partner of DuBaladad and Associates Law Offices (BDB Law), a member-firm of WTS Global.

The article is for general information only and is not intended, nor should be construed as a substitute for tax, legal or financial advice on any specific matter. Applicability of this article to any actual or particular tax or legal issue should be supported therefore by a professional study or advice. If you have any comments or questions concerning the article, you may e-mail the author at fulvio.dawilan@ bdblaw.com.ph or call 8403-2001 loc 310.