Mr. A, a citizen and resident of the Philippines, is a professional boxer. In a professional boxing match held in 2013, he won prize money in United States (US) dollars equivalent to P300,000,000.
a) Is the prize money paid to and received by Mr. A in the US taxable in the Philippines? Why? (2%)
b) May Mr. A’s prize money qualify as an exclusion from his gross income? Why? (2%)
c) The US already imposed and withheld income taxes from Mr. A’s prize money. How may Mr. A use or apply the income taxes he paid on his prize money to the US when he computes his income tax liability in the Philippines for 2013? (4%)
Suggested answer only. Not an official answer and not legal advice.
(a) Yes, the US prize money is taxable. (b) No, it does not qualify as an exclusion. (c) Mr. A may claim US taxes paid as a tax credit or tax deduction.
Under Sec. 23(A), NIRC, resident citizens are taxed on worldwide income. Under Sec. 32(B)(7)(d), prize exclusions apply only to amateur sports, not professional athletes. Under Sec. 34(C)(1)(b), foreign income taxes paid are allowed as a tax credit or deduction.
(a) As a resident citizen, Mr. A's ₱300M US prize is taxable worldwide. (b) As a professional boxer, his prize is excluded from tax exemption. (c) To relieve double taxation, US taxes paid may be credited against Philippine tax due or deducted from gross income.
Thus, the US prize is taxable without exclusion, but US taxes paid are applied as a tax credit or deduction.
This is not an official scoring system and carries no weight with the Supreme Court or any bar review provider. It measures how much of the suggested answer's wording your response covers, not whether your reasoning is correct. For practice only.
Quick check
How is a resident citizen taxed on income earned from foreign sources under Section 23(A) of the NIRC?
Under Section 23(A) of the NIRC, a resident citizen is taxable on worldwide income derived from all sources.
Why is prize money earned in a professional boxing match in the US not excluded from gross income under Section 32(B)(7)(d)?
Section 32(B)(7)(d) excludes prizes from gross income only if earned in sanctioned amateur sports competitions.
How may a resident citizen apply income taxes paid to the US government on foreign prize money when computing Philippine tax liability?
Section 34(C)(1)(b) allows foreign income taxes paid to be claimed as a tax credit or tax deduction.
What condition must be satisfied for sports prizes and awards to qualify for statutory tax exclusion under Section 32(B)(7)(d)?
Prizes are excluded from gross income if sanctioned by the national sports association and national sports commission.
Under Section 34(C), what benefit does a tax credit provide compared to a tax deduction for foreign taxes paid?
A tax credit directly reduces Philippine income tax liability peso-for-peso subject to statutory limits.
Learn more about these topics
1. Worldwide Income Principle
Under Section 23(A) of the National Internal Revenue Code, a resident citizen of the Philippines is taxable on all income derived from sources within and without the Philippines. Unlike non-resident citizens or foreign nationals, resident citizens must declare their global earnings on their Philippine income tax returns. Consequently, prize money won by a resident citizen professional athlete in a foreign country, such as the United States, forms part of gross taxable income subject to regular Philippine income tax rates.
2. Professional Sports Prizes
Under Section 32(B)(7)(d) of the Tax Code, prizes and awards granted to athletes in sports competitions are excluded from gross income only if the competition is sanctioned by their national sports associations and authorized by the Philippine National Sports Commission. However, this statutory exclusion applies strictly to amateur sports competitions. Prizes earned by professional athletes in commercial or professional boxing matches do not qualify for exclusion, rendering the full amount of foreign prize money taxable under Philippine law.
3. Foreign Tax Relief
To alleviate international double taxation when foreign-sourced income is taxed by both the host country and the Philippines, Section 34(C)(1)(b) of the Tax Code permits resident citizens to claim income taxes paid to a foreign government. The taxpayer may elect to claim foreign income taxes paid either as a direct tax credit against Philippine income tax liability, subject to statutory limitations under Section 34, or as a deductible business expense from gross income.