Jennifer is the only daughter of Janina who was a resident in Los Angeles, California, U.S.A. Janina died in the U.S. leaving to Jennifer one million shares of Sun Life (Philippines), Inc., a corporation organized and existing under the laws of the Republic of the Philippines. Said shares were held in trust for Janina by the Corporate Secretary of Sun Life and the latter can vote the shares and receive dividends for Janina. The Internal Revenue Service (IRS) of the U.S. taxed the shares on the ground that Janina was domiciled in the U.S. at the time of her death.
[a] Can the CIR of the Philippines also tax the same shares? Explain. (2.5%)
[b] Explain the concept of double taxation. (2.5%)
Suggested answer only. Not an official answer and not legal advice.
(a) Yes, the CIR can tax the shares, subject to reciprocity. (b) Double taxation occurs when the same subject matter is taxed twice. Under Sec. 85 and 104, NIRC, shares in a domestic corporation owned by a
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Quick check
Where is the situs of shares of stock issued by a domestic corporation owned by a non-resident alien decedent located for estate tax purposes?
Shares of stock issued by a domestic corporation are deemed situated in the Philippines under Section 104 of the Tax Code.
Under Section 104 of the NIRC, when is intangible personal property of a non-resident alien exempt from Philippine estate tax?
Intangible property of a non-resident alien is exempt from Philippine estate tax if reciprocity exists under the foreign country's tax laws.
What constitutes direct double taxation under Philippine internal revenue principles?
Direct double taxation requires taxing the same subject matter twice by the same taxing authority for the same purpose within the same period.
Why is taxation of the same domestic shares by both the United States and the Philippines legally permissible?
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How does the reciprocity rule in Section 104 affect the estate tax liability on domestic shares owned by a US resident decedent?
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Learn more about these topics
1. Situs of Intangibles
Under Section 104 of the National Internal Revenue Code, shares of stock issued by a corporation organized under Philippine laws are deemed situated in the Philippines for estate tax purposes. Consequently, the gross estate of a non-resident alien decedent includes shares in a domestic corporation regardless of physical certificate location or foreign residence. However, Section 104 provides a reciprocity clause exempting intangible personal property from Philippine estate tax if the foreign decedent's country does not impose transfer taxes on intangible property of Philippine citizens not residing therein or grants a similar tax exemption.
2. Reciprocity Rule
The reciprocity rule under Section 104 of the Tax Code is designed to avoid international double taxation on intangible personal property owned by non-resident aliens. If the foreign law of the decedent's domicile either does not impose an estate tax on intangible personal property of non-resident Filipinos, or allows a similar exemption, the Philippine government waives its right to collect estate taxes on such intangibles. Absent proof of statutory reciprocity under foreign tax laws, shares of stock in domestic corporations owned by non-resident aliens remain fully taxable under Philippine estate tax laws.
3. Double Taxation Types
Tax law distinguishes between direct duplicate taxation and indirect duplicate taxation. Direct double taxation occurs when the same subject matter or property is taxed twice for the same purpose, within the same jurisdiction or taxing authority, and during the same taxable period. Indirect double taxation, on the other hand, occurs when two different taxing jurisdictions or sovereign states tax the same property or income. While direct double taxation is generally constitutionally objectionable, indirect international double taxation is legally permissible unless prohibited by an international tax treaty or statutory reciprocity provision.