Pacquiao still has to report income tax payments made in US — BIR
MANILA, Philippines — A tax treaty between the Philippines and another country, such as the United States, does not automatically free a Filipino who pays taxes to the US government from his tax obligation with the Philippine Bureau of Internal Revenue, according to BIR Commissioner Kim Henares.
Henares said a Filipino who generated income in another country during a temporary visit and remitted the corresponding income tax to that country’s government would still have to fulfill certain obligations to the BIR.
In particular, she said, the individual should still report to the BIR the earnings generated abroad and provide documentary evidence that the corresponding taxes had been paid to the foreign government.
“They [Filipinos generating income abroad] have to report and show proof that taxes had been paid,” Henares told the Philippine Daily Inquirer.
She said this when asked about the case of boxing icon Manny Pacquiao, who has been charged by the BIR for alleged tax delinquency for alleged failure to remit taxes on his earnings in 2008 and 2009.
Pacquiao’s camp has claimed that income tax on these earnings had been paid to the US government, given that the fights were held in the United States. Therefore, his camp said, the BIR should not be running after him anymore.
The Philippines and the United States have a tax treaty. Such a treaty is meant to prevent “double taxation”—which happens when an individual pays full income tax in the foreign country and also pays full income tax in the Philippines for the same income.
But the tax treaty does not exempt an individual from reporting to the BIR and submitting documents that would prove claims of tax payments, according to Henares.
“He [Pacquiao] was given the opportunity to show this [proof of tax payment to the United States] for the past two years but he failed to do so,” Henares said.
A taxpayer would avoid double taxation under the tax treaty but he might still have to pay some taxes to the BIR, BIR Deputy Commissioner Nelson Aspe said.
Since tax rates vary from country to country, it is possible that the individual will still have a remaining tax liability even if he has already paid income tax to the foreign country, according to Aspe.
This would be so, because the total income tax a Filipino must pay should be based on the rate imposed by the BIR, he said.
Whatever the remaining tax liability—after paying income tax abroad—should be paid to the BIR, he added.
“I am not referring specifically to the case of Pacquiao. But the general principle is, a tax treaty is meant only to prevent double taxation, and so if there is a remaining tax liability [resulting from the difference in the tax rates between the two countries], then the balance should still be remitted to the BIR,” Aspe said.
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