De Guzman, Desree Gale R.

ACCTAX – B
November 18, 2019

Situs of Taxation on Online Sales

In a draft revenue regulation, dated Dec. 17, 2000, regarding Electronic Commerce
Transactions, the BIR took the position that, in general, a non-resident of the Philippines who
transacts his business through his Web Site but does not maintain any warehouse, or a place of
distribution, or any business establishment of similar nature or character located within the
Philippines, shall not be treated as having a physical presence within the Philippines. His income
shall not be considered Philippine-sourced income and, therefore, not subject to Philippine
income tax.

Under the Civil Code Article 1475, the perfection of the contract of sale happens when
there is a meeting of minds upon the thing, which is the object of the contract and upon the price.
Thus, it can be presumed that the perfection of the contract of sale between the international
online seller and local buyer happened outside the Philippines when the seller acknowledged the
order of the buyer and agreed on the price, therefore, not subject to Philippine income tax.

When the online merchant (individual or corporation) and the online buyer (individual or
corporation) are both physically present in the Philippines, there is apparently no issue as to
business and income tax liability since the income is clearly sourced within the Philippines.
Thus, domestic laws on taxation should be applied by the Bureau of Internal Revenue (BIR).

Goods purchased over the Internet, however, shall be subject to 12% value added tax,
which shall be the liability of the person who imports the goods into the Philippines.