Playing and streaming

Playing and streaming

by Julius Patrick C Acosta


In the past several months, majority of my weeknights have been dedicated to two things: Playing Defense of the Ancients (DotA) 2, an online battle arena; and streaming random TV series, reality shows, or movies online.

I believe that one of the best ways to relieve stress is by immersing myself in a world where I can plant Remote Mines and blow up other players, repeatedly watch Phoebe Buffay sing different versions of Smelly Cat, or root for drag queens lip syncing for their lives to an Ariana Grande or Whitney Houston song. These are the wonders brought about by the advent of digital services. What a great time to be alive for the current political climate.

playing & streaming

As a tax practitioner, I cannot help but think about the tax treatment of digital services. This pondering is amplified by teh fact that no fixed rules have been laid down yet by the Bureau of Internal Revenue (BIR) with regard to the tax treatment of digital services rendered by a non-resident foreign corporation (NFRC) to its Filipino consumers.

It is a basic rule in Philippine taxation that a foreign corporation is subject to income tax only on income derived from sources within the Philippines. For example, compensation for services performed in the Philippines is treated as income derived from sources within the Philippines. On the other hand, compensation for services performed outside the Philippines is treated as income derived from sources outside the Philippines. 

If the services are performed in the Philippines, the NFRC shall generally be subject to an income tax of 30 percent on gross income. Since an NFRC is not registered in the Philippines, the mechanism by which the BIR collects the income tax due from NFRC is through the withholding of tax by the withholding agent/income payor. Thus, the income derived by the NRFC from sources within the Philippines will generally be subject to final withholding tax of thirty 30 percent on gross income.

Further, a value-added tax (VAT) of 12 percent shall be imposed on gross receipts derived from the sale of services performed in the Philippines. Conversely, if the services are performed outside the Philippines, the sale will not be subject to VAT. Similarly, if the services are performed in the Philippines, the payment to the NRFC will be subject to final withholding VAT of 12 percent on gorss receipts.

However, conflicts lies in determining where digital services are actually rendered for purposes of taxation, not only in the Philippines, but also in other jurisdictions. In the case of Aces Philippines Cellular Satellite Corporation vs. Commissioner of Internal Revenue (CTA EB Case No. 8567, June 8, 2016), the Court of Tax Appeals (CTA) en branc ruled that the service of providing satellite air transmisison by an NRFC to a Philippine entity is considered income from sources within the Philippines because such service could not have been consummated without the use of a gateway facility/server located in the Philippines, even though all services were actually rendered by teh NRFC outside the Philippines (i.e., in Indonesia and in outer space).

Based on the above decision, does it necessarily mean that if a gateway facility/server in the Philippines is needed to consummate a sale of digital services, will the same be considered as a source of income within the Philippines, thus subject to taxes, even if all services were actually performed outside the Philippines? Only Supreme Court decisions form part of the law of the land. Hence, the above CTA decision cannot be considered to be set in stone just yet. 

But assuming that digital services provided by NRFCs are indeed subject to Philippine taxes, who will be required to withhold? Generally, whoever bears the cost is the one responsible for the withholding. Theoretically speaking, for digital services provided by NRFCs (such as online gaming and online streaming services), the obligation to withhold from income payments and remit the same to the BIR lies with the Filipino consumers, which are mostly individuals. The question now is how will the BIR obligate these individuals (some of whom may still be in high school) to withhold and remit the taxes due for every purchase of digital services? Bluntly speaking, I think it is an administratively difficult, but not an impossible task.

The Organization for Economic Co-operation and Development (OECD) was able to shed some light on this matter in its report entitled "Tax Challenges Arising from Digitalization - Interim Report 2018" on march 16. The OECD is an intergovernmental organization which provides a forum for governments to work together in seeking solutions to common problems, including the taxation of digital services rendered by foreign entities. Although the Philippines is not part of the OECD, our courts sometimes use the OECD guidelines to interpret tax laws. 

The report stated that different countries have already taken actions/measures outside the framework of income taxes to assert their respective taxing rights over NRFCs that supply digital products and services. In France, transactions are taxed primarily on the basis of their final destination, such as the location of the "public audience" for the online supply of digital content. In Hungary, the scope of advertisement tax is ultimately dependent on the location of the targeted public. For online activities, the location is deemed to be in Hungary when the advertisement is displayed predominantly in Hungarian language. In India and Italy, transactions are taxed on the basis of the location of the payor. These measures generally face a number of administrative and compliance issues, particularly in relation to the challenge of trying to collect tax from NRFCs with no physical presence in the jurisdiction of taxation. As of the date of the report, the levels of revenue collected from these measures appear to have been inconsequetial.

It is important to note that although the Philippines does not have fixed rules yet regarding the taxation of digital services provided by NRFCs, this does not necessarily imply that the BIR is precluded from asserting its rights to tax such digital services based on the CTA decision and the measures adopted by other countries. But while waiting for the BIR to come up with clear rules and regulations on this matter, all we can really do now is to keep on playing and streaming. 



Julius Patrick C. Acosta is a supervisor from the tax group of KPMG R.G. Manabat & Co. (KPMG RGm&Co.), the Philippine member firm of KPMG International. KPMG RGM&Co. has been recognized as a Tier 1 tax practice, Tier 1 transfer pricing practice, Tier 1 leading tax transactional firm and the 2016 National Transfer Pricing Firm of the Year in the Philippines by the International Tax Review.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.

The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or KPMG RGM&Co. For comments or inquiries, please email or

© 2024 R.G. Manabat & Co., a Philippine partnership and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.


For more detail about the structure of the KPMG global organization please visit

Connect with us