REVENUE MEMORANDUM CIRCULAR NO. 97-2021 issued on August 16, 2021 clarifies the tax obligations of all social media influencers, individual or corporation.
          Social media influencers, as defined in the Circular, shall be liable to Income Tax and Percentage Tax or Value-Added Tax (VAT) pursuant to the provisions of the National Internal Revenue Code (NIRC) of 1997, as amended, and other existing laws. Section 23 of the NIRC, as amended, provides that a citizen of the Philippines residing therein and domestic corporations shall be taxable on all income derived from sources within
and without the Philippines, while a non-resident citizen, resident, non-resident alien, and resident foreign corporations shall be taxable on income derived from sources within the Philippines.
               Social media influencers, other than corporations and partnerships, are classified for tax purposes as self-employed individuals or persons engaged in trade or business as sole proprietors, and therefore, their income is generally considered as business income. Social media influencers derive their income from the following sources: a) You Tube Partner Program; b) sponsored social and blog posts; c) display advertising; d) becoming a brand representative/ambassador; e) affiliate marketing; f) co-creating product lines; g)promoting own products; h) photo and video sales; i) digital courses, subscriptions, e-books; and j) podcasts and webinars.
                   To constitute gains or profits from the conduct of trade or business, the payments must be received by a social media influencer in consideration for services rendered or to be rendered, irrespective of the manner or form of payment. Therefore, if a social media influencer receives free products in exchange for the promotion thereof on his/her/it YouTube channel or other social media accounts, he/she/it must declare the fair market value of such products as income.
                      Except for certain passive income derived from sources within the Philippines, capital gains from the sale of shares not traded in the stock exchange and from the sale of real property classified as capital assets, the Income Tax shall be imposed on the taxable income of resident citizens, aliens, partnerships, domestic and resident foreign corporations doing business as a social media influencer and shall be based on the schedular tax rates under Section 24(A)(2)(a) of the NIRC or on the corporate income tax rate under Sections 27 and 28 thereof, depending on the type of taxpayer.
                Income treated as royalties in another country, including payments under the YouTube Partner Program, shall likewise be included in the computation of the gross income of the social media influencer and shall be subjected to the schedular or corporate tax rates.
                    For resident aliens, any income derived from Philippine-based contents shall generally be taxable. Thus, the burden of proof that the income was derived from sources without the Philippines lies upon the resident alien. Absent such proof, the income will be assumed to have been derived from sources within the Philippines.
                      Besides Income Tax, social media influencers are also liable for business tax, which may either be Percentage Tax or VAT. Self-employed individuals whose gross sales or gross receipts and other non-operating income do not exceed the VAT threshold of ₱ 3,000,000.00 shall have the option to avail of the eight percent (8%) tax on gross sales or gross receipts and other non-operating income in excess of Two Hundred Fifty Thousand Pesos (₱ 250,000) in lieu of the graduated income tax rates under Section 24(A)(2)(a) and Percentage Tax under Section 116 of the NIRC.
                    Mixed income earners or those who are earning both compensation income and income from business and/or profession shall be taxable under Section 24(A)(2)(a) for all income earned from compensation and income earned from business or practice of profession, which may be taxed at the same graduated rates or 8% Income Tax based on gross sales or gross receipts, provided that the total gross sales and/or gross receipts and other non-operating income do not exceed the VAT threshold as discussed in the preceding paragraph. However, if the total gross sales and/or gross receipts and other non-operating income exceed the VAT Threshold, the graduated rates under Section 24(A)(2)(a) shall apply and they shall likewise be liable for VAT.
                        Section 34 of the NIRC states that in computing taxable income subject to Income Tax
under Sections 24(A); 25(A); 26; 27(A), (B), and (C); and 28(A)(1), there shall be allowed as deduction from gross income, among others, all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on or which are directly attributable to the development, management, operation and/or conduct of the trade, business or exercise of a profession. The expenses enumerated from Section 34(A) to (I) constitute the itemized deductions. These may be claimed as deductions provided that they are directly and exclusively related to the production or realization of the income and can be substantiated with sufficient evidence, such as BIR-registered receipts and invoices.
                         In the case of YouTubers for instance, the common business expenses that may be deducted from their gross income include, but not limited to, the following:
                 • filming expenses (cameras, smartphones, microphone and other filming equipment);
                 • computer equipment;
                 • subscription and software licensing fees;
                 • internet and communication expenses;
                 • home office expenses (ex. proportionate rent and utilities expenses);
                 • office supplies;
                 • business expenses (e.g. travel or transportation expenses related to YouTube
                    business, payment to an independent contractor or company for video editing,
                    costume designer, advertising and marketing costs, cost of contests and giveaway
                    prizes, etc.);
                 • depreciation expense; and
                 • bank charges and shipping fees.
                 In lieu of the itemized deductions, the taxpayer may elect Optional Standard Deduction (OSD) or a standard deduction not exceeding forty percent (40%) of gross sales/receipts in the case of individual taxpayers, or 40% of its gross income in the case of corporations. No substantiation is required for the OSD. To be entitled to OSD, however, the taxpayer must signify in the return the intention to elect OSD; otherwise, he/she/it shall be considered as having availed of the itemized deductions.
                     The Tax Compliance Requirements for social media influencers, namely: registration with the BIR and updating of registration information; keeping of books of accounts; filing of tax returns and payment of taxes; and withholding of tax and remittance of the same to the BIR (if applicable), are specified in Section 6 of the Circular.
                      Social Media influencers who willfully attempts to evade the payment of tax or willfully fails to make a return, to supply accurate and correct information or to pay tax shall, in addition to the payment of taxes and corresponding penalties, be liable criminally liable under Sections 254 and 255, in relation to Section 248(B) of the NIRC.
                   Under Section 248(B), a substantial under-declaration of taxable sales, receipts or income, or a substantial overstatement of deductions shall constitute prima facie evidence of a false or fraudulent return, and failure to report sales, receipts or income in an amount exceeding thirty percent (30%) of that declared per return, and a claim of deductions in an amount exceeding (30%) of actual deductions shall render the taxpayer liable for substantial under-declaration of sales, receipts or income or for overstatement of deductions, as mentioned herein.
                         It must be emphasized that the BIR also has the power to obtain information from foreign tax authorities pursuant to the Exchange of Information (EOI) provision of the relevant tax treaties. The BIR has the means to verify their income as it is clothed with a special power to obtain information from its treaty partners. The BIR may safely rely on the data provided by its treaty partners to establish the influencer’s tax liability.
                      The social media influencers are, therefore, advised to voluntary and truthfully declare their income and pay their corresponding taxes without waiting for a formal investigation to be conducted by the BIR to avoid being liable for tax evasion and for the civil penalty of fifty percent (50%) of the tax or of the deficiency tax.
                    In order to avoid the risks of double taxation, a social media influencer receiving income from a nonresident person residing in a country with which the Philippines has a tax treaty must inform the latter that he/she/it is a resident of the Philippines, and is, therefore, entitled to claim treaty benefits provided under the relevant tax treaty.
                       Where the non-resident requires the presentation of proof of residency, the influencer must obtain a Tax Residency Certificate (TRC) from the International Tax Affairs Division (ITAD) of the BIR and submit the same to the former. The influencer shall exert all efforts to obtain treaty benefits in the state of source.
                     If the influencer did not avail of the treaty benefits and was, in fact, subjected to regular tax in the state of source, he/she/it shall not be allowed to claim foreign tax credits in excess of the appropriate amount of tax that is supposed to be paid in the source state had the income recipient invoked the provision/s of the treaty and proved his/her/its residency in the Philippines. A more detailed discussion on this can be found in Section 5 of Revenue Memorandum Order (RMO) No. 43-2020.
                     If, on the other hand, the influencer is denied treaty benefits despite being able to prove entitlement thereto, he/she/it must file an application for Mutual Agreement Procedure (MAP) with ITAD following the guidelines and procedures set out in the pertinent revenue issuance for MAP assistance.
                  Early this year, Google LLC, the owner of YouTube, informed the public that any payments from YouTube through any other agreement between the content creator and YouTube (e.g., through the YouTube Partner Program) will be treated as royalties starting June 1, 2021 and that Chapter 3 of the United States (US) Internal Revenue Code requires Google to collect tax information, withhold taxes, and report to the US tax authority when a creator on YouTube earns royalty revenue from viewers in the US. Creators outside the US were thus advised to submit tax information to Google LLC.
                     For the purpose of fixing the withholding tax rate to be applied on all income payments from YouTube, social media influencers residing in the Philippines are advised to submit their tax information to Google to be eligible to claim treaty benefits under the tax treaty between the Philippines and the US.
                     Section 34(C) of the NIRC provides that Income Taxes paid or incurred to a foreign country may either be claimed as an item of deduction or as a tax credit but subject to the following limitations:
                  a. The amount of the credit in respect to the tax paid or incurred to any country shall
                        not exceed the same proportion of the tax against which such credit is taken, which
                        the taxpayer’s taxable income from sources within such country under this Title
                         bears to his entire taxable income for the same taxable year; and
                   b. The total amount of the credit shall not exceed the same proportion of the tax against
                         which such credit is taken, which the taxpayer’s taxable income from sources
                         without the Philippines taxable under this Title bears to his entire taxable income
                         for the same taxable year.
                   It must be noted that an alien individual and a foreign corporation shall not be allowed
the credits against the tax for the taxes of foreign countries. Tax credits shall be allowed only if the taxpayer establishes the following:
                    a. the total amount of income derived from sources without the Philippines;
                    b. the amount of income derived from each country, the tax paid or incurred to which
                        is claimed as a credit; and
                    c. all other information necessary for the verification and computation of such credits
                        (e.g. tax returns filed in the foreign tax authority and proof of payment of foreign   
                        taxes).
                     In the case of a taxpayer who deliberately fails to claim treaty benefits, the amount paid for the purpose of applying Section 9 of the Circular shall be deemed the amount of tax that should have been paid had the influencer invoked the provisions of the relevant tax treaty.