Philippines Tax Agency Clarifies Inclusion of Back Wages in Taxable Income of Illegally Dismissed Employees

The Philippine Bureau of Internal Revenue Dec. 29, 2020 issued BIR Ruling No. OT-700-2020, clarifying the inclusion of back wages in the gross taxable income of employees illegally dismissed from service. A taxpayer was illegally dismissed from his employment, and the agency was consulted as to the tax treatment of back wages, benefits, and allowances under a judicial award. The agency held that the back wages are to be included in the taxpayer’s taxable income as: 1) back wages and other receivable amounts represent unpaid salaries for services of the employee and are liable to income tax; and 2) employees ...