Are Pornhub earnings taxable? Yes
Before we proceed, to avoid complications, let us limit the discussion to a
resident Filipino who makes porn videos here in the Philippines and uploads them
on Pornhub.com, thereby resulting in income.
Income means all wealth which flows into the taxpayer other than as a mere
return of capital.[1] In fact, the Tax Code defines gross income as follows:
Income means all wealth which flows into the taxpayer other than as a mere
return of capital.[1] In fact, the Tax Code defines gross income as follows:
"Gross Income" includes gains, profits, and income derived from salaries, wages or compensation for personal service of whatever kind and in whatever form paid, or from profession, vocations, trades, business, commerce, sales, or dealings in property, whether real or personal, growing out of the ownership or use of or interest in such property; also from interests, rents, dividends, securities or the transactions of any business carried on for gain or profit, or gains, profits, and income derived from any source whatever.
The source of an income is the property, activity or service that produced the income. For the source of income to be considered as coming from the Philippines, it is sufficient that the income is derived from activity within the Philippines.[2]
The definition is broad and comprehensive enough to include proceeds from sales or
income from legal and illegal sources. The words
"income from any source whatever"
disclose a legislative policy to
include all income not expressly exempted within the class of taxable
income under our laws.[3] Hence, in the absence of a legal basis for the exemption of income from
the coverage of tax laws, such income is taxable.
In the legal community, there is hardly any argument against the rule that
income from illegal activities should be subject to taxation. According
to Borek (1992), if this were not the case, "nefarious individuals could
avoid taxation merely by choosing to earn their living outside the bounds of
the law."[4] Section 32 of the Tax Code itself swiftly declares that "all
income derived from whatever source" is to be included as gross income and
used in the calculation to arrive at taxable income.[5]
The 2011 case of Wood v. Commissioner confirms this, thus:
Section 61(a) provides: "Except as otherwise provided in this subtitle, gross income means all income from whatever source derived". This broad definition of "gross income" includes income derived through illicit means including embezzlement, regardless of how the money is used and although the embezzler may be required to repay the money in a later year. See James v. United States, 366 U.S. 213, 219-220 (1961).[6]
Although the Philippine Supreme Court has not yet decided on a case involving
a taxpayer ordered to pay tax on income derived from illegal sources, it is
safe to say that the same conclusion will be arrived at in case this happens
because of the exact same phrasing of the U.S. Tax Code and that of ours.
[1] https://www.projectjurisprudence.com/2021/08/what-are-income-tax-rates-in-philippines.html.
[2] G.R. No. 72443, January 29, 1988, citing Madrigal and Paternol
v. Rafferty and Concepcion, 38 Phil. 414 (1918).
[3] Id.
[4] Borek, Charles A. (1992) "Comments: The Public Policy Doctrine and
Tax Logic: The Need for Consistency in Denying Deductions Arising from Illegal
Activities," University of Baltimore Law Review: Vol. 22: Iss. 1, Article 5.
Available at: http://scholarworks.law.ubalt.edu/ublr/vol22/iss1/5.
[5] SEC. 32. Gross Income. -
(A) General Definition. - Except when otherwise provided in this Title, gross
income means all income derived from whatever source, including (but not
limited to) the following items:
(1) Compensation for services in whatever form paid, including, but not
limited to fees, salaries, wages, commissions, and similar items;
(2) Gross income derived from the conduct of trade or business or the exercise
of a profession;
(3) Gains derived from dealings in property;
(4) Interests;
(5) Rents;
(6) Royalties;
(7) Dividends;
(8) Annuities;
(9) Prizes and winnings;
(10) Pensions; and
(11) Partner's distributive share from the net income of the general
professional partnership.
[6] https://casetext.com/case/wood-v-commissioner.
