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Tax1-Digest Ni Rod

Tax1-Digest Ni Rod

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Published by Sui

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Published by: Sui on Aug 08, 2010
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06/27/2013

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D. Estates and Trusts
CIR vs VISAYAN ELECTRIC CO
Facts
-
Visayan Electric Co. established a pension fund for thebenefit of its employees
-
 The fund was later invested in stocks of San MiguelBrewery, for which dividends had been regularly received. These dividends, however, were not declared for taxpurposes
-
 The Provincial Auditor allowed VEC to declare the dividendsas income for franchise tax purposes, thus tax exempt
-
 The Revenue Examiner, however, argued that the dividendwere subject to corporate income tax
Decision
-
 The dividends were not income of VEC. They do not go tothe general fund of the company
-
 The dividends were part of the pension fund which wassolely for the benefit of the employees
-
 To qualify for exemption, the employees’ trust (pension)fund must refer to a definite program, scheme, or plan. Itmust be set up in good, actuarially sound, and not to beused or controlled in any way by the company. It mustextend retirement and pension benefits for the employees
-
Unquestionably, the VEC pension fund was created in goodfaith. It was meant for the benefit of the employees
-
 There are, however, no sufficient data which would justifythe Court to make a conclusive statement that the VECpension fund qualifies as a trust under the Tax Code. 1) The requirements for the formation of employees’ trustfunds for pension had not been strictly complied with—e.g.,the only record evidence of its creation is the minutes of aboard meeting; 2) No record to show that the fund wasactuarially sound
-
Absent such data,
the dividends are not tax exempt 
.Reason: Exemptions in tax statutes are never presumed.
CIR vs CA
Facts
-
 The GCL Retirement Plan is an employees’ trust whichprovides retirement, pension, and other benefits
-
GCL made investments and earned therefrom interestincome
-
 This income was assessed 15% withholding final tax
-
GCL claims tax exemption, based on Sec 56(b) of Tax Code—employees’ trusts are exempt from income tax
-
CIR denied exemption, based on PD 1959 which deletedprovisions on tax exemption and preferential tax rates
Decision
-
PD 1959 is a general law which cannot repeal by implicationSec 56(b) of Tax Code which is a specific law
-
 Tax Code clearly exempts employees’ trusts fromwithholding tax. The reason for this is to promote theformation and establishment of employees’ trusts funds forthe benefit of workers
-
Employees’ trust fund—an independent and additionalsource of protection for the working group. Moreover, it isestablished for their exclusive benefit and for no otherpurposeIII.A Exempt individuals under tax treaty
REAGAN vs CIR
Facts
-
Reagan is an employee of an American firm that providestechnical assistance to the US Air Force in the Philippines
-
Reagan imported an automobile to the Philippines and soldit to Johnson, a US Air Force member. Johnson, in turn, soldthe automobile to a Filipino
-
 The transaction took place in Clark Field Air Base inPampanga
-
For the profit realized from the sale, the CIR imposed onReagan an income tax
-
Reagan decried the imposition, citing the opinion of Justice Tuason in the Saura Case: “Transactions done in army
 
bases within the Philippines are contemplated to have beenconducted on a US soil, thus tax exempt”
Decision
-
 J. Tuason’s opinion was merely an obiter—not binding—andwas overturned in the 1962 Co Po case
-
 The Philippines is an independent and sovereign state—itsauthority may be exercised over its entire domain, wherethere is no portion that is beyond its power
-
Although, under the concept of auto-limitation, state maychoose to limit its exercise of sovereignty over certainparts of its territory
-
Still, the auto-limited part remains a native soil—still subjectto authority of the state. Jurisdiction may diminish but doesnot disappear
-
Clark Air Force is not a foreign territory for purposes forincome tax legislation—this power of taxation by thePhilippines is preserved in the Military Bases Agreement
-
 The Agreement merely states that a US national serving oremployed in connection with the construction,maintenance, or operation of the military bases in thePhilippines is tax exempt unless the income is derived fromPhilippine source or sources. In the sale of the automobile,the source was clearly the Philippines.
Reagan is liable for the income tax.
CIR vs ROBERTSON
Facts
-
Robertson et al are American citizens (although some of them were born in the Philippines) employed at the USNaval Base in Subic Bay
-
CIR claims Robertson et al should be imposed income taxesbecause they were in the Philippines not solely foremployment. Some of them were retired from the FederalCivil Service and were living with their respective familieshere, while the others owned residential properties here
Decision
-
 The RP-US Bases Agreement is very clear: to avail oneself of tax exemption, one must be a national of US, employed inthe naval base, and residing in the Philippines
-
Robertson et al meet all said requirements, therefore taxexemptIII.B Exempt Corporations
CIR vs SINCO
Facts
-
 The VG Sinco Educational Institution is a non-stock, non-profit corporation which was established to operate theFoundation College of Dumaguete
-
CIR assessed the College an income tax on the followinggrounds: 1) Sinco personally received benefits from it; 2)Community Publishers, a stockholder, profits from it; 3) Itcharges tuition fee; 4) It acquired buildings and otherproperty which will redound to the benefit of stockholdersafter dissolution of the corporation
-
Sinco argued that under the NIRC, corporation organizedand maintained exclusively for educational purposes andno part of its net income inures to the benefit of anyprivate individual
Decision
-
VG Sinco Educational Institution is tax exempt
-
 The corporation has never distributed any dividends to itsstockholders
-
Remuneration for services rendered to the College isallowed by law. This covers the money given to Sinco (assalary) and Community Publishers (for services)
-
 Tuition fee is the only source of income to ensure that theCollege will keep its operations going—allowed by law
-
 That the buildings and other property acquired by thecorporation will benefit the stockholders upon dissolution—too speculative
 
CIR vs CA (Oct 14, 1998)
Facts
-
 YMCA is a non-stock, non-profit corporation which conductsvarious programs and activities that are beneficial to thepublic. It leased out portions of its premises to small shopowners and for parking slots
-
 The CIR assessed against YMCA income tax for the profits itearned from leasing out portions of its premises
-
YMCA claimed exemption for being one of theorganizations listed in Sec 27 of the NIRC and Art VI of the1987 Constitution
Decision
-
Under the NIRC, YMCA is exempt from the payment of property tax but
not tax exempt 
from the profits itearned from leasing out portions of its premise
-
A reading from Sec 27 of the NIRC shows that the incomefrom any property of exempt organization, as well as thatarising from any activity it conducts for profit, is taxable
-
Art VI of the Constitution exempts from payment of taxcharitable, religious, educational institutions. Exemptionhere applies only to property tax. Besides, YMCA is not aschool or an educational institution
CIR vs CA (Apr 18, 1997)
Facts
-
 The Institute of Philippine Culture (IPC) is an auxiliary unit of the Ateneo de Manila University. Occasionally, IPC acceptssponsorships from foreign international organizations for itsresearch activities
-
 The CIR assessed a contractor’s tax against Ateneo,claiming that it—through IPC—is an independent contractorselling its research to foreign organizations
Decision
-
Ateneo is not an independent contractor and, therefore, taxexempt
-
Ateneo does not sell its services for a fee. The funds itreceives for its research activities are technically not a feebut a gift, a donation
-
Contract of sale requires transfer of ownership. Researchdata obtained by IPC remain with Ateneo, not transferredto the funding agency
-
 The research activity of Ateneo/IPC is in pursuance of maintaining its academic integrity and of its universitystatus
-
Ateneo’s motive for doing research is not profits but publicservice (for education)IV. Gross Income. A. Income from Whatever Source
CIR vs BRITISH OVERSEAS AIRWAYS CORP
Facts
-
In the period that the CIR assessed against BOAC incometax, BOAC had no landing rights for traffic purposes in thePhilippines. Consequently, it did not carry passengersand/or cargo to and from the Philippines
-
During the same period, however, BOAC maintained ageneral sales agent in the Philippines which wasresponsible for selling BOAC tickets covering passengersand cargoes
-
BOAC argued that the proceeds of sales of its passagetickets in the Philippines do not constitute income fromPhilippine sources since BOAC did not perform any serviceof cargoes or passengers within the Philippines
Decision
-
Gross income: includes gains, profits, and income derivedfrom salaries, wages, or compensation for personal serviceof whatever kind and in whatever form paid, or fromprofession, vocations, trades, business, commerce, sales,or dealings in property, whether real or personal, growingout of the ownership or use of or interest in such property;also from interests, rents, dividends, securities, or thetransactions of any business carried on
for gain or profit, or gains, profits, and income derived from any sourcewhatever 
-
 The phrase “income from any source whatever” discloses alegislative policy to include all income not expressly

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