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Coverage of Taxation Law Review:
Book+ Magic & Pink Notes + CEP + Others TAXATION
Exception: if you, as his student is the one getting married.
Principles including Constitutional Provisions 2. Income Tax 3. Estate Tax 4. Donor’s Tax 5. Remedies 6. Local Tax 7. Real Property Tax 8. Tariff and Customs Code 9. Court of Tax Appeals 10. VAT (although not part of the coverage of the Bar Exams, questions have been asked since 1999) Title 5,6 and 7 are always included in the coverage No computations in the bar There are only 1 or 2 questions in the Bar about Basic Principles What are the favorite topics in the Bar? → 12 questions on Income Tax → 8-10 questions on remedies → 8-10 questions allocated to the 7 topics Rules in the Classroom: 1. Do NOT dare miss the first day of class >write down what will be written on the class card and follow instructions >when HOMETOWN is asked it means the province of your parents, if they came from separate provinces write both. Those who live in the city take note if CITY is placed before or after the province or locality Example: LAOAG CITY or CITY of MANILA 2. Do NOT be absent after the first day if you are absent, you have to transcribe what happened in class when you were out. The next meeting you attend class, consider yourself a resident of balic-balic, babalikbalikan ka sa recit No other excuse will be accepted: *head ache, fever and flu = REXIDOL *dysmenorrhea and cleansing = GOLDEN 8 herbal tea *If you happen to be attending a sem, usually on 2nd sem, ask ahead for routes on which you can take coming from your province/home town in order to make it to the first class after holidays.
and understand the assignment following the flow in this material. Wag ZAPOTE ang aral na naintindihan pero di naunawaan Sunday or the class will be held on that day as well (no sanction can be imposed if classes will be held)
4. For holidays – make up class probably on a
EXCEPTION: HOLY DAY/FEAST and upon order of our dear OARs 5. Bawal ang tatayo at ngingiti, magpapapicture o magsosorry (except if you are that puny girl last seen at the palace)
6. Allowed to glance at your notes, wag lang
MATERIALS: National Internal Revenue Code (big one where you can write notes) commentaries (any author will do) magic notes (Sababan Lecture and Q&A)
1. READ the codal provisions following the outline 2. UNDERSTAND the provisions with the help of the Magic Notes 3. Read the cases, Special laws, Revenue regulations(if stated 4. Do not forget to compare if there are sections to be compared
Note: This material was printed and was made to be read from the left side for purposes of convenience in taking down notes on the other side.
Atty. Francis J. Sababan
Book+ Magic & Pink Notes + CEP + Others TAXATION
• Herrera vs. Quezon City 3 SCRA 186 • Abra vs. Hernando 107 SCRA 104 • Abra Valley vs. Aquino 52 SCRA 106 • Philippine Lung Center vs. Quezon City 433 SCRA 119 h) Article VI sec. 28 par. 4 – qualified majority in tax exemption i) International double taxation • CIR vs. Johnson 309 SCRA 87 j) Doctrine of equitable recoupment k) Doctrine of Set-off or compensation in taxation • Republic vs. Mambulao 4 SCRA 622 • Domingo vs. Garlitos 8 SCRA 443 • Francia vs. IAC 162 SCRA 753 • Caltex vs. COA 208 SCRA 726 • Philex vs. CIR 294 SCRA 687
Basic Principles of Constitutional Limitations a) Due process clause which could be either substantive due process and procedural due process clause b) Equal protection clause Read: • Ormoc Sugar Central vs. City Treasurer 22 SCRA 603 • Tiu vs. CA 301 SCRA 178 c) Article III sec. 1 of the 1987 Constitution – non-impairment clause d) Article III sec. 5 – freedom of religion e) Article III sec. 20 – nonpayment of poll tax f) Article VI sec. 28 par. 2 – flexible tariff clause g) Article VI sec. 28 par. 3 – exemption from real property tax Read:
Atty. Francis J. Sababan
Book+ Magic & Pink Notes + CEP + Others TAXATION
A: No. Only the National Government exercises the inherent power to impose taxes. Q: The taxing power of local governments is a DELAGATED power. Delegated by whom? A: Delegated by Congress through law in case of autonomous regions, and delegated by the Constitution in case of LGUs not considered an autonomous region. ► Cities, provinces and municipalities → power granted under Art. X Sec. 5&6 of the Constitution ► Autonomous Regions → power conferred by Congress through law. Art. X Sec. 20 #2 of the Constitution is a non-self-executing provision. Thus the power is granted by Congress because said provision requires an enabling law. ► Article X, Section 5 is self-executing thus the power is granted by the Constitution. INHERENT LIMITATIONS of TAXATION Q: What are the inherent limitations of taxation on the part of the national government? A: 1. It should be for PUBLIC PURPOSE 2. it is inherently LEGISLATIVE 3. Government is tax EXEMPT 4. Territoriality 5. International comity Q: What if the congress appropriate money for the development of a property belonging to a private person, is the appropriation valid? A: Pascual vs. Secretary of Public Works (GR No. L-10405, 12/29/1960) “ It is a general rule that the legislature is without power to appropriate for anything BUT public purpose.” It is the essential character of the direct object of expenditure, which must determine its validity as justifying a tax, and not the magnitude of the interest to be affected nor the degree to which the general advantage of the community, and thus, the public welfare, may be ultimately benefited by their promotion, Incidental to the public or the State, which results from the promotion of public interest and the prosperity of private enterprise or business, does not justify their aid by the use of public money.
BASIC PRINCIPLES: ► Taxation is an inherent power of the State. Q: What do you mean by INHERENT? A: The power to tax is not provided for in the law, statute or Constitution; it depends on the existence of the state. No law or legislation for the exercise of the power to tax by the national government. The power to tax DEPENDS on the existence of the State, the moment the State Exists, AUTOMATICALLY, the power to tax also exists. Q: Do local governments exercise this inherent power?
agencies and instrumentalities alrhough derive income by the gov’t form the utility and income derived from the exercise of essential government functions are exempt(Sec 32B7b NIRC) Q: What is the source of power to tax of LGUs outside the Autonomous Region and those within the Autonomous Region? TERRITORIALITY Taxation is territorial in such a manner that the taxing authority cannot impose taxes oon subject beyond its territorial jurisdiction. 5. However. (4) Personal. Philippine Match Co. should be allowed full play. Francis J. Sababan Lutz vs. TAXATION MAY BE USED TO IMPLEMENT THE STATE’S POLICE POWER Q: May the gov’t tax itself? A: Determine first who the taxing authority.Atty. NOTE: It is the Constitution power to tax but subject to limitation as the congress Congress derives this Constitution as well. (3) Ancestral domain and natural resources. City of Cebu (GR No. consistent with the basic policy of local autonomy. It was contended that the proceeds of the tax shall only benefit a particular industry. and tourism development. The power from the Congress enacted a law imposing a tax on SUGAR INDUSTRY. charges of any National Local YES kind on the Governmen Governm nat’l gov’t. and (9) Such other matters as may be authorized by law for the promotion of the general welfare of the people of the region. Araneta (98 Phil 148) Book+ Magic & Pink Notes + CEP + Others TAXATION A: Sec. t ent agencies and instrumentalitie s EXCEPT income from public utility under their jurisdiction ^ Sec 27 C provides national gov’t can levy tax. whose places of business were 4 . and property relations. the organic act of the autonomous regions shall provide for legislative powers over: (1) Administrative organization. L-30745 1/18/1978) The sales in the instant case were in the City of Cebu and the matches were stored in the city. (6) Economic. vs. Hence. Q: What is the source of power to tax within the Autonomous Region? A: Section 20 number 2 of ArticleX of the 1987 Constitution (non self executory) Within its territorial jurisdiction and subject to provisions of this Constitution and national laws. which shall provide for legislative powers to levy taxes over their inhabitants. the legislature may determine within reasonable bounds what is necessary for its protection and expedient for the promotion of public interest. (2) Creation of sources of revenues. Legislative discretion. (7) Educational policies. Such taxes. (8) Preservation and development of the cultural heritage. it was ruled that the tax remains valid since the protection and the promotion of the sugar industry is a matter of public concern. fees. ^ This merely authorizes the Congress to pass an Organic Act of the Autonomous Region. fees and charges shall accrue exclusively to the local governments. If objectives and methods are alike and Constitutionally valid. fees and charges subject to such guidelines and limitations as the congress may provide. (5) Regional urban and rural planning development. that gave LGUs the such guidelines and may provide. taxing authority may determin the tax SITUS. according to the court. there can be no reason why the State should not be allowed to levy taxes to raise funds for their prosecution and attainment. The fact that the matches were delivered to customers. 133 LGCpower to tax Shall not extend to taxes. subject only to the test of reasonableness. Art X of the 1987 Constitution (selfexecuting) Each LGU shall have the power to create its own sources of revenue and levy taxes. However. social. family. Taxing Authority Local Governmen t Levying from National Governm ent NO <Sec.
Procedural due process. has no inherent power to tax. L-18262 & L-21434 7/31/1964) To allow an alien resident to deduct from his gross income whatever taxes he pays to his own government amounts to conferring on the latter the power to reduce the tax income of the Philippine government. a GOCC. otherwise. The Constitution simply defines and delimits this power to strike balance between the power of the government and the freedom of the governed. because the seller’s place of business is in Cebu City. PAGCOR (197 SCRA 52) The city of Manila. Article III of the 1987 Constitution “No person shall be deprived of life. CONSTITUTIONAL LIMITATIONS Q: Is the Constitution the source of the taxing power of the State? A: NO. Mactan Cebu Int’l Airport vs. L-18169. fair and just. Due Process Clause Section 1. and to safeguard the latter from the abuse of the former. would not place those sales beyond the city’s taxing power. liberty or property without due process of law xxx” This clause guarantees the protection of personal and property rights. Q: Suppose the congress passed a law exempting the 13th month pay from tax with the concurrence of the majority of the quorum. its operation might be burdened.Atty. Pursuant thereto. CIR (GR nos. Is this valid? A: Section 28(4). they are the same as sales of matches fully consummated in the city. undoubtedly. it cannot be sensibly argued that such sales should be considered as transactions subject to the taxing power of the political subdivisions where the customers reside and accepted delivery of the matches. The power to tax exist prior to and independently on the Constitution. Marcos (261 SCRA 667) Mactan cannot invoke Sec 133 of LGC. impeded. Those sales formed part of the merchandising business being assigned on by the company in the city. INTERNATIONAL COMITY States MUST recognize the generally accepted principles/tenets of international law Lednicky vs. It is necessarily follows that its exemption from tax granted under Sec 14 of its charter. In ESSENCE. on the other hand. Article IV of the 1987 Constitution “No law granting any tax exemption shall be passed without the concurrence of the majority of all the members of Congress” Note: No less than the Constitution requires the 5 . or subjected to control by a mere LGU. Basco vs. It refers to local taxation. enforced contribution from the people cannot be made without a law authorizing the same. LGUs have no power to tax instrumentalities of the national government. And since the llast par of sec 234 unequivocally withdrew upon effectivity of the LGC. Further. requires notice and hearing or at least the opportunity to be heard. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION except as provided in the said section. PAGCOR being an instrumentality of the national government. RA 6958. has been withdrawn. Such a result is incompatible with the status of the Philippines as an independent and sovereign state. thereby subordinating our own taxes to those levied by a foreign government. being a mere municipal Corporation. Q: What are the two aspects of due process? A Substantive and Procedural due process Q: What do they require in order for them to be a limitation to the power to tax? outside the city. is therefore exempt from local taxes. and the proceeds for the Philippines diminished. his deduction from Philippine taxes would correspondingly increase. exemption from payment of real property taxes granted to natural person including GOCC’s A: Substantive due process requires that a tax statute must be within the Constitutional authority of Congress to pass and that it be reasonable. and the petitioner is. Francis J.
the party declared in default has to be notified of subsequent proceedings albeit without the right to participate therein. before levy. permanent or temporary. Is it fair. the adverse party need not be notified all the time. hence ineffective against the taxpayer. REASON: No provision of law requires notice to the adverse party. Where there is no such requirement. Before July 1. 1. Anything less. (Villegas v. to different classifications treated alike When no classification is called substantial distinctions exist but corresponding distinction is made on basis thereof. Thus. he may abscond. without notice and opportunity to be heard. such as the majority of the quorum (simple majority). no notice need be given to a party declared in default. 1998. it is further required that he should still be properly notified Q: Does this apply to the National legislature? A: this applies to legislative bodies of the LGUs which are the local sanggunian. In the case of a search warrant. notice and hearing or the opportunity to be heard is necessary only when expressly required by law. proceedings will be null and void. you can secure a TRO without notifying the adverse party. Sec 208 of RA 8424 if the delinquent taxpayer is subsequently found guilty as charged by the proper court of law. The SC said that the ordinance was 6 .Atty. If the adverse party is notified. in connection with procedural due process. Therefore such tax exempting statue would be unconstitutional and violative of substantive due process. Hsiu Chiong Pai) are for. you have the right to have an opportunity to be heard (if there is a law). Difference in treatment is allowed only when based on substantial distinction. as a limitation on the power to tax. After the amendment.” ► As a rule. notice and the opportunity to be heard are dispensable. RR 12-99 requires that as early as assessment stage until extra judicial settlement of a taxpayer’s criminal violation is reached procedural due process should exist Section 20[B] where compromise is not allowed due to or involves fraud or the case was filed in court already. Q: Does it follow that the adverse party must always be notified? A: No. 1995. there must be notice. As a rule. no the Tsai Ex: In one case. without due process. both as to privileges conferred and liabilities imposed. If you are a suspect in a criminal case. Nor shall any person be denied the equal protection of laws. Equal Protection Clause Section 1. Difference in treatment not based on substantial distinction is frowned upon as “class legislation. Q: Imposition on tax on cellular phones. a tax ordinance was assailed on the ground that the ordinance failed to distinguish a worker form casual. Francis J. The person 1. in adversarial proceedings. just and reasonable? A: The elements of prohibited double taxation should be considered in order to determine if this will be valid. to the same classification are treated differently from one another When no classification does not rest upon substantial distinctions that make for real differences 2.” Q: How can is this violated? A: This is violated when taxpayers belonging: Majority (qualified majority). taxpayers of the same footing are treated alike. Article III of the 1987 Constitution “xxx. the person to be searched was not notified. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION searched cannot claim that there was a violation of due process because there is no law requiring that the person to be searched should be notified. Example: Before Oct. Regarding delinquent tax payers. limited to the prosecution stage alone? A: In the prosecution stage. Q: In procedural due process.
Non-impairment Clause Section 10. Free exercise clause Prohibition to establish a national religion It Involves 3 Things: 1.4 imposing upon any and all centrifugal sugar milled at the Ormoc Sugar Central a municipal tax on the net sale of the same to the United States and other foreign countries.Atty. Article III. The non-establishment clause Basis of tax exemption 1. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION area have to give a larger capital to operate in the secured area (to spur economic growth and guarantee employment). there was a violation of element #3 because the law was worded in such a way that it only applies to Ormoc Sugar Central alone and to the exclusion of all other sugar centrals to be established in the future. things and transactions belonging to the same class. ORMOC SUGAR CENTRAL vs. with the approval of the President. In PEOPLE v. 3% of the Gross Income shall be remitted to the national gov’t) to those operating their businesses within the said area. TAKE NOTE: People vs. 4) The distinction must apply to persons. H: The Supreme Court said there was a violation of the equal protection clause. CAYAT the Supreme Court mandated the requisites for a valid classification. CIR Q: What did the municipality of Ormoc do? A: The City Council of Ormoc passed a Municipal Ordinance No. Q: Who are the petitioners and what was their contention? A: The petitioners are Filipino businessmen who are operating their business outside the secured area. Requirements of Reasonable Classification: 1) There must be substantial distinctions that make a real difference. H: The Supreme Court ruled that there was no violation since the classification was based on a substantial distinction. TIU v. that it must be applicable to both present and future circumstances. Q: Did the owner accept this imposition? A: No. 1987 Contstitution This contain two clauses: 1. Article III. Cayat Freedom of Religion Section 5. freedom to choose religion 2. an act creating the conversion of the military bases into other productive uses. 2) It must be germane or relevant to the purpose of the law. 3) The distinction or classification must apply not only to the present but also to future situations. The element invoked here was element #3. The element invoked here is element #1 that there must be substantial distinction in the classification of taxpayers on whom the tax will be imposed. shall be imposed within SSEZ. The Court observed that those foreign businessmen operating within the secured 7 . prohibition upon the national government to establish a national religion Q: Which one limits the power to tax? A: Prohibition upon the national government to establish a national religion because this will require a special appropriation of money coming from the national treasury which is funded by the taxes paid by the people. Q: Who was the President at that time? A: President Ramos Q: What were signed? A: RA 7227. then filed a complaint against the City of Ormoc. The latter set the limitations and boundaries of the application of the incentives (no taxes. passed RA 7227. local and national. 1987 constitution invalid because of the failure to state the said classification. Francis J. EO 97 and EO 97-A → The first led to the creation of the Subic Special Economic Zone (SSEZ). freedom to exercise one’s religion 3. The Supreme Court said that one must go to the provision itself. In lieu thereof. the tax due was paid under protest. in the case at bar. COURT OF APPEALS (301 SCRA 278) Q: what happened in the city of Olongapo? A: The Congress. The petitioners contended that the law in question was violative of their right to equal protection of laws since they are also Filipino businessmen.
It is a tax imposed on persons without any qualifications. not the law. parsonages or convents appurtenant thereto. Sababan Section 11. the obligation to pay taxes is imposed by law. QC-BOARD OF ASSESSMENT (1935 Constitution) Q: What is involved in this case? 8 . buildings. 1987 Constitution – charitable institutions. 1973 Constitution – charitable institutions. Example of Poll Tax: Community Tax Certificate under Section 162 of the Local Government Code. buildings. churches. When the law establishes the obligation and also provides for its fulfillment. nonprofit cemeteries. (Funds for sending a person to jail is taken from the national treasury which is funded by the taxes paid by the people) Q: What does the non-impairment clause uphold? A: The people’s right and freedom to contract as well as the sanctity of contracts. mosque. delict. then the act itself is the source of the obligation. without regard to their property or to the occupation in which they may be engaged. 3. and all lands. In this instance.Atty. mosque. and improvements ACTUALLY. Poll Tax Q: What is a poll tax? Exemption from payment of Real Estate Tax Q: What is the requirement for exemption from payment of real property tax under the 1935. Sec 22 (3). DIRECTLY and EXCLUSIVELY used for RELIGIOUS. CHARITABLE or EDUCATIONAL purposes shall be exempt for taxation. Note: does not apply to franchise Applies to taxation but not to Police power and Eminent domain Q: What are the sources of obligation in the Civil Code? A: Law. Art. Art. 2. 8. and nonprofit cemeteries. buildings and improvements used EXCLUSIVELY for RELIGIOUS. 28 (3). Contracts. Sec. and EXCLUSIVELY used for RELIGIOUS and CHARITABLE purposes shall be exempt from taxation. 1987 constitution Book+ Magic & Pink Notes + CEP + Others TAXATION A: It is a tax of a fixed amount on individuals residing within a particular territory. and improvements ACTUALLY. churches. and all lands. Sec. churches and parsonages or convents appurtenant thereto. therefore. and parsonages or convents appurtenant thereto. and its only purpose is to regulate such obligation. and all lands. EDUCATIONAL and CHARITABLE purposes shall be exempt from taxation. thus the non-impairment clause does not apply. 1973 and 1987 Constitution? A: Art. 6. Persons may be allowed to pay even if they are not qualified as to age or property ownership. Take Note: the requirement for its application: the parties are the government and private individual. Francis J. whether citizens or not. Delict. Quasi-Delict. in what instance does the non-impairment of contracts clause becomes a limitation to the power to tax? A: it is when the taxpayer enters into a compromise agreement with the government. DIRECTLY. If the law merely provides for the fulfillment of the obligation then the law is not the source of the obligation. Article XII. Quasi-Contracts. General Rule: The power to tax is pursuant to law. ► You have to determine first the source of obligation: 1. the obligation to pay the tax is now based on the contract between the taxpayer and the government pursuant to their compromise agreement. Q: Why is it a limitation to the power to tax? A: It is a limitation to the power to tax because Congress is prohibited from passing a law penalizing with imprisonment a person who does not pay poll tax. 17 (3). Q: What is the obligation contemplated in this limitation? A: Those obligations arising from contracts. 6. and quasi-delict. When the law merely recognizes or acknowledges the existence of an obligation created by an act which may constitute a contract. HERRERA v. quasi-contract. then the law itself is the source of the obligation Q: So. 1935 Constitution – Cemeteries.
Respondent contends that since the hospital is not used actually. The Court observed that the cause action arose under the 1973 Constitution. It is a charitable institution. Since it is not exclusively used for charitable purposes it is not exempt from taxation. Francis J. It is provided in the charter of the Lung Center of the Philippines is a charitable institution. schools and dormitory are all exempt fro taxation because they are incidental to the primary purpose of the hospital. the exemption was granted to all the real property (hospital. NOTE: this arose during the 1935 Constitution. the Supreme Court made a qualification. AQUINO Q: What is involved in this case? A: An educational institution is involved in this case. The 2nd floor thereof 9 . Inc. it is liable to pay real estate taxes. The respondent judge granted the exemption from taxes of said church based only on the allegations of the complaint without conducting a hearing/trial. Q: At present. not for educational purposes. QUEZON CITY Q: What is involved in this case? A: A charitable institution. The cause of action in said case arose under the 1935 Constitution and it does not apply to the provisions of the 1987 Constitution. the Roman Catholic Bishop of Bangued. NOTE: petitioner contended that the profits derived from the lease of its premises were used for the operation of the hospital. Catherine’s Hospital. The hospital was previously exempt from taxation until it was reclassified and subsequently assessed for the payment of real property tax. The Supreme Court said it depends. NOTE: both cases arose under the 1935 Constitution despite having been decided in 1988. The Court held A charitable institution. The hospital. justified because it is necessary. (bishop filed declaratory relief after assessed for payment of tax). 2. school and dorm). petitioner is exempt from payment of real estate tax. PROVINCE OF ABRA v. The Province of Abra now contends that since the school is not exclusively used for educational purposes. “Exempted by virtue of incidental purpose” was merely coined by the Supreme Court. Residence – exempt by virtue of incidental purpose. part of its building was leased to private individuals and the vacant portion of its lot was rented out to Elliptical Orchids. do we still apply the exemption from tax by virtue of the Doctrine of Incidental Purpose? A: Not anymore. 1. H: The Court held that the school is PARTIALLY liable for real estate tax. However. St.. an d exclusively for charitable purposes. a hospital. For the part of the hospital used for charitable purposes (whether for pay or nonpay patients). Thus. H: The Court ruled that petitioner is not liable for the payment of real estate taxes. the school is now liable to pay real estate tax. in the Herrera case. H: The Supreme Court held that the petitioner is liable to pay tax for those parts leased to private individuals for commercial purposes. it does not apply to other taxes except Real Estate Tax. It must be strictly construed against the taxpayer and liberally construed in favor of the government. it also operates a school for midwifery and nursing. thus exempt from the payment of such tax. HERNANDO Q: What is involved in this case? A A religious institution was involved in this case.Atty. Q: is the doctrine in the case of Herrera the same with this case? A: NO. But in this case. The assistant prosecutor filed a complaint contending that petitioner was deprived of its right to due process. Sababan A: Book+ Magic & Pink Notes + CEP + Others TAXATION was used as the residence of the school director and his family. ABRA VALLEY COLLEGE INC. v. and a dormitory. The ground floor of the school was leased to Northern Marketing Corp. PHILIPPINE LUNG CENTER v. Commercial – not exempt because it is not pursuant to the primary purpose. SC: the Court ordered that the case be remanded to the lower court for further proceedings. a domestic corporation. Tax exemption is not presumed. directly. not under the 1935 Constitution (note the difference). The contention of the respondent is that the hospital was no longer a charitable institution because it accepts pay-patients.
If allowed. The question is: was the tax paid under similar circumstances with that of the RP-West Germany Treaty? The CTA and Court of Appeals ruled that it was paid under similar circumstances. the property must be used ACTUALLY.S. The phrase referred to the royalties in payment of income tax. DIRECTLY. the DC should have paid only 10% under the most favored nation clause. The requirements for exemption are different. importance of international tax treaty 3. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION International Juridical Double Taxation applies only to countries where the tax liabilities of its nationals are imposed on income derived from sources coming from within and without. and EXCLUSIVELY for religious. The case of Herrera does not apply because said case arose under the 1935 Constitution and the present case arose under the 1987 Constitution. COMM v. After paying 25%. The 10% does not apply because there is no matching credit. Rather. Is there an instance where international double taxation does not apply? Yes. H: The Supreme Court coined the term International Double Taxation or International Juridical Double Taxation. A case for refund of overpaid withholding tax was filed. Apparently. If it involves nationals of countries wherein the tax liability is imposed only from income derive from sources within and not including those derived from sources without.A (Non-Resident Foreign Corp. The Supreme Court reiterated the ruling in the Abra Valley case which arose under the 1935 Constitution. it held that it depends on whether or not the use is incidental to the primary purpose of the institution. because of common law origin. implication of most favored nation clause Q: What is the corporation involved in this case? A: A domestic corporation (DC). Under the 1987 Constitution. Q: What prompted the SC to coin such term? A: Because a single income (tax royalties paid by a DC) was subjected to tax by two countries. the US firm discovered that they are entitled to 10% under the most favored nation clause. SC JOHNSON and SONS. NOTE: at present. Important : 1. the DC will pay the NRFC royalties as well as payment of withholding tax.S. In the 1935 Constitution. This is not allowed in this jurisdiction. international double taxation 2. educational or charitable purposes. INC. “exemption from tax by virtue of incidental purpose” is not applicable to all taxes including real estate tax. there is no similarity in the circumstances. the Philippines income tax and the U. The Supreme Court unconsciously applied a doctrine laid down by the 1935 Constitution. Q: A: Q: A: EQUITABLE RECOUPMENT AND DOCTRINE OF SET-OFF Equitable Recoupment This doctrine provides that a claim for refund barred by prescription may be allowed to offset unsettled tax liabilities by crediting such refund to his existing tax liability. The Supreme Court ruled that the lower courts’ interpretation of the phrase was erroneous. tax. both the collecting agency and the taxpayer might be tempted to delay and neglect the pursuit of their respective claims within the period prescribed by law. What is matching tax credit? RP-Germany Treaty provides for that 20% of the tax paid in the Philippines shall be credited to their tax due to be paid in Germany. (Ex: Switzerland) → The controversy in the case at bar involves the income tax paid in the Philippines. the phrase applies to the application of matching credit. In return. SC Johnson and Sons. educational and charitable purposes. Francis J.Atty. Inc. that the use of the profits does not determine exemption. Thus. rather it is the use of the property that determines exemption. The Supreme Court made a qualification. Q: Was the doctrine laid down in Abra Valley affirmed in the Lung Center case? A: Yes. the property must be EXCLUSIVELY used for religious. entered into a license agreement with SC Johnson and Sons U. Q: What is Recoupment? the doctrine of Equitable 10 . NRFC) whereby the former was allowed to use the latter’s trademark and facilities to manufacture its products.
the concept of set-off arises where a taxpayer is liable to pay tax but the government. Set-off Presupposes mutual obligation between the parties. hence. the same is allowed to be credited to unsettled tax liabilities. Francis J. Considering the causes of action of the parties in this case came from different sources. the BIR would be flooded with so many claims. In taxation. (Sir gives an illustration found in page 3 of magic notes) Q: Is the rule absolute? Reason A: Yes.Atty. Moreover. General Rule: no set-off is admissible against demands for taxes levied in general or local governmental purposes. MAMBULAO LUMBER CO. Q: What is the liability of Mambulao? A: They are liable to pay forest charges (under the old tax code). NOTE: under our present tax code. you have to be honest for this to work. and that they are mutual creditors and debtors of each other. Q: What did the surviving spouse do? A: The surviving spouse suggested that the compensation to which the decedent was entitled to as an employee of the Bureau of Lands be set-off from the estate and inheritance taxes imposed upon the estate of the deceased. NOTE: we do not have inheritance taxes anymore because the same was abolished by Lolo Macoy. The principle of compensation does not apply in this case because the parties are not 11 . it is not a proper subject matter of set off. to exclude the remedy in connection or any indebtedness of the State or any municipality to one who is liable for taxes. Reason: Taxes are not in the nature of contracts or debts between the taxpayer and the government. contract or judgment as is allowed to be setoff under the statute of set-off which is construed uniformly. DOMINGO v. Q: Who is the administratrix? A: The surviving spouse. we do not have forest charges as the same was abolished by President Aquino. Q: What do we mean by the word “mutual”? A: “Mutual” means that the cause of action must arouse from the same source. for one reason or another. A claim for taxes is not a debt. Neither are they a proper subject for recoupment since they do not arise out of contract or the same transaction sued on. tax is not a debt. (furthermore. and are positive acts of the government to the making and enforcing of which. for one reason or another. the amount paid should be reimbursed to them or at least compensated or applied to their liability to pay forest charges. is INDEBTED to said taxpayer. but arises out of a duty to. H: The Court ruled that the reforestation charges paid is in the nature of taxes. the concept of taxation arises where a taxpayer is liable to pay taxes but the government. The rationale behind this is to prevent the taxpayer and government official from being negligent in the payment and collection of taxes. in the light of public policy. Q: What do you mean by SET-OFF? A: This presupposes mutual obligations between the parties. demand. Taxes cannot be the subject matter of compensation. is indebted to the said taxpayer. GARLITOS GRN L-18994 6/29/1963 Q: What is being collected in this case? A: Estate and inheritance taxes. therefore. the rule is absolute. the government is preventing corruption) There is no exception at all otherwise. Q: What did the lumber company do? A: The lumber company claimed that since the government did not use the reforestation charges it paid for reforestation of the denuded land covered by its license. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION mutually creditors and debtors of each other. In taxation. REPUBLIC v. the consent of the individual is not required. set off or compensation was not allowed in the case. A: When the claim for refund is barred by prescription. the NIRC.
not mutual creditors and debtors of each other. The Court has consistently ruled that there can be no off-setting of taxes against the claims that the taxpayer may have against the government.) California Texas (CALTEX) PHIL v. Q: What is the suggestion of petitioner? A: Suggested that the just compensation for the payment of his expropriated property be set-off from his unpaid real estate taxes.Atty. H: The Court did not allow the set-off. The Court did not allow set-off. Furthermore. and the taxes were collected by a local government. (the other part of his property was sold at a public auction) H: The factual milieu of the case dose not justify legal compensation. Q: Why is Caltex entitled to reimbursement? A: Because of the fluctuation of the oil prices in the Middle East and Europe. compensation therefore takes place by operation of law. 12 . in the instant case. a concern which is within the police power of the State to address. such as Caltex. Taxes cannot be the subject of compensation for the simple reason that the government and taxpayer are not mutual creditors and debtors of each other. The Court likewise stated that Caltex merely acted as agent of the government in collecting contributions for the OPSF because such is being shouldered by the consumers when they purchase petroleum products of oil companies. Taxation is no longer envisioned as a measure merely to raise revenues to support the existence of the government. Furthermore. its claim for reimbursement from the OPSF will be held in abeyance. It appears that petitioner was delinquent in the payment of his real estate tax liability. which it wanted to be set-off from its pending claim for a VAT Input credit/refund. Compelling Reason: Congress has enacted RA 2700. Taxes may be levied for regulatory purposes such as to provide means for the rehabilitation and stabilization of a threatened industry which is vested with public interest. the claim for VAT refund is still pending. The same is being collected by the Treasurer of Pasay. IAC GRN L-67649 6/28/1988 Q: This happened in what city? A: Pasay City Q: What is the tax being collected? Who is collecting the same? A: Payment for real estate taxes for the property of Francia. Caltex wanted to off-set its unremitted collection from its reimbursements. Francis J. COMM GRN 125704 8/28/1998 The petitioner is liable for the payment of excise taxes. 1279 and 1290 of the Civil Code and both debts are extinguished to the concurrent amount. The collection of a tax cannot await the results of a lawsuit against the government. A taxpayer cannot refuse to pay a tax on the ground that the government owes him an amount. in accordance with Art. and reiterated its ruling in the case of Mambulao and Francia. Sababan H: Book+ Magic & Pink Notes + CEP + Others TAXATION (diff parties. demand. PHILEX MINING CORP v. allocating a certain sum of money to the estate of the deceased. BAR QUESTION 1996: FRANCIA v. COA GRN 92585 5/8/1988 Q: What is being collected? A: Caltex’s contribution to the Oil Price Stabilization Fund (OPSF). contract or judgment as is allowed to be compensated or set-off. Furthermore. RA 6952 expressly prohibits set-off from the collection of contributions to the OPSF. and a claim for taxes is not a debt. the payment of just compensation was already deposited with PNB Pasay. Internal Revenue taxes cannot be the subject of compensation because the government and the taxpayer are not mutually creditors and debtors of each other. the property was expropriated by the national government. Both the claim of the government for estate and inheritance taxes and the claim of the (intestate) for the services rendered have already become overdue hence demandable as well as fully liquidated. Taxes are not debts. COA sent a letter to Caltex asking the latter to settle its unremitted collection stating that until the same is paid.
v. Indirect double taxation: Not legally objectionable. b. the SC keeps repeating that the taxpayer and the government are not creditors and debtors with each other. In Domingo vs. the same property is taxed twice when it should only be taxed once. Francis J. the SC ruled otherwise. It follows that set off or compensation should be denied because the refund is not yet granted. The National Government. Also known as duplicate taxation. within the same jurisdiction e. imposed by the same taxing authority. Principle of reciprocity Obnoxious double taxation is the synonym of double taxation. YET. 2. (3) LGUs (sec. LGUs are expressly prohibited by the provisions of RA 7160 or the LGC of 1991 from levying tax upon: (1) the National Government. with exception of Domingo v. although the parties are not mutually creditors and debtors. during the same taxing period. covering the same kind or character of tax. but in addition. DOUBLE TAXATION ∗ Definition: Taxing the same subject twice when it should be taxed only once. agencies and 13 . ∗ Is double taxation prohibited in the Philippines? No. It is something not favored but permissible (Pepsi Cola Bottling Co. 3. However. both taxes are imposed on the same property or subject matter for the same purpose. in the case of Francia. Garlitos. there is always a second reason after reiterating the rule in the case of Mambulao. 1968). In application the principle of set off or compensation.Atty. simply because of the very unique circumstance that Congress enacted RA 2700 appropriating money to the estate of the decedent. Requisites: a. City of Butuan. the SC added the claim for refund is not yet granted. we have the same reason. Income tax. we have the same ruling. can levy tax upon GOCCs. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION 1. The absence of one or more of the foregoing requisites of obnoxious DT makes the DT indirect. Secondly. This may be claimed by (1) citizens of the Philippines and (2) domestic corporations.113(o)). compensation or set-off was denied. The common ground for these cases that were denied: a tax is not a debt because the subject matters under the Civil Code of compensation must be a debt. and f. it ruled the money was already paid in the PNB account of Francia. the SC after reiterating the Mambulao ruling. in all these cases where set off was denied by the government. 2. Garlitos. d. Lastly. The same property is taxed twice when it should be taxed only once. Tax credits An amount allowed as a reduction of the Phil. REASON: This constitutes a violation of substantive due process. Elements of Double Taxation: 1) Levied by the same taxing authority 2) For the same subject matter 3) For the same taxing period and 4) For the same purpose ∗ Kinds of Double Taxation (DT) ∗ Reliefs from Effects of Double Taxation 1. PHILEX mining. The two (2) are different taxing authorities. In CALTEX. c. NOTE: In these 5 cases. In addition. the amount must be FULLY LIQUIDATED. There is no double taxation if the tax is levied by the LGU and another by the national government. To begin with. It is given to a taxpayer in order to provide a relief from too onerous a burden of taxation in case where the same income is subject to a foreign and Phil. Direct duplicate taxation/obnoxious – DT in the objectionable or prohibited sense. (2) its agencies and instrumentalities. Income tax on account of income tax(es) paid or incurred to foreign countries. the SC states that RA 6952 do not allow set off or compensation to be made against the fund of OPSF. Exemptions 4. pursuant to the provisions of RA 8424 of the Tax Reform Act of 1997. Treaties with other states 5. There is no constitutional prohibition against double taxation in the Philippines. Tax deductions Example: Vanishing deductions in transfer taxes.
24 (A) (b) 22 (E) • Overseas Contract Workers Sec. 23 (A). IAC 127 SCRA 9 -Then go to sec. Vs. E. 25 (E) -Corporate Income Taxpayers • Domestic Corporations sec. 24 (A). Collector 102 Phil. 25 (A) (1). 39 of NIRC • Calazans vs. Comm 139 SCRA 436 Pascua vs. 23 (D). 25 (A) (3). Comm. 27 D (2).E. sec 5. Sources of Income sec. Gross Income Tax secs. 24 (A) (b) • Resident Aliens Rev. 28 (A) (7) (D). Comm. 27 (D) (5) • China Bank vs. And 28 A(1) but only up to the 4th paragraph -Proceed to section 42 and 23 of the NIRC • NDC vs. 28 (A) (2) 5. 25 B. Minimum Corporate Income Tax of 2% of the Gross Income secs. 127 NIRC . 24 (D) (2) read RR 13-1999 -Upon • • • • • • reading sec. RR 7-2003 -Upon reading sec. 12-2001 • Aliens Employed in Offshore Banking Units sec 25 (D) • Aliens Employed in petroleum Service Contractors & Subcontractors sec. 25 (B) last par. 24 (A) (c) • Non-Resident Aliens Engaged in trade or business sections 25 (A) (1) • Non-Resident Aliens Not Engaged in trade or business sec. 73 • Comm. 27 A. 23 (C). C. 28 (A) (1). Comm.Atty.D. sec. 27 (D) (4). 28 B (5) (C) RA 7717 sec. 22 (1) and 28 (B) -Estates and Trusts sec. Comm 151 SCRA 472 • Comm. 24 C. 22 (H) and (28)A Different Kinds of Income Tax 1. Comm.C. 24 (B) (2) sec. C. 25 B. 2-2001 • Optional Corporate Income Tax of 15% of its gross income sections 27 (A) 4th to 10th par. 24 D (1). 27 (A) go to sec. 27 (E). 60-66 of NIRC instrumentalities (Section 27 c)). sec 24 (A) (a) • Non-Resident Citizens sec 23 (B).Income Taxpayers a) Individuals b) Corporation c) Estates and Trusts – -Individuals are classified • Resident Citizens sec. Bautista 45 SCRA 74 Obillos vs. Francis J. although income received by the Government form: 1) any public utility or 2) the exercise of any essential governmental function is exempt from tax. 25 (A) (1). 24 (A). 25 B. Reg. 25 (B) • Aliens Employed in Multi-National Corporations sec. Income Tax Law Section 22-26 of the National Internal Revenue Code a) Read in the commentaries or magic notes the different kinds of: 1. Net Income Tax secs.B. 28 (A) (7) (C). 25A (3).Then you go to sec. 25 (A) (2). 25 (B) first part and 28 (B) (1) 3. 301 SCRA 152 -Sec. 27 (D) (1) -Then go to se. 26. D. 22 (B) Batangas vs. Court of Appeals 336 SCRA ___. 57 (A) 4. 27 (A) (B) (C). Final Income Taxes sec. Income Taxpayers 2. 29 NIRC Rev. Manning 66 SCRA 14 • Anscor vs. C. 25 B.C. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION • Non-Resident Foreign Corporations sec. 25 (C) and Rev. and sec 27 of NIRC • Resident Foreign Corporations sec. 24 SCRA 198 Ona vs. 31 and 32 (A) 2. Reg. E.E. 42 of NIRC . 32 B (7) (a) Then you go to sec. Collector 102 Phil 140 Reyes vs. 822 Evangelista vs. 28 (A) (6) and sec 51 (D) -Then continue to sec 24 B 1. Income Taxes 3. Topics under Tax 1: II. Reg. Vs.C. 23 (E). 144 SCRA 664 RR 7-2003 -Then proceed to sec. Improperly Accumulated Earnings Tax of 10% of its taxable income sec. 28 (A) up to 3rd par.D. 166 SCRA 560 14 .
read sec. Bautista 45 SCRA 74 15 . sec. CA 325 SCRA 259 and Filipina vs. (28) (A) (7) (d). 154 of the LGC. CIR 177 SCRA 500 • Proctor & Gamble vs. Comm 160 SCRA 560 • Same case Proctor and Gamble on the Motion for Reconsideration 204 SCRA 377 • Wonder vs. 3-98 -then go to sec. 28 (B) (5) (b) • Marubeni vs. 112 SCRA 136. 60-66. Comm. Comm 181 SCRA 214 -Then go to sec. 32 (B) (7) (b) of NIRC. 32 (B) 1 and 2. sec.Atty. 29 and Rev. 28 (B) (5) (C). 27 (D) (5) read RA 9337. 108A and sec. • Pagcor vs. sec. Cebu 261 SCRA 667 • LRT vs. 34 (A) (1) (a) see Aguinaldo vs. City of Manila 342 SCRA 692 -Proceed to sections 27 (D) (1). 27 (C) of NIRC see RA 9337 then go to sec. Reg. Comm. Sababan • Afisco vs. 49 read Banas vs. Comm 160 SCRA 573 -Proceed to sec. 28 (A) (7) (b). RR 10-2002 -Under Sec. 28 (A) (3) read RR 15-2002 -Go to sec. Basco 197 SCRA 52 • Mactan vs. 28(B) (5) (a) and sec 32 (B) (7) (a) • Read Mitsubishi vs. 85 par (e). 123 of the NIRC -Proceed to sec. 27 (D) (2). 302 SCRA 1 Book+ Magic & Pink Notes + CEP + Others TAXATION -Upon reading sec. 28 (A) (4) see RA 9337 -Then see sec 28 (A) (5) see Marubeni vs. 34 (B) read RR 13-2000 -Upon reading sec. 33 read Rev. Reg. 2-2001 -Upon reading sec. Comm. Comm 177 SCRA 500 -Proceed to sec. 133 par (o) of LGC. 27(D) (5) then sections 27 (E) and 28 (A) (2) -Go to sec. Francis J. 27 (D) (4). read Ona vs. 316 SCRA 480 -Upon reading sec.
Francis J.Atty. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION 16 .
Atty. Francis J. 17 . Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION FOR THIS TABLE KINDLY CHECK ON UPDATES AND FROM SECTION OF FINAL INCOME TAX.
The importance of ascertaining whether or not a seaman is a RC or a NRC. he is considered a RC. the vessel must be exclusively engaged in international trade or commerce. If you are a seaman in the US Navy.Atty. A Filipino seaman is deemed to be an OCW for purposes of taxation if he receives compensation for services rendered abroad as a member of the complement of a vessel engaged exclusively in international trade. namely: 1. If he stays in the Philippines most of the time during the taxable year. Q: What is the significance of using OCW? A: It only covers Filipinos who works abroad with a contract. OCW and Seamen 18 . you may still be considered a RC. Consequently. said seaman is not deemed to be an OCW. and you have the intention to permanently reside therein. It does not cover TNTs. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION OCW was used and not OFW in the CTRP. if he is not a member of the complement or even if he is but the vessel where he works is not exclusively engaged in international trade. Resident Alien (RA) An individual whose residence is within the Philippines and who is not a citizen thereof. If such intention to permanently reside therein was not manifested to the Commissioner and the fact of your physical presence therein. is that if he is a RC he is taxable on ALL income derived from all sources within and without. D & E OFFSHORE BANKING UNITS & PETROLEUM SERVICE CONTRACTORS (AEMOP) Resident Citizen (RC) Q: How many types of RC? A: There are two (2). can you still be considered a RC? A: Yes. Francis J. you are not the one being referred to. a NCR. they are considered RC because they work abroad without a contract and they have not manifested their intention to permanently reside abroad. because the classification shall cover only those Filipino citizens working abroad with a contract. Q: If you are abroad. Filipino living abroad with no intention to reside permanently therein. (distinguish from an immigrant) Requirements for a seaman to be considered an OCW: 1. 2. must be a member of the compliment of a vessel. 23D Ttrade or Business & 25B Aliens ENGAGED in 25 MULTINATIONAL COMPANIES. He is either a RC or a NRC depending on where he stays most of the time during the taxable year. RC residing in the Philippines. Q: What is the status of a TNT? A: Since they are not covered by this classification. 23D or Business & 25A Nonresident Alien NOT ENGAGED in 22G. If he is a NRC. otherwise. and 2. INDIVIDUAL TAXPAYER Q: How many kinds of individual taxpayers are there? A: There are seven (7). Namely: INDIVIDUAL TAXPAYER SECTION Resident Citizen 23A & 24A Nonresident Citizen 23B & 24A OCW and SEAmen 23C & 24A Nonresident Alien ENGAGED in Trade 22G. TNTs are not covered. C. he is taxable only on income derived from sources within the Philippines.
The requirement under RR#2 is that he is actually present in the Philippines. II. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION A: Net Income Tax (NIT) on all its income derived from sources within the Philippines. Q: What is the income tax applicable to said taxpayer? ► Income earned from all OTHER sources shall be subject to the pertinent income tax. Non-Resident Alien Trade or Business Q: How many kinds? A: Only one. not a tourist. To be considered as such. Aliens Employed in Multinational and Offshore Banking Units Q: How are they classified? A: If they derived income from other sources aside from their employer. you may classify them either as RA. “engaged in trade or business” to include the exercise of a profession. Non-Resident Alien Engaged in Trade or Business (NRAETB) A foreigner not residing in the Philippines but who is engaged in trade or business here. Aliens Employed in Petroleum Service Contractors and Subcontractors ► Status: ALWAYS NRA. Q: How many types? A: There are three (3) types. 2. Francis J. or NRANETB. a NRA who is neither a businessman nor a professional but who come to and stays in the Philippines for an aggregate period of more than 180 days during any calendar year is deemed to a NRAETB in the Philippines. Aliens Employed by Regional or Area Headquarters & Regional Operating Headquarters of Multinational Companies/ Aliens Employed by Offshore Banking Units (Aliens Employed by MOP) ► Status: either a RA or NRA depending on their stay here in the Philippines. NRAETB. ► Liable to pay 15% from received from their employer Gross Income Not Engaged in Intention to reside permanently in the Philippines is not a requirement on the part of the alien. so long as he is not a sojourner. a traveler. Q: What is the status of a Chinese who stays here for 200 days in 2001? A: NRAETB Q: Suppose he stayed here for 100 days in 2000 and another 100 days in 2001? A: He is not a NRAETB. he must stay for an aggregate period of more than 180 days during a calendar year. ► Income derived or coming from their employer shall be subject to a tax of 15% of the gross. neither a sojourner. NRA who practices a profession (Revenue Regulation 2-98). namely: 1. RR 2-98 has expanded the coverage of the term. as the case may be. They are subject to tax based on their GROSS INCOME received form all sources within the Philippines. 3. foreigner who comes and stays in the Philippines for an aggregate period of MORE THAN 180 days during any calendar year. tourist or a traveler. Furthermore. CORPORATE TAXPAYER 19 . ► Their status may either be RA or NRA because Section 25 C and D does not distinguish. Q: Is the intention to permanently reside in the Philippines necessary? A: No. as the case may be.Atty. If they derive income from other sources. Whether he’s a transient or not is determined by his intent as to the nature and length of his stay. The reason why the NRANETB are included in any income tax law is because they may be deriving income form sources within the Philippines. such income shall be subject to the pertinent income tax. NRA engaged in trade or business (25a1). by the express provision of the law.
It will not reflect in the GPP’s ITR) » This is pursuant to the fact that FIT will not reflect in the ITR of the GPP since the withholding agent is liable for the payment of the FIT. Rule: 1. each partner will be paying NIT.” In short. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION 1) Exercise of a profession – not a corporation. and the distributive shares they will be receiving from the net income of the GPP will be included in the gross income of the partner. it is still EXEMPT and it is not deemed a corporation. it is still deemed a corporation. Associations 5. it is considered a taxable dividend which is subject to FIT.Atty. it is considered a corporation. and engaged in trade or business. How many corporations do we have? 1. yes. Resident Foreign Corporation (RFC) – corporation created under foreign law. Q: What is the importance of knowing whether the corporation is exempt or not? A: To determine their tax liability. but DOES NOT includes general professional partnerships and a joint venture or consortium formed of the purpose of undertaking construction projects or operations pursuant to or engaging in petroleum. coal. joint accounts. This is important to determine the tax liability of the individual partners of the GPP. Q: If the GPP is deemed a corporation. Q: Are partnerships always considered corporations? Is there no exception? A: General Rule: a partnership is a corporation. and NOT engaged in trade or business. nonprofit. will the partners have to pay for the income tax? A: No. Insurance Companies CIR v. Partnerships and others no matter how created 2. as far as the share of the GPP is concerned. Domestic Corporation (DC) – created or organized under Philippine laws. 2. Joint Stock Companies 3. subject to CIT TAN v. 2. no part of the income of which in derived from any trade or business. COURT OF APPEALS The phrase no “matter how created or organized” was interpreted. or insurance companies. it is not exempt and it is considered a corporation. geothermal or consortium agreement under a service contract with the Government. Q: Corporation X and Corporation Y joined together. DEL ROSARIO general rule: a partnership is a corporation exception: GPP exception to the exception: if the GPP derives income from other sources. Joint Accounts 4. joint stock companies. Even if the partnership was pursuant to law or not. associations. if the income is derived from other sources and such income is subject to NET INCOME TAX. ► Section 26 (1st paragraph) provides: “a GPP as such shall not be subject to the Net Income Tax…” however. if the income is derived from other sources and such income is subject to FINAL INCOME TAX. Nonresident Foreign Corporation (NRFC) – created under foreign law. (what if a partner has other businesses not related to the GPP? > read section 26 quoted hereunder) Two (2) Kinds of GPP formed for: 20 . ( separate return for this. Exception: (GPP) General Professional Partnerships Q: What is a GPP? A: It is a partnership formed by persons for the sole purpose of exercising their profession. it is a corporation. no matter how created or organized. Q: What are deemed corporations under the NIRC? A: The term corporation shall include partnerships. “…persons engaging in business as partners in a GPP shall be liable for income tax only in their separate and individual capacities. Francis J. exempt from Corporate Income Tax (CIT) 2) Exercise of a profession and engaged in trade or business – a corporation. 3. 1. whether nonstick. thus liable to pay corporate income tax. Reason: because of the possibility of earning profits from sources within the Philippines. Q: Is a joint venture a corporation? A: Generally.
the estate through the executor. Francis J. administrator.Atty. Collector (102 Phil 140)) b) If the heirs without contributing money. 3) If no partition is made. If there is. when the decision of the court shall have become final and executory. property or industry with the intention to divide the profits between and among themselves. a CO-OWNERSHIP is created and Individual Income Tax (IIC) is imposed on the income derived by each of the heirs. Judicial Settlement 1) During the pendency of the settlement. and other energy operations pursuant to “?” or consortium agreement under a service contract with the government. TRUST AND ESTATE A: Three. Individual or Corporate Income Tax. The status of the estate is determined by the status of the decedent at the time of his death. Domestic Corporation Is one created or organized in the Philippines or under its laws. or creator. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION III. Taxable Philippines. as an income taxpayer can be a citizen or an alien. and X+Y. the following taxes are payable under the provision of income tax law: 1) Income Tax for Individuals – to cover the period beginning January to the time of death. 4) MCIT (Minimum Corporate Income Tax) of 2% of the Gross Income 5) Optional Corporate Income Tax of 15% of the Gross Income A NRFC is liable for payment of the ff: 1) GIT. the heirs still do not divide the property. or of the decedent. for income derived within the Both DC and RFC are liable for the payment of the following: 1) NIT – Net Income Tax 2) FIT – Final Income Tax 3) 10% income tax on corporations with properly accumulated earnings. the following possibilities may arise: a) If the heirs contribute to the estate money. 2) If upon the termination of the judicial settlement. Y. Taxable Philippines. property or industry to improve the estate. Q: When is a joint venture not considered a corporation? A: It is not deemed a corporation when it is formed for the purpose of undertaking a (“construction?) project or engaging in petroleum. simply divide the fruits thereof between and among themselves. for income derived within the Q: How many for each? A: Seven (7) kinds for each because the trust or estate will be determined by the status of the trustor. Taxable on all income derived from sources within or without the Philippines. depending on whether there is or there is no settlement of the estate. Resident Foreign Corporation Foreign corporations engaged in trade or business in the Philippines.Gross Income Tax 2) FIT – Final Income Tax 21 . payable in their Non-Resident Foreign Corporation Foreign corporations not engaged in trade or business in the Philippines. depending on whether the settlement is judicial or extrajudicial. or heirs is liable for the payment of ESTATE INCOME TAX (Sex. gas. 2) Estate Income Tax – if the property is transferred to the heirs. 60 (3)). When a person who owns property dies. the joint venture has a separate and distinct personality from the two corporations. so an estate. namely Corporation X. an UNREGISTERED PARTNERSHIP is created and the estate becomes liable for payment of CIT (Evangelista vs. grantor.
by contract or by agreement. Hence. Q: Where the trust earns income and such income is not passive. Optional Corporate Income Tax of 15% on the Gross Income I.deductions Net Income x Tax Rate Income Tax Due Q: What is the rate? A: Individual: 32% Corporation: 30% NOTE: the formula allows for deduction. Income less separate and individual capacity (Pascual vs. Income Tax on Improperly Accumulated Earnings subject to 10% of the Taxable Income. NRANETB (liable for GIT). if they derive income from other sources. Q: What if the law is silent? A: If the law is silent. Q: Is the taxable net income subject to withholding tax? A: It is subject to withholding tax if the law says so. Net Income Tax (NIT). b. 2.Atty. Minimum Corporate Income Tax of 2% of the Gross Income (MCIT) 5. COMM (165 scra 560) and Obillos vs. or for the benefit of the grantor. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION Taxable Net Income – Tax Credit = Taxable Net Income Due Net Income means Gross deductions and Formula: GI . NRFC (GIT also). CFA: “to be included in the gross income” 2. personal exemptions and tax credit. 1. The status of a trust depends upon the status of the grantor or trustor or creator of the trust. namely: 1. 2. 6. Gross Income Tax (GIT). 4. the liability for the payment of income tax devolves upon the trustor himself in his capacity as individual taxpayer. a trust can also be a citizen or an alien. AEMOP. Final Income Tax (FIT). Q: What is another term for withholding tax? A: It is also known as the creditable withholding tax system under the income tax law. taxable income b. Gross income (walang kasunod) → only income tax from improperly accumulated earnings does not use this term. Characteristics: Q: Who are not liable to pay NIT? A: 1. 3. The income tax liability depends on whether or not the unregistered partnership or co-ownership is created. Francis J. Q: Do we have to determine if there is an actual gain or loss? A: Yes because the formula for deductions. ordinary way of paying income tax. it is not subject to withholding tax. who among the parties mentioned is liable for payment of income tax thereon? A: The TRUST itself. If it is revocable. 3. etc. KINDS OF INCOME TAX Q: How many kinds of income tax? A: There are Six (6). COMM (139 SCRA 436)) Extrajudicial Settlement Settlement and if NO Some possibilities may arise. Trust Trusts can be created by will. With certain modifications. Q: What are the other terms for NIT? A: NIRC: a. NET INCOME TAX Q: what is the formula? A: Gross Income – Deductions and Personal Exemptions = Taxable Income Taxable Income x Tax Rate = Net Income 22 . through the trustee or fiduciary but only if the trust is irrevocable. Revenue Regulations and Statutes: a. normal way of paying income tax .
you will be held liable. absolute liability to pay is upon the withholding agent. you cannot join all the income in one group because each income has a particular rate. Q: Do you still have to pay NIT? A: No. it is subject to NIT or GIT. (so. it is subject to withholding tax because the persons liable are foreigners. Q: Why is it that the rate of withholding is always lower. FINAL INCOME TAX (FIT) Q: What is the formula? A: (Each Income) x (Particular Rate) Unlike in the gross income tax where you add all the income from all the sources and multiply the sum thereof by the rate of 25% or 30%. 2. the formula does not allow deductions. II. compensation. personal exemptions. contract. if you are liable for FIT. and tax credit. 23 . Q: What is the rate? A: Refer to table on passive income then from the amount apply directly the rate without any deductions. Q: What is the formula? A: Gross Income x Rate Q: How many taxpayers pay by way of the gross? A: There are two (2) individual . Sababan Q: If you fail to pay. the taxpayer is always liable if he fails to pay. they are merely receiving royalties. NIT allows deductions. there is no employer – employee relationship. for NIT. and why is it that the rate of GIT and FIT is always equal? A: 1. in the case of celebrities.NRFC NOTE: the formula does not allow any deduction. whether or not subject to Creditable Withholding Tax (CWT). Francis J. 2. in final income tax. Q: If you fail to pay. after 1979 – capital gains tax. ► Case of Juday. will you be held liable? A: Yes. personal exemptions and tax credit.Atty. ► However. as the case may be. III. there is a possibility that they may earn income in the Philippines. This rule is ABSOLUTE NOTE: there are two (2) ways of paying taxes depending on which side of the bench you are. are liable to pay by way of the gross for any income derived in the Philippines. Employer – Employee Relationship (3 Cs): 1. ► before 1979 – proceeds from the sale of real property not exempt. 2. Richard and Regine ► For one to be liable for the payment of NIT. distinguish nature of income. for GIT and FIT. the number of FIT increased. Q: Is this subject to withholding tax? A: Yes. control. will you be liable? A: No. Characteristics: ► NRANETB and NRFC. While not engaged in trade or business. thus the agent is liable to pay. NOTE: like GIT. the income must be derived on the basis of an employer – employee relationship. as the case may be. no need to pay NIT or else there will be double taxation. GIT and FIT do not allow deductions. Proceeds from the sale of real property is exempt. GROSS INCOME TAX (GIT) Book+ Magic & Pink Notes + CEP + Others TAXATION Characteristics: Q: Who are liable to pay FIT? A: All taxpayers are liable to pay FIT provided the requisites for its application are present.NRANETB corporation . the withholding agent is liable to pay FIT. NOTE: as time passed by. 3. though not engaged in trade or business. Royalties are subject to final withholding tax. whether royalty or compensation) RULE: 1.
NIT. ► Section 42 is applicable only to taxpayers who are liable for income within. only the NIT. FIT. Q: What kind of taxes are applicable or imposed upon the 1st five individual taxpayers? A: Only two (2) kinds are applicable out of the six (6) kinds of income taxes. Income from other sources: 1. a. Q: Do you have to determine whether there is an actual loss or gain? A: No need to determine because the formula does not allow deductions. RC 2. only one kind. Only one will apply. The MCIT is paid in lieu of the NIT. only two (2) will apply: 1. there must be a computation of the NIT first then apply whichever is higher. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION A: Only four (4) kinds will apply out of the six (6) 1. therefore exempt. SECTION 42 IS NOT MATERIAL TO ALL taxpayers. MCIT 4. Q: Is section 42 relevant to all the taxpayers? A: NO. Francis J. the rest of the taxpayers are otherwise exempt. whichever is higher between the two. Reason: to discourage corporations from claiming too many deductions. no liability. V. do not qualify your answer. Determine if the income came from sources within or without to know the taxpayer’s liability. NIT and MCIT cannot be applied simultaneously. NIT 2. 2. OPTIONAL CORPORATE INCOME TAX Q: Under what section is this found? A: Section 27A 4th paragraph and Section 28 A(1) 4th paragraph. to determine their tax liability. Q: To what kind of taxpayer does this apply? A: To DC and RFC. FIT 3. this is not yet implemented. Q: Under Section 23. particularly the RC and DC because these two are liable for both income within and without. FIT and Improperly Accumulated Earnings be applied simultaneously. ► Income from sources without. Determine the status of the AEMOP. NRANETB a. Q: Is this applicable now? A: No. NIT b. Q: What kind of income tax will apply to AEMOP? A: Generally. Gain is presumed. FIT Q: What is the significance of knowing the classification of these taxpayers? A: 1. Q: May it be applied simultaneous with NIT? A: No. FIT 2. FIT Q: What kind of income tax applies to DC? 24 . who are liable for income within and income without? A: Only 1. to determine the kind of income tax applicable to them. Q: What kind of tax will apply to NRFC? A: Out of the six (6) kinds. GIT 2. 2. Answers must be responsive to the question. MINIMUM CORPORATE INCOME TAX (MCIT) Q: What is the formula? A: Gross Income x 2% Q: Who pays this tax? A: DC and RFC only. 15% FIT with respect to income derived from their employer. 1. ► If the facts are specific. NOTE: The income taxpayer is not a RC or a DC. GIT b. DC ► The rest of the taxpayers will be liable for income coming from sources within. Improperly Accumulated Earnings Q: May all of these be applied simultaneously? A: No. (?) IV. No liability for final withholding tax except for the sale of shares of stock.Atty.
if the obligor is a resident of the Philippines. interest on bonds. The payments were initially in cash and irrevocable letters of credit. What is the tax liability of the Indonesian firm? A: 1. The contract was made and executed in Tokyo. and thus they are not liable to withhold anything. Nothing in the law (Section 42(1)) speaks of the act or activity of 25 . location if the bank is from within the Philippines (pursuant to a Revenue Reg. Q: Section 42(A)(1) provides for how many kinds of interests? A: It establishes two (2) kinds of interests. namely: 1. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION nonresident corporations in the Philippines. the BIR was collecting the amount from NDC. CIR F: The National Development Company (NDC) entered into a contract with several Japanese shipbuilding companies for the construction of 12 ocean-going vessels. please be guided accordingly) Q: Filipino Executive. thus exempting the Indonesian firm from payment of income tax. ► In the absence of any or both requisites. since no tax was withheld from the interest on the amount due. Francis J. Subsequently. 2. four promissory notes were signed by NDC guaranteed by the Government. interest derived from sources within the Philippines.) 2. v. under the law. (Sec 42a) 2. what is the liability of the Indonesian firm if the same received the dividends? A: 1. sale of shares of stock of DC: the Indonesian firm will be liable for the payment of taxes because the income is from sources within. The interest earned by the loan will be considered as an income without. is liable if the income is derived from sources within. receiving two salaries.Atty. residence of the obligor (whether an individual or a corp. bonds or notes or the place of payment is the determining factor of the source of the income. the 1st requisite is for the three (3) preceding taxable years from the time of declaration of the dividends. therefore exempt from paying the tax. The NDC contended that the income was not derived from sources within the Philippines. one from the Philippines. 2. the income will be considered from sources without. NATIONAL DEVELOPMENT CO. or place where the contract is signed. NRFC. notes or other interest bearing obligations of residents. Q: Suppose a NRFC. (mejo Malabo sa notes. Accordingly. Dividends received from DC: the Indonesian firm is liable to pay taxes. The residence of the obligor who pays the interest rather than the physical location of the securities. Q: What is the determining factor in order to know if the income is from within? A: 1. but this time the shares of stock of the two corporations were being disposed off. an Indonesian firm. becomes a stockholder of two corporations. Later on. NDC said that since the contract was entered into and was executed in Japan. he borrowed money from a RA. ► For example the borrower is a NRAETB. Q: Same scenario. and both corporations declared dividends. 2. at least 50% is income from sources within. the interest paid by him can have no other source than within the Philippines. sale of shares of stock of RFC: the liability will depend on where the shares of stock were sold. The NRFC will be liable to pay income tax if the following requisites are present: 1. Dividends received from RFC: the Indonesian firm’s liability will depend on amount of gross income from sources within the Philippines. it is an income without. assigned to Hong Kong. a DC and a RFC.) – contract of loan with respect to the interest earned thereon. corporate or otherwise. RA is not liable to pay tax since RA is liable only for income within. H: The government’s right to levy and collect income tax on interest received by a foreign corporation not engaged in trade or business within the Philippines is not planted upon the condition that the activity or labor and the sale from which the income flowed had its situs in the Philippines.
and the taxpayer is not sure. how much is the withholding? A: 30% (GIT) Q: if the franchise is granted by RFC. As such.000 = 10% ► Hence. the services were rendered abroad. he is not liable for the two incomes. His status is an OCW (note facts: working in HK under contract). IAC Q: What is the issue here? A: They cannot determine if the business expense was incurred in the Philippines. patents. it is the place where the same is rendered which is controlling. considered derived entirely from the sources within the country where it is sold. then it is not also subject to withholding tax.000 or 10% of 100. irrespective of the place of payment. stock in trade of the taxpayer or other property of a kind which would properly the other from HK. CAPITAL GAINS AND LOSSES Section 39 Q: What is capital asset? A: Capital asset is an asset held by a taxpayer which is not an ordinary asset. supply of services by nonresident e. profits. it is an income within wherever it is sold. Francis J. what is the rule? A: Determine first if the property is produced or merely purchased. Q: What about the sale of personal property. supply of technical assistance f. COMMISSIONER v. right to use: motion picture films. If the deduction being asked is 100. Q: What is the controlling factor? A: The controlling factor is the place where the services were performed and not where the compensation therefore was received RENTALS AND ROYALTIES ►income from sources within Q: Granted by who? A: NRFC Q: Suppose you are the franchise holder. 2. In the case at bar.000 1. EXCEPTION: shares of stock of domestic corporation. 10% is the ratable share in the deduction. or vice-versa. scientific equipment c. Only 10. etc. and income from the sale of real property located within the Philippines considered income within. it is an income partly within and partly without. thus it is an income derived from sources without.000 will be allowed as deduction. will you disallow the deduction? A: No. supply of knowledge d. determine it pro rata. industrial. Q: What is the rule as regards the sale of real property? A: Gains. the NRFC is not liable and therefore exempt from the payment of tax. it the property is manufactured in the Philippines and sold abroad. etc b. Formula: GI from within GI from without Example: 100.000. It is the negative under section 39A1 The following are ordinary assets: 1. The compensation he received is not subject to tax pursuant to Section 42(c). The performance of the job was in HK. Compensation for labor or personal services performed in the Philippines is considered an income within. If the NRFC is not subject to NIT. Q: Suppose a DC hired a NRFC to advertise its products abroad. commercial.Atty. When it comes to services.000 not all of it will be allowed. right of. supply of technical advice 26 . or the right to use copyright. if the property is purchased. Is he liable for both salaries? A: No. how much is the withholding? A: 10% (NIT) and in some cases 15% Section 42(4) MEMORIZE FOR RECIT (CEKSTTM) a. What is the liability of the NRFC? Will there be a withholding tax imposed? A: The income is derived from sources without since the services in this case were performed abroad. 1. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION g. Q: if you are the BIR.
CAPITAL ASSETS as Q: What is this holding period? A: If capital asset is sold or exchanged by an individual taxpayer. (long term) NOTE: the holding period applies to both gains and losses. Q: What is a capital gain? What is a capital loss? A: Capital gains are gains incurred or received from transactions involving property which are capital assets. EXCEPT: 1. capital losses are losses not connected to the trade or business. 3. Q: Do you include capital gains in your ITR? A: General rule: yes. Q: When will the holding period not apply? A: 1. property is capital in nature. other than a corporation. but losses from the sale or exchange of ordinary assets may be deducted from capital or ordinary gains. capital gains from sale of real property(section 24). taxpayer is a corporation 3. Losses in Allowable Deduction. (applies to individual and corporation) Q: In connection with 34 D. property is an ordinary asset 2. 4. real property used in trade or business of the taxpayer. Q: What is the relevance of making a distinction? A: The relevance of the distinction lies in the applicability of three provisions of the Code which apply to capital assets only. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION A: 100% if the capital asset has been held for not more than 12 months. Capital losses are losses incurred in transactions involving ordinary assets. Q: What is the term? 27 .. include in ITR. losses from sales or exchange of capital assets may be deducted only from capital gains. Francis J. the gross income less deductions hence it already carries with it the deduction be included in the inventory of the taxpayer if on hand at the close of the taxable year. sale of real property considered ordinary asset II. LOSS LIMITATION RULE ►synonymous to 34D & loss capital rule ► this applies to individual and corporate taxpayer Q: What is the loss limitation rule? A: Pursuant to Section 39 C.Atty. It is the length of time or the duration of the period by which the taxpayer held the asset. All other property not mentioned in the foregoing are considered capital assets. Loss Limitation Rule/limitations on capital losses (39C). what is the rationale behind this rule? A: If it is otherwise. property held by the taxpayer primarily for sale to customers in the ordinary course of trade or business. 1.” 2. the taxpayer must be an individual. 3. 2. property used in trade or business of a character which is subject to the allowance for depreciation provided in subsection 1. Q: What is ordinary gain? Ordinary loss? A: Ordinary gains are those received from transactions involving ordinary assets. 2. it will run counter with the rule that the loss should always be connected with the trade or business. 2. Section 39B states “in case of a taxpayer. net capital loss carry-over Q: What is the rationale in allowing ordinary loss to be deducted from either the capital gains or ordinary gains? A: It is already included in ITR. Net Capital Carry-Over (39D) I. Holding period applies only to individuals/time when property was held (39B). Capital losses are losses incurred from transactions involving capital assets. thus it is not deductible Q: what is your remedy? A: 39 D. gains in sales of shares of stock not traded in stock exchange(section 24). only a certain percentage of the gain is subject to income tax. (short term) 50% if the capital asset has been held for more than 12 months. Q: What is the requirement? A: 1.
capital loss can be carried over to the next three (3) succeeding calendar year following the year when the loss was incurred. those property for sale by the realtors 2. C. applies only to short term capital gain. RC 2. Francis J. OCW 28 . Q: Are you allowed to convert ordinary asset to capital asset? A: General rule: it is not allowed. NET CAPITAL LOSS CARRY-OVER Q: What are the requirements? A: 1. 2. the capital loss can be carried over in the immediate succeeding year. Except: a.Atty. In net operating loss carry-over rule. the period is up to 5 years. provided that the property is an asset other the real property. Q: What is a short sale? A: Sale of property by which the taxpayer cannot come into the possession of the property. the taxpayer has to pay FIT. 3. less the deductions and/or personal and additional exemptions. NRC 3. Q: Who are the taxpayers mentioned in section 24? A: 1. if any. if the loss is greater than the gains. the taxpayer decided to develop the land to facilitate the sale of the lots. TAKE NOTE: Normally if the loss is an ordinary loss there is no carry over. Q: What is the rationale? A: Section 24 D – final income tax of 6% if the real estate is capital asset. Q: What are the properties involve in the RR 72003? A: 1. taxpayer is an individual. 34D3 b. It refers to NIT because it allows deductions. Q: What is the conversion prohibited in the Revenue Regulation? A: Conversion of real estate property. ► In net operating loss carry-over there is an exception to the 3 year carry-over period. and 30% if the taxpayer is a corporation. real property use in trade or business not necessary realtors Q: That is the conversion allowed by the Revenue Regulation? Is there an instance when an ordinary asset may be converted to capital asset? A: Yes. paid in the immediately succeeding year. If it is an ordinary asset. 4. and D”? A: It means that if the elements of passive income are present. it will be subject to income tax of 32% for individual taxpayer. if the loss is more than GI III. Q: How does net capital loss carry-over differ from net operating loss carry-over under Section 34 D (3)? A: Under the net capital loss carry-over rule. In order to liquidate the inheritance. CIR F: The taxpayer inherited the property from her father and at the time of the inheritance it was considered a capital asset. authorized for such types of income by the NIRC or other laws. Read Revenue Regulation 7-2003 SECTION 24 TAXES ON INDIVIDUALS Q: What is the tax mentioned in section 24? A: NIT Q: What is taxable income? A: (memorize section 31) it is the pertinent items of gross income specified in the NIRC. In case of mines other than oil and gas wells. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION The case at bar still applies despite of the issuance of said Revenue Regulation. I: Was the property converted to ordinary asset? H: The conversion from capital asset to ordinary asset is allowed because Section 39 is silent. EX: shares CALAZANX v. Q: What do you mean by the phrase “other the B. and it has been idle for two (2) years. capital loss should not exceed net income in the year that it was incurred. NOTE: only 15% of the loss will be carried over.
26. AEMOP 7. Sababan 4. 25 (25%) 6. GIT. Pure compensation income. 24 B1 3. NRAETB Book+ Magic & Pink Notes + CEP + Others TAXATION A: The bank must be located in the Phils. Q: Do you include this in your ITR? A: No! because it is subject already to FIT. what is the requirement? 29 .joint Passive Income Passive income requires that it is an income WITHIN as a GENERAL RULE. Q: Where can you find in the provisions of the code that states that these passive should be tax with the corresponding Final income tax provided that requirements are present/ A: Section 24 A with the phrase “other than income subject to tax under subsections B. 4 yrs to less than 5 yrs – 5% b.GPP is not subject to income tax.20% Q: Does it apply to all individuals? A: No! it does not apply to 10 NRFC and NRA and NRETB because they are liable to GIT. RA } 4.W/out. NRAETB 5. The bank is the one liable for the payment of this. under Section 25.Atty. Sec.separate 2. Q: Do legally married husband and wife need to file separately or jointly? A: It depends if: 1. D. NRFC Q: What is the rate of interest? A: FIT of 20% Q: Is there a lower rate? A: 7 ½ % if under EFCDS Q: What if the depositor is non resident alien? A: -W/in – FIT . NOTE: if the depositary is a Non resident it is exempt ► resident citizen liable to pay tax for bank interst earned abroad (NIT) Q: If the money earns interst in abroad who is liable? Q: What is the tax liability of NRAETB? A: Section 25 (1) NRAETB is subject to income tax in the same manner as those individuals mentioned in Section 24. because the income must be derived from sources w/in.termination? A: If it is pre terminated before 5th year a FIT shall be imposed on the entire incomeand shall be deducted and withhellod by the depositary bank from the proceeds of the long term deposit based on the remaining maturity thereof a. Francis J.12% c. DC 8. exemptions and other requirement. Those mentioned subsections are not subject to the next income tax Interest. and MCIT will depend on the elements present. RC } 2. 27 A. Not Pure compensation income. C. NRC} Sec.exempt Q: What is the rule on pre. 3 yrs to lesss than 4 yrs. Q: What about Domestic Corporations? A: 1. Less than 3 yrs. RA ► Additionally. NOTE: Liability for NIT. Q: What about Resident Foreign Corporations? A: Sec 28 (l) it is subject to 30% Net Income Tax Q: What about Non Resident foreign Corporation and Non Resident Alien not engaged in Trade or Business? A: Not Subject to Net Income Tax but they are liable for Gross Income tax. RFC 9. Royalties. and C 2. Sec. prizes and Other winnings Interest Q: Bank Interest.B. NRANETB Sec. Check for those who are liable to pay on income without. Q: Who are liable for bank interst? A: 1.
It must not pertain to illegal gambling.GIT 2 AEMOP (NRANETB. NRFC subject to GIT Q: When can we apply NIT in Prizes? A: 1. we do not apply it only apllies to prizes.GIT Q: When does NIT apply to winnings? A: 1. most of them are exempt except for RC and DC who are liable w/in and w/out. If Taxpayer is DC or RC 2. Q. 2. Taxpayer is RFC and income w/in.000 it is not subj to tax. While FIT if for April Boy. NRAETB. OCW 4.000 req. NRAETB) Not Liable 1. RC 2. NRC 3. Is it possible for RC and DC to pay MCIT? A: Yes if MCIT is higher than NIT. NRAETB) Not Liable? 1. Q: Who are liable (FIT)? A: 1. If derived from sources abroad. NOTE: If income abroad. NRAETB 6. AEMPOP (NRANETB.NIT 27 D is silent 4. RFC NIT law is silent 28A7a 5.000 NOTE: If the prize is derived from sources w/in but it is below P 100. RC 2. AEMOP (RC. NRANETB AEMOP A: RC and DC only by NIT. Lower rate? 10% on books. 2. Q: MCIT applies to DC and RFC in relation to bank interest? A: If the bank interest is derived abroad. NRC 3.Atty.law is silent 5 NRFC. RFC is exempt but DC is liable. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION ► Thus. RA 5. it must be more than P 10. NRC 3. RA 5. For DC and RC it must be derived from income abroad RFC it must be derived from income w/in 3. Income is derived abroad 3. otherwise apply MCIT if its higher than the NIT Prizes Requirements: 1. Francis J. most TP are exempt except DC and RC Q: MCIT applies when? A: It is higher than the NIT Royalties Requirement: ► The income is from w/in ► Rate? 20%. 30 . the only requirement is it must be derived from income w/in. When the taxpayer is RC. RFC and DC 2. Impose NIT if it is higher than the MCIT.000 Q: Who are liable? (FIT) A: 1. RC 2.GIT) 3. OCW 4. NRAETB 6. the rest are exempt. AEMOP (RA. Q: You are a writer for Snoop Dogg are you liable for FIT? What if for April Boy? A: Liable for NIT if Income abroad like a writer for Snoop. DC.liable for GIT at 25 % 2. AEMOP (RC.GIT) 3 DC. amount is more than P10. No FIT abroad because we do not have withholding agent abroad.law is silent NIT 4 RFC. NRAETB) Not liable to FIT? 1 NRANETB. OCW 4. NRAETB 6. literary works and musical compositions.? A: No. RA 5. Q: Who are liable? (FIT) A: 1. Prizes must be derived from sources w/in the Phils. Winnings Q: Do we apply the P100.
DC RFC NRFC Book+ Magic & Pink Notes + CEP + Others TAXATION →the stockholders cannot escape the payment of taxes Requirement: Gen Rule. the dividends did not go to the Stock holder but to the Auth Capital Stock. 24 refers to cash or property dividend H: For stock Dividends to be exempt it must come from the profit of the corporation. NRFC ► Shares of association and partnership is taxable Q: Determine the tax liability of the following? A: 1. Sababan 3.the dividends must be distributed by a DC. MANNING Q: Where did it come from? A: shares come from another shareholder Q: What are the dividends included? A: Sec. DC stockholder of RF= Liable for NIT. Shares of stock of a DC 2. 4. ► Sec 24 B does not mention stock dividends because it is not subject to FIT but it is subject to NIT under Section 73. RC 2. ANSCOR CASE 3. AEMOP (RC. Income is from w/out 3. OCW 4. TP is RF and income is w/in ► If income is from sources abroad all are exempt except RC and DC Dividends ► Confined with cash and/or property dividends. DC 4. TP is RC or DC 2. to the 31 . vs. must not be traded in the stock market ► 25 R last part: Capital Gains realized by NRANETB in the Phils. is it taxable? A: NO. NRC 3. It distributed 1 M stock dividends. NRAETB) Not liable? 1. RFC stockholder of DC= Exempt also 3. Capital Gains From Sale of Shares of Stock Not Traded (§24C) 1. It must be capital asset 3. NRAETB 6. It is uniformily imposed on all taxpayer not subj to w/holding tax. 4.Regular operating. barter. or exchange or other disposition of the shares of stock in a domestic corp. AEMOP 3. 5. DC a Stockholder of DC= Exempt 2. 2. NOTE: Lower rate of 10% applies to all except NRANETB Q: When do we apply NIT to Royalties? A: 1. Except. Francis J. Only cash and Prop Stock go to the Stock holder. Q: Is there an exception when stock dividends are not taxable? A: YES. Requirements: 1.Atty. Subj to FIT Determine whther there is a loss or a gain because the tax is impose upon the net capital gains realized from the sale. RFC 5. Stock Dividends → it is the transfer of the surplus profit from the authorized capital stocks. Q: Assuming that there are 5 Incorporators the Corpo has a P5 M Authorized Capital stock. NRANETB 2. ► What rate: 10% FIT Q: Who are liable? A: 1. 73) COMM. Q: What are dividends? A: Any distribution made by Corporation to its stockholders outside of its earnings or profits and payable to its stockholders whether in money or in property (Sec.always a foreign corp. RA 5. from the sale of shares of stock in any DC and real prop shall be subj. if the shares of stocks are cancelled and redeemed meaning it was reacquired by the corp.
It must be a capital asset 3. ELEMENT # 3 It must be a capital asset. DC and RFC b) NRANETB and NRFC will pay GIT Q: Shares of Foreign Corporation sold abroad? A: It will be considered an income w/out.6% FIT Requirements: 1. 2. The holding period does not apply because the basis will be those provided in 24 C & D and not under 39 B (GSP or FMV) ELEMENT #1 The share is a share in DC Q: What if the share is from foreign corp? A: Determine the income considered. it will be subj to percentage tax. Shares of stock in a Dc is always considered an income w/in regardless where it was sold.it is not subj to FIT ► if sold in the stock market. Except: under 24 C for NRANETB. Shares not being that of a DC. The seller must be an individual. Hence: a) RC. When the broker or dealer a. estate or trust or a DC ► RFC not liable for FIT but liable to pay NIT if all the elements are present.Atty.income w/in a. ► NRFC liable to pay GIT and not FIT ► NRANETB liable to pay FIT are all elements are present. Income within if sold in the Phils: most will pay except NRANETB and NRFC b. Ordinray assets of foreign corporations a. ► SEC. Who’s liable? What tax? A: Not subj to FIT because one of the elements is not present . held for sale in the ordinary course of trade or business 2. sold in abroad= w/out c. The real prop must be sold w/in the Phils and located in the Phils. OCW. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION A: 1. Most of the taxpayer will pay NIT except NRFC and NRANETB 2. If income w/in read Sec. Q: Shares of Foreign Corp sold in Phils. 24. Q: When is it considered an ordinary asset? 32 . When it comes to capital gains from sale of shares of stock not traded and capital gains from the sale of real prop. NRAETB. Sale of shares of stock of a Foreign corp in the Phil. income tax prescribed under Sub sec (c) and (d) of Sec. 24 B 1&2: If the elements are present NRANETB and NRFC are liable to pay GIT. used it in trade or business b. Thus: most of them will be exempt except RC and DC liable to pay NIT ELEMENT # 2 NOT TRADED OR SOLD IN THE STOCK MARKET ► if sold in the stock market. What do you mena by the phrase “ the provisions of 39 notwithsatanding”? ► It refers to the holding period. AEMOP (RA. to all other assets. NRC. NRAETB) will pay NIT. sale of shares of stock of DC which are ordinary asset ► DC and RFC are subj to MCIT which may be imposed if the NIT is lower than the MCIT2% MCIT will be imposed if MCIT is higher than NIT. 2. Francis J. 42 (E) ► If the shares sold are that of a foreign corp it is subj to the ff rules: a. Ordinary shares in DC. in lieu of NIT. sold in the Phils= its income w/in b. Capital Gains From Sale of Real Property (§24D) ► In 39 B the holding period does not apply because the basis of income tax is the gross selling price (GSP) or the Fair market value (FMV) whichever is higher. Income w/out if sold abroad: most will be exempt except RC and DC MCIT Q: When is a RFC subj to NIT? A: 1. it will be considered a capital asset NOTE: if all elemts are present it will be subj to FIT If the shares are ordinary asset 1.
Capt where the taxpayer resides that indeed the prop sold is the principal residence of the tax payer (RR 13. disposition made to the Govt. FIT. Comm. FIT and 10% IAE 2. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION Q: What if the prop being sold was a movie house. If the mortgagee is an individual the FIT is imposed whether or not there is a transfer of ownership. Exceptions (§24(D2)) 33 . 7. 39 A: Other property not mentioned are capital asset.shall refer to all real property specifically excluded from the definition of capital asset under Sec. Q: What if all the elements are not present? A: most will be liable to pay NIT Except NRANETB and NRFC liable for GIT Q: May a RC be liable to pay NIT even if all the elements are present? A: YES. the taxpayer has the option of paying 32% NIT or 6% FIT Q: Which is more advantageous? A: It depends determine first if there’s a loss or a gain. barter 3. Francis J. MCIT. FIT 4. Optional corporate income tax of 15% of the gross ► DC liable for five. 10% IAE SEC. Q: How many can be applied simultaneously? A: ONLY 3 1. 27 (B) PROPRIETARY EDUCATIONAL INST. what will happen to the unused portion or profit? A: If the proceeds are not fully utilized. From the sale 3.R. 5. MCIT 3. In this case the gain is always presumed. the portions of the gain is subject to FIT SEC. can he claim for the exception? A: the prop covered by the exemption is a residential lot Q: Who can claim the exemption? A: Only the taxpayer mentioned in Sec. the FIT does not apply because the property is not yet transferred because there’s a period of redemption If after a year the mortgagor failed to redeem the property that is the only time that the FIT will apply because there’s now a change of ownership. but the optional is not yet applicable so only 4. Other transactions are covered: 1. 10%Improperly Accumulated Earnings 5. NIT. the adjusted basis or historical cost of the residence sold shall be carried over to the new residence.2003 Q: Ordinary asset.99) Q: What if the property is worth 10 M and it was sold only for 2M. the privilege must be availed only once every 10 yrs 6. If redeemed w/in 1 yr period FIT will not apply because there’s no change of ownership. exchange 4. 24 Requirements: 1. sale 2. the privilege must be availed of w/in 18 mos. 27A RATES OF INCOME TAX Q: How many income taxes are paid by a DC? A: 1. Who are the taxpayers? ELEMENT # 3 The real prop must be a capital asset Q: When considered a capital asset? A: Read R. other disposition NOTE: If the prop is under mortgage contract and the mortgagee is a bank or financial inst.Atty. Certification of the brgy. If there’s a loss choose to be taxed at 32% because losses may be considered an allowable deduction . Thus. The purpose of the seller is to acquire new residential real prop 2. NIT 2. & HOSP. must be informed w/in 30 days from the date of sale with the intention to avail of the exemption 4. If there’s a gain choose to be taxed at 6% FIT.
23: GOCC.Profit Proprietary Educl. → exempt from all taxes and custom duties Q: What about exemption from real property tax? A: Art.Atty. TESDA. 101 (3) of the NIRC REQ. 4 of Art. → Not Sec. that gross income from unrelated business. governed by trustees who don’t receive any compensation 5. if the law is silent apply the Consti. subject to 10% on their taxable incomeexcept those covered by subsection (D) PROVIDED that gross income from unrelated business. it is stock corp 3. It is a private school or hospital 2. is it exempt? A: No. non.profit educational inst. Basco case Non. 28 of the Constitution: charitable institution churches.and all lands buildings. B (7) income derived from any public utility or from the exercise of essential government functionaccruing to the Govt of the Phils or to any political subd. 2. non.stock and non. 3. and 2. actually directly and exclusively used for religious. It must be non. 109 (m) of R-VAT Q: What about exemption fro Loc Gov Code? A: If its nonstock. paying no dividends 4.4 Art. or CHED Q: What do you mean by unrelated trade business or activity? A: It means any trade. directly. 4 of the Consti obsolete? A: NO. 30 of NIRC and not under Sec. and exclusively fro the primary purpose Q: Under what law? Is it the Constitution or the NIRC which provides fro the exemption? A: It is under Sec. 14 of the Constitution. trade or activity must not exceed 50% of its total gross income derived by such educational inst or hospital from all sources Requirements: 1. charitable. it must be nonstock. 32 b7b if its performing governmental function NOTE: Pagcor vs. 14 of the Constitution. AGENCIES. even if the GOCC is one of those enumerated under Sec. It may be exempted from local taxation. Therefore. Francis J.profit educational inst. SSS 3. GSIS 2. it is non profit 4. devoting all its income to the accomplishment and promotion of the purposes stated in its Articles of Incorporation Q: What about exemption from VAT? A: Sec. PHIC 4. 34 . Q: If the GOCC is not one of those enumerated does it follow all of its income is automatically subject to tax? A: NO. EXCEPTIONS: 1. INST of the GOVT. has permit to operate from DECS.profit 2. 27 it may still be exempt under Sec. not more than 30% of the prop donated shall be used by such donee for admin purposes. SEC. FOR EXEMPTION TO DONORS TAX: 1. Book+ Magic & Pink Notes + CEP + Others TAXATION Q: You donated a property to a school will you be liable for donor’s tax? A: not liable if it falls under Sec. or activity which is not substantially related to the exercise or performance by such entity of its primary purpose or performance Q: May a school or hospital be exempt from paying tax? What are the req? A: 1. GEN RULE: Subj to tax. Sababan 1. trade or activity must not exceed50% of its total gross income derived by such educational inst or hospital from all sources 5. The provision of the NIRC is the specific law which prevails over the Constitution which is the general law. PCSO ► PAGCOR no longer included. Under Sec 32. and educational purposes shall be exempt from taxation. Business. the assets property and revenues must be used actually. Inst Non Profit Proprietary Hospital Q: What if the school or hospital is non profit only. Are therefore exempt from income tax. …. 6 Sec. Q: Is Art 14 Sec.
Sec 27 C exempts those enumerated without any qualification.Atty. If the taxing authority is the National Govt. Other depositary banks under EFCDS 5. PAL CASE July 20 2006 H: The SC used 133 (o)an exception to pay tax. 27 C and 32 b7b? A: 1. The SC said that the airport is not an agency or GOCC but mere instrumentality of the Govt. YES. LGU’s are expressly prohibited from levying tax against: (Sec 133(o) 1.RC EXEMPT Offshore banking units Other depositary banks under EFCDS ► exemption of NR from EFCDS: Q: Who is the income earner? Q: What is the difference between Sec. branches of foreign banks 3. what is the difference if the taxpayer is an individual or corporation? A: If individual. Q: What about royalties? A: If individual. Exceptions 1. other literary and musical compositions. Off shore banking units 2.residents ► if the above enumeration are the parties. those entities enumerated under §27 C 2. NOTE: Mactan. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION If DC. This is Gross ignorance of the law Sec. Royalties derived from sources within Q: When it comes to bank interest. 2. 133 (o) is for local taxation not real property taxation which is the one involved in the present case. as a rule NO.Cebu Airport case SEC. If it involves foreign currency transaction it is not exempt but subject to 35 % NIT Q: Who are the other parties? A: 1. National Govt. as a rule. Bank interest must be received by a Domestic Corp 2. 2. local government units Exception: Sec 154 of LGC says that LGU’s may fix rate for the operationof public utilities owned and maintained by the within their jurisdiction.EFCDS Borrower. Q: Can the government impose tax on itself? A: It depends on who the taxing authority is. 32b7b qualification must concur before it may be exempted. those GOCC falling under §32b7b If the taxing authority is the local government units. real estate tax. Non. they may be exempt from the payment of interest in case of long term deposit except NRANETB 35 . imposed by City of PAranaque on NAIA. 27 D(1) Q: How many possible incomes were mentioned? A: Two (2): bank interest and royalties REQ: 1. DC have no lower preferential rate. Q: What is the tax to be paid? A: Normally it is NIT because it is subj under Sec 27 D3 and 28 A Q: Who is the income earner? A: Depositary banks Q: Exempt from what kind of transaction? A: From foreign currency transaction. have a lower rate of 10%on books. SEC 27 D2: CAPITAL GAINS FROM SALE OF SHARES NOT TRADED SEC 27 D3: EFCDS Q: What is the expanded foreign currency? A: It is a bank authorized by the BSP to transact business in the Philippine Currencyas well as acceptable foreign currency or both. then depositary bank will be exempt from paying the NIT Foreign Currency Loan Q: Who is the lender? Borrower? A: Lender. Its agencies and instrumentalities 3. local commercial bank 4. they are not exempt from long tem deposit. Francis J. Sec.
Atty. applies only if all the requirements are present. 27 Sec. Continouos and uninterrupted flight. 24 B Nonresident exempt from bank interest under EFCDS Q: What is the difference between 24 b1 from 27 D3 A: In 24 B1. 27 D(4).Intercorporate dividends. rule or the Exception? A: It is the general rule because it is under 28 A3 ► GPB is in the nature of FIT. Air carrier 2. If originates from the Phils and has landing rights. Sababan A: Non Residents Corporations whether individual Book+ Magic & Pink Notes + CEP + Others TAXATION or Q: What Kinds of taxes are paid by the RFC? A: NIT MCIT Q: Derived from whom? A: Depositary Bank under EFCDS NOTE: Sec. When the MCIT is higher than the NIT Q: What is the carry over rule? A: Sec 27 E2 states the carry over rule. NR is exempt only from bank interst derived from EFCDS while 27D3 exempts NR from any income from transactions with depositary bank under EFCDS SEC. 2. 2. carrier doing business in the Phils. Q: Do you consider landing rights to determine liability? (RR 15-2002) A: 1. ships ► An intl. No landing rights. 28 B2 MCIT on RFC ► same with Sec.OFFLINE. Q: What is the Rationale? A: to prevent corporations from claiming too many deductions Q: When will it be imposed? A: 1. ► In order to avail: only in the year where the MCIT is greater than the NIT. shall pay 2 ½ % on its Gross Phil Billings (GPB) Q: Is 28 A3 the Gen. is it still uninterrupted? 36 .exempt 27 D5 Capital Gains from sale of Real Prop. 3.NRFC Q: If there are stopovers. SEC 27 (E) MCIT Q: Applicable to whom? A: DC and RFC Q: Can it be applied simultaneously with NIT? A: NO. REQ: 1. 28 A3. imposed in lieu of the NIT.INTL CARRIER Kind: 1. Francis J. Sec 28 A1 Sec. Originating from the Phils. ► RFC will be liable for NIT.RFC 2. cargo and mail originitang from the Phils in a continouos and uninterrupted flight. hence a RFC engaged in common carriage does not pay GPB but NIT ► Income without: EXEMPT International Carrier: ► GPB refers to the amount of revenue derived from: carriage of persons. Q: What is the tax? A: 6% FIT Q: What is the difference if the seller is an individual and a DC? A: Individual can sell all kinds of real property DC can only dispose land and/or buildings. irrespective of the place of sale or issue and the place of the payment of tickets or passage document. On the 4th year immediately ff the year in which such corp commenced its business. excess baggage.ONLINE. irrespective of the place of sale or issue and the place of payment of the tickets or passage document. whichever is higher.
it is income w/in From transhipment to final destination. Q: When will the place of sale of tickets matter as to the taxpayers liability? A: The place of tickets is material only if the two other elements are not present to be able to know if its subj to NIT or exempt. 2. 28 A5 TAX ON BRANCH PROFITS. Local Commercial Banks Transactions of Non Residents: 1. cargo. hence exempt Transhipment REQ: flight originates from the Phils transhipment of passenger takes placeat any port outside the Phils.Atty. or indorsed to another airline. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION REQ: it must originate from the Phils.Residents 2. mail of sale or or freight Sec28 A(4) OFF SHORE BANKING UNITS OBU’s 1. Difference with EFCDS: EFCDS 1. Exempt if income is derived by the OBU from EFCDS 4. exchanged. it must be to another airline Q: What if it did not originate from the Phils. Acceptable foreign currency.? A: Determine if its income within or without. exchanged or indorsed tickets REQ: 1. Income earner: Non. Exempt if income derived by DC or RFC from EFCDS 4. OBU 2. Phil.Resident Citizen EXCEPT: 1. provided that the stopover does not exceed 48 hrs. Francis J. always a foreign corporation (subj to NIT) except #3 3. Currency or both 2. Q: What if it’s the same airline but different plane? A: GPB does not apply. Parties: a) local commercial banks b) Foreign bank branch c) Non Residents d) OBU in the Phils. Parties: a) local commercial banks b) Foreign bank branch c) Non Residents d) OBU in the Phils e) Other banks under EFCDS FOREIGN CURRENCY LOAN ► 10% FIT If: Lender. The tickets must be revalidated.regardless of the place payments of passenger documents A: YES. Lender: OBU’s NOTE: Non resident exempt from transactions with OBU’s and EFCDS SEC. it is income without.OBU Borrower. The passenger boards a plane in a port or point in the Phils.EXEMPT International Shipping ► GPB means gross revenue whether from passenger. it is income within hence apply NIT if purchased outside. the passenger transferred on another airline Q: How do you apply GPB? A: Only the aliquot portion of the cost of the ticket corresponding to the leg flown from the Phils to the point of transhipment shall from part of the GPB. Revalidated. its income w/out. only acceptable foreign currencies 2. Can be a domestic or foreign corporation 3. up to final destination . Q: Is it liable for the whole flight? A: From the Phils to the point of transhipment. REMITTANCES ► profits based on the total profits applied or earmarked fro remittance remitted by a branch to its head office 37 . if ticket was purchased in the Phils.
Royalties including remuneration for technical sevices. One not registered with PEZA MARUBENI CASE F: A branch was established with AG&P. Branch 2. subsidiary or branches in the Asia. Sourcing and procurement of Raw materials and components. annuities. Sababan ► Subj to 15% tax Book+ Magic & Pink Notes + CEP + Others TAXATION Q: Is is subj to FIT? A: NO. 28 A6b ► Regional Operating HQ are taxable and liable to pay 10% taxable income. It is a RFC 2. Subsidiaries NOTE: 1. coordinating centre for their affiliates. Marketing Control and sales promotion 6. Q: What are the requisites? A: 1. it is a RFC Q. 38 . technical support and maintenance 10. Dividends. there was investment with AG&P Q: Did the petitioner participate with the negotiation? A: NO Q: What did the petitioner pay? A: 15% Branch Profit Remittance Tax (BPRT) 10% Intercorporate Dividends Q: What’s the issue? A: Petitioner maintains that there was overpayment of taxes. data processing and communication and business development Rationale: Why liable? Because the claim for exemption of resident airlines shall be minimized SEC. Business Planning and Coordination 3. the profit remitted is effectively connected with the conduct of its trade or business in the Phils. It is in addition to NIT. the HQ do not earn or derive income from the Phils. emoluments. What kind of tax is imposed under 28 A5? A: 15% FIT Q: How do you apply the rate? A: multiplied to the total profit applied or earmarked for remittance w/o deductions It applies for branches that are: 1. Branch did not participate in negotiations SEC. Gen. Acts only as supervisory. wages. 2.Atty. 4. SEC. ► Regional Operating HQ is a branch established in the Phils by a multinational company engaged in any of the services: 1. Francis J. 28 A6a ► Regional or area headquarters (Sec. 2. premiums. thus the same was asking for a refund of tax erroneously paid. Administration and Planning 2.Pacific Regionand other foreign markets. salaries. income and capital gains received by a foreign corporation during each taxable year from all sources within shall not be treated as branch profits UNLESS the same are effectively connected with the conduct of its trade or business. communications. exempt if petitioner is RFC H: -not correct to pay 15% To be liable for BPRT 1. research and development services and product development 9. When a FC establishes branch. Branch Profit Remittance Two ways to receive income (FC) 1. 28A7a Interests and Royalties: ► 20%FIT ► Interests under EFCDS= 7 ½ % Except: those activities which are registered with PEZA NOTE: Interests. or casual gains. logistic services 8. profits.Why? A: NIT because it is RFC Q. 22 DD) shall not be subject to tax exempt from income tax if the requisites are present. When a FC establishes DC. it is always a FC 2. Corporate Finance and Advisory Services 5. Training and personal management 7. Rents.
b) Financing inst owned controlled or enjoying. lessor or distributor ► liable for 25% GIT SEC. bond. (180 SCRA 214) F: Atlas Mining enetered into a Loan and Sales Contract with Mitsubishi Metal Corp. Chartered to Filipino Corporations 2. profits and income. not subj to tax SEC 28 B1 Q: What kind of tax? A: 30% GIT on the ff income 1. Subsequently Mitsubishi filed a claim for tax credit requesting that the same be used 39 . and 2. Francis J. Pursuant to the contract Atlas paid interst to Mitsubishi where the corresponding 15% tax thereon was withheld and only remitted to the Govt.) for the purposes of projected expansion of the productivity capacity of the former’s mines in Cebu. 32 B7a Interest on Foreign Loans. Salaries 6. Interst income from foreign currency loans ► granted by depository bank under said EFCDS to others shall be subject to 10% FIT Exempt if granted to: 1. The contract provides that Mitsibushi will extend a loan to Atlas in the amount 20 M dollar. if the lender is 1. vs. so that Atlas will be able install a new concentrator for copper production.RFC= EXEMPT. refinancing from foreign govt. Interest 2. emoluments 9. upon recommendation by the Monetary Board to be subject to regular income tax payable by any banks. Other depository bank under the EFCDS » SEC. 28 A7c: Capital Gains from Shares of Stocks not Traded in the Stock exchange » 5% or 10% as the case maybe SEC 28A7d: INTERCORPORATE DIVIDENDS ► DC. SEC 28 B2 Non Resident Cinematographic film owner. ► liable for 4 ½ GIT Elements: 1. Other OBU in the Phils. MITSUBISHI METAL CORP. Approved by MARINA Citizens or Sec. Income derived from foreign currency transactions with: a) Non Residents b) OBU c) Local commercial bank d) Foreign bank branches e) Other depository bank under the EFCDS ► As a Gen Rule: the above transaction is Exempt EXCEPTION: Income from such transaction as may be specified by the secretary of Finance. Machiniries. Foreign Govt. COMMISIONER OF INTERNAL REV.Atty. Rents 4. 2. Royalties 5. stocks. and other Equipments. NRFC liable to 20% FIT 2. Exempt because it is an exclusion (Sec 32 b7a: income derived by a foreign govt from investments in the Phils on loans. 28A7b Income derived under EFCDS 1. Other fixed and determinable Gains. B(4) Non Resident Owner or Lessor of Aircraft. and other domestic securities or from interest on deposits in banks by: a) Foreign govt. -Mitsubishi to comply with its obligation. annuities 8.Import Bank of Japan (Exim Bank) and from consortium of Japanese banks. ► liable for 7 1/2 % GIT SEC 28 b5a Interest on Foreign Loans ► Must be read with Sec. ( A Japanese Corp. Dividends 3. applied for a loan from Export. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION SEC 28 B3 Non Resident owner or lessor of Vessels chartered by Philippine Nationals. and c) Inter nation or Regional financial inst established by foreign govt. Premiums( except reinsurance premiums) 7.
Atlas and Mitsubishi had reciprocal obligations. 29 IAET as payment for its existing liabilities despite having executed a waiver and disclaimer of its interest in favour of Atlas earlier on.Mitsubishi in order to fulfil its obligations had to obtain a loan. but SC said liable only to 25% because of the tax treaty 40 . SEC. Francis J. There was a showing or proof as to the existence of the “tax deemed paid” rule Q: In 2nd case was there a refund? A: YES. I: WON Mitsubishi is a mere agent of Eximbank H: NO. The contract between the parties does not contain any direct reference to Exim Bank.Atty. Laws granting exemption from tax are construed strictly against the taxpayer and liberally in favour of the taxing authority. law is silent because ther’s no law because the subj matter is not taxable15% SEC. Germany. in its independent capacity with Exim bank. Is the payment of 10% FIT correct? . WANDER CASE Q: Who are the parties? A: DC(Wander) and FC (Glaxo). actual proof of payment not necessary. Phils liable for income within and income without 2nd : countries liable only for income within.they belong to different categories The BIR tried to collect 35% because the law is totally silent about the tax credit H: The SC said that the tax should be 15% which applies 2 instances: 1. The status of Eximbank as a government controlled inst became the basis of the claim fro exemption by Mitsubishi for the payment of interst on loans. Foreign law do not provide for tax credit35% 2. One claiming for refund was not the proper party 2.No because it was a branch and RFC but still Marubeni was NRFC under the old law which is liable to pay 35%.35% was withheld and remitted to the BIR What did they discover? (after paying) . The bank has nothing to do with the sale of copper to Mitsubishi. law is silent because there is no law. SUBJ TO THE CONDITION: the country where the NRFC is domiciled allows a credit against the tax due from the NRFC taxes deemed paid or deemed to have been paid in the Phils. Income tax is FIT: the withholding agent is the proper party because he is liable to pay said taxes 2. It is the contention of Mitsubishi that it was the mere agent of Exim Bank which is a financing inst owned and controlled by the Japanese Govt. denial anchored on 2 grounds: 1. 28 D5 b INTERCORPORATE DIVIDENDS: ► FIT 15% imposed on the amount of cash and or prop dividends received from a domestic corporation.DC (P&G Phil) and NRFC (P&G US) .they discovered that they are liable only for 15% so they have a refund of 20% Q: In the 1st case did the SC allowed the refund? A: NO.DC declares dividends to NRFC . US. Q: What is the rate if the law is silent? A: 35% FIT ► The rate will only be 15% if there’s a law recognizing the same but this refers to the case of those belonging to the first category. it is strictly between Mitsubishi as creditor and Atlas as the seller of copper. the SC reversed itself 1.15% 4. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION ► You cannot refund right away → 15% BPRT and 10% Intercorporate Dividends tax has different basis In P&G who are involved . what is necessary is the law of the domicile of the country providing fro tax credit equal to 20% of the tax deemed paid.15% 3. Gen rule: 35 % FIT Exception: 15% under the “tax deemed paid rule/ reciprocity rule/ tax sparring rule” JHONSONS CASE 2 Kinds of Categories: 1st : Japan. MARUBENI Case: 2 Issues 1. law provides but the law is silent.
2001( classified as closely held corporations) Q: Is it in the nature of sanction? A: Yes. 2005.Atty.Dec 31. or equipment.ventures 7.In a way it is in the form of deterrent to the avoidance of tax upon shareholders who are supposed to pay dividends tax on the earnings distributed to them.held corporations 4. Taxable partnerships 5. plants. 2005. will you still be liable? A: No. . B) Corporations which are exempt whether or not it is for reasonable needs of the business: 1. Publicly. 2. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION 3. authorized for such types of income by this Code or other special law Q: When not liable to pay IAET? A: There are 2 groups of DC exempt from payment of IAET (RR2-2001) A) Corporations failure to declare dividends because of reasonable needs of business ► Reasonable needs means are construed to mean immediate needs of the business including reasonable anticipated needs Q: What constitutes reasonable accumulation of the corporation’s earnings? Examples? A: 1.bank financial intermediaries.taxable joint.held corporations? A: Those corporation at least 50% in value of the outstanding capital stock or at least 50% of thetotal combined voting power all classes of stock entitled to vote is owned directly. Q: Why? A: because if profits are distributed to the shareholders. Insurance companies 3. Earnings reserved fro buildings. it is imposed to compel the corporation to declare dividends. Allowance for the increase in the accumulation of earnings up to 100% of the paid. Banks.up capital of the corporation. all undistributed earnings or profits intended or reserved for investments NOTE: the corporations belonging in the 1st group are normally liable but they can show that the accumulation of earnings is justified for reasonable needs of business. EXEEMPTIONS CORPORATIONS FROM TAX ON Q: What is the rate? A: 10% of the gross income (taxable income) ► It is imposed upon the improperly accumulated taxable income of the corporation Q: Applies to what Corp? A: to DC only under RR 2. if any. Q: If you’re not mentioned to be exempted. or indirectly by or for not more than 20 individuals NOTE: Publicly held Corp. 31 defines taxable income as the pertinent items of gross income specified in this Code. Now. You will pay on January 2007. Earnings required by law or other applicable statutes to be retained. if you invoke adjustments SEC 30. General Professional Partnerships 6. they will be liable for the payment of Dividends tax. Earnings reserved for compliance with any loan agreement or preexisting obligations 5. You have 1 year to declare after the close of the taxable year. if the profits are undistributed the shareholders will not incur liability on taxes with respect to the undistributed profits of the Corp. 6. they incur no liability and exempt from payments of the same. In case of subsidiaries of foreign corporation. earnings reserved for the definite corporate expansion projects or programs appoved by the Board 41 . 2. 2006 is the grace period. acquisition approved by the Board 4. Q: What is taxable income? A: SEC. Today is 2006. has more than 20 shareholders Q: What is the time for paying this tax? A: Calendar Year: Jan 25. Non. and other non. less the deductions and/or personal and additional exemptions. Francis J. Enterprises registered with a) PEZA b) Bases Conversion Devt Act of 1992 (RA 9227) c) Special Economic Zone declared by law Q: What is a closely.
2. chamber of commerce. sickness. otherwise. General Professional Partnership is exempt but the exemption is not the same as provided by Section 30. 7. including the rent income of the YMCA from its real prop. 30 27 C and 22B. 6. Q: What is the reason for not including the corporations exempt under section 27C and Section 22B under Section 30? A: Because there is an exemption which does not apply to all exempt corporation. 5. operating for the exclusive benefit of the members such as fraternal organization operating under lodge system. YMCA Q: What is the basis of Manila BIR for the imposition of the tax? A: last paragraph of Section 30. order or association. Charitable. except if it earns income from other business ► Joint Venture w/ service contract w/ government not a corporation. a beneficiary society. 42 . it is liable. a. shall be subject to tax. real or personal. or for the Rehabilitation of Veterans (RCSACR). providing for the payment of life. but not to income tax on rentals from its property. 2. YMCVA is liable to pay income tax applying the last paragraph of Section 30. or any specific person. or Board of trade. Artistic or Cultural purposes. The tax code specifically mandates that the income of exempt organizations (under section 30) from any of their properties. no part of its net income or asset shall belong ot or inure to the benefit of any member. 2. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION organized and operated for mutual purpose and without profit. Sec 22B GPP. the corporations enumerated are always exempt. as a general rule is not a corporation 4. Sec 27. ► exemption to the exemption: income of whatever kind and character of the foregoing organizations from: 1. Civil league or organization not organized for profit but operated exclusively for the promotion of social welfare. organizer. Section 22B provides that a joint venture is generally taxable unless it has a service contract with the government. Francis J. 1. because YMCA was conducting an activity for profit. ► Determine the Corporations’ exemptions under Sec. a non-stock and non profit educational institution. Scientific. The exemption under Section 30 is not absolute while the exemption under Section 27 C is absolute and without any conditions. Labor. Non-stock corporation or association organized and operated exclusively for Religious. a generally taxable corporation cannot be joined with the group as generally not taxable corporation. (lodge system: operating world wide) or a mutual old association or a non-stock corporation: organized by employees. YMCA Is exempt from the payment of property tax. TAKE NOTE: Las Paragraph of Section 30. (a) not organized for profit and (b) no part of the net income of which inures to the benefit of any stock holder or individual. F: the CTA and the CA invoked the doctrine laid down in Herrera and Abra Valley case which involves an exemption from the payment of Real property Tax. Q: Enumerate the exempt corporations under Section 30. Business league. real or personal. agricultural or horticultural organization not organized principally for profit. H: The SC revised the ruling. Sec 30. shall be subject to tax. Cemetery (a) company owned and (b) operated exclusively for the benefit of its members.Atty. In addition. Thus exemption is unconditional 3. the corporations shall not be taxed under this title (tax on income) in respect to income receive by them as such. CIR vs. 8. any of their properties. What is the requirement? A: 1. b. Mutual savings bank not having a capital stock represented by shares. officer. accident or other exclusive benefits to its employees and their dependents. 4. and cooperative bank without capital stock 3. any activities conducted for profit ► regardless of the disposition of said income.
located in the Phil. offshore banking. 2. b. 2. 2. Section 32 A states “Except when otherwise provided in this title” Q: What are the income that are not included. wages. sold by individual. included in the ITR. It speaks of the NIT. if subject to FIT. do you include this in the ITR? A: it depends a. the law did not distinguished between real and personal property. Q: If the is mentioned under Section 32 A. NRFC » they do not pay NIT. Gains derived from dealings in property. included in the ITR. 10. trust. like when the RC is employed in Multinational. Sale of real property 2. TAKE NOTE: income of sales agent is exempt. collected from members for the sole purpose of meeting its expenses. 32 A (2)] Q: What is the income tax here? A: NIT. 32 A (3)] Q: Did the law distinguished? A: No. DC. TAKE NOTE: 1. Q: What is compensation? A: all remuneration for services performed by an employee for his employer under an employeremployee relationship. Q: What is the income tax referred to here? A: NIT. Thus. [Sec. TAKE NOTE: compensation is included in the ITR if the taxpayer is not liable for NIT. gov’t educational institution. and similar items. 32 A (1)] 9. 11. and petroleum companies. Income that are subject to FIT. Compensation for services in whatever form paid including but nor limited to fees. if subject to NIT. Q: What are included in the Gross income? 43 . the income of which consists solely of assessment. Q: Income form the sale of property. [Sec. estate. or like organization of a purely local character. dues and fees. less the necessary selling expenses on the basis of the quantity of produce finished by them. Withholding agent accomplish the forms → subject to FIT if the following elements are present: 1. they pay by way of GIT. Gross Income derived from the conduct of trade or business or the exercise of a profession. 32 A? A: it applies to all except: 1. Section 31: TAXABLE INCOME CHAPTER VI: COMPUTATION OF GROSS INCOME SECTION 32: GROSS INCOME Q: What is the tax treatment? Are these taxable income? Are these included in the gross income? Is it included in the ITR? Is it subject to NIT? A: Sec. if the salary is subject to FIT. fruit grower’s or like association organized and operated as a sales agent for the purpose of marketing the products of its members and turning back to them the proceeds of sales. subject to FIT.: and 3. and 3. 3. commissions. included in the ITR. The section refers only to the payment of NIT. the withholding agent will be responsible for this. Francis J. it is not included in the ITR. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION A: 1. mutual ditch or irrigation company. Thus. Sale of shares of stock (personal prop.) ► if the elements are present. if subject to NIT. Q: When do you not apply Sec. not subject to NIT? A: 1. it is a capital asset. Income that are exempt. NRANETB 2. Farmer’s. Q: Is there an instance where the salaries of a RC is not included in the ITR? A: Yes. salaries. 32 A answers the questions. [Sec. not included.Atty. Income that are considered an exclusion. does it follow that it is automatically included in the GIT? A: No. Farmer’s or other mutual typhoon or fire insurance company.
is an ordinary asset or when it is capital asset if the taxpayer is RFC. 1. (4)educational. TAKE NOTE: 1. Passive Income 1. interest. Q: Bank interest from Solid Bank. included in the ITR. When derived from income without. without or abroad. Thus. prizes: ► those primarily for recognition of (1)religious. exempt. Prizes and Winnings [Sec. [Sec. those that are not considered as an exclusion. Thus. DC – DC & RFC = EXEMPT 3. → Elements are not present. 8. and b. Royalties derived from income without. because it is included or considered an income within. b. Annuities. winnings: PCSO and Lotto winnings. Prizes – derived from sources within and over 10. 44 . DC 7. when a prize subject to NIT? derived from income without. 32 A (8)] Q: What kind of annuities? A: annuities which are not exempt from tax are included in the computation of the gross income. [Sec. and 3. Winnings – derived from sources within. TAKE NOTE: R-R 17-2003 ► Real property sale subject to FWT. and 2. 5. those that does not constitute passive income. the recipient was selected without any action on his part to enter the contest or proceedings. Rents. (6)literary. Dividends. Francis J. sanctioned by the national sports association. Thus not included in the ITR. (7)civic achievement are exempt PROVIDED: 1.00 2. [Sec. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION computation of the gross income.Atty. included in the ITR. (5)artistic. DC individual taxpayer = FIT 2. (included in the ITR) 9. 32 A (9)] Q: What kind of prizes and winnings? A: a. – subject to NIT. 4. local or international sports competition or tournament. 2. Q: Who are the taxpayers? A: Liable from income w/in and w/out and the rest are exempt.000. the income earner is a DC or RC. held in the Philippines or abroad. (3)scientific. the buyer accomplishes the ITR. 6. Exempt: a. is it included in the ITR? A: No. like when the real prop. less than 10. when 2. RC 2. 32 A (7)] Q: What kind of dividends? A: one that does not constitute income. when 3. ► prizes and awards granted to athletes are also exempted provided: 1. 32 A (6)] Q: What is being referred to here? A: royalties which does not constitute passive income.00. (2)charitable. Bank interest from sources. Royalties. Q: When is A: 1. [Sec. DC – NRFC = FWT ► only dividends issued by a FC to an individual taxpayer (RC OR RA) is included in the a passive Q: When is winning subject to NIT? A: 1. Thus. 32 A (4)] Q: What interest is being referred to here? A: interest which is included in the computation of gross income is interest earned from lending money and interest from bank deposit which does not constitute passive income. thus subject to FIT.000. [Sec. not included in the ITR. the recipient is not required to render substantial future services as a condition to receiving the prize or award. 32 A (5)] ► subject to NIT.
Q: Why is it excluded? A: because the amount received represents a return of capital. Q: Is it subject to VAT? A: 1. b. have the same characteristics → all tax do not apply. 3. the beneficiary is the estate. 32 B (2)] Q: if the insurance is payable within a certain time. Proceeds of life insurance: decedent insured himself. Reason: because of the insured’s power to modify or change the beneficiary.Atty. Q: Does it matter who the beneficiary is or paid in a lump sun or single sum? A: No. say 10 years and thereafter the insured did not die. Gifts. how much will be excluded? A: only the amount received by the insured as a return of the premiums. Sababan 2. Francis J. 123 of the Tax Code. b. it does not matter. deductions. 85 E? do we have the same requirement? A: no. the beneficiary is a third person other than the estate. 32 A (10)] Book+ Magic & Pink Notes + CEP + Others TAXATION 900K is taxable. Q: What is being referred to? A: GPP exempt from payment of corporate income tax ► shares of partners subject to NIT – Sec. TAKE NOTE: Exemptions. not included in the gross estate. Partner’s distributive share from the net income of the general professional partnership (GPP). included in the gross estate. 10. Ex. included in the gross estate regardless of whether or not the designation of the beneficiary is revocable or irrevocable. not important to know whether property is real or personal. inclusion or exclusion will depend on who the beneficiary is. Pensions [Sec.2 Irrevocable Designation → not subject to Estate tax. Bequest and Devises [Sec. bequest or devise” TAKE NOTE: A. Q: What do you mean by exclusions? Are these exempt from income tax? A: these are not included in the gross income. 26 SEC 32 INCOME B EXCLUSIONS FROM GROSS Q: is this subject to Estate Tax under Sec. Reason: the insured loses the power to control. Life insurance – NO. » subject to Estate tax. the interest payment shall be included in the gross income. 31 B (1)] Q: What is the requirement? A: only one requirement for exemption: that the proceeds of the life insurance be payable upon the death of the insured. What is exempted is the “value of property acquired by gift. 1. Life insurance [Sec. exempt. a. 4. THUS. 2. when the income earner is a DC or RC. modify and change the beneficiary. Amount received by insured as return of premium [Sec. 1 M – 100 thousand = capital It is exempt (100K) 45 . Exception: amounts held by the insurer under an agreement to pay interest thereon. subject to VAT under 108 (A). Non-life insurance – yes. the requirement for exemption is not the same under Section 85 E. 32 B (3)] Q: Why is the donee exempt from income tax? A: Because the law classify it as an exclusion. b.1 Revocable Designation → subject to estate tax. GIFTS are excluded because they are subject to donor’s tax. exclusions. Q: what is included in the gross income? A: income from such property. merely Q: What kind of pension? A: Included in the gross income if not exempt » never subject to fit (?) 11. B. BEQUEST and DEVISE are excluded because they are subject to ESTATE tax. subject to percentage tax under Sec. 2.
GENERAL RULE: Separation pay not exempt (?) Exception: ► gift. Compensation for injuries or sickness [Sec. the separation pay granted by the aforementioned institutions are exempt without further qualifications (“other similar benefits”).exempt without further qualifications – automatic exclusions. if the person dies this will be available. NRC. the official or employee avails himself/herself of the benefit only once. RA residing permanently in the Philippines . separation pay and terminal leave pay? A: because they have different requirements for exemption. Under RA4917 (with Retirement Plan) 1. the retiring official or employee has been in the service of the same employer for the last 10 years. Sec. Q: Are there any requirement for separation pay granted by foreign gov’t or corp? A: None. SSS and PVAO are exempt without further qualifications = automatic exclusions. SEC. and c. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION 3. the private benefit plan is approved by the BIR (RR2-98).Atty. he is at least 50 years old at the time of retirement. that which is ordinary loss. 6. 2. SEC. Retirement benefits. Exception: damages representing loss of income. (3) physical incapacity or injury. Income exempt under a treaty [Sec. or (4) causes beyond the control of the employee.may be deducted from capital gains and ordinary gains. b. foreign corporation.e. TAKE NOTE: the retirement benefits under RA4917 and RA7641 are exempt from income tax provided the requirements are present. b. 32 B (6)] pensions. 7. 32 B(6)(c) ► retirement benefits given by foreign government. the retiring official employee is at least 60 years old but not more than 65 years old. and 4.f) ► retirement benefits given by the Philippine Gov’t through the GSIS. a. personal injuries and sickness. Francis J. Q: Why do we need to distinguish retirement pay. 31 says gross incomedeductions. 46 . 32 B (5)] Q: What is excluded? A: income of any kind required by treaty binding upon the Phil. 2. therefore. » entitled to 15 days salary and ½ of the 13th month pay for every year of service. Damages to prevent injuries and sickness. exempt? A: No. Q: is separation pay an exclusion. Q: What is separation pay? A: on given when one is terminated from the service because of (1) illness. the employee or official must have served the company for at least 5 years. 32 B(6)(d. public as well as private to RC. Q: What is retirement pay? A: the sum of money received upon reaching the maximum age of employment. ► Gross Income include both capital and ordinary gains. Government. . 5. devise or descent of income from any property in case of transfers of divided interest. gratuities [Sec. Q: What does injury include? A: The term injury includes death. Q: Why is it considered an exclusion? A: because this is just an indemnification for the injuries or damages suffered. 32 B (4)] Q: is this the same as those provided under the workmen’s compensation act (wca)? A: YES. even if not injured. Health or accident insurance or those under workmen’s compensation. bequest. (2)death. There are 3 groups: a. Q: when will the damages recovered be exempt? A: General Rule: all damages awarded are tax exempt. Under RA7641 (without retirement plan) 1.
Sec. accumulated sick leave – subject to income tax. 1. LESS THAN 10 DAYS = EXEMPT 8. loans b. 2. Accumulated vacation leave: if more than 10 days (meaning 11 pataas) – subject to income tax. 2. b. Borromeo case: ► Same as the Zialcita case Issues: WON the TLP is subject to income tax and WON COLA and RATA are included? SC: RULED TLP is Exempt! Modified: the rule applies not only to DOJ officers but also to CSC commissioners. bonds d. Rule: Gov’t workers (both officers or non-officers) granted TLP on a yearly basis → exempt from income tax. Ruling applies to DFA officers. MORE THAN 10 DAYS = TAXABLE 2. Embassy in England. Modified RR2-98: » TLP will only apply to private sectors » if granted on a yearly basis – may be subject to tax: VACATION LEAVE 1. SC: on a different ground – TLP is exempt because it is similar to Retirement pay. Estrada.Castañeda –DFA officer in Phil. causes beyond the control of employee.2 par. (a)(7) » JAN. TLP in the Gov’t or in the Private Sector shall be exempt from income tax if given or granted upon retirement or separation. RMC 16-2000. EO291 (SEPT. Conditional exclusion a.Atty. ► Take Note of 3 cases. COMMISSIONER v. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION exempt but the ruling’s application is limited only to DOJ employees. 2000) » Officer in gov’t receiving TLP is always exempt whether or not vacation or sick leave is granted. illness b. Miscellaneous items (Sec. employee in the private sector: a. Case of Zialcita ► retired from DOJ. the CBA provides separation control = included. 2. » be reminded of EO 291. CASTAÑEDA . Q: Does the rule or decision applies to Gov’t officials only? A: No.. RR2-98. TLP granted on a yearly basis: 1. 97. within employee’s control – included. Terminal Leave Pay granted upon retirement or separation: » uder PD220. thus exempt if due to: a. PD220: Exemption applies to both private and public sectors(?) it does not matter if TLP is vacation or sick leave. Sec. interest from deposits in Banks in the Philippines.78. 2. stocks c. TLP is exempt. → there is no qualification as to vacation or sick leave. investments in: a. within the 2. Examples: 1. »If 10 days or less – exempt. Gov’t Employee: » governing law: EO 291 of Pres. Francis J. other domestic securities 2. 32 B (7) (a)] Q: What kind of income? A: 1. 78.1 par. Automatic exclusions. Q: Who are income earners? A: 1. registration – pay. 32 B (7) (a) income derived by foreign Gov’t [Sec. RR2-98. 1998 – the rule applies to both private and public sectors. labor saving devises or beyond the control = Q: What is terminal leave pay? A: the accumulated vacation leave and sick leave benefits converted to cash or money to be given either every year or upon retirement or separation.excluded b. thus 47 . death c. physical incapacity or injury. 2. RR16-200 (3). installation of bankruptcy – excluded. contention: TLP should be exempt from income tax pursuant to the old law.
d prizes and awards (Sec. Income derived by the Gov’t or its political subdivisions (Sec. Q: Business expense incurred in February 2006. 2. artistic. 2. H. For those business expenses not enumerated under A. and 3. F. scientific. all you have to prove is that it is incurred during the taxable year.must be deducted first from the GI before you compute the NIT. E. Brunei Gov’t. 32 B 7 c) » primarily for religious. or other Certificate of indebtedness. it is possible or it is possible if fiscal year is employed. int’l or regional financial institutions established by foreign gov’ts (established in the Philippines) TAKE NOTE: if plain foreign corp. -creditable withholding tax is an exclusion. G. is it possible to include it for April 2006? A: yes. Medicare and other contributions (Sec. b.000 limit? A: The Sec. they can claim deduction for expenses incurred within and without. EXAMPLES of exclusions: a. 3. controlled or enjoying re-financing from foreign gov’ts. SMC. held here or abroad. 32 B 7 g is similar or the same as 24 B in long term deposit. prizes and awards in sports (Sec. charitable. of Finance. you are including in the GI something that is excluded from the same. 13th month pay and other benefits (Sec. Francis J. Brunei Gov’t earns interest by depositing money in Makati Bank – Exclusion. 32 B 7 h) 1. exercise of any essential gov’t function. REASON: Capital loss has no connection to the trade or business. SSS. Q: Who can increase the 30. » accruing to the gov’t. they can claim a deduction for expenses incurred within the Philippines. the recipient was not required to render substantial future services as a condition to receive the prize or award. Q: Applicable to whom? A: 1. Sec. 1.Sec. exercise of public utility b. literary or civic achievements: 1. sanctioned by the nat’l sports associations.related to trade or business. because the law says 13th month pay and “other benefits”/”similar benefits” – xmas bonus is included in the category. educational. ►for taxpayers who are liable only for income within. Calendar year – a period of 12 months beginning on January and ending on December. and 2. local or int’l competitions. 32B 7 e) Q: Do you include Christmas bonus in your ITR? A: No. TAKE NOTE: ►for taxpayers liable for income within and without (RC & DC)). 32 B 7 f) 48 . GSIS. 4.Atty. debentures. 32 B (7) (b) a. Private institutions. . if it falls under the fiscal year and all the elements are present. granted to athletes. 2. For those enumerated under A. 32B 7 d) 1.Stock dividends to 3. . 2. exclusion c. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION ► must be deducted from the GI not NIT because it is an exclusion. foreign government 2. 34 A EXPENSES 1. Gains from the Sale of bonds. (Sec. D. subject to FIT 20%. gov’t. Gains from redemption of shares in mutual fund (Sec. 32 B 7 g) Q: Why 5 years? A: certificate of indebtedness is similar to Bank Interest in a long term deposit. recipient was selected without any action on his part to enter the contest or proceedings. Otherwise. financing institutions owned.. You need to prove that it is an ordinary and necessary expense. Fiscal Year – means an accounting period of 12 months ending on the last day of any month other than December.
2007 (Sec. there must be services actually rendered. those which are considered as fringe benefits (FB). ALLOWANCE FOR DEPRECIATION BUSINESS EXPENSE 1. ►there was substantial profits gained from the sale of a land which was sold by a broker. Expenses) Q: Did the law define what is reasonable? A: No. it cannot accommodate all of the expenses incurred. required as a condition for the continued use or possession. ►in this case. can be claimed for one year only. 2. for salaries and wages all that is required by law is for it to be reasonable. AGUINLDO Case F: involves a corporation engaged in selling fish nets. ►the corporation claimed the bonus as a deduction. Q: How about bribe. if the amount of capital outlay is substantial. 49 . it must be made or given for services actually rendered. 3. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION A: 1. Institution can claim it under Sec. expenses for foreign travel is considered a FB only if it is not in pursuit of the trade or business. 34 A (1)(a)(i) last paragraph. No carry-over 2. . Q: can you claim it under Sec. for the purpose of the trade. kickbacks. 34 A (1)(a)(ii)? A: No. you can claim it for a longer period depending on the life span of the property. GENERAL RULE: 36 A (2) and 36 A (3) expenditures for capital outlays not deductible as business expense EXCEPTION: Private Educ. requirements? Q: Reasonable allowance for entertainment. Not contrary to law. Travel expense while away from home. 2. Feb. what is the requirement? A: 1. public policy or public order. for other forms of compensation. Does not exceed the limits or ceiling set by the Secretary of Finance. good customs. 2. trade or profession. morals. 12. connected with the development. taxpayer has not taken any title or no equity other than a lessor. amusement and recreation expenses. and operation of the trade (DOM).Atty. and 3. Travel must be in pursuit of business. Q: Is there a travel expense which was not in pursuit of business? A: yes. management. and the corporation have a land sold through a broker. 34 A (2) BUSINESS EXPENSE vs. 34 A.for other forms of compensation. ALLOWANCE FOR DEPRECIATION 1. ► Q: Reasonable Travel Expenses. kickbacks will not pass the requirement of (i) ordinary and (ii) necessary hence not deductible EXPENSES ALLOWABLE EDUCATIONAL INSTITUTION TO PRIVATE Q: Why only private educational institution is mentioned and no other taxpayers? A: it refers to section 27 for Private Educational Institution given to the educational institution. business or possession of the property. Francis J. and other similar payments A: even without this provisions. no effort or services actually rendered by them because the sale was made through a broker. What is the requirement? A: 1. Q: Reasonable Allowances for rentals for meralco bills. There is carry over 2. The profit was in turn given to the workers as special bonus. it was proven that the sale was not made by the employees. ISSUE: Should the deduction be allowed? H: The SC did not allow the deduction. you can claim it under Sec.
2.when one borrows money to finance his business interest in connection with the taxpayer’s profession trade or business. Q: Who claims this deduction? A: the debtor claims this deduction. (RR13-2000) ILLUSTRATION: 1. 36 (B): a.. or b. d. when you deposited the 1M in the bank. on interest. bet. an individual and a corp. or f. Q: What kind of interest is this? A: interest on loan. bet. the advance interest paid cannot be claimed as a deduction on the years that it was paid. incurred within the taxable year. if the entire amount or entire principal obligation has been paid – the entire amount of interest can be claimed as itemized deduction. Q: Who are related parties? A: individuals and corporations. the fiduciary of a trust and the fiduciary of another trust if the same person is a grantor with respect to each trust. depreciation (as capital expenditure?) Q: What is this interest income? A: the money borrowed was deposited in a bank so that it will warn interest. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION 2. 3. business or exercise of profession can be claimed a an itemize deduction… a. • No deduction shall be allowed in respect to the following interest: 1. interest incurred to acquire property used in trade. 34 B 2 a) ►a borrower or taxpayer can claim the interest paid in advance as itemized deduction when he filed his income tax return (ITR) depending on whether or not the principal obligation has been paid. c. loan of 1M from a bank with an interest of 20% 2. 2 corp. if only ½ of the obligation had been paid. Francis J. 2. Bet. OPTIONAL TREATMENT OF INTEREST EXPENSE: 1. bet.Atty. ►interest on debt . directly or indirectly. if no payment had been paid on the principal obligation. if within the taxable year an individual taxpayer reporting income on the cash basis incurs an indebtedness on which an interest is paid in advance or through discount or otherwise. more than 50% in value of the outstanding stock of each of which is owned.200 (RR 9337) 3. a fiduciary of trust and a beneficiary of such trust. TAKE NOTE: interest incurred from the exploration of petroleum refers not just in interest incurred on loan of money but also interest incurred for installment payments. 1.000. REDISCOUNTING OF PAPERS : (Sec. Q: What if half-brother? A: not allowed to claim deduction for interest. 20% of 1M is Php200.. 4. it can accommodate all of the expenses incurred. Q: Who are not allowed to claim interest under sec 36 B? A: interest incurred between related parties. individual taxpayer reporting income on a cash basis. bet. e. by or for the same individual. 50 . 42% (RR) of 10. member of a family b.000 but you cannot claim this whole amount as a deduction. it earned a bank interest subject to FIT worth Php10. if both taxpayer and the person to whom the payments has been made or is to be made are persons specified under Sec. more than 50% in advance of the outstanding stock of which is owned directly or indirectly by or for such individual. the grantor and a fiduciary of any trust.00. then the entire amount of ½ of that interest can be claimed as a deduction.000 = 4. 3. REQUIREMENTS PAPERS: FOR REDISCOUNTING OF 1. • taxpayer’s allowable deduction for interest expense shall be deducted by an amount equal to 42% (RR 10-2000) of the interest income subject to FIT.
will you be able to claim it as a tax deduction? A: 1. Input tax on Vat 4. Sababan 5. tax credit 34 C 3&7 Q: Where should it be deducted? A: 1. business or profession of the tax payer. Q: What are the other tax credit under the code? A: 51 . Q: When is taxes not allowed as a deduction? A: Sec.200= Php195. claim it as tax credit. 2. taxes must paid or incurred within the taxable year 2. you can only claim the product of the quotient times the rate TAKE NOTE: deduct at the bottom of the formula ( sa computation ng GI) Q: Suppose you are a RC. 3. Q: suppose you paid the 100K NIT to US. Php200K-4. if claimed as a tax credit. A: Formula: STEP 1 GI from sources w/in NIT: _____________________ GI from entire world STEP 2 Quotient x RATE = amount w/c can be claimed as a deduction A: you cannot claim the whole 100K. can be claimed as: a. can you claim as a deduction the whole 100K? what is the formula? ►same procedure for (1) income tax paid to foreign country. RA 6452 – selling goods and commodities to senior citizens. 34 C (1) b ►if the taxpayer did not signify in his return his intention to avail himself of the benefit of tax credit for taxes paid to foreign country. Example is business tax. 3. you pay NIT to US. 34 C (1) REQUISITES: 1. generally. you have the option to: a. (2) estate tax paid to foreign country. if claimed as a deduction. 2.Discount of senior citizens SC: discount claimed by senior citizens shall create a tax credit and must be deducted at the bottom of the formula. Tax credit certificate. the discount claimed is treated as a tax credit. Francis J. Q: Who are entitled to claim it? A: those liable to pay NIT. claim it as a deduction ►law gives you this privilege. a deduction. it must be incurred in connection with trade or business. or 34 C 1&2 b. Creditable w/holding tax system under NIT 5. subject to limitations. it should be deducted from the gross income. ►taxes incurred not related to the trade or business. 2. 34 C TAXES: is Book+ Magic & Pink Notes + CEP + Others TAXATION the 1. income tax paid to foreign country. it should be deducted from the Net Income Tax due (bottom of the formula) MERCURY DRUG CASE .Atty. Q: What is the tax credit being referred to under 34 C (3)? A: credit against taxes for taxes of foreign country. you can claim under Sec. and (3) Donor’s tax paid to foreign country. you can claim it as tax credit. Q: What is a tax deduction? Example? A: Tax deduction is allowed if the taxes were paid or incurred within the taxable year and it must be connected to the trade. (Tax credit only for NIT) Q: What is a tax credit? A: refers to the taxpayer’s right to deduct from the income tax due the amount of tax the taxpayer paid to foreign country. Q: Who are allowed to claim it? A: RC and DC only.800/ this amount you can claim as a deduction. or b.
theft or embezzlement (arising from natural calamity). Francis J. NRA. Loss actually sustained during the taxable year 2.over 3. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION ► The itemized deduction of losses. and N/RFC TAKE NOTE: 1. if the loss arises from fire. b. taxpayers is an individual only not corporation. Income tax. or profession? A: No. 2.Atty. Not compensated for by insurance or other forms of indemnity. is not confined to section 34B. Estate and Donor’ tax. Section 39 D 3 Net Operating Loss CarryOver. storms. Business losses not previously offset as a deduction from the GI carried over as such for the next 3 LOSS 1. 34 D(1) provides for 2 kinds of losses: a. FORMULA: GI-DEDUCTION = NET INCOME x RATE = TAXABLE NET INCOME – TAX CREDIT) 34 D LOSSES Q: Is always a requirement that it is incurred in pursuit of trade. Q: How many carry-overs do we have under the Code? A: 3. 3. Not claimed as a deduction for estate tax purposes. 2. ORDINARY LOSS – NOLCO ( #3 above) Q: Why is there a need for a carry over under Sec. NRAE and NFC – allowed deduction only if and to the extent that they are connected with income from sources within the Phils. Q: Who are not allowed to claim deductions? A: Under 34 C (3) . may be claimed as deduction under estate tax return provided that the same are not claimed as itemized deduction of losses under Section 34B. 34 D # when you can claim the loss from both capital and ordinary loss? A: if the loss exceeds the income for the taxable year.b. KINDS OF OVERS: LOSSES AND THEIR CARRY- 1. incurred in pursuit of trade. Taxes that had been allowed as deduction but are later in refunded should be treated as part of the gross income during the year that it is received (34 1 last paragraph) Q: Which would you choose? Tax credit or deduction? A: tax credit because it is deducted from the taxable income while deductions are deducted from the GI. taxpayer may be an individual or corp. it is also found under section 86A (1) (e) which also pertains to deductions available under the estate tax law. Q: This is your itemized deduction which can be claimed as a deduction from? A: Gross income TAKE NOTE: A. 2. 3. property connected with t. Section 39 D Net Capital Loss Carry. involves capital loss net 3. Sec. However. however. you cannot deduct the entire amount of loss from your income for that year so the excess may be deducted for the taxable year following the loss. carry-over as loss from sale of capital asset in the next succeeding year 52 . bus. or profession. ►Losses within six (6) months after the death of the decedent can be claimed as itemized deduction of losses under Section 34B. 2. Q: What is the requirement? A: 1. bus. Income tax imposed by authority of any foreign country. B.NRC. shipwrecks or other casualties or from robbery. taxes assessed against local benefits of a kind tending to increase the value of the property.p. and 4. Namely: 1. losses incurred or connected with T or B. Section 27 E (32) Carry forward of excess minimum Tax 2. CAPITAL LOSS – NET CAPITAL CARRY OVER (# 2 above) NET LOSS OVER CAPITAL CARRYNET OPERATING LOSS CARRYOVER 1. 3.
carried over as a deduction from the GI for the next 5 years following such loss. can be deducted from capital gains and/or ordinary gains. if abandoned well is reentered and production is resumed. creditor b. 2. no substantial change in the ownership of the business or enterprise. arising from money lent or from uncollectible amounts of income from goods sold and services rendered. if equipment or facilities are restored into service in the year of resumption or restoration and shall amortized or depreciated. 3. Book+ Magic & Pink Notes + CEP + Others TAXATION TAKE NOTE: 1. CA ► bad debts can only be claimed if pursuant to a contract of loan . net operating loss w/out the benefit incentives provided by law. consecutive years. 4. 2. a producing well is subsequently abandoned: ►unamortized cost and undepreciated cost of equipment directly used therein shall be allowed as a deduction in the years it was abandoned. CHINA BANK VS. contract area where petroleum operations are undertaken is partially or wholly abandoned. meaning cancelled in the books of account. a) between members of the family b) between an individual who owns more than 30% of outstanding capital stock of a corporation and that corporation c) between two (2) corporations more that 50% of the outstanding capital stock of 53 . can only be deducted from capital gains. Q: Do you need to file an action before you can claim? A: No. carried over as a deduction from the GI for the next 3 consecutive taxable years immediately following the year of such loss. problem lies with corporations or enterprises. ABANDONMENT LOSSES 1. for mines other than oil and gas well. or 2. Sababan 4. Q: What is the Tax benefit rule? A: Last Par.Atty. all you have to do is prove that you did exert effort to claim or recover the same. business and profession of taxpayer. Francis J. Q: What cannot be deducted as bad debts? A: 1. Q: Who claims it? A: a. NET OPERATING LOSS CARRY REQUIREMENTS: 1. mered into between parties mentioned under Section 36 (B) namely. Q: Can the period be extended? A: yes. Q: What is a Bad Debt? A: Bad debts shall refer to those debts resulting from the worthlessness or incollectibility in whole or in part of amounts due the taxpayer by others.money lender Q: What year can it be claimed? A: can be claimed in the year it was actually sit ascertained to be worthless and charged off. incurred in any of the first 10 years of operation.no bad debts for loss of instruments.Net operating loss of the business or enterprise incurred w/in the taxable year 2. ► all (1) accumulated exploration and (2) development expenditures pertaining thereto shall be allowed as a deduction. transactions. Q: What is the limit? A: 75% of the nominal value of outstanding shares is held by or on behalf of the same persons/ corporation ► individual no problem. 34 E (1): recovery of bad debts previously allowed as deduction in the preceding year shall be included as part of the gross income in the year of recovery to the extent of the income tax benefits of said deduction. 1. debts not incurred in connection with the trade. 4. 2. of Sec. not previously off-set as a deduction from the GI 3.
Sum-of-the-year-digital method. wear and tear. allowed under (1) straight line or (2) declining balance method 3. depreciation deduction must be reasonable 2. trade or profession 3. and 2. considered as a loss from the sale of capital assets on the last day of such taxable year 34 F DEPRECIATION Q: What is depreciation? A: It is the gradual dimension in the service or useful value of tangible property due from exhaustion. for property not used directly in the production of petroleum (1) depreciated under the straight line method.Declining balance method 3. Francis J. taxpayer. properties directly related to production of petroleum 2. 4. contractor notifies the Commissioner at the beginning of the depreciation period which depreciation rate shall be used. other than a Bank or trust company incorporated under Phil. or non-use in the business. an allowance computed in accordance with rules and regulations prescribed by the Secretary of Finance. ascertained to be worthless and charged off within the taxable year 2. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION DEPRECIATION OF PROPERTIES USED IN PETROLEUM OPERATIONS 1. for the exhaustion. Q: What kind of property is involved? A: 1. including reasonable allowance for obsolescence 3. under any of the following methods: 1. but not limited to. arising out of its use or employment 2. useful life of properties used or related to production of petroleum shall be ten (10) years or such shorter life as may be permitted by the Commissioner. and 4. Laws 4.all properties used in mining operations other than petroleum operations shall be computed as follows: a. if the expected life is more than ten (10) years – depreciated over any number of years between five (5) years and the expected life. depreciation is allowed as a deduction from 61. capital asset 3. and useful life is only five (5) years DEPRECIATION OF PROPERTIES MINING OPERATIONS USED IN which is owned by or for the same individual d) between a grantor and fiduciary of any trust e) between two (2) fiduciaries of two (2) trusts who has the same grantor f) between a fiduciary of a trust and above fiduciary of such trust SECURITIES BECOMING WORTHLESS 1.Atty. wear and tear and normal obsolescence. substantial part of business is the receipt of deposit 5. Real property except parcel of land 2. upon recommendation of the Commissioner.Straight-line method 2. if the expected life is ten (10) years or less – normal rate of depreciation b. property is located in the Philippines 34 G DEPLETION OF OIL and GAS WELLS and MINES ► only deduction which is a not self executing deduction Q: What is depletion? 54 .any other method which may be prescribed by the Secretary of Finance upon recommendation of the Commissioner ALLOWANCE FOR DEPRECIATION: 1. DEPRECIATION DEDUCTIBLE BY NRAETB OR RFC ► reasonable allowance for the deterioration of property 1. Personal Property REQUISITES: 1. property used in the trade of business Q: What do you mean by “reasonable allowance”? A: it shall include. REQUIREMENTS: 1.
involves property 2. ordinary wear and tear of equipment 1. or to non-government organization and no part of its net income inures to the benefit of any private stock holder or individual Q: How many kinds of deduction? A: Two (2) kinds: 1. Francis J. what is the requirement? A: it must be made exclusively for public purposes Q: What if the Donee is a province? A: there must be a qualification that it is for public purpose Q: If the Donee is a Domestic Corporation.000 to the church. lion. Accredited Domestic corporation or association organized and operated exclusively for religions. involves natural resources 2. used in undertaking priority activities of NEDA 2. is Q: What if the Donee is not one of those mentioned under the law.Donations to certain Foreign Institutions or International Organizations ►in compliance with agreement. A made a cash donation of P1M. he can only deduct 10% of his taxable income.Atty. can he claim a deduction? A: No. can he claim it as a deduction? A: No. what is the requirement? A: no part of its income inures to the benefit of any private shareholder or individual Q: What are those contributions which can be deductible in full? A: 1. TAKE NOTE: Donee is never an individual. ordinary wear and tear of natural resources operation TAKE NOTE: ►Equipment used in mining deductible in depreciation Q: Method for computing depletion? A: cost depletion method Q: to whom allowed? A: only mining entities owning economic interest in mineral deposits ►Economic interest: capital investments in mineral deposits 34H CHARITABLE & OTHER CONTRIBUTIONS TAKE NOTE: 1.Government of the Philippines or any of its agencies or any political subdivision thereof exclusively for public purpose 2.Donations to the Government – no conflict with partial (different requirement) ►Partial donated for exclusively public purposes ►Full. charitable. Q: If the Donor is a pure compensation income earner and he donates P100. How much can he claim as a deduction? A: First determine the taxable income of Mr A since he is an individual. full /total deduction Q: Which of the two kinds is the General Rule? A: General Rule: Partial deduction Exception: Total /Full deduction Q: Suppose Mr. treaties or commitment entered into by the Philippine Government and such donees A: the exhaustion wear and tear of natural resources as in mines. youth and sports development.unique because deducted from the taxable net income and not from the gross income ►second step of the formula deduction Q: Who is claiming the deduction? A: the donor Q: Who are the Donees? A: 1. pure compensation income earner can only claim a deduction under Sec 34 M Q: If Donee is the Philippine Government. and gas wells ►the natural resources called “wasting assets” DEPRECIATION vs. or to social welfare institution. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION ►5% of taxable income in case of corporations 2.partial deduction ►10% of taxable income in case of an individual 55 . oil. cultural or educational purposes or for the rehabilitation of veterans. scientific. DEPLETION 1.
it is paid or incurred during the taxable year 2. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION b. they felt that those should be a separate deduction for research and development. business or profession. Q: Treated as such when? A: during the taxable year it is paid or incurred AMORTIZATION OF CERTAIN RESEARCH AND DEVELOPMENT EXPENDITURES ►at the election of the taxpayer. Any expenditure paid or incurred for the purpose of undermining the existence. annual administrative expense does not exceed 30% of the total expenses and 5. chargeable to capital account but not chargeable to property of a character which is subject to depreciation or depletion Q: How to compute taxable income: A: deferred expenses shall be allowed as deduction ratably distributed over a period of not less than 10 months as may be elected by the taxpayer (beginning with the month the taxpayer first expenditures.Donations to Accredited Non-government organizations Non-government organization. social welfare. To remedy this. extent or quality of any deposit of one or other mineral including oil or gas.the employer must have established a pension or retirement plan to provide for the payment or reasonable pension of his employees 2. organized and operated exclusively for scientific. ►the election or option may be exercised for any taxable year after the effectivity of the code but not later than the time prescribed by law for filing the return for such taxable year. business or profession. location. not treated as expenses under par 1 and c. this is not allowed as a deduction. and 3. paid or incurred by the taxpayer in connection with his trade. in case of dissolution. REQUISITES: ►tax payer may treat research and development expenditures as ordinary and necessary expenses provided: 1.) realizes benefits from 3. the following shall or may be treated as deferred expenses: a. no part of the net income of which inures to the benefit of any private individual 3. Q: Requisites? A: 1. not chargeable to capital account. incurred in connection with trade. ► not for mineral exploration 34 J PENSION TRUST Q: Claimed by Whom? A: the employer Q. cultural or charitable purposes or a combination thereof 2.Atty. character building and youth and sport development. LIMITATION ON DEDUCTION Q: When not deductible? A: 1. Francis J. it must be funded by the employer 56 . 3. pension plan must be reasonable and actually sound. educational. uses the contributions directly for the active conduct of the activities constituting the purpose or function for which it is organized and operated 4. What is a Pension Trust contribution? A: a deduction applicable only to employer on account of its contribution to a private pension plan for the benefit of its employee deduction is purely business in character. nonprofit domestic corporation REQUIREMENTS: 1. health. research. the assets of which would be distributed to: a) another nonprofit domestic corporation organized for similar purpose or purposes b) to the state for public purpose c) distributed by the court to another organization to be used in such a manner which would accomplish the general purpose for within the dissolve organization was organized 34I RESEARCH AND DEVELOPMENT ►In the old law.Any expenditure for the (1) acquisition or improvement of land or (2) for the improvement of property to be used in connection with research and development of a character which is subject to depreciation and depletion and office site 2.
or individual judicially decreed as legally separated with no qualified dependents. NRC 3. otherwise. individual taxpayer availing itemized or optional standard deduction. follows he cannot claim this deduction because he is liable to pay by way of GIT. 4. 000 57 . ► 20.Atty. he shall be considered as having availed of the itemized deduction. amount of premiums. Single individual. gross income of the family for the taxable year is not more than P250. Who are taxpayer? A: those mentioned under Section 24 (A) 1. Q: Who can claim this deduction? A: all individual taxpayers except non resident alien not engaged in trade or business (NRANETB) Reason: he is not liable to pay by way of the NIT.400 per family or (2) P200 a month 3.000 Q: Who can avail of this deduction? A: 1. the amount to be claimed as personal exemptions should not exceed the amount provided for under Philippine Laws TAKE NOTE: AEMOP: can be a RA or NRAETB BASIC PERSONAL EXEMPTIONS: 1. TAKE NOTE: ►can co-exist with personal and / or additional exemption 34 M PREMIUM PAYMENTS ON HEALTH AND /OR HOSPITALIZATION INSURANCE OF AN INDIVIDUAL TAXPAYER ► for (1) Health and /insurance (2) Hospitalization REQUIREMENTS: 1. RA ►all can claim both personal and additional exemption Q: Why not include NRAETB? Can the latter claim any exemption? A: NRAETB is not included because Section 35 A refers to Section 24 A ►NRAETB can claim personal deductions but not additional exemptions pursuant to Sec 35 D REQUIREMENTS: 1. OCW 4.NRAETB should file a true and accurate return 2. and 3. amount of premiums should not exceed (1) P2. thus.Optional Standard Deduction 3.Itemized deduction 2. 34 K ADDITIONAL REQUIREMENTS FOR DEDUCTIBILITY OF CERTAIN PAYMENTS ►allowed as a deduction only if shown that the tax required to be deducted and withheld there from has been paid to the BIR in accordance with Section 58 and Section 81 34 L OPTIONAL STANDARD DEDUCTION KINDS OF DEDUCTIONS: 1.Personal /Additional Deduction OPTIONAL STANDARD DEDUCTION: ►can be availed of by an individual who may elect a standard deduction in an amount not exceeding 10% of his gross income ► may apply in lieu of the other deductions under Section 34 ►the taxpayer must signify in his return his intention to elect the optional standard deduction. paid by taxpayer for himself and members of his family. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION 2.individual taxpayer earning purely compensation income during the year. RC 2. individual taxpayer earning both compensation income and income from business SECTION 35 ALLOWANCE FOR PERSONAL EXEMPTION FOR INDIVIDUAL TAXPAYER Q: When do we apply this? A: apply if individual taxpayer is paying by way of NIT Q. the amount has not yet been allowed as a deduction and 6. Francis J. 2. the amount contributed must no longer be subject to his control or disposition 5. the amount has or is apportioned in equal parts over a period of 10 consecutive years beginning with the year in which the transfer or payment is made.
(3) unmarried 5. TAKE NOTE: ►always choose the higher amount of exemption if you are filing a return covering the period within which the change of status occurred 1. Book+ Magic & Pink Notes + CEP + Others TAXATION Additional Exemptions: (35B) -additional exemption of P8. 2006 – status: legally married can claim P 32. ►32. living with and dependents upon him for their chief support 4.000 Q: Who are allowed to claim? A: Normally . widower not included in the list under Section 35 A – but can claim under sec 35B ►widower. 2005 2. With (1) one or both parties or (2) With one or more brothers and sisters (3) with one or more legitimate.000 58 . Q: Why do we have to determine who the head of the family is? A: only legally separated individuals can claim additional exemptions if they have qualified dependents. recognized. whose such brother or sisters or children are (1) not more than 11 years old and (2) not gainfully employed. the same are incapable of self support because of mental or physical defect. only such spouse can claim the personal exemption. 000 3. ► 25. if the taxpayer should (1) marry or (2) have additional dependents during the taxable year. can claim additional exemption? A: can claim. 2005 – on April 15. married or used to be married MARRIED INDIVIDUALS ►each legally married individuals can claim the personal exemption.Single Jan 1. natural or legally adopted children 3. earns or derives gross income. TAKE NOTE: ►R.Atty. (2) unmarried. 000 Q: Who is the “head of the family”? A: 1. Q: Can a widower claim exemptions? A: exemptions must be strictly construed. For each married individual – if only one of the spouse. it is the husband who claims unless he executes a waiver that the wife will claim the same (RR2-98) Q: Who can claim the same? A: 1.000 dependent not execeeding four (4) for each For head of the family – can be single or legally separated with qualified dependents. Q: Define “dependents” A: legitimate. illegitimate or legally adopted child chiefly dependent upon and living with the taxpayer if such dependent is (1) not more than 21 years of age. can be considered as head of the family w/ dependent Q: What if the children are temporarily away from the parents? A: still considered living with parents. can claim exemption CHANGE OF STATUS: (SEC 35 C) Q: Reckoning Period? A: end of the year or close of such year when such change of status occurred. Francis J. he may claim the corresponding exemption in full for the year. regardless of age. Illustration: 1.legally separated individuals: can be claimed by the spouse who has custody of the child or children ►the additional exemption claimed by both shall not exceed the maximum additional exemption herein allowed. 7432 and RR 2-98: a senior citizen can also be a dependent. Husband and wife = P64. OR.Married couples: only one of the spouses can claim it. Q: What if widower has illegitimate children.unmarried or legally separated man or woman 2.A. regardless of age is incapable of self support because of mental or physical defect. 2. Sababan 2. and (3) not gainfully employed or (4) if such dependent.Married June 1.
lineal descendants Q: are uncles or nieces included? A: no of the blood) IN DONOR’S TAX ►Relatives includes relatives by consanguinity within the 4th civil code. 25. beginning 30 days before the sale and ending 30 days after the sale. General Rule: In computing net income. ancestors d. 2006.000 (8.000 ► In this case. and disposed of the same on Feb 5. as if the change of status occurred at the close of taxable year. covering employee life of any any person 59 . Any amount expanded in restoring property or in making good the exhaustion thereof for which an allowance is or has been made.Atty. 2. TAKE NOTE: ►Amount paid for new buildings. Illustration 1. 37 Special provisions regarding deductions of insurance companies.000 } P40.000+ P8. 2006 P32. made to increase the value of any property or estate 2. 2005 taxpayer married w/ one child can claim on April 15. P 32. spouses c. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION invested in any trade of business carried on by the taxpayer. Illustration: 1. LOSSES FROM SALES OR EXCHANGES OF PROPERTY (between related parties) 1) between family members 2. Q: What period? A: 61 day period beginning 30 days before and ending 30 days after the sale Q: Jan 20 you purchased share of stock. Is this a wash sale? A: No 1.000 Section 36. if the taxpayer should die during the taxable year. Nephew is a stranger and relative ang nephew. or betterments.000 per child) 48. 2) individual and corporations Gen. If taxpayer’s spouse or child dies within the taxable year or the dependent’s became (1) gainfully employed (2) got married or (3) became 21 as if the change as status occurred at the close of taxable year. Francis J. can be deducted if it involves intangible drilling and development cost incurred in petroleum operations (Sec 34 6 (A) PREMIUMS POLICY : PAID the or ON LIFE INSURANCE officer or financially Q: Who is considered the “family taxpayer?” A: a. Exceptions: 1. living or family expenses – not related to trade or business (2) Section 36 A (2) and Section 36 A (3) General Rule: No deductions allowed for 1. no deduction shall be allowed: (1) Personal. taxpayer is directly or indirectly the beneficiary under such policy. 2. Taxpayer despite the tragedy can claim ton of money on April 15. Rule: NO DEDUCTION Except: distribution in liquidation or less than 50% of the outstanding capital stock 3) 4) 5) 6) Two corporations Grantor or Fiduciary Two fiduciaries of two trust Fiduciary and beneficiary of trust Sec. 2005. brothers and sister (whole is ½ b. 2005 and child died the next day then another child eloped and get married. Codal Provisions Section 38: Losses From Wash Sales of Stock or Securities Q: What is a wash sale? A: It is a sales or other disposition of stock securities where substantially identical securities are purchased within 61 days. Option granted to Private Educational Institution to deduct the same as capital outlays. estate can claim personal exemption. Any amount paid out for new buildings or for permanent improvements.000 P 16. 25.Jan. Taxpayer’s tragic story wife died Jan. Items not Deductible 36 A.
Q: Suppose it was a sale of personal property.000 be included in gross income? A: Basis: (1) same as if it would be in the hands of the Donor (FMV as of date of acquisition). robbery or estafa. your GG gave you a jewelry in Sept your GG breaks up with you. short term(less than 12 months) : 100% taxable b. to avoid too much speculation in the market 2. because he may say he incurred a loss instead of a gain Section 40.000 ) contract of sale ►amount realized is 300. Q: What if it involves a sale of real property? A: Apply the same principles Suppose it was a result of swindling. 2006. EXCEPT: sale of shares of stock where you have to determine actual gain or loss Q: When is there a gain? A: excess of the amount realized over the basis or adjusted basis for determining gain. or (2) last owner who did not acquire the same by gift (cost) Q: If it involves a parcel of land? A: apply the same rules Section 40 B (4) what is the basis? 60 . (amount realized from the sale or other disposition of property) Q: When is there a loss? A: the amount realized is not in excess of B or AB Illustration: 1987 Bar (Juan dela Cruz sold jewelry for 300. 2) gains from wash sale are taxable but losses are non-deductible Exception: ►unless claim is made by a dealer in stock or securities and with respect to a transaction made in the ordinary course of the business of such dealer Q: Reason why losses in wash sale cannot be deducted? A: 1. taxpayer not telling the truth. Will the entire P200.Atty. happens? A: General Rule: (Sec 131 RR No. ►Holding period applies only to sale of personal property which is a capital asset except sale of shares of stocks. take note of the old CIA ruling on this one Q: Feb 14. 40 B (1). Determination of Amount and Recognition of Gain or Loss GENERAL RULE: This is totally irrelevant if the income is subject to fit. In fit gain is presumed. ►Holding period corporations. ►If realty is capital asset – 6% FMV or selling price applies. is the whole gain subject to income tax? A: it depends ►if ordinary asset = 100% is subject to income tax ►if capital assets a. theft. long term (more than 12 months): 50% taxable Q: If the property is acquired through inheritance.000. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION Q: suppose property sold is a parcel of land will the rule be the same? A: No. do we apply the same principles? A: No. what is the basis? A: Sec 40 B (2) fair market value or price as of the date of acquisition. do we apply the same principles? A: Law is silent. and it depends ►ordinary asset: apply the cost ►capital asset: 6% FMV or selling price which ever is higher Q: Do we apply the holding period? A: No. Francis J. also do not apply to Q: If it is a loss in wash sale. GG request the jewelry be returned but you already sold it for P200.000 Q: What will be the basis of the gain? A: Sec. holding period does not apply to the sale of real property. property was acquired by purchase ►Cost: purchase price + expenses Q: If there is a gain. This is an absolute rule: ►If realty is ordinary – holding period does not apply.
corporation. Francis J. party to a merger or consolidation. gain is exempt 2. solely for the stock of another corporation which is a party to the merger or consolidation Sec 40 C (2) (c) ► a security holder of a corporation which is a party to the merger or consolidation. the transaction involves a contract of exchange 2. Property was acquired for less than an adequate consideration in money or moneys worth: the basis would be the amount paid by the transferee for the property. exchanges property solely for stocks in another corporation. party to a merger or consolidation. Q: What is the rule? A: 40 C (3) (a) 1.Transferor corporation receives money and / or property. solely for the stocks of another corporation also a party to the merger or consolidation. shall be recognized (meaning taxable) but in an amount not in excess of the sum of the money and the FMV of such other property received. – person transfers property to corporation to gain control 40 C EXCHANGE OF PROPERTY GENERAL RULE: In sale or exchange of property. Security holder of a corporation. also a party to the merger or consolidation. exchanges his securities in such corporation. exchanges his securities solely for stock or security in another corporation. losses are deductible Exception: If permanent to a merger or consolidation plan. loss not deductible ►40 C (3) (b) It depends on how distributed: 1. (40 C (3) (b) TRANSFEROR 1.000 = not gain P300. the gain. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION Transferee gives 700. also a party to the merger or consolidation b. Q: Section 40 B (5) what is the basis? A: 40 C (5) ► if the property was acquired in a transaction where gain or loss is not recognized (pursuant to a merger or consolidation plan) a. ►Sec 40 (2) (a) ►a corporation which is a party to a merger or consolidation. is a party to the merger or consolidation. distributes it pursuant to the merger or consolidation plan ►no gain to the corporation shall be recognized 2. pursuant to the merger or consolidation plan: ►gain exempt ►loss not deductible 2. or c.Atty. the subject matter is only limited or confined with the one provided for by law ►Merger and Consolidation in corporation code and tax code are not the same.000 taxble 1. solely for stock securities in another corporation. if any. no gain or loss shall be recognized 1. the parties are members of the merger or consolidation 3. gain taxable 2. exchanges property solely for stock in a corporation which is a party to the merger or consolidation Illustration: Transferor gives 1M ►If other property received by transferee (40 C (3) (a) TRANSFEREE ►if the party receives not just the subject matter permitted to be received: lie if the party receives money and /or property. not pursuant to merger or consolidation plan: ►gain taxable ►loss not deductible. Sec 40 C (1) (b) ►a shareholder exchanges stock in a corporation which is a party to a merger or consolidation. but not the loss. the control amount of gain or loss shall be recognized. 1. 61 . does not distribute it pursuant to the merger or consolidation plan ►the gain shall be recognized but in an amount not in excess of the sum of such money and the FMV of such other property so received. gain is taxable 2. Transferor corporation receives money and / or property. losses are not deductible REQUISITES: 1.
If amount of liabilities assumed + amount of liabilities to which property is subjected to exceeds . Francis J. 40 C (5) (b) Transferee ►as it would be in the hands of transferor increased by the amount of gain recognized. that is why the last paragraph of 40 C is a separate paragraph. 62 . as the case may be. 40 C (5) (a) Transferor ►basis of stock or securities received by the transferor: same as the basis of the property. As a result. in connection with the exchanges described – receives securities or stocks permitted (no gains recognized) – it is sole consideration of the same – the other party assumes liability of the same – the acquisition of liability not treated as money and / or other property – the exchange still falls within the exceptions. Sec 40 C (3) (a. ►Therefore. the person gains control of the corporation ►The rule is: a. 2. SECTION 41 INVENTORIES Purpose: Change of inventory to determine clearly the income of any taxpayer/ to reflect the true income. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION Sec 40 (c) (4) Assumption of Liability 1. Fiscal year 2. parties are not members of the merger ►the individual wants to be a shareholder but does not want to purchase shares but willing to give up property as a result of the exchange . the person alone or together with others (not exceeding of 4 persons) gains control of the corporation. and ►increased by (a) amount treated as dividend and (b) amount of gain recognized 2. no annual accounting b.c) the rule is 1. gain exempt 2. loss not deductible 40c last paragraph ► the transferee becomes a stockholder. Sec 40 B (5) ►non applicability of income tax is only temporary Reason : Basis will be 40 C (5) 1. loss not deductible Requisites: 1. once every 3 years 2. gain is exempt b. stock or securities exchanged: ►decreased by the (1) money and (2) FMV of the property received. no accounting method has been employed 2. approval of the secretary of finance Section 43 Accounting Periods 1.b. use of calendar year a. 2. individuals ►Use of method as in the opinion of the commissioner clearly reflects the income: 1. Limitation: 1.Atty. (b) and (c) although different property are involve. Q: What is control? A: ownership of stocks in a corporation possessing at least 51% of total voting power.adjusted basis of the property transferred – the excess shall be considered a gain from the sale of a capital asset or of property which is not a capital asset. the method does not clearly reflect the income Sec 44 Period in which items of Gross Income included and Sec 45 Period for which Deductions and Credit Taken ►Under Sec 44 amount of all items of gross income shall be included in the gross income for the taxable year in which they are received by the taxpayer ►Under Sec 45 deductions shall be taken for the taxable year in which “paid or accrued” or “paid or incurred. Taxpayer. does not keep books of account c. (a). Illustration: ►The rule is similar in 40 C (3). There is A contract of exchange where property was transferred by the person in exchange of stock or unit of participation in a corporation.” ►Sec 44 and Sec 45 are mentioned in the code because of the death of the person.
net income shall be computed on the basis of the new accounting period. the return shall be accompanied by a certificate of architects or engineers showing the percentage of completion c. Calendar to Fiscal ►separate final or adjusted return shall be made for the period between the close of the last calendar year and the date designated as the close of the fiscal year. 2006 to Dec 31. fiscal to another fiscal ►with the approval of the Commissioner. 2006 the estate is the taxpayer ►So the income and deductions from Jan 1 to June 25. installation or construction contracts covering a period in excess of one (1) year. 2006 – June 15. 3. sold by way 3. Q: If the initial payment exceeds 25% what do you call it? A: called deferred sale Q: Consequence? A: you must pay the whole amount of the tax Q: Sale of Personal Property. subject matter 2.fiscal year 2. persons whose gross income is derived in whole or in part from such contract shall report such income upon the basis of percentage of consumption. fiscal to calendar 2. is it important to know if it is a casual or regular sale? A: Yes Casual Sale has Requirements: 1. initial payment not exceeding 25% selling price ►Regular sale no requirements Case of Bañas 1. Francis J. Fiscal to fiscal ►separate final or adjusted return shall be made for the period between the close of the former fiscal year and the date designated as the close of the new fiscal year. 2.000 2. selling price exceeds P1. calendar to fiscal 3. Q: Basis of income? A: a. calendar year Q: Changes contemplated? A: 1. b. 2006 ►June 26. included in the computation Section 46 Change of Accounting Period Q: Who is the taxpayer? A: corporation (taxpayer other than individual) Q: What kinds of accounting period? A: 1. ►File return indicating the change in accounting method Section 48 Contracts Accounting for Long Term Q: Sale of Real Property is it important to know if it is a casual sale or regular sale? A: No Requirement: The initial payments do not exceed 25% of the selling price.. agreement Q: Who are the professionals involved? A: applies to architects and engineers 63 . on account of the contract is allowed Section 49 Installment Basis ►contemplates a seller of the property Q: Is it important to know if the personal or real? A: Yes property is Facts: taxpayer dies in the middle of the year January 1. deduction of expenditures made during the taxable year. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION Q: What is a long term contract? A: it means building. Fiscal to calendar ► separate final or adjusted return shall be made for the period between the so close of the last fiscal year for which the return was made and (2) the following Dec 31. correct? A: not correct statement Section 47 (A) Taxpayer: Corporation 1.Atty. Q: Calendar to calendar.
Feb or March) ► not December because the calendar year is not yet over Fiscal year: 15th day of the 4th month following the close of the fiscal year. Pure compensation income earner – separate return RR 3-2000 – pure compensation income earner regardless of amount of income not file ITR. or 2. Section 50 Allocation of Income and Deductions ►tremendous power of the Commissioner to allocate the income and deduction of several corporations having the same interest. Francis J. you only compute cash H: Initial payment exceeds 25% installment basis is not applicable RR 2. duly authorized treasurer municipality where taxpayer principal place of business 5. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION shall not required to file ITR because the management files it. the employee has two or more employer 51 A (3) A: not required to file ITR may be required to file information return 51 B . what is he required to file? A: Information Return Q: who are not required to file a return? A: a. 64 . (RR 3-2002) c. individuals whose sole income is subject to FIT d. Section 175: In payment by way of installment promissory note. NRAETB – sources within Q: Who is not mentioned in Sec 51 but liable to pay by way of NIT? A: OCW/ seaman Exception: RC OR ALIENS: engaged in trade or practice of profession in Phil. 1st installment promissory note was disconnected 4. collection agent 4. individuals who are exempt from income tax Exception: IT 1. office of commissioner residence or place of business 4. before April 15 (January. Shall file ITR regardless of the amount of gross income.Atty. cash deposit 5.Where to file? 1. an individual whose gross income does not exceed his total personal and additional exemptions for dependents b. Q: If OFW is exempt from filing a return. bills of exchange and checks will not be considered in computing the 25% initial downpayment. 51 C (2) individuals subject to tax on capital gains Exception: General Rules Sec 58 1. NRC 3. on April 15. Sale of shares of stocks ►return filed within 30 days after each transaction and ►Final consolidated return on or before April 15 2. Q: Same interest? A: stockholders substantially the same Q: Limitations? A: None ►That is why it is a great source of corruption Section 51 Individual Returns Who are required to file? (ITR) 1. authorized agent bank 2. post dated promissory notes (installments) 3. the management files an incorrect return 2. revenue district officer 3. RA 4. 2nd installment exchanged with cash these two exceeds the selling price 5. worker (compensation income earners) regardless of the amount of compensation of the city or resides or has – if no legal in Phil 51 C Q: When to file? A: filed on or before the 15th day of year April each 51 C (1) – NIT Payers using CY ►two days provided (calendar) 1.Sale of Real Property ►return filed within 30 days following each sale 51 D Husband and Wife 1. RC 2.
in connection with Sec 24 C the basis of the tax is not the gross income but the net capital gains realized. quarterly income tax return b.Requirements Taxpayer: DC or RFC (except NRFC) ITR Filed: 1. income from minor’s own industry ►Minor’s ITR accomplished by guardian or parents Q: if the individual is exempt from income tax.erroneous return 2. the buyer is deemed the agent.other persons charged with the care of his person or property ►both incapacitated taxpayer and agent will be liable for: 1. including a corporation which has been notified of possible involuntary dissolution by the SEC.Donor’s tax paid b. liquidation of the whole or any part of its capital stock. final or adjusted income tax return Filed by: 1. guardians 4.Donor’s tax has been paid 2.exercise of profession – Sec 51 A (2) SEC 52 CORPORATION RETURNS A. 2. Other principal officer ►ITR must be sworn by such officer and the treasurer or assistant treasurer B. or b. TRUE AND ACCURATE a. Sababan 2. Persons Under Disability Q: Who makes the return? A: 1. In connection with Sec 40: ►actual determination of loss or gain 65 .Atty. can be required to file a return? A: General Rule: No Exceptions: 1. duly authorized representatives 3. Return of Corporation Contemplatory Dissolution or Recognition 1.Property exempt from donor’s tax 2. Taxable Year 1.Vice President 3. fiscal.President. or 51 E. Francis J. calendar ► corporation cannot change accounting method employed without the approval or prior approval of the commissioner (Sec 47) C. Not pure compensation: joint return Book+ Magic & Pink Notes + CEP + Others TAXATION ►file a return within 30 days from date of transaction TAKE NOTE: In all other income subject to FIT. Return of Parent to Include Income of Children ► unmarried minor receives income from property received from living parent – included in the parent’s ITR.duly authorized agent 2. Sale of Shares of Stocks Q: Reasons for filing Final Income tax or Final Consolidated Return? A: Reasons: 1. the gains are presumed INCOME OF MINORS Q: Minor below 18: Will it be included in the Minor’s ITR? A: it depends 1. FIT whose actual determination of gain or loss 2. or 2.Within 30 days after: a. Exception: 1. or 2.Property exempt from donor’s tax 51 F. the adoption by the corporation of a resolution or plan for its dissolution. false or fraudulent return 51 G Signature Presumed Correct ► prima facie evidence the return was actually signed by the taxpayer Section 52 Corporation Return ►go back to Sec 51 A (2) General Rule: Sec 58 Final Income Tax ►return and creditable withholding tax return is filed monthly Exception: Sale of Shares of Stocks (Sec 51 A (2)) Sale of Real Property ►RR -17-2003: Sale of Real Property subject to final withholding tax. income from property received from parents ► included in parent’s ITR Except: a.engaged in trade or business.
Section 55 Returns of General Professional Partnership ► file a return of its income setting forth 1.the shipping agents and or the husbanding agent 66 . shares of each partners ►GPP is exempt from corporate income tax Q: Why is the GPP obliged to file a return? A: to determine the shares of each partners Section 56 Payment and Assessment of Income Tax for Individuals and Corporations A.Secure a tax clearance from the BIR and file it with the SEC 4. tax has been paid is filed Section 54 Returns or Receivers. 2nd installment on or before July 15 following the close of the calendar year Q: What is the effect of non payment on the date fixed? A: The whole amount of tax unpaid becomes due and demandable together with the delinquency penalties. ►No registration of document transferring real property 1. Sale of Stocks – ITR look at the previous notes about it Section 53 Extension of Time to File Returns Q: To whom granted? A: Corporations Grounds: Meritorious case ►subject to the provisions of Sec 56 Extension Certificate of a. Francis J.Bureau of Customs may hold the vessel and prevent its departure until: a. ►Report gains on installments under Sec 49 – tax due from each installment payment shall be paid within 30 days from the receipt of such payments.000 Taxpayer: individuals only (other than corporation) Elect to pay the tax in two (2) equal installments 2. the captains thereof ►those people are required to file a return and pay the tax due before departure Q: What is the effect of failure to file the return and pay the tax due? A: 1. transfer has been reported b. for its reorganization Book+ Magic & Pink Notes + CEP + Others TAXATION 2.Render a correct return verified under oath setting form: a. Names of partners 3. b. if you fail to qualify for exemption – tax due shall immediately become due and payable and subject to penalties c. no payments shall be required. forms of the resolution or plan. Taxpayer identification number (TIN) 4. 1st installment: paid at the time the return Time b. such other information prescribed 3. Payment of Tax Q: Who pays the tax of tramp vessels? A: 1. Trustees in Bankruptcy or Assignees ►the aforementioned persons shall make returns of net income as and for such corporation in the same manner and form as such organization is required to make. a sufficient bond is filed to answer for the tax due. or b.Thereafter.Atty. b.in their absence. Sababan c. proof of payment of tax is presented. seller pays tax – submit intention or proof of intent within six (6) months from the registration of document transferring Q: when is the real property entitled to refund? A: upon verification of compliance with the requirements for exemption. items of gross income and of deductions allowed by this title (Title II – Tax on Income) 2. D. address of partners 5. without a certification from commissioner or his duly authorize representative that a. SEC issued a Dissolution or Reorganization. Installment Payments Tax due: more than P2. Payment of capital gains tax : Q: Paid when? A: on the date the return is filed Avail exemption for capital gains: a.
Atty. Assessment and Payment of Deficiency Tax ► Return is filed. Creditable withholding taxes 1. individuals payee – not later than March 1 of the following year B. Q: What is the maximum? A: Maximum: now 35% pursuant to RA 9337 Q: When will you allow withholding beyond 15%? A: For NIT 15% is the maximum 1. not file the return and not pay the tax Section 57 Withholding of Tax at Source A. 3 INSTANCES CONTEMPLATED 1. Withholding of Taxes ►subject to the Rules and Regulations the Section of Finance may promulgate. duly authorized treasurer of city or municipality where withholding agent has: 1. principal place of business. if corporation . GIT . upon recommendation of commissioner: Require the filing up of certain income tax return by certain income payees. Withholding of Creditable Tax at Source ►The Sec. or 2. mortgages. deeds of trust or other similar obligations of DC or RFC ►contains a contract or provision where the obligor (debtor) agrees to pay the tax imposed herein ►normally between the creditor and debtor 67 . upon recommendation of the commissioner require the withholding of a tax on the items of income payable to natural or juridical persons. 3. the commissioner examiner and assess the correct amount of tax ►tax deficiency discovered shall be paid upon notice and demand from the commissioner. Commissioner. 25 B (NRANETB) 2. corporate payee – not later than the 20th day following the close of the quarter 2. file the return and pay the tax 2. by payor-corporation/ person… the same shall be credited against the income tax liability of the taxpayer for the taxable year.Return for Creditable withholding taxes ►filed and paid not later than last day of the month following the close of the quarter during which withholding was made 5. his legal residence. file the return but not pay the tax 3. with approval of Sec Finance ► require withholding agents to pay or deposit taxes at more frequent intervals where necessary to protect the interest of the government B. Enumer ation about Final Income Tax Except: Gross Income Tax 1. income or other payments made by WHA during such quarter or year and 2.Tax deducted and withheld ►held as a special fund in trust for the government until paid to the collecting officers. collection agent d. Francis J. FIT – the amount of withholding is totally 2. 28 B (NRFC) B. or 3. Quarterly Returns and Payment of Taxes Withheld at Source 1. Statement of Income Payments Made and Taxes Withheld ►Withholding agent shall furnish payee a written statement showing: 1. residing in the Phil. authorized agent bank b.Return for final withholding tax ►filed and paid within 25 days from the close of each calendar quarter 4. At the rate of not less than 1% but not more than 32% thereof. Q: Enumeration is all about what? A. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION Q: Who pays the tax? A: Creditor pays the tax by virtue of an agreement the debtor assumes the liability and the creditor is now free from payment of tax before it can transfer the property to the buyer.equal to the amount of tax Tax Free Covenant Bond ►the bonds. Section 58 Returns and Payment of Taxes Withheld at Source A. where principal office is located 2. of Finance. revenue district officer c. covered by a return and paid to: a. amount of tax deducted and withheld ► statement given simultaneously upon payment at the request of the payee.
maintained in separate account 3. profits and income not falling under the foregoing and not returned and paid by virtue of the foregoing shall be assessed by personal return Intent and Purpose of this Title 1. the list of payees and income required 2. 2. Registration with Register of Deeds ►No registration of any document transferring real property shall be effected by the Register of Deeds unless the commissioner or his duly authorize representative has certified that the transfer (1) has been reported and (2) tax due has been paid ►Register of Deeds requires payment of tax before transfer of property 68 . D. not commingled with other funds of WHA E. Francis J. Said tax be paid by the owner of the gains. 2. All gains. Annual Information Return ►Withholding agent shall submit to the commissioner an annual information return containing : 1. C. Income of Recipient 1. considered trust fund 2. income tax collected at source is less than the tax due on his return – difference shall be paid 4. amount of taxes withheld from each payees 3. all taxes withheld 1. the excess of the amount of tax so withheld over the tax due on his return shall be refunded 3. control or disposal of the same Determination of Ownership: ►determined as of the year for which a return is required to be filed Final Withholding taxes ►the statement should be given to the payee on or before January 31 of the succeeding year. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION Section 59 Tax on Profits Collectible from Owner of other Persons ►Tax imposed under this title upon gains. profit or income or the person having the receipt. custody. Income upon which any creditable tax is required to be withheld at source shall be included in the return of its recipient.Atty. profits and income of a taxable class shall be charged and assessed with the corresponding tax. other pertinent information required Final Withholding Tax: AIR ►filed on or before succeeding year January 31 of the Creditable withholding tax: AIR ►not later than March 1 of the year following the year for which the annual report is being submitted ►Commissioner may grant WHA reasonable extension of time to furnish and submit the return required herein.
Posadas 57 Phil 465 • Sec. CIR GR # L-13250(42S238) • Upon reading sec. 85 (B) read Vidal de Roces vs. Francis J. 108 • Dizon vs. 85 (G) compare with sec. sec. 85 (H) compare with sec. 228 of NIRC and RR 12-99 sec. 104 read the case of Campos Rueda vs. 86 see RR 2-2003 • Upon reading sec. Flojo 115 SCRA 278 • Union Shipping vs. 94 see Marcos vs. 100 • sec. 363 SCRA 840 • -Prescription sections 203 and 222 of NIRC. 86 (C) • Upon reading sec. sec. 194 of the LGC. Philamlife 244 SCRA • Comm. 1603 of Tariff and Customs Code • -Protest sec. 21 SCRA 17 • Yabut vs.Atty. vs. sec. CA & BPI 301 SCRA 435 • BPI vs. 2313 of Tariff & Customs Code and RA 7651 Remedies under Local Taxation • Sections 128-196 of LGC 69 . TMX 205 SCRA 184 • Comm. vs. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION Topics under Tax 2: Estate Tax • Sections 84-97 see sec. Comm. vs. Sandiganbayan 273 SCRA 47 • Sec. 252 LGC. 195 of LGC. 103 (A) (1) and RR 2-2003 • Sections 100 and 85 (9) Remedies Under the Internal Revenue Code • Sections 202-229 • RR 12-99 • Phoenix vs Comm 14 SCRA 52 • Basilan vs. Posadas 58 Phil. Comm 185 SCRA 547 • Comm. Comm. 97 Donors Tax Law • Sections 98-104 • G and Cumulative methods of filing donor’s tax returns sections 99 (A). 270 of the LGC. sec.
Match vs. Cagayan de Oro 181 SCRA 38 • Reyes vs. Francis J. Transfer of a realty to be imposed by provinces and cities (sec 135. LGC) SECTION 84 ESTATE TAX There are 3 Subjects which uses the “estate” 1. Remedies under Family Customs Law Local Taxation Real Estate Taxation • Tariff & Customs Code • Special Customs Duty sec. Sept. 133 (e) read Palma vs. Apo Lakay Marcos abolished inheritance tax and done’s tax by virtue of PD 69 RATES OF ESTATE TAX Q: What is the formula for Estate tax? A: Gross Estate (Sec 85) . Cebu 81 SCRA 99 • Allied Thread vs. 193 of LGC • Misamis vs. Davao City 363 SCRA 522 • Co-relate sec. Under the Local Government Code.The real estate Tax There are 3 transfer taxes 1. San Pablo City 305 SCRA 353 • Meralco vs. Income tax to be held by the estate under judicial settlement and during the pendency of judicial settlement 2. Shell 105 Phil. 125 of the Internal Revenue Code • Under sec. 301-304 of TCC • Regular Customs Duty sec. Malangas 413 SCRA 572 • Under 133 (h) read Pililia vs. LTO 322 SCRA 805 • Under 137 read sec. 1. Manila 133 SCRA 338 • Sipocat vs. Petron 198 SCRA 82 • Under 133 (i) read First Holdings Co. Estate Tax 3. Iloilo City 164 SCRA 607 • Proceed 1st to sec. 140 of the LGC see sec. 186 read Bulacan vs. par a b c) ========================= Net Estate (taxable estate) 70 . Laguna 306 SCRA 750 • PLDT vs. 104 of TCC • RA 7631 Court of Tax appeals ( RA8232) Remedies under Real Property Tax • Sections 197-294 • Sec. Estate tax (sec 84 to 97 of NIRC) Note: beginning the year 1973. batangas City 300 SCRA 661 • Under 133 (l) read Butuan vs. 1263 • Iloilo Bottles vs. vs.Atty. 2005 2. former Pres. 150 of the LGC read the following: • Phil. Manila 342 SCRA 692 • • • Value Added Tax Sections 105-115 Read RA 9337 Read ABAKADA vs Comm. Donor’s Tax (sec 98-104 NIRC) 3. 139 and 147 of LGC Under sec. 235 • LRT vs. GR 168056. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION • Cebu City vs. Mactan 261 SCRA 667 CA 299 SCRA 442 • Then proceed to 187 • Then to 151 • 128 • Under sec.Deductions (Sec 86.
business or industry established in the Philippines. includes all properties located here or abroad for purposes of determining deductions *Sec 104 is relevant ONLY to NRA and FC. SEC 42 = “Situs of Income Taxation” 3. but it may enter into a contract of donation • The importance why taxpayers should be distinguished: 1.For purposes of this Title. That franchise which must be exercised in the Philippines. obligations or bonds have acquired a business situs in the Philippines. because they shall only be liable for properties located within. wherever situated: Provided. 104. *Sec 104 governs both estate tax and donor’s tax TAXPAYERS ESTATE Resident Citizen DONOR’S Resident citizen A Corporation is not capable of natural death therefore not liable to estate tax. shares. the terms "gross estate" and "gifts" include real and personal property. Definitions. decedent is a NRA for estate b. obligations or bonds by any foreign corporation eighty-five percent (85%) of the business of which is located in the Philippines. That where the decedent or donor was a nonresident alien at the time of his death or donation. however. 71 .Tax credit (if any) ======================== Tax due SEC. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION Non-resident Citizen Resident Alien Non-resident Alien Non-resident Citizen Resident Alien Non-resident Alien Domestic Corporation Foreign Corporations X Rate (don’t include the 1st 200. whether tangible or intangible. SITUS OF TAXES: 1. or mixed. in respect of intangible personal property of citizens of the Philippines not residing in that foreign country. FRANCHISE to be exercised in the Phils. shares.0000 for this is exempt) ========================= Taxable net estate . SEC 150 (LGC) = Situs of Local Taxation” What are the Intangible Personal Property deemed located in the Philippines: • 1. as the case may be. sec 86. shall be considered as situated in the Philippines: Provided. further.Atty. . exempt. with regard to those located outside. SEC 104: both estate and donor’s 2. still further. To the rest of the taxpayers shall have liability on property located inside or outside the Philippines The liability to pay estate tax is different from the question on whether if you were the administrator. SEC 104 = ”Situs of estate and Donor’s Tax” 2. or (b) if the laws of the foreign country of which the decedent or donor was a citizen and resident at the time of his death or donation allows a similar exemption from transfer or death taxes of every character or description in respect of intangible personal property owned by citizens of the Philippines not residing in that foreign country.. do you include that in the estate tax return: If the decedent is a NRA. that no tax shall be collected under this Title in respect of intangible personal property: (a) if the decedent at the time of his death or the donor at the time of the donation was a citizen and resident of a foreign country which at the time of his death or donation did not impose a transfer tax of any character. the liability is that all property located in the Philippines is subject to estate tax under sec 104 and sec 85. Donor is a NRA or FC Their liability is with respect to property deemed located in the Philippines as when the properties are located abroad they are exempt. Francis J. Sec 85: for estate: a. shares or rights in any partnership. his real and personal property so transferred but which are situated outside the Philippines shall not be included as part of his "gross estate" or "gross gift": Provided. obligations or bonds issued by any foreign corporation if such shares. shares. obligations or bonds issued by any corporation or sociedad anonima organized or constituted in the Philippines in accordance with its laws. For the inclusion under par d.
On November 17. No.Atty.49 representing deficiency estate and inheritance taxes including ad valorem penalties. NOTES and OBLIGATIONS issued by Domestic Corporations a. by reason of her marriage to a Spanish citizen and was a resident of Tangier. in his letter dated May 5.308. at least 85% of the business of the corporation is located in the Philippines. and received by respondent on the following day. CAMPOS RUEDA V. 1956. pending investigation. Foreign law of that foreigner or foreign corporation allows exemption on intangible personal property owned by Filipinos who are not residing in that foreign country provided that the resident is a foreigner is a resident of that foreign country BAR QUESTION 1996: A German national donated his shares of stocks in a foreign corporation to his Filipina girlfriend.439. interests and compromise penalties. Morocco from 1931 up to her death on January 2. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION transfer tax in that foreign country and provided that the Filipino is not residing in that country. BONDS. an amended return was filed wherein intangible personal properties with the value of P396.95 as deficiency estate and inheritance taxes.R. 1956 and received by petitioner on May 21. pending investigation. by way of exception when at least 85% of the business is located in the Philippines or it acquired business situs in the Philippines. is the exception applicable? NO. 3. Automatic BONDS. Respondent premised the denial on the grounds that there 2. 4. assessing against and demanding from the former the sum P161. respondent demanded the payment of the sums of P239. or a total of P469. and secondly. No further requirement. Francis J. intangible personal properties in the Philippines. deemed located abroad. issued an assessment for state and inheritance taxes which tax liabilities were paid by petitioner. surcharges. If it is exercised outside. a Spanish national. from the decision of the respondent Collector of Internal Revenue. However. 1955. 1955. including interest and penalties. 1956. Since the donor is a NRA. respondent denied the request for exemption on the ground that the law of Tangier is not reciprocal to Section 122 of the National Internal Revenue Code. In a letter dated February 8. At the time of her demise she left. the German national must be residing also in Germany.40 and P267. is the donor’s tax law of the Philippines applicable? (analyze that of the donor not the donee as we do not have donee’s tax nowadays) GENERALLY. On September 29. If the foreigner is a german national but he is residing in the United States. Hence. On November 23. L> A legislative enactment authorizing a person. issued another assessment for estate and inheritance taxes in the amounts of P202. respondent.262. In a letter dated January 11. it is required that the intangible personal property owned by Filipinos in Germany is exempt from 72 . it is deemed located outside the Philippines. “OR” 2. petitioner filed a provisional estate and inheritance tax return on all the properties of the late Maria Cerdeira. L-13250) 2009 BAR Antonio Campos Rueda as administrator of the estate of the deceased Doña Maria Cerdeira. 1956. 5.90 were claimed as exempted from taxes.665.402. 1955.874. among others. 1955. Foreign law of such foreign country do not impose transfer tax on intangible personal property owned by Filipinos who are not residing in that foreign country provided that the resident is a foreigner is a resident of that foreign country. partnership or industry established in the Philippines EXEMPTIONS: (NRA/FC SEC104) RECIPROCITY 1. the NRA is not liable because shares of stocks in a foreign corporation is. On the same date.24 . on the transfer of intangible personal properties situated in the Philippines and belonging to said Maria Cerdeira. NOTES and OBLIGATIONS issued by Foreign Corporations a. respondent. respondent denied request. petitioner requested for the reconsideration of the decision denying the claim for tax exemption of the intangible personal properties and the imposition of the 25% and 5% ad valorem penalties. CIR (G. However.84. or such acquired business situs in the Philippines Shares or rights in a business. respectively. as a rule. natural or juridical to engage in trade or business.
that the expression "foreign country". The input tax under VAT (sec 110. but if transferred DURING THE LIFETIME of the transferor. on that date and in said zone. We CANNOT apply the donor’s tax made AFTER the death of the transferor. or whose law allows a similar exemption from such taxes. Ruling: Contention of the Collector of Internal Revenue. we believe. therefore. therefore this does not only include properties owned by the decedent at the time of his death.874. par E) 73 . the applicable Transfer tax shall always be “ESTATE TAX”. not a foreign country. not necessary that Tangier should have been recognized by our Government order to entitle the petitioner to the exemption benefits of the proviso of Section 122 of our Tax Code. the contract of usufruct is terminated) was no reciprocity [with Tangier. to certain exceptions) Gross estate in sec 85 is LONGER that the gross gift in sec 98 par b Q: Why is it that the gross gift provided for in a short par and why the gross estate provided in a very long par? There are 3 reasons: 1. whatever might have been the nationality of the deceased or his heirs and legatees. but also it may include property by which the decedent has only interest on the property Example: CONTRACT OF USUFRUCT If the contract of usufruct is for a fixed period of time. the appealed decision states: "In fine. respondent demanded the payment of the sums of P73. ISSUE: The principal question as noted dealt with the reciprocity aspect as well as the insisting by the Collector of Internal Revenue that Tangier was not a foreign country within the meaning of Section 122. the usufructury died. interests and compromise penalties. does not impose transfer or death upon intangible person properties of our citizens not residing therein. were not subject. shares. refers to a government of that foreign power which. we DO NOT ALWAYS apply DONOR’s TAX 2. par b) 3. If the property is transferred AFTER the death of the transferor regardless of any surrounding circumstance. Is the contract of Usufruct terminated by the death of the usufructury? . and after 2 years. it is for a fixed period of time and the usufructury died only after 2 years when the contract is for 5. or a total of P161.Normally. let’s say for 5 years. including furniture and personal effects as well as of securities.21 and P88. whether tangible or intangible. or mixed. A.851. Consequently. corporeal or incorporeal. ESTATE tax shall be applied Section 85 Gross Estate (inclusion) I.Decedent’s interest (SEC 85 par a) The law did not say decedent’s ownership. SEC 85: Gross estate ►gross estate include real and personal property. which was moreover] a mere principality. to the payment of any death tax. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION 2.023." It is. bonds. the rule is ABSOLUTE.NO. whether the applicable tax is estate tax or donor’s tax.74 respectively. why is it that the government always insists the payment of estate tax and the taxpayer always insist on the Donor’s tax? The rate of the estate tax is higher than the donor’s tax (subj. Court of Tax Appeals admitted evidence submitted by the administrator petitioner Antonio Campos Rueda. Estate paid to a foreign country (sec b. consisting of exhibits of laws of Tangier to the effect that "the transfers by reason of death of movable properties. wherever situated (Sec 104) NRA: Decedent / Donor – property situated outside of Philippines not included on the gross estate Q: Tax credits under Philippine Estate tax? 1. used in the last proviso of Section 122 of the National Internal Revenue Code.Atty. Tax credit against any internal revenue tax (sec204) Q: In case of Controversy. and so hold. Hence the use of the property shall be inherited by the heirs of the usufructory . upon the death of the naked owner or the usufructury. Francis J. although not an international person in the sense of international law.95 as deficiency estate and inheritance taxes including surcharges.
it is similar to Sec 85 par. donation The heirs insisted to pay Donor’s tax. and By the Tax Code when property was transferred during the lifetime but the decedent: a. the following document were instituted or executed simultaneously 1.Section 87 a contemplates a situation where the usufruct is terminated by the death of the party. Property passing under general power of appointment 2009 BAR ► If you read the code. Transfer during the life time ►Normally Donor’s tax However there are exceptions: 1.transfer in contemplation of death (85B) 2.revocable transfer (85 C) 3. Irrevocable transfers are not included in the gross estate: exempt Reason: the decedent losses control over the property Notice Not Required because the person has the control over the property D. or b. he being fiduciary. B. the merger of the usufructury in the naked owner is EXEMPT (Sec 87 par a) INCLUDES: ► property (1) owned at the time of death and (2) property not owned at the time of death Q: is there a conflict between Sec 88 a and Sec 87 a? How do you reconcile? A: No conflict 1. 88 a provides to determine the value of the right of usufruct. the Q: Why exempt? A: The first heir as fiduciary did not choose as who will be the second heir (fideicomissary) since it was the testator who chose the latter Under US Laws: The 1st heir died and property would be transferred to the second heir The estate of the 1 st heir is liable for estate tax for the reason that he is the one who chooses the 2nd heir 74 . revocable transfers are included in the gross estate Reason: the decedent retains tremendous power and control over the property 2. Francis J. Contract of lease included Q: How do you determine the value of usufruct? A: Sec. Sababan - Book+ Magic & Pink Notes + CEP + Others TAXATION unique thing: Donees were also the heirs in the last will and testament Donees wanted to pay donor’s tax because it is always lower than the estate tax except when the donee is a stranger H: this is a transfer in contemplation of death Dizon Case: F: A Deed of Donation was executed by Dizon. Posados the collector tried to collect inheritance tax. it is exempt (sec87 par b) 3. Revocable Transfers SUPREME COURT DECISION: Roces case: F: during lifetime.Atty. retains possession or receive income or fruits of property.1st heir – upon death. retains the right to designate persons who will possess the property or the right to receive fruits or income c. however the one to be understood here is that part of the title “general power of appointment ► Same with fidei commissary substitution 3 parties: 1.testator / decedent 2.2nd heir If the usufructury dies. TRANSFER DEATH IN CONTEMPLATION OF (SEC 85 par b) Q: What are transfers deemed in contemplation of death? A: By virtue of Supreme Court decision.will and 2. Dizon died several days thereafter and the son is claiming that the tax that should be imposed is the donor’s tax/ son claims Donor’s tax H:Transfers in contemplation of death 1. take into account the probable life of the beneficiary.Section 88a contemplates a usufruct for a fixed period and the contract still exist. 2.transfer for insufficient consideration II.
by installment or amortization). If upon the death of the testator insurance has been paid it is exempt. it SHALL be because of impending death or maybe due to a terminal disease ►Donor’s tax 2. it is no longer subject to VAT or Vice Versa F. revocable or irrevocable. Prior Interest > irrelevant provision ► The one referred to in this paragraph are the items provided for in Sec 85 par B (transfer in contemplation of death). as a general rule. with PROVISO. if there is an agreement as to the INTEREST. When motive of the transferor for transferring the property for LESS than the adequate consideration. Francis J. The decedent insured himself. Is the entire amount of 1M exempt from income tax? NO. Par A. Determine first the actual premium paid during the existence of the contract. this is an exclusion (sec 32 par b1 & b2) subject to certain requirements. The 100K is the one exempt and the 900K is the one subject to income tax (sec 32 par A8) TAKE NOTE: To determine whether included in Estate or not. 1. G.Atty. 1. EXAMPLE: The proceeds of life insurance is Php1M. the entire amount is not exempt. B1 requires only one requirement to be exempt from INCOME tax: It is payable upon the death regardless of who is the beneficiary. and 2. one or the other but not both (Estate OR Donor’s) depending upon the time of transfer OR motive of the transferor: ► estate tax 1. Transfer for insufficient consideration Q: Similar or in connection with Sec 100 (Donor’s tax) can you apply the two (2) provisions simultaneously? A: No. par C (revocable transfer). say 10 years. Proceeds of Life Insurance Under income tax. and after that 10 years. let us Is it subject to VAT? The one subject to VAT is the NON-LIFE Insurance except CROP Insurance (Sec 108. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION say Php100K was paid as premium and the Php900K was the equivalent of the return. par E (proceeds of life Insurance). and the insurer and the insured agreed that there will be payment of interest of 65K. as to whether it happened before or after the codification/effectivity of the code for the first time in 1989. insurance paid after a fixed number of time. know who has the choice to designate the 2nd heir: ►if decedent instructs the 1st heir that he can transfer the property to whomever he wants included in gross estate ►1st heir choice – included in gross estate E. because the buyer or transferee is a relative or friend 75 . When the motive for transfer is because of generosity or kindness. alternative application. 2. he was paid 1M. Middle part) Q: What about LIFE? It is not subject to VAT since it is already subject to percentage tax which is in the nature of a BUSINESS TAX under sec 123. the insured is still alive and kicking. The 65K interest is no longer exempt as PROCEEDS and INTEREST are DIFFERENT In Sec 32 par B2. Beneficiary is the estate represented by the executor or administrator whether revocable or irrevocable: ►included in gross estate whether designation is revocable or irrevocable Beneficiary is 3rd person or those other than the estate: ► revocable included in the gross estate ►irrevocable not included in the gross estate *for the same reason of control over the proceeds Q: Are the requirements the same as income tax under sec 32 b1 & b2? A: No. then that interest is no longer exempt. BASIS: the Principle : If one is subject to percentage tax then.
Shares Of Stocks is not the type of property contemplated in Sec 24 D (1) ►in this case. to include the paraphernal property of the wife ►surviving spouse may be man or woman (di lagging namamatay yung wife. Due to the relation of the parties. Paminsan minsan lang. barter or exchange. Written notice of death is required when the GROSS ESTATE exceeds Php20K. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION Sale in good faith as a defense: 1. There is no need to qualify. as the case may be.under Section 100 is not a defense as the phrase “except in a bona fide sale” 2. in all cases because under sec 85 par h. the law says. par D1 say? The tax applicable for the sale. answer not the same. or e. the same shall not be considered as Transfer for inadequate consideration Example: A parcel of land in metro manila was sold by the owner for a selling price which is very much lower than the adequate fair market value. subject to ESTATE TAX? A: No. whichever is HIGHER Q: Will your answer be the same if Shares Of Stocks are sold? A: No. it is not to be included in the gross estate and therefore. the separate property of the surviving spouse. it is a defense H. OR. Estate Tax return d. it shall be deemed a gift and included in the computation of the gross gift: subject to Donor’s Tax Q: What is the subject matter in 85 G? A: paragraphs 85 B. Capital of Surviving Spouse ►correlate with Sec 86 C ►both speak of legally married individual only What are these properties? ►pertains to the separate property of spouse who survived Let us make a correction: ►capital here is used in its generic sense. Is it subject to transfer tax? A: The facts of the question are very clear. What about Section 86 par c? That the share of the surviving spouse in the conjugal partnership (50%) should be included but not subject to estate tax because it is a deduction Why should we include the share of the surviving spouse then deduct it? ► The relevance lies in determining whether or not it complies with the requirements under section 89 and section 90: 1. motor vehicle. under Section 85 G. when TRANSFER is subject to tax (Sec 89). shares of stock or other similar property HOWEVER. If Real Deed of Donation was executed -Donor’s Tax will apply. it was transferred for less than the adequate consideration. determine whether gross value is at least P200. EXEMPT. Why? It is not subject to Donor’s Tax because the applicable tax is the FIT which is 6% erroneously known as capital gains tax What does Sec 24.000 (Sec 90).) Is the “capital” or “paraphernal” property or “share in the marriage settlement”. Sec 100 says that DONOR’s Tax is applied if the real property is other than the one mentioned is Sec 24 par D1 (real property located in the Philippines which is a CAPITAL ASSET). with the FMV of 1M but it was sold for Php600K because the buyer is a relative. 85 C. the code provides that in case of bona fide sale for an ADEQUATE and FULL consideration in money or money’s worth.Atty. regardless of the value of the estate. 2. 85 D 76 . and other modes of disposition (which includes Transfer for Less than the Adequate Consideration) The basis being the GROSS SELLING PRICE or the FAIR MARKET VALUE. the amount by which the FMV of prop exceeds the value of the consideration. it consist of registered or registrable property such as real property. Francis J.
If the gross value of the estate is at least 2M. Deductions Allowed to the Estate of a Citizen or Resident A1. SECTION 86 Q: Who are the taxpayers under 86 A? A: 1. to determine the limitation of the funeral expense because the basis is Going Back to RR 2-2003 The actual funeral expense shall include: a. in the case of Pajonar vs Commissioner (328 S 666). tombstones. the return will be supported by a statement certified by a CPA. e.000 c. if the amount exceeds 5% of the gross estate value Q: Why is the gross estate of the Absolute Community would be included in the Nest Estate then to be deducted? A: To determine the gross estate.standard deduction 3. Pajonar vs Commissioner (328 S 666) 77 .amount equal to 5% of gross estate ►apply whichever is lower Limitation: a) Amount equal to 5% of gross estate should not exceed P200. Indebtedness and Taxes (ELIT) a) FUNERAL EXPENSES (par A1 a) 1. as it necessarily follows.family income 2. are these also deductible? A: YES. purchasor’s mourning apparel (black clothes) b. the certification issued by a CPA (sec 90) 3. although the NIRC and RR 2-2003 is silent. the SC. Francis J. The importance is. Telecommunication expenses incurred informing relatives of the deceased.000 (sec 90) d. Cost of burial plot. Publication for death notices d. considered extrajudicial settlement as deductible.retirement pay under RA 4917 A. Losses. if gross value is at least 2M.000 (basis is the gross value) RR 2-2003 States those expenses incurred before the burial Sets limitation as to amount Not to exceed Php200K as to the value meaning without deductions and in NO case exceed 5% of the gross estate value Q: Suppose it is only Php155K.hospitalization 4.Atty. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION not the net estate but the gross value of the estate.RC 2.NRC 3. Expenses. Further. And other necessary expenses incurred for the purpose of the rites and ceremonies incident to the interment/burial Death anniversary and those incurred after the burial.RA Q: Who is the taxpayer under 86 B? A: NRA Q: Why do we need to know this? A: NRA cannot avail of the following deductions: 1. for purposes of filing the return. Interment or cremation charges g. shall not be included as a deduction b) JUDICIAL EXPENSES (par A1 b) > Both the NIRC and RR 2-2003 provides judicial expenses as deductions (both testamentary and intestate) > no limitation as to the amount of the expense Q: What about if it is extra-judicial settlement of estate. to determine on whether the heirs of the decedent will make a written notice of the death of the person to the BIR (sec 89) that it should be at least with a gross value of 20. monument or mausoleum but not their upkeep (only to the value where he is buried) f.Actual Funeral Expenses (die now pay later). the general rule that the gross value is at least 200. or 2. Food and drinks c. a. b. is there an instance wherein it would not be allowed? A: YES.
The notarial fee paid for the extrajudicial settlement is clearly a deductible expense since such settlement effected a distribution of Pedro Pajonar's estate to his lawful heirs.557. or in the alternative. include the amount of indedbtedness in the gross estate. 1989 with the BIR praying that the estate tax payment in the amount of P1.672. the administrator or executor shall submit a statement showing how the proceeds of the loan was dispensed 4. the CTA ordered the Commissioner of Internal Revenue to refund Josefina Pajonar the amount of P252. expenses to be claimed as a deduction both judicial and extra judicial expenses. Similarly. be returned to the heirs. 78 .06.Atty. acts which contributed towards the collection of decedent's assets and the subsequent settlement of the estate. 1993. P840. PNB provided a detailed accounting of decedent's property and gave advice as to the proper settlement of the latter's estate. the CIR filed a motion for reconsideration.98. the PNB did not file an estate tax return.000 (attorney's fees in Special Proceedings for guardianship). The December 21. 1988. while his property was placed under the guardianship of the Philippine National Bank (PNB) by the RTC31.59. 1993. that the notarial fee for the Extrajudicial Settlement and the attorney's fees in the guardianship proceedings are not deductible expenses. RR 2-2003 (additional Requirement) The creditor. However.S.98. representing erroneously paid estate tax for the year 1988.753 (notarial fee for the Extrajudicial Settlemen)t and P50.. On May 11.202.09. the CTA issued the assailed Resolution ordering the CIR to refund Pajonar. 1988. On June 15. Bataan Contingent. However. or at least some portion of it. 1995.527. 1995 Decision of the Court of Appeals is AFFIRMED. provided Requirements: 1.790. On April 5.527. the PNB filed an accounting of the decedent's property under guardianship valued at P3. in her capacity as administratrix filed a protest on January 11. He died on January 10. He was survived by his two brothers Isidro and Gregorio.502. was a part of the infamous Death March by reason of which he suffered shock and became insane. during the second World War. 1988. the attorney's fees paid to PNB for acting as the guardian of Pedro Pajonar's property during his lifetime should also be considered as a deductible administration expense. Francis J. at the time the indebtedness was incurred the debt instrument was duly notarized. where on December 21. loan contracted within 3 days before death.98. a member of the Philippine Scout. the validity of the deduction of the notarial fee for the Extrajudicial Settlement and the attorney's fees in the guardianship proceedings.037. whether a natural or juridical person. the estate of Pedro Pajonar paid taxes in the amount of P2. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION On June 7.790. instead it advised Pedro Pajonar's heirs to execute an extrajudicial settlement and to pay the taxes on his estate. the amount of P76. the Court of Appeals denied the Commissioner's petition Issue: Whether or not extra-judicial expenses may be allowed as a deduction H: This law has been copied from U. On December 19. CIR filed a petition for review. as erroneously paid estate tax. On May 6. pursuant to the assessment by the Bureau of Internal Revenue (BIR). without waiting for her protest to be resolved by the BIR. His sister Josefina Pajonar became the guardian over his person. should execute a certification or an affidavit to the effect that the decedent is the debtor F: Pedro Pajonar. on August 15.42 representing erroneously paid estate tax for the year 1988. praying for the refund of P1. pursuant to a second assessment by the BIR for deficiency estate tax in the amount of P1. 1988. in Special Proceedings. Pajonar filed a petition for review with the CTA. is the executor or administrator allowed to claim the indebtedness as a deduction? A: YES.790. Among the deductions from the gross estate allowed by the CTA were the amounts of P60. In US. nephews Concordio Jandog and Mario Jandog and niece Conchita Jandog. 1989.527. 1994. 2. his sister Josefina. Claims against the estate (par A1 c) ► This means that the decedent here is the debtor or the Estate is the debtor Q: If the decedent is the debtor. Josefina Pajonar. C.585. 3.
Francis J. Such losses were incurred not later than the last day of payment of the estate tax (sec 91A).000 you include 1 million Q: In unpaid mortgage who is the mortgagor? ►decedent mortgagor-debtor where until he died. Within 1 year – 100% Q: What if acquired through purchase or any other modes of acquisition other than donation or inheritance? A: Not apply. 2. all officers of the corporation must sign d) Claims against insolvent person (par A1 d) ►The decedent/Estate is the creditor RR 2-2003 Requirement: ►the only requirement is that the (only) amount of loan is included in the gross estate ►notarization and certification not required e). arising from fire. Estate tax accrues upon the death of the decedent. that person who acquired the property died a. Loss by virtue of natural calamities NOTE: To be recognized as a deduction must first be included in the gross estate If the loan is an accommodation loan. Losses By virtue of natural calamity to be deductible: 1. the property must be acquired by inheritance or donation 2. Illustration: 1 million FMV but mortgage is only 600. Include the value of the property undiminished. storms. losses incurred during the settlement of the estate. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION A: Yes. 4. Within 4 years – 40% c. he failed to pay the mortgage indedbtedness Q: is it an allowable deduction? A: YES. At the time of the filing. taxes and losses (par A1 e) 3 expenses provided : 1. Included in the value of the gross estate. Property Previously Taxed (par A2) Q: Why is this the most favorite in the BAR? A: Because it covers both ESTATE and DONOR’s Tax If creditor is a CORPORATION. A: In order to be a deduction to be allowed: 1. theft or embezzlement 3. six months after death of the decedent. the entire amount of 1M should be included Taxes Q: Is real estate tax a deduction? Partially known as “Vanishing Deduction Return” Applicable to both Estate and Donor’s Tax Applies to natural persons Acquires property by virtue of Inheritance or donation After acquisition. provided that the amount of the value of the property is included in the Gross Estate Q: A land valued at 1M as mortgage for 50K. 5. Within 5 years – 20% deduction of the value of property b.Estate tax or Donor’s tax already paid by the Estate of the Decedent (1st par) 79 . it accrued prior to the decedent’s death Q: the taxes referred to in these section are those which accrued prior to the death of the decedent. it must be included as a receivable of the estate Unpaid mortgage 1. Within 2 years – 80% e. 2.Atty. A2. Within 3 years – 60% d. Is estate tax included? A: NO. 2. Value of the decedent’s interest in the property is undiminished by such mortgage. such losses have been claimed as a deduction for income tax purposes (sec 34 par d). shipwreck or other casualties. Unpaid Mortgage. Do not deduct the value of the mortgage Hence. Such loss is NOT compensated by insurance. It will only be allowed if it accrued prior to the decedent’s death. Mortgage Indebtedness 2. or from robbery. Taxes which accrued before the death of decedent 3.
legacies. BAR QUESTION: Suppose the person who died within 1 died and it was inherited by the son. the administrator argued that under Sec 86 par A. Q: If the house is only 700K A: ONLY up to 700K shall be considered a deduction Q: If it is 1. Person is legally married a. General Rule: if single not allowed to claim b. Prior to his death.Atty. Except: if head of the family 2. Family Home actual residence of the decedent 3.Any person who died within five (5) years prior to the death of the decedent Example: X. provided. is he allowed? A: NO. 2 years – 80% 5. Limit: FMV should not exceed 1 million otherwise the excess will be subject to estate tax. he must be LEGALLY married or a single person who is the head of the family Q: Is there conflict with NRA? A: NRA in RR 2-2003 is specific. it includes there. Transfer to the Gov’t. 5years – 20% 2. when he died.6M? A: Maximum of 1M shall be considered a deduction. STANDARD DEDUCTIONS (par A5) Don not confuse with optional standard deduction (sec 34 par L) as that pertain to income taxation Up to the extent of 1M ►amount of all bequest. the excess shall be subject to estate tax Requirements: RR 2-2003 3. 3 years -60% 4. generally. Certification of Barangay Captain of locality 4. devises or transfers 80 . died in January 2008. including Agencies and Instrumentalities Exclusively for PUBLIC PURPOSE (PAR A3) Important is the phrase “public purpose” Compare to sec 87 par d Sec 86 Par A3 Exclusive for public purpose ---nothing follows--Sec 87 Par d Social welfare Charitable institution Cultural Institution Not more than 30% shall be used for administrative purposes 1. 1 year -100% Q: Suppose the person died within 1 year and it was inherited by son. he received a property from Y in March of 2007. suppose the son also died within a year or 2 years. Sec 86 par A1 A5. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION Recipient: government or any political subdivision ►exclusively for public purpose Take Note: 30% of which not used for administrative purpose is not a requirement A4. (last Sec 86 par A2) Q: What are the amounts? A: Prior Decedent died within: 1. from the table 100% of the property can be claimed by the executor as vanishing deduction. should we still apply the “vanishing deduction” A: No more. Political Subdivision. The family home must be the ACTUAL residence of the decedent (RR 2-2003) an not only that. that the donor’s tax or estate tax imposed by the code was paid for the transfer. non-resident citizen. FAMILY HOME (par A4) ►amount equivalent to the current FMV of the Family Home of decedent. suppose the son also died within 1 year or may be 2 years. The amount of the family home must be included in the estate Q: Filipino who is a permanent resident of the United States. Since X died within 1 year from the time the property was donated. Francis J. How much will be deducted from the gross estate? A: The amount which can be deducted from the gross estate is 100% of the value of the property received by X. should we apply the vanishing deductions? A: No more (last par Sec 86 A2) A3. 4years – 40% 3.
not considered deductions UNDER RA 4917 (RETIREMENT PAY WITH PRIVATE PLAN) Requirements: 1. His expense is 110K. and should only be within 1 year to be computed up to the death of the decedent. D. A7. automatic (RC. “deductions provided for in the succeeding subsection A1”. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION *Check retirement pay as a deduction for the two kinds of retirement plan B. NRC. amount not exceeding P500. it consist of registered or registrable property such as real property. Deductions Allowed to Non-resident Estates > the decedent is a non-resident alien ALLOWED NOT ALLOWED E L I T Family home (A1) (A4) Vanishing deductions Standard deduction (A2) (A5) Transfers for public Hospital expenses use(A3) (A6) Retirement pay (A7) Q: What about the one mentioned in sec 86 A1? A: that is a deduction here. you have to determine how much is spent within the span of 1 year immediately before his death since the facts state two years. RA) Sec 86 par A A6. when TRANSFER is subject to tax. administrator or heir. must be duly substantiated with receipt BAR QUESTION 2003: A person was hospitalized for 2 years. as provided by law. and after the lapse of 2 years. the enumeration beginning from actual funeral expenses to mortgage indebtedness. included in the return the value at the time of his death BOTH RR 2-2003 and the NIRC do not require further requirement. MEDICAL EXPENSES (par A6) Requirements: 1. Can the 400K be claimed as a deduction of hospitalization expenses? A: NO.000 2.group sex isn’t safe SSS – safety sex services BIR – blow job is recommended 81 . that person died in the hospital. Shares in the Conjugal Property The share of the surviving spouse in the conjugal partnership (50%) should be included but not subject to estate tax because it is a deduction Why should we include the share of the surviving spouse then deduct it? ► the relevance lies in determining whether or not it complies with the requirements under section 89 and section 90: Written notice of death is required when the GROSS ESTATE exceeds Php20K. the return will be supported by a statement certified by a CPA. OR. Miscellaneous Provisions For NRA: No deduction shall be allowed unless. because paragraph B says. all other retirement plan is excluded Q: If your relative receives a retirement plan from the GSIS or the SSS? A: These are not deductions (Sec 32 par B6(a) GSIS. may be availed only once TAKE NOTE: This is a deduction in the nature of exemption. motor vehicle. 3. or regardless of the value of the estate. must at least be 10 years in service 4. Estate Tax return determine whether gross value is at least P200. HENCE.Atty. Francis J. shares of stock or other similar property Further. the executor. RETIREMENT PAY (par A7) Not all retirement pays are DEDUCTIBLE Other than RA 4917. hence.000 (Sec 90). The computation of the amount shall not exceed 500K. if gross value is at least 2M. C. person at least 50 years old 3. medical expenses incurred by the decedent within one (1) year prior to his death. plan duly approved by the BIR 2.
5 years thereafter.Atty. transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicommissary. that it will be for charitable.FMV schedule of values fixed by the Provincial or City Assessors Q: The BIR. how come the value will be determined? A: The value of the usufruct shall be determined for the purpose of imposition of the estate tax ( Sec 88 par k) A. UNLISTED PREFERRED SHARES –basis shall be the PAR VALUE c. If the GROSS value of the estate is at least 20. it is no longer a deduction? A: The very purpose for which the property has been donated. You use the highest immediately before the death (arithmetic Mean) Real Property (Sec 88 par B) It should be the valuedetermined by the Commissioner of the Internal RevenueZonal Value. do you inform the BIR in writing? A: It depends. Is the BIR correct? A: No. All bequest. social welfare and cultural. Tax Credit for Estate Tax Paid to Foreign Country SECTION 87 (go back to discussion on Sec 85 par D) EXEMPTION OF CERTAIN ACQUISITION AND TRANSMISSIONS (as discussed. Merger of usufruct in the owner of the naked title. Francis J. Q: Why is it that when more than 30%.Usufruct 82 . it was already 4M. 3. UNLISTED COMMON SHARES – basis shall be based on its BOOK VALUE b. exempt) 1. will be rendered meaningless or negatory SECTION 88 DETERMINATION OF THE VALUE OF THE ESTATE Q: How to determine the usufruct (sec 88 par A) A: It is based on the BASIC STANDARD MORALITY TABLE being used in the United States Q: Due to the merger with the owner of the usufruct is exempt.no part of the net income insures to the benefit of any individual. For proper deduction must include E. after 5 years from the death of the decedent assessed now the property. it is only valued at 1M.Properties ►fair market value of the Estate at the time of death 1.FMV determined by Commissioner 2. that part of his gross estate not situated in the Philippines. below E. 2. LISTED SHARES OF STOCKS – fluctuates The value of the shares listed in the stock market fluctuates Determine the highest and lowest. devises.000.not more than 30% of donation (BDL) shall be used by such institutions for administration purposes. in accordance with the desire of the predecessor. legatee or legacy donee in favor of another beneficiary. at the time of death. or The value determined by the city assessor’s office Whichever is HIGHER SECTION 89 NOTICE OF DEATH TO BE FILED Q: What is the Basis? A: the gross estate of the person Q: A person died. personal property. 2. transmission from the first heir. The basis there must be “at the time of the death Of the decedent” This is for personal property as a rule RR 2-2003 A different tule in determining the value of the shares of stocks (also personal property) It all depends on whether listed or unlisted in the local stock exchange a.Determine value of right of usufruct: ►consider the probable life of the beneficiary based on the latest Basic Standard Mortality Table B. 4. legacies or transfers to (1) social welfare (2) cultural and (3) charitable institution Requirements: 1. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION 1.
authorized agent bank 2. duly authorized treasurer Q:When is the notice required to be filed? A: 1.revenue district officer 3.value of the gross estate at time of death 2. the gross is at least 3-4 million Q: Why? A: The gross will have: 1.Atty. The primary liability of the administrator/executor is not personal.motor vehicle 3. when the same consists of registered or registrable prop such as: 1. Where the GROSS value of the decedent belongs to par A (2M) the net estate would be Php0. Francis J.estate contains registrable property Q: what if the gross value is below 200. other similar property where clearance from BIR necessary for transfer of ownership in the name of the transferee ►return must set forth the following: 1.000? A: General Rule: Filing is not required. all cases of transfer subject to tax 2. File a bond not more than double the amount of tax Sec 91 par C says: The primary liability falls upon the administrator/executor.000 b. what is the obligation of the administrator/executor? A. gross value of the estate exceeds P200. gross value exceeds P200. same period after qualifying as executor or administrator ►give a written notice Q: If the Net Estate is at least P17. motor vehicle and parcels of land Q: if the estate or gross estate exceeds 2 million.real property 2. EXCEPT if the property involved constitute resgistrable 83 .information necessary to establish correct taxes Q: What if Estate is exempt because it is of minimal value (200.although exempt. when gross values of the estate exceeds P200.000 will you in form the commissioner? A: yes.000 and below:Sec 84). regardless of gross value of the estate. Judicial – shall not exceed 5 years Q: If the extension for payment is granted.order of court approving the same Extension of Time Filing Time: 30 days Grounds: meritorious cases Who grants: Commissioner Extension for PAYMENT of the tax a.certified copy of the schedule of partition and 2. The deduction of the FAMILY HOME 1M 3.000 Q: When filed? A: within two (2) months 1.000 3. if he failed to pay the subsidiary liability falls upon the heirs. all cases of transfer subject to tax 2. Extra-judicial – shall not be more than 2 years b. Sec 91 par C says “the obligation of the heir to pay the tax liability shall not be more than the share in the estate” only up to the extent of his share. after decedent’s death 2.deductions allowed 3. The STANDARD DEDUCTION OF 1M 2. is it required to file a return? A: General Rule: No Exception: a.00 SECTION 90 ESTATES TAX RETURNS Q: When required to file return? A: 1. what is the requirement? A: return must be duly certified by a CPA SECTION 91 Time of Filing GENERAL RULE: The time for paying the estate tax is at the time the return is filed > > > “PAY AS YOU FILE” ►filed within 6 months from decedent’s death ►within 30 days for filing the return ►within 30 days after promulgation of such order 1. hence he must be reimbursed. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION property like shares of stocks. collection officer 4. even though exempt. Q: is the obligation of the heirs to pay the tax. shares of stocks 4. joint or solidary? A: JOINT. Place of filing: ►return shall be filed with: 1.
they shall have the right to restitution of the proportional part of the tax paid. namely A.an attorney who executed the extrajudicial partition or a judicial settlement where he was obliged to file a petition or pleading with the court. Francis J. certain acts or transactions which will reveal the payment of estate tax? A: 1.Atty. Renunciation is to the disadvantage of the brother. Is it necessary for the BIR to ask permission from the RTC judge holding the case. upon satisfaction of which. If there has been a RETURN filed Must be done within 1 year from the time the reurn has been filed b. but the tax is not enough. brother and sister B and C. and C. but I am giving it to my sister B”. the amount by which the tax exceeds the amounts previously assessed Where the taxpayer shall receive a notice of assessment These 3 provisions say that if you file the reurn and pay the tax. B. SECTION 97 Decedent’s Bank Accounts Incidentally. that is not enough. Q: Let us say there are 3 compulsory heirs. SANDIGANBAYAN (273 SCRA 47) F: BIR to collect estate tax but the estate is under judicial settlement. the law says certificate of payment 84 . new obligations of the decedent appears. you are going to receive an assessment. but A renounces his inheritance in favor of his 2 siblings. Is this subject to donor’s tax? A: NO. The proof to be presented here by the parties is not the estate tax received. File a written application with the BIR stating that you want to be absolved from the liability to be done within 1 year a. no amount was shown or if there is no return. with the office of the commissioner. before the judge shall distribute the property. last portion) MARCOS vs. again “OR” If you filed the return but did not pay the tax “OR” you did not file the return nor paid the tax: o INCOME TAX (sec 58 par B) o ESTATE TAX (Sec 93) o Donor’s Tax ( sec 104. The judge shall partition the property and the BIR to collect the tax SECTION 95 Persons obliged to Notify the BIR Q: Who are these persons obliged to notify the BIR in case they encounter execution of documents. A notary public who notarized the the settlement of estate whether judicial or extrajudicial 3. SECTION 92 DISCHARGE OF THE EXECUTOR or ADMINISTRATOR Q: If you want to be relieved from liability as an executor/administrator? A: 1. 2. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION SECTION 94 PAYMENT BEFORE DELIVERY BY EXECUTOR/ADMINISTRATOR The judge may authorize the administrator to deliver or distribute to any party in interested in the estate PROVIDED that a CERTIFICATION from the Commissioner that the estate has been paid ►city or municipality in which decedent was domiciled at the time of his death Q: What if non resident? A: NR with no legal residence here. H: NO. Q: But if in the given example. is this subject to donor’s tax? A: YES. A renounces his inheritance coming from the parents. It is exempt. in section 94. The function of the judge in the judicial settlement is different from the function of the BIR. the judge should secure the certification of payment of estate tax.The city provincial engineer who made the cadastral survey for purposes of partition Section 96 Restitution If after payment. If RETURN has not been filed The 1 year should be counted fron the filing of the written application SECTION 93 DEFICIENCY ASSESSMENT Deficiency – amount which the estate tax exceeds the amount shown in the return. A said “I am renouncing my inheritance.
Q: What is the formula? A GROSS GIFT (SEC98 par B) . Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION of tax.TAX CREDIT (if any) ============== DONOR’s TAX Q: What are the tax credits possible 1. assessed. (before it was 20K) Q: What if the bank account is a checking account? A: There is a remedy although it is illegal and immoral. administrator or heir can withdraw without the certificate of payment or even without the payment of estate tax? A: The law says you are allowed to withdraw money not exceeding 30K. (relate to sec. tangible or intangible.000 is exempt) ============== TAXABLE NET GIFT .DEDUCTIONS (SEC 101. resident or nonresident. collected and paid upon the transfer by any person. (B) The tax shall apply whether the transfer is in trust or otherwise. .The tax for each calendar year shall be computed on the basis of the total net gifts made during the calendar year in accordance with the following schedule. Sec 101. RECEIPT= the certification in the nature of an affidavit signed by the BIR officer that indeed the tax has been paid. Sec 204 (Tax Credit Certificate) Tax credit may be claimed against any internal revenue tax except withholding tax SECTION 99 Rates of Tax Payable by Donor. Text me if you want to know DONOR’S TAX SECTION 98 Imposition of Tax (A) There shall be levied. (A) In General. and whether the property is real or personal. computed as provided in Section 99.Atty. you have to present the receipt. par C Donor’s tax paid to a foreign country 2. If the net gift is: OVER BUT NOT TAX PLU EXCESS OVER SHALL BE S OF 85 . Francis J. 94) Q: Is there an instance that the executor. par A & B) ============== NET GIFT (TAXABLE GIFT) X RATE (1ST 100. last phrase Input tax under the VAT system where it may be claimed against any of the internal revenue tax 3. whether the gift is direct or indirect. a tax. Sec 110 par B. of the property by gift. which mean to say.
then the rate will vary depending upon the availability of other deductions. 2006.000 10% 3.000.000.000 12% 5.00 0 Q: What are the properties to be included? a. there are two rates (Sec 99 par B) 1. when the amount of donation is 10M and above. whether the done is a relative or a stranger. in both cases it may be applied. 86 .000.00 5. it shall be more than 16.000 P 100.000 500. a relative. the rate applicable is 15%.000. it is only the two rated gift in one calendar year. 2005.000. however it is only material if it a relative.000 1. he made another donation to the same done. The flat rate of 30% if the done is a stranger Generally. Q: Who are the relatives? 1. the 2nd donation was on January 3.000. on December 27.000 15% 10. 2.000 1.000.00 10.000.004. the cumulative method is no longer relevant since in that cae.000 8% 1. the value of the property being below 10M. Francis J. The fluctuation rates from 2 to 15 if the degree is a relative.000. d. c. the net gift after division is 10M or lower than 10M.000. sister (full or half-blood).000 SECTION 99A RELATIVE After division into 2 or 3. applying the new rate depending upon the availability of other deductions. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION If the Donee is: P100.000 500. can you do that? A: NO. for donations made to relatives.000 P 100. However.000 200.000 200.000 4% 14.000 0 5. Relative by consanguinity in the collateral line within the 4th degree of relationship Q: What do you mean by SPLITTING? Splitting is allowed when 2 or more donations will be executed in 2 or more CALENDAR years. ancestor and lineal descendant 2. in cumulative. that is not so true in donor’s tax Q: What is the reason why there is cumulative or splitting? A: In donor’s tax.000 EXEMPT 0 2% 2.0 00 44.000. Example: 1st donation was on December 27.000. the taxpayer immediately filed the return and paid the tax of 8.000 6% 500. on January 3.Atty. just once or several donations. he also paid 8. by way of exception.000 0 3.00 3. b. Real Personal Tangible Intangible Note: Sec 99 A and Sec 103 par A1 The understanding of the splitting method of filing a donor’s tax return and the cumulative way of filing the return Under the tax code.000 404. 2005. Brother.000. 2006.000 200. what will be the rate? A: the rate maybe 8 or maybe 6 depending on the availability of the deductions Q: What do you mean by CUMULATIVE? A: 2 or more donations made within ONE calendar year Example The amount of the donor’s tax is 8. What should be the method to be employed? A: Splitting method After division. the cumulative mode is relevant. hence it is as if the rate is fixed.000. PROVIDED.000 1. there is no such thing as cumulative or splitting. that is the cumulative In RR 2-2003: Under the estate tax. spouses.00 0 0 10.000.000 204. and we cannot give the exact figure since it will depend upon the availability of deductions. it was below 10M net gift.
the donation is EXEMPT from donor’s tax PROVIDED the donation was properly reported to the office of the COMELEC SECTION 100 Transfer for inadequate consideration Where property. why not include the value of the property you have donated on December 27. now the BIR examiner said. a "stranger". the second one was made 1/3/2001. SECTION 99 par C Contribution for Purposes of Election (C) Any contribution in cash or in kind to any candidate. Don’t confuse with Sec 83 par G. the tax payable by the donor shall be thirty percent (30%) of the net gifts. is transferred for less than an adequate and full consideration in money or money's worth. you will only pay 16. Sec 99 par B provides that if the NET GIFT is at least 100k or below it is EXEMPT. Is the examiner correct? A: NO.000 because we have previously paid 8. are we going to pay the 24. and therefore if the law is silent. After division. is the donor exempt? A: While it is true that SEC 99 par C is totally silent about it. you cannot apply the cumulative whether the done is a relative or not (RR 2-2003) The donation was made through splitting. Do not get me wrong. (Compare with Sec 85 G) 1. a political party or a coalition of political parties. other than real property referred to in Section 24(D). “if the the done is a candidate. be deemed a gift. spouse. hindi ito kalokohan because the rate of the tax will be increased as the value of the property donated increases because the 2 donations were cumulative. or (2) Relative by consanguinity in the collateral line within the fourth degree of relationship. sec 13 where it says. as amended Q: if the done is a candidate in the next election. where the donation were made in different years. and shall be included in computing the amount of gifts made during the calendar year. estate 3. sister (whether by whole or halfblood). is a person who is not a: (1) Brother.000. cumulative and splitting applies to BOTH relatives and strangers. another donation was made. It does not follow. SECTION 99B STRANGER (B) Tax Payable by Donor if Donee is a Stranger. the net gift for each donation wer exactly 100K each (net gift divided into 2). 1995. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION taxpayer will pay less because the method applied was splitting? A: NO as the donation is exempt. we do not presume exemption (there has to be an explicit provisions in the law) but considering the election code as mended in 1992 by RA 7166. it says there 24. so you paid 8. “since the donation was made between several days only. . then the amount by which the fair market value of the property exceeded the value of the consideration shall. you made a donation to a relative to which the tax should be paid within 30 days. Do not impose the tax simultaneously In January 2005. one was mad 12/27/2000. 1994d.000 already SQ: Sir. For the purpose of this tax. the done is the SON. May 2005 you made another donation.000? A: NO. for the purpose of the tax imposed by this Chapter.000.Atty. ancestor and lineal descendant. Transfer for less than the adequate consideration 2. 1995”. anong Kalokohan ba yan? NO. Do you now say that the 87 . several days thereafter on Janary 3. political party or coalition of parties for campaign purposes shall be governed by the Election Code.When the donee or beneficiary is stranger. you cannot do that because the donor’s tax that should be paid is a flat rate of 30% Q: A donation was made on December 27. what do you include? A: You have to include the value of the property on the donation made in January 2005 because both donations were made in the same calendar year If after computing. Francis J. 1994 to this donation on January 3. only that it is material when the done is a relative.
Atty. Francis J. Sababan
Book+ Magic & Pink Notes + CEP + Others TAXATION
par B Section 101 par A1 (1) Dowries or gifts made on account of marriage and before its celebration or within one year thereafter by parents to each of their legitimate, recognized natural, or adopted children to the extent of the first Ten thousand pesos (P10,000): Q: What is the importance of determining whether the taxpayer belongs to par A or B? A: The requirement of deductibility where the done is classified under section 103A3, there are five requirements. If the donor is under B, the requirement is only reduced by one. 1. If the donor belongs to par A, the deduction of a dowry provided for in sec 101 par A1, is not a deduction if the donor belongs to par B 2. With regard to the 3rd par (sec 101 par A3), where the donees or transferees are educational institution, social welfare, charitable, rehabilitation, religious institutions, organization for the rehabilitation of the veterans. Take note that there are 5 requirements if the done belongs to par A, now if the done belongs to par B then those requirements is down to one. 1989 BAR QUESTION: The father of the family died. The surviving spuse entered into a marriage contract. After several years, because she could no longer endure the cold mornings of November (not included in the bar question). During the celebration, one of the children donated a property. Assume that the property donated did not exceed the limitation of 10K Is it a dowry which is a deduction? A: No. Under sec 101 par A1, the donor should be the father, mother or both, donating property to the legitimate, recognized natural and adopted children PROVIDED: 1. The amount of the property donated did not exceed 10K “AND” 2. It must be given or donated at the time of the celebration of marriage or within 1 year from the celebration of marriage. SECTION 101 par A2 (2) Gifts made to or for the use of the National Government or any entity created by any of its
4. It should be only either of the two depending upon the motive or intent of the transferor ESTATE TAX- motive is impending death DONOR’s TAX- motive is generosity or kindness 2002 and 2009 Bar Question: What are the properties which may be the subject of a transfer for less than the adequate consideration where the applicable transfer tax shall be donor’s tax? A: Any kind of property, real, personal, intangible or tangible) provided it is not the one mentioned in Sec 24 par D1 ( real property located in the Philippines which is a capital asset) Q: How about that stated in Sec 85 par G? Any kind of property also provided it is the one mentioned in sec 85 par B, transfer in contemplation of death, C (revocable transfer) and D (property passing under the general power of appointment) Q: How about the defense of Bona Fide Sale in good faith? A: This is a defense only for sec 85 par G and not a defense for Sec 100 because nothing is mentioned. SECTION 101 Exemption of Certain Gifts The following gifts or donations shall be exempt from the tax provided for in this Chapter: (A) In the Case of Gifts Made by a “Resident”. In this section, we have to determine if the donor belongs to Paragraph A or B. Q: Who are the six persons liable to pay donor’s tax Taxpayer Sectio Check n Resident Citizen 101 par A Resident Alien 101 par A Domestic Corporation 101 PD 1457 par A Nonresident 101 86 par A Corporation par A Nonresident Alien 101 par B Foreign Corporation 101
Atty. Francis J. Sababan
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(B) In the Case of Gifts Made by a Nonresident Not a Citizen of the Philippines. (1) Gifts made to or for the use of the National Government or any entity created by any of its agencies which is not conducted for profit, or to any political subdivision of the said Government. (2) Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, foundation, trust or philanthropic organization or research institution or organization: Provided, however, That not more than thirty percent (30%) of said gifts shall be used by such donee for administration purposes. Q: if donor is FC or NRA is dowry a deduction? A: Dowry is NOT a DEDUCTION Q: A chinese RA who lives in Manila entered into a contract of marriage. During the celebration, the father who is a permanent resident of Taiwan donated to the newlywed couple, let us say, it is 200 000. Is a dowry deemed to be a deduction? A: NO. The DONOR is a NRA as the facts states he is a resident of TAIWAN. Since he belongs to those listed in par B, that dowry is not a deduction and therefore not EXEMPT SECTION 101 par C (C) Tax Credit for Donor's Taxes Paid to a Foreign Country. (1) In General. - The tax imposed by this Title upon a donor who was a citizen or a resident at the time of donation shall be credited with the amount of any donor's tax of any character and description imposed by the authority of a foreign country. (2) Limitations on Credit. - The amount of the credit taken under this Section shall be subject to each of the following limitations: (a) The amount of the credit in respect to the tax paid to any country shall not exceed the same proportion of the tax against which such credit is taken, which the net gifts situated within such country taxable under this Title bears to his entire net gifts; 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 donor's net gifts situated outside the Philippines taxable under this title bears to his entire net gifts. Note: Relate to Sec 86 par E A tax credit where the donor’s tax paid to a foreign country
agencies which is not conducted for profit, or to any political subdivision of the said Government; and Note:: Donee is the National Government, Political Subdivisions and the Agencies and Instrumentalities “NOT CONDUCTED FOR PROFIT” Under Sec 86 A3 it says there “exclusively for public purpose” SAME RULES APPLY, hence, EXEMPT SECTION 101 par A3 (2) Gifts in favor of an educational and/or charitable, religious, cultural or social welfare corporation, institution, accredited nongovernment organization, trust or philanthropic organization or research institution or organization: Provided, however, that not more than thirty percent (30%) of said gifts shall be used by such donee for administration purposes. For the purpose of the exemption, a 'non-profit educational and/or charitable corporation, institution, accredited nongovernment organization, trust or philanthropic organization and/or research institution or organization' is a school, college or university and/or charitable corporation, accredited nongovernment organization, trust or philanthropic organization and/or research institution or organization, incorporated as a nonstock entity, paying no dividends, governed by trustees who receive no compensation, and devoting all its income, whether students' fees or gifts, donation, subsidies or other forms of philanthropy, to the accomplishment and promotion of the purposes enumerated in its Articles of Incorporation. Q: What are the requirements so that the donor may be exempted? 1. Not more than 30% of the property donated shall be used for administrative purposes 2. The done must be NONSTOCK and NONPROFIT 3. Must be governed by trustees who do not receive compensation 4. Done do not distribute any dividend 5. The gross received as income shall only be used in accordance with the purposes embodied in the articles of incorporation SECTION 101 par B
Atty. Francis J. Sababan
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Q: Is there an extension in the filing? A: None, the extension was abolished by the CTRP SECTION 104 Definitions. - For purposes of this Title, the terms "gross estate" and "gifts" include real and personal property, whether tangible or intangible, or mixed, wherever situated: Provided, however, That where the decedent or donor was a nonresident alien at the time of his death or donation, as the case may be, his real and personal property so transferred but which are situated outside the Philippines shall not be included as part of his "gross estate" or "gross gift": Provided, further, That franchise which must be exercised in the Philippines; shares, obligations or bonds issued by any corporation or sociedad anonima organized or constituted in the Philippines in accordance with its laws; shares, obligations or bonds by any foreign corporation eighty-five percent (85%) of the business of which is located in the Philippines; shares, obligations or bonds issued by any foreign corporation if such shares, obligations or bonds have acquired a business situs in the Philippines; shares or rights in any partnership, business or industry established in the Philippines, shall be considered as situated in the Philippines: Provided, still further, that no tax shall be collected under this Title in respect of intangible personal property: (a) if the decedent at the time of his death or the donor at the time of the donation was a citizen and resident of a foreign country which at the time of his death or donation did not impose a transfer tax of any character, in respect of intangible personal property of citizens of the Philippines not residing in that foreign country, or (b) if the laws of the foreign country of which the decedent or donor was a citizen and resident at the time of his death or donation allows a similar exemption from transfer or death taxes of every character or description in respect of intangible personal property owned by citizens of the Philippines not residing in that foreign country. The term "deficiency" means: (a) the amount by which tax imposed by this Chapter exceeds the amount shown as the tax by the donor upon his return; but the amount so shown on the return shall first be increased by the amount previously assessed (or collected without assessment) as a deficiency, and decreased by the amounts previously abated, refunded or otherwise repaid in respect of such tax, or (b) if no amount is shown as the tax by the donor, then the amount by which the tax exceeds the amounts previously assessed, (or collected without assessment) as a deficiency, but such amounts previously assessed, or collected without assessment, shall first be decreased by the amount previously abated, refunded or otherwise repaid
SECTION 102 Valuation of Gifts Made in Property. - If the gift is made in property, the fair market value thereof at the time of the gift shall be considered the amount of the gift. In case of real property, the provisions of Section 88(B) shall apply to the valuation thereof. Relate to Sec 84 par B In determining the value of the property donated, for purposes of imposition of tax, both estate and donor’s tax provides for the same procedure for personal as well as real property. They also have common rrules for shares of stock under the revenue regulation, even under the imposition of FIT 6%. When we say the value determined by the CIR or the City assessor whichever is higher. Usually, this is the one chosen by the commissioner known as the Zonal value. SECTION 103 Filing of Return and Payment of Tax. - A) Requirements. - any individual who makes any transfer by gift (except those which, under Section 101, are exempt from the tax provided for in this Chapter) shall, for the purpose of the said tax, make a return under oath in duplicate. The return shall se forth: (1) Each gift made during the calendar year which is to be included in computing net gifts; (2) The deductions claimed and allowable; (3) Any previous net gifts made during the same calendar year; (4) The name of the donee; and (5) Such further information as may be required by rules and regulations made pursuant to law. (B) Time and Place of Filing and Payment. - The return of the donor required in this Section shall be filed within thirty (30) days after the date the gift is made and the tax due thereon shall be paid at the time of filing. Except in cases where the Commissioner otherwise permits, the return shall be filed and the tax paid to an authorized agent bank, the Revenue District Officer, Revenue Collection Officer or duly authorized Treasurer of the city or municipality where the donor was domiciled at the time of the transfer, or if there be no legal residence in the Philippines, with the Office of the Commissioner. In the case of gifts made by a nonresident, the return may be filed with the Philippine Embassy or Consulate in the country where he is domiciled at the time of the transfer, or directly with the Office of the Commissioner. NOTE: It simple “PAY-as –YOU-FILE The law says the tax should be paid within 30 days and the return must be filed within 30 days.
TRANSACTIONS DEEMED SALE although ISOLATED ONE 4. services as defined in this Code rendered in the Philippines by nonresident foreign persons shall be considered as being course of trade or business. but if you read the other provisions of the LGC. Sale of Services 3. transferee or lessee of the goods. This rule shall likewise apply to existing contracts of sale or lease of goods. Q: Why is it that there should be a tax ordinance as required by §186? A: The rationale is not mentioned in §186. The value-added tax is an indirect tax and the amount of tax may be shifted or passed on to the buyer. 187. and any person who imports goods shall be subject to the valueadded tax (VAT) imposed in Sections 106 to 108 of this Code.Atty. Exportation 4. (§186) tax ordinance Q: Can BIR collect the tax even in the absence of a revenue regulation? A: YES. it always say: one-half if the town or municipality shall collect a tax of not exceeding 1% of the gross receipt. then go to §151. Local Tax 2. hence. city. sells barters. Is the order of Mayor Binay legally tenable? A: NO. 7716. renders services. nonprofit private organization (irrespective of the disposition of its net income and whether or not it sells exclusively to members or their guests). Q: VAT is applicable to what kind of transactions? A: VAT is applicable to the following transactions 1. SERVICES in the PHILS. Q: Can a province. properties or services. you will come to set of conclusions of the reason why there must be a tax ordinance. or government entity. Transactions must be VAT transactions (preceding question) 2. IMPORTATION 2. leases goods or properties. » In most of these provisions. public hearing 91 .Any person who. . Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION Q: Is there an instance where VAT applies although such sale is not made in the REGULAR course of trade or business? Value Added Tax (Amended by Republic Act 9337) Q: What is the formula for VAT? A: OUTPUT TAX INPUT TAX ========== VAT Payable SEC. 105. Real Property Tax LOCAL TAXATION (§186. The phrase "in the course of trade or business" means the regular conduct or pursuit of a commercial or an economic activity. in the course of trade or business. it is the tax ordinance which will fix the exact amount. properties or services at the time of the effectivity of Republic Act No. municipality or barangay collect the tax if there is no tax ordinance? A: NO. There should always be a tax ordinance after conducting a public hearing. BY NRA TAXATION UNDER THE LOCAL GOVERNMENT CODE: 1. to the contrary notwithstanding. including transactions incidental thereto. Importation Q: For VAT to apply. GENERALLY. INCIDENTAL TO BUSINESS 3. what are the requisites? A: 1. Persons Liable. by any person regardless of whether or not the person engaged therein is a nonstock. exchanges. Francis J. 128 down) Q: Mayor Binay of Makati ordered the collection of elevator tax (for elevator in the city hall). TAKE NOTE: There is no exact amount. The rule of regularity. must be done in the course of trade or business A: 1. Sale of Commodities of goods 2.
Q: If you don’t agree with the validity or the Constitutionality of the tax ordinance. the taxpayer has the remedy to file an action with the regular courts. Q: Within what period should the Sec. SECRETARY (320 SCRA 486) F: Reyes asserted the validity and Constitutionality of the tax ordinance only after the lapse of thirty (30) days (perhaps his lawyer was thinking that an ordinary statute may be contested anytime with the RTC. it is the provincial board or the provincial council (sangguniang panlalawigan) for a city. the ruling of RTC on local tax cases. pursuant to RA 9282 (the law uplifting the standards of the CTA). and receives the decision. TWO APPEALS DECIDED BY THE CTA EN BANC: 1. decisions of RTC involving local tax cases 2. B.Atty. failure to assail the validity with the specific period of time. we hereby rule that the ordinance was passed in accordance to the procedure mandated by law”. a resident. » Go to §151: The city could impose the tax already imposed by the province of by the municipality. he who alleges. Definitions (§132) Local Taxing Authority (§132) for a province. is fatal to the taxpayer. SECRETARY (320 SCRA 486) F: In the municipality of San Juan (just beside Mandaluyong) there was a tax ordinance passed. claims that there was no public hearing conducted. that requirement is an absolute one. of Justice decide? A: Within 60 days from the time the appeal was filed. Since it was filed beyond the 30day period. Francis J. he maintains that under §186 last phrase. §151 2. what will be your remedy? A: Within 30 days from the effectivity of the ordinance. REYES vs. we do not disturb the validity of the ordinance. is appealable to the CTA en banc. the appeal must be file with the SC within 15days. » From CTA en banc. we have the city council (sangguniang panlusod) for the municipality. but since the petitioner failed to produce evidence to support his allegation. his remedy is to file an appeal within 30days form the receipt of the decision to court of competent jurisdiction → RTC. §233 (real estate tax) » In addition. H: The SC said: “yes. the law says that the city could increase the rate of the tax by not more than 50% of the maximum EXCEPT those enumerated in §139: a) professional tax b) amusement tax A. the requirement is ABSOLUTE. H: With regard to a tax ordinance. from the ruling of the RTC. Failure to decide within this time. we have the municipal council (sangguniang pangbayan) 92 . Q: What are the numerous taxes imposable by the province which a city now allowed to impose? A: Those enumerated in §135 to §141 of the LGC Reasons why a municipality wanted to be converted into a city: 1. w have a specific rule. the requirement is not absolute (by discretion only). decision of the Central Board of Assessment Appeals. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION » Beginning April 23. ► notice that the Constitutional limitations on taxation do not only apply to the national government but also to local government units. General Principles (§128-130) ► reiteration provisions of the Constitutional tax In Congress. Reyes. if there is no proof presented other than his own statement. 2004. CA or SC). Under local taxation (last phrase of §186). the taxpayer should file an appeal with the office of the Secretary of the DOJ (§187) REYES vs. While it is true that a public hearing is an absolute requirement. must prove the same. » If the decision was made within the 60 day period. there should always be a public hearing.
One of the owners of the motor vehicle is Palma Dev’t Corp. carrying copra. fee or charge for goods or commodities coming out or passing through the territorial jurisdiction even if in the guise of a toll or a fee (§133(E)) » an absolute prohibition » commodities marketed in a public market. absolute prohibition 2. Custom duties. therefore. banana and coconut to be loaded in a ship docked at pier of Malangas. The LGU can impose because Don Antonio is not a marginal farmer. fee or charge on pioneer and nonpioneer enterprise duly registered with the board of investments for a period of 6yrs and 4yrs respectively (133(G)) for the barangay or barrio. Income Tax EXCEPT when levied on banks and other financing institutions (§133(A)) » the term “other financing institution shall include money changer. inheritance. It is only prohibited if it is sold by a marginal farmer. H: It is not the title of the ordinance which is controlling but it is the essence of the substance of the tax ordinance. palay. employed thousands of workers in the different banana plantation. 60% of this may be 93 . Two Common Crimes (under §133) 1. cities. so long as it is “fair. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION recovered. just imagine if each of the towns will impse 1peso for every head of a chicken or 50cents for every bundle of vegetable. Taytay. Estate tax. C. v. » wharf – a pier » special levy on public works (§240) » allows provinces cities and municipalities to impose a special real estate tax known as “special levy or public works” » let us say the municipality established a pier for a minimal value of P10M. Tax. this is a local tax. One is imposed by the national government and the other is by the LGU. Tax. IV. fees or charges on agricultural and aquatic products when sold by marginal farmers or fishermen (§133(F)) Q: Don Antonio Florendo. let’s say in the city of Pasig. whose immediate members are the immediate members of the family (§131(P)) VII. the SC had no option but to declare the tax ordinance null and void for being in violation of the law. copra. Q: Why common? A: Because the limitations or prohibitions apply to all LGUs. Can the LGU impose tax on the agricultural product which is a banana? A: YES. the provinces. Common limitations on the taxing power of the LGU’s (§133) » Under the old law this was §5 of the Local Tax Code. just and reasonable” » It cannot be “prohibited taxation. out of P10M. II. VI. The lawyer of petitioner assailed the validity of the ordinance stating that it is a clear violation of §133(E). pawnshop (§131(E)) » rate of tax: does not mention rate of tax. we have the barangay council. charges or fees for the registration of vessels or ships. lending investor. because the element of “imposed by the same taxing power” is not present. under §240.or rice. relative prohibition It shall be unlawful for the LGUs to collect: I.Atty. maintained and operated by the locality (§133(D)) » wharfage due – is a custom fee imposed on the weight of the cargoes. Francis J. » Marginal Farmer – a farmer or a fisherman for subsistence only. PALMA DEV’T CORP v. municipalities and barangays. MALANGAS ZAMBOANGA DEL SUR (113 SCRA 572) F: Municipal council passed a tax ordinance entitled “police surveillance fee” which provide that ALL motor vehicle passing through a particular street in the town proper of Malangas which will lead to the pier or wharf will pay a certain sum of money whether it is camote. Cainta. The tax ordinance clearly violated §133(E). Documentary Stamp Tax (§133(B)) » absolute prohibition III. Taxes. the other 40% may be recovered by warfage due. donations mortis causa EXCEPT in §135 (§133(C)) » transfer tax on the transfer of realty to be imposed by provinces and cities (§135) NOTE: this is not a real estate tax. a person coming from Pampanga who settled in Davao City. where the commodities came from Laguna then to Tanay. donations inter vivos. wharfages fees and wharage dues EXCEPT if the wharf had been established.
. the LGU may impose a tax not exceeding 2% of the gross receipt (for cities 3%). percentage tax and value added tax nonetheless. argued that under §138 of the LGC. Excise tax on articles and tax. 2+1 is 3%)” BULACAN v. that it may impose a tax on a subject matter not mentioned in any book. the law is clear it does not only prohibit the imposition of tax.BATANGAS CITY (300 SCRA 661) * 2nd SC ruling discussing both the IRC and LGC. Under this par. Republic Cement obliged to pay the tax. Hence. The municipal council of Penilla imposed a tax by way of a tax ordinance saying that they are invoking the old §19 (now §143(A)) stating that municipalities are authorized to impose tax of the manufacture of any commodity. there is a prohibition to impose excise tax and tax on quarrying under the IRC is an excise tax. or worse. VIII. PETRON v. the LGU concerned may now impose the tax. F: The then governor. therefore. received a summon from the RTC (on complaint of a supermarket in Metro Manila) questioning the validity of the tax ordinance under §143(H) since the rate imposed was 3% I said. However. Nak ng puta. CA (299 SCRA 442) *first case decide by the SC which interpreted both the LGC and the NIRC. the LGU must e authorized. under this par. IX. fees and charges on petroleum products (§133(G)) » relative prohibition since under §143(H). X. F: This revealed to the public the existence of 2 very big oil pipelines coming form Batangas » relative prohibition because after the period. and not only that but under §133(H). fee or charge over petroleum products. una file kayo ng motion to dismiss. water or air (§133(J)) FIRST HOLDING CO. the tax on petroleum products is an excise tax. why is it a problem when the law is clear that under §138. thus. absent ka na naman ata eh. and also the SC agreed that it is an excise tax where LGU’s are prohibited from collecting. fee or charge on common carriers whether by land.. the SC 94 . Petron objected since under §5 (now §133(H)). since it is manufacture of a petroleum product. it has to comply with the limitations. it should be collected by the BIR (not the LGU). v. H: The tax on quarrying allowed to provincial governments shall only be with regard to lands which are public lands. by implication. Francis J. hence. Moral lesson: although a tax ordinance may be passed even if the subject matter is not provided for in any law. if the LGC made a qualification as to the kind of land (where it says it should be public land). The problem is that the ordinance applies to ALL entities quarrying in the province. and since it is a tax by the national government. » My former student an assistant in the city legal attorney in a city in Metro Manila. it should refer to private land under §151 (although the law did not distinguish). Obet Panganiban together with his provincial council passed an ordinance imposing tax on quarrying under the provision of §138 of the LGC. it shall only apply to public land? Perhaps the provincial council thought that the subject matter of the tax ordinance may be a subject matter provided in any book including the IRC. “ineng. Q: What do you think? A: I don’t agree with this ruling because between §133(H) and §143(A). Tax. Value added tax and percentage (§133(I) EXCEPT §143(H) » Relative prohibition. H: The controlling provision here the old §19 (now §143(A)) that LGUs are authorized to impose the business tax for the manufacturing over any kind of commodity by and petroleum product is “any kind of commodity”. the prohibition includes the prohibition to impose excise tax and not only that. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION declared the tax ordinance null and void for being contrary to law. it is the former which is more specific. PENILLA (198 SCRA 86) * The facts here arose under the old law under §5 (now §133) of the local tax code (PD 231) F: Petron has a factory/plant in Penilla where the raw materials petroleum products are being converted into refined petroleum products. » Sir. the tax on quarrying on which the province may be allowed shall only be with regard to quarrying private land.Atty. and since this is a private tax on quarrying refers to a lot without any distinction. One of the taxpayers. you invoke §151 stating that a city can impose a tax higher than the rate provided for by law not more than 50% of the maximum (50% of the maximum of 2% is 1. it says there that taxes which are prohibited such as excise tax.
the law is very explicit. the tax ordinance passed was declared null and void for being contrary to law. a province cannot impose this because the tax on business can only be imposed by a city or municipality EXCEPT this City with a distance of more than 100km. The Batangas City council deemed it necessary to impose a tax on the gross receipt of the 1st holding company for the operation of the oil pipeline. Paranaque being a LGU can’t impose tax on a government instrumentality. tax on transfer of realty (§135) ► Note that this is not a real estate tax. Q: May the government tax itself it the taxing power is the local government? A: NO. fee or charge on registration of motor vehicles and for the issuance of license and permit for driving thereof EXCEPT tricycles. NAIA v. LTO (322 SCRA 805) I: Which function was delegated to the LGU? The LTO registering motor vehicles “or” the LTFRB granting franchise and regulation of common carriers? H: Under §133(L). Q: Since all the provinces and cities must follow the limitation of the rate (not exceeding ½ of 1%). The local government cannot impose tax on the national government. and since the oil pipelines is habitually carrying petroleum products which is a commodity. With that. because the sangguninan had to determine the actual rate considering the status of the province. is it violative of the equal protection clause? A: NO. tax on printing an publication (§136) ► Normally. Tax. PARANAQUE (JULY 2006) H: SC ruled in favor of the airport. Airport owned by the government is not an agency. NOTE: Do not apply transfer of realty pursuant to RA 6657 (CARP) → this is the Comprehensive Agrarian Reform Program → this is exempt. Francis J. Premiums on re-insurance (§133(K)) » absolute prohibition. Taguig. and not only that but under §170 of the LGC. Tax. but the operator argued that the oil pipeline is not a common carrier. H: The SC reasoned out like in the case of Pajunar v. fee or charge over the national government. Taxes that can either be imposed by Provinces or Cities I. we rule this as a common carrier which is under §133(J). political subdivisions and agencies and instrumentalities of the government (§133(O)) 95 . Comm (328SCRA666). fee or charge on cooperatives duly registered under the cooperative cod (RA 6938) and Business Kalakalan (RA 6810) (§133(N)) » A cooperative is exempt from local tax. XI. D. that ALL LGUs are prohibited to impose percentage tax on common carriers”. II. one going to Pandacan Oil Depot and the other one is going to Brgy. Bicutan. an therefore what may be delegated to the LGU is the function of LTFRB. provided it is duly registered with the cooperative code and the cooperative development authority “or” Business Kalakalan (not kalkalan) XV. maintained and operated by such LGU. fee or charge on exportation of products and is actually exported EXCEPT under §143(C) where the LGU is authorized to impose business tax on exportation (§133(M)) XIV. LGU is prohibited from imposing tax on common carriers. XIII. Tax. XII. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION » Relative prohibition since it admits of an exception under §154 of the LGC where it says that a LGU may be authorized to impose a fee or charge for the operation of a public utility provided it is owned. the function of the LTO is prohibited. saying that “we have copied the code of carrier law form the US where the definition of a common carrier is one habitually carrying not only individuals or passengers but also goods or commodities. it being an instrumentality. this is a local tax for the simple reason that it is not provide for under the topic of real estate tax (§198-280) ► Law says “it should not exceed ½ of 1% of the consideration” (NOTE: do not use zonal value since this is used only under the IRC. and with more reason that it cannot impose a tax with equal LGU. (§133(L)) BATUAN CITY v. that is 50% of ½ is 25% (50+25 is 75%). not the LGC.Atty. Q: Why is that Makati fix the rate of 75% or 3/4 of 1%? A: Because cities are authorized to increase the rate of 50% of the maximum. Tax.
on printing and publication of magazines and periodicals. Cebu. one is a franchise which provide for a condition that this tax (referring to the franchise tax) shall be in lieu of all other taxes. v. it may also be imposed by cities in line with §151 → those enumerated in §135 to 141. the defense that it is owned by the government is not a defense. Mactan airport should pay Real Property Tax. and they also invoked the ruling in BASCO. Q: Why not use the defense that it is owned by the government? A: Because in real estate tax. both provisions says that the basis for the imposition of real estate tax is the ACTUAL USE of anybody who is using that (maybe in the concept of usufructuary or in the concept of a lessee. Therefore. H: NO. the basis is not ownership. H: The lawyer of Mactan airport is devoid of any merit at all. cooperatives registered under the cooperative code (RA 6938) 3. national franchise tax (provided for in the statute or republic act authorizing the franchise) Q: May LGUs impose local franchise tax? A: We have to consider here many supreme court decisions and also §193 of the LGC. III. Under §193. Lawyers of Mactan airport argued that under §13(O). CITY OF MANILA (342 SCRA 692) F: The Manila city government tried to collect real property tax but the management of the LRT said “no you cannot do that to us since it is exclusively for public use”. meaning it should only be collected within its territorial jurisdiction). hence. 1992). Two kinds of Franchise Tax: 1. ► We still have franchise tax other than this one. a LGU. ► in §134. there are only two (2) kinds of franchise. MISAMIS OCCIDENTAL (181 SCRA 38) * This was the prevailing rule for more than 10years from 1988 H: In the franchise or the republic act. MACTAN (261 SCRA 667) F: Cebu government was trying to collect real estate tax from the Mactan airport (note: real property tax is a territorial tax. local franchise tax (under LGC §137) 2. known as national franchise tax → provided for in the republic act granting franchise. cannot impose tax on an agency of the government. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION can only be applied to local tax. but it includes those which claim exemptions by virtue of the case of one. The LGC in §199(B) and in §217. you are not exclusively for public use since every time a person wants to use the LRT he has to pay. REYES v. PAGCOR (197 SCRA 52) F: The city council passed a tax ordinance imposing tax on PAGCOR. franchise tax (§137) ► The old national franchise tax under the old tax code was already abolished. exemptions granted to natural juridical persons are hereby withdrawn (abolished) EXCEPT: 1. the province or the city can impose local franchise tax if the franchise belong to the second example. or in the concept of an owner). local taxation was embodied in a separate book known as Local Tax Code (PD 231) while real property tax was provided for in a separate book known as Real Property Tax Code (PD 464) LRT v. non-profit and non-stock educational institution. an agency of the government. ► Before the codification in 1991 (to take effect January 1. SAN PABLO CITY (305 SCRA 353) * Here the SC uniformly ruled H: A provision on exemption under §193 don’t only refer to exemptions provided for by different statutes. the taxes here must not only be imposed by provinces. it is 100% erroneous since the real estate tax is not a local tax. Francis J. it says there “unless especially provided for in this code. H: The SC declared null and void the tax ordinance saying Manila cannot do that.Atty. CAGAYAN DE ORO ELECTRIC CO. and the other franchise is the one which do not provide for such provision. why invoke a SC ruling and codal provision which 96 . local water districts 2. BASCO v. CEBU v. PAGCOR objected saying that the local city is prohibited under the old local authority act to impose tax on an agency of the government.
Taxes that can either be imposed by Municipalities or Cities I. ► NOTE that this is an exemption to the rule that a city may increase the rate of the tax → under §151 of the LGC. VI. Business Tax (§143(A-H)) 97 . but “sako” lang? Cagayan de Oro (because SC decisions are also laws). tax on sand. the local tax code PD 231 was enacted in 1974 when we don’t have any professional basketball. because §193 says “upon effectivity of this law”. there is also amusement tax under §125. QUEZON CITY (137 SCRA 358) F: The city government enacted a tax ordinance trying to collect amusement tax including amusement tax on the PBA (in Araneta. resources (§138) gravel and other quarry ► We are through with that in the case of Bulacan V. E. physicians. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION the ordinance. in the enumerations of amusement under §140.g. PLDT v. For exemptions covered by §193 therefore. the removal of exemptions granted by different statutes and also by SC decisions applies only to statutes and decided by the SC on or before Jan. Francis J. * ano ba dapt tama diyan? → both the national government and the QC government can collect. PBA v. Section 139 are to be imposed by provinces and cities are applicable to workers who must pass a government examination (e. yari siya ng province sa tax.. one imposed by municipalities and cities. etc) there is a maximum (P300) NOTE: it is not always 300.Atty. since professional basketball was born May 1975. NOTE: §135-141. and not only that §140 speaks of amusement tax on admission fee but under §125. VII. the only requirement is that it must be reasonable A: The applicable tax is under §143(G) (peddler’s tax. §143-150 are taxes to be imposed by MUNICIPALITIES. the increase is not allowed. which can also be imposed by CITIES. *nak ng putang katangahan yan. 1992. 1. since the exact amt must be fixed by Section 147 are to be imposed by municipalities and cities are applicable to persons who are working but are not required to take government examinations It does not provide for any amount. H: By the very explicit provision of §193. Cubao). If may dalang sasakyan. Smart and Globe are authorized to claim exemptions because the statue (RA 7082) was enacted on 1995. it is abut gross receipts. delivery van (§141) Q: What if not a delivery van. professional tax (§139) ► this must be correlated with the tax under §147. engineers. we are already paying amusement tax to the national government through the BIR because of §125 of the IRC” H: QC government can no longer collect on the ground that it is already being collected by the national government and secondly. these are taxes that can be imposed by PROVINCES and CITIES. Most of all. because the taxing powers are different. but PBA and “no. There is no violation of the prohibited double taxation. you will never see professional basketball. DAVAO (363 SCRA 750) F: The franchise holders of Smart and Globe are claiming exemptions from the local franchise tax because they are saying that they are holding a franchise which says that it is a franchise enacted by the house of Congress in 1995 which carries with it an exemption form local franchise tax. ► both §139 and §147 are taxes imposed on persons exercising professional calling. it is the intention of the author that it is only the national government.. amusement tax (§140) ► under the IRC. IV.
c. the municipality may impose a tax not exceeding 2% of the gross receipt (with regard to a city. the tax to be imposed by the barangay. barrio » if the gross receipt of the retailer did not exceed P30T within a period of one year. processing. These are only for retailing. how business taxes do you have to A: You pay only one business tax (§146) many pay? ILO-ILO BOTTLERS v. municipality » if the gross receipt of the retailer did not exceed P30T within a period of one year. H: NO. Ilo-ilo Bottlers argued. fees and charges (§149) F. tax on banking institution and financing institution g. retailing e. wholesaling c. d. it necessary follows that you sell the commodity so. the manufacturer must still pay the business tax on wholesale because now it could be argued that they have the separate business of wholesaling. Metro Manila. contractor’s tax f. you have to determine the marketing system of the company. But if the marketing system of the company provides that wholesaling shall be done in a separate place (maybe several kilometers away). Francis J. this is being sold not only in Mandaluyong. Professional Tax (§147) ► we are through with that IV. It depends: a. they are obliged to pay by virtue of another tax ordinance imposing business tax on wholesaling. NOTE: These distinctions do not apply in wholesaling. San Juan 2. percentage tax and value added tax. if you manufacture. b. exportation d.Atty. Where should the business tax of wholesaling or the business tax of retailing be paid? Should it be in the principal office (Mandaluyong) “or” the place where the commodities are sold? A: It will be paid in the place where it had been sold PROVIDED there is a branch office or a sales outlet (§150(A)). ILO-ILO CITY (164 SCRA 607) F: Ilo-ilo Bottlers was already paying a business tax on manufacturing under §143(A) to the city government by virtue of a tax ordinance. peddler’s tax h. including the manufacturer of permitted liquor and also its dealer b. ► If it so happens that the company has a factory different from the place where the 98 . “how could it be. should the business tax of retailing be imposed by the city or by the municipality “OR” by the barangay in the city or the barrio in the municipality? A: §143(D) must be correlated with §152. the exemption under §133(i) Q: If you have two branches. If wholesaling is also being done in the place of manufacture. it carries with it the business of wholesaling”. repacking. one of them is Swift hotdogs. Fees for sealing and licensing of weights and measures (§148) V. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION if the gross receipt of the retailer did not exceed P50T. Naturally. it may go as far as 3%) II. barangay ► Right now there are only two municipalities: 1. it is the right and privilege of a city to impose the business tax on retailing. the business tax on wholesaling should no longer be paid it should only be the business tax on manufacturing. Fishery rentals. Q: On the business of retailing. it is the barangay council where the business of retailing is located. ► Paragraph H: for the imposition of excise tax. manufacturing. Municipalities in Metro increase their rate (§144) Manila who can » a. with the payment of the business tax on manufacturing. Q: RFM is manufacturing commodities. Pateros III. city » if the gross receipt of the retailer exceeds P50T in a minimum of one year. but also to the inter country from Batanes to Tawi-tawi. Later on. Situs of Tax (§150) ► The tax referred to in here is the business tax on wholesaling and retailing.
by way of wholesale in the warehouse in Cebu City. Francis J. Q: Is there a conflict with the case of Shell and Phil Matches? A: NONE. Common Revenue Raising Powers (§153155) Q: Why common? A: All the LGU could impose the same. they came from different towns of the Visayan Region. signboards. In Cebu city. cockfights and cockpits » must be for commercial purposes 2. He argued that if you use the property of the government like a street or a public plaza. meaning.Atty. CEBU (81 SCRA 99) F: Phil Matches were produced in Nagtahan. H: Although the oil depot was located in Cebucot. maintain the entity If established by the province. the Cebu City government has the right to collect business tax. all towns in Camarines Norte. it was negotiated perfected and consummated in the warehouse where it was located in Cebu City. G. PHIL MATCHES v. municipalities could impose the same. toll fees and charges » tax or toll for the use of a bridge or a street ► Padua filed a civil action in the MakatI RTC trying to stop the government form collecting a toll free in the South Express including the North expressway alleging that he is affected as a taxpayer because he is from Paranaque. establish. public utility charges » provided owned. As a matter of fact. you do not pay. Many of the customers. SHELL v. For the use of barangay property » for instance the barangay has a plaza. cities. H. CAMARINES SUR (105 PHIL 1063) F: The petroleum products were purchased at the motor vehicle traversing the neighboring towns of Cebucot like Bason. Only the LGU which operate. that if you go to Luneta. He made the analogy. The contract of sale was negotiated and perfected in different municipalities where the motor vehicle of Shell was traveling. Dimalaon. is the answer still the same? A: YES. Taxing Powers of the Barangay (§152) ► Only a minimal sum (fair and reasonable) Power to impose tax: 99 . the answer is still the same because delivery to the carrier is delivery to the buyer where delivery has been termed within the territorial jurisdiction of Cebu. you do not pay the city government of Manila. CEBUCOT. On commercial breeding of fighting cocks. The Makati RTC. Q: What if there is an agreement that commodities would be delivered and that the buyer would be waiting in some other town. operate and maintained by them 3. principal office is located → 30% should be pain in the principal office and 70% in the municipality or city where the branch is located. For barangay clearance » if you want to engage in the business of retailing or wholesaling → if barangay captain will not approve that → within 7days go to the municipal hall or city hall for approval 5. it should only be the province. service fee and charges » for services rendered 2. these two decisions complement each other. neon signs and outdoor advertisements » especially for the barrios and barangays along the highway 4. Manila. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION 1. On billboards. May the business tax ordinance of Cebu be imposed on those transactions even if the buyers did not come from the territorial jurisdiction of Cebu? H: Since in this case the contract booked and paid. there was a warehouse where the matches were stored. But it does not follow that all the provinces. These are: 1. the CA and SC had a uniform ruling that the operator should be prohibited from collecting further toll fess because if the operator had already recovered his investment and earned an income already. the said municipality cannot impose tax on that because the contract of sale was negotiated and perfected in the different nearby towns of Camarines. On places of recreation which charge administration fee 3.
As argue by the SC. mutually agreed that the collection shall be resumed in order to have money for the maintenance and repair of the highway. they have a grace period of 20days within which to pay. known as “residence tax certificate. Community Tax (§156) ► January 1 Q: What if the tax was only approved in the month of May 2006. it copied the argument of the lawyer (re: Luneta). do you have to wait until January 2007? A: NO. Q: What about a foreigner residing in the Philippines (RA)? A: YES. For those who celebrated birthdays in the months of Jan-Feb-March. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION For those who celebrated their birthday on or after July 1. they do not have any grace period at all. they have to pay the tax immediately. is he liable to pay the community tax certificate? A: NO. » NOTE: that Res Judicata do not apply here. can it be used only until December 31. maghintay pa tayo ng July 1”. You have the right to collect that in July 1. 2006? A: NO. Accrual of the Tax (§166) he should be stopped. members of the PMP 3. because the basis of imposition of this tax is whether or not you are an inhabitant of the Philippines. Meaning you are a resident of the Philippines. 2007. they are not yet liable to pay this year. ► In the old days. After several months. Q: If you have a community tax certificate for this year (2006). REMEDIES UNDER THE INTERNAL REVENUE CODE 1. Exceptions to §155 (collection of toll fees) 1. Requirements: 1. I.Atty. because the law is saying that “it should be collected in the next succeeding quarter” (§167) Mayor Binay had a tax ordinance in May. Those who celebrated their 18th birthday in the month of April-May-June. the government announced in the radio that the party in the case of Padua. members of AFP 2. disabled citizens 65 years and older. ► This is applied to both natural and juridical persons. the North and South Express were totally dismantled and totally destroyed by the DPWH to give way to the final and executory ruling of the Court. Remedies of the Government 2. but have to wait until next year. physically handicapped 5. Binay: “hindi nga pupwede. You have to pay unless the foreigner is a trans-investor for not more than 3months. for a natural person → at least 18 years of age 2. (§163(C)) J. Q: If the Filipino is a resident of a foreign country (NRC). It shall be valid up to April 15. Q: What if the tax ordinance had been existing for several years already? A: The time of accrual will always be January 1. sabi ng mga bata niya: “bosing. collect na tayo ng June”. they are liable to pay the tax. that It should no longer be collected. for this year. Remedies of the Taxpayer Remedies of the government: 1. Assessment 100 . post office personnel delivering mail 4. Francis J. for corporations → upon registration with the SEC Q: What if you become 18 in the month of January or November or December? A: For those who celebrated their birthday before July 1 (that is up to June 30). When the ruling became final an executory in 1993. Q: Is there a difference for those who reached 18 in the months of Jan-Feb-March and those who reached 18 in the months of April-May-June? A: YES.
the 101 .Intention of the author: 5 years from the date of final assessment Under the NIRC. Sababan 2. false and fraudulent return is not presumed. Q: Why is it important to know whether the assessment is under normal or abnormal condition? A: It is important to know because the prescriptive period between normal and abnormal assessment differ. filed after the deadline ► 2 Ways of counting the 3 year period of Assessment: 1. par c. Collection Book+ Magic & Pink Notes + CEP + Others TAXATION prescriptive period starts on the date of the deadline. or. In this example. The starting point of the counting the 3 yr. it must be proven by the BIR. Supposed he filed his return covering 2004 on April 1. Abnormal/Extraordinary assessment and collection ► There was: 1.Atty. 2006. the return was false Q: Is a false and fraudulent return presumed? A: NO. 222. The burden of proof to prove that the return was false and fraudulent lies against the government through the BIR. The mere fact that the return is erroneous will not make the return fraudulent. it was fraudulent. 203 did not provide for the prescriptive period for the collection . ► These options are available only if the Assessment is under the Abnormal/Extraordinary Conditions. Normal/Ordinary assessment and collection – Sec. 2005. if return is filed after the deadline. Normal/Ordinary assessment and collection ► There was a return filed and it is not fraudulent and not false II. Abnormal/Extraordinary Assessment ► the government has 2 options: a. 203. 2. the counting of the period is on the date of the deadline which is April 15. These are not available under Normal/Ordinary Assessment Prescriptive Period for Collection 1. NIRC) b. » For the calendar year of 2004. Normal/Ordinary Assessment – 3 years from the time the return has been filed (not the payment of the tax) (Sec. filed before the deadline (for any tax under NIRC) 2. NIRC) » the prescriptive period for “collection” shall be 5 years from the date of final assessment (Sec. Since he was not able to meet the deadline. an omission or failure to file the return. » Suppose it is not a late filing of return. NIRC) ► 3 Ways of filing the return under Sec. 222. a return must be filed and paid for Net Income Tax on or before April 15. the reckoning point is the deadline of April 15. NIRC: 1. the prescriptive period starts on the date the return has been filed. To minimize interest and surcharges. Abnormal/Extraordinary assessment and collection – Sec. period is on the date the return is filed which is April 1. the taxpayer is now being assessed for tax due for 2004. assessment and collection have 2 kinds: 1. Collect Without Assessment through Judicial Action » since there is “no assessment” there is no prescriptive period for assessment » prescriptive period for “collection” shall be 10 years from the date of discovery of none filing of return or false or fraudulent return. Prescriptive Period for Assessment 1. 2005. filed on the date of deadline 3. if return is filed before or on the day of the deadline. 2006. if there was a return filed. Francis J. NIRC I. Assess and Collect » the prescriptive period for “assessment” shall be 10 years from the discovery of none filing or false or fraudulent return (Sec. Normal/Ordinary Collection – Sec. 222. o. 203. NIRC 2. 2. par. 2. 3. 203. it has been suggested by the BIR that the taxpayer file a late return.
228. NIRC 1. It is within the period. The return should be filed on or before April 15. file a reply within 15 days from receipt 4. how would you compute the period of assessment? A: NIRC is silent. 2000. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION the prescriptive period is “stopped”. the prescriptive period for normal should also be 5 years. Q: How to apply these periods? A: Annual net income tax return filed by individual using a calendar year. NIRC) 1.Atty. PHOENIX v. Upon receipt of Preliminary Assessment Notice (PAN). ► It is the sending of the notice and not the receipt that tolls the prescriptive period. RR 12-99 (3 steps) 2 Steps under Sec. I: Whether or not the assessment is within the period of 3 years. and send you a Final Assessment Notice (FAN) Reasons: (Sababan agrees with the 5 year prescriptive period) Prescriptive period of collection under 1st option on Abnormal Assessment is 5 years from final assessment (Sec. then 2007 is way beyond the 5year period to collect. 2. to say that there is a prescriptive period for collection under Abnormal and there is none under Normal is too abnormal. the running of 102 . Preliminary Assessment Notice 3. Notice of Informal Conference 2. 2. NIRC. BIR will repeat PAN b. COMMISSIONER (21 SCRA 17) F: Supposed the notice of assessment was given within the period but it was received by the taxpayer outside the period. If the BIR finally assessed the tax in November 2001. If the amendment is superficial. if the prescriptive period for collection under abnormal is 3 years. 222. Count the prescriptive period for collection from the date of final assessment. Failure to file a reply will result in either: a. If now a days. it is 5 years in abnormal. file a reply within 15 days from receipt of notice. the counting of the prescriptive period is also amended. BASILAN v. What matters is the sending of the notice is made within the period of prescription. can it be collected in 2007? A: Yes. Pre-assessment notice 2. Sec. collect without assessment through judicial action – 10 years from date of discovery of none filing. If the notice is sent through registered mail. It should be the other way around. Upon receipt of the notice of informal conference. Abnormal/Extraordinary Collection a. under the old code of 1939. NIRC (2 steps) 2. Failure to file a reply. Q Without stating the date of final assessment. Formal Letter of Demand and Notice to Pay the Tax PROCEDURE (Sec. first determine the date of final assessment. Q: What if the return has been amended. the counting of the prescriptive period is still the original period. 1977. BIR will send again the Notice of Informal Conference or b. Q: (same facts) Supposed it was finally assed on March 2003. 2 things may happen: a. can it be collected in 2007? A: Under normal condition. because it is within the prescriptive period of 5years. assess and collect – 5 years from the final assessment b. RR 12-99) Steps of assessment 1. 2. Francis J. and 1985. 228. 228. NIRC. 2000. BIR will send a Preliminary Notice of Assessment 3. Final assessment notice 3 Steps under RR 12-99 1. COMMISIONER (14 SCRA 52) If the amendment of the return is substantial as distinguished from superficial. or fraudulent return. H: Yes. then the prescriptive period for collection under normal is also 3 years. It was filed on April 15. RR 12-99) 1. Declare the taxpayer in default. 228. The prescriptive period shall be reckoned on the date the substantial amendment was made. Procedure for Assessment (Sec. par c. or false.
This is because §228. Q: Supposed the CTA. COMMISSIONER (150 SCRA 278) 2. Under NIRC. that is the time to file an appeal. one under the Net Income Tax (NIT) and the other in VAT. YABES v. If the taxpayer don’t want to file protest under VAT but want to file a protest under NIT. Tariff and Customs Code (Sec. Q: What is the effect of failure to file the supporting documents? A: Failure to file the necessary and supporting documents within the 60day period. LGC) 3. file a motion for reconsideration reinvestigation or Q: What should be done after filing a protest? A: Count 60days is the period to file the necessary documents and receipts in support of the protest. After the receipt of FAN or formal demand within 30days must file a protest before the office of the commissioner of internal revenue. RR 12-99 ► If the taxpayer receives 2 final assessments. you have to wait for the BIR to take positive action. Q: Supposed the BIR rule within 180? A: Within 30days from receipt of the decision file an appeal to the CTA sitting in division. ► This is not “payment under protest” because. 252. taxpayer may file a protest within 30 days. He then filed an “appeal” with the CTA contending his protest has been denied because he did not receive a decision but 103 . 2313. Q: During the pendency of the protest in the office of the Commissioner. Local Government Code (LGC)) 2. Q: Supposed the CTA en banc decided not in your favor? A: File an appeal within 15days from receipt of decision to Supreme Court. to be counted on the day the protest is filed. Local Tax (Sec. Francis J. in division decided not in you favor? A: File an appeal to the CTA sitting en banc. 252. Protest is referred to as: 1. Real Property Tax (Sec. Q: Is FAN the one appealable to the Court of Tax Appeals (CTA)? A: NO. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION which is 180 days from the day you filed the necessary documents. hence it is not a law. 125. Relevance of the 180 Days: 180 days is the time given to the BIR to decide the case Q: Supposed it did not decide the case within 180days? A: Do not invoke the Lascano case because it was rejected by RA 9282 In the Lascano case. YABES v. RA 9282 provides that in case of inaction of the commissioner after the lapse of 180days. UNION SHIPPING LINES v. levy and/ or distraint. LGC. RA 7651) ► In all protest under the different codes. RR 12-99 says that after lapse of 180days but within 30days after 180days. payment under protest is only necessary under the “Real Estate Tax”. before you file an appeal although the 180 days have lapsed. NIRC and RR 12-99 requires the exhaustion of administrative remedy of protest. FORMS OF PROTEST 1. remedy is to file an appeal. The taxpayer in order to be allowed to file a protest under the NIT must first pay the VAT where he does not intend to file a protest. what is your remedy? A: 1. COMMISSIONER (150 SCRA 278) F: The taxpayer receives a notice of collection while waiting for the decision of his protest. the final assessment shall become final and executory. The case was ruled only by the CTA. Upon receipt of FAN.Atty. The jurisdiction of the CTA has been amended by RA 9282. supposed you receive a notice of collection. COMMISSIONER (185 SCRA 547) 5. payment under protest is the one mentioned in Real Property Tax under Sec. Q: Supposed the CTA decided not in your favor? A: File a motion for reconsideration within 15days to the same division deciding the case. you have to count another period. ► On the 51st day you filed the necessary document. disputing of final assessment or 2.
UNION SHIPPING LINES v.Atty. I: Whether or not the remedy of Appeal was the correct remedy and Whether or not it was filed on time. If the decision was made within 180 days. COLLECTOR (102 PHIL 822) GUERRERO v. COMMISSIONER (19 SCRA 25) H: No. protest is filed with the same City or Provincial or Municipal Treasurer who issued the assessment Period to file Protest • 60 days from receipt of assessment Q: If the treasurer did not decide within a 60day period. he filed a Motion for Reconsideration and Clarification asking whether his protest has been denied. While an Appeal is pending before the CTA. Francis J. if there was no decision after the lapse of 180 days. remedy? A: Go to the court of competent jurisdiction (RTC) Q: If the RTC decided not in you favor? A: File an appeal with CTA en banc (beginning April 23. whether the appeal was made within 30 days upon the expiration or the lapse of the 180-day period. and 252) • Remedy shall be the same TAX receive a notice of collection. one in the CTA and another in CFI. The remedy of appeal is the correct remedy and the appeal was filed on time. But instead. or provincial treasurer. Q: Pending appeal with the CTA. H: Injunction was granted prohibiting the Judge of the CFI and requiring the Judge to transfer the records to the CTA saying that the remedy made by the taxpayer was the correct remedy. 195. The BIR did not reply or answer but instead filed an Ordinary Civil Action before the CFI. was about to conduct the hearing of the case. GUERRERO v. BATANGAS v. protest is filed in the Office of the Commissioner ► Under LGC. Simultaneously. the taxpayer filed an injunction with the SC to prohibit the judge of the CFI contending that a single cause of action is pending in two courts. BATANGAS v. COLLECTOR (102 PHIL 822) H: Yes. or 2. 2004) Q: If the CTA decided not in your favor? A: Appeal to the SC. Hence an appeal is a proper remedy. the protest is deemed denied. 226. 230. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION 2. Immediately. LGC • If the taxpayer receives a Notice of Assessment from municipal. he received a notice of collection. NOTE: Pursuant to RA 9282. H: Yes. COMMISSIONER F: The taxpayer was waiting for the decision of his protest. when the BIR filed an ordinary action. can the BIR amend the final assessment? A: 2 SCHOOLS OF THOUGHT: 1. Q: Was the appeal made on time? A: Yes. When the judge of the CFI. Decision of the RTC involving local taxation exercising appellate jurisdiction 2. Because it is no longer the disputed assessment. The reckoning period within which to file an appeal is the time the taxpayer received the summons. LGC) ► Under NIRC. Decision of the Central Board of Assessment Appeal exercising appellate jurisdiction. COLLECTOR (102 PHIL 822) IS THE BETTER RULING PROTEST UNDER LOCAL TAX (Sec. city. the BIR filed before the CFI an “ordinary civil action” for the collection of sum of money. COMMISSIONER (19 SCRA 25) Sec. he did not answer but instead filed an Appeal before the CTA. whether the appeal was made within 30 days from the receipt of the said decision. the CTA will determine: 1. PROTEST UNDER REAL PROPERTY (Secs. direct appeal to CTA en banc can be made from: 1. the remedy is to file 104 . When the taxpayer received summons. In order to avoid multiplicity of suits ► ACCORDING TO JUSTICE VITUG: BATANGAS v. 252.
what happens? A: If the commissioner reverses the ruling of the collector. the importer should file an appeal within 15 days before the CTA sitting en banc. sitting in division. But under RA 7651. there is an automatic appeal from the decision of the collector under protest. the importer should file an appeal within 30 days before the CTA. deciding on the MR. ► Beginning April 23. III. the automatic appeal under the TCC applied only to protest. PROTEST UNDER THE TARIFF AND CUSTOMS CODE (TCC) (Sec. of finance. • From the ruling of the CTA in division. OF FINANCE. 2313 of TCC as amended by RA 7651. 2. as amended by RA 7651) ► Formerly. Q: From the decision of the Local Board of Assessment? A: Appeal should be made to the Central Board of Assessment Appeal. Q: Where should the automatic review be made? A: It depends. remedy? A: The remedy is to file an appeal to the Local Board of Assessment within 30days from the receipt of the decision.Atty. In the old days. If the commissioner affirms or did not decide within 30days. but now a days. • From the CTA en banc.This is the only instance where payment under protest is necessary Q: How is payment under protest made? A: At the back of the receipt there will be an annotation that there was a payment under protest within 60days from receipt of the notice of assessment within the same treasurer who issued the assessment. IF LESS THAN P5 MILLION – AUTOMATIC REVIEW SHALL BE BEFORE THE OFFICE OF THE COMMISSIONER Q: Suppose the commissioner decide or did not decide within 30days. under the TCC. 1. there shall be an automatic appeal before the sec. the remedy of automatic appeal is applicable to both protest and forfeiture. In both cases of protest and forfeiture. • From the ruling of the CTA in division. the automatic appeal applies to both protest and forfeiture. • From the ruling of the Commissioner. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION I. the government lose the case. Q: Between the two which will be appealed to the CTA? A: The decision of the secretary which passes through the office of the commissioner (RA 9282) But not all the decision of the secretary which passes the office of the commissioner affirms or did not decide within 30days and appealed before the secretary of finance will appeal to the CTA be allowed. Publish the value of the commodity. It can now be appealed to the CTA. Q: If the treasurer rules against the taxpayer. The importer will then file a protest with the Office of the Collector. the ruling is final and executory. Sec. 2313. if the importer lose the case and the government wins. For Forfeiture Under the Tariff and Customs Code ► Refers to the Order of the Collector confiscating the imported goods or commodities Doctrine of Primary Jurisdiction If the Collector ordered the forfeiture of the imported commodities the order of the Collector shall be to the exclusion of all government offices and authority. there shall be an automatic review within 15 days. the importer should file an MR within 15 days before the same division hearing the case. IF P5 MILLION OR MORE – AUTOMATIC REVIEW SHALL BE BEFORE THE SECRETARY OF THE DEPT. sitting en banc. Francis J. . 2004. a protest but there must be first Payment Under Protest. the ruling of the Central Board of Assessment Appeal is no longer final. appeal to SC within 15 days. the custom duties is only P27 but the collector says it should be P52. Importer of Chemical. 105 . the remedy is to file an appeal within 15 days before the Office of the Commissioner. If the importer-taxpayer wins the case.
GENERAL RULE: NO . the minimum amount shall not be lower than 40% of the original assessment.EXCEPT WHEN THE CIVIL CASE IS ALREADY FINAL AND EXECUTORY BECAUSE IT WILL BE VIOLATIVE OF THE SEPARATION OF POWERS 2. Constructive (Sec. 206) 2. IN ANY STAGE OF THE PROCEEDING . If the taxpayer did not file the protest on time 2. Judicial Action a. After the lapse of the 180-day period. b. the government (BIR) can exercise the remedies under §205 in any order or simultaneously (§207). IF IT IS PROVEN THAT THE ASSETS OF THE COPORATION IS TAKEN BY ONE STOCKHOLDER OR. Criminal 2. Distraint b. decision of the Secretary of Finance on countervening duty. COMPROMISE (Sec. par. Failure to submit the supporting documents within the 60-day period 3.Atty. 106 . Francis J. if allowed by the evaluation board consisting of the: a) commissioner. Supposed the corporation is already dissolved. EXCEPT: a. But it is not always the case. CRIMINAL CASES? . 204. where the anti-dumping duty was ordered by the Secretary 3. Instances when the Final Assessment becomes final and executor: 1. because the right of the government to collect is limited in case of abnormal assessment/collection under §222. CIVIL CASES? . If the ground is financial incapacity of the taxpayer. the minimum shall not be less than 10% of the original assessment. cases of anti-dumping duty. Distraint Kinds: 1. b. May the Government compromise criminal cases and civil cases? 2.YES. Levy c. 2. Civil b. 208) 3. and b) deputy commissioner. a. IF THE STOCKHOLDER DID NOT PAY HIS UNPAID SUBSCRIPTION Minimum Amount to be Compromised (Sec. 205) 1. only the 5year period should apply. Administrative Action a. IF IT INVOLVES FRAUD 3. An appeal was filed but made beyond the reglementary period to appeal METHODS OF COLLECTION (SEC. or tax lien is not available under such condition. IF THE CORPORATION IS ALREADY DISSOLVED. can it be subject to compromise? CAN THERE BE COMPROMISE IN: 1. EXCEPT. Under the second option. 209) 1. you did not file an appeal within the 30-day period to the CTA 4. levy or tax lien. Actual (Sec.YES. and Sec. Tax lien Q: Why is it important to know whether the final assessment is under normal or abnormal conditions? A: It is important because of the requirement under §222. IF ALREADY FILED IN COURT (RTC) OR. Q: In distraint. the right of the government is limited to judicial action either civil or criminal. If the final assessment becomes final and executory. is the 10 year period of collection applicable? A: No. 204) 1.EXCEPT: a. no. decision of the Secretary by virtue of automatic review passing through the Commissioner 2. Suppose the civil case filed by the BIR is final and executor. Constructive Distraint There are 3 instances when the Secretary of Finance renders a decision appealable to the CTA: 1. CAN THE STOCKHOLDER BE HELD LIABLE TO PAY TAX? . NIRC) 3 Questions asked in 2004 BAR: 1. 207. Distraint of Intangible (Sec. Administrative remedies such as distraint. levy. If based on other grounds. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION Q: Can it be lower than that prescribed by law? A: As a rule. can the stockholder be obliged to pay? 3.
Q: What if the owner refuses to sign the receipt? A: Sec. cost and penalties. There is bidder and the bid is enough 2. The rule is absolute. Grounds for Constructive Distraint (Sec. The taxpayer intends to leave the Philippines 2. is there a right of redemption? A: NO. 2 Things may happen: 1. During the Scheduled Auction Sale. » Notice of sale shall be by posting in 2 conspicuous place. 3. ► Within 10 days from the receipt of the warrant.) ► The property subject of distraint shall be sold at a public auction EXCEPT bank accounts and debits and credits. 206: The distraining officer shall require 2 individuals within the neighborhood with the warning that they should not allow the taxpayer to dispose. 211: after the sale and within 2 days. The taxpayer ceases or retires from business 4. Distraint of Intangible Property Limited to 1. is there a right of preemption? A: SEC. Debits and Credits ► Warrant of distraint furnished to the debtor and creditor 3. Q: If the property is a personal property. the taxpayer is allowed to recover the property by paying all the property by paying all the proper charges as well as the interest. Actual Distraint 107 . 207. stating the date and the place of the sale (No publication requirement) ► Sec. par a last par. ► THESE GROUNDS ALSO ANSWER THE QUESTION: WHAT ARE THE TAXABLE PERIOD LESSER THAN 12 MONTHS? 2. If there is no bidder or the bid is not enough. Bank Accounts ► Warrant of distraint furnished to the taxpayer or the officer of the bank with the warning that the taxpayer should not be allowed to withdraw. 210: Before the scheduled sale. The taxpayer leaves the Philippines 3. Francis J. 2. §217 applies only if there was a bidder. 2. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION ► Personal property shall be physically taken by the distraining officer. The taxpayer obstructs the collection of the tax. 206): 1. transfer. there shall be further distraint to cover the liability. There is no bidder or there is a bidder but the bid is not enough Q: What is the relevance of knowing the difference? A: 1. the excess shall be returned to the taxpayer. a report of the distraint shall be submitted to the BIR (Sec. the excess shall not be returned to the taxpayer but shall be remitted to the national treasury. Levy ► The distraining officer shall make a list of the personal property of the property to be distraint in the presence of the owner of the property or the person in possession of the property. or sell the property subject of distraint. a report shall be made to the BIR Q: If the property sold is a personal property.Atty. (§217) » In case of excess. If there is a bidder and the bid is enough » In case of insufficiency. ► The owner shall be requested to sign the receipt. no further distraint. » In case of excess. » It will be purchase by the government and the later sold in a public auction again (§212) » In case of insufficiency. 3 Intangible Properties: Shares of stocks Bank accounts Credits and debits Share of stocks ► Warrant of distraint furnished to the taxpayer or the officer of the corporation with the warning that the property is subject of distraint and it should not dispose of it.
215. the government or the mortgagee shall be preferred? A: §219. the law says “forfeiture” » under 215: the real property shall be automatically registered in the name of the Government (forfeiture) » under 212: the real property is not automatically registered in the name of the Government (purchase) Q: If sold at a private sale. Violation of Excise Tax Law (Sec. Tax Lien ► Non payment of tax. 213) ► Within 10 days from the receipt of the warrant. 215. Publication in newspaper of general circulation once a week for 3 consecutive weeks. because the remedy is only Judicial Action and Levy. the mortgagee is preferred. Posting in 2 conspicuous places 2. 173. if there was deficiency? A: There shall be no further levy. NIRC – Sec. last portion: The government is the preferred one if the lien is annotated and recorded in the registry of deed. warrant of levy is served to the register of deeds having jurisdiction over the real property (Sec. The order of the Collector to confiscate imported commodities (Sec. Sec. and 216 Sec. local tax. 2 Things may happen in a Public Auction: 1.Atty. 257. 217: this is only true if there was no bidder or the bid was not enough because of the provisions of the Secs. Real Property Tax – Sec. what is the requirement? A: There must be an approval of the Secretary of Finance (§216) Q: After sale. 219. Francis J. but the same is being foreclosed by the mortgagee. Prohibitory – referred in Sec. the law says “purchase” ► Under sec. a report of the levy shall be submitted to the BIR (Sec. In the absence of annotation in the registry of deeds. EXCEPT: CTA (Regular Court) → RA 1125 and 9282: CTA is authorized to issue injunction to restrain the collection of taxes or fees collected under other code. if there was an excess? A: It shall not be returned to the taxpayer but shall be remitted to the national treasury. 207 (b) last par) Notice of Sale in Public Auction: 1. 218: no court shall issue an injunction to restrain the collection of tax under this code Determine what kind of injunction is referred to here: 1. distraint is not authorized (§256. There is a bidder and the bid is enough 2. TCC) Relevance of the Choice of Words: ► Under sec. 2. Q: Is the rule of distraint or levy the same under local taxation? A: Yes. There is no bidder or the bid is not enough Q: What if there is no bidder or the bid is not enough? A: Forfeiture shall be made (§215) 3 Definitions of Forfeiture under the Internal Revenue Code 1. 218 because it restrains the collection of tax. Mandatory Q: Is the provision limited to “tax under this code”? A: Limited to internal revenue taxes. NIRC 2. 212. 2313. 215) 3. LGC). NIRC Q: Supposed a parcel of land is about to be levied by the government. §213. NIRC 3. 224) 2. because §215 says that it shall be to the total satisfaction of the taxpayer. Q: Is there a right of redemption? A: Yes. which of the 2 obligee. ► Other than the delinquent taxpayer. 212. If there is no bidder or the bid is not enough (Sec. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION Q: After sale. » §175 for DISTRAINT » §176 for LEVY Q: How about real property tax? A: No. 108 . Q: Is there a right of pre emption? A: Yes. Local Tax – Sec. the government has the right to claim a lien over the property of the taxpayer 1.
During collection if there is no property found. Q: When is a decision of the cir appealable to the Secretary of Finance? A: §4. §223 provides that the taxpayer must send a written notice of change of address to the BIR. or 3. Sec. Both §173 and §257. interest and penalty. 253. the running of the prescribed period is suspended. Local Tax 4. 7. Sec. the period will be suspended. Q: What if the change of address is within the Philippines. In distraint of levy. 220 should be read with Sec. §229 is refund for: 1. Sec. ► The period to claim refund is 2years. because there is no conflict. Other Grounds for Suspension: 1. 229. the government is always the preferred one. Sec. NIRC 2. H: Sec. 1603. 220: approving of filing an ordinary civil action for violation of the internal revenue code ► The approval must be made Commissioner of Internal Revenue by the HIZON v. especially if the change is district office. after 15years he went back.Atty. §112 is refund under input tax system. collected without authority. Sec. But the filing was only approved by the Revenue Regional Director of Central Luzon. 112. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION the BIR under normal assessment. he is being assessed by 109 . REPUBLIC (320 SCRA 574) F: An ordinary civil action for violation of the tax code was filed in the city of San Fernando. In the absence of the written notice. 7 of the NIRC » General Rule: powers and functions of the Commissioner may be delegated but not to a position lower than a Division Chief » Under Sec. on matters of interpretation of tax laws. None except sec. Real Property Tax 5. assessment without authority. Doctrine of Equitable Recoupment Q: Do we have the same rule under Local Tax and Real Property Tax? A: NO. errors in payment or. say only from manila to Pasay City. there are powers which can not be delegated a) Power to recommend to the Secretary of Finance to issue rules and regulation b) Power to decide a case of fist impression c) Power to enter into a compromise agreement d) Power to assign BIR officer in the place of production subject to income tax » Since the case does not fall under the prohibited delegation. When he went to Canada. is the running of the prescriptive period suspended? A: In order that the running of the prescriptive period will not be suspended. 136. the filing of the case is legal and tenable. If the BIR is prohibited from making assessment such when the subject property is under litigation 3. Tariff and Custom Written claim for refund under the input tax (Sec. 112) ► Period is also 2 years from the close of the taxable quarter when the transaction was made Q: Can we apply §229 to VAT? A: Yes. the BIR officer can’t locate the property CLAIM FOR REFUND (SEC 229) Written claim for refund: 1. VAT 3. The lien can only be removed by payment of tax. 2. ► Decision of the Commissioner of Internal Revenue (CIR) is appealable to CTA. Francis J. Q: Change of address is from Philippines to abroad? A: The period will be suspended. Has the right of the government to asses the tax already prescribed? A: NO. 223: SUSPENSION OF THE RUNNING OF PRESCRIPTIVE PERIOD Q: A Filipino taxpayer went to Canada. SEC. The plaintiff opposed the filing in the court on the ground that it should be approved by the Commissioner and the Revenue RD. the period is suspended 2.
Corporation 1. ► A written claim for refund should be filed within 2 years ► Sec 204 (c) last phrase: in case of over payment a written claim is not necessary because a return constitutes a written claim for refund. Q: Suppose the 2 year period is about to expire and there is no decision yet as to your refund? A: Remedy is to file an appeal before the CTA (deemed a denial) 110 . a return should be filed. Commissioner (363 SCRA 840) 1. and the taxpayer was not able to file a written claim of refund within the period? A: Regardless of supervening event. paying by way of installment. But the corporation is no longer required to wait till the taxable period is over to file the return. there must be consent ► If a taxpayer is entitled to a written claim for refund but the prescriptive period to claim has lapsed. when to file an appeal? A: Within 21days before the end of the 2 year period.1995. b. a. Existing . 3. within 30 days thereafter. Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION Q: Suppose the BIR decided within 2 years against the refund? A: Appeal within 30days from the decision.1992. To enter into a compromise agreement.2001.1998. Q: Suppose there is only 21days remaining after receiving the decision. reckoning point is the date the last installment is paid. Q: Suppose there is a supervening event. if sold to public auction through distraint or levy. provided it is still within the 2 year period. the date the proceeds is applied to the satisfaction of the tax liability. BPI v.Atty. Non-existing . (under §204(A)) ► The written claim for refund to determine the gross value of the estate because the taxpayer is already dead In case of compromise. Commissioner v. Upon receipt of a notice from the SEC to dissolve the corporation. the reckoning point is the end of the taxable year. the taxpayer is allowed to credit his written claim for refund which he failed to recover to his existing tax liability. 2. Francis J. paying by way of withholding tax system. Existing – the counting of the prescriptive period is 2 years on the day the annual adjusted return is filed. because it is at that day that the tax liability is known. Commissioner (205 SCRA 184) . Non-existing – the counting of the prescriptive period should also be reckoned on the day the annual return is filed. Philam life (244 SCRA 446) . Commissioner v. 2. a written claim for refund must be filed within 2years. EXCEPT: 1. and 2. Individual – counted on the day the tax has been paid 1. CTA (301 SCRA 435) 2. To determine the gross value of the estate. *** v. Q: May the commissioner of internal revenue open the bank account of a taxpayer? A: General Rule: NO. Computed from.
Sababan Book+ Magic & Pink Notes + CEP + Others TAXATION 111 . Francis J.Atty.