!"#"$%&'()"*(+,-%,*('&$,.( - Atty. Francis J. Sababan COVERAGE OF TAXATION LAW REVIEW I.

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 – nonimpairment 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: • 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 II. 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. Income Taxpayers 2. Income Taxes 3. Sources of Income sec. 42 of NIRC - Income Taxpayers a) Individuals b) Corporation c) Estates and Trusts – -Individuals are classified • Resident Citizens sec. 23 (A), sec 24 (A) (a) • Non-Resident Citizens sec 23 (B), 24 (A) (b) 22 (E) • Overseas Contract Workers Sec. 23 (C), 24 (A) (b) • Resident Aliens Rev. Reg. sec 5, 23 (D), 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. 25 (B) • Aliens Employed in MultiNational Corporations sec. 25 (C) and Rev. Reg. 12-2001 • Aliens Employed in Offshore Banking Units sec 25 (D) • Aliens Employed in petroleum Service Contractors & Subcontractors sec. 25 (E) -Corporate Income Taxpayers Domestic Corporations sec. 23 (E), and sec 27 of NIRC Resident Foreign Corporations sec. 22 (H) and (28)A Non-Resident Foreign Corporations sec. 22 (1) and 28 (B) -Estates and Trusts sec. 60-66 of NIRC

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Different Kinds of Income Tax 1. Net Income Tax secs. 24 (A), 25 (A) (1), 26, 27 (A) (B) (C), 28 (A) up to 3rd par. 31 and 32 (A) 2. Gross Income Tax secs. 25 (B) first part and 28 (B) (1) 3. Final Income Taxes sec. 57 (A) 4. Minimum Corporate Income Tax of 2% of the Gross Income secs. 27 (E), 28 (A) (2) 5. Improperly Accumulated Earnings Tax of 10% of its taxable income sec. 29 NIRC Rev. Reg. 2-2001 • Optional Corporate Income Tax of 15% of its gross income sections 27 (A) 4th to 10th par. And 28 A(1) but only up to the 4th paragraph

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!"#"$%&'()"*(+,-%,*('&$,.( - Atty. Francis J. Sababan -Proceed to section 42 and 23 of the NIRC • NDC vs. Comm 151 SCRA 472 • Comm. Vs. IAC 127 SCRA 9 -Then go to sec. 39 of NIRC • Calazans vs. Comm. 144 SCRA 664 RR 7-2003 -Then proceed to sec. 24 (A), 25 (A) (1), 25 B,C,D,E, 27 A,B,C; 28 (A) (1), 28 (A) (6) and sec 51 (D) -Then continue to sec 24 B 1, 25 B,C,D,E; 27 (D) (1) -Then go to se. 24 (B) (2) sec. 73 • Comm. Vs. Manning 66 SCRA 14 • Anscor vs. Comm. 301 SCRA 152 -Sec. 25 (A) (2), 25 B, C, C, E, sec. 27 (D) (4); 28 (A) (7) (D); 32 B (7) (a) Then you go to sec. 24 C, 25A (3); 25 B, C, D, E, 27 D (2); 28 (A) (7) (C); 28 B (5) (C) RA 7717 sec. 127 NIRC - Then you go to sec. 24 D (1); 25 (A) (3); 25 (B) last par. 27 (D) (5) • China Bank vs. Court of Appeals 336 SCRA ___; RR 7-2003 -Upon reading sec. 24 (D) (2) read RR 131999 -Upon reading sec. 27 (A) go to sec. 22 (B) • Batangas vs. Collector 102 Phil. 822 • Evangelista vs. Collector 102 Phil 140 • Reyes vs. Comm. 24 SCRA 198 • Ona vs. Bautista 45 SCRA 74 • Obillos vs. Comm 139 SCRA 436 • Pascua vs. Comm. 166 SCRA 560 • Afisco vs. Comm. 302 SCRA 1 -Upon reading sec. 27 (C) of NIRC see RA 9337 then go to sec. 32 (B) (7) (b) of NIRC, sec. 133 par (o) of LGC, sec. 154 of the LGC. • Pagcor vs. Basco 197 SCRA 52 • Mactan vs. Cebu 261 SCRA 667 • LRT vs. City of Manila 342 SCRA 692 -Proceed to sections 27 (D) (1), 27 (D) (2), 27 (D) (5) read RA 9337, 28 (A) (7) (b), 28 (B) (5) (C), 27 (D) (4), (28) (A) (7) (d), 28 (B) (5) (b) • Marubeni vs. 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. Comm 160 SCRA 573 -Proceed to sec. 27(D) (5) then sections 27 (E) and 28 (A) (2) -Go to sec. 28 (A) (3) read RR 15-2002 -Go to sec. 28 (A) (4) see RA 9337 -Then see sec 28 (A) (5) see Marubeni vs. Comm 177 SCRA 500 -Proceed to sec. 28(B) (5) (a) and sec 32 (B) (7) (a) • Read Mitsubishi vs. Comm 181 SCRA 214 -Then go to sec. 29 and Rev. Reg. 2-2001 -Upon reading sec. 32 (B) 1 and 2, read sec. 85 par (e), sec. 108A and sec. 123 of the NIRC -Proceed to sec. 33 read Rev. Reg. 3-98 -then go to sec. 34 (A) (1) (a) see Aguinaldo vs. Comm. 112 SCRA 136, RR 10-2002 -Under Sec. 34 (B) read RR 13-2000 -Upon reading sec. 49 read Banas vs. CA 325 SCRA 259 and Filipina vs. Comm. 316 SCRA 480 -Upon reading sec. 60-66, read Ona vs. Bautista 45 SCRA 74 III. Estate Tax -Sections 84-97 see sec. 104 -Upon reading sec. 85 (B) read Vidal de Roces vs. Posadas 58 Phil. 108 Dizon vs. Posadas 57 Phil 465 -Sec. 85 (G) compare with sec. 100 -sec. 85 (H) compare with sec. 86 (C) -Upon reading sec. 86 see RR 2-2003 -Upon reading sec. 94 see Marcos vs. Sandiganbayan 273 SCRA 47 IV. Donors Tax Law - Sections 98-104 - G and Cumulative methods of filing donor’s tax returns sections 99 (A), 103 (A) (1) and RR 2-2003 - Sections 100 and 85 (9) V. Value Added Tax - Sections 105-115 -Read RA 9337 -Read ABAKADA vs Comm. GR 168056, Sept. 1, 2005 VI. Remedies Under the Internal Revenue Code -Sections 202-229 -RR 12-99 • Phoenix vs Comm 14 SCRA 52 • Basilan vs. Comm. 21 SCRA 17 • Yabut vs. Flojo 115 SCRA 278 • Union Shipping vs. Comm 185 SCRA 547 • Comm. vs. TMX 205 SCRA 184

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!"#"$%&'()"*(+,-%,*('&$,.( - Atty. Francis J. Sababan • Comm. vs. Philamlife 244 SCRA • Comm. vs. CA & BPI 301 SCRA 435 • BPI vs. Comm. 363 SCRA 840 -Prescription sections 203 and 222 of NIRC, sec. 194 of the LGC, sec. 270 of the LGC, sec. 1603 of Tariff and Customs Code -Protest sec. 228 of NIRC and RR 12-99 sec. 195 of LGC, 252 LGC, sec. 2313 of Tariff & Customs Code and RA 7651 VII. Local Taxation - Sections 128-196 of LGC -Proceed 1st to sec. 186 read Bulacan vs. CA 299 SCRA 442 -Then proceed to 187 -Then to 151 -128 -Under sec. 133 (e) read Palma vs. Malangas 413 SCRA 572 -Under 133 (h) read Pililia vs. Petron 198 SCRA 82 -Under 133 (i) read First Holdings Co. vs. batangas City 300 SCRA 661 -Under 133 (l) read Butuan vs. LTO 322 SCRA 805 -Under 137 read sec. 193 of LGC • Misamis vs. Cagayan de Oro 181 SCRA 38 • Reyes vs. San Pablo City 305 SCRA 353 • Meralco vs. Laguna 306 SCRA 750 • PLDT vs. Davao City 363 SCRA 522 - Co-relate sec. 139 and 147 of LGC - Under sec. 140 of the LGC see sec. 125 of the Internal Revenue Code - Under sec. 150 of the LGC read the following: • Phil. Match vs. Cebu 81 SCRA 99 • Allied Thread vs. Manila 133 SCRA 338 • Sipocat vs. Shell 105 Phil. 1263 • Iloilo Bottles vs. Iloilo City 164 SCRA 607 VIII. Real Property Tax - Sections 197-294 - Sec. 235 • LRT vs. Manila 342 SCRA 692 • Cebu City vs. Mactan 261 SCRA 667 IX. Tariff & Customs Code - Special Customs Duty sec. 301-304 of TCC Regukar Customs Duty sec. 104 of TCC RA 7631

X. Court of Tax Appeals RA 1125 as amended by RA 9282

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!"#"$%&'()"*(+,-%,*('&$,.( - Atty. Francis J. Sababan Rules in the Classroom: 1. do not be absent ! 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. ! Exception: if you get married. 2. read the assignment. Wag zapote ang aral. 3. holiday – make up class probably on a Sunday 4. allowed to glance at your notes, wag lang pahalata/garapal 5. materials: ! codal ! commentaries (any author will do) ! magic notes (Sababan Lecture and Q&A) ! Book stand Coverage of Taxation Law Review: 1. Basic 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 ! 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. Q: Do local governments exercise this inherent power? 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. CONSTITUTIONAL LIMITATIONS Due Process Clause Q: why is it a limitation to the power to tax? A: The due process clause as a limitation to the power to tax refers both to substantive and procedural due process. Substantive due process requires that a tax statute must be within the constitutional authority of Congress to pass and that it be reasonable, fair and just. Procedural due process, on the other hand, requires notice and hearing or at least the opportunity to be heard. Ex: On Substantive Due Process- when the Congress passes a law exempting the 13th month pay from tax but with the concurrence only of the majority of the quorum – law would be invalid because the Constitution provides that any grant of tax exemption shall be passed with the concurrence of the majority of all the members of the Congress. Q: Does it follow that the adverse party must always be notified?

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The petitioners contended that the law in question was violative of their right to equal protection of laws since they are also Filipino businessmen.. Where there is no such requirement. Thus. and taxpayers belonging different classifications are treated alike. 5 . before levy. In lieu thereof. CAYAT the Supreme Court mandated the requisites for a valid classification. The Court observed that those foreign businessmen operating within the secured area have to give a larger capital to operate in the secured area (to spur economic growth and guarantee employment). he may abscond. As a rule. After the amendment. Ex: In one case. The SC said that the ordinance was invalid because of the failure to state the said classification. you can secure a TRO without notifying the adverse party. 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. passed RA 7227. notice and hearing or the opportunity to be heard is necessary only when expressly required by law. 1998. If the adverse party is notified. TIU v. the person to be searched was not notified. no notice need be given to a party declared in default. Before Oct. things and transactions belonging to the same class. EO 97 and EO 97-A ! The first led to the creation of the Subic Special Economic Zone (SSEZ). the party declared in default has to be notified of subsequent proceedings albeit without the right to participate therein. you have the right to have an opportunity to be heard (if there is a law). notice and the opportunity to be heard are dispensable. Equal Protection Clause " As a rule. 1995. In PEOPLE v. Difference in treatment is allowed only when based on substantial distinction. 2) It must be germane or relevant to the purpose of the law. Requirements of Reasonable Classification: 1) There must be substantial distinctions that make a real difference. permanent or temporary. Sababan A: No. 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. the adverse party need not be notified all the time. an act creating the conversion of the military bases into other productive uses. shall be imposed within SSEZ. taxpayers of the same footing are treated alike. 4) The distinction must apply to persons.*('&$. Before July 1. COURT OF APPEALS (301 SCRA 278) Q: what happened in the city of Olonggapo? A: The Congress. there must be notice. In the case of a search warrant. in connection with procedural due process. in adversarial proceedings. H: The Supreme Court ruled that there was no violation since the classification was based on a substantial distinction. local and national.( . Francis J. a tax ordinance was assailed on the ground that the ordinance failed to distinguish a worker form casual. both as to privileges conferred and liabilities imposed. REASON: No provision of law requires notice to the adverse party. The person searched cannot claim that there was a violation of due process because there is no law requiring that the person to be searched should be notified. Difference in treatment not based on substantial distinction is frowned upon as “class legislation. Q: Who was the President at that time? A: President Ramos Q: What were signed? A: RA 7227.Atty. 1.!"#"$%&'()"*(+. The latter set the limitations and boundaries of the application of the incentives (no taxes. Ex. 3% of the Gross Income shall be remitted to the national gov’t) to those operating their businesses within the said area. with the approval of the President. If you are a suspect in a criminal case. 3) The distinction or classification must apply not only to the present but also to future situations. Regarding delinquent tax payers.” This is violated when taxpayers belonging to the same classification are treated differently form one another.-%.

in the case at bar. then the act itself is the source of the obligation. Contracts. It is a tax imposed on persons without any qualifications. the obligation to pay the tax is now based on the contract between the taxpayer and the government pursuant to their compromise agreement. 2. Quasi-Contracts. Example of Poll Tax: Community Tax Certificate under Section 162 of the Local Government Code. and quasidelict. therefore. Sababan ORMOC SUGAR CENTRAL vs. that it must be applicable to both present and future circumstances. thus the non-impairment clause does not apply. freedom to exercise one’s religion 3. 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. 6 . in what instance does the nonimpairment 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. delict. then filed a complaint against the City of Ormoc. 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. (funds for sending a person to jail is taken from the national is imposed by law..*('&$. When the law establishes the obligation and also provides for its fulfillment. whether citizens or not. Francis J. The element invoked here was element #3. The Supreme Court said that one must go to the provision itself. freedom to choose religion 2. and its only purpose is to regulate such obligation. Q: Did the owner accept this imposition? A: No. without regard to their property or to the occupation in which they may be engaged. Cayat Freedom of Religion It Involves 3 Things: 1. the tax due was paid under protest. Delict. TAKE NOTE: People vs.4 imposing upon any and all centrifugal sugar milled at the Ormoc Sugar Central a municipal tax on the net sale of the same to the United States and other foreign countries. In this instance. If the law merely provides for the fulfillment of the obligation then the law is not the source of the obligation. the obligation to pay taxes Take Note: the requirement for its application: the parties are the government and private individual. General Rule: The power to tax is pursuant to law. Poll Tax Q: What is a poll tax? A: It is a tax of a fixed amount on individuals residing within a particular territory. Q: Why is it a limitation to the power to tax? A: It is a limitation to the power to tax because Congress is prohibited from passing a law penalizing with imprisonment a person who does not pay poll tax. persons may be allowed to pay even if they are not qualified as to age or property ownership. not the law. When the law merely recognizes or acknowledges the existence of an obligation created by an act which may constitute a contract.!"#"$%&'()"*(+.( .Atty. CIR Q: What did the municipality of Ormoc do? A: The City Council of Ormoc passed a Municipal Ordinance No. Non-impairment Clause Q: What are the sources of obligation in the Civil Code? A: Law. then the law itself is the source of the obligation Q: So. H: The Supreme Court said there was a violation of the equal protection clause.-%. Quasi-Delict. quasi-contract. " You have to determine first the source of obligation: 1. Q: What is the obligation contemplated in this limitation? A: Those obligations arising from contracts.

1935 Constitution – Cemeteries. CHARITABLE or EDUCATIONAL purposes shall be exempt for taxation. not under the 1935 Constitution (note the difference).. and all lands.( . it also operates a school for midwifery and nursing. 1973 Constitution – charitable institutions. The hospital. HERRERA v. It is a charitable institution. HERNANDO Q: What is involved in this case? A A religious institution was involved in this case. 6. schools and dormitory are all exempt fro taxation because they are incidental to the primary purpose of the hospital. “Exempted by virtue of incidental purpose” was merely coined by the Supreme Court. a domestic corporation. parsonages or convents appurtenant thereto. Sec. The Province of Abra now contends that since the school is not exclusively used for educational purposes. The hospital was previously exempt from taxation until it was reclassified and subsequently assessed for the payment of real property tax. non-profit cemeteries. thus exempt from the payment of such tax. DIRECTLY and EXCLUSIVELY used for RELIGIOUS. and improvements ACTUALLY. 17 (3). buildings. 1987 Constitution – charitable institutions.. churches. Art. H: The Court ruled that petitioner is not liable for the payment of real estate taxes. justified because it is necessary.!"#"$%&'()"*(+. v. and all lands. 28 (3). H: The Court held that the school is PARTIALLY liable for real estate tax. Sec. The ground floor of the school was leased to Northern Marketing Corp.Atty. The 2nd floor thereof was used as the residence of the school director and his family. buildings and improvements used EXCLUSIVELY for RELIGIOUS. and all lands. it does not apply to other taxes except Real Estate Tax. 6. Thus. The Court observed that the cause action arose under the 1973 Constitution. Tax exemption is not presumed. Art. The respondent judge granted the exemption from taxes of said church based only on the allegations of the complaint without conducting a hearing/trial. St. and improvements ACTUALLY. 1. churches and parsonages or convents appurtenant thereto. and EXCLUSIVELY used for RELIGIOUS and CHARITABLE purposes shall be exempt from taxation. the school is now liable to pay real estate tax. and non-profit cemeteries. EDUCATIONAL and CHARITABLE purposes shall be exempt from taxation. AQUINO Q: What is involved in this case? A: An educational institution is involved in this case. The contention of the respondent is that the hospital was no longer a charitable institution because it accepts pay-patients. DIRECTLY.-%. ABRA VALLEY COLLEGE INC. (bishop filed declaratory relief after assessed for payment of tax). Residence – exempt by virtue of incidental purpose. 2. 1973 and 1987 Constitution? A: Art.*('&$. SC: the Court ordered that the case be remanded to the lower court for further proceedings. The assistant prosecutor filed a complaint contending that petitioner was deprived of its right to due process. and parsonages or convents appurtenant thereto. PROVINCE OF ABRA v. Catherine’s Hospital. Commercial – not exempt because it is not pursuant to the primary purpose. buildings. NOTE: this arose during the 1935 Constitution. Sababan treasury which is funded by the taxes paid by the people) Exemption from payment of Real Estate Tax Q: What is the requirement for exemption from payment of real property tax under the 1935. mosque. Sec 22 (3). 7 . not for educational purposes. mosque. It must be strictly construed against the taxpayer and liberally construed in favor of the government. Since it is not exclusively used for charitable purposes it is not exempt from taxation. the Roman Catholic Bishop of Bangued. churches. and a dormitory. QC-BOARD OF ASSESSMENT (1935 Constitution) Q: What is involved in this case? A: A charitable institution. Inc. 8. Francis J.

Respondent contends that since the hospital is not used actually. the Philippines income tax and the U. it held that it depends on whether or not the use is incidental to the primary purpose of the institution. A case for refund of overpaid withholding tax was filed.Atty.-%. NOTE: both cases arose under the 1935 Constitution despite having been decided in 1988. petitioner is exempt from payment of real estate tax. The case of Herrera does not apply because said case arose under the 1935 Constitution and the present case arose under the 1987 Constitution. do we still apply the exemption from tax by virtue of the Doctrine of Incidental Purpose? A: Not anymore.*('&$. entered into a license agreement with SC Johnson and Sons U. the Supreme Court made a qualification. But in this case. Under the 1987 Constitution. In return. The requirements for exemption are different. SC JOHNSON and SONS. NOTE: petitioner contended that the profits derived from the lease of its premises were used for the operation of the hospital. COMM v. NOTE: at present. 8 . directly. rather it is the use of the property that determines exemption. school and dorm). educational and charitable purposes. importance of international tax treaty 3. H: The Supreme Court held that the petitioner is liable to pay tax for those parts leased to private individuals for commercial purposes. in the Herrera case. Q: At present. an d exclusively for charitable purposes. INC. Inc. part of its building was leased to private individuals and the vacant portion of its lot was rented out to Elliptical Orchids. “exemption from tax by virtue of incidental purpose” is not applicable to all taxes including real estate tax. implication of most favored nation clause Q: What is the corporation involved in this case? A: A domestic corporation (DC).S. international double taxation 2. The cause of action in said case arose under the 1935 Constitution and it does not apply to the provisions of the 1987 Constitution. For the part of the hospital used for charitable purposes (whether for pay or non-pay patients). The Supreme Court made a qualification. tax. The Court held that the use of the profits does not determine exemption. The Supreme Court reiterated the ruling in the Abra Valley case which arose under the 1935 Constitution.( . the property must be used ACTUALLY. In the 1935 Constitution. the DC should have paid only 10% under the most favored nation clause. educational or charitable purposes. and EXCLUSIVELY for religious. It is provided in the charter of the Lung Center of the Philippines is a charitable institution. 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. the property must be EXCLUSIVELY used for religious. it is liable to pay real estate taxes. Francis J.!"#"$%&'()"*(+. H: The Supreme Court coined the term International Double Taxation or International Juridical Double Taxation. However. Apparently.. The Supreme Court said it depends. SC Johnson and Sons. QUEZON CITY Q: What is involved in this case? A: A charitable institution. Q: Was the doctrine laid down in Abra Valley affirmed in the Lung Center case? A: Yes. The Supreme Court unconsciously applied a doctrine laid down by the 1935 Constitution. Sababan Q: is the doctrine in the case of Herrera the same with this case? A: NO. 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. PHILIPPINE LUNG CENTER v. a hospital. Important : 1. NRFC) whereby the former was allowed to use the latter’s trademark and facilities to manufacture its products. the exemption was granted to all the real property (hospital.S. DIRECTLY.A (Non-Resident Foreign Corp. the DC will pay the NRFC royalties as well as payment of withholding tax.

we do not have forest charges as the same was abolished by President Aquino.-%. 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. MAMBULAO LUMBER CO. This is not allowed in this jurisdiction. for one reason or another. the government is preventing corruption) There is no exception at all otherwise.Atty.( . Francis J. (Sir gives an illustration found in page 3 of magic notes) Q: Is the rule absolute? Reason A: Yes. because of common law origin. the phrase applies to the application of matching credit. the concept of taxation arises where a taxpayer is liable to pay taxes but the government. The 10% does not apply because there is no matching credit. in the light of public policy. H: The Court ruled that the reforestation charges paid is in the nature of taxes. Q: What is matching tax credit? A: 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. Rather. In taxation. (Ex: Switzerland) ! The controversy in the case at bar involves the income tax paid in the Philippines. there is no similarity in the circumstances. contract or judgment as is allowed to be set-off under the statute of set-off which is construed uniformly. REPUBLIC v. the BIR would be flooded with so many claims. The principle of compensation does not apply in this case because the parties are not mutually creditors and debtors of each other. the US firm discovered that they are entitled to 10% under the most favored nation clause. demand. The question is: was the tax paid under similar circumstances with that of the RPWest Germany Treaty? The CTA and Court of Appeals ruled that it was paid under similar circumstances. is INDEBTED to said taxpayer. Sababan Q: Is there an instance where international double taxation does not apply? A: Yes. After paying 25%.*('&$. for one reason or another. (furthermore. Q: What is the doctrine of Equitable Recoupment? A: When the claim for refund is barred by prescription. NOTE: under our present tax code. In taxation. EQUITABLE RECOUPMENT AND DOCTRINE OF SET-OFF Equitable Recoupment This doctrine provides that a claim for refund barred by prescription may be allowed to offset unsettled tax liabilities. hence. you have to be honest for this to work. Thus. the NIRC. the same is allowed to be credited to unsettled tax liabilities. the amount paid should be reimbursed to them or at least compensated or applied to their liability to pay forest charges. If it involves nationals of countries wherein the tax liability is imposed only from income derive from sources within and not including those derived from sources without.!"#"$%&'()"*(+.. Q: What is the liability of Mambulao? A: They are liable to pay forest charges (under the old tax code). is indebted to the said taxpayer. Q: What do you mean by SET-OFF? A: This presupposes mutual obligations between the parties. 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. The Supreme Court ruled that the lower courts’ interpretation of the phrase was erroneous. If allowed. and that they are mutual creditors and debtors of each other. The phrase referred to the royalties in payment of income tax. A claim for taxes is not a debt. The rationale behind this is to prevent the taxpayer and government official from being negligent in the payment and collection of taxes. to exclude the 9 . the concept of setoff arises where a taxpayer is liable to pay tax but the government. the rule is absolute. Set-off Presupposes mutual obligation between the parties.

and the taxes were collected by a local government. but arises out of a duty to. H: The Court did not allow the set-off. Francis J. DOMINGO v. H: 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. in accordance with Art. 1279 and 1290 of the Civil Code and both debts are extinguished to the concurrent amount. 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. Internal Revenue taxes cannot be the subject of compensation because the government and the taxpayer are not mutually creditors and debtors of each other. It appears that petitioner was delinquent in the payment of his real estate tax liability. Furthermore. and a claim for taxes is not a debt.Atty. allocating a certain sum of money to the estate of the deceased. COA Q: What is being collected? A: Caltex’s contribution to the Oil Price Stabilization Fund (OPSF). Caltex wanted to off-set its unremitted collection from its reimbursements. A taxpayer cannot refuse to pay a tax on the ground that the government owes him an amount. contract or judgment as is allowed to be compensated or set-off. the property was expropriated by the national government. GARLITOS Q: What is being collected in this case? A: Estate and inheritance taxes. Reason: Taxes are not in the nature of contracts or debts between the taxpayer and the government. General Rule: no set-off is admissible against demands for taxes levied in general or local governmental purposes. RA 6952 expressly prohibits set-off from the collection of contributions to the OPSF. demand. FRANCIA v.) CALTEX PHIL v. Q: Who is the administratrix? A: The surviving spouse. Taxes cannot be the subject matter of compensation. 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. The same is being collected by the Treasurer of Pasay. The Court likewise stated that Caltex merely acted as agent of the government in collecting contributions for the OPSF 10 . Compelling Reason: Congress has enacted RA 2700.!"#"$%&'()"*(+. not mutual creditors and debtors of each other. NOTE: we do not have inheritance taxes anymore because the same was abolished by Lolo Macoy. and are positive acts of the government to the making and enforcing of which.( . (diff parties. COA sent a letter to Caltex asking the latter to settle its unremitted collection stating that until the same is paid. the consent of the individual is not required. Sababan remedy in connection or any indebtedness of the State or any municipality to one who is liable for taxes. compensation therefore takes place by operation of law. (the other part of his property was sold at a public auction) H: The factual milieu of the case does not justify legal compensation.. IAC Q: This happened in what city? A: Pasay City Q: What is the tax being collected? Who is collecting the same? A: Payment for real estate taxes for the property of Francia. its claim for reimbursement from the OPSF will be held in abeyance. the payment of just compensation was already deposited with PNB Pasay. Furthermore. Neither are they a proper subject for recoupment since they do not arise out of contract or the same transaction sued on.-%.*('&$. 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. Q: Why is Caltex entitled to reimbursement? A: Because of the fluctuation of the oil prices in the Middle East and Europe. and reiterated its ruling in the case of Mambulao and Francia.

Furthermore. is the agencies and instrumentalities (Section 27 c)). Q: If you are abroad. Taxes are not debts. can levy tax upon GOCCs. pursuant to the provisions of RA 8424 of the Tax Reform Act of 1997. OCW and Seaman (§23C and 24A). The Court did not allow set-off. Sababan because such is being shouldered by the consumers when they purchase petroleum products of oil companies. 2. which it wanted to be set-off from its pending claim for a VAT Input credit/refund. KINDS OF INCOME TAXPAYERS Q: Generally. 2. Q: How many types of RC? A: There are two (2). and 2. how many kinds of income taxpayers are there? A: Under section 22A of NIRC. namely: 1. a concern which is within the police power of the State to address. Namely: 1. INDIVIDUAL TAXPAYER Q: How many kinds of individual taxpayers are there? A: There are seven (7). Nonresident Alien NOT Engaged in Trade or Business (§22G. there are three (3). in the instant case. PHILEX MINING CORP v. 4. Resident Citizen (§23A and 24A). Petroleum Service Contractors (§25C. Resident Alien (§22F. Francis J. RC residing in the Philippines.D and E) Resident Citizen (RC) 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 There is no double taxation if the tax is levied by the LGU and another by the national government. Obnoxious double taxation synonym of double taxation. can you still be considered a RC? A: Yes. OCW and Seamen 11 . individual.( . although income received by the Government form: 1) any public utility or 2) the exercise of any essential governmental function is exempt from tax. Offshore Banking Units. If such intention to permanently reside therein was not manifested to the Commissioner and the fact of your physical presence therein. 23D and 25B) 7.-%. Aliens Engaged in Multinational Companies. 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. 5. 3. namely: 1. corporate. DOUBLE TAXATION Double taxation is allowed because there is no prohibition in the Constitution or statute. Taxation is no longer envisioned as a measure merely to raise revenues to support the existence of the government. 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.113(o)).. I. Filipino living abroad with no intention to reside permanently therein. (3) LGUs (sec.*('&$. estate and trust. 23D and 24A).Atty. The collection of a tax cannot await the results of a lawsuit against the government. Nonresident Citizen (§23B and 24A). LGUs are expressly prohibited by the provisions of RA 7160 or the LGC of 1991 from levying tax upon: (1) the National Government. and you have the intention to permanently reside therein. (2) its agencies and instrumentalities. The National Government. COMM The petitioner is liable for the payment of excise taxes. 23D and 25A) 6. Nonresident Alien Engaged in Trade or Business (§22G.!"#"$%&'()"*(+. 3. you may still be considered a RC. The two (2) are different taxing authorities. the claim for VAT refund is still pending. such as Caltex.

Francis J. RR 2-98 has expanded the coverage of the term. because the classification shall cover only those Filipino citizens working abroad with a contract. The requirement under RR#2 is that he is actually present in the Philippines. the vessel must be exclusively engaged in international trade or commerce. must be a member of the compliment of a vessel. Q: What is the significance of using OCW? A: It only covers Filipinos who works abroad with a contract. you are not the one being referred to. Whether he’s a transient or not is determined by his intent as to the nature and length of his stay. foreigner who comes and stays in the Philippines for an aggregate period of MORE THAN 180 days during any calendar year. 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. 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.( .. is that if he is a RCm he is taxable on ALL income derived from all sources within and without. by the express provision of the law. Resident Alien (RA) An individual whose residence is within the Philippines and who is not a citizen thereof. a traveler. NRA who practices a profession (Revenue Regulation 2-98). If he is a NRC. so long as he is not a sojourner. It does not cover TNTs. 2. 3. NRA engaged in trade or business (25a1). said seaman is not deemed to be an OCW. 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. neither a sojourner. 2. The importance of ascertaining whether or not a seaman is a RC or a NRC. tourist or a traveler.*('&$. “engaged in trade or business” to include the exercise of a profession. not a tourist. To be considered as such. Q: Is the intention to permanently reside in the Philippines necessary? A: No.!"#"$%&'()"*(+. Sababan OCW was used and not OFW in the CTRP.-%. otherwise.Atty. 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. Q: How many types? A: There are three (3) types. Consequently. he is taxable only on income derived form sources within the Philippines. namely: 1. If you are a seaman in the US Navy. a NCR. TNTs are not covered. they are considered RC because they work abroad without a contract and they have not manifested their intention to permanently reside abroad. he must stay for an aggregate period of more than 180 days during a calendar year. If he stays in the Philippines most of the time during the taxable year. He is either a RC or a NRC depending on where he stays most of the time during the taxable year. he is considered a RC. Intention to reside permanently in the Philippines is not a requirement on the part of the alien. Q: What is the status of a TNT? A: Since they are not covered by this classification. (distinguish from an immigrant) Requirements for a seaman to be considered an OCW: 1. Furthermore. 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. Q: What is the income tax applicable to said taxpayer? 12 .

1. or NRANETB. Resident Foreign Corporation (RFC) – corporation created under foreign law. Aliens Employed in Petroleum Service Contractors and Subcontractors " Status: ALWAYS NRA. The reason why the NRANETB are included in any income tax law is because they may be deriving income form sources within the Philippines. Exception: General Professional Partnerships (GPP) Q: What is a GPP? A: It is a partnership formed by persons for the sole purpose of exercising their 13 .-%. Insurance Companies CIR v. 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. 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. Nonresident Foreign Corporation (NRFC) – created under foreign law. Reason: because of the possibility of earning profits form sources within the Philippines. Domestic Corporation (DC) – created or organized under Philippine laws.( . 2. Sababan A: Net Income Tax (NIT) on all its income derived form sources within the Philippines. 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. whether nonstick. you may classify them either as RA. no matter how created or organized. CORPORATE TAXPAYER 1. Q: What are deemed corporations under the NIRC? A: The term corporation shall include partnerships. " Income derived or coming from their employer shall be subject to a tax of 15% of the gross. If they derive income from other sources. associations. Non-Resident Alien Trade or Business Q: How many kinds? A: Only one.*('&$. NRAETB. it is still deemed a corporation. Q: Are partnerships always considered corporations? Is there no exception? A: General Rule: a partnership is a corporation. They are subject to tax based on their GROSS INCOME received form all sources within the Philippines. geothermal or consortium agreement under a service contract with the Government.. joint stock companies. such income shall be subject to the pertinent income tax. Not Engaged in II. as the case may be. as the case may be. " Liable to pay 15% from Gross Income received from their employer " Income earned from all OTHER sources shall be subject to the pertinent income tax.Atty. Joint Accounts 4. " Their status may either be RA or NRA because Section 25 C and D does not distinguish. coal. Associations 5. COURT OF APPEALS The phrase no “matter how created or organized” was interpreted. joint accounts. and NOT engaged in trade or business. 3. Even if the partnership was pursuant to law or not. Joint Stock Companies 3. Francis J. and engaged in trade or business. or insurance companies.!"#"$%&'()"*(+. Partnerships and others no matter how created 2. nonprofit.

Q: What is the importance of knowing whether the corporation is exempt or not? A: To determine their tax liability. Rule: 1. DEL ROSARIO general rule: a partnership is a corporation exception: GPP exception to the exception: if the GPP derives income from other sources. it is not exempt and it is considered a corporation. Domestic Corporation Is one created or organized Philippines or under its laws. 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. will the partners have to pay for the income tax? A: No. Non-Resident Foreign Corporation Foreign corporations not engaged trade or business in the Philippines. Y.-%. in Taxable for income derived within the Philippines. if the income is derived from other sources and such income is subject to NET INCOME TAX. Francis J. thus liable to pay corporate income tax. no part of the income of which in derived from any trade or business. it is still EXEMPT and it is not deemed a corporation. Q: Is a joint venture a corporation? A: Generally. How many corporations do we have? A: Three. 4) MCIT (Minimum Corporate Income Tax) of 2% of the Gross Income 14 . gas. ( separate return for this. it is considered a corporation.” In short. This is important to determine the tax liability of the individual partners of the GPP. " Section 26 (1st paragraph) provides: “a GPP as such shall not be subject to the Net Income Tax…” however. 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. as far as the share of the GPP is concerned. yes. Sababan profession. (what if a partner has other businesses not related to the GPP? > read section 26 quoted hereunder) Two (2) Kinds of GPP formed for: 1) Exercise of a profession – not a corporation. Q: Corporation X and Corporation Y joined together. exempt from Corporate Income Tax (CIT) 2) Exercise of a profession and engaged in trade or business – 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. Q: If the GPP is deemed a corporation. each partner will be paying NIT. and other energy operations pursuant to “?” or consortium agreement under a service contract with the government. 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. 2. namely Corporation X. in the Taxable on all income derived from sources within or without the Philippines.. and X+Y. if the income is derived from other sources and such income is subject to FINAL INCOME TAX.*('&$.!"#"$%&'()"*(+. the joint venture has a separate and distinct personality from the two corporations. “…persons engaging in business as partners in a GPP shall be liable for income tax only in their separate and individual capacities. it is considered a taxable dividend which is subject to FIT. Resident Foreign Corporation Foreign corporations engaged in trade or business in the Philippines. subject to CIT TAN v. Taxable for income derived within the Philippines.Atty.( . it is a corporation.

-%. Net Income Tax (NIT). or creator. Judicial Settlement 1) During the pendency of the settlement. through the trustee or fiduciary but only if the trust is irrevocable. Optional Corporate Income Tax of 15% on the Gross Income 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. payable in their separate and individual capacity (Pascual vs. If there is. the following possibilities may arise: a) If the heirs contribute to the estate money. 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. Sababan 5) Optional Corporate Income Tax of 15% of the Gross Income A NRFC is liable for payment of the ff: 1) GIT. or of the decedent. depending on whether there is or there is no settlement of the estate. The status of the estate is determined by the status of the decedent at the time of his death. Trust Trusts can be created by will. KINDS OF INCOME TAX Q: How many kinds of income tax? A: There are Six (6). When a person who owns property dies. the estate through the executor. Q: Where the trust earns income and such income is not passive. 60 (3)). The status of a trust depends upon the status of the grantor or trustor or creator of the trust. COMM (165 scra 560) and Obillos vs.( . 2. so an estate. as an income taxpayer can be a citizen or an alien. 4. simply divide the fruits thereof between and among themselves. by contract or by agreement.Atty. the heirs still do not divide the property. depending on whether the settlement is judicial or extrajudicial. or for the benefit of the grantor. property or industry to improve the estate. when the decision of the court shall have become final and executory. 3.!"#"$%&'()"*(+. The income tax liability depends on whether or not the unregistered partnership or co-ownership is created. COMM (139 SCRA 436)) Extrajudicial Settlement and if NO Settlement Some possibilities may arise.*('&$. 2) If upon the termination of the judicial settlement. Collector (102 Phil 140)) b) If the heirs without contributing money. Income Tax on Improperly Accumulated Earnings subject to 10% of the Taxable Income. property or industry with the intention to divide the profits between and among themselves. 6. a trust can also be a citizen or an alien..Gross Income Tax 2) FIT – Final Income Tax III. Individual or Corporate Income Tax. If it is revocable. Gross Income Tax (GIT). Final Income Tax (FIT). who among the parties mentioned is liable for payment of income tax thereon? A: The TRUST itself. Hence. administrator. namely: 1. TRUST AND ESTATE (Evangelista vs. an UNREGISTERED PARTNERSHIP is created and the estate becomes liable for payment of CIT 15 . the liability for the payment of income tax devolves upon the trustor himself in his capacity as individual taxpayer. grantor. 3) If no partition is made. Francis J. Minimum Corporate Income Tax of 2% of the Gross Income (MCIT) 5. a COOWNERSHIP is created and Individual Income Tax (IIC) is imposed on the income derived by each of the heirs. or heirs is liable for the payment of ESTATE INCOME TAX (Sex. 2) Estate Income Tax – if the property is transferred to the heirs.

NET INCOME TAX Q: What if the law is silent? A: If the law is silent. AEMOP.-%. there is a possibility that they may earn income in the Philippines. it is not subject to withholding tax. With certain modifications.*('&$. While not engaged in trade or business. 2. GROSS INCOME TAX (GIT) Q: what is the formula? A: Gross Income – Deductions and Personal Exemptions = Taxable Income Taxable Income x Tax Rate = Net Income Taxable Net Income – Tax Credit = Taxable Net Income Due Net Income means Gross Income less deductions and Formula: GI . taxable income b. Q: Is the taxable net income subject to withholding tax? A: It is subject to withholding tax if the law says so. are liable to pay by way of the gross for any income derived in the Philippines. Revenue Regulations and Statutes: a. Q: If you fail to pay. Francis J.deductions Net Income x Tax Rate Income Tax Due Q: What is the rate? A: Individual: 32% Corporation: 35% NOTE: the formula allows for deduction.. Characteristics: " NRANETB and NRFC. you will be held liable.NRANETB corporation . Q: What is another term for withholding tax? A: It is also known as the creditable withholding tax system under the income tax law.!"#"$%&'()"*(+. Q: What are the other terms for NIT? A: NIRC: a. CFA: “to be included in the gross income” 2. b. Characteristics: Q: Who are not liable to pay NIT? A: 1. NRFC (GIT also). 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% 16 . though not engaged in trade or business. ordinary way of paying income tax. etc. 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 . This rule is ABSOLUTE NOTE: there are two (2) ways of paying taxes depending on which side of the bench you are. III. 3. 1. Sababan I. if they derive income from other sources. normal way of paying income tax . it is subject to withholding tax because the persons liable are foreigners. gross income (wlang kasunod) ! only income tax from improperly accumulated earnings does not use this term. will you be held liable? A: Yes.NRFC NOTE: the formula does not allow any deduction.Atty. personal exemptions and tax credit.( . NRANETB (liable for GIT). Q: Do we have to determine if there is an actual gain or loss? A: Yes because the formula for deductions. Q: Is this subject to withholding tax? A: Yes. personal exemptions and tax credit. II.

-%. GIT and FIT do not allow deductions. No liability for final withholding tax except for the sale of shares of stock.!"#"$%&'()"*(+. you cannot join all the income in one group because each income has a particular rate. no need to pay NIT or else there will be double taxation. contract. 2. Q: Do you still have to pay NIT? A: No. 2. Q: What is the rate? A: 35% as the case may be. Reason: to discourage corporations from claiming too many deductions. they are merely receiving royalties. in final income tax. as the case may be. Q: What kind of taxes are applicable or imposed upon the 1st five individual taxpayers? A: Only two (2) kinds are applicable out of the six (6) kinds of income taxes. Sababan or 35%. and why is it that the rate of GIT and FIT is always equal? A: 1. Characteristics: Q: Who are liable to pay FIT? A: All taxpayers are liable to pay FIT provided the requisites for its application are present. 1. 1. 2. NIT. as the case may be. absolute liability to pay is upon the withholding agent.*('&$. " before 1979 – proceeds from the sale of real property not exempt. (so. Q: May it be applied simultaneous with NIT? A: No. in the case of celebrities. for NIT. there is no employer – employee relationship. NOTE: as time passed by. whether royalty or compensation) RULE: Q: Under what section is this found? A: Section 27A 4th paragraph and Section 28 A(1) 4th paragraph. " However. control. FIT. Proceeds from the sale of real property is exempt. will you be liable? A: No. thus the agent is liable to pay. OPTIONAL CORPORATE INCOME TAX " For one to be liable for the payment of NIT. compensation. Gain is presumed. personal exemptions. Royalties are subject to final withholding tax. if you are liable for FIT. (?) IV. the taxpayer is always liable if he fails to pay. the income must be derived on the basis of an employer – employee relationship. 2. Q: Is this applicable now? A: No. the number of FIT increased. 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. 17 . " Case of Juday. and tax credit. The MCIT is paid in lieu of the NIT. whether or not subject to Creditable Withholding Tax (CWT). Q: Why is it that the rate of withholding is always lower. 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. the formula does not allow deductions. there must be a computation of the NIT first then apply which ever is higher. Q: To what kind of taxpayer does this apply? A: To DC and RFC. it is subject to NIT or GIT. Richard and Regine V. for GIT and FIT. NOTE: like GIT.( .. Employer – Employee Relationship (3 Cs): 1. 3. the withholding agent is liable to pay FIT. distinguish nature of income. this is not yet implemented.Atty. Q: If you fail to pay. NIT allows deductions. Francis J. after 1979 – capital gains tax.

interest derived from sources within the Philippines. Q: Under Section 23. who are liable for income within and income without? A: Only 1. " For example the borrower is a NRAETB. FIT 2. do not qualify your answer. FIT 3. CIR F: The National Development Company (NDC) entered into a contract with several Japanese shipbuilding companies for the construction of 12 ocean-going vessels. Income from other sources: 1. NIT 2. Q: What kind of tax will apply to NRFC? A: Out of the six (6) kinds. Improperly Accumulated Earnings Q: May all of these be applied simultaneously? A: No. only two (2) will apply: 1. Sababan Q: What kind of income tax will apply to AEMOP? A: Generally. 18 . GIT b. " Income from sources without. whichever is higher between the two. to determine the kind of income tax applicable to them. The payments were initially in cash and irrevocable letters of credit.) – contract of loan with respect to the interest earned thereon.) 2. the rest of the taxpayers are otherwise exempt. interest on bonds. GIT 2. namely: 1.!"#"$%&'()"*(+. 2. only the NIT. FIT and Improperly Accumulated Earnings be applied simultaneously. a. FIT Q: What is the significance of knowing the classification of these taxpayers? A: 1. 2. FIT Q: What kind of income tax applies to DC? A: Only four (4) kinds will apply out of the six (6) 1. NRANETB a. therefore exempt from paying the tax. particularly the RC and DC because these two are liable for both income within and without. to determine their tax liability. only one kind. The contract was made and executed in Tokyo. RC 2. notes or other interest bearing obligations of residents. no liability. NATIONAL DEVELOPMENT CO. NIT b. he borrowed money from a RA. DC " The rest of the taxpayers will be liable for income coming from sources within. NOTE: The income taxpayer is not a RC or a DC. SECTION 42 IS NOT MATERIAL TO ALL taxpayers. Answers must be responsive to the question. Francis J. MCIT 4. The interest earned by the loan will be considered as an income without. Q: Is section 42 relevant to all the taxpayers? A: NO. 15% FIT with respect to income derived from their employer. location if the bank is from within the Philippines (pursuant to a Revenue Reg. residence of the obligor (whether an individual or a corp. NIT and MCIT cannot be applied simultaneously.. RA is not liable to pay tax since RA is liable only for income within. v. Determine if the income came from sources within or without to know the taxpayer’s liability. corporate or otherwise. Q: What is the determining factor in order to know if the income is from within? A: 1. Determine the status of the AEMOP. therefore exempt. " If the facts are specific.Atty.-%.( . Only one will apply. Q: Section 42(A)(1) provides for how many kinds of interests? A: It establishes two (2) kinds of interests. " Section 42 is applicable only to taxpayers who are liable for income within.*('&$.

one from the Philippines. Sababan Subsequently.-%. Later on.. (mejo Malabo sa notes. please be guided accordingly) Q: Filipino Executive. When it comes to services. since no tax was withheld from the interest on the amount due. The NDC contended that the income was not derived from sources within the Philippines. at least 50% is income from sources within. under the law. Dividends received from RFC: the Indonesian firm’s liability will depend on amount of gross income from sources within the Philippines. His status is an OCW (note facts: working in HK under contract). NDC said that since the contract was entered into and was executed in Japan. but this time the shares of stock of the two corporations were being disposed off. thus it is an income derived from sources without. the BIR was collecting the amount from NDC. then it is not also subject to withholding tax. irrespective of the place of payment. If the NRFC is not subject to NIT. a DC and a RFC. is liable if the income is derived from sources within. 2. bonds or notes or the place of payment is the determining factor of the source of the income. In the case at bar. The residence of the obligor who pays the interest rather than the physical location of the securities. the services were rendered abroad. (Sec 42a) 2. it is the place where the same is rendered which is controlling. it is an income without. sale of shares of stock of RFC: the liability will depend on where the shares of stock were sold. 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. As such. The performance of the job was in HK. The NRFC will be liable to pay income tax if the following requisites are present: 1. The compensation he received is not subject to tax pursuant to Section 42(c). Q: Suppose a DC hired a NRFC to advertise its products abroad. Q: What is the controlling factor? 19 . and both corporations declared dividends. the NRFC is not liable and therefore exempt from the payment of tax. or place where the contract is signed. 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. becomes a stockholder of two corporations. and thus they are not liable to withhold anything. an Indonesian firm. NRFC. the income will be considered from sources without. What is the tax liability of the Indonesian firm? A: 1. four promissory notes were signed by NDC guaranteed by the Government.Atty. Compensation for labor or personal services performed in the Philippines is considered an income within.( . the 1st requisite is for the three (3) preceding taxable years from the time of declaration of the dividends. 2. Q: Suppose a NRFC. the interest paid by him can have no other source than within the Philippines. he is not liable for the two incomes. thus exempting the Indonesian firm from payment of income tax. what is the liability of the Indonesian firm if the same received the dividends? A: 1. Dividends received from DC: the Indonesian firm is liable to pay taxes. assigned to Hong Kong. the other from HK. 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. Accordingly. Is he liable for both salaries? A: No. " In the absence of any or both requisites. Q: Same scenario. Nothing in the law (Section 42(1)) speaks of the act or activity of nonresident corporations in the Philippines. receiving two salaries.!"#"$%&'()"*(+. if the obligor is a resident of the Philippines.*('&$. Francis J.

10% is the ratable share in the deduction. determine it pro rata. industrial.000 not all of it will be allowed. supply of technical assistance f.000. or viceversa. The following are ordinary assets: 1. 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. IAC Q: What is the issue here? A: They cannot determine if the business expense was incurred in the Philippines. 3. profits. 1. it the property is manufactured in the Philippines and sold abroad. 20 . patents. 2. how much is the withholding? A: 10% (NIT) and in some cases 15% Section 42(4) MEMORIZE FOR RECIT (CEKSTTM) a.Atty. if the property is purchased. All other property not mentioned in the foregoing are considered capital assets..000 will be allowed as deduction. right of. etc b. will you disallow the deduction? A: No. how much is the withholding? A: 35% (GIT) Q: if the franchise is granted by RFC. Q: What is the rule as regards the sale of real property? A: Gains. 2. RENTALS AND ROYALTIES "income from sources within Q: Granted by who? A: NRFC Q: Suppose you are the franchise holder. 4. property held by the taxpayer primarily for sale to customers in the ordinary course of trade or business. and income from the sale of real property located within the Philippines considered income within. it is an income within wherever it is sold. etc. supply of services by nonresident e. Formula: GI from within GI from without Example: 100. If the deduction being asked is 100. COMMISSIONER v. Capital losses are losses incurred from transactions involving capital assets. stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year. 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.000 1. scientific equipment c. commercial.( . Q: What about the sale of personal property. supply of knowledge d. it is an income partly within and partly without. or the right to use copyright.000 or 10% of 100. what is the rule? A: Determine first if the property is produced or merely purchased.!"#"$%&'()"*(+. Sababan A: The controlling factor is the place where the services were performed and not where the compensation therefore was received. considered derived entirely from the sources within the country where it is sold.000 = 10% " Hence. Capital losses are losses incurred in transactions involving ordinary assets.*('&$. right to use: motion picture films. supply of technical advice g. Q: if you are the BIR. and the taxpayer is not sure. Only 10. Q: What is ordinary gain? Ordinary loss? A: Ordinary gains are those received from transactions involving ordinary assets. EXCEPTION: shares of stock of domestic corporation. property used in trade or business of a character which is subject to the allowance for depreciation provided in subsection 1. real property used in trade or business of the taxpayer.-%. Francis J.

*('&$. (long term) NOTE: the holding period applies to both gains and losses. It is the length of time or the duration of the period by which the taxpayer held the asset. Except: a. losses from sales or exchange of capital assets may be deducted only from capital gains.. Net Capital Carry-Over (39D) I. paid in the immediately succeeding year.. capital loss should not exceed net income in the year that it was incurred. gains in sales of shares of stock not traded in stock exchange(section 24). and D apply to capital assets only. Section 39B states “in case of a taxpayer. Q: Do you include capital gains in your ITR? A: General rule: yes. 1.-%. Sababan Q: What is the relevance of making a distinction? A: It is relevant because Section 39B. capital gains from sale of real property(section 24). limitations on capital losses (39C). property is capital in nature. the taxpayer must be an individual. if the loss is more than GI III. the gross income less deductions hence it already carries with it the deduction TAKE NOTE: Normally if the loss is an ordinary loss there is no carry over. EXCEPT: 1.Atty.!"#"$%&'()"*(+. 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. (short term) 50% if the capital asset has been held for more than 12 months. include in ITR. but losses from the sale or exchange of ordinary assets may be deducted from capital or ordinary gains. time when property was held (39B) (holding period applies only to individuals). capital losses are losses not connected to the trade or business. CAPITAL ASSETS Q: What is the loss limitation rule? A: Pursuant to Section 39 C. other than a corporation. Q: What is the term? A: 100% if the capital asset has been held for not more than 12 months. 34D3 b. LIMITATION ON CAPITAL LOSSES "synonymous to 34D & loss capital rule " this applies to individual and corporate taxpayer 21 . the capital loss can be carried over in the immediate succeeding year. Francis J. 2. Q: What is the holding period? A: If capital asset is sold or exchanged by an individual taxpayer. 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. taxpayer is an individual.” 2. what is the rationale behind this rule? A: If it is otherwise. In net operating loss carry-over rule. it will run counter with the rule that the loss should always be connected with the trade or business. only a certain percentage of the gain is subject to income tax. 2. applies only to short term capital gain. 4. 3. capital loss can be carried over to the next three (3) succeeding calendar year following the year when the loss was incurred. 3. taxpayer is a corporation 3. NET CAPITAL LOSS CARRY-OVER Q: What are the requirements? A: 1. Q: When will the holding period not apply? A: 1. thus it is not deductible Q: what is your remedy? A: 39 D. Q: What is the requirement? A: 1. sale of real property considered as ordinary asset II.C. Losses in Allowable Deduction. (applies to individual and corporation) Q: In connection with 34 D. 2. property is an ordinary asset 2.( .

those property for sale by the realtors 2.Atty. Sababan NOTE: only 15% of the loss will be carried over. provided that the property is an asset other the real property. less the deductions and/or personal and additional exemptions. In order to liquidate the inheritance. If it is an ordinary asset.( . NRC 3. OCW 4. Q: What is the rationale? A: Section 24 D – final income tax of 6% if the real estate is capital asset. the period is up to 5 years. NRAETB 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. it will be subject to income tax of 32% for individual taxpayer.*('&$. the taxpayer decided to develop the land to facilitate the sale of the lots. Q: Who are the taxpayers mentioned in section 24? A: 1.. if the loss is greater than the gains. SECTION 24 TAX ON INDIVIDUALS Q: What is the tax mentioned in section 24? A: NIT Q: What is taxable income? A: (memorize section 31) it is the pertinent items of gross income specified in the NIRC. authorized for such types of income by the NIRC or other laws. CIR F: The taxpayer inherited the property fro her father and at the tie of the inheritance it was considered a capital asset.B.GPP is not subject to income tax. EX: shares CALAZANS v. Q: What are the properties involve in the RR 7-2003? A: 1. if any. and it has been idle for two (2) years. and 35% if the taxpayer is a corporation. Q: What is the conversion prohibited in the Revenue Regulation? A: Conversion of real estate property. and C 2. It refers to NIT because it allows deductions. " In net operating loss carry-over there is an exception to the 3 year carry-over period. Q: What about Domestic Corporations? A: 1. In case of mines other than oil and gas wells. 26. C. Q: Are you allowed to convert ordinary asset to capital asset? A: General rule: it is not allowed. 27 A. RA " Additionally. the taxpayer has to pay FIT.-%. Q: What do you mean by the phrase “other than B. Q: What about Resident Foreign Corporations? A: Sec 28(l) it is subject to 35% Net Income Tax Q: What about Non Resident foreign Corporation and Non Resident Alien not engaged in Trade or Business? A: Not Subject to Net Income Tax but they are liable for Gross Income tax. I: Was the property converted to ordinary asset? H: The conversion from capital asset to ordinary asset is allowed because Section 39 is silent.!"#"$%&'()"*(+. RC 2. Read Revenue Regulation 7-2003 The case at bar still applies despite of the issuance of said Revenue Regulation. and D”? A: It means that if the elements of passive income are present. Sec. 22 . Francis J. Q: What is a short sale? A: Sale of property by which the taxpayer cannot come into the possession of the property. Sec. under Section 25. 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.

DC. Impose NIT if it is higher than the MCIT.joint Passive Income Interest. No FIT abroad because we do not have withholding agent abroad. Not Pure compensation income. DC 8. Francis J. AEMPOP (NRANETB. Q: MCIT applies to DC and RFC in relation to bank interest? A: If the bank interest is derived abroad.000 23 . RFC is exempt but DC is liable. NRAETB 6.NIT 27 D is silent 4. NRAETB 5. 25 (25%) 6. RC } 2.separate 2. NOTE: Liability for NIT. Royalties. Less than 3 yrs. NRANETB Sec. For DC and RC it must be derived from income abroad RFC it must be derived from income w/in 3. prizes and Other winnings Interest Q: Bank Interest. RA 5.. 3 yrs to less than 4 yrs. Q: Who are liable for bank interest? A: 1. Q: Do you include this in your ITR? A: No! because it is subject already to FIT.( . 2.*('&$. RA } 4.12% c. Prizes must be derived from sources w/in the Phils. and MCIT will depend on the elements present.exempt Q: What is the rule on pre.!"#"$%&'()"*(+. otherwise apply MCIT if it’s higher than the NIT Prizes Requirements: 1.20% Q: Does it apply to all individuals? A: No! It does not apply to 10 NRFC and NRA and NRAETB because they are liable to GIT. RC 2.Atty.000 Q: Who are liable? (FIT) A: 1. 24 B1 3.W/out.GIT) 3. NRC 3. The bank is the one liable for the payment of this. NOTE: if the depositary is a Non resident it is exempt " Resident citizen is liable to pay tax for bank interest earned abroad (NIT) Q: If the money earns interest in abroad who is liable? A: RC and DC only by NIT. NRAETB) Not Liable 1. because the income must be derived from sources w/in. what is the requirement? A: The bank must be located in the Phils. RFC 9. RFC NIT law is silent 28A7a 5. NRFC Q: What is the rate of interest? A: FIT of 20% Q: Is there a lower rate? A: 7 ! % if under EFCDS Q: What if the depositor is non resident alien? A: -W/in – FIT . OCW 4. AEMOP (RC. RFC and DC 2. Sababan Q: Do legally married husband and wife need to file separately or jointly? A: It depends if: 1.termination? A: If it is pre terminated before 5th year a FIT shall be imposed on the entire income and shall be deducted and withheld by the depositary bank from the proceeds of the long term deposit based on the remaining maturity thereof a. NRANETB.liable for GIT at 25 % 2. 4 yrs to less than 5 yrs – 5% b. amount is more than P10. Pure compensation income. NRFC subject to GIT Q: When can we apply NIT in Prizes? A: 1.-%. it must be more than P 10. GIT. AEMOP 7. When the taxpayer is RC. the rest are exempt. NRC} Sec.

OCW 4. NOTE: If income abroad. Winnings Q: Do we apply the P10. NRANETB 2. we do not apply it only applies to prizes.law is silent NIT 4 RFC.GIT) 3 DC. 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%. NRAETB 6. NRAETB 6.GIT Q: When does NIT apply to winnings? A: 1. AEMOP (RA. AEMOP 3. Q. literary works and musical compositions.*('&$. NRC 3.-%. 73) COMM.Atty. RA 5. Q: Who are liable? (FIT) A: 1. Is it possible for RC and DC to pay MCIT? A: Yes if MCIT is higher than NIT.GIT 2 AEMOP (NRANETB. NRAETB) Not Liable? 1. If Taxpayer is DC or RC 2. the only requirement is it must be derived from income w/in. While FIT if for April Boy. If derived from sources abroad.. " Thus. with cash and/or property Q: What are dividends? A: Any distribution made by Corporation to its stockholders outside of its earnings or profits and payable to its stockholders whether in money or in property (Sec. 24 refers to cash or property dividend H: For stock Dividends to be exempt it must come from the profit of the corporation. RA 5. RFC 5. DC 4. AEMOP (RC. 000 req. RC 2.( . MANNING Q: Where did it come from? A: shares come from another shareholder Q: What are the dividends included? A: Sec. Income is from w/out 3. Income is derived abroad 3.law is silent 5 NRFC. It must not pertain to illegal gambling. OCW 4. Q: Who are liable (FIT)? A: 1. Francis J.? A: No. Lower rate? 10% on books. TP is RF and income is w/in " If income is from sources abroad all are exempt except RC and DC Dividends " Confined dividends.000 it is not subject to tax. NRAETB) Not liable to FIT? 1 NRANETB. Q: You are a writer for Snoop Dogg are you liable for FIT? What if for April Boy? A: Liable for NIT if Income abroad like a writer for Snoop. Stock Dividends " it is the transfer of the surplus profit from the authorized capital stocks.!"#"$%&'()"*(+. NRFC NOTE: Lower rate of 10% applies to all except NRANETB Q: When do we apply NIT to Royalties? A: 1. TP is RC or DC 2. most of them are exempt except for RC and DC who are liable w/in and w/out. RC 2. Q: Assuming that there are 5 Incorporators. the Corporation has a P5 M Authorized 24 . vs. Taxpayer is RFC and income w/in. Sababan NOTE: If the prize is derived from sources w/in but it is below P 10. NRC 3.

the dividends must be distributed by a DC. Subj to FIT Determine whether there is a loss or a gain because the tax is impose upon the net capital gains realized from the sale. Q: Shares of Foreign Corp sold in Phils. DC 4. Shares of stock of a DC 2. Francis J. NRANETB 2. is it taxable? A: NO. The holding period does not apply because the basis will be those provided in 24 C & D and not under 39B (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. must not be traded in the stock market " 25 R last part: Capital Gains realized by NRANETB in the Phils. if the shares of stocks are cancelled and redeemed meaning it was reacquired by the corp. RFC 5. ANSCOR CASE !the stockholders payment of taxes cannot escape the 1. When it comes to capital gains from sale of shares of stock not traded and capital gains from the sale of real prop. " What rate: 10% FIT Q: Who are liable? A: 1.. 3. or exchange or other disposition of the shares of stock in a domestic corp. Except. 42 (E) If Requirement: Gen Rule. What do you mean by the phrase “ the provisions of 39 notwithstanding”? " It refers to the holding period. Q: Is there an exception when stock dividends are not taxable? A: YES. DC stockholder of RF= Liable for NIT. to the income tax prescribed under Sub sec (c) and (d) of Sec. 4. income w/in read Sec. RFC stockholder of DC= Exempt also 3. Shares of stock in a Dc is always considered an income w/in regardless where it was sold. DC a Stockholder of DC= Exempt 2. NRAETB) Not liable? 1. NRC 3. the dividends did not go to the Stock holder but to the Auth Capital Stock. RC 2. Only cash and Prop Stock go to the Stock holder. Who’s liable? What tax? 25 . Capital Gains From Sale of Shares of Stock Not Traded (§24C) " If the shares sold are that of a foreign corp it is subj to the ff rules: a. 24 B 1&2: If the elements are present NRANETB and NRFC are liable to pay GIT. AEMOP 3. " SEC. NRAETB 6. It must be capital asset 3. It is uniformly imposed on all taxpayer not subj to w/holding tax.-%.!"#"$%&'()"*(+. OCW 4. Except: under 24 C for NRANETB. Sababan Capital stock.Atty. from the sale of shares of stock in any DC and real prop shall be subj. 2. It distributed 1 M stock dividends.*('&$. " Sec 24 B does not mention stock dividends because it is not subject to FIT but it is subject to NIT under Section 73. sold in the Phils= its income w/in b.always a foreign corp.Regular operating. sold in abroad= w/out c. barter. RA 5.( . Requirements: 1. AEMOP (RC. 24. NRFC " Shares of association and partnership is taxable Q: Determine the tax liability of the following? A: 1.

In this case the gain is always presumed. Most of the taxpayer will pay NIT except NRFC and NRANETB 2. Sale of shares of stock of a Foreign corp in the Phil. ELEMENT # 3 It must be a capital asset. If there’s a gain choose to be taxed at 6% FIT. The seller must be an individual. NRC. pay FIT are all ELEMENT # 3 The real prop must be a capital asset Q: When considered a capital asset? A: Read R. " NRFC liable to pay GIT and not FIT " NRANETB liable to elements are present.( . Ordinary assets of foreign corporations a.2003 Q: Ordinary asset.-%. Q: When is it considered an ordinary asset? A: 1. 39 A: Other property not mentioned are capital asset.income w/in a.shall refer to all real property specifically excluded from the definition of capital asset under Sec. used it in trade or business b. Shares not being that of a DC. It must be a capital asset 3.!"#"$%&'()"*(+. sale of shares of stock of DC which are ordinary asset " DC and RFC are subj to MCIT which may be imposed if the NIT is lower than the MCIT2% MCIT will be imposed if MCIT is higher than NIT. the taxpayer has the option of paying 32% NIT or 6% FIT Q: Which is more advantageous? A: It depends determine first if there’s a loss or a gain. Income within if sold in the Phils: most will pay except NRANETB and NRFC b.6% FIT Requirements: 1. Thus.it is not subj to FIT " if sold in the stock market. 2. it will be subj to percentage tax. When the broker or dealer a. 2. it will be considered a capital asset NOTE: if all elements are present it will be subj to FIT If the shares are ordinary asset 1. estate or trust or a DC " RFC not liable for FIT but liable to pay NIT if all the elements are present. held for sale in the ordinary course of trade or business 2..*('&$. NRAETB) will pay NIT. The real prop must be sold w/in the Phils and located in the Phils. 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. 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. AEMOP (RA. Hence: a) RC. in lieu of NIT. Ordinary shares in DC. disposition made to the Govt. Francis J. to all other assets. 26 . NRAETB. 7.R. Sababan A: Not subj to FIT because one of the elements is not present .Atty. 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. 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. 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. OCW.

must be informed w/in 30 days from the date of sale with the intention to avail of the exemption 4. the portions of the gain is subj to FIT SEC. Capt where the taxpayer resides that indeed the prop sold is the principal residence of the tax payer (RR 13. FIT. but the optional is not yet applicable so only 4. 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. sale 2. Comm. barter 3. what will happen to the unused portion or profit? A: If the proceeds are not fully utilized. 27A RATES OF INCOME TAX Q: How many income taxes are paid by a DC? A: 1. 27 (B) PROPRIETARY EDUCATIONAL INST. Who are the taxpayers? 1. MCIT.99) Q: What if the property is worth 10 M and it was sold only for 2M. Exceptions (§24(D2)) Q: What if the prop being sold was a movie house. Other transactions are covered: 1. From the sale 3. Optional corporate income tax of 15% of the gross " DC liable for five. NIT 2. Q: How many can be simultaneously? A: ONLY 3 1. the adjusted basis or historical cost of the residence sold shall be carried over to the new residence. trade or activity must not exceed50% of its total gross income derived by such educational inst or hospital from all sources 5.Atty. & HOSP. trade or activity must not exceed 50% of its total gross income derived by such educational inst or hospital from all sources Requirements: 1. it is stock corp 3. Certification of the brgy. 24 Requirements: 1. 10%Improperly Accumulated Earnings 5. exchange 4. Sababan If there’s a loss choose to be taxed at 32% because losses may be considered an allowable deduction . NIT. subject to 10% on their taxable income except those covered by subsection (D) PROVIDED that gross income from unrelated business.-%.*('&$. the privilege must be availed of w/in 18 mos. is it exempt? A: No. TESDA. other disposition NOTE: If the prop is under mortgage contract and the mortgagee is a bank or financial inst. or CHED Q: What do you mean by unrelated trade business or activity? 27 . that gross income from unrelated business. It is a private school or hospital 2. If redeemed w/in 1 yr period FIT will not apply because there’s no change of ownership.( . If the mortgagee is an individual the FIT is imposed whether or not there is a transfer of ownership. 5. has permit to operate from DECS. MCIT 3. Non Profit Proprietary Hospital Q: What if the school or hospital is non profit only.Profit Proprietary Educl. it is non profit 4.. Inst and 2. can he claim for the exception? A: the prop covered by the exemption is a residential lot Q: Who can claim the exemption? A: Only the taxpayer mentioned in Sec. Non. 10% IAE applied SEC. FIT 4. the privilege must be availed only once every 10 yrs 6.!"#"$%&'()"*(+. FIT and 10% IAE 2. Francis J. The purpose of the seller is to acquire new residential real prop 2.

SSS 3. If the taxing authority is the National Govt. 28 of the Constitution: charitable institution churches. and educational purposes shall be exempt from taxation. those entities enumerated under §27 C 2.stock and non. Under Sec 32. PHIC 4. 4 of the Consti obsolete? A: NO. as a rule NO. as a rule. if the law is silent apply the Consti. directly. paying no dividends 4. charitable. It must be non. not more than 30% of the prop donated shall be used by such donee for admin purposes. EXCEPTIONS: 1.Atty. 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. 3. 14 of the Constitution. 4 of Art. non-profit educational inst. 2. Sababan A: It means any trade. …. Sec.*('&$. YES. PCSO " PAGCOR no longer included. 6 Sec. It may be exempted from local taxation. Francis J.. Are therefore exempt from income tax. AGENCIES. GEN RULE: Subj to tax. actually directly and exclusively used for religious. 27 it may still be exempt under Sec. ! exempt from all taxes and custom duties Q: What about exemption from real property tax? A: Art. Q: If the GOCC is not one of those enumerated does it follow all of its income is automatically subject to tax? A: NO. B (7) income derived from any public utility or from the exercise of essential government function accruing to the Govt of the Phils or to any political subd.-%. non-profit educational inst. 2.profit 2.( . INST of the GOVT. it must be non-stock. 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. FOR EXEMPTION TO DONORS TAX: 1. 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. Business. 23: GOCC. GSIS 2. Q: You donated a property to a school will you be liable for donor’s tax? A: not liable if it falls under Sec. 27 C and 32 b7b? A: 1. the assets property and revenues must be used actually. National Govt. Therefore. 101 (3) of the NIRC REQ.and all lands buildings. Q: Is Art 14 Sec. LGU’s are expressly prohibited from levying tax against: (Sec 133(o) 1. 109 (m) of R-VAT Q: What about exemption fro Loc Gov Code? A: If its non-stock. Exceptions 1. 14 of the Constitution. SEC.4 Art. Sec 27 C exempts those enumerated without any qualification. 32b7b qualification must concur before it may be exempted. Q: Can the government impose tax on itself? A: It depends on who the taxing authority is. 32 b7b if its performing governmental function NOTE: Pagcor vs. Basco case Q: What is the difference between Sec. Its agencies and instrumentalities 28 . those GOCC falling under §32b7b If the taxing authority is the local government units. ! Not Sec. 2. The provision of the NIRC is the specific law which prevails over the Constitution which is the general law. 30 of NIRC and not under Sec.!"#"$%&'()"*(+. governed by trustees who don’t receive any compensation 5. even if the GOCC is one of those enumerated under Sec.

Sababan 3. Royalties derived from sources within Q: When it comes to bank interest. Non. branches of foreign banks 3. Off shore banking units 2. local commercial bank 4. If it involves foreign currency transaction it is not exempt but subject to 35 % NIT Q: Who are the other parties? A: 1. 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. 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 Currency as well as acceptable foreign currency or both.!"#"$%&'()"*(+. what is the difference if the taxpayer is an individual or corporation? A: If individual. This is Gross ignorance of the law Sec. Q: What is the tax to be paid? 29 . they may be exempt from the payment of interest in case of long term deposit except NRANETB If DC.EFCDS Borrower.RC EXEMPT Offshore banking units Other depositary banks under EFCDS " exemption of NR from EFCDS: Q: Who is the income earner? A: Non Residents whether individual Corporations Q: Derived from whom? A: Depositary Bank under EFCDS NOTE: Sec. they are not exempt from long tem deposit. real estate tax. have a lower rate of 10%on books. PAL CASE July 20 2006 H: The SC used 133 (o)an exception to pay tax. The SC said that the airport is not an agency or GOCC but mere instrumentality of the Govt. Francis J.residents " if the above enumeration are the parties. 27 D(1) Q: How many possible incomes mentioned? A: Two (2): bank interest and royalties were A: Normally it is NIT because it is subj under Sec 27 D3 and 28 A Q: Who is the income earner? A: Depositary banks Q: Exempt from what kind of transaction? A: From foreign currency transaction. DC have no lower preferential rate.Cebu Airport case SEC. imposed by City of PAranaque on NAIA.Atty. Q: What about royalties? A: If individual.-%.*('&$. 24 B Nonresident exempt from bank interest under EFCDS Q: What is the difference between 24 b1 from 27 D3 A: In 24 B1.. then depositary bank will be exempt from paying the NIT Foreign Currency Loan Q: Who is the lender? Borrower? A: Lender. 133 (o) is for local taxation not real property taxation which is the one involved in the present case. NOTE: Mactan. Bank interest must be received by a Domestic Corp 2. local government units Exception: Sec 154 of LGC says that LGU’s may fix rate for the operation of public utilities owned and maintained by the within their jurisdiction. Other depositary banks under EFCDS 5. 27 exempt D(4)Inter-corporate dividendsor REQ: 1. other literary and musical compositions.( .

shall pay 2 ! % on its Gross Phil Billings (GPB) Q: Is 28 A3 the Gen.. The passenger boards a plane in a port or point in the Phils.*('&$. Q: Do you consider landing rights to determine liability? (RR 15-2002) A: 1. Continuous and uninterrupted flight. 2. Q: What is the tax? A: 6% FIT Q: What is the difference if the seller is an individual and a DC? A: Individual can sell all kinds of real property DC can only dispose land and/or buildings. SEC 27 (E) MCIT Q: Applicable to whom? A: DC and RFC Q: Can it be applied simultaneously with NIT? A: NO.-%. Air carrier 2. irrespective of the place of sale or issue and the place of payment of the tickets or passage document.( .ONLINE.NRFC Q: If there are stopovers.Atty. If originates from the Phils and has landing rights. Irrespective of the place of sale or issue and the place of the payment of tickets or passage document. " RFC will be liable for NIT. ships " An intl. exchanged or indorsed tickets REQ: 1. Q: What is the Rationale? A: to prevent corporations from claiming too many deductions Q: When will it be imposed? A: 1. applies only if all the requirements are present.!"#"$%&'()"*(+. 30 .RFC 2. cargo and mail originating from the Phils in a continuous and uninterrupted flight. carrier doing business in the Phils.INTL CARRIER Kind: 1. Sababan 27 D5 Capital Gains from sale of Real Prop. provided that the stopover does not exceed 48 hrs. No landing rights. REQ: 1. whichever is higher. 3. is it still uninterrupted? A: YES. 2. imposed in lieu of the NIT. 28 B2 MCIT on RFC ! same with Sec. 28 A3.OFFLINE. 27 Sec. Francis J. 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: 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. On the 4th year immediately ff the year in which such corp commenced its business. rule or the Exception? A: It is the general rule because it is under 28 A3 " GPB is in the nature of FIT. Revalidated. Originating from the Phils. " In order to avail: only in the year where the MCIT is greater than the NIT. Sec 28 A1 Q: What Kinds of taxes are paid by the RFC? A: NIT MCIT 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. excess baggage.

it is income within hence apply NIT if purchased outside.regardless of the place of sale or payments of passenger or freight documents Sec28 A(4) OFF SHORE BANKING UNITS OBU’s 1.? A: Determine if its income within or without.. Rents. Q: Is it liable for the whole flight? A: From the Phils to the point of transshipment. mail REQ: it must originate from 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. Difference with EFCDS: EFCDS 1. up to final destination . wages.Resident Citizen EXCEPT: 1. salaries. OBU 2. or indorsed to another airline. Lender: OBU’s NOTE: Non resident exempt transactions with OBU’s and EFCDS from SEC. Q: What if it’s the same airline but different plane? A: GPB does not apply. it must be to another airline Q: What if it did not originate from the Phils. Local Commercial Banks Transactions of Non Residents: 1. 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 transshipment shall from part of the GPB. Currency or both 2.-%. its income w/out. it is income w/in From transshipment to final destination. Dividends. Sababan 2. Phil. only acceptable foreign currencies 2. 28 A5 TAX ON BRANCH PROFITS. or casual gains. exchanged. Francis J. Can be a domestic or foreign corporation 3. Exempt if income is derived by the OBU from EFCDS 4. hence exempt Transshipment REQ: flight originates from the Phils transshipment of passenger takes place at any port outside the Phils. if ticket was purchased in the Phils. Income earner: Non.Atty. Royalties including remuneration for technical sevices.EXEMPT International Shipping " GPB means gross revenue whether from passenger.*('&$. The tickets must be revalidated. cargo. it is income without. income and capital gains received by a foreign corporation during each taxable year from all sources within shall not be treated as branch profits UNLESS 31 . always a foreign corporation (subj to NIT) except #3 3. Acceptable foreign currency.Residents 2. Exempt if income derived by DC or RFC from EFCDS 4. emoluments. premiums.!"#"$%&'()"*(+. Parties: a) local commercial banks b) Foreign bank branch c) Non Residents d) OBU in the Phils. profits.OBU Borrower. annuities. REMITTANCES " profits based on the total profits applied or earmarked fro remittance remitted by a branch to its head office " Subj to 15% tax Except: those activities which are registered with PEZA NOTE: Interests.( .

the HQ do not earn or derive income from the Phils.. 2. Marketing Control and sales promotion 6. 28A7b Income derived under EFCDS 1. " Regional Operating HQ is a branch established in the Phils by a multinational company engaged in any of the services: 1. Training and personal management 7. exempt if petitioner is RFC H: -not correct to pay 15% To be liable for BPRT 1. Subsidiaries NOTE: 1. Q: Is is subj to FIT? A: NO.-%. It is a RFC 2. thus the same was asking for a refund of tax erroneously paid. Branch Profit Remittance Two ways to receive income (FC) 1. Business Planning and Coordination 3. Branch 2. Branch did not participate in negotiations " Regional or area headquarters (Sec.Pacific Region and other foreign markets. Sababan the same are effectively connected with the conduct of its trade or business. data processing and communication and business development Rationale: Why liable? Because the claim for exemption of resident airlines shall be minimized SEC. logistic services 8. When a FC establishes branch. Gen. 22 DD) shall not be subject to tax exempt from income tax if the requisites are present.Atty. it is always a FC 2. 28 A6b " Regional Operating HQ are taxable and liable to pay 10% taxable income. Sourcing and procurement of Raw materials and components. it is a RFC Q. When a FC establishes DC. It is in addition to NIT. 28A7a Interests and Royalties: " 20%FIT " Interests under EFCDS= 7 ! % Sec. 4. research and development services and product development 9.Why? A: NIT because it is RFC Q. Income derived from foreign currency transactions with: a) Non Residents b) OBU c) Local commercial bank d) Foreign bank branches SEC. Administration and Planning 2. coordinating centre for their affiliates. 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. Francis J. technical support and maintenance 10. SEC. Acts only as supervisory. 2. Q: What are the requisites? A: 1. Corporate Finance and Advisory Services 5. subsidiary or branches in the Asia. One not registered with PEZA MARUBENI CASE F: A branch was established with AG&P.!"#"$%&'()"*(+.( . the profit remitted is effectively connected with the conduct of its trade or business in the Phils. communications. What kind of tax is imposed under 28 A5? A: 15% FIT Q: How do you apply the rate? A: multiplied to the total profit applied or earmarked for remittance w/o deductions It applies for branches that are: 1. 28 A6a 32 .*('&$.

B(4) Non Resident Owner or Lessor of Aircraft.Import Bank of Japan (Exim Bank) and from consortium of Japanese banks. Other fixed and determinable Gains. -Mitsubishi to comply with its obligation. stocks.) for the purposes of projected expansion of the productivity capacity of the former’s mines in Cebu. Other OBU in the Phils. " liable for 7 1/2 % GIT SEC 28 b5a Interest on Foreign Loans " Must be read with Sec. Other depository bank under the EFCDS » SEC. 32 B7a Interest on Foreign Loans. " liable for 4 ! GIT SEC. COMMISIONER OF INTERNAL REV. profits and income. The contract provides that Mitsibushi will extend a loan to Atlas in the amount 20 M dollar. applied for a loan from Export. Premiums( except reinsurance premiums) 7. not subj to tax SEC 28 B1 Q: What kind of tax? A: 35% GIT on the ff income 1. b) Financing inst owned controlled or enjoying. Interest 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. Interest 2. Approved by MARINA Citizens or " As a Gen Rule: the above transaction is Exempt EXCEPTION: Income from such transaction as may be specified by the secretary of Finance. Sababan e) Other depository EFCDS bank under the Elements: 1. and other domestic securities or from interest on deposits in banks by: a) Foreign govt. Salaries 6. Rents 4. lessor or distributor " liable for 25% GIT SEC 28 B3 Non Resident owner or lessor of Vessels chartered by Philippine Nationals. SEC 28 B2 Non Resident Cinematographic film owner. Subsequently Mitsubishi filed a claim for tax credit requesting that the same be used as payment for its existing liabilities despite having executed a waiver and disclaimer of its interest in favor of Atlas earlier on. if the lender is 1. Dividends 3. Exempt because it is an exclusion (Sec 32 b7a: income derived by a foreign gov’t from investments in the Phils on loans.!"#"$%&'()"*(+. MITSUBISHI METAL CORP. NRFC liable to 20% FIT 2. and c) Inter nation or Regional financial inst established by foreign govt.. emoluments 9.*('&$. Chartered to Filipino Corporations 2. Foreign Govt. and 2. so that Atlas will be able install a new concentrator for copper production.( . vs. Machiniries. bond. Pursuant to the contract Atlas paid interst to Mitsubishi where the corresponding 15% tax thereon was withheld and only remitted to the Govt.Atty. It is the contention of Mitsubishi that it was the mere agent of 33 . 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. 2. and other Equipments. Francis J. Royalties 5. refinancing from foreign govt.RFC= EXEMPT. upon recommendation by the Monetary Board to be subject to regular income tax payable by any banks. ( A Japanese Corp. (180 SCRA 214) F: Atlas Mining entered into a Loan and Sales Contract with Mitsubishi Metal Corp.-%. annuities 8.

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. denial anchored on 2 grounds: 1.-%. what is necessary is the law of the domicile of the country providing fro tax credit equal to 20% of the tax deemed paid. actual proof of payment not necessary.Atty. The bank has nothing to do with the sale of copper to Mitsubishi. in its independent capacity with Exim bank. Germany. Laws granting exemption from tax are construed strictly against the taxpayer and liberally in favor of the taxing authority. Is the payment of 10% FIT correct? . MARUBENI Case: 2 Issues 1. The status of Eximbank as a government controlled inst became the basis of the claim fro exemption by Mitsubishi for the payment of interest on loans. 28 DIVIDENDS: D5 b INTERCORPORATE 1. 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%. Francis J. the SC reversed itself " FIT 15% imposed on the amount of cash and or prop dividends received from a domestic corporation. Income tax is FIT: the withholding agent is the proper party because he is liable to pay said taxes 2. Phils liable for income within and income without 2nd : countries liable only for income within. 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. law provides but the law is silent.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. Sababan Exim Bank which is a financing inst owned and controlled by the Japanese Govt.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.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..( . it is strictly between Mitsubishi as creditor and Atlas as the seller of copper. 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.!"#"$%&'()"*(+. The contract between the parties does not contain any direct reference to Exim Bank. US. but SC said liable only to 25% because of the tax treaty 34 . law is silent because there is no law15% " You cannot refund right away ! 15% BPRT and 10% Inter-corporate Dividends tax has different basis In P&G who are involved DC (P&G Phil) and NRFC (P&G US) DC declares dividends to NRFC 35% was withheld and remitted to the BIR What did they discover? (after paying) . Atlas and Mitsubishi had reciprocal obligationsMitsubishi in order to fulfill its obligations had to obtain a loan.35% 2. SEC. I: WON Mitsubishi is a mere agent of Eximbank H: NO.*('&$. Foreign law do not provide for tax credit. WANDER CASE Q: Who are the parties? A: DC(Wander) and FC (Glaxo).

!"#"$%&'()"*(+. and other non. Sababan 4. law is silent because there’s no law because the subj matter is not taxable. they will be liable for the payment of Dividends tax. Now.In a way it is in the form of deterrent to the avoidance of tax upon shareholders who are supposed to pay dividends tax on the earnings distributed to them. 31 defines taxable income as the pertinent items of gross income specified in this Code. Publicly. allowance for the increase in the accumulation of earnings up to 100% NOTE: the corporations belonging in the 1st group are normally liable but they can show that the accumulation of earnings is justified for reasonable needs of business.up capital of the corporation. the 5. Taxable partnerships 5. authorized for such types of income by this Code or other special law Q: When not liable to pay IAET? A: There are 2 groups of DC exempt from payment of IAET (RR2-2001) A) Corporations failure to declare dividends because of reasonable needs of business " reasonable needs means are construed to mean immediate needs of the business including reasonable anticipated needs Q: What constitutes reasonable accumulation of the corporation’s earnings? Examples? A: 1. 29 IAET 3.held corporations? A: Those corporation at least 50% in value of the outstanding capital stock or at least 50% of the total combined voting power all classes of stock entitled to vote is owned directly. if the profits are undistributed the shareholders will not incur liability on taxes with respect to the undistributed profits of the Corp.bank financial intermediaries. .( .Dec 31.held corporations 4. or indirectly by or for not more than 20 individuals NOTE: Publicly held Corp. 35 ..2001( classified as closely held corporations) Q: Is it in the nature of sanction? A: Yes. 6. or equipment. has more than 20 shareholders Q: What is the time for paying this tax? A: Calendar Year: Jan 25. 2005.taxable joint. 2.*('&$. You have 1 year to declare after the close of the taxable year. they incur no liability and exempt from payments of the same. General Professional Partnerships 6. 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. Francis J. of the paid.Atty. Insurance companies 3. plants. " It is imposed upon the improperly accumulated taxable income of the corporation Q: Applies to what Corp? A: to DC only under RR 2. 2005. Non. Q: What is taxable income? A: SEC.15% SEC. In case of subsidiaries of foreign corporation.existing obligations Earnings required by law or other applicable statutes to be retained. it is imposed to compel corporation to declare dividends. acquisition approved by the Board Earnings reserved for compliance with any loan agreement or pre. Q: What is the rate? A: 10% of the gross income (taxable income) 4.-%. B) Corporations which are exempt whether or not it is for reasonable needs of the business: 1. Today is 2006. 2. less the deductions and/or personal and additional exemptions. Banks. if any. earnings reserved for the definite corporate expansion projects or programs approved by the Board Earnings reserved fro buildings. all undistributed earnings or profits intended or reserved for investments Q: Why? A: because if profits are distributed to the shareholders.ventures 7.

agricultural or horticultural organization not organized principally for profit. Section 22B provides that a joint venture is generally taxable unless it has a service contract with the government. Sec 30. 5. and cooperative bank without capital stock organized and operated for mutual purpose and without profit. b. What is the requirement? A: 1. shall be subject to tax. Mutual savings bank not having a capital stock represented by shares. YMCA Q: What is the basis of Manila BIR for the imposition of the tax? " Determine the Corporations’ exemptions under Sec.. 6. TAKE NOTE: Las Paragraph of Section 30. 35 August 21. Sec 22B GPP. Q: Enumerate the exempt corporations under Section 30. Q: If you’re not mentioned to be exempted. sickness. Francis J. CIR vs. any of their properties. Cemetery (a) company owned and (b) operated exclusively for the benefit of its members. or Board of trade. order or association.!"#"$%&'()"*(+. operating for the exclusive benefit of the members such as fraternal organization operating under lodge system. no part of its net income or asset shall belong ot or inure to the benefit of any member. 30 27 C and 22B. Artistic or Cultural purposes. EXEEMPTIONS CORPORATIONS FROM TAX ON 1. 1. (lodge system: operating world wide) or a mutual old association or a non-stock corporation: a. Scientific. Assignment: Sec. any activities conducted for profit or " regardless of the disposition of said income. Charitable. Business league. if you invoke adjustments SEC 30. Sec 27. 7. General Professional Partnership is exempt but the exemption is not the same as provided by Section 30. " exemption to the exemption: income of whatever kind and character of the foregoing organizations from: 36 . Non-stock corporation or association organized and operated exclusively for Religious. (a) not organized for profit and (b) no part of the net income of which inures to the benefit of any stock holder or individual. otherwise. 4. providing for the payment of life. Civil league or organization not organized for profit but operated exclusively for the promotion of social welfare. 2006 – Midterms August 14.*('&$. 2006 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. officer.-%. chamber of commerce. 2. You will pay on January 2007. In addition. 3. the corporations shall not be taxed under this title (tax on income) in respect to income receive by them as such. a beneficiary society. a generally taxable corporation cannot be joined with the group as generally not taxable corporation. 2. organized by employees. or any specific person. Thus exemption is unconditional 3. 2. except if it earns income from other business " Joint Venture w/ service contract w/ government not a corporation. The exemption under Section 30 is not absolute while the exemption under Section 27 C is absolute and without any conditions. will you still be liable? A: No. as a general rule is not a corporation 4. Labor. it is liable.Atty.( . accident or other exclusive benefits to its employees and their dependents. or for the Rehabilitation of Veterans (RCSACR). Sababan 2006 is the grace period. organizer. real personal. the corporations enumerated are always exempt.

NRANETB 2. 32 A? A: it applies to all except: 1. Gross Income derived from the conduct of trade or business or the exercise of a profession. Francis J. The tax code specifically mandates that the income of exempt organizations (under section 30) from any of their properties. Compensation for services in whatever form paid including but nor limited to fees. H: The SC revised the ruling. Farmer’s or other mutual typhoon or fire insurance company. Q: What are included in the Gross income? A: 1. 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. including the rent income of the YMCA from its real prop. 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 37 . Thus. included in the ITR. 10. salaries. Q: What is the income tax referred to here? A: NIT. included in the ITR. 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. real or personal. 11. mutual ditch or irrigation company. like when the RC is employed in Multinational. collected from members for the sole purpose of meeting its expenses. The section refers only to the payment of NIT. not subject to NIT? A: 1. Income that are considered an exclusion. if subject to NIT. or like organization of a purely local character. 2. TAKE NOTE: income of sales agent is exempt. TAKE NOTE: compensation is included in the ITR if the taxpayer is not liable for NIT.. and petroleum companies. Income that are exempt. Farmer’s. and 3. does it follow that it is automatically included in the GIT? A: No.Atty. YMCA Is exempt from the payment of property tax.( . Income that are subject to FIT. gov’t educational institution. and similar items. if the salary is subject to FIT. because YMCA was conducting an activity for profit. the income of which consists solely of assessment. Section 31: TAXABLE INCOME Q: Is there an instance where the salaries of a RC is not included in the ITR? A: Yes. gross income? Is it included in the ITR? Is it subject to NIT? A: Sec.!"#"$%&'()"*(+. [Sec. 32 A (1)] Q: What is compensation? A: all remuneration for services performed by an employee for his employer under an employer-employee relationship. 9. Q: If the is mentioned under Section 32 A.*('&$. YMCVA is liable to pay income tax applying the last paragraph of Section 30. they pay by way of GIT.-%. dues and fees. 32 A answers the questions. Section 32 A states “Except when otherwise provided in this title” Q: What are the income that are not included. NRFC » they do not pay NIT. offshore banking. Q: When do you not apply Sec. Sababan A: last paragraph of Section 30. a non-stock and non profit educational institution. commissions. less the necessary selling expenses on the basis of the quantity of produce finished by them. It speaks of the NIT. [Sec. 8. wages. shall be subject to tax. but not to income tax on rentals from its property. 32 A (2)] Q: What is the income tax here? A: NIT. 2.

those that are not considered as an exclusion. those that does not constitute passive income. included in the ITR. Royalties.: and 3. not included in the ITR. Q: What kind of annuities? A: annuities which are not exempt from tax are included in the computation of the gross income. Sale of shares of stock (personal prop. 5. subject to FIT. [Sec. [Sec. DC. because it is included or considered an income within. Sababan 3. Bank interest from sources. Thus. the law did not distinguished between real and personal property. is an ordinary asset or when it is capital asset if the taxpayer is RFC. 2. TAKE NOTE: 1. DC individual taxpayer = FIT 2. – subject to NIT. Prizes – derived from sources within and over 10. 9. do you include this in the ITR? A: it depends a.-%. 32 A (6)] Q: What is being referred to here? A: royalties which does not constitute passive income. 32 A (7)] Q: What kind of dividends? A: one that does not constitute a passive income. estate.!"#"$%&'()"*(+. 32 A (9)] Q: What kind of prizes and winnings? A: a. Thus. [Sec. trust. Annuities. Gains derived from property. not included. it is not included in the ITR.*('&$. Sale of real property 2. Q: Income form the sale of property. Q: Who are the taxpayers? A: Liable from income w/in and w/out and the rest are exempt. without or abroad. it is a capital asset. 8.( . and b. (included in the ITR) Q: Did the law distinguished? A: No. DC – DC & RFC = EXEMPT 3.. Thus. like when the real prop. the withholding agent will be responsible for this. 32 A (5)] " subject to NIT. 1. Dividends. [Sec. Withholding agent accomplish the forms ! subject to FIT if the following elements are present: 1. the buyer accomplishes the ITR. Exempt: a. if subject to FIT. TAKE NOTE: 1. DC 7. 32 A (3)] dealings in 6.) " if the elements are present. 32 A (8)] TAKE NOTE: R-R 17-2003 " Real property sale subject to FWT. is it included in the ITR? A: No. 4. Winnings – derived from sources within. interest. thus subject to FIT.000. RC 2. Thus not included in the ITR. sold by individual. [Sec. Prizes and Winnings [Sec. [Sec. DC – NRFC = FWT " only dividends issued by a FC to an individual taxpayer (RC OR RA) is included in the computation of the gross income. included in the ITR. Thus. Francis J. winnings: PCSO and Lotto winnings. ! Elements are not present. 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. Passive Income 1.Atty. Royalties derived from income without. 38 . included in the ITR.00 2. Q: Bank interest from Solid Bank. located in the Phil. Rents. b. exempt. if subject to NIT.

(4)educational. Ex. when less than 10. (3)scientific. 2.( . 1 M – 100 thousand = capital It is exempt (100K) 900K is taxable. say 10 years and thereafter the insured did not die.00. included in the gross estate regardless of whether or not the designation of the beneficiary is revocable or irrevocable.-%.*('&$.1 Revocable Designation ! subject to estate tax. exclusions. have the same characteristics ! all tax do not apply. when the income earner is a DC or RC. Proceeds of life insurance: decedent insured himself. 39 . when derived from income without. Q: What is being referred to? A: GPP exempt from payment of corporate income tax " shares of partners subject to NIT – Sec. merely Q: is this subject to Estate Tax under Sec. and 2. inclusion or exclusion will depend on who the beneficiary is. sanctioned by the national sports association. When derived from income without. 2. » subject to Estate tax. exempt. (5)artistic. (6)literary. 2. 1. 32 A (10)] Q: What kind of pension? A: Included in the gross income if not exempt » never subject to fit (?) 11. how much will be excluded? A: only the amount received by the insured as a return of the premiums. local or international sports competition or tournament. the requirement for exemption is not the same under Section 85 E.!"#"$%&'()"*(+. held in the Philippines or abroad. Sababan b. the beneficiary is the estate. the recipient is not required to render substantial future services as a condition to receiving the prize or award. THUS. b. a. Pensions [Sec. Exception: amounts held by the insurer under an agreement to pay interest thereon. Q: What do you mean by exclusions? Are these exempt from income tax? A: these are not included in the gross income. deductions. it does not matter. Q: When is a prize subject to NIT? A: 1. 85 E? do we have the same requirement? A: no. Q: Why is it excluded? A: because the amount received represents a return of capital. when the income earner is a DC or RC. 3. 26 SEC 32 INCOME B EXCLUSIONS FROM GROSS TAKE NOTE: Exemptions. Q: When is winning subject to NIT? A: 1. Life insurance [Sec. prizes: " those primarily for recognition of (1)religious. 2.Atty.. (2)charitable. the beneficiary is a third person other than the estate. 3. 10. (7)civic achievement are exempt PROVIDED: 1. Partner’s distributive share from the net income of the general professional partnership (GPP). " prizes and awards granted to athletes are also exempted provided: 1. included in the gross estate.000. 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. the recipient was selected without any action on his part to enter the contest or proceedings. b. the interest payment shall be included in the gross income. Amount received by insured as return of premium [Sec. and 3. Q: Does it matter who the beneficiary is or paid in a lump sun or single sum? A: No. Francis J. 32 B (2)] Q: if the insurance is payable within a certain time.

Q: Why do we need to distinguish retirement pay. modify and change the beneficiary. Reason: the insured loses the power to control. and c. GIFTS are excluded because they are subject to donor’s tax. TAKE NOTE: the retirement benefits under RA4917 and RA7641 are exempt from income tax provided the requirements are present. Q: is this the same as those provided under the workmen’s compensation act (wca)? A: YES. Sababan Reason: because of the insured’s power to modify or change the beneficiary. if the person dies this will be available. bequest. 2. not important to know whether property is real or personal. Non-life insurance – yes. Damages to prevent injuries and sickness. Exception: damages representing loss of income. Q: What is retirement pay? A: the sum of money received upon reaching the maximum age of employment. What is exempted is the “value of property acquired by gift. 123 of the Tax Code. 2. Bequest and Devises [Sec. Under RA7641 (without retirement plan) 1. 32 B (5)] Q: What is excluded? A: income of any kind required by treaty binding upon the Phil. 3. Health or accident insurance or those under workmen’s compensation. not included in the gross estate.2 Irrevocable Designation ! not subject to Estate tax. 5. and 4. Francis J. 7. subject to percentage tax under Sec.-%. Retirement benefits. Under RA4917 (with Retirement Plan) 1. subject to VAT under 108 (A). Q: Why is it considered an exclusion? A: because this is just an indemnification for the injuries or damages suffered. a. the retiring official or employee has been in the service of the same employer for the last 10 years. the official or employee avails himself/herself of the benefit only once. the employee or official must have served the company for at least 5 years. b. separation pay and terminal leave pay? A: because they have different requirements for exemption. gratuities [Sec. " gift.( . 32 B (3)] Q: Why is the donee exempt from income tax? A: Because the law classify it as an exclusion. devise or descent of income from any property in case of transfers of divided interest. 32 B (6)] pensions. 6. 4.!"#"$%&'()"*(+. » entitled to 15 days salary and ! of the 13th month pay for every year of service. b. B. the retiring official employee is at least 60 years old but not more than 65 years old. he is at least 50 years old at the time of retirement. b. Q: what is included in the gross income? A: income from such property. Q: Is it subject to VAT? A: 1. even if not injured. Government. bequest or devise” TAKE NOTE: A.. There are 3 groups: a. Q: What does injury include? A: The term injury includes death. Compensation for sickness [Sec.Atty. 32 B (4)] injuries or Q: when will the damages recovered be exempt? A: General Rule: all damages awarded are tax exempt. 40 . Life insurance – NO. BEQUEST and DEVISE are excluded because they are subject to ESTATE tax. personal injuries and sickness. Gifts. 2.*('&$. Income exempt under a treaty [Sec. the private benefit plan is approved by the BIR (RR2-98).

GENERAL RULE: Separation pay not exempt (?) Exception: 1. . ANSWERS = MIDTERMS " Gross Income include both capital and ordinary gains. " Take Note of 3 cases. Q: What is separation pay? A: on given when one is terminated from the service because of (1) illness. Gov’t Employee: » governing law: EO 291 of Pres. public as well as private to RC. SEC. 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! 41 .( . 2. Sec. 2006. or (4) causes beyond the control of the employee. SC: on a different ground – TLP is exempt because it is similar to Retirement pay. registration – CBA provides separation pay. Automatic exclusions. 97. Q: is separation pay an exclusion. Sababan SEC. RA residing permanently in the Philippines .. August 21. 31 says gross incomedeductions.2 par.may be deducted from capital gains and ordinary gains. within the control = included. Francis J. Terminal Leave Pay granted upon retirement or separation: » uder PD220. SSS and PVAO are exempt without further qualifications = automatic exclusions.Atty. » be reminded of EO 291. 78. contention: TLP should be exempt from income tax pursuant to the old law.excluded b. RR2-98. TLP in the Gov’t or in the Private Sector shall be exempt from income tax if given or granted upon retirement or separation. illness b. NRC. causes beyond the control of the employee.-%. accumulated sick leave – subject to income tax. b. exempt? A: No. »If 10 days or less – exempt. employee in the private sector: a. Accumulated vacation leave: if more than 10 days (meaning 11 pataas) – subject to income tax.exempt without further qualifications – automatic exclusions. within employee’s control – included. 2. installation of labor saving devises or bankruptcy – beyond the control = excluded. Estrada. RMC 16-2000.e. Examples: 1. Rule: Gov’t workers (both officers or nonofficers) granted TLP on a yearly basis ! exempt from income tax.midterms 6-8 pm until sec 32 B(6) NIRC. 2006. August 28. (3) physical incapacity or injury. 2.*('&$. death c. thus exempt if due to: a. 32 B(6)(c) " retirement benefits given by foreign government. therefore. 32 B(6)(d. the separation pay granted by the aforementioned institutions are exempt without further qualifications (“other similar benefits”). ! there is no qualification as to vacation or sick leave.!"#"$%&'()"*(+. foreign corporation. 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. that which is ordinary loss. Case of Zialcita " retired from DOJ. . (2)death. 2.f) " retirement benefits given by the Philippine Gov’t through the GSIS. RR16-200 (3). physical incapacity or injury. Conditional exclusion a. Q: Are there any requirement for separation pay granted by foreign gov’t or corp? A: None. TLP granted on a yearly basis: 1. Sec. thus exempt but the ruling’s application is limited only to DOJ employees.

TLP is exempt. recipient was selected without any action on his part to enter the contest or proceedings. D. 13th month pay and other benefits (Sec. 32 B (7) (b) a. Q: Applicable to whom? A: 1. sanctioned by the nat’l sports associations. Sababan Modified: the rule applies not only to DOJ officers but also to CSC commissioners. 32 B (7) (a) income derived by foreign Gov’t [Sec. » accruing to the gov’t. the recipient was not required to render substantial future services as a condition to receive the prize or award.. Q: Who can increase the 30. 1998 – the rule applies to both private and public sectors. MORE THAN 10 DAYS = TAXABLE 2. charitable. prizes and awards in sports (Sec. investments in: a. of Finance. 32 B 7 f) " must be deducted from the GI not NIT because it is an exclusion. Sec.!"#"$%&'()"*(+. Francis J. EXAMPLES of exclusions: a. Otherwise. d prizes and awards (Sec. loans b. -creditable withholding tax is an exclusionmust be deducted first from the GI before you compute the NIT. RR2-98.1 par. stocks c. Q: Who are income earners? A: 1. and 3. educational. Private institutions. 32B 7 e) Q: Do you include Christmas bonus in your ITR? A: No. F.-%. 32B 7 d) 1. COMMISSIONER v. Ruling applies to DFA officers. 2. gov’t. interest from deposits in Banks in the Philippines. int’l or regional financial institutions established by foreign gov’ts (established in the Philippines) TAKE NOTE: if plain foreign corp. 2. 2. 2000) » Officer in gov’t receiving TLP is always exempt whether or not vacation or sick leave is granted. PD220: Exemption applies to both private and public sectors(?) it does not matter if TLP is vacation or sick leave. 32 B (7) (a)] Q: What kind of income? A: 1. Brunei Gov’t. Q: Does the rule or decision applies to Gov’t officials only? A: No. SSS.Atty.000 limit? A: The Sec. Income derived by the Gov’t or its political subdivisions (Sec. exclusion c. held here or abroad.*('&$. SMC. 2. Medicare and other contributions (Sec. exercise of any essential gov’t function. 32 B 7 c) » primarily for religious. exercise of public utility b.. Brunei Gov’t earns interest by depositing money in Makati Bank – Exclusion.Stock dividends to 3. Embassy in England. LESS THAN 10 DAYS = EXEMPT 8. other domestic securities 2.Castañeda –DFA officer in Phil.. 1. local or int’l competitions. Modified RR2-98: » TLP will only apply to private sectors » if granted on a yearly basis – may be subject to tax: VACATION LEAVE 1. E. controlled or enjoying re-financing from foreign gov’ts. literary or civic achievements: 1. you are 42 .78.( . foreign government 2. financing institutions owned. CASTAÑEDA . Miscellaneous items (Sec. granted to athletes. 4. (a)(7) » JAN. artistic. GSIS. because the law says 13th month pay and “other benefits”/”similar benefits” – xmas bonus is included in the category. bonds d. EO291 (SEPT. 3. and 2. b. scientific. subject to FIT 20%.

Travel expense while away from home. 34 A EXPENSES 1. AGUINLDO Case F: involves a corporation engaged in selling fish nets. Expenses) Q: Did the law define what is reasonable? A: No. What is the requirement? A: 1. 34 A (1)(a)(ii)? A: No. 2.related to trade or business. Francis J. REASON: Capital loss has no connection to the trade or business. "in this case. " for taxpayers who are liable only for income within. for the G.-%. it must be made or given for services actually rendered. (Sec. 32 B 7 g is similar or the same as 24 B in long term deposit. "the corporation claimed the bonus as a deduction. trade or profession. for salaries and wages all that is required by law is for it to be reasonable. Q: Reasonable Allowances for rentals for meralco bills. that is Feb. . For those business expenses not enumerated under A. Travel must be in pursuit of business. 2007 (Sec. there must be services actually rendered. Q: can you claim it under Sec. 12. 32 B 7 g) Q: Why 5 years? A: certificate of indebtedness is similar to Bank Interest in a long term deposit. TAKE NOTE: " for taxpayers liable for income within and without (RC & DC)).Atty. they can claim a deduction for expenses incurred within the Philippines. 32 B 7 h) 1. they can claim deduction for expenses incurred within and without.. . "there was substantial profits gained from the sale of a land which was sold by a broker. Gains from the Sale of bonds. Q: Is there a travel expense which was not in pursuit of business? A: yes.( . no effort or services actually rendered by them because the sale was made through a broker. . Sababan including in the GI something excluded from the same. H. " Q: Reasonable Travel Expenses. The profit was in turn given to the workers as special bonus. you can claim it under Sec. Calendar year – a period of 12 months beginning on January and ending on December. and the corporation have a land sold through a broker. it was proven that the sale was not made by the employees. Sec. 34 A (1)(a)(i) last paragraph. requirements? A: 1. for other forms of compensation. it is possible or it is possible if fiscal year is employed. expenses for foreign travel is considered a FB only if it is not in pursuit of the trade or business. is it possible to include it for April 2006? A: yes.Sec. Q: Business expense incurred in February 2006. those which are considered as fringe benefits (FB). debentures. 43 . or other Certificate of indebtedness. 34 A. 2.for other forms of compensation. all you have to prove is that it is incurred during the taxable year. Fiscal Year – means an accounting period of 12 months ending on the last day of any month other than December.*('&$. ISSUE: Should the deduction be allowed? H: The SC did not allow the deduction. if it falls under the fiscal year and all the elements are present.!"#"$%&'()"*(+. You need to prove that it is an ordinary and necessary expense. For those enumerated under A. 2. Gains from redemption of shares in mutual fund (Sec. required as a condition for the continued use or possession.

the advance interest paid cannot be claimed as a deduction on the years that it was paid. incurred within the taxable year. it can accommodate all of the expenses incurred. kickbacks. if the entire amount or entire principal obligation has been paid – the entire amount of interest can be claimed as itemized deduction.!"#"$%&'()"*(+. REQUIREMENTS PAPERS: FOR REDISCOUNTING OF • taxpayer’s allowable deduction for interest expense shall be deducted by an amount equal to 42% (RR 10-2000) of the interest income subject to FIT. • No deduction shall be allowed in respect to the following interest: 1. kickbacks will not pass the requirement of (i) ordinary and (ii) necessary hence not deductible EXPENSES ALLOWABLE TO EDUCATIONAL INSTITUTION PRIVATE 1. connected with the development. 3. 2. 2. ALLOWANCE FOR DEPRECIATION BUSINESS EXPENSE 1. 36 (B): 44 . if the amount of capital outlay is substantial. public policy or public order. if both taxpayer and the person to whom the payments has been made or is to be made are persons specified under Sec. Not contrary to law. 2. taxpayer has not taken any title or no equity other than a lessor. individual taxpayer reporting income on a cash basis. 2.*('&$. amusement and recreation expenses. REDISCOUNTING OF PAPERS : (Sec. 2. 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. Francis J. you can claim it for a longer period depending on the life span of the property. Sababan purpose of the trade.. good customs. Q: Who claims this deduction? A: the debtor claims this deduction. 34 A (2) Institution can BUSINESS EXPENSE vs. GENERAL RULE: 36 A (2) and 36 A (3) expenditures for capital outlays not deductible as business expense EXCEPTION: Private Educ. and other similar payments A: even without this provisions. 1. if only ! of the obligation had been paid.when one borrows money to finance his business interest in connection with the taxpayer’s profession trade or business. it cannot accommodate all of the expenses incurred. "interest on debt . Q: Reasonable allowance for entertainment. management. if no payment had been paid on the principal obligation. then the entire amount of ! of that interest can be claimed as a deduction. Q: What kind of interest is this? A: interest on loan. business or possession of the property.( . and 3. claim it under Sec. morals. There is carry over 2. 3. Q: How about bribe. ALLOWANCE FOR DEPRECIATION 1. 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.Atty. No carry-over 2.-%. Does not exceed the limits or ceiling set by the Secretary of Finance. can be claimed for one year only. what is the requirement? A: 1. and operation of the trade (DOM). 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. 3.

income tax paid to foreign country.200 (RR 9337) 45 . it must be incurred in connection with trade or business. bet.*('&$.!"#"$%&'()"*(+. (RR132000) ILLUSTRATION: 1. bet. member of a family b. on interest. 20% of 1M is Php200. directly or indirectly. can be claimed as: a. deduction for 5. Q: What if half-brother? A: not allowed to claim interest. Php200K-4. when you deposited the 1M in the bank.00. or 34 C 1&2 b. Bet. a fiduciary of trust and a beneficiary of such trust.000. OPTIONAL TREATMENT OF INTEREST EXPENSE: 1. e. subject to limitations. by or for the same individual. the fiduciary of a trust and the fiduciary of another trust if the same person is a grantor with respect to each trust.000 but you cannot claim this whole amount as a deduction.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.200= Php195. loan of 1M from a bank with an interest of 20% 2. Sababan a..-%. a deduction. an individual and a corp. Q: Who are entitled to claim it? A: those liable to pay NIT. 3. the grantor and a fiduciary of any trust. business or exercise of profession can be claimed a an itemize deduction… a. bet. 34 C TAXES: REQUISITES: 1. it should be deducted from the Net Income Tax due (bottom of the formula) MERCURY DRUG CASE .Atty. if claimed as a tax credit. 42% (RR) of 10. 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. more than 50% in value of the outstanding stock of each of which is owned. Q: What are the other tax credit under the code? A: 1. 2. interest incurred to acquire property used in trade. business or profession of the tax payer. RA 6452 – selling goods and commodities to senior citizens.800/ this is the amount you can claim as a deduction. or b. Q: Who are not allowed to claim interest under sec 36 B? A: interest incurred between related parties. it should be deducted from the gross income. 2 corp.( . tax credit 34 C 3&7 Q: Where should it be deducted? A: 1. d. "tax deduction is allowed if the taxes were paid or incurred within the taxable year and it must be connected to the trade. taxes must paid or incurred within the taxable year 2. Q: What is a tax deduction? Example? A: example is business tax. it earned a bank interest subject to FIT worth Php10.000 = 4. more than 50% in advance of the outstanding stock of which is owned directly or indirectly by or for such individual. or f. (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. if claimed as a deduction. Francis J. 3. 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. the discount claimed is treated as a tax credit.. bet. Q: What is the tax credit being referred to under 34 C (3)? A: credit against taxes for taxes of foreign country. 2. c. Q: Who are related parties? A: individuals and corporations.. 4.

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