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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
• • •
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
!"#"$%&'()"*(+,-%,*('&$,.( - 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
!"#"$%&'()"*(+,-%,*('&$,.( - 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
!"#"$%&'()"*(+,-%,*('&$,.( - 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?
you can secure a TRO without notifying the adverse party. H: The Supreme Court ruled that there was no violation since the classification was based on a substantial distinction. passed RA 7227. After the amendment. 1995. The petitioners contended that the law in question was violative of their right to equal protection of laws since they are also Filipino businessmen. If the adverse party is notified. shall be imposed within SSEZ.Atty. 2) It must be germane or relevant to the purpose of the law. permanent or temporary. 1998.!"#"$%&'()"*(+. both as to privileges conferred and liabilities imposed. Ex. Francis J. REASON: No provision of law requires notice to the adverse party. Before July 1. Thus. The latter set the limitations and boundaries of the application of the incentives (no taxes. he may abscond..( . Sababan A: No. things and transactions belonging to the same class. and taxpayers belonging different classifications are treated alike. notice and the opportunity to be heard are dispensable.-%. TIU v. taxpayers of the same footing are treated alike. Difference in treatment not based on substantial distinction is frowned upon as “class legislation. the party declared in default has to be notified of subsequent proceedings albeit without the right to participate therein. 3% of the Gross Income shall be remitted to the national gov’t) to those operating their businesses within the said area. notice and hearing or the opportunity to be heard is necessary only when expressly required by law. In PEOPLE v. 3) The distinction or classification must apply not only to the present but also to future situations. an act creating the conversion of the military bases into other productive uses. Equal Protection Clause " As a rule. Requirements of Reasonable Classification: 1) There must be substantial distinctions that make a real difference. If you are a suspect in a criminal case. EO 97 and EO 97-A ! The first led to the creation of the Subic Special Economic Zone (SSEZ). the adverse party need not be notified all the time. with the approval of the President. no notice need be given to a party declared in default. local and national. in connection with procedural due process. Where there is no such requirement. COURT OF APPEALS (301 SCRA 278) Q: what happened in the city of Olonggapo? A: The Congress. Q: Who was the President at that time? A: President Ramos Q: What were signed? A: RA 7227. As a rule. CAYAT the Supreme Court mandated the requisites for a valid classification. there must be notice. Regarding delinquent tax payers. 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.” This is violated when taxpayers belonging to the same classification are treated differently form one another. Difference in treatment is allowed only when based on substantial distinction. In lieu thereof. the person to be searched was not notified. 5 . 4) The distinction must apply to persons. 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). In the case of a search warrant. in adversarial proceedings. you have the right to have an opportunity to be heard (if there is a law). The SC said that the ordinance was invalid because of the failure to state the said classification.*('&$. 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. 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. before levy. 1. Ex: In one case. Before Oct. a tax ordinance was assailed on the ground that the ordinance failed to distinguish a worker form casual.
General Rule: The power to tax is pursuant to law.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. H: The Supreme Court said there was a violation of the equal protection clause. 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. If the law merely provides for the fulfillment of the obligation then the law is not the source of the obligation. therefore.. Francis J. Delict. TAKE NOTE: People vs. Example of Poll Tax: Community Tax Certificate under Section 162 of the Local Government Code. and quasidelict.Atty. Contracts. Q: Did the owner accept this imposition? A: No.-%. then the law itself is the source of the obligation Q: So. Poll Tax Q: What is a poll tax? A: It is a tax of a fixed amount on individuals residing within a particular territory. the tax due was paid under protest. Quasi-Contracts. delict. whether citizens or not. freedom to choose religion 2. It is a tax imposed on persons without any qualifications. When the law merely recognizes or acknowledges the existence of an obligation created by an act which may constitute a contract. When the law establishes the obligation and also provides for its fulfillment. freedom to exercise one’s religion 3. the obligation to pay the tax is now based on the contract between the taxpayer and the government pursuant to their compromise agreement. 6 . (funds for sending a person to jail is taken from the national is imposed by law. Cayat Freedom of Religion It Involves 3 Things: 1. the obligation to pay taxes Take Note: the requirement for its application: the parties are the government and private individual. Quasi-Delict. Non-impairment Clause Q: What are the sources of obligation in the Civil Code? A: Law. and its only purpose is to regulate such obligation. In this instance. quasi-contract. in the case at bar. 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. then filed a complaint against the City of Ormoc. Sababan ORMOC SUGAR CENTRAL vs.( . not the law. without regard to their property or to the occupation in which they may be engaged. thus the non-impairment clause does not apply. 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. 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. persons may be allowed to pay even if they are not qualified as to age or property ownership. that it must be applicable to both present and future circumstances. " You have to determine first the source of obligation: 1. CIR Q: What did the municipality of Ormoc do? A: The City Council of Ormoc passed a Municipal Ordinance No.!"#"$%&'()"*(+. The element invoked here was element #3. Q: What is the obligation contemplated in this limitation? A: Those obligations arising from contracts. 2.*('&$. then the act itself is the source of the obligation. The Supreme Court said that one must go to the provision itself.
-%. 1935 Constitution – Cemeteries. ABRA VALLEY COLLEGE INC. buildings. and EXCLUSIVELY used for RELIGIOUS 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. CHARITABLE or EDUCATIONAL purposes shall be exempt for taxation. and non-profit cemeteries. and all lands. 7 . Thus. The Province of Abra now contends that since the school is not exclusively used for educational purposes. Tax exemption is not presumed. churches and parsonages or convents appurtenant thereto. DIRECTLY. H: The Court ruled that petitioner is not liable for the payment of real estate taxes. Sec. The hospital was previously exempt from taxation until it was reclassified and subsequently assessed for the payment of real property tax. Sec 22 (3). thus exempt from the payment of such tax. H: The Court held that the school is PARTIALLY liable for real estate tax. HERRERA v. The respondent judge granted the exemption from taxes of said church based only on the allegations of the complaint without conducting a hearing/trial. NOTE: this arose during the 1935 Constitution. SC: the Court ordered that the case be remanded to the lower court for further proceedings. a domestic corporation. 1973 and 1987 Constitution? A: Art. buildings and improvements used EXCLUSIVELY for RELIGIOUS. and improvements ACTUALLY. Art. Francis J. EDUCATIONAL and CHARITABLE purposes shall be exempt from taxation. The contention of the respondent is that the hospital was no longer a charitable institution because it accepts pay-patients. it does not apply to other taxes except Real Estate Tax. the Roman Catholic Bishop of Bangued.Atty. 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. 6. DIRECTLY and EXCLUSIVELY used for RELIGIOUS. and parsonages or convents appurtenant thereto. “Exempted by virtue of incidental purpose” was merely coined by the Supreme Court. the school is now liable to pay real estate tax. Art. 1. (bishop filed declaratory relief after assessed for payment of tax). St. 28 (3). It is a charitable institution.. The Court observed that the cause action arose under the 1973 Constitution. Commercial – not exempt because it is not pursuant to the primary purpose. The 2nd floor thereof was used as the residence of the school director and his family. The assistant prosecutor filed a complaint contending that petitioner was deprived of its right to due process. not under the 1935 Constitution (note the difference). not for educational purposes. v. and all lands. and a dormitory. Catherine’s Hospital. Since it is not exclusively used for charitable purposes it is not exempt from taxation.*('&$. mosque. and improvements ACTUALLY.. justified because it is necessary. churches. The ground floor of the school was leased to Northern Marketing Corp.!"#"$%&'()"*(+. 1987 Constitution – charitable institutions. HERNANDO Q: What is involved in this case? A A religious institution was involved in this case. PROVINCE OF ABRA v. 2. Sec. It must be strictly construed against the taxpayer and liberally construed in favor of the government. 6.( . non-profit cemeteries. Residence – exempt by virtue of incidental purpose. buildings. 1973 Constitution – charitable institutions. 17 (3). mosque. schools and dormitory are all exempt fro taxation because they are incidental to the primary purpose of the hospital. parsonages or convents appurtenant thereto. and all lands. Inc. 8. churches. The hospital. it also operates a school for midwifery and nursing. QC-BOARD OF ASSESSMENT (1935 Constitution) Q: What is involved in this case? A: A charitable institution.
and EXCLUSIVELY for religious. the exemption was granted to all the real property (hospital. In return. PHILIPPINE LUNG CENTER v. entered into a license agreement with SC Johnson and Sons U.( . the DC should have paid only 10% under the most favored nation clause. in the Herrera case. For the part of the hospital used for charitable purposes (whether for pay or non-pay patients). H: The Supreme Court coined the term International Double Taxation or International Juridical Double Taxation. rather it is the use of the property that determines exemption. The requirements for exemption are different.A (Non-Resident Foreign Corp. 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. educational or charitable purposes. The cause of action in said case arose under the 1935 Constitution and it does not apply to the provisions of the 1987 Constitution. Francis J. Apparently. NRFC) whereby the former was allowed to use the latter’s trademark and facilities to manufacture its products. a hospital. Q: Was the doctrine laid down in Abra Valley affirmed in the Lung Center case? A: Yes. COMM v. The Supreme Court unconsciously applied a doctrine laid down by the 1935 Constitution.S. Q: At present.S. implication of most favored nation clause Q: What is the corporation involved in this case? A: A domestic corporation (DC). Respondent contends that since the hospital is not used actually. The case of Herrera does not apply because said case arose under the 1935 Constitution and the present case arose under the 1987 Constitution. It is provided in the charter of the Lung Center of the Philippines is a charitable institution. Important : 1. NOTE: both cases arose under the 1935 Constitution despite having been decided in 1988. The Supreme Court made a qualification. 8 .-%.. part of its building was leased to private individuals and the vacant portion of its lot was rented out to Elliptical Orchids. A case for refund of overpaid withholding tax was filed. The Supreme Court said it depends. In the 1935 Constitution. INC. school and dorm). The Supreme Court reiterated the ruling in the Abra Valley case which arose under the 1935 Constitution. the property must be used ACTUALLY. “exemption from tax by virtue of incidental purpose” is not applicable to all taxes including real estate tax.*('&$. NOTE: petitioner contended that the profits derived from the lease of its premises were used for the operation of the hospital. NOTE: at present. Inc. Q: What prompted the SC to coin such term? A: Because a single income (tax royalties paid by a DC) was subjected to tax by two countries.Atty. directly. do we still apply the exemption from tax by virtue of the Doctrine of Incidental Purpose? A: Not anymore. SC JOHNSON and SONS. SC Johnson and Sons. DIRECTLY. But in this case. Sababan Q: is the doctrine in the case of Herrera the same with this case? A: NO. petitioner is exempt from payment of real estate tax. an d exclusively for charitable purposes. QUEZON CITY Q: What is involved in this case? A: A charitable institution. educational and charitable purposes. importance of international tax treaty 3. international double taxation 2. the Supreme Court made a qualification. H: The Supreme Court held that the petitioner is liable to pay tax for those parts leased to private individuals for commercial purposes. it is liable to pay real estate taxes. the DC will pay the NRFC royalties as well as payment of withholding tax. The Court held that the use of the profits does not determine exemption. the property must be EXCLUSIVELY used for religious. International Juridical Double Taxation applies only to countries where the tax liabilities of its nationals are imposed on income derived from sources coming from within and without. However.!"#"$%&'()"*(+. tax. Under the 1987 Constitution.
Q: What do you mean by SET-OFF? A: This presupposes mutual obligations between the parties. in the light of public policy.( . for one reason or another. Thus. Q: What is the doctrine of Equitable Recoupment? A: When the claim for refund is barred by prescription. to exclude the 9 . demand. the amount paid should be reimbursed to them or at least compensated or applied to their liability to pay forest charges. the phrase applies to the application of matching credit. is indebted to the said taxpayer. is INDEBTED to said taxpayer. hence. MAMBULAO LUMBER CO. and that they are mutual creditors and debtors of each other. we do not have forest charges as the same was abolished by President Aquino. Sababan Q: Is there an instance where international double taxation does not apply? A: Yes. the US firm discovered that they are entitled to 10% under the most favored nation clause. there is no similarity in the circumstances. The rationale behind this is to prevent the taxpayer and government official from being negligent in the payment and collection of taxes. Q: What is the liability of Mambulao? A: They are liable to pay forest charges (under the old tax code). for one reason or another. 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. 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. The principle of compensation does not apply in this case because the parties are not mutually creditors and debtors of each other. Francis J. After paying 25%.!"#"$%&'()"*(+. The phrase referred to the royalties in payment of income tax. the same is allowed to be credited to unsettled tax liabilities. Rather.*('&$. REPUBLIC v. The Supreme Court ruled that the lower courts’ interpretation of the phrase was erroneous. contract or judgment as is allowed to be set-off under the statute of set-off which is construed uniformly. This is not allowed in this jurisdiction. the concept of taxation arises where a taxpayer is liable to pay taxes but the government. In taxation. 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. you have to be honest for this to work. the government is preventing corruption) There is no exception at all otherwise. 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. 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. the concept of setoff arises where a taxpayer is liable to pay tax but the government. NOTE: under our present tax code. (Ex: Switzerland) ! The controversy in the case at bar involves the income tax paid in the Philippines. 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. the rule is absolute. In taxation. the NIRC. Set-off Presupposes mutual obligation between the parties. because of common law origin. The 10% does not apply because there is no matching credit.-%. H: The Court ruled that the reforestation charges paid is in the nature of taxes. (Sir gives an illustration found in page 3 of magic notes) Q: Is the rule absolute? Reason A: Yes. A claim for taxes is not a debt. If allowed.Atty.. the BIR would be flooded with so many claims. (furthermore.
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. and reiterated its ruling in the case of Mambulao and Francia. FRANCIA v. COA sent a letter to Caltex asking the latter to settle its unremitted collection stating that until the same is paid. 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. RA 6952 expressly prohibits set-off from the collection of contributions to the OPSF. compensation therefore takes place by operation of law. (diff parties. but arises out of a duty to. Neither are they a proper subject for recoupment since they do not arise out of contract or the same transaction sued on. Furthermore. H: The Court did not allow the set-off. COA Q: What is being collected? A: Caltex’s contribution to the Oil Price Stabilization Fund (OPSF). contract or judgment as is allowed to be compensated or set-off. Reason: Taxes are not in the nature of contracts or debts between the taxpayer and the government. 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. Francis J. and a claim for taxes is not a debt. 1279 and 1290 of the Civil Code and both debts are extinguished to the concurrent amount. and are positive acts of the government to the making and enforcing of which. Compelling Reason: Congress has enacted RA 2700. Caltex wanted to off-set its unremitted collection from its reimbursements. 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. Furthermore. 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. its claim for reimbursement from the OPSF will be held in abeyance. General Rule: no set-off is admissible against demands for taxes levied in general or local governmental purposes. Taxes cannot be the subject matter of compensation. demand. allocating a certain sum of money to the estate of the deceased. 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.*('&$.!"#"$%&'()"*(+. GARLITOS Q: What is being collected in this case? A: Estate and inheritance taxes. A taxpayer cannot refuse to pay a tax on the ground that the government owes him an amount. The same is being collected by the Treasurer of Pasay.. not mutual creditors and debtors of each other.-%. the property was expropriated by the national government.( . in accordance with Art. DOMINGO v. Q: Why is Caltex entitled to reimbursement? A: Because of the fluctuation of the oil prices in the Middle East and Europe. NOTE: we do not have inheritance taxes anymore because the same was abolished by Lolo Macoy. Internal Revenue taxes cannot be the subject of compensation because the government and the taxpayer are not mutually creditors and debtors of each other.) CALTEX PHIL v. The Court likewise stated that Caltex merely acted as agent of the government in collecting contributions for the OPSF 10 . It appears that petitioner was delinquent in the payment of his real estate tax liability. the payment of just compensation was already deposited with PNB Pasay. and the taxes were collected by a local government. (the other part of his property was sold at a public auction) H: The factual milieu of the case does not justify legal compensation.Atty. Q: Who is the administratrix? A: The surviving spouse.
individual. you may still be considered a RC. OCW and Seamen 11 . 23D and 25A) 6. Francis J. the claim for VAT refund is still pending. The National Government. INDIVIDUAL TAXPAYER Q: How many kinds of individual taxpayers are there? A: There are seven (7). Q: How many types of RC? A: There are two (2). 5.. Resident Citizen (§23A and 24A). can levy tax upon GOCCs. 23D and 25B) 7. is the agencies and instrumentalities (Section 27 c)). Aliens Engaged in Multinational Companies. 2. 3. Petroleum Service Contractors (§25C. 2. The two (2) are different taxing authorities. Filipino living abroad with no intention to reside permanently therein. I. Sababan because such is being shouldered by the consumers when they purchase petroleum products of oil companies.113(o)). namely: 1.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. 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. Namely: 1. Obnoxious double taxation synonym of double taxation. namely: 1. corporate. 4. The collection of a tax cannot await the results of a lawsuit against the government. Resident Alien (§22F. estate and trust. Furthermore. If such intention to permanently reside therein was not manifested to the Commissioner and the fact of your physical presence therein. COMM The petitioner is liable for the payment of excise taxes. LGUs are expressly prohibited by the provisions of RA 7160 or the LGC of 1991 from levying tax upon: (1) the National Government.( . Offshore Banking Units.!"#"$%&'()"*(+. Q: If you are abroad. KINDS OF INCOME TAXPAYERS Q: Generally. in the instant case. there are three (3). a concern which is within the police power of the State to address. The Court did not allow set-off. (3) LGUs (sec.Atty. OCW and Seaman (§23C and 24A). and you have the intention to permanently reside therein. Taxation is no longer envisioned as a measure merely to raise revenues to support the existence of the government. which it wanted to be set-off from its pending claim for a VAT Input credit/refund. pursuant to the provisions of RA 8424 of the Tax Reform Act of 1997.*('&$. such as Caltex. Nonresident Citizen (§23B and 24A). and 2. although income received by the Government form: 1) any public utility or 2) the exercise of any essential governmental function is exempt from tax. Taxes are not debts. Nonresident Alien Engaged in Trade or Business (§22G. RC residing in the Philippines. PHILEX MINING CORP v. DOUBLE TAXATION Double taxation is allowed because there is no prohibition in the Constitution or statute. how many kinds of income taxpayers are there? A: Under section 22A of NIRC. 3. (2) its agencies and instrumentalities. Nonresident Alien NOT Engaged in Trade or Business (§22G. 23D and 24A). can you still be considered a RC? A: Yes. Taxes may be levied for regulatory purposes such as to provide means for the rehabilitation and stabilization of a threatened industry which is vested with public interest.-%.
The importance of ascertaining whether or not a seaman is a RC or a NRC. they are considered RC because they work abroad without a contract and they have not manifested their intention to permanently reside abroad. NRA who practices a profession (Revenue Regulation 2-98). you are not the one being referred to. “engaged in trade or business” to include the exercise of a profession.-%.!"#"$%&'()"*(+. NRA engaged in trade or business (25a1). the vessel must be exclusively engaged in international trade or commerce. he is considered a RC. 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. not a tourist. because the classification shall cover only those Filipino citizens working abroad with a contract. If he stays in the Philippines most of the time during the taxable year. If he is a NRC. is that if he is a RCm he is taxable on ALL income derived from all sources within and without. a NCR. Q: What is the income tax applicable to said taxpayer? 12 . tourist or a traveler. He is either a RC or a NRC depending on where he stays most of the time during the taxable year. RR 2-98 has expanded the coverage of the term. Q: What is the status of a TNT? A: Since they are not covered by this classification. Intention to reside permanently in the Philippines is not a requirement on the part of the alien. Francis J. 2. he is taxable only on income derived form sources within the Philippines. Sababan OCW was used and not OFW in the CTRP. otherwise. said seaman is not deemed to be an OCW. neither a sojourner. namely: 1. 2. a traveler. he must stay for an aggregate period of more than 180 days during a calendar year. Q: Is the intention to permanently reside in the Philippines necessary? A: No. so long as he is not a sojourner. 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. 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. (distinguish from an immigrant) Requirements for a seaman to be considered an OCW: 1.. by the express provision of the law. Whether he’s a transient or not is determined by his intent as to the nature and length of his stay. Q: What is the significance of using OCW? A: It only covers Filipinos who works abroad with a contract.( . Resident Alien (RA) An individual whose residence is within the Philippines and who is not a citizen thereof. must be a member of the compliment of a vessel. 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. To be considered as such. Consequently. If you are a seaman in the US Navy. 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. TNTs are not covered. foreigner who comes and stays in the Philippines for an aggregate period of MORE THAN 180 days during any calendar year. 3. Q: How many types? A: There are three (3) types.Atty. The requirement under RR#2 is that he is actually present in the Philippines.*('&$. It does not cover TNTs.
Associations 5. Domestic Corporation (DC) – created or organized under Philippine laws. as the case may be.. and engaged in trade or business. Partnerships and others no matter how created 2.-%. Francis J. Joint Accounts 4. Sababan A: Net Income Tax (NIT) on all its income derived form sources within the Philippines.Atty. Joint Stock Companies 3. 2. Q: What are deemed corporations under the NIRC? A: The term corporation shall include partnerships. Nonresident Foreign Corporation (NRFC) – created under foreign law.*('&$. and NOT engaged in trade or business. geothermal or consortium agreement under a service contract with the Government. 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. Non-Resident Alien Trade or Business Q: How many kinds? A: Only one. or insurance companies. Even if the partnership was pursuant to law or not. 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. Q: Are partnerships always considered corporations? Is there no exception? A: General Rule: a partnership is a corporation. The reason why the NRANETB are included in any income tax law is because they may be deriving income form sources within the Philippines. joint accounts. or NRANETB. 3. 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 . whether nonstick. no matter how created or organized. coal. Not Engaged in II. CORPORATE TAXPAYER 1. Insurance Companies CIR v. such income shall be subject to the pertinent income tax. associations. " 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. 1. COURT OF APPEALS The phrase no “matter how created or organized” was interpreted. They are subject to tax based on their GROSS INCOME received form all sources within the Philippines. " Their status may either be RA or NRA because Section 25 C and D does not distinguish.( . you may classify them either as RA. as the case may be. NRAETB. " 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.!"#"$%&'()"*(+. it is still deemed a corporation. Aliens Employed in Petroleum Service Contractors and Subcontractors " Status: ALWAYS NRA. joint stock companies. Reason: because of the possibility of earning profits form sources within the Philippines. nonprofit. Resident Foreign Corporation (RFC) – corporation created under foreign law.
( . How many corporations do we have? A: Three. each partner will be paying NIT. 4) MCIT (Minimum Corporate Income Tax) of 2% of the Gross Income 14 . Francis J.-%. Y. namely Corporation X. if the income is derived from other sources and such income is subject to NET INCOME TAX. in Taxable for income derived within the Philippines. yes. it is considered a taxable dividend which is subject to FIT. DEL ROSARIO general rule: a partnership is a corporation exception: GPP exception to the exception: if the GPP derives income from other sources. if the income is derived from other sources and such income is subject to FINAL INCOME TAX. 2. and X+Y. Taxable for income derived within the Philippines. it is a corporation.” In short. 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. Rule: 1.. Domestic Corporation Is one created or organized Philippines or under its laws. it is considered a corporation. as far as the share of the GPP is concerned. Resident Foreign Corporation Foreign corporations engaged in trade or business in the Philippines. Q: If the GPP is deemed a corporation.!"#"$%&'()"*(+. ( separate return for this. it is still EXEMPT and it is not deemed a corporation. in the Taxable on all income derived from sources within or without the Philippines. and other energy operations pursuant to “?” or consortium agreement under a service contract with the government. it is not exempt and it is considered a corporation. Q: What is the importance of knowing whether the corporation is exempt or not? A: To determine their tax liability. Sababan profession. " Section 26 (1st paragraph) provides: “a GPP as such shall not be subject to the Net Income Tax…” however. Q: Corporation X and Corporation Y joined together. Non-Resident Foreign Corporation Foreign corporations not engaged trade or business in the Philippines. exempt from Corporate Income Tax (CIT) 2) Exercise of a profession and engaged in trade or business – a corporation. gas. subject to CIT TAN v. no part of the income of which in derived from any trade or business. will the partners have to pay for the income tax? A: No.*('&$. 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. the joint venture has a separate and distinct personality from the two corporations. and the distributive shares they will be receiving from the net income of the GPP will be included in the gross income of the partner. It 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. Q: Is a joint venture a corporation? A: Generally.Atty. “…persons engaging in business as partners in a GPP shall be liable for income tax only in their separate and individual capacities. thus liable to pay corporate income tax. (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. This is important to determine the tax liability of the individual partners of the GPP.
so an estate. Net Income Tax (NIT). the heirs still do not divide the property. grantor. by contract or by agreement. or creator. as an income taxpayer can be a citizen or an alien. Collector (102 Phil 140)) b) If the heirs without contributing money. When a person who owns property dies. 2. the following taxes are payable under the provision of income tax law: 1) Income Tax for Individuals – to cover the period beginning January to the time of death. 4. Q: Where the trust earns income and such income is not passive. when the decision of the court shall have become final and executory. a COOWNERSHIP is created and Individual Income Tax (IIC) is imposed on the income derived by each of the heirs. COMM (165 scra 560) and Obillos vs. the estate through the executor. namely: 1. property or industry to improve the estate. property or industry with the intention to divide the profits between and among themselves. Final Income Tax (FIT). simply divide the fruits thereof between and among themselves. an UNREGISTERED PARTNERSHIP is created and the estate becomes liable for payment of CIT 15 .Atty. through the trustee or fiduciary but only if the trust is irrevocable. a trust can also be a citizen or an alien. 6. 2) If upon the termination of the judicial settlement. Income Tax on Improperly Accumulated Earnings subject to 10% of the Taxable Income. payable in their separate and individual capacity (Pascual vs. administrator. Minimum Corporate Income Tax of 2% of the Gross Income (MCIT) 5. Trust Trusts can be created by will. Francis J. depending on whether the settlement is judicial or extrajudicial. 3. 60 (3)). or of the decedent. Gross Income Tax (GIT). Individual or Corporate Income Tax.. Sababan 5) Optional Corporate Income Tax of 15% of the Gross Income A NRFC is liable for payment of the ff: 1) GIT. 2) Estate Income Tax – if the property is transferred to the heirs. who among the parties mentioned is liable for payment of income tax thereon? A: The TRUST itself. the liability for the payment of income tax devolves upon the trustor himself in his capacity as individual taxpayer.*('&$.-%. If there is. The income tax liability depends on whether or not the unregistered partnership or co-ownership is created. depending on whether there is or there is no settlement of the estate. The status of the estate is determined by the status of the decedent at the time of his death. Optional Corporate Income Tax of 15% on the Gross Income Q: How many for each? A: Seven (7) kinds for each because the trust or estate will be determined by the status of the trustor.Gross Income Tax 2) FIT – Final Income Tax III.!"#"$%&'()"*(+. Judicial Settlement 1) During the pendency of the settlement. Hence. or heirs is liable for the payment of ESTATE INCOME TAX (Sex. COMM (139 SCRA 436)) Extrajudicial Settlement and if NO Settlement Some possibilities may arise. or for the benefit of the grantor. The status of a trust depends upon the status of the grantor or trustor or creator of the trust. 3) If no partition is made. If it is revocable. TRUST AND ESTATE (Evangelista vs. KINDS OF INCOME TAX Q: How many kinds of income tax? A: There are Six (6). the following possibilities may arise: a) If the heirs contribute to the estate money.( .
you will be held liable. 1. Q: Is this subject to withholding tax? A: Yes.-%. NRANETB (liable for GIT). 3.Atty.NRANETB corporation . gross income (wlang kasunod) ! only income tax from improperly accumulated earnings does not use this term. normal way of paying income tax . 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 . Q: What is another term for withholding tax? A: It is also known as the creditable withholding tax system under the income tax law. ordinary way of paying income tax.( .NRFC NOTE: the formula does not allow any deduction. Characteristics: Q: Who are not liable to pay NIT? A: 1. etc. Francis J. will you be held liable? A: Yes. there is a possibility that they may earn income in the Philippines. Revenue Regulations and Statutes: a. While not engaged in trade or business. II. b. it is subject to withholding tax because the persons liable are foreigners. With certain modifications. it is not subject to withholding tax.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. personal exemptions and tax credit.*('&$. taxable income b. Q: What are the other terms for NIT? A: NIRC: a. NET INCOME TAX Q: What if the law is silent? A: If the law is silent. if they derive income from other sources. CFA: “to be included in the gross income” 2. Sababan I. AEMOP. personal exemptions and tax credit. Q: Do we have to determine if there is an actual gain or loss? A: Yes because the formula for deductions. Characteristics: " NRANETB and NRFC.. NRFC (GIT also). Q: Is the taxable net income subject to withholding tax? A: It is subject to withholding tax if the law says so.!"#"$%&'()"*(+. III. 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 . though not engaged in trade or business. 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 . are liable to pay by way of the gross for any income derived in the Philippines. This rule is ABSOLUTE NOTE: there are two (2) ways of paying taxes depending on which side of the bench you are. 2. Q: If you fail to pay.
!"#"$%&'()"*(+. No liability for final withholding tax except for the sale of shares of stock. there is no employer – employee relationship. you cannot join all the income in one group because each income has a particular rate. The MCIT is paid in lieu of the NIT. personal exemptions. NIT allows deductions. OPTIONAL CORPORATE INCOME TAX " For one to be liable for the payment of NIT. " However. Q: If you fail to pay. in the case of celebrities. FIT. distinguish nature of income. the taxpayer is always liable if he fails to pay. 2. they are merely receiving royalties.Atty. will you be liable? A: No. it is subject to NIT or GIT. no need to pay NIT or else there will be double taxation. Gain is presumed. compensation. Q: What kind of taxes are applicable or imposed upon the 1st five individual taxpayers? A: Only two (2) kinds are applicable out of the six (6) kinds of income taxes. NOTE: like GIT. (so. GIT and FIT do not allow deductions. (?) IV. the withholding agent is liable to pay FIT.*('&$. Q: Why is it that the rate of withholding is always lower. Royalties are subject to final withholding tax. 2. if you are liable for FIT. NIT. thus the agent is liable to pay. Characteristics: Q: Who are liable to pay FIT? A: All taxpayers are liable to pay FIT provided the requisites for its application are present. after 1979 – capital gains tax. control. Q: Is this applicable now? A: No. the income must be derived on the basis of an employer – employee relationship.. " Case of Juday.-%. whether or not subject to Creditable Withholding Tax (CWT). absolute liability to pay is upon the withholding agent. 2. this is not yet implemented. Q: May it be applied simultaneous with NIT? A: No. 3. 1. for NIT. as the case may be. contract. Employer – Employee Relationship (3 Cs): 1. there must be a computation of the NIT first then apply which ever is higher. as the case may be. Q: What is the rate? A: 35% as the case may be. the formula does not allow deductions. Proceeds from the sale of real property is exempt. the number of FIT increased. Richard and Regine V. Q: To what kind of taxpayer does this apply? A: To DC and RFC. and why is it that the rate of GIT and FIT is always equal? A: 1. Q: Do you still have to pay NIT? A: No. 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. and tax credit. " before 1979 – proceeds from the sale of real property not exempt. for GIT and FIT. in final income tax. 17 . 2. Sababan or 35%. Reason: to discourage corporations from claiming too many deductions. NOTE: as time passed by. Francis J. whether royalty or compensation) RULE: Q: Under what section is this found? A: Section 27A 4th paragraph and Section 28 A(1) 4th paragraph.( . 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. 1.
The contract was made and executed in Tokyo. 2. location if the bank is from within the Philippines (pursuant to a Revenue Reg. 15% FIT with respect to income derived from their employer. " For example the borrower is a NRAETB. FIT Q: What kind of income tax applies to DC? A: Only four (4) kinds will apply out of the six (6) 1. NATIONAL DEVELOPMENT CO. notes or other interest bearing obligations of residents.-%. namely: 1. Sababan Q: What kind of income tax will apply to AEMOP? A: Generally.!"#"$%&'()"*(+. the rest of the taxpayers are otherwise exempt. NIT b. Q: Section 42(A)(1) provides for how many kinds of interests? A: It establishes two (2) kinds of interests. " If the facts are specific. no liability. GIT b. whichever is higher between the two. GIT 2. Only one will apply. SECTION 42 IS NOT MATERIAL TO ALL taxpayers. corporate or otherwise. RC 2. The payments were initially in cash and irrevocable letters of credit. FIT and Improperly Accumulated Earnings be applied simultaneously. do not qualify your answer. interest on bonds. he borrowed money from a RA. DC " The rest of the taxpayers will be liable for income coming from sources within. Improperly Accumulated Earnings Q: May all of these be applied simultaneously? A: No. NIT 2.) – contract of loan with respect to the interest earned thereon. only the NIT. Determine if the income came from sources within or without to know the taxpayer’s liability.) 2. particularly the RC and DC because these two are liable for both income within and without. CIR F: The National Development Company (NDC) entered into a contract with several Japanese shipbuilding companies for the construction of 12 ocean-going vessels. Q: What is the determining factor in order to know if the income is from within? A: 1. Income from other sources: 1. to determine their tax liability. v. only one kind. interest derived from sources within the Philippines. FIT 3. 18 .. Determine the status of the AEMOP. Q: What kind of tax will apply to NRFC? A: Out of the six (6) kinds. RA is not liable to pay tax since RA is liable only for income within. The interest earned by the loan will be considered as an income without. NRANETB a. Q: Under Section 23. 2. Q: Is section 42 relevant to all the taxpayers? A: NO. to determine the kind of income tax applicable to them. only two (2) will apply: 1. therefore exempt. FIT Q: What is the significance of knowing the classification of these taxpayers? A: 1. therefore exempt from paying the tax. FIT 2. who are liable for income within and income without? A: Only 1. NIT and MCIT cannot be applied simultaneously.*('&$. Answers must be responsive to the question.Atty. NOTE: The income taxpayer is not a RC or a DC. a.( . MCIT 4. residence of the obligor (whether an individual or a corp. " Income from sources without. Francis J. " Section 42 is applicable only to taxpayers who are liable for income within.
then it is not also subject to withholding tax. Q: What is the controlling factor? 19 . at least 50% is income from sources within. one from the Philippines. If the NRFC is not subject to NIT. The compensation he received is not subject to tax pursuant to Section 42(c). Q: Suppose a NRFC. Q: Suppose a DC hired a NRFC to advertise its products abroad. The performance of the job was in HK. 2. is liable if the income is derived from sources within. the interest paid by him can have no other source than within the Philippines. Dividends received from DC: the Indonesian firm is liable to pay taxes. 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. 2. Accordingly.Atty. As such. (mejo Malabo sa notes. receiving two salaries. " In the absence of any or both requisites. NRFC. (Sec 42a) 2. Nothing in the law (Section 42(1)) speaks of the act or activity of nonresident corporations in the Philippines. the services were rendered abroad. assigned to Hong Kong.-%. Francis J. Compensation for labor or personal services performed in the Philippines is considered an income within. and both corporations declared dividends.!"#"$%&'()"*(+. irrespective of the place of payment. When it comes to services. sale of shares of stock of RFC: the liability will depend on where the shares of stock were sold. the 1st requisite is for the three (3) preceding taxable years from the time of declaration of the dividends.( . but this time the shares of stock of the two corporations were being disposed off. The NDC contended that the income was not derived from sources within the Philippines. it is an income without. since no tax was withheld from the interest on the amount due. he is not liable for the two incomes. the NRFC is not liable and therefore exempt from the payment of tax. if the obligor is a resident of the Philippines. 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. a DC and a RFC. it is the place where the same is rendered which is controlling. The residence of the obligor who pays the interest rather than the physical location of the securities. or place where the contract is signed.. 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. The NRFC will be liable to pay income tax if the following requisites are present: 1. under the law. thus it is an income derived from sources without. Dividends received from RFC: the Indonesian firm’s liability will depend on amount of gross income from sources within the Philippines. the income will be considered from sources without. the BIR was collecting the amount from NDC. Sababan Subsequently. an Indonesian firm. the other from HK. please be guided accordingly) Q: Filipino Executive. His status is an OCW (note facts: working in HK under contract). Later on. What is the tax liability of the Indonesian firm? A: 1. In the case at bar. what is the liability of the Indonesian firm if the same received the dividends? A: 1. bonds or notes or the place of payment is the determining factor of the source of the income. and thus they are not liable to withhold anything.*('&$. Q: Same scenario. becomes a stockholder of two corporations. Is he liable for both salaries? A: No. NDC said that since the contract was entered into and was executed in Japan. thus exempting the Indonesian firm from payment of income tax. four promissory notes were signed by NDC guaranteed by the Government.
supply of technical advice g. COMMISSIONER v. it is an income partly within and partly without. and income from the sale of real property located within the Philippines considered income within. or viceversa.000 1.*('&$. it is an income within wherever it is sold.000 = 10% " Hence. etc b. 2. 3. supply of knowledge d. industrial. Only 10. Q: What is ordinary gain? Ordinary loss? A: Ordinary gains are those received from transactions involving ordinary assets.. etc. stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year.000 will be allowed as deduction. Q: What is a capital gain? What is a capital loss? A: Capital gains are gains incurred or received from transactions involving property which are capital assets. Sababan A: The controlling factor is the place where the services were performed and not where the compensation therefore was received. supply of services by nonresident e. If the deduction being asked is 100. or the right to use copyright. Q: What is the rule as regards the sale of real property? A: Gains. Q: if you are the BIR. The following are ordinary assets: 1. Francis J. 10% is the ratable share in the deduction. considered derived entirely from the sources within the country where it is sold. All other property not mentioned in the foregoing are considered capital assets. Capital losses are losses incurred in transactions involving ordinary assets. commercial.-%. will you disallow the deduction? A: No.!"#"$%&'()"*(+.Atty. real property used in trade or business of the taxpayer. it the property is manufactured in the Philippines and sold abroad.( . 20 . property used in trade or business of a character which is subject to the allowance for depreciation provided in subsection 1. and the taxpayer is not sure. IAC Q: What is the issue here? A: They cannot determine if the business expense was incurred in the Philippines. 1. 4. determine it pro rata. property held by the taxpayer primarily for sale to customers in the ordinary course of trade or business.000 not all of it will be allowed.000 or 10% of 100. how much is the withholding? A: 35% (GIT) Q: if the franchise is granted by RFC. Q: What about the sale of personal property. RENTALS AND ROYALTIES "income from sources within Q: Granted by who? A: NRFC Q: Suppose you are the franchise holder. how much is the withholding? A: 10% (NIT) and in some cases 15% Section 42(4) MEMORIZE FOR RECIT (CEKSTTM) a. if the property is purchased.000. 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. patents. Formula: GI from within GI from without Example: 100. 2. EXCEPTION: shares of stock of domestic corporation. supply of technical assistance f. scientific equipment c. right to use: motion picture films. right of. what is the rule? A: Determine first if the property is produced or merely purchased. Capital losses are losses incurred from transactions involving capital assets. profits.
(long term) NOTE: the holding period applies to both gains and losses. LIMITATION ON CAPITAL LOSSES "synonymous to 34D & loss capital rule " this applies to individual and corporate taxpayer 21 . limitations on capital losses (39C). include in ITR. capital losses are losses not connected to the trade or business. Q: Do you include capital gains in your ITR? A: General rule: yes. 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. Losses in Allowable Deduction. 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.!"#"$%&'()"*(+. the taxpayer must be an individual. it will run counter with the rule that the loss should always be connected with the trade or business. thus it is not deductible Q: what is your remedy? A: 39 D.( . time when property was held (39B) (holding period applies only to individuals). property is capital in nature. gains in sales of shares of stock not traded in stock exchange(section 24). only a certain percentage of the gain is subject to income tax. if the loss is more than GI III. taxpayer is a corporation 3. Q: What is the holding period? A: If capital asset is sold or exchanged by an individual taxpayer. taxpayer is an individual. losses from sales or exchange of capital assets may be deducted only from capital gains. 34D3 b. but losses from the sale or exchange of ordinary assets may be deducted from capital or ordinary gains.C. 3.. 1. CAPITAL ASSETS Q: What is the loss limitation rule? A: Pursuant to Section 39 C. NET CAPITAL LOSS CARRY-OVER Q: What are the requirements? A: 1. capital loss should not exceed net income in the year that it was incurred. It is the length of time or the duration of the period by which the taxpayer held the asset. capital loss can be carried over to the next three (3) succeeding calendar year following the year when the loss was incurred. 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. Except: a. capital gains from sale of real property(section 24). In net operating loss carry-over rule.-%. 2.. and D apply to capital assets only. 2. Q: What is the term? A: 100% if the capital asset has been held for not more than 12 months. Q: When will the holding period not apply? A: 1.” 2. sale of real property considered as ordinary asset II. Net Capital Carry-Over (39D) I. Sababan Q: What is the relevance of making a distinction? A: It is relevant because Section 39B. other than a corporation. property is an ordinary asset 2. what is the rationale behind this rule? A: If it is otherwise. applies only to short term capital gain. Q: What is the requirement? A: 1. 4. (applies to individual and corporation) Q: In connection with 34 D. the capital loss can be carried over in the immediate succeeding year.Atty. Francis J.*('&$. Section 39B states “in case of a taxpayer. EXCEPT: 1. 2. 3. (short term) 50% if the capital asset has been held for more than 12 months. paid in the immediately succeeding year.
OCW 4.GPP is not subject to income tax. 22 .-%. RA " Additionally.*('&$. if the loss is greater than the gains. Q: Who are the taxpayers mentioned in section 24? A: 1. Q: What is a short sale? A: Sale of property by which the taxpayer cannot come into the possession of the property. Q: What do you mean by the phrase “other than B. if any. and C 2. Q: Are you allowed to convert ordinary asset to capital asset? A: General rule: it is not allowed. under Section 25. SECTION 24 TAX ON INDIVIDUALS Q: What is the tax mentioned in section 24? A: NIT Q: What is taxable income? A: (memorize section 31) it is the pertinent items of gross income specified in the NIRC. RC 2. Sec. C. authorized for such types of income by the NIRC or other laws.B. it will be subject to income tax of 32% for individual taxpayer. NRC 3.!"#"$%&'()"*(+. those property for sale by the realtors 2. provided that the property is an asset other the real property.Atty. CIR F: The taxpayer inherited the property fro her father and at the tie of the inheritance it was considered a capital asset. and it has been idle for two (2) years. In order to liquidate the inheritance. and 35% if the taxpayer is a corporation.. Francis J. Q: What are the properties involve in the RR 7-2003? A: 1. Sababan NOTE: only 15% of the loss will be carried over. 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. It refers to NIT because it allows deductions. Q: What is the conversion prohibited in the Revenue Regulation? A: Conversion of real estate property. 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. 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. the taxpayer has to pay FIT. EX: shares CALAZANS v. Read Revenue Regulation 7-2003 The case at bar still applies despite of the issuance of said Revenue Regulation. 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. " In net operating loss carry-over there is an exception to the 3 year carry-over period. 27 A. Sec. and D”? A: It means that if the elements of passive income are present. Q: What about Domestic Corporations? A: 1.( . the taxpayer decided to develop the land to facilitate the sale of the lots. less the deductions and/or personal and additional exemptions. I: Was the property converted to ordinary asset? H: The conversion from capital asset to ordinary asset is allowed because Section 39 is silent. If it is an ordinary asset. In case of mines other than oil and gas wells. 26.
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. RC 2. OCW 4. 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 . Prizes must be derived from sources w/in the Phils. RFC and DC 2.000 Q: Who are liable? (FIT) A: 1. NRC} Sec. it must be more than P 10. Q: MCIT applies to DC and RFC in relation to bank interest? A: If the bank interest is derived abroad. the rest are exempt. 25 (25%) 6. AEMOP 7. what is the requirement? A: The bank must be located in the Phils. 4 yrs to less than 5 yrs – 5% b. No FIT abroad because we do not have withholding agent abroad. NRC 3. otherwise apply MCIT if it’s higher than the NIT Prizes Requirements: 1. RFC NIT law is silent 28A7a 5. AEMPOP (NRANETB. For DC and RC it must be derived from income abroad RFC it must be derived from income w/in 3. DC. NRAETB 6.12% c. Francis J. and MCIT will depend on the elements present. RC } 2. RA } 4.separate 2. GIT. AEMOP (RC. RA 5. Royalties. amount is more than P10. Not Pure compensation income. Q: Do you include this in your ITR? A: No! because it is subject already to FIT.!"#"$%&'()"*(+. 24 B1 3. Pure compensation income. 3 yrs to less than 4 yrs. Q: Who are liable for bank interest? A: 1.exempt Q: What is the rule on pre. NRFC subject to GIT Q: When can we apply NIT in Prizes? A: 1. NOTE: if the depositary is a Non resident it is exempt " Resident citizen is liable to pay tax for bank interest earned abroad (NIT) Q: If the money earns interest in abroad who is liable? A: RC and DC only by NIT.joint Passive Income Interest.W/out. because the income must be derived from sources w/in. The bank is the one liable for the payment of this. prizes and Other winnings Interest Q: Bank Interest.-%. NRANETB. DC 8. RFC 9. Impose NIT if it is higher than the MCIT.20% Q: Does it apply to all individuals? A: No! It does not apply to 10 NRFC and NRA and NRAETB because they are liable to GIT. When the taxpayer is RC.( . RFC is exempt but DC is liable.*('&$. Less than 3 yrs. NRAETB) Not Liable 1..NIT 27 D is silent 4. 2.GIT) 3. NRAETB 5. NRANETB Sec. NOTE: Liability for NIT.Atty.liable for GIT at 25 % 2.000 23 . Sababan Q: Do legally married husband and wife need to file separately or jointly? A: It depends if: 1.
!"#"$%&'()"*(+. RC 2. NRAETB 6. Q: Who are liable? (FIT) A: 1. RFC 5. NRAETB 6. we do not apply it only applies to prizes. NRAETB) Not liable to FIT? 1 NRANETB.law is silent NIT 4 RFC. If Taxpayer is DC or RC 2.( . the Corporation has a P5 M Authorized 24 . Stock Dividends " it is the transfer of the surplus profit from the authorized capital stocks. TP is RC or DC 2. DC 4. Is it possible for RC and DC to pay MCIT? A: Yes if MCIT is higher than NIT. RC 2. Income is from w/out 3. Q. AEMOP (RC.Atty.. NRFC NOTE: Lower rate of 10% applies to all except NRANETB Q: When do we apply NIT to Royalties? A: 1. Income is derived abroad 3. MANNING Q: Where did it come from? A: shares come from another shareholder Q: What are the dividends included? A: Sec. " Thus. If derived from sources abroad. While FIT if for April Boy. 24 refers to cash or property dividend H: For stock Dividends to be exempt it must come from the profit of the corporation. OCW 4.GIT 2 AEMOP (NRANETB. AEMOP 3. most of them are exempt except for RC and DC who are liable w/in and w/out. Winnings Q: Do we apply the P10. Q: Assuming that there are 5 Incorporators. OCW 4. Q: Who are liable (FIT)? A: 1.000 it is not subject to tax. NRC 3. Sababan NOTE: If the prize is derived from sources w/in but it is below P 10.-%. NOTE: If income abroad. NRANETB 2. RA 5. 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. Lower rate? 10% on books. NRC 3. 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%. 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. 73) COMM. Taxpayer is RFC and income w/in. literary works and musical compositions. 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 req.? A: No.*('&$.law is silent 5 NRFC.GIT Q: When does NIT apply to winnings? A: 1. Francis J. vs. NRAETB) Not Liable? 1. the only requirement is it must be derived from income w/in. RA 5. It must not pertain to illegal gambling.GIT) 3 DC. AEMOP (RA.
4. NRFC " Shares of association and partnership is taxable Q: Determine the tax liability of the following? A: 1. " What rate: 10% FIT Q: Who are liable? A: 1. Q: Shares of Foreign Corp sold in Phils. Sababan Capital stock.always a foreign corp. Francis J. RFC stockholder of DC= Exempt also 3. or exchange or other disposition of the shares of stock in a domestic corp.the dividends must be distributed by a DC. 2. Requirements: 1. Except. income w/in read Sec. NRAETB) Not liable? 1. RA 5.Regular operating. must not be traded in the stock market " 25 R last part: Capital Gains realized by NRANETB in the Phils. It must be capital asset 3. 42 (E) If Requirement: Gen Rule. 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. the dividends did not go to the Stock holder but to the Auth Capital Stock. ANSCOR CASE !the stockholders payment of taxes cannot escape the 1. if the shares of stocks are cancelled and redeemed meaning it was reacquired by the corp. DC stockholder of RF= Liable for NIT. NRC 3.*('&$. It distributed 1 M stock dividends. is it taxable? A: NO. Shares of stock of a DC 2. RFC 5. from the sale of shares of stock in any DC and real prop shall be subj. RC 2. Only cash and Prop Stock go to the Stock holder. 24. " Sec 24 B does not mention stock dividends because it is not subject to FIT but it is subject to NIT under Section 73. DC a Stockholder of DC= Exempt 2. 24 B 1&2: If the elements are present NRANETB and NRFC are liable to pay GIT. " SEC. 3. The holding period does not apply because the basis will be those provided in 24 C & D and not under 39B (GSP or FMV) ELEMENT #1 The share is a share in DC Q: What if the share is from foreign corp? A: Determine the income considered. Except: under 24 C for NRANETB. sold in abroad= w/out c. What do you mean by the phrase “ the provisions of 39 notwithstanding”? " It refers to the holding period. Capital Gains From Sale of Shares of Stock Not Traded (§24C) " If the shares sold are that of a foreign corp it is subj to the ff rules: a. to the income tax prescribed under Sub sec (c) and (d) of Sec.Atty. DC 4.( .-%.. Who’s liable? What tax? 25 . AEMOP 3. Shares of stock in a Dc is always considered an income w/in regardless where it was sold. barter. NRANETB 2.!"#"$%&'()"*(+. AEMOP (RC. Q: Is there an exception when stock dividends are not taxable? A: YES. sold in the Phils= its income w/in b. It is uniformly imposed on all taxpayer not subj to w/holding tax. OCW 4. When it comes to capital gains from sale of shares of stock not traded and capital gains from the sale of real prop. NRAETB 6.
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. to all other assets.Atty. 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. it will be subj to percentage tax. Ordinary shares in DC. Thus.. 26 . pay FIT are all ELEMENT # 3 The real prop must be a capital asset Q: When considered a capital asset? A: Read R.income w/in a. Sababan A: Not subj to FIT because one of the elements is not present . in lieu of NIT.it is not subj to FIT " if sold in the stock market. Most of the taxpayer will pay NIT except NRFC and NRANETB 2. NRAETB) will pay NIT.!"#"$%&'()"*(+. The real prop must be sold w/in the Phils and located in the Phils. 2. 2.R. " NRFC liable to pay GIT and not FIT " NRANETB liable to elements are present. Hence: a) RC. the taxpayer has the option of paying 32% NIT or 6% FIT Q: Which is more advantageous? A: It depends determine first if there’s a loss or a gain. If there’s a gain choose to be taxed at 6% FIT.6% FIT Requirements: 1. Income within if sold in the Phils: most will pay except NRANETB and NRFC b. NRAETB. Income w/out if sold abroad: most will be exempt except RC and DC MCIT Q: When is a RFC subj to NIT? A: 1. The seller must be an individual. It must be a capital asset 3. Francis J.-%. 39 A: Other property not mentioned are capital asset. sale of shares of stock of DC which are ordinary asset " DC and RFC are subj to MCIT which may be imposed if the NIT is lower than the MCIT2% MCIT will be imposed if MCIT is higher than NIT. estate or trust or a DC " RFC not liable for FIT but liable to pay NIT if all the elements are present. Q: What if all the elements are not present? A: most will be liable to pay NIT Except NRANETB and NRFC liable for GIT Q: May a RC be liable to pay NIT even if all the elements are present? A: YES. When the broker or dealer a.*('&$. Q: When is it considered an ordinary asset? A: 1. ELEMENT # 3 It must be a capital asset. In this case the gain is always presumed. AEMOP (RA. 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. held for sale in the ordinary course of trade or business 2.( . used it in trade or business b.2003 Q: Ordinary asset. NRC. Ordinary assets of foreign corporations a. 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. disposition made to the Govt. 7. Sale of shares of stock of a Foreign corp in the Phil. OCW. Shares not being that of a DC.shall refer to all real property specifically excluded from the definition of capital asset under Sec.
trade or activity must not exceed 50% of its total gross income derived by such educational inst or hospital from all sources Requirements: 1. & HOSP.!"#"$%&'()"*(+. subject to 10% on their taxable income except those covered by subsection (D) PROVIDED that gross income from unrelated business. FIT. the portions of the gain is subj to FIT SEC.Atty. Non. The purpose of the seller is to acquire new residential real prop 2. Inst and 2. Other transactions are covered: 1. but the optional is not yet applicable so only 4. Optional corporate income tax of 15% of the gross " DC liable for five. TESDA. or CHED Q: What do you mean by unrelated trade business or activity? 27 . 24 Requirements: 1. Q: How many can be simultaneously? A: ONLY 3 1. NIT. Francis J. the FIT does not apply because the property is not yet transferred because there’s a period of redemption If after a year the mortgagor failed to redeem the property that is the only time that the FIT will apply because there’s now a change of ownership. it is stock corp 3. other disposition NOTE: If the prop is under mortgage contract and the mortgagee is a bank or financial inst. Who are the taxpayers? 1. Sababan If there’s a loss choose to be taxed at 32% because losses may be considered an allowable deduction . 5.-%. MCIT. 27 (B) PROPRIETARY EDUCATIONAL INST. sale 2. Comm..*('&$. the privilege must be availed of w/in 18 mos. 10% IAE applied SEC. what will happen to the unused portion or profit? A: If the proceeds are not fully utilized. It is a private school or hospital 2. the privilege must be availed only once every 10 yrs 6. MCIT 3.Profit Proprietary Educl. is it exempt? A: No. Exceptions (§24(D2)) Q: What if the prop being sold was a movie house. barter 3. If the mortgagee is an individual the FIT is imposed whether or not there is a transfer of ownership. has permit to operate from DECS. Non Profit Proprietary Hospital Q: What if the school or hospital is non profit only. 10%Improperly Accumulated Earnings 5. NIT 2. the adjusted basis or historical cost of the residence sold shall be carried over to the new residence.( . FIT and 10% IAE 2. FIT 4. Capt where the taxpayer resides that indeed the prop sold is the principal residence of the tax payer (RR 13. must be informed w/in 30 days from the date of sale with the intention to avail of the exemption 4. If redeemed w/in 1 yr period FIT will not apply because there’s no change of ownership. it is non profit 4. exchange 4. From the sale 3. that gross income from unrelated business. trade or activity must not exceed50% of its total gross income derived by such educational inst or hospital from all sources 5. 27A RATES OF INCOME TAX Q: How many income taxes are paid by a DC? A: 1. Certification of the brgy. 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.99) Q: What if the property is worth 10 M and it was sold only for 2M.
3. The provision of the NIRC is the specific law which prevails over the Constitution which is the general law. it must be non-stock. if the law is silent apply the Consti.stock and non. non-profit educational inst. 23: GOCC.and all lands buildings. Exceptions 1.4 Art. Its agencies and instrumentalities 28 . Basco case Q: What is the difference between Sec. INST of the GOVT. Sec 27 C exempts those enumerated without any qualification. ! exempt from all taxes and custom duties Q: What about exemption from real property tax? A: Art. 14 of the Constitution. 2. 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. Q: You donated a property to a school will you be liable for donor’s tax? A: not liable if it falls under Sec.Atty. 4 of Art.( . as a rule NO. actually directly and exclusively used for religious. even if the GOCC is one of those enumerated under Sec. not more than 30% of the prop donated shall be used by such donee for admin purposes. If the taxing authority is the National Govt. Sababan A: It means any trade. non-profit educational inst. FOR EXEMPTION TO DONORS TAX: 1. National Govt. those entities enumerated under §27 C 2. directly.*('&$. 6 Sec. 101 (3) of the NIRC REQ.-%. and educational purposes shall be exempt from taxation. Q: Is Art 14 Sec. 109 (m) of R-VAT Q: What about exemption fro Loc Gov Code? A: If its non-stock. PHIC 4. 27 it may still be exempt under Sec. Q: If the GOCC is not one of those enumerated does it follow all of its income is automatically subject to tax? A: NO. and exclusively fro the primary purpose Q: Under what law? Is it the constitution or the NIRC which provides fro the exemption? A: It is under Sec. 4 of the Consti obsolete? A: NO.!"#"$%&'()"*(+. Therefore. …. 28 of the Constitution: charitable institution churches. 2. Sec. 32b7b qualification must concur before it may be exempted. PCSO " PAGCOR no longer included. GEN RULE: Subj to tax. Q: Can the government impose tax on itself? A: It depends on who the taxing authority is. SSS 3. 14 of the Constitution. Francis J. 30 of NIRC and not under Sec. 32 b7b if its performing governmental function NOTE: Pagcor vs. LGU’s are expressly prohibited from levying tax against: (Sec 133(o) 1. YES. as a rule. AGENCIES. 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. 27 C and 32 b7b? A: 1. those GOCC falling under §32b7b If the taxing authority is the local government units. ! Not Sec. It must be non.. charitable. EXCEPTIONS: 1.profit 2. GSIS 2. Under Sec 32. Are therefore exempt from income tax. It may be exempted from local taxation. paying no dividends 4. 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. the assets property and revenues must be used actually. 2. SEC. governed by trustees who don’t receive any compensation 5. Business.
imposed by City of PAranaque on NAIA. they are not exempt from long tem deposit. Bank interest must be received by a Domestic Corp 2. Q: What is the tax to be paid? 29 . Sababan 3. 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. PAL CASE July 20 2006 H: The SC used 133 (o)an exception to pay tax. they may be exempt from the payment of interest in case of long term deposit except NRANETB If DC.!"#"$%&'()"*(+.Atty. 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.EFCDS Borrower. DC have no lower preferential rate.Cebu Airport case SEC.. Off shore banking units 2. NOTE: Mactan. local commercial bank 4. have a lower rate of 10%on books. The SC said that the airport is not an agency or GOCC but mere instrumentality of the Govt. what is the difference if the taxpayer is an individual or corporation? 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.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. Francis J. 27 exempt D(4)Inter-corporate dividendsor REQ: 1. Other depositary banks under EFCDS 5.-%. then depositary bank will be exempt from paying the NIT Foreign Currency Loan Q: Who is the lender? Borrower? A: Lender. Q: What about royalties? A: If individual. branches of foreign banks 3. other literary and musical compositions.residents " if the above enumeration are the parties. If it involves foreign currency transaction it is not exempt but subject to 35 % NIT Q: Who are the other parties? A: 1. Non. 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. 133 (o) is for local taxation not real property taxation which is the one involved in the present case. Royalties derived from sources within Q: When it comes to bank interest. 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. real estate tax.*('&$. This is Gross ignorance of the law Sec.
Air carrier 2. shall pay 2 ! % on its Gross Phil Billings (GPB) Q: Is 28 A3 the Gen. Q: Do you consider landing rights to determine liability? (RR 15-2002) A: 1. " RFC will be liable for NIT. 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. Continuous and uninterrupted flight. exchanged or indorsed tickets REQ: 1.( . Sec 28 A1 Q: What Kinds of taxes are paid by the RFC? A: NIT MCIT Sec. 27 Sec. Q: What is the Rationale? A: to prevent corporations from claiming too many deductions Q: When will it be imposed? A: 1.Atty.*('&$. rule or the Exception? A: It is the general rule because it is under 28 A3 " GPB is in the nature of FIT. applies only if all the requirements are present. 2.-%. Irrespective of the place of sale or issue and the place of the payment of tickets or passage document. cargo and mail originating from the Phils in a continuous and uninterrupted flight. carrier doing business in the Phils. 2. provided that the stopover does not exceed 48 hrs. Originating from the Phils. 28 B2 MCIT on RFC ! same with Sec. The passenger boards a plane in a port or point in the Phils. imposed in lieu of the NIT. Revalidated. whichever is higher. SEC 27 (E) MCIT Q: Applicable to whom? A: DC and RFC Q: Can it be applied simultaneously with NIT? A: NO. REQ: 1. 30 .ONLINE. When the MCIT is higher than the NIT Q: What is the carry over rule? A: Sec 27 E2 states the carry over rule. hence a RFC engaged in common carriage does not pay GPB but NIT " Income without: EXEMPT International Carrier: " GPB refers to the amount of revenue derived from: carriage of persons. " In order to avail: only in the year where the MCIT is greater than the NIT. No landing rights. Sababan 27 D5 Capital Gains from sale of Real Prop. Francis J..!"#"$%&'()"*(+. is it still uninterrupted? A: YES.RFC 2. If originates from the Phils and has landing rights.OFFLINE. ships " An intl. On the 4th year immediately ff the year in which such corp commenced its business. irrespective of the place of sale or issue and the place of payment of the tickets or passage document.NRFC Q: If there are stopovers. 28 A3. 3.INTL CARRIER Kind: 1. excess baggage. 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.
annuities.EXEMPT International Shipping " GPB means gross revenue whether from passenger.!"#"$%&'()"*(+. mail REQ: it must originate from the Phils. Local Commercial Banks Transactions of Non Residents: 1. only acceptable foreign currencies 2. Q: Is it liable for the whole flight? A: From the Phils to the point of transshipment.OBU Borrower. profits. or casual gains. Francis J.. Lender: OBU’s NOTE: Non resident exempt transactions with OBU’s and EFCDS from SEC.Resident Citizen EXCEPT: 1. Dividends.*('&$.( .Atty. Can be a domestic or foreign corporation 3. always a foreign corporation (subj to NIT) except #3 3. The tickets must be revalidated. 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. premiums. it is income without. Royalties including remuneration for technical sevices. Exempt if income is derived by the OBU from EFCDS 4. cargo. it is income within hence apply NIT if purchased outside. salaries. Acceptable foreign currency. Sababan 2. its income w/out. it is income w/in From transshipment to final destination. OBU 2. 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.-%. it must be to another airline Q: What if it did not originate from the Phils. Difference with EFCDS: EFCDS 1. 28 A5 TAX ON BRANCH PROFITS. hence exempt Transshipment REQ: flight originates from the Phils transshipment of passenger takes place at any port outside the Phils. Parties: a) local commercial banks b) Foreign bank branch c) Non Residents d) OBU in the Phils. Rents. Exempt if income derived by DC or RFC from EFCDS 4. Phil. emoluments.Residents 2.? A: Determine if its income within or without. exchanged. Q: What if it’s the same airline but different plane? A: GPB does not apply. Income earner: Non. 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 . wages. Currency or both 2. or indorsed to another airline. if ticket was purchased in the Phils.regardless of the place of sale or payments of passenger or freight documents Sec28 A(4) OFF SHORE BANKING UNITS OBU’s 1. up to final destination . 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.
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. It is a RFC 2. it is a RFC Q.Why? A: NIT because it is RFC Q. Gen. Income derived from foreign currency transactions with: a) Non Residents b) OBU c) Local commercial bank d) Foreign bank branches SEC. 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. 2. Q: What are the requisites? A: 1.*('&$. the profit remitted is effectively connected with the conduct of its trade or business in the Phils.Atty. coordinating centre for their affiliates.Pacific Region and other foreign markets. 28A7a Interests and Royalties: " 20%FIT " Interests under EFCDS= 7 ! % Sec. 4.( . logistic services 8. Sourcing and procurement of Raw materials and components. communications.-%. Training and personal management 7. Administration and Planning 2.!"#"$%&'()"*(+. " Regional Operating HQ is a branch established in the Phils by a multinational company engaged in any of the services: 1. research and development services and product development 9. Marketing Control and sales promotion 6. Acts only as supervisory. Subsidiaries NOTE: 1. Corporate Finance and Advisory Services 5. Branch Profit Remittance Two ways to receive income (FC) 1. Sababan the same are effectively connected with the conduct of its trade or business. 2. it is always a FC 2. data processing and communication and business development Rationale: Why liable? Because the claim for exemption of resident airlines shall be minimized SEC. 28 A6a 32 . the HQ do not earn or derive income from the Phils. Branch did not participate in negotiations " Regional or area headquarters (Sec.. Francis J. subsidiary or branches in the Asia. Q: Is is subj to FIT? A: NO. 22 DD) shall not be subject to tax exempt from income tax if the requisites are present. Business Planning and Coordination 3. technical support and maintenance 10. thus the same was asking for a refund of tax erroneously paid. It is in addition to NIT. Branch 2. One not registered with PEZA MARUBENI CASE F: A branch was established with AG&P. 28A7b Income derived under EFCDS 1. When a FC establishes DC. When a FC establishes branch. SEC. exempt if petitioner is RFC H: -not correct to pay 15% To be liable for BPRT 1. 28 A6b " Regional Operating HQ are taxable and liable to pay 10% taxable income.
profits and income. Other fixed and determinable Gains. Pursuant to the contract Atlas paid interst to Mitsubishi where the corresponding 15% tax thereon was withheld and only remitted to the Govt. " liable for 7 1/2 % GIT SEC 28 b5a Interest on Foreign Loans " Must be read with Sec. NRFC liable to 20% FIT 2. 2. Royalties 5. if the lender is 1. The contract provides that Mitsibushi will extend a loan to Atlas in the amount 20 M dollar. and other Equipments. and other domestic securities or from interest on deposits in banks by: a) Foreign govt. Other depository bank under the EFCDS » SEC. B(4) Non Resident Owner or Lessor of Aircraft. applied for a loan from Export. MITSUBISHI METAL CORP. Premiums( except reinsurance premiums) 7. vs. Dividends 3. so that Atlas will be able install a new concentrator for copper production. 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. Chartered to Filipino Corporations 2. Other OBU in the Phils. and 2.RFC= EXEMPT.) for the purposes of projected expansion of the productivity capacity of the former’s mines in Cebu. Interest 2. " liable for 4 ! GIT SEC. emoluments 9. SEC 28 B2 Non Resident Cinematographic film owner. Foreign Govt. lessor or distributor " liable for 25% GIT SEC 28 B3 Non Resident owner or lessor of Vessels chartered by Philippine Nationals. Exempt because it is an exclusion (Sec 32 b7a: income derived by a foreign gov’t from investments in the Phils on loans.Atty. and c) Inter nation or Regional financial inst established by foreign govt.!"#"$%&'()"*(+. Francis J.. b) Financing inst owned controlled or enjoying. 32 B7a Interest on Foreign Loans.Import Bank of Japan (Exim Bank) and from consortium of Japanese banks. Sababan e) Other depository EFCDS bank under the Elements: 1. Machiniries.*('&$. It is the contention of Mitsubishi that it was the mere agent of 33 . bond. 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. upon recommendation by the Monetary Board to be subject to regular income tax payable by any banks. stocks. not subj to tax SEC 28 B1 Q: What kind of tax? A: 35% GIT on the ff income 1. Salaries 6. 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. refinancing from foreign govt. ( A Japanese Corp. Rents 4. 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.-%. (180 SCRA 214) F: Atlas Mining entered into a Loan and Sales Contract with Mitsubishi Metal Corp. annuities 8.( . -Mitsubishi to comply with its obligation. COMMISIONER OF INTERNAL REV.
Phils liable for income within and income without 2nd : countries liable only for income within. The contract between the parties does not contain any direct reference to Exim Bank. Francis J. actual proof of payment not necessary.Atty.( . I: WON Mitsubishi is a mere agent of Eximbank H: NO. One claiming for refund was not the proper party 2. The bank has nothing to do with the sale of copper to Mitsubishi. Laws granting exemption from tax are construed strictly against the taxpayer and liberally in favor of the taxing authority. 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. 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. 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. US.*('&$. Atlas and Mitsubishi had reciprocal obligationsMitsubishi in order to fulfill its obligations had to obtain a loan. Income tax is FIT: the withholding agent is the proper party because he is liable to pay said taxes 2. law provides but the law is silent. it is strictly between Mitsubishi as creditor and Atlas as the seller of copper.they belong to different categories The BIR tried to collect 35% because the law is totally silent about the tax credit H: The SC said that the tax should be 15% which applies 2 instances: 1. 28 DIVIDENDS: D5 b INTERCORPORATE 1. WANDER CASE Q: Who are the parties? A: DC(Wander) and FC (Glaxo). Germany. denial anchored on 2 grounds: 1.!"#"$%&'()"*(+. MARUBENI Case: 2 Issues 1. but SC said liable only to 25% because of the tax treaty 34 .35% 2.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.15% 3. Sababan Exim Bank which is a financing inst owned and controlled by the Japanese Govt. what is necessary is the law of the domicile of the country providing fro tax credit equal to 20% of the tax deemed paid. the SC reversed itself " FIT 15% imposed on the amount of cash and or prop dividends received from a domestic corporation. Foreign law do not provide for tax credit. in its independent capacity with Exim bank. 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) . Is the payment of 10% FIT correct? . SEC. 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.-%. 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..No because it was a branch and RFC but still Marubeni was NRFC under the old law which is liable to pay 35%.
In case of subsidiaries of foreign corporation.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. and other non. Banks. if the profits are undistributed the shareholders will not incur liability on taxes with respect to the undistributed profits of the Corp. Now. 2005. 31 defines taxable income as the pertinent items of gross income specified in this Code. 6.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. B) Corporations which are exempt whether or not it is for reasonable needs of the business: 1. 29 IAET 3. less the deductions and/or personal and additional exemptions. 35 . Taxable partnerships 5.taxable joint.Dec 31. acquisition approved by the Board Earnings reserved for compliance with any loan agreement or pre. Francis J. .Atty. 2005. they will be liable for the payment of Dividends tax. Publicly. or indirectly by or for not more than 20 individuals NOTE: Publicly held Corp. Q: What is taxable income? A: SEC.. it is imposed to compel corporation to declare dividends.*('&$.!"#"$%&'()"*(+. plants.2001( classified as closely held corporations) Q: Is it in the nature of sanction? A: Yes. 2. Q: What is the rate? A: 10% of the gross income (taxable income) 4. they incur no liability and exempt from payments of the same. all undistributed earnings or profits intended or reserved for investments Q: Why? A: because if profits are distributed to the shareholders. has more than 20 shareholders Q: What is the time for paying this tax? A: Calendar Year: Jan 25. 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. if any. You have 1 year to declare after the close of the taxable year.existing obligations Earnings required by law or other applicable statutes to be retained.bank financial intermediaries.-%. the 5. Today is 2006. earnings reserved for the definite corporate expansion projects or programs approved by the Board Earnings reserved fro buildings. Non. " It is imposed upon the improperly accumulated taxable income of the corporation Q: Applies to what Corp? A: to DC only under RR 2. 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. Insurance companies 3.ventures 7.15% SEC.up capital of the corporation. 2. 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. law is silent because there’s no law because the subj matter is not taxable. or equipment. General Professional Partnerships 6. Sababan 4. of the paid.( .held corporations 4.
officer. YMCA Q: What is the basis of Manila BIR for the imposition of the tax? " Determine the Corporations’ exemptions under Sec. shall be subject to tax. except if it earns income from other business " Joint Venture w/ service contract w/ government not a corporation. it is liable. 2. chamber of commerce. Artistic or Cultural purposes. order or association. providing for the payment of life. You will pay on January 2007.-%. Sec 30. Assignment: Sec. General Professional Partnership is exempt but the exemption is not the same as provided by Section 30. 3. Labor. Francis J. or any specific person. 5. " exemption to the exemption: income of whatever kind and character of the foregoing organizations from: 36 . 2006 – Midterms August 14. Charitable. a generally taxable corporation cannot be joined with the group as generally not taxable corporation. What is the requirement? A: 1. (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. a beneficiary society. otherwise.Atty. real personal. agricultural or horticultural organization not organized principally for profit. any of their properties. The exemption under Section 30 is not absolute while the exemption under Section 27 C is absolute and without any conditions. 4. Q: Enumerate the exempt corporations under Section 30. will you still be liable? A: No. if you invoke adjustments SEC 30. CIR vs. any activities conducted for profit or " regardless of the disposition of said income. Cemetery (a) company owned and (b) operated exclusively for the benefit of its members. 30 27 C and 22B. Section 22B provides that a joint venture is generally taxable unless it has a service contract with the government.( . 1. Non-stock corporation or association organized and operated exclusively for Religious.*('&$. In addition. as a general rule is not a corporation 4. EXEEMPTIONS CORPORATIONS FROM TAX ON 1. Scientific. (lodge system: operating world wide) or a mutual old association or a non-stock corporation: a. 2. Civil league or organization not organized for profit but operated exclusively for the promotion of social welfare. Thus exemption is unconditional 3. or Board of trade. the corporations shall not be taxed under this title (tax on income) in respect to income receive by them as such. Sababan 2006 is the grace period. Sec 27. the corporations enumerated are always exempt. organized by employees.. Business league. accident or other exclusive benefits to its employees and their dependents. Q: If you’re not mentioned to be exempted. 2.!"#"$%&'()"*(+. operating for the exclusive benefit of the members such as fraternal organization operating under lodge system. 35 August 21. or for the Rehabilitation of Veterans (RCSACR). Mutual savings bank not having a capital stock represented by shares. 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. Sec 22B GPP. organizer. TAKE NOTE: Las Paragraph of Section 30. b. sickness. no part of its net income or asset shall belong ot or inure to the benefit of any member. and cooperative bank without capital stock organized and operated for mutual purpose and without profit. 7. 6.
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. 9. H: The SC revised the ruling. Income that are considered an exclusion. like when the RC is employed in Multinational. and petroleum companies. 2. TAKE NOTE: compensation is included in the ITR if the taxpayer is not liable for NIT. [Sec. or like organization of a purely local character. 2. a non-stock and non profit educational institution. Farmer’s or other mutual typhoon or fire insurance company. the income of which consists solely of assessment. including the rent income of the YMCA from its real prop. dues and fees.!"#"$%&'()"*(+.-%. 32 A? A: it applies to all except: 1. Income that are subject to FIT. included in the ITR. YMCA Is exempt from the payment of property tax. does it follow that it is automatically included in the GIT? A: No. they pay by way of GIT. Q: What is the income tax referred to here? A: NIT. Q: When do you not apply Sec. mutual ditch or irrigation company. TAKE NOTE: income of sales agent is exempt. 32 A (1)] Q: What is compensation? A: all remuneration for services performed by an employee for his employer under an employer-employee relationship. gov’t educational institution. fruit grower’s or like association organized and operated as a sales agent for the purpose of marketing the products of its members and turning back to them the proceeds of sales. NRANETB 2. Farmer’s. shall be subject to tax. Q: If the is mentioned under Section 32 A. [Sec. gross income? Is it included in the ITR? Is it subject to NIT? A: Sec. YMCVA is liable to pay income tax applying the last paragraph of Section 30. included in the ITR. CHAPTER VI: COMPUTATION OF GROSS INCOME SECTION 32: GROSS INCOME Q: What is the tax treatment? Are these taxable income? Are these included in the 37 . if the salary is subject to FIT. 8. NRFC » they do not pay NIT. real or personal. commissions. The tax code specifically mandates that the income of exempt organizations (under section 30) from any of their properties. 32 A (2)] Q: What is the income tax here? A: NIT. Section 32 A states “Except when otherwise provided in this title” Q: What are the income that are not included.*('&$. and similar items. salaries. The section refers only to the payment of NIT. wages. Francis J. and 3. 10. collected from members for the sole purpose of meeting its expenses. 11. but not to income tax on rentals from its property. Income that are exempt. Q: What are included in the Gross income? A: 1. Compensation for services in whatever form paid including but nor limited to fees. Sababan A: last paragraph of Section 30. Thus.Atty. because YMCA was conducting an activity for profit. 32 A answers the questions.( .. Gross Income derived from the conduct of trade or business or the exercise of a profession. if subject to NIT. not subject to NIT? A: 1. less the necessary selling expenses on the basis of the quantity of produce finished by them. Section 31: TAXABLE INCOME Q: Is there an instance where the salaries of a RC is not included in the ITR? A: Yes. It speaks of the NIT. offshore banking.
Exempt: a. 32 A (5)] " subject to NIT. Dividends. Sababan 3. those that does not constitute passive income.( . Winnings – derived from sources within. it is a capital asset. – subject to NIT. 32 A (9)] Q: What kind of prizes and winnings? A: a. subject to FIT. RC 2. TAKE NOTE: 1.. [Sec. included in the ITR.000. Thus. Thus. DC individual taxpayer = FIT 2.*('&$. Passive Income 1. Prizes – derived from sources within and over 10. 1. 9. not included in the ITR. it is not included in the ITR. Gains derived from property. winnings: PCSO and Lotto winnings. 38 . b. [Sec. thus subject to FIT. interest. those that are not considered as an exclusion. Q: What kind of annuities? A: annuities which are not exempt from tax are included in the computation of the gross income. 8. the buyer accomplishes the ITR. Annuities. 2. 5.) " if the elements are present. Rents. DC – NRFC = FWT " only dividends issued by a FC to an individual taxpayer (RC OR RA) is included in the computation of the gross income. trust. ! Elements are not present. is an ordinary asset or when it is capital asset if the taxpayer is RFC. estate. 4. Thus not included in the ITR. included in the ITR. Francis J. if subject to FIT. [Sec. Q: Who are the taxpayers? A: Liable from income w/in and w/out and the rest are exempt. [Sec. 32 A (4)] Q: What interest is being referred to here? A: interest which is included in the computation of gross income is interest earned from lending money and interest from bank deposit which does not constitute passive income. exempt. TAKE NOTE: 1. 32 A (3)] dealings in 6. Royalties derived from income without. and b. 32 A (6)] Q: What is being referred to here? A: royalties which does not constitute passive income. the law did not distinguished between real and personal property. not included. without or abroad. Thus. Thus. located in the Phil.00 2. Q: Bank interest from Solid Bank. the withholding agent will be responsible for this.-%. DC 7. sold by individual. Sale of real property 2. 32 A (8)] TAKE NOTE: R-R 17-2003 " Real property sale subject to FWT. 32 A (7)] Q: What kind of dividends? A: one that does not constitute a passive income. is it included in the ITR? A: No. [Sec. Withholding agent accomplish the forms ! subject to FIT if the following elements are present: 1. do you include this in the ITR? A: it depends a.Atty.!"#"$%&'()"*(+. DC – DC & RFC = EXEMPT 3. Sale of shares of stock (personal prop. because it is included or considered an income within. Royalties. (included in the ITR) Q: Did the law distinguished? A: No. like when the real prop. included in the ITR.: and 3. Prizes and Winnings [Sec. if subject to NIT. [Sec. DC. Bank interest from sources. Q: Income form the sale of property.
Amount received by insured as return of premium [Sec. When derived from income without. have the same characteristics ! all tax do not apply. 1.*('&$. » subject to Estate tax.000. (6)literary. (5)artistic.. " prizes and awards granted to athletes are also exempted provided: 1. 3. (7)civic achievement are exempt PROVIDED: 1.( . sanctioned by the national sports association. (4)educational. the beneficiary is a third person other than the estate. included in the gross estate. (2)charitable. and 2. merely Q: is this subject to Estate Tax under Sec. and 3. the interest payment shall be included in the gross income. 2. say 10 years and thereafter the insured did not die. the beneficiary is the estate. it does not matter. deductions. included in the gross estate regardless of whether or not the designation of the beneficiary is revocable or irrevocable. Francis J. 2. Partner’s distributive share from the net income of the general professional partnership (GPP). 26 SEC 32 INCOME B EXCLUSIONS FROM GROSS TAKE NOTE: Exemptions. Q: Does it matter who the beneficiary is or paid in a lump sun or single sum? A: No. exclusions. Q: When is a prize subject to NIT? A: 1.Atty. 2. 1 M – 100 thousand = capital It is exempt (100K) 900K is taxable. held in the Philippines or abroad. 3. Q: When is winning subject to NIT? A: 1. Pensions [Sec. (3)scientific. the recipient is not required to render substantial future services as a condition to receiving the prize or award. b. 10. prizes: " those primarily for recognition of (1)religious.!"#"$%&'()"*(+. Q: What do you mean by exclusions? Are these exempt from income tax? A: these are not included in the gross income. when the income earner is a DC or RC. Ex.-%. 39 . when the income earner is a DC or RC. when derived from income without. THUS.00. 32 B (2)] Q: if the insurance is payable within a certain time. local or international sports competition or tournament. when less than 10. 2. b. Proceeds of life insurance: decedent insured himself. Q: What is being referred to? A: GPP exempt from payment of corporate income tax " shares of partners subject to NIT – Sec. a.1 Revocable Designation ! subject to estate tax. Life insurance [Sec. inclusion or exclusion will depend on who the beneficiary is. Exception: amounts held by the insurer under an agreement to pay interest thereon. 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. how much will be excluded? A: only the amount received by the insured as a return of the premiums. Sababan b. 85 E? do we have the same requirement? A: no. the requirement for exemption is not the same under Section 85 E. Q: Why is it excluded? A: because the amount received represents a return of capital. 32 A (10)] Q: What kind of pension? A: Included in the gross income if not exempt » never subject to fit (?) 11. the recipient was selected without any action on his part to enter the contest or proceedings. exempt.
2. 32 B (6)] pensions. subject to percentage tax under Sec. » entitled to 15 days salary and ! of the 13th month pay for every year of service. Q: Is it subject to VAT? A: 1. a.( . 2. 2. Francis J. Non-life insurance – yes. the retiring official or employee has been in the service of the same employer for the last 10 years. Q: Why is it considered an exclusion? A: because this is just an indemnification for the injuries or damages suffered. 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. Gifts. the retiring official employee is at least 60 years old but not more than 65 years old. 7. b. Q: is this the same as those provided under the workmen’s compensation act (wca)? A: YES. Under RA4917 (with Retirement Plan) 1. BEQUEST and DEVISE are excluded because they are subject to ESTATE tax.2 Irrevocable Designation ! not subject to Estate tax. 5. not important to know whether property is real or personal. personal injuries and sickness.*('&$. There are 3 groups: a. Reason: the insured loses the power to control. B. modify and change the beneficiary. gratuities [Sec. and c. 32 B (5)] Q: What is excluded? A: income of any kind required by treaty binding upon the Phil. and 4. he is at least 50 years old at the time of retirement. 40 . Government. Income exempt under a treaty [Sec. Q: Why do we need to distinguish retirement pay. Life insurance – NO. 4. " gift. bequest or devise” TAKE NOTE: A. What is exempted is the “value of property acquired by gift. the official or employee avails himself/herself of the benefit only once. 3.!"#"$%&'()"*(+. even if not injured. the private benefit plan is approved by the BIR (RR2-98). b. subject to VAT under 108 (A). Q: What does injury include? A: The term injury includes death. Bequest and Devises [Sec. 123 of the Tax Code.-%. devise or descent of income from any property in case of transfers of divided interest. Retirement benefits.. Sababan Reason: because of the insured’s power to modify or change the beneficiary. Compensation for sickness [Sec. 32 B (3)] Q: Why is the donee exempt from income tax? A: Because the law classify it as an exclusion. separation pay and terminal leave pay? A: because they have different requirements for exemption. Q: what is included in the gross income? A: income from such property. the employee or official must have served the company for at least 5 years. 6. b. Exception: damages representing loss of income.Atty. Damages to prevent injuries and sickness. 32 B (4)] injuries or Q: when will the damages recovered be exempt? A: General Rule: all damages awarded are tax exempt. not included in the gross estate. Under RA7641 (without retirement plan) 1. if the person dies this will be available. Health or accident insurance or those under workmen’s compensation. Q: What is retirement pay? A: the sum of money received upon reaching the maximum age of employment. bequest.
2006. Rule: Gov’t workers (both officers or nonofficers) granted TLP on a yearly basis ! exempt from income tax. TLP granted on a yearly basis: 1. public as well as private to RC. therefore.midterms 6-8 pm until sec 32 B(6) NIRC. that which is ordinary loss. August 28.e. SEC.!"#"$%&'()"*(+.2 par. RR2-98. within the control = included. 31 says gross incomedeductions. 32 B(6)(c) " retirement benefits given by foreign government. 2.-%. (3) physical incapacity or injury. Terminal Leave Pay granted upon retirement or separation: » uder PD220. Q: Are there any requirement for separation pay granted by foreign gov’t or corp? A: None. Q: What is terminal leave pay? A: the accumulated vacation leave and sick leave benefits converted to cash or money to be given either every year or upon retirement or separation. RR16-200 (3). NRC.. (2)death. thus exempt if due to: a. employee in the private sector: a. Gov’t Employee: » governing law: EO 291 of Pres. Sababan SEC. " Take Note of 3 cases. Examples: 1. Q: is separation pay an exclusion. Borromeo case: " Same as the Zialcita case Issues: WON the TLP is subject to income tax and WON COLA and RATA are included? SC: RULED TLP is Exempt! 41 . »If 10 days or less – exempt. accumulated sick leave – subject to income tax. Q: What is separation pay? A: on given when one is terminated from the service because of (1) illness. GENERAL RULE: Separation pay not exempt (?) Exception: 1.( .excluded b.may be deducted from capital gains and ordinary gains. b. causes beyond the control of the employee. 2006. 2. Accumulated vacation leave: if more than 10 days (meaning 11 pataas) – subject to income tax. Sec.exempt without further qualifications – automatic exclusions.*('&$. RMC 16-2000. 2.f) " retirement benefits given by the Philippine Gov’t through the GSIS. . . Francis J. 2. ! there is no qualification as to vacation or sick leave. TLP in the Gov’t or in the Private Sector shall be exempt from income tax if given or granted upon retirement or separation. Conditional exclusion a. Sec. SC: on a different ground – TLP is exempt because it is similar to Retirement pay. physical incapacity or injury. or (4) causes beyond the control of the employee. Estrada. 97. within employee’s control – included. contention: TLP should be exempt from income tax pursuant to the old law. registration – CBA provides separation pay. thus exempt but the ruling’s application is limited only to DOJ employees. the separation pay granted by the aforementioned institutions are exempt without further qualifications (“other similar benefits”). 32 B(6)(d. Automatic exclusions. Case of Zialcita " retired from DOJ. 78. SSS and PVAO are exempt without further qualifications = automatic exclusions. exempt? A: No. » be reminded of EO 291. death c.Atty. August 21. ANSWERS = MIDTERMS " Gross Income include both capital and ordinary gains. illness b. foreign corporation. installation of labor saving devises or bankruptcy – beyond the control = excluded. RA residing permanently in the Philippines .
13th month pay and other benefits (Sec. Sec. 3. LESS THAN 10 DAYS = EXEMPT 8. controlled or enjoying re-financing from foreign gov’ts. other domestic securities 2. Brunei Gov’t earns interest by depositing money in Makati Bank – Exclusion.!"#"$%&'()"*(+. Q: Does the rule or decision applies to Gov’t officials only? A: No. 32 B (7) (b) a. artistic. 32B 7 d) 1. sanctioned by the nat’l sports associations. exclusion c.( . stocks c.-%. RR2-98. 32B 7 e) Q: Do you include Christmas bonus in your ITR? A: No. 1998 – the rule applies to both private and public sectors. 2. b. MORE THAN 10 DAYS = TAXABLE 2.. investments in: a. 32 B 7 c) » primarily for religious. foreign government 2. 2000) » Officer in gov’t receiving TLP is always exempt whether or not vacation or sick leave is granted. you are 42 . literary or civic achievements: 1. 32 B 7 f) " must be deducted from the GI not NIT because it is an exclusion. D. (a)(7) » JAN. EO291 (SEPT. and 3. exercise of public utility b. E. Otherwise. » accruing to the gov’t.Atty. d prizes and awards (Sec. 4. and 2. because the law says 13th month pay and “other benefits”/”similar benefits” – xmas bonus is included in the category.000 limit? A: The Sec. 32 B (7) (a) income derived by foreign Gov’t [Sec. Miscellaneous items (Sec. scientific. charitable. Private institutions. the recipient was not required to render substantial future services as a condition to receive the prize or award.. prizes and awards in sports (Sec. held here or abroad. loans b. interest from deposits in Banks in the Philippines. Q: Who are income earners? A: 1. Modified RR2-98: » TLP will only apply to private sectors » if granted on a yearly basis – may be subject to tax: VACATION LEAVE 1. Medicare and other contributions (Sec. Brunei Gov’t. CASTAÑEDA . 2. 32 B (7) (a)] Q: What kind of income? A: 1.Stock dividends to 3.Castañeda –DFA officer in Phil. subject to FIT 20%.*('&$. int’l or regional financial institutions established by foreign gov’ts (established in the Philippines) TAKE NOTE: if plain foreign corp. TLP is exempt. Francis J. GSIS. F. Ruling applies to DFA officers.. -creditable withholding tax is an exclusionmust be deducted first from the GI before you compute the NIT. SSS. educational. Sababan Modified: the rule applies not only to DOJ officers but also to CSC commissioners.1 par. SMC. PD220: Exemption applies to both private and public sectors(?) it does not matter if TLP is vacation or sick leave. bonds d. Q: Applicable to whom? A: 1. financing institutions owned. 1. gov’t. recipient was selected without any action on his part to enter the contest or proceedings. COMMISSIONER v. of Finance. granted to athletes. Q: Who can increase the 30.78. local or int’l competitions. EXAMPLES of exclusions: a. Income derived by the Gov’t or its political subdivisions (Sec. 2. 2. Embassy in England. exercise of any essential gov’t function.
that is Feb. You need to prove that it is an ordinary and necessary expense. Gains from redemption of shares in mutual fund (Sec. 2. and the corporation have a land sold through a broker. requirements? A: 1.*('&$. it was proven that the sale was not made by the employees. no effort or services actually rendered by them because the sale was made through a broker. 12. all you have to prove is that it is incurred during the taxable year.Sec. 2007 (Sec.-%. . " for taxpayers who are liable only for income within. expenses for foreign travel is considered a FB only if it is not in pursuit of the trade or business. Travel expense while away from home. 32 B 7 g is similar or the same as 24 B in long term deposit. 34 A (1)(a)(ii)? A: No. 32 B 7 h) 1. 43 . Francis J. Calendar year – a period of 12 months beginning on January and ending on December. those which are considered as fringe benefits (FB). "the corporation claimed the bonus as a deduction. AGUINLDO Case F: involves a corporation engaged in selling fish nets. The profit was in turn given to the workers as special bonus. 32 B 7 g) Q: Why 5 years? A: certificate of indebtedness is similar to Bank Interest in a long term deposit. debentures. required as a condition for the continued use or possession. Travel must be in pursuit of business. 34 A. 34 A EXPENSES 1. Sec. Gains from the Sale of bonds. they can claim deduction for expenses incurred within and without.for other forms of compensation. for salaries and wages all that is required by law is for it to be reasonable.related to trade or business. For those business expenses not enumerated under A. Q: Is there a travel expense which was not in pursuit of business? A: yes. Q: Reasonable Allowances for rentals for meralco bills.. What is the requirement? A: 1. . ISSUE: Should the deduction be allowed? H: The SC did not allow the deduction. they can claim a deduction for expenses incurred within the Philippines. Q: can you claim it under Sec. . REASON: Capital loss has no connection to the trade or business. TAKE NOTE: " for taxpayers liable for income within and without (RC & DC)). 2. "there was substantial profits gained from the sale of a land which was sold by a broker. " Q: Reasonable Travel Expenses. trade or profession. Expenses) Q: Did the law define what is reasonable? A: No. 2. you can claim it under Sec.( . Fiscal Year – means an accounting period of 12 months ending on the last day of any month other than December. for the G. is it possible to include it for April 2006? A: yes. it is possible or it is possible if fiscal year is employed. Sababan including in the GI something excluded from the same. there must be services actually rendered. or other Certificate of indebtedness. for other forms of compensation. "in this case. For those enumerated under A. 34 A (1)(a)(i) last paragraph. Q: Business expense incurred in February 2006. if it falls under the fiscal year and all the elements are present. H. (Sec.Atty.!"#"$%&'()"*(+. it must be made or given for services actually rendered.
it can accommodate all of the expenses incurred. 2.!"#"$%&'()"*(+. 34 B 2 a) "a borrower or taxpayer can claim the interest paid in advance as itemized deduction when he filed his income tax return (ITR) depending on whether or not the principal obligation has been paid. Francis J. Does not exceed the limits or ceiling set by the Secretary of Finance. and other similar payments A: even without this provisions. 2. REDISCOUNTING OF PAPERS : (Sec. it cannot accommodate all of the expenses incurred. 3. good customs.*('&$. 2. There is carry over 2. Q: What kind of interest is this? A: interest on loan. if both taxpayer and the person to whom the payments has been made or is to be made are persons specified under Sec. kickbacks. morals. incurred within the taxable year. amusement and recreation expenses. 36 (B): 44 . Q: Reasonable allowance for entertainment.Atty. 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. and operation of the trade (DOM). taxpayer has not taken any title or no equity other than a lessor. 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. if no payment had been paid on the principal obligation. connected with the development. if the amount of capital outlay is substantial. 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. No carry-over 2. if only ! of the obligation had been paid. the advance interest paid cannot be claimed as a deduction on the years that it was paid. "interest on debt . ALLOWANCE FOR DEPRECIATION BUSINESS EXPENSE 1. 34 A (2) Institution can BUSINESS EXPENSE vs. what is the requirement? A: 1. if the entire amount or entire principal obligation has been paid – the entire amount of interest can be claimed as itemized deduction. you can claim it for a longer period depending on the life span of the property. kickbacks will not pass the requirement of (i) ordinary and (ii) necessary hence not deductible EXPENSES ALLOWABLE TO EDUCATIONAL INSTITUTION PRIVATE 1. individual taxpayer reporting income on a cash basis. business or possession of the property. 3. 1.when one borrows money to finance his business interest in connection with the taxpayer’s profession trade or business. Q: Who claims this deduction? A: the debtor claims this deduction. can be claimed for one year only. and 3. public policy or public order. ALLOWANCE FOR DEPRECIATION 1. Q: How about bribe. 3. GENERAL RULE: 36 A (2) and 36 A (3) expenditures for capital outlays not deductible as business expense EXCEPTION: Private Educ. 2. then the entire amount of ! of that interest can be claimed as a deduction. Not contrary to law.-%. management. claim it under Sec.( . • No deduction shall be allowed in respect to the following interest: 1. Sababan purpose of the trade. 2..
Q: What is the tax credit being referred to under 34 C (3)? A: credit against taxes for taxes of foreign country. 34 C TAXES: REQUISITES: 1. or b. business or profession of the tax payer. Php200K-4. bet. 3.( . bet. 2.000 = 4. it must be incurred in connection with trade or business. more than 50% in value of the outstanding stock of each of which is owned..-%. if claimed as a deduction. tax credit 34 C 3&7 Q: Where should it be deducted? A: 1. or f. by or for the same individual. can be claimed as: a.. interest incurred to acquire property used in trade. deduction for 5. (RR132000) ILLUSTRATION: 1. loan of 1M from a bank with an interest of 20% 2.*('&$. when you deposited the 1M in the bank.!"#"$%&'()"*(+. bet. Q: What if half-brother? A: not allowed to claim interest. OPTIONAL TREATMENT OF INTEREST EXPENSE: 1.000 but you cannot claim this whole amount as a deduction. Sababan a. 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. 2. 3. directly or indirectly.800/ this is the amount you can claim as a deduction. member of a family b. the discount claimed is treated as a tax credit. taxes must paid or incurred within the taxable year 2.200 (RR 9337) 45 . Q: Who are entitled to claim it? A: those liable to pay NIT. 20% of 1M is Php200. Q: What is a tax deduction? Example? A: example is business tax. 4. Q: Who are related parties? A: individuals and corporations..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. it should be deducted from the Net Income Tax due (bottom of the formula) MERCURY DRUG CASE . the fiduciary of a trust and the fiduciary of another trust if the same person is a grantor with respect to each trust. it should be deducted from the gross income. RA 6452 – selling goods and commodities to senior citizens. d.Atty. the grantor and a fiduciary of any trust. (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. a fiduciary of trust and a beneficiary of such trust. if claimed as a tax credit. Q: What are the other tax credit under the code? A: 1. more than 50% in advance of the outstanding stock of which is owned directly or indirectly by or for such individual. Francis J. "tax deduction is allowed if the taxes were paid or incurred within the taxable year and it must be connected to the trade. Bet. e. it earned a bank interest subject to FIT worth Php10. 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.00.000. a deduction. Q: Who are not allowed to claim interest under sec 36 B? A: interest incurred between related parties. 2 corp. an individual and a corp. subject to limitations. business or exercise of profession can be claimed a an itemize deduction… a. 42% (RR) of 10. or 34 C 1&2 b. on interest.200= Php195. income tax paid to foreign country. c. bet.
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