Taxation PDF

COURSE: TAXATION I
PROFESSOR: GRUBA
st
1 Semester AY 2010-2011
TAXATION I
QUIZZLER ON INCOME TAXATION
FOREWORD
Q: How do you distinguish schedular treatment from global

treatment as used in income taxation?
This Reviewer covers the study of the law on Income Taxation which
includes:
1.
Title II of the National Internal Revenue Code (NIRC)
2.
Statutes related or amending the NIRC
3.
Related Revenue Regulations, BIR Rulings and other
administrative issuances
4.
Cases decided by the Supreme Court
A: Under the schedular tax system, the various types of income (i.e.
compensation; business/professional income) are classified accordingly
and are accorded different tax treatments, in accordance with
schedules characterized by graduated tax rates. Since these types of
income are treated separately, the allowable deductions shall likewise
vary for each type of income.
As a complement to this reviewer, I suggest you get any book containing

the complete codal provisions of the NIRC (either the green codal from
Rex Bookstore or the NIRC annotated codal by Casasola and Bernaldo. As
for reference books, I would recommend Income Taxation by Mamalateo
or Tax Law and Jurisprudence by Vitug and Acosta.
On the other hand, under the global tax system, all income received by
the taxpayer are grouped together, without any distinction as to type or
nature of the income, and after deducting therefrom expenses and
other allowable deductions, are subjected to tax at a graduated or fixed
rate.
As Albert Einstein puts it, the hardest thing in the world to understand
is the income tax. May this reviewer serve its purpose in helping us in
our efforts in overcoming this challenge and achieve excellence.
Q: To which system does the method of taxation under the

NIRC belong?
Yours in Honor and Excellence,

Pierre Martin DL Reyes
A: The current method of taxation under the NIRC belongs to semischedular and semi-global tax system.
Q: What are the features of the Philippine Income Tax Law?

OVERVIEW OF INCOME TAXATION
Q: What is an Income Tax?
A: Income Tax has been defined as a tax on all yearly profits arising from
property, professions, trades or offices, or as a tax on a persons income,
emoluments, profits and the like.
Q: Where is the Philippine Income Tax Law embodied?

A: It is embodied in Title II (Tax on Income) of the National Internal
Revenue Code (NIRC) as well as in numerous (a) revenue regulations
and (b) BIR rulings and other administrative issuances (e.g. Revenue
Memorandum Circulars or RMCs).
Q: What are the different income tax systems adopted by the

Philippines?
A: The types of income tax systems adopted are as follows:
1.
Global Tax System where the taxpayer is required to lump
up all items of income earned during a taxable period and pay
under a single set of income tax rates on these different items
of income.
2.
Schedular Tax System where there are different tax
treatments of different types of income so that a separate tax
return is required to be filed for each type of income and the
tax is computed on a per return or per schedule basis.
3.
Semi-Schedular or Semi-Global Tax System where the tax
system is either (a) global (e.g. taxpayer with compensation
income not subject to final withholding tax or business or
professional income or mixed income compensation and
business or professional income) or (b) schedular (e.g.
taxpayer with compensation, capital gains, passive income, or
other income subject to final withholding tax) or (c) both
global and schedular may be applied depending on the
nature of the income realized by the taxpayer during the year.
1|P I E R R E M AR TI N D L R E YE S
A: The features are as follows:

1.
Income tax is a direct tax because the tax burden is borne by
the income recipient upon whom the tax is imposed.
2.
Income tax is a progressive tax since the tax base increases as
the tax rate increases.
3.
The Philippines has adopted the most comprehensive system
of imposing income tax by adopting the citizenship principle,
resident principle and the source principle.
4.
The Philippines follows the semi-schedular or semi-global
system of income taxation.
Q: What are the criteria in imposing Income Tax in the

Philippines?
A: The criteria are:
1.
Citizenship or nationality principle A citizen of the
Philippines is subject to Philippine income tax (a) on his
worldwide income, if he resides in the Philippines (b) only on
his Philippine source income, if he qualifies as a non-resident
citizen where his foreign-source income shall be tax-exempt.
2.
Residence or domicile principle An alien is subject to
Philippine income tax because of his residence in the
Philippines. A resident alien is liable to pay Philippine income
tax only from his income from Philippine sources but is taxexempt from foreign-source income
3.
Source of income principle An alien is subject to Philippine
income tax because he derives income from sources within
the Philippines. Thus, a non-resident alien or non-resident
foreign corporation is liable to pay Philippine income tax on
income from sources within the Philippines.
Q: What are the types of Philippine Income Tax?

A: The types of Income tax under Title II of the NIRC are:
1.
Graduated income tax on individuals
2.
Normal corporate income tax on corporations
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PROFESSOR: GRUBA
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3.
4.
Minimum corporate income tax on corporations

Special income tax on certain corporations (e.g. private
educational institutions, FCDUs, and international carriers)
5.
Capital gains tax on sale or exchange of unlisted shares of
stock of a domestic corporation classified as a capital asset
6.
Capital gains tax on sale or exchange of real property located
in the Philippines and classified as a capital asset
7.
Final withholding tax on certain passive investment incomes
8.
Fringe benefit tax
9.
Branch profit remittance tax; and
10. Tax on improperly accumulated earnings.
Q: When is income taxable?

A: Income, gain or profit is subject to income tax when the following
conditions are present:
1.
There is income, gain or profit
2.
The income, gain or profit is received or realized during the
taxable year; and
3.
The income, gain or profit is not exempt from income tax.
DEFINITION OF TERMS
(SECTION 22, NIRC)
Resident alien
Nonresident alien
Resident
foreign
corporation
Nonresident foreign
corporation
Fiduciary
Withholding agent
Shares of stock
NOTE: It is advisable that you memorize or at the very least familiarize

yourself with the following terms as you will encounter these terms in
the succeeding provisions. Understanding tax requires knowing the
definitions of the technical terms.
Shareholder
Person
Corporation
General Professional
Partnerships
Domestic
Foreign
Nonresident citizen
An individual, a trust, estate or corporation

Includes partnerships, no matter how created
or organized, joint-stock companies, joint
accounts, associations, or insurance companies
but does not include general professional
partnerships and a joint venture or consortium
formed for the purpose of undertaking
construction projects or engaging in petroleum
and other energy operations pursuant to an
operating agreement under a service contract
with the Government
Partnerships formed by persons for the sole
purpose of exercising their common profession,
no part of the income of which is derived from
engaging in any trade or business
When applied to a corporation, means created
or organized in the Philippines or under its laws
When applied to a corporation, means a
corporation which is not domestic
The term means a citizen of the Philippines:
1.
who establishes to the satisfaction
of the Commissioner the fact of his
physical presence abroad with
intention to reside therein
2.
who leaves the Philippines during
the taxable year to reside abroad
either as an immigrant or for
employment on a permanent basis
3.
who works and derives income from
abroad and whose employment
thereat requires him to be
physically present abroad most of
the time during the taxable year.
4.
who has been previously considered
a non-resident citizen and who
Taxpayer
Including
includes
and
Taxable year
Fiscal year
Paid or incurred
and
paid
or
accrued
Trade or business
Securities
Dealer in securities
Bank
Non-bank
institution
financial
Quasi-banking
activities
arrives in the Philippines at any time

during the taxable year to reside
permanently in the Philippines with
respect to his income derived from
sources abroad until date of his
arrival in the Philippines
An individual whose residence is within the
Philippines and who is not a citizen thereof
An individual whose residence is not within the
Philippines and who is not a citizen thereof
A foreign corporation engaged in trade or
business within the Philippines
A foreign corporation not engaged in trade or
business within the Philippines
A guardian, trustee, executor, administrator,
receiver, conservator or any person acting in
any fiduciary capacity for any person
Any person required to deduct and withhold tax
under the provisions of Section 57 (Withholding
of Tax at source)
Includes shares of stock of a corporation,
warrants and/or options to purchase shares of
stocks as well as units of participation in a
partnership (except general professional
partnerships), joint stock companies, joint
accounts,
joint
ventures
taxable
as
corporations, associations and recreation or
amusement clubs and mutual fund certificates
Includes any holder of shares of stock and
others which are considered shares of stock
under this code (refer to definition of Shares of
Stock)
Any person subject to tax
When used in a definition, it shall not be
deemed to exclude other things otherwise
within the meaning of the term
Means the calendar year or the fiscal year
ending during such calendar year, upon the
basis of which the net income is computed
Means an accounting period of 12 months
ending on the last day of any month other than
December
Shall be construed according to the method of
accounting upon the basis of which net income
is computed
Includes the performance of the functions of a
public office
Means share of stock n a corporation and rights
to subscribe for or to receive such shares
A merchant of stocks or securities, whether an
individual, partnership or corporation, with an
established place of business, regularly engaged
in the purchase of securities and the resale
thereof to customers
Every banking institution as defined in RA 337
as amended by RA 8791 (General Banking Act of
2000)
A financial intermediary as defined in RA 337 as
amended by RA 8791 (General Banking Act of
2000) authorized by the BSP to perform quasibanking activities
Means borrowing funds from 20 or more
personal or corporate lenders at any one time,
through the issuance, endorsement, or
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PROFESSOR: GRUBA
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Deposit substitutes
Ordinary Income
Ordinary loss
Rank
and
employees
file
Mutual
fund
company
Trade, business or
profession
Regional or area
headquarters
Long-term deposit or
investment
certificate
Statutory Minimum
Wage
Minimum
earner
Wage
acceptance of debt instruments of any kind

other than deposits for the borrowers own
account or through the issuance of certificates
of assignments or similar instruments, with
recourse, or of purchase agreements for
purposes of re-lending or purchasing
receivables and other similar obligations
An alternative form of obtaining funds from the
public (the term public means borrowing from
20 or more individual or corporate lenders at
any one time), other than deposits, through the
issuance, endorsement, or acceptance of debt
instruments for the borrowers own account for
purposes of re-lending or purchasing
receivables and other similar obligations, or
financing their own needs or the needs of their
agent or dealer
Any gain from the sale or exchange of property
which is not a capital asset or property
described in Section 39(A)(1) (which defines
what capital assets are and those which are
not)
Includes any loss from the sale or exchange of
property which is not a capital asset
Mean all employees who are holding neither
managerial nor supervisory position as defined
under existing provisions of the Labor Code
An open-end and close-end investment
company as defined under the Investment Code
Include performance of services by the taxpayer
as an employee
A branch established in the Philippines by
multinational companies
Certificate of time deposit or investment in the
form of savings, common or individual trust
funds,
deposit
substitutes,
investment
management accounts and other investments
with maturity period of not less than 5 years,
the form of which shall be prescribed by the
BSP and issued by Banks only to individuals in
denominations of P10,000 and other
denominations as may be prescribed by the BSP
Refers to the rate fixed by the Regional
Tripartite Wage and Productivity Boar, as
defined by the Bureau of Labor and
Employment Statistics (BLES) of DOLE
A worker in the private sector paid the
statutory minimum wage or to an employee in
the public sector with compensation income of
not more than the statutory minimum wage in
the non-agricultural sector where he/she is
assigned
Relevant Cases assigned:

REPUBLIC OF THE PHILIPPINES VS. MANILA ELECTRIC COMPANY
GR NO. 141314, NOVEMBER 15, 2002
FACTS: MERALCO filed with the ERB an application for revised rates, with
an average increase of P0.21 per kwh in its distribution charge. The ERB
granted a provisional increase of P0.184 per kwh subject to the
condition that in the event the ERB determines that MERALCO is entitled
to a lesser increase in rates, all excess amounts collected by MERALCO
shall be refunded to its customers or credited in their favor. The
Commission on Audit (COA) conducted an examination of the books of

accounts and records of MERALCO and thereafter recommended, among
others, that: (1) income taxes paid by MERALCO should not be included
as part of MERALCO's operating expenses and (2) the "net average
investment method" or the "number of months use method" should be
applied in determining the proportionate value of the properties used by
MERALCO during the test year. The ERB adopted the recommendations
of the COA and held that income tax should not be treated as operating
expense as this should be "borne by the stockholders who are recipients
of the income or profits realized from the operation of their business"
hence, should not be passed on to the consumers. The decision directed
the reduction of the MERALCO rates by an average of P0.167 per kwh
and the refund of such amount to MERALCO's customers beginning
February 1994 and until its billing cycle beginning February 1998.
ISSUE: Whether income tax should be included in the computation of
operating expenses of a public utility?
HELD: NO. Income tax paid by a public utility is inconsistent with the
nature of operating expenses. In general, Operating expenses are those
which are reasonably incurred in connection with business operations
to yield revenue or income. They are items of expenses which
contribute or are attributable to the production of income or revenue.
On the other hand, Income tax is imposed on an individual or entity as
a form of excise tax or a tax on the privilege of earning income. In
exchange for the protection extended by the State to the taxpayer, the
government collects taxes as a source of revenue to finance its
activities. Clearly, by its nature, income tax payments of a public utility
are not expenses which contribute to or are incurred in connection with
the production of profit of a public utility. Income tax should be borne by
the taxpayer alone as they are payments made in exchange for benefits
received by the taxpayer from the State. To charge consumers for
expenses incurred by a public utility which are not related to the service
or benefit derived by the customers from the public utility is unjustified
and inequitable. Accordingly, the burden of paying income tax should be
Meralco's alone and should not be shifted to the consumers by including
the same in the computation of its operating expenses.
COMMISSIONER OF INTERNAL REVENUE VS. COURT OF APPEALS

GR NO. 108576, JANUARY 20, 1999
FACTS: Don Andres Soriano, a citizen and resident of the United States,
formed the corporation "A. Soriano Y Cia", predecessor of ANSCOR.
ANSCOR is wholly owned and controlled by the family of Don Andres,
who are all non-resident aliens. Don Andres died, but his estate
continued to receive stock dividends as well as his wife Doa Carmen
Soriano. Pursuant to a board resolution, ANSCOR redeemed a
considerable number of common shares from Don Andres estate. As
stated in the Board Resolutions, ANSCOR's business purpose for both
redemptions of stocks is to partially retire said stocks as treasury shares
in order to reduce the company's foreign exchange remittances in case
cash dividends are declared. ANSCOR also reclassified some of Doa
Carmens common shares to preferred shares. After examining ANSCOR's
books of account and records, Revenue examiners issued a report
proposing that ANSCOR be assessed for deficiency withholding tax-atsource based on the transactions of exchange and redemption of stocks.
ANSCOR filed a petition for review with the CTA assailing the tax
assessments on the redemptions and exchange of stocks. The CTA ruled
that ANSCORs redemption and exchange of the stocks of its foreign
stockholders cannot be considered as "essentially equivalent to a
distribution of taxable dividends" under Section 83(b) of the then 1939
Internal Revenue Act. ANSCOR avers that it has no duty to withhold any
tax either from the Don Andres estate or from Doa Carmen based on
the two transactions, because the same were done for legitimate
business purposes which are (a) to reduce its foreign exchange
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remittances in the event the company would declare cash dividends, and
to (b) subsequently "filipinized" ownership of ANSCOR, as allegedly,
envisioned by Don Andres. It likewise invoked the amnesty provisions of
P.D. 67.
ISSUES: (1) May the withholding agent, in such capacity, be deemed a
taxpayer for it to avail of the amnesty? (2) Whether ANSCOR's
redemption of stocks from its stockholder and the exchange of stocks
can be considered as "essentially equivalent to the distribution of taxable
dividend" making the proceeds thereof taxable under the provisions of
the above-quoted law?
HELD: (1) NO. PD 67 condones the taxpayer. An income taxpayer covers
all persons who derive taxable income. ANSCOR was assessed by
petitioner for deficiency withholding tax/. As such, it is being held liable
in its capacity as a withholding agent and not its personality as a
taxpayer. In the operation of the withholding tax system, the withholding
agent is the payor, a separate entity acting no more than an agent of the
government for the collection of the tax in order to ensure its
payments; the payer is the taxpayer he is the person subject to tax
impose by law; and the payee is the taxing authority. In other words,
the withholding agent is merely a tax collector, not a taxpayer. Under the
withholding system, however, the agent-payor becomes a payee by
fiction of law. His (agent) liability is direct and independent from the
taxpayer, because the income tax is still impose on and due from the
latter. The agent is not liable for the tax as no wealth flowed into him
he earned no income. The Tax Code only makes the agent personally
liable for the tax arising from the breach of its legal duty to withhold as
distinguish from its duty to pay tax.
(2) The three elements in the imposition of income tax are: (1) there
must be gain or and profit, (2) that the gain or profit is realized or
received, actually or constructively, and (3) it is not exempted by law or
treaty from income tax. The existence of legitimate business purposes
in support of the redemption of stock dividends is immaterial in income
taxation. The test of taxability under the exempting clause of Section
83(b) is whether income was realized through the redemption of stock
dividends. The redemption converts into money the stock dividends
which become a realized profit or gain and consequently, the
stockholder's separate property. Profits derived from the capital
invested cannot escape income tax. As realized income, the proceeds of
the redeemed stock dividends can be reached by income taxation
regardless of the existence of any business purpose for the redemption.
Hence, the proceeds are essentially considered equivalent to a
distribution of taxable dividends. As "taxable dividend" under Section
83(b), it is part of the "entire income" subject to tax under Section 22 (
tax on non-resident alien individual) in relation to Section 21 (rates of tax
on citizens or residents) of the then 1939 Code. As income, it is subject to
income tax which is required to be withheld at source.
MADRIGAL VS. RAFFERTY

GR NO. 12287, AUGUST 7, 1918
FACTS: Vicente Madrigal and Susana Paterno were legally married prior
to Jan 1, 1914. The marriage was contracted under the provisions of law
concerning conjugal. On Feb 25, 1915, Vicente Madrigal filed sworn
declaration with the Collector of Internal Revenue, showing, as his total
net income for the year 1914. Subsequently Madrigal submitted the
claim that the said amount did not represent his income for the year
1914, but was in fact the income of the conjugal partnership existing
between himself and his wife, and that in computing and assessing the
additional income tax provided by the Act of Congress of October 3,
1913, the income declared by Madrigal should be divided into two equal
parts, one-half to be considered the income of Madrigal and the other
half of Paterno. The Attorney-General agreed with Madrigal. The
revenue officers unsatisfied sought the opinion of the US Treasury

Department. The US CIR reversed the opinion of the Attorney-General
and decided against the claim of Madrigal. Madrigal paid under protest
and brought the action before the Trial Court which ruled in defendants
favor. On appeal, petitioner argues that the income should be divided
into two equal parts, because of the conjugal partnership existing
between him and his wife. The respondents, on the other hand, contend
that the taxes imposed by the Income Tax Law are as the name implies
taxes upon income tax and not upon capital and property; that the fact
that Madrigal was a married man, and his marriage contracted under the
provisions governing the conjugal partnership, has no bearing on income
considered as income, and that the distinction must be drawn between
the ordinary form of commercial partnership and the conjugal
partnership of spouses resulting from the relation of marriage.
ISSUE: Whether the income should be divided into two equal parts
because of the conjugal partnership existing between Madrigal and his
wife?
HELD: NO. Income as contrasted with capital or property is to be the
test. The essential difference between capital and income is that capital
is a fund; income is a flow. A fund of property existing at an instant of
time is called capital. A flow of services rendered by that capital by the
payment of money from it or any other benefit rendered by a fund of
capital in relation to such fund through a period of time is called an
income. Capital is wealth, while income is the service of wealth. A tax
on income is not a tax on property. "Income," as here used, can be
defined as "profits or gains." In this case, Paterno, wife of Madrigal, has
an inchoate right, a mere expectancy, in the property of her husband
Vicente Madrigal during the life of the conjugal partnership. She has an
interest in the ultimate property rights and in the ultimate ownership of
property acquired as income after such income has become capital.
Paterno has no absolute right to one-half the income of the conjugal
partnership. Not being seized of a separate estate, Paterno cannot make
a separate return in order to receive the benefit of the exemption which
would arise by reason of the additional tax. As she has no estate and
income, actually and legally vested in her and entirely distinct from her
husband's property, the income cannot properly be considered the
separate income of the wife for the purposes of the additional tax.
Moreover, the Income Tax Law does not look on the spouses as
individual partners in an ordinary partnership. The higher schedules of
the additional tax directed at the incomes of the wealthy may not be
partially defeated by reliance on provisions in the Civil Code dealing with
the conjugal partnership and having no application to the Income Tax
Law. The aims and purposes of the Income Tax Law must be given effect.
GENERAL PRINCIPLES OF INCOME TAXATION
(SECTION 23, NIRC)
Q: What are the general principles of income taxation in the

Philippines?
A: Except as otherwise provided in this Code, the general principles are:
1.
A citizen of the Philippines residing therein is taxable on all
income derived from sources within and outside the
Philippines (Citizenship principle)
2.
A non-resident citizen (of the Philippines) is taxable only on
income derived from sources within the Philippines
(Citizenship principle)
3.
An individual citizen of the Philippines who is working and
deriving income from abroad as an overseas contract worker
is taxable only on income from sources within the Philippines
(Citizenship principle)
4.
An alien individual whether a resident or not of the
Philippines is taxable only on income derived from sources
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5.
6.
within the Philippines (Residence and source of income

principle)
A domestic corporation is taxable on all income derived from
sources within and outside the Philippines (Citizenship
principle)
A foreign corporation, whether engaged or not in trade or
business in the Philippines is taxable only on income derived
from sources within the Philippines (source of income
principle).
In other words, under Title II, only resident citizens and domestic
corporations are taxable on their worldwide income while the other
types of individual and corporate taxpayers are taxable only on income
derived from sources within the Philippines. (Remember this!)
KINDS OF INCOME TAXPAYERS

NOTE: Before we proceed to income taxation proper, it is important to
know the different kinds of taxpayers first. This is because in analyzing
any problem involving income taxation, the first thing to do is to
determine who the taxpayer is.
The only two exceptions where knowing the taxpayer is immaterial are
(1) where the transaction involves sales of shares of stock of a domestic
corporation because it is subject to 1% of stock transaction tax or
5%/10% capital gains tax on net capital gain whether the seller is an
individual, citizen or alien or a corporation, domestic or foreign and (2)
where the real property sold is a capital asset located in the Philippines
which is subject to 6% capital gains tax.
Q: What are the kinds of income taxpayers?

A: The kinds of income taxpayers under Title II of the NIRC are:
A. Individuals
1.
Citizens (Section 24, NIRC)
a.
Resident Citizens
b.
Nonresident Citizens
2.
Aliens
a.
Resident Aliens (Section 24, NIRC)
b.
Nonresident Aliens (Section 25, NIRC)
i.
Engaged in trade or business in the
Philippines
ii.
Not engaged in trade or business in the
Philippines
3.
Estates and Trusts (Section 60, NIRC)
a.
Revocable trust
b.
Irrevocable trust
B. Corporations
1.
Domestic Corporations (Section 27, NIRC)
2.
Foreign Corporations (Section 28, NIRC)
a.
Resident foreign corporations
b.
Nonresident foreign corporations
3.
Partnerships
a.
Taxable partnership (Section 73(D), NIRC)
b.
Exempt partnership
i.
General Professional Partnership (Section 26,
NIRC)
ii.
Joint venture or consortium undertaking
construction activity or engaged in
petroleum operations with operating
contract with the government
(Note that the definitions of all the kinds of taxpayers mentioned above
can be found in Section 22, NIRC. This is why it is important to memorize
them!)
TAX ON INDIVIDUALS (EXCEPT ESTATES AND TRUSTS)

(SECTIONS 24-26, NIRC)
Q: Who are the individual taxpayers?
A: They are:
1.
Citizens
a.
Resident Citizens
b.
Nonresident Citizens
2.
Aliens
a.
Resident Aliens
b.
Nonresident Aliens
i.
Engaged in trade or business in the Philippines
ii.
Not engaged in trade or business in the Philippines
Q: Who are citizens of the Philippines?

A: The following are considered Citizens of the Philippines:
1.
Those who are citizens of the Philippines at the time of the
adoption of the Constitution
2.
Those whose fathers or mothers are citizens of the Philippines
3.
Those born before January 17, 1973 of Filipino mothers, who
elect Philippine Citizenship upon reaching the age of majority;
and
4.
Those who are naturalized in accordance with law
Q: What is meant by residence?

A: Residence refers to an individuals habitual place of abode to which
whenever absent, he has the intention of returning.
Q: Why is it important to determine whether a citizen is a

resident or non-resident?
A: It is important because a person will be taxable on his worldwide
income if he is a resident citizen and he shall also be taxable on his
income from sources within the Philippines. If he is a non-resident, he
shall be exempted on his income from sources outside the Philippines.
Q: Why is there a distinction?

A: A resident citizen is taxed on his worldwide income because he
receives protection from the Philippine government even outside the
country. As to a non-resident, the Philippines retains personal
jurisdiction over the person of the citizen no matter how long he lives in
a foreign country for as long as he remains a citizen.
Q: Who is a non-resident citizen?

A: The term means a citizen of the Philippines:
1.
who establishes to the satisfaction of the Commissioner the
fact of his physical presence abroad with intention to reside
therein
2.
who leaves the Philippines during the taxable year to reside
abroad either as an immigrant or for employment on a
permanent basis
3.
who works and derives income from abroad and whose
employment thereat requires him to be physically present
abroad most of the time during the taxable year.
4.
who has been previously considered a non-resident citizen
and who arrives in the Philippines at any time during the
taxable year to reside permanently in the Philippines with
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respect to his income derived from sources abroad until date

of his arrival in the Philippines
Relevant cases assigned:

CONWI VS. COURT OF TAX APPEALS
G.R. L-48532, AUGUST 31, 1992
FACTS: Petitioners are Filipino citizens and employees of Procter and
Gamble Philippines. Said corporation is a subsidiary of Procter & Gamble,
a foreign corporation based in the US. During the years 1970 and 1971
petitioners were assigned, for certain periods, to other subsidiaries of
Procter & Gamble, outside of the Philippines, during which petitioners
were paid U.S. dollars as compensation for services in their foreign
assignments. When petitioners filed their income tax returns for the year
1970, they computed the tax due by applying the dollar-to-peso
conversion on the basis of the floating rate. However, in 1973,
petitioners filed with the CIR, amended income tax returns for the
above-mentioned years, this time using the par value of the peso
pursuant to CB Circular No. 289 as the basis for converting their
respective dollar income into Philippine pesos for purposes of computing
and paying the corresponding income tax due from them. The aforesaid
computation as shown in the amended income tax returns resulted in
the alleged overpayments, refund and/or tax credit. Accordingly, claims
for refund of said over-payments were filed with respondent
Commissioner. CTA agreed with CIRs contention that the proper rate of
conversion of petitioners' dollar earnings for tax purposes is the
prevailing free market rate of exchange and not the par value of the
peso. Petitioners contend that since their dollar earnings do not fall
within the classification of foreign exchange transactions and thus, not
included in the coverage of CB Circular No. 289 which provides for
specific instances when the par value of the peso shall not be the
conversion rate used, their earnings should be converted for income tax
purposes using the par value.
ISSUE: Whether petitioners dollar earnings should be computed using
the par value?
HELD: NO. CB Circular No. 289 shows that the subject matters involved
therein are export products, invisibles, receipts of foreign exchange,
foreign exchange payments, new foreign borrowing and investments
nothing by way of income tax payments. Thus, petitioners are in error by
concluding that since C.B. Circular No. 289 does not apply to them, the
par value of the peso should be the guiding rate used for income tax
purposes. The dollar earnings of petitioners are the fruits of their labors
in the foreign subsidiaries of Procter & Gamble. It was a definite
amount of money which came to them within a specified period of time
of two years as payment for their services. The law provides that a tax
imposed upon the taxable net income received during each taxable
year from all sources by every individual, whether a citizen of the
Philippines residing therein or abroad or an alien residing in the
Philippines, determined in accordance with the schedule. The earnings
must be computed based on the uniform rate of exchange from US
dollars to pesos for internal revenue tax purposes for the years 1970 and
1971. They are not exempted from this. Petitioners forget that they are
citizens of the Philippines, and their income, within or without, and in
these cases wholly without, are subject to income tax. Since petitioners
already paid in accordance with the uniform rate, there is no reason for
CIR to refund any taxes.
REVENUE REGULATION NO. 9-99

Issued May 24, 1999 amends RMO No. 30-99 by prescribing non-resident
citizens, overseas contract workers and seamen to file information
returns (BIR Form 1701C or the new computerized Form 1703). Said
form, together with other relevant supporting papers, shall be filed to
the Foreign Post or the Revenue District Office which has jurisdiction
over the place of residence of the taxpayer not later than April 15
following the taxable year. The 1998 returns filed after April 15 but not
later than July 15, 1999 will not be subject to penalty charges.
Q: Who is a resident alien?

A: A Resident alien is an individual whose residence is within the
Philippines and who is not a citizen thereof. He is taxed in the same
manner as a resident citizen, except that only his income from Philippine
sources is taxable. His income from foreign sources is not liable to
Philippine income tax.
Q: Who is a non-resident alien?

A: A non-resident alien is an individual whose residence is not within the
Philippines and who is not a citizen thereof. A non-resident alien is
further classified into (a) engaged in trade or business in the Philippines
or (b) not engaged in trade or business in the Philippines. As provided in
Section 25(A)(1), if the aggregate period of his stay is 180 days during
any calendar year, he shall be deemed a non-resident alien doing
business in the Philippines (180-day Rule).
Q: What are the graduated income tax rates on taxable income

of individuals?
A: In relation to Section 23 of the NIRC, the taxable income (i.e. the
pertinent items of gross income less deductions and/or personal and
additional exemptions authorized for such types of income by the Tax
Code or other special laws) derived for each taxable year:
1.
2.
3.
From all sources within and without the Philippines by

resident citizens;
From all sources within the Philippines only by a non-resident
citizen including overseas contract workers;
From all sources within the Philippines only, by a resident
alien or a non-resident alien engaged in trade or business in
the Philippines
Shall be subject to the graduated income tax in accordance with the

following schedule provided under Section 24:
Not over P10,000
Over 10,000 but not over P30,000
Over P30,000 but not over P70,000
Relevant revenue regulations:
Over P500,000
5%
P500 + 10% of excess over
P10,000
P2,500 + 15% of the excess
over P30,000
over P70,000
over P140,000
over P250,000
P125,000 + 32% of the
excess over P500,000
COURSE: TAXATION I
PROFESSOR: GRUBA
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Note the following:

1.
2.
3.
e.
The taxable income here does not include

a.
Tax on certain passive income under Section 24(B)
b.
Capital gains from sale of shares of stock not traded in
the Stock exchange under Section 24(C)
c.
Capital gains from sale of real property under Section
24(D)
(These are subject to preferential tax rates. See next
question)
For married individuals, the husband and wife shall compute
separately their individual income tax based on their
respective total taxable income provided that if any income
cannot be definitely attributed to or identified as income
exclusively earned or realized by either of the spouses, the
same shall be divided equally between the spouses for the
purpose of determining their respective taxable income (see
also MADRIGAL VS. RAFFERTY above and COMMISSIONER V.
SUTER below)
Under RA 9504, minimum wage earners shall be exempt from
the payment of income tax on their taxable income. Holiday
pay, overtime pay, night shift differential pay and hazard pay
shall likewise be exempt from tax.
If the recipient of the above passive income

is a non-resident alien engaged in trade or
business in the Philippines, the rate is 20%
except:
a.
Royalties on books as well as
other literary works and musical
compositions which shall be
subject
to
10%
BUT
cinematographic
films and
similar works are subject to 25%
tax as provided in Section 28,
NIRC
b.
Interest income from long-term
deposit or investment which is
tax-exempt
c.
Prizes amounting to P10,000 or
less which shall be subject to
the graduated income tax rates
d.
Winnings from PCSO which are
tax-exempt
Property
If the recipient is a non-resident alien not

engaged in trade or business in the
Philippines, the rate is 25%.
They shall be subject to the following rates:
6% beginning January 1, 1988
Capital Gains from sale

of shares of stock of a
domestic corporation
Applies to citizens and resident aliens

If the shares of stock is listed but not
traded in PSE, the rates are:
a.
Not over P100,000 5%
b. In excess of P100,000 10%
Q: What are the incomes subject to preferential tax rates and

what are the tax rates applicable to each?
A: As a general rule, income, gain or profit derived by an individual
during the taxable year shall be subject to the graduated income tax
rates. As exceptions, certain income subject to tax are not subject to the
graduated tax rates stated previously and are subject to preferential tax
rates. They are:
1.
2.
3.
4.
Tax on certain passive income under Section 24(B)

a.
Interests, royalties, prizes and other winnings under
Section 24(B)(1)
b.
Cash and/or property dividends under Section 24(B)(2)
Capital gains from sale of shares of stock not traded in the
Stock exchange under Section 24(C)
Capital gains from sale of real property under Section 24(D)
Compensation income of alien and Filipino employees of
a.
Regional or area headquarters and regional operating
headquarters of MNCs under Section 25(C)
b.
Offshore Banking Units under Section 25(D)
c.
Foreign petroleum service contractors and subcontractors under Section 25(E)
The preferential rates are as follows:

Interests,
royalties,
prizes
and
other
winnings
Citizens and Resident aliens are subject to

20% except:
a.
Interest
income
from
a
depository bank which is subject
to 7.5%
b.
Interest income from long-term
deposit or investment which is
tax-exempt
c.
Royalty on books as well as
other literary works and musical
compositions which are subject
to 10%
d.
Prizes amounting to P10,000 or
less which shall be subject to
the graduated income tax rates
Winnings from PCSO which are

tax-exempt
Cash
and
Dividends
If the shares of stock is listed and traded in

the PSE, it is subject to 1% of stock
transaction tax.
Capital gains from sale of

real property
(Note that that this is one of the only two

exceptions where the kind of taxpayer is
immaterial. The rates is uniform whether
the seller is an individual, citizen or alien or
a corporation, domestic or foreign)
Subject to final tax of 6% based on the
gross selling price or current fair market
value as determined by the Commissioner
in accordance with Section 6(E), NIRC
whichever is higher.
However, if the buyer is the government or
any of its political subdivisions or to GOCCs
(buyer, not recipient of capital gains), the
tax liability shall be either the graduated
income tax rates under Section 24(A) or
the 6% stated above whichever is higher.
If the recipient of the capital gain from sale
of real property is an alien whether
engaged or not engaged in trade or
business in the Philippines, he shall be
subject to 6% based on the gross selling
COURSE: TAXATION I
PROFESSOR: GRUBA
st
price or fair market value, whichever is

higher.
Compensation income of
alien
and
Filipino
employees of Regional or
area headquarters and
regional
operating
headquarters, Offshore
Banking Units, Foreign
petroleum
service
contractors and subcontractors.
The applicable tax rate is 15% on their gross

income from sources within the Philippines.

This amended pertinent portions of RRs Nos. 11-96 and 2-98 relative to
the tax treatment of the sale, transfer or exchange of real property.
Specifically, the Capital Gains Tax (CGT) Return will be filed by the seller
within 30 days following each sale or disposition of real property.
Payment of the CGT will be made to an Authorized Agent Bank (AAB)
located within the Revenue District Office (RDO) having jurisdiction over
the place where the property being transferred is located. Creditable
withholding taxes, on the other hand, deducted and withheld by the
withholding agent/buyer on the sale, transfer or exchange or real
property classified as ordinary asset will be paid by the withholding
agent/buyer upon filing of the return with the AAB located within the
RDO having jurisdiction over the place where the property being
transferred is located. Payment will have to be done within 10 days
following the end of the month in which the transaction occurred,
provided, however, that taxes withheld in December will be filed on or
before January 25 of the following year.

This prescribes the regulations to implement RA No. 8424 relative to the
imposition of income taxes on income derived under the Foreign
Currency Deposit and Offshore Banking Systems. Specifically, interest
income which is actually or constructively received by a resident citizen
of the Philippines or by a resident alien individual from a foreign
currency bank deposit will be subject to a final withholding tax of 7.5%.
The depository bank will withhold and remit the tax. If a bank account is
jointly in the name of a non-resident citizen, 50% of the interest income
from such bank deposit will be treated as exempt while the other 50%
will be subject to a final withholding tax of 7.5%. The Regulations will
apply on taxable income derived beginning January 1, 1998 pursuant to
the provisions of Section 8 of RA 8424. In case of deposits which were
made in 1997, only that portion of interest which was actually or
constructively received by a depositor starting January 1, 1998 is taxable.
Q: Is a co-ownership a taxable entity for the purpose income

tax?
A: No. A co-ownership is not considered a separate taxable entity or a
corporation as defined under Section 22(B). The co-owners in a coownership report their share of the income from the property owned in
common by them in their individual tax returns for the year.
The co-ownership is not converted into a partnership where the
transactions of the co-owners intended to liquidate the co-ownership are
few or isolated and the element of habituality is not present.
Relevant cases:
OBILLOS VS. COMMISSIONER
G.R. NO. L-68118, OCTOBER 29, 1985
FACTS: Jose Obillos, Sr. completed payment to Ortigas & Co., Ltd. on two
lots located at Greenhills. The next day he transferred his rights to his
four children, the petitioners, to enable them to build their residences.
The Torrens titles issued to them would show that they were co-owners
of the two lots. After holding the two lots for more than a year, the
petitioners resold them. They derived from the sale a total profit. They
treated the profit as a capital gain and paid an income tax. One before
the expiration of the five-year prescriptive period, the CIR required the
four petitioners to pay corporate income tax in addition to individual
income tax on their shares thereof. The CIR considered the share of the
profits of each petitioner as a " taxable in full (not a mere capital gain of
which is taxable) and required them to pay deficiency income taxes.
Thus, the petitioners are being held liable for deficiency income taxes
and penalties in addition to the tax on capital gains already paid by them.
The theory of the CIR is that the four petitioners had formed an
unregistered partnership or joint venture. The petitioners protested. The
CTA sustained the CIRs assessment. Hence, this appeal.
ISSUE: Whether the petitioners should be considered to have formed an
unregistered partnership?
HELD: No. It is an error to consider the petitioners as having formed a
partnership under article 1767 of the Civil Code simply because they
allegedly contributed to buy the two lots, resold the same and divided
the profit among themselves. The sharing of gross returns does not of
itself establish a partnership, whether or not the persons sharing them
have a joint or common right or interest in any property from which the
returns are derived". There must be an unmistakable intention to form a
partnership or joint venture. They were co-owners pure and simple. To
consider them as partners would obliterate the distinction between a
co-ownership and a partnership. The petitioners were not engaged in
any joint venture by reason of that isolated transaction. Their original
purpose was to divide the lots for residential purposes. If later on they
found it not feasible to build their residences on the lots because of the
high cost of construction, then they had no choice but to resell the same
to dissolve the co-ownership. The division of the profit was merely
incidental to the dissolution of the co-ownership which was in the
nature of things a temporary state. It had to be terminated sooner or
later.
A Co-Ownership who own properties which produce income should not
automatically be considered partners of an unregistered partnership,
or a corporation, within the purview of the income tax law. To hold
otherwise, would be to subject the income of all co-ownerships of
inherited properties to the tax on corporations, inasmuch as if a property
does not produce an income at all, it is not subject to any kind of income
tax, whether the income tax on individuals or the income tax on
corporation.
Q: What is a general professional partnership?

A General professional partnership (GPP) are partnerships formed by
persons for the sole purpose of exercising their common profession, no
part of the income of which is derived from engaging in any trade or
business.
COURSE: TAXATION I
PROFESSOR: GRUBA
st
Q: Is a GPP liable for income tax?

A: No. A GPP is not considered a taxable entity for income tax purposes.
Section 26 of the NIRC provides that persons engaging in business as
partners in a GPP shall be liable for income tax only in their separate and
individual capacities computed on their respective distributive shares of
the partnership profit.
Relevant cases:
COMMISSIONER V. SUTER
G.R. NO. G.R. NO. L-25532, FEBRUARY 28, 1969
FACTS: A limited partnership, named "William J. Suter 'Morcoin' Co.,
Ltd.," was formed by herein respondent William J. Suter as the general
partner, and Julia Spirig and Gustav Carlson, as the limited partners. The
limited partnership was registered with the SEC. The firm engaged,
among other activities, in the importation, marketing, distribution and
operation of automatic phonographs, radios, television sets and
amusement machines, their parts and accessories. In 1948, Suter and
limited partner Spirig got married and thereafter, limited partner Carlson
sold his share in the partnership to Suter and his wife. The limited
partnership had been filing its income tax returns as a corporation,
without objection by the CIR until in 1959 when the CIR, in an
assessment, consolidated the income of the firm and the individual
incomes of the partners-spouses Suter and Spirig resulting in a
determination of a deficiency income tax against Suter. Suter protested
but was denied by the CIR. He appealed to the CTA reversed the CIRs
assessment. Hence, this appeal by the CIR.
ISSUE: (1) Whether or not the partnership was dissolved after the
marriage of Suter and Spirig and the subsequent sale to them by the
remaining partner, Carlson, of his participation in the partnership? (2)
Whether or not the corporate personality of the William J. Suter
"Morcoin" Co., Ltd. should be disregarded for income tax purposes,
considering that respondent Suter and his wife actually formed a single
taxable unit?
HELD: (1) NO. A husband and a wife may not enter into a contract
of general copartnership, because under the Civil Code, which applies in
the absence of express provision in the Code of Commerce, persons
prohibited from making donations to each other are prohibited from
entering into universal partnerships. It follows that the marriage of
partners necessarily brings about the dissolution of a pre-existing
partnership. The CIR failed to observe that William J. Suter "Morcoin"
Co., Ltd. was not a universal partnership, but a particular one.
A universal partnership requires either that the object of the association
be all the present property of the partners, as contributed by them to the
common fund, or else "all that the partners may acquire by their industry
or work during the existence of the partnership". William J. Suter
"Morcoin" Co., Ltd. was not such a universal partnership, since the
contributions of the partners were fixed sums of money. The subsequent
marriage of the partners does not operate to dissolve it, as such
marriage is not one of the causes provided for that purpose either by
the Spanish Civil Code or the Code of Commerce.
(2) NO. The capital contributions of partners Suter and Spirig were
separately owned and contributed by them before their marriage; and
after they were joined in wedlock, such contributions remained their
respective separate property. Thus, the individual interest of each
consort in in the limited partnership did not become common property
of both after their marriage in 1948. The partnership has a juridical
personality of its own, distinct and separate from that of its partners. The
limited partnership's separate individuality makes it impossible to equate
its income with that of the component members. As the limited
partnership under consideration is taxable on its income, to require

that income to be included in the individual tax return of respondent
Suter is to overstretch the letter and intent of the law. In fact, it would
even conflict with the Code: for the Commissioner's stand results in
equal treatment, tax wise, of a general copartnership (compaia
colectiva) and a limited partnership, when the code plainly
differentiates the two. Thus, the code taxes the latter on its income,
but not the former, because it is in the case of compaias
colectivas that the members, and not the firm, are taxable in their
individual capacities for any dividend or share of the profit derived
from the duly registered general partnership. The difference in tax rates
between the income of the limited partnership being consolidated with,
and when split from the income of the spouses, is not a justification for
requiring consolidation; the revenue code, as it presently stands, does
not authorize it, and even bars it by requiring the limited partnership to
pay tax on its own income.
As to CIRs argument that the income of the limited partnership is
constructively the income of the spouses and forms part of the conjugal
partnership of gains, the conjugal partnership of gains is not a taxable
unit. What is taxable is the "income of both spouses in their individual
capacities. Though the amount of income (income of the conjugal
partnership vis-a-vis the joint income of husband and wife) may be the
same for a given taxable year, their consequences would be different, as
their contributions in the business partnership are not the same.
TAN GUAN V. CTA

G.R. NO. 76573, SEPTEMBER 14, 1989
FACTS: Tan Guan and Sia Lin, Chinese nationals, organized and registered
the Philippine Surplus Company, a general partnership. For the same
year the partners and the partnership filed separate income tax returns.
The partnership paid no income tax. A registered general partnership is
exempt from income tax although it is required to file income tax
returns. Profits, whether or not distributed, are considered income of
the partners. Acting upon a confidential report that the Philippine
Surplus Company posted in its book fictitious expenses for the purpose
of avoiding taxes, the Bureau of Internal Revenue investigated in 1954
the books and papers of said partnership disallowed certain expense
deduction for being fictitious. The BIR investigators discovered that the
expenses were not supported by receipts; that the names of the payees
in the aforesaid entries were erased; and that the said payees did not
report the sums in question in their income tax returns for 1948. Hence,
the BIR assessed deficiency income tax against Tan Guan. Tan Guan
appealed to the CTA which affirmed the assessment of the CIR. Tan
Guans MR was denied by the CTA. Hence, this appeal.
ISSUE: Whether the right of the CIR to assess the deficiency tax has
prescribed? (2) Should the deduction claimed by Philippine Surplus Co. as
a business expense be allowed?
HELD: (1) YES. If the income tax return was false and fraudulent, the
CIRs right has not prescribed. If not, the assessment issued is void
because of prescription. Here, the ITR was false or fraudulent as
Philippine Surplus Co. claimed deductions of fictitious expenses for the
purpose of avoiding the declaration of profits which eventually would be
taxable as income of Tan Guan and Sia Lin, and that the names of the
payees in the corresponding entries of the expenses involved in the
books of accounts were erased. The returns being false or fraudulent,
the CIR has not lost his right to issue the assessment. With respect to
Tan Guans contention that he should be given the same treatment as Sia
Lin, who was absolved by the CIR, suffice it to say that the Government is
not bound by the errors committed by its agents.
(2) NO. The only reason why said deduction was disallowed is because
COURSE: TAXATION I
PROFESSOR: GRUBA
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the expenses were fictitious or non-existent. Said conclusion was

prompted by the absence of supporting receipts in the voucher covering
the expenses and by the failure of the recipients thereof to declare them
in their income tax returns
TAX ON CORPORATIONS
(SECTIONS 27-30, NIRC)
Note: The corresponding changes introduced by RA 9337 (Amending the
NIRC of 1997) have already been integrated in the discussions below on
corporate income tax. All provisions and rates mentioned here are
updated as of March 1, 2009.
Q: What is a corporation under the NIRC?

A: A corporation includes partnerships, no matter how created or
organized, joint-stock companies, joint accounts, associations, or
insurance companies but does not include:
a.
b.
general professional partnerships

joint venture or consortium formed for the purpose of
undertaking construction projects or engaging in petroleum
and other energy operations pursuant to an operating
agreement under a service contract with the Government.
It classified into domestic and foreign.
Q: How do you distinguish a domestic corporation from a

foreign corporation?
A: The Philippines adopts the law of incorporation test under which a
corporation is considered as a domestic corporation if it is organized or
created in accordance with or under the laws of the Philippines and it is
foreign if it is organized or created under the laws of a foreign country.
A domestic corporation is taxable on all income derived from sources
within and without the Philippines while a foreign corporation is taxable
only on income derived from sources within the Philippines.
A foreign corporation is further classified into resident foreign
corporation and nonresident foreign corporation.
Q: What are two types of resident foreign corporations?

A: The two types are:
1.
those exempt from income tax because they are not engaged
in trade or business in the Philippines (e.g. regional or area
headquarters)
2.
those subject to income tax at
a.
10% preferential tax rate
b.
30% regular corporate income tax or 2% minimum
corporate income tax whichever is higher (e.g.
Philippine branches of foreign corporations engaged in
trade and business in the Philippines; regional operating
headquarters of MNCs)
Note: Now, let us go to the tax rates and computations on income taxes
on corporations. First, let us start with the flat rate rates.
Q: What is the regular corporate income tax (RCIT)?

A: Section 27(A)(1) and Section 28(A)(1) of the NIRC provide that, except
as otherwise provided for in the Code, the rates of RCIT on taxable
income from worldwide sources of a domestic corporation or from
sources within the Philippines of a foreign corporation during the
taxable year are as follows:
1.
35% effective November 1, 2005
2.
30% effective January 1, 2009.
In case of corporations adopting the fiscal year accounting period, the
taxable income shall be computed without regard to the specific date
when specific sales, purchases, and other transactions occur. Their
income and expenses for the fiscal year shall be deemed earned and
spent equally for each month of the period. The reduced corporate
income tax rates shall be applied on the amount computed by
multiplying the number of months covered by the new rates within the
fiscal year by the taxable income of the corporation for the period
divided by twelve. To illustrate:
If a corporation is under the fiscal accounting period (April 2008 to
March 2009, how shall the Income tax due for fiscal year 2008 be
computed?
Q: What is the difference between a resident foreign

corporation and non-resident foreign corporation?
A: A Resident foreign corporation is foreign corporation engaged in
trade or business within the Philippines. Resident here is used to
describe a corporation organized under the laws of a foreign country
which does business in the Philippines and it not being used in its
ordinary sense that the foreign corporation acquires residence in the
Philippines. A good example of a resident foreign corporation is the
Philippine branch of a foreign corporation. For income tax purposes, only
the income of the Philippine branch from sources within the Philippines
is subject to income tax while the income of the Philippine branch and
the foreign head office arising from foreign sources are exempt.
On the other hand, a nonresident foreign corporation is a foreign
corporation not engaged in trade or business within the Philippines. The
term non-resident here means not engaged in trade or business in the
Philippines. Except as provided in the NIRC, gross income from sources
within the Philippines paid to a non-resident foreign corporation shall be
subject to income tax that must be withheld by the Philippine payor of
the income and remitted to the BIR.
10 | P I E R R E M A R T I N D L R E Y E S
On the other hand, as provided in Section 28(B)(1), the rate of RCIT on

the gross income from all sources within the Philippines for a nonresidence foreign corporation during the taxable year are as follows:
1.
35% effective November 1, 2005
2.
30% effective January 1, 2009.
Q: What is meant by taxable income which is subject to RCIT?

A: As defined in Section 31, taxable income means the pertinent items
of gross income specified in the Code, less the deductions and/or
personal and additional exemptions, if any authorized for such types of
income by the Code or other special laws. For corporations, taxable
income would mean net income. Net income and taxable income is used
interchangeably when it comes to corporations.
COURSE: TAXATION I
PROFESSOR: GRUBA
st
Q: May the President allow domestic and resident foreign

corporations the option to be taxed on their gross income?
Q: What domestic corporations are subject to preferential tax

rates and what are the tax rates applicable to each?
A: Yes. As provided under Section 27(A)(1) and Section 28(A)(1), the

President upon recommendation of the Secretary of Finance may allow
domestic and resident foreign corporations the option to be taxed at
15% of gross income after the following conditions have been satisfied:
A: As a general rule, all domestic corporations are subject to the RCIT or

MCIT. As exceptions, certain domestic corporations enjoy preferential
rates. They are:
1.
2.
3.
4.
a tax effort ratio of 20% of the GNP

a ratio of 40% of income tax collection to total tax revenues
a VAT tax effort of 4% of GNP
a 0.9% ratio of Consolidated Public Sector Financial Position
(CPSFP) to GNP
This option is available to firms whose ratio of cost of sales to gross sales
or receipts from all sources does not exceed 55%. Upon election of the
gross income tax option, it shall be revocable for 3 consecutive taxable
years during which the corporation is qualified.
1.
2.
3.
4.
5.
Proprietary education institutions and hospitals

Foreign currency deposit unit of a local universal or
commercial bank
Firms that are taxed under a special income tax regime
Private educational institutions
Hospitals

Proprietary
institutions
hospitals
education
and
Q: What is the minimum corporate income tax?

A: As provided in Section 27(E) and Section 28(A)(2), a minimum
corporate income tax of 2% of gross income shall be imposed on a
domestic corporation and resident foreign corporation beginning on the
fourth taxable year immediately following the year in which such
corporation commenced its business operations when the MCIT is
greater than the RCIT for the taxable year.
Q: What is gross income for purposes of applying the MCIT?

A: Gross income shall mean gross sales less sales returns, discounts,
allowances and cost of goods sold.

This prescribes the regulations to implement RA No. 8424 relative to the
imposition of the Minimum Corporate Income Tax (MCIT) on domestic
corporations and resident foreign corporations. Specifically, an MCIT of
2% of the gross income as of the end of the taxable year is imposed
upon any domestic corporations beginning the 4th taxable year
immediately following the taxable year in which such corporation
commenced its business operations. The MCIT will be imposed
whenever such operation has zero or negative taxable income or
whenever the amount of MCIT is greater than the normal income tax
due from such operation. In the case of a domestic corporation whose
operations or activities are partly covered by the regular income tax
system and partly covered under a special income tax system, the MCIT
will apply on operations covered by the regular income tax system.
The Regulations will apply to domestic and resident foreign
corporations on their aforementioned taxable income derived beginning
January 1, 1998 pursuant to the pertinent provisions of RA 8424,
provided, however, that corporations using the fiscal year accounting
period and which are subject to MCIT on income derived pertaining to
any month or months of the year 1998 will not be imposed with
penalties for late payment of the tax.
Foreign
currency
deposit unit of a local
universal or commercial
bank
Firms that are taxed

under a special income
tax regime
Private
educational
institutions
Note: Lets now go to the preferential tax rates

Hospitals
They shall pay a tax of 10% on their taxable

income except those items covered by
Section 27(D), namely:
1.
Interest from deposits and yield
or any other monetary benefit
from deposit substitutes and from
trust
funds
and
similar
arrangements
2.
Capital gains from the Sale of
Shares of stock not traded in the
Stock Exchange
3.
Tax on Income derived under the
Expanded Foreign
Currency
Deposit System
4.
Intercorporate dividends
5. Capital gains realized from the
sale, exchange or disposition of
lands and/or buildings
Income derived by a depository bank under
the expanded foreign currency deposit
system from foreign currency transactions
with nonresidents, offshore banking units in
the Philippines, local commercial banks,
including branches of foreign banks that may
be authorized by the BSP shall be taxexempt.
(Note that Mamalateos book still states that
its 10% as introduced by RA 8424. This is
wrong because by virtue of RA 9294, the tax
exemption of OBUs and FCDUs is now
restored.)
These are enterprises such as those
registered with the PEZA Law (RA 7916) and
the Bases Conversion and Development Act
(RA 7227). They are subject to 5% final tax on
gross income earned after the expiration of
the income tax holiday if qualified.
All revenue assets of a non-stock, non-profit
private educational institution shall be taxexempt provided that they are used directly,
exclusively and actually for educational
purposes.
(Note: This is in accordance with Section
4(3), Article 16 of the Constitution)
Revenues derived from and assets used in
the operation of hospitals shall be taxexempt from taxation, provided they are
COURSE: TAXATION I
PROFESSOR: GRUBA
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owned and operated by the educational

institution as an indispensable requirement
in the operation and maintenance of its
medical school or college.
local commercial banks that may be

authorized by the BSP to transact business
with offshore banking units shall be taxexempt except from such transactions as
may be specified by the Secretary of Finance,
upon recommendation of the Monetary
Board which shall be subject to the regular
income tax payable to banks.
Q: What resident foreign corporations are subject to

preferential tax rates and what are the tax rates applicable to
each?
However, any interest income derived from

foreign currency loans granted to residents
other than offshore banking units or local
commercial banks, including local branches
of foreign banks that may be authorized by
the BSP to transact business with offshore
banking units shall be subject only to a 10%
final tax.
A: As a general rule, all resident foreign corporations are subject to the

RCIT or MCIT. As exceptions, certain resident foreign corporations enjoy
preferential rates. They are:
1.
2.
3.
4.
5.
6.
7.
8.
9.
Regional or area headquarters (RHQ) (a branch established in

the Philippines by MNCs and which does not earn or derive
income from the Philippines and whose role is supervisory)
Representative office (a branch in the Philippines of a MNC
whose activities are limited to information dissemination,
product promotion)
International carriers by air or water
Offshore Banking Units
Foreign Currency deposit Unit in the Philippines of a foreing
bank
Regional Operating Headquarters (ROHQ)
Branch of foreign corporation with respect to profit
remittances to head office.
Branch of foreign corporations registered with PEZA, SBMA,
CDA, CDJHA.
Qualified service contractor or subcontractor engaged in
petroleum operations in the Philippines
Foreign
Currency
deposit Unit in the
Philippines of a foreign
bank

Regional
or
area
headquarters
Representative office
International carriers
by air or water
RHQs and representative offices are taxexempt.

Note, however, that income from passive
investments like interest income on bank
deposits or deposit substitutes in the
Philippines is subject to the final withholding
tax.
They shall pay a tax of 2.5% on its gross
Philippine billings.
(For an International Air carrier, Gross
Philippine Billings refers to the amount of
gross revenue derived from carriage of
persons, excess baggage, cargo and mail
originating from the Philippines in a
continuous and uninterrupted flight,
irrespective of the place of sale or issue and
the place of payment of the ticket or passage
document.
Offshore Banking Units
For international shipping, Gross Philippine

billings means gross revenue whether for
passenger, cargo or mail originating from the
Philippines up to final destination, regardless
of the place of sale or payments of the
passage or freight documents.)
The provisions of any law to the contrary
notwithstanding, income derived by offshore
banking units authorized by the BSP, from
foreign
currency
transactions
with
nonresidents, other offshore banking units,
(Note, however, that Mamalateos book still

states 10% with no exemptions. This is
wrong. RA 9294 has superseded RA 8424 and
restored the tax exemptions of OBUs and
FCDUs.)
Income derived by a depository bank under
the expanded foreign currency deposit
system from foreign currency transactions
with nonresidents, offshore banking units in
the Philippines, local commercial banks
including branches of foreign banks that may
be authorized by the BSP to transact
business with foreign currency deposit
system units and other depository banks
under the expanded foreign currency deposit
system shall be tax-exempt, except from
such transactions as may be specified by the
Secretary of Finance, upon recommendation
of the Monetary Board which shall be subject
to the regular income tax payable to banks.
However, any interest income from foreign
currency loans granted by such depository
banks under said expanded foreign currency
deposit system to residents other offshore
banking units in the Philippines or other
depository banks under the expanded
system shall be subject to 10% final tax.
Regional
Operating
Headquarters (ROHQ)
Branch
of
foreign
corporation
with
respect
to
profit
remittances to head
office.
Branch
of
foreign
corporations registered
(This is as amended by RA 9294)

ROHQ shall pay a 10% tax on their net
taxable income from sources within the
Philippines.
Any profit remitted by a branch to its head
office shall be subject to a 15% branch profit
remittance tax.
(Note that the purpose of a branch profit
remittance tax is to equalize the tax burden
on foreign corporations maintaining on one
hand, local branch offices, and organizing, on
the other hand, a subsidiary domestic
corporation where at least majority of all the
latters stocks are owned by such foreign
corporation)
After the income tax holiday of PEZAregistered firms, their gross income earned
COURSE: TAXATION I
PROFESSOR: GRUBA
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with PEZA, SBMA, CDA,

CDJHA.
Qualified
service
contractor
or
subcontractor engaged
in
petroleum
operations
in
the
Philippines
shall be subject to 5% final tax. However,

enterprises registered under the BCDA law
are not entitled to tax holiday and are
immediately subject to 5% final tax on gross
income earned.
Aside from being subject to the regular tax
on income from all other sources within the
Philippines, a subcontractor is subject to the
final tax equivalent to 8% of its gross income
derived from its contract with the service
contractors
engaged
in
petroleum
operations.
Note: Now, lets go to incomes of domestic, resident foreign and nonresident foreign corporations.
Q: What income of a non-resident foreign corporation is

subject to preferential tax rates?
A: As a general rule, the gross income of a non-resident foreign
corporation is subject to the flat rate tax of 30%. As exceptions, the
following are subject to preferential tax rates and final withholding taxes:
1.
2.
3.
4.
5.
Q: What income of a domestic corporation or resident foreign

corporation is subject to preferential tax rates?
A: As a general rule, all taxable income of a domestic corporation or
resident foreign corporation is subject to the flat rate tax of 30%. As
exceptions, the following are subject to preferential tax rates:
1.
2.
3.
4.
Certain passive incomes such as interests from deposits and

yield or any other monetary benefit from deposit substitutes
and from trust funds and similar arrangements and royalties
Capital gains from the Sale of Shares of Stock not traded in
the Stock Exchange
Intercorporate dividends (dividends actually or constructively
received by a domestic corporation or resident foreign
corporation from another domestic corporation)
Capital gains realized from the sale, exchange or disposition
of lands and/or buildings.
The preferential rates are:

Certain passive incomes
such as interests from
deposits and yield or any
other monetary benefit
from deposit substitutes
and from trust funds and
similar arrangements and
royalties
They are subject to 20% tax.
Capital gains from the Sale

of Shares of Stock not
traded in the Stock
Exchange
Net capital gains from the sale, exchange

or other disposition of shares of stock
shall be subject to the following rates:
a.
b. In excess of P100,000 10%
They are tax-exempt
Capital gains realized from

the sale, exchange or
disposition of lands and/or
buildings.
Note, however, that interest income

coming from a depository bank under the
expanded foreign currency deposit system
is subject to 7.5% tax.
(Note that they are exempt in order to

reduce the extra or double taxation of
distributed earnings)
A final tax of 6% is imposed on the gain
presumed to have been realized on the
sale, exchange or disposition of lands
and/or buildings which are not actually
used in the business of a corporation and
are treated as capital assets.
6.
Income of a non-resident cinematographic film owner, lessor

or distributor
Income of a non-resident owner or lessor of vessels chartered
by Philippine nationals
Income of a non-resident owner of aircraft, machineries and
other equipment
Interest income on foreign loans contract on or after August
1, 1986.
Intercorporate dividends received from a domestic
corporation
Capital gains from sale of shares of stock in a domestic
corporation not traded in the Stock exchange
The preferential rates are:

Income of a non-resident
cinematographic
film
owner,
lessor
or
distributor
They shall pay a tax of 25% of its gross

income from sources within the
Philippines
owner or lessor of vessels
chartered by Philippine
nationals
They shall be subject to a tax of 4.5% of

gross rentals, lease or charter fees from
leases or charters to Filipino citizens or
corporations as approved by the MARINA.
owner
of
aircraft,
machineries and other
equipment
They shall pay a tax of 7.5% of their gross

rentals or fees.
Interest income on foreign

loans contract on or after
August 1, 1986.
They shall be subject to 20% withholding

tax.
received from a domestic
corporation
They shall be subject to a final withholding

tax of 15% subject to the condition that
the country in which the nonresident
foreign corporation is domiciled shall
allow a credit against tax due from the
nonresident foreign corporation deemed
to have been paid in the Philippines
equivalent to 15% which represents the
difference between the regular income
tax of 30% and the 15% tax on dividends.
Capital gains from sale of

shares of stock in a
domestic corporation not
traded in the Stock
exchange
Note that beginning Jan. 1, 2009, the RCIT

has been reduced to 30% from 35%.
Net capital gains from the sale, exchange
or other disposition of shares of stock
shall be subject to the following rates:
a.
b.
In excess of P100,000 10%
COURSE: TAXATION I
PROFESSOR: GRUBA
st
Relevant cases:
MARUBENI CORP. VS. CIR
G.R. NO. 76573, SEPTEMBER 14, 1989
FACTS: Marubeni Corporation of Japan, a foreign corporation duly
organized and existing under the laws of Japan and duly licensed to
engage in business under Philippine laws, has equity investments in
Atlantic Gulf and Pacific Co. of Manila (AG&P). AG&P declared and paid
cash dividends to Marubeni and withheld the corresponding final
dividend tax thereon. AG&P directly remitted the cash dividends to
Marubenis head office in Tokyo, Japan net not only of the 10% final
dividend tax but also of the withheld 15% profit remittance tax based on
the remittable amount after deducting the final withholding tax of 10%.
Marubeni Corporation sought a ruling from the BIR on whether or not
the dividends it received from AG&P are effectively connected with its
conduct or business in the Philippines as to be considered branch profits
subject to 15% profit remittance tax. Then Acting Commissioner Ancheta
ruled that only profits remitted abroad by a branch office to its head
office which are effectively connected with its trade or business in the
Philippines are subject to the 15% profit remittance tax. Consequently,
Marubeni claimed for a refund or issuance of a tax credit representing
profit tax remittance erroneously paid on the dividends remitted by
AG&P to head office in Tokyo. CIR denied Marubeni Corporationss claim
for refund/credit. Petitioner appealed to the CTA which affirmed the
denial of the refund by the CIR. On appeal to the SC, it is the argument of
Marubeni that following the principal-agent relationship theory,
Marubeni Japan is a resident foreign corporation subject only to the 10 %
intercorporate final tax on dividends received from a domestic
corporation.
ISSUE: (1) Whether Marubeni is a resident foreign corporation or a nonresident foreign corporation? (2) Whether Marubeni is entitled to
refund or tax credit for the alleged overpayment of branch profit
remittance tax withheld from dividends by AG&P?
HELD: (1) A resident foreign corporation is one that is "engaged in trade
or business" within the Philippines. Marubeni contends that precisely
because it is engaged in business in the Philippines through its Philippine
branch that it must be considered as a resident foreign corporation.
Petitioner reasons that since the Philippine branch and the Tokyo head
office are one and the same entity, whoever made the investment in
AG&P, Manila does not matter at all. This is wrong. The general rule that
a foreign corporation is the same juridical entity as its branch office in
the Philippines cannot apply here. This rule is based on the premise
that the business of the foreign corporation is conducted through its
branch office, following the principal agent relationship theory. It is
understood that the branch becomes its agent here. So that when the
foreign corporation transacts business in the Philippines independently
of its branch, the principal-agent relationship is set aside. The
transaction becomes one of the foreign corporation, not of the branch.
Consequently, the taxpayer is the foreign corporation, not the branch
or the resident foreign corporation. Corollarily, if the business
transaction is conducted through the branch office, the latter becomes
the taxpayer, and not the foreign corporation. In other words, the
alleged overpaid taxes were incurred for the remittance of dividend
income to the head office in Japan which is a separate and distinct
income taxpayer from the branch in the Philippines. It is thus clear that
Marubeni cannot avail of the lower tax rate of 10%.
(2) Yes. But while the CIR correctly concluded that the dividends in
dispute were neither subject to the 15 % profit remittance tax nor to the
10 % intercorporate dividend tax, the recipient being a non-resident
stockholder, they grossly erred in holding that no refund was
forthcoming to the petitioner because the taxes thus withheld totalled
the 25 % rate imposed by the Philippine-Japan Tax Convention. To simply

add the two taxes to arrive at the 25 % tax rate is to disregard a basic
rule in taxation that each tax has a different tax basis. While the tax on
dividends is directly levied on the dividends received, "the tax base upon
which the 15 % branch profit remittance tax is imposed is the profit
actually remitted abroad." Marubeni, being a non-resident foreign
corporation with respect to the transaction in question, the applicable
provision of the Tax Code is Section 24 (b)(1)(iii) (Now Section
27(B)(5)(b)) in conjunction with the Philippine-Japan Treaty of 1980. In
applying said section, Marubeni, being a non-resident foreign
corporation, as a general rule, is taxed 35 % of its gross income from all
sources within the Philippines. However, a discounted rate of 15% is
given to petitioner on dividends received from a domestic corporation
(AG&P) on the condition that its domicile state (Japan) extends in favor
of petitioner, a tax credit of not less than 20 % of the dividends received.
This 20 % represents the difference between the regular tax of 35 % on
non-resident foreign corporations which petitioner would have ordinarily
paid, and the 15 % special rate on dividends received from a domestic
corporation. Consequently, petitioner is entitled to a refund.
Q: What is the income tax imposed on a corporation if its

earnings and profits are accumulated (undistributed) instead of
being divided and distributed to its stockholders?
A: Section 29(A) provides that, in addition to other taxes imposed under
Title II, an improperly accumulated earnings tax (IAET) equal to 10% is
imposed for each taxable year on the improperly accumulated taxable
income of each corporation.
Q: What corporations are subject to IAET?

A: As a general rule, the IAET shall apply to every corporation formed or
availed for the purpose of avoiding the income tax with respect to its
shareholders or the shareholders of any other corporation, by permitting
earnings and profits accumulate instead of being divided or distributed.
As exceptions, the IAET shall not apply to:
1.
Publicly-held corporations
2.
Banks and other non-bank financial intermediaries; and
3.
Insurance companies
Q: How do you determine if a corporation is formed or availed

for the purpose of avoiding the income tax with respect to
shareholders?
A: Section 29(C)(1) provides that the fact that any corporation is a mere
holding company or investment company shall be prima facie evidence
of a purpose to avoid the tax upon its shareholders or members.
Moreover, Section 29(C)(2) provides that the fact that the earnings or
profits of a corporation are permitted to accumulate beyond the
reasonable needs of the business shall be determinative of the purpose
to avoid the tax upon its shareholders or members unless the
corporation, by the clear preponderance of evidence shall prove the
contrary.
Note that under Section 29(E), the term reasonable needs of the
business includes the reasonably anticipated needs of the business.
COURSE: TAXATION I
PROFESSOR: GRUBA
st
Q: What is meant by improperly accumulated taxable income

in connection with the imposition of IAET?
A: Section 29(D) provides that the term improperly accumulated taxable
income means taxable income adjusted by:
1.
Income exempt from tax
2.
Income excluded from gross income
3.
Income subject to final tax; and
4.
The amount of net operating loss carry-over deducted;
And reduced by the sum of:
1.
Dividends actually or constructively paid; and
2.
Income tax paid for the taxable year
Q: What are the corporations exempt from tax?

A: Section 30 of the NIRC provides that the following organizations shall
be exempt from tax:
1.
Labor, agricultural or horticultural organization not
organized principally for profit
2.
Mutual savings bank not having a capital stock represented
by shares and cooperative bank without capital stock
organized and operated for mutual purposes and without
profit
3.
A beneficiary society, order or association, operating for the
exclusive benefit of the members such as a fraternal
organization operating under the lodge system, or a mutual
aid association or a non-stock corporation organized by
employees providing for the payment of life, sickness,
accident, or other benefits exclusively to the members of such
society, order, or association, or non-stock corporation or
their dependents
4.
Cemetery company owned and operated exclusively for the
benefit of its members
5.
Non-stock corporation or association organized and
operated exclusively for religious, charitable, scientific,
athletic, or cultural purposes, or for the rehabilitation of
veterans, no part of its net income or asset shall belong to or
inure to the benefit of any member, organizer, officer or any
specific person
6.
Business league, chamber of commerce, or board of trade,
not organized for profit and no part of the net income of
which inures to the benefit of any private stockholder or
individual
7.
Civil league or organization not organized for profit but
operated exclusively for the promotion of social welfare
8.
A non-stock and non-profit educational institution
9.
Government educational institution
10. Farmers or mutual typhoon or fire insurance company,
mutual ditch or irrigation company, mutual or cooperative
telephone company or like organizstion of a purely local
character, the income of which consists solely of assessments,
dues, and fees collected from members for the sole purpose
of meeting its expenses; and
11. Farmers, fruit growers, 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, less the necessary selling expenses on the
basis of the quantity of produce finished by them.
Note: Notwithstanding that they are exempt corporations, the income of
whatever kind and character of the organizations mentioned above from
any of their properties, real or personal, or form any of their activities
conducted for profit regardless of the disposition made of such income
shall be subject to tax imposed under this Code.
Relevant cases:
COMMISSIONER OF INTERNAL REVENUE VS PAL
G.R. NO. 180066, JULY 7, 2009
FACTS: PAL is a domestic corporation organized under the corporate
laws of the Philippines. For FY 2000-2001, PAL allegedly incurred zero
taxable income which left it with unapplied creditable withholding tax.
PAL did not pay any MCIT for the period. In a letter in 2002 to the CIR,
PAL requested for the refund of its unapplied creditable withholding tax
for FY 2000-2001. In an informal conference, BIR officers relayed to PAL
representatives that the BIR was denying the claim for refund of PAL and,
instead, was assessing PAL for deficiency MCIT for FY 2000-2001. BIR
issued PAL an assessment representing deficiency MCIT for FY 20002001, plus interest and compromise penalty. PAL protested. A formal
demand letter for deficiency MCIT was sent to PAL. PAL sent a written
protest. The BIR denied with finality the protest of PAL and reiterated
the request that PAL immediately pay its deficiency MCIT for FY 20002001, inclusive of penalties incident to delinquency. PAL filed a Petition
for Review with the CTA. The CTA Second division ruled in favor of PAL.
CIR filed a petition for review with the CTA en banc. The CTA en banc
found that PAL was exempted and denied the CIRs petition.
ISSUE: Whether PAL is liable for deficiency MCIT for FY 2000-2001?
HELD: NO. PD 1590, the franchise of PAL, provides that, during the
lifetime of its franchise, PAL shall be governed by two fundamental rules,
particularly: (1) PAL shall pay the Government either basic corporate
income tax or franchise tax, whichever is lower; and (2) the tax paid by
PAL, under either of these alternatives, shall be in lieu of all other taxes,
duties, royalties, registration, license, and other fees and charges, except
only real property tax. The basic corporate income tax of PAL shall be
based on its annual net taxable income, computed in accordance with
the NIRC. Franchise tax, on the other hand, shall be two per cent (2%) of
the gross revenues derived by PAL from all sources, whether transport or
nontransport operations. However, with respect to international airtransport service, the franchise tax shall only be imposed on the gross
passenger, mail, and freight revenues of PAL from its outgoing flights.
Here, PAL, in its income tax return for FY 2000-2001, reported no net
taxable income for the period, resulting in zero basic corporate income
tax, which would necessarily be lower than any franchise tax due from
PAL for the same period. The CIR, though, assessed PAL for MCIT for FY
2000-2001. It is the position of the CIR that the MCIT is income tax for
which PAL is liable. The CIR reasons that Section 13(a) of PD 1590
provides that the corporate income tax of PAL shall be computed in
accordance with the NIRC. And, since the NIRC of 1997 imposes MCIT,
and PAL has not applied for relief from the said tax, then PAL is subject to
the same. The CIRs contention must fail.
Under the NIRC, a domestic corporation must pay whichever is higher of:
(1) the income tax under Section 27(A) of the NIRC of 1997, computed by
applying the tax rate therein to the taxable income of the corporation; or
(2) the MCIT under Section 27(E), also of the NIRC of 1997, equivalent to
2% of the gross income of the corporation. Although this may be the
general rule in determining the income tax due from a domestic
corporation under the NIRC of 1997, it can only be applied to PAL to the
extent allowed by the provisions in the franchise of PAL specifically
governing its taxation. After a conscientious study of PD 1590, in relation
to Sections 27(A) and 27(E) of the NIRC of 1997, the Court, like the CTA
en banc and Second Division, concludes that PAL cannot be subjected to
MCIT for FY 2000-2001. First, PD 1590 refers to basic corporate income
tax to be computed in accordance with the NIRC. It did not subject PAL
to the entire Title II. Second, PD 1590 provides that the basic corporate
income tax shall be based on its annual net taxable income. This is
COURSE: TAXATION I
PROFESSOR: GRUBA
st
consistent with Section 27(A). In comparison, the 2% MCIT under Section

27(E) shall be based on the gross income of the domestic corporation.
There is a distinction between taxable income, which is the basis for
basic corporate income tax under Section 27(A); and gross income, which
is the basis for the MCIT under Section 27(E). The two terms have their
respective technical meanings, and cannot be used interchangeably.
Hence, the basic corporate income tax, for which PAL is liable under PD
1590, cannot cover MCIT under Section 27(E) since the basis for the first
is the annual net taxable income, while the basis for the second is gross
income. Third, even if the basic corporate income tax and the MCIT are
both income taxes under Section 27 of the NIRC of 1997, and one is paid
in place of the other, the basic corporate income tax and the MCIT are
distinct and separate taxes. Fourth, the evident intent of PD 1520 is to
extend to PAL tax concessions not ordinarily available to other
domestic corporations.
Neither can it be said that the NIRC of 1997 repealed or amended
Presidential Decree No. 1590. It is true that when Presidential Decree
No. 1590 was issued on 11 June 1978, PAL was then a governmentowned and controlled corporation; but when Republic Act No. 8424,
amending the NIRC, took effect on 1 January 1998, PAL was already a
private corporation for six years. The repealing clause under Section 7(B)
of Republic Act No. 8424 simply refers to charters of government-owned
and controlled corporations, which would simply and plainly mean
corporations under the ownership and control of the government at the
time of effectivity of said statute. It is already a stretch for the Court to
read into said provision charters, issued to what were then governmentowned and controlled corporations that are now private, but still
operating under the same charters.
refundable amount shown on its final adjustment return may be credited

against the estimated quarterly income tax liabilities for the taxable
quarters of the succeeding year. The carrying forward of any excess or
overpaid income tax for a given taxable year is limited to the succeeding
taxable year only. The confusion as to Paseo Realtys entitlement to a
refund could altogether have been avoided had it presented its tax
return for 1990. Such return would have shown whether petitioner
actually applied its 1989 tax credit, which includes the creditable taxes
withheld for 1989 subject of the claim for refund, against its 1990 tax
liability as it had elected in its 1989 return, or at least, whether
petitioners tax credit of was applied to its approved refunds as it claims.
The return would also have shown whether there remained an excess
credit refundable to Paseo after deducting its tax liability for 1990. This
omission is fatal to Paseos claim.
COMMISSIONER OF INTERNAL REVENUE V. COURT OF APPEALS

G.R. NO. 124043, OCTOBER 14, 1998
FACTS: Young Men's Christian Association of the Philippines, Inc. (YMCA)
was established as a welfare, educational and charitable non-profit
corporation." YMCA earned, among others, income from leasing out a
portion of its premises to small shop owners and parking fees. The CIR
issued an assessment to YMCA , for deficiency income tax, deficiency
expanded withholding taxes on rentals and professional fees and
deficiency withholding tax on wages. YMCA protested. However, CIR
denied the claims of YMCA. YMCA then filed a petition for review at the
CTA. CTA ruled in favor of the YMCA and stated that the leasing of the
facilities to small shop owners and operation of the parking lot are
reasonably incidental to and reasonably necessary for the
accomplishment of the objectives of the YMCA. CIR elevated the case to
the CA. The CA initially decided in favour but thereafter reversed itself.
PASEO REALTY V. COURT OF APPEALS

G.R. NO. 119286, OCTOBER 13, 2004
FACTS: Paseo Realty and Development Corporation, a domestic
corporation engaged in the lease of two (2) parcels of land at Paseo de
Roxas in Makati City, filed its ITR for the calendar year 1989. Thereafter,
Paseo Realty filed with CIR a claim for the refund of excess creditable
withholding and income taxes for the years 1989 and 1990. Alleging that
the prescriptive period for refunds for 1989 would soon expire and that
it was necessary to interrupt the prescriptive period, Paseo Realty filed
with the CTA a petition for review praying for the refund. The CTA
ordered the refund of the alleged excess creditable withholding taxes
paid. CIR moved for reconsideration. CTA reversed and dismissed the
petition for review. Paseo Realty then filed a petition for review with the
CA. In resolving the twin issues of whether Paseo Realty is entitled to a
refund representing creditable taxes withheld in 1989 and whether
Paseo Realty applied such creditable taxes withheld to its 1990 income
tax liability, the CA held that petitioner is not entitled to a refund
because it had already elected to apply the total amount which includes
the refund claimed, against its income tax liability for 1990. The CA
denied Paseo Realtys MR.
ISSUE: Whether the alleged excess taxes paid by Paseo Realty in 1989
should be refunded or credited against its tax liabilities for 1990?
HELD: NO. Paseo Realtys failure to present sufficient evidence to prove
its claim for refund is fatal to its cause. It is axiomatic that a claimant has
the burden of proof to establish the factual basis of his or her claim for
tax credit or refund. Tax refunds, like tax exemptions, are construed
strictly against the taxpayer. In this case, Paseo Realty combined its
1988 and 1989 tax credits and applied its 1990 tax due against the total,
and not against its creditable taxes for 1989. The then Section 69 of the
NIRC (now Section 76) provides that in case the corporation is entitled to
a refund of the excess estimated quarterly income taxes paid, the
ISSUE: Is income derived from rentals of real property owned by the

YMCA subject to income tax?
HELD: While the income received by the organizations enumerated in
Section 27 (now Section 30) of the NIRC is, as a rule, exempted from
the payment of tax "in respect to income received by them as such,"
the exemption does not apply to income derived ". . . from any of their
properties, real or personal, or from any of their activities conducted
for profit, regardless of the disposition made of such income . . . ." as
stated in the last paragraph of the then Section 27 (now Section 30).
Since the exemption claimed by the YMCA is expressly disallowed, the
Court is duty-bound to abide strictly by its literal meaning and to refrain
from resorting to any convoluted attempt at construction.
YMCAs contention that the Constitution exempts "charitable
institutions" from the payment not only of property taxes but also of
income tax from any source must likewise fail. The tax exemption covers
property tax only. As to YMCAs claim that it is a non-stock, non-profit
educational institution whose revenues and assets are used actually,
directly and exclusively for educational purposes so it is exempt from
taxes on its properties and income as stated in the Constitution. It is
reiterated that YMCA is exempt from the payment of property tax, but
not income tax on the rentals from its property. Laws allowing tax
exemption are construed strictissimi juris. Hence, for the YMCA to be
granted the exemption it claims under the aforecited provision, it must
prove with substantial evidence that (1) it falls under the
classification non-stock, non-profit educational institution; and (2) the
income it seeks to be exempted from taxation is used actually, directly,
and exclusively for educational purposes. However, the Court notes that
not a scintilla of evidence was submitted by private respondent to prove
that it met the said requisites.
COURSE: TAXATION I
PROFESSOR: GRUBA
st
TAXABLE INCOME DEFINED

(SECTION 31, NIRC)
Q: What is taxable income?
A: As defined in Section 31, the term taxable income means the
pertinent items of gross income specified in this Code, less the
deductions and/or personal and additional exemptions, if any,
authorized for such types of income by this Code or other special laws.
EO 37 changed all net income phrases appearing in Title II of the Tax
Code of 1997 to taxable income. Taxable income is the income subject
to tax less deductions, if any, authorized by such type of income. In
short, the term refers to the tax base. For individuals engaged in trade
or business or in the practice of their profession, it is the income after
deducting exemptions and certain allowable deductions. For
corporations and other juridical entities, taxable income would mean
net income.
Relevant Cases:
Note: In the following cases, remember this: the term taxable income
refers to the tax base. In cases involving the branch profit remittance
tax, for example, the tax base or taxable income is the profit remitted
abroad.
BANK OF AMERICA VS. COURT OF APPEALS

GR NO. 103092, JULY 21, 1994
FACTS: Bank of America is a foreign corporation duly licensed to engage
in business in the Philippines. It paid the 15% branch profit remittance
tax on profit from its foreign currency deposit unit operations. The tax
was based on net profits after income tax without deducting the amount
corresponding to the 15% tax. Thereafter, Bank of America filed a claim
for refund with the BIR. Of that portion of its payment which
corresponds to the 15% branch profit remittance tax. It based its claim
on Section 24(B)(2)(ii) (Now Section 28(A)(5)) of the NIRC which provides
that any profit remitted abroad by a branch of a foreign corporation to
its head office shall be subject to 15% tax. The Bank of America argues
that the 15% branch profit remittance tax should be assessed on the
amount actually remitted or in other words, the 15% profit remittance
tax should not form part of the tax base. The CTA upheld Bank of
America in its claim for refund. The CA reversed. Hence, this appeal by
Bank of America
ISSUE: Whether the 15% branch profit remittance tax should be assessed
on the amount actually remitted and not on the amount before profit
remittance tax?
HELD: There is absolutely nothing in Section 24(b)(2)(ii) (Now Section
28(A)(5)) which indicates that the 15% tax on branch profit remittance is
on the total amount of profits of the branch (not all of which need be
sent or would be ordered remitted abroad). The statute employs "Any
profit remitted abroad by a branch to its head office shall be subject to a
tax of fifteen per cent (15%)" without more. And to our mind, the
term "any profit remitted abroad" can only mean such profit as is
"forwarded, sent, or transmitted abroad" as the word "remitted" is
commonly and popularly accepted and understood. To say therefore that
the tax on branch profit remittance is imposed and collected at
source and necessarily the tax base should be the amount actually
applied for the branch with the Central Bank as profit to be remitted
abroad is to ignore the unmistakable meaning of plain words. In the 15%
remittance tax, the law specifies its own tax base to be on the "profit
remitted abroad." There is absolutely nothing equivocal or uncertain
about the language of the provision. The tax is imposed on the amount
sent abroad, and the law (then in force) calls for nothing further.
Hence, the Bank of America is entitled to the refund.
COMMISSIONER OF INTERNAL REVENUE VS. AMERICAN AIRLINES

GR NO. 67938, DECEMBER 19, 1989
FACTS: American Airlines, is a corporation duly organized under the laws
of the US. It is an off-line international carrier without any flight
originating from the Philippines. However, by virtue of BOI Certificate of
Authority No. 267 and a license issued by the SEC, a liaison office was
established by it in this country for passenger and flight information and
reservation and to render ticketing services. In 1979, CIR assessed
American Airlines for deficiency income tax, interest and compromise
penalty for the year 1974. American Airlines received from the CIR a
letter of demand with an assessment which was computed on American
Airlines gross Philippine billings. American Airlines protested. CIR denied
the request. American Airlines filed a petition for review with the CTA
contending that it was not doing business in the Philippines and that
selling tickets is not an activity subject to the assessed tax on gross
Philippine billings. CTA reversed the decision of CIR, and held that the
acts of an international air carrier in maintain an office in the Philippines
for promotion and information purposes; and the receipt of payments
for passage tickets sold in the Philippines from passengers from the
Philippines do not make such international air carrier engaged in
business in the Philippines. Hence, this appeal by the CIR to the SC.
ISSUE: Whether an off-line international carrier without flight operations
in the Philippines but rendering ticketing services is liable to pay the 2.5%
tax on its gross Philippine billings pursuant to Section 24(b)(2) (Now
Section 28(A)(3))?
HELD: YES. For the source of income to be considered as coming from
the Philippines, it is sufficient that the income is derived from activities
within this country. The sale of tickets in the Philippines is an activity that
produces income. The absence of flight operations within Philippine
territory cannot alter this fact. True, Section 37(a) (Now Section 32) of
the Tax Code, which enumerates items of gross income from sources
within the Philippines, namely: (1) interest, (2) dividends, (3) service,
(4) rentals and royalties, (5) sale of real property, and (6) sale of
personal property, does not mention income from the sale of tickets of
international transportation. However, that does not render it less an
income from within the Philippines. Section 37, by its language, does
not intend the enumeration to be exclusive. It merely directs that the
types of income listed therein be treated as income from sources within
the Philippines.
The 2.5% tax on gross Philippine billings imposed under Section
24(b)(2) (Now Section28(A)(3)) is an income tax levied on the presumed
gain of the airline companies. It ensures that international airlines are
taxed on the income they derive from Philippine sources. The revenues
from the sale of tickets having been derived from Philippine sources,
there is no cogency to the contention that said airlines are not subject to
the aforestated tax. The inexorable conclusion, therefore, is that
respondent American Airlines, Inc., being a resident foreign corporation
engaged in business in the Philippines and deriving income from
Philippine sources, the assessment of the deficiency tax against it was
correct and valid.
(NOTE: What is the taxable income here? It is the Gross Philippine
Billings which include gross revenue realized from uplifts anywhere in
the world by any international carrier doing business in the Philippines of
passage documents sold therein, whether for passenger, excess baggage
or mail, provided the cargo or mail originates from the Philippines. See
COURSE: TAXATION I
PROFESSOR: GRUBA
st
Section 28(A)(3)(a) of the NIRC))
COMMISSIONER VS. BURROUGH, LTD.

GR NO. L-66653, JUNE 19, 1986
FACTS: Burroughs Limited is a foreign corporation authorized to engage
in trade or business in the Philippines through a branch office located at
Makati. Sometime in 1979, said branch office applied with the Central
Bank for authority to remit to its parent company abroad, branch profit.
It paid the 15% branch profit remittance tax. Claiming that the 15% profit
remittance tax should have been computed on the basis of the amount
actually remitted and not on the amount before profit remittance tax,
Burroughs filed a written claim for the refund or tax credit representing
alleged overpaid branch profit remittance tax. Thereafter Burroughs filed
with the CTA a petition for review for the recovery of the amount. CTA
ordered the CIR to grant a tax credit in favour of Burroughs Limited.
ISSUE: Whether the tax base upon which the 15% branch profit
remittance tax shall be imposed is the amount applied for remittance on
the profit actually remitted and not the amount before profit remittance
tax?
HELD: Yes. Section 24(b)(2)(ii) (Now Section 28(A)(5) states that Any
profit remitted abroad by a branch to its head office shall be subject to a
tax of fifteen per cent (15 %). In a BIR Ruling dated 1980, the CIR held
that the provision should mean that "the tax base upon which the 15%
branch profit remittance tax ... shall be imposed...(is) the profit actually
remitted abroad and not on the total branch profits out of which the
remittance is to be made. " Applying therefore, the aforequoted ruling,
the claim of Burrough that it made an overpayment is valid.
COMMISSIONER VS. MANNING

GR NO. L-28398, AUGUST 6, 1975
FACTS: Manila Trading and Supply Co. (MANTRASCO) had an authorized
capital stock of P2.5 million divided into 25,000 common shares: 24,700
were owned by Reese and the rest at 100 shares each by the
Respondents. Reese entered into a trust agreement whereby it is stated
that upon Reeses death, the company would purchase back all of its
shares. Reese died. MANTRASCO repurchased the 24,700 shares.
Thereafter, a resolution was passed authorizing that the 24,700 shares
be declared as stock dividends to be distributed to the stockholders. The
BIR ordered an examination of MANTRASCOs books and discovered that
the 24,700 shares declared as dividends were not disclosed by
respondents as part of their taxable income for the year 1958. Hence,
the CIR issued notices of assessment for deficiency income taxes to
respondents. Respondents protested but the CIR denied. Respondents
appealed to the CTA. The CTA ruled in their favor. Hence, this petition by
the CIR
ISSUE: Whether the respondents are liable for deficiency income taxes
on the stock dividends?
HELD: Dividends means any distribution made by a corporation to its
shareholders out of its earnings or profits. Stock dividends which
represent transfer of surplus to capital account is not subject to income
tax. But if a corporation redeems stock issued so as to make a
distribution, this is essentially equivalent to the distribution of a
taxable dividend the amount so distributed in the redemption
considered as taxable income.
The distinctions between a stock dividend which does not and one which
does constitute taxable income to the shareholders is that a stock

dividend constitutes income if its gives the shareholder an interest
different from that which his former stockholdings represented. On the
other hand, it does constitute income if the new shares confer no
different rights or interests than did the old shares. Therefore,
whenever the companies involved parted with a portion of their earnings
to bnuy the corporate holdings of Reese, they were making a distribution
of such earnings to respondents. These amounts are thus subject to
income tax as a flow of cash benefits to respondents. Hence,
respondents are liable for deficiency income taxes.
PIROVANO VS. COMMISSIONER

GR NO. L-19865, JULY 31, 1965
FACTS: Enrico Pirovano is the father of herein petitioners. In early 1941,
De la Rama Steamship Co. insured the life of Enrico, its President and
General Manager. During the Japanese Occupation, Enrico died. De la
Rama issued a Resolution granting P400,000 to the hiers of Pirovano
converted into 4,000 shares of stock. This was modified thereafter.
Instead, the company would renounce its title to the proceeds of the
insurance in favor of the heirs. Mrs. Estefania Pirovano, in behalf of heir
children executed a public document formally accepting the donation
and the Board of Directors took official notice of this acceptance. Two
years thereafter, the majority stockholders revoked said donation. De La
Rama was ordered by the SC in a case (remember Pirovano vs. De La
Rama Steamship!) to pay. The CIR assessed the amount as donees gift
tax inclusive of surcharges, interests and other penalties. The heirs
contested the assessment and imposition of the donees gift taxes and
donors gift tax and also made a claim for refund of the said collected
taxes. The claims were denied by the CIR. CTA affirmed. Hence, this
petition. Petitioners contend that that the proceeds of the insurance was
made not for an insufficient or inadequate consideration but rather it a
was made for a full and adequate compensation for the valuable services
rendered by the late Enrico Pirovano to the De la Rama Steamship Co.;
hence, the donation does not constitute a taxable gift under the
provisions of the then Section 108 of the National Internal Revenue
Code.
ISSUE: Whether the donation constitute a taxable gift?
HELD: Yes. As provided in Article 619 of the Code of 1889 (identical with
Article 726 of the present Civil Code of the Philippines), when a person
gives to another thingon account of the latters merits or of the
services rendered by him to the donor, provided they do not consisted a
demandable debt,, there is also a donation There is nothing on
record to show that when the late Pirovano rendered services as
President and General Manager of the De la Rama Steamship Co. he was
not fully compensated for such services. The fact that his services
contributed in a large measure to the success of the company did not
give rise to a recoverable debt, and the conveyances made by the
company to his heirs remain a gift or donation. Also, whether
remuneratory or simple, the conveyance remained a gift, taxable under
the Code.
But then appellants contend, the entire property or right donated should
not be considered as a gift for taxation purposes; only that portion of the
value of the property or right transferred, if any, which is in excess of the
value of the services rendered should be considered as a taxable gift.
But, as we have seen, Pirovano's successful activities as officer of the De
la Rama Steamship Co. cannot be deemed such consideration for the gift
to his heirs, since the services were rendered long before the Company
ceded the value of the life policies to said heirs. What is more, the actual
consideration for the cession of the policies, as previously shown, was
the Company's gratitude to Pirovano; so that under the Code there is no
COURSE: TAXATION I
PROFESSOR: GRUBA
st
consideration the value of which can be deducted from that of the

property transferred as a gift. Like "love and affection," gratitude has no
economic value and is not "consideration" in the sense that the word is
used in this section of the Tax Code.
(Note: In other words, the whole proceed of the insurance is taxable
income given that gratitude cannot be deducted for taxation
purposes.)
COLLECTOR VS. HENDERSON

GR NO. L-12954 AND L-13049, FEBRUARY 28, 1961
FACTS: The spouses Arthur Henderson and Marie B. Henderson filed with
the BIR returns of annual net income for the years 1948 to 1952. In due
time the Henderson received from the BIR assessment notices and paid
the amounts assessed. In 1953, after investigation and verification, the
BIR reassessed the taxpayers' income for the years 1948 to 1952 and
demanded payment of the deficiency taxes. In the foregoing
assessments, the BIR considered as part of their taxable income the
taxpayer-husband's allowances for rental, residential expenses,
subsistence, water, electricity and telephone; bonus paid to him;
withholding tax and entrance fee to the Marikinagun and Country Bluc
paid by his employer for his account; and travelling allowance of his wife.
Henderson asked for reconsideration of the assessment. BIR denied and
hence, taxpayers filed in the CTA a petition to review the decision of the
CIR. The CTA held that the ratable value to him of the quarters furnished
constitutes part of taxable income, that since the taxpayers did not
receive any benefit from the travelling expense allowance as the trip was
a business one, the same could not be considered income, and even if it
was considered as such, it is not subject to tax as it was deductible as
travel expense. The CTA ordered the CIR to refund the taxpayers. Hence,
this petition.
ISSUE: Whether the allowances for rental of the apartment furnished by
the husband-taxpayer's employer-corporation, including utilities such as
light, water, telephone, etc. and the allowance for travel expenses given
by his employer-corporation to his wife in 1952 part of taxable income?
HELD: "Gross income" includes gains, profits, and income derived from
salaries, wages, or compensation for personal service of whatever kind
and in whatever form paid, or from professions, vocations, trades,
businesses, commerce, sales, or dealings in property, whether real or
personal, growing out of the ownership or use of or interest in such
property; also from interest, rents dividend, securities, or the transaction
of any business carried on for gain or profit, or gains, profits, and income
derived from any source whatever.
The evidence substantially supports the findings of the Court of Tax
Appeals. The quarters, therefore, exceeded their personal needs. But the
exigencies of the husband-taxpayer's high executive position, not to
mention social standing, demanded and compelled them to live in a
more spacious and pretentious quarters like the ones they had occupied.
Although entertaining and putting up houseguests and guests of the
husband-taxpayer's employer-corporation were not his predominant
occupation as president, yet he and his wife had to entertain and put up
houseguests in their apartments. That is why his employer-corporation
had to grant him allowances for rental and utilities in addition to his
annual basic salary to take care of those extra expenses for rental and
utilities in excess of their personal needs. Hence, the fact that the
taxpayers had to live or did not have to live in the apartments chosen by
the husband-taxpayer's employer-corporation is of no moment, for no
part of the allowances in question redounded to their personal benefit or
was retained by them. Nevertheless, as correctly held by the Court of Tax
Appeals, the taxpayers are entitled only to a ratable value of the
allowances in question, and only the amount of P4,800 annually, the

reasonable amount they would have spent for house rental and utilities
such as light, water, telephone, etc., should be the amount subject to
tax, and the excess considered as expenses of the corporation. Likewise,
the findings of the CTA that the wife-taxpayer had to make the trip to
New York at the behest of her husband's employer-corporation to help in
drawing up the plans and specifications of a proposed building, is also
supported by the evidence. No part of the allowance for travelling
expenses redounded to the benefit of the taxpayers. Neither was a part
thereof retained by them. The fact that she had herself operated on for
tumors while in New York was but incidental to her stay there and she
must have merely taken advantage of her presence in that city to
undergo the operation. Hence, the CIR is ordered to refund the
taxpayers.
(Note: What is the taxable income here? Gross income! The Court held
basically upheld the CTA in (1) only the ratable value of the allowances
for housing shall form part of the income as the apartment is used for his
business functions as well and (2) the trip allowances does not form part
of income as they are for business purposes.

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COURSE: TAXATION I

Q: How do you distinguish schedular treatment from global

As a complement to this reviewer, I suggest you get any book containing

Q: To which system does the method of taxation under the

Yours in Honor and Excellence,

Q: What are the features of the Philippine Income Tax Law?

Q: Where is the Philippine Income Tax Law embodied?

Q: What are the different income tax systems adopted by the

A: The features are as follows:

Q: What are the criteria in imposing Income Tax in the

Q: What are the types of Philippine Income Tax?

Minimum corporate income tax on corporations

Q: When is income taxable?

NOTE: It is advisable that you memorize or at the very least familiarize

An individual, a trust, estate or corporation

arrives in the Philippines at any time

acceptance of debt instruments of any kind

Relevant Cases assigned:

Commission on Audit (COA) conducted an examination of the books of

COMMISSIONER OF INTERNAL REVENUE VS. COURT OF APPEALS

MADRIGAL VS. RAFFERTY

revenue officers unsatisfied sought the opinion of the US Treasury

Q: What are the general principles of income taxation in the

within the Philippines (Residence and source of income

KINDS OF INCOME TAXPAYERS

Q: What are the kinds of income taxpayers?

TAX ON INDIVIDUALS (EXCEPT ESTATES AND TRUSTS)

Q: Who are citizens of the Philippines?

Q: What is meant by residence?

Q: Why is it important to determine whether a citizen is a

Q: Why is there a distinction?

Q: Who is a non-resident citizen?

respect to his income derived from sources abroad until date

Relevant cases assigned:

REVENUE REGULATION NO. 9-99

Q: Who is a resident alien?

Q: Who is a non-resident alien?

Q: What are the graduated income tax rates on taxable income

From all sources within and without the Philippines by

Shall be subject to the graduated income tax in accordance with the

Relevant revenue regulations:

Note the following:

The taxable income here does not include

If the recipient of the above passive income

If the recipient is a non-resident alien not

Capital Gains from sale

Applies to citizens and resident aliens

Q: What are the incomes subject to preferential tax rates and

Tax on certain passive income under Section 24(B)

The preferential rates are as follows:

Citizens and Resident aliens are subject to

Winnings from PCSO which are

If the shares of stock is listed and traded in

Capital gains from sale of

(Note that that this is one of the only two

price or fair market value, whichever is

The applicable tax rate is 15% on their gross

Relevant revenue regulations:

REVENUE REGULATION NO. 10-98

Q: Is a co-ownership a taxable entity for the purpose income

Q: What is a general professional partnership?

Q: Is a GPP liable for income tax?

partnership under consideration is taxable on its income, to require