Taxation law review notes - Atty. Francis J. Sababan COVERAGE OF TAXATION LAW REVIEW I.

Basic Principles of Constitutional Limitations a) Due process clause which could be either substantive due process and procedural due process clause b) Equal protection clause Read: • Ormoc Sugar Central vs. City Treasurer 22 SCRA 603 • Tiu vs. CA 301 SCRA 178 c) Article III sec. 1 of the 1987 Constitution – nonimpairment clause d) Article III sec. 5 – freedom of religion e) Article III sec. 20 – nonpayment of poll tax f) Article VI sec. 28 par. 2 – flexible tariff clause g) Article VI sec. 28 par. 3 – exemption from real property tax Read: • Herrera vs. Quezon City 3 SCRA 186 • Abra vs. Hernando 107 SCRA 104 • Abra Valley vs. Aquino 52 SCRA 106 • Philippine Lung Center vs. Quezon City 433 SCRA 119 h) Article VI sec. 28 par. 4 – qualified majority in tax exemption i) International double taxation • CIR vs. Johnson 309 SCRA 87 j) Doctrine of equitable recoupment k) Doctrine of Set-off or compensation in taxation • Republic vs. Mambulao 4 SCRA 622 • Domingo vs. Garlitos 8 SCRA 443 • Francia vs. IAC 162 SCRA 753 • Caltex vs. COA 208 SCRA 726 • 294 SCRA 687 Philex vs. CIR

II. Income Tax Law Section 22-26 of the National Internal Revenue Code a) Read in the commentaries or magic notes the different kinds of: 1. Income Taxpayers 2. Income Taxes 3. Sources of Income sec. 42 of NIRC - Income Taxpayers a) Individuals b) Corporation c) Estates and Trusts – -Individuals are classified • Resident Citizens sec. 23 (A), sec 24 (A) (a) • Non-Resident Citizens sec 23 (B), 24 (A) (b) 22 (E) • Overseas Contract Workers Sec. 23 (C), 24 (A) (b) • Resident Aliens Rev. Reg. sec 5, 23 (D), 24 (A) (c) • Non-Resident Aliens Engaged in trade or business sections 25 (A) (1) • Non-Resident Aliens Not Engaged in trade or business sec. 25 (B) • Aliens Employed in MultiNational Corporations sec. 25 (C) and Rev. Reg. 12-2001 • Aliens Employed in Offshore Banking Units sec 25 (D) • Aliens Employed in petroleum Service Contractors & Subcontractors sec. 25 (E) -Corporate Income Taxpayers • Domestic Corporations sec. 23 (E), and sec 27 of NIRC • Resident Foreign Corporations sec. 22 (H) and (28)A • Non-Resident Foreign Corporations sec. 22 (1) and 28 (B) -Estates and Trusts sec. 60-66 of NIRC Different Kinds of Income Tax 1. Net Income Tax secs. 24 (A), 25 (A) (1), 26, 27 (A) (B) (C), 28 (A) up to 3rd par. 31 and 32 (A) 2. Gross Income Tax secs. 25 (B) first part and 28 (B) (1) 3. Final Income Taxes sec. 57 (A)

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Taxation law review notes - Atty. Francis J. Sababan 4. Minimum Corporate Income Tax of 2% of the Gross Income secs. 27 (E), 28 (A) (2) 5. Improperly Accumulated Earnings Tax of 10% of its taxable income sec. 29 NIRC Rev. Reg. 2-2001 • Optional Corporate Income Tax of 15% of its gross income sections 27 (A) 4th to 10th par. And 28 A(1) but only up to the 4th paragraph -Proceed to section 42 and 23 of the NIRC • NDC vs. Comm 151 SCRA 472 • Comm. Vs. IAC 127 SCRA 9 -Then go to sec. 39 of NIRC • Calazans vs. Comm. 144 SCRA 664 RR 7-2003 -Then proceed to sec. 24 (A), 25 (A) (1), 25 B,C,D,E, 27 A,B,C; 28 (A) (1), 28 (A) (6) and sec 51 (D) -Then continue to sec 24 B 1, 25 B,C,D,E; 27 (D) (1) -Then go to se. 24 (B) (2) sec. 73 • Comm. Vs. Manning 66 SCRA 14 • Anscor vs. Comm. 301 SCRA 152 -Sec. 25 (A) (2), 25 B, C, C, E, sec. 27 (D) (4); 28 (A) (7) (D); 32 B (7) (a) Then you go to sec. 24 C, 25A (3); 25 B, C, D, E, 27 D (2); 28 (A) (7) (C); 28 B (5) (C) RA 7717 sec. 127 NIRC - Then you go to sec. 24 D (1); 25 (A) (3); 25 (B) last par. 27 (D) (5) • China Bank vs. Court of Appeals 336 SCRA ___; RR 7-2003 -Upon reading sec. 24 (D) (2) read RR 131999 -Upon reading sec. 27 (A) go to sec. 22 (B) • Batangas vs. Collector 102 Phil. 822 • Evangelista vs. Collector 102 Phil 140 • Reyes vs. Comm. 24 SCRA 198 • Ona vs. Bautista 45 SCRA 74 • Obillos vs. Comm 139 SCRA 436 • Pascua vs. Comm. 166 SCRA 560 • Afisco vs. Comm. 302 SCRA 1 -Upon reading sec. 27 (C) of NIRC see RA 9337 then go to sec. 32 (B) (7) (b) of NIRC, sec. 133 par (o) of LGC, sec. 154 of the LGC. • Pagcor vs. Basco 197 SCRA 52 • Mactan vs. Cebu 261 SCRA 667 • LRT vs. City of Manila 342 SCRA 692 -Proceed to sections 27 (D) (1), 27 (D) (2), 27 (D) (5) read RA 9337, 28 (A) (7) (b), 28 (B) (5) (C), 27 (D) (4), (28) (A) (7) (d), 28 (B) (5) (b) • Marubeni vs. CIR 177 SCRA 500 • Proctor & Gamble vs. Comm 160 SCRA 560 • Same case Proctor and Gamble on the Motion for Reconsideration 204 SCRA 377 • Wonder vs. Comm 160 SCRA 573 -Proceed to sec. 27(D) (5) then sections 27 (E) and 28 (A) (2) -Go to sec. 28 (A) (3) read RR 15-2002 -Go to sec. 28 (A) (4) see RA 9337 -Then see sec 28 (A) (5) see Marubeni vs. Comm 177 SCRA 500 -Proceed to sec. 28(B) (5) (a) and sec 32 (B) (7) (a) • Read Mitsubishi vs. Comm 181 SCRA 214 -Then go to sec. 29 and Rev. Reg. 2-2001 -Upon reading sec. 32 (B) 1 and 2, read sec. 85 par (e), sec. 108A and sec. 123 of the NIRC -Proceed to sec. 33 read Rev. Reg. 3-98 -then go to sec. 34 (A) (1) (a) see Aguinaldo vs. Comm. 112 SCRA 136, RR 10-2002 -Under Sec. 34 (B) read RR 13-2000 -Upon reading sec. 49 read Banas vs. CA 325 SCRA 259 and Filipina vs. Comm. 316 SCRA 480 -Upon reading sec. 60-66, read Ona vs. Bautista 45 SCRA 74 III. Estate Tax -Sections 84-97 see sec. 104 -Upon reading sec. 85 (B) read Vidal de Roces vs. Posadas 58 Phil. 108 Dizon vs. Posadas 57 Phil 465 -Sec. 85 (G) compare with sec. 100 -sec. 85 (H) compare with sec. 86 (C) -Upon reading sec. 86 see RR 2-2003 -Upon reading sec. 94 see Marcos vs. Sandiganbayan 273 SCRA 47 IV. Donors Tax Law - Sections 98-104

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Taxation law review notes - Atty. Francis J. Sababan G and Cumulative methods of filing donor’s tax returns sections 99 (A), 103 (A) (1) and RR 2-2003 Sections 100 and 85 (9) V. Value Added Tax - Sections 105-115 -Read RA 9337 -Read ABAKADA vs Comm. GR 168056, Sept. 1, 2005 VI. Remedies Under the Internal Revenue Code -Sections 202-229 -RR 12-99 • Phoenix vs Comm 14 SCRA 52 • Basilan vs. Comm. 21 SCRA 17 • Yabut vs. Flojo 115 SCRA 278 • Union Shipping vs. Comm 185 SCRA 547 • Comm. vs. TMX 205 SCRA 184 • Comm. vs. Philamlife 244 SCRA • Comm. vs. CA & BPI 301 SCRA 435 • BPI vs. Comm. 363 SCRA 840 -Prescription sections 203 and 222 of NIRC, sec. 194 of the LGC, sec. 270 of the LGC, sec. 1603 of Tariff and Customs Code -Protest sec. 228 of NIRC and RR 12-99 sec. 195 of LGC, 252 LGC, sec. 2313 of Tariff & Customs Code and RA 7651 VII. Local Taxation - Sections 128-196 of LGC -Proceed 1st to sec. 186 read Bulacan vs. CA 299 SCRA 442 -Then proceed to 187 -Then to 151 -128 -Under sec. 133 (e) read Palma vs. Malangas 413 SCRA 572 -Under 133 (h) read Pililia vs. Petron 198 SCRA 82 -Under 133 (i) read First Holdings Co. vs. batangas City 300 SCRA 661 -Under 133 (l) read Butuan vs. LTO 322 SCRA 805 -Under 137 read sec. 193 of LGC • Misamis vs. Cagayan de Oro 181 SCRA 38 • Reyes vs. San Pablo City 305 SCRA 353 • Meralco vs. Laguna 306 SCRA 750 • PLDT vs. Davao City 363 SCRA 522 Co-relate sec. 139 and 147 of LGC Under sec. 140 of the LGC see sec. 125 of the Internal Revenue Code Under sec. 150 of the LGC read the following: • Phil. Match vs. Cebu 81 SCRA 99 • Allied Thread vs. Manila 133 SCRA 338 • Sipocat vs. Shell 105 Phil. 1263 • Iloilo Bottles vs. Iloilo City 164 SCRA 607

VIII. Real Property Tax Sections 197-294 Sec. 235 • LRT vs. Manila 342 SCRA 692 • Cebu City vs. Mactan 261 SCRA 667 IX. Tariff & Customs Code - Special Customs Duty sec. 301-304 of TCC - Regukar Customs Duty sec. 104 of TCC - RA 7631 X. Court of Tax Appeals - RA 1125 as amended by RA 9282

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Atty. Sababan - 4 . Francis J.Taxation law review notes .

read the assignment. X Sec. Substantive due process requires that a tax statute must be within the constitutional authority of Congress to pass and that it be reasonable. ► Article X.6 and 7 are always included in the coverage  No computations in the bar  There are only 1 or 2 questions in the Bar about Basic Principles  What are the favorite topics in the Bar? → 12 questions on Income Tax → 8-10 questions on remedies → 8-10 questions allocated to the 7 topics BASIC PRINCIPLES: ► Taxation is an inherent power of the State. Local Tax 7. Basic Principles including Constitutional Provisions 2.when the Congress passes a law exempting the 13th month pay from tax but with the concurrence only of the majority of the quorum – law would be invalid because the Constitution provides that any grant of tax exemption shall be passed with the concurrence of the majority of all the members of the Congress. Q: Do local governments exercise this inherent power? A: No. provinces and municipalities → power granted under Art. materials:  codal  commentaries (any author will do)  magic notes (Sababan Lecture and Q&A)  Book stand Coverage of Taxation Law Review: 1. Estate Tax 4. Section 5 is self-executing thus the power is granted by the constitution. CONSTITUTIONAL LIMITATIONS Due Process Clause Q: why is it a limitation to the power to tax? A: The due process clause as a limitation to the power to tax refers both to substantive and procedural due process. Remedies 6. Ex: On Substantive Due Process. Sababan Rules in the Classroom: 1. and delegated by the constitution in case of LGUs not considered an autonomous region. consider yourself a resident of balicbalic.Taxation law review notes . No law or 5 . Only the National Government exercises the inherent power to impose taxes. do not be absent  if you are absent. Francis J.Atty.  Title 5. Procedural due process. fair and just. you have to transcribe what happened in class when you were out.  Exception: if you get married. Tariff and Customs Code 9. VAT (although not part of the coverage of the Bar Exams.  The next meeting you attend class. ► Cities. Thus the power is granted by Congress because said provision requires an enabling law. 5&6 of the Constitution ► Autonomous Regions → power conferred by Congress through law. Income Tax 3. 2. Real Property Tax 8. Wag zapote ang aral. it depends on the existence of the state. babalikbalikan ka sa recit. requires notice and hearing or at least the opportunity to be heard. holiday – make up class probably on a Sunday 4. statute or constitution. Delegated by whom? A: Delegated by Congress through law in case of autonomous regions. on the other hand. Court of Tax Appeals 10. Q: What do you mean by INHERENT? A: The power to tax is not provided for in the law. wag lang pahalata/garapal 5. Art. Q: The taxing power of local governments is a DELAGATED power. allowed to glance at your notes. 20 #2 of the Constitution is a non-self-executing provision. questions have been asked since 1999) legislation for the exercise of the power to tax by the national government. Donor’s Tax 5. 3. X Sec.

REASON: No provision of law requires notice to the adverse party. a tax ordinance was assailed on the ground that the ordinance failed to distinguish a worker form casual. Q: Who was the President at that time? A: President Ramos Q: What were signed? A: RA 7227. Difference in treatment is allowed only when based on substantial distinction. H: The Supreme Court ruled that there was no violation since the classification was based on a substantial distinction. Where there is no such requirement. notice and the opportunity to be heard are dispensable. If the adverse party is notified. Before July 1. 3% of the Gross Income shall be remitted to the national gov’t) to those operating their businesses within the said area. In PEOPLE v. notice and hearing or the opportunity to be heard is necessary only when expressly required by law. Sababan Q: Does it follow that the adverse party must always be notified? A: No. 1995. Q: Who are the petitioners and what was their contention? A: The petitioners are Filipino businessmen who are operating their business outside the secured area. TIU v. Regarding delinquent tax payers. In lieu thereof. 1998. the person to be searched was not notified. 2) It must be germane or relevant to the purpose of the law. EO 97 and EO 97-A → The first led to the creation of the Subic Special Economic Zone (SSEZ). there must be notice. COURT OF APPEALS (301 SCRA 278) Q: what happened in the city of Olonggapo? A: The Congress. Ex: In one case.Taxation law review notes . Francis J. In the case of a search warrant. Before Oct. The petitioners contended that the law in question was violative of their right to equal protection of laws since they are also Filipino businessmen. The Court observed that those foreign businessmen operating within 6 . Equal Protection Clause ► As a rule. The element invoked here is element #1 that there must be substantial distinction in the classification of taxpayers on whom the tax will be imposed. both as to privileges conferred and liabilities imposed. before levy. the party declared in default has to be notified of subsequent proceedings albeit without the right to participate therein. in connection with procedural due process. 3) The distinction or classification must apply not only to the present but also to future situations. local and national. The latter set the limitations and boundaries of the application of the incentives (no taxes.” This is violated when taxpayers belonging to the same classification are treated differently form one another. you have the right to have an opportunity to be heard (if there is a law). Thus. CAYAT the Supreme Court mandated the requisites for a valid classification. If you are a suspect in a criminal case. shall be imposed within SSEZ. Ex. the adverse party need not be notified all the time. no notice need be given to a party declared in default. 4) The distinction must apply to persons. As a rule. Requirements of Reasonable Classification: 1) There must be substantial distinctions that make a real difference. After the amendment. passed RA 7227. things and transactions belonging to the same class. The person searched cannot claim that there was a violation of due process because there is no law requiring that the person to be searched should be notified. 1. The SC said that the ordinance was invalid because of the failure to state the said classification. you can secure a TRO without notifying the adverse party. with the approval of the President. an act creating the conversion of the military bases into other productive uses. Difference in treatment not based on substantial distinction is frowned upon as “class legislation. in adversarial proceedings. he may abscond. and taxpayers belonging different classifications are treated alike. permanent or temporary. taxpayers of the same footing are treated alike.Atty.

persons may be allowed to pay even if they are not qualified as to age or property ownership. the tax due was paid under protest. Quasi-Delict. then the act itself is the source of the obligation. It is a tax imposed on persons without any qualifications. Example of Poll Tax: Community Tax Certificate under Section 162 of the Local Government Code. Q: Did the owner accept this imposition? A: No. When the law merely recognizes or acknowledges the existence of an obligation created by an act which may constitute a contract. there was a violation of element #3 because the law was worded in such a way that it only applies to Ormoc Sugar Central alone and to the exclusion of all other sugar centrals to be established in the future. not the law. The Supreme Court said that one must go to the provision itself. and its only purpose is to regulate such obligation.4 imposing upon any and all centrifugal sugar milled at the Ormoc Sugar Central a municipal tax on the net sale of the same to the United States and other foreign countries.Atty. General Rule: The power to tax is pursuant to law. 7 . Delict. and quasidelict. H: The Supreme Court said there was a violation of the equal protection clause. 2. freedom to choose religion 2. Non-impairment Clause Q: What are the sources of obligation in the Civil Code? A: Law. prohibition upon the national government to establish a national religion Q: Which one limits the power to tax? A: Prohibition upon the national government to establish a national religion because this will require a special appropriation of money coming from the national treasury which is funded by the taxes paid by the people. freedom to exercise one’s religion 3. Contracts. In this instance. quasi-contract. The element invoked here was element #3. CIR Q: What did the municipality of Ormoc do? A: The City Council of Ormoc passed a Municipal Ordinance No. ORMOC SUGAR CENTRAL vs. When the law establishes the obligation and also provides for its fulfillment. in what instance does the nonimpairment of contracts clause becomes a limitation to the power to tax? A: it is when the taxpayer enters into a compromise agreement with the government. Quasi-Contracts. Take Note: the requirement for its application: the parties are the government and private individual. then the law itself is the source of the obligation Q: So. without regard to their property or to the occupation in which they may be engaged. Cayat Freedom of Religion It Involves 3 Things: 1. Sababan the secured area have to give a larger capital to operate in the secured area (to spur economic growth and guarantee employment). delict. TAKE NOTE: People vs. ► You have to determine first the source of obligation: 1. the obligation to pay taxes is imposed by law.Taxation law review notes . that it must be applicable to both present and future circumstances. whether citizens or not. Francis J. therefore. thus the nonimpairment clause does not apply. in the case at bar. Q: What is the obligation contemplated in this limitation? A: Those obligations arising from contracts. Poll Tax Q: What is a poll tax? A: It is a tax of a fixed amount on individuals residing within a particular territory. then filed a complaint against the City of Ormoc. If the law merely provides for the fulfillment of the obligation then the law is not the source of the obligation. the obligation to pay the tax is now based on the contract between the taxpayer and the government pursuant to their compromise agreement.

Taxation law review notes - Atty. Francis J. Sababan Q: Why is it a limitation to the power to tax? A: It is a limitation to the power to tax because Congress is prohibited from passing a law penalizing with imprisonment a person who does not pay poll tax. (funds for sending a person to jail is taken from the national treasury which is funded by the taxes paid by the people) Exemption Estate Tax from payment of Real used for charitable purposes it is not exempt from taxation. H: The Court ruled that petitioner is not liable for the payment of real estate taxes. It is a charitable institution, thus exempt from the payment of such tax. The hospital, schools and dormitory are all exempt fro taxation because they are incidental to the primary purpose of the hospital. NOTE: this arose during the 1935 Constitution. “Exempted by virtue of incidental purpose” was merely coined by the Supreme Court. Thus, it does not apply to other taxes except Real Estate Tax. PROVINCE OF ABRA v. HERNANDO Q: What is involved in this case? A A religious institution was involved in this case, the Roman Catholic Bishop of Bangued, Inc. (bishop filed declaratory relief after assessed for payment of tax). The respondent judge granted the exemption from taxes of said church based only on the allegations of the complaint without conducting a hearing/trial. The assistant prosecutor filed a complaint contending that petitioner was deprived of its right to due process. SC: the Court ordered that the case be remanded to the lower court for further proceedings. The Court observed that the cause action arose under the 1973 Constitution, not under the 1935 Constitution (note the difference). Tax exemption is not presumed. It must be strictly construed against the taxpayer and liberally construed in favor of the government. ABRA VALLEY COLLEGE INC. v. AQUINO Q: What is involved in this case? A: An educational institution is involved in this case. The ground floor of the school was leased to Northern Marketing Corp., a domestic corporation. The 2nd floor thereof was used as the residence of the school director and his family. The Province of Abra now contends that since the school is not exclusively used for educational purposes, the school is now liable to pay real estate tax.

Q: What is the requirement for exemption from payment of real property tax under the 1935, 1973 and 1987 Constitution? A: Art. 6, Sec 22 (3), 1935 Constitution – Cemeteries, churches and parsonages or convents appurtenant thereto, and all lands, buildings and improvements used EXCLUSIVELY for RELIGIOUS, CHARITABLE or EDUCATIONAL purposes shall be exempt for taxation. Art. 8, Sec. 17 (3), 1973 Constitution – charitable institutions, churches, parsonages or convents appurtenant thereto, mosque, and non-profit cemeteries, and all lands, buildings, and improvements ACTUALLY, DIRECTLY, and EXCLUSIVELY used for RELIGIOUS and CHARITABLE purposes shall be exempt from taxation. Art. 6, Sec. 28 (3), 1987 Constitution – charitable institutions, churches, and parsonages or convents appurtenant thereto, mosque, non-profit cemeteries, and all lands, buildings, and improvements ACTUALLY, DIRECTLY and EXCLUSIVELY used for RELIGIOUS, EDUCATIONAL and CHARITABLE purposes shall be exempt from taxation. HERRERA v. QC-BOARD OF ASSESSMENT (1935 Constitution) Q: What is involved in this case? A: A charitable institution, St. Catherine’s Hospital. The hospital was previously exempt from taxation until it was reclassified and subsequently assessed for the payment of real property tax. The contention of the respondent is that the hospital was no longer a charitable institution because it accepts pay-patients, it also operates a school for midwifery and nursing, and a dormitory. Since it is not exclusively

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Taxation law review notes - Atty. Francis J. Sababan H: The Court held that the school is PARTIALLY liable for real estate tax. 1. Residence – exempt by virtue of incidental purpose; justified because it is necessary. 2. Commercial – not exempt because it is not pursuant to the primary purpose; not for educational purposes. not determine exemption, rather it is the use of the property that determines exemption. The case of Herrera does not apply because said case arose under the 1935 Constitution and the present case arose under the 1987 Constitution. The requirements for exemption are different. In the 1935 Constitution, the property must be EXCLUSIVELY used for religious, educational or charitable purposes. Under the 1987 Constitution, the property must be used ACTUALLY, DIRECTLY, and EXCLUSIVELY for religious, educational and charitable purposes. Q: Was the doctrine laid down in Abra Valley affirmed in the Lung Center case? A: Yes. The Supreme Court unconsciously applied a doctrine laid down by the 1935 Constitution. The Supreme Court reiterated the ruling in the Abra Valley case which arose under the 1935 Constitution. The Supreme Court made a qualification, it held that it depends on whether or not the use is incidental to the primary purpose of the institution. NOTE: at present, “exemption from tax by virtue of incidental purpose” is not applicable to all taxes including real estate tax. COMM v. SC JOHNSON and SONS, INC. Important : 1. international double taxation 2. importance of international tax treaty 3. implication of most favored nation clause Q: What is the corporation involved in this case? A: A domestic corporation (DC). SC Johnson and Sons, Inc. entered into a license agreement with SC Johnson and Sons U.S.A (Non-Resident Foreign Corp, NRFC) whereby the former was allowed to use the latter’s trademark and facilities to manufacture its products. In return, the DC will pay the NRFC royalties as well as payment of withholding tax. A case for refund of overpaid withholding tax was filed. Apparently, the DC should have paid only 10% under the most favored nation clause.

Q: is the doctrine in the case of Herrera the same with this case? A: NO. in the Herrera case, the exemption was granted to all the real property (hospital, school and dorm). But in this case, the Supreme Court made a qualification. The Supreme Court said it depends. NOTE: both cases arose under the 1935 Constitution despite having been decided in 1988. Q: At present, do we still apply the exemption from tax by virtue of the Doctrine of Incidental Purpose? A: Not anymore. The cause of action in said case arose under the 1935 Constitution and it does not apply to the provisions of the 1987 Constitution. PHILIPPINE LUNG CENTER v. QUEZON CITY Q: What is involved in this case? A: A charitable institution, a hospital. It is provided in the charter of the Lung Center of the Philippines is a charitable institution. However, part of its building was leased to private individuals and the vacant portion of its lot was rented out to Elliptical Orchids. Respondent contends that since the hospital is not used actually, directly, an d exclusively for charitable purposes, it is liable to pay real estate taxes. H: The Supreme Court held that the petitioner is liable to pay tax for those parts leased to private individuals for commercial purposes. For the part of the hospital used for charitable purposes (whether for pay or non-pay patients), petitioner is exempt from payment of real estate tax. NOTE: petitioner contended that the profits derived from the lease of its premises were used for the operation of the hospital. The Court held that the use of the profits does

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Taxation law review notes - Atty. Francis J. Sababan H: Q: A: The Supreme Court coined the term International Double Taxation or International Juridical Double Taxation. What prompted the SC to coin such term? Because a single income (tax royalties paid by a DC) was subjected to tax by two countries, the Philippines income tax and the U.S. tax. International Juridical Double Taxation applies only to countries where the tax liabilities of its nationals are imposed on income derived from sources coming from within and without. Is there an instance where international double taxation does not apply? Yes. If it involves nationals of countries wherein the tax liability is imposed only from income derive from sources within and not including those derived from sources without. (Ex: Switzerland) → The controversy in the case at bar involves the income tax paid in the Philippines. After paying 25%, the US firm discovered that they are entitled to 10% under the most favored nation clause. The question is: was the tax paid under similar circumstances with that of the RP-West Germany Treaty? The CTA and Court of Appeals ruled that it was paid under similar circumstances. The phrase referred to the royalties in payment of income tax. The Supreme Court ruled that the lower courts’ interpretation of the phrase was erroneous. Rather, the phrase applies to the application of matching credit. What is matching tax credit? RP-Germany Treaty provides for that 20% of the tax paid in the Philippines shall be credited to their tax due to be paid in Germany. The 10% does not apply because there is no matching credit. Thus, there is no similarity in the circumstances. AND This is not allowed in this jurisdiction, because of common law origin. If allowed, both the collecting agency and the taxpayer might be tempted to delay and neglect the pursuit of their respective claims within the period prescribed by law. Q: What is the doctrine of Equitable Recoupment? A: When the claim for refund is barred by prescription, the same is allowed to be credited to unsettled tax liabilities. (Sir gives an illustration found in page 3 of magic notes) Q: Is the rule absolute? Reason A: Yes, the rule is absolute. The rationale behind this is to prevent the taxpayer and government official from being negligent in the payment and collection of taxes. (furthermore, you have to be honest for this to work, hence, the government is preventing corruption) There is no exception at all otherwise, the BIR would be flooded with so many claims. Set-off Presupposes mutual obligation between the parties. In taxation, the concept of setoff arises where a taxpayer is liable to pay tax but the government, for one reason or another, is indebted to the said taxpayer. Q: What do you mean by SET-OFF? A: This presupposes mutual obligations between the parties, and that they are mutual creditors and debtors of each other. In taxation, the concept of taxation arises where a taxpayer is liable to pay taxes but the government, for one reason or another, is INDEBTED to said taxpayer. REPUBLIC v. MAMBULAO LUMBER CO. Q: What is the liability of Mambulao? A: They are liable to pay forest charges (under the old tax code). NOTE: under our present tax code, the NIRC, we do not have forest charges as the same was abolished by President Aquino. Q: What did the lumber company do? A: The lumber company claimed that since the government did not use the reforestation charges it paid for

Q: A:

Q: A:

EQUITABLE RECOUPMENT DOCTRINE OF SET-OFF Equitable Recoupment

This doctrine provides that a claim for refund barred by prescription may be allowed to offset unsettled tax liabilities.

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The same is being collected by the Treasurer of Pasay. and the taxes were collected by a local government. (the other part of his property was sold at a public auction) H: The factual milieu of the case does not justify legal compensation.Taxation law review notes . and are positive acts of the government to the making and enforcing of which. Taxes cannot be the subject matter of compensation.) 11 . the amount paid should be reimbursed to them or at least compensated or applied to their liability to pay forest charges. Furthermore.Atty. It appears that petitioner was delinquent in the payment of his real estate tax liability. the property was expropriated by the national government. Francis J. NOTE: we do not have inheritance taxes anymore because the same was abolished by Lolo Macoy. A taxpayer cannot refuse to pay a tax on the ground that the government owes him an amount. IAC Q: This happened in what city? A: Pasay City Q: What is the tax being collected? Who is collecting the same? A: Payment for real estate taxes for the property of Francia. The Court has consistently ruled that there can be no off-setting of taxes against the claims that the taxpayer may have against the government. H: Both the claim of the government for estate and inheritance taxes and the claim of the (intestate) for the services rendered have already become overdue hence demandable as well as fully liquidated. H: The Court ruled that the reforestation charges paid is in the nature of taxes. contract or judgment as is allowed to be compensated or setoff. Q: What did the surviving spouse do? A: The surviving spouse suggested that the compensation to which the decedent was entitled to as an employee of the Bureau of Lands be setoff from the estate and inheritance taxes imposed upon the estate of the deceased. to exclude the remedy in connection or any indebtedness of the State or any municipality to one who is liable for taxes. Q: Who is the administratrix? A: The surviving spouse. but arises out of a duty to. GARLITOS Q: What is being collected in this case? A: Estate and inheritance taxes. 1279 and 1290 of the Civil Code and both debts are extinguished to the concurrent amount. Q: What is the suggestion of petitioner? A: Suggested that the just compensation for the payment of his expropriated property be set-off from his unpaid real estate taxes. Sababan reforestation of the denuded land covered by its license. FRANCIA v. Reason: Taxes are not in the nature of contracts or debts between the taxpayer and the government. the payment of just compensation was already deposited with PNB Pasay. in accordance with Art. General Rule: no set-off is admissible against demands for taxes levied in general or local governmental purposes. Compelling Reason: Congress has enacted RA 2700. not mutual creditors and debtors of each other. Neither are they a proper subject for recoupment since they do not arise out of contract or the same transaction sued on. contract or judgment as is allowed to be set-off under the statute of set-off which is construed uniformly. DOMINGO v. demand. allocating a certain sum of money to the estate of the deceased. A claim for taxes is not a debt. (diff parties. in the light of public policy. Internal Revenue taxes cannot be the subject of compensation because the government and the taxpayer are not mutually creditors and debtors of each other. the consent of the individual is not required. The principle of compensation does not apply in this case because the parties are not mutually creditors and debtors of each other. demand. and a claim for taxes is not a debt. compensation therefore takes place by operation of law.

Taxation law review notes . Nonresident Alien Engaged in Trade or Business (§22G. I. Caltex wanted to off-set its unremitted collection from its reimbursements. Obnoxious double taxation synonym of double taxation. agencies and instrumentalities (Section 27 c)). Q: Why is Caltex entitled to reimbursement? A: Because of the fluctuation of the oil prices in the Middle East and Europe. Resident Alien (§22F. namely: 1. The collection of a tax cannot await the results of a lawsuit against the government. 2. Sababan CALTEX PHIL v. how many kinds of income taxpayers are there? A: Under section 22A of NIRC. its claim for reimbursement from the OPSF will be held in abeyance. corporate. although income received by the Government form: 1) any public utility or 2) the exercise of any essential governmental function is exempt from tax. KINDS OF INCOME TAXPAYERS Q: Generally. estate and trust. which it wanted to be setoff from its pending claim for a VAT Input credit/refund. H: The Court did not allow the set-off.Atty. individual. is the Elements of Double Taxation: 1) Levied by the same taxing authority 2) For the same subject matter 3) For the same taxing period and 4) For the same purpose There is no double taxation if the tax is levied by the LGU and another by the national government. COA Q: What is being collected? A: Caltex’s contribution to the Oil Price Stabilization Fund (OPSF). 3. there are three (3). Taxes may be levied for regulatory purposes such as to provide means for the rehabilitation and stabilization of a threatened industry which is vested with public interest. COA sent a letter to Caltex asking the latter to settle its unremitted collection stating that until the same is paid. Namely: 1. and reiterated its ruling in the case of Mambulao and Francia. LGUs are expressly prohibited by the provisions of RA 7160 or the LGC of 1991 from levying tax upon: (1) the National Government. Taxes are not debts. The National Government. COMM The petitioner is liable for the payment of excise taxes. the claim for VAT refund is still pending. 2. Nonresident Citizen (§23B and 24A). (3) LGUs (sec. Furthermore. a concern which is within the police power of the State to address. DOUBLE TAXATION Double taxation is allowed because there is no prohibition in the Constitution or statute. OCW and Seaman (§23C and 24A).113(o)). Furthermore. The Court likewise stated that Caltex merely acted as agent of the government in collecting contributions for the OPSF because such is being shouldered by the consumers when they purchase petroleum products of oil companies. 23D and 25A) 12 . Resident Citizen (§23A and 24A). The Court did not allow set-off. RA 6952 expressly prohibits set-off from the collection of contributions to the OPSF. Taxation is no longer envisioned as a measure merely to raise revenues to support the existence of the government. 3. PHILEX MINING CORP v. 5. such as Caltex. 23D and 24A). 4. in the instant case. INDIVIDUAL TAXPAYER Q: How many kinds of individual taxpayers are there? A: There are seven (7). The two (2) are different taxing authorities. Taxes cannot be the subject of compensation for the simple reason that the government and taxpayer are not mutual creditors and debtors of each other. (2) its agencies and instrumentalities. pursuant to the provisions of RA 8424 of the Tax Reform Act of 1997. Francis J. can levy tax upon GOCCs.

If you are a seaman in the US Navy. TNTs are not covered. and you have the intention to permanently reside therein. Francis J. Q: Is the intention to permanently reside in the Philippines necessary? A: No. The requirement under RR#2 is that he is actually present in the Philippines. must be a member of the compliment of a vessel. a traveler. and 2. said seaman is not deemed to be an OCW.Taxation law review notes .D and E) If he is a NRC. if he is not a member of the complement or even if he is but the vessel where he works is not exclusively engaged in international trade.Atty. neither a sojourner. A foreigner not residing in the Philippines but who is engaged in trade or business here. he is considered a RC. A Filipino seaman is deemed to be an OCW for purposes of taxation if he receives compensation for services rendered abroad as a member of the complement of a vessel engaged exclusively in international trade. OCW and Seamen OCW was used and not OFW in the CTRP. Furthermore. so long as he is not a sojourner. because the classification shall cover only those Filipino citizens working abroad with a contract. If he stays in the Philippines most of the time during the taxable year. not a tourist. If such intention to permanently reside therein was not manifested to the Commissioner and the fact of your physical presence therein. the vessel must be exclusively engaged in international trade or commerce. can you still be considered a RC? A: Yes. RC residing in the Philippines. Non-Resident Alien Engaged Trade or Business (NRAETB) in Resident Citizen (RC) Q: How many types of RC? A: There are two (2). (distinguish from an immigrant) Requirements for a seaman to be considered an OCW: 1. Petroleum Service Contractors (§25C. Filipino living abroad with no intention to reside permanently therein. Trade or Business (§22G. 23D and 25B) Aliens Engaged in Multinational Companies. namely: 1. He is either a RC or a NRC depending on where he stays most of the time during the taxable year. “engaged in trade or business” to include the exercise of a profession. Consequently. a NCR. 2. is that if he is a RCm he is taxable on ALL income derived from all sources within and without. It does not cover TNTs. Q: What is the significance of using OCW? A: It only covers Filipinos who works abroad with a contract. Nonresident Alien NOT Engaged in 7. Q: If you are abroad. they are considered RC because they work abroad without a contract and they have not manifested their intention to permanently reside abroad. by the express provision of 13 . Sababan - 6. Q: What is the status of a TNT? A: Since they are not covered by this classification. otherwise. Whether he’s a transient or not is determined by his intent as to the nature and length of his stay. tourist or a traveler. he is taxable only on income derived form sources within the Philippines. The importance of ascertaining whether or not a seaman is a RC or a NRC. Resident Alien (RA) An individual whose residence is within the Philippines and who is not a citizen thereof. Offshore Banking Units. Intention to reside permanently in the Philippines is not a requirement on the part of the alien. you are not the one being referred to. you may still be considered a RC. RR 2-98 has expanded the coverage of the term.

Resident Foreign Corporation (RFC) – corporation created under foreign law.Taxation law review notes . Q: What is the status of a Chinese who stays here for 200 days in 2001? A: NRAETB Q: Suppose he stayed here for 100 days in 2000 and another 100 days in 2001? A: He is not a NRAETB. Q: What is the income tax applicable to said taxpayer? A: Net Income Tax (NIT) on all its income derived form sources within the Philippines. Aliens Employed in Multinational and Offshore Banking Units Q: How are they classified? A: If they derived income from other sources aside from their employer. as the case may be. and engaged in trade or business. a NRA who is neither a businessman nor a professional but who come to and stays in the Philippines for an aggregate period of more than 180 days during any calendar year is deemed to a NRAETB in the Philippines. CORPORATE TAXPAYER 1. If they derive income from other sources. To be considered as such.Atty. Francis J. Non-Resident Alien Not Engaged in Trade or Business Q: How many kinds? A: Only one. or insurance companies. The reason why the NRANETB are included in any income tax law is because they may be deriving income form sources within the Philippines. NRA engaged in trade or business (25a1). ► Liable to pay 15% from Gross Income received from their employer ► Income earned from all OTHER sources shall be subject to the pertinent income tax. They are subject to tax based on their GROSS INCOME received form all sources within the Philippines. Q: What are deemed corporations under the NIRC? A: The term corporation shall include partnerships. or organized under Philippine laws. Aliens Employed in Petroleum Service Contractors and Subcontractors ► Status: ALWAYS NRA. NRA who practices a profession (Revenue Regulation 298). namely: 1. 3. foreigner who comes and stays in the Philippines for an aggregate period of MORE THAN 180 days during any calendar year. but DOES NOT includes general professional partnerships and a joint 14 . associations. Sababan the law. and NOT engaged in trade or business. as the case may be. Nonresident Foreign Corporation (NRFC) – created under foreign law. joint accounts. or NRANETB. Q: How many types? A: There are three (3) types. such income shall be subject to the pertinent income tax. II. 2. 3. NRAETB. no matter how created or organized. he must stay for an aggregate period of more than 180 days during a calendar year. you may classify them either as RA. ► Their status may either be RA or NRA because Section 25 C and D does not distinguish. ► Income derived or coming from their employer shall be subject to a tax of 15% of the gross. Aliens Employed by Regional or Area Headquarters & Regional Operating Headquarters of Multinational Companies/ Aliens Employed by Offshore Banking Units (Aliens Employed by MOP) ► Status: either a RA or NRA depending on their stay here in the Philippines. Domestic Corporation (DC) – created 2. joint stock companies.

Joint Accounts 4. COURT OF APPEALS The phrase no “matter how created or organized” was interpreted. thus liable to pay corporate income tax. Joint Stock Companies 3. Y. How many corporations do we have? A: Three. Q: Corporation X and Corporation Y joined together. geothermal or consortium agreement under a service contract with the Government. yes. 1. if the income is derived from other sources and such income is subject to NET INCOME TAX. ► Section 26 (1st paragraph) provides: “a GPP as such shall not be subject to the Net Income Tax…” however. ( separate return for this. it is still deemed a corporation. 15 . no part of the income of which in derived from any trade or business. the joint venture has a separate and distinct personality from the two corporations. Q: Are partnerships always considered corporations? Is there no exception? A: General Rule: a partnership is a corporation.” In short. if the income is derived from other sources and such income is subject to FINAL INCOME TAX. and the distributive shares they will be receiving from the net income of the GPP will be included in the gross income of the partner. it is a corporation.Taxation law review notes . as far as the share of the GPP is concerned. it is considered a taxable dividend which is subject to FIT. Q: Is a joint venture a corporation? A: Generally. it is still EXEMPT and it is not deemed a corporation. coal. “…persons engaging in business as partners in a GPP shall be liable for income tax only in their separate and individual capacities. each partner will be paying NIT. subject to CIT TAN v. 2. nonprofit. Reason: because of the possibility of earning profits form sources within the Philippines. Insurance Companies CIR v. It will not reflect in the GPP’s ITR) » This is pursuant to the fact that FIT will not reflect in the ITR of the GPP since the withholding agent is liable for the payment of the FIT. This is important to determine the tax liability of the individual partners of the GPP. namely Corporation X. Q: What is the importance of knowing whether the corporation is exempt or not? A: To determine their tax liability. and X+Y. Exception: General Partnerships (GPP) Professional Rule: 1. Sababan venture or consortium formed of the purpose of undertaking construction projects or operations pursuant to or engaging in petroleum. DEL ROSARIO general rule: a partnership is a corporation exception: GPP exception to the exception: if the GPP derives income from other sources. it is not exempt and it is considered a corporation. it is considered a corporation.Atty. Partnerships and others no matter how created 2. Francis J. Associations 5. will the partners have to pay for the income tax? A: No. Q: If the GPP is deemed a corporation. whether nonstick. exempt from Corporate Income Tax (CIT) 2) Exercise of a profession and engaged in trade or business – a corporation. Q: When is a joint venture not considered a corporation? A: It is not deemed a corporation when it is formed for the purpose of undertaking a (“construction?) project or engaging in Q: What is a GPP? A: It is a partnership formed by persons for the sole purpose of exercising their profession. Even if the partnership was pursuant to law or not. (what if a partner has other businesses not related to the GPP? > read section 26 quoted hereunder) Two (2) Kinds of GPP formed for: 1) Exercise of a profession – not a corporation.

Taxable for income derived within the Philippines. 60 (3)). If there is. and other energy operations pursuant to “?” or consortium agreement under a service contract with the government. depending on whether there is or there is no settlement of the estate. Francis J.Atty. Taxable on all income derived from sources within or without the Philippines. Collector (102 Phil 140)) b) If the heirs without contributing money. 2) Estate Income Tax – if the property is transferred to the heirs. TRUST AND ESTATE The status of the estate is determined by the status of the decedent at the time of his death. an UNREGISTERED PARTNERSHIP is created and the estate becomes liable for payment of CIT (Evangelista vs. or of the decedent. COMM (165 scra 560) and Q: How many for each? A: Seven (7) kinds for each because the trust or estate will be determined by the status of the trustor. 4) MCIT (Minimum Corporate Income Tax) of 2% of the Gross Income 5) Optional Corporate Income Tax of 15% of the Gross Income A NRFC is liable for payment of the ff: 1) GIT. 2) If upon the termination of the judicial settlement. Both DC and RFC are liable for the payment of the following: 1) NIT – Net Income Tax 2) FIT – Final Income Tax 3) 10% income tax on corporations with properly accumulated earnings. Resident Foreign Corporation Foreign corporations engaged in trade or business in the Philippines. Non-Resident Foreign Corporation Foreign corporations not engaged in trade or business in the Philippines. depending on whether the settlement is judicial or extrajudicial. the following taxes are payable under the provision of income tax law: 1) Income Tax for Individuals – to cover the period beginning January to the time of death. the estate through the executor.Taxation law review notes . as an income taxpayer can be a citizen or an alien. the heirs still do not divide the property. property or industry with the intention to divide the profits between and among themselves. when the decision of the court shall have become final and executory. Taxable for income derived within the Philippines. the following possibilities may arise: a) If the heirs contribute to the estate money.Gross Income Tax 2) FIT – Final Income Tax III. or creator. Judicial Settlement 1) During the pendency of the settlement. administrator. payable in their separate and individual capacity (Pascual vs. 3) If no partition is made. Sababan petroleum. Individual or Corporate Income Tax. or heirs is liable for the payment of ESTATE INCOME TAX (Sex. When a person who owns property dies. gas. Domestic Corporation Is one created or organized in the Philippines or under its laws. grantor. property or industry to improve the estate. simply divide the fruits thereof between and among themselves. a CO-OWNERSHIP is created and Individual Income Tax (IIC) is imposed on the income derived by each of the heirs. 16 . so an estate.

4. KINDS OF INCOME TAX Q: How many kinds of income tax? A: There are Six (6). through the trustee or fiduciary but only if the trust is irrevocable. Minimum Corporate Income Tax of 2% of the Gross Income (MCIT) 5. 2. Q: What is another term for withholding tax? Some possibilities may arise. 3.Taxation law review notes . gross income (wlang kasunod) → only income tax from improperly accumulated earnings does not use this term.deductions Net Income x Tax Rate Income Tax Due Q: What is the rate? A: Individual: 32% Corporation: 35% NOTE: the formula allows for deduction. Q: Where the trust earns income and such income is not passive. Income Tax on Improperly Accumulated Earnings subject to 10% of the Taxable Income. 3. 6. Q: Is the taxable net income subject to withholding tax? A: It is subject to withholding tax if the law says so. CFA: “to be included in the gross income” 2. AEMOP. If it is revocable. The income tax liability depends on whether or not the unregistered partnership or coownership is created. With certain modifications. Optional Corporate Income Tax of 15% on the Gross Income I. Trust Trusts can be created by will. Revenue Regulations and Statutes: a. personal exemptions and tax credit. Final Income Tax (FIT). COMM (139 SCRA 436)) Extrajudicial Settlement Settlement and if NO Taxable Net Income – Tax Credit = Taxable Net Income Due Net Income means Gross Income less deductions and Formula: GI . NRANETB (liable for GIT). namely: 1. by contract or by agreement. NRFC (GIT also). Gross Income Tax (GIT). ordinary way of paying income tax. 1. Sababan Obillos vs. NET INCOME TAX Q: what is the formula? A: Gross Income – Deductions and Personal Exemptions = Taxable Income Taxable Income x Tax Rate = Net Income 17 .Atty. taxable income b. Q: What are the other terms for NIT? A: NIRC: a. Q: What if the law is silent? A: If the law is silent. the liability for the payment of income tax devolves upon the trustor himself in his capacity as individual taxpayer. Net Income Tax (NIT). or for the benefit of the grantor. normal way of paying income tax . a trust can also be a citizen or an alien. 2. b. it is not subject to withholding tax. Characteristics: Q: Who are not liable to pay NIT? A: 1. The status of a trust depends upon the status of the grantor or trustor or creator of the trust. Hence. who among the parties mentioned is liable for payment of income tax thereon? A: The TRUST itself. if they derive income from other sources. Francis J.

Richard and Regine Q: What is the formula? A: Gross Income x Rate Q: How many taxpayers pay by way of the gross? A: There are two (2) individual . Proceeds from the sale of real property is exempt. ► However. NOTE: like GIT. contract. ► Case of Juday. it is subject to NIT or GIT. as the case may be. the income must be derived on the basis of an employer – employee relationship. control. personal exemptions. there is a possibility that they may earn income in the Philippines. Francis J. you cannot join all the income in one group because each income has a particular rate. they are merely receiving royalties. will you be held liable? A: Yes. after 1979 – capital gains tax. as the case may be. though not engaged in trade or business. Q: If you fail to pay. (so. are liable to pay by way of the gross for any income derived in the Philippines. the withholding agent is liable to pay FIT. III. FINAL INCOME TAX (FIT) ► For one to be liable for the payment of NIT. 2. NOTE: as time passed by. Q: Do we have to determine if there is an actual gain or loss? A: Yes because the formula for deductions. GROSS INCOME TAX (GIT) Q: What is the rate? A: 35% as the case may be.NRANETB corporation . it is subject to withholding tax because the persons liable are foreigners. 3. and tax credit. 18 . Characteristics: Q: Who are liable to pay FIT? A: All taxpayers are liable to pay FIT provided the requisites for its application are present. Q: If you fail to pay. Q: Do you still have to pay NIT? A: No. distinguish nature of income. compensation. will you be liable? A: No. there is no employer – employee relationship. Sababan A: It is also known as the creditable withholding tax system under the income tax law.Atty. personal exemptions and tax credit. if you are liable for FIT. thus the agent is liable to pay. the number of FIT increased. you will be held liable. II. the formula does not allow deductions. Q: Is this subject to withholding tax? A: Yes. in the case of celebrities. no need to pay NIT or else there will be double taxation. etc. ► before 1979 – proceeds from the sale of real property not exempt. Royalties are subject to final withholding tax. While not engaged in trade or business.Taxation law review notes . whether royalty or compensation) RULE: Q: What is the formula? A: (Each Income) x (Particular Rate) Unlike in the gross income tax where you add all the income from all the sources and multiply the sum thereof by the rate of 25% or 35%. This rule is ABSOLUTE NOTE: there are two (2) ways of paying taxes depending on which side of the bench you are.NRFC NOTE: the formula does not allow any deduction. in final income tax. Characteristics: ► NRANETB and NRFC. Employer – Employee Relationship (3 Cs): 1.

Q: May it be applied simultaneous with NIT? A: No. whether or not subject to Creditable Withholding Tax (CWT). GIT 2. Q: Why is it that the rate of withholding is always lower. NIT allows deductions. Only one will apply. 2.Atty. Sababan 1. No liability for final withholding tax except for the sale of shares of stock. GIT b. Q: To what kind of taxpayer does this apply? A: To DC and RFC. to determine the kind of income tax applicable to them. Francis J. 15% FIT with respect to income derived from their employer. NIT 2. Q: Is this applicable now? A: No. 2. absolute liability to pay is upon the withholding agent. OPTIONAL CORPORATE INCOME TAX Q: Under what section is this found? A: Section 27A 4th paragraph and Section 28 A(1) 4th paragraph. Q: Under Section 23. FIT 2. FIT Q: What is the significance of knowing the classification of these taxpayers? A: 1. FIT Q: What kind of income tax applies to DC? A: Only four (4) kinds will apply out of the six (6) 1. Income from other sources: 1. who are liable for income within and income without? A: Only 1. for NIT. Improperly Accumulated Earnings Q: May all of these be applied simultaneously? A: No. whichever is higher between the two. Determine the status of the AEMOP. Q: What kind of income tax will apply to AEMOP? A: Generally. RC 2. only one kind. Q: What kind of taxes are applicable or imposed upon the 1st five individual taxpayers? 19 . NIT. DC ► The rest of the taxpayers will be liable for income coming from sources within. FIT and Improperly Accumulated Earnings be applied simultaneously. GIT and FIT do not allow deductions.Taxation law review notes . Q: Do you have to determine whether there is an actual loss or gain? A: No need to determine because the formula does not allow deductions. MINIMUM TAX (MCIT) CORPORATE INCOME A: Only two (2) kinds are applicable out of the six (6) kinds of income taxes. this is not yet implemented. (?) IV. only two (2) will apply: 1. Q: What is the formula? A: Gross Income x 2% Q: Who pays this tax? A: DC and RFC only. MCIT 4. 1. NRANETB a. NIT and MCIT cannot be applied simultaneously. a. to determine their tax liability. 2. only the NIT. FIT. there must be a computation of the NIT first then apply which ever is higher. 2. for GIT and FIT. FIT 3. Gain is presumed. and why is it that the rate of GIT and FIT is always equal? A: 1. the taxpayer is always liable if he fails to pay. V. The MCIT is paid in lieu of the NIT. Reason: to discourage corporations from claiming too many deductions. NIT b. Q: What kind of tax will apply to NRFC? A: Out of the six (6) kinds.

► For example the borrower is a NRAETB. Determine if the income came from sources within or without to know the taxpayer’s liability. (Sec 42a) 2. ► Section 42 is applicable only to taxpayers who are liable for income within. The residence of the obligor who pays the interest rather than the physical location of the securities. The interest earned by the loan will be considered as an income without. SECTION 42 IS NOT MATERIAL TO ALL taxpayers. CIR F: The National Development Company (NDC) entered into a contract with 20 . NOTE: The income taxpayer is not a RC or a DC. corporate or otherwise.Taxation law review notes .) – contract of loan with respect to the interest earned thereon. becomes a stockholder of two corporations. Sababan ► Income from sources liability. Later on. NDC said that since the contract was entered into and was executed in Japan. Q: Section 42(A)(1) provides for how many kinds of interests? A: It establishes two (2) kinds of interests. is liable if the income is derived from sources within. The contract was made and executed in Tokyo. Q: What is the determining factor in order to know if the income is from within? A: 1. NRFC. interest derived from sources within the Philippines. bonds or notes or the place of payment is the determining factor of the source of the income. four promissory notes were signed by NDC guaranteed by the Government. particularly the RC and DC because these two are liable for both income within and without. no several Japanese shipbuilding companies for the construction of 12 ocean-going vessels. it is an income without. he borrowed money from a RA. Francis J. Q: Is section 42 relevant to all the taxpayers? A: NO. therefore exempt. Dividends received from DC: the Indonesian firm is liable to pay taxes. if the obligor is a resident of the Philippines. Answers must be responsive to the question. Nothing in the law (Section 42(1)) speaks of the act or activity of nonresident corporations in the Philippines. the BIR was collecting the amount from NDC. residence of the obligor (whether an individual or a corp. interest on bonds. Accordingly. without. and thus they are not liable to withhold anything. notes or other interest bearing obligations of residents. since no tax was withheld from the interest on the amount due. under the law. The payments were initially in cash and irrevocable letters of credit. the rest of the taxpayers are otherwise exempt. an Indonesian firm. namely: 1. H: The government’s right to levy and collect income tax on interest received by a foreign corporation not engaged in trade or business within the Philippines is not planted upon the condition that the activity or labor and the sale from which the income flowed had its situs in the Philippines.Atty. v.) 2. ► If the facts are specific. The NDC contended that the income was not derived from sources within the Philippines. the interest paid by him can have no other source than within the Philippines. Q: Suppose a NRFC. do not qualify your answer. NATIONAL DEVELOPMENT CO. therefore exempt from paying the tax. RA is not liable to pay tax since RA is liable only for income within. what is the liability of the Indonesian firm if the same received the dividends? A: 1. a DC and a RFC. 2. or place where the contract is signed. and both corporations declared dividends. Subsequently. location if the bank is from within the Philippines (pursuant to a Revenue Reg. Dividends received from RFC: the Indonesian firm’s liability will depend on amount of gross income from sources within the Philippines.

the other from HK. receiving two salaries. or the right to use copyright. the NRFC is not liable and therefore exempt from the payment of tax. the 1st requisite is for the three (3) preceding taxable years from the time of declaration of the dividends. how much is the withholding? A: 10% (NIT) and in some cases 15% Section 42(4) MEMORIZE FOR RECIT (CEKSTTM) a. please be guided accordingly) Q: Filipino Executive. the services were rendered abroad. What is the liability of the NRFC? Will there be a withholding tax imposed? A: The income is derived from sources without since the services in this case were performed abroad. supply of knowledge d. at least 50% is income from sources within. or vice-versa. supply of technical assistance f. what is the rule? A: Determine first if the property is produced or merely purchased. In the case at bar. If the NRFC is not subject to NIT. then it is not also subject to withholding tax. 2. the income will be considered from sources without. The performance of the job was in HK. etc b. Q: What is the rule as regards the sale of real property? A: Gains. Q: Same scenario. thus exempting the Indonesian firm from payment of income tax. profits. ► In the absence of any or both requisites. supply of technical advice g. sale of shares of stock of DC: the Indonesian firm will be liable for the payment of taxes because the income is from sources within. 2. 21 . thus it is an income derived from sources without. What is the tax liability of the Indonesian firm? A: 1. how much is the withholding? A: 35% (GIT) Q: if the franchise is granted by RFC. assigned to Hong Kong. it is the place where the same is rendered which is controlling. His status is an OCW (note facts: working in HK under contract). The compensation he received is not subject to tax pursuant to Section 42(c). 1. commercial. one from the Philippines. if the property is purchased. RENTALS AND ROYALTIES ►income from sources within Q: Granted by who? A: NRFC Q: Suppose you are the franchise holder. etc. When it comes to services. Q: Suppose a DC hired a NRFC to advertise its products abroad. Is he liable for both salaries? A: No. Q: What about the sale of personal property. As such. it the property is manufactured in the Philippines and sold abroad. sale of shares of stock of RFC: the liability will depend on where the shares of stock were sold. Q: What is the controlling factor? A: The controlling factor is the place where the services were performed and not where the compensation therefore was received. (mejo Malabo sa notes. he is not liable for the two incomes. right to use: motion picture films. Francis J. supply of services by nonresident e. considered derived entirely from the sources within the country where it is sold. and income from the sale of real property located within the Philippines considered income within. industrial. Compensation for labor or personal services performed in the Philippines is considered an income within. 2.Taxation law review notes . scientific equipment c. irrespective of the place of payment. it is an income partly within and partly without. but this time the shares of stock of the two corporations were being disposed off.Atty. right of. patents. Sababan The NRFC will be liable to pay income tax if the following requisites are present: 1.

COMMISSIONER v. The following are ordinary assets: 1.C.000 will be allowed as deduction. CAPITAL ASSETS Q: What is the holding period? A: If capital asset is sold or exchanged by an individual taxpayer. Francis J. include in ITR.000 or 10% of 100. the taxpayer must be an individual. Q: What is the relevance of making a distinction? A: It is relevant because Section 39B. If the deduction being asked is 100. Capital losses are losses incurred in transactions involving ordinary assets. Q: Do you include capital gains in your ITR? A: General rule: yes. capital gains from sale of real property(section 24). 2. 3. property is an ordinary asset 22 . EXCEPT: 1. other than a corporation. and the taxpayer is not sure. limitations on capital losses (39C). Sababan EXCEPTION: shares of stock of domestic corporation. All other property not mentioned in the foregoing are considered capital assets. real property used in trade or business of the taxpayer..000 = 10% ► Hence. 10% is the ratable share in the deduction. Q: What is the requirement? A: 1.000 1. (long term) NOTE: the holding period applies to both gains and losses. Q: What is a capital gain? What is a capital loss? A: Capital gains are gains incurred or received from transactions involving property which are capital assets. Q: What is the term? A: 100% if the capital asset has been held for not more than 12 months. (short term) 50% if the capital asset has been held for more than 12 months. and D apply to capital assets only.Taxation law review notes . property held by the taxpayer primarily for sale to customers in the ordinary course of trade or business. time when property was held (39B) (holding period applies only to individuals). Capital losses are losses incurred from transactions involving capital assets. 2. CAPITAL GAINS AND LOSSES Section 39 Q: What is capital asset? A: Capital asset is an asset held by a taxpayer which is not an ordinary asset. gains in sales of shares of stock not traded in stock exchange(section 24). Only 10. stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year. Q: if you are the BIR. Section 39B states “in case of a taxpayer. will you disallow the deduction? A: No.000. it is an income within wherever it is sold. IAC Q: What is the issue here? A: They cannot determine if the business expense was incurred in the Philippines. 3. Q: What is ordinary gain? Ordinary loss? A: Ordinary gains are those received from transactions involving ordinary assets.000 not all of it will be allowed. 4. Formula: GI from within GI from without Example: 100. 2. 1.” 2. determine it pro rata. property is capital in nature. It is the length of time or the duration of the period by which the taxpayer held the asset. only a certain percentage of the gain is subject to income tax.Atty. property used in trade or business of a character which is subject to the allowance for depreciation provided in subsection 1. Q: When will the holding period not apply? A: 1. Net Capital Carry-Over (39D) I.

In case of mines other than oil and gas wells.Taxation law review notes . 34D3 b. 23 . Q: What is the rationale? A: Section 24 D – final income tax of 6% if the real estate is capital asset. 2. (applies to individual and corporation) Q: In connection with 34 D.Atty. capital loss can be carried over to the next three (3) succeeding calendar year following the year when the loss was incurred. Q: How does net capital loss carry-over differ from net operating loss carry-over under Section 34 D (3)? A: Under the net capital loss carry-over rule. taxpayer is an individual. Losses in Allowable Deduction. sale of real property considered as ordinary asset II. if the loss is more than GI III. but losses from the sale or exchange of ordinary assets may be deducted from capital or ordinary gains. what is the rationale behind this rule? A: If it is otherwise. capital loss should not exceed net income in the year that it was incurred. Except: a. the gross income less deductions hence it already carries with it the deduction TAKE NOTE: Normally if the loss is an ordinary loss there is no carry over. it will run counter with the rule that the loss should always be connected with the trade or business. thus it is not deductible Q: what is your remedy? A: 39 D. the capital loss can be carried over in the immediate succeeding year. 3. Q: What is the conversion prohibited in the Revenue Regulation? A: Conversion of real estate property. NET CAPITAL LOSS CARRY-OVER Q: What are the requirements? A: 1. capital losses are losses not connected to the trade or business. net capital loss carry-over Q: What is the rationale in allowing ordinary loss to be deducted from either the capital gains or ordinary gains? A: It is already included in ITR. LIMITATION ON CAPITAL LOSSES ►synonymous to 34D & loss capital rule ► this applies to individual and corporate taxpayer Q: What is the loss limitation rule? A: Pursuant to Section 39 C. I: Was the property converted to ordinary asset? H: The conversion from capital asset to ordinary asset is allowed because Section 39 is silent. CIR F: The taxpayer inherited the property fro her father and at the tie of the inheritance it was considered a capital asset. Sababan 2. EX: shares CALAZANS v. if the loss is greater than the gains. the period is up to 5 years. In order to liquidate the inheritance. and 35% if the taxpayer is a corporation. taxpayer is a corporation 3. Francis J. losses from sales or exchange of capital assets may be deducted only from capital gains. 4. it will be subject to income tax of 32% for individual taxpayer. If it is an ordinary asset. paid in the immediately succeeding year. Q: Are you allowed to convert ordinary asset to capital asset? A: General rule: it is not allowed. NOTE: only 15% of the loss will be carried over. applies only to short term capital gain. the taxpayer decided to develop the land to facilitate the sale of the lots. Q: What is a short sale? A: Sale of property by which the taxpayer cannot come into the possession of the property. Read Revenue Regulation 7-2003 The case at bar still applies despite of the issuance of said Revenue Regulation. In net operating loss carry-over rule. ► In net operating loss carry-over there is an exception to the 3 year carry-over period.

authorized for such types of income by the NIRC or other laws.separate 2. OCW 4. 24 B1 3. RC 2. Sec. and D”? A: It means that if the elements of passive income are present. NRAETB Q: What about Resident Foreign Corporations? A: Sec 28(l) it is subject to 35% Net Income Tax Q: What about Non Resident foreign Corporation and Non Resident Alien not engaged in Trade or Business? A: Not Subject to Net Income Tax but they are liable for Gross Income tax. and MCIT will depend on the elements present. NRFC Q: What is the rate of interest? A: FIT of 20% Q: Is there a lower rate? A: 7 ½ % if under EFCDS Q: What if the depositor is non resident alien? A: prizes and Other Q: What is the tax liability of NRAETB? A: Section 25(1) NRAETB is subject to income tax in the same manner as those individuals mentioned in Section 24. Q: What do you mean by the phrase “other than B. NRANETB Sec. RFC 9. 27 A. and C 2.B. the taxpayer has to pay FIT. Sec. NRAETB 5. Q: Who are the taxpayers mentioned in section 24? A: 1.Taxation law review notes . and it has been idle for two (2) years. real property use in trade or business not necessary realtors Q: That is the conversion allowed by the Revenue Regulation? Is there an instance when an ordinary asset may be converted to capital asset? A: Yes. provided that the property is an asset other the real property. 26. SECTION 24 TAX ON INDIVIDUALS Q: What is the tax mentioned in section 24? A: NIT Q: What is taxable income? A: (memorize section 31) it is the pertinent items of gross income specified in the NIRC. Pure compensation income. Q: Do legally married husband and wife need to file separately or jointly? A: It depends if: 1. because the income must be derived from sources w/in. 25 (25%) 6. winnings Interest Q: Bank Interest. less the deductions and/or personal and additional exemptions.Atty. Sababan Q: What are the properties involve in the RR 7-2003? A: 1. if any. The bank is the one liable for the payment of this. RA } 4. what is the requirement? A: The bank must be located in the Phils. C. RA ► Additionally. Not Pure compensation income. 24 . Q: Do you include this in your ITR? A: No! because it is subject already to FIT. GIT.joint Passive Income Interest. under Section 25. DC 8. NOTE: Liability for NIT. AEMOP 7. NRC} Sec.GPP is not subject to income tax. Royalties. Francis J. Q: What about Domestic Corporations? A: 1. NRC 3. Q: Who are liable for bank interest? A: 1. It refers to NIT because it allows deductions. those property for sale by the realtors 2. RC } 2.

Atty. NRC 3. RFC and DC 2. It must not pertain to illegal gambling. Taxpayer is RFC and income w/in. AEMPOP (NRANETB.termination? A: If it is pre terminated before 5th year a FIT shall be imposed on the entire income and shall be deducted and withheld by the depositary bank from the proceeds of the long term deposit based on the remaining maturity thereof a.W/out. the only requirement is it must be derived from income w/in. For DC and RC it must be derived from income abroad RFC it must be derived from income w/in 3. Less than 3 yrs. Winnings Q: Do we apply the P10. the rest are exempt. AEMOP (RC.GIT) 3 DC.? A: No. No FIT abroad because we do not have withholding agent abroad.20% Q: Does it apply to all individuals? A: No! It does not apply to 10 NRFC and NRA and NRAETB because they are liable to GIT.liable for GIT at 25 % 2. 3 yrs to less than 4 yrs. we do not apply it only applies to prizes. most TP are exempt except DC and RC 25 .12% c.GIT 2 AEMOP (NRANETB. If derived from sources abroad. 3.NIT 27 D is silent RFC NIT law is silent 28A7a NRFC subject to GIT Q: When can we apply NIT in Prizes? A: 1. most of them are exempt except for RC and DC who are liable w/in and w/out. NRAETB 6. NRANETB. OCW 4. RC 2. it must be more than P 10.000 NOTE: If the prize is derived from sources w/in but it is below P 10. Sababan -W/in – FIT . RA 5. OCW 4. 5. RA 5. NRAETB) Not Liable 1. Impose NIT if it is higher than the MCIT. Q. otherwise apply MCIT if it’s higher than the NIT Prizes Requirements: 1. Francis J.law is silent 5 NRFC. Q: MCIT applies to DC and RFC in relation to bank interest? A: If the bank interest is derived abroad.000 Q: Who are liable? (FIT) A: 1. When the taxpayer is RC. Prizes must be derived from sources w/in the Phils. RC 2.exempt Q: What is the rule on pre. NOTE: if the depositary is a Non resident it is exempt ► Resident citizen is liable to pay tax for bank interest earned abroad (NIT) Q: If the money earns interest in abroad who is liable? A: RC and DC only by NIT.GIT) DC. NRAETB) Not liable to FIT? 1 NRANETB.GIT Q: When does NIT apply to winnings? A: 1. 000 req. Is it possible for RC and DC to pay MCIT? A: Yes if MCIT is higher than NIT. amount is more than P10. NRAETB 6. ► Thus.law is silent NIT 4 RFC. 4.000 it is not subject to tax. Q: Who are liable? (FIT) A: 1. NOTE: If income abroad. If Taxpayer is DC or RC 2. 4 yrs to less than 5 yrs – 5% b. Income is derived abroad 3.Taxation law review notes . NRC 3. 2. RFC is exempt but DC is liable. AEMOP (RA.

NRC 3. Francis J. OCW 4. RA 5. ANSCOR CASE →the stockholders payment of taxes cannot escape the NOTE: Lower rate of 10% applies to all except NRANETB Q: When do we apply NIT to Royalties? A: 1. Q: Is there an exception when stock dividends are not taxable? A: YES. NRANETB 2. 24 refers to cash or property dividend H: For stock Dividends to be exempt it must come from the profit of the corporation. Q: You are a writer for Snoop Dogg are you liable for FIT? What if for April Boy? A: Liable for NIT if Income abroad like a writer for Snoop. TP is RF and income is w/in ► If income is from sources abroad all are exempt except RC and DC Dividends ► Confined dividends. AEMOP 3. Q: Who are liable (FIT)? A: 1. Lower rate? 10% on books. 4. AEMOP (RC. NRAETB 6. 73) COMM. TP is RC or DC 2. 2. AEMOP (RC. RC 2. is it taxable? A: NO. Stock Dividends → it is the transfer of the surplus profit from the authorized capital stocks. the Corporation has a P5 M Authorized Capital stock. the dividends did not go to the Stock holder but to the Auth Capital Stock. Income is from w/out 3.Atty. Q: Assuming that there are 5 Incorporators.Regular operating. ► What rate: 10% FIT Q: What are dividends? A: Any distribution made by Corporation to its stockholders outside of its earnings or profits and payable to its stockholders whether in money or in property (Sec. RC 2. NRAETB 6. if the shares of stocks are cancelled and redeemed meaning it was reacquired by the corp. Only cash and Prop Stock go to the Stock holder. NRAETB) Not liable? 1. ► Sec 24 B does not mention stock dividends because it is not subject to FIT but it is subject to NIT under Section 73. vs. NRANETB AEMOP DC RFC NRFC A: shares come from another shareholder Q: What are the dividends included? A: Sec. RFC 26 . with cash and/or property Requirement: Gen Rule. 5. literary works and musical compositions. MANNING Q: Where did it come from? Q: Who are liable? A: 1. DC 4.always a foreign corp. NRAETB) Not Liable? 1. While FIT if for April Boy. OCW 4. NRC 3. Except. RA 5. 3. Sababan Q: MCIT applies when? A: It is higher than the NIT Royalties Requirement: ► The income is from w/in ► Rate? 20%. It distributed 1 M stock dividends.the dividends must be distributed by a DC.Taxation law review notes .

DC a Stockholder of DC= Exempt 2. to all other assets. Requirements: 1. Most of the taxpayer will pay NIT except NRFC and NRANETB 2. Determine whether there is a loss or 3. When the broker or dealer a. held for sale in the ordinary course of trade or business 2.Atty. 42 (E) ► If the shares sold are that of a foreign corp it is subj to the ff rules: a. Shares not being that of a DC.Taxation law review notes . must not be traded in the stock market ► 25 R last part: Capital Gains realized by NRANETB in the Phils. Subj to FIT a gain because the tax is impose upon the net capital gains realized from the sale. Ordinary assets of foreign corporations 2. or exchange or other disposition of the shares of stock in a domestic corp. to the income tax prescribed under Sub sec (c) and (d) of Sec. NRC. Capital Gains From Sale of Shares of Stock Not Traded (§24C) 1. Q: Shares of Foreign Corp sold in Phils. Hence: a) RC. Francis J. used it in trade or business b. it will be considered a capital asset NOTE: if all elements are present it will be subj to FIT If the shares are ordinary asset 1. 24. Q: When is it considered an ordinary asset? A: 1. in lieu of NIT. What do you mean by the phrase “ the provisions of 39 notwithstanding”? ► It refers to the holding period. sold in the Phils= its income w/in b. Who’s liable? What tax? A: Not subj to FIT because one of the elements is not present . Except: under 24 C for NRANETB.income w/in a. Thus: most of them will be exempt except RC and DC liable to pay NIT ELEMENT # 2 NOT TRADED OR SOLD IN THE STOCK MARKET ► if sold in the stock market. It must be capital asset 3. 4. Shares of stock in a Dc is always considered an income w/in regardless where it was sold. Sababan 5. 24 B 1&2: If the elements are present NRANETB and NRFC are liable to pay GIT. DC and RFC b) NRANETB and NRFC will pay GIT Q: Shares of Foreign Corporation sold abroad? A: It will be considered an income w/out. RFC stockholder of DC= Exempt also 3. It is uniformly imposed on all taxpayer not subj to w/holding tax. The holding period does not apply because the basis will be those provided in 24 C & D and not under 39B (GSP or FMV) ELEMENT #1 The share is a share in DC Q: What if the share is from foreign corp? 27 . OCW. ► SEC. NRAETB) will pay NIT.it is not subj to FIT ► if sold in the stock market. NRAETB. AEMOP (RA. DC stockholder of RF= Liable for NIT. When it comes to capital gains from sale of shares of stock not traded and capital gains from the sale of real prop. NRFC ► Shares of association and partnership is taxable Q: Determine the tax liability of the following? A: 1. Ordinary shares in DC. If income w/in read Sec. ELEMENT # 3 It must be a capital asset. sold in abroad= w/out c. Shares of stock of a DC 2. it will be subj to percentage tax. from the sale of shares of stock in any DC and real prop shall be subj. A: Determine the income considered. barter.

Exceptions (§24(D2)) Q: What if the prop being sold was a movie house. From the sale ► In 39 B the holding period does not apply because the basis of income tax is the gross selling price (GSP) or the Fair market value (FMV) whichever is higher. If the mortgagee is an individual the FIT is imposed whether or not there is a transfer of ownership. Sababan a. Income w/out if sold abroad: most will be exempt except RC and DC MCIT Q: When is a RFC subj to NIT? A: 1. barter 3. the privilege must be availed of w/in 18 mos. The seller must be an individual. The purpose of the seller is to acquire new residential real prop 2. The real prop must be sold w/in the Phils and located in the Phils. the FIT does not apply because the property is not yet transferred because there’s a period of redemption If after a year the mortgagor failed to redeem the property that is the only time that the FIT will apply because there’s now a change of ownership. other disposition NOTE: If the prop is under mortgage contract and the mortgagee is a bank or financial inst. 39 A: Other property not mentioned are capital asset. Capital Gains From Property (§24D) Sale of Real A: most will be liable to pay NIT Except NRANETB and NRFC liable for GIT Q: May a RC be liable to pay NIT even if all the elements are present? A: YES. sale of shares of stock of DC which are ordinary asset ► DC and RFC are subj to MCIT which may be imposed if the NIT is lower than the MCIT2% MCIT will be imposed if MCIT is higher than NIT. 24 Requirements: 1. Other transactions are covered: 1. If redeemed w/in 1 yr period FIT will not apply because there’s no change of ownership. Francis J. It must be a capital asset 3. Q: What present? if all the elements are not 28 . 2.Atty. Income within if sold in the Phils: most will pay except NRANETB and NRFC b.R. ELEMENT # 3 The real prop must be a capital asset Q: When considered a capital asset? A: Read R.2003 Q: Ordinary asset. sale 2. 7. 2. Sale of shares of stock of a Foreign corp in the Phil. exchange 4. Thus. If there’s a gain choose to be taxed at 6% FIT. can he claim for the exception? A: the prop covered by the exemption is a residential lot Q: Who can claim the exemption? A: Only the taxpayer mentioned in Sec. disposition made to the Govt.Taxation law review notes . In this case the gain is always presumed. If there’s a loss choose to be taxed at 32% because losses may be considered an allowable deduction .6% FIT Requirements: 1.shall refer to all real property specifically excluded from the definition of capital asset under Sec. ► NRFC liable to pay GIT and not FIT ► NRANETB liable to pay FIT are all elements are present. estate or trust or a DC ► RFC not liable for FIT but liable to pay NIT if all the elements are present. the taxpayer has the option of paying 32% NIT or 6% FIT Q: Which is more advantageous? A: It depends determine first if there’s a loss or a gain.

4 of Art. & HOSP. Francis J.and all lands buildings. MCIT. actually directly and exclusively used for religious. that gross income from unrelated business. 14 of the Constitution. Non Profit Proprietary Hospital Q: What if the school or hospital is non profit only. Certification of the brgy. 10% IAE SEC. subject to 10% on their taxable income except those covered by subsection (D) PROVIDED that gross income from unrelated business. it is stock corp 3. and educational purposes shall be exempt from taxation. FIT 4. Sababan 3. and exclusively fro the primary purpose Q: Under what law? Is it the constitution or the NIRC which provides fro the exemption? A: It is under Sec. 27 (B) PROPRIETARY EDUCATIONAL INST. trade or activity must not exceed50% of its total gross income derived by such educational inst or hospital from all sources 5. Capt where the taxpayer resides that indeed the prop sold is the principal residence of the tax payer (RR 13. the assets property and revenues must be used actually. it is non profit 4.Atty. or CHED Q: What do you mean by unrelated trade business or activity? A: It means any trade. 28 of the Constitution: charitable institution churches. The provision of the NIRC is the specific law which prevails over the Constitution which is the general law. 10%Improperly Accumulated Earnings 5. NIT 2. ….stock and non.profit 2.4 Art. the adjusted basis or historical cost of the residence sold shall be carried over to the new residence. FIT and 10% IAE 2. the privilege must be availed only once every 10 yrs 6. Who are the taxpayers? 1.Taxation law review notes . 101 (3) of the NIRC REQ. Comm. Non. the portions of the gain is subj to FIT SEC.Profit Proprietary Educl. is it exempt? A: No. NIT. 6 Sec. has permit to operate from DECS. Inst and 2. It is a private school or hospital 2. 30 of NIRC and not under Sec. or activity which is not substantially related to the exercise or performance by such entity of its primary purpose or performance Q: May a school or hospital be exempt from paying tax? What are the req? A: 1. what will happen to the unused portion or profit? A: If the proceeds are not fully utilized. 14 of the Constitution. but the optional is not yet applicable so only 4. charitable. → Not Sec. MCIT 3. Business. 27A RATES OF INCOME TAX Q: How many income taxes are paid by a DC? A: 1. must be informed w/in 30 days from the date of sale with the intention to avail of the exemption 4. It must be non. Q: How many can be applied simultaneously? A: ONLY 3 1. trade or activity must not exceed 50% of its total gross income derived by such educational inst or hospital from all sources Requirements: 1. TESDA. Optional corporate income tax of 15% of the gross ► DC liable for five. 5. FIT. Q: You donated a property to a school will you be liable for donor’s tax? A: not liable if it falls under Sec. directly.99) Q: What if the property is worth 10 M and it was sold only for 2M. → exempt from all taxes and custom duties Q: What about exemption from real property tax? A: Art. FOR EXEMPTION TO DONORS TAX: 29 .

It may be exempted from local taxation. real estate tax. Francis J. what is the difference if the taxpayer is an individual or corporation? Q: If the GOCC is not one of those enumerated does it follow all of its income is automatically subject to tax? A: NO. 4 of the Consti obsolete? A: NO. PCSO ► PAGCOR no longer included. EXCEPTIONS: 1. PAL CASE July 20 2006 H: The SC used 133 (o)an exception to pay tax. Bank interest must be received by a Domestic Corp 2. GEN RULE: Subj to tax. governed by trustees who don’t receive any compensation 5. B (7) income derived from any public utility or from the exercise of essential government function accruing to the Govt of the Phils or to any political subd. devoting all its income to the accomplishment and promotion of the purposes stated in its Articles of Incorporation Q: What about exemption from VAT? A: Sec. non-profit educational inst. Royalties derived from sources within Q: When it comes to bank interest. Sec 27 C exempts those enumerated without any qualification. 32b7b qualification must concur before it may be exempted. Exceptions 1. 2. NOTE: Mactan. A: 1. non-profit educational inst. If the taxing authority is the National Govt. PHIC 4.Atty. as a rule NO. The SC said that the airport is not an agency or GOCC but mere instrumentality of the Govt. Q: Can the government impose tax on itself? A: It depends on who the taxing authority is. This is Gross ignorance of the law Sec.Cebu Airport case SEC. 109 (m) of R-VAT Q: What about exemption fro Loc Gov Code? A: If its non-stock. AGENCIES. 27 C and 32 b7b? 30 . not more than 30% of the prop donated shall be used by such donee for admin purposes. 27 it may still be exempt under Sec. it must be non-stock. SSS 3. 32 b7b if its performing governmental function NOTE: Pagcor vs. LGU’s are expressly prohibited from levying tax against: (Sec 133(o) 1. Its agencies and instrumentalities 3. 23: GOCC. 2. if the law is silent apply the Consti. Sec. Basco case Q: What is the difference between Sec. Are therefore exempt from income tax. Q: Is Art 14 Sec. those entities enumerated under §27 C 2. YES. SEC. those GOCC falling under §32b7b If the taxing authority is the local government units. 133 (o) is for local taxation not real property taxation which is the one involved in the present case. as a rule.Taxation law review notes . paying no dividends 4. 27 D(1) Q: How many possible incomes were mentioned? A: Two (2): bank interest and royalties REQ: 1. even if the GOCC is one of those enumerated under Sec. 2. Sababan - 1. 3. INST of the GOVT. Therefore. Under Sec 32. local government units Exception: Sec 154 of LGC says that LGU’s may fix rate for the operation of public utilities owned and maintained by the within their jurisdiction. National Govt. imposed by City of PAranaque on NAIA. GSIS 2.

When the MCIT is higher than the NIT 31 . If it involves foreign currency transaction it is not exempt but subject to 35 % NIT Q: Who are the other parties? A: 1. have a lower rate of 10%on books.Inter-corporate dividendsexempt 27 D5 Capital Gains from sale of Real Prop.RC EXEMPT Offshore banking units Other depositary banks under EFCDS ► exemption of NR from EFCDS: Q: Who is the income earner? A: Non Residents whether individual or Corporations Q: Derived from whom? A: Depositary Bank under EFCDS NOTE: Sec. they are not exempt from long tem deposit. imposed in lieu of the NIT. DC have no lower preferential rate.Taxation law review notes . 27 D(4). SEC 27 (E) MCIT Q: Applicable to whom? A: DC and RFC Q: Can it be applied simultaneously with NIT? A: NO. SEC 27 D2: CAPITAL GAINS FROM SALE OF SHARES NOT TRADED SEC 27 D3: EFCDS Q: What is the expanded foreign currency? A: It is a bank authorized by the BSP to transact business in the Philippine Currency as well as acceptable foreign currency or both. branches of foreign banks 3. then depositary bank will be exempt from paying the NIT Foreign Currency Loan Q: Who is the lender? Borrower? A: Lender. Q: What is the tax? A: 6% FIT Q: What is the difference if the seller is an individual and a DC? A: Individual can sell all kinds of real property DC can only dispose land and/or buildings. NR is exempt only from bank interst derived from EFCDS while 27D3 exempts NR from any income from transactions with depositary bank under EFCDS SEC. whichever is higher.residents ► if the above enumeration are the parties. other literary and musical compositions. Q: What is the tax to be paid? A: Normally it is NIT because it is subj under Sec 27 D3 and 28 A Q: Who is the income earner? A: Depositary banks Q: Exempt from what kind of transaction? A: From foreign currency transaction. Other depositary banks under EFCDS 5. Off shore banking units 2.Atty. Francis J. local commercial bank 4.EFCDS Borrower. Non. Sababan A: If individual. 2. Q: What is the Rationale? A: to prevent corporations from claiming too many deductions Q: When will it be imposed? A: 1. they may be exempt from the payment of interest in case of long term deposit except NRANETB If DC. Q: What about royalties? A: If individual. On the 4th year immediately ff the year in which such corp commenced its business. 24 B Nonresident exempt from bank interest under EFCDS Q: What is the difference between 24 b1 from 27 D3 A: In 24 B1.

2.RFC 2. 28 A3. the passenger transferred on another airline Q: How do you apply GPB? Sec. The tickets must be revalidated. No landing rights. The passenger boards a plane in a port or point in the Phils.? A: Determine if its income within or without. ships ► An intl. carrier doing business in the Phils. or indorsed to another airline. If originates from the Phils and has landing rights. Q: Do you consider landing rights to determine liability? (RR 15-2002) A: 1.ONLINE. provided that the stopover does not exceed 48 hrs. Sababan Q: What is the carry over rule? A: Sec 27 E2 states the carry over rule. is it still uninterrupted? A: YES. exchanged. it must be to another airline Q: What if it did not originate from the Phils. Air carrier 2. hence exempt Transshipment REQ: flight originates from the Phils transshipment of passenger takes place at any port outside the Phils. 32 .OFFLINENRFC Q: If there are stopovers. Irrespective of the place of sale or issue and the place of the payment of tickets or passage document. if ticket was purchased in the Phils. hence a RFC engaged in common carriage does not pay GPB but NIT ► Income without: EXEMPT International Carrier: ► GPB refers to the amount of revenue derived from: carriage of persons. excess baggage. Continuous and uninterrupted flight. 28 B2 MCIT on RFC ► same with Sec. Revalidated. 27 3. Francis J. ► In order to avail: only in the year where the MCIT is greater than the NIT. Sec 28 A1 Q: What Kinds of taxes are paid by the RFC? A: NIT MCIT Sec.Taxation law review notes . irrespective of the place of sale or issue and the place of payment of the tickets or passage document.INTL CARRIER Kind: 1. exchanged or indorsed tickets REQ: 1. shall pay 2 ½ % on its Gross Phil Billings (GPB) Q: Is 28 A3 the Gen. cargo and mail originating from the Phils in a continuous and uninterrupted flight. Q: When will the place of sale of tickets matter as to the taxpayers liability? A: The place of tickets is material only if the two other elements are not present to be able to know if its subj to NIT or exempt. it is income without.Atty. ► RFC will be liable for NIT. REQ: 1. 2. Q: What if it’s the same airline but different plane? A: GPB does not apply. it is income within hence apply NIT if purchased outside. applies only if all the requirements are present. rule or the Exception? A: It is the general rule because it is under 28 A3 ► GPB is in the nature of FIT. Originating from the Phils.

Francis J. wages. its income w/out. salaries. When a FC establishes branch. Sababan A: Only the aliquot portion of the cost of the ticket corresponding to the leg flown from the Phils to the point of transshipment shall from part of the GPB. Parties: a) local commercial banks b) Foreign bank branch c) Non Residents d) OBU in the Phils e) Other banks under EFCDS FOREIGN CURRENCY LOAN ► 10% FIT 33 . Difference with EFCDS: EFCDS 1.EXEMPT International Shipping ► GPB means gross revenue whether from passenger. Acceptable foreign currency. Currency or both 2. Local Commercial Banks Transactions of Non Residents: 1. Can be a domestic or foreign corporation 3. Lender: OBU’s NOTE: Non resident exempt transactions with OBU’s and EFCDS from SEC.Atty. mail REQ: it must originate from the Phils. or casual gains. What kind of tax is imposed under 28 A5? A: 15% FIT Q: How do you apply the rate? A: multiplied to the total profit applied or earmarked for remittance w/o deductions 1. it is a RFC Q. premiums.Resident Citizen EXCEPT: 1. annuities. it is income w/in From transshipment to final destination. REMITTANCES ► profits based on the total profits applied or earmarked fro remittance remitted by a branch to its head office ► Subj to 15% tax Except: those activities which are registered with PEZA NOTE: Interests.Why? A: NIT because it is RFC Q. Parties: a) local commercial banks b) Foreign bank branch c) Non Residents d) OBU in the Phils. Dividends. cargo. It is in addition to NIT. Royalties including remuneration for technical sevices. Branch Profit Remittance Two ways to receive income (FC) 1. income and capital gains received by a foreign corporation during each taxable year from all sources within shall not be treated as branch profits UNLESS the same are effectively connected with the conduct of its trade or business. Income earner: Non. only acceptable foreign currencies 2. Phil. Subsidiaries NOTE: 1. 28 A5 TAX ON BRANCH PROFITS.Residents 2.regardless of the place of sale or payments of passenger or freight documents Sec28 A(4) OFF SHORE BANKING UNITS OBU’s If: Lender. Q: Is it liable for the whole flight? A: From the Phils to the point of transshipment.Taxation law review notes .OBU Borrower. Rents. emoluments. Exempt if income is derived by the OBU from EFCDS 4. always a foreign corporation (subj to NIT) except #3 3. up to final destination . Branch 2. it is always a FC 2. Exempt if income derived by DC or RFC from EFCDS 4. OBU 2. When a FC establishes DC. profits.

upon recommendation by the Monetary Board to be subject to regular income tax payable by any banks. the HQ do not earn or derive income from the Phils. Marketing Control and sales promotion 6. Training and personal management 7.Pacific Region and other foreign markets. Sababan It applies for branches that are: 1. data processing and communication and business development Rationale: Why liable? Because the claim for exemption of resident airlines shall be minimized SEC. Other depository bank under the EFCDS 34 . research and development services and product development 9. Corporate Finance and Advisory Services 5. One not registered with PEZA MARUBENI CASE F: A branch was established with AG&P. Acts only as supervisory. Business Planning and Coordination 3. Francis J. Branch did negotiations 1. 28 A6b ► Regional Operating HQ are taxable and liable to pay 10% taxable income. thus the same was asking for a refund of tax erroneously paid. Q: Is is subj to FIT? A: NO. 28A7a Interests and Royalties: ► ► 20%FIT Interests under EFCDS= 7 ½ % Income derived under not participate in Sec.Taxation law review notes . the profit remitted is effectively connected with the conduct of its trade or business in the Phils. 28A7b EFCDS SEC. Administration and Planning 2. logistic services 8.Atty. communications. Gen. ► Regional Operating HQ is a branch established in the Phils by a multinational company engaged in any of the services: 1. 2. Income derived from foreign currency transactions with: a) Non Residents b) OBU c) Local commercial bank d) Foreign bank branches e) Other depository bank under the EFCDS ► As a Gen Rule: the above transaction is Exempt EXCEPTION: Income from such transaction as may be specified by the secretary of Finance. 4. SEC. Other OBU in the Phils. technical support and maintenance 10. Interest income from foreign currency loans ► granted by depository bank under said EFCDS to others shall be subject to 10% FIT Exempt if granted to: 1. 22 DD) shall not be subject to tax exempt from income tax if the requisites are present. exempt if petitioner is RFC H: -not correct to pay 15% To be liable for BPRT 1. Q: What are the requisites? A: 1. 2. subsidiary or branches in the Asia. 28 A6a ► Regional or area headquarters (Sec. 2. Sourcing and procurement of Raw materials and components. and 2. there was investment with AG&P Q: Did the petitioner participate with the negotiation? A: NO Q: What did the petitioner pay? A: 15% Branch Profit Remittance Tax (BPRT) 10% Intercorporate Dividends Q: What’s the issue? A: Petitioner maintains that there was overpayment of taxes. It is a RFC 2. coordinating centre for their affiliates.

b) Financing inst owned controlled or enjoying. Approved by MARINA SEC. bond. if the lender is 1. Foreign Govt. Premiums( except reinsurance premiums) 7. SEC 28 B2 Non Resident Cinematographic film owner. COMMISIONER OF INTERNAL REV. and other Equipments. -Mitsubishi to comply with its obligation. I: WON Mitsubishi is a mere agent of Eximbank H: NO. refinancing from foreign govt. The contract between the parties does not contain any direct reference to Exim Bank. 32 B7a Interest on Foreign Loans. B(4) Non Resident Owner or Lessor of Aircraft. ► liable for 4 ½ GIT Citizens or Elements: 1. MITSUBISHI METAL CORP. emoluments 9. Interest 2. annuities 8.RFC= EXEMPT. Rents 4. ( A Japanese Corp. and c) Inter nation or Regional financial inst established by foreign govt.) for the purposes of projected expansion of the productivity capacity of the former’s mines in Cebu. Other fixed and determinable Gains. The bank has nothing SEC 28A7d: DIVIDENDS ► DC. Francis J. applied for a loan from Export.Taxation law review notes . not subj to tax SEC 28 B1 Q: What kind of tax? A: 35% GIT on the ff income 1. Salaries 6. and other domestic securities or from interest on deposits in banks by: a) Foreign govt. Chartered to Filipino Corporations 2. 28 A7c: Capital Gains from Shares of Stocks not Traded in the Stock exchange 5% or 10% as the case maybe INTERCORPORATE derived by a foreign gov’t from investments in the Phils on loans. profits and income. Subsequently Mitsubishi filed a claim for tax credit requesting that the same be used as payment for its existing liabilities despite having executed a waiver and disclaimer of its interest in favor of Atlas earlier on.Import Bank of Japan (Exim Bank) and from consortium of Japanese banks. The status of Eximbank as a government controlled inst became the basis of the claim fro exemption by Mitsubishi for the payment of interest on loans. so that Atlas will be able install a new concentrator for copper production. Royalties 5. vs. stocks. it is strictly between Mitsubishi as creditor and Atlas as the seller of copper. It is the contention of Mitsubishi that it was the mere agent of Exim Bank which is a financing inst owned and controlled by the Japanese Govt. (180 SCRA 214) F: Atlas Mining entered into a Loan and Sales Contract with Mitsubishi Metal Corp. Exempt because it is an exclusion (Sec 32 b7a: income 35 . The contract provides that Mitsibushi will extend a loan to Atlas in the amount 20 M dollar. Pursuant to the contract Atlas paid interst to Mitsubishi where the corresponding 15% tax thereon was withheld and only remitted to the Govt. NRFC liable to 20% FIT 2. Machiniries. ► liable for 7 1/2 % GIT SEC 28 b5a Interest on Foreign Loans ► Must be read with Sec. lessor or distributor ► liable for 25% GIT SEC 28 B3 Non Resident owner or lessor of Vessels chartered by Philippine Nationals. Dividends 3. Sababan » » SEC.Atty.

Atlas and Mitsubishi had reciprocal obligations. Is the payment of 10% FIT correct? . Laws granting exemption from tax are construed strictly against the taxpayer and liberally in favor of the taxing authority. in its independent capacity with Exim bank. 29 IAET Q: What is the rate? A: 10% of the gross income) income (taxable ► FIT 15% imposed on the amount of cash and or prop dividends received from a domestic corporation.No because it was a branch and RFC but still Marubeni was NRFC under the old law which is liable to pay 35%.Taxation law review notes .they belong to different categories The BIR tried to collect 35% because the law is totally silent about the tax credit H: The SC said that the tax should be 15% which applies 2 instances: 1.Atty. Gen rule: 35 % FIT Exception: 15% under the “tax deemed paid rule/ reciprocity rule/ tax sparring rule” JHONSONS CASE 2 Kinds of Categories: 1st : Japan.Mitsubishi in order to fulfill its obligations had to obtain a loan. Germany.35% 2. Q: What is the rate if the law is silent? A: 35% FIT ► The rate will only be 15% if there’s a law recognizing the same but this refers to the case of those belonging to the first category.DC (P&G Phil) and NRFC (P&G US) . SEC. Sababan to do with the sale of copper to Mitsubishi. Francis J.DC declares dividends to NRFC .35% was withheld and remitted to the BIR What did they discover? (after paying) .15% SEC. actual proof of payment not necessary. Phils liable for income within and income without 2nd : countries liable only for income within.they discovered that they are liable only for 15% so they have a refund of 20% 36 . One claiming for refund was not the proper party 2. law is silent because there’s no law because the subj matter is not taxable. law is silent because there is no law15% 4. but SC said liable only to 25% because of the tax treaty ► You cannot refund right away → 15% BPRT and 10% Inter-corporate Dividends tax has different basis In P&G who are involved . law provides but the law is silent15% 3. Income tax is FIT: the withholding agent is the proper party because he is liable to pay said taxes 2. denial anchored on 2 grounds: 1. Foreign law do not provide for tax credit. MARUBENI Case: 2 Issues 1. what is necessary is the law of the domicile of the country providing fro tax credit equal to 20% of the tax deemed paid. There was a showing or proof as to the existence of the “tax deemed paid” rule Q: In 2nd case was there a refund? A: YES. WANDER CASE Q: Who are the parties? A: DC(Wander) and FC (Glaxo). 28 D5 DIVIDENDS: b INTERCORPORATE Q: In the 1st case did the SC allowed the refund? A: NO. US. the SC reversed itself 1. SUBJ TO THE CONDITION: the country where the NRFC is domiciled allows a credit against the tax due from the NRFC taxes deemed paid or deemed to have been paid in the Phils.

if the profits are undistributed the shareholders will not incur liability on taxes with respect to the undistributed profits of the Corp. Francis J. less the deductions and/or personal and additional exemptions.taxable joint. or equipment. Q: What is taxable income? A: SEC.2001( classified as closely held corporations) Q: Is it in the nature of sanction? A: Yes. Sababan ► It is imposed upon the improperly accumulated taxable income of the corporation Q: Applies to what Corp? A: to DC only under RR 2. all undistributed earnings or profits intended or reserved for investments NOTE: the corporations belonging in the 1st group are normally liable but they can show that the accumulation of earnings is justified for reasonable needs of business. 2006 is the grace period. if any. 31 defines taxable income as the pertinent items of gross income specified in this Code. plants. . 2005. they will be liable for the payment of Dividends tax.ventures 7. Banks. allowance for the increase in the accumulation of earnings up to 100% of the paid.held corporations? A: Those corporation at least 50% in value of the outstanding capital stock or at least 50% of the total combined voting power all classes of stock entitled to vote is owned directly. earnings reserved for the definite corporate expansion projects or programs approved by the Board 37 . Earnings required by law or other applicable statutes to be retained. it is imposed to compel corporation to declare dividends. the 3. Now. Insurance companies 3.held corporations 4. You have 1 year to declare after the close of the taxable year. Non. B) Corporations which are exempt whether or not it is for reasonable needs of the business: 1. You will pay on January 2007. they incur no liability and exempt from payments of the same. or indirectly by or for not more than 20 individuals NOTE: Publicly held Corp. will you still be liable? Q: Why? A: because if profits are distributed to the shareholders.up capital of the corporation. 2. General Professional Partnerships 6. Q: If you’re not mentioned to be exempted. authorized for such types of income by this Code or other special law Q: When not liable to pay IAET? A: There are 2 groups of DC exempt from payment of IAET (RR2-2001) A) Corporations failure to declare dividends because of reasonable needs of business ► reasonable needs means are construed to mean immediate needs of the business including reasonable anticipated needs Q: What constitutes reasonable accumulation of the corporation’s earnings? Examples? A: 1. Today is 2006. Publicly. 2005. has more than 20 shareholders Q: What is the time for paying this tax? A: Calendar Year: Jan 25.bank financial intermediaries. Taxable partnerships 5.Atty. acquisition approved by the Board 4.Dec 31. Earnings reserved fro buildings. Enterprises registered with a) PEZA b) Bases Conversion Devt Act of 1992 (RA 9227) c) Special Economic Zone declared by law Q: What is a closely. and other non. Earnings reserved for compliance with any loan agreement or preexisting obligations 5. In case of subsidiaries of foreign corporation.In a way it is in the form of deterrent to the avoidance of tax upon shareholders who are supposed to pay dividends tax on the earnings distributed to them.Taxation law review notes . 6. 2.

2. otherwise. the corporations enumerated are always exempt. the corporations shall not be taxed under this title (tax on income) in respect to income receive by them as such. Assignment: Sec. Labor. as a general rule is not a corporation 4. Artistic or Cultural purposes. 5. ► exemption to the exemption: income of whatever kind and character of the foregoing organizations from: 1. or for the Rehabilitation of Veterans (RCSACR). and cooperative bank without capital stock organized and operated for mutual purpose and without profit. or any specific person. (lodge system: operating world wide) or a mutual old association or a nonstock corporation: a. Francis J. CIR vs. sickness. In addition. shall be subject to tax. 30 27 C and 22B. any of their properties. 3. organizer. Mutual savings bank not having a capital stock represented by shares. Sec 27. Scientific. Section 22B provides that a joint venture is generally taxable unless it has a service contract with the government. Charitable. 4. officer. Thus exemption is unconditional 3. Civil league or organization not organized for profit but operated exclusively for the promotion of social welfare. a generally taxable corporation cannot be joined with the group as generally not taxable corporation. The exemption under Section 30 is not absolute while the exemption under Section 27 C is absolute and without any conditions. or Board of trade. Cemetery (a) company owned and (b) operated exclusively for the benefit of its members. operating for the exclusive benefit of the members such as fraternal organization operating under lodge system. because YMCA was conducting an activity for profit. a beneficiary society. General Professional Partnership is exempt but the exemption is not the same as provided by Section 30. real or personal. 2006 Q: What is the reason for not including the corporations exempt under section 27C and Section 22B under Section 30? A: Because there is an exemption which does not apply to all exempt corporation. YMCA Q: What is the basis of Manila BIR for the imposition of the tax? A: last paragraph of Section 30. Sec 30. What is the requirement? A: 1. F: the CTA and the CA invoked the doctrine laid down in Herrera and Abra Valley 38 . 2. providing for the payment of life. b. it is liable. order or association. Sec 22B GPP. except if it earns income from other business ► Joint Venture w/ service contract w/ government not a corporation. 6. TAKE NOTE: Las Paragraph of Section 30. agricultural or horticultural organization not organized principally for profit. Q: Enumerate the exempt corporations under Section 30. Non-stock corporation or association organized and operated exclusively for Religious. accident or other exclusive benefits to its employees and their dependents. Sababan A: No. no part of its net income or asset shall belong ot or inure to the benefit of any member. any activities conducted for profit ► regardless of the disposition of said income. Business league. 2. 35 August 21.Taxation law review notes . 2006 – Midterms August 14. 1. EXEEMPTIONS FROM TAX ON CORPORATIONS ► Determine the Corporations’ exemptions under Sec. if you invoke adjustments SEC 30.Atty. 7. (a) not organized for profit and (b) no part of the net income of which inures to the benefit of any stock holder or individual. chamber of commerce. organized by employees.

[Sec. Income that are subject to FIT. gov’t educational institution. It speaks of the NIT. less the necessary selling expenses on the basis of the quantity of produce finished by them. Income that are exempt. TAKE NOTE: compensation is included in the ITR if the taxpayer is not liable for NIT.Atty. The section refers only to the payment of NIT. included in the ITR. and petroleum companies. Gross Income derived from the conduct of trade or business or the exercise of a profession. YMCVA is liable to pay income tax applying the last paragraph of Section 30. Income that are considered an exclusion. Francis J. NRFC » they do not pay NIT. if subject to NIT. 32 A? A: it applies to all except: 1. commissions. and 3. NRANETB 2. Sababan case which involves an exemption from the payment of Real property Tax. Section 32 A states “Except when otherwise provided in this title” Q: What are the income that are not included. Thus. 11. but not to income tax on rentals from its property. YMCA Is exempt from the payment of property tax. 32 A (1)] Q: What is compensation? A: all remuneration for services performed by an employee for his employer under an employer-employee relationship. including the rent income of the YMCA from its real prop. salaries. included in the ITR. dues and fees. Farmer’s or other mutual typhoon or fire insurance company. 2. the income of which consists solely of assessment. real or personal. mutual ditch or irrigation company. does it follow that it is automatically included in the GIT? A: No. like when the RC is employed in Multinational. Q: What is the income tax referred to here? 39 . 32 A (2)] Q: What is the income tax here? A: NIT. 3. 2. they pay by way of GIT. H: The SC revised the ruling. Farmer’s. and similar items. wages. 8. Q: When do you not apply Sec. Section 31: TAXABLE INCOME A: NIT. 10. fruit grower’s or like association organized and operated as a sales agent for the purpose of marketing the products of its members and turning back to them the proceeds of sales. [Sec. a non-stock and non profit educational institution. offshore banking. or like organization of a purely local character. [Sec. Gains derived from dealings in property. TAKE NOTE: income of sales agent is exempt. Q: If the is mentioned under Section 32 A. Q: What are included in the Gross income? A: 1. not subject to NIT? A: 1. 32 A (3)] CHAPTER VI: COMPUTATION OF GROSS INCOME SECTION 32: GROSS INCOME Q: What is the tax treatment? Are these taxable income? Are these included in the gross income? Is it included in the ITR? Is it subject to NIT? A: Sec. Compensation for services in whatever form paid including but nor limited to fees. 9. Q: Is there an instance where the salaries of a RC is not included in the ITR? A: Yes.Taxation law review notes . 32 A answers the questions. if the salary is subject to FIT. shall be subject to tax. collected from members for the sole purpose of meeting its expenses. The tax code specifically mandates that the income of exempt organizations (under section 30) from any of their properties.

it is a capital asset. estate. Prizes – derived from sources within and over 10. [Sec. DC individual taxpayer = FIT 2. winnings: PCSO and Lotto winnings. 32 A (9)] Q: What kind of prizes and winnings? A: a. without or abroad. Dividends. do you include this in the ITR? A: it depends a. not included. TAKE NOTE: 1. the buyer accomplishes the ITR. Thus. (included in the ITR) 9. Francis J. 32 A (5)] ► subject to NIT.00 2. Withholding agent accomplish the forms → subject to FIT if the following elements are present: 1. – subject to NIT. those that are not considered as an exclusion. 4. like when the real prop. those that does not constitute passive income. Q: Who are the taxpayers? A: Liable from income w/in and w/out and the rest are exempt. 8. Exempt: a. 2. if subject to FIT. Q: Bank interest from Solid Bank. 32 A (8)] Q: What kind of annuities? A: annuities which are not exempt from tax are included in the computation of the gross income. Thus. Royalties. is an ordinary asset or when it is capital asset if the taxpayer is RFC. [Sec.: and 3.) ► if the elements are present. the withholding agent will be responsible for this. Sababan Q: Did the law distinguished? A: No. and b. Passive Income 1. if subject to NIT. Q: Income form the sale of property. prizes: 40 . 5. → Elements are not present. DC 7. because it is included or considered an income within. Bank interest from sources. b. Thus. Thus. is it included in the ITR? A: No. DC – NRFC = FWT ► only dividends issued by a FC to an individual taxpayer (RC OR RA) is included in the computation of the gross income.Atty. Annuities. subject to FIT. RC 2. 1. included in the ITR. Royalties derived from income without. Sale of shares of stock (personal prop. the law did not distinguished between real and personal property. exempt. Winnings – derived from sources within. 32 A (4)] Q: What interest is being referred to here? A: interest which is included in the computation of gross income is interest earned from lending money and interest from bank deposit which does not constitute passive income. Thus not included in the ITR. 32 A (6)] Q: What is being referred to here? A: royalties which does not constitute passive income. TAKE NOTE: 1. interest. 32 A (7)] Q: What kind of dividends? A: one that does not constitute a passive income. included in the ITR. Prizes and Winnings [Sec. [Sec. not included in the ITR. Sale of real property 2. Rents. located in the Phil. 6. it is not included in the ITR. included in the ITR. TAKE NOTE: R-R 17-2003 ► Real property sale subject to FWT. [Sec. [Sec. DC. trust. b.Taxation law review notes . thus subject to FIT. DC – DC & RFC = EXEMPT 3. sold by individual.000.

Taxation law review notes - Atty. Francis J. Sababan ► those primarily for recognition of (1)religious, (2)charitable, (3)scientific, (4)educational, (5)artistic, (6)literary, (7)civic achievement are exempt PROVIDED: 1. the recipient was selected without any action on his part to enter the contest or proceedings; and 2. the recipient is not required to render substantial future services as a condition to receiving the prize or award. ► prizes and awards granted to athletes are also exempted provided: 1. local or international sports competition or tournament; 2. held in the Philippines or abroad; and 3. sanctioned by the national sports association. Q: When is a prize subject to NIT? A: 1. when derived from income without; 2. when less than 10,000.00; 3. when the income earner is a DC or RC. Q: When is winning subject to NIT? A: 1. When derived from income without; 2. when the income earner is a DC or RC. 10. Pensions [Sec. 32 A (10)] Q: What kind of pension? A: Included in the gross income if not exempt » never subject to fit (?) 11. Partner’s distributive share from the net income of the general professional partnership (GPP). Q: What is being referred to? A: GPP exempt from payment of corporate income tax ► shares of partners subject to NIT – Sec. 26 SEC 32 B EXCLUSIONS FROM GROSS INCOME Q: What do you mean by exclusions? Are these exempt from income tax? A: these are not included in the gross income, THUS, exempt. TAKE NOTE: Exemptions, exclusions, deductions, have the same characteristics → all tax do not apply. 1. Life insurance [Sec. 31 B (1)] Q: What is the requirement? A: only one requirement for exemption: that the proceeds of the life insurance be payable upon the death of the insured. Q: Does it matter who the beneficiary is or paid in a lump sun or single sum? A: No. it does not matter. Exception: amounts held by the insurer under an agreement to pay interest thereon, the interest payment shall be included in the gross income. 2. Amount received by insured as return of premium [Sec. 32 B (2)] Q: if the insurance is payable within a certain time, say 10 years and thereafter the insured did not die, how much will be excluded? A: only the amount received by the insured as a return of the premiums. Ex. 1 M – 100 thousand = capital It is exempt (100K) 900K is taxable. Q: Why is it excluded? A: because the amount received merely represents a return of capital. Q: is this subject to Estate Tax under Sec. 85 E? do we have the same requirement? A: no, the requirement for exemption is not the same under Section 85 E. 3. Proceeds of life insurance: decedent insured himself, inclusion or exclusion will depend on who the beneficiary is. a. the beneficiary is the estate. » subject to Estate tax, included in the gross estate regardless of whether or not the designation of the beneficiary is revocable or irrevocable. b. the beneficiary is a third person other than the estate.

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Taxation law review notes - Atty. Francis J. Sababan b.1 Revocable Designation → subject to estate tax, included in the gross estate. Reason: because of the insured’s power to modify or change the beneficiary. b.2 Irrevocable Designation → not subject to Estate tax, not included in the gross estate. Reason: the insured loses the power to control, modify and change the beneficiary. Q: Is it subject to VAT? A: 1. Non-life insurance – yes, subject to VAT under 108 (A). 2. Life insurance – NO, subject to percentage tax under Sec. 123 of the Tax Code. 4. Gifts, Bequest and Devises [Sec. 32 B (3)] Q: Why is the donee exempt from income tax? A: Because the law classify it as an exclusion, not important to know whether property is real or personal. What is exempted is the “value of property acquired by gift, bequest or devise” TAKE NOTE: A. GIFTS are excluded because they are subject to donor’s tax. B. BEQUEST and DEVISE are excluded because they are subject to ESTATE tax. Q: what is included in the gross income? A: income from such property. ► gift, bequest, devise or descent of income from any property in case of transfers of divided interest. 5. Compensation for injuries sickness [Sec. 32 B (4)] or A: The term injury includes death, even if not injured, if the person dies this will be available. Q: when will the damages recovered be exempt? A: General Rule: all damages awarded are tax exempt. Exception: damages representing loss of income. Q: Why is it considered an exclusion? A: because this is just an indemnification for the injuries or damages suffered. 6. Income exempt under a treaty [Sec. 32 B (5)] Q: What is excluded? A: income of any kind required by treaty binding upon the Phil. Government. 7. Retirement benefits, pensions, gratuities [Sec. 32 B (6)] Q: Why do we need to distinguish retirement pay, separation pay and terminal leave pay? A: because they have different requirements for exemption. Q: What is retirement pay? A: the sum of money received upon reaching the maximum age of employment. a. Under RA4917 (with Retirement Plan) 1. the private benefit plan is approved by the BIR (RR2-98); 2. the retiring official or employee has been in the service of the same employer for the last 10 years; 3. he is at least 50 years old at the time of retirement; and 4. the official or employee avails himself/herself of the benefit only once. b. Under RA7641 (without retirement plan) 1. the retiring official employee is at least 60 years old but not more than 65 years old; 2. the employee or official must have served the company for at least 5 years; » entitled to 15 days salary and ½ of the 13th month pay for every year of service.

Q: is this the same as those provided under the workmen’s compensation act (wca)? A: YES. There are 3 groups: a. Health or accident insurance or those under workmen’s compensation. b. personal injuries and sickness; and c. Damages to prevent injuries and sickness. Q: What does injury include?

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Taxation law review notes - Atty. Francis J. Sababan TAKE NOTE: the retirement benefits under RA4917 and RA7641 are exempt from income tax provided the requirements are present. SEC. 32 B(6)(c) ► retirement benefits given by foreign government, foreign corporation, public as well as private to RC, NRC, RA residing permanently in the Philippines - exempt without further qualifications – automatic exclusions. SEC. 32 B(6)(d,e,f) ► retirement benefits given by the Philippine Gov’t through the GSIS, SSS and PVAO are exempt without further qualifications = automatic exclusions. August 21, 2006. - midterms 6-8 pm until sec 32 B(6) NIRC. August 28, 2006. ANSWERS = MIDTERMS ► Gross Income include both capital and ordinary gains, Sec. 31 says gross incomedeductions, that which is ordinary loss. - may be deducted from capital gains and ordinary gains. Q: What is separation pay? A: on given when one is terminated from the service because of (1) illness, (2)death, (3) physical incapacity or injury, or (4) causes beyond the control of the employee. Q: Are there any requirement for separation pay granted by foreign gov’t or corp? A: None, the separation pay granted by the aforementioned institutions are exempt without further qualifications (“other similar benefits”). Q: is separation pay an exclusion, therefore, exempt? A: No. GENERAL RULE: Separation pay not exempt (?) Exception: 1. Automatic exclusions, thus exempt if due to: a. illness b. death c. physical incapacity or injury. 2. Conditional exclusion a. causes beyond the control of the employee- excluded b. within employee’s control – included. Examples: 1. registration – CBA provides separation pay, within the control = included. 2. installation of labor saving devises or bankruptcy – beyond the control = excluded. Q: What is terminal leave pay? A: the accumulated vacation leave and sick leave benefits converted to cash or money to be given either every year or upon retirement or separation. Terminal Leave Pay granted upon retirement or separation: » uder PD220, TLP in the Gov’t or in the Private Sector shall be exempt from income tax if given or granted upon retirement or separation. TLP granted on a yearly basis: 1. employee in the private sector: a. accumulated sick leave – subject to income tax. b. Accumulated vacation leave: if more than 10 days (meaning 11 pataas) – subject to income tax; »If 10 days or less – exempt. 2. Gov’t Employee: » governing law: EO 291 of Pres. Estrada, RMC 16-2000. Rule: Gov’t workers (both officers or nonofficers) granted TLP on a yearly basis → exempt from income tax. → there is no qualification as to vacation or sick leave. ► Take Note of 3 cases. » be reminded of EO 291, Sec. 2. 78.2 par. 97, RR2-98, RR16-200 (3). Case of Zialcita ► retired from DOJ, contention: TLP should be exempt from income tax pursuant to the old law. SC: on a different ground – TLP is exempt because it is similar to Retirement pay, thus

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COMMISSIONER v. exclusion c. exercise of any essential gov’t function. Modified RR2-98: » TLP will only apply to private sectors » if granted on a yearly basis – may be subject to tax: VACATION LEAVE 1. EXAMPLES of exclusions: a. Brunei Gov’t earns interest by depositing money in Makati Bank – Exclusion. Miscellaneous items (Sec. Sababan exempt but the ruling’s application limited only to DOJ employees. TLP is exempt. educational. of Finance. Francis J. exercise of public utility b. 32B 7 d) 1. bonds d.Stock dividends to 3.Taxation law review notes . RR2-98. local or int’l competitions. Q: Who can increase the 30. financing institutions owned. and 3. subject to FIT 20%. artistic. investments in: a. 32B 7 e) Q: Do you include Christmas bonus in your ITR? A: No. 32 B (7) (a) income derived by foreign Gov’t [Sec. EO291 (SEPT. (a)(7) » JAN. PD220: Exemption applies to both private and public sectors(?) it does not matter if TLP is vacation or sick leave. MORE THAN 10 DAYS = TAXABLE 2. 3. 32 B (7) (b) a. SMC. E. 2. controlled or enjoying re-financing from foreign gov’ts. 4. interest from deposits in Banks in the Philippines.78.1 par. the recipient was not required to render substantial future services as a condition to receive the prize or award. scientific. charitable. Q: Who are income earners? A: 44 .000 limit? A: The Sec. 1.Castañeda –DFA officer in Phil. Q: Does the rule or decision applies to Gov’t officials only? A: No. because the law says 13th month pay and “other benefits”/”similar benefits” – xmas bonus is included in the category. literary or civic achievements: 1. Embassy in England. is 1. 13th month pay and other benefits (Sec. 32 B 7 c) » primarily for religious. b. D. 2. LESS THAN 10 DAYS = EXEMPT 8. Income derived by the Gov’t or its political subdivisions (Sec. CASTAÑEDA . other domestic securities 2. stocks c. sanctioned by the nat’l sports associations. 32 B (7) (a)] Q: What kind of income? A: 1. foreign government 2. Ruling applies to DFA officers. 2. held here or abroad. granted to athletes. int’l or regional financial institutions established by foreign gov’ts (established in the Philippines) TAKE NOTE: if plain foreign corp. 2. recipient was selected without any action on his part to enter the contest or proceedings.. Q: Applicable to whom? A: Borromeo case: ► Same as the Zialcita case Issues: WON the TLP is subject to income tax and WON COLA and RATA are included? SC: RULED TLP is Exempt! Modified: the rule applies not only to DOJ officers but also to CSC commissioners. 1998 – the rule applies to both private and public sectors. loans b.Atty. 2000) » Officer in gov’t receiving TLP is always exempt whether or not vacation or sick leave is granted.. Brunei Gov’t. Sec. » accruing to the gov’t. prizes and awards in sports (Sec. d prizes and awards (Sec.

►the corporation claimed the bonus as a deduction. GSIS. no effort or services actually rendered by them because the sale was made through a broker. 34 A EXPENSES 1. Travel must be in pursuit of business. 34 A. . all you have to prove is that it is incurred during the taxable year. they can claim a deduction for expenses incurred within the Philippines. REASON: Capital loss has no connection to the trade or business. The profit was in turn given to the workers as special bonus. You need to prove that it is an ordinary and necessary expense. debentures.Sec. For those enumerated under A. gov’t. they can claim deduction for expenses incurred within and without. H. Francis J. ► for taxpayers who are liable only for income within.for other forms of compensation. ISSUE: Should the deduction be allowed? H: The SC did not allow the deduction. Calendar year – a period of 12 months beginning on January and ending on December. 32 B 7 g) Q: Why 5 years? A: certificate of indebtedness is similar to Bank Interest in a long term deposit. G. 2. and the corporation have a land sold through a broker. Q: Is there a travel expense which was not in pursuit of business? 45 . 32 B 7 g is similar or the same as 24 B in long term deposit. Sababan 1. (Sec. Otherwise.related to trade or business. -creditable withholding tax is an exclusionmust be deducted first from the GI before you compute the NIT. Sec.Taxation law review notes . if it falls under the fiscal year and all the elements are present. Medicare and other contributions (Sec. TAKE NOTE: ► for taxpayers liable for income within and without (RC & DC)). for other forms of compensation. . Expenses) Q: Did the law define what is reasonable? A: No. Travel expense while away from home. Private institutions. you are including in the GI something that is excluded from the same. Q: Business expense incurred in February 2006. it must be made or given for services actually rendered. 32 B 7 h) 1. 12. 32 B 7 f) ► must be deducted from the GI not NIT because it is an exclusion. it is possible or it is possible if fiscal year is employed. F. For those business expenses not enumerated under A. or other Certificate of indebtedness. SSS. ►in this case. 2007 (Sec. is it possible to include it for April 2006? A: yes. it was proven that the sale was not made by the employees. for salaries and wages all that is required by law is for it to be reasonable. trade or profession. 2. Feb. What is the requirement? A: 1. Fiscal Year – means an accounting period of 12 months ending on the last day of any month other than December. there must be services actually rendered. Gains from the Sale of bonds. ►there was substantial profits gained from the sale of a land which was sold by a broker. 2. Gains from redemption of shares in mutual fund (Sec.Atty. ► Q: Reasonable Travel Expenses. . and 2. AGUINLDO Case F: involves a corporation engaged in selling fish nets.

Q: can you claim it under Sec. taxpayer has not taken any title or no equity other than a lessor. those which are considered as fringe benefits (FB). and operation of the trade (DOM). what is the requirement? A: 1. public policy or public order. 34 A (2) BUSINESS EXPENSE vs. can be claimed for one year only. REQUIREMENTS FOR REDISCOUNTING OF PAPERS: Q: Why only private educational institution is mentioned and no other taxpayers? A: it refers to section 27 for Private Educational Institution given to the educational institution. kickbacks will not pass the requirement of (i) ordinary and (ii) necessary hence not deductible EXPENSES ALLOWABLE TO EDUCATIONAL INSTITUTION PRIVATE BUSINESS EXPENSE 1. business or possession of the property. good customs. REDISCOUNTING OF PAPERS : (Sec. Q: Reasonable allowance for entertainment. required as a condition for the continued use or possession. Q: How about bribe. ►interest on debt . ALLOWANCE FOR DEPRECIATION 46 . it cannot accommodate all of the expenses incurred. 34 A (1) (a)(i) last paragraph. expenses for foreign travel is considered a FB only if it is not in pursuit of the trade or business. you can claim it under Sec. No carry-over 2. morals. Q: Reasonable Allowances for rentals for meralco bills. Not contrary to law.Taxation law review notes . 2. 34 B 2 a) ►a borrower or taxpayer can claim the interest paid in advance as itemized deduction when he filed his income tax return (ITR) depending on whether or not the principal obligation has been paid. you can claim it for a longer period depending on the life span of the property. for the purpose of the trade.when one borrows money to finance his business interest in connection with the taxpayer’s profession trade or business. connected with the development. ALLOWANCE FOR DEPRECIATION 1. amusement and recreation expenses. if the entire amount or entire principal obligation has been paid – the entire amount of interest can be claimed as itemized deduction. GENERAL RULE: 36 A (2) and 36 A (3) expenditures for capital outlays not deductible as business expense EXCEPTION: Private Educ. Sababan A: yes. management. if the amount of capital outlay is substantial. • taxpayer’s allowable deduction for interest expense shall be deducted by an amount equal to 42% (RR 102000) of the interest income subject to FIT. 3. 34 A (1)(a) (ii)? A: No.Atty. if only ½ of the obligation had been paid. if no payment had been paid on the principal obligation. 2. There is carry over 2. Q: What kind of interest is this? A: interest on loan. kickbacks. 1. Q: Who claims this deduction? A: the debtor claims this deduction. and 3. Francis J. requirements? A: 1. then the entire amount of ½ of that interest can be claimed as a deduction. and other similar payments A: even without this provisions. Does not exceed the limits or ceiling set by the Secretary of Finance. it can accommodate all of the expenses incurred. 2. the advance interest paid cannot be claimed as a deduction on the years that it was paid. 3. Institution can claim it under Sec. 3.

it should be deducted from the gross income. or 34 C 1&2 b. if claimed as a tax credit. depreciation (as capital expenditure?) Q: What is this interest income? A: the money borrowed was deposited in a bank so that it will warn interest.00..Atty. directly or indirectly. • No deduction shall be allowed in respect to the following interest: profession can be claimed a an itemize deduction… a. Q: What if half-brother? A: not allowed to claim deduction for interest. 34 C TAXES: REQUISITES: 1. an individual and a corp. or b. 20% of 1M is Php200.000 but you cannot claim this whole amount as a deduction. 2 corp. business or profession of the tax payer. a deduction. can be claimed as: a. more than 50% in advance of the outstanding stock of which is owned directly or indirectly by or for such individual.Taxation law review notes . Sababan 1. or f. more than 50% in value of the outstanding stock of each of which is owned. taxes must paid or incurred within the taxable year 2. on interest. OPTIONAL TREATMENT OF INTEREST EXPENSE: 1. 42% (RR) of 10. the fiduciary of a trust and the fiduciary of another trust if the same person is a grantor with respect to each trust.Discount of senior citizens SC: discount claimed by senior citizens shall create a tax credit and must be deducted at the bottom of the formula. business or exercise of 47 . a fiduciary of trust and a beneficiary of such trust. tax credit 34 C 3&7 Q: Where should it be deducted? A: 1. 2. TAKE NOTE: interest incurred from the exploration of petroleum refers not just in interest incurred on loan of money but also interest incurred for installment payments. 2. ►tax deduction is allowed if the taxes were paid or incurred within the taxable year and it must be connected to the trade. d. (RR132000) ILLUSTRATION: 1. 36 (B): a. 4. when you deposited the 1M in the bank. Francis J. Q: What is a tax deduction? Example? A: example is business tax. if within the taxable year an individual taxpayer reporting income on the cash basis incurs an indebtedness on which an interest is paid in advance or through discount or otherwise. 3. c.. member of a family b. e. if claimed as a deduction. interest incurred to acquire property used in trade. by or for the same individual.000. Php200K-4. if both taxpayer and the person to whom the payments has been made or is to be made are persons specified under Sec. loan of 1M from a bank with an interest of 20% 2. 3.200= Php195. Q: Who are entitled to claim it? 1. individual taxpayer reporting income on a cash basis. it earned a bank interest subject to FIT worth Php10.800/ this is the amount you can claim as a deduction. bet. it should be deducted from the Net Income Tax due (bottom of the formula) MERCURY DRUG CASE .200 (RR 9337) 5. the grantor and a fiduciary of any trust. bet. Q: Who are not allowed to claim interest under sec 36 B? A: interest incurred between related parties. incurred within the taxable year. bet. bet. Q: Who are related parties? A: individuals and corporations. 2. it must be incurred in connection with trade or business. Bet.000 = 4.

►taxes incurred not related to the trade or business. 3. subject to limitations. can you claim as a deduction the whole 100K? what is the formula? ►same foreign foreign foreign procedure for (1) income tax paid to country. you pay NIT to US. Q: Suppose you are a RC. or b. RA 6452 – selling goods and commodities to senior citizens. Q: Who are not allowed to claim deductions? A: Under 34 C (3) . generally. claim it as tax credit. 2. Income tax. and (3) Donor’s tax paid to country. 2. Q: When is taxes not allowed as a deduction? A: Sec. 2. Input tax on Vat 4.Atty. Income tax imposed by authority of any foreign country. taxes assessed against local benefits of a kind tending to increase the value of the property. Q: What are the other tax credit under the code? A: 1.Taxation law review notes . 3. Taxes that had been allowed as deduction but are later in refunded should be treated as part of the gross income during the year that it is received (34 1 last paragraph) Q: Which would you choose? Tax credit or deduction? A: tax credit because it is deducted from the taxable income while deductions are deducted from the GI. Q: suppose you paid the 100K NIT to US. 2. you can claim under Sec. and 4. Estate and Donor’ tax. you have the option to: a. (2) estate tax paid to country. income tax paid to foreign country. Q: Who are allowed to claim it? A: RC and DC only. claim it as a deduction ►law gives you this privilege. (Tax credit only for NIT) Q: What is a tax credit? A: refers to the taxpayer’s right to deduct from the income tax due the amount of tax the taxpayer paid to foreign country. NRAE and NFC – allowed deduction only if and to the extent that they are connected with income from sources within the Phils. FORMULA: GI-DEDUCTION = NET INCOME x RATE = TAXABLE NET INCOME – TAX CREDIT) 34 D LOSSES A: Formula: STEP 1 GI from sources w/in NIT: _____________________ GI from entire world STEP 2 Quotient x RATE = amount w/c can be claimed as a deduction A: you cannot claim the whole 100K. you can claim it as tax credit. Tax credit certificate. Q: What is the tax credit being referred to under 34 C (3)? A: credit against taxes for taxes of foreign country.NRC. NRA. Sababan A: those liable to pay NIT. you can only claim the product of the quotient times the rate TAKE NOTE: deduct at the bottom of the formula ( sa computation ng GI) 48 . the discount claimed is treated as a tax credit. Creditable w/holding tax system under NIT 5. and N/RFC TAKE NOTE: 1. Francis J. 34 C (1) b ►if the taxpayer did not signify in his return his intention to avail himself of the benefit of tax credit for taxes paid to foreign country. will you be able to claim it as a tax deduction? A: 1. 34 C (1) 1.

2. bus. can only be deducted from capital gains. However. you cannot deduct the entire amount of loss from your income for that year so the excess may be deducted for the taxable year following the loss. losses incurred or connected with T or B. Francis J. for mines other than oil and gas well. CAPITAL LOSS – NET CAPITAL LOSS CARRY OVER ( # 2 above) NET LOSS OVER CAPITAL CARRYNET OPERATING LOSS CARRYOVER 1.Atty. 1. can be deducted from capital gains and/or ordinary gains. Sababan Q: Is always a requirement that it is incurred in pursuit of trade. however. incurred in any of the first 10 years of operation. or profession? A: No. Q: What is the requirement? A: 1. NET OPERATING LOSS CARRY REQUIREMENTS: 1. KINDS OF LOSSES AND THEIR CARRYOVERS: A. or profession. taxpayer may be an individual or corp.b. 34 D(1) provides for 2 kinds of losses: a. B. Section 39 D 3 Net Operating Loss Carry-Over. Q: How many carry-overs do we have under the Code? A: 3. Namely: 1. it is also found under section 86A (1) (e) which also pertains to deductions available under the estate tax law. if the loss arises from fire. not previously off-set as a deduction from the GI 3. 49 . 3. may be claimed as deduction under estate tax return provided that the same are not claimed as itemized deduction of losses under Section 34B.Net operating loss of the business or enterprise incurred w/in the taxable year 2. 4. bus. shipwrecks or other casualties or from robbery. Not compensated for by insurance or other forms of indemnity. Not claimed as a deduction for estate tax purposes. Business losses not previously offset as a deduction from the GI carried over as such for the next 3 consecutive years. storms. 3. 34 D # when you can claim the loss from both capital and ordinary loss? A: if the loss exceeds the income for the taxable year. theft or embezzlement (arising from natural calamity). 2. 2. Sec. carry-over as loss from sale of capital asset in the next succeeding year 4. involves capital loss net 3.p.Taxation law review notes . b. property connected with t. incurred in pursuit of trade. ORDINARY LOSS – NOLCO ( #3 above) Q: Why is there a need for a carry over under Sec. ►Losses within six (6) months after the death of the decedent can be claimed as itemized deduction of losses under Section 34B. net operating loss w/out the benefit incentives provided by law. Loss actually sustained during the taxable year 2. Section 27 E (32) Carry forward of excess minimum Tax 2. Q: This is your itemized deduction which can be claimed as a deduction from? A: Gross income TAKE NOTE: ► The itemized deduction of losses. 1. carried over as a deduction from the GI for the next 3 consecutive taxable years immediately following the year of such loss. taxpayers is an individual only not corporation. is not confined to section 34B. Q: Can the period be extended? A: yes. Section 39 D Net Capital Loss Carryover 3.

ABANDONMENT LOSSES 1.money lender Q: What year can it be claimed? A: can be claimed in the year it was actually sit ascertained to be worthless and charged off. other than a Bank or trust company incorporated under Phil. arising from money lent or from uncollectible amounts of income from goods sold and services rendered. no substantial change in the ownership of the business or enterprise. Sababan 3. TAKE NOTE: 1. all you have to do is prove that you did exert effort to claim or recover the same. Q: What is the limit? A: 75% of the nominal value of outstanding shares is held by or on behalf of the same persons/ corporation ► individual no problem. CA ► bad debts can only be claimed pursuant to a contract of loan . taxpayer. if equipment or facilities are restored into service in the year of resumption or restoration and shall amortized or depreciated. considered as a loss from the sale of capital assets on the last day of such taxable year if 50 .no bad debts for loss of instruments. 2. if abandoned well is reentered and production is resumed. Q: What is the Tax benefit rule? A: Last Par.Atty. ascertained to be worthless and charged off within the taxable year 2. mered into between parties mentioned under Section 36 (B) namely. Laws 4. a producing well is subsequently abandoned: ►unamortized cost and undepreciated cost of equipment directly used therein shall be allowed as a deduction in the years it was abandoned. creditor b. ► all (1) accumulated exploration and (2) development expenditures pertaining thereto shall be allowed as a deduction. carried over as a deduction from the GI for the next 5 years following such loss. 2. 4. substantial part of business is the receipt of deposit 5. 34 E (1): recovery of bad debts previously allowed as deduction in the preceding year shall be included as part of the gross income in the year of recovery to the extent of the income tax benefits of said deduction. of Sec. debts not incurred in connection with the trade. meaning cancelled in the books of account. Q: What cannot be deducted as bad debts? A: 1.Taxation law review notes . or 2. a) between members of the family b) between an individual who owns more than 30% of outstanding capital stock of a corporation and that corporation c) between two (2) corporations more that 50% of the outstanding capital stock of which is owned by or for the same individual d) between a grantor and fiduciary of any trust e) between two (2) fiduciaries of two (2) trusts who has the same grantor f) between a fiduciary of a trust and above fiduciary of such trust SECURITIES BECOMING WORTHLESS 1. Q: Do you need to file an action before you can claim? A: No. transactions. Francis J. Q: What is a Bad Debt? A: Bad debts shall refer to those debts resulting from the worthlessness or incollectibility in whole or in part of amounts due the taxpayer by others. CHINA BANK VS. Q: Who claims it? A: a. capital asset 3. contract area where petroleum operations are undertaken is partially or wholly abandoned. business and profession of taxpayer. problem lies with corporations or enterprises.

ordinary wear and tear of natural resources TAKE NOTE: ►Equipment used in mining operation is deductible in depreciation Q: Method for computing depletion? 51 . useful life of properties used or related to production of petroleum shall be ten (10) years or such shorter life as may be permitted by the Commissioner. under any of the following methods: 1. if the expected life is ten (10) years or less – normal rate of depreciation b.any other method which may be prescribed by the Secretary of Finance upon recommendation of the Commissioner DEPRECIATION OF PROPERTIES USED IN PETROLEUM OPERATIONS 1. but not limited to. Francis J. 4.involves property 2.Straight-line method 2. an allowance computed in accordance with rules and regulations prescribed by the Secretary of Finance. for the exhaustion. and useful life is only five (5) years DEPRECIATION OF PROPERTIES USED IN MINING OPERATIONS ALLOWANCE FOR DEPRECIATION: 1. wear and tear. property is located in the Philippines 34 G DEPLETION OF OIL and GAS WELLS and MINES ► only deduction which is a not self executing deduction Q: What is depletion? A: the exhaustion wear and tear of natural resources as in mines. including reasonable allowance for obsolescence 3. oil.Atty. involves natural resources 2. and gas wells ►the natural resources called “wasting assets” DEPRECIATION vs DEPLETION 1. depreciation deduction must be reasonable 2. Personal Property REQUISITES: 1. upon recommendation of the Commissioner. for property not used directly in the production of petroleum (1) depreciated under the straight line method.Taxation law review notes . and 4. or non-use in the business. Sababan 34 F DEPRECIATION Q: What is depreciation? A: It is the gradual dimension in the service or useful value of tangible property due from exhaustion.Declining balance method 3. arising out of its use or employment 2. if the expected life is more than ten (10) years – depreciated over any number of years between five (5) years and the expected life. contractor notifies the Commissioner at the beginning of the depreciation period which depreciation rate shall be used. ordinary wear and tear of equipments 1. Real property except parcel of land 2. properties directly related to production of petroleum 2. Q: What kind of property is involved? A: 1. wear and tear and normal obsolescence. allowed under (1) straight line or (2) declining balance method 3.Sum-of-the-year-digital method.all properties used in mining operations other than petroleum operations shall be computed as follows: a. depreciation is allowed as a deduction from 61. DEPRECIATION DEDUCTIBLE BY NRAETB OR RFC ► reasonable allowance for the deterioration of property 1. REQUIREMENTS: 1. and 2. trade or profession 3. property used in the trade of business Q: What do you mean by “reasonable allowance”? A: it shall include.

partial deduction ►10% of taxable income in case of an individual ►5% of taxable income in case of corporations 2.Government of the Philippines or any of its agencies or any political subdivision thereof exclusively for public purpose 2. 52 . lion. can he claim a deduction? A: No. Q: If the Donor is a pure compensation income earner and he donates P100. scientific. A made a cash donation of P1M. what is the requirement? A: it must be made exclusively for public purposes Q: What if the Donee is a province? A: there must be a qualification that it is for public purpose Q: If the Donee is a Domestic Corporation. what is the requirement? A: no part of its income inures to the benefit of any private shareholder or individual Q: What are those contributions which can be deductible in full? A: 1.Donations to certain Foreign Institutions or International Organizations ►in compliance with agreement. cultural or educational purposes or for the rehabilitation of veterans. treaties or commitment entered into by the Philippine Government and such donees 3. Q: What if the Donee is not one of those mentioned under the law. or to social welfare institution. can he claim it as a deduction? A: No. organized and operated exclusively for scientific. pure compensation income earner can only claim a deduction under Sec 34 M Q: If Donee is the Philippine Government. character building and youth and sport development. TAKE NOTE: Donee is never an individual. Accredited Domestic corporation or association organized and operated exclusively for religions. non profit domestic corporation REQUIREMENTS: 1. educational. or to non government organization and no part of its net income inures to the benefit of any private stock holder or individual Q: How many kinds of deduction? A: Two (2) kinds: 1. How much can he claim as a deduction? A: First determine the taxable income of Mr A since he is an individual.Taxation law review notes . full /total deduction Q: Which of the two kinds is the General Rule? A: General Rule: Partial deduction Exception: Total /Full deduction Q: Suppose Mr. Sababan A: cost depletion method Q: to whom allowed? A: only mining entities owning economic interest in mineral deposits ►Economic interest: capital investments in mineral deposits 34H CHARITABLE & OTHER CONTRIBUTIONS TAKE NOTE: 1.Donations to Accredited Non government organizations Non government organization. charitable. research. used in undertaking priority activities of NEDA 2. youth and sports development.Donations to the Government – no conflict with partial (different requirement) ►Partial donated for exclusively public purposes ►Full. Francis J.unique because deducted from the taxable net income and not from the gross income ►second step of the formula deduction Q: Who is claiming the deduction? A: the donor Q: Who are the Donees? A: 1.Atty. he can only deduct 10% of his taxable income.000 to the church.

Any expenditure paid or incurred for the purpose of undermining the existence. Q: Requisites? A: 1. and 3. cultural or charitable purposes or a combination thereof 2. extent or quality of any deposit of one or other mineral including oil or gas. uses the contributions directly for the active conduct of the activities constituting the purpose or function for which it is organized and operated 4. incurred in connection with trade. not chargeable to capital account. b. To remedy this. LIMITATION ON DEDUCTION Q: When not deductible? A: 1. chargeable to capital account but not chargeable to property of a character which is subject to depreciation or depletion Q: How to compute taxable income: A: deferred expenses shall be allowed as deduction ratably distributed over a period of not less than 10 months as may be elected by the taxpayer (beginning with the month the taxpayer first expenditures. REQUISITES: ►tax payer may treat research and development expenditures as ordinary and necessary expenses provided: 1. 53 . Q: Treated as such when? A: during the taxable year it is paid or incurred AMORTIZATION OF CERTAIN RESEARCH AND DEVELOPMENT EXPENDITURES ►at the election of the taxpayer. the assets of which would be distributed to: a) another non profit domestic corporation organized for similar purpose or purposes b) to the state for public purpose c) distributed by the court to another organization to be used in such a manner which would accomplish the general purpose for within the dissolve organization was organized 34I RESEARCH AND DEVELOPMENT ►In the old law. Sababan health. it is paid or incurred during the taxable year 2.Taxation law review notes .) realizes benefits from ►the election or option may be exercised for any taxable year after the effectivity of the code but not later than the time prescribed by law for filing the return for such taxable year. no part of the net income of which inures to the benefit of any private individual 3. What is a Pension Trust contribution? A: a deduction applicable only to employer on account of its contribution to a private pension plan for the benefit of its employee deduction is purely business in character. the following shall or may be treated as deferred expenses: a.the employer must have established a pension or retirement plan to provide for the payment or reasonable pension of his employees 2. pension plan must be reasonable and actually sound. location. ► not for mineral exploration 34 J PENSION TRUST Q: Claimed by Whom? A: the employer Q. business or profession. social welfare.Any expenditure for the (1) acquisition or improvement of land or (2) for the improvement of property to be used in connection with research and development of a character which is subject to depreciation and depletion and office site 2.Atty. this is not allowed as a deduction. not treated as expenses under par 1 and c. business or profession. in case of dissolution. paid or incurred by the taxpayer in connection with his trade. Francis J. they felt that those should be a separate deduction for research and development. annual administrative expense does not exceed 30% of the total expenses and 5.

400 per family or (2) P200 a month 3. the amount has or is apportioned in equal parts over a period of 10 consecutive years beginning with the year in which the transfer or payment is made.Itemized deduction 2. the amount has not yet been allowed as a deduction and 6. 2.Atty. 34 K ADDITIONAL REQUIREMENTS FOR DEDUCTIBILITY OF CERTAIN PAYMENTS ►allowed as a deduction only if shown that the tax required to be deducted and withheld there from has been paid to the BIR in accordance with Section 58 and Section 81 34 L OPTIONAL STANDARD DEDUCTION KINDS OF DEDUCTIONS: 1. RA ►all can claim both personal and additional exemption Q: Why not include NRAETB? Can the latter claim any exemption? A: NRAETB is not included because Section 35 A refers to Section 24 A ►NRAETB can claim personal deductions but not additional exemptions pursuant to Sec 35 D REQUIREMENTS: 1.individual taxpayer earning purely compensation income during the year. NRC 3. he shall be considered as having availed of the itemized deduction. Who are taxpayer? A: those mentioned under Section 24 (A) 1.Optional Standard Deduction 3. thus. it must be funded by the employer 4. follows he cannot claim this deduction because he is liable to pay by way of GIT.Personal /Additional Deduction OPTIONAL STANDARD DEDUCTION: ►can be availed of by an individual who may elect a standard deduction in an amount not exceeding 10% of his gross income ► may apply in lieu of the other deductions under Section 34 ►the taxpayer must signify in his return his intention to elect the optional standard deduction.Taxation law review notes . 2. RC 2. OCW 4. Sababan 3. Q: Who can claim this deduction? A: all individual taxpayers except non resident alien not engaged in trade or business (NRANETB) Reason: he is not liable to pay by way of the NIT. individual taxpayer availing itemized or optional standard deduction. otherwise. amount of premiums. and 3. paid by taxpayer for himself and members of his family.NRAETB should file a true and accurate return 2. gross income of the family for the taxable year is not more than P250. the amount to be claimed as personal exemptions should not exceed the amount provided for under Philippine Laws TAKE NOTE: AEMOP: can be a RA or NRAETB 34 M PREMIUM PAYMENTS ON HEALTH AND /OR HOSPITALIZATION INSURANCE OF AN INDIVIDUAL TAXPAYER ► for (1) Health and /insurance (2) Hospitalization 54 . the amount contributed must no longer be subject to his control or disposition 5. amount of premiums should not exceed (1) P2. Francis J.000 Q: Who can avail of this deduction? A: 1. individual taxpayer earning both compensation income and income from business SECTION 35 ALLOWANCE PERSONAL EXEMPTION INDIVIDUAL TAXPAYER FOR FOR Q: When do we apply this? A: apply if individual taxpayer is paying by way of NIT Q. TAKE NOTE: ►can co-exist with additional exemption personal and / or REQUIREMENTS: 1.

widower not included in the list under 55 . OR. With (1) one or both parties or (2) With one or more brothers and sisters (3) with one or more legitimate. Single individual. Q: Why do we have to determine who the head of the family is? A: only legally separated individuals can claim additional exemptions if they have qualified dependents.Atty. can claim exemption CHANGE OF STATUS: (SEC 35 C) Q: Reckoning Period? A: end of the year or close of such year when such change of status occurred. regardless of age is incapable of self support because of mental or physical defect. ► 20. whose such brother or sisters or children are (1) not more than 11 years old and (2) not gainfully employed. 2. For head of the family – can be single or legally separated with qualified dependents. 000 Q: Who is the “head of the family”? A: 1. recognized. (2) unmarried. regardless of age. can be considered as head of the family w/ dependent Q: What if the children are temporarily away from the parents? A: still considered living with parents. earns or derives gross income. Francis J.000 for each dependent not execeeding four (4) Q: Who can claim the same? A: 1.unmarried or legally separated man or woman 2.legally separated individuals: can be claimed by the spouse who has custody of the child or children ►the additional exemption claimed by both shall not exceed the maximum additional exemption herein allowed. 000 3.000 Q: Who are allowed to claim? A: Normally .Married couples: only one of the spouses can claim it. 7432 and RR 2-98: a senior citizen can also be a dependent.Taxation law review notes . or individual judicially decreed as legally separated with no qualified dependents. married or used to be married MARRIED INDIVIDUALS ►each legally married individuals can claim the personal exemption. and (3) not gainfully employed or (4) if such dependent. Q: What if widower has illegitimate children. TAKE NOTE: ►R. For each married individual – if only one of the spouse. Q: Define “dependents” A: legitimate. living with and dependents upon him for their chief support 4. only such spouse can claim the personal exemption. illegitimate or legally adopted child chiefly dependent upon and living with the taxpayer if such dependent is (1) not more than 21 years of age. the same are incapable of self support because of mental or physical defect. it is the husband who claims unless he executes a waiver that the wife will claim the same (RR2-98) Additional Exemptions: (35B) ► 25. -additional exemption of P8. natural or legally adopted children 3. 000 2. Husband and wife = P64. Q: Can a widower claim exemptions? A: exemptions must be strictly construed. Sababan BASIC PERSONAL EXEMPTIONS: 1. can claim additional exemption? A: can claim. Section 35 A – but can claim under sec 35B ►widower.A. TAKE NOTE: ►32. (3) unmarried 5.

estate can claim personal exemption. ancestors d. no deduction shall be allowed: (1) Personal.Jan.000 2. 2. brothers and sister (whole is ½ blood) b. or betterments. Illustration: 1. Any amount paid out for new buildings or for permanent improvements. Illustration 1.000 P 16. 2005 – on April 15.000 1. living or family expenses – not related to trade or business (2) Section 36 A (2) and Section 36 A (3) General Rule: No deductions allowed for 1. TAKE NOTE: ►Amount paid for new buildings.Married June 1. Nephew is a stranger and relative ang nephew. taxpayer is directly or indirectly the beneficiary under such policy.Atty. LOSSES FROM SALES OR EXCHANGES OF PROPERTY (between related parties) 1) between family members Q: Who is considered the “family of the taxpayer?” A: a. he may claim corresponding exemption in full for year. lineal descendants Q: are uncles or nieces included? A: no } P40. (2) the the the 2. as if the change of status occurred at the close of taxable year. spouses c. If taxpayer’s spouse or child dies within the taxable year or the dependent’s became (1) gainfully employed (2) got married or (3) became 21 as if the change as status occurred at the close of taxable year. Francis J. 2005 2. Items not Deductible 36 A. Sababan ►always choose the higher amount of exemption if you are filing a return covering the period within which the change of status occurred 1. covering the life of any officer or employee or any person financially invested in any trade of business carried on by the taxpayer.000+ P8. 2) individual and corporations Gen.000 per child) 48. Taxpayer despite the tragedy can claim ton of money on April 15.000 (8. Rule: NO DEDUCTION Except: distribution in liquidation or less than 50% of the outstanding capital stock 3) 4) 5) 6) Two corporations Grantor or Fiduciary Two fiduciaries of two trust Fiduciary and beneficiary of trust 56 . Option granted to Private Educational Institution to deduct the same as capital outlays. Any amount expanded in restoring property or in making good the exhaustion thereof for which an allowance is or has been made.Taxation law review notes .000 Section 36. 2005 and child died the next day then another child eloped and get married.Single Jan 1. if the taxpayer should (1) marry or have additional dependents during taxable year. 25. P 32. 2006 – status: legally married can claim P 32. made to increase the value of any property or estate IN DONOR’S TAX ►Relatives includes relatives by consanguinity within the 4th civil code. 2005 taxpayer married w/ one child can claim on April 15. 2. 2006 P32. Exceptions: 1. General Rule: In computing net income. Taxpayer’s tragic story wife died Jan. 2006.000 ► In this case. if the taxpayer should die during the taxable year. 25. can be deducted if it involves intangible drilling and development cost incurred in petroleum operations (Sec 34 6 (A) PREMIUMS PAID ON LIFE INSURANCE POLICY : Illustration: 1.

Q: Suppose it was a sale of personal property. short term(less than 12 months) : 100% taxable b. ►Holding period also do not apply to corporations. 37 Special provisions regarding deductions of insurance companies. 2) gains from wash sale are taxable but losses are non-deductible Exception: ►unless claim is made by a dealer in stock or securities and with respect to a transaction made in the ordinary course of the business of such dealer Q: Reason why losses in wash sale cannot be deducted? A: 1. to avoid too much speculation in the market 2. 40 B (1).Atty. long term (more than 12 months): 50% taxable Q: suppose property sold is a parcel of land will the rule be the same? A: No.000 Q: What will be the basis of the gain? A: Sec. Q: If the property is acquired through inheritance. what is the basis? A: Sec 40 B (2) fair market value or price as of the date of acquisition. is the whole gain subject to income tax? A: it depends ►if ordinary asset = 100% is subject to income tax ►if capital assets a. ►Holding period applies only to sale of personal property which is a capital asset except sale of shares of stocks. This is an absolute rule: ►If realty is ordinary – holding period does not apply. Francis J. taxpayer not telling the truth.Taxation law review notes . Is this a wash sale? A: No Q: If it is a loss in wash sale. In fit gain is presumed. because he may say he incurred a loss instead of a gain Section 40. property was acquired by purchase ►Cost: purchase price + expenses Q: If there is a gain. happens? A: General Rule: (Sec 131 RR No. Determination of Amount and Recognition of Gain or Loss GENERAL RULE: This is totally irrelevant if the income is subject to fit. Q: What period? A: 61 day period beginning 30 days before and ending 30 days after the sale Q: Jan 20 you purchased share of stock. ►If realty is capital asset – 6% FMV or selling price applies. Sababan Sec. and it depends ►ordinary asset: apply the cost ►capital asset: 6% FMV or selling price which ever is higher Q: Do we apply the holding period? A: No. EXCEPT: sale of shares of stock where you have to determine actual gain or loss Q: When is there a gain? A: excess of the amount realized over the basis or adjusted basis for determining gain. (amount realized from the sale or other disposition of property) Q: When is there a loss? A: the amount realized is not in excess of B or AB Illustration: 1987 Bar (Juan dela Cruz sold jewelry for 300. 2005. holding period does not apply to the sale of real property. and disposed of the same on Feb 5. beginning 30 days before the sale and ending 30 days after the sale. do we apply the same principles? 57 .000 ) contract of sale ►amount realized is 300. Codal Provisions Section 38: Losses From Wash Sales of Stock or Securities Q: What is a wash sale? A: It is a sales or other disposition of stock securities where substantially identical securities are purchased within 61 days.

or (2) last owner who did not acquire the same by gift (cost) Q: If it involves a parcel of land? A: apply the same rules Section 40 B (4) what is the basis? 1. robbery or estafa. losses are not deductible REQUISITES: 1. or c. solely for the stocks of another corporation also a party to the merger or consolidation. gain is exempt 2.Atty. GG request the jewelry be returned but you already sold it for P200. the gain. the transaction involves a contract of exchange 2.Taxation law review notes . your GG gave you a jewelry in Sept your GG breaks up with you. losses are deductible Exception: If permanent to a merger or consolidation plan. does not distribute it pursuant to the merger or consolidation plan 58 . Francis J. party to a merger or consolidation. exchanges property solely for stocks in another corporation. take note of the old CIA ruling on this one Q: Feb 14. ►Sec 40 (2) (a) ►a corporation which is a party to a merger or consolidation. 1.000 ►If other property received by transferee (40 C (3) (a) TRANSFEREE ►if the party receives not just the subject matter permitted to be received: lie if the party receives money and /or property. Q: Section 40 B (5) what is the basis? A: 40 C (5) ► if the property was acquired in a transaction where gain or loss is not recognized (pursuant to a merger or consolidation plan) a. also a party to the merger or consolidation b.000. also a party to the merger or consolidation. Security holder of a corporation. Will the entire P200. no gain or loss shall be recognized 1. – person transfers property to corporation to gain control 40 C EXCHANGE OF PROPERTY GENERAL RULE: In sale or exchange of property. (40 C (3) (b) TRANSFEROR 1. distributes it pursuant to the merger or consolidation plan ►no gain to the corporation shall be recognized 2. Sababan A: No. Property was acquired for less than an adequate consideration in money or moneys worth: the basis would be the amount paid by the transferee for the property. shall be recognized (meaning taxable) but in an amount not in excess of the sum of the money and the FMV of such other property received. is a party to the merger or consolidation. theft. corporation. gain is taxable 2. exchanges property solely for stock in a corporation which is a party to the merger or consolidation Illustration: Transferor gives 1M Transferee gives 700. the control amount of gain or loss shall be recognized. the subject matter is only limited or confined with the one provided for by law ►Merger and Consolidation in corporation code and tax code are not the same. exchanges his securities solely for stock or security in another corporation. 2006. do we apply the same principles? A: Law is silent. Transferor corporation receives money and / or property.000 be included in gross income? A: Basis: (1) same as if it would be in the hands of the Donor (FMV as of date of acquisition).Transferor corporation receives money and / or property. the parties are members of the merger or consolidation 3. party to a merger or consolidation. Q: What if it involves a sale of real property? A: Apply the same principles Suppose it was a result of swindling.000 = not taxble gain P300. if any. but not the loss.

Francis J. in connection with the exchanges described – receives securities or stocks permitted (no gains recognized) – it is sole consideration of the same – the other party assumes liability of the same – the acquisition of liability not treated as money and / or other property – the exchange still falls within the exceptions.Taxation law review notes . gain is exempt 59 . Sec 40 B (5) ►non applicability of income tax is only temporary Reason : Basis will be 40 C (5) 1. ►The rule is similar in 40 C (3). If amount of liabilities assumed + amount of liabilities to which property is subjected to exceeds adjusted basis of the property transferred – the excess shall be considered a gain from the sale of a capital asset or of property which is or or Sec 40 C (1) (b) ►a shareholder exchanges stock in a corporation which is a party to a merger or consolidation. There is A contract of exchange where property was transferred by the person in exchange of stock or unit of participation in a corporation.b. Q: What is control? A: ownership of stocks in a corporation possessing at least 51% of total voting power. 40 C (5) (a) Transferor ►basis of stock or securities received by the transferor: same as the basis of the property. 2. ►Therefore. that is why the last paragraph of 40 C is a separate paragraph. Sec 40 C (3) (a. loss not deductible ►40 C (3) (b) It depends on how distributed: 1. solely for the stock of another corporation which is a party to the merger or consolidation Sec 40 C (2) (c) ► a security holder of a corporation which is a party to the merger or consolidation. exchanges his securities in such corporation.c) the rule is 1. the person alone or together with others (not exceeding of 4 persons) gains control of the corporation.Atty. Sababan ►the gain shall be recognized but in an amount not in excess of the sum of such money and the FMV of such other property so received. pursuant to the merger consolidation plan: ►gain exempt ►loss not deductible 2. Sec 40 (c) (4) Assumption of Liability 1. not pursuant to merger consolidation plan: ►gain taxable ►loss not deductible. 40 C (5) (b) Transferee ►as it would be in the hands of transferor increased by the amount of gain recognized. parties are not members of the merger ►the individual wants to be a shareholder but does not want to purchase shares but willing to give up property as a result of the exchange . Taxpayer. loss not deductible 40c last paragraph ► the transferee becomes a stockholder. gain exempt 2. loss not deductible Requisites: 1. As a result. solely for stock securities in another corporation. stock or securities exchanged: ►decreased by the (1) money and (2) FMV of the property received. gain taxable 2. 2. (a). (b) and (c) although different property are involve. the person gains control of the corporation ►The rule is: a. Q: What is the rule? A: 40 C (3) (a) 1. b. and ►increased by (a) amount treated as dividend and (b) amount of gain recognized 2.

as the case may be. Francis J. correct? A: not correct statement Section 47 (A) Taxpayer: Corporation 1. use of calendar year a.fiscal year 2. 3. Illustration: Facts: taxpayer dies in the middle of the year January 1. no annual accounting b. ►File return indicating the change in accounting method Section 48 Accounting for Long Term Contracts Q: Who are the professionals involved? A: applies to architects and engineers Q: What is a long term contract? A: it means building. 2006 the estate is the taxpayer ►So the income and deductions from Jan 1 to June 25. Fiscal year 2. included in the computation Section 46 Change of Accounting Period Q: Who is the taxpayer? A: corporation (taxpayer other than individual) Q: What kinds of accounting period? A: 1. individuals ►Use of method as in the opinion of the commissioner clearly reflects the income: 1. the method does not clearly reflect the income Sec 44 Period in which items of Gross Income included and Sec 45 Period for which Deductions and Credit Taken ►Under Sec 44 amount of all items of gross income shall be included in the gross income for the taxable year in which they are received by the taxpayer ►Under Sec 45 deductions shall be taken for the taxable year in which “paid or accrued” or “paid or incurred. net income shall be computed on the basis of the new accounting period. Calendar to Fiscal ►separate final or adjusted return shall be made for the period between the close of the last calendar year and the date designated as the close of the fiscal year. approval of the secretary of finance Section 43 Accounting Periods 1.Atty. fiscal to calendar 2.. calendar year Q: Changes contemplated? A: 1. Fiscal to calendar ► separate final or adjusted return shall be made for the period between the so close of the last fiscal year for which the return was made and (2) the following Dec 31. 2. calendar to fiscal 3. once every 3 years 2. Limitation: 1. Sababan not a capital asset. 2006 ►June 26. 2006 to Dec 31. Q: Calendar to calendar. Fiscal to fiscal ►separate final or adjusted return shall be made for the period between the close of the former fiscal year and the date designated as the close of the new fiscal year.” ►Sec 44 and Sec 45 are mentioned in the code because of the death of the person. SECTION 41 INVENTORIES Purpose: Change of inventory to determine clearly the income of any taxpayer/ to reflect the true income. persons whose gross income is derived in whole or in part from such 60 . no accounting method has been employed 2. Q: Basis of income? A: a. does not keep books of account c. installation or construction contracts covering a period in excess of one (1) year.Taxation law review notes . fiscal to another fiscal ►with the approval of the Commissioner. 2006 – June 15.

is it important to know if it is a casual or regular sale? A: Yes Casual Sale has Requirements: 1.Taxation law review notes .these two exceeds the selling price 5. you only compute cash H: Initial payment exceeds 25% installment basis is not applicable RR 2. Section 50 Allocation of Income and Deductions ►tremendous power of the Commissioner to allocate the income and deduction of several corporations having the same interest. (RR 3-2002) c. 2nd installment exchanged with cash . individuals whose sole income is subject to FIT 61 .000 2. Section 175: In payment by way of installment promissory note. Q: Same interest? A: stockholders substantially the same Q: Limitations? A: None ►That is why it is a great source of corruption Section 51 Individual Returns Who are required to file? (ITR) 1. NRC 3. bills of exchange and checks will not be considered in computing the 25% initial downpayment. on account of the contract is allowed Section 49 Installment Basis ►contemplates a seller of the property Q: Is it important to know if the property is personal or real? A: Yes Q: Sale of Real Property is it important to know if it is a casual sale or regular sale? A: No Requirement: The initial payments do not exceed 25% of the selling price. sold by way 3. Francis J. initial payment not exceeding 25% selling price ►Regular sale no requirements Case of Bañas 1. worker (compensation income earners) regardless of the amount of compensation shall not required to file ITR because the management files it. cash deposit 5. RA 4. deduction of expenditures made during the taxable year. selling price exceeds P1. Q: If OFW is exempt from filing a return. Shall file ITR regardless of the amount of gross income. Sababan contract shall report such income upon the basis of percentage of consumption. RC 2. b. agreement 4. what is he required to file? A: Information Return Q: who are not required to file a return? A: a. 1st installment promissory note was disconnected 4. post dated promissory notes (installments) 3. the return shall be accompanied by a certificate of architects or engineers showing the percentage of completion c. NRAETB – sources within Q: Who is not mentioned in Sec 51 but liable to pay by way of NIT? A: OCW/ seaman Exception: RC OR ALIENS: engaged in trade or practice of profession in Phil. Q: If the initial payment exceeds 25% what do you call it? A: called deferred sale Q: Consequence? A: you must pay the whole amount of the tax Q: Sale of Personal Property. subject matter 2.Atty. an individual whose gross income does not exceed his total personal and additional exemptions for dependents b.

In connection with Sec 40: ►actual determination of loss or gain April 51 C (1) – NIT Payers using CY ►two days provided (calendar) 1. Sale of Shares of Stocks Q: Reasons for filing Final Income tax or Final Consolidated Return? A: Reasons: 1. duly authorized representatives 3. false or fraudulent return 51 G Signature Presumed Correct ► prima facie evidence the return was actually signed by the taxpayer Section 52 Corporation Return ►go back to Sec 51 A (2) General Rule: Sec 58 Final Income Tax ►return and creditable withholding tax return is filed monthly Exception: Sale of Shares of Stocks (Sec 51 A (2)) Sale of Real Property ►RR -17-2003: Sale of Real Property subject to final withholding tax.Property exempt from donor’s tax 51 F. collection agent 4. Return of Parent to Include Income of Children ► unmarried minor receives income from property received from living parent – included in the parent’s ITR.duly authorized agent 2.Sale of Real Property ►return filed within 30 days following each sale 51 D Husband and Wife 1.Donor’s tax has been paid 2. authorized agent bank 2.Where to file? 1. Sababan d.erroneous return 2.Taxation law review notes . on April 15. or 2. guardians 4. individuals who are exempt from income tax Exception: IT 1. the management files an incorrect return 2. FIT whose actual determination of gain or loss 2. Feb or March) ► not December because the calendar year is not yet over Fiscal year: 15th day of the 4th month following the close of the fiscal year. Francis J. 51 C (2) individuals subject to tax on capital gains Exception: General Rules Sec 58 1. in connection with Sec 24 C the basis of the tax is not the gross income but the net capital gains realized. Exception: 1. Not pure compensation: joint return 62 . the buyer is deemed the agent. Pure compensation income earner – separate return RR 3-2000 – pure compensation income earner regardless of amount of income not file ITR. duly authorized treasurer of the city or municipality where taxpayer resides or has principal place of business 5. revenue district officer 3. the employee has two or more employer 51 A (3) A: not required to file ITR may be required to file information return 51 B . before April 15 (January. Sale of shares of stocks ►return filed within 30 days after each transaction and ►Final consolidated return on or before April 15 2.Atty.other persons charged with the care of his person or property ►both incapacitated taxpayer and agent will be liable for: 1. Persons Under Disability Q: Who makes the return? A: 1. office of commissioner – if no legal residence or place of business in Phil 51 C Q: When to file? A: filed on or before the 15th day of each year 51 E. 2.

Taxation law review notes . Taxable Year 1. for its reorganization 2. liquidation of the whole or any part of its capital stock. Sababan ►file a return within 30 days from date of transaction TAKE NOTE: In all other income subject to FIT. the adoption by the corporation of a resolution or plan for its dissolution. Trustees in Bankruptcy or Assignees ►the aforementioned persons shall make returns of net income as and for such corporation in the same manner and form as such organization is required to make.Property exempt from donor’s tax 2.Secure a tax clearance from the BIR and file it with the SEC 4.Thereafter. income from property received from parents ► included in parent’s ITR Except: a.Within 30 days after: a. D. Return of Corporation Contemplatory Dissolution or Recognition 1. forms of the resolution or plan. address of partners 5. can be required to file a return? A: General Rule: No Exceptions: 1.Render a correct return verified under oath setting form: a. Sale of Stocks – ITR look at the previous notes about it Section 53 Extension of Time to File Returns Q: To whom granted? A: Corporations Grounds: Meritorious case ►subject to the provisions of Sec 56 Time Extension Section 54 Returns or Receivers. Francis J. income from minor’s own industry ►Minor’s ITR accomplished by guardian or parents Q: if the individual is exempt from income tax. 2. including a corporation which has been notified of possible involuntary dissolution by the SEC. fiscal. shares of each partners ►GPP is exempt from corporate income tax Q: Why is the GPP obliged to file a return? A: to determine the shares of each partners Section 56 Payment and Assessment of Income Tax for Individuals and Corporations A. TRUE AND ACCURATE a. Section 55 Returns of General Professional Partnership ► file a return of its income setting forth 1. or 2.Vice President 3. Other principal officer ►ITR must be sworn by such officer and the treasurer or assistant treasurer B. such other information prescribed 3. the gains are presumed INCOME OF MINORS Q: Minor below 18: Will it be included in the Minor’s ITR? A: it depends 1. final or adjusted income tax return Filed by: 1.engaged in trade or business. Taxpayer identification number (TIN) 4. items of gross income and of deductions allowed by this title (Title II – Tax on Income) 2. calendar ► corporation cannot change accounting method employed without the approval or prior approval of the commissioner (Sec 47) C.President. or b. Payment of Tax Q: Who pays the tax of tramp vessels? 63 . or c. or 2.Donor’s tax paid b. b. SEC issued a Certificate of Dissolution or Reorganization.exercise of profession – Sec 51 A (2) SEC 52 CORPORATION RETURNS A.Requirements Taxpayer: DC or RFC (except NRFC) ITR Filed: 1. Names of partners 3. quarterly income tax return b.Atty.

a sufficient bond is filed to answer for the tax due. proof of payment of tax is presented.000 Taxpayer: individuals only (other than corporation) Elect to pay the tax in two (2) equal installments ►No registration of document transferring real property 1. 28 B (NRFC) B. Enumer ation about Final Income Tax Except: Gross Income Tax 1. Sababan A: 1. if you fail to qualify for exemption – tax due shall immediately become due and payable and subject to penalties c. the captains thereof ►those people are required to file a return and pay the tax due before departure Q: What is the effect of failure to file the return and pay the tax due? A: 1. 25 B (NRANETB) 2. return is filed 2nd installment on or before July 15 following the close of the calendar year Q: What is the effect of non payment on the date fixed? A: The whole amount of tax unpaid becomes due and demandable together with the delinquency penalties. not file the return and not pay the tax Section Source 57 Withholding of Tax at a.Bureau of Customs may hold the vessel and prevent its departure until: a. 3 INSTANCES CONTEMPLATED 1.Taxation law review notes . the commissioner examiner and assess the correct amount of tax ►tax deficiency discovered shall be paid upon notice and demand from the commissioner. by payor-corporation/ person… the same shall be credited against the income tax liability of the taxpayer for the taxable year. At the rate of not less than 1% but not more than 32% thereof. file the return but not pay the tax 3. Withholding of Taxes ►subject to the Rules and Regulations the Section of Finance may promulgate. Q: Enumeration is all about what? A. Q: What is the maximum? A: Maximum: now 35% pursuant to RA 9337 Q: When will you allow withholding beyond 15%? A: 64 . upon recommendation of the commissioner require the withholding of a tax on the items of income payable to natural or juridical persons. A.Atty. Francis J. upon recommendation of commissioner: Require the filing up of certain income tax return by certain income payees. without a certification from commissioner or his duly authorize representative that a. seller pays tax – submit intention or proof of intent within six (6) months from the registration of document transferring Q: when is the real property entitled to refund? A: upon verification of compliance with the requirements for exemption. Payment of capital gains tax : Q: Paid when? A: on the date the return is filed Avail exemption for capital gains: a. tax has been paid B. transfer has been reported b. no payments shall be required. Withholding of Creditable Tax at Source ►The Sec. b. residing in the Phil. file the return and pay the tax 2.in their absence. 1st installment: paid at the time the b. ►Report gains on installments under Sec 49 – tax due from each installment payment shall be paid within 30 days from the receipt of such payments. Installment Payments Tax due: more than P2. Assessment and Payment of Deficiency Tax ► Return is filed.the shipping agents and or the husbanding agent 2. of Finance. or b.

principal place of business. Commissioner. his legal residence. 3. GIT . Annual Information Return ►Withholding agent shall submit to the commissioner an annual information return containing : 1. revenue district officer c. Creditable withholding taxes 1. covered by a return and paid to: a. 65 . collection agent d. C. or 3. the list of payees and income required 2. if corporation . Section 58 Returns and Payment of Taxes Withheld at Source A. D. Quarterly Returns and Payment of Taxes Withheld at Source 1.Tax deducted and withheld ►held as a special fund in trust for the government until paid to the collecting officers. or 2. where principal office is located 2. Statement of Income Payments Made and Taxes Withheld ►Withholding agent shall furnish payee a written statement showing: 1. Francis J. FIT – the amount of withholding is totally 2. income or other payments made by WHA during such quarter or year and 2. deeds of trust or other similar obligations of DC or RFC ►contains a contract or provision where the obligor (debtor) agrees to pay the tax imposed herein ►normally between the creditor and debtor Q: Who pays the tax? A: Creditor pays the tax by virtue of an agreement the debtor assumes the liability and the creditor is now free from payment of tax before it can transfer the property to the buyer.Return for Creditable withholding taxes ►filed and paid not later than last day of the month following the close of the quarter during which withholding was made 5. Sababan For NIT 15% is the maximum 1. amount of taxes withheld from each payees 3.Return for final withholding tax ►filed and paid within 25 days from the close of each calendar quarter 4.equal to the amount of tax Tax Free Covenant Bond ►the bonds. amount of tax deducted and withheld ► statement given simultaneously upon payment at the request of the payee. mortgages. other pertinent information required Final Withholding Tax: AIR ►filed on or before January 31 of the succeeding year Creditable withholding tax: AIR ►not later than March 1 of the year following the year for which the annual report is being submitted ►Commissioner may grant WHA reasonable extension of time to furnish and submit the return required herein.Atty. authorized agent bank b. with approval of Sec Finance ► require withholding agents to pay or deposit taxes at more frequent intervals where necessary to protect the interest of the government B.Taxation law review notes . individuals payee – not later than March 1 of the following year Final Withholding taxes ►the statement should be given to the payee on or before January 31 of the succeeding year. corporate payee – not later than the 20th day following the close of the quarter 2. Income of Recipient 1. duly authorized treasurer of city or municipality where withholding agent has: 1. Income upon which any creditable tax is required to be withheld at source shall be included in the return of its recipient.

Sababan 2.Creation of Co-ownership ►Income of the Estate: Income tax on individual -co-owner liable in their individual company Ponce Case: H: After finality heirs did not divide the property. all taxes withheld 1. Estate ► property of the decedent created by an agreement. Trust ►agreement. not commingled with other funds of WHA E. extra judicial partition 3.Impose Income as if TP is individual b. Registration with Register of Deeds ►No registration of any document transferring real property shall be effected by the Register of Deeds unless the commissioner or his duly authorize representative has certified that the transfer (1) has been reported and (2) tax due has been paid ►Register of Deeds requires payment of tax before transfer of property Section 59 Tax on Profits Collectible from Owner of other Persons ►Tax imposed under this title upon gains.Atty. maintained in separate account 3.Impose income as if estate itself ►depends whether there is a (1) judicial (2)extra judicial partition or (3) no partition at all When there is a judicial settlement which is final and executory but no partition: Two possibilities: 1. considered trust fund 2.000) Individual ► it will depend whether he/she is classified as single.Taxation law review notes . or no partition at all During partition Estate earns income: 1. 2. profit or income or the person having the receipt. the excess of the amount of tax so withheld over the tax due on his return shall be refunded 3. trust or by last will and testament 2. estate (Taxpayer = TP) a. income tax collected at source is less than the tax due on his return – difference shall be paid 4. contract or last will and testament Status: 1. Said tax be paid by the owner of the gains. All gains. profits and income not falling under the foregoing and not returned and paid by virtue of the foregoing shall be assessed by personal return Intent and Purpose of this Title 1. profits and income of a taxable class shall be charged and assessed with the corresponding tax. custody.Impose income as if TP is corporation c. the applicable income tax is corporate income tax because they contributed money to engage in real estate. Estate: same status as decedent 2. Francis J. corporation – corporate income tax 3.Creation of unregistered partnership ►Income of the Estate: corporate income tax 2. SECTION 61 TAXABLE INCOME (Important) “Taxable income of the estate or trust shall be computed in the same manner and on the same basis as ill the use of an individual. control or disposal of the same Determination of Ownership: ►determined as of the year for which a return is required to be filed CHAPTER X: ESTATES AND TRUSTS Section 60: Imposition of Tax 1. individual – income tax 2. head of the family or married Estate ►regardless Special deductions:Income distributed to the heirs 66 . Trust: same status as the grantor Income taxpayer is the Estate: ►income of the estate pending partition or no partition at all: Three kinds of partition: 1.” Section 62: Applies during Pendency of Extra Judicial Settlement Personal Exemption (P20. judicial 2.

Sec 60 2.Atty.Sale of RP considered capital assets ►6% to 1. tangible or intangible 3 KINDS OF TRANSFER TAX: 1.Real Estate Tax 3. report only once (building paid once) 2. FC ►A corporation cannot die of a natural death. administrator. like creating a family corporation (only taxable is the stockholders which is exempt) ►Congress enacted RA 7449 decreased 60% to 35% and then RA 8424 – 35% to 20% Q: Now is it safe to create a family corporation? A: No more.5% doc. Francis J. When liable to pay income tax? A: If the trust is revocable (if revocable. 61 and Sec 62 ►does not apply if estate is subject to income or corporate income tax ►it applies if the estate pays itself during the pendency of the judicial settlement Basis: Sec 60 C “during the period of administration or settlement of the estate.NRC c.beneficiary / Les Qui trust Q: Who is liable to pay tax: A: If trust revocable: ► obligation of the trustee ►liability of trust itself and not personal Liability of trustee: If trust irrevocable ►obligation of the grantor ►personal liability of the grantor as an individual TWO WAYS OF REPORTING INCOME: PURSUANT TO RR2 – (1949) 1. 67 . RC b. NRA 2.NRC c. RC b.Donation if given to all compulsory heir ► relative lower than 20% which is 15% ► stranger: 30% so go with 20% Q: Who are the taxpayers? A: Sec 104 Estate and Donors 1. the heir shall be liable to pay whether individual capacity ►if there is no distribution.Grantor /creator /trustor 2. RA d.fiduciary / trustee 3. RA d. after the span of 25 years (payment of building divided per year) ESTATE TAX: 1. Sec 61 and 62 also apply) Parties: 1. why? A: 1973 Marcos issued P. personal. Sababan ►if you distribute nothing you cannot claim this special deductions ►if there is a distribution. Estate Tax ►transfer tax impose on the Net Estate for the transfer of property to the heirs or beneficiary whether real. DC f. 69 Explain: Sec 84. Donor’s Tax 3. Q: Now: Iba na ang scheme – which is better sale or donation? A: 1. to creditor to preserve the estate Sec.Taxation law review notes .Estate a.Sale of RP considered ordinary asset ►5% to 52% as per use may be 3.” Taxpayer is a Trust: Q. rate is max of 20% of net before the rate is 60% plus additional amount. NRA e.5 % better 2.Estate Tax 2.D. Sec 135 of LGU Transfer of Real Property Q: We don’t have inheritance tax and donees tax. Tax 7. Payment: made by executor. Donor’s Tax a. ►resulted to many gimiks through tax avoidance scheme. heirs are not liable to pay anything ►Special deduction not apply if individual tax is paid by the Estate itself.

3.Taxation law review notes . FG which acquired a business situs in Phil 2. partnership or industry established in the Phils Q: NRA.S. BIR contends: Morocco is not a country but a colony of Spain. 2. other than these 3 – taxable w in and w/out Q: Is Section 104 relevant to all taxpayers? A: No.O.intangible personal property net taxable if following requisites concern: A decedent at the time of his death or the donor at the time of donation was a citizen and resident. is it subject to donor’s tax? A: it depends (you must qualify) 1. NRA and Estate 2.personal property outside of Phil. law requires that he must be a citizen and resident of the foreign country. so she was a Moroccan resident.Franchise which must be exercised in the Philippines. all.Deductions (Sec 86) -------------Net Estate x Rate ------------Taxable net income . issued by foreign corporation at least 85% of the business of which is located in the Philippines. 1.B.Subject to donor’s tax if: 1.S.Tax credit --------------------Tax due Gross estate (define) – Sec 104 ►gross estate include real and personal property. issued by a Domestic corporation.S.of a foreign country which at the time of his death or donation did not impose a transfer tax of any manner.Exempt 1.O. is it subject to estate tax? A: Not subject to estate tax 68 .Atty. SECTION 84 RATES OF ESTATE TAX Q: What is the formula for Estate tax? A: Gross Estate (Sec 85) . FG at least 85% of business located in the Phil 2. or mixed. the laws of the foreign country allows a similar exemption from transfer or death taxes of every character or description in respect of intangible personal property owned by citizens of the Philippines not residing in that foreign country.B.R.B. wherever situated NRA: Decedent / Donor – property situated outside of Philippines not included on the gross estate Section 85 Gross Estate (inclusion) A.Decedent’s interest ►includes property (1) owned at the time of death and (2) property not owned at the time of death Classic example: Usufruct Q: if terminated by the death of usufructuary. intangible personal property of Filipinos not residing therein is exempt from transfer tax.S. NRA and FC Donors = property outside Phil exempt 3.S. or 2. ground: In Morocco.S. – do not confuse with 42 (2nd par) 4. H: claim granted – even if it is not a full pledged state.B. German donates SOS of FG to Filipina gf.B. Francis J.O. of foreign corporation which acquired a business situs in Phil 5. what matter is that the foreign law provides for an exception. Campos Rueda Case: F: NRA died – married to Moroccan man. or it’s a mere colony. whether tangible or intangible. in business. in respect of intangible personal property of citizens of Philippines not residing in that foreign country. 1. Sababan Q: What is the reason for classifying the taxpayers? A: 1. material only to NRA and FC Section 104 speaks of intangible personal property located in the Philippines.O.O. Donated SS in DC – administrator claims exemption. Q: What if citizen of one country and resident of another country will the exemption apply? A: No. or 2.

Ex contract of lease Q: How do you determine the value of usufruct? A: Sec. Proceed of Life Insurance 1.testator / decedent 2.transfer for insufficient consideration B.retains the right to designate persons who will possess the property or the right to receive fruits or income c.1st heir 3.Section 87 a contemplates a situation where the usufruct is terminated. Prior Interest ►important only due to the codification of the tax code B. know who has the choice to designate the 2nd heir: ►if decedent instructs the 1st heir that he can transfer the property to whomever he wants included in gross estate ►1st heir choice – included in gross estate E.2nd heir TAKE NOTE: To determine whether included in Estate or not.E. Francis J.Beneficiary is the estate ►included in gross estate whether designation is revocable or not 2. retains possession or receive income or fruits of property. donation The heirs insisted to pay Donor’s tax.revocable transfer (85 C) 3. take into account the probable life of the beneficiary. 2. 88 a provides to determine the value of the right of usufruct.Property was transferred during the lifetime but the decedent: a. Property passing under general power of appointment ► same with fidel commissary substitution 3 parties: 1.C. Sababan Reason: Exempt Transmission under Sec 87 (a) ►merger of the usufruct in the owner of the naked title Q: is there a conflict between Sec 88 a and Sec 87 a? How do you reconcile? A: No conflict 1. or b.Irrevocable transfers are not included in the gross estate: exempt Reason: the decedent losses control over the property Notice Not Required because the person has the control over the property D.revocable transfers are included in the gross estate Reason: the decedent retains tremendous power and control over the property 2.Revocable Transfers 1.Section 88a contemplates a usufruct for a fixed period. Transfer in contemplation of death Roces case: F: during lifetime. the following document were instituted or executed simultaneously 1. Q: Why definition of gross estate is longer than definition of gross gift? A: transfer occurring after death. Posados the collector tried to collect inheritance tax.transfer in contemplation of death (85B) 2.Atty.will and 2.Beneficiary is 3rd person ► revocable included ►irrevocable not included F.Taxation law review notes . Transfer for insufficient consideration 69 . unique thing: Donees were also the heirs in the last will and testament Donees wanted to pay donor’s tax because it is always lower than the estate tax except when the donee is a stranger H: this is a transfer in contemplation of death Dizon Case: F: Deed of Donation was executed Dizon died several days thereafter son claims Donor’s tax H:Transfers in contemplation of death Q: What are transfers deemed in contemplation of death? A: 1. estate tax absolute Transfer during the life time ►Normally Donor’s tax However there are exceptions: 1. included whether before or after the effectivity of the code G.

000 when FMV is 1 million pesos.000 (basis is the gross value) b) Judicial Expenses ►no limitation Pajonar vs Commissioner I: Whether or not extra-judicial expenses may be allowed as a deduction H: This law has been copied from U. or 2. Is this subject to transfer tax? Is it subject to Donor’s tax? A: No. Deductions Allowed to the Estate of a Citizen or Resident 1. Francis J. expenses to be claimed as a deduction both judicial and extra judicial expenses.standard deduction 3. answer not the same.at the time the indebtedness was incurred the debt instrument was duly notarized. losses. Funeral Expense 2. 85 D Sale in good faith as a defense: 1. Whether written notice is required 3. In US. Claims against the estate ►Estate is the debtor Requirements: 1.Atty.RA Q: Who is the taxpayer under 86 B? A: NRA Q: Why do we need to know this? A: NRA cannot avail of the following deductions: 1. 3.the administrator or executor shall submit a statement showing the disposition of the proceeds of the loan Claims of the deceased against insolvent person 70 . Sababan Q: Similar provision in Sec 100 (Donor’s tax) can you apply the two (2) provisions simultaneously? A: No.If transfer because of generosity ►Donor’s tax Q: Parcel of land was sold for less than adequate consideration (adequate) to relative for P600.Taxation law review notes . Sec 100 provides the property should be other than real property referred to in Section 24 (D) ►Not subject to Donor’s tax.Actual Funeral Expenses. it is a defense H.family income 2. to determine whether gross value is at least P200. Capital of Surviving Spouse ►correlate with Sec 86 C ►both speak of legally married individual ►pertains to the separate property of spouse who survived ►capital used in its generic sense ►surviving spouse may be man or woman Section 86 (c) ►to determine the limitations of 1.NRC 3.If transferred because of impending death ► estate tax 2.RC 2. under Section 85 G.under Section 100 is not a defense 2.ELIT (expenses.000 (Sec 90) 4.S.loan contracted within 3 days before death. indebtedness and taxes) a) 1. the amount by which the FMV of prop exceeds the value of the consideration shall be deemed a gift and included in the computation of the gross gift: subject to Donor’s Tax Q: What is the subject matter in 85 G? A: paragraphs 85 B. SOS not property contemplated in Sec 24 D (1) ►in this case. the applicable tax is 6% FIT Q: Will your answer be the same if SOS are sold? A: No.amount equal to 5% of gross estate ►apply whichever is lower Limitation: a)amount equal to 5% of gross estate should not exceed P200.to determine if gross value is at least 42 M Q: Who are the taxpayers under 86 A? A: 1. 2.retirement pay under RA 4917 A. one or the other but not both. The application will depend on the time of transfer or motive: 1. 85 C.hospitalization 4. alternative application.

2. Illustration: 1 million FMV but mortgage is only 600.person acquires the property by virtue of donation or inheritance Q: What if acquired through purchase? A: Not apply. avail only once 71 . Requirements: (RR 2-2003) 1.Atty. NRC.000 2.value of the decedent’s interest in the property is undiminished by such mortgage.Estate tax 3. 1 year -100% Q: Suppose the person died within 1 year and it was inherited by son. 2. devises or transfers Recipient:government or any political subdivision ►exclusively for public purpose Take Note: 30% of which not used for administrative purpose is not a requirement FAMILY HOME ►amount equivalent to the current FMV of the Family Home of decedent. should we apply the vanishing deductions? A: No more (last par Sec 86 A2) Transfer for Public Use ►amount of all bequest.losses incurred during the settlement of the estate.4years – 40% 3. Sababan ►Estate is the creditor Requirement: ►the only requirement is that the (only) amount of loan is included in the gross estate ►notarization and certification not required Unpaid Mortgage.Taxation law review notes .Any person who died within five (5) years prior to the death of the decedent Q: What are the amounts? A: Prior Decedent died within: 1. Unpaid mortgage 1.included in the value of the gross estate.plan duly approved by the BIR 2. or from robbery. suppose the son also died within 1 year or may be 2 years. taxes and losses Q: In unpaid mortgage who is the mortgagor? ►decedent mortgagor 1.losses not compensated by insurance 4. losses incurred not better than the last day for the payment of the estate tax Property Previously Taxed ►Vanishing Deduction Return Requirement: 1.arising from fire.Person is legally married GR: if single not allowed to claim Except: if head of the family 2.person at least 50 years old 3. Limit: FMV should not exceeds 1 million otherwise the excess will be subject to estate tax.Family Home actual residence of the decedent 3.000 you include 1 million 2. Francis J. storms.3 years -60% 4. shipwreck or other casualties.amount not exceeding P500.losses not been claimed as a deduction for income as purpose 5. legacies.5years – 20% 2. ►must be duly substantiated with receipt RETIREMENT PAY UNDER RA 4917 (RETIREMENT PAY WITH PRIVATE PLAN) Requirements: 1. theft or unbezzlement 3. 2years – 80% 5.Certification of Barangay Captain of locality STANDARD DEDUCTIONS ►automatic: RR 2-2003 no requirement provided the decedent is the one in 86 (A) (RC. 10 years in service 4.Estate tax or Donor’s tax already paid by the Estate of the Decedent (1st par) 3. RA) MEDICAL EXPENSES Requirements: 1. the property must be acquired by inheritance or donation 2.Losses Requirements: 1.medical expenses incurred by the decedent within one (1) year prior to his death.

real property b. For proper deduction must include E. transmission or delivery of the inheritance or legacy by the fiduciary heir or legatee to the fideicommissary. when the same consists of registered or registrable prop such as: a. is it required to file a return? A: General Rule: No Exception: a. gross value of the estate exceeds P200.even though exempt. below E. 2. when gross values of the estate exceeds P200.000 Q: When filed? A: within two (2) months 1. other similar property where clearance from BIR necessary for transfer of ownership in the name of the transferee ►return must set forth the following: 1. legacies or transfers to (1) social welfare (2) cultural and (3) charitable institution Requirements: 1.Taxation law review notes . Deductions Allowed to Non resident Estates 1.Property Previously taxed 3.Transfers for public use C. the gross is at least 3-4 million SECTION 90 ESTATES TAX RETURNS Q: When required to file return? A: 1.Determine value of right of usufruct: ►consider the probable life of the beneficiary based on the latest Basic Standard Mortality Table B. Sababan TAKE NOTE: This is a deduction in the nature of exemption.000 b.same period after qualifying as executor or administrator ►give a written notice Q: If the Net Estate is at least P16. Miscellaneous Provisions For NRA: No deduction allowed unless include in the return the value at the time of his death that part of his gross estate not situated in the Philippines. what is the requirement? 72 . in accordance with the desire of the predecessor. 4.FMV determined by Commissioner 2.value of the gross estate at time of death 2. gross value exceeds P200.not more than 30% of donation (BDL) shall be used by such institutions for administration purposes.regardless of gross value of the estate. after decedent’s death 2.000 will you in form the commissioner? A: yes. Tax Credit for Estate Tax Paid to Foreign Country SECTION 87 EXEMPTION OF CERTAIN ACQUISITION AND TRANSMISSIONS 1. 3.FMV schedule of values fixed by the Provincial or City Assessors SECTION 89 NOTICE OF DEATH TO BE FILED Q: What is the Basis? A: the gross estate of the person Q:When is the notice required to be filed? A: 1.Usufruct 1.although exempt.motor vehicle c. All bequest.no part of the net income insures to the benefit of any individual. transmission from the first heir.Properties ►fair market value of the Estate at the time of death 1. legatee or legacy donee in favor of another beneficiary. Shares in the Conjugal Property D. Francis J.all cases of transfer subject to tax 2.000 3.information necessary to establish correct taxes Q: What if Estate is exempt.deductions allowed 3. Merger of usufruct in the owner of the naked title. 2.all cases of transfer subject to tax 2. SECTION 88 DETERMINATION OF THE VALUE OF THE ESTATE A. all other retirement plan is excluded B. devises.ELIT 2. shares of stocks d.estate contains registrable property Q: if the estate or gross estate exceeds 2 million.Atty.

Is this subject to donor’s tax? A: NO. 187. and C. 128 down) Q: Mayor Binay of Makati ordered the collection of elevator tax (for elevator in the 73 . municipality or barangay collect the tax if there is no tax ordinance? A: NO. namely A. Place of filing: ►return shall be filed with: 1. A renounces his inheritance coming from the parents. Francis J. collection officer 4.authorized agent bank 2. the requirement is not absolute (by discretion only). A said “I am renouncing my inheritance. (§186) tax ordinance Q: Can BIR collect the tax even in the absence of a revenue regulation? A: YES. Q: Why is it that there should be a tax ordinance as required by §186? A: The rationale is not mentioned in §186. is this subject to donor’s tax? A: YES. Sababan A: return must be duly certified by a CPA B. Renunciation is to the disadvantage of the brother. TAKE NOTE: There is no exact amount. if there is no proof presented other than his own statement. It is exempt. but if you read the other provisions of the LGC. but since the petitioner failed to produce evidence to support his allegation. a resident. REYES vs. then go to §151.Taxation law review notes . he maintains that under §186 last phrase. that requirement is an absolute one. Is the order of Mayor Binay legally tenable? A: NO.Atty. SECRETARY (320 SCRA 486) F: In the municipality of San Juan (just beside Mandaluyong) there was a tax ordinance passed.order of court approving the same C. it always say: one-half if the town or municipality shall collect a tax of not exceeding 1% of the gross receipt. city. there should always be a public hearing. public hearing In Congress. Reyes. it is the tax ordinance which will fix the exact amount. Extension of Time Time: 30 days Grounds: meritorious cases Who grants: Commissioner D. hence. There should always be a tax ordinance after conducting a public hearing. claims that there was no public hearing conducted. Time of Filing ►filed within 6 months from decedent’s death ►within 30 days for filing the return ►within 30 days after promulgation of such order 1. » In most of these provisions. with the office of the commissioner. duly authorized treasurer ►city or municipality in which decedent was domiciled at the time of his death Q: What if non resident? A: NR with no legal residence here. Q: Let us say there are 3 compulsory heirs. but A renounces his inheritance in favor of his 2 siblings.certified copy of the schedule of partition and 2. Real Property Tax THE LOCAL city hall). Q: But if in the given example. TAXATION UNDER GOVERNMENT CODE: 1. B. Under local taxation (last phrase of §186). we hereby rule that the LOCAL TAXATION (§186. Local Tax 2. Q: Can a province. H: The SC said: “yes. you will come to set of conclusions of the reason why there must be a tax ordinance. the requirement is ABSOLUTE. brother and sister B and C. but I am giving it to my sister B”.revenue district officer 3.

» From CTA en banc. failure to assail the validity with the specific period of time. C. Since it was filed beyond the 30day period. Francis J. » Beginning April 23. decisions of RTC involving local tax cases 2. of Justice decide? A: Within 60 days from the time the appeal was filed. municipalities and barangays. H: With regard to a tax ordinance. and receives the decision. the taxpayer has the remedy to file an action with the regular courts. we have the city council (sangguniang panlusod)  for the municipality. TWO APPEALS DECIDED BY THE CTA EN BANC: 1. Q: If you don’t agree with the validity or the constitutionality of the tax ordinance. §151 2. the appeal must be file with the SC within 15days. B. » Go to §151: The city could impose the tax already imposed by the province of by the municipality. Failure to decide within this time. §233 (real estate tax) » In addition. pursuant to RA 9282 (the law uplifting the standards of the CTA). he who alleges.Atty. CA or SC). Definitions (§132) Local Taxing Authority (§132)  for a province. w have a specific rule. 74 . General Principles (§128-130) ► reiteration provisions of the constitutional tax ► notice that the constitutional limitations on taxation do not only apply to the national government but also to local government units. his remedy is to file an appeal within 30days form the receipt of the decision to court of competent jurisdiction → RTC. the law says that the city could increase the rate of the tax by not more than 50% of the maximum EXCEPT those enumerated in §139: a) professional tax b) amusement tax A. is appealable to the CTA en banc. what will be your remedy? A: Within 30 days from the effectivity of the ordinance. the provinces. » If the decision was made within the 60 day period. we do not disturb the validity of the ordinance.Taxation law review notes . decision of the Central Board of Assessment Appeals. must prove the same. the taxpayer should file an appeal with the office of the Secretary of the DOJ (§187) REYES vs. the ruling of RTC on local tax cases. Q: Why common? A: Because the limitations or prohibitions apply to all LGUs. Common limitations on the taxing power of the LGU’s (§133) » Under the old law this was §5 of the Local Tax Code. it is the provincial board or the provincial council (sangguniang panlalawigan)  for a city. Q: Within what period should the Sec. While it is true that a public hearing is an absolute requirement. is fatal to the taxpayer. we have the barangay council. 2004. from the ruling of the RTC. cities. Q: What are the numerous taxes imposable by the province which a city now allowed to impose? A: Those enumerated in §135 to §141 of the LGC Reasons why a municipality wanted to be converted into a city: 1. SECRETARY (320 SCRA 486) F: Reyes asserted the validity and constitutionality of the tax ordinance only after the lapse of thirty (30) days (perhaps his lawyer was thinking that an ordinary statute may be contested anytime with the RTC. we have the municipal council (sangguniang pangbayan)  for the barangay or barrio. Sababan ordinance was passed in accordance to the procedure mandated by law”.

absolute prohibition 2. The lawyer of petitioner assailed the validity of the ordinance stating that it is a clear violation of §133(E). because the element of “imposed by the same taxing power” is not present. just imagine if each of the towns will impse 1peso for every head of a chicken or 50cents for every bundle of vegetable. let’s say in the city of Pasig. donations inter vivos. Taytay. » wharf – a pier » special levy on public works (§240) » allows provinces cities and municipalities to impose a special real estate tax known as “special levy or public works” » let us say the municipality established a pier for a minimal value of P10M. copra. » Marginal Farmer – a farmer or a fisherman for subsistence only. 60% of this may be recovered. just and reasonable” » It cannot be “prohibited taxation. whose immediate members are the immediate members of the family (§131(P)) VII. a person coming from Pampanga who settled in Davao City. VIII. Can the LGU impose tax on the agricultural product which is a banana? A: YES. so long as it is “fair. where the commodities came from Laguna then to Tanay. II. the LGU concerned may now impose the tax. charges or fees for the registration of vessels or ships. Estate tax. fee or charge for goods or commodities coming out or passing through the territorial jurisdiction even if in the guise of a toll or a fee (§133(E)) » an absolute prohibition » commodities marketed in a public market. It is only prohibited if it is sold by a marginal farmer. relative prohibition It shall be unlawful for the LGUs to collect: I.Taxation law review notes . the other 40% may be recovered by warfage due. Francis J. pawnshop (§131(E)) » rate of tax: does not mention rate of tax. therefore. maintained and operated by the locality (§133(D)) » wharfage due – is a custom fee imposed on the weight of the cargoes. lending investor. Cainta. PALMA DEV’T CORP v. donations mortis causa EXCEPT in §135 (§133(C)) » transfer tax on the transfer of realty to be imposed by provinces and cities (§135) NOTE: this is not a real estate tax. wharfages fees and wharage dues EXCEPT if the wharf had been established. IV. banana and coconut to be loaded in a ship docked at pier of Malangas. MALANGAS ZAMBOANGA DEL SUR (113 SCRA 572) F: Municipal council passed a tax ordinance entitled “police surveillance fee” which provide that ALL motor vehicle passing through a particular street in the town proper of Malangas which will lead to the pier or wharf will pay a certain sum of money whether it is camote. employed thousands of workers in the different banana plantation. carrying copra. the SC had no option but to declare the tax ordinance null and void for being in violation of the law.Atty. Tax. inheritance. Custom duties. fees or charges on agricultural and aquatic products when sold by marginal farmers or fishermen (§133(F)) Q: Don Antonio Florendo. VI. H: It is not the title of the ordinance which is controlling but it is the essence of the substance of the tax ordinance. The LGU can impose because Don Antonio is not a marginal farmer. this is a local tax. Documentary Stamp Tax (§133(B)) » absolute prohibition III. One is imposed by the national government and the other is by the LGU.or rice. v. Income Tax EXCEPT when levied on banks and other financing institutions (§133(A)) » the term “other financing institution shall include money changer. palay. under §240. fee or charge on pioneer and nonpioneer enterprise duly registered with the board of investments for a period of 6yrs and 4yrs respectively (133(G)) » relative prohibition because after the period. Excise tax on articles and tax. Sababan Two Common Crimes (under §133) 1. One of the owners of the motor vehicle is Palma Dev’t Corp. Tax. fees and charges on petroleum products (§133(G)) 75 . Taxes. out of P10M. The tax ordinance clearly violated §133(E).

PENILLA (198 SCRA 86) * The facts here arose under the old law under §5 (now §133) of the local tax code (PD 231) F: Petron has a factory/plant in Penilla where the raw materials petroleum products are being converted into refined petroleum products. One of the taxpayers. Nak ng puta. it is the former which is more specific. IX. Hence. 2+1 is 3%)” BULACAN v. therefore. Petron objected since under §5 (now §133(H)). it should refer to private land under §151 (although the law did not distinguish). it says there that taxes which are prohibited such as excise tax. absent ka na naman ata eh.. the law is clear it does not only prohibit the imposition of tax. and since this is a private tax on quarrying refers to a lot without any distinction.. F: The then governor. if the LGC made a qualification as to the kind of land (where it says it should be public land). the LGU must e authorized. “ineng. Under this par. H: The tax on quarrying allowed to provincial governments shall only be with regard to lands which are public lands. by implication. it shall only apply to public land? Perhaps the provincial council thought that the subject matter of the tax ordinance may be a subject matter provided in any book including the IRC. X. and since it is a tax by the national government. However. percentage tax and value added tax nonetheless. it has to comply with the limitations. you invoke §151 stating that a city can impose a tax higher than the rate provided for by law not more than 50% of the maximum (50% of the maximum of 2% is 1. argued that under §138 of the LGC. CA (299 SCRA 442) *first case decide by the SC which interpreted both the LGC and the NIRC. or worse. that it may impose a tax on a subject matter not mentioned in any book. the SC declared the tax ordinance null and void for being contrary to law. The problem is that the ordinance applies to ALL entities quarrying in the province.Taxation law review notes . fee or charge over petroleum products. Sababan » relative prohibition since under §143(H). una file kayo ng motion to dismiss. received a summon from the RTC (on complaint of a supermarket in Metro Manila) questioning the validity of the tax ordinance under §143(H) since the rate imposed was 3% I said.Atty. Francis J. fee or charge on common carriers whether by land. Republic Cement obliged to pay the tax. Moral lesson: although a tax ordinance may be passed even if the subject matter is not provided for in any law. H: The controlling provision here the old §19 (now §143(A)) that LGUs are authorized to impose the business tax for the manufacturing over any kind of commodity by and petroleum product is “any kind of commodity”. the LGU may impose a tax not exceeding 2% of the gross receipt (for cities 3%). The municipal council of Penilla imposed a tax by way of a tax ordinance saying that they are invoking the old §19 (now §143(A)) stating that municipalities are authorized to impose tax of the manufacture of any commodity. since it is manufacture of a petroleum product. it should be collected by the BIR (not the LGU). Value added tax and percentage (§133(I) EXCEPT §143(H) » Relative prohibition. » Sir. thus. Obet Panganiban together with his provincial council passed an ordinance imposing tax on quarrying under the provision of §138 of the LGC. and not only that but under §133(H). the prohibition includes the prohibition to impose excise tax and not only that. under this par. Tax. the tax on quarrying on which the province may be allowed shall only be with regard to quarrying private land. water or air (§133(J)) 76 . » My former student an assistant in the city legal attorney in a city in Metro Manila. there is a prohibition to impose excise tax and tax on quarrying under the IRC is an excise tax. PETRON v. hence. and also the SC agreed that it is an excise tax where LGU’s are prohibited from collecting. why is it a problem when the law is clear that under §138. Q: What do you think? A: I don’t agree with this ruling because between §133(H) and §143(A). the tax on petroleum products is an excise tax.

that ALL LGUs are prohibited to impose percentage tax on common carriers”. tax on transfer of realty (§135) ► Note that this is not a real estate tax. NAIA v. Premiums on re-insurance (§133(K)) » absolute prohibition. LGU is prohibited from imposing tax on common carriers. fee or charge on registration of motor vehicles and for the issuance of license and permit for driving thereof EXCEPT tricycles. Q: Why is that Makati fix the rate of 75% or 3/4 of 1%? 77 . but the operator argued that the oil pipeline is not a common carrier. saying that “we have copied the code of carrier law form the US where the definition of a common carrier is one habitually carrying not only individuals or passengers but also goods or commodities. fee or charge over the national government. an therefore what may be delegated to the LGU is the function of LTFRB. With that. PARANAQUE (JULY 2006) H: SC ruled in favor of the airport. XII. the tax ordinance passed was declared null and void for being contrary to law. one going to Pandacan Oil Depot and the other one is going to Brgy. Sababan FIRST HOLDING CO. Francis J.Taxation law review notes . not the LGC. Q: Since all the provinces and cities must follow the limitation of the rate (not exceeding ½ of 1%). the law is very explicit. v.BATANGAS CITY (300 SCRA 661) * 2nd SC ruling discussing both the IRC and LGC. The Batangas City council deemed it necessary to impose a tax on the gross receipt of the 1st holding company for the operation of the oil pipeline. because the sangguninan had to determine the actual rate considering the status of the province. it being an instrumentality. Tax. XI. fee or charge on cooperatives duly registered under the cooperative cod (RA 6938) and Business Kalakalan (RA 6810) (§133(N)) » A cooperative is exempt from local tax. The local government cannot impose tax on the national government. Taxes that can either be imposed by Provinces or Cities I. LTO (322 SCRA 805) I: Which function was delegated to the LGU? The LTO registering motor vehicles “or” the LTFRB granting franchise and regulation of common carriers? H: Under §133(L). political subdivisions and agencies and instrumentalities of the government (§133(O)) » Relative prohibition since it admits of an exception under §154 of the LGC where it says that a LGU may be authorized to impose a fee or charge for the operation of a public utility provided it is owned. we rule this as a common carrier which is under §133(J). is it violative of the equal protection clause? A: NO. Comm (328SCRA666). Taguig. Q: May the government tax itself it the taxing power is the local government? A: NO. and with more reason that it cannot impose a tax with equal LGU. and since the oil pipelines is habitually carrying petroleum products which is a commodity. the function of the LTO is prohibited.Atty. H: The SC reasoned out like in the case of Pajunar v. Tax. maintained and operated by such LGU. Airport owned by the government is not an agency. provided it is duly registered with the cooperative code and the cooperative development authority “or” Business Kalakalan (not kalkalan) XV. this is a local tax for the simple reason that it is not provide for under the topic of real estate tax (§198-280) ► Law says “it should not exceed ½ of 1% of the consideration” (NOTE: do not use zonal value since this is used only under the IRC. D. F: This revealed to the public the existence of 2 very big oil pipelines coming form Batangas City with a distance of more than 100km. Tax. Bicutan. Paranaque being a LGU can’t impose tax on a government instrumentality. Tax. fee or charge on exportation of products and is actually exported EXCEPT under §143(C) where the LGU is authorized to impose business tax on exportation (§133(M)) XIV. XIII. (§133(L)) BATUAN CITY v. and not only that but under §170 of the LGC.

you are not exclusively for public use since every time a person wants to use the LRT he has to pay. Francis J. cooperatives registered under the cooperative code (RA 6938) 3. franchise tax (§137) ► The old national franchise tax under the old tax code was already abolished. The LGC in §199(B) and in §217. that is 50% of ½ is 25% (50+25 is 75%). Q: Why not use the defense that it is owned by the government? A: Because in real estate tax. Mactan airport should pay Real Property Tax. it says there “unless especially provided for in this code. local franchise tax (under LGC §137) 2. the defense that it is owned by the government is not a defense. why invoke a SC ruling and codal provision which can only be applied to local tax. it may also be imposed by cities in line with §151 → those enumerated in §135 to 141. PAGCOR (197 SCRA 52) F: The city council passed a tax ordinance imposing tax on PAGCOR. local taxation was embodied in a separate book known as Local Tax Code (PD 231) while real property tax was provided for in a separate book known as Real Property Tax Code (PD 464) LRT v. 1992). Under §193. Therefore. known as national franchise tax → provided for in the republic act granting franchise. BASCO v. ► Before the codification in 1991 (to take effect January 1. CITY OF MANILA (342 SCRA 692) F: The Manila city government tried to collect real property tax but the management of the LRT said “no you cannot do that to us since it is exclusively for public use”. ► in §134. on printing and publication of magazines and periodicals. both provisions says that the basis for the imposition of real estate tax is the ACTUAL USE of anybody who is using that (maybe in the concept of usufructuary or in the concept of a lessee. local water districts 2.Taxation law review notes . it is 100% erroneous since the real estate tax is not a local tax. CEBU v. a province cannot impose this because the tax on business can only be imposed by a city or municipality EXCEPT this one. meaning it should only be collected within its territorial jurisdiction). or in the concept of an owner). a LGU. H: The lawyer of Mactan airport is devoid of any merit at all. NOTE: Do not apply transfer of realty pursuant to RA 6657 (CARP) → this is the Comprehensive Agrarian Reform Program → this is exempt. national franchise tax (provided for in the statute or republic act authorizing the franchise) Q: May LGUs impose local franchise tax? A: We have to consider here many supreme court decisions and also §193 of the LGC. exemptions granted to natural juridical persons are hereby withdrawn (abolished) EXCEPT: 1. ► We still have franchise tax other than this one. tax on printing an publication (§136) ► Normally. the basis is not ownership. PAGCOR objected saying that the local city is prohibited under the old local authority act to impose tax on an agency of the government. Cebu. Sababan A: Because cities are authorized to increase the rate of 50% of the maximum. H: NO. non-profit and non-stock educational institution. an agency of the government. MACTAN (261 SCRA 667) F: Cebu government was trying to collect real estate tax from the Mactan airport (note: real property tax is a territorial tax.Atty. 78 . and they also invoked the ruling in BASCO. cannot impose tax on an agency of the government. hence. H: The SC declared null and void the tax ordinance saying Manila cannot do that. the taxes here must not only be imposed by provinces. Two kinds of Franchise Tax: 1. Lawyers of Mactan airport argued that under §13(O). II. III.

IV. Sababan CAGAYAN DE ORO ELECTRIC CO. and not only that §140 speaks of 79 . the only requirement is that it must be reasonable VI. professional tax (§139) ► this must be correlated with the tax under §147. because §193 says “upon effectivity of this law”. QUEZON CITY (137 SCRA 358) F: The city government enacted a tax ordinance trying to collect amusement tax including amusement tax on the PBA (in Araneta. it is the intention of the author that it is only the national government. the increase is not allowed. since the exact amt must be fixed by the ordinance. For exemptions covered by §193 therefore. because the taxing powers are different. the removal of exemptions granted by different statutes and also by SC decisions applies only to statutes and decided by the SC on or before Jan. There is no violation of the prohibited double taxation. but it includes those which claim exemptions by virtue of the case of Cagayan de Oro (because SC decisions are also laws). H: By the very explicit provision of §193. there are only two (2) kinds of franchise. Cubao). ► both §139 and §147 are taxes imposed on persons exercising professional calling. Section 139 are to be imposed by provinces and cities are applicable to workers who must pass a government examination (e. in the enumerations of amusement under §140. amusement tax (§140) ► under the IRC. 1. *nak ng putang katangahan yan. tax on sand. etc) there is a maximum (P300) NOTE: it is not always 300..Atty.Taxation law review notes . you will never see professional basketball. MISAMIS OCCIDENTAL (181 SCRA 38) * This was the prevailing rule for more than 10years from 1988 H: In the franchise or the republic act. engineers. PLDT v. one is a franchise which provide for a condition that this tax (referring to the franchise tax) shall be in lieu of all other taxes.g. but PBA and “no. the province or the city can impose local franchise tax if the franchise belong to the second example. since professional basketball was born May 1975. Smart and Globe are authorized to claim exemptions because the statue (RA 7082) was enacted on 1995. there is also amusement tax under §125. Most of all. we are already paying amusement tax to the national government through the BIR because of §125 of the IRC” H: QC government can no longer collect on the ground that it is already being collected by the national government and secondly. v. gravel and other quarry resources (§138) ► We are through with that in the case of Bulacan V. SAN PABLO CITY (305 SCRA 353) * Here the SC uniformly ruled H: A provision on exemption under §193 don’t only refer to exemptions provided for by different statutes. physicians. DAVAO (363 SCRA 750) F: The franchise holders of Smart and Globe are claiming exemptions from the local franchise tax because they are saying that they are holding a franchise which says that it is a franchise enacted by the house of Congress in 1995 which carries with it an exemption form local franchise tax. PBA v. the local tax code PD 231 was enacted in 1974 when we don’t have any professional basketball. 1992.. Section 147 are to be imposed by municipalities and cities are applicable to persons who are working but are not required to take government examinations It does not provide for any amount. REYES v. Francis J. and the other franchise is the one which do not provide for such provision. ► NOTE that this is an exemption to the rule that a city may increase the rate of the tax → under §151 of the LGC. * ano ba dapt tama diyan? → both the national government and the QC government can collect.

you have to determine the marketing system of the company. “how could it be. it carries with it the business of wholesaling”. b. the tax to be imposed by the barangay. the exemption under §133(i) Q: If you have two branches. It depends: a. contractor’s tax f. NOTE: These distinctions do not apply in wholesaling. Municipalities in Metro Manila who can increase their rate (§144) A: The applicable tax is under §143(G) (peddler’s tax. Francis J. Q: On the business of retailing. they are obliged to pay by virtue of another tax ordinance imposing business tax on wholesaling. NOTE: §135-141.Taxation law review notes . manufacturing. with the payment of the business tax on 80 . Naturally. the manufacturer must still pay the business tax on wholesale because now it could be argued that they have the separate business of wholesaling. should the business tax of retailing be imposed by the city or by the municipality “OR” by the barangay in the city or the barrio in the municipality? A: §143(D) must be correlated with §152. but “sako” lang? manufacturing. Sababan amusement tax on admission fee but under §125. delivery van (§141) Q: What if not a delivery van. how many business taxes do you have to pay? A: You pay only one business tax (§146) ILO-ILO BOTTLERS v. yari siya ng province sa tax. it is abut gross receipts. including the manufacturer of permitted liquor and also its dealer b. the business tax on wholesaling should no longer be paid it should only be the business tax on manufacturing. Ilo-ilo Bottlers argued. barrio » if the gross receipt of the retailer did not exceed P30T within a period of one year. d. Later on. it necessary follows that you sell the commodity so. §143-150 are taxes to be imposed by MUNICIPALITIES. one imposed by municipalities and cities. If wholesaling is also being done in the place of manufacture. Taxes that can either be imposed by Municipalities or Cities I. peddler’s tax h. barangay » if the gross receipt of the retailer did not exceed P50T. municipality » if the gross receipt of the retailer did not exceed P30T within a period of one year. it is the barangay council where the business of retailing is located. if you manufacture. H: NO. retailing e.Atty. ILO-ILO CITY (164 SCRA 607) F: Ilo-ilo Bottlers was already paying a business tax on manufacturing under §143(A) to the city government by virtue of a tax ordinance. exportation d. If may dalang sasakyan. c. it may go as far as 3%) II. repacking. these are taxes that can be imposed by PROVINCES and CITIES. the municipality may impose a tax not exceeding 2% of the gross receipt (with regard to a city. which can also be imposed by CITIES. processing. But if the marketing system of the company provides that wholesaling shall be done in a separate place (maybe several kilometers away). tax on banking institution and financing institution g. wholesaling c. city » if the gross receipt of the retailer exceeds P50T in a minimum of one year. VII. it is the right and privilege of a city to impose the business tax on retailing. Business Tax (§143(A-H)) a. These are only for retailing. ► Paragraph H: for the imposition of excise tax. percentage tax and value added tax. E.

Situs of Tax (§150) ► The tax referred to in here is the business tax on wholesaling and retailing. the answer is still the same because delivery to the carrier is delivery to the buyer where delivery has been termed within the territorial jurisdiction of Cebu.Taxation law review notes . fees and charges (§149) F. Fees for sealing and licensing of weights and measures (§148) V. Power to impose tax: 1. Q: Is there a conflict with the case of Shell and Phil Matches? A: NONE. by way of wholesale in the warehouse in Cebu City. CEBU (81 SCRA 99) F: Phil Matches were produced in Nagtahan. one of them is Swift hotdogs. The contract of sale was negotiated and perfected in different municipalities where the motor vehicle of Shell was traveling. PHIL MATCHES v. For barangay clearance » if you want to engage in the business of retailing or wholesaling → if barangay captain will not approve that → within 7days go to the municipal hall or city hall for approval 5. is the answer still the same? A: YES. May the business tax ordinance of Cebu be imposed on those transactions even if the buyers did not come from the territorial jurisdiction of Cebu? H: Since in this case the contract booked and paid. but also to the inter country from Batanes to Tawi-tawi. On billboards. all towns in Camarines Norte. G. Sababan ► Right now municipalities: 1. signboards. the Cebu City government has the right to collect business tax. Manila. Francis J. CEBUCOT. SHELL v. this is being sold not only in Mandaluyong. Q: RFM is manufacturing commodities. On commercial breeding of fighting cocks. they came from different towns of the Visayan Region. San Juan 2. Many of the customers. As a matter of fact. ► If it so happens that the company has a factory different from the place where the principal office is located → 30% should be pain in the principal office and 70% in the municipality or city where the branch is located. Dimalaon. Taxing (§152) ► Only a reasonable) Powers minimal of the sum Barangay (fair and III. meaning.Atty. Pateros there are only two Q: What if there is an agreement that commodities would be delivered and that the buyer would be waiting in some other town. Metro Manila. cockfights and cockpits » must be for commercial purposes 2. the said municipality cannot impose tax on that because the contract of sale was negotiated and perfected in the different nearby towns of Camarines. there was a warehouse where the matches were stored. Professional Tax (§147) ► we are through with that IV. For the use of barangay property 81 . In Cebu city. Fishery rentals. neon signs and outdoor advertisements » especially for the barrios and barangays along the highway 4. Where should the business tax of wholesaling or the business tax of retailing be paid? Should it be in the principal office (Mandaluyong) “or” the place where the commodities are sold? A: It will be paid in the place where it had been sold PROVIDED there is a branch office or a sales outlet (§150(A)). these two decisions complement each other. CAMARINES SUR (105 PHIL 1063) F: The petroleum products were purchased at the motor vehicle traversing the neighboring towns of Cebucot like Bason. On places of recreation which charge administration fee 3. it was negotiated perfected and consummated in the warehouse where it was located in Cebu City. H: Although the oil depot was located in Cebucot.

they are liable to pay the tax. they do not 82 . the North and South Express were totally dismantled and totally destroyed by the DPWH to give way to the final and executory ruling of the Court. members of the PMP 3. Meaning you are a resident of the Philippines. disabled citizens 65 years and older. The Makati RTC. it should only be the province. » NOTE: that Res Judicata do not apply here. you do not pay. ► This is applied to both natural and juridical persons. Q: Is there a difference for those who reached 18 in the months of Jan-Feb-March and those who reached 18 in the months of April-May-June? A: YES. mutually agreed that the collection shall be resumed ► In the old days. For those who celebrated birthdays in the months of Jan-Feb-March. known as “residence tax certificate. in order to have money for the maintenance and repair of the highway. the CA and SC had a uniform ruling that the operator should be prohibited from collecting further toll fess because if the operator had already recovered his investment and earned an income already. they have a grace period of 20days within which to pay. for corporations → upon registration with the SEC Q: What if you become 18 in the month of January or November or December? A: For those who celebrated their birthday before July 1 (that is up to June 30). for a natural person → at least 18 years of age 2. municipalities could impose the same.Atty. But it does not follow that all the provinces. members of AFP 2. that if you go to Luneta. Francis J. These are: 1. Exceptions to §155 (collection of toll fees) 1. I. For those who celebrated their birthday on or after July 1. he should be stopped. because the basis of imposition of this tax is whether or not you are an inhabitant of the Philippines. You have to pay unless the foreigner is a trans-investor for not more than 3months. Requirements: 1. After several months. Only the LGU which operate. cities. you do not pay the city government of Manila. service fee and charges » for services rendered 2. Sababan » for instance the barangay has a plaza. but have to wait until next year.Taxation law review notes . Those who celebrated their 18th birthday in the month of April-May-June. it copied the argument of the lawyer (re: Luneta). operate and maintained by them 3. that It should no longer be collected. maintain the entity If established by the province. they are not yet liable to pay this year. physically handicapped 5. Q: What about a foreigner residing in the Philippines (RA)? A: YES. Q: If the Filipino is a resident of a foreign country (NRC). When the ruling became final an executory in 1993. toll fees and charges » tax or toll for the use of a bridge or a street ► Padua filed a civil action in the MakatI RTC trying to stop the government form collecting a toll free in the South Express including the North expressway alleging that he is affected as a taxpayer because he is from Paranaque. public utility charges » provided owned. Common Revenue Raising Powers (§153-155) Q: Why common? A: All the LGU could impose the same. post office personnel delivering mail 4. He argued that if you use the property of the government like a street or a public plaza. establish. Community Tax (§156) H. the government announced in the radio that the party in the case of Padua. As argue by the SC. He made the analogy. is he liable to pay the community tax certificate? A: NO. for this year.

Q: Why is it important to know whether the assessment is under normal or abnormal condition? A: It is important to know because the prescriptive period between normal and abnormal assessment differ. Q: If you have a community tax certificate for this year (2006). In this example. Supposed he filed his return covering 2004 on April 1. Francis J. 2006. 2. do you have to wait until January 2007? A: NO. the taxpayer is now being assessed for tax due for 2004. 203. 222. NIRC: 1. NIRC) ► 3 Ways of filing the return under Sec. ► Accrual of the Tax (§166) January 1 II. an omission or failure to file the return. a return must be filed and paid for Net Income Tax on or before April 15. Normal/Ordinary assessment and collection – Sec. » For the calendar year of 2004. It shall be valid up to April 15. REMEDIES UNDER REVENUE CODE THE INTERNAL 1. it was fraudulent. 2. Since he was not able to meet the deadline. Abnormal/Extraordinary assessment and collection ► There was: 1. Binay: “hindi nga pupwede. The burden of proof to prove that the return was false and fraudulent lies against the government through the BIR. NIRC 2. if return is filed after the deadline. Assessment 2. sabi ng mga bata niya: “bosing. Sababan have any grace period at all. To minimize interest and surcharges. Normal/Ordinary Assessment – 3 years from the time the return has been filed (not the payment of the tax) (Sec. filed on the date of deadline 3. if return is filed before or on the day of the deadline. it must be proven by the BIR. Remedies of the Government 2. You have the right to collect that in July 1. filed before the deadline (for any tax under NIRC) 2. Q: What if the tax ordinance had been existing for several years already? A: The time of accrual will always be January 1. Prescriptive Period for Assessment 1. they have to pay the tax immediately. 203. or. assessment and collection have 2 kinds: 1. the reckoning point Q: What if the tax was only approved in the month of May 2006. filed after the deadline ► 2 Ways of counting the 3 year period of Assessment: 1. because the law is saying that “it should be collected in the next succeeding quarter” (§167) ► Mayor Binay had a tax ordinance in May. Abnormal/Extraordinary assessment and collection – Sec. 203. NIRC I. can it be used only until December 31. if there was a return filed. (§163(C)) J. 2007. false and fraudulent return is not presumed. 2005. the prescriptive period starts on the date the return has been filed. Collection Under the NIRC. Normal/Ordinary assessment and collection ► There was a return filed and it is not fraudulent and not false 83 . it has been suggested by the BIR that the taxpayer file a late return.Atty. Remedies of the Taxpayer Remedies of the government: 1.Taxation law review notes . the return was false Q: Is a false and fraudulent return presumed? A: NO. 3. The mere fact that the return is erroneous will not make the return fraudulent. maghintay pa tayo ng July 1”. the prescriptive period starts on the date of the deadline. collect na tayo ng June”. 2006? A: NO.

if the prescriptive period for collection under abnormal is 3 years. If the notice is sent through registered mail. Assess and Collect » the prescriptive period for “assessment” shall be 10 years from the discovery of none filing or false or fraudulent return (Sec. Count the prescriptive period for collection from the date of final assessment. 222. par.Intention of the author: 5 years from the date of final assessment Reasons: (Sababan agrees with the 5 year prescriptive period) Prescriptive period of collection under 1st option on Abnormal Assessment is 5 years from final assessment (Sec. 222. ► These options are available only if the Assessment is under the Abnormal/Extraordinary Conditions. BASILAN v. 2. under the old code of 1939. » Suppose it is not a late filing of return. Francis J. If now a days.Atty. 222. Collect Without Assessment through Judicial Action » since there is “no assessment” there is no prescriptive period for assessment » prescriptive period for “collection” shall be 10 years from the date of discovery of none filing of return or false or fraudulent return. Abnormal/Extraordinary Assessment the government has 2 options: a. NIRC) 1. ► 84 . assess and collect – 5 years from the final assessment b. 2000. Abnormal/Extraordinary Collection a. par c. Sababan is the deadline of April 15. to say that there is a prescriptive period for collection under Abnormal and there is none under Normal is too abnormal. NIRC) b. 2. first determine the date of final assessment. Q: (same facts) Supposed it was finally assed on March 2003. COMMISSIONER (21 SCRA 17) F: Supposed the notice of assessment was given within the period but it was received by the taxpayer outside the period. collect without assessment through judicial action – 10 years from date of discovery of none filing. Q: How to apply these periods? A: Annual net income tax return filed by individual using a calendar year. period is on the date the return is filed which is April 1. the running of the prescriptive period is “stopped”. If the BIR finally assessed the tax in November 2001. Q Without stating the date of final assessment. par c. Normal/Ordinary Collection – Sec. What matters is the sending of the notice is made within the period of prescription. the prescriptive period for normal should also be 5 years. can it be collected in 2007? A: Yes. These are not available under Normal/Ordinary Assessment Prescriptive Period for Collection 1. and 1985. The return should be filed on or before April 15. then 2007 is way beyond the 5year period to collect. 1977. or fraudulent return. 203 did not provide for the prescriptive period for the collection . can it be collected in 2007? A: Under normal condition. 2000. It is within the period. then the prescriptive period for collection under normal is also 3 years. or false. The starting point of the counting the 3 yr. I: Whether or not the assessment is within the period of 3 years. the counting of the period is on the date of the deadline which is April 15. 2. it is 5 years in abnormal. It should be the other way around. because it is within the prescriptive period of 5years. 2006. It was filed on April 15. ► It is the sending of the notice and not the receipt that tolls the prescriptive period. NIRC) » the prescriptive period for “collection” shall be 5 years from the date of final assessment (Sec.Taxation law review notes . 2005. o. H: Yes.

Preliminary Assessment Notice 3. NIRC 1. PHOENIX v. 252. RR 12-99) Steps of assessment 1. payment under protest is the one mentioned in Real Property Tax under Sec. the counting of the prescriptive period is still the original period. RA 7651) ► In all protest under the different codes. Failure to file a reply. the final assessment shall become final and executory. 228. BIR will repeat PAN b. RR 12-99) 1. If the taxpayer don’t want to file protest under VAT but want to file a protest under NIT. 2313. Tariff and Customs Code (Sec. Declare the taxpayer in default. Procedure for Assessment (Sec. ► On the 51st day you filed the necessary document. how would you compute the period of assessment? A: NIRC is silent. 228. RR 12-99 ► If the taxpayer receives 2 final assessments. Sec. FORMS OF PROTEST 1. NIRC and RR 12-99 requires the exhaustion of administrative remedy of protest. file a reply within 15 days from receipt of notice. file a reply within 15 days from receipt 4. Pre-assessment notice 2. you have to count another 85 . BIR will send a Preliminary Notice of Assessment 3. Q: Is FAN the one appealable to the Court of Tax Appeals (CTA)? A: NO. Protest is referred to as: 1. 228. Formal Letter of Demand and Notice to Pay the Tax PROCEDURE (Sec. 125. Upon receipt of Preliminary Assessment Notice (PAN). COMMISIONER (14 SCRA 52) If the amendment of the return is substantial as distinguished from superficial. The prescriptive period shall be reckoned on the date the substantial amendment was made. Sababan Q: What if the return has been amended. After the receipt of FAN or formal demand within 30days must file a protest before the office of the commissioner of internal revenue. payment under protest is only necessary under the “Real Estate Tax”. Notice of Informal Conference 2. Q: What is the effect of failure to file the supporting documents? A: Failure to file the necessary and supporting documents within the 60day period. Francis J. 252. NIRC (2 steps) 2. Upon receipt of the notice of informal conference. Upon receipt of FAN. the counting of the prescriptive period is also amended. taxpayer may file a protest within 30 days. This is because §228. disputing of final assessment or 2. NIRC.Atty. The taxpayer in order to be allowed to file a protest under the NIT must first pay the VAT where he does not intend to file a protest. Local Government Code (LGC)) 2. RR 12-99 (3 steps) 2 Steps under Sec. LGC. Under NIRC. and send you a Final Assessment Notice (FAN) 5. Final assessment notice 3 Steps under RR 12-99 1. LGC) 3.Taxation law review notes . If the amendment is superficial. 2 things may happen: a. 2. ► This is not “payment under protest” because. BIR will send again the Notice of Informal Conference or b. 228. Failure to file a reply will result in either: a. one under the Net Income Tax (NIT) and the other in VAT. to be counted on the day the protest is filed. Local Tax (Sec. file a motion for reconsideration or reinvestigation Q: What should be done after filing a protest? A: Count 60days is the period to file the necessary documents and receipts in support of the protest. NIRC. Real Property Tax (Sec.

If the decision was made within 180 days. was about to conduct the hearing of the case. whether the appeal was made within 30 days from the receipt of the said decision. COMMISSIONER F: The taxpayer was waiting for the decision of his protest. The case was ruled only by the CTA. he filed a Motion for Reconsideration and Clarification asking whether his protest has been denied. Francis J. I: Whether or not the remedy of Appeal was the correct remedy and Whether or not it was filed on time. what is your remedy? A: 1. hence it is not a law. Q: During the pendency of the protest in the office of the Commissioner. UNION SHIPPING LINES v.Atty. Immediately. he received a notice of collection. one in the CTA and another in CFI. Hence an appeal is a proper remedy. you have to wait for the BIR to take positive action. if there was no decision after the lapse of 180 days. when the BIR filed an ordinary action. the CTA will determine: 1. RR 12-99 says that after lapse of 180days but within 30days after 180days. Q: Supposed the CTA. Simultaneously.Taxation law review notes . YABES v. The BIR did not reply or answer but instead filed an Ordinary Civil Action before the CFI. But instead. or 2. whether the 86 . Q: Was the appeal made on time? A: Yes. COMMISSIONER (185 SCRA 547) YABES v. the taxpayer filed an injunction with the SC to prohibit the judge of the CFI contending that a single cause of action is pending in two courts. before you file an appeal although the 180 days have lapsed. Q: Supposed the BIR rule within 180? A: Within 30days from receipt of the decision file an appeal to the CTA sitting in division. UNION SHIPPING LINES v. The remedy of appeal is the correct remedy and the appeal was filed on time. He then filed an “appeal” with the CTA contending his protest has been denied because he did not receive a decision but receive a notice of collection. levy and/ or distraint. Q: Supposed the CTA en banc decided not in your favor? A: File an appeal within 15days from receipt of decision to Supreme Court. The reckoning period within which to file an appeal is the time the taxpayer received the summons. When the judge of the CFI. H: Yes. remedy is to file an appeal. H: Injunction was granted prohibiting the Judge of the CFI and requiring the Judge to transfer the records to the CTA saying that the remedy made by the taxpayer was the correct remedy. RA 9282 provides that in case of inaction of the commissioner after the lapse of 180days. When the taxpayer received summons. the protest is deemed denied. Relevance of the 180 Days: 180 days is the time given to the BIR to decide the case Q: Supposed it did not decide the case within 180days? A: Do not invoke the Lascano case because it was rejected by RA 9282 In the Lascano case. the BIR filed before the CFI an “ordinary civil action” for the collection of sum of money. The jurisdiction of the CTA has been amended by RA 9282. in division decided not in you favor? A: File an appeal to the CTA sitting en banc. supposed you receive a notice of collection. While an Appeal is pending before the CTA. that is the time to file an appeal. which is 180 days from the day you filed the necessary documents. Sababan period. he did not answer but instead filed an Appeal before the CTA. Q: Supposed the CTA decided not in your favor? A: File a motion for reconsideration within 15days to the same division deciding the case. COMMISSIONER (150 SCRA 278) 2. COMMISSIONER (150 SCRA 278) F: The taxpayer receives a notice of collection while waiting for the decision of his protest.

In order to avoid multiplicity of suits ► ACCORDING TO JUSTICE VITUG: BATANGAS v. but now a days. the automatic appeal applies to both protest and forfeiture. Q: If the treasurer rules against the taxpayer.Taxation law review notes . COLLECTOR (102 PHIL 822) H: Yes. 87 . Decision of the RTC involving local taxation exercising appellate jurisdiction 2. 2004. sitting en banc. COMMISSIONER (19 SCRA 25) 2. COLLECTOR (102 PHIL 822) GUERRERO v. Francis J. NOTE: Pursuant to RA 9282. Because it is no longer the disputed assessment. the remedy is to file a protest but there must be first Payment Under Protest. the automatic appeal under the TCC applied only to protest. 195. LGC • If the taxpayer receives a Notice of Assessment from municipal. or provincial treasurer. ► Beginning April 23. COLLECTOR (102 PHIL 822) is the better ruling PROTEST UNDER LOCAL TAX (Sec. can the BIR amend the final assessment? A: 2 SCHOOLS OF THOUGHT: 1. 226. PROTEST UNDER REAL PROPERTY TAX (Secs. 230. LGC) ► Under NIRC. It can now be appealed to the CTA. protest is filed in the Office of the Commissioner ► Under LGC. 2313. remedy? A: Go to the court of competent jurisdiction (RTC) Q: If the RTC decided not in you favor? A: File an appeal with CTA en banc (beginning April 23. remedy? A: The remedy is to file an appeal to the Local Board of Assessment within 30days from the receipt of the decision. BATANGAS v. PROTEST UNDER THE TARIFF AND CUSTOMS CODE (TCC) (Sec. GUERRERO v. Decision of the Central Board of Assessment Appeal exercising appellate jurisdiction. the ruling of the Central Board of Assessment Appeal is no longer final. For Forfeiture Under the Tariff and Customs Code ► Refers to the Order of the Collector confiscating the imported goods or commodities Doctrine of Primary Jurisdiction If the Collector ordered the forfeiture of the imported commodities the order of the Collector shall be to the exclusion of all government offices and authority. Q: From the decision of the Local Board of Assessment? A: Appeal should be made to the Central Board of Assessment Appeal. BATANGAS v.This is the only instance where payment under protest is necessary Q: How is payment under protest made? A: At the back of the receipt there will be an annotation that there was a payment under protest within 60days from receipt of the notice of assessment within the same treasurer who issued the assessment. COMMISSIONER (19 SCRA 25) H: No. Q: Pending appeal with the CTA. 252. 2004) Q: If the CTA decided not in your favor? A: Appeal to the SC. city. and 252) • Remedy shall be the same Sec. protest is filed with the same City or Provincial or Municipal Treasurer who issued the assessment Period to file Protest • 60 days from receipt of assessment Q: If the treasurer did not decide within a 60day period.Atty. direct appeal to CTA en banc can be made from: 1. as amended by RA 7651) ► Formerly. Sababan appeal was made within 30 days upon the expiration or the lapse of the 180-day period. .

CRIMINAL CASES? . decision of the Secretary of Finance on countervening duty.Taxation law review notes . IF P5 MILLION OR MORE – AUTOMATIC REVIEW SHALL BE BEFORE THE SECRETARY OF THE DEPT. • From the ruling of the Commissioner. 2313 of TCC as amended by RA 7651. sitting in division. the importer should file an appeal within 15 days before the CTA sitting en banc. cases of anti-dumping duty. • From the ruling of the CTA in division. IF IT INVOLVES FRAUD 3. the custom duties is only P27 but the collector says it should be P52.YES. IF LESS THAN P5 MILLION – AUTOMATIC REVIEW SHALL BE BEFORE THE OFFICE OF THE COMMISSIONER Q: Suppose the commissioner decide or did not decide within 30days.GENERAL RULE: NO . the remedy of automatic appeal is applicable to both protest and forfeiture. Q: Between the two which will be appealed to the CTA? A: The decision of the secretary which passes through the office of the commissioner (RA 9282) But not all the decision of the secretary which passes the office of the commissioner affirms or did not decide within 30days and appealed before the secretary of finance will appeal to the CTA be allowed. II. Suppose the civil case filed by the BIR is final and executor. decision of the Secretary by virtue of automatic review passing through the Commissioner 2. If the importer-taxpayer wins the case. The importer will then file a protest with the Office of the Collector. Sec. COMPROMISE (Sec. 204. IF ALREADY FILED IN COURT (RTC) OR. 1. Q: Where should the automatic review be made? A: It depends. the importer should file an appeal within 30 days before the CTA. of finance. In the old days. NIRC) 3 Questions asked in 2004 BAR: 1. there is an automatic appeal from the decision of the collector under protest. • From the ruling of the CTA in division. If the commissioner affirms or did not decide within 30days. CIVIL CASES? . there shall be an automatic review within 15 days. Supposed the corporation is already dissolved. May the Government compromise criminal cases and civil cases? 2. if the importer lose the case and the government wins. IN ANY STAGE OF THE PROCEEDING . deciding on the MR.Atty. the government lose the case. Publish the value of the commodity. 2. In both cases of protest and forfeiture. Francis J. IF THE CORPORATION IS ALREADY DISSOLVED. the importer should file an MR within 15 days before the same division hearing the case. there shall be an automatic appeal before the sec. can it be subject to compromise? CAN THERE BE COMPROMISE IN: 1. b. EXCEPT: a. where the anti-dumping duty was ordered by the Secretary 3.EXCEPT WHEN THE CIVIL CASE IS ALREADY FINAL AND EXECUTORY BECAUSE IT WILL BE VIOLATIVE OF THE SEPARATION OF POWERS 2. • From the CTA en banc. OF FINANCE. Sababan Importer of Chemical. I. the remedy is to file an appeal within 15 days before the Office of the Commissioner. But under RA 7651. There are 3 instances when the Secretary of Finance renders a decision appealable to the CTA: 1. what happens? A: If the commissioner reverses the ruling of the collector. can the stockholder be obliged to pay? 3. under the TCC.EXCEPT: 88 .YES. CAN THE STOCKHOLDER BE HELD LIABLE TO PAY TAX? . appeal to SC within 15 days. the ruling is final and executory.

Distraint of Intangible (Sec. Judicial Action a. EXCEPT. Q: What if the owner refuses to sign the receipt? A: Sec. levy or tax lien. 204) 1. ► The owner shall be requested to sign the receipt. the right of the government is limited to judicial action either civil or criminal. Tax lien Q: Why is it important to know whether the final assessment is under normal or abnormal conditions? A: It is important because of the requirement under §222. no. If the taxpayer did not file the protest on time 2. 206): 1. The taxpayer ceases or retires from business 4. 205) 1. Administrative Action a. the government (BIR) can exercise the remedies under §205 in any order or simultaneously (§207). Grounds for Constructive Distraint (Sec. After the lapse of the 180-day period. Sababan a. Distraint of Intangible Property 89 . ► THESE GROUNDS ALSO ANSWER THE QUESTION: WHAT ARE THE TAXABLE PERIOD LESSER THAN 12 MONTHS? 2. Constructive Distraint ► The distraining officer shall make a list of the personal property of the property to be distraint in the presence of the owner of the property or the person in possession of the property. The taxpayer obstructs the collection of the tax. is the 10 year period of collection applicable? A: No. Failure to submit the supporting documents within the 60-day period 3. Distraint b. IF IT IS PROVEN THAT THE ASSETS OF THE COPORATION IS TAKEN BY ONE STOCKHOLDER OR. 206) 2. Administrative remedies such as distraint. transfer. the minimum shall not be less than 10% of the original assessment. and b) deputy commissioner. and Sec. b. if allowed by the evaluation board consisting of the: a) commissioner. The taxpayer intends to leave the Philippines 2. 206: The distraining officer shall require 2 individuals within the neighborhood with the warning that they should not allow the taxpayer to dispose. If based on other grounds. If the final assessment becomes final and executory. Francis J. Criminal 2. only the 5year period should apply. But it is not always the case. Constructive (Sec. par. 2. because the right of the government to collect is limited in case of abnormal assessment/collection under §222. the minimum amount shall not be lower than 40% of the original assessment. IF THE STOCKHOLDER DID NOT PAY HIS UNPAID SUBSCRIPTION Minimum Amount to be Compromised (Sec. you did not file an appeal within the 30-day period to the CTA 4. Q: Can it be lower than that prescribed by law? A: As a rule. or sell the property subject of distraint. 207. Instances when the Final Assessment becomes final and executor: 1. or tax lien is not available under such condition. Civil b. Q: In distraint. The taxpayer leaves the Philippines 3. 208) 3. 209) 1. If the ground is financial incapacity of the taxpayer. An appeal was filed but made beyond the reglementary period to appeal METHODS OF COLLECTION (SEC.Taxation law review notes .Atty. Under the second option. a. levy. Distraint Kinds: 1. Levy c. Actual (Sec.

a report shall be made to the BIR Q: If the property sold is a personal property. There is bidder and the bid is enough 2 Things may happen in a Public Auction: 1. 211: after the sale and within 2 days. warrant of levy is served to the register of deeds having jurisdiction over the real property (Sec. ► Within 10 days from the receipt of the warrant. 2 Things may happen: 1. » In case of excess. Posting in 2 conspicuous places 2. stating the date and the place of the sale (No publication requirement) ► Sec. (§217) » In case of excess. Sababan Limited to 1. The rule is absolute. If there is no bidder or the bid is not enough. no further distraint. cost and penalties. the excess shall be returned to the taxpayer.) ► The property subject of distraint shall be sold at a public auction EXCEPT bank accounts and debits and credits. 213) ► Within 10 days from the receipt of the warrant. a report of the distraint shall be submitted to the BIR (Sec. Q: Is there A: Yes. 207 (b) last par) Notice of Sale in Public Auction: 1. During the Scheduled Auction Sale. Publication in newspaper of general circulation once a week for 3 consecutive weeks. §217 applies only if there was a bidder. par a last par. is there a right of preemption? A: SEC. Q: Is there a right of pre emption? A: Yes. a report of the levy shall be submitted to the BIR (Sec. 2.Taxation law review notes . 3. » It will be purchase by the government and the later sold in a public auction again (§212) » In case of insufficiency. the excess shall not be returned to the taxpayer but shall be remitted to the national treasury. » Notice of sale shall be by posting in 2 conspicuous place. Debits and Credits ► Warrant of distraint furnished to the debtor and creditor 3. Levy ► Other than the delinquent taxpayer. Francis J. There is a bidder and the bid is enough 2. 2.Atty. a right of redemption? Share of stocks ► Warrant of distraint furnished to the taxpayer or the officer of the corporation with the warning that the property is subject of distraint and it should not dispose of it. There is no bidder or there is a bidder but the bid is not enough Q: What is the relevance of knowing the difference? A: 1. 207. §213. is there a right of redemption? A: NO. 3 Intangible Properties: Shares of stocks Bank accounts Credits and debits 2. 210: Before the scheduled sale. Bank Accounts ► Warrant of distraint furnished to the taxpayer or the officer of the bank with the warning that the taxpayer should not be allowed to withdraw. there shall be further distraint to cover the liability. Q: If the property is a personal property. Actual Distraint ► Personal property shall be physically taken by the distraining officer. the taxpayer is allowed to recover the property by paying all the property by paying all the proper charges as well as the interest. If there is a bidder and the bid is enough » In case of insufficiency. There is no bidder or the bid is not enough Q: What if there is no bidder or the bid is not enough? A: Forfeiture shall be made (§215) 90 .

219. 217: this is only true if there was no bidder or the bid was not enough because of the provisions of the Secs. Both §173 and §257. which of the 2 obligee. the law says “purchase” ► Under sec. The order of the Collector to confiscate imported commodities (Sec. distraint is not authorized (§256. Francis J. Q: Do we have the same rule under Local Tax and Real Property Tax? A: NO. NIRC 2. 173. local tax. last portion: The government is the preferred one if the lien is annotated and recorded in the registry of deed. Local Tax – Sec. 218: no court shall issue an injunction to restrain the collection of tax under this code Determine what kind of injunction is referred to here: 1. the government is always the preferred one.Taxation law review notes . EXCEPT: CTA (Regular Court) → RA 1125 and 9282: CTA is authorized to issue injunction to restrain the collection of taxes or fees collected under other code. REPUBLIC (320 SCRA 574) F: An ordinary civil action for violation of the tax code was filed in the city of San Fernando. the law says “forfeiture” » under 215: the real property shall be automatically registered in the name of the Government (forfeiture) » under 212: the real property is not automatically registered in the name of the Government (purchase) Q: If sold at a private sale. 2.Atty. what is the requirement? A: There must be an approval of the Secretary of Finance (§216) Q: After sale. 215. Mandatory Q: Is the provision limited to “tax under this code”? A: Limited to internal revenue taxes. Violation of Excise Tax Law (Sec. TCC) Relevance of the Choice of Words: ► Under sec. because the remedy is only Judicial Action and Levy. Prohibitory – referred in Sec. 212. Tax Lien ► Non payment of tax. the government or the mortgagee shall be preferred? A: §219. because §215 says that it shall be to the total satisfaction of the taxpayer. and 216 Sec. But the filing was only approved by the Revenue Regional 91 . Real Property Tax – Sec. the government has the right to claim a lien over the property of the taxpayer 1. 218 because it restrains the collection of tax. if there was an excess? A: It shall not be returned to the taxpayer but shall be remitted to the national treasury. 212. If there is no bidder or the bid is not enough (Sec. Q: After sale. if there was deficiency? A: There shall be no further levy. The lien can only be removed by payment of tax. interest and penalty. Sec. 215) 3. Sec. NIRC – Sec. 2313. the mortgagee is preferred. but the same is being foreclosed by the mortgagee. » §175 for DISTRAINT » §176 for LEVY Q: How about real property tax? A: No. Sababan 3 Definitions of Forfeiture under the Internal Revenue Code 1. 220: approving of filing an ordinary civil action for violation of the internal revenue code ► The approval must be made by the Commissioner of Internal Revenue HIZON v. NIRC 3. 224) 2. NIRC Q: Supposed a parcel of land is about to be levied by the government. 257. 215. LGC). In the absence of annotation in the registry of deeds. Q: Is the rule of distraint or levy the same under local taxation? A: Yes.

the running of the prescribed period is suspended. §112 is refund under input tax system. ► Decision of the Commissioner of Internal Revenue (CIR) is appealable to CTA. 229.Taxation law review notes . Other Grounds for Suspension: 1. During collection if there is no property found. 112. None except sec. 1603. VAT 3. the filing of the case is legal and tenable. When he went to Canada. 7. If the BIR is prohibited from making assessment such when the subject property is under litigation 3. on matters of interpretation of tax laws. the taxpayer is allowed to credit his written claim for refund which he failed to recover to his existing tax liability. §223 provides that the taxpayer must send a written notice of change of address to the BIR. the period is suspended 2. after 15years he went back. Q: What if the change of address is within the Philippines. 253. errors in payment or. 112) ► Period is also 2 years from the close of the taxable quarter when the transaction was made Q: Can we apply §229 to VAT? A: Yes. 2. Local Tax 4. he is being assessed by the BIR under normal assessment. SEC. assessment without authority. Sec. Computed from. Sec. there are powers which can not be delegated a) Power to recommend to the Secretary of Finance to issue rules and regulation b) Power to decide a case of fist impression c) Power to enter into a compromise agreement d) Power to assign BIR officer in the place of production subject to income tax » Since the case does not fall under the prohibited delegation. Sec. §229 is refund for: 1. especially if the change is district office. Q: When is a decision of the cir appealable to the Secretary of Finance? A: §4. the period will be suspended. the BIR officer can’t locate the property CLAIM FOR REFUND (SEC 229) Written claim for refund: 1. NIRC 2. ► The period to claim refund is 2years. Has the right of the government to asses the tax already prescribed? A: NO. The plaintiff opposed the filing in the court on the ground that it should be approved by the Commissioner and the Revenue RD. Francis J. Sababan Director of Central Luzon. In the absence of the written notice. Doctrine of Equitable Recoupment ► If a taxpayer is entitled to a written claim for refund but the prescriptive period to claim has lapsed. Real Property Tax 5. 136. 220 should be read with Sec. Tariff and Custom Written claim for refund under the input tax (Sec. 223: SUSPENSION OF THE RUNNING OF PRESCRIPTIVE PERIOD Q: A Filipino taxpayer went to Canada. Q: Change of address is from Philippines to abroad? A: The period will be suspended. Sec. In distraint of levy. 7 of the NIRC » General Rule: powers and functions of the Commissioner may be delegated but not to a position lower than a Division Chief » Under Sec.Atty. 92 . is the running of the prescriptive period suspended? A: In order that the running of the prescriptive period will not be suspended. collected without authority. because there is no conflict. or 3. say only from manila to Pasay City. H: Sec.

Commissioner v. reckoning point is the date the last installment is paid.1995. the date the proceeds is applied to the satisfaction of the tax liability. To enter into a compromise agreement. because it is at that day that the tax liability is known. Q: Suppose the 2 year period is about to expire and there is no decision yet as to your refund? A: Remedy is to file an appeal before the CTA (deemed a denial) Q: Suppose the BIR decided within 2 years against the refund? A: Appeal within 30days from the decision. Non-existing . Commissioner (363 SCRA 840) 1.Taxation law review notes . Existing . if sold to public auction through distraint or levy. a return should be filed. 93 .1992. 2. when to file an appeal? A: Within 21days before the end of the 2 year period.Atty. Q: Suppose there is only 21days remaining after receiving the decision. 2. EXCEPT: 1. Upon receipt of a notice from the SEC to dissolve the corporation. Sababan a. Individual – counted on the day the tax has been paid 1. paying by way of withholding tax system. 3. CTA (301 SCRA 435) 2. and 2. Philam life (244 SCRA 446) . a written claim for refund must be filed within 2years. Non-existing – the counting of the prescriptive period should also be reckoned on the day the annual return is filed. within 30 days thereafter.1998. Corporation 1.2001. ► A written claim for refund should be filed within 2 years ► Sec 204 (c) last phrase: in case of over payment a written claim is not necessary because a return constitutes a written claim for refund. To determine the gross value of the estate. But the corporation is no longer required to wait till the taxable period is over to file the return. Commissioner v. b. there must be consent. the reckoning point is the end of the taxable year. Francis J. Q: Suppose there is a supervening event. and the taxpayer was not able to file a written claim of refund within the period? A: Regardless of supervening event. paying by way of installment. (under §204(A)) ► The written claim for refund to determine the gross value of the estate because the taxpayer is already dead In case of compromise. *** v. BPI v. Q: May the commissioner of internal revenue open the bank account of a taxpayer? A: General Rule: NO. Existing – the counting of the prescriptive period is 2 years on the day the annual adjusted return is filed. provided it is still within the 2 year period. Commissioner (205 SCRA 184) .

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