Professional Documents
Culture Documents
Taxation Law Review Notes: - Atty. Francis J. Sababan
Taxation Law Review Notes: - Atty. Francis J. Sababan
(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
-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
BASIC PRINCIPLES:
Taxation is an inherent power of the
State.
Q: What do you mean by INHERENT?
Non-impairment Clause
Q: What are the sources of obligation in the
Civil Code?
A: Law, Contracts, Quasi-Contracts, Delict,
Quasi-Delict.
Q: What is the obligation contemplated in
this limitation?
A: Those obligations arising from contracts.
General Rule: The power to tax is pursuant
to law, therefore, the obligation to pay taxes
is imposed by law, thus the non-impairment
clause does not apply.
You have to determine first the source of
obligation:
1. If the law merely provides for the
fulfillment of the obligation then the law is
not the source of the obligation.
2. When the law merely recognizes or
acknowledges the existence of an obligation
created by an act which may constitute a
contract, quasi-contract, delict, and quasidelict, and its only purpose is to regulate
such obligation, then the act itself is the
source of the obligation, not the law.
When the law establishes the obligation
and also provides for its fulfillment, then the
law itself is the source of the obligation
Q: So, 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.
In this instance, the obligation to pay the tax
is now based on the contract between the
taxpayer and the government pursuant to
their compromise agreement.
Take Note: the requirement for its
application: the parties are the government
and private individual.
Poll Tax
Q: What is a poll tax?
A: It is a tax of a fixed amount on individuals
residing within a particular territory, whether
citizens or not, without regard to their
property or to the occupation in which they
may be engaged.
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 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:
H:
H:
Q:
A:
Q:
A:
Q:
A:
10
11
is
the
12
1. individual;
2. corporate;
3. estate and trust.
I.
INDIVIDUAL TAXPAYER
13
Not
Engaged
in
CORPORATE TAXPAYER
14
15
in
the
in
16
1.
2.
3.
4.
17
18
19
20
21
b. industrial,
commercial,
scientific equipment
c. supply of knowledge
d. supply
of
services
by
nonresident
e. supply of technical assistance
f. supply of technical advice
g. right to use: motion picture
films, etc.
Q: What is the rule as regards the sale of real
property?
A: Gains, profits, and income from the sale
of real property located within the Philippines
considered income within.
Q: What about the sale of personal property,
what is the rule?
A: Determine first if the property is
produced or merely purchased.
1. it the property is manufactured in the
Philippines and sold abroad, or viceversa, it is an income partly within
and partly without.
2. if
the
property
is
purchased,
considered derived entirely from the
sources within the country where it is
sold.
EXCEPTION: shares of stock of domestic
corporation, it is an income within wherever
it is sold.
COMMISSIONER v. IAC
Q: What is the issue here?
A: They cannot determine if the business
expense was incurred in the Philippines.
Q: if you are the BIR, and the taxpayer is not
sure, will you disallow the deduction?
A: No. determine it pro rata.
Formula: GI from within
GI from without
Example: 100,000
1,000,000
= 10%
Hence, 10% is the ratable share in the
deduction. If the deduction being asked is
100,000 not all of it will be allowed. Only
10,000 or 10% of 100,000 will be allowed
as deduction.
Section 39
Q: What is capital asset?
A: Capital asset is an asset held by a
taxpayer which is not an ordinary asset.
The following are ordinary assets:
1. 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;
2. property held by the taxpayer
primarily for sale to customers in the
ordinary course of trade or business;
3. property used in trade or business of
a character which is subject to the
allowance for depreciation provided in
subsection 1.
4. real property used in trade or
business of the taxpayer.
All other property not mentioned in the
foregoing are considered capital assets.
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. Capital losses are
losses incurred from transactions involving
capital assets.
Q: What is ordinary gain? Ordinary loss?
A: Ordinary gains are those received from
transactions
involving
ordinary
assets.
Capital losses are losses incurred in
transactions involving ordinary assets.
Q: What is the relevance of making a
distinction?
A: It is relevant because Section 39B,C, and
D apply to capital assets only.
1. time when property was held (39B)
(holding period applies only to
individuals);
2. limitations on capital losses (39C);
3. Net Capital Carry-Over (39D)
I.
CAPITAL ASSETS
22
23
A: NIT
Q: What is taxable income?
A: (memorize section 31) it is the pertinent
items of gross income specified in the NIRC,
less the deductions and/or personal and
additional exemptions, if any, authorized for
such types of income by the NIRC or other
laws. It refers to NIT because it allows
deductions.
Q: What do you mean by the phrase other
than B, C, and D?
A: It means that if the elements of passive
income are present, the taxpayer has to pay
FIT.
Q: Who are the taxpayers mentioned in
section 24?
A:
1. RC
2. NRC
3. OCW
4. RA
Additionally, under Section 25, NRAETB
Q: What is the tax liability of NRAETB?
A: Section 25(1) NRAETB is subject to
income tax in the same manner as those
individuals mentioned in Section 24.
Q: What about Domestic Corporations?
A:
1. Sec. 27 A,B, and C
2. Sec. 26- GPP is not subject to income
tax.
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.
Q: Do legally married husband and wife need
to file separately or jointly?
A: It depends if:
1. Pure compensation income- separate
2. Not Pure compensation income- joint
24
Passive Income
Interest, Royalties, prizes and Other winnings
Interest
Q: Bank Interest, what is the requirement?
A: The bank must be located in the Phils.
because the income must be derived from
sources w/in.
Q: Do you include this in your ITR?
A: No! because it is subject already to FIT.
The bank is the one liable for the payment of
this.
NOTE: Liability for NIT, GIT, and MCIT will
depend on the elements present.
Q: Who are liable for bank interest?
A:
1. RC }
2. NRC} Sec. 24 B1
3. RA }
4. NRAETB
5. NRANETB Sec. 25 (25%)
6. AEMOP
7. DC
8. RFC
9. NRFC
Q: What is the rate of interest?
A: FIT of 20%
Q: Is there a lower rate?
A: 7 % if under EFCDS
Q: What if the depositor is non resident
alien?
A:
-W/in FIT
- W/out- exempt
Q: What is the rule on pre- 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. 4 yrs to less than 5 yrs 5%
b. 3 yrs to less than 4 yrs- 12%
c. Less than 3 yrs- 20%
25
Confined
dividends.
with
cash
and/or
property
26
cannot
escape
the
Requirement:
Gen Rule- the dividends must be distributed
by a DC.
Except- Regular operating- always a foreign
corp.
What rate: 10% FIT
Q: Who are liable?
A:
1. RC
2. NRC
3. OCW
4. RA
5. NRAETB
6. AEMOP (RC, NRAETB)
Not liable?
1. NRANETB
2. AEMOP
3. DC
4. RFC
5. NRFC
Shares of association and partnership is
taxable
3.
4.
Subj to FIT
Determine whether there is a loss or a
gain because the tax is impose upon
the net capital gains realized from the
sale, barter, or exchange or other
disposition of the shares of stock in a
domestic corp.
It is uniformly imposed on all
taxpayer
not subj to w/holding tax.
Requirements:
1. Shares of stock of a DC
2. It must be capital asset
3. must not be traded in the stock
market
25 R last part: Capital Gains realized by
NRANETB in the Phils. from the sale of shares
of stock in any DC and real prop shall be
subj. to the income tax prescribed under Sub
sec (c) and (d) of Sec. 24.
SEC. 24 B 1&2: If the elements are
present NRANETB and NRFC are liable to pay
GIT.
Except: under 24 C for NRANETB. What do
you mean by the phrase the provisions of
39 notwithstanding?
It refers to the holding period. When it
comes to capital gains from sale of shares of
stock not traded and capital gains from the
sale of real prop. The holding period does
not apply because the basis will be those
provided in 24 C & D and not under 39B (GSP
or FMV)
ELEMENT #1 The share is a share in DC
Q: What if the share is from foreign corp?
A: Determine the income considered.
income w/in read Sec. 42 (E)
If
27
pay
FIT
are
all
28
Exceptions (24(D2))
Q: What if the prop being sold was a movie
house, 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. 24
Requirements:
1. The purpose of the seller is to acquire
new residential real prop
29
Q:
What about exemption from real
property tax?
A:
Art. 6 Sec. 28 of the Constitution:
charitable institution churches, .and all
lands buildings, actually directly and
exclusively used for religious, charitable, and
educational purposes shall be exempt from
taxation.
Not Sec. 4 of Art. 14 of the
Constitution.
EXCEPTIONS:
1. GSIS
2. SSS
3. PHIC
4. PCSO
PAGCOR no longer included.
30
if
its
were
31
EXEMPT
Offshore banking units
Other depositary banks under EFCDS
or
D(4)-
Inter-corporate
Sec 28 A1
Q: What Kinds of taxes are paid by the RFC?
A: NIT
MCIT
Sec. 28 B2 MCIT on RFC
same with Sec. 27
dividends-
32
International Carrier:
GPB refers to the amount of revenue
derived from: carriage of persons, excess
baggage, cargo and mail originating from the
Phils in a continuous and uninterrupted
flight, irrespective of the place of sale or
issue and the place of payment of the tickets
or passage document.
REQ:
1. Originating from the Phils.
2. Continuous and uninterrupted flight;
3. Irrespective of the place of sale or
issue and the place of the payment of
tickets or passage document.
Q: Do you consider landing rights to
determine liability? (RR 15-2002)
A:
1. If originates from the Phils and has
landing rights- ONLINE- RFC
2. No landing rights- OFFLINE- NRFC
Q: If there are stopovers, is it still
uninterrupted?
A: YES, provided that the stopover does not
exceed 48 hrs.
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.
Revalidated, exchanged or indorsed tickets
REQ:
1. The passenger boards a plane in a
port or point in the Phils.
2. The tickets must be revalidated,
exchanged, or indorsed to another
airline.
Q: What if its the same airline but different
plane?
A: GPB does not apply, it must be to another
airline
Q: What if it did not originate from the
Phils.?
A: Determine if its income within or without.
if ticket was purchased in the Phils. it is
income within hence apply NIT
33
from
NOTE:
1. When a FC establishes branch, it is
always a FC
2. When a FC establishes DC, it is a RFC
10% FIT
If: Lender- OBU
Borrower- Resident Citizen
EXCEPT:
1. OBU
2. Local Commercial Banks
NOTE:
Non
resident
exempt
transactions with OBUs and EFCDS
2. Subsidiaries
MARUBENI CASE
F: A branch was established with AG&P,
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: Whats the issue?
A: Petitioner maintains that there was
overpayment of taxes, thus the same was
asking for a refund of tax erroneously
paid.
Q: Is is subj to FIT?
A: NO, exempt if petitioner is RFC
H: -not correct to pay 15%
To be liable for BPRT
1. It is a RFC
2. Branch did not participate in negotiations
SEC. 28 A6a
Regional or area headquarters (Sec. 22
DD) shall not be subject to tax exempt from
income tax if the requisites are present.
34
35
Elements:
1. Chartered to Filipino
Corporations
2. Approved by MARINA
Citizens
or
D5
INTERCORPORATE
36
the
Q: Why?
A: because if profits are distributed to the
shareholders, they will be liable for the
payment of Dividends tax. Now, if the profits
are undistributed the shareholders will not
incur liability on taxes with respect to the
undistributed profits of the Corp.
- 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.
Q: What is taxable income?
A: SEC. 31 defines taxable income as the
pertinent items of gross income specified in
this Code, less the deductions and/or
personal and additional exemptions, if any,
authorized for such types of income by this
Code or other special 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
37
FROM
TAX
ON
38
39
Q: What is compensation?
A: all remuneration for services performed
by an employee for his employer under an
employer-employee relationship.
TAKE NOTE: compensation is included in the
ITR if the taxpayer is not liable for NIT. Thus,
if subject to NIT, included in the ITR.
Q: Is there an instance where the salaries of
a RC is not included in the ITR?
A: Yes, if the salary is subject to FIT, like
when the RC is employed in Multinational,
offshore banking, and petroleum companies.
2.
Gross Income derived from the
conduct of trade or business or the
exercise of a profession; [Sec. 32 A (2)]
Q: What is the income tax here?
A: NIT, included in the ITR.
3.
Gains derived from dealings in
property. [Sec. 32 A (3)]
Q: Did the law distinguished?
A: No, the law did not distinguished between
real and personal property.
TAKE NOTE:
1. Sale of real property
2. Sale of shares of stock (personal prop.)
if the elements are present, subject to
FIT. Thus, it is not included in the ITR, the
withholding agent will be responsible for this.
Q: Income form the sale of property, do you
include this in the ITR?
A: it depends
a. if subject
to
FIT, not
included.
Withholding agent accomplish the forms
subject to FIT if the following elements
are present:
1. it is a capital asset;
2. located in the Phil.: and
3. sold by individual, trust, estate, DC.
b. if subject to NIT, included in the ITR.
Elements are not present, like when
the real prop. is an ordinary asset or when it
is capital asset if the taxpayer is RFC.
TAKE NOTE: R-R 17-2003
40
41
EXCLUSIONS
FROM
GROSS
merely
42
injuries
or
7.
Retirement
benefits,
gratuities [Sec. 32 B (6)]
pensions,
43
44
45
46
PRIVATE
Institution
can
REQUIREMENTS
PAPERS:
FOR
REDISCOUNTING
OF
47
ILLUSTRATION:
1. loan of 1M from a bank with an interest of
20%
2. 20% of 1M is Php200,000 but you cannot
claim this whole amount as a deduction.
3. when you deposited the 1M in the bank, it
earned a bank interest subject to FIT worth
Php10,000.00.
4. 42% (RR) of 10,000 = 4,200 (RR 9337)
5. Php200K-4,200= Php195,800/ this is the
amount you can claim as a deduction.
34 C TAXES:
REQUISITES:
1. taxes must paid or incurred within the
taxable year
2. it must be incurred in connection with
trade or business.
3. can be claimed as:
a. a deduction; or 34 C 1&2
b. tax credit 34 C 3&7
Q: Where should it be deducted?
A:
1. if claimed as a deduction, it should be
deducted from the gross income;
2. if claimed as a tax credit, it should be
deducted from the Net Income Tax due
(bottom of the formula)
MERCURY DRUG CASE
- 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.
Q: What is a tax deduction? Example?
A: example is business tax.
tax deduction is allowed if the taxes were
paid or incurred within the taxable year and it
must be connected to the trade, business or
profession of the tax payer.
Q: Who are entitled to claim it?
A: those liable to pay NIT. (Tax credit only for
NIT)
Q: What is a tax credit?
A: refers to the taxpayers right to deduct
from the income tax due the amount of
tax the taxpayer paid to foreign country,
subject to limitations.
48
49
NET
OPERATING
LOSS CARRY-OVER
1. taxpayers is an
individual only not
corporation.
1. taxpayer may be
an individual
or
corp;
2. losses incurred
or connected with T
or B;
3. carry-over as loss
from sale of capital
asset in the next
succeeding year
3. Business losses
not previously offset as a deduction
from the GI carried
over as such for the
next 3 consecutive
years;
4. can be deducted
from capital gains
and/or
ordinary
gains.
4.
can
only
be
deducted
from
capital gains.
50
51
exhaustion, wear
obsolescence.
and
tear
and
normal
wear
of
1. involves natural
resources
2. ordinary wear
and tear of natural
resources
TAKE NOTE:
Equipment used in mining operation is
deductible in depreciation
Q: Method for computing depletion?
A: cost depletion method
52
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.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.Government of the Philippines or any of
its agencies or any political subdivision
thereof exclusively for public purpose
2. Accredited Domestic corporation or
association organized and operated
exclusively for religions, lion, charitable,
scientific, youth and sports development,
cultural or educational purposes or for
the
rehabilitation of veterans, or
to social welfare institution, 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.partial deduction
10% of taxable income in case of an
individual
5% of taxable income in case of
corporations
2. 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. A made a cash donation of
P1M.
How much can he claim as a
deduction?
A: First determine the taxable income of Mr A
since he is an individual, he can only deduct
10% of his taxable income.
Non
Non
profit
REQUIREMENTS:
1. organized and operated exclusively for
scientific, research, educational, character
building and youth and sport development,
53
realizes
benefits
from
Q: Requisites?
A:
1.the employer must have established a
pension or retirement plan to provide for the
payment or reasonable pension of his
employees
54
personal
and
or
55
TAKE NOTE:
AEMOP: can be a RA or NRAETB
MARRIED INDIVIDUALS
each legally married individuals can claim
the personal exemption. Husband and wife =
P64,000
Q: Who are allowed to claim?
A: Normally , it is the husband who claims
unless he executes a waiver that the wife
will claim the same (RR2-98)
Additional Exemptions: (35B)
-additional exemption of P8,000 for each
dependent not execeeding four (4)
Q: Who can claim the same?
A: 1.Married couples: only one of the
spouses can claim it;
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.
Q: Define dependents
A: legitimate, illegitimate or legally adopted
child chiefly dependent upon and living
with the taxpayer if such dependent is (1)
not more than 21 years of age, (2)
unmarried, and (3) not gainfully employed
or (4) if such dependent, regardless of age
is incapable of self support because of
mental or physical defect.
Q: What if widower has illegitimate children,
can claim additional exemption?
A: can claim, can be considered as head of
the family w/ dependent
Q: What if the children are temporarily away
from the parents?
A: still considered living with parents, can
claim exemption
CHANGE OF STATUS: (SEC 35 C)
Q: Reckoning Period?
A: end of the year or close of such year when
such change of status occurred.
56
TAKE NOTE:
always choose the higher amount of
exemption if you are filing a return covering
the period within which the change of status
occurred
1. if the taxpayer should (1) marry or (2) have
additional dependents during the taxable
year, he may claim the corresponding
exemption in full for the year.
Illustration:
1.Single Jan 1, 2005
2.Married June 1, 2005 on April 15, 2006
status: legally married can claim P 32,000
2. if the taxpayer should die during the
taxable year, estate can claim personal
exemption.
Illustration
1.Jan. 25, 2005 taxpayer married w/ one
child
can claim on April 15, 2006
P32,000+
P8,000
} P40,000
PAID
ON
LIFE
INSURANCE
IN DONORS TAX
Relatives
includes
relatives
by
consanguinity within the 4th civil code.
Nephew is a stranger and relative ang
nephew.
2) individual and corporations
Gen. Rule: NO DEDUCTION
Except: distribution in liquidation or
less than 50% of the outstanding
capital stock
57
3)
4)
5)
6)
Two corporations
Grantor or Fiduciary
Two fiduciaries of two trust
Fiduciary and beneficiary of trust
apply to
58
c.
40 C EXCHANGE OF PROPERTY
GENERAL RULE: In sale or exchange of
property, the control amount of gain or loss
shall be recognized.
1. gain is taxable
2. losses are deductible
Exception: If permanent to a merger or
consolidation plan, no gain or loss shall
be recognized
1. gain is exempt
2. losses are not deductible
REQUISITES:
1. the transaction involves a contract of
exchange
2. the parties are members of the
merger or consolidation
3.
59
of
such
other
or
or
60
1.
2.
SECTION 41 INVENTORIES
Purpose: Change of inventory to determine
clearly the income of any taxpayer/ to reflect
the true income.
Limitation:
1. once every 3 years
2. approval of the secretary of finance
Section 43 Accounting Periods
1. Fiscal year
2. use of calendar year
a. no annual accounting
b. does not keep books of account
c. individuals
Use of method as in the opinion of the
commissioner clearly reflects the income:
1. no accounting method has been
employed
2. 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.
the
the
Jan
the
61
property is
A: Yes
Casual Sale has Requirements:
1. selling price exceeds P1,000
2. initial payment not exceeding 25%
selling price
Regular sale no requirements
Case of Baas
1. subject matter
2. sold by way
3. agreement
4. cash deposit
5. post dated
promissory notes
(installments)
3. 1st installment promissory note was
disconnected
4. 2nd installment exchanged with cash these two exceeds the selling price
5. you only compute cash
H: Initial payment exceeds 25% installment
basis is not applicable
RR 2; Section 175: In payment by way of
installment
promissory
note,
bills
of
exchange and checks will not be considered
in computing the 25% initial downpayment.
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.
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. RC
2. NRC
3. RA
4. NRAETB sources within
Q: Who is not mentioned in Sec 51 but liable
to pay by way of NIT?
A: OCW/ seaman
62
Exception:
RC OR ALIENS: engaged in trade or practice
of profession in Phil. Shall file ITR regardless
of the amount of gross income.
Q: If OFW is exempt from filing a return, what
is he required to file?
A: Information Return
Q: who are not required to file a return?
A:
a. an individual whose gross income
does not exceed his total personal
and
additional
exemptions
for
dependents
b. worker
(compensation
income
earners) regardless of the amount of
compensation shall not required to
file ITR because the management files
it. (RR 3-2002)
c. individuals whose sole income is
subject to FIT
d. individuals who are exempt from
income tax
Exception: IT
1. the management files an incorrect
return
2. 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 - Where to file?
1. authorized agent bank
2. revenue district officer
3. collection agent
4. duly authorized treasurer of the city or
municipality where taxpayer resides or
has principal place of business
5. 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 C (1) NIT Payers using CY
two days provided (calendar)
April
1. on April 15; or
2. before April 15 (January, Feb or March)
not December because the calendar year is
not yet over
Fiscal year: 15th day of the 4th
following the close of the fiscal year.
month
pure
compensation income earner regardless of
amount of income not file ITR.
2. Not pure compensation: joint return
51 E. Return of Parent to Include Income of
Children
unmarried minor receives income from
property received from living parent
included in the parents ITR.
Exception:
1.Donors tax has been paid
2.Property exempt from donors tax
51 F. Persons Under Disability
Q: Who makes the return?
A:
1.duly authorized agent
2. duly authorized representatives
3. guardians
4.other persons charged with the care of
his person or property
both incapacitated taxpayer and agent
will be liable for:
1.erroneous return
2. false or fraudulent return
51 G Signature Presumed Correct
prima facie evidence the return was
actually signed by the taxpayer
63
64
65
66
67
administration
or
Taxpayer is a Trust:
Q; When liable to pay income tax?
A: If the trust is revocable (if revocable, Sec
61 and 62 also apply)
Parties:
1.Grantor /creator /trustor
2.fiduciary / trustee
3.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. report only once
(building paid once)
2. after the span of 25 years
(payment
of building divided per year)
ESTATE TAX:
1.Sec 60
2.Real Estate Tax
3. Estate Tax
transfer tax impose on the Net Estate
for the transfer of property to the heirs or
beneficiary
whether
real,
personal,
tangible or intangible
3 KINDS OF TRANSFER TAX:
1.Estate Tax
2. Donors Tax
3. Sec 135 of LGU Transfer of Real
Property
Q: We dont have inheritance tax and donees
tax, why?
68
69
What
are
transfers
deemed
in
contemplation of death?
A: 1.Property was transferred during the
lifetime but the decedent:
a. retains possession or receive income
or fruits of property; or
b.retains the right to designate persons
who will possess the property or the
right to receive fruits or income
c.Revocable Transfers
70
whether
71
A: NRA
Q: Why do we need to know this?
A: NRA cannot avail of the following
deductions:
1.family income
2.standard deduction
3.hospitalization
4.retirement pay under RA 4917
A. Deductions Allowed to the Estate of a
Citizen or Resident
1.ELIT (expenses, losses, indebtedness and
taxes)
a) 1.Actual Funeral Expenses; or
2.amount equal to 5% of gross estate
apply whichever is lower
Limitation:
a)amount equal to 5% of gross estate
should not exceed P200,000 (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.S. In US,
expenses to be claimed as a deduction
both judicial and extra judicial expenses.
Claims against the estate
Estate is the debtor
Requirements:
1.at the time the indebtedness was
incurred the debt instrument was duly
notarized;
2.loan contracted within 3 days before
death;
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
Estate is the creditor
Requirement:
72
73
required to
74
public hearing
75
Go to 151:
The city could impose the tax already
imposed by the province of by the
municipality.
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. 151
2. 233 (real estate tax)
In addition, 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. General Principles (128-130)
reiteration
provisions
of
the
constitutional
tax
C. Common limitations on
power of the LGUs (133)
the
taxing
76
77
78
79
80
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,
the
only
requirement is that
it
must
be
reasonable
81
I.
the
the
the
the
there
are
only
two
82
Revenue
Raising
Powers
Q: Why common?
A: All the LGU could impose the same. But it
does not follow that all the provinces, cities,
municipalities could impose the same. Only
the LGU which operate, establish, maintain
the entity
If established by the province, it should
only be the province.
These are:
1. service fee and charges
for services rendered
2. public utility charges
83
provided
owned,
operate
and
maintained by them
3. toll fees and charges
tax or toll for the use of a bridge or a
street
January 1
Q: What if the tax was only approved in the
month of May 2006, do you have to wait until
January 2007?
84
There was:
1. an omission or failure to file
the return;
2. if there was a return filed, it
was fraudulent, or;
3. the return was false
Q: Is a false and fraudulent return
presumed?
A: NO, false and fraudulent return is not
presumed. The burden of proof to prove that
85
86
1. Local
Tax
(Sec.
125,
Local
Government Code (LGC))
2. Real Property Tax (Sec. 252, LGC)
3. Tariff and Customs Code (Sec. 2313,
RA 7651)
In all protest under the different codes,
payment under protest is only necessary
under the Real Estate Tax.
RR 12-99
If the taxpayer receives 2
final
assessments, one under the Net Income Tax
(NIT) and the other in VAT. If the taxpayer
dont want to file protest under VAT but want
to file a protest under NIT. 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.
This is not payment under protest
because, payment under protest is the one
mentioned in Real Property Tax under Sec.
252, LGC.
Under NIRC, Protest is referred to as:
1. disputing of final assessment or
2. 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.
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, to be counted on the day the protest
is filed, the final assessment shall become
final and executory.
On the 51st day you filed the necessary
document, you have to count another period,
which is 180 days from the day you filed the
necessary documents.
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?
87
88
PROTEST
UNDER
THE
TARIFF
AND
CUSTOMS CODE (TCC) (Sec. 2313, as
amended by RA 7651)
NOTE:
Pursuant to RA 9282, direct appeal to CTA en
banc can be made from:
1. Decision of the RTC involving local
taxation
exercising
appellate
jurisdiction
2. Decision of the Central Board of
Assessment
Appeal
exercising
appellate jurisdiction.
PROTEST UNDER REAL PROPERTY TAX
(Secs. 226, 230, and 252)
Remedy shall be the same
89
90
Kinds:
1. Constructive (Sec. 206)
2. Distraint of Intangible (Sec. 208)
3. Actual (Sec. 207, par. a, and Sec. 209)
1. Constructive Distraint
91
3 Intangible Properties:
Shares of stocks
Bank accounts
Credits and debits
Share of stocks
Warrant of distraint furnished to the
taxpayer or the officer of the corporation
with the warning that the property is
subject of distraint and it should not
dispose of it.
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.
Debits and Credits
Warrant of distraint furnished to the
debtor and creditor
3. Actual Distraint
Personal property shall be physically
taken by the distraining officer.
Within 10 days from the receipt of the
warrant, a report of the distraint shall be
submitted to the BIR (Sec. 207, par a last
par.)
The property subject of distraint shall
be sold at a public auction EXCEPT bank
accounts and debits and credits.
Notice of sale shall be by posting
in 2 conspicuous place, stating the
date and the place of the sale (No
publication requirement)
Sec. 211: after the sale and within 2
days, a report shall be made to the BIR
Q: If the property sold is a personal
property, is there a right of redemption?
A: NO. The rule is absolute.
92
A: Yes, 213.
redemption?
Q: Is there
A: Yes.
right
of
93
94
95