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TITLE II

TAX ON INCOME
CHAPTER I – DEFINITIONS
Section 22. Definitions - When used in this Title:
(A) The term 'person' means an individual, a trust, estate or corporation.
(B) The term 'corporation' shall include partnerships, no matter how created or organized,
joint-stock companies, joint accounts (cuentas en participacion), association, or insurance
companies, but does not include general professional partnerships and a joint venture or
consortium formed for the purpose of undertaking construction projects or engaging in
petroleum, coal, geothermal and other energy operations pursuant to an operating
consortium agreement under a service contract with the Government. 'General professional
partnerships' are partnerships formed by persons for the sole purpose of exercising their common
profession, no part of the income of which is derived from engaging in any trade or business.
(C) The term 'domestic,' when applied to a corporation, means created or organized in the
Philippines or under its laws.
(D) The term 'foreign,' when applied to a corporation, means a corporation which is not
domestic.
(E) The term 'nonresident citizen' means:
(1) A citizen of the Philippines who establishes to the satisfaction of the Commissioner the
fact of his physical presence abroad with a definite intention to reside therein.
(2) A citizen of the Philippines who leaves the Philippines during the taxable year to
reside abroad, either as an immigrant or for employment on a permanent basis.
(3) A citizen of the Philippines who works and derives income from abroad and whose
employment thereat requires him to be physically present abroad most of the time
during the taxable year.
(4) A citizen who has been previously considered as nonresident citizen and who
arrives in the Philippines at any time during the taxable year to reside permanently in
the Philippines shall likewise be treated as a nonresident citizen for the taxable year
in which he arrives in the Philippines with respect to his income derived from
sources abroad until the date of his arrival in the Philippines.
(5) The taxpayer shall submit proof to the Commissioner to show his intention of
leaving the Philippines to reside permanently abroad or to return to and reside in the
Philippines as the case may be for purpose of this Section.
(F) The term 'resident alien' means an individual whose residence is within the Philippines
and who is not a citizen thereof.
(G) The term 'nonresident alien' means an individual whose residence is not within the
Philippines and who is not a citizen thereof.
(H) The term 'resident foreign corporation' applies to a foreign corporation engaged in trade
or business within the Philippines.
(I) The term 'nonresident foreign corporation' applies to a foreign corporation not engaged in
trade or business within the Philippines.
(Z) The term 'ordinary income' includes any gain from the sale or exchange of property which
is not a capital asset or property described in Section 39(A)(1). 1 Any gain from the sale or
1 Section 39. Capital Gains and Losses. (A) Definitions. - As used in this Title (1) Capital Assets. - the term 'capital assets' means property held by the taxpayer (whether or not connected with his trade or
business), but does not include 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, or property held by the taxpayer
primarily for sale to customers in the ordinary course of his trade or business, or property used in the trade or business,

but does not include 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. For purposes of this Subsection. The additional exemption for dependent shall be claimed by only one of the spouses in the case of married individuals.There shall be allowed an additional exemption of Eight thousand pesos (P8.exchange of property which is treated or considered.COMPUTATION OF TAXABLE INCOME Section 31. unmarried and not gainfully employed or if such dependent. In the case of legally separated spouses. . is incapable of self-support because of mental or physical defect. Any loss from the sale or exchange of property which is treated or considered. A nonresident alien individual who shall come to the Philippines and stay therein for an aggregate period of more than one hundred eighty (180) days during any calendar year shall be deemed a 'nonresident alien doing business in the Philippines'. (B) Additional Exemption for Dependents. (A) Definitions.A nonresident alien individual engaged in trade or business in the Philippines shall be subject to an income tax in the same manner as an individual citizen and a resident alien individual. as 'ordinary income' shall be treated as gain from the sale or exchange of property which is not a capital asset as defined in Section 39(A)(1). as 'ordinary loss' shall be treated as loss from the sale or exchange of property which is not a capital asset. Section 22 (G) of this Code notwithstanding.As used in this Title (1) Capital Assets. on taxable income received from all sources within the Philippines. a 'dependent' means a legitimate. Court of Appeals Nature of the Case: Appeal on the decision of the the Court of Appeals. That the total amount of additional exemptions that may be claimed by both shall not exceed the maximum additional exemptions herein allowed. if any. . or real property used in trade or business of the taxpayer. Capital Gains and Losses. or property used in the trade or business. additional exemptions may be claimed only by the spouse who has custody of the child or children: Provided. under other provisions of this Title. or real property used in trade or business of the taxpayer. CHAPTER V . Tax on Nonresident Alien Individual. Section 39. regardless of age. (A) Nonresident Alien Engaged in trade or Business Within the Philippines.the term 'capital assets' means property held by the taxpayer (whether or not connected with his trade or business). or property held by the taxpayer primarily for sale to customers in the ordinary course of his trade or business. . less the deductions and/or personal and additional exemptions. . which affirmed the decision of the of a character which is subject to the allowance for depreciation provided in Subsection (F) of Section 34. . Section 25. Taxable Income Defined.The term taxable income means the pertinent items of gross income specified in this Code. Allowance of Personal Exemption for Individual Taxpayer. authorized for such types of income by this Code or other special laws Section 35.000) for each dependent not exceeding four (4). (1) In General. of a character which is subject to the allowance for depreciation provided in Subsection (F) of Section 34. illegitimate or legally adopted child chiefly dependent upon and living with the taxpayer if such dependent is not more than twenty-one (21) years of age. The term 'ordinary loss' includes any loss from the sale or exchange of property which is not a capital asset. Resident Citizens and Resident Alien Garrison vs. . under other provisions of this Title.

It cannot simply be presumed that they earned no income from any other sources than their employment in the American bases and are therefore totally exempt from income tax. and presently employed in the United States Naval Base. they are not exempt from filing income tax returns. All said petitioners "received separate notices from Ladislao Firmacion." Also consider that the Bases Agreement provided for a tax exemption that is not absolute. he is a resident. under the pertinent provisions of the RP-US Military Bases Agreement.. they may not under the law be deemed resident aliens required to file income tax returns. . although aliens residing within the Philippines.S. they argue.If he lives in the Philippines and has no definite intention as to his stay. 1979) SECTION 2. 1940: “An alien actually present in the Philippines who is not a mere transient or sojourner is a resident of the Philippines for purposes of income tax. District Revenue Officer. Ruling: The Petitioners are tax-exempt as the requisites provided under the provisions of the Bases Agreement2 have been complied with. Olongapo City. Government at Subic Naval Base and their presence here during the period concerned was dictated by their respective work as employees of the United States Naval Base in the Philippines. they had been properly prosecuted and convicted for having thus violated the Code. They (the individuals that are tax-exempt) have to make this (the tax exemption) known to the Government authorities (through the filing of income tax returns). ." and 2) to refuse to recognize their "tax-exempt status ." and since the petitioners. The petitioners contend that given these facts.. informing them that they had not filed their respective income tax returns for the year 1969.. entered this country under Section 9 (a) of the Philippine Immigration Act of 1940." They are the persons in whom concur the following requisites. Hence. as amended. Question One: Based on the Internal Revenue Code.. regardless of whether the gross income was derived from sources within or outside the Philippines. it was error for the Court of Appeals — 1) to consider their "physical or bodily presence" in the country as "sufficient by itself to qualify . to wit: 1) nationals of the United States serving in or employed in the Philippines. operation or defense of the bases. sources. maintenance. and 4) their income is derived exclusively from "U. 2) their service or employment is "in connection with construction. Do the petitioners fall under the qualification of being “aliens residing in the Philippines”? Answer: Yes.” Question Two: What is the logic of being tax-exempt but required to submit an income tax return? Answer: The duty rests on the U. (them) as resident aliens despite the fact that they were not 'residents' of the Philippines immediately before their employment by the U. “aliens residing in the Philippines” are required to file income taxes. — The term "non-resident citizen" means 2 3 Bases Agreement very plainly Identifies the persons NOT "liable to pay income tax in the Philippines except in regard to income derived from Philippine sources or sources other than the US sources. as per Revenue Relations No. 3 Non-resident Citizen RR 1-79 (January 8.S. However. and directing them to file the said returns within ten days from receipt of the notice.S." 3) they reside in the Philippines by reason only of such employment. .Court of First Instance of Zambales at Olongapo City convicting the petitioners "of violation of Section 45 (a) (1) (b) of the National Internal Revenue Code. Facts: The petitioners "are United States citizens. Who are considered as nonresident citizens. nationals concerned to invoke and prima facie establish their taxexempt status. For the Internal Revenue Code requires the filing of an income tax return also by any "alien residing in the Philippines. stationed at Olongapo City. had failed to do so." Issue: Whether or not the petitioners are exempt from paying taxes and filing income tax returns. 2 of the Department of Finance of February 10. as required by Section 45 of the National Internal Revenue Code.

but who are nevertheless mandated to file information returns (BIR Form 1701C or the new computerized Form 1703) pursuant to RMO 30-99 and RR 9-99. (RMO) 30-99 and Revenue Regulations No. prescribing the filing of information returns by non-resident citizens. shall no longer be required to file the same on their income derived from sources outside the Philippines beginning taxable year 2001. The phrase "most of the time" shall mean that the said citizen shall have stayed abroad for at least 183 days in a taxable year. RR 5-01 (July 31. in relation to Section 23(B) and (C) and Section 51(A)(2)(d) and (A)(3) of the same Code. SECTION 3. in relation to Section 22 (E) and Section 51 (A)(2)(d) and (A)(3) of the Tax Code of 1997.one who establishes to the satisfaction of the Commissioner of Internal Revenue the fact of his physical presence abroad with the definite intention to reside therein and shall include any Filipino who leaves the country during the taxable year as: (a) Immigrant—one who leaves the Philippines to reside abroad as an immigrant for which a foreign visa as such has been secured. BIR Ruling 33-00 Section 23(C) of the Tax Code of 1997 provides that an individual citizen of the Philippines who is working and deriving income from abroad as an overseas contract worker is taxable only on income from sources within the Philippines. RMO 30-99 and RR 9-99 are hereby repealed accordingly. Corollary thereto. the time spent abroad is not material for tax exemption purposes. SECTION 2. 1-79) The same exemption applies to an overseas contract worker but as such worker. (Sec. these Regulations are hereby promulgated to repeal Revenue Memorandum Order No. Revenue Regulations No. .These Regulations shall take effect (15) days after publication in any newspaper of general circulation. for purposes of exemption from income tax. Repealing Clause – For purposes of these Regulations. SECTION 4. (RR) 9-99. Any such Filipino shall be considered a non-resident citizen for such taxable year with respect to the income he derived from foreign sources from the date he actually departed from the Philippines. All that is required is for the worker's employment contract to pass through and be registered with the Philippine Overseas Employment Agency (POEA). (b) Permanent employee — one who leaves the Philippines to reside abroad for employment on a more or less permanent basis. (c) Contract worker—one who leaves the Philippines on account of a contract of employment which is renewed from time to time within or during the taxable year under such circumstances as to require him to be physically present abroad most of the time during the taxable year. overseas contract workers (OCWs) and seaman with respect to their income derived from sources outside the Philippines. a contract worker must have been outside the Philippines for not less than 183 days during such taxable year. Thus. All employees whose services are rendered abroad for being seconded or assigned for at least 183 days may fall under the first category and are therefore exempt from payment of Philippine income tax. Repealing Clause . Filing of Information Returns (BIR Form 1701C or BIR Form 1703) No Longer Required – Non-resident citizen who are exempt from tax with respect to income derived from sources outside the Philippines in accordance with Section 23(B) and (C). (2)(c). A Filipino citizen who has been previously considered as a non-resident citizen and who arrives in the Philippines at any time during the taxable year to reside therein permanently shall also be considered a non-resident citizen for the taxable year in which he arrived in the Philippines with respect to his income derived from sources abroad until the date of his arrival. a citizen must be deriving foreign-sourced income for being a non-resident citizen or for being an overseas contract worker (CW). Section 22(E)(3) of the same Code provides that a citizen of the Philippines who works and derives income from abroad and whose employment thereat requires him to be physically present abroad most of the time during the taxable year. Scope -Pursuant to Section 244 of the Tax Code of 1997. To be considered physically present abroad most of the time during the taxable year. 2001) SECTION 1.

Question 1: Was the Pool a Corporation or Partnership under the contemplation of Section 24 of the NIRC? BUT FIRST: How did the Petitioners argue the case? Petitioners belie the existence of a partnership in this case. Thus an alien who has acquired a residence in the Philippines is taxable as a resident for the remainder of his stay in the Philippines. Whether he is a transient or not is determined by his intentions with regard to the length and nature of his stay.68 on dividends paid to Munich and to the petitioners. and withholding tax. did not share the same risk or solidary liability. SECTION 6. He is asking if he is required to pay taxes for income earned in the United States of America. Non-resident aliens engaged in business in the Philippines REVENUE REGULATIONS NO. only his Philippine-sourced income is taxable.BIR Ruling DA 095-05 Question: A citizen of the US is applying for dual citizenship. Upon issuance by them of Erection. interest." to pay deficiency income tax. On January 27. he becomes a resident. Definition.60.799. respectively. (3) the executive board of the pool did not exercise control and management of its funds. he will be considered as a non-resident citizen and as such. Ruling: No. — A "non-resident alien individual" means an individual — (a) Whose residence is not within the Philippines. Only resident citizens are taxable for income sourced within or outside of the Philippines. and to that end the alien makes his home temporarily in the Philippines. 1976. Boiler Explosion and Contractors' All Risk insurance policies. But if his purpose is of such a nature that an extended stay may be necessary for its accomplishment. the reinsurers. A mere floating intention indefinite as to time. Loss of residence by alien. Machinery Breakdown. a pool composed of the petitioners was formed on the same day. On April 14. These assessments were protested by the petitioners through its auditors Sycip. the Commissioner of Internal Revenue denied the protest and ordered the petitioners. unlike the board of directors of a corporation. 1965 entered into a Quota Share Reinsurance Treaty and a Surplus Reinsurance Treaty with the Munchener Ruckversicherungs-Gesselschaft (hereafter called Munich). Accordingly. An intention to change his residence does not change his status as a resident alien to that of a nonresident alien. 1986.843.438. One who comes to the Philippines for a definite purpose which in its nature may be promptly accomplished is a transient. Court of Appeals Facts: The petitioners are 41 non-life insurance corporations.768. and withholding taxes in the amount of P1. 02-40 INCOME TAX REGULATIONS SECTION 5. Velayo and Co.273.39 and P89. When dual citizenship is granted. Corporations AFISCO Insurance Corporation vs. though it may be his intention at all times to return to his domicile abroad when the purpose for which he came has been consummated or abandoned. Gorres. a non-resident foreign insurance corporation. and (4) the pool or clearing house "was not and could not possibly have engaged in the business of reinsurance from which it could have derived income for itself. (2) there was no common fund. the petitioners on August 1. because (1) they. The reinsurance treaties required petitioners to form a [p]ool." . organized and existing under the laws of the Philippines. the pool of machinery insurers submitted a financial statement and filed an "Information Return of Organization Exempt from Income Tax" for the year ending in 1975. — An alien who has acquired residence in the Philippines retains his status as a resident until he abandons the same and actually departs from the Philippines. An alien actually present in the Philippines who is not a mere transient or sojourner is a resident of the Philippines for purposes of the income tax. assessed as "Pool of Machinery Insurers. on the basis of which it was assessed by the Commissioner of Internal Revenue deficiency corporate taxes in the amount of P1. to return to another country is not sufficient to constitute him a transient. he is a resident. If he lives in the Philippines and has no definite intention as to his stay. and (b) Who is not a citizen of the Philippines. His US-sourced income will be tax exempt.

Profit motive or business is. . . The tax on its income is obviously different from the tax on the dividends received by the said companies. . Section 255 provides that no tax shall ". Question 2: Is their income taxable? BUT FIRST: Why not? Petitioners further contend that the remittances of the pool to the ceding companies and Munich are not dividends subject to tax. ". the ceding companies entered into a Pool Agreement or an association that would handle all the insurance businesses covered under their quota-share reinsurance treaty and surplus reinsurance treaty with Munich. the primordial reason for the pool's formation. The fact that the pool does not retain any profit or income does not obliterate an antecedent fact. therefore. that their association or coaction was indispensable [to] the transaction of the business. the pool is a taxable entity distinct from the individual corporate entities of the ceding companies. That is. (3) True. its work is indispensable. . Respondent Commissioner informed petitioners that in the years 1968 and 1970. the latter cannot individually claim the income tax paid by the former as their own. be paid upon reinsurance by any company that has already paid the tax . They eventually sold the first two parcels of land in 1968 and the other three on 1970. because without it they would not have received their premiums. as previously discussed. consisting of money and other valuables that are deposited in the name and credit of the pool. composed of one representative for each of the ceding companies. . Commissioner of Internal Revenue Facts: The petitioners both two parcels of land and bought three more after a year. the pool is a taxable entity distinct from the ceding companies. the BIR Commissioner alleged deficiency corporate income taxes for the years 1968 and 1970. which resembles the board of directors of a corporation. both . Answer 2-B: Petitioners have failed to discharge this burden of proof. Clearly. The sections of the 1977 NIRC which they cite are inapplicable. However. Pascual vs. to the 1975 version of the counterpart sections of the NIRC. The following unmistakably indicates a partnership or an association covered by Section 24 of the NIRC: (1) The pool has a common fund. because these were not yet in effect when the income was earned and when the subject information return for the year ending 1975 was filed. petitioners as coowners in the real estate transactions formed an unregistered partnership or joint venture taxable as a corporation under Section 20(b) and its income was subject to the taxes prescribed under Section 24. . however. The ceding companies share "in the business ceded to the pool" and in the "expenses" according to a "Rules of Distribution" annexed to the Pool Agreement. . (2) The pool functions through an executive board. It is apparent. ." This cannot be applied to the present case because. and petitioners admit. because the internal revenue commissioner assessed the pool for corporate taxes on the basis of the information return it had submitted for the year ending 1975. Answer 2-C: Finally the petitioners' claim that Munich is tax-exempt based on the RP. This common fund pays for the administration and operation expenses of the pool. Though the profit was apportioned among the members. this is only a matter of consequence. profit was earned. As aptly found by the CTA: . profit must have been the object as.West German Tax Treaty is likewise unpersuasive. . . the Court still cannot justify the exemptions claimed. that of the pool being used in the transaction of business for profit. there is no double taxation here.Answer 1: In the case before us. If together they have conducted business. therefore. They insist that such remittances contravene Sections 24 (b) (I) and 263 of the 1977 NIRC and "would be tantamount to an illegal double taxation as it would result in taxing the same taxpayer" Answer 2-A: Double taxation means taxing the same property twice when it should be taxed only once. indeed. the pool itself is not a reinsurer and does not issue any insurance policy. . Referring. Petitioners realized net profits and paid the corresponding capital gains taxes through availing of the tax amnesties. as it implies that profit actually resulted. beneficial and economically useful to the business of the ceding companies and Munich. Petitioners protested the said assessment asserting that they had availed of tax amnesties way back in 1974. a taxable year when said treaty was not yet in effect. taxing the same person twice by the same jurisdiction for the same thing" In the instant case.

The properties were leased separately to several persons. IN THIS CASE IT WAS RULED THAT: Article 1767 of the Civil Code of the Philippines provides: By the contract of partnership two or more persons bind themselves to contribute money. the Collector of Internal Revenue demanded the payment of income tax on a corporation. They had the real properties rented or leased to various tenants for several years and they gained net profits from the rental income. paid the total sum of P70. since Simeon Evangelists became the manager. for petitioners do not even suggest that there has been any change in the utilization thereof. either on their purpose in creating the set up already adverted to. and did. or. What is more they jointly borrowed a substantial portion thereof in order to establish said common fund. and that the availment of tax amnesty under P. the lots are still being so let. or industry to a common fund.00. Hence. They invested the same. over fifteen (15) years. property. contribute money and property to a common fund. and to indorse and deposit notes and checks. collect. Issue: Whether the Petitioners are to be considered an unregistered partnership or joint venture taxable as a corporation BUT FIRST: Discuss the Evangelista Case: In the said case. 2. from 1945 to 1948 inclusive. On February 2. particularly the last three purchases.234.068. Since August. petitioners borrowed a sum of money from their father which together with their own personal funds they used in buying several real properties. 23. taken singly. or on the causes for its continued existence.00. They appointed their brother to manage their properties with full power to lease. This was soon followed. the petitioners were required to pay the deficiency income tax assessed.of the National Internal Revenue Code that the unregistered partnership was subject to corporate income tax as distinguished from profits derived from the partnership by them which is subject to individual income tax. admittedly. The number of lots (24) acquired and transcations undertaken. with the intention of dividing the profits among themselves. 5. as amended.30 by way of rentals.14. etc. 6. to issue receipts. we are fully satisfied that their purpose was to engage in real estate transactions for monetary gain and then divide the same among themselves. the issue narrows down to their intent in acting as they did. The first element is undoubtedly present in the case at bar. In other words. issue receipts. 3.000. not merely in one transaction. from them. They did not even try to offer an explanation therefor. to collect rents. they purchased 21 lots for P18. among others. is strongly indicative of a pattern or common design that was not limited to the conservation and preservation of the aforementioned common fund or even of the property acquired by petitioners in February. Thus. to be exact. Pursuant to this article. on April 23.D. property or industry to a common fund. On April 3. and (b) intent to divide the profits among the contracting parties. one cannot but perceive a character of habituality peculiar to business transactions engaged in for purposes of gain. It was not a property inherited by them pro indiviso. Said common fund was not something they found already in existence. with full power to lease.000.00. to bring suits. 1944. namely. the affairs relative to said properties have been handled as if the same belonged to a corporation or business enterprise operated for profit. for. they might not suffice to establish the intent necessary to constitute a . by the acquisition of another real estate for P108. since the first property was acquired. the properties have been under the management of one person. they bought a lot for P100. the essential elements of a partnership are two. namely: (a) an agreement to contribute money. because: 1. they got a fourth lot for P237. Five (5) days later (April 28. but in a series of transactions. Although. 1943. The aforesaid lots were not devoted to residential purposes or to other personal uses. 1944. Upon consideration of all the facts and circumstances surrounding the case. Seemingly. rent. 1943. who. as well as the brief interregnum between each. The foregoing conditions have existed for more than ten (10) years. to sign letters and contracts. by petitioners relieved petitioners of their individual income tax liabilities but did not relieve them from the tax liability of the unregistered partnership.825. petitioners have agreed to. of petitioners herein. Petitioners have not testified or introduced any evidence. 4. Thus. Simeon Evangelists. They created it purposely. and over twelve (12) years. 1944). 1945. No. Hence.

they bought another three (3) parcels of land from one seller. to enable them to build their residences.. petitioners bought two (2) parcels of land in 1965.. the existence of a juridical personality different from the individual partners. whether the income tax on individuals or the income tax on corporation. there is no evidence that petitioners entered into an agreement to contribute money. As testified by Jose Obillos. Question: When do you consider that there is a partnership that exists? Answer: The sharing of returns does not in itself establish a partnership whether or not the persons sharing therein have a joint or common right or interest in the property. like the De Leon heirs. DOCTRINES FROM OTHER CASES: Co-owership distinguished from partnership. The Commissioner acted on the theory that the four petitioners had formed an unregistered partnership or joint venture within the meaning of sections 24(a) and 84(b) of the Tax Code. It was only 1968 when they sold the two (2) parcels of land after which they did not make any additional or new purchase. In 1966. they individually reported in their tax returns their corresponding shares in the income and expenses of the 'hacienda'. CTA Case No. The petitioners contested the assessments. Only one or two of the aforementioned circumstances were present in the cases cited by petitioners herein. 1980. They did not sell the same nor make any improvements thereon. 1963). on two lots. as conceded by respondent. That eventuality should be obviated. they had no such intention. The remaining three (3) parcels were sold by them in 1970. or a corporation. All co-ownerships are not deemed unregistered partnership. Ltd. the petitioners. the petitioners. 'to preserve its (the 'hacienda') value and to continue the existing contractual relations with the Central Azucarera de Bais for milling purposes.—We find that the case at bar is fundamentally similar to the De Leon case. within the purview of the income tax law. inasmuch as if a property does not produce an income at all. The petitioners were not engaged in any joint venture by reason of that isolated transaction. Obillos vs.—Co-Ownership who own properties which produce income should not automatically be considered partners of an unregistered partnership. Jr. the Longa heirs inherited the 'hacienda' in questionpro-indiviso from their deceased parents. would be to subject the income of all co-ownerships of inherited properties to the tax on corporations. they merely continued dedicating the property to the use to which it had been put by their forebears.partnership. In the present case. the Commissioner of Internal Revenue required the four petitioners to pay corporate income tax. it is not subject to any kind of income tax. To regard the petitioners as having formed a taxable unregistered partnership would result in oppressive taxation and confirm the dictum that the power to tax involves the power to destroy. Respondent commissioner and/ or his representative just assumed these conditions to be present on the basis of the fact that petitioners purchased certain parcels of land and became co-owners thereof. Sr. They were co-owners pure and simple. they did not contribute or invest additional ' capital to increase or expand the inherited properties. and that they intended to divide the profits among themselves. or one day before the expiration of the five-year prescriptive period. he next day he transferred his rights to his four children. hence. he next day he transferred his rights to his four children. Issue: Whether or not the Petitioners are partners Ruling: They are not a partnership. and they continued for many years the status of co-ownership in order. 653. those cases are not in point. and. it does not. In the instant case. Commissioner of Internal Revenue Facts: Jose Obillos. the collective effect of these circumstances is such as to leave no room for doubt on the existence of said intent in petitioners herein. to enable them to build their residences. Longa vs. completed payment to Ortigas & Co. property or industry to a common fund. In April. To hold otherwise. The character of habituality peculiar to business transactions for the purpose of gain was not present. Aranas. July 31. To consider them as partners would obliterate the distinction between a co-ownership and a partnership. NOW FOR THE PROPER QUESTION: Does Evangelista apply to the case? Ruling/Answer: No. There must be a clear intent to form a partnership. and the freedom of each party to transfer or assign the whole property. The transactions were isolated. . Thus. They treated the profit as a capital gain and paid an income tax.

6 houses and money from the War Damage Commission. emphasis ours. therefore. accordingly. CIR decided that petitioners formed an unregistered partnership and therefore. which was denied hence this petition for review from CTA’s decision. in particular.) with the exception only of duly registered general copartnerships — within the purview of the term “corporation. financial operation. BACKGROUND. those concerning joint venture undertakings involving construction projects. no matter how created or organized. at least. Although the project of partition was approved by the Court. clear to our mind that petitioners herein constitute a partnership. our National Internal Revenue Code includes these partnerships — The term “partnership” includes a syndicate. joint venture or other unincorporated organization. there can be no doubt that. The Tax Court found that instead of actually distributing the estate of the deceased among themselves pursuant to the project of partition. Question 2: Whether the petitioners are liable to pay taxes Answer 2: Yes. as amended. he becomes liable individually for all taxes in connection therewith. the heirs are entitled already to their respective definite shares of the estate and the incomes thereof. As a result. for the purpose. petitioners’ properties and investments gradually increased. an unregistered partnership is formed. the heirs allowed their properties to remain under the management of Oña and let him use their shares as part of the common fund for their ventures. pool. even if no document or instrument were executed. Pursuant to the provisions of Sec 244 and 245 of the National Internal Revenue Code of 1997. the co-ownership of inherited properties is automatically converted into an unregistered partnership the moment the said common properties and/or the incomes derived therefrom are used as a common fund with intent to produce profits for the heirs in proportion to their respective shares in the inheritance as determined in a project partition either duly executed in an extrajudicial settlement or approved by the court in the corresponding testate or intestate proceeding. but does not include general professional partnerships and a joint venture or consortium formed for the purpose of undertaking construction projects or engaging in petroleum. Based on these facts. The reason is simple. through or by means of which any business. as amended. p. for tax purposes. COVERAGE. and are subject to the income tax for corporations. or venture is carried on… (8 Merten’s Law of Federal Income Taxation. Pursuant to Section 22(B) of the NIRC of 1997. This shows that the heirs have undivided ½ interest in 10 parcels of land. joint-stock companies. even as they paid corresponding income taxes on their respective shares. joint accounts (cuentas en participacion). 10-2012 Section 1. particularly for years 1955 and 1956. and. Petitioners returned for income tax purposes their shares in the net income but they did not actually receive their shares because this left with Oña who invested them. geothermal and other energy operations pursuant to . Petitioners asked for reconsideration. A civil case was instituted for the settlement of her state. insofar as said Code is concerned. group.” It is.ONA vs. From the moment of such partition. for each of them to manage and dispose of as exclusively his own without the intervention of the other heirs. he allows his share to be held in common with his co-heirs under a single management to be used with the intent of making profit thereby in proportion to his share. Question 1: Was there an unregistered partnership. For tax purposes. Judgment affirmed. Lorenzo Oña and her five children. If after such partition. COMMISSIONER OF INTERNAL REVENUE Facts: Julia Buñales died leaving as heirs her surviving spouse. Answer 1: Yes. in which Oña was appointed administrator and later on the guardian of the three heirs who were still minors when the project for partition was approved. or insurance companies. subject to the corporate income tax. REVENUE REGULATIONS NO. 562 Note 63. Section 2. the term ‘corporation’ shall include partnerships. associations. no attempt was made to divide the properties and they remained under the management of Oña who used said properties in business by leasing or selling them and investing the income derived therefrom and the proceeds from the sales thereof in real properties and securities. coal. For purposes of the tax on corporations. these Regulations are hereby promulgated to properly implement exclusion to the definition of what is considered as a corporation pursuant to Sec 22 (B) of the NIRC of 1997. there was an unregistered partnership.

Section 4. A joint venture or consortium formed for the purpose of undertaking construction projects not considered as corporation under Sec 22 of the NIRC of 1997 as amended. The enrollment should be done at the Revenue District Office (RDO) where the local contractors are registered as taxpayers. The member to a Joint Venture not taxable as corporation shall each be responsible in reporting and paying appropriate income taxes on their respective share to the joint ventures profit. (3) these local contractors are engaged in construction business. should be: (1) for the undertaking of a construction project. that is. The tax exemption of joint ventures formed for the purpose of construction projects was pursuant to Presidential Decree (PD) No. Section 3. and (2) should involve joining or pooling of resources by licensed local contracts. . In addition. the joint venture or consortium formed for the purpose of undertaking construction projects shall be considered as taxable corporations. JOINT VENTURES NOT TAXABLE AS CORPORATIONS. services or capital to a construction project. All licensed local contactors are hereby required to enroll themselves to the Bureau of Internal Revenue’s Electronic Filing and Payment System (EFPS). MANDATORY ENROLLMENT TO THE BIR’S EFPS. 929 (dated 4 May 1976) to assist local contractors in achieving competitiveness with foreign contractors by pooling their resources in undertaking big construction projects. the tax-exempt joint venture or consortium as herein defined shall not include those who are mere suppliers of goods. and the construction project is certified by the appropriate Tendering Agency (government office) that the project is a foreign financed/internationally-funded project and that international bidding is allowed under the Bilateral Agreement entered into by and between the Philippine Government and the foreign / international financing institution pursuant to the implementing rules and regulations of Republic Act No. and (4) the Joint Venture itself must likewise be duly licensed as such by the Philippine Contractors Accreditation Board (PCAB) of the Department of Trade and Industry (DTI) Joint ventures involving foreign contractors may also be treated as a non-taxable corporation only if the member foreign contractor is covered by a special license as contractor by the Philippine Contractors Accreditation Board (PCAB) of the Department of Trade and Industry (DTI). 4566 otherwise known as Contractor’s License Law. licensed as general contractor by the Philippine Contractors Accreditation Board (PCAB) of the Department of Trade and Industry (DTI). Absent any one the aforesaid requirements.an operating or consortium agreement under a service contract with the Government.