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SAN BEDA COLLEGE

Legal Management
Syllabus
Income Taxation
1st Semester, A.Y. 2013-2014
Atty. Sarah Jeane Cardona
Suggested References:
Codal
National Internal Revenue Code of 1997
Annotations
Law of Basic Taxation in the Philippines, Benjamin B. Aban
Basic Approach to Income Taxation, Justice Japar B. Dimaampao
Philippine Income Tax, Victorino C. Mamalateo
GENERAL PRINCIPLES OF TAXATION
I. Taxation
A. Definition
B. Nature of Internal Revenue Law
Hilado v. Commissioner of Internal Revenue G.R. No. L-9408, October 31, 1956
C. Scope and Nature of Taxation
Sec. 28, Art. VI, 1987 Constitution
Sison v .Ancheta, G.R. No. L-59431, July 25, 1984,
Commissioner of Internal Revenue v. Pineda, G.R. No. 22734,
September 15, 1967
Phil. Guaranty v. Commissioner of Internal Revenue, G.R. No. L-22074, April 30,
1965
Commissioner of Internal Revenue v. Algue, Inc., L-28896, Feb. 17,1988
D. Theory and Basis of Taxation
Commissioner of Internal Revenue v. Algue, Inc.,supra
Lorenzo v. Posadas, G.R. No. 43082, June 18, 1937
E. Purpose of Taxation
General / Fiscal/ Revenue
Commissioner of Internal Revenue v. Algue, Inc.,supra
PAL v. Edu, G.R. No. L-41383, August 15, 1988
Tolentino v. Secretary of Finance, G.R. No. 115455, October 30, 1995
Non-Revenue/Special or Regulatory
Osmena v. Orbos, G.R. No. 99886, March 31, 1993
Caltex v. Commission on Audit G.R. No. 92585, May 8, 1992
F. Principles of a Sound Tax System
Chavez v Ongpin, G.R. No 76778, June 6, 1990
Taganito Mining v. Commissioner of Internal Revenue, CTA Case 4702,
April 28,1995
G. Taxes Distinguished from Police Power and Eminent Domain
Republic v. Bacolod-Murcia Milling Co., Inc., et al.,G.R. No. L-1982426,
July 9, 1966
Tanada v. Angara, G.R. NO. 118295, May 2,1997
Osmena v. Orbos, supra
Lutz v. Araneta, G.R. No. 7859, December 22, 1955
II. Taxes
A. Definition
B. Essential Characteristics of Taxes
Tan v. Del Rosario, G.R. No.109289, October 3, 1994
Commissioner of Internal Revenue v. Santos, GR 119252, Aug. 18,1997
C. Taxes distinguished from other Impositions
1. Debts
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G. G. Non-Impairment of Contracts Sec.R. 125.. 1987 Constitution g. Uniformity. 1987 Constitution Villegas vs. Hiu Chiong Tsai Pao Hao. V. No. 131359. 1999 Cagayan Electric Power and Light Co. September 27. Art. 1968 c. G.R.R. 1960 b. Ill. G. Ill. No. 1968 3. Commissioner of Internal Revenue.R. supra c. Custom Duties III. Orbos. Commission on Audit supra Francia v Intermediate Appellate Court. Public Purpose of Taxes Pascual vs. 1984 Ormoc Sugar vs.R. 1965 Reagan vs. 1981 b.. Inc. 1999 Sison vs. Treasurer of Ormoc City. No. Situs of Taxation Philippine Guaranty Co. No. L-29646. 28(1). Mambulao Lumber Company.. 1953 Page 2 of 7 . Hord. L-49336. February 17. No. International Comity Section 159. 1907 Meralco v. 1987 Constitution Casanovas v.al. Art XII. G. G.R. Freedom of Speech and of the Press American Bible Society v. NO. L-35726. Tolls 5. City of Manila. G. No. Municipality of Victorias. L-22074 April 30..R. Local Government Code 2. No. March 22. No. 11. L-10405 December 29. No. G. Origin of Appropriation. G. November 10. Secretary of Public Works and Communications.R. Et al. 10.. 1. July 25. G. Art. No. 1988 Republic v. Due Process of Law Sec. G. No. Ill. Non-Delegability of the Taxing Power Osmena v. Inc. Limitations on the Taxing Power 1. Commissioner of Internal Revenue. 53961 June 30.R. Art. L-26379. al. 1987 6. 1987 Constitution Tiu v Court of Appeals.. Non-Imprisonment for Debt or Non-Payment of Poll Tax Sec. G. Equitability and Progressivity of Taxation Sec. December 27. Art. June 29. Revenue and Tariff Bills h. 1978 Association of Customs Brokers. Negros Occidental. G. Art. Special Assessments/Levies 4.R. 1957 Lladoc vs. 1987 Constitution Province of Abra vs. Etc. May 22. 60126. L-23794. Vs. L-59431. City of Bacolod et. January 20.Caltex v. August 31. 1985 f. 1987 Constitution e.R. Ill. L-24813. Art.R.L-18994. License Fees Victorias Milling Co. April 30. Commissioner of Internal Revenue. v. July 21. VI. Inherent Limitations on the Taxing Power a. June 28. 17725. June 16. al.R.R. 1982 e. G.. Septemeber 25. Non-Infringement of Religious Freedom Sec. 1962 Domingo v Carlitos. Exemption of Government from Taxes Social Security System vs. Ancheta. Ill & Sec. 20. 1. 5. 67649. Penalties National Development Company vs. Commissioner of Internal Revenue. No. Commissioner of Internal Revenue. G. Constitutional Limitations on Taxing Power a. Province of Laguna. May 5. No. 127410. Municipal Board of Manila et. 8 Phil.R. Inc. L-4376. Hernando. 1969 d. 1965 d. 1963 2. February 28. Equal Protection of the Law Sec. V. No. et.

V. Court of Tax Appeals and YMCA. Definition Madrigal v. 1988 Commissioner of Internal Revenue v. 1987 Constitution n.. NIRC) c. Directly and Exclusively Used for Religious. Municipality of Victorias. NIRC) 5. Tax Exemption of Revenues and Assets. VI. G. 1995 j. VI. Delegation of Legislative Authority to Fix Tariff Rates. Progressive c. 24. 1987 Constitution Abra Valley College v. Semi-Schedular or Semi-Global Tax System 3. 414.i. Global Tax System b. Intermediate Appellate Court et. October 30. XIV. NIRC) c. NIRC) 6.R. NO. Tax Exemption of Properties Actually. No.168056. Income a. Ermita. G. Tax Exemptions e. General Professional Partnerships (Section 22. Rafferty. General Principles 2. Art. September 27.R. 4(3). 28(3). Kinds of Tax Exemptions f. 1979 Victorias Milling Co. Criteria in imposing Philippine Income Tax a. Estate of Benigno Toda Jr. December 28. October 14. Definition b.R. Charitable and Educational Purposes Sec. Non-delegation of legislative power Abakada Guro Party List v. V. Income Tax Systems a. Co-ownerships (Section 22. Tax Avoidance. VI. September 14. Aquino. G. G.R. 1918 Page 3 of 7 . Donations or Contributions to Educational Institutions Sec. al. L-24265. G.. including Grants. Art. Inc. Source Principle (Section 42. Semi-Schedular or Semi-Global Tax System 4. Direct Tax b. Art. L69259. NIRC) b. Individual Taxpayers (Section 22. Art. l. No. Partnerships (Section 22. 1987 Constitution 3. 1987 Constitution Sec. 38 Phil. Schedular Tax System c. Residence Principle (Section 23. Principles Governing Tax Exemptions g. 2004 INCOME TAXATION 1. Double Taxation and Tax Exemptions a. NIRC) b. Citizenship Principle (Section 23. L-21183. 1988 Commissioner of Internal Revenue vs. Voting Requirements in Connection with the Legislative Grant of Tax Exemption Sec. 1998 m. No. NIRC) f. January 26. G. 147188. Kinds of Taxpayers a. June 15. 28(3). VI. Import and Export Quotas k.R. 124043. Comprehensive d. Features of the Philippine Income Tax Law a. Means Employed to Avoid Double Taxation d. Estates and Trusts (Section 60. Nature c. Double Taxation Defined b. Kinds of Double Taxation c. NIRC) d. Tax Evasion and Tax Fraud Procter and Gamble Philippines Manufacturing Corp. Corporations (Section 22. August 7. 1987 Constitution Sec. NIRC) e. Municipality of Jagna. 28(4). 1968 Delpher Trades Corporation v. No. Income Taxation a. Art. Endowments..R.

R. G. Nature c. G.R. 1995 3. February 12. Royalties c. No. 1968 iv. 2010 5. August 26. Test in Determining Income i. Tours Specialists.R. Final Tax on (other) Gross Income from Sources Within the Philippines GROSS INCOME a. Realization Test iii. Inc. Capital Gains Tax (“CGT”) 3. Regional or Area Headquarters (“RAH”) or Regional Operating Headquarters (“ROH”) of Multinational Companies in the Philippines b. No. Prizes and Winnings d. Offshore Banking Unit in the Philippines established in the Philippines c. 31283. CTA. Definition (Section 32-A. Concept of Gross Income from whatever sources derived c. All-events Test Commissioner of Internal Revenue vs.R. Realized Income vs. 137377. Special Classes of Individual Employees Those employed by: a. Income Subject to Graduated Rates a. No. Exemption of Minimum Wage Earners 5.R. April 14. April 25. Claim of Right Doctrine Commissioner of Internal Revenue v. Source of Income (Section 42.. Branch Profit Remittance Tax (“BPRT”) 8. NIRC) Commissioner of Internal Revenue v. December 18. Capital Gains 7. L-19392. Ltd v. March 9.R. 66416 March 21. Court of Tax Appeals and Commissioner of Internal Revenue. Business and professional income c. Dividends e. Marubeni Corporation. NIRC) 4. 160756. April 30. Passive Income NOT subject to final tax e. G. 1965 Alexander Howden & Co. General Principles (Section 23. Final Tax on Passive Income 4. Normal Corporate Income Tax (“NCIT”) 2. 2001 Philippine Guaranty Co. Minimum Corporate Income Tax (“MCIT”) CREBA vs. Rule of Passive Income Subject to Final Tax a. NO. v. Recognized Income d. Improperly Accumulated Earnings Tax (“IAET”) 7. No. Commissioner of Internal Revenue. No. Gross Income Tax (“GIT”) 6. Foreign Service Contractor or subcontractor engaged in petroleum operations CORPORATE INCOME TAXATION (Section 27-30 Inclusive) 1. G.Commissioner of Internal Revenue vs. Romulo G. Classification of Income as to Source Page 4 of 7 . CAGR SP No. 1965 Philamlife v. 2007 INDIVIDUAL INCOME TAXATION (Section 24-26. L-2707. NIRC) 2. Flow of Wealth Test ii. Isabela Cultural Corporation. NIRC Inclusive) 1. Taxable Income (Section 31. 1990 b. NIRC) b. G. 25043. Capital Gains NOT subject to final tax d. Commissioner of Internal Revenue. Interest Income b. Compensation Income b. Other Income 6. 172231.

Other Exclusions Damages recovered in a libel or slander suits Damages recovered for alienation of affection Damages recovered for breach of promise to marry Damages recovered for loss of life of spouse Damages recovered in annulment of marriage FRINGE BENEFITS TAX (Section 33. Summary Rules on Claimable Deductions i. Rate Basis Valuation of Fringe Benefits Read: Revenue Regulations 3-98 (“RR No. Compensation for Injuries and Sickness e. Income from Business v. Taxpayers who may avail of the exclusions c. Exclusions v. Annuities. 42.d. Deductions v. NIRC) a. NIRC) EXCLUSIONS FROM GROSS INCOME (Section 32-B. Passive Investment Income Interest Income Dividend Income (Cash. retirement. Prizes and Awards ix. proceeds from life insurance or other types of insurance viii. Rationale for the exclusions b. Bequests and Devises d. For Corporations d. Sources of Income Subject to Tax i. Compensation Income ii. Basic Principles c. Exclusions under the Tax Code a. Income from any source whatever Forgiveness of Indebtedness Recovery of accounts previously written-off Receipt of tax refunds or credit e. Kinds of Deductions i. Pensions. Ordinary and Necessary Expenses Page 5 of 7 . Tax Credit d. Professional Income iv. Taxpayers who cannot avail of deductions from gross income whether OSD or Itemized Deductions f. Itemized Deductions i. Income from Dealings in Property vi. Fringe Benefits iii. Miscellaneous items h. Pensions. Income exempt under treaty f. NIRC) Taxability of Fringe Benefits Nature. Deductions in general b. 3-98”) DEDUCTIONS FROM GROSS INCOME (Section 34. Stock. Return of Premium Paid c. NIRC) a. Source rules in determining income from within and without (Sec. Gains from Redemption of Shares in Mutual Fund e. Optional Standard Deduction ii Special Deduction iii Itemized Deduction e. Retirement Benefits. benefit or separation pay x. Gratuities g. For Individuals ii. Proceeds of life insurance policies b. Property and Liquidating Dividends) Royalty Income Rental Income vii. Gifts.

Interest expense. Personal. Creditable Withholding Tax b. G. L-28508-9. NIRC) a. No. Withholding Tax on Wages ii. 1982 Commissioner of Internal Revenue v. V. v. bad debts and losses from sales of property between related parties f. 118794. 2002 Kuenzle & Streiff Inc. Losses v. Withholding Tax System 2. NIRC) ii. G. G. NIRC) h. 1967 vii. October 29. 1981 Republic of the Philippines v. Withholding Tax on Fringe Benefit c.R. Pension trust contributions of employees xi. No. No. NIRC) iii. Depletion of Oil and Gas wells and mines viii. No. WITHHOLDING TAXES (Section 57-58 Inclusive. Estates and Trusts (Section 61. v. September 5. G. 1966 iii. Nos. Commissioner of Internal Revenue. 1989 Atlas Consolidated Mining and Development Corp v. 1959 ii. 1960 iv.R. 141314. Status at the end of the year rule ITEMS NOT DEDUCTIBLE (Section 36. April 26. No. Depreciation of Property Basilan Estates. 2003 Esso Standard Eastern Inc. Premiums paid on life insurance policy covering the life of any officer financially interested e. NIRC) a. G. November 15. L-16626. Withholding Tax on Compensation i. Bad Debts Philippine Refining Co. Charitable and other contributions Roxas v. Manila Electric Company. Interest Commissioner of Internal Revenue v.R. Withholding Tax at Source i. Basic Personal Exemptions b. 143672. Palanca Jr. No. Court of Appeals G. Commissioner of Internal Revenue. October 20. Losses from wash sales of stocks or securities.) Inc.R. Nos. Kinds of Withholding Tax a. NIRC) PERSONAL AND ADDITIONAL EXEMPTIONS (Section 35. living or family expenses b. G. L-22492.R. No. Insurance companies (Section 37. G. Final Withholding Tax ii. Research and Development x. Withholding Tax on Creditable Value Added Tax (“VAT”) Page 6 of 7 . Vda. May 8. February 25. 1996 vi.R.Aguinaldo Industries Corp v. Losses from sales or exchange of property g. Court of Tax Appeals. Private proprietary educational institutions (Section 34 (A) (2). 1968 ix. Commissioner of Internal Revenue. Taxes Commissioner of Internal Revenue v. Premium payments on health and/or hospitalization insurance g. September 30. Inc. No. L-13912. De Prieto. July 7.R. Optional Standard Deduction (OSD) (Section 34 L.R. January 27. Amount expended in restoring property d. L-25043. April 24. Commissioner of Internal Revenue. L-29790. L12010 and L-12113.R. G. 26911.R. G. General Foods (Phils. G. v. Amount paid for new buildings of for permanent improvements c. Commissioner of Internal Revenue. Additional Exemptions for taxpayer with dependents c. Section 78-82 Inclusive) 1. Special Deductions i.R. No.

R. No. Persons Required to Withhold 4. 2-98”) Commissioner of Internal Revenue v. 155682.R. G. No.d. 2-98 (“RR No. Persons NOT Required to Withhold 5. March 27. Wander Philippines Inc and Court of Tax Appeals. 1988 Banco Filipino Savings and Mortgage Bank v. Court of Appeals. 2007 Page 7 of 7 . G. Consequences of Failure to Withhold Read Revenue Regulations No. April 15. L-68375. Withholding on Percentage Tax 3.