LYCEUM OF THE PHILIPPINES UNIVERSITY COLLEGE OF LAW TAXATION | (SY 2018-2019) References: National Internal Revenue Code of 1997, as amended by pertinent laws REPUBLIC ACT NO. 10963 - TRAIN ‘Any book with annotations on General Principles of Taxation and Income Taxes Assigned Supreme Court Cases Relevant Bureau of Internal Revenue issuances ALL SECTION REFERENCES PERTAIN TO NIRC, AS AMENED, UNLESS OTHERWISE STATED References in RED are new or at jents by TRAIN. PARTI TAXATION IN GENERAL CHAPTER | - GENERAL PRINCIPLES OF TAXATION 1. TAXATION 1. Definition of Taxation a. 71.Am Jur 2™ 342 2. Nature of internal Revenue Laws a. Hilado v. CIR, 100 Phil 288, 3. Scope of Taxation a. §28, Art. VI, 1987 Constitution b. 71 Am Jur 2" 394-395 c. 71m Jur 2 397-398 d. Chamber of Real Estate and Builders’ Association (CREBA) v. Romulo, ‘Amatong and Parayno, G.R. No. 160756, March 9, 2010 e. Sison v. Ancheta, 130 SCRA 654 (citing C.J. John Marshall [McCulloch v. Maryland] and J. Holmes [Panhandle Oil Co. v. Mississippi]) f. Sarasola v. Trinidad, 40 Phil. 259, G.R. No. 14595, October 11, 1919 ng theory and basis a. 71.Am Jur 2"! 346-347 b. CIR. Algue, Inc. L-28896 Feb 17, 1988 5. Principles of a Sound Tax System a. Abakada Guro Party List Officers v. Ermita, et. al., G.R. No. 168056, September 1, 2005 b. Diaz and Timbol v. Secretary of Finance and the Commissioner of Internal Revenue [6.R. No. 193007. July 19, 2011,] Page|26. Comparison with Police Power and Eminent Domain a. Similarities and distinctions 71 Am Jur 2" 395-397 b. Gerochi, et al. v. DOE, et al., G.R. No. 159796, July 17, 2007 ¢. Matalin Coconut Co., Inc. v. Mun, Council of Malatiang, 143 SCRA 404 d. Lutz v. Araneta, 98 Phil 48 e. NTCv. CA, 311 SCRA 508 (1999) 7. Stages or Aspects of Taxation TAXES 1. Definition a. 71. Am Jur 2° 343-346 b. Republic v. Philippine Rabbit Bus Lines, I 30,1970 2. Essential Characteristics of Taxes 3. Taxes distinguished from: a. Debts i, 71. Am Jur 2% 345-346 li, Caltex v. COA, 208 SCRA 726 fil, Francia v. IAC, 162 SCRA 753 iv. Philex Mining Corp. v. CIR, CA, and CTA, G.R. No, 125704, ‘August 28, 1998 b. License Fees 1. 71m Jur 2% 352-353 fi, Progressive Dev. Corp. v. QC, 172 SCRA 629 c. Special Assessments (now special levies under the 1991 Local Government Code) i, Apostolic Prefect v. Treasurer of Baguio, 71 Phil. 547 4. Tolls 1.71 Am Jur 2 352 ii, Diaz and Timbol v. The Secretary of Finance et al., G.R. No. 193007, July 19, 2011 ~See above I.5.b (Principles of Sound Tax systems) e. Penalties i. NDCv. CIR, 151 SCRA 472 f. Custom duties ., G.R, No, L-26862, March IIL, CLASSIFICATION OF TAXES 1. As to subject matter a. 71. Am Jur 2357-361 b. Capitation or poll taxes c. Property taxes d. Excise or license taxes 2. Asto incidence or burden a. 71 Am Jur 2" 354 course ourune sr 20182018 TATY,KATHYRN A, ZARATE age?b. Direct Taxes c._ Indirect Taxes d. Maceda v. Macaraig 223 SCRA 217, G.R. No, 88291, June 8, 1993 3. Asto determination of amount a. 71 Am Jur 2" 355 b. Specific taxes ~ Sec. 129, NIRC c. Ad valorem taxes—Sec. 129, NIRC 4, sto purpose a. 71 Am Jur 2°4 355 — 356 b. General or Fiscal c. Special, Regulatory or Sumptuary 5. Asto scope ‘a. National taxes b. Local taxes 6. Asto graduation or rate a. Progressive b. Regressive c. Mixed d. Proportionate 1V, DOCTRINES IN TAXATION 1. Prospectivity of Tax Laws a. Hydro Resources v. CA, G.R, No. 80276, December 21, 1990, 192 SCRA 604 2. Imprescriptibility of Taxes a. CIR v. Ayala Securities Corporation, G.R. No, L-29485, November 21, 1980, 101 SCRA 231 3. Double Taxation a. Definition and Nature. 71 Am Jur 2" 362-365 b. Villanueva v. City of lloilo, G.R. No. L-26521, December 28, 1968, 26 SCRA 578 c. Sanchez v. CIR 97 Phil. 687, G.R. No. L-7521, October 18, 1955. d. Punsalan v. Mun Board of Manila 95 Phil. 46 e. The City of Manila, et al. v. Coca-Cola Bottlers Philippines Inc., G.R. No, 181845, August 4, 2009 4, Power to Tax involves the Power to Destroy 5. Doctrine of Equitable Recoupment a. USv. Dalm, 494 U.S. 596 (1990) 6. Methods of avoiding the occurrence of double taxation a, Tax Treaty i, Deutsche Bank AG Manila Branch v. CIR [G.R. No. 188550. August 28, 2013.] b. Tax Credit 1. CIR. Lednicky, G.R. Nos. 1964 18169, L-18286, & 1-21434, July 31, Course ourunes¥ 2018-2018 IATY, RATER ZARATE7. Taxpayer's Suit a. Nature and Concept i, Land Bank v. Cacayuran, G.R. No, 191667, April 17, 2013 b. As distinguished from a citizen’s suit i. Biraogo v. The Philippine Truth Commission of 2010, G.R. No. 192935, December 7, 2010 c. Requisites of a taxpayer's suit challenging the constitutionality of a tax measure or act of a taxing authority; concept of locus standi, doctrine of transcendental importance and ripeness for judicial determination i, Lozano v. Nograles, G.R. No. 187883, June 16, 2009 CHAPTER LIMITATION UPON THE POWER OF TAXATION INHERENT LIMITATIONS. 1. Public Purpose a. Pascual v. Sec. of Public Works, 110 Phil 331 2. Taxing power is inherently legislative a, Ingeneral - Delegata potestas non potest delegari b. Exceptions: i. Local Government Units 1) Quezon City, et al. v. Bayantel, G.R. No. 162015, March 6, 2006 Delegation to President -§28(2), Art. VI, 1987 Constitution iii, Administrative Rate Fixing 1) Smith Bell & Co. v CIR, G.R. No. L-28271, July 25, 1975 3. Territoriality or Situs of Taxation ‘a. Meaning and scope of limitation b. Situs of Taxation i. Meaning Determination of Situs/Factors in determining Situs i. Situs of subjects of taxation 1) Persons —-§157-158, 1991 LGC a) Community Tax ~ individuals and corporate 2) Lex Situs or Lex Rel Sitae - Real Property §42(A)(5) and (CIS), NIRC 3) Mobilia Sequuntur Personam - | Personal Property {§42(A)(6) and (E), NIRC 4) Income a) Interests - §42(A)(1) and (C)(2), NIRC Dividends - §42(A)(2) and (C)(2), NIRC i, Manila Gas v, Collector, 62 Phil 895 (G.R. No. 42780, January 17, 1936) ©) Services - §42(A)(3) and (C)(3), NIRC ‘xATION Course ourune 123182018 IATY,KATHRN 2 ZAATE Pages1. GIR v. Baier-Nickel, G.R. No. 153793, ‘August 29, 2006 CIR v. Marubeni Corporation, G.R. No. 137377, December 18, 2001 4). Rentals and Royalties -§42(Aj(4) and (C)(4), NIRC 5) Business, Occupation, Transaction a) Manila Electric Company v. Yateo, G.R. No. 45697, November 1, 1939, 69 Phil 89 6) Transfer of property by death or gift a) Wells Fargo Bank v. Col, 70 Phil. 325 7) Multiple situs of taxation 4, International Comity (in par parem, non habet imperium — An equal has no power over an equal) CONSTITUTIONAL LIMITATIONS 1. Due process Clause a. §1, Art. Ill, 1987 Constitution b. Com. of Customs v. CTA & Campos Rueda Co., 152.SCRA 641, G.R. No. 70648, July 31, 1987 2. Equal Protection Clause a, §1, Art. Ill, 1987 Constitution b. Ormoc Sugar Co. v. Treasurer of Ormoc City 22 SCRA 603, G.R. No. L- 23794, February 17, 1968 3. Rule of Taxation shall be Uniform and Equitable a. §28(1), Art. VI, 1987 Constitution b. British American Tobacco v. Camacho and Parayrio, G.R. No. 163583, ‘August 20, 2008 and April 15, 2009 4, Non-impairment of Contracts a. §10, Art. Ill & §11, Art. XIl, 1987 Constitution b. Imus Electric Co. v. CTA and CIR, G.R. No, L-22421, March 18, 1967 c. Phil. Rural Electric Cooperatives Association Inc., et al. v. DILG and DOF, G.R. No. 143076, June 10, 2003 5, Non-imprisonment for non-payment of poll tax: a. §20, Art. Ill, 1987 Constitution 6. Prohibition against taxation of real property of charitable institutions, churches, parsonages or convents, mosques and non-profit cemeteries ‘a, §28(3), Art. VI, 1987 Constitution b. Abra Valley Collecge, Inc. v. Aquino, G.R. No. L-39086, June 15, 1988, 162 SCRA 106 c. Lung Center v. QCet. al. G.R. No. 144104, June 29, 2004 7. Prohibition against taxation of non-stock non-profit educational institutions a. §4(3), Art. XIV, 1987 Constitution b. §30(H), NIRC c. CIR v. CA & YMCA, 298 SCRA 83 Gourse ourunes¥ 2018 2013 [ATV KATHNGN A ZARATE Peerd. CIR v. CA, CTA and Ateneo De Manila University, G.R. No. 115349, April 18, 1997 e. CIR. DLSU, G.R. No. 196596, November 9, 2016 8. Passage of tax bills a. §24, Art. VI, 1987 Constitution b. Tolentino v. Secretary of Finance 249 SCRA 628 ¢. Abakada Guro Party List Officers v. Ermita, et. all, G.R. No. 168056, ‘September 1, 2005 [See Sec. | (5)(a) ~ Principles of aSound Tax System] 9. Granting of tax exemption a. §28(4), Art. VI, 1987 Constitution b. John Hay Peoples Alternative Coalition, et. 119775, October 24, 2003 10. Veto power of the President a. §27(2), Art. Vi, 1987 Constitution 11. Judicial Power to review legality of tax a. §5(2){b) AVIll, 1987 Constitution v. Lim, et al,, G.R. No. CHAPTER Ill — EXEMPTIONS FROM TAXATION IN GENERAL 1. Definition 2. Kinds of Exemption a. Express b. Implied or by Omission © Contractual Nature of power to grant tax exemption Constitutional Exemption Legislative grant of exemption a. CIR v Botelho Shipping Corp. 20 SCRA 487, G.R. No. L-21633-34, June 29, 1967 b. CIRVCTA, GCL Retirement Plan, 207 SCRA 487, G.R, No. 95022. March 23, 1992 PAGCOR v. BIR, [G.R. No. 172087. March 15, 2011,] Exemption created by Treaty . Exemption of Government and Government Agencies a. §27(C), NIRC b. §30(1), NIRC c §32(8)(7){b), NIRC 4d. Philippine Ports Authority v. City of Iloilo, G.R. No. 109791, July 14, 2003 Philippine Fisheries Development Authority v. CA, G.R. No. 169836, July 31, 2007 {. City of Pasig v. Republic of the Philippines represented by PCGG [G.R. No. 185023. August 24, 2011.] yap THxATION cust ourune sy 2318-2019 IATY,KATHYER & ZARATE Poell, COMPROMISE, ABATEMENT AND TAX AMNESTY 1. Compromise §204 (A) a. RR 30-2002 as amended by RR 8-04 b. Cases which may be compromised Cases which may not be compromised 4. Basis for Acceptance of Compromise Settlement @. Delegation of power to compromise §7(c) 2, Abatement §204(B) a. RR13-01 b. When may penalties be abated or cancelled 3. Definition and Sample Tax Amnesty Program: RA No. 9480 a. Philippine Banking Corporation vs. CIR, G.R. No, 170574, January 30, 2009 b. CSGARMENT, INC., vs. COMMISSIONER OF INTERNAL REVENUE, [6.R. No. 182399. March 12, 2014,] 4, Voluntary Assessment Program/Last Priority in Audit a. CIRv. Gonzalez et al., G.R, No. 177279, October 13, 2010 Ill, ESCAPE FROM TAXATION 1. Shifting of Tax Burden 2. Tax Avoidance vs. Tax Evasion a. CIR v. The Estate of Benigno P. Toda, G.R. No. 147188, Sept 14, 2004 b. BIR vs. COURT OF APPEALS, et. al., [G.R. No. 197590. November 24, 2014.) AND |CTION OF TAX LAWS 1, SOURCES OF TAX LAW 1. Statutes a. Existing Tax Laws i. National - National Internal Revenue Code of 1997 as amended i, Local - Book Il, 1991 Local Government Code |. Tariff and Customs Code BCDA Law v. PEZA Law vi. Omnibus investment Law 2. Revenue Regulations ‘a. Authority to promulgate. §244, NIRC b._ Specific provisions to be contained in RR. §245, NIRC Powers and duties of the BIR §2 d. Force and effect of RR? Art. 7, Civil Code ‘axAMON "ATTY RATHYRIA,ZARATE Page?i. BPI Leasing Corp v. CA and CIR, G.R. No. 127624, November 18, 2003 BIR Issuances BIR Revenue Administrative Order (RAO) No. 2-2001 a, BIR Rulings i. Rulings of first impression ii. Rulings with established precedents ili, Power of CIR to Interpret Tax Laws. §4, NIRC iv. Non-Retroactivity of Rulings §246, NIRC v. CIR. Burroughs Ltd., G.R, L-66653. June 19, 1986 vi. CIR v. Philippine Health Care Providers, Inc, G.R. No. 168129, April 24, 2007 Exceptions PBCOM vs. CIR 302 SCRA 241 Revenue Memorandum Rulings (RMR) Revenue Travel Assignment Orders (RTAO) Revenue Special Orders (RSO) Revenue Memorandum Circulars (RMC) Revenue Memorandum Orders (RMO) Revenue Audit Memorandum Orders (RAMO) Revenue Delegation of Authority Orders (RDAO) i. Revenue Administrative Orders (RAO) Farpaoe Opinions of the Secretary of Justice Legislative Materials Court Decision Hl, CONSTRUCTION AND INTREPREATION OF TAX LAWS, EXEMPTIONS AND REFUNDS. 1. General Rules of Construction of Tax Laws oe ‘a. Luzon Stevedoring v Trinidad, 43 Phil. 803, b. Philippine Health Care Providers, Inc. v. CIR, G.R. No. 167330, ‘September 18, 2009 Construction of Tax Exemptions a. City of lloilo v, Smart, G.R. No. 167260, February 27, 2009 b. Rodriguez, Inc. v Collector 28 SCRA 119 . Wonder Mechanical Engineering v. CTA 64 SCRA 555 d. Republic Flour Mills v CIR, 31 SCRA 148, G.R. No. L-25602, February 18, 1970 Construction of Tax Refunds a. Resins, Inc. v. Auditor Gen. 25, SCRA 754, G.R. No, 1-17888, October 29,1968 b. Kepco Philippines Corp. v. CIR GR No. 179356, December 14, 2009 Tax Rules and Regulations Penal Provi Non-Retroactive application Ns of Tax Laws TAXATION cobRSE OUTUNE SY 2018-2019 [ATTY KATHYR A ZARATE PapePART II INCOME TAX Revenue Regulations No. 2-40 Consolidated Income Tax Regulations CHAPTER ENER: IPLES 1. OVERVIEW OF INCOME TAXATION 1. Whats Income Tax? a. Fisher v. Trinidad, 43 Phil 973, 2. Philippine Income Tax Law 3. Income Tax Systems a. Global Tax System b. Schedular Tax System ©. Semi-schedular or semi-global Tax System d. Progressive System fe. Regressive System 4, Features of Philippine income Taxation a. Direct b. Progressive c. Comprehensive d. Semi-schedular or semi-global e. American origin 5. Criteria in Imposing Income Tax c. Source ll. GENERAL PRINCIPLES OF INCOME TAXATION §23, TAX CODE Resident Filipino Citizen Nonresident Filipino Citizen Overseas Filipino contract worker or seaman Resident or non-resident alien individual Domestic corporation Foreign corporation oy eee CHAPTER II - CLASSIFICATION OF INCOME TAXPAYERS 1. SCOPE OF INCOME TAXATION 1. Definition of a Taxpayer §22(N), NIRC ‘TAKATION ITTY. ATHYRN A ZARATEDefinition of a Person §22(A), NIRC Who is a “Person liable to tax” CIR vs. Procter & Gamble, G.R. No. 66838, December 2, 1991, 204 SCRA 378 Silkair (Singapore) PTE. LTD. v. CIR, G.R. No. 184398, February 25, 2010 waun Il. INDIVIDUAL TAXPAYERS 1. Citizens §1 ~ §2, Art IV 1987 Constitution a. Resident Citizens b, Non-Resident Citizens §22(€), NIRC 2. Alien a. Resident Alien §22(F), NIRC b. 55 last par, Revenue Regulations No. 2 c. Non-resident Alien §22(6) |. engaged in trade or business §25(A), NIRC ji, not engaged in trade or business §25(8), NIRC 3. General Professional Partnership S22(B) a. Tan vs. Del Rosario and CIR, G.R. No. 109289, October 3, 1994 IM, ESTATES AND TRUSTS Definition of Estates & Trusts, Art. 1440-1457, Civil Code Application of Tax, $60, NIRC IR v. Visayan Electric, [G.R. No. L-22611. May 27, 1968.]23 SCRA 715 CIR v. CA, CTA, GCL Retirement Plan, [G.R. No, 95022. March 23, 1992.] 207 ‘SCRA 487 eeNe IV. CORPORATIONS, 1. Definition of a corporation §22(B), NIRC a. Partnerships and Joint Ventures Art. 1767 ~ 1769, Civil Code i. Lorenzo Offa v. CIR, G.R. No, L-19342, May 25, 1972, 45 SCRA 74 ii, Evangelista vs. Collector, G.R. No. L-9996, October 15, 1957, 102 Phil 140 I. Afisco Insurance Corp vs. CIR, G.R. No. 112675, Jan 25, 1999, 302 SCRA1 b. Co-ownership Art. 484 Civil Code i. Pascual v. CIR, 166 SCRA 560 2. Domestic Corporation §22(C), NIRC a. Proprietary Educational Institutions and Hospitals §27(B), NIRC i, Commissioner v. St. Luke's Medical Center, G.R. No. 195909, September 26, 2012 b. Government-owned or -Controlled Corporation §27(C), NIRC 3. Foreign Corporation §22(D), NIRC 4, Resident Foreign Corporation §22(H), NIRC ‘TaKATION ‘corse ourune st 2018-2019 ATV. KATHIRN A ARATE age 10International Air Carrier §28(A)(3)(a), NIRC International shipping §28(A)(3)(b), NIRC Offshore Banking Units §28(A)(4), NIRC Regional or Area Headquarters and Regional Operating Headquarters of Multinational Companies §28(A)(6), NIRC . Subsidiary vs. Branch of a Foreign Corporation 5. Non-Resident Corporation §22(1), NIRC a. Non-resident Cinematographic Film Owner, Lessor or Distributor §28(8)(2), NIRC b. Non-resident Owner or Lessor of Vessels Chartered by Philippine Nationals §28(B)(3), NIRC ©. Non-resident Owner or Lessor of Equipment §28(8)(4), NIRC pose ircraft, Machineries and Other CHAPTER Ill - INCOME 1. Taxable Income 1. Definition §31, NIRC, as amended by TRAIN Sec 36 ~ 38, Regulations No. 2 3. Difference between Capital & Income a, Madrigal v. Rafferty 38 Phil 14 4, Requisites for Income to be Taxable a. Existence of income; b. Realization of income; i. Test in determining income / Doctrines on Determination of ‘Taxable income 1. Realization Test a. Elsner v. Macomber, 252 US 89 b. Fisher v. Trinidad, 43 Phil 973 2. Doctrine of command or control of income a. Helvering vs. Horst, 311 U.S. 112 (1940) 3. Claim of right doctrine or Doctrine of ownership ‘2. Commissioner vs. Javier, 199 SCRA 824 b. Commissioner vs. Wilcox, 327 U.S. 404 (1945) . James vs. US, 366 US 213 (1961) [overturning Commissioner vs. Wilcox) 4. Income from whatever source a. Gutierrez vs, Collector, G.R, Nos. 1-9738 & L- 9771, May 31, 1957, 101 Phil 713 b. Forgiveness of Indebtedness, §50, Revenue Regulations No. 2 c. Farmers & Merchants Bank v, CIR, 59 F2nd 912 li, Actual vs. constructive receipt 1. Limpan Investment Corp. v. CIR, G.R. No. L-21570, July 26, 1966 TAXATION! ‘cobrse ourunes¥ 2028-2018 ITTY. HATHRN A. ZARATERecognition of income; Methods of accounting: | i. Cash method vs. accrual method | ji, Installment payment vs. deferred payment vs. percentage of completion | fe. Income is not exempt. ao H,— Gross income 1, Definition §32(A), NIRC | 2. Gross Income vs. Net Income vs. Taxable Income 3. Classification of Income subject to Tax a. Compensation Income i. Definition Sec 2.78.2 (A) RR2-98; Read AR §-2018, Backwages Exception: Minimum Wage Earners §24{A), as amended by TRAIN | jv, Fringe Benefits §33(A) NIRC, as amended by TRAIN 1. Definition and Inclusions §33(B) NIRC, as amended by TRAIN | 2. Rate §33(A) NIRC, as amended by TRAIN 3. Tax Base §33(A) NIRC, as amended by TRAIN 4. Exceptions §33(C) NIRC | a. Exempt under special laws b. Contributions of employets to retirement, insurance and hospitalization benefit plans Benefits to Rank & File Emplayees d. De Minimis Benefits i. Definition of De |Minimis Benefits §2.78.4(A)(3), RR 2-98 as amended by RR 5-2008, 10-2008, 5-2011, 8-2012, 1-2015 and RR 11-2018 5. Collector v. Henderson, 1 SCRA 649) 6. GIR v. Castaneda, G.R. No. 96016, SCRA 72 b._ Income from the exercise of profession ©. Income from business i. See §43~47, Revenue Regulations No. 2 4. Income derived from dealings in property i. Types of Properties 1. Ordinary assets $39(A)(1) 2. Capital Assets §39(A)(1) i. Types of Income from dealings in property 1. Ordinary income and Loss §22(2) 2. Capital Gains and Loss 2. Net Capital Gain §89(A)(2) (Oct 17, 1991, 203 ‘TaKATION ‘coast ourue st 2018-2019 ATTY AATHRN A ZARATE Page 12b. Net Capital Loss §39(A)(3) 3. Holding Period §39(8) 4, Limitation on Capital Losses §39(C) 5. Net Loss Carry Over §39(D) Computation of gain or loss 1. General §40(A) 2. Basis for Determining Gain or Loss §40(8) 3. Exchange of Property | a. General Rule §40(C){1) b. Exceptions: No gain of loss if certain exchanges of properties $40(C)(2) Commissioner of Internal Revenue v. Filinvest Development Corporation, G.R. No. 163653, July 19, 2011 e. Passive Income i. Interest from Deposits, Deposit Substitutes, Trust Funds and Similar Arrangements ii. Dividends 1. Distribution of Dividends §73 a. Liquidating Dividend b. Cash Dividend ©. Stock Dividend d._Property Dividend 2. Wise & Co., Inc., et al., vs. Meer [G.R. No. 48231. June 30, 1947.] 3. CIRv. CA, CTA, & ANSCOR, G.R. No. 108576, January 30, 1999 4. Elsner v, Macomber, 252 US 89, supra ili, Royalties iv. Rental Income 1. Lease of personal property 2. Lease of real property a. Leasehold improvements by lessee b. Advance rent Annuities, proceeds from life insurance or other type of insurance Prizes and winnings Pensions, retirement benefits or separation pay Partner's distributive share in a general professional partnership §26 Income from whatever source i. Forgiveness of Debt li, Recovery of accounts previously written off i. Receipt of refund or credit ins from Gross Income a. In general, §32{B), as amended by TRAIN 13™ month pay and other benefits, §32(8)(7)(e), as amended by TRAIN. ©. See2.78.1 (B)(11) RR 2-98, as amended by RR 11-2018 f g he i i ‘axanion ‘cobs ourune sv 2018-2018 TITY. NATHYRN A ZARATE Pagesd. CIR v, CA & Castaneda, G.R. No. 96016, Oct 17, 1991, 203 SCRA 72, supra 5. Source Rules | a. Interests §42(A)(1) and (C)(1) b. Dividends §42(A)(2) and (C)(2) Services §42(A)(3) and (C)(3) d._ Rentals §42(A)(4) and (C)(4) e. Royalties $42(A)(4) and (c)(4) f. Sale of Real Property §42(A)(5) and (C)(5) g. Sale of Personal Property §42(E) in relation to SA2(AK(6) hh. Sale of Shares of Stock of corporation (CHAPTER Ill — TAX BASE & TAX RATES (Assignment: Fill up Tax Matrix ~ See Annex A] 1. INDIVIDUALS 1. Resident Citizens & Resident Aliens §24 a. Taxable Income b. Purely Self-Employed Individuals and/or Professionals §24(A)(2)(b) TRAIN ©. Mixed Income Earners §24(A)(2)(c) TRAIN Read also Revenue Regulations No. 8-2018 e. Passive Income Interest §24(8)(1); $27(DM3); §28(4)(7)(b) | Royalties §24(B)(1) Prizes & Other Winnings §24(B)(1) iv. Dividends §24(8)(2) f. Capital gains on shares of stocks §24(C) Capital gains on real property §24(D)(1) i. Exception: Sale of Principal Residence §24(D)(2); Read RR No. 13-99 as amended by RR 14-00 1. What is a Principal Residence §2.1, RR 13-99 as amended | 2. Conditions for Exemption §3, RR 13-99, as amended 3. Consequence if requisites not met, §5, RR 13-99, as amended 2. Non-Resident Aliens a. Engaged in trade or business i. Taxable Income §25(A)(1}; ii. Passive Income §25(A)(2); §27(D)(3) last paragraph lil, Capital gains on Sale of Shares of Stock §24(C) iv. Capital gains on Sale of Real Property §24(D)(1) & (2) ATION ‘copes ourune st 2018-2018 ATTY. KATHYRW A, ZARATE Pagesb. Not engaged in trade or business | i. All Income §25(B) ii, Capital Gains on Sale of Shares of Stock §24(C) in relation to §25(8) | . Capital Gains on Sale of Real Property §25(8) Special Aliens §25(F) in relation to §25(C) and President's Veto; §4 of RR8-2018 | i. Allen Individual Employed by Regional or Area Headquarters and Regional Operating Headquarters | of Multinational Companies ii, Alien Individual Employed by Offshore Banking Units li, Alien individual Employed by Petroleum Service Contractor and Subcontractor 3. Minimum Wage Earners (MWE) a. Definition §22(HH) | b. Taxation §24(A)(2)(a) last paragraph TRAIN, RR 8-2018 ¢. Coverage of exemption §3(8), last par RR 8-2018, 4, Members of General Professional Partnership §26, §3(C), AR 8-2018 Hl. Corporations 2. Domestic Corporations a. Ingeneral, §27(A) b. Special Corporations i. Proprietary Educational institutions and Hospitals §27(8) ji, Government Owned and Controlled Corporations §27(C) . Passive Income | i. Interest and royalties §27(D)(1); $28(A\7)(H) idends §27(0)(4) d._ Capital gains i. Sale of Real Property classified as capital asset §27(D)(5) li, Sale of Shares of Stock not Traded in the Stock Exchange §27(D)(2) iii, Sale of Shares of Stock Traded in the Stock Exchange §127(A) . Expanded Foreign Currency Deposit System §27(0)3) f. Minimum Corporate Income Tax (MCIT) 1. Tax Rate and Base §27(E)(1) Carry Forward Excess Minimum Tax §27(E)(2) iii, Gross income; Cost of Goods Sold; Cost of Goods Manufactured ‘and Sold; Cost of Services §27(E)(4) 1. Chamber of Real Estate and Builders’ Associations, Inc. v, Romula, et al., G.R. No. 160756, March 9, 2010 2, The Manila Banking Corporation |v. CIR, G.R. No. 168118, August 28, 2006 TANATON ‘cobase ourunes¥ 2028-2018 [TT HATHYRN A ZARATE Pagesident Foreign Corporations a. In general, §28(A)(1) b. Minimum Corporate Income Tax on Resident Foreign Corporations §28(A)(2) c. Branch Profits Remittance Tax (BPRT) §28(A)(5) 4d. Special Foreign Corporations i, International Carriers §28(A)(3)(a) International Shipping §28(4)(3)(b) Offshore Banking Units §28(A)(4) iv. Regional or Area Headquarters and Regional Operating Headquarters §28(A)(6) e. Passive income Interest and Royalties §28(A)(7) ji, Dividends §28(4)(7)(d) f. Capital gains i. Sale of Real Property Classified as a Capital Asset §28(A)(1) li, Sale of Shares of Stock Not Traded in the Stock Exchange §28(A)(7)(c) in relation to §27(D)(2) Sale of Shares of Stock Traded in the Stock Exchange §127(A) g. Income Derived under the Expanded Foreign Currency Deposit System §28(A)(7)(b) h. Branch Profit Remittance Tax i. Marubeni Corp v. Commissioner, G.R, No. 76573, 14 September 1989, 177 SCRA 500 ji, Bank of America NT & SA vs. CA & CIR, G.R. No. 103092, July 21, 1994, 234 SCRA 302 4, Nonresident Foreign Corporation a. In general, §28(8)(1) b. Special Non-Resident Foreign Corporations i Non-resident Cinematographic Film Owner, Lessor or Distributor §28(B)(2), NIRC ji, Non-resident Owner or Lessor of Vessels Chartered by Philippine Nationals §28(8)(3), NIRC ili, Non-resident Owner or Lessor of Aircraft, Machineries and Other Equipment §28(B)(4), NIRC c. Passive Income i. Interest on Foreign Loans §28(8)(5)(a) ji, Dividends §28(8)(5)(b) 1. Commissioner v. Procter & Gamble PMC, G.R. No. 66838, December 2, 1991, 204 SCRA 377 2. Commissioner v. Wander Phils., G.R. No. 68375, April 15, 1988, 160 SCRA 573 4. Capital gains |. Sale of Real Property Classified as a Capital Asset §28(8)(1) Sale of Shares of Stock Not Traded in the Stock Exchange §28(8)(5)(c) ‘TaNATION ‘cobese aurune sv 2018-2018 ITTY HATHYRN A ZARATE Pagesiil. Sale of Shares of Stock Traded in the Stock Exchange §127(/) 5. Improperly Accumulated Earnings Tax (IAET) a. Definition and Tax Rate §29(A) and (B)(2) b, Corporations subject to IAET §29(B)(1) ©. Exceptions §29(8)(2) d._ Evidence of Purpose to Avoid Income Tax §29(C) e. Improperly Accumulated Taxable Income §29(D) 1. Cyanamid vs, CA 322 SCRA 639 [G.R. No. 198067. January 20, 2000.) 6. Exemption from Tax on Corporation a. Educational: Jesus Sacred Heart College v. Collector of Internal Revenue, G.R. No. L-6807, May 24, 1954 b. Cooperatives: Dumaguete Cathedral Credit Cooperative (DCCCO) v. ‘CIR, G.R. No. 182722, January 22, 2010 CHAPTER V— DEDUCTIONS Conditions for deductibility of business expenses 1. It must be ordinary and necessary §34(A)(1)(a) a. Test of Deductibility i. ESO. CIR, G.R. Nos. L-28508-9, July 7, 1989, 175 SCRA 149 il, Zamora v. Collector 8 SCRA 163, G.R. No, L-15290, May 31, 1963 Kuenzle & Streiff, Inc. v. CIR, G.R. No. L-18840, May 29, 1969 b. Test of Reasonableness i, CM Hoskins & Co., Inc. v. Commissioner, G.R. No. L-24059, November 28, 1969, 30 SCRA 434 ji, CIR v. General Foods (Phils), Inc., G.R. No, 143672, April 24, 2003 2. It must be paid or incurred during the taxable year §34(A)(1)(a) 2 GIR v. Isabela Cultural Corporation, G.R. No. 172231, February 12, 2007 3. It must be paid or incurred in carrying on, or which are directly attributable to the development, management, operation and/or conduct of the trade, business or exercise of profession §34(A)(1)(a), NIRC a. CIR vs. CTA & Smith Kline & French Overseas Co (Phil Branch), 127 SCRA 9, G.R. No. 1-54108, January 17, 1984 b. Gutierrez v. Collector, 14 SCRA 33 4, It must be supported by adequate invoices or receipts §34(A)(1)(b), NIRC a. Gancayco vs, Collector, 1 SCRA 980, G.R. No. L-13325, April 20, 1961. 5. It is not contrary to law, public policy or morals; §34(A)(1)(c) a. 3M Philippines, Inc. v. CIR, G.R. No. 82833, September 26, 1988 6. The tax required to be withheld on the expense paid or payable was remitted tothe BIR ToXATION CcobRse OUTUNES¥ 2928-2038a. Requirements for Deductibility §34(K) Revenue Regulations No. 12-13 revoked by RR No. 6-2018, reinstating §2.58.5 bf RR 14-2002, as amended by RR 17-2003 Il. Types of Deductions 1. Itemized Deductions §34(A) to (3) 2. Optional Standard Deduction §34(L) 3. Special Deductions under the NIRC and special laws §37 and 38. I Itemized Deductions 1. Interest a. Requisites for Deductibility §34(B)(1) b. Disallowed Interest on Tax Arbitrage §34(B)(1) c. Exceptions §34(B)(2) d. Optional Treatment of Interest Expense §34{B)(3) i, Palanca v. CIR, G.R. No. L-16626, October 29, 1966, 18 SCRA 496 li, Paper Industries Corp. (PICOP) v. CA, CIR & CTA, G.R. No. 106949-50, December 1, 1995, 250 SCRA 434 2. Taxes a. Requisites for Deductibility §34(C)(1) b. Exceptions §34(C)(1) ¢. Limitation on Deductions in case of NRAETB §34(C)(2) i, CIR v. Lednicky, G.R. No. L-18169, July 31, 1964 d. Foreign Tax Credits i. Persons allowed §34(C)(3) ji, Limitations on Credit §34(C)(4) 3. Losses a. Requisites for Deductibility §34(D)(1) i. Marcelo Steel Corp. v. Collector, G.R. No. L-12401, October 31, 1960, 109 Phil 921 ji, Plaridel Surety & Ins Co v. CIR, G.R. No, L-21520. December 14, 1967, 21 SCRA 1187 iii, CIR v. Priscilla Estate, G.R. No. L-18282, May 29, 1964 b. Ordinary Loss v. Capital Loss i, Limitation on Capital Losses §34(D)(4)(a) ii, Securities Becoming Worthless §34(D)(4)(b) iii, China Bank Corp vs. CA, CIR, CTA, G.R. No. 125508, July 19, 2000, 336 SCRA 178 ©. Wash Sales §34()(5) & §38 d. Wagering Losses §34(D)(6) 2. Abandonment Losses §34(0)(7) f. Net Operating Loss Carry Over (NOLCO) §34(D)(3), RR No. 14-2001 i. What is NOLCO? ji, How does NOLCO work? iil, When not allowable? iv. PICOP v. CA, CIR & CTA, G.R. No. 106949-50, December 1, 1995, 250 SCRA 434, supra TwxATON Couns OUTUNES¥ 2028-2019 Pago tsi. Transactions between related parties §36(B) in relation to §34(E)(1) ii, Recovery of bad debt previously written off| 1. Tax Benefit Rule §34(E)(2) b. Collector v. Goodrich International Rubber Co.,|G.R. No. L-22265, December 22, 1967, 21 SCRA 1336 Phil Refining Company v. CA, CTA and Commissioner, G.R. No. 113794, May 8, 1996, 326 Phil 680 5. Depreciation a. Requisites for Deducti b. Methods of Depreciation i, Straight Line Method ji. Declining Balance Method ili, Sum of the Years Digit Method Special Rules on Depreciation |. Private Educational institutions $34(A)(2) li, Petroleum Operations $34(F)(4) ili, Mining Operations $34(F)(5) iv. For Nonresident Aliens Engaged in Trade or Business or Resident Foreign Corporation $34(F)(6) 4d. Basilan Estate, inc. v. Commissioner, 21 SCRA 17 e. Zamora v. Collector, 8 SCRA 163 f. US. Ludley, 247 US 295 6. Depletion a, ingeneral, §34(G)(1) b. USv. Ludley, 247 US 295, supra 7. Charitable & other Contributions 8. Requisites for Deductibility §34(H)(1) a, Limited Deductibility §34(H)(1) b, Deductible in Full §34(H)(2) Roxas v. CTA, 23 SCRA 276 9. Research & Development §34() 10. Contribution to Pension Trust a. Requisites for Deductibility §34(1) IV. Optional Standard Deduction (OSD) §34(L), RR No. 16-08 1. Requisites for OSD 2. OSD for individuals 3. OSD for Corporations Premium Payments on Health/Hospitalization insurance §34(M) |. Allowance for Personal & Additional Exemption §12, TRAIN 1. Personal Exemption §35(A) a. Single b. Married Head of Family ty §34(F)(1) ss TRXATION ‘copes ourunes¥ 2028-2038 ATTY, KATHYRN A, ZARATE Pages4. Estates and Trusts $62 ‘Additional Exemption for dependents §35(8) Definition of “Dependent” §35(8) In case of married individuals §35(8) In case of legally separated spouses §35(8) Change of Status §35(C) Personal Exemption Allowable to Nonresident Alien Individual §35(D) Vi. tems not Deductible 1. General Rule §36(A) 2. Atlas Consolidated Mining Co. v. CIR, G.R. No. L-26911, January 27, 1981, 102 SCRA 246 b. Gancayco v. Collector, 1 SCRA 980, G.R. No, 1-13325, April 20, 1962 2. Losses from sales or exchanges of property between related parties §36(B) oy ReN (CHAPTER VI~ PARTNERSHIP |. Taxation of General Partnership §22(B) I. Taxation of General Professional Partnership §26 CHAPTER Vil — ESTATES & TRUSTS |. Application of Tax §60(A) |i, Exception §60(8) Ill, Computation and Payment §60(C) 1. Ingeneral, §60(C)(1) Consolidation of income of two or more trusts §60(C)(2) Taxable Income §61 Exemption allowed to Estates and Trusts §62 Revocable trusts 663, Income for benefit of grantor §64(A) Meaning of “in the discretion of the grantor” §64(B) Noween CHAPTER Vill = ACCOUNTING PERIODS AND METHODS OF ACCOUNTING |. Accounting Periods 1. Taxable year §22(P) 2. Calendar year b. Fiscal year §22(Q) General Rule on computation of taxable income §43 Period in which items of Gross Income Included §44 Period in which Deductions and Credits taken $45 5. Change of Accounting Period §46 Hl, Accounting Methods 1. Cash receipts and disbursements method 2. CIR. Isabela Cultural Corp, G.R. No. 172231, February 12, 2007 2. Accrual Method copese ourune sv 2038 2018 ATTY. KATHYRW A. ZARATE Page20a. Filipinas Synthetic Fiber Corp vs. CA, 316 SCRA 480 Long-term Contracts §48 Sec 44, Regulations No. 2 Installment Basis §49 Sec 51, Regulations No. 2 1X - WITHHOLDING TAXES |. Concept of Withholding Tax 1. CIR. Solidbank Corporation, G.R, No. 148191, November 25, 2003 Il. Types of Withholding Tax 1. Withholding on Wages a. Requirement for withholding §79(A) b. Tax paid by recipient $79(8) © Refunds or credits §79(C) 4. Year-end adjustment §79(H) e. Liability for tax 880 2. Withholding Tax at Source 2. Final Withholding Taxes §57(A) i. RCBCv. CIR, G.R. No. 170257, September 7, 2011 . Creditable Withholding Taxes or Expanded Withholding Tax §57(B) i. Chamber of Real Estate and Builders’ Associations, Inc. v. Romulo, et al., G.R. No. 160756, March 9, 2010 3. Withholding VAT §14a(c) 4. Fringe Benefits Tax (FBT) §33 ayae CHAPTER X ~ RETURNS AND PAYMENT OF TAX 1. Individuals 1. Income Tax Return a. Who are required to file an income Tax Return (ITR) §51(A)(1) i, Married Individuals §54(D) ii, Income of minor children §54(E) iii, Individuals deriving purely compensation income iv. Professionals and Self-employed individuals 1. InGeneral, §74(A) 2. Quarterly ITR §74(8) b. Who are not required to file an ITR §51(A)(2) Substituted Filing of ITR by Employees Receiving Putely Compensation Income §51-A, TRAIN |. Venue of Filing of ITR §52(8) Time of Filing of ITR §51(C) Payment of income tax §56(A) Installment payment §56(8) pital Gains Returns geres 2: ‘axATON cobase ourunes¥ 2018-2018 ATTY. KATHNRN A, ZARATE Pagezta. For sale or exchange of shares of stock not traded in a local stock exchange §52(C(2)(a) b. For sale of real property §51(C)(2)(a) I Corporations 1. Income Tax Return §52(A) 2. Quarterly Corporate Income Tax Return §75 b. Final Adjustment Return §76 i. Place of Filing §77(A) Time of Filing §77(8) Time of Payment §77(C) 1. United International Pictures, AB v. Commissioner of Internal Revenue, G.R. No. 168331, October 11, 2012 2. Capital Gains Tax Return 3. Capital Gains Returns a. For sale or exchange of shares of stock not traded in a local stock exchange $52(D) b. For sale of real property Ill Estates and Trusts §65 IV. General Professional Partnerships §55 \V. Withholding Tax Returns Quarterly Returns and Payments of Tax Withheld §58(A) Certificate of Tax Withheld §58(B) Annual information Return (Alpha List) §58(8) Income of Recipient §58(D) ds 2. 3. 4 TAKATION codase ourune sv 2018-2018 [ATTY KATHI A ZARATE Page“CITIZENS: Resident Non-resident incldg Compensation-|— Professionals Self-Employed / PSM Within & Without the PHS24(A)(1)(a) S24(A)(1)a) $24(A)(1)(b) S24(A)(A){b)8&(C) PASSIVE INCOME §24(B)(1) §24(8)(1) __§24(8)(1) §24(8)(1) i Prizes & Winnings $§24(B)(1) business (NRANETB) $24(8)(1) |Cash/Property contractors | Dividends §24(8)(2) §24(8)(2) $24(8)(2), §25(A)(2) §25(8) CAPITAL GAINS TAX | Real Property Classified as Capital 524(0)(2) §24(0)(2) pane | ee ean Asset §24(D)(2) §24(D)(2) §24(D)(2) §25(A\(1) Shares of Stock not 524(C)in listed/traded in PSE §24(C) §24(C) §24(C) relation to §25(B) ae §25(A)(2) SPECIAL ALIENS aa Aliens employed by: Regional or area See §25(F) in headquarters relationto | _| Offshore banking} See 25(F) in relation to $25(C) §25(C) and unit and VETO; VETO; : Petroleum — servi §4RR8-2018 $4 RR 8-2018 Taxarion COURSE OUTUNESY 20182019 ‘ATTY KATHYRN A ZARATE Poge2eREE ea ae ree eee FOREIGN CORPORATIONS Domestic aes Resident Nor-resident TAXABLE INCOME _ : ae Source ___827(a) §28(A)(1) §28(8) TaxBase 221A) 528(A)(2) Hnaaeeces| s27(€)() §28(A)(2) ser Rate 527(A) 528(4)(1) soe) §28(4)(2) | see) PASSIVE INCOME - alescreere Interest from esas Bankdeposis (Rese) 527(0\(1) §28(A)(7)(a) 52818) FCDU/OBU §27(D)(3) S27i0Kt) S28{A)(7N0) ales 528(4)(7)(b) pee eee eeeen ees §27(0)(4) 528(A\(7\(a) §28(8) Foreign Loans NA NA §28(B}(5)(a) (subject to ot aoe preferential tax treaty rates) ee §27(0)(1) §28(A)(2) crea Mey ce Pres & Winnings win : Taal ‘COURSE OUTUNES¥ 20182038 TATY,KATHYRW A ZARATE Pages'§28(8) (subject to preferential tax . gees treaty rates) i §28(8) Cash/Property Dividends §28(8)(5)(b) B27 S2B{AIC7NA) (subject to preferential tax treaty rates) (CAPITAL GAINS TAX aaEannE EE Real Property Classified as Capital Asset §27(0)15) ___§28(A)(1) §28(8) Shares of Stock not isted/traded in PSE §27(D)(2) §28(A)(7)(c) §28(8)(5)(c) BRANCH PROFIT nA NA REMITTANCE TAX (BPRT) Heed §28(A)(5) IMPROPERLY ACCUMULATED EARNINGS TAX (IAET) §29(A) i = ‘SPECIAL CORPORATIONS = international Carriers (Air or Sea) 827(A)(3) Offshore Banking Units s271aya) Regional or Area leadquarters §22(DD) 7 §27(A)(5)(a) Regional Operating Headquarters §22(EE) §27(A)'SKb) Non-resident cinematographic fi lesor or estibutor ene rweation | ‘course ourues 20182013 [ATIY,KATHYBN A ZARATE Page 26Non-resident owner or lessor of vessels Non-resident owner or lessor of aircraft, machineries and | equipment eece] Proprietary Educational Institutions and nonprofit |_hospital 52718) ‘COURSE OUTUNE St 2018-2039 Page27