TAX NOTES (LEGAL GROUND) ") ;sta

;state
te an
an ono
onor?r?ss taxe
taxes!
s!
 Lectures of Atty.
Atty. Japar B. Dimampao
Dimampao $) @alue6a
6ae tax!
Supplement Bar Material &) .th
.ther per
perce
cent
ntaage ta
taxes!
es!
2) ;xcise taxes!
STATE POLICY 4) -ocu
-ocume
mentntar
ary
y stam
stamp p tax
taxes
es!! an
an
5) Such
Such other
other taxes
taxes as
as are
are or herea
hereafte
fterr may
may be impos
impose
e
Declared Policy of the State : (CodeRD!"N) an collecte by the Bureau of +nternal evenue
1) to prom
promototee sust
sustai
aina
nabl
blee econ
econom
omicic growt
growth h throug
through h INCO0E TAX
the rationalization
rationalization of the Philippine internal revenue
tax system, incluing tax aministration! .EATURES O. OUR PRESENT INCO0E TAXATION
") to pro
provi
vie,
e, as
as much
much as
as possib
possible,
le, an e#u
e#uit
itabl
ablee relief
relief to
a greater number of taxpayers in orer to improve - <hat are the features of our present income taxation
taxation in the
levels of isposable income an increase economic light of  A&"&
activity! A$ <e aop aopte
te
 the
the so6c
so6cal
alle C !"#$%&%
le !"#$%&%'()*%'()*% TA+ 
$) to crea
create
te a robu
robust
st envir
environm
onment
ent for busin
business
ess to
to enabl
enablee ()T(D
()T(D E 0om 0ompre
prehen
hensiv
sivee in the sense
sense that
that we practi
practical
cally
ly
firms to compete better in the regional as well as the apply all possible rules of tax situs
global mar%et!
&) the
the Stat
Statee ensu
ensure
ress that
that the
the 'ove
'overn rnme
mentnt is able
able to Criteria &ed (Code R$ P$ N$)
provie for the nees of those uner its (urisiction a) Residency tax payer !
Reside ncy of taxpayer
an care Situations where we utilize resiency as basis:
1) <e tax
tax the
the inco
income
me of a resi
resie
ent
nt alie
alien
n eriv
erive
e
T#E !$I$R$ from sources within the Philippines
") <e als
also
o tax
tax the
the inco
income
me fro
from
m sour
source
cess with
within
in of
of
1) Po%er& a'd dtie& of the !IR$ resient foreign corporation in the Philippines
*he B+ shall be uner
uner the supervision
supervision an control of of the
-./
-./ an
an itsits powe
powersrs an
an uti
uties
es shal
shalll comp
compre rehe
hen
n:: b) Place/Source
(CODE ACE"P) >se as a basis
basis in taxing
taxing the income
income of a non6resient alien
1) the assessment! iniviual <e can only tax his income erive from sources
") colle
collecti
ction
on of all
all nat
nation
ional
al inter
internal
nal reve
revenu
nuee taxes
taxes,, fees,
fees, within an in taxing the same, we consier the place where the
an charges! income is erive
$) the
the enfo
enforcrcem
emen
entt of all
all forf
forfei
eitu
ture
res,
s, pena
penaltltie
ies,
s, an
an
fines! c) Nationality or Citizenship in the case of individual taxpayer 
&) execu
executio
tion
n of (ug
(ugmen
mentsts in all
all cases
cases ecie
ecie  in favo
favorr <e use that as a basis
basis in imposing tax on the income
income of a
by the 0* an orinary courts resient citizen Resident citizen may be taxe from his sources
2) give
give effe
effect
ct an
an to ami
amininist
ster
er the
the super
superviviso
sory
ry an
an within an without *he source of income here is immaterial
police powers conferre to it by the 0oe an other what
what we consi
consier
er is the natio
national
nality
ity or citiz
citizens
enshi
hip
p of the
laws taxpayer

") PO*ERS of the Co++i&&io'er of the I'ter'al Re,e'e$ Domestic corporation  E we can tax its income erive from
1) to int
interp
erpret
ret tax
tax laws
laws an
an toto eci
eciee tax
tax cases
cases 3Sec
3Sec &)!
&)! sources within an without
") to obta
obtain
in info
inform
rmatiation
on an
an to to summo
summon, n, exa
examimine,
ne, an
an
ta%e testimony of persons 3Sec 2)! .n Non-resident citizen, they can only be taxe on their
$) to ma%e asses ssessmsmenentts an presc rescri
ribe
be ait itional
nal incom
incomee erive
erive from
from the sources
sources withi
within
n E tax
tax situs
situs is the
re#u
e#uiremen
ements ts for
for tax ami
minist
nistra
rattion an place Fsource of income
enforcement 3Sec 4)!
&) to ele
elega
gate
te powe
powers rs 3Sec
3Sec 5)!
5)! Ta12ayer Sorce&
2) to amini
aministesterr o
oath
athss an
an ta%e
ta%e test
testim
imonyony 3Sec
3Sec 1&)
1&)!! 1 0 +F. 3Sec "$ GH)
4) to ma%e
ma%e arr
arres
ests
ts an
an sei
seizu
zureress 3Sec
3Sec 12)!
12)! " 90 + 3Sec "$ GBH)
5) to assi
assign
gn or re6ass
re6assignign intern
internal al reven
revenueue offic
officers
ers 3Sec
3Sec $ .0< + 3Sec "$ G0H)
14 7 15) & 8+;9 + 3Sec "$ G-H)
&1 96;*B
RE-UISITES O. A /ALID TAX REGULATION TION &" 969;*B
38+M+**+.9 ./ *; P.<; *. +9*;P;* *= 8<S) &$ 8+;9 ;6M90
1) +t mus
mustt be cons
consis
iste
tent
nt wit
withh the
the prov
provis
isio
ion
n of the
the *ax
*ax && 8+;9 .B>s
0oe &2 8+;9 PS0S
") easonable 2 -omestic 0orp + 3Sec "$ G;H)
$) >seful an
an n
neecessary 4 /or
/oreign
eign 0orp6
p6/0F9
/0F9
/0 + 3Se
3Sec "$ G/H)
G/H)
&) +t mus
mustt be pub
publi
lish
she
e in
in the
the offi
offici
cial
al gaz
gazet
ette
te or
or in the
the
newspapers of general circulation
circulation 1)  resident citi-en 
citi-en  is taxable on all income erive
from sources within an without the Philippines
SOURCES O. RE/ENUES
The
The foll
follow
owin
ingg taxe
taxes,
s, fees
fees and
and char
charge
gess are
are deem
deemed
ed to be ")  nonresident citi-en is taxable
taxable only on income
national
national internal
internal revenue
revenue taxes
taxes: (CodeIE/P
(CodeIE/PEDO
EDO or E/E" erive from sources within the Philippines
Philippines
PIDO)
1) +ncome tatax!
 2
$) n overseas
overseas contract
contract wor/er 
wor/er  is taxable
taxable only
only on 98  *he
*he ta1 rate& are 2ro4re&&i,e i' character  *his is clear
incom
incomee from
from source
sourcess withi
within
n the Phili
Philippi
ppines
nes!! a uner
uner Sec "& 3a)
3a) Iou
Iou wil
willl notice
notice there
there that
that the tax base
base
seaman who is a citizen of the Philippines an who increases as the tax rate increases
receives compensation for services renere abroa
as a member of the complement
complement of a vessel engage :8 0odified 4ro&& i'co+e a& re4ard& co+2e'&atio' ear'er 
exclusively
exclusively in the international trae shall be treate Moifie
Moifie because
because in etermin
etermininging the taxable
taxable compensa
compensation
tion
as an overseas contract wor%er incom
income,
e, the onl
only
y allow
allowabl
ablee euc
euctio
tions
ns are
are person
personal
al an
&) n alien individual,
individual, whether a resient or not of the ait
aition
ional
al exempt
exemptioion
n Iou
Iou canno
cannott euc
euctt the
the allo
allowab
wable
le
Philippines, is taxable only on income erive from euctions
euctions uner Sec $& from gross compensation income
sources within the Philippines
Philippines But
But as rega
regar
rss thos
thosee ini
inivi
viu
ual
al taxp
taxpay
ayer
erss that
that
erive business, trae or professional income, we aopte the
2)  domestic corporation is taxataxable
ble on all
all incom
incomee 'et i'co+e &y&te+$ *his is so because uner Sec $&, allo%a3le
eri
erive
ve
 from
from soursource
cess with
within
in an
an with
withou
outt the
the dedct io'&& may
dedctio' may be claim
claime
e by inivi
iniviu
ual
al taxpay
taxpayers
ers who
Philippines ! an erive business trae an professional
professional income

 foreign corporation,
4H  foreign corporation, whether engage or not in trae ;8 <e employ this CPay a& yo .ile D system
or business in the Philippines, is taxable only on income
erive from sources within the Philippines <8  >ner certain cases, we employ the C 2ay a& yo ear' D
system *his applies to C income su%&ect to 'ithholdin tax)!
I'co+e Ta1atio' +ay 3e 4ro2ed i'to
1) ini
inivi
viu
ualal inco
income
me taxa
taxati
tion
on the basic features of corporate income taxation
-$ <hat are the taxation
") corp
corpor
orat
atee inc
incom
omee tax
taxat
atio
ionn A$
58 Glo3
Glo3alal Co'c
Co'ce2e2tt has
has been
been aopte
aopte
 JJJ
JJJ 'lobal
'lobal system
system
- What are the basic features of individual taxation
taxation (S$P$ .$ E$ where the tax treatment views inifferently the tax base an
0$) treats in common all categories of taxable income of taxpayer
A 3*an vs -el osario)
5)  +niviual income
income taxation aopte the Schedlar &y&te+
of ta1atio' Characteri&tic& of Glo3al &y&te+ of Ta1atio'
a) *niform treatment E this
*niform tax treatment this is sub(e
sub(ect
ct to imini
iminishi
shing
ng
Sche
Sched
dla
larr Sy&te
Sy&te+ + of Ta1a
Ta1atio' E is a system
tio' corporate tax rates of $&K 3Lan 1, 1A), $$K 3Lan 1, 1), $"K
employe where the income tax treatment varies an mae to 3Lan 1, "NNN) See 0hapter +@, Sec "5)
epen
epen on the
the %in
%in or catego
category
ry of the taxpay
taxpayer?
er?ss taxabl
taxablee b) Does not cateorize income 
income (an vs! Del Rosario"! 98 orporate taxpayer, particularly domestic corporations are
entitled to deductions
deductions So, insofar as omestic corporation
corporation an
Characteristics of schedular system of taxation : resient foreign corporation
corporation is concerne, we aopte here the
a) +t giv
gives
es or
or acc
accor
ors
s if
iffe
fere
rent
nt tax
tax tre
treat
atme
ment
nt net income tax system
on the income of iniviual taxpayer  9ew provisions uner  A&"&: 1NK tax on
b) +t cl
classifies income impr
improp
oper
erly
ly accu
accumu
mulalate
te
 earn
earnin
ings
gs of a
corporate taxpayer
 #anifestations$ 3that uner the iniviual taxation we
aopte the scheular system of taxation)
taxation) :8 Pay a& yo file &y&te+  has also been employe
6C7 !7 P7 D27 I7 R7 R7 D7 A7 P%7 P7 P8  0orpor
0orporate
ate taxpay
taxpayerer is allow
allowee to aopt
aopt
calenar
calenar or fiscal
fiscal year perio 0orpora
0orporate
te
>ner Sec $"3a), income may be categorize as follows: taxpayer
taxpayer files
files corpora
corporatete income
income tax return
5) compensation
compensation income, #uart
#uarterl
erly
y n
n it alsoalso files
files the so6cal
so6calle
le
9) business income, /+98 -L>S*;- ;*>9
:) professional income,  +n the
the case
case of ini inivi
viu
ual
al taxp
taxpay
ayer
er,, the
the
;) income erive from ealings in property, payment shoul not be later than pril 12 of
<) interest income, every taxable year +niviual taxpayers are
=) rent income, not allowe to aopt the so6calle /+S08
>) royalties, I; P;+.-
?) iviens,
@) annuities, O +ndividual taxpayers are allowe to aopt only the calenar
5) prizes, year perio while corporate taxpayers  have the option either the
55) winnings, calenar year perio of the fiscal year perio
59) pensions, an
5:) partner?s istributive share from the net income of Cale'dar year 2eriod   E this covers the perio of 1"6month
the general professional
professional partnership commencing from Lan 1 an ening -ec $1

 *his
*his is the
the mani
manife
fest
stat
atio
ion
n that
that as far
far as .i&ca
.i&call year
year 2eriod E thi
2eriod this is also a 1"6mo
6month peri
perioo
iniviu
iniviual
al income
income taxatio
taxation,
n, the income
income is commencing on any month or ening on any month other than
categorize -ec $1

DE.INITION O. CERTAIN TER0S

 2
$) n overseas
overseas contract
contract wor/er 
wor/er  is taxable
taxable only
only on 98  *he
*he ta1 rate& are 2ro4re&&i,e i' character  *his is clear
incom
incomee from
from source
sourcess withi
within
n the Phili
Philippi
ppines
nes!! a uner
uner Sec "& 3a)
3a) Iou
Iou wil
willl notice
notice there
there that
that the tax base
base
seaman who is a citizen of the Philippines an who increases as the tax rate increases
receives compensation for services renere abroa
as a member of the complement
complement of a vessel engage :8 0odified 4ro&& i'co+e a& re4ard& co+2e'&atio' ear'er 
exclusively
exclusively in the international trae shall be treate Moifie
Moifie because
because in etermin
etermininging the taxable
taxable compensa
compensation
tion
as an overseas contract wor%er incom
income,
e, the onl
only
y allow
allowabl
ablee euc
euctio
tions
ns are
are person
personal
al an
&) n alien individual,
individual, whether a resient or not of the ait
aition
ional
al exempt
exemptioion
n Iou
Iou canno
cannott euc
euctt the
the allo
allowab
wable
le
Philippines, is taxable only on income erive from euctions
euctions uner Sec $& from gross compensation income
sources within the Philippines
Philippines But
But as rega
regar
rss thos
thosee ini
inivi
viu
ual
al taxp
taxpay
ayer
erss that
that
erive business, trae or professional income, we aopte the
2)  domestic corporation is taxataxable
ble on all
all incom
incomee 'et i'co+e &y&te+$ *his is so because uner Sec $&, allo%a3le
eri
erive
ve
 from
from soursource
cess with
within
in an
an with
withou
outt the
the dedct io'&& may
dedctio' may be claim
claime
e by inivi
iniviu
ual
al taxpay
taxpayers
ers who
Philippines ! an erive business trae an professional
professional income

 foreign corporation,
4H  foreign corporation, whether engage or not in trae ;8 <e employ this CPay a& yo .ile D system
or business in the Philippines, is taxable only on income
erive from sources within the Philippines <8  >ner certain cases, we employ the C 2ay a& yo ear' D
system *his applies to C income su%&ect to 'ithholdin tax)!
I'co+e Ta1atio' +ay 3e 4ro2ed i'to
1) ini
inivi
viu
ualal inco
income
me taxa
taxati
tion
on the basic features of corporate income taxation
-$ <hat are the taxation
") corp
corpor
orat
atee inc
incom
omee tax
taxat
atio
ionn A$
58 Glo3
Glo3alal Co'c
Co'ce2e2tt has
has been
been aopte
aopte
 JJJ
JJJ 'lobal
'lobal system
system
- What are the basic features of individual taxation
taxation (S$P$ .$ E$ where the tax treatment views inifferently the tax base an
0$) treats in common all categories of taxable income of taxpayer
A 3*an vs -el osario)
5)  +niviual income
income taxation aopte the Schedlar &y&te+
of ta1atio' Characteri&tic& of Glo3al &y&te+ of Ta1atio'
a) *niform treatment E this
*niform tax treatment this is sub(e
sub(ect
ct to imini
iminishi
shing
ng
Sche
Sched
dla
larr Sy&te
Sy&te+ + of Ta1a
Ta1atio' E is a system
tio' corporate tax rates of $&K 3Lan 1, 1A), $$K 3Lan 1, 1), $"K
employe where the income tax treatment varies an mae to 3Lan 1, "NNN) See 0hapter +@, Sec "5)
epen
epen on the
the %in
%in or catego
category
ry of the taxpay
taxpayer?
er?ss taxabl
taxablee b) Does not cateorize income 
income (an vs! Del Rosario"! 98 orporate taxpayer, particularly domestic corporations are
entitled to deductions
deductions So, insofar as omestic corporation
corporation an
Characteristics of schedular system of taxation : resient foreign corporation
corporation is concerne, we aopte here the
a) +t giv
gives
es or
or acc
accor
ors
s if
iffe
fere
rent
nt tax
tax tre
treat
atme
ment
nt net income tax system
on the income of iniviual taxpayer  9ew provisions uner  A&"&: 1NK tax on
b) +t cl
classifies income impr
improp
oper
erly
ly accu
accumu
mulalate
te
 earn
earnin
ings
gs of a
corporate taxpayer
 #anifestations$ 3that uner the iniviual taxation we
aopte the scheular system of taxation)
taxation) :8 Pay a& yo file &y&te+  has also been employe
6C7 !7 P7 D27 I7 R7 R7 D7 A7 P%7 P7 P8  0orpor
0orporate
ate taxpay
taxpayerer is allow
allowee to aopt
aopt
calenar
calenar or fiscal
fiscal year perio 0orpora
0orporate
te
>ner Sec $"3a), income may be categorize as follows: taxpayer
taxpayer files
files corpora
corporatete income
income tax return
5) compensation
compensation income, #uart
#uarterl
erly
y n
n it alsoalso files
files the so6cal
so6calle
le
9) business income, /+98 -L>S*;- ;*>9
:) professional income,  +n the
the case
case of ini inivi
viu
ual
al taxp
taxpay
ayer
er,, the
the
;) income erive from ealings in property, payment shoul not be later than pril 12 of
<) interest income, every taxable year +niviual taxpayers are
=) rent income, not allowe to aopt the so6calle /+S08
>) royalties, I; P;+.-
?) iviens,
@) annuities, O +ndividual taxpayers are allowe to aopt only the calenar
5) prizes, year perio while corporate taxpayers  have the option either the
55) winnings, calenar year perio of the fiscal year perio
59) pensions, an
5:) partner?s istributive share from the net income of Cale'dar year 2eriod   E this covers the perio of 1"6month
the general professional
professional partnership commencing from Lan 1 an ening -ec $1

 *his
*his is the
the mani
manife
fest
stat
atio
ion
n that
that as far
far as .i&ca
.i&call year
year 2eriod E thi
2eriod this is also a 1"6mo
6month peri
perioo
iniviu
iniviual
al income
income taxatio
taxation,
n, the income
income is commencing on any month or ening on any month other than
categorize -ec $1

DE.INITION O. CERTAIN TER0S

 3
GROSS INCO0E TAXATION TAXATION E is a system
system of taxa
taxatio
tion,
n,
where the income is taxe at gross *he taxpayers uner this Shorter @ersion:  ll pertinent items of ross income less allo'a%le
system are not entitle to any euctions deductions!

+n general, we aopte the 'et i'co+e ta1atio' because uner -$  <hat are the avantagesFisavantages of gross income
Sec
Sec $&,
$&, taxp
taxpay
ayer
erss are
are allo
allowe
we
 to clai
claim
m the
the so6c
so6cal
alle
le
 taxation an net income taxation
88.<B8; -;->0*+.9S  Advantages of gross
gross income taxation0
taxation0
1 +t simplifies our income taxation *his is so because since no
GROSS INCO0E E means means all income
income erive
erive
 whatev
whatever
er euctions are allowe, it is very easy to tax the income Iou
source, incluing
incluing but not limite to the following: 6STP"IRR" on?t have to fin out whether euctions or expenses are
DAP"PS8 legitimate or not because they are not euctible
1 0ompensation for services! " *his will generate more revenue to the government
" 'ross income from trae or business or the exercise of a $ +t minimizes cost
profession!
$ 'ains erive from ealings in property!  Disadvantages of gross
gross income taxation0
taxation0
& +nterests! 1 s far as the taxpayer
taxpayer is conce
concerne
rne,
, this
this is ine#u
ine#uita
itable
ble
2 ents! because they cannot claim the expenses, which are incurre in
4 oyalties! conne
connect
ction
ion with
with his
his tra
traee or busin
business
ess or exerc
exercise
ise of his
his
5 -iviens! profession
A nnuities! " n if this is the system, in all li%elihoo the taxpayers will
 Prizes an winnings! lose
lose inte
intere
rest
st to earn
earn momorere +t will
will in effe
effect
ct reu
reuce
ce the
the
1N Pensions! an purchasing capacity of the taxpayer
11 Partner?s
Partner?s istributi
istributive
ve share
share from the net income of the $ Since taxpayers cannot claim those legitimate expenses as
general professional partnership euctions, they may resort to frauulent scheme that will
minimize their tax ability an this may be one through the
TAXATION  E income is taxe at net *he
NET INCO0E TAXATION unerstatement
unerstatement of income So, in effect, this will encourage tax
taxpayer may claim allowable euctions evasion

INCO0E E all wealth which flows in the taxpayer other than a  Advantages of net income taxation0
mere
mere retur
return
n of capit
capital
al +t inclu
inclues
es all
all incom
incomee specif
specifica
icall
lly
y 1 s far as the taxpayer is concerne, they will consier
consier this as
escribe as gain or profit incluing gain erive from the sale e#uitable
e#uitable an (ust system
or isposition of capital asset " *his will minimize tax evasion because examiners will be
employe to chec% whether expenses are correct or not
 ,*D+C+. D0+N++1N : +t also means gains erive from 31) $ *he conse#uence of no " is that this will generate more
capital, 3") labor, or 3$) both labor an capital incluing gains revenues
erive from the sale or exchange of capital asset
 Disadvantages of net income taxation0
.OUR (;) Sorce& of INCO0EB 6Cla!S8 1 vulnerable to graft an corruption
a 0apital " vulnerable to tax evasion
b 8abor $ will give rise to loss of revenues
c Both labor an capital
 Sale of property SOURCESSITUS O. INCO0E

;xample of income erive from capital JJJ +nterest +ncome n income may be an income from within or without
the Philipp
Philippine
ines
s *he other
other term
term for income
income withi
within
n is .ocal
;xample
;xample of income
income erive
erive from labor JJJ 0ompensatio
0ompensation
n +ncome while income without is sometimes calle 2lo%al +ncome
+ncome or *niversal +ncome 

;xample of income erive from both capital an labor JJJ +n determinin 'hether an income is an income 'ithin or 
+nco
+ncome
me of an inep
inepen
enent
ent contra
contracto
ctor
r *he inepe
inepene
nent
nt 'ithout3 you have to consider the classification or 4ind of income!
contractor provies wor% force, provies capital an erives
income from such capital CLASSI.ICATION O. INCO0E 6C7 !7 P7 I7 R7 R7 D7 A7 P7 P7
P8
O +n determinin the profit from the sale of property , you shoul 1 0ompensation income from services
always be guie by this formula: " +ncome erive from business, trae or profession E in this
regar,
regar, the common
common forms
forms of business
business are merchan
merchanisi
ising
ng
mount eceive .r ealize 8;SS 0ost of busi
businness,
ess, far
farmin
ming busi
busin
ness,
ess, mininning busi
busin
ness
ess an
Property  P./+* manufacturing business
$ +ncome from sale or exchange of property 3either real or
TAXA!LE INCO0E  E 3the ol term is 9et +ncome) E means personal property)
all pertinent items of gross income specifie in the *ax 0oe & +nterest +ncome
le&& the
the eu
euctctio
ions
ns anF
anForor pers
person
onal
al an
an ai
aiti
tion
onal
al 2 ent +ncome
exemptions,
exemptions, if any, authorize for such types of income by this 4 oyalties
0oe or other special laws 3Sec $1 of the * of 15) 5 -iviens, which may be receive from omestic or foreign
corporation
 4
A nnuities 6.D$$  '!,
6.D  '!, because
because the tax situs of interest income is not the
 Prizes an winnings activity %ut the residence of the de%tor! he place 'here the contract
1N Pensions of loan is executed is immaterial!
11 Partner?s istributive share in the net income of general
professional
professional partnership 3Professional income of a partner)
 RENT INCO0E
 CO0PENSATION INCO0E *ax Situs: the P.C of property su%&ect of the contract of lease!
*ax
*ax Situs:
Situs: Place 'here services are rendered  So, if services are
renere within the Phils, that is a 8ocal +ncome +f it is a
payment for services renere outsie the Phils, that is an  ROYALTIES
income without *ax Situs: the P.C 'here the intani%le property is *SD
0 E income from within an without are taxable
90
9 0 E only
only compen
compensat
sation
ion incom
incomee from
from sourc
sources
es withi
within
n is
taxable  DI/IDEND
 E same as 90 a Received from domestic corp E this is an income purely within

 !USINESS INCO0E 60: .8 b Received

Received from forein corp  E consi
consier
er the
the incom
incomee of the
a) Merchanising Business foreign corp in the Phils uring the last preceing three 3$)
b) /arming Business ax Situs$ Place 'here these taxable years!
c) Mining Business %usiness are
underta4en rules$
) Manufacturing Business 31) *he income is purely 'ithin if the income erive from the
Phil sources is more than A2K
ax Situs$
31) if the goos are manufacture in the Phils n sol within 3") +t is purely 'ithout if the proportion of its Phil income to the
the phils *his is consiere as income derived purely within! total income is less than 4NK

3") 'oos manufacture outsie the Phils an sol outsie E 3$) here should %e an allocation  if it is more than 2NK but not
income derived purely without. exceeing A2K
3$) 'oos manufacture within the Phils an sol outsie the
Phils E income partly within and partly without.  ANNUITIES
*ax Situs: the P.C 'here the contract 'as made
3&) 'oos manufacture outsie the Phils an sol within the  PRIES AND *INNINGS
Phils E income partly within and partly without.  Priz
Prizes
es may
may %e iven
iven on acco
accoun
untt of serv
servic
ices
es
rendered E in which case, the tax situs is the
 INCO0E .RO0 SALE OR EXC#ANGE O. PROPERTY 2lace %here the &er,ice& %ere re'dered 
 +f it involves  personal property, in etermining
the tax situs, we have to consier the place of  +f these
these priz
prizes
es are
are not
not iven
iven on acco
accoun
untt of 
sale services, the tax situs is the 2lace %here the
&a+e %a& 4i,e'
 +n the case of sale of transport documents, tax
situ
situss is the
the plac
placee wh
wher
eree the
the tran
transp
spor
ortt
ocument is sol 3B.0 0ase)  ax situs of 'innins is the place where the
same was given
 +f it involves real property, the tax situs is the
place or location of the real property So, if PENSION
the proper
property
ty sol
sol is situa
situate
te within
within the *ax Situs: P.C 'here this may %e iven on account of services
Phils, the income erive from such sale is rendered
consiere as income within
PRO
PRO.E.ESS
SSIOIONA
NAL
L INCO0
NCO0E E O. PRO.
PRO.E ESISO
SISONANAL
L
 INTEREST INCO0E PARTNERS
*ax Situs: RS+DNC of the D51R *ax Situs: P.C 'here the exercise of profession i s underta4en

Case$ *here
*here was this contract
contract regaring
regaring the construc
construction
tion of GROSS INCO0E
ocean6going vessels *here was this issuance of letter of creit
an the payment of ownpayment ll the elements of the GROSS INCO0E E means all income erive from whatever
transactions too% place in Lapan *he payment was mae in source, incluing but not limite to the following:
 Lapan *he letter of creit was execute in Lapan *he elivery
was mae in Lapan *he de%tor is a domestic corp   )'L()!'0 6code STP"IRR"DAP"PS8
1 compensation for services
+s the interest income on this loan evience by the " gross income from trae or business or the exercise of a
letter of creit taxable to the Lapanese corp profession
$ gains erive from ealings in property
& +nterests
2 ents
 5
4 oyalties 4 epreciation
5 -iviens 5 epletion of oil, gas wells an mines
A nnuities A charitable an other contributions
 Prizes an winnings  research an evelopment
1N Pensions an 1N contribution to pension trust
11 Partner?s
Partner?s istributi
istributive
ve share
share from the net income of the
general professional partnership (Sec! 78 of R of 9::;"  NON"DEDUCTI!LE ITE0S
1(ec. 23 A4
 %+L()!'( 6code LAGCIR08 1 Personal living or family expenses!
1 procees of life insurance policy " mountount pai pai for
for new bui builin
ings or perm
permaanent
ent
" amount receive by the insure as return of premium improvem
improvements,
ents, or betterme
betterment
nt to increase the value
value of any
$ gifts, be#uests, evises or escent property or estate!
& compensation for in(uries or sic%ness $ ny amount expene in restoring property or in ma%ing
2 income exempt uner treaty goo the exhaustion thereof for which an allowance is or has
4 retirement benefits, pensions, gratuities
gratuities been mae! or
and others:
others: (.7 /7 R7 S7 S7 G) & Premiums pai on any life insurance policy covering the life
a reti
retire
reme
mentnt bene
benefi fits
ts rece
receivive
e from
from foreig
foreignn of any offic
officer
er or emplo
employee
yee,, or of any
any person
person finan
financia
ciall
lly
y
institution
institution whether public or private intereste in any trae or business carrie on by the taxpayer ,
b vete
veteraran?
n?ss ben
benef
efit
itss iniv
inivi
iua
uall or corpo
corpora
rate,
te, when
when the taxpa
taxpayer
yer is irect
irectly
ly or
c reti
retire
reme
mentnt bene
benefi fits
ts rece
receivive
e from
from priv
privat
atee inirectly a beneficiary uner such policy
firms whether iniviual or corporate
 sepa
separratio
tion papay 1(ec. 23 B4 .osses from sales or exchanes of property directly or 
e SSS indirectly >
f 'S+S 1 Between members of a family 3brother, sister of half or full
5 miscellaneous items: bloo, spouse, ascenant, lineal escenants)!
a priz
prizes
es an awarawarss givegiven n in recog
recogni niti
tion
on of reli
religi
giou
ous,s, " ;xcept in case of istributions in li#uiation, between an
charitable, scientific, eucational, artistic, literary, or civic iniviual an a corporation E more than 2NK in value of the
achievements outstaning
outstaning stoc% of which is owne irectly, by or for such an
0.9-+*+.9S: iniviual! or
1 the the reci
recipi
pien
entt was
was selected 'ithout any action on his $ ;xcept in case of istributions in li#uiation, between two
 part to enter the contest or proceeing corporations E more than 2NK in value of the outstaning stoc%
" the re recipient is is not re<uired to render su%stantial of each of which is owne, irectly or inirectly, by or for same
 future services as a conit conitionion to receiv
receivin
ingg the iniviu
iniviual,al, if either
either one of such corporati
corporation
on is a personal
personal
prize or awar holing company or a foreign personal holing company! or
b inco
income
me eri erive
ve by the the gove
govern rnme
mentnt or its its poli
politi
tica
call & Between the grantor an a fiuciary of any trust! or
sub
subivivis
isio
ions
ns from
from the the exerexerci cise
se of any any esse
essent
ntia
iall 2 Between fiuciary of a trust an the fiuciary of another
governmental function or from any public utility trust, if the same person is a grantor with respect to each trust!
c inco
income
me eriv
erivee from
from inve
investstme
ment nt in the Phili
Philipp
ppin
ines
es by or
foreign government or financing institutions 4 Between a fiuciary of a trust an a beneficiary of such trust
 prizes
prizes an
an awa
awars
rs in
in sports
sports comp
competi etiti
tions
ons
e gain
gain eriv
erive e from
from the the ree
reemp mpti tion
on of sharshares
es of stoc
stoc%% TAXA!LE INDI/IDUALS
issue by the mutual fun company
f contri
contribut
butio ions
ns to 'S+S,
'S+S, SSS,
SSS, P'6
P'6+B +B+',
+', an
an uni
union
on ues
ues RESIDENT CITIENS (RC)
th
g bene
benefifits
ts in the
the fro
from m of
of 1$
1$  month pay an other benefits  +ncome from 'ithin and 'ithout E taxable
h gain
gain eri
erive ve
 from
from the the sale
sale,, exch
exchanange
ge,, reti
retire
reme
mentnt of
bons
bons ebenture
ebenturess or other other certific
certificate
ate of inebte
inebteness
ness NON"RESIDENT CITIENS (NRC)
with a maturity of more than five 32) years 3Sec $" 3b),  +ncome from 'ithin
* of 15)
 When an NRC returns to the Phils!3 his income
ALLO*A!LE DEDUCTIONS may also %e taxed as Resident Citizen or Non-
Resident Citizen!
1 1ptional Standard Deduction  E of ten percent 31NK) of the
'ross +ncome available only to iniviual other than a non6 +llustration$ , an .0<, arrive in the Phils sometime in Lune
resient alien provie he signifies in his return his intention 1A e will be taxe as a 9on6esient 0itizen 390) as
to elect .S-, otherwise, itemize euctions apply ;lection regars the income that he earne which covers the perio of
mae shall be irrevocable for the taxable year 3Sec $& 8)  Lanuary to Lune
Lune 9ow as regars the income
income that he will erive
erive
" +temized Deductions E uner Sec $& 6Q, an M upon his arrival from Lune to -ecember, he will be taxe as
$ Personal and dditional Deductions/xemptions under Sec! 7= esient 0itizen 30)

 ITE0IED DEDUCTIONS 6code ELIT"!DD"CRC8 5ut if  he

  he is not in the Phils from the perio of Lanuary to
1 expenses -ecember 1A, he will be taxe as 90 for the sai perio
" loses
$ interest +f   he will return to the Phils an stay there from Lanuary t
& taxes -ecember 1, he will be taxe as 0 for the same perio
2 ba ebts

? NRC must prove to the satisfaction of the 5+R Commissioner the
 fact of physical presence a%road 'ith the intention to reside therein!
? When an NRC decides to return to the Phils!3 he must prove his
intention to reside here permanently!
? No' NRC includes 1@RSS C1NC W1RARS (1CW"3
+##+2RNS3 and those 'ho SB 1*S+D the Phils! %y
virtue of an employment!
RESIDENT ALIEN (RA)
  1 n iniviual who is not a citizen of the Phils but a
resient of the Phils
O +nclues those who consier the Phils as a secon home
  OOO ransient tourist who (ust so(ourn, their stay is merely
temporary, thus may not be consiere as 
O +f an alien stays in the Phils! for a period of more than one (9"
year3 he is considered as R!
SPECIAL NON"RESIDENT ALIEN ENGAGED IN TRADE
OR !USINESS (NRA"NET!)
O e must be an alien iniviual who is not resiing in the
Phils an not engage in trae or business in the Phils
O 6e is one 'hose stay in the Phis!is not more than 9 days
SPECIAL NON"RESIDENT NOT ENGAGED IN TRADE OR
!USINESS (SNRA"NET!)
5 Those employed by0 (ROP)
1 egional or rea ea#uarters of Multinational
corporations!
" .ffshore Ban%ing >nits!
$ Petroleum Service 0ontractors
NON"RESIDENT ALIEN ENGAGED IN TRADE OR
!USINESS (NRA"ET!)
E considered as enaed in trade or %usiness if his stay is more than
9 days
J <e can no longer tax his income from sources without <e
can only tax his income from sources within
ENTITLE0ENT O. DEDUCTIONS
RC E entitle to euctions because the tax base is taxable
income
'ross +ncome
8ess: llowable euctions

*axable +ncome
NRC  E entitle to euctions because the tax base is taxable
income
RA  E entitle to euctions because the tax base is taxable
income
NRA"T! E entitle to euctions because the tax base is gross
income *heir income is sub(ect to "2K tax rate
SNRA"NET! E sub(ect to 12K tax rate on their income in the
from of:
S 6 Salaries
6
# 6 onoraria
O 6 .ther
 *  6 <ages
E 6 ;moluments
R 6 emuneration
EXCLUSION .RO0 GROSS INCO0E
FPROCEEDS O. LI.E INSURANCE
(ub6ect to tax if 0
1 the insurer an insure areed that the amount of the
procees shall be withhel by the insurer with the obligation
to pay interest in the same, the interest is the one su%&ect to tax !
" there is transfer of the insurance policy!
xample$
 transferre to B his life insurance policy *he value
of the policy is P1 M B pai a consieration amounting to
P$NN,NNN B continue paying the premiums after the transfer
such that the premiums amounte to P"NN,NNN >pon the eath
of the insure, the P1 M may be receive by the heirs
-$ +s the full amount of P1 M exempt
A$ 9., only the consieration given an the total premiums
pai may be exclue *hat is, P1 M less P2NN,NNN
Pro%lem$
 obtaine a life insurance policy for B B is the
presient of ?s corporation 0orp has an insurable interest in
the life of its officers, so premiums may be pai by the
employer  >pon the eath of B, his esignate beneficiaries
will receive the procees
a +s the amount representing the procees of the life
insurance policy taxable
b <hat about the premium pai by the employer 
-oes this amount form part of the gross
compensation income
c -oes the amount representing the procees of life
insurance policy from part of the estate of the
eceent
 ns'ers$
a 8et us first ma%e t'o (8" assumptions  8et us assume
that:
1 the beneficiary esignate is the employer!
" the beneficiary esignate is the heir of the
family of the insure
he ax Code ho'ever3 ma4es no distinction! Reardless of 
the desinated %eneficiary is the employer or the heirs3 or the family
of the insured proceeds of life insurance policy should al'ays %e
excluded!
b Premiums of life insurance policy pai by the
employer may form part of compensation income!
hence, taxa%le if the %eneficiary desinated are the heirs or 
the family or the employees

+t is not taxa%le compensation income if the desinated %eneficiary is
the employer  because that is (ust a mere return of capital
c! Proceeds of life insurance policy may %e excluded from the
 ross estate of the decedent under the follo'in cases$
1 if the beneficiary esignate is a $ r  person
an the esignation is irrevocable!
" it is a procee of a group insurance policy
owever 3 it is included in the ross estate of the decedent$
1 if the beneficiary esignate in the estate,
executor or aministrator of the estate or the
family of heirs of the eceent!
" if the beneficiary esignate is a $ r  person
an the esignation is revocable Gsee Section
A2 3e)H
 s far as Sec! = (e" is concerned3 an employer may %e considered a
7rd person!
FA0OUNT RECEI/ED !Y INSURED AS RETURN O.
PRE0IU0
eason for ;xclusion: +t represents a mere return of capital 
*he &orce& of thi& retr' of 2re+i+ (L$E$A$)
1 8ife +nsurance Policy
" ;nowment contracts
$ nnuity contracts
666Whether the premiums are returned durin or at the maturity of  breach of contract taxable
the term mentioned in the contract or upon surrender of thee
contract
Pro%lem$
 too% out an enowment policy amounting to P1 M
e pai premiums amounting to PANN,NNN >pon the maturity
of the policy,  receive that P1M
ow much is the taxable amount
 ns'er$
*hat is P1,NNN,NNN E value of enowment policy
8;SS: P ANN,NNN E representing amount of premium
  

P "NN,NNN E taxable amount
FGI.TS7 !E-UESTS a'd DE/ISES
ationale: <hat is contemplate here are onations which are
 purely ratuitous in character in orer that it may be exclue
 2ifts are exclue because these are sub(ect
to donorFs tax
 5e<uests and devises are exclue because
these may be sub(ect to estate tax
 <hat about remuneratory onations
Remuneratory donations are su%&ect to income
tax!
 %+%#T)!'( to the $ule:JJJ the income or fruit of such
money given by onation, be#uests or evise, incluing the
income of this gift, be#uest or evise in cases of transfer of
ivie interest
FCO0PENSATION .OR INURIES OR SICHNESS
eason for ;xclusion: *his is (ust an indemnification for the
in&uries or damaes suffered  *his is compensatory in nature
7
*he sources are:
1 *he compensation may be paid %y virtue of a suit!
" +t may be  paid %y virtue of health insurance3 accident insurance
or Wor4menFs Compensation ct
5ut as reards damaes representin loss of anticipated income 3 this
is the one that is taxa%le!
+f damaes are in the nature of moral3 exemplary3 nominal3
temperate3 actual and li<uidated damaes 3 as a rule3 these may not %e
su%&ect to tax!
;xample:
+f a person suffere in(ury as a result of a vehicular
accient, an an action is file in court, the 0ourt awars the
following:
Moral 6 P1NN,NNN
;xemplary 6 P1NN,NNN
ctual 6 P 4N,NNN 3hospitalization expenses)
P "N,NNN 3repair of car)
P 4N,NNN 3loss of income)
OOO  ll damaes a'arded are tax-exempt except damaes of 
representin loss of income!
Ruestion: re amages aware by the 0ourt on account of
nswer: Rualify your answer <ith regars to amages
aware on account of loss of earnings of the contracting
party, it is taxable
FINCO0E EXE0PT UNDER TREATY
eason for the ;xclusion: reaty has o%liatory force of contract 
 %xception0 s may be provie for in the treaty
FRETIRE0ENT !ENE.ITS7 PENSIONS7 GRATUITIES
AND OT#ERS
 *%T%$A'7( B%'%8)T 
O *his may be given by the >S ministration
O *he recipient must %e a resident veteran!
 B%'%8)T( 9)*%' B: 8!$%)9' A9%')%( !$
 )'(T)TT)!'( ;&%T&%$ #BL) !$ #$)*AT%
'iver: /oreign government agencies or institutions whether
public or private
ecipient: esient citizen, non6resient citizen or resient
alien
1%servation$
9on6resient citizen shoul not be inclue in the
enumeration since it is alreay unerstoo that we cannot tax
his income from without <e can only tax the income of non6
resient citizen erive from sources within
*he same is true with resient alien because we can only tax
his income from sources within
*he inclusion of 90 an  in the enumeration are mere
surplusage

$%T)$%"%'T B%'%8)T( $%%)*%D 8$!" #$)*AT%
 8)$" ;&%T&%$ )'D)*)DAL !$ !$#!$AT%
ecipient: Private employees or official of such private firm
 $%<)()T%(0
1 *he private employee or official must be at least 2N years of
age at the time of his re#uirement!
" e must have renere at least 1N years of service to the
employer at the time of the retirement!
$ *here must be reasonable private benefit plan E establishe
by the employer!
& *he reasonable private benefit plan must be approve by the
B+
2 easonable private benefit plan may be in the nature of
pension plan, profit sharing plan, stoc% bonus plan, or
gratuity!
4 *he employer must give contribution an no amount shall
inure to the benefit of a particular employee or official *his
must be establishe for the common benefit of the employees
or officials!
5 *his can be availe of .90;
O *he subse#uent retirement benefits receive from another
private employer is no longer exempt but sub(ect to tax
O +f the secon employer is a government entity or institution,
in which case, that is exempt because the giver here is not a
private firm *he limitation applies only when the giver of the
subse#uent retirement benefits is another private employer
#&:()AL D)(AB)L)T: B%'%8)T(
O *hese inclue eath benefit, sic%ness benefit an other
isability benefit Sometimes, the term use is Cseparation payD
'iver: may either be public or private employer
?Sources of Separation Pay$
1 -eath of an employee!
" Physical isability of an employee!
$ ny other cause beyon the control of the employee or
official
;xample of no$
a etrenchment of employees!
b +nstallation of labor saving evises!
c -issolution of law firm
JResination of an employee is a cause 'ithin his control!
JBut 3 involuntary resination is %eyond the control of the employee!
J*he most important thing here is that the separation pay was
given on account of the above6mentione sources
J*here is no re#uirement as to age of the employee or official!
there is also no re#uirement as to the length of service of the
employee or official
J9o re#uirement also as to the number of availment of
benefits
"A0OUNT O. T#E ACCU0ULATED SICH LEA/E AND
/ACATION LEA/E CREDITS
 he monetized value of these %enefits may %e
su%&ect to tax if these 'ill not form part of the
terminal leave pay!
8
 he monetized value of sic4 leave credit is al'ays
tax exempt3 if it forms part of the terminal leave
 pay!
 s regars >9>S;- @0*+.9 8;@;
0;-+*, this is exempt only if the number of
ays is 1N ays or less in excess of 1N ays, it
is alreay sub(ect to tax
 +f the unused sic4 leave %enefit is monetized, if
the employer allow such practice, an the
same is given at the en of this year, it is
sub(ect to 'ithholdin tax because in this case,
it oes not form part of the terminal leave
pay
 eason for exemption of terminal leave pay:
*he accumulate value of unuse sic% leave
an vacation leave creits inclue in the
terminal leave pay is exempt from income
tax because it is one receive on account of a
cause beyon the control of the employee
*his terminal leave pay is usually given
uner a compulsory retirement 0ompulsory
retirement is a cause beyon the control ofte
employee
F0ISCELLANEOUS ITE0S
a. #ri-es and Awards in Awards ompetitions
;R>+S+*;S:
=. 0ompetition an tournament must be
sanctione or approve by the 9ational
Sports ssociation!
 >. *he competition an tournament must also
be approve by the Philippine .lympic
0ommittee, whether local or international!
whether hel in the Phils or outsie (if not
accredited- 8G tax"
b. #ri-es and Awards made primarily in recognition of :
(RCS"SALE)
 $eliious3 harita%le3 ivic chievement3 (cientific3  Athletic3
 Literary3 %ducational
;xample: P1 M rewar given to Mr vincula for his
exemplary honesty *his may be exclue from his gross
income because it is given in recognition of civic
achievement e was (5) selected 'ithout any action on his
 part to enter a contest or proceedin ! an (9) he is not re<uired
to render su%stantial future services as a condition to receivin
the a'ard!
c. )ncome derived from public utility or from the
exercise of essential government function by the
9overnment or political subdivisions of the #hils.
ecipient: 2overnment or its Political Su%division
O 2overnment of the Repu%lic of the Phils or 2overnment of the Phils
,&$ National 2overnment
'overnment of the epublic of the Phils is synonymous
with 'overnment of the Phils
9overnment of the #hils. or government of the #hils E refers
to the government corporate entity through which the
functions of the government are exercise throughout the
Phils, incluing save as the contrary appears from the context,
the various arms through which political authority is mae

effective in the Phils, whether pertaining to the autonomous
regions, cities, provinces, municipalities, barangays or other
forms of local government *hese autonomous regions,
provincial, city, municipal or barangay subivisions are the
political subivisions
 'ational government   6 refers to the entire machinery of the
central government *his inclues the three 3$) ma(or
epartments of the government: the ;xecutive, the 8egislative
an the Luiciary (#actan Ce%u +nternational irport uthority
vs! #arcos3 Sept! 993 9::H"!
 +t is clear that  overnment-o'ned and
controlled corporations is within the
contemplation of the term Cnational
governmentD
 <e nee this istinctions because the
particular item of exclusion emphasizes the
fact that political subivisions of the State
form part of the 'overnment of the Phils
 Iou must have notice that there is no
provision regaring government6owne an
controlle corporations lso, there are no
provisions on agencies or instrumentalities
of the government *he item or income here
is exempt if the recipient is either the
'overnment of the epublic of the Phils or
the provincial subivisions of the State such
as provinces, cities, etc
O +ncome derived %y a overnment-o'ned and controlled corporation3
aency or instrumentality of the overnment may %e su%&ect to tax!
O2overnment-o'ned and controlled corporations are no' su%&ect to
corporate income tax , except :
a SSS
b 'S+S
c Phil ealth +nsurance 0orp
 P0S.
e P'0.
Situation:  municipality erive income from holing a
fiesta
Rle: *he rule is settle that holing a town fiesta is
consiere a proprietary function *herefore, sai income is
sub(ect to tax
Situation:  municipality erive income from the operation
of public mar%et, electric power plant an other public utilities
Rle: *hat income is tax exempt
d. )ncome derived from investment in the #hils. 1=4 by
 foreign government or 1>4 financing institutions,
owned, controlled or financed by foreign government,
regional or 124 international financing institutions
established by foreign government  the amount becomes exclusive property of the borrower +t is
;R>+S+*;S:
=. Recipient must %e$
a foreign government!
b financing institution owne, finance or
controlle by foreign government!
c regional financing institution, international
financing institution establishe by foreign
government!
9
 >. +t must %e an income derived from investment in
the Phils
Sources of such income:
666 +t may be in the nature of bons So, foreign government
here may be consiere the creitor E possible income here is
the i'tere&t of 3o'd&  9ow, loans may be extene E possible
income here is i'tere&t o' loa'& 
666 +f a forein overnment or financin institution mae a eposit
in a ban%, Phil currency eposit E the income here is the
nature of i'tere&t i'co+e
666 +f a  forein overnment mae an investment in a omestic
corporation +t may be consiere a stoc%holer n a
stoc%hler is entitle to ivien ence, the di,ide'd i'co+e
receive from omestic corporation is ta1 e1e+2t
OO +f the recipient of such ivien is a re&ide't forei4'
cor2oratio' that is also ta1 e1e+2t +t is only sub(ect to tax if
the recipient of such ivien is a 'o'"re&ide't forei4'
cor2oratio'
Ca&e ;=+MB9Q, which is a consortium of Lapanese ban%s,
extene a loan in the amount of S"NM to Mitsubishi Metal
0orp, a Lapanese corporation *he same amount was extene
by Mitsubishi as a loan to tlas 0orp, a omestic corporation
*he contract entere into between Mitsubishi Metal
0orp is enominate as Ccontract of loan an saleD +t is a
contract of loan because Mitsubishi woul len tlas S"NM +t
is a contract of sale because uner the contract tlas boun
itself to sell the concentrates 3this is a mining corp) that may
be prouce by the concentrator machineFe#uipment
purchase through the use of the S"NM for a perio of 12
years
*his being a contract of loan, Mitsubishi is entitle to
interest on loan
+SS>;: <hether or not such interest on loan is sub(ect to Phil
income tax
 R2*#NS: Mitsubishi contene that this is not taxable
because:
1 *he source of S"NM is a tax exempt entity 3;=+MB9Q is a
financing institution controlle an finance by a foreign
government)! an
" Mitsubishi is an agent of ;=+MB9Q, a tax exempt entity
;8-: *here was no evience to the effect that Mitsubishi is
an agent of ;=+MB9Q +t is a mere allegation that has not
been proven
+n a contract of loan, once the loan is consummate,
no longer consiere the money of ;=+MB9Q ence, the
interest of such loan shoul be sub(ect to tax
*he lener is not a tax exempt entity *he creitor
here is Mitsubishi an it is not a tax exempt entity Such being
the case, tax exemption must be strictly construe against the
taxpayer an liberally in favor of the government <hen you
claim exemption, you shoul prove it clear an categorical
terms

O *he problem may be moifie by the examiner *he examiner
may clearly state the Mitsubishi is an agent of ;=+MB9Q
*he answer is, the interest on loan is tax exempt Mitsubishi
then is consiere as an extension of ;=+MB9Q +t is as if the
lener is ;=+MB9Q
e. =2th month #ay and Benefits
O *his applies both to private an public employees
O *otal exclusion shoul not excee P$N,NNN sub(ect to increase
by the Secretary of /inance upon the recommenation of the
B+ 0ommissioner
 f. ontributions to 9()(, (((, "%D)A$%, #A9)B)9,
and union dues
O *his is a surplusage ;ven if this is not mentione, we cannot
tax that
 g. (ale, exchange, retirement of bonds, debentures and  employer6employee relationship
other certificates of indebtedness with a maturity of   ny payment receive uner an employer6
more than 8)*% 1?4 :%A$(
6 +f maturity is less than 2 years, taxable
Rle +nterest on %onds
1 issue by 0B 6 exempt
" if issue by corp6 not exempt
Rle Redemptions of share in mutual funds :
6 only those gains erive from reemption of shares issue by
a mutual fun company are exempt
6 it must emanate from a mutual fun
6 +f the term is not more than 2 years 32 years or less), the gain
erive from the sale, exchange an retirement of the same,
may be sub(ect to tax
+llustration:
+f you are a creitor, you may sell these bons,
ebentures or certificates of inebteness to another 6indi mo
na mahintay an maturity 4asi lon term! +f there is a gain on the
sale of the same, it woul be a tax exempt provie that the
bons, etc, have a maturity or term of more than 2 years
etirement of bons, ebenture, etc 666 Na%ayad na
Iyun de%tor! *here may be gain erive from the same, such as
interest *his time, since the gain is in the nature of interest, it
is sub(ect to tax But, the gain erive from the sale, exchange
or retirement with a term of more than 2 years, is tax exempt
*his is because exemptions are strictly construe against the
taxpayer an liberally in favor of the government +nterests on
bons, ebentures, etc are taxable, the provision is clear +t
only covers saleFexchangeFretirement of bons, ebentures
an other certificate of inebteness with a maturity of five
years Strict interpretation of tax exemption
TYPES CLASSI.ICATION O. INCO0E
5$ CO0PENSATION INCO0E   an income erive uner an
employee6
employer relationship
his may include the follo'in: 3 *E!!"DROP)
10
 * ages, Emoluments, !onuses, !enefits, Director?s fee, *axable
Retirement Benefits, Other items of income of similar nature,
*axable Pensions
O  $etirement benefits may be sub6ect to tax, if it oes not
comply with the provision of Sec $" 3b) par 4 subpar a
O  #ensions may be sub6ect to tax, if it is given not in
accorance with the conitions lai own uner that exclusion
provision
O !ther items of income of similar nature may include:
(C#A0P)
0lothing allowance, ospitalization allowance, llowances for
/oo, Meical allowance, Share from the Profit sharing plan of
the employee
O T%(T( T! D%T%$")'% ;&%T&%$ A' )'!"% )(
!"#%'(AT)!' or '!T0
 /in out whether it is receive uner an
employee relationship is compensation
income
OT%(T( T! D%T%$")'% T&%$% %+)(T( A' %"#L!:%$
 %"#L!:%% $%LAT)!'(&)#0 1AD4
1 ppointment 3selection an hiring)
" 0ompensation
$ -ismissal power
& 0ontrol test
N$!$ : *he name or esignation of income is immaterial *he
basis of the income is immaterial an the manner by which it is
pai, is also not important  s lon as it is iven under an
employer-employee relationship3 then that is compensation income 
A'%LLAT)!' !8 )'D%BT%D'%(( E 0onsiere as
compensation income is the inebteness ha been cancelle
in consieration of the services renere
OOO Share of the employee from the PR10+ S6R+N2 P.N of the
employer-  0ompensation income receive in consieration of
services renere
TA+ L)AB)L)T: !8 T&% %"#L!:%% #A)D B: T&%
 %"#L!:%$ @ 0ompensation income if pai uner an
employer6employee relationship in consieration of services
renere
 #$%")"( #A)D B: T&% %"#L!:%$ !' T&%
 )'($A'% #!L): !8 T&% %"#L!:%% @  0ompensation
income if the beneficiary esignate is the family of heirs of
the employee
OOO he %asis of the income is immaterial  ;ven if it is pai in piece
wor%, fixe rate or percentage basis as long as it is pai uner
an employer6employee relationship
 $%<)()T%( 8!$ TA+AB)L)T: !8 !"#%'(AT)!' 
 )'!"% A$%0 (SPR)
1 *here must be services, renere uner an employer6
employee relationship
" +f payment must be for that services renere

$ +t must be reasonable *he compensation for services
renere must be reasonable
 #urpose why only a reasonable amount may be taxed as
compensation income0
*a%e note on the part of the employer, he can claim
such compensation for services as euction 9ow, only the
amount that is reasonable uner the circumstances can be
claime as euction So, if the amount or the value of the
services renere is P1N,NNN but the employee receive
P12,NNN s far as the employer is concerne, he can only claim
the reasonable amount of P1N,NNN +n the case of an employee,
he can consier P1N,NNN as compensation income *he excess of
P2,NNN may be treate as other income
OOO Not all payments for services rendered are considered
compensation income .nly those pai uner the employer6
employee relationship
T#E .OLLO*ING ARE NOT CO0PENSATION INCO0E
(P I)
1 0ompensation for services renere by independent service
contractor  *his may be treate as trae or business income
" +ncome erive by  professionals from the practice of
profession uner professional partnership *his is treate as
professional income
OOO 8ringe benefit is considered as compensation income. *his is
governe by Sec $$, * 15 *his is compensation income
in the sense that this is receive uner an employer6employee
relatioship
 D!T$)'% !8 A(& %<)*AL%'T 
6 you may be pai in cash or in propertyF%in
6 e#uivalent value of property is taxable
 DI..ERENT .OR0S O. CO0PENSATION INCO0E
=. #ropertyind  E /air Mar%et @alue (0#@" of the property +f  ;mployees may be ismisse by the employer, an they may
there is a price stipulated3  it is the price stipulate that will be
followe in the absence of contrary evience
 >. #romissory 'ote or other evidence of )ndebtedness 
a +f it is not discounted , it is the face value of the
promissory note
b +f it is discounted, it is the fair iscounte value of
the promissory note
2. (toc/ @ /M@ of that shares of stoc%
 C. ancellation of )ndebtedness @ Cancellation of inde%tedness
has the follo'in tax conse<uences$
a +t may amount to taxa%le compensation income if
the inebteness has been cancelle in
consieration of the services renere
b +t may amount to taxa%le ift or donation   if the
inebteness has been cancelle without any
consieration at all *his is not sub(ect to income
tax but may amount to taxable gift or onation
c +t may amount to capital transaction if the
creitor is a corporation an the ebtor is a
stoc%holer +f creditor corporation condoned the
inde%tedness of the de%tor stoc4holder , that may
amount to taxable capital transaction *his is the
11
form of irect ivien 9ow,  property dividend
is su%&ect to tax rates of HG3 G and 9G! -ivien
receive from omestic corporation is now
sub(ect to tax
?. Tax liability of the %mployee paid by the employer in
consideration of services rendered @ amount of tax liability
3. #remiums paid by the employer on the life insurance policy
of the employee.
a +t is a taxa%le compensation income if  the beneficiary
esignate are the heirs of the employee or his
family
b +t is not a taxa%le compensation income if  the
beneficiary esignate is the employer because it
is (ust a mere return of capital
+f the desination of the employer as %eneficiary is indirect
3eg: +t is the creitor of the employer that is esignate as
beneficiary), that is still not taxable compensation income
xample of +ndirect desination of th e employer as a %eneficiary$
a Beneficiary is the wife of the Presient of a close
corporation
b +f the employer may secure a loan from he
insurance policy
Premiums 'ill %e taxed under Sec! 77 par!% no!9  it is state there:
C8ife or health insurance an other non6life insurance
premiums or similar amounts in excess of what the law allows
O +f the payment 'as received %y the employee 'hen he 'as no loner 
connected 'ith his employer , it is still consiere compensation
income <hat is important here is that it must be receive
uring the existence of the employer6employee relationship
file complaint for illegal ismissal against the employer
 Lugment was renere by the arbiter in favor of the
employee ll the wages suppose to be pai 3eg bac%wages)
can be taxe as compensation income <hat about attorney?s
fees *hat is exempt
.RINGE !ENE.ITS code (#E/"#I0"E#EL)
 8$)'9% B%'%8)T  E ny goo, service, or other benefit
furnishe or grante in cash or in %in by an employer to an
iniviual employee (except ran4 and file employee"  such as but
not limite to the following:
1 ousing!
" ;xpense account!
$ @ehicle of any %in!
& ousehol personnel such as mai, river, others!
2 +nterest on loan at less than mar%et rate to the
extent of the ifference between the mar%et rate
an the actual rate grante!
4 Membership fees, ues an other expenses borne
by the employer for the employee in social an
athletic clubs or other similar organizations!
5 ;xpenses for foreign travel!
A oliay an vacation expenses!
 ;ucational assistance to the employee or his

epenents! an
1N 8ife or health insurance an other non6life
insurance premiums or similar amounts in excess
of what the law allows !(if contri%ution-exempt"
O  &ousing allowance may be exempt from tax if the living  iscriminate in favor of highly pai employees!
uarters are0
a Provie with the premises of the employer
b +t must be mae as a conition of employment
 +f sai re#uisites are not present, housing
allowance may be taxe as fringe benefits
O  "eal allowance may be exempt from tax if   it is provie
within the premises of the employer
O  #rivilege or purchase discount are tax exempt if   it oes not
excee  of the basic monthly salary of the employee +f it is
more than J3  the excess may be as fringe bene
* Medical or hospital allowance, clothing
allowance, rice allowance may e e!empt "rom ta!
i" the "ollowing re#$isites are present%
1 +t must be of relatively small value 3reasonable
amount) 3S@)
" +t must be given for the following purposes: 30;')
a *o promote 0ontentment
b *o promote ealth
c *o promote ;fficiency
 *o promote 'oowill
O Ta1 E1e+2t fri'4e 3e'efit& (R.7 D07 C7 E17 ECR)
1 5enefits iven to the ran4 and file employees , whether grante
uner a collective bargaining agreement or not
" KDe minimis %enefitsD E means of small amount *hese are
benefits relatively of small amount
$ 0ontributions of the employer for the benefit of the
employee to retirement, insurance an hospitalization
benefits plans
& /ringe benefits which are authorize or exempte from
tax uner special laws
2 *hose given for the convenience of the employer,
incluing those which are re#uire by the nature of the
trae, business or profession of the employer (mployerFs
Convenience Rule"
 De minimis benefits  3of relatively small value) E limite to
facilities or privileges furnishe or offere by employer to his
employees merely as a means of promoting health, goowill,
contentment, or efficiency of employees, such as:
a Monetize unuse vacation leave creits not
exceeing ten 31N) ays uring the year!
b Meical cash allowance to epenents of employees
not exceeing P52N per semester of P1"2 per month!
c ice subsiy of P$2N per month!
 >niforms!
e Meical benefits
f 8aunry allowance of P12N per month!
g ;mployee achievement awars, for length of service
12
of safety achievement in the form of tangible personal
property other than cash gift certificate, with an
annual monetary value not exceeing  month of the
basic salary of employee receiving the awar uner
an establishe written plan which oes not
h 0hristmas an ma(or anniversary celebrations for
employees an their guests!
i 0ompany picnics an sports tournaments in the
Philippines an are participate in exclusively by
employees! an
 ( /lowers, fruits, boo%s or similar items given to
employees uner special circumstances on account of
illness, marriage, birth of a baby, etc
5#rinciple of %mployer7s onvenience $ule0
& fringe benefits may be exemptFnot sub(ect to
tax if these are given for the benefit or
avantage of the employer
The following are the possible fringe benefits, which may be
exempt under the %mployer7s onvenience $ule0 (# / # 0 T)
a ousing benefit
b @ehicle
c ousehol personnel
 Membership in a social or athletic club or similar
organization
e *raveling expense benefit
O &ousing benefit  E in etermining whether the same is exempt
uner the employer?s convenience rule, you have to consier
the peculiar nature of the special nees of the employer
 $euisites for exemption0
1 +t must be mae as a condition for employmentL
" +t must be provided 'ithin the premises of the employer 
OOO *his may apply to a supervisor of a plant or a company
O +f the housin or livin <uarters are provided outside the premises
of the employer3 even if that is for the convenience of the employer3
this is only exempt up to =G of the amount  So, 2NK taxable, 2NK
exempt
O *ehicle E ;xempt but epens upon the peculiar nature of
the special nees of the business of the employer
xample$ 8B0 or -8 business
O  &ousehold personnel such as maid, driver and others E
;xempt, but epens upon the peculiar nature of the business
of the employer
O  "embership in a social club, etc E Peculiar nature
re#uirement
O Traveling expense benefit  E Peculiar nature re#uirement
xample$ ;mployer sent his employees abroa to atten a
particular seminar to improve their technical %now6how
B R>;S*+.9:  is a river of 0ongressman Magtanggol
an he receive a monthly salary of P2,NNN an living #uarter
allowance of P",2NN
a <hether the P",2NN living #uarter allowance is
exclue or sub(ect to tax
b ssuming the employer is an obstetrician woul
your answer be the same
 13
ROYALTIES "NK except in
9S<;: the case of  
a *hat shoul be sub(ect to tax literary 'or4s3
b +t shoul be exclue eason: 0onvenience of the %oo4s and Same as "2K
employer?s rule musical 0, 90,
compositions 
9$ GROSS INCO0E .RO0 !USINESS7 TRADE OR 'hich are
PRO.ESSION su%&ect to 9G
 final tax
B()'%(( @ ny activity that entails time, attention, effort for PRIES
purposes of livelihoo or profit e1ceedi'4 
P57$
  s reards construction %usiness , the taxpayer +f it is P93!
here must be an inepenent contractor e or less3 it is N1 
may report his income uner the percentage su%&ect to final "NK "NK "2K
of completion metho or uner the so6calle tax %ut the same
complete contract metho must %e included
in other income
 #$!8%(()!'AL )'!"% @ *he recipient of the same must 3eg
be professionals compensation,
business,
 ow about those who claim that they are professional)
professionals but are not registere in the P  *INNINGS
 0, can they still be tax as such except PCS1 M "NK "NK "2K
.otto
 Ies, irrespective of whether they are license INTERESTS ON
or not because of the rule that gross income !ANH "NK "NK "2K
erive from whatever source DEPOSITS7 etc 
DI/IDENDS Sub(ect to
:$ PASSI/E INCO0E RECEI/ED increasing
fro+ do+e&tic rates of 4K if   "NK "2K
 #A(()*% )'!"% @ *his is the income that is sub(ect to final cor2$7 etc$ receive in
tax 1A! AK in
1! an 1NK
 )ncome sub6ect to final tax are the following0 (codeRPD" in "NNN
 *IDS) S#ARE O. A
PARTNER i'
1 oyalties the 'et i'co+e
after a ta1 of a 6 o6 "NK "2K
" Prizes ta1a3le
2art'er&hi27 etc  4, A 7 1N
$ <innings
Ruestion: ow o you treat that share of a professional
& +nterests on ban% eposit, eposit substitutes, trust partner from the net income of a general6professional
funs an partnership
other similar arrangements
nswer: *his shoul be taxe at the rate provie uner
2 -ivien receive from omestic corporation, Sec"&, that is, 2K to $&K
mutual fun insurance company, regional
hea#uarters of multi6national corporation an But as regards the share of a partner in the net 
other corporation income after tax of a taxable or business partnership, that is
one which is sub(ect to final tax
4 Share a partner in the net income after tax of a
taxable partnership, (oint account, (oint venture or  #$)E%( @ may be exempt if given in sports competition an if
concessions given primary in recognition of scientific, artistic, literary,
eucational, religious, charitable, or civic achievement
OOO  Do not include passive income in the income of your 
business or profession, or in your compensation income *his is INTEREST
so because when you receive this income, the tax ha alreay
been impose an eucte '$les
1 +f it is an interest on forein currency deposit system3  it is
exempt
+f the recipient is non6resient iniviual 390, 96
RC7 NRC7 RA NRA"ET! NRA"
;*B, 969;*B)
NET!
" +f the recipient is a resident individual (RC3 R"3   that is
 14
sub(ect to 52 K 1 Stoc% in trae or other property of any %in which
$ +nterest income is also exempt if   it is an interest income woul be inclue in the inventory of the taxpayer
on a long6 term eposit or long6term investment 3this if on han at the en of the taxable year
must have a term of not less than 2 years) " Property primarily hel for sale to customers in the
.rinary course of trae or business
 )f the term is less than ? years it is sub6ect to the following  $ Property >se in trae or business sub(ect to
rates: epreciation
1 & years to less than 2 years 2K & eal property use in trae or business
" $ years to less than & years 1"K  *he efinition of capital asset says Creal property hel by
$ 8ess than $ years "NK the taxpayer whether or not connecte with his trae or
business except real property use in trae or businessD
())(+( '+-+)+( .'/M (/M+)- So, in order to %e a capital asset3 the real property must %e one
not used in trade or %usiness 
-/'/')/
1 his is exempt from tax if  the recipient is a foreign
 *hat is why, the sale of resiential house an lot is sub(ect
government, financing institution, regional financing
to 4K of capital gains because it is a real property not
institution, international financing institution
use in trae or business
establishe by foreign government Gsee Sec$" 3B) 35)
3a)H
 But, sale of real property by a real estate dealer is not a
capital transaction because the property involve is one
" +t is also exempt if   the recipient of such ivien is
primarily hel for sale to customer in the orinary course
another omestic corporation or resient foreign
of trae or business *hat is not a capital asset %ut an
corporation Gsee Sec "A3)35)3)H
ordinary asset
A#)TAL 9A)' D%$)*%D 8$!" (AL% !8 (&A$%( !8 
 *his covers not only CsaleD of property! it also covers
(T! 
conitional sale of real property incluing the so6calle
 pacto de retro sale uner rt 14N" of the 900, or
  Listed and traded through local stoc/
isposition of property locate in the Phils
exchange @ this is not sub(ect to income tax
but sub(ect to percentage tax of  of 1K of
 +f the %uyer is the overnment or any of its political su%-
the gross selling price
divisions or political aencies3 includin overnment o'ned
and controlled corporations3   the seller have the option to
  'ot listed and traded through local stoc/
avail the 4K or uner Sec "&3), wherein the basis uner
exchange E this is the one sub(ect to income
sai section is taxable income so euctions may be
tax
allowe *he cost of the property may be eucte but
when you avail of the 4K, the basis is gross selling price
9ot over P1NN,NNNNN 2K
or zonal value whichever is higher
mount .ver P1NN,NNNNN 1NK
 +s this a tax on the buyer or the seller
+t is a tax on the seller  But sometimes, through an
 +f the share of stoc4 is not listed and traded
agreement,  p'ede nilan +-transfer sa %uyer3 an there?s
throuh local stoc4 exchane , the basis of the
nothing that can prevent the seller from transferring the
tax is net capital gain So, you shoul first
tax to the buyer in the contract of sale
euct the capital loss
OT#ER INCO0E
 +f listed and traded throuh local exchane , there
is no euction allowe because the basis of
O !T&%$ )'!"% includes 6code R$I$D$O$8
the tax rate of  of 1K of the gross selling
a ent income other than royalties
price
b +nterest income other than interest income on ban%
eposit
 he a%ove-mentioned tax rates apply to all
c -ivien income
individual taxpayers!
 +ncome from .ther sources an this may inclue: (!IT"
CDC)
5 A#)TAL 9A)' D%$)*%D 8$!" T&% (AL% !8 $%AL
1 Ba ebts recovere
 #$!#%$T: 
" +llegal gains erive from
6 *he real property involve must be consiere 0P+*8
gambling
SS;*
$ *ax funs
& 0ompensation for private property
6 *he tax on capital gain erive from the sale of real property
expropriate by the government
is 4K of the gross selling price or zonal value which ever is
for public use
higher
2 -amages
4 0ancellation of inebteness
O CAPITAL ASSET   property held %y the taxpayer 'hether or not
connected in his trade or %usiness except : (code SOUR)
5$  $%'T 6 0ompensation for the use of one?s property
6 *he payment may be in cash or in %in *he proper
 15
property inebteness by the corp of the
obligation of stoc%holer
6 +n the case of personal intani%le property3   sub(ect to final tax if dividend
Property it involves
- intellectual
it may be in the form of stoc% other
property, copyright, traemar%s etc than the stoc% of the corp
Stoc4 dividend - stoc% issue by the giver corp
+ .//) -/)+ :;+ Script dividend - +t is given in the form of promissory
note or other evience of
'+ )-/M+% inebteness
1 *he re4lar re't  may be monthly, semi6annually or
annually
STOCH DI/IDEND @ as a rule not taxable. *his is so because
there is no income here +t merely represents the transfer of
" Additio'al re't i'co+e  which inclues:
surplus account to the capital account
a. !bligation of the lessor assumed by the lessee
The follo%i'4 are o3li4atio'& %hich +ay 3e
CP+1NS to the Rule :
a&&+ed 3y the le&&ee <'=)=(=)=/=> (toc/ dividend may be sub6ect to tax under the following 
a1 eal property taxe on lease premises exceptional cases0 6C OR D8
a" .bligation to pay insurance premium on the 1 +f there is a 0hange in the stoc%holers interest in the
insure lease premises net assets of the corp!
a$ +f the lessor is a corp, the obligation to " +f it is one issue by .ther corp <e call that
istribute -iviens to its stoc%holers Cdividend stoc/D
a& .bligation to pay interest on the bons issue (toc/ dividend vs. dividend stoc/ E Stoc% ivien as
by the lessor a rule is not taxable whereas ivien in stoc% is
a2 .ther obligations of the lessor which may be taxable
assume by the lessee $ eemption of stoc% ivien!
& +f the corp issues -ifferent shares of stoc% +f the
b. *alue of permanent improvements on leased  corp issues two ifferent classes of shares of stoc%,
 premises *his may be reporte through: the ivien that may be eclare thereafter is
b1 1utriht method at the time of permanent is taxable
complete, he may report that as aitional
rent income E /M@ of the builing or
permanent improvement
+!ample%
b" Spread out method by allocating the
!utstanding stoc/ (toc/ dividend Taxable
epreciation among throughout the
1 Preferre 0ommon 9*
remaining term of the lease
" 0ommon Preferre 9*
$ Preferre Preferre 9*
c. d?ance rentals & 0ommon 0ommon 9*
c1 +f in the nature of the prepai rentals without
2 PreferreF0ommon Preferre *
restriction on the use of the amount, it is
4 PreferreF0ommon 0ommon *
taxa%le
c" +f it is in the nature of security eposit, it is
 Disguised dividend @ treasury stoc% ivien eclare out of
taxa%le rent income if there is a violation of
the outstaning capital stoc%, the purpose of which is to avoi
the term of the lease
the effect of taxation 3 Commissioner vs! #annin"!
c$ +f it is in the nature of a loan to the lessor, it is
not taxa%le 
+t is one which is mae to appear as stoc% ivien when the
truth of the matter is that it is a ivien which is illegally
 >. )'T%$%(T )'!"% E compensation for the use of money
eclare, such a case, since the purpose is to evae taxation, it
6 <hether it is an interest on loan pursuant to the
is taxable
business of a taxpayer or personal transaction, interest
income, except if it is tax exempt, is always taxable
emember, treasury shares of stoc/ are not entitled 
*his is so because the source of income is immaterial,
to dividends.
even if it is from an illegal source
ALLO*A!LE DEDUCTIONS (SEC$ :;)
6 +nterest income on ban% eposits is sub(ect to final tax

2. D)*)D%'D )'!"% E amount eclare, set asie an As regards individual taxpayers, the
istribute by the Boar of -irectors to stoc%holers, on following may claim allowable deductions:
eman or a fixe perio 1 0
" 90, only those expenses incurre in the Phils
lasses of Dividend $ GC$L$I$P$S$S$> because here, we cannot tax his income erive from
Cash dividend sources without
.i<uidatin dividend- this is given upon li#uiation of $ , only those expenses incurre in the Phils
corporate affairs & 96;*B, but only those expenses incurre in the
+ndirect dividend - it is given in other form an this Phils
inclues cancellation of 2 PP 3Professional Partners uner Sec "4)
 16
 %xceptions0 *here is no har an fast rule  n expense may
1 +* earning 0+ E ;;, ; ;8 %e ordinary insofar as a particular taxpayer is
" 969*B concerned and it may not %e an ordinary as
$ liens employe reards another taxpayer!
 M0
B .B> ;xample:
0 PS0 +f you have business here in Manila an you also have
& 9/0 business in *awi6tawi, what is the expense that you may incur
 As regards corporate taxpayers, the following are in *awi6tawi which you may not possibly incur in Manila
entitled to claim allowable deductions0
1 -0, which inclues private eucational institutions, non6 +n *awi6tawi, you may nee people to guar your
profit hospital, government6owne an controlle corps business But here in Manila, you may nee not because of our
" /0 new Presient6elect

)+M)@+( (+(-)/% A)( /. /'()'B C +-+'B

<+,)=,,;,(,(,-,',-> +:++ <-=='==+='==>
1 ;xpenses 4 -epreciation 1 0ompensation for services renere
" +nterests 5 -epletion of oil, gas, wells an " vertising 7 promotional expenses
mines $ ent expenses
$ *axes A 0haritable contributions & *ravelling expenses
& 8osses  esearch 7 -evelopment 2 ;ntertainment expenses
2 Ba ebts 1N 0ontribution to Pension *rust 4 epairs 7 maintenance expenses
5 Supplies an materials
O +n the case of individual taxpayers, they may avail of the
optional standard deduction of 9G of ross income !""!' $%<)()T%( 8!$ D%DT)B)L)T: of these
ordinary F necessary expenses0 <(=)='=>
O  Corporate taxpayers  are not allowe to claim 1NK optional a  #ust %e paid or incurred D*R+N2 the taxa%le year!
stanar euctions +f you incur expenses in 15, you cannot carry this
over to 1A expenses incurre uring a particular
O ll iniviual taxpayers except the 9 iniviual may year must be claime as euctions uring this year
claim this optional stanar euctions when the same were incurre

O  )temi-ed deduction may apply to corporate taxpayers as CP+-D E to signify the fact that the taxpayer uses the
well as individual taxpayers 0S
5 8'DA"%'TAL #$)')#L% )' D%DT)!'( BS+S >ner the 0S BS+S, an expense is
1 *he taxpayer must prove that there is law authorizing recognize
euctions when it is P+-
" *he taxpayer must prove that he is entitle to euctions
OOO NR0C are not entitled to claim deductions  C+90>;-D E implies that the taxpayer employs
the 00>8
5$ EXPENSES BS+S >ner the 00>8 BS+S, income
is recognize
!$D)'A$: F '%%((A$: %+#%'(%( when earne regarless of the receipt of the
<hen we spea% of .-+9I, this simply refers to the same an
expenses which are normal, usual or common to the business, the expense is recognize when incurre
trae or profession of the taxpayer *his may not be recurring
b  #ust %e paid or incurred in connection 'ith the trade3
xample: if an action is file in court, it is but normal to hire the %usiness or profession of the taxpayer!
services of a lawyer So, the taxpayer has to pay attorney?s fees
+t is an orinary expense uner this circumstances c  #ust %e proven %y RC+PS!

9;0;SSI6 +t is one which is useful an appropriate in the SPECIAL RE-UISITES .OR DEDUCTI!ILITY O. T#ESE
conuct of the taxpayer?s trae or profession ORDINARY J NECESSARY EXPENSES

.-+9I 7 9;0;SSI ;=P;9S;S =. !"#%'(AT)!' 8!$ (%$*)%( $%'D%$%D

6are those which are incurre or pai in the evelopment,
operation management of the business, trae or profession of
the taxpayer
;=*6.-+9I ;=P;9S;S E  'ot Deductible *hese are
amortize or in lieu of the same, you may claim that so6calle
allowance for epreciation n if it involves intangible asset,
the wor use is M.*+T*+.9
*his must be reasona%le, meaning, this must not be
ostensible
Ca&e 5: Partnership was sol to a corp an it was agree that
the partners will serve the corp an ma%e it appear that they
rener services So, compensation for services was ostensibly
mae by the corp
 17
#eld *hese is a mere ostensible salary or payment 6 1nly ordinary or minor repairs are deducti%le!
for services not actually renere because that amount really
forms part of the properties purchase by the corp - xtra-ordinary repairs cannot %e claimed as deduction  an in lieu
of that, the taxpayer may not be allowe to claim epreciation
Ca&e 9: 0orporate officers succeee in selling the property
of the corp So, profit was erive therefrom Bonuses were - +f the cost of the repair increases the life of an asset for a period of 
given to these corporate officers more than one (9" year3  that amount is consiere extra6orinary
repair 1ther'ise3 it is consiere orinary repair
#eld *he rule is settle Bonuses must be given in
goo faith *here must be services renere because bonuses G. (##L)%( A'D "AT%$)AL(
are aitional compensation +n this particular case, there was 6his must %e actually consumed durin the taxa%le year!
really no services renere because that sale was mae
through a bro%er *he corp mae it appear that it was through 6 RULE ON SU!STANTIATION simply re<uires that ordinary
the efforts of these corporate officers that brought about a and necessary expenses must %e proven *he 2roof& re#uire
successful sale of property inclue:
<=/='=+=(=>
5onuses must %e iven in ood faith and in determinin a .fficial receipts
'hether %onuses 'ill form part of the compensation for services b e#uate ecourse
rendered3 you have to consider the  31) nature of the business, 3") c mount of ;xpense
the financial capacity of the taxpayer an 3$) the extent of the  -ate an place where such expense is pai or
services renere incurre
e 9ature of expense
 >. AD*%$T)()'9 A'D #$!"!T)!'AL %+#%'(%(
& +t must be reasona%le!
9$ INTEREST
Ca&e: Sugar -ev?t 0orp pai P1"2,NNNNN to lgue 0orp
representing promotional expenses
'+D))+ ./' (+(-);))B
1 *his must be pai or incurre ->+9' the taxable
#eld *his is reasonable uner the circumstances because
year
the particular buget sub(ect for promotion involves million of
" *his must be pai or incurre in connection with the
pesos n uner that circumstances, the P1"2,NNNNN is
trae, business or profession of the taxpayer
reasonable as this may coincie with the efforts exerte
$ *here must be an obligation which is vali an
consiering that the taxpayer has no venture in that
subsisting
experimental pro(ect to establish that vegetables of investment
& *here must be an agreement in writing to pay interest
company an this involves millions of pesos
Ruestion 1:
3= '+ +:++ <hat about that interest on unclaime salaries of the
a *he taxpayer must N1 %e the o'ner  of the property employees, is that interest euctions
or he has no e#uitable title over the property
b *his is su%&ect to 'ithholdin tax!   Iou cannot claim nswerFel:
that the taxes suppose to be withhel have not 9., because there is no obligation or inebteness +t
been pai or remitte to B+ is the fault of the employees in case they faile to claim their
salaries
 C. T$A*%LL)'9 %+#%'(%(
6 *his must be incurred or paid 'hile Ka'ay from home)! Ruestion ":
<hat about that interest charge to the capital of the
6 K6ome) oes not refer to your resience but to the station taxpayer, is that euctible
assignment or post
nswer:
xample$ /rom home office to branch office, the +nterest on cost6%eeping purposes is not euctible
traveling expenses incurre are euctible n this inclues *his oes not arise uner an interest6bearing obligation
not only the transporatiotion expenses but also meal allowance
an hotel accommoations T&%!$%T)AL )'T%$%(T @ an interest which is compute or
calculate, not pai or incurre, for the purposes of
?. %'T%$TA)'"%'T %+#%'(%( etermining the opportunity cost of investing in a business
6 *his must not %e contrary to la'3 morals3 ood customs3 pu%lic *his oes not arise from legally emanable interest6bearing
 policy or pu%lic order  obligation *his is not a deducti%le interest!

6 ence, %ri%es3 4ic4%ac4s3 and similar payments are not deducti%le  Ruestion $:
6lso, the expenses incurre by the taxpayer in entertaining <hat about interest on preferre stoc%, is this
gov?t officials in 26star hotel to gain political influence are not euctible
euctible
nswer:
3. $%#A)$( A'D "A)'T%'A'% %+#%'(%(
 18
s a rule, interest on preferred stoc/ is not deductible, 1 grant or fiuciary
because there is no obligation to spea% of +t is in effect an " fiuciary of one trust an fiuciary of
interest on ivien *he reason why it is not euctible is that another trust but there is only one
the payment is epenent upon the profits of the corp +t will grantor
only be pai if the corp earn profits n woul not be pai of $ beneficiary an fiuciary
the corp incurs losses
OIour %nowlege of relate taxpayers is also
BT if it is not dependent upon corporate profits or  important in etermining whether losses are
earnings, that is deductible +f is payable on a particular on a euctible or not +f losses 'ere incurred or paid in
particular ate or maturity without regar to the corporate connections 'ith the transactions %et'een these related
profits, it is euctible taxpayers3 these are not deducti%le!

he Supreme Court mentions W1 (8" 0C1RS$ Ruestion: ow much interest expense is euctible
1 not epenent upon corporate profits! an
" agreement as to the ate or term within which payment will nswer: *he interest that may be claime as euctions shall
be mae be reuce
by:
 )'T%$%(T !' 9!*7T (%$)T)%( is now taxable. a &1K 6 Beginning Lanuary 1, 1A
So, if the taxpayer obtaine a loan from P9B an use the b $K 6 Beginning Lanuary 1, 1
procees in purchasing gov?t securities, the interest is now c $AK 6 Beginning Lanuary 1, "NNN of the
taxable 8i%ewise, the interest expense pai on that loan, the income sub(ect to final tax
procees of the same, ha been use to purchase gov?t securities
is now euctible #P. 10 +NC1# S*5,C 1 0+N. $
1 interest on ban% eposit
-$ <hat about an interest on a loan pai in avance, is this " interest on eposit maintaine uner the foreign currency
euctible 8et us say that the taxpayer obtaine a loan from a eposit system
ban% an it is payable within 2 years *he loan obtaine is
P2N,NNNNN 9ow, it was eucte in avance, can that be So, if the interest income on ban% eposit amounte to
claime as euctions P1NN,NNNNN n the total interest expense incurre or pai by
the taxpayer is P"NN,NNNNN +f this is incurre in 1A, &1K of
A$ 9. Iou can only euct the same when the installment is P1NN,NNNNN is P&1,NNNNN *hat P"NN,NNNNN interest expense
ue a particular year incurre or pai, shoul be reuce to P&1K of that
P1NN,NNNNN to arrive at P12,NNNNN which is the interest that
INTEREST EXPENSES *#IC# ARE NON"DEDUCTI!LE may be claime as euction
6PARCAPU8 P"NN,NNNNN
1 +nterest expense on P;/;;- S*.0Q! 6 &1,NNNNN
  66666666666666666666666
" <hen there is 9. ';;M;9* in writing to pay interest!   P12,NNNNN

$ +nterest expense on loan entere into between ;8*;- *he rule has been establishe that S are N1 
*=PI;S 1RD+NRB 15.+2+1NS But the Supreme Court in t'o (8"
cases relaxed the distinction %et'een taxes and ordinary o%liations 
& +nterest pai or calculate for 0.S*6Q;;P+9' P>P.S;S
1 *he interest on deficiency donor7s tax is deductible *he
2 +nterest pai in -@90; S0 explaine that taxes here are consiere obligations or
inebteness n it rule that we have to relax the
4 +nterest on obligation to finance P;*.8;>M istinction between tax an orinary obligation in this
;=P8.*+.9 respect

5 +nterest on >908+M;- S8+;S of the employees
 $elated taxpayers$
a! mem%ers of the same family 'hich includes$
a1 spouses
a" brothers an sisters
a$ escenants an ascenants
b %et'een t'o (8" corporations o'ned or controlled %y
one individual! e must have a controlling interest
over these two corporations ., if one corp is
consiere as personal holing company of
another corp
c! %et'een a corp! and an individualL that individual
o'ns or controls more than =G of the outstandin
capital stoc4 of the such corp!
  parties to a trust!
"  )nterest on deficiency income tax can also be claimed as
deductible interest expense because taxes here are
consiere orinary obligations
:$ TAXES
 $%<)()T%( 8!$ D%DT)B)L)T: :
1 *his must be pai or incurre uring the taxable year
" *his must be taxes pai or incurre in connection with the
trae, business or profession of the taxpayer
OOO axes that may %e claimed as deductions may %e national or local
taxes!
 19
 8oss from wash sale

T&% 8!LL!;)'9 A$% '!'D%DT)BL% TA+%( $ ;A9%$)'9 !$ 9A"BL)'9 L!((%( E the amount that is
<=)==+> euctible
1 SPC+. SSSS#N  E tax impose on the must not excee the gains
improvement of a parcel of lan  %xample0
*he winnings amounte to P1,NNNNN 8oss is P2NN
" +NC1#   E *his inclues foreign income tax +n this *his loss is euctible
regar, the so6calle foreign income tax may be claime +f the winning is P2NN an if the loss is P1,NNN *he
as a euction from gross income or this may be claime amount euctible is only P2NN because the amount must not
as tax creit against Phil income tax +n the event that he excee the gains
claims that as tax creit, he can no longer claim the same +f there is no winnings an loss is P2NN -euction
as euction losses here is T;.

$ *axes which are N1 C1NNCD W+6 6 & A(ALT: L!((%(  E this must be reporte to the B+
RD3 5*S+NSS 1R PR10SS+1N 10 6 earlier than $N
PBR ays but not later than &2 ays f ollowing the ate of the loss

& S 3 D1N1RFS    3see also iscussion on -as$alty losses incl$de%
tax benefit rule) a /ire
b Storm
TA+ A( D%DT)!'( ?s= : -'+() c shipwrec%
 *axes as euctions may be claime as euctions from  .ther casualty losses
gross income e obbery
 *ax creit is a euction from Phil income tax f ;mbezzlement
g *heft
 *ax as euction inclues those taxes which are pai or
incurre in connection with the trae, business or 2 (#%)AL L!((%( E include the following $
profession of the taxpayer owever, the sources of a a! loss arisin from voluntary removal of %uildins as an incident
tax creit is foreign income tax pai, war profit tax, to rene'al or replacement
excess profit tax pai to the foreign country
Problem:
 *he foreign income tax pai to the foreign country is Suppose the taxpayer ha a builing constructe
not always the amount that may be claime as tax creit on a parcel of lan e owne this as well as the
because uner the limitation provie uner the *ax builing erecte thereon e ha business an his
0oe, it must not be more than the ratio of foreign business was conucte within the premises
income to the total income multiplie by the Phil *hen, he ecie to remove such builing as to
income tax construct a new builing for new business

 *axes are euctible only by the person upon whom the +s the cost of emolition to give way to a new
tax is impose builing euctible loss YES$
xcept$
1 Share holer Suppose  purchase that parcel of lan of B an
" corporate bons 6 tax free 0ovenant clause inclue in that sale was that of the builing 
emolish this builing in orer to construct a new
The following are entitled to claim tax credit0 builing +s the cost of emolition euctible
10 " -0 insofar as  is concerne

;$ LOSSES NO$ *hat can only be claime as euctions if the

one emolishing the same is the taxpayer *he
CLASSI.ICATION O. LOSSES 6O$ C$ *$  C$ S$8 moment that is sol to another claim that as
1 !$D)'A$: L!((%( E losses sustaine in the course of euctible loss *he treatment here is, the cost of
trae, emolition shoul be capitalize in the selling
business or profession of the taxpayer price
E1ce2tio': may claim that as euctible loss if
" A#)TAL L!((%( E the assets that must be involve there this was emolishe by value of a court orer
must be because the gov?t consiere this as a fire hazar,
capital assets loss of useful value of property or capital asset

-apital osses incl$de the "ollowing%  THE COMMON REQUISITES for

a 8oss arising from failure to exercise privilege to sell DEDUCTIBILITY OF LOSSES are:
or buy property 1 .osses must %e actually/sustained and not mere anticipated
b <orthless securities lossesL
c banonment losses in the case of natural resources

"  #ust not %e compensated %y insuranceL
666 +f it is partly compensate, only the amount not
compensate by insurance is euctible
$  #ust %e evidenced %y a completed transaction
Co+2leted Tra'&actio'  this means that the loss must
be fixe by ientifiable event
xample: +f it is a loss sustaine from sale, the event
that may ientify or complete the transaction is the
consummation of the contract of sale
Suppose it is in the nature of casualty losses li%e fire
*he fire estroye your property in 12, no payment has
been mae because the insurer an the insure were still
uner negotiation +t was only in 15 that they agree on
the amount *he amount agrees upon is P1NN,NNN *he
taxpayer may claim that casualty losses only in 15
when payment was actually mae *his is the event that
will complete the transaction
<$ !AD DE!TS
 $%<)()T%( 8!$ D%DT)BL)T:0 <-, , ;, ,
>
1 Must be chared off and uncollecti%le  within the taxable
year!
" Must be ascertaine to be 'orthless
$ Must arise from trade3 %usiness or profession  of the taxpayer!
& Must be valid and su%sistin inebteness!
2 Must be uncollecti%le in the near future
 &!; T! #$!*% T&% ;!$T&L%(('%(( !8 
!BL)9AT)!'0
 ccordin to the Supreme Court3 the follo'in SPS must %e
complied:
1 *here must be a statement of account sent to the
ebtor!
"  collection letter!
$ +f he faile to pay, refer the case to a lawyer!
& +f lawyer may sen a eman letter to the ebtor!
2 +f the ebtor still fails to pay the same, file an action in
court for collection
+n provin that the de%tor is insolvent of %an4rupt , mere
allegation of the same is not enough Iou shoul
prove that the ebtor is inee ban%rupt or insolvent
So, you may secure a copy of that decision %y the SC  or
other agency as the case may be, eclaring the ebtor
as ban%rupt or insolvent n then there must be a
eman letter sent to him +n case the de%tor 'as ro%%ed ,
there must be a police report to that effect
*he de%tor may %e a NR0C , so you may argue that he
may not be sue here ccoring to the Supreme
0ourt, as a rule that is not an excuse Iou shoul still
send a demand letter to that NR0C  +n other wors, there
must %e dilient efforts to collect the inde%tedness and to
 prove that in the near future such o%liation is no loner  investment throuh this allo'ance for depletion
collecti%le
20
OOO +f the recovery of %ad de%ts3 resulted in a tax %enefit to the
taxpayer , that is taxable +f it did not result in any tax
%enefit to the taxpayer , that is not taxable (TAX
!ENE.IT RULE)
9B ea the case of Phil! Refinin Company vs!
Commissioner , a 1A case
=$ DEPRECIATION
he idea here is not to recover profit3 %ut to recover the cost
of property invested in %usiness  <hen the properties are use in
trae, business or profession of the taxpayer, the law consiers
or recognizes the graual loss or sale of property
 D%#$%)AT)!'   refers to the graual iminution
of the useful value of the property use in trae,
business or profession of the taxpayer, arising from
wear an tear or natural obsolence
 $%<)()T%( 8!$ D%DT)B)L)T:0 <  '  - >
1 *he property must be used in trade3 %usiness or profession
of the taxpayer!
" *here must be deprecia%le properties
*he nondepreciable properties are
a Personal property not use in trae, business or
profession of the taxpayer!
b +nventoriable stoc% an securities
c 8an
 Mining an other natural resources
$ *he allo'ance for depreciation must %e reasona%le
& *he method in computin  the allowance for epreciation
must be in accordance 'ith the method prescri%ed   by the
Sec of /inance upon the recommenation of the B+
0ommissioner
This prescribed method includes:
a -eclining balance metho
b Sum of the years igit metho
c Straight line metho
 ny other metho as may be prescribe by the Sec
of /inance upon the recommenation of the B+
0ommissioner
2 *his must be chared off durin the taxa%le year!
>$ DEPLETION  natural resources
 *his involves natural resources such as oil, gas wells an
mines *hese are non-replacea%le assets
 *he re<uisites for deducti%ility are the same as that of 
depreciation except that the properties involve are
natural resources
 he idea here is not for profit %ut to recover the cost of 
?$ C#ARITA!LE AND OT#ER CONTRI!UTIONS

O These are fully deductible if the contributions are given to
the following0 6.$ A$ G$8
1 2overnment or its political subivisions, agencies or
instrumentalities, for the purpose of unerta%ing  priority
 pro&ects of the government!
These priority pro6ects include0 6S$#$E$8
a Sports evelopment, science an invention
b ealth an human settlement
c ;ucational an economic evelopment
" 0orein overnment  or institution an international civic
organizations!
$  ccredited N21
 '.9.!. means non-profit domestic corporation 'hich are
 formed and oranized for any of the follo'in purposes :
6C$#$E$R$S$8
a esearch
b ealth
c ;ucation
 0haritable, cultural, character builing
e Sports evelopment an social welfare
The amount of charitable contribution that may be
claimed as deduction may be0
1! +n the case of individual taxpayer$
6 9ot more than 1NK of the net income before charitable
contribution
" +n the case of corporate taxpayer$
6 9ot more than 2K of the net income before the charitable
contribution
 )8 the recipient of such contribution is any of the following 
 D formed or organi-ed for : GR$E$C$S$H
1 eligious purpose an rehabilitation of veterans
" ;ucational purpose li%e eucational corporations which
are not #ualifie as 9'.
$ 0haritable, cultural purpose
& Scientific, sports evelopment an social welfare purpose
F5K or <K of the 'et i'co+e 3efore charita3le co'tri3tio'
E1a+2le
+f an iniviual taxpayer has a gross income of
P1NN,NNN an the allowable euction, except charitable
contribution, is P2N,NNN *he 0haritable contribution is P2,NNN
-euction first P2N,NNN from P1NN,NNN an the result
is P2N,NNN
*his P2N,NNN is the basis of that C1NK or 2K of net
income before charitable contributionD So, 1NK of the P2N,NNN
is P2,NNN ence, the actual contribution of P2,NNN may be fully
claime as euction
But let us say, the amount of charitable contribution is
P1N,NNN So, he can only euct P2,NNN as charitable
contribution, an not the actual amount of P1N,NNN because the
law imposes a limitation that the amount that may be claime
as euction must not be more than 1NK of net income before
charitable contribution
21
@$ RESEARC# J DE/ELOP0ENT PROGRA0
This may not be claimed as deduction if the amount is:
1 Spent for the ac#uisition or improvements of lan or
for the improvement or evelopment of natural
resources
" Pai or incurre for the purpose of ascertaining the
existence, location, extent or #uality of any natural
resources li%e eposits of ore or other minerals
incluing oil or gas
5$ CONTRI!UTION TO PENSION TRUSTS
 $%<)()T%( !8 D%DT)B)L)T: %
1 *here must be a pension plan establishe by the
employer!
" *he pension must be reasonable or soun!
$ 0ontribution must be given by the employer to that
pension plan!
& *his must be for the benefit of the employees!
2 *he plan must not be sub(ect to the control of the
employer
Contri%ution to pension trust may refer to the current year 
or past years!
C*RRN BR- this is considered as ordinary M
necessary expenses
;mployer may also ma%e a contribution to the
pension plan in regar to the services renere for the past 1N
years
PERSONAL EXE0PTIONS
PERSONAL EXE0PTIONS
5$  #ersonal and additional exemptions 39ote: <ala na yung
S$A$P$E)
 >. #remiums on health and hospital insurance
 Limitations:
a$ +t must not be more than P",&NNNN a year +n
other wors, P"NNNN a month *he P",&NNNN is
the maximum amount that may be claime as
euctions
3 *he family must have an income of not more than
P"2N,NNNNN a year
c *he claimant must be the spouse claiming the
aitional exemption
Premiums on life insurance policy is also included here
%ecause it is included under the health insurance policy!
 22
the taxpayer an epenent upon the
PERSONAL EXE0PTION taxpayer for chief support
*his is an arbitrary amount in the nature of 6 Parents must %e natural parents!
euctions from gross compensation income
" Brothers or sister  6 o %e <ualified they must %e$
+f the taxpayer has no compensation income , this can be a 8iving with the taxpayer!
claime as euction from gross income from business, trae b -epenent upon the taxpayer for chief
or profession support!
c >nmarrie!
Personal exemption is given to approximate the nees  9ot gainfully employe
of the taxpayer +t is a substitute for the isallowance of e 9o more than "1 years ol except if physically
family, personal an living expenses or mentally incapacitate!
► must %e %rothers or sisters %y %lood
 )'D( !8 #%$(!'AL %+%"#T)!' $ ► one is enouh

1 Basic personal exemption:

$ hildren  #ust %e leitimate 3 illeitimate3 leally
a single or legally separate without epenent! adopted or stepchildren
onditions0
b hea of the family! a 8iving with the taxpayer!
b -epenent upon the taxpayer for chief
c each marrie iniviual if both of them are earning 0ompensation income support!
c >nmarrie!
  3in case only one of the spouses is eriving gross income, only 
such 9ot gainfully employe!
spouse shall be allowe the personal exemptions) e 9ot more than "1 years ol except if
physically or mentally incapacitate

 -epenent is consiere Cliving with the taxpayer D even if

 >. dditional e!emption
6 *his only applies to #ualifie
epenent chil an chilren such
as legitimate an illegitimate
chilren
  #ersonal %xemption E only iniviual taxpayers, incluing
estate an trust, are entitle
 )n case of estate and trust E Php"N,NNNNN
the former or the latter are not physically together if that is
Ph2?7$ for every brought about by force of circumstances xample if one of the
<ualified dependent parents will have to unergo by6pass operation in the >S
child %ut not to exceed
O Chief S22ort  E means more than 2NK of the nees of the
epenents are provie by the taxpayer
Pro3le+: +f the chil or the brotherFsister got marrie an
then he has foun to be physically or mentally incapacitate,
so bumali% si tatay at epenent sa tatay for chief support, can
he #ualify as epenent

R$C$ N$R$C$ R$A$ NRA"NT! NRA" A'&%er 9o,  physical or mental defect applies only to ae
NET! re<uirement! 1nce the child or %rother/sister ot married3 he is
Fsub(ect to automatically dis<ualified as dependent!
the rule on
reciprocity  &A'9% !8 (TAT(:
F F F But it must 1 -eath of spouse uring the taxable year!
 #ersonal within within not excee = " -eath of epenent uring the taxable year!
 %xemption the $ -eath of the taxpayer uring the taxable year! estate of the
maximum taxpayer may claim the %asic personal exemptionL
allowable & itional epenent uring the taxable year!
personal 2 *axpayer got marrie uring the taxable year!
exemption 4 'ainful employment of the epenent uring the taxable
= year
 Additiona F F ule on 5 -epenent became more than "1 years ol uring the
l F within within reciprocity = taxable year
 %xemption oes not
apply  ven if the a%ove-mentioned chane of status happened durin the
taxa%le year3 the taxpayer may still claim the %asic personal
Le4e'd   6 availa%le! X E not availa%le exemption %ecause it is as if the chane of status happened at the end
of the taxa%le year!
#ead of the fa+ily  E unmarried man or 'oman leally separated
man or 'oman 'ho has the follo'in <ualifi ed dependents$  *here is a provision in the *ax 0oe, which is not so clear
/or purposes of head of the family 7 in the case of natural
1  #arents 6 .ne or both parents Must be living with

chilren or chil, there is that wor Hac/nowledged or    .n the other han, on the part of the employees, these
recogni-edI.
 0or purposes of the definition of head of the family , it is clear that
to #ualify as epenent, the natural chil or legitimate chil
must be ac%nowlege or recognize by the taxpayer
 But   in the efinition of the epenent, dependent   means
legitimate, illegitimate or legally aopte chil or chilren
*here is no wor ac%nowlege or recognize
  <as this eliberately omitte by our 0ongressmen -oes
this imply that since they have so may illegitimate chilren,
they may not be re#uire to ac%nowlege or recognize them
an they can claim this illegitimate chil as their epenent
*his is not clear +f we will try to interpret the law literally,
there is no nee of any recognition on the part of the taxpayer
 +s this really the intention of law
  9o he intention of the la' has al'ays %een to reconize this
illeitimate child and this is one 'ay of compellin the taxpayers to
reconize this child!
 *he #resident of the $epublic of the #hils. cannot issue an
executive order to increase the basic personal exemption
because the provision uner the .l *ax 0oe authorizing the
Presient to increase the personal an aitional exemption
upon the recommenation of the Sec of /inance has been
remove or elete by  A&"&
 No'3 you can only increase the amount of personal and additional
exemption %y leislative enactment 
NON"DEDUCTI!LE ITE0S
1 Personal, living or family expenses
" *hose which are consiere capital expenses Capital
expenditures may be one that may increase the value of an
asset
$ ;xtra6orinary repair expene to restore the property, or
ma%ing goo its exhaustion xtra-ordinary repair   is one
that may prolong the life of an asset for more than one 31)
year Iou cannot claim the same as euction +nstea,
you may claim it as allowance for epreciation
& Premiums pai on the life insurance policy of the officer
or employee of the employer, when the employer is
irectly or inirectly esignate as beneficiary
2 8osses from sales or exchanges of property between relate
taxpayers
RULES
 Premiums paid on the insurance policy of the officer or employee
may %e claimed as deduction %y the employer3  +f the beneficiary is
the family or the heirs of the officer or the employee
 +t is not deducti%le on the part of the employer3  +f the beneficiary
esignate irectly or inirectly is the employer +f the
%eneficiary desinated is the creditor or the heirs of the employer3 the
esignation is inirect! hence, that premium is not euctible
23
premiums may be a taxable compensation income +t is taxa%le
compensation income on the part of the employee  if the beneficiary
esignate is the family of heirs of the employee
 Therefore, if these premiums are deducti%le on the part of the
employer3 that is taxa%le on the part of the employee! +f these
 premiums are not deducti%le on the part of the employer3 that is not
taxa%le on the part of the employee!
N$!$ Personal3 livin and family expenses are deducti%le   for the
simple reason that these are not connecte with the business,
trae or profession of the taxpayer +n lieu of the same, the
taxpayer may claim the so6calle CPersonal an itional
;xemptionD in the case of iniviual taxpayers
CORPORATE INCO0E TAXATION
CORPORATE TAXPAYER    corporation, includes partnership
no matter how create or organize, (oint account companies,
insurance companies an other associations
 )t excludes0 GG227 /"c7 C" PGE"G H
1 'eneral professional partnership!
" Loint venture for the purpose of unerta%ing
construction pro(ects!
$ Loint consortium for the purpose of engaging in
petroleum, geothermal an other energy
operations pursuant to a consortium agreement
with the government
TAX EXE0PT CORPORATIONS
he "ollowing organiEations shall not e ta!ed in
respect to income recei?ed y them as s$ch%
5 2eneral professional partnership  E evote to a common
profession, must not engage in a business!
9  ,oint venture for the purpose of unerta%ing
construction pro(ects!
:  ,oint consortium for the purpose of engaging in
petroleum, geothermal an other energy operation
pursuant to a consortium agreement uner service
contract with the government E there must be a
consortium agreement with the government
;$ 8abor, agricultural or horticultural organization not
organize principally for profit
 So, it may erive income from such business as long as
it is merely incidental, the organization is still exempt
<hat is important here is that in the articles of 
incorporation of this tax6exempt organization, it must be
clearly provie that these organizations are not formed
or oranized for profit!
E1a+2le: +n the course of promoting agricultural
proucts, the agricultural organization may sponsor
exhibits an income may be erive from the same
*hat will not ma%e this corporation taxable because
that is merely inciental *he activity has connection
with the purpose for which the corporation was
organize

<$  #utual savins %an4 not having s capital stoc%
represente by shares an cooperative ban% without
capital stoc% organize an operate for mutual
purposes an without profit
& must form an organize for mutual
purposes
& Mutual savings ban% an cooperative
ban% must not be organize for profit
So, it must not issue shares of stoc%
=$  %eneficiary society3 order or association3 operating for the
exclusive benefits of the members such as a  fraternal
oranization operating uner the loge system, or a
payment of life, sic%ness, accient, or other benefits
exclusively to the members of such society, orer or
association, or non6stoc% corp or their epenents
 Lodge system E one which must operate uner a parent
an subsiiary associations
>$ Cemetery company  owne an operate exclusively for
the benefit of its members
& *his must be non6profit cemetery
;xample: 8ibingan ng mga Bayani
?$ Non-stoc4 corporation or association organize an
operate exclusively for reliious3 charita%le3 scientific3
athletic3 or cultural purposes3 or for the reha%ilitation of 
veterans! no part of its income or asset shall belong to
inure to the benefit of any member, organizer, officer,
or any specific person
@$ 5usiness leaue3 cham%er of commerce3 or %oard of trade , not
organize for profit, an no part of the net income of
which inures to the benefit of any private stoc%holer or
iniviual
&  #a4ati stoc4 exchane and #anila stoc4
exchane are not covered %y the exception 
*hey are sub(ect to tax
 $euisites0
a *his must be establishe for common business
interest
b 9o part of the income shall inure to the benefit
of a particular iniviual
;xample:  clearing house corp establishe by member
not for profit an such corp is tax exempt
+f an association is organize by businessmen for the
purpose of encouraging prospective investors to invest
in the Phils that association is not tax exempt because
the members of such organization have ifferent
business interests
5$ Civic leaue or oranization  not organize for profit but
operate exclusively for the promotion of social
welfare
;xample: Piso for Pasig /ounation is not for profit
*his is a civic organization omeowners ssociation
is sub(ect to tax because that is not organize for profit
24
55$ 0armers associations or li4e associations , organize an
operate as a sales agent, for the purpose of mar%eting
the proucts of its members, an turning bac% to them
the procees of sales, less the necessary selling
expenses on the basis of the #uantity of prouce
finishe by them
K<uantity of poduce) means proportionate *his must
not be for profit
59 0armers cooperative or other mutual typhoon or fire
insurance company3 mutual ditch or irriation company3 or 
li4e oranization of a purely local character3  the income of
which consists solely of assessments, ues an fees
collecte from members for the sole purpose of
meeting its expenses
5:$ 2overnment educational institution *hese are >PMS>
5;$   non-stoc4 and non-profit educational institution 
 *a%e note that the last paragraph of Sec $N! it
provies, C9ot withstaning the provisions in the
preceing paragraphsD *his means that even thouh
they are exempt3 as reards certain income3 they may %e
su%&ect to tax!
OO So, notwithstaning the provisions in the preceing
paragraphs, the income of 'hatever 4ind and character of 
the foreoin oranizations from any of their properties3 real
or personal3 or from any of their activities conducted for 
 profit reardless of the disposition made of such income3
shall %e su%&ect to tax!
OO *he implication is that if these tax exempt corps
mentioned under nos! O to 9O3 made an investment3 the
income derived from such investment may %e su%&ect to tax!
 So, if they have real property and lease it to another , the
rent income is sub(ect to tax
+f they have deposit in a %an4 , the interest income on
the same is sub(ect to tax
+f they sell property for profit, that is sub(ect to tax
 So, the exemption oes not cover this income erive
form such investment *hus, it must be an income
erive from their activities which may be the purpose
for which they are organize
OOO *he insertion of non6stoc%, non6profit eucational
institution, to my min, is not in accorance with the
provision of rt1& Sec $ par $, because the
0onstitution provies for a particular test for
exemption an that is CuseD of the property So, if a
non6stoc%, non6profit eucational institution has
interest income erive from ban% eposit, in view of
this provision 3Sec $N, 9+0), the B+ may impose a
tax on the same, regarless of the use or isposition
So, even if the interest on such eposit is use to
achieve eucational purposes, that will not exempt it
from taxation *he 0onstitution says Cactually, irectly

an exclusively use for eucational purposesD, the
meaning of this is, as the procees or income is
actually irectly an exclusively use for eucational
purposes, that may be exempt But uner Sec $N, no
*hat must be connecte with the purposes or purposes
for which such institution has been forme or
organize Since this runs counter to rt 1& Sec & par
$ of the 0onstitution, this Sec $N shoul be eclare
unconstitutional *he 0onstitution says CuseD but here
3Sec $N) it is regarless of the use or isposition *his
must yiel to that 0onstitutional provision
(Sec$ 9> 2ar C7 TRA 5@@> )
5<$ 'S+S 3'overnment Service +nsurance System)
5=$ SSS 3Social Security System)
5>$ P+0 3Phil ealth +nsurance 0orp)
5?$ P0S. 3Phil 0harity Sweepsta%es .ffice)
5@$ P'0. 3Phil musement 7 'aming 0orp)
9$ 9P.0. E special law
N$!$ he rule no' is settled3 2ovFt o'ned and controlled corps!
 re su%&ect to corporate income tax except those mentioned under 
Sec! 8; par C!
PARTNERS#IP " *his is an association of two or more
persons an they may contribute
money, property, or inustry to a
common fun with the intention of
iviing the profits among themselves
Tests that will determine whether a partnership e!ists or  ase0
not%
1 *here must be a contribution to a common fun
" *here must be an intention to ivie the profits among
themselves
 Co-o'nership is not a partnership  0o6ownership, as a rule
is a tax exempt because a co6ownership is forme an
organize not for profit but for common en(oyment of the
property or for the preservation of the property
 Partnership is considered a corporate taxpayer  *a%e note that
this exclues general professional partnership .nly
partnership forme or organize for profit is exclue
 +f it is formed and oranized for the practice of common
 profession3 it is a tax-exempt partnership!
 0or purposes of taxation, this business partnership is
taxable irrespective of whether it is orally constitute or
in writing an whether or not it is registere in the S;0
ase0 *he heirs of the ecent inherite the property *here
was istribution of share But such shares are hel uner
25
single management +n fact the income of such property after
istribution was manage by one of the co6heirs
 &eld0 *he fact that they agree that the shares shall
be hel by the co6heir uner the single management for profit,
this accoring to the S0 convert the co6ownership in to a
taxable unregistere partnership 1na vs. ommissioner @
na doctrine4
ase0 *he heirs inherite the properties from their
ecease mother *he property was uner the aministration
of an aministrator *his aministrator of the property was
authorize to sell these properties for profit, or lease
properties for profit an engage in an income proucing
activities
 &eld0 <hen these heirs inherite the property from their
ecease mother, co6ownership exists t the particular stage,
it is exempt from tax when the heirs ecie to invest such
property in an income proucing activity that co6ownership is
converte in to a taxable unregistere ownership 1(ea vs.
ommissioner @ (ea doctrine4
ase *here was two sisters who form a common fun for
the purpose of engaging in a series of transaction for profit
 &eld0 *here is a taxable unregistere partnership here
OOTest that will determine whether coownership is taxable
unregistered partnership  /in out whether the heirs mae a
substantial improvements on the inherite property *he heirs
made a su%stantial improvement on the inherited property , the
implication is that they will engage in a business for profit,
1%vangelista vs. ommissioner @ %vangelista doctrine4. +f that
happens, that co6ownership will be taxe as unregistere
.belio Sr entere into a contract with .rtigas limite
company >ner that contract, .rtigas limite company will
istribute parcels of lan to the 0hilren of .belio Sr for their
resiential houses fter the subivision of such parcel of lan
to the chilren of .belio Sr, these chilren ecie to sell this
parcel of lan to <ie 0ity 0orp <as there a taxable
partnership forme by the chilren of .belio Sr
 &eld0 *here was no partnership forme because there was
no intention to ivie the profits among themselves *his was
a mere isolated transaction  +solate transaction will negate any
intention to ivie the profits among themselves *hus, there
was no taxable partnership forme
ase0 Pascual an -ragon purchase $ parcels of lan from
Bernarino an " parcels of lan form Mr o#ue *hereafter,
the three parcels of lan which were purchase from
Bernarino, were sol to Marimer 0orp with a profit of
P142,"""5N while the parcel of lan purchase from Mr
o#ue were sol at a profit of P4N,NNN to eyes
 &eld0 there was no partnership organize because this is
 (ust a mere sharin of ross return  n as you have learne in
partnership, the law says, Cthe partners share in the net profits
of a taxable partnershipD So, mere sharing of gross return oes
not of itself establish a partnership

 oi't acco't E <hen two persons form or create a common
fun an such persons engage in a business for profit, this
may result in a taxable unregistere association or partnership
Re4i&tratio' is not a re<uisite for purposes of taxation  <hat is
important here is they must engage in a business or activity for
profit
 oi't &toc co+2a'ie& E *his is the miway between
corporation an partnership *his has what you call Khybrid  of transport ocument ccoring to the Supreme 0ourt, the
 personality)!  +t is somewhat a partnership because it is an
association, an persons or members of the same contribute
fun, money to a common fun n this us manage by
Boar of -irectors! this means: it has that feature of a
corporation n these persons may transfer their share
without the consent of others
E+er4e'cy o2eratio'  *hese may be forme by two
corporations *his two corporations have separate
personalities +f they form that emergency operation 3it is really
a special activity) to engage in a (oint venture, corporation 1
may be taxe only from the income erive from such
business *he income erive from such emergency operation
shoul also be inclue in that taxable income sub(ect to
corporate income tax +n the same way, that corporation ", has
a separate an istinct personality! if it a part of that
emergency operation, the income erive from such special
activity shoul also be inclue in the income of that
corporation ", sub(ect to corporate income tax, even if it is not
registere with the S;0 3Securities an ;xchange
0ommission)
But if two corporations are manage by one manager, an
this " corporations lease services, manage by one person
an it has " separate accounts, it is not an association forme
which is sub(ect to tax
Do+e&tic Cor2oratio' (DC) E corp forme or organize
uner Phil 8aws
Re&ide't .orei4' Cor2oratio' (R.C) E foreign corporation
engage in trae or business within the Phils
No'"Re&ide't .orei4' Cor2oratio' (NR.C) E foreign corp
not engage in trae or business within the Phil
here is no fix criterion as to 'hat constitute enaed in
trade or %usiness ;ach case shall be (uge in the light of
peculiar environmental circumstances But Kengaged in
businessD implies continuity of commercial transaction or
ealings E continuity of business! there must be continuity of
intention to conuct continuous business
ase0 B.0 is an offline international airline .ffline
because it oes not rener any services an no laning rights
in the Phils
B.0 claime that it is not sub(ect to tax with respect
to the sale of transport ocuments or airline tic%ets in the Phils
because it is an offline international airline +t oes not rener
any service an it has no lening rights
 &eld $ *he contention of B.0 is not tenable *he
income erive from the sale of that transport ocuments in
the Phil is sub(ect to tax *he sub(ect of income may be
26
property, activity or service that prouce the same /or an
income to be consiere as an income erive from sources
within the income must be erive from activity conucte or
unerta%en in the Phil
+t is true that B.0 ha no property in the Phil from
which its income may be erive +t is true that B.0 i not
rener any service in the Phil from which its income may be
erive But there was that activity that was unerta%en in the
Phil from which income was erive an that refers to the sale
sale was mae in the Phil an the payment was mae in the
Phil *his particular activity en(oys protection of the Phil
government So, it shoul share the buren of tax B.0 was
consiere oing business in the Phil uner this particular
situation because there were series of transactions mae in the
Phil an B.0 was appointe a permanent agent in the Phil
*his implies that the Phil an the B.0 ha no intention to
establish continuous business here in the Phil 0ontinuity of
conuct is the peculiar circumstance referre to in the case
OO+f these were mere isolate transaction 3let?s moify the facts
of the case) an B.0 has no permanent agent in the Phil,
such airline is not consiere oing business in the
Philippines emember, international carrier is taxe on gross
Philippine billings
ase0  foreign vessel unloae cargoes in the Phil twice
 &eld0 <e cannot consier that as resient foreign corp
*hese are mere isolate transactions
ase0 +f a corporation made an investment in another corp , the
Supreme 0ourt hel that, it will not ma%e the corp as oing
business in the Phil because it has no intention to establish
continuous business
ase$   Marubeni corp is a foreign corp it investe in a
omestic corp *his foreign corp has a branch office in the
Phil it mae a irect investment in that omestic corp So, it
receive ivien from that omestic corp
 &eld0 *hat will not ma%e such foreign corp a resient
foreign corp because of that absence of intention to establish
continues business +t woul be ifferent if it was course
through the branch office of such foreign corp
GENERAL RULES
Cla&&ificatio' Sorce& Ta1 !a&e E'titled Ta1
Dedctio' Rate
 27
DC +F. *axable $&K6  %xample0 +ts income erive from unrelate trae, business or
+ncome F 1A activity amounte to P"NM n income erive from relate
$$K6 trae, business or activity is P1NM So, the total income is
1 P$NM +f the allowable expenses amounte to P1NM, the
:9K " taxable income now woul be P"NM
9
R.C + *axable $&K 6 ==$=>K M 90 ,&$ 50  ::$:K
+ncome F 1A : :
$$K 6
1 I'co+e deri,ed fro+ I'co+e deri,ed fro+
:9K " U'related T!A Related T!A
9
NR.C + 'ross = So, the amount from unrelate *B 34445K) is more
+ncome than 2NK of its gross income 3P$NM) *hus, this P"NM taxable
income is sub(ect to $&K tax rate
<uestion: 0an 0ongress pass a law imposing tax on the
income of a /0 erive from sources without But, if the income from relate *B is P"NM an its
income erive from unrelate *B is P1NM So:
 Answer0 9o, because this will violate the principle of territoriality
in taxation <e cannot exten protection to that particular Related T!A  66666666666666 vs U66666666666666666
sub(ect of taxation he fundamental %asis of the po'er to tax is the U'related T!A
capacity of the taxin authority to extend protection to the su%&ect of 
taxation! *he income from unrelate *B is not more than 2NK of its
gross income *hus, this P"NM is sub(ect to P1NK preferential
 he 7OG3 77G 78G tax rates mentioned may not %e applied tax rate
except if it is lo'er than the 8G of ross income of such corporate
taxpayer  *his is calle Kminimum corporate income tax rate of   )'!"% D%$)*%D 8$!" $%LAT%D T$AD%, B()'%((
 >K of gross income)! !$ AT)*)T: 

 %xample$  +f a corporate taxpayer has a gross income of  *his must be an income derived from an activity 'hich is
P"NM "K of that is P&NN,NNN +n this case, the tax to be pai su%stantially related to the performance of educational functions 
must not be lower than P&NN,NNN +f the net income is P"NM an *his may inclue income from boo%store, canteen or
the euction is P1M, we only have P1M  Iou multiply that ormitory
by $&K because now is 1A, so that will give you P$&N,NNN
*his is the corporate income tax applying that tax rate 3$&K) is Sorce& Ta1 !a&e Ta1 Rate
lower than "K which is P&NN,NNN 3this is the amount suppose "NON" 1A61NKor
to be pai) pplying the minimum corporate income tax rate PRO.IT +F. *axable $&K
of "K if the gross income, the amount to be pai as tax is #OSPITAL +ncome 16$$K
P&NN,NNN "NNN6$"K

 So, the C +i'i++ cor2orate i'co+e ta1 rate of 9K of 4ro&&
i'co+eD means that the corporate taxpayer must pay corporate
income tax not lo'er than 8G of its ross income  +f the actual
corporate income tax is lower than the "K tax that is suppose
to be pai, it is the "K minimum But, if the actual corporate
income tax applying that $&K is P4NN,NNN, this is the tax that
shoul be pai
OOO/or purposes of non6profit hospital, this must be income
derived from activities 'hich are su%stantially related in achievin
the primary purpose of that hospital , which is to rener services to
the public
*he explanation as to when the 1NK or $&K tax rate
applies is the same as that of private eucational institution

SPECIAL RULES
!$ SPECIAL R.C Sorce& Ta1 !a&e Ta1
A$ SPECIAL DC SOURCES Ta1 Ta1 Rate Rate
!a&e 1
1 PRI/ATE 1A:1NKor$&K INTERNATIONAL I GROSS
EDUCATIONAL +F. *axable 1: $$K AIR CARRIER  3+ncome P#ILIPPINE 9$<K
INSTITUTION +ncome 9 :9K " <ithin) !ILLINGS (9$  
INTERNATIONAL K)
 'otes0 S#IPPING
 ax rate is 9G if its income derived from unrelated trade3
%usiness or activity does N1 exceed =G of its ross total income! OOO /or purposes of )nternational Air arrier , GROSS P#IL$
!ILLINGS refer to the amount of gross revenue erive from
 5ut its income is su%&ect to 7OG tax rate if its income from carriage of persons, excess baggage, cargo an mail originating
unrelated3 trade or %usiness or activity exceeds =G of its ross from the Philippines in a continuous an uninterrupte flight
income irrespective of the place of sale or issue, an the place of
payment of the tic%et or passage ocument
 28
!ANH
DEPOSIT
O Gro&& Phil$ 3illi'4& for 2r2o&e& of  )nternational (hipping  UNDER T#E >$<K >$<K Ta1"e1e+2t
means gross revenue whether from passenger, cargo or mail EXPANDED
originating from the Phils up to final estination, regarless of .OREIGN
the place of sale or payments of the passage or freight CURRENCY
ocuments DEPOSIT
SYSTE0
:$
ROYALTIES
C$ SPECIAL NR.C Sorce& Ta1 !a&e Ta1 Rate DERI/ED 9K 9K :;K
5$ LESSOR O.  *IT#IN T#E
CINE0ATOGRAP#IC I GROSS 9<K P#ILIPPINES
.IL0S ;$ CAPITAL
9$ LESSOR O. GAINS
/ESSELS DERI/ED
C#ARTERED TO .RO0 ITS
.ILIPINO I GROSS ;$<K SALE O.
NATIONALS OR S#ARES O.
CORP$B The harter  STOCH
 Agreement of which is a$ If it i&
approved by "aritime li&ted Thi& rle a22lie& !OT# to cor2orate a'd
 )ndustry Authority a'd i'di,idal ta12ayer&$
:$ LESSOR O. trade
AIRCRA.T7 I GROSS >$<K d
0AC#INERY J thr
E-UIP0ENT local
&toc
OOO Lessor of D and video is not inclue in no 1 So, it is e1cha
sub(ect to $&K tax rate '4e
Of 5K of the
OOO Lessor of personal properties is not inclue in no ", so, it Gro&& Selli'4 
is also sub(ect to $&K tax rate Price
3$ If it i&
NOT
li&ted
or
trade
d
thr
local
&toc
e1cha
'4e
OT#ER RULES Not o,er
DC R.C NR.C P57$ <K
5$ *his shoul   O,er
INTEREST 9K 9K be inclue in P57 5K
INCO0E ON its gross <$ CAPITAL =K of the
!ANH income GAINS Gro&& Selli'4 
DEPOSIT &3ect to DERI/ED Prie or
:;K ta1$ B>* .RO0 T#E o'al /ale Shold 3e treated a&
in the case of SALE O. %hiche,er i& OT#ER INCO0E
interest on REAL #i4her SU!ECT to :;K
loans which PROPERTY
have been  *#IC# IS
mae on or NOT USED
after ugust IN TRADE
1, 1A4, the OR
same is !USINESS
&3ect to =$  S3ect to
9K fi'al ta1 !RANC# NOT !ra'ch
9$ INTEREST PRO.IT APPLICA!LE Profit
INCO0E ON RE0ITTED Re+itta'ce
 29
!YA Ta1 of 5<K Sitatio' 9/0 receive ivien, cash or property
!RANC# NO*7 the ivien from -0 *hat ivien
O..ICE (thi& 3a&i& of receive from -0 is sub(ect to 12K /+98
o'ly a22lie& to the ta1 i& NOT <+*.8-+9' *=
R.C) the APPLICA!LE
a+o't *his 12K may be impose on this ivien receive
a22lied for from -0 if the foreign govt of the 9/0 allows a tax
or creit at least 1K 31A), 1AK 31), 15K 3"NNN) +t
ear+ared shoul be creite from the taxes eeme pai by
for this 9/0 in the Phils
re+itta'ce
So, if the foreign govt oes not allow a tax creit of at
CASE least 1K, the tax there is not 12K but $&K *hus, the
Marubeni 0orp is a foreign corp it has a branch here tax spare or save is 1K because normally the tax is
+t mae a irect investment in a -omestic 0orp, so it receive $&K So, $&K less 12K e#uals 1K, that is the tax
cash iviens -o we have to inclue that in that profit to be save an that represents the tax creit allowe by
remitte an sub(ect to 12K the foreign govt

#ELD -e&tio': Must the foreign govt actually grant a tax creit or
9. *his is not effectively connecte with the is it enough that the
conuct of trae or business of their branch office *hat shoul foreign govt allow such tax creit
be exclue from the profits that shoul be remitte to that
Marubeni 0orp *he conition is, it must be an income or A'&%er *here is no statutory provision that re#uires actual
profit effectively connecte with the conuct of trae or grant 9either is there a
business of such corp through its branch office evenue egulation re#uiring actual grant +t is clear
that the provision of the law says CallowsD So, it is
>$  *hese iviens enough to prove that the foreign corp allows a tax
DI/IDENDS EXE0PT EXE0PT receive from -0 creit +t is not incumbent upon the foreign corp to
RECEI/ED by 9/0 is prove the amount actually grante
.RO0 DC &3ect to 5<K
.i'al Ta1 I. the -e&tio': -oes a withholing agent or a subsiiary corp have
foreign govt of the personality to file a
that foreign corp written claim or refun
allows a ta1
credit at lea&t A'&%er *he withholing agent has the personality to file a
5@K of the taxes written claim for refun 
eeme pai in withholing agent is technically a taxpayer because it
the Philippines by is re#uire to euct an withhol the tax, an it has
9/0 the obligation to remit the same to the govt So,
 So, the withholing agent is liable for tax +t has therefore the
implication is that personality to file a written claim for refun
if that foreign
govt oes 'ot <ithholing agent is not only an agent of the
allo% a ta1 credit taxpayer but also an agent of the
of at lea&t 5@K7 govt Since it is an agent of the taxpayer, it is ipso facto
that is &3ect to authorize to file a written claim for refun
:;K a'd 'ot 5<K$
CAPITAL TRANSACTIONS EXPLAINED
Note: *hese incomes must be erive from the Phils So,
this is an interest income on ban% eposit maintaine 0apital *ransaction +nvolves 0apital sset
.>*S+-; the Phils, that is not sub(ect to final tax but shoul
be inclue in the gross income of the -0 0P+*8 SS;* means property hel by the taxpayer
whether or not connecte with his trae or business ;=0;P*:
GS.>H

1 Stoc% in trae or property of the taxpayer which

may be properly inclue in the inventory at the en of the
taxable year Ginventoriable property may inclue finishe
INTRACORPORATE DI/IDENDS EXPLAINED goos, raw materials or wor% in processH

TAX SPARING CREDIT (Sec$ 9?$! (<) 3) QQQ 5@K " Property primarily hel for sale to customers in the
Pr2o&e *o attract investors in the Phils .rinary course of trae or business

$ Property >se in trae or business sub(ect to
epreciation, which means that this must be epreciable
property
& eal property use in trae or business
*hese & properties enumerate are calle
ORDINARY ASSETS$
ASSETS *#IC# ARE CONSIDERED AS CAPITAL ARE
1 Properties not inclue in those above enumerate
" Properties use in trae or business classifie as capital
assets:
a accounts receivable
b property for investment in stoc%
c subivision of lots to tenants at the instance of
the government *he sale of these subivie lots
at the instance of the govt to the tenants is
consiere as 0apital *ransaction
 +nterest of a partner in a partnership *he partner
may transfer that interest to another an he may
erive gain therefrom, that is consiere as
0apital *ransaction
9B +t is therefore safe to say that all properties not use
in trae or business are consiere as 0apital ssets
Ca2ital A&&et ca' 3e Co',erted i'to a' Ordi'ary A&&et$
E1a+2le  property was inherite by the heirs from
their ecease parents *hat property is consiere as 0apital
sset
+n the event that this property 3a parcel of lan) is
improve by the heirs substantially an sell the same at a
profit, sai capital property is now converte into an .rinary
sset *he profit erive from the sale of the lan which has
been substantially improve by the heirs is consiere as
orinary gain
Ordi'ary A&&et ca' 3e co',erted i'to a Ca2ital A&&et$
E1a+2le +f the taxpayer is engage in real estate
business, if he ies, these properties will be transmitte to his
heirs n if the heirs will iscontinue the business of that
ecease parent, that properties which are orinarily hel for
sale to customers maybe converte into a 0apital sset
.ACTORS that &hold 3e co'&idered i' DETER0INING
%hether it i& CAPITAL or NOT
5$ It +ay 3e the ,ocatio' of the ta12ayer$
 +n one case, if the taxpayer is engage in
hotel management an he inherite (ewelry
from his parents an he?ll sell the same, the
0ourt sai that it is a 0apital *ransaction
 +t woul be ifferent if the one selling a
parcel of lan is a real estate ealer an he
evelope the same before this property
may be sol to another, this time such
taxpayer is engage in a business, in which
case that sale of parcel of lan is consiere
as .rinary *ransaction
30
9$ So+eti+e& the 2eriod or the e1te't of acti,itie& +ay 2lay
a' i+2orta't role$
Ca&e
+f a taxpayer is engage in a lumber business an he
has been unsuccessful for a perio of 11 years an he trie
again on the 1" th year *he sale that may be mae on the 1" th
year may not be consiere orinary transaction
But those sales which, woul have been mae uring
th
that 11 year when such taxpayer is engage in trae or
business may be consiere .rinary sset
+f the taxpayer stop his business an then unerta%e
another business, that may be consiere 0apital *ransaction
SPECIAL CAPITAL TRANSACTIONS  these transactions
are eeme capital transactions
SPECIAL CAPITAL TRANSACTIONS INCLUDE
5$ .ailre to e1erci&e o2tio' or 2ri,ile4e to 3y or &ell
2ro2erty$
E1a+2le B offers his lan to  B gives  2 ays
within which to ma%e up his min to buy this parcel
of lan for P2NN,NNNNN 9ow,  pays B P2,NNN for
giving him time to thin% whether he will buy that
uring the 2 ay6perio +f  fails to buy the same, he
incurre a loss an we call this 0apital 8oss So, the
loss of  is consiere a gain on the part of B because
the latter receive that P2,NNN
So, failure to exercise option to buy may result in a
capital loss on the part of the offeree or buyer s regars the
seller, the gain is consiere 0apital 'ain
9$ Di&tri3tio' of a&&et& or &hare& of &toc to &tocholder
2o' liidatio' of a cor2oratio'$
E1a+2le fter li#uiation, the stoc%holers are
entitle to the return of their capital if there is still something
left +f  mae an investment an the value of his shares of
stoc% is P1NN,NNN, after li#uiation of the corporate affairs, the
corp gives  P12N,NNN *he gain of  which is P2N,NNN is
consiere 0apital 'ain
:$ Read&t+e't of 2art'er& i'tere&t i' a 2art'er&hi2$
E1a+2le  partnership is earning a profit, let us say,
P1NN,NNN *hen it increases to P1M So, the
partnership may rea(ust the partner?s interest in the
partnership .r it may also arise if for example, 
mae an aitional contribution So, ?s interest will
change
9ow, in ma%ing rea(ustment of interest, the partner
may erive gain therefrom, an that is a 0apital 'ain
;$ Retire+e't of 3o'd&$
E1a+2le *he ebtor issues bons an after one 31)
year, he pays the same *he value of the bons is P1NN,NNN
>pon reemption, the ebtor pays P1"N,NNN to the creitor So
the P"N,NNN is a gain to the creitor an we consier that as a

0apital 'ain But if there is a loss, that is consiere as 0apital
8oss
<$ *a&h Sale *his has been escribe as C41 ays saleD
*he seller here is not a ealer in securities
+t is escribe as 41 ays sale because here, $N ays
before the sale, the seller ac#uire substantially ientical
securities . $N ays before the sale, he ac#uire ientical or
substantially the same stoc%s or securities CSaleD may also
inclue exchange or option to sell securities
E1a+2le: *oay is Lune 1N, 9ow, here is  who is not
a ealer in securities or stoc%s e sells securities
0an that be classifie as wash sale
Iou must fin out whether $N ays before Lune 1N, he
purchase ientical securities .r he ma not have purchase
ientical securities within that $N ay perio before the sale
but it is possible that within $N ays after Lune 1N, he may have
purchase ientical securities
*he tax treatment here is, the gain is taxable, meaning that is
classifie as 0apital 'ain because the seller is not engage in
such business +f there is a loss, since it is classifie as 0apital
*ransaction, that is consiere 0apital 8oss
*he capital gain is taxable but the capital loss incurre from
wash sale transaction is not euctible
=$ Short Sale  a transaction wherein a person sells securities
which he oes not own yet *he seller here is a mere
speculator! he is selling securities which he is yet to ac#uire,
provie however, that he has ownership of the securities at
the time of elivery E he has the right to transfer ownership
3See further iscussion on p 55)
RULES T#AT GO/ERN CAPITAL TRANSACTIONS
5$ #oldi'4 Period Rle
>ner this rule, if the property has been hel by the
taxpayer for a perio of not more than 1" months, the gain or
loss is 1NNK recognize +f it is more than 1" months, the gain
or loss is 2NK recognize
So, the gain or loss may be 1NNK or 2NK taxable
euctible as the case may be
E1a+2le Iou sell your personal car *his is a capital
transaction because the asset involve is a capital asset 8et us
say that you sell the car at P"NN,NNN an the cost of the car is
P12N,NNN ere, there is a gain of P2N,NNN
Iou must fin out the ate of the ac#uisition an the
ate of sale or isposition +f the ate of ac#uisition an the
ate of sale fall within the 1" month perio, this P2N,NNN is
P1NN,NNN taxable But if exceeing 1" months, this P2N,NNN is
only tacable up to P"2,NNN *his is an example of tax avoiance
N$!$ *his rule is applicable only to iniviual taxpayers
*his is so because the capital gain erive from capital
transaction of corporate taxpayers is always 1NNK recognize
31
respective of the number of months uring which the property
was in the possession of the corp taxpayer
9$ Ca2ital Lo&& Li+itatio' Rle
& meaning, capital losses are euctible only
to the extent of capital gain
& so, it follows that there is no capital gain,
there is no euctible losses
& 0apital loss cannot be eucte from capital
gain
& .rinary loss is euctible from orinary
gain
N$!$ *his rule a22lie& to i'di,idal a'd cor2orate
ta12ayer& ;=0;P* on ban%s an trust companies because they
are consiere as ealer in securities as far as issuance of bon
an evience of inebteness are concerne
Net Ca2ital Lo&& Carry"o,er Rle
"meaning, the capital loss that may be carrie over in the
succeeing taxable year must not excee the net income uring
the year that it was incurre
E1a+2le +n 14, the capital gain is P1NN,NNN an
capital loss is P"NN,NNN S., there is a capital loss of P1NN,NNN
which may be carrie over in 15 by the taxpayer *his net
capital loss in 14 may be claime as euctions from the
capital gain in 15
But if in 14 the net income is P12N,NNN an the net
capital loss is P1NN,NNN, so the net capital loss oes not excee
the net income *hus, the entire amount of P1NN,NNN net capital
loss can be carrie over in 15
0an that P1NN,NNN net capital loss be carrie over in 1A
9., because the law says uring the Csucceeing taxable
yearD *ax exemption must be strictly construe against the
taxpayer an liberally in favor of the govt
N$!$ Thi& rle a22lie& to i'di,idal ta12ayer&$
+n this regar, there is such a thing as no operating
loss carry over .P;*+9' 8.SS are losses incurre in the
course of trae or business of the taxpayer 9et operating loss
may be carrie over by the taxpayer, whether corporate or
iniviual, to the next three 3$) consecutive years provie
that uring that year, such taxpayer is not exempt from
taxation an there must be no substantial change in ownership
of the corporation, in the case of the corporation Substantial
change may arise if less than 52K of the outstaning capital
stoc% or pai up capital stoc% is hel by the same person
Ca&e *he B.+ registere inustries are allowe to carry
over operating losses *his time, those losses that were
incurre uring that perio of 14 years operation may be
carrie over to succeeing taxable year
The rle that %e ha,e e&ta3li&hed i& : e12e'&e& +&t
3e 2aid or i'crred dri'4 the ta1a3le year  Iou can claim
those expenses as euction uring the year when the same
were incurre or pai *he e1ce2tio' to this rule are net
operating loss carry6over an net capital loss carry6over
 "eaning of Terms0
CAPITAL GAIN  gain from sale or exchange of capital asset

CAPITAL LOSS  loss incurre from sale or exchange of
capital asset
NET CAPITAL GAIN  excess of capital gain over capital loss
NET CAPITAL LOSS  excess of capital loss over capital gain
Gai'& deri,ed fro+ deali'4& i' 2ro2erty for+ 2art of Gro&&
I'co+e
(Sec$ :9 A$ 'o$ :)
& *his may inclue sale or exchange of goos
or properties
& +f the property is sol for cash, that is
consiere as &ale$
& +f it property for another property, this may
be classifie as e1cha'4e$
There +ay 3e a 4ai' i' re4ard to e1cha'4e of 2ro2erty if the
follo%i'4 co'cr
1 *he property receive must have a fair mar%et value!
" *he property ispose of must be substantially ifferent
from the property receive
& So, a li%e %in transactions are not taxable
transactions
& +f a lan has been substantially improve
an then it is exchange with another lan,
that may not be taxable owever, there is
that B+ ruling that this is no longer
applicable even if these are li%e %in
transactions, it may be taxable But Prof
'eronimo of teneo isagree e sai, you
cannot change that by B+ ruling So, we can
compromise that this will not apply to
capital transactions but to orinary
transactions
+n etermining the gain or loss in the sale or exchange
of property, this is the basic formula:
Cmount receive or realize LESS 0ost or a(uste basisD
#o% to deter+i'e the co&t or ad&ted 3a&i&
 It de2e'd& 2o' the +a''er of aci&itio'$
5$ If it %a& acired thro4h 2rcha&e7 it i& the co&t of the
2ro2erty$
E1a+2le
+ sell a property in the amount of P1NN,NNN +t is previously
purchase the same at P4N,NNN, this P4N,NNN is the cost of
property
9$ If the 2ro2erty &old %a& 2re,io&ly acired thro4h
i'herita'ce7 it i& the fair +aret ,ale (.0/) of the 2ro2erty
at the ti+e of the aci&itio'$
FAt the ti+e of aci&itio' means at the time of the eath of
the eceent or testator
:$ If the 2ro2erty &old %a& acired thro4h do'atio'7 the
3a&i& &hall 3e the &a+e a& if it %old 3e i' the ha'd& of the
do'or$
32
Sitatio'
, the onor onate property to B, the onee Subse#uently,
such onate property was sol by the onee for P"NN,NNN
<hat must be the cost
A'&%er
*he law says, the same basis in the hans of the onor So, the
onee shoul as% the onor the basis
+t is also that , the onor ac#uire the property from another
either through purchase or onation So, you shoul as% , the
last onor, his basis
E1ce2tio' to the 4e'eral rle
+f the basis is greater than the /M@ of the property at the time
of the onationFgift then, for the purpose of etermining loss,
the basis shall be such /M@
;$ If the 2ro2erty &old %a& acired for le&& tha' a' adeate
co'&ideratio' i' +o'ey or +o'ey& %orth7 the 3a&i& of &ch
2ro2erty i& the a+o't 2aid 3y the tra'&feree for the
2ro2erty$
Sitatio'
*he seller ac#uire the property from  in the amount of
P5N,NNN *he /M@ of sai property is P1NN,NNN So, the seller
here is the transferee an  is the transferor *he seller sol the
property at P"NN,NNN <hat must be the cost
A'&%er
+t is the amount pai by the transferee n the amount pai
by the transferee who subse#uently sol the property is
P5N,NNN So, he will have a gain of P1$N,NNN
OOO emember, it is not the /M@ of the property but the
amount pai bv the transferee
S22o&e the 2ro2erty %a& acired i' a tra'&actio' %here
4ai' or lo&& i& 'ot reco4'ied (NO GAIN7 NO LOSS
RECOGNIED)
Before we answer that, we shoul %now these transactions
where the gain is not recognize 3meaning it is not taxable)
an the loss is not recognize 3meaning, it is not euctible)
*he basic rule is, in the sale or exchange of property if there is
a gain, the gain taxable! +f there is loss, the loss is euctible)
E1ce2tio' to the 3a&ic rle ('o 4ai' or lo&& &hall 3e
reco4'ied)
5$ Tra'&actio'& +ade 2r&a't to 2la' of +er4er or
co'&ideratio'$ Sometimes, we call this CTa1 E1e+2t
Tra'&actio'& or FTra'&actio'& Solely i' Hi'd$
a  corporation, party to merger or consoliation
exchanges its properties solely for stoc% in corp,
which is a party to the merger or consoliation
Ill&tratio'
Pro2erty
Cor2$ A Cor2$ !
2ro2erty for Stoc
 33
  Pro2erty
Stoc P<7
  Ca&h
b  stoc%holer of a corp party to a merger or P<7
consoliation exchanges his stoc% solely for stoc% in Cor2$ A Cor2$ !
another corp party to that merger or consoliation P57

Ill&tratio' Stoc .0/  Stoc

Secrity or Stoc P57

8et us say that /M@ of stoc% given by 0orp B is P1NN,NNN *he

Stocholder """""""""""""""""""""""" Cor2$ 5$ value of the property transferre by 0orp  is P2N,NNN while
Stoc for Stoc cash is also P2N,NNN
9$ Secritie&
for &toc So if you a all of these, the amount receive or realize is
:$ Secritie& P"NN,NNN
for Secritie&
9ow, you euct the cost of the stoc% ispose of 8et us say
Secrity or Stoc that the cost of stoc% is PAN,NNN So, 0orp B erive gain of
P1"N,NNN + & thi& ta1a3le
 Sometimes, we call the above6mentione transactions as
FTra'&actio'& &olely i' i'd or FTa1 E1e+2t Tra'&actio'&$ A'&%er

" +f a person alone or together with others or not exceeing
four 3&) 3so, the total number shoul be five 32) exchanges his
property for stoc% in a corp an this person or persons, after
this exchange, ac#uire controlling interest over that corp *his
means that they ac#uire at least 12K of the shares of stoc% of
such corp
6 *his is also a transaction solely in %in
-e&tio' Suppose these persons, at the time of
transaction, alreay ac#uire controlling interest over such
corp, is the transaction or exchange taxable
A'&%er ;ven if these persons ac#uire controlling
interest at the time of the transaction, the rule is still applicable
in which case that is still tax exempt
-e&tio' So, if these properties ac#uire uner this
tax exempt transactions are subse#uently ispose of, how
will you etermine the basis
A'&%er *he basis of the stoc% or properties ac#uire uner
this no gain, no loss recognize shall be the same basis in the
hans if the transferor
S22o&e the 2ro2erty %a& acired 'der tra'&actio'& %here
4ai' i& reco4'ied a'd lo&& i& 'ot reco4'ied (GAIN
RECOGNIED7 LOSS NOT RECOGNIED)
Tra'&actio' &olely i' i'd  this means that there are other
consieration given other than those mentione uner
transactions solely in %in 3nos 1 an " above, but cash is
ae)
E1a+2le 0orp  party merger or consoliation
transfers its cash an property to 0orp B, also a party to such
merger or consoliation
0orp B, in exchange, transfers its stoc%s to 0orp 
I;S, but only P1NN,NNN is the amount that is taxable *his is so
because of the limitation that it must not excee the total cash
an the /M@ of the property n if you a the /M@ of the
property an the total cash given, the total is P1NN,NNN
>ner the law, there is that limitation in transactions which
involves not only the property but also cash *he gain is
recognize or taxable but the taxable gain must not excee the
cash given an the /M@ of the property which forms part of
the consieration
.n the other han, suppose the cost of stoc% ispose of or
transferre to 0orp  is P"2N,NNN So, there is a loss of P2N,NNN,
is this recognize or euctible 9.
If thi& 2ro2erty recei,ed 'der thi& tra'&actio'& %hich i& 'ot
&olely i' i'd i& &3&ee'tly di&2o&ed of7 ho% do yo
deter+i'e the 3a&i& of that
A'&%er *he basis of the property in the hans of the
transferor less the /M@ of the property, less cash receive plus
the gain recognize, if any, plus the ivien that may be
treate as such, if there is any
!a&i& i' the ha'd& of the tra'&feror
Le&& /M@ of the property
0ash receive
Pl& 'ain recognize, if any
-ivien recognize, if any
Tra'&actio'& %ere 4ai' i& reco4'ied a'd lo&& i& 'ot
reco4'ied (+ea'i'47 if there i& a 4ai'7 the 4ai' i& ta1a3le
a'd if the lo&& i& 'ot dedcti3le) are 6*$I$R$N$8
1 <ash Sale
" +llegal transactions
$ *hose transactions involving elate taxpayers
& *ransactions 9ot solely in %in

Ill&tratio' S#ORT SALE

Pro2erty a'd Ca&h & this is also consiere as 0apital
*ransaction

& Short sale is really a' o3li4atio' 2aya3le 'ot
i' ca&h 3t i' 4ood&$  *he seller of securities
or stoc% will ecline n if it eclines, he
earns profit owever, if the price of
securities increases, he incurs loss
& E1a+2le + borrow your securities on
 Lune 1N an +?ll pay it on Lune 12 *he price
of securities on Lune 1N is P2N an you
speculate that sai price will ecline on Lune
12 .n Lune 12, the price has been lowere to
P&N So, you earn a profit of P1N because +
will pay my obligation at P2N on Lune 12 an
not P&N
& Ta1 co'&ee'ce of &hort &ale
OO +f there is a gain, the gain is taxable <e call
this 0apital 'ain
OO +f there is a loss, the loss is euctible
 *AS# SALE ,&$ S#ORT SALE
 B.* may be classifie as Ca2ital Tra'&actio'&$
 *he basic istinction is in wash sale, the loss that may be
incurre is not euctible, whereas in short sale, the loss is
euctible
TRANS.ER TAXES
;S**; 7 *>S*S
;S**; E refers to the mass of properties left by eceent or
testator to his heirs or
beneficiaries
*>S* E is the right to the property, real or personal, exercise
by one person for the benefit of another parties
Parties to a *rust:
a$ Tr&tor or 4ra'tor  6 one who create the trust
3$ Tr&tee or fidciary E one who may hol the
property for the benefit of other person %nown as
3e'eficiary$ Sometimes, the fiuciary is also the
nbeneficiary $
c$ Beneficiary
 ;state may be the sub(ect to tax, if it is uner
your aministration +t may only be uner
aministration or settlement if the properties
of the eceent are settle uner (uicial
settlement
 +f the estate is uner extra6(uicial
settlement, it is not sub(ect to tax because
that will not earn income consiering that
the heirs agree to settle the estate extra6
 (uicially
 <hen we spea% of (uicial settlement, this
may inclue estate or intestate proceeings
 Tr&t +ay 3e &3ect to ta1 if the tr&t i&
irre,oca3le
No'"ta1a3le tr&t are
34
5$ Re,oca3le Tr&t$ *he income here will be taxe in so far as
the recipient of the same is concerne
9$ E+2loyee& Tr&t$ +f an employer establishes a pension trust
for the benefit of the employees, that pension trust is not
taxable
The tr&t i& re,oca3le if the 2o%er to re,e&t the title to the
2ro2erty of the tr&t i& ,e&ted
1 in the grantor or in con(unction with other person who oes
not have the substantial averse interest in the isposition of
the property
" in any person who oes not have substantial averse interest
in the isposition of the property
 +n irrevocable trust, you cannot transfer or
revest the title of the property
 C9o substantial interest in the isposition of
the propertyD E he must not be the
beneficiary
 +f the properties of the estate is not investe
in a business, so ten heirs are (ust co6owners
of the property, that is not taxable because
co6ownership as a rule is not taxable
 +f the heirs ecie to continue the business,
such that the aministrator may manage the
same, that will become an unregistere
taxable partnership
 ;state an trust may be taxe on the same
manner an on the same basis as in the case
of iniviual taxpayers So, they may claim
the euctions uner Section $& as long as
these euctions were pai or incurre in
connection with the business of that estate or
trust
 ;state an trust are entitle to personal
exemptions P"N,NNN
SPECIAL DEDUCTIONS (thi& ca' 3e a,ailed of o'ly 3y
e&tate a'd tr&t)
1 +n the case of intestate, the executor, or aministrator may
euct the income istribute to the heirs uring the
particular year when such estate is still uner settlement
" +n the case of a trust, the income may be istribute to the
beneficiaries uring that year may also be eucte *he
trustee or fiuciary may istribute the income or accumulate
the income *he trustee has the iscretion whether to istribute
the income to the beneficiaries uring the taxable year or to
accumulate the same an istribute such income after the lapse
of certain perio of time or year +n the event that income of
the trust is istribute to the beneficiary, this particular
amount may also be claime as euctions
-e&tio'& +f there are two 3") trust create by one
trustor or grantor, how o we tax the income of that trust
A'&%er >ner the law, the taxable income of these two 3")
trust must be consoliate *hat trust shoul be taxe as if
they constitute one trust
 35
2 purchase from exclusive fun
Sitatio'
'rantor = create " trust .ne is  trust create an ;=;MP*+.9S /.M ;S**; *=
the other is B trust *here is only one beneficiary name I 6 special laws
8et us assume that the taxable income of trust  is 1 Benefits receive G'S+S, SSSH
P1N,NNN *he taxable income of B trust is P"N,NNN *he total " procees of 'S+S life insurance
taxable income is P$N,NNN <e will tax these " trust separately $ Benefits receive E > S @eterans
but through consoliation & ;P*+.9S E << ++ @eterans
+n paying the tax after applying the applicable tax rate 2 ;*+;M;9* B;9;/+*S
to the taxable income of P$N,NNN, the tax ue shoul be 6 if inclue in gross estate
apportione to trust  an B 4 procees of group insurance
So, for purposes of income tax, the taxable income of
these " trust shoul be consoliate, but for purposes of -;0;-;9*?S +9*;;S*
paying the tax, the tax ue shoul be apportione  assets that are still owne by eceent at the
time of eath to the extent of his e#uity or
TRANS.ER TAXES interest in any property whether as exclusive
owner, con(ugal owner, or common owner
*axes may be impose on onerous transmission of
properties or on the gratuitous transmission of properties 0.MP.S+*+.9 ./ '.SS ;S**;
G-+, *6'P, *, *6+0, P68+, *60-H
Tra'&fer ta1e& that are i+2o&ed o' the o'ero& tra'&+i&&io' 1 -;0;-;9*?S +9*;;S*
of 2ro2ertie& " *9S/; by @+*>; ./ ';9;8 P.<; ./
1 @* 3value6ae tax) PP.+9*M;9*
" Percentage *ax 3exclue this 1A Bar) $ ;@.0B8; *9S/;
$ ;xcise *ax 3also exclue) & *9S/; for +9S>//+0+;9* 0.9S+-;*+.9
2 P.0;;-S from 8+/; +9S>90;
0.9*;9*S ./ *; B0Q P';S 4 *9S/; in 0.9*;MP8*+.9 of -;*

-+@+S+.9 ./ '.SS ;S**;: />9;8 ;=P;9S;S +908>-;:

1 +9-+@+->8 <. -+;- S+9'8; 1 expenses for interment
6 ' ; inclues all that he owns at the time of eath " mourning clothing Gwiow, chilrenH
" M+;- -;0;-;9* $ expenses for wa%e before burial
6 his estate inclues his exclusive properties an his shares in & charges for rites an ceremonies incient to interment
the con(ugal properties B>* 9.* the exclusive properties of 2 cost of burial plot
the surviving spouse 4 tombstone or monument
5 obituary or eath notices
P.P;*I .<9;S+P bet SP.>S;S
6 900 E before ug $, 1AA  L>-+0+8 ;=P;9S;S
J 0P' 1 accountants fee
6 ;=08>S+@; P.P;*I uner 900 " appraisers fee
1 brought into the marriage as hisFher own $ aministrator?s fee
" ac#uire uring the marriage by 8>0*+@; *+*8; & attorney?s fee
$ ac#uire by +'* of ;-;MP*+.9 or ;=09'; with 2 oc%et fee
other exclusive properties 4 stenographers? fee
& purchase with exclusive money 5 other expenses of court hearings
6 0P' uner 900
1 ac#uire by .9;.>S *+*8; 08+MS '+9S* *; ;S**;
6 common fun 6 obligations of the eceent contracte in goo faith while still
" ac#uire by +9->S*IF<.Q, S8I or either alive but remains unpai at the time of eath
$ />+*SU ;9*S or +9*;;S*S Gcon(ugalFexclusiveH
& all properties not etermine to be exclusive shall be >9P+- M.*'';S . +9-;B*;-9;SS >8;S:
presume to be con(ugal 3claime as euctions)
1 the sai mortgageFinebteness must have been
/M+8I 0.-; 6 after ug $, 1AA contracte uring the eceent?s lifetime in goo faith for an
6 0P ae#uate an full consieration in money or moneys worth
6 ;=08>S+@; P.P;*I uner the /0 " the value of the eceents interest in the property
1 gift, onation, contribution exclusively given to one of the mortgage is inclue in the value of the gross estate
spouses only & must be uniminishe by sai
6 gift an fruitsFincome consiere exclusive mortgageFinebteness
" +9;+*90; given exclusively to one spouse
6 gift or fruitsFincome consiere exclusive $ must not inclue:
$ ac#uire of personal an exclusive use  any income tax upon income receive after the
6 except L;<;8I eath of eceent
& exclusively owne before marriage incluing fruits Fincome B property taxes not accrue before his eath
+/ spouse has chilren from the former marriage 0 any estate tax
 36
& +f extra6(uicially settle, " years
8.SS;S E fire, storm, shipwrec% or other casualty, robbery, & +t must file bon E not to excee ouble the
theft, embezzlement value to be pai

>8;S:
1 must not be compensate by insurance S>0';
" must have been incurre uring the settlement of the estate 6 "2K for late filing, for late payment
B>* 9.* 8*; than the last ay for the payment of the 6 2NK for filing of false or frauulent return
estate tax 34 mos)
$ not claime as euction in an income tax return of the  +9*;;S* E "NK per annum
taxable estate
P*+;S *.  -.9*+.9
*=;S which are not -;->0*+B8; 1 -.9. E gratuitously isposes
1 income tax or income receive after eath " -.9;; E receives an accepts
" property taxes not accrue before eath
$ estate tax Q+9-S ./ -.9*+.9
1 P;S.98 P.P;*I E may be orally or in writing
0.MP>**+.9 of @9+S+9' -;->0*+.9 /.M>8: ;=0;P*: excees P2,NNN E onation an acceptance must be in
+9+*+8 BS+S writing
'.SS ;S**; = ; 8 + * an transfers " ;8 P.P;*I E P>B8+0 -.0>M;9*
for public purposes 00;P*90; 6 same ee of onation or separate
instrument! one uring the lifetime of the onor
S; ./ S>@+@+9' SP.>S;
>8;S: >8;: >SB9- 9- <+/;
1 the gross con(ugal estate shall be iminishe by expenses ': ;very onation between usban an <ife uring the
an charges ;=0;P* those chargeable to the exclusive marriage is @.+-
properties ;=0;P*+.9:
" the 9;* amount shall be ivie into two 3") 1 onation mortis causa
$  goes to the surviving spouse an eucte from the estate " moerate gifts 6 family affair
of the eceent OOO gifts coming from the con(ugal property mae by both
spouses are taxable,  to each spouse
88.<B8; -;->0*+.9S
6 9.96;S+-;9* -;0;-;9* G;8+*6*@SH >8; on +9-;R>*; 0.9S+-;*+.9
1 ;8+* 3expenses, losses, inebteness, taxes) O if the property transferre is real property classifie as capital
/.M>8: asset, the transfer is sub(ect to capital gains tax of 4K an not
P+8 '.SS ;S**; to onor?s tax
<.8- '.SS ;S**; x ;8+* O where the consieration is fictitious, the entire value of the
property transfer shall be sub(ect to onor?s tax
" transfer for public purposes O the amount by which the value of the property excee the
$ vanishing euctions amount of consieration shall be eeme a gift for purposes of
& share of the surviving spouse the onor?s tax

9.*+0; ./ -;* @8>*+.9 ./ '.SS '+/*S

6 if value excees Php"N,NNN
6 /+8; notice with B+ within two mos .f eceent?s eath or
within two mos fter election of #ualifie executor or
aministrator
;S**; *= ;*>9
& if gross value of estate excees P"NN,NNN or if
gross estate consists of registere property,
/+8; in uplicate an uner .*
& if value of gross estate excees P",NNN,NNN,
return must be supporte by a certificate of
0P
*+M; /. /+8+9' ;*>9
& within 4 mos /rom eceent?s eath
& ;=*;9S+.9: not excee $N ays
PIM;9* ./ ;S**; *=
& upon filing of the estate tax return an
before elivery to any beneficiary of his
istribution?s share of the estate
& ;=*;9S+.9: not to excee 2 years
6 /M@ at time of onation
1 eal Property
6 B+ zonal value or /M@ fixe by cityFprovincial assessor
whichever is higher
" Shares of Stoc%
 +f liste E average value at the ate of onation
B +f not liste E boo% value at the ate of onation
$ Personal Properties E /M@ at the time of onation
O /M@  pawn value x $
;=;MP*+.9SF88.<B8; -;->0*+.9S
5$ DO*RIES
>8;S:
 ;xempt up to 1st P1N,NNN!
B 8egitimate recognize or legally aopte chilren!
0 Mae before marriage or within one year thereof
9$ GI.TS TO NATIONAL GO/T$ or POL$ SU!$
6 not conucte for profit
:$ GI.TS TO E7 C7 R7 C7 S7 N7 T7 P7 or R or4&$
6 not more than $NK use for aministrative purposes
6 may be a school or non6stoc% entity

DEDUCTIONS ALLO*A!LE
5$ ENCU0!RANCES  or onate property, if assume by the
onee
9$ DI0INUTION of the onate property as specifie by the
-.9.
RULE ('o'"re&ide't do'or)
1 Same allowable euctions as resient onors except that
the same must be connecte with onate property situate in
the Phils
" 9. euctions for CowriesD
RULE if Do'ee i& a Stra'4er
1 *= PIB8; E $NK of net gift
S*9'; E one who is not a brother, sister 3whole or half6
bloo), spouse, ancestor, lineal escenant or relative by
0.9S9'>+9+*I in the 0.88*;8 8+9; within the & th
egree
>8; .9 P.8+*+08 0.9*+B>*+.9S
6 consiere *=B8; '+/*S
6 onee in this case is eeme to receive a financial avantage
gratuitously
-M+9+S**+@; P.@+S+.9S
6 onor?s tax return must be file uner oath an in uplicate
6 file within $N ays from ate of onation
;=*;9S+.9: not exceeing $N ays
6 <;9 P+-
6 time the return is file
;=*;9S+.9: not exceeing 4 mos
P.@+-;- E B.9-6 ouble the amount of *=
*= 0;-+* for onors tax pai to a foreign country
6 onor was a /ilipino citizen or resient alien at the time of
foreign onation
6 onor?s taxes of any character or escription are impose an
pai by the authority of a foreign country
8+M+**+.9S:
1 *he amount of creit in respect to the tax pai to any
country shall 9.* ;=0;;- the same proportions of the tax
against which such creit was ta%en
" *he total amount of creit shall not excee the same portion
of the tax against which such creit is ta%en
Tra'&fer ta1e& i+2o&ed o' 4ratito& tra'&+i&&io' of
2ro2ertie& are
1 ;state tax
" -onor?s *ax
ESTATE TAX E tax impose on the right or privilege to
transmit properties upon eath of a eceent or testator
DONORS TAX  tax impose on the right or privilege to
transmit properties gratuitously in favor of another who
accepts the same *his transmission of properties occurs
uring the lifetime of the onor an the onee
ESTATE TAX
NATURE O. ESTATE TAX   E +t is an excise tax since the
sub(ect of the tax is the right or privilege to transmit properties
an not the property itself
37
PURPOSES O. ESTATE TAX  to avoi the unue
accumulation or concentration of wealth
1 *he primary purpose is to raise revenue in orer to support
the government!
" *o supplement income tax!
$ *o reuce successive ine#ualities in wealth, meaning, to
achieve social e#uality
HINDS O. ESTATE TAXPAYER
5$ Re&ide't e&tate ta12ayer  inclues citizen of the Phils,
resient alien who ie in the Phils, an such alien, at the time
of his eath, is a resient of the Phils!
9$ No'"re&ide't e&tate ta12ayer  is limite to non6resient
alien iniviual
 eal properties, personal tangible properties
an personal intangible properties of
resient eceent 3-) are taxe wherever
situate
 eal an personal tangible properties of non6
resient eceent 39-) are taxable only if
they are locate in the Phils
 eal an personal tangible properties of
9- are taxable only if they ac#uire tax
situs in the Phils
Per&o'al i'ta'4i3le 2ro2ertie& that are dee+ed to ha,e
acired Phil$ &it& are 6.7 SO! (DC7 .C"?<K7 .C"SP)7 SR 
P8
1 /ranchise which is exercise in the Phils
" Shares of stoc%, obligation or bons issue by omestic
corporation or sociedad anonima
$ Shares of stoc%, obligation or bons issue by foreign corp,
A2K of the business of which is conucte in the Phils
& Shares, obligations or bons ac#uire business suits in the
Phils
J Such shares, obligations or bons ac#uire business
situs in the Phils of they are use by foreign corp in
furtherance of its trae or business
2 Shares or rights in any partnership, business or in any
partnership, business or inustry, establishe in the Phils
 +f the personal intangible properties of a 9- oes not
belong to the above6mentione enumeration, they may not
form part of his gross income or we may also apply the
octrine of mo%ilia se<untur personam!
  "obilia seuntum personam, accoring to the Supreme
0ourt, is a mere fiction of law So, it must yiel to the provision
of law which provies tax situs
-e&tio'
Suppose the personal intangible properties of 9-
ac#uire tax situs in the Phils, can this be exempt from real
estate tax
A'&%er
I;S, by applying the rule on reciprocity

RULE ON RECIPROCITY  the foreign country of that 9-
oes not impose or allows exemption on tax on the properties
of the citizens of the Phils who ie in that foreign country
*he phrase Coes not imposeD an Callows exemptionD are
ifferent from each other
<hen we say Coes not imposeD, this means totally
exempt Cllows exemptionD means this may not cover all
properties but only certain properties
Ca&e
0ountry of Morocco has no international personality
+f it grants exemptions to the intangible personal properties if
/ilipino citizens who ie in that country, will you apply also
that rule on reciprocity
#eld I;S +t oes not matter whether the country has
international personality or not <hat is important is it allows
or grants exemption from estate tax
FSec$ ?<7 9ross %state  *he value 3/M@) of the gross estate of
the eceent shall be etermine by incluing the value, at the
time of his eath, of all property, real or personal, tangible or
intangible, wherever situate: Provie, however, *hat in the
case of a non6resient eceent who at the time of his eath
was not a citizen of the Philippines, only that part of the entire
gross estate which is situate in the Philippines shall be
inclue in his taxable estateD
The co+2o&itio' of the 4ro&& e&tate +ay i'clde
5$ Decede't& I'tere&t$  3inclues yiels, fruits an interest)
& *he gross estate may inclue the fruits an
income of the properties an that may
constitute the eceent?s interest
& +n the case of parcel of lan, it may prouce
income in the form of harvest which harvest
may form part of the gross estate
& +n the case of apartment, the rental of such
apartment shoul also be inclue, not only
the value of the property
& -iviens
& Partnership profits
& ights of usufruct
9$ Tra'&fer 3y ,irte of 4e'eral 2o%er of a22oi't+e't
& +t implies that if the transfer is mae uner
special power of appointment that shoul be
exclue from gross estate
& +n general power of appointment, the power
is exercisable or in favor of the estate,
executor, aministrator or a creitor of the
estate +f the power is exercisable other than
these 3estate, aministrator, aministrator or
creitor of the estate), that may be
consiere as special power of appointment
:$ Re,oca3le Tra'&fer  ny transfer mae by the eceent
uring his lifetime where the eceent has reserve the right
to 8*;, M;9-, *;M+9*;, or ;@.Q; such transfer!
it is sufficient that the eceent ha the power to ;@.Q;,
though he i not exercise such power
& +rrevocable transfers shoul be exclue
from gross estate
38
& evocable transfers are transfers which are
sub(ect to alteration, termination,
amenment or moification by the eceent
;$ Tra'&fer& for I'&fficie't Co'&ideratio'
& *he amount that may form part of the gross
estate is the ifference between the /M@ of
the property an the consieration given
E1a+2le +f the property has a /M@ of
P1NN,NNN an the consieration given is only
P2N,NNN, the ifference of P2N,NNN represents
insufficient consieration
<$ Proceed& of Life I'&ra'ce Policy
& Proceed& of life i'&ra'ce 2olicy +ay 3e
i'clded if
a$ the beneficiary esignate is the estate
executor, aministrator or heirs of the
eceent E whether revocable or not
revocable
3$ the beneficiary esignate is a $ r  person
who is revocably esignate as beneficiary
& Proceed& of life i'&ra'ce 2olicy i&
e1clded fro+ the 4ro&& e&tate i' the
follo%i'4 ca&e&
a $r person is irrevocably esignate as
beneficiary
b procees of group insurance policy E ta%en
out by the co for its employees
c procees of accient insurance policy except
accient insurance policy as characteristic
 procees of 'S+S 8ife +nsurance Policy 3govt
employees)
e procees of life insurance payable to the
heirs of ecease > S an Phil rmy
Note s regars the estate executor,
aministrator or heirs as beneficiary, it is
immaterial whether the esignation is irrevocable
or revocable
=$ Tra'&fer i' Co'te+2latio' of Death
& +f such transfer was inuce by the thought
of eath principally, ;'-8;SS of
whether the eath is impening forthcoming
or not
& *9S/; may be one before, at the time
of or even after the eceent?s eath
& $6I; P;S>MP*+.9 Gelete by P-
15N2 ug 1, 1A4)
GM>69*, /, *61S*6B, B6S00H
EXCEPTINSEXCLUSIONS fro+ GROSS ESTATE
1) merger of >S>/>0* in the MQ;- *+*8;
") /+-;+0.M+SSI
$) transmission from 1st heir to another beneficiary
6 will of the testator
&) B;R>;S*, -;@+S;;S, 8;'0+;S or *9S/;
6 S.0+8 <;8/;, 0>8*>8 an 0+*B8;
institutions
6 no part of net income inures to any iniviual
6 not more than $NK for amin purposes

DEDUCTIONS .RO0 GROSS ESTATE
DEDUCTIONS .RO0 GROSS ESTATE T#AT 0AY !E
1 0on(ugal euctions G/, L;, /;, M;, 0;, 8, >3MF+),*, S-,
SP, 06+PH
" bsolute euctions
$ ;xclusive euctions G@-, *6P>, >M, ;6;PH 3share of SS)
.*;S: GM6>, /, *61S*6B, '60+H
I$ CONUGAL AND A!SOLUTE DEDUCTIONS i'clde
1 /amily home
" Luicial of funeral expenses
$ 0asualty losses
& +nebtenessFunpai claim against the estate
2 ccrue taxes 3before the eath of the eceent)
4 Stanar -euction
5 Separation pay given to the heirs of the eceent on account
of eath
Di&c&&io'
5$ .a+ily ho+e E 3even unmarrie person may have a family
home) sub(ect to the following conitions:
a there must be only one 31) family home!
b there must be certification issue by the Barangay
0aptain that the eceent is a resient of an own
that family home in that particular locality!
c the amount that is euctible or the /M@ of the
family home shoul not be more than P1M! excess
shall be sub(ect to tax
 the /M@ must be inclue in the gross estate of the
eceent
+f the /M@ of the family home is P2M, this shoul be
inclue in the gross estate of the eceent But when you
claim euctions, you can only claim up to P1M
9$ ;xpenses which may be in the nature of  dicial e12e'&e& or
f'eral e12e'&e&$
► 0edical e12e'&e& are also euctible sub(ect to the
following conitions:
a the amount euctible, is limite only to P2NN,NNN!
b it must be incurre within one 31) year before the
eath of the eceent!
c this must be substantiate by receipts
► +n the case of funeral expenses, the amount euctible is the
actual funeral expenses on the amount which is not more than
2K of the gross estate whichever is lower, but in no case to
excee P"NN,NNN
► *here is no limitation as to amount with regar to (uicial
expenses s long as it is pai or incurre in connection with
the preservation, aministration or settlement of the estate, it
may be claime as euctions Luicial expenses also inclue
extra6(uicial expenses
:$ 8osses that may arise from casualty or ca&alty lo&&e& such
as fire, storm, shipwrec%, robbery, embezzlement, theft an
other casualty losses
► *hese losses must be sustaine not later than six 34) months
after the eath of the eceent
39
► not compensate by insurance
;$ I'de3ted'e&& which parta%e of the nature of the '2aid
clai+& a4ai'&t the e&tate$
► *hese must be supporte by notarize ocuments *hese
obligations must be incurre within three 3$) years prior to
eath of the eceent
► nother inebteness which may be claime as euction
is claim against insolvent persons ere, the claimant is the
eceent +n orer to be euctible, this claim must be
inclue in the gross estate
► euction from the gross estate shall be the collectible
portion
<$ Ta1e& which must accre 3efore the eath of the eceent
=$ Sta'dard dedctio'
► *he amount is P1M So, this may only be applie if
the gross estate of the eceent is more than P1M
>$ Se2aratio' 2ay given to the heirs of the eceent on account
of eath
► *he proceure is to inclue the amount in the gross
estate an then claim this thereafter euctions
II$ EXCLUSI/E DEDUCTIONS
► *hese are euctions against exclusive properties
*hese may inclue: 3@P60;)
1 @anishing euctions E whether inherite or
ac#uire by -onation
" *ransfer for public use
$ .ther charges against the exclusive property
& ;ncumbrance on exclusive property
-iscussion:
5$ /ANIS#ING DEDUCTION 6<7 IP7 I"GE7 PD7 PT7 N"P"/D8
& is an allowable euction against the
exclusive property of the eceent
& may be claime as euction 'der the
follo%i'4 co'ditio'&
a -eath of a eceent which must ta%e place within
/+@; I;S from the eath of the prior incient or
before gift was given
Sitatio'
 ie B is the heir 9ow, you may recall that
properties ac#uire through gratuitous title uring the
marriage is classifie as exclusive property
.ne of the properties of  which forms part of his
gross estate ha alreay been taxe *his property will be
transmitte to B by way of succession +f B ie, ta%e note
that one of his properties was ac#uire through
inheritance from  an that is an exclusive property *his
property ha alreay been taxe because that forms part
of the gross estate of  gain, this same property may be
sub(ect to estate tax because this exclusive property forms
part of the gross estate of B *here seems to be ouble
taxation *hat is why, the purpose of vanishing euction

is to mitigate the harshness of ouble taxation So, B may
be entitle to that vanishing euction which may reuce
his estate tax
*he conition set by law is that B must have ie
within the 26year perio +f B ie 4 years after the eath
of , B can no longer claim such vanishing euctions
b Ide'tity of Pro2erty  locate in the Phils
So, there must be evience to that effect that this is the
same property which forms part of the gross estate of

c I'cl&io' of the ta1 2ro2erty i' the 4ro&& e&tate of
the 2rior decede't$
 Pre,io& ta1atio'
*he estate of  which inclue the property
sub(ect of vanishing euction ha been taxe!
meaning, that estate tax ha been pai by prior estate
e No 2re,io& ,a'i&hi'4 dedctio'&$
-e&tio'
So, if B ie an the property is transmitte to 0, his
heir, that property is also consiere as exclusive property
of 0 because it was ac#uire through inheritance
0an 0 claim vanishing euctions
A'&%er
9., because this ha alreay been claime by B Iou
can only claim vanishing euction once
+t is impossible that B ac#uire the property not
through inheritance but through onation -onor?s tax
ha alreay been pai *his is an exclusive property of B
because uner the law, property ac#uire uring the
marriage by gratuitous title is an exclusive property an
forms part of his gross estate
0an we apply this vanishing euction
I;S ere, B must have ie within the 26year perio
from the ate of onation
Aci&itio' a'd tra'&+i&&io' e1e+2t fro+ e&tate ta1 are
a *he merger of usufruct in the owner of the na%e
title
b *ransmission or elivery of the inheritance or legacy
by the fiuciary heir or legatee of the
fieicommisssary
c *ransmission of the property from the first heir,
legatee or onee in favor of another beneficiary, in
accorance with the esire of the preecessor
 Be#uests, evises, legacies or transfers to social
welfare, cultural an charitable institutions, no part
of the net income of which inures to the benefit of
any iniviual an not more than $NK of sai
be#uests, evises, legacies or transfers be use by
such institutions for aministrative purposes
So, transfers to non6stoc%, non6profit eucational
institution is not exempt from estate tax because this is
not inclue from the enumeration B>* exempt from
onor?s tax
40
9$ Tra'&fer .or P3lic U&e
*he onee must be the government or any political
subivision +t must be use exclusively for public use
*he transfer must be one orally but testamentary
isposition an must be at its present value
:$ Other Char4e& A4ai'&t The E1cl&i,e Pro2erty
So, if the property has been mortgage with a ban%,
we consier that as unpai mortgage
;$ E'c+3ra'ce O' E1cl&i,e Pro2erty
/ALUATION O. T#E GROSS ESTATE valuation as of the
time of eath
1 Real Pro2erty
*he /M@ e#uivalent to the value as etermine by
the B+ or zonal value . that of the value as etermine by
the provincial or city assessor whichever is higher
" Per&o'al Pro2erty
a *angible Personal Property if not being sol! pawn
value x $! *he /M@ is e#uivalent to the selling price
of the property 3Bran new items)
b +ntangible Property E inclues interest, shares of stoc%
& +t must be the /M@ of the interest or shares
of stoc%
& +f the intangible personal property is account
receivable, it shoul be Principal P8>S
interest unpai upon the eath of the
eceent except if worthless)
& +f it is in the nature of usufruct, we must ta%e
into consieration the basic stanar of
mortality rate
& merican tropical experience table
& +/ 8+S*;- E mean or ave value between the
highest an lowest stoc% #uotation
& +/ 9.* 8+S*;- E B..Q value
DONORS TAX
DONORS TAX E is an excise tax because what is being tax
here is the right or privilege to transmit or ispose of property
gratuitously in favor of another
& *ax impose on the privilege of transmitting
property by an living person to another by
way of onation
& Prevents avoiance of estate tax
PURPOSE O. DONORS TAX
1 *he primary purpose is to raise revenue!
" *o supplement income tax an estate tax
DONATION  the act of liberality whereby a person isposes
gratuitously of a *+9' or a +'* in favor of another who
accepts it
DONATIONS SU!ECT TO DONORS TAX
& trust or not
& real or personal
& tangible or intangible
1 +nirect onation E ;xample: 0ancellation of inebteness
" -irect onation

 -onor?s tax applies to both natural an
 (uriical persons
 *he law says, Conor?s tax apply whether
the transfer is in trust or otherwiseD So,
property hel in trust may be the sub(ect of
onation But, this contemplates of a transfer
where the ominion, the right over such
property, use, en(oyment of the same other
rights, must all be transferre to the onee
so that it will constitute as taxable onation
 ea Section 1N&
C#ARACTERISTICS O. /ALID DONATION 6.7 A7 C7 I7 D8
1 +t must be given uring the lifetime of the onor
" +t must be irrevocable
$ +t must comply with the formalities of onation
& cceptance of the onee
RE-UISITES O. /ALID DONATION
1 +t must comply with the for+alitie& of onation
& +f the amount of personal property is P2,NNN
or less, the onation may be mae orally
& +f the amount of personal property is more
than P2,NNN the acceptance shall be in
writing
& -onation of real property must be mae in a
public instrument irrespective of the amount
" Acce2ta'ce by the onee of the onation
& cceptance must be mae uring the
lifetime of the onor
& +f the amount of personal property is P2,NNN
or less, acceptance may be mae orally
& +f the amount of personal property is more
than P2,NNN, the acceptance shall be in
writing
& +n the case of onation of real property,
acceptance must be mae in the same ee
of onation or in a separate public
instrument
$ Ca2acity of the onor an the onee:
a *hose mae between persons who were guilty of
aultery or concubinage at the time of the onation
b *hose mae between persons foun guilty of the
same criminal offense, in consieration thereof!
c *hose mae to a public officer or his wife,
escenants an ascenants by reason of his office
I'ca2acitated do'ee& are 6P7 R"P7 G7 D7 NPL8
a *he priest who hear the confession of the onor
uring his illness, or the minister of the gospel who
extene spiritual ai to him uring the same perio
b *he relatives of such priest or minister of the gospel
within the &th egree, the church, orer, chapter,
community, organization or institution to which such
priest or minister belongs
c  guarian with respect to onation mae by a war
in his favor before the final accounts of the
guarianship have been approve, even if onor
shoul ie after the approval thereof! nevertheless,
any onation mae by war in favor of the guarian
when the latter is his ascenant, brother an sister, or
spouse, shall be vali
41
 ny physician, surgeon, nurse, health officers or
ruggist who too% care of the onor uring his last
illness
e +niviuals, association 7 corporations not permitte
by the law to receive onations
The follo%i'4 are al&o i'ca2a3le of recei,i'4 do'atio'& 3y
rea&o' of '%orthi'e&& :
6P (AC7 ID7 A/)7 C"AL7 A"= yr&$7 # "H/D7 A or C7 ."D7 .8
a Parents who have abanone their chilren or
inuce their aughters to lea a corrupt or immoral
life, or attempte against their virtue
b ny person who has been convicte of an attempt
against the life of the onor, his or her spouse,
escenants or ascenants
c ny person who has accuse the onor of a crime for
which the law prescribes imprisonment for 4 years or
more, if the accusation has been foun grounless
 ny heir full of age who, having %nowlege of the
violent eath of the onor, shoul fail to report it to
an officer of the law within a month unless the
authorities have alreay ta%en action, this prohibition
shall not apply to cases wherein, accoring to law,
there is no obligation to ma%e an accusation
e ny person convicte of aultery or concubinage
with the spouse of the onor
f ny person who by frau, violation, intimiation, or
unue influence shoul cause the onor to ma%e a
onation or to change one alreay mae
g ny person who by the same means prevents another
from ma%ing a onation, or from revo%ing one
alreay mae, or who supplants, conceals, or alters
the latter?s onation
h ny person who falsifies or forges a suppose
onation of the eceent
>ner rt A5 of the /0, husban an wife are prohibite
from ma%ing onation to each other
;$ I'te'tio' to onate the property of the onee 3or
-.9*+@; +9*;9*)
E1ce2tio' *ransfer of insufficient consieration in the case of
a contract of sale
;xample:
+f the /M@ of the property is P1NN,NNN an P2N,NNN
was the consieration given *he ifference of P2N,NNN is
consiere a onation
O *he amount receive by a isinherite heir is sub(ect to
onor?s tax because he has no right to such property an the
same was gratuitously given, so there is no onative intent
<$ Deli,ery of the property
9ote: +f there is no vali onation, the recipient is sub(ect to
income tax because of the provision C from 'hatever source
derived!D
Cla&&ificatio' of do'or &3ect to do'or& ta1
1 Re&ide't do'or (RD) " this inclues citizen of the Phils or a
resient alien
" No'"re&ide't alie' (NRD)  he must be a non6resient alien

RD E eal properties, personal tangible properties, an
personal intangible properties of resient onor are sub(ect to
onor?s tax wherever situate
NRD  E eal properties an personal tangible properties of a
non6resient onor are sub(ect to onor?s tax only if they are
locate in the PhilsV Personal intangible properties of 9-
are sub(ect to onor?s tax only if they ac#uire tax situs in the
PhilsV
Per&o'al I'ta'4i3le 2ro2ertie& that are dee+ed &itated or
acire &it& i' the Phil&$ are GROSS GI.TS 6.7 SO! (DC7
.C"?<K7 .C"SP)7 SR7 P8
5$ .ra'chi&e which is exercise in the Phils
9$ Share& of &toc7 obligation or bons issue by do+e&tic
cor2$ or sociedad anonima.
:$ Share& of &toc7   obligations or bons i&&ed 3y forei4'
cor2oratio'7 ?<K of the 3&i'e&& of %hich i& co'dcted i' the
Phil&$
;$ Share&7 obligations, bons i&&ed 3y a forei4' cor2$ %hich
acire& 3&i'e&& &it& i' the Phil&$
Such shares, obligations or bons ac#uires business
situs in the Phils if they are use by such foreign corp in
furtherance
<$ Share& or rights in any partnership, business or inustry
establishe in the Phils
=$ Real7 I'ta'4i3le a'd I'ta'4i3le Per&o'al 2ro2erty or
0i1ed
;ven if the personal intangible properties of the 9-
ac#uire tax situs in the Phils it may still be exempt from
onor?s tax by applying the rule on reciprocity
Rle o' Reci2rocity  +f the foreign country of that
9- oes not impose, or allows exemption on the onor?s tax
on the properties of citizens of the Phils who ie in that
foreign country
Sec 1N& is applicable to both estate tax an onor?s
tax
TARI.. AND CUSTO0S CODE
0>S*.MS 8< E oes not refer only to the provisions of
*ariff an 0ustoms 0oe +t also inclues other laws an
regulations sub(ect to enforcement by the Bureau of 0ustoms
Other la%& &3ect to e'force+e't 3y the !rea of C&to+&
1 9+0 E Sec 1N5 +mportation of goos or articles sub(ect to
@* *he @* must be pai before these goos are release
from 0ustoms 0ustoy
" 9+0 E Sec 1$1 +mportation of rticles sub(ect to excise
taxes *he payment of excise tax must be mae before the
goos are release from 0ustoms custoy
$ egulations that may be issue by the 0B, the
implementation of such regulation is veste in the Bureau of
0ustoms
42
C&to+& dtie& E are uties which are charge upon
commoities on their being importe in or exporte out of a
country
Tariff  means a boo% of rates! a table or catalogue rawn
usually in alphabetical orer containing the names of several
states that hol commerce together
Office& char4ed %ith e'force+e't or ad+i'i&tratio' of
C&to+& la%&
1 *ariff 0ommission 3*0)
" Bureau of 0ustoms 3B.0)
Po%er& of TC (TRACER)
*he power of the *0 are investigatory in nature: *hey
investigate the following matters:
1 Matters relative to *ariff relations between the Philippines
an the foreign countries So, that inclues commercial
treaties
" elation between the rate on raw materials an finishe
proucts
$ Matters relative to the rrangement of scheules of values
& Matters pertinent to the 0lassification of articles
2 +t shall also investigate the ;ffects of foreign competition
4 +t shall investigate the operation of the *ariff 8aws an
submit eport regaring the same
fter investigation, *0 shall submit its report to the
Bureau 0ommissioners or to Secretary of /inance
P.<;S ./ *; B.0: 3P;S)
1 B.0 has the power to Prevent an suppress smuggling an
other fraus upon B.0
Co'&i&te't %ith thi& 2o%er7 the !OC ha&
a Power to control an supervise the clearance, as well
as the entrance of vessels, aircrafts originating from
foreign countries
b Police power to exercise over arbor, irport, iver
an Port
c *he right of pursuit against vessel sub(ect to seizure
even if it is seize beyon the maritime zone *his is
calle the e1tra"territorial ri&dictio' of the !OC$
Sometimes, we call this right of pursuit *he B.0
may exercise this power when:
c1 the vessel was sub(ect to seizure or
forfeiture
c" there %a& ,iolatio' of the C&to+& la%
co++itted %ithi' the Phil&$
s regars smuggle goos importe not in
accorance with the provisions of the 0ustoms law, it may be
pursue by the B.0 even if it is transporte through air, lan
or water
0onsistent with this power, the B.0 may enter in a
builing, house, structure, enclosure an warehouse 9o
search warrant is re#uire s long as they reasonably
believe that the place store smuggle goos, seizure or search
may be mae But it must be shown that the place must not
constitute a welling place or unit *his is also because if it is a
welling place that is covere by the 0onstitutional provision
where warrant must be secure

Sitatio' Suppose the watchman or security guar
an his family live in that place or builing where smuggle
goos are store can there be seize without search warrant
0an we consier that a welling place
A'&%er 9o, that will ma%e the builing a welling place
;ven if it is outsie of its istrict such that it came from
Tamboanga an was unloae at 0ebu, the collector of 0ebu
may still seize the goos <hat is only re#uire is that it came
from a port of entry within the Phils
43
1 Re4lar or ordi'ary c&to+ dtie&  these are the a
valorem tax an specific tax
/or purposes of etermining the a valorem tax, the
basis must be the home consumption value #o+e
co'&+2tio' ,ale is the price state in the commercial, trae
or sales invoice +f there is a reasonable oubt as to this value,
recourse may be ha to the commercial an revenue attach F
report, the B.0 shoul refer to the available information that
may help the B.0 etermine the applicable a valorem tax

" ;nforcement of the *ariff an 0ustoms 8aw incluing other
laws an regulation affecting the aministration of *ariff laws
 
$ ecommen to the Sec of /inance neee rules an
regulations necessary for the effective enforcement of the
provisions of the *00
Ca&e 906Lapan has a subsiiary in the Phils which is
906Phil *en aing machines were importe from 906
Lapan an they use, for purposes for etermining a valorem,
the home consumption value, the price state in the sales
invoice +nstea, we shoul refer to the commercial revenue
attachW report to etermine the basis of that a valorem tax

& ssessment an collection of lawful revenues from importe
articles lso, assessment an collection of fines, penalties, fees
an other charges accruing uner the provisions of the *00
2 +t has the exclusive an original (urisiction over Seizure
an forfeiture cases Meaning, to the exclusion of regular
courts
Article& &3ect to C&to+& dtie&
rticles means wares, merchanise, goos an
anything which may be mae sub(ect of importation or
exportation rticles inclue Philippine money So, if the
Philippine money is transmitte or ta%en out of the Phils
without authority from the 0entral Ban%, that may be the
sub(ect matter of seizure
Article& &3ect to C&to+& dtie&
1 -utiable articles E are articles sub(ect to 0ustom uties
" Prohibite articles:
a A3&oltely 2rohi3ited article& (S*ING)
1 those prohibite by Special 8aws
" <eapons of <ar
$ +nsiious, obscene or immoral articles
& 9arcotic or prohibite rugs
2 'ambling evices
b -alifiedly 2rohi3ited  meaning sub(ect to
restrictions or limitations +/ these limitations are not
complie with *hey will be prohibite
$ -uty free importe articles E these are articles not sub(ect to
custom uties
*hese are: (0ASARAP)
a 0eals, bages use as trophies or awars
b Animals an plants for experimental purposes
c Sample articles
 A#uatic resources
e Repair materials
f Articles necessary for the ta%e6off an laning of an
airplane or for safe
navigation of vessels
g rticles for Public exposition +nclue here are
historical boo%s an personal
househol effects
C&to+& dtie& +ay 3e cla&&ified a&
" S2ecial c&to+ dtie& (DC0D)
a -umping uties
b 0ountervailing uties
Note The 2r2o&e of d+2i'4 a'd co'ter,aili'4 
dtie& i& to 2rotect or local 2rodct& a4ai'&t 'fair
forei4' co+2etitio'
c Mar%ing uties E the purpose of this is to prevent
possible public eception
 -iscriminatory uties E uties which are impose for
the purpose of protecting our national interest
D+2i'4 dty  uty levie on importe goos where it
appears that a specific %in or class of foreign article being
importe into or sol is li%ely to be sol in the Phils at a price
less than its fair value
 +mpose on specific %in or class of foreign
article which is being importe into, or sol
or is li%ely to be sol for exportation to or in
the Phils at a price less than its fair value,
the importation or sale of which is li%ely to
in(ure an inustry imposing li%e goos in the
Philippines
 *he uty is e#ual to the ifference between
the actual purchase price an the fair value
of the articles in #uestion in the country or
exportation as etermine by the Sec of
/inance
*hese are special uties impose on importe articles
*his may be impose sub(ect to the ff re#uisites:
1 *here must be a eliberate an continuous sale of importe
article in the Philippines as price lower than the prices in the
exporting country
" *his must pre(uice or cause or li%ely to cause in(ury to our
local inustry
Sitatio' *here are articles of foreign origin the
prevailing price of which in the >S is e#uivalent to P1NN *hese
articles are sol or umpe in the Phils at lower than the
prevailing price in the >S because they are saleable in the >S
So, this will pre(uice our local inustries +n orer to
protect our local prouct or to iscourage people from buying
this importe prouct, we shoul be impose special uties in
aition to the regular uties -umping uties shoul be
impose

Co'ter,aili'4 dty  uty e#ual to the ascertaine or
estimate amount of the subsiy or bounty or subvention
grante by the foreign country on the prouction,
manufacture, or exportation into the Phils of any article li%ely
to in(ure an inustry in the Phils or retar or consierably
retar the establishment of such inustry
 +mpose on articles, upon the prouction,
manufacture or export of which any bounty
or subsiy is irectly or inirectly, grante
in the country of origin anFexportation 9o
nee to show proof that the imports cause
in(uries to omestic inustries proucing the
same proucts *he uty is e#ual to the
ascertaine or estimate amount of the
bounty or subsiy given
Sitatio' Sometimes importe proucts en(oys certain
subsiy from their government So, they have an avantage
.ur local proucts for example, oes not en(oy similar
subsiy <e shoul counter that avantage by imposing
countervailing uties *he purpose there is to protect our local
proucts against unfair competition
*his represents the inlan excise tax on locally
manufacture articles of the same %in to off6set this
avantage
s regars umping uties, the extent of the special
uty is the amount that represents uner6pricing
s regars countervailing uties, the extent is the
excise inlan tax or the amount of avantage en(oye by that
importe article
0ari'4 dty  uty on a valorem basis impose for
improperly mar%e articles *he re#uirement that foreign
importation must be mar%e in any official language of the
Phils, the name of the country of origin of the article
 *he purpose is to prevent eception of
consumers
 *he articles must be properly mar%e,
otherwise a special uty of 2K of the value
shall be impose
Retaliatory or Di&cri+i'atory dty  uty impose
on importe goos whenever it is foun as a fact that the
country of origin iscriminates against the commerce of the
Philippines in such manner as to place it at a isavantage
compare with the commerce of any foreign country
 *he amount may be increase in an amount
not exceeing 1NNK ad valorem when the
Presient fins the public interest may be
serve thereby
 *his may be impose by the Presient of the
Philippines when our goos are
iscriminate against
 s regars umping, countervailing an
mar%ing uties, it is the Sec of /inance,
upon recommenation of the *ariff
0ommission, who may impose these uties
44
-e&tio' <hat is the extent of the flexible power of
the Presient of the Phils uner the *00
A'&%er *hat inclues the power to impose
iscriminatory uties *he Presient upon recommenation of
the *ariff 0ommission may increase the tariff rates by not
more than 2x or meaning 2NNx of the tariff rates e may also
ecrease the tariff rates by not less than 2NK
e can only exercise these powers in the interest of
the national economy, national security an general welfare of
the people
9$ Other dtie&
a Stora4e fee  this is charge on the goos or articles
store in a warehouse uner the control an
supervision of the B.0
rticles owne by the government are
exempt from storage fee is these articles are store in
a government warehouse
b *harfa4e de& E
;ven if there is no wharf where the goos
may be unloae, wharfage ues may still be
impose because it is not a uty or charge on the use
of the wharf ;ven if the goos are unloae in a
private wharf or seashore, wharfage ues still be
impose because this is a uty impose on the
cargoes or articles which are unloae *hese are
taxes *hese are not really custom uties *he
significance of this is that when tax exemption is
grante from all forms of taxes, this may be inclue
+f the exemption is only from custom uties, wharfage
ues is not inclue
c Arra&tre char4e&  this is a uty impose on goos or
articles for hanling, receiving or custoy of such
articles
 To''a4e fee&  this is base on weight or tonnage of
vessel
e$ #ar3or fee&
f !erthi'4 fee&  this is impose on the vessel for
mooring berthing at a particular pier or port
Berthing fees may only be impose if the
vessel is wharfe or berthe at national port So, if it
is wharfe at privately owne port, that is not sub(ect
to berthing fees
Ste2& i' the i+2o&itio' of c&to+ dtie&
1 -eclaration of goos or articles
" ssessment by an appraiser -etermine the value
applying the scheule of values state in the tariff
rates an that is sub(ect to the approval of the
0ollector of 0ustoms
$ 8i#uiation which may be:
3a) Partial E means the value cannot be
promptly ascertaine
3b) /inal 6 meaning custom uties ha been
ascertaine or finally
etermine
 45
+f these uties are not pai by the taxpayer, the 3f) Prohibite articles
government or the B.0 has the
power to impose the following aministrative 3g) -evices, receptacles
sanctions:
3h) ;nvelopes, boxes, trun%s
31) Surcharges may be impose uner certain
situations 3i) Beast
3") /ines may be impose uner certain
situations 3() *hing of value or money which is intene to
3$) Seizure or forfeiture influence B+ officers

/orfeiture is the penalty , seizure is the remey Ta1 Re+edie& 'der the Tariff a'd C&to+& Code

Situations where goos may be seize or forfeite by the

government: Re+edie& Go,er'+e't I+2orter

3a) rticles, vessels, aircraft may be the sub(ect matter of 31) 3a) ;nforcement of 3a) *ax refun
seizure if they are unlawfully use in the importation ministrative tax lien 3b) banonement
of foos into the Philippines or exportation of goos or 3b) Seizure 3c) Protest
form the Phils   extra6(uicial

Ca&e: 3") Luicial 3a) /iling of civil 3a) ppeal to 0*,

action 0, S0
 Lose ha a vessel, MF@ Maria @ictoria +t 3b) /iling of 3b) /iling of
was unlawfully use for the importation of cargo criminal action criminal
<hen this was seize by the government, Lose raise if there is frau action against
the efense of goo faith an it erring
must be serious 0ustoms
#eld officials

31) +t is an action irecte against the articles EN.ORCE0ENT O. TAX LIEN

an in fact, the caption of the case is epublic of the
Phils vs MF@ Maria @ictoria +t is a proceeing in Rei&ite&
rem, so goo faith is not a efense
3") ;ven if the vessel i not carry the 31) rticles must neither be prohibite nor irregular
contraban, that may be the sub(ect matter of seizure 3") *he articles must be in the possession of the B.0
if the vessel facilities the importation of that
contraban +f the articles are prohibite or irregular, the remey
+t is not also re#uire that the vessel must is seizure
come from the foreign country banonment may be express or implie

Ca&e 0ruz was caught carrying a bul% of foreign Ca&e& co4'ia3le 3y the !OC
currencies *hese were seize by the government
because she ha no license issue by the 0B to carry 31) Seizure cases on the part of the government an
sai sum of foreign currency 3") Protest case on the part of the importer

#eld 0ruz must prove that she ha a license

otherwise seizure was proper
*he buren of proof lies on the importer
3b) ;xcessive sea stores
Sea stores are the provisions of the vessel necessary
for aministration an maintenance
Seire ca&e& *he issue here pertain to the valiity of the
importation because you may raise the efense that these are
not prohibite importation
Prote&t *he issue here is the valiity of the assessment or
collection, or the valiity of the classification of articles where
customs uties are impose

3c) ;xcessive sea stores for aircraft

Sea stores must be in the place where it shoul be PROCEDURE IN PROTEST
isplaye +f these are %ept in the cabin of the crew,
these may be the sub(ect matter of seizure because Re+edy *here to file 6I&&e& Pre&cri2ti,e
these are consiere excessive %hich +ay Period
3e rai&ed8
3) >nlawful transfer of cargoes from one vessel to 31) /ile a Collector of 3a) @aliity if 5< day& from
another before reaching the point of estination protest C&to+& the the payment
assessment or of 0ustoms
3e) >nmanifeste articles collection uties
 46
3b) @aliity of 1 +n the grantor or in con(unction with other person who oes
classification not have substantial averse interest in the isposition of the
of articles property
3") +f <ithin 5< " +n any person who oes not have substantial averse
protest is C&to+& Ruestions of day& from interest in the isposition of the property
enie, Co++i&&io'er fact or receipt of the
A22eal 300) Ruestion of 0ollector?s G +n irrevocable trust, you cannot transfer or revest the title of
collector?s law ruling the property
ruling
3$) +f 00 Ruestion of <ithin : G C9o substantial interest in the isposition of the propertyD E
affirm CTA fact or day&  from he must not be the beneficiary
collector?s Ruestion of receipt of the
ruling, law ecision of G +f the properties of the estate is not veste in a business, so
A22eal the 00 the heirs are (ust co6owners of the property, that is not taxable
3&) +f 0* Ruestion of <ithin 5< because co6ownership as a rule is not taxable
affirm CA fact or day&  from
collector?s Ruestion of receipt of G +f the heirs ecie to continue the business, such that the
ruling, law 0* aministrator may manage the same, that will become an
A22eal ecision unregistere taxable partnership
32) +f 0 <ithin 5<
affirm SC Ruestion of day&  from G ;state an trust may be taxe on the same manner an on
0*, law receipt of 0 the same basis as in the case of iniviual taxpayers S, they
A22eal ecision may claim the euctions uner Section $& as long as these
euctions were pai or incurre in connection with the
TRANS.ER TAXES business of that estate or trust

ESTATES J TRUSTS G ;state an trust are entitle to personal exemptions to

ESTATE E refers to the mass of properties left by eceent or
testator to his heirs or
beneficiaries
TRUST  is the right to the property, real or personal,
exercise by one person for the benefit of another parties
Partie& to a Tr&t
a$ Tr&tor or 4ra'tor " one who create the trust
3$ Tr&tee or fidciary E one who may hol the
property for the benefit of other person %nown as
3e'eficiary$ Sometimes, the fiuciary is also the
beneficiary
c$ !e'eficiary
P"N,NNN
SPECIAL DEDUCTIONS (thi& ca' 3e ,alid of o'ly 3y e&tate
a'd tr&t)
$ +n the case of estate, the executor or aministrator may
euct the income istribute to the heirs uring the
particular year when such estate is still uner settlement
& +n the case of trust, the income may be istribute to the
beneficiaries uring that year also be eucte *he trustee or
beneficiary may istribute the income or accumulate the
income *he trustee has the iscretion whether to istribute
such income after the lapse of certain perio of time or year +n
the event that income of the trust is istribute to the
beneficiary, this particular amount may also be claime as
euctions

G ;state may be the sub(ect to tax if it is uner aministration G -e&tio'

+t may only be uner aministration or settlement if the
properties of the eceent are settle uner (uicial settlement
G +f the estate is uner extra6(uicial settlement, it is not
sub(ect to tax because that will not earn income consiering
that the heirs agree to settle the estate extra6(uicially
+f these are two 3") trust create by one trustor or
grantor, how o we tax the income of that trust
G A'&%er
>ner the law, the taxable income of these two 3")
trust may be consoliate *hat trust shoul be taxe as if they
constitute one trust

G  <hen we spea% of (uicial settlement, this may inclue G Sitatio'

estate or intestate proceeings
G Tr&t +ay 3e &3ect to ta1 if the tr&t i& irre,oca3le$
No'"ta1a3le tr&t are
5$ Re,oca3le Tr&t$ *he income here will be taxe insofar as
the recipient of the same is concerne
9$ E+2loyee& Tr&t$ So, if an employer establishes a pension
trust for the benefit of the employees, that pension trust is not
taxable
The tr&t i& re,oca3le if the 2o%er to re,e&t the title to the
2ro2erty of the tr&t i& ,e&ted
'rantor = create " trust .ne is  an the other is B
*here is only one beneficiary name I
8et us assume that the taxable income of trust  is
P1N,NNN *he taxable income of B trust is P"N,NNN *he total
taxable income is P$N,NNN <e will tax these " trust separately
but through consoliation
+n paying the tax after applying the applicable tax rate
to the taxable income of P$N,NNN, the tax ue shoul be
apportione to trust  an B
So, for purposes of income tax, the taxable income of
these " trust shoul be consoliate, but for purposes of
paying the tax, the tax ue shoul be apportione

TRANS.ER TAXES
Ta1e& +ay 3e i+2o&ed o' the o'ero& tra'&+i&&io'
of 2ro2ertie& or o' the 4ratito& tra'&+i&&io'& of
2ro2ertie&$
Tra'&fer ta1e& that are i+2o&ed o' the o'ero& tra'&+i&&io'
of 2ro2ertie&
1 @* 3value6ae tax) 3exclue this "NNN Bar)
" Percentage *ax 3also exclue)
$ ;xcise *ax 3also exclue)
Tra'&fer ta1e& i+2o&ed o' 4ratito& tra'&+i&&io' of
2ro2ertie& are
1 ;state *ax
" -onor?s *ax
ESTATE TAX E tax impose on the right or privilege to
transmit properties upon eath of the eceent or testator
DONORS TAX  E tax impose on the right or privilege to
transmit properties gratuitously in favor of another who
accepts the same *his transmission of properties occurs
uring the lifetime of the onor an the onee
ESTATE TAX
NATURE O. ESTATE TAX
 +t is an excise tax since the sub(ect of the tax
is the right or privilege to transmit
properties an not the property itself
PURPOSES O. ESTATE TAX
1 *he primary purpose is to raise revenue in orer to support
the government!
" *o supplement income tax!
$ *o reuce excessive ine#ualities in wealth! meaning, to
achieve social e#uality
HINDS O. ESTATE TAXPAYER
1 Re&ide't e&tate ta12ayer  E inclues citizen of the Phils,
resient alien who ie in the Phils, an such alien, at the time
of his eath, is a resient of the Phils!
" No'"re&ide't e&tate ta12ayer  E is limite to non6resient
alien iniviual
H eal properties, personal tangible properties an personal
intangible properties of resient eceent 3-) are taxe
wherever situate
H eal an personal tangible properties of non6resient
eceent 39-) are taxable only if they are locate in the
Phils
H  Personal intangible properties of 9- are taxable only if
they ac#uire tax situs in the Phils
H Per&o'al i'ta'4i3le 2ro2ertie& that are dee+ed &itated or
dee+ed to ha,e acired Phil$ &it& are
1 /ranchise which is exercise in the Phils
" Shares of stoc%, obligation or bons issue by omestic
corporation or sociedad anonima
$ Shares of stoc%, obligations or bons issue by foreign corp
A2K of the business of which is conucte in the Phils
& Shares, obligations, bons issue by a foreign corp which
ac#uire business situs in the Phils
47
 Such shares, obligations or bons or in any
partnership, business or inustry establishe
in the Phils if they are use by such foreign
corp in furtherance of its trae or business
2 Shares or rights in any partnership, business or in any
partnership, business or inustry establishe in the Phils
H  +f the personal intangible properties of a 9- oes not
belong to the above6mentione enumeration, they may not
from part of his income or we may also apply the doctrine of 
mo%ilia se<untur personam!
H  "obilia seuntur personam 7 accoring to the Supreme
0ourt, is a mere fiction of law So, it must yiel to the provision
of law which provies tax situs
-e&tio'
Suppose the personal intangible properties of 9-
ac#uire tax situs in the Phils, can this be exempt from estate
tax
A'&%er
I;S, by applying the rule on reciprocity
RULE ON RECIPROCITY  the foreign country of that 9-
oes not impose or allows exemption on estate tax on the
properties of citizens of the Phils who ie in that foreign
country
*he phrase Coes not imposeD an Callows exemtionD
are ifferent from each other
<hen we say Coes not imposeD, this means totally
exempt Cllows exemptionD means this may not cover all
properties but only certain properties
Ca&e
0ountry of Morocco has no international personality
or not <hat is important is it allows or grants exemption from
estate tax
FSec$ ?<$ 9ross %state$  *he value of the gross estate of the
eceent shall be etermine by incluing the value, at the
time of his eath, of all property, real or personal, tangible or
intangible, wherever situate Provie, however, *hat in the
case of a non6resient eceent who at the time of his eath
was not a citizen of the Philippines, only that part of the entire
gross estate which is situate in the Philippines shall be
inclue in his taxable estateD
The co+2o&itio' of the 4ro&& e&tate +ay i'clde
5$ Decede't& I'tere&t$
& *he gross estate may inclue the fruits an
income of the properties an that may
constitute the eceent?s interest
& +n the case of parcel of lan, it may prouce
income in the form of harvest which harvest
may form part of the gross estate
& +n the case of apartment, the rental on such
apartment shoul also be inclue, not only
the value of the property
9$ Tra'&fer 3y ,irte of 4e'eral 2o%er of a22oi't+e't

& +t implies that if the transfer is mae uner
special power of appointment that shoul be
exclue from gross estate
& *he general power of appointment, the
power is exercisable or in favor of the estate,
executor, aministrator or a creitor of the
estate +f the power is exercisable other than
these 3estate, aministrator or creitor of the
estate), that may be consiere as special
power of appointment
:$ Re,oca3le Tra'&fer
& +rrevocable transfer shoul be exclue from
gross estate
& evocable transfers are transfers which are
sub(ect to alteration, termination,
amenment or moification by the eceent
;$ Tra'&fer for I'&fficie't Co'&ideratio'
& *he amount that may form part of the gross
estate is the ifference between the /M@ of
the property an the consieration given
E1a+2le
+f the property has a /M@ of P1NN,NNN an the
consieration given is only P2N,NNN, the
ifference of P2N,NNN represents that insufficient
consieration
<$ Proceed& of Life i'&ra'ce 2olicy$
& Proceed& of life i'&ra'ce 2olicy +ay 3e
i'clded if
a $r person is irrevocably esignate is the
estate executor, aministrator or heirs of the
eceent
b the beneficiary esignate is a $ r  person
who is revocably esignate as beneficiary
& Proceed& of life i'&ra'ce 2olicy i&
e1clded fro+ the 4ro&& e&tate i' the
follo%i'4 ca&e&
1 $r person is irrevocably esignate as
beneficiary
" procees of group insurance policy
$ procees of accient insurance policy except
if accient insurance policy has a
characteristic
& Procees of 'S+S 8ife +nsurance Policy
& Note: s regars the estate executor,
aministrator or heirs as beneficiary, it is
immaterial whether the esignation is
irrevocable or revocable
DEDUCTIONS .RO0 GROSS ESTATE
DEDUCTIONS .RO0 T#E GROSS ESTATE 0AY !E
5$ Con(ugal euctions
9$ Absolute euctions
:$ Exclusive euctions
I$ CONUGAL AND A!SOLUTE DEDUCTIONS i'clde
1 /amily home
" Luicial or funeral expenses
$ 0asualty losses
48
& +nebtenessFunpai claim against the estate
2 ccrue taxes 3before the eath of the eceent)
4 Stanar -euction
5 Separation pay given to the heirs of eceent on account
of eath
Di&c&&io'
5$ .a+ily ho+e7 sub(ect to the following conitions:
a there must be only one 31) family home!
b there must be certification issue by the Barangay
0aptain that the eceent is a resient of an own
that family home, in that particular locality!
c the amount that is euctible or the /M@ of the
family home shoul not be more than P1M!
 the /M@ of the family home is P2M, this shoul be
inclue in the gross estate of the eceent But when
you claim euctions, you can only claim up to P1M
9$ ;xpenses which may be in the nature of  dicial e12e'&e& or
f'eral e12e'&e&$
 +n the case of funeral expenses, the amount
euctible is the actual funeral expenses or
the amount euctible is limite only to
P2NN,NNN!
 *here is no limitation as to amount with
regar to (uicial expenses s long as it is
pai or incurre in connection with the
preservation, aministration or settlement of
the estate, it may be claime as euctions,
 (uicial expenses also inclue extra6(uicial
expenses
:$ 8osses that may arise from casualty or ca&alty lo&&e& such
as fire, storm, shipwrec%, robbery, embezzlement, theft an
other casualty losses
 *hese losses must be sustaine not later than
six 34) months after the eath of the
eceent
;$ I'de3ted'e&& which parta%e of the nature of '2aid clai+&
a4ai'&t the e&tate$
 *here must be supporte by notarize
ocument *hese obligations must be
incurre within three 3$) years prior to the
eath of the eceent
 nother inebteness which may be claime
as euction is claim against insolvent
persons ere, the claimant is the eceent
+n orer to be euctible, this claim must be
inclue in the gross estate
<$ Ta1e& which must accre 3efore the eath of the eceent
=$ Sta'dard Dedctio'
 *he amount is P1M So, this may only be
applie if the gross estate an the eceent
is more than P1M
>$ Se2aratio' 2ay is given to the heirs of the eceent on
account of eath

 *he proceure is to inclue the amount in
the gross estate an then claim this
thereafter as euctions
II$ EXCLUSI/E DEDUCTIONS
 *hese are euctions against exclusive
properties
The&e +ay i'clde (/P"CE)
1 O /a'i&hi'4 dedctio'
" Tra'&fer for 23lic &e
$ Other char4e& a4ai'&t e1cl&i,e 2ro2erty
& E'c+3ra'ce o' e1cl&i,e 2ro2erty
Di&c&&io'
1 O /ANIS#ING DEDUCTION
& is an allowable euction against the
exclusive property of the eceent
& May be claime as euction 'der the
follo%i'4 co'ditio'&
a$ Death of the decede't %hich +&t tae 2lace %ithi'
.I/E (<) YEARS fro+ the death of the 2rior
i'cide't$
Sitatio'
 ie B is the heir 9ow, you may recall that
properties ac#uire through gratuitous title uring the
marriage is classifie as exclusive property
.ne of the properties of  which forms part of his
gross estate ha alreay been taxe *his property will be
transmitte to B by way of succession +f B ie, ta%e note that
one of his properties was ac#uire through inheritance from 
an that is an exclusive property *his property ha alreay
been taxe because that forms part of the gross estate of 
again, this same property may be sub(ect to estate tax because
this exclusive property forms part of the gross estate of B
*here seems to be ouble taxation *hat is why, the purpose of
vanishing euction is to mitigate the harshness of ouble
taxation So, B may be entitle to that vanishing euction
which may reuce his estate tax
*he conition set by law is that B must have ie
within the five6year perio +f B ie 4 years after the eath of
, B can no longer claim such vanishing euctions
3$ Ide'tity of Pro2erty
So, there must be evience to the effect that this is the
same property which forms part of he gross estate of 
c$ I'cl&io' of the 2ro2erty i' the 4ro&& e&tate of the
2rior decede't$
d$ Pre,io& ta1atio'
*he estate of  which inclue the property sub(ect of
vanishing euction ha been taxe! meaning, that estate tax
ha been pai by prior estate
e$ No 2re,io& ,a'i&hi'4 dedctio'&$
-e&tio'
So, if B ie an the property is transmitte to 0, his
heir, that property is also consiere as exclusive property of 0
because it was ac#uire through inheritance
0an 0 claim vanishing euction
A'&%er
49
9., because this ha alreay been claime by B Iou
can only claim vanishing euction at once
+f it is impossible that B ac#uire the property not
through inheritance but through onation -onor?s tax ha
alreay been pai *his is an exclusive property of B because
uner the law, property ac#uire uring the marriage by
gratuitous title is an exclusive property an forms part of his
gross estate
0an we apply this vanishing euction
I;S ere, B must have ie within 26year perio
from the ate of onation
Aci&itio'& a'd tra'&+i&&io'& e1e+2t fro+ e&tate ta1 are
1 *he merger of usufruct in the owner of the na%e title
" *ransmission or elivery if the inheritance or legacy by the
fiuciary heir or legatee to the fieeeicommissary
$ *ransmissions of the property from the first heir, legatee or
onee in favor of another beneficiary in accorance with the
esire of the preecessor
& Be#uests, evises, legacies or transfers to social welfare,
cultural an charitable institutions, no part of the net income of
which inures to the benefit of any iniviual an not more
than $NK of sai be#uests, evises, legacies or transfers shall
be use by such institutions for aministrative purposes
9$ Tra'&fer for P3lic U&e
& *he onee must be the government or any
political subivision +t must be use
exclusively for public use
:$ Other Char4e& A4ai'&t the E1cl&i,e Pro2erty
6 So, if the property has been mortage with a ban%, we
consier that as unpai mortgage
;$ E'c+3ra'ce o' E1cl&i,e Pro2erty
/ALUATION O. T#E GROSS ESTATE
5$ Real Pro2erty
H *he /M@ e#uivalent to the value as etermine by the B+
or zonal value an that of the value as etermine by the
provincial or city assessor whichever is higher
9$ Per&o'al Pro2erty
a Ta'4i3le Per&o'al Pro2erty  *he /M@ is e#uivalent
to the selling price of the property
b I'ta'4i3le Per&o'al Pro2erty  inclues interest,
shares of stoc%
& it must be the /M@ of the interest or shares
of stoc%
& +f the intangible personal property is account
receivable, it shoul be Principal P88>S
interest unpai upon the eath of the
eceent
& +f it is in the nature of usufruct, we must ta%e
into consieration the basic stanar of
mortality rate
TAX RE0EDIES
 ccoring to the S0, government an
taxpayers must stan on reasonably e#ual
terms

 Basically, the remeies that may be availe
of by the 'overnment or the taxpayer may
be groupe into:
a$ ministrative remeies
3$  Luicial remeies
 +f the tax law is silent on aministrative
remeies, the government may still avail of
the usual aministrative remeies such as
Di&trai't of personal property, or Le,y on
real property But that may be resorte to by
the government in the collection of taxes are:
a$ Di&trai't of personal property
3$ E'force+e't  of tax lien
c$ Le,y on real property $
& -istrain an levy can only be one if 'otice
is given
 +f the tax law is silent on aministrative
remeies, the taxpayer may still avail of the
usual aministrative remeies of protest an
refun for purposes of convenience an
expeiency
 +f the tax law is explicit on aministrative
remeies, the taxpayer must observe the
principle of exhaustion of aministrative
remeies >ner the *ax 0oe, if an
assessment is mae by the B+, the remey
of the taxpayer is to protest first the
assessment +t is the ecision of the B+ on
that ispute assessment that is being
appeale to the 0*
 +n claiming for tax refun, the taxpayer have
to file first a written claim for refun with
the B+ 0ommissioner
 E1ce2tio' to the Pri'ci2le of E1ha&tio' of
Ad+i'i&trati,e Re+edie&
a$ if it involves dicial e&tio'&
3$ if it involves di&re4ard& of de
2roce&&
c$ if it involves an ille4al act
 dicial Re+edie&
 +/ the tax law is silent on (uicial remeies,
the government can still avail of the usual
 (uicial remey ;xample: filing an action for
collection with the court
 +f the tax is silent on (uicial remeies, the
taxpayer may file a special civil action for
eclaratory relief But this oes not apply as
far as the 980 or the *00 is concerne
because these particular tax laws are explicit
on this (uicial remeies
 +f the tax law is explicit on (uicial remeies,
the government shoul observe the
provisions of the law
  E1a+2le
*he filing of an action for collection
with the 0ourt must be
approve by the B+ 0ommissioner
Di&ti'ctio' 3et%ee' the Di&trai't a'd Le,y
50
Di&trai't of 2er&o'al 2ro2erty
1 *he sub(ect matter is personal property, stoc%s an
securities, ban% accounts, ebts an creits
" +n the event that the taxpayer faile to pay the tax, the B+
will issue warrant of istraint
$ *he only re#uirement is posting of notice of sale in " public
or conspicuous places
& +f the bi is not e#ual to the amount of tax liability, the B+
may purchase the property istraine for an in behalf of the
government
2 *here is no right of remption
4 *here is that remey of constructive istraint of personal
property
Le,y of real 2ro2erty
1 *he sub(ect property is real property
" <hat is issue is in the nature of an authenticate certificate
escribing the property an stating the name of the taxpayer
as well as the amount ue
$ e#uires not only posting but also publication of the notice
of sale in a newspaper of general circulation in $ consecutive
wee%s
& +f the bi is not e#ual to the tax liability of there is no bier,
the B+ may forfeit such real property levie by the
government
2 *here is right of reemption within 1 year from the ate of
sale plus 12K interest
4 *here is no such remey as constructive levy of property
Co'&trcti,e Di&trai't ca' o'ly 3e re&orted to 'der the
follo%i'4 &itatio' Code C$A$R$L$)
1 <hen a taxpayer cancels or hies his property
" +f he performs any act which will obstruct the collection
efforts of the B+
$ +f he is retiring from business sub(ect to tax
& <hen he is about to leave the Philippines
;nforcement of the tax lien:
 +f the taxpayer faile espite receipt of notice
to pay the B+, a lien is create against the
properties of the taxpayer
 +t is the iscretion of the B+ to avail itself of
remeies which may result in the
expeitious collection of taxes
Ca&e <hich is preferre, the claim of the government
arising from tax lien or the claim of the wor%ers preicate on
the (ugment renere by the 980
#eld *he claim of the government arising from tax lien is
superior to the claim of a private litigant preicate on a
 (ugment
E1ce2tio' *he claim of the laborers may be superior
uner rt 11N of the 8abor 0oe when the employer was
eclare ban%rupt of (uicial li#uiation
 O+n observing the provisions of the tax coe
in regar to istraint or levy, the B+ cannot
apply or invo%e the presumption of
regularity in aministrative proceeings
So, if the proceure ha been
#uestione by the taxpayer, it is not for the
taxpayer to prove that the proceures uner
 51
the 980 in regar to istraint on levy ha
been complie with  The rle i&7 the !IR +ay collect ta1e& %ith
or %ithot 2rior a&&e&&+e't$
 evenue taxes are self6assessing taxes
PRESCRIPTI/E PERIOD .OR 0AHING
Rei&ite& of A&&e&&+e't AN ASSESS0ENT J COLLECTION
1 <ritten notice stating that the amount is ue as tax
" <ritten notice must contain a eman for the payment of  *ith 2rior  *ithot
such tax a&&e&&+e't 2rior
a&&e&&+e't
 ssessment is not a conition sine #ua non + eturn file is not false or : year& fro+ the : year& fro+
for purposes of collecting taxes *his is so frauulent date of actal the date of
because eman is not re#uire *he rule a eturn was file fili'4$ +f it was actal fili'4 
uner rt 114 of the 900 that eman is but there exist a file earlier than or from the
re#uire before a person may incur in elay eficiency the ate fixe by last ay
cannot be applie *axpayer incurre in b eturn was file the *ax 0oe fixe by law
elay if he fails to pay the tax on ate fixe but no payment for filing
by *ax 0oe has been mae 0.88;0*+.9: such return
<ithin : year&
 ssessments, mae by the B+ from the ate of
0ommissioner are presume correct *he assessment
presumption oes not violate the ue ++
process uner the 0onstitution because the /ailureF/alsifyF/rauulent 5 year& fro+ *axes may
presumption is merely isputable a +ntentional failure the di&co,ery of be collecte
to file a return such omission of even
 9ormally, the B+ may re#uire the taxpayer b /alse return failure, falsity or without
to submit reports, ocuments, boo%s of c /rauulent return frau prior
accounts an other report to establish his tax assessment
liability +n the absence of these reports, COLLECTION an
ocuments, etc, the B+ may etermine the : year& from the prescriptive
tax liability by using other methos ate of perio is 5
assessment year& from
 O*he B+ can etermine the tax liability of the
the taxpayer on the basis of that so6calle iscovery of
best evience obtainable in the absence of failure or
sai reports etc +n one case, agents of the omission,
B+ use the boo%s of account seize as a falsity or
result of rai by means of search warrant frau

Note& *he rule is if prior assessment has been

NET *ORT# OR IN/ENTORY 0ET#OD (al&o called Net
I',e&ti4atory 0ethod)
& *his is another metho that may be
employe by the B+ in etermining the tax
liability of the taxpayer *his is an expansion
of that accounting principle, a&&et& le&&
lia3ilitie& eal& 'et %orth 
A&&e&&+e't i& +ade %he' it i& +ailed7 relea&ed or &e't$
E1a+2le +f it was receive by the taxpayer in a
particular ate 3-ec 2, 15), you shoul count the
prescriptive perio for ma%ing an assessment from the ate it
was maile, release or sent by the B+ an not from the
receipt of the notice of assessment by the taxpayer
*he assessment may be sub(ect to revision by the B+
+f revise, the prescriptive perio will commence to run from
the safe when such revise assessment is maile, release or
sent So, it is not from the ate the original assessment is
maile etc but from the ate the revise assessment has been
maile
*he ma%ing of assessment is prescriptible
mae, the B+ can avail of the aministrative an (uicial
remey But if without prior assessment, the B+ can only avail
of the (uicial remeies
eturn must be the one prescribe by the
B+ S., if you file your Boo%s of ccounts in lieu of that
return, that oes not constitute return
PRINCIPLES GO/ERNING T#E .ILING O. AN ACTION
.OR COLLECTION
 !Y T#E !IR
Collectio' i& 2ro2er 'der the follo%i'4 &itatio'&
a B+ assessment is consiere final an executory, if
no protest or ispute has been mae by the taxpayer
+/ proteste by the taxpayer but he i not appeal,
the B+ ecision on such protest, the effect is that the
B+ ecision shall be consiere final an executory
b +/ he appeal the ecision of the B+ of the
0ommissioner to the 0* but he i not appeal the
ecision of the 0* to 0, the ecision of the 0*
shall be final an executory
c +f he appeal to the 0 but the 0 ecision affirming
that ecision of the B+ was not appeale to the S0,
0 ecision shall be final an executory

 +f appeale to S0 but S0 affirm the ecision of the
0, S0 ecision is final an executory
 +f the ecision of the B+ is final an
executory, the assessment mae cannot be
#uestione *he issue of prescription can no
longer be raise except if the B+ submitte
the particular issue for the resolution of the
0ourt, that is consiere as waiver on the
part of the B+ an such issue of prescription
may be sub(ect to resolution
 *here is no provision in the *= 0oe that
prohibits the B+ from filing an action for
collection even if the resolution on the
motion for reconsieration on the
assessment mae is still pening
 <hen the case is pening before the 0*,
collection may also be mae by filing of an
answer to the petition for review with the
0* *his is tantamount to a filing of
collection of tax *his will also stop the
running of the prescriptive perio for
collection of taxes
 0ollection of taxes is prescriptible
GROUNDS .OR T#E SUSPENSION O. PRESCRIPTI/E
PERIOD IN T#E COLLECTION O. TAXES 30oe:
N$A$P$O$C$A$R$)
1 No property coul be allocate!
" Agreement between the B+ an the taxpayer to the effect
that the prescriptive perio shall be suspene pening the
negotiation!
$ +f the B+ is Prohibite from a istraint or levy of real
property!
& +f the taxpayer is Out of the Philippines!
2 +f the aress of the taxpayer Cannot be locate!
4 *he filing of an Answer to the petition for review execute
by a taxpayer with the 0*!
5 <hen a Re#uest for reinvestigation has been grante by the
B+
PRINCIPLES IN CRI0INAL ACTION
1 *he filing of an action re#uires the approval of the B+
0ommissioner lso, the filing of civil action re#uires the
approval of the B+ 0ommissioner B>* this is not
 (urisictional *his is merely a formal efect which can be
cure
" *he purpose of filing criminal action is to impose statutory
penalties
$ *he payment of tax liability oes not extinguish the criminal
liability of the taxpayer arising from the violation of the
provision of the *ax 0oe *his is so because the civil liability
arises from the failure of the taxpayer to pay an this oes not
arise from felonious act
& *he ac#uittal of the taxpayer from criminal liability oes not
carry with it the extinguishments of civil liability
2 *he penalty of subsiiary imprisonment applies only to the
failure of the taxpayer to pay the penalties But, the *ax 8aw is
silent on the failure of the taxpayer to pay his eficiency or
elin#uency tax
DE.ICIENCY /S$ DELIN-UENCY
52
 +n eficiency, the taxpayer file a return but
the same was eficient -eficiency is the
ifference between the tax ue an the tax
pai
 +n elin#uency, the taxpayer i not file a
return
.ALSE RETURN ,&$ .RAUDULENT RETURN
+n the case of fal&e retr', this is a eviation from the
truth +t may be the result of mista%e, error, or negligence of
the taxpayer +t is not always intentional because it may be the
result of an honest opinion of the 0P
+n fradle't retr' , there is always the intent to
efrau the government to evae taxes +t is always intentional
an eliberate
 0riminal action may be suspene if the
taxpayer is absent from the Philippines
 .I/E (<) year&   the prescriptive perio for
filing a criminal action for violations of the
provision of the *ax 0oe
 +n the case of refusal to pay the tax, the 26
year prescriptive perio will commence to
run from the ate final notice or eman has
been serve upon the taxpayer
 s regars violation of the *ax 0oe, if the
violation is %nown the 26year prescriptive
perio shall commence to run from the ate
of the iscovery of the violation an the
institution of (uicial proceeings for
investigation an punishment *he law uses
the con(unction CanD So, it will commence
to run only from the time the B+ referre
the case to the /iscal?s .ffice or 0ity
Prosecutor +n effect, it is always in the
control of the B+
RE0EDIES O. T#E TAXPAYER
B;/.; PIM;9*, the taxpayer may ispute or protest the
assessment e ma also invo%e the power of the B+
0ommissioner to compromise tax liability
+f you ;0;+@;- 9 SS;SSM;9* by the B+, the remeies
are:
a /ile a re#uest for reconsieration of the assessment or
this is a claim for re6evaluation of the assessment
base on the existing recors
b /ile a re#uest for investigation of the assessment 666 it
is also a claim for a re6evaluation of the assessment on
the basis of newly iscovere evience, or aitional
evience that the taxpayer intens to present in the
reinvestigation
<;; *. /+8;: 3a) 7 3b) JJJJJ B+
0ommissioner
+SS>;S which may be raise JJJJJ Ruestion of law or fact