What is income Taxation (D)  An alien individual,

whether a resident or not

That branch of taxation which provides for
the statutory and administrative system of of the Philippines, is
imposing and collecting a tax on the yearly taxable only on income
profits arising from property. derived from sources
within the Philippines;

General Principles: (E)  A domestic

corporation is taxable on
Sec 23, title II, NIRC all income derived from
sources within and
(A)  A citizen of the
without the Philippines;
Philippines residing
and
therein is taxable on all
income derived from (F)  A foreign
sources within and corporation, whether
without the Philippines; engaged or not in trade or
business in the
(B)  A nonresident citizen
Philippines, is taxable
is taxable only on income
only on income derived
derived from sources
from sources within the
within the Philippines;
Philippines.
(C)  An individual citizen
of the Philippines who is
working and deriving Sec 42, title II, NIRC
income from abroad as an
overseas contract worker Income from Sources
is taxable only on income Within the Philippines. - 
derived from sources
within the Philippines: (A)Gross Income from
Provided, That a seaman Sources Within the
who is a citizen of the Philippines. - The
Philippines and who following items of gross
receives compensation income shall be treated
for services rendered as gross income from
abroad as a member of sources within the
the complement of a Philippines: 
vessel engaged
exclusively in (1) Interests. - Interests
international trade shall derived from sources
be treated as an overseas within the Philippines,
contract worker; and interests on bonds,
notes or other interest-
bearing obligation of (4) Rentals and Royalties.
residents, corporate or - Rentals and royalties
otherwise;  from property located in
the Philippines or from
(2) Dividends. - The any interest in such
amount received as property, including
dividends: rentals or royalties for -

(a) From a domestic (a) The use of or the right

corporation; and or privilege to use in the
Philippines any copyright,
(b) From a foreign patent, design or model,
corporation, unless less plan, secret formula or
than fifty percent (50%) process, goodwill,
of the gross income of trademark, trade brand or
such foreign corporation other like property or
for the three-year period right;
ending with the close of
its taxable year (b) The use of, or the right
preceding the declaration to use in the Philippines
of such dividends or for any industrial,
such part of such period commercial or scientific
as the corporation has equipment;
been in existence) was
derived from sources (c) The supply of
within the Philippines as scientific, technical,
determined under the industrial or commercial
provisions of this Section; knowledge or
but only in an amount information;
which bears the same
ratio to such dividends as (d) The supply of any
the gross income of the assistance that is
corporation for such ancillary and subsidiary
period derived from to, and is furnished as a
sources within the means of enabling the
Philippines bears to its application or enjoyment
gross income from all of, any such property or
sources; right as is mentioned in
paragraph (a), any such
(3) Services.- equipment as is
Compensation for labor or mentioned in paragraph
personal services (b) or any such
performed in the knowledge or information
Philippines;
as is mentioned in (6) Sale of Personal
paragraph (c); Property. - Gains; profits
and income from the sale
(e) The supply of services of personal property, as
by a nonresident person determined in Subsection
or his employee in (E) of this Section.
connection with the use
of property or rights (B) Taxable Income From
belonging to, or the Sources Within the
installation or operation Philippines. -
of any brand, machinery
or other apparatus (1) General Rule. - From
purchased from such the items of gross income
nonresident person; specified in Subsection
(A) of this Section, there
(f) Technical advice, shall be deducted the
assistance or services expenses, losses and
rendered in connection other deductions properly
with technical allocated thereto and a
management or ratable part of expenses,
administration of any interests, losses and
scientific, industrial or other deductions
commercial undertaking, effectively connected
venture, project or with the business or
scheme; and trade conducted
exclusively within the
(g) The use of or the right Philippines which cannot
to use: definitely be allocated to
some items or class of
(i) Motion picture films; gross income: Provided,
(ii) Films or video tapes That such items of
for use in connection with deductions shall be
television; and allowed only if fully
(iii) Tapes for use in substantiated by all the
connection with radio information necessary for
broadcasting. its calculation. The
remainder, if any, shall be
(5) Sale of Real treated in full as taxable
Property. -Gains, profits income from sources
and income from the sale within the Philippines. 
of real property located in
the Philippines; and  (2) Exception. - No
deductions for interest
paid or incurred abroad
shall be allowed from the property including rentals
item of gross income or royalties for the use of
specified in subsection or for the privilege of
(A) unless indebtedness using without the
was actually incurred to Philippines, patents,
provide funds for use in copyrights, secret
connection with the processes and formulas,
conduct or operation of goodwill, trademarks,
trade or business in the trade brands, franchises
Philippines. and other like properties;
and
(C) Gross Income From
Sources Without the (5) Gains, profits and
Philippines. - The income from the sale of
following items of gross real property located
income shall be treated without the Philippines.
as income from sources
without the Philippines: (D) Taxable Income From
Sources Without the
(1) Interests other than Philippines. - From the
those derived from items of gross income
sources within the specified in Subsection
Philippines as provided in (C) of this Section, there
paragraph (1) of shall be deducted the
Subsection (A) of this expenses, losses, and
Section; other deductions properly
apportioned or allocated
(2) Dividends other than thereto and a ratable part
those derived from of any expense, loss or
sources within the other deduction which
Philippines as provided in cannot definitely be
paragraph (2) of allocated to some items
Subsection (A) of this or classes of gross
Section; income. The remainder, if
any, shall be treated in
(3) Compensation for full as taxable income
labor or personal services from sources without the
performed without the Philippines. 
Philippines;
(E) Income From Sources
(4) Rentals or royalties Partly Within and Partly
from property located Without the
without the Philippines or Philippines.- Items of
from any interest in such gross income, expenses,
losses and deductions, or allocated thereto and a
other than those ratable part of any
specified in Subsections expense, loss or other
(A) and (C) of this deduction which cannot
Section, shall be definitely be allocated to
allocated or apportioned some items or classes of
to sources within or gross income; and the
without the Philippines, portion of such taxable
under the rules and income attributable to
regulations prescribed by sources within the
the Secretary of Finance, Philippines may be
upon recommendation of determined by processes
the Commissioner. Where or formulas of general
items of gross income are apportionment prescribed
separately allocated to by the Secretary of
sources within the Finance. Gains, profits
Philippines, there shall be and income from the sale
deducted (for the purpose of personal property
of computing the taxable produced (in whole or in
income therefrom) the part) by the taxpayer
expenses, losses and within and sold without
other deductions properly the Philippines, or
apportioned or allocated produced (in whole or in
thereto and a ratable part part) by the taxpayer
of other expenses, losses without and sold within
or other deductions the Philippines, shall be
which cannot definitely treated as derived partly
be allocated to some from sources within and
items or classes of gross partly from sources
income. The remainder, if without the Philippines.
any, shall be included in
full as taxable income Gains, profits and income
from sources within the derived from the
Philippines. In the case of purchase of personal
gross income derived property within and its
from sources partly sale without the
within and partly without Philippines, or from the
the Philippines, the purchase of personal
taxable income may first property without and its
be computed by sale within the
deducting the expenses, Philippines shall be
losses or other treated as derived
deductions apportioned entirely form sources
within the country in
which sold: Provided, 'exchanged'; and the
however, That gain from word 'produced' includes
the sale of shares of 'created', 'fabricated',
stock in a domestic 'manufactured',
corporation shall be 'extracted', 'processed',
treated as derived 'cured' or 'aged'.
entirely form sources
within the Philippines
regardless of where the
CIR vs BOAC
said shares are sold. The
transfer by a nonresident Source of income of airlines – sale of airline
alien or a foreign tickets of an offline carrier considered
corporation to anyone of income derived from PH…
any share of stock issued
The source of an income is the property,
by a domestic activity or service that produced the income.
corporation shall not be For source of income to be considered as
effected or made in its coming from PH, it is sufficient that the
income is derived from the activity within the
book unless: (1) the PH. In BOACs case, the sale of tickets in the
transferor has filed with PH is the activity that produces the income.
the Commissioner a bond The site of the source of payments is the
PH.
conditioned upon the
future payment by him of
any income tax that may
be due on the gains NDC vs CIR
derived from such
The Japanese shipbuilders were liable to tax
transfer, or (2) the on the interest remitted to them under
Commissioner has Section 37 of the Tax Code, thus:
certified that the taxes, if
SEC. 37. Income from sources
any, imposed in this Title within the Philippines. — (a) Gross
and due on the gain income from sources within the
realized from such sale or Philippines. — The following items of
gross income shall be treated as
transfer have been paid. gross income from sources within
It shall be the duty of the the Philippines:
transferor and the
corporation the shares of (1) Interest. — Interest derived from
sources within the Philippines, and
which are sold or interest on bonds, notes, or other
transferred, to advise the interest-bearing obligations of
transferee of this residents, corporate or otherwise;
requirement.
x x x           x x x          x x x

(F) Definitions. - As used The petitioner argues that the Japanese

in this Section the words shipbuilders were not subject to tax under
'sale' or 'sold' include the above provision because all the related
activities — the signing of the contract, the
'exchange' or
construction of the vessels, the payment of
the stipulated price, and their delivery to the
NDC — were done in Tokyo.   The law,
8
however, does not speak of activity but of
"source," which in this case is the NDC. This
is a domestic and resident corporation with
principal offices in Manila.
As the Tax Court put it:
Xxxx The law specifies: 'Interest derived
from sources within the Philippines, and
interest on bonds, notes, or other interest-
bearing obligations of residents, corporate or
otherwise.' Nothing there speaks of the 'act
or activity' of non-resident corporations in
the Philippines, or place where the contract
is signed. The residence of the obligor who
pays the interest rather than the physical
location of the securities, bonds or notes or
the place of payment, is the determining
factor of the source of interest income. Xxxx
Accordingly, if the obligor is a resident of the
Philippines the interest payment paid by him
can have no other source than within the
Philippines. The interest is paid not by the
bond, note or other interest-bearing
obligations, but by the obligor.
Here in the case at bar, petitioner National
Development Company, a corporation duly
organized and existing under the laws of the
Republic of the Philippines, with address
and principal office at Calle Pureza, Sta.
Mesa, Manila, Philippines unconditionally
promised to pay the Japanese shipbuilders,
as obligor in fourteen (14) promissory notes
for each vessel, the balance of the contract
price of the twelve (12) ocean-going vessels
purchased and acquired by it from the
Japanese corporations, including the
interest on the principal sum at the rate of
five per cent (5%) per annum. (See Exhs.
"D", D-1" to "D-13", pp. 100-113, CTA
Records; par. 11, Partial Stipulation of
Facts.) And pursuant to the terms and
conditions of these promisory notes, which
are duly signed by its Vice Chairman and
General Manager, petitioner remitted to the
Japanese shipbuilders in Japan during the
years 1960, 1961, and 1962 the sum of
$830,613.17, $1,654,936.52 and
$1,541.031.00, respectively, as interest on
the unpaid balance of the purchase price of
the aforesaid vessels. (pars. 13, 14, & 15,
Partial Stipulation of Facts.)
The law is clear. Our plain duty is to apply it
as written. The residence of the obligor
which paid the interest under consideration,
petitioner herein, is Calle Pureza, Sta. Mesa,
Manila, Philippines; and as a corporation
duly organized and existing under the laws
of the Philippines, it is a domestic
corporation, resident of the Philippines.
(Sec. 84(c), National Internal Revenue
Code.) The interest paid by petitioner, which
is admittedly a resident of the Philippines, is
on the promissory notes issued by it.
Clearly, therefore, the interest remitted to
the Japanese shipbuilders in Japan in 1960,
1961 and 1962 on the unpaid balance of the
purchase price of the vessels acquired by
petitioner is interest derived from sources
within the Philippines subject to income tax
under the then Section 24(b)(1) of the
National Internal Revenue Code.
Fisher vs Trinidad (Income Div Not Taxable)
Stock dividends are income taxable under the
income tax law. They justified the applicability
of the ruling by saying that there is but slight
difference in the wording of the 2 laws which
defined “dividends” as part of taxable income.
The receipt of stock dividends as part of
taxable income.
The receipt of stock dividends merely
represents an increase in value of the assets
of a corporation. The court defines stock
dividends as “increase in capital of corps,
firms, partnerships, etc for a particular
period.” They represent the increase in the
proportional share of each stockholder in the
company’s capital. It is not a distribution of
the corporation’s profits to the stockholder. It
only increases the stockholder’s source of
income, but does not increase income itself.
Act no. 2833 taxed any distribution by a
corporation out of its earnings or profits.
From the various definitions of income tax, an
income tax is a tax on the yearly profits arising
from property, salary, private revenue, capital
invested, and all other sources of income.
WHAT IS TAXED IS THE PROFIT, NOT THE
SOURCE.
Stock div in this case is not taxable for income
because the stockholder has received nothing
out of the company’s assts for his separate
use and benefit, Instead, his original
investment along with whatever gains which
resulted from the use of his and other
stockholder’s money remains property of the
company.
Madrigal vs Rafferty
The essential difference between capital and
income is that capital is a fund; income is a
flow. A fund of property existing at an instant
of time is called capital. A flow of services
rendered by that capital by the payment of
money from it or any other benefit rendered
by a fund of capital in relation to such fund
through a period of time is called income.
Capital is wealth, while income is the service
of wealth.
As Paterno has no estate and income, actually
and legally vested in her and entirely distinct
from her husband’s property, the income
cannot properly be considered the separate
income of the wife for the purposes of the
additional tax.
To recapitulate, Vicente wants to half his
declared income in computing for his tax since
he is arguing that he has a conjugal
partnership with his wife. However, the court
ruled that the one that should be taxed is the
income which is the flow of the capital, thus it
should not be divided into 2.
CONWI vs CTA
For the proper resolution of income tax cases,
income may be defined as an amount of
money coming to a person or corporation
within a specified time, whether as payment
for services, interest or profit from
investment. Unless otherwise specified, it
means cash or its equivalent. Income can also
be thought of as flow of the fruits of one's
labor.
Petitioners are correct as to their claim that
their dollar earnings are not receipts derived
from foreign exchange transactions. For a
foreign exchange transaction is simply that —
a transaction in foreign exchange, foreign
exchange being "the conversion of an amount
of money or currency of one country into an
equivalent amount of money or currency of
another." When petitioners were assigned to
the foreign subsidiaries of Procter & Gamble,
they were earning in their assigned nation's
currency and were ALSO spending in said
currency. There was no conversion, therefore,
from one currency to another.
The dollar earnings of petitioners are the
fruits of their labors in the foreign subsidiaries
of Procter & Gamble. It was a definite amount
of money which came to them within a
specified period of time of two years as
payment for their services.
Limpan Investment Corp. Vs CIR
(Limpan Investment Company deemed to
have constructively received rental payments
in 1957 when they were deposited in court
due to its refusal to receive them.)
Petitioner admitted that it indeed had
undeclared income (although only a part and
not the full amount assessed by BIR). Thus, it
has become incumbent upon them to prove
their excuses by clear and convincing
evidence, which it has failed to do. When is
there constructive receipt of rent? With
regard to 1957 rents deposited with the court,
and withdrawn only in 1958, the court viewed
the corporation as having constructively
received said rents. The non-collection was
the petitioner’s fault since it refused to
refused to accept the rent, and not due to
nonpayment of lessees. Hence, although the
corporation did not actually receive the rent,
it is deemed to have constructively received
them.
Fernandez v CIR
That the circumstances are such that the
method does not reflect the taxpayer’s
income with reasonable accuracy and
certainty and proper and just additions of
personal expenses and other non-deductible
expenditures were made and correct , fair and
equitable credit adjustments were given by
way of eliminating non-taxable items.
Proper adjustments to conform to the income
tax laws. Proper adjustments for non-
deductible items must be made. The following
non-deductibles , as the case may be, must be
added to the increase of decrease in the net
worth:
1. Personal living or family expenses
2. Premiums paid on any life insurance policy
3. Losses from sales or exchanges of property
between members of the family
4. Income taxes paid
5. Other non-deductible taxes
6. Election expenses and other expense
against public policy
7. Non-deductible contributions
8. Gifts to others
9. Estate inheritance and gift taxes
10. Net Capital Loss
On the other hand, non- taxable items should
be deducted therefrom. These items are
necessary adjustments to avoid the inclusion
of what otherwise are non-taxable receipts.
They are:
1. inheritance gifts and bequests received
2. non- taxable gains
3. compensation for injuries or sickness
4. proceeds of life insurance policies
5. sweepstakes
6. winnings
7. interest on government securities and
increase in net worth are not taxable if they
are shown not to be the result of unreported
income but to be the result of the correction
of errors in the taxpayer’s entries in the books
relating to indebtedness
Rutkin vs US
Money obtained by extortion is income
taxable to the extortioner under § 22(a) of the
Internal Revenue Code. Pp. 343 U. S. 131-139.
An unlawful gain, as well as a lawful one,
constitutes taxable income when its recipient
has such control over it that, as a practical
matter, he derives readily realizable economic
value from it.

Eisener vs Macomber
(Severance Test Theory)
The Supreme Court affirmed the District Court
holding for the taxpayer that a stock dividend
is not income. The Revenue Act of 1916
provision subjecting stock dividends to tax
was held unconstitutional.
If a stock dividend is not considered income, it
can not be subject to income tax under the
16th Amendment. In applying the 16th
Amendment, it is important to distinguish
between capital and income, as only income is
subject to income tax.
A stock dividend reflects the corporation
transferring an amount from "surplus"
(retained earnings) to "capital stock." Such a
transaction is merely a bookkeeping entry and
"affects only the form, not the essence, of the
"liability" acknowledged by the corporation to
its own shareholders ... it does not alter the
preexisting proportionate interest of any
stockholder or increase the intrinsic value of
his holding or of the aggregate holdings of the
other stockholders as they stood before"
(Macomber, p. 1081). An increase to the value
of capital investment is not income. Nothing
of value has been taken from the corporation
and given to the shareholder as is the case
with a cash dividend.
In addition, since the shareholder receives no
cash, in order to pay any tax on a stock
dividend, he might have to convert the stock
into cash - he has no wherewithal to pay from
the nature of the transaction. "Nothing could
more clearly show that to tax a stock dividend
is to tax a capital increase, and not income,
than this demonstration that in the nature of
things it requires conversion of capital in
order to pay the tax" (Macomber, p. 1082).
Severance test
- As capital or investment is not
income subject to tax, the gain or
profit derived from the exchange
or transaction of said capital by
the taxpayer for his separate use,
benefit and disposal is income
subject to tax.
- Income is recognized when there
is separation of something which
is of exchangeable value
The annual increase un value of an asset is not
taxable income because such increase has not
yet been realized. The increase in value could
only be taxed when a disposition of the
property occurred which was of such a nature
as to constitute a realization of such gain, that
is, a severance of the gain from the original
capital invested in the property, the same
conclusion obtains as to losses. The annual
decline in the value of property is not
normally allowable as a deduction. Hence, to
be allowable the loss must be realized.
Helvering vs Horst
(Control Test)
- Taxable gain is conditioned upon
the presence of a claim of right to
the alleged gain and the absence
of a definite unconditional
obligation to return or repay.
- Power to procure payment of
income and enjoy the benefit
thereof determines who is subject
to tax on coupon bond donated to
his son.
BIR Ruling 029-1998
(Economic Benefit Principle)
- Taking into consideration the
pertinent provisions of law,
income realized is taxable only to
the extent that the taxpayer is
economically benefited.
 - Anything which benefits a person
materially or economically in
whatever way is taxable under
the law.
In this jurisdiction, mere increase in the value
of property without actual realization, either
through sale or other disposition, is not
taxable, the only exception being that even
without sale or other disposition, if by reason
of appraisal, the cost basis of property is
increased and the resultant basis is used as
the new tax base for purposes of computing
the allowable depreciation expense, the net
difference between the original cost basis and
new basis to appraisal is taxable under the
economic-benefit principle.
CIR vs Lednicky
(Partnership Theory)
The right to tax income emanates from
partnership in the production of income by
providing protection resources, incentives and
climate to produce income.
CIR vs Isabela Cultural Corp.
(all events test)
Applied in recognizing income or liability
under accrual method of accounting.
Expenses incurred in prior year cannot be
claimed as expenses in another. For a
taxpayer using the accrual method, the
determinative question is, when do the facts
present themselves in such a manner that the
taxpater must recognize income or expense?
The accrual of income and expense is
permitted when the all-events test has been
met. This test requires: (1) fixing of a right to
income or liability to pay; and (2) the
availability of the reasonable accurate
determination of such income or liability.
Tests in determining whether income is
earned for tax purposes
1. Realization test – There is no taxable income
unless income is deemed realized. Revenue is
generally recognized when both conditions are
met:
a. The earning process is complete or
virtually complete; and
b. An exchange has taken place (Manila
Mandarin Hotels, Inc. v. CIR, CTA Case
No. 5046, March 24, 1997).
2. Claim of Right Doctrine / Doctrine of
Ownership, Command, or Control – A taxable
gain is conditioned upon the presence of a claim
of right to the alleged gain and the absence of a
definite unconditional obligation to return or
repay. (CIR v. Javier, G.R. 78953)
3. Economic - Benefit test / Doctrine of
Proprietary Interest – Taking into
consideration the pertinent provisions of law,
income realized is taxable only to the extent that
the taxpayer is economically benefited.
4. Severance test – Income is recognized when
there is separation of something which is of
exchangeable value (Eisner v. Macomber, 252 US
189).
5. All Events test
Requisites:
a. Fixing of a right to income or liability to pay;
and
b. Availability of the reasonable accurate
determination of such income or liability.
INCOME TAXPAYERS
Sec 24, Title 2, NIRC
Taxable Income Defined. -The term
 [28]
'taxable income'  means the pertinent
items of gross income specified in this
Code, less the deductions and/or personal
and additional exemptions, if any,
authorized for such types of income by
this Code or other special laws
Sec 24
On whom imposed?
 1. Each taxable year from all sources
within and without the PH be EVERY
INDIVIDUAL CITIZEN OF THE PH
RESIDING THEREIN
2. Each taxable year from all sources
within the PH by an INDIVIDUAL
CITIZEN OF PH WHO IS RESIDING
OUTSIDE OF THE PH INCLUDING
OVERSEAS WORKERS
3. Each taxable year from all sources
within the PH BY AN INDIVIDUAL
ALIEN WHO IS A RESIDENT OF PH
Rates on Taxable income of individuals?
Married Individuals?
For married individuals, the husband and
wife, subject to the provision of Section
51 (D) hereof, shall compute separately
their individual income tax based on their
respective total taxable income:
Provided, That if any income cannot be
definitely attributed to or identified as
income exclusively earned or realized by
either of the spouses, the same shall be
divided equally between the spouses for
the purpose of determining their
respective taxable income.
Provided, That minimum wage earners as
defined in Section 22(HH) of this Code
shall be exempt from the payment of
income tax on their taxable income:
provided, further, That the holiday pay,
overtime pay, night shift differential pay
and hazard pay received by such
minimum wage earners shall likewise be
 [13]
exempt from income tax.
Tax Rates on Certain Passive Income?
(1)  Interests, Royalties, Prizes, and
Other Winnings
- 20% = amount of interest from
any currency bank deposit
substitute and from trust funds
and similar arrangements;
royalties
- 10% = literary works and musical
compositions. (not included are
prizes amounting to 10k or less,
such shall be subject to tax under
subsection (a) of sec 24 and other
winnings derived from sources
within the PH.
- 7 ½ % = interest income received
by an individual taxpayer from a
depository bank under foreign
currency deposit system
- EXEMPTED = interest income
from LT deposit or investment in
the form of savings.
- Last Par. = holder of certificate
pre-terminate the deposit or
investment before the 5th year, a
final tax shall be imposed on the
entire income and shall be
deducted and with held by the
depository bank from the
proceeds of the LT deposit or
investment cert, base on the
remaining maturity thereof: Four
(4) years to less than five (5) years
- 5%;
Three (3) years to less than (4)
years - 12%; and
Less than three (3) years - 20%
(2) Cash and/or property Dividends
-involves cash/property dividends :
(1)actually or constructively received by an
individual from a domestic corporation or
from a joint stock company;
(2) insurance or mutual fund companies and
regional operating headquarters of
multinational companies,
(3) on the share of an individual in the
distributable net income after tax of a
partnership *except a general prof part*
(4) share of an individual in the net income
after tax of an assoc, a joint acct or a joint
venture or consortium:
Six percent (6%) beginning January 1, 1998;
Eight percent (8%) beginning January 1, 1999;
Ten percent (10%) beginning January 1, 2000.
Provided, however, That the tax on dividends
shall apply only on income earned on or after
January 1, 1998. Income forming part of
retained earnings as of December 31, 1997
shall not, even if declared or distributed on or
after January 1, 1998, be subject to this tax.
Capital Gains from Sale of Shares of Stock not
Traded in the Stock Exchange:
a final tax at the rates prescribed below is
hereby imposed upon the net capital gains
realized during the taxable year from the sale,
barter, exchange or other disposition of
shares of stock in a domestic corporation,
except shares sold, or disposed of through the
stock exchange.
Not over P 100,000 - 5%
On any amount in excess of P 100,000 - 10%
Capital Gains from Sale of Real Property
(1) In General. - The provisions of Section
39(B) notwithstanding, a final tax of six
percent (6%) based on the gross selling price
or current fair market value as determined in
accordance with Section 6(E) of this Code,
whichever is higher, is hereby imposed upon
capital gains presumed to have been realized
from the sale, exchange, or other disposition
of real property located in the Philippines,
classified as capital assets, including pacto de
retro sales and other forms of conditional
sales, by individuals, including estates and
trusts: Provided, That the tax liability, if any,
on gains from sales or other dispositions of
real property to the government or any of its
political subdivisions or agencies or to
government-owned or controlled
corporations shall be determined either under
Section 24 (A) or under this Subsection, at the
option of the taxpayer;
(2) Exception. - The provisions of paragraph
(1) of this Subsection to the contrary
notwithstanding, capital gains presumed to
have been realized from the sale or
disposition of their principal residence by
natural persons, the proceeds of which is fully
utilized in acquiring or constructing a new
principal residence within eighteen (18)
calendar months from the date of sale or
disposition, shall be exempt from the capital
gains tax imposed under this Subsection:
Provided, That the historical cost or adjusted
basis of the real property sold or disposed
shall be carried over to the new principal
residence built or acquired: Provided, further,
That the Commissioner shall have been duly
notified by the taxpayer within thirty (30) days
from the date of sale or disposition through a
prescribed return of his intention to avail of
the tax exemption herein mentioned:
Provided, still further, That the said tax
exemption can only be availed of once every
ten (10) years: Provided, finally, That if there
is no full utilization of the proceeds of sale or
disposition, the portion of the gain presumed
to have been realized from the sale or
disposition shall be subject to capital gains
tax. For this purpose, the gross selling price or
fair market value at the time of sale,
whichever is higher, shall be multiplied by a
fraction which the unutilized amount bears to
the gross selling price in order to determine
the taxable portion and the tax prescribed
under paragraph (1) of this Subsection shall
be imposed thereon.
Sec. 25 NON RESIDENT ALIEN INDIVIDUAL
In General. - A nonresident alien individual
engaged in trade or business in the Philippines
shall be subject to an income tax in the same
manner as an individual citizen and a resident
alien individual, on taxable income received
from all sources within the Philippines.
A nonresident alien individual who shall come
to the Philippines and stay therein for an
aggregate period of more than one hundred
eighty (180) days during any calendar year
shall be deemed a 'nonresident alien doing
business in the Philippines'. Section 22 (G) of
this Code notwithstanding.
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Compensation income = taxable income
arising from an EE/ER relationship and
includes the following: Salaries, wages,
compensation, commissions, emoluments,
and honoraria. Bonuses exceeding 90K,
allowance for transportation, representation,
entertainment, and other similar items.
Fringe benefits:
(B) Fringe Benefit Defined. - For purposes of
this Section, the term 'fringe benefit' means
any good, service or other benefit furnished
or granted in cash or in kind by an employer
to an individual employee (except rank and
file employees as defined herein) such as, but
not limited to, the following:
(1) Housing;
(2) Expense account;
(3) Vehicle of any kind;
(4) Household personnel, such as
maid, driver and others;
(5) Interest on loan at less than
market rate to the extent of the
difference between the market rate
and actual rate granted;
(6) Membership fees, dues and other
expenses borne by the employer for
the employee in social and athletic
clubs or other similar organizations;
(7) Expenses for foreign travel;
(8) Holiday and vacation expenses;
(9) Educational assistance to the
employee or his dependents; and
(10) Life or health insurance and other
non-life insurance premiums or
similar amounts in excess of what the
law allows.
(C) Fringe Benefits Not Taxable. - The
following fringe benefits are not taxable
under this Section:
(1) Fringe benefits which are
authorized and exempted from tax
under special laws;
(2) Contributions of the employer for
the benefit of the employee to
retirement, insurance and
hospitalization benefit plans;
(3) Benefits given to the rank and file
employees, whether granted under a
collective bargaining agreement or
not; and
(4) De minimis benefits as defined in
the rules and regulations to be
promulgated by the Secretary
of Finance, upon recommendation of
the Commissioner.
The Secretary of Finance is hereby
authorized to promulgate, upon
recommendation of the
Commissioner, such rules and
regulations as are necessary to carry
out efficiently and fairly the provisions
of this Section, taking into account the
peculiar nature and special need of
the trade, business or profession of
the employer.
Ordinary Income:

The term 'ordinary income' includes any gain

from the sale or exchange of property which is
not a capital asset or property described in
Section 39(A)(1). Any gain from the sale or
exchange of property which is treated or
considered, under other provisions of this
Title, as 'ordinary income' shall be treated as
gain from the sale or exchange of property
which is not a capital asset as defined in
Section 39(A)(1). The term 'ordinary loss'
includes any loss from the sale or exchange of
property which is not a capital asset. Any loss
from the sale or exchange of property which is
treated or considered, under other provisions
of this Title, as 'ordinary loss' shall be treated
as loss from the sale or exchange of property
which is not a capital asset.

How is taxable income computed:

SEC. 31. Taxable Income Defined. -The term

'taxable income' [28] means the pertinent
items of gross income specified in this Code,
less the deductions and/or personal and
additional exemptions, if any, authorized for
such types of income by this Code or other
special laws.