Bulacan State University

College of Law

Olaguer, Ma. Alyanna C. Taxation Law

JD-2B Atty. Ferdinand Ramos, CPA

1. Identify the salient features of the TRAIN Law 2, otherwise know as Republic Act
10653.
2. Make a comparison with the Old Law under RA 8424 otherwise known as The
Comprehensive Tax Reform Program of 1998.
3. What is your view on Section 218 of the NIRC in relation to Section 11 of RA 1125
pursuant to the general rule that no court shall have the authority to grant injunction
to restrain the collection of any national internal revenue tax, fee or charge?
4. Case digest on Commissioner of Internal Revenue vs. Isabela Cultural Corporation
(G.R. No. 172231, February 13, 2007)
5. What is meant by fringe benefits for purposes of taxation?
6. What fringe benefits are not subject to the fringe benefits tax?
7. What is meant by de minimis benefits?
8. What is meant by income subject to final tax?
9. Case digest on Commissioner of Internal Revenue vs. Court of Appeals, et. Al.
(G.R. No. 108576)
10. What conditions must be present in order to exclude retirement benefits from gross
income?

1. TRAIN 2, essentially, provides for a broader ta base and a lower rate of tax that will
make the Philippines’ tax system more competitive, as it currently has the highest
corporate tax rates in ASEAN. The government is reducing the stability and
predictability of the tax system, Train 2 aims to help by replacing the 123 special
laws that govern tax incentives with a single law, and bring the 14 different
investment promotion agencies under a single body. Train 2 also aims to improve
horizontal equity by rationalizing fiscal incentives for businesses. By rationalizing
existing fiscal incentives, TRAIN 2 will allow for a reduction in the 30 percent
corporate income tax rate, and this will help the features of a good tax program.
There is likewise a removal of the preferential 10% income tax rate currently granted
to non-profit proprietary educational institutions, non-profit hospitals, offshore
banking units and regional operating headquarters.
 REPUBLIC ACT 8424
Section 32(B). The provisions on
“miscellaneous items” in subsection (e),
wherein the total exclusion under this
subparagraph shall not exceed THIRTY
THOUSAND PERSOS, which shall cover:
(iv) Other benefits such as productivity
incentives and Christmas bonus: provided,
further, that the ceiling of THIRTY
THOUSAND PESOS may be increased
through rules and regulations issued by the
secretary of Finance, upon recommendation
of the Commissioner, after considering among
others, the effect on the same of the inflation
rate at the end of the taxable year.
Section 2. State Policy.
Section 3. Amended Presidential
Decrees and Executive Orders.
Section. 4. Power to implement by
the Secretary of Finance.
Section 5. Transitory Provisions.
REPUBLIC ACT 10653
Section 32(B). Exclusions from Gross
Income on “miscellaneous items”
subparagraph (e), The total exclusion
under this subparagraph shall not exceed
EIGHTY-TWO THOUSAND PESOS.
(iv). Other benefits such as productivity
incentives and Christmas bonus:
Provided, That every THREE years after
the effectivity of this Act, the President of
the Philippines shall adjust the amount
herein stated. To its present value using
the Consumer Price Index, as published
by the National Statistics Office.
Section 2. Implementing Rules and
Regulations.
Section 3. Repealing Clause.
Section 4. Separability Clause.
Section 5. Effectivity.

3. Section 218, RA 8424. Injunction not Available to Restrain Collection of Tax. - No

court shall have the authority to grant an injunction to restrain the collection of any
national internal revenue tax, fee or charge imposed by this Code.

Section 11, RA 1125. Who may appeal; effect of appeal. - Any person association or
corporation adversely affected by a decision or ruling of the Collector of Internal
Revenue, the Collector of Customs or any provincial or city Board of Assessment
Appeals may file an appeal in the Court of Tax Appeals within 30 days after the receipt
of such decision or ruling. No appeal taken by the Court of Appeals from the decision of
the Collector of Internal Revenue or the Collector of Customs shall suspend the
payment, levy, distraint, and or sale of any property of the taxpayer for the satisfaction
of his tax liability as provided by existing law; Provided, however, That when in the
opinion of the Court the collection by the Bureau of Internal Revenue or the
Commissioner of Customs may jeopardize the interest of the Government and/or the
taxpayer the Court at any stage of the proceeding may suspend the said collection and
require the taxpayer either to deposit the amount claimed or to file a surety bond for not
more than double the amount with the Court.

Conclusion: The rule provided on Section 11, RA 1125 does not encroach Section 218
of RA 8424 on the ground that the suspension of payment, levy, distraint, and or sale
provided in the former rule because of the proviso that when in the opinion of the Court,
the collection by the BIR or Commissioner o Customs may jeopardize the interest of the
Government and/or the taxpayer, the Court may suspend such. Section 11, is a general
exemption to the rule provided for in Section 218 of RA 8424 because of the basic
reason that the law protects the interest of the Government and the taxpayer. The
section in RA 1125 does not automatically apply if there is no grave abuse of discretion
amounting to lack or excess of jurisdiction, or jeopardy or lesion in the Government
and/or the taxpayer’s interest.

4.
Commissioner of Internal Revenue vs. Isabela Cultural Corporation
G.R. No. 172231, February 12, 2007, Ponente: J. Ynares-Santiago

Facts:
Isabela Cultural Corp, a domestic corporation received from BIR assessment notice no.
FAS-1-86-90000680 for deficiency income tax amounting to P333,196.86 and
assessment notice no. FAS-1-86-90-000681 for deficiency expanded withholding tax in
the amount of P4,897.79, inclusive of surcharge and interest both for the taxable year
1986.  The deficiency income tax of P333,196 arose from BIR disallowance of ICC
claimed expenses deductions for professional and security services billed to and paid
by ICC in 1986.

The deficiency expanded withholding tax of P4,897.79 was allegedly due to the failure
of ICC to withhold 1% expanded withholding tax on its claimed PhP244,890 deduction
for security services.

Court of Tax Appeal and Court of Appeal affirmed that the professional services were
rendered to ICC in 1984 and 1985, the cost of the service was not yet determinable at
that time, hence, it could be considered as deductible expenses only in 1986 when ICC
received the billing statement for said service.  It further ruled that ICC did not state its
interest income from the promissory notes of Realty Investment and that ICC properly
withheld the remitted taxes on the payment for security services for the taxable year
1986.

Petitioner contend that since ICC is using the accrual method of accounting, the
expenses for the professional services that accrued in 1984 and 9185 should have been
declared as deductions from income during the said years and the failure of ICC to do
so bars it from claiming said expenses as deduction for the taxable year 1986.

Issues:  
1. Whether or not the Court of Appeals is correct in sustaining the deduction of the
expenses for professionals and security services form ICC gross income?
2. Whether or not the Court of Appeals correctly held that ICC did not understate its
interest income from the promissory notes of Realty Investment, Inc; that ICC withheld
the required 1% withholding tax from the deduction for security services.
Held:
1. The Supreme Court ruled in the negative. Revenue Audit Memorandum Order No.1-
2000 provides that under the accrual method of accounting, expenses not being
claimed as deductions by a tax payer in the current year when they are incurred cannot
be claimed as deductions from the income for the succeeding year.

2. Yes. Sustaining the finding of the CTA and CA that no such understatement exist and
that only simple interest computation and not a compounded one should have been
applied by the BIR.  There is no indeed no stipulation between the latter and ICC on the
application of compound interest.
Under Article 1959 of the Civil Code, unless there is a stipulation to the contrary,
interest due should not further earn interest.

5. Fringe Benefits for purposes of Taxation - Fringe benefit is a special form of benefits
you provide your employees on in addition to their salaries and wages. In terms of
taxability of fringe benefits, this benefit provided to managerial and supervisory
employees are subject to 32% fringe benefit tax. The employee is no longer liable or the
fringe benefit tax and in case of non-payment, the Bureau of Internal Revenue will run
after the employer and not the person subject to the fringe benefits. Ultimately,
providing fringe benefits is a management consideration, and if an employee is a rank-
and-file, then, you apply withholding tax on compensation rules and not Fringe Benefits
Tax rules.. This summary is grounded on section 33 of the Tax Code in relation to
Revenue Regulations 3-1998 on Fringe Benefits Tax Regulations.

6. Fringe Benefits not subject to fringe benefits tax - Under the Tax Code, fringe benefits
subject to FBT in the Philippines 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), except:

A. Fringe benefits which are authorized and exempted from tax under special laws;
B. Contributions of the employer for the benefit of the employees to retirement,
insurance and hospitalization benefit plans;
C. Benefits given to rank and file employees, whether granted under a collective
bargaining agreement or not;
D. De minimis benefits;
E. Benefits required by the nature of or necessary to the conduct of trade or business
or profession; or
F. Benefits under employer convenience rule.

7. De minimis benefits - refers to facilities or privileges furnished or offered by an

employer to his employees that are of relatively small value and are offered or furnished
by the employer merely as a means of promoting the health, goodwill, contentment, or
efficiency of his employees. They are granted by the employer on top of the employee’s
basic compensation, but are not considered as taxable compensation for income tax
purposes nor subject to the fringe benefit tax. For tax purposes, only the benefits
considered as “de minimis” are considered as tax-exempt.

8. Income subject to final tax - The Philippines taxes its resident citizens on their
worldwide income. Non-resident aliens and citizens, are taxed only on income from
sources within the Philippines. Fringe benefit tax is a final tax payable on a calendar
quarterly basis by the employer and deductible as part of fringe benefit expense.

For resident and non-resident aliens engaged in trade or business in the Philippines, the
maximum rate on income subject to final tax is 20%. For non-resident aliens NOT
engaged in trade or business in the Philippines, the rate is 25%.

9. Commissioner of Internal Revenue vs. Court of Appeals, Court of Tax Appeals and A.
Soriano Corp
G.R. No. 108576, January 20, 1999, Ponente: J. Martinez.

Facts:
Sometime in the 1930’s, Don Andres Soriano, a citizen and resident of the United
States, formed the corporation “A. Soriano Y Cia”, predecessor of ANSCOR with a
1,000,000.00 capitalization divided into 10,000 common shares at a par value of
P100/share. ANSCOR is wholly owned and controlled by the family of Don Andres, who
are all non-resident aliens. In 1937, Don Andres subscribed to 4,963 shares of the
5,000 shares originally issued.

On September 12, 1945, ANSCOR’s authorized capital stock was increased to

P2,500,000.00 divided into 25,000 common shares with the same par value. Of the
additional 15,000 shares, only 10,000 was issued which were all subscribed by Don
Andres, after the other stockholders waived in favor of the former their pre-emptive
rights to subscribe to the new issues. This increased his subscription to 14,963 common
shares. A month later, Don Andres transferred 1,250 shares each to his two sons, Jose
and Andres Jr., as their initial investments in ANSCOR. Both sons are foreigners.

By 1947, ANSCOR declared stock dividends. Other stock dividend declarations were
made between 1949 and December 20, 1963. On December 30, 1964 Don Andres
died. As of that date, the records revealed that he has a total shareholdings of 185,154
shares. 50,495 of which are original issues and the balance of 134,659 shares as stock
dividend declarations. Correspondingly, one-half of that shareholdings or 92,577 shares
were transferred to his wife, Doña Carmen Soriano, as her conjugal share. The offer
half formed part of his estate.

A day after Don Andres died, ANSCOR increased its capital stock to P20M and in 1966
further increased it to P30M. In the same year (December 1966), stock dividends worth
46,290 and 46,287 shares were respectively received by the Don Andres estate and
Doña Carmen from ANSCOR. Hence, increasing their accumulated shareholdings to
138,867 and 138,864 common shares each.
On December 28, 1967, Doña Carmen requested a ruling from the United States
Internal Revenue Service (IRS), inquiring if an exchange of common with preferred
shares may be considered as a tax avoidance scheme. By January 2, 1968, ANSCOR
reclassified its existing 300,000 common shares into 150,000 common and 150,000
preferred shares.

In a letter-reply dated February 1968, the IRS opined that the exchange is only a
recapitalization scheme and not tax avoidance. Consequently, on March 31, 1968 Doña
Carmen exchanged her whole 138,864 common shares for 138,860 of the preferred
shares. The estate of Don Andres in turn exchanged 11,140 of its common shares for
the remaining 11,140 preferred shares.

In 1973, after examining ANSCOR’s books of account and record Revenue examiners
issued a report proposing that ANSCOR be assessed for deficiency withholding tax-at-
source, for the year 1968 and the 2nd quarter of 1969 based on the transaction of
exchange and redemption of stocks. BIR made the corresponding assessments.
ANSCOR’s subsequent protest on the assessments was denied in 1983 by petitioner.
ANSCOR filed a petition for review with the CTA, the Tax Court reversed petitioners
ruling. CA affirmed the ruling of the CTA. Hence this position.

Issue:
WON a person assessed for deficiency withholding tax under Sec. 53 and 54 of the Tax
Code is being held liable in its capacity as a withholding agent.

Held:
An income taxpayer covers all persons who derive taxable income. ANSCOR was
assessed by petitioner for deficiency withholding tax, as such, it is being held liable in its
capacity as a withholding agent and not in its personality as taxpayer. A withholding
agent, A. Soriano Corp. in this case, cannot be deemed a taxpayer for it to avail of a tax
amnesty under a Presidential decree that condones “the collection of all internal
revenue taxes including the increments or penalties on account of non-payment as well
as all civil, criminal, or administrative liabilities arising from or incident to voluntary
disclosures under the NIRC of previously untaxed income and/or wealth realized here or
abroad by any taxpayer, natural or juridical.” The Court explains: “The withholding agent
is not a taxpayer, he is a mere tax collector. Under the withholding system, however, the
agent-payer becomes a payee by fiction of law. His liability is direct and independent
from the taxpayer, because the income tax is still imposed and due from the latter. The
agent is not liable for the tax as no wealth flowed into him, he earned no income.”

10. Republic Act. No. 4917, An Act Providing that Retirement Benefits of Employees of
Private Firms shall not be subject to Attachment, Levy, Execution, or any Tax
Whatsoever, now embodied in Section 32(B)(6)(a) of the Tax Code which states that
retirement benefits received by officials and employees of private firms in accordance
with a reasonable private benefit plan maintained by the employer shall be exempt from
income tax, provided:

(1.) The retiring official or employee has been in the service of the same employer for at
least 10 years;
(2.) The retiring official or employee is not less than 50 years of age at the time of his
retirement; and
(3.) The retiring official or employee should not have previously availed of the privilege
under the retirement benefit plan of the same or another employer.