San Sebastian College-Recoletos de Manila

College of Law
TAXATION LAW
Atty. Raegan L. Capuno, CPA1

INCOME TAXATION

I. INCOME TAXATION

A. General Principles
1. Definition of Income Taxation

2. Income Tax Systems

a. Global Tax Systems

b. Schedular Tax Systems

c. Semi-Schedular or Semi-Global Tax Systems

Rufino R. Tan vs. Ramon R. Del Rosario, Jr., G.R No. 109289, October 3,
1994

3. Characteristics of Philippine Income Tax Law

4. Criteria in the Imposition of Philippine Income Tax

5. Basis of Computing Taxable Income

Sec. 43, 22(P), 22(Q), NIRC

6. Definition and Nature of Income Tax

7. Distinction between Capital and Income

Vicente Madrigal vs. James Rafferty, G.R. No. L-12287, August 7, 1918

8. When is Income Taxable

a. Existence of Income
Commissioner of Internal Revenue vs. Tours Specialists, Inc., G.R. No. L-
66416, March 21, 1990

b. Realization of Income
i. Actual Receipt
ii. Doctrine of Constructive Receipt

c. Recognition of Income
i. Requisites

9. Requisites for Income to be Taxable

a. Doctrine of Constructive Receipt

10. Test in Determining Whether Income is Earned for Tax Purposes

1
Tax Lawyer in Siguion Reyna, Montecillo and Ongsiako Law Offices, Top 12 in the 2015 Philippine Bar Examination, Pre-Bar
Reviewer in Taxation Law, Professor of Taxation Law at San Sebastian College-Recoletos College of Law, CPA Reviewer and
Lecturer in Management Advisory Services, Taxation and Regulatory Framework for Business Transactions, Lecturer in
Criminal Procedure for Criminologists Licensure Examination, Subject Matter Expert in Forensic Accounting and Business
Security Management, Professor of Accountancy and Finance, Registrar and former Chair of the BS Accountancy Program of
First Asia Institute of Technology and Humanities (FAITH), Former auditor at Isla Lipana & Co.

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 a. Realization Test

b. Claim of Right Doctrine

Rutkin vs. U.S. 343 US 130

c. Economic Benefit Test

d. Doctrine of Proprietary Interest

e. Severance Test
Eisner vs. Macomber, 252 US 189

f. Control Test
Helvering vs. Horst, 311 US 112

g. All Events Test

Commissioner of Internal Revenue vs. Isabela Cultural Corporation, G.R.
No. 172231, February 12, 2007

B. Sources of Income
1. Gross Income from Sources Within the Philippines (Sec. 42(A), NIRC)
a. Interest (Sec. 42(A)(1), NIRC)

b. Dividends (Sec. 42(A)(2), NIRC)

c. Services (Sec. 42(A)(3), NIRC)

Baier-Nickel vs. Commissioner of Internal Revenue, G.R. No. 156305,
February 17, 2003
Commissioner of Internal Revenue vs. Marubeni Corporation, G.R. No.
137377, December 18, 2001
Commissioner of Internal Revenue vs. British Overseas Airways
Corporation, 149 SCRA 395

d. Rentals and Royalties (Sec. 42(A)(4), NIRC)

e. Sale of Real Property (Sec. 42(A)(5), NIRC)

f. Sales of Personal Property (Sec. 42(A)(1), 42(E), NIRC)

2. Gross Income from Sources Without the Philippines (Sec. 42(B), NIRC)

3. Income from Sources Partly Within and Partly Without the Philippines (Sec.
42(E), NIRC)

C. Kinds of Income Taxes

1. Net Income Tax (Sec. 31, Sec. 32, Sec. 34, NIRC; Sec. 8 and 9, RA No. 10963-
TRAIN Law)

2. Gross Income Tax (Sec. 25(B), Sec. 28(1), NIRC)

3. Final Income Tax (Sec. 24(B)(C)(D), Sec. 25(A)(2)(3), Sec. 27(D), NIRC)

4. Regular Corporate Income Tax (Sec. 27(A), Sec. 28(A), NIRC)

5. Minimum Corporate Income Tax (Sec. 27(E), Sec. 28(A)(2), NIRC)

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 6. Improperly Accumulated Earnings Tax (Sec. 29, NIRC; RR No. 2-2001; RMC No.
35-2011)
Chamber of Real Estate and Builders’ Associations, Inc. vs. Romulo, G.R. No.
160756, March 9, 2010

7. Optional Corporate Income Tax (Sec. 27(A), 4th par., Sec. 28(A)(1), 4th par.,
NIRC)

D. Kinds of Taxpayers (Sec. 22(A), NIRC)

1. Individual Taxpayer
a. Resident Citizen (Sec. 23(A), Sec. 24(A)(1)(a), NIRC; Sec. 5, RA No. 10963-
TRAIN Law)

b. Non-Resident Citizen (Sec. 22(E), Sec. 23(B), Sec. 24(A)(1)(b), NIRC; Sec.
5, RA No. 10963-TRAIN Law; BIR Ruling No. 517-2011, December 22,
2011)

c. Overseas Contract Workers and Seamen (Sec. 22(E)(1)(2), Sec. 23(C),

NIRC; Sec. 2, RR No. 1-1979)

d. Resident Alien (Sec. 22(F), Sec. 23(D), Sec. 24(A)(1)(c), NIRC; Sec. 5, RA
No. 10963-TRAIN Law; Sec. 5, RR No. 2-1940)

e. Non-Resident Alien Engaged in Trade of Business (Sec. 22(G), Sec. 23(D),

Sec. 25(A)(1), NIRC; Sec. 6, RA No. 10963-TRAIN Law; RR No. 2-1940)

f. Non-Resident Alien Non-Engaged in Trade of Business (Sec. 22(G), Sec.

23(D), Sec. 25(B), NIRC; Sec. 6, RA No. 10963-TRAIN Law)

g. Special Aliens
i. Aliens Employed by Regional or Area Headquarter and Regional
Operating Headquarter of Multinational Companies (Sec. 23(D), Sec.
25(C), Sec. 25(E), 2nd par., NIRC; Sec. 6, RA No. 10963-TRAIN Law)
RR No. 6-2001, RR No. 11-2010

ii. Aliens Employed by Offshore Banking Units (Sec. 23(D), Sec. 25(D),
Sec. 25(E), 2nd par., NIRC; Sec. 6, RA No. 10963-TRAIN Law)

iii. Aliens Employed by Petroleum Contractor and Subcontractor (Sec.

23(D), Sec. 25(E), NIRC; Sec. 6, RA No. 10963-TRAIN Law)

h. Minimum Wage Earner (Sec. 22(HH), 24(A)(2) last par., NIRC; Sec. 5, RA
No. 10963-TRAIN Law)
Jaime Soriano, et.al. vs. Secretary of Finance and Commissioner of Internal
Revenue, G.R. No. 184450, January 24, 2017)

i. Senior Citizens (Sec. 3 and 4, RA No. 9994, amending RA No. 7432 and RA
No. 9257)

j. Person with Disability (Sec. 4, RA No. 7277; Sec. 1-2, RA No. 10754)

2. Corporations (Sec. 22(B), NIRC)

a. Domestic Corporation (Sec. 22(C), Sec. 23(E), Sec. 27, NIRC; Sec. 7, RA
No. 10963-TRAIN Law)

b. Resident Foreign Corporation (Sec.22(D)(H), Sec. 23(F), Sec. 28(A), NIRC)

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 c. Non-Resident Foreign Corporation (Sec. 22(D)(I), Sec. 23(F), Sec. 28(B),
NIRC)

3. Estate and Trust (Sec. 60, NIRC)

4. Partnership
a. Trade Partnership (Sec. 22(B), NIRC)

b. General Professional Partnership (Sec. 22(B), Sec. 24(B)(2), Sec. 26, NIRC)

5. Joint Ventures (Sec. 22(B), NIRC)

Collector vs. Batangas Transportation Co., 102 Phil 822
Evangelista vs. Collector, 102 Phil 140
Reyes vs. Commissioner, 24 SCRA 198
AFISCO Insurance Corporation vs. Commissioner of Internal Revenue, G.R. No.
L-112675, January 25, 1999

E. Capital Gains and Losses

1. Capital Asset distinguished from Ordinary Asset (Sec. 39(A)(1), NIRC)

2. Capital Gains and Loss distinguished from Ordinary Gain and Loss (Sec. 22(Z),
Sec. 39(A)(2)(3), NIRC)

3. Types of Capital Assets (Sec. 24(C)(D), Sec. 39, NIRC)

4. Taxability of Capital Gains and Losses (Sec. 32(A)(3), Sec. 24, Sec. 27, Sec.
28(A), Sec. 24(C)(D), NIRC; Sec. 5, RA No. 10963-TRAIN Law)

5. Percentage Taken into Account (Sec. 39(B), NIRC)

6. Limitations on Capital Losses (Sec. 39(C), NIRC)

7. Net Capital Loss Carry-Over (Sec. 39(D), NIRC)

8. Gains and Losses from Short Sales (Sec. 39(F)(1), NIRC; Sec. 135, RR No. 2-
1998)

9. Conversion of Capital Assets to Ordinary Assets and vice-versa

RR No. 7-2003
Calasanz vs. Commissioner of Internal Revenue, 144 SCRA 664

10. Tax-Free Exchange (Sec. 40(C), NIRC)

Commissioner of Internal Revenue vs. Filinvest Development Corporation, CA-
GR SP No. 74510, January 26, 2006

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