TAXATION LAW REVIEW

• If more than 100k = 10%

JUSTICE DIMAAMPAO o Percentage tax is an INDIRECT TAX
2. Excise Tax – 129 to 172
TOPICS: o JB CASE- CHEVRON PH VS CIR - GR NO. 217863 (SEPT 1,
- INCOME TAX 2015)
- REMEDIES § Focus on the following section 129, 131, 135. Especially
section 135!!!
TIPS: § 6 justices of the SC dissented to his decision; 7 agreed
- He was the civil law examiner last year with him
- Focus on decided case/jurisprudence § Very controversial case penned by JB
- Take note of: § It has something to do with EXEMPTION
o Pacquiao case § It is about PETROLEUM PRICE
o Disputed Assessments § Facts: Chevron PH sold petroleum products to Clark
o Tax remedies – there are many new cases Development Authority (CDA). CDA is exempt from
- He might lecture on commercial law for pre-week J direct and indirect tax.
- Look for questions which have never been asked – they may be asked for the § SC:
st
1 time in the bar exam • Excise tax on petroleum products is
- 2 possible sources of BEQ essentially a tax on property (first time to hear
o Questions which have never been asked this!)
o Jurisprudence • Petroleum products are considered property.
- JB likes asking thought provoking and challenging questions Hence, the claim for refund was granted.
- Do not exceed 2 pages! 1 page is enough • Dissenting view of Justice Dimaampao:
- Use simple words! o Excise tax is a tax on privilege. And
- Keywords! here comes this case which states
- There are 9 tax laws which may be asked in this bar exam: excise tax on petroleum products is
1. Income tax a property tax.
2. Remedies 3. Documentary Stamp Tax – 173-201
3. General principles - There are 2 significant cases
** 90-95% of the questions o JAKA INVESTMENTS CORP VS CIR (626 SCRA 16)
4. Estate Tax § Explained the nature of DST
5. Donor’s Tax § What is being taxed here is the right or
6. VAT – 99.9% there will be 2 or more questions in VAT privilege to create, revise or terminate legal
7. Local Tax relationships through the execution of
8. RPT documents
9. Customs duties o PBCOM VS CIR (JUNE 20, 2016)
o There is a new law – RA 10863 (Customs Modernization and Tariff § Claim for refund case
Act) à MAKE SURE TO READ THIS! THIS WILL BE INCLUDED!!! § There was a claim for refund of DST
- These haven’t been included in the last 20 years, but ARE INCLUDED IN erroneously or illegally paid or collected.
THIS YEAR’S BAR EXAM!!! K § The 2 -year period still applies from the date of
1. Percentage Tax – 116 to 128 payment
o Focus on Sect 116 – this may be the question! § When do you say there is payment?
§ Transactions that are exempt under Section 109 (VAT) • From the date of the imprinting of
are nonetheless subject to percentage tax (3%) documentary stamp on the taxable
o Section 127 (a) - Sale of shares of stock document à this is the reckoning
§ When these shares of stock are listed in the stock date of the 2 year period to claim
exchange à subject to ½ of 1% (percentage tax) refund
§ If not listed in stock exchange à subject to income tax of - Documents which are exempt from DST – Section 199
5% or 10% o Enumeration of documents which are exempt from DST
• If not more than 100k = 5%

Dugs JUSTICE DIMAAMPAO LECTURE 1



*NB:
o TOTAL: 86 sections are now included in this year’s bar exam
o HENCE, THESE SHALL BE ASKED!!!
o But only nature and concept of these shall be asked. Please take GROSS INCOME TAXATION DEFINED
note of the cases. One of them was penned by JB. - Method/System of income taxation which has these 3 features:
1. It ALLOWS NO DEDUCTIONS
TREND 2. It does NOT GRANT PERSONAL EXEMPTIONS
3. The TAX BASE of income tax rate is GROSS INCOME
2014 2015 2016 Average - Tip: if you are sure of your answer, enumerate.
Income tax 10 23 8 13.67
Remedies 8 9 7 8 NET INCOME TAXATION DEFINED
General 5 2 4 3.67 - It is a system or method of income taxation which has the following features:
principles 1. IT ALLOWS DEDUCTIONS (Sect 34)
Estate Tax 2 2 1 1.67 o TP are allowed to claim 10 items of deduction
2. It grants PERSONAL EXEMPTIONS (Sect 35)
Donor’s Tax 1 1 1 1
3. The TAX BASE of income tax rate is TAXABLE INCOME/NET INCOME
VAT 3 5 3 3.67
Local Tax 1 2 1 1.33 WHO ARE THE INDIVIDUAL TP GOVERNED BY NET INCOME TAXATION – They
RPT 0 2 1 1 can claim deductions and personal exemptions
Customs 1 2 0 1
duties INDIVIDUAL CORPORATE
1. RC 1. DC
- The NIRC states that the tax
INCOME TAX rate of 30% shall be imposed
on taxable (net) income
Title II, NIRC, RA 8424 2. NRC 2. RFC
- Section 22 – 83 - NRC can only be taxed on - POSSIBLE QUESTION!
- There are 62 sections income derived from sources - AIR CANADA VS CIR
- CORE Sections WITHIN the PH – hence he o Offline international
o Section 22 to 42 can only claim these carrier/airlines (no
§ 21 sections exemptions and deductions landing rights in the
o Section 51 to 56 for expenses paid/incurred PH) = taxed as RFC
o Sect 75 to 77 WITHIN the PH provided that it
§ Corporate Taxpayers - If he has compensation derives income
income, it must come from from the sales of
sources WITHIN the PH transport
GROSS INCOME VS NET INCOME documents/airplane
- GR: We have adopted net income taxation (all other TPs are governed by the tickets through a
net income taxation) GENERAL AGENT
- E: Under exceptional cases, we have adopted gross income taxation: IN THE PH
o Section 25(B) - Individuals o Although it had no
§ The tax is imposed on the ENTIRE (GROSS) income landing rights, since
• Who is this TP who cannot claim any it appointed an
deduction or exemptions? agent in the PH =
o NRA-NETB constitutes doing
o Sect 28 (B) – Corporation business, hence it
§ The tax is imposed on the GROSS income of the shall be taxed as a
following corporate tax payers who are not allowed to RFC
claim any deductions
• NRFC

Dugs JUSTICE DIMAAMPAO LECTURE 2


3. RA
- Jan 1, 1998 – He can only be
taxed on income derived from
sources WITHIN the PH
- Hence, he can only claim
those expenses paid or
incurred WITHIN the PH
4. NRA-ETB
- FAVORITE QUESTION! Take
note of this
- He can claim deductions and
personal exemptions
- There are instances when the
NRA did not actually engage
in trade or business in the PH.
But by fiction of law, he is
considered to have conducted
trade or business in the PH if
he has stayed in the PH for
an aggregate period of more
than 180d = DEEMED NRA-
ETB
o Take note that the
law does not state
that it should be
continuous
uninterrupted 180d
o Aggregate just
means TOTALITY
of days he stayed
her
Dugs
o BUT although we
can tax Air Canada **DOING BUSINESS
as RFC, we - Commercial Law in relation to taxation law
CANNOT APPLY - How to determine if the corporation is doing business as a RFC: (POASA)
THE 30% corporate 1. Participating in management, control or supervision of domestic
rate because there business, firm or corporation
is a TAX TREATY 2. Opening offices, branches,
between the PH 3. Appointing distributors or agents
and Canada - The 4. Soliciting orders or contracts
tax rate shall NOT 5. Act which implies continuity of commercial dealings and arrangements
be more than ½%
of income derived The tax code does not clearly define the meaning of RFC – it merely states that a RFC
in the PH is a FC engaged in T/B in the PH (vague!) à hence we have to refer to jurisprudence
- The tax code does not clearly (ABCS)
define the meaning of RFC – 1. Actual performance of specific commercial acts
it merely states that a RFC is o VAN SWEDEN CASE
a FC engaged in T/B in the PH § There must be showing that it has performed an
(vague!) à hence we have to ACTUAL, SPECIFIC COMMERCIAL ACTS within the
refer to jurisprudence (ABCS) PH
1. Actual performance of § Why?
specific commercial acts • Because we have no jurisdiction over acts not
2. Business/Intent Test performed within the PH
3. Contract Test 2. Business
4. Substance Test o ERIKS CASE
§ It must conduct continuous business in the PH
§ 90d period extension of a tax credit
3. Contract Test
o SINGSON CASE
§ The contract must have been executed in the PH
4. Substance Test
o MANGALIMAN CASE
§ Most popular jurisprudence
§ Implies continuity of commercial transactions and
dealings
§ Basis of Foreign Investment Act
POSSIBLE BAR QUESTION:
- Which do you prefer, gross income taxation or net income taxation?
o 2 VIEWS
o There are 2 significant advantages of gross income taxation:
1. It simplifies our income tax system
§ Since no deductions are allowed, the TP does not need
or to hire the services of an accountant.
§ The TP can easily compute his/her income tax liability by
just multiplying gross income by the tax rate because
deductions are not allowed in this case
2. Deductions have been the source of graft and corruption.
§ In gross income, since there are no deductions, it
MINIMIZES graft and corruption.
JUSTICE DIMAAMPAO LECTURE 3


NET INCOME - ü claim deduction

o There are 3 advantages of net income taxation: - RC
1. System of taxation which is JUST, FAIR AND REASONABLE - NRC
§ Because TP can claim legitimate expenses as - RA
deductions which will reduce their taxable income which - NRA-ETB
will eventually reduce their income tax liability - DC
2. It minimizes fraud - RFC
§ Tax audit examination is designed to check whether the
expenses claimed by the TP are deductible or not. GROSS INCOME – X claim deduction
Through this, tax fraud is minimized. - NRA-NETB
3. It is consistent with the constitution wich states that the rule - NRFC
on taxation shall be uniform and EQUITABLE
§ It is equitable because deductions and exemptions are TAN VS DEL ROSARIO
in the nature of equitable reliefs - Asked in BE 2x
- The SC has given judicial imprimatur to systems of income taxation
TABLE SUMMARY - Schedular System
o System employed where the income tax treatment VARIES and is
INDIVIDUAL CORPORATION made to depend on the KIND OR CATEGORY of the taxable
Net income - RC - DC income the the TP
- NRC - RFC o In simple words:
- RA § Varies - It provides for different tax rules and treatment
- NRA-ETB § Kind or category – it classifies or categorizes income
Gross income - NRA-NETB - NRFC o Is there a provision under the NIRC which provides for different tax
rules or treatment?
System Schedular System GR: Global System § YES. The provisions on individual TP
- E: There are § Section 24, 25, 26 in rel. to 32(a)
some that do - Global system
not apply global o System employed where the tax treatment VIEWS
system INDIFFIRENTLY THE TAX BASE and treats in common all
Income Tax Situs 1. Residence of the TP categories of taxable income of the TP
§ RC – within and without o UNIFORM tax rules or treatment and does not generally classify
§ RA – within or categorize income
§ RFC – within o Section 27 and 28
2. Place where the income is earned/derived
§ NRA – within Schedular Global
§ NRFC – within System employed where the income tax System employed where the tax
3. Nationality of the TP treatment VARIES and is made to treatment VIEWS INDIFFIRENTLY THE
§ RC – within and without depend on the KIND OR CATEGORY of TAX BASE and treats in common all
§ DC – within and without the taxable income the the TP categories of taxable income of the TP

Keywords: Keywords:
KINDS OF TP - VARIES - UNIFORM
- INDIVIDUAL TP - KIND/CATEGORY - X CLASSIFY OR
- CORPORATE TP CATEGORIZE
- ESTATE & TRUST
o Computed in the same manner and on the same basis as individual
TP
o Rules that apply to individual TP also apply to taxable estate and
trust

Dugs JUSTICE DIMAAMPAO LECTURE 4


1998 BEQ:
- Describe our present case of income tax situs
- TAN VS DEL ROSARIO
o Our income tax situs is COMPREHENSIVE [RPN]
1. Residence of the TP
§ RC – within and without
§ RA – within
§ RFC – within
2. Place where the income is earned/derived
§ NRA – within
§ NRFC – within
3. Nationality of the TP
§ RC – within and without
§ DC – within and without
What is the basis on imposing tax on sources WITHOUT on RC and DC?
- COMMISSIONER VS LENNICKY
o PARTNERSHIP THEORY
§ The basis for imposition of tax on income
§ The right of a government to tax income emanates from
its partnership in the production of income by providing
protection (protection theory) and
§ resources, incentive and proper climate for the
production of said income (doctrine of favorable profit)
o PROTECTION THEORY
§ CIR vs BOAC
§ This refers to the imposition of income on offline
international air carriers (no landing rights in the PH)
§ Nonetheless, we can still impose income on said air
carriers.
§ Offline international airline which has a GENERAL
AGENT in the PH is subject to corporate income tax on
the income derived from the sale of airplane tickets or
transport documents
§ Reiterated in AIR CANADA CASE (2015)
• Offline international carriers are taxable as
RFC
§ Why do we impose tax on them despite the fact that
they do not have landing rights?
• The flow of wealth proceeded from and
occurred within the territory of the PH enjoying
the protection of the PH government.
• In consideration of such protection, the flow of
wealth should share the burden with the
government.
§ RC and DC are taxed from sources within and without
because wherever they may be in the world, they are
accorded the protection of the PH government
Dugs JUSTICE DIMAAMPAO LECTURE
o DOCTRINE OF FAVORABLE PROFIT
§ CREBA VS ROMULO [CIR]
• What is the basis behind the imposition of
the 2% MCIT based on gross income of DC
and RFC?
1. DC owe their corporate existence and
the privilege to business to the
government
2. They also benefit from the efforts of the
government to improve the financial
market and to enhance favorable
business climate
3. Hence, it is fair for the government to
require them to make reasonable
contributions to the public expenses
TEST OF TAXABLE INCOME
1. CONSTRUCTIVE RECEIPT OF INCOME
- PILIPINAS SYNTHEETHIC SOMETHING CASE
o Test: It is the RIGHT TO RECEIVE and not the actual receipt that
determines when to include the amount in gross income
- Constructive Receipt of Income
o Although the income has not actually or physically received, it is
taxable if there is such right to receive.
- RR 2, Sect 52
o There are 2 requisites of constructive receipt of income:
1. The amount is CREDITED to the account of the TP
2. UNCONDITIONAL, VALID AND ENFORCEABLE RIGHT to
withdraw said amount
- What are the items of income which are taxable because there is such
right to receive although there is no actual receipt yet?
1. Cash or property dividend
o 2014 BEQ:
§ The recipient is a RC, RA. These recipients have yet to
receive the cash or property dividend. Is it taxable?
• YES. Constructive receipt.
2. Share of a partner from the net income of GPP
o To be taxable, it is not required that the partner receives his share
in the net income. As long as the partner has the right to receive
and such right is unconditional, valid and enforceable, it is taxable.
o Ex. Professional partner, business partner
2. ALL EVENTS TEST
- 2 cases:
o PILIPINAS SYNTHETIC CASE – test of taxable income
o ISABELA CORP CASE – it is a test of deductibility of an expense
- 3 requisites: [USA]
1. The right to receive must be UNCONDITIONAL, valid and enforceable
2. The amount must be reasonably SUSCEPTIBLE of accurate estimate
3. There must be reasonable expectation that the AMOUNT will be paid in
due course
5


- ISABELA CULTURAL CORP CASE How do you describe income tax rates?
o In this case, legal services were rendered in 1984. The billing - Individual
statement was received in 1985. Isabela Corp. did not claim such o Keyword: Progressive income tax rate
business expense (professional fees) since it had not yet received o Rate: 5 to 32%
the billing statement in 1984. Isabela corp argued that since the o Basis of progressive income tax rate?
billing statement was only received in 1985, they can only claim § Art 6, Sect 28 of the Constitution – “The congress shall
said deduction in the year 1985 when they received the billing evolve a progressive system of taxation”
statement. - Corporate
o SC: o Keyword: Uniform corporate rate
§ The deduction should have been claimed in 1984 o Rate: 30%
although they have not yet received the billing statement. § Effective: Jan 1, 2009
§ In 1984, the amount could already be reasonably o Applies to:
determined. § DC
§ Also, the tax code is clear that the expense is claimed in § RFC
the year that it was paid or incurred – 1984. § NRFC
§ The TP cannot carry over the expense. If the TP does - HYPO: There is a law passed by congress changing the individual tax
not claim the expense during the year when it was rate from progressive to uniform. Is this law valid?
incurred, the right to said claim shall be deemed waived. o CREBA VS ROMULO
§ All events test was applied o Congress has the authority to prescribe a certain tax at a specific
rate for a particular public purpose upon persons or things within its
What is the basis for the computation of the TP tax liability? jurisdiction subject to inherent and constitutional limitations
- Section 43 § JD: If you answer this, 95 in the bar exam!!!
- It shall be computed on the basis of the TP’s ANNUAL ACCOUNTING
PERIOD 2 METHODS OF COLLECTION OF INCOME TAX
o Calendar Year Period 1. Creditable withholding tax system
§ 12 months commencing on Jan and ending on 2. Final withholding tax system
December
§ Individual TP can only adapt the Calendar Year Period CREDITABLE WHT FINAL WHT
§ Corporate TP WH agent Both have a withholding agent
o Fiscal Year Period TP ü still required to report income X need to report income in the
§ Accounting period of 12 months, ending on the last day in the ITR ITR since the withholding of the
of any month other than December 31 tax is a final and complete
§ Corporate TP settlement of the tax liability
- Why do we have to know this? «Items «[FB-SWS-DRIPS]
o Because of the rule that Individual TP can only adapt or employ 1. FBT
Calendar Year period 2. BPRT
o Corporate TP may employ either Fiscal or Calendar Year period 3. Sale of RPT classified as
capital asset
Calendar Year Fiscal year 4. Winnings
12 months commencing on Jan and Accounting period of 12 months, ending 5. Sale of shares of stock NOT
ending on December on the last day of any month other than listed in the stock exchange
December 31 6. Dividend Income
7. Royalties
Income TP, Corporate TP Corporate TP 8. Interest
9. Prizes
10. Share of a partner from the
net income after tax of a
business or taxable
partnership

Dugs JUSTICE DIMAAMPAO LECTURE 6



WITHHOLDING AGENT o There are 2 instances when dividend income is subject to FT:
- 2-fold function: 1. Received by INDIVIDUAL TP
1. Agent of the TP in the filing of income tax return and in the payment of 2. Received by NRFC
income tax 7. Royalties
2. He is also the agent of the government in the withholding and 8. Interest
collection of taxes o Subject to FT
- Q: Is a WH agent considered as a TP for purposes of filing the written § Interest income on bank deposit
claim for refund? • Old law: Only Philippine currency depsit
o CIR VS P&G PHIL • New law: Both PH and Foreign currency
o Yes. A WH is technically considered a TP, hence it has the legal deposit
personality to file a written claim for refund. o Interest on loans = X subject to FT
o It is not only an agent of the government. It is also an agent of the 9. Prizes
TP in the filing of ITR, as well as the payment of income. o Only those prizes, the amount of which is MORE THAN 10k = ü
subject to FT
TAX CREDIT o LESS than 10k = X subject to FT
- What is the difference between Tax Credit and Deductible Tax? 10. Share of a partner from the net income after tax of a business or
o BICOLANDIA DRUG CORP VS COMMISSIONER taxable partnership
o It must come from a taxable or business partnership
Tax Credit Deductible Tax o What about the share of a partner from the net income of a GPP?
It reduces the TP’s tax LIABILITY Reduces TAXABLE INCOME § X subject to FT
(gross income – deductions = taxable § It must be reported by the partner subject to the
income) progressive rates
o IN SHORT!!!
- Senior Citizen’s Law § If the source is a taxable partnership or business
o «NEW RULE: • ü FT
§ The 20% discount granted to senior citizens can now be • X need to report it
claimed as a deductible tax § If the source is a GPP?
§ Old rule: It can only be claimed as a tax credit • X FT
• ü need to report
FWT
- If the only source of income is an income subject to final tax, you need not file SYSTEM OF FILING ITR
an ITR. There is nothing report. 1. PAY AS YOU FILE
- «[FB-SWS-DRIPS] o Annual filing of ITR for individuals
1. FBT o May be done by Individuals & Corporations
o Who is liable to pay the FBT? § So what is the difference?
§ It shall be paid by the ER, who is the WH agent. Individuals Corporations
2. BRPT Annual (?) Quarterly
o 15% is a final tax
o New rule: It is a final tax on the profits applied or earmarked for o BEQ:
remittance. A. How often do DC file their ITR?
o Old rule: There should be actual remittance. § Quarterly
3. Sale of RPT classified as capital asset B. Explain the procedure in the filing of corporate ITR.
o 6% CGT is a final tax 1. Domestic corporations shall file their QUARTERLY ITR showing
4. Winnings their items of income in a CUMULATIVE BASIS
o Winnings are subject to final tax 2. Thereafter, they shall file their FINAL ADJUSTMENT RETURN
o E: Lotto, PCSO = exempt showing therein the total income earned during the taxable year
5. Sale of shares of stock NOT listed in stock exchange
o Net capital gain not more than 100k = 5%
o Net capital gain more than 100k = 10%
6. Dividend Income

Dugs JUSTICE DIMAAMPAO LECTURE 7



2. SUBSTITUTED FILING OF ITR COMPENSATION INCOME

- Under certain conditions, compensation earners need not file their ITR
- Conditions: [CC1EA] COMPENSATION FOR SERVICES RENDERED
1. TP must be a compensation earner - «“In whatever form paid”
2. Only source of income is compensation income o Whether in cash or kind, as long as it is in payment for services
3. 1 ER in the PH rendered = ü compensation income
4. Tax withheld must be equal to the tax due - 2 FAVE BAR QUESTIONS:
5. The ER has to submit an alpha list to the BIR 1. Payment for services rendered is in the form of premiums paid by
o ALPHA LIST the ER on the life insurance policy of the EE
§ It is the list of all those compensation earners whose o ü taxed as compensation income provided that the payment is
income has been subject to tax withheld. made in consideration of services rendered
§ This is submitted by the employer 2. Cancellation/Forgiveness/Condonation of indebtedness/obligation
o If the condonation or cancellation is made in consideration of
GROSS INCOME services rendered
- Definition - Section 32 (A) o CASE
- Simple Definition § The EE questioned the BIR asking why he was being
o Total income derived from whatever source before deductions, taxed for the condonation of his obligation since he did
exemptions or other tax reductions not perform any service
§ Whether the income is derived from legal or illegal • Since the BIR condoned his obligation in
source = ü taxable consideration of his services = ü taxable as
- CLAIM OF RIGHT DOCTRINE compensation income
o ROKEN VS US FRINGE BENEFITS
§ Illegal gain is subject to tax - Since fringe benefits and compensation income are received by the EEs from
- All income derived from whatever source, including but not limited to ER’s, we must know the distinctions as to the tax treatment
the following [CARD-GRIP-PPP] - Subject to final tax paid by the ER – the manager/supervisor need not pay for
1. Compensation it
2. Annuities
3. Rents COMPENSATION FRINGE
4. Dividends BENEFITS
5. Gains from dealings in property TP Covers Managerial and
6. Royalties concerned - rank and file supervisory
7. Interest - managerial employees
8. Gross income from profession, trade or business and
9. Prize and winnings supervisory NOTE: FBT
10. Pensions and employees received by rank
11. Partner’s share in the net income of the general professional partnership and file employees
- «FAVORITE BAR EXAM TOPICS: = ü taxed as part
1. Dividend Income of compensation
2. Compensation Income income of rank and
3. Gross income from profession, trade or business file employees (X
4. Gains from dealings in property subject to FWT)
5. Interest Income Tax Rate 5-32% Final Tax Rate
Tax Base Taxable Gross up
compensation income monetary value
(deduct the personal, (GMV)
additional exemptions, (no deductions are
PHHI not exceeding allowed)
2,400 are allowed)

Dugs JUSTICE DIMAAMPAO LECTURE 8



- 10 TAXABLE fringe benefits [HEV-HIM-EHEL] - 11 TAX EXEMPT DE MINIMIS BEENFITS [GOCC- REAL – PCG]
1. Housing benefit 1. Gift
2. Expense Account o Christmas gift – 5k
3. Motor Vehicle o Major anniversary gift – 5k
th
4. Household personnel o 13 month pay – 82k
5. Interest on loan o Christmas Bonus – 82k
o It amounts to taxable FB if the actual interest imposed is less than 2. Overtime pay
12% o Including meal allowance – not more than 25% of the MW
o Comment of JD: This should be amended already by the BIR 3. Cash benefits
since the legal rate now is uniformly 6% o Medical benefits given to dependents – 125k/month
6. Membership in social and athletic clubs 4. Clothing or uniform benefit
7. Expenses for foreign travels o 5k/yr
8. Holiday and vacation expenses 5. Rice subsidy/ allowance
9. Educational assistance to the EE or his dependents o 1500/month
10. Life or health insurance and other non-life insurance premiums or similar 6. E
amounts in excess of what the law allows o X more than 10k
- « FREQUENT BAR EXAM QUESTION! 7. Actual medical benefits of the
o Exempt house benefits according to RR 3-98 o X more than 10k/year
o [MTB] 8. Laundry allowance
1. Military housing o 300 pesos/month
2. Temporary housing unit 9. & 10. Private employees/ Government Employees
§ 3 months or less stay in the house = ü exempt o Private employees
3. Housing benefits within the BUSINESS PREMISES of the ER § Exempt only up to the monetized value of the unused
§ CONVENIENCE OF THE ER RULE 10d VL credits during the taxable year
• The EE must stay in the housing unit so that in § So, SL credits are not exempt
case of business need, the ER may call you. o Government Employees
§ «What if it is outside the premises of the ER, can it § Monetized value of LEAVE CREDITS
still be considered exempt? • It makes no distinction anymore – whether
• YES. vacation or sick leave credits, irrespective of
• It is exempt provided that it is within the 50- the number of days = ü exempt
meter perimeter from the business premises o Is there no violation of the equal protection of the laws?
of the ER § NO! Because government employees render public
service
DE MINIMIS BENEFITS 10. Benefits granted under the CBA
- RR 1- 2015 o Benefits under the CBA, including benefits under the productivity
- This is frequently asked in the BEQ! incentive scheme, is exempt up to 10k
- Expressio unius est exclusio - Why are de minimis benefits exempt?
- HYPO: o They are exempt because they are:
o The EEs were granted COURTESY DISCOUNT. Is this exempt? 1. Relatively of small value
§ NO! It is not included in the list of exempt benefits 2. These benefits are given to promote: [CHEG]
§ The latin maxim “expressio unios est exclusio” applies 1. Contentment
here 2. Health
3. Efficiency
4. Good will
- Books, flowers and fruits
o X considered exempt de minimis benefits anymore
o RR 5-2011 excluded it already in the list

Dugs JUSTICE DIMAAMPAO LECTURE 9



INTEREST *Take note, there are NOW 5. Before

there were only 4 (SOUR)
« Exempt interest income under the NIRC [LIFE] It is defined by way of exclusion Defined by way of enumeration
1. Long term deposit on investment certificate (RMC 18-2011) Example of Capital Asset even if used in
o Requisites: [5-IB-10] T/B:
1. It must have a term of 5y to be exempt - Cash receivable
2. The depositor must be an INDIVIDUAL TP - Collectible/Intangibles
3. The depository must be a BANK - Good will of business
4. Denomination- 10k
2. Income from investment or deposit made in the INTERNATIONAL OR REGIONAL Why do we have to determine whether the asset is a capital asset or ordinary
financial institutions established by foreign government asset?
3. Derived from FINANCING INSTITUTIONS owned, financed and controlled by - Capital transactions = governed by special rules on capital transactions
foreign government 1. Holding period rule (39B)
4. Interest income from the EXPANDED FOREIGN CURRENCY DEPOSIT SYSTEM o 12- month period
- TAKE NOTE: o This may be a form of TAX AVOIDANCE
o It is only exempt if the recipient is a NR individual or corporate § It is a legally permissible means to minimize tax liability
TP § Q: You want to sell your capital asset. Is there a tax
- Tax Treatment: avoidance scheme through which you may only be held
o Exempt if the depositor is a NON RESIDENT liable to pay lesser tax liability?
o X exempt if the depositor is a RESIDENT – 7.5% • 50% taxable – if a capital asset has been sold
more than 12 months from the date of
GAINS DERIVED FROM DEALINGS IN PROPERTY purchase à the capital gain is only 50%.
• In short, when you have a capital asset, do not
DEALINGS sell it within the 12 month period à sell it after
- Sale 12 months so that you can only be taxed 50%
- Barter of said asset
- Exchange § If the seller is a corporate tax payer, it cannot avail of this
à irrespective of the period when the capital asset was
PROPERTY sold = 100% taxable!
- The word property has been changed to the word “ASSET” 2. Capital Loss Limitation (39C)
- « BEQ: The rules on CAPITAL and ORDINARY ASSET o Capital loss is deductible only from capital gain
o Capital loss cannot be deducted from ordinary gain
Capital Asset Ordinary Asset § « SURPRISE QUESTION IN BEQ – RATIONALE!
Property held by the TP whether or not [PARIS] WHY?
used in T/B 1. Property primarily held for sale • Capital loss is not deductible from ordinary
E: to customers in the ordinary gain BECAUSE capital loss is a NON-
- [PARIS] course of T/B BUSINESS CONNECTED LOSS OR
2. Allowance for depreciation EXPENSE.
used in T/B – the asset must be • To allow such deduction would be to violate
Note: depreciable such rule that only business expenses are
When you define capital asset, you have 3. Real property used in T/B deductible.
to include the PARIS exception so that 4. Inventory asset held in • It is a basic rule that only business connected
you can get the full credit connection with T/B expenses are deductible.
(ex. Property NOT primarily held for sale 5. Stock in trade which may be
• Section 34 – an expense or loss can only be
to customers in the ordinary course of properly included in the
claimed in connection with your business.
T/B) inventory
Capital loss which is sustained from a capital
transaction is definitely not connected with the
*Common characteristic – they must
business.
be held in connection with course of
o It applies to both individual and corporate
T/B of the TP
§ E: Bank and trust company

Dugs JUSTICE DIMAAMPAO LECTURE 10



3. Net capital loss carried over – NELCO (39D) Imposable on « Imposed on PRESUMED GAIN
o This can only be carried by individual tax payers - Gain by legal fiction or presumptive gain principle
o NET CAPITAL LOSS - The tax base is gross selling price or zonal value,
§ The excess of capital loss over capital gain hence take note that NO DEDUCTION IS ALLOWED!
§ Ex. -
• Capital gain = 10k
• Capital loss = 15k - BEQ #1:
= -5k o He sold his property worth 1M for only 800k The seller derived no
• The negative 5k can be carried over as a gain. In fact, he incurred loss. Is he liable for CGT?
deduction in the succeeding year § Yes.
o This is in effect an exception to the prohibition that an expense or § The seller is liable because there is a PRESUMPTION
loss cannot be carried over to the succeeding year OF GAIN in his sale of capital asset
§ Even he incurred loss, there is gain by legal fiction
INDIVIDUAL CORPORATE - BEQ #2:
Holding period rule ü X o The seller wants to sell his house and lot. He is asking you if there
Capital Loss ü ü is a tax avoidance scheme that he can use. What will be your
Limitation Rule - E: Bank and trust company advice?
NELCO ü X § He can say that it is a sale of his PRINCIPAL
RESIDENCE provided the following requisites are
««««« NUMBER 1 FAVE QUESTION IN INCOME TAX present:
- CAPITAL GAINS TAX – 6% § Requisites: [U-18-30-10-E]
o Section 24 (D) as distinguished from Sect 27 (D)(5) 1. Proceeds of the sale must be USED to
construct or purchase a new principal
Section 24 (D) Section 27 (D)(5) residence
2. The construction must be made within 18-
Subject Subject of sale must be a capital asset, specifically RPT not
months from the date of sale
used in T/B
3. 30d notice to the BIR from the date of sale
4. 10-year period – the exemption can only be
Real Property «Covers specific real
availed of once every 10 years
properties NOT used in T/B :
5. «RR 17-2003 – Escrow agreement
- Lands
o The buyer and seller and authorized
- Buildings
agent bank and the revenue district
(See BEQ#4)
officer in charge must execute an
TP/SELLER Applies to INDIVIDUAL Applies to DOMESTIC
escrow agreement whereby the 6%
TP/SELLER CORPORATION
CGT shall be deposited under an
SALE Includes: Only UNCONDITIONAL sale escrow account with the bank
- Unconditional o Within 30d from the lapse of the 18
- Conditional Sale month period, the seller must prove
- Pacto de retro sale that he used the amount for the
SELLER IS Seller has the option to avail of X available if the seller is a DC constitution of a new principal
GOVERNMENT either: residence à once proven, he can
(including - 6% CGT or withdraw the amount deposit in the
GOCC) - progressive rate of escrow account
5-32%
TAX ü tax avoidance scheme X tax avoidance scheme
AVOIDANCE provided (Family home/ provided
SCHEME principal residence - see BEQ
#2)
TAX RATE 6% Final Tax
TAX BASE Gross selling price or zonal value, whichever is higher

Dugs JUSTICE DIMAAMPAO LECTURE 11



- BEQ #3:
o « Is the 6% CGT applicable to forced sale or foreclosure of
REM? DIVIDEND
§ SUPREME TRANSLINER INC VS BPI FAMILY - It is subject to FT in 2 situations
SAVINGS BANK 1. Recipient is an INDIVIDUAL TP
§ RR 4-99 – rules on EJ foreclosure of REM 2. Recipient is a NRFC
§ Ans: It depends on whether the MOR has exercised - It is exempt in the following situations: [SIR]
the right of legal redemption 1. Inter-corporate dividend
1. If the MOR exercised right of redemption already o Domestic corporation is the giver à receiver is another domestic
within the 1-year period from the date of registration corporation = EXEMPT!
of the sale in the RD = 2. Recipient is a RFC
• X subject to CGT for the simple reason that o Recipient is a RFC
there is no sale to speak of. o If the recipient is a NRFC = subject to FT
• From PM reyes: MEE x need to pay for CGT 3. Stock dividend
2. If the MOR fails to exercise the right of redemption o Stock dividends are not taxable because they merely represent
within the 1-year period = transfer of surplus account to the capital account
• ü subject to CGT o In simple words:
• From PM reyes: MEE ü need to pay for CGT 1. It merely represents transfer of surplus to the capital
• TAX BASE: account
o The amount offered by the highest 2. It merely represents in the increase of the interest of the
bidder investor in the corporation
• WHEN: 3. There is no realized gain or flow of wealth
o Within 30d from the lapse of the 1- o EXCEPTION [COURT]
year redemption period 1. Change in SH’s interest or right in the net asset of the
- BEQ #4 corporation
o PHILIPPINES TECHNOLOGY VS COMMISSIONER 2. Recipient is Other than the SH (Dividend in stock)
o Suppose the seller is a domestic corporation. It sells lands, 3. Recipient is a Usufructuary
machineries or equipment. What is the tax treatment? Is said gain § CASE
derived from the sale of machineries and equipment NOT USED IN • It is taxable based on Art 566 of the NCC
T/B subject to 6% CGT or the corporate rate of 30% which states that the usufructuary is entitled to
o Answer: the natural, industrial or civil fruit of the thing
§ Section 27 (D)(5) only covers lands and buildings. under usufruct (shares of stock)
There is NO MENTION OF MACHINERIES AND 4. Redemption of shares of stock
EQUIPMENT. § CIR VS SORIANO
§ Hence, it is not subject to the 6% CGT à the regular • It may or may not result in a taxable gain.
corporate rate of 30% is applicable o It may result to a taxable gain if the
§ In short: SOURCE of the stock declaration is
• If the DC sells land and buildings not used in the ORIGINAL OR CAPITAL = X
T/B = 6% CGT GAIN = X taxable
• If the DC sells machineries and equipment not o If the source is a stock dividend
used in T/B = 30% corporate rate declaration (redeemable shares) =
ü gain = ütaxable
5. Treasury Shares of Stock
§ COMMISSIONER VS MANNY
• DISGUISED DIVIDENDS
o The board declared dividends
denominated as stock dividends to
evade tax since they know the SD
are tax exempt. It turned out that it

Dugs JUSTICE DIMAAMPAO LECTURE 12



was really in the form of treasurer o PAGCOR exemption

shares of stock since there was no § The SC ruled that PAGCOR is still EXEMPT à
presence of URE. Hence, the court • from its INCOME DERIVED FROM GAMING
said that it is taxable. OPERATIONS
o From PM reyes: They are • What compromises gaming operations?
payments, usually in the form of o [CM DR]
dividends in order to evade the 1. Casino operations
higher taxes imposed on gross 2. Mobile bingo operations
income. They are taxable as part of 3. Dollar pit operations
compensation income. 4. Regular bingo operations
§ What has been WITHDRAWN à
• INCOME TAXABLE FROM OTHER
EXEMPTIONS RELATED SERVICES
• What comprises the other related
SUMMARY OF TAX EXEMPT CORPORATIONS – Total: 18 services?
1. Sect 22 (B) – 3 o [ABJS]
1. GPP 1. Accredited or licensed bingo or casino
2. Joint Venture operations by private persons
3. Joint Consortium 2. Junket operations
2. Section 27 (C) – 4 3. Shows demo units
1. GSIS
2. SSS SECTION 30
3. PHIC - « ST. LUKES CASE –
4. PCSO - Requisites for exemption: [NOON]
3. Section 30 – 11 1. Non-stock corporation
o ü comply
2. Organized exclusively for charitable purposes
«SECTION 22 (B) o ü comply
1. GPP 3. Operated exclusively for charitable purposes
2. Joint Venture o X able to prove this
o Undertaking construction projects o It derived income from paying patient in the amount of
3. Joint consortium P1,730,367,965
- 2 conditions: 4. No part of its net income or asset shall belong to it or inured to the
1. Engaged in petroleum, coal, geothermal or other energy operations benefit of any member/organizer/officer or any specific person
2. Must be in accordance with an agreement with the government - Section 30 (E) [SCCRRA]
o Scientific
SECTION 27 (C) o Charitable
1. GSIS o Cultural
2. SSS o Religious
3. PHIC o Rehabilitation of Veterans organization
4. PCSO o Athletic Organizations
- « Take note: PAGCOR VS CIR

Dugs JUSTICE DIMAAMPAO LECTURE 13



« DIMAAMPAO MATRIX FOR EXEMPTION! (ü = exempt; X = not exempt, taxable)

IT RPT DT ET VAT LGT CD

Religious ü ü ü X X X X

Once they sell RP or PP à provided ADE used for REC Once they sell goods for
X exempt anymore profit = ü liable for VAT
regardless of to whom it is
sold and purpose the sold
property is used
Educational ü“ ü X X“ ü ü
- NS/NP ü
prov. ADE used for Under the constitution,
educational purpose NS/NP educational
institutions are exempt from
If they sell RP or PP à ü DUTIES
still exempt provided they
prove that the property sold
is still used ADE for
educational purposes
- Govt ü ü“ ü X 0% VAT X ü
(ex. UP)
Basis: RA 9500 RA 9500 (Sect 25C) –
exempt from custom duties
ü ü“ ü ü X“ X X
- Charitable
Charitable ü ü“ ü X“ X X
Provided that not more than
Not totally exempt since 50% are use for admin
sale of RP subj to corp purposes
income tax

RPT
- ADE meaning? DONORS TAX
o NPC CASE - 9 exempt donations: [CARTIER-CPS]
§ Actual 1. Charitable institution
• Means truly and in fact o Provided that the legal conditions are complied with
• As opposed to seemingly o Not more than 50% of the donation shall be used for administration
§ Directly purposes
• Means not by secondary means without 2. Accredited NGO
anything intervening 3. Religious Organization
§ Exclusively 4. Trust Foundation
• Means without admission of others to 5. Educational Institution
participation o Must be non-stock and non-profit
o LUNG CENTER CASE 6. Research Organization
§ Exclusively 7. Cultural organization
• Means solely 8. Philanthropic organization
- The constitution makes no distinction. It is the USE which is the test of 9. Social welfare organization
exemption. As long as it is ADE used for educational purposes – whether
private or government = EXEMPT

Dugs JUSTICE DIMAAMPAO LECTURE 14



ESTATE TAX - It is not a defense that they are NS or NP

- 3 institutions covered by exemption: [CSC] - For GOVERNMENT EDUC INSTITUTION
1. Charitable Institutions o 0% tax
2. Social welfare organizations
3. Cultural organizations LGT [CHEW]
- 4 exempt:
1. Cooperatives registered under RA 6938
2. Non-profit hospital
3. Non-stock, NP educational institutions
VAT 4. Local Water districts
- Any person, whether or not it a NS or NP private organization or government
entity à may be subject to VAT in the event that they sell goods in the course CUSTOMS DUTIES
of trade or business - Customs modernizations and tariff act
- There must be REGULARLITY coupled with COMMERCIAL OR ECONOMIC - Section 800 – list of exemptions
ACTIVITY
- Once they sell goods for profit, they can no be subject to VAT.

Dugs JUSTICE DIMAAMPAO LECTURE 15



SIGNIFICANT CORPORATE RULES

LAW TAX TAX BASE PURPOSE JURISPRUDENCE

RATE
1. MCIT It applies only to: 2% GROSS income Corporations resorted to CREBA VS ROMULA
1. Domestic Corporations overstatement of expenses in - It applies only on the commencement of
th
2. RFC order to avoid payment of NCIT. 4 year of corporate existence
Hence, sometimes it would - There is NO VIOLATION OF DP à it is
X apply to NRFC result to: not a tax on capital. It is still a tax on
1. If taxable income is income although the tax base gross.
ZERO
2. If taxable income is
NEGATIVE or
3. If the MCIT is
GREATER than the
NCIT due

PURPOSE: [CIR-F]
1. Corporate existence –
corporations owe their
existence to the
government
2. Improve financial market
3. Hence, it is thus
Reasonable contribution
to the public
4. Forestall the practice of
corporations resorting to
over deduction from their
income tax so as to not pay
NCIT
2. IAET RR 2-2001 10% Improperly [PD] 1. IMMEDIACY TEST
- IAET only applies to DC accumulated taxable 1. It is imposed by way of - Is a test designed to determine whether
income penalty these corporate profits are used for the
Subject to IAET: [CH] 2. Deterrent to tax avoidance IMMEDIATE NEEDS of a business of a
1. Closely held corporations corporation
2. Holding companies - If the corporate profits are reserved for
the immediate needs of the business = X
Not subject to IAET [BPI] covered by IAET
1. Bank and non-bank financial - “Reasonable needs” is the same as
intermediaries “Immediate needs”
2. Publicly held corporations 2. HELVERING CASE
3. Insurance companies - GR: Income tax is prescriptible
o E: « IAET which is
Imprescriptible
- Why?
o Because the corporation
cannot be compelled to
declare the IAET

Dugs JUSTICE DIMAAMPAO LECTURE 16



3. « RFC 30% Taxable income 1. « AIR CANADA VS COMMISSIONER

- Offline international air carriers which
which includes Meaning: have no landing rights in the PH can still
offline It can claim be taxed in the PH
international deductions - Tax rate is 30%
airline - Tax base is taxable income
- Deductions are allowed
- Purpose for this rule?
o PROTECTION THEORY
o Because such airline receives
protection from the PH
government
o The flow of wealth came from
the PH
o In consideration of such
protection, the flow of wealth
should share the burden of the
government (BOAC CASE)
- LIMITATION
o Subject to such limitations of
the RP-CANADA tax treaty –
not more than 1/2% of the
gross revenues earned from
the sale of tickets in the PH
o We can impose tax on the
income of offline international
airlines but it is subject to
treaties
4. TAX Applies only to NRFC 15% Amount of cash or TAX SPARING 1. « P&G VS COMMISSIONER
SPARING - When it receives cash or property dividends - Purpose to attract - 2 important rulings:
CREDIT property dividends from a foreign investors 1. Tax sparing and Tax credit definition
RULE DC à it is subject to FT - How? Because (see comments below)
instead the 30% rate 2. Is a WH agent legally authorized to file a
If the recipient is another DC or a applied, it is only written claim for refund?
RFC 15%. Hence, there o YES.
- It is exempt was TAX o WH agent is not only an agent of
SAVING/SPARING. the government; he is also the
But if the recipient is a NRFC agent of the TP in the filing of ITR
- ü taxable subject to 15% TAX CREDIT and payment of income tax.
FT - It is enough that it o Technically, a WH is considered a
shows that tax credit tax payor
is allowed by the
foreign government –
not necessary that
amount is actually
granted

Dugs JUSTICE DIMAAMPAO LECTURE 17



5. BPRT 15% Applied or To equalize the tax burden 1. « MARUBENI VS COMMISSIONER

earmarked for between a FC that is doing - What may constitute branch profits
remittance business in the PH and a FC that is subject to 15% FT?
that established branch offices o Branch profits that are
Old rule: Actually here in the PH EFFECTIVELY CONNECTED
remitted with the conduct of T/B in the
PH
2. « DEUTSCHE AC MANILA BRANCH VS
COMMISSIONER
- Is it always 15%?
o NO.
o It is subject to TAX TREATY
(RP-GERMANY TAX
TREATY) stating that the tax
should not be more than 10%
of the profits remitted to the
head office of these RFC
6. OFFSHORE Section 28 (A)(3) 10% FT Gross income from
BANKING those foreign
UNITS currency transactions
with local commercial
banks and branches
of foreign banks

7. INTERNATIO Covers: 2.5% GPB

NAL AIR - International airlines or
CARRIER shipping WITH landing
(GBP) rights in the PH - ONLINE
INTERNATIONAL
AIRLINE

X cover
- Offline international
airlines – taxed as RFC

TEST
The passengers, baggage
ORIGINATES from the PH
8. ROHQ RHQ of multinational corps EXEMPT from
RHQ income tax

ROHQ = subject to tax 10% Taxable income

Dugs JUSTICE DIMAAMPAO LECTURE 18



MCIT o Since the tax code reduces the corporate rate to 15%, there is a
- Example: TAX SAVE PERCENTAGE – HENCE THERE IS TAX SPARING
o GI = 10M § This investor can save 15% percentage wise if it makes
o Expenses = 12M an ivestment here in the PH
o Net Loss = 2M § The purpose:
o Is the DC/RFC subject to 2% MCIT? • To attract foreign investors
§ ü subject to MCIT - TAX CREDIT
- Example: o You make an investment here. We will reduce rate. Provided that
o 0 taxable income your government will allow credit against the tax due from the
§ ü subject to MCIT NRFC deemed paid.
o RR 9-98 o We will only invest cash and property dividends in the PH provided
§ In as much as the tax base is gross income, DC/RFC that that such 15% shall be allowed as a tax credit when the NRFC files
incurred a net loss or has no taxable income is still his ITR in the US.
subject to MCIT o Condition sine qua non to the reduction of this corporate rate to
15%
IAET o Possible question:
- Some corporations withhold the declaration of dividends so that they will not § Does tax credit actual amount? On April 15, 1998. It has
be taxed. So, IAET is used as a punishment/penalty for corporations who do been the subject of 2 conflicting view. But now, it has
this. already been settled.
• ACTUAL OR AMOUNT ALLOWED
o It is enough that it shows a
TAX SPARING CREDIT RULE document that tax credit is allowed
- There was an investment here from which income was derived. We could by the foreign government – not
have subjected that to 30% tax. But the law reduces it to 15%. So, there is a necessary that the amount actually
difference of 15%. granted
- TAX SPARING

Dugs JUSTICE DIMAAMPAO LECTURE 19



EXCLUSIONS - SECTION 32B [LAG-CIRM] INCOME EXEMPT UNDER TAX TREATY

- Life insurance proceeds - Self-explanatory
- Amount received as return of premiums
- Gifts, donations RETIREMENT BENEFITS
- Compensation for injuries or sickness including damages - Requisites for exclusion:
- Income exempt under tax treaty 1. Must be a PRIVATE employee
- Retirement benefits, pensions and gratuities 2. At least 50 years of age
- « Miscellaneous amounts 3. Can only be availed of 1x
4. Reasonable private benefit plan
5. At least 10 years of service
- Private employer
LIFE INSURANCE PROCEEDS o Individual or corporate
- X subject to tax because there is no income or profit realized - X apply to government employees because the one that is applicable is that:
- It just represents indemnifications o All benefits received under:
- « BEQ IN REL TO ESTATE TAX – favorite question § GSIS = exempt from income regardless of age and
o The proceeds of life insurance policy is not subject to tax because length of service
there is no income or profit - « ZIALZITA DOCTRINE
o May it form part of the gross income? o Section 32 (B)(6b)
§ Included § “Beyond the control of the employee or official”
• The designated beneficiary is the Estate or • Compulsory retirement = considered cause
E/A = always included irrespective of whether beyond the control of the EE or official, hence
it is revocable or irrevocable all payments including that monetized value of
rd
• REVOCABLE designation of 3 person as leave credits = ü exempt from IT
beneficiary
§ Excluded
rd
• IRREVOCABLE designation of 3 person as
beneficiary MISCELLANOUS ITEMS
• Group insurance policy - « MITSUBISHI CASE
o Why? Remember that what is o Extended 20M dollar loan for the construction of a Japanese RFC
included is only insurance taken on in the PH. Then 20M dollar loan was extended to Mitsubishi to Atlas
the insured’s own life Corporation (DC).
o So, there was a contract of loan between Mitsubishi corp and Atlas
AMOUNT RECEIVED AS A RETURN OF PREMIUMS corporation. Is it subject to income tax?
- Self –explanatory § ü taxable even if it came from an exempt financing
institution
§ Because the bank was never made as a party to the loan
GIFTS, DONATIONS § Mitsubishi Metal Corp was never made as an agent of
- Donation MC the bank hence you cannot apply the rule of extension of
o Exempt from income tax the personality
o But subject to estate tax § IT IS TAXABLE BECAUSE EXEMPTION MUST BE
STRICTLY CONSTRUED AGAINST THE TAXPAYER
§ Mitsubishi Metal Corp is NOT an exempt corporation
Compensation for injuries or sickness including damages o Art 1953
- BEQ: Are moral and exemplary damages subject to income tax? § When the contract of loan is consummated, the money
o VIEW 1: Yes, it is subject to tax becomes the money of the borrower. When Mitsubishi
o « VIEW 2: borrowed money, it became the money of Mitsubishi.
§ NO! It is not subject to income tax because there is no Hence, it is not exempt.
gain or profit realized o *Medj malabo explanation nya. Look for the case!
-

Dugs JUSTICE DIMAAMPAO LECTURE 20



EXEMPTIONS TEST OF EXEMPTION

- Exempt prizes and awards - Under the law –
- 3 conditions for exemption of prizes: o Paid or incurred in connection with development, operation and
1. It must be received in recognition of scientific, charitable, religious, management and conduct [DOM-C]
artistic, literary, educational, civil achievement (CARCELS) - Jurisprudence [CPA]
§ Note that it does NOT include cultural o Capitalization Test
2. Recipient was selected WITHOUT any action on his part and § ATLAS CONSOLIDATED MINING CASE
3. Unconditional receipt – he does not need to render future service • When you speak of an asset, it must have an
for receipt of said prize estimated useful life of at least 1 year
- Awards • Capitalization expenses such as
o Sanctioned by the national sports association reorganization expenses = X deductible
§ Must be accredited by Philippine Olympic Committee o Why? Because the treatment here
under RA 6847 is that it should be spread over the
th
- Bonuses, 13 month pay and other benefits period
o Not exceeding 82k threshold • Ex. X exempt since capital expenditure
o Other benefits include o Extraordinary expenses
§ Christmas bonus o Permanent improvements
§ Productivity incentive benefit o Production Test
o If your examiner uses GIFT à 5k exempt de minimis benefit § ESSO CASE
o « JAN 24, 2017 CASE!!!!!! THANK YOU DIMAAMPAO! • To be deductible it must be paid or incurred in
§ MWE the production or income
• exempt from income tax • If it is paid/incurred after the production of
• X required to file ITR income = X deductible
th
§ Suppose these MW earners received 13 month pay and • In this case, margin fees paid to BSP = X
other benefits in excess of the 82k threshold? deductible because this was paid or incurred
• YES, THEY ARE STILL EXEMPT because after the production
that will defeat the purpose for exemption o All events Test
granted to said MWE § CIR VS ISABELA CULTURAL CORPORATION
• SC declared invalid the RR circular which • 2 conditions must be present
stated that they will no longer be exempt 1. Liability to pay must be FIXED
2. The availability of REASONABLE
ACCURATE DETERMINATION of
ITEMIZED DEDUCTIONS [BIR-CTC-LDB] such income or liability
1. Business expenses
2. Interest expense INTEREST EXPENSE
3. Research and development expenditure - ü allowable deduction
- New deduction – never been asked – take note of it! - RMC
4. Charitable and other contribution o Interest on capital is subject to the ABSOLUTE RULE is NOT
5. Taxes DEDUCTIBLE
6. Contribution to pension trust - « PICOP VS COMMISSIONER
7. Losses o Theoretical interest is not deductible
8. Depreciation expense o Reasons:
9. Depletion of oul and gas wells and mines 1. It is merely computed or calculated - To be deductible, it must
10. Bad Debts be paid or incurred
2. It does not arise from interest bearing obligation

Dugs JUSTICE DIMAAMPAO LECTURE 21



BAD DEBTS EXPENSE o It will be as if he has been married or gainfully employed

- « PH REFINING CORP VS COMMISSIONER at the close or end of the taxable year
o This case imposes a judicial requisite for exemption o Hence, the person entitled to the exemption can still
o Under Sec 34 (E) in that in addition to that requisite for deductibility claim it
of bad debt à such amount must be UNCOLLECTIBLE IN THE o EXPLAIN!!!
FUTURE • BY FICTION OF LAW, in legal contemplation,
o If there is such possibility that it may be collected in the future à such marriage took place at the close of
the BIR will deny the deduction taxable year
o There must be EARNEST EFFORT to collect the same [SCRA] • BY FICTION OF LAW, in legal contemplation,
o Sending of statement of account it is as if he was gainfully employed at the end
o Collection Letter of the taxable year
o Referral of the case to a lawyer
o Filing of an action in court

OPTIONAL STANDARD DEDUCTION (OSD)

- Section 34 (F) as amended by RA 9504
- You may either claim the itemized deductions or the or the OSD (40%)
- Rate:
o 40%
- « Tax Base:
o Individual TP – GROSS RECEIPT
o Corporate TP – GROSS INCOME

PERSONAL EXEMPTION
- BASIC personal exemption - 50k
o Regardless if the TP is single, head of family or married
- For every qualified dependent child (X more than 4) – 25K
o If the one who is claiming are legally separated spouse à it is the
one who has the custody of the child who can claim the additional
personal exemption
- Who can claim the additional personal exemption if they are married?
o GR: Head of the family – usually the husband
o E: If the husband does not earn any income (palamunin) à it is the
wife who can claim it
• The wife shall ask the husband to execute a
waiver in favor of the wife and thereafter, the
wife can claim the additional personal
exemption

STATUS-AT-THE-END OF THE YEAR RULE

- SERENO CASE (2017)
o Full taxable year treatment
o There is no prorated personal exemption
o Some Examples:
o Marriage of the dependent during the taxable period
o Gainful employment of the dependent during the taxable
year
o The exemption of 25K cannot be prorated
o So what will happen?

Dugs JUSTICE DIMAAMPAO LECTURE 22



REMEDIES - 223
o Grounds for suspension – focus on the 3 (PRW)
FAVORITE BAR QUESTIONS o Prohibited from making distraint or levy
- TITLE 8 of the NIRC o Request for reinvestigation granted
o Sect 222 to 231 (8) = favorite BQ o Waiver of Statute of Limitations
- Jurisdiction of CTA o PROHIBITED FROM MAKING DISTRAINT OR LEVY
o In relation to NO INJUNCTION RULE in relation to PORK
PRESCRIPTIVE PERIODS BARREL
- 203 à 222 à 223 o GR: No court can enjoin the collection of taxes
- 203 – assessment • E: CTA in the exercise of appellate jurisdiction
o 3-year to assess from the filing of ITR o « PACQUIAO CASE
o On or before April 15 – start on April 15 • 2 grounds for grant of injunction
o After April 15 – start on latter date o Collection shall jeopardize the
o What about if there is is amendment to the ITR? interest of the government or the tax
o It depends payer
• It commences to run from the filing of the o Cash bond or surety bond 2x the
SUBSTANTIALLY amended return amount of the value of property
• If no substantial change in the return à start • The Pacquiao case is an exception to the
to run from original above rule:
- 222 – collection o COLLECTOR VS ABELLENA
o 5 year § If the method employed
o Normal collection by the BIR in the
o 10 year collection of his taxes is
o If the return is false, fraudulent or if there is failure to file NOT valid or is improper
return (3F) or unjust
o 10y from the discovery of false, fraudulent or failure to o COLLECTOR VS ZULUETA
file return § If the tax has already
o Taxes may be collected with or without prior assessment been prescribed
o Assessment is not a condition sine qua non to collection • JB: If the bond required is 5x the net worth à
o « What is the difference between FALSE return and the bond may be dispenses with
FRADULENT RETURN? o Request for REINVESTIGATION
o False return – implies deviation from the truth or fact, o Reinvestigation
which may be intentional or unintentional • It will suspend the running of the PP
o Fraudulent return – deviation is always intention and • It is a plea of re-evaluation of assessment on
deceitful for the purposes of evading the tax the basis of NDE
o Sect 248 (B) o Reconsideration
o « GR: Fraud cannot be presumed • It will NOT suspend the running of the PP
• E: In the tax code, there is prima facie • It is a plea of re-evaluation of an assessment
evidence of fraud or false return on the basis of existing record
o The understatement of income o 2016 BEQ:– REQUISITES FOR SUSPENSION OF THE
exceeds 30% running of the PP if the period is extended [BAWAS]
o The overstatement of expenses • Before the expiration of the PP
exceeds 30% • Approved by the BIR
• It must be in writing
• And the one asking for such extension must be
duly authorized by the TP
o In the bar problem, the person was
merely an accountant à hence he
was not authorized
• Signed by the TP

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204 o Minimum corporate rate: not lower than 40% of the basic
- Expressio unius est exclusio tax liability
- Memorize those cases which cannot be compromised o This covers JEOPARDY ASSESSMENTS
- « What cases cannot be compromised: [WAAFER] • Jeopardy assessment is an example of
o Withholding Taxes doubtful validity case BECAUSE
o E: if there is doubt on the TP’s obligation o There is no complete or partial audit
o Criminal case already filed in court o There is a need to make an
o Approved schedule of payments in installments assessment so as to not jeopardize
o Final judgment of the court on tax cases the interest of the government
o Criminal fraud cases o Financial incapacity
o Estate Tax cases o Minimum compromise rate: not lower than 10% of the
o Report of reinvestigation or reconsideration which must be final basic tax liability
in character
- 2 ground for compromise [DF]
o Doubtful validity

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REMEDIES OF THE TP
- Matrix on protested or disputed assessment
- Procedure of the BIR decision adverse to the TP up to the SC

REMEDY WHO WHERE WHAT TO FILE GROUNDS PP

1. Protest/Dispute the TP or his authorized agent BIR 1. Request for Question of F/L/Both 30d
FLD/FAN reconsideration OR from receipt of FAN/FLD
2. Request for
reinvestigation – 60d
for submission of
relevant documents
2. APPEAL BIR decision TP or his authorized agent CTA division Rule 42 – petition for review Question of F/L/Both 1. 30d from receipt
of decision if a
decision has been
rendered
2. 30d from the lapse
of 180d period if
no decision has
been rendered
3. Await the decision
of the BIR and
then appeal 30d
from receipt
3. ASSAIL OR TP or his authorized agent CTA division Motion for Reconsideration Question of F/L/Both 15d
QUESTION THE CTA from receipt of the decision
DIVISION NOTE: MR is MANDATORY of the CTA division

(When appeal to CTA Div

denied)
4. APPEAL order of CTA TP or his authorized agent CTA EN BANC Petitioner for Review Question of F/L/Both 15d
division denying MR (Rule 43) from receipt of decision of
the CTA division denying
(When MR to CTA div MR
denied)

Remember: Do not apply

the 30d period
5. APPEAL decision of TP or his authorized agent SC Petition for review on Question of Law 15d
CTA En Banc certiorari from receipt of decision
(Rule 45) denying appeal to CTA en
Banc

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RR 18-2013 o If a decision has been rendered within the 180d period

- No more notice of NIC à remedy is to appeal to CTA division within 30d from
- ü PAN receipt of decision
PAN o If no decision has been rendered within the 180d period
- « CASE: à remedy is:
o If the BIR has not given PAN à the subsequent assessments and 1. Appeal such inaction to the CTA division
proceedings shall be considered null and void for being violative of within 30d from the lapse of the 180d
DP period OR
- GR: Mandatory: 2. The TP may AWAIT for the decision of
o E: X need PAN [MDCEN] the BIR and appeal such decision to the
o When the assessment is brought about by CTA within 30d from receipt of such
MATHEMATICAL ERROR decision
o There is a DIFFERENCE between the amount credited o These two remedies are mutually exclusive
and withheld o Comment of Justice Dimaampao:
o When there is an excess of CREDITABLE withholding • He does not agree with the AWAITING of the
tax decision of the BIR. What if the decision is
o EXCISE tax rendered after 5 years? It defeats the purpose
o Transfer from exempt to NON-EXEMPT person of the 180d period.
- 15d period from the receipt within which to respond • But do not say this in the BE because it is only
o If the TP fails to respond à the BIR shall then serve the FLD/FAN an opinion.

FLD/FAN
- It is the FLD/FAN which can be disputed or protested
- Remedy?
o Protest or dispute the FLD/FAN

Dugs JUSTICE DIMAAMPAO LECTURE 26



PROCEDURE FOR REVIEW OF REFUND OF TP

REMEDY WHO WHERE WHAT TO FILE GROUNDS PP JURISPRUDENCE

1. File a written claim for TP BIR 1. Written claim for 1. Erroneously/illegally 2 years FORTUNE TOBACCO
REFUND refund collected from the date of payment CASE
2. In writing 2. Without authority If the ground if not one of
“ADMIN CLAIM” 3. It must contain 3. Wrongful collection the above, a claim for
4. CATEGORICAL 4. Excessive collection refund cannot be filed
DEMAND for
reimbursement CASE
of taxes Date of payment should be
erroneously construed in the case of TP
assessed or from the filing of the FINAL
collected ADJUSTMENT RETURN

PRIME TOWN CASE

Admin Code – 2 year = 12
months regardless of leap
year

For VAT – the 2 year period

commences to run from the
close of the taxable quarter
2. APPEAL BIR decision TP CTA Rule 42 – petition for Question of F/L/Both 2 YEARS PERALTA CASE
denying written claim for division review From the date of payment - FOR VAT - The
refund + appeal filed
And within 30d beyond the 2
“JUDICIAL CLAIM” from receipt of denial year period can
still be
(Written claim for refund If there is no action on the claim for considered filed
denied) tax credit or refund - 2-120-30 rule on time as long
applies as it is filed
- The TP may appeal to the within the 30d
CTA within 30d from the period
lapse of the 120d period

NB: The two periods must concur

But for VAT

- The 2-yr period applies
only to the filing of the
administrative claim
(filing of claim for refund or
credit with the BIR) not the
judicial claim
- 2 years is counted from the
close of the taxable quarter
when the sales were made

Dugs JUSTICE DIMAAMPAO LECTURE 27



If there is no decision, file the

appeal 30 days from the lapse 120d
period
- GR: 120d period is
mandatory only if the
written claim for refund
was filed AFTER
OCTOBER 6, 2010
- E: X need to wait for the
lapse of 120d period à
BEFORE OCTOBER 6,
2010 (Taganito Mining
Case)
3. ASSAIL OR QUESTION TP CTA Motion for Question of F/L/Both 15d
THE CTA DIVISION division Reconsideration from receipt of the decision of the
CTA division
(When appeal to CTA Div NOTE: MR is
denied) MANDATORY
4. APPEAL order of CTA TP or his CTA EN Petitioner for Review Question of F/L/Both 15d
division denying MR authorized BANC (Rule 43) from receipt of decision of the CTA
agent division denying MR
(When MR to CTA div
denied)
Remember: Do not apply the 30d
period
5. APPEAL decision of TP or his SC Petition for review on Question of Law 15d
CTA En Banc authorized certiorari from receipt of decision denying
agent (Rule 45) appeal to CTA en Banc

NOTE THAT 3, 4 and 5 are the same as the first matrix

TO CLARIFY RULE ON REFUND/CREDIT:

- GR:
o The CTA can only acquire jurisdiction over a case
o after the CIR has rendered its decision OR
o after the lapse of the period for the CIR to act – 120 days
to decide + 30day thereafter to appeal (120+30)
- TAGANITO MINING VS CIR
o Judicial claims filed from December 10, 2003 to October 6, 2010
o X need to wait for the exhaustion of the 120d period
o This is in consonance with the principle of equitable
estoppel (DA-489-03)
- CIR VS AICHI
o The requirement of 2 years from the close of taxable year à refers
to ADMINISTRATIVE CLAIM (claim filed with the CIR) and not the
claim filed with the CTA (JUDICIAL CLAIM)

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CTA LAW o Patently unjust decision

o Potentially capable of causing
SOME CASE DOCTRINES unwarranted and irremediable injury
- Decisions that may be appealed to the CTA need not be decisions on the or damage to the parties
merits • It requires 2/3 vote of the actual membership
- When the BIR files an action for collection in court, it is considered an implied of the SC
denial of the decision à ü appeal to the CTA
- Such final decision constitutes as final determination of the BIR on the
disputed assessment hence it can be appealed to the CTA

« PHILIPPINE NATIONAL OIL COMPANY (PNOC) VS CA

- JUSTICE BERSAMIN CASE
- The claim against the PNB à you cannot apply PD 42 saying that it should
be referred to the SJ
- It should be APPEALED TO THE CTA because the CTA is the specialized
court
- Reason:
o RA 1125 is the law which confers jurisdiction on the CTA which
took effect on June 16, 1954
o PD 242 saying that disputes between agencies of the government
including GOCC shall be referred first to the SJ took effect on July
9, 1973
o So, it is interesting because there is now a clash between the two
laws
o Which latin maxim prevails?
• Generial specialej3kbjedn2 vs post
hewkjfebhsfbniweldml
• SPL (RA 1125) MUST PREVAUL OVER PD
242 although the latter is a present law

« KEPCO CASE
- DOES CTA HAVE JURISDICTION OVER PETITION FOR ANNULMENT OF
JUDGMENT?
o NO!
o The law creating the CTA conferred no such jurisdiction

« What is your remedy in case the SC denies or dismisses your petition for review
under Rule 45? Are you allowed to file a second MR?
nd
- GR: Rule 52 – No 2 MR is allowed
o E: BUT it does not apply to the SC!!!
nd
o Such provision in the internal rules of the SC allows 2
MR
o BERSAMIN is one of those who allowed this in the
internal rules of the SC (May 4, 2010 Internal rules of SC)
o GROUND:
• Higher interest of justice! [LPP]
o Legally erroneous decision

Dugs JUSTICE DIMAAMPAO LECTURE 29