MARCH 24, 2020 Lecture  Territorial

Atty. Xandrix Peralta, CPA jurisdiction and

situs of taxation
Part 1. are DIFFERENT.
[Short recap on cases]  Territorial
1. Chevron vs. BCDA jurisdiction refers
- WON a royalty fee is a tax or to the influence
regulation over the subject
2. Victoria’s Milling case matter or object
- How do we presume the tax within which we
law if silent? Whether it is a tax can impose taxes.
or exaction.  Situs is the
3. Ferrer vs. Bautista location where
- Determination of power to tax taxes are to be
- Police power; Mayor Bautista levied or collected.
collected garbage fees For example, RPT
is paid where the
[Continue on the theories and basic property is located
principles of taxation] even if one is
1. Territorial jurisdiction residing someplace
GR: Taxation can only be enforced else.
where our PH law has iii. Source of the tax subject or
jurisdiction. Once the object is object
already outside of the PH, it is
no longer subject to PH 3. Different types of taxation.
taxation. Atty. P: Memorize the list in the book.
XPN: If there is a connection or May include the following
relationship between the taxing - Income tax
authority and the tax - Property tax
subject/object. (Resident citizen, - Excise tax
Domestic corporation) - Ad valorem tax
- Percentage tax
a. Familiarize/Memorize the table - Withholding tax
given by Atty. P. - Poll tax

2. In determining the liability of a 4. WON the power of the government to

taxpayer, we need to consider at least
three factors:
i. Citizenship of the tax subject
or object.
i. Such as corporations
organized and existing
under PH laws
ii. Residence or location of the tax
subject or object
i. BAR question: What is
situs of taxation?
Atty. P: Commonly
known as the place of
taxation.
collect taxes prescribes.
Answer: The right of the government
to collect taxes is
IMPRESCRIPTIBLE.
Explanation:
a. 3-year rule – Government has 3
years to make an assessment
(accuracy of the amount disclosed
in the tax return), from the date of
filing
b. 10-year rule – Aside from the 3-
year rule, we have the 10-year rule.
In this case, the government has 10
years to collect taxes from the date
 of discovery, if there is any of the - For example: The well-celebrated
following: case of Sen. Pacquiao.
i. There is suspicion of fraud Pacquiao case:
in the tax return, According to Commissioner
ii. You did not file a tax return, Henares, P underpaid his taxes
or (income earned abroad). P denied the
iii. False tax return was filed. allegation, but he was unable to
present Tax Credit Certificate.
5. Elements of double taxation NO double taxation because
Double taxation is NOT illegal different taxing authority (US IRS vs.
per se. There is only direct double PH BIR). He was also not able to
taxation if you are taxed TWICE on present his Tax Credit Certificate.
i. the same OBJECT/SUBJECT, Note: International double
ii. on the same TAXING taxation (income abroad and
PERIOD, PH).
iii. within the same
JURISDICTION, a. Principle of reciprocity
iv. by the same TAXING Tax treaties usually
AUTHORITY, exempt aliens from local tax,
v. for the same PURPOSE, and also exempt our local
vi. and the nature of the tax nationals from foreign taxation.
imposed is SIMILAR. Tax payments abroad by
local nationals may be claimed
Absent one of the elements, it is as tax deduction, and vice
constituted as INDIRECT double versa.
taxation.
b. Why do we allow Tax treaties?
Scenario: Why do we become a signatory?
You own a grocery store, you In CIR vs. SC Johnson,
pay rent (subject to withholding tax), the Supreme Court said that this
purchase goods/services (if VAT- would encourage the free flow
registered, subject to VAT), income of goods and services, and
tax (on the income for the year), and promote movement of capital
real property tax (on any between the two countries.
improvements on the property).
Here, there is NO double 8. Tax deduction
taxation because different taxes. - Refer to the table given by
Atty. P.
- Sec. 34, NIRC enumerates
Part 2. allowable deductions.
6. Ways to eliminate Double Taxation: - Allowable deductions
i. Tax treaty should be those that are
ii. Tax credit DIRECTLY, NECESSARY,
iii. Tax deduction and ORDINARILY
iv. Tax reduction connected to the business.

7. Tax treaty 9. Tax reduction

- includes a foreign country. PH is a - Atty. P: Sometimes called a
signatory. timing difference reduction.
 - Do not be confused with tax
deduction:
o Tax deductions are
enumerated.
o Tax reductions are the
items that are not
enumerated in the
NIRC, but can be
used to reduce tax
payment.
10. GR: Power to tax is legislative in
nature.
XPN: It can be delegated to the
President. (ABAKADA case)
11. Sources of tax laws: Taxation is
generally derived from the
Constitution, the statutes, the local tax
laws or ordinance, the Local
Government Code, IRC/TRAIN Law.
- Includes international tax
treaties (principle of
reciprocity)
12. Limitations on the power to tax is
generally confined in the Constitution
and statute.
13. We are adopting a progressive tax
rate type of taxation.
- Tax rate increases as tax
base increases.
14. Can the Supreme Court, being the
final arbiter, declare a treaty,
international or executing agreement,
PD, unconstitutional?
- YES.
15. Taxpayer’s suit
- A taxpayer has the right to
file an action questioning
the validity or
constitutionality of a law
based on the theory that
expenditure of public funds
by a public officer or
government or office for the
purpose of administering
and implementing invalid
law constitutes
misapplication of funds.
- Taxpayer’s suit is different
from a class suit in civil
case.
c. Requirements of a Taxpayer’s suit:
i. A taxpayer has sufficient
interest to prevent the
illegal expenditure of
public funds derived
from taxation, and
ii. He will sustain a direct
injury in the enforcement
of the law.
Thus, in taxpayer’s suit,
we are referring to funds
derived from taxation that
might be illegally dispensed by
the government.
16. Taxes can be Direct or Indirect
i. Direct: The person who is
legally bound also bears the
burden.
ii. Indirect: Shouldered by others
(incidents of taxation; like
VAT).
Part 3.
17. Tax Avoidance/Minimization vs. Tax
Evasion
a. Tax Avoidance
- legal way to reduce
taxes
- We simply exploit what
are the legally permissible
scheme or methods of
assessing taxable property or
income for the sole purpose
of reducing entirely the
payment of tax liability.
b. Tax Evasion
- illegal
18. Tax Exemption
 - grant of immunity, express
or implied, to a particular 21. Tax exemptions and tax amnesty are
person or any corporation considered valid tax
for the payment of taxes minimizations/avoidance.
- prerogative of the
government 22. Tax laws are not applied
- strictly construed against the retroactively.
taxpayer
- Example: Under the TRAIN
Law, if you are earning 23. Rulings of First Impression
≤250,000 annually, tax-free. - The impression or the
opinion by the BIR
- Not presumed. Highly Commissioner on a
disfavored because it affects particular question posed by
the collecting effort of the a particular taxpayer.
government, contrary to the - Under the law, the power to
lifeblood theory. interpret the NIRC
provisions is vested upon
- Examples: the BIR Commissioner.
o Charitable institutions - Merely advisory (not stare
are bestowed tax decisis).
exemptions by the - Not applicable to other
Constitution. taxpayers. It is only
o NGOs should apply applicable to the particular
for a Tax Exemption taxpayer who sought an
Certificate (since explanation relevant to a
exemption is not confusion as to the
presumed). Only then interpretation of a particular
can they be tax- provision of the IRC or a
exempt. Memorandum Circular.

- Tax exemptions could be 24. Stages of Taxation:

express, implied, or
contractual.
19. Taxation could not be subject of legal
compensation because the taxpayer
and the government are not debtor and
creditor to one another.
i. Levy/Tax Legislation portion
- the process of tax
legislation on what should be
taxed. Taxation is legislative in
nature.
ii. Assessment and Collection

20. Tax Amnesty iii. Payment

- general pardon to taxpayer - Because of the
- Under the Tax Amnesty emergence of electronic
Law, taxpayers are only payments, payments are
required to pay 40% of their generally coursed through
basic tax. online banking. Use of
- runs contrary to the Electronic Filing and Reporting
lifeblood doctrine because System (eFRS).
the government is waiving
its right to collect. 25. Chevron case
 - special assessment or license
fees are not taxes, because
the amount collected from
there is merely a recovery of
cost.

26. Pambansang Coalition vs. Executive

Secretary
- WON the Coco Levy Fund
is a public fund
- SC: Generally, the Coco
Levy Fund is impressed
with public character.
- Coco Levy fund is an
ASSESSMENT, not tax,
because it is raised for the
purpose of protecting the
coconut industry.
 APRIL 16, 2020 Lecture
Part 1.
1. Philippine Income Tax System
- derived from the NIRC of
1997, with amendments like the
TRAIN law
- Three types of Income Tax
System:
i. Global tax system
ii. Schedular tax system
iii. Semi-schedular/Semi-
global tax system
2. Global tax system
- synonymous with Unitary tax
system
- Called as such because there is no
difference. It is a system employed
where the tax system views
indifferently the tax base.
- Generally, treats in common all
categories of income, especially
taxable income.
- In other words, regardless of who
the taxpayer is, if the source of
income emanates from the same
purpose, single tax only.
- Classic example: Whether you are
an individual or a corporation, your
interest on bank deposit (regardless
of the recipient), final withholding
tax of 20%.
3. Schedular tax system
- There are brackets (tax rates
applicable)
4. Semi-Global/Semi-schedular tax system
- adopted in the Philippines, because
there are income which are subject
to the unitary rate, and there are
also income subject to the
schedular tax (like income tax)
5. Features of Philippine Income tax system
(purposes of the BAR exam)
i. Semi-global/Semi-schedular
ii. Progressive (under TRAIN Law,
maximum of 32% for compensation
income)
iii. Comprehensive
- because of the wide scope of the
NIRC. Particularly, all sources of
income are provided and how they are
taxed.
iv. Direct tax
- directly a burden to the person
paying the taxes
According to other authors, other
characteristics of Philippine Income tax:
a. Excise tax – tax on privilege
b. National tax
c. Internal revenue tax
Familiarize the table/graph because it
is a summary of the tax rates.
6. Three criteria to determine the taxability
of income:
i. Citizenship
ii. Residence
iii. Source of income
7. Types of Income Taxation (can be derived
as follows):
a. Gross income tax – kinita ng isang
kumpanya na ‘di pa nababawas
ang expenses.
Sales 150,000
Cost of sales ( 50,000)
Gross margin 100,000
The gross
margin/profit/income is
ordinarily not applicable
because the basis of our
income tax is the net income,
but there are taxpayers who
base their income tax on the
gross income.
Example: If the taxpayer
is a NRA not engaged in trade
or business (180 days below),
income will be taxed at gross.
If, however, the taxpayer
is NRA engaged in trade or
 business (180 days up), basis is
net income.
For purposes of PH
taxation, our basis is net
income in deriving the tax
liability of a person. But there
are exceptions (particular
persons only; example above;
gross income tax).
Note: 180 days need not
be consecutive.
b. Net income tax – this is generally
what is used.
Sales 150,000
Cost of sales ( 50,000)
Gross margin 100,000
Expenses ( 30,000)
Net income 70,000
The schedular tax rate
will then be used.
If corporation, straight
20% of the net income.
If individual, net income
will be included as additional
income. In excess of 250,000
under the TRAIN law, tax rate
depending on the bracket.
c. Presumptive income tax – From
the word itself, our regulatory
authority says, kahit hindi mo pa
natatanggap yan, o kahit di ka man
nag-income dyan, you need to pay
tax.
Example: Capital gain
tax on real property sold for
100,000 which was purchased
at 150,000, loss of 50,000.
Zonal value is 100,000 also.
Under the law, within 30
days from the execution of the
deed of sale, you need to pay
the capital gain tax (6% of
selling price or zonal value,
whichever is higher).
d. Unitary income tax – the final
taxes, regardless of the sources.
Example earlier: Interest on bank
deposits.
8. There are different filing dates with
respect to payment of different taxes. Such
as:
a. If it is a sale of real property, you
need to pay the capital gain tax
within 30 days from the date of
sale.
BAR question: Mr. A sold his
property for 200,000. He
bought the property for
500,000, and the zonal
valuation of the BIR is
300,000. (1) What are the
taxes should Mr. A pay? (2)
How much and when will be
the filing date?
Answer: (1) The taxes that must
be paid by A are the capital
gain tax and the documentary
stamp tax. (2) A is required
to pay the capital gains tax of
12,000, which is 300,000 x
6%, within 30 days from the
execution of the deed of sale.
The documentary stamp tax
must be paid within 5 days of
the next following month.
9. GR: As provided under Sec. 43 and Sec.
47 of the NIRC, the taxable income shall
be computed upon the basis of taxpayer’s
annual accounting period, fiscal year or
calendar year.
We are taxed based on our accounting
cycle.
Calendar year – January to December
Fiscal year – 12-month period ending
other than December; big
corporations use this
In the absence of concrete
accounting period being observed
by the taxpayer, the BIR assesses
the method or parameters of the
business of a certain client.
 (Discussed in April 19, 2020, Part
1)
10. Taxpayer
a. Sec. 22 of the NIRC defines taxpayer as
“any person subject to tax imposed by
this Title.”
- Any “person” could be:
o Individual
o Trust
o Estate
o Corporations
- Normally, if a person has vast
estate, the property is now subject
to distribution among the heirs.
However, under the law, you
cannot effect the distribution of the
hereditary rights and shares
UNLESS you pay the estate tax.
o So if a person dies, normally
the administrator/trix goes to
the BIR within 6 months to
submit the death certificate,
then BIR will give a Tax
Identification Number (TIN)
for the estate.
o Thus, the estate is a taxpayer.
o An Estate Tax Return will be
submitted, detailing the
properties of the deceased
person and the hereditary
heirs.
o Once paid, the estate can
now be distributed among
the heirs (granting there is no
opposition).
- Trust is a device or mechanism
created generally for the welfare of
the beneficiary. This is common
among persons with vast properties.
o Parties: Trustor, Trustee,
Beneficiary
11. Sec. 23 of the NIRC (Taxpayer
Classifications): The table given by Atty. P
is based on this section.
- OFWs/OCWs: Are income earned
by OFWs/OCWs taxable?
o Being non-resident, they are
taxable only on income
within the PH.
o Because of its significant
contribution to the economic
upliftment of our
government, particularly on
remittances.
- Alien Individual
o Whether a Resident or Not of
the PH is taxable only from
sources derived in the PH.
- Domestic corporation
o To determine if the
corporation is domestic or
not, check the charter. Where
was it organized?
o Taxable on income from
ALL sources (within and
without).
- Foreign corporation (whether
resident or NR)
o Like alien individual,
whether engaged or not in
trade or business in the PH,
is taxable only on income
derived from sources in the
PH.
Part 2.
12. What are those Non-resident citizen
connotations?
Refer to Sec. 22(e), NIRC:
i. A citizen of the PH who
establishes to the satisfaction of
the Commissioner of the fact of
his physical presence abroad
with definite intention to reside
therein.
ii. A citizen of the PH who leaves
the PH during the taxable year
to reside abroad, either as an
immigrant or for employment
on a permanent basis.
iii. A citizen of the PH who works
and derives income from
abroad and whose employment
 thereat requires him to be
physically present abroad most
of the time during the taxable
year.
iv. A citizen who has been
previously considered as
nonresident citizen and who
arrives in the PH at any time
during the taxable year to reside
permanently in the PH shall
likewise to be treated as a NRC
for the taxable year in which he
arrives in the PH with respect
to his income derived from
sources abroad until the date of
his arrival in the PH.
v. The taxpayer shall submit proof
to the Commissioner to show
his intention of leaving the PH
to reside permanently abroad or
to return to and reside in the PH
as the case may be for purpose
of Sec. 22.
A Filipino citizen who stays
outside the PH for not less than 183
days is considered a NON-
RESIDENT CITIZEN for purposes of
taxation. (BIR Circular on how to
determine “physical presence”)
Ibig sabihin, 183 days (6
months) ang ating reckoning
computation.
13. NR Aliens Engaged in Trade or Business
in the Philippines
- Revenue Regulation No. 08-2018,
two requisites before we consider an
alien to be engaged in trade or
business:
i. They are engaged in trade or
business in the PH, and
ii. They stayed in the PH for at
least an aggregate period of
more than 180 days. In other
words, 181 days (6 months
and 1 day).
- taxed based on net income derived
from sources within the PH
14. NR Aliens NOT ETB in the PH
- aliens who stayed within 180 days or
less
- taxed based on the gross income
derived from sources within the PH
How do we determine the length of
period (or if doing business and trade or
not)? To the satisfaction of the BIR, based
on documents submitted.
15. Who/What are the types of corporation
for purposes of taxation? Based on the
NIRC:
o Partnership (note: for purposes of
taxation, even if partnerships and
corporations are different under civil
law)
o Joint stock companies
o Joint accounts
o Associations
o Insurance and Trust companies
16. General Professional Partnership (GPP)
is not a corporation to be taxed as such
similar to partnership and domestic
corporation as far as the NIRC is concerned.
Example: Law firms,
Accounting firms
GPPs are TAX-EXEMPT on
taxes paid by the corporations and
other forms of partnership.
Why? Because whatever
income derived by the GPP is being
distributed as income to the partners
or members of the firm. In effect, the
distributed income (accounting term)
will form part of the partner’s gross
income as taxpayer (to be paid on a
schedular mode).
17. Joint Venture/Consortium is also TAX-
EXEMPT.
Classic example: Construction
projects by big companies to support
the government in its development.
Like skyway in Metro Manila.
Why? Similar to GPP. Income
is also distributed to the member
companies who joined the funding.
18. Question: The determination of whether
a corporation is domestic or foreign lies in
its creation. Because there could be more
than 50-60% foreigner composing the
corporation, but it was organized under the
PH law. So, the fact ba na mas maraming
incorporators na foreigner, would it be
considered a foreign corporation?
Answer: NO. NIRC adheres to the
INCORPORATION TEST.
Meaning, the fact that the
corporation is created, crafted, and
organized under PH laws, regardless
of its composition, it is a domestic
corporation for purposes of taxation.
 APRIL 19, 2020 o Taxable partnerships
(engaged in business)
Part 1. and corporations are
required to remit income
1. To repeat, these are the taxpayers under tax payments EVERY
the law: QUARTER.
a. Individual taxpayers  During the fourth
i. Resident Citizen quarter,
ii. Non-Resident Citizen consolidated
iii. Resident Alien income na.
iv. Non-Resident Alien
b. Corporations  Income and receipts (sales) are
i. Domestic not the same
ii. Foreign doing business o Receipts – Tinanggap
iii. Foreign not doing business nyong pera. Pag may
c. Estate sales na 100,000, ito ang
- No legal personality but for receipts.
purposes of income taxation, o Income – The return of
estate has limited personality. money from one’s labor
(Sec. 60, NIRC) or business or capital
- Payment of estate taxes. investment. It is also
d. Trust known as the gain,
- Parties: Trustor, Trustee, profits, or private
Beneficiary revenue. For example, sa
- In finance parlance, trustees are 100,000 sales, may
usually fund managers. puhunan ka 50,000, tapos
- Has limited personality. (Sec. 60, expenses 10,000, so
NIRC) 40,000 ang net income
mo.
2. What constitutes income? o Ibig sabihin, receipt is
GR: For income taxation, the broader (more
government only taxes income. No comprehensive) than
tax on losses. income.
XPN: Presumptive income on capital o Receipts ordinarily
gains.
includes income.
o We do not tax the capital.
 There is only income tax when
o It is the net income that
there is income. However,
is taxed for purposes of
taxpayers may still be liable for
income taxation.
other taxes (such as VAT,
withholding taxes on rental).
3. Taxable income (Sec. 31, NIRC) –
 Corporations or business entities
pertinent items of gross income specified in
that are not deriving income are
the NIRC less deductions, if any, authorized
not required to pay income tax.
for such types of income by this Code or
 To differentiate: other special laws.
o An individual or single  Hindi lahat ng deductions ay
proprietorship entities allowed under the law to be
pay income taxes ONCE deducted from your gross income.
A YEAR only.  Sales (or cash receipts), minus
Cost of sales, equals your Gross
 income. After the gross income,
ibabawas mo na ngayon yung mga
legitimate expenses allowed by
law consistent with the definition
of Sec. 31 of the NIRC.
 Hindi mo kasi pwedeng i-minus
dyan yung mantika na nasa bahay
nyo, yung asin, pati tuition ng anak
nyo. You cannot deduct that from
the operation of your business.
Only expenses that are necessarily
connected in the operation of
business are legitimate expenses
subject to the requirements of the
law to be deducted.
 When you proceed to Tax 2, there
are tax remedies and nakikita dun
ang mga mali ng taxpayers. There
are expenses that are not allowed.
 As a matter of procedure and as
required by the regulatory
authority, all expenses must be
substantiated by official receipt.
This is the first one.
 Secondly, expenses must be
necessarily and appropriately
connected to the operation of
business.
 And number three, subject to the
limits set forth by law. Kasi may
mga kumpanya na bloated yung
expenses nila. For example,
magki-claim sila ng representation
expenses nila, ang laki-laki. So
sabi ng BIR, you cannot claim
certain items beyond what is
required by law.
 The law sets a limit, may ceiling.
Di pwedeng gumastos nang gusto
mo.
 Other expenses that are necessarily
connected (like the rental,
telephone bills, internet fees) are
actually deductible but must be
substantiated by the OR and must
not go beyond the expenses on
some other items as prescribed by
the regulation.
4. What are the sources of income?
 Income derived from services
rendered or labor. For example,
employees/workers receive
salaries.
 Income derived from labor capital.
For example, a lawyer’s capital is
his profession. Whatever income
derived, we base the source of
income from the labor that he has
given to his client.
 Gains from sale/exchange of
property.
o Presumptive tax: capital
gain’s tax, 6% of selling
or zonal value
(whichever is higher).
o What is taxed here is the
gain from the sale of
property. For example,
you purchased land for
200,000 and sold it for
500,000. So, you have
300,000 gain (flow of
wealth).
o Atty. P: Since you
already paid the final
withholding tax of 6%,
you no longer have to
pay for the income tax on
the gain.
o What if it was a vehicle
that you purchased for
200,000 and sold for
500,000? In this case, no
6% withholding tax
because this is not land.
And so, income tax will
be paid for the 300,000
gain.
o To make it simple, items
that are subject to FINAL
TAX (capital gain tax,
interest on bank deposit,
dividend tax, stock
transfer tax) are NOT
included in the
 computation for your
income tax.
f kinita.
o Sa madaling salita, the
moment na umangat
yung capital mo out of
your business
undertaking or your
profession, magbabayad
ka dapat ng income tax.
o For example, winnings
on lotto or sweepstakes.
Under the old law, these
are not taxable. But
under the TRAIN law,
winnings in lotto or in
PCSO in excess of
P10,000 will now be
subjected to 20% final
withholding tax.
So for example nanalo
ka ng P100 million, kukunin ng
gobyerno ang P20 million.
Now tanong, ang P80 million
ba ita-tax ba ng income tax?
NO.
Why? Because the
winnings are already subject to
final tax of 20%.
o Income is wealth that
flows to the taxpayer
other than mere return of
capital.
o CIR vs. CA, G.R. No.
108576, Jan. 20, 1999:
Check how the SC
defined income tax and
what are those cash and
its cash equivalents.
5. Requisites for an income to be taxable:
i. There must be gain or profit. Yung
sinabi kanina, yung puno, dapat may
prutas. Kasi you do not tax the capital,
you only tax the gain or profit.
ii. The gain or profit must be received or
realized. So dapat tinanggap mo,
dapat kinita mo rin, kasi pano mo
naman ita-tax yan kung di mo pa
iii. The income must not be excluded by
law.
- Those income that have been
subjected to final tax, i-exclude mo
na yan kasi na tax mo na.
- Pero yung income na di mo pa
binayaran ang taxes which are not
subject to final tax, isama mo.
6. What does “must be realized” mean?
Yung realization of income is a
determinative factor of earning
process. Because generally, income is
not realized until the fruit is received.
So ibig sabihin, yung
realization ng income is subject to the
transaction that generates the profit.
Generally, there are two
conditions for the realization of
income:
a) The earning process is
complete or virtually complete.
Ibig sabihin tapos na yung
transaction, nabenta mo na
yung sasakyan mo, kumita ka
na. So out of that kita, i-minus
mo yung capital, yun ang ita-
tax natin as income tax mo.
b) There must be an exchange that
has taken place. Of course, kasi
di ka naman papayag na pag
bumili ka ng bagay, hindi
ibibigay sayo ang item.
7. You might be asked what is the difference
between actual and constructive receipt.
Kasi nga ang tina-taxan natin could either be
actual or constructive receipts.
- Pag actual receipt, walang problema
kasi tinanggap mo yung tubo.
- But for constructive receipts, these are
income already earned but not
necessarily you received that. For
example, meron kayong deposito sa
banko. So yung income ng pera mo na
kinita sa banko. For example, may
pera kang P1 million, you earn an
 interest of P2,000 per month. So
actually, kinita mo na yan, yang
P2,000 kasi interest income yan eh.
Kaso, constructively, babawasan ng
banko yan ng 20% na final tax, diba?
So ibig sabihin, kinita mo na pero di
mo pa natanggap, but the bank has
already deducted the tax on interest
at sila mismo ang magre-remit sa
BIR.
- So pag sinabing constructive receipts,
these are income but not necessarily
received by you.
8. Two methods of computing income: Cash
method and Accrual method
- Yung Cash method kasi, you only
realize income when you receive the
cash.
- Yung Accrual method, not necessarily
that you received the cash.
Accountants make an accrual on
income or interest expense or
whatever out of that accrued income
that would be subjected to cash.
- Baka lang makita nyo sa libro nyo ano
yung cash method and accrual
method.
9. Sec. 32(a), NIRC states the composition
of gross income.
Except when otherwise
provided in this Title [NIRC], gross
income means all income derived
from whatever source including, but
not limited to, the following items (11
items to, encouraged to memorize).
 Included dito ang prices and
winnings. Previously, prior to the
amendment, prices and winnings
sponsored by the PCSO are not
taxable. But under the new law, as
amended, in excess of 10,000, ibig
sabihin libre ka lang pag 10,000
nanalo ka dyan sa mga scratch
card, di ka taxable. But the
moment it is beyond 10,000, it is
subject to final tax of 20%.
 Yung mga kinikita ba ng athletes
natin abroad, are these taxable
income? You qualify when you
make an answer. Baka kasi
tanungin ng examiner, sasabihin
nila yan pano kinita ng athlete ang
income abroad.
o If it is part of the
international games
sanctioned by the
government - Example,
Olympics, so on and so
forth, normally there is a
Charter that allows tax
exemption from it. Diba
yung mga events sa
Olympics, pag umuwi sila
dito, yung binibigay ng
gobyerno sa kanila out of
their job to represent the
country, normally these are
not subjected to tax.
o Pero if your profession
really - Like yung mga
billiards sa mga
international competitions,
it is not part anymore of the
competitions sanctioned by
the Government for
purposes of tax exemption,
taxable yan beyond 20,000.
That is their gross income
using their skilled labor.
 Para di kayo malito under Sec. 32:
Gross income, isama mo yan lahat,
LESS exclusions (or gross
incomes that are not subject to
income tax or those subject to final
tax), LESS the cost of operation,
LESS deduction and exemption, if
any = Taxable Income
 For purposes of income tax, yung
baba lang ang tina-tax natin (net
income).
10. Difference between exclusion and
deduction
  Exclusions – enumerations permitted
by law to be deducted in the gross
income
 Deductions – expenses. You deduct
the expenses permitted by law for
purposes of computing the net
income.
 For purposes of our discussion, yung
mga empleyado, you cannot deduct
other than the exemption permitted by
law. Yun lang ang allowed for the
employees.
o So yung mga kita ng
empleyado (the term is
compensation income), LESS
exemptions permitted by law.
o Under the TRAIN Law, 0-
250,000, that is exempted.
o Beyond 250,000, yun na yung
may tax.
 You can only deduct expenses or
whatever pag meron kayong negosyo.
But bear in mind that only expenses
or deductions that are necessarily
connected with the operation of your
business is allowed for deduction
under the law.
11. What is a Regular Income Tax and what
is a Final Tax?
 RIT – already explained how the
taxpayers are taxed
 FT – ito na yung mga taxes na
binabayaran based on the final tax
(generally, 20% yan).
 Again, income that are subjected to
FT should not be included in the
computation of your RIT.
12. For employees, please check Sec. 32(a)
(1), NIRC, because andyan yung definition
and composition ng compensation income.
 For employees, we call our income
compensation income.
 Do not deduct your expenses
(kuryente nyo sa bahay, internet),
those are not deductible sa
compensation income.
13. What is Fringe benefit?
 This is a favorite BAR subject
because masyadong comprehensive
ang coverage nya for purposes of
amelioration being granted to
employees.
 Pag-usapan natin yung empleyado
kasi 35 out of 39 students ng class
natin ay employees.
 Fringe benefit – 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.
 Kasi normally ang fringe benefit,
binibigay to sa mga officers at senior
executives ng isang company.
 And normally, ang fringe benefit ay in
the form of housing. Meron silang
housing allowance. Expenses, meron
silang representation allowance.
Vehicle, car-plan system sa mga
banks; ang mga managers binibigyan
ng car plan as part of the fringe
benefits. Yung mga ahente ng gamot,
they are also given the car plan. Some
companies are also giving educational
assistance to the children of their
senior employees.
 Fringe benefits are mechanism
adopted by the corporation in order to
attract senior executives to stay with
the company.
 Now, since binigay sa atin ang fringe
benefit, di naman pwedeng ibigay
lang sayo ng kumpanya ang kotse.
o Sasabihin ng BIR yan, diba that
is an inflow of wealth already
of that employee. So, you
should pay me tax.
o So syempre ikaw naman na
company, di mo naman
pwedeng sabihin na, “Oh
binigyan kita ng kotse, pero
bayaran mo yung tax.”
o So generally, the fringe benefits
granted to officers and senior
officers of a corporation are
subject to fringe benefits tax.
o Normally, ang kumpanya ang
nagsho-shoulder nyan [FBT].
 So hindi na yan kinakarga don
sa babayaran ng empleyado.
 Now baka ang tanong nyo sa akin,
“Atty, yung mga rank-and-file ba,
meron din?”
o Of course, meron din yan sila.
And those na mga binibigay sa
mga rank-and-file employees
are generally (I’m not saying
na taxable), these are not
taxable.
o Kasi ang binibigay ng
kumpanya na fringe benefits,
not taxable no. Yung
contribution of the employer
for the benefit of the employee
to the retirement. Or insurance
or healthcare insurance.
Sasabihin ng company [sa
employee], “yung healthcare
insurance na binibigay namin
sayo kasama ang mga anak mo,
that is a benefit given to you.”
o [Another example]: Kung may
CBA. Sasabihin sa CBA,
“bigyan nyo kami ng isang
sakong bigas kada buwan
applicable to rank-and-file
employees.” So these are all
fringe benefits.
o And the law considers these as
MINIMAL fringe benefits, and
therefore di na yan tina-tax.
Alangan naman i-tax mo pa
yang isang sakong bigas na
binibigay mo sa empleyado mo.
o Some call it the DE MINIMIS
BENEFITS as defined in the
Rules and Regulations by the
Secretary of Finance. Ito yung
mga de minimis benefits, yung
mga maliliit na ito, di na tina-
tax yan. Yung mga health
insurance ng empleyado, bigas,
ano pa ba. I’ve heard dati yung
isang company, every quarter,
meron silang ibibigay…I think
birthday leave payment no. Pag
birthday mo, meron kang
birthday leave salary. So these
are de minimis benefits no. So
ibig sabihin, too immaterial to
tax. Okay? So at least para
clear lang tayo.
 Yung Fringe Benefits Tax is normally
absorbed by the employer, and it
[fringe benefits] is given to officers up
senior officers, which includes
housing, or car plan, or scholarship
for [the] children of [the] officers,
expenses for foreign travel. So ito
yung mga fringe benefits na tina-tax.
o So you cannot say na fringe
benefits yan, not subject to tax.
o Sabi ng regulators natin, fringe
benefits are subject to tax based
on the grossed-up monetary
value.
o So di na kayo paco-compute-in
ng examiner nyan ng grossed-
up monetary value because it’s
too complicated and a tedious
process. But for purposes of our
discussion, fringe benefits
could either be taxable or non-
taxable.
o Non-taxable yan pag de
minimis benefits. Baka lang
kasi ibigay sa BAR exam yung
mga problems na related to the
de minimis benefits, yung mga
rice, or load allowance, these
are not taxable already under
the de minimis benefits. Or
health insurance na binibigay
natin or yung hospitalization
benefit plan. May mga ibang
company na other than health
insurance na binibigay sa
empleyado nila, they are still
giving… for example, 10,000
every confinement. So that
10,000 is a fringe benefits not
taxable.
o So yung mga taxable na
sinasabi kong fringe benefits,
ito na yung mga expenses for
foreign travel. Holiday vacation
expenses. Car plan. Housing.
 o When I was previously
employed in one of the
universal banks, sinabi ko
kanina na binibigyan kami ng
mga travel incentives, car plan,
yung housing namin malaki
ang binibigay. Depende sa
rank mo, you can avail a loan
of 5 to 10 million. So ito yung
mga gina-grant nila sa amin,
no. But for those na ma-assign
sa ibang lugar, sometimes ita-
tuck in nila sa sweldo namin
yung housing.
 Now, baka tanungin nyo ako, “Atty,
paano yan kung yung mga rank-and-
file employee (kasi sinasabi mo
kanina, yung fringe benefits, I am not
saying na yung mga rank-and-file are
prohibited to receive fringe benefits).
What I am saying is fringe benefits,
for purposes of taxation, wherein only
the employer is the one shouldering
the FBT, that is applicable only to
officers up. But for rank-and-file, that
is not applicable. Because from the
moment na binigyan din ng kumpanya
ng travel incentive, ng housing
allowance, ng car plan yung mga
rank-and-file, it is not part of fringe
benefits. Because fringe benefits na
sinasabi ko kanina, is only applicable
to officers and up. Below, exempted
lamang yon pag de minimis benefits.”
 Now, question ngayon: Paano kung
binigyan din ng fringe benefits itong
mga rank-and-file ngayon, would that
be subjected to FBT?
o The answer is NO.
o What will happen sa binigay?
Yung binigay ng kumpanya sa
mga empleyado will now form
part of their gross income,
alright? Maging gross income
na yon.
o Pag binigay naman ito sa mga
officers at senior officers, it is
not part of the gross income of
the senior officers. Bakit? Ang
nagbayad ng FBT na yan yung
kumpanya.
o Pero pag ibinigay mo yan doon
sa rank-and-file employees, pag
ibinigay mo yung mga housing,
travel incentive, etc, hindi
babayaran ng kumpanya
ngayon yung FBT na yan. Ang
manyayari ngayon, yung
empleyado ang magbabayad,
yung rank-and-file ang
magbabayad nyan, and it will
form part of their gross income.
o At least maliwanag tayo ha,
kasi ang definition nga ng
batas, pag fringe benefits,
“except rank-and-file
employees.” Ito yung fringe
benefit.
o Is it unfair, Atty? It is not unfair
because normally, ang
kumpanya they want to retain
their officers or senior officers
kasi alam nila ito yung mga
prime mover ng kanilang
company and they want to
reward these people by giving
free car, free housing, free
travel, etc. So in return, under
the law, the FBT shall be paid
by the employer.
o Now ibalik naman natin sa
kabila, pag binigyan nila ng
ibang benefits yan, yung hindi
officers up, kundi rank-and-file
employees, wala naming
nagbabawal sa company na
magbigay. Only the method of
paying taxes (tax treatment).
o If it is given to the officers and
up, the FBT is being paid by
the employer.
o But if the fringe benefits (other
than those de minimis/not
taxable) are given to rank-and-
file, the FBT shall not be paid
by the employer and the fringe
benefits received by the rank-
and-file employee shall form
part of their gross income. So
 isasama sa gross income nila
yan for purposes of computing
income tax.
 But of course kung
generous naman ng
company, kung gusto
nilang bayaran ang tax na
yan for giving fringe
benefit [to the rank-and-
file], walang nagbabawal
sa kanila.
 But again, I am just
making a clear
explanation because this
could be a possible BAR
question and siguro
itatanong ko na rin sa
exam nyo ito.
 Please revisit the NIRC of what
constitutes not taxable benefits.
Normally, ito yung mga maliliit lang
na binibigay. So hindi na yan
kinokolektahan ng tax. Example of
those are contribution to the
retirement, or insurance, or
hospitalization benefit plan. Yung
very very common dito is yung de
minimis benefit, yung mga rice
subsidy.