General Principles AND National Taxation: As Lectured by Atty. Rizalina Lumbera

GENERAL
PRINCIPLES
AND
NATIONAL
TAXATION
as lectured by Atty. Rizalina Lumbera
GENERAL PRINCIPLES AND NATIONAL TAXATION (2021)
Atty. Rizalina Lumbera PJA
DISCLAIMER
The following are the materials used for this work:
1. Lectures in Jurist Bar Review Program and notes of Atty. Rizalina Lumbera
Some of the contents of the above have been paraphrased and questions propounded differently in
order to tailor the author’s learning method.
Answers to some questions are likewise tailored to the personal preference of the author
I do not guaranty the absolute correctness of this work due to human errors and failure to understand
the question or concept perfectly. I apologize in advance for any error you may encounter in this work.
However, please see to it that the error is an opportunity to learn, as Dean Jose Sundiang puts it
“The beauty of an error is to correct it, and not to perpetuate it.”
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TABLE OF CONTENTS
INTRODUCTION ……………………………………………………………………... 1
NATIONAL TAXATION ………………………………………………………………. 2
INCOME TAX …………………………………………………………………………… 4
DONOR’S TAX …………………………………………………………………………...103
ESTATE TAX ……………………………………………………………………………. 110
REMEDIES FOR NATIONAL TAXES ………………………………………………. 117
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GENERAL PRINCIPLES AND Excise (ExT); under the LGC,
but authorized
NATIONAL TAXATION Documentary by the local
Stamp (DST); Sanggunian; and
INTRODUCTION and
Real Property
Estate (EsT) Taxes (RPT)
Tips in studying taxation law
Remedies and In the collection of taxes, by or
Study the concept before the technical procedures against the TP or the government
term itself, as to ensure that one has
enough grasp of the concept to Supplements Bureau of Sanggunian
remember the technical term itself. to governing Internal Resolutions
law Revenue (BIR)
Issuances
As to cases, study the law itself, as the
Supreme Court (SC) does not usually (NOTE: Taxation also includes
deviate from the law, considering that “Tariff and Customs Duties”, however
the law is explicit enough. Thus, in case it was left out considering that it does
of doubt: not form part of the Bar Exam Syllabus
for 2021)
1. If tax is to be imposed or not:
a. The rule is NOT to impose Classification of national taxes
the tax as taxes are burdens;
2. If the taxpayer (TP) is exempted The following are the classification of
or not: taxes and their inclusions:
a. The TP should NOT be
exempted, as exemptions 1. Business taxes:
are strictly construed a. VAT; and
against the TP b. PT;
2. Transfer taxes:
Outline of taxation law a. DT; and
b. EsT;
NATIONAL LOCAL
TAXATION TAXATION
3. In the manufacture, production,
Where found? National Local and importation:
Internal Government a. ExT;
Revenue Code Code of 1991 4. In the execution of documents:
(NIRC), as (LGC) a. DST
amended by the
TRAIN Law,
effective 1 Role of supplements
January 2018
The supplements shall explain the
What taxes Income (IT); Ordinary Local NIRC or the LGC, thus forming part
included? Tax, as of the law
Value Added indicated/
(VAT); enumerated in
the LGC
Donor’s (DT); (OLT), and
OLT which was
Percentage NOT
(PT); indicated/
enumerated
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NATIONAL TAXATION He must pay IT, as it is an income
earned.
Governing Law
Q: After receiving X’s salary, X bought
NIRC, as amended by the TRAIN Law groceries from Mama Mall Kita (MMK).
From the products bought by X, what tax
Q: Is it correct to say that if one tax is must MMK pay?
imposed, there can be another tax imposed
on the same subject? MMK must pay IT, as it is an income
earned from the selling to X.
No, as one subject may be subjected to
two or more taxes. (NOTE: In effect, everyone becomes
a taxpayer as there is a cycle of income-
This is called as double taxation in its expense-income.
broad sense.
If one does not spend, he will
Q: A, imported goods from Canada. ultimately die)
Subsequently, A sold the said goods to B.
Q: As X has a sizable balance after his
The BIR taxed A ExT, on the basis of the purchase with MMK, X bought assets (real
importation of the goods. Subsequently, property or personal property, whether
the BIR also taxed IT on the sale of the said tangible or intangible). What tax should X
goods. pay?
A questioned the tax imposed on the sale, X must pay IT and/or Withholding
alleging that as he already paid ExT, no IT Tax (WHT)
should be imposed on the sale. Is A
correct? Q: If instead, X invested his balance in a
bank and bought shares of stock in MMK,
No, as two or more taxes may be what tax should X pay?
imposed on the same subject matter,
which is valid as it is double taxation in X must pay IT on the interest earned
its broad sense. by the investments, as the income
earned upon such is subject to IT.
Thus, if ExT is paid due to the
importation of goods, the subsequent (NOTE: It is a different source of
sale may still be taxed based on IT, as it income from the compensation as an
realized income. employee)
The taxes imposed are for different Q: As X saved more money, he donated a
transactions, and thus a valid double sizable amount to Y. What tax should apply
taxation. to the donation?
Q: X earns money as a call-center agent. It is DT, as it is a donation to another,

From his earning as such, what tax must he which should be subjected to DT
pay?
Q: Considering X’s saving money, he
eventually achieved his dream of
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establishing his own business named
“Masarap Sausage Co.” which sells exotic
sausages oozing with a special kind of
cheese sauce, known as “Sauceage for the
Ages”, with the tagline “Sauceage chooses
no age! Have a BIG bite!”
As X now runs a business, what tax should

he pay?
ExT, as he engages in the production

and manufacture of goods
Q: Considering the numerous transactions

during X’s life, what tax should X pay with
respect to the documents evidencing his
transactions?
X should pay DST
Q: Eventually X died. What tax should

come into play after X’s death?
EsT
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INCOME TAX Definition of Income
Basis Income is anything that flows into the

wealth of the TP other than return of
It is the act of earning, specifically the capital
activity of producing income
In the alternative, it refers to anything
Important concepts that increases one’s net worth other
than mere return of capital
The following concepts are important
in IT: Income v. Gross Receipts (GR), Gross
Sales (GS), Gross Income (GI), and
1. Definition of income Taxable Net Income (TNI)
2. Income-expense Cycle;
3. Taxable period; Income is the “motherhood
4. Kinds of ITs (generic) statement”.
5. Questions to be answered:
a. Did you receive anything? GR means that one is selling service,
i. Whether in: while GS means that one is selling
1. Kind; or goods
2. Cash
b. Is what you received income? GR GS
c. Is it taxable? Sale of Service Goods
i. Source:
1. Within; or GI refers to income AFTER cost of
2. Without; sales (COS), while TNI, refers to
ii. Kinds of: income AFTER allowable deductions
1. TP; (AD)
2. Income
iii. Items of: GI NI
Income COS AD
1. Inclusions; after
2. Exclusions;
and Illustration
3. Exemptions
iv. Deductions X owns a sari-sari store, selling canned
v. Gains, losses, asset, goods and softdrinks.
expenditures/
expenses: If X successfully sold goods, he now
1. Capital; and has GS (benta).
2. Ordinary
vi. Holding period But, prior to the sale, he accrued COS
d. What kind of tax and rate in buying the goods he is selling
should be applied? (puhunan).
To compute for the GI, the COS must

be deducted from the GS (benta –
puhunan = GI)
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Calendar v. fiscal year
To compute for the TNI, the AD, if
any, is deducted from the GI (GI – AD CALENDAR FISCAL
= NI) Starts 1 January 1st day of any
month
The TNI, in turn, shall be subjected to Ends 31 December Last day of the
tax (TNI x Tax rate) month after a
12-month
GS (benta) period
less COS (puhunan) Who may Natural person; Corporations
avail? and
GI Corporations
less AD, if any
TNI Q: If the fiscal year starts on 1 February
multiplied by Tax rate 2020, when will it end for purpose of
Tax due computation of IT for the year?
Income-expense cycle It shall be on the 31st day of January
2021
A buyer buys from a seller. In turn, a
seller buys from another seller, and in Q: Can a TP choose to start the fiscal year
this sense the former becomes a buyer. on the 14th of February, as he believes that
it would bring luck to his business as it is
In short, by these transactions, the “day of the hearts”?
everybody becomes a taxpayer.
No, fiscal year can only be on the 1st
INCOME EXPENSE
day of any month
SO ON AND SO
FORTH Kind of ITs (generic)
Taxable period The following are the kinds:
Taxes are always computed based on 1. Net Income Tax System (NIT);
the taxable period of twelve (12) 2. Withholding Tax (WHT);
months. It may be called as: 3. Gross Income Tax (GIT);
4. 8% Tax on the Gross (8%TG);
1. Calendar year 5. Other types (minor ITs):
a. Starts 1 January, and ends 31 a. Fringe Benefits Tax;
December; or b. Minimum Corporate IT;
2. Fiscal year; c. Improperly Accumulated
a. Starts at the 1st day of any Earnings IT;
month and ends on the last day d. Branch Profit Remittance Tax;
of the month after a twelve- e. Intercorporate Dividends Tax
month period
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NIT Over P250,000 but not over P400,000……..
20% of the excess over P250,000
The GI from the whole twelve (12)
month period, whether calendar or Over P400,000 but not over P800,000……
fiscal year, shall be added. P30,000 + 25% of the excess over P400,000
Subsequently, the AD, if any, shall be Over P800,000 but not over P2,000,000……..
deducted from the GI. P130,000 + 30% of the excess over P800,000
The total shall be the NIT (or TNI), Over P2,000,000 but not over P8,000,000…...
which shall be subjected to the P490,000 + 32% of the excess over P2,000,000
applicable tax rate Thus:
Over P8,000,000 ……………………………
GI P2,410,000 + 35% of the excess over
less AD, if any P8,000,000
TNI
multiplied by Tax rate xxx
Tax due
Sec. 27. Rates of Income Tax on Domestic
Tax rates Corporations;
The income tax rate shall depend on (A) In General:
the TP, whether: Except as otherwise provided in this Code, an
income tax of thirty-five percent (35%) is
1. Individuals; or hereby imposed upon the taxable income
2. Corporations derived during each taxable year from all
sources within and without the Philippines by
SEC. 24. Income Tax Rates; every corporation, as defined in Section 22(B)
of this Code and taxable under this Title as a
(A) Rates of Income Tax on Individual corporation, organized in, or existing under the
Citizen and Individual Resident Alien laws of the Philippines: Provided, That
of the Philippines. effective January 1, 2009, the rate of income tax
shall be thirty percent (30%). x x x
xxx
WHT
(2) Rates of Tax on Taxable
Income of Individuals; “Tax is withheld at source”. This is one
The tax shall be computed in way of advance collection of taxes.
accordance with and at the
rates established in the The source of income is obligated to:
following schedule:
1. Withhold a certain amount; and
2. Remit such withheld amount to the
(a) Tax Schedule Effective January 1, 2018 until
BIR.
December 31, 2022:
Not over P250,000………………… 0%
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Technically, the recipient receives The purpose for imposing an FWHT is
income minus the withheld amount to ensure that taxes are paid, because if
(“income net of (withholding) tax”) not, it would be harder to impose taxes
thereon.
SOURCE RECIPIENT
INCOME CWHT v. FWHT
WHT
CWHT FWHT
INCOME Nature Tax is withheld at source
NET OF
WHT Obligation of 1. To withheld a certain
source of amount from the
REMIT
income income; and
WHT
2. Remit the same to the
BIR
Credited Yes No
BIR against tax
due?
Kinds of WHT Can it be No Yes
subject to
other taxes?
The following are the kinds:
GIT
1. Creditable (CWHT);
2. Final (FWHT); It is income tax on the gross. In effect,
3. Expanded (EWHT) there are no AD, and thus the GI itself
is multiplied to the tax rate.
CHWT
GS (benta)
All withheld taxes are to be deducted less COS (puhunan)
from the tax due (Tax due – CHWT). GI
Thus: multiplied by Tax rate
Tax due
GS (benta)
less COS (puhunan) (NOTE: Compare with NIT, where
GI the NIT/TNI is multiplied with the tax
less AD, if any rate.
TNI
multiplied by Tax rate As there are no ADs, the GI itself is
Tax due multiplied to the tax rate, as if it is the
less CHWT NIT/TNI.
Tax due
It is so, as there is no NIT/TNI to
FWHT speak of, considering that there are no
ADs)
All income or transaction which is
subject to FWHT shall NO LONGER
be subject to any other tax
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8%TG Did I receive anything?
The tax on the GI shall be subjected to Effect if nothing received

an 8% tax rate, provided that the
following concurs: Then, IT shall not apply, as there is
nothing to tax
1. TP is either a:
a. Self-employed: Is what you received income?
i. Professional; or
ii. Individual; or Effect if what is received is NOT income
b. Mixed Income Earner
2. GR/GS does not exceed Php3M in Then, IT shall not apply, as there is
a year (= or < Php3M/year) nothing to tax
Q: Why is the 8% tax rate applied to the GI Is it taxable?

instead of the NIT?
Q: Assuming that you have answered that
As opting to such rate results in ADs’ indeed it is income, are all kinds of income
unavailability. subject to IT?
That there no ADs, there is no NIT to No, not all kinds of income are subject
speak of. (See example in GIT) to IT
Questions to be Answered Classification of income TPs (depending

on nature of person)
The following questions should be
answered: The following are the kinds:
1. Did you receive anything? 1. Individuals:

2. Is what you received income? a. Compensation Income
3. Is it taxable? Earner (CIE); and
4. What kind of tax and rate should be b. Self-Employed
applied? Professional/ Individual
(SEP/I):
Relevance of questions i. Trade or business
(T/B); or
The questions shall be a guide to: ii. Exercise of profession
(EOP)
1. Whether or not taxes apply; c. Mixed Income Earner
2. What kind of tax applies; and (MIE):
3. What tax rate should apply i. CIE + T/B;
ii. CIE + EOP; or
Importance of IT in relation to other iii. CIE + T/B + EOP;
national taxes and
2. Corporate TP (CTP)
Majority, or if not, all of the other
national taxes are anchored on or
rooted from ITs
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Q: X is an engineer employed in Build a. EOP, as a private
Build Constructions (BBC). What is his practitioner and lecturer of
classification as an income TP? law; and
b. T/B, from her business
He is a CIE, as X earns income as an Curacha’s Cures
employee of BBC
(NOTE: Curacha ang babaeng walang
Q: Y is an engineer who works solo on pahinga)
projects on which he has an interest on.
What is his classification as an income TP? Q: Build Build Constructions (BBC) is a
corporation which has for its primary
He is a SEP, as his income is derived purpose the construction of infrastructures,
from the exercise of his profession as whether private or public. What is BBC’s
an engineer classification as an income TP?
Q: Z is the sole proprietor of Gawa-Gawa BBC shall be classified as a CTP,

Enterprises (GGE), selling construction earning income from T/B, in
materials. What is his classification as an exercising its primary purpose
income TP?
(NOTE: A corporation cannot earn
He is a SEP, as his income is derived from EOP)
from his trade or business, namely
GGE Consequence of T/B and EOP
Q: Curacha is a lawyer, working as a If income is earned from T/N or EOP,

government employee. VAT or PT applies, as the case may be
With authority from her government Kind of TPs (according to residence and
agency, Curacha moonlights as a private citizenship)
practitioner and as a bar lecturer.
CLASSIFICATION KIND
Citizen
As Curacha, for some reason, lives as if she Resident Non-resident
has more than 24 hours in her daily life and
has worked with various plants prior to her Alien
Individual Resident Non-resident
becoming a lawyer, she owns a business
Engaged NOT
named as “Curacha’s Cures”, selling in T/B engaged
personalized scents which are scientifically in T/B
proven to ease headaches.
Corporations Domestic Corporations
Foreign Corporations
What is Curacha’s classification as an Resident Non-resident
income TP?
In fine, the following are the
Curacha is an MIE, considering that she classifications of TPs based on their
is a: residency and citizenship:
1. Individuals:
1. CIE, as a government employee; a. Citizen:
and i. Resident (RC); or
2. SEP, deriving income from:
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ii. Non-resident
(NRC); or 1) General Professional Partnerships
b. Alien (GPP); and
i. Resident (RA); 2) General Co-partnership (GCP)
ii. Non-resident:
1. Engaged in GPP v. GCP
T/B
(NRA- GPP is a partnership:
ET/B); or
2. NOT 1) Exclusively established for the
engaged in exercise of the common profession
T/B of the partners; and
(NRA- 2) No part of its income is derived
NET/B) from trade or business
2. Corporations:
a. Domestic (DC); or On the other hand, a GCP is any
b. Foreign: partnership other than a GPP.
i. Resident (RFC); or
ii. Non-resident Q: Among the two, which may be
(NRFC) subjected to tax?
(NOTE: In short, there are five (5) Only the GCP may be taxable, as a
kinds of Individual TPs, while there are GPP is declared as exempt from tax
three (3) kinds of Corporate TPs, based
on their residence and citizenship: RC
1. Individuals: Section 23. General Principles of Income

a. RC; Taxation in the Philippines;
b. NRC; Except when otherwise provided in this Code:
c. RA;
d. NRA-ET/B (A) A citizen of the Philippines residing
e. NRA-NET/B; therein is taxable on all income
2. Corporations: derived from sources within and
a. DC; without the Philippines; x x x
b. RFC;
c. NRFC) Therefore, an RC is a:
1) Filipino citizen; and
Coverage of CTPs 2) Residing in the Philippines
CTPs include ALL types of
organizations, thus:
1) Corporations; and
2) Partnerships
Kinds of partnerships
For purpose of taxation, there are two

(2) kinds of partnerships:
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NRC (5) The taxpayer shall submit
proof to the Commissioner to
Section 22. Definitions; show his intention of leaving
When used in this Title: the Philippines to reside
permanently abroad or to
xxx return to and reside in the
Philippines as the case may be
(E) The term ‘non-resident citizen’ means: for purposes of this Section.
(1) A citizen of the Philippines Thus, the following citizens are

who establishes to the considered as NRCs:
satisfaction of the
Commissioner the fact of his 1. Those physically present abroad
physical presence abroad with a with intention to permanently
definite intention to reside reside therein:
therein. a. A citizen who left the
Philippines; and
(2) A citizen of the Philippines b. Must show to the satisfaction
who leaves the Philippines of the Commissioner of
during the taxable year to reside Internal Revenue (CIR):
abroad, either as an immigrant i. Physical presence
or for employment on a abroad; and
permanent basis. ii. Intention to
permanently reside
(3) A citizen of the Philippines therein
who works and derives income 2. Those who left for employment:
from abroad and whose a. Citizens whose employment
employment thereat requires contracts abroad requires their
him to be physically present physical presence most of the
abroad most of the time during time (e.g. OFWs/OCWs)
the taxable year. 3. Immigrants; and
4. Seamen/seafarers
(4) A citizen who has been
previously considered as Q: X, a dual citizen, specifically of Filipino
nonresident citizen and who and American citizenship, went abroad to
arrives in the Philippines at any immigrate.
time during the taxable year to
reside permanently in the What is his classification as a TP?
Philippines shall likewise be
treated as a nonresident citizen He is an NRC falling under those who
for the taxable year in which he migrated abroad.
arrives in the Philippines with
respect to his income derived Be it noted, that the concept of dual
from sources abroad until the citizenship applies only for purposes of
date of his arrival in the citizenship and immigration.
Philippines.
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Thus, it would not apply in classifying 1. The TP was previously classified as
TPs. an NRC;
2. The NRC decided to return to the
(NOTE: Further, the fact remains, Philippines within the taxable
that the dual citizenship holder is still a period;
Filipino citizen.) 3. The return to the Philippines is to
reside herein permanently
Effect of NRC returning to the Philippines
within the taxable period with intent to (NOTE: Take note that this is the
reside permanently therein only instance where a TP may be
classified differently within the same
Section 22. Definitions; taxable period)
When used in this Title: NRC RC
Return to Ph
xxx
(E) The term ‘non-resident citizen’ means: Taxable Period
xxx Q: X is a Filipino Citizen who migrated to

the US since 2019.
(4) A citizen who has been
previously considered as In the year 2021, X came back to the
nonresident citizen and who Philippines on the 1st day of August to
arrives in the Philippines at any permanently reside herein.
time during the taxable year to
reside permanently in the What is X’s classification as a TP for the
Philippines shall likewise be year 2021?
treated as a nonresident citizen
for the taxable year in which he X shall be classified as an NRC from 1
arrives in the Philippines with January to 31 July, while he shall be
respect to his income derived classified as an RC from 1 August to 31
from sources abroad until the December.
date of his arrival in the
X’S FROM TO
Philippines. x x x CLASSIFICATION
NRC 1 January 31 July
Thus, the formerly classified NRC shall RC 1 August 31 December
be classified as a RC with respect to the
taxable period that he is within the Q: X is a Filipino Citizen who migrated to
Philippines the US since 2019.
Corollary thereto, the TP shall be In the year 2021, X came back to the
considered as an NRC with respect to Philippines on the 1st day of August to visit
the taxable period that he was residing his relatives.
abroad., provided that the following
concurs: Assuming X stayed until December 31,
what is X’s classification as a TP for the
year 2021?
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X is classified as an NRC all RA
throughout the year, as there is no
showing that X intends to reside in the Section 22. Definitions;
Philippines permanently. When used in this Title:
Q: X is a Filipino Citizen living in Quezon xxx

City.
(F) The term ‘resident alien’ means an
In 1 August 2021, X migrated to the US to individual whose residence is within
reside therein permanently. the Philippines and who is not a citizen
thereof.
What is X’s classification as a TP for the
year 2021? Thus, an RA is non-citizen of the
Philippine but is residing within the
X shall be classified as an RC for the Philippines
whole taxable period of 2021.
NRA
(NOTE: The rule as to NRC’s
returning to the Philippines within the Section 22. Definitions;
taxable period DOES NOT apply in When used in this Title:
case of RC’s migrating to another
country.) xxx
RC RC (G) The term ‘non-resident alien’ means an

Migration individual whose residence is not
within the Philippines and who is not a
citizen thereof.
Taxable Period
Thus, an NRA is a citizen of a foreign
Q: In the above problem, when will X be country who is NOT residing in the
considered as an NRC if he indeed stayed Philippines, but who may or may not
in the US after the year 2021? be engaged in T/B in the Philippines.
He will begin to be considered as an Thus, they are classified into two (2)
NRC starting on the year 2022 subclassifications:
RC RC NRC 1. NRA-ET/B
Migration 2. NRA-NET/B
Indicators of whether or not an NRA is

2021 2022 ET/B (or not)
If any of the following concurs, the

NRA shall be considered as ET/B:
1. Aggregate period of more than

180 days (181 days at least):
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a. If the NRA stays in the If the RA decides to engage in
Philippines for an aggregate business, then another source
period of more than one of tax shall be imposed.
hundred eighty (180) days;
2. Principle of habituality: In effect, no matter what, the
a. If an NRA regularly enters into RA shall be subject to tax
commercial transactions here considering his residence in the
in the Philippines; and Philippines
b. Regardless of period of time;
and Q: Is it absolute that all NRA-NET/B are
3. NRA puts up a branch of his not residents of the Philippines?
business in the Philippines;
4. Appointment of agents; No, as the following special types of
5. Hiring of employees NRA-NET/B working within the
Philippines are considered as NRA-
Q: Is it required that all of the above appear NET/B despite residing in the
before an NRA may be considered as Philippines, as long as employed in:
ET/B?
1. Offshore Banking Units;
No, any one of the indicators is 2. Petroleum Service:
sufficient to consider an NRA as ET/B a. Contractors; or
b. Subcontractors
Q: If none of the five indicators appear, 3. Multinational Companies (Sec. 25,
what is the effect to the NRA? NIRC)
The NRA shall be considered as (NOTE: In layman’s term, they are

NET/B known as “expats”)
Q: Why is there a subclassification of Rule in classifying NRA-NET/B

ET/B or NET/B in NRAs, while in RAs
there are none? Thus, in line with the above discussion,
the rule is as follows:
It is so, as the distinction lies on the fact
of residence. GR: An NRA-NET/B is a
taxpayer who is:
If one is an RA, his intention to stay in
the Philippines is manifest. 1. A foreign citizen;
2. NOT residing in
That there is a manifest the Philippines;
intention, he shall be 3. Possesses none of
considered as an RA. the indicators of
ET/B
It is NOT necessary that the
law distinguishes, considering ER: Even if the alien is
that the RA’s living in the residing and employed
Philippines would result in the in the Philippines, he
consequence that he will pay shall still be considered
taxes as there are expenditures.
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as an NRA-NET/B if Thus, it is a corporation incorporated
he is employed in: under foreign laws/ NOT
incorporated under Philippine laws
1. Offshore Banking
Units; RFC v. NRFC
2. Petroleum Service:
a. Contractors; or An RFC is a foreign corporation
b. Subcontractors ET/B.
; or
3. Multinational On the other hand, an NRFC is a
Companies foreign corporation NET/B.
DC (NOTE: In essence, RFCs and

NRFCs are the corporate TPs
Section 22. Definitions; counterpart of individual TPs
When used in this Title: classification of NRA-ET/B and
NRA-NET/B, respectively)
xxx
Primary and add-on sources of income of
(C) The term ‘domestic,’ when applied to a ITPs
corporation, means created or
organized in the Philippines or under WITHIN WITHOUT
(Philippines) (Foreign
its laws. x x x
Country)
RC Primary Add-on
As a consequence of this definition, it NRC Add-on Primary
would not matter if the corporation has RA Add-on Primary
foreign equities, considering that what NRA-ET/B Add-on Primary
matters is that the corporation is NRA-NET/B Add-on Primary
DC Primary Add-on
organized under Philippine Laws RFC Add-on Primary
NRFC Add-on Primary
(NOTE: This is different from the
Corporation Code’s definition of a Taxability of sources of income
corporation.
WITHIN WITHOUT
For tax purposes, Sec.22 of the NIRC (Philippines) (Foreign
shall govern) Country)
RC TAXABLE
NRC
FC
RA
NRA-ET/B TAXABLE
Section 22. Definitions; NRA-NET/B
When used in this Title:
DC TAXABLE
RFC TAXABLE
xxx
NRFC
(D) The term ‘foreign’ when applied to a

In sum, only RCs and DCs shall be
corporation, means a corporation
taxable for income within and without
which is not domestic. x x x
the Philippines.
15 | P a g e
All others (NRC, RA, NRA-ET/B, interest-bearing obligation of
NRA-NET/B, RFC, and NRFC) can residents, corporate or otherwise;
only be taxed with respect to income 2) Dividends. – The amount
within the Philippines received as dividends:
Within v. Without a) From a domestic

corporation; and
The provisions on whether the income b) From a foreign
is to be considered within or without corporation, unless less
can be found in the paragraphs of Sec. than fifty percent (50%)
42., in this manner: of the gross income of
such foreign
GI TAXABLE corporation for the
INCOME
W/in A B
three-year period
W/out C D ending with the close of
Partly w/in its taxable year
and partly E preceding the
w/out declaration of such
dividends (or for such
(NOTE: In studying, choose between part of such period as
within or without, as to know the corporation has
immediately if it belongs to the one you been in existence) was
studied. derived from sources
within the Philippines
Paragraphs pertaining to each are just as determined under
the same, the only difference lies the provisions of this
whether it is within or without. Section; but only in an
amount which bears the
By knowing the paragraphs pertaining same ratio to such
to either one, the source can be dividends as the gross
determined by process of elimination) income of the
corporation for such
Income within period derived from
sources within the
Section 42. Income from Sources Within Philippines bears to its
the Philippines: gross income from all
sources.
(A) Gross Income From Sources Within
the Philippines. – The following 3) Services. – Compensation for
items of gross income shall be treated labor or personal services
as gross income from sources within performed in the Philippines;
the Philippines:
4) Rentals and Royalties. – Rentals
1) Interests. – Interests derived from and royalties from property located
sources within the Philippines, and in the Philippines or from any
interests on bonds, notes or other interest in such property, including
rentals or royalties for-
16 | P a g e
a) The use of or the right apparatus purchased
or privilege to use in the from such non-resident
Philippines any person;
copyright, patent,
design or model, plan, f) Technical advice,
secret formula or assistance or services
process, goodwill, rendered in connection
trademark, trade brand with technical
or other like property management or
or right; administration of any
scientific, industrial or
b) The use of, or the right commercial
to use in the Philippines undertaking, venture,
any industrial, project or scheme; and
commercial or scientific
equipment;
g) The use of or the right
to use:
c) The supply of scientific,
technical, industrial or
commercial knowledge i. Motion picture
or information; films;
ii. Films or video
tapes for use in
d) The supply of any connection with
assistance that is television; and
ancillary and subsidiary iii. Tapes for use in
to, and is furnished as a connection with
means of enabling the radio broadcasting.
application or
enjoyment of, any such
5) Sale of Real Property. – Gains,
property or right as is
profits and income from the sale of
mentioned in paragraph
(a), any such equipment real property located in the
Philippines; and
as is mentioned in
paragraph (b) or any
6) Sale of Personal Property. –
such knowledge or
Gains, profits and income from the
information as is
sale of personal property, as
mentioned in paragraph
determined in Subsection (E) of
(c);
this Section.
e) The supply of services
by a non-resident
person or his employee (B) Taxable Income from Sources
in connection with the within the Philippines. –
use of property or
rights belonging to, or 1) General Rule. – From the items of
the installation or gross income specified in
operation of any brand, Subsection (A) of this Section,
machinery or other there shall be deducted the
17 | P a g e
expenses, losses and other A week after, X went to the US.
deductions properly allocated Coincidentally, Y saw X. As Y had a good
thereto and a ratable part of time and experienced good service of X, Y
expenses, interests, losses and approached X and paid him.
other deductions effectively
connected with the business or Considering that Y paid him in the US, can
trade conducted exclusively within the income derived from such service be
the Philippines which cannot deemed as income without?
definitely be allocated to some
items or class of gross income: No, as the place of payment would not
Provided, That such items of matter in determining whether the
deductions shall be allowed only if income is derived within or without
fully substantiated by all the
information necessary for its What is relevant is the place where the
calculation. The remainder, if any, service was rendered, which, in this
shall be treated in full as taxable case, is in the Philippines.
income from sources within the
Philippines. (NOTE: The same would hold true if
its in the reverse, where X cuts the hair
2) Exception. – No deductions for of Y in the US, but payment was made
interest paid or incurred abroad in the Philippines.
shall be allowed from the item of
gross income specified in In such a case, the income is derived
subsection (A) unless indebtedness without, regardless of where payment
was actually incurred to provide was made.)
funds for use in connection with
the conduct or operation of trade Q: X, a resident Filipino citizen, has a bank
or business in the Philippines. x x x deposit in ABC Bank, a corporation formed
and organized under Philippine laws, and
Thus, the following are considered located therein.
income within:
X is now a resident of USA. However, X
1) Compensation for services; maintained his bank account in the
2) Dividends; Philippines.
3) Interest on:
a. Bank deposits; or While X is in the USA, his deposit made
b. Loans, obligations, interests.
debentures, and
promissory notes; With respect to the interest income, is it an
4) From Real Properties; income within or without?
5) Rentals;
6) Royalties; It is an income within, considering that
the bank who issued the interest
Q: X cuts hair for a living. One day, X cut income is located in the Philippines.
the hair of Y, a foreigner. However, as the
two had a good chat, Y, as well as X, forgot (NOTE: The same concept in
the payment. compensation applies.
18 | P a g e
Thus, if the bank which issued the If XYZ issued dividends, should the
interest is located in a foreign country, income in favor of the SHs be considered
the income shall be considered as an within or without?
income without.)
It shall be considered as within, as the
Rule as to dividends issuing corporation is a DC.
It would depend on the issuing Q: XYZ Corp. is an RFC, formed and

corporation (IC): organized in the USA, with principal place
of business therein. XYZ has a branch in
DC: Within the Philippines.
FC: GR: Within W, a Filipino citizen residing therein, is a

ER: Without, with respect SH of XYZ.
to the portion of the
dividends received, if 3 XYZ issued dividends. With respect to W,
years prior to the is his income derived from the dividends
issuance of the considered within or without?
dividends, the income
of the FC derived from It is within, as dividends issued shall be
the Philippines is less considered as income within.
than 50% of the total
income of the FC. Formulas in determining applicability of
exception to the rule
(NOTE: In Filipino,
“Kung tatlong taon First, the total income (TI) of the FC
bago binigay ang shall be computed by adding the
dibidendo, ang income for the past three (3) years (1st,
kabuuan nang kinita 2nd, 3rd) from both the Philippines (PhI)
nang FC mula sa and the foreign country (FCI):
Pilipinas ay kulang
sa 50%, hindi lahat PhI = PhI 1st + PhI 2nd + PhI 3rd
nang dibidendo ay FCI = FCI 1st + FCI 2nd + FCI 3rd
mula sa Pilipinas,
kaunti lamang”) TI = PhI + FCI
Illustration of taxability of dividends Second, determine the 50% of the TI,

by dividing it my 2 (or multiplying by
A corporation issues dividends, and 50%):
such dividends shall be owned by the
stockholders (SHs). TI/2; or
Thus, the SHs acquires income by TI x 50%

virtue of the dividends issued in their
favor Third, determine if the PhI is less than
50% of the TI of the FC.
Q: XYZ Corp. is a DC, formed and
organized under Philippine laws.
19 | P a g e
If it is at least 50%, then the PhI FCI
dividend income of the SH 2018 Php2M Php4M
shall be treated as income 2019 Php4M Php7M
within, in toto. In such a case, no 2020 Php2M Php1M
computation is necessary TOTAL Php8M Php12M
PhI +FCI Php16M
If it is less than 50% (or NOT
at least 50%), a portion of the Assume that W received dividends in the
dividend income shall be amount of Php100,000, is his income
considered as within, while the considered within or without?
remaining shall be treated as
without, thus: W’s income derived from the dividends
shall be considered as IW, in toto.
PhI = or > 50% of TI = Within
It is so, as at least 50% of the FC’s TI
PhI < 50% of TI = Within and was generated within the Philippines,
without computed as follows:
Fourth, in case, the PhI is less than Php16M (TI)
50% of the TI, the income within (IW) divided by 2
out of the SH’s dividend (D) shall be Php8M (50% of TI)
computed as follows
That Php8M represents at least 50% of
PhI x D = IW the TI of the FC, and the PhI is within
TI; or such threshold, ALL of W’s income
shall be treated as income within.
PhI
divided by TI Thus, the exception to the rule, shall
% pertaining to PhI not apply.
of FC’s TI
multiplied by D Q: Assume that W is an RA, and his
IW dividend income has been computed as
above, how much is taxable in the
Sixth, to compute for the income Philippines?
without (IW/O), the IW must be
subtracted from the D: The whole amount of Php100,000 shall
be taxable in the Philippines.
D – IW = IW/O
(NOTE: The same holds true no
Q: Assume, that XYZ declared dividends in matter the classification of the SH-TP
the year 2021. is, as all are taxable for income
generated within)
The income generated by XYZ from the
Philippines and the USA from 2018-2020 Q: Assume, that XYZ declared dividends in
are as follows: the year 2021.
20 | P a g e
The income generated by XYZ from the For Income Without:
Philippines and the USA from 2018-2020
are as follows: Php100K(Dividends)
minus Php25K (Within)
PhI FCI Php75K (Without)
2018 Php1M Php4M
2019 Php2M Php7M Q: Assume that W is an NRA-ET/B, and
2020 Php1M Php1M his dividend income has been computed as
TOTAL Php4M Php12M above, how much is taxable in the
PhI +FCI Php16M Philippines?
Assume that W received dividends in the Only the Php25,000 shall be taxable in
amount of Php100,000, is his income the Philippines, as an NRA-ET/B is
considered within or without? taxable only on income generated
within the Philippines.
His income shall be considered as
follows: (NOTE: The same holds true if the
SH-TP is an NRC, RA, NRA-NET/B,
Within: Php25,000 RFC, and NRFC, as they are taxable
Without: Php75,000 only on income generated within)
The reason for this is because the FC Q: In case of interest from loans, what is its
derived from the Philippines an nature with respect to the debtor?
amount less than 50% of its total
income: It is an expense, considering that the
debtor pays such to the creditor.
Php16M (TI)
divided by 2 Q: In case of interest from loans, what is its
Php8M (50% of TI) nature with respect to the creditor?
Php4M (PhI) < Php8M (50% of TI) It is an interest income to the creditor
That it generated less than 50%, then, Q: X is an RC, indebted to Y in the amount
the portion of the dividends of W shall of Php100,000.
be within (pertaining to the portion of
FC’s income generated within), and the The loan produced interest in the amount
remaining portion out of his dividends of Php10,000.
shall be deemed as without, computed
as follows: If X paid the interest to Y, is the income
interest considered within or without?
For Income Within:
It is within, considering that in the
Php4M (PhI) determination of the source of income
divided by Php16M (TI) interest, the residence of the debtor
0.25 shall be considered.
multiplied by Php100K(Dividends)
Php25K (Within) That X is an RC, the income interest
shall be considered as within.
21 | P a g e
Q: If at the time X paid, he is in the USA CREDITOR TAXABILITY OF
for a vacation, can it be said that the INCOME
RC
income interest of Y now an income
NRC
without? RA
NRA-ET/B Taxable
No, it is still an income within. The NRA-NET/B
residence of the debtor, regardless of DC
place of payment shall be the basis in RFC
determining the source of the income. NRFC
(NOTE: It is akin to compensation for In short, as long as the income interest

services, on the basis of where the is within, all creditors despite of kind
service was rendered, in that the basis shall be taxed thereon.
shall be based on where the service was
rendered or the residence of the debtor It is so, as all the kinds of TPs are
is, regardless of place of payment.) subject to tax for income acquired
within
Q: X is an NRC, indebted to Y in the
amount of Php100,000. Taxability of interest income without on
the basis of creditor’s nature
The loan produced interest in the amount
CREDITOR TAXABILITY OF
of Php10,000. INCOME
RC Taxable
If X paid the interest to Y, is the income NRC
interest considered within or without? RA NOT Taxable
NRA-ET/B
It is an income without, considering NRA-NET/B
that X is a non-resident DC Taxable
RFC NOT Taxable
NRFC
Q: Assume that Y is likewise an NRC, what
is the nature of the source of income? It is so, considering that only RCs and
DCs shall be taxable for income
It is still an income without, as it is without.
dependent on the residence of the
debtor All others (NRC, RA, NRA-ET/B,
NRA-NET/B, RFC, and NRFC) can
Q: Considering that X and Y are both only be taxed on income within.
NRCs, can Y be taxed on the interest
income? Rule as to income from Real Properties,
Rentals, and Royalties
No, as an NRC is taxable only on
income acquired within the They shall be considered within if the
Philippines. property where the income was derived
from is located in the Philippines.
Taxability of interest income within on the
basis of creditor’s nature It is in accordance with the lex
rei sitae rule.
22 | P a g e
Corollary thereto, if the property is generated by
located outside the Philippines, then it the FC, only
the portion
shall be considered as income without. pertaining to
the income
Summary of rules to determine if income is generated in the
within Philippines
shall be deemed
as within, while
Thus, the rules are as follows: the remaining
shall be without
1) Compensation for services:
a. If the service was rendered Interest For those For those
in the Philippines income on issued by banks issued by banks
bank deposits located inside located outside
2) Dividends: the Philippines the Philippines
a. DC and FC
3) Interest on: Interest If the debtor is If the debtor is
a. Bank deposits: income on a resident of NOT a resident
i. If the bank loans, the Philippines of the
which issued obligations, Philippines
debentures,
the interest is and
within the promissory
Philippines; notes
b. Loans, obligations,
debentures, and Real If the property If the property
properties, is located in the is NOT located
promissory notes: rentals, and Philippines in the
i. If the debtor is royalties Philippines
a resident of
the Philippines Income without
4) From Real Properties, Rentals
and Royalties: Section 42. Income from Sources Within
a. If the property which the Philippines:
produced income is
situated in the Philippines
xxx
W/IN W/OUT
Compensation For service For service (C) Gross Income from Sources without
for services rendered in the rendered the Philippines. – The following
Philippines outside the items of gross income shall be treated
Philippines as income from sources without the
Dividends For those For those Philippines:
issued by DCs issued by FCs if
and FCs 3 years prior to
the issuance of a. Interests other than those
the dividend, derived from sources within
the income
generated by
the Philippines as provided in
the FC in the paragraph (1) of Subsection (A)
Philippines is of this Section;
less than 50%
of the total b. Dividends other than those
income
derived from sources within
23 | P a g e
the Philippines as provided in (E) Income from Sources Partly Within
paragraph (2) of Subsection (A) and Partly Without the Philippines.
of this Section; – Items of gross income, expenses,
losses and deductions, other than those
specified in Subsections (A) and (C) of
c. Compensation for labor or
this Section, shall be allocated or
personal services performed
without the Philippines; apportioned to sources within or
without the Philippines, under the rules
and regulations prescribed by the
d. Rentals or royalties from Secretary of Finance, upon
property located without the recommendation of the
Philippines or from any interest Commissioner. Where items of gross
in such property including income are separately allocated to
rentals or royalties for the use sources within the Philippines, there
of or for the privilege of using shall be deducted (for the purpose of
without the Philippines, computing the taxable income
patents, copyrights, secret therefrom) the expenses, losses and
processes and formulas, other deductions properly apportioned
goodwill, trademarks, trade or allocated thereto and a ratable part
brands, franchises and other of other expenses, losses or other
like properties; and deductions which cannot definitely be
allocated to some items or classes of
e. Gains, profits and income from gross income. The remainder, if any,
the sale of real property located shall be included in full as taxable
without the Philippines. income from sources within the
Philippines. In the case of gross
income derived from sources partly
(D) Taxable Income from Sources within and partly without the
without the Philippines. – From the Philippines, the taxable income may
items of gross income specified in first be computed by deducting the
Subsection (C) of this Section there expenses, losses or other deductions
shall be deducted the expenses, losses, apportioned or allocated thereto and a
and other deductions properly ratable part of any expense, loss or
apportioned or allocated thereto and a other deduction which cannot
ratable part of any expense, loss or definitely be allocated to some items or
other deduction which cannot classes of gross income; and the
definitely be allocated to some items or portion of such taxable income
classes of gross income. The attributable to sources within the
remainder, if any, shall be treated in full
Philippines may be determined by
as taxable income from sources processes or formulas of general
without the Philippines. x x x
apportionment prescribed by the
Secretary of Finance. Gains, profits
Income partly within and partly without and income from the sale of personal
property produced (in whole or in part)
Section 42. Income from Sources Within by the taxpayer within and sold without
the Philippines: the Philippines, or produced (in whole
or in part) by the taxpayer without and
xxx sold within the Philippines, shall be
24 | P a g e
treated as derived partly from sources 2. Duplicate DT/ in its Strict Sense
within and partly from sources without (DTSS)
the Philippines.
DTSS v. DTBS
Gains, profits and income derived
from the purchase of personal property DTSS, has the following elements:
within and its sale without the
Philippines, or from the purchase of 1. Taxing twice;
personal property without and its sale 2. The same subject matter;
within the Philippines shall be treated 3. With the same taxable period;
as derived entirely from sources within 4. For the same purpose; and
the country in which sold: Provided, 5. For the same kind of tax
however, That gain from the sale of
shares of stock in a domestic On the other hand, in the absence of
corporation shall be treated as derived any of the above elements, then there
entirely from sources within the is DTBS.
Philippines regardless of where the said
shares are sold. The transfer by a non- DTSS DTBS
Legality Illegal/ Legal/
resident alien or a foreign corporation Unconstitutional Constitutional
to anyone of any share of stock issued
by a domestic corporation shall not be Consequence Prohibited Allowed, but
effected or made in its book unless: (1) frowned upon
the transferor has filed with the considering the
dual impact
Commissioner a bond conditioned to the TP.
upon the future payment by him of any
income tax that may be due on the Can it be No, as there is Yes, as the law
gains derived from such transfer, or (2) reduced? nothing to recognizes the
the Commissioner has certified that the reduce as it impact to the
cannot be had in TP, the law
taxes, if any, imposed in this Title and
the first place provides
due on the gain realized from such sale remedies
or transfer have been paid. It shall be
the duty of the transferor and the Q: Why is DTSS unconstitutional?
corporation the shares of which are
sold or transferred, to advise the As it violates the equal protection
transferee of this requirement. clause
These are income which cannot be Implication of DTBS’ being “frowned

determined readily if it is within or upon”
without
Considering the dual impact, if it can
Kinds of double taxation (DT) be avoided, then it shall be avoided
The kinds of double taxation are: DT with respect to sources of income
1. Direct Duplicate DT/ in its Broad As to RCs and DCs, income derived
Sense (DTBS); or without the Philippines shall be taxed
by:
25 | P a g e
1. Philippines; and a. Shares of stocks (C); and
2. Foreign Country b. Real property (D)
On the other hand, with respect to Rule as to taxability of income

RAs, NRA-ET/Bs, NRA-NET/Bs,
RFCs, and NRFCs, income derived GR: ALL income is taxable
within the Philippines shall be taxed by:
ER: Income shall NOT be taxable
1. Philippines; and if:
2. Foreign Country
1) If there is a specific law
(NOTE: There is no DT to speak of providing for tax
with regard to those income derived exemption; and
without the Philippines by the 2nd 2) If the income is one of the
group of income TPs, considering that items of exclusions from
they are NOT taxed for such source of the computation of the GI
income) (Sec. 32(B), NIRC)
Q: What kind of DT represents the taxation Flow to be observed

referred to above?
IS IT INCOME?
It is a DTBS, as there is a:
No Yes
1. Twice taxing;
2. Of the same subject matter STOP IS THE
(income); INCOME
3. Within the same taxing period INCLUDED,
(when the income was acquired); EXEMPTED,
4. For the same purpose (as income OR
EXCLUDED?
was acquired; and
5. By different authorities: Exempted/ Included
a. Philippines; and Excluded
b. Foreign country
STOP IS IT A, B, C,
Q: Considering that it is a DTBS, what OR D? WHAT
KIND OF TAX
possible remedy is available to the TP? AND RATE
SHALL BE
The most common remedy is by a tax APPLIED?
credit
Rule to be deemed as “ALL income”
Kinds of income
Section 24. Income Tax Rates;
For purposes of discussion, the
following are the kinds of income: (A) Rates of Income Tax on Individual
Citizen and Individual Resident Alien
1) ALL income (A); of the Philippines. –
2) Passive income (B);
3) Capital gains on sale of:
26 | P a g e
(1) An income tax is hereby Q: The sale of the stock is coursed through
imposed: the stock exchange. Is it included in C?
(a) On the taxable income No, as the sale must be untraded.

defined in Section 31 of
this Code, other than It is deemed as traded if it is coursed
income subject to tax through the stock exchange
under Subsections (B),
(C) and (D) of this Requisites for Capital Gains on Sale of Real
Section, derived for Property
each taxable year from
all sources within and The following must concur to be
without the Philippines considered as Capital gains on Sale of
by every individual Real Property:
citizen of the
Philippines residing 1) There is a sale;
therein; x x x. 2) The subject of the sale is a real
property, which may be:
a. Land;
Income shall be considered as in item
b. Building; or
A, if it does NOT fall under items B, C,
c. Both
and D.
3) The real property must be located
in the Philippines; and
Conversely, if it falls under any of items
4) The nature/classification of the
B, C, or D, then it will NOT be deemed
asset is as capital (capital asset)
as under A.
Summary of kinds of income
Inclusions under Passive Income (B)
A B C D
The following are under Passive Does Within the Philippines
not fall Interest Share Sale of real
Income: under from bank issued by property
Conditions B, C, or deposits; a DC, located in
D Royalties; which is a the
1) Interest on bank deposits; Dividends; capital Philippines
2) Royalties; Prizes and asset, and in the
3) Prizes and winnings; and winnings was sold nature of a
untraded capital
4) Dividends asset
Requisites for Capital Gains on Sale of

Shares of Stocks (C)
The following must concur to be

considered as Capital gains on Sale of
Shares of Stock:
1) The stock is issued by a DC;

2) The nature/classification of the
asset is as capital (capital asset);
3) The sale of the stock is untraded
27 | P a g e
What kind of tax and rate should be GS/GR (benta)
applied? less Php250,000
GI
Among the two, the former is much multiplied by 8% Tax rate
important with respect to the Bar Tax due
Exams, as it is seldom that the
examinee is asked to compute for the When 8%TG applicable
tax rate.
The tax on the GI shall be subjected to
KIND OF TAX an 8% tax rate, provided that the
A B C D following concurs:
RC
NRC
RA NIT; or 1. TP is either:
NRA- 8%TG FWHT a. SEP;
ET/B b. SEI; or
NRA- GIT/FT (25%) c. MIE
NET/B 2. GR/GS does not exceed Php3M in
DC NIT a year (= or < Php3M/year)
RFC
NRFC GIT/FT (25%)
Rationale for Php3M threshold
Individual TPs
Section 109. Exempt Transactions. –
Options of RC, NRC, RA, and NRA-ET/B
as to A (1) Subject to the provisions of subsection
(2) hereof, the following transactions
The TP may opt to be subjected to: shall be exempt from the value-added
tax: x x x
1. NIT; or
2. 8%TG (BB) Sale or lease of goods or
properties or the performance
NIT v. 8%TG of services other than the
transactions mentioned in the
To reiterate, NIT is computed as preceding paragraphs, the
follows: gross annual sales and/or
GS/GR (benta) receipts do not exceed the
less COS (puhunan) amount of Three million pesos
GI (PhP3,000,000).
less AD, if any
TNI Thus, the Php3M threshold is for the
multiplied by Tax rate purpose of preventing the operation of
Tax due the Value Added Tax (VAT) with
respect to the TP.
On the other hand, 8%TG is
computed as follows: If Php3M threshold is reached, VAT
will apply, and the TP may no longer
avail the 8%TG
28 | P a g e
(NOTE: Take note of rules on VAT, Henry comes to you asking for his options
as VAT and IT on Individual TPs are on his income tax rate, what would you
akin to a married couple, if one advise?
appears, most likely the other will.)
I would tell Henry that he can only be
Q: Do CIE’s incur VAT assuming he has subjected to NIT.
an income exceeding Php3M?
CIE cannot avail the 8%TG, and thus,
No, it is merely passed to the CIE, but can only be subjected to the rates under
does NOT remit the same to the BIR NIT.
Summary of VAT applicability to Q: Lucio is an SEI. He started his business

Individual TPs in 2020, and luckily, he was able to have a
GS of Php3,000,000.
CIE SEP/I MIE
CIE SEP/I Lucio now consults you on what income
=/< NONE NONE NONE NONE tax rate he may avail as he has heard that
3M
>3M Applies Applies there is an 8% rate under the TRAIN Law.
What are Lucio’s options?
In short, VAT applies only to those
with SEP/Is with GS/GR exceeding Lucio may avail any of the following:
Php3M.
1. NIT; or
(NOTE: In the MIE portion, the 2. 8%TG
computation is divided into two as
there are different sources of income. He may avail of the 8%TG considering
he is an SEI with a GS NOT exceeding
An example and further discussions Php3M.
shall be provided in the later pages.)
As his GS is Php3M, it does not exceed
Rules to observe in the opting of 8%TG Php3M and therefore may avail the 8%
TG.
The following rules should be
observed: Q: If Lucio availed NIT, will there be a
VAT?
1. It must be exercised at the start of
the taxable year; No, as the GS did NOT exceed
2. Is irrevocable for the year it was Php3M, and therefore exempt from tax
opted to; and
3. Would not carry over to the (NOTE: Thus, as long as the GS/GR
following taxable year does not exceed Php3M, there is no
VAT to speak of, whether NIT or
Q: Henry is an employee of SM 8%TG is chosen)
Department Store.
Q: Assume that Lucio, instead, has a GS of
For the year 2020, his GR amounted to Php3,000,001, what are his options?
Php500,000.
29 | P a g e
Lucio may only avail of NIT, It shall be NIT, as it is the default
considering that 8% TG may only be applicable rate in case the choice was
availed if the SEP/I’s GS/GR does not exercised.
NOT exceed Php3M.
Q: Assume that Lucio is qualified to avail
(NOTE: Thus, if the SEP/SEI/MIE of 8%TG, but he neither chose NIT nor
has a GS/GR exceeding Php3M, there 8%TG, what is the applicable rate?
is no choice to speak of, as
automatically he shall be subjected to It shall be NIT, as is the default
NIT) applicable rate in case no choice was
made.
Q: In the above stated fact, will VAT apply?
Q: Assume that Lucio is qualified to avail
Yes, as it exceeds Php3M of 8%TG, but opted to be subjected to
NIT.
Rule as to applicable rate
During the year, he changed his mind and
GR: NIT, when: wanted to avail the 8%TG. May Lucio do
so?
1. CIE;
2. The GS/GR exceeds No, as the option must be exercised at
Php3M; or the start of the taxable year
3. Despite the 8%TG’s
availability: Q: Assume that Lucio is qualified to avail
a. No choice was made; of 8%TG, and opted to be subjected to such
b. It was not chosen; or
c. Chosen after the start During the year, he changed his mind and
of the year wanted to avail the NIT. May Lucio do so?
ER: 8%TG, if: No, as once a choice was exercised, it

is irrevocable for the year it was
1. The TP is a chosen.
SEP/SEI/MIE;
2. The SEP/SEI/MIE has a (NOTE: Thus, whether the TP opted
GS/GR NOT exceeding NIT or 8%TG, it shall be irrevocable
Php3M; for the year it was opted to)
3. The option is exercised at
the start of the year Q: Assume that Lucio opted to avail the
8%TG in 2021. In the year 2022, he did not
NIT/8%TG
Php3M elect 8%TG with a belief that his option in
NIT
2021 is a continuing choice. Is Lucio
SEP/SEI/MIE correct?
Q: Assume that Lucio is qualified to avail No, as the option is only for the taxable
of 8%TG, but he did NOT choose it, what year in which it was elected.
is the applicable rate?
Thus, the following taxable year, Lucio
must exercise his option again if he
30 | P a g e
wants to avail the 8% TG, otherwise, As to the income earned as a CIE, it
the applicable rate would be NIT. can only be subjected to NIT.
Where 8% applied to On the other hand, as to the income

earned as an SEP, NIT or 8%TG may
As a general rule, the 8% shall be be applied, as the total GS/GR does
multiplied to the GS/GR in excess of NOT exceed Php3M.
Php250K.
Thus: Q: In the above problem, will Jules’ income
of Php4M as a CIE be subjected to VAT?
Php250K Php3M
No, as CIEs are not liable for VAT, it
x 8% is merely passed to them, but are not
liable to remit to the BIR.
However, as an exception, the
Php250K rule does not apply in case Q: Assume, that Jules selected the NIT
the 8% is opted to by a MIE with respect to the SEP, how will the tax be
computed?
Q: Jules is an SEP having a GR of
Php1,000,000. In such a case, all the income shall be
added, and the income in excess of
In case she avails of the 8% TG, how much Php250,000 shall be subjected to the
will be subjected to tax? applicable tax rate in the NIT. Thus:
Jules’ income of Php750K shall be Php4M (CIE)

subjected to the 8% TG, computed as plus Php2M (SEP)
follows: Php6M
minus Php2M (Exempt)
Php1M (GS) Php4M (Excess)
minus Php250K (Exempt) multiplied by 32% (Tax rate)
Php750K Php1.280M
multiplied by 8% TG (Tax rate) plus Php490,000 (Basic)
Php60K (Tax due) Php1.770M(Tax due)
Q: If Jules is an MIE, with a Php4M Q: Considering that in the above problem,

income for being a CIE, and a Php2M GR all income from being a CIE and SEP has
as an SEP, what are the applicable tax been added, is it correct to say that VAT
rates? would apply as it now amounts to Php6M
income in toto?
The applicable tax rates are as follows:
No, as the basis for VAT would still be
As to Php4M: NIT on the segregated income from each
As to Php2M: NIT; or source.
8%TG
Thus, the income from CIE still has no
Considering that Jules is an MIE, the VAT, as no VAT attaches, while no
sources of income must be segregated. VAT exists form the income from
SEP, as the threshold was not reached.
31 | P a g e
Q: Assume, that Jules opted the 8%TG with Q: If instead, Jules’ has an income of
respect to the SEP income, how will the tax Php2M and Php4M, from CIE and SEP
be computed. respectively, would VAT apply to both?
The income shall be computed No, only to the income from SEP, as
separately, and added together for the the GR exceeds Php3M.
total tax due, as follows:
On the other hand, the income from
For the CIE: CIE cannot be liable for VAT, whether
or not the income exceeds Php3M.
Php4M (CIE)
minus Php2M (Exempt) Applicable rate to NRA-NET/B
Php2M
multiplied by 32% (Tax rate) NRA-NET/B’s GI shall be subjected
Php640K to 25% IT, thus:
plus Php490,000 (Basic)
Php1.130M(Tax due) GS (benta)
less COS (puhunan)
For the SEP: GI
multiplied by 25% Tax rate
Php2M Tax due
multiplied by 8% (Tax rate)
Php160K (Tax due) Rationale for applicability of GIT to NRA-
NET/B
Total tax due:
It is to ensure that tax will be paid for
Php1.130M (CIE) income earned, considering that the TP
plus Php160K (SEP) is:
Php1.29M (Tax due)
1. NOT in the Philippines; and
Difference between computations in tax 2. NET/B
due of SEP/SEI and MIE availing 8%TG
Thus, it is necessary that such tax be
In case of an SEP, there is an imposed which is in the nature of
exemption of Php250K, thus it is to be taxing at source, as to avoid a situation
deducted from the GS. where no tax will be paid for income
derived in the Philippines by an NRA-
On the other hand, in an MIE, the NET/B.
250K exemption does not apply,
considering there is already an Take not that the GIT is in the nature
exemption granted by law in the of a final tax as well, akin to FWHT.
computation for the CIE tax due.
In fact, this exemption is much

higher than the 250K granted
for the 8%TG, therefore, it
would be redundant to grant it
32 | P a g e
Rates of FWHT under B Considering that X is an RC, he may
opt to apply NIT or the 8%TG if
VARIETY RATE applicable
Local/ Peso account 20%
Interest Foreign currency 15% (NOTE: The same rule applies, if X is

on bank
deposits Long-term/ Prior to year
3rd 20% an NRC, RA, or NRA-ET/B)
time deposit On 3rd year 12%
(based on On 4th year 5%
pre- NOT for 5 years Exempt
Q: Will X be taxed for such interest
termination) income?
GR: Ordinary 20%
Royalties
ER: Books, literary works, and musical 10% Yes, considering that he is an RC, he
compositions
shall be taxed for both income within
GR: Ordinary (including PCSO, Lotto, 20% and without.
and other prizes and winnings exceeding
Php10K)
Prizes Q: If X is a DC, will X be taxed for such
and ER PCSO and Exempt
winnings Lotto Php10K
interest income?
Winnings and
below
Other (= or NIT or
Yes, considering that X is a DC, it shall
prizes and <10k) 8% (A) be taxed for both income within and
winnings without
GR: Issued by DC 10%
Dividends Q: If X is a DC, may he opt for the 8%TG?
ER: Issued by FC NIT or
8%
(A) No, as a corporation does not have
such option
Q: X, a RC, has a foreign currency deposit
account in ABC Bank, located in the Q: If X is an RA, may he be taxed for such
United States. interest income?
Said deposit account produced interests. No, as an RA cannot be taxed for

income derived without the Philippines
With respect to the interest, will it be
subject to FWHT? (NOTE: The same rule applies if X is
an NRC, NRA-ET/B, and RFC)
No, as it is an income derived without
the Philippines, considering that the Q: Sulat is an RC, and he is an author of a
bank that issued the interest is located law book entitled “Taxation for Dum-
outside the Philippines. Dums”. Said book has been published here
in the Philippines.
Q: That it is an income without the
Philippines, to what kind of income will it With respect to the royalties, how much
fall under? FWHT will apply?
It shall fall under ALL income (A) The FWHT is 10%, as it is an income
other than B, C, and D. derived from a book
Q: Considering that it is under A, what tax
rate applies?
33 | P a g e
Q: Assume, that Sulat wrote and published Q: X won a spelling bee hosted by the
the book in the United States, will the “ABNKKBSPLAQ Inc.”.
FWHT of 10% apply to the royalties?
Will his prize be subjected to FWHT?
No, as it is an income derived without
the Philippines, and thus would not fall No, as prizes and winnings refer to
under B. games of chance, NOT those won in
contests.
That it is NOT under B, it falls under
A. Q: Lucky, an RC, is the sole winner of the
lotto grand prize of Php2,000,000. What tax
Thus, that it is under A, and Sulat is an rate would apply?
RC, the applicable tax rate is NIT or
8%TG if qualified The FWHT of 20% shall be applicable,
as it is a winning more than Php10,000.
Q: If Sulat is an RFC, and he wrote and
published the book in the United States, Q: If instead, Lucky won the lotto in the
will the FWHT of 10% apply to the United States, what tax rate will apply?
royalties?
The applicable tax rate is NIT or
No, as it is an income derived without 8%TG, if qualified.
the Philippines, and thus would not fall
under B. It is so, as the winning does not fall
under B, and as such falls under A.
That it is NOT under B, it falls under
A. Q: Unlucky, an RC, is one of the winners of
the lotto grand prize amounting to
Thus, that it is under A, and Sulat is an Php2,000,000.
RFC, the applicable tax rate is NIT
After dividing it to all winners, it appears
(NOTE: Again, the 8%TG would not that Unlucky is bound to receive only
apply considering that the TP is a Php10,000.
corporation)
How much FWHT will be subjected to
Q: If Sulat is an RA instead, but still wrote Unlucky’s winnings?
and authored the book in the United States,
will he be taxed on royalties received from No FWHT shall apply, as the winning
such? is exempted from such, considering
that it is a winning not exceeding
No, as an RA is not taxable for income Php10,000.
derived without the Philippines.
Examples of “other prizes and winnings”
Inclusions of prizes and winnings
Examples are as follows:
It refers to prizes and winning in
“games of chance” 1. Casino;
2. Raffles; and
3. Other gambling games
34 | P a g e
Q: Sinwirti won a raffle in the Philippines Flow observed in determining taxability of
amounting to Php50,000. dividends
With respect to the winnings, how much is WHO ISSUED?

the tax imposed?
DC FC
It shall be subjected to a 20% FWHT,
as the winnings exceed Php10,000.
10% NIT; or
FWHT 8%TG (A)
Q: Minalas, an RC, won a raffle in the (B)
Philippines amounting to Php10,000. IS THE
INCOME OF
THE FC W/IN
With respect to the winnings, how much is
PHIL. < 50%
the tax imposed? OF TOTAL
INCOME?
It shall be subjected to NIT or 8%TG Yes No
if qualified.
ALL Taxes are
It is so, as the winnings does not exceed taxes both
Php10,000, then, it does not fall under are within and
within without
B, and thus it falls under A.
That it is under A, and Minalas is an RC, Q: Raffy is an SH of RTIA Inc., a

the applicable tax rate is NIT or the corporation formed and organized under
8%TG. Philippine Laws.
Effect if prizes or winnings are won outside RTIA declared dividends, and as such,
the Philippines if TP is RC, NRC, RA, Raffy received dividends.
NRA-ET/B, DC, or RFC
What is the tax rate applicable to the
In such a case, FWHT would not apply, dividends received by Raffy?
as it would fall under A.
As a consequence, the applicable rate Raffy’s dividends shall be subjected to a
would be NIT of 8%TG 10% FWHT, considering that the
dividends were issued by a DC.
Q: Assume that RTIA is an FC instead,

what will be the applicable tax rate to
Raffy’s dividends?
The applicable tax rate shall be NIT or

8%TG, considering that dividends
issued by an FC does not fall under B,
and thus falls under A.
Q: Does it mean then dividends issued by

an FC is considered as income without?
35 | P a g e
No, as previously discussed, that as a Considering that Jocelyn is an NRC, she
general rule, dividends issued by an can only be held liable for taxes within
FC is an income within, except when the Philippines, and thus, only the
3 years prior to the declaration of Php25K shall be taxed
dividends by the FC, the income
generated in the Philippines is less than Q: What is the applicable rate to Jocelyn’s
the total income of the FC. income within?
Hence, it was merely removed from the It shall be NIT or 8%TG, as the
operation of B, considering that under income from dividends is under A.
such item, only dividends issued by a
DC are taxable with a 10% FWHT. Considering that the dividends were
issued by an FC, it does NOT fall
Dividends issued by an FC falls under under B, and thus falls under A.
A, for the simple reason that it is NOT
within the conditions falling under B, Q: Assume that RTIA’s income generated
and NOT because it is considered as in the Philippines is Php10M, how much of
income without. Jocelyn’s dividend income will be
subjected to tax and at what rate?
Q: Jocelyn, an NRC, is an SH of RTIA Inc.,
an FC. In this case, all of Jocelyn’s dividend shall
be subjected to tax, thus, the whole
RTIA declared dividends in 2021, to which Php100K.
Jocelyn received Php100,000.
Such dividend shall be subjected to
For the year 2018-2020, RTIA generated an NIT or 8%TG, considering that it does
income of Php5M within the Philippines, not fall under B, as it was issued by an
while Php15M outside the Philippines. FC.
Will the whole of Jocelyn’s dividend be Applicable rate to NRA-NET/B

subjected to tax in the Philippines?
NRA-NET/B’s GI shall be subjected
No, considering that RTIA has less to 25% IT, thus:
income from the Philippines as
compared to its total income. GI
multiplied by 25% Tax rate
That only 25% of the total income of Tax due
RTIA is considered as within, such
portion shall be considered in (NOTE: The same rationale in A
computing the tax for dividends. applies to NRA-NET/B as to income
from B, to ensure that tax is paid
Thus, Jocelyn’s income is divided as immediately)
follows:
Within: Php25K Requisites of capital gains on sale of shares

Without: Php75K of stock (C)
The requisites are as follows:

36 | P a g e
1. The shares of stock (SoS) are issued b. Ordinary asset: if used, shall
by a DC (thus located in the be deducted from tax as it is
Philippines); used in T/B;
2. The SoS are in the nature of a 3. In assets (whether capital or
capital asset; ordinary):
3. The SoS has been sold; and a. The change in the net worth
4. The sale is NOT coursed through would not have an effect:
the local stock exchange i. NOT income:
(untraded/not traded through 1. as it is NOT
local stock exchange) realized (paper
income); and
Requisites of capital gains on sale of real ii. NOT loss:
property (D) 1. as it is merely
on paper (loss
The requisites are as follows: on paper)
b. The sale would have tax
1. The real property is located in the implications:
Philippines; i. If realized
2. The real property is in the nature of income/gain:
a capital asset; and 1. there is an IT;
3. There is a sale of the real property or
ii. If sold at a loss:
Effect if one of the requisites lacking 1. there is DT
4. Tax rate imposed:
Then, it will be considered as under A, a. C
as it is not under C or D. i. 15% FWHT
b. D
Thus, the applicable tax rate would be i. 6% FWHT of the
NIT or 8%TG, if applicable, and NOT following, whichever is
FWHT. higher:
1. Fair market
Similar requisite under C and D value (FMV);
2. Assessed value;
Under both kinds of income, the or
subject of the sale must be in the nature 3. Zonal
of a capital asset. valuation
Rules to observe in answering questions Q: Does the term “capital” (puhunan) in

involving assets capital asset refer to the money used in the
acquisition or for the establishment of the
The following rules should be applied: subject?
1. Determine if it is: No, it is different

a. Capital asset; or
b. Ordinary asset;
2. Tax implications upon
determining:
a. Capital asset: no effect
37 | P a g e
Capital asset (CA) v. Ordinary asset (OA) 3. Property held by the TP primarily
for sale to customers in the
Section 39. Capital Gains and Losses; ordinary course of his trade or
business (Property for sale in the
(A) Definitions – ordinary course of his T/B); and
As used in this Title – 4. Property used in the trade or
business of a character which is
(1) Capital Assets; subject to the allowance for
depreciation (Property used in
The term ‘capital assets’ means the T/B subject to
property held by the taxpayer (whether depreciation); and
or not connected with his trade or 5. Real property used by the TP in the
business), but does not include stock in trade or business (real property
trade of the taxpayer or other property used in the T/B)
of a kind which would properly be
included in the inventory of the (NOTE: Thus, as a short answer, OA
taxpayer if on hand at the close of the are those assets which are used for
taxable year, or property held by the T/B, and CA are those NOT used for
taxpayer primarily for sale to customers T/B)
in the ordinary course of his trade or
business, or property used in the trade Q: X owns a Tapsilogan. For purposes of
or business, of a character which is taxation, what can be considered as a
subject to the allowance for “stock in trade”, “property included in
depreciation provided in Subsection inventory at hand at the close of the taxable
(F) of Section 34; or real property used year”, “property for sale in the ordinary
in trade or business of the taxpayer. x x course of T/B”, “property used in the T/B
x subject to depreciation”, and “real property
used in T/B”?
By this definition, CA are assets other
X may have the following OA:
than OA.
1. Tapsilog as a:
Notice that the definition is in
a. Stock in trade; and
the negative, and thus it defines
b. Property for sale in the
OA in the process.
ordinary course of the T/B;
2. The remaining ingredients which
On the other hand, the following are
may exist at the close of the taxable
OA:
year, like the following:
a. Beef;
1. Stock in trade of the TP;
b. Tomatoes;
2. Property of a kind which would
c. Rice;
properly be included in the
d. Eggs;
inventory of the TP if on hand at
3. The following are property used in
the close of the taxable year
the T/B subject to depreciation
(Property included in inventory
(those which are used in the T/B
at hand at the close of the
taxable year); which will depreciate if used), such
as:
a. Table;
38 | P a g e
b. Chairs; No, as gain is determined from the fair
c. Utensils; market value (FMV) of the property
d. Electric fan; at the time of the sale.
e. Aircon;
f. Cooking tools; and It is NOT based on the historical cost
4. Real property such as the (puhunan) or purchase price
Tapsilogan’s:
a. Building; and Where FMV found
b. Land
The FMV can be found in the tax
Q: X, the owner of the Tapsilogan stated declarations
above, owns an aircon, tables, chairs,
utensils, electric fan, cooking tools, and a The tax declarations may be requested
house where he lives in. Are these from the Assessor’s Office in the
considered as OA? corresponding Local Government
Unit
No, as these are not used in the T/B.
Q: X sold his land with a FMV of Php3M
While the above refers to property as appearing in the tax declaration for
subject to depreciation and real Php5M.
property, it does not refer to the T/B
of X. What tax may be attributed to the Php2M
gain?
Thus, that it is not an OA, it is
considered as CA. It is IT, considering that X realized
income.
Q: The real property of X, at the time of
buying it, paid Php1,000,000. Q: X sold his land with a FMV of Php3M
as appearing in the tax declaration for
After three years, the value of X’s real Php2M.
property became Php3,000,000.
What tax may be attributed to the Php1M
May X be taxed for the Php2,000,000 loss?
increase in the net worth?
It is DT, as there it is sold without a
No, as X did not realize income. sufficient consideration.
While it is true that the value of X’s Considering that the loss was incurred
land indeed increased, such gain is without the fault of the Government,
merely a paper profit, as it is NOT as such loss was due to the fault of the
realized. seller by his selling the property lower
than its FMV, then he is liable for DT
Q: X opted to sell his land valued at with respect to the loss.
Php3,000,000, for such price.
Will he be taxed for the Php2,000,000,

considering that at the time he bought the
property, he paid Php1,000,000?
39 | P a g e
Tax rate imposed Thus, that it is not under C, it is under
A.
The following FWHT, alternatively
known as capital gains tax (CGT) Q: If the real property sold is NOT located
shall apply: in the Philippines, what tax rate would
apply?
C: 15% FWHT/CGT
D: 6% FWHT/CGT, on the It would be NIT or 8%TG,
following, whichever is higher: considering that the real property
subject of the sale is located outside the
1. FMV; Philippines.
2. Assessed value; or
3. Zonal value That it is not under C, it is under A
Where zonal value found Implication if property sold is NOT

located in the Philippines
It may be found in the BIR Website,
considering that the BIR has the power Then, it would be considered as
to determine such income without the Philippines.
Q: Considering that it pertains to a sale of In line with the above, only RCs and
real property, does it mean, then, that there DCs may be taxed on such income, as
could only be one value pertaining to such? they are taxed for income derived
within and without.
No, as in the case of a land and an
improvement (e.g. house) thereon, Condominium units
there would be two (2) different tax
declarations, to wit: Condominium units are included in the
operation of CGT
1. On the land; and
2. On the improvement Q: X owns a condominium unit which he
uses as his residence.
Thus, the FMV, assessed value, and
zonal value of the land, is different If X sells such condominium unit, what tax
from the FMV, assessed value, and rate would be applicable?
zonal value of the improvement.
The applicable tax rate shall be 6%
If, however, it is only on the land, or on FWHT/CGT, as it is a sale of real
the improvement, then only one value property under D
could pertain to such
Q: Assume instead, that X leases out his
Q: If the SoS sold is issued by a FC, what condo unit to Y.
tax rate would apply?
If X sells his condo unit, what tax rate
It is NIT or 8%TG, considering that would be applicable?
what is covered by C are those SoS
issued by a DC. The applicable tax rate shall be NIT or
8%TG, if applicable.
40 | P a g e
It is so as it does not fall under D, by c. Zonal valuation; or
reason of the asset’s being of a ordinary 2. NIT under A
nature, as it is being used in trade or
business. Thus, with respect to the applicable tax
rate in case of sale of real property
That it is not under D, the it falls under under D, the rule is as follows:
A.
GR: 6% FWHT/CGT of the
Thus, that it is under A, the applicable following, whichever is
tax rate is NIT or 8%TG, if qualified. higher:
Involuntary sale of real property 1. FMV;

2. Assessed value; or
There are instances where a sale is 3. Zonal Value
made involuntarily, such as:
ER: In case of sale by reason of
1. By reason of expropriation expropriation proceedings,
proceedings; the owner of the
2. Foreclosure of Real Estate expropriated property have
Mortgage (FREM) two options:
Q: X is an RC with a real property with a 1. 6% FWHT/CGT of

FMV of Php1M, which is not used in his the following,
trade or business. whichever is higher:
a. FMV;
Considering the building of the national b. Assessed value; or
highway, X’s real property is along the plan c. Zonal value; or
of where is it to be built. 2. NIT under A
Thus, the Government initiated Q: If you were the counsel of X, what would
expropriation proceedings, and you suggest as the better option?
successfully obtained an order of
expropriation against X’s property. I would suggest to X to avail of the
NIT tax rate.
Considering that X was forced to sell his
property to the government for the price of The basis of just compensation
just compensation, what would be the is FMV, thus, in this case the
applicable tax rate considering that it is a Php1M.
“sale of real property” under D?
If the Government would pay
The owner of the expropriated only Php1M, (which most
property is given by law two choices as likely would happen), there is
to the applicable tax rate: no income to speak of and
therefore no tax to apply.
1. 6% FWHT/CGT of the following,
whichever is higher: On the other hand, if the 6%
a. FMV; FWHT/CGT is chosen, there will
b. Assessed value; or always be tax as it shall be attached to
41 | P a g e
whichever value is higher among FMV, Exemption under D
assessed value, or zonal value.
Section 24. Income Tax Rates
Q: As the loan became due, the creditor
successfully foreclosed the property of the xxx
debtor subject to the REM.
(D) Capital Gains from Sale of Real
Will CGT attach at this point? Property
No, CGT would not attach by mere xxx

foreclosure
(2) Exception. –
Q: As the loan became due, the creditor The provisions of paragraph (1) of this
successfully foreclosed the property of the Subsection to the contrary
debtor subject to the REM. notwithstanding, capital gains
presumed to have been realized from
Subsequently, an auction sale was done the sale or disposition of their principal
and the property was sold to the highest residence by natural persons, the
bidder. proceeds of which is fully utilized in
acquiring or constructing a new
Thus, the proceeds were applied to the principal residence within eighteen (18)
amount of the loan. calendar months from the date of sale
or disposition, shall be exempt from
Will CGT attach at this point? the capital gains tax imposed under this
Subsection: Provided, That the
No, CGT would not attach even if historical cost or adjusted basis of the
there is a concluded sale. real property sold or disposed shall be
carried over to the new principal
When CGT attaches in case of FREM residence built or acquired: Provided,
further, That the Commissioner shall
CGT attaches only upon the have been duly notified by the taxpayer
consolidation of the title to the within thirty (30) days from the date of
highest bidder. sale or disposition through a prescribed
return of his intention to avail of the
Thus, it can only attach after tax exemption herein mentioned:
the expiration of the Provided, still further, That the said tax
redemption period. exemption can only be availed of once
every ten (10) years: Provided, finally,
Q: Is the debtor-seller bound to pay the that if there is no full utilization of the
CGT? proceeds of sale or disposition, the
portion of the gain presumed to have
No, it is the creditor in the REM been realized from the sale or
agreement. disposition shall be subject to capital
gains tax. For this purpose, the gross
It would be futile to tax the debtor, selling price or fair market value at the
considering that he has no money to time of sale, whichever is higher, shall
pay the CGT. be multiplied by a fraction which the
42 | P a g e
unutilized amount bears to the gross Yes, as both real properties represent
selling price in order to determine the his actual principal residence, and thus
taxable portion and the tax prescribed can validly be the subject of exemption.
under paragraph (1) of this Subsection
shall be imposed thereon. Q: X owns a land. As he was not using the
said land, he allowed his brother Y to build
In case of sale of principal residence, a house thereon as his principal residence.
the TP may be exempted from the
payment of CGT, if: If X and Y sold the land and house,
respectively, may both of them avail of the
1. The TP informs the BIR, within 30 exemption for CGT on sales of principal
days from the sale, that he is residence?
availing the exemption;
2. The TP buys or builds another No, only Y may avail of the exemption.
actual principal residence in lieu of
the one sold, within 18 months (1 In this case, only Y has the actual
year and 6 months) from the sale; principal residence to speak of.
3. The TP avails the remedy once in
10 years; and X is not actually living in the said land,
4. The historical cost (instead of the and thus he cannot avail the
FMV) shall be the basis for the exemption.
computation of the CGT
exemption or application Q: X and Y, husband and wife, had three
children, namely, A, B, and C.
Q: Why should the TP selling his principal
residence inform such sale to the BIR At the time of X and Y’s death, only C was
within 30 days from sale? living and residing with them in their
house in the province of Nueva Ecija, while
It is so, as the period to pay CGT under A and B are both in Manila and are residing
D is 30 days from the sale. therein.
Thus, the exemption must be given to Years after the death of their parents, A, B,
the BIR prior to the payment of CGT, and C decided to sell their ancestral house.
otherwise, the seller shall be liable to Can all of A, B, and C, claim the exemption
pay CGT. for CGT on sales of principal residence?
Q: May a TP avail the exemption twice in No, only C may avail the exemption,
one year? considering that he is the only sibling
who has the ancestral house as his
No, in fact, it can only be availed once actual principal residence.
every 10 years.
Q: Considering that C may avail the
Q: X owns a land. On the said land, X built exemption, does it mean then that the total
his house as his principal residence. price of the sale of the house will NOT be
subjected to CGT?
If he sold the land and the house, may X
claim the exemption for both?
43 | P a g e
No, the exemption can only apply to Is the BIR correct?
the proportion of C’s share in the
inheritance. No, the BIR is incorrect.
Considering that it is only C is Q: Can aliens own real properties in the

exempted, only his proportion of 1/3 Philippines?
will NOT be subjected to CGT.
No, under the Constitution, as a
Thus, A and B’s proportion of 2/3 general rule, aliens are NOT allowed
shall be subjected to CGT. to own real properties in the
Philippines.
Q: Is the exemption applicable to ALL
kinds of TPs? Q: If the rule is that aliens CANNOT own
real properties in the Philippines, is it
Yes possible that the exemption would apply or
is it a mere theoretical impossibility?
Q: How can it be applied, considering that
the TP is an NRC, that by his nature, he is It is still possible, considering that there
a “non-resident”? are exceptions, where the alien may
own real properties in the Philippines,
It is applicable, considering the term such as:
“actual principal residence” is a
residence which, despite the TP’s 1. Succession (inheritance);
absence, he has the intention to return 2. Condominium units; and
to eventually. 3. Former Filipino citizens
It does NOT connote continuous stay Q: X is a Swiss national as a manager in

or possession Swiss Miss Bank’s (a bank in Switzerland)
unit here in the Philippines.
Q: X, a resident of Taytay, Rizal, works as
an OFW in Dubai, thereby leaving his wife As he is working here, he was given funds
and three children in Taytay, Rizal. to buy a residence in Makati.
Considering that X eventually earned Considering his dislike for the property
enough to get a bigger house for his given, he wanted to sell his property.
growing family, he intends to sell his
house. Can X validly claim an exemption due to
the sale of a real property which is an actual
Thus, a sale was concluded, principal residence?
X gave notice to the BIR that he will be Yes, the exemption applies even to
availing an exemption, but the BIR aliens, specifically in this case, X’s
claimed that a 6% CGT should be applied, being an NRA-NET/B.
considering that it is a sale of real property,
and the residence in Taytay cannot be Considering that X is physically present
considered as an actual principal here in the Philippines, the exemption
residence, considering he is outside the would still be possible.
Philippines.
44 | P a g e
Corporate TPs Applicable tax rate for A
Kinds of income of Corporate TPs and It is NIT, at a global (fixed) tax rate of
applicable tax thirty percent (30%). Thus:
A B C D ICDT MCIT IAET GS (benta)

DC NIT Exempt 2% 10%
RFC FWHT less COS (puhunan)
NRFC GIT FWHT GI
less AD, if any
(NOTE: The three taxes at the end of NIT
the table are other taxes applicable only multiplied by 30% (Tax rate)
to Corporate TPs) Tax due
Inclusions under B (passive income) (NOTE: Compare with NIT under

Individual TPs, where the tax rate is
The following are passive income from schedular.)
Corporate TPs:
Alternative names for NIT under A
(1) Interest on bank deposits; and
(2) Royalties (ordinary) NIT under A is the same as the
following terms:
(NOTE: Compare with passive
income for Individual TPs, where there (1) Corporate Income Tax;
are four. (2) Regular Corporate Tax;
(3) Regular Income Tax on
For the royalties of Corporate TPs, it Corporations; and
covers only ordinary royalties, thus it (4) NIT for Corporations
does NOT include books, literary
works, and musical compositions. Q: Are all kinds of corporations subject to
a 30% tax rate for income under A?
As to prizes and winnings, there is
none to speak of. Yes
Finally, as to dividends, it is covered by Q: Considering that all kinds of

another tax) corporations are subjected to 30% tax rate,
is it because they follow the same system of
Inclusions of C and D NIT?
The same rule and concept in No, it is just because the rate under
Individual TPs apply to Corporate TPs. NIT and GIT are the same, which is at
30%.
Rule as to A
The difference is that for NRFCs, the
The same rule and concept in tax is final in nature, as it is a GIT, and
Individual TPs apply to Corporate TPs, thus the computation is different:
thus, if it is NOT in B, C, or D, then it
is in A For DCs and RFCs:
45 | P a g e
GS (benta) exclusively to the members of
less COS (puhunan) such society, order, or
GI association, or nonstock
less AD corporation or their
NIT dependents;
Tax due (D) Cemetery company owned and
operated exclusively for the
For NRFCs: benefit of its members;
GS (benta) (E) Nonstock corporation or

less COS (puhunan) association organized and
GI operated exclusively for
multiplied by 30% (Tax rate) religious, charitable, scientific,
Tax due athletic, or cultural purposes,
or for the rehabilitation of
Exempt DCs veterans, no part of its net
income or asset shall belong to
Section 30. Exemptions from Tax on or inures to the benefit of any
Corporations; member, organizer, officer or
The following organizations shall not be taxed any specific person;
under this Title in respect to income received
by them as such: (F) Business league chamber of
commerce, or board of trade,
(A) Labor, agricultural or not organized for profit and no
horticultural organization not part of the net income of which
organized principally for profit; inures to the benefit of any
private stock-holder, or
(B) Mutual savings bank not individual;
having a capital stock
represented by shares, and (G) Civic league or organization
cooperative bank without not organized for profit but
capital stock organized and operated exclusively for the
operated for mutual purposes promotion of social welfare;
and without profit;
(H) A nonstock and nonprofit
(C) A beneficiary society, order or educational institution;
association, operating for the
exclusive benefit of the (I) Government educational
members such as a fraternal institution;
organization operating under
the lodge system, or a mutual (J) Farmers’ or other mutual
aid association or a nonstock typhoon or fire insurance
corporation organized by company, mutual ditch or
employees providing for the irrigation company, mutual or
payment of life, sickness, cooperative telephone
accident, or other benefits company, or like organization
of a purely local character, the
46 | P a g e
income of which consists solely organization under
of assessments, dues, and fees the lodge system)
collected from members for b. Those organized by
the sole purpose of meeting its employees:
expenses; and i. Such as:
1. Mutual aid
(K) Farmers’, fruit growers’, or like association;
association organized and or
operated as a sales agent for the 2. Non-stock
purpose of marketing the corporatio
products of its members and ns
turning back to them the ii. For payment to the
proceeds of sales, less the members (or their
necessary selling expenses on dependents) of
the basis of the quantity of benefits such as:
produce finished by them; 1. Life;
2. Sickness;
Notwithstanding the provisions in the 3. Accident;
preceding paragraphs, the income of whatever 4. Others
kind and character of the foregoing 4. Cemetery company:
organizations from any of their properties, real a. Owned and operated
or personal, or from any of their activities exclusively for its
conducted for profit regardless of the members;
disposition made of such income, shall be 5. Non-stock corporations where
subject to tax imposed under this Code no part of its net income or asset
inures to the benefit of any
The following eleven (11) DCs are member, organizer, officer, or
exempt from payment of NIT from A: any other specific person,
organized and operated
1. Organizations NOT organized exclusively for the following
principally for profit: purposes:
a. Labor; a. Religious;
b. Agricultural; or b. Charitable;
c. Horticultural c. Scientific;
2. Non-stock banks for mutual d. Athletic;
purpose and NOT for profit: e. Cultural; or
a. Mutual savings; or f. Rehabilitation of veterans
b. Cooperative 6. The following NOT organized
3. Those organized for the for profit and no part of the net
exclusive benefit of its income inures to the benefit of
members: any private SH or individual:
a. Beneficiary: a. Business league chamber of
i. Society; commerce; or
ii. Order; or b. Board of Trade
iii. Association (e.g. 7. Civic league or organization:
fraternal a. Exclusively for promotion
of social welfare; and
b. NOT for profit
47 | P a g e
8. Educational institution, which 1. As to corporations:
must be: a. Non-stock:
a. Non-stock; and i. No dividends are
b. Non-profit distributed to the
9. Government educational members;
institution; b. Non-profit:
10. Organizations purely local in i. The principal
character, the income of which purpose is not, or
consists in assessments, dues, at least not
and fees, collected from primarily, for
members for the sole purpose of profit;
meeting expenses, such as: ii. Thus, it is for a
a. Farmers’ or other mutual different purpose,
insurance company: such as:
i. Typhoon; or 1. Religious;
ii. Fire 2. Charitable;
b. Mutual company: 3. Scientific;
i. Ditch; or 4. Athletic;
ii. Irrigation; 5. Cultural; or
c. Telephone company: 6. Rehabilitati
i. Mutual; or on of
ii. Cooperative veterans;
d. Other like organizations and
11. Those organized and operated iii. While there may be
as a sales agent for the purpose profits, it
of marketing the products of its CANNOT be
members and turning back to given to a specified
them the proceeds of sales, less person;
the necessary expenses on the 2. As to organizations:
basis of the quantity of produce a. The purpose is NOT for
finished by them, such as: profit;
a. Farmers’; b. That it is not for profit, it is
b. Fruit growers’; or for a different purpose;
c. Other like associations c. Such purpose may be for:
i. Members only;
(NOTE: Take a good note, however, ii. Payment of
of educational institutions under benefits
enumeration H, as it is NOT included iii. Promotion of
anymore, as will be discussed later) social welfare;
iv. Sale of goods
Commonality among exempted produced; or
corporations v. Meeting expenses
3. As to educational institutions:
In answering questions related to a. It may either be:
exempted corporations, it is not i. Non-stock and
necessary to memorize it, as long as non-profit; or
you can recognize characteristics ii. Government
pertaining to them, such as:
48 | P a g e
(NOTE: Again, take notice that non- Agencies/institutions to be discussed
stock, non-profit educational
institutions are NO longer included in For purpose of discussion and
the list, as will be discussed later) comparison, the following
agencies/institution are to be
Q: If a corporation falls under the discussed:
exemption in Sec. 30, is it true to say, that
it is exempted from ALL tax from ALL 1. Charitable Institutions (CI);
kinds of income? 2. Religious Institutions (RI);
3. Educational Institutions:
No, the exemption applies only to a. Non-stock, non-profit
income under A. (NSNPEI);
b. Proprietary (PEI);
Thus, it is exemption from payment of c. Government (GEI);
30% NIT.c 4. Hospitals:
a. Charitable (CH);
Rule as to income exempted b. Proprietary (PH); and
5. Governmental Agencies
While it is true that the above
corporations are exempted from Guide questions to ask with regard to
payment of income tax under A, it is agencies/institutions
not, however, an absolute rule:
For bar purposes, the flow of the
GR: Exempted from following questions should be
income received by remembered:
reason of the primary
purpose (“…income 1. Is the income taxable or exempt?
received by them as 2. Is the real property taxable?
such”) 3. If a donation was made:
ER: Despite being an a. Is it taxable as income of the
exempted corporation, donee or exempt?
income from the b. Is the donation available as an
following is still subject AD to the donor?
to tax:
Constitutional limitation (exemption) for
1. Income from CI and RI under Sec. 28(3), Art. VII (The
properties: Legislative Department), 1987 Philippine
a. Real; or Constitution
b. Personal;
and Charitable institutions, churches and
2. Income from parsonages or convents appurtenant thereto,
activities mosques, non-profit cemeteries, and all lands,
conducted for buildings, and improvements, actually, directly,
profit, regardless of and exclusively used for religious, charitable, or
disposition educational purposes shall be exempt from
taxation.
49 | P a g e
For the exemption to apply, the Exemption under Sec. 30, NIRC v. Sec.
following must conquer: 28(3), Art. VII, 1987 Philippine
Constitution
1. The TP is a:
a. CI; or SEC. 30, SEC. 28(3), ART.
b. RI, such as: NIRC VII, PHILIPPINE
CONSTITUTION
i. Churches, together Tax IT RPT
with appurtenances contemplated
such as: When exempt “Income as ADE used for its
1. Parsonage; such” purpose
or
2. Convents; When NOT Income NOT ADE
exempt from
and property,
ii. Mosques real or
c. Both of the above includes personal;
their:
i. Lands; Income
from
ii. Buildings; and activity
iii. Improvements conducted
2. The above stated are being used for profit
actually, directly, and exclusively
(ADE) for any of the the following Q: Bahay ni La at Lo, Co. (BLALOCO), is
purposes: a non-stock, non-profit DC formed for the
a. Religious; purpose of being a home for the aged.
b. Charitable; or
c. Educational For purpose of tax exemption, what is the
nature of BLALOCO?
Q: Considering that the above stated
provision states that the TP “…shall be It is a charitable institution
exempt from taxation.”, does it cover ALL
taxes? Q: BLALOCO has seven (7) buildings,
three (3) of which are housed by elderly
No, it refers only to real property tax people, one for the office and library, and
(RPT) the final three (3) are being rented by
McDo, Jollibee, and KFC, illustrated as
(NOTE: There is a similar provision follows:
under the LGC, thus an additional
basis, but it refers to one and the same) McDo
HOME 1 HOME 2
Q: Do the TPs stated in the above stated KFC
provision likewise fall under the exempted OFFICE
corporations under the NIRC? Jolli HOME 3 and
bee LIBRARY
Yes, specifically under paragraph E
For purposes of RPT, are all buildings
exempted from such?
50 | P a g e
No, only buildings pertaining to Q: In determining the taxability of the
Homes 1, 2, and 3, and the one housing income derived from rentals, is it correct to
the Office and Library are exempt. say that the basis is the Constitution?
It is so, considering that the No, as the Constitution speaks about

above buildings are ADE used RPT.
for a charitable purpose.
IT is covered by the NIRC.
The buildings pertaining to those
rented by fast food chains are NOT Q: BLALOCO deposited in its peso
exempt, considering that it is NOT account in XYZ Bank the income derived
ADE used for a charitable purpose, as from the Christmas Cards and the rentals,
renting out does not have a relation to amounting to Php1.5M.
the purpose for which it was organized.
If the deposit earned an income of Php20K,
Q: In answering RPT exemptions of can it be subjected to tax?
Corporate TPs, is it correct to say that the
basis is the NIRC? Yes, as it is an activity conducted for
profit.
No, the basis is the Constitution.
Thus, it is subject to tax, specifically
The Constitution provides for the under B, as passive income, at the rate
exemption for RPT. of 20%FHWT
On the other, hand, the NIRC provides Q: Assume, instead, that the income from
the exemption from income tax. the rentals amounting to Php500K were
used for charitable purposes.
Q: BLALOCO produces Christmas Cards,
as it is one of the activities given to the Considering that they are subject to IT as
elderly. income derived from real property, but is
used for its very own purpose, is it correct
If BLALOCO produces an income of to say that it is now exempt from IT?
Php1M from such activity, would it be
subject to IT? No, as it is still subjected to IT,
regardless of disposition of the said
No, as it is income derived from its income.
very own purpose (income as such)
Q: Assume, instead, that the interest
Q: McDo, Jollibee, and KFC, pays a total of income of Php20K from the peso account
Php500K to BLALOCO as rentals. deposit was used for a charitable purpose.
For purposes of IT, can the rentals be Considering that it was used for a
subjected to such? charitable purpose, is it now exempt from
IT?
Yes, as it is an income derived from a
real property owned by a charitable No, again, it is taxable regardless of
non-stock non-profit corporation disposition
51 | P a g e
(NOTE: Thus, the question is NOT CIE: No
on how the income was used, but
rather, how the income was produced) SEP/
SIE/
Q: X, an RC, donated Php2M to MIE: Yes, up to 10% (Sec.
BLALOCO. Is the Php2M an income? 34(H))
Yes, as the Php2M flows into the Q: Assume, that X is a Corporate TP, is it
wealth of the TP, as it is NOT a mere an AD to its IT?
return of capital.
Yes, up to 5% (Sec. 34(H))
Q: That it is an income, is it subject to IT?
Q: What tax would apply as to the donation
No, as the donation is an item of of X?
exclusion under Section 32(B)(3):
It would depend:
“(B) Exclusions from Gross
Income. – The following items If inter vivos: DT
shall not be included in gross If mortis causa: EsT
income and shall be exempt
from taxation under this Title: Q: If X donated the Php2M during his
lifetime and BLALOCO used Php100K
xxx from the said donation for its
administration. Will it be subject to DT?
(3) Gifts, Bequests, and Devises. –
The value of property acquired No, as the usage by BLALOCO is less
by gift, bequest, devise, or than 30%, and thus exempt from DT,
descent: Provided, however, to wit:
That income from such
property, as well as gift, “Exemption of Certain
bequest, devise or descent of Acquisitions and
income from any property, in Transmissions. –
cases of transfers of divided The following shall not be
interest, shall be included in taxed:
gross income.”
xxx
Thus, that it is an item of exclusion, it
shall not be included in the (D) All bequests, devises,
computation. legacies or transfers to social
welfare, cultural and charitable
(NOTE: Thus, in such a question, institutions, no part of the net
neither the Constitutional provision on income of which inures to the
RPT nor Sec. 30 would apply) benefit of any individual:
Provided, however, That not
Q: With respect to X, is it an AD to his IT? more than thirty percent (30%)
of the said bequests, devises,
It would depend: legacies or transfers shall be
used by such institutions for
52 | P a g e
administration purposes.” organization, trust or
(Section 87) philanthropic organization
and/ or research institution or
Q: If X donated the Php2M by will, and as organization, incorporated as a
such after his death, and BLALOCO used nonstock entity, paying no
Php100K from the said donation for its dividends, governed by trustees
administration. Will it be subject to EsT? who receive no compensation,
and devoting all its income,
No, as the usage by BLALOCO is less whether students’ fees or gifts,
than 30%, and thus exempt from EsT, donation, subsidies or other
to wit: forms of philanthropy, to the
accomplishment and
“Exemption of Certain Gifts. promotion of the purposes
– The following gifts or enumerated in its Articles of
donations shall be exempt Incorporation.” (Section 101)
from the tax provided for in
this Chapter: Q: Assume, that X is an NRA, would your
answer be the same to both problems?
(A) In the Case of Gifts Made
by a Resident: Yes, the same rule applies, as long as
the 30% threshold is NOT breached
xxx
(NOTE: Thus, whether DT or EsT,
(2) Gifts in favor of an Citizen or Alien, the same rule applies,
educational and/or charitable, that it shall NOT be subject to DT or
religious, cultural or social EsT as long as the use has NOT
welfare corporation, reached 30%)
institution, accredited
nongovernment organization, Q: Simbahayanan (SBH) is a religious
trust or philanthropic institution, and its property is illustrated as
organization or research follows:
institution or organization:
Provided, however, That not PARSO- KITCHEN
McDo
more than thirty percent (30%) NAGE
of said gifts shall be used by

KFC CHURCH
such donee for administration
purposes. For the purpose of
Jolli PARKING LOT
this exemption, a ‘non-profit bee
educational and/or charitable
corporation, institution, As can be seen above, SBH’s property
accredited nongovernment includes its Church, Parsonage, Kitchen,
organization, trust or Parking Lot, and three buildings being
philanthropic organization rented out to McDo, KFC, and Jollibee.
and/or research institution or
organization’ is a school, This year, SBH earned an income of
college or university and/ or Php1M from conducting masses, baptisms,
charitable corporation, marriages, and other sacraments, and
accredited nongovernment Php500K for the rents paid by the fast-food
53 | P a g e
chains. The total amount of Php1.5M was did not exceed 30% of the total
deposited to ABC Bank, a DC, and it donation.
produced an interest income of Php20K.
As to XYZ’s donation as AD:
XYZ Corp., a DC, donated Php2M to SBH.
From the said donation, SBH used XYZ may claim up to 5%
Php200K from the donation for its own deduction from his taxable
administration. income
Discuss the taxes applicable. (NOTE: Thus, the rules for charitable
and religious institutions are one and
As to SBH’s RPT: the same)
SBH shall be exempt from Kinds of exempted educational institutions

RPT pertaining to the Church, under Sec. 4(3), Article XIV (Education,
Parsonage, Kitchen, and Science and Technology, Arts, Culture,
Parking Lot, as it is ADE used and Sports) of the 1987 Philippine
for its religious purpose. Constitution
On the other hand, SBH shall There are two (2) kinds of Educational
be liable for the properties Institutions for exemption purposes
rented by the fast-food chains, under the Constitution:
as these are NOT ADE used 1. NSNPEI; and
for its religious purpose. 2. PEI
As to SBH’s IT: Constitutional limitation (exemption) for

NSNPEI
SBH shall be exempt from IT
pertaining to income produced All revenues and assets of non-stock, non-
from its religious activities, as it profit educational institutions used actually,
is an income as such. directly, and exclusively for educational
purposes shall be exempt from taxes and
On the other hand, SBH shall duties. Upon the dissolution or cessation of the
be liable for 30% NIT on the corporate existence of such institutions, their
rentals paid by the fast-food assets shall be disposed of in the manner
chains, as it is an income provided by law.
derived from its real property.
Thus, the exemption applies as follows:
Likewise, the interest income
from the deposit shall be 1. The TP is an educational institution
taxable considering that it is an which is:
activity conducted for profit, i. Non-stock; and
subjected to a 20%FWHT ii. Non-profit
2. ALL of the following shall be
As to SBH’s DT: exempt:
i. Revenues; and
SBH shall NOT be liable to pay ii. Assets
DT, considering that its usage
54 | P a g e
3. The above shall be exempt from: Coverage RPT ALL Taxes
i. Taxes; and (including RPT)
and Duties
ii. Duties;
4. The exemption shall apply only if
the revenues and assets are ADE Q: University of Flaming Arrows (UFA) is
used for educational purpose a NSNPEI located in the BGC Area.
Revenues v. Assets Its campus includes four (4) buildings for

its Arts and Letters, Sciences, Law, and
Revenue refers to kita Medicine departments, four (4) buildings
for its gymnasium, dormitory, library, and
On the other hand, assets refer to: administration offices, and a parking lot.
1. Properties: Additionally, it rents out three small

i. Real; buildings at the outermost portion of its
ii. Tangible; and campus to McDo, Jollibee, and KFC. To
iii. Intangible personal properties; illustrate:
2. Including:
i. Buildings; McDo
MED
LAW
GY
ii. Lands; and
CANTEE
SCIENCE
iii. Improvements
N
KFC
ARTS
Coverage of exemption Jolli
bee PARKING LOT ADMI DOR
N M
The exemption includes:
For purposes of RPT, what may be taxed
1. Taxes: and cannot be taxed?
i. RPT; and
ii. All other Internal Revenue Only the portion being rent out to the
Taxes; and fast-food chains may be taxed for RPT,
2. Duties: as it is NOT ADE used for educational
i. Tariff; and purpose
ii. Customs
All other properties cannot be
Constitutional exemption of CI and RI v. subjected to RPT, as it is ADE used for
NSNPEI educational purpose
CHARITABLE NSNPEI Q: Assume, that UFA earned Php10M from

AND the tuition fees of its students, and Php5M
RELIGIOUS from the rentals of the fast-food chains,
When When ADE used for its purpose how would the exemption apply based on
exempt the Constitutional provision with respect to
When When NOT ADE used for its purpose
IT?
NOT
exempt The income received from the tuition
fees and rentals are exempt from IT as
long as it is ADE used for educational
purposes.
55 | P a g e
It would not matter if the would your answer still be the same in the
income produced is from the above questions pertaining to income tax
real property, considering that considering the inconsistency of the said
the Constitution provides no provision and the Constitutional provision?
such situation.
No, my answer would still be the same.
Corollary thereto, if the income is
NOT ADE used for educational History of Sec. 30, NIRC v. Sec. 4 (3),
purposes, then it would not be covered Article XIV, 1987 Philippine Constitution
by the exemption
For the longest time, the BIR held that
Q: Assume, that the Php15M was deposited the controlling provision over the two
in ABC Bank, a DC in the Philippines. provisions is the NIRC.
The deposit produced an interest income However, in 2016, the SC in the

of Php1M. landmark case of De La Salle
University Inc. (DLSU) v. CIR held
With respect to income tax, will your that between the two, the
answer be the same with respect to the Constitutional provision shall prevail
application of the exemption? considering the supremacy of the
Constitution.
Yes, my answer would still be the same,
considering that the Constitutional Summary of pertinent rulings in DLSU v.
provision stated that as long as it is CIR in relation to NSNPEI
ADE used for educational purposes, it
is exempt. The ruling in DLSU v. CIR finally
resolved the following:
How “ADE used for educational purpose”
proved 1. The exemption from taxes and
duties of non-stock, non-profit
It must be shown through the audited educational institutions is
financial statement (AFS) Constitutionally guaranteed;
2. That it is Constitutionally
A mere allegation that it is used cannot guaranteed, Sec. 30 of the NIRC,
suffice, as it must be reflected in the with respect to non-stock, non-
AFS before the exemption come to profit educational institutions, is
play null and void;
3. ANY kind of income shall be
Q: Do a NSNPEI fall under the exempt from income tax (or any
enumeration in Sec. 30, NIRC? kind of tax) as long as ADE used
for educational purposes; and
Yes, specifically under H 4. In order for the exemption to
apply, proof must be produced that
Q: Considering that it falls under Sec. 30, it is indeed ADE used for
NIRC, where the rule states that income educational purposes, specifically
earned “as such” is exempt, with the through the AFS
exception of those earned by properties
and through activities conducted for profit,
56 | P a g e
(NOTE: Thus, from the above Constitutional limitation (exemption) for
discussion, there are only ten (10) PEI
enumerated corporations under Sec. 30
to which the rules therein shall apply. Proprietary educational institutions, including
those cooperatively owned, may likewise be
With respect to non-stock, non-profit entitled to such exemptions, subject to the
educational institutions, the limitations provided by law, including
Constitutional exemption shall prevail) restrictions on dividends and provisions for
reinvestment.
Q: X, a NRA, donated Php2M to UFA
during his lifetime. Assume, that UFA used Thus, in a PEI (including cooperatively
Php100K from the donation for its owned), the rule is as follows:
administration, can the Php2M be subject
to DT? GR: PEI are NOT
exempted
No, as not more than 30% of the
donation has been used, thus exempt ER: PEI are exempted from
taxes and duties akin to
Q: Assume, instead, that X donated NSNPEI, if there is a
through his last will and testament, would law providing for such
your answer be the same?
Q: Assume, that UFA is a PEI. Would your
Yes, as, again, no more than 30% of the answer and basis be the same with respect
donation has been used to RPT?
Q: May it be made part for the computation With respect to the taxable properties
of UFA’s IT? (rented properties) and exempt
properties, my answer would still be
No as gifts, bequests, or donations, are the same, as the former is NOT ADE
exempt from IT used, while the latter is ADE used for
educational purpose.
Q: May X use the donation as an AD to his
IT? However, for the basis, my answer
would NOT be the same, as it is NOT
It depends: covered by the Constitution, but rather
of law, specifically Sec. 234(B), LGC:
If CIE: No
“All machineries and
I SEP/I/ equipment that are actually,
MIE: Yes, up to 10% directly and exclusively used by
local water districts and
Q: Assume, that X is a DC instead, can X government-owned or -
use it as an AD to his IT? controlled corporations
engaged in the supply and
Yes, up to 5% distribution of water and/or
generation and transmission of
electric power”
57 | P a g e
(NOTE: Thus, it is NOT the income. For purposes of this
Constitution, but the LGC that Subsection, the term 'unrelated
governs, as it is the law that provides trade, business or other activity'
for such exemption. means any trade, business or
other activity, the conduct of
Despite the difference in basis, the which is not substantially
application is the same, in that the related to the exercise or
exemption would come into play as performance by such
long as it is ADE used for educational educational institution or
purpose) hospital of its primary purpose
or function. 'Proprietary'
Q: Assume, that UFA is a PEI, and still means a private hospital, or any
made the Php15M in income, segregated private school maintained and
into Php10M from tuition fees, and Php5M administered by private
from the rentals. individuals or groups with an
issued permit to operate from
For purposes of IT, will your answer still be the Department of Education
the same when UFA is a NSNPEI? (DepEd), or the Commission
on Higher Education (CHED),
No, it would be way different, in that it or the Technical Education and
is no longer exempt, but rather will Skills Development Authority
always be subject to tax, based on Sec. (TESDA), as the case may be,
27 (B), NIRC: in accordance with existing
laws and regulations.”
“Proprietary Educational
Institutions and Hospitals.– Thus, in determining the IT rate of
PEI, it is necessary to add the related
Proprietary educational trade or activity (RTA) and the
institutions and hospitals unrelated trade or activity (URTA):
which are nonprofit shall pay a
tax of ten percent (10%) on Php10M (RTA)
their taxable income except add Php5M (URTA)
those covered by Subsection Php15M (Total Income)
(D) hereof: Provided, That
beginning July 1, 2020 until After determining the Total Income, it
June 30, 2023, the tax rate is compared to the URTA, and the tax
herein imposed shall be one rate would depend:
percent (1%): Provided,
further, That if the gross URTA < or = 50% of Total Income = 30%
income from 'unrelated trade,
business or other activity' URTA > 50% of Total Income = 10%
exceeds fifty percent (50%) of
the total gross income derived That in this case, the URTA of Php5M
by such educational institutions is less than 50% of the Total Income of
or hospitals from all sources, Php15M, the applicable tax rate is the
the tax prescribed in 10% preferential rate.
Subsection (A) hereof shall be
imposed on the entire taxable
58 | P a g e
(NOTE: The RTA and URTA is akin donation for administration has
to income ADE used and NOT used NOT been breached:
for educational purpose. i. Corollary thereto, if more than
30% has been used, it shall be
However, the difference lies in that, in subject to DT or ET;
a PEI, it shall be always subject to tax 3. The donor can only use it as an AD
which may be 10% or 30% NIT, while if the donor is:
in a NSNPEI income is exempt if ADE i. SEP/I or MIE, up to 10%; or
used for educational purpose) ii. Corporation, up to 5%
When RTA NIRC exemption of GEI
It is deemed RTA if it is for a its Sec. 30. (NIRC) Exemptions from Tax on
educational purpose Corporations;
The following organizations shall not be taxed
Q: Assume, that the income from the under this Title in respect to income received
rentals is Php10M, while the income from by them as such:
tuition fees is Php5M, would your answer
be the same? xxx
No, considering now, the URTA of (I) Government educational

Php10M exceeds 50% of the Total institution; x x x
Income of Php15M.
Examples of GEI
Thus, the applicable tax rate is
30%NIT.
The following are GEIs:
(NOTE: Thus, in answering IT 1. Public:
questions for PEI, always determine i. Elementary school;
the RTA and URTA, and in all cases, ii. Highschool;
income is always subject to tax) 2. Science Highschool;
3. State Universities
Rules pertaining to donations to CI, RI,
NSNPEI, and PEI Rule as to RPT of GEIs
Rules observed to all are one and the
Sec. 234. (LGC) Exemptions from Real
same.
Property Tax;
The following are exempted from payment of
Thus, there is no need to distinguish
the real property tax:
between the three, as the following
rules are common among the three:
(a) Real property owned by the Republic of the
Philippines or any of its political subdivisions
1. The donation shall NOT be
except when the beneficial use thereof has
included in the computation of the
been granted, for consideration or otherwise,
donee’s IT, as it is exempt;
to a taxable person; x x x
2. There would be no DT or ET as
long as the 30% use of the
Thus, the rule is as follows:
59 | P a g e
GR: No RPT, if the Determine the taxability of such, with
property is: respect to IT.
1. Owned by the As there is no provision in the

Government; and Constitution and the LGC, Sec. 30,
2. The beneficial use NIRC shall be followed, thus:
pertains to the
Government STATUS BASIS TAX
APPLIED
Tuition Exempt Income as NONE
ER: Subject to RPT, it the fees such
beneficial use pertains
to a non-exempt entity Rentals Income 30%NIT
from real
Q: Assume, that UFA is a GEI, for property
purposes of RPT would your answer be the
Interest Taxable Income 20%
same with the RPT of UFA’s being a income from FWHT
NSNPEI? activity
conducted
Yes, with respect to the properties for profit
taxable and exempt, they are still the
same. Q: To avoid taxes, UFA, a GEI, used the
Php5M acquired from rentals and the
However, as to the basis, it is different, Php1M from interest income was used to
specifically Sec. 234(A) of the LGC: acquire books.
As to the properties exempt, it Considering that it is used for an

is exempt considering that it is: educational purpose, is UFA correct in
using this remedy to avoid being taxed?
1. Owned by the
Government; and No, considering that in Sec. 30, NIRC
2. Beneficial use pertains to states that income acquired from real
the Government property and/or from an activity
conducted for profit shall be subjected
On the other hand, as to the to IT regardless of disposition.
properties subject to RPT,
particularly those rented by the Thus, it does not matter whether it was
fast-food chains, it is NOT used for an educational purpose, as the
exempt as it is NOT for the parameter would always be how the
beneficial use of the income was acquired.
Government
Q: X, an RC, donated Php2M to UFA, a
Q: Assume, that UFA, a GEI, has an GEI. Determine the taxability of the
income of Php10M from tuition fees, donation with respect to IT, DT, and ET.
Php5M from rentals, and Php1M from the
interest acquired through the deposit of the As to IT:
previously stated amount.
60 | P a g e
It is exempt, as gifts, bequests, Gifts made to or for the use of the National
and devises are items of Government or any entity created by any of its
exclusion. agencies which is not conducted for profit, or
to any political subdivision of the said
As to DT and ET: Government.
It is exempt With respect to EsT, it is Sec. 86,

NIRC that governs.
Q: If UFA, a GEI, used Php200K out of the
Php2M of the donation for its In such a case, the donation
administration, is it subject to DT or ET? made by the deceased-donor is
called as a transfer for public
No, as it is exempt use.
Q: If UFA, a GEI, used Php1M out of the On the other hand, as to DT, it is Sec.
Php2M of the donation for its 101, NIRC that governs.
administration, is it subject to DT or ET?
It is exempt as it is considered
No, as it is exempt as a gift for the use of the
National Government
(NOTE: Thus, with respect to DT or
ET, it is always exempt, regardless of Q: If X is a CIE, can he claim it as a
whether or not the 30% use for deduction?
administration has been breached)
No, as a CIE is not allowed to claim
Basis for absolute exemption with respect any deduction
to DT and ET
Q: If X is a SEP/I or MIE, or a Corporate
Sec.86. Computation of Net Estate: TP, can he/it claim the donation as a
For the purpose of the tax imposed in this deduction?
Chapter, the value of the net estate shall be
determined: It depends:
xxx If declared by the

Government as a priority
Transfers for Public Use. – project:
The amount of all the bequests, legacies,
devises or transfers to or for the use of the It is a deduction in full
Government of the Republic of the
Philippines, or any political subdivision If NOT declared as a
thereof, for exclusively public purposes. priority project by the
Government:
Sec. 101. Exemption of Certain Gifts; It is up to 10% or 5%,
The following gifts or donations shall be if an SEP/I or MIE, or
exempt from the tax provided for in this Corporate TP
Chapter: respectively
61 | P a g e
(NOTE: Notice that the 10% and 5% RPT is exempt if ADE used for
applicable to NSNPEI and PEI are hospital purposes
likewise applicable to a GEI
As to IT, it is exempt if IT, with
However, there is a situation that the the exception, regardless of
deduction may be in full) disposition, of those derived
from:
NSNPEI v. GEI
1. Property; and
An NSNPEI is owned by private 2. Activity
persons, while a GEI is owned by the
Government. Donations are NOT included
in the computation of IT.
Q: Between a NSNPEI and GEI, which
among the two has more exemptions? DT or ET from donation is
exempt if the 30% use of the
It is an NSNPEI, considering that it is donation for administration
Constitutionally guaranteed (DLSU v. has not been breached.
CIR), as long as it is proved that the
income is ADE used for educational As to the donation’s serving as
purpose. a deduction to the donor’s IT,
it would depend:
On the other hand, GEI exemptions is
governed by the NIRC, specifically Sec. 1. If CIE, he cannot, as no
30, and thus the exemption is quite deduction can be made;
strict compared to the other. 2. If SEP/I or MIE, up to
10%; or
The only advantage of a GEI is 3. If a Corporate TP, up to
that with respect to donations, 5%
it is totally exempt from DT or
ET, and there is a full On the other hand, as to a PH, the
deduction allowed with respect rules governing a PEI shall govern,
to the IT of the donor. thus, the Constitution and Sec. 234,
LGC shall govern:
(NOTE: Isn’t it highly unusual that
more benefits are given to a privately If the UTA is less than 50% of
owned institution rather than one the total income, then the
owned by the Government?) preferential tax rate of 10%
shall apply, otherwise, the 30%
Charitable hospitals (CH) v. Proprietary NIT shall apply.
hospitals (PH)
Rule as to taxation of the Governmental
CH is governed by the same rules on Agencies
CI. Thus, the same Constitutional and
Sec. 30, NIRC provisions shall apply, As a general rule, the Government
thus: CANNOT tax itself, thus:
62 | P a g e
1. Income derived by governmental b. If SEP/I, MIE, or Corporate
agencies from exercising donor, then the deduction shall
government function is NOT be in full;
subject to tax as it is an item of 2. If project NOT declared as
exclusion (Sec. 32(B)(7)(b), priority:
NIRC) a. CIE, no AD;
2. Real properties are exempt from b. If SEP/I, MIE, or Corporate
RPT under the Constitution; donor, then the 10% or 5%,
3. Gifts, bequests, and devises in respectively, shall apply
favor of the government:
i. Are NOT taxable income, as Summary of similarities and differences
items of exclusion; among agencies/institutions
ii. Likewise not subject to DT or
ET C
I
R
I
C
H
P
E
P
H
NSN
PEI
GEI GOV’T
4. The following Government-owned Basis IT: Sec. 30,

I
IT: Sec. Sec. 4(3), IT: Sec. IT: Sec.
or -controlled corporations NIRC; and 27(B),
NIRC;
Art. XIV,
Consti
30, NIRC;
and
32(B)(7)(b
), NIRC
(GOCCs) are exempt from tax: RPT: Sec.
28(3), RPT: Sec. RPT: Sec.
i. Government Service Insurance Consti 234
LGC
(B), 234 (A),
LGC
System (GSIS); IT Exempted If URTA < Exempted Exempted
ii. Social Security System (SSS), if income
“as such”.
or = to 50%
of Total
if income
“as such”.
if exercise
of
iii. Home Development Mutual NOT
Income:
10% NOT
governme
nt
Fund (HDMF); exempt if
income
preferential
tax rate
Exempted
as long as
exempt if
income
function
iv. Philippine Health Insurance from

property or If URTA >
ADE used
for its
from
property
NOT
exempt if
Corporation (PHIC); and from
activity
50% =
30% NIT
purpose. or from
activity
proprietar
y function,
v. Local Water Districts conducted
for profit
NOT
exempt if
conducted
for profit
subject to
30% NIT
NOT
ADE used GOCCs
However, as exceptions, the are
generally
Government may tax itself in the taxable,
except
following instances: GSIS,
SSS,
PHIC,
and local
1. Exercise of proprietary function, water
districts
subject to regular corporate IT of RPT Exempt if ADE used for its Exempted if owned by
30%; purpose and the beneficial use
pertains to the
2. Real properties shall be subject to NOT exempt if NOT ADE
used for its purpose.
government
RPT if beneficial use pertains to Corollary thereto, NOT

exempt if otherwise
non-exempt entity Donation IT: Exempted, as item of exclusion
3. GOCCs are taxable as a general
rule, as they are treated as ordinary DT or ET: Exempted if 30% use for
administration NOT breached.
DT or ET: Exempted, as
transfer for public use
domestic corporations NOT exempted if 30% use is breached
As Donor’s AD: As to Donor’s AD:

Rule as to donations as AD of donor CIE, no; If priority project: in full
SEP/I or MIE; up to 10%; and
Corporate TP, up to 5% If NOT priority project:
The donation shall be governed by the CIE, no
SEP/I or MIE, up to 10%
same rules applicable to GEIs, thus: Corporate TP, up to 5%
1. If the project is declared as

priority:
a. CIE, no AD;
63 | P a g e
FWHT under B Q: Is there royalties on books, literary
works, and musical compositions, with
VARIETY RATE respect to Corporate TPs?
Interest Foreign currency 15% No, considering that Corporate TPs

on bank
deposits Long-term/ time deposit 20% CANNOT produce and have royalties
on such products.
Ordinary 20%
Royalties
Only Individual TPs may produce and
have royalties thereon.
Q: XYZ Corp. has a time deposit in ABC
Bank. Q: Why is there no tax on prizes and
winnings with respect to Corporate TPs?
For five (5) years, no pre-termination was
made by XYZ. As Corporate TPs cannot participate,
and hence cannot win, in games of
The BIR taxed the interest income of XYZ chance.
with 20% FWHT.
Income from dividends of Corporate TPs
XYZ contested the imposition of tax,
claiming that it should not have been taxed Income from dividends of Corporate
considering the exemption for those time- TPs are NOT covered by passive
deposits where no pre-termination was income under B, rather, it is under
made for five (5) years. Is XYZ correct? another column, specifically
intercorporate dividends tax
No, XYZ is incorrect. (ICDT)
The exemption for no pre-termination Q: Are the rates stated above applicable to
for five (5) years in case of time all kinds of corporations?
deposits is applicable only to Individual
TPs. No, the above rates are applicable only
to DCs and RFCs.
Q: Assume instead, that indeed, XYZ pre-
terminated the time deposit on the 3rd year, The rate applicable to NRFCs is GIT
and the BIR imposed 20%FWHT. of 30%. Thus:
XYZ claims that the rate of 12% should VARIETY RATE

Local/ Peso account
apply instead of the 20%FWHT, as the pre-
termination was made on the 3rd year. Is Interest Foreign currency
on bank 30%
XYZ correct? deposits Long-term/ time deposit
Ordinary
No, in case of Corporate TPs, the Royalties
regular rate of 20% FWHT shall apply
regardless of the year of when the pre-
termination was made.
64 | P a g e
Passive income of DCs v. RFCs v. NRFCs Assessed value; or
Zonal value
VARIETY RATE
DCs RFCs NRFCs
FWHT GIT
Local/ Peso 20%
(NOTE: Thus, the rates for
account Individuals and Corporate TPs are one
Interest
on bank Foreign currency 15%
and the same)
deposits
Long-term/ time 20% 30%
deposit
Q: Can all kinds of corporations sell real
property?
Ordinary 20%
Royalties
No, only a DC may do so.
Passive income of Individual v. DCs and Thus, an FC, whether a resident or not,
RFCs cannot sell real property, considering
that they cannot own real property in
VARIETY
Ind
RATE
Corp
the Philippines in the first place.
Interest Foreign currency 15% Q: Considering that the rate applicable

on bank
deposits Long-term/ Prior to 3rd year 20%
under D for Individuals and DCs are the
time deposit On 3rd year 12% same, is it correct to say that all concepts
(based on 20%
pre-
On 4th year 5% applicable to the former is likewise
NOT for 5 years Exemp
termination
) t applicable to the latter?
GR: Ordinary 20%
Royalties
ER: Books, literary works, and musical 10% No, as the exemption under D in case
compositions of sale of an actual principal residence
GR: Ordinary (including PCSO, Lotto, 20% does not apply to Corporate TPs.
and other prizes and winnings
exceeding Php10K)
Prizes
and ER PCSO Exemp
It is so, considering that a corporation
winnings and Php10 t cannot have an actual principal
Lotto K and
Winning below residence.
s (= or
<10k)
Other
prizes
NIT or
8% (A)
Other kinds of taxes for Corporate TPs
and
winnings
The following are the additional taxes
Dividend
GR: Issued by DC 10%
ICD
applicable to Corporate TPs:
s ER: Issued by FC NIT or T
8% (A)
1. Intra-Corporate Dividends Tax
(ICDT);
Rates under C and D by Individual and
2. Minimum Corporate Income Tax
Corporate TPs
(MCIT);
3. Improperly Accumulated Earnings
INDIVIDUAL CORPORATE
Shares of 15% FWHT/CGT Tax (IAET)
Stocks
Real 6% FWHT/CGT, on the

property following, whichever is higher:
FMV;
65 | P a g e
Rates under ICDT History of MCIT
The rate of ICDT would depend: The BIR noticed that there are
numerous corporations not paying
TP ISSUER RATE taxes, considering that their allowable
(INCOME deductions are greater than their gross
EARNER)
DC Exempt
income. To illustrate:
RFC DC
NRFC 15% FWHT Php4M (GI)
minus Php5M (AD)
Q: XYZ Corp., a DC, declared dividends. Php0
multiplied by 30% (NIT)
One of its recipients is their SH Mr. Php0 (Tax due)
Robusto, a RC.
What is more alarming is that many of
What tax rate applies to the dividend these corporations are in their 4th year
income of Mr. Robusto? in losing profit already, but are still
continuing their business.
His dividend income shall be subjected
to a 10% FWHT, as it is an income It is contrary to logic that a business
under B for Individual TPs goes on despite the continuing loss,
instead of profit.
Q: XYZ Corp., a DC, declared dividends.
To remedy this dilemma, Congress
One of its recipients is their SH ABC Corp., introduced the concept of MCIT in
a DC. 1997 for the purpose of ensuring that
the Government will secure tax,
What tax rate applies to the dividend considering that if there are no taxes,
income of ABC Corp.? there would be no funds for regulatory
expenses.
Nothing, as DCs are exempt from
payment of ICDT. Applicability of MCIT to DCs
Q: Assume instead, that ABC is an RFC, Section 27. Rates of Income Tax on
will your answer be the same? Domestic Corporations;
Yes, as RFCs are likewise exempt from xxx

payment of ICDT
(E) Minimum Corporate Income Tax on
Q: Assume instead, that ABC is an NRFC, Domestic Corporations.
will your answer be the same?
(1) Imposition of Tax. – A minimum
No, considering an NRFC is subjected corporate income tax of two percent
to a 15% FWHT for ICDT (2%) of the gross income as of the end
of the taxable year, as defined herein, is
hereby imposed on a corporation
taxable under this Title, beginning on
66 | P a g e
the fourth taxable year immediately Q: Assume, that in 2022, LLC produced the
following the year in which such same income, and has the same ADs, like
corporation commenced its business in 2021.
operations, when the minimum income
tax is greater than the tax computed How much tax will LLC pay?
under Subsection (A) of this Section
for the taxable year. None, again, the NIT will result to
Php0, therefore, will result into
Thus, MCIT shall apply on the 4th year nothing.
by applying the 2% tax rate on the GI.
Q: Assume, that in 2023, LLC again
This would mean that, on the 4 year th produced the same income, and has the
from the commencement of the same ADs, in 2021 and 2022.
business would pay taxes, whichever is
higher among the following: How much tax will LLC pay?
1. NIT (30%); or None, again, like in 2021 and 2022, the

2. MCIT (2%) NIT would result to Php0, thus
nothing to multiply the tax rate with
In other words, MCIT shall be
imposed in lieu of NIT in case the Q: Assume, that in 2024, LLC has
former is higher than the latter on the succeeded in repeating their feat from 2021,
4th year. 2022, and 2023, by having the same income
and ADs.
1st yr. 2nd yr. 3rd yr. 4th yr.
How much tax will LLC pay?
NIT (30%) NIT (30%) NIT (30%) NIT (30%);
or LLC will pay Php40K MCIT,
MCIT (2%) computed as follows:
Q: Lugi-Lugihan Corp. (LLC), a DC Php2M (GI)

formed, organized, and commenced its multiplied by 2% (MCIT)
business in 2021, has for its income Php2M Php40K (Tax due)
for the year 2021.
LLC is obligated to pay, considering
After computation, its AD is Php4M. that it in the 4th year, Corporate TPs are
liable to pay MCIT or NIT, whichever
How much tax will LLC pay for the year is higher.
2021?
In this case, MCIT is higher,
None, as the NIT shall result to Php0, considering that the computation for
therefore, will result in nothing. NIT would result into nothing, while
the former results into Php40K.
Q: Assume, instead, that LLC is an RFC

likewise in its 4th year under the same facts
stated above, will your answer be the same?
67 | P a g e
Yes, the MCIT applies to an RFC as and thus caused loss to the
well. Government, IAET is imposed.
Q: Assume, instead, that LLC is an NRFC (NOTE: That is why the rate of
likewise in its 4th year under the same facts FWHT and IAET are one and the
stated above, will your answer be the same? same, specifically 10%, as it represents
what the Government should have if
No, the MCIT does NOT apply to not for the corporation’s refusal to
NRFCs, as it is NOT doing business in declare dividends.)
the Philippines.
Q: Are all kinds of corporations bound to
Nature of IAET pay IAET in case of refusal to declare
dividends?
It is a final tax in addition to all kinds
of other taxes. Thus, it may co-exist No, only DCs are required to do so.
with NIT/MCIT (A), FWHT (B, C,
and D,) and ICDT. Thus, FCs, whether resident or non-
resident, are NOT liable for IAET
(NOTE: Compare with the MCIT,
which is a tax in lieu of NIT) Items of inclusion
Rationale of IAET Sec. 32. Gross Income. -
A corporation gaining profit may (A) General Definition. - Except when

declare dividends to be given to the otherwise provided in this Title, gross income
SHs. means all income derived from whatever
source, including (but not limited to) the
These dividends are income to following items:
the SHs, which under B is
subjected to a FWHT of ten 1) Compensation for services in whatever
percent (10%). form paid, including, but not limited to
fees, salaries, wages, commissions, and
However, a corporation may opt NOT similar items;
to declare dividends. 2) Gross income derived from the
conduct of trade or business or the
By not declaring dividends, exercise of a profession;
there is no income to the SHs. 3) Gains derived from dealings in
property;
That there is no dividend 4) Interests;
income, the FWHT of 10% has 5) Rents;
nothing to apply to. 6) Royalties;
7) Dividends;
Considering that there is no 8) Annuities;
tax, the Government suffered a 9) Prizes and winnings;
loss. 10) Pensions; and
To remedy such situation where a
corporation did not declare dividends
68 | P a g e
11) Partner's distributive share from the 1) Basic Pay (BP);
net income of the general professional 2) Benefits:
partnership. a. Overtime Pay (OTP);
b. Holiday Pay (HoP;
(NOTE: Be reminded that the rule is c. Hazard Pay (HaP); and
that ALL income is taxable, except if d. Nightshift Differential Pay
exempted or excluded by law. (NDP);
3) De minimis benefits (DMB); and
With this in mind, it is more advisable 4) 13th Month Pay and Other benefits
to study the exclusions rather than (OB)
inclusions.
Rule as to taxability of BP
Compensation for services
As to M/S and R&F, the BP, is
That it refers to compensation, there deemed as compensation, and shall be
must be an Employer-Employee (ER- subject to NIT.
EE) relationship.
On the other hand, as to MWEs, the
Thus, the TP here is a CIE. BP shall be deemed as the Statutory
Minimum Wage, and exempt from tax.
Q: If X receives income from someone, but Thus:
without the existence of the ER-EE
relationship, does it fall under BP TAX
APPLIED
“compensation”?
M/S Compensation NIT
R&F
No, rather it is an income from the MWE SMW Exempt
exercise of profession.
Q: Why are MWEs NOT subject to IT?
Thus, X is an SEP.
As their compensation for each year
(NOTE: Take note of the discussions would NOT amount to Php250K.
on IT and VAT)
Considering that the schedule of IT has
Kinds of CIEs for tax purposes the lowest exemption of Php250K,
there is nothing to tax.
For tax purposes, the kinds of CIEs are
as follows: For example, the highest SMW for
2021 is Php537, even if it be multiplied
1) Managerial or Supervisorial (M/S); to 365 days, the total of Php196,005
2) Rank-and-File (R&F); and would still be insufficient to breach the
3) Minimum Wage Earner (MWE) Php250K exemption.
Income received by CIEs
The following are the income that may

be received by the CIEs:
69 | P a g e
Rule as to taxability of Benefits (OTP, On the other hand, as to R&F, such
HaP, HoP, and NSD) benefits shall be included in their BP
(compensation), and thus subjected to
As to M/S, it is NOT taxable as does NIT.
not apply to them in the first place,
under Sec. 2, Book III, Rule 1 of the Finally, as to MWEs, akin to their BP,
Labor Code: benefits shall likewise be exempt from
tax. Thus:
“Exemption;
The provisions of this Rule BENEFITS TAX
shall not apply to the following APPLIED
M/S Not applicable
persons if they qualify for
R&F Compensation NIT
exemption under the MWE SMW Exempt
conditions set forth herein:
DMBs
xxx
These are benefits given to employees
(b) Managerial employees, if other than regular compensation, for
they meet all of the following the purpose of recognizing the efforts
conditions: and contributions of the employees to
the company. It includes the following:
(1) Their primary duty
consists of the 1) Private employees’ convertible
management of the unused Vacation Leave (VL)
establishment in which credits;
they are employed or of 2) Government employees’
a department or sub- convertible value of:
division thereof. a. VL; and
b. Sick leave (SL);
(2) They customarily 3) Medical cash allowance (MCA) to
and regularly direct the dependents of employees;
work of two or more 4) Rice Subsidy (RS);
employees therein. 5) Uniform and Clothing Allowance
(UCA);
(3) They have the 6) Actual Medical Assistance (AMA);
authority to hire or fire 7) Laundry Allowance (LA)
employees of lower 8) Achievement awards (AA) which
rank; or their must be a tangible personal
suggestions and property other than:
recommendations as to a. Cash; or
hiring and firing and as b. Gift certificates;
to the promotion or 9) Gifts received during:
any other change of a. Christmas (G-C); and
status of other b. Major anniversary
employees, are given celebrations (G-MAC)
particular weight. x x x” 10) Daily meal allowance for:
70 | P a g e
a. Overtime Work (DMA- DMA-OT and DMA- 25% of basic minimum
OT); and N/GS wage (BWE) per region
per day (NOT > 25% of
b. Night/graveyard shift BWE/region/day
(DMA-N/GS); and
11) Benefits received pursuant to: B-CBA and B-PIS Php10,000 per employee
a. Collective Bargaining per year (NOT
Agreement (B-CBA); and Php10K/EE/year)
b. Productivity Incentive
Scheme (B-PIS) In case the DMB received exceeds the
threshold, it shall be added to the OB
Rule as to DMBs to determine whether the excess of
Php90K is breached and shall be
DMBs are exempt, as long as they are subjected to tax.
within their thresholds, as follows:
However, the excess shall NOT be part
DMB NOT EXCEEDING of the computation of OB for purposes
Private EEs’ 10 days during a year of taxation, if it is determined that the
convertible unused VL (NOT > 10 days/year) DMB was given for the:
credits
Government EEs’
convertible value of VL
1) Convenience of the ER; or
and SL 2) Necessity of business
MCA to dependents of Php1,500 per semester
EEs (NOT > Thus, the rule is as follows:
Php1.5K/sem); or
Php250 per month

GR: DMBs are exempt if
(NOT > within the threshold.
Php250/month)
DMBs are still exempt
RS Php2,000 per
month if it breached the
(NOT >Php2K); or
threshold, as long as
One sack of 50 kg. not the computation of the
exceeding Php2,000 (1 excess with the OB
sack, 50kg sack, NOT does not breach the
> Php2K) Php90K threshold
UCA Php6,000 per year
(NOT > Php6K/year) ER: If it is over, then the
DMB shall be included
AMA Php10,000 per year in the OB to determine
(NOT > Php10K/year) whether the Php90K
threshold has been
LA Php300 per month
(NOT > breached and shall be
Php300/month) taxed with respect to
the excess
AA Php10,000 per year
(NOT > Php10K/year) EER: Even if there is an
excess in the threshold,
G-C and G-MAC Php5,000 per employee
per year (NOT > it shall NOT be
Php5K/EE/year) included in the
71 | P a g e
computation of the Thus, it would not be considered in the
Php90K limit, if it is computation of OB for tax purposes
proven that the DMB
was given for: Q: For the year 2021, Y, a M/S received
Php3K/month as RS, Php20K for AMA,
1) Convenience of the Php20K for AA, and Php70K for benefits.
ER; or
2) Necessity of Determine the tax applicable.
business
The tax applicable shall be FBT or
Rationale of exempting excess in DMB by NIT, as the case may be, as Y is a M/S
reason of Convenience of EE or Necessity employee.
of Business
It is so, as the excess to the Php90K is
As in this situation, it is NOT even Php32K, computed as follows:
considered as an income of the EE
Php12K (Excess in RS)
Rule as to DMBs in relation to OB Php10K (Excess in AMA)
Php10K (Excess in AA)
DMB OB plus Php70K (OB)
W/in >thresh- W/in >90K Php102K (DMB+OB)
threshold 90K
minus Php90K (Exempt)
old
M/S Fringe Php12K (Taxable income)
Benefits
Tax Effect if benefit NOT in list of DMB
Compute (FBT);
Exempt with OB Exempt or Then, it shall be subjected to WT
NIT, if
not FB
Items of exclusion
R&F
NIT Sec. 32. Gross Income. -
MWE
xxx
(NOTE: Thus, with respect to MWE,
only the DMB and OB may be (B) Exclusions from Gross Income. - The
subjected to tax) following items shall not be included in gross
income and shall be exempt from taxation
Q: X is a government EE. For some reason, under this Title:
his unused VL and SL amounted to
Php150K.
1) Life Insurance. - The proceeds of life
Considering that there is an excess of insurance policies paid to the heirs or
Php60K from the Php90K if it is added to beneficiaries upon the death of the
OB, will it be subjected to tax? insured, whether in a single sum or
otherwise, but if such amounts are held
No, considering that there is no by the insurer under an agreement to
threshold with respect to government pay interest thereon, the interest
EEs unused VL and SL.
72 | P a g e
payments shall be included in gross corporate, in accordance with a
income. reasonable private benefit plan
maintained by the employer:
2) Amount Received by Insured as Provided, That the retiring
Return of Premium. - The amount official or employee has been in
received by the insured, as a return of the service of the same
premiums paid by him under life employer for at least ten (10)
insurance, endowment, or annuity years and is not less than fifty
contracts, either during the term or at (50) years of age at the time of
the maturity of the term mentioned in his retirement: Provided,
the contract or upon surrender of the further, That the benefits
contract. granted under this
subparagraph shall be availed
3) Gifts, Bequests, and Devises. - The of by an official or employee
value of property acquired by gift, only once. For purposes of this
bequest, devise, or descent: Provided, Subsection, the term
however, That income from such 'reasonable private benefit
property, as well as gift, bequest, devise plan' means a pension, gratuity,
or descent of income from any stock bonus or profit-sharing
property, in cases of transfers of plan maintained by an
divided interest, shall be included in employer for the benefit of
gross income. some or all of his officials or
employees, wherein
4) Compensation for Injuries or contributions are made by such
Sickness. - amounts received, through employer for the officials or
Accident or Health Insurance or under employees, or both, for the
Workmen's Compensation Acts, as purpose of distributing to such
compensation for personal injuries or officials and employees the
sickness, plus the amounts of any earnings and principal of the
damages received, whether by suit or fund thus accumulated, and
agreement, on account of such injuries wherein its is provided in said
or sickness. plan that at no time shall any
part of the corpus or income of
5) Income Exempt under Treaty. - the fund be used for, or be
Income of any kind, to the extent diverted to, any purpose other
required by any treaty obligation than for the exclusive benefit
binding upon the Government of the of the said officials and
Philippines. employees.
6) Retirement Benefits, Pensions, b. Any amount received by an

Gratuities, etc.- official or employee or by his
heirs from the employer as a
consequence of separation of
a. Retirement benefits received
such official or employee from
under Republic Act No. 7641
the service of the employer
and those received by officials
and employees of private firms, because of death sickness or
other physical disability or for
whether individual or
73 | P a g e
any cause beyond the control Philippines by (i) foreign
of the said official or employee. governments, (ii) financing
institutions owned, controlled,
or enjoying refinancing from
c. The provisions of any existing
foreign governments, and (iii)
law to the contrary
international or regional
notwithstanding, social security
financial institutions
benefits, retirement gratuities,
established by foreign
pensions and other similar
governments.
benefits received by resident or
nonresident citizens of the
b. Income Derived by the
Philippines or aliens who come
Government or its Political
to reside permanently in the
Subdivisions. - Income
Philippines from foreign
derived from any public utility
government agencies and other
institutions, private or public. or from the exercise of any
essential governmental
function accruing to the
d. Payments of benefits due or to Government of the Philippines
become due to any person or to any political subdivision
residing in the Philippines thereof.
under the laws of the United
States administered by the
c. Prizes and Awards. - Prizes
United States Veterans
Administration. and awards made primarily in
recognition of religious,
charitable, scientific,
e. Benefits received from or educational, artistic, literary, or
enjoyed under the Social civic achievement but only if:
Security System in accordance
with the provisions of Republic
Act No. 8282. i. The recipient was
selected without any
action on his part to
f. Benefits received from the enter the contest or
GSIS under Republic Act No. proceeding; and
8291, including retirement
gratuity received by ii. The recipient is not
government officials and required to render
employees. substantial future
services as a condition
7) Miscellaneous Items. – to receiving the prize or
award.
a. Income Derived by Foreign
Government. - Income
derived from investments in d. Prizes and Awards in sports
the Philippines in loans, stocks, Competition. - All prizes and
bonds or other domestic awards granted to athletes in
securities, or from interest on local and international sports
deposits in banks in the competitions and tournaments
74 | P a g e
whether held in the Philippines SSS, Medicare and Pag-Ibig
or abroad and sanctioned by contributions, and union dues
their national sports of individuals.
associations.
g. Gains from the Sale of
e. 13th Month Pay and Other Bonds, Debentures or other
Benefits. - Gross benefits Certificate of Indebtedness. -
received by officials and Gains realized from the same
employees of public and or exchange or retirement of
private entities: Provided, bonds, debentures or other
however, That the total certificate of indebtedness with
exclusion under this a maturity of more than five (5)
subparagraph shall not exceed years.
Ninety thousand pesos
(P90,000) which shall cover:
h. Gains from Redemption of
Shares in Mutual Fund. -
i. Benefits received by Gains realized by the investor
officials and employees upon redemption of shares of
of the national and stock in a mutual fund
local government company as defined in Section
pursuant to Republic 22 (BB) of this Code.
Act No. 6686;
For discussion purposes, the items of
ii. Benefits received by exclusion are as follows:
employees pursuant to
Presidential Decree 1) Proceeds of Life Insurance Policy
No. 851, as amended 2) Return of Premium;
by Memorandum 3) Gifts, bequests, and devices;
Order No. 28, dated 4) Income exempt under a treaty;
August 13, 1986; 5) Compensation for:
a. Injuries; or
iii. Benefits received by b. Sickness;
officials and employees 6) Retirement benefits and pensions;
not covered by a. Labor cases
Presidential Decree 7) Miscellaneous items:
No. 851, as amended a. Income derived by foreign
by Memorandum government from
Order No. 28, dated investments in the
August 13, 1986; and Philippines;
b. Income derived by the
government or its political
iv. Other benefits such as subdivisions from:
productivity incentives i. Public utility; or
and Christmas bonus. ii. Exercise of
governmental
f. GSIS, SSS, Medicare and function;
Other Contributions. - GSIS, c. Prizes and awards;
75 | P a g e
d. Prizes and awards in sports Rule as to taxability of Insurance Policy
competition; proceeds
e. 13th Month Pay and Other
Benefits; GR: Not taxable
f. Contributions in:
i. GSIS; ER: If the insurance policy of the
ii. SSS; insured provides for interest,
iii. Medicare; then the interest shall be part of
iv. Pag-Ibig; and his gross income
v. Union dues;
g. Gains from: Estate Planning Scheme in relation to Life
i. Sale of Bonds; Insurance Policy
ii. Debentures; or
iii. Other Certificate Considering that Life Insurance Policy
of Indebtedness; is NOT generally subject to IT, it is
h. Gains from redemption of now a trend instead of giving the
shares in mutual fund inheritance to the heirs which may be
subjected to EsT.
How excluded
Thus, to avoid IT, a person may just
Exclusion is done by STILL including acquire a Life Insurance Policy instead,
the income relating to items of which is actually an inheritance in the
exclusion to the computation of the guise of a Life Insurance Policy.
total income.
(NOTE: Further, the proceeds may
It is only deducted from the total likewise NOT be subjected to EsT,
income prior to its being subjected to with the condition that the heirs must:
tax, as technically, it is still income.
1. NOT be named as executors
Thus, it is WRONG to not include it in and/or administrators; and
the addition of total income. 2. The designation must be
irrevocable)
(NOTE: It is akin to deduction, but it
is NOT per se a deduction, as it is still Return of premium
an item of exclusion)
Premiums returned to the insured or
Proceeds of Life Insurance Policy person acquiring the insurance for
another are NOT part of the income.
It refers to the insurance proceeds
received by the: It is so, considering that the premium
paid is a capital, and once returned is
1) Insured; or merely a return of capital.
2) Upon his death, his:
a. Heirs; or Be reminded that income is anything
b. Designated beneficiaries that flows into the wealth of the TP,
other than mere return of capital
76 | P a g e
Gifts, bequests, and devices Determine the taxability of the land.
Such cannot be subject to IT. With respect to the land itself, it

CANNOT be subject to tax, as it is an
Q: Considering that gifts, bequests, and item of inclusion.
devices, are items of exclusion from IT, is
it correct to say that it is exempt from all However, with respect to the fruit,
kinds of taxes? which in this case are the rentals, it can
be subjected to IT.
No, the exemption applies only to IT.
Thus, the fruits of the donated
However, as to DT and EsT, the rule is property may be subjected to IT.
as follows:
Income exempt under a treaty
GR: ALL
It is exempt considering that treaties
ER: Donations to the are to be respected by the contracting
following, as long as States, as these becomes part of the law
the conditions are met: of the land
1) CI, RI, CH, and Compensation for injuries or sickness

NSN-PEI:
a. if not more It refers to payment or reimbursement
than 30% due to reparation of damages.
of the
donation It is given to return to the state prior to
has been the damage.
used for
administrat It covers anything paid for such
ion; and purpose (e.g. insurance)
2) Government
agencies and GEI: Q: Does it refer to ALL kinds of damages
a. Absolute under the Civil Code that may be awarded
exemption by suit or agreement?
CI, RI, CH, and Exempt if not more
NSN-PEI than 30% of the No, as it refers only to actual damages.
donation has been
used for
administration Thus, the other damages awarded
Government Absolutely either awarded by the court or by
agencies and GEI exempted agreement, are NOT exempt and
therefore forms part of the GI of the
(NOTE: PEIs and PHs are NOT TP (e.g. moral, exemplary, nominal,
exempt) etc.)
Q: X donated a land to Y. As Y has no Q: Does it refer to damage to the physical

personal use for the said land, he rented out self only?
the land to others for Php50K per month.
77 | P a g e
No, it covers damages incurred against 1) At least sixty (60) years old;
property (e.g. real property and and
medical) 2) EE has rendered service
for at least twenty (20)
Q: Is it restricted to compensation by years
reason of an insurance such as those
covering real property or motor vehicles? On the other hand, in the government
sector, ALL retirement benefits and
No, as it refers to all kinds of payment pensions are NOT subject to IT.
for reparation of damages.
PRIVATE GOV’T
Thus, despite no insurance, if the PRP Law
person causing the damage paid the Source ER Absence
of PRP
injured party, it shall be exempt
considering the payment is for BIR Required NOT NOT
reparation of damages. Approval required applicable,
as ALL
Retirement benefits and pensions Age At least 50 At least retirement
required years old 60 years benefits
old and
A distinction must be made between: pensions
Years of At least 10 At least are NOT
1) Private sector; and continuous years 20 years subject to
2) Government sector service IT
Use of Exclusively NOT
funds for the applicable
Private v. Government sector EEs
In a private sector, retirement benefits Labor cases

are excluded provided that the
requisites for the applicable plan are In labor cases, a distinction must be
present. made:
Via a private retirement plan 1) Resignation;
(PRP), as provided by the ER, 2) Dismissal:
which must comply with the a. Without cause;
following: i. Reinstatement;
ii. Separation pay; and
1) At least fifty (50) years old; b. With cause
2) BIR approved the PRP; i. Separation pay
3) EE has rendered
continuous service for at Rule as to resignation
least ten (10) years; and
4) No part of the fund has An ER may give financial assistance
been used by the ER other which is NOT exempt from tax, as in
than the benefit of the EEs the first place, it is NOT mandated by
law.
In the absence of PRP, the
retirement under the law shall
apply:
78 | P a g e
Possible effects of dismissal without cause REIN- SEPARATION
STATEMENT PAY
Separation NOT taxable, as
Dismissal without cause may lead to: pay NOT
attributable to
1) Reinstatement; or EE
2) Separation pay Backwages Taxable
Damages
Reinstatement v. separation pay due to Attorney’s Taxable, if it exceeds the actual
fees damages
dismissal without cause
NOT taxable, if it does NOT
In case of reinstatement, the exceed the actual damages
following are paid to the EE:
Q: X, and EE, has been dismissed without
1) Back wages; cause.
2) All kinds of damages; and
3) Attorney’s fees After filing a case for illegal dismissal,
which he spent Php100K, the Labor Arbiter
As to its taxability, both the (LA) determine that indeed, he was
back wages and damages shall illegally dismissed.
be subject to tax, without
exception. Thus, the LA ordered that he be paid back
wages of Php250K, damages of Php100K,
However, as to the attorney’s and attorney’s fees of 150K.
fees, it is exempt only if the it is
NOT greater than the actual Determine the taxability of the LAs award.
expense, as the excess is treated
as income Both the Php250K and Php100K of
back wages and damages, respectively,
On the other hand, as to separation shall be taxable.
pay, (in lieu of reinstatement), the EE
may be given: However, as to the Php150K, only the
Php50K shall be taxable as it exceeded
1) Separation pay; the actual expense of Php100K, thus
2) Back wages; deemed as an income.
3) All kinds of damages; and
4) Attorney’s fees In short, as to the Php150K, the
Php100K is exempt.
As to its taxability, the
separation pay is not subject to Q: If instead, the LA ordered separation
tax for reasons not attributable pay of Php500K, as reinstatement is
to the employee impossible, would your answer be the
same?
However, the back wages and
damages are taxable. As to the separation pay, it shall NOT
be subject to tax considering that it is
Likewise, attorney’s fees shall NOT attributable to the EE.
be exempt only if it is not
greater than the actual damage.
79 | P a g e
However, as the back wages, damages, Prizes and awards
attorney’s fees, it shall be the same.
It is primarily for recognition made for
Examples of dismissals with cause achievements in:
1) Religious;
The following are dismissals with case: 2) Charitable;
3) Scientific;
1) Installation of labor-saving device; 4) Educational;
2) Retrenchment; 5) Artistic;
3) Redundancy; 6) Literary; or
4) Automation; and 7) Civic
5) Severe business losses
However, the following conditions
Effect of dismissal with cause must be met, with respect to the
recipient:
The EE shall receive separation pay
1) He was selected without any action
Taxability of separation pay by reason of on his part to enter the contest or
dismissal with cause proceeding; and
2) He is not required to render
The same shall not be taxable, as it is substantial future services as a
due to reasons not attributable to the condition to receiving the prize or
EE award.
Income derived by a foreign government in Q: Is it the same with “prizes and

investments in the Philippines winnings” as a passive income?
As an example, if the Philippines has a No, “prizes and winnings” pertains to

loan from China, and such loan earned those received in games of chance. It is
interest, the latter shall be exempt. subject to FWHT.
The loan is the investment, while the On the other hand, “prizes and
interest is the income. awards” are those given for recognition
of achievements in certain fields
Q: Who is the TP in the above example?
Q: X, a genius, joined a contest for the
It is China, as it earned income (loan) research of a full proof vaccine against
from the investment (loan) made in the Covid.
Philippines
He won the contest prize of Php50M as he
Inherent limitation involved in exclusion of successfully discovered a vaccine that
income derived by a foreign government in eradicates the Covid virus immediately
investments in the Philippines upon entering the human body.
It is a perfect example of international Would the Php50M be exempt from tax

comity, an unwritten rule where considering that his discovery helped solve
governments should NOT tax each the Covid pandemic?
other.
80 | P a g e
No, it would NOT be exempt, 4) Deduction applies only to income
considering that he had to do an action from:
to be selected in the competition. a. Exercise of profession; of
b. Trade or business
Q: If instead, X was selected as one of the 5) There are two (2) kinds of
scientists to partake in the contest, and he deductions:
eventually won, would it still be included in a. Optional Standard (OSD)
his GI for IT purposes? of 40%; and
b. Itemized (ID)
Not anymore, as X did not do any
action for him to be selected in the Nature of ADs
contest
ADs are treated as exemptions.
Q: From the above question, assume that,
the winner of the contest is obligated to Thus, the more the ADs, the less the
create the vaccine he created until the tax.
pandemic finishes before he could receive
the award. Who may deduct based on NIT
If X won, would the award be exempt tax? That deduction applies only to NIT,
the following TPs may deduct:
No, as there is a substantial future
service that he must do in exchange of 1) RC;
the award. 2) NRC;
3) RA;
In such a case, the award is treated as 4) NRA-ET/B
advance compensation for the future
service to be rendered (NOTE: Take note, however, that if
the TP is a CIE, no deduction can be
Prizes and awards in sports competition had)
The prizes and award won by the Who CANNOT deduct based on NIT
athlete in a competition sanctioned by
the National Sports Commission shall Thus, the following TPs cannot
be exempt from tax deduct:
Rule as to deductions 1) NRA-NET/B; and

2) NRFC
The following rules applies to
deductions: It is so, considering that the tax is on
the gross (GIT).
1) Deduction applies only to NIT;
2) Thus, no deduction applies if the Rule as to selection of OSD or ID
income is subject to:
a. GIT; The rules are as follows:
b. FWHT;
c. 8%TG 1) The option must be exercised at
3) If purely CIE, no deductions apply; the 1st quarter of the taxable year;
81 | P a g e
2) If there is no chosen kind, the Php250K benefit DOES
default deduction is ID; NOT APPLY, considering
3) The chosen option or ID as there that it is already in the CI
is a failure to choose shall be portion of his TI;
irrevocable for the whole taxable 3) As to availability of deductions:
year; and a. It is available both to the
4) It can only be changed the SEI/Ps and MIEs as to
following year their income earned from
trade or business, with the
(NOTE: The rules are akin to the difference based on the
exercise of choosing between NIT or GR/GS as follows:
8%TG, in case of SEP/Is and MIEs) i. = or < Php3M
who elected NIT:
Summary of deduction as to Individual 1. 3%PT; or
TPs ii. > Php3M:
1. 12%VAT
IT V PT DEDUC- Php250K
A TION BENE-
T FIT Summary of deductions as to Corporate
CIE NIT TPs
= or NIT 3% OSD; or
<3M ID
SEP/I 8% Appli- IT VAT PT DEDUC- Php250K
TG cable TIONS BENE-
> NIT 12% OSD; or FIT
3M ID = or Appli-
CI NIT < cable OSD; or
= or NIT 3% OSD; or 3M NIT ID
< ID
MIE 3M 8% > 12%
TG 3M
> NIT 12% OSD; or
3M ID
From the above, the following can be
observed:
From the above table, the following
can be observed: 1) As to applicability of
deductions:
1) As to CIEs and CI portion of
a. It applies to both GR/GS,
MIE: with the difference as
a. There can never be a: follows:
i. VAT; i. = or < Php3M:
ii. PT; 1. PT applies
iii. Deduction; and ii. > Php3M:
iv. Php250K benefit
1. VAT
2) As to availability of Php250K applies
benefit: 2) As to Php250K benefit:
a. It applies only to a SEP/I a. It does NOT apply to both
who chose 8%TG; instances
b. NOTE: While the 8%TG
may be chosen by a MIE
with respect to his income
from trade or business or
exercise of profession, the
82 | P a g e
Similarities as to Individual and Corporate b. Other;
TPs 9) Pensions; and
10) Research and Development (Sec.
From both, it can be observed that: 34, NIRC)
1) If the GS/GR: (NOTE: The enumeration is

a. Does NOT exceed Php3M, exclusive)
PT applies; and
b. Exceeds Php3M, VAT Necessary in trade or business
applies
2) Thus, VAT and PT CANNOT co- It means that the expense is one which
exist with each other; is necessary for the trade or business of
3) Deductions: the TP.
a. Applies only to NIT; and
b. Co-exists with VAT or PT, As an example, condiments are
as the case may be; necessary expenses for a restaurant, but
4) The Php250K benefit is NOT NOT for a parlor.
available, considering that it is
NOT applicable to NIT as there is Thus, the condiments are
already such amount in the necessary for the restaurant
computation and may be claimed as ID
Itemized deductions But for the parlor, it cannot be

deemed as an ID, as it is NOT
ID must comply with the following necessary for its business.
requisites:
Reasonable in amount
1) Necessary in:
a. Trade; or It would depend on the size/ value of
b. Business; the business.
2) Reasonable in amount;
3) Actually: Thus, if a carinderia only has three (3)
a. Paid; or lights, and has an electricity bill of
b. Incurred; and Php100K for a month, it is no longer
4) Documented/ substantiated by reasonable
receipts
Actually paid v. incurred
It includes the following:
If the term used is paid, the accounting
1) Expenses; method used by the TP is cash basis.
2) Interests;
3) Taxes; In this method, all the revenue
4) Losses; are actually received and all
5) Bad debts; expenses are actually paid.
6) Depreciation;
7) Depletion; On the other hand, if the term used is
8) Contributions: incurred, the accrual basis of
a. Charitable; and
83 | P a g e
accounting is being used by the TP in Q: Can a deduction be based on ones
the recording of transactions. unused the prior taxable year, or for the
following year instead of at present?
Optional standard deductions
No, it can only be used in the taxable
OSD is computed as follows: year when it was acquired, whether it
be fiscal or calendar year.
GR/S
minus COS (NOTE: This concept likewise applies
GI to revenue, as the revenue can only
minus 40% of GI (OSD) consist in the year when it was
TI acquired)
Thus, it appears that, technically, only Business expenses

60% of the GI is taxable in case of
OSD. For purposes of discussion, business
expenses include:
Substantiation of deduction by receipts in
ID v. OSD 1) Reasonable allowance for:
a. Salaries;
ID, requires substantiation by showing b. Wages; and
receipts considering the requisites to be c. Utilities;
considered as such. 2) Rent;
3) Interest on loan;
In other words, it must be 4) Marketing;
documented.
Q: X, owner of a tapsilogan, is the employer
On the other hand, as to OSD, there is of Y.
no requirement of receipts, and thus no
substantiation requirement. What is the classification of X and Y as a
TP for purposes of IT?
What may be considered as receipts
X may be a SEI, if an individual, or a
The following are sufficient as receipts CTP, if corporate, as he earns income
for purpose of substantiation of ID: from his/its business.
1) Receipt itself; or Y, on the other hand, is a CIE if he

2) Contract, coupled with official purely earns as an EE of X, or an MIE,
receipt that the expense is actually if he partly has compensation from
paid or incurred being a CIE and partly from SEP/I.
Effect if no documentation of ID Q: Assuming that Y is a CIE, and earns

from his ER, Y, what is the tax implication
Then, the expenses CANNOT be as to Y if he is a M/S, R&F, or MWE?
considered as deductions
As an M/S or R&F, the income of Y
shall be treated as a compensation and
shall be subjected to NIT.
84 | P a g e
On the other hand, if Y is an MWE, his Q: If X gave DMBs to Y, what is the tax
compensation is SMW and thus implication if the latter is a M/S, R&F, or
CANNOT be subjected to IT. MWE?
Q: With respect to X, what is the tax Whether Y is a M/S, R&F, or MWE,

implication on Y’s compensation? the rule is as follows:
Whether Y is a M/S, R&F, or SMW, 1) Exempt as long as within the

the compensation given by X to Y shall threshold provided for by law; or
be treated as an expense, and may be 2) Transferred to computation of OB,
treated as an ID, as long as the and may have the following effects:
following is proved by receipts: a. Still exempt, if the Php90K
threshold is not breached;
1) That Y’s compensation is necessary or
in X’s trade or business; b. Taxed if the Php90K
2) That the compensation is threshold is breached, as
reasonable in amount; and follows:
3) The compensation is actually paid i. M/S or R&F:
and received by Y 1. FBT, if
fringe
Q: If Y received benefits (OTP, HaP, HoP, benefits; or
or NSD) from X, what is the tax implication 2. NIT, if
if Y is a M/S, R&F, or MWE? otherwise;
or
If Y is an M/S, there is no tax to speak ii. MWE:
as in the first place, such benefits do 1. NIT
not apply to M/S.
Q: With respect to X, what is the tax
On the other hand, if Y is an R&F, the implication of the DMBs given to Y?
benefits shall be treated as income,
specifically as compensation, and It shall be treated as an expense, and
subjected to NIT. may be counted as an ID if the
requisites are met
Finally, if Y is an MWE, the benefits
are exempt from tax. Summary of rule pertaining to wages,
benefits, and DMBs
Q: As to X, what is the tax implication with
respect to the benefits received by Y ERs EEs
assuming that the latter is an R&F and Wages
Benefits Expense Income
MWE?
DMBs
In both cases, the benefits shall be

In simpler terms, this portrays the
treated as an expense on the part of Y,
income-expense cycle, where one earns
and may be deemed as an ID as long as
income (EE), from the expense of
the requisites are present.
another (ER)
85 | P a g e
Reasonable allowance for utilities Q: Assume, X rents the area where his
tapsilogan is located via a “rent-to-own”
It includes the following: (RTO) agreement.
1) Electricity; Can X claim the rentals as deductions?

2) Water;
3) Telephone; No, because a TP acquires more than
4) Internet mere possessory interest in case of a
RTO agreement.
Q: With respect to X, can he claim the
utilities as ID? Rationale for the exception
Yes, as long as the requisites are It is so, considering that by having an

present interest more than mere possession,
the rental, and subsequent acquisition,
Q: With respect to Y, can he claim the is capital in nature.
utilities as ID?
By capital, it means that the acquisition
No, as Y is a CIE and thus cannot is NOT for trade or business, and thus
claim deductions NOT an ordinary asset.
Q: As to rent, can X claim his rent on the Q: Do a purchase of property, whether real
area where his tapsilogan is located as a or tangible personal, as an ordinary asset,
deduction? fall under an expense considering that it is
purchased for trade or business?
Yes, as it is a reasonable business
expense, as long as the requisites are No, rather it falls under depreciation
met
Q: Is it always that, capital expenditures
Q: If Y rents a unit, can he claim it as a result in acquisition of capital asset?
deduction?
No, rather, it is capital expenditures for
No, as a CIE cannot claim any acquisition of ordinary asset,
deduction considering that the latter shall be used
for the trade or business of the TP
Q: Are all “rentals” counted as deductions?
Rationale of Depreciation
No, the rule is as follows:
Depreciation is due to the fact that
GR: Rentals are deductions assets are being used in the business
and thus subject to wear and tear.
ER: Rentals are NOT
deductions if the Ways of depreciating assets in Philippine
lessee-TP acquires jurisdiction
more than possessory
interest There are two (2) ways of depreciation
in the Philippines:
86 | P a g e
1) Straight line method; and Q: Assume, that the gas range is worth
2) Diminishing method Php100K.
Diminishing method For purpose of depreciation, illustrate the

deduction if the same was bought on 2021.
This is done by allocating the value of
the asset in a specific number of years, The Php100K shall be divided into five
as follows: (5) years, thus Php20K deduction per
year, and the remaining value shall be
Real called as the book value.
Property: 15-25 years
YEAR BOOK VALUE
Tangible 2021 Php80K
Personal 2022 Php60K
2023 Php40K
Property: 5 years 2024 Php20K
2025 0
(NOTE: For this reason, cars are
payable only up to a period of 5 years) Thus, the whole Php100K is deducted
by 2025.
Deduction through expense v.
depreciation Q: Y bought a gas range, utensils,
kitchenware, air conditioner unit, chairs,
In an expense, the deduction is done tables, etc. amounting to Php200K for his
one time, thus the whole amount shall rented unit.
be deducted in the taxable year.
For purpose of deduction, can Y
On the other hand, in a depreciation, immediately deduct the whole price of
the deduction is done for a span of Php200K for the year 2021?
years.
No, as a CIE cannot claim any
Thus, it would seem that in a deduction
depreciation the deduction is
like an expense, except that it is Q: X obtained a loan of Php500K from Z,
spread out and NOT engaged in lending, for his tapsilogan.
immediate.
As time went by, X’s loan produced an
Q: X bought a gas range, utensils, interest of Php100K.
kitchenware, air conditioner unit, chairs,
tables, etc. amounting to Php200K for his If X paid Z the Php100K using income from
tapsilogan. his tapsilogan, what is the tax implication
as to both?
For purpose of deduction, can X
immediately deduct the whole price of As to X, the same shall be treated as an
Php200K for the year 2021? expense and hence may be a deduction.
No, as it falls under depreciation It is deemed as an interest
expense
87 | P a g e
On the other hand, as to Y, the same Deduction based on interest on loan v. bad
shall be treated as an income. debt
It shall be deemed as an The deduction based on interest on

interest income loan is limited to the interest only.
Q: If X did not pay the Php100K when it On the other hand, as to bad debts, it
became due, what is the tax implication? includes the principal and the interest.
That it is NOT paid, the same shall be Q: Assume that two (2) years after Z’s
a deduction which may be claimed by claiming the bad debt as deduction, X paid
Z. the loan and the interest of Php600K.
Q: That it may be claimed by Z, does it fall Considering that Z has already claimed the
under interest on loan? same as deduction and that two (2) years
have already passed from such claiming, is
No, rather it is a bad debt it correct to say that Z has nothing else to
do with respect to the Php600K received
(NOTE: May utang na sa kasamaang from X?
palad di nabayaran nang masamang
nangutang) No, as under the tax benefit rule, Z is
obligated to make the Php600K as part
Q: Is it correct to say that considering that of his GI for the year that it was
X failed to claim Php100K, the deduction recovered.
based on bad debt is limited to the value of
the interest? Thus, it is incorrect to say that the
deduction would nullify the effect of
No, rather, Z may claim as deduction payment in some future time.
the principal plus the interest, thus
amounting to Php600K. Q: If instead, it is Y who obtained a loan
from Z, and it likewise produced an
Requisites for bad debt interest of Php100K.
The following are the requisites for a If Y paid the interest to Z, what is the tax
bad debt: implication?
1) Incurred in connection with the With respect to Z, it is still treated as

trade or business of the lender; income.
a. Thus, must be engaged in
the trade or business of However, as to Y, he CANNOT claim
lending; any deduction as he is a CIE.
2) It must be determined to be:
a. Worthless; and Q: If Y did not pay the interest, what is the
b. Completely charged of tax implication as to Z?
Z may still claim the non-payment as a

bad debt, considering the non-payment
88 | P a g e
(NOTE: Thus, the lender can claim a Rationale of Tax Arbitrage Rule
deduction based on bad debt whether
or not the lendee can claim a deduction It is to prevent the practice of
himself) borrowing money and paying the
interest expense with the interest
Q: If Y paid the loan and the interest two income from the money invested in
(2) years after what is the effect? another
The tax benefit rule shall apply, thus Rule as to marketing

Z is obligated to include it in his GI for
the year it was paid. GR: Marketing
collaterals/expenditure for
(NOTE: Thus, the lender must maintaining the sales are
include the belated payment regardless deductibles (signages)
of who is the lendee.)
ER: Purchase of goodwill for the
Q: Assume, that X indeed paid Z the purpose of increasing sales are
interest on his loan. NOT deductible, as already
capital expenditures (leaflets,
As to the loan, he deposited it in ABC flyers)
Bank, and produced an interest income.
Rule as to bribes
May X deduct the whole amount of
Php100K that he paid to Z, considering that Bribes can never be deducted, as it is
it is an interest expense? not allowed and illegal.
No, as the tax arbitrage rule applies in From this, the rule is as follows,
this case. whether the business is legitimate or
illegitimate:
Under such rule, any interest
on a loan subjected to a FWHT GR: Expenses may be
shall produce an effect of deducted as long as for
deducting 33% on the interest a legitimate purpose
expense deduction.
ER: No expense that are
That the loan was invested in a bank, contrary to law, morals,
and such an interest on bank deposits customs, tradition,
is subjected to a 20%FWHT as passive public policy, etc. etc.
income under source of income B, the etc. may be allowed as
deduction must be reduced by 33%. deductibles
Thus, X can only deduct up to Q: X paid an RPT of Php4K over the land
Php66,666.66 where his tapsilogan is located.
(NOTE: The situation can only be Can he claim the same as deduction from
possible in case of interest on bank his IT?
deposits)
89 | P a g e
Yes, as it is a tax incurred in relation to With respect to the Php60K, deduction
his business is based on depreciation.
Q: Assume that X paid the said RPT on Its basis is from the amount of
2021. deduction up to the time the
gas range was stolen, or
In 2023, the BIR returned Php1.5K, as the specifically up until the time it
payment made by X was excessive. was used and subject to
depreciation.
What is the effect to X?
Thus, considering that it is on
X must include the Php1.5K as the 3rd year, and the
income, in line with the tax benefit depreciation is equivalent to
rule Php20K per year, the total
deduction based on
Q: Y paid an RPT of Php4K over the land depreciation is Php60K.
where his house is located.
YEAR DEDUCTION
Can he claim the same as deduction from AS OF THE
YEAR
his IT? 2021 Php20K
2022 Php40K
No, as a CIE cannot claim any 2023 Php60K
deduction. 2024 Php80K
2025 Php100K
Casualty loss
On the other hand, the Php40K’s
The requisites are as follows: deduction shall be based on casualty
loss.
1) The loss must NOT be
compensated by insurance; and This is based on the book value
2) The loss must be caused by: of the gas range at the time it
a. Theft; was stolen.
b. Robbery;
c. Embezzlement; That it was stolen in 2023, the
d. Fire; book value is Php40K.
e. Storm;
f. Shipwreck; or YEAR BOOK
g. Other natural calamity VALUE
2021 Php80K
characterized by 2022 Php60K
suddenness 2023 Php40K
2024 Php20K
Q: Going back to X’s gas range, assume 2025 0
that, in the year 2023, it was stolen.
In effect, a TP still successfully
For purpose of deduction, how should the deducted the total value of the
deduction be made and on what basis? property.
90 | P a g e
(NOTE: In reality, however, the That it is no longer of use, it is
recording of the depreciation for tax no longer subject to wear and
purposes is the reckoning point of the tear
values of deduction.
Q: Out of conscience, in 2025 the robber
If the depreciation is recorded returned the gas range.
prior to the loss occurring
within the same taxable year, What is the effect of the return of the gas
then, the value from the range to X?
example is followed.
The tax benefit rule applies.
However, if no recording was
done (meaning the Thus, X is obligated to include the
depreciation recorded was FMV of the gas range at the time of the
from the prior taxable year), return
prior to the loss, then, the
depreciation shall be Php40K, When tax benefit rule applicable
while the loss is Php60K)
In line with the above discussions, the
Relationship of expense, depreciation, and tax benefit rule applies in three (3)
loss instances:
In case of purchase of real property or 1) Bad debts paid in some future time;
tangible personal property, deduction 2) Taxes refunded due to excessive
based on expense does NOT apply. payment; and
3) Return of lost property priorly
In effect, the expense transforms to claimed as deductions
depreciation, as it is an asset that will
be used for trade or business. NATURE OF BASIS OF
DEDUCTION INCLUSION IN
GROSS INCOME
In case of loss, depreciation transforms Bad debts Actual value (as it is
further into loss Taxes cash)
Casualty loss FMV (as it is asset)
By the combination of the depreciation
and the loss, the total value of the Q: X donated Php300K each to
property in effect has been used as a BLALOCO, a home for the aged,
deduction Simbahayanan, a religious institution,
UFA, a NSNPEI, and the Department of
Rationale of depreciation’s transforming Education (DepEd).
into a loss
May X deduct such contributions to his
It transforms into a loss considering GI?
that the asset which was formerly
subject to depreciation is no longer Yes, but the rule shall differ.
subject to depreciation as it is NO
LONGER OF USE to the TP. With respect to BLALOCO,
Simbahayanan, and UFA, the
91 | P a g e
deduction shall either be, The above computed value should be
whichever is lower: compared against the contribution, and
whichever is lower shall be the
1) 10% of the TI; or deduction based on contributions.
2) The contribution
Q: If Y donated to the above entities
With respect to the instead of X, would your answer be the
contribution to DepEd, the same?
rule is follows:
No, as a CIE cannot claim any
1) If declared as priority deduction.
project:
a. 100% deduction; (NOTE: The only benefit that he has,
or is being recognized as a philanthropist)
2) If NOT priority project:
a. It may be, Pensions
whichever is lower:
i. 10% of the These refers to contributions of the ER
TI; or for the retirement fund of the EEs
ii. The
contributio Q: If X took a life insurance on the life of Y,
n may the former take the premiums as
business expense and therefore as
Q: Assume, instead, that X is a Corporate deductions?
TP, would your answer be the same?
No, as premiums for life insurance is
No, with respect to the applicable rate NOT a regular business expense
for computation of the deduction, as
for Corporate TPs are subject to the Q: If instead, it is Y who took a life
5% insurance on his own life, can it be
deducted to his GI?
Q: Is the 10% or 5%, for Individual and
Corporate TPs, respectively, computed on No, as a CIE cannot claim any
the contribution? deduction
No, rather it is computed on the Research and development

temporary TI (TTI) after all other
deductions are deducted. Thus. It refers to the following:
GS/R 1) Professional fees;

minus COS 2) Research and development fees
GI
minus AD These fees should have been incurred
TTI in relation to the TPs trade or business.
multiplied by 10% or 5%
Deductible (if lower) Q: X acquired the service of Mr. RD to
conduct a feasibility study on the
92 | P a g e
marketability of the newly found variant of 1) Sale of the following, which should
tapsilog, which is a pancit infused tapsilog. be in connection with trade or
business:
Can X claim the fees incurred on the a. Goods;
studies? b. Service;
2) Importation of goods
Yes, as it is a fee for research and
development Importation of goods
Q: Y, tired of being a CIE, acquired the In relation thereto, take note of the
services of Mr. RD to conduct a feasibility following:
study on what could be a successful
business. 1) It is the importation which is being
subject to VAT;
Can Y claim as deduction the fees paid to 2) If subsequently sold, the VAT on
RD? the sale of it is different from the
VAT on the importation
No, as a CIE cannot deduct from his
GI Q: A, seller of pentel pen, sold one pentel
pen to B. Assume that the gross selling
Q: After the feasibility conducted by RD, Y price of A is Php100.
went on to do business on the very same
year, as he was excited on the possibilities. Discuss the effect of VAT.
Can Y claim as deduction the fees paid to The Php100 must be subjected to a
RD? 12%VAT.
Yes, as now he ceases to be a or purely Thus, the price shall be Php112, the
a CIE. Php12 pesos resulting from the VAT,
and have different implications on A
This kind of expense shall be called as and B.
mobilization expense, as it refers to a
start-up business. As to the seller, A, the Php12 is
called as the output
Nature of VAT
On the other hand, as to the
It is an indirect tax which is passed on buyer, B, the Php12 is called as
and on (and on and on and on…) the input
It adds up to one TP’s burden, and Q: After acquiring the pentel pen, B
when it is passed on, it forms part of improved it by placing art and stones on it.
the expense
After computation of expenses for the
Transactions covered by VAT production of such, he determined that he
used Php18, and therefore now at Php130.
There are only three (3) transactions
covered by VAT: To make a profit out of it, he plans to sell it
to C at Php150.
93 | P a g e
Discuss the effect of VAT B cannot claim as credit any EI
C is bound to pay Php168, the Php18 Requisites to claim VAT credit

being the 12%VAT, with different
implications as to B and C: VAT credit is available only if the
As to seller B, the Php18 shall following concurs:
be the output.
1) TP is engaged in trade or business;
On the other hand, as to buyer and
C, the Php18 shall be the 2) TP is VAT registered
input.
Q: B, out of friendliness, did not collect the
Q: In the above problems, is B left with no Php18, and thus sold the same to C at
other obligation? Php150. What is the effect?
No, as he must compute the excess B is still presumed that the VAT have
output (EO), and remit the same with been paid and have received the same,
the BIR, using the following formula: as it is his obligation.
Output as seller (OAS) In effect, the BIR shall still collect from
minus Input as buyer (IAB) B whether or not the latter indeed
(EO) collected the 12%VAT or not.
Thus, in line with the above, the Q: Assume, instead, that B sold a real
computation is as follows: property. Is it covered by VAT?
Php18 (OAS) Yes, in VAT, the term “goods” include

minus Php12 (IAB) sale real property
Php6 (EO)
Q: Assume, instead, that B sold services as
The Php6 should be remitted with the an EE of his ER, C. Is it covered by VAT?
BIR, as it is the VAT payable
Yes, as it is a sale of service
Q: Assume instead that B incurred an IAB
of Php18, and an OAS of Php12, what is the Q: Assume, instead, that B sold service to
effect? C, but without an ER-EE relationship. Is it
covered by VAT?
B may credit the Php6 for the
succeeding quarters, as it is an excess Yes, as it covers sale of service despite
input (EI), computed as follows: no ER-EE relationship
Php12 (OAS) Q: Assume, that B’s GS is Php2.9M, is B

minus Php18 (IAB) still obligated to subject the sale to VAT?
(Php6) (EI)
No, as VAT does not apply in case the
Q: Assume, that B failed to register as a GS/GR does NOT exceed Php3M.
VAT TP in the BIR, what is the effect?
94 | P a g e
Q: For the year 2021, X has a GS of Php10M. Q: Determine the VAT of X.
His COS for pork, beef, oil, and other raw X has the OAS VAT of Php1.2M,
materials is Php6M. computed as follows:
His utilities like electricity, water, Php10M (GS)

telephone, etc. is Php500K. For gas multiplied by 12%VAT
expenses, he spent Php200K. His rent is Php1.2M
Php300K. On the other hand, the IAB VAT are
as follows:
Determine the TNI.
EXPENSE VAT TOTAL
The TNI is Php3M, computed as COS Php6M Php720K Php6.72M
follows: Utilities Php500K Php60K Php560K
Rent Php300K Php36K Php336K
Gas Php200K Php24K Php224K
Php10M (GS) TOTAL Php1M Php840K Php1.84M
minus Php6M (COS)
Php4M (GI) To compute for the VAT payable by X,
minus Php500K (Utilities) the OAS is subtracted by the IAB, as
Php300K (Rent) follows:
Php200K (Gas)
Php3M (TNI) Php1.2M (OAS)
minus Php840K (IAB)
Q: For purpose of IT, what is the Php360K (VAT payable)
applicable tax rate?
Q: Determine the total tax payable by X.
NIT shall apply considering that the
GS of X exceeds Php3M, specifically Considering that VAT applies, the NIT
Php10M. and the VAT must be combined to
arrive at the total tax payable:
Q: Determine the NIT of X.
Php810K (IT)
The NIT of X shall be Php810K, plus Php360K (VAT)
computed as follows: Php1.170M (Total tax)
Php3M (TNI) Q: For the year 2021, Y acquired a salary of
minus Php2M (Exempt) Php360K.
Php1M (Excess over
exempt) Y paid an expense of Php10K for electricity,
multiplied by 32% (Tax rate) Php20K for food, and Php25K for rent.
Php320K
plus Php490K (Basic Determine the VAT paid by Y.
amount)
Php810K (Tax due) The VAT paid by Y is as follows:
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EXPENSE VAT TOTAL ZRT v. Exempt transactions
Electricity Php10K Php1.2K Php11.2K
Food Php20K Php2.4K Php22.4K ZRT means that the transaction is not
Rent Php25K Php3K Php28K
TOTAL Php55K Php6.6K Php61.6K
subject to VAT in all stages. As to
credit of the input against the output, it
Q: Can Y claim as deduction the Php55K of is allowed in ZRT.
expense to his GI?
On the other hand, in Exempt
No, as a CIE cannot claim any Transactions, the transaction is not
deduction subject to VAT only in a particular
stage. Further, the credit of the input
Q: Can Y claim as deduction the VAT against the output is NOT allowed in
expense of Php6.6K? exempt transaction.
ZRT EXEMPT
No, as deduction can only be made by Effect The transaction shall NOT
a TP engaged in trade or business, and be subject to tax
VAT registered
When ALL stages PARTICULAR
(NOTE: Thus, a CIE can NEVER NOT of the stage of the
subject to transaction transaction
claim a credit based on VAT) VAT
Credit of Allowed NOT allowed
Q: What then is the role of VAT to a CIE? input
against
It is merely an addition to the expense output
of the TP
Q: With the above distinctions, which is
Zero-rated transaction (ZRT) more beneficial among the two?
It is VATable but to the rate of zero (0) It is the ZRT. The reason for this is
because it has an economic benefit to
It applies only to: the Government.
1) Sale of: Economic effect of importation v.

a. Goods; and exportation
b. Service; and
2) Exportation of goods In importation, there is a negative
effect to the economy, for the
Q: Is ZRT applicable to importation? following reasons:
No, ZRT does not apply to 1) In import, payment is made via

importation of goods. foreign currency from the
Philippines:
Importation of goods is always a. Thus, it has the effect of
VATable at 12%. reducing the foreign
currency reserves of the
(NOTE: But the exportation of goods country;
may be subjected to ZRT)
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2) The imported goods compete with in the Philippines by VAT- registered persons
the locally manufactured products shall be subject to zero percent (0%) rate.
On the other hand, as to exportation, (1) Processing, manufacturing or repacking

the positive effects are as follows: goods for other persons doing business outside
the Philippines which goods are subsequently
1) Payment is made via foreign exported, where the services are paid for in
currency: acceptable foreign currency and accounted for
a. Thus, it results in the in accordance with the rules and regulations of
increase of foreign the Bangko Sentral ng Pilipinas (BSP);
currency reserves of the
Philippines; (2) Services other than those mentioned in the
2) Promotion of local products in preceding paragraph, rendered to a person
other countries: engaged in business conducted outside the
a. Considering that it is locally Philippines or to a nonresident person not
produced, a TP produces engaged in business who is outside the
input (in the acquisition of Philippines when the services are performed,
raw materials) against its the consideration for which is paid for in
output acceptable foreign currency and accounted for
in accordance with the rules and regulations of
Q: Considering the negative effects of the Bangko Sentral ng Pilipinas (BSP);
importation, why not just ban it totally?
(3) Services rendered to persons or entities
It cannot be done, as the Philippines is whose exemption under special laws or
an open trade country, as we are a international agreements to which the
signatory to the open trade market Philippines is a signatory effectively subjects
the supply of such services to zero percent
Q: Considering that it cannot be banned, (0%) rate;
totally, what should be the remedy to
temper the negative effects of importation? (4) Services rendered to persons engaged in
international shipping or international air
While it CANNOT be banned, it can transport operations, including leases of
be limited. property for use thereof: Provided, That these
services shall be exclusive for international
For this reason, the 12%VAT on shipping or air transport operations;
importation of goods is imposed.
(5) Services performed by subcontractors
Transactions covered by ZRT and/or contractors in processing, converting,
or manufacturing goods for an enterprise
Sec. 108. Value-added Tax on Sale of whose export sales exceed seventy percent
Services and Use or Lease of Properties. (70%) of total annual production;
xxx (6) Transport of passengers and cargo by air or

sea vessels from the Philippines to a foreign
(B) Transactions Subject to Zero Percent country; and
(0%) Rate - The following services performed
(7) Sale of power or fuel generated through
renewable sources of energy such as, but not
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limited to, biomass, solar, wind, hydropower, Thus, this provision actually grants a new incentive to
geothermal, ocean energy, and other emerging suppliers of registered tourism enterprises. At any rate,
energy sources using technologies such as fuel TIEZA law, which is still in effect for two more years,
cells and hydrogen fuels. can be used to avail of the above-mentioned incentives.)
(8) Services rendered to: Provided, That subparagraphs (B)(1) and (B)(5)
hereof shall be subject to the twelve percent
(i) Registered enterprises within a separate (12%) value-added tax and no longer subject to
customs territory as provided under special zero percent (0%) VAT rate upon satisfaction
law; and of the following conditions:
(ii) Registered enterprises within tourism (1) The successful establishment and
enterprise zones as declared by TIEZA subject implementation of an enhanced VAT refund
to the provisions under Republic Act No. 9593 system that grants refund of creditable input
or the Tourism Act of 2009. tax within ninety (90) days from the filing of
the VAT refund application with the Bureau;
(NOTE: The amendment introduced by the TRAIN Provided, That, to determine the effectivity of
Law was vetoed by the President. The veto message item no. 1, all applications filed from January 1,
reads: 2018 shall be processed and must be decided
within ninety (90) days from the filing of the
I am constrained to veto the provisions under Section 33 VAT refund application; and
of the enrolled bill, to wit:
(2) All pending VAT refund claims as of
Section 33: December 31, 2017 shall be fully paid in cash
by December 31, 2019.
(8) Services Rendered To:
Provided, That the Department of Finance
I. Registered Enterprises Within A Separate Customs shall establish a VAT refund center in the
Territory As Provided Under Special Laws; and Bureau of Internal Revenue(BIR) and in the
Bureau of Customs(BOC) that will handle the
II. Registered Enterprises Within Tourism Enterprise processing and granting of cash refunds of
Zones As Declared By the TIEZA Subject To the creditable input tax.
Provisions Under Republic Act No. 9593 Or The
Tourism Act of 2009. An amount equivalent to five percent (5%) of
the total value-added tax collection of the BIR
The above provisions go against the principle of limiting and the BOC from the immediately preceding
the VAT zero-rating to direct exporters. The year shall be automatically appropriated
proliferation of separate customs territories, which annually and shall be treated as a special
include buildings, creates significant leakages in our tax account in the General Fund or as trust receipts
system. This makes the tax system highly inequitable for the purpose of funding claims for VAT
and significantly reduces the revenues that could be better Refund: Provided, That any unused fund, at the
used for the poor. As to tourism enterprises, the current end of the year shall revert to the General
law only allows for duty and tax free importation of Fund.
capital equipment, transportation equipment and other
goods. The TIEZA Law explicitly allows only duty Provided, further, That the BIR and the BOC
and tax free importation of capital equipment, shall be required to submit to the COCCTRP a
transportation equipment and other goods (in certain
cases and always subject to rules provided by the DOF).
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quarterly report of all pending claims for (A) Sale or importation of agricultural and
refund and any unused fund. marine food products in their original state,
livestock and poultry of or king generally used
Exempt transactions’ not being subject to as, or yielding or producing foods for human
VAT at a particular stage consumption; and breeding stock and genetic
materials therefor.
It means that, as to the goods, the
transaction is exempt only with respect Products classified under this paragraph shall
to a certain phase, but not to another. be considered in their original state even if they
have undergone the simple processes of
Q: F, a fisherman, catches milkfish preparation or preservation for the market,
(bangus) for a living. such as freezing, drying, salting, broiling,
roasting, smoking or stripping. Polished
If F sold the milkfish to the wet market and/or husked rice, corn grits, raw cane sugar
vendors, is the sale of the goods VATable? and molasses, ordinary salt and copra shall be
considered in their original state;
No, as the goods subject of the sale is
still in its original state (B) Sale or importation of fertilizers; seeds,
seedlings and fingerlings; fish, prawn, livestock
Q: After a tiring day of selling the bangus, and poultry feeds, including ingredients,
F still has some left. whether locally produced or imported, used in
the manufacture of finished feeds (except
With these remaining bangus, he makes specialty feeds for race horses, fighting cocks,
them into relleno and daing. aquarium fish, zoo animals and other animals
generally considered as pets);
If F sold the same to X, is the sale of the
goods VATable? (C) Importation of personal and household
effects belonging to the residents of the
No, as the goods is considered as still Philippines returning from abroad and
in its original state. nonresident citizens coming to resettle in the
Philippines: Provided, That such goods are
Q: After buying goods from F, X sells them exempt from customs duties under the Tariff
as daingsilog and resilog. and Customs Code of the Philippines;
Is X’s sale of such VATable? (D) Importation of professional instruments

and implements, tools of trade, occupation or
Yes, as it is NO LONGER in its employment, wearing apparel, domestic
original state. animals, and personal and household effects
belonging to persons coming to settle in the
Exempt transactions Philippines or Filipinos or their families and
descendants who are now residents or citizens
SEC. 109. Exempt Transactions; of other countries, such parties hereinafter
referred to as overseas Filipinos, in quantities
(1) Subject to the provisions of Subsection (2) and of the class suitable to the profession, rank
hereof, the following transactions shall be or position of the persons importing said items,
exempt from the value-added tax. for their own use and not for barter or sale,
accompanying such persons, or arriving within
a reasonable time: Provided, That the Bureau
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of Customs may, upon the production of
satisfactory evidence that such persons are (L) Sales by agricultural cooperatives duly
actually coming to settle in the Philippines and registered with the Cooperative Development
the goods are brought from their former place Authority to their members as well as sale of
of abode, exempt such goods from payment of their produce, whether in its original state or
duties and taxes: Provided, further, That the processed form, to non-members; their
vehicles, vessels, aircrafts, machineries and importation of direct farm inputs, machineries
other similar goods for use in manufacture, and equipment, including spare parts thereof,
shall not fall within this classification and shall to be used directly and exclusively in the
therefore be subject to duties, taxes and other production and/or processing of their
charges; produce;
(E) Services subject to percentage tax under (M) Gross receipts from lending activities by
Title V; credit or multi-purpose cooperatives duly
registered with the Cooperative Development
(F) Services by agricultural contract growers Authority;
and milling for others of palay into rice, corn
into grits and sugar cane into raw sugar; (N) Sales by non-agricultural, non- electric and
non-credit cooperatives duly registered with
(G) Medical, dental, hospital and veterinary the Cooperative Development Authority:
services except those rendered by Provided, That the share capital contribution
professionals; of each member does not exceed Fifteen
thousand pesos (P15,000) and regardless of the
(H) Educational services rendered by private aggregate capital and net surplus ratably
educational institutions, duly accredited by the distributed among the members;
Department of Education(DepED), the
Commission on Higher Education (CHED), (O) Export sales by persons who are not VAT-
the Technical Education and Skills registered;
Development Authority (TESDA) and those
rendered by government educational (P) Sale of real properties not primarily held for
institutions; sale to customers or held for lease in the
ordinary course of trade or business or real
(I) Services rendered by individuals pursuant to property utilized for low-cost and socialized
an employer-employee relationship; housing as defined by Republic Act No. 7279,
otherwise known as the Urban Development
(J) Services rendered by regional or area and Housing Act of 1992, and other related
headquarters established in the Philippines by laws, residential lot valued at One million pesos
multinational corporations which act as (P1,500,000) and below, house and lot, and
supervisory, communications and coordinating other residential dwellings valued at Two
centers for their affiliates, subsidiaries or million five hundred thousand pesos
branches in the Asia-Pacific Region and do not (P2,500,000) and below: Provided, That
earn or derive income from the Philippines; beginning January 1, 2021, the VAT exemption
shall only apply to sale of real properties not
(K) Transactions which are exempt under primarily held for sale to customers or held for
international agreements to which the lease in the ordinary course of trade or
Philippines is a signatory or under special laws, business, sale of real property utilized for
except those under Presidential Decree No. socialized housing as defined by Republic Act
529; No. 7279, sale of house and lot, and other
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residential dwellings with the selling price of 10754 (An Act Expanding the Benefits and
not more than Two million pesos (P2,000,000): Privileges of Persons With Disability),
Provided, further, That every three (3) years respectively;
thereafter, the amount herein stated shall be
adjusted to its present value using the (X) Transfer of property pursuant to Section
Consumer Price Index, as published by the 40(C)(2) of the NIRC, as amended;
Philippine Statistics Authority(PSA);
(Y) Associations dues, membership fees, and
(Q) Lease of a residential unit with a monthly other assessments and charges collected by
rental not exceeding Fifteen thousand pesos homeowners’ associations and condominium
(₱15,000); corporations;
(R) Sale, importation, printing or publication of (Z) Sale of gold to the Banko Sentral ng
books, and any newspaper, magazine, journal, Pilipinas (BSP);
review bulletin, or any such educational reading
material covered by the UNESCO Agreement (AA) Sale of or importation of prescription
on the Importation of Educational, Scientific drugs and medicines for:
and Cultural Materials, including the digital or
electronic format thereof: Provided, That the (i) Diabetes, high cholesterol, and hypertension
materials enumerated herein are not devoted beginning January 1, 2020; and
principally to the publication of paid
advertisements; (ii) Cancer, mental illness, tuberculosis, and
kidney diseases beginning January 1, 2021.
(S) Transport of passengers by international
carriers; Provided, That the DOH shall issue a list of
approved drugs and medicines for this purpose
(T) Sale, importation or lease of passenger or within sixty (60) days from the effectivity of
cargo vessels and aircraft, including engine, this Act; and
equipment and spare parts thereof for
domestic or international transport operations; (BB) Sale or importation of the following
beginning January 1, 2021 to December 31,
(U) Importation of fuel, goods and supplies by 2023:
persons engaged in international shipping or air
transport operations: Provided, That the fuel, (i) Capital equipment, its spare parts and raw
goods, and supplies shall be used for materials, necessary for the production of
international shipping or air transport personal protective equipment components
operations; such as coveralls, gown, surgical cap, surgical
mask, N-95 mask, scrub suits, goggles and face
(V) Services of bank, non-bank financial shield, double or surgical gloves, dedicated
intermediaries performing quasi-banking shoes, and shoe covers, for COVID-19
functions, and other non-bank financial prevention; and
intermediaries;
(ii) All drugs, vaccines and medical devices
(W) Sale or lease of goods and services to specifically prescribed and directly used for the
senior citizens and persons with disability, as treatment of COVID-19; and
provided under Republic Act Nos. 9994
(Expanded Senior Citizens Act of 2010) and (iii) Drugs for the treatment of COVID-19
approved by the Food and Drug
101 | P a g e
Administration (FDA) for use in clinical trials, Summary of VAT concepts
including raw materials directly necessary for
the production of such drugs: Provided, That All said, the following concepts hold
the Department of Trade and Industry (DTI) true to VAT:
shall certify that such equipment, spare parts or
raw materials for importation are not locally 1) Input VAT of plain consumers
available or insufficient in quantity, or not in merely add up to his expense;
accordance with the quality or specification 2) With respect to TPs engaged in
required: Provided, further, That for item (ii), trade or business, the input may be
within sixty (60) days from the effectivity of credited against the output VAT.
this Act, and every three (3) months thereafter,
the Department of Health (DOH) shall issue a
list of prescription drugs and medical devices
covered by this provision: Provided, finally,
That the exemption claimed under this
subsection shall be subject to post audit by the
Bureau of Internal Revenue or the Bureau of
Customs as may be applicable.
(CC) Sale or lease of goods or properties or the

performance of services other than the
transactions mentioned in the preceding
paragraphs, the gross annual sales and/or
receipts do not exceed the amount of Three
million pesos (P3,000,000.00).
Q: If the GS/GR does NOT exceed

Php3M, is there a necessity to be registered
as a VAT TP?
No, as VAT applies only to TPs who

has a GS/GR exceeding Php3M.
Q: That a TP who has a GS/GR NOT

exceeding Php3M is not subject to VAT, is
it safe to say that no additional taxes shall
be imposed?
No, as there is still a PT to be imposed

at the rate of 2% of the GS/GR
(NOTE: Wag kang ngingiti na di sayo

maiimpose yung isang tax, kasi may kapalit
na tax yan.
Hanapin mo, kasi ganito tax sa Pilipinas,

“bawi-bawi” system)
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DONOR’S TAX Basis of donated property’s value
Nature It depends:
It is a transfer tax 1) Real property, whichever is higher

among the three, at the time of gift:
IV transfers a. FMV;
b. Assessed value; or
There are transfers which take effect c. Zonal value;
during the lifetime of the donor and the 2) Personal property, whether
donee. tangible or intangible:
a. FMV at the time of gift;
That it is IV, it is: 3) Shares of Stock:
a. ALL assets of the corporation
1) Voluntary; divided by number of shares
2) Gratuitous; and issued, thus:
3) No monetary consideration i. Assets/n of shares
Who may be a donor Calendar year
It may either be a/an: With respect to DT, only the calendar

year (January to December) applies.
1) Individual TPs; or
2) Corporate TPs Thus, fiscal year does not apply to DT.
For both, they are further classified (NOTE: This is the ONLY provision
into: in the Tax Code which states that
“…computed based on a calendar
1) Citizens: year.”)
a. Resident (RC);
b. Non-resident (NRC) Exempted amount
2) Aliens:
a. Resident (RA); Under DT, Php250K is exempted each
b. Non-resident (NRA) calendar year.
(NOTE: This is a different Rate

classification from the TPs in IT)
6%DT of the value of the property at
Subject matter of donations the time of gift
Any of the following may be the

subject matter of donations:
1) Real property; and

2) Personal property, which may be:
a. Tangible; or
b. Intangible
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Formula Q: Could there be an instance of triple
taxation in its broad sense?
The formula, computed on a
cumulative basis, is as follows: Yes, specifically in the case of an RA,
where a property may be located
outside the Philippines in which he is
Gross donation (GD) NOT a resident nor a citizen and taxing
minus AD authority therein taxes him.
Taxable net gift in
excess of Php250K Of course, the Philippines shall tax him
(TNG) for the donation made, as he is a
multiplied by 6% (Tax rate) resident herein.
DT
minus Previous DT (PDT) Finally, it may so happen that the
DT payable (DTP) country in which he is a citizen may tax
him as well, as a citizen thereof.
Determination of taxability of IT v. DT
Location (situs) of properties
In IT, the determination is based on
the source of the income, specifically In determining the location of the
whether the income is from within or property, the following are the rules:
without.
1. Real property:
On the other hand, in DT, the a. Within, if located inside
determination is based on the location the Philippines; or
of the property, coined likewise as b. Without, if located outside
within or without. the Philippines;
2. Tangible personal property:
To what properties donors are taxed a. Within, if located inside
the Philippines; or
WITHIN WITHOUT b. Without, if located outside
RC the Philippines;
NRC Taxed
3. Intangible personal property:
RA
NRA Taxed
a. Within:
i. Franchise exercised
Double taxation in its broad sense in in the Philippines;
relation to DT ii. Shares, obligations,
and bonds issued
This is another example of double by:
taxation in the broad sense, when the 1. DC:
TP, as the case may be, donated the 2. FC having
property located within or without, it 85% of its
may happen that the taxing authority business
where he is a citizen or resident thereof here in the
may tax it as well. Philippines:
3. FC having
any of the
above
104 | P a g e
which have property without, as A is residing and a
acquired citizen of the USA?
Philippine
situs; and No, mobilia sequutur personam is
iii. Shares or rights in merely a general rule.
any of the
following which are As exceptions, Sec. 104 of the NIRC
situated in the provides that the intangible personal
Philippines: property shall be deemed as located in
1. Partnership the Philippines despite the TP’s being
; located outside of it, in the following
2. Business; instances:
or
3. Industry 1) Franchise exercised in the
(Sec. 104, Philippines;
NIRC) 2) Shares, obligations, and bonds
b. Without issued by:
i. If otherwise; or a. DC:
ii. Reciprocity rule c. FC having:
applies i. 85% of its business
here in the
Mobilia sequuntur personam Philippines: or
ii. FC having any of
It means that movable property follows the above which
the law of the person have acquired
Philippine situs;
Thus, with respect to intangible and
property, the property shall be deemed 3) Shares or rights in any of the
located where such person is domiciled following which are situated in the
Philippines:
Q: A, a citizen and resident of USA, is a a. Partnership;
stockholder of Php1M in XYZ Corp., a DC. b. Business; or
c. Industry
If A donates the Php1M shares of stock,
could it be taxed based on DT? In fine, with respect to DT, movables
may be considered as located in the
Yes, because A is an NRA which is Philippines despite the TP’s being
subjected to DT for those properties located outside the Philippines.
located within the Philippines donated.
Q: Is the above exception without any
The shares of stock issued by XYZ further exception to the effect that no DT
Corp. is considered as within, as it is may be imposed?
issued by a DC.
No, as an exception to the exception,
Q: But isn’t it that the rule is that despite the enumeration under Sec. 104
“movables follow the law of the person”, coming into play, no DT may be
and thus the share should be deemed as a imposed if the reciprocity rule
applies.
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Reciprocity rule Thus, despite an NRA’s being subject
to DT from donations of properties
Sec. 104. Definitions: located within, no DT may be imposed.
xxx Rationale of reciprocity rule
…Provided, still further, that no tax shall be Double taxation, while not prohibited,
collected under this Title in respect of is frowned upon.
intangible personal property:
Thus, the law provides valid remedies
(a) if the decedent at the time of his death or to reduce the impact of such.
the donor at the time of the donation was a
citizen and resident of a foreign country which Summary of rule pertaining to intangible
at the time of his death or donation did not personal property with respect to DT
impose a transfer tax of any character, in
respect of intangible personal property of GR: Mobilia sequuntur personam
citizens of the Philippines not residing in that (which actually has no effect on
foreign country, or DT, as it is NOT the governing
rule)
(b) if the laws of the foreign country of which
the decedent or donor was a citizen and ER: Sec. 104 enumeration, shall be
resident at the time of his death or donation considered as within, thus
allows a similar exemption from transfer or subject to DT
death taxes of every character or description in
respect of intangible personal property owned EER: Reciprocity rule
by citizens of the Philippines not residing in
that foreign country. Transfer for Less than Adequate and Full
Consideration (TLAFC)
In short, if the foreign country of
which the TP is a citizen does NOT Sec. 100. Transfer for Less Than Adequate
impose a similar tax on Filipinos, the and Full Consideration;
Philippines should not impose such tax Where property, other than real property
to their citizens as well referred to in Section 24(D), is transferred for
less than an adequate and full consideration in
Q: Assume, that the USA do not tax money or money's worth, then the amount by
Filipinos on DT with respect to intangible which the fair market value of the property
personal property issued by DCs of the exceeded the value of the consideration shall,
USA. for the purpose of the tax imposed by this
Chapter, be deemed a gift, and shall be
Should the Philippines tax A, considering included in computing the amount of gifts
that his shares of stock are issued by a DC made during the calendar year. Provided,
in the Philippines? however, That a sale, exchange, or other
transfer of property made in the ordinary
No, as the reciprocity rule applies in course of business (a transaction which is a
this case. bona fide, at arm’s length, free from any
donative intent), will be considered as made for
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an adequate and full consideration in money or Will DT attach to both sales, considering
money’s worth. that the sale is at a loss of Php80K each?
(NOTE: Nagbenta ka nang lugi, namigay No, DT would attach only to the sale
ka nang libre, subject to DT) of the watch for personal use.
Q: In 2017, W bought a watch priced at It is so, as the asset is capital in

Php150K. nature, specifically for his
personal use.
In 2021, the value of the watch is Php100K.
On the other hand, the sale of the
Is there a loss on the part of W? watch in his shop is NOT subject to
DT
No, as the Php50K pertains to usage
It is so, considering that the
Q: W sold the watch to M, at Php20K. asset is ordinary in nature, as it
Considering the FMV of Php100K, is there is his business to sell watches.
loss on the part of W?
One’s trade or business is
Yes, amounting to Php80K NOT subject to DT if sold at a
loss
Q What is the effect of W’s sale at lower the
FMV? Thus, as to sales at a loss, the rule is as
follows:
W has no income to speak of.
GR: Subject to DT
That there is no income, W deprived
the government of IT. ER: If the property sold at a
loss is related to the
Q: What is the government’s recourse with trade or business of the
respect to the loss of Php80K which would TP, no DT may be
have otherwise pertained to it by IT if the imposed
same was sold at higher the FMV?
Q: G owns a grocery. Among her products,
The government can impose DT on she sells Coke Mismo at Php7.50.
the loss, as it is deemed a donation.
As it is bound to expire, she decided to sell
Q: W has two (2) watches, both of which them at a “buy-1-take-1” promo of Php10.
have the FMV of Php100K.
Considering that after computation, she is
The first watch is for W’s personal use, selling at a loss of Php2.5 per Coke Mismo,
while the other watch is for selling, as he is is the Php2.5 subject to DT?
engaged in the sale of watches.
No, as the sale pertains to goods in the
Due to a sudden need for money, W sold ordinary course of G’s business.
both watches for Php20K each.
107 | P a g e
Allowable deductions in DT Q: Can Corporate TPs, specifically DCs,
donate political or campaign
Nowadays, there are only two (2) contributions?
allowable deductions for DT:
Yes, DCs may donate political or
1) Gifts in favor of governmental campaign contributions
agencies;
2) Donations in favor of charitable (NOTE: Under the Old Corporation
and other institutions Code, DCs cannot donate political or
campaign contributions.
DEDUCTION
Governmental In full As it stands, today, DCs may legally do
agencies
so)
Charitable and other In full, IF the donee did
institutions not use at least 30% of Q: On February 2021, X gave his son, S,
the donation for Php600K.
administrative purposes
Determine the DT.
Political or campaign contributions
X’s DT as of February is Php21K,
These are donations to political parties computed as follows:
or candidates for campaign purposes
Php600K (GD)
To be deemed as official campaign minus 0 (AD)
contributions, the following must Php600K (GD-AD)
concur: minus Php250K (Exempt)
Php350K (TNG)
1) The donation must be: multiplied by 6% (Tax rate)
a. For campaign purposes; Php21K (DT)
b. Made during the official minus 0 (PDT)
campaign period; Php21K (DTP)
c. Subjected to 5%CWHT;
d. NOT exceeding Php250K; (NOTE: Notice that there are no ADs,
and as no donation were made to
2) The party/candidate-donee, either Governmental agencies or Charitable
winning or losing, must state the and other institutions.
same in their Statement of
Contributions and Expenditures Likewise, there is no PDT, considering
(SOCE) and filed. that it is X’s first donation for the year
2021)
Effect of compliance with requisites
Q: To avoid animosity, X also gave his
The campaign contribution shall NOT envious son, T, on May 2021, also the
be subjected to DT amount of Php600K.
Effect of NON-compliance with requisites Compute the DT.
Everything shall be subjected to DT
108 | P a g e
X’s DT for this donation is Php36K, Php2.4M (GD)
computed as follows: minus 0 (AD)
Php2.4M (GD-AD)
Php1.2M (GD) minus Php250K (Exempt)
minus 0 (AD) Php2.150M (TNG)
Php1.2M (GD-AD) multiplied by 6% (Tax rate)
minus Php250K (Exempt) Php129K
Php950K (TNG) minus Php93K (PDT)
multiplied by 6% (Tax rate) Php36K (DTP)
Php57K
minus Php21K (PDT) (NOTE: Notice that the DTP for the
Php36K (DTP) 2nd to 4th donations are the same, except
the 1st one.
Q: As his daughter, U, is about to get
married in June 2021, X also gave her This means that the DT for the
Php600K. succeeding donations shall be the same
if the amount of the donations is one
Compute for the DT. and the same.)
X’s DT for this donation is likewise Q: Considering X’s sad experience of

Php36K, computed as follows: paying Php129K for his DT in 2021, X came
to you in 2022 seeking advice on how to
Php1.8M (GD) avoid having too much DT, as he intends
minus 0 (AD) to donate Php500K to W, his child from a
Php1.8M (GD-AD) previous marriage.
minus Php250K (Exempt)
Php1.550M (TNG) What would you advise?
Php93K I would suggest that he donates the
minus Php57K (PDT) Php250K sometime in 2022, and the
Php36K (DTP) other Php250K be donated in 2023.
(NOTE: Notice that in the PDT, the By this method, no DT may attach,
DT in February and in May were added considering that the Php250K
together, thus: exemption shall take play in both
donations.
Php21K (Feb DT)
plus Php36K (May DT) (NOTE: This is actually a tax
Php57K (PDT)) avoidance scheme)
Q: Finally, X also gave his youngest

daughter, V, Php600K, on October 2021 as
she is about to take the bar exams in
November 2021.
X’s DT for this donation is likewise

Php36K, computed as follows:
109 | P a g e
ESTATE TAX Q: In case of EsT, what is applicable,
calendar year, fiscal year, or both?
Q: Considering that the TP has already
died, is it correct to say that the TP is being None applies. Death only comes once
taxed? and only paid once.
No, as it is the estate itself which pays Thus, both do not apply in EsT.
for the taxes
Formula
Nature
The formula is as follows:
It refers to mortis causa transfer of
properties Gross Estate (GE)
minus AD
Q: Is there EsT on Corporations? Taxable net estate
(TNE)
No, as it refers to death of Individual multiplied by Tax rate
TPs. EsT
Practically, Corporations are not Tax rate

succeeded by an estate as there is no
physical death to speak of EsT is 6%
Subject matter (NOTE: Thus, both DT and EsT are

at 6%)
The subject matter may be:
6% in DT v. EsT
1) Real property;
2) Personal property: In DT, the 6% is applied on the excess
a. Tangible; or of the Php250K.
b. Intangible
On the other hand, in EsT, the
Basis of value Php250K exemption does NOT apply.
It depends on the value of the property (NOTE: Aside from the DT, be
at the time of death, as follows: reminded that the Php250K exemption
is likewise applicable to IT, specifically
1) Real property, whichever is in availing the 8%TG.
higher:
a. FMV; It can also be said that the exemption
b. Assessed value; or applies in the NIT schedule, with the
c. Zonal value; Php250K as minimum.)
2) Tangible personal property:
a. FMV; Q: For purpose of EsT, is there a need to
3) Intangible personal property: file a Notice of Death with the BIR?
a. FMV
No longer, the TRAIN Law already
removed such requirement
110 | P a g e
Kinds of decedent which have
acquired
The kinds of decedent are as follows: Philippine
situs; and
1) Citizens: iii. Shares or rights in
a. RC; any of the
b. NRC; following which are
2) Aliens: situated in the
a. RA; Philippines:
b. NRA 1. Partnership
;
Basis of taxability of property 2. Business;
or
Likewise with DT, the taxability of the 3. Industry
property is dependent on the location (Sec. 104,
(situs) of the property NIRC)
b. Without:
Location (situs) of property i. If otherwise; or
ii. Reciprocity rule
In determining the location of the applies
property, the following are the rules:
(NOTE: Take note on the
1. Real property: discussions on mobilia sequuntur
a. Within, if located inside personam, Sec. 104, NIRC, and
the Philippines; or reciprocity rule)
b. Without, if located outside
the Philippines; To what properties TPs taxed
2. Tangible personal property:
a. Within, if located inside WITHIN WITHOUT
the Philippines; or RC
NRC Taxed
b. Without, if located outside
RA
the Philippines; NRA Taxed
3. Intangible personal property:
a. Within: When payable
i. Franchise exercised
in the Philippines; EsT must be paid within one (1) year
ii. Shares, obligations, from death.
and bonds issued
by:
1. DC:
2. FC having
85% of its
business
here in the
Philippines:
3. FC having
any of the
above
111 | P a g e
DT v. EsT 3. FC having any
of the above which have
acquired Philippine situs;
The similarities and differences and
between the two are as follows: iii. Shares or rights in any of
the following which are situated in
DT EsT the Philippines:
Nature Transfer tax 1. Partnership;
2. Business; or
When transfer Inter vivos Mortis causa Industry
done (during (upon death)
lifetime) Without:
If otherwise; or
Who may be Individual TPs; Individual TPs Reciprocity rule
subjected to and
Corporate TPs Determination of GE (Items of Inclusion)
Kinds of TP RC
NRC The following are included in the GE:
RA
NRA 1) Interest:
a. Decedent’s; and
Rate 6% b. Prior;
Php250K Applicable NOT
2) Transfer:
exemption applicable a. In contemplation of death;
b. For insufficient
Subject matter Real property; consideration;
Tangible personal property; and c. Revocable;
Intangible personal property
3) Property passing under general
Basis of value At the time of At the time of power of appointment;
gift death 4) Proceeds of Life Insurance; and
5) Capital of the Surviving Spouse
Determinant Location (situs) of property
of taxability Q: Is it necessary to memorize the above?
Situs of Real property and tangible
property personal property: No, as the rule of thumb in EsT is that
whether or not there is a degree of
Within: If located in the control, right, ownership, or interest,
Philippines no matter how small, over the property
Without: If located outside the
Philippines
in question.
Intangible personal property: If yes, then include the

property in the GE.
Within:
i. Franchise exercised in If no, then it is NOT included

the Philippines;
ii. Shares, obligations, and Transfer in Contemplation of Death (TCD)
bonds issued by:
1. DC: It refers to the sale of property
2. FC having 85%
of its business here in the
considering because of the thought of
Philippines: impending death.
112 | P a g e
Transfer for Insufficient Consideration excluded in the GI, with the exception
(TIC) of interests thereon.
It refers to any of the following made As usual, the Government imposes its
with insufficient consideration: bawi-bawi system by imposing EsT
instead.)
1. TCD;
2. Revocable transfer; or Q: Is the above rule absolute?
3. Property passing under General
Power of Appointment No, as an exception, proceeds of a life
insurance policy may NOT be subject
Q: Considering that TIC is an item of to EsT if:
inclusion, does it refer to the insufficient
consideration itself? 1. If the designated beneficiary is
NOT any of the above; and
No, rather, the difference from the 2. The designation is irrevocable
FMV at the time of death (FMV-TOD)
less the insufficient consideration (IC) BENEFICIARY REVOCABILITY
Himself; or Revocable or
shall be included in the GE. Thus: His: irrevocable
Estate;
FMV-TOD Included Executor; or
Administrator
minus IC
TIC NOT any of the Revocable
Excluded above Irrevocable
Proceeds of Life Insurance Policy
Q: X went to you, considering your vast
Proceeds of life insurance policy are knowledge of taxation law, asking advise
included in the computation of GE on how to avoid taxes in giving inheritance
to W, A, B, and C, his surviving spouse and
Take note that, in the following three children, respectively.
situations, the proceeds shall still be
included in the GE: What would you advise?
1. If the designated beneficiary is: I would advise X to take a life insurance

a. Himself; or policy and designate W, A, B, and C as
b. Whether the designation is beneficiaries, with the following
revocable or irrevocable, conditions:
his:
i. Estate; 1. To NOT name them as:
ii. Executor; or a. Executors; or
iii. Administrator; b. Administrators; and
2. If the designated beneficiary is 2. The designation be irrevocable
NOT any of the above, and the
designation is revocable; By this, the proceeds shall have the
following effects:
(NOTE: Be reminded that in IT, the
proceeds of a life insurance policy are As to IT, it shall not be
included in the GI, as proceeds
113 | P a g e
of life insurance policy are Q: Why is there a necessity to include the
items of exclusion mortgaged property?
On the other hand, as to EsT, Because the property remains part of

it shall not be included in the the decedent’s estate, despite the
GE, as the exception to the encumbrance thereon, as he still owns
proceeds’ being part of the GE it.
comes into play.
Rule as to unpaid mortgage of NRAs
Allowable deductions
The rule as to NRAs is slightly
There are eleven (11) ADs in EsT: different, in that the deduction is in
proportion to the estate located within
1. Unpaid: the Philippines
a. Mortgage;
b. Taxes; Unpaid taxes
2. Casualty loss;
3. Claims against: Taxes survive the decedent, and thus,
a. The estate; despite his death it is still to be paid.
b. Insolvent person;
4. Transfer for public use; For this reason, EsT deducts such from
5. Conjugal share of the surviving the GE.
spouse;
6. Deduction: Casualty loss
a. Standard;
b. Vanishing; The requisites are as follows:
7. Family Home;
8. Retirement benefits 1) The loss must NOT be
compensated by insurance; and
(NOTE: Prior to TRAIN, there are 2) The loss must be caused by:
fourteen (14) ADs. The three (3) that a. Theft;
have been removed are: b. Robbery;
c. Embezzlement;
1. Judicial expense; d. Fire;
2. Funeral expense; and e. Storm;
3. Medical expense) f. Shipwreck; or
g. Other natural calamity
Unpaid mortgage characterized by
suddenness;
Considering the debtor-decedent died, 3) The casualty loss:
the following are the rules: a. Must be claimed within one
(1) year from the death of
1. Include the mortgaged property in the decedent; and
the GE; and b. Must NOT have been
2. Deduct the unpaid loan (to which previously claimed as AD
the mortgaged property served as in the decedent’s IT
security)
114 | P a g e
Q: During his lifetime, X, lost his gas range Q: If the decedent is an NRA, should the
used in his tapsilogan as it was stolen. deduction be in proportion to his estate in
the Philippines?
As such, he used it as a deduction in his IT
based on casualty loss. No, as the same is deductible in full
Unluckily, X died due to “Covid-19 Conjugal share of the surviving spouse

Ultimate Mega Super Duper Variant Made
in Wuhan China”. Share pertaining to the surviving
spouse in the conjugal assets of the
His heirs, A, B, and C, came to you, and spouses located in the Philippine are
remembered that the gas range was stolen, likewise deductible in full.
and asked if it can be claimed as an AD to
X’s EsT. Q: X and W, spouses, has a house and lot
in Denmark.
What would be your answer?
Sadly, X predeceased W, due to “Covid-19
I would, sadly, tell them that it can no Bwakanangbitch Whatchamacallit
longer be included as an AD to X’s Edition”.
EsT, considering that the same has
already been included as an AD to X’s In determining X’s EsT, should the house
IT during his lifetime. and lot in Denmark be deducted from his
GE?
Claims against the estate
No, as the same pertains to a conjugal
Considering that the debtor-decedent asset located outside the Philippines.
died, unpaid debts to creditors are
deemed as deductions to his GE, as it Standard deductions
is still bound to be paid.
This refers to an automatic Php5M
Claims against insolvent persons deduction from the GE.
Considering that the creditor-decedent However, as to an NRA, the deduction

died, the rule is as follows: is Php500K
1) Include in the GE the portion of STANDARD

the debt paid by the debtor; and DEDUCTION
RC
2) Exclude in the GE the portion of
NRC Php5M
the debt unpaid by the debtor RA
NRA Php500K
Transfer for public use
Family Home
Gifts in favor of the government are
deductible in full The deduction that may be claimed is
up to Php10M pertaining to the
(NOTE: Take notice that the same conjugal share of the deceased.
rule applies to DT)
115 | P a g e
Q: X, an NRA, died. EsT
For purpose of EsT, can the heirs claim Q: Considering that the same property is
deduction based on Family Home? being taxed twice, is there double taxation?
No, an NRA cannot have a Family Yes, specifically double taxation in its
Home broad sense
Retirement benefits Q: Considering, further, that double

taxations in its broad sense applies, is the
Likewise, the same should be added TP-decedent left without any remedy?
prior to being deducted.
No, as the TP-decedent may claim a
Q: Can an NRA have retirement benefits? deduction based on VD.
No, as it would be virtually impossible, It is the remedy provided by law to

as he is NOT in the country so prevent the impact of double taxation
therefore no retirement benefits can be in its broad sense.
given to him.
Q: How would you apply VD to the present
If indeed he did receive such, it is more case?
likely that he is an RA.
I would deduct to the estate of the
Vanishing deductions (VD) present decedent (A) the previously
paid EsT of the prior decedent (X).
It applies when the property is
previously taxed, and the requisites are Basis of VD’s value
as follows:
It shall be based on the period of time
1) The property must be identified; between the death of the prior and
2) That the EsT for the prior estate is present decedent.
paid; and
3) The computation is for the EsT of FROM TO VD
the current decedent 0 1 year 100%
a. This is where the VD shall 1 year 2 years 80%
2 years 3 years 60%
be allowed 3 years 4 years 40%
4 years 5 years 20%
Q: X owns a house and lot. After X’s death, 5 years Beyond 0%
the house and lot went to A, his son.
(NOTE: This is why it is called as
What tax would apply to X’s house and lot? “vanishing”, as it “vanishes” as time
goes by”)
EsT
Q: After a few decades, A died.
What tax would apply to A’s house and lot?
116 | P a g e
REMEDIES FOR NATIONAL TAXES i. GR: 15th of April of
the following year;
Cause of action ii. ER: 28th of
February of the
It is the government’s collection of following year, in
taxes from the TP. case of substituted
filing;
(NOTE: Thus, there are no counter- b. SEP/I or MIE, VAT,
claimants, 3rd (4th, etc.) party claimant, and 8%TG:
etc.) i. Quarterly returns,
on or before:
Starting point 1. 15th of May;
2. 15th of
It starts from the TPs filing of a return, August;
as ALL national taxes are self-assessed 3. 15th of
taxes. November;
and
By self-assessed taxes, the TPs 4. 15th of
compute the taxes themselves. April of the
following
(NOTE: Compared to local taxes, year (Final
which are automatically assessed) Consolida
ted Return
Returns (FCR))
2. Corporation:
It is a verified statement prepared by a. First three quarters:
the TPs providing the material i. Within 60 days
information relevant for the taxes to be from close of the
paid. quarter;
b. FCR:
All internal revenue taxes require a i. Calendar year, on
return. or before:
1. 15th of
(NOTE: The topics discussed in IT, April of the
DT, and EsT, shall appear in the following
returns.) year;
ii. Fiscal year, on or
When paid before:
1. 15th day of
It is paid as soon as filed, thus “pay- the 4th
as-you-file taxes” month
following
Due dates the close of
the fiscal
The filing of the returns, are as follows: year.
3. CGT:
1. Individuals: a. Within 30 days from the
a. CIE: sale;
117 | P a g e
4. DT: Aside from his taxes, the following
a. Within 30 days from gift; shall attach:
5. ET:
a. Within 1 year from death 1. 25% penalty; and
2. 12% interest per annum for one (1)
Substituted filing day
It is the filing of the returns done by the Q: If X was fraudulent or in bad faith in
ER in favor of the EE. belatedly filing his returns, what is the
effect?
It is available in case the EE only has
one ER for the whole taxable year. Aside from his taxes, the following
shall attach:
The returns filed by the ER shall serve
as a substitute to the returns supposed 1. 50% surcharge; and
to be filed by the EE. 2. 12% interest per annum for one (1)
day
Q: Y worked as a CIE for X from January
to June 2021. From July to December 2021, Q: If X already filed a return, can he amend
Y worked for W. it?
May X, W, or both, file the returns for Y? Yes, but the following should be
attached together:
No, as substituted filing is available
only in case a CIE has one ER for the 1. Original return; and
whole year. 2. Amended return
Effect of belated filing When amendment of returns allowed
The following attaches to the taxes to It is allowed within three (3) years from
be paid: date of filing of the original return,
provided the no Notice of
1. Penalties: Investigation (NOI) has been received
a. Without fraud or bad by the TP.
faith:
i. 25% penalty; or The reason for no amendment
b. With fraud or bad faith: allowed after receipt of NOI is
i. 50% surcharge; to avoid the situation where the
2. Interest of double the legal interest amendment will just change the
for each day: matter subject of the
a. As of 2018, this would be investigation.
12% considering that the
legal interest is 6% (NOTE: NOI and Letter of Authority
are one and the same)
Q: X, a SEI, filed his first returns on 16th of
May 2021. Q: X filed his FCR on 15 April 2021. On the
16th of April 2022, he filed his amended
What is the effect?
118 | P a g e
return of the FCR dated 15 April 2021, Effect of no return filed
attaching it thereto.
The BIR has the power to file the
Can the amendment be allowed? returns in the TPs behalf
Yes, as it is still within three (3) years Where filed

from the date of filing of the original
It shall be filed with the respective
Q: X filed his FCR on 15 April 2021. On the Revenue District Office (RDO) of the
16th of April 2024, he filed his amended Regional Office (RO) having
return of the FCR dated 15 April 2021, jurisdiction over the vicinity of the TP
Q: X is a TP within the jurisdiction of ABC
Can the amendment be allowed? RDO.
No, as an amendment is allowed only If X filed his returns and paid his taxes in
within three (3) years from the date of the adjacent RDO, which is DEF RDO, is
the filing of the original returns it correct to say that X properly filed his
returns and paid his taxes?
Q: X filed his FCR on 15 April 2021. On the
16th of April 2022, he filed his amended No, as payment in the wrong venue
return of the FCR dated 15 April 2021, amounts to non-payment.
Actions of BIR upon receipt of returns
A day prior to the said filing, specifically on
15 April 2022, X received an NOI. Upon receipt of the returns and study
of such, The BIR may do any of the
Can the amendment be allowed? following:
No, as no amendment can be done if 1. If found correct, then nothing has

an NOI has already been received by to be done;
the TP 2. If found incorrect, incomplete, or
doubtful, the BIR may proceed to
Situations that may happen in the filing of investigation by:
returns
Procedure if found incorrect, incomplete,
There may be different situations with or doubtful
respect to returns:
The following shall be done:
1. Return filed:
a. Done in: 1. Issuance of the Letter of
i. Good faith; or Authority (LOA)/NOI as the
ii. Bad faith starting point of investigation;
(fraudulently); or a. Thus, the TP shall be required
2. No return filed to produce documents via
subpoena;
2. If an error is found in the
documents provided, the BIR shall
119 | P a g e
issue a Preliminary Assessment the estimated
Notice (PAN); tax liabilities
i. The TP is ordered to for the taxable
reply within fifteen quarter or
(15) days from receipt quarters of the
thereof; succeeding
ii. However, there are taxable year;
instances where a PAN and
is NOT required, under 5. The article
Sec. 228, NIRC, locally
when: purchased or
1. ExT are imported by an
involved; exempt person,
2. There is a such as, but not
discrepancy in limited to,
the vehicles, capital
withholding tax equipment,
as appearing machineries
the in the and spare parts,
returns as has been sold,
compared to traded or
the transferred to
withholding tax non-exempt
already persons
remitted 3. The BIR shall issue a Final
3. There is a Assessment Notice (FAN):
mathematical a. In case a PAN was issued:
error in the i. Whether or not a reply
computation as was received,; or
appearing on b. Sec. 228:
the face of the i. Despite no PAN
returns (e.g. issued, FAN is issued
1+1=5);
4. A taxpayer who RETURNS
opted to claim Valid Doubtful
a refund or tax
credit of excess STOP LOA/NOI
creditable
withholding tax
for a taxable PAN Art. 228,
period was NIRC
determined to
have carried
FAN
over and
automatically
applied the
same amount
claimed against
120 | P a g e
Effect if procedure NOT complied by BIR The BIR may issue a FAN up until 15th
of May 2024, as it may be issued within
The FAN shall be invalid, as there is a three (3) years from due date,
denial of due process. considering that X filed the returns in
good faith before the due date.
Prescriptive period for BIR to issue a FAN
Q: X, an SEI, filed his first returns on 25th
It would depend: of June 2021.
1. TP filed in good faith: For purpose of issuing a FAN, up to when

a. On or before due date: can the BIR do so?
i. Within 3 years from
due date The BIR may issue up until 25 June
b. Beyond due date: 2024, as it is reckoned from the date of
i. Within 3 years from actual filing, considering that X filed in
actual date of filing good faith beyond the due date.
2. TP filed fraudulently or in bad
faith: Q: X, an SEI, filed his first returns on 25th
a. Within 10 years from discovery of June 2021.
of the filing of the fraudulent
return On 25 June 2032, the BIR issued a FAN as
3. TP did not file a return: they just found out on the same year that X
a. No FAN, but rather to file a fraudulently filed a return.
return on the TPs behalf; or
b. Issue a FAN within 10 years X contested the issuance, on the ground
from discovery of non-filing that ten (10) year have already elapsed from
the time he had filed the returns subject of
PERIOD RECKO-
NING
ALTERNATIVE
the FAN. Is X correct?
POINT
Filed On or From due
in before date No, as the BIR may issue a FAN due
good due Within 3
faith date years to a fraudulent or in bad faith filing of
Beyond From actual returns within ten (10) years from the
due date of filing
date date of the discovery.
Filed From
fraudulently or in discovery
bad faith Directly
collect
of
filing
the Thus, that the BIR found out in 25 May
taxes 2032, the BIR can actually file until 25
Within 10 From within From
Did not file years discovery 10 years discovery May 2042.
of the
non-
filing (NOTE: Thus, in case of fraudulent or
File a return on
behalf of the TP in bad faith filing, the date of actual
filing is irrelevant.)
Q: X, an SEI, filed his first returns on 13th
of May 2021. Q: The BIR, instead of issuing a FAN
against X due to the fraudulent filing,
For purpose of issuing a FAN, up to when opted to collect tax from X.
can the BIR do so?
121 | P a g e
X contested the action of the BIR, as he 3. Directly collecting the taxes from
said that there should be a FAN before the TP
collection may be done.
Requisites of a valid FAN
Is X correct?
To be valid, the following must concur:
No, as the BIR has the alternative
remedy of directly collecting the tax 1. It must be in writing;
from X instead of issuing a FAN. 2. It must be addressed to the TP, as
declared in the returns and as
Q: Assume that X, instead, did not file a registered in the BIR:
return. 3. It must provide the
a. Basis in fact and in law of the
For this reason, the BIR filed a return for tax due:
X. i. Thus it must state:
1. The tax being
X contested the same, arguing that the BIR collected; and
should have issued a FAN rather than the 2. The period to
BIR’s filing of a return on his behalf. collect such
b. Amount of the tax due:
Is X correct? i. Breakdown of the
amount (including
No, as the BIR has the alternative penalties, basic
remedy of filing the returns on the amount, etc.)
behalf of the non-filing TP. 4. There must be a:
a. Demand to pay;
Q: If instead, the BIR issued a FAN due to b. Due date of when to pay
X’s non-filing, is the BIR valid in doing so? 5. Signed by BIR’s duly authorized
representative; and
Yes, as the BIR has alternative 6. Validly served to the TP
remedies in case of TPs who failed to
file a return, to wit: Q: X registered to the BIR that he is a
resident of 123 Numero St., Quezon City.
1. File returns on behalf of the TP; or
2. Issue a FAN If a FAN is to be issued, where should the
BIR address such?
Q: If instead, the BIR directly collected
taxes from X due to his non-filing, is the It should be addressed to the address
BIR valid in doing so? as appearing in the returns and BIR
records.
Yes, as the BIR also has the alternative
of directly collecting the taxes from X. Thus, it should be addressed to 123
Numero St., Quezon City.
Thus, in case of non-filing of a return,
the remedies are as follows: Q: After ten (10) years, X changed his
address to 456 Numbers St., Quezon City.
1. File returns on behalf of the TP;
2. Issue a FAN; or
122 | P a g e
Is BIR obligated to know by itself the new He must go to the residence of X, and
address and register the same? ask if X is indeed there.
No, rather, it is X’s obligation to Upon confirmation that the person is

inform the BIR of such change in the indeed X, the FAN is served to him.
address.
M must make X sign that the FAN has
Q: If X did not inform the BIR of such been served to him and indicating the
change, and the BIR issued a FAN to the date of receipt
old address, is the FAN valid or not?
Q: Upon arrival, M was informed by W,
It is valid, considering that in the wife of X, that X is currently in his province
records of the BIR, the old address is and will be gone for three (3) weeks.
still the one appearing thereon.
What must M do to effect the service?
Thus, the BIR has all the right to
believe that it is still indeed the address M may do a substituted service
of X.
Requisites of substituted service
How FAN served
For substituted service to be valid, the
It may be served by: following must concur:
1. Personal service; 1. The person to whom the FAN

2. Substituted service; or shall be left is of sufficient
3. Tender; discretion; and
4. Registered mail 2. It must be witnessed (e.g. barangay
kagawad)
(NOTE: It is somewhat the same with
Service of Summons under the Rules Q: It was found that W, to whom
of Court.) substituted service was effected, graduated
only as an elementary student, and never
Q: Is the above enumeration hierarchical, went to high school.
to the extent that there is a preferred mode
of service? Is the service of the FAN invalid,
considering the educational background of
No, any of the modes may be availed W?
despite no resort to prior ones first.
No, sufficient discretion merely
Thus, whatever is convenient. means that the person understands the
consequence of the document to be
Q: M, messenger of BIR, is duty bound to received.
serve the FAN to X.
It does not refer to one’s educational
If he is to serve them personally, what must background.
M do?
123 | P a g e
Q: If instead, W was a law student, and Yes, service of FAN is not strict as to
knows indeed that it is a FAN, and for such the mode.
reason W refused receipt of FAN.
It is sufficient that there is proof that
If you were M, what would you do? indeed the FAN was received by the
TP.
I would leave the same to the vicinity,
and execute an affidavit stating the Q: X filed his first return on 15 May 2021.
circumstances of the refusal. As the BIR found the return doubtful, it
issued a FAN on 15 May 2024.
Likewise, I would require the witnesses
to execute an affidavit attesting to the The FAN was served to X on 25 May 2024.
circumstances of the refusal.
X contests the validity of the FAN, as the
Q: If instead it was it was X who refused, service was done beyond the prescriptive
what would you do? period of three (3) years. Is X correct?
I would still do the same as above. No, as the prescriptive period merely
refers to the issuance of the FAN.
Q: Aside from X, M is bound to deliver a
FAN to ABC Corporation. The service may be done even after the
lapse of the prescriptive period, as long
To whom should the FAN be addressed as the FAN was issued within the
and delivered? prescriptive period.
It should be delivered to any of the Effect of expiration of periods

officers of the Corporation, in the
principal office as registered in the It has the effect of prohibiting the BIR
records of the BIR. to assess and question the returns of
the TP.
Q: If none of the officers of the Corporation
are present, what should M do? By the expiration, the government no
longer has the right to collect taxes.
M may effect substituted service to any
of the EEs of the Corporation. Q: Assume that the prescriptive periods are
about to expire, what may the BIR do?
Q: If M is sick, but the BIR needs to deliver
the FAN to X, what could BIR do if M is The BIR may require the TP to execute
the sole messenger of the BIR? a waiver
It may send the FAN through Waiver

registered mail.
A waiver is a contract between the TP
To prove that indeed it was received, and the BIR to authorize the latter to
the registry receipt must be shown. issue a FAN beyond the prescriptive
periods.
Q: If BIR is in a rush, could they be allowed
to avail of a fast courier service (e.g. LBC)?
124 | P a g e
Specifically, the TP is waiving Period of extension
his right to be assessed ONLY
within the prescriptive period. The law does not specify, thus as long
as the TP and BIR agrees on the date,
With it, it is allowance to the then it shall be valid
BIR to issue a FAN even
beyond the prescriptive period. Q: X and the BIR entered into a waiver,
allowing the latter to collect taxes from the
Requisites of a valid waiver former for three (3) years beyond the
prescriptive period.
The requisites are as follows:
Thus, the BIR issued the FAN on the last
1. It must be in writing; day of the three (3) year period.
2. It is done prior to the expiration of
the period; However, the FAN was served only after
3. The following must appear on the five (5) days from the lapse of the agreed
face of the waiver: period.
a. TP’s:
i. Signature; and X contests the validity of the FAN, as it was
ii. Date of execution; served beyond the three (3) year period
b. BIR: agreed upon. Is X correct?
i. Officer’s signature; and
ii. Date of acceptance No, as the agreed period refers only to
4. Duly notarized; the issuance of the FAN.
5. In three (3) copies, each kept by
the: Thus, as long as the FAN is issued
a. TP; within the period, the belated serving
b. Records of the case; and will not affect its validity.
c. BIR
Protests
Effect if any one of the requisites is absent
This is a remedy available to the TP
The waiver shall be invalid, and the against the FAN. The kinds are as
right of the BIR to collect taxes shall follows:
NOT be extended
1. Administrative; and
Importance of dates in the waiver 2. Judicial
It is so, considering that the waiver Q: Are the above remedies in the
must be executed and accepted prior to alternative?
the expiration of the period.
No, rather they are successive.
(NOTE: There is nothing to extend if
already expired) Thus, resort to administrative protest
must first be done prior to judicial
protest
125 | P a g e
Remedy of TP after receipt of FAN No, as, again, the period is non-
extendible
The TP may file an administrative
protest within 30 days from receipt of Possible actions of BIR after filing of
the FAN protest
Q: Upon receipt of X of the LOA/NOI, he The BIR may:

filed a protest. Did X avail the correct
remedy? 1. Deem it as filed, if determined as
complete; or
No, as a protest is allowed only against 2. Require the TP to produce
a FAN documents which are lacking
within a period of 60 days
Q: Upon receipt of X of the PAN, he filed a
protest. Did X avail the correct remedy? Actions of the BIR on the administrative
protest
No, as a protest is allowed only against
a FAN The BIR may:
Kinds of administrative protest 1. Deny;

2. Grant;
The kinds are as follows: 3. Partly:
a. Deny; and
1. Motion for Reconsideration: b. Grant; or
a. In such a protest, the TP is 4. Sit on it
NOT providing additional
documents; or Issuance if denied, granted, or partly
2. Motion for Reinvestigation: granted and denied
a. In such protest, the TP is
providing additional It is a Final Letter of Demand (FLD)
documents
BIR sits on it
Q: Can the thirty (30) day period to file an
administrative protest be extended? It refers to non-action within 180 days
No, the thirty (30) day period is non- Q: After receipt of the FAN, X filed his
extendible administrative protest on the 12th day from
receipt thereof.
(NOTE: Take note, however, that if
the last day falls on a weekend or a The BIR determined that the documents
holiday, the period is “extendible” up are complete.
until the next working day.)
For purpose of determining whether the
Q: Would your answer be the same if the BIR sat on the protest, should the counting
TP raises a supervening event to extend the of the 180 days be counted from the 30th day
period? from the receipt of the FAN?
126 | P a g e
No, the counting shall begin from the a. Judicial protest, within 30 days
day of the filing. from the expiration of the 180
day period; or
Q: If instead, the BIR found the protest to b. To wait for the decision of the
be incomplete and thus ordered X to BIR
produce documents.
Judicial protest
X complained that the BIR did not specify
what documents are needed. It is the remedy available to the TP
against a decision denying or partly
Is X justified in doing so? denying the FAN, or in case of non-
action of the BIR.
No, the BIR would not specify the
lacking documents. The judicial protest is filed with the
Court of Tax Appeals (CTA) division.
It is so, as the one who protested is the
TP, and thus he himself knows what is Q: After the expiration of the 180 days
lacking. period for the non-action of the BIR, X did
not file a judicial protest within 30 days, but
Q: If X submitted, by mail, the documents instead waited for the decision of the BIR,
on the 48th day from the BIR’s requiring of which was issued on the 32nd day after the
the submission of the documents, and the expiry of the 180-day period.
BIR received the same on the 55th day,
should the 180 days for the non-action be Considering that X obtained an adverse
counted on the 48th or the 55th day? decision, may X file a judicial protest
against such decision?
It should be on the 55th day, because it
should be counted on the day of receipt No longer, as the consequence of
by the BIR, NOT on the day that the waiting for the BIR decision after the
same was submitted. expiration of the 180-day period and
no judicial protest is filed is that the
Effect of BIR action BIR decision cannot be protested
against.
It is the end of the line for the TPs
administrative protest Q: May the BIR judicially protest?
Options of the TP upon denial, partly No, it is against logic that the BIR will
denying, or non-action of BIR protest against its own decision.
The options available to the TP are as For this reason, only the TP may avail
follows: a judicial protest.
1. Denial or partly denial of

protest:
a. Judicial protest, within 30 days
from receipt of the order
denying or partly denying;
2. Non-action of the BIR:
127 | P a g e
Comparison of administrative v. judicial Q: The BIR received an adverse decision
protest from the CTA division.
ADMIN JUDICIAL As the BIR is quite sure that their

Available to TP argument will defeat that of the TP, they
Against FAN Decision Non- did not file an MR or MNT with the CTA
denying action
or of BIR division and thus went straight to the CTA
partially on the en banc.
denying protest
protest; Is the BIR correct in doing so?
or
Jurisdiction BIR CTA division No, as the filing with the CTA en banc
requires a prior MR or MNT with the
Period to file Within 30 days CTA division, as a condition sine qua
non
Reckoning From receipt From From
point of FAN receipt lapse of
of 180
Remedy of BIR and/or TP against CTA en
order days bank decision
Actions of the CTA division The BIR and/or the TP may file a
Petition for Review on Certiorari (Rule
The CTA division may: 45)
1. Deny;
2. Grant: or
3. Partly:
a. Grant; and
b. Deny
Remedy of BIR and/or TP against CTA

division decision
The BIR and/or TP may file any of the

following, within 15 days from receipt
of the decision:
1. Motion for reconsideration (MR);

or
2. Motion for new trial (MNT)
Remedy of BIR and/or TP against denial

of MR or MNT
The BIR and/or TP may file a Petition

for Review (Rule 43) with the CTA en
banc
128 | P a g e
Summary of remedies Modes of collection
FAN The modes of collection may be:

30 days
from 1. Administrative; or
receipt
2. Judicial
ADMINISTRATIVE
PROTEST (TP TO BIR) ADMIN JUDICIAL
Nature Warrant of distraint Civil case; and
Order Non- Warrant of levy; Criminal case
denying action Compromise;
or Forfeiture;
for 180 Garnishment
partially days
denying
Waiting Periods of administrative collection
30 days 30 days
from from lapse
for BIR
receipt Decision PERIOD TO PERIOD TO
ISSUE FAN COLLECT
Filed On or From
Order in before due
JUDICIAL PROTEST good due Within date
denying faith date 3 years
(TP TO CTA division) Beyond From
or FAN due actual Within 5 years from
15 days Deny, grant, or
from
partially ISSUED date date
of
receipt of FAN
partially grant denying filing
receipt and deny Filed fraudulently
or in bad faith Within 10 years
from discovery
PETITION FOR Did not file
REVIEW UNDER RULE NO REMEDY Valid waiver Period agreed

43 (TP, BIR, OR BOTH, upon
Filed fraudulently From
TO CTA EN BANC) or in bad faith discovery
15 days Deny, grant, or of
Within fraudulent
from partially grant NO FAN 10 or in bad
receipt and deny ISSUED years faith filing
Did not file From
PETITION FOR discovery
of non-
REVIEW ON filing
CERTIORARI UNDER
RULE 45 (TP, BIR, OR In sum, the period of collection are as
BOTH, TO SC)
follows:
Q: During the proceedings, the BIR 1. FAN issued:
collected taxes from X. a. Within 5 years from receipt of
FAN, in the following
X contests the same on the ground that the instances:
collection of taxes is dependent on the i. Filed in good faith,
order in the protest case. whether:
1. On due date; or
Is X correct? 2. Beyond due
date;
No, as the collection of taxes is ii. Filed fraudulently or in
independent from protest proceedings. bad faith;
iii. Non-filing; or
It is so, considering that taxes are the iv. Within period of valid
lifeblood of the government, no waiver
injunction order may prevent its 2. No FAN issued:
collection
129 | P a g e
a. Within 10 years from discovery sufficient discretion, no
of: property could be located;
i. Fraudulent or bad faith and
filing; or 5. TP is outside the
ii. Non-filing Philippines (Sec. 223,
NIRC)
(NOTE: The above periods may be
subjected to suspension under Sec. When suspension stops (when period
223, NIRC) resumes to run)
Q: Considering that the collection may be The period resumes to run as soon as
done despite an existing protest, what is the ground for the suspension ceases.
the rule as to the running of the period to
collect taxes? Q: X’s returns filed in 2021 indicates that
his address is 123 Numero St., Quezon
GR: Running of period to collect is City.
NOT suspended, as collection
of taxes is NOT suspended, However, he changed his address to 456
considering that taxes are the Numbers St., Quezon City.
lifeblood of the government
In 2024, the BIR found that X fraudulently
ER: The period to collect is filed his returns, but by reason of laziness
suspended, in the following the BIR only collected the taxes from X on
cases: 2033.
1. When the CIR is Thus, in 2033, BIR served X with the notice
prohibited from making that his taxes are being collected, in 123
assessment Numero St., Quezon City, but he is not
a. Beginning: found there.
i. Distraint;
ii. Levy; or Eventually, in 2035, the BIR successfully
iii. Proceeding in found and served the collection to X in 456
court; Numbers St., Quezon City.
b. Up until:
i. 60 days after X claims that the BIR’s right to do so has
any of the already prescribed, as 10 years have passed
above; from the discovery of the fraudulent filing.
2. Reinvestigation requested
by the TP and granted by Is X correct?
the CIR;
3. TP cannot be found in No, X is incorrect.
location indicated in
returns; The non-informing by X to the BIR
4. Despite the warrant of has the effect of suspending the statute
distraint or levy’s service to of limitations.
the TP, his authorized
representative, or member
of household with
130 | P a g e
Q: X’s returns filed in 2021 indicates that exclusive of penalties, interests, and
his address is 123 Numero St., Quezon surcharges, as follows:
City.
MTC: Does not exceed Php400K if
However, he changed his address to 456 within Metro Manila (MM); or
Numbers St., Quezon City, and informed Does not exceed Php300K if
the BIR in 2023. outside MM;
In 2024, the BIR found that X fraudulently RTC: Exceeds Php400K if within
filed his returns, but by reason of laziness MM; or
the BIR only collected the taxes from X on Exceeds Php300K if outside
2033. MM
Thus, in 2033, BIR served X with the notice CTA

that his taxes are being collected, in 123 division: If Php1M and above
Numero St., Quezon City, but he is not
WITHIN MM
found there. MTC 400K RTC
1M
CTA
300K
OUTSIDE MM 1M
Eventually, the BIR corrected itself and
served the collection on 456 Numbers St., Q: X, a TP registered in Quezon City, has
Quezon City, as they found that indeed X a tax due of Php300K, Php50K penalty,
informed them of the change in the Php50K surcharge, and Php40K interest,
address. thus totaling Php450K.
X claims that the BIR’s right to do so has The BIR filed a civil collection case with
already prescribed, as 10 years have passed the RTC.
from the discovery of the fraudulent filing.
X questioned the jurisdiction of the RTC.
BIR on the other hand, claims that due to If you were the Judge, how would you
the change in the address, the running of decide?
the period was suspended.
I would rule in favor of X, declaring
Is X correct? that the RTC has no jurisdiction over
the case.
Yes, the period of collecting was NOT
suspended, considering that X In ruling so, I would hold that the
informed them of the change in the proper jurisdiction is with the MTC, as
address. the jurisdictional value is based solely
on the tax due, which is Php300K.
Thus, the suspension of the period
would NOT apply Q: Assume, instead, that X has a tax due of
Php1M, and the BIR filed the civil
Original jurisdiction as to civil collection collection case in the RTC.
case
Considering that the tax due exceeds
The exclusive original jurisdiction shall Php400K, is the BIR correct in filing the
depend on the amount of the tax due, civil collection case with the RTC?
131 | P a g e
No, as the proper court should be the 1. Resulting in tax deficiency; or
CTA, as it has exclusive original 2. Not resulting in tax deficiency
jurisdiction over civil collection cases
where the tax due is Php1M or higher. Q: Which among the two is a mode of
collection for the BIR?
Appellate jurisdiction as to civil collection
cases It is a criminal case which results to tax
deficiency
MTC RTC CTA ORIGINAL
division FILING Where filed
RTC CTA CTA
division en banc In case of one resulting in tax
deficiency:
CTA CTA SC
en banc en banc
CTA has exclusive original
jurisdiction when the principal
SC SC tax due is Php1M exclusive of
penalties, interests, and
When MNT available in CTA division surcharges.
An MNT is available only in case the Otherwise, it may be the RTC

CTA division acted in its exclusive or the MTC, based on the
original jurisdiction. jurisdictional values.
There is no MNT to speak of in case it If it is one which do NOT result in tax

acted in its appellate jurisdiction, deficiency:
considering that the trial was done by
either the MTC or RTC. It shall be the RTC or MTC,
based on the prescribed
Importance of MNT penalty.
An MNT is required in case an appeal 6y1d for RTC, while 6y

is to be made with the CTA en banc. below for MTC
It is a condition sine qua non. Q: Can a criminal case which has no tax
deficiency as a result be filed with the
Q: If a case reaches the CTA en banc, is it CTA?
required that an MNT be availed prior to
appeal to the SC? No, as it does NOT exercise
jurisdiction over such.
No, an MNT is NOT a condition sine
qua non to the filing of an appeal with In such a case, its jurisdiction is merely
the SC appellate.
Kinds of criminal cases for tax purposes Types of refund
The kinds are as follows: The types are as follows:
132 | P a g e
1. Ordinary claim for refund; and administrative
2. Refund of excess input VAT in refund
ZRT Jurisdiction BIR CTA division
Grounds for refund Q: Is there non-action with respect to

administrative refund?
The following are the grounds:
No
1. Illegally:
a. Assessed; or Q: X filed an administrative refund on the
b. Collected; 3rd to the last day of the 2-year period.
2. Erroneously:
a. Assessed; or The following day, specifically on the 2nd to
b. Collected the last day of the 2-year period, the BIR
denied the refund.
The assessment and/or collection by
the government is tainted with fraud or Considering that the TP may file a judicial
bad faith refund within 30 days from the denial of the
refund by the BIR, is it correct to say that
Stages X has 30 days to do so?
The stages of refund are, once again: No, as the same should be within the
2-year period.
1. Administrative; and
2. Judicial Thus, despite the 30-day period, X only
has a day left to file a judicial refund.
Requirement
Period to file refund for excess input VAT
No refund may be done judicially, if in ZRT
administrative refund has not been
resorted to yet. ADMIN JUDICIAL
Period Within 2 years Within 30 days
(NOTE: They are, once again, from close of from receipt of
successive, and NOT alternative) the quarter the order
where the ZRT denying the
occurred refund
Administrative v. judicial refund for
ordinary claim for refund Jurisdiction BIR CTA division
ADMIN JUDICIAL Q: X is a VAT registered TP.

Period Within 2 years Within 30 days
from payment from receipt of
the order As X had a ZRT on 14 February 2021, he
denying the has an excess input of Php25K as of 31
refund, which March 2021.
must be filed
within the same
2-year period of Up to when may X claim an administrative
the refund of the excess input on the ZRT?
133 | P a g e
X may file an administrative refund up
until 31 March 2023
Duty of BIR upon receipt of claim for

administrative refund of the excess input
on the ZRT
To decide within 90 days from filing
(NOTE: Thus, non-action is not

allowed, and the option of waiting for
the BIR decision is likewise not
applicable)
134 | P a g e

General Principles AND National Taxation: As Lectured by Atty. Rizalina Lumbera

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General Principles AND National Taxation: As Lectured by Atty. Rizalina Lumbera

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GENERAL

The following are the materials used for this work:

NATIONAL TAXATION ………………………………………………………………. 2

INCOME TAX …………………………………………………………………………… 4

DONOR’S TAX …………………………………………………………………………...103

ESTATE TAX ……………………………………………………………………………. 110

REMEDIES FOR NATIONAL TAXES ………………………………………………. 117

Q: X earns money as a call-center agent. It is DT, as it is a donation to another,

As X now runs a business, what tax should

ExT, as he engages in the production

Q: Considering the numerous transactions

X should pay DST

Q: Eventually X died. What tax should

Basis Income is anything that flows into the

To compute for the GI, the COS must

Not over P250,000………………… 0%

The tax on the GI shall be subjected to Effect if nothing received

Q: Why is the 8% tax rate applied to the GI Is it taxable?

Questions to be Answered Classification of income TPs (depending

1. Did you receive anything? 1. Individuals:

Q: Z is the sole proprietor of Gawa-Gawa BBC shall be classified as a CTP,

Q: Curacha is a lawyer, working as a If income is earned from T/N or EOP,

1. Individuals: Section 23. General Principles of Income

For purpose of taxation, there are two

(1) A citizen of the Philippines Thus, the following citizens are

(E) The term ‘non-resident citizen’ means: Taxable Period

xxx Q: X is a Filipino Citizen who migrated to

Q: X is a Filipino Citizen living in Quezon xxx

RC RC (G) The term ‘non-resident alien’ means an

Indicators of whether or not an NRA is

If any of the following concurs, the

1. Aggregate period of more than

The NRA shall be considered as (NOTE: In layman’s term, they are

Q: Why is there a subclassification of Rule in classifying NRA-NET/B

DC (NOTE: In essence, RFCs and

(D) The term ‘foreign’ when applied to a

Within v. Without a) From a domestic

It would depend on the issuing Q: XYZ Corp. is an RFC, formed and

FC: GR: Within W, a Filipino citizen residing therein, is a

Illustration of taxability of dividends Second, determine the 50% of the TI,

Thus, the SHs acquires income by TI x 50%

(NOTE: It is akin to compensation for In short, as long as the income interest

These are income which cannot be Implication of DTBS’ being “frowned

The kinds of double taxation are: DT with respect to sources of income

On the other hand, with respect to Rule as to taxability of income

Q: What kind of DT represents the taxation Flow to be observed

(a) On the taxable income No, as the sale must be untraded.

Requisites for Capital Gains on Sale of

The following must concur to be

1) The stock is issued by a DC;

Summary of VAT applicability to Q: Lucio is an SEI. He started his business

ER: 8%TG, if: No, as once a choice was exercised, it

Where 8% applied to On the other hand, as to the income

Jules’ income of Php750K shall be Php4M (CIE)

Q: If Jules is an MIE, with a Php4M Q: Considering that in the above problem,

In fact, this exemption is much

Interest Foreign currency 15% (NOTE: The same rule applies, if X is

Said deposit account produced interests. No, as an RA cannot be taxed for

With respect to the winnings, how much is WHO ISSUED?

That it is under A, and Minalas is an RC, Q: Raffy is an SH of RTIA Inc., a

Q: Assume that RTIA is an FC instead,

The applicable tax rate shall be NIT or

Q: Does it mean then dividends issued by