Tax Memaid PRE MT

TAX MEM AID
PRE-MIDTERMS
GENERAL PRINCIPLES
DEFINITION 1. It is an enforced proportional contribution from persons and properties
2. It is imposed by the State by virtue of its sovereignty
3. Levied for the support of the government
NATURE AND a. Inherent to the state
CHARACTERISTISCS i. Free to select subjects of taxation
ii. Free to select who will be exempted from taxation
b. Lifeblood theory. Taxes are the nation's lifeblood through which government agencies continue to operate and
which the State discharges its functions for the welfare of its constituents, thus:
i. Injunction does not lie against the collection of taxes
ii. The state is not estopped from collecting taxes by the mistakes or errors of tis agents (not absolute, if the
State does not raise a defense against the prescription)
iii. Laws exempting subjects are strictly construed against the taxpayer
ATTRIBUTES OF A 1) Fiscal Adequacy. Should be adequate to meet government expenditures and their variations.
SOUND TAX 2) Administrative Feasibility. Should be capable of being effectively administered and enforced with the least
SYSTEM inconvenience to the taxpayer.
3) Theoretical justice. Should be fair to average taxpayer and based on ability to pay
Distinguished from other concepts
OTHER INHERENT POLICE POWER TAX EMINENT DOMAINT
POWERS OF THE The power of promoting public welfare Enforced proportional contribution from Inherent right of the State to condemn
GOVERNMENT by restraining and regulating the use of persons and properties imposed by the private property to public use upon payment
liberty and property. State by virtue of its sovereignty levied of just compensation.
for the support of the government
a) Inherent in the State, exercised even without need of express constitutional grant.
b) Necessary and indispensable; State cannot be effective without them.
c) Methods by which State interferes with private property.
d) Presuppose equivalent compensation
e) Exercised primarily by the Legislature.
Regulates both liberty and property Affects only property rights
Exercised only by the government Can be exercised by private entities
LICENSE FEES TAX REGULATORY / LICENSE FEE
Sources Taxing power Police power
Purpose Raise Revenue Regulation
Object Persons, property, privilege Right to exercise a privilege
Tax is so taxing 🙃 / Sonson Mem Aid / TAXATION LAW I

Amount No limit Only necessary to carry out regulation
Other doctrines - If generating revenue is the - If regulation is the primary purpose, the fact that
primary purpose and regulation is revenue is incidentally obtained does not make it
merely incidental, the imposition is a tax.
a tax - Must relate to an occupation or activity that so
- As an implement of police power, engages the public interest in health, morals,
if the purpose is primarily revenue safety, and development
or if revenue is at least one of the - Must bear a reasonable relation to probable
real and substantial purposes, then expenses of regulation
it is properly called a tax
Examples *As an implement of police power. - EPIRA (ensure viability of electric power industry)
- Socialized housing tax - Fees for construction of special projects such as
- Regulation of sugar industry or cell sites (main purpose regulate)
power industry, where purpose is - Fees imposed by city on liquor vendors for
primarily revenue privilege of selling liquor (privilege)
- Building fees (regulatory purpose)
Invalid taxes - Fees imposed on a per-liter basis on fuel
- Employee’s fees for aliens who entering the CSEZ (reasonable relation)
have already been cleared for -
employment
Everything in the NIRC and other tax

laws
SPECIAL TAX SPECIAL ASSESSMENTS
ASSESSMENTS Imposed on Persons, properties, etc. Only on land
Why imposed Regardless of public improvement Public improvement benefits the land and increases its
value
Purpose Support of government Contribution to cost of public improvement
When imposed Regular exaction Exceptional as to time and locality
Basis Necessity Benefits received
Other - Under LGC, LGUs may impose a special levy on
lands specially benefitted by public works
projects or improvements funded by the LGU
- Purpose is to finance the improvement of
particular properties, with the benefits of the
improvement accruing to or inuring to the owners
therefor who pay the assessment
TOLL FEES TAX TOLL FEES

Imposed by State Private persons
Purpose Raise revenues Reimbursement of costs and expenses incurred in the
construction of toll ways, and to assure reasonable
margin of income
End up as earnings of toll way operators, not the

government
Basis State’s sovereign power Attribute of ownership
IMPACT AND INCIDENCE
DEFINITION Impact of taxation. Incidence of taxation.
Point where the tax is or originally imposed or the one on Point on whom the tax burden finally rests
whom the tax Is
DIRECT VS. DIRECT TAXES INDIRECT TAXES
INDIRECT Exacted from the very person who it is intended or Demanded, in the first instance, from, or are paid by, one
desired should pay them person in the expectation and intention that he can shift the
burden to someone else
Impositions for which a taxpayer is directly liable on the
transaction or business he is engaged in The liability of payment of the tax falls on one person but
the burden can be shifted or passed on to another person,
Examples: such as when the tax is imposed upon goods before
Income tax, transfer taxes (estate and donor’s), reaching the consumer who ultimately pays for it
residence tax
When he passed on the tax to the buyer, he shifts the
burden, not the liability to pay for it.
Examples:
VAT, percentage taxes
INHERENT LIMITATIONS
INHERENT What are the inherent limitations to the power to tax? [PIG-TIC]
LIMITATIONS (1) Must be for PUBLIC PURPOSE
(2) INHERENTLY LEGISLATIVE in nature
(3) GOVERNMENT entities, agencies, and instrumentalities are generally exempt from taxation
(4) INTERNATIONAL COMITY
(5) Limited to the state’s TERRITORIAL JURISDICTION
(6) Must comply with CONSTITUTIONAL limitations
*Direct double taxation is also not allowed [P(3)-JAC]

a. On the same property or subject matter

b. For the same purpose
c. During the same taxing period
d. Within the same jurisdiction
e. By the same State, Government or taxing authority
f. Two taxes are of the same kind and character
1. PUBLIC PURPOSE
Can only be expended for public purpose and not for the advantage of private individuals. But the public purpose may
exist even if the motive which impelled the legislature to impose the tax was to favor one industry over another (i.e.
Videogram)
2. INHERENTLY LEGISLATIVE
GR: The power to tax is purely legislative and cannot be delegated to other branches of government.
Exceptions:
(a) Delegation to local governments.
Granted fiscal autonomy to create their own revenue and levy taxes.
(b) Delegation to the president.

Such as the grant to the President to impose tariff rates under Customs and Tariffs modernization act
(c) Delegation to administrative authorities.

Such as the authority to fix rates within limits specified by law
3. GOVERNMENTAL ENTITIES GENERALLY EXEMPT

No point in taxing each other. An exemption to this are GOCCs (liable for real property taxes)
4. INTERNATIONATIONAL COMITY
- Tax treaties are entered into to minimize the harshness of international double taxation. Laws and issuances
must ensure that the reliefs granted under tax treaties are accorded to the parties entitled thereto.
- Takes precedence over an administrative issuance such as an RMO
- Still subject to the rule that laws granting tax exemption are construed strictly against the taxpayer
- An exchange of notes is also considered under here
5. TERRITORIAL JURISDICTION
- The general rule is that it is limited to the territorial jurisdiction of the state, but when a privity of relationship
exists between the State and the taxpayer, the State can exercise its taxing powers even outside the territory.
- Extends to foreign military zones (not considered foreign territory)

- If substantial elements are situated in the Philippines, then State can tax
- Divisible contracts (such as turnkey agreements) will be taxed accordingly based on the stage of its activity
CONSTITUTIONAL 6. CONSTITUTIONAL LIMITATIONS

LIMITATIONS 1. Due process
2. Equal protection of laws
a. rests on substantial distinctions;
b. germane to the purposes of the law;
c. not limited to existing conditions only; and
d. applies equally to all members of the same class
3. Religious freedom
4. Non-impairment of contracts
a. those entered into by the taxing authority
b. lawfully entered into them under enabling laws,
c. wherein the government acts in its private capacity and sheds its cloak of authority and immunity
*includes government bonds or debentures, perfected mining concession
*but does not include franchises, licenses (can be revoked or modified at any time)
5. Prohibition against Imprisonment for Non-payment of Poll Tax
*only refers to cedula or residence tax
6. Uniformity and Equality of Taxation and Progressive System of taxation
a. Does not call for perfect uniformity or perfect equality; subject to reasonable classifications
b. Congress is free to determine the subjects of taxation
c. Does not require taxes to be the same across different jurisdictions
7. Delegated Authority to the President to Impose Tariff Rates
8. Prohibition against Taxation of Real Property of Charitable Institutions, Churches, Parsonages or Convents,
Mosques and Non-profit Cemeteries
9. Prohibition against Taxation of Non-stock, Non-profit Educational Institutions (Assets and Revenues)
see discussion on income tax
10. Majority Vote of Congress for Grants of Tax Exemptions
11. Prohibition on Use of Tax Levied for Special Purpose
12. Tax Bills Should Originate Exclusively in the House of Representatives
13. President’s Veto Power on Appropriation, Revenue and Tariff Bills
14. Judicial Power to Review
FORMS OF ESCAPE
FORMS OF ESCAPE TAX AVOIDANCE
- Legal. Involves saving on taxes using legal means such as estate planning.

TAX EVASION
- Illegal. Involves the use of forbidden and illegal devices to lessen and minimize tax
- Requisites:
i. The end to be achieved
ii. State of mind which is evil, in bad faith, willful or deliberate and not accidental
iii. Course of action or failure of action which is illegal
- Willful blindness doctrine: A taxpayer can no longer raise the defense that the errors in their tax returns are not
their responsibility or that it is the fault of the accountants they hired.
i. Intent to defraud need not be shown for a conviction
ii. The only thing that needs to be proven is that the taxpayer was aware of his obligation to file the tax return
but he nevertheless voluntarily, knowingly and intentionally failed to do so
TAX EXEMPTIONS
TAX EXEMPTIONS; Essence. Immunity or freedom from a charge or burden to which others are subjected. It is a waiver of the government’s
GENERAL right to collect what would have been otherwise collectible.
Construction.
- First, TAXES CANNOT BE IMPOSED unless it is supported by the clear and express language of the statute.
a. State is estopped from collecting difference between amount paid and deficiency assessment
- But ONCE it is already given, then it is strictly construed with the taxpayer
a. He must be able to point to some positive and specific provision creating such right; cannot be allowed
to exist on a mere vague implication or inference
* Also mandates that withholding agents strictly observe proper procedure
* If there is nothing in the law that’ points that the “exemption” refers to taxes, then it should apply to
something else (i.e. regulatory or reporting requirements)
b. If proven, then tax exemption follows
OTHER PRINCIPLES
IF BUYER IS EXEMPT FROM DIRECT TAXES ONLY IF BUYER IS EXEMPT INDIRECT TAXES ALSO
RULES ON TAX
EXEMPTION FOR a) BUYER EXEMPTED? NO. The tax exemption of a) BUYER EXEMPTED? YES, if he is expressly granted
INDIRECT TAXES the buyer does not exempt him from the exemption from indirect taxes as well.
(TL;DR) payment of indirect taxes, since he is not the b) BURDEN. The seller should bear the burden of the
statutory taxpayer tax (Seller can’t raise the price to compensate for
b) BURDEN. The buyer should bear the burden of the tax he has to pay)
the tax (Seller can raise prices to compensate) a. BUT! in certain situations he can claim a
refund for international law and public
policy considerations

c) REFUND. The property party is the statutory c) REFUND. The buyer here can also be the one to
taxpayer, and not the buyer even if tax burden is seek a refund. (in the case that the seller does raise
shifted. the price)
RETROACTIVITY LAWS
Must be applied prospectively, except by express provision of law.
The same goes for tax exemptions.
RULINGS, CIRCULARS, RULES AND REGULATIONS

General rule: Prospective (even if nullified by the CIR)
Exception:
1. Not prejudicial to the taxpayer
2. OR Prejudicial to the taxpayer but:
(a) Deliberately misstates or omits material facts from his return or in any document required of him by the
BIR
(b) Where the facts subsequently gathered by the BIR are materially different from the facts on which the
ruling is based
(c) Where the taxpayer acted in bad faith
3. OR When it is nullified by a court (and not by the CIR)
a. Distinguish from general interpretative rules
GENERAL INTERPRETATIVE RULE

May be relied upon by taxpayers from the time the rule is issued up to its reversal by the Commissioner or the Court.
SET-OFF OF TAXES GR: A person cannot refuse to pay a tax on the ground that the government owes him an amount equal to or greater
than the tax being collected. Taxes are not in the nature of contracts between the party and the government; they grow
out of a duty to the government. The taxpayer cannot take the law into its own hands and claim compensation because
it has a pending refund.
BUT! When both the claims of the government and the taxpayer have become due, demandable, and fully liquidated, and
appropriated by law, compensation will follow by operation of law
TAXPAYER SUIT 1) Public funds are disbursed by a political subdivision or instrumentality
2) In doing so, a law is violated or irregularly committed
3) The taxpayer is directly affected by the act

INCOME TAX
INCOME Global. All items of gross income, deductions, personal and additional exemptions are reported in one income tax return and a
TAX single tax is imposed on all income received or earned, regardless of the activities which produced the income.
SYSTEMS
Schedular. Different types of activities are subjected to different types of tax rates, depending on the classification of taxable
income and the activities producing the income.
Semi-global, semi-schedular. Certain passive income and capital gains are subject to final taxes while others are added to arrive
at the gross income. Can also mean that the tax rates will differ depending on the tax base.
This is followed in the Philippines.
INCOME Capital is wealth, income is the service of wealth.

IN
GENERAL Property is a tree, income is the fruit. Labor is a tree, income is a fruit. Capital is a tree, income is the fruit.
Income means profit or gains.
Questions to ask:
1. Is this capital or is this income?
2. Has it been realized or is it merely inchoate?
PRINCIPLES.
1. Realization Principle. Income is recognized when: 1.) An earning is complete or virtually complete; and 2.) An exchange
has taken place
2. Claim of Right Doctrine. If the taxpayer received earnings under a claim or right and without restriction as to its
disposition, such earnings are considered income.
3. Economic Benefit Theory. Anything that benefits a person materially or economically in whatever way is taxable. This is
not strictly followed in the PH (see: stock dividends).
4. Severance Theory. Income is recognized when there is a separation of something which is of interchangeable value. The
increase in value of an asset is not income as it has not yet been exchanged or transferred for something else.
5. All-Events Test. The accrual of income and expenses is permitted when the following are met: 1.) Fixing of a right to
income or liability to pay; and 2.) The availability of reasonable accurate determination of such income or liability

review pa SITUS RULES
TEST OF INCOME TEST OF SOURCE OF INCOME
SOURCE OF Interest Income. Including interests on bonds, notes and other Residence of Debtor
INCOME interest-bearing obligations: Or where the loan was used.
1. The loan was used here in the Philippines, or
2. The debtor is in the Philippines
Dividend income Income within

(domestic corporation)
Dividend Income Income within, if 50% or more of the gross income of the foreign
(foreign corporation) company (for the past 3 years) was derived from the Philippines.
Otherwise, considered income outside the PH.
Service Income. Compensation for labor and personal services Place of performance
Rent Income. From the property itself or any interest earned Location of property
therein.
Royalty Income. Includes those from property in located in the PH Place of use of intangible
or from any interest in such property for:
1. The use of any copyright, patent, design or model, plan, secret formula or
process, goodwill, trademark, trade brand or other similar stuff
2. The use of any industrial, commercial, or scientific equipment
3. The supply of scientific, technical, industrial, or commercial knowledge
or info
4. The supply of services by a non-resident person in connection with those
of property or rights, or the installation or operation of any brand,
machinery or other apparatus purchased from such non-resident person
5. Technical advice, assistance, or service rendered in connection with
technical management of any scientific, industrial, or commercial
undertaking
6. The use of motion picture films, films for TV, tapes for radio broadcast
Gain of Sale of real property Location of property
Gain on sale of personal property Place of sale
Gain on sale of domestic shares of stock Income within

INCOME TAX ON CITIZENS, SIMPLIFIED
review pa
CITIZEN RESIDENT Those citizens whose residence is within the PH ALL SOURCES
CITIZENS 0% - 35% TAXABLE INCOME
(See schedular tax rates)
NON-RESIDENT Those citizens whose residence is not within the PH

CITIZEN INCOME INSIDE RP ONLY
1. Establishes to the satisfaction of the CIR the fact of his physical presence abroad 0% - 35% TAXABLE INCOME
with a definite intention to reside therein. (See schedular tax rates)
2. Leaves the Philippines during the taxable year to reside abroad, either as an
immigrant or for employment on a permanent basis.
*IMMIGRANT. Leaves the Philippines to reside abroad as an immigrant for

which a foreign visa has been secured
*PERMANENT EMPLOYEE. Leaves the Philippines to reside abroad as an

immigrant for which a foreign visa has been secured.
3. PH citizen who works and derives income from abroad and whose employment
thereat requires him to be physically present abroad most of the time during the
taxable year.
*CONTRACT WORKER. To be considered physically present abroad most of

the time during the taxable year, a contract worker must have been outside
the PH for not less than 183 days during such taxable year. [BIR R.R. 1-79,
SEC. 2]
4. PH citizen previously considered as a non-resident citizen and who arrives during

the taxable year to reside permanently in the PH
Treated as NRC with respect to his income derived from sources abroad until his
arrival in the PH
ALIENS RESIDENT ALIEN A resident alien is an individual: INCOME INSIDE RP ONLY
1. Whose residence is within the Philippines, and 0% - 35% TAXABLE INCOME
2. Who is not a citizen (See schedular tax rates)
Mere physical or body presence is enough, not intention to make the country
one’s abode

An alien actually present in the Philippines who is not a mere transient or
sojourner is a resident for income tax purposes. Thus:
1. If he lives in the Philippines and has no definite intention as to his
stay
o so floating intention indefinite as to time to return to
another country can fall under resident
2. OR if his definite purpose is of such nature that an extended stay is
necessary for its accomplishment,
o and to that end the alien makes his home temporarily in the
Philippines
o even if his intention is to return to domicile abroad when the
purpose for which he came has been consummated or
abandoned (R.R. 2-1940)
3. OR if there was an intention to stay indefinitely on the part of the
alien
o Had a special retiree’s visa
o Acquired real property and is actually present most of the
time in the Philippines
o Registered as a taxpayer with the BIR. (BIR Ruling 252-11)
*If there is definite purpose which is promptly accomplished, transient

ETB INCOME INSIDE RP ONLY
NON-RESIDENT 0% - 35% TAXABLE INCOME
ALIEN Engaged in trade or business within the Philippines - If the aggregate period (See schedular tax rates)
of his stay in the Philippines is more than 180 days during any calendar year.
[Sec. 25(A)(1), NIRC]
NETB INCOME INSIDE RP ONLY

25% GROSS INCOME
Not engaged in trade or business within the Philippines - If the aggregate THERE SHALL BE LEVIED, COLLECTED AND
PAID FOR EACH TAXABLE YEAR UPON THE
period of his stay in the Philippines does not exceed 180 days. ENTIRE INCOME RECEIVED FROM ALL
SOURCES WITHIN THE PHILIPPINES BY
EVERY NONRESIDENT ALIEN INDIVIDUAL
NOT ENGAGED IN TRADE OR BUSINESS
WITHIN THE PHILIPPINES AS INTEREST,
CASH AND/OR PROPERTY DIVIDENDS,
RENTS, SALARIES, WAGES, PREMIUMS,
ANNUITIES, COMPENSATION,
REMUNERATION, EMOLUMENTS, OR OTHER

FIXED OR DETERMINABLE ANNUAL OR
PERIODIC OR CASUAL GAINS, PROFITS, AND
INCOME, AND CAPITAL GAINS, A TAX EQUAL
TO TWENTY-FIVE PERCENT (25%) OF SUCH
INCOME.
OTHER The source of income is the property, activity or service that produced the income
SITUS - It is the place of activity creating the income which is controlling and NOT the place of business or residence of the
RULES corporation
- When the sale is consummated here, the situs of the sale is the Philippines
Examples of transactions in the Philippines:

- Reinsurance premiums ceded to foreign reinsurers
- Sale of online tickets through general sales agent even if it is an off-line carrier (no flights to and from here)
MINIIMUM PRIVATE SECTOR. Paid the statutory minimum wage

WAGE
EARNER PUBLIC SECTOR. Not more than statutory minimum wage in the non-agricultural sector where he/she is assigned
Exempt from payment of income tax on their taxable income:

Provided, further, that the holiday pay received by such minimum wage earner shall likewise be exempt from income.
Provided, further, that the holiday pay received by such minimum wage earner shall likewise be exempt from income.
The holiday pay, overtime pay, night shift differential pay and hazard pay received by such earner are likewise exempt.
SENIOR 1. Resident citizens of the Philippines
CITIZENS 2. At least 60 years old
Not exempt from income taxes unless they are considered MWEs
Granted a 20% discount from select establishments, treated as tax deductions for the business
PERSONS 1. Individuals suffering from restriction or different abilities
WITH 2. As a result of mental, physical or sensory impairment to perform an activity in a manner or within the range considered
DISABILITY normal for human beings
Granted a 20% discount from select establishments, treated as tax deductions for the business
SPECIAL Alien individuals and their Filipino counter parts occupying managerial and/or technical positions employed by RHQs, ROHQs,
ALIENS OBUs, and petroleum service contractors and subcontractors; Filipinos employed in Asian Development Bank occupying
managerial or supervisory or technical positions and their alien counterparts

FORMERLY 15% tax on gross income (preferential tax rate); FOR RHQs, ROHQs, OBUs or petroleum service contractors
registering with the SEC after Jan. 1, 2018, the graduated tax rates of 20% to 35% shall be applicable

INDIVIDUALS
FIRST BASKET: WORK INCOME
Gross Income
Less: Deductions (either itemized or OSD 40%)*
Taxable Income
GRADUATED INCOME TAX RATES
RATES Jan 1, 2018 to Dec 31, 2022 January 1, 2023 and onwards
Not over P250,000 0% 0%
Over P250,000 to 20% of the excess over P250,000 15% of the excess over P250,000
P400,000
Over P400,000 to P30,000 P22,500
P800,000 + 25% of the excess over P400,000 + 20% of the excess over P400,000
Over P800,000 to P130,000 P102,500
P2M + 30% of the excess over P800,000 + 25% of the excess over P800,000
Over P2M to P8M P490,000 + 32% of the excess over P2,000,000 P402,500
+ 30% of the excess over P2,000,000
Over P8M P2,410,000 P2,202,500
+ 35% of the excess over P8,000,000 + 35% of the excess over P400,000
OPTIONS OF Self-Employed Individuals Earning
TAXPAYERS Purely Compensation Earners Purely From Mixed Income Earners
Self-Employment or Practice of Profession
COMPENSATION SELF EMPLOYED INDIVIDUAL Just mix the rules.
All remuneration for services performed Sole proprietor or independent contractor who
by an employee for his employer under reports income earned from self-employment. For compensation income,
an employer-employee relationship use the graduated rates.
PROFESSIONAL
INCLUDES salaries, wages, emoluments - Person formally certified by a professional For income from business
and honoraria, allowances, body belonging to a specific profession or profession, apply the
commissions, director’s fees (if director (lawyers, doctors). rules on self-employed
is also an employee) - Engages in some art or sport for money as business depending on the
a means of livelihood (professional boxer VAT threshold.
or artist)
- Others: insurance agent, management and BUT! For the portion of
technical consultant, recipients of income from business or
professional and talent fees profession, not entitled to
the P250,000 deduction
because already used

from the compensation
income portion.
TAXED UNDER GRADUATED INCOME Gross sales/receipts and other operating income
TAX RATES. do not exceed P3,000,000 (VAT threshold – two
Taxable income is the options:
individual’s gross 1. Graduated tax rates [TAXABLE INCOME]
compensation income less non- 2. 8% income tax rate [GROSS
taxable income/benefits like SALES/RECEIPTS LESS P250,000]
13th month pay, de minimis a. In which case, the first P250,000
benefits and employee’s share is not subject to tax
in SSS, GSIS, PHIC Pag-ibig b. Not liable for 3% percentage tax
contribution and union dues. under Sec. 116
c. NOTE: Taxpayer must signify
intention to use 8% tax rate in the
first quarter of the ITR, if not then
deemed to have chosen default
graduated tax rates.
Not allowed to use the 8% tax rate option:

- Gross sales/receipts and other operating
income exceeds P3,000,000 (VAT
threshold)
- VAT-registered taxpayers, regardless of
gross sales/receipts
- Purely compensation income earners
- Taxpayers subject to Other Percentage
Taxes (except those under Sec. 116,
NIRC)
- Partners of a GPP (their distributive share
is already net of costs and expenses)
- Individuals enjoying income tax exemption
EXCLUSIONS 1. Life insurance; EXCEPT if the proceeds are held by the insurer under an agreement to pay interest thereon. Only the
FROM GROSS interest payments are included in the gross income.
INCOME
2. Amount received by insured as return of premium;

3. Gifts, bequests, devises, or descents (but the income from such property shall be included in gross income);
4. Compensation for personal injuries or sickness (plus the amounts of any damages received on account of such);
5. Income exempt under any treaty;
6. Benefits received from the US Veterans Administration;
7. Retirement benefits, pensions, gratuities (provided, the retiring person has been in the service of the same employer at
least 10 years and is not less than 50 years of age at the time of his retirement. This benefit can only be availed of once.)
(RA 7641);
8. Separation pay caused by death, sickness, or other disability or separation pay for any cause beyond the control of the
official or employee (RA 4917);
9. Social security benefits, retirement gratuities, pensions, and similar benefits from foreign government agencies;
10. SSS benefits; and
11. GSIS benefits.

MISCELLANEOUS 1. Income earned by foreign governments in the PH from deposits/investments;
TAX EXEMPT a. TO BE EXEMPT, income should be received by:
ITEMS i. By foreign governments;
ii. By financing institutions owned, controlled, or enjoying re-financing from foreign governments; and
iii. By international or regional financial institutions established by foreign governments.
2. Income earned by the PH government or its political subdivisions, like public utilities;
3. Prizes and awards made primarily in recognition of religious, charitable, scientific, educational, artistic, literary, or
civic achievement
a. But only
i. If s/he was selected without any action on his/her part to enter the contest
ii. and s/he is not required to render substantial future services as a condition to receiving the prize
and award;
4. Prizes and awards in sports competitions sanctioned by the national sports associations;
5. 13th month pay, Christmas bonus, productivity incentive bonus, loyalty award, gifts in cash or in kind, and other
benefits of similar nature received by officials and employees of both government and private offices;
6. GSIS, SSS, Medicare, Pag-IBIG union dues, and other conditions - but only the mandatory/compulsory
contributions;
7. Gains from sales of bonds, debentures, or other certificate of indebtedness with maturities of more than 5 years;

8. Gains from redemption of shares in mutual funds;
9. Interest received by a non-resident individual or a non-resident corp. from depository banks under expanded
FCDU;
10. Intercompany dividends;
11. De minimis benefits received by employees;
12. Those under special laws; and
a. Note: Winnings from PH Charity Sweepstakes and Lotto are now only exempt up to P10k; any winnings
above P10k are taxed 20% final tax.
13. PERA.
a. Minimum wage earners shall be exempt from the payment from income tax.
b. Holiday pay, overtime pay, night shift differential pay and hazard pay received by such minimum wage
earners shall likewise be exempt from income tax.
c. Income from employees’ trust is exempt from ALL kinds of taxes, including final withholding tax on interest
income. (CIR v. CA and GCL Retirement Plan) Terminal leave pay received by a government official or
employee on the occasion of his/her compulsory retirement is not part of gross income salary.
d. It is a retirement benefit and tax-exempt. (CIR v. CA and Castaneda & Re: Request of Atty. Zialcita)
GROSS INCOME
DEFINITION ALL income derived from WHATEVER SOURCE. Includes, BUT NOT LIMITED TO
1. Compensation for services in whatever form paid, including, but not limited to fees, salaries, wages, commissions,
and similar items;
a. Company expenses are not income by employees (rental allowances and travel allowances)
2. Gross income derived from the conduct of trade or business or the exercise of a profession;
3. Gains derived from dealings in property;
4. Interests;
5. Rents;
6. Royalties;
7. Dividends;
8. Annuities;
9. Prizes and winnings;
10. Pensions; and
11. Partner's distributive share from the net income of the general professional partnership.
COMPENSATION NOT A PART OF GROSS INCOME:
1) PERSONAL AND EQUITY RETIREMENT ACCOUNT (PERA)
refers to the voluntary retirement account established by and for the exclusive use and benefit of the Contributor for the
purpose of being invested solely in PERA investment products in the PH; and
2) REPRESENTATION AND TRANSPORTATION ALLOWANCE (RATA), provided that:

a. Expenses are ordinary and necessary in pursuit of trade or business; and

b. Employee must account for the expenses and liquidate with receipts and other documents.
DIVIDENDS GR: Cash and property dividends are taxable, stock dividends are not
When are stock dividends taxable?

- When the stock dividend causes change in the corporate identity or a change in the nature of the shares issued
whereby the proportional interest of the stockholders after the distribution is different from his/her former interest.
- A stock dividend constitutes income if it gives the shareholder an interest different from that which is his/her
former stock represented. If the stock dividend is taxable income → valuation as the fair market value of the shares
of stock received.
- SALE OF STOCK RECEIVED AS DIVIDENDS. Once the recipient sells the stock dividend, s/he may realize the gain or
loss. The gain or loss is treated as arising from the sale or exchange of a capital asset. STOCK DECLARATION AND
- SUBSEQUENT REDEMPTION. If after the stock dividend declaration, a corporation cancels or redeems the same in
such time and manner as to make the distribution/redemption essentially equivalent to a distribution of a taxable
dividend, the amount received shall be considered as taxable dividend.
LIQUIDATING DIVIDENDS. Taxable.
Prizes and GR: Taxable
winnings EXCEPTIONS:
1. If the recipient was selected without any action on his/her part to enter the contest and s/he was not required to
render substantial future services as a condition for receive the prize or award;
2. Those granted to athletes in local and international sports competitions sanctioned by their respective national
sports associations are exempt; and
3. Those that are in the nature of gifts.
Cancellation or May amount to
forgiveness of 1. Payment of income – taxable (performs a service)
debt 2. Payment of dividends – taxable (a corporation forgives the debt of a stockholder, like paying dividends)
3. A gift – exempt (cancelling a debt)
ACQUISITION Acquisition by the government of private properties through expropriation, properties being justly compensated, is
embraced within the meaning of the term “sale” or “disposition” of property; proceeds should be included in the gross
income
Involuntary dealings.
If the property is compulsorily or voluntarily converted into property similar to the property so converted, or into money,
which is forthwith in good faith expended int the acquisition of other property or in the establishment of a replacement
fund, no gain or loss should be recognized. If any part of the money is not so expended, the gain shall be recognized but in
an amount not in excess of the money so expended.
Damages may or may not be considered taxable income, depending on the nature:

1. Compensation for loss income and exemplary damages, representing loss of capital – taxable
2. Moral damages, reimbursement for hospital bills – not taxable
TRANSFER - When 2 or more organizations, trades, or businesses are owned or controlled directly or indirectly by the same
PRICING interests, the CCIR can distribute, apportion, or allocate gross income or deduction between or among such
organizations, trades, or businesses, in order to prevent tax evasion
- Transfer pricing. - The pricing of cross-border, intra-firm transactions between related parties or associated
enterprises.
o A transfer price occurs between a taxpayer of a country with high income taxes and a related or associated
enterprise of a country with low income taxes.
o Transfer pricing can also occur in domestic transactions; such as when an associated enterprises with
income tax exemptions is being used to allocate income away from a company subject to regular income
taxes.
o Associated enterprises. - 2 or more enterprises wherein:
▪ 1) One participates directly or indirectly in the management, control, or capital of the other; or
▪ 2) If the same persons participate directly or indirectly in the management, control, or capital of the
enterprises.
- Arm’s length principle – transaction with a related/associated party must be made under comparable conditions
and circumstances as a transaction with an independent party
- Even with Sec. 50, the CIR still cannot impose interest rates on its own. Despite the seemingly broad power of the
CIR, the same does not include the power to impute theoretical interests even with regard to controlled taxpayers’
transactions.
REFUNDS Tax refunds previously claimed and allowed as deductions but subsequently refunded or granted as tax credit should be
declared part of gross income of that period. Purpose is to put you back in equilibrium.
EXCEPTIONS:
- Estate and donor’s tax
- Income, war-profit and excess profit taxes imposed by a foreign country
- Taxes assessed against local benefits of a kind tending to increase the value of the property assessed
- Stock transaction tax
- Taxes not allowed as deductions under the law

INDIVIDUALS
SECOND BASKET: PASSIVE INCOME
Citizens
(note: use graduated rates if without PH) NRA NRA
ETB NETB
Resident Aliens
1. Interest under the expanded foreign 15%
currency deposit system (non-resident citizens exempt) Exempt
Note: if deposited in joint account of OCW and resident spouse,
it will be 50% exempt, 50% FWI of 15%
2. Royalty from books, literary works, and musical 10%
composition
3. Royalty other than above 20%
4. Interest on any current bank deposit, yield or 20%
other monetary benefits from deposit substitute,
trust fund and similar arrangement 25% income from ALL
5. Prize exceeding P10,000 20% sources within the
6. Other winnings (except PCSO & Lotto) 20% Philippines
7. PCSO and Lotto exceeding P10,000 20% Exempt
CREATE:
PCSO above P10,000
subject to 20%
8. PCSO and Lotto amounting to P10,000 or less Exempt
9. Cash and/or property dividends actually or 10% 20%
constructively received from
1. a domestic corp. or
2. from a joint stock corp., 25% income from ALL
3. insurance or mutual fund companies sources within the
and Philippines
4. regional operation headquarters of
multinational companies
10. Share of an individual in the distributable net 10% 20%
income after tax of a PARTNERSHIP (other
than a general professional partnership)
11. Share of an individual in the net income after 10% 20%
tax of an
1. Association

2. Joint account
3. Joint venture
4. Consortium
- taxable as a corporation, of which he is a
member or a co-venturer
12. Dividends from foreign corporations Enters graduated income tax rates
(for non-resident and aliens, only if within)
13. Interest from long-term deposit or investment GENERALLY EXEMPT.
certificates, which have a maturity of 5 years or
more However, in case of pre-termination, with remaining
maturity of:
4 years to less than 5 years 5% on entire income
3 years to less than 4 years 12% on entire
income
Less than 3 years 20% on entire
income
DEPOSIT SUBSTITUTES - A means of borrowing money from the public (20 or more individual or
corporate lenders)
- Other than by way of deposit with banks through the issuance of debt
instruments
- Nineteen-lender rule: The mere flotation of a debt instrument is not
considered to be public
At any one time means every transaction executed in the primary or secondary
market in connection with the purchase of sale of securities

INDIVIDUALS
THIRD BASKET: CAPITAL GAINS
STOCKS Sales of stock not traded through a local stock 15% of net capital gains
exchange
FMV.
- If listed in the LSE, FMV is the closing price on the day when
the shares were sold, transferred or exchanged (if no sale
was made on that day in the LSE, then the closing price on the
day nearest to the date of sale, transfer, or exchange)
- If not listed in the LSE, FMV is the value of the shares at the
time of the sale. Adjusted Net Asset Value will be used
whereby all assets and liabilities are adjusted to fair market
values. Real property will be appraised and values at the
higher of the following:
o The FMV (as determined by the CIR)
o The FMV based on the Provincial and City Assessor
o The FMV as determined by an independent assessor
Sales of stock traded through the local stock 6/10 of 1% of the gross selling price or gross value in money of the
exchange shares of stock (Stock Transaction Tax)
PROPERTY PROPERTY HELD AS CAPITAL ASSETS
Final Tax Rate on Sales, Exchanges or Transfers of 6% of gross selling price, or the current market value at the time of
Real Properties in the Philippines sale, whichever is higher
If sale is made to the government or to GOCCs 6% of gross selling price, or the current market value at the time of
sale, whichever is higher
OR under the normal income tax rate, taxpayer’s option

PROPERTY HELD AS ORDINARY ASSETS
If the seller is habitually engaged in the sale of real CREDITABLE WITHHOLDING TAX.
estate business - Selling price is less than P500,000 – 1.5%
- Selling price is P500,000 to P2M – 3%
- Selling price is above P2M – 5%
Of gross selling price/current market value, whichever is higher

If the seller is not habitually engaged in the real 7.5% of gross selling price/market value , whichever is higher
estate business
If the seller is exempt from creditable withholding tax No CWT
as per R.R. 2-1998
EXEMPTIONS 1. Dealers in securities (in terms of CGT for shares of stock)
FROM 2. Investors in shares of stock in a mutual fund company, as defined in Section 22(BB) and Section 2(s) of R.R. 6-2008, in
CAPITAL connection with the gains realized by said investor upon redemption of said shares of stock in a mutual fund company; and
GAINS TAX All other persons, whether natural or juridical, who are specifically exempt from national internal revenue taxes.
4. Sale, exchange, or disposition of a principal residence
1. The proceeds of the sale, exchange or disposition of his principal residence must be fully utilized in acquiring or
constructing a new principal residence within 18 months. There must be proof
2. Can only be availed of ONLY ONCE every 10 years
3. The historical cost of his old principal residence shall be carried over to the cost basis of his new residence
Principal residence.
- It is not necessarily the family home.
- It is the dwelling house, where the husband or wife or unmarried individual resides, actual occupancy is not interrupted
or abandoned by temporary absence due to travel, studies or work abroad.
- If ownership of the land and dwelling house are different, only the dwelling house will be treated as principal residence

PARTNERSHIPS
DEFINITION NON-TAXABLE TAXABLE
1. General professional partnership (like regular law firms) Those whose income is derived from trade or business –
2. Joint venture or consortium agreement for the purpose of considered “corporations under the tax code”
a. Undertaking construction projects
b. Engaging in petroleum, coal, geothermal and other ART. 1767, CC: TWO OR MORE PERSONS BIND THEMSELVES TO
energy operations CONTRIBUTE MONEY, PROPERTY OR INDUSTRY TO A COMMON FUND,
i. Pursuant to an operating or consortium WITH THE INTENTION OF DIVIDING THE PROFITS AMONG THEMSELVES.
agreement under a service contract with
the government
Requisites for joint ventures (R.R. 10-2012):

1. For the undertaking of a construction project
2. Should involve joining or pooling of resources by licensed
local contractor (i.e. those licensed as a general
contractor by the PCAB
3. The contractors are engaged in construction business
Joint venture itself must be licensed under the PCAB
DISTRIBUTIVE SHARE
A partner’s computed and ascertained share in the net profits of the partnerships, whether actually distributed or not
Will form part of a partner’s gross income in the ITR subject to the Distributive share in the net income is subject to a final tax
graduated income tax rates. of 10% (residents, OCWs, aliens) or 20% (only NRAETB)
refer to passive income tax table
Will be subjected to a creditable withholding tax
- 15% if income payments exceed P720,000 for the current
year. Otherwise, 10%.
- To be withheld and paid by the partnership to the BIR
HOW TAXED
Still required to file an annual information return on their incomes Deemed and treated as corporations subject to the
and expenses for the purposes of ascertaining the partners’ corporate income tax rate
taxable shares
SPECIAL RULES
A GPP is not a taxable entity for income tax purposes because it
only acts as a “pass-through” entity where its income is ultimately
passed to the partners.

In computing a GPP’s distributable tax income, the GPP may apply
for either: 1.) Itemized deductions; or the 40% OSD
The GPP then distributes the net income to the partners. The share
of each partner, actually or constructively received, is taxable
income of each partner.
- The partners cannot claim further deductions from the
distributive share
- Also cannot avail of the 8% income tax rate
o Because the distributive share is already net of
costs and expenses

TAX ON CORPORATIONS
INCOME COMPUTATIONS
GROSS INCOME COMPUTATION NORMAL FOR A SERVICE CONCERN (NO COGS)
Gross Sales Gross Receipts

(Less: Sales Returns, Discounts, and (Less: Sales Returns, Discounts and
Allowances) Allowances)
(Less: COGS) (Less: Cost of Services and Facilities)
= Total Gross Income = Total Gross Income
COGS COMPUTATION FOR A TRADING AND MANUFACTURING FOR A MANUFACTURING CONCERN

CONCERN
- Invoice cost of goods -
All costs of production of finished goods such
- Import duties as raw materials, direct labor and
- Freight in transporting the goods to the manufacturing overhead
place where the goods are actually old - Freight cost
- Insurance while goods on transit - Insurance Premiums
- Others costs incurred to bring the raw
materials to the factory or warehouse
MCIT RELIEF ALLOWED: 1. Losses on account of prolonged labor dispute; 2.) Force majeure; 3.) Legitimate
Beginning with the fourth year of business reverses
operations, a domestic corporation
is taxed by whichever is higher: Exempt: 1) Resident foreign corporations engaged in business as international carries; 2) Resident foreign
corporations engaged in business as offshore banking units;3) Resident foreign corporations engaged in
30% (now 25%/20%) normal tax business as regional operate headquarters; 4) Firms that are taxed under a special income tax regime; 5)
Proprietary Educational Institutions; 6) Non-profit hospitals; 7) Depository banks under the FCDU; 8) REIT
Or (Real Estate Investment Trust); and 9) Non-resident foreign corporations
2% (now 1%/2%) gross income

MCIT CREATE CHANGES TO MCIT:
- 1% of Gross Income from July 1, 2020 to June 30, 2023
- Back to 2% from July 1, 2023 onwards

APPLICABILITY OF TAXES FOR CORPORATIONS
Taxes Domestic Corporation Resident Foreign Non-resident foreign
Corporation Corporation
Normal Corporate Income Tax (NCIT) Yes Yes No
Minimum Corporate Income Tax (MCIT) Yes Yes No
Gross Income Tax (GIT) Yes Yes No
Capital Gains Tax (CGT) Yes Yes Yes
Final Tax on Passive Income Yes Yes Yes
Improperly Accumulated Earnings Tax (IAET) Yes No No
CREATE: IAET Removed
Branch Profit Remittance Tax No Yes No
RULES FOR SPECIAL TYPES OF CORPORATIONS

RULES FOR RULE FOR REAL PROPERTY
EDUCATIONAL AND
CHARITABLE CONSTI, ART. 6, SEC. 28
INSTITUTIONS (3) CHARITABLE INSTITUTIONS, CHURCHES AND PARSONAGES OR CONVENTS APPURTENANT THERETO, MOSQUES, NON-PROFIT
CEMETERIES, AND ALL LANDS, BUILDINGS, AND IMPROVEMENTS, ACTUALLY, DIRECTLY, AND EXCLUSIVELY USED FOR RELIGIOUS,
CHARITABLE, OR EDUCATIONAL PURPOSES SHALL BE EXEMPT FROM TAXATION.
Actually, directly, and exclusively used → EXEMPT FROM TAXES
RULE FOR OTHER ASSETS AND REVENUES

EDUCATIONAL INSTITUTIONS OTHER CHARITABLE
(SCHOOLS) INSTITUTIONS
NON-STOCK, NON-PROFIT EDUCATIONAL PROPRIETARY EDUCATIONAL HOSPITALS, ETC.
INSTITUTIONS INSTITUTIONS
CONSTI, ART XIV, SEC. 4 CONSTI, ART XIV, SEC. 4 (cont’d) NIRC. SEC. 30
(3) ALL REVENUES AND ASSETS OF NON-STOCK, PROPRIETARY EDUCATIONAL INSTITUTIONS, EXEMPTIONS FROM TAX ON
NON-PROFIT EDUCATIONAL INSTITUTIONS USED INCLUDING THOSE COOPERATIVELY OWNED, MAY CORPORATIONS
ACTUALLY, DIRECTLY, AND EXCLUSIVELY FOR LIKEWISE BE ENTITLED TO SUCH EXEMPTIONS THE FOLLOWING
EDUCATIONAL PURPOSES SHALL BE EXEMPT FROM SUBJECT TO THE LIMITATIONS PROVIDED BY LAW ORGANIZATIONS SHALL NOT BE
TAXES AND DUTIES. UPON THE DISSOLUTION OR INCLUDING RESTRICTIONS ON DIVIDENDS AND TAXED UNDER THIS TITLE IN
CESSATION OF THE CORPORATE EXISTENCE OF PROVISIONS FOR REINVESTMENT. RESPECT TO INCOME RECEIVED
BY THEM:

SUCH INSTITUTIONS, THEIR ASSETS SHALL BE
DISPOSED OF IN THE MANNER PROVIDED BY LAW. NONSTOCK CORPORATION OR
ASSOCIATION ORGANIZED AND
OTHER PRORPIETARY (PRIVATE) SCHOOLS OPERATED EXCLUSIVELY FOR
NON-STOCK, NON-PROFIT. ➔ Governed by NIRC provisions (see RELIGIOUS, CHARITABLE,
Actually, directly, and exclusively used used for below)
SCIENTIFIC, ATHLETIC, OR
educational purposes → EXEMPT ➔ NOTE: In the Consti provision it
CULTURAL PURPOSES, OR FOR
doesn’t say that it has to be non-
profit, but in the NIRC they made it THE REHABILITATION OF
that way VETERANS, NO PART OF ITS NET
INCOME OR ASSET SHALL
BELONG TO OR INURES TO THE
BENEFIT OF ANY MEMBER,
ORGANIZER, OFFICER OR ANY
SPECIFIC PERSON
Exclusively used for charitable

purposes → EXEMPT
*only those revenue/assets
which are exclusively used
NIRC. SEC. 27 (B)
PROPRIETARY EDUCATIONAL INSTITUTIONS AND HOSPITALS WHICH ARE NONPROFIT
SHALL PAY A TAX OF TEN PERCENT (10%) ON THEIR TAXABLE INCOME EXCEPT
THOSE COVERED BY SUBSECTION (D) HEREOF
10% taxable income if:
1. Non-profit
2. Gross income from unrelated trade, business, or activity does
not exceed 50% of gross income
*CREATE: 1% until June 30, 2023
Otherwise, the default 30% (now 25/20%) corporate income applies!

OTHER DOCTRINES Proprietary means “private”.
Non-profit means no part of its net income or asset accrues to or benefits any member of specific person, with all the
net income or asset devoted to the institution’s purposes and all its activities conducted not for profit
- Inurement considered
o payment of compensation, salaries or honorarium to its organizers
o payment of exorbitant or unreasonable compensation to its employees
o provision of welfare aid and financial assistance to its members
o purchase of goods or services for amounts in excess of the FMV of such goods or value of such
services from an entity in which one or more of its trustees, officers or fiduciaries has an interest

o Upon dissolution and satisfaction of all liabalities, its remaining assets are distributed to its trustees,
organizers, officers or members
PROPRIETARY SCHOOLS.
- Any private school maintained and administered by private individuals or groups.
- With an issued permit to operate from the DECS or CHED or TESDA.
FOR THOSE WHO ARE EXEMPT UNDER SEC. 30 (Including NSNP Schools), still liable on
- Income derived from any of their real properties
- Any activity conducted from profit regardless of disposition thereof
- Interest income from any bank deposits or yield on deposit substitutes (final tax of 20%)
- If it’s foreign currency deposit, final tax of 15%
- They shall also be withholding agents for their employee’s compensation income subject to withholding tax
(RMC 76-2003)
“EXCLUSIVELY” means it is both organized (referring to corporate form) and operated (refers to its regular activities)
for charitable purposes
GOCCS EXEMPTED GOCCs:
1. GSIS
2. SSS
3. PhilHealth
4. PCSO
OTHER EXEMPT (A) Labor, agricultural or horticultural organization not organized principally for profit;
CORPORATIONS (Sec.
30) (B) Mutual savings bank not having a capital stock represented by shares, and cooperative bank without capital stock
organized and operated for mutual purposes and without profit;
(C) A beneficiary society, order or association, operating for the exclusive benefit of the members such as a fraternal
organization operating under the lodge system, or mutual aid association or a nonstock corporation organized by
employees providing for the payment of life, sickness, accident, or other benefits exclusively to the members of such
society, order, or association, or nonstock corporation or their dependents;
(D) Cemetery company owned and operated exclusively for the benefit of its members;
(E) Nonstock corporation or association organized and operated exclusively for religious, charitable, scientific,
athletic, or cultural purposes, or for the rehabilitation of veterans, no part of its net income or asset shall belong to or
inures to the benefit of any member, organizer, officer or any specific person;

(F) Business league chamber of commerce, or board of trade, not organized for profit and no part of the net income of
which inures to the benefit of any private stock-holder, or individual;
(G) Civic league or organization not organized for profit but operated exclusively for the promotion of social welfare;
(H) A nonstock and nonprofit educational institution;
(I) Government educational institution;
(J) Farmers' or other mutual typhoon or fire insurance company, mutual ditch or irrigation company, mutual or
cooperative telephone company, or like organization of a purely local character, the income of which consists solely
of assessments, dues, and fees collected from members for the sole purpose of meeting its expenses; and
(K) Farmers', fruit growers', or like association organized and operated as a sales agent for the purpose of marketing
the products of its members and turning back to them the proceeds of sales, less the necessary selling expenses on
the basis of the quantity of produce finished by them;
- Not subject to income on income received by them from undertaking essential to or necessarily connected
with the purposes for which they were organized and operated.
- BUT subject to income tax on income of whatever kind and character from:
o Any of their properties (Real or personal)
o From any of their activities (unrelated) conducted for profit, regardless of the disposition made of
such income
EXEMPT UNDER - Barangay Micro Business Enterprises
SPECIAL LAWS - Tourism Zone Operators. Income tax holiday of 6 years
- Foster child agencies. Exempt from Income Tax
- Association dues and income received from rentals of the homeowners’ associations or properties, provided:
o Must be a duly constituted association
o The LGU having jurisdiction over the homeowners’ association must issue a certification identifying
the basic services provided by the association
o Proof must be presented that the income and dues are used for the cleanliness, safety, security and
other basic services needed by the members

CORPORATIONS
FIRST BASKET: INCOME
DOMESTIC CORPORATIONS
Domestic Corporation, in general Income from all sources within and Either: whichever is higher
without the PH 1. NCIT – 30%
- CREATE:
o In general: 25%
o For corporations with net taxable income not
exceeding Five Million Pesos (ͥ₱5,000,000) AND
total assets not exceeding One Hundred
Million(₱100,000,000), excluding the land on
which the particular business entity's office, plant
and equipment are situated: 20%
2. MCIT (CREATE)
a. 1% of Gross Income from July 1, 2020 to June 30,
2023
b. 2% from July 1, 2023 onwards
DC whose ratio of COS to Gross

Sales/Receipts does not exceed Optional Rate of 15% of Gross Income
55% subject to the following
conditions:
1. Tax effort ratio – 20% of CREATE:
GNP REPEALED
2. Ratio of income tax
collection to total tax
revenues – 40%
3. VAT tax effort of 4% of GNP
4. Ratio of CPSFP to GNP –
0.9%
CREATE:
REPEALED

Proprietary Educational Institutions Income derived from sources within 10% of Taxable income – if gross income from unrelated activities
and Hospitals and without the PH does NOT exceed 50% of total gross income
CREATE: 1% until June 1, 2023
RESIDENT FOREIGN CORPORATIONS

Resident Foreign Corporation, in Income from sources within the PH Either: whichever is higher
general 1. NCIT – 30% (CREATE: 25%)
A foreign corporation can engaged in 2. MCIT – 1%/2% of Gross Income
business in the PH only after it has registered
with, and had been allowed by, the regulatory
agencies of the PH government to engage in
business in the PH.
RFC whose ratio of COS to Gross Income derived during the taxable Optional Rate of 15% of Gross Income
Sales/Receipts does not exceed year from sources within the PH
55% subject to the following
conditions: CREATE:
1. Tax effort ratio – 20% of REPEALED
GNP
2. Ratio of income tax
collection to total tax
revenues – 40%
3. VAT tax effort of 4% of GNP
4. Ratio of CPSFP to GNP –
0.9%
CREATE:
REPEALED
International Carriers Gross Philippine Billings Either:

1. Gross revenue derived from - Preferential Tax Rate of 2.5% or Tax Exemption (on the
carriage of persons, excess basis of reciprocity or Tax treaty)
baggage, cargo and mail - NIRC, as amended by TRAIN, Sec. 28(A)(3)
2. Originating from the
Philippines in a continuous Offline carriers/no landing rights – 30%, however, the existence
and uninterrupted flight of a tax treaty must be considered (Air Canada v. CIR, 2016)

3. Irrespective of the place of
sale or issue and the place
of payment of the ticket or
passage document
Offshore Banking Units (OBU) Income from foreign currency Exempt, except net income from transactions as may be
Is a branch of a foreign bank which transactions with nonresidents, other specified by the Secretary of Finance
is authorized by the BSP to transact OBUs, local commercial banks
offshore banking business in the including branches of foreign banks
Philippines
CREATE:
Income includes gross interest Repealed
income
Interest income derived from foreign 10% final tax
currency loans granted to residents,
other than those included in the
above list
CREATE:
Repealed
CREATE:
OBUs shall now be taxed as resident foreign corporation upon effectivity of the CREATE.
Now subject to 25% income tax on taxable income
Regional or Area Headquarters of Income derived within the PH only Exempt

Multinational Companies
Acting as supervisory,
communications, coordination
center for their affiliates,
subsidiaries or branches in the Asia-
Pacific regions
Regional Operating Headquarters Income derived within the PH only 10% of Taxable Income
of Multinational Companies
General admin and planning, CREATE: 25% taxable income or MCIT
business planning and coordination,
sourcing and procurement of raw

materials, business development,
etc.
NRFC: NON-RESIDENT FOREIGN CORPORATIONS (Take note: NO MCIT!)
Non-resident Foreign Corporations, Income derived within the PH, 30% final tax on Gross Income
in general except capital gains from sale of
Note: A casual activity in the Philippines shares of stock not traded in the CREATE: 25% Gross income received from all sources within the
by a foreign corporation does not stock exchange Philippines, such as:
amount to engaging in trade or business - interests,
in the Philippines. The business must be
- dividends,
continuous.
- rents,
- royalties,
- salaries,
- premiums(except reinsurance premiums),
- annuities,
- emoluments or other fixed or determinable annual,
periodic or casual gains,
- profits and income,
- and capital gains, except capital gains from sale of
shares of stock not traded in the stock exchange
Non-resident Cinematographic Income derived within the PH only 25% final tax on Gross Income
Film Owner or Distributor
Non-resident Owner or Lessor of Gross rentals, lease or charter fees 4.5% of Gross rentals, lease or charter fees from leases or
Vessels Chartered by Philippine from leases or charters to Filipino charters to Filipino citizens or corporations, as approved by the
Nationals citizens or corporations Maritime Industry Authority
Non-resident Owner or Lessor of Rentals, charters, and other fees 7.5% of gross rentals or fees
Aircraft, Machineries and Other derived within the PH
Equipment

CORPORATIONS
SECOND BASKET: PASSIVE INCOME
(FINAL TAX RATES)
DC RFC NRFC
Interest on currency bank deposit
Yield on any other monetary benefit 20% 30%
from deposit substitutes and trust *If from abroad, enters 25/20% NCIT for DC CREATE: Now 25%
funds and similar arrangements
Royalties from the Philippines
Interest from a depositary bank under
CREATE: Exempt
the expanded foreign currency deposit
Now both are taxed 15%
system
(RFC used to be 7.5/10%)
General Rule:
30% Final Tax
CREATE: Now 25%
EXCEPTION:
Exempt Tax Sparing Rule
Conditions for the 15% final
tax imposed on dividends
received by a NRFC from a
domestic corporation:
Intercorporate Dividend (from Domestic 1. Country in which the
Corporation) NRFC is domiciled allows
a tax credit against the
tax due from the NRFC
taxes deemed to have
been paid in the PH
equivalent to 15%
(CREATE: 10%)
2. Such country does not
impose tax on dividends

30% NCIT
CREATE: CREATE: CREATE:

Intercorporate Dividend (from Foreign
Now 25% or 20% NCIT, as the case Now 25% NCIT 25% gross income received
Corporation)
may be from all sources within the
Philippine
In general, foreign-sourced dividends received by domestic corporations are subject to Income Tax.
However, the same shall be exempt if all of the following conditions concur:
a. The dividends actually received or remitted into the Philippines are reinvested in the business
operations of the domestic corporation within the next taxable year from the time the foreign-source
dividends were received or remitted;
b. The dividends received shall only be used to fund the working capital requirements, capital
expenditures, dividend payments, investment in domestic subsidiaries, and infrastructure project; and
c. The domestic corporation holds directly at least twenty percent (20%) in value of the outstanding
CREATE: shares of the foreign corporation and has held the shareholdings uninterruptedly for a minimum of
SPECIAL EXEMPTION FOR two (2) years at the time of the dividends distribution.
DOMESTIC CORPORATIONS
In case the foreign corporation has been in existence for less than two (2) years at the time of
dividends distribution, then the domestic corporation must have continuously held directly at least
twenty percent (20%) in value of the foreign corporation's outstanding shares during the entire
existence of the corporation.
Absent any one of the above conditions, the foreign-sourced dividends shall be considered as taxable
income of the domestic corporation in the year of actual receipt or remittance, subject to surcharges,
interest, and penalties, as applicable.

CORPORATIONS
THIRD BASKET: CAPITAL GAINS + OTHERS
DOMESTIC CORPORATIONS RESIDENT FOREIGN CORPS NON-RESIDENT FOREIGN
CORPS
STOCKS Sales of stock not 15% of net capital gains Capital gains below P100,000
traded through a 5% of net capital gains
local stock exchange 25% Gross income received
Capital gains in excess of from all sources within the
P100,000 Philippines
10% of net capital gains
CREATE:
Now 15% of net capital gains
Sales of stock traded Stock transaction tax
through the local 6/10 of 1% of the gross selling price or gross value in money of the shares of stock
stock exchange
PROPERTY BUILDINGS AND LAND HELD AS CAPITAL ASSETS
Final Tax Rate on 6% of gross selling price, or the
Sales, Exchanges or current market value at the time of
Transfers of Real sale, whichever is higher
Properties in the No provision. 25% Gross income received
Philippines Hence, NCIT applies from all sources within the
If sale is made to the 6% of gross selling price, or the Philippines
government or to current market value at the time of
GOCCs sale, whichever is higher
OR under the normal income tax

rate, taxpayer’s option
PROPERTY HELD AS ORDINARY ASSETS
If the seller is CREDITABLE WITHHOLDING TAX.
habitually engaged in - Selling price is less than P500,000 – 1.5%
the sale of real estate - Selling price is P500,000 to P2M – 3%
business - Selling price is above P2M – 5%
Of gross selling price/current market value, whichever is higher

If the seller is not 7.5% of gross selling price/market value , whichever is higher
habitually engaged in
the real estate
business
BRANCH Any profit remitted by a branch to its head office shall be subject to a tax of 15% of the total profits applied or earmarked for
PROFIT remittance without any deduction for the tax component (earmarked =/= the profit actually remitted!)
REMITTANCE
TAX Not treated as branch profits UNLESS connected with the conduct of a foreign corporation’s trade or business in the
Philippines:
1. Interests
2. Dividends
3. Rents
4. Royalties
5. Payment for technical services
6. Salaries and wage premiums
7. Annuities, emoluments or other fixed or determinable casual gains
8. Profits, income and capital gains
IMPROPERLY An improperly accumulated earnings tax of 10% of improperly accumulated taxable income is imposed on corporations that
ACCUMULATED permit earnings and profits to accumulate instead of being divided or distributed. It is designed to compel corporations to
EARNINGS TAX distribute earnings so that the shareholders could in turn be taxed.
CREATE: Who are covered?

IAET Removed All domestic corporations classified as closely held corporation
- Closely held corporation. One where at least 50% in value of the outstanding capital stock or at least 50% of the total
combined voting power of all stocks is owned directly or indirectly by not more than 20 individuals
o If not owned by individuals, considered to be owned proportionately by stockholders
o If it is a family and partnership ownership, an individual shall be considered to own the stock for his family
members or partners
o If there is an option to acquire stocks, it shall be considered as being owned by the person with the option
Who are not covered?

1. Publicly-held corporations
2. Banks and other financial institutions
3. Insurance companies
4. Taxable partnerships
5. General professional partnerships
6. Non-taxable joint ventures

7. Enterprises registered with PEZA or with the BCDA or with other special economic zones
Reasonable needs.
- Means the immediate needs of the business, if the corporation cannot prove, then it is not an immediate need.
- Controlling intention of the taxpayer is that which is manifested at the time of accumulation, not subsequently
declared intentions
What are considered reasonable?

- Allowance for the increase of accumulated earnings up to 100% of paid-up capital
- Earnings reserved for building, plant or equipment acquisitions as approved by the board of directors (expansion,
improvement and repairs)
- Earnings reserved for compliance with any loan or obligation established under a legitimate business agreement
(debt retirement)
- In case of subsidiaries of foreign corporations in the Philippines, all undistributed earnings intended or reserved for
investments in the Philippines
- Earnings required by law to be retained
What are the prima facie evidence of IAE?

- The fact that any corporation is merely a holding company or investment company
- The fact that the earnings or profits of a corporation are permitted to accumulate beyond the reasonable needs of
the business
- Investment of substantial earnings in unrelated business or in stock or securities of an unrelated business
Accumulation of earnings in excess of 100% of paid-up capital

ESTATES AND TRUSTS
ESTATES ESTATES TRUSTS
AND DEFINITION. DEFINITION.
TRUSTS Mass property, rights, and obligations left behind by the Arrangement whereby the trustor grants the control of certain
decedent upon his death. property in the person of the trustee for the benefit of the
beneficiary.
For purposes of income tax, an estate may be under judicial
administration or one that is not. Trusts subject to income tax: income
a. Accumulated for the benefit of unborn or
unascertained persons or persons with
contingent interest.
b. Accumulated or held for future distribution
under the terms of the trust.
c. Is to be distributed currently by the fiduciary to
the beneficiaries.
d. Collected by a guardian of an infant is held or
distributed as the court may direct. e. Income,
in the discretion of the fiduciary, may either be
distributed to the beneficiaries or
accumulated. Exempt taxable trust:
“employee’s trust”
WHO FILES. WHO FILES.
If under judicial admin: executor or admin shall file the return If irrevocable trust: trustee (fiduciary) is the one who will file
and pay the tax on the net income of the estate If NOT under the return and pay the tax thereon for a trust
judicial admin: heirs shall include in their respective returns
their distributive shares in the net income of the estate If revocable trust: income of such part of the trust shall be
included in computing the taxable income of the GRANTOR
Revocable trust is one where at any time the power to revest in

the grantor title to any part of the corpus of the trust is vested:
a. In the grantor alone or in conjunction with a
person not having substantial adverse interest
on the corpus
b. In any person not having a substantial adverse
interest in the disposition of such part of the
corpus or the income therefrom.

Gross income constitutes. Same as individual taxpayer
Accounting period. Calendar year
Deductible expenses. Deductible expenses.
a. Same to an individual taxpayer a. Same to an individual taxpayer
b. Amount of income of the estate that is paid or credited to b. Amount of income of the trust which is to be distributed
any legatee, heir, or beneficiary Note: Cash advances given to currently to the beneficiaries
surviving spouse or heir NOT deductible c. Amount of the income collected by the guardian of an infant
which is to be held or distributed as the court may direct. Note:
Cash advances given to surviving spouse or heir NOT
deductible.
Excess of sales proceeds over the appraised value of the If two or more trusts are created by the SAME grantor in favor
property is recognized as taxable gain. of the SAME beneficiary, the taxable income of all trusts shall
be CONSOLIDATED for the purpose of computing the income
tax thereon and each trustee shall proportionately bear the
taxes

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TAX MEM AID

Tax is so taxing 🙃 / Sonson Mem Aid / TAXATION LAW I

Everything in the NIRC and other tax

Tax is so taxing 🙃 / Sonson Mem Aid / TAXATION LAW I

End up as earnings of toll way operators, not the

*Direct double taxation is also not allowed [P(3)-JAC]

Tax is so taxing 🙃 / Sonson Mem Aid / TAXATION LAW I

(b) Delegation to the president.

(c) Delegation to administrative authorities.

3. GOVERNMENTAL ENTITIES GENERALLY EXEMPT

Tax is so taxing 🙃 / Sonson Mem Aid / TAXATION LAW I

CONSTITUTIONAL 6. CONSTITUTIONAL LIMITATIONS

Tax is so taxing 🙃 / Sonson Mem Aid / TAXATION LAW I

Tax is so taxing 🙃 / Sonson Mem Aid / TAXATION LAW I

The same goes for tax exemptions.

RULINGS, CIRCULARS, RULES AND REGULATIONS

GENERAL INTERPRETATIVE RULE

Tax is so taxing 🙃 / Sonson Mem Aid / TAXATION LAW I

INCOME Capital is wealth, income is the service of wealth.

Income means profit or gains.

Tax is so taxing 🙃 / Sonson Mem Aid / TAXATION LAW I

Dividend income Income within

Tax is so taxing 🙃 / Sonson Mem Aid / TAXATION LAW I

NON-RESIDENT Those citizens whose residence is not within the PH

*IMMIGRANT. Leaves the Philippines to reside abroad as an immigrant for

*PERMANENT EMPLOYEE. Leaves the Philippines to reside abroad as an

*CONTRACT WORKER. To be considered physically present abroad most of

4. PH citizen previously considered as a non-resident citizen and who arrives during

Tax is so taxing 🙃 / Sonson Mem Aid / TAXATION LAW I

*If there is definite purpose which is promptly accomplished, transient

NETB INCOME INSIDE RP ONLY

Tax is so taxing 🙃 / Sonson Mem Aid / TAXATION LAW I

Examples of transactions in the Philippines:

MINIIMUM PRIVATE SECTOR. Paid the statutory minimum wage

Exempt from payment of income tax on their taxable income:

Tax is so taxing 🙃 / Sonson Mem Aid / TAXATION LAW I

Tax is so taxing 🙃 / Sonson Mem Aid / TAXATION LAW I

Tax is so taxing 🙃 / Sonson Mem Aid / TAXATION LAW I

Not allowed to use the 8% tax rate option:

Tax is so taxing 🙃 / Sonson Mem Aid / TAXATION LAW I

5. Income exempt under any treaty;

6. Benefits received from the US Veterans Administration;

10. SSS benefits; and

11. GSIS benefits.

Tax is so taxing 🙃 / Sonson Mem Aid / TAXATION LAW I

2) REPRESENTATION AND TRANSPORTATION ALLOWANCE (RATA), provided that:

Tax is so taxing 🙃 / Sonson Mem Aid / TAXATION LAW I

When are stock dividends taxable?

Tax is so taxing 🙃 / Sonson Mem Aid / TAXATION LAW I

Tax is so taxing 🙃 / Sonson Mem Aid / TAXATION LAW I

Tax is so taxing 🙃 / Sonson Mem Aid / TAXATION LAW I

Tax is so taxing 🙃 / Sonson Mem Aid / TAXATION LAW I

OR under the normal income tax rate, taxpayer’s option

Of gross selling price/current market value, whichever is higher

Tax is so taxing 🙃 / Sonson Mem Aid / TAXATION LAW I

Tax is so taxing 🙃 / Sonson Mem Aid / TAXATION LAW I

Requisites for joint ventures (R.R. 10-2012):

Tax is so taxing 🙃 / Sonson Mem Aid / TAXATION LAW I

Tax is so taxing 🙃 / Sonson Mem Aid / TAXATION LAW I

Gross Sales Gross Receipts

COGS COMPUTATION FOR A TRADING AND MANUFACTURING FOR A MANUFACTURING CONCERN

2% (now 1%/2%) gross income

Tax is so taxing 🙃 / Sonson Mem Aid / TAXATION LAW I

RULES FOR SPECIAL TYPES OF CORPORATIONS