TAXATION 1 – ATTY. LUMBERA Q: What about local taxation? Kinds?

PRE-BAR NOTES (UP LAW CENTER)

A:
Q: Coverage of the bar? 1. Ordinary local taxes- in the LGC of 1991, and
A: each sanggunian of the LGU can provide for
1. National Taxation – covered by the NIRC/Train additional taxes not yet provided under the LGC
law of the 1991
• Taxes imposed by the national govt 2. Real property tax
2. Local Taxation – covered by the local
government code of 1991 --
• Imposed by the local government
3. Tariff & customs duties (not covered by the bar Whether in local or national taxation, the law provides for
exams) remedies

Q: What are the taxes covered by the NIRC?
A: Income tax & VAT / % tax
Magasawa ‘yang Income tax & VAT
Q: Ano ba yung remedies na topic?
A: Ito yung mga solusyon/remedy kung paano
nagcocollect ang gobyerno ano ang karapatang ng
gobyerno o tao, yan ang remedies. This is purely
procedural

Q: What else are covered by the NIRC? Under the LGC for Ordinary local and RPT there are also
remedies.
Donor’s Tax
Estate Tax For national taxation you study what are the taxes and
how they are collected, same with Local Taxation.
--
--
Ang VAT ka either or yan ng Percentage tax
From the POV of a taxpayer, how do we look at tax? Ito
Q: What are the internal revenue taxes? kasi POV ng batas, let’s take the POV of the taxpayer
A:
Income tax So kung ikaw ay tao or corporation meron kang kita, kasi
VAT/% (percentage)Tax hindi pwedeng wala kang kita, kapag wala kang kita
Donor’s Tax mamamatay ka wala kang gagastusin.
Estate Tax
Excise Tax Basta kayo ay kumita meron yang income tax
DST consequence at kapag ang kita mo ay sa trade/business
meron kang income tax or VAT or percentage tax
Q: Are they all covered when you are alive?
A: Yes, except for estate tax. Yung estate tax lang yung At kapag ikaw ay kumikita, meron kang expense at kapag
tax na binabayaran kapag namatay ka may expense ka may ibang kumikita.

Estate tax is imposed on your estate because of the So the cycle is, revenue – expense kapag ikaw ay kumite,
transfer of your property when you die. kailangan mo gumastos and when you spend you create
income for others, when this entity spends it create
Q: What are the taxes related to business? incomes for another. And this is infinte.
A:
Income Tax So when you spend, the person you spent on your expense
VAT/percentage tax needs to pay income tax for another and VAT/% Tax as
Excise Tax well.

And whether you are in trade/business when you execute Ngayon dahil may kita ka at gumastos ka, meorng natira.
a document specifically provided by the tax code, you May savings ka.
impose the DST

HUA MULAN
Q: Ano gagawin mo savings?
A: Idedeposit mo sa bank
If you deposit this, and kung ano anong investments you
create income and tax is also paid.
Let’s say hindi ka naglagay sa bank, and say you acquired
ASSETS
Q: Ano yung acquisition ng assets?
A:
Real property
Tangible personal property
Intangible personal property
When you acquire assets, then the seller realize income
and in which case tax is a consequence
Now when your assets, realized income then tax is again
a consequence
When you invest, there’s tax. When your investments
realize income may tax na naman
Now, if you have excess if buhay ka, ito ang mga
possibilities.
Kapag mabait ka at ikaw ay namigay, ipinamigay mo ang
assets mo, aba babayad ka ng DONOR’S TAX
At kapag ikaw ay namatay “dedo” at lahat ng assets mo it
will transfer to your heirs by way of succession so you pay
ESTATE TAX.
If you execute documents for these transactions, then you
pay DST.
If you import or produce goods, then excise tax will be
paid.
Q: Kalian papasok ang LGC 1991 when we talk about
an individual or corporation?
A: When you are engaged in t/b you will have to pay local
taxes like business tax
Now when we talk about RP you acquire when you are
still alive, on a yearly basis you play RPT
Local taxes come in if you are engaged in t/b or if you
acquire real properties.
--
HUA MULAN
Kapag ikaw ngayon ay di nagbayad ng buwis na national
taxes, then the government will collect and when the
government collects you have rights and procedures na
susundin, same with local taxes dito papasok yung
REMEDIES.
--
Uunahin natin si income tax.
Q: What are the basic rules in income tax?
Q: What is income?
A: Income is anything that flows into the wealth of the
taxpayer other than mere return of capital or anything that
increases the networth of a taxpayer other than mere
return of capital.
Yung salitang capital, is not capital or puhunan only
anything that flows into your worth other than mere return
of capital is income
Q: Are all income taxable?
A: No.
Q: When is income taxable?
A: It must ACTUALLY or CONSTRUCTIVELY
received
Ang susunod natin ay, kapag sinabi niyong realized or
constructively received yung pag rerealize niyo ng income
it depends on the accounting system
Because sa accounting system merong cash basis and
accrual basis
Kapag cash basis, ibig sabihin nito income which is
actually received sa listahan Ninyo as income
When you say accrual basis even income which is
constructively received may be part of your income
Q: Ano yung actually received?
A: Cash basis. In every day living ang napera sa palad ko
1k, at cash basis ang computation 1k ang rerecognize mo
Q: Ano yung constructively received?
A: ex: Payment on installment, ang ibabayad sayo ay
installment so kung accrual basis ka, yung future
installments which will be receivables are part of the
income
For easier understanding, look at your wallet wala kang
trabaho and you are a student living on allowance, if your
parents give you 1k then you declare 1k as your income
because it is ACTUALLY RECEIVED, if may
regularity in receiving the 1k and you are using the accrual
basis even the 1k basis you receive on a daily basis in the
future you can receive it as income
Yung accounting basis na ginagamit, ginagamit ito for
revenue side and expense side
So if you’re using cash basis sa revenue side s akita side,
kailangan sa expense side CASH KA DIN
If accrual basis ang gamit mo as your accounting basis in
recognizing income kailangan sa expense side accrual
basis ka din
Kasi kapag pinagbalibaliktad mo, di mo maiintindihan
ang pera mo ngayon
In simple terms, magkano sa isang side ang kita mo,
magkano ang gastos mo
Q: Anong period ginagamit yung accounting methods
na ito?
A: meron tayong taxable period
Sa income tax, yung taxable period laging 12 months na
CALENDAR YEAR or FISCAL YEAR.
Kapag calendar year, alam natin ito It begins jan and
ending December 31.
Q: What is fiscal year?
A: “12 month period that does not end on December 31”
from the law masyado daw itong complicated
Pwede namang sabihin na:
Beginning any month ending after the 12 month period,
but this starts ng first day of the month, hindi ka pwede
mag April 5 kailagan April 1, so February 1 ending on
Jan. 31 the following year
PERO LAGI YANG 12 MONTHS.
So when you look at the picture if you’re using calendar
year, you have January – December, sa 12 months you
divide it into two parts revenue side and expense side
If you’re using the fiscal year same.
For purposes of income tax for both calendar and fiscal
year we recognize the income and expense within the 12
month period
HUA MULAN
All income and expenses PRIOR to and all income and
expenses AFTER and BEYOND the 12 month period you
cannot consider computing for that taxable period
All transactions prior to and after the specific taxable 12
month period, you will never recognize for the present
period.
So we only recognize income within the period of the 12
months, within the taxable period
Kung ikaw ay tao (individual) laging CALENDAR
YEAR.
If you are a corporation pwede kang calendar/fiscal year
Q: As a corporation, kailangan ka namimili kung
calendar year or fiscal year?
A: From the time you incorporate, you file your certificate
of registration and AOI with the SEC, from that time you
declare kung calendar/fiscal year
Q: Can you change if you are a corporate taxpayer
from calendar year or fiscal year within the 12 month
period?
A: sa tao whether engaged in t/b or not, calendar year
As a corporate taxpayer yes you can change, pero bago ka
payagan ng BIR na mag shift from calendar year to fiscal
year or fiscal year or calendar year, kailangan mo ng
permiso and you will be required to file short returns
Q: What are short returns?
A: So kung ikaw ay gumagamit ng calender year, Jan. 1,
2020-Dec. 31 2021, ‘yan yung calendar year mo so you
are declaring income and expenditures from Jan 1, 2020-
dec. 31, 2020
In the middle of the year, September 2020 you wanted to
shift from calendar year to fiscal year at ang sabi mo ay
gusto mo mag shift ng fiscal year
Beginning November 1 2020 – October 31, 2021 so may
overlapping
Q: Ano gagawin Ninyo?
The BIR will require you to file a short return doon sa Nov
1 2020 – October 31, 2020
Q: Bakit?
A: Pagdating mo ng nov. 1, 2021 covered ng calendar
year, kasi puputulin mo so kailangan mo mag file ng short
return
Let’s do it the other way around, SHIFT.
Kung Fiscal year ng Nov 1, 2020 – Oct 31, 2021 ang
ginagamit mo, at mag shishift ka sa calendar year, so from
November 1, 2021 up to December 31, 2021 kasi diba
mag shishift ka to Jan.1, 2022 – Dec. 31, 2022 ng calendar
year
Q: So ano mangyayare?
A: Beginning nov 1, 2021 – dec 31, 2021 before ka mag
calendar year yung ipapalit mo, kailangan mo mag file ng
short return para makapag shift
This is to make sure na lahat ng transactions mo covered
ng returns
--
We have the income cycle, when you have revenues you
will have to spend and when you spend you create the
revenue side of another taxpayer who will also have to
spend, and when he spends a revenue and expense side of
another is created
Income – Expense – Income – Expense hanggang dulo,
hanggang sa mangyayare ay lahat kayo ay taxpayers, kasi
kung hindi ka kumikita, kalimutan niyo ang income tax,
kung hindi ka kumikita wala kang babayaring buwis.
Kasi kung wala kang kita (in the concept of tax), you have
nothing to spend, even pagnanakaw is kita.
NEXT.
Q: Is income limited to legitimate sources?
A: No.
When we say income, whether legal or illegal sources, in
cash or in kind, regardless of source is considered as
income
Income is anything that flows into the wealth of the
taxpayer apart from mere return of capital, increases the
net worth of the taxpayer other than mere return of capital,
whether from illegal or legal sources whether in cash or
in kind
So kahit magnakaw ka = income
Nadampot mo, Nakita mo sa lupa at dumagdag sa
networth mo = income
HUA MULAN
Whether from legal or illegal sources
Q: If illegal ang sources, can the govt tax?
A: Yes, di porket illegal ang sources it is because income
is from both legal and illegal sources
Iba yung tanong na irerecognize po ba ‘yan as income, if
you don’t declare it you are violating the tax code because
income is bothf rom legal and illegal source s
Next
Itong mga tanong na ‘to, itong mga sequence ng tanong
na ‘to sinusundan niyo sa utak
Ang tanong lang sa bar, is TAXABLE BA ito
Itong sequence na ito na ‘pag tatanong is nasa isip niyo.
Unang tanong
a) Did you receive anything, whether from legal or
illegal sources, whether in cash or in kind? (kung
wala kayong tinanggap kalimutan niyo ang
income tax)
b) Is it income? (‘yan bang tinanggap mo, is
income? And if your answer is yes, proceed to the
next question…)
c) Is it taxable? (ito ang pinakamahirap na tanong)
– the answer to this question is dependent on the
following
• Who you are as the taxpayer (kinds of
taxpayers)
• Source of the income (is it from within or
without)
• Aaralin niyo dito sa is it taxable na tanong,
yung items of inclusions, exclusions tsaka
exemptions)
• Aaralin niyo din dito yung CAPITAL GAINS
v. CAPITAL LOSS, ORDINARY GAINS,
ORDINARY LOSS (hate daw to ng students
haha!)
• Deductions aaralin din ito dito (what items
are deductible, expenditures, what are
subject to tax – if yes ito)
d) What kind of income tax do we impose? What
rate? (do you need to memorize the rates of
income taxes, as a general rule no pero alam niyo
dapat kung kalian iniimpose and isang klase ng
income tax, because it depends kung who you are
as a tax payer and the sources, nagbabago ang
rate ng income tax kung sino ka as a taxpayer at
nagbabago ang rate whether within or without)
NOTE: Keep in mind this sequence.
Among all of this, ito yung basic rules in income taxation,
itong questions na to yung 4 questions na ito, nasa brain
niyo dapat.
Did you receive anything in cash or in kind if you say yes,
is it income? (take the definition of income)
Pwedeng ang pinangagalingan ng income ay
compensation (EE-ER contract, relationship)
If you are rendering service pursuant to a EE-ER
relationship ang tawag sayo for purposes of tax is is a
purely compensation income earner

Q: How do you recognize income? Meron ding tao na ang source of income is purely exercise
A: It must be realized, actually or constructively of profession or trade or business ang tawag sayo ay SEP
(Self employed professional) or if you are engaged in trade
Once you say it’s income, you take note. Is it taxable? or business (Self employed individual)

Take note of who you are a taxpayer, source of income: is
it within or without, study the items of inclusions,
exclusions and exceptions and we have the capital gains,
ordinary gains etc and we have the concept of deductions
Once you determine na taxable siya, you ask anong
klaseng income tax babayaran ko at anong rate
--
Q: Paano kung madami kang business?
A: It does not matter, SEI pa din ang tawag sayo,
pagsasamahin lang ang kita mo
Meron ding tao na mixed ang income
Meaning compensation + exercise of profession,
compensation + trade/business, compensation + exercise
of profession + trade or business

KINDS OF INCOME TAXPAYERS Kung ako si lumbera, andito ako: compensation +

exercise of profession + trade or business
Unahin natin ang tao (individual)
Ang tawag dito: Meaning compensation + exercise of
INDIVIDUAL TAX PAYERS profession, compensation + trade/business, compensation
EE-ER relationship + exercise of profession + trade or business
This is CIE
(compensation income
earner) mixed income earner
Exercise of profession –
SEP ang MIE dapat may component ng compensation, if you
are exercising your profession + t/b sa second group ka,
Trade or business - SEI hindi mixed income earner.

Compensation + exercise An individual is only a MIE if may compensation,

of profession pwedeng sweldo + business, sweldo + exercise of
profession, sweldo+ profession + business
Compensation + t/b
Meron naman tayong CORPORATE TAX PAYERS
Compensation + exercise
of profession + t/b When we say corporate taxpayers for purposes of tax, it
covers associations, GPP, corporations, sole corporation
THESE THREE ARE, kung ano mang corporate taxpayer ‘yan, mutual benefit
MIXED INCOME organization registered with the SEC we only call it in one
EARNERS group corporate tax payer, wala yang MIE wala yang
corporation engaged in t/b. wala ‘yang ganon

Q: Why?
A: Because all corporations are presumed to to be
established for t/b

HUA MULAN
If you are exercising a profession and you put up a NRC
partnership, then ang tawag sa inyo is a corporate tax Exercise of profession – RA
payers. SEP

Let’s go to partnership. Trade or business - SEI NRAET/B

There are two types:
1) General professional partnership (GPP): one
established for the purpose of establishing the
common profession of the partners and no part
from its income is derived from t/b (so two
requisites), any partnership other than a GPP is a
general co-partnership.
Sa civil code napaka daming uri ng partnership,
regardless of whatever is established under the
tax code dalawa lang yan GPP or GCP. Take note
a GPP is not subject to tax as a corporate
taxpayer, but once of the profits of the
partnership are distributed to each partner, then
each partner will be treated as an individual
taxpayer who is either a SEI or SEP and will
definitely be subjected to tax
So may GPP all lawyers, the partnership is a GPP,
when it is a GPP, the partnership is EXEMPT
from payment of corporate income tax but once
the partnership after all expenses are deducted,
the profits will be distributed to the individual
partners, then the individual partners will be
treated as SEP or SEI never as a CIE because the
partners are in the exercise of profession.
Compensation + exercise NRANETB
of profession
(OBU, MNC, OPSC)
Compensation + t/b Estates and trusts
RC (resident citizens)
NRC (Non-resident citizens)
Resident Aliens (RA)
NRAET/B
NRANETB
There are the 5 kinds of individual taxpayers, in addition
to the 5, we have estates and trusts.
Q: What is an estate?
An estate – when a person dies and the properties are not
distributed to the heirs, automatically may transfer of
ownership at the time of death, habang di pa distributed
sa heirs, we call that an estate
An estate, during that transition period is considered for
purposes of income tax as an individual taxpayer
So kung kumita ang mga properties consisting the estate,
before they are distributed to the heirs then the income is
subject to income tax as an individual taxpayer

So ganon ang itsura niya, sa taas yung GPP which
is a corporate taxpayer which is not subject to
corporate tax but sa baba yung individuals subject
to income tax depende sa shares nila because that
is their income
2) General co-partnership
➔ Definitely subject to tax
➔ It is engaged in t/b, the only exemption is the GPP
not this one
Q: Sino ang taxpayer?
A: The estate, hindi yung namatay
Following the same concept, ang trust, trust fund. From
the time the grantor creates the trust, it is held by a trustee
who is under obligation to preserve the fund/trust and
subsequently transfer it to the beneficiary
That transition period while the trust is held by the
trustee, it is called an individual taxpayer

Q: How are they classified under the code? Now, for corporations
A: These are the taxpayers based on income, but how are
they classifies under the taxcode. CORPORATION DC (Domestic
corporation)
Ang mga tao they are classified as GPP RFC (Resident foreign
corporation)
EE-ER relationship KINDS OF GCP NRFC (Non-resident
This is CIE TAXPAYERS foreign corporation)
(compensation income
earner) RC

HUA MULAN
Idk pero ganyan drawing ni ma’am sa board, pero to
avoid confusion ito siya.
TYPES OF EARNERS
• Compensation income earner: usually selling service,
and under an EEER relationship - “sweldo”
• Self-Employed individual – selling service, no EE-ER
relationship, usually from trade or business
• Mixed Income Earner – there is a profession, there is
an EE-ER, there could be trade or business
KINDS OF TAXPAYERS
1. Individual Taxpayers
a. Resident Citizen (RC)
b. Non-Resident Citizen (NRC)
c. Resident Alien (RA)
d. Non-Resident Alien Engaged in Trade or Business
(NRAETB)
e. Non-Resident Alien NOT engaged in Trade or Business
(NRANETB)
Note: Estate of a deceased person not yet settled or not yet
distributed among the heirs, is considered an individual
income taxpayer
Trustor-Trustee relationship, with no distribution yet is
deemed as an individual taxpayer
2. Corporate Taxpayers
a. Domestic Corporation
b. Resident foreign corporation
c. Non-resident foreign corporation
Partnerships – they are treated as corporate taxpayers
Two kinds of partnerships under the tax code:
i. General Professional Partnership: exercise of profession
of the partners and no part of its income is derived from
trade or business; not subject to corporate income tax,
only the individuals are after distribution
ii. General Co-partnership – subject to tax, same rates
as DC
o Joint venture agreements are also subject to tax
---
Q: Who is a resident citizen?
A: A RC is a citizen of the Republic of the Philippines
who resides in the Philippines
HUA MULAN
Q: What is the definition of residence?
--
Q: Before that, who are NRC of the Philippines?
Section 22 E of the NIRC
A citizen of the Philippines who establishes to the
satisfaction of the commissioner the fact of his physical
presence abroad with a definite intention of residing
therein
Keywords: wala sa pilipinas, at may intention na
manirahan permanently sa labas ng pilipinas
A citizen of the Philippines 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
➔ Ang classic example niyan are OFWs, yung
contract workers sa labas ng bansa who from time
to time go back to the Philippines to spend their
break here in the Philippines but sabi ng batas
NRC
A citizen of the Philippines who leaves the Philippines
during the taxable year to reside abroad, either as an
immigrant or for employment on a permanent basis
➔ Those who are considered as immigrants
A seaman is considered as NRC kasi wala namang
bahay sa pier.
➔ Not residing in the phil but he is also not residing
somewhere else, he is not earning income from
the Philippines
--
May mababasa kayo sa taxcode, na sa loob ng 1 taxable
period within 12 months na ang isang tao ay pwedeng ma-
consider differently dalawang klaseng classification
within in 12 months, this is a NRC.
A citizen who has been previously considered as non-
resident citizen and who arrives in the Philippines at
any time during the taxable year to reside permanently
in the Philippines shall likewise be treated as a non
resident citizen for the taxable year in which he arrives
in the Philippines with respect to his income derived
from sources abroad until the date of arrival in the
Philippines

If you were formerly a NRC and then sometime during
the year, you decide babalik ka na ng Pilipinas,
permanently, sep. 8, 2020
Let’s say immigrant ako, sabi ko sep 8, 2020 babalik na
ako sa pinas, permanently residing in the Philippines
Q: Ano ang tawag sakin?
A: From jan – sep 8, 2020 – NRC ako
Pero from sep 9, 2020 – matapos ang period, RC na ako
THIS IS THE ONLY INSTANCE IN THE TAX
CODE NA MACCLASSIFY ANG ISANG
INDIVIDUAL DIFFERENTLY WITHIN ONE
TAXABLE PERIOD
Note: memorize the NRC, if you are not a NRC you are a
RC.
Sa tax kasi, walang nasa boundary isa lang ang
classification walang gray area dito, this is very crucial,
yung how do you classify taxpayers, so kapag di ka
kasama sa 5 types ng NRC, you are a resident citizen
Q: But what is the keyword you have to look for?
A: it is the intention to reside permanently, somewhere
else that is the bottomline
If you do not have any intention to reside permanently
outside the Philippines, you are a RC
--
Q: What is a RA?
A:
SECTION 22 (F) RESIDENT ALIEN : an individual
whose residence is within the Philippines and who is
not a citizen thereof
➔ Not a citizen of the Philippines and is residing in
the Philippines
Q: NRAETB
Section 22 G: NONRESIDENT ALIEN – individual
whose residence is not within the Philippines and who
is not a citizen thereof
A: Not a citizen of the philippines, not residing in the
Philippines but engaged in t/b Philippines
Q: NRANETB?
HUA MULAN
Sec 22 G: Non-resident alien: means an individual
whose residence is not within the Philippines, and who
is not a citizen thereof
A: alien siya, not residing, not engaged in t/b
There are certain criteria to determine kung NRAETB and
NRAETB
Q: May Nakita na ba kayo na RA na engaged in t/b sa
listahan natin?
A: Wala
Q: Meron bang RA not engaged in t/b sa listahan
natin?
A: Wala
Kasi ang batas di na ‘yan nag cclassify pa pero yung NRA
meron pa ‘yang distinction
Kasi ang RA, walang distinction kasi kung kumakain or
nagbabakasyon or walang ginagawa kung di kumainn
maghapon, or nakatira ka dito at nag ttrade or business
walang distinction ang batas
Pero kapag NRA may classification pa
Pero kung alien ka nakatira ka sa pilipinas, permanently
KUMIKITA sayo ang gobyerno, walang tao na di
gumagastos so resident ka dito and you don’t work here,
pinapadala lang sayo pera, eh kikita sayo ang gobyerno
kasi madami ka gagastusin and when you spend, kikita
gobyerno sayo, so whether or not engaged in t/b it does
not matter, taxable ka sa pilipinas
Q: So how do we distinguish a NRAETB and
NRANETB?
A: These are the rules:
1. If an alien stays in the Philippines for an
aggregate period of 180 days or more, then the
alien is considered as a NRAETB
Q: What does aggregate mean?
A: Alien ka, dumating umalis, dumating umalis
sa loob ng 12 buwan, bibilangin ilan beses ka
andito, kapag ang tigil mo dito more than 180
days kahit wala kang t/b you are a NRAETB
2. Q: What else?
A: Principle of habituality
If an alien engages/enters in commercial
transactions in a more or less regular basis within
 a taxable period, then he is considered as a A: The foreign corporation is engaged in t/b in the
NRAETB Philippines
Section 22 H: RESIDENT FOREIGN
3. If an alien appoints agents here in the Philippines, CORPORATION – applies to a
4. puts up a branch here in the Philippines foreign corporation engaged in trade or business within
5. hiring of employees the Philippines

➔ These are indicators that a NRA is ETB

➔ If ay of the 5 are missing then you are NRANETB Q: What is NRFC?
-- A: Not engaged in t/b in the Philippines

ALIENS EMPLOYED IN OFFSHORE BANKING
UNITS, OIL PETROLEUM SERVICE
CONTRACTORS AND MULTI-NATIONAL
COMPANIES
➔ Also known as expats
➔ They are CIE, they are employed in OBu, opsc,
MNC but the companies are here in the
Philippines, tapos merong alien na employed by
the companies located here in the Philippines
➔ Pag tinignan mo ginagawa nila sa buhay, nag
tatrabaho sila sa company na nasa Pilipinas,
kapag tinignan mo, dapat RA sila because nag
tatrabaho sila sa pinas, pero di sila nakatira dito,
malamang nakatira sila dito, they are easily
considered as RA.
➔ However, under the law, sec. 25 nakalagay diyan
if any alien is employed under the 3 companies,
the law does not classify them as RA they are
NRANETB, they are called the special ones.
--
Incorporated under foreign laws but is not engaged in
trade or business within the Philippines (22 I)
For purposes of discussion ang counterpart ng RFC is
NRAETB and ang NRFC is NRAETB
Q: So how do you determine, how do we distinguish
between RFC and NRFC?
A: Kanina sabi ko sa NRAETB v. NRAETB, 5 yun. dito,
same lang alisin niyo yung 180 day period. Yung 4 na
natitira dito mo malalaman if the corporation is engaged
in t/b or not engaged in t/b
1. Principle of habituality
If an alien engages/enters in commercial
transactions in a more or less regular basis
within a taxable period, then he is considered
as a NRAETB

Now let’s go to corporations. 2. If an alien appoints agents here in the

Philippines,
Q: What is a DC? 3. puts up a branch here in the Philippines
4. hiring of employees
SEC 22 (C) DOMESTIC – when applied to a
corporation, means created or organized in the
Philippines under its laws ➔ Apply these in the essence of corporations.
--
A:
A Corporation incorporated in accordance with Philippine Based on the definition, how are they subjected to tax?
law, even with foreign equity there are foreigners as stock
holders, so long as it is incorporated under Philippine laws

Q: What is a FC?
A: Incorporated under any law, under than Philippine law
TAXPAYER TAXABLE TAXABLE
Section 22 (D) FOREIGN – when applied to a FROM FROM
corporation means corporation, which is not SOURCES SOURCES
domestic WITHIN WITHOUT
RC YES YES
Q: What is a RFC? NRC YES NO
RA YES NO
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 NRAETB YES NO
NRANETB YES NO
Unahin muna natin si source of income, sa batas, sa
income tax, meron tayong tinatawag na within and
without.
Q: when do we say that income is derived from within
or without?
A: typical for us yung concept of territorial, so we have to
picture the map of the Philippines
Our thinking is that tax is purely territorial, while there is
some truth to that, it does not apply 100% yung
territoriality, yung pagigibg territorial ng tax
So ang concept natin kung ano ang nasa loob ng territory
ng pilipinas within, kung ano ang nasal abas- without
Pero yang concept na ‘yan nag apply ‘yan kung ang pinag
uusapan ay bagay, pero kapag income, hindi natin
pwedeng literal iapply ang within and without
Under the law, naka specify ‘yan under section 42 of the
tax code.
SEC. 42. Income from Sources Within the
Philippines.-
(A) Gross Income From Sources Within the
Philippines. - The following items of gross income
shall be treated as gross income from sources within the
Philippines:
(1) Interests. - Interests derived from sources within
the
Philippines, and interests on bonds, notes or other
interest-bearing obligation of residents, corporate or
otherwise;
(2) Dividends. - The amount received as dividends:
(a) from a domestic corporation; and
(b) from a foreign corporation, unless less than fifty
percent (50%) of the gross income of such foreign
corporation for the three-year period ending with the
close of its taxable year preceding the declaration of
such dividends or for such part of such period as the
corporation has been in existence) was derived from
sources within the Philippines as determined under the
provisions of this Section; but only in an amount which
bears the same ration to such dividends as the gross
income of the corporation for such period derived from
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sources within the Philippines bears to its gross income
from all sources.
(3) Services - Compensation for labor or personal
services performed in the Philippines;
(4) Rentals and Royalties. - Rentals and royalties from
property located in the Philippines or from any interest
in such property, including rentals or royalties for -
(a) The use of or the right or privilege to use in the
Philippines any copyright, patent, design or model,
plan, secret formula or process, goodwill, trademark,
trade brand or other like property or right;
(b) The use of, or the right to use in the Philippines any
industrial, commercial or scientific equipment;
(c) The supply of scientific, technical, industrial or
commercial knowledge or information;
(d) The supply of any assistance that is ancillary and
subsidiary to, and is furnished as a means of enabling
the application or enjoyment of, any such property or
right as is mentioned in paragraph (a), any such
equipment as is mentioned in paragraph (b) or any such
knowledge or information as is mentioned in paragraph
(c);
(e) The supply of services by a nonresident person or
his employee in connection with the use of property or
rights belonging to, or the installation or operation of
any brand, machinery or other apparatus purchased
from such nonresident person;
(f) Technical advice, assistance or services rendered in
conne c t ion wi t h t e chni c a l management or
administration of any scientific, industrial or
commercial undertaking, venture, project or scheme;
and
(g) The use of or the right to use:
(i) Motion picture films;
(ii) Films or video tapes for use in connection with
television; and
(iii) Tapes for use in connection with radio
broadcasting.
(5) Sale of Real Property. - Gains, profits and income
from the sale of real property located in the Philippines;
and
 (6) Sale of Personal Property - Gains; profits and
income from the sale of personal property, as
determined in Subsection (E) of this Section.
(B) Taxable Income From Sources Within the
Philippines. -
(1) General Rule. - From the items of gross income
specified in Subsection (A) of this Section, there shall
be deducted the expenses, losses and other deductions
properly allocated thereto and a ratable part of
expenses, interests, losses and other deductions
effectively connected with the business or trade
conducted exclusively within the Philippines which
cannot definitely be allocated to some items or class of
gross income: Provided, That such items of deductions
shall be allowed only if fully substantiated by all the
information necessary for its calculation. The
remainder, if any, shall be treated in full as taxable
income from sources within the Philippines.
(2) Exception. - No deductions for interest paid or
incurred abroad shall be allowed from the item of gross
income specified in subsection (A) unless indebtedness
was actually incurred to provide funds for use in
connection with the conduct or operation of trade or
business in the Philippines.
(C) Gross Income From Sources Without the
Philippines. - The following items of gross income
shall be treated as income from sources without the
Philippines:
(1) Interests other than those derived from sources
within the Philippines as provided in paragraph (1) of
Subsection (A) of this Section;
(2) Dividends other than those derived from sources
within the Philippines as provided in paragraph (2) of
Subsection (A) of this Section;
(3) Compensation for labor or personal services
performed without the Philippines;
(4) Rentals or royalties from property located without
the Philippines or from any interest in such property
including rentals or royalties for the use of or for the
privilege of using without the Philippines, patents,
copyrights, secret processes and formulas, goodwill,
trademarks, trade brands, franchises and other like
properties; and
(5) Gains, profits and income from the sale of real
property located without the Philippines.
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(D) Taxable Income From Sources Without the
Philippines. - From the items of gross income
specified in Subsection (C) of this Section there shall
be deducted the expenses, losses, and other deductions
properly apportioned or allocated thereto and a ratable
part of any expense, loss or other deduction which
cannot definitely be allocated to some items or classes
of gross income.
The remainder, if any, shall be treated in full as taxable
income from sources without the Philippines.
(D) Income From Sources Partly Within and Partly
Without the Philippines.- Items of gross income,
expenses, losses and deductions, other than those
specified in Subsections (A) and (C) of this Section,
shall be allocated or apportioned to sources within or
without the Philippines, under the rules and regulations
prescribed by the Secretary of Finance, upon
recommendation of the Commissioner. Where items of
gross income are separately allocated to sources within
the Philippines, there shall be deducted (for the purpose
of computing the taxable income therefrom) the
expenses, losses and other deductions properly
apportioned or allocated thereto and a ratable part of
other expenses, losses or other deductions which
cannot definitely be allocated to some items or classes
of gross income. The remainder, if any, shall be
included in full as taxable income from sources within
the Philippines. In the case of gross income derived
from sources partly within and partly without the
Philippines, the taxable income may first be computed
by deducting the expenses, losses or other deductions
apportioned or allocated thereto and a ratable part of
any expense, loss or other deduction which cannot
definitely be allocated to some items or classes of gross
income; and the portion of such taxable income
attributable to sources within the Philippines may be
determined by processes or formulas of general
apportionment prescribed by the Secretary of Finance.
Gains, profits and income from the sale of personal
property produced (in whole or in part) by the taxpayer
within and sold without the Philippines, or produced (in
whole or in part) by the taxpayer without and sold
within the Philippines, shall be treated as derived partly
from sources within and partly from sources without
the Philippines.
Gains, profits and income derived from the purchase of
personal property within and its sale without the
Philippines, or from the purchase of personal property
without and its sale within the Philippines shall be
treated as derived entirely form sources within the
country in which sold: Provided, however, That gain
from the sale of shares of stock in a domestic
 corporation shall be treated as derived entirely form
sources within the Philippines regardless of where the
said shares are sold. The transfer by a nonresident alien
or a foreign corporation to anyone of any share of stock
issued by a domestic corporation shall not be effected
or made in its book unless:
Meron din tayong salitang gross revenues, gross income
at meron ding taxable income.
Q: Ano bang difference niyan?
A: So kunware ang business mo, tapsilugan.

(1) the transferor has filed with the Commissioner a
bond conditioned upon the future payment by him of
any income tax that may be due on the gains derived
from such transfer, or
(2) the Commissioner has certified that the taxes, if any,
imposed in this Title and due on the gain realized from
such sale or transfer have been paid. It shall be the duty
of the transferor and the corporation the shares of which
are sold or transferred, to advise the transferee of this
requirement.
➔ Five parts ‘yan A-E
➔ A: Gross income from within the Philippines
➔ B: Taxable income from within the Philippines
➔ C: gross income from without or outside of the
Philippines
➔ D: Taxable income from without
➔ E: Yung E, partly within and within
Gross receipts/sales – 1,000, 000
Cost of sales (400,000)
____________________________
Gross Income = 600, 000
Deductions (350,000)
____________________________
Taxable income: 250, 000
Bawat benta mo ng tapsilog = gross sales, so bibilangin
mo sa isang taon (12 months) ilang tapsi ang nabenta, so
100 pesos/unit nagbenta ka buong taon so 10,000 units so
1M. Yan ang benta mo ng tapsilog.
Siyempre doon sa tapsilog, may puhunan ka, ang tawag
doon, cost of sales. Ang puhunan mo baka.
Lahat ng gastos mo para maproduce mo si tapsilog, let’s
say 400k. So Magkano gross income mo? 600k

Q: Do you need to read it all?
A: No, you only read one portion, ano gusto mo yung
within or without. Kapag binasa niyo yung within, lahat
ng wala doon, without.
So yung A, ang kaversus niya is C yung B (within) and
kawithout is D. Ang E, mix nila.
Q: Gross income v. Taxable income?
A:
Taxable- all the legitimate expenses had already been
deducted
Gross Income – ito yung “kita” Ninyo, wala pang tax.
Si 600k after cost of sales – ito yung nakadefine sa tax
code.
Ngayon babawasan mo siya ng deductions, say kuryente,
telepono, pasweldo ng tao so 350,000k so magkano suma
total mo? 250k.
Yung 250k yun ang lalagyan mo ng tax. Yan taxable
income mo.
Para maintindihan mo ‘yan, sa sec 42 ang pinag uusapan
ano yung gross income within, ano yung taxable income
within,ano yung gross income without, within, ano yung
within, without na mixed.

Kapag taxable income, yun yung income Ninyo after --

deductions prior to tax

Q: Ano naman yung gross sales and gross receipts? So ispecify natin, nasa sec. 24,25,26,27,28 ‘yan. Iisa lang
ang salita diyan.
Tignan natin.
Kapag ang tanong sa inyo, depending the source of
So merong gross receipts/gross sales income, when is it subject to tax in the Philippines, ito
lang ang sagot
Q: Ano yung gross receipts?
A: Serbisyo ang binenta mo, kapag sales ang binenta mo TAXPAYER TAXABLE TAXABLE
ay goods FROM FROM

HUA MULAN
 SOURCES SOURCES Where the property is located, so if ang royalty we realize
WITHIN WITHOUT that because of the usage, so if the property being used is
RC YES YES located in the Philippines it is within, regardless of where
NRC YES NO it is paid
RA YES NO
NRAETB YES NO Q: What about interest on loans?
NRANETB YES NO
A: Iba yung rule, because the debtor/creditor may be in
TAXPAYER TAXABLE TAXABLE the Philippines or baliktad, or parehong wala sa pilipinas
FROM FROM pero dito nagbayaran sa pilipinas
SOURCES SOURCES
WITHIN WITHOUT There are 4 possibilities, letter B yan under section 42
DC YES YES interest. Dalawang klase, interest on loans and bank
NRFC YES NO deposits
RFC YES NO
In bank deposits, if the bank that issues or paid the
interests is located in the Philippines it is within, if the
Among all the kinds of taxpayers, only a RC is subject to
bank is outside, it is income without.
tax from all income derived from within and without and
a DC, the rest of the taxpayers are subject to income tax
Yung interest on loans, medyo mahirap ‘yan intindihin
are subject only to income within.
These are the scenarios.
Their income from without, NRC, RA, NRAETB,
1) Debtor: inside the Philippines, creditor is
NRANETB, NRFC, RC shall be subject to tax only from
Outside the Philippines
income derived from within the Philippines.
2) Creditor: inside the Philippines, debtor is outside
the Philippines
Q: So how do we determine if the income is within or
3) Both debtor & creditor are outside the
without? Let us summarize the rules.
Philippines
4) Both debtor & creditor are inside the Philippines
Unahin natin ang compensation, if the service is
rendered within the Philippines then any income realized
Q: How de we determine here?
is within, regardless of where the payment of the
A: Pag nagbayaran sila ng utang, sino kumikita?
compensation is, if the service is rendered outside the
CREDITOR.
Philippines, it is income WITHOUT, kahit saan pa ang
bayad sa loob ng pilipinas or sa labas. KEYWORD IS:
Q: Sino ang gumagastos/debor?
Where the service is rendered.
A: Debtor.
Q: BPOS?
Q: Sino magbabayad ng buwis?
A: Creditor, kasi siya ang kumita.
A: Saan nagrerender ng service? Sa Pilipinas, so income
within ‘yan kahit sa ibang bansa pa ang nagbabayad niyan
So ang tanong, yung binayad ba ni debtor kay creditor is
within or without.
Let’s talk about RP and Tangible personal property
➔ Where the property is located
--
➔ If the property is located in the Philippines,
regardless saan nagbayaran, it is income within
FIRST SCENARIO: D (Philippines) nagbayad ng
the Philippines
interest on the loan, outside the Philippines kay creditor
➔ If located outside the Philippines, any income
derived therefrom is income without
Q: Sino ang kumita?
A: Creditor.
Q: Royalties, rentals, real property, tangible personal
property?
Q: Nasan si creditor?
A: USA.
A: Sa apat na ito, iisa ang rule.
Ang thinking natin, nasa labas, without.
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--
Next, ang nagbayad ng utang ay nasa labas ng pilipinas
Q: Sinong kumita?
A: Si creditor, na nasa pilipinas.
Sabi ng utak natin. WITHIN.
Parehong nasa pilipinas si creditor, at debtor?
WITHIN.
Parehong nasa loob si D & C = WITHOUT.
Q: Is this the way how we determine?
A: NO. THAT IS NOT THE RULE. It depends on who
is the debtor.
THIS IS THE ONLY RULE: If the debtor is a Resident
of the Philippines, all interests on loans, paid by the debtor
regardless of who the creditor is, is considered as derived
from within Philippine sources. Regardless of where the
debtor/creditor is the only rule to determine if within or
without is dependent on who the debtor is, if the debtor is
the resident of the Philippines, it is within
If the debtor who paid the interest is a Non-resident of the
Philippines then the interest income of the creditor is
without.
--
If the debtor is a resident, the interest income of the
creditor is within. If the debtor is a non-resident, the
interest income of the creditor is without.
DEBTOR: Resident citizen, nagbayad ng 100k
interest on loans – WITHIN
• Creditor: RC, NRC,RA, NRANETB,
NRAETB, DC, RFC, NRFC = taxable
DEBTOR: Non-resident citizen (without)
• Creditor
o RC: Taxable
o NRC, RA, NRAETB, NRANETB:
Not taxable
o DC: Taxable
o RFC, NRFC: No tax
DEBTOR: Resident alien (within)
• Creditor: RC, NRC, RA, NRAETB,
NRANETB, DC, RFC, FC: Taxable
DEBTOR: Non-resident alien (without)
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• Creditor
o RC & DC: Taxable
o All others, not taxable
DEBTOR: Domestic corporation (within)
• Creditor: All are taxable.
DEBRTOR: RFC (Within)
• CREDITOR: All are taxable.
DEBTOR: NRFC (without)
• Creditor
o RC & DC: Taxable
o All others: not taxable
Q: Ano ang rason kung bakit ang nagbayad na debtor
resident ng pilipinas, within?
A: Kung ikaw ay residente ng pilipinas at ikaw ay
nagbayad ng interest ng utang mo, sabi ng batas within
‘yan dahil malamang ang binayad mo kinita mo sa
pilipinas, kaya within
Kung ikaw ay NR at nagbayad ng utang na may interest
ang pinambayad mo ng utang na may interest ay hindi
galing sa pilipinas, kaya ang tawag dito ay income from
without.
--
Royalties, rentals, RP & tangible personal property –
where the property is located, if located here in the
Philippines it is income within, if outside = without
Compensation: where the service is rendered.
Interest on bank deposits: if the bank that issued the
interests is in the Philippines, within. If located outside,
without
But when it comes to interest on loans, it is different:
if the debtor is a resident of the Philippines it is within,
if the debtor is a non-resident of the Philippines, then
the interest income is without.
Another difficult topic is the dividends.
So si XYZ is a corporation, ang dividends kita ng
stockholders sa stockholdings
So si SH A, kumita ng 100k worth of dividends, ang
tanong kay Mr. A.because dividends are income, Is it
subject to tax, is it within or without, so from the POV ni
A, is it within or without?
If within, and A were any of the taxpayers it is taxable, if Subalit kung tatlong taon bago binigay ang dibidendo
without but if A is a RC/DC it is taxable, all others it is ang kinita ng foreign corporation sa pilipinas, ay mas
not taxable MABABA sa singkwento porsyento ng suma total n
akita, hindi lahat ng 100,000 dividends ay within, kaunti
Q: How do we determine? lamang
A: if the corporation that issued the dividends is a DC,
then all the dividends issued are considered as within from Nagbigay ng dividends 2019, yung 100k.
the POV of the stockholder, regardless of who the SH is.
Lahat taxable so (RC, NRC, RA, NRANETB, NRAETB, Ito yung kinita before issuance of the dividends.
DC, RFC, FC – TAXABLE) NOTE: Lahat ng kinita sa pilipinas, with or without a
branch
Q: What if XYZ is a FC that issued the 100k dividends USA Philippines
in favor of Mr. A? 2018 6M 3M
2017 4M 1M
A: under section 42 on dividends, sabi ng batas lahat ng 2016 2M 1M
inissue ng foreign corporation this is expressly written by TOTAL 12M 5M = 17M/2 =
the code, all dividends issued by the FC in the amount of 8.5M
100k are WITHIN. This is the general rule.
Three years prior to the declaration of the dividends,
Therefore is the SH A, is RC, NRC, RA, NRANETB, 2018, 2017, 2016. Ang kinita niya sa USA, is 12M sa
NRAETB, DC, RFC, FC – TAXABLE pilipinas 5M. Sumatotal ng kita, 17M. Ang sabi sa batas
if the income from the Philippines, three years prior to the
There is an exception. declaration of the dividends is less than 50% of its total
income
Subalit kung tatlong taon bago binigay ang dibidendo ang
kinita ng foreign corporation sa pilipinas, ay mas Magkano ang total income? 17M/2 = 8.5M
MABABA sa singkwento porsyento ng suma total n akita,
hindi lahat ng 100,000 dividends ay within, kaunti lamang If the income from the Philippines is less than 50% of its
total income then only a portion of the 100,000 pesos
Q: Ano ang kaunti lamang? dividend is income within
A: in proportion to the income of the foreign corporation
derived from Philippine sources Q: How do we do That?

Example 5M (kita sa pinas)/17M(total income) x 100,000 = a little

FC – resident or non-resident, so si XYZ ang principal less than 25% ‘yan so ibig sabihin niyan, 23% halimbawa,
place of business nasa USA so 23,000 is within and 77,000 is without.

Scenario 1; May branch sa pilipinas which is a RFC That’s how you apply the exception to the rule.
Scenario 2; Principal place of business nasa USA, no
employees appointed, no agents so ang tawag sakanya If Mr. A, the stockholder is a resident citizen, 23k within
NRFC taxable, 77k, taxable

Nung 2019 nagbigay ng 100,000 pesos worth of dividends If Mr. A is a NRC, RA, NRAETB, NRANETB only the
kay A, the stockholder, ang tanong kay Mr. A nung 23k is taxable
tumanggap ba siya ng 100,000 take note di ang branch nag
issue ang main branch ang nag issue, is it within or If DC, same rule with RC.
without?
If NRFC, FC = 23k is only taxable.
If we follow the general rule, lahat ng 100k within. So. --
RC, NRC, RA, NRANETB, NRAETB, DC, RFC, FC –
TAXABLE, kahit sino pa ang stockholder KINDS OF INCOME AND WHAT KIND OF TAX
DO WE IMPOSE AND WHAT RATE (Sections 24-30
Let us apply the exception to the rule. of the tax code)

HUA MULAN
Ang sabi sa section 24, the income from within or without
of a RC other than B – C – D shall be subject to tax under
the succeeding paragraph, lahat daw ng kita ng RC
whether sa loob or labas ng pilipinas, na hindi income sa
B, C, D ang tax sa A.
Q: Ano ba yung tax sa letter A?
A: Let’s take the case of a resident citizen, whether the
RC is a CIE, SEP, SEI, MIE
Q: Ano yung letter B?
A: Passive income.
Q: What are the passive income of an individual?
A: Interests on bank deposits, prices and winnings and
dividends.
(1) Income tax of RC: All income from WITHIN and
without the Philippines, taxable as income under A. If
will fall under purely compensation or “others”, tsaka
kapag wala sa B,C & D. So sa B, kapag yung source is
foreign, dito nay an sa A. Kapag Sa C naman, kapag
listed in SE, dito na din yan sa A. Kapag sale of
ORDINARY assets, or assets na OUTSIDE the
Philippines, A na din yan mahuhulog
A: All income, na wala sa B, C, D. lahat ng klase ng
income na wala diyan, andito.
Kung ikaw ay CIE (this is introduced by the train law)
• The only thing you pay is net income tax.
Q: What is NIT?
A; Ito yung nasa codal nan aka schedule

Ang tax dito, FWT. Yung 20% - 35%, yan yung schedular type. There is no
fixed rate vs global system of taxation, in which case it is
Q: Ano yung letter C? a fixed rate.
A: Capital gains on shares of stock in a corporation.
Schedular, may schedule. Global: uniform fixed rate.
Ang tax dito FWT.
Dito sa pilipinas, semi schedular, semi global.
Q: Ano yung letter D?
A: Capital gains on sale of real property located within the May global dito, like VAT, % tax, donor’s tax & estate
Philippines. tax kasi fixed rates pero sa income tax, merong schedular
and merong fixed rates
Ang tax dito, FWT/CGT
Q: What is NIT?
Sabi ng batas, lahat ng kita mo na wala sa B, C, D nasa A. A: Sa loob ng 12 months, kukunin mo kita mo babawasan
ng deductions is equivalent to the taxable net income
Kapag RC ka lahat ng kita mo sa labas at loob ng pilipinas multiplied by the rates
na wala sa B, C, D nasa A.
(Gross Income – Allowable Deductions) = Taxable net
Pag wala sa B, C, D nasa A. income x % (rates) = tax due)

Let me explain So ang sweldo mo, compensation income earner ka, you
apply the NIT system schedular rates and this is the
Q: Ano yung A? formula
A: All income, other than B, C, D. Nasa A.
When you are a SEP/SEI these are all under A, meaning
Q: Anong ang tax na nasa A? Yung wala sa B, C, D, so exercise of profession or t/b under the train law may
anong tax ang babayaran mo. options ka.

Here are the rules introduced by the train law.
Q: So ano yung A?
SECTION 24
(A) Rates on income tax on individual citizens and
individual resident aliens of the Philippines
If your gross receipts or gross sales, do not exceed 3M
meaning lahat ng kinita mo sa isang taon na 12 months,
hindi lalampas ng 3M, may 2 options ka.
Option 1 – 8% applied on your gross sales/receipts
Option 2 – you may choose the NIT system

HUA MULAN
The choice is with the taxpayer, if and only if your GS/GR 2. SEP/SEI
do not exceed 3M • You file 4 returns and 1 annual return
• If less than 3M ang GR/GS you have a
Q: When do you choose? choice between
A: At the start of the year, before the filing of the first 1) 8% on the gross
quarterly return. If you do not choose, the default rate is 2) NIT
NIT. • If the GR/GS annually is more than 3M the
only choice is NIT
Kasi if engaged in t/b 4 returns plus 1 annual return, so if
you choose the option 1, the 8% the GR/GS is in excess 3. MIE – compensation = NIT
of 250k, so it is in excess of 250k, so meron kang minus • t/b or exercise of profession
250k, so kapag di ka namili ng 8, ang default rate mo is 1) if less than 3M GR/GS annually you have
NIT. achoice between: NIT and 8% on the gross
(but the 8% is not subject to the 250k
Number 2, namili ka ng NIT. deduction)
2) if more the GR/GS are more than 3M the
Q: Can you change from NIT to 8% and vice versa? only choice is NIT
A: No, once the choice is done or you did not choose so
NIT you cannot change within the year, next year na ulit. Examples
Q: Which is better? 1) Si lumbera may salary = NIT (sa pilipinas) meron
A: Depende sa financial operations. ding salary sa USA = NIT
2) Si lumbera may business tapsilugan, ang kinita
-- nitong tapsilugang sa pilipinas, 1.5 ito na ang GR,
3) Sa law office 1.4 ang kinita ko na nasa pilipinas
So 8% in excess of 250,000. Kapag NIT ang pinili mo,
wala ka nitong 250k na minus, because if you look at the • So yung 1.5 (tapsi) and 1.4(law office) iadd
rates the 20% starts with the 250k, you still benefit from ko so 2.9M, so pwede ako mamili kung 8%
the 250k, but walang minus 250k or NIT, kasi pasok
• Pero kung sobra ako ng 3.6M halimbawa ang
If more than 3M ang GS/GR wala kang choice, NIT ka
total nung law office and sa tapsilugan NIT
talaga
na ‘yan
--
--
Sa USA si lumbera
If you are a mixed income earner, yung Compensation mo
1) May sweldo = NIT
NIT yan, FOREVER ‘yan yung t/b mo or exercise of
2) Sa tapsilugan – 1.5M
profession, depende
3) Law office- 1.2M
If not more than 3M, pwede ka mamili 8% or NIT
Lahat yan, taxable because lumbera is a resident citizen,
so all income within and without are taxable.
If more than 3M – NIT
Q: Anong tax?
If you are a mixed income earner, if you choose 8%/NIT
A: NIT
wala yang in excess of 250k, this does not exists but if
SEP/SEI ka pwede yung 250k
Q: Bakit?
A : The NIT v 8% is not applicable, because lahat ng
This is your Income under column A.
kinita ko, other than compensation is more than 3M, so
NIT.
SUMMARY That is the meaning of the income of a RC, other than B,
C, D andoon sa A may choice ka between NIT or 8% if
1. CIE -> NIT (20%-35%) not more than 3M, if more than 3M no choice NIT ka na
(GI – AD) = TNI x % = tax due
--
HUA MULAN

Let us proceed with letter B.
Q: What is letter B?
A: Passive income.
Q: What is passive income?
A:
1) Royalties
2) Interests on bank deposits
3) Prizes and winnings
4) Dividends
So in addition sa kita lumbera, may royalties sa libro, na
distributed in the Philipines and binili niyo lahat so 100k
So passive income is subject to FWT at the rate of 10%
but if the royalties are not from literary/musical
compositions it is 20%
Meron din akong royalties na sa states naman naproduce
at doon binebenta, ang kinita ko doon is 50,000 pesos, ang
sabi natin kanina, pag wala sa B nasa A, ang nasa B
royalties from Philippine sources, since ang royalties na
ito nasa USA, so wala sa B so nasa A, so magiging NIT.
Pagsasama samahin mo siya, as if part siya derived from
Philippine sources
Q: Bakit hindi siya pwede sa FWT sa states?
A: eh pano mo wiwithhold yun, eh US government yun
but that is without prejudice to the tax due to the US.
--
Next, interest on bank deposits, BPI Diliman Philippines
nag issue in interest sakin on deposits, 10k.
Q: Anong tax?
A: Ang sabi sa batas interest on bank deposits, derived
from Philippine sources, nasa letter B.
Q: Anong tax?
A: FWT at 20% rate
But if the interest is on long term deposit, which you do
not preterminate for a period of 5 years it shall be exempt
If you preterminate on the 4th its 12%, 3rd: 5%, if prior to
the third, it’s the basic rate of 20% FWT.
Q: Paano kung may bank si lumbera sa new York
bank, may interest, 20k pesos, ang una niyo
tatanungin, is it within or without?
HUA MULAN
WITHOUT.
Q: Taxable?
A: Yes.
Q: Nasa B ba?
A: No, because B is only from passive income derived
from Philippine sources
Q: So nasaan?
A: Nasa A.
Q: What rate?
A: NIT.
--
Next, prizes and winnings when we speak of this as
passive income this is in games of chance. Ito yung raffle,
sugal so on and so forth
Q: What are the rules? PCSO winnings?
EXEMPTED?
A: 10,000 pesos and below exempted, more than 10,000
pesos they are already subject to tax
Q: Winnings and prizes other than PCSO?
A: 10k below, subject to tax but under column A
Iisa lang ang PCSO and lotto winnings: 10k and below,
exempt, more than 10k subject to tax under column B at
the rate of 20%
Other prizes and winnings, other than PCSO and lotto
winnings, below 10k under A at NIT, more than 10k under
column B at the rate of 20%
--
Kanina may example ng dividends, if the dividends is
issued by a DC yung 100k, it is considered as income
within, it is under column B, FWT.
If issued by a FC, the GR is that the 100k is income within
and is subject to tax but not under B, because B pertains
only to passive income derived from Philippine sources,
so it is subject to tax under column A and the tax is NIT
If the exception to the rule applies (yung subalit eme eme)
23k is income within, 77k is income without, issued a FC
to a SH who is a RC, 23k is within 77k is subject to tax to
the RC, because that type of dividends is issued by a FC,
so nasa A siya, wala sa B.
Ang nasa B, royalties derived from Philippine sources,
interests on bank deposits issued by a bank located in the
Philippines, Prizes and winnings in the Philippines and
dividends issued by a domestic corporation ‘pag ang
passive income is not issued/derived from Philippine
sources, wala ‘yan sa B so nasa A. hindi yan pwedeng
walang exemption
Ang income generally taxable, unless excluded, exempted
by law so kapag hindi excluded/exempted titigan niyo
ABCD, andiyan lang ‘yan
So if the property sold is an ordinary asset, (because it’s
always CAPITAL v ORDINARY) in the Philippines,
wala sa D andoon sa A.
If the shares of stock sold in a forieign corporation, wala
sa C so nasa A.
In letters C and D, take note of CAPITAL ASSET v.
ORDINARY ASSET

Note: all discussions are referring to a resident citizen, so Q: What does capital asset v ordinary asset mean?
taxable sa within and without.
A:
-- SECTION 39 (A) (1): The term “capital assets” means
property held by the taxpayer, whether or not connected
PART 2 with his trade or business but does not include:

Let’s go to later C. (1) Stock in trade of taxpayer or other property of a kind

which would properly be included in the inventory if
Q: Ano yung letter C? on hand at the close of the taxable year
A: Capital gains on sale on shares of stocks in a domestic
corporation. (2) Property held by the taxpayer primarily for the sale
to customers in the ordinary course of his trade or
SECTION 24 C: CAPITAL GAINS FROM SALE OF business
SHARES OF STOCK NOT TRADED IN STOCK
EXCHANGE (3) Property used in the trade or business of a character
which is subjected to allowance for depreciation

Q: Anong requisites? (4) Real property used in t/b by taxpayer

A: Shares of stocks in a DC sold & untraded (hindi
pinadaan sa stock exchange ng pilipinas) Under section 39 naka enumerate kung ano ang capital
assets in the negative.
Q: Anong tax?
A: FWT Capital assets as defined under section 39 refers to assets
whether or not related in t/b excluding the following…
Q: Rate?
A: 15% Yung nakaenumerate na apat, yun ang ordinary asset, ang
wala sa listahan yun ang capital assets.
So, yung letter D, capital gains on sale of real property
located in the Philippines. Yan ang trick sa tax, it is defined in the negative

Q: Requirements of D? The general description of ordinary assets, are assets used

A: Sold, real property, located in the Philippines in t/b.

In both instances of C and D, it must be a CAPITAL Keywords

ASSET. 1) Stocks in trade
2) goods
So, if wala ang requisites na ‘yan, then wala sa C doon ka 3) inventory subject to Depreciation
sa A. 4) Real property used in t/b

Q: anong tax sa D? Sa tapsilugan, ano ang stocks in trade: baka, bigas

A: FWT at the rate of 6% mantika, yung lahat ng ingredients, raw materials, ‘yan
ang stocks in trade

HUA MULAN
Yung ibinebenta mo na goods? Yung tapislog, yan ang
goods
Inventory subject to depreciation: meron kang stove,
electric fan, kawali, sandok, tables, chairs, tasa, baso,
pinggan, kutsara, tinidor, ‘yan ang subject to depreciation
Sa #4 yung land and building
Ito ang ORDINARY assets.
Q: Kung ikaw ang mayari ng tapsilugan, ano ang
capital assets mo?
A: Bahay mo, stove sa bahay mo, tapsilog na niluto mo sa
bahay mo, may electric fan ka sa bahay mo.
SAME ASSETS, but the assets are not used in the t/b
therefore they are not ordinary assets
--
Q: Ano ang relevance ng capital and ordinary assets?
A: Kasi kapag nagbenta ka, kapag binenta mo yung
dalawang assets capital at ordinary, iba ang tax
repurcussions
Kapag binenta mo ang capital assets at ikaw ay may tubo,
ang tawag dito capital assets
Kapag binenta mo ang capital assets mo ng lugi, capital
loss
Kapag ang ordinary asset mo binenta mo ng may tubo,
ordinary gains
Kapag ordinary asset mo binenta mo ng lugi, ordinary loss
Q: In sale of assets whether capital/ordinary paano mo
malalaman kung ikaw ay tumubo o ikaw ay nalugi,
ano ang pag babasehan natin?
A: di natin pagbabasehan ang purchase price, halimbawa
ang stove binili mo ng 10k, 5 years mo ginagamit nabenta
mo ng 2,000 nalang, di mo masasabi na lugi ka ng 8,000
because it is the fair market value at the time of sale to
determine if you realized a gain or a loss, depending on
the asset.
So if you have a stove, bought it at 10k but the value today
is 5k and you sold it for 7k, may tubo ka pa dito.
HUA MULAN
So if you purchased a stove and used it in your t/b mo, ang
FMV is 5k at naibenta mo ng 500 pesos, lugi ka ng 4,500
(ordinary loss)
Hindi puhunan ang pinaguusapan, ang pinaguusapan sa
oras ng bentahan ng asset is magkano ang FMV nung
binebenta mo vs the selling price, if there is a gain and the
asset is a capital asset, capital gain. if there is a loss,
capital loss
If ordinary asset, lugi – ordinary loss. If ordinary asset,
benta kita = ordinary loss
There is a clincher, section 100. Kapag ikaw ay nagbenta
ng lugi, ikaw at namimigay ng libre, if you sell at a loss
when the asset sold is in connection with and used in t/b
and you sell it at a loss, you are liable to pay donor’s tax.
Nagbenta ka ng lugi, you incurred a loss but because
nalugi ka namigay ka ng libre, so yung pinamigay mong
libre, bayad ka ng donor’s tax.
SEC. 100. Transfer for Less Than Adequate and Full
Consideration. - Where property, other than real
property referred to in Section 24(D), is transferred for
less than an adequate and full consideration in money
or money's worth, then the amount by which the fair
market value of the property exceeded the value of the
consideration shall, for the purpose of the tax imposed
by this Chapter, be deemed a gift, and shall be included
in computing the amount of gifts made during the
calendar year. Provided, however, That a sale,
exchange, or other transfer of property made in the
ordinary course of business (a transaction which is a
bona fide, at arm’s length, free from any donative
intent), will be considered as made for an adequate and
full consideration in money or money’s worth.
Under section 100, if assets used in t/b ordinarily held in
sale for customers sold not in accordance actual money’s
worth or for insufficient consideration then the difference
between the consideration and FMV shall be treated as a
gift subject to donor’s tax.
--
Sa pagbebenta ng asset para malaman mo if gain or loss,
hanapin ang FMV at the time of sale
If the consideration is more than the FMV, then you
realized a gain. If the consideration is less than the FMV
you incurred a loss
In the sale of assets/goods ordinarily held for sale to
customers, if they are sold for insufficient consideration,
bayad ka 6% donor’s tax between the difference of the
fmv and consideration.
Benta ng lugi, namigay ng libre bayad ka ng donor’s tax.
This is the background, wag kalilimutan.
When you are faced with a bar problem involving asset at
binenta ang unang gagawin, capital asset ba or ordinary
asset.
Q: How do you distinguish the two?
A: Sec. 39 is the rule
If sold at a gain, then you realize a gain. the gain is
taxable.
If you incurred a loss, it is not deductible.
But if you sell an asset/goods which are used ordinaly held
in sale to customers, nagbenta ka ng libre namigay ka
bayad ka donor’s tax at 6%, basis of 6% is the difference
between FMV and consideration
--
UNDER LETTER C
So if you sale the asset which is shares of stock in a
domestic corporation and these are capital asset, not
traded to the stock exchange, it is FWT @ 15% rate
So if you sell shares of stocks in a foreign corporation,
wala siya sa C at meron kang kita, the tax is under A, and
NIT if applicable
Q: What if you share SS and the same is traded?
A: Wala sa C, kasi traded.
Q: So ano ang repurcussions?
A: wala sa income tax provisions
Here, you will apply section 127 of the tax code, and it is
percentage tax at the rate of .6 of 1% of the gross selling
price.
If traded, wala sa C pero wala sa A because the income
tax provisions will never apply, what you apply is section
127 where the tax is percentage tax which is .6% of the
gross selling price
HUA MULAN
SEC. 127. Tax on Sale, Barter or Exchange of Shares
of Stock Listed and Traded through the Local Stock
Exchange or through Initial Public Offering. -
(A) Tax on Sale, Barter or Exchange of Shares of Stock
Listed and Traded through the Local Stock Exchange.
[4] - There shall be levied, assessed and collected on
every sale, barter, exchange, or other disposition of
shares of stock listed and traded through the local stock
exchange other than the sale by a dealer in securities, a
tax at the rate of six-tenths of one percent (6/10 of 1%)
of the gross selling price or gross value in money of the
shares of stock sold, bartered, exchanged or otherwise
disposed which shall be paid by the seller or transferor.
(B) Repealed under Section 6 of Republic Act No.
11494, otherwise known as the "Bayanihan to Recover
As One Act."
(C) Return on Capital Gains Realized from Sale of
Shares of Stocks. –
(1) Return on Capital Gains Realized from Sale of
Shares of Stock Listed and Traded in the Local Stock
Exchange.- It shall be the duty of every stock broker
who effected the sale subject to the tax imposed herein
to collect the tax and remit the same to the Bureau of
Internal Revenue within five (5) banking days from the
date of collection thereof and to submit on Mondays of
each week to the secretary of the stock exchange, of
which he is a member, a true and complete return which
shall contain a declaration of all the transactions
effected through him during the preceding week and of
taxes collected by him and turned over to the Bureau
Of Internal Revenue.
(2) Return on Public Offerings of Shares of Stock.- In
case of primary offering, the corporate issuer shall file
the return and pay the corresponding tax within thirty
(30) days from the date of listing of the shares of stock
in the local stock exchange. In the case of secondary
offering, the provision of Subsection (C) (1) of this
Section shall apply as to the time and manner of the
payment of the tax.
(D) Common Provisions. - any gain derived from the
sale, barter, exchange or other disposition of shares of
stock under this Section shall be exempt from the tax
imposed in Sections 24(C), 27(D)(2), 28(A)(8)(c), and
28(B)(5)(c) of this Code and from the regular
individual or corporate income tax. Tax paid under this
Section shall not be deductible for income tax
purposes.
Whether tubo or lugi, if traded there is always a tax
because the basis is the GSP (GROSS SELLING PRICE)
So section 100 will never apply kahit ibenta mo ng lugi,
kapag traded ang shares of stock, do not apply letter C, do
not apply letter A. What is applicable is section 127 of the
tax code.
Which means that whether tubo or lugi, percentage tax
will have to be paid.
--
Let’s talk about letter D.
Q: Requisites?
A: Capital asset, located in the Philippines, real property
located in the Philippines, FWT @ the rate of 6% of the
FMV or GSP, FMV which ever is higher
4 na valuation, GSP, FMV (doon sa tax declaration na
iniissue ng assesor’s value), assessed value or zonal value,
whichever is higher among the 4.
Technically sa batas, 6% between the FMV and GSP, pero
yung FMV madami yan, yang yung mga assessor’s value,
GSP, zonal or assessed value.
The highest one is the basis.
Q: So ikaw ang mayari ng tapsilugan, at binenta mo
ang bahay mo which is a capital asset located in the
Philippines, then the tax is under letter D
Kapag ang binenta mo is land and building mo ng
tapsilugan which is an ordinary asset, so tumubo ka. Nasa
D ka ba? No, kasi ang binenta mo is ordinary asset, so
saan ka babagsak? Nasa A ang tax mo.
If you sell a capital asset, outside the Philippines sa A ka.
If you sell an OA outside of the Philippines, wala sa D.
Nasa A.
I have 4 real properties
1) Bahay sa pilipinas (capital RP) capital asset
2) Bahay sa states (Capital RP) capital asset
3) Tapsilugan ako sa pilipinas (ordinary RP)
ordinary asset
4) Tapsilugan ako sa states (ORDINARY RP)
ordinary asset
Bawat isa binili ko 1M, ang FMV ngayon is 1.7M so 1M
ko binili, tumaas ang value 1.7M nay un
HUA MULAN
Q: May income na ba?
A: Wala pang income because it was not realized, mere
increase in the value of the property is not income because
it is not yet realized. So when the value of the property
increases in value, it is paper profit and not income
--
Ngayon 1M bili ko, FMV: 1.7M, nabenta ko 2M.
Q: Magkano kinita ko?
A: 300k each.
Q: What do I do with the 300k?
A: The realized income is 300k bawat isa diyan
Bahay sa pilipinas, capital asset located in the pilipinas
ang tax is FMV 6% CGT under letter D.
Bahay sa states, 300K ang tubo, capital asset, located
outside, so wala sa D may tubo ako na 300k, wala sa D,
so nasa A. The tax is on the 300k either NIT or 8% if
applicable.
Tapsilugan sa pilipinas, ordinary asset wala sa D, because
it is ordinary so nasa A. Ang itatax is 300 na tubo
Tapsilugan sa states is an ordinary asset, dahil ordinary,
wala sa D, nasa A. Ang itatax ang 300k, so ordinary gains.
--
So 1M ko binili, FMV is 1.7M, binenta ko ng 1.2M, lugi
ako. Binenta ko siya ng 1.2 but I could have sold it ng
1.7M.
I purchased it at 1M, FMV is 1.7M and I voluntarily sold
it at 1.2M. because I could have sold it at 1.7M, so lugi
ako ng 500,000
Q: Ano itsura ko? Nagbenta ako ng lugi.
A:
If binenta ko ng lugi
Q: Ano ang tax repercussions?
A:
Bahay sa pilipinas, anong klaseng asset? CAPITAL
ASSET. Sold, located in the Philippines, the tax is CGT
at 6% because the 6% is based on FMV of 1.7M, gross
selling price of 1.2M, tax declaration, assessed value and
zonal valuation, kung ano pinakamataas, yun ang basis ng
CGT of 6%
In other words, when the property sold, under tubo or lugi
if under letter D, bayad ka ng buwis.
--
Next, yung bahay sa states, LUGI.
Q: Ano gagawin ko?
A: wala kang income, eh di wala ka maiilagay sa column
A. Eh di wala kang income tax
Eh nagbenta ka ng lugi, namigay libre. Punta ka section
100
--
Tapsilugan sa pilipinas, binenta mo ng lugi. Wala kang
income. Pero dahil nagbenta ka lugi, namigay ka libre
donor’s tax
--
Tapsilugan sa states, binenta mo ng lugi. Donor’s tax.
Section 100.
--
Bahay pilipinas: always CGT ito.
Bahay sa states: walang CGT ito, so nasa letter A
• Both capital
Tapsilugan sa states & pilipinas:both ordinary, nasa A
both
Kapag binenta mo ‘yan ng lugi, yung bahay sa pilipinas
CGT ang tax, pero yung tatlo binenta mo ng lugi wala
kang income tax, so nasa section 100 ang tax mo nagbenta
ng lugi, namigay ng libre kaya magbayad ka ng donor’s
tax.
--
Let’s go back to LETTER D , CGT on RP located in the
Philippines, the tax due is 6% based on the FMV etc etc
whichever is higher, tubo or lugi, bayad ka ng buwis.
The exception is when you sell your actual principal
residence
Q: What are the requisites to be exempt from CGT
when you sell your actual principal residence?
HUA MULAN
A:
1. You sell your actual principal residence, located
in the Philippines
2. Within 30 days from the sale, you inform the BIR
that you are availing of the exemption
3. Within 18 months from the sale, you buy or build
another actual principal residence in lieu of the
one you sold using the proceeds of the sale
4. You avail of the exemption once every 10 years
5. The historical cost is considered as to how much
is exempted from tax or subjected to income tax
Q: What is actual principal residence?
A: Place where even though one is absent, he has the
intention of returning to. It does not require continuous,
uninterrupted sale
Q: Why 30 days?
A: Because the CGT is due within 30 days from sale, so
if you want to avail the exemption you have to inform the
BIR that you will not pay for the CGT
Q: What happens if you don’t use the proceeds doon
sa pagpapagawa ng bahay, example: ang benta ng
bahay 5M, ang nagamit mo lang 3M?
A: Bayad ka 6% sa 2M
Q: Paano kung nagastos mo lahat?
A: Eh di wala ka babayaran
When all of these requisites are present, then the sale of
the actual principal residence shall be exempted from the
CGT of 6%
When you sell in favor of the government, nasa codal ito,
when there is a sale of RP in favor of the govt, you have
the option to choose what tax you pay – hindi ka libre sa
buwis, if the buyer of your property is the govt then the
taxpayer owner can choose between CGT of 6% which is
based on the FMV/GSP/ZV/TX DEC or you choose the
tax under column A, income tax.
The typical sale in favor of the government happens in
expropriation proceedings these are involuntary sales.
So here, yung property mo nabili mo ng 1M, so you sold
it involuntarily through expropriation so ang nakuha sa’yo
isa 200 square meters, yung 200 square meters na ‘yan
ang magiging basis ng bayad sayo ng just compensation
is the fair market value yung nasa tax dec, let’s say the
FMV is 500k, so babayaran ka ng gobyerno ng 500k. the
sale in involuntary
Q: If you are the taxpayer owner, ano ang babayaran
niyong buwis?
A: mamimili ka.
Q: Ano ang options?
A:
Option 1 – under column A, you choose NIT or 8% as
the case may be
Q: Anong basehan ng NIT kapag namili ka?
A: So kung NIT ang pinili mo, magkano mo ibinebenta,
it’s 500k, ang FMV is 500k so 0 ang tubo mo so kapag
pinili mo ang NIT, hindi sinasabi ng batas na libre sa
buwis, pero wala kang tax payment
Q: Bakit wala kang tax if NIT?
A: Kasi ang basis ng NIT is tubo, eh wala namang tubo.
500k ang kinita mo, 500k lang ang nasa tax dec.
THE LAW DOES NOT SAY YOU ARE EXEMPT.
If you choose 8% ng 500,000 agreed may babayaran kang
buwis.
OPTION 2 – CGT
Q: What is the basis of CGT?
A: FMV: 500,000
Q: Gross selling price? Magkano just compensation?
A: 500K
Ang assessed value is 300k, ang zonal value (mas mataas
‘yan kaysa FMV) so let’s say 600k, so kung babayad ka
ng CGT pipiliin mo yung pinakamataas
Kung ikaw yung may-ari ng lupa, it’s better to choose to
pay under NIT/column A because dito wala ka ng
babayaran na tax. Ito ang effect nito.
--
Another form of involuntary sale is foreclosure of
mortgage. No CGT at the point of foreclosure, when the
property is sold in auction to satisfy the loan obligation,
no CGT Also. When the certificate of sale is issued, there
is also no CGT.
When there is redemption, there is also no CGT.
Q: When do you pay CGT?
HUA MULAN
A: When the right of redemption prescribes and there is
consolidation in the name of the highest buyer, before
consolidation CGT must be paid
--
Now how do we tax a NRC?
Q: Who is a NRC?
A:
(E) NON RESIDENT CITIZEN
o A citizen of the Philippines who establishes to the
satisfaction of the commissioner the fact of his physical
presence abroad with a definite intention of residing
therein
o A citizen of the Philippines who leaves the Philipines
during the taxable year to reside abroad, either as an
immigrant or for employment on a permanent basis
o A citizen of the Philippines 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
o A citizen who has been previously considered as non
resident citizen and who arrives in the Philippines at
any time during the taxable year to reside permanently
in the Philippines shall likewise be treated as a non-
resident citizen for the taxable year in which he arrives
in the Philippines with respect to his income derived
from sources abroad until the date of arrival in the
Philippines
o The taxpayer shall submit proof to the commissioner
to show his intention of leaving the Philippines to
reside permanently abroad or to return and to reside in
the Philippines as the case may be
➔ A NRC is subject to tax only from income within.
Lahat ng without, are not subject to tax
➔ Same rules sila, except na yung income within
lang ang subject to tax.
Examples
Si lumbera (NRC) may royalties from the states, no tax.
Prizes and winnings from the states, no tax.
Dividends, considered as without yung 77k (yung old
example, no tax)
Kumita ako nagtrabaho sa states, no tax

Pero lahat ng kinikita ko sa Pilipinas SUBJECT TO
TAX.
Shares of stocks in a foreign corporation, no tax because
it is outside the Philippines
Q: Capital gains tax on sale of RP located outside the
Philippines?
A: Tapsilugan sa states, bahay sa states. Kung NRC ka,
kalimutan mo ‘yan, Kung NRC ka, di nag -apply ang C &
D only those located in the Philippines shall be covered
Take note, if you sell at a loss then section 100 is
applicable to you even if you are NRC
➔ Lahat ng under column A and B niya, is taxed as
gross income is at 25%.
➔ Lahat ng passive income nila, it is not subject to
FWT, combined na ‘yan lahat ng kita nila, 25%
agad on the gross and withheld.
Q: Bakit withheld?
A: Wala sa pilipinas, foreigner na hindi pa engaged sa t/b
so kapag hindi mo winithold yung tax, pag nakaalis na
‘yan ng bansa, wala na pambayad yan
Under C & D it is still FWT
Q: is the exemption from CGT applicable to a
NRANETB?
A: Yes.

If you are a NRC, WALANG TAX ang nasa US. Only As a general rule, aliens are not allowed to own real
ang pilipinas ang may tax properties in the Philippines there are exceptions to the
rule: 1) by way of succession and inheritance 2) purchase
Q: Saan mag fafall? of condominium units 3) if you were a former citizen, may
A: CGT Tax, under letter A limitation ito

Kapg binenta ko ng lugi ng 500k, lahat ng ‘yan may tax.
NRC, may CGT (doon sa real property na capital in nature
na nasa pilipinas), may donor’s tax etc.
--
Q: anong pagkakataon nag apply yung exemption if
you are a NRANETB?
A: Yung special aliens, yung OBUS, multinational
companies and petroleum

We still apply the CGT 6% EXCEPTION. This is They are in the Philippines, at dahil employed sila, they
applicable, foreclosure of mortgage, expropriation acquire real property such as condominium units, bumili
proceedings, so long as the real property is in the ulit ng bago, so the requisites for the exemption of CGT
Philippines. may be applicable to them

-- --

Let’s talk about resident alien. SAME na SAME ang RC SUMMARY OF INDIVIDUAL TAXPAYERS
and the RA, walang pinagkaiba ang tax ng RA and RC.
They are taxed in the same manner completely Kinds of w/i w/ou A B C D
Taxpaye n t
Q: Can we apply the exception from the CGT to a rs
resident alien? RC NIT/8 FW FW FW
A: Yes. % T T T
NRC NIT/8 FW FW FW
-- % T T T
RA NIT/8 FW FW FW
NRAETB, same rules % T T T
NRAET/ NIT/8 FW FW FW
When the dividends are issued by a domestic corporation B % T T T
to a RC, NRC, RA the tax is at 10% but when the taxpayer NRANET GIT = FW FW
is a NRAET/B the rate is increased to 20%, this is the B 25% T T
only difference. Estate of
trust
--
NRANETB --
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 ➔ This exemption from tax on interest on long term
Now let’s talk about domestic corporations. deposits do not cover CORPORATIONS
Kinds of w/i w/ou A B C D ➔ This is applicable only if the taxpayer is an
Taxpayer n t individual
s
DC 30 FW FW FW Next, CGT on shares of stocks and property same rules sa
% T T T individual but the exemption from CGT of 6% does not
NIT 20% apply to a corporate taxpayer, exemption from tax of
RFC interest income do not also apply to a domestic taxpayer
NRFC
--
Ang tatandaan niyo kapag corporate taxpayer they realize Corporations have additional taxes like MCIT and IAET,
income because of their t/b. walang corporation na tinayo no applicable to individuals
para maging corporation lang
The AOIS, may purpose lagi and the income is always
derived from t/b so we call that ordinary income Q: What is the difference between MCIT and IAET?
A: MCIT is 2% on the gross, IAET is 10%
Meron din silang letter A, pero fixed ang rate 30% NIT
MCIT is in lieu of 30% NIT of the corporation, kapalit.
Meron din silang passive income So ang isang corporation ang babayaran is NIT of 30% or
MCIT of 2%
Q: What are the passive income for individuals?
A: Interests, royalties, prizes and winnings & dividends Ang IAET naman, is in addition hindi siya kapalit. MCIT
is in lieu of, kapalit ng NIT so ang tax ng corporation is
Pagdating sa corporation, wala silang prizes and winnings MCIT or NIT
and no royalties from sale or musical compositions
IAET is in addition to karagdagag babayaran if meron
Q: Why? kang improperly accumulated earnings
A: Hindi naman sila pwede magkaron ng intellectual
creations, wala ding board resolution na iaauthorize yung --
president tumaya sa lotto
Unahin natin yung MCIT.
So ang passive income lang ay interests, and royalties
Ang sabi sa batas, a domestic corporation is subject of 2%
Ang dividends wala din. MCIT of the gross income beginning the fourth year
following the commencement of its operations provided
Meron kasing inter-corporate dividends tax that the 2% on the gross is higher than the NIT of 30%.

If the dividends were given by a DC to another DC, it is Paliwanag natin

exempt from tax.
If the taxpayer were an individual, FWT ang tax ng
passive income and in case of NRANETB, GIT of 25%.
So ang Passive income lang ng corporations ay interests
on bank deposits and regular royalties and the tax is FWT,
the rate is 20%
Here’s a clincher
On interest on bank deposits, and it is a long term deposit
and you are an individual and you do not pre-terminate it,
it is exempt from tax.
Q: Kailan nagsimula ang MCIT?
A: Nung 1997 sa pilipinas, prior to 1997 walang MCIT.
Q: How does it work?
A: nung 1997, yung old nirc under president aquino yung
ginagamit
Example:
Here is corporation XYZ ang business niya tapsilugan,
nagsimula ka 2015 start of operations.
Gross income, makikita Ninyo ‘yan sa code.

GROSS SALES OF TAPSILUGAN

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 Pag dating ng 2016 aba nag increase ka, 1.8M ang kita
2,000,000 ang allowable deductions 1.9M, so 100k lugi ka na naman
(1,300,000) – cost of sales 0 NIT.
_____________________
Nung 2017 2.3M kita, 2,5M ang allowable deductions, so
700, 000 GROSS INCOME ang NIT mo 0 na naman.
(480,000) – less deductions
_____________________ Nung 2018, 2.6 ang kita ang deductions 2.1, so 500k so 0
tax pa din NIT.
220,000 – taxable net income multiplied by 30% (NIT
RATE) So sabi ng batas kawawa ka naman lugi ka ng lugi

= P66,000 this is the corporate tax due NIT So beginning the fourth year following the
commencement of operations pagdating ng 2019 at lugi
ka pa din
Gross sales kasi tapsilugan, meaning magkano ang
nabebenta mo sa isang taon. Say, 2M a year babawasan Nung 2019 2.9M ang kita, 2.5 ang deductions lugi ka pa
ng cost of sales 1.3 million, so 700,000 ang tawag dito din ng 400,000 so ang NIT mo is 0 pa din
gross income babawas ng deductions under section 34 of
the tax code 480,000 so 220,000 yung 220,000 yung So 5 taon ka na, lugi ka ng lugi sabi ng gobyerno kung
taxable net income yan ang imumultiply ng 30%. So gusto mo malugi pa, bahala ka na sa buhay pero sa 2019
66,000 ang corporate tax due. BAYAD SA GOBYERNO on the fourth year from your commencement, dito
66,000 kung NIT. magbabayad ka na ng MCIT so 2.9 M x 2%, ito na ang
tax na babayaran mo, kasi mas mataas yung MCIT mo
2015 2016 2017 2018 2019 kaysa NIT. So on the fifth year kung ano mas mataas
1.5M 1.8M 2.3M 2.6 GS 2.9 GS MCIT or NIT, wala akong pake kung lugi ka.
GS GS GS
Q: Pano kung nakarecover at tumubo?
(1.8M) (1.9M) (2.1) D (2.5) – D A: Eh edi bayad ka ng NIT
deductions - D (2.5) -D _______ _______
____ _______ Q: Kailangan ba lugi ng lugi?
(500k) x (400k) x A: No.
(300k) x (100k) (200k) x 30% = 0 30% = 0
30 % = 0 x 30% 30% = 0 NIT NIT In 2015-2018 LUGI ka (SAME AMOUNTS SA TABLE)
NIT = 0 NIT , in 2019 2.9 M ang GS and 2.1M, so 800k na, so 800k x
NIT Here, 30 % = 240K, so if on the gross 2.9Mx 2% = 58,000
2.9 x 2%
= 58,000 So NIT is higher than MCIT, so you pay the NIT.
this is
your It does nto matter what happened sa past four years, basta
MCIT pagdating on the fifth dalawa na ang icocompute mo
tax due MCIT and NIT BASTA on the fifth year of operations,
hindi malulugi sayo ang gobyerno
PERSONAL NOTE: Feel ko nagkamali si ma’am sa
2016-2019 na illustration, cause it cannot be lugi kung Q: What is IAET (Improperly accumulated earnings
mas malaki ang gross sales mo kaysa sa deductions so tax)?
the amounts should have been shifted, nevertheless
same pa din naming in essence A: These are earnings of a corporate taxpayer retained
beyond reasonable business needs
So for the year of 2015 sa tapsilugan ko, ang gross income
ko, ay 1.5M, ang allowable deductions 1.8M ang This is related to dividends.
mangyayare 300k multiply it to 30%, wala 0 ang tax.
Ang isang corporation si XYZ may shareholders siya,
tapos kapag kumite ‘yan may income yan na pwede
iretain for its business operation and expansion.
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Ang di niya gagamitin sa BO, expansion. According to
the corporation code, hindi mo pwede ‘yan iretain 100%.
Kapag niretain mo ‘yan ang tawag diyan you retained it
beyond your reasonable business needs, so if you don’t
give it to stockholders, nawawala yung 10% na kikitain
ng govt sa stockholder kaya ang sabi ng batas, kapag
pinamigay mo kikita ako, kapag nagdamot ka at ayaw mo
ipamigay sa stockholders merong kapalit, 10% IAET, ang
magbabayad na ngayon ang corporation. So the
corporation is liable for 10% IAET.
Yung kinita may tax na ‘yan na NIT, so may kit ana govt,
kasi nagbayad na ‘yan sa govt. Kapag yung kita ng corp
ibibigay sa tao (stockholders) kikita ng pangalawa ang
gobyerno under column B, dividends issued by a DC, the
tax is FWT subject to 10% rate
When it comes to dividends, D-D exempt, D-RFC exempt
pa din. For capital gains under C same.
But for D, not applicable.
MCIT is applicable, IAET is N/A because this is only a
branch here in the Philippines
--
When it comes to NRFC we have GIT fixed at 30% for
corporate taxpayers, same for A & B, C is FWT and D is
N/A because it they cannot own real property in the
Philippines
However, D-NRFC for dividends for FWT 15%, MCIT is
and IAET is N/A

There is a tax applicable only to NRFC which is BPRT

(branch profit remittance tax) the amount applied for
Kinds of w/i w/ou A B C D remittance regardless of the amount actually remitted
Taxpayer n t
s Here is XYZ the principal place of business is in the USA,
DC 30 FW FW FW meron siyang branch sa pilipinas. Ang branch sa
% T T T Pilipinas, RFC. So kapag kumita ang branch sa pilipinas
NIT 20% ang tax niya 30% NIT plus all other taxes. Ang kita niya,
RFC 30 FW N/A N/A ayaw natin i-remit sa ibang bansa because kapag di i-
% T reremit, irereinvest dito so kikita ang pilipinas. Pero hindi
NIT pwede bawalang mag remit ang branch.
NRFC GIT GIT FW N/A
30 30% T So para madiscourage, yung kita nag tax na sa NIT kapag
% niremit sa ibang bansa yung kita sa principal office may
tax din yun BPRT at the rate of 15%.
Other taxes: Sa constitutional limitations, we will limit it to DCs.

Kinds of w/i w/o ICD MCI IAE BPR Meron tayong section 30 of the tax code. Nasulat diyan,
Taxpaye n ut T T T T 11 corporations
rs
DC E 2% FW FWT SEC. 30. Exemptions from Tax on Corporations. -
(DC- GI T The following organizations shall not be taxed
DC) under this Title in respect to income received by
RFC E 2% N/A 15% them as such:
(DC- GI
RFC (A) Labor, agricultural or horticultural
) organization not organized principally for profit;
NRFC FW N/A N/A N/A
T (B) Mutual savings bank not having a capital stock
15% represented by shares, and cooperative bank
without capital stock organized and operated for
Q: Ano naman ang tax ng RFC? mutual purposes and without profit;
A: Subject to tax only from income within at the rate of
NIT 30%, Same. FWT of 20% on interests on all bank (C) A beneficiary society, order or association,
deposits, including interest on long term deposits, operating for the exclusive benefit of the members
ordinary royalties such as a fraternal organization operating under the
HUA MULAN
 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 inure 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;
Notwithstanding the provisions in the preceding
paragraphs, the income of whatever kind and
character of the foregoing organizations from any
of their properties, real or personal, or from any of
their activities conducted for profit regardless of the
disposition made of such income, shall be subject to
tax imposed under this Code.
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Q: anong nature nung 11 corporations under section
30?
A: Non-stock & non-profit organizations
Ang sabi sa batas, lahat ng income as such of the 11
corporations shall be exempt from income under this title.
Q: So anong klaseng tax sila exempted?
A: Lahat ng income ng 11 corporations
Q: anong income?
A: Income as such, shall be exempt from tax under this
title.
Q: Anong ang ibig sabihin ng exempted from tax
under this title? Anong klaseng tax sila exempted?
A: 30% NIT
Because yung NSNP, these are all DCs so sabi ng batas
for all income as such for the 11 corps which are NSNP,
shall be exempt from tax under this title, which means
they are exempt from the 30% NIT
Q: What does as such mean?
A: income derived in pursuant to the primary purpose for
each one of them was created
Under the last paragraph of the Section 30.
Notwithstanding the provisions in the preceding
paragraphs, the income of whatever kind and character
of the foregoing organizations from any of their
properties, real or personal, or from any of their
activities conducted for profit regardless of the
disposition made of such income, shall be subject to tax
imposed under this Code.
➔ Ang 11 corporations na nakalista diyaan, NSNP
DCs shall be exempt from the 30% NIT under
column A for all of their income as such meaning
income of these 11 corporations in pursuant to the
primary purpose for which one is created
➔ The exception to the rule is the last paragraph.
➔ This last paragraph means, that subject to the 30%
NIT and all other taxes, if the income is from real
or personal property etc etc
These are the organizations that we have.
Q: Ano sabi ng constitution?
A: The constitution covers both, charitable 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 So nagsale of paintings yung home for the aged. Kumita
from taxation. ng 1M pesos.

Let’s analyze, and relate it to section 30 of the tax code. Q: Is it income?

A: Yes.
Q: Anong klaseng tax exempted?
A: real property tax only under the constitution. Q: Is it taxable income?
A: No. This is income as such in accordance with section
Q: Bakit exempt sa RPT? 30.
A: Kapag ang asset, RP including LBI, are ADE used,
including incidental use. Q: Saan exempted?
A: NIT, 30%
Kapag ang asset is principally, hindi kailangan entirely in
otherwords pwede may incidental use for charitable, Meron siyang rentals, yung pinaparent sa mga mcdo, 2M
religious educational purpose shall be exempt from RPT ang kinita sa renta

HOME FOR THE AGED Q: Is this income?

Mcdo A: Yes
Building 1 Building 2
Q: Is it subject to tax?
Jollibee A: you cannot use the constitution here, you use section
30 ang sab isa section 30 last paragraph
KFC Office
Notwithstanding the provisions in the preceding
Building 3 Kitchen paragraphs, the income of whatever kind and character
Milktea of the foregoing organizations from any of their
Parking Lot properties, real or personal, or from any of their
activities conducted for profit regardless of the
disposition made of such income, shall be subject to tax
Here is a Home for the aged, non-stock non-profit imposed under this Code.
organizations which are exclusively devoted for
charitable religious educations purposes Thus, it is subject to tax

So here is the home for the aged mat Building 1, 2, 3, may Q: Anong tax?
office, may kitchen at parking lot A: NIT of 30%

1) Kapag ang topic ay RPT, alin diyan ang exempt? Next, nilagyan ang 1M at 2M sa bank kumita ng interest
A: Lahat ‘yan exempted, kasi lahat sila ADE even earnings ng 20,000 pesos
incidental use
Q: Income?
On the side of the home for the aged, may A: Yes.
pinagrerentahan. May mcdo, Jollibee, KFC and milk tea.
Q: Taxable?
Q: Is this exempt, the rented portion? A: Yes
A: Under the constitution, it is not ADE so it is not
exempted from RPT. Q: Why?
A: Kasi sabi ng section 30 an income conducted for profit
On the answer to the question of the RPT, use the shall be subject to tax
constitution not the tax code.
Q: Anong tax?
Q: When do we use the tax code? A: Passive income, on interests of bank deposits
A: Ang home for the aged may activities yan, gumagawa
ng basahan/painting Q: What rate?
A: 20%

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So we have 1M – exempt
2M – NIT
20,000 – FWT
➔ Ito ang tax repurcussions
➔ Ito lahat ginamit pang improve pang pintura,
pambili ng computers, devoted for charitable
purposes
Q: Sa paggamit nito, exempted ba sila from tax?
A: No. because under sec 30 income of whatever kind
from R/P property or activity conducted for profit
regardless of disposition shall no longer be exempt from
tax.
Therefore, even if these two which are subject to tax
which are used and devoted for charitable purposes,
because section 30 states that they are subject to tax, they
will not be exempted by reason of usage for charitable
purpose
--
Si Mr. X nag donate ng 500,000 sa home for the aged.
➔ Is it income on the part of the home for the aged?
YES
➔ Is it taxable income? No.
o BASIS: Sec. 32 (b) (3)
(B) Exclusions from Gross Income. - The following
items shall not be included in gross income and shall be
exempt from taxation under this Title:
(3) Gifts, Bequests, and Devises. - The value of
property acquired by gift, bequest, devise, or descent:
Provided, however, That income from such property,
as well as gift, bequest, devise or descent of income
from any property, in cases of transfers of divided
interest, shall be included in gross income.
➔ One of the exclusions is gifts bequests and
devises
➔ So if we talk about gifts/donations whether mortis
causa/inter vivos from the POV of the recipient it
is income but it is not subject to tax because it is
an item of exclusion
Q: is it subject to donor’s tax if inter vivos? And estate
tax if mortis causa?
A: This is not in the constitution, this is under sec. 87 for
estate tax and sec. 10 for estate tax
SEC. 87 Exemption of Certain Acquisitions and
Transmissions. –-The following shall not be taxed:
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(A) The merger of usufruct in the owner of the naked
title;
(B) The transmission or delivery of the inheritance or
legacy by the fiduciary heir or legatee to the
fideicommissary;
(C) The transmission from the first heir, legatee or
donee in favor of another beneficiary, in accordance
with the desire of the predecessor; and
(D) All bequests, devises, legacies or transfers to social
welfare, cultural and charitable institutions, no part of
the net income of which inures to the benefit of any
individual: Provided, however, That not more than
thirty percent (30%) of the said bequests, devises,
legacies or transfers shall be used by such institutions
for administration purposes.
SEC. 101. Exemption of Certain Gifts. - The
following gifts or donations shall be exempt from
the tax provided for in this Chapter:
(A) In the Case of Gifts Made by a Resident. –
(1) Gifts made to or for the use of the National
Government or any entity created by any of its agencies
which is not conducted for profit, or to any political
subdivision of the said Government; and
(2) Gifts in favor of an educational and/or charitable,
religious, cultural or social welfare corporation,
institution, accredited nongovernment organization,
trust or philanthropic organization or research
institution or organization: Provided, however, That
not more than thirty percent (30%) of said gifts shall be
used by such donee for administration purposes. For
the purpose of this exemption, a 'non-profit educational
and/or charitable corporation, institution, accredited
nongovernment organization, trust or philanthropic
organization and/or research institution or organization'
is a school, college or university and/or charitable
corporation, accredited nongovernment organization,
trust or philanthropic organization and/or research
institution or organization, incorporated as a non-stock
entity, paying no dividends, governed by trustees who
receive no compensation, and devoting all its income,
whether students' fees or gifts, donation, subsidies or
other forms of philanthropy, to the accomplishment and
promotion of the purposes enumerated in its Articles of
Incorporation. [4]
(B) In the Case of Gifts Made by a Nonresident not a
Citizen of the Philippines. –
 (1) Gifts made to or for the use of the National
Government or any entity created by any of its agencies
which is not conducted for profit, or to any political
subdivision of the said Government.
(2) Gifts in favor of an educational and/or charitable,
religious, cultural or social welfare corporation,
institution, foundation, trust or philanthropic
organization or research institution or organization:
Provided, however, That not more than thirty percent
(30%) of said gifts shall be used by such donee for
administration purposes.
(C)Tax Credit for Donor's Taxes Paid to a Foreign
Country.–
(1) In General. - The tax imposed by this Title upon a
donor who was a citizen or a resident at the time of
donation shall be credited with the amount of any
donor's tax of any character and description imposed by
the authority of a foreign country.
(2) Limitations on Credit. - The amount of the credit
taken under this Section shall be subject to each
of the following limitations:
(a) The amount of the credit in respect to the tax paid
to any country shall not exceed the same proportion of
the tax against which such credit is taken, which the net
gifts situated within such country taxable under this
Title bears to his entire net gifts; and
(b) The total amount of the credit shall not exceed the
same proportion of the tax against which such credit is
taken, which the donor's net gifts situated outside the
Philippines taxable under this title bears to his entire
net gifts.
Here is the answer.
Q: Is the gift of 500k, whether inter vivos or mortis
causa subject to tax?
A: The answer is in the tax code NOT in the constitution.
According to the tax code, the donation of the 500k shall
not be subject to DT or ET provided that not more than
30% of the gift is used by charitable institution for
administration purposes
Subject to DT/ET provided we comply with the 30%
restriction.
Q: What is the meaning of administration purposes?
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A: Meaning, hindi dapat gamitin for pampasweldo ng tao,
telepono, supplies, maintenance of the organization.
Q: Nung nag donate si X ng 500,000. Can X claim it as
a deduction on his gross income?
A: Kung si X ay tao at Purely CIE, he cannot claim it as
deduction, this is not allowed as far as a CIE is concerned
Kung si X ay tao at siya ay SEP/SEI or MIE but limited
to the t/b side he can claim as deduction but only up to the
extent of 10% of his taxable income prior to his deduction
If X is a corporate taxpayer, he can claim up to 10% of his
taxable income prior to this deduction
This is found under section 34 h
(H) Charitable and Other Contributions. –
(1) In General. - Contributions or gifts actually paid or
made within the taxable year to, or for the use of the
Government of the Philippines or any of its agencies or
any political subdivision thereof exclusively for public
purposes, or to accredited domestic corporation or
associations organized and operated exclusively for
religious, charitable, scientific, youth and sports
development, cultural or educational purposes or for
the rehabilitation of veterans, or to social welfare
institutions, or to non-government organizations, in
accordance with rules and regulations promulgated by
the Secretary of finance, upon recommendation of the
Commissioner, no part of the net [43] income of which
inures to the benefit of any private stockholder or
individual in an amount not in excess of ten percent
(10%) in the case of an individual, and five percent (%)
in the case of a corporation, of the taxpayer's taxable
income derived from trade, business or profession as
computed without the benefit of this and the following
subparagraphs.
(2) Contributions Deductible in Full. -
Notwithstanding the provisions of the preceding
subparagraph, donations to the following institutions or
entities shall be deductible in full:
(a) Donations to the Government. - Donations to the
Government of the Philippines or to any of its agencies
or political subdivisions, including fully-owned
government corporations, exclusively to finance, to
provide for, or to be used in undertaking priority
activities in education, health, youth and sports
development, human settlements, science and culture,
and in economic development according to a National
Priority Plan determined by the National Economic and
 Development Authority (NEDA), In consultation with
appropriate government agencies, including its
regional development councils and private
philanthropic persons and institutions: Provided, That
any donation which is made to the Government or to
any of its agencies or political subdivisions not in
accordance with the said annual priority plan shall be
subject to the limitations prescribed in paragraph (1) of
this Subsection;
(b) Donations to Certain Foreign Institutions or
International Organizations. - donations to foreign
institutions or international organizations which are
fully deductible in pursuance of or in compliance with
agreements, treaties, or commitments entered into by
the Government of the Philippines and the foreign
institutions or international organizations or in
pursuance of special laws;
(c) Donations to Accredited Nongovernment
Organizations. -The term 'nongovernment
organization' means a non-profit domestic corporation:
(1) Organized and operated exclusively for scientific,
research, educational, character-building and youth and
sports development, health, social welfare, cultural or
charitable purposes, or a combination thereof, no part
of the net [22] income of which inures to the benefit of
any private individual;
(2) Which, not later than the 15th day of the third month
after the close of the accredited nongovernment
organizations taxable year in which contributions are
received, makes utilization directly for the active
conduct of the activities constituting the purpose or
function for which it is organized and operated, unless
an extended period is granted by the Secretary of
Finance in accordance with the rules and regulations to
be promulgated, upon recommendation of the
Commissioner;
(3) The level of administrative expense of which shall,
on an annual basis, conform with the rules and
regulations to be prescribed by the Secretary of
Finance, upon recommendation of the Commissioner,
but in no case to exceed thirty percent (30%) of the total
expenses; and
(4) The assets of which, in the event of dissolution,
would be distributed to another non-profit domestic
corporation organized for similar purpose or purposes,
or to the state for public purpose, or would be
distributed by a court to another organization to be used
in such manner as in the judgment of said court shall
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best accomplish the general purpose for which the
dissolved organization was organized.
Subject to such terms and conditions as may be
prescribed by the Secretary of Finance, the term
'utilization' means:
(i) Any amount in cash or in kind (including
administrative expenses) paid or utilized to accomplish
one or more purposes for which the accredited
nongovernment organization was created or organized.
(ii) Any amount paid to acquire an asset used (or held
for use) directly in carrying out one or more purposes
for which the accredited nongovernment organization
was created or organized.
An amount set aside for a specific project which comes
within one or more purposes of the accredited
nongovernment organization may be treated as a
utilization, but only if at the time such amount is set
aside, the accredited nongovernment organization has
established to the satisfaction of the Commissioner that
the amount will be paid for the specific project within
a period to be prescribed in rules and regulations to be
promulgated by the Secretary of Finance, upon
recommendation of the Commissioner, but not to
exceed five (5) years, and the project is one which can
be better accomplished by setting aside such amount
than by immediate payment of funds.
(3) Valuation. - The amount of any charitable
contribution of property other than money shall be
based on the acquisition cost of said property.
(4) Proof of Deductions. - Contributions or gifts shall
be allowable as deductions only if verified under the
rules and regulations prescribed by the Secretary of
Finance, upon recommendation of the Commissioner.
So if may donation in favor of a charitable institution,
income tax is a NO. pero babawian ka sa donor’s tax at
estate tax.
Exempted from income tax but subject to DT/ET tax. Ito
ang meaning of these rules
--
Religious institution. Simbahang katoliko.
mcdo
Reading area Simbahan parsonage
+
jabee
 office
KFC
Parking lot
MT
Ito yung simbahan, dito sa side ng simbahan may
parsonage (tirahan ng mga pari) andito office kung saan
nagpapamisa, dito may reading area, at sa baba neto may
parking lot kung saan may nagbebenta ng pop corn.
Sa gilid ng simbahan, may pinaparent sa mcdo, Jollibee,
KFC at milktea.
Pag aari lahat yan ng simbahan.
Q: Alin diyan, under the constitution?
A: churches, convents, mosques, NP cemeteries, as well
as parsonages, LBI ADE used for religious purposes shall
be exempt from tax. We follow the same rule, RPT ang
exempted.
EXEMPTED (RPT) – yung reading area, parsonage,
parking lot and office kasi ADE
Yung mcdo, jabee, KFC MT not exempted kasi NOT
ADE. The basis is the constitution. Wag niyo kakausapin
si tax code pag dating sa RPT.
You will find these under the LGC of 1991. Both for
religious and charitable institutions, there is basis under
the constitution and the LGC.
SEC. 234. Exemptions from Real Property Tax. - The
following are exempted from payment of the real
property tax:
(a) Real property owned by the Republic of the
Philippines or any of its political subdivisions except
when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person;
(b) Charitable institutions, churches, parsonages or
convents appurtenant thereto, mosques, nonprofit or
religious cemeteries and all lands, buildings, and
improvements actually, directly, and exclusively used
for religious, charitable or educational purposes;
(c) All machineries and equipment that are actually,
directly and exclusively used by local water districts
and government-owned or -controlled corporations
HUA MULAN
engaged in the supply and distribution of water and/or
generation and transmission of electric power;
(d) All real property owned by duly registered
cooperatives as provided for under R. A. No. 6938; and
(e) Machinery and equipment used for pollution control
and environmental protection. Except as provided
herein, any exemption from payment of real property
tax previously granted to, or presently enjoyed by, all
persons, whether natural or juridical, including all
government-owned or -controlled corporations are
hereby withdrawn upon the effectivity of this Code.
--
Now let’s go to the income of the religious institution
Yung binibigay na alay/contribution, kapag nagmimisa
binibigay ito. 1M natanggap ng simbahan. THIS IS
INCOME.
Q: Do you use the constitution?
A: No, you use the tax code.
Q: Is it taxable income yung alay?
A: No, because it is income as such, primary purpose of
the church
Yung simbahan nagpaparenta, 2M. This is taxable
income, as it is income of whatever kind of character from
real or personal property or from an activity conducted
from profit shall no longer be exempt from tax, so this is
taxable. It is an ordinary income of a domestic
corporation, so the 30% NIT applies.
Nilagay sa bank ang 1M at 2M, kumita ng interest income
earnings ng 20,000 pesos, the 20,000 income from bank
deposits is income and it is taxable and the basis for
taxability is the last par. of sec. 30, the activity conducted
for profit, the tax imposed is FWT because it is in the
nature of the passive income at the rate of 20%
Ginamit is 1M, 2M at 20,000 income sa pagrenovate ng
simbahan, the use of the funds is taxable income and this
will not exempt the payment of income tax because sabi
ng sec. 30 last par. regardless of disposition.
Nagdonate ka sa simbahan ng 500,000 this is income, this
is not taxable income because it is an item of exclusion,
whether the mode of transfer is inter vivos/mortis causa it
is not subject to estate/donor’s tax provided not more than
30% of the amount of gift used for administration
purposes
Q: Can the donor claim it as a deduction? mcd Building 1 Build Buildin
A: o ing 2 g3 GY DOR
M M
Kung si X ay tao at Purely CIE, he cannot claim it as
deduction, this is not allowed as far as a CIE is concerned
jabe
Kung si X ay tao at siya ay SEP/SEI or MIE but limited e LIBRAR Office
to the t/b side he can claim as deduction but only up to the Y
extent of 10% of his taxable income prior to his deduction
kfc Canteen
If X is a corporate taxpayer, he can claim up to 10% of his
taxable income prior to this deduction
MT Parking lot
This is found under section 34 h

--
Let us now proceed to educational institutions.
3 kinds.
1) Non-stock non profit educational institutions
2) Proprietary educational institutions
3) Government institutions
Q: NSNPEI, what is the constitutional limitation?
A: All assets, all revenues and assets as well as all lands,
buildings and improvements of a NSNPEI ADE used to
educational purposes, shall be exempt from taxes and
duties
Between this constitutional provision and sa charitable
and religious, sa charitable and religious ang exempted
lang Land, buildings and assets. Here, revenues (kita)
kasama.
Same sila ng ADE, but here the exemption is broader
because the exemption here includes RPT and all internal
revenue taxes (income tax, donors tax etc) so mas
malawak ang exemption
(3) All revenues and assets of non-stock, non-profit
educational institutions used actually, directly, and
exclusively for educational purposes shall be exempt
from taxes and duties. Upon the dissolution or
cessation of the corporate existence of such institutions,
their assets shall be disposed of in the manner provided
by law.
So here is a school, NSNPEI. Let us say XYZ school, so
may building 1, 2, 3 may library, merong office may
canteen, may parking lot, may gym, dormitory tapos sa
gilid pinarerentahan, mcdo, jabee, kfc, at milk tea
HUA MULAN
Q: Alin dyan ang exempted sa RPT?
A: building 1, 2, 3 may library, merong office may
canteen, may parking lot, may gym, dormitory
Q: Bakit?
A: Actually, directly & exclusively used
Q: Basis?
A: Constitution and LGC
Q: What is not exempted from RPT?
A: mcdo, jabee, kfc, at milk tea
Q : Reason?
A: It is not used for ADE.
---
Income naman, let’s say tuition fee 10M.
Q: Is this income?
A: Yes
Q: Is it taxable income?
A: If you look at the constitution, yung kit ana 10M, basta
gamitin sa education purpose, libre sa tax pero ang sab isa
section 30, income as such ng eskwelahan from the
primary purpose such as tuition fee, NO TAX.
But there’s a big difference between the two
Sa constitution kailangan mo gamitin. ADE for
educational purpose
Ang sabi sa section 30, hindi gamit ang pinaguusapan, ang
sinasabi dito the source of the income that matters, it is
what determines that determines the exemption,
regardless of use if the source is income as such, that will
be exempt.
 A: You follow the sale rules, yung income tax lang ang
Constitution Section 30 nagbabago.

Exempted “as such” --

Tuition (ADE)
10 M PROPRIETARY EDUCATIONAL INSTITUTIONS

Under the constitution:

(3) All revenues and assets of non-stock, non-profit

Tuition fee income, NSNPEI.
Ang sabi sa consti yung tuition fee na 10M, exempted
basta ADE.
Ang sabi sa section 30, exempted ‘yan sa income tax
because it is income as such.
May conflict yung dalawa, under consti exempt basta
gamitin mo. Under section 30, basta as such no need to
use it, basta as such
This was resolved by the case of DLSU CASE, it said here
that sec. 30, in so far as NSNPEI is concerned it is
unconstitutional so the effect is, we use the constitution
meaning as long as yung income gagamiting mo for
educational purposes, libre sa income tax
educational institutions used actually, directly, and
exclusively for educational purposes shall be exempt
from taxes and duties. Upon the dissolution or
cessation of the corporate existence of such institutions,
their assets shall be disposed of in the manner provided
by law.
Proprietary educational institutions, including those
cooperatively owned, may likewise be entitled to such
exemptions subject to the limitations provided by law
including restrictions on dividends and provisions for
reinvestment.
(4) Subject to conditions prescribed by law, all grants,
endowments, donations, or contributions used actually,
directly, and exclusively for educational purposes shall
be exempt from tax.

Because of this case, hindi na 11 ang covered ng sec. 30,

10 nalang. Thus, in sofar as NSNPEI are concerned is no So let’s say, this is now a proprietary educational
longer effective. institution.

Q: How do you prove the use?

A: You have to prove in your audited financial statements
that the income was used actually, directly and
exclusively for educational purposes.
mcd Building 1 Build Buildin
Q: Paano yung rentals? o ing 2 g3 GY DOR
A: Sabi sa constitution, basta ginamit ang renta sa M M
educational purpose walang tax, ang sabi sa section 30
because rentals are not as such, therefore taxable
jabe
AGAIN, by reason of the DLSU ruling. The constitution e LIBRAR Office
is the applicable law, so even for rentals of 2M susundan Y
natin ang constitution basta maipakita ng NSNPEI for
educational purpose ADE, exempt from income tax
kfc Canteen
Q: Paano kung nilagay sa bank?
A: Interest earnings may likewise be exempted, provided
MT Parking lot
that the NSNPEI can prove that it is ADE used for
educational purposes

SEC. 30 DOES NOT APPLY TO NSNPEI Q: RPT, alin diyan ang exempted?
A: SAME with NSNPEI
Q: What if you donate?
HUA MULAN
Q: Basis?
A: No constitution, LGC lang. Tuition fee = 10M (related trade or activity)
Rentals = 2M (unrelated)
Q: Rented portion?
A: Not exempt. Same reason, basis is LGC lang not Total – 12M/2 = 6M
constitution.
If the income from unrelated t/a does not exceed 50% of
Q: Sa tuition fee, 10M. What do we apply? the total income, then the preferential rate applies

(B) Proprietary Educational Institutions and
Hospitals.–
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: Provided, That beginning July
1, 2020 until June 30, 2023, the tax rate herein imposed
shall be one percent (1%): Provided, further, That if the
gross income from 'unrelated trade, business or other
activity' exceeds fifty percent (50%) of the total gross
income derived by such educational institutions or
hospitals from all sources, the tax prescribed in
Subsection (A) hereof shall be imposed on the entire
taxable income. For purposes of this Subsection, the
term 'unrelated trade, business or other activity' means
any trade, business or other activity, the conduct of
which is not substantially related to the exercise or
performance by such educational institution or hospital
of its primary purpose or function. 'Proprietary' means
a private hospital, or any private school maintained and
administered by private individuals or groups with an
issued permit to operate from the Department of
Education (DepEd), or the Commission on Higher
Education (CHED), or the Technical Education and
Skills Development Authority (TESDA), as the case
may be, in accordance with existing laws and
regulations.
A: Sec. 27B for under the tax code. You call the 10M for
the tuition fee as related trade or activity.
On the other hand, yung kinita mo sa rentals they are
called as unrelated trade/business activity.
tuition fee= 2M, Rentals = 10M. So, definitely more than
50% yung kita from unrelated trade or activity, so the
preferential rate of 10% does not apply, but the 30% NIT
applies.
SAME RULES SA DONATIONS.
--
GOVERNMENT EDUCATIONAL INSTITUTION
➔ UP does not fall under here, because may separate
charter yun.
Q: May Nakita na ba kayo sa constitution na
exemption ng govt educational constitution from tax?
A: Wala kahit isa.
Under section 30 of the tax code, there is a specific
provision.
Ang nakasulat doon, they are exempt from income tax
from income as such, the exemption is 30% NIT but
income from whatever kind or character from real or
personal property or for an activity conducted for profit
by GEI regardless of disposition, shall be subject to tax
For NSNPEI the constitution applies, for PEI no specific
provision but we apply the LGC of 1991 and the tax code
for GEI, we apply section 30 of the tax code walang
constitution.
mcd Building 1 Build Buildin
o ing 2 g3 GY DOR
M M

Q: Ano ang sabi sa section 27 (B) Of the tax code?

A: If the income from unrelated trade or activitiy does not jabe
exceed 50% of its total income, then the preferential tax e LIBRAR Office
rate of 10% NIT instead of the 30% applies. Y

In other words, the preferential rate of 10% NIT may kfc Canteen
apply.

Q: Paano ito cinocompute?

A:
HUA MULAN
 MT Parking lot
Let’s assume this is a GEI like polytechnic universities,
public high schools, universities.
Assuming this is PUP.
Q: which is exempted from RPT?
A: same with NSPEI, PEI
Q: Basis?
A: LGC Section 234
SEC. 234. Exemptions from Real Property Tax. -
The following are exempted from payment of the
real property tax:
(a) Real property owned by the Republic of the
Philippines or any of its political subdivisions except
when the beneficial use thereof has been granted, for
consideration or otherwise, to a taxable person;
(b) Charitable institutions, churches, parsonages or
convents appurtenant thereto, mosques, nonprofit or
religious cemeteries and all lands, buildings, and
improvements actually, directly, and exclusively used
for religious, charitable or educational purposes;
(c) All machineries and equipment that are actually,
directly and exclusively used by local water districts
and government-owned or -controlled corporations
engaged in the supply and distribution of water and/or
generation and transmission of electric power;
(d) All real property owned by duly registered
cooperatives as provided for under R. A. No. 6938; and
(e) Machinery and equipment used for pollution control
and environmental protection. Except as provided
herein, any exemption from payment of real property
tax previously granted to, or presently enjoyed by, all
persons, whether natural or juridical, including all
government-owned or -controlled corporations are
hereby withdrawn upon the effectivity of this Code.
Q: So, bakit exempted from RPT yung mga inexempt
under here?
A: Since your basis is ONLY the LGC, the reason is not
because it is ADE but because it is real property owned
by the republic of the Philippines and because the
beneficial use does not pertain to a non-exempt entity
HUA MULAN
The rented portion is not exempt but the reason is different
is because the beneficial use pertains to a non-exempt
entity for a consideration. The consideration is the rentals.
--
Let’s go to tuition fees
Q: Ano ang basis?
A: Section 30 tax code.
So if PUP realizes 10M from tuition fees, this is income
and it is not taxable because it is income as such of the
GEI. Section 30 of the tax code.
Q: What about rentals?
A: It is income and subject to tax because under sec. 30
last par. it is income of whatever kind and character from
real or personal property or for an activity conducted for
profit regardless of disposition shall no longer be
exempted from tax
If you donate to the government, it is income but it cannot
be taxed under income tax as it is an item of exclusion.
This is not subject to donor’s/estate tax with NO
QUALIFICATION
Q: rule on deductions?
A:
A: Kung si X ay tao at Purely CIE, he cannot claim it as
deduction, this is not allowed as far as a CIE is concerned
Kung si X ay tao at siya ay SEP/SEI or MIE you can
deduct in full is PRIORITY PROJECT OF THE
GOVERNMENT.
Assuming it is not a priority project, you apply the 10%
and 5% of the tax code.
--
--
Let’s now talk about GOVERNMENT IN GENERAL.
Q: Meron na ba kayong napansin na may
constitutional provision that the government is exempt
from tax?
A: wala
mcdo
Bldg 1 Bldg 2
 Q: But what is the basis?
A: Sec. 32 par. b (7)

jabee (B) Exclusions from Gross Income. - The following

items shall not be included in gross income and shall be
exempt from taxation under this Title:
Bldg 3 Parking
kfc (b) Income Derived by the Government or its Political
Subdivisions. - Income derived from any public utility
or from the exercise of any essential governmental
milktea function accruing to the Government of the Philippines
or to any political subdivision thereof.

Q: Anong nakasulat doon na excluded?

Here is the building DSWD, Building 1, 2, 3 tapos parking
pinarentahan nila mcdo, jabee, kfc MT.
Q: Ano ang exempted? (RPT)
A: Building 1,2, 3 & parking lot
Q: Basis?
A: LGC.
Q: Why?
A: owned by the govt or any of its instrumentalities and
its beneficial use is not given to a taxable entity
The ones rented out by the establishments are taxable
because the beneficial use is given to a taxable entity.
--
Let’s go to income.
Ang DWSD may trainings, so kumikita sila sa trainings
kumita ng 10M. This is income.
Q: Do we use section 30?
A: No, wala naman doon.
Q: May constitutional provision ba?
A: Wala din.
Q: What is the nature of DSWD’s income derived
from conducting trainings?
A: It is income. Because income is anything that flows
into the wealth of the taxpayer other than mere return of
capital.
Q: Is it taxable? Yung income na kinita ba ng DSWD,
Is it taxable?
A: No.
A: Income of the government derived from its
government functions such as the income of DSWD from
the conduct of trainings as this is in the performance of
government functions, so it is exempt from income tax.
Q: What about the rentals?
A: 2M, this is income.
Q: Is it taxable income? Paano natin sasagutin?
Meron ba sa constitution?
A: Wala. Wala din sa section 30?
Q: So what is the basis?
A: Section 32 par. b the item of exclusion is income of the
govt from the performance of its govt function and
conversely therefore, the performance also of proprietary
function such as this rentals. So it is in the nature of a
proprietary function, therefore. IT IS NOT EXEMPT
FROM PAYMENT OF TAX
Q: What kind of tax?
A: Rentals, subject to 30%
--
Nilagay sa bank 20,000 pesos ang interest earnings, this
is subject to tax. The basis is not in the constitution or sec.
30. The basis is under section 32. This is because this is
in the exercise of the government of its proprietary
function, that’s why it is not subject to the exemption.
If you donate in favor of DSWD, it is income but it is not
taxable income because gifts bequests and devises are
items of exclusion from gross income.
Q: Is it subject to donor’s tax/estate tax?
A: No. PERIOD. NO QUALIFICATION. This is fully
and entirely not subject to DT/ET there is no restriction of
30% for administration purposes

HUA MULAN
Q: Deductions? (4) Interests;

A: CIE: No, SEP/SEI/MIE/Corporation – deductible in (5) Rents;

full if a priority project but if it is not a priority project we
apply the 10% and 5% restriction (6) Royalties;

CHARITABLE HOSPITALS v PROPRIETARY (7) Dividends;

HOSPITALS – SAME RULES NG PEI AND
CHARITABLE INSTITUTIONS. (8) Annuities;

PEI and PH = same rules (9) Prizes and winnings;

Charitable institutions = same with charitable
hospitals same rules as well (10) Pensions; and

-- (11) Partner's distributive share from the net income of

the general professional partnership.
ITEMS OF INCLUSIONS IN THE COMPUTATION
OF THE GROSS INCOME OF A TAXPAYER
This is divided into two portions
Q: What constitutes the gross income of a taxpayer? • Sec 32 (A) – ITEMS OF INLCUSIONS
A: Sec. 32 par. A • Sec 32 (B) – ITEMS OF EXCLUSIONS

SEC. 32. Gross Income. -
(A) General Definition. - Except when otherwise
provided in this Title, gross income means all income
derived from whatever source, including (but not
limited to) the following items:
(1) Compensation for services in whatever form
paid, including, but not limited to fees, salaries,
wages, commissions, and similar items;
• There is an EE-ER relationship
• Considered as CIE so the tax is NIT
• You do not VAT here, but because there
is an EE-ER relationship
(2) Gross income derived from the conduct of trade or
business or the exercise of a profession;
• exercise of profession, no EE-ER
relationship
• This means SEP ka, the taxpayer can
exercise the option of NIT/8% if GR/GS
does not exceed 3M, if it exceeds it is only
NIT
• Less than 3M, you choose 8%, there is no
VAT nor percentage tax
• Less than 3M, you choose NIT, no vat but
there is % tax
• If GR/GS exceeds 3M, you are subject to
NIT and the 12% VAT is applied to you,
and there is no percentage tax
(3) Gains derived from dealings in property;
Q: What is the effect if the income is included?
A: Taxable.
Q: Effect if excluded?
A: Not subject to tax
BASIC RULE: All income is subject to tax unless
exempted by law or excluded from the computation of the
gross income the taxpayer
Section 32 A is not a closed list. Ang code ko dito.
CG2DIR2AP3
Gross income from whatever source derived, whether
legal or illegal sources which are but not limited to
CG2DIR2AP3
1. C – compensation for services rendered including
fees commissions and other similar items
2. G- ross income from exercise of profession or t/b,
Gains derived from dealings in property
3. D – ividends
4. Interests: loans, banks, deposit substitutes, bank
deposits, investments
5. R- entals, royalties
6. Annuities
7. Prizes and winnings, partner’s distributive share
in the GPP, pensions
Dalawang bagay ang hindi tinatax, income excluded and
exempted.

Q: What are exempted?

HUA MULAN
A: Income from sale of real property, actual principal
residence. PCSO and lotto winnings not exceeding 10,000
pesos, interests on long term deposits you do not
preterminate within a period of 5 yrs with respect to
individual tax payers, DC-DC issuance of dividends, DC-
RFC dividends
--
We will now talk about exclusions.
(B) Exclusions from Gross Income. - The following
items shall not be included in gross income and shall be
exempt from taxation under this Title:
(1) Life Insurance. - The proceeds of life insurance
policies paid to the heirs or beneficiaries upon the death
of the insured, whether in a single sum or otherwise,
but if such amounts are held by the insurer under an
agreement to pay interest thereon, the interest payments
shall be included in gross income.
(2) Amount Received by Insured as Return of
Premium. - The amount received by the insured, as a
return of premiums paid by him under life insurance,
endowment, or annuity contracts, either during the term
or at the maturity of the term mentioned in the contract
or upon surrender of the contract.
(3) Gifts, Bequests, and Devises. - The value of
property acquired by gift, bequest, devise, or descent:
Provided, however, That income from such property,
as well as gift, bequest, devise or descent of income
from any property, in cases of transfers of divided
interest, shall be included in gross income.
(4) Compensation for Injuries or Sickness. - amounts
received, through Accident or Health Insurance or
under Workmen's Compensation Acts, as
compensation for personal injuries or sickness, plus the
amounts of any damages received, whether by suit or
agreement, on account of such injuries or sickness.
(5) Income Exempt under Treaty. - Income of any kind,
to the extent required by any treaty obligation binding
upon the Government of the Philippines.
(6) Retirement Benefits, Pensions, Gratuities, etc.-
(a) Retirement benefits received under Republic Act
No. 7641 and those received by officials and
employees of private firms, whether individual or
corporate, in accordance with a reasonable private
benefit plan maintained by the employer: Provided,
That the retiring official or employee has been in the
HUA MULAN
service of the same employer for at least ten (10) years
and is not less than fifty (50) years of age at the time of
his retirement: Provided, further, That the benefits
granted under this subparagraph shall be availed of by
an official or employee only once. For purposes of this
Subsection, the term 'reasonable private benefit plan'
means a pension, gratuity, stock bonus or profit-sharing
plan maintained by an employer for the benefit of some
or all of his officials or employees, wherein
contributions are made by such employer for the
officials or employees, or both, for the purpose of
distributing to such officials and employees the
earnings and principal of the fund thus accumulated,
and wherein its is provided in said plan that at no time
shall any part of the corpus or income of the fund be
used for, or be diverted to, any purpose other than for
the exclusive benefit of the said officials and
employees.
(b) Any amount received by an official or employee or
by his heirs from the employer as a consequence of
separation of such official or employee from the service
of the employer because of death sickness or other
physical disability or for any cause beyond the control
of the said official or employee.
(c) The provisions of any existing law to the contrary
notwithstanding, social security benefits, retirement
gratuities, pensions and other similar benefits received
by resident or nonresident citizens of the Philippines or
aliens who come to reside permanently in the
Philippines from foreign government agencies and
other institutions, private or public.
(d) Payments of benefits due or to become due to any
person residing in the Philippines under the laws of the
United States administered by the United States
Veterans Administration.
(e) Benefits received from or enjoyed under the Social
Security System in accordance with the provisions of
Republic Act No. 8282.
(f) Benefits received from the GSIS under Republic Act
No. 8291, including retirement gratuity received by
government officials and employees.
1. Proceeds of life insurance policy received by
the insured/heirs in case of his death, provided
that if there is payment of interest on the
proceeds of the life insurance, then the interest
shall be included and subject to tax
Mr. X took out a life insurance policy
• Premium: 5000 per month
 • Proceeds: 1M in case of death
• ROP: 500K
• Interest earnings: 10%
Beneficiaries: wife and children
Namatay si X, napunta sa wife and children yung
proceeds.
Q: Yung 1M, 500k, 10% INCOME?
A: 1M, proceeds: This is income, other line of thought
daw is that it’s not income because it’s just a
compensation for the death
ROP- this is not income this is just mere return of capital.
10% interest is INCOME.
Q: which among them are taxable?
A: 1M – excluded, ROP: No tax because its #2 in the list
which is return of premim
10% Interest is subject to tax, it is under letter A. because
this is not passive income.
Kapag may namatay, automatic may income tax may
kasunod yan na estate tax we are talking about the same
amount but two topics
Q: Yung 1M, 500k and 10% will they form part of the
gross estate of X and form part of the estate tax?
(E) Proceeds of Life Insurance. - To the extent of the
amount receivable by the estate of the deceased, his
executor, or administrator, as insurance under policies
taken out by the decedent upon his own life,
irrespective of whether or not the insured retained the
power of revocation, or to the extent of the amount
receivable by any beneficiary designated in the policy
of insurance, except when it is expressly stipulated that
the designation of the beneficiary is irrevocable.
A: It depends on the designated beneficiary
If the beneficiary is himself, his estate, executor or
administrator whether designation is
revocable/irrevocable you have to include in the gross
estate, so it is taxable.
If the beneficiary is any person other than the 4 (yung
estate, exec, admin, himself) if it is revocable, include in
the gross estate – TAXABLE
HUA MULAN
If the beneficiary is irrevocable, other than the 4. IT IS
EXCLUDED and not subject to estate tax
2. Return of premium: This is subject not subject
to income tax except when the policy expressly
provides therefore
3. Gifts, bequests and devises
This could be inter vivos/mortis causa.
Q: Kaninong POV?
A: Sa recipient’s POV
So all GBD are excluded, but if there is income on the
property the income is subject to income tax
Let’s say minana mo is apartment, yung rentals doon is
taxable the apartment is not.
Let us summarize the rules.
Kapag binigyan mo boyfriend/girlfriend/friend mo ng
isang gift intervivis/mortis causa excluded sa income tax.
Q: Tandaan niyo, bawi bawi system kung exempted sa
income tax saan ka babawian?
A: Magbabayad ka ng donor’s tax/estate tax.
Kapag ang binigyan mo charitable institution,
religious/NSNPEI
Q: Included or excluded in income tax?
A: No tax here
Q: Sa donor’s or ET?
A: No tax subject to the 30% rule na not more than 30%
will be used with admin purposes
Q: What if you give to the govt?
A: No tax under income.
Q: Under DT/ET and the govt is the receiver?
A: No tax. No qualification
Q: What if you give a contribution for election
campaigns?
NOTE: walang ET dito, alangan naman patay
bibigyan mo.
Not subject to donor’s tax and income tax, provided the
ff: are complied with
 a) It is given for campaign purposes
b) It is fully utilized for authorized campaign
expenditures as provided by the COMELEC rules
c) The creditable withholding tax, the SOSE
(statement of contributions and expenditures) is
filed by losing/winning candidates
d) The creditable withholding tax of 5% is withheld
by the BIR and remitted
4. Income exempt under a treaty
5. Damages
COMPENSATION FOR SICKNESS/DEATH.
Let us summarize the rules.
Keyword: reparation of damage
Kung work related at ikaw ay nireimburse at ikaw ay
nagkasakit or namatay, if not work related kung meron
kang accident/insurance coverage or health card at ikaw
ay nireimburse ng ginastos mo sa pagkakasakit mo na
hindi work related, this is also excluded
When we speak of property insurance, building insurance,
fire insurance, motor vehicle insurance. Otherwise, kung
may insurance and you are reimbursed for the damages,
di ka subjected to tax.
6. Retirement benefits
With private retirement plan (private sector)
• At least 50 yrs of age
• 10 yrs of service
• Approved by the BIR
• No part of the fund is used for any other
purpose, other than for the benefit of the
employees
o APAT YAN NA DAPAT
ICOCOMPLY
o If complied with, excluded.
Private sector (no private retirement plan)
• Atleast 60 yrs of age
• 20 yrs of service
o Excluded from the computation of
gross income
Let’s go to the government sector.
Lahat ng retirements, All retirement benefits NO TAX.
Including conversion of your leave credits into cash lahat
ng ‘yan wala. This is a benefit you get when you are
employed by the government.
HUA MULAN
Since nandito tayo sa retirement benefits, I will discuss
something about employment.
1. Retrenchment
2. Redundancy
3. Installation of labor saving devices
4. Business losses
5. Automation of business process
➔ These are some of the grounds for termination of
employees and these are valid causes for
termination
➔ If you are terminated based on this, there is
separation pay
Q: Is separation pay subject to tax?
A: Not taxable because these are causes beyond the
control of the employee
In addition if an employee dies, whatever retirement
benefits due the employee by reason of his death and
received by the heirs is not subject to tax because this is
beyond the control of the employee
If you are dismissed for cause, wala ka matatanggap but
if you are given financial assistance it is taxable.
If you are dismissed without cause and the final judgment
when you filed the case is reinstatement + moral,
exemplary damages, atty’s fees and costs of suit.
Q: Alin diyan ang taxable?
A: You will receive pay when you are rehired, this is
taxable.
Moral damages: taxable
Atty’s fees and costs of suit:
• If reimbursed for the cost: not taxable
• Kapag sumobra, taxable yung sobra
Q: What if in lieu of reinstatement, separation pay
+moral + exemplary damages + attys fees and costs of
suit. Alin ang taxable?
A: separation pay: not subject to tax, because it is a cause
beyond the control of the employee
MD, ED are subject to tax attys fees and costs of suits if
they are no in excess of the actual expense sa attys fees
and costs of suits, then the excess is subject to income tax
7) prizes and winnings
Q: What is the difference between prizes and winnings
here doon sa passive income (2) Gross income derived from the conduct of trade or
business or the exercise of a profession;
A: sa passive income, sa games of chance • exercise of profession, no EE-ER
relationship
Here in sports competitions, yung sanctioned by the • This means SEP ka, the taxpayer can
national sports commission exercise the option of NIT/8% if GR/GS
does not exceed 3M, if it exceeds it is only
The professional boxers are not covered by the exclusion, NIT
yun ay kanilang kita in the exercise of profession. • Less than 3M, you choose 8%, there is no
VAT nor percentage tax
Professional basketball players, SEP yan • Less than 3M, you choose NIT, no vat but
there is % tax
Q; What are the prizes and winnings excluded? • If GR/GS exceeds 3M, you are subject to
A: NIT and the 12% VAT is applied to you,
1) prizes and winnings sanctioned by the national and there is no percentage tax
sports commission (3) Gains derived from dealings in property;
2) prizes and winnings in recognition of various
purposes, charitable, religious, scientific, (4) Interests;
educational, literary provided that the winner did
not actively participate in the contest and no (5) Rents;
requirement of future service
• you are usually nominated here (6) Royalties;
3) 13th month pay and other benefits: 90,000 (7) Dividends;
4) Other misc. items, income of the govt from govt
functions (8) Annuities;
5) Income of foreign govt from investment in the
Philippines (9) Prizes and winnings;
• Yung pilipinas madaming utak yan, so china
nagpautang any interest payment made to (10) Pensions; and
chine is considered income of the foreign
govt from investments in the Philippines. (11) Partner's distributive share from the net income of
This is not subject to tax the general professional partnership.
We now take up FRINGE BENEFITS, de minimis
Kapag wala diyan sa listahan nay an, taxable yan. Kapag benefits and basic compensation
included naman hahanapin mo kung nasa A, B, C D para
malaman niyo kung nasaan ang tax Q: Paano kung employee ka under an EE-ER
relationship and there are other benefits on top of your
PART 3 compensation income, in other words may sweldo ka,
tapos may mga add ons, how do we treat the add-ons?
SEC. 32. Gross Income. -
In income taxation, unlike the labor code ang daming
(A) General Definition. - Except when otherwise employees here tatlo lang.
provided in this Title, gross income means all income
derived from whatever source, including (but not KINDS OF EMPLOYEES
limited to) the following items: 1. Managerial/supervisory employees
2. Rank and file
(2) Compensation for services in whatever form 3. Minimum wage earners
paid, including, but not limited to fees, salaries,
wages, commissions, and similar items; EEs Basic Within Outside 90k FB
• There is an EE-ER relationship Pay limits limits
• Considered as CIE so the tax is NIT M/S C- E C- FBT
• You do not VAT here, but because there NIT NIT
is an EE-ER relationship
HUA MULAN
 R&F C- E E C-
NIT NIT
MWE SMW- E E C-
E NIT
Q: How are they subjected to tax?
A: They receive their basic pay, lahat naman ng
empleyado may basic pay.
Yun managerial/supervisory we call the basic pay as
compensation income, and the tax due is NIT.
Yung rank and file meron din yang basic pay, at yun ay
compensation and the tax due is NIT.
Kapag minimum wage earner ka, we call your basic pay
as statutory minimum wage and the same is exempt from
income tax. NASA BATAS YAN.
On top of the basic pay, an employee may receive de
minimis benefits ang DMB benefits may limit yan, within
the limits and beyond limits.
Ang libre sa batas eh yung within provided for by law, so
lahat ng add-ons na DMB, meron yang within the limits
provided for by law and lampas sa limit, kailangan alam
Ninyo ano ang laman ng batas.
Enumerate natin. We have 12 items of DMB.
Q: Ano ang limits nung 12?
A:
1. Monetized vacation leave not exceeding 10
days
➔ If 10 days or less it is DMB when converted to
cash, so not taxable
➔ Pero if sick leave, walang DMB lahat ng sick
leave benefits na monetized is not a DMB so
taxable but sa government walang limit ang VL
at SL, kahit anong leave icoconvert sa cash if you
are part of the govt sector, lahat ng yon DMB.
➔ In the government sector, naiipon yung VL pag di
mo naubos ang bakasyon mo ng isang taon,
dagdag ng dagdag yan difference ng govt sector
at private sector. In the govt lahat ng credits kung
ano mang leave na ‘yan ng govt sector pag
pinagsama sama at converted to cash, this is not
subject to tax
HUA MULAN
➔ But in the private sector, ang sick leave is taxable
benefit and ang VL is not taxable when it does not
exceed 10 days
2. Medical allowance to dependents of EEs
(taxpayer) but not exceeding 1,500 per
semester/6 months
3. Rice subsidy 2000 pesos per month, 1 sack of
rice equivalent to 2k/month
4. Uniform and clothing allowance 6,000 pesos
per YEAR
5. Actual medical assistance not exceeding
10k/year
6. Achievement awards in the form of tangible
person property other than cash/gift
certificates not exceeding 10k/year
7. Gifts given during Christmas/major
anniversary celebrations 5k/year
8. Daily meal allowance, not exceeding 25% of
the basic minimum
9. Benefits received by a EE in pursuant to a
CBA not to exceed 10k pesos
So ito yung limits na nakasulat sa batas, if the benefits are
given at nag exceed sa limit, ano ang gagawin sa sobra.
Ito ang rule, yung sobra lumilipat ang tinatawag natin dito
ay other benefits. Yung DMB within limits, not subject to
tax all employees. If nag exceed sa limits provided for by
law, tumatawid sa kabila, ang tawag doon ay other
benefits. Kapag ikaw ay may sobra at tumawid na yung
other benefits meron ‘yang limits ang unang limit diyan is
yung 90,000 for 13th month pay and other benefits
So if you’re a M/S EE and your other benefits exceed
90,000 yung sobra will be part of your compensation
subject to NIT, unless considered siyang fringe benefits,
which if FB siya it will be subjected to FBT subject to
FBT 35%
Now if a R/F has other benefits not exceeding 90,000
yung 90k kasi ang limit, exempted yan pero kapag nag
exceed sa 90k, ang tawag doon ay compensation at yan ay
tinatax kasama ng compensation mo. Anything ing excess
of the 90,000 will be part of your compensation subject to
NIT at inaadd yan sa basic mo.
If you’re a MWE and other benefits do not exceed 90k,
exempt and lahat ng sobra sa 90k, it shall be subject to
NIT.
Dati if MWE ka, and if may other benefits ka and nag
eexceed sa 30k (before ito yung limit), you are no longer
considered a MWE, likewise if the MWE whether
nagexceed sa 30k limit or di nagexceed if the MWE has
other sources of income, pero MWE ka pero may sari sari
store ka ang interpretation dati ng BIR, and MWE ka and
your other benefits exceed the limits provided for by law,
and you have other kinds of income di ka na MWE, so
yung MWE is taxable pero exempted ka sa DMB is
exempted, yung sa limits exempted but the excess is
taxable. This is decided to be a null and void opinion
already. THIS HOLDS NO WATER.
Now, once you’re a MWE your MWE is forever exempt
your DMB is exempt assuming that you have DMB in
excess of the limits, yung sobra will form part of other
benefits, together with the excess of your DMB do not
exceed the 90k limit, exempt. So kung meron lang excess,
yung excess lang ang taxable
Now when we talk about employee benefits, the
exceptions to the rule, meaning any benefit you receive as
an employee and that benefit is furnished by the employer
for the convenience of the employer, or the benefit
extended by the employer to the employee is necessary in
the trade/business of the employer, DO NOT APPLY
THE TABLE AT ALL. Meaning whatever the employee
receives is not considered as income and therefore, not
subject to tax.
If the benefit extended by the ER to the EE is for the
benefit of the ER, or the benefit is necessary in
carrying on the t/b of the employer, any time of benefit
shall not be treated as income and therefore NOT
SUBJECT TO TAX.
--
FRINGE BENEFITS
Q: What are fringe benefits?
A: These are extended by a ER to an EE on top of the
basic pay, on top of the DMB, 13th month pay and other
benefits. These are normally given to M/S employees and
the tax rate is 35% based on the grossed up monetary
value. It used to be 32%, but it has been increased to 35%
based on the grossed up monetary value of the benefit.
Q; Ano yung mga typical fringe benefits?
A: Housing privileges, motor vehicles, equipment,
personnel assigned to you, membership in exclusive
clubs, travel (plane tickets) and all other benefits extended
by the EE-ER other than DMB, 13TH month pay and other
benefits
The tax is 35% FBT and withheld by the employer, this is
in the nature of a withholding tax. Because all EE benefits
subject to tax, lahat yan withholding tax, even if nakasulat
HUA MULAN
na NIT, when the ER gives it to the EE the tax will be
withheld and considered for purposes of computing the
fringe benefit tax at the end of the year.
--
Remember our discussions on aliens employed in OBUs,
OPSC, and multinational companies. The alien is an
employee, the ER’s place of business is in the Philippines,
they are NRANETB but in reality they are here in the
Philippines in pursuant to a EE-ER, If you are the alien
employed here because you are an employee the tax
imposed is GIT 25% as the general rule, but because of
the veto by the president itong tatlong to, yung sweldo nila
compensation income nila will be treated as subject to net
income tax just like a M/S who is a filipino citizen.
Meron multinational company na nasa pilipinas, one
employee niya is filipino resident citizen may counterpart
siya na expat yung expat, ito yun yung NRANETB dahil
pareho silang employed, yung filipino when we look at
the table ang tax ng Fil RC is NIT under the old code, dati
naman si NRANET, 15% GIT.
Now, under the train law, inalis yung 15% GIT
INALIS YUN. Under the train law the filipino is taxed
as NIT at yung expat is subjected to NIT.
Because they are occupying top management positions,
sigurado they are receiving fringe benefits.
Q: So what will be the tax treatment of a filipino
citizen in fringe benefits?
A: 35% FBT.
Under the old code, walang FBT ang expats.
Ngayon, under the present law, subject na din siya sa FBT
of 35%.
ITEMS OF DEDUCTIONS
Number one concept in deductions: only income subject
to NIT is allowed to claim the deduction. BASIC RULE.
Isang rule lang.
Q: So, when we look at our table. Sino sino ang may
deductions?
Is a RC allowed to claim deductions?
Yes, but only for column A subject to NIT so lagat ng
income niya within and without basta NIT, so kung 8%
ang pinili mow ala ka ng deductions
 A: No deductions allowed because everything is in the
NRC: For income within, under column A subject to NIT. nature of a final tax.

RA: subject under column A, subject to NIT as well. --

NRAETB under column A for income here subject to Q: What kinds of deductions are allowed
NIT.
If you are an individual: RC, NRC, RA, NRAETB,
Q: What about a NRANETB? NRANETB and you are CIE no deductions allowed. The
A: No deduction is allowed because the tax is on the train law removed personal and additional exemptions so
gross. wala na siyang exemptions, wala ng deduction

Q: What about the special types of aliens? If you are an individual or SEP/SEI because you are
A: They are subject to deductions, because NIT na nga engaged in t/b and you are engaged in the exercise of
ang tax nila. profession without an EE-ER relationship then you have
the option to be taxed not if you’re gross exceeds do not
Q: What about a DC? exceed 3M, the tax due is either 8% or NIT at the option
A: Yes, under column A because the tax due is NIT at the of the taxpayer. If the taxpayer chooses 8% there is no
rate of 30% deduction, but if the taxpayer chooses NIT, the deductions
may either be
For RFC, entitled ba siya?
A: Yes. Under column A, NIT. OPTIONAL STANDARD DEDUCTION OR
ITEMIZED DEDUCTION under section 34
Q: What about a NRFC?
A: Because the tax due is on the gross, GIT 30 no If your gross receipts exceed 3M, your tax due is NIT and
deductions allowed therefore, your deductions at the option of the taxpayer
maybe either OSD/ITEMIZED DEDUCTIONS.
--
If you’re a person and you’re a mixed income earner, we
Q: Now, what deductions are allowed? apply the same rules. For your CIE no deductions and for
A: Therefore, if you were a RC and we are talking about your t/b or exercise of profession part same lang doon sa
income from BCD it is not subject to deduction because naunang discussion.
FWT ‘yan, kasi pag tanggap mo ng income bawas na ang
buwis If you are NRANETB, you are not entitled to any
deduction this does not apply.
Q: What about NRC income under BCD?
A: No. Now we go to DC, if we’re talking about a DC subject to
tax within and without and the tax due is NI of 30% for
Q: NRA income from BCD? their income under column, their deductions will either be
A: No deductions OSD or ITEMIZED DEDUCTIONS

Q: NRAETB income from BCD? For RFC for their income within and falling under column
A: No. A and subject to NIT, there is an available deduction. So
the deductions will either be OSD/ID
Q: NRANETB in trade/business income under BCD?
A: No deductions If you’re NRFC you are not entitled to any deduction at
all.
Q: Income for DC under BCD?
A: No deductions --

Q: RFC income for BC? Remember all taxpayers will NIT can have deductions,
A: No deductions then ask yourself, sino lang ang pwede magkaron ng
deductions. As you can see, the income subject to NIT
Q: NRFC? lang pwede mag claim ng deduction. Ngayon ano ang
entitled na deductions
HUA MULAN

When you look at our table of deductions, it is only a
taxpayer engaged in t/b is entitled to claim deductions
There are only two types of deductions allowed under the
rule: optional standard deduction and itemized deductions
Wala ng personal exemptions, if you are a CIE wala na
kayong deductions except for remittances to the govt,
pagibig, philhealth, 90k limit, 13th month pay, SSS, GSIS,
union dues, medicare – hindi nay an tinatax na pwede
ibawas sa sweldo, but ang CIE walang OSD or ID
Kapag CIE ito lang idededuct sayon a walang tax
➔ PAGIBIG
➔ PHIC
➔ SSS
➔ GSIS
➔ Union dues
➔ 13th month pay and other benefits not exceeding
90k
o Yan lang ang deductions, but not
deductions from gross income they are
legitimate remittances to the government
--
Q; What is OSD?
A: 40% of gross income or gross receipts or gross sales.
Walang concept yan it is everybody allowed to claim
deductions can claim 40%
In other words, when a taxpayer claims OSD as the form
of deduction, kung ako kita niya is 1M, then 40% is
400,000 so 600k nalang ang imumultiply sa taxable rate
Q: What is the scenario of the taxpayer?
A: If the taxpayer chooses OSD, then he will never incur
any loss, because it is always 60% of his income will be
subjected to tax. You will never incur a loss, there will
never be a possibility at all of you not paying any tax
because 60% of your income is taxable, that will be
subject to tax depending on the applicable rates.
--
Yung itemized deductions naman nasa section 34 of the
tax code. EITLBDCPR
Expenses, interests, taxes, losses, bad debts,
depereciation, depletion, charitable contributions,
pensions and research and development
Q: What’s the difference between OSD and ID?
HUA MULAN
A: In OSD, no documentation needed in ID, you need
supporting documents to prove the expense, tandaan niyo
ang deductions in the nature of gastos, expenses
So when you are availing of itemized deductions, they are
supported by documents proving that you actually spent
the expenditure.
The itemized deductions must be necessary in the
trade/business of the taxpayer.
They must be actually paid or incurred by the taxpayer in
the year for which you are computing your tax due.
There are two sides, revenue and expense within a 12
month period whether fiscal/calendar only the revenues
realized within this period shall form part of the gross
income and only expenditures incurred/paid within the 12
month period shall be considered.
If you choose 40% OSD, No need for documentation. But
in itemized deductions there must be documents.
Q: What does actually paid/incurred mean?
A: pwedeng cash method/accrual method
If cash basis, the revenue side must actually be received
and expense side must be paid
If accrual side, you may realize income constructively
received and expenses must be actually incurred, ‘yan ang
ibig sabihin ng cash and accrual system of accounting.
The choice is upon the taxpayer.
Q: When do you make a choice?
A; At the start of the taxable period, upon filing of the first
quarterly return nakalagay na don anong deduction iaavail
mo, if you want OSD indicate it there, if by default hindi
ka namili ang default na deduction mo itemized
deduction.
Once the choice is made/defaulted it is IRREVOCABLE
within the same taxable period. Your option is available
again for the next taxable period.
--
Yung OSD madali lang yun, 40% lang yun yung itemized,
ano yun?
SEC. 34. Deductions from Gross Income. - Except for
taxpayers earning compensation income arising from
personal services rendered under an employer-
 employee relationship where no deductions shall be
allowed under this Section, in computing taxable
income subject to income tax under Sections 24(A);
25(A); 26; 27(A), (B), and (C); and 28(A)(1), there
shall be allowed the following deductions from gross
income: [45]
(A) Expenses. -
(1) Ordinary and Necessary Trade, Business or
Professional Expenses.-
(a) In General. - There shall be allowed as deduction
from gross income all the ordinary and necessary
expenses paid or incurred during the taxable year in
carrying on or which are directly attributable to, the
development, management, operation and/or conduct
of the trade, business or exercise of a profession,
including:
(i) A reasonable allowance for salaries, wages, and
other forms of compensation for personal services
actually rendered, including the grossed-up monetary
value of fringe benefit furnished or granted by the
employer to the employee: Provided, That the final tax
imposed under Section 33 hereof has been paid;
(ii) A reasonable allowance for travel expenses, here
and abroad, while away from home in the pursuit of
trade, business or profession;
(iii) A reasonable allowance for rentals and/or other
payments which are required as a condition for the
continued use or possession, for purposes of the trade,
business or profession, of property to which the
taxpayer has not taken or is not taking title or in which
he has no equity other than that of a lessee, user or
possessor;
(iv) A reasonable allowance for entertainment,
amusement and recreation expenses during the taxable
year, that are directly connected to the development,
management and operation of the trade, business or
profession of the taxpayer, or that are directly related to
or in furtherance of the conduct of his or its trade,
business or exercise of a profession not to exceed such
ceilings as the Secretary of Finance may, by rules and
regulations prescribe, upon recommendation of the
Commissioner, taking into account the needs as well as
the special circumstances, nature and character of the
industry, trade, business, or profession of the taxpayer:
Provided, That any expense incurred for entertainment,
amusement or recreation that is contrary to law, morals
public policy or public order shall in no case be allowed
as a deduction.
HUA MULAN
(v) An additional deduction from taxable income of
one-half (1/2) of the value of labor training expenses
incurred for skills development of enterprise-based
trainees enrolled in public senior high schools, public
higher education institutions, or public technical and
vocational institutions and duly covered by an
apprenticeship agreement under Presidential Decree
No. 442, series of 1974, or the ‘Labor Code of the
Philippines’, as amended, shall be granted to
enterprises: Provided, further, That for the additional
deduction for enterprise-based training of students
from public educational institutions, the enterprise
shall secure proper certification from the DepEd,
TESDA, or CHED: Provided, finally, That such
deduction shall not exceed ten percent (10%) of direct
labor wage. [45]
(b) Substantiation Requirements. - No deduction from
gross income shall be allowed under Subsection (A)
hereof unless the taxpayer shall substantiate with
sufficient evidence, such as official receipts or other
adequate records: (i) the amount of the expense being
deducted, and (ii) the direct connection or relation of
the expense being deducted to the development,
management, operation and/or conduct of the trade,
business or profession of the taxpayer.
(c) Bribes, Kickbacks and Other Similar Payments. -
No deduction from gross income shall be allowed
under Subsection (A) hereof for any payment made,
directly or indirectly, to an official or employee of the
national government, or to an official or employee of
any local government unit, or to an official or employee
of a government-owned or -controlled corporation, or
to an official or employee or representative of a foreign
government, or to a private corporation, general
professional partnership, or a similar entity, if the
payment constitutes a bribe or kickback.
(2) Expenses Allowable to Private Educational
Institutions. - In addition to the expenses allowable as
deductions under this Chapter, a private educational
institution, referred to under Section 27 (B) of this
Code, may at its option elect either: (a) to deduct
expenditures otherwise considered as capital outlays of
depreciable assets incurred during the taxable year for
the expansion of school facilities or (b) to deduct
allowance for depreciation thereof under Subsection
(F) hereof.
(B) Interest. -
(1) In General. - The amount of interest paid or incurred
within a taxable year on indebtedness in connection
 with the taxpayer's profession, trade or business shall
be allowed as deduction from gross income: Provided,
however, That the taxpayer's otherwise allowable
deduction for interest expense shall be reduced by
twenty percent (20%) of the interest income subjected
to final tax: Provided, finally, That if the interest
income tax is adjusted in the future, the interest expense
reduction rate shall be adjusted accordingly based on
the prescribed standard formula as defined in the rules
and regulations to be promulgated by the Secretary of
Finance, upon the recommendation of the
Commissioner of Internal Revenue. [45]
(2) Exceptions. - No deduction shall be allowed in
respect of interest under the succeeding subparagraphs:
(a) If within the taxable year an individual taxpayer
reporting income on the cash basis incurs an
indebtedness on which an interest is paid in advance
through discount or otherwise: Provided, That such
interest shall be allowed as a deduction in the year the
indebtedness is paid: Provided, further, That if the
indebtedness is payable in periodic amortizations, the
amount of interest which corresponds to the amount of
the principal amortized or paid during the year shall be
allowed as deduction in such taxable year;
(b) If both the taxpayer and the person to whom the
payment has been made or is to be made are persons
specified under Section 36 (B); or
(c) If the indebtedness is incurred to finance petroleum
exploration.
(3) Optional Treatment of Interest Expense. - At the
option of the taxpayer, interest incurred to acquire
property used in trade business or exercise of a
profession may be allowed as a deduction or treated as
a capital expenditure.
(C) Taxes.-
(1) In General. - Taxes paid or incurred within the
taxable year in connection with the taxpayer's
profession, trade or business, shall be allowed as
deduction, except:
(a) The income tax provided for under this Title;
(b) Income taxes imposed by authority of any foreign
country; but this deduction shall be allowed in the case
of a taxpayer who does not signify in his return his
desire to have to any extent the benefits of paragraph
(3) of this subsection (relating to credits for taxes of
foreign countries);
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(c) Estate and donor's taxes; and
(d) Taxes assessed against local benefits of a kind
tending to increase the value of the property assessed.
Provided, That taxes allowed under this Subsection,
when refunded or credited, shall be included as part of
gross income in the year of receipt to the extent of the
income tax benefit of said deduction.
(2) Limitations on Deductions. - In the case of a
nonresident alien individual engaged in trade or
business in the Philippines and a resident foreign
corporation, the deductions for taxes provided in
paragraph (1) of this Subsection (C) shall be allowed
only if and to the extent that they are connected with
income from sources within the Philippines.
(3) Credit Against Tax for Taxes of Foreign Countries.
- If the taxpayer signifies in his return his desire to have
the benefits of this paragraph, the tax imposed by this
Title shall be credited with:
(a) Citizen and Domestic Corporation. - In the case of
a citizen of the Philippines and of a domestic
corporation, the amount of income taxes paid or
incurred during the taxable year to any foreign country;
and
(b) Partnerships and Estates. - In the case of any such
individual who is a member of a general professional
partnership or a beneficiary of an estate or trust, his
proportionate share of such taxes of the general
professional partnership or the estate or trust paid or
incurred during the taxable year to a foreign country, if
his distributive share of the income of such partnership
or trust is reported for taxation under this Title.
An alien individual and a foreign corporation shall not
be allowed the credits against the tax for the taxes of
foreign countries allowed under this paragraph.
(4) Limitations on Credit. - The amount of the credit
taken under this Section shall be subject to each of the
following limitations:
(a) The amount of the credit in respect to the tax paid
or incurred to any country shall not exceed the same
proportion of the tax against which such credit is taken,
which the taxpayer's taxable income from sources
within such country under this Title bears to his entire
taxable income for the same taxable year; and
 (b) The total amount of the credit shall not exceed the
same proportion of the tax against which such credit is
taken, which the taxpayer's taxable income from
sources without the Philippines taxable under this Title
bears to his entire taxable income for the same taxable
year.
(5) Adjustments on Payment of Incurred Taxes. - If
accrued taxes when paid differ from the amounts
claimed as credits by the taxpayer, or if any tax paid is
refunded in whole or in part, the taxpayer shall notify
the Commissioner; who shall re-determine the amount
of the tax for the year or years affected, and the amount
of tax due upon such re-determination, if any, shall be
paid by the taxpayer upon notice and demand by the
Commissioner, or the amount of tax overpaid, if any,
shall be credited or refunded to the taxpayer. In the case
of such a tax incurred but not paid, the Commissioner
as a condition precedent to the allowance of this credit
may require the taxpayer to give a bond with sureties
satisfactory to and to be approved by the Commissioner
in such sum as he may require, conditioned upon the
payment by the taxpayer of any amount of tax found
due upon any such redetermination. The bond herein
prescribed shall contain such further conditions as the
Commissioner may require.
(6) Year in Which Credit Taken. - The credits provided
for in Subsection (C)(3) of this Section may, at the
option of the taxpayer and irrespective of the method of
accounting employed in keeping his books, be taken in
the year which the taxes of the foreign country were
incurred, subject, however, to the conditions prescribed
in Subsection (C)(5) of this Section. If the taxpayer
elects to take such credits in the year in which the taxes
of the foreign country accrued, the credits for all
subsequent years shall be taken upon the same basis
and no portion of any such taxes shall be allowed as a
deduction in the same or any succeeding year.
(7) Proof of Credits. - The credits provided in
Subsection (C)(3) hereof shall be allowed only if the
taxpayer establishes to the satisfaction of the
Commissioner the following:
(a) The total amount of income derived from sources
without the Philippines;
(b) The amount of income derived from each country,
the tax paid or incurred to which is claimed as a credit
under said paragraph, such amount to be determined
under rules and regulations prescribed by the Secretary
of Finance; and
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(c) All other information necessary for the verification
and computation of such credits.
(D) Losses. -
(1) In General. - Losses actually sustained during the
taxable year and not compensated for by insurance or
other forms of indemnity shall be allowed as
deductions:
(a) If incurred in trade, profession or business;
(b) Of property connected with the trade, business or
profession, if the loss arises from fires, storms,
shipwreck, or other casualties, or from robbery, theft or
embezzlement.
The Secretary of Finance, upon recommendation of the
Commissioner, is hereby authorized to promulgate
rules and regulations prescribing, among other things,
the time and manner by which the taxpayer shall submit
a declaration of loss sustained from casualty or from
robbery, theft or embezzlement during the taxable year:
Provided, however, That the time limit to be so
prescribed in the rules and regulations shall not be less
than thirty (30) days nor more than ninety (90) days
from the date of discovery of the casualty or robbery,
theft or embezzlement giving rise to the loss.
(c) No loss shall be allowed as a deduction under this
Subsection if at the time of the filing of the return, such
loss has been claimed as a deduction for estate tax
purposes in the estate tax return.
(2) Proof of Loss. - In the case of a nonresident alien
individual or foreign corporation, the losses deductible
shall be those actually sustained during the year
incurred in business, trade or exercise of a profession
conducted within the Philippines, when such losses are
not compensated for by insurance or other forms of
indemnity. The secretary of Finance, upon
recommendation of the Commissioner, is hereby
authorized to promulgate rules and regulations
prescribing, among other things, the time and manner
by which the taxpayer shall submit a declaration of loss
sustained from casualty or from robbery, theft or
embezzlement during the taxable year: Provided, that
the time to be so prescribed in the rules and regulations
shall not be less than thirty (30) days nor more than
ninety (90) days from the date of discovery of the
casualty or robbery, theft or embezzlement giving rise
to the loss; and
3) Net Operating Loss Carry-Over. - The net operating
loss of the business or enterprise for any taxable year
 immediately preceding the current taxable year, which
had not been previously offset as deduction from gross
income shall be carried over as a deduction from gross
income for the next three (3) consecutive taxable years
immediately following the year of such loss: Provided,
however, That any net loss incurred in a taxable year
during which the taxpayer was exempt from income tax
shall not be allowed as a deduction under this
Subsection: Provided, further, That a net operating loss
carry-over shall be allowed only if there has been no
substantial change in the ownership of the business or
enterprise in that -
(i) Not less than seventy-five percent (75%) in nominal
value of outstanding issued shares., if the business is in
the name of a corporation, is held by or on behalf of the
same persons; or
(ii) Not less than seventy-five percent (75%) of the paid
up capital of the corporation, if the business is in the
name of a corporation, is held by or on behalf of the
same persons.
For purposes of this subsection, the term 'net operating
loss' shall mean the excess of allowable deduction over
gross income of the business in a taxable year.
Provided, That for mines other than oil and gas wells,
a net operating loss without the benefit of incentives
provided for under Executive Order No. 226, as
amended, otherwise known as the Omnibus
Investments Code of 1987, incurred in any of the first
ten (10) years of operation may be carried over as a
deduction from taxable income for the next five (5)
years immediately following the year of such loss. The
entire amount of the loss shall be carried over to the
first of the five (5) taxable years following the loss, and
any portion of such loss which exceeds the taxable
income of such first year shall be deducted in like
manner form the taxable income of the next remaining
four (4) years.
(4) Capital Losses. -
(a) Limitations. - Loss from sales or Exchanges of
capital assets shall be allowed only to the extent
provided in Section 39.
(b) Securities Becoming Worthless. - If securities as
defined in Section 22 (T) become worthless during the
taxable year and are capital assets, the loss resulting
therefrom shall, for purposes of this Title, be
considered as a loss from the sale or exchange, on the
last day of such taxable year, of capital assets.
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(5) Losses From Wash Sales of Stock or Securities. -
Losses from 'wash sales' of stock or securities as
provided in Section 38.
(6) Wagering Losses. - Losses from wagering
transactions shall be allowed only to the extent of the
gains from such transactions.
(7) Abandonment Losses. -
(a) In the event a contract area where petroleum
operations are undertaken is partially or wholly
abandoned, all accumulated exploration and
development expenditures pertaining thereto shall be
allowed as a deduction: Provided, That accumulated
expenditures incurred in that area prior to January 1,
1979 shall be allowed as a deduction only from any
income derived from the same contract area. In all
cases, notices of abandonment shall be filed with the
Commissioner.
(b) In case a producing well is subsequently
abandoned, the un-amortized costs thereof, as well as
the un-depreciated costs of equipment directly used
therein , shall be allowed as a deduction in the year such
well, equipment or facility is abandoned by the
contractor: Provided, That if such abandoned well is re-
entered and production is resumed, or if such
equipment or facility is restored into service, the said
costs shall be included as part of gross income in the
year of resumption or restoration and shall be
amortized or depreciated, as the case may be.
(E) Bad Debts. -
(1) In General. - Debts due to the taxpayer actually
ascertained to be worthless and charged off within the
taxable year except those not connected with
profession, trade or business and those sustained in a
transaction entered into between parties mentioned
under Section 36 (B) of this Code: Provided, That
recovery of bad debts previously allowed as deduction
in the preceding years shall be included as part of the
gross income in the year of recovery to the extent of the
income tax benefit of said deduction.
(2) Securities Becoming Worthless. - If securities, as
defined in Section 22 (T), are ascertained to be
worthless and charged off within the taxable year and
are capital assets, the loss resulting therefrom shall, in
the case of a taxpayer other than a bank or trust
company incorporated under the laws of the
Philippines a substantial part of whose business is the
receipt of deposits, for the purpose of this Title, be
 considered as a loss from the sale or exchange, on the
last day of such taxable year, of capital assets.
(F) Depreciation. –
(1) General Rule. - There shall be allowed as a
depreciation deduction a reasonable allowance for the
exhaustion, wear and tear (including reasonable
allowance for obsolescence) of property used in the
trade or business. In the case of property held by one
person for life with remainder to another person, the
deduction shall be computed as if the life tenant were
the absolute owner of the property and shall be allowed
to the life tenant. In the case of property held in trust,
the allowable deduction shall be apportioned between
the income beneficiaries and the trustees in accordance
with the pertinent provisions of the instrument creating
the trust, or in the absence of such provisions, on the
basis of the trust income allowable to each.
(2) Use of Certain Methods and Rates. - The term
'reasonable allowance' as used in the preceding
paragraph shall include, but not limited to, an
allowance computed in accordance with rules and
regulations prescribed by the Secretary of Finance,
upon recommendation of the Commissioner, under any
of the following methods:
(a) The straight-line method;
(b) Declining-balance method, using a rate not
exceeding twice the rate which would have been used
had the annual allowance been computed under the
method described in Subsection (F) (1);
(c) The sum-of-the-years-digit method; and
(d) Any other method which may be prescribed by the
Secretary of Finance upon recommendation of the
Commissioner.
(3) Agreement as to Useful Life on Which Depreciation
Rate is Based. - Where under rules and regulations
prescribed by the Secretary of Finance upon
recommendation of the Commissioner, the taxpayer
and the Commissioner have entered into an agreement
in writing specifically dealing with the useful life and
rate of depreciation of any property, the rate so agreed
upon shall be binding on both the taxpayer and the
national Government in the absence of facts and
circumstances not taken into consideration during the
adoption of such agreement. The responsibility of
establishing the existence of such facts and
circumstances shall rest with the party initiating the
modification. Any change in the agreed rate and useful
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life of the depreciable property as specified in the
agreement shall not be effective for taxable years prior
to the taxable year in which notice in writing by
certified mail or registered mail is served by the party
initiating such change to the other party to the
agreement:
Provided, however, that where the taxpayer has
adopted such useful life and depreciation rate for any
depreciable and claimed the depreciation expenses as
deduction from his gross income, without any written
objection on the part of the Commissioner or his duly
authorized representatives, the aforesaid useful life and
depreciation rate so adopted by the taxpayer for the
aforesaid depreciable asset shall be considered binding
for purposes of this Subsection.
(4) Depreciation of Properties Used in Petroleum
Operations. - An allowance for depreciation in respect
of all properties directly related to production of
petroleum initially placed in service in a taxable year
shall be allowed under the straight-line or declining-
balance method of depreciation at the option of the
service contractor.
However, if the service contractor initially elects the
declining-balance method, it may at any subsequent
date, shift to the straight-line method.
The useful life of properties used in or related to
production of petroleum shall be ten (10) years of such
shorter life as may be permitted by the Commissioner.
Properties not used directly in the production of
petroleum shall be depreciated under the straight-line
method on the basis of an estimated useful life of five
(5) years.
(5) Depreciation of Properties Used in Mining
Operations. - an allowance for depreciation in respect
of all properties used in mining operations other than
petroleum operations, shall be computed as follows:
(a) At the normal rate of depreciation if the expected
life is ten (10) years or less; or
(b) Depreciated over any number of years between five
(5) years and the expected life if the latter is more than
ten (10) years, and the depreciation thereon allowed as
deduction from taxable income: Provided, That the
contractor notifies the Commissioner at the beginning
of the depreciation period which depreciation rate
allowed by this Section will be used.
 (6) Depreciation Deductible by Nonresident Aliens
Engaged in Trade or Business or Resident Foreign
Corporations. - In the case of a nonresident alien
individual engaged in trade or business or resident
foreign corporation, a reasonable allowance for the
deterioration of Property arising out of its use or
employment or its non-use in the business trade or
profession shall be permitted only when such property
is located in the Philippines.
(G) Depletion of Oil and Gas Wells and Mines. –
(1) In General. - In the case of oil and gas wells or
mines, a reasonable allowance for depletion or
amortization computed in accordance with the cost-
depletion method shall be granted under rules and
regulations to be prescribed by the Secretary of finance,
upon recommendation of the Commissioner. Provided,
That when the allowance for depletion shall equal the
capital invested no further allowance shall be granted:
Provided, further, That after production in commercial
quantities has commenced, certain intangible
exploration and development drilling costs: (a) shall be
deductible in the year incurred if such expenditures are
incurred for non-producing wells and/or mines, or (b)
shall be deductible in full in the year paid or incurred
or at the election of the taxpayer, may be capitalized
and amortized if such expenditures incurred are for
producing wells and/or mines in the same contract area.
'Intangible costs in petroleum operations' refers to any
cost incurred in petroleum operations which in itself
has no salvage value and which is incidental to and
necessary for the drilling of wells and preparation of
wells for the production of petroleum: Provided, That
said costs shall not pertain to the acquisition or
improvement of property of a character subject to the
allowance for depreciation except that the allowances
for depreciation on such property shall be deductible
under this Subsection.
Any intangible exploration, drilling and development
expenses allowed as a deduction in computing taxable
income during the year shall not be taken into
consideration in computing the adjusted cost basis for
the purpose of computing allowable cost depletion.
(2) Election to Deduct Exploration and Development
Expenditures. - In computing taxable income from
mining operations, the taxpayer may at his option,
deduct exploration and development expenditures
accumulated as cost or adjusted basis for cost depletion
as of date of prospecting, as well as exploration and
development expenditures paid or incurred during the
taxable year: Provided, That the amount deductible for
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exploration and development expenditures shall not
exceed twenty-five percent (25%) of the net income
from mining operations computed without the benefit
of any tax incentives under existing laws. The actual
exploration and development expenditures minus
twenty-five percent (25%) of the net income from
mining shall be carried forward to the succeeding years
until fully deducted.
The election by the taxpayer to deduct the exploration
and development expenditures is irrevocable and shall
be binding in succeeding taxable years.
'Net income from mining operations', as used in this
Subsection, shall mean gross income from operations
less 'allowable deductions' which are necessary or
related to mining operations. 'Allowable deductions'
shall include mining, milling and marketing expenses,
and depreciation of properties directly used in the
mining operations. This paragraph shall not apply to
expenditures for the acquisition or improvement of
property of a character which is subject to the
allowance for depreciation.
In no case shall this paragraph apply with respect to
amounts paid or incurred for the exploration and
development of oil and gas.
The term 'exploration expenditures' means
expenditures paid or incurred for the purpose of
ascertaining the existence, location, extent or quality of
any deposit of ore or other mineral, and paid or incurred
before the beginning of the development stage of the
mine or deposit.
The term 'development expenditures' means
expenditures paid or incurred during the development
stage of the mine or other natural deposits. The
development stage of a mine or other natural deposit
shall begin at the time when deposits of ore or other
minerals are shown to exist in sufficient commercial
quantity and quality and shall end upon
commencement of actual commercial extraction.
(3) Depletion of Oil and Gas Wells and Mines
Deductible by a Nonresident Alien individual or
Foreign Corporation. - In the case of a nonresident alien
individual engaged in trade or business in the
Philippines or a resident foreign corporation, allowance
for depletion of oil and gas wells or mines under
paragraph (1) of this Subsection shall be authorized
only in respect to oil and gas wells or mines located
within the Philippines.
(H) Charitable and Other Contributions. –

(1) In General. - Contributions or gifts actually paid or
made within the taxable year to, or for the use of the
Government of the Philippines or any of its agencies or
any political subdivision thereof exclusively for public
purposes, or to accredited domestic corporation or
associations organized and operated exclusively for
religious, charitable, scientific, youth and sports
development, cultural or educational purposes or for
the rehabilitation of veterans, or to social welfare
institutions, or to non-government organizations, in
accordance with rules and regulations promulgated by
the Secretary of finance, upon recommendation of the
Commissioner, no part of the net [43] income of which
inures to the benefit of any private stockholder or
individual in an amount not in excess of ten percent
(10%) in the case of an individual, and five percent (%)
in the case of a corporation, of the taxpayer's taxable
income derived from trade, business or profession as
computed without the benefit of this and the following
subparagraphs.
(2) Contributions Deductible in Full. - Notwithstanding
the provisions of the preceding subparagraph,
donations to the following institutions or entities shall
be deductible in full:
(a) Donations to the Government. - Donations to the
Government of the Philippines or to any of its agencies
or political subdivisions, including fully-owned
government corporations, exclusively to finance, to
provide for, or to be used in undertaking priority
activities in education, health, youth and sports
development, human settlements, science and culture,
and in economic development according to a National
Priority Plan determined by the National Economic and
Development Authority (NEDA), In consultation with
appropriate government agencies, including its
regional development councils and private
philanthropic persons and institutions: Provided, That
any donation which is made to the Government or to
any of its agencies or political subdivisions not in
accordance with the said annual priority plan shall be
subject to the limitations prescribed in paragraph (1) of
this Subsection;
(b) Donations to Certain Foreign Institutions or
International Organizations. - donations to foreign
institutions or international organizations which are
fully deductible in pursuance of or in compliance with
agreements, treaties, or commitments entered into by
the Government of the Philippines and the foreign
institutions or international organizations or in
pursuance of special laws;
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(c) Donations to Accredited Nongovernment
Organizations. -The term 'nongovernment
organization' means a non-profit domestic corporation:
(1) Organized and operated exclusively for scientific,
research, educational, character-building and youth and
sports development, health, social welfare, cultural or
charitable purposes, or a combination thereof, no part
of the net [22] income of which inures to the benefit of
any private individual;
(2) Which, not later than the 15th day of the third month
after the close of the accredited nongovernment
organizations taxable year in which contributions are
received, makes utilization directly for the active
conduct of the activities constituting the purpose or
function for which it is organized and operated, unless
an extended period is granted by the Secretary of
Finance in accordance with the rules and regulations to
be promulgated, upon recommendation of the
Commissioner;
(3) The level of administrative expense of which shall,
on an annual basis, conform with the rules and
regulations to be prescribed by the Secretary of
Finance, upon recommendation of the Commissioner,
but in no case to exceed thirty percent (30%) of the total
expenses; and
(4) The assets of which, in the event of dissolution,
would be distributed to another non-profit domestic
corporation organized for similar purpose or purposes,
or to the state for public purpose, or would be
distributed by a court to another organization to be used
in such manner as in the judgment of said court shall
best accomplish the general purpose for which the
dissolved organization was organized.
Subject to such terms and conditions as may be
prescribed by the Secretary of Finance, the term
'utilization' means:
(i) Any amount in cash or in kind (including
administrative expenses) paid or utilized to accomplish
one or more purposes for which the accredited
nongovernment organization was created or organized.
(ii) Any amount paid to acquire an asset used (or held
for use) directly in carrying out one or more purposes
for which the accredited nongovernment organization
was created or organized.
An amount set aside for a specific project which comes
within one or more purposes of the accredited
nongovernment organization may be treated as a
 utilization, but only if at the time such amount is set
aside, the accredited nongovernment organization has
established to the satisfaction of the Commissioner that
the amount will be paid for the specific project within
a period to be prescribed in rules and regulations to be
promulgated by the Secretary of Finance, upon
recommendation of the Commissioner, but not to
exceed five (5) years, and the project is one which can
be better accomplished by setting aside such amount
than by immediate payment of funds.
(3) Valuation. - The amount of any charitable
contribution of property other than money shall be
based on the acquisition cost of said property.
(4) Proof of Deductions. - Contributions or gifts shall
be allowable as deductions only if verified under the
rules and regulations prescribed by the Secretary of
Finance, upon recommendation of the Commissioner.
(I) Research and Development.-
(1) In General. - A taxpayer may treat research or
development expenditures which are paid or incurred
by him during the taxable year in connection with his
trade, business or profession as ordinary and necessary
expenses which are not chargeable to capital account.
The expenditures so treated shall be allowed as
deduction during the taxable year when paid or
incurred.
(2) Amortization of Certain Research and Development
Expenditures. - At the election of the taxpayer and in
accordance with the rules and regulations to be
prescribed by the Secretary of Finance, upon
recommendation of the Commissioner, the following
research and development expenditures may be treated
as deferred expenses:
(a) Paid or incurred by the taxpayer in connection with
his trade, business or profession;
(b) Not treated as expenses under paragraph (1) hereof;
and
(c) Chargeable to capital account but not chargeable to
property of a character which is subject to depreciation
or depletion.
In computing taxable income, such deferred expenses
shall be allowed as deduction ratably distributed over a
period of not less than sixty (60) months as may be
elected by the taxpayer (beginning with the month in
which the taxpayer first realizes benefits from such
expenditures).
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The election provided by paragraph (2) hereof may be
made for any taxable year beginning after the
effectivity of this Code, but only if made not later than
the time prescribed by law for filing the return for such
taxable year. The method so elected, and the period
selected by the taxpayer, shall be adhered to in
computing taxable income for the taxable year for
which the election is made and for all subsequent
taxable years unless with the approval of the
Commissioner, a change to a different method is
authorized with respect to a part or all of such
expenditures. The election shall not apply to any
expenditure paid or incurred during any taxable year
for which the taxpayer makes the election.
(3) Limitations on Deduction. - This Subsection shall
not apply to:
(a) Any expenditure for the acquisition or improvement
of land, or for the improvement of property to be used
in connection with research and development of a
character which is subject to depreciation and
depletion; and
(b) Any expenditure paid or incurred for the purpose of
ascertaining the existence, location, extent, or quality
of any deposit of ore or other mineral, including oil or
gas.
(J) Pension Trusts. - An employer establishing or
maintaining a pension trust to provide for the payment
of reasonable pensions to his employees shall be
allowed as a deduction (in addition to the contributions
to such trust during the taxable year to cover the
pension liability accruing during the year, allowed as a
deduction under Subsection (A)(1) of this Section) a
reasonable amount transferred or paid into such trust
during the taxable year in excess of such contributions,
but only if such amount (1)has not theretofore been
allowed as a deduction, and (2) is apportioned in equal
parts over a period of ten (10) consecutive years
beginning with the year in which the transfer or
payment is made.
(K) Additional Requirements for Deductibility of
Certain Payments. - Any amount paid or payable which
is otherwise deductible from, or taken into account in
computing gross income or for which depreciation or
amortization may be allowed under this Section, shall
be allowed as a deduction only if it is shown that the
tax required to be deducted and withheld therefrom has
been paid to the Bureau of Internal Revenue in
accordance with this Section 58 and 81 of this Code.
 (L) Optional Standard Deduction (OSD). - In lieu of the
deductions allowed under the preceding Subsections,
an individual subject to tax under Section 24, other than
a nonresident alien, may elect a standard deduction in
an amount not exceeding forty percent (40%) of his
gross sales or gross receipts, as the case maybe. In the
case of a corporation subject to tax under Sections
27(A) and 28 (A)(1), it may elect a standard deduction
in an amount not exceeding forty percent (40%) of its
gross income as defined in Section 32 of this Code.
Unless the taxpayer signifies in his return his intention
to elect the optional standard deduction, he shall be
considered as having availed himself of the deductions
allowed in the preceding Subsections. Such election
when made in the return shall be irrevocable for the
taxable year for which the return is made: Provided,
That an individual who is entitled to and claimed for
the optional standard deduction shall not be required to
submit with his tax return such financial statements
otherwise required under this Code: Provided, further,
That a general professional partnership and the partners
comprising such partnership may avail of the optional
standard deduction only once, either by the general
professional partnership or the partners comprising the
partnership [4]: Provided, finally, That except when the
Commissioner otherwise permits, the said individual
shall keep such records pertaining to his gross sales or
gross receipts, or the said corporation shall keep such
records pertaining to his gross income as defined in
Section 32 of this Code during the taxable year, as may
be required by the rules and regulations promulgated
by the Secretary of Finance, upon, recommendation of
the Commissioner. [22]
Notwithstanding the provision of the preceding
Subsections, The Secretary of Finance, upon
recommendation of the Commissioner, after a public
hearing shall have been held for this purpose, may
prescribe by rules and regulations, limitations or
ceilings for any of the itemized deductions under
Subsections (A) to (J) of this Section: Provided, That
for purposes of determining such ceilings or
limitations, the Secretary of Finance shall consider the
following factors: (1) adequacy of the prescribed limits
on the actual expenditure requirements of each
particular industry; and (2)effects of inflation on
expenditure levels: Provided, further, That no ceilings
shall further be imposed on items of expense already
subject to ceilings under present law.
➔ The itemized deductions must be necessary in the
t/b of the employer. They must be incurred by the
taxpayer in connection with his t/b kailangan
business related expenditures. Therefore, it is
dependent upon the nature of the business.
HUA MULAN
➔ They must also be reasonable in amount +
necessary in the t/b + actually paid and incurred
+ supported by documents: REQUIREMENTS
OF ITEMIZED DEDUCTION
➔ ONE THING IN COMMON: all are business
related expenditures, expense is related to the
business you are engaged in
➔ may tapsilugan ka, sa gitna ng bundok walang
kuryente so you cannot claim kuryente as a
necessary expense
➔ may parlor ka, pwede ka ba mag claim ng suka,
ng asinn aanhin mo ang asin at suka sa parlor,
that’s the concept, hindi kailangan imemorize
kailangan nag iisip ka yan ba ay related na
expense sa business ko, if the answer is yes it is
allowed and falling under the items of deduction
➔ yesterday, I told you about items of exclusions,
and we said that when we have items of
exlcusions, these are items of income but they do
not form part of gross income the effect is no
income tax due, now how do we compare items
of exclusions with items of deductions
ITEMS OF EXCLUSIONS v DEDUCTIONS
➔ E: items of income but the law provides they
should not be considered in computing gross
income, so no tax due
➔ D: Itemized deductions, items of expenditures,
gastos and both items of exlcusions and
exemptions have the effect of reducing your tax
due and because of that, both of that both of that
are items of exemption and must be construed
strictly against the taxpayer
--
SPECIFIC ITEMS OF DEDUCTION
Q: What are itemized deductions?
A:
We say na meron tayong EITLBD2CPR
Q: Requisites?
A:
➔ Supported by documents (like receipts, based on
the receipt we will be able to determine or not the
expense is necessary in t/b)
➔ Necessary for t/b
➔ Actually paid or incurred
➔ Reasonable
--
Kapag madami kang expenditures, maliit ang income mo
so maliit ang tax. If onting expenses, the bigger the tax
that you pay.
X is the employer, engaged in t/b pwedeng tao/corporate
tax payer, we also have Y na empleyado, ang empleyado
tao.
Yung empleyado niya, kapag binalikan niyo table is a
CIE.
Si X maybe a SEP/SEI/MIE pwede rin si X na corporate
tax payer because he is an employer, but si Y definitely
an employee a CIE.
Both have their own revenue side, and expense side.
But take note, that some of the revenue side of Y will be
coming from the expense side of X, not all but some.
Ang business ni X is tapsilugan (sale of goods) si Y
empleyado, cook siya
Q: Ano ang kinikita ni Mr. X?
A: Habang nagbebenta si X ng tapsilog, yan ang kanyang
revenue side.
Tapsilog sold to customers, ‘yan ang kanyang revenue
side
Q: What are the expense side of Mr. X, which would
amount to itemized expenditures?
A:
E – business expenses
• Expenses for salaries, wages of employees
• So si X pinasweldo niya ng basic pay si Y. So si
Y nung sumweldo, tumanggap ng basic pay. Ang
tanong kay X, is it a necessary business expense?
Is it a deduction?
A: Yes, may document (payroll), necessary in t/b,
actually paid and reasonable in amount
• Can X claim the same as deduction in the
tapsilugan business? Yes.
• On the part of Y, is it subject to tax?
If Y is a M/S or R & F he is subjected to tax. The
tax is NIT. But if Y is a MWE, the basic pay
which is the considered as the SMW is not subject
to tax
• On top of the basic pay, X pays Y DMB, is it
deductible expense on the part of X?
HUA MULAN
Yes, kahit sobra sa provided for law or not.
• When Y receives the DMB, are they subject to
tax?
Depends.
If the DMB are within the limits provided for by
law, its exempted if sobra sa law, subject sa tax
yung sobra whether MWE, R&F or M/S
Rentals (under expenses)
• X pays B (owner of the property) where the tapsi
business is located, rentals of 20,000 monthly.
Can X claim the same as rental expense in the
nature of legitimate business expense?
Yes.
• When X pays B the rental, is it income on the part
of B? Yes.
• B is engaged in rentals of property, thus, he is a
SEI, so he is subject to column A for NIT/8%
depending on the total GR during the year
• Likewise Y rents from Mr. B the house from
which he stays for 10,000 monthly, this is income
on the part of Mr. B and subject to tax for NIT/8%
depending on the threshold of 3M.
• When Y pays B, 10k monthly rentals Y cannot
claim it as a deduction because Y as a
compensation income earner is not entitled to any
deduction
• The tapsilugan wherein he pays rentals, of 20k,
sabi ni X kay B, bibilhin ko nalang ‘yan purchase
for 3M pesos, so X purchased from B the
tapsilugan, land and building which he used to
rent and paid 3M to Mr. B, when X pays B 3M
pesos, is that income on the part of B?
Yes.
B engaged in t/b will fall under column A, and
depending on the 3M threshold, B is liable for tax
for 8% or NIT if applicable yung option otherwise
NIT
DEPRECIATION
• Q: Can X claim 3M as a deductible expense?
A: No, it is in the nature of a capital expenditure.
Capital expenditure: is never allowed as a
deduction, in lieu thereof, Mr. X can depreciate
and claim depreciation expense of the asset as
the alolowable deduction
 • Basic rule: if the taxpayer engage din t/b acquires
assets used in his t/b the asset acquired is in the
nature of an ordinary asset, the purchase price
that he spent for the purchase of the property is
not allowed as a business expense deduction
because X acquires ownership of the asset. In lieu
however, we call it capital expenditure.
In lieu of the business expense deduction that he
is not allowed to claim, he can claim depreciation
expense.
Q: How does he claim depreciation?
A:
There are two modes: straight light method and
depreciation method. We use straightline method in the
Philippines
Q: Depreciation period?
A: Real property: 15-20 years
for tangible personal property: 5 years
In this case, the 3M purchase price, 20 years then its
3M/20 years 150k/year as a deduction but not as business
expense but as a depreciation expense
--
Kung bumili si X ng motor, can he claim it as business
expense?
A: No, because it is a capital expenditure but in lieu of the
business expense he can claim for an allowable
depreciation expense for 5 years as a deduction
--
Let’s look at Mr Y, Si Mr. Y binili niya ang bahay kay
Mr. B ng 1.5M
Q: Is there income on the part of Mr. B?
A: Depends on the FMV, assuming B has, it is income
under NIT
Q: here is a question from the POV of deduction, Can
Y claim 1.5M as business expense, or can Y claim
depreciation expense of the house he purchased?
A: No. Because Y is a CIE is not entitled to claim any
deduction.
--
HUA MULAN
REASONABLE ALLOWANCE FOR UTILITIES
• Utilities: kuryente, tubig telepono internet si Mr.
X
• Si Mr. Y nagbabayad din ng kuryente, tubig
telepono internet na binabayaran sa bahay na
nirerentahan dati na ngayon binili na niya
Q: If Mr. X pays these utilities, can X claim this as
deductible expenses?
A: Yes. These are deductible business expenses
Q: Can Y claim kuryente, tubig telepono internet as a
deduction?
A: CIE, not entitled to claim any deduction
MARKETING EXPENDITURES
Si X nagpagawa ng posters, tarp, signage. Ang signage
30k, ang posters, tarps nakalagay X tapsilog may kawali
na nakadrawing for 2k.
Q: Can X claim the expense for the posters for
legitimate business expense?
A: Yes.
Q: the signage?
A: No, because it is a capital expenditure but pwede
depreciation expense as a deduction
--
Si Y nagpagawa din ng leaflets announcing his birthday,
at tarp at signage na nakasulat doon ang birthday niya.
20,000 pesos
Q: Can Y claim this as deduction?
A: Y is a CIE is not allowed to claim any deduction,
therefore 0 deduction for the expenses of Mr. 5
--
INTERESTS ON LOANS
➔ Incurred in connection with t/b
Si X debtor nangutang kay C ng 100,000 pesos ang
interest is 10,000 pesos. So, X pays C 110,000. When X
pays C, is that income on C?
Yes, for 10,000 pesos.
Q: Subject to tax?
A: Yes
Q: Kind of tax?
A: Column A. Because interest on loans, iba yan sa Q: When Mr. Y failed to pay C, 55,000 is there a tax
interest on bank deposits. consequence on the part of Mr. Y?

So nagbayad ng interest on loans para iexpand ang tapsi A: None, because paid/not paid Y is not entitled to claim
business deduction

Q: Can X claim this as a deduction under interest on On the part of C, he can claim the bad debt expense of
loans? 55,000 pesos.
A: Yes
--
--
Now, nung hindi nakabayad si Mr. C, two years after
Q: Si Mr. Y nangutang din kay Mr. C ng 50k bayad nagbayad si Mr. X ng 110,000. Remember that Mr. C
ng 5k interest. Nagbayad si Y kay Mr. C, ano ang already claimed 110,000 as bad debt. Natapos ang
income ni Mr. C? dalawang taon, binayaran na ni Mr. X.

A: Limang libong interest Q: What is the effect of the subsequent recovery of the
bad debt from the POV of Mr. C?
Q: Taxable?
A: When he was subsequently paid, we have this rule of
A: Yes under A TAX BENEFIT RULE. When bad debt is previously
claimed as form of deduction by the creditor and
Q: Can mr. y claim the interest expense paid to Mr. subsequently paid by the debtor after claiming it as
C? deduction and the creditor according to the TBR shall
A: No, because Y is a CIE and cannot claim any deduction consider the amount paid/indebetedness recovered as part
of his gross income on the year of recovery
Baliktarin natin.
On the part of X, when he paid 100k + 10 interest, 2 years
May utang si X kay Mr. C, hindi siya nagbayad. after the due date

May utang si Y kay Mr. C hindi nagbayad
Q: What is the tax effect to Mr. X and Y if they failed
to pay the interest?
A: wala, wala sila bayad
Q: What is the tax consequence if X failed to pay Mr.
C?
A: The tax consequence is on Mr. C the creditor and Mr.
C calls it bad debts.
Kapag bad debts ang tax payer na nag cclaim neto is the
creditor, if interest expense yung debtor ang nagclaim and
only on the interest
Q: What is the effect on the part of Mr. X?
A: On the date, that it became due and it was not paid Mr.
X cannot claim any interest expense but when he paid it
two years after then he can claim the interest expense of
10,000 on the year na nagbayad siya
--
Now let’s go to Mr. Y.
Same thing, When Mr. Y failed to pay Mr. C 55,000. We
said Mr. C can claim bad debt as a deduction. So nag
claim si Mr. C ng bad debt as deduction
Two years after nagbayad si Mr. Y ng 55,000

The creditor claiming bad debt claims the whole debt, plus Q: What is the effect of the subsequent recovery of the
the interest. bad debt that was previously claimed and allowed as a
deduction byMr. C?
Q: so, magkano yung bad debt?
A: 110,000 on the part of Mr. C as bad debt expense A: the 55k is declared as part of the gross income of Mr.
C on the year of recovery. We apply the TBR.
--
--
When Mr. Y pays Mr. C 2 years after, the 55k.
HUA MULAN

Q: What is the effect on Mr. Y?
A: Nothing, Mr. Y is a CIE so he cannot claim any
deduction.
--
In interest, we know the concept of tax arbitrage.
Q: What is tax arbitrage?
A: Applicable only on interest on loans.
Sabi natin interest on loans incurred in connection with
t/b may be claimed as deduction by the debtor who paid
the interest expense.
In tax arbitrage ang sinasabi ng batas ay, yung amount
interest expense allowed as a deduction shall be further
reduced by 33% of any interest income subjected to final
withholding tax. When you look at section 34, hanapin
Ninyo wala kasing tax arbitrage section 34 (b) on interest
expense
(B) Interest. -
(1) In General. - The amount of interest paid or incurred
within a taxable year on indebtedness in connection
with the taxpayer's profession, trade or business shall
be allowed as deduction from gross income: Provided,
however, That the taxpayer's otherwise allowable
deduction for interest expense shall be reduced by 33%
of the interest income subjected to final tax: Provided,
finally, That if the interest income tax is adjusted in the
future, the interest expense reduction rate shall be
adjusted accordingly based on the prescribed standard
formula as defined in the rules and regulations to be
promulgated by the Secretary of Finance, upon the
recommendation of the Commissioner of Internal
Revenue. [45]
(2) Exceptions. - No deduction shall be allowed in
respect of interest under the succeeding subparagraphs:
(a) If within the taxable year an individual taxpayer
reporting income on the cash basis incurs an
indebtedness on which an interest is paid in advance
through discount or otherwise: Provided, That such
interest shall be allowed as a deduction in the year the
indebtedness is paid: Provided, further, That if the
indebtedness is payable in periodic amortizations, the
amount of interest which corresponds to the amount of
the principal amortized or paid during the year shall be
allowed as deduction in such taxable year;
HUA MULAN
(b) If both the taxpayer and the person to whom the
payment has been made or is to be made are persons
specified under Section 36 (B); or
(c) If the indebtedness is incurred to finance petroleum
exploration.
Yan ang ibig sabihin ng tax arbitrage, ang ibig sabihin
niyan yung interest expense na 10,000 which can be
claimed by mr. X as interest expense deduction pwede
pang mabawasan ang 10k ng 33% ng any interest income
subject to final withholding tax.
Kung ito ang 10k nna interest na binayaran ni Mr. X kay
Mr. C, so si X gumastos ng 10,000 at yung 10k na ginastos
ni Mr. X pwede niyang i-claim as deduction sa tapsilugan
business.
Pero ang sabi ng batas yung 10k na idededuct ni Mr. X
from his tapsi income ay babawasan ng 33% ng interest
income subject to final withholding tax. In other words,
Mr. X has one side, may utang nagbayad ng 10k na
interest on the other side ng buhay ni Mr. X meron siyang
deposit sa bank ni 1M.
Ang bank nagbigay ng interest income sa deposit niya ng
5,000 pesos as kita. 10,000 gastos.
Sabi natin sa batas, si interest income on bank deposits
under column B, it is passive income subject to final
withholding tax.
Meron siyang 5,000 na kita, 10,000 na gastos
Ang 33% ng 5,000 is 1700 so yung 1700 ang 33% ng
5,000. So yung 10,000 – 1700 ang pwede ideduct na
interest expense ay 8,300 pesos. Yun ang ibig sabihan ng
tax arbitrage
Q: What is the effect of tax arbitrage?
A: Interest expense is reduced, if it is applied the higher
the tax will be kasi liliit ang deduction
TAXES
Si Mr. X nagbayad ng business tax sa LGU, tariff and
customs duties binayaran nung nag import ng stove used
for his business. So nag incur ng taxes. So the taxes are
incurred in connection of his tapsi business.
Q: Can Mr. X claim is both as deductions under taxes?
A: Yes.
On the part of Mr. Y nagbayas siya ng tariff & customs 2019: 20k
duties kasi nag import siya ng stove. He cannot claim
deductions because he is a CIE 2020: 0 book value

-- And every year, 20k yung depreciation. Meaning you can

recover 100k pero naka spread out.
On the part of Mr. X, he can claim the business taxes paid
and T& C duties paid for the importation of the stove, --
used in his t/b and the business taxes which are taxes in
connection with his tapsi business as allowable deduction Meron din siyang stove, 50k. binili nung 2017. Can Mr.
X claim it as a business expense? No. So he can claim
-- depreciation expense, using the straight line method is
50k/5 = 10k/ year
X filed a claim for refund of the business tax and T&C.
The refund was approved for 10k and 3k. Nagbayad, So
claimed as deduction. 2 years after nirefund.
2017: 50k
Q: What is the effect of the subsequent refund of the 2018: 40k
taxes previously paid and claimed as deduction by Mr. 2019: 30k
X? 2020: 20k
2021: 10k
A: The tax benefit rule. The amount of taxes claimed as 2022: 0k
deduction and subsequently refunded to the tax payer
shall form part of the GI of Mr. X in the year of recovery TANDAAN
➔ No to E – Yes to D
-- ➔ Yes to E – No to D
o Hindi pwedeng parehong no, parehong
Q: What if Y has a refund also of the TCD which he yes
previously paid, effect? --

A: Nothing, he is not allowed to claim deduction it was So now its 2018, si Mr. M magnanakaw, ninakaw si motor
just a return of his taxes. Kay X meron because he was nung 2019 ang stove?
previously allowed to claim it as deduction
Q: magkano motor nung 2019?
-- A: 20K

LOSSES Q: magkano ang stove nung 2019?

A: 30k
Casualty loss

Si Mr. X may motor bought in 2015 for 100k, 100k cannot These are casualty losses.
be claimed as a business expense but in lieu thereof it can
be claimed as a depreciation expense for 5 years. 100k/5 Q: What are casualty losses?
= 20k/year. He cannot claim it as a business expense A:
because its in the nature of a capital expenditure. Arising from theft, robbery, embezzlement, fire, storm
shipwreck or any other natural calamity provided that the
Q: How do we depreciate? loss sustained is related to t/b, and the same is not
A: straight line method. recovered completely and not compensated for by
insurance
So by 2016 the book value of the motorcycle is 80,000.
--
2017: book value is 60, 000
So ninakaw ni X yung motor nung 20k ang value at stove
2018: 40,000 nung 30k ang value.

HUA MULAN
Q: So magkano Nawala kay Mr. X?
A: 50k, ang tawag diyan casualty loss.
Mr. X can claim 50k for the loss of motorcycle and stove
for the year of 2019.
--
Nanakaw ni Mr. M yung stove ni Mr. Y. Ang value ng
stove is 3k nalang, so Y sustained 3k as a loss. Y cannot
claim it as a casualty loss because Y is a CIE is not
allowed to claim any deduction
But when it comes to X because the assets are used in his
tapsi business and the loss is incurred in connection with
his tapsi business, X can claim 50k as casualty loss
expense deduction
--
Two years after or in 2021, dumating si Mr. M humingi
ng kapatawaran kay Mr. X and binabalik na niya, pero
yung motorcycle, 3k nalang ang value and the stove is
valued at 2k, pero tinanggap ni Mr. X mga ito.
Q: What is the effect of the subsequent recovery of
property which was a subject of casualty loss as a form
of deduction?
A: We apply the tax benefit rule. When X recovered the
lost property, after claiming the casualty loss as a
deduction. Mr X in pursuant to the TBR shall declare the
5k as income in 2021.
In summary
Q: Ano ano ang deductions na pwede applyan ng
TBR?
A:
1) Bad debts claimed as a deductin and subsequently
recovered
2) Taxes claimed as deduction and subsequently
refunded
3) casualty loss claimed as deduction and
subsequently recovered
--
Nung ninakaw ni Mr. M ang stove ni Mr. Y, Mr. Y cannot
claim 3k as a deduction because he is a CIE and is not
entitled to deduction
Two years later, Mr. M sinauli si stove for the value of
500 pesos.
HUA MULAN
No effect kay Mr. Y, no income. Because he is a CIE.
TBR does not apply
--
CHARITABLE & other CONTRIBUTIONS
Si Mr. X nagbigay sa gobyerno, religious & charitable at
nagbigay sa NSNPEI nagbigay siya each 1M
Q: Can Mr. claim 1M donation to the govt as donation
to the govt as tapsilugan income?
A: Yes, in full provided it is a priority project of the govt
if not a priority project he can only claim up to 10% if he
is an individual, and if a corp up to 5% as a form of
deduction
If Y on the other hand will be the donor, he cannot claim
any deduction as he is a CIE
PENSIONS
May retirement fund si Mr. X nag cocontribute siya ng
premiums and contributions.
Q: Can X claim the contributions to the employment
fund of employees as a deduction?
A: Yes
Q: Income on the part of Y?
A: Yes.
Nagretire si Mr. Y and nakatanggap ng benefits.
Q: Is this income on the part of Y? Is it subject to tax?
A:
Depende, if there is a private retirement plan and he
rendered service for 10 years and at least 50 years old, and
approved by the BIR so this is income but it is not subject
to tax
If there is no retirement fund maintained by the employer
and the EE retires, this is not subject to tax if Mr. Y is at
least 60 yrs of age and 20 yrs of service continuously
RESEARCH AND DEVELOPMENT
➔ Professional fees you pay for legal services
➔ Nag pa feasible study si X about tapsilog,
nagpaseminar siya sa mga empleyado niya
➔ This is allowed as a deduction on the part of X
➔ Y cannot avail of this deduction, 0 deductionn
siya ito ang bottomline because he is a CIE
--
In deductions:
• Business related expenditures
• Necessary in t/b
• Actually paid or incurred
• Reasonable in amount
If you do not spend anything, you cannot claim any
deduction at all.
--
VALUE ADDED TAX
➔ This is in the nature of a tax on the business
Q: If you are a CIE, Do you have VAT?
A: No. no business
SEP & SEI – you have VAT because you have t/b
If you are MIE meron kang VAT component because
engaged in t/b
Corporations also have VAT because they are engaged in
t/b
--
VAT applies to all kinds of taxpayers, it only applies to
income within kahit sa RC and DC because walang VAT
outside, we do not have jurisdiction
• Xpn: compensation income earner
Yung VAT it involves 3 transactions
1) Sale of goods in the course of t/b
2) Sale of service in the course of t/b
3) Importation of goods (walang importation of
service)
• Whether it is in connection with t/b or not, basta
ang goods dumating sa pilipinas sa bureau of
customs, mag aapply ng excise tax if applicable,
VAT and TCD
Kapag binenta mo ‘yan subsequently may VAT ulit
VAT is in the nature of an indirect tax which is passed
on and on, infinity ‘yan. Bawat sale transaction, may
VAT.
Take note, we are talking about sale transactions, the
only one na hindi sale transaction is the importation.
--
Bawat sale and importation, may VAT ‘yan.
HUA MULAN
So we have two personalities, the seller and the buyer.
Kapag ikaw ay seller, income tax payer ka kasi
kumita ka. Kapag ikaw ay buyer, ikaw ay gumastos.
So from the POV of the seller and buyer, whenever
there is sale of goods and sale of service or
importation, the government imposes the general rate
of tax of 12% this is added to the gross selling
price/gross receipts
12% is added to the value of the goods.
Ang tawag ni seller sa 12% is output. Output is the
value added tax on sales
Kung ikaw naman ay bumili from a seller, kapag
binenta ni seller sayo, si seller nagpapatong ng 12%
Ang tawag ni buyer sa 12% na same sa 12% ni seller
is input value added tax on sales
When the buyer buys and paid the input of 12%
Q: Ano gagawin niya sa goods niya na binili?
A: The buyer sells also
Q: when the buyer sells, Ano ang mga binebenta
niya?
A: There are 3 possibilities
1) Bumili ka ng raw materials ginawa mo to create a
product
2) Bumili ka ng product inenhance mo ang product,
binenta mo ang enhanced product
3) Bumili ka ng product, wala kang ginawa yung
same na product binenta mo
--
Bumili ka ng raw materials, may ginawa ka para
maproduce si pentelpen at binenta mo
Bumili ka ng pentelpen, nilagyan mo ng ribbon etc
inenhance mo binenta mo si enhance product
Bumili ka ng pentelpen,wala kang ginawa binenta mo sya
as is
--
So when a buyer purchases from the seller and he creates
a product, he sells the product whether it is from raw
materials, enhanced or same product
So si buyer nagbenta ng product, the buyer sells to a buyer
the product, so buyer nagiging seller at kapag binenta niya
si product, si seller na dating buyer ay mag iimpose ng
12% ang tawag ni seller sa 12% ay output at ang tawag
nung new buyer sa binili niya is input
So:
Seller – Buyer – Buyer
So kung titignan mo si Mr. B, ang revenue side niya
nagbenta ng pentelpen, meron siyang 12 % na output tax
bago niya binenta si pentelpen meron siyang expense,
bumili siya ng pentelpen 12% din ang kanyang ginastos
which is input, yung sa revenue niya ang tawag naman sa
12% output
If you look at Mr. B ang formula is:
OUTPUT – INPUT = VAT PAYABALE
If you have more sales than purchases then you will result
in VAT payable
If you have more purchases than sales, then your result is
excess input VAT, in which case you can REFUND the
same or carry it over, meaning credit for the following
quarters
Sa buong buhay Ninyo ng pag bubusiness, lahat binili mo
iggroup mo at kukunin mo si 12% component, lahat ng
binenta mo kukunin mo 12% component
OUTPUT – INPUT
Kapag mas madami kang sales kaysa purchases this is
VAT payable magbabayad ka sa BIR
Bibili kayo ng starbucks, cinema, kumain, milk tea,
grocery ng chichiria.
Nung bumili kayo sa national book store ng ballpen,
papel.
May resibo, doon sa resibo titignan niyo may nakasulat
doon, gross selling price 100 pesos. Vatable sales 12%,
112 ang binayaran meron ding nakasulat diyan, exempt at
0 rate.
Yung exempt at zero rate didiscuss ko ‘yan later on. But
bawat receipt, may format yan prescribed by the BIR.
Hindi pwedeng hindi naka break down, if hindi naka
break down, there is a presumption na di nabayaran ang
VAT.
Yung receipt napakaimportant niyan, you cannot claim
OUTPUT-INPUT kapag hindi yan nakareflect.
Remember that when you sell, may buyer both the buyer
and seller have the same figures in the receipt.
From the POV of buyer, it is the input and yung seller,
output. One transaction lang. with no receipt, no crediting
of the input and the output.
Q: What is the result if you cannot claim your input
because of lack of receipts?
A: You will have more VAT payable, because the output
is higher so kung onti lang input mas malaki yung
babayaran.
This is two-fold. Because all of the receipts which you
claimed for your input VAT, will be the same receipts for
you to claim your deductions.

Kapag mas madami ka nabili kaysa nabenta, this is excess

input VAT, in this case pwede ka magparefund or you
carry it over the following quarters/years and ang tawag INCOME TAX VAT
doon EXCESS INPUT VAT.
GR – tapsi 12 % output
So lahat ng tao and corps na nagbebenta ng goods/service (cost of sales) : expenses 12% input
nag iimpose ng 12% sa sales.
________
Ang tawag ng buyer is OUTPUT, ang tawag naman ng
seller INPUT. Gross income
(allowable deductions) 12% input
-- __________
________
Kayo na walang ginagawa sa buhay, tagagastos. Because
students kayo nagrereview walang pang work you rely on Taxable net income x Exceeds output VAT –
the allowance given by your parents, pag bigay ng RATES VAT Payable
allowance Ninyo.
HUA MULAN
 = Net income (tax due)
Exceeds input VAT =
refund/credit
Sa income tax, you have gross income/gross receipts nag
benta ka ng tapsi, may resibo kang inissue na O.R. para
malaman ang GR mo
Sa VAT ang katapat ng GR mo is 12% output, so kung
ikaw ay may resibo sa benta ng tapsi kailangan
nakareflect ang 12% that is output
Meron kang cost of sales, ikaw naman ang buyer bumili
ka ng toyo, suka, baka, bigas, mantika to produce the
tapsilog. So meron kang cost of sales expense, ang
katapat non sa VAT 12% input
So here sa income tax, kung may GR – cost of sales =
gross income, sa gross income wala ng VAT. Gross
income – allowable deductions to arrive at the Taxable net
income multiply by the rates kapag tayo and then 30% if
corporation, then you arrive at your net income tax due.
Sa VAT, yung allowable deductions mo from income tax.
Yung itemized deductions. Salaries and wages, no VAT.
Rentals meron, utilities may VAT. Transportation may
VAT. Interest, taxes, casualty loss – no debts,
depreciation expense, charitable contributions no VAT.
Mosty yung expenditures ang may VAT, yung motor,
rent, stove, utilities, so lahat ng binili mo may allowable
deductions, ang counterpart naman is the 12% input VAT
Output- input
Kapag marami kang benta kaysa sa ginastos, you result in
taxable net income, you have to pay the NIT.
Sa VAT naman kapag madami kang binenta kaysa
ginastos, ang tawag sayo ay excess output vat. Ang tawag
sayo, bayad ka din ng buwis.
Income tax side, kapag madami kang gastos, ang tawag
sayo LUGI. Kapag madami kang ginastos kaysa nabenta
sayo, lugi ka. You are at a loss, dahil loss ka di ka na
magbabayad ng buwis, 0 income ka. 0 tax.
On the side of VAT, kapag madami kang gastos kaysa
binenta ka sa income tax side 0 tax, ang counterpart sa
VAT kapag madami ka ginastos kaysa binenta you have
more input than output, you have excess input VAT, so
ang gagawin mo paparefund ka or you credit it sa
succeeding quarters
HUA MULAN
Kapag lugi isa income = excess input VAT, so you can
refund/recover
Kapag tubo sa income = babayad ka ng VAT
Never nangyayari na lug isa income tax side and VAT
payable ka, kasi kaya ka nalugi madami ka nagastos.
--
So output- input = VAT payable if excess output VAT,
refund or credit if there is excess input
• ‘yan ang formula
--
0 RATED AND EXEMPT TRANSACTIONS
Q: What is 0 rated trsxns?
A: Not subject to VAT in all transactions
The input VAT is allowed to be credited against output
VAT
Q: Exempt transactions?
A: not subject to VAT at a particular stage
Input VAT cannot be credited against output VAT
--
The 12 % naman nagpapatong ka bawat benta, yung 0
rated at exempt wala kang ipapatong na 12% but merong
tax effect sa 0 rated and exempt transaction.
There are 0 rated transactions in sale of goods and service,
but wala sa importation
Ex: 0 rated sa sale of goods
➔ Kapag ang goods ay imported, import purchase
pinili mo. Si lumbera nasa pilipinas nag import
ako ng pentel pen, ang tawag dito import
purchase, namili ako ng pentel pen galing Japan,
inimport ko papuntang pilipinas. Pagdating ni
pentel pen sa pinas bayad ng 12% VAT because
it is an import transaction. Kapag binenta ko si
pentel pen kay INRI, may 12% ako babayad sa
presyo, babayaran ni INRI
➔ Let’s say, export sales. The transaction is si
lumbera, nag produce ng pentel pen sa pilipinas,
organic ang ink ibinenta ko papunta ng Japan.
Ang tawag sa transaction is export sales. Ang
tawag diyan, this is the perfect example of 0 rated
transaction

Q: Why is it if there is import, we apply VAT of 12%
but when there is export we impose 0 rate?
A: Kapag nag iimport ka kasi, this is prejudicial to the
govt and economy because nag cocompete sa locally
manufactured goods ang inimport mo eh hindi naman
pwede pagbawalan ang importation, so para madeter ito
bayad ng VAT
Kapag benta palabas ng pilipinas, it’s beneficial to the
economy because when you export, you promote locally
manufactured products so as a reward 0 rated transaction
ito.
Q: What else is the benefit received by the govt from
export sales?
A: ang bayad sayo, foreign currency. Kapag import,
palabs naman ang foreign currency. Yung export sales,
better for the economy because money comes in, in import
money comes out. That’s why encouraged and export
sales in a way na govt provided 0 rated tax
Q: Ano naman ang example ng exempt transactions?
A: Not subject to VAT at a specific stage. You will find a
lot, A-Z section 109. You do not need to memorize this,
look at the important once, ano ang exempt transactions.
Nakasulat sa 109 yung sale of goods in the original state.
In the original state nanghuli ng bangus, VATABLE?
Hindi.
Yung isda nab angus, tininda mo sa palengke may bumili
ng 1 kilo bangus, not vatable because in the original state
Yung ibang bangus, binilad mo sa araw yung iba naman
nilagyan mo ng bawang sibuyas, pepper ginawa mong
flavored daing na bangus, binenta mo ngayon si daing na
bangus na timplado at si tinapang bangus. So dalawang
product, tinapa at daing. → not vatable, because simple
procedures for preservation are not VATABLE
transactions
Bumili ka ng fresh nab angus, daing at tinapang bangus
may restaurant ka niluto mo ngayon ginawa mong
sinigang na bangus, bangus silog, sinangag, tsaka
tinapsilog mo yung isang bangus. So tatlo: sinigang,
bangsilog, tinapang silog tapos binili ito sa tindahan mo,
isang sinigang, daing etc. finished product na ito, no
longer in the original state -> VATABLE, because ang
exemption lang is when the goods, agricultural and food
products are in the original state
Q: What else are exempt?
HUA MULAN
A:
Compensation in pursuant to a EE-ER
Tignan niyo yung threshold, kapag lampas na sa threshold
vatable na.
Yung par. BB, pinaka mahalaga ito yung 3M. If within
the VAT period the GR/GS of the taxpayer exceed 3M, it
is not exempted from VAT. Kahit ano ang binebenta mo,
as long as your GS/GR exceed 3M pesos, it is subjected
to VAT.
Q: What is the relevance of the 3M threshold of 109
BB to the 3M threshold for income tax purposes?
A:
If you are SEP/SEI does not exceed 3M yung GR/GS then
the option of 8% or NIT available, but if you choose 8%
below 3M pa din so no VAT
Kapag nag exceed ka ng 3M, under 109 BB di ka na
exempted from VAT kaya yung NIT mo magbabayad ka
pa ng VAT.
--
You have to file for the input VAT/credit it if at the end
of the year, kahit carryover ka ng carryover hindi mo siya
pwede i-claim ng matagal na panahon, otherwise it will
be waived
--
DONOR’S TAX
Keywords
➔ Pwedeng ang donor ay tao/corporation walang
bawal
➔ Tatandaan Ninyo na inter vivos ang mode of
transfer of the property
➔ The basis of donor’s tax is the FMV at the time of
gift meaning, you compare the FMV as stated in
the tax declaration, the assessed value as stated in
the tax dec and the zonal valuation as provided by
the BIR. Kung ano ang pinaka mataas sa tatlo,
yan ang ginagawang basehan ng tax.
➔ The rate has been fixed, wala na ngayon
distinction sa donor. Dati kasi if the donor is a
stranger, then the tax rate is fixed at 30% but if
the donor and donee are related, then schedular.
WALA NA YAN UNDER THE TRAIN LAW.
➔ The rate is fixed of 6% of the FMV at the time of
gift
 ➔ When we talk about income tax in particular, 1)Real property
NET INCOME TAX. Ang formula natin ay: 2)Tangible personal property
gross income less allowable deductions 3)Intangible personal property
(OSD/ID) is equal to taxable net income then we • For RP/TPP alam mo kung nasa loob ‘yan ng
multiply by tax rates which if individual, ranging pilipinas or wala
from 20-35% and if corp, 30% fixed. That will • For intangible PP, how do we determine for
give you the tax due – Tax credit if any, meaning purposes of donor’s tax the situs of taxation?
if there are withholding taxes, if there are taxes ➔ Look for section 104, ang nakasulat diyan, as a
withheld, imimiminus Ninyo. general rule the IPP of a NRA shall be considered
➔ In donor’s tax, same framework. No need to as within the Philippines, these are the 4:
memorize the formula, we have the gross a) Shares obligations and bonds issued by DC
donations less allowable deductions is equal to b) Shares obligations and bonds issued by FC,
taxable net gift multiplied by 6% this is the TAX 85% of which located in the Philippines
DUE. c) Franchises exercised in the Philippines
d) IPP which acquired Philippine situs
Q: What are gross donations? • Yung apat na ‘yan if owned by a NRA and
A: Tax code, section 86. Under here who are the donors, dinonate nila, they are considered located within
how are they classified? and subject to donor’s tax
• There is an exception to the rule: MEMORIZE
CLASSIFICATION THIS: The recriprocity rule: provided however
1. Resident citizen donor where the country where the NRA is a citizen of
2. Non-resident citizen donor does not impose donor’s tax on similar properties,
3. Resident alien on gifts of the 4 listed under section 104, we will
4. Non-resident alien not also impose donor’s tax.
• If we talk about a NRA, the IPP under 104 shall
➔ Apat lang ang classification dito. be treated as within and if donated by the NRA
shall be subject to donor’s tax in the Philippines:
Q: Paano yung corporation? franchises exercises, Shares, obligations and
A: If DC: RC siya, if NRFC – non-resident, if may branch bonds issued by DC, shares, obligations and
Resident corporation siya. bonds 85% of which located in the phil, shares
obligations and bonds which acquired Philippine
Q; How are they subjected to donor’s tax? situs
• If the NRA transfers by way of inter vivos
A: transaction those 4 IPP and the country where he
For income tax purposes, the taxability is dependent on is a citizen of does not impose donor’s tax on the
within and without. following IPP, they can be fully exempted or
partially exempted
For purposes of donor’s tax, the taxability is dependent on
the LOCATION OF THE PROPERTY. It determines SEC. 104. Definitions. - For purposes of this Title, the
whether it is taxable in the Philippines or not. terms 'gross estate' and 'gifts' include real and personal
property, whether tangible or intangible, or mixed,
-- wherever situated: Provided, however, That where the
decedent or donor was a nonresident alien at the time
Among all kinds of donors, in the case of non-resident of his death or donation, as the case may be, his real
alien only properties located within shall be subject to tax. and personal property so transferred but which are
situated outside the Philippines shall not be included as
Kinds of donor Within Without part of his 'gross estate' or 'gross gift’: Provided,
RC TAXABLE taxable further, That franchise which must be exercised in the
NRC TAXABLE taxable Philippines; shares, obligations or bonds issued by any
RA TAXABLE taxable corporation or sociedad anonima organized or
NRA TAXABLE Not taxable constituted in the Philippines in accordance with its
laws; shares, obligations or bonds by any foreign
You find this under sec. 86 corporation eighty-five percent (85%) of the business
of which is located in the Philippines; shares,
When we talk about DT, we talk about assets: obligations or bonds issued by any foreign corporation
HUA MULAN
 if such shares, obligations or bonds have acquired a
business situs in the Philippines; shares or rights in any
partnership, business or industry established in the
Philippines, shall be considered as situated in the
Philippines: Provided, still further, that no tax shall be
collected under this Title in respect of intangible
personal property:
(a) if the decedent at the time of his death or the donor
at the time of the donation was a citizen and resident of
a foreign country which at the time of his death or
donation did not impose a transfer tax of any character,
in respect of intangible personal property of citizens of
the Philippines not residing in that foreign country, or
A:
Gross donations – allowable deductions
1) Transfers in favor of the govt
2) Transfer for NSPEI
➔ Applicable to all kinds of donors yung deductions
If there is a donation for NSNPEI, not subject to tax
provided not more than 30% is used for administration
purposes
Example:

(b) if the laws of the foreign country of which the
decedent or donor was a citizen and resident at the time
of his death or donation allows a similar exemption
from transfer or death taxes of every character or
description in respect of intangible personal property
owned by citizens of the Philippines not residing in that
foreign country.
The term 'deficiency' means:
(a) the amount by which tax imposed by this Chapter
exceeds the amount shown as the tax by the donor upon
his return; but the amount so shown on the return shall
first be increased by the amount previously assessed (or
Collected without assessment) as a deficiency, and
decreased by the amounts previously abated, refunded
or otherwise repaid in respect of such tax, or
Sa isang taon, January to December. Si Mr. X nagbigay
ng
• February: 800k binigyan niya si Mr. A
• Nung May: 800k binigay sa anak niya na si Mr.
B
• June: nagpakasal si anak niya na isa, binigyan din
ng 800k
• November: nag bar ang anak binigyan ng 800k
Q: Paano nacocompute ang donor’s tax?
A: cumulative within a taxable period, on a per transaction
basis at 6%
Nung February nagbigay ng 800k yan yung gross gift
Q: May allowable deduction?

(b) if no amount is shown as the tax by the donor, then
the amount by which the tax exceeds the amounts
previously assessed, (or collected without assessment)
as a deficiency, but such amounts previously assessed,
or collected without assessment, shall first be decreased
by the amount previously abated, refunded or otherwise
repaid in respect of such tax.
--
A: Wala, no transfer for public use so. 800k net gift.
800 – 250k = 550,000 taxable net gift.
550k x 6% = 33, 000 babayaran sa BIR within 30 days
from gift
Q: Who pays the donor’s tax?
A: Donor ang nagbabayad

Here is the CLINCHER. Nung May nagregalo ulit kay B ng 800k, since the law
states that it is cumulative but on a per-transaction basis,
Donor’s tax is the only tax imposed on a per transaction so you add the previous gifts
basis within the period of January- December every year
– the computation is per transaction per gift pero So May
nagcocompute ka cumulatively from January to 800,000 yung binigay kay B
December 800,000 ung binigay kay A

Taxable net gift in excess of 250,000 pesos, in other words _____

may 250 k na hindi tinatax
1.6M
Q: Ano ang deductions? (0) -> no deduction
HUA MULAN
 Less previous taxes paid which is 81,000
____
So = 48, 000 net taxable income
1.6M gross gift
(250k) -> ito yung minaminus talaga --

____ Q: Pwede ba magkaron ng gift na walang bayad?

1.350M x 6% A:
= 81,000
(33,000) -> the donor’s tax previously paid for the Magregalo ka ng 500k, hatiin mo isang dec 31 and isang
donation to Mr. B given on February (you deduct all January 1, 250 parehong wala ‘yang tax basta 250k lang
previous taxes paid) ang walang buwis every year, in excess taxable na.

____ --
ESTATE TAX
48,000 -> this is the net donor’s tax.
➔ Ito mga buwis na binabayaran ng patay
-- ➔ All others, taxes when you are living, INCOME
TAX, VAT, DONOR’S TAX
Nung June, 800k ulit dinonate.
Q: Ano ang estate tax?
A: Tao lang ang involved, hindi pwedeng corporation.
800k (June)
800k The transfer is mortis causa. The basis is the FMV at the
800k time of death.
____
Q: What FMV are we talking about?
2.4M A: FMV as stated in the tax declaration, assessed value as
(0) -> deductions stated in the tax dec, zonal valuation as provided in the
_____ BIR if real properties
2.4 M gross gift
(250k) If tangible personal property – appraised value is the basis

_____ If shares of stocks: based on valuation, dependent on the

audited FS.
2.150M x 6%
______ Q: Rate?
A: Fixed at 6% of the taxable net estate.
129k
(81000) -> previous donor’s taxes paid Q: What is the formula?
_____ A:

48k -> taxable donor’s tax Gross estate – allowable deductions = Taxable net estate
x6% = estate tax due (less tax credit if any)

Q: Saan galing ang tax credit?

Q: Magkano ang previous gifts?
A: 800 Nung feb, 800 nung may. So 2.4M A: Merong properties na nasa labas ng bansa na taxed
doon same for estate and donor’s tax.
Q: meron bang deduction?
A: Wala. Because of that, it creates double taxation in the broad
sense, to reduce this we have tax credit.
Deduct the 250k.
Now, similar to donor’s tax these are the kinds of decent
Total. 2.150M x 6% = 129, 000 estates
HUA MULAN
 1) Resident citizen 4. Unpaid taxes
2) Non-resident citizen 5. Casualty loss
3) Resident alien 6. Standard deduction
4) Non-resident alien 7. Family home
8. Retirement benefits
Similar to donor’s tax, the taxability is dependent on the 9. Transfers for public use
location of the property. So within and without. 10. Conjugal share of the surviving spouse
11. Property previously taxed
Kinds of Within Without
decedent estate These are the items of deductions.
RC TAXABLE taxable
NRC TAXABLE taxable Sa claims against the estate.
RA TAXABLE taxable
NRA TAXABLE Not taxable

Q: How do we determine the situs?

A:

RP
TPP
➔ You know if nasa loob or labas

Pagdating sa intangible personal properties, apply section

104 of the tax code, subject to the reciprocity rule.

If the decedent/donor is a NRA, and they die and the ff:

properties are transferred: Ki W w C C U U C S F R T C P
nd /I / A A M T L D H B P S P
a) Shares obligations and bonds issued by DC of N o E I P S T
b) Shares obligations and bonds issued by FC, de u P S
85% of which located in the Philippines ce t
c) Franchises exercised in the Philippines de
d) IPP which acquired Philippine situs issued by nt
FC R 5 1
C M 0
The exception here is the reciprocity rule. M
N 5 1
-- R M 0
C M
For purposes of estate tax, sa oras ng kamatayan kung R 5 1
meron kang degree ng control, interest, no matter how A M 0
small then kasama ‘yan sa gross estate, ang important M
diyan is yung proceeds of life insurance policy atsaka N X P P P P P 5 X X
yung transfer for insufficient consideration. R 0
A 0
-- k

ALLOWABLE DEDUCTIONS IN GROSS ESTATE

Q: Sino ang namatay? Kelan namatay? Ano ang
Q: What are the deductions? properties sa oras ng kamatayan, Magkano ang
A: properties sa oras ng kamatayan?

1. Claims against the estate --

2. Claims against insolvent persons
3. Unpaid mortgage
HUA MULAN
For claims against the estate, namatay ang DEBTOR na
madami utang kaya mga creditor nag fifile ng claims
against the estate
➔ RC, NRC, RA, NRA: entitled to this deduction
➔ NRA: in proportion to the value of the estate
located in the Philippines, not everything is
allowed as a deduction.
• You get the value of the properties located in the
Philippines/total gross estate and then you
multiply the amount of claims against the estate
LP/Total gross estate x CAE =
--
Claims against insolvent persons
Q: Sinong namatay?
A:
Creditor namatay ng di nabayaran ng buhay na may utang,
namatay siya ng di pa siya nababayaran
➔ RC, NRC, RA: Entitled
➔ NRA: Since it is the creditor who died, having
been paid without being paid by the indebtedness,
namatay siya ng di nababayaran, so you add first
to the gross estate before you claim as a deduction
o When a person dies as a creditor and
meron siyang outstanding receivables,
meaning may credit na hindi nabayaran
sa kanya, this is an intangible personal
property so siya ang mayari ng utang
kaya dapat kasama sa gross estate bago
bawasin.
--
Unpaid mortgage
Q: Sinong namatay?
A: debtor, mortgagor -> namatay siya ng di nagbabayad
ng utang at siya ang mayari ng property na nakamortgage
Here, added first to the gross estate before bawasin
Q: Ano ang idadagdag sa gross estate?
A: fmv of the property used as security for the mortgage,
value at the time of death and you deduct the value of the
utang na hindi nabayaran
--
Unpaid taxes
➔ There are obligations which survive, lahat ng
taxes na utang Ninyo sa gobyerno at the time of
HUA MULAN
your death, will be allowed as a deduction
whether related to t/b or not
Casualty loss
➔ Arising from theft, robbery, embezzlement, fire,
storm shipwreck or any other natural calamity
provided that the loss sustained is related to t/b,
and the same is not recovered completely and not
compensated for by insurance
➔ In income tax: loss is sustained in relation to t/b
➔ Here, under estate tax no need to be related to t/b
but if deduction na sa gross income, you cannot
claim it as a deduction in gross estate
STANDARD DEDUCTION
➔ Increased to 5M, up to 5M ito ha, if your gross
estate is 5M you cannot claim 5M as standard
deduction
➔ In case of a NRA, no standard deduction allowed,
now, 500k is allowed
FAMILY HOME
➔ Increased to, up to 10M
➔ NRA is not entitled to this
➔ If your family home is less than 10M, you cannot
claim 10M
RETIREMENT BENEFITS
➔ Required to be added first to the gross estate
before deducted
➔ If empleyado ka, namatay ka habang empleyado
and death benefits are treated as retirement
benefits. Pwede sya in full, basta dagdag bawas
➔ This is not applicable to a NRA
TRANSFER FOR PUBLIC USE
➔ Kapag nagbigay ka sa govt, in full deductible
➔ Applicable also to a NRA
➔ Ito ay foreigner nagbigay sa govt, so libre na ‘yan
sa buwis
CONJUGAL SHARE OF THE SS
➔ All are entitled, but limited only to properties
located in the Philippines
➔ NRA: The conjugal share of the SS is based on
the properties located in the Philippines
PROPERTIES PREVIOUSLY TAXED
➔ Referred to as vanishing deduction.
Q: What is a vanishing deduction?
A:
Ito yung bahay at lupa ako may ari, namatay ako by way period of time of the death between mine and hers is
of succession napunta anak ko, yung anak ko namatay din beyond 5 years.
so pupunta sa apo ko. We are talking about the same
property: house and lot --

And the same house and lot by reason of death will be In all of these type of taxes, internal revenue taxes ‘yan eh
subjected to estate tax from the POV of several decedents. we create double taxation in the broad sense

We realized there is so much impact of estate tax on the
property.
Namatay ako, may estate tax sakin., Yung anak ko
namatay may estate tax ulit anak ko nung lilipat sa apo ko.
Q: What are the instances?
A: Yung property located outside the Philippines (in
estate tax) are subjected to tax in the Philippines, subject
to tax where it is located in the country

So, the law recognizes the impact, to reduce the impact of In the cases of aliens, properties located in the Philippines
double taxation, one of the remedies provided by law is are subject to tax here and because they are citizens of
the vanishing deduction another country, it is also subjected to tax, there.

Q: Why is it called property previously taxed? Same rules in the donor’s tax and income tax, more
A: Kasi tinax sa akin, tapos sa POV ng anak ko it was specifically in income tax in RC and aliens because here
previously taxed the income from within the Philippines are subject to
income tax in the Philippines and subjected to income tax
Q: Why is it called vanishing deduction? in the country where they are citizens of
A: So if namatay ako, lumbera ang tawag sakin prior
decedent. Yung bahay at lupa ko kasama sa computation In RC and DC, the income without are taxable here in the
ng estate tax, bayad Philippines and subjected to tax doon sa country where it
is derived from
Napunta sa anak ko (present decedent), namatay anak ko
kaya bayad na naman ng estate tax. So the law provides for remedies to lower the double
taxation in the broad sense
Kapag namatay ang apo ko, bayad na naman ng estate tax.
So every time may namamatay, specific property will bear In income taxation we have
the impact of estate tax. • Tax credit
• Reciprocity rule
There is a prior decedent involving a specific property for
which estate tax has been paid (sa akin si lumbera), In donor’s tax we have
namatay ang anak ko, we call him the present decedent, • Tax credit
magcocompute na naman tayo ng estate tax, one of the • Reciprocity rule
gross estate deductions is property previously taxed or
vanishing deduction so the POV is nasa anak, so it is the In estate tax
same specific property has been previously taxed nung • Tax credit
ako ay namatay. • Reciprocity rule
• Vanishing deductions
Q; How does it work?
A: If the period of time between the death of the previous PART 4
decedent and present decedent is:
REMEDIES FOR INTERNAL REVENUE TAXES
0-1 Yr: 100% deduction
1-2 yrs: 80% Taxes covered:
2-3 yrs: 60%
• Income tax
3-4 yrs: 20%
• VAT or % tax
If lampas ng 5 years, THE DEDUCTION IS • Donor’s tax
COMPLETELY VANISHED. Meaning the estate of my • Estate tax
child is no longer entitled to deduction of PPT when the • Excise Tax
HUA MULAN
 • DST
So let’s go back to the return, yung returns nasa BIR
-- website, it is always presumed to be filed in good faith.
This is a disputable presumption.
MAJOR TOPICS UNDER REMEDIES
A. Protest cases A return has a
B. Collection cases • Original return
• Civil • Amended return
• Criminal

C. Refund cases
• Under VAT
• Regular Q: What is an amended return?
A: You are referring to the original return, but because of
-- certain reasons you have to change the data that was in the
original return
Let’s start with Protest Cases
Q: What is the effect of filing an amended return?
A. Protest cases A: will be consolidated with the original return filed.

PROCESS Q: When can the tax payer amend the return?

A: within three years from the date the original return is
PRESCRIPTIVE PERIOD amended provided that no notice of investigation has yet
been received by the taxpayer – meaning even if the BIR
-- issued a letter of authority to investigate, kahit may issue
na basta hindi pa natatanggap ng taxpayer yung notice na
Protest cases start from the taxpayer upon the payment of ‘yan and still within the 3 yr period, the taxpayer can still
returns. amend the return.

Yung internal revenue taxes, lahat ‘yan ay covered by
returns: income tax return, estate tax return, etc. All have
returns unlike local taxes na walang return, because all
local taxes are pain on January 1.
Q: Why?
A: Because local taxes are automatic and accrue every
January 1 and are due on or before January 20.
Q: what is the reason why the taxpayer is prohibited
from filing a return when there is a notice of
investigation received?
A: if you would be allowed to amend after receipt of the
notice of investigation, mag aamend ka to suit the notice
of investigation. You will correct your return because you
are being investigated, bawal ‘yun.

Second distinction Q: Why is it three years?

• NIRC: Self assed taxes
• Local: automatic yan nag aacrrue nasakasukat sa
batas ano ang aarlin Ninyo
--
Q: What is a return?
A: A verified statement prepared by the taxpayer,
submitted to the BIR providing for all the material facts
relevant to the tax you are filing for.
The most important fact here is the tax identification
number which is unique to every taxpayer registered to
the BIR.
A: Because the BIR has three years to assess taxes, so
before mag prescribe yung period
Q: What do you file?
A: Income tax return, VAT return etc, lahat nung nakalista
fifile-an ng return.
Q: When do you file the return?
A:
Kung ikaw ay tao at CIE ka the due date is on or before
April 15 of the following year so from jan 2020 – dec
2020 income CIE ka, dapat mo ifile ang return on or
before April 15, 2021

--
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But we have a substituted filing for CIE, meaning if your
income arises purely from compensation, purely CIE ka
then it is your employer who will file the return for you
and on your behalf.
1. Purely CIE
2. No income other than compensation paid
pursuant to a EE-ER
3. Only one employer for a year
Jan – May you work kay ER A, July nag employ ka kay
B. Hindi pwede ang substituted filing. That is limited only
to CIE.
If you are an individual who is a SEP/SEI or MIE basta
engaged to t/b you are required to file 4 returns, 3
quarterly returns
Q: Kailan?
A: May, Aug, Nov 15
And the last final return is on or before April 15 the
following year
Tandaan niyo kapag ikaw ay tao, bawal ang fiscal lahat
yan calendar. January to December within the periods
--
Punta tayo sa corporation, in income tax partnerships are
included etc, here you have 3 quarterly returns, 60 days
from the close of each quarter and the final return, the
fourth return if you’re using calendar year kailangan
bayaran mo April 15 the following year.
If you’re using fiscal year, nag iiba yan. It is 15th day of
the 4th month following the close of the fiscal year
➔ Files also 4 returns, 3 quarterly returns within 60
days from close of each quarter
➔ If calendar year, the first quarter the due date is
last day of may, august 30, November 30 and the
final return is April 15 the following year
If you’re using fiscal year feb 1, 2020. June 30 ang first
return, September 30 ang second return, December 31
third return and the final return is the 15th day of the fourth
month, following the fiscal year, so May 15.
If you’re using the 8% tax, quarterly pa din ang bayad
dito.
VAT – also paid quarterly, and then donor’s tax 30 days
from the day of giving the gift
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Estate tax: 1 year from death
Q: What is the consequence when you could not pay
on the due date?
A: You pay the penalty of 25%, plus the interest is 12%
or double the interest rate BSP approved rate per annum
And the surcharge of 50% in case of bad faith or fraud
So kapag lumampas ka ng isang araw, may penalty ka
agad 25% penalty + 12% per annum computed daily
Q: Saan ka naman nagbabayad?
A:
Income tax: place of business, where you are working.
➔ CIE ka: sa pinagtatrabahuhan mo the BIR region
which has jurisdiction over your place of work
➔ SEP/SEI/MIE ka: place where your business is
located
➔ Corporation: place of business
➔ VAT: Place of business
➔ Donor’s tax: residence of the donor, because it is
the donor who pays for the tax due
➔ Estate tax: place where the decedent died.
Q: Effect if mali ang venue mo?
A: It is as if you did not file any return at all.
And remember that we have
1) Self assessed taxes
2) Pay as you file system
➔ So kapag nag file ka ng return and mali ang
venue, tinanggap ng BIR parang wala ka return
and no payment of tax kahit mali pa, this is
because estoppel does not apply to the BIR to tax
Q: How?
A: Yung how, dadalhin mo yung return sa BIR with all
documents and you’ll pay the tax due sa banks na
authorized
--
So after you file the return to the BIR which has
jurisdiction over the taxpayer.
Q: Ano gagawin ng BIR sa returns na finile Ninyo?
A: Aaralin ng BIR yung finile Ninyo filed in the proper
venue, documents and within the period should be in the
format provided by the BIR
You may have filed the return in good faith, you may have
filed a falsified or fraudulent return or no filing at all

When the taxpayer files a return in good faith, BIR will
study it. When the return is falsified/fraudulent/ BIR
studies it, if you did not file a return the BIR can file a
return on your behalf
Q: Ano ang ginagamit na process para aralin yung
return mo?
A: Yung sections 3-15
SEC. 3. Chief Officials of the Bureau of Internal
Revenue. - The Bureau of Internal Revenue shall
have a chief to be known as Commissioner of
Internal Revenue, hereinafter referred to as the
Commissioner, and four (4) assistant chiefs to be
known as Deputy Commissioners.
SEC. 4. Power of the Commissioner to Interpret
Tax Laws and to Decide Tax Cases. - The power to
interpret the provisions of this Code and other tax
laws shall be under the exclusive and original
jurisdiction of the Commissioner, subject to review
by the Secretary of Finance.
The power to decide disputed assessments, refunds
of internal revenue taxes, fees or other charges,
penalties imposed in relation thereto, or other
matters arising under this Code or other laws or
portions thereof administered by the Bureau of
Internal Revenue is vested in the Commissioner,
subject to the exclusive appellate jurisdiction of the
Court of Tax Appeals. [3]
SEC. 5. Power of the Commissioner to Obtain
Information, and to Summon, Examine, and Take
Testimony of Persons. - In ascertaining the
correctness of any return, or in making a return
when none has been made, or in determining the
liability of any person for any internal revenue tax,
or in collecting any such liability, or in evaluating
tax compliance, the Commissioner is authorized:
(A) To examine any book, paper, record, or other
data which may be relevant or material to such
inquiry;
(B) To obtain on a regular basis from any person
other than the person whose internal revenue tax
liability is subject to audit or investigation, or from
any office or officer of the national and local
governments, government agencies and
instrumentalities, including the Bangko Sentral ng
Pilipinas and government-owned or -controlled
corporations, any information such as, but not
limited to, costs and volume of production, receipts
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or sales and gross incomes of taxpayers, and the
names, addresses, and financial statements of
corporations, mutual fund companies, insurance
companies, regional operating headquarters of
multinational companies, joint accounts,
associations, joint ventures of consortia and
registered partnerships, and their members;
Provided, That the Cooperative Development
Authority shall submit to the Bureau a tax incentive
report, which shall include information on the
income tax, value added tax, and other tax
incentives availed of by cooperatives registered and
enjoying incentives under Republic Act No. 6938, as
amended: Provided, further, That the information
submitted by the Cooperative Development
Authority to the Bureau shall be submitted to the
Department of Finance and shall be included in the
database created under Republic Act No. 10708,
otherwise known as “The Tax Incentives
Management and Transparency Act (TIMTA).” [4]
(C) To summon the person liable for tax or required
to file a return, or any officer or employee of such
person, or any person having possession, custody, or
care of the books of accounts and other accounting
records containing entries relating to the business of
the person liable for tax, or any other person, to
appear before the Commissioner or his duly
authorized representative at a time and place
specified in the summons and to produce such
books, papers, records, or other data, and to give
testimony;
(D) To take such testimony of the person concerned,
under oath, as may be relevant or material to such
inquiry; and
(E) To cause revenue officers and employees to
make a canvass from time to time of any revenue
district or region and inquire after and concerning
all persons therein who may be liable to pay any
internal revenue tax, and all persons owning or
having the care, management or possession of any
object with respect to which a tax is imposed.
The provisions of the foregoing paragraphs
notwithstanding, nothing in this Section shall be
construed as granting the Commissioner the
authority to inquire into bank deposits other than
as provided for in Section 6(F) of this Code.
SEC. 6. Power of the Commissioner to Make
Assessments and Prescribe Additional
Requirements for Tax Administration and
Enforcement. -

(A) Examination of Return and Determination of
Tax Due. After a return has been filed as required
under the provisions of this Code, the
Commissioner or his duly authorized representative
may authorize the examination of any taxpayer and
the assessment of the correct amount of tax,
notwithstanding any law requiring the prior
authorization of any government agency or
instrumentality [4]: Provided, however, That
failure to file a return shall not prevent the
Commissioner from authorizing the examination of
any taxpayer.
The tax or any deficiency tax so assessed shall be
paid upon notice and demand from the
Commissioner or from his duly authorized
representative.
Any return, statement of declaration filed in any
office authorized to receive the same shall not be
withdrawn: Provided, That within three (3) years
from the date of such filing, the same may be
modified, changed, or amended: Provided, further,
That no notice for audit or investigation of such
return, statement or declaration has in the
meantime been actually served upon the taxpayer.
(B) Failure to Submit Required Returns,
Statements, Reports and other Documents. - When
a report required by law as a basis for the
assessment of any national internal revenue tax
shall not be forthcoming within the time fixed by
laws or rules and regulations or when there is
reason to believe that any such report is false,
incomplete or erroneous, the Commissioner shall
assess the proper tax on the best evidence
obtainable.
In case a person fails to file a required return or
other document at the time prescribed by law, or
willfully or otherwise files a false or fraudulent
return or other document, the Commissioner shall
make or amend the return from his own knowledge
and from such information as he can obtain through
testimony or otherwise, which shall be prima facie
correct and sufficient for all legal purposes.
(C) Authority to Conduct Inventory-taking,
Surveillance and to Prescribe Presumptive Gross
Sales and Receipts. - The Commissioner may, at any
time during the taxable year, order inventory-
taking of goods of any taxpayer as a basis for
determining his internal revenue tax liabilities, or
may place the business operations of any person,
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natural or juridical, under observation or
surveillance if there is reason to believe that such
person is not declaring his correct income, sales or
receipts for internal revenue tax purposes. The
findings may be used as the basis for assessing the
taxes for the other months or quarters of the same
or different taxable years and such assessment shall
be deemed prima facie correct.
When it is found that a person has failed to issue
receipts and invoices in violation of the
requirements of Sections 113 and 237 of this Code,
or when there is reason to believe that the books of
accounts or other records do not correctly reflect
the declarations made or to be made in a return
required to be filed under the provisions of this
Code, the Commissioner, after taking into account
the sales, receipts, income or other taxable base of
other persons engaged in similar businesses under
similar situations or circumstances or after
considering other relevant information may
prescribe a minimum amount of such gross receipts,
sales and taxable base, and such amount so
prescribed shall be prima facie correct for purposes
of determining the internal revenue tax liabilities of
such person.
(D) Authority to Terminate Taxable Period. - When
it shall come to the knowledge of the Commissioner
that a taxpayer is retiring from business subject to
tax, or is intending to leave the Philippines or to
remove his property therefrom or to hide or conceal
his property, or is performing any act tending to
obstruct the proceedings for the collection of the tax
for the past or current quarter or year or to render
the same totally or partly ineffective unless such
proceedings are begun immediately, the
Commissioner shall declare the tax period of such
taxpayer terminated at any time and shall send the
taxpayer a notice of such decision, together with a
request for the immediate payment of the tax for the
period so declared terminated and the tax for the
preceding year or quarter, or such portion thereof
as may be unpaid, and said taxes shall be due and
payable immediately and shall be subject to all the
penalties hereafter prescribed, unless paid within
the time fixed in the demand made by the
Commissioner.
(E) Authority of the Commissioner to Prescribe
Real Property Values. –The Commissioner is
hereby authorized to divide the Philippines into
different zones or areas and shall, upon mandatory
consultation with competent appraisers both from
the private and public sectors, and with prior notice
 to affected taxpayers, determine the fair market
value of real properties located in each zone or area,
subject to automatic adjustment once every three
(3) years through rules and regulations issued by the
Secretary of Finance based on the current
Philippine valuation standards: Provided, That no
adjustment in zonal valuation shall be valid unless
published in a newspaper of general circulation in
the province, city or municipality concerned, or in
the absence thereof, shall be posted in the provincial
capitol, city or municipal hall and in two (2) other
conspicuous public places therein: Provided,
further, That the basis of any valuation, including
the records of consultations done, shall be public
records open to the inquiry of any taxpayer. [4] For
purposes of computing any internal revenue tax, the
value of the property shall be, whichever is the
higher of:
(1) The fair market value as determined by the
Commissioner; or
(2) The fair market value as shown in the schedule
of values of the Provincial and City Assessors.
(F) Authority of the Commissioner to Inquire into
Bank Deposit Accounts and Other Related
information held by Financial Institutions. [5] -
Notwithstanding any contrary provision of
Republic Act No. 1405, Republic Act No. 6426,
otherwise known as the Foreign Currency Deposit
Act of the Philippines, and other general or special
laws, the Commissioner is hereby authorized to
inquire into the bank deposits and other related
information held by financial institutions of:
(1) A decedent to determine his gross estate; and
(2) Any taxpayer who has filed an application for
compromise of his tax liability under Section
204(A)(2) of this Code by reason of financial
incapacity to pay his tax liability.
In case a taxpayer files an application to
compromise the payment of his tax liabilities on his
claim that his financial position demonstrates a
clear inability to pay the tax assessed, his
application shall not be considered unless and until
he waives in writing his privilege under Republic
Act No. 1405, Republic Act No. 6426, otherwise
known as the Foreign Currency Deposit Act of the
Philippines, or under other general or special laws,
and such waiver shall constitute the authority of the
Commissioner to inquire into the bank deposits of
the taxpayer.
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(3) A specific taxpayer or taxpayers subject of a
request for the supply of tax information from a
foreign tax authority pursuant to an international
convention or agreement on tax matters to which
the Philippines is a signatory or a party of:
Provided, That the information obtained from the
banks and other financial institutions may be used
by the Bureau of Internal Revenue for tax
assessment, verification, audit and enforcement
purposes.
In case of a request from a foreign tax authority for
tax information held by banks and financial
institutions, the exchange of information shall be
done in a secure manner to ensure confidentiality
thereof under such rules and regulations as may be
promulgated by the Secretary of Finance, upon
recommendation of the Commissioner.
The Commissioner shall provide the tax
information obtained from banks and financial
institutions pursuant to a convention or agreement
upon request of the foreign tax authority when such
requesting foreign tax authority has provided the
following information to demonstrate the
foreseeable relevance of the information to the
request:
(a) The identity of the person under examination or
investigation;
(b) A statement of the information being sought,
including its nature and the form in which the said
foreign tax authority prefers to receive the
information from the Commissioner;
(c) The tax purpose for which the information is
being sought;
(d) Grounds for believing that the information
requested is held in the Philippines or is in the
possession or control of a person within the
jurisdiction of the Philippines;
(e) To the extent known, the name and address of
any person believed to be in possession of the
requested information;
(f) A statement that the request is in conformity with
the law and administrative practices of the said
foreign tax authority, such that if the requested
information was within the jurisdiction of the said
foreign tax authority then it would be able to obtain
the information under its laws or in the normal
 course of administrative practice and that it is in
conformity with a convention or international
agreement; and
(g) A statement that the requesting foreign tax
authority has exhausted all means available in its
own territory to obtain the information, except
those that would give rise to disproportionate
difficulties.
The Commissioner shall forward the information as
promptly as possible to the requesting foreign tax
authority. To ensure a prompt response, the
Commissioner shall confirm receipt of a request in
writing to the requesting tax authority and shall
notify the latter of deficiencies in the request, if any,
within sixty (60) days from receipt of the request.
If the Commissioner is unable to obtain and provide
the information within ninety (90) days from receipt
of the request, due to obstacles encountered in
furnishing the information or when the bank or
financial institution refuses to furnish the
information, he shall immediately inform the
requesting tax authority of the same, explaining the
nature of the obstacles encountered or the reasons
for refusal.
The term “foreign tax authority,” as used herein,
shall refer to the tax authority or tax administration
of the requesting State under the tax treaty or
convention to which the Philippines is a signatory or
a party of.
(G) Authority to Accredit and Register Tax Agents.
- The Commissioner shall accredit and register,
based on their professional competence, integrity
and moral fitness, individuals and general
professional partnerships and their representatives
who prepare and file tax returns, statements,
reports, protests, and other papers with or who
appear before, the Bureau for taxpayers. Within
one hundred twenty (120) days from January 1,
1998, the Commissioner shall create national and
regional accreditation boards, the members of
which shall serve for three (3) years, and shall
designate from among the senior officials of the
Bureau, one (1) chairman and two (2) members for
each board, subject to such rules and regulations as
the Secretary of Finance shall promulgate upon the
recommendation of the Commissioner.
Individuals and general professional partnerships
and their representatives who are denied
accreditation by the Commissioner and/or the
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national and regional accreditation boards may
appeal such denial to the Secretary of Finance, who
shall rule on the appeal within sixty (60) days from
receipt of such appeal. Failure of the Secretary of
Finance to rule on the Appeal within the prescribed
period shall be deemed as approval of the
application for accreditation of the appellant.
(H) Authority of the Commissioner to Prescribe
Additional Procedural or Documentary
Requirements. - The Commissioner may prescribe
the manner of compliance with any documentary or
procedural requirement in connection with the
submission or preparation of financial statements
accompanying the tax returns.
SEC. 7. Authority of the Commissioner to Delegate
Power. - The Commissioner may delegate the
powers vested in him under the pertinent provisions
of this Code to any or such subordinate officials
with the rank equivalent to a division chief or
higher, subject to such limitations and restrictions
as may be imposed under rules and regulations to
be promulgated by the Secretary of Finance, upon
recommendation of the Commissioner: Provided,
however, That the following powers of the
Commissioner shall not be delegated:
(a) The power to recommend the promulgation of
rules and regulations by the Secretary of Finance;
(b) The power to issue rulings of first impression or
to reverse, revoke or modify any existing ruling of
the Bureau;
(c) The power to compromise or abate, under Sec.
204 (A) and (B) of this Code, any tax liability:
Provided, however, That assessments issued by the
regional offices involving basic deficiency taxes of
Five hundred thousand pesos (P500,000) or less, and
minor criminal violations, as may be determined by
rules and regulations to be promulgated by the
Secretary of finance, upon recommendation of the
Commissioner, discovered by regional and district
officials, may be compromised by a regional
evaluation board which shall be composed of the
Regional Director as Chairman, the Assistant
Regional Director, the heads of the Legal,
Assessment and Collection Divisions and the
Revenue District Officer having jurisdiction over
the taxpayer, as members; and
(d) The power to assign or reassign internal revenue
officers to establishments where articles subject to
excise tax are produced or kept.

SEC. 8. Duty of the Commissioner to Ensure the
Provision and Distribution of Forms, Receipts,
Certificates, and Appliances, and the
Acknowledgment of Payment of Taxes. -
(A) Provision and Distribution to Proper-Officials.
– Any law to the contrary notwithstanding, it shall
be the duty of the Commissioner, among other
things, to prescribe, provide, and distribute to the
proper officials the requisite licenses; internal
revenue stamps; unique, secure and non-removable
identification markings (hereafter called unique
identification markings), such as codes or stamps,
be affixed to or form part of all unit packets and
packages and any outside packaging of cigarettes
and bottles of distilled spirits; labels and other
forms; certificates; bonds; records; invoices; books;
receipts; instruments; appliances and apparatus
used in administering the laws falling within the
jurisdiction of the Bureau. For this purpose,
internal revenue stamps, or other markings and
labels shall be caused by the Commissioner to be
printed with adequate security features.
Internal revenue stamps, whether of a bar code or
fuson design, or other markings shall be firmly and
conspicuously affixed or printed on each pack of
cigars and cigarettes and bottles of distilled spirits
subject to excise tax in the manner and form as
prescribed by the Commissioner, upon approval of
the Secretary of Finance.
To further improve tax administration, cigarette
and alcohol manufacturers shall be required to
install automated volume-counters of packs and
bottles to deter over-removals and misdeclaration of
removals.
(B) Receipts for Payment Mode. – It shall be the
duty of the Commissioner or his duly authorized
representative or an authorized agent bank to
whom any payment of any tax is made under the
provisions of this Code to acknowledge the payment
of such tax, expressing the amount paid and the
particular account for which such payment was
made in a form and manner prescribed therefor by
the Commissioner.
SEC. 9. Internal Revenue Districts. - With the
approval of the Secretary of Finance, the
Commissioner shall divide the Philippines into such
number of revenue districts as may from time to
time be required for administrative purposes. Each
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of these districts shall be under the supervision of a
Revenue District Officer.
SEC. 10. Revenue Regional Director. - Under rules
and regulations, policies and standards formulated
by the Commissioner, with the approval of the
Secretary of Finance, the Revenue Regional
director shall, within the region and district offices
under his jurisdiction, among others:
(a) Implement laws, policies, plans, programs, rules
and regulations of the department or agencies in the
regional area;
(b) Administer and enforce internal revenue laws,
and rules and regulations, including the assessment
and collection of all internal revenue taxes, charges
and fees;
(c) Issue Letters of authority for the examination of
taxpayers within the region;
(d) Provide economical, efficient and effective
service to the people in the area;
(e) Coordinate with regional offices or other
departments, bureaus and agencies in the area;
(f) Coordinate with local government units in the
area;
(g) Exercise control and supervision over the
officers and employees within the region; and
(h) Perform such other functions as may be
provided by law and as may be delegated by the
Commissioner.
SEC. 11. Duties of Revenue District Officers and
Other Internal Revenue Officers. - It shall be the
duty of every Revenue District Officer or other
internal revenue officers and employees to ensure
that all laws, and rules and regulations affecting
national internal revenue are faithfully executed
and complied with, and to aid in the prevention,
detection and punishment of frauds of delinquencies
in connection therewith.
It shall be the duty of every Revenue District Officer
to examine the efficiency of all officers and
employees of the Bureau of Internal Revenue under
his supervision, and to report in writing to the
Commissioner, through the Regional Director, any
neglect of duty, incompetency, delinquency, or
malfeasance in office of any internal revenue officer
 of which he may obtain knowledge, with a statement
of all the facts and any evidence sustaining each
case.
SEC. 12. Agents and Deputies for Collection of
National Internal Revenue Taxes. - The following
are hereby constituted agents of the Commissioner:
a) The Commissioner of Customs and his
subordinates with respect to the collection of
national internal revenue taxes on imported goods;
b) The head of the appropriate government office
and his subordinates with respect to the collection
of energy tax; and
c) Banks duly accredited by the Commissioner with
respect to receipt of payments internal revenue
taxes authorized to be made thru banks.
Any officer or employee of an authorized agent
bank assigned to receive internal revenue tax
payments and transmit tax returns or documents to
the Bureau of Internal Revenue shall be subject to
the same sanctions and penalties prescribed in
Sections 269 and 270 of this Code.
SEC. 13. Authority of a Revenue Officer. - Subject
to the rules and regulations to be prescribed by the
Secretary of Finance, upon recommendation of the
Commissioner, a Revenue Officer assigned to
perform assessment functions in any district may,
pursuant to a Letter of Authority issued by the
Revenue Regional Director, examine taxpayers
within the jurisdiction of the district in order to
collect the correct amount of tax, or to recommend
the assessment of any deficiency tax due in the same
manner that the said acts could have been
performed by the Revenue Regional Director
himself.
SEC. 14. Authority of Officers to Administer Oaths
and Take Testimony. - The Commissioner, Deputy
Commissioners, Service Chiefs, Assistant Service
Chiefs, Revenue Regional Directors, Assistant
Revenue Regional Directors, Chiefs and Assistant
Chiefs of Divisions, Revenue District Officers,
special deputies of the Commissioner, internal
revenue officers and any other employee of the
Bureau thereunto especially deputized by the
Commissioner shall have the power to administer
oaths and to take testimony in any official matter or
investigation conducted by them regarding matters
within the jurisdiction of the Bureau.
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SEC. 15. Authority of Internal Revenue Officers to
Make Arrests and Seizures. - The Commissioner,
the Deputy Commissioners, the Revenue Regional
Directors, the Revenue District Officers and other
internal revenue officers shall have authority to
make arrests and seizures for the violation of any
penal law, rule or regulation administered by the
Bureau of Internal Revenue. Any person so arrested
shall be forthwith brought before a court, there to
be dealt with according to law.
➔ if no return, pwede na mag file ng Assessment
Q: Paano yung assessment?
A:
Ang unang iniissue is letter of authority to investigate,
within 15 days you will be required to answer, whether
you reply or not, the BIR will then issue the PAN whether
you reply or not, the BIR within 15 days shall issue the
FAN.
Q: What is a FAN?
A: A notice from the BIR providing for the amount of tax
that is required of you to pay.
Q: What is being collected by the govt?
A: You have filed the return and paid the tax, ang
sinisingil is deficiency, yung kakulangan ng bayad
Under the train law, inalis yung PAN ginawang
preliminary conference but there was one BIR ruling na
binalik si PAN, so this is still the process.
The sequence must be followed
LA-> PAN -> FAN
➔ If not followed, violation of due process
➔ And thus, pwedeng hindi siya valid
Q: Requisites of FAN?
A:
1. Writing
• Nakalagay na it is a final demand letter
2. Addressed to the taxpayer
• The address you registered in the BIR records
unless you change it.
• If you did not officially change it and you
changed the address and there is no proof that
BIR knows you changed address, yun pa din yun.
you cannot invoke the fact that you changed your
business address
3. Providing for the basis for in fact and in law for
the computation of the tax
➔ Anong tax, basis in tax code and period covered
 ➔ If wala to, FAN is not valid.
4. Providing for the amount of tax
➔ Principal amount, interest, penalty or surcharge if
any
➔ If there is a surcharge imposed, the BIR found
that you committed fraud
➔ Surcharge = fraud
5. The due date
6. Demand to pay
➔ Nakasulat doon, kalian mo dapat bayaran the date
is specific
➔ If di ka halimbawa nakabayad sa due date, may
bagong penalties pero bawal ngayon na
pagsabayin na singilin yung deficiency penalty at
7. Issued within the prescriptive periods of
assessment
Q: What are the PP of assessment?
A:
If filed with good faith. 3 years, if before due date 3 years
from due date if you file the return exactly on due date=
3 years from due date
If late mo nafile after the due date = 3 years from actual
date of filing
If you filed the return in bad faith/fraudulent return then
the prescriptive period is 10 years from the BIR discovery
of the fraudulent return, if you did not file a return at all,
then the BIR has two choices
1) File a return for you
2) No return and BIR will issue a FAN within 10
years form the BIR discovery of non-filing
--
There is another period, waiver. Meaning the BIR and
taxpayer will extend the periods and that should be
covered by a valid waiver
Q: Who files the waiver?
A: Taxpayer, and he applies for it
Q: Requisites?
A:
1) Executed before expiration of the original period
2) Signed by the taxpayer and accepted by the BIR
with the authorized BIR personnel
3) Date of signing, application and acceptance
should be indicated on the face of the waiver
4) 3 original copies (isa sa BIR, isa sa records ng
kaso, isa sa taxpayer )
HUA MULAN
The waiver is a contract between taxpayer and BIR. The
waiver extends the PP of assessment.
Q: Should it be notarized, yung waiver?
A: Yes, it should be duly notarized.
--
Let’s take the case of lumbera, for purposes of
prescriptive period of assessment we are taking about the
final return.
Lumbera isa SEP, due date for return is April 15, 2020 to
file the final return.
Date of filing: feb 14, 2020 ako nag file
Q: Until when can the BIR issue the fan?
A: April 15, 2023
Q: What if I filed April 15, 2020?
A: April 15, 2023 kasi 3 years from filing
Q: What if I filed on sep 28, 2020?
A: BIR can issue Fan sep 28, 2023
Here good faith ito.
Q: What if bad faith naman ako nag file ng maaga?
Feb 14, 2020? BIR discovered it on 2025
A: BIR will not apply the 3 year period, BIR will now use
the prescriptive period of 10 years, so until 2035 BIR can
issue a FAN
Q: Filed on due date, bad faith ka. Dicovered 2025
A: BIR can issue FAN till 2035
Filed late = discovered 2025, 10 years pa din from
discovery
No filing = discovery from non-filing is 2025, so 10 yrs
from discovery so until 2035 BIR can issue a FAN
--
When these dates are about to expire and the BIR did not
issue a FAN, the taxpayer and BIR can execute a valid
waiver, before the periods expire yung 3 yr and 10 yrs as
the case may be they must make a waiver within these
periods. The extension has no limit. Kailangan before
expiration of the periods of assessment yung execution ng
waiver
--
So BIR issued the FAN, so ngayon nasa taxpayer na ulit.
So the taxpayer received the FAN.
Q: What is the remedy of the taxpayer?
A: Protest – this is admin in nature, venue is BIR. This is
not a court proceeding
Q: Who protests?
A: Taxpayer.
Q: What is a protest?
A: in writing, questioning the validity of the FAN.
Q: What do you file?
A: Protest in writing filed by the taxpayer
Q: Where do you file?
A: RDO that issued the FAN
A: 30 days from the taxpayer’s receipt of the FAN. Non-
extendible period regardless of any supervening event
Q: Ano ang gagawin ng BIR sa protest mo?
A: BIR may grant/deny/partly grant/deny or BIR will sit
on it for 180 days.
Until here, tapos na ang BIR proceedings here.
So if the BIR grants your protest stop ka na tumigil ka na.
If BIR denies your protest/partly grants/denied and if the
BIR does not act within 180 days, it does not mean
granted it means actually that it is denied but here, you
have an immediate remedy of appeal to the judicial
proceedings to the CTA.
Ordinary courts do not have jurisdiction over protest
cases, CTA lang.
By way of appeal to the CTA, you have 30 days going to
the CA from your receipt of the final decision on disputed
assessment (FDDA)
The appeal is with the CTA division.
The CTA division may grant/deny/partly grant or deny.
Walang no decision dito.
So once you do not get the remedy you want from the
CTA division, yung natalo MUST file a motion for
reconsideration (this is a requirement sine qua non) to
the CTA decision which decided it, within 15 days from
the decision
HUA MULAN
And kung sino matalo, punta sa CTA en banc within 15
days from the receipt of the order denying the motion for
reconsideration. You can file a MR with the CTA
From CTA the prejudiced party can go to the SC, you can
also file a MR here.
Q: Paano binibibilang yung 180 days?
A: 180 days – non-action ito.
So you received the FAN, sab isa batas you have 30 days
to file the protest, so from the date of receipt of the FAN
you have 30 days to file the protest, kung masipag ka nag
file ka on the 10th day of the receipt of the FAN the
taxpayer filed the protest, so it is within the 30 day period
Sa pag fifile mo ng protest bilang ka ng 180 days, pag nag
expire na si 180 days and the BIR has not acted, then you
may go up to the CTA within 30 days from expiration of
the 180 or after the 180 days, you did not go to the CTA,
antayin mo nalang yung decision.
--
Uulitin daw ni maam
Pag nakatanggap ka ng assessment (FAN), mag fifile ka
ng protest within 30 days from receipt, in this example
masipag ka 10th day palang nakapag file ka na
On the 10th day you filed, you count 180 days, once the
180 days expired you MAY go up to the CTA, this is an
aleternative/immediate mode but kailangan mo siyang
ifile within 30 days after the 180 days
If you do not want to appeal the CTA, PWEDE DIN. This
is your choice and if you opted not to file any appeal to
the CTA within the 30 day periof after the 180 day period,
what you will do antayin mo nalang yung decision ng
protest which is a FDDA
You can now file an appeal from the receipt of the
decision of the FDDA
In one case, the taxpayer nakatanggap ng assessment nag
file ng protest, within 30 days filed valid. Nagbilang ng
180, nagexpire si 180 nag file sa CTA, nung pumunta sa
CTA 31st day na pumasok yung appeal from the 180, so
the CTA dismissed the appeal. The CTA said you filed
the appeal based on the non-action of the BIR, tapos
lagpas pa sa PP.
The taxpayer smiled, ok lang daw nadismiss. Kapag nag A: ang CA does not have any jurisdiction on tax issue or
decision ang BIR, pwede pa siya umakyat. So nag decide concern, kahit local tax, wala na siya. So as you can see,
si BIR, SC said. the CTA has jurisdiction over protest cases.

Hoy taxpayer, the immediate remedy of appeal within 30 --

days of expiration of the 180 day period and actual
decision of the BIR are mutually exclusive of each other.
YOU CAN ONLY CHOOSE ONE.
--
There are instances when the protest is not complete,
meaning you question the assessment, meron kang
supporting documents to support your argument.
Yung protest is in the nature of motion for reconsideration
and motion for reinvestigation. WALA NG MOTION
FOR RECOMPUTATION.
Yung protest cases: administrative remedies ito
COLLECTION BY THE GOVT THROUGH
CIVIL/CRIMINAL CASES
Q: Habang naqquestion yung FAN issued by the BIR
by way of protest until you reach the supreme court,
can the BIR collect?
A: Yes. In any stage of the protest proceedings because
the rule is that there is no injunction against tax collection

There are instances na kulang documents, so you will be
given time by the BIR to complete the documents, a
period not exceeding 60 days. However, the BIR will not
direct you to do this, so since ikaw nag aargue, dapat alam
mo anong documents.
Now, in that case the BIR may require you to submit
within 60 days from receipt of the order requiring you to
submit
Q: How do you count the 180 day period when you are
required to submit the documents?
A: so you received the FAN, you have 30 days to file the
protest masipag ka you filed it on the 10th, sabi ng BIR uy
kulang ang documents mo, submit the documents within
60 days.
Q: Basis of the rule?
A: Taxes are the lifeblood of the government, therefore
you cannot prevent the government to collect even if you
have a pending protest.
So habang may admin case, the BIR can file a case for
collection civil/criminal and pwedeng sabay yan
So civil case, BIR is the plaintiff and the taxpayer is the
defendant
Q: Saan finifile itong case na ito?
A: this is filed in the ordinary courts.
We have the
First level courts: MTC, Metc, MTCC

You submitted the documents and received at this point. RTC

THE DATE OF MAILING IS NOT THE DATE OF
RECEIPT. CTA

If you submitted it by mail, ang ginamit ng batas ay In tax collection cases, the govt may initiate the complaint
received so from the time the BIR actually received the before these courts.
documents, this is what you consider in counting the 180
day period. No original tax collection in SC & CA.

If the BIR received, and after the 180 days from receipt, Q: Which court has jurisdiction over a civil case for
you MAY (pwede kang) mag CTA or you wait for the tax collection?
decision of the BIR. A:

-- Meron tayong within metro manila and outside of metro

manila
Q: Meron pa bang relevance ang CA kahit anong tax
case? Whether civil or criminal? Outside MM Within MM
MTC Above 300k
RTC Above 400k
HUA MULAN
 CTA 1M and above
Basta 1M and above, CTA will now exercise EOJ,
regardless of penalties, 1M exclusive of penalties,
interests and surcharges
So ifyou’re the BIR and the FAN, principal amount is
250k within Manila. 100k penalty, 100k interests. You
consider only the principal amount. You file it with the
MTC.
If the court of origin is MTC, you go to RTC ang matatalo,
from the RTC you go to the CTA but since the decision
appealed from is from the decision of the RTC via
appellate decision ang pupuntahan mo is CTA en banc
until you reach SC.
CTA enbanc = 30 days, then off to the SC within 15 days.
--
If RTC is the court of origin in the tax collection case, then
ang talo sa CTA division because the decision of the RTC
is rendered in its original jurisdiction, you follow the 30
days, and then you file a motion for reconsideration
within 15 days before you proceed to the CTA en banc,
and then 15 days appeal before the SC.
--
So if the principal amount is atleast 1M pesos, it is the
CTA which has original jurisdiction. CTA en division,
and then mr/mnt (pwede na MNT pwede na because OG
juris ang CTA dito and trial on the merits ito and either of
the two is a sine qua non requirement before you proceed
to the CTA en banc) and then to the SC.
Q: What is to your effect to your pending protest case?
A:
Sa kabilang case may protest ka na pwede umabot sa
court, sa kabila yung other case nag fifile ng collection
ang BIR.
Only when nasa CTA na both, pwede na mag consolidate
para makaiwas for conflicting decisions over the FAN
issued.
--
Q: What about criminal cases?
A: Issuance of a FAN is not needed to file a criminal case
because you are being charged for the penal provisions
under the tax code
HUA MULAN
Two criminal cases under the tax code
1. Criminal case with no tax deficiency
2. Criminal case violating the penal provisions of
the tax code resulting in deficiency
➔ Failure to obey a subpoena – crim case: no tax
deficiency, violation of the tax code
➔ Failure to issue an O.R. -> criminal case also
Q: How do you determine the jurisdiction?
A: Ordinary courts upon finding of the pub prosec that
there is probable cause then the information will be filed
in court.
Q: What ordinary courts?
A: First level courts, RTC
Q: Does CTA have jurisdiction over crim cases?
A: Yes.
If the criminal case has no tax deficiency, only appellate
jurisdiction.
NOTE: CTA will only have exclusive appellate
jurisdiction if the offense does not result in tax
deficiency
CTA has exclusive original jurisdiction if there is tax
deficiency, if the tax due is 1M above exclusive of
penalties, surcharges and interests in criminal cases
--
The jurisdiction of courts in violation of the penal
provisions of the tax code is determined by the penalties
prescribed
MTC – below 6 yrs
RTC – 6 yrs 1 day
CTA
--
REFUND CASES
➔ This means sobra ang naibayad ng taxpayer kaya
ka nagpaparefund.
➔ There are two types of refund under the tax code
1) Refund of excess input VAT in 0 rated
transactions
o May tapsilugan ka, 1M ang benta, 120k
ang output VAT
o Gastos mo 600k, 72k ang VAT (12%)
o Ang tawag sa 72k is input VAT
 o 1M-600k = 400k is kita
o Sa VAT side output – input = 48k ang
tawag dito is excess output VAT bayad
BIR
--
✓ Kumita ka ng 400M, VAT is 48k. this is your
output.
✓ Gastos mo 600k, 72k ang VAT mo. Input ito.
✓ Sa income tax side, lugi ka ng 200k kaya wala ka
bayad walang tax
✓ Sa VAT side meron kang output-input = 24k
which is excess input VAT in vatable
transactions, so sobra binayad mo sa gobyerno
✓ Pwede mo yan icredit sa next quarter or refund,
pero wala ng refund crediting nalang ito.
✓ These are regular VATABLE TRANSACTIONS
--
Ito naman si 0 rated.
BPO siya call center, sa Ortigas.
• Clients: overseas lahat, foreign clients
So you render service here for foreign clients, wala kang
domestic sale of service
Benta is 1M, dahil overseas export yan ang output mo ay
0. Hindi mo pwede singilin ng VAT ang foreign clients
mo kasi nasa ibang bansa, pero meron ka pa ding gastos.
Gastos: rentals, nagrerenta ka ng lugar sa BPO mo 600k
So sa income tax side kita ka ng 400k, bayad ka ng buwis.
Dito sa 600 nagbayad ka ng input tax, kasi rentals yan eh,
so ang input is 72k.
Meron kang 72k excess input VAT in 0 rated
transactions.
In vatable transactions, when you have excess input VAT
you have more input than output. But in 0 rated
transactions, pwede icredit output v. input kaya may
excess ka.
Q: What is your remedy?
A: refund of excess input VAT in 0 rated transactions
You must file it within 2 years from the quarter that you
incurred the excess input VAT in 0 rated transactions.
This is an administrative claim for refund
HUA MULAN
Dati ang rule may non-action na 120, so diba 2 yrs
from the close of the quarter when you had the
transaction, you have to file the claim of refund from
this end of the quarter within 2 yrs. Nagfile ka ng
maaga, dati kapag ang BIR nag act from filing within
120 days then you MUST go up to the CTA division
within 30 days. THIS RULE IS NO LONGER
APPLIED.
Now it’s 2: 90: 30
➔ The 90 day period is no longer non-action
➔ From the time the taxpayer files refund within 2
yrs from the close of the quarter when you had the
excess input VAT, then the BIR is required to
decide within 90 days
➔ So from the end of the quarter where you had
excess IV and you filed within the 2 yr period, the
BIR must decide within 90 days
➔ After the expiration of the 90 day period and there
is a decision and then you go up to the CTA en
division.
➔ In other words, now THERE WILL ALWAYS
BE A DECISION issued by the BIR on your
claim for your refund
➔ Under the tax code, if the BIR personnel does not
act within the 90 day period he will be
administratively charged
2) ORDINARY CLAIMS FOR REFUND
➔ Found under section 229
SEC. 229. Recovery of Tax Erroneously or Illegally
Collected.- no suit or proceeding shall be maintained in
any court for the recovery of any national internal
revenue tax hereafter alleged to have been erroneously
or illegally assessed or collected, or of any penalty
claimed to have been collected without authority, of
any sum alleged to have been excessively or in any
manner wrongfully collected without authority, or of
any sum alleged to have been excessively or in any
manner wrongfully collected, until a claim for refund
or credit has been duly filed with the Commissioner;
but such suit or proceeding may be maintained,
whether or not such tax, penalty, or sum has been paid
under protest or duress.
In any case, no such suit or proceeding shall be filed
after the expiration of two (2) years from the date of
payment of the tax or penalty regardless of any
supervening cause that may arise after payment:
Provided, however, That the Commissioner may, even
without a written claim therefor, refund or credit any
tax, where on the face of the return upon which
 payment was made, such payment appears clearly to Q: Anong itsura niya?
have been erroneously paid.
A: You paid taxes, so you have two years para mag file
Q: What are the grounds? ng refund sa BIR. So nag file ka within the 2 yr period for
A: admin claim in the BIR.
1. Illegally assessed taxes
2. Illegally collected taxes There is no requirement here for the BIR to decide,
3. Erroneously assessed taxes walang nakalagay sa batas non so now you will wait.
4. Erroneously collected taxes
So you filed the refund to the BIR which is admin in
This applies to all internal revenue taxes. nature within the 2 yr period, you have to comply with the
judicial naman, (kasi kailangan ADMIN + JUDICIAL to
Here may element of illegality, in the first kind of refund be entitled to refund) kapag nag decide ang BIR ng last
no illegality may sumobra lang. day nalang before the 2 yr period ends wala kang 30 days,
because ang sabi ng batas it must be filed within the last
Here under the second kind, there is the element of day ng 2 yrs
illegality.
So kung last day ngayon, tapos denial nareceive mo from
-- BIR today dapat mag fifile ka din sa COURT; same day

Tandaan, you must file admin claim for refund within 2
years and the judicial claim for refund within 30 days
from the denial of your claim for refund.
In all of these proceedings you always start with admin
before judicial, ang pwede lang pumunta diretso ng
judicial is the govt. pero the rest of the proceedings, laging
may portion ng admin before ka mag judicial.
--
Here sa refund of excess refund in 0 rated trnsxns. It is
filed within 2 yrs yung admin claim and hen you file
within 30 days from denial sa CTA en banc.
--
If may 5 days before mag end yung 2 yr period you
receive the denial from the BIR, wala kang 30 days pa din.
May 5 days kanalang so you must file the judicial claim
for refund within the same 2 yr period
Nakatanggap ka ng denial, meron kang 20 days left within
the 2 yr period you’re supposed to file, wala kang 30 days
hanggang 20 days left lang to comply with the judicial
claim for refund.
40 days yung natitira sa 2 yr period nung natanggap mo
yung denial, you only have 30 days within the 30 day
period because you need to file the judicial claim of
refund from the date of receipt of your refund within 30
days provided it is within the 2 yr period.

Now let’s go back to the grounds

1. Illegally assessed taxes

2. Illegally collected taxes
3. Erroneously assessed taxes
4. Erroneously collected taxes

Q: Within what period should you file the admin claim

of refund?
A: Two years from date of payment

Q: What about the judicial claim for refund?

A: The judicial claim for refund must be filed within the
2 year period as well, for the 4 grounds the rule is both the
admin claim for refund and judicial claim for refund must
be filed within the same 2 yr period from date of payment

HUA MULAN