TAXATION LAW

Ø Last three previous bar exam focused on Income Tax & Tax Remedies

Ø Pacquiao Case – Disputed Assessment – never been asked in the Bar Exam

Hierarchy of common bar questions

Ø General Principles
Ø Law on Income Tax 85%-90%
Ø Tax Remedies
Ø Estate Tax

Ø Donor’s Tax

Ø VAT (Forecast 2017 bar question 2-3)

Ø Local Taxation

Ø Real Property Tax

Ø Custom Duties – RA 10863 Custom Modernization & Tariff Act (Forecast 2017
bar question 2-3)

Ø Percentage Tax (Section 116-128) – a business tax imposed on persons or

entities who sell or lease goods, properties or services in the course of trade or
business – Not VAT registered

Ø Excise Tax Section 129-132 – Nature – an Indirect Tax; Concept – a tax on

production, sale or consumption of a commodity in a country
Ø Documentary Stamp Tax Section 173-201 – Nature – an Excise Tax; Concept –
levied on documents, instruments, loan agreements and papers evidencing the
acceptance, assignment, sale or transfer of obligation, right or property incident
thereto)
Ø Section 109 (V) – A not VAT registered person and a VAT exempt transaction is
liable to 3% Percentage Tax under Section 116

Ø Section 127 (A) – Sale of shares of stock listed and traded in local stock
exchange subject to Percentage Tax

Ø Percentage Tax an Indirect Tax

Ø Section 129 – Excise Tax on production, sale or consumption of a commodity in

a country; Shall be paid before removal from the place of production; Section
131 – Excise Tax on Imported Goods shall be paid by the owner or importer
before the release of the articles from the customhouse

Ø Read carefully Section 135 (C) – Entities which by law are exempt from direct
and indirect taxes

Ø Jurisprudence: Excise Tax (tax on production, sale or consumption of a

commodity in a country) considered as Property Tax – Excise Tax on petroleum
products is essentially a Property Tax

Ø Jurisprudence: Documentary Stamp Tax (Tax on document) is an Excise Tax

Ø Section 199 – Documents and papers not subject or exempt from Documentary
Stamp Tax

Ø Title II Tax on Income NIRC

Ø Section 22-83

Ø Section 22-42 – Core questions of Bar Exam in Taxation Law

Ø Section 51-56 – Returns and Payment of Tax

Ø Section 75-77 – Corporate Taxpayer

Ø Gross Income Taxation (Exception to the Rule) A method or system of Income

Taxation that allows no deductions and does not grant additional and personal
exemptions – Tax base Gross Income

Ø Section 25 (B) Non-resident alien not engaged in trade or business within the
Philippines – Taxed on Gross Income

Ø Section 28 (B) Non-resident Foreign Corporations – Taxed on Gross Income –

Not allowed to claim deductions; It simplifies our income taxation

Ø Net Income Taxation (General Rule) A method or system of Income Taxation that
is fair, just and reasonable as the taxpayer is allows to claim deductions, and
grant additional personal exemptions. It minimizes fraud by virtue of the
examination of the taxpayer if the claims are indeed deductible – Tax base Net
Income – Section 31

Ø Section 24 (A.1.a) Resident citizen (Taxable Income from all sources within &
without the Philippines)

Ø Section 24 (A.1.b) Non-resident citizen (Taxable Income from all sources within
the Philippines); expenses incurred within, it follows that it can claim additional
personal exemptions

Ø Section 24 (A.1.c) Resident-alien, whether engaged in trade or business within

the Philippines (Taxable Income from all sources within the Philippines)

Ø Section 25 (A.1) Non-resident alien engaged in trade or business within the

Philippines (Taxable Income from all sources within the Philippines); allows to
claim deductions & additional personal exemptions)

Ø Section 25 (B) Non-resident alien not engaged in trade or business within the
Philippines (Taxable Income from all sources within the Philippines)

Ø Jurisprudence: Aggregate of more than 180 days stay in the Philippines (though
not actually engaged in trade or business within the Phil) in contemplation of law
he is considered as non-resident alien engaged in trade or business within the
Philippines; By virtue Totality Rule, continuous stay is not required

Ø Corporate Income Tax

Ø Section 27 – Tax base is the Taxable Income; Domestic Corporation

Ø Section 28 (A.1)- Tax on resident foreign corporation; Jurisprudence: Offline

International Airline, no landings rights in the Phil; regarded as actually doing
business within the Phil., provided they derived income from the sale of airline
tickets thru a resident agent in the Phil.

Ø Jurisprudence: Under Foreign Investment Act – requirement of appointing a

 General Agent in the Phil. However, Phil. cannot imposed the 30% Corporate
Income Tax by virtue of Phil.-Canada Treaty; the airline can claim deductions for
being a resident foreign corporation

Ø Section 22 (H) – Resident Foreign Corporation engaged in trade or business

within the Phil.; Requisites: A-Actual performance or specific commercial act;
B-Business Test – continuous business for a period of 90 days; C-Contract Test
– the contract must executed here in the Phil.; S-Substance Test – implies
continuity of commercial dealings

Ø Individual Taxpayer – Net Income of: Resident Citizen; Non-resident citizen;

Resident alien; Non-resident alien engaged in trade or business within the Phil.
Gross Income of: Non-resident alien not engaged in trade or business within the
Phil

Ø Corporate Taxpayer – Net Income of: Domestic Corporation; Resident foreign

corporation engaged in trade or business within the Phil. Gross Income of:
Non-resident foreign corporation not engaged in trade or business within the
Phil.

Ø Section 61 Estate Tax – tax on individual applies to estate of the decedent

Ø Jurisprudence: Income Tax has given judicial imprimatur by distinguishing

Schedular System of Income Taxation vs. Global System

Ø Schedular System is a system or treatment of Income Taxation that varies based

on categorized income of the taxpayer [Section 24-26 in rel. to Section 32 (A)];
Commonly applicable to Individual Taxpayer

Ø Global System is a system or treatment of Income Taxation that views

indifferently the tax base and treats in common all the categories of income of
the taxpayer (Section 27 & Section 28); Commonly applicable to Corporate
Taxpayer (Domestic Corporation & Resident Foreign Corporation); provides
Uniformity of Tax

Ø Income Tax Situs - Jurisprudence: State adopted a Comprehensive Tax Law, that
practically employed all the possible criterion in determining the tax liability of
the a taxpayer; Residence, Place & Nationality

Ø Resident citizen; Resident alien; Domestic Corporation; Resident Foreign

Corporation engaged in trade or business within the Phil.

Ø Place: Non-resident citizen; Non-resident alien; Non-resident foreign corporation

not engaged in trade or business within the Phil.

Ø Nationality: Domestic Corporation & Foreign Corporation

Ø Protection Theory – Offline International Airlines with no landings rights in the

Philippines are taxed on sales of tickets thru a resident agent appointed;
considered as tax on resident foreign corporation engaged in trade or business
within the Phil.; there is a flow of wealth that preceded and occurred in the
territory of the Phil. In consideration of the protection given by the Philippines,
international airlines with no landing rights must share in the burden of the
government in maintaining and improving the financial market.

Ø Minimum Corporate Income Tax of 2% based on Gross Income – Domestic

Corporation & Resident Foreign Corporation; Imposed on its Corporate existence,
Privileged to do business within the Phil, Reasonable contribution to improve the
 financial market of the Phil.

Ø Test of Taxable Income – The right to receive the tax due under the law and not
the actual receipt of the tax that determine the tax liability of the taxpayer;
Constructive receive of income – Section 24 (A.2); Section 26; Section 73 (D);
Income not actually receive, however taxable; Requisites: (1) Credited to the
account of the taxpayer, (2) Unconditional, valid & enforceable. Example: Cash or
property dividends; Share of a partner in the net income of GPP; Share of a
partner in the net income of a taxable Business Corporation.

Ø All Events Test – determining whether the income is taxable. Requisites: (1)
Unconditional, (2) Susceptible of accurate estimate, (3) Reasonable amount. The
expenses for deduction must be claim within the taxable year when it incurred.

Ø Computation of Tax Liability – Section 43; Section 22 (P & Q)

Ø Individual Taxpayer – Annual accounting period – Calendar Year Theory – 12

months period (Jan-Dec)

Ø Corporate Taxpayer (Section 52 (B) – may employed calendar or fiscal period

Ø Fiscal Year Theory – accounting period of 12 months ending on the last day of
any month other than December

Ø Income Tax Rate

Ø Section 24 (A & C) – Progressive Income Tax Rates

Ø It finds support in the Constitution, that the State should evolve a progressive
income tax rate

Ø Uniformed Corporate Tax rate – Domestic Corporation; Resident foreign

corporation engaged in trade or business & Non-resident foreign corporation not
engaged in trade or business

Ø According to jurisprudence, Congress has the authority to prescribe tax rates

upon things under its jurisdiction, subject to inherent and constitutional
limitations

Ø Methods of Collection

Ø Section 57 - Creditable Withholding Tax vs. Final Withholding Tax

Ø Both has withholding agent & the tax paid

Ø Two role of withholding agent: (1) Agent of the taxpayer in filing the tax return;
(2) Agent of the government for withholding the tax due

Ø Jurisprudence: Withholding agent technically considered as taxpayer, therefore,

has legal standing to file a claim for refund

Ø Tax credit vs. Deductible Tax Credit: Former, reduces taxpayer’s tax liability;
Latter, reduces taxpayer’s taxable income

Ø Jurisprudence: Senior Citizen’s discount considered as deduction

Ø File a Tax Return before claim for Tax Credit

Ø Withholding Tax is a Final Tax – a full settlement of tax liability, if the income
subjected to withholding tax is the only income of the taxpayer

Ø Final Withholding Tax

Ø Section 33 – Fringe Benefits – Taxable – liable Employer

Ø Section 24(B) – Branch Profit Remittance Tax – Final Tax on the profit
earmarked remittance

Ø Section 27 (D.5) – 6% Capital Gains Tax on the sale of Real Property – a final tax

Ø Capital Gains from Sale of Shares of Stock – not traded in local stock exchange
(5%-10% final tax)

Ø Section 24 & 25 - Dividend Income – subject to final tax – received by individual

taxpayer; Section 28 (B.5) – received by non-resident foreign corporation not
engaged in trade or business

Ø Royalties – subject to final tax

Ø Section 25, 27 & 28 – Interest Income subject to final tax; Derived from foreign
currency deposit
Ø Prizes – the amount is more than 10k

Ø Share of a partner in the net income of a taxable business partnership – no need

to report in tax return; Except in Section 26 partners of General Professional
Partnership shall report as gross income his distributive share whether actually
or constructively received from the net income of the partnership

Ø Filing – Section 51 (C) - Individual Taxpayer - Pay as you file rule – Annually

Ø Section 77 (C) – Corporate Taxpayer – Quarterly Income Tax Return

Ø Section 75 & 76 – Procedure: Shall file quarterly income tax return in cumulative
basis and thereafter shall file a final adjustment return
Ø Taxpayers that did not required to file an income tax return: (1) Compensation
earners whose wages is subjected to withholding tax; (2) The income subjected
to withholding tax is the only source of income of the taxpayer – requisites: one
employer in the Philippines & the tax withheld must equal to tax due

Ø General definition of Gross Income – Section 32 (A); All income derived from
whatever sources – Legal or Illegal; A total income from all sources before
deductions, exemptions or other tax reduction, derived from whatever source

Ø “Claim of Right Doctrine” – Illegal gain is subject to tax

Ø 1. Compensation Income – In payment of cash or in kind; Whatever form paid;

Premium payment of Insurance Policy in consideration of services rendered;
Cancellation or condonation of indebtedness in consideration of services
rendered

Ø Section 32 (A.1) Compensation – Taxpayer is Rank & File employees; (Fringe)

benefits given to rank & file employees are not subject to fringe benefit tax

Ø Section 33 (A) Imposition of Tax. Fringe Benefits granted or furnished by

employer to Managerial & Supervisory employees; Subject to fringe benefit tax (a
final tax) of 32%; Tax base Gross Up Monetary Value; No deductions allowed

Ø Section 33 (B) Fringe Benefit defined. (1) Housing; (2) Expense Account; (3)
Vehicle of any kind; (4) Household personnel (maid & driver) – paid by the
employer; (5) Membership fees; (6) Expense for foreign travel; (7) Holiday &
Vacation expenses; (8) Educational assistance (employee or dependents); (9)
 Life or Health Insurance premium

Ø Revenue Regulation No. 98 – housing benefit granted to employees (R&F; M&S)

on a temporary basis not exceeding 3 months – not taxable

Ø Revenue Regulation No. 3-98 – housing benefit granted to employees (R&F;

M&S) wherein the dwelling unit is situated inside or adjacent 50 meters to the
business premises – not taxable

Ø Fringe benefit given to the employees for the advantage or convenience of the
employer – not subject to fringe benefit tax

Ø De minimis benefits under Revenue Regulation 1-2015 – Relatively small value –

not subject to fringe benefit tax; (1) Christmas gift – 5,000 (13th month pay &
christmas bonus – 82,000, the 5,000 christmas gift must be included in the
82,000 for the purpose of exemption from fringe benefit tax); (2) Overtime pay &
Meal allowance; (3) Cash-Medical benefit – 125.00/month; (4) Clothing –
Uniform benefit – 5,000/year; (5) Rice allowance – 1,500/month; (6) Employees
achievement award – 10,000 monetary value; (7) Actual medical benefit –
10,000/year, maternity allowance included; (8) Laundry allowance – 300/month;
(9) Private employees – monetized value of 10 days’ vacation leave, sick leave
not included; (10) Collective Bargaining Agreement benefit [Productivity benefit]
– 10,000; (11) Government employees – Vacation leave & Sick leave credit

Ø [Private Employees vs. Government Employees in relation to the exemption of de

minimis benefit] There was no violation of equal protection clause under the
Constitution, as against private employees, because such employees did not
render public service

Ø Books, Flowers & Fruits – subject to fringe benefit tax

Ø Exempted Interest Income under NIRC: (1) Long Term Deposit Investment
Certificate – 5 years term; (2) Investment or Deposit under International or
Regional Financial Institutions; (3) Financial Institutions owned & financed by
Foreign Government; (4) Expanded Foreign Currency Deposit System

Ø Long Term Deposit – 5 years term; Depositor must be individual; The depository
must be a bank, not a finance company; Minimum of 10,000 deposit

Ø Investment or Deposit under Int’l or Regional Financial Inst. – must be

established by a foreign financial institution

Ø Expanded Foreign Currency Deposit – the recipient is a non-resident individual or

corporation

Ø Section 32 (A.3) Gains derived from the sale, barter or exchange of real property;
Lease not included

Ø Capital Asset – property of the taxpayer whether or not used in trade or business
Ø Ordinary Asset – primarily used in the ordinary course of business of the
taxpayer

Ø Allowance for depreciation – depreciable assets used in trade or business; Real

property primarily used in trade or business of the taxpayer; Inventoriable Assets

Ø Reason why to know Capital Asset vs. Ordinary Asset – Capital transaction that
presupposes that the subject of sale is a capital asset
Ø Section 39 (B,C & D): Holding Period Rule – Individual; Capital Loss Limitation –
Individual/Corporation; Net Capital Loss Carry Over – Individual

Ø Jurisprudence: Revenue Regulation 4-99, extrajudicial foreclosure of real

property. If the mortgagor exercised the right of redemption within 1 year
redemption period – such that no sale happened – not liable for 6% capital gains
tax; However, if the mortgagor failed to exercise the redemption period – liable
to 6% capital gains tax; Tax base – highest bidder in the foreclosure proceedings

Ø Jurisprudence: Sale of machineries/equipment by Domestic Corporation is not

subject to 6% capital gains tax BUT to 30% corporate tax

Ø When subject to final tax? (1) Individual taxpayer must be a recipient; (2)
Non-resident foreign corporation not engaged in trade or business – must be a
recipient

Ø Section 28 (7.D) Intercorporate Dividends – dividends received by a resident

foreign corporation engaged in trade or business within the Phil. from a
Domestic Corporation is not subject to tax. It just represent an interest in the
corporation, a transfer of surplus in the capital account – no gain realized

Ø Exception (subject to tax): (1) changed in the stockholders interest or right in the
net asset of the corporation; (2) Other than stock dividends; (3) Usufructuary
under Section 566 Civil Code – natural right to receive the industrial fruits; (4)
Redemption of shares of stocks; (5) Stock dividends declaration; (6) Disguise
Dividends – in the sense that the dividends declared and issued by the
Corporation is in the guise of evading tax liability

Ø Tax Exempt Corporations: Section 22 (B) 1. General Professional Partnership; 2.

Joint Venture – Construction Project; 3. Joint Consortium – Petroleum or
Geothermal Project – Agreement with the Government

Ø Section 27 (C) – Government and Controlled Corporation: GSIS, SSS, Phil. Health
Insurance & PCSO

Ø Jurisprudence: PAGCOR, their income gaming operation is exempt, like Casino,

Mobile Vendo, Dollar Vendo. However, taxable on services operated by private
entity

Ø Section 30 (E) – According to St. Lukes Hospital Case, to be exempt: (1)

Non-stock corporation; (2) Organized exclusively for charitable purposes; (3)
Operated exclusively for charitable purposes; (4) No part of the asset enure for
the benefit of private entity

Ø Holding Period Rule (Capital – If sold within 12 months – it may claim as gain or
loss at 100%, BUT if sold more than 12 months- it can only claim as gain or loss
at 50%

Ø Capital Loss Limitation – loss sustained is deductible only from Capital Gain; not
applicable to bank and trust companies; since capital transaction it is not
connected in the trade or business of the taxpayer; cannot be claim as deduction
for being not connected in the trade or business of the taxpayer

Ø Net Capital Loss Carry Over – loss sustained during a taxable year shall be
treated as a loss in succeeding taxable year

Ø Capital Gains Tax of 6%: Section 24 (D) – Individual Taxpayer; Tax on Presumed
Gain from the sale of Capital Asset; Tax base Gross Selling Price or current Fair
 Market Value/Zonal Value; Gain by legal fiction. Section 27 (D.5) Domestic
Corporation Taxpayer; Tax on Presumed Gain from the sale of lands and
buildings; Not actually used in the trade or business; Tax base Gross Selling
Price or current Fair Market Value/Zonal Value; Cost cannot claim as deduction.
EVEN IF it will incurred an actual loss, still liable for 6% Capital Gains Tax on
presumed gain from the sale of Capital Asset. The tax base is the Gross Selling
Price, therefore, no deductions allowed.

Ø Section 24 (D) vs. Section 27 (D.5) – Former, Individual Taxpayer; Presumed Gain
from the sale of Real Property; Includes Pacto De Retro & Conditional Sale; Has
Tax Avoidance provision under Section 24 (D) par. 2, the proceeds of the sale
will be used to construct new principal residence, Requisites: (1) Within 18
months from the date of the sale will construct new principal residence, (2)
Within 30 days, notice must be given to the BIR from the date of the sale, (3) The
construction of new principal residence can only be avail once in every 10 years.
The latter, Domestic Corporation Taxpayer; Presumed Gain from the sale of
Lands and Buildings; No conditional sale included; No Tax Avoidance provision

Ø Revenue Regulation No. 2003 – required to execute escrow agreement that 6%

Capital Gains Tax should be deposited under Escrow Account
INCOME REAL DONOR’S ESTATE VAT LOCAL CUSTOMS
TAX PROPERTY TAX TAX TAX DUTIES
TAX (Donation (Donation (On
Inter Vivos) Mortis import)
Causa)

IF Actually, IF
Directly, sell/sol
Exclusively d for
Use for the profit in
purpose ordinary
they are busines
created- s-

Religious Exempt Exempt Exempt Taxable Taxable Taxable Taxable

Org.

Educational Exempt Exempt Exempt Taxable Taxable Exempt Exempt

(Non-stock
/Non-profit)

Gov’t Exempt Exempt Exempt Taxable Exempt Exempt Exempt

Educational (0% tax
Inst. rate)

Charitable Exempt Exempt Exempt Exempt Taxable Taxable Taxable

Inst.

To include:
Acredited
NGO’s;
Research
Org.; Cultural
Org.;
Philanthropi
c Org.; Social
Welfare Org.

Signficant Corporate Rule

 Ø Section 27; Section 28
Law Tax Base Tax Rate Purpose

Minimum Section 27 E; Gross Income 2%

Corporate Income Section 28 A.2
Tax (For Domestic
Corp. & Resident
Foreign Corp.)

Improperly Section 29 Accumulated 10%

Accumulated Earnings
Earnings Tax

Resident Foreign Section 28 A.1 Taxable Income 30%

Corporation
(Jurisprudence:
Considered as
RFC, Offline
International
Airlines with no
landing rights in
Phil)

Tax Sparing Credit Cash or Property 15%

Rule Dividends

Branch Profits Section 28 A.5 Earmarked 15%

Remittances Remittance

Offshore Banking Section 28 A.4 Gross Income 10%

Units

International Section 28 A.3.a & Gross Philippine 2.5%

Airline & Shipping b Billings
Line

Regional Taxable Income 10%

Operating
Headquarters of
Multinational
Companies
(Regional or Area
Headquarters –
exempt to income
tax)

Ø Minimum Corporate Income Tax

Ø Even if incurred net loss or no income, still liable for 2% MCIT. Since the tax
imposed is on Gross Income, expenses are not recognized. Moreover,
deductions and additional & personal exemptions are not allowed. The purpose
of imposing MCIT is to forestall or end the over claiming of deductions of
Corporations.

Ø Jurisprudence: MCIT applies on the 4th year of corporate existence. There is no

violation of due process clause, since the tax imposed is on gross income.

Ø Rationale of MCIT: C-Corporate existence; I-Improve financial market;

R-Reasonable contribution

Ø Improperly Accumulated Earnings Tax

Ø Revenue Regulation 2-2001- IAET imposed only to Domestic Corporations;
imposed as a penalty, as a deterrent to tax avoidance. Since corporations usually
hold to declare dividends to avoid tax liability that eventually deprive the
Government of its right to collect taxes.

Ø Jurisprudence: Immediacy Test – the reason for holding back the declaration of
corporate profit or earnings is to reserve such earnings for immediate
reasonable needs of the corporation.

Ø The collection of IAET is imprescriptible

Ø Resident Foreign Corporation

Ø Since tax on taxable income, deductions and additional & personal exemptions
are allowed.

Ø Jurisprudence: Offline International Airline with no landing rights in the Phil. is

taxed as resident foreign corporation in consideration of the protection given by
the Phil. Gov’t, subject to such limitation provided by law (RP-CANADA Treaty) –
the tax that will be imposed is not more than ½% of gross revenue from sale of
airline tickets in the Phil.

Ø Tax Sparing Credit Rule

Ø Non-Resident Foreign Corporation made an investment by putting a local

counterpart a domestic corporation in the Phil. i.e. Proctor & Gamble, USA –
Proctor & Gamble, PHIL.; the cash or property received from its local counterpart
domestic corporation is subject to 15% final withholding tax.

Ø Cash or property dividends received by a Resident Foreign Corporation from a

Domestic Corporation

Ø Sparing – before the Corporate Income Tax is 30% reduces to 15% final
withholding tax to attract more investors.

Ø Tax Credit – Corporate investor must prove that the 15% final withholding tax
allowed as tax credit in the foreign country, otherwise the dividends is subject to
30% regular income tax.

Ø Jurisprudence: Withholding Agent has a legal personality to file a written to

demand for Tax Refund. By virtue of the two role of withholding agent, he/she is
considered as Taxpayer.

Ø Branch Profits Remittances

Ø Jurisprudence: Purpose of the imposition of the tax is to equalize the tax burden
between Foreign Corporation and Domestic Corporation. The transaction is
effectively connected with the conduct of trade or business of the corporation.
However, subject to limitation provided by law (RP-GERMANY Treaty) – the tax
that will be imposed is not more than 10%.

Ø International Airline with Landing Rights – 2.5% Gross Philippine Billings

Ø Excluded from Gross Income – Section 32 B

Ø Life Insurance Proceeds vs. Section 85 E – Included in the Gross Estate of the
decedent. Except if it is expressly provided that the designation of the
beneficiary is irrevocable – the insurance proceeds is excluded from the Gross
Estate.
Ø Gifts of minimal value vs. Donation Inter Vivos – Donors Tax; Donation Mortis
Causa – Estate Tax

Ø Compensation for personal injuries or sickness

Ø Income exempt under Treaty – Phil. is a signatory

Ø Retirement Benefit of private/officials employee – under reasonable private

benefit plan maintained by the employer; 10 years of service & at least 50 years
old at the time of the retirement

Ø NOT applicable to government employees

Ø Section 32 B.6.b – excluded from Gross Income

Ø Jurisprudence: Compulsory Retirement benefits received by the employee

considered beyond the control of the employer, therefore exempt

Ø Section 32 B.7.e 13th Month Pay / Christmas Bonus – 30,000 to be exempt

Ø Section 34 & Section 35 – Allowable Deductions from Gross Income &

Allowance of Personal Exemptions for Individual

Ø C-Contributions; L-Losses; D-Depreciation; D-Depletion & B-Bad Debts

Ø Revenue Regulation 17-71 – Interest on Capital

Ø Jurisprudence: Theoretical interest not deductible. Capitalization costs should

be spread out through the period of time – not an expense during the period
when it incurred, but recognized as depreciation which is deductible

Ø Jurisprudence: In order for bad debts to be deductible, the person invoking it

must exert an earnest effort to collect the debts through letter of collection, then
referral to a lawyer and filing of a collection suit before the court

Ø Section 34 L – Optional Standard Deduction: Individual Taxpayer – may elect to

deduct 40% of Gross Sales or Gross Receipts; Corporate Taxpayer – may elect to
deduct 40% of Gross Income

Ø Section 35 – Personal Exemptions: 50,000 for each individual taxpayer; 25,000

for each dependent (4 dependents allowed)

Ø Section 35 C 3rd par – may still claim as deduction – In contemplation of law, as

if such dependent was married or gainfully employed at the close of the taxable
year

Ø Sections 203 – Prescription Period to Assess Tax (3 years from filing of Tax
Return)

Ø Jurisprudence: the reckoning period for the assessment of tax is from the filing
of the substantially amended income tax return

Ø Section 222 – exception to the limitation of the prescription for assessment, in

cases of Fraud in Tax Return) (Always intentional), False Return (Intentional or
Unintentional & Failure to File Return

Ø Section 248 B – in cases of willful neglect to file a return/false return/fraudulent

return – substantial underdeclaration of sales, receipts or income by more than
30% or substantial overstatement of actual deductions by more than 30% -
constitute as prima facie evidence of a false or fraudulent return – liable for 50%
of tax due or tax deficiency as civil penalty
Ø No court may issue an injunction to restrain the collection of taxes, including the
CTA, EXCEPT if the collection of tax will jeopardize the interest of the Gov’t or
the Taxpayer

Ø Section 223 – Suspension of the running of the prescriptive period to Assess &
Collect Taxes: Request for Reinvestigation – on the ground of newly discovered
evidence

Ø Request for Reconsideration does not toll the running of the prescriptive period
to Assess & Collect Taxes

Ø Requisites of Request for Reinvestigation: (1) Duly approved by the BIR; (2) Must
be in Writing; (3) Made before the expiration of 3 years; and (4) Authorized and
signed by the Taxpayer

Ø Cannot be Compromise: (1) Withholding Tax cases; (2) Criminal violations

already filed in court; (3) Criminal Tax Fraud cases; (4) Delinquent Accounts with
duly approved schedule of installments; (5) Tax cases already attained Finality;
(6) Estate Tax cases; (7) Final Report of Reinvestigation or Reconsideration

Ø Compromise as to the Disputed Assessment on the ground of Doubtful Validity

of Assessment – may be accepted if the disputed assessment is the result of
Jeopardy Assessment made by the BIR – no audit or partial audit

Ø Section 228 & Section 229 – Administrative Remedies of Taxpayer

Ø By virtue of Revenue Regulation 13-208 – Preliminary Assessment Notice is

mandatory. Non-observance violates the due process clause

Ø PAN can be dispense with: (1) The finding is the result mathematical error in
computing the tax; (2) There is a discrepancy between the amount withheld and
the amount actually remitted by the withholding agent; (3) When the taxpayer
carried over the excess creditable withholding tax against tax liabilities for the
taxable quarters of the succeeding taxable year; (4) In cases of excise tax has
not been paid; and (5) Article locally purchased or imported by an exempt person
has been sold, transferred or traded to non-exempt person

Ø Procedure in Regular Assessment of Tax

Ø Audit by the BIR upon individual taxpayer or corporate taxpayer –

Pre-Assessment Notice sent taxpayer – Taxpayer is given an opportunity to
explain why the assessment should be cancelled, amended or reduced – In case
the Taxpayer agreed to the Assessment he should pay the Tax assessed, IF in
case of disputed assessment, a Final Assessment Notice is issued to the
taxpayer – The taxpayer may file a Written Protest either a Request for
Reinvestigation or Reconsideration within 30 days from receipt thereof – The
taxpayer must submit relevant supporting documents within 60 days from the
filing of the protest – 180 days from the receipt of the supporting documents,
the Commissioner must decide the protest – In case of adverse decision or
lapse of 180 days from inaction of the Commissioner, the taxpayer may file a
Petition for Review (under Rule 43) before the CTA in Division within 30 days
from receipt thereof [Under CTA Revenue Regulation - the taxpayer may opt to
await the final decision of the Commissioner beyond 180 days and within 30
days from the receipt of the adverse decision, may file a Petition for Review
(under Rule 43) before the CTA in Division] – In case of adverse decision of the
CTA in Division, the taxpayer may file a Motion for Reconsideration within 15
 days from receipt thereof – In case of adverse resolution of the CTA in Division,
the taxpayer may file a Petition for Review (under Rule 45) before the CTA en
banc within 15 days from receipt thereof – In case of adverse resolution of the
CTA en banc, the taxpayer may file a Petition for Review on Certiorari (under Rule
65) before the Supreme Court within 15 days from receipt thereof.

Ø Procedure in Tax Refund/Credit

Ø The tax or penalty is erroneously, illegally or wrongfully collected by the BIR –

The taxpayer may file a written claim for Tax Refund or Tax Credit with the
Commissioner within 2 years from date of payment of the tax – In case of
adverse decision of the Commissioner, the taxpayer may file a Petition for
Review (under Rule 43) before the CTA in Division within 30 days from receipt
thereof [the 30 days period to Appeal must be within the 2-year prescriptive
period to file a written claim for Tax Refund or Tax Credit] – In case of adverse
decision of the CTA in Division, the taxpayer may file a Motion for
Reconsideration within 15 days from receipt thereof – In case of adverse
resolution of the CTA in Division, the taxpayer may file a Petition for Review
(under Rule 45) before the CTA in banc within 15 days from receipt thereof – In
case of adverse resolution of the CTA in banc, the taxpayer may file a Petition for
Review on Certiorari (under Rule 65) before the Supreme within 15 days from
receipt thereof.

Ø The decision or resolution covered by Rule 65 are those which patently unjust,
oppressive, whimsical and grave abuse of discretion amounting to lack or
excess of jurisdiction

Ø Potentially capable of causing unwarranted or irremediable damages to the party