What is the reason for income being subject to tax?
Income is regarded as the best measure of
What is the definition of "Gross Income" in terms of
taxation?
What is the meaning of "Taxable item of income"?
What is the definition of "Gross Income"?
What are the elements of Gross Income?
What is gross income?
What is the difference between return on capital
and return of capital?
What is the significance of improvement in net
worth?
What are capital items with infinite value?
taxpayer's ability to pay tax and an excellent object
of taxation in the allocation of government costs.
"Gross Income" is taxable income in layman's term.
Taxable income in NIRC refers to certain items of
gross income less deductions and personal
exemptions allowable by law.
"Taxable item of income" refers to "item of gross
income" or "inclusion in gross income".
"Gross Income" is any inflow of wealth to the
taxpayer (legal or illegal) that increases net worth.
Ex. income for employment, trade,
business/exercise of profession, income from
properties.
The elements of Gross Income are Return on
Capital that increases net worth and any inflow of
wealth to the taxpayer that increases net worth.
Gross income is a return on wealth or property.
Return on capital increases net worth and is subject
to income tax, while return of capital merely
maintains net worth and is not taxable.
Improvement in net worth indicates the ability to pay
tax.
Capital items with infinite value include life
insurance proceeds paid to heirs/beneficiaries,
excess amount received over premiums paid upon
surrender or maturity of the policy, gain realized by
the insured from the assignment or sale of his
insurance policy, interest income from the unpaid
balance of the proceeds of the policy, and any
excess of the proceeds received over the
acquisition costs and premiums.
What is the tax treatment of taxable return on
capital from insurance policies?
What are the types of income exempt from income
tax?
What is the definition of a "return of capital"?
What is the difference between recovery of lost
capital and recovery of lost profits?
What are the taxable recoveries of lost profits?
What is the "benefit concept"?
What is the definition of a realized benefit?
What is the difference between a realized benefit
and a benefit concept?
Taxable return on capital from insurance policies
includes any excess amount received over
premiums paid by the insured upon surrender or
maturity of the policy, gain realized by the insured
from the assignment or sale of his insurance policy,
and interest income from the unpaid balance of the
proceeds of the policy.
Interest income from the unpaid balance of the
proceeds of the policy, any excess of the proceeds
received over the acquisition costs and premium
payments by an assignee of a life insurance policy,
compensation received in consideration for the loss
of health, and any indemnity received as
compensation for its impairment.
Compensation received as a return of capital is
exempt from income tax. Health compensation
received in consideration for the loss of health, and
any indemnity received as compensation for its
impairment are examples of a return of capital.
Recovery of lost capital merely maintains net worth,
while recovery of lost profits is a return on capital.
Recovery of lost profits does not decrease net
worth.
Proceeds of crop or livestock insurance, guarantee
payments, and indemnity received from a patent
infringement suit are examples of taxable
recoveries of lost profits.
The benefit concept refers to the advantage derived
by the taxpayer from a realized benefit.
A realized benefit means an advantage earned by
the taxpayer that requires a degree of
undertaking/sacrifice and increases the net worth of
the recipient.
A realized benefit requires an exchange of
transaction, involves another entity, and increases
the net worth of the recipient, while a benefit
concept means advantage derived by the taxpayer,
such as receiving income, donation, or inheritance.
What are the requisites of a realized benefit?
What are the types of transfers subject to income
tax?
What is the definition of a unilateral transfer?
What is the difference between transactions subject
to income tax and those subject to transfer tax?
What are examples of transactions subject to
transfer tax?
What are complex transactions, and how are they
taxed?
Are sales of a home office to its branch office
taxable?
Is income between businesses of proprietor
taxable?
What are unrealized gains or holding gains?
The requisites of a realized benefit are that there
must be an exchange of transaction, the transaction
involves another entity, and it increases the net
worth of the recipient.
Bilateral transfers or exchanges, such as sale and
barter, are subject to income tax as they involve
onerous transactions and benefits are earned or
realized.
A unilateral transfer is a gratuitous transaction that
does not involve an exchange of transaction and is
not subject to income tax.
Transactions subject to income tax are those where
benefits are earned or realized, while transactions
subject to transfer tax are gratuitous transactions
where benefits are not realized due to the absence
of an earning process.
Examples of transactions subject to transfer tax
include succession (transfer of property upon death)
and donation.
Complex transactions are partly gratuitous and
partly onerous, and they involve transfers for less
than full and adequate consideration. The gratuitous
portion is subject to transfer tax, while the onerous
portion is subject to income tax.
No, sales of a home office to its branch office are
not taxable as they pertain to one and the same
taxable entity.
No, income between businesses of proprietor
should not be taxed since proprietorship businesses
are taxable upon the same owner.
Unrealized gains or holding gains refer to the
increase in wealth through appreciation or decrease
in obligation in the absence of a sale or barter
transaction. They are not taxable as they have not
yet materialized in an exchange transaction.
What are unrealized gains?
What are some examples of unrealized gains?
What is rendering of services?
What is an example of realized gains from
exchanges?
What is the basis of exemption of unrealized
income?
What is the mode of receipt/realization benefits
taxable income may be realized by the taxpayer in?
What are the two types of actual receipt of income?
What is constructive receipt of income?
What is considered income if it does not increase
net worth?
What are some examples of items that are
exempted by law from taxation?
Unrealized gains are gains that have not yet
materialized in an exchange transaction.
Examples of unrealized gains include an increase in
the value of investments in equity or debt securities,
an increase in the value of real properties held, an
increase in the value of foreign currencies held or
receivable, a decrease in the value of foreign
currency denominated debt by virtue of favorable
fluctuation in exchange rates, the birth of animal
offspring, accruals of fruits in an orchard, or growth
of farm vegetables, and an increase in the value of
land due to the discovery of mineral reserves.
Rendering of services is considered an exchange
but does not cause a loss of capital. Hence, the
entire consideration received (compensation
income, services fee) is an item of gross income.
An example of realized gains from exchanges is
debt cancelled in consideration for services
rendered.
Income received in non-cash consideration is
taxable at the fair value of property received.
Taxable income may be realized by the taxpayer in
actual receipt, which is the actual physical taking of
income in the form of cash or property.
Actual Receipt and Constructive Receipt.
It is when there is no actual physical taking of
income, but the taxpayer is effectively benefited (ex.
offset of debt, deposit of income in checking
account).
Inflow of wealth without increase in net worth is
income due to total absence of benefit.
Income of qualified employee trust fund, revenues
on non-profit, non-stock educational institutions (ex.
AdDU), SSS, GSIS, Pag-IBIG, or PhilHealth
benefits, and salaries and wages of minimum wage
earners.
What is the difference between a loan and
embezzlement or swindling in terms of income?
What are the types of income tax-exempt
organizations?
What are the types of individual income taxpayers?
What are the classifications of citizens for income
tax purposes?
Who are considered Resident Citizens for income
tax purposes?
Who are considered Non-resident Citizens for
income tax purposes?
Who are considered Resident Aliens for income tax
purposes?
Who are considered Non-resident Aliens engaged
in trade or business for income tax purposes?
Who are considered Non-resident Aliens NOT
engaged in trade or business for income tax
purposes?
What are the types of corporations for income tax
purposes?
Who are considered Resident Foreign Corporations
for income tax purposes?
Borrowing money under an obligation to return
(LOAN) is not considered income, while proceeds of
embezzlement or swindling where money is taken
without original intention to return is considered
income because of the increase in net worth of the
swindler.
Non-profit, non-stock educational institutions, SSS,
GSIS, Pag-IBIG, PhilHealth benefits, salaries and
wages of minimum wage earners and qualified
senior citizen, regular income of barangay
Micro-business enterprise (BMBEs), income of
foreign governments and foreign
Government-owned controlled corporations
(GOCC), income from international missions and
organizations with income tax immunity.
Citizen and Alien, Taxable estates and trust.
Resident Citizen and Non-resident Citizen.
Filipino citizens residing in the Philippines.
Filipino citizens who are not residing in the
Philippines.
Aliens who have established a permanent
residence in the Philippines.
Aliens who are not residing in the Philippines but
are engaged in trade or business within the country.
Aliens who are not residing in the Philippines and
are not engaged in trade or business within the
country.
Domestic Corporation and Foreign Corporation.
Foreign corporations that are engaged in trade or
business within the Philippines and have
established a branch or office in the country.
Who are considered Non-Resident Foreign
Corporations for income tax purposes?
What is a Resident Citizen?
What is a Non-resident Citizen?
What is an Alien?
What is a Resident Alien?
What is the definition of a Non-Resident Alien?
What is the difference between a Non-Resident
Alien Engaged in Business and a Non-Resident
Alien NOT Engaged in Business?
Foreign corporations that are not engaged in trade
or business within the Philippines.
A Filipino citizen residing in the Philippines.
A citizen of the Philippines with physical presence
abroad with a definite intention to reside therein,
leaves the Philippines during the taxable year to
reside abroad (immigrant or employment on a
permanent basis), a citizen of the Philippines who
works and derives income from abroad and whose
employment threat requires him to be physically
present abroad most of the time during the taxable
year, or a citizen previously considered as
NON-resident citizen who arrives in the Philippines
at any time during the taxable year to reside
permanently in the Philippines shall be treated as
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 his arrival in the Philippines.
A person who is not a citizen of the Philippines.
A person who is residing in the Philippines but is not
a citizen, lives in the Philippines without definite
intention as to his intention, or comes to the
Philippines for a definite purpose which in its nature
would require an extended stay and to that end
makes his home temporarily in the Philippines
although intent.
An individual who is NOT residing in the Philippines
and retains their status as such until they abandon
or depart from the PH.
A Non-Resident Alien Engaged in Business is an
alien who stayed in the PH for an aggregate period
of MORE THAN 180 days during the year, while a
Non-Resident Alien NOT Engaged in Business
comes to the PH for a definite purpose which in its
nature may be promptly accomplished or stays in
the PH for an aggregated period for NOT more than
180 days during the year.
What is the general classification rule for The intention of the individual shall determine their
individuals? appropriate residential classification. Taxpayers
submit to the CIR of the BIR documentary proofs
(visas, work contracts, etc.) indicating intention.

What is the difference between a definite purpose A definite purpose would require an extended stay,
and a short term stay? while a short term stay is promptly accomplished.

What type of documents are required for Proof of intention such as visas and work contracts.
reclassification of normal residency in the
Philippines?

What is the effect of short-term stay documents on Short-term stay documents such as tourist visas do
residency classification in the Philippines? not result in reclassification of normal residency.

How is the length of stay determined for residency The length of stay is determined by the number of
classification in the Philippines? days spent in the country.

What is the residency classification for citizens who Citizens who stay abroad for at least 183 days are
stay abroad for at least 183 days in the Philippines? considered non-residents.

What is the residency classification for aliens who Aliens who stayed in the Philippines for more than 1
stayed in the Philippines for more than 1 year as of year as of the end of taxable year are considered
the end of taxable year? residents.

What is the residency classification for aliens who Aliens who are staying in the Philippines for not
are staying in the Philippines for not more than 1 more than 1 year, but more than 180 days are
year, but more than 180 days and engaged in deemed non-resident aliens engaged in business.
business?

What is the residency classification for aliens who Aliens who stayed in the Philippines for NOT more
stayed in the Philippines for NOT more than 180 than 180 days are considered non-resident aliens
days and not engaged in trade or business? NOT engaged in trade or business.

What is an estate in the Philippines? An estate refers to the properties, rights, and
obligations of a deceased person that are not
extinguished by their death.

How are estates under judicial settlement treated in Estates under judicial settlement are treated as
the Philippines? individual taxpayers and are taxable on the income
of properties left.

How are estates under extrajudicial settlement Estates under extrajudicial settlement are not
treated in the Philippines? considered as individual taxpayers.
What is the tax treatment of estates under
extrajudicial settlement?
What is a trust?
How is a trust irrevocably designated by the grantor
treated?
Are trust designated as revocable by the grantor
taxable entities?
What is the presumed revocability of a trust
agreement when it is silent as to revocability?
What does the term 'corporation' include in
corporate income taxpayers?
What is a domestic corporation?
What is a foreign corporation?
What is a resident foreign corporation (RFC)?
What is a nonresident foreign corporation?
They are exempt entities, and income under these
properties is taxable to the heirs.
It is an arrangement where one person transfers
property to another person, which will be held under
the management of a third party.
It is treated as if it's an individual taxpayer, and
income of property held in trust is taxable to the
trust.
No, they are not taxable entities and not considered
as individual taxpayers. Income is taxable to the
grantor.
It is presumed to be revocable.
It includes OPC (One Person Corporation),
partnerships, joint-stock companies, joint accounts,
associations, and insurance companies (except
general professional partnerships and joint venture
in consortium formed for undertaking construction
project or engaging petroleum, coal, geothermal,
and other energy operations pursuant to an
operating consortium agreement under service
contract).
A corporation organized in accordance with PH
laws, including OPC owned and registered by
resident citizens in PH.
A corporation organized under foreign law.
A foreign corporation that operates and conducts
business in PH through permanent establishment
(ex. branch) and is taxable on transactions through
the branch.
A foreign corporation that does NOT operate or
conduct business in PH and transacts directly to
residents outside its branch, taxable on the direct
transactions.
What are special corporations?
What are other corporations?
What is co-ownership?
How is co-ownership taxed if limited to property
preservation or income collection?
What happens if co-owned property's income is
reinvested in other income-producing
properties/ventures?
Who are taxable on income earned within the
Philippines?
Who are taxable on all income from sources within
and without the Philippines?
What is the basis of extraterritorial taxation?
What is the purpose of extraterritorial treatment?
What is the issue with international double taxation?
Domestic or foreign corporations subject to special
tax rules or preferential tax rates.
Profit-oriented and non-profit institutions, including
charitable institutions, cooperatives, government
agencies and instrumentalities, associations,
leagues, civic or religious and other organizations.
Joint ownership of property formed for preserving
the same and/or dividing its income.
Co-ownership is not a taxable entity, but co-owners
are taxable on their share of income from co-owned
property.
It will be considered an unregistered partnership
taxable as a corporation.
All taxpayers except resident citizens and domestic
corporations are taxable only on income earned
within the Philippines.
Resident citizens of the Philippines and domestic
corporations are taxable on all income from sources
within and without the Philippines.
Resident citizens and domestic corporations have
full access to benefits from the government, and
taxation on their foreign income properly reflects
this difference in benefits consistent with the Benefit
Received Theory.
It is intended as a safety net to the potential loss of
tax revenues brought by situs relocation or practice
of executing or structuring transactions such that
income will be realized abroad to avoid PH income
taxes.
The rule on extraterritorial taxation exposes resident
citizens and domestic corporations to double
taxation.
What does NIRC allow to address the issue of NIRC allows a tax credit for taxes paid in foreign
international double taxation? countries.

What is the situs of income? It is the jurisdiction that has the authority to impose
tax upon the income and determines whether or not
an income is taxable on all income from sources
within and without.

What is the definition of COME? COME is the jurisdiction that has the authority to
impose tax upon the income.

What is the importance of COME to taxpayers? COME is particularly important to taxpayers taxable
only on income within but also important on global
income for computation of foreign tax credit.

What is the definition of SOURCE OF INCOME? SOURCE OF INCOME pertains to activity/property

that produces the income.

What is the difference between INCOME SITUS INCOME SITUS RULES pertains to the place of
RULES and SITUS OF INCOME? taxation of income, while SITUS OF INCOME
pertains to the place where the income is produced.

What is the place of taxation for Interest Income? The place of taxation for Interest Income is Debtor's
Residence.

What is the place of taxation for Rent Income? The place of taxation for Rent Income is the
Location of Property.

What is the place of taxation for Service Income? The place of taxation for Service Income is the
Place where service is rendered.

What is the place of taxation for Gain on Sale of The place of taxation for Gain on Sale of Personal
Personal Property? Property is earned where the property is sold.

What is the place of taxation for Gain on Sale of The place of taxation for Gain on Sale of Real
Real Property? Property is earned where the property is located.

What is the place of taxation for Dividend Income The place of taxation for Dividend Income from
from Domestic Corporation? Domestic Corporation is presumed earned within.

What is the place of taxation for Dividend Income The place of taxation for Dividend Income from
from Non-Resident Foreign Corporation? Non-Resident Foreign Corporation is earned
abroad.
What is the Pre-Dominance Test? It is a test used to determine if the ratio of PH gross
income over the world gross income of the resident
foreign corporation in the three-year period
preceding the year of dividend declaration is at least
50%.

What happens if the ratio in the Pre-Dominance At least 50% of the portion of the dividend
Test is at least 50%? corresponding to the PH gross income ratio is
earned within.

What happens if the ratio in the Pre-Dominance The entire dividends are earned abroad, and the
Test is less than 50%? gross income from abroad will be deemed earned
outside the PH, thus dividends will NOT be split to
Within/Without PH.

Where is Merchandising Income earned? It is earned where the property is sold.

Where is Manufacturing Income earned? It is earned where the goods are manufactured and
sold.

What is the difference between Within and Without Within means the income is earned within the PH,
in terms of Production and Distribution Income? while Without means the income is earned outside
the PH.

Are Home Office and Branch considered separate No, they are not separate.
in terms of income?

Are Parent and Subsidiary considered separate in Yes, they are separate.
terms of income?

What is Production Income? Income earned without any separate Home Office
and Branch.

What is the difference between Parent and Parent and Subsidiary earn Production Income
Subsidiary in terms of Production Income? separately.

Is Home Office and Branch considered separate in No, they are not considered separate in terms of
terms of Production Income? Production Income.

What is the source of the given information? The information is from page 82.

What is the note mentioned in the text? The note mentioned in the text is about Production
Income.