Chapter 1.
Introduction to Taxation
∙ TAXATION – state power, legislative process,
mode of government cost distribution.
∙ THEORY OF TAXATION – government’s necessity
for funding.
∙ BASIS OF TAXATION – mutuality of support
between the people and the
government.
∙ Receipts of benefits are conclusively presumed. ∙
THEORIES OF COST ALLOCATION
Benefit received theory – more benefit, more
taxes.
Ability to Pay Theory – contribute based on
relative capacity to sacrifice.
ASPECTS:
: Vertical Equity – gross concept; extent
of ability to pay is proportional to tax base.
: Horizontal Equity – net concept;
consideration of circumstances
∙ THE LIFEBLOOD DOCTRINE – without taxes,
government would be paralyzed: Taxes –
essential and indispensable.
IMPLICATION:
: doesn’t need constitutional grant.
: tax exemption – claims: construed against
taxpayer
: right to choose object of taxation –
government : courts not allowed to interfere
: Income taxation
taxable upon receipt;
deduction for capital expenditures and
prepayment not allowed;
lower amount of deduction is preferred,
in case claimable expense subject to
limit;
higher tax base is preferred, in case of
multiple tax bases.
∙ INHERENT POWERS OF THE STATE (pg. 4-5)
Taxation Power – enforce proportional
contribution
Police Power – enact laws to protect well-being
of the people
Eminent Domain – take private property for
public use after paying just compensation
∙ SCOPE OF TAXATION POWER (CPUS) –
comprehensive, plenary, unlimited, and
supreme.
∙ THE LIMITATIONS OF THE TAXATION POWER
Inherent Limitations (TIPEN)
✔ Territoriality of Taxation – demand tax
obligations within territorial jurisdiction;
extraterritorial taxation – encroachment
of foreign sovereignty.
✔ International Comity – all nations
deemed equal to one another (co
equal sovereignty); non-taxing of
income and properties of other
governments
✔ Public Purpose (only) – intended for the
common good
✔ Exemption of the Government –
exemption: income from its properties
and activities conducted for profit
(GOCC)
✔ Non-delegation of the Taxing Power –
vested exclusively in congress and is non
delegable. Exemption: LGU, President –
fix amount of tariffs, other cases requiring
expedient and effective administration
and implementation.
Constitutional limitations (DEUP-NNFE-NECN-NNTT)
✔ Due process of law – neither harsh nor
oppressive
Aspects:
: Substantive due process – tax must be
imposed only for public purpose
: Procedural due process – no
arbitrariness, right to notice and
hearing. Assessment – made within 3
years from due date of filing of return or
actual filing (whichever is later)
Collection – made within 5 years
from date of assessment
✔ Equal protection of the Law – equal
treatment both in terms of rights
conferred and obligations imposed;
applies to taxpayers under same
circumstances.
✔ Uniformity rule in taxation – taxation shall
be uniform and equitable;
: taxpayers under dissimilar
circumstances should not be taxed the
same (substantial distinction)
: each class is taxed differently – falling
under same class are taxed the same
(relative equality)
✔ Progressive system of taxation – tax rates
increase as tax base increases
(consistent with taxpayer’s ability to
pay) ✔ Non-imprisonment for non-payment
of debt or poll tax – applies only when the
debt is acquired in good faith (bad faith –
estafa)
✔ Non-impairment of obligation and
contract – honored and shouldn’t be
cancelled by a unilateral government
action.
✔ Free worship rule – free exercise of
religion but does not extend to income
from properties or activities that are
proprietary or commercial in nature
✔ Exemption of the following lands,
buildings, and improvements from
property taxes
: Religious, charitable and
educational entities
: Non-profit cemeteries,
churches and mosques
▪ Doctrine of use: applies only to
properties actually, directly, and
exclusively devoted to religious
activities, etc.
✔ Non-appropriation of public funds or
property for the benefit of any church,
sect, or system of religion – government
should not favor nor support any
particular system of religion
: however, compensation to
priests, etc. with military,
penal institutions, etc. not
considered religious
appropriation.

SJDL INCOME TAXATION (Banggawan,2019): REVIEWER
✔ Exemption from taxes of the revenues and
assets non-profit, non-stock educational
institutions (Doctrine of use)
: including grants, endowments,
donations, or contributions
: Private educational institutions
– minimal 10% income tax
✔ Concurrence of a majority of all members of
Congress for the passage of a law granting
tax exemption
: In withdrawal, only a relative or
quorum majority is required
✔ Non-diversification of tax collections – used
only for public use.
✔ Non-delegation of the power of taxation – as
part of lawmaking be vested exclusively in
Congress
✔ Non-impairment of the jurisdiction of the
Supreme Court to review tax cases – all tax
cases can be raised to and be finally
decided by the Supreme Court of the
Philippines
• Appropriations, revenue, or tariff bills shall
originate exclusively in the house of
representatives
: does not necessarily mean that the
House bill must become the final law.
: Senate may propose or concur with
amendments
: Held constitutional – senate
changed entire house version of tax bill
• Delegation of taxing power to local
government units – constitutional
recognition of the local autonomy of LGU
∙ STAGES OF THE EXERCISE OF TAXATION POWER
Levy or Imposition
: impact of taxation; legislative act
: enactment of a tax law by Congress – House of
Representatives and The Senate
: tax bills must originate from House of
Representatives.
: However, each may have their own
versions proposed which is approved by
both bodies.
DISCRETION IN THE EXERCISE: (DSDKNSM)
‘Determine object of taxation
‘Set tax rates/amount collected
‘Determine purpose of levy – public use
‘Kind of tax to be imposed
‘National and local government
apportionment
‘Situs of Taxation
‘Method of collection
Assessment and Collection
: incidence of taxation; administrative act of
taxation
: tax law is implemented by the administrative
branch of the government
1
: involves assessment/determination of the tax
liabilities of taxpayers and collection.
∙ SITUS OF TAXATION
▪ Situs – place of taxation; tax jurisdiction. ▪
Situs rules – frames of reference whether tax
object is within or without the
jurisdiction.
: Business Tax Situs – where the business is
conducted.
: Income tax situs on services – where service
is rendered
: Income tax situs on sale of goods – in the
place of sale
: Property tax situs – in its location
: Personal tax situs – in their place of
residence
∙ OTHER FUNDAMENTAL DOCTRINES IN TAXATION ▪
Marshall Doctrine – “The power to tax involves the
power to destroy”: an
instrument of police power.
: used to discourage or prohibit
undesirable activities or
occupation. (e.g. SINTAX)
: solely for the purpose of raising
revenues – does not include the
power to destroy
▪ Holme’s Doctrine – “Taxation power is not
the power to destroy while the court sits.” :
used to build or encourage
beneficial activities – grant of tax
incentives. (e.g. Tax Holidays)
▪ Prospectivity of tax laws
: ex post facto law/law that
retroacts – prohibited by
constitution, unless intended by
Congress under certain
justifiable conditions. (e.g. under
foreign occupation even after
the war)
▪ Non-compensation or set-off – cannot
delay payment of tax; not a debt.
Exceptions
: Taxpayer’s claim
become due and demandable
– recognized by government; a
refund was made
: overpayment of taxes
: Local taxes
▪ Non-assignment of taxes
: Contracts executed shall not
prejudice the right of
government to collect
▪ Imprescriptibility in taxation –
government’s right to collect does not
prescribe unless the law itself provides
for such prescription.
: Prescription – lapsing of a right
due to the passage of time
Under NIRC, tax prescribed if not
collected within:
▪ 5 years from the date of assessment
▪ 3 years from the date of return
required to be filed, in absence of
an assessment
▪ Doctrine of estoppel – “still the taxpayer’s
fault”
: error of any government
employee does not bind the
government since it is not
 subject to estoppel.

2
SJDL INCOME TAXATION (Banggawan,2019): REVIEWER
▪ Judicial Non- Interference
: generally, courts cannot issue
injunction against the
∙ ESCAPE FROM TAXATION – means available to the
government’s pursuit to collect
taxpayer to limit or even avoid the impact of
tax
taxation.
: anchored on the lifeblood
∙ Categories of Escape from Taxation
doctrine A. Those that result to loss of government
▪ Strict Construction of Tax Laws – “taxation is revenue (Ev, Av, Ex)
the rule; exemption is the exception”
: when language of law is clear : Tax Evasion (tax dodging) – any act or trick
and categorical – no room for that tend to illegally reduce or avoid
interpretation, only for payment of tax (e.g. understatement of
application income, overstating of expenses)
: Vague tax laws – means no tax
law; construed against the : Tax Avoidance (tax minimization) – any act
government and in favor of the or trick that reduces or totally escapes taxes
taxpayers – obligation arising by any legally permissible means. (e.g.
from law is not presumed (due selection/execution of transaction that
process) would effect to lower taxes)
: Vague exemption laws –
: Tax exemption (tax holiday) – immunity,
means no exemption law; claim
privilege or freedom from being subject to
for exemption is construed
tax granted by constitution, law, or
strictly against the taxpayer in
contract.
accordance with the lifeblood
doctrine ‘Can be revoked by Congress except
‘Exemption must be those granted by constitution and under
clear and unequivocal. Any contracts’
doubt is resolved against the
taxpayer. B. Those that do not result to loss of government
revenues (ShiCapTra)
∙ DOUBLE TAXATION – occurs when same taxpayer is
taxed twice by same tax jurisdiction for the : Shifting – process of transferring tax burden
same thing. to other taxpayers
▪ Elements of double taxation (O-TPJP) :
Primary elements – same object Forms of Shifting
: Secondary elements – same type,
‘Forward Shifting’ follows the normal flow
purpose, taxing jurisdiction and/or tax
of distribution; common with essential
period.
commodities and services such as food
▪ Types of Double Taxation
and fuel (e.g. manufacturers to
: Direct double taxation – all the
wholesalers, wholesalers to retailers)
element of double taxation exists for
both ‘Backward shifting’ reverse of forward
impositions; discouraged since it is shifting; common to non-essential
oppressive and burdensome. commodities; buyers have market power
‘counter the rule of equal with numerous alternatives
protection and uniformity in the
constitution’ ‘Onward shifting’ any tax shifting in the
: Indirect double taxation – at least one distribution channel exhibits either of the
of the secondary elements of double former forms.
taxation is not common for both
impositions; prevalent in practice. : Capitalization – adjustment of the value of
▪ Impact of double taxation minimized: : an asset caused by changes in tax rates.
Provision of tax exemption – only one
‘Value of mining property decreases
tax law is allowed to apply to the tax
when output is subject to higher tax – form of
object
backward shifting
: Allowing foreign tax credit – payment
made in foreign tax law is deductible : Transformation – elimination of wastes or
against the tax due of the domestic tax losses by taxpayer to form savings to
law compensate for the tax imposition or
: Allowing reciprocal tax treatment – increase in taxes. (e.g. improvement of
reduced tax rates or exemption on goods)
foreign taxpayer if the country of the
same give same treatment to Filipino
non-resident therein
: Entering into treaties or bilateral ∙ TAX AMNESTY VS. TAX CONDONATION – both
construed against taxpayers and in favor of the
agreements – lower tax rates for their
government
residents engage in transaction that are
▪ Tax Amnesty
taxable by both of them
: general pardon – granted by
government for erring taxpayers
: chance to reform and enable fresh start
 – clean slate
: retrospective in application
: covers both civil and criminal liabilities
: conditional upon the taxpayer paying a
portion
▪ Tax Condonation (tax remission)
: forgiveness under certain justifiable
SJDL INCOME TAXATION (Banggawan,2019): REVIEWER
Chapter 2: Taxes, Tax Laws, and Tax Administration
∙ TAXATION LAW – any law that arises from the
exercise of the taxation power of the state.
▪ TYPES OF TAXATION LAWS
: Tax Laws – provide for the assessment
and collection of taxes (e.g. NIRC, Tariff
and Customs Code, LGU)
: Tax Exemption Laws – grant certain
immunity from taxation. (e.g. Minimum
Wage Law, BMBE Law, Coop.
Development Act)
▪ SOURCES OF TAXATION LAWS
: Constitution
: Statutes and Presidential Decrees – tariff
and customs code
: Judicial decisions or case laws – due to
ambiguity
: Executive Orders and Batas Pambansa
: Administrative Issuance - DOF
: Local Ordinances
: Tax treaties and conventions with
foreign countries
: Revenue Regulations – Administration,
DOF, BIR, BOC
∙ TYPES OF ADMINISTRATIVE ISSUANCES
▪ Revenue Regulations (clarifications)
: Issuance signed by Secretary of
Finance, recommendation of the CIR
: formal pronouncements intended to
clarify – providing details of
administration and procedure
: has the force and effect of a law, but
not intended to expand or limit;
otherwise, void.
▪ Revenue Memorandum Orders ‘RMOs’
(steps)
: issuance that provide directives or
instructions, etc. necessary in the
implementation of the Bureau in all areas
except auditing.
▪ Revenue Memorandum Rulings ‘RMRs’
(exemption)
: rulings, opinions and interpretations of
the CIR
: BIR Rulings, cannot contravene duly
issues RMR’s; otherwise, rulings are null
and void ab initio.
▪ Revenue Memorandum Circulars RMCs’
(announcement whenever there are
issues)
: issuance that publish relevant and
applicable portions as well as
implications – laws, rules, etc. issues by
BIR and others agencies.
▪ Revenue Bulletins ‘RB’
: periodic issuances, notices, and official
announcements of the CIR for the
guidance of the public
▪ BIR Rulings
: official positions of the Bureau to
queries raised by taxpayer’s and other
stakeholder relative to clarifications and
interpretation of tax laws
grounds
: covers only civil liabilities
: applies prospectively to any unpaid
balance – portion paid will not be
refunded
: requires no payment
3
: merely advisory, none of them binding
except to the addressee and may be
reversed by BIR anytime
∙ TYPES OF RULLINGS – VAT, International Tax Affairs
Division, BIR, Delegated Authority
∙ GENERALLY ACCEPTED ACCOUTING PRINCIPLES
VS. TAX LAWS
▪ GAAP – not law but mere conventions of
financial reporting; intended to meet the
common needs of a vast number of
users in the general public.
▪ TAX LAWS – special form of financial
reporting which is intended to meet
specific needs of tax authorities.
‘In cases of conflict in the preparation
and filing of tax returns, tax laws shall
prevail – mandatory’
∙ NATURE OF PHILIPPINE TAX LAWS – civil and not
political in nature; effective even during periods
of enemy occupation.
‘Internal Revenue Laws’ not penal in nature, do
not define crime; merely intended to secure
compliance.
∙ TAX – enforced proportional contribution levied
by the lawmaking body of the State to raise
revenue for public purpose
Elements of a Valid Tax
Must (be):
1. Levied by taxing power having jurisdiction
2. Not violate constitutional and inherent
limitations
3. Uniform and equitable
4. For public purpose
5. Proportional in character
6. Generally payable in money
Classification of Taxes
▪ As to purpose
: Fiscal or revenue tax – for general
purpose
: Regulatory – to regulate business,
conduct, acts or transactions
: Sumptuary – to achieve
social/economic benefits
▪ As to subject matter
: Personal, poll or capitation – on
persons/residents of a particular territory
: Property Tax – on personal or real
properties
: Excise or Privilege tax – upon
performance of an act; enjoyment of
privilege: engagement in an
occupation ▪ As to incidence
: Direct Tax – both impact and incidence
 of taxation rest upon the same taxpayer pays the tax

: Indirect Tax – paid by any person rather ▪ As to amount

than statutory taxpayer
: Specific tax – fixed amount on per unit
‘Statutory Taxpayer – person named by basis (e.g. kilo, liter or meter, etc.)
law to pay the tax
: Ad valorem – fixed proportion upon the
‘Economic Taxpayer – one who actually value of tax object

4
SJDL INCOME TAXATION (Banggawan,2019): REVIEWER
▪ As to rate imprison owner
∙ TAX VS. TARIFF
: Proportional tax – flat/fixed rate tax; : Tax - imposed upon persons, properties, or
emphasizes equality privileges
: Progressive of graduated tax – : Tariff – imposed on imported or exported
commodities
increasing rates as the tax base increase
∙ TAX VS. PENALTY
: Regressive tax – decreasing tax rates as : Tax – imposed for government support; arises
the tax base increase; anti-poor from law
: Penalty – imposed to discourage an act (by
: Mixed Tax – combination of any of the both government and private individuals)

above types of tax ; arises from both law and contracts

∙ TAX SYSTEM – methods or schemed of imposing,
▪ As to imposing authority assessing, and collecting taxes.

: National Tax – imposed by national TYPES OF TAX SYSTEM (pg. 41-42)

government
▪ According to Imposition
‘Income Tax – annual income, gains : Progressive – income of individuals, and
or profits transfers of properties by individuals
‘Estate Tax – gratuitous transfer of : Proportional – corporate income and
properties by a decedent upon business
death : Regressive – not employed in PH
‘Donor’s Tax – gratuitous transfer of ▪ According to Impact
properties by a living donor : Progressive System – emphasizes direct
‘Value Added Tax – consumption tax taxes; cannot be shifted
collected by VAT business taxpayers : Regressive System – emphasizes indirect
‘Other Percentage Tax – taxes; shifted by business to consumers
consumption tax collected by non
VAT business taxpayers TAX COLLECTION SYSTEM
‘Excise Tax – tax on sin products and ▪ Withholding System on Income Tax –
non-essential commodities (e.g. payor of the income withholds/deduct
alcohol, cigarettes, metallic the tax on the income before releasing
minerals) the same to the payee and remits the
‘Documentary Stamp Tax – on same to the government (ability to pay
documents, instruments, loan theory)
agreements, etc. : Creditable withholding tax
‘Withholding tax on
: Local Tax – imposed by the municipal
compensation - estimated tax required
or local government to be withheld by employers against
‘Real Property Tax employees’ income
‘Professional Tax ‘Expanded Withholding Tax – tax
‘Business Taxes, fees, and charges required to be deducted on certain
‘Community tax income payments made by taxpayer
‘Tax on banks, etc. engaged in business (e.g. NRA-NETB)
: Final Withholding Tax – payors are
∙ TAX VS. REVENUE required to deduct the full tax on certain
: Tax – amount imposed income payments: income with high-risk
: Revenue – amount collected of non-compliance (e.g. RA, NRA)
▪ Withholding system on business tax –
∙ TAX VS. LICENSE FEE
: Tax – broader subject; post-activity imposition : when GOCCs purchase goods or
License Fee – emanates from police power; pre services to private entities, the law
activity imposition requires withholding of relevant business
∙ TAX VS. TOLL tax (e.g. VAT, percentage tax) *Benefit
received theory
: Tax – demand of sovereignty
▪ Voluntary compliance system – taxpayer
: Toll – demand of ownership; dependent upon
himself determine his income, reports
the value of property leased
through ITR and pays the tax to
‘Both government and private entities can
government: Self-assessment method
impose toll, but private entities can’t impose tax.’ ∙
: will be reduced by creditable
TAX VS. DEBT
withholding tax
: Tax – arises from law
▪ Assessment or enforcement system –
: Debt – arises from private contracts
government identifies non-compliant
∙ TAX VS. SPECIAL ASSESSMENT
taxpayers, assess and demands
: Tax – imposed upon persons, properties, or
compliance by means of summary or
privileges
judicial proceedings
: Special Assessment – levied on lands adjacent
to a public improvement; non-payment will not PRINCIPLES OF SOUND TAX SYSTEM (acc. to Adam Smith)
 effective administration to encourage
▪ Fiscal Adequacy – sources of compliance: avoiding administrative
government funds must be sufficient to bottlenecks and reducing compliance
cover government costs; tax should costs. (see applications on pg. 44)
increase in response to increase in
government spending
▪ Theoretical Justice – suggest that
∙ TAX ADMINISTRATION – management of the tax
taxation should consider the taxpayers’
system
ability to pay; it should not be oppressive,
‘Tax administration in PH – entrusted to BIR under
unjust, or confiscatory
supervision of DOF’
▪ Administrative Feasibility – tax laws
should be capable of efficient and

5
SJDL INCOME TAXATION (Banggawan,2019): REVIEWER
Chief Officials of the Bureau of Internal establishments - articles subject to excise tax
Revenue : 1 Commissioner are produced/kept
: 4 Deputy Commissioners, each
designated: ‘Operations group Rules in Assignment of revenue officers to other
‘Legal Enforcement group duties
‘Information Systems group
1. No more than 2 years – officers assigned in
‘Resource Management group
establishment where excisable articles are
kept
POWERS OF THE BUREAU OF INTERNAL REVENUE
2. No more than 3 years – officers assigned to
(pg. 44)
perform assessment and collection
1. Assessment and collection
3. Not more than 1 year – officers and
2. Enforcement of penalties, etc.
employees assigned to special
3. Administering supervisory and police power
duties
4. Assignment of officers/employees to other
Agents and Deputies for Collection of National
duties
Internal Revenue Taxes
5. Provision of forms, receipts, etc. to proper
officials 1. Imported goods – commissioner of customs
6. Issuances of receipts and clearances 7. and his subordinates
Submission of annual report to Congress and 2. Energy tax – head of appropriate
COC in matters of taxation government offices and his subordinates
3. Receipts of payments of IR taxes authorized
Power of the Commissioner of Internal Revenue
to be made thru banks – Authorized
1. To interpret the provisions of NIRC government depository banks (AGDB)
2. To decide tax cases
OTHER AGENCIES TASKED WITH TAX COLLECTIONS
3. To obtain information of person to effect tax
OR TAX INCENTIVES RELATED FUNCTIONS
collection
4. To make assessment and prescribe : Bureau of Customs (BOC) – collection of tariffs
additional requirement and VAT on importation
5. To examine and determine tax returns : can
be amended within 3 years from filing, - Under supervision of
except notice for audit has been served DOF
6. To conduct inventory taking or surveillance - 1 customs commissioner
7. To prescribe presumptive gross sales and - 5 deputy commissioner
receipts - 14 district collectors
8. To terminated tax period
9. To prescribe real property values : Board of Investments (BOI) – tasked to lead the
‘Zonal Value – values prescribed promotion of investment in PH: assisting Filipinos
10. To compromise tax liabilities and foreign investors to venture and prosper
11. To inquire bank deposits - Supervise the grant of
12. To accredit and register tax agents ‘Failure of tax incentives under
Secretary of Finance to act on the appeal
Omnibus Investment
within 60 days is deemed an
Code
approval’
- Attached agency of DTI
13. To refund or credit internal revenue taxes
- 5 full-time governors
14. To abate/cancel tax liabilities in certain
- Managing head
cases
appointed as vice
15. To prescribe additional
chairman by President
procedures/documentary requirements 16.
To delegate his powers to any subordinate – : Philippine Economic Zone Authority (PEZA)
rank equivalent to a division chief of an office – created to promote investments in export
oriented manufacturing industries in PH
Non-delegated power of the CIR
- Supervise the grant both
1. Power to recommend the promulgation of
fiscal and non-fiscal
rules and regulations to SOF
incentives
2. Power to issue rulings of first impression;
- Registered enterprises
reverse/modify any existing rulings
enjoy tax holiday on
3. Power to compromise/abate tax liabilities
certain years;
Except, (Regional Evaluation Board may
exemption from
compromise)
import/export including
: basic deficiency – 500,000 or less
local taxes
: minor criminal violence - Attached agency of DTI
4. Power to assign/reassign officers to
- 1 director general
 - 3 deputy directors
: Local Government Tax Collecting Units –
provinces, municipalities, cities, and
barangays
- Imposed and collect to
rationalize fiscal
autonomy
∙ TAXPAYER CLASSIFICATION FOR PURPOSES OF TAX
ADMINISTRATION
: Large Taxpayers – under supervision of Large
Taxpayer Service (LTS) of BIR national office :
Non-large Taxpayers – under supervision of
SJDL INCOME TAXATION (Banggawan,2019): REVIEWER
5. Percentage Tax – at least P200K
paid/quarter: preceding year
6. Documentary stamp tax – at least
P1M/year
▪ AS to financial conditions and results of
operations
1. Gross receipts or sales – P1M/year
2. Net worth – P3B/year
3. Gross purchases – P800M/year:
preceding year
4. Top corporate listed and published
by SEC
Automatic Classification of Taxpayers as Large
Taxpayers
1. All branches under LTS
2. Subsidiaries, affiliates, and entities of
conglomerates
3. Surviving company in case of merger or
consolidation
4. Corporation that absorbs operation in case
of spin-off
5. Corporation with authorized capitalization of
at least P300M registered with SEC
6. Multination enterprises with
authorized/assigned capital at least P300M
7. Publicly listed corp.
8. Universal, commercial, and foreign banks
9. Corporate taxpayer – at least P1M
authorized capital in banking industries,
etc. 10. Corporate taxpayers engaged in the
production of metallic minerals
Chapter 3. Introduction to Income Taxation
∙ THE CONCEPT OF INCOME
: Subject to tax – best measure of taxpayers’
ability to pay tax; excellent object of taxation
: Taxation purposes – taxable concept, “gross
income”
- Taxable item, “items of gross
income”, “inclusion in gross
income”
- Taxable income, items of
gross income less
deductions and exemptions
- Gross income, any inflow of
wealth to taxpayers from
whatever source that
increases net worth
: Elements of Gross Income
- Return on capital that
increases net worth
- Realized benefit
- Not exempted by law,
contract, or treaty
∙ Capital – any wealth or property
respective Revenue District Offices (RDOs) where
business, etc. is situated
∙ CRITERIA OF LARGE TAXPAYERS
▪ As to payment
1. Value Added Tax – at least
P200K/quarter: preceding year
2. Excise Tax – at least P1M paid:
preceding year
3. Income Tax – at least P1M annual
payment: preceding year
4. Withholding Tax – at least P1M
annual remittances
6
∙ Return of capital – merely maintains net worth ∙
RETURN ON CAPITAL – increases the net worth
∙ Capital Items Deemed with Infinite Value –
incapable of pecuniary valuation; received as
compensation for their loss; deemed as return of
capital
: Life
‘Life insurance paid to heirs or
beneficiaries upon death of the insured
are exempt from income tax.
‘Life insurance collected by employer as
beneficiary from an officer is likewise
exempt.
Except: (return on capital)
: excess amount received over premiums
paid upon surrender/maturity of policy
: gain realized from assignment/sale of
policy
: interest income from unpaid balance of
the proceeds of policy
: excess of the proceeds received over
acquisition costs and premium payment
by an assignee
: Health – compensation for personal injuries or
torturous acts
: Human Reputation – cannot be measured
financially; any indemnity received is deemed
return of capital (e.g. slander, alienation of
affection, breach of promise to marry)
∙ RECOVERY OF LOST CAPITAL VS. RECOVERY OF
LOST PROFITS (pg. 65)
: Recovery of lost capital – merely maintains net
worth
: Recovery of lost profits – increases net worth; as
good as realization of income
Examples:
: Proceeds of crop or livestock insurance
: Guarantee payments
: Indemnity received from patent
infringement suit
∙ REALIZED BENEFIT
“benefit”, any form of advantage derived by
taxpayer that leads to increase in net worth
Except:
: receipts on loan – offsetting effect in
net worth
: discovery of lost properties
: receipt of money or property – held in
trust, to be remitted
“realized”, earned; requires sacrifice from the
taxpayer to be entitled of benefit.
Requisites:
: exchange in transaction
: transaction involves another property
: increases net worth of recipient

MODE OF RECEIPTS/REALIZATION BENEFIT (pg.
69) 1. Actual receipt – actual physical taking of
income in form of cash/property
2. Constructive receipt – no actual physical
taking of income but taxpayer is effectively
benefited
Examples:
: Offset of debt in consideration for sale
of goods/service
: deposit of income to checking
account : increase in capital of a
partner from
profit of partnership
INFLOW OF WEALTH WITHOUT INCREASE OF NET
WORTH – e.g. receipt of property in trust;
borrowing of money
∙ TYPES OF TRANSFERS
1. Bilateral transfer/exchanges – onerous
transactions (e.g. sale, barter); subject to
income tax
2. Unilateral transfers – gratuitous transactions
(e.g. succession – upon death, donation);
subject to transfer tax
3. Complex transactions – partly gratuitous and
partly onerous; “transfers for less than full and
adequate consideration”
(e.g. Transfer tax – excess of fair value from
selling price; Income tax – excess of selling
price from cost)

7
SJDL INCOME TAXATION (Banggawan,2019): REVIEWER
∙ Entity – every person, natural or juridical ∙ Regardless Since February 2, 1987
of the underlying economic relationship gains or Fathers/mother are citizen of PH
income derived are taxable since each corporation Born before January 17, 1973 of
is a separate entity (e.g. parent and subsidiaries, Filipino mothers
sister companies) ∙ Sales of home office to its branch Naturalized thru law
office – not taxable since they are a same entity : Resident Citizen – Filipino citizen residing
∙ Income between businesses of a proprietor – in PH
taxable upon the same owner; “proprietorship”, : Filipino working in PH
not a judicial entity embassies/consulate offices
: Went abroad under tourist visa
∙ Unrealized gains or holding gains – not taxable : Non-resident Citizen - Citizen staying
since they haven’t yet materialized in an abroad:
exchange transaction - for more than 183 days
- as an immigrant or for
Examples: permanent employment
: Increase in value of: - works and derives
- Investments in equity/debt income
securities - previously considered as
- Real properties held NRC and arrives in PH
(revaluation increment) anytime during taxable
- Value of foreign currencies year
held/receivable ▪ Alien
- Land dues to discovery of : Resident Alien (retains status until he abandons
mineral reserves it or depart from PH)
: Decrease in value of: - alien who came with an
- Foreign currency – immigration visa
fluctuation exchange rates - lives in PH without
: Birth of animal offspring definite intention to stay
: Accrual of fruits in an orchard - who came with definite
: growth of farm vegetables purpose that requires an
extended stay
Exemption: : Non-resident alien
: Income received in non-cash - Engaged in
considerations – taxable at fair value of trade/business: less than
property received 1 year but more than
∙ Rendering of Services – an exchange does not exist 180 days
but does not cause loss of capital; entire - Not engaged: not more
consideration received is an item of gross income than 180 days
: with definite
∙ EXEMPTED BY LAW, CONTRACT, OR TREATY : purpose that
Income of qualified employee trust fund : can promptly
Revenues of non-profit non-stock educational accomplished
institutions ▪ Taxable Estates and Trusts
: SSS, GSIS, Pag-Ibig, or PhilHealth benefits : : Estate – properties, rights, and
Minimum wage and salaries and qualified senior obligations of a deceased person not
citizen extinguished by his death
: Regular income of BMBEs - Judicial settlement:
: Income of foreign governments and treated as an individual
FGOCCs : Income of international missions taxpayer
and - Extrajudicial settlement:
organizations – tax immunity; named and has taxable to heirs
ruling : Trust – an arrangement whereby one
person transfer property to another
∙ TYPES OF INCOME TAXPAYER (pg. 70) A. person which will be held by a third party
Individuals (grantor/trustor – beneficiary – trustee or fiduciary)
▪ Citizen - Irrevocable: an
 individual taxpayer
- Revocable: taxable to
grantor
- If silent, presumed
revocable
B. Corporations – includes partnership except
GPP and joint venture engaged in energy
operations under contract with government ▪
Domestic Corporation – organized in
accordance with PH laws (even if
controlled by foreigners)
▪ Foreign Corporation – organized under
foreign law
: Resident Foreign Corporation
(RFC) – operates in PH through
permanent establishment (a branch)
: Non-resident Foreign
Corporation (NRFC) – does not operate
in PH
▪ Special Corporations – domestic/foreign
SJDL INCOME TAXATION (Banggawan,2019): REVIEWER
∙ SITUS OF INCOME – place of taxation of income;
jurisdiction that has the authority to impose tax
upon the income
: Source of Income – activity or property
that produces the income
INCOME SITUS RULES (pg. 78)
TYPES OF INCOME PLACE OF TAXATION
Interest Income Debtor’s residence
Royalties Where intangible is employed
Rent Income Location of property
Service Income Place where service is rendered
OTHER INCOME SITUS RULES (pg. 79)
A. Gain on sale of properties
1. Personal Property
: Domestic securities – presumed within
: Other – earned where property is sold
2. Real Property – earned where property is
located
B. Dividend income from:
1. Domestic Corporation – earned within
2. Foreign Corporation
: Resident FC – pre-dominance test: ratio of
PH gross income over world gross income
- At least 50%, portion of
dividend corresponding PH
gross income – earned
within
- Less than 50%, entire
dividends earned without
: Non-resident FC – earned abroad
C. Merchandising Income – earned where the
property is sold
D. Manufacturing Income – earned where the
goods are manufactured and sold (production
and distribution)
Chapter 4. Income Tax Schemes, Accounting Periods,
Accounting Methods, and Reporting
∙ INCOME TAXATION SCHEMES – mutually exclusive :
Final Income Taxation – final withholding tax
system – withheld at source
- Applicable on certain
passive income
corporations which are subject to special
tax rules or preferential tax rates
▪ Other Corporate Taxpayers
: Partnership
‘GPP – not a taxable entity but
partners are taxable individually
‘Business Partnership – taxable
as a corporation
: Joint Venture – other than exempt
venture which are taxable to venturers’
share in net income
: Co-ownership – not taxable entity but
to income of co-owner unless income of
co-owned property is reinvented into
other income-producing properties
∙ GENERAL RULE: Resident Citizen and Domestic
Corporation are taxable on income earned
within and without the PH, others are within the
PH only
8
PASSIVE INCOME VS. ACTIVE INCOME
: Passive income – earned with minimal or without active
involvement
: Active income – arising from transactions requiring a
considerable degree of effort or undertaking
: Capital Gains Taxation – gain realized on the
sale, exchange and other disposition of certain
capital assets; employs self-assessment method
- Capital asset: not used in
business or trade; other than
ordinary asset
- Capital gains: domestic
stock and real property
- Taxable whichever is higher
between selling price and
fair market value (zonal
value)
: Regular Income Taxation – general rule of
income taxation. Covers all active income and
other income not subject to final tax and capital
gains tax; applies self-assessment method
∙ ACCOUNTING PERIOD – length of time over which
income is measured and reported
TYPES OF ACCOUNTING PERIODS (pg. 102)
1. REGULAR ACCOUNTING PERIOD
: Calendar Year – from Jan 1 to Dec 31
- Available for both
corporate and
individual taxpayers
- Used when taxpayer has
no actual accounting
book; does not keep
books; an individual
: Fiscal Year – any 12-month period that ends
on any day other than Dec 31
- Available only to
corporate income
taxpayers
2. SHORT ACCOUNTING PERIOD – less than 12
months
: Newly commenced business – date of start
until designated year-end
: Dissolution of Business – start of current year
to date of dissolution (return shall be filed
within 30 days for corporate taxpayers)

: Change of accounting period by corporate
taxpayers – start of previous accounting up
to designated year-end of new accounting -
period (BIR approval is required – not
automatic)
: Death of taxpayer – star of calendar year
until death of the taxpayer (accounting
period shall be terminated exactly at the
date of death)
: Termination of the accounting period of the
taxpayer by the commissioner of internal
revenue – start of current year until date of
termination (ITR and tax shall be due and
payable immediately)
∙ DEADLINE OF FILING THE INCOME TAX RETURN :
CALENDAR YEAR – on or before April 15 of the
following year
: FISCAL YEAR – on or before the 15th day of the
fourth month in the same year
∙ ACCOUNTING METHODS – accounting
SJDL INCOME TAXATION (Banggawan,2019): REVIEWER
2. Installment and deferred method (pg. 109) ▪
Installment Method – gross income is
recognized and reported in proportion to the
collection from the installment
sales.
Available to:
- Dealers of:
: Personal Property
: Real Properties, if initial
payment does not
exceed 25% of selling
price (Initial
Payment/Selling Price)
- Casual sale of non
dealers of real/personal
property, when selling
price exceeds P1000
and/or initial payment
does not exceed 25% of
selling price
INITIAL PAYMENT: downpayment +
installment payments in the taxable year
of sale (cash or property)
SELLING PRICE: entire amount which the
buyer is obligated; debtor assumes
indebtedness of the property
CONTRACT PRICE: amount receivable from
buyer; in absence of agreement to assume
indebtedness by the debtor (Selling
Price – Indebtedness)
GROSS INCOME: (Collection/Contract
Price) x Gross Profit
INDEBTEDNESS ASSUME EXCEEDS TAX
BASIS: Indirect payment added to initial
payment
▪ Deferred Payment Method – variant of
accrual basis, used when non-interest
bearing note is received (pg. 113)
- Gross income
techniques used to measure income (pg. 105)
1. General methods
▪ Accrual Basis – income(expense) is
recognized when earned(incurred)
regardless of when received(paid).
▪ Cash Basis – income(expense) is
recognized when received(paid).
TAX VS. ACCOUNTING CONCEPTS
: Advanced income is taxable upon receipt
(services only)
: Prepaid expense is non-deductible
- Deducted against gross
income on date of
expiration
- Contradicts the Lifeblood
Doctrine
: Special tax accounting requirements must
be followed
Hybrid Basis – combination of accrual basis, cash basis
and or other methods of accounting when taxpayer has
several businesses that employs different accounting
methods
9
computed based on
present value while
discount interest on note
is amortized as interest
income
3. Percentage of Completion Method –
estimated gross income from construction is
reported based on the percentage of
completion of the project.
- Output method:
Prescribed by NIRC
4. Outright and Spread-out Method – applied on
income from leasehold improvement :
Outright Method – lessor reports income the
FMV of building or improvements whenever it
is completed
- Perceived as unjust,
abusive and improper
: Spread-out Method – estimated
depreciated value of such
building/improvement at the termination of
lease and report as income per year of the
lease an aliquot part thereof
- cost of improvement x
(excess useful life over
lease term/useful life of
the improvement)
5. Crop Year Basis – farming income =
proceeds of harvest – expenses of the
particular crop harvested (pg. 117)
- Expenses of each crop
are accumulated and
deducted upon harvest
∙ TAX REPORTING
TYPES OF RETURNS TO THE GOVERNMENT
1. Income Tax Returns – provides details of the
taxpayer’s income, expense, tax due, tax
credit and tax still due
2. Withholding Tax Returns – provide reports of
income payments subjected to withholding
tax by the taxpayer-withholding agent
3. Information Returns – do not involve payment
or withholding of tax; essential to
government tax mapping and evaluation
NON-FILING OF ANY OF THE ABOVE IS
 SUBJECT TO PENALTIES, FINES, AND/OR
IMPRISONMENT
- Penalty of P1,000 for
each failure not
exceeding P25,000 for
all failure during a
calendar year (due to
willful neglect)
6. PEZA registered and those located w/n
Special economic zones
7. Government offices – remittance of withheld
VAT and Business Tax
8. Included in Taxpayer Account Management
Program (TAMP)
9. Accredited importers – required to secure
ICC and BCC

∙ MODE OF FILING INCOME TAX RETURNS GROUPINGS OF TAXPAYES UNDER eFPS (see pg.
119)
MANUAL e-BIR eFPS
FORMS ∙ PAYMENT OF INCOME TAXES – general rule: “pay as
you file”; installment payment of income tax is
DATE ENTRY Manual Electronic Electronic allowed on certain conditions
FILLING/SUBMISSIO Manual Electronic Electronic
∙ PENALTIES FOR LATE FILING OR PAYMENT OF TAX :
N
Surcharge
TAX PAYMENT Manual Manual Electronic - 25%, simple neglect -
failure to file on time
- 50%, “willful neglect” –
notice received
: Interest – computed based on actual days
TAXPAYERS MANDATED TO USE THE eFPS (pg.
divided by 365 days (pg. 122 for examples)
118) 1. Notified large taxpayers
- 20%, until Dec 31, 2017
2. Notified top 20,000 private corp.
- 12%, since Jan 1, 2018
3. Notified top 5,000 individual taxpayers 4.
: Compromise Penalty – amount paid in lieu of
Taxpayer who wish to enter contracts with
criminal prosecutions over a tax violation
government
5. Corp. with P10M paid-up capital

10
SJDL INCOME TAXATION (Banggawan,2019): REVIEWER