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Atty. Vic C. Mamalateo
July, 2011 Ateneo Law School
INCOME TAX (TITLE II, NIRC)
± Taxation is the rule; exemption, the exception. ± In case of doubt, tax income or disallow deductions and tax credits.
Taxes are imposed by law (e.g., NIRC), while financial accounting are based on generally accepted accounting standards. In case of conflict between tax rules and accounting rules, the former shall prevail.
] ± There are 2 types of withholding taxes. emoluments. including expanded withholding tax. and (2) creditable withholding tax. WITHHOLDING TAX ± It is not an internal revenue tax but a mode of collecting income tax in advance on income of the recipient of income thru the payor of income.INCOME TAX INCOME TAX ± Tax on all yearly profits arising from property. namely: (1) final withholding tax. or as a tax on a person¶s income. accrued or realized during the taxable year. NIRC enumerates various internal revenue taxes. [NOTE: Sec. ± Income tax is a direct tax on taxable actual or presumed income (gross or net) of a taxpayer received. 21. Trinidad). . profits and the like (Fisher v. trades or offices. professions.
Phil follows the semi-global or semi-schedular income tax system. Phil adopted the most comprehensive system in imposing income tax. since the tax base increases as the tax rate increases. Decisions of U.FEATURES OF INCOME TAX It is a direct tax. It is founded on the ability to pay of taxpayer. . tax authorities have peculiar and persuasive effects for the Phil.S. It is of American origin. It is a progressive tax.
Either the global or schedular system.INCOME TAX SYSTEMS GLOBAL TAX SYSTEM ± ± ± ± ± ± ± ± ± Compensation income not subject to FWT Business and/or professional income Capital gains not subject to FWT Passive investment income not subject to FWT Other income not subject to FWT Compensation income subject to FWT Capital gains subject to FWT Passive investment income subject to FWT Other income subject to FWT SCHEDULAR TAX SYSTEM The Philippines adopted the semi-global or semi-schedular tax system. or both systems. . may apply on income of a taxpayer. You apply the schedular tax system only when the income. gain or profit is subject to FWT.
However. NIRC. he is not allowed to claim any tax credit on income subjected to FWT. There is no Certificate of Tax Withheld issued to income payee. . as subject to FWT. FWT withheld by the payor of income (e. 20% FWT on interest income on bank deposits) represents FULL payment of income tax due on such income of the recipient. and pays the tax to the BIR. although income is reflected in his audited financial statements for the year. Withholding agent (payor of income) files the withholding tax return. No Certificate of Tax Withheld (BIR Form 2307) is attached to the income tax return of recipient of income because he does not claim any tax credit in his tax return.. Income payee (or recipient of income) does not report income subjected to FWT in his income tax return.g. which includes the FWT deducted from the income of payee.FINAL WITHHOLDING TAX Income payment is listed in Sec 57(A).
CRITERIA IN IMPOSING INCOME TAX Citizenship principle ± For Filipino citizens and domestic corporations. Residence principle ± For alien individuals and foreign corporations Source principle ± For alien individuals and foreign corporations . who are entitled to Philippine government protection wherever they are situated.
Capital gains tax on sale or exchange of unlisted shares of stock of a domestic corporation classified as a capital asset. Capital gains tax on sale or exchange of real property located in the Philippines classified as a capital asset. 7. Branch profit remittance tax (BPRT). 10. 1. Final withholding tax on certain passive investment incomes. Normal corporate income tax on corporations (RCIT). Final withholding tax on income payments made to non-residents (individual or corporation). international carriers) 5. foreign currency deposit units. . Minimum corporate income tax on corporations (MCIT). 2. 8..g. 3. Fringe benefit tax (FBT).TYPES OF INCOME TAX Graduated income tax on individuals. Tax on improperly accumulated earnings (IAET). private educational institutions. 9. and 11. Special income tax on certain corporations (e. 4. 6.
whichever is higher times applicable tax rate = Tax due (real property) Gross selling price less cost or adjusted basis = Capital gain times applicable tax rate = Tax due (shares of dom corp) Gross income times applicable rate = Tax due (passive inv income. income paid to nonresident person) .FORMULA GLOBAL SYSTEM Gross sales Less: Cost of sales Gross income Less: Deductions PAE (for ind.) Net taxable income Multiplied by applicable rate (graduated or flat) Income tax due Less: Creditable WT Balance SCHEDULAR SYSTEM Gross selling price or fair market value.
. ± TEST FOR TAX PURPOSES: . permanent worker. except RC and DC. Phil branch of foreign corporation) Non-resident Law of incorporation RULE: All taxpayers are taxed only on income from sources within the Phil. OFW (seamen) ± ALIEN Resident Non-resident ± Engaged in trade or business (more than 180 days in the Phil) ± Not engaged in trade or business (180 days or less stay in Phil) CORPORATION. including partnership ± DOMESTIC (DC) ± Taxable on worldwide income ± FOREIGN Resident (e. including estate and trust ± CITIZEN Resident (RC) ± Taxable on worldwide income Non-resident ± immigrant.KINDS OF TAXPAYERS INDIVIDUAL.g.
± If GPP adopts itemized deductions during the year. ± If taxable partnership derives net income during the year. partnership is taxed like a corporation. partners must use itemized deductions during the same year. . no matter how created or organized RULES: ± If taxable. the entire net income is deemed received by the partners in the year it was earned by the partnership.PARTNERSHIPS EXEMPT General professional partnership (GPP) Joint venture undertaking construction activity or energyrelated activities with operating contract with the government TAXABLE Partnerships.
RESIDENT FOREIGN CORPS TAXABLE: RCIT & BPRT ± Ordinary branch of a foreign corporation in the Phil: 30% x net income from sources within the Phil PEZA.& SBMA-registered branch of foreign corporation is exempt from 15% BPRT ± Regional operating headquarters (ROHQ): 10% x net income from sources within the Phil ± Offshore banking unit (OBU) and foreign currency deposit unit (FCDU) [ING Bank Manila v.5% x GPB ± Foreign contractor or sub-contractor engaged in petroleum operations in the Phil: 8% x gross income from sources within the Phil EXEMPT: Not engaged in trade or business in the Phil ± Representative office ± Regional headquarters (RHQ) . CIR]: 10% x gross interest income on forex loan to residents ± Foreign international carriers by air or water: 2.
The court ruled that a taxable partnership was formed. 102 Phil. Moreover. Collector. When a father and son purchased a lot and building. in order that one could be deemed constituted for purposes of the tax on corporations (Evangelista vs. or in conformity with the usual requirements of the law on partnerships. This qualifying expression clearly indicates that a joint venture need not be undertaken in any of the standard forms. The character of habituality peculiar to business transactions engaged in for the purpose of gain was present. There were series of transactions where petitioners purchased twenty-four lots. 24 SCRA 198). the term ³corporation´ includes organizations that are not necessarily ³partnerships´ in the technical sense of the term as well as partnerships. Commissioner. entrusted the administration of the building to an administrator and divided equally the net income. there is a taxable partnership (Reyes vs. showing that the purpose was not limited to the conservation of the common fund or even the properties acquired by them. .JOINT VENTURE Lease of properties under common management Three sisters borrowed money from their father and bought twenty-four (24) pieces of real property that they leased to various tenants for over fifteen years and derived rentals therefrom. The properties were leased out to tenants for several years. They appointed their brother to manage their properties and to collect and receive rents. 140). no matter how created or organized.
Commissioner. Its requisites are mutual contribution to a common stock. composed of 41 non-life insurance corporations. collection and custody of funds. was treated as a partnership or association subject to tax as a corporation. money. No. and which did not insure or assure any risk in its own name. Jan. and a joint interest in the profits (AFISCO Insurance Corp et al. with the intention of dividing the profits among themselves. . Article 1767 of the Civil Code recognizes the creation of a contract of partnership when ³two or more persons bind themselves to contribute.R. property. 1999). vs. 25. whose role was limited to its principal function of allocating and distributing the risks arising from the original insurance among the signatories to the treaty or the members of the pool on their ability to absorb the risks ceded as well as the performance of incidental functions.JOINT VENTURE Insurance pool or clearing house An insurance pool or clearing house. G. maintenance. or industry to a common fund. such as records. 112675.
In managing the project. A ³Compromise with Dation in Payment´ was executed by the parties. Philex made advances of cash and property. Philex wrote off in the books the remaining outstanding indebtedness of Baguio Gold by charging a portion of the amount to allowances and reserves that were set up in 1981 and a portion to the 1982 operations. The amount allocated to 1982 was deducted from the 1982 gross income as ³loss on settlement of receivables. The mine suffered continuing losses resuling in Philex¶s withdrawal as manager and cessation of mine operations.´ The BIR disallowed the deduction for bad debt and assessed Philex deficiency taxes because the advances are Philex¶s investment in a partnership with Baguio Gold for the exploitation and development of the mine.JOINT VENTURE Agreement to manage and operate mine denominated as µPower of Attorney¶ Philex Mining Corporation entered into an agreement denominated as Power of Attorney with Baguio Gold Mining Corporation to manage and operate the latter¶s mining claim. . where Baguio Gold admitted its liabilities to Philex and agreed to pay the same.
G. Apr. 16. No.R. . the Tax Court correctly observed that it was unlikely for a business corporation to lend hundreds of millions to another corporation with neither security nor collateral or a specific deed evidencing the terms and conditions of such loans. 2008). 148187. and the manner of payment was unclear. it does not appear that Baguio Gold was unconditionally obligated to return the advances made by Philex under the agreement. First.JOINT VENTURE The totality of the circumstances and the stipulations in the parties¶ agreement indubitably lead to the conclusion that a partnership was formed between the parties. The parties also did not provide for a specific maturity date for the advances to become due and demandable. Second. the strongest indication that Philex was a partner is the fact that it would receive 50% of the net profits as ³compensation´ under the agreement (Philex Mining Corporation vs. Commissioner. Third.
SOURCES OF INCOME Interest ± Interest from sources within Phil and interest on bonds and obligations of residents. apply only ratio of Phil-source income to gross income from all sources Services ± Place where services are performed. except in case of international air carrier and shipping lines which are taxed at 2. Revenues from trips originating from the Phil are considered as income from sources within the Philippines. corporate or otherwise Dividend ± From domestic corporation and from foreign corporation.. unless less than 50% of gross income of foreign corporation for 3 years prior to declaration of dividends was derived from sources within the Phil. Rentals and royalties ± Location or use of property or property right in Phil Sale of real property ± Located in the Philippines Sale of personal property ± Located in the Philippines Gain from sale of shares of stocks of a domestic corporation is ALWAYS treated as income from sources within the Philippines. gain from sale of shares of stocks of a foreign corporation) . in which case.5% on their Gross Phil Billings. while revenues from inbound trips are treated as income from sources outside the Philippines. Other intangible property ± Mobilia sequuntur personam (e.g.
Ending inventory Cost of Sales SALE OF SERVICES Gross Revenue Less: Cost of Service consisting of all direct costs and expenses Gross income Times 2% MCIT Gross income Timex 2% MCIT . Inventory + Purchases Total available for sale .GROSS INCOME SALE OF GOODS Gross Sales Less: Cost of Sales: Beg.
there must be income.INCOME INCOME means cash or its equivalent coming to a person within a specified period. . Capital. accrued or realized during the year. and it is not exempt from income tax under the Constitution. labor. income is the flow of fund. or property is the tree. gain or profit. income is the fruit. Capital is the fund. ± Transfer of appreciated property to the employee for services rendered is taxable income. from labor. To be taxable. interest or profit from investment. It covers gain derived from capital. ± Mere increase in the value of property does not constitute taxable income. Return of capital is exempt from income tax. whether as payment for services. treaty or law. gain is received. or from both combined. including gain from sale or conversion of capital assets. It is not yet realized during the year.
sale of asset) Claim of right doctrine ± CIR v.000) Economic benefit test ± Stock option given to the employee Income from whatever source ± All income not expressly exempted from income. instead of $1.g.TEST IN DETERMINING INCOME Realization test ± There must be separation from capital of something of exchangeable value (e. 199 SCRA 824 (bank erroneously paid $1 M. Javier.. irrespective of voluntary or involuntary action of taxpayer in producing income .
NATURE OF INCOME COMPENSATION INCOME ± Existence of employer-employee relationship BUSINESS AND/OR PROFESSIONAL INCOME ± NO employer-employee relationship CAPITAL GAIN ± Real property in the Phil and shares of stock of domestic corporation ± Other sources of capital gain PASSIVE INVESTMENT INCOME ± Interest. gain or profit not covered by the above classes . dividend. and royalty income OTHER INCOME ± Prizes and winnings ± All other income.
COMPENSATION INCOME Compensation income falling within the meaning of ³statutory minimum wage´(SMW) under R.A. his/her entire earnings are not exempt from income tax and withholding tax. 9504. as implemented by Revenue Regulations No. . shall be exempt from income tax and withholding tax. holiday pay. hazard pay and night shift differential pay shall not enjoy the privilege of being a MWE and. therefore. overtime pay. taxable allowances and other taxable income other than the SMW. 10-2008 dated July 8. benefits in excess of the allowable statutory amount of P30. effective July 6. honoraria. and hazard pay earned by Minimum Wage Earner (MWE) shall likewise be covered by the above exemption. provided that an employee who receives/earns additional compensation such as commissions. 2008. night shift differential pay. overtime pay. fringe benefits. 2008.000. Holiday pay.
and (2) when the stockholders agree to give it to them. activity or service that produced the income. Place where services are rendered determine taxation. Baier-Nickel.COMMISSION INCOME Commissions paid for marketing services rendered abroad for a Philippine company is considered foreign-source income. commission income cannot be automatically attributed to petitioner¶s position in the company (Juliane Baier-Nickel vs. 2006). Aug 29. Feb. GR No. . Said documents must show that instructions or orders ripened into concluded or collected sales in Germany (CIR v. designs and fabrics to be used in finished products and sample sales orders relayed to clients abroad are not enough to show services were performed abroad. CIR. The source of the income is the property. The fact that recipient of commission income is President and majority stockholder of the Philippine company does not alter the source of income. 2003) Documents faxed to Philippine company bearing instructions as to sizes. If none of these conditions are present. 156305. GR No. There are only two ways by which the President and other members of the Board can be granted compensation apart from reasonable per diems: (1) when there is a provision in the by-laws fixing their compensation. 17. 153793.
All services for the design. fabrication. hence. GR No.ONSHORE AND OFFSHORE INCOME Construction and installation works were subcontracted and done in the Philippines by a Phil corporation. 2001). hence. engineering and manufacture of materials and equipment under Japanese Yen portion were made and completed in Japan. . income is from sources within the Philippines. exempt from Phil income tax. Service income from turn-key contract on a project in the Phil is divisible (CIR v. 137377. However. Marubeni Corp. some pieces of equipment and supplies for NDC project and ammonia storage tanks and refrigeration units were completely designed and engineered in Japan. Dec 18.
GROSS PHIL BILLINGS
INTERNATIONAL AIR CARRIER
On outbound trip: Flight from Phil to foreign destination, income is treated as from Philippine sources; hence, subject to 2.5% on GPB
± Continuous and uninterrupted flight ± If transhipment of passenger in another country on another foreign airline takes place: GPB tax applies only on aliquot portion of revenue on Philippine leg (Phil to foreign country)
On inbound trip: Flight from foreign country to the Phil, income is treated as from foreign sources; hence, exempt from Phil income tax
INTERNATIONAL SHIPPING LINE
From Phil to final foreign destination: entire income is taxable, even if transhipment of cargoes took place in another country From foreign country to Phil: exempt
3 TYPES OF CAPITAL GAINS
± Capital gain from sale of real property located in the Phil ± Capital gain from sale of shares of stocks of a domestic corporation ± Other types of capital gains
Sale of real property located in the Phil
± Seller is not engaged in real estate business
The law presumes that the seller realizes a profit from sale of capital asset; hence, despite the loss from sale, seller has to pay the 6% CGT.
SALE OF REAL PROPERTY
The tax base is gross selling price or fair market value, whichever is higher Apply the 6% capital gains tax, if the seller is a resident citizen, an alien individual (resident or non-resident), or a domestic corporation. If the seller is a foreign corporation (resident or non-resident), the asset in the Phil is a capital asset, but the gain from sale is subject to the global tax system of taxation. If the real property is located abroad, the gain from sale is exempt from Phil income tax, unless the seller is a resident citizen or a domestic corporation. If the seller is a resident citizen and capital asset is the principal residence of the seller, the sale may be exempt from the 6% CGT, provided that the conditions provided for in the law are complied with by the seller.
The withholding tax is creditable against the income tax of the seller. ± The transaction is subject to the expanded withholding tax.SALE OF REAL PROPERTY Seller is a person engaged in real estate business ± Real property is an ordinary asset. hence. such tax to be withheld by the buyer of the property and remitted to BIR. . any gain (selling price less cost or adjusted basis) from sale is taxed under the global tax system. ± The 6% capital gains tax on the transaction is not applicable thereon.
NIRC (stock transaction tax). selling price less cost or adjusted basis equals gain. . by express provision of law. ± Shares are ordinary assets of seller. gain from sale is subject to global tax system of income taxation. He is a seller of services and his income is commission. He sells property and looks at profits from sale of shares or securities.SALE OF SHARES OF DOMESTIC CORPORATION Seller is a dealer in securities ± Dealer in securities is a person regularly engaged in the buy and sale of securities for his own account. A stockbroker is a middleman between the seller and buyer of stocks or securities. ± Transaction involving listed shares traded in local stock exchange is not covered by Sec 127(A).
apply ½ of 1% stock transaction tax on gross selling price or gross value in money. Sale is exempt from income tax.SHARES OF DOMESTIC CORPORATION Seller is an investor who is not a dealer in securities ± If shares are listed and traded in a local stock exchange.000 net capital gain. and 10% on any amount in excess of P100. or the shares are unlisted. the net capital gain (selling price less cost or adjusted basis). is subject to the capital gains tax computed as follows: 5% on first P100.000 . ± If shares are listed but not traded in a local stock exchange (or over-the-counter). if any.
SHARES OF DOMESTIC CORPORATION ± CGT return is filed within 30 days from date of sale. ± Net capital gain = Total capital gains from sales of shares of domestic corporation during the year less total capital losses during the same year. . ± All transactions during the year are consolidated and the annual return shall be filed not later than April 15 of the following year. Every sale must be covered by a separate CGT return and the tax paid upon filing of the return.000 is subject to 5% and the balance of net capital gain for the year is subject to 10%. but only one P100.
. the entire gain or loss is taxable or deductible.OTHER CAPITAL ASSETS INDIVIDUAL ± If capital asset is long-term (holding period is over 12 months). using the global tax system. ± If gain is short-term. CORPORATION ± Regardless of holding period. 100% of gain is subject to income tax under the global tax system. only 50% of gain is subject to income tax.
1. trust and other similar arrangements 20% FWT ± peso deposit with bank 7. 5%: 4 yrs-less than 5 yrs). deposit substitutes.less than 3 yrs.5% FWT ± foreign currency deposit with OBU/FCDU ± NOT subject to FWT but subject to global tax system: All other interest income or financing income not covered above ± Exempt income: Long-term deposit or investment (5 years or more) by individuals in the form of trust funds. deposit substitutes. 12%: 3 yrs-less than 4 yrs. and interest on foreign loan (20%) Regular tax rate ± All other cases . IMA and other investments prescribed by BSP ± Taxable income: Preferential tax rate ± Pre-termination of long-term deposit by individual : 20%.INTEREST INCOME TYPES OF INTEREST INCOME ± Subject to FWT: Interest income on bank deposits.
The withholding agent-borrower may also be assessed deficiency withholding tax as penalty for failure to withhold (RCBC v.TAX ON OBU/FCDU Final tax on interest income from loans to resident borrower is a direct liability of FCDU Failure of local borrower to withhold and remit the final withholding tax does not exempt OBU/FCDU on onshore interest income (ING Bank v CIR. . CTA Case 2004). CIR. 2005).
or there is subsequent cancellation or redemption of shares declared as stock dividend.DIVIDEND INCOME REQUISITES FOR DIVIDEND DECLARATION ± Presence of positive retained earnings ± No prohibition to declare dividend in loan agreement ± Declaration of dividend by Board of Directors TYPES OF DIVIDENDS ± Taxable Cash dividend Property dividend ± Exempt Stock dividend (except when there is change in proportionate interest among stockholders. which is essentially equivalent to cash dividend) NOTE: Liquidating dividend represents distribution of corporate assets to stockholders. . Gain from surrender of shares are treated as ordinary income.
DIVIDEND INCOME Intra-corporate dividend: Exempt from tax ± Corporation paying dividend: Domestic corporation ± Recipient of dividend: Another domestic corporation or resident foreign corporation Dividend paid to non-resident foreign corporation ± Corporation paying dividend: Domestic corporation ± Recipient of dividend Foreign head office makes direct investment in Phil company: 15% FWT on gross dividend income Phil branch of foreign corporation makes investment in Phil company: Exempt from income tax ± Tax-sparing provision If country of residence of the foreign corporation does not impose income tax on dividend paid by a domestic corporation. impose 15% FWT only .
the receipt of cash dividend from the issuing company by the Borrower or Buyer shall be subject to the provisions of existing laws (e. the Lender retains certain rights accruing to the shares of stock/securities lent. stock dividends or interest which the Borrower is obliged to manufacture or reimburse to the Lender during the borrowing period. The Lender may likewise retain voting rights over the loaned shares of stock/securities while in the possession of the Borrower. On the other hand. However. Receipt of the ³Manufactured Dividends or Benefits´ shall not be a taxable income of the Lender since it just represents dividends/other benefits that the lender would have received had the share not been loaned pursuant to SBL agreement. . if mutually agreed upon by the parties. stock dividends or interest which the Borrower is required to manufacture or reimburse to the Lender are otherwise referred to as "Manufactured Dividends or Benefits". such as the right to receive cash.DIVIDEND INCOME While there is transfer of the shares of stock/securities to the Borrower pursuant to the Securities Borrowing and Lending (SBL) Agreement.. final withholding tax of 10% on gross dividend paid to a citizen). the payment of such amount by the Borrower shall not be a tax deductible expense. These cash.g.
irrespective of the voluntary or involuntary action of the taxpayer in producing the gains (Gutierrez vs. supra. CTA Case 65. Commissioner vs.S. Collector.OTHER INCOME Income from any source whatever The words ³income from any source whatever´ discloses a legislative policy to include all income not expressly exempted from the class of taxable income under our laws (Madrigal vs. These words disclose a legislative policy to include all income not expressly exempted within the class of taxable income under our laws. The words ³income from any source whatever´ is broad enough to cover gains contemplated here. 324 U. Smith. the difference between the fair market value of the shares at the time the option is exercised and the option price constitutes additional compensation income to the employee (Commissioner vs. . 177). in stock options. Rafferty. 1955). 31. Aug. Thus. BOAC). Any economic benefit to the employee whatever may have been the mode by which it is effected is taxable.
A. pensions.A. 207 SCRA 487) ± Amount received as a consequence of separation because of death. bequests and devises Compensation for injuries or sickness Income exempt under treaty Retirement benefits. 4917 (10 yrs & 50 yrs) Interest income of employee trust fund or accredited retirement plan is exempt from FWT (CIR v. 7641 (5 yrs & 60 yrs) and R. GCL Retirement Plan.EXCLUSIONS Life insurance proceeds Amount received by insured as return of premium Gifts. sickness or other physical disability or for any cause beyond the control of employee Miscellaneous items ± Income of foreign government ± Income of government or its political subdivisions from any public utility or exercise of governmental function . gratuities ± R.
INCOME OF RETIREMENT FUND COA alleged that DBP is actual owner of the trust fund and its income because: ± DBP made the contribution to the Fund ± Trustees of the Fund are merely administrators ± DBP employees only have an inchoate right to the Fund DBP responded that the Trustees received and collected income and profit from the Fund and they maintained separate books for that purpose. COA. . That the DBP Board of Directors confirms the approval of the SLP by the Fund¶s trustees does not make the fund property of DBP (DBP v. It is not always necessary that the beneficiaries should be named or even be in existence at the time the trust is created in his favor. even if trust is subsequently modified or terminated. 2004). The principal and income will not revert to DBP. The Salary Loan Program did not terminate the trust to the Fund¶s trustee. provided they are sufficiently certain or identifiable. SC ruled that the beneficiaries of the Fund are the DBP officials and employees who will retire.
literary achievement. artistic. charitable. etc. (He did not enter contest and is not required to render substantial future services) Granted to athletes in local and international sports competitions.EXCLUSIONS Miscellaneous items ± Prizes and awards In recognition of religious. sanctioned by their national sports associations ± 13th month pay and other benefits (up to P30.000) ± Gains from sale of long-term (5 years and 1 day) bonds. debentures and other certificates of indebtedness ± Gains from redemption of shares in mutual fund .
Section 32(A) of the Tax Code defines ³gross income´ and it is clear that there is a distinction between ³gains derived from dealings in property´ and ³interests´.GAIN v. Whereas the term ³gains´ includes ³interest´ in its general sense. Only citizens. domestic and resident foreign corporations are subject to a 20% final tax on such interest. ³Gains realized from the sale or exchange or retirement of bonds. After all. debentures and other certificates of indebtedness. it would have done so in clear and specific terms (Nippon Life Insurance Company vs. 2002). On the other hand. debentures and other certificate of indebtedness. Feb 4. 6142. On the other hand. resident aliens and non-resident aliens engaged in trade or business are exempt from income tax on interest from long-term deposit or investment. debentures and other certificate of indebtedness´ would fall under the category of ³gains derived from dealings in property´. Commissioner. . debentures and other certificates of indebtedness under Section 32(B)(7)(g) of the Tax Code. exemptions are construed strictly against the taxpayer and liberally in favor of the government. CTA Case No. INTEREST Gains cannot include interest. this rule cannot be applied to Section 32(B)(7)(g) of the Tax Code in the specific sense. ³interests´ would include interest from bonds. since it clearly refers to gains from the sale of bonds. If Congress intended to exempt interest from bonds.
Rice subsidy of P1. e. OR MANAGERIAL OR SUPERVISORY) a. Laundry allowance not exceeding P300.00 per month. Monetized unused vacation leave credits of private employees not exceeding ten (10) days during the year and the monetized value of leave credits paid to government officials and employees. d. Medical cash allowance to dependents of employees not exceeding P750. REGARDLESS OF RECIPIENT (RANK AND FILE.500.00 per annum.00 or one (1) sack of 50-kg rice per month amounting to not more than P1. Uniforms and clothing allowance not exceeding P4.00 per employee per semester or P125 per month.500.000. Actual yearly medical benefits not exceeding P10.00 per annum. c.000.DE MINIMIS BENEFITS EXEMPT DE MINIMIS BENEFITS. b.00. f. .
DE MINIMIS BENEFITS
g. Employees achievement awards (e.g., for length of service or safety achievement, which must be in the form of a tangible personal property other than cash or gift certificate, with an annual monetary value not exceeding P10,000.00 received by the employee under an established written plan which does not discriminate in favor of highly paid employees; h. Gifts given during Christmas and major anniversary celebrations not exceeding P5,000.00 per employee per annum; i. Flowers, fruits, books, or similar items given to employees under special circumstances (e.g., on account of illness, marriage, birth of a baby, etc.); and j. Daily meal allowance for overtime work not exceeding twenty-five percent (25%) of the basic minimum wage. The amount of ³de minimis´ benefits conforming to the ceiling herein prescribed shall not be considered in determining the P30,000.00 ceiling of ³other benefits´ provided under Sec. 32(b)(7)(e) of the Tax Code. However, if the employer pays more than the ceiling prescribed by these regulations, the excess shall be taxable to the employee receiving the benefits only if such excess is beyond the P30,000.00 ceiling. Any amount given by the employer as benefits to its employees, whether classified as de minimis benefits or fringe benefits, shall constitute as deductible expense upon such employer.
for profit´ does not qualify the word ³properties.´ This makes income from the property of the organization taxable, regardless of how that income is used ± whether for profit or for lofty non-profit purposes. Thus, the income derived from rentals of real property owned by the Young Men¶s Christian Association of the Philippines, Inc. (YMCA), established as a welfare, education and charitable non-profit corporation, is subject to income tax. The rental income cannot be exempted on the solitary but unconvincing ground that said income is not collected for profit but is merely incidental to its operation. The law does not make a distinction. Where the law does not distinguish, neither should we distinguish. Because taxes are the lifeblood of the nation, the Court has always applied the doctrine of strict interpretation in construing tax exemptions. YMCA is exempt from the payment of property taxes only but not income taxes because it is not an educational institution devoting its income solely for educational purposes. The term ³educational institution´ has acquired a well-known technical meaning. Under the Education Act of 1982, such term refers to schools. The school system is synonymous with formal education which ³refers to the hierarchically structured and chronologically graded learnings organized and provided by the formal school system and for which certification is required in order for the learner to progress through the grades or move to higher levels (Commissioner vs. Court of Appeals and YMCA of the Phils., G.R. No. 124043, Oct. 14, 1998).
The phrase ³any of their activities conducted for profit´ does not qualify the word ³properties.´-- The phrase ³any of their activities conducted
KINDS OF DEDUCTIONS
± Itemized Deductions ± Optional Standard Deductions ± Special Deductions
± ± ± ± ± ± ± ± ± ± Business expenses, incl. research and development Interests Taxes Losses Bad debts Depreciation Depletion Charitable contributions Contributions to pension trust Health or hospitalization premium
. The expense must be ordinary and necessary. such as bribery and protection payments. 5. In carrying on or which are directly attributable to the development. but expenses of an inherently illegal nature. management. 3. public policy or morals. Operating expenses of an illegal or questionable business are deductible. business or exercise of profession. The tax required to be withheld on the amount paid or payable is shown to have been paid to the BIR. Paid or incurred during the taxable year. operation and/or conduct of the trade. Supported by adequate invoices or receipts. are not. 2. 4. 6.DEDUCTIONS BUSINESS EXPENSES 1. Not contrary to law.
General Foods Phi.DEDUCTIONS An expense is ³ordinary´ when it connotes a payment. Therefore.. . 2003). 143672.´ ³Goodwill´ generally denotes the benefit arising from connection and reputation. expenses related thereto are not business expenses but capital expenditures (CIR vs.4 M paid in 1985 for advertising a product was staggering incurred to ³create or maintain some form of goodwill for the taxpayer¶s trade or business or for the industry or profession of which the taxpayer is a member. Apr. 24. P9. and efforts to establish reputation are akin to acquisition of capital assets. GR No. which is normal in relation to the business of the taxpayer and the surrounding circumstances. An expense is ³necessary´ where the expenditure is appropriate or helpful in the development of taxpayer¶s business or that the same is proper for the purpose of realizing a profit or minimizing a loss.
However. one of them being the amount and quality of the services performed with relation to the business. Other tests suggested are payment must be made in good faith. .´ are gratitude and are not deductible. Oct 29.. the size of the particular business.M.DEDUCTIONS TEST OF REASONABLENESS OF BONUS There is no fixed test for determining the reasonableness of a given bonus as compensation. the employee¶s qualifications and contributions to the business venture. Pacific Banking Corp. the volume and amount of its net earnings. Ordinarily. L-24059. Commissioner. 1970). vs. Hoskins & Co. 28. its locality. the type and extent of the services rendered. 1969. Commissioner. the character of the taxpayer¶s business. the salary policy of the corporation. and general economic conditions. vs. This depends upon many factors. Bonuses that are ³out-and-out gifts. Nov. no single factor is decisive (C. Inc. in determining whether the particular salary or compensation payment is reasonable. the situation must be considered as a whole. CTA Case 1667.
DEDUCTIONS Legal and accountant¶s fees for prior years were not billed in corresponding years (1984-1985). G. It was paid by taxpayer in succeeding year (1986) when it was billed by the lawyer and accountant. 172231. This test requires (1) fixing a right to income or liability to pay. . No. however. 2007). Isabela Cultural Corporation. deduction takes the nature of tax exemption. demand that the amount of income or liability be known absolutely.R. Moreover. it only requires that a taxpayer has at its disposal the information necessary to compute the amount with reasonable accuracy. 12. it must be construed strictly against the taxpayer (Commissioner vs. and (2) the availability of reasonably accurate determination of such income or liability. Accrual of income and expense is permitted when the ³all events test´ has been met. It does not. Feb. which implies something less than an exact or completely accurate amount. Taxpayers uses accrual method of accounting.
Realty taxes paid by lessee for business property is part of rental expenses.DEDUCTIONS Entertainment. they will be treated as fringe benefits subject to FBT on the part of the employer. amusement and recreation expenses are subject to limitation ± ½% of net sales for sellers of goods ± 1% of net sales for sellers of services Club dues for membership in social or athletic clubs to promote business of corporation paid by the corporation are deductible from gross income. However. Rental expenses include leasehold acquired for business purposes and cost of improvements introduced by lessee to be allocated over the term of the lease. . FBT paid by employer is deductible as business expense of the corporation.
apply CWT on compensation income upon the director¶s fees. Commission Income ± If there is no employer-employee relationship between broker and payor of income. ± If director is also an officer of the corporation.DEDUCTIONS Director¶s Fees ± If not officer or employee of corporation. ± If there is employer-employee relationship. commission income is treated as part of CWT on compensation income. . report it as other income subject to 10% EWT. treat it as business income subject to 10/15% EWT. together with salaries.
The interest is not expressly disallowed by law to be deducted from the taxpayer¶s gross income (e. The indebtedness (unconditional obligation to pay) must be that of the taxpayer. The amount of interest deducted from gross income does not exceed the limit set forth in the law. 2009. 9337. the percentage shall be thirty-three percent (33%) [Sec.g. 5. The interest must be legally due and stipulated in writing. In other words. 7. in relation to Section 36(B). interest on indebtedness to finance petroleum operations). 2005 under R.DEDUCTIONS INTEREST EXPENSE There must be a valid and existing indebtedness. 4. 1. The interest payment arrangement must not be between related taxpayers as mandated in Section 34(B)(2)(b). and 8. 3. 34(B)(1). The indebtedness must be connected with the taxpayer's trade.A. business or exercise of profession. NIRC]. . 2.. of the Tax Code. and that effective January 1. 6. the taxpayer¶s otherwise allowable deduction for interest expense shall be reduced by forty-two percent (42%) of the interest income subjected to final tax beginning November 1. The interest expense must be paid or incurred during the taxable year.
taxpayer cannot claim interest expense both as deduction and part of cost of asset. or may be treated as capital expenditure subject to amortization.DEDUCTIONS Deficiency or delinquency interest ± Deficiency or delinquency interest on unpaid taxes is not deductible as tax. business or exercise of profession may be deducted in full in the year incurred. However. Interest expense on capital expenditures ± At the option of the taxpayer. . interest expense on capital expenditure incurred to acquire property used in trade. but taxpayer is allowed to deduct the same as interest.
DEDUCTIONS TAXES 1. Payments must be for taxes. and 4. Taxes are imposed by law upon the taxpayer. business or profession. . 3. Taxes must be paid or accrued during the taxable year in connection with the taxpayer¶s trade. 2. Taxes are not specifically excluded by law from being deducted from the taxpayer¶s gross income.
. Fines and penalties for violations of law are not deductible as taxes. surcharge or penalties. 80.DEDUCTIONS The word ³taxes´ means taxes proper and no deduction should be allowed for amounts representing interest. Interest on taxes is not deductible as taxes. except: (1) Taxes upon an individual upon his interest as shareholder of corporation which are paid by corporation without reimbursement. and (2) Corporate bonds or other obligations containing a tax-free covenant clause. the corporation paying the tax or any part of it for someone else (Sec. but as an item of interest. RR 2). Only the person upon whom taxes are imposed may claim them as deduction.
g. subject to limitation (e. other percentage tax. etc. excise tax. Federal income tax of M Pacquiao). Foreign income tax ± 3. . 36. documentary stamp tax. business or exercise of profession is deductible. ± 6.DEDUCTIONS DEDUCTIBLE TAXES ± All taxes. Philippine income tax ± 2.. real property tax. Electric energy consumption tax under B. Special assessments on real property ± 5.P. paid or accrued during the year in connection with trade. Examples: professional tax. NON-DEDUCTIBLE TAXES ± 1. national and local. Estate and donor¶s taxes ± 4. VAT Foreign income tax paid may be credited against the Phil income tax due.
10-79) 1. No. The loss must be that of the taxpayer. Regs. 6.DEDUCTIONS LOSSES (Rev. The loss is actually sustained and charged off within the taxable year. the loss must be connected with his trade. or incurred in any transaction entered into for profit though not connected with his trade. Regs. 3. 5. 2. 4. and 7. 12-77 and Rev. business or profession. The loss is not claimed as a deduction for estate tax purposes. The loss is evidenced by a closed and completed transaction (fixed by identifiable events or when insurance recovery was definitely established). In the case of casualty loss. . it has been reported to the BIR within forty-five days from date of occurrence of the loss. business or profession. In the case of an individual. No. The loss is not compensated for by insurance or otherwise.
DEDUCTIONS Bad Debt Theory ± Loss from theft or embezzlement occurring in the year and discovered in another year is deductible in the year in which sustained. ± The rule is now modified by the ³bad debt theory. . a loss was sustained in the year of discovery. provided that no substantial change in the ownership of the business or enterprise (not less than 75%) takes place. NOLCO ± Net operating loss of one year may be carried over and deducted from gross income for the next succeeding 3 years. where the taxpayer had no means of determining the actual date of embezzlement.´ which holds that since embezzlement creates a debtor-creditor relationship. However. a loss is deductible as bad debt in the year the right of recovery becomes worthless.
The same must be actually charged off the books of accounts of the taxpayer as of the end of the taxable year. 2. The same must be actually ascertained to be worthless and uncollectible as of the end of the taxable year. . The same must be connected with the taxpayer's trade.DEDUCTIONS BAD DEBTS 1. business or practice of profession. There must be an existing indebtedness due to the taxpayer which must be valid and legally demandable. 3. The same must not be sustained in a transaction entered into between related parties enumerated under Sec. 36(B) of the Tax Code of 1997. 4. and 5.
the BSP thru the Monetary Board shall ascertain the worthlessness and uncollectibility of the bad debts and approve in writing the writing off of bad debts from the books. unless such company has been declared closed due to insolvency or for any similar reason by the Insurance Commission. In no case shall a receivable from an insurance or surety company be written off from taxpayer¶s books and claimed as bad debt deduction. .DEDUCTIONS In the case of banks. without prejudice to the CIR¶s determi-nation of the worthless and uncollectibility of debts.
DEDUCTIONS TAX BENEFIT RULE ± The taxpayer is obliged to declare as taxable income any subsequent recovery of bad debts in the year they were collected to the extent of the tax benefit enjoyed by the taxpayer when the bad debts were written off and claimed as deduction from gross income. ± It also applies to taxes previously deducted from gross income but which were subsequently refunded or credited by the BIR. He has to report income to the extent of the tax benefit derived in the year of deduction. .
or out of its not being used temporarily during the year. recovery of investment for tax purposes shall be limited to historical cost. 3.DEDUCTIONS DEPRECIATION 1. It must be charged off during the taxable year from the taxpayer¶s books of accounts. 2. . It must be for property arising out of its use in the trade or business. Depreciation shall be computed on the basis of historical cost or adjusted basis. While financial accounting allows computation based on appraised value. The allowance for depreciation must be reasonable. 4. Depreciation for the year = Cost less salvage value divided by the estimated useful life (number of years) of the asset Book value of the asset = Cost or adjusted basis less accumulated depreciation.
It must be made within the taxable year. The amount of charitable contribution of property other than money shall be based on the acquisition cost of said property (Sec. The charitable contribution must actually be paid or made to the Philippine government or any political subdivision thereof exclusively for public purposes. 34(H). and 5. It must not exceed 10% (individual) or 5% (corporation) of the taxpayer¶s taxable income before charitable contributions (whether deductible in full or subject to limitation).DEDUCTIONS CHARITABLE CONTRIBUTIONS 1. 2. NIRC). 3. 4. . or any of the accredited domestic corporation or association specified in the Tax Code. It must be evidenced by adequate receipts or records. The limitation is imposed to prevent abuse of donating paintings and other valuable properties and claiming excessive deductions therefrom.
unless taxpayer signifies in his/its return his/its intention to elect this deduction. non-resident aliens and non-resident foreign corporations are not entitled to claim the optional standard deduction. Standard deduction is optional. i. thus.. Optional Standard Deduction Privilege is available only to citizens or resident aliens as well corporations subject to the regular corporate income tax. he/it is considered as having availed of the itemized deductions. Such election when made by the qualified taxpayer is irrevocable for the year in which made.e.DEDUCTIONS D. he can change to itemized deductions in succeeding year(s). however. .
If the individual is on the accrual basis of accounting for his income and deductions. OSD shall be based on his gross receipts during the year.DEDUCTIONS Amount of standard deduction is limited to 40% of taxpayer¶s gross sales or receipts (in the case of an individual) or gross income (in the case of a corporation). . The net income determined by either the itemized deduction or OSD from the GPP¶s gross income is the distributable net income from which the share of each share is to be ascertained. hence. It should be noted that cost of sales or cost of services shall not be allowed to be deducted from gross sales or receipts. he is not also required to keep books of accounts and records with respect to his deductions during the year. Proof of actual expenses is not required. the OSD allowed to corporations in claiming the deductions in an amount not exceeding 40% of its gross income. A general professional partnership (GPP) may claim either the itemized deductions or in lieu thereof. If he employs the cash basis of accounting. OSD shall be based on the gross sales during the year.
Personal. or 4. individual or corporate. or betterments made to increase the value of any property or estate. which are deductible under Subsection (G)(1) of Section 34 of this Code.DEDUCTIONS NON-DEDUCTIBLE ITEMS 1. when the taxpayer is directly or indirectly a beneficiary under such policy 5. or of any person financially interested in any trade or business carried on by the taxpayer. 3. Losses from sales or exchanges of property between related parties . living or family expenses. 2. This Subsection shall not apply to intangible drilling and development costs incurred in petroleum operations. Premiums paid on any life insurance policy covering the life of any officer or employee. Any amount expended in restoring property or in making good the exhaustion thereof for which an allowance is or has been made. Any amount paid out for new buildings or for permanent improvements.
not to exceed 4 ± P25. whether single.000 For each child. HOF.PERSONAL EXEMPTIONS RA 8424: Jan 1.000 Married ± P32. for corporations. for individuals. 1998 Single and estate or trust ± P20. and of gross income. 2009 Individual.000 RA 9504: July 6.000 For each child. not to exceed 4 ± P8. .000 Law exempts income of minimum wage earners and increases OSD from 10% to 40% of gross sales or receipts.000 Head of family ± P25. or married ± P50.
if one of his qualified dependent children dies during the year. if he marries at the end of the year.000 for the deceased child for the year. he shall be entitled to personal exemption of P32. he is entitled to claim the full amount of additional exemption of P8. the taxpayer is entitled to claim his child as a dependent entitling him to deduct additional exemption of P8. . him. If a child is born at any time during the calendar year. hence.000/P50. Thus. On the other hand.000/P25.PERSONAL EXEMPTIONS Status-at-the-end-of-the-year rule ³Status-at-the-end-of-the-year rule´ which means that whatever is the status of the taxpayer at the end of the calendar year shall be used for purposes of determining his personal and additional exemptions generally applies. the law considers that the child died on the last day of the year. even on the last day of the year. but does not prejudice.000. A change of status of the taxpayer during the taxable year generally benefits.000/P25.000 for that year.
OBU/FCDU. ROHQ. and petroleum contractors times 15% Grossed-up monetary value of fringe benefits times taxable rate times 32% = FBT FRINGE BENEFITS .TAX BASES AND RATES COMPENSATION INCOME Gross compensation income less PAE times graduated rates Gross compensation income of employees of RHQ.
Apply graduated rates of 5% to 32% Pay IT on two equal installments. Gross sales Less: Cost of sales or services Gross income Multiplied by: 2% MCIT Gross income Less: Deductions Net income Multiplied by: 35% RCIT Less: CWT Balance . provided amount is more than P2.TAX BASES AND RATES BUSINESS AND/OR PROFESSIONAL INCOME ± Corporations (see formula opposite here) ± Individuals: There is no MCIT.000. Deduct applicable PAE.
whichever is higher times 6% = CGT. REAL PROPERTY IN THE PHILIPPINES Consideration or FMV. SHARES OF STOCKS OF DOMESTIC CORPORATION Listed and traded in local stock exchange: GSP times ½ of 1% = Stock transaction tax Listed but traded over the counter or unlisted shares: Gross selling price less cost or adjusted basis = Capital gain or loss times 5%/10% = CGT Include in global tax system. C.TAX BASES AND RATES CAPITAL ASSETS A. but longterm capital gain or loss shall be taxable or deductible only at 50% thereof. OTHER CAPITAL ASSETS . Sale of principal residence is exempt from CGT. provided conditions are satisfied B.
DC & RFC 35%. Dividend . Interest 20% FWT (peso deposit) and deposit substitute 7. unless tax sparing provision applies -.TAX BASES AND RATES PASSIVE INCOME A.NRFC B.5% FWT (foreign exchange deposit) Long-term deposits (5 years of more) of individuals: exempt Others: Global system 10% FWT ± Citizen 20% FWT ± Resident alien engaged in trade 25% FWT ± NRANE 0% -.
25% x gross income: NR owner or lessor of vessels ± 7. DC & RFC) 25% FWT ± NRANE 35% FWT ± NRFC NRFC ± 25% x gross income: NR cinema film owner.5% x gross income: NR lessor of aircraft. literary works and musical compositions (citizen) 20% FWT ± general rate (NRAE. Rental income . lessor or distributor ± 4.TAX BASES AND RATES C. machineries and other equipment D. Royalty 10% FWT ± books.
11. Branch profit remittance tax (BPRT) applies not only when the profit is actually remitted but also when such profit is constructively remitted to the head office abroad (ING Bank. Mar. is considered as profit constructively remitted abroad. Tax base of BPRT is the amount of profit earmarked for remittance to its head office abroad. 2002) BPRT does not apply on profits remitted by an enterprise registered with PEZA or SBMA and other freeport zones. 6017. branch used as additional capital investment of the foreign head office in the Philippine branch. CTA Case No. .BRANCH PROFIT REMITTANCE TAX Branch profit of the Phil. pursuant to the requirements of the Bangko Sentral ng Pilipinas. CIR. Manila Branch vs.
other than the above assets CAPITAL ASSET (Sec 38A) . subject to depreciation Real property used in trade or business All other assets. whether or not used in trade or business.NATURE OF ASSET ORDINARY ASSET Inventory if on hand at end of taxable year Stock in trade held primarily for sale or for lease in the course of trade or business Asset used in trade or business.
capital asset . ordinary asset ± Otherwise.ORDINARY v. CAPITAL ASSETS Who is seller of asset? ± Person is habitually engaged in real estate business Presumption or proof when habitually engaged in real estate business 6-transaction rule ± Person is not habitually engaged in real estate business Nature of asset sold? ± If it forms part of stock primarily for sale or it is being used in trade or business.
whichever is higher. Basis is FMV or GSP. provided other conditions are present. CAPITAL ASSETS Type of capital asset sold? ± If CA is used as principal residence of seller who is a citizen or alien who resident or non-resident but engaged in trade in the Phil. Seller pays the 6% CGT. . and gain or loss from sale ± CA located in the Phil ± 6% CGT. ± Otherwise. but buyer does not withhold the FWT. ± In OA.ORDINARY v. tax base is net income and rate of tax depends on whether seller is individual or corporation. CA located abroad ± Global tax system. tax rate. Tax base. sale is taxable. it is subject to EWT provisions. sale is exempt from 6% CGT.
within 45/60 days from close of quarter . because tax base is net income. Donor¶s tax on sale for insufficient consideration ± If CA. because tax base is GSP/FMV. CAPITAL ASSETS Cost or adjusted basis upon subsequent sale ± This is not material.ORDINARY v. within 30 days from date of sale ± If OA. ± This is important. there is donor¶s tax due per Sec 100. whichever is higher. no donor¶s tax due. if asset sold is ordinary asset. ± If OA. NIRC. if asset sold is capital asset. Filing of tax return ± If CA.
EXCHANGE OF PROPERTY GENERAL RULE ± The entire gain or loss shall be recognized. EXCEPTIONS: ± No gain or loss shall be recognized at the time of the transaction on tax-free exchanges of property under Sec 40©(2). as a result of which. NIRC: ± a. Merger or consolidation ± b. he together with four others gains control of the corporation . Exchange of property for shares of stocks.
5046. 1997). CTA Case No. Installment sales ± Sale on the installment plan Initial payments do not exceed 25% of GSP ± Deferred payment sale.ACCOUNTING METHODS Cash method Accrual method ± All events test. not on the installment plan Initial payments exceed 25% of GSP Percentage of completion Crop year method . Mar 24. CIR. amounts received in advance are not treated as revenue of the period in which received but as revenue of future periods in which earned (Manila Mandarin Hotels vs.
. © correct WT was not deducted from compensation income.FILING OF TAX RETURN SUBSTITUTED FILING OF ITR: No individual income tax return for the year will be filed by the employee concerned. (b) mixed incomes. etc. such as when the individual has (a) two or more employers. and the employer is the one that files the return for him ± Applies only to individuals ± With only one (1) employer ± Who correctly withholds the income tax on compensation income paid to the employee and remits the same to the BIR Substituted filing of return does not apply when the conditions above are not met.
or other income must file his quarterly income tax returns (BIR Form 1700 Q) and annual income tax return (BIR Form 1700 ) as follows: Period Q1 Return Q2 Return Q3 Return Annual Return Due Date for Filing Return April 15 of same year August 15 of same year November 15 of same year April 15 of the following year . or purely business/ professional income.FILING OF TAX RETURN Individual deriving mixed income.
FILING OF TAX RETURN A domestic corporation and resident foreign corporation shall file quarterly corporate income tax return (BIR Form 1702 Q) and annual corporate income tax return (BIR Form 1702 as follows: Q1 Return Q2 Return Q3 Return Annual Return May 31 of same year August 31 of same year November 30 of same year April 15 of the following year (if on calendar year). and the income taxes paid for the preceding quarter(s) are credited against the consolidated income tax due.e. or 15th day of the fourth month following the close of the fiscal year (if on fiscal year). i. Computation of the quarterly and annual tax returns of individuals (except those receiving purely compensation income) and corporations shall be made on the cumulative basis. gross income and deductions are consolidated and the income tax liability is computed on the consolidated net income. ..
WITHHOLDING TAX An income payment is subject to the expanded withholding tax. d. . c. The payor-withholding agent is also a resident of the Philippines. b. which is income to the recipient thereof subject to income tax. if the following conditions concur: a. The income recipient is a resident of the Philippines liable to income tax. The income is fixed or determinable at the time of payment. and e. An expense is paid or payable by the taxpayer. The income is one of the income payments listed in the regulations that is subject to withholding tax.
including provincial.5% Gross Phil Billings . Joint ventures or consortium formed for the purpose of undertaking construction projects or engaging in petroleum. and PAGCOR. enjoying exemption from income tax under E.000 in Metro Manila and other highly urbanized areas and P150.A. PEZA. and e. d. and R. coal. R.WITHHOLDING TAX EXEMPT FROM EWT 1. and SBMA. Corporations which are exempt from income tax under Section 30 of the Tax Code. general or special. 7227. c. International carriers (by air or water) subject to 2. except government-owned or controlled corporations. b. PCSO. 226.O. Sales of real property by a corporation which is registered with and certified by HLURB or HUDCC as engaged in socialized housing project where the selling price of the house and lot or only the lot does not exceed P180. Corporations registered with the BOI.A.000 in other areas. such as GSIS. General professional partnerships. PHIC. geothermal and other energy operations f. Persons enjoying exemption from payment of income taxes pursuant to the provisions of any law. 7916. 2. city or municipal governments and barangays. such as but not limited to the following: a. SSS. National government and its instrumentalities.
is a juridical person: ± ± ± ± ± ± ± ± ± If gross income for current year exceeds P720.5% . satellites and transmission facilities Billboards . P10.000 Real properties Personal properties of P10.000 within a year Poles.15% .15% 2.5% .000 per payment.000 shall not apply when accumulated rental to same lessor exceeds or is reasonably expected to exceed P10. and directors: ± ± If gross income for current year exceeds P720.5% . Rental income .10% .000 If gross income for current year does not P720. Professional fees for services rendered by individuals. etc.000 If gross income for current year does not P720.10% .5% 3. If recipient of professional fees.WITHHOLDING TAX 1.000 . and professional entertainers and athletes. talent fees.
or distributors 5. Income payments to certain brokers and agents 8. Gross payments to contractors 6.WITHHOLDING TAX 4.10% . lessors.000 ± If otherwise 10. One-half of gross amounts paid by any credit card company in the Philippines 5% 2% 15% 10% .10% . Income payments to partners of general professional partnerships: If gross income for current year exceedsP720. shipping and airline companies. Gross additional payments to government personnel from importers.15% .000 If otherwise 9. Gross payments to resident individuals and corporate cinematographic film owners.15% . or their agents 11. Income distribution to beneficiaries 7. Professional fees paid to medical practitioners ± If gross income for current year exceedsP720.15% 1% .
Payments made to embalmers 18. Commissions of independent and exclusive distributors.10% .WITHHOLDING TAX 12.32% . Income payments on purchases of minerals. Income payments made by any Top 20.2% 10% 5% 1% 1% 1% .000 Corp Supplier of goods Supplier of services 13.25% .2% . Tolling fees paid to refineries 16. Income payments made to suppliers of agricultural products 19. Payments made by pre-need companies to funeral parlor 17.1% . Income payments made by government to its local/resident supplier of goods and services other than those covered by other rates of withholding taxes Supplier of goods Supplier of services 14.1% . MERALCO refund to customers With active contracts With terminated contracts . and marketing agents of companies 15. mineral products and quarry resources 20.
2008). . the cash salary vouchers for the rank and file employees do not have acknowledgment receipts (PLDT v. CIR.REFUND A taxpayer must do two things to be able to successfully make a claim for the tax refund of withholding tax on compensation income: (a) declare the income payments it received as part of its gross income and (b) establish the fact of withholding. The amounts of total taxes withheld for each redundant employees cannot be verified against the Summary of Gross Compensation and Taxes Withheld for 1995 due to the fact that this summary enumerates the amounts of income taxes withheld on per district/area basis. Besides. the documents from which SGV traced the Alpha List to the Monthly Remittance Returns of Income Taxes have not been presented to the court. Jan 31. GR 157264. The SGV certification cannot be appreciated in PLDT¶s favor as the courts cannot verify such claim. and this is fatal to PLDT . Also.
in Philam Asset Mgt v. this Court ruled that failure to indicate a choice will not bar a valid request for refund.1) duly issued by payor (withholding agent) to payee. However. Failure of respondent to indicate its option in its annual ITR to avail itself of either tax refund or tax credit is not fatal to its claim for refund. and ± Fact of withholding is established by a copy of statement (BIR Form 1743. unless it is shown that the lower court committed gross error in the appreciation of facts.REFUND Requisites of claim for refund are: ± Claim was filed within 2 years under Sec. showing amount paid and amount of tax withheld (RR 6-85). The options are alternative and the choice of one precludes the other. 230. NIRC offers two options: refund or tax credit. particularly the self-assessment and collection aspects. ± Income upon which taxes were withheld were included in the return of the recipient. should this option be chosen by the taxpayer later on. CTA found above requisites were satisfied. 76. CIR. The requirement is only for the purpose of easing tax administration. Findings of facts of CTA are entitled to great weight and will not be disturbed on appeal. NIRC. ± Sec. .
2008).. The harsh power of taxation must be tempered with evenhandedness (CIR v. July 4. 34 of Rules of Evidence is misplaced. This provision should be taken in the light of RA 1125. especially those that have been held as a matter of right. ± CTA denied claim for 1997 tax credit of PERF because it failed to submit its 1998 ITR. Sec. PERF Realty Corp. ± The CA¶s reliance on Rule 132. ± No one shall unjustly enrich oneself at the expense of another. This applies not only to individuals but to the State as well. GR 163345. The ITR is part of the records of the case and clearly showed that income taxes were not claimed as tax credit in 1998. In the field of taxation where the State exacts strict compliance upon its citizens. proceedings therein shall not be governed strictly by technical rules of evidence.REFUND Failure of respondent to present in evidence the 1998 ITR is not fatal to its claim for refund. ± PERF attached its 1998 ITR to its motion for reconsideration. the State must likewise deal with taxpayers with fairness and honesty. ± Technicalities should not be used to defeat substantive rights. .
GR 167274. July 21. abhorring a person¶s unjust enrichment at the expense of another. The government is not exempt from the application of solutio indebiti. The dynamic of erroneous payment of tax fits to a tee the prototypic quasi-contract. . which covers not only mistake in fact but also mistake in law. and the latter has the duty to refund without any unreasonable delay what it has erroneously collected (CIR v. the taxpayer expects fair dealing from the government. Indeed.REFUND Tax refunds or credits are not founded principally on legislative grace but on the legal principle which underlies all quasi-contracts. Fortune Tobacco Corp. 2008).
com vic.mamalateo@vcmlaw. END OF PRESENTATION Atty.com. Mamalateo Mobile: 0918-9037436 Email: vicmamalateo@yahoo. Vic C.ph .
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