Tax 1 and 2

Taxation law review notes
- Atty. Francis J. Sababan -

COVERAGE OF TAXATION LAW REVIEW
I. Basic Principles of
Constitutional Liitations
a) Due process clause which
could be either
substantive due process
and procedural due
process clause
b) Equal protection clause
ead!
"r#oc Su$ar
%entral vs. %ity Treasurer
&& S%A '()
Tiu vs. %A )(* S%A *+,
c) Article --- sec. * o. the
*/,+ %onstitution 0 non-
i#pair#ent clause
d) Article --- sec. 1 0 .reedo#
o. reli$ion
e) Article --- sec. &( 0 non-
pay#ent o. poll tax
.) Article 2- sec. &, par. & 0
3exible tari4 clause
$) Article 2- sec. &, par. ) 0
exe#ption .ro# real
property tax
ead!
5errera vs. 6ue7on %ity )
S%A *,'
Abra vs. 5ernando *(+ S%A
*(8
Abra 2alley vs. Aquino 1&
S%A *('
9hilippine :un$ %enter vs.
6ue7on %ity 8)) S%A
**/
h) Article 2- sec. &, par. 8 0
quali;ed #a<ority in tax
exe#ption
i) -nternational double
taxation
%- vs. Johnson )(/ S%A
,+
<) Doctrine o. equitable recoup#ent
=) Doctrine o. Set-o4 or
co#pensation in taxation
epublic vs. >a#bulao 8 S%A '&&
Do#in$o vs.
?arlitos , S%A 88)
Francia vs. -A% *'& S%A +1)
%altex vs. %"A &(, S%A +&'
9hilex vs. %-
&/8 S%A ',+
II. Incoe Ta! La"
Section &&-&' o. the @ational -nternal
evenue %ode
a) ead in the co##entaries or #a$ic
notes the di4erent =inds o.!
*. -nco#e Taxpayers
&. -nco#e Taxes
). Sources o. -nco#e sec. 8& o. @-%
- -nco#e Taxpayers
a) -ndividuals
b) %orporation
c) Estates and Trusts 0
--ndividuals are classi;ed
esident %iti7ens sec. &) AA)B
sec &8 AA) Aa)
@on-esident %iti7ens sec &)
AC)B &8 AA) Ab) && AE)
"verseas %ontract Dor=ers Sec.
&) A%)B &8 AA) Ab)
esident Aliens ev. e$. sec 1B
&) AD)B &8 AA) Ac)
@on-esident Aliens En$a$ed in
trade or business sections &1
AA) A*)
@on-esident Aliens @ot
En$a$ed in trade or business
sec. &1 AC)
Aliens E#ployed in >ulti-
@ational %orporations sec. &1
A%) and ev. e$. *&-&((*
Aliens E#ployed in "4shore
Can=in$ Enits sec &1 AD)
Aliens E#ployed in petroleu#
Service %ontractors F
Subcontractors sec. &1 AE)
-%orporate -nco#e Taxpayers
Do#estic %orporations sec. &) AE)B
and sec &+ o. @-%
esident Forei$n %orporations sec.
&& A5) and A&,)A
@on-esident Forei$n %orporations
sec. && A*) and &, AC)
-Estates and Trusts sec. '(-'' o.
@-%
Di4erent Ginds o. -nco#e Tax
*. @et -nco#e Tax secs. &8 AA)B &1
AA) A*)B &'B &+ AA) AC) A%)B &, AA)
up to )
rd
par. )* and )& AA)
&. ?ross -nco#e Tax secs. &1 AC)
;rst part and &, AC) A*)
). Final -nco#e Taxes sec. 1+ AA)
8. >ini#u# %orporate -nco#e Tax
o. &H o. the ?ross -nco#e secs.
&+ AE)B &, AA) A&)
*
1. -#properly Accu#ulated
Earnin$s Tax o. *(H o. its
taxable inco#e sec. &/ @-% ev.
e$. &-&((*
"ptional %orporate -nco#e Tax o.
*1H o. its $ross inco#e sections
&+ AA) 8
th
to *(
th
par. And &, AA*)
but only up to the 8
th
para$raph
-9roceed to section 8& and &) o. the
@-%
@D% vs. %o## *1* S%A 8+&
%o##. 2s. -A% *&+ S%A /
-Then $o to sec. )/ o. @-%
%ala7ans vs. %o##. *88 S%A
''8 +-&(()
-Then proceed to sec. &8 AA)B &1 AA)
A*)B &1 CB%BDBEB &+ ABCB%I &, AA) A*)B
&, AA) A') and sec 1* AD)
-Then continue to sec &8 C *B &1
CB%BDBEI &+ AD) A*)
-Then $o to se. &8 AC) A&) sec. +)
%o##. 2s. >annin$ '' S%A *8
Anscor vs. %o##. )(* S%A *1&
-Sec. &1 AA) A&)B &1 CB %B %B EB sec. &+ AD)
A8)I &, AA) A+) AD)I )& C A+) Aa)
- Then you $o to sec. &8 %B &1A A))I &1
CB %B DB EB &+ D A&)I &, AA) A+) A%)I &, C
A1) A%) A ++*+ sec. *&+ @-%
- Then you $o to sec. &8 D A*)I &1 AA)
A))I &1 AC) last par. &+ AD) A1)
%hina Can= vs. %ourt o. Appeals ))'
S%A JJJI +-&(()
-Epon readin$ sec. &8 AD) A&) read *)-
*///
-Epon readin$ sec. &+ AA) $o to sec. && AC)
Catan$as vs. %ollector *(& 9hil. ,&&
Evan$elista vs. %ollector *(& 9hil *8(
eyes vs. %o##. &8 S%A */,
"na vs. Cautista 81 S%A +8
"billos vs. %o## *)/ S%A 8)'
9ascua vs. %o##. *'' S%A 1'(
A;sco vs. %o##. )(& S%A *
-Epon readin$ sec. &+ A%) o. @-% see A
/))+ then $o to sec. )& AC) A+) Ab) o. @-%B
sec. *)) par Ao) o. :?%B sec. *18 o. the
:?%.
9a$cor vs. Casco */+ S%A 1&
>actan vs. %ebu &'* S%A ''+
:T vs. %ity o. >anila )8& S%A '/&
-9roceed to sections &+ AD) A*)B &+ AD) A&)B
&+ AD) A1) read A /))+B &, AA) A+) Ab)B &,
AC) A1) A%)B &+ AD) A8)B A&,) AA) A+) Ad)B &,
AC) A1) Ab)
>arubeni vs. %- *++ S%A 1((
9roctor F ?a#ble vs. %o## *'( S%A
1'(
Sa#e case 9roctor and ?a#ble on the
>otion .or econsideration &(8 S%A
)++
Donder vs. %o## *'( S%A 1+)
-9roceed to sec. &+AD) A1)
then sections &+ AE) and &, AA) A&)
-?o to sec. &, AA) A)) read *1-&((&
-?o to sec. &, AA) A8) see A /))+
-Then see sec &, AA) A1) see >arubeni vs.
%o## *++ S%A 1((
-9roceed to sec. &,AC) A1) Aa) and sec )&
AC) A+) Aa)
ead >itsubishi vs. %o## *,*
S%A &*8
-Then $o to sec. &/ and ev. e$. &-&((*
-Epon readin$ sec. )& AC) * and &B read
sec. ,1 par Ae)B sec. *(,A and sec. *&) o.
the @-%
-9roceed to sec. )) read ev. e$. )-/,
-then $o to sec. )8 AA) A*) Aa) see
A$uinaldo vs. %o##. **& S%A *)'B
*(-&((&
-Ender Sec. )8 AC) read *)-&(((
-Epon readin$ sec. 8/ read Canas vs. %A
)&1 S%A &1/ and Filipina vs. %o##. )*'
S%A 8,(
-Epon readin$ sec. '(-''B read "na vs.
Cautista 81 S%A +8
III. Estate Ta!
-Sections ,8-/+ see sec. *(8
-Epon readin$ sec. ,1 AC) read 2idal
de oces vs. 9osadas 1, 9hil. *(,
Di7on vs. 9osadas 1+ 9hil 8'1
-Sec. ,1 A?) co#pare with sec. *((
-sec. ,1 A5) co#pare with sec. ,' A%)
-Epon readin$ sec. ,' see &-&(()
-Epon readin$ sec. /8 see >arcos vs.
Sandi$anbayan &+) S%A 8+
IV. #onors Ta! La"
- Sections /,-*(8
- ? and %u#ulative #ethods o. ;lin$
donorKs tax returns sections // AA)B *()
AA) A*) and &-&(()
- Sections *(( and ,1 A/)
V. Value A$$e$ Ta!
- Sections *(1-**1
&
-ead A /))+
-ead ACAGADA vs %o##.
? *',(1'B Sept. *B &((1
VI. Ree$ies %n$er t&e Internal
Re'enue Co$e
-Sections &(&-&&/
- *&-//
9hoenix vs %o## *8 S%A 1&
Casilan vs. %o##. &* S%A *+
Labut vs. Flo<o **1 S%A &+,
Enion Shippin$ vs. %o## *,1 S%A
18+
%o##. vs. T>M &(1 S%A *,8
%o##. vs. 9hila#li.e &88 S%A
%o##. vs. %A F C9- )(* S%A 8)1
C9- vs. %o##. )') S%A ,8(
-9rescription sections &() and &&& o.
@-%B sec. */8 o. the :?%B sec. &+( o.
the :?%B sec. *'() o. Tari4 and
%usto#s %ode
-9rotest sec. &&, o. @-% and *&-//
sec. */1 o. :?%B &1& :?%B sec. &)*) o.
Tari4 F %usto#s %ode and A +'1*
VII. Local Ta!ation
- Sections *&,-*/' o. :?%
-9roceed *
st
to sec. *,' read Culacan
vs. %A &// S%A 88&
-Then proceed to *,+
-Then to *1*
-*&,
-Ender sec. *)) Ae) read 9al#a vs.
>alan$as 8*) S%A 1+&
-Ender *)) Ah) read 9ililia vs. 9etron
*/, S%A ,&
-Ender *)) Ai) read First 5oldin$s %o.
vs. batan$as %ity )(( S%A ''*
-Ender *)) Al) read Cutuan vs. :T"
)&& S%A ,(1
-Ender *)+ read sec. */) o. :?%
>isa#is vs. %a$ayan de "ro
*,* S%A ),
eyes vs. San 9ablo %ity )(1
S%A )1)
>eralco vs. :a$una )(' S%A
+1(
9:DT vs. Davao %ity )') S%A
1&&
- %o-relate sec. *)/ and *8+ o. :?%
- Ender sec. *8( o. the :?% see sec.
*&1 o. the -nternal evenue %ode
- Ender sec. *1( o. the :?% read the
.ollowin$!
9hil. >atch vs. %ebu ,* S%A //
Allied Thread vs. >anila *))
S%A )),
Sipocat vs. Shell *(1 9hil. *&')
-loilo Cottles vs. -loilo %ity *'8
S%A '(+
VIII. Real Propert( Ta!
- Sections */+-&/8
- Sec. &)1
:T vs. >anila
)8& S%A '/&
%ebu %ity vs.
>actan &'* S%A ''+
IX. Tari) * Custos Co$e
- Special %usto#s Duty sec. )(*-)(8
o. T%%
- e$u=ar %usto#s Duty sec. *(8 o.
T%%
- A +')*

X. Court of Ta! Appeals
- A **&1 as a#ended by A /&,&
)
Rules in t&e Classroo+
*. do not be absent
i. you are absentB you have to
transcribe what happened in class when
you were out.
The next #eetin$ you attend classB
consider yoursel. a resident o. balic-
balicB babali=bali=an =a sa recit.
Exception! i. you $et #arried.
&. read the assi$n#ent. Da$ 7apote an$
aral.
). holiday 0 #a=e up class probably on a
Sunday
8. allowed to $lance at your notesB wa$
lan$ pahalataN$arapal
1. #aterials!
codal
co##entaries Aany author will do)
#a$ic notes ASababan :ecture and
6FA)
Coo= stand
Co'era,e of Ta!ation La" Re'ie"+
*. Casic 9rinciples includin$ %onstitutional
9rovisions
&. -nco#e Tax
). Estate Tax
8. DonorKs Tax
1. e#edies
'. :ocal Tax
+. eal 9roperty Tax
,. Tari4 and %usto#s %ode
/. %ourt o. Tax Appeals
*(. 2AT Aalthou$h not part o. the covera$e
o. the Car Exa#sB questions have been
as=ed since *///)
Title 1B' and + are always included in
the covera$e
@o co#putations in the bar
There are only * or & questions in the
Car about Casic 9rinciples
Dhat are the .avorite topics in the CarO
P *& questions on -nco#e Tax
P ,-*( questions on re#edies
P ,-*( questions allocated to the + topics
BA-IC PRINCIPLE-+
Q Taxation is an inherent power o. the
State.
.+ Dhat do you #ean by -@5EE@TO
A+ The power to tax is not provided .or in
the lawB statute or constitutionI it depends
on the existence o. the state. @o law or
le$islation .or the exercise o. the power to
tax by the national $overn#ent.
.+ Do local $overn#ents exercise this
inherent powerO
A+ @o. "nly the @ational ?overn#ent
exercises the inherent power to i#pose
taxes.
.+ The taxin$ power o. local $overn#ents
is a DE:A?ATED power. Dele$ated by
who#O
A+ Dele$ated by %on$ress throu$h law in
case o. autono#ous re$ionsB and dele$ated
by the constitution in case o. :?Es not
considered an autono#ous re$ion.
Q Cities, provinces and municipalities P
power $ranted under Art. M Sec. 1F' o. the
%onstitution
Autonomous Regions P power con.erred
by %on$ress throu$h law. Art. M Sec. &( R&
o. the %onstitution is a non-sel.-executin$
provision. Thus the power is $ranted by
%on$ress because said provision requires an
enablin$ law.
Q Article MB Section 1 is sel.-executin$ thus
the power is $ranted by the constitution.
CON-TIT%TIONAL LI/ITATION-
Due Process Clause
.+ why is it a li#itation to the power to taxO
A+ The due process clause as a li#itation to
the power to tax re.ers both to substantive
and procedural due process. Substantive
due process requires that a tax statute
#ust be within the constitutional authority
o. %on$ress to pass and that it be
reasonableB .air and <ust.
9rocedural due processB on the other
handB requires notice and hearin$ or at
least the opportunity to be heard.
Ex! "n Substantive Due 9rocess- when
the %on$ress passes a law exe#ptin$ the
*)
th
#onth pay .ro# tax but with the
concurrence only o. the #a<ority o. the
quoru# 0 law would be invalid because the
%onstitution provides that any $rant o. tax
exe#ption shall be passed with the
concurrence o. the #a<ority o. all the
#e#bers o. the %on$ress.
8
.+ Does it .ollow that the adverse party
#ust always be noti;edO
A+ @o. As a ruleB notice and hearin$ or the
opportunity to be heard is necessary only
when expressly required by law. Dhere
there is no such require#entB notice and
the opportunity to be heard are
dispensable.
Ex. Ce.ore "ct. *B *//1B you can secure
a T" without noti.yin$ the adverse party.
-. you are a suspect in a cri#inal caseB you
have the ri$ht to have an opportunity to be
heard Ai. there is a law).
Ce.ore July *B *//,B no notice need
be $iven to a party declared in de.ault. A.ter
the a#end#entB the party declared in
de.ault has to be noti;ed o. subsequent
proceedin$s albeit without the ri$ht to
participate therein.
-n the case o. a search warrantB the
person to be searched was not noti;ed.
The person searched cannot clai# that
there was a violation o. due process
because there is no law requirin$ that the
person to be searched should be noti;ed.
e$ardin$ delinquent tax payersB
be.ore levyB there #ust be notice.
EAS"@!
@o provision o. law requires notice to
the adverse party. -. the adverse party is
noti;edB he #ay abscond. ThusB in
adversarial proceedin$sB in connection with
procedural due processB the adverse party
need not be noti;ed all the ti#e.
Equal Protection Clause
Q As a ruleB taxpayers o. the sa#e .ootin$
are treated ali=eB both as to privile$es
con.erred and liabilities i#posed.
Di4erence in treat#ent is allowed only
when based on substantial distinction.
Di4erence in treat#ent not based on
substantial distinction is .rowned upon as
Sclass le$islation.T This is violated when
taxpayers belon$in$ to the sa#e
classi;cation are treated di4erently .or#
one anotherI and taxpayers belon$in$
di4erent classi;cations are treated ali=e.
Requirements of Reasonable Classifcation:
*) There #ust be substantial
distinctions that #a=e a real
di4erence.
&) -t #ust be $er#ane or relevant to
the purpose o. the law.
)) The distinction or classi;cation #ust
apply not only to the present but
also to .uture situations.
8) The distinction #ust apply to
personsB thin$s and transactions
belon$in$ to the sa#e class.
Ex! -n one caseB a tax ordinance was
assailed on the $round that the ordinance
.ailed to distin$uish a wor=er .or# casualB
per#anent or te#porary. The S% said that
the ordinance was invalid because o. the
.ailure to state the said classi;cation.
-n PEOPLE v CA!A" the Supre#e %ourt
#andated the requisites .or a valid
classi;cation.
"#$ v CO$R" O% APPEAL& '()* &CRA +,-.
.+ what happened in the city o. "lon$$apoO
A+ The %on$ressB with the approval o. the
9residentB passed A +&&+B an act
creatin$ the conversion o. the #ilitary
bases into other productive uses.
.+ Dho was the 9resident at that ti#eO
A+ 9resident a#os
.+ Dhat were si$nedO
A+ A +&&+B E" /+ and E" /+-A
P The ;rst led to the creation o. the
Subic Special Econo#ic Uone ASSEU).
The latter set the li#itations and
boundaries o. the application o. the
incentives Ano taxesB local and nationalB
shall be i#posed within SSEU. -n lieu
thereo.B )H o. the ?ross -nco#e shall be
re#itted to the national $ovKt) to those
operatin$ their businesses within the
said area.
.+ Dho are the petitioners and what was
their contentionO
A+ The petitioners are Filipino business#en
who are operatin$ their business outside
the secured area. The petitioners
contended that the law in question was
violative o. their ri$ht to equal
protection o. laws since they are also
Filipino business#en.
5! The Supre#e %ourt ruled that there
was no violation since the classi;cation
was based on a substantial distinction.
The ele#ent invo=ed here is ele#ent
R* that there #ust be substantial
distinction in the classi;cation o.
taxpayers on who# the tax will be
i#posed.
The %ourt observed that those
.orei$n business#en operatin$ within
1
the secured area have to $ive a lar$er
capital to operate in the secured area
Ato spur econo#ic $rowth and
$uarantee e#ploy#ent).
OR/OC &$0AR CE1"RAL vs C#R
.+ Dhat did the #unicipality o. "r#oc doO
A+ The %ity %ouncil o. "r#oc passed a
>unicipal "rdinance @o.8 i#posin$
upon any and all centri.u$al su$ar
#illed at the "r#oc Su$ar %entral a
#unicipal tax on the net sale o. the
sa#e to the Enited States and other
.orei$n countries.
.+ Did the owner accept this i#positionO
A+ @o. the tax due was paid under protestB
then ;led a co#plaint a$ainst the %ity o.
"r#oc.
5! The Supre#e %ourt said there was a
violation o. the equal protection clause.
The ele#ent invo=ed here was ele#ent
R)B that it #ust be applicable to both
present and .uture circu#stances. The
Supre#e %ourt said that one #ust $o to
the provision itsel.B in the case at barB
there was a violation o. ele#ent R)
because the law was worded in such a
way that it only applies to "r#oc Su$ar
%entral alone and to the exclusion o. all
other su$ar centrals to be established in
the .uture.
TAGE @"TE! 9eople vs. %ayat
Freedom of Religion
-t -nvolves ) Thin$s!
*. .reedo# to choose reli$ion
&. .reedo# to exercise oneKs reli$ion
). prohibition upon the national
$overn#ent to establish a national reli$ion
.+ Dhich one li#its the power to taxO
A+ 9rohibition upon the national
$overn#ent to establish a national reli$ion
because this will require a special
appropriation o. #oney co#in$ .ro# the
national treasury which is .unded by the
taxes paid by the people.
Non-impairment Clause
.+ Dhat are the sources o. obli$ation in the
%ivil %odeO
A+ :awB %ontractsB 6uasi-%ontractsB DelictB
6uasi-Delict.
.+ Dhat is the obli$ation conte#plated in
this li#itationO
A+ Those obli$ations arisin$ .ro# contracts.
?eneral ule! The power to tax is pursuant
to lawB there.oreB the obli$ation to pay
taxes is i#posed by lawB thus the non-
i#pair#ent clause does not apply.
Q Lou have to deter#ine ;rst the source o.
obli$ation!
*. -. the law #erely provides .or the
.ul;ll#ent o. the obli$ation then the law is
not the source o. the obli$ation.
&. Dhen the law #erely reco$ni7es or
ac=nowled$es the existence o. an obli$ation
created by an act which #ay constitute a
contractB quasi-contractB delictB and quasi-
delictB and its only purpose is to re$ulate
such obli$ationB then the act itsel. is the
source o. the obli$ationB not the law.
Dhen the law establishes the obli$ation
and also provides .or its .ul;ll#entB then the
law itsel. is the source o. the obli$ation
.+ SoB in what instance does the non-
i#pair#ent o. contracts clause beco#es a
li#itation to the power to taxO
A+ it is when the taxpayer enters into a
co#pro#ise a$ree#ent with the
$overn#ent. -n this instanceB the obli$ation
to pay the tax is now based on the contract
between the taxpayer and the $overn#ent
pursuant to their co#pro#ise a$ree#ent.
Ta=e @ote! the require#ent .or its
application! the parties are the $overn#ent
and private individual.
Poll Tax
.+ Dhat is a poll taxO
A+ -t is a tax o. a ;xed a#ount on
individuals residin$ within a particular
territoryB whether citi7ens or notB without
re$ard to their property or to the occupation
in which they #ay be en$a$ed.
-t is a tax i#posed on persons without
any quali;cations. persons #ay be allowed
to pay even i. they are not quali;ed as to
a$e or property ownership.
Exa#ple o. 9oll Tax! %o##unity Tax
%erti;cate under Section *'& o. the :ocal
?overn#ent %ode.
'
.+ Dhy is it a li#itation to the power to
taxO
A+ -t is a li#itation to the power to tax
because %on$ress is prohibited .ro#
passin$ a law penali7in$ with i#prison#ent
a person who does not pay poll tax. A.unds
.or sendin$ a person to <ail is ta=en .ro# the
national treasury which is .unded by the
taxes paid by the people)
Exemption from payment of Real
Estate Tax
.+ Dhat is the require#ent .or exe#ption
.ro# pay#ent o. real property tax under the
*/)1B */+) and */,+ %onstitutionO
A+ Art 2, &ec ++ '(., *3(4 Constitution 0
%e#eteriesB churches and parsona$es or
convents appurtenant theretoB and all
landsB buildin$s and i#prove#ents used
EM%:ES-2E:L .or E:-?-"ESB %5A-TAC:E or
EDE%AT-"@A: purposes shall be exe#pt .or
taxation.
Art -, &ec *, '(., *3,( Constitution 0
charitable institutionsB churchesB
parsona$es or convents appurtenant
theretoB #osqueB and non-pro;t ce#eteriesB
and all landsB buildin$sB and i#prove#ents
A%TEA::LB D-E%T:LB and EM%:ES-2E:L
used .or E:-?-"ES and %5A-TAC:E
purposes shall be exe#pt .ro# taxation.
Art 2, &ec +- '(., *3-, Constitution 0
charitable institutionsB churchesB and
parsona$es or convents appurtenant
theretoB #osqueB non-pro;t ce#eteriesB and
all landsB buildin$sB and i#prove#ents
A%TEA::LB D-E%T:L and EM%:ES-2E:L used
.or E:-?-"ESB EDE%AT-"@A: and
%5A-TAC:E purposes shall be exe#pt .ro#
taxation.
5ERRERA v 6C78OAR9 O% A&&E&&/E1"
A*/)1 %onstitution)
.+ Dhat is involved in this caseO
A+ A charitable institutionB St.
%atherineKs 5ospital. The hospital was
previously exe#pt .ro# taxation until it
was reclassi;ed and subsequently
assessed .or the pay#ent o. real
property tax.
The contention o. the respondent is
that the hospital was no lon$er a
charitable institution because it accepts
pay-patientsB it also operates a school
.or #idwi.ery and nursin$B and a
dor#itory. Since it is not exclusively
used .or charitable purposes it is not
exe#pt .ro# taxation.
5! The %ourt ruled that petitioner is not
liable .or the pay#ent o. real estate
taxes. -t is a charitable institutionB thus
exe#pt .ro# the pay#ent o. such tax.
The hospitalB schools and dor#itory
are all exe#pt .ro taxation because they
are incidental to the pri#ary purpose o.
the hospital.
@"TE! this arose durin$ the */)1
%onstitution.
SExe#pted by virtue o. incidental
purposeT was #erely coined by the
Supre#e %ourt. ThusB it does not apply to
other taxes except eal Estate Tax.
PRO:#1CE O% A8RA v 5ER1A19O
A A reli$ious institution was involved in
this caseB the o#an %atholic Cishop o.
Can$uedB -nc. Abishop ;led declaratory
relie. a.ter assessed .or pay#ent o. tax).
The respondent <ud$e $ranted the
exe#ption .ro# taxes o. said church
based only on the alle$ations o. the
co#plaint without conductin$ a
hearin$Ntrial. The assistant prosecutor
;led a co#plaint contendin$ that
petitioner was deprived o. its ri$ht to
due process.
S%! the %ourt ordered that the case be
re#anded to the lower court .or .urther
proceedin$s. The %ourt observed that the
cause action arose under the */+)
%onstitutionB not under the */)1
%onstitution Anote the di4erence). Tax
exe#ption is not presu#ed. -t #ust be
strictly construed a$ainst the taxpayer and
liberally construed in .avor o. the
$overn#ent.
A8RA :ALLE! COLLE0E #1C v A6$#1O
A+ An educational institution is involved
in this case. The $round 3oor o. the
school was leased to @orthern >ar=etin$
%orp.B a do#estic corporation. The &
nd
3oor thereo. was used as the residence
o. the school director and his .a#ily.
The 9rovince o. Abra now contends
that since the school is not exclusively
used .or educational purposesB the
school is now liable to pay real estate
tax.
+
5! The %ourt held that the school is
9AT-A::L liable .or real estate tax.
*. esidence 0 exe#pt by virtue o.
incidental purposeI <usti;ed because
it is necessary.
&. %o##ercial 0 not exe#pt because it
is not pursuant to the pri#ary
purposeI not .or educational
purposes.
.+ is the doctrine in the case o. 5errera the
sa#e with this caseO
A+ @". in the 5errera caseB the exe#ption
was $ranted to all the real property
AhospitalB school and dor#). Cut in this
caseB the Supre#e %ourt #ade a
quali;cation. The Supre#e %ourt said it
depends.
@"TE! both cases arose under the */)1
%onstitution despite havin$ been decided in
*/,,.
.+ At presentB do we still apply the
exe#ption .ro# tax by virtue o. the
Doctrine o. -ncidental 9urposeO
A+ @ot any#ore. The cause o. action in said
case arose under the */)1 %onstitution and
it does not apply to the provisions o. the
*/,+ %onstitution.
P5#L#PP#1E L$10 CE1"ER v 6$E;O1 C#"!
A+ A charitable institutionB a hospital. -t
is provided in the charter o. the :un$
%enter o. the 9hilippines is a charitable
institution. 5oweverB part o. its buildin$
was leased to private individuals and
the vacant portion o. its lot was rented
out to Elliptical "rchids. espondent
contends that since the hospital is not
used actuallyB directlyB an d exclusively
.or charitable purposesB it is liable to
pay real estate taxes.
5! The Supre#e %ourt held that the
petitioner is liable to pay tax .or those
parts leased to private individuals .or
co##ercial purposes. For the part o. the
hospital used .or charitable purposes
Awhether .or pay or non-pay patients)B
petitioner is exe#pt .ro# pay#ent o.
real estate tax.
@"TE! petitioner contended that the pro;ts
derived .ro# the lease o. its pre#ises were
used .or the operation o. the hospital. The
%ourt held that the use o. the pro;ts does
not deter#ine exe#ptionB rather it is the
use o. the property that deter#ines
exe#ption.
The case o. 5errera does not apply
because said case arose under the */)1
%onstitution and the present case arose
under the */,+ %onstitution. The
require#ents .or exe#ption are di4erent. -n
the */)1 %onstitutionB the property #ust be
EM%:ES-2E:L used .or reli$iousB educational
or charitable purposes. Ender the */,+
%onstitutionB the property #ust be used
A%TEA::LB D-E%T:LB and EM%:ES-2E:L .or
reli$iousB educational and charitable
purposes.
.+ Das the doctrine laid down in Abra
2alley aVr#ed in the :un$ %enter caseO
A+ Les. The Supre#e %ourt unconsciously
applied a doctrine laid down by the */)1
%onstitution. The Supre#e %ourt reiterated
the rulin$ in the Abra 2alley case which
arose under the */)1 %onstitution. The
Supre#e %ourt #ade a quali;cationB it held
that it depends on whether or not the use is
incidental to the pri#ary purpose o. the
institution.
@"TE! at presentB Sexe#ption .ro# tax by
virtue o. incidental purposeT is not
applicable to all taxes includin$ real estate
tax.
CO// v &C <O51&O1 and &O1&, #1C
-#portant !
*. international double taxation
&. i#portance o. international tax
treaty
). i#plication o. #ost .avored nation
clause
.+ Dhat is the corporation involved in this
caseO
A+ A do#estic corporation AD%).
S% Johnson and SonsB -nc. entered
into a license a$ree#ent with S%
Johnson and Sons E.S.A A@on-esident
Forei$n %orpB @F%) whereby the .or#er
was allowed to use the latterKs
trade#ar= and .acilities to #anu.acture
its products. -n returnB the D% will pay
the @F% royalties as well as pay#ent
o. withholdin$ tax.
A case .or re.und o. overpaid
withholdin$ tax was ;led. ApparentlyB
the D% should have paid only *(H
under the #ost .avored nation clause.
,
5! The Supre#e %ourt coined the ter#
-nternational Double Taxation or
-nternational Juridical Double Taxation.
.+ Dhat pro#pted the S% to coin such
ter#O
A+ Cecause a sin$le inco#e Atax
royalties paid by a D%) was sub<ected to
tax by two countriesB the 9hilippines
inco#e tax and the E.S. tax.
-nternational Juridical Double
Taxation applies only to countries where
the tax liabilities o. its nationals are
i#posed on inco#e derived .ro#
sources co#in$ .ro# within and without.
.+ -s there an instance where
international double taxation does not
applyO
A+ Les. -. it involves nationals o.
countries wherein the tax liability is
i#posed only .ro# inco#e derive .ro#
sources within and not includin$ those
derived .ro# sources without.
AEx! Swit7erland)
P The controversy in the case at bar
involves the inco#e tax paid in the
9hilippines.
A.ter payin$ &1HB the ES ;r#
discovered that they are entitled to *(H
under the #ost .avored nation clause.
The question is! was the tax paid under
si#ilar circu#stances with that o. the
9-Dest ?er#any TreatyO
The %TA and %ourt o. Appeals ruled
that it was paid under si#ilar
circu#stances. The phrase re.erred to
the royalties in pay#ent o. inco#e tax.
The Supre#e %ourt ruled that the lower
courtsK interpretation o. the phrase was
erroneous. atherB the phrase applies to
the application o. #atchin$ credit.
.+ Dhat is #atchin$ tax creditO
A+ 9-?er#any Treaty provides .or that
&(H o. the tax paid in the 9hilippines
shall be credited to their tax due to be
paid in ?er#any.
The *(H does not apply because
there is no #atchin$ credit. ThusB there
is no si#ilarity in the circu#stances.
E.%ITABLE RECO%P/ENT AN#
#OCTRINE OF -ET0OFF
Equitable Recoupment
This doctrine provides that a clai# .or
re.und barred by prescription #ay be
allowed to o4set unsettled tax liabilities.
This is not allowed in this <urisdictionB
because o. co##on law ori$in. -. allowedB
both the collectin$ a$ency and the taxpayer
#i$ht be te#pted to delay and ne$lect the
pursuit o. their respective clai#s within the
period prescribed by law.
.+ Dhat is the doctrine o. Equitable
ecoup#entO
A+ Dhen the clai# .or re.und is barred by
prescriptionB the sa#e is allowed to be
credited to unsettled tax liabilities.
ASir $ives an illustration .ound in pa$e ) o.
#a$ic notes)
.+ -s the rule absoluteO eason
A+ LesB the rule is absolute. The rationale
behind this is to prevent the taxpayer and
$overn#ent oVcial .ro# bein$ ne$li$ent in
the pay#ent and collection o. taxes.
A.urther#oreB you have to be honest .or this
to wor=B henceB the $overn#ent is
preventin$ corruption)
There is no exception at all otherwiseB
the C- would be 3ooded with so #any
clai#s.
Set-o
9resupposes #utual obli$ation between
the parties. -n taxationB the concept o. set-
o4 arises where a taxpayer is liable to pay
tax but the $overn#entB .or one reason or
anotherB is indebted to the said taxpayer.
.+ Dhat do you #ean by SET-"FFO
A+ This presupposes #utual obli$ations
between the partiesB and that they are
#utual creditors and debtors o. each other.
-n taxationB the concept o. taxation arises
where a taxpayer is liable to pay taxes but
the $overn#entB .or one reason or anotherB
is -@DECTED to said taxpayer.
REP$8L#C v /A/8$LAO L$/8ER CO
.+ Dhat is the liability o. >a#bulaoO
A+ They are liable to pay .orest char$es
Aunder the old tax code).
@"TE! under our present tax codeB the
@-%B we do not have .orest char$es as
the sa#e was abolished by 9resident
Aquino.
.+ Dhat did the lu#ber co#pany doO
A+ The lu#ber co#pany clai#ed that
since the $overn#ent did not use the
re.orestation char$es it paid .or
/
re.orestation o. the denuded land
covered by its licenseB the a#ount paid
should be rei#bursed to the# or at
least co#pensated or applied to their
liability to pay .orest char$es.
5! The %ourt ruled that the
re.orestation char$es paid is in the
nature o. taxes.
The principle o. co#pensation does
not apply in this case because the
parties are not #utually creditors and
debtors o. each other. A clai# .or taxes
is not a debtB de#andB contract or
<ud$#ent as is allowed to be set-o4
under the statute o. set-o4 which is
construed uni.or#lyB in the li$ht o.
public policyB to exclude the re#edy in
connection or any indebtedness o. the
State or any #unicipality to one who is
liable .or taxes. @either are they a
proper sub<ect .or recoup#ent since
they do not arise out o. contract or the
sa#e transaction sued on.
?eneral ule! no set-o4 is ad#issible
a$ainst de#ands .or taxes levied in $eneral
or local $overn#ental purposes.
eason! Taxes are not in the nature o.
contracts or debts between the taxpayer
and the $overn#entB but arises out o. a
duty toB and are positive acts o. the
$overn#ent to the #a=in$ and en.orcin$ o.
whichB the consent o. the individual is not
required.
Taxes cannot be the sub<ect #atter o.
co#pensation.
9O/#10O v 0ARL#"O&
.+ Dhat is bein$ collected in this caseO
A+ Estate and inheritance taxes.
@"TE! we do not have inheritance taxes
any#ore because the sa#e was
abolished by :olo >acoy.
.+ Dho is the ad#inistratrixO
A+ The survivin$ spouse.
.+ Dhat did the survivin$ spouse doO
A+ The survivin$ spouse su$$ested that
the co#pensation to which the
decedent was entitled to as an
e#ployee o. the Cureau o. :ands be set-
o4 .ro# the estate and inheritance
taxes i#posed upon the estate o. the
deceased.
5! Coth the clai# o. the $overn#ent .or
estate and inheritance taxes and the
clai# o. the Aintestate) .or the services
rendered have already beco#e overdue
hence de#andable as well as .ully
liquidatedB co#pensation there.ore
ta=es place by operation o. lawB in
accordance with Art. *&+/ and *&/( o.
the %ivil %ode and both debts are
extin$uished to the concurrent a#ount.
%o#pellin$ eason! %on$ress has
enacted A &+((B allocatin$ a certain
su# o. #oney to the estate o. the
deceased.
%RA1C#A v #AC
.+ This happened in what cityO
A+ 9asay %ity
.+ Dhat is the tax bein$ collectedO Dho is
collectin$ the sa#eO
A+ 9ay#ent .or real estate taxes .or the
property o. Francia. -t appears that
petitioner was delinquent in the
pay#ent o. his real estate tax liability.
The sa#e is bein$ collected by the
Treasurer o. 9asay.
.+ Dhat is the su$$estion o. petitionerO
A+ Su$$ested that the <ust
co#pensation .or the pay#ent o. his
expropriated property be set-o4 .ro# his
unpaid real estate taxes. Athe other part
o. his property was sold at a public
auction)
5! The .actual #ilieu o. the case does
not <usti.y le$al co#pensation.
The %ourt has consistently ruled that
there can be no o4-settin$ o. taxes
a$ainst the clai#s that the taxpayer
#ay have a$ainst the $overn#ent. A
taxpayer cannot re.use to pay a tax on
the $round that the $overn#ent owes
hi# an a#ount.
-nternal evenue taxes cannot be
the sub<ect o. co#pensation because
the $overn#ent and the taxpayer are
not #utually creditors and debtors o.
each otherB and a clai# .or taxes is not
a debtB de#andB contract or <ud$#ent
as is allowed to be co#pensated or set-
o4.
Further#oreB the pay#ent o. <ust
co#pensation was already deposited
with 9@C 9asayB and the taxes were
collected by a local $overn#entB the
property was expropriated by the
national $overn#ent. Adi4 partiesB not
#utual creditors and debtors o. each
other.)
*(
CAL"E= P5#L v COA
.+ Dhat is bein$ collectedO
A+ %altexKs contribution to the "il 9rice
Stabili7ation Fund A"9SF).
%"A sent a letter to %altex as=in$
the latter to settle its unre#itted
collection statin$ that until the sa#e is
paidB its clai# .or rei#burse#ent .ro#
the "9SF will be held in abeyance.
.+ Dhy is %altex entitled to
rei#burse#entO
A+ Cecause o. the 3uctuation o. the oil
prices in the >iddle East and Europe.
%altex wanted to o4-set its unre#itted
collection .ro# its rei#burse#ents.
5! The %ourt did not allow the set-o4B
and reiterated its rulin$ in the case o.
>a#bulao and Francia. Further#oreB A
'/1& expressly prohibits set-o4 .ro# the
collection o. contributions to the "9SF.
The %ourt li=ewise stated that %altex
#erely acted as a$ent o. the
$overn#ent in collectin$ contributions
.or the "9SF because such is bein$
shouldered by the consu#ers when they
purchase petroleu# products o. oil
co#paniesB such as %altex.
Taxation is no lon$er envisioned as a
#easure #erely to raise revenues to
support the existence o. the
$overn#ent. Taxes #ay be levied .or
re$ulatory purposes such as to provide
#eans .or the rehabilitation and
stabili7ation o. a threatened industry
which is vested with public interestB a
concern which is within the police power
o. the State to address.
P5#LE= /#1#10 CORP v CO//
The petitioner is liable .or the pay#ent
o. excise taxesB which it wanted to be set-
o4 .ro# its pendin$ clai# .or a 2AT -nput
creditNre.und.
The %ourt did not allow set-o4. Taxes
cannot be the sub<ect o. co#pensation .or
the si#ple reason that the $overn#ent and
taxpayer are not #utual creditors and
debtors o. each other. Taxes are not debts.
Further#oreB in the instant caseB the
clai# .or 2AT re.und is still pendin$. The
collection o. a tax cannot await the results
o. a lawsuit a$ainst the $overn#ent.
#O%BLE TAXATION

Double taxation is allowed because
there is no prohibition in the %onstitution or
statute.
"bnoxious double taxation is the
synony# o. double taxation.
Ele#ents o. Double Taxation!
*) :evied by the sa#e taxin$ authority
&) For the sa#e sub<ect #atter
)) For the sa#e taxin$ period and
8) For the sa#e purpose
There is no double taxation i. the tax is
levied by the :?E and another by the
national $overn#ent. The two A&) are
di4erent taxin$ authorities.
:?Es are expressly prohibited by the
provisions o. A +*'( or the :?% o. *//*
.ro# levyin$ tax upon! A*) the @ational
?overn#entI A&) its a$encies and
instru#entalitiesI A)) :?Es Asec.**)Ao)).
The @ational ?overn#entB pursuant to
the provisions o. A ,8&8 o. the Tax e.or#
Act o. *//+B can levy tax upon ?"%%sB
a$encies and instru#entalities ASection &+
c))B althou$h inco#e received by the
?overn#ent .or#!
*) any public utility or
&) the exercise o. any essential
$overn#ental .unction
is exe#pt .ro# tax.
1IN#- OF INCO/E TAXPA2ER-
.+ ?enerallyB how #any =inds o. inco#e
taxpayers are thereO
A+ Ender section &&A o. @-%B there are
three A))B na#ely!
*. individualI
&. corporateI
). estate and trust.
I. IN#IVI#%AL TAXPA2ER
.+ 5ow #any =inds o. individual taxpayers
are thereO
A+ There are seven A+). @a#ely!
*. esident %iti7en AW&)A and &8A)I
&. @onresident %iti7en AW&)C and &8A)I
). "%D and Sea#an AW&)% and &8A)I
8. esident Alien AW&&FB &)D and &8A)I
1. @onresident Alien En$a$ed in Trade
or Cusiness AW&&?B &)D and &1A)
**
'. @onresident Alien @"T En$a$ed in
Trade or Cusiness AW&&?B &)D and
&1C)
+. Aliens En$a$ed in >ultinational
%o#paniesB "4shore Can=in$ EnitsB
9etroleu# Service %ontractors
AW&1%BD and E)
Resident Citi!en "RC#
.+ 5ow #any types o. %O
A+ There are two A&)B na#ely!
*. % residin$ in the 9hilippinesI and
&. Filipino livin$ abroad with no
intention to reside per#anently
therein.
.+ -. you are abroadB and you have the
intention to per#anently reside thereinB can
you still be considered a %O
A+ Les. -. such intention to per#anently
reside therein was not #ani.ested to the
%o##issioner and the .act o. your physical
presence thereinB you #ay still be
considered a %.
$C% and Seamen
"%D was used and not "FD in the
%T9B because the classi;cation shall cover
only those Filipino citi7ens wor=in$ abroad
with a contract. T@Ts are not covered.
A Filipino sea#an is dee#ed to be an
"%D .or purposes o. taxation i. he receives
co#pensation .or services rendered abroad
as a #e#ber o. the co#ple#ent o. a vessel
en$a$ed exclusively in international trade.
%onsequentlyB i. he is not a #e#ber o.
the co#ple#ent or even i. he is but the
vessel where he wor=s is not exclusively
en$a$ed in international tradeB said sea#an
is not dee#ed to be an "%D. 5e is either a
% or a @% dependin$ on where he stays
#ost o. the ti#e durin$ the taxable year.
-. he stays in the 9hilippines #ost o. the
ti#e durin$ the taxable yearB he is
considered a %B otherwiseB a @%.
-. you are a sea#an in the ES @avyB you
are not the one bein$ re.erred to.
The i#portance o. ascertainin$ whether
or not a sea#an is a % or a @%B is that i.
he is a %# he is taxable on A:: inco#e
derived .ro# all sources within and without.
-. he is a @%B he is taxable only on inco#e
derived .or# sources within the 9hilippines.
.+ Dhat is the si$ni;cance o. usin$ "%DO
A+ -t only covers Filipinos who wor=s abroad
with a contract. -t does not cover T@Ts.
.+ Dhat is the status o. a T@TO
A+ Since they are not covered by this
classi;cationB they are considered %
because they wor= abroad without a
contract and they have not #ani.ested their
intention to per#anently reside abroad.
Adistin$uish .ro# an i##i$rant)
equire#ents .or a sea#an to be
considered an "%D!
*. #ust be a #e#ber o. the co#pli#ent o.
a vesselI
&. the vessel #ust be exclusively en$a$ed
in international trade or co##erce.
Resident &lien "R&#
An individual whose residence is within
the 9hilippines and who is not a citi7en
thereo..
-ntention to reside per#anently in the
9hilippines is not a require#ent on the part
o. the alien.
The require#ent under R& is that he
is actually present in the 9hilippinesB neither
a so<ournerB a travelerB not a tourist.
Dhether heKs a transient or not is
deter#ined by his intent as to the nature
and len$th o. his stay.
.+ -s the intention to per#anently reside in
the 9hilippines necessaryO
A+ @oB so lon$ as he is not a so<ournerB
tourist or a traveler.
Non-Resident &lien Engaged in
Trade or 'usiness "NR&ET'#
A .orei$ner not residin$ in the
9hilippines but who is en$a$ed in trade or
business here.
&-/, has expanded the covera$e o.
the ter#B Sen$a$ed in trade or businessT to
include the exercise o. a pro.ession.
Further#oreB by the express provision o. the
lawB a @A who is neither a business#an
*&
nor a pro.essional but who co#e to and
stays in the 9hilippines .or an a$$re$ate
period o. #ore than *,( days durin$ any
calendar year is dee#ed to a @AETC in the
9hilippines.
.+ 5ow #any typesO
A+ There are three A)) typesB na#ely!
*. @A en$a$ed in trade or business
A&1a*)I
&. @A who practices a pro.ession
Aevenue e$ulation &-/,)I
). .orei$ner who co#es and stays in
the 9hilippines .or an a$$re$ate
period o. >"E T5A@ *,( days
durin$ any calendar year.
.+ Dhat is the status o. a %hinese who
stays here .or &(( days in &((*O
A+ @AETC
.+ Suppose he stayed here .or *(( days in
&((( and another *(( days in &((*O
A+ 5e is not a @AETC. To be considered as
suchB he #ust stay .or an a$$re$ate period
o. #ore than *,( days durin$ a calendar
year.
.+ Dhat is the inco#e tax applicable to
said taxpayerO
A+ @et -nco#e Tax A@-T) on all its inco#e
derived .or# sources within the 9hilippines.
Non-Resident &lien Not Engaged in
Trade or 'usiness
.+ 5ow #any =indsO
A+ "nly one.
The reason why the @A@ETC are
included in any inco#e tax law is because
they #ay be derivin$ inco#e .or# sources
within the 9hilippines.
They are sub<ect to tax based on their
?"SS -@%">E received .or# all sources
within the 9hilippines.
&liens Employed by Regional or
&rea (eadquarters ) Regional
$perating (eadquarters of
*ultinational Companies+ &liens
Employed by $s,ore 'an-ing
.nits "&liens Employed by *$P#
Q Status! either a A or @A dependin$ on
their stay here in the 9hilippines.
Q Their status #ay either be A or @A
because Section &1 % and D does not
distin$uish.
Q :iable to pay *1H .ro# ?ross -nco#e
received .ro# their e#ployer
Q -nco#e earned .ro# all "T5E sources
shall be sub<ect to the pertinent inco#e taxB
as the case #ay be.
&liens Employed in *ultinational
and $s,ore 'an-ing .nits
.+ 5ow are they classi;edO
A+ -. they derived inco#e .ro# other
sources aside .ro# their e#ployerB you #ay
classi.y the# either as AB @AETCB or
@A@ETC.
&liens Employed in Petroleum
Ser/ice Contractors and
Subcontractors
Q Status! A:DALS @A. -. they derive
inco#e .ro# other sourcesB such inco#e
shall be sub<ect to the pertinent inco#e taxB
as the case #ay be.
Q -nco#e derived or co#in$ .ro# their
e#ployer shall be sub<ect to a tax o. *1H o.
the $ross.
II. CORPORATE TAXPA2ER
*. 9omestic Corporation '9C. 0 created
or or$ani7ed under 9hilippine laws.
&. Resident %oreign Corporation 'R%C. 0
corporation created under .orei$n
lawB and en$a$ed in trade or
business.
). 1onresident %oreign Corporation
'1R%C. 0 created under .orei$n lawB
and @"T en$a$ed in trade or
business.
.+ Dhat are dee#ed corporations under
the @-%O
A+ The ter# corporation shall include
partnershipsB no #atter how created or
or$ani7edB <oint stoc= co#paniesB <oint
accountsB associationsB or insurance
co#paniesB but D"ES @"T includes $eneral
pro.essional partnerships and a <oint
venture or consortiu# .or#ed o. the
purpose o. underta=in$ construction
pro<ects or operations pursuant to or
*)
en$a$in$ in petroleu#B coalB $eother#al or
consortiu# a$ree#ent under a service
contract with the ?overn#ent.
*. 9artnerships and others no #atter
how created
&. Joint Stoc= %o#panies
). Joint Accounts
8. Associations
1. -nsurance %o#panies
C#R v CO$R" O% APPEAL&
The phrase no S#atter how created or
or$ani7edT was interpreted.
Even i. the partnership was pursuant to
law or notB whether nonstic=B nonpro;tB it is
still dee#ed a corporation.
eason! because o. the possibility o.
earnin$ pro;ts .or# sources within the
9hilippines.
.+ Are partnerships always considered
corporationsO -s there no exceptionO
A+ ?eneral ule! a partnership is a
corporation.
Exception! ?eneral 9ro.essional
9artnerships A?99)
.+ Dhat is a ?99O
A+ -t is a partnership .or#ed by persons .or
the sole purpose o. exercisin$ their
pro.essionB no part o. the inco#e o. which
in derived .ro# any trade or business. Awhat
i. a partner has other businesses not related
to the ?99O X read section &' quoted
hereunder)
Two A&) Ginds o. ?99 .or#ed .or!
*) Exercise o. a pro.ession 0 not a
corporationI exe#pt .ro# %orporate
-nco#e Tax A%-T)
&) Exercise o. a pro.ession and
en$a$ed in trade or business 0 a
corporationI sub<ect to %-T
"A1 v 9EL RO&AR#O
$eneral rule! a partnership is a
corporation
exception! ?99
exception to the exception! i. the ?99
derives inco#e .ro# other sourcesB it is
considered a corporationB thus liable to pay
corporate inco#e tax.
ule!
*. i. the inco#e is derived .ro# other
sources and such inco#e is sub<ect to @ET
-@%">E TAMB it is not exe#pt and it is
considered a corporation.
&. i. the inco#e is derived .ro# other
sources and such inco#e is sub<ect to F-@A:
-@%">E TAMB it is still EME>9T and it is not
dee#ed a corporation. A separate return .or
this. -t will not re3ect in the ?99Ks -T)
Y This is pursuant to the .act that F-T will
not re3ect in the -T o. the ?99 since the
withholdin$ a$ent is liable .or the pay#ent
o. the F-T.
.+ Dhat is the i#portance o. =nowin$
whether the corporation is exe#pt or notO
A+ To deter#ine their tax liability. This is
i#portant to deter#ine the tax liability o.
the individual partners o. the ?99.
Q &ection +2 '*
st
paragrap>. provides! Sa
?99 as such shall not be sub<ect to the @et
-nco#e TaxZT howeverB SZpersons
en$a$in$ in business as partners in a ?99
shall be liable .or inco#e tax only in their
separate and individual capacities.T
-n shortB each partner will be payin$ @-TB
and the distributive shares they will be
receivin$ .ro# the net inco#e o. the ?99
will be included in the $ross inco#e o. the
partner.
.+ -. the ?99 is dee#ed a corporationB will
the partners have to pay .or the inco#e
taxO
A+ @o. as .ar as the share o. the ?99 is
concernedB it is considered a taxable
dividend which is sub<ect to F-T.
.+ -s a <oint venture a corporationO
A+ ?enerallyB yesB it is a corporation.
.+ %orporation M and %orporation L <oined
to$ether. 5ow #any corporations do we
haveO
A+ ThreeB na#ely %orporation MB LB and
M[L. the <oint venture has a separate and
distinct personality .ro# the two
corporations.
.+ Dhen is a <oint venture not considered a
corporationO
A+ -t is not dee#ed a corporation when it is
.or#ed .or the purpose o. underta=in$ a
ASconstructionO) pro<ect or en$a$in$ in
petroleu#B $asB and other ener$y
operations pursuant to SOT or consortiu#
*8
a$ree#ent under a service contract with
the $overn#ent.
Domestic Corporation
-s one created or or$ani7ed in the
9hilippines or under its laws.
Taxable on all inco#e derived .ro#
sources within or without the 9hilippines.
Resident Foreign Corporation
Forei$n corporations en$a$ed in trade
or business in the 9hilippines.
Taxable .or inco#e derived within the
9hilippines.
Non-Resident Foreign Corporation
Forei$n corporations not en$a$ed in
trade or business in the 9hilippines.
Taxable .or inco#e derived within the
9hilippines.
Coth D% and F% are liable .or the
pay#ent o. the .ollowin$!
*) @-T 0 @et -nco#e Tax
&) F-T 0 Final -nco#e Tax
)) *(H inco#e tax on corporations with
properly accu#ulated earnin$s.
8) >%-T A>ini#u# %orporate -nco#e
Tax) o. &H o. the ?ross -nco#e
1) "ptional %orporate -nco#e Tax o.
*1H o. the ?ross -nco#e
A @F% is liable .or pay#ent o. the 4!
*) ?-T- ?ross -nco#e Tax
&) F-T 0 Final -nco#e Tax
III. TR%-T AN# E-TATE
.+ 5ow #any .or eachO
A+ Seven A+) =inds .or each because the
trust or estate will be deter#ined by the
status o. the trustorB $rantorB or creatorB or
o. the decedent.
The status o. the estate is deter#ined
by the status o. the decedent at the ti#e o.
his deathI so an estateB as an inco#e
taxpayer can be a citi7en or an alien.
Dhen a person who owns property diesB
the .ollowin$ taxes are payable under the
provision o. inco#e tax law!
*) -nco#e Tax .or -ndividuals 0 to cover
the period be$innin$ January to
the ti#e o. death.
&) Estate -nco#e Tax 0 i. the property is
trans.erred to the heirs.
)) -. no partition is #adeB -ndividual or
%orporate -nco#e TaxB dependin$
on whether there is or there is no
settle#ent o. the estate. -. there
isB dependin$ on whether the
settle#ent is <udicial or
extra<udicial.
<udicial &ettlement
*) Durin$ the pendency o. the
settle#entB the estate throu$h the
executorB ad#inistratorB or heirs is
liable .or the pay#ent o. ESTATE
-@%">E TAM ASexB '( A))).
&) -. upon the ter#ination o. the <udicial
settle#entB when the decision o. the
court shall have beco#e ;nal and
executoryB the heirs still do not
divide the propertyB the .ollowin$
possibilities #ay arise!
a) -. the heirs contribute to the
estate #oneyB property or
industry with the intention to
divide the pro;ts between and
a#on$ the#selvesB an
E@E?-STEED 9AT@ES5-9 is
created and the estate beco#es
liable .or pay#ent o. %-T
AEvan$elista vs. %ollector A*(&
9hil *8())
b) -. the heirs without contributin$
#oneyB property or industry to
i#prove the estateB si#ply divide
the .ruits thereo. between and
a#on$ the#selvesB a %"-
"D@ES5-9 is created and
-ndividual -nco#e Tax A--%) is
i#posed on the inco#e derived
by each o. the heirsB payable in
their separate and individual
capacity A9ascual vs. %">> A*'1
scra 1'() and "billos vs. %">>
A*)/ S%A 8)'))
E?tra@udicial &ettlement and if 1O
&ettlement
*1
So#e possibilities #ay arise. The
inco#e tax liability depends on whether or
not the unre$istered partnership or co-
ownership is created.
Trust
Trusts can be created by willB by
contract or by a$ree#ent. The status o. a
trust depends upon the status o. the
$rantor or trustor or creator o. the trust.
5enceB a trust can also be a citi7en or an
alien.
.+ Dhere the trust earns inco#e and such
inco#e is not passiveB who a#on$ the
parties #entioned is liable .or pay#ent o.
inco#e tax thereonO
A+ The TEST itsel.B throu$h the trustee or
;duciary but only i. the trust is irrevocable.
-. it is revocableB or .or the bene;t o. the
$rantorB the liability .or the pay#ent o.
inco#e tax devolves upon the trustor
hi#sel. in his capacity as individual
taxpayer.
1IN#- OF INCO/E TAX
.+ 5ow #any =inds o. inco#e taxO
A+ There are Six A')B na#ely!
*. @et -nco#e Tax A@-T)I
&. ?ross -nco#e Tax A?-T)I
). Final -nco#e Tax AF-T)I
8. >ini#u# %orporate -nco#e Tax o.
&H o. the ?ross -nco#e A>%-T)
1. -nco#e Tax on -#properly
Accu#ulated Earnin$s sub<ect to
*(H o. the Taxable -nco#eI
'. "ptional %orporate -nco#e Tax o.
*1H on the ?ross -nco#e
I. NET INCO/E TAX
.+ what is the .or#ulaO
A+ ?ross -nco#e 0 Deductions and 9ersonal
Exe#ptions \ Taxable -nco#e
Taxable -nco#e x Tax ate \ @et
-nco#e
Taxable @et -nco#e 0 Tax %redit \
Taxable @et -nco#e Due
@et -nco#e #eans ?ross -nco#e less
deductions and
For#ula!
?-
- deductions
@et -nco#e
x Tax ate
-nco#e Tax Due
.+ Dhat is the rateO
A+ -ndividual! )&H
%orporation! )1H
@"TE! the .or#ula allows .or deductionB
personal exe#ptions and tax credit.
.+ Dhat are the other ter#s .or @-TO
A+ @-%!
a. taxable inco#e
b. $ross inco#e Awlan$ =asunod)
P only inco#e tax .ro# i#properly
accu#ulated earnin$s does not use this
ter#.
*. %FA! Sto be included in the $ross
inco#eT
&. evenue e$ulations and Statutes!
a. ordinary way o. payin$ inco#e
taxI
b. nor#al way o. payin$ inco#e tax
.
C,aracteristics0
.+ Dho are not liable to pay @-TO
A+ *. @A@ETC Aliable .or ?-T)I
&. @F% A?-T also)I
). Dith certain #odi;cationsB AE>"9B i.
they derive inco#e .ro# other
sourcesI
.+ -s the taxable net inco#e sub<ect to
withholdin$ taxO
A+ -t is sub<ect to withholdin$ tax i. the law
says so.
.+ Dhat i. the law is silentO
A+ -. the law is silentB it is not sub<ect to
withholdin$ tax.
.+ Dhat is another ter# .or withholdin$
taxO
A+ -t is also =nown as the creditable
withholdin$ tax syste# under the inco#e
tax law.
.+ Do we have to deter#ine i. there is an
actual $ain or lossO
A+ Les because the .or#ula .or deductionsB
etc.
*'
.+ -. you .ail to payB will you be held liableO
A+ LesB you will be held liable.
II. GRO-- INCO/E TAX 3GIT4
.+ Dhat is the .or#ulaO
A+ ?ross -nco#e x ate
.+ 5ow #any taxpayers pay by way o. the
$rossO
A+ There are two A&)
individual - @A@ETC
corporation - @F%
@"TE! the .or#ula does not allow any
deductionB personal exe#ptions and tax
credit.
C,aracteristics0
Q @A@ETC and @F%B thou$h not
en$a$ed in trade or businessB are liable to
pay by way o. the $ross .or any inco#e
derived in the 9hilippines. Dhile not
en$a$ed in trade or businessB there is a
possibility that they #ay earn inco#e in the
9hilippines.
.+ -s this sub<ect to withholdin$ taxO
A+ LesB it is sub<ect to withholdin$ tax
because the persons liable are .orei$ners.
This rule is ACS":ETE
@"TE! there are two A&) ways o. payin$
taxes dependin$ on which side o. the bench
you are.
III. FINAL INCO/E TAX 3FIT4
.+ Dhat is the .or#ulaO
A+ AEach -nco#e) x A9articular ate)
Enli=e in the $ross inco#e tax where
you add all the inco#e .ro# all the sources
and #ultiply the su# thereo. by the rate o.
&1H or )1HB as the case #ay beB in ;nal
inco#e taxB you cannot <oin all the inco#e
in one $roup because each inco#e has a
particular rate.
A+ )1H as the case #ay be.
@"TE! li=e ?-TB the .or#ula does not allow
deductionsB personal exe#ptionsB and tax
credit.
C,aracteristics0
.+ Dho are liable to pay F-TO
A+ All taxpayers are liable to pay F-T
provided the requisites .or its application
are present.
.+ Do you still have to pay @-TO
A+ @o. i. you are liable .or F-TB no need to
pay @-T or else there will be double
taxation.
@"TE! as ti#e passed byB the nu#ber o. F-T
increased.
Q be.ore */+/ 0 proceeds .ro# the sale o.
real property not exe#ptB it is sub<ect to @-T
or ?-TB as the case #ay be.
a.ter */+/ 0 capital $ains tax. 9roceeds
.ro# the sale o. real property is exe#pt.
.+ -. you .ail to payB will you be liableO
A+ @o. the withholdin$ a$ent is liable to
pay F-T.
Q %ase o. JudayB ichard and e$ine
Q For one to be liable .or the pay#ent o.
@-TB the inco#e #ust be derived on the
basis o. an e#ployer 0 e#ployee
relationship.
E#ployer 0 E#ployee elationship
A) %s)!
*. contractI
&. controlI
). co#pensationI
Q 5oweverB in the case o. celebritiesB
there is no e#ployer 0 e#ployee
relationshipB they are #erely receivin$
royalties. oyalties are sub<ect to ;nal
withholdin$ taxB thus the a$ent is liable to
pay. AsoB distin$uish nature o. inco#eB
whether royalty or co#pensation)
E:E!
*. .or @-TB whether or not sub<ect to
%reditable Dithholdin$ Tax A%DT)B
the taxpayer is always liable i. he
.ails to pay.
&. .or ?-T and F-TB absolute liability to
pay is upon the withholdin$ a$ent.
*+
.+ Dhy is it that the rate o. withholdin$ is
always lowerB and why is it that the rate o.
?-T and F-T is always equalO
A+
*. @-T allows deductionsI
&. ?-T and F-T do not allow deductions.
.+ Do you have to deter#ine whether there
is an actual loss or $ainO
A+ @o need to deter#ine because the
.or#ula does not allow deductions. ?ain is
presu#ed. @o liability .or ;nal withholdin$
tax except .or the sale o. shares o. stoc=.
AO)
IV. /INI/%/ CORPORATE INCO/E
TAX 3/CIT4
.! Dhat is the .or#ulaO
A+ ?ross -nco#e x &H
.! Dho pays this taxO
A+ D% and F% only.
.+ >ay it be applied si#ultaneous with
@-TO
A+ @o. there #ust be a co#putation o. the
@-T ;rst then apply which ever is hi$her.
The >%-T is paid in lieu o. the @-T.
eason! to discoura$e corporations .ro#
clai#in$ too #any deductions.
V. OPTIONAL CORPORATE INCO/E TAX
.+ Ender what section is this .oundO
A+ Section &+A 8
th
para$raph and Section
&, AA*) 8
th
para$raph.
.+ -s this applicable nowO
A+ @o. this is not yet i#ple#ented.
.+ To what =ind o. taxpayer does this
applyO
A+ To D% and F%.
.+ Dhat =ind o. taxes are applicable or
i#posed upon the *
st
;ve individual
taxpayersO
A+ "nly two A&) =inds are applicable out o.
the six A') =inds o. inco#e taxes.
1. @-TI
2. F-TI
.+ Dhat =ind o. inco#e tax will apply to
AE>"9O
A+ ?enerallyB only one =indB *1H F-T with
respect to inco#e derived .ro# their
e#ployer.
-nco#e .ro# other sources!
*. Deter#ine the status o. the AE>"9I
a. @-T
b. F-T
&. @A@ETC
a. ?-T
b. F-T
.+ Dhat =ind o. inco#e tax applies to D%O
A+ "nly .our A8) =inds will apply out o. the
six A')
*. @-T
&. F-T
). >%-T
8. -#properly Accu#ulated Earnin$s
.+ >ay all o. these be applied
si#ultaneouslyO
A+ @o. only the @-TB F-T and -#properly
Accu#ulated Earnin$s be applied
si#ultaneously. @-T and >%-T cannot be
applied si#ultaneously. "nly one will applyB
whichever is hi$her between the two.
.+ Dhat =ind o. tax will apply to @F%O
A+ "ut o. the six A') =indsB only two A&) will
apply!
*. ?-T
&. F-T
.+ Dhat is the si$ni;cance o. =nowin$ the
classi;cation o. these taxpayersO
A+
*. to deter#ine the =ind o. inco#e tax
applicable to the#I
&. to deter#ine their tax liability.
.+ Ender Section &)B who are liable .or
inco#e within and inco#e withoutO
A+ "nly
*. %
&. D%
Q The rest o. the taxpayers will be liable
.or inco#e co#in$ .ro# sources within.
Q -nco#e .ro# sources withoutB no
liabilityB there.ore exe#pt.
@"TE! The inco#e taxpayer is not a % or a
D%. Deter#ine i. the inco#e ca#e .ro#
*,
sources within or without to =now the
taxpayerKs liability.
Q -. the .acts are speci;cB do not quali.y
your answer. Answers #ust be responsive
to the question.
.+ -s section 8& relevant to all the
taxpayersO
A+ @". SE%T-"@ 8& -S @"T >ATE-A: T"
A:: taxpayersB particularly the % and D%
because these two are liable .or both
inco#e within and without.
Q Section 8& is applicable only to
taxpayers who are liable .or inco#e withinB
the rest o. the taxpayers are otherwise
exe#pt.
.+ Section 8&AA)A*) provides .or how #any
=inds o. interestsO
A+ -t establishes two A&) =inds o. interestsB
na#ely!
*. interest derived .ro# sources within
the 9hilippines.
&. interest on bondsB notes or other
interest bearin$ obli$ations o.
residentsB corporate or otherwise.
.+ Dhat is the deter#inin$ .actor in order
to =now i. the inco#e is .ro# withinO
A+
*. location i. the ban= is .ro# within
the 9hilippines Apursuant to a
evenue e$.)
&. residence o. the obli$or Awhether an
individual or a corp.) 0 contract o.
loan with respect to the interest
earned thereon.
Q For exa#ple the borrower is a @AETCB
he borrowed #oney .ro# a A. The interest
earned by the loan will be considered as an
inco#e without. A is not liable to pay tax
since A is liable only .or inco#e withinB
there.ore exe#pt .ro# payin$ the tax.
1A"#O1AL 9E:ELOP/E1" CO v C#R
F! The @ational Develop#ent %o#pany
A@D%) entered into a contract with
several Japanese shipbuildin$
co#panies .or the construction o. *&
ocean-$oin$ vessels. The contract was
#ade and executed in To=yo.
The pay#ents were initially in cash
and irrevocable letters o. credit.
SubsequentlyB .our pro#issory notes
were si$ned by @D% $uaranteed by the
?overn#ent.
:ater onB since no tax was withheld
.ro# the interest on the a#ount dueB
the C- was collectin$ the a#ount .ro#
@D%.
The @D% contended that the inco#e
was not derived .ro# sources within the
9hilippinesB and thus they are not liable
to withhold anythin$. @D% said that
since the contract was entered into and
was executed in JapanB it is an inco#e
without.
5! The $overn#entKs ri$ht to levy and
collect inco#e tax on interest received
by a .orei$n corporation not en$a$ed in
trade or business within the 9hilippines
is not planted upon the condition that
the activity or labor and the sale .ro#
which the inco#e 3owed had its situs in
the 9hilippines. @othin$ in the law
ASection 8&A*)) spea=s o. the act or
activity o. nonresident corporations in
the 9hilippinesB or place where the
contract is si$ned. The residence o. the
obli$or who pays the interest rather
than the physical location o. the
securitiesB bonds or notes or the place o.
pay#ent is the deter#inin$ .actor o. the
source o. the inco#e. Accordin$lyB i. the
obli$or is a resident o. the 9hilippinesB
the interest paid by hi# can have no
other source than within the 9hilippines.
.+ Suppose a @F%B an -ndonesian ;r#B
beco#es a stoc=holder o. two corporationsB
a D% and a F%B and both corporations
declared dividendsB what is the liability o.
the -ndonesian ;r# i. the sa#e received the
dividendsO
A+
*. Dividends received .ro# D%! the
-ndonesian ;r# is liable to pay
taxes. @F%B under the lawB is liable
i. the inco#e is derived .ro# sources
within. ASec 8&a)
&. Dividends received .ro# F%! the
-ndonesian ;r#Ks liability will depend
on a#ount o. $ross inco#e .ro#
sources within the 9hilippines.
The @F% will be liable to pay inco#e tax i.
the .ollowin$ requisites are present!
*. at least 1(H is inco#e .ro# sources
withinI
*/
&. the *
st
requisite is .or the three A))
precedin$ taxable years .ro# the
ti#e o. declaration o. the dividends.
Q -n the absence o. any or both
requisitesB the inco#e will be considered
.ro# sources withoutB thus exe#ptin$ the
-ndonesian ;r# .ro# pay#ent o. inco#e
tax.
.+ Sa#e scenarioB but this ti#e the shares
o. stoc= o. the two corporations were bein$
disposed o4. Dhat is the tax liability o. the
-ndonesian ;r#O
A+
*. sale o. shares o. stoc= o. D%! the
-ndonesian ;r# will be liable .or the
pay#ent o. taxes because the
inco#e is .ro# sources within.
&. sale o. shares o. stoc= o. F%! the
liability will depend on where the
shares o. stoc= were sold. A#e<o
>alabo sa notesB please be $uided
accordin$ly)
.+ Filipino ExecutiveB assi$ned to 5on$
Gon$B receivin$ two salariesB one .ro# the
9hilippinesB the other .ro# 5G. The
per.or#ance o. the <ob was in 5G. -s he
liable .or both salariesO
A+ @oB he is not liable .or the two inco#es.
5is status is an "%D Anote .acts! wor=in$ in
5G under contract). The co#pensation he
received is not sub<ect to tax pursuant to
Section 8&Ac). %o#pensation .or labor or
personal services per.or#ed in the
9hilippines is considered an inco#e within.
Dhen it co#es to servicesB it is the place
where the sa#e is rendered which is
controllin$. -n the case at barB the services
were rendered abroadB thus it is an inco#e
derived .ro# sources withoutB irrespective
o. the place o. pay#ent.
.+ Suppose a D% hired a @F% to advertise
its products abroad. Dhat is the liability o.
the @F%O Dill there be a withholdin$ tax
i#posedO
A+ The inco#e is derived .ro# sources
without since the services in this case were
per.or#ed abroad. As suchB the @F% is not
liable and there.ore exe#pt .ro# the
pay#ent o. tax. -. the @F% is not sub<ect to
@-TB then it is not also sub<ect to
withholdin$ tax.
.+ Dhat is the controllin$ .actorO
A! The controllin$ .actor is the place where
the services were per.or#ed and not where
the co#pensation there.ore was received.
RENTAL- AN# RO2ALTIE-
Qinco#e .ro# sources within
.+ ?ranted by whoO
A+ @F%
.+ Suppose you are the .ranchise holderB
how #uch is the withholdin$O
A+ )1H A?-T)
6! i. the .ranchise is $ranted by F%B how
#uch is the withholdin$O
A! *(H A@-T) and in so#e cases *1H
Section 8&A8) >E>"-UE F" E%-T
A%EGSTT>)
a. ri$ht o.B or the ri$ht to use
copyri$htB patentsB etc
b. industrialB co##ercialB
scienti;c equip#ent
c. supply o. =nowled$e
d. supply o. services by
nonresident
e. supply o. technical assistance
.. supply o. technical advice
$. ri$ht to use! #otion picture
;l#sB etc.
.+ Dhat is the rule as re$ards the sale o.
real propertyO
A+ ?ainsB pro;tsB and inco#e .ro# the sale
o. real property located within the
9hilippines considered inco#e within.
.+ Dhat about the sale o. personal
propertyB what is the ruleO
A+ Deter#ine ;rst i. the property is
produced or #erely purchased.
*. it the property is #anu.actured in
the 9hilippines and sold abroadB or
vice-versaB it is an inco#e partly
within and partly without.
&. i. the property is purchasedB
considered derived entirely .ro# the
sources within the country where it
is sold.
EM%E9T-"@! shares o. stoc= o. do#estic
corporationB it is an inco#e within wherever
it is sold.
C$**1SS1$NER /2 1&C
&(
.! Dhat is the issue hereO
A+ They cannot deter#ine i. the business
expense was incurred in the 9hilippines.
.+ i. you are the C-B and the taxpayer is
not sureB will you disallow the
deductionO
A+ @o. deter#ine it pro rata.
For#ula! ?- .ro# within
?- .ro# without
Exa#ple! *((B(((
*B(((B(((
\ *(H
Q 5enceB *(H is the ratable share in the
deduction. -. the deduction bein$ as=ed
is *((B((( not all o. it will be allowed.
"nly *(B((( or *(H o. *((B((( will be
allowed as deduction.
CAPITAL GAIN- AN# LO--E-
Section )/
.+ Dhat is capital assetO
A+ %apital asset is an asset held by a
taxpayer which is not an ordinary asset.
The .ollowin$ are ordinary assets!
*. stoc= in trade o. the taxpayer or
other property o. a =ind which would
properly be included in the inventory
o. the taxpayer i. on hand at the
close o. the taxable yearI
&. property held by the taxpayer
pri#arily .or sale to custo#ers in the
ordinary course o. trade or businessI
). property used in trade or business o.
a character which is sub<ect to the
allowance .or depreciation provided
in subsection *.
8. real property used in trade or
business o. the taxpayer.
All other property not #entioned in the
.ore$oin$ are considered capital assets.
.+ Dhat is a capital $ainO Dhat is a capital
lossO
A+ %apital $ains are $ains incurred or
received .ro# transactions involvin$
property which are capital assets. %apital
losses are losses incurred .ro# transactions
involvin$ capital assets.
.+ Dhat is ordinary $ainO "rdinary lossO
A+ "rdinary $ains are those received .ro#
transactions involvin$ ordinary assets.
%apital losses are losses incurred in
transactions involvin$ ordinary assets.
.+ Dhat is the relevance o. #a=in$ a
distinctionO
A+ -t is relevant because Section )/CB%B
and D apply to capital assets only.
*. ti#e when property was held A)/C)
Aholdin$ period applies only to
individuals)I
&. li#itations on capital losses A)/%)I
). @et %apital %arry-"ver A)/D)
I. CAPITAL A--ET-
.+ Dhat is the holdin$ periodO
A+ -. capital asset is sold or exchan$ed by
an individual taxpayerB only a certain
percenta$e o. the $ain is sub<ect to inco#e
tax.
-t is the len$th o. ti#e or the duration o.
the period by which the taxpayer held the
asset.
.+ Dhat is the require#entO
A+
*. the taxpayer #ust be an individual.
Section )/C states Sin case o. a
taxpayerB other than a corporation..T
&. property is capital in nature.
.+ Dhat is the ter#O
A+ *((H i. the capital asset has been held
.or not #ore than *& #onthsI Ashort ter#)
1(H i. the capital asset has been held
.or #ore than *& #onths. Alon$ ter#)
@"TE! the holdin$ period applies to both
$ains and losses.
.+ Do you include capital $ains in your -TO
A+ ?eneral rule! yesB include in -T.
EM%E9T!
*. $ains in sales o. shares o. stoc= not
traded in stoc= exchan$eAsection
&8)I
&. capital $ains .ro# sale o. real
propertyAsection &8).
.+ Dhen will the holdin$ period not applyO
A+
*. property is an ordinary asset
&. taxpayer is a corporation
). sale o. real property considered as
ordinary asset
&*
II. LI/ITATION ON CAPITAL LO--E-
Qsynony#ous to )8D F loss capital rule
Q this applies to individual and corporate
taxpayer
.+ Dhat is the loss li#itation ruleO
A+ 9ursuant to Section )/ %B losses .ro#
sales or exchan$e o. capital assets #ay be
deducted only .ro# capital $ainsB but losses
.ro# the sale or exchan$e o. ordinary
assets #ay be deducted .ro# capital or
ordinary $ains. Aapplies to individual and
corporation)
.+ -n connection with )8 DB :osses in
Allowable DeductionB what is the rationale
behind this ruleO
A+ -. it is otherwiseB it will run counter with
the rule that the loss should always be
connected with the trade or businessB
capital losses are losses not connected to
the trade or businessB thus it is not
deductible
.+ what is your re#edyO
A+ )/ DB net capital loss carry-over
.+ Dhat is the rationale in allowin$ ordinary
loss to be deducted .ro# either the
capital $ains or ordinary $ainsO
A+ -t is already included in -TB the $ross
inco#e less deductions hence it already
carries with it the deduction
"AAE 1O"E: @or#ally i. the loss is an
ordinary loss there is no carry over.
E?cept: a. )8D)
b. i. the loss is #ore than ?-

III. NET CAPITAL LO-- CARR20OVER
.+ Dhat are the require#entsO
A+
*. taxpayer is an individualI
&. paid in the i##ediately succeedin$
yearI
). applies only to short ter# capital
$ainI
8. capital loss should not exceed net
inco#e in the year that it was
incurred.
.+ 5ow does net capital loss carry-over
di4er .ro# net operatin$ loss carry-over
under Section )8 D A))O
A+ Ender the net capital loss carry-over
ruleB the capital loss can be carried over in
the i##ediate succeedin$ year. -n net
operatin$ loss carry-over ruleB capital loss
can be carried over to the next three A))
succeedin$ calendar year .ollowin$ the year
when the loss was incurred.
@"TE! only *1H o. the loss will be carried
overB i. the loss is $reater than the $ains.
Q -n net operatin$ loss carry-over there is
an exception to the ) year carry-over
period. -n case o. #ines other than oil and
$as wellsB the period is up to 1 years.
.+ Dhat is a short saleO
A+ Sale o. property by which the taxpayer
cannot co#e into the possession o. the
property. EM! shares
C&3&4&NS /2 C1R
F! The taxpayer inherited the property
.ro her .ather and at the tie o. the
inheritance it was considered a capital
asset. -n order to liquidate the
inheritanceB the taxpayer decided to
develop the land to .acilitate the sale o.
the lots.
-! Das the property converted to
ordinary assetO
5! The conversion .ro# capital asset to
ordinary asset is allowed because
Section )/ is silent.
.+ Are you allowed to convert ordinary
asset to capital assetO
A+ ?eneral rule! it is not allowed. ead
evenue e$ulation +-&(()
The case at bar still applies despite o.
the issuance o. said evenue e$ulation.
.+ Dhat is the conversion prohibited in the
evenue e$ulationO
A+ %onversion o. real estate property.
.+ Dhat is the rationaleO
A+ Section &8 D 0 ;nal inco#e tax o. 'H i.
the real estate is capital asset. -. it is an
ordinary assetB it will be sub<ect to inco#e
tax o. )&H .or individual taxpayerB and )1H
i. the taxpayer is a corporation.
.+ Dhat are the properties involve in the
+-&(()O
A+ *. those property .or sale by the realtors
&. real property use in trade or business
not necessary realtors
&&
.+ That is the conversion allowed by the
evenue e$ulationO -s there an instance
when an ordinary asset #ay be converted
to capital assetO
A+ LesB provided that the property is an
asset other the real propertyB and it has
been idle .or two A&) years.
-ECTION 56
TAX ON IN#IVI#%AL-
.+ Dhat is the tax #entioned in section
&8O
A+ @-T
.+ Dhat is taxable inco#eO
A+ A#e#ori7e section )*) it is the pertinent
ite#s o. $ross inco#e speci;ed in the @-%B
less the deductions andNor personal and
additional exe#ptionsB i. anyB authori7ed .or
such types o. inco#e by the @-% or other
laws. -t re.ers to @-T because it allows
deductions.
.+ Dhat do you #ean by the phrase Sother
than CB %B and DTO
A+ -t #eans that i. the ele#ents o. passive
inco#e are presentB the taxpayer has to
pay F-T.
.+ Dho are the taxpayers #entioned in
section &8O
A+
*. %
&. @%
). "%D
8. A
Q AdditionallyB under Section &1B @AETC
.+ Dhat is the tax liability o. @AETCO
A+ Section &1A*) @AETC is sub<ect to
inco#e tax in the sa#e #anner as
those individuals #entioned in Section &8.
.+ Dhat about Do#estic %orporationsO
A+
*. Sec. &+ ABCB and %
&. Sec. &'- ?99 is not sub<ect to inco#e
tax.
.+ Dhat about esident Forei$n
%orporationsO
A+ Sec &,Al) it is sub<ect to )1H @et -nco#e
Tax
.+ Dhat about @on esident .orei$n
%orporation and @on esident Alien not
en$a$ed in Trade or CusinessO
A+ @ot Sub<ect to @et -nco#e Tax but they
are liable .or ?ross -nco#e tax.
.+ Do le$ally #arried husband and wi.e
need to ;le separately or <ointlyO
A+ -t depends i.!
*. 9ure co#pensation inco#e- separate
&. @ot 9ure co#pensation inco#e- <oint
Passi'e Incoe
#nterest, RoBalties, priCes and Ot>er
Dinnings
1nterest
.+ Can= -nterestB what is the require#entO
A+ The ban= #ust be located in the 9hils.
because the inco#e #ust be derived .ro#
sources wNin.
.+ Do you include this in your -TO
A+ @o] because it is sub<ect already to F-T.
The ban= is the one liable .or the pay#ent
o. this.
@"TE! :iability .or @-TB ?-TB and >%-T will
depend on the ele#ents present.
.+ Dho are liable .or ban= interestO
A+
*. % ^
&. @%^ Sec. &8 C*
). A ^
8. @AETC
1. @A@ETC Sec. &1 A&1H)
'. AE>"9
+. D%
,. F%
/. @F%
.+ Dhat is the rate o. interestO
A+ F-T o. &(H
.+ -s there a lower rateO
A+ + _ H i. under EF%DS
.+ Dhat i. the depositor is non resident
alienO
A+
-DNin 0 F-T
- DNout- exe#pt
.+ Dhat is the rule on pre- ter#inationO
&)
A+ -. it is pre ter#inated be.ore 1
th
year a
F-T shall be i#posed on the entire inco#e
and shall be deducted and withheld by the
depositary ban= .ro# the proceeds o. the
lon$ ter# deposit based on the re#ainin$
#aturity thereo.
a. 8 yrs to less than 1 yrs 0 1H
b. ) yrs to less than 8 yrs- *&H
c. :ess than ) yrs- &(H
.+ Does it apply to all individualsO
A+ @o] -t does not apply to *( @F% and
@A and @AETC because they are liable to
?-T.
@"TE! i. the depositary is a @on resident it
is exe#pt
Q esident citi7en is liable to pay tax .or
ban= interest earned abroad A@-T)
.+ -. the #oney earns interest in abroad
who is liableO
A+ % and D% only by @-TB the rest are
exe#pt. @o F-T abroad because we do not
have withholdin$ a$ent abroad.
.+ >%-T applies to D% and F% in relation
to ban= interestO
A+ -. the ban= interest is derived abroadB
F% is exe#pt but D% is liable.
-#pose @-T i. it is hi$her than the >%-TB
otherwise apply >%-T i. itKs hi$her than the
@-T
Pri!es
equire#ents!
*. 9ri7es #ust be derived .ro# sources
wNin the 9hils.
&. it #ust be #ore than 9 *(B(((
.+ Dho are liableO AF-T)
A+
*. %
&. @%
). "%D
8. A
1. @AETC
'. AE>"9 A%B @AETC)
@ot :iable
*. @A@ETC- liable .or ?-T at &1 H
&. AE>9"9 A@A@ETC- ?-T)
). D%- @-T &+ D is silent
8. F% @-T law is silent &,A+a
1. @F% sub<ect to ?-T
.+ Dhen can we apply @-T in 9ri7esO
A+ *. Dhen the taxpayer is %B F% and
D%
&. For D% and % it #ust be derived
.ro# inco#e abroad F% it #ust be
derived .ro# inco#e wNin
). a#ount is #ore than 9*(B(((
@"TE! -. the pri7e is derived .ro# sources
wNin but it is below 9 *(B((( it is not sub<ect
to tax. -. derived .ro# sources abroadB #ost
o. the# are exe#pt except .or % and D%
who are liable wNin and wNout.
.7 -s it possible .or % and D% to pay >%-TO
A+ Les i. >%-T is hi$her than @-T.
%innings
.+ Do we apply the 9*(B ((( req.O
A+ @oB we do not apply it only applies to
pri7es. -t #ust not pertain to ille$al
$a#blin$.
Q ThusB the only require#ent is it #ust be
derived .ro# inco#e wNin.
.+ Dho are liableO AF-T)
A+
*. %
&. @%
). "%D
8. A
1. @AETC
'. AE>"9 AAB @AETC)
@ot liable to F-TO
* @A@ETC- ?-T
& AE>"9 A@A@ETC- ?-T)
) D%- law is silent @-T
8 F%- law is silent
1 @F%- ?-T
.+ Dhen does @-T apply to winnin$sO
A+
*. -. Taxpayer is D% or %
&. -nco#e is derived abroad
). Taxpayer is F% and inco#e wNin.
@"TE! -. inco#e abroadB #ost T9 are
exe#pt except D% and %
.+ >%-T applies whenO
A+ -t is hi$her than the @-T
Royalties
&8
equire#ent!
Q The inco#e is .ro# wNin
Q ateO &(H. :ower rateO *(H on boo=sB
literary wor=s and #usical co#positions.
.+ Lou are a writer .or Snoop Do$$ are you
liable .or F-TO Dhat i. .or April CoyO
A+ :iable .or @-T i. -nco#e abroad li=e a
writer .or Snoop. Dhile F-T i. .or April Coy.
.+ Dho are liable AF-T)O
A+
*. %
&. @%
). "%D
8. A
1. @AETC
'. AE>"9 A%B @AETC)
@ot :iableO
*. @A@ETC
&. AE>"9
). D%
8. F%
1. @F%
@"TE! :ower rate o. *(H applies to all
except @A@ETC
.+ Dhen do we apply @-T to oyaltiesO
A+
*. T9 is % or D%
&. -nco#e is .ro# wNout
). T9 is F and inco#e is wNin
Q -. inco#e is .ro# sources abroad all are
exe#pt except % and D%
Di/idends
Q %on;ned with cash andNor property
dividends.
.+ Dhat are dividendsO
A+ Any distribution #ade by %orporation to
its stoc=holders outside o. its earnin$s or
pro;ts and payable to its stoc=holders
whether in #oney or in property ASec. +))
CO// vs /A11#10
.+ Dhere did it co#e .ro#O
A+ shares co#e .ro# another shareholder
.+ Dhat are the dividends includedO
A+ Sec. &8 re.ers to cash or property
dividend
5! For stoc= Dividends to be exe#pt it
#ust co#e .ro# the pro;t o. the
corporation.
&tocE 9ividends F it is the trans.er o. the
surplus pro;t .ro# the authori7ed capital
stoc=s.
.+ Assu#in$ that there are 1 -ncorporatorsB
the %orporation has a 91 > Authori7ed
%apital stoc=. -t distributed * > stoc=
dividendsB is it taxableO
A+ @"B the dividends did not $o to the
Stoc= holder but to the Auth %apital Stoc=.
"nly cash and 9rop Stoc= $o to the Stoc=
holder.
Q Sec &8 C does not #ention stoc=
dividends because it is not sub<ect to F-T
but it is sub<ect to @-T under Section +).
.+ -s there an exception when stoc=
dividends are not taxableO
A+ LESB i. the shares o. stoc=s are cancelled
and redee#ed #eanin$ it was reacquired
by the corp.
A1&COR CA&E
Pthe stoc=holders cannot escape the
pay#ent o. taxes
equire#ent!
?en ule- the dividends #ust be distributed
by a D%.
Except- e$ular operatin$- always a .orei$n
corp.
Q Dhat rate! *(H F-T
.+ Dho are liableO
A+
*. %
&. @%
). "%D
8. A
1. @AETC
'. AE>"9 A%B @AETC)
@ot liableO
*. @A@ETC
&. AE>"9
). D%
8. F%
1. @F%
Q Shares o. association and partnership is
taxable
&1
.+ Deter#ine the tax liability o. the
.ollowin$O
A+
*. D% a Stoc=holder o. D%\ Exe#pt
&. F% stoc=holder o. D%\ Exe#pt also
). D% stoc=holder o. F\ :iable .or @-T.
Capital 5ains From Sale of S,ares of
Stoc- Not Traded "678C#
1. Sub< to F-T
2. Deter#ine whether there is a loss or
a $ain because the tax is i#pose
upon the net capital $ains reali7ed
.ro# the saleB barterB or exchan$e or
other disposition o. the shares o.
stoc= in a do#estic corp.
3. -t is uni.or#ly i#posed on all
taxpayer
4. not sub< to wNholdin$ tax.
equire#ents!
*. Shares o. stoc= o. a D%
&. -t #ust be capital asset
). #ust not be traded in the stoc=
#ar=et
Q &1 last part! %apital ?ains reali7ed by
@A@ETC in the 9hils. .ro# the sale o.
shares o. stoc= in any D% and real prop
shall be sub<. to the inco#e tax prescribed
under Sub sec Ac) and Ad) o. Sec. &8.
Q SE%. &8 C *F&! -. the ele#ents are
present @A@ETC and @F% are liable to
pay ?-T.
Except! under &8 % .or @A@ETC. Dhat do
you #ean by the phrase S the provisions o.
)/ notwithstandin$TO
Q -t re.ers to the holdin$ period. Dhen it
co#es to capital $ains .ro# sale o. shares
o. stoc= not traded and capital $ains .ro#
the sale o. real prop. The holdin$ period
does not apply because the basis will be
those provided in &8 % F D and not under
)/C A?S9 or F>2)
ELE/ENT 89 T&e s&are is a s&are in #C
.+ Dhat i. the share is .ro# .orei$n corpO
A+ Deter#ine the inco#e considered. -.
inco#e wNin read Sec. 8& AE)
Q -. the shares sold are that o. a .orei$n
corp it is sub< to the 4 rules!
a. sold in the 9hils\ its inco#e wNin
b. sold in abroad\ wNout
c. Shares o. stoc= in a Dc is always
considered an inco#e wNin re$ardless
where it was sold.
.+ Shares o. Forei$n %orp sold in 9hils.
DhoKs liableO Dhat taxO
A+ @ot sub< to F-T because one o. the
ele#ents is not present . Shares not bein$
that o. a D%.
5ence! a) %B @%B "%DB @AETCB
AE>"9 AAB @AETC) will pay @-T. D% and
F%
b) @A@ETC and @F% will pay ?-T
.+ Shares o. Forei$n %orporation sold
abroadO
A+ -t will be considered an inco#e wNout.
Thus!
#ost o. the# will be exe#pt
except % and D% liable to pay @-T
ELE/ENT 8 5 NOT TRA#E# OR -OL# IN
T:E -TOC1 /AR1ET
Q i. sold in the stoc= #ar=et- it is not sub<
to F-T
Q i. sold in the stoc= #ar=etB it will be sub<
to percenta$e taxB in lieu o. @-T.
ELE/ENT 8 ; It ust <e a capital
asset.
.+ Dhen is it considered an ordinary assetO
A+ *. Dhen the bro=er or dealer
a. used it in trade or business
b. held .or sale in the ordinary
course o. trade or business
&. to all other assetsB it will be
considered a capital asset
@"TE! i. all ele#ents are present it will be
sub< to F-T
-. the shares are ordinary asset
*. "rdinary shares in D%- inco#e wNin
a. >ost o. the taxpayer will pay @-T
except @F% and @A@ETC
&. "rdinary assets o. .orei$n corporations
a. -nco#e within i. sold in the 9hils!
#ost will pay except @A@ETC
and @F%
&'
b. -nco#e wNout i. sold abroad! #ost
will be exe#pt except % and D%
>%-T
.+ Dhen is a F% sub< to @-TO
A+
*. Sale o. shares o. stoc= o. a Forei$n
corp in the 9hil.
&. sale o. shares o. stoc= o. D% which
are ordinary asset
Q D% and F% are sub< to >%-T which #ay
be i#posed i. the @-T is lower than the
>%-T&H >%-T will be i#posed i. >%-T is
hi$her than @-T.
Capital 5ains From Sale of Real
Property "678D#
Q -n )/ C the holdin$ period does not
apply because the basis o. inco#e tax is
the $ross sellin$ price A?S9) or the Fair
#ar=et value AF>2) whichever is hi$her- 'H
F-T
equire#ents!
*. The real prop #ust be sold wNin the
9hils and located in the 9hils.
&. -t #ust be a capital asset
). The seller #ust be an individualB
estate or trust or a D%
Q F% not liable .or F-T but liable to pay
@-T i. all the ele#ents are present.
Q @F% liable to pay ?-T and not F-T
Q @A@ETC liable to pay F-T are all
ele#ents are present.
ELE/ENT 8 ; T&e real prop ust <e a
capital asset
.+ Dhen considered a capital assetO
A+ ead .. +- &(()
.+ "rdinary asset- shall re.er to all real
property speci;cally excluded .ro# the
de;nition o. capital asset under Sec. )/
A+ "ther property not #entioned are
capital asset.
.+ Dhat i. all the ele#ents are not presentO
A+
#ost will be liable to pay @-T
Except @A@ETC and @F% liable .or ?-T
.+ >ay a % be liable to pay @-T even i. all
the ele#ents are presentO
A+ LESB disposition #ade to the ?ovt. ThusB
the taxpayer has the option o. payin$ )&H
@-T or 'H F-T
.+ Dhich is #ore advanta$eousO
A+ -t depends deter#ine ;rst i. thereKs a
loss or a $ain.
-. thereKs a $ain choose to be taxed at
'H F-T. -n this case the $ain is always
presu#ed.
-. thereKs a loss choose to be taxed at
)&H because losses #ay be considered an
allowable deduction .
"ther transactions are covered!
*. sale
&. barter
). exchan$e
8. other disposition
@"TE! -. the prop is under #ort$a$e
contract and the #ort$a$ee is a ban= or
;nancial instB the F-T does not apply
because the property is not yet trans.erred
because thereKs a period o. rede#ption
-. a.ter a year the #ort$a$or .ailed to
redee# the property that is the only ti#e
that the F-T will apply because thereKs now
a chan$e o. ownership. -. redee#ed wNin *
yr period F-T will not apply because thereKs
no chan$e o. ownership.
-. the #ort$a$ee is an individual the F-T
is i#posed whether or not there is a
trans.er o. ownership.
Exceptions "678"D7##
.+ Dhat i. the prop bein$ sold was a #ovie
houseB can he clai# .or the exceptionO
A+ the prop covered by the exe#ption is a
residential lot
.+ Dho can clai# the exe#ptionO
A+ "nly the taxpayer #entioned in Sec. &8
equire#ents!
*. The purpose o. the seller is to
acquire new residential real prop
&. the privile$e #ust be availed o. wNin
*, #os. Fro# the sale
). %o##. #ust be in.or#ed wNin )(
days .ro# the date o. sale with the
intention to avail o. the exe#ption
&+
8. the ad<usted basis or historical cost
o. the residence sold shall be carried
over to the new residence.
1. the privile$e #ust be availed only
once every *( yrs
'. %erti;cation o. the br$y. %apt where
the taxpayer resides that indeed the
prop sold is the principal residence
o. the tax payer A *)- //)
.+ Dhat i. the property is worth *( > and it
was sold only .or &>B what will happen to
the unused portion or pro;tO
A+ -. the proceeds are not .ully utili7edB the
portions o. the $ain is sub< to F-T
-EC. 5=A RATE- OF INCO/E TAX
.+ 5ow #any inco#e taxes are paid by a
D%O
A+
*. @-T
&. >%-T
). F-T
8. *(H-#properly Accu#ulated
Earnin$s
1. "ptional corporate inco#e tax o.
*1H o. the $ross
Q D% liable .or ;veB but the optional is not
yet applicable so only 8.
.+ 5ow #any can be applied
si#ultaneouslyO A+ "@:L )
*. @-TB F-T and *(H -AE
&. >%-TB F-TB *(H -AE
-EC. 5= 3B4 PROPRIETAR2
E#%CATIONAL IN-T. * :O-P.
Dho are the taxpayersO
*. @on- 9ro;t 9roprietary Educl. -nst
and
&. @on 9ro;t 9roprietary 5ospital
.+ Dhat i. the school or hospital is non
pro;t onlyB is it exe#ptO
A+ @oB sub<ect to *(H on their taxable
inco#e except those covered by subsection
AD)
9"2-DED that $ross inco#e .ro#
unrelated businessB trade or activity #ust
not exceed 1(H o. its total $ross inco#e
derived by such educational inst or hospital
.ro# all sources
equire#ents!
*. -t is a private school or hospital
&. it is stoc= corp
). it is non pro;t
8. that $ross inco#e .ro# unrelated
businessB trade or activity #ust not
exceed1(H o. its total $ross inco#e
derived by such educational inst or
hospital .ro# all sources
1. has per#it to operate .ro# DE%SB
TESDAB or %5ED
.+ Dhat do you #ean by unrelated trade
business or activityO
A+ -t #eans any tradeB CusinessB or activity
which is not substantially related to the
exercise or per.or#ance by such entity o.
its pri#ary purpose or per.or#ance
.+ >ay a school or hospital be exe#pt .ro#
payin$ taxO Dhat are the reqO
A+
*. -t #ust be non- stoc= and non- pro;t
&. the assets property and revenues
#ust be used actuallyB directlyB and
exclusively .ro the pri#ary purpose
.+ Ender what lawO -s it the constitution or
the @-% which provides .ro the exe#ptionO
A+ -t is under Sec. )( o. @-% and not
under Sec.8 Art. *8 o. the %onstitution. The
provision o. the @-% is the speci;c law
which prevails over the %onstitution which
is the $eneral law.
P exe#pt .ro# all taxes and custo#
duties
.+ Dhat about exe#ption .ro# real
property taxO
A+ Art. ' Sec. &, o. the %onstitution!
charitable institution churchesB Z.and all
lands buildin$sB actually directly and
exclusively used .or reli$iousB charitableB
and educational purposes shall be exe#pt
.ro# taxation.
P @ot Sec. 8 o. Art. *8 o. the
%onstitution.
.+ Lou donated a property to a school will
you be liable .or donorKs taxO
A+ not liable i. it .alls under Sec. *(* A)) o.
the @-%
E6. F" EME>9T-"@ T" D"@"S TAM!
*. it #ust be non-stoc=B non-pro;t
educational inst.
&,
&. not #ore than )(H o. the prop donated
shall be used by such donee .or ad#in
purposes.
). payin$ no dividends
8. $overned by trustees who donKt receive
any co#pensation
1. devotin$ all its inco#e to the
acco#plish#ent and pro#otion o. the
purposes stated in its Articles o.
-ncorporation
.+ Dhat about exe#ption .ro# 2ATO
A+ Sec. *(/ A#) o. -2AT

.+ Dhat about exe#ption .ro :oc ?ov
%odeO
A+ -. its non-stoc=B non-pro;t educational
inst. -t #ay be exe#pted .ro# local
taxation.
.+ -s Art *8 Sec. 8 o. the %onsti obsoleteO
A+ @"B i. the law is silent apply the %onsti.
-EC. 5;+ GOCC> AGENCIE-> IN-T of t&e
GOVT.
?E@ E:E! Sub< to tax.
EM%E9T-"@S!
*. ?S-S
&. SSS
). 95-%
8. 9%S"
Q 9A?%" no lon$er included.
.+ -. the ?"%% is not one o. those
enu#erated does it .ollow all o. its inco#e
is auto#atically sub<ect to taxO
A+ @". Ender Sec )&. C A+) inco#e derived
.ro# any public utility or .ro# the exercise
o. essential $overn#ent .unction accruin$
to the ?ovt o. the 9hils or to any political
subd. Are there.ore exe#pt .ro# inco#e
tax.
There.oreB even i. the ?"%% is one o.
those enu#erated under Sec. &+ it #ay still
be exe#pt under Sec. )& b+b i. its
per.or#in$ $overn#ental .unction
@"TE! 9a$cor vs. Casco case
.+ Dhat is the di4erence between Sec. &+
% and )& b+bO
A+
*. Sec &+ % exe#pts those enu#erated
without any quali;cation.
&. Sec. )&b+b quali;cation #ust concur
be.ore it #ay be exe#pted.
.+ %an the $overn#ent i#pose tax on
itsel.O
A+ -t depends on who the taxin$ authority
is. -. the taxin$ authority is the @ational
?ovt. as a ruleB LES.
Exceptions
*. those entities enu#erated under W&+ %
&. those ?"%% .allin$ under W)&b+b
-. the taxin$ authority is the local
$overn#ent unitsB as a rule @". :?EKs are
expressly prohibited .ro# levyin$ tax
a$ainst! ASec *))Ao)
*. @ational ?ovt.
&. -ts a$encies and instru#entalities
). local $overn#ent units
Exception! Sec *18 o. :?% says that :?EKs
#ay ;x rate .or the operation o. public
utilities owned and #aintained by the
within their <urisdiction.
PAL CA&E <ulB +) +))2
5! The S% used *)) Ao)an exception to
pay taxB real estate taxB i#posed by %ity
o. 9Aranaque on @A-A. The S% said that
the airport is not an a$ency or ?"%% but
#ere instru#entality o. the ?ovt.
This is ?ross i$norance o. the law
Sec. *)) Ao) is .or local taxation not real
property taxation which is the one
involved in the present case.
@"TE! >actan- %ebu Airport case
SEC2 79 D":#
.+ 5ow #any possible inco#es were
#entionedO
A+ Two A&)! ban= interest and royalties
E6!
*. Can= interest #ust be received by a
Do#estic %orp
&. oyalties derived .ro# sources within
.+ Dhen it co#es to ban= interestB what is
the di4erence i. the taxpayer is an
individual or corporationO
A+ -. individualB they #ay be exe#pt .ro#
the pay#ent o. interest in case o. lon$ ter#
deposit except @A@ETC
&/
-. D%B they are not exe#pt .ro# lon$
te# deposit.
.+ Dhat about royaltiesO
A+ -. individualB have a lower rate o. *(Hon
boo=sB other literary and #usical
co#positions. D% have no lower pre.erential
rate.
SEC 79 D70 C&P1T&3 5&1NS FR$* S&3E
$F S(&RES N$T TR&DED
SEC 79 D;0 EFCDS
.+ Dhat is the expanded .orei$n currencyO
A+ -t is a ban= authori7ed by the CS9 to
transact business in the 9hilippine %urrency
as well as acceptable .orei$n currency or
both.
.+ Dhat is the tax to be paidO
A+ @or#ally it is @-T because it is sub<
under Sec &+ D) and &, A
.+ Dho is the inco#e earnerO
A+ Depositary ban=s
.+ Exe#pt .ro# what =ind o. transactionO
A+ Fro# .orei$n currency transaction. -. it
involves .orei$n currency transaction it is
not exe#pt but sub<ect to )1 H @-T
.+ Dho are the other partiesO
A+
*. "4 shore ban=in$ units
&. branches o. .orei$n ban=s
). local co##ercial ban=
8. "ther depositary ban=s under EF%DS
1. @on- residents
Q i. the above enu#eration are the
partiesB then depositary ban= will be
exe#pt .ro# payin$ the @-T
Foreign Currency 3oan
.+ Dho is the lenderO CorrowerO
A+ :ender- EF%DS
Corrower- %
EME>9T
"4shore ban=in$ units
"ther depositary ban=s under EF%DS
Q exe#ption o. @ .ro# EF%DS!
.+ Dho is the inco#e earnerO
A+ @on esidents whether individual or
%orporations
.+ Derived .ro# who#O
A+ Depositary Can= under EF%DS
@"TE! Sec. &8 C @onresident exe#pt .ro#
ban= interest under EF%DS
.+ Dhat is the di4erence between &8 b*
.ro# &+ D)
A+ -n &8 C*B @ is exe#pt only .ro# ban=
interst derived .ro# EF%DS while &+D)
exe#pts @ .ro# any inco#e .ro#
transactions with depositary ban= under
EF%DS
SEC2 79 D"8)- -nter-corporate dividends-
exe#pt
79 D< Capital 5ains from sale of Real
Prop2
.+ Dhat is the taxO
A+ 'H F-T
.+ Dhat is the di4erence i. the seller is an
individual and a D%O
A+ -ndividual can sell all =inds o. real
property
D% can only dispose land andNor
buildin$s.
SEC 79 "E# *C1T
.+ Applicable to who#O
A+ D% and F%
.+ %an it be applied si#ultaneously with
@-TO
A+ @"B i#posed in lieu o. the @-TB
whichever is hi$her.
.+ Dhat is the ationaleO
A+ to prevent corporations .ro# clai#in$
too #any deductions
.+ Dhen will it be i#posedO
A+
*. "n the 8
th
year i##ediately 4
the year in which such corp
co##enced its business.
&. Dhen the >%-T is hi$her than the
@-T
.+ Dhat is the carry over ruleO
A+ Sec &+ E& states the carry over rule.
)(
? -n order to avail! only in the year where
the >%-T is $reater than the @-T.
Sec 7= &:
.+ Dhat Ginds o. taxes are paid by the
F%O
A+ @-T
>%-T
Sec2 7= '7 *C1T on RFC
> sa#e with Sec. &+
Sec2 7= &;- 1NT3 C&RR1ER
Gind!
*. Air carrier
&. ships
Q An intl. carrier doin$ business in the
9hils. shall pay & _ H on its ?ross 9hil
Cillin$s A?9C)
.+ -s &, A) the ?en. rule or the ExceptionO
A+ -t is the $eneral rule because it is under
&, A)
Q ?9C is in the nature o. F-TB applies only
i. all the require#ents are present.
Q F% will be liable .or @-TB hence a F%
en$a$ed in co##on carria$e does not pay
?9C but @-T
Q -nco#e without! EME>9T
1nternational Carrier0
Q ?9C re.ers to the a#ount o. revenue
derived .ro#! carria$e o. personsB excess
ba$$a$eB car$o and #ail ori$inatin$ .ro#
the 9hils in a continuous and uninterrupted
3i$htB irrespective o. the place o. sale or
issue and the place o. pay#ent o. the
tic=ets or passa$e docu#ent.
E6!
*. "ri$inatin$ .ro# the 9hils.
2. %ontinuous and uninterrupted 3i$htI
3. -rrespective o. the place o. sale or
issue and the place o. the pay#ent
o. tic=ets or passa$e docu#ent.
.+ Do you consider landin$ ri$hts to
deter#ine liabilityO A *1-&((&)
A+
*. -. ori$inates .ro# the 9hils and has
landin$ ri$hts- "@:-@E- F%
&. @o landin$ ri$hts- "FF:-@E- @F%
.+ -. there are stopoversB is it still
uninterruptedO
A+ LESB provided that the stopover does
not exceed 8, hrs.
.+ Dhen will the place o. sale o. tic=ets
#atter as to the taxpayers liabilityO
A+ The place o. tic=ets is #aterial only i.
the two other ele#ents are not present to
be able to =now i. its sub< to @-T or exe#pt.
Re/alidated? exc,anged or indorsed
tic-ets
E6!
*. The passen$er boards a plane in a
port or point in the 9hils.
&. The tic=ets #ust be revalidatedB
exchan$edB or indorsed to another
airline.
.+ Dhat i. itKs the sa#e airline but di4erent
planeO
A+ ?9C does not applyB it #ust be to
another airline
.+ Dhat i. it did not ori$inate .ro# the
9hils.O
A+ Deter#ine i. its inco#e within or
without.
i. tic=et was purchased in the 9hils. it is
inco#e within hence apply @-T
i. purchased outsideB it is inco#e
withoutB hence exe#pt
Transs,ipment
E6!
3i$ht ori$inates .ro# the 9hils
transship#ent o. passen$er ta=es place
at any port outside the 9hils.
the passen$er trans.erred on another
airline
.+ 5ow do you apply ?9CO
A+ "nly the aliquot portion o. the cost o.
the tic=et correspondin$ to the le$ 3own
.ro# the 9hils to the point o. transship#ent
shall .ro# part o. the ?9C.
)*
.+ -s it liable .or the whole 3i$htO
A+
Fro# the 9hils to the point o.
transship#entB it is inco#e wNin
Fro# transship#ent to ;nal destinationB
its inco#e wNout- EME>9T
1nternational S,ipping
Q ?9C #eans $ross revenue whether .ro#
passen$erB car$oB #ail
E6!
it #ust ori$inate .ro# the 9hils.
up to ;nal destination
- re$ardless o. the place o. sale or
pay#ents o. passen$er or .rei$ht
docu#ents
Sec7= &"8# $FF S($RE '&N@1N5 .N1TS
"CEKs
*. only acceptable .orei$n currencies
&. always a .orei$n corporation Asub< to
@-T) except R)
). Exe#pt i. inco#e is derived by the
"CE .ro# EF%DS
8. 9arties!
a) local co##ercial ban=s
b) Forei$n ban= branch
c) @on esidents
d) "CE in the 9hils.
Di4erence with EF%DS!
EF%DS
*. Acceptable .orei$n currencyB 9hil.
%urrency or both
&. %an be a do#estic or .orei$n
corporation
). Exe#pt i. inco#e derived by D% or
F% .ro# EF%DS
8. 9arties!
a) local co##ercial ban=s
b) Forei$n ban= branch
c) @on esidents
d) "CE in the 9hils
e) "ther ban=s under EF%DS
FOREIGN C%RRENC2 LOAN
Q *(H F-T
-.! :ender- "CE
Corrower- esident %iti7en
EM%E9T!
*. "CE
&. :ocal %o##ercial Can=s
Transactions o. @on esidents!
*. -nco#e earner! @on- esidents
&. :ender! "CEKs
@"TE! @on resident exe#pt .ro#
transactions with "CEKs and EF%DS
-EC. 5@ AA TAX ON BRANC: PROFIT->
RE/ITTANCE-
Q pro;ts based on the total pro;ts applied
or ear#ar=ed .ro re#ittance re#itted by a
branch to its head oVce
Q Sub< to *1H tax
Except! those activities which are re$istered
with 9EUA
@"TE! -nterestsB DividendsB entsB oyalties
includin$ re#uneration .or technical
sevicesB salariesB wa$esB pre#iu#sB
annuitiesB e#olu#entsB or casual $ainsB
pro;tsB inco#e and capital $ains
received by a .orei$n corporation durin$
each taxable year .ro# all sources
within shall not be treated as branch
pro;ts E@:ESS the sa#e are e4ectively
connected with the conduct o. its trade
or business.
'ranc, ProAt Remittance
Two ways to receive inco#e AF%)
*. Cranch
&. Subsidiaries
@"TE!
*. Dhen a F% establishes branchB it is
always a F%
&. Dhen a F% establishes D%B it is a
F%
.7 -t is in addition to @-T- DhyO
A+ @-T because it is F%
.7 Dhat =ind o. tax is i#posed under &,
A1O A+ *1H F-T
.+ 5ow do you apply the rateO
A+ #ultiplied to the total pro;t applied or
ear#ar=ed .or re#ittance wNo deductions
-t applies .or branches that are!
*. the pro;t re#itted is e4ectively
connected with the conduct o. its
trade or business in the 9hils.
&. "ne not re$istered with 9EUA
)&
/AR$8E1# CA&E
F! A branch was established with A?F9B
there was invest#ent with A?F9
.+ Did the petitioner participate with the
ne$otiationO
A+ @"
.+ Dhat did the petitioner payO
A+ *1H Cranch 9ro;t e#ittance Tax
AC9T)
*(H -ntercorporate Dividends
.+ DhatKs the issueO
A+ 9etitioner #aintains that there was
overpay#ent o. taxesB thus the sa#e
was as=in$ .or a re.und o. tax
erroneously paid.
.+ -s is sub< to F-TO
A+ @"B exe#pt i. petitioner is F%
5! -not correct to pay *1H
To be liable .or C9T
*. -t is a F%
&. Cranch did not participate in
ne$otiations
-EC. 5@ ABa
Q e$ional or area headquarters ASec. &&
DD) shall not be sub<ect to tax exe#pt .ro#
inco#e tax i. the requisites are present.
.+ Dhat are the requisitesO
A+
*. the 56 do not earn or derive inco#e
.ro# the 9hils.
&. Acts only as supervisoryB
co##unicationsB coordinatin$ centre
.or their aVliatesB subsidiary or
branches in the Asia- 9aci;c e$ion
and other .orei$n #ar=ets.
-EC. 5@ AB<
? e$ional "peratin$ 56 are taxable and
liable to pay *(H taxable inco#e.
Q e$ional "peratin$ 56 is a branch
established in the 9hils by a #ultinational
co#pany en$a$ed in any o. the services!
*. ?en. Ad#inistration and 9lannin$
&. Cusiness 9lannin$ and %oordination
). Sourcin$ and procure#ent o. aw
#aterials and co#ponents.
8. %orporate Finance and Advisory
Services
1. >ar=etin$ %ontrol and sales
pro#otion
'. Trainin$ and personal #ana$e#ent
+. lo$istic services
,. research and develop#ent services
and product develop#ent
/. technical support and #aintenance
*(. data processin$ and co##unication
and business develop#ent
ationale! Dhy liableO Cecause the clai#
.or exe#ption o. resident airlines shall
be #ini#i7ed
-EC. 5@A=a Interests an$ Ro(alties+
Q &(HF-T
Q -nterests under EF%DS\ + _ H
-ec. 5@A=< Incoe $eri'e$ un$er
EFC#-
9. -nco#e derived .ro# .orei$n currency
transactions with!
a) @on esidents
b) "CE
c) :ocal co##ercial ban=
d) Forei$n ban= branches
e) "ther depository ban= under the
EF%DS
Q As a ?en ule! the above transaction is
Exe#pt
EM%E9T-"@! -nco#e .ro# such transaction
as #ay be speci;ed by the secretary o.
FinanceB upon reco##endation by the
>onetary Coard to be sub<ect to re$ular
inco#e tax payable by any ban=s.
5. -nterest inco#e .ro# .orei$n currency
loans
Q $ranted by depository ban= under said
EF%DS to others shall be sub<ect to *(H F-T
Exe#pt i. $ranted to!
*. "ther "CE in the 9hilsB and
&. "ther depository ban= under the
EF%DS
Y SE%. &, A+c! %apital ?ains .ro#
Shares o. Stoc=s not Traded in the
Stoc= exchan$e
Y 1H or *(H as the case #aybe
))
-EC 5@A=$+ INTERCORPORATE
#IVI#EN#-
Q D%- F%\ EME>9TB not sub< to tax
-EC 5@ B9
.+ Dhat =ind o. taxO
A+ )1H ?-T on the 4 inco#e
*. -nterest
&. Dividends
). ents
8. oyalties
1. Salaries
'. 9re#iu#sA except reinsurance
pre#iu#s)
+. annuities
,. e#olu#ents
/. "ther ;xed and deter#inable ?ainsB
pro;ts and inco#e.
-EC 5@ B5 Non Resi$ent
Cineato,rap&ic Cl o"ner> lessor or
$istri<utor
Q liable .or &1H ?-T
-EC 5@ B; Non Resi$ent o"ner or
lessor of Vessels c&artere$ <(
P&ilippine Nationals.
Q liable .or 8 _ ?-T
Ele#ents!
*. %hartered to Filipino %iti7ens or
%orporations
&. Approved by >A-@A
-EC. B364 Non Resi$ent O"ner or
Lessor of Aircraft> /ac&iniries> an$
ot&er EDuipents.
Q liable .or + *N& H ?-T
-EC 5@ <Aa Interest on Forei,n Loans
Q >ust be read with Sec. )& C+a
-nterest on Forei$n :oansB i. the lender is
*. @F% liable to &(H F-T
&. Forei$n ?ovt. Exe#pt because it is
an exclusion ASec )& b+a! inco#e
derived by a .orei$n $ovKt .ro#
invest#ents in the 9hils on loansB
stoc=sB bondB and other do#estic
securities or .ro# interest on
deposits in ban=s by!
a) Forei$n $ovt.
b) Financin$ inst owned controlled
or en<oyin$B re;nancin$ .ro#
.orei$n $ovtI and
c) -nter nation or e$ional ;nancial
inst established by .orei$n $ovt.
CO//#&#O1ER O% #1"ER1AL RE: vs
/#"&$8#&5# /E"AL CORP '*-) &CRA +*G.
F! Atlas >inin$ entered into a :oan and
Sales %ontract with >itsubishi >etal
%orp. A A Japanese %orp.) .or the
purposes o. pro<ected expansion o. the
productivity capacity o. the .or#erKs
#ines in %ebu. The contract provides
that >itsibushi will extend a loan to
Atlas in the a#ount &( > dollarB so that
Atlas will be able install a new
concentrator .or copper production.
->itsubishi to co#ply with its
obli$ationB applied .or a loan .ro#
Export- -#port Can= o. Japan AExi#
Can=) and .ro# consortiu# o. Japanese
ban=s.
9ursuant to the contract Atlas paid
interst to >itsubishi where the
correspondin$ *1H tax thereon was
withheld and only re#itted to the ?ovt.
Subsequently >itsubishi ;led a clai#
.or tax credit requestin$ that the sa#e
be used as pay#ent .or its existin$
liabilities despite havin$ executed a
waiver and disclai#er o. its interest in
.avor o. Atlas earlier on. -t is the
contention o. >itsubishi that it was the
#ere a$ent o. Exi# Can= which is a
;nancin$ inst owned and controlled by
the Japanese ?ovt.
The status o. Exi#ban= as a
$overn#ent controlled inst beca#e the
basis o. the clai# .ro exe#ption by
>itsubishi .or the pay#ent o. interest on
loans.
-! D"@ >itsubishi is a #ere a$ent o.
Exi#ban=
5! @". The contract between the parties
does not contain any direct re.erence to
Exi# Can=B it is strictly between
>itsubishi as creditor and Atlas as the
seller o. copper. The ban= has nothin$ to
do with the sale o. copper to >itsubishi.
Atlas and >itsubishi had reciprocal
obli$ations- >itsubishi in order to .ul;ll
its obli$ations had to obtain a loanB in its
independent capacity with Exi# ban=.
)8
:aws $rantin$ exe#ption .ro# tax are
construed strictly a$ainst the taxpayer
and liberally in .avor o. the taxin$
authority.
-EC. 5@ #A < INTERCORPORATE
#IVI#EN#-+
Q F-T *1H i#posed on the a#ount o. cash
and or prop dividends received .ro# a
do#estic corporation.
SECJ T" T5E %"@D-T-"@! the country where
the @F% is do#iciled allows a credit
a$ainst the tax due .ro# the @F% taxes
dee#ed paid or dee#ed to have been paid
in the 9hils.
?en rule! )1 H F-T
Exception! *1H under the Stax dee#ed
paid ruleN reciprocity ruleN tax sparrin$ ruleT
<5O1&O1& CA&E
& Ginds o. %ate$ories!
*
st
! JapanB ESB ?er#anyB 9hils liable .or
inco#e within and inco#e without
&
nd
! countries liable only .or inco#e within.
/AR$8E1# Case! & -ssues
*. -s the pay#ent o. *(H F-T correctO
- @o because it was a branch and F% but
still >arubeni was @F% under the old law
which is liable to pay )1HB but S% said
liable only to &1H because o. the tax treaty
Q Lou cannot re.und ri$ht away P *1H
C9T and *(H -nter-corporate Dividends tax
has di4erent basis
-n 9F? who are involved
- D% A9F? 9hil) and @F% A9F? ES)
- D% declares dividends to @F%
- )1H was withheld and re#itted to the
C-
Dhat did they discoverO Aa.ter payin$)
- they discovered that they are liable only
.or *1H so they have a re.und o. &(H
.+ -n the *
st
case did the S% allowed the
re.undO
A+ @"B denial anchored on & $rounds!
*. "ne clai#in$ .or re.und was not the
proper party
&. There was a showin$ or proo. as to
the existence o. the Stax dee#ed
paidT rule
.+ -n &
nd
case was there a re.undO
A+ LESB the S% reversed itsel.
*. -nco#e tax is F-T! the withholdin$
a$ent is the proper party because he
is liable to pay said taxes
&. actual proo. o. pay#ent not
necessaryB what is necessary is the
law o. the do#icile o. the country
providin$ .ro tax credit equal to &(H
o. the tax dee#ed paid.
.+ Dhat is the rate i. the law is silentO
A+ )1H F-T
Q The rate will only be *1H i. thereKs a law
reco$ni7in$ the sa#e but this re.ers to the
case o. those belon$in$ to the ;rst
cate$ory.
HA19ER CA&E
.+ Dho are the partiesO
A+ D%ADander) and F% A?laxo)- they
belon$ to di4erent cate$ories
The C- tried to collect )1H because
the law is totally silent about the tax
credit
5! The S% said that the tax should be *1H
which applies & instances!
*. Forei$n law do not provide .or tax
credit- )1H
&. law provides but the law is silent-
*1H
). law is silent because there is no law-
*1H
8. law is silent because thereKs no law
because the sub< #atter is not
taxable- *1H
-EC. 5E IAET
A+ *(H o. the $ross inco#e Ataxable
inco#e)
Q -t is i#posed upon the i#properly
accu#ulated taxable inco#e o. the
corporation
.+ Applies to what %orpO
A+ to D% only under &- &((*A classi;ed
as closely held corporations)
)1
.+ -s it in the nature o. sanctionO
A+ LesB it is i#posed to co#pel the
corporation to declare dividends.
.+ DhyO
A+ because i. pro;ts are distributed to the
shareholdersB they will be liable .or the
pay#ent o. Dividends tax. @owB i. the
pro;ts are undistributed the shareholders
will not incur liability on taxes with respect
to the undistributed pro;ts o. the %orp.
- -n a way it is in the .or# o. deterrent to
the avoidance o. tax upon shareholders who
are supposed to pay dividends tax on the
earnin$s distributed to the#.
.+ Dhat is taxable inco#eO
A+ SE%. )* de;nes taxable inco#e as the
pertinent ite#s o. $ross inco#e speci;ed in
this %odeB less the deductions andNor
personal and additional exe#ptionsB i. anyB
authori7ed .or such types o. inco#e by this
%ode or other special law
.+ Dhen not liable to pay -AETO
A+ There are & $roups o. D% exe#pt .ro#
pay#ent o. -AET A&-&((*)
A. Corporations failure to declare dividends
because of reasonable needs of business
Q reasonable needs #eans are construed
to #ean i##ediate needs o. the business
includin$ reasonable anticipated needs
.+ Dhat constitutes reasonable
accu#ulation o. the corporationKs earnin$sO
Exa#plesO
A+
*. allowance .or the increase in the
accu#ulation o. earnin$s up to
*((H o. the paid- up capital o. the
corporation.
&. earnin$s reserved .or the de;nite
corporate expansion pro<ects or
pro$ra#s approved by the Coard
). Earnin$s reserved .ro buildin$sB
plantsB or equip#entB acquisition
approved by the Coard
8. Earnin$s reserved .or co#pliance
with any loan a$ree#ent or pre-
existin$ obli$ations
1. Earnin$s required by law or other
applicable statutes to be retained.
'. -n case o. subsidiaries o. .orei$n
corporationB all undistributed
earnin$s or pro;ts intended or
reserved .or invest#ents
@"TE! the corporations belon$in$ in the *
st
$roup are nor#ally liable but they can show
that the accu#ulation o. earnin$s is
<usti;ed .or reasonable needs o. businessB
they incur no liability and exe#pt .ro#
pay#ents o. the sa#e.
8. Corporations D>ic> are e?empt D>et>er
or not it is for reasonable needs of t>e
business:
*. Can=sB and other non- ban= ;nancial
inter#ediaries.
&. -nsurance co#panies
). 9ublicly- held corporations
8. Taxable partnerships
1. ?eneral 9ro.essional 9artnerships
'. @on- taxable <oint- ventures
+. Enterprises re$istered with
a) 9EUA
b) Cases %onversion Devt Act o.
*//& AA /&&+)
c) Special Econo#ic Uone declared by
law
.+ Dhat is a closely- held corporationsO
A+ Those corporation at least 1(H in value
o. the outstandin$ capital stoc= or at least
1(H o. the total co#bined votin$ power all
classes o. stoc= entitled to vote is owned
directlyB or indirectly by or .or not #ore
than &( individuals
@"TE! 9ublicly held %orp. has #ore than &(
shareholders
.+ Dhat is the ti#e .or payin$ this taxO
A+ %alendar Lear! Jan &1B &((1- Dec )*B
&((1. Today is &(('. Lou have * year to
declare a.ter the close o. the taxable year.
&((' is the $race period. Lou will pay on
January &((+.
.+ -. youKre not #entioned to be exe#ptedB
will you still be liableO
A+ @oB i. you invo=e ad<ust#ents
-EC ;F. EXEE/PTION- FRO/ TAX ON
CORPORATION-
Q Deter#ine the %orporationsK exe#ptions
under Sec. )( &+ % and &&C.
*. Sec )(B the corporations shall not be
taxed under this title Atax on inco#e)
)'
in respect to inco#e receive by the#
as such.
&. Sec &+B the corporations enu#erated
are always exe#pt. Thus exe#ption
is unconditional
). Sec &&C ?99B as a $eneral rule is not
a corporation
8. except i. it earns inco#e .ro# other
business
Q Joint 2enture wN service contract wN
$overn#ent not a corporationB otherwiseB it
is liable.
Assi$n#ent! Sec. )1
Au$ust &*B &((' 0 >idter#s
Au$ust *8B &(('
.+ Dhat is the reason .or not includin$ the
corporations exe#pt under section &+% and
Section &&C under Section )(O
A+ Cecause there is an exe#ption which
does not apply to all exe#pt corporation.
The exe#ption under Section )( is not
absolute while the exe#ption under Section
&+ % is absolute and without any conditions.
-n additionB Section &&C provides that a
<oint venture is $enerally taxable unless it
has a service contract with the $overn#entB
a $enerally taxable corporation cannot be
<oined with the $roup as $enerally not
taxable corporation. ?eneral 9ro.essional
9artnership is exe#pt but the exe#ption is
not the sa#e as provided by Section )(.
TAGE @"TE! :as 9ara$raph o. Section )(.
Q exe#ption to the exe#ption! inco#e o.
whatever =ind and character o. the
.ore$oin$ or$ani7ations .ro#!
*. any o. their propertiesB real or
personalI
&. any activities conducted .or pro;t
Q re$ardless o. the disposition o. said
inco#eB shall be sub<ect to tax.
.+ Enu#erate the exe#pt corporations
under Section )(I Dhat is the require#entO
A+
*. :aborB a$ricultural or horticultural
or$ani7ation not or$ani7ed
principally .or pro;tI
&. >utual savin$s ban= not havin$ a
capital stoc= represented by sharesB
and cooperative ban= without capital
stoc= or$ani7ed and operated .or
#utual purpose and without pro;tI
). a bene;ciary societyB order or
associationB operatin$ .or the
exclusive bene;t o. the #e#bers
such as .raternal or$ani7ation
operatin$ under lod$e syste#.
Alod$e syste#! operatin$ world wide)
or a #utual old association or a non-
stoc= corporation!
a. or$ani7ed by e#ployeesI
b. providin$ .or the pay#ent o. li.eB
sic=nessB accident or other exclusive
bene;ts to its e#ployees and their
dependentsI
8. %e#etery Aa) co#pany owned and
Ab) operated exclusively .or the
bene;t o. its #e#bersI
1. @on-stoc= corporation or association
or$ani7ed and operated exclusively
.or eli$iousB %haritableB Scienti;cB
Artistic or %ultural purposesB or .or
the ehabilitation o. 2eterans
A%SA%)B no part o. its net inco#e
or asset shall belon$ ot or inure to
the bene;t o. any #e#berB
or$ani7erB oVcerB or any speci;c
personI
'. Cusiness lea$ueB cha#ber o.
co##erceB or Coard o. tradeB Aa) not
or$ani7ed .or pro;t and Ab) no part
o. the net inco#e o. which inures to
the bene;t o. any stoc= holder or
individualI
+. %ivil lea$ue or or$ani7ation not
or$ani7ed .or pro;t but operated
exclusively .or the pro#otion o.
social wel.are.
C#R vs !/CA
.+ Dhat is the basis o. >anila C- .or the
i#position o. the taxO
A+ last para$raph o. Section )(B because
L>%A was conductin$ an activity .or
pro;t.
F! the %TA and the %A invo=ed the doctrine
laid down in 5errera and Abra 2alley
case which involves an exe#ption .ro#
the pay#ent o. eal property Tax.
5! The S% revised the rulin$. L>%2A is
liable to pay inco#e tax applyin$ the
last para$raph o. Section )(.
L>%A -s exe#pt .ro# the pay#ent
o. property taxB but not to inco#e tax on
rentals .ro# its property.
)+
The tax code speci;cally #andates
that the inco#e o. exe#pt or$ani7ations
Aunder section )() .ro# any o. their
propertiesB real or personalB shall be
sub<ect to taxB includin$ the rent inco#e
o. the L>%A .ro# its real prop.
,. a non-stoc= and non pro;t
educational institutionI
/. $ovKt educational institutionI
*(. Far#erKs or other #utual typhoon or
;re insurance co#panyB #utual
ditch or irri$ation co#panyB or li=e
or$ani7ation o. a purely local
characterB the inco#e o. which
consists solely o. assess#entB dues
and .eesB collected .ro# #e#bers
.or the sole purpose o. #eetin$ its
expensesI
**. Far#erKsB .ruit $rowerKs or li=e
association or$ani7ed and operated
as a sales a$ent .or the purpose o.
#ar=etin$ the products o. its
#e#bers and turnin$ bac= to the#
the proceeds o. salesB less the
necessary sellin$ expenses on the
basis o. the quantity o. produce
;nished by the#.
TAGE @"TE! inco#e o. sales a$ent is
exe#pt.
-ection ;9+ TAXABLE INCO/E
C:APTER VI+ CO/P%TATION OF GRO--
INCO/E
-ECTION ;5+ GRO-- INCO/E
.+ Dhat is the tax treat#entO Are these
taxable inco#eO Are these included in the
$ross inco#eO -s it included in the -TO -s it
sub<ect to @-TO
A+ Sec. )& A answers the questions.
.+ Dhat is the inco#e tax re.erred to hereO
A+ @-T. The section re.ers only to the
pay#ent o. @-T. -t spea=s o. the @-T.
.+ -. the is #entioned under Section )& AB
does it .ollow that it is auto#atically
included in the ?-TO
A+ @oB Section )& A states SExcept when
otherwise provided in this titleT
.+ Dhat are the inco#e that are not
includedB not sub<ect to @-TO
A+
*. -nco#e that are sub<ect to F-T.
&. -nco#e that are considered an
exclusionI and
). -nco#e that are exe#pt.
.+ Dhen do you not apply Sec. )& AO
A+ it applies to all except!
*. @A@ETC
&. @F%
Y they do not pay @-TB they pay by way o.
?-T.
.+ Dhat are included in the ?ross inco#eO
A+
:2 Compensation for services in
D>atever form paid including but nor
limited to fees, salaries, Dages,
commissions, and similar items I&ec
(+ A '*.J
.+ Dhat is co#pensationO
A+ all re#uneration .or services per.or#ed
by an e#ployee .or his e#ployer under an
e#ployer-e#ployee relationship.
TAGE @"TE! co#pensation is included in
the -T i. the taxpayer is not liable .or @-T.
ThusB i. sub<ect to @-TB included in the -T.
.+ -s there an instance where the salaries
o. a % is not included in the -TO
A+ LesB i. the salary is sub<ect to F-TB li=e
when the % is e#ployed in >ultinationalB
o4shore ban=in$B and petroleu#
co#panies.
72 0ross #ncome derived from t>e
conduct of trade or business or t>e
e?ercise of a professionK I&ec (+ A '+.J
.+ Dhat is the inco#e tax hereO
A+ @-TB included in the -T.
;2 0ains derived from dealings in
propertB I&ec (+ A '(.J
.+ Did the law distin$uishedO
A+ @oB the law did not distin$uished
between real and personal property.
TAGE @"TE!
*. Sale o. real property
&. Sale o. shares o. stoc= Apersonal prop.)
),

Q i. the ele#ents are presentB sub<ect to
F-T. ThusB it is not included in the -TB the
withholdin$ a$ent will be responsible .or
this.
.+ -nco#e .or# the sale o. propertyB do
you include this in the -TO
A+ it depends
a. i. sub<ect to F-TB not included.
Dithholdin$ a$ent acco#plish the .or#s
P sub<ect to F-T i. the .ollowin$
ele#ents are present!
*. it is a capital assetI
&. located in the 9hil.! and
). sold by individualB trustB estateB D%.
b. i. sub<ect to @-TB included in the -T.
P Ele#ents are not presentB li=e when
the real prop. is an ordinary asset or when it
is capital asset i. the taxpayer is F%.
TAGE @"TE! - *+-&(()
Q eal property sale sub<ect to FDTB the
buyer acco#plishes the -T.
82 interestK I&ec (+ A 'G.J
.+ Dhat interest is bein$ re.erred to hereO
A+ interest which is included in the
co#putation o. $ross inco#e is interest
earned .ro# lendin$ #oney and interest
.ro# ban= deposit which does not
constitute passive inco#e.
Can= interest .ro# sourcesB without or
abroad.
.+ Can= interest .ro# Solid Can=B is it
included in the -TO
A+ @oB because it is included or considered
an inco#e withinB thus sub<ect to F-T. ThusB
not included in the -T.
<2 Rents I&ec (+ A '4.J
Q sub<ect to @-TB included in the -T.
B2 oyaltiesI `Sec. )& A A')a
.+ Dhat is bein$ re.erred to hereO
A+ royalties which does not constitute
passive inco#e. oyalties derived .ro#
inco#e without. 0 sub<ect to @-T. Thus not
included in the -T.
.+ Dho are the taxpayersO
A+ :iable .ro# inco#e wNin and wNout and
the rest are exe#pt.
*. %
&. D%
92 9ividends I&ec (+ A ',.J
.+ Dhat =ind o. dividendsO
A+ one that does not constitute a passive
inco#e.
TAGE @"TE!
*. D% individual taxpayer \ F-T
&. D% 0 D% F F% \ EME>9T
). D% 0 @F% \ FDT
Q only dividends issued by a F% to an
individual taxpayer A% " A) is included
in the co#putation o. the $ross inco#e.
ThusB included in the -T.
=2 Annuities I&ec (+ A '-.J
.+ Dhat =ind o. annuitiesO
A+ annuities which are not exe#pt .ro# tax
are included in the co#putation o. the $ross
inco#e. Aincluded in the -T)
3 PriCes and Hinnings I&ec (+ A '3.J
.+ Dhat =ind o. pri7es and winnin$sO
A+
a. those that does not constitute
passive inco#eI and
b. those that are not considered as an
exclusion. ThusB exe#pt.
Passi/e 1ncome
*. 9ri7es 0 derived .ro# sources within
and over *(B(((.((
&. Dinnin$s 0 derived .ro# sources
within.
Exe#pt!
a. winnin$s! 9%S" and :otto winnin$s.
b. pri7es!
Q those pri#arily .or reco$nition o.
A*)reli$iousB A&)charitableB A))scienti;cB
A8)educationalB A1)artisticB A')literaryB
A+)civic achieve#ent are exe#pt
9"2-DED!
*. the recipient was selected without
any action on his part to enter the
contest or proceedin$sI and
)/
&. the recipient is not required to render
substantial .uture services as a
condition to receivin$ the pri7e or
award.
Q pri7es and awards $ranted to athletes
are also exe#pted provided!
*. local or international sports
co#petition or tourna#entI
&. held in the 9hilippines or abroadI
and
). sanctioned by the national sports
association.
.+ Dhen is a pri7e sub<ect to @-TO
A+ *. when derived .ro# inco#e withoutI
&. when less than *(B(((.((I
). when the inco#e earner is a D% or
%.
.+ Dhen is winnin$ sub<ect to @-TO
A+ *. Dhen derived .ro# inco#e withoutI
&. when the inco#e earner is a D% or
%.
:C2 Pensions I&ec (+ A '*).J
.+ Dhat =ind o. pensionO
A+ -ncluded in the $ross inco#e i. not
exe#pt
Y never sub<ect to ;t AO)
::2 PartnerLs distributive s>are from
t>e net income of t>e general
professional partners>ip '0PP.

.+ Dhat is bein$ re.erred toO
A+ ?99 exe#pt .ro# pay#ent o. corporate
inco#e tax
Q shares o. partners sub<ect to @-T 0 Sec.
&'
-EC ;5 B EXCL%-ION- FRO/ GRO--
INCO/E
.+ Dhat do you #ean by exclusionsO Are
these exe#pt .ro# inco#e taxO
A+ these are not included in the $ross
inco#eB T5ESB exe#pt.
TAGE @"TE! Exe#ptionsB exclusionsB
deductionsB have the sa#e characteristics
P all tax do not apply.
:2 3ife insurance DSec2 ;: ' ":#E
A+ only one require#ent .or exe#ption!
that the proceeds o. the li.e insurance be
payable upon the death o. the insured.
.+ Does it #atter who the bene;ciary is or
paid in a lu#p sun or sin$le su#O
A+ @o. it does not #atter.
Exception! a#ounts held by the insurer
under an a$ree#ent to pay interest
thereonB the interest pay#ent shall be
included in the $ross inco#e.
72 &mount recei/ed by insured as
return of premium DSec2 ;7 ' "7#E
.+ i. the insurance is payable within a
certain ti#eB say *( years and therea.ter
the insured did not dieB how #uch will be
excludedO
A+ only the a#ount received by the insured
as a return o. the pre#iu#s.
Ex. * > 0 *(( thousand \ capital
-t is exe#pt A*((G)
/((G is taxable.
.+ Dhy is it excludedO
A+ because the a#ount received #erely
represents a return o. capital.
.+ is this sub<ect to Estate Tax under Sec.
,1 EO do we have the sa#e require#entO
A+ noB the require#ent .or exe#ption is not
the sa#e under Section ,1 E.
;2 Proceeds of life insurance0
decedent insured ,imself? inclusion
or exclusion Fill depend on F,o t,e
beneAciary is2
a. the bene;ciary is the estate.
Y sub<ect to Estate taxB included in the
$ross estate re$ardless o. whether or
not the desi$nation o. the bene;ciary is
revocable or irrevocable.
b. the bene;ciary is a third person other
than the estate.
b.* evocable Desi$nation P sub<ect to
estate taxB included in the $ross estate.
eason! because o. the insuredKs power
to #odi.y or chan$e the bene;ciary.
b.& -rrevocable Desi$nation P not
sub<ect to Estate taxB not included in the
$ross estate.
8(
eason! the insured loses the power to
controlB #odi.y and chan$e the
bene;ciary.
.+ -s it sub<ect to 2ATO
A+ *. @on-li.e insurance 0 yesB sub<ect to
2AT under *(, AA).
&. :i.e insurance 0 @"B sub<ect to
percenta$e tax under Sec. *&) o. the Tax
%ode.
82 5ifts? 'equest and De/ises DSec2
;7 ' ";#E
.+ Dhy is the donee exe#pt .ro# inco#e
taxO
A+ Cecause the law classi.y it as an
exclusionB not i#portant to =now whether
property is real or personal.
Dhat is exe#pted is the Svalue o.
property acquired by $i.tB bequest or
deviseT
TAGE @"TE!
A. ?-FTS are excluded because they are
sub<ect to donorKs tax.
C. CE6EEST and DE2-SE are excluded
because they are sub<ect to ESTATE tax.
.+ what is included in the $ross inco#eO
A+ inco#e .ro# such property.
Q $i.tB bequestB devise or descent o.
inco#e .ro# any property in case o.
trans.ers o. divided interest.
<2 Compensation for inGuries or
sic-ness DSec2 ;7 ' "8#E
.+ is this the sa#e as those provided under
the wor=#enKs co#pensation act Awca)O
A+ LES. There are ) $roups!
a. 5ealth or accident insurance or those
under wor=#enKs co#pensation.
b. personal in<uries and sic=nessI and
c. Da#a$es to prevent in<uries and
sic=ness.
.+ Dhat does in<ury includeO
A+ The ter# in<ury includes deathB even i.
not in<uredB i. the person dies this will be
available.
.+ when will the da#a$es recovered be
exe#ptO
A+ ?eneral ule! all da#a$es awarded are
tax exe#pt.
Exception! da#a$es representin$ loss o.
inco#e.
.+ Dhy is it considered an exclusionO
A+ because this is <ust an inde#ni;cation
.or the in<uries or da#a$es su4ered.
B2 1ncome exempt under a treaty
DSec2 ;7 ' "<#E
.+ Dhat is excludedO
A+ inco#e o. any =ind required by treaty
bindin$ upon the 9hil. ?overn#ent.
92 Retirement beneAts? pensions?
gratuities DSec2 ;7 ' "B#E
.+ Dhy do we need to distin$uish
retire#ent payB separation pay and ter#inal
leave payO
A+ because they have di4erent
require#ents .or exe#ption.
.+ Dhat is retire#ent payO
A+ the su# o. #oney received upon
reachin$ the #axi#u# a$e o. e#ploy#ent.
a. Ender A8/*+ Awith etire#ent 9lan)
*. the private bene;t plan is approved
by the C- A&-/,)I
&. the retirin$ oVcial or e#ployee has
been in the service o. the sa#e
e#ployer .or the last *( yearsI
). he is at least 1( years old at the ti#e
o. retire#entI and
8. the oVcial or e#ployee avails
hi#sel.Nhersel. o. the bene;t only
once.
b. Ender A+'8* Awithout retire#ent plan)
*. the retirin$ oVcial e#ployee is at
least '( years old but not #ore than
'1 years oldI
&. the e#ployee or oVcial #ust have
served the co#pany .or at least 1
yearsI
Y entitled to *1 days salary and _ o. the
*)th #onth pay .or every year o. service.
TAGE @"TE! the retire#ent bene;ts under
A8/*+ and A+'8* are exe#pt .ro#
inco#e tax provided the require#ents are
present.
-EC. ;5 B3B43c4
8*
Q retire#ent bene;ts $iven by .orei$n
$overn#entB .orei$n corporationB public as
well as private to %B @%B A residin$
per#anently in the 9hilippines - exe#pt
without .urther quali;cations 0 auto#atic
exclusions.
-EC. ;5 B3B43$>e>f4
Q retire#ent bene;ts $iven by the
9hilippine ?ovKt throu$h the ?S-SB SSS and
92A" are exe#pt without .urther
quali;cations \ auto#atic exclusions.
Au$ust &*B &(('.
- #idter#s '-, p# until sec )& CA') @-%.
Au$ust &,B &(('.
A@SDES \ >-DTE>S
Q ?ross -nco#e include both capital and
ordinary $ainsB Sec. )* says $ross inco#e-
deductionsB that which is ordinary loss.
- #ay be deducted .ro# capital $ains and
ordinary $ains.
.+ Dhat is separation payO
A+ on $iven when one is ter#inated .ro#
the service because o. A*) illnessB A&)deathB
A)) physical incapacity or in<uryB or A8)
causes beyond the control o. the e#ployee.
.+ Are there any require#ent .or
separation pay $ranted by .orei$n $ovKt or
corpO
A+ @oneB the separation pay $ranted by the
a.ore#entioned institutions are exe#pt
without .urther quali;cations ASother si#ilar
bene;tsT).
.+ is separation pay an exclusionB
there.oreB exe#ptO
A+ @o.
?E@EA: E:E! Separation pay not
exe#pt AO)
Exception!
*. Auto#atic exclusionsB thus exe#pt i.
due to!
a. illness
b. death
c. physical incapacity or in<ury.
&. %onditional exclusion
a. causes beyond the control o. the
e#ployee- excluded
b. within e#ployeeKs control 0 included.
Exa#ples!
*. re$istration 0 %CA provides
separation payB within the control \
included.
&. installation o. labor savin$ devises or
ban=ruptcy 0 beyond the control \
excluded.
.+ Dhat is ter#inal leave payO
A+ the accu#ulated vacation leave and sic=
leave bene;ts converted to cash or #oney
to be $iven either every year or upon
retire#ent or separation.
Ter#inal :eave 9ay $ranted upon retire#ent
or separation!
Y uder 9D&&(B T:9 in the ?ovKt or in
the 9rivate Sector shall be exe#pt .ro#
inco#e tax i. $iven or $ranted upon
retire#ent or separation.
T:9 $ranted on a yearly basis!
*. e#ployee in the private sector!
a. accu#ulated sic= leave 0 sub<ect
to inco#e tax.
b. Accu#ulated vacation leave! i.
#ore than *( days A#eanin$ **
pataas) 0 sub<ect to inco#e taxI
Y-. *( days or less 0 exe#pt.
&. ?ovKt E#ployee!
Y $overnin$ law! E" &/* o. 9res. EstradaB
>% *'-&(((.
ule! ?ovKt wor=ers Aboth oVcers or non-
oVcers) $ranted T:9 on a yearly basis P
exe#pt .ro# inco#e tax.
P there is no quali;cation as to vacation or
sic= leave.
Q Ta=e @ote o. ) cases.
Y be re#inded o. E" &/*B Sec. &. +,.&
par. /+B &-/,B *'-&(( A)).
Case of ;ialcita
Q retired .ro# D"JB contention! T:9 should
be exe#pt .ro# inco#e tax pursuant to the
old law.
S%! on a di4erent $round 0 T:9 is exe#pt
because it is si#ilar to etire#ent payB thus
exe#pt but the rulin$Ks application is
li#ited only to D"J e#ployees.
8orromeo case:
Q Sa#e as the Uialcita case
-ssues! D"@ the T:9 is sub<ect to inco#e
tax and D"@ %":A and ATA are includedO
S%! E:ED T:9 is Exe#pt]
8&
>odi;ed! the rule applies not only to D"J
oVcers but also to %S% co##issioners.
CO//#&&#O1ER v CA&"AME9A
- %astabeda 0DFA oVcer in 9hil. E#bassy in
En$land.
*. T:9 is exe#pt.
&. ulin$ applies to DFA oVcers.
.+ Does the rule or decision applies to
?ovKt oVcials onlyO
A+ @o. 9D&&(! Exe#ption applies to both
private and public sectorsAO)
it does not #atter i. T:9 is vacation or
sic= leave.
&-/,B Sec. &.+,.* par. Aa)A+)
Y JA@B *//, 0 the rule applies to both
private and public sectors.
E"&/* ASE9T.B &((()
Y "Vcer in $ovKt receivin$ T:9 is always
exe#pt whether or not vacation or sic=
leave is $ranted.
>odi;ed &-/,!
Y T:9 will only apply to private sectors
Y i. $ranted on a yearly basis 0 #ay be
sub<ect to tax! 2A%AT-"@ :EA2E
*. >"E T5A@ *( DALS \ TAMAC:E
&. :ESS T5A@ *( DALS \ EME>9T
=2 *iscellaneous items "Sec2 ;7 '
"9#
"a# income deri/ed by foreign 5o/Ht
DSec2 ;7 ' "9# "a#E
.+ Dhat =ind o. inco#eO
A+
*. invest#ents in!
a. loans
b. stoc=s
c. bonds
d. other do#estic securities
&. interest .ro# deposits in Can=s in the
9hilippines.
.+ Dho are inco#e earnersO
A+
*. .orei$n $overn#ent
&. ;nancin$ institutions ownedB
controlled or en<oyin$ re-;nancin$
.ro# .orei$n $ovKtsI and
). intKl or re$ional ;nancial institutions
established by .orei$n $ovKts
Aestablished in the 9hilippines)
TAGE @"TE! i. plain .orei$n corp.B sub<ect to
F-T &(H.
EMA>9:ES o. exclusions!
a. Crunei ?ovKt earns interest by
depositin$ #oney in >a=ati Can= 0
Exclusion.
b. S>%- Stoc= dividends to ). Crunei ?ovKt.
exclusion
c. -nco#e derived by the ?ovKt or its
political subdivisions ASec. )& C A+) Ab)
a. exercise o. public utility
b. exercise o. any essential $ovKt
.unction.
Y accruin$ to the $ovKt.
d pri7es and awards ASec. )& C + c)
Y pri#arily .or reli$iousB charitableB
scienti;cB educationalB artisticB literary
or civic achieve#ents!
*. recipient was selected without any
action on his part to enter the
contest or proceedin$sI
&. the recipient was not required to
render substantial .uture services as
a condition to receive the pri7e or
award.
D. pri7es and awards in sports ASec. )&C +
d)
*. $ranted to athletesI
&. local or intKl co#petitionsI
). held here or abroadI
8. sanctioned by the natKl sports
associations.
E. *)
th
#onth pay and other bene;ts ASec.
)&C + e)
.+ Do you include %hrist#as bonus in your
-TO
A+ @oB because the law says *)
th
#onth pay
and Sother bene;tsTNTsi#ilar bene;tsT 0
x#as bonus is included in the cate$ory.
.+ Dho can increase the )(B((( li#itO
A+ The Sec. o. Finance.
.+ Applicable to who#O
A+
*. $ovKtI and
&. 9rivate institutions.
F. ?S-SB SSSB >edicare and other
contributions ASec. )& C + .)
Q #ust be deducted .ro# the ?- not @-T
because it is an exclusion.
8)
-creditable withholdin$ tax is an exclusion-
#ust be deducted ;rst .ro# the ?- be.ore
you co#pute the @-T. "therwiseB you are
includin$ in the ?- so#ethin$ that is
excluded .ro# the sa#e.
?. ?ains .ro# the Sale o. bondsB
debenturesB or other %erti;cate o.
indebtedness. ASec. )& C + $)
.+ Dhy 1 yearsO
A+ certi;cate o. indebtedness is si#ilar to
Can= -nterest in a lon$ ter# deposit.
- Sec. )& C + $ is si#ilar or the sa#e as &8
C in lon$ ter# deposit.
5. ?ains .ro# rede#ption o. shares in
#utual .und ASec. )& C + h)
*. Fiscal Lear 0 #eans an accountin$ period
o. *& #onths endin$ on the last day o. any
#onth other than Dece#ber.
&. %alendar year 0 a period o. *& #onths
be$innin$ on January and endin$ on
Dece#ber.
.+ Cusiness expense incurred in February
&(('B is it possible to include it .or April
&(('O
A+ yesB it is possible or it is possible i. ;scal
year is e#ployedB i. it .alls under the ;scal
year and all the ele#ents are present.
- related to trade or business.
EAS"@! %apital loss has no connection to
the trade or business.
TAGE @"TE!
Q .or taxpayers liable .or inco#e within
and without A% F D%))B they can clai#
deduction .or expenses incurred within
and without.
Q .or taxpayers who are liable only .or
inco#e withinB they can clai# a
deduction .or expenses incurred within
the 9hilippines.
Sec. )8 A EM9E@SES
*. For those business expenses not
enu#erated under A. Lou need to prove
that it is an ordinary and necessary
expense.
&. For those enu#erated under AB all you
have to prove is that it is incurred durin$
the taxable year.
Feb. *&B &((+ ASec. )8 AB Expenses)
.+ Did the law de;ne what is reasonableO
A+ @o. .or salaries and wa$es all that is
required by law is .or it to be reasonable.
- .or other .or#s o. co#pensationB there
#ust be services actually rendered.
&5.1N3D$ Case
F! involves a corporation en$a$ed in sellin$
;sh netsB and the corporation have a land
sold throu$h a bro=er.
Qthere was substantial pro;ts $ained .ro#
the sale o. a land which was sold by a
bro=er. The pro;t was in turn $iven to the
wor=ers as special bonus.
Qthe corporation clai#ed the bonus as a
deduction.
-SSEE! Should the deduction be allowedO
5! The S% did not allow the deductionB .or
other .or#s o. co#pensationB it #ust be
#ade or $iven .or services actually
rendered.
Qin this caseB it was proven that the sale
was not #ade by the e#ployeesB no e4ort
or services actually rendered by the#
because the sale was #ade throu$h a
bro=er.
Q
.+ easonable Travel ExpensesB Dhat is the
require#entO
A+
*. Travel #ust be in pursuit o. businessB
trade or pro.ession.
&. Travel expense while away .ro#
ho#e.
.+ -s there a travel expense which was not
in pursuit o. businessO
A+ yesB those which are considered as .rin$e
bene;ts AFC)B expenses .or .orei$n travel is
considered a FC only i. it is not in pursuit o.
the trade or business.
.+ can you clai# it under Sec. )8 A A*)Aa)
Aii)O
88
A+ @oB you can clai# it under Sec. )8 A A*)
Aa)Ai) last para$raph.
.+ easonable Allowances .or rentals .or
#eralco billsB require#entsO
A+
*. required as a condition .or the
continued use or possessionB .or the
purpose o. the tradeB business or
possession o. the property.
&. taxpayer has not ta=en any title or no
equity other than a lessor.
.+ easonable allowance .or entertain#entB
a#use#ent and recreation expensesB what
is the require#entO
A+
*. connected with the develop#entB
#ana$e#entB and operation o. the
trade AD">)I
&. Does not exceed the li#its or ceilin$
set by the Secretary o. FinanceI and
). @ot contrary to lawB #oralsB $ood
custo#sB public policy or public order.
.+ 5ow about bribeB =ic=bac=sB and other
si#ilar pay#ents
A+ even without this provisionsB =ic=bac=s
will not pass the require#ent o. Ai) ordinary
and Aii) necessary hence not deductible
EXPEN-E- ALLOWABLE TO PRIVATE
E#%CATIONAL IN-TIT%TION
.+ Dhy only private educational institution
is #entioned and no other taxpayersO
A+ it re.ers to section &+ .or 9rivate
Educational -nstitution $iven to the
educational institution.
?E@EA: E:E! )' A A&) and )' A A))
expenditures .or capital outlays not
deductible as business expense
EM%E9T-"@! 9rivate Educ. -nstitution can
clai# it under Sec. )8 A A&)
B%-INE-- EXPEN-E 's. ALLOWANCE
FOR #EPRECIATION
CES-@ESS EM9E@SE
*. @o carry-over
&. can be clai#ed .or one year only.
). i. the a#ount o. capital outlay is
substantialB it cannot acco##odate all o.
the expenses incurred.
ALLOWANCE FOR #EPRECIATION
*. There is carry over
&. you can clai# it .or a lon$er period
dependin$ on the li.e span o. the property.
). it can acco##odate all o. the expenses
incurred.
taxpayerKs allowable deduction .or
interest expense shall be deducted by an
a#ount equal to 8&H A *(-&((() o. the
interest inco#e sub<ect to F-T.
.+ Dho clai#s this deductionO
A+ the debtor clai#s this deduction.
.+ Dhat =ind o. interest is thisO
A+ interest on loan.
Qinterest on debt - when one borrows
#oney to ;nance his business interest in
connection with the taxpayerKs pro.ession
trade or business.
ED-S%"E@T-@? "F 9A9ES ! ASec. )8 C &
a)
Qa borrower or taxpayer can clai# the
interest paid in advance as ite#i7ed
deduction when he ;led his inco#e tax
return A-T) dependin$ on whether or not
the principal obli$ation has been paid.
*. i. the entire a#ount or entire principal
obli$ation has been paid 0 the entire
a#ount o. interest can be clai#ed as
ite#i7ed deduction.
&. i. only _ o. the obli$ation had been paidB
then the entire a#ount o. _ o. that interest
can be clai#ed as a deduction.
). i. no pay#ent had been paid on the
principal obli$ationB the advance interest
paid cannot be clai#ed as a deduction on
the years that it was paid.
E6E-E>E@TS F" ED-S%"E@T-@? "F
9A9ES!
*. incurred within the taxable year.
&. individual taxpayer reportin$ inco#e on a
cash basis.
@o deduction shall be allowed in respect
to the .ollowin$ interest!
81
*. i. within the taxable year an individual
taxpayer reportin$ inco#e on the cash
basis incurs an indebtedness on which an
interest is paid in advance or throu$h
discount or otherwise.
&. i. both taxpayer and the person to who#
the pay#ents has been #ade or is to be
#ade are persons speci;ed under Sec. )'
AC)!
a. #e#ber o. a .a#ily
b. bet. an individual and a corp.B #ore than
1(H in advance o. the outstandin$ stoc= o.
which is owned directly or indirectly by or
.or such individualI
c. Cet. & corp.B #ore than 1(H in value o.
the outstandin$ stoc= o. each o. which is
ownedB directly or indirectlyB by or .or the
sa#e individual.
d. bet. the $rantor and a ;duciary o. any
trustI
e. bet. the ;duciary o. a trust and the
;duciary o. another trust i. the sa#e person
is a $rantor with respect to each trustI or
.. bet. a ;duciary o. trust and a bene;ciary
o. such trust.
.+ Dho are not allowed to clai# interest
under sec )' CO
A+ interest incurred between related
parties.
.+ Dhat i. hal.-brotherO
A+ not allowed to clai# deduction .or
interest.
TAGE @"TE! interest incurred .ro# the
exploration o. petroleu# re.ers not <ust in
interest incurred on loan o. #oney but also
interest incurred .or install#ent pay#ents.
.+ Dho are related partiesO
A+ individuals and corporations.
"9T-"@A: TEAT>E@T "F -@TEEST
EM9E@SE!
*. interest incurred to acquire property used
in tradeB business or exercise o. pro.ession
can be clai#ed a an ite#i7e deductionZ
a. on interestI or
b. depreciation Aas capital
expenditureO)
.+ Dhat is this interest inco#eO
A+ the #oney borrowed was deposited in a
ban= so that it will warn interest. A*)-
&((()
-::ESTAT-"@!
*. loan o. *> .ro# a ban= with an interest o.
&(H
&. &(H o. *> is 9hp&((B((( but you cannot
clai# this whole a#ount as a deduction.
). when you deposited the *> in the ban=B
it earned a ban= interest sub<ect to F-T
worth 9hp*(B(((.((.
8. 8&H A) o. *(B((( \ 8B&(( A /))+)
1. 9hp&((G-8B&((\ 9hp*/1B,((N this is the
a#ount you can clai# as a deduction.
;6 C TAXE-+
E6E-S-TES!
*. taxes #ust paid or incurred within the
taxable year
&. it #ust be incurred in connection with
trade or business.
). can be clai#ed as!
a. a deductionI or )8 % *F&
b. tax credit )8 % )F+
.+ Dhere should it be deductedO
A+
*. i. clai#ed as a deductionB it should be
deducted .ro# the $ross inco#eI
&. i. clai#ed as a tax creditB it should be
deducted .ro# the @et -nco#e Tax due
Abotto# o. the .or#ula)
*ERC.RI DR.5 C&SE
- Discount o. senior citi7ens
S%! discount clai#ed by senior citi7ens shall
create a tax credit and #ust be deducted at
the botto# o. the .or#ula.
.+ Dhat is a tax deductionO Exa#pleO
A+ exa#ple is business tax.
Qtax deduction is allowed i. the taxes were
paid or incurred within the taxable year and
it #ust be connected to the tradeB business
or pro.ession o. the tax payer.
.+ Dho are entitled to clai# itO
A+ those liable to pay @-T. ATax credit only
.or @-T)
.+ Dhat is a tax creditO
A+ re.ers to the taxpayerKs ri$ht to deduct
.ro# the inco#e tax due the a#ount o.
tax the taxpayer paid to .orei$n countryB
sub<ect to li#itations.
8'
.+ Dhat is the tax credit bein$ re.erred to
under )8 % A))O
A+ credit a$ainst taxes .or taxes o. .orei$n
country.
.+ Dhat are the other tax credit under the
codeO
A+
*. A '81& 0 sellin$ $oods and co##odities
to senior citi7ensB the discount clai#ed is
treated as a tax credit.
&. inco#e tax paid to .orei$n country.
). -nput tax on 2at
8. %reditable wNholdin$ tax syste# under
@-T
1. Tax credit certi;cate.
6! Dho are allowed to clai# itO
A! % and D% only.
.+ suppose you paid the *((G @-T to ESB
can you clai# as a deduction the whole
*((GO what is the .or#ulaO
Qsa#e procedure .or A*) inco#e tax paid to
.orei$n countryI A&) estate tax paid to
.orei$n countryI and A)) DonorKs tax paid to
.orei$n country.
A+ Forula+
STE9 *
?- .ro# sources wNin
@-T! JJJJJJJJJJJJJJJJJJJJJ
?- .ro# entire world
STE9 &
6uotient x ATE \ a#ount wNc can be
clai#ed as a deduction
A+ you cannot clai# the whole *((GB you
can only clai# the product o. the quotient
ti#es the rate
TAGE @"TE! deduct at the botto# o. the
.or#ula A sa co#putation n$ ?-)
.+ Suppose you are a %B you pay @-T to
ESB will you be able to clai# it as a tax
deductionO
A+ *. $enerallyB you can clai# it as tax
credit.
&. you can clai# under Sec. )8 % A*) b
Qi. the taxpayer did not si$ni.y in his return
his intention to avail hi#sel. o. the bene;t
o. tax credit .or taxes paid to .orei$n
country.
Qtaxes incurred not related to the trade or
businessB you have the option to!
a. clai# it as tax creditI or
b. clai# it as a deduction
Qlaw $ives you this privile$e.
.+ Dhen is taxes not allowed as a
deductionO
A+ Sec. )8 % A*)
*. -nco#e taxI
&. -nco#e tax i#posed by authority o.
any .orei$n countryI
). Estate and DonorK taxI and
8. taxes assessed a$ainst local bene;ts
o. a =ind tendin$ to increase the value o.
the property.
.+ Dho are not allowed to clai#
deductionsO
A+ Ender )8 % A)) - @%B @AI and @NF%
TAGE @"TE!
*. @AE and @F% 0 allowed deduction only i.
and to the extent that they are connected
with inco#e .ro# sources within the 9hils.
&. Taxes that had been allowed as deduction
but are later in re.unded should be treated
as part o. the $ross inco#e durin$ the year
that it is received A)8 * last para$raph)
.+ Dhich would you chooseO Tax credit or
deductionO
A+ tax credit because it is deducted .ro#
the taxable inco#e while deductions are
deducted .ro# the ?-.
F">E:A! ?--DEDE%T-"@ \ @ET -@%">E x
ATE \ TAMAC:E @ET -@%">E 0 TAM
%ED-T)
;6 # LO--E-
.+ -s always a require#ent that it is
incurred in pursuit o. tradeB bus. or
pro.essionO
A+ @o. Sec. )8 DA*) provides .or & =inds o.
losses!
a. incurred in pursuit o. tradeB bus. or
pro.essionI
b. property connected with tBbBpB i. the
loss arises .ro# ;reB stor#sB shipwrec=s
8+
or other casualties or .ro# robberyB
the.t or e#be77le#ent Aarisin$ .ro#
natural cala#ity).
A+
*. :oss actually sustained durin$ the
taxable year
&. @ot co#pensated .or by insurance or
other .or#s o. inde#nity.
). @ot clai#ed as a deduction .or estate
tax purposes.
.+ This is your ite#i7ed deduction which
can be clai#ed as a deduction .ro#O
A+ ?ross inco#e
TAGE @"TE!
Q The ite#i7ed deduction o. lossesB
howeverB is not con;ned to section )8C. it is
also .ound under section ,'A A*) Ae) which
also pertains to deductions available under
the estate tax law.
Q:osses within six A') #onths a.ter the
death o. the decedent can be clai#ed as
ite#i7ed deduction o. losses under Section
)8C. 5oweverB #ay be clai#ed as
deduction under estate tax return provided
that the sa#e are not clai#ed as ite#i7ed
deduction o. losses under Section )8C.
.+ 5ow #any carry-overs do we have under
the %odeO
A+ ). @a#ely!
*. Section &+ E A)&) %arry .orward o.
excess #ini#u# Tax
&. Section )/ D @et %apital :oss %arry-
over
). Section )/ D ) @et "peratin$ :oss
%arry-"ver.
1IN#- OF LO--E- AN# T:EIR CARR20
OVER-+
&2 $RD1N&RI 3$SS J N$3C$ ' N( above.
.+ Dhy is there a need .or a carry over
under Sec. )8 D R when you can clai# the
loss .ro# both capital and ordinary lossO
A+ i. the loss exceeds the inco#e .or the
taxable yearB you cannot deduct the entire
a#ount o. loss .ro# your inco#e .or that
year so the excess #ay be deducted .or the
taxable year .ollowin$ the loss.
B. CAPITAL LO-- G NET CAPITAL LO--
CARR2 OVER ' N + above.
NET C&P1T&3 3$SS
C&RRI-$KER
NET $PER&T1N5
3$SS C&RRI-
$KER
*. taxpayers is an
individual only not
corporation.
&. involves net
capital loss
). carry-over as loss
.ro# sale o. capital
asset in the next
succeedin$ year
8. can only be
deducted .ro#
capital $ains.
*. taxpayer #ay be
an individual or
corpI
&. losses incurred
or connected with T
or CI
). Cusiness losses
not previously o4-
set as a deduction
.ro# the ?- carried
over as such .or
the next )
consecutive yearsI
8. can be deducted
.ro# capital $ains
andNor ordinary
$ains.
NET OPERATING LO-- CARR2
E6E-E>E@TS!
*.@et operatin$ loss o. the business or
enterprise incurred wNin the taxable year
&. not previously o4-set as a deduction .ro#
the ?-
). carried over as a deduction .ro# the ?-
.or the next ) consecutive taxable years
i##ediately .ollowin$ the year o. such loss.
.+ %an the period be extendedO
A+ yesB .or #ines other than oil and $as
well.
*. net operatin$ loss wNout the bene;t
incentives provided by lawI
&. incurred in any o. the ;rst *( years o.
operation.
). carried over as a deduction .ro# the
?- .or the next 1 years .ollowin$ such loss.
8. no substantial chan$e in the
ownership o. the business or enterprise.
.+ Dhat is the li#itO
A+ +1H o. the no#inal value o. outstandin$
shares is held by or on behal. o. the sa#e
personsN corporation
8,
Q individual no proble#B proble# lies with
corporations or enterprises.
ACA@D"@>E@T :"SSES
*. contract area where petroleu#
operations are underta=en is partially or
wholly abandonedI
Q all A*) accu#ulated exploration and A&)
develop#ent expenditures pertainin$
thereto shall be allowed as a deduction.
&. a producin$ well is subsequently
abandoned!
Quna#orti7ed cost and undepreciated cost
o. equip#ent directly used therein shall be
allowed as a deduction in the years it was
abandoned.
TAGE @"TE!
*. i. abandoned well is reentered and
production is resu#edI or
&. i. equip#ent or .acilities are restored into
service in the year o. resu#ption or
restoration and shall a#orti7ed or
depreciated.
.+ Dhat is the Tax bene;t ruleO
A+ :ast 9ar. o. Sec. )8 E A*)! recovery o. bad
debts previously allowed as deduction in
the precedin$ year shall be included as part
o. the $ross inco#e in the year o. recovery
to the extent o. the inco#e tax bene;ts o.
said deduction.
.+ Dhat is a Cad DebtO
A+ Cad debts shall re.er to those debts
resultin$ .ro# the worthlessness or
incollectibility in whole or in part o.
a#ounts due the taxpayer by othersB
arisin$ .ro# #oney lent or .ro#
uncollectible a#ounts o. inco#e .ro# $oods
sold and services rendered.
C:INA BAN1 V-. CA
Q bad debts can only be clai#ed i.
pursuant to a contract o. loan
- no bad debts .or loss o. instru#ents.
.+ Dho clai#s itO
A+ a. creditor
b.#oney lender
.+ Dhat year can it be clai#edO
A+ can be clai#ed in the year it was
actually sit ascertained to be worthless and
char$ed o4B #eanin$ cancelled in the boo=s
o. account.
.+ Do you need to ;le an action be.ore you
can clai#O
A+ @oB all you have to do is prove that you
did exert e4ort to clai# or recover the
sa#e.
.+ Dhat cannot be deducted as bad debtsO
A+
*. debts not incurred in connection
with the tradeB business and pro.ession
o. taxpayer.
&. transactionsB #ered into between
parties #entioned under Section )' AC)
na#ely.
a) between #e#bers o. the .a#ily
b)between an individual who owns
#ore than )(H o. outstandin$
capital stoc= o. a corporation
and that corporation
c) between two A&) corporations #ore
that 1(H o. the outstandin$ capital
stoc= o. which is owned by or .or the
sa#e individual
d)between a $rantor and ;duciary o.
any trust
e) between two A&) ;duciaries o. two
A&) trusts who has the sa#e
$rantor
.) between a ;duciary o. a trust and
above ;duciary o. such trust
&EC$R#"#E& 8ECO/#10 HOR"5LE&&
*. ascertained to be worthless and
char$ed o4 within the taxable year
&. capital asset
). taxpayerB other than a Can= or trust
co#pany incorporated under 9hil. :aws
8. substantial part o. business is the
receipt o. deposit
1. considered as a loss .ro# the sale o.
capital assets on the last day o. such
taxable year
;6 F #EPRECIATION
.+ Dhat is depreciationO
A+ -t is the $radual di#ension in the service
or use.ul value o. tan$ible property due
.ro# exhaustionB wear and tear and nor#al
obsolescence.
.+ Dhat =ind o. property is involvedO
A+ *. eal property except parcel o. land
8/
&. 9ersonal 9roperty
RE6$#&#"E&:
*. depreciation deduction #ust be
reasonable
&. .or the exhaustionB wear and tearB
includin$ reasonable allowance .or
obsolescence
). property used in the trade o. business
.+ Dhat do you #ean by Sreasonable
allowanceTO
A+ it shall includeB but not li#ited toB an
allowance co#puted in accordance with
rules and re$ulations prescribed by the
Secretary o. FinanceB upon reco##endation
o. the %o##issionerB under any o. the
.ollowin$ #ethods!
*.Strai$ht-line #ethod
&.Declinin$ balance #ethod
).Su#-o.-the-year-di$ital #ethodI and
8.any other #ethod which #ay be
prescribed by the Secretary o. Finance
upon reco##endation o. the
%o##issioner
#EPRECIATION OF PROPERTIE- %-E#
IN PETROLE%/ OPERATION-
*. properties directly related to production
o. petroleu#
&. allowed under A*) strai$ht line or A&)
declinin$ balance #ethod
). use.ul li.e o. properties used or related
to production o. petroleu# shall be ten
A*() years or such shorter li.e as
#ay be per#itted by the
%o##issioner.
8. .or property not used directly in the
production o. petroleu# A*) depreciated
under the strai$ht line #ethodB and
use.ul li.e is only ;ve A1) years
#EPRECIATION OF PROPERTIE- %-E#
IN /INING OPERATION-
A::"DA@%E F" DE9E%-AT-"@!
*.all properties used in #inin$ operations
other than petroleu# operations shall be
co#puted as .ollows!
a. i. the expected li.e is ten A*() years or
less 0 nor#al rate o. depreciation
b. i. the expected li.e is #ore than ten A*()
years 0 depreciated over any nu#ber o.
years between ;ve A1) years and the
expected li.e.
RE6$#RE/E1"&:
*. depreciation is allowed as a deduction
.ro# '*I and
&. contractor noti;es the %o##issioner at
the be$innin$ o. the depreciation period
which depreciation rate shall be used.
DE9E%-AT-"@ DEDE%T-C:E CL @AETC "
F%
Q reasonable allowance .or the
deterioration o. property
1. arisin$ out o. its use or
e#ploy#ent
2. or non-use in the businessB
trade or pro.ession
3. property is located in the
9hilippines
;6 G #EPLETION OF OIL an$ GA-
WELL- an$ /INE-
Q only deduction which is a not sel.
executin$ deduction
.+ Dhat is depletionO
A+ the exhaustion wear and tear o. natural
resources as in #inesB oilB and $as wells
Qthe natural resources called Swastin$
assetsT
DE9E%-AT-"@ vs DE9:ET-"@
*.involves
property
*. involves natural
resources
&. ordinary wear
and tear o.
equip#ents
&. ordinary wear
and tear o. natural
resources

TAGE @"TE!
QEquip#ent used in #inin$ operation is
deductible in depreciation
.+ >ethod .or co#putin$ depletionO
A+ cost depletion #ethod
.+ to who# allowedO
A+ only #inin$ entities ownin$ econo#ic
interest in #ineral deposits
QEcono#ic interest! capital invest#ents in
#ineral deposits
;6: C:ARITABLE * OT:ER
CONTRIB%TION-
1(
TAGE @"TE!
*.unique because deducted .ro# the
taxable net inco#e and not .ro# the $ross
inco#e
Qsecond step o. the .or#ula deduction
.+ Dho is clai#in$ the deductionO
A+ the donor
.+ Dho are the DoneesO
A+ *.?overn#ent o. the 9hilippines or any
o. its a$encies or any political subdivision
thereo. exclusively .or public purpose
&. Accredited Do#estic corporation or
association or$ani7ed and operated
exclusively .or reli$ionsB lionB charitableB
scienti;cB youth and sports
develop#entB cultural or educational
purposes or .or the rehabilitation o.
veteransB or to social wel.are institutionB
or to non $overn#ent or$ani7ation and
no part o. its net inco#e inures to the
bene;t o. any private stoc= holder or
individual
.+ 5ow #any =inds o. deductionO
A+ Two A&) =inds!
*.partial deduction
Q*(H o. taxable inco#e in case o.
an individual
Q1H o. taxable inco#e in case o.
corporations
&. .ull Ntotal deduction
.+ Dhich o. the two =inds is the ?eneral
uleO
A+ ?eneral ule! 9artial deduction
Exception! Total NFull deduction
.+ Suppose >r. A #ade a cash donation o.
9*>. 5ow #uch can he clai# as a
deductionO
A+ First deter#ine the taxable inco#e o. >r
A since he is an individualB he can only
deduct *(H o. his taxable inco#e.
6! Dhat i. the Donee is not one o. those
#entioned under the lawB can he clai# a
deductionO
A! @o.
TAGE @"TE! Donee is never an individual.
.+ -. the Donor is a pure co#pensation
inco#e earner and he donates 9*((B((( to
the churchB can he clai# it as a deductionO
A+ @o. pure co#pensation inco#e earner
can only clai# a deduction under Sec )8 >
.+ -. Donee is the 9hilippine ?overn#entB
what is the require#entO
A+ it #ust be #ade exclusively .or public
purposes
.+ Dhat i. the Donee is a provinceO
A+ there #ust be a quali;cation that it is .or
public purpose
.+ -. the Donee is a Do#estic %orporationB
what is the require#entO
A+ no part o. its inco#e inures to the
bene;t o. any private shareholder or
individual
.+ Dhat are those contributions which can
be deductible in .ullO
A+ *.Donations to the ?overn#ent 0 no
con3ict with partial Adi4erent
require#ent)
Q9artial donated .or exclusively public
purposes
QFullB used in underta=in$ priority
activities o. @EDA
&.Donations to certain Forei$n
-nstitutions or -nternational
"r$ani7ations
Qin co#pliance with a$ree#entB treaties
or co##it#ent entered into by the
9hilippine ?overn#ent and such donees
).Donations to Accredited @on
$overn#ent or$ani7ations @on
$overn#ent or$ani7ationB non pro;t
do#estic corporation
E6E-E>E@TS!
*. or$ani7ed and operated exclusively .or
scienti;cB researchB educationalB character
buildin$ and youth and sport develop#entB
healthB social wel.areB cultural or charitable
purposes or a co#bination thereo.
&. no part o. the net inco#e o. which inures
to the bene;t o. any private individual
). uses the contributions directly .or the
active conduct o. the activities constitutin$
the purpose or .unction .or which it is
or$ani7ed and operated
1*
8. annual ad#inistrative expense does not
exceed )(H o. the total expenses and
1. in case o. dissolutionB the assets o. which
would be distributed to!
a) another non pro;t do#estic
corporation or$ani7ed .or si#ilar
purpose or purposes
b) to the state .or public purpose
c) distributed by the court to another
or$ani7ation to be used in such a
#anner which would acco#plish the
$eneral purpose .or within the dissolve
or$ani7ation was or$ani7ed
;6I RE-EARC: AN# #EVELOP/ENT
Q-n the old lawB this is not allowed as a
deduction. To re#edy thisB they .elt that
those should be a separate deduction .or
research and develop#ent.
E6E-S-TES!
Qtax payer #ay treat research and
develop#ent expenditures as ordinary and
necessary expenses provided!
*. it is paid or incurred durin$ the taxable
year
&. incurred in connection with tradeB
business or pro.essionI and
). not char$eable to capital account.
.+ Treated as such whenO
A+ durin$ the taxable year it is paid or
incurred
A/OR"#;A"#O1 O% CER"A#1 RE&EARC5 A19
9E:ELOP/E1" E=PE19#"$RE&
Qat the election o. the taxpayerB the
.ollowin$ shall or #ay be treated as
de.erred expenses!
a. paid or incurred by the taxpayer in
connection with his tradeB business or
pro.essionI
b. not treated as expenses under par *
and
c. char$eable to capital account but not
char$eable to property o. a character
which is sub<ect to depreciation or
depletion
.+ 5ow to co#pute taxable inco#e!
A! de.erred expenses shall be allowed as
deduction ratably distributed over a period
o. not less than *( #onths as #ay be
elected by the taxpayer Abe$innin$ with the
#onth the
taxpayer ;rst reali7es bene;ts .ro#
expenditures.)
Qthe election or option #ay be exercised
.or any taxable year a.ter the e4ectivity o.
the code but not later than the ti#e
prescribed by law .or ;lin$ the return .or
such taxable year.
:->-TAT-"@ "@ DEDE%T-"@
.+ Dhen not deductibleO
A+ *.Any expenditure .or the
A*) acquisition or i#prove#ent o. land
or A&) .or the i#prove#ent o. property to
be used in connection with research and
develop#ent o. a character which is
sub<ect to depreciation and depletion
and oVce site
&. Any expenditure paid or incurred .or
the purpose o. under#inin$ the
existenceB locationB extent or quality o.
any deposit o. one or other #ineral
includin$ oil or $as.
Q not .or #ineral exploration
;6 H PEN-ION TR%-T
.+ %lai#ed by Dho#O
A+ the e#ployer
.7 Dhat is a 9ension Trust contributionO
A+ a deduction applicable only to e#ployer
on account o. its contribution to a private
pension plan .or the bene;t o. its e#ployee
deduction is purely business in character.
.+ equisitesO
A+
*.the e#ployer #ust have established a
pension or retire#ent plan to provide .or
the pay#ent or reasonable pension o. his
e#ployees
&. pension plan #ust be reasonable and
actually soundI
). it #ust be .unded by the e#ployer
8. the a#ount contributed #ust no lon$er
be sub<ect to his control or disposition
1. the a#ount has not yet been allowed as
a deduction and
'. the a#ount has or is apportioned in
equal parts over a period o. *( consecutive
years be$innin$ with the year in which the
trans.er or pay#ent is #ade.
1&
;6 1 A##ITIONAL RE.%IRE/ENT- FOR
#E#%CTIBILIT2 OF CERTAIN PA2/ENT-
Qallowed as a deduction only i. shown that
the tax required to be deducted and
withheld there .ro# has been paid to the
C- in accordance with Section 1, and
Section ,*
;6 L OPTIONAL -TAN#AR# #E#%CTION
A#19& O% 9E9$C"#O1&:
*.-te#i7ed deduction
&."ptional Standard Deduction
).9ersonal NAdditional Deduction
"9T-"@A: STA@DAD DEDE%T-"@!
Qcan be availed o. by an individual who
#ay elect a standard deduction in an
a#ount not exceedin$ *(H o. his $ross
inco#e
Q #ay apply in lieu o. the other
deductions under Section )8
Qthe taxpayer #ust si$ni.y in his return his
intention to elect the optional standard
deductionB otherwiseB he shall be
considered as havin$ availed o. the
ite#i7ed deduction.
.+ Dho can clai# this deductionO
A+ all individual taxpayers except non
resident alien not en$a$ed in trade or
business A@A@ETC)
Reason: he is not liable to pay by way o. the
@-TB thusB .ollows he cannot clai# this
deduction because he is liable to pay by
way o. ?-T.
TAGE @"TE!
Qcan co-exist with personal and N or
additional exe#ption
;6 / PRE/I%/ PA2/ENT- ON :EALT:
AN# IOR :O-PITALIJATION IN-%RANCE
OF AN IN#IVI#%AL TAXPA2ER
Q .or A*) 5ealth and Ninsurance
A&) 5ospitali7ation
E6E-E>E@TS!
*. a#ount o. pre#iu#sB paid by taxpayer
.or hi#sel. and #e#bers o. his .a#ilyB
&. a#ount o. pre#iu#s should not exceed
A*) 9&B8(( per .a#ily or A&) 9&(( a
#onth
). $ross inco#e o. the .a#ily .or the
taxable year is not #ore than 9&1(B(((
.+ Dho can avail o. this deductionO
A+ *.individual taxpayer earnin$ purely
co#pensation inco#e durin$ the yearI
&. individual taxpayer availin$ ite#i7ed
or optional standard deductionI and
). individual taxpayer earnin$ both
co#pensation inco#e and inco#e .ro#
business
-ECTION ;A ALLOWANCE FOR
PER-ONAL EXE/PTION FOR
IN#IVI#%AL TAXPA2ER
.+ Dhen do we apply thisO
A+ apply i. individual taxpayer is payin$ by
way o. @-T
.7 Dho are taxpayerO
A+ those #entioned under Section &8 AA)
*. %
&. @%
). "%D
8. A
Qall can clai# both personal and
additional exe#ption

.+ Dhy not include @AETCO %an the latter
clai# any exe#ptionO
A+ @AETC is not included because Section
)1 A re.ers to Section &8 A
Q@AETC can clai# personal deductions
but not additional exe#ptions pursuant to
Sec )1 D
E6E-E>E@TS!
*.@AETC should ;le a true and accurate
return
&. the a#ount to be clai#ed as personal
exe#ptions should not exceed the
a#ount provided .or under 9hilippine
:aws
TAGE @"TE!
AE>"9! can be a A or @AETC
BA-IC PER-ONAL EXE/PTION-+
1. Sin$le individualI or individual <udicially
decreed as le$ally separated with no
quali;ed dependents.
Q &(B (((
&. For head o. the .a#ily 0 can be sin$le or
le$ally separated with quali;ed dependents.
Q &1B (((
1)
). For each #arried individual 0 i. only one
o. the spouseB earns or derives $ross
inco#eB only such spouse can clai# the
personal exe#ption.
Q)&B (((
.+ Dho is the Shead o. the .a#ilyTO
A+ *.un#arried or le$ally separated #an or
wo#an
&. Dith A*) one or both parties or
A&) Dith one or #ore brothers and
sisters
A)) with one or #ore le$iti#ateB
reco$ni7edB natural or le$ally adopted
children
). livin$ with and dependents upon hi#
.or their chie. support
8. whose such brother or sisters or
children are
A*) not #ore than ** years old and
A&) not $ain.ully e#ployedB
A)) un#arried
1. "B re$ardless o. a$eB the sa#e are
incapable o. sel. support because o.
#ental or physical de.ect.
.+ Dhy do we have to deter#ine who the
head o. the .a#ily isO
A+ only le$ally separated individuals can
clai# additional exe#ptions i. they have
quali;ed dependents.
TAGE @"TE!
Q.A. +8)& and &-/,! a senior citi7en
can also be a dependent.
.+ %an a widower clai# exe#ptionsO
A+ exe#ptions #ust be strictly construedB
widower not included in the list under
Section )1 A 0 but can clai# under sec
)1C
QwidowerB #arried or used to be #arried
>A-ED -@D-2-DEA:S
Qeach le$ally #arried individuals can clai#
the personal exe#ption. 5usband and wi.e
\ 9'8B(((
.+ Dho are allowed to clai#O
A+ @or#ally B it is the husband who clai#s
unless he executes a waiver that the
wi.e will clai# the sa#e A&-/,)
Additional E?emptions: '(48.
-additional exe#ption o. 9,B((( .or each
dependent not execeedin$ .our A8)
6! Dho can clai# the sa#eO
A! *.>arried couples! only one o. the
spouses can clai# itI
&.le$ally separated individuals! can be
clai#ed by the spouse who has custody
o. the child or children
Qthe additional exe#ption clai#ed by
both shall not exceed the #axi#u#
additional exe#ption herein allowed.
.+ De;ne SdependentsT
A+ le$iti#ateB ille$iti#ate or le$ally adopted
child chie3y dependent upon and livin$
with the taxpayer i. such dependent is A*)
not #ore than &* years o. a$eB A&)
un#arriedB and A)) not $ain.ully e#ployed
or A8) i. such dependentB re$ardless o. a$e
is incapable o. sel. support because o.
#ental or physical de.ect.
.+ Dhat i. widower has ille$iti#ate
childrenB can clai# additional
exe#ptionO
A+ can clai#B can be considered as head o.
the .a#ily wN dependent
.+ Dhat i. the children are te#porarily
away .ro# the parentsO
A+ still considered livin$ with parentsB can
clai# exe#ption
C5A10E O% &"A"$&: '&EC (4 C.
.+ ec=onin$ 9eriodO
A+ end o. the year or close o. such year
when such chan$e o. status
occurred.
TAGE @"TE!
Qalways choose the hi$her a#ount o.
exe#ption i. you are ;lin$ a return coverin$
the period within which the chan$e o.
status occurred
*. i. the taxpayer should A*) #arry or A&)
have additional dependents durin$ the
taxable yearB he #ay clai# the
correspondin$ exe#ption in .ull .or the year.
#llustration:
*.Sin$le Jan *B &((1
&.>arried June *B &((1 0 on April *1B &((' 0
status! le$ally #arried can clai# 9 )&B(((
18
&. i. the taxpayer should die durin$ the
taxable yearB estate can clai# personal
exe#ption.
-llustration
*.Jan. &1B &((1 taxpayer #arried wN one
child
can clai# on April *1B &(('
9)&B((([
9,B(((
Q -n this caseB as i. the chan$e o. status
occurred at the close o. taxable year. -.
taxpayerKs spouse or child dies within the
taxable year or the dependentKs beca#e A*)
$ain.ully e#ployed A&) $ot #arried or A))
beca#e &* as i. the chan$e as status
occurred at the close o. taxable year.
#llustration:
*. TaxpayerKs tra$ic story wi.e died Jan. &1B
&((1 and child died the next day then
another child eloped and $et #arried.
&. Taxpayer despite the tra$edy can clai#
ton o. #oney on April *1B &(('.
9 )&B(((
9 *'B((( A,B((( per child)
8,B(((
-ection ;B. Ites not #e$ucti<le
;B A. 0eneral Rule: -n co#putin$ net
inco#eB no deduction shall be allowed!
A*) 9ersonalB livin$ or .a#ily expenses 0 not
related to trade or business
A&) Section )' A A&) and Section )' A A))
0eneral Rule: @o deductions allowed .or
*. Any a#ount paid out .or new buildin$s
or .or per#anent i#prove#entsB or
better#entsB #ade to increase the value
o. any property or estate
&. Any a#ount expanded in restorin$
property or in #a=in$ $ood the
exhaustion thereo. .or which an allowance
is or has been #ade.
E?ceptions:
*. "ption $ranted to 9rivate
Educational -nstitution to deduct the
sa#e as capital outlays.
TAGE @"TE!
QA#ount paid .or new buildin$sB can be
deducted i. it involves intan$ible drillin$
and develop#ent cost incurred in
petroleu# operations ASec )8 ' AA)
PRE/I%/- PAI# ON LIFE IN-%RANCE
POLIC2 +
*. coverin$ the li.e o. any oVcer or
e#ployee or any person ;nancially
invested in any trade o. business
carried on by the taxpayer.
&. taxpayer is directly or indirectly the
bene;ciary under such policy.
LO--E- FRO/ -ALE- OR EXC:ANGE-
OF PROPERT2 'betDeen related parties.
*) between .a#ily #e#bers
.+ Dho is considered the S.a#ily o. the
taxpayerOT
A+ a. brothers and sister Awhole is _
blood)
b. spouses
c. ancestors
d. lineal descendants
.+ are uncles or nieces includedO
A+ no
IN #ONORK- TAX
Qelatives includes relatives by
consan$uinity within the 8
th
civil code.
@ephew is a stran$er and relative an$
nephew.
&) individual and corporations
?en. ule! @" DEDE%T-"@
Except! distribution in liquidation or
less than 1(H o. the outstandin$
capital stoc=
)) Two corporations
8) ?rantor or Fiduciary
1) Two ;duciaries o. two trust
') Fiduciary and bene;ciary o. trust
-ec. ;= -pecial pro'isions re,ar$in,
$e$uctions of insurance copanies.
%odal 9rovisions
Section ),! :osses Fro# Dash Sales o.
Stoc= or Securities
.+ Dhat is a wash saleO
A+ -t is a sales or other disposition o. stoc=
securities where substantially identical
securities are purchased within '* daysB
be$innin$ )( days be.ore the sale and
endin$ )( days a.ter the sale.
.+ Dhat periodO
11
} P40,000
A+ '* day period be$innin$ )( days be.ore
and endin$ )( days a.ter the sale
.+ Jan &( you purchased share o. stoc=B and
disposed o. the sa#e on Feb 1B &((1. -s
this a wash saleO
A+ @o
.+ -. it is a loss in wash saleB happensO
A+ General Rule+ ASec *)* @o. &)
$ains .ro# wash sale are taxable but
losses are non-deductible
E?ception:
Qunless clai# is #ade by a dealer in stoc=
or securities and with respect to a
transaction #ade in the ordinary course o.
the business o. such dealer
.+ eason why losses in wash sale cannot
be deductedO
A+ *. to avoid too #uch speculation
in the #ar=et
&. taxpayer not tellin$ the truthB
because he #ay say he incurred
a loss instead o. a $ain
-ection 6F. #eterination of Aount
an$ Reco,nition of Gain or Loss
5ENER&3 R.3E0 This is totally
irrelevant i. the inco#e is sub<ect to ;t.
-n ;t $ain is presu#ed.
ELCEPT0 sale o. shares o. stoc= where
you have to deter#ine actual $ain or
loss
.+ Dhen is there a $ainO
A+ excess o. the a#ount reali7ed over the
basis or ad<usted basis .or deter#inin$
$ain. Aa#ount reali7ed .ro# the sale or
other disposition o. property)
.+ Dhen is there a lossO
A+ the a#ount reali7ed is not in excess o. C
or AC
1llustration0 */,+ Car AJuan dela %ru7
sold <ewelry .or )((B((( ) contract o.
sale
Qa#ount reali7ed is )((B(((
.+ Dhat will be the basis o. the $ainO
A+ Sec. 8( C A*)B property was acquired
by purchase
Q%ost! purchase price [ expenses
.+ -. there is a $ainB is the whole $ain
sub<ect to inco#e taxO
A+ it depends
Qi. ordinary asset \ *((H is sub<ect to
inco#e tax
Qi. capital assets
a. short ter#Aless than *& #onths) !
*((H taxable
b. lon$ ter# A#ore than *& #onths)!
1(H taxable
.+ suppose property sold is a parcel o. land
will the rule be the sa#eO
A+ @oB and it depends
Qordinary asset! apply the cost
Qcapital asset! 'H F>2 or sellin$ price
which ever is hi$her
6! Do we apply the holdin$ periodO
A! @oB holdin$ period does not apply to the
sale o. real property. This is an absolute
rule!
Q-. realty is ordinary 0 holdin$ period
does not apply.
Q-. realty is capital asset 0 'H F>2 or
sellin$ price applies.
Q5oldin$ period applies only to sale o.
personal property which is a capital asset
except sale o. shares o. stoc=s.
Q5oldin$ period also do not apply to
corporations.
.+ -. the property is acquired throu$h
inheritanceB what is the basisO
A+ Sec 8( C A&) .air #ar=et value or price
as o. the date o. acquisition.
.+ Suppose it was a sale o. personal
propertyB do we apply the sa#e
principlesO
A+ @o.
.+ Dhat i. it involves a sale o. real
propertyO
A+ Apply the sa#e principles
Suppose it was a result o. swindlin$B
the.tB robbery or esta.aB do we apply
the sa#e principlesO
A+ :aw is silentB ta=e note o. the old %-A
rulin$ on this one
.+ Feb *8B &(('B your ?? $ave you a
<ewelry in Sept your ?? brea=s up with
you. ?? request the <ewelry be returned
but you already sold it .or 9&((B(((.
1'
Dill the entire 9&((B((( be included in
$ross inco#eO
A+ Casis! A*) sa#e as i. it would be in the
hands o. the Donor AF>2 as o. date o.
acquisition)I or A&) last owner who did
not acquire the sa#e by $i.t Acost)
.+ -. it involves a parcel o. landO
A+ apply the sa#e rules Section 8( C A8)
what is the basisO
1. 9roperty was acquired .or less
than an adequate consideration
in #oney or #oneys worth! the
basis would be the a#ount paid
by the trans.eree .or the
property.
.+ Section 8( C A1) what is the basisO A+ 8(
% A1)
Q i. the property was acquired in a
transaction where $ain or loss is not
reco$ni7ed Apursuant to a #er$er or
consolidation plan)
a. corporationB party to a #er$er or
consolidationB exchan$es property
solely .or stoc=s in another
corporationB also a party to the
#er$er or consolidation
b. is a party to the #er$er or
consolidationB solely .or the stoc=s
o. another corporation also a party
to the #er$er or consolidationB or
c. Security holder o. a corporationB
party to a #er$er or consolidationB
exchan$es his securities solely .or
stoc= or security in another
corporationB also a party to the
#er$er or consolidation. 0 person
trans.ers property to corporation to
$ain control
6F C EXC:ANGE OF PROPERT2
0E1ERAL R$LE: -n sale or exchan$e o.
propertyB the control a#ount o. $ain or loss
shall be reco$ni7ed.
*. $ain is taxable
&. losses are deductible
E?ception: -. per#anent to a #er$er or
consolidation planB no $ain or loss shall
be reco$ni7ed
*. $ain is exe#pt
&. losses are not deductible
RE6$#&#"E&:
*. the transaction involves a contract
o. exchan$e
&. the parties are #e#bers o. the
#er$er or consolidation
). the sub<ect #atter is only li#ited or
con;ned with the one provided .or
by law
Q>er$er and %onsolidation in corporation
code and tax code are not the sa#e.
QSec 8( A&) Aa)
Qa corporation which is a party to a
#er$er or consolidationB e?c>anges
propertB solelB for stocE in a corporation
which is a party to the #er$er or
consolidation
#llustration:
Trans.eror $ives *>
Trans.eree $ives +((B((( \ not
taxble $ain 9)((B(((
Q-. other property received by trans.eree
A8( % A)) Aa) "RA1&%EREE
Qi. the party receives not <ust the
sub<ect #atter per#itted to be received!
lie i. the party receives #oney and Nor
propertyB the $ainB i. anyB but not the
lossB shall be reco$ni7ed A#eanin$
taxable) but in an a#ount not in excess
o. the su# o. the #oney and the F>2 o.
such other property received.
A8( % A)) Ab) "RA1&%EROR
*.Trans.eror corporation receives #oney
and N or propertyB distributes it pursuant to
the #er$er or consolidation plan
Qno $ain to the corporation shall be
reco$ni7ed
&. Trans.eror corporation receives #oney
and N or propertyB does not distribute it
pursuant to the #er$er or consolidation
plan
Qthe $ain shall be reco$ni7ed but in an
a#ount not in excess o. the su# o. such
#oney and the F>2 o. such other property
so received.
.+ Dhat is the ruleO
A+ 8( % A)) Aa)
*. $ain taxable
&. loss not deductible
Q8( % A)) Ab)
#t depends on >oD distributed:
*. pursuant to the #er$er or
consolidation plan!
Q$ain exe#pt
1+
Qloss not deductible
2. not pursuant to #er$er or
consolidation plan!
Q$ain taxable
Qloss not deductible.
-ec 6F C 394 3<4
Qa shareholder e?c>anges stocE in a
corporation which is a party to a #er$er
or consolidationB solelB for t>e stocE of
anot>er corporation which is a party to
the #er$er or consolidation
-ec 6F C 354 3c4
Q a security holder o. a corporation
which is a party to the #er$er or
consolidationB e?c>anges >is securities
in suc> corporation, solelB for stocE
securities in anot>er corporation
QThe rule is si#ilar in 8( % A))B Aa)B Ab) and
Ac) althou$h di4erent property are involveB
that is why the last para$raph o. 8( % is a
separate para$raph.
QThere.oreB Sec 8( % A)) AaBbBc) the rule is
*. $ain exe#pt
&. loss not deductible
6Fc last para,rap&
Q the trans.eree beco#es a stoc=holderB
parties are not #e#bers o. the #er$er
Qthe individual wants to be a
shareholder but does not want to
purchase shares but willin$ to $ive up
property as a result o. the exchan$e B
the person $ains control o. the
corporation
QThe rule is!
a. $ain is exe#pt
b. loss not deductible
equisites!
*. There is A contract o.
exchan$e where property was
trans.erred by the person in
exchan$e o. stoc= or unit o.
participation in a corporation.
&. As a resultB the person alone
or to$ether with others Anot
exceedin$ o. 8 persons) $ains
control o. the corporation.
.+ Dhat is controlO
A+ ownership o. stoc=s in a corporation
possessin$ at least 1*H o. total votin$
power.
-ec 6F B 3A4
Qnon applicability o. inco#e tax is only
te#porary
Reason : Casis will be 8( % A1)
*. 8( % A1) Aa) Trans.eror
Qbasis o. stoc= or securities received by
the trans.eror! sa#e as the basis o. the
propertyB stoc= or securities exchan$ed!
Qdecreased by the A*) #oney and A&)
F>2 o. the property receivedI and
Qincreased by Aa) a#ount treated as
dividend and Ab) a#ount o. $ain
reco$ni7ed
&. 8( % A1) Ab) Trans.eree
Qas it would be in the hands o.
trans.eror increased by the a#ount o.
$ain reco$ni7ed.
-ec 6F 3c4 364 Assuption of
Lia<ilit(
*. TaxpayerB in connection with the
exchan$es described 0 receives
securities or stoc=s per#itted Ano
$ains reco$ni7ed) 0 it is sole
consideration o. the sa#e 0 the
other party assu#es liability o. the
sa#e 0 the acquisition o. liability not
treated as #oney and N or other
property 0 the exchan$e still .alls
within the exceptions.
&. -. a#ount o. liabilities assu#ed [
a#ount o. liabilities to which
property is sub<ected to exceeds -
ad<usted basis o. the property
trans.erred 0 the excess shall be
considered a $ain .ro# the sale o. a
capital asset or o. property which is
not a capital assetB as the case #ay
be.
-ECTION 69 INVENTORIE-
Purpose: %han$e o. inventory to deter#ine
clearly the inco#e o. any taxpayerN to
re3ect the true inco#e.
Limitation:
*. once every ) years
&. approval o. the secretary o. ;nance
-ection 6; Accountin, Perio$s
1,
*. Fiscal year
&. use o. calendar year
a. no annual accountin$
b. does not =eep boo=s o. account
c. individuals
QEse o. #ethod as in the opinion o. the
co##issioner clearly re3ects the inco#e!
*. no accountin$ #ethod has been
e#ployed
&. the #ethod does not clearly re3ect
the inco#e
-ec 66 Perio$ in "&ic& ites of Gross
Incoe inclu$e$ an$ -ec 6A Perio$ for
"&ic& #e$uctions an$ Cre$it TaLen
QEnder Sec 88 a#ount o. all ite#s o.
$ross inco#e shall be included in the
$ross inco#e .or the taxable year in
which they are received by the taxpayer
QEnder Sec 81 deductions shall be
ta=en .or the taxable year in which Spaid
or accruedT or Spaid or incurred.T
QSec 88 and Sec 81 are #entioned in the
code because o. the death o. the person.
#llustration:
Facts! taxpayer dies in the #iddle o. the
year
January *B &((' 0 June *1B &(('
QJune &'B &((' to Dec )*B &((' the
estate is the taxpayer
QSo the inco#e and deductions .ro# Jan
* to June &1BB included in the
co#putation
-ection 6B C&an,e of Accountin,
Perio$
.+ Dho is the taxpayerO
A+ corporation Ataxpayer other than
individual)
.+ Dhat =inds o. accountin$ periodO
A+ *.;scal year
&. calendar year
.+ %han$es conte#platedO
A+ *. ;scal to calendar
&. calendar to ;scal
). ;scal to another ;scal
Qwith the approval o. the
%o##issionerB net inco#e shall be
co#puted on the basis o. the new
accountin$ period.
.+ %alendar to calendarB correctO
A+ not correct state#ent
-ection 6= 3A4
"a?paBer: Corporation
*. Fiscal to calendar
Q separate ;nal or ad<usted return shall
be #ade .or the period between the so
close o. the last ;scal year .or which the
return was #ade and A&) the .ollowin$
Dec )*.
&. %alendar to Fiscal
Qseparate ;nal or ad<usted return shall
be #ade .or the period between the
close o. the last calendar year and the
date desi$nated as the close o. the
;scal year.
). Fiscal to ;scal
Qseparate ;nal or ad<usted return shall
be #ade .or the period between the
close o. the .or#er ;scal year and the
date desi$nated as the close o. the new
;scal year.
QFile return indicatin$ the chan$e in
accountin$ #ethod
-ection 6@ Accountin, for Lon, Ter
Contracts
.+ Dho are the pro.essionals involvedO
A+ applies to architects and en$ineers
.+ Dhat is a lon$ ter# contractO
A+ it #eans buildin$B installation or
construction contracts coverin$ a period in
excess o. one A*) year.
.+ Casis o. inco#eO
A+ a. persons whose $ross inco#e is
derived in whole or in part .ro# such
contract shall report such inco#e upon
the basis o. percenta$e o. consu#ption.
b. the return shall be acco#panied by a
certi;cate o. architects or en$ineers
showin$ the percenta$e o. co#pletion
c. deduction o. expenditures #ade
durin$ the taxable yearB on account o.
the contract is allowed
-ection 6E Installent Basis
Qconte#plates a seller o. the property
1/
.+ -s it i#portant to =now i. the property is
personal or realO
A+ Les
.+ Sale o. eal 9roperty is it i#portant to
=now i. it is a casual sale or re$ular
saleO
A+ @o
Requirement: The initial pay#ents do not
exceed &1H o. the sellin$ price.
.+ -. the initial pay#ent exceeds &1H what
do you call itO
A+ called de.erred sale
.+ %onsequenceO
A+ you #ust pay the whole a#ount o. the
tax
.+ Sale o. 9ersonal 9ropertyB is it i#portant
to =now i. it is a casual or re$ular saleO
A+ Les
Casual &ale >as Requirements:
*. sellin$ price exceeds 9*B(((
&. initial pay#ent not exceedin$
&1H sellin$ price
Qe$ular sale no require#ents
Case of 'aMas
*. sub<ect #atter
&. sold by way
). a$ree#ent
8. cash deposit
1. post dated pro#issory notes
Ainstall#ents)
). *
st
install#ent pro#issory note was
disconnected
8. &
nd
install#ent exchan$ed with cash
- these two exceeds the sellin$ price
1. you only co#pute cash
5! -nitial pay#ent exceeds &1H install#ent
basis is not applicable
RR +K &ection *,4! -n pay#ent by way o.
install#ent pro#issory noteB bills o.
exchan$e and chec=s will not be considered
in co#putin$ the &1H initial downpay#ent.
-ection AF Allocation of Incoe an$
#e$uctions
Qtre#endous power o. the
%o##issioner to allocate the inco#e
and deduction o. several corporations
havin$ the sa#e interest.
.+ Sa#e interestO
A+ stoc=holders substantially the sa#e
.+ :i#itationsO
A+ @one
QThat is why it is a $reat source o.
corruption
-ection A9 In$i'i$ual Returns
W&o are reDuire$ to CleM 3ITR4
*. %
&. @%
). A
8. @AETC 0 sources within
.+ Dho is not #entioned in Sec 1* but
liable to pay by way o. @-TO
A+ "%DN sea#an
E?ception:
% " A:-E@S! en$a$ed in trade or practice
o. pro.ession in 9hil. Shall ;le -T re$ardless
o. the a#ount o. $ross inco#e.
.+ -. "FD is exe#pt .ro# ;lin$ a returnB
what is he required to ;leO
A+ -n.or#ation eturn
.+ who are not required to ;le a returnO
A+
a. an individual whose $ross inco#e
does not exceed his total personal
and additional exe#ptions .or
dependents
b. wor=er Aco#pensation inco#e
earners) re$ardless o. the a#ount o.
co#pensation shall not required to
;le -T because the #ana$e#ent
;les it. A )-&((&)
c. individuals whose sole inco#e is
sub<ect to F-T
d. individuals who are exe#pt .ro#
inco#e tax
E?ception: -T
*. the #ana$e#ent ;les an incorrect
return
&. the e#ployee has two or #ore
e#ployer
A9 A 3;4
A+ not required to ;le -T #ay be required
to ;le in.or#ation return
'(
A9 B 0 W&ere to CleM
*. authori7ed a$ent ban=
&. revenue district oVcer
). collection a$ent
8. duly authori7ed treasurer o. the city
or #unicipality where taxpayer resides
or has principal place o. business
1. oVce o. co##issioner 0 i. no le$al
residence or place o. business in 9hil
A9 C
.+ Dhen to ;leO
A+ ;led on or be.ore the *1
th
day o. April
each year
1* % A*) 0 @-T 9ayers usin$ %L
Qtwo days provided Acalendar)
*. on April *1I or
&. be.ore April *1 AJanuaryB Feb or >arch)
Q not Dece#ber because the calendar year
is not yet over
Fiscal year! *1
th
day o. the 8
th
#onth
.ollowin$ the close o. the ;scal year.
A9 C 354 in$i'i$uals su<Nect to ta! on
capital ,ains
E?ception: ?eneral ules Sec 1,
*. Sale o. shares o. stoc=s
Qreturn ;led within )( days a.ter each
transaction and
QFinal consolidated return on or be.ore
April *1
&.Sale o. eal 9roperty
Qreturn ;led within )( days .ollowin$ each
sale
A9 # :us<an$ an$ Wife
*. 9ure co#pensation inco#e earner 0
separate return RR (7+))) 0 pure
co#pensation inco#e earner re$ardless o.
a#ount o. inco#e not ;le -T.
&. @ot pure co#pensation! <oint return
A9 E. Return of Parent to Inclu$e
Incoe of C&il$ren
Q un#arried #inor receives inco#e .ro#
property received .ro# livin$ parent 0
included in the parentKs -T.
E?ception:
*.DonorKs tax has been paid
&.9roperty exe#pt .ro# donorKs tax
A9 F. Persons %n$er #isa<ilit(
.+ Dho #a=es the returnO
A+
*.duly authori7ed a$ent
&. duly authori7ed representatives
). $uardians
8.other persons char$ed with the care
o. his person or property
Qboth incapacitated taxpayer and a$ent
will be liable .or!
*.erroneous return
&. .alse or .raudulent return
A9 G -i,nature Presue$ Correct
Q pri#a .acie evidence the return was
actually si$ned by the taxpayer
-ection A5 Corporation Return
Q$o bac= to Sec 1* A A&)
General Rule+ Sec 1, Final -nco#e
Tax
Qreturn and creditable withholdin$ tax
return is ;led #onthly
E?ception: Sale o. Shares o. Stoc=s
ASec 1* A A&)) Sale o. eal 9roperty
Q -*+-&(()! Sale o. eal 9roperty
sub<ect to ;nal withholdin$ taxB the
buyer is dee#ed the a$ent.
&ale of &>ares of &tocEs
.+ easons .or ;lin$ Final -nco#e tax or
Final %onsolidated eturnO
A+ easons!
1. F-T whose actual deter#ination o.
$ain or loss
2. in connection with Sec &8 % the
basis o. the tax is not the $ross
inco#e but the net capital $ains
reali7ed.
#n connection Dit> &ec G):
Qactual deter#ination o. loss or $ain
Q;le a return within )( days .ro# date o.
transaction
TA1E NOTE+ -n all other inco#e sub<ect to
F-TB the $ains are presu#ed
INCO/E OF /INOR-
.+ >inor below *,! Dill it be included in the
>inorKs -TO
A+ it depends
1. inco#e .ro# property received .ro#
parents Q included in parentKs -T
E?cept:
a.DonorKs tax paid
b.9roperty exe#pt .ro# donorKs tax
'*
&. inco#e .ro# #inorKs own industry
Q>inorKs -T acco#plished by $uardian
or parents
.+ i. the individual is exe#pt .ro# inco#e
taxB can be required to ;le a returnO
A+ ?eneral ule! @o
E?ceptions:
*.en$a$ed in trade or businessI or
&.exercise o. pro.ession 0 Sec 1* A A&)
-EC A5 CORPORATION RET%RN-
ARequirements
Taxpayer! D% or F% Aexcept @F%)
-T Filed! *. TEE A@D A%%EATE
a. quarterly inco#e tax return
b. ;nal or ad<usted inco#e tax return
Filed by!
*.9residentI
&.2ice 9resident
). "ther principal oVcer
Q-T #ust be sworn by such oVcer and the
treasurer or assistant treasurer
8 "a?able !ear
*. ;scalI or &. calendar
Q corporation cannot chan$e accountin$
#ethod e#ployed without the approval or
prior approval o. the co##issioner ASec 8+)
C Return of Corporation ContemplatorB
9issolution or Recognition
*.Dithin )( days a.ter!
a. the adoption by the corporation o. a
resolution or plan .or its dissolutionI or
b. liquidation o. the whole or any part o.
its capital stoc=B includin$ a corporation
which has been noti;ed o. possible
involuntary dissolution by the SE%I or
c. .or its reor$ani7ation
&.ender a correct return veri;ed under
oath settin$ .or#!
a. .or#s o. the resolution or planI
b. such other in.or#ation prescribed
).Secure a tax clearance .ro# the C- and
;le it with the SE%
8.Therea.terB SE% issued a %erti;cate o.
Dissolution or eor$ani7ation.
9 &ale of &tocEs O #"R
loo= at the previous notes about it
-ection A; E!tension of Tie to File
Returns
.+ To who# $rantedO
A+ %orporations
0rounds: >eritorious case
Qsub<ect to the provisions o. Sec 1'
Ti#e Extension
-ection A6 Returns or Recei'ers>
Trustees in BanLruptc( or Assi,nees
Qthe a.ore#entioned persons shall
#a=e returns o. net inco#e as and .or
such corporation in the sa#e #anner
and .or# as such or$ani7ation is
required to #a=e.
-ection AA Returns of General
Professional Partners&ip
Q ;le a return o. its inco#e settin$ .orth
*. ite#s o. $ross inco#e and o.
deductions allowed by this title ATitle
-- 0 Tax on -nco#e)
&. @a#es o. partners
). Taxpayer identi;cation nu#ber AT-@)
8. address o. partners
1. shares o. each partners
Q?99 is exe#pt .ro# corporate inco#e tax
.+ Dhy is the ?99 obli$ed to ;le a returnO
A+ to deter#ine the shares o. each partners
-ection AB Pa(ent an$ Assessent of
Incoe Ta! for In$i'i$uals an$
Corporations
A PaBment of "a?
.+ Dho pays the tax o. tra#p vesselsO
A+ *.the shippin$ a$ents and or the
husbandin$ a$ent
&.in their absenceB the captains thereo.
Qthose people are required to ;le a return
and pay the tax due be.ore departure
.+ Dhat is the e4ect o. .ailure to ;le the
return and pay the tax dueO
A+ *.Cureau o. %usto#s #ay hold the
vessel and prevent its departure until!
a. proo. o. pay#ent o. tax is
presentedI or
b. a suVcient bond is ;led to answer
.or the tax due.
#nstallment PaBments
'&
Tax due! #ore than 9&B(((
Taxpayer! individuals only Aother than
corporation)
Elect to pay the tax in two A&) equal
install#ents
a. *
st
install#ent! paid at the ti#e the
return is ;led
b. &
nd
install#ent on or be.ore July *1
.ollowin$ the close o. the calendar
year
.+ Dhat is the e4ect o. non pay#ent on the
date ;xedO
A+ The whole a#ount o. tax unpaid
beco#es due and de#andable to$ether
with the delinquency penalties.
PaBment of capital gains ta? :
.! 9aid whenO
A+ on the date the return is ;led
Avail e?emption for capital gains:
a. no pay#ents shall be requiredI
b. i. you .ail to quali.y .or exe#ption 0
tax due shall i##ediately beco#e
due and payable and sub<ect to
penalties
c.seller pays tax 0 sub#it intention or
proo. o. intent within six A') #onths
.ro# the re$istration o. docu#ent
trans.errin$
.+ when is the real property entitled to
re.undO
A+ upon veri;cation o. co#pliance with
the require#ents .or exe#ption.
Qeport $ains on install#ents under Sec
8/ 0 tax due .ro# each install#ent
pay#ent shall be paid within )( days
.ro# the receipt o. such pay#ents.
Q@o re$istration o. docu#ent
trans.errin$ real property
*. without a certi;cation .ro#
co##issioner or his duly authori7e
representative that
a. trans.er has been reported
b. tax has been paid
8 Assessment and PaBment of 9efciencB
"a?
Q eturn is ;ledB the co##issioner
exa#iner and assess the correct a#ount o.
tax
Qtax de;ciency discovered shall be paid
upon notice and de#and .ro# the
co##issioner.
( #1&"A1CE& CO1"E/PLA"E9
*. ;le the return and pay the tax
&. ;le the return but not pay the tax
). not ;le the return and not pay the tax
-ection A= Wit&&ol$in, of Ta! at
-ource
A Hit>>olding of "a?es
Qsub<ect to the ules and e$ulations the
Section o. Finance #ay pro#ul$ateB upon
reco##endation o. co##issioner!
equire the ;lin$ up o. certain inco#e tax
return by certain inco#e payees.
.+ Enu#eration is all about whatO
A7 Enu#er ation about Final -nco#e Tax
E?cept: ?ross -nco#e Tax
*. &1 C A@A@ETC)
&. &, C A@F%)
C. Dithholdin$ o. %reditable Tax at Source
QThe Sec. o. FinanceB upon
reco##endation o. the co##issioner
require the withholdin$ o. a tax on the
ite#s o. inco#e payable to natural or
<uridical personsB residin$ in the 9hilB
by payor-corporationN personZ the
sa#e shall be credited a$ainst the
inco#e tax liability o. the taxpayer .or
the taxable year. At the rate o. not
less than *H but not #ore than )&H
thereo..
.+ Dhat is the #axi#u#O
A+ >axi#u#! now )1H pursuant to A
/))+
.+ Dhen will you allow withholdin$ beyond
*1HO
A+
For @-T *1H is the #axi#u#
*. F-T 0 the a#ount o. withholdin$ is
totally
&. ?-T - equal to the a#ount o. tax
"a? %ree Covenant 8ond
Qthe bondsB #ort$a$esB deeds o. trust or
other si#ilar obli$ations o.
D% or F%
Qcontains a contract or provision where the
obli$or Adebtor) a$rees to pay the tax
i#posed herein
Qnor#ally between the creditor and debtor
.+ Dho pays the taxO
')
A+ %reditor pays the tax by virtue o. an
a$ree#ent the debtor assu#es the liability
and the creditor is now .ree .ro# pay#ent
o. tax be.ore it can trans.er the property to
the buyer.
-ection A@ Returns an$ Pa(ent of
Ta!es Wit&&el$ at -ource
A 6uarterlB Returns and PaBment of "a?es
Hit>>eld at &ource
*. covered by a return and paid to!
a. authori7ed a$ent ban=
b. revenue district oVcer
c. collection a$ent
d. duly authori7ed treasurer o. city or
#unicipality where withholdin$ a$ent
has!
*. his le$al residenceI or
&. principal place o. businessI or
). i. corporation B where
principal oVce is located
&.Tax deducted and withheld
Qheld as a special .und in trust .or the
$overn#ent until paid to the collectin$
oVcers.
).eturn .or ;nal withholdin$ tax
Q;led and paid within &1 days .ro# the
close o. each calendar quarter
8.eturn .or %reditable withholdin$ taxes
Q;led and paid not later than last day o. the
#onth .ollowin$ the close o. the quarter
durin$ which withholdin$ was #ade
1. %o##issionerB with approval o. Sec
Finance
Q require withholdin$ a$ents to pay or
deposit taxes at #ore .requent intervals
where necessary to protect the interest o.
the $overn#ent
8 &tatement of #ncome PaBments /ade
and "a?es Hit>>eld
QDithholdin$ a$ent shall .urnish payee
a written state#ent showin$!
*. inco#e or other pay#ents #ade by
D5A durin$ such quarter or year and
&. a#ount o. tax deducted and
withheld
Q state#ent $iven si#ultaneously upon
pay#ent at the request o. the payee.
Creditable Dit>>olding ta?es
*. corporate payee 0 not later than the
&(
th
day .ollowin$ the close o. the
quarter
&. individuals payee 0 not later than
>arch * o. the .ollowin$ year
%inal Hit>>olding ta?es
Qthe state#ent should be $iven to the
payee on or be.ore January )* o. the
succeedin$ year.
C Annual #nformation Return
QDithholdin$ a$ent shall sub#it to the
co##issioner an annual in.or#ation return
containin$ !
*. the list o. payees and inco#e
required
&. a#ount o. taxes withheld .ro# each
payees
). other pertinent in.or#ation required
Final Wit&&ol$in, Ta!+ AIR
Q;led on or be.ore January )* o. the
succeedin$ year
Creditable Dit>>olding ta?: A#R
Qnot later than >arch * o. the year
.ollowin$ the year .or which the annual
report is bein$ sub#itted
Q%o##issioner #ay $rant D5A reasonable
extension o. ti#e to .urnish and sub#it the
return required herein.
9 #ncome of Recipient
*. -nco#e upon which any creditable
tax is required to be withheld at
source shall be included in the return
o. its recipient.
&. the excess o. the a#ount o. tax so
withheld over the tax due on his
return shall be re.unded
). inco#e tax collected at source is
less than the tax due on his return 0
di4erence shall be paid
8. all taxes withheld
*. considered trust .und
&. #aintained in separate account
). not co##in$led with other .unds
o. D5A
E Registration Dit> Register of 9eeds
Q@o re$istration o. any docu#ent
trans.errin$ real property shall be
e4ected by the e$ister o. Deeds unless
the co##issioner or his duly authori7e
'8
representative has certi;ed that the
trans.er A*) has been reported and A&)
tax due has been paid
Qe$ister o. Deeds requires pay#ent o.
tax be.ore trans.er o. property
-ection AE Ta! on ProCts Collecti<le
fro O"ner of ot&er Persons
QTax i#posed under this title upon $ainsB
pro;ts and inco#e not .allin$ under the
.ore$oin$ and not returned and paid by
virtue o. the .ore$oin$
shall be assessed by personal return
#ntent and Purpose of t>is "itle
*. All $ainsB pro;ts and inco#e o. a
taxable class shall be char$ed and
assessed with the correspondin$ tax.
&. Said tax be paid by the owner o. the
$ainsB pro;t or inco#e or the person
havin$ the receiptB custodyB control
or disposal o. the sa#e
9etermination of ODners>ip:
Qdeter#ined as o. the year .or which a
return is required to be ;led
C:APTER X+ E-TATE- AN# TR%-T-
-ection BF+ Iposition of Ta!
*. Estate Q property o. the decedent
created by an a$ree#entB trust or
by last will and testa#ent
&. Trust Qa$ree#entB contract or last
will and testa#ent
&tatus:
*. Estate! sa#e status as decedent
&. Trust! sa#e status as the $rantor
#ncome ta?paBer is t>e Estate:
Qinco#e o. the estate pendin$ partition
or no partition at all!
">ree Einds of partition:
*. <udicial
&. extra <udicial partition
). or no partition at all
9uring partition Estate earns income:
*. individual 0 inco#e tax
&. corporation 0 corporate inco#e
tax
). estate ATaxpayer \ T9)
a.-#pose -nco#e as i. T9 is individual
b.-#pose inco#e as i. T9 is
corporation
c.-#pose inco#e as i. estate itsel.
Qdepends whether there is a A*) <udicial
A&)extra <udicial partition or A)) no partition
at all
Dhen there is a <udicial settle#ent which is
;nal and executory but no partition!
TFo possibilities0
*.%reation o. unre$istered partnership
Q-nco#e o. the Estate! corporate inco#e
tax
&.%reation o. %o-ownership
Q-nco#e o. the Estate! -nco#e tax on
individual
-co-owner liable in their individual co#pany
Ponce Case0
5! A.ter ;nality heirs did not divide the
propertyB the applicable inco#e tax is
corporate inco#e tax because they
contributed #oney to en$a$e in real estate.
-ECTION B9 TAXABLE INCO/E
A-#portant)
P"a?able income of t>e estate or trust s>all
be computed in t>e same manner and on
t>e same basis as ill t>e use of an
individualQ
-ection B5+ Applies $urin, Pen$enc( of
E!tra Hu$icial -ettleent
9ersonal Exe#ption A9&(B((()
-ndividual Q it will depend whether
heNshe is classi;ed as sin$leB head o.
the .a#ily or #arried
Estate Qre$ardless
&pecial deductions:#ncome distributed to
t>e >eirs
Qi. you distribute nothin$ you cannot
clai# this special deductions
Qi. there is a distributionB the heir shall
be liable to pay whether individual
capacity
Qi. there is no distributionB heirs are not
liable to pay anythin$
QSpecial deduction not apply i. individual
tax is paid by the Estate itsel..
PaBment: #ade by executorB ad#inistratorB
to creditor to preserve the estate
-ec. B9 an$ -ec B5
Qdoes not apply i. estate is sub<ect to
inco#e or corporate inco#e tax
'1
Qit applies i. the estate pays itsel.
durin$ the pendency o. the <udicial
settle#ent
Basis+ -ec BF C
Sdurin$ the period o. ad#inistration or
settle#ent o. the estate.T
Ta!pa(er is a Trust+
.7 Dhen liable to pay inco#e taxO
A+ -. the trust is revocable Ai. revocableB Sec
'* and '& also apply)
Parties:
*.?rantor Ncreator Ntrustor
&.;duciary N trustee
).bene;ciary N :es 6ui trust
.+ Dho is liable to pay tax!
A+ -. trust revocable!
Q obli$ation o. the trustee
Qliability o. trust itsel. and not personal
LiabilitB of trustee:
-. trust irrevocable
Qobli$ation o. the $rantor
Qpersonal liability o. the $rantor as an
individual
TWO WA2- OF REPORTING INCO/E+
P%R-%ANT TO RR5 G 39E6E4
*. report only once
Abuildin$ paid once)
&. a.ter the span o. &1 years
Apay#ent o. buildin$ divided per year)
E-TATE TAX+
*.Sec '(
&.eal Estate Tax
). Estate Tax
Qtrans.er tax i#pose on the @et Estate
.or the trans.er o. property to the heirs
or bene;ciary whether realB personalB
tan$ible or intan$ible
; 1IN#- OF TRAN-FER TAX+
*.Estate Tax
&. DonorKs Tax
). Sec *)1 o. :?E Trans.er o. eal
9roperty
.+ De donKt have inheritance tax and
donees taxB whyO
A+ */+) >arcos issued 9.D. '/
Explain! Sec ,8B rate is #ax o. &(H o. net
be.ore the rate is '(H plus additional
a#ount.
Qresulted to #any $i#i=s throu$h tax
avoidance sche#eB li=e creatin$ a .a#ily
corporation Aonly taxable is the
stoc=holders which is exe#pt)
Q%on$ress enacted A +88/ decreased
'(H to )1H and then A ,8&8 0 )1H to
&(H
.+ @ow is it sa.e to create a .a#ily
corporationO
A+ @o #ore.
.+ @ow! -ba na an$ sche#e 0 which is
better sale or donationO
A+
*.Sale o. 9 considered capital assets
Q'H to *.1H doc. Tax +.1 H better
&.Sale o. 9 considered ordinary asset
Q1H to 1&H as per use #ay be
).Donation i. $iven to all co#pulsory heir
Q relative lower than &(H which is *1H
Q stran$er! )(H so $o with &(H
.+ Dho are the taxpayersO
A+ Sec *(8 Estate and Donors
*.Estate
a. %
b.@%
c. A
d. @A
&. DonorKs Tax
a. %
b.@%
c. A
d. @A
e. D%
.. F%
QA corporation cannot die o. a natural
death.
.+ Dhat is the reason .or classi.yin$ the
taxpayersO
A+
*. @A and Estate
&. @A and F% Donors \ property
outside 9hil exe#pt
). allB other than these ) 0 taxable w in
and wNout
.+ -s Section *(8 relevant to all taxpayersO
A+ @oB #aterial only to @A and F%
&ection *)G speaEs of intangible personal
propertB located in t>e P>ilippines
*.Franchise which #ust be exercised in
the 9hilippinesI
&.S.".C. issued by a Do#estic
corporationI
).S.".C. issued by .orei$n corporation at
least ,1H o. the business o. which is
''
located in the 9hilippines. 0 do not
con.use with 8& A&
nd
par)
8.S.".C. o. .orei$n corporation which
acquired a business situs in 9hil
1.S.. in businessB partnership or
industry established in the 9hils
.+ @AB ?er#an donates S"S o. F? to
Filipina $.B is it sub<ect to donorKs taxO
A+ it depends Ayou #ust quali.y)
*.Sub<ect to donorKs tax i.!
*.S.".C. F? at least ,1H o. business
located in the 9hil
&.S.".C. F? which acquired a business
situs in 9hil
&.Exe#pt
*.personal property outside o. 9hilI or
&.intan$ible personal property net taxable
i. .ollowin$ requisites concern!
A decedent at t>e time of >is deat> or t>e
donor at t>e time of donation Das a citiCen
and resident
*.o. a .orei$n country which at the ti#e o.
his death or donation did not i#pose a
trans.er tax o. any #annerB in respect o.
intan$ible personal property o. citi7ens o.
9hilippines not residin$ in that .orei$n
countryI or
&. the laws o. the .orei$n country allows
a si#ilar exe#ption .ro# trans.er or
death taxes o. every character or
description in respect o. intan$ible
personal property owned by citi7ens o.
the 9hilippines not residin$ in that
.orei$n country.
.+ Dhat i. citi7en o. one country and
resident o. another country will the
exe#ption applyO
A+ @oB law requires that he #ust be a
citi7en and resident o. the .orei$n
country.
Campos Rueda Case0
F! @A died 0 #arried to >oroccan #anB so
she was a >oroccan resident.
Donated SS in D% 0 ad#inistrator clai#s
exe#ptionB $round! -n >oroccoB
intan$ible personal property o. Filipinos
not residin$ therein is exe#pt .ro#
trans.er tax.
C- contends! >orocco is not a country
but a colony o. Spain.
5! clai# $ranted 0 even i. it is not a .ull
pled$ed stateB or itKs a #ere colonyB
what #atter is that the .orei$n law
provides .or an exception.
-ECTION @6 RATE- OF E-TATE TAX
.+ Dhat is the .or#ula .or Estate taxO
A+ ?ross Estate ASec ,1)
- Deductions ASec ,')
--------------
@et Estate
x ate
-------------
Taxable net inco#e
- Tax credit
---------------------
Tax due
Gross estate 3$eCne4 G -ec 9F6
Q$ross estate include real and personal
propertyB whether tan$ible or intan$ibleB
or #ixedB wherever situated
1RA: 9ecedent R 9onor O propertB
situated outside of P>ilippines not
included on t>e gross estate
-ection @A Gross Estate 3inclusion4
A9ecedentLs interest
Qincludes property A*) owned at the ti#e o.
death and A&) property not owned at the
ti#e o. death
%lassic exa#ple! Esu.ruct
.+ i. ter#inated by the death o.
usu.ructuaryB is it sub<ect to estate taxO
A+ @ot sub<ect to estate tax
Reason: Exe#pt Trans#ission under
Sec ,+ Aa)
Q#er$er o. the usu.ruct in the owner o.
the na=ed title
.+ is there a con3ict between Sec ,, a and
Sec ,+ aO 5ow do you reconcileO
A+ @o con3ict
*.Section ,+ a conte#plates a situation
where the usu.ruct is ter#inated.
&.Section ,,a conte#plates a usu.ruct
.or a ;xed period. Ex contract o. lease
.+ 5ow do you deter#ine the value o.
usu.ructO
A+ Sec. ,, a provides to deter#ine the
value o. the ri$ht o. usu.ructB ta=e into
account the probable li.e o. the
bene;ciary.
'+
.+ Dhy de;nition o. $ross estate is lon$er
than de;nition o. $ross $i.tO
A+ trans.er occurrin$ a.ter death. estate
tax absolute
Transfer during t,e life time
Q@or#ally DonorKs tax
5oDever t>ere are e?ceptions:
*.trans.er in conte#plation o. death
A,1C)
&.revocable trans.er A,1 %)
).trans.er .or insuVcient consideration
8 "ransfer in contemplation of deat>
Roces case0
F! durin$ li.eti#eB the .ollowin$ docu#ent
were instituted or executed
si#ultaneously
*.will and &. donation
The heirs insisted to pay DonorKs taxB
9osados the collector tried to collect
inheritance tax.
unique t>ing: Donees were also the heirs
in the last will and testa#ent
Donees wanted to pay donorKs tax
because it is always lower than the estate
tax except when the donee is a stran$er
5! this is a trans.er in conte#plation o.
death
Di!on Case0
F! Deed o. Donation was executed
Di7on died several days therea.ter
son clai#s DonorKs tax
5!Trans.ers in conte#plation o. death
.+ Dhat are trans.ers dee#ed in
conte#plation o. deathO
A! *.9roperty was trans.erred durin$ the
li.eti#e but the decedent!
a. retains possession or receive
inco#e or .ruits o. propertyI or
b.retains the ri$ht to desi$nate
persons who will possess the property
or the ri$ht to receive .ruits or inco#e
c.evocable Trans.ers
*2re/ocable transfers are included in the
$ross estate
Reason: the decedent retains
tre#endous power and control over the
property
&.1rre/ocable transfers are not included
in the $ross estate! exe#pt
Reason: the decedent losses control
over the property
1otice 1ot Required because t>e person
>as t>e control over t>e propertB
9 PropertB passing under general poDer of
appointment
Q sa#e with ;del co##issary substitution
) parties!
*.testator N decedent
&.*
st
heir
).&
nd
heir
"AAE 1O"E: To deter#ine whether included
in Estate or notB =now who has the choice to
desi$nate the &
nd
heir!
Qi. decedent instructs the *
st
heir that he
can trans.er the property to who#ever he
wants included in $ross estate
Q*
st
heir choice 0 included in $ross estate
E Proceed of Life #nsurance
*.Cene;ciary is the estate
Qincluded in $ross estate whether
desi$nation is revocable or not
&.Cene;ciary is )
rd
person
Q revocable included
Qirrevocable not included
% Prior #nterest
Qi#portant only due to the codi;cation o.
the tax code CB%BEB included whether
be.ore or a.ter the e4ectivity o. the code
0 "ransfer for insuScient consideration
.+ Si#ilar provision in Sec *(( ADonorKs
tax) can you apply the two A&)
provisions si#ultaneouslyO
A+ @oB alternative applicationB one or the
other but not both.
">e application Dill depend on t>e time
of transfer or motive:
*.-. trans.erred because o. i#pendin$
death
Q estate tax
&.-. trans.er because o. $enerosity
QDonorKs tax
.+ 9arcel o. land was sold .or less than
adequate consideration Aadequate) to
relative .or 9'((B((( when F>2 is *
#illion pesos. -s this sub<ect to trans.er
taxO -s it sub<ect to DonorKs taxO
A+ @oB Sec *(( provides the property should
be other than real property re.erred to in
Section &8 AD)
',
Q@ot sub<ect to DonorKs taxB the
applicable tax is 'H F-T
.+ Dill your answer be the sa#e i. S"S are
soldO
A+ @oB answer not the sa#eB S"S not
property conte#plated in Sec &8 D A*)
Qin this caseB the a#ount by which the
F>2 o. prop exceeds the value o. the
consideration shall be dee#ed a $i.t and
included in the co#putation o. the $ross
$i.t! sub<ect to DonorKs Tax
.+ Dhat is the sub<ect #atter in ,1 ?O
A+ para$raphs ,1 CB ,1 %B ,1 D
&ale in good fait> as a defense:
*.under Section *(( is not a de.ense
&. under Section ,1 ?B it is a de.ense
5 Capital of &urviving &pouse
Qcorrelate with Sec ,' %
Qboth spea= o. le$ally #arried individual
Qpertains to the separate property o.
spouse who survived
Qcapital used in its $eneric sense
Qsurvivin$ spouse #ay be #an or wo#an
-ection @B 3c4
Qto deter#ine the li#itations o.
*. Funeral Expense
&. Dhether written notice is required
). to deter#ine whether $ross value
is at least 9&((B((( ASec /()
8.to deter#ine i. $ross value is at
least 8& >
.+ Dho are the taxpayers under ,' AO
A+ *.%
&.@%
).A
.+ Dho is the taxpayer under ,' CO
A+ @A
.+ Dhy do we need to =now thisO
A+ @A cannot avail o. the .ollowin$
deductions!
*..a#ily inco#e
&.standard deduction
).hospitali7ation
8.retire#ent pay under A 8/*+
&2 Deductions &lloFed to t,e Estate of
a Citi!en or Resident
*.E:-T AexpensesB lossesB indebtedness
and taxes)
a) *.Actual Funeral ExpensesI or
&.a#ount equal to 1H o. $ross estate
Qapply whichever is lower
Limitation:
a)a#ount equal to 1H o. $ross estate
should not exceed 9&((B((( Abasis is
the $ross value)
b) Judicial Expenses
Qno li#itation
Pa@onar vs Commissioner
-! Dhether or not extra-<udicial expenses
#ay be allowed as a deduction
5! This law has been copied .ro# E.S. -n
ESB expenses to be clai#ed as a
deduction both <udicial and extra <udicial
expenses.
Claims against t>e estate
QEstate is the debtor
Requirements:
*.at the ti#e the indebtedness was
incurred the debt instru#ent was duly
notari7edI
&.loan contracted within ) days be.ore
deathI
).the ad#inistrator or executor shall
sub#it a state#ent showin$ the
disposition o. the proceeds o. the loan
Claims of t>e deceased against insolvent
person
QEstate is the creditor
Requirement:
Qthe only require#ent is that the Aonly)
a#ount o. loan is included in the $ross
estate
Qnotari7ation and certi;cation not
required
$npaid /ortgage, ta?es and losses
.+ -n unpaid #ort$a$e who is the
#ort$a$orO
Qdecedent #ort$a$or
*. Enpaid #ort$a$e
*.value o. the decedentKs interest in the
property is undi#inished by such
#ort$a$eI
&.included in the value o. the $ross
estateI
#llustration:
'/
* #illion F>2 but #ort$a$e is only
'((B((( you include * #illion
&.Estate tax
).:osses
Requirements:
*.losses incurred durin$ the settle#ent
o. the estateI
&.arisin$ .ro# ;reB stor#sB shipwrec= or
other casualtiesB or .ro# robberyB the.t
or unbe77le#ent
).losses not co#pensated by insurance
8.losses not been clai#ed as a
deduction .or inco#e as purpose
1. losses incurred not better than the
last day .or the pay#ent o. the estate
tax
PropertB PreviouslB "a?ed
Q2anishin$ Deduction eturn
Requirement:
*.person acquires the property by virtue
o. donation or inheritance
.+ Dhat i. acquired throu$h purchaseO
A+ @ot applyB the property #ust be acquired
by inheritance or donation
&.Estate tax or DonorKs tax already paid
by the Estate o. the Decedent A*
st
par)
).Any person who died within ;ve A1)
years prior to the death o. the decedent
.+ Dhat are the a#ountsO
A+ 9rior Decedent died within!
*.1years 0 &(H
&.8years 0 8(H
).) years -'(H
8. &years 0 ,(H
1. * year -*((H
.+ Suppose the person died within * year
and it was inherited by sonB suppose the
son also died within * year or #ay be &
yearsB should we apply the vanishin$
deductionsO
A+ @o #ore Alast par Sec ,' A&)
"ransfer for Public $se
Qa#ount o. all bequestB le$aciesB devises
or trans.ers
Recipient:$overn#ent or any political
subdivision
Qexclusively .or public purpose
Ta=e @ote! )(H o. which not used .or
ad#inistrative purpose is not a
require#ent
%A/#L! 5O/E
Qa#ount equivalent to the current F>2
o. the Fa#ily 5o#e o. decedent.
Limit: F>2 should not exceeds * #illion
otherwise the excess will be sub<ect to
estate tax.
Requirements: 'RR +7+))(.
*.9erson is le$ally #arried
?! i. sin$le not allowed to clai#
Except! i. head o. the .a#ily
&.Fa#ily 5o#e actual residence o. the
decedent
).%erti;cation o. Caran$ay %aptain o.
locality
&"A19AR9 9E9$C"#O1&
Qauto#atic! &-&(() no require#ent
provided the decedent is the one in ,' AA)
A%B @%B A)
/E9#CAL E=PE1&E&
Requirements:
*.a#ount not exceedin$ 91((B(((
&.#edical expenses incurred by the
decedent within one A*) year prior to his
death.
Q#ust be duly substantiated with receipt
RE"#RE/E1" PA! $19ER RA G3*,
'RE"#RE/E1" PA! H#"5 PR#:A"E PLA1.
Requirements:
*.plan duly approved by the C-
&.person at least 1( years old
). *( years in service
8. avail only once
"AAE 1O"E: This is a deduction in the
nature o. exe#ptionB all other retire#ent
plan is excluded
'2 Deductions &lloFed to Non resident
Estates
*.E:-T
&.9roperty 9reviously taxed
).Trans.ers .or public use
C2 S,ares in t,e ConGugal Property
D2 *iscellaneous Pro/isions
For @A! @o deduction allowed unless
include in the return the value at the ti#e
o. his death that part o. his $ross estate
not situated in the 9hilippines. For proper
deduction #ust include E. below
+(
E2 Tax Credit for Estate Tax Paid to
Foreign Country
-ECTION @= EXE/PTION OF CERTAIN
AC.%I-ITION AN# TRAN-/I--ION-
*. >er$er o. usu.ruct in the owner o. the
na=ed titleI
&. trans#ission or delivery o. the
inheritance or le$acy by the ;duciary
heir or le$atee to the ;deico##issaryI
). trans#ission .ro# the ;rst heirB le$atee
or le$acy donee in .avor o. another
bene;ciaryB in accordance with the
desire o. the predecessorI
8. All bequestB devisesB le$acies or
trans.ers to A*) social wel.are A&)
cultural and A)) charitable institution
Requirements:
*.no part o. the net inco#e insures to the
bene;t o. any individualI
&.not #ore than )(H o. donation ACD:)
shall be used by such institutions .or
ad#inistration purposes.
-ECTION @@ #ETER/INATION OF T:E
VAL%E OF T:E E-TATE
A$sufruct
*.Deter#ine value o. ri$ht o. usu.ruct!
Qconsider the probable li.e o. the
bene;ciary based on the latest Casic
Standard >ortality Table
8Properties
Q.air #ar=et value o. the Estate at the ti#e
o. death
*.F>2 deter#ined by %o##issioner
&.F>2 schedule o. values ;xed by the
9rovincial or %ity Assessors
-ECTION @E NOTICE OF #EAT: TO BE
FILE#
.+ Dhat is the CasisO
A+ the $ross estate o. the person
.+Dhen is the notice required to be ;ledO
A+ *.all cases o. trans.er sub<ect to tax
&.althou$h exe#ptB when $ross values
o. the estate exceeds 9&((B(((
.+ Dhen ;ledO
A+ within two A&) #onths
*. a.ter decedentKs death
&.sa#e period a.ter quali.yin$ as executor
or ad#inistrator
Q$ive a written notice
.+ -. the @et Estate is at least 9*'B((( will
you in .or# the co##issionerO
A+ yesB the $ross is at least )-8 #illion
-ECTION EF E-TATE- TAX RET%RN-
.+ Dhen required to ;le returnO
A+ *.all cases o. trans.er sub<ect to tax
&.even thou$h exe#ptB $ross value
o. the estate exceeds 9&((B(((
).re$ardless o. $ross value o. the
estateB when the sa#e consists o.
re$istered or re$istrable prop such as!
a.real property
b.#otor vehicle
c. shares o. stoc=s
d. other si#ilar property where
clearance .ro# C- necessary .or
trans.er o. ownership in the na#e o.
the trans.eree
Qreturn #ust set .orth the .ollowin$!
*.value o. the $ross estate at ti#e o.
death
&.deductions allowed
).in.or#ation necessary to establish
correct taxes
.+ Dhat i. Estate is exe#ptB is it required
to ;le a returnO
A+ 0eneral Rule: @o
E?ception:
a. $ross value exceeds 9&((B(((
b.estate contains re$istrable property
.+ i. the estate or $ross estate exceeds &
#illionB what is the require#entO
A+ return #ust be duly certi;ed by a %9A
8 "ime of %iling
Q;led within ' #onths .ro# decedentKs
death
Qwithin )( days .or ;lin$ the return
Qwithin )( days a.ter pro#ul$ation o. such
order
*.certi;ed copy o. the schedule o.
partition and
&.order o. court approvin$ the sa#e
C E?tension of "ime
"ime: )( days
0rounds: #eritorious cases
H>o grants: %o##issioner
9 Place of fling:
Qreturn shall be ;led with!
+*
*.authori7ed a$ent ban=
&.revenue district oVcer
). collection oVcer
8. duly authori7ed treasurer
Qcity or #unicipality in which decedent
was do#iciled at the ti#e o. his death
.+ Dhat i. non residentO
A+ @ with no le$al residence hereB with the
oVce o. the co##issioner.
.+ :et us say there are ) co#pulsory heirsB
na#ely AB CB and %. A renounces his
inheritance co#in$ .ro# the parentsB but A
renounces his inheritance in .avor o. his &
siblin$sB brother and sister C and %. -s this
sub<ect to donorKs taxO
A+ @". -t is exe#pt.
.+ Cut i. in the $iven exa#pleB A said S- a#
renouncin$ #y inheritanceB but - a# $ivin$
it to #y sister CTB is this sub<ect to donorKs
taxO
A+ LES. enunciation is to the
disadvanta$e o. the brother.
TAMAT-"@ E@DE T5E :"%A: ?"2E@>E@T
%"DE!
*. :ocal Tax
&. eal 9roperty Tax
LOCAL TAXATION 'T*-2, *-,, t>en go to
T*4*, *+- doDn.
.+ >ayor Cinay o. >a=ati ordered the
collection o. elevator tax A.or elevator in the
city hall). -s the order o. >ayor Cinay
le$ally tenableO
A+ @". There should always be a ta?
ordinance a.ter conductin$ a public >earing.
AW*,')
ta? ordinance
.+ %an C- collect the tax even in the
absence o. a revenue re$ulationO
A+ LES.
.+ %an a provinceB cityB #unicipality or
baran$ay collect the tax i. there is no tax
ordinanceO
A+ @".
.+ Dhy is it that there should be a tax
ordinance as required by W*,'O
A+ The rationale is not #entioned in W*,'B
but i. you read the other provisions o. the
:?%B you will co#e to set o. conclusions o.
the reason why there #ust be a tax
ordinance.
Y -n #ost o. these provisionsB it always
say! one7>alf if t>e toDn or municipalitB
s>all collect a ta? of not e?ceeding *U of
t>e gross receipt
TAGE @"TE! There is no exact a#ountI
henceB it is the tax ordinance which will ;x
the exact a#ount.
public >earing
-n %on$ressB the require#ent is not
absolute Aby discretion only). Ender local
taxation Alast phrase o. W*,')B the
require#ent is ACS":ETE.
RE!E& vs &ECRE"AR! '(+) &CRA G-2.
F! -n the #unicipality o. San Juan A<ust
beside >andaluyon$) there was a tax
ordinance passed. eyesB a residentB
clai#s that there was no public hearin$
conductedB he #aintains that under
W*,' last phraseB there should always be
a public hearin$.
5! The S% said! SyesB that require#ent is
an absolute oneB but since the petitioner
.ailed to produce evidence to support
his alle$ationB i. there is no proo.
presented other than his own
state#entB we hereby rule that the
ordinance was passed in accordance to
the procedure #andated by lawT. Dhile
it is true that a public hearin$ is an
absolute require#entB he who alle$esB
#ust prove the sa#e.
.+ -. you donKt a$ree with the validity or
the constitutionality o. the tax ordinanceB
what will be your re#edyO
A+ Dithin )( days .ro# the e4ectivity o.
the ordinanceB the taxpayer should ;le an
appeal with the oVce o. the Secretary o.
the D"J AW*,+)
RE!E& vs &ECRE"AR! '(+) &CRA G-2.
F! eyes asserted the validity and
constitutionality o. the tax ordinance
only a.ter the lapse o. thirty A)() days
Aperhaps his lawyer was thin=in$ that an
ordinary statute #ay be contested
anyti#e with the T%B %A or S%).
+&
5! Dith re$ard to a tax ordinanceB w have a
speci;c ruleB .ailure to assail the validity
with the speci;c period o. ti#eB is .atal
to the taxpayer. Since it was ;led
beyond the )(day periodB we do not
disturb the validity o. the ordinance.
.+ Dithin what period should the Sec. o.
Justice decideO
A+ Dithin '( days .ro# the ti#e the appeal
was ;led. Failure to decide within this ti#eB
the taxpayer has the re#edy to ;le an
action with the re$ular courts.
Y -. the decision was #ade within the '(
day periodB and receives the decisionB his
re#edy is to ;le an appeal within )(days
.or# the receipt o. the decision to court o.
co#petent <urisdiction P T%.
Y Ce$innin$ April +(, +))GB .ro# the rulin$
o. the T%B pursuant to A /&,& Athe law
upli.tin$ the standards o. the %TA)B the
rulin$ o. T% on local tax casesB is
appealable to the %TA en banc.
TD" A99EA:S DE%-DED CL T5E %TA E@
CA@%!
*. decisions o. T% involvin$ local tax
cases
&. decision o. the %entral Coard o.
Assess#ent Appeals.
Y Fro# %TA en bancB the appeal #ust be
;le with the S% within *1days.
Y ?o to W*1*!
The city could i#pose the tax already
i#posed by the province o. by the
#unicipality.
.+ Dhat are the nu#erous taxes i#posable
by the province which a city now allowed to
i#poseO
A+ Those enu#erated in W*)1 to W*8* o.
the :?%
easons why a #unicipality wanted to be
converted into a city!
*. W*1*
&. W&)) Areal estate tax)
Y -n additionB the law says that the city
could increase the rate o. the tax by not
#ore than 1(H o. the #axi#u# EM%E9T
those enu#erated in W*)/!
a) pro.essional tax
b) a#use#ent tax
A. General Principles 'T*+-7*().
Q reiteration o. the constitutional tax
provisions
Q notice that the constitutional li#itations
on taxation do not only apply to the
national $overn#ent but also to local
$overn#ent units.
B. #eCnitions AW*)&)
3ocal Taxing &ut,ority 'T*(+.
.or a provinceB it is the provincial
board or the provincial council
Asan$$unian$ panlalawi$an)
.or a cityB we have the city council
Asan$$unian$ panlusod)
.or the #unicipalityB we have the
#unicipal council Asan$$unian$
pan$bayan)
.or the baran$ay or barrioB we have
the baran$ay council.
C. Coon liitations on t&e ta!in,
po"er of t&e LG%Ks AW*)))
Y Ender the old law this was W1 o. the
:ocal Tax %ode.
.+ Dhy co##onO
A+ Cecause the li#itations or prohibitions
apply to all :?EsB the provincesB citiesB
#unicipalities and baran$ays.
Two %o##on %ri#es 'under T*((.
*. absolute prohibition
&. relative prohibition
-t shall be unlaw.ul .or the :?Es to collect!
12 #ncome "a? E=CEP" D>en levied on
banEs and ot>er fnancing institutions
'T*(('A..
Y the ter# Sother ;nancin$ institution
shall include #oney chan$erB lendin$
investorB pawnshop 'T*(*'E..
Y rate o. tax! does not #ention rate
o. taxB so lon$ as it is S.airB <ust and
reasonableT
Y -t cannot be Sprohibited taxationB
because the ele#ent o. Si#posed by the
sa#e taxin$ powerT is not present. "ne
is i#posed by the national $overn#ent
and the other is by the :?E.
112 9ocumentarB &tamp "a? 'T*(('8..
+)
Y absolute prohibition
1112 Estate ta?, in>eritance, donations inter
vivos, donations mortis causa E=CEP" in
T*(4 'T*(('C..
Y trans.er tax on the trans.er o. realty
to be i#posed by provinces and cities
AW*)1)
@"TE! this is not a real estate taxB
this is a local tax.
1K2 Custom duties, c>arges or fees for t>e
registration of vessels or s>ips, D>arfages
fees and D>arage dues E=CEP" if t>e D>arf
>ad been establis>ed, maintained and
operated bB t>e localitB 'T*(('9..
Y whar.a$e due 0 is a custo# .ee
i#posed on the wei$ht o. the car$oes.
Y whar. 0 a pier
Y special levy on public wor=s AW&8()
Y allows provinces cities and
#unicipalities to i#pose a special real
estate tax =nown as Sspecial levy or
public wor=sT
Y let us say the #unicipality
established a pier .or a #ini#al value o.
9*(>I out o. 9*(>B under W&8(B '(H o.
this #ay be recoveredI the other 8(H
#ay be recovered by war.a$e due.
/2 "a?, fee or c>arge for goods or
commodities coming out or passing t>roug>
t>e territorial @urisdiction even if in t>e
guise of a toll or a fee 'T*(('E..
Y an absolute prohibition
Y co##odities #ar=eted in a public
#ar=etB letKs say in the city o. 9asi$B
where the co##odities ca#e .ro#
:a$una then to TanayB %aintaB TaytayI
<ust i#a$ine i. each o. the towns will
i#pse *peso .or every head o. a chic=en
or 1(cents .or every bundle o.
ve$etable.
PAL/A 9E:L" CORP v /ALA10A&
;A/8OA10A 9EL &$R '**( &CRA 4,+.
F! >unicipal council passed a tax
ordinance entitled Spolice surveillance
.eeT which provide that A:: #otor
vehicle passin$ throu$h a particular
street in the town proper o. >alan$as
which will lead to the pier or whar. will
pay a certain su# o. #oney whether it
is ca#oteB copraB palayBor rice. "ne o.
the owners o. the #otor vehicle is 9al#a
DevKt %orp. carryin$ copraB banana and
coconut to be loaded in a ship doc=ed at
pier o. >alan$as. The lawyer o.
petitioner assailed the validity o. the
ordinance statin$ that it is a clear
violation o. W*))AE).
5! -t is not the title o. the ordinance which
is controllin$ but it is the essence o. the
substance o. the tax ordinance. The tax
ordinance clearly violated W*))AE)B
there.oreB the S% had no option but to
declare the tax ordinance null and void
.or bein$ in violation o. the law.
K12 "a?es, fees or c>arges on agricultural
and aquatic products D>en sold bB
marginal farmers or fs>ermen 'T*(('%..
.+ Don Antonio FlorendoB a person
co#in$ .ro# 9a#pan$a who settled in
Davao %ityB e#ployed thousands o.
wor=ers in the di4erent banana
plantation. %an the :?E i#pose tax on
the a$ricultural product which is a
bananaO
A+ LES. The :?E can i#pose because
Don Antonio is not a #ar$inal .ar#er. -t
is only prohibited i. it is sold by a
#ar$inal .ar#er.
Y >ar$inal Far#er 0 a .ar#er or a
;sher#an .or subsistence onlyB whose
i##ediate #e#bers are the i##ediate
#e#bers o. the .a#ily AW*)*A9))
K112 "a?, fee or c>arge on pioneer and non7
pioneer enterprise dulB registered Dit> t>e
board of investments for a period of 2Brs
and GBrs respectivelB '*(('0..
Y relative prohibition because a.ter the
periodB the :?E concerned #ay now
i#pose the tax.
K1112 E?cise ta? on articles and ta?, fees
and c>arges on petroleum products
'T*(('0..
Y relative prohibition since under
W*8)A5)B it says there that taxes which
are prohibited such as excise taxB
percenta$e tax and value added tax
nonethelessB the :?E #ay i#pose a tax
not exceedin$ &H o. the $ross receipt
A.or cities )H).
Y >y .or#er student an assistant in
the city le$al attorney in a city in >etro
>anilaB received a su##on .ro# the
T% Aon co#plaint o. a super#ar=et in
>etro >anila) questionin$ the validity o.
the tax ordinance under W*8)A5) since
the rate i#posed was )H
- saidB Sinen$B una ;le =ayo n$
#otion to dis#iss. @a= n$ putaB absent
=a na na#an ata ehB you invo=e W*1*
statin$ that a city can i#pose a tax
hi$her than the rate provided .or by law
not #ore than 1(H o. the #axi#u#
A1(H o. the #axi#u# o. &H is *B
there.oreB &[* is )H)T
+8
8$LACA1 v CA '+33 &CRA GG+.
c;rst case decide by the S% which
interpreted both the :?% and the @-%.
F! The then $overnorB "bet 9an$aniban
to$ether with his provincial council
passed an ordinance i#posin$ tax on
quarryin$ under the provision o. W*), o.
the :?%. The proble# is that the
ordinance applies to A:: entities
quarryin$ in the province. "ne o. the
taxpayersB epublic %e#ent obli$ed to
pay the taxB ar$ued that under W*), o.
the :?%B the tax on quarryin$ on which
the province #ay be allowed shall only
be with re$ard to quarryin$ private landB
and not only that but under W*))A5)B
there is a prohibition to i#pose excise
tax and tax on quarryin$ under the -%
is an excise tax.
5! The tax on quarryin$ allowed to
provincial $overn#ents shall only be
with re$ard to lands which are public
landsB and since this is a private tax on
quarryin$ re.ers to a lot without any
distinction. 5enceB i. the :?% #ade a
quali;cation as to the =ind o. land
Awhere it says it should be public land)B
by i#plicationB it should re.er to private
land under W*1* Aalthou$h the law did
not distin$uish)I and since it is a tax by
the national $overn#entB it should be
collected by the C- Anot the :?E)B and
also the S% a$reed that it is an excise
tax where :?EKs are prohibited .ro#
collectin$I thusB the S% declared the tax
ordinance null and void .or bein$
contrary to law.
Y SirB why is it a proble# when the law
is clear that under W*),B it shall only
apply to public landO
9erhaps the provincial council
thou$ht that the sub<ect #atter o. the
tax ordinance #ay be a sub<ect #atter
provided in any boo= includin$ the -%B
or worseB that it #ay i#pose a tax on a
sub<ect #atter not #entioned in any
boo=.
>oral lesson! althou$h a tax
ordinance #ay be passed even i. the
sub<ect #atter is not provided .or in any
lawB it has to co#ply with the
li#itations.
PE"RO1 v PE1#LLA '*3- &CRA -2.
c The .acts here arose under the old law
under W1 Anow W*))) o. the local tax code
A9D &)*)
F! 9etron has a .actoryNplant in 9enilla
where the raw #aterials petroleu#
products are bein$ converted into
re;ned petroleu# products. The
#unicipal council o. 9enilla i#posed a
tax by way o. a tax ordinance sayin$
that they are invo=in$ the old W*/ Anow
W*8)AA)) statin$ that #unicipalities are
authori7ed to i#pose tax o. the
#anu.acture o. any co##odityB henceB
since it is #anu.acture o. a petroleu#
productB the :?E #ust e authori7ed.
5oweverB 9etron ob<ected since under
W1 Anow W*))A5))B the prohibition
includes the prohibition to i#pose excise
tax and not only thatB under this par.B
the tax on petroleu# products is an
excise tax. Ender this par.B the law is
clear it does not only prohibit the
i#position o. taxB .ee or char$e over
petroleu# products.
5! The controllin$ provision here the old
W*/ Anow W*8)AA)) that :?Es are
authori7ed to i#pose the business tax
.or the #anu.acturin$ over any =ind o.
co##odity by and petroleu# product is
Sany =ind o. co##odityT.
.+ Dhat do you thin=O
A+ - donKt a$ree with this rulin$ because
between W*))A5) and W*8)AA)B it is the
.or#er which is #ore speci;c.
1L2 :alue added ta? and percentage
'T*(('#. E=CEP" T*G('5.
Y elative prohibition.
L2 "a?, fee or c>arge on common carriers
D>et>er bB land, Dater or air 'T*(('<..
%#R&" 5OL9#10 CO v8A"A10A& C#"! '())
&CRA 22*.
c &
nd
S% rulin$ discussin$ both the -% and
:?%.
F! This revealed to the public the existence
o. & very bi$ oil pipelines co#in$ .or#
Catan$as %ity with a distance o. #ore
than *((=#B one $oin$ to 9andacan "il
Depot and the other one is $oin$ to
Cr$y. CicutanB Ta$ui$. The Catan$as %ity
council dee#ed it necessary to i#pose
a tax on the $ross receipt o. the *
st
holdin$ co#pany .or the operation o.
the oil pipelineB but the operator ar$ued
that the oil pipeline is not a co##on
carrier.
5! The S% reasoned out li=e in the case o.
Pa@unar v Comm '(+-&CRA222.B sayin$
that Swe have copied the code o. carrier
law .or# the ES where the de;nition o.
a co##on carrier is one habitually
+1
carryin$ not only individuals or
passen$ers but also $oods or
co##oditiesB and since the oil pipelines
is habitually carryin$ petroleu#
products which is a co##odityB we rule
this as a co##on carrier which is under
W*))AJ)B :?E is prohibited .ro# i#posin$
tax on co##on carriersB and not only
that but under W*+( o. the :?%B the law
is very explicitB that A:: :?Es are
prohibited to i#pose percenta$e tax on
co##on carriersT. Dith thatB the tax
ordinance passed was declared null and
void .or bein$ contrary to law.
L12 Premiums on re7insurance 'T*(('A..
Y absolute prohibition.
L112 "a?, fee or c>arge on registration of
motor ve>icles and for t>e issuance of
license and permit for driving t>ereof
E=CEP" tricBcles 'T*(('L..
8A"$A1 C#"! v L"O '(++ &CRA -)4.
-! Dhich .unction was dele$ated to the
:?EO The :T" re$isterin$ #otor vehicles
SorT the :TFC $rantin$ .ranchise and
re$ulation o. co##on carriersO
5! Ender W*))A:)B the .unction o. the :T" is
prohibitedB an there.ore what #ay be
dele$ated to the :?E is the .unction o.
:TFC.
L1112 "a?, fee or c>arge on e?portation of
products and is actuallB e?ported E=CEP"
under T*G('C. D>ere t>e L0$ is aut>oriCed
to impose business ta? on e?portation
'T*(('/..
L1K2 "a?, fee or c>arge on cooperatives
dulB registered under t>e cooperative cod
'RA 23(-. and 8usiness AalaEalan 'RA
2-*). 'T*(('1..
Y A cooperative is exe#pt .ro# local
taxB provided it is duly re$istered with
the cooperative code and the
cooperative develop#ent authority SorT
Cusiness Gala=alan Anot =al=alan)
LK2 "a?, fee or c>arge over t>e national
government, political subdivisions and
agencies and instrumentalities of t>e
government 'T*(('O..
Y elative prohibition since it ad#its o.
an exception under W*18 o. the :?%
where it says that a :?E #ay be
authori7ed to i#pose a .ee or char$e .or
the operation o. a public utility provided
it is ownedB #aintained and operated by
such :?E.
1A#A v PARA1A6$E '<$L! +))2.
5! S% ruled in .avor o. the airport.
9aranaque bein$ a :?E canKt i#pose tax
on a $overn#ent instru#entality. Airport
owned by the $overn#ent is not an
a$encyB it bein$ an instru#entality.
.+ >ay the $overn#ent tax itsel. it the
taxin$ power is the local $overn#entO
A+ @". The local $overn#ent cannot
i#pose tax on the national $overn#entB
and with #ore reason that it cannot
i#pose a tax with equal :?E.
#. Ta!es t&at can eit&er <e ipose$ <(
Pro'inces or Cities
12 ta? on transfer of realtB 'T*(4.
Q @ote that this is not a real estate taxB
this is a local tax .or the si#ple reason that
it is not provide .or under the topic o. real
estate tax AW*/,-&,()
Q :aw says Sit should not exceed _ o. *H
o. the considerationT A@"TE! do not use
7onal value since this is used only under the
-%B not the :?%.
.+ Since all the provinces and cities #ust
.ollow the li#itation o. the rate Anot
exceedin$ _ o. *H)B is it violative o. the
equal protection clauseO
A+ @"B because the san$$uninan had to
deter#ine the actual rate considerin$ the
status o. the province.
.+ Dhy is that >a=ati ;x the rate o. +1H or
)N8 o. *HO
A+ Cecause cities are authori7ed to
increase the rate o. 1(H o. the #axi#u#B
that is 1(H o. _ is &1H A1([&1 is +1H).
@"TE! Do not apply trans.er o. realty
pursuant to A ''1+ A%A9) P this is the
%o#prehensive A$rarian e.or# 9ro$ra# P
this is exe#pt.
112 ta? on printing an publication 'T*(2.
Q @or#allyB a province cannot i#pose this
because the tax on business can only be
i#posed by a city or #unicipality EM%E9T
this oneB on printin$ and publication o.
#a$a7ines and periodicals.
1112 franc>ise ta? 'T*(,.
Q The old national .ranchise tax under the
old tax code was already abolished.
+'
Q De still have .ranchise tax other than
this oneB =nown as national .ranchise tax P
provided .or in the republic act $rantin$
.ranchise.
Two =inds o. Franchise Tax!
*. local .ranchise tax Aunder :?% W*)+)
&. national .ranchise tax Aprovided .or
in the statute or republic act
authori7in$ the .ranchise)
.+ >ay :?Es i#pose local .ranchise taxO
A+ De have to consider here #any
supre#e court decisions and also W*/) o.
the :?%.
Ender W*/)B it says there Sunless
especially provided .or in this codeB
exe#ptions $ranted to natural <uridical
persons are hereby withdrawn Aabolished)
EM%E9T!
*. local water districts
&. cooperatives re$istered under the
cooperative code AA '/),)
). non-pro;t and non-stoc= educational
institution.
8A&CO v PA0COR '*3, &CRA 4+.
F! The city council passed a tax ordinance
i#posin$ tax on 9A?%"B an a$ency o.
the $overn#ent. 9A?%" ob<ected
sayin$ that the local city is prohibited
under the old local authority act to
i#pose tax on an a$ency o. the
$overn#ent.
5! The S% declared null and void the tax
ordinance sayin$ >anila cannot do that.
CE8$ v /AC"A1 '+2* &CRA 22,.
F! %ebu $overn#ent was tryin$ to collect
real estate tax .ro# the >actan airport
Anote! real property tax is a territorial
taxB #eanin$ it should only be collected
within its territorial <urisdiction). :awyers
o. >actan airport ar$ued that under
W*)A")B %ebuB a :?EB cannot i#pose tax
on an a$ency o. the $overn#entB and
they also invo=ed the rulin$ in CAS%".
5! The lawyer o. >actan airport is devoid o.
any #erit at allB it is *((H erroneous
since the real estate tax is not a local
taxB henceB why invo=e a S% rulin$ and
codal provision which can only be
applied to local tax. There.oreB >actan
airport should pay eal 9roperty Tax.
Q Ce.ore the codi;cation in *//* Ato ta=e
e4ect January *B *//&)B local taxation was
e#bodied in a separate boo= =nown as
:ocal Tax %ode A9D &)*) while real property
tax was provided .or in a separate boo=
=nown as eal 9roperty Tax %ode A9D 8'8)
LR" v C#"! O% /A1#LA '(G+ &CRA 23+.
F! The >anila city $overn#ent tried to
collect real property tax but the
#ana$e#ent o. the :T said Sno you
cannot do that to us since it is
exclusively .or public useT.
5! @"B you are not exclusively .or public
use since every ti#e a person wants to
use the :T he has to pay.
.+ Dhy not use the de.ense that it is
owned by the $overn#entO
A+ Cecause in real estate taxB the de.ense
that it is owned by the $overn#ent is not a
de.ense.
The :?% in W*//AC) and in W&*+B both
provisions says that the basis .or the
i#position o. real estate tax is the A%TEA:
ESE o. anybody who is usin$ that A#aybe in
the concept o. usu.ructuary or in the
concept o. a lesseeB or in the concept o. an
owner)I the basis is not ownership.
Q in W*)8B the taxes here #ust not only be
i#posed by provincesB it #ay also be
i#posed by cities in line with W*1* P those
enu#erated in W*)1 to *8*.
CA0A!A1 9E ORO ELEC"R#C CO v /#&A/#&
OCC#9E1"AL '*-* &CRA (-.
c This was the prevailin$ rule .or #ore than
*(years .ro# */,,
5! -n the .ranchise or the republic actB
there are only two A&) =inds o. .ranchiseB
one is a .ranchise which provide .or a
condition that this tax Are.errin$ to the
.ranchise tax) shall be in lieu o. all other
taxesB and the other .ranchise is the one
which do not provide .or such provisionI
the province or the city can i#pose local
.ranchise tax i. the .ranchise belon$ to
the second exa#ple.
RE!E& v &A1 PA8LO C#"! '()4 &CRA (4(.
c 5ere the S% uni.or#ly ruled
5! A provision on exe#ption under W*/)
donKt only re.er to exe#ptions provided
.or by di4erent statutesB but it includes
those which clai# exe#ptions by virtue
o. the case o. CagaBan de Oro Abecause
S% decisions are also laws).
++
PL9" v 9A:AO '(2( &CRA ,4).
F! The .ranchise holders o. S#art and
?lobe are clai#in$ exe#ptions .ro# the
local .ranchise tax because they are
sayin$ that they are holdin$ a .ranchise
which says that it is a .ranchise enacted
by the house o. %on$ress in *//1 which
carries with it an exe#ption .or# local
.ranchise tax.
5! Cy the very explicit provision o. W*/)B
the re#oval o. exe#ptions $ranted by
di4erent statutes and also by S%
decisions applies only to statutes and
decided by the S% on or be.ore Jan. *B
*//&B because W*/) says Supon
e4ectivity o. this lawT. For exe#ptions
covered by W*/) there.oreB S#art and
?lobe are authori7ed to clai#
exe#ptions because the statue AA
+(,&) was enacted on *//1.
1K2 ta? on sand, gravel and ot>er quarrB
resources 'T*(-.
Q De are throu$h with that in the case o.
8ulacan
K2 professional ta? 'T*(3.
Q this #ust be correlated with the tax
under W*8+.
Q @"TE that this is an exe#ption to the
rule that a city #ay increase the rate o. the
tax P under W*1* o. the :?%B the increase is
not allowed.
Q both W*)/ and W*8+ are taxes i#posed
on persons exercisin$ pro.essional callin$.
-ection 9;E -ection 96=
are to be i#posed
by provinces and
cities
are to be i#posed
by #unicipalities
and cities
are applicable to
wor=ers who #ust
pass a
$overn#ent
exa#ination Ae.$.
en$ineersB
physiciansB etc)
are applicable to
persons who are
wor=in$ but are
not required to
ta=e $overn#ent
exa#inations
there is a
#axi#u# A9)(()
@"TE! it is not
always )((B since
the exact a#t
#ust be ;xed by
the ordinance.
-t does not
provide .or any
a#ountB the only
require#ent is
that it #ust be
reasonable
K12 amusement ta? 'T*G).
Q under the -%B there is also a#use#ent
tax under W*&1.
P8A v 6$E;O1 C#"! '*(, &CRA (4-.
F! The city $overn#ent enacted a tax
ordinance tryin$ to collect a#use#ent
tax includin$ a#use#ent tax on the 9CA
Ain AranetaB %ubao)I but 9CA and SnoB
we are already payin$ a#use#ent tax
to the national $overn#ent throu$h the
C- because o. W*&1 o. the -%T
5! 6% $overn#ent can no lon$er collect on
the $round that it is already bein$
collected by the national $overn#ent
and secondlyB in the enu#erations o.
a#use#ent under W*8(B you will never
see pro.essional bas=etball. >ost o. allB
it is the intention o. the author that it is
only the national $overn#ent.
cna= n$ putan$ =atan$ahan yan.. the local
tax code 9D &)* was enacted in */+8 when
we donKt have any pro.essional bas=etball..
since pro.essional bas=etball was born >ay
*/+1.
c ano ba dapt ta#a diyanO P both the
national $overn#ent and the 6%
$overn#ent can collect. There is no
violation o. the prohibited double taxationB
because the taxin$ powers are di4erentB
and not only that W*8( spea=s o.
a#use#ent tax on ad#ission .ee but under
W*&1B it is abut $ross receipts.
K112 deliverB van 'T*G*.
.+ Dhat i. not a delivery vanB but Ssa=oT
lan$O
A+ The applicable tax is under W*8)A?)
ApeddlerKs taxB one i#posed by
#unicipalities and cities.
-. #ay dalan$ sasa=yanB yari siya n$
province sa tax.
@"TE! W*)1-*8*B these are taxes that can
be i#posed by 9"2-@%ES and %-T-ES.
W*8)-*1( are taxes to be i#posed by
>E@-%-9A:-T-ESB which can also be i#posed
by %-T-ES.
E. Ta!es t&at can eit&er <e ipose$ <(
/unicipalities or Cities
+,
12 8usiness "a? 'T*G('A75..
a. #anu.acturin$B repac=in$B
processin$B includin$ the
#anu.acturer o. per#itted liquor and
also its dealer
b. wholesalin$
c. exportation
d. retailin$
e. contractorKs tax
.. tax on ban=in$ institution and
;nancin$ institution
$. peddlerKs tax
h. the exe#ption under W*))Ai)
.+ -. you have two branchesB how #any
business taxes do you have to payO
A+ Lou pay only one business tax AW*8')
#LO7#LO 8O""LER& v #LO7#LO C#"! '*2G
&CRA 2),.
F! -lo-ilo Cottlers was already payin$ a
business tax on #anu.acturin$ under
W*8)AA) to the city $overn#ent by virtue
o. a tax ordinance. :ater onB they are
obli$ed to pay by virtue o. another tax
ordinance i#posin$ business tax on
wholesalin$. @aturallyB -lo-ilo Cottlers
ar$uedB Show could it beB i. you
#anu.actureB it necessary .ollows that
you sell the co##odity soB with the
pay#ent o. the business tax on
#anu.acturin$B it carries with it the
business o. wholesalin$T.
5! @"B you have to deter#ine the
#ar=etin$ syste# o. the co#pany. -.
wholesalin$ is also bein$ done in the
place o. #anu.actureB the business tax
on wholesalin$ should no lon$er be paid
it should only be the business tax on
#anu.acturin$. Cut i. the #ar=etin$
syste# o. the co#pany provides that
wholesalin$ shall be done in a separate
place A#aybe several =ilo#eters away)B
the #anu.acturer #ust still pay the
business tax on wholesale because now
it could be ar$ued that they have the
separate business o. wholesalin$.
.+ "n the business o. retailin$B should the
business tax o. retailin$ be i#posed by the
city or by the #unicipality S"T by the
baran$ay in the city or the barrio in the
#unicipalityO
A+ W*8)AD) #ust be correlated with W*1&B
the tax to be i#posed by the baran$ay.
-t depends!
a. city
Y i. the $ross receipt o. the retailer
exceeds 91(T in a #ini#u# o.
one yearB it is the ri$ht and
privile$e o. a city to i#pose the
business tax on retailin$.
b. baran$ay
did not exceed 91(TB it is the
baran$ay council where the
business o. retailin$ is located.
c. #unicipality
did not exceed 9)(T within a
period o. one year.
d. barrio
did not exceed 9)(T within a
period o. one year.
@"TE! These distinctions do not apply in
wholesalin$. These are only .or retailin$.
Q 9ara$raph 5! .or the i#position o.
excise taxB percenta$e tax and value added
taxB the #unicipality #ay i#pose a tax not
exceedin$ &H o. the $ross receipt Awith
re$ard to a cityB it #ay $o as .ar as )H)
112 /unicipalities in /etro /anila D>o can
increase t>eir rate 'T*GG.
Q i$ht now there are only two
#unicipalities!
*. San Juan
&. 9ateros
1112 Professional "a? 'T*G,.
Q we are throu$h with that
1K2 %ees for sealing and licensing of Deig>ts
and measures 'T*G-.
K2 %is>erB rentals, fees and c>arges 'T*G3.
F. -itus of Ta! AW*1()
The tax re.erred to in here is the
business tax on wholesalin$ and retailin$.
.+ F> is #anu.acturin$ co##oditiesB one
o. the# is Swi.t hotdo$sB this is bein$ sold
not only in >andaluyon$B >etro >anilaB but
also to the inter country .ro# Catanes to
Tawi-tawi. Dhere should the business tax o.
wholesalin$ or the business tax o. retailin$
be paidO Should it be in the principal oVce
+/
A>andaluyon$) SorT the place where the
co##odities are soldO
A+ -t will be paid in the place where it had
been sold 9"2-DED there is a branch oVce
or a sales outlet AW*1(AA)).
Q -. it so happens that the co#pany has a
.actory di4erent .ro# the place where the
principal oVce is located P )(H should be
pain in the principal oVce and +(H in the
#unicipality or city where the branch is
located.
P5#L /A"C5E& v CE8$ '-* &CRA 33.
F! 9hil >atches were produced in
@a$tahanB >anila. -n %ebu cityB there
was a warehouse where the #atches
were stored. >any o. the custo#ersB by
way o. wholesale in the warehouse in
%ebu %ityB they ca#e .ro# di4erent
towns o. the 2isayan e$ion. >ay the
business tax ordinance o. %ebu be
i#posed on those transactions even i.
the buyers did not co#e .ro# the
territorial <urisdiction o. %ebuO
5! Since in this case the contract boo=ed
and paidB #eanin$B it was ne$otiated
per.ected and consu##ated in the
warehouse where it was located in %ebu
%ityB the %ebu %ity $overn#ent has the
ri$ht to collect business tax.
.+ Dhat i. there is an a$ree#ent that
co##odities would be delivered and that
the buyer would be waitin$ in so#e other
townB is the answer still the sa#eO
A+ LESB the answer is still the sa#e
because delivery to the carrier is delivery to
the buyer where delivery has been ter#ed
within the territorial <urisdiction o. %ebu.
&5ELL v CE8$CO", CA/AR#1E& &$R '*)4
P5#L *)2(.
F! The petroleu# products were purchased
at the #otor vehicle traversin$ the
nei$hborin$ towns o. %ebucot li=e
CasonB Di#alaonB all towns in %a#arines
@orte. The contract o. sale was
ne$otiated and per.ected in di4erent
#unicipalities where the #otor vehicle
o. Shell was travelin$.
5! Althou$h the oil depot was located in
%ebucotB the said #unicipality cannot
i#pose tax on that because the contract
o. sale was ne$otiated and per.ected in
the di4erent nearby towns o.
%a#arines.
.+ -s there a con3ict with the case o. &>ell
and P>il /atc>esO
A+ @"@E. As a #atter o. .actB these two
decisions co#ple#ent each other.
G. Ta!in, Po"ers of t&e Baran,a(
AW*1&)
Q "nly a #ini#al su# A.air and
reasonable)
9ower to i#pose tax!
*. "n co##ercial breedin$ o. ;$htin$
coc=sB coc=;$hts and coc=pits
Y #ust be .or co##ercial purposes
&. "n places o. recreation which char$e
ad#inistration .ee
). "n billboardsB si$nboardsB neon si$ns
and outdoor advertise#ents
Y especially .or the barrios and
baran$ays alon$ the hi$hway
8. For baran$ay clearance
Y i. you want to en$a$e in the
business o. retailin$ or wholesalin$
P i. baran$ay captain will not
approve that P within +days $o to
the #unicipal hall or city hall .or
approval
1. For the use o. baran$ay property
Y .or instance the baran$ay has a
pla7a.
:. Coon Re'enue Raisin, Po"ers
AW*1)-*11)
.+ Dhy co##onO
A+ All the :?E could i#pose the sa#e. Cut
it does not .ollow that all the provincesB
citiesB #unicipalities could i#pose the
sa#e. "nly the :?E which operateB
establishB #aintain the entity
-. established by the provinceB it should
only be the province.
These are!
*. service .ee and char$es
Y .or services rendered
&. public utility char$es
Y provided ownedB operate and
#aintained by the#
). toll .ees and char$es
Y tax or toll .or the use o. a brid$e or a
street
Q 9adua ;led a civil action in the
>a=at- T% tryin$ to stop the $overn#ent
,(
.or# collectin$ a toll .ree in the South
Express includin$ the @orth expressway
alle$in$ that he is a4ected as a taxpayer
because he is .ro# 9aranaque. 5e ar$ued
that i. you use the property o. the
$overn#ent li=e a street or a public pla7aB
you do not pay. 5e #ade the analo$yB that
i. you $o to :unetaB you do not pay the city
$overn#ent o. >anila.
The >a=ati T%B the %A and S% had a
uni.or# rulin$ that the operator should be
prohibited .ro# collectin$ .urther toll .ess
because i. the operator had already
recovered his invest#ent and earned an
inco#e alreadyB he should be stopped. As
ar$ue by the S%B it copied the ar$u#ent o.
the lawyer Are! :uneta).
Y @"TE! that es Judicata do not apply
here.
Dhen the rulin$ beca#e ;nal an
executory in *//)B the @orth and South
Express were totally dis#antled and totally
destroyed by the D9D5 to $ive way to the
;nal and executory rulin$ o. the %ourtB that
-t should no lon$er be collected.
A.ter several #onthsB the
$overn#ent announced in the radio that
the party in the case o. 9aduaB #utually
a$reed that the collection shall be resu#ed
in order to have #oney .or the #aintenance
and repair o. the hi$hway.
Exceptions to W*11 Acollection o. toll .ees)
*. #e#bers o. AF9
&. #e#bers o. the 9>9
). post oVce personnel deliverin$ #ail
8. physically handicapped
1. disabled citi7ens '1 years and older.
I. Counit( Ta! AW*1')
Q -n the old daysB =nown as Sresidence tax
certi;cate.
.+ -. the Filipino is a resident o. a .orei$n
country A@%)B is he liable to pay the
co##unity tax certi;cateO
A+ @"B because the basis o. i#position o.
this tax is whether or not you are an
inhabitant o. the 9hilippines. >eanin$ you
are a resident o. the 9hilippines.
.+ Dhat about a .orei$ner residin$ in the
9hilippines AA)O
A+ LES. Lou have to pay unless the
.orei$ner is a trans-investor .or not #ore
than )#onths.
Q This is applied to both natural and
<uridical persons.
equire#ents!
*. .or a natural person P at least *,
years o. a$e
&. .or corporations P upon re$istration
with the SE%
.+ Dhat i. you beco#e *, in the #onth o.
January or @ove#ber or Dece#berO
A+ For those who celebrated their birthday
be.ore July * Athat is up to June )()B they
are liable to pay the taxB .or this year.
For those who celebrated their birthday
on or a.ter July *B they are not yet liable to
pay this yearB but have to wait until next
year.
.+ -s there a di4erence .or those who
reached *, in the #onths o. Jan-Feb->arch
and those who reached *, in the #onths o.
April->ay-JuneO
A+ LES. For those who celebrated birthdays
in the #onths o. Jan-Feb->archB they have a
$race period o. &(days within which to pay.
Those who celebrated their *,
th
birthday in
the #onth o. April->ay-JuneB they do not
have any $race period at allB they have to
pay the tax i##ediately.
.+ -. you have a co##unity tax certi;cate
.or this year A&((')B can it be used only
until Dece#ber )*B &(('O
A+ @". -t shall be valid up to April *1B &((+.
AW*')A%))
H. Accrual of t&e Ta! AW*'')
Q January *
.+ Dhat i. the tax was only approved in the
#onth o. >ay &(('B do you have to wait
until January &((+O
A+ @". Lou have the ri$ht to collect that in
July *B because the law is sayin$ that Sit
should be collected in the next succeedin$
quarterT AW*'+)
Q >ayor Cinay had a tax ordinance in >ayB
sabi n$ #$a bata niya! Sbosin$B collect na
tayo n$ JuneT.
Cinay! Shindi n$a pupwedeB #a$hintay
pa tayo n$ July *T.
,*
.+ Dhat i. the tax ordinance had been
existin$ .or several years alreadyO
A+ The ti#e o. accrual will always be
January *.
RE/E#IE- %N#ER T:E INTERNAL
REVEN%E CO#E
*. e#edies o. the ?overn#ent
&. e#edies o. the Taxpayer
Remedies of t,e go/ernment0
*. Assess#ent
&. %ollection
Ender the @-%B assess#ent and collection
have & =inds!
*. @or#alN"rdinary assess#ent and
collection 0 Sec. &()B @-%
&. Abnor#alNExtraordinary assess#ent
and collection 0 Sec. &&&B @-%
I. 1ormalROrdinarB assessment and
collection
Q There was a return ;led and it
is not .raudulent and not .alse
II. AbnormalRE?traordinarB assessment
and collection
Q There was!
*. an o#ission or .ailure to ;le
the returnI
&. i. there was a return ;ledB it
was .raudulentB orI
). the return was .alse
.+ -s a .alse and .raudulent return
presu#edO
A+ @"B .alse and .raudulent return is not
presu#ed. The burden o. proo. to prove
that the return was .alse and .raudulent lies
a$ainst the $overn#ent throu$h the C-.
The #ere .act that the return is
erroneous will not #a=e the return
.raudulentB it #ust be proven by the C-.
.+ Dhy is it i#portant to =now whether the
assess#ent is under nor#al or abnor#al
conditionO
A+ -t is i#portant to =now because the
prescriptive period between nor#al and
abnor#al assess#ent di4er.
Prescripti/e Period for &ssessment
:2 1ormalROrdinarB Assessment O ( Bears
from t>e time t>e return >as been fled
'not t>e paBment of t>e ta?. '&ec +)(,
1#RC.
Q ) Days o. ;lin$ the return under Sec.
&()B @-%!
*. ;led be.ore the deadline A.or any tax
under @-%)
&. ;led on the date o. deadline
). ;led a.ter the deadline
Q & Days o. countin$ the ) year period o.
Assess#ent!
*. i. return is ;led be.ore or on the day
o. the deadlineB the prescriptive
period starts on the date o. the
deadlineI
&. i. return is ;led a.ter the deadlineB
the prescriptive period starts on the
date the return has been ;led.
Y For the calendar year o. &((8B a return
#ust be ;led and paid .or @et -nco#e Tax
on or be.ore April *1B &((1. Since he was
not able to #eet the deadlineB the taxpayer
is now bein$ assessed .or tax due .or &((8.
To #ini#i7e interest and surchar$esB it has
been su$$ested by the C- that the
taxpayer ;le a late return. Supposed he
;led his return coverin$ &((8 on April *B
&(('. -n this exa#pleB the rec=onin$ point
is the deadline o. April *1B &((1. The
startin$ point o. the countin$ the ) yr.
period is on the date the return is ;led
which is April *B &(('.
Y Suppose it is not a late ;lin$ o. returnB
the countin$ o. the period is on the date o.
the deadline which is April *1.
72 AbnormalRE?traordinarB Assessment
Q the $overn#ent has & options!
a. Assess and %ollect
Y the prescriptive period .or
Sassess#entT shall be *( years .ro#
the discovery o. none ;lin$ or .alse
or .raudulent return ASec. &&&B par.
oB @-%)
Y the prescriptive period .or
ScollectionT shall be 1 years .ro# the
date o. ;nal assess#ent ASec. &&&B
par cB @-%)
b. %ollect Dithout Assess#ent throu$h
Judicial Action
Y since there is Sno assess#entT
there is no prescriptive period .or
assess#ent
,&
Y prescriptive period .or
ScollectionT shall be *( years .ro#
the date o. discovery o. none ;lin$
o. return or .alse or .raudulent
return.
Q These options are available only i.
the Assess#ent is under the
Abnor#alNExtraordinary %onditions.
These are not available under
@or#alN"rdinary Assess#ent
Prescripti/e Period for Collection
9. 1ormalROrdinarB Collection 0 Sec. &()
did not provide .or the prescriptive
period .or the collection
- -ntention o. the author! 1 years
.ro# the date o. ;nal assess#ent
easons! ASababan a$rees with the 1 year
prescriptive period)
9rescriptive period o. collection
under *
st
option on Abnor#al
Assess#ent is 1 years .ro# ;nal
assess#ent ASec. &&&B par cB @-%)
*. under the old code o. */)/B
*/++B and */,1B i. the
prescriptive period .or collection
under abnor#al is ) yearsB then
the prescriptive period .or
collection under nor#al is also )
years. -. now a daysB it is 1 years
in abnor#alB the prescriptive
period .or nor#al should also be
1 years.
&. to say that there is a prescriptive
period .or collection under
Abnor#al and there is none
under @or#al is too abnor#al. -t
should be the other way around.
72 AbnormalRE?traordinarB Collection
a. assess and collect 0 1 years .ro#
the ;nal assess#ent
b. collect without assess#ent
throu$h <udicial action 0 *( years
.ro# date o. discovery o. none
;lin$B or .alseB or .raudulent
return.
.+ 5ow to apply these periodsO
A+ Annual net inco#e tax return ;led by
individual usin$ a calendar year. The return
should be ;led on or be.ore April *1B &(((.
-t was ;led on April *1B &(((.
. Dithout statin$ the date o. ;nal
assess#entB can it be collected in &((+O
A+ Ender nor#al conditionB ;rst deter#ine
the date o. ;nal assess#ent. -. the C-
;nally assessed the tax in @ove#ber &((*B
then &((+ is way beyond the 1year period
to collect. %ount the prescriptive period .or
collection .ro# the date o. ;nal assess#ent.
.+ Asa#e .acts) Supposed it was ;nally
assed on >arch &(()B can it be collected in
&((+O
A+ LesB because it is within the prescriptive
period o. 1years.
8A&#LA1 v CO//#&&#O1ER '+* &CRA *,.
F! Supposed the notice o. assess#ent was
$iven within the period but it was
received by the taxpayer outside the
period.
-! Dhether or not the assess#ent is within
the period o. ) years.
5! Les. -t is within the period. -. the notice
is sent throu$h re$istered #ailB the
runnin$ o. the prescriptive period is
SstoppedT. Dhat #atters is the sendin$
o. the notice is #ade within the period
o. prescription.
Q -t is the sendin$ o. the notice and not
the receipt that tolls the prescriptive period.
.+ Dhat i. the return has been a#endedB
how would you co#pute the period o.
assess#entO
A+ @-% is silent.
P5OE1#= v CO//#&#O1ER '*G &CRA 4+.
-. the a#end#ent o. the return is
substantial as distin$uished .ro#
super;cialB the countin$ o. the prescriptive
period is also a#ended. The prescriptive
period shall be rec=oned on the date the
substantial a#end#ent was #ade. -. the
a#end#ent is super;cialB the countin$ o.
the prescriptive period is still the ori$inal
period.
Proce$ure for Assessent 3-ec. 55@>
NIRC7 RR 950EE4
Steps o. assess#ent
*. Sec. &&,B @-% A& steps)
&. *&-// A) steps)
& Steps under Sec. &&,B @-%
*. 9re-assess#ent notice
&. Final assess#ent notice
,)
) Steps under *&-//
*. @otice o. -n.or#al %on.erence
&. 9reli#inary Assess#ent @otice
). For#al :etter o. De#and and @otice
to 9ay the Tax
PROCE#%RE 3-ec. 55@> NIRC7 RR 950EE4
*. Epon receipt o. the notice o.
in.or#al con.erenceB ;le a reply
within *1 days .ro# receipt o.
noticeI
&. Failure to ;le a replyB & thin$s #ay
happen!
a. C- will send a$ain the @otice o.
-n.or#al %on.erence or
b. C- will send a 9reli#inary @otice
o. Assess#ent
). Epon receipt o. 9reli#inary
Assess#ent @otice A9A@)B ;le a reply
within *1 days .ro# receipt
8. Failure to ;le a reply will result in
either!
a. C- will repeat 9A@
b. Declare the taxpayer in de.aultB
and send you a Final Assess#ent
@otice AFA@)
1. Epon receipt o. FA@B taxpayer #ay
;le a protest within )( days.
.+ -s FA@ the one appealable to the %ourt
o. Tax Appeals A%TA)O
A+ @". This is because W&&,B @-% and
*&-// requires the exhaustion o.
ad#inistrative re#edy o. protest. A.ter the
receipt o. FA@ or .or#al de#and within
)(days #ust ;le a protest be.ore the oVce
o. the co##issioner o. internal revenue.
FOR/- OF PROTE-T
*. :ocal Tax ASec. *&1B :ocal
?overn#ent %ode A:?%))
&. eal 9roperty Tax ASec. &1&B :?%)
). Tari4 and %usto#s %ode ASec. &)*)B
A +'1*)
Q -n all protest under the di4erent codesB
pay#ent under protest is only necessary
under the Seal Estate TaxT.
RR :7-NN
Q -. the taxpayer receives & ;nal
assess#entsB one under the @et -nco#e Tax
A@-T) and the other in 2AT. -. the taxpayer
donKt want to ;le protest under 2AT but
want to ;le a protest under @-T. The
taxpayer in order to be allowed to ;le a
protest under the @-T #ust ;rst pay the 2AT
where he does not intend to ;le a protest.
Q This is not Spay#ent under protestT
becauseB pay#ent under protest is the one
#entioned in eal 9roperty Tax under Sec.
&1&B :?%.
Ender @-%B 9rotest is re.erred to as!
*. disputin$ o. ;nal assess#ent or
&. ;le a #otion .or reconsideration or
reinvesti$ation
.+ Dhat should be done a.ter ;lin$ a
protestO
A+ %ount '(days is the period to ;le the
necessary docu#ents and receipts in
support o. the protest.
.+ Dhat is the e4ect o. .ailure to ;le the
supportin$ docu#entsO
A+ Failure to ;le the necessary and
supportin$ docu#ents within the '(day
periodB to be counted on the day the protest
is ;ledB the ;nal assess#ent shall beco#e
;nal and executory.
? "n the 1*
st
day you ;led the necessary
docu#entB you have to count another
periodB which is *,( days .ro# the day you
;led the necessary docu#ents.
elevance o. the *,( Days! *,( days is
the ti#e $iven to the C- to decide the case
.+ Supposed it did not decide the case
within *,(daysO
A+ Do not invo=e the :ascano case because
it was re<ected by A /&,&
-n the :ascano caseB be.ore you ;le an
appeal althou$h the *,( days have lapsedB
you have to wait .or the C- to ta=e positive
action.
The case was ruled only by the %TAB
hence it is not a law. The <urisdiction o. the
%TA has been a#ended by A /&,&.
A /&,& provides that in case o.
inaction o. the co##issioner a.ter the lapse
o. *,(daysB re#edy is to ;le an appeal.
*&-// says that a.ter lapse o.
*,(days but within )(days a.ter *,(daysB
that is the ti#e to ;le an appeal.
.+ Supposed the C- rule within *,(O
A+ Dithin )(days .ro# receipt o. the
decision ;le an appeal to the %TA sittin$ in
division.
,8
.+ Supposed the %TA decided not in your
.avorO
A+ File a #otion .or reconsideration within
*1days to the sa#e division decidin$ the
case.
.+ Supposed the %TAB in division decided
not in you .avorO
A+ File an appeal to the %TA sittin$ en
banc.
.+ Supposed the %TA en banc decided not
in your .avorO
A+ File an appeal within *1days .ro#
receipt o. decision to Supre#e %ourt.
.+ Durin$ the pendency o. the protest in
the oVce o. the %o##issionerB supposed
you receive a notice o. collectionB levy andN
or distraintB what is your re#edyO
A+
* !A8E& v CO//#&&#O1ER '*4) &CRA
+,-.
+ $1#O1 &5#PP#10 L#1E& v
CO//#&&#O1ER '*-4 &CRA 4G,.
!A8E& v CO//#&&#O1ER '*4) &CRA +,-.
F! The taxpayer receives a notice o.
collection while waitin$ .or the decision
o. his protest. 5e then ;led an SappealT
with the %TA contendin$ his protest has
been denied because he did not receive
a decision but receive a notice o.
collection. Si#ultaneouslyB the C- ;led
be.ore the %F- an Sordinary civil actionT
.or the collection o. su# o. #oney.
Dhen the <ud$e o. the %F-B was about to
conduct the hearin$ o. the caseB the
taxpayer ;led an in<unction with the S%
to prohibit the <ud$e o. the %F-
contendin$ that a sin$le cause o. action
is pendin$ in two courtsB one in the %TA
and another in %F-.
5! -n<unction was $ranted prohibitin$ the
Jud$e o. the %F- and requirin$ the Jud$e
to trans.er the records to the %TA sayin$
that the re#edy #ade by the taxpayer
was the correct re#edy.
.+ Das the appeal #ade on ti#eO
A+ LesB when the C- ;led an ordinary
actionB the protest is dee#ed denied. 5ence
an appeal is a proper re#edy.
$1#O1 &5#PP#10 L#1E& v CO//#&&#O1ER
F! The taxpayer was waitin$ .or the
decision o. his protest. Cut insteadB he
received a notice o. collection.
-##ediatelyB he ;led a >otion .or
econsideration and %lari;cation as=in$
whether his protest has been denied.
The C- did not reply or answer but
instead ;led an "rdinary %ivil Action
be.ore the %F-. Dhen the taxpayer
received su##onsB he did not answer
but instead ;led an Appeal be.ore the
%TA.
-! Dhether or not the re#edy o. Appeal was
the correct re#edy and Dhether or not
it was ;led on ti#e.
5! Les. The re#edy o. appeal is the correct
re#edy and the appeal was ;led on
ti#e. The rec=onin$ period within which
to ;le an appeal is the ti#e the taxpayer
received the su##ons.
Dhile an Appeal is pendin$ be.ore the %TAB
the %TA will deter#ine!
1. -. the decision was #ade within *,(
daysB whether the appeal was #ade
within )( days .ro# the receipt o.
the said decisionB or
&. i. there was no decision a.ter the
lapse o. *,( daysB whether the
appeal was #ade within )( days
upon the expiration or the lapse o.
the *,(-day period.
.+ 9endin$ appeal with the %TAB can the
C- a#end the ;nal assess#entO
A+ & S%5"":S "F T5"E?5T!
*. 0$ERRERO v CO//#&&#O1ER
'*3 &CRA +4.
&. 8A"A10A& v COLLEC"OR '*)+
P5#L -++.
0$ERRERO v CO//#&&#O1ER '*3 &CRA +4.
:+ @o. Cecause it is no lon$er the disputed
assess#ent.
8A"A10A& v COLLEC"OR '*)+ P5#L -++.
:+ Les. -n order to avoid #ultiplicity o.
suits
Q A%%"D-@? T" JEST-%E 2-TE?!
8A"A10A& v COLLEC"OR '*)+ P5#L -++. is
t>e better ruling
PROTE-T %N#ER LOCAL TAX 3-ec. 9EA>
LGC4
Q Ender @-%B protest is ;led in the "Vce
o. the %o##issioner
,1
Q Ender :?%B protest is ;led with the
sa#e %ity or 9rovincial or >unicipal
Treasurer who issued the assess#ent
9eriod to ;le 9rotest
'( days .ro# receipt o. assess#ent
.+ -. the treasurer did not decide within a
'(day periodB re#edyO
A+ ?o to the court o. co#petent <urisdiction
AT%)
.+ -. the T% decided not in you .avorO
A+ File an appeal with %TA en banc
Abe$innin$ April &)B &((8)
.+ -. the %TA decided not in your .avorO
A+ Appeal to the S%.
@"TE!
9ursuant to A /&,&B direct appeal to %TA
en banc can be #ade .ro#!
*. Decision o. the T% involvin$ local
taxation exercisin$ appellate
<urisdiction
&. Decision o. the %entral Coard o.
Assess#ent Appeal exercisin$
appellate <urisdiction.
PROTE-T %N#ER REAL PROPERT2 TAX
3-ecs. 55B> 5;F> an$ 5A54
e#edy shall be the sa#e
-ec. 5A5> LGC
-. the taxpayer receives a @otice o.
Assess#ent .ro# #unicipalB cityB or
provincial treasurerB the re#edy is to
;le a protest but there #ust be ;rst
9ay#ent Ender 9rotest.
- This is the only instance where
pay#ent under protest is
necessary
.+ 5ow is pay#ent under protest #adeO
A+ At the bac= o. the receipt there will be
an annotation that there was a pay#ent
under protest within '(days .ro# receipt o.
the notice o. assess#ent within the sa#e
treasurer who issued the assess#ent.
.+ -. the treasurer rules a$ainst the
taxpayerB re#edyO
A+ The re#edy is to ;le an appeal to the
:ocal Coard o. Assess#ent within )(days
.ro# the receipt o. the decision.
.+ Fro# the decision o. the :ocal Coard o.
Assess#entO
A+ Appeal should be #ade to the %entral
Coard o. Assess#ent Appeal.
Q Ce$innin$ April &)B &((8B the rulin$ o.
the %entral Coard o. Assess#ent Appeal is
no lon$er ;nal. -t can now be appealed to
the %TAB sittin$ en banc.
PROTE-T %N#ER T:E TARIFF AN#
C%-TO/- CO#E 3TCC4 3-ec. 5;9;> as
aen$e$ <( RA =BA94
Q For#erlyB the auto#atic appeal under
the T%% applied only to protestI but now a
daysB the auto#atic appeal applies to both
protest and .or.eiture.
For For.eiture Ender the Tari4 and %usto#s
%ode
Q e.ers to the "rder o. the %ollector
con;scatin$ the i#ported $oods or
co##odities
Doctrine of Primary Ourisdiction
-. the %ollector ordered the .or.eiture o.
the i#ported co##odities the order o. the
%ollector shall be to the exclusion o. all
$overn#ent oVces and authority.
-#porter o. %he#icalB under the T%%B
the custo# duties is only 9&+ but the
collector says it should be 91&. The
i#porter will then ;le a protest with the
"Vce o. the %ollector.
-n the old daysB there is an auto#atic
appeal .ro# the decision o. the collector
under protest. Cut under A +'1*B the
re#edy o. auto#atic appeal is applicable to
both protest and .or.eiture.
-. #n bot> cases of protest and forfeiture, if
t>e importer lose t>e case and t>e
government Dins, t>e remedB is to fle an
appeal Dit>in *4 daBs before t>e OSce of
t>e Commissioner
Fro# the rulin$ o. the %o##issionerB
the i#porter should ;le an appeal
within )( days be.ore the %TAB
sittin$ in division.
Fro# the rulin$ o. the %TA in
divisionB the i#porter should ;le an
> within *1 days be.ore the sa#e
division hearin$ the case.
Fro# the rulin$ o. the %TA in
divisionB decidin$ on the >B the
,'
i#porter should ;le an appeal within
*1 days be.ore the %TA sittin$ en
banc.
Fro# the %TA en bancB appeal to S%
within *1 days.
--. #f t>e importer7ta?paBer Dins t>e case,
t>e government lose t>e case, &ec +(*( of
"CC as amended bB RA ,24*, t>ere s>all be
an automatic revieD Dit>in *4 daBs
.+ Dhere should the auto#atic review be
#adeO
A+ -t depends. 9ublish the value o. the
co##odity.
*. -F 91 >-::-"@ " >"E 0
AET">AT-% E2-ED S5A:: CE
CEF"E T5E SE%ETAL "F T5E
DE9T. "F F-@A@%E.
&. -F :ESS T5A@ 91 >-::-"@ 0
AET">AT-% E2-ED S5A:: CE
CEF"E T5E "FF-%E "F T5E
%">>-SS-"@E
.+ Suppose the co##issioner decide or did
not decide within )(daysB what happensO
A+ -. the co##issioner reverses the rulin$
o. the collectorB the rulin$ is ;nal and
executory.
-. the co##issioner aVr#s or did not
decide within )(daysB there shall be an
auto#atic appeal be.ore the sec. o. ;nance.
.+ Cetween the two which will be appealed
to the %TAO
A+ The decision o. the secretary which
passes throu$h the oVce o. the
co##issioner AA /&,&)
Cut not all the decision o. the secretary
which passes the oVce o. the co##issioner
aVr#s or did not decide within )(days and
appealed be.ore the secretary o. ;nance
will appeal to the %TA be allowed.
There are ) instances when the Secretary o.
Finance renders a decision appealable to
the %TA!
*. decision o. the Secretary by virtue o.
auto#atic review passin$ throu$h
the %o##issioner
&. cases o. anti-du#pin$ dutyB where
the anti-du#pin$ duty was ordered
by the Secretary
). decision o. the Secretary o. Finance
on countervenin$ duty.
CO/PRO/I-E 3-ec. 5F6> NIRC4
) 6uestions as=ed in &((8 CA!
*. >ay the ?overn#ent co#pro#ise
cri#inal cases and civil casesO
&. Supposed the corporation is already
dissolvedB can the stoc=holder be
obli$ed to payO
). Suppose the civil case ;led by the
C- is ;nal and executorB can it be
sub<ect to co#pro#iseO
CAN T:ERE BE CO/PRO/I-E IN+
9. %-2-: %ASESO
- LESB -@ A@L STA?E "F T5E
9"%EED-@?
- EM%E9T D5E@ T5E %-2-: %ASE -S
A:EADL F-@A: A@D EME%ET"L
CE%AESE -T D-:: CE 2-":AT-2E
"F T5E SE9AAT-"@ "F 9"DES
5. %->-@A: %ASESO
- LESB EM%E9T!
a. -F A:EADL F-:ED -@ %"ET
AT%) "I
b. -F -T -@2":2ES FAED
;. -F T5E %"9"AT-"@ -S A:EADL
D-SS":2EDB %A@ T5E ST"%G5":DE CE
5E:D :-AC:E T" 9AL TAMO
- ?E@EA: E:E! @"
- EM%E9T!
a. -F -T -S 9"2E@ T5AT T5E
ASSETS "F T5E %"9"AT-"@
-S TAGE@ CL "@E
ST"%G5":DE "I
b. -F T5E ST"%G5":DE D-D
@"T 9AL 5-S E@9A-D
SECS%-9T-"@
>ini#u# A#ount to be %o#pro#ised ASec.
&(8)
*. -. the $round is ;nancial incapacity
o. the taxpayerB the #ini#u# shall
not be less than *(H o. the ori$inal
assess#ent.
&. -. based on other $roundsB the
#ini#u# a#ount shall not be lower
than 8(H o. the ori$inal assess#ent.
.+ %an it be lower than that prescribed by
lawO
A+ As a ruleB no. EM%E9TB i. allowed by the
evaluation board consistin$ o. the!
a) co##issionerI and
b) deputy co##issioner.
-nstances when the Final Assess#ent
beco#es ;nal and executor!
,+
*. -. the taxpayer did not ;le the
protest on ti#e
&. Failure to sub#it the supportin$
docu#ents within the '(-day period
). A.ter the lapse o. the *,(-day
periodB you did not ;le an appeal
within the )(-day period to the %TA
8. An appeal was ;led but #ade
beyond the re$le#entary period to
appeal
/ET:O#- OF COLLECTION 3-EC. 5FA4
9. <udicial Action
a. %ivil
b. %ri#inal
5. Administrative Action
a. Distraint
b. :evy
c. Tax lien
.+ Dhy is it i#portant to =now whether the
;nal assess#ent is under nor#al or
abnor#al conditionsO
A+ -t is i#portant because o. the
require#ent under W&&&. -. the ;nal
assess#ent beco#es ;nal and executoryB
the $overn#ent AC-) can exercise the
re#edies under W&(1 in any order or
si#ultaneously AW&(+). Cut it is not always
the caseB because the ri$ht o. the
$overn#ent to collect is li#ited in case o.
abnor#al assess#entNcollection under
W&&&. Ender the second optionB the ri$ht o.
the $overn#ent is li#ited to <udicial action
either civil or cri#inal. Ad#inistrative
re#edies such as distraintB levyB or tax lien
is not available under such condition.
.+ -n distraintB levy or tax lienB is the *(
year period o. collection applicableO
A+ @oB only the 1year period should apply.
Distraint
Ginds!
*. %onstructive ASec. &(')
&. Distraint o. -ntan$ible ASec. &(,)
). Actual ASec. &(+B par. aB and Sec.
&(/)
9. Constructive 9istraint
Q The distrainin$ oVcer shall #a=e a list
o. the personal property o. the property to
be distraint in the presence o. the owner o.
the property or the person in possession o.
the property.
Q The owner shall be requested to si$n the
receipt.
.+ Dhat i. the owner re.uses to si$n the
receiptO
A+ Sec. &('! The distrainin$ oVcer shall
require & individuals within the
nei$hborhood with the warnin$ that they
should not allow the taxpayer to disposeB
trans.erB or sell the property sub<ect o.
distraint.
?rounds .or %onstructive Distraint ASec.
&(')!
*. The taxpayer intends to leave the
9hilippines
&. The taxpayer leaves the 9hilippines
). The taxpayer ceases or retires .ro#
business
8. The taxpayer obstructs the collection
o. the tax.
Q T5ESE ?"E@DS A:S" A@SDE T5E
6EEST-"@! D5AT AE T5E TAMAC:E
9E-"D :ESSE T5A@ *& >"@T5SO
5. 9istraint of #ntangible PropertB
:i#ited to ) -ntan$ible 9roperties!
*. Shares o. stoc=s
&. Can= accounts
). %redits and debits
&>are of stocEs
Q Darrant o. distraint .urnished to the
taxpayer or the oVcer o. the
corporation with the warnin$ that the
property is sub<ect o. distraint and it
should not dispose o. it.
8anE Accounts
taxpayer or the oVcer o. the ban= with
the warnin$ that the taxpayer should
not be allowed to withdraw.
9ebits and Credits
debtor and creditor
;. Actual 9istraint
Q 9ersonal property shall be physically
ta=en by the distrainin$ oVcer.
,,
Q Dithin *( days .ro# the receipt o.
the warrantB a report o. the distraint
shall be sub#itted to the C- ASec. &(+B
par a last par.)
Q The property sub<ect o. distraint
shall be sold at a public auction EM%E9T
ban= accounts and debits and credits.
Y @otice o. sale shall be by postin$
in & conspicuous placeB statin$ the
date and the place o. the sale A@o
publication require#ent)
Q Sec. &**! a.ter the sale and within &
daysB a report shall be #ade to the C-
.+ -. the property sold is a personal
propertyB is there a ri$ht o. rede#ptionO
A+ @". The rule is absolute.
.+ -. the property is a personal propertyB is
there a ri$ht o. pree#ptionO
A+ SE%. &*(! Ce.ore the scheduled saleB
the taxpayer is allowed to recover the
property by payin$ all the property by
payin$ all the proper char$es as well as the
interestB cost and penalties.
Durin$ the Scheduled Auction SaleB &
Thin$s #ay happen!
*. There is bidder and the bid is
enou$h
&. There is no bidder or there is a
bidder but the bid is not enou$h
.+ Dhat is the relevance o. =nowin$ the
di4erenceO
A+ *. #f t>ere is a bidder and t>e bid is
enoug>
Y -n case o. insuVciencyB there shall
be .urther distraint to cover the liability.
AW&*+)
Y -n case o. excessB the excess shall be
returned to the taxpayer.
&. #f t>ere is no bidder or t>e bid is not
enoug>
Y -t will be purchase by the
$overn#ent and the later sold in a
public auction a$ain AW&*&)
Y -n case o. insuVciencyB no .urther
distraintB W&*+ applies only i. there was
a bidder.
Y -n case o. excessB the excess shall
not be returned to the taxpayer but shall
be re#itted to the national treasury.
3e/y
Q "ther than the delinquent taxpayerB
warrant o. levy is served to the re$ister
o. deeds havin$ <urisdiction over the
real property ASec. &*))
Q Dithin *( days .ro# the receipt o.
the warrantB a report o. the levy shall be
sub#itted to the C- ASec. &(+ Ab) last
par)
@otice o. Sale in 9ublic Auction!
*. 9ostin$ in & conspicuous places
&. 9ublication in newspaper o. $eneral
circulation once a wee= .or )
consecutive wee=s.
.+ -s there a ri$ht o. pre e#ptionO
A+ LesB W&*).
.+ -s there a ri$ht o. rede#ptionO
A+ Les.
& Thin$s #ay happen in a 9ublic Auction!
*. There is a bidder and the bid is
enou$h
&. There is no bidder or the bid is not
enou$h
.+ Dhat i. there is no bidder or the bid is
not enou$hO
A+ For.eiture shall be #ade AW&*1)
) De;nitions o. For.eiture under the -nternal
evenue %ode
*. 2iolation o. Excise Tax :aw ASec.
&&8)
&. -. there is no bidder or the bid is not
enou$h ASec. &*1)
). The order o. the %ollector to
con;scate i#ported co##odities
ASec. &)*)B T%%)
elevance o. the %hoice o. Dords!
Q Ender sec. &*&B the law says
SpurchaseT
Q Ender sec. &*1B the law says
S.or.eitureT
Y under &*1! the real property
shall be auto#atically re$istered in
the na#e o. the ?overn#ent
A.or.eiture)
Y under &*&! the real property is
not auto#atically re$istered in the
na#e o. the ?overn#ent Apurchase)
.+ -. sold at a private saleB what is the
require#entO
,/
A+ There #ust be an approval o. the
Secretary o. Finance AW&*')
.+ A.ter saleB i. there was de;ciencyO
A+ There shall be no .urther levyB because
W&*1 says that it shall be to the total
satis.action o. the taxpayer.
.+ A.ter saleB i. there was an excessO
A+ -t shall not be returned to the taxpayer
but shall be re#itted to the national
treasury.
-ec. 59=+ this is only true i. there was no
bidder or the bid was not enou$h because
o. the provisions o. the Secs. &*&B &*1B and
&*'
-ec. 59@+ no court shall issue an
in<unction to restrain the collection o. tax
under this code
Deter#ine what =ind o. in<unction is
re.erred to here!
*. 9rohibitory 0 re.erred in Sec. &*,
because it restrains the collection o.
tax.
&. >andatory
.+ -s the provision li#ited to Stax under
this codeTO
A+ :i#ited to internal revenue taxes.
EM%E9T! %TA Ae$ular %ourt) P A **&1 and
/&,&! %TA is authori7ed to issue in<unction
to restrain the collection o. taxes or .ees
collected under other code.
.+ -s the rule o. distraint or levy the sa#e
under local taxationO
A+ LesB local tax.
Y W*+1 .or D-STA-@T
Y W*+' .or :E2L
.+ 5ow about real property taxO
A+ @oB distraint is not authori7ed AW&1'B
:?%)B because the re#edy is only <udicial
Action and LevB.
Tax 3ien
Q @on pay#ent o. taxB the $overn#ent
has the ri$ht to clai# a lien over the
property o. the taxpayer
*. @-% 0 Sec. &*/B @-%
&. :ocal Tax 0 Sec. *+)B @-%
). eal 9roperty Tax 0 Sec. &1+B
@-%
.+ Supposed a parcel o. land is about to be
levied by the $overn#entB but the sa#e is
bein$ .oreclosed by the #ort$a$eeB which
o. the & obli$eeB the $overn#ent or the
#ort$a$ee shall be pre.erredO
A+ W&*/B last portion! The $overn#ent is
the pre.erred one i. the lien is annotated
and recorded in the re$istry o. deed. -n the
absence o. annotation in the re$istry o.
deedsB the #ort$a$ee is pre.erred.
.+ Do we have the sa#e rule under :ocal
Tax and eal 9roperty TaxO
A+ @". Coth W*+) and W&1+B the
$overn#ent is always the pre.erred one.
The lien can only be re#oved by pay#ent
o. taxB interest and penalty.
-ec. 55F+ approvin$ o. ;lin$ an ordinary
civil action .or violation o. the internal
revenue code
Q The approval #ust be #ade by the
%o##issioner o. -nternal evenue
(14$N /2 REP.'31C ";7C SCR& <98#
F+ An ordinary civil action .or violation o.
the tax code was ;led in the city o. San
Fernando. Cut the ;lin$ was only
approved by the evenue e$ional
Director o. %entral :u7on. The plainti4
opposed the ;lin$ in the court on the
$round that it should be approved by
the %o##issioner and the evenue D.
:+ Sec. &&( should be read with Sec. + o.
the @-%
Y ?eneral ule! powers and
.unctions o. the %o##issioner #ay
be dele$ated but not to a position
lower than a Division %hie.
Y Ender Sec. +B there are powers
which can not be dele$ated
a) 9ower to reco##end to the
Secretary o. Finance to issue
rules and re$ulation
b) 9ower to decide a case o. ;st
i#pression
c) 9ower to enter into a
co#pro#ise a$ree#ent
d) 9ower to assi$n C- oVcer in
the place o. production
sub<ect to inco#e tax
Y Since the case does not .all
under the prohibited dele$ationB the
;lin$ o. the case is le$al and
tenable.
/(
Q Decision o. the %o##issioner o. -nternal
evenue A%-) is appealable to %TA.
.+ Dhen is a decision o. the cir appealable
to the Secretary o. FinanceO
A+ W8B on #atters o. interpretation o. tax
laws.
-EC. 55;+ -%-PEN-ION OF T:E
R%NNING OF PRE-CRIPTIVE PERIO#
.+ A Filipino taxpayer went to %anadaB a.ter
*1years he went bac=B he is bein$ assessed
by the C- under nor#al assess#ent. 5as
the ri$ht o. the $overn#ent to asses the tax
already prescribedO
A+ @". Dhen he went to %anadaB the
runnin$ o. the prescribed period is
suspended.
.+ Dhat i. the chan$e o. address is within
the 9hilippinesB say only .ro# #anila to
9asay %ityB is the runnin$ o. the prescriptive
period suspendedO
A+ -n order that the runnin$ o. the
prescriptive period will not be suspendedB
especially i. the chan$e is district oVceB
W&&) provides that the taxpayer #ust send
a written notice o. chan$e o. address to the
C-.
-n the absence o. the written noticeB the
period will be suspended.
.+ %han$e o. address is .ro# 9hilippines to
abroadO
A+ The period will be suspended.
"ther ?rounds .or Suspension!
*. Durin$ collection i. there is no
property .oundB the period is
suspended
&. -. the C- is prohibited .ro# #a=in$
assess#ent such when the sub<ect
property is under liti$ation
). -n distraint o. levyB the C- oVcer
canKt locate the property
CLAI/ FOR REF%N# 3-EC 55E4
Dritten clai# .or re.und!
*. Sec. &&/B @-%
&. Sec. **&B 2AT
). Sec. *)'B :ocal Tax
8. Sec. &1)B eal 9roperty Tax
1. @one except sec. *'()B Tari4 and
%usto#
Written clai for refun$ un$er t&e
input ta! 3-ec. 9954
? 9eriod is also & years .ro# the close o.
the taxable quarter when the transaction
was #ade
.+ %an we apply W&&/ to 2ATO
A+ LesB because there is no con3ict. W**& is
re.und under input tax syste#.
W&&/ is re.und .or!
*. errors in pay#ent orI
&. collected without authorityI or
). assess#ent without authority.
? The period to clai# re.und is &years.
#octrine of EDuita<le Recoupent
Q -. a taxpayer is entitled to a written
clai# .or re.und but the prescriptive period
to clai# has lapsedB the taxpayer is allowed
to credit his written clai# .or re.und which
he .ailed to recover to his existin$ tax
liability.
%o#puted .ro#I
a. -ndividual 0 counted on the day the
tax has been paid
*. payin$ by way o. withholdin$ tax
syste#B the rec=onin$ point is
the end o. the taxable year.
&. payin$ by way o. install#entB
rec=onin$ point is the date the
last install#ent is paid.
). i. sold to public auction throu$h
distraint or levyB the date the
proceeds is applied to the
satis.action o. the tax liability.
b. %orporation
*. Existin$
- *//&B ccc v. %o##issioner A&(1
S%A *,8)
- *//1B %o##issioner v. 9hila#
li.e A&88 S%A 88')
- *//,B %o##issioner v. %TA A)(*
S%A 8)1)
&. @on-existin$
- &((*B C9- v. %o##issioner A)')
S%A ,8()
*. Existin$ 0 the countin$ o. the
prescriptive period is & years on the
day the annual ad<usted return is
/*
;ledB because it is at that day that
the tax liability is =nown.
&. @on-existin$ 0 the countin$ o. the
prescriptive period should also be
rec=oned on the day the annual
return is ;led. Cut the corporation is
no lon$er required to wait till the
taxable period is over to ;le the
return. Epon receipt o. a notice .ro#
the SE% to dissolve the corporationB
within )( days therea.terB a return
should be ;led.
.+ Suppose there is a supervenin$ eventB
and the taxpayer was not able to ;le a
written clai# o. re.und within the periodO
A+ e$ardless o. supervenin$ eventB a
written clai# .or re.und #ust be ;led within
&years.
.+ Suppose the & year period is about to
expire and there is no decision yet as to
your re.undO
A+ e#edy is to ;le an appeal be.ore the
%TA Adee#ed a denial)
.+ Suppose the C- decided within & years
a$ainst the re.undO
A+ Appeal within )(days .ro# the decisionB
provided it is still within the & year period.
.+ Suppose there is only &*days re#ainin$
a.ter receivin$ the decisionB when to ;le an
appealO
A+ Dithin &*days be.ore the end o. the &
year period.
Q A written clai# .or re.und should be ;led
within & years
Q Sec &(8 Ac) last phrase! in case o. over
pay#ent a written clai# is not necessary
because a return constitutes a written clai#
.or re.und.
.+ >ay the co##issioner o. internal
revenue open the ban= account o. a
taxpayerO
A+ ?eneral ule! @". EM%E9T!
*. To deter#ine the $ross value o. the
estateI and
&. To enter into a co#pro#ise
a$ree#ent. Aunder W&(8AA))
Q The written clai# .or re.und to
deter#ine the $ross value o. the estate
because the taxpayer is already dead
-n case o. co#pro#iseB there #ust be
consent.
/&

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Taxation law review notes

- Atty. Francis J. Sababan -

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