Professional Documents
Culture Documents
IBANEZ
CHARMAGNE FERRER
PRESENT
SYSTEM
i.
INCOME
TAX
i. Residence
Resident
Foreign Corporation
ii. Place- non-Resident Foreign
Corporation
iii. Nationality-Domestic
Corporation
iii.
COMMON FEATURES
a. Pay as you file system
i. Individuals-upon filing of
their ITR
ii. Corporations- upon filing of
their quarterly corporate ITR
and final adjustment corp.
returns.
iv.
CREDITABLE
W/HOLDNG
TAX
SYSTEM
a. Withholding
agent
(source)withholds the tax and remits
the same to the BIR
b. Tax withheld- creditable against IT
due.
v.
FINAL
WITHHOLDING
TAX
SYSTEM
a. Withholding
agent
(source)withholds the tax and remits the
same to the BIR
b. Tax withheld- final settlement of
the tax liability on the income
covered.
c. GROSS
INCOME
TAXATION
COVERS:
i. NRA-not engaged in trade or
business in the Phil.
d. INCOME TAX SITUS
i. Residence- RC, RA
ii. Place-NRA, NRC
iii. Citizenship-RC
e. INDIVIDUAL TAXPAYERS WHO ARE
COMPENSATION EARNERS EXCEPT:
NRA-not
engaged
in
trade/business in the Phil. are
entitled to Personal Exemptions.
ii.
GENERAL
PRINCIPLES
OF
INCOME TAXATION IN THE PHIL.
( SEC.23)
SEC. 23. General Principles of Income
Taxation in the Philippines. - Except
when otherwise provided in this Code:
(A) A citizen of the Philippines residing
therein is taxable on all income derived
from sources within and without the
Philippines;
(B) A nonresident citizen is taxable only on
income derived from sources within the
Philippines;
1
1) Domestic (DC)
2) Foreign
2.1 resident foreign corporation
(RFC)
2.2
non-resident
foreign
corporation
(NRFC)
c. Estates
d. Trusts
e. Partnerships
INDIVIDUALS
Situs of Taxation (Who are taxable?)
1. Resident Citizen (Art. 4 Consti)
RESIDENT a citizen is deemed as a
resident of the Philippines unless he
qualifies as a nonresident under Sec.
22E of the NIRC;
Classification
Taxpayers
of
a. Individuals
1) citizens
1.1 resident citizens (RC)
1.2 non-resident citizens (NRC)
2) aliens
2.1 resident aliens (RA)
2.2 non-resident aliens (NRA)
2.2.1 engaged in trade or
business
within the Philippines.
(NRAETB)
2.2.2 Not engaged in trade or
business
within
the
Philippines
(NRANETB)
b. Corporations
naturalized
in
2. Non-resident Citizen
A non-resident citizen means, a
Filipino citizen:
i.
ii.
iv.
v.
residence
is
within
the
Philippines and who is not a
citizen thereof. [Sec.22 (F)]
RESIDENT residence is within the
Philippines and who is not a citizen
thereof. An alien actually present in
the Philippines who is not a mere
transient or sojourner is a resident of
the Philippines for income tax
purposes. A mere floating intention,
indefinite as to time, to return to
another country is not sufficient to
constitute him a transient.
taxable for income derived within
the Philippines based on taxable
(i.e., net) income
NON-RESIDENT residence is NOT
in the Philippines and who is not a
citizen thereof.
4. Non-resident alien engaged in trade
or business within the Philippines.
(Key: NRAETB)
A non-resident alien means an
individual whose residence is not
within the Philippines and who is not
a citizen thereof. [Sec.22 (G)]
The term trade or business includes
the performance of the functions of a
public office. [Sec. 22 (S)]
The
term
trade,
business
or
profession
shall
not
include
performance of services by the
taxpayer as an employee. [Sec. 22
(CC)]
A non-resident alien individual who
shall come to the Philippines and stay
therein for an aggregate period of
more than 180 days during any
calendar year shall be deemed a nonresident alien doing business in the
Philippines
Section
22(G)
notwithstanding [Sec. 25(A)(1)]
5. Non-resident aliens not engaged in
trade
or
business
within
the
Philippiness. (Key: NRANETB)
Note: ONLY RESIDENT CITIZENS
are taxable for income derived from
sources within and without the
Philippines.
All
other
individual
3
3. DEFINED,
FISHER V TRINIDAD
I. INCOME
WHEN TAXABLE:
4. EISNER V MACUMBER
5. CONWI V CTA
6. VICTORIAS MILLING V PPA
Proceeds
of
embezzlement/swindling are income
because embezzler/swindler already
has complete dominion over them
and can use such for his economic
benefit.
Increase in the value of property is
not recognized as income; this only
constitutes an unrealized increase
which becomes taxable income only
upon disposition and realization of
5
CASES:
1. PAPER INDUSTRIES V CIR
2. WESTERN MINDORO CORP V CIR
V.
INCOME, CAPITAL,
RECEIPTS DISTINGUSHED
REVENUE,
CAPITAL
CASE:
1. COM. V BOAC
c. CANCELLATION OF TAXPAYERS
INDEBTEDNESS
d. PAYMENT
OF
USURIOUS
INTEREST
e. TAX REFUND
f. BAD DEBT RECOVERY
2. COM. V LEDNICKY
VIII. REQUISITES
TAXABLE
FOR
INCOME
TO
BE
Doctrine
of
Constructive
Receipt or Income Ex: A was
informed that his check dated
December 16 is already available and
he can get it anytime. A did not get
the check until January 30. In this
case, A constructively received
8
CASE:
1. RUTKIN V US
CASE:
EISNER V MACEMBER
C. CONTROL TEST
CASE:
1. HELVERING V HORT
2. CIR V JULIANE
3. CIR V BOAC
4. Rental Income
Actual rent itself included in gross
income (taxable)
Payments by lessee of obligations
of lessor to third persons
considered as additional rent income
of the lessor, and therefore included
in gross income (taxable).
Advance Rentals Receipt of
advance rentals by the lessor may or
may not constitute taxable income to
him depending on the true nature of
the so-called advance rentals.
11
The
cancellation or forgiveness of indebtedness
may
have
any
of
three
possible
consequences:
1. It may amount to payment of
income. If, for example, an individual
performs services to or for a creditor,
who, in consideration thereof, cancels
the debt, income in that amount is
realized
by
the
debtor
as
compensation for personal services.
Recovered
damages
representing
recoveries of lost profits are taxable, just as
profits are taxable in the regular course of
12
in
III.
FORMULAS
DETERMINATION OF:
USED
FOR
B. NET INCOME
TAXATION
deductions are
1 allowed
2 exemptions
13
A. THEY REPRESENT
RETURN OF CAPITAL
OR ARE NOT INCOME,
GAIN OR PROFIT;
B. THEY ARE SUBJECT TO
ANOTHER KIND OF IR
TAX; OR
C. THEY ARE INCOME,
GAIN OR PROFIT THAT
ARE EXPRESSLY EXEMPT
FROM INCOME TAX
UNDER THE
CONSTITUTION, TAX
TREATY, TAX CODE OR A
GENERAL OR SPECIAL
LAW.
1. UNDER THE CONSTITUTION Art.
XIV Sec. 4(3)
All revenues and assets of non-stock,
non-profit educational institutions
used
actually,
directly,
and
exclusively for educational purposes
shall be exempt from taxes and
duties.
2. UNDER A TAX TREATY
Business
profits
of
a
foreign
corporation organized under the laws
of a treaty country from sources
within the Philippines are not subject
to Philippine IT, unless such profits
are attributable to a permanent
establishment
of
the
foreign
corporation created or deemed
created in the Philippines.
3. UNDER TAX CODE
[SEC.
32(B)-EXCLUSIONS
FROM
GROSS INCOME;
SEC. 30-EXEMPT CORP.; AND
SEC.
60
(B)EXEMPTION
OF
EMPLOYESTRUSTS.
4. UNDER SPECIAL LAWS
a) RA
6657
(Comprehensive
Agrarian Reform Package Lawgain arising from the transfer of
agricultural property covered by the
law shall be exempt from CGT.)
b) RA 6975 (National Power Corp.)interest on bonds paid by NPC to
foreign bondholders in US dollars and
other foreign currencies, regardless
of whether or not a tax treaty exists
between the Philippines and such
other country
14
1. PIROVANO V. COM.
VS.
1 COM VS CASTANEDA
Selection
Payment of wages
Power of Dismissal
Control
It includes:
1. Salaries and wages
2. Commissions
3. Tips
4. Allowances
5. Bonuses
6. Fringe Benefits of rank and file EEs
It does NOT include remuneration paid:
For agricultural labor paid entirely in
products of the farm where the labor
is performed, or
For domestic service in a private
home, or
22
dependents
10) life or health insurance & other
non-life insurance premiums or
similar amounts in excess of what the
law allows
Persons liable
The EMPLOYER (as a withholding
agent),
whether
individual,
professional
partnership
or
a
corporation, regardless of whether
the corporation is taxable or not, or
the
government
and
its
instrumentalities
Tax rate: 32% (from January 1, 2000
onwards) of the Grossed up Monetary
Value (GMV) of fringe benefits.
In the case of aliens, the tax rates to
be applied on fringe benefit shall be
as follows:
1. NRANEBT 25%
2. Aliens employed by regional
HO 15 %
3. Aliens employed by OBU
15%
4.
Aliens
employed
by
Petroleum Service
5.
Contractors
and
Subcontractors
GMV
of
represents
the
fringe
benefit
difference
between
applicable rates.
100%
and
the
B. NATURE OF FBT
Tax Rate and Tax Base
[Generally] 32% of the grossed-up
monetary
value
(GMV)
GMV
represents the whole amount of
income realized by the employee.
How GMV is determined GMV is
determined by dividing the actual
monetary value of the fringe benefit
by 68% [100% - tax rate of 32%]. For
example, the actual monetary value
of the fringe benefit is P1,000. The
GMV is equal to P1,470.59 [P1,000 /
0.68]. The fringe benefit tax,
therefore, is P470.59 [P1470.59 x
32%].
Special Cases:
For fringe benefits received by nonresident alien not engaged in trade of
business (NRANETB), the tax rate is
25% of the grossed-up monetary
value (GMV). The GMV is determined
by dividing the actual monetary value
of the fringe benefit by 75% [100% 25%].
1/1/98
1/1/99
33%
1/1/00
32%
D. MANAGERIAL, SUPERVISOR,
RANK AND FILE EMPLOYEES
DEFINED
Managerial employee
One who is vested with the powers or
prerogatives to lay down and execute
management policies and/or to hire,
transfer, suspend, lay-off, recall,
24
discharge,
employees.
assign
or
discipline
Supervisory employees
Those who, in the interest of the
employer, effectively recommend
such managerial actions if the
exercise of such authority is not
merely routinely or clerical in nature
but requires the use of independent
judgment.
Rank and File Employees
All employees not falling within any
of
the
above
definitions
are
considered
rank-and-file
employees.
shall mean all employees who are
holding
neither
managerial nor
supervisory position as defined in the
Labor Code
In the case of rank and file
employees, fringe benefits other than
those excluded from gross income
under the Tax Code and other special
laws, are taxable under the individual
normal tax rate.
Deductibility to the Taxable income of
the EMPLOYER
General Rule:
The amount of taxable fringe benefit
and the fringe benefits tax shall
constitute allowable deductions from
gross income of the employer.
Exception:
If the basis for computation of the
fringe benefits tax is the depreciation
value, the zonal value or the fair
market value, only the actual fringe
benefits tax paid shall constitute a
deductible expense for the employer.
The value of the fringe benefit shall
not be deductible and shall be
presumed to have been tacked on or
actually claimed as depreciation
expense by the employer.
Provided, however, that if the
aforesaid zonal value or fair market
value of the said property is greater
than its cost subject to depreciation,
the excess amount shall be allowed
need
not
be
compensation.
included
as
c.
d.
e.
f.
g.
h.
i.
j.
k.
CASES:
1. COM VS SMITH
2. COM VS LE BUE
NEW
OLD
Single
50,000.
00
20,000.0
0
Head of the
Family
50,000.
00
25,000.0
0
Married
50,000.
00
32,000.0
0
25,000.
00
8,000.00
Personal
Exemption
Additional
Exemption
For every
Qualified
Dependent
CASES:
II.
1. CIR VS BAIER-NICKEL
2. PANSACOLA VS CIR
ADDITIONAL EXEMPTION FR
QUALIFIED DEPENDENT CHILD
P25,000.00 BUT NOT LIMITED IN
EXESS OF FOUR
regardless of age, is
incapable of self-support
because of mental or
physical defect
NOTE: Only children may be considered
dependent for purposes of additional
exemptions.
Married Individuals
Additional exemptions are claimed by
only one spouse. Generally, the
spouse
who
is
the
gross
compensation earner is the claimant
of the additional exemptions.
Where the husband and wife are both
compensation income earners, the
husband is the proper claimant of the
additional exemptions EXCEPT if
there is an express waiver by the
husband in favor of his wife, as
embodied
in
the
withholding
exemption certificate.
When the spouses have business
and/or professional income only,
either may claim the additional
exemptions at the end of the year.
The wife claims the additional
exemptions
in
the
following
instances:
i. husband has no income
ii. husband works abroad
iii. Legally
separated
spouses Additional
exemptions can be
claimed
by
the
spouse
with
custody of the child
or children (but the
total amount for
the spouses shall
not
exceed
the
maximum of four).
[Sec 35(B), NIRC]
1. BASIS OF PERSONAL EXEMPTIONS
i.
ii.
2) Individual
taxpayers
earning
business income or in practice of
his profession whether availing of
itemized or optional standard
deductions during the year.
c. DIVIDEND INCOME
i. DEFINITION
ii. KINDS
1. COMMON
2. PREFERRED
3. SCRIP
4. INDIRECT
5. LIQUIDATING
Dividends Any dividend which is not
exempt from income tax, or which is not
subject to final tax, is taxable dividend
included in the computation of the taxable
income (gross income) in the income tax
return at the end of the year.
NOTE: Liquidating Dividend
distribution of all the property of a
corporation. It is strictly not dividend
income, but rather a sale of shares of stock
resulting in capital gain or loss.
33
KINDS OF DIVIDENDS
1) Cash and Property Dividends
Individual Taxpayer
a. From Domestic Corporations
RC, NRC, RA 10% (Sec. 24A)
NRAETB 20% (Sec. 25A2)
NRANETB 25% on gross income
(Sec. 25B)
b. From Foreign Corporations
RC, NRC, RA, NRAETB 5-32% (Sec.
24, 25A1)
NRANETB 25% on gross income
(Sec. 25B)
Corporate Taxpayer
a. Foreign to Domestic Corp. 32%(Sec.
32A)
b. Domestic to Domestic Corp. Exempt;
intercorporate
dividends (Sec. 27D)
c. Domestic to Foreign Corp. Resident Foreign Corp. Exempt
(Sec. 28 [A]
7d)
Nonresident Foreign Corp. 15%
subject to the condition stated in Sec.
28 [B] 5. Otherwise, it shall be taxed
at 32%. (See Commissioner vs.
Procter and Gamble, GR No. 66838,
December 2, 1991)
d. ROYALTY
e. PRIZES AND WINNINGS
a. PRIZES AMOUNTNG
TO MORE THAN
P10,000.00
b. WINNINGS EXCEPT
SWEEPSTAKES AND
LOTTO
f. PARTNERS SHARE FROM
THE NET INCOME AFTER
TAX
OF
BUSINESS
PARTNERSHIP,
JOINT
ACCOUNT, JOINT VENTURE
OR CONSORTUM
2) Stock Dividends
General rule: Not subject to tax because it
does not constitute income; it represents
transfer of surplus to capital account. (Sec.
73B, 1997 NIRC)
Exceptions:
1. Sec. 73B, 1997 NIRC
a. there is redemption or
cancellation
b. the transaction involves
stock dividends,
c. and the time and manner
of the transaction makes it
essentially equivalent to a
distribution of taxable
dividends. (see
Commissioner vs. Court of
Appeals, Court of Tax
IV.
3)
4)
5)
6)
Tax
Du
e
is:
Ov
er
30,
3 000
Ov
er
140
,00
50
Ov
er
250
,00
60
but
not
ov
er
but
not
ov
er
2
5
0,
0
0
0
but
not
ov
er
5
0
0,
0
0
0
Ov
er
500
,00
70
8,
5
0
0
20% of the
excess over
+ 70,000
2
2,
5
0
0
25% of the
excess over
+ 140,000
5
0,
0
0
0
30% of the
excess over
+ 250,000
1
2
5,
0
0
0
32% of the
excess over
+ 500,000
Not
Ov
er
10,
1 000
Ov
er
10,
2 000
Ov
er
70,
4 000
1
4
0,
0
0
0
=
but
not
ov
er
3
0,
0
0
0
but
not
ov
er
7
0,
0
0
0
5%
5
0
0
10% of the
excess over
+ 10,000
2,
5
0
0
15% of the
excess over
+ 30,000
160,00
0
Less:
Personal &
Additional
Exemption
50,000
Taxable
Income
Tax Due
16500
8500+ .
20(110,00070,000)
A
corporation
shall
include
partnerships, no matter how created
or organized. Joint stock companies,
joint accounts, associations, and
insurance companies
But does not include, for the purpose
of imposing ordinary 35% corporate
income tax:
o general
professional
partnerships
o joint venture or consortium
formed for the purpose of
undertaking
construction
projects
or
engaging
in
petroleum, coal, geothermal &
other
energy
operations
pursuant to an operating or
consortium agreement under a
service
contract
with
the
government.
Corporations
exempt
from
income taxation (for income
realized as such) under RA 8424
1. Those enumerated under Sec. 30.
Exempt corporations are
subject to income tax on their
income from any of their
properties, real or personal, or
from
any
other
activities
conducted for profit, regardless
of the disposition made of such
income.
2. With respect to GOCCs, the general
rule is that these corporations are
taxable as any other corporation
except:
a. GSIS
b. SSS
c. PHIC
d. PCSO [Sec. 27 (C)]
NOTE: Sec. 27 (c) of the NIRC amended by
RA 9337, therefore, PAGCOR is not included
in the GOCCC exception and subject to tax.
3. Regional or Area Headquarters under
Sec. 22 (DD)
36
Kinds of Partnerships
1) General Professional Partnerships
Established solely for purpose of
exercising common profession and
not part of income derived from
engaging in trade or business.
As an entity, it is not subject to
income tax.
Partners are liable for income tax
on
their
distributive
share
(computed by dividing net income
of GPP). Each partner shall report
his distributive share as part of his
gross income.
2) Taxable/Business/Ordinary
Partnership
37
B. EXCEPTIONS
1. JOINT CONSTRUCTION VENTURE
2. GPP
3. JV FOR ENGAGING IN PETROLEUM,
COAL, GEOTHERMAL
CHAPTER XIII CORPORATE INCOME
TAXATION
b. NOT
INCLUDED
IN
NIRC
DEFINITION OF A CORP. ARE
JOINT
CONSTRUCTION
VENTURE, GPP, JOINT VENTURE
FOR ENGAGING IN PETROLEUM,
COAL,
GEOTHERMAL
AND
OTHER ENERGY OPERATIONS
PURSUANT TO A CONSORTION
AGREEMENT
WITH
THE
AGREEMENT
II. UNREGISTERED OR REGISTERED
PARTNERSHIP- TAXABLE AS
COPRORATION PROVIDED THE FF.
REQUISITE CONCUR:
a) Agreement, oral or written to
contribute money, property, or
industry to a common fund
b) Intention to divide the profits
CASES: 1. EVANGELISTA VS. COM
2. RALLOS VS RALLOS
3. ONA VS COM
4. PASCUAL VS COM
5. OBILLOS SR VS COM
NB:PP.38-39
B. RESIDENT FOREIGN
CORPORATIONS
III. JOINT ACCOUNTS OR JV FORMED
FOR PROFITS: JOINT EMERGENCY
OPERATIONSNB:PP.37
A. JOINT EMERGENCY OPERATIONS
(NO
PERSONALITY)
1. SOURCE
OF LEGAL
INCOME:
WITHIN THE PHIL.
A. DOMESTIC
CORPORATIONS
I. SOURCE OF INCOME: W/ OR
W/OUT PHIL.
C. NON-RES. FOREIGN
CORP.
4. SPECIAL DOMESTIC
CORPORATIONS:
B. NON-PROFIT HOSPITAL
E. IAET = 10%
(SEC. 29, NIRC; RR 2-2001) pp. 4345
GSIS
SSS
PHIC
PCSO
3. Corporations
Itemized Deductions
I. BASIC PRINCIPLES
Basic Principles governing
Deductions
1. The taxpayer seeking a deduction
must point to some specific
provisions of the statute
authorizing the deduction; and
42
D. DEDUCTIONS AS DISTINGUISED
FROM PERSONAL EXEMPTIONS
E. DEDUCTIONS AS DISTINGUISHED
FROM TAX CREDIT
CASE:
CORP.
DISTINGUED
43
Thirty-nine
percent
January 1, 1999; and
(39%)
beginning
Thirty-eight percent
January 1, 2000;
(38%)
beginning
An alien individual
and
a foreign
corporation shall not be allowed the credits
against the tax for the taxes of foreign
countries allowed under this paragraph.
(4) Limitations on Credit. - The amount of
the credit taken under this Section shall be
subject to each of the following limitations:
(a) The amount of the credit in respect to
the tax paid or incurred to any country shall
not exceed the same proportion of the tax
against which such credit is taken, which
the taxpayer's taxable income from sources
within such country under this Title bears
to his entire taxable income for the same
taxable year; and
(b) The total amount of the credit shall not
exceed the same proportion of the tax
against which such credit is taken, which
the taxpayer's taxable income from sources
without the Philippines taxable under this
Title bears to his entire taxable income for
the same taxable year.
(5) Adjustments on Payment of Incurred
Taxes. - If accrued taxes when paid differ
from the amounts claimed as credits by the
taxpayer, or if any tax paid is refunded in
whole or in part, the taxpayer shall notify
the Commissioner; who shall redetermine
the amount of the tax for the year or years
affected, and the amount of tax due upon
such redetermination, if any, shall be paid
by the taxpayer upon notice and demand
by the Commissioner, or the amount of tax
overpaid, if any, shall be credited or
refunded to the taxpayer. In the case of
such a tax incurred but not paid, the
Commissioner as a condition precedent to
the allowance of this credit may require the
taxpayer to give a bond with sureties
satisfactory to and to be approved by the
Commissioner in such sum as he may
require, conditioned upon the payment by
the taxpayer of any amount of tax found
due upon any such redetermination. The
bond herein prescribed shall contain such
46
actual
(H)
Charitable
Contributions. -
and
of
Other
accredited nongovernment
was created or organized.
organization
53
under
This
to
(K)
Additional
Requirements
for
Deductibility of Certain Payments. Any amount paid or payable which is
otherwise deductible from, or taken into
account in computing gross income or for
which depreciation or amortization may be
allowed under this Section, shall be allowed
as a deduction only if it is shown that the
tax required to be deducted and withheld
therefrom has been paid to the Bureau of
Internal Revenue in accordance with this
Section 58 and 81 of this Code.
55
56
A. BUSINESS EXPENSE
1. Requisites of Business
Expense to be deductible
1) ordinary and necessary;
2) paid or incurred w/in the
taxable year;
3) paid or incurred in carrying
on a trade or business;
4) Substantiated with official
receipts or other adequate
records.
5) if subject to withholding
taxes proof of payment to
the BIR must be shown.
6) must be reasonable under
the circumstances.
CASES:
1. ATLAS VS. MINING
2. WELCH VS HELVERING
3. COLLECTOR VS PHIL EDUC CO.
4. HOSPITAL DE SAN JUAN DE DIOS VS
DIOS
5. ESSO STANDARD EASTERN VS CIR
6. BASILAN VS CIR
7. CIR VS GEN FOODS
B. INTEREST EXPENSES
Requisites for deductibility
C. TAXES
1. EXCEPTION
2. REQUISITES FOR DEDUCTIBILITY
D. TAX CREDIT
CASES: 1. GUTIERREZ V COLLECTOR
2. COM V AMERICAN RUBBER
3. CEBER PORTLAND VS COLLECTOR
57
G. DEPRECATION
E. LOSSES
H. DEPLETION
F. BAD DEBTS
58
K. EMPLOYERS CONTRIBUTION TO
PENSION TRUST
59
60
61
62
63
64
65
66
67
68
69
70
71
72
1. ESTATE
II. TRUSTS
73
CAPITAL TRANSACTIONS
74