ATENEO DE MANILA UNIVERSITY

JOHN GOKONGWEI SCHOOL OF MANAGEMENT

MARKETING & LAW DEPARTMENT
COURSE SYLLABUS
Course Number
Course Title
Semester
Number of Units

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LAW 124
TAXATION
1st Semester SY 2015- 2016
3 units

Faculty and Schedule:

Section
A
B
C
D

Day
TTH
T
F
T

Time
3:00-4:30 pm
6:00-9:00 pm
6:00-9:00 pm
6:00-9:00 pm

Room
CTC 408
SOM 106
SOM 210
CTC 206

Lecturer
Leny O. Matorre
Danny L. Chan
Eduardo Victor J. Valdez
Eduardo Victor J. Valdez

Email Address
legaltaxconsulting@gmail.com
dchan@ateneo.edu
evaldez@ateneo.edu
evaldez@ateneo.edu

I. COURSE DESCRIPTION
An introduction to the basic principles of taxation, specifically the common provisions on
income tax, value added tax, excise tax, estate tax, documentary tax, capital gains tax, and
donors tax; rudimentary strategies in tax sheltering and minimization of tax assessments; and
rudimentary tax calculations.
II. LEARNING OUTCOMES
By the end of the course the students will have an overview of Philippine tax law that will
enable them to:
1. Appraise transactions with tax implications from the legal perspective.
2. Formulate the appropriate legal approach to tax issues involving questions of law.
3. Evaluate tax situations using the appropriate legal standards and criteria.
III. COURSE OUTLINE
GENERAL PRINCIPLES OF TAXATION
I. Meaning, Nature, Basis, Characteristics and Purpose of Taxation
A. Survey of Philippine Taxes/ Overview of Philippine Tax System
1. Internal Revenue taxes
National Internal Revenue Code (NIRC), as amended
2. Local/municipal taxes
Local Government Code BK II
3. Tariff/duties
Tariff and Customs Code, as amended
4. Taxes/incentives under special laws

B. Meaning of Tax/Taxation
1. Taxation/act of levying tax/inherent power of the state
2. Tax distinguished from other terms
a. license and regulatory fee
b. special assessment
c. toll
d. penalty
e. tariff/customs duties
3. Obligation to pay tax vs. obligation to pay debt
Art. 1279, New Civil Code
C. Essential Characteristics of Tax
D. Theory and Basis of Taxation
1. Necessity Theory
2. Benefit-received principle
E. Purpose/Objectives of Taxation
1. General/fiscal/revenue
2. Non-revenue/special or regulatory
F. Classification of Taxes
1. As to scope
a. National internal revenue taxes
b. Local real property tax, municipal taxes
2. As to who shoulders the burden of the tax
a. Direct taxes
b. Indirect taxes
3. As to object or subject matter of tax
a. Property
b. Personal
c. Poll/capitation
d. Excise
4. As to manner of computing the tax
a. Ad valorem
b. Specific
5. As to graduation or rate
a. Proportional/flat rate
b. Progressive
c. Regressive
G. Aspects of Taxation
1. Levy/imposition by legislative body
2. Collection/administration
3. Payment
a. Pay as you earn
b. Pay as you are assessed
c. Pay as you file
d. Pay as you transact

H. Tax Systems
1. Classification
a. Progressive/regressive system of taxation
b. Progressive system v. progressive rate of tax
2. Basic principles of a sound tax system (meaning of neutral tax)
II. Nature and Limitations of the Power of Taxation
A. Nature of the Power of Taxation
1. Inherent in sovereignty/ distinguished from police power and eminent
domain
2. Exclusively legislative in nature
3. Subject to inherent and constitutional limitations
4. Who may question the validity of a tax measure or expenditure of taxes
(taxpayers suit)
B. Inherent Limitations
1. Purpose must be public in nature
2. Prohibition against delegation of taxing power/exceptions
a. Delegation to local governments
Sec. 5, Art. X, Philippine Constitution
b. Delegation to the President
Sec. 28 (2), Art VI, Philippine Constitution
c. Delegation to administrative agencies
3. Exemption of government entities, agencies, and instrumentality
Sec. 27(C), NIRC
4. International comity
Sec. 2, Art. II, Philippine Constitution
5. Limitation of territorial jurisdiction
C. Constitutional Limitations
1. Due process of law
Sec. 1, Art. III, Philippine Constitution
2. Equal protection of the laws
Sec. 1, Art. III, Philippine Constitution
3. Uniformity and equity in taxation
Sec. 28(1), Art. VI, Philippine Constitution
4. Prohibition against imprisonment for nonpayment of poll tax
Sec. 20, Art. III, Philippine Constitution
5. Prohibition against impairment of obligation of contracts
Sec. 10, Art. III, Philippine Constitution
Sec. 11, Art. XIII, Philippine Constitution
6. Prohibition against infringement of religious freedom
Sec. 5, Art. III, Philippine Constitution
American Bible Society v. City of Manila (101 Phil. 386)
7. Prohibition re: appropriation of proceeds of taxation
Sec. 29, Art. VI, Philippine Constitution
8. Prohibition against taxation of religious, charitable entities and educational
entities
Sec. 28(3), Art. VI, Philippine Constitution
9. Prohibition against taxation of non-stock, non-profit educational institutions
Sec. 4 (3) and (4), Art. XIV, Philippine Constitution
Sec. 28(3), Art. VI, Philippine Constitution
Secs. 27(B) and 30(H) of NIRC

III. Situs of Taxation and Double Taxation

A. Meaning of Situs of Taxation
B. Situs of Subjects of Taxation
Sec. 42 and 104, NIRC
C. Multiplicity of Situs
D. Double Taxation
1. Strict sense
2. Broad sense
3. Constitutionality of double taxation

SOURCE OF TAX LAWS; PAYMENT, AVOIDANCE, EXEMPTION, REMEDIES

I. Sources, Application, Interpretation and Administration of Tax Laws
A. Sources of Tax Laws
1. Philippine Constitution
2. NIRC, as amended
3. Tariff and Customs Code, as amended
4. Local Government Code Bk II
5. Local tax ordinance/city or municipal tax codes
6. Tax treaties/international agreements
7. Special laws
8. Decisions of SC/CTA/CA
9. Revenue rules and regulations/administrative/BIR rulings and opinions
Sec. 4 and 244-246, NIRC
a. Validity of revenue rules and regulations
b. Effectivity of revenue rules and regulations
c. Effectivity and validity of tax ordinance
B. Interpretation/Application of Tax Laws
1. Nature of internal revenue laws
2. Construction of tax laws
a. Rule when legislative intent is clear
b. Rule when there is doubt
c. Provisions granting tax exemptions
3. Application of tax laws/revenue regulations/rulings and the effects of repeal
a. Application of tax laws
Art. 2, New Civil Code
b. Application of revenue regulations/rulings
Sec. 246, NIRC
4. Mandatory and directory provisions of tax laws

II. Filing and Payment of Taxes

A. Registration and Tax Identification Number (TIN) of Taxpayers
B.

Accounting Periods and Methods of Accounting for Taxable Income and

Deductible Expenses
- Calendar year/fiscal year

C.

Tax Filing and Payments

D. Withholding Taxes
E.

Business Taxes - VAT

1. VAT -subject transactions
a. Sale of goods or properties (actual sales, deemed sales, zero rated sales)
(Sec. 106)
b. Sale of services and lease of properties (actual sales or lease, zero rated
sales) (Sec. 108)
2. Importation (Sec. 107)
3. VAT exempt transactions (Sec. 109)
4. Input VAT (Secs. 110-112)
a. Passed-on VAT
b. Transitional input VAT
c. Presumptive input VAT
d. Withholding VAT (creditable and final)
e. Excess input VAT
5. Compliance requirements (registration, invoicing, returns and payment of value
added tax)
(Secs. 113-115)

F.

Other Taxes
1. Percentage Taxes
2. Documentary Stamp Taxes
3. Excise Taxes

III. Means of Avoiding or Minimizing the Burden of Taxation

A. Shifting of Tax Burden
1. Ways of shifting the tax burden
2. Taxes that can be shifted
3. Meaning of impact and incidence of taxation
B.

Tax Evasion
Sec. 254, NIRC

C.

Tax Avoidance

D. Exemption from Taxation

1. Meaning of exemption from taxation
a. Compared with other terms
i. Tax remission/Tax condonation
ii. Tax amnesty
iii. Exclusion/deduction
Sec. 32(B), NIRC
Sec. 34, NIRC
b. Kinds of tax exemption
i. Expressed v. implied
ii. Total v. partial
iii. Exemption from direct tax v. indirect tax
c. Nature of power to grant tax exemption
d. Rationale/grounds for tax exemption
e. Nature of tax exemption

f. Construction of statutes granting tax exemption

i. General rule
ii. Exceptions

IV. Exemption and Applicable Tax Rates

A. Corporations
1. Tax-exempt corporations
Sec. 30, NIRC
2. Minimum Corporate Income Tax on Domestic and Resident Foreign
Corporations
3. Imposition of improperly accumulated earnings tax
B.

Individual Taxpayers Exempt from Income Tax

1. Senior citizens
2. Exemptions granted under international agreement and tax treaty

V. Tax Remedies under the NIRC

A. Administrative Remedies
B.

Judicial Remedies

INCOME TAXATION
I. What is Income Tax?
A. Nature of Income Tax/Object/Subject of the Tax
B.

Purpose(s) of Income Tax: Fiscal/Non-fiscal

II. Meaning of Income/Sources/Kinds

A. Definition of Income/Differentiated From Capital
B.

Sources of Income
1. Capital/labor/exchange of capital
2. Income derived from whatever source

C.

Taxable Income
1. Requisites for taxability
2. Recognition of income for tax purposes
a. When is income realized?
b. Tests to determine realization of income
i. Severance test
ii. Substantial alteration of interest test
iii. Flow of wealth test
3. Kinds/classification of taxable income or gain
a. Capital gain
b. Ordinary gain
i. Business income
ii. Income from trade/practice of profession

iii. Passive income

iv. Other forms of gain: ex: found treasure

III. Classification of Taxpayers

A. General Principles of Income Taxation in the Philippines
1. Individual
a. Citizens: Resident (net/worldwide)
Non-resident (net/within)
OFW (net/within)
b. Alien:
Resident (net/within)
Non-resident engaged in trade or business (net/within)
Non-resident not ETB (gross/within)
2. Corporations
a. Domestic (net/worldwide)
b. Foreign: Resident doing business (net/within)
c. Non-resident not doing business (gross/within)
3. Estates and trusts treated as individual taxpayer
B.

Tax Base and Tax Rates

IV. Items of Gross Income and Exclusions

Income from whatever source derived
- Income tax is source blind
- Items of gross income
Sec. 32, NIRC (not an exclusive enumeration)
A. Compensation for Personal Service (salary, wages, commission)
1. Taxable compensation income
- pursuant to employer-employee relationship
2. Treatment of Fringe Benefits
a. Excluded from compensation income/taxed separately
b. Fringe benefits not taxable
3. Exclusions from gross income
a. Compensation for injuries or sickness
b. Income exempt under treaty
c. 13th month pay and other benefits
B.

Pensions/Retirement Benefits/Separation Pay

1. Taxable items
2. Exclusions
a. Retirement benefits under RA 7641
b. Separation pay/cause beyond employees control
c. Similar benefits received from foreign government
d. Benefits from US Veterans Administration
e. Benefits from SSS/GSIS

C.

Passive Income
1. Interest income
a. Taxable interest income
b. Exclusions
2. Rentals/leases

3. Royalties
a. What are royalties?
b. How are royalties earned?
4. Dividends
a. What is dividend income?
b. Kinds of dividend income
i. Cash dividend
ii. Stock dividend
iii. Property dividends
iv. Liquidating dividends
v. Disguised dividend
c. Exclusions
i. income exempt under tax treaty
ii. passive income of foreign government
5. Annuities and proceeds of life insurance/other types of insurance
a. Taxable income
b. Exclusions
i. Proceeds from life insurance
ii. Return of premium paid
iii. Compensation for injuries or sickness
6. Prizes and Winnings/Awards/Rewards
a. Taxable items
b. Exclusions/exemptions
i. Philippine Charity Sweepstakes and lotto winnings
ii. Prizes and awards in sports competition
iii. Prizes and awards: religious, charitable, scientific, artistic, literary
7. Gifts/Bequests/Devises
8. Other types of passive income
a. Found treasure regular rate
b. Refund of tax/recovery of bad debt previously deducted regular tax rate
c. Damages
D. Gains Derived from Dealings in Property
1. Types of gain/kinds of property
a. Capital gain v. ordinary gain
b. Net capital gain v. net capital loss
E.

Gross Income Derived from the Conduct of Trade or Business or the Exercise of
Profession
1. Computation of taxable income
2. Exclusions
a. Income exempt under a treaty
b. Income derived by the government/political subdivision from exercise of
essential governmental function

F.

Partners Distributive Share of the Gross Income of GPP

V. Allowable Deductions in Determining Taxable Income

A. General Principles Governing Tax Deductions
1. Meaning of deductions (diff from exemption, exclusion)
2. Basic principles governing deductions/requisites
business v. capital expense

3. Kinds of deductions
a. Itemized individual/corporations
b. Optional standard individuals only
c. Special deductions
4. Substantiation requirements
Sec. 34(1)(b), NIRC
B.

Allowable Deductions from Income (Business Income/Income from Trade or

Practice of Profession)
1. Ordinary/Necessary business expenses
- Salaries, wages, and other forms of compensation
2. Interest Expense
3. Taxes
4. Losses
5. Bad Debts
6. Depreciation
7. Depletion
8. Research and Development Expense
9. Charitable and Other Contributions
10. Contribution to a Pension Trust

C.

Items that cannot be deducted

1. Personal living and other family expenses
2. Capital expenditures
3. Insurance premium payment
4. Losses between related taxpayers
5. Losses on wash sales
6. Illegal expense

D. Deductions allowed to individual taxpayers

1. Optional standard deduction
2. Premium payments on health and/or hospitalization insurance of an individual
taxpayer
E.

Personal exemption for individual taxpayer

1. Basic personal exemption
2. Additional exemption for dependents
3. Change of status of taxpayer and dependent

VI. Other Internal Revenue Taxes

A.

Estate Tax

B.

Donors Tax

IV. REQUIRED TEXTBOOK

De Leon, Hector S. The Fundamentals of Taxation (latest edition)
SUPPLEMENTAL READING
De Leon, Hector S. The Law on Income Taxation (latest edition)

V. COURSE REQUIREMENTS AND GRADING SYSTEM

COURSE REQUIREMENTS
Class Participation/Recitation
Quizzes/Assignments
Midterms
Other Activities (Group Report/Project)
Long Test/Final Test

20 percent
20 percent
20 percent
20 percent
20 percent

GRADE EQUIVALENTS
Final Mark
A
B+
B
C+
C
D
F
W

Numerical Equivalent
92-100
87-91
83-86
79-82
76-78
70-75
Below 70
Overcut

Quality Point Equivalent

3.76-4.00
3.31-3.75
2.81-3.30
2.31-2.80
1.81-2.30
1.00-1.80
Below 1.00
Overcut

VI. CLASS POLICIES: To be discussed by individual faculty

VII. CONSULTATION HOURS: As provided by individual faculty