Professional Documents
Culture Documents
PART 1: INTRODUCTION TAX tax, as it affects the power to impose it. In this
PRINCIPLES AND DOCTRINES case, it will be a political question which the
courts cannot interfere.
*subject to the test of reasonableness; taxation may
TAXATION also be made the implement of the states police
-mode of raising revenue for public purposes. power.
-raising of funds for the use and support of the
government THEORIES IN TAXATION
-power by which the sovereign raises revenue to a.) NECESSITY THEORY
defray the necessary expenses of the government. It is a necessary burden to preserve the states
It is a way of apportioning the cost of government sovereignty and a means to give the citizenry an
among those who in some measure are privileged army to resist aggression; a navy to defend its
to enjoy the benefits and must therefore bear its shores from invasion; a corps of civil servants to
burden. serve; public improvements for the enjoyment of
the citizenry; and those which come within the
LIFEBLOOD DOCTRINE states territory and facilities and protection which a
The power of taxation is important and essential government is ought to provide.
because the government can neither exist nor
endure without taxation. Taxes are the lifeblood of b.) BENEFITS-PROTECTION THEORY
the government; their prompt and certain The power of taxation is based on the power of
availability is an imperious need. The collection of the state to demand and receive taxes on the
taxes must be made without hindrance if the state reciprocal duties of support and protection.
is to maintain its orderly existence. Doctrine of Symbiotic Relationship
Government projects and infrastructures are made Taxpayer cannot complain on the burden of
possible through the availability of funds provided taxation because it is an obligation. It is involuntary
through taxation. The governments ability to serve and compulsory, in exchange for the protection and
and protect the people depends largely upon taxes. benefits a taxpayer receives from the state.
Thus, taxes are what we pay for a civilized society. The government responds in the form of
Bread and Butter Principle tangible and intangible benefits intended to
-to exist, the state needs lifeblood (taxes) because improve the lives of the people and enhance their
there is a necessity for continuous existence. material and moral values.
-as depicted by the progressive tax system that or made available by the
the country has. This is a tax system wherein the government
tax rate of a tax payer increases as the tax base Payment for just
increases. compensation or fair
Eminent Domain
*encourage the growth of local industries value of the property
-the state may grant tax exemptions which serves taken
as incentives to encourage investment in our local No direct benefit, except
industries. the privilege to live in a
*protection of local industries against unfair healthy and
competition Police Power
economically and
*as an implement of police power (regulatory socially progressive
measure) society
be used as an import of police power. Congress -tax law is a violation of the inherent limitations
may choose to create tax law that will benefit a
specific group of people or industry in a business. B.) Equal Protection Clause
It may also be used for regulation of certain acts. -taxes must be uniform
-tax laws must be equitable -all persons similarly situated of the same class
-tax laws must be reasonable must be taxed the same
-all persons are equal in the burden of paying taxes
B.) International Comity but the rates are not
-tax immunities are granted upon other sovereign -there must be a valid classification
states as courtesy to the international community. a. it must be based on substantial
This is consistent with the doctrine of sovereign distinctions
equality among states. According to this doctrine, b. must apply to present and future
states are juridically equal, enjoy the same rights conditions
and have equal capacity and exercise. c. must be germane to the purpose of the
law
C.) Territoriality d. must apply equally to all
-tax laws only operates within our jurisdiction.
C.) Progressive Taxation
D.) Non-delegation of the power to tax -this required by the constitution, as opposed to
-the power to tax is exclusively vested in the the regressive system of taxation which is not
legislative body allowed
Exception: -when a persons tax base is progressing, tax rate
-Article VI, Sec. 28(2) of the Constitution also increases
-Article X, Sec. 5 of the Constitution; Sec. 133, R.A.
No. 7160 D.) Poll Taxes
-community tax certificates
E.) Exemption from taxation of government -no person shall be imprisoned for non-payment of
agencies/instrumentalities poll taxes
-properties of the national government as well as -penalty, as opposed to imprisonment may be
those of LGUs are not subject to tax. They are imposed for non-payment of poll taxes; interests,
ought to perform public functions for public service; surcharges, and other penalties may be imposed
otherwise, it will result in the absurd situation of
the government taking money from one pocket E.) Veto Power
and putting it in another. -the president may either veto or approve a tax bill
Exception to the exemption: -partial veto only applies to General Appropriations
Government entities or instrumentalities, like Acts, revenue and tariff bills
GOCCs performing proprietary functions are subject
to taxation; unless they are granted exemption by Tax laws could either be:
law. Examples of these exempted GOCCs are the -general tax law coming from congress
GSIS, SSS, PhilHealth, PCSO. -tax ordinance imposed by LGUs
is an ever evasive power such that the state may E. NON-RESIDENT ALIENS NOT ENGAGED IN
choose to impose taxes arbitrarily upon a tax TRADE OR BUSINESS (NRA-NETB)
subject. However, this power must be exercised -Q: Is it possible that a NRA receives income while
with caution to minimize injury to the propriety he or she does not engage himself in trade or
rights of tax payers. business?
-While it is believed that taxation includes the A: Yes. NRAs may derive income in RP when he is
power to destroy, it is by no means unlimited. If a commercially engaged but the same is not
tax law is so great that an abuse is manifested as habitually done for profit in RP (best examples:
to destroy natural and fundamental rights which no Concerts of foreign artists
free government could consistently violate, it is the -taxable at a flat rate of 25% and with no
duty of the judiciary to hold such tax law deductions at gross
unconstitutional.
F. SPECIAL ALIENS
PART 2: INCOME TAX LAWS -these are aliens having preferential income tax
rate of 15% on their gross compensation income
from sources within RP
PREVAILING CODE OF TAX LAWS -These employees are aliens employed by
-R.A. 8424, National Internal Revenue Code of a.) regional or area headquarters and regional
1997, effective January 1, 1998 operating headquarters of multinational companies
*as amended by R.A. 9504, effective July 2008 in RP
-P.D. 1464 Tariffs and Customs Code of 1978 b.) offshore banking units established in RP
c.) foreign service contractor or sub-contractor
INCOME TAXATION engaged in petroleum operations in RP
-Involves the kind of taxpayers ought to comply
with the provisions of the tax laws. CORPORATIONS AS TAXPAYERS
-Income may be derived within or outside the For purposes of income taxation, the tax code also
Philippines; the nature and kind of income subject includes partnerships as corporations who are
of taxation depends on the classification of the tax subject of taxation.
payer XPN:
General Professional Partnership (GPP)
I. TAXPAYERS -these are individuals exercising their profession
who pull their resources for profit and distribute
INDIVIDUAL TAXPAYERS their income among themselves
A.) RESIDENT CITIZENS (RC) -GPPs are not subject to Income tax as
-citizens of the Republic of the Philippines (RP) Corporations because it is the individual who is
residing in the Philippines for a period of 180 days liable to pay their own income tax
for a complete taxable year
-their income from all sources derived within and A.) DOMESTIC CORPORATIONS
outside (without) the Philippines are taxable -created under Philippine laws
-taxable within and without
B.) NON-RESIDENT CITIZENS (NRC)
-citizens of RP acquiring contracts or jobs outside B.) FOREIGN CORPORATIONS
the Philippines for a period of more than 180 days -corporations organized or formed under laws of a
-their works requires the physical presence outside foreign country even if wholly owned by Filipino
the RP citizens
-their income derived within RP is taxable
1.) Resident Foreign Corporations (RFC)
C. RESIDENT ALIENS (RA) -a foreign corporation engaged in trade or business
-aliens residing and staying in RP who abandons his within RP. They are not actually residing in RP but
own country and has no intentions of returning it only happens that they have business operations
-who are deemed to be RAs: foreign individuals in the Philippines. (e.g., Philippine branch of a
staying for a period of more than 1 year from date Foreign Corporation)
of arrival
-taxable within and without a.) RFC Not Engaged in Trade or Business
-regional or area headquarters pursuant to E.O.
D. NON-RESIDENT ALIENS ENGAGED IN 226, as amended by R.A. No. 8756
TRADE OR BUSINESS (NRA-ETB) -representative offices and regional warehouses of
-those aliens not permanently residing in RP; their multinational corporations in RP
intention being here is done habitually for profit. -exempted from income tax because they are
-they are engaged in trade or business in RP supposed not to engage in trade or business in RP
-taxable within and thus do not derive income from the Philippines
b.) RFC Engaged in Trade or Business -a senior citizen receiving an annual income
not more than P60,000.00
GENERAL RULE: -dependent/s is/are living with and
subject to 30% Normal Corporate Income Tax dependent upon him for his/their chief
(NCIT) based on their net taxable income from support
sources within, unless 2% of Minimum
Corporate Income Tax (MCIT) [computed at b.) Special Additional Exemptions
2% of their gross income within] is higher than the P8,000.00 per child up to 4 children only
NCIT
XPN: 2.) Under R.A. 9504 (effective July 2008)
a.) regional or area headquarters and regional a.) Personal Exemption
operating headquarters of multinational companies P 50,000.00, without regard to status
in RP 10% preferential income tax b.) Special Additional Exemptions
b.) offshore banking units established in RP taxed P 25,000.00 per child up to 4 children only
on their onshore interest income at 10% final
withholding tax Q: Are aliens allowed to claim exemptions?
A: Yes, provided that the country of the alien also
2.) Non-Resident Foreign Corporations grants exemptions to Filipino taxpayers in their
-foreign corporations not engaged in trade or country. This is consistent with the reciprocity
business within the RP but deriving income from principle
sources within the Philippines
-unless otherwise provided by the Tax Code, the Q: In taxable year 2008, how should be the
amount paid to as income by a NRFC is subject to exemptions applied?
30% withholding tax by the Philippine payor A: from January to June 2008, half of the value of
exemptions granted under RA 8424; likewise, in
3.) International Air Carriers July to December 2008, half of the value
-subject to a flat rate of 2.5% at gross income exemptions granted under RA 9504.
4.) Educational Institutions (EI) Q: Among married couples, who can claim
-they are special corporations Special Additional Exemptions?
a.) Non-stock, non-profit EIs A: Generally, the husband
-exempted from income tax
b.) Proprietary EIs Q: Under what circumstances can the wife
-for Proprietary EIs deriving income from unrelated claim SAEs?
business activities or transactions which do not A: -when the husband executes a waiver as signed
exceed 50% their gross income from all sources, by the his employer, if employed
their income tax rate is 10%, otherwise, they are -when the husband is not gainfully employed or
subject to NCIT (the predominance test) do not have any income
-husband is living abroad
II. EXEMPTIONS
Q: How about if the spouses are legally
Q: What are the two kinds of exemptions? separated or annulled?
A: 1.) Personal Exemptions A: the award of custody of children must be
2.) Special Additional Exemptions invoked. If there is no custody of children awarded
in the decree of legal separation or annulment, the
1.) Under R.A. 8424 (effective Jan. 1, 1998) best procedure is to talk with the former spouse as
a.) Personal to who shall claim the deduction so a single child
Married P32,000.00 will not be covered twice by an exemption
Single P20,000.00 *analysis: the status of an individual who is annulled
Head of the Family P25,000.00 from his or her former spouse becomes single. Thus,
-an unmarried or legally separated individual they may live on each others lives and create two
separate households. They may take advantage of
who has the following dependents:
having 4 dependents each provided that the effect of
-with 1 or both parents annulment in the status of children is legitimate.
-with 1 or more sibling, legitimate child, However, in legal separation, the marriage is not
recognized natural child, or legally adopted severed. Thus, only up to 2 dependents each may be
child who are not more than 21 years of claimed by each of the former spouses.
age, unmarried and not gainfully employed,
or if older than 21, he or she is incapable of Q: Can Exemptions be applied if a person
self-support because of mental or physical changes his status and/or acquire
defect. dependents in the same taxable yea?
A: Yes. The general rule is that whatever may be 2.) Royalties on books, literary works, and
favorable to the taxpayer can be availed of as to musical compositions : 10%
the application of exemptions. The change of
status and/or the acquisition of new dependents 3.) Prizes
will have a retroactive effect from the start of the a.) If amount is more than P10,000.00, 20%
taxable year even if the change of status and/or final tax
acquisition of new dependents happen at the last Who shall pay? The person who gave the prize
day of the taxable year.
b.) If amount is less than P10,000.00, it is only
subject to income tax
III. TAX BASE
4.) Winnings
Taxable Income -20% final tax regardless of amount
When is Income Taxable? (Conditions) Who shall pay? The person who gave the winnings
a.) There is income, gain or profit;
b.) The income, gain or profit is received or 5.) Cash and Property Dividends
realized during the taxable year; Requirements:
c.) The income, gain or profit is not exempt Cash dividend or property dividend
from income tax. Received by an individual tax payer
-requisites of a taxable income are important to From a domestic corporation
determine what kind of tax is an income (i.e.,
taxable base that could either be passive, 6.) Capital gains from shares of stock (not
compensation or business) as well as the correct listed or traded)
tax rate to impose Primary considerations:
Rule of thumb: every income from whatever if there is income - taxable
source (legal or illegal) is taxable o greater than P100,000.00, 10%
-for individual tax payers, Calendar year is followed o less than P100,000.00, 5%
for income tax purposes no income - not taxable
(Note: that part of the share of the inheritance is MINIMUM CORPORATE INCOME
exempted; however, the Testate/Intestate Estate is
subject to taxation)
TAX (MCIT); GROSS CORPORATE
INCOME TAX (GCIT)
4.) Gift Tax
-these are gifts presumed to be given gratuitously MCIT - Rate: 2% at gross
Donors Tax paid by the donor. In effect, Q: When is MCIT applicable?
the done is exempted A:
it is applicable upon Domestic Corporations and
5.) Compensation for injuries or sickness
Foreign Corporations Engaged in Trade or
-in cash or in kind, exempted
Business
However, if what has been given is an equivalent
in the 4th year of business operations or more
of a taxpayers compensation income (as if may
there is net loss or zero taxable income or NCIT
sweldo) TAXABLE
is less than MCIT
6.) Inherent Limitation: for international
comity ILLUSTRATION:
-same tax rate as to other countries with respect to 4th Year 5th Year 6th Year
aliens in RP and Filipinos in other countries
Gross Income P1.5M P 2M P2.5M
7.) Pensions Deductions P1.4M P1.9M P2.3M
-example: return of premium from GSIS and Net Income P100k P100k P200k
SSS Pensions are not taxable under the law NCIT ([35]% of NI) P35,000 P35,000 P70,000
Requirements for exemptions upon in-house MCIT (2% of GI) P30,000 P40,000 P50,000
retirement plan given by private companies: *highlighted values means that the specified amount is
Retirement plan must be approved by the BIR the tax due
Retiring tax payer must at least be 50 years old Carry over of losses: excess of payment is valid
Service in the company for at least 10 years for 3 consecutive taxable years
*Absence of one requisite will render the receivable
income taxable
GCIT rate: 15%
8.) Separation Pay due to sickness, death, or -this is only an option. Election of the GCIT needs
disability to be approved by the Secretary of Finance
-if separation is beyond the control of the taxpayer, Applicability of GCIT
separation pay is exempted -Corporations whose ratio of cost of sale to sale
-VOLUNTARY RESIGNATION, taxable does not exceed 55%
Illustration:
9.) Prizes and awards in Recognition Sale 1Million 1Million
there must be no action on the part of the Less: Cost of 400k 750k
taxpayer to enter the religious, charitable Sale
scientific, education, artistic, or literary contest. _____________________________________________
= Net Income
X (fixed or graduated rate) %
_________________________________________
=Taxable income
o 25%: failure to file the ITR on due Verily, failure to present proof of error in
date, or is filed at a wrong venue assessments will justify judicial affirmance of said
o after assessment: there is more assessment
surcharges to be paid
o 50%: because of misrepresentation or After audit, examination, or investigation,
willful neglect on the defect of the ITR the BIR may issue an assessment against a
or in representation of a false or taxpayer
fraudulent return
There is a Fraudulent Return when: Can an assessment be questioned in court?
There is under declaration of income -No because it is appealable to the BIR, after
Over declaration of deduction or which, the Court of Tax appeals may assume
expenses jurisdiction upon lapse of a certain period of
How much: (The BIR Standard) inaction by the BIR or the decision of the latter is
-substantial of over or under declaration if appealed before them.
there is a failure to report an amounting to
30% of the actual over or under declaration Assessment made by the BIR is jurisdictional
Interests -if made by the Regional District Office (RDO): valid
-discretion of the BIR, other than the required within the district
surcharges -if made by the main office of BIR: valid all over
-period of interest: from the date the law requires the RP
an individual to pay taxes to the date of actual *otherwise, an assessment may be erroneous
payment
-basis: tax which was not paid Is amendment of ITR filed allowed?
-yes, but never to ask the BIR to return his original
DEFICIENCY INTEREST ITR filed
-Is imposed for failure to pay on the date due in -an amended ITR may be filed within 3 years from
the notice after investigation or audit the time the original return was filed
DELINQUENCY INTEREST
Basis or grounds for deficiency assessment:
-is imposed for the failure to pay the tax due on
No ITR filed: resolution will go to the best
the date imposed by law
evidence obtainable
There was no amount declared as tax payable
Other Penalties:
If a taxpayer failed to file an ITR but the
o Fine
taxpayer is not among those who are not
o Imprisonment
required to file the same
o Or both
VOID ASSESSMENT
ASSESSMENT Issued by a person not authorized by the BIR; the
It is a written notice and demand made by the BIR same is done to defraud or harass a taxpayer
on the taxpayer for the settlement of a tax due
liability A tax return is a public record because it is filed
It contains the following: with the BIR
Computation of tax liabilities -it is a confidential document because any
Demand for payment within a prescribed period person cannot inquire into its details except those
Time when penalties or interests begin to officers who have the power to assess a taxpayer
accrue against the tax payer -in fact, any public personnel divulging details of an
ITR may be held administratively liable
For purposes of Income taxes, only the BIR XPN: when confidentiality is set aside
can issue an assessment -waiver on the part of the taxpayer as authorized
-the ITR plus its attachments is the document that by the secretary of finance
can be assessed by the BIR -generally, there is an implied waiver if the
What should a taxpayer do when he receives assessment protested in court
an assessment? BEST EVIDENCE OBTAINABLE
-pay the amount stated plus the surcharges, -The BIR is empowered to access all relevant or
interests, fines, and other charges stated therein material records and dates pertaining to the tax
liability
May an assessment be issued even when the Record, data, information, papers,
BIR does not receive an ITR? evidence, etc. in order to determine the
-as a general rule, an assessment is prima facie proper income tax
presumed correct and made in good faith. Absence -this applies when a taxpayer failed to file
of proof of any irregularities in the performance of an ITR or the ITR is fraudulently filed
official duties, an assessment will not be disturbed.
Mario Fidel U. Danao 03/17/2016
Taxation I, Atty. Lilian C. Baribal-Co, University of the East College of Law
-still there is a 10% surcharge of the basic -difference with distraint and levy: the bidder
assessed tax (as opposed to the misconception that awarded the property cannot encumber the same
there is nothing to pay) because of the one year redemption period in favor
-proof of incapacity or incapability or hard to prove of the taxpayer (if it is a real property)
the misrepresentation or fraud
However, any fraud to the said attestation will 3.) The state may file Criminal cases or civil
make the tax assessment plus the surcharges and penalties against the tax payer
fines immediately demandable -it does not make tax law penal
-exoneration on the civil liability does not terminate
Taxpayer may avail to prove that a tax the criminal liability
collector is illegally disclosing the
assessment or any act of graft or corrupt Books of accounts proof of the financial
practices statement of the taxpayer: must be maintained in
-RA 3019 administrative, criminal, civil liability on English, Filipino, Spanish, or the local dialect
the part of the collector or personnel of the BIR
Prescriptive period to collect
TAX REFUND -if there was assessment: 5 years from date of
-Doctrine of equitable recoupment (however, this is assessment; this stops when the assessment is
not applicable in the Philippines): this is a mode of disputed
extinguishing tax liability wherein a tax refund is -if there was no assessment but there was ITR, 5
set-off against a tax credit years from the date fixed by law
*in the Philippines these two cannot be set-of: -if no return filed, if there was return but the same
payment first before refund!!!! was fraud, 10 years from the date of discovery
-if the decision became final, the prescriptive
When to avail: period will start to run; with respect to the filing of
-within 2 years from the date the tax was paid the suit, the prescriptive period is suspended
-there must be proof of actual payment to the tax
as evidenced by receipts
-declaration of erroneous or illegal assessment
-attestation to the reason of illegality and actual
payment