Professional Documents
Culture Documents
The contents of these notes were taken from the lectures in the book of Mr.
Rex Banggawan, Mr. Erasmo Ampongan, and from the lectures of Mr.
C.Llamado. This copy is for review purpose only and not to infringe any
copyright of the aforementioned.
STATE POWERS – enforce a proportional contribution from its subjects for public purpose 5. INTERNATIONAL COMITY – agreement between states. It is why the reciprocity rule applies.
INHERENT POWERS OF THE STATE *In case that there will be conflict between the policy of the two states on the application of
1. Taxation – power of the state to raise revenue to be used in all the necessary expenses of the tax, the law of the land shall always prevail.
government.
2. Eminent Domain – power of the state to take private property for public use upon payment *Exception to the territoriality principle
of just compensation. 1. In income taxation, resident citizens and domestic corporations are taxable on income derived within
3. Police Power – power to enact and execute law for public safety, health morals and for the and outside the Philippines.
general welfare of the people. 2. In transfer taxation, residents or citizens such as resident citizens, non-resident citizens and resident
AS A PROCESS – process of levying taxes by the legislature of the State (Congress) aliens are taxable on transfers of properties located within or outside the Philippines.
AS A MODE OF COST DISTRIBUTION – State allocates its costs or burden to its subjects who are
benefited by its spending. D. CONSTITUTIONAL LIMITATIONS
1. Benefit Received Theory–more benefit one receives from the government, the more taxes he Constitution is not the source of the taxing power. It simply defines and delimits the power.
should pay. 1. Due Process Clause (Section 1, Art. III)
2. Ability to pay Theory – taxpayers should be required to contribute based on their relative Enforced contribution from the people cannot be made without a law authorizing the same
capacity to sacrifice for support of the Government. (Progressive Tax System) Substantive Due Process
Vertical Equity – extent of one’s ability to pay is directly proportional to the level Requires that the tax statute must be within the constitutional authority of Congress and that
of his tax base. it must be fair, just and reasonable.
Horizontal Equity – consideration of the particular situation of the taxpayer. Should not be harsh, oppressive, or confiscatory
B. PHASES AND SCOPE OF TAXATION – State allocates its costs or burden to its subjects who are Must be for public purpose
benefited by its spending. Imposed within territorial jurisdiction
Levy – where Congress enacts a statute to impose taxes Procedural Due Process
Collection Requires notice and hearing, or at least an opportunity to be heard.
Subject Matter – refers to persons, things, transaction, privilege, etc. Mo arbitraries in assessment and collection
2. Equal Protection Clause
C. INHERENT LIMITATIONS (Section 1, Art. III)
1. Taxation should be for PUBLIC USE Means that taxpayers of the same footing should be treated alike, both as to privileges
a. Public welfare should be the penultimate objective. conferred as well as on obligations imposed.
b. Taxation may be used to implement the State’s police power. Power to tax includes power to classify provided:
a. Based on substantial distinction
2. Taxation is inherently LEGISLATIVE / Non-delegation of the taxing power b. Apply to present and future conditions
Vested exclusively in Congress and is non-delegable pursuant to the doctrine of separation of c. Germane to purpose of law
the branches of the government to ensure check and balances. d. Apply equally to all members of the same class
*Exception to the rule of non-delegation 3. Freedom of Religion (Section 5, Art. III)
1. local government units are allowed to exercise the power to tax to enable them to exercise their fiscal Non-Establishment Clause
autonomy. Covers the prohibition to establish a national or official religion since in that case, there will
2. President is entitled to fix the amount of tariffs be an appropriation from taxes paid by the people.
Case 3 – The employer purchases residential property on the installment basis and allows the Case 2 – The employer provides the employee with cash for the purchase of a motor vehicle in the
employee to use the same as his residence. name of the employee.
Value of the Benefit – 5% of the acquisition cost exclusive of interest. Value of the Benefit – amount of cash received by the employee
Monetary value of the benefit - 50% of the value of the benefit Monetary value of the benefit - entire value of the benefit
Case 4 – The employer purchases residential property and transfers ownership thereof in the name of Case 3 – The employer shoulders a portion of the amount of the purchase price of a motor vehicle in
the employee. the name of the employee
Value of the Benefit – employer’s acquisition cost or FMV, whichever is higher. The FMV is the higher Value of the Benefit – amount shouldered by the employer
between the BIR Commissioner’s value and the Assessor’s value. Monetary value of the benefit – entire value of the benefit
Monetary value of the benefit - the entire value of the benefit
Case 4 – The employer purchases the car on installment in the name odd the employee
Case 5 – The employer purchases residential property and transfers ownership thereof to his employee Value of the Benefit – acquisition cost (exclusive of interest) divided by 5 years
for the latter’s residential use at a price less than the employer’s acquisition cost. Monetary value of the benefit - entire value of the benefit
Value of the Benefit – rental paid by the employer under the lease contract.
Monetary value of the benefit - 50% of the value of the benefit
Case 5 – The employer owns and maintains a fleet of motor vehicles for the use of the business and H. Holiday and Vacation Expenses
the employees. Holiday and vacation expenses of the employee borne by his employer shall be treated as taxable fringe
Value of the Benefit – Acquisition cost of all motor vehicles not normally used for business purposes benefits.
divided by 5 I. Educational Assistance
Monetary value of the benefit - 50% of the value of the benefit Taxable Fringe Benefit Not Taxable
Cost of education assistance to the employee If:
Case 6 – The employer leases and maintains a fleet of motor vehicles for the use of the business and which is borne by the employer a. The education or study involved is directly
the employees connected with the employer’s trade, business,
Value of the Benefit – amount of rental payments for motor vehicles not normally used for business or profession;
purposes. and
Monetary value of the benefit - 50% of the value of the benefit b. There is a written contract that the employee
is under obligation to remain in the employ of
Case 7 the employer for a period of time mutually
a. The use of aircraft or helicopters owned and maintained by the employer shall not be subject to the agreed upon.
fringe benefit tax. The use shall be treated as a business use. Cost of educational assistance extended by an When the assistance is provided through a
b. The use of a yacht, whether owned and maintained or leased by the employer shall be treated as a employer to the dependents of an employee. competitive scheme under a scholarship
taxable fringe benefit. The value of the benefit shall be measured based pm the depreciation of the yacht program of the company.
at an estimated useful life of 20 years. J. Cost of Insurance
Taxable Fringe Benefits Not Taxable
D. Household Expenses
Cost of life or health insurance and other non-life a. Contributions of the employer for the benefit
1. Salaries of household help, personal driver pf the employee, or other
insurance premiums borne by the employer for of the employee pursuant to the provisions of
2. Similar expenses like payment for homeowner’s association dues, garbage dues, etc.
his employee existing laws, such as contributions to the Social
E. Interest on loans at less than market rate
Security System, the Government Service
1. If the employer lends money to his employee free of interest or at a rate lower than 12%, such interest
Insurance System, and similar contributions
foregone by the employer (the difference of the interest assumed by the employee and the rate of 12%)
under the provisions of any other existing law.
shall be treated as taxable fringe benefit.
b. The cost of premiums borne by the employer
2. The benchmark rate of 12% shall remain in effect until revised by a subsequent regulation.
for the group insurance of his employees.
F. Social and Athletic Club fees
TAX ACCOUNTING FOR FRINGE BENEFITS EXPENSE AND FRINGE BENEFIT TAX
Membership fees, dues and other expenses borne by the employer for his employee, in social and
a. The Fringe benefit expense and fringe benefit tax shall constitute allowable deductions from gross
athletic clubs or other similar organization shall be treated as tangible fringe benefits of the employee in
income of the employer.
full.
b. If the basis for the computation of the fringe benefits tax is the depreciation value of the property,
only the FB tax shall constitute a deductible expense of the employer.
G. Expenses for Foreign Travel
Provided, however, if the zonal value or FMV of the said property is greater than its cost subject to
Not Taxable – reasonable expenses of the depreciation, the excess amount shall be allowed as a deduction from the employer’s gross income as
employee paid by the employer for the purpose TAXABLE FRINGE BENEFITS fringe benefit expense.
of attending business meetings or foreign
conventions. FILING OF RETURN AND PAYMENT OF TAX
a. Inland Travel – food, beverage, and local a. 30% of the cost of first class airplane tickets; - BIR FORM 1603
transportation; b. Lodging cost in a hotel or similar - 10th day of the month following the calendar quarter which the fringe benefits were granted.
b. the cost of lodging in a hotel or similar establishment in excess of US $300 per day; - Electronic Filing and Payment System
establishment amounting to an average of US c. Travelling expenses paid by the employer for - Five days later than the deadline for manual filing. / 15th day of the month following the
$300 or less per day; the travel of the family members of the calendar quarter which the fringe benefits were granted.
c. The cost of economy and business class employee;
airplane tickets; d. When there is no documentary evidence DEALINGS IN PROPERTIES
d. 70% of the cost of first class airplane tickets. showing that the employee’s travel abroad was Classification of taxpayer’s properties
in connection with business meetings or 1. Ordinary Assets
conventions, the entire cost of the ticket, a. Stock in trade of a taxpayer or other real property of a kind which would properly be
including the cost of hotel accommodations and included in the inventory of the taxpayer if on hand at the close of taxable year.
TAX ON CORPORATIONS
Under Section 22 (B) of the NIRC, the term corporation shall include: 8. Inter-corporate Dividends
a. Partnerships, no matter how created or organized; The domestic corporation is the stockholder of another domestic
b. Joint stock companies; corporation. Being a stockholder, it is entitled to dividends. The dividends
c. Joint accounts (cuentasenparticipacion); received by it shall not be subject to tax, in other words, exempt.
d. Associations; or 9. Capital Gains Realized from the Sale, Exchange or Disposition of Lands and/or Buildings
e. Insurance companies Apply final income tax rate of 6% is imposed on the gain presumed to have
Does not include: been realized
a. General Professional Partnerships B. RESIDENT FOREIGN CORPORATIONS
b. Joint Venture 1. In General
A. DOMESTIC CORPORATIONS Like a domestic corporation, a resident foreign corporation is subject to the
1. In General net income tax at a rate of 30%.
a. A domestic corporation is generally liable for net income tax because the NIRC However, unlike a domestic corporation, a resident foreign corporation is
says: “taxable income.” only liable for income derive by it from sources within the Philippines.
b. The net income tax is imposed at a rate of 30% on all income derived from sources 2. Optional Corporate Income Tax of 15%
within and without the Philippines. Tax rate is 15% of Gross Income
2. Optional Corporate Income Tax 3. MCIT
a. The tax rate is 15% Compare the 2% of Gross Income versus net income, choose higher of the 2.
b. Immaterial since the President has not yet implemented this option. 4. International Carrier Doing business in the Philippines
3. Proprietary Educational Institutions and Hospitals Liable to pay tax of 2½% on its Gross Philippine Billings (GPB)
Liable for net income tax at a rate of only 10% provided: For international air carriers, the following requisites must be present:
a. It must a stock and non-profit institutions o The persons, excess baggage, cargo, and the mail must be
b. It must be a private educations institution or hospital originating in the Philippines
c. Their gross income from unrelated activity does not exceed 50%. o In a continuous and uninterrupted flight or shipment