Professional Documents
Culture Documents
GIST: COMPREHENSIVE
all items of gross income, deductions baed on: citizenship principle, residence
and personal and additional principle and source principle.
exemptions, if any, - any of the 3 is enough to justify the imposition
are reported in one income tax of income tax on the resident citizen and
return income. corp that are taxed on worldwide
domestic
- to be filed at least annually,
- and the applicable tax rate
applied on the tax base. SEMI-SCHEDULAR OR SEMI-GLOBAL
SCHEDULAR TAX SYSTEM SYSTEM OF TAXATION
different types of income are subject to
different sets of graduated or flat income rates.
the applicable tax rate/s will depend
on
- the classification of the taxable CRITERIA IN IMPOSING
income PHILIPPINE INCOME TAX
and the basis could be CITIZENSHIP PRINCIPLE
- gross income (without
• RESIDENT CITIZENS; taxable both for
deductions) or
income from sources within and income
- net income (the gross
without the Philippines
income less allowable
deductions) • NON-RESIDENT CITIZENS; taxable only for
income from sources within the Phil
SEMI-SCHEDULAR OR SEMI-GLOBAL TAX RESIDENCE PRINCIPLE
SYSTEM • RESIDENT ALIENS; taxable only for income
a system of taxation wherein both global and from sources within the Phil, and exempt
schedular tax system is being applied, from sources outside.
depending on the kind of income.
SOURCE PRINCIPLE
GLOBAL TAX SYSTEM IS APPLIED FOR • NON-RESIDENT ALIENS; are subject to Phil
1. compensation income income tax only on income from sources
2. business or professional income within the Phil
3. capital gain and passive income not subject this is despite of the fact that he never
to Final Withholding Tax; anf set foot in the Phil.
4. other incomes ~~~~~~~~~~~~~~~~
SCHEDULAR TAX SYSTEM IS APPLIED FOR
1. passive investment income subject to Final
Withholding Tax
2. capital gain from the sale or transfer of
shares of stocks of a domestic corps; and
3. real properties classified as capital assets
INDIVIDUAL TAXPAYERS
ALIENS
TAXABLE PERIOD • RESIDENT; aliens actually present in the Phil
who is not mere transient or sojourner (those
who comes to the Phil for a definite urpose,
which in its nature may be promptly
CALENDAR METHOD accomplished),
ITR, whether for an individual or for cop, but whose purpose is of such nature
assoc, or partnership, are required to be filed th a t a n e xt e n d ed s t a y m a y b e
on Dec. 31st of every year necessary for its accomplishment, and
to that end the alien makes his home
temporarily in the Phil
2 TYPES OF RFC
• those that do not derive any income
from sources within the Phil, thus
exempt from income tax
EXE TO EXE:
the ff is still not taxable
1. allocation of floors, units or lots;
being a mere return of capital
2. distribution of developed lots or
units; akin to partitioning
commonly owned property
NOTE: EXE:
the taxable income declared by the • entitled to the deduction in computing the ext
partnership for a taxable year after taxable income of estate or trust, for he
deducting the corporate income tax amount of
imposed 1. income for the year which is to be
• shall be deemed to have been distributed currently by the fiduciary to
actually or constructively received the beneficiaries; and
by the partners in the same taxable 2. the income collected by a guardian of
year, and an infant which is to be held or
• shall be taxed to them in their distributed as the court may direct.
individual capacity, whether actually
distributed or not. HOWEVER; the amount deductible
- shall be included in computing the
EXE: WHEN NOT TAXABLE taxable income of the beneficiaries,
1. GPP whether distributed to them or
2. unincorporated Joint Venture or Consortium not.
engaged in construction or energy-related
projects. • ALSO: in re; for the income received by
the estate, as a deduction in computing
GENERAL PROFESSIONAL PARTNERSHIP the taxable income of the estate or trust
is a partnership formed by persons for the sole the income received by the estate of
purpose of exercising their common tue deceased person during the period
profession, of administration or settlement of the
no part of the income of which is estate, should the fiduciary, in his
derived from engaging in any trade or discretion, distributed to the legatee,
usiness. eir or beneficiary
CO-OWNERSHIP
FOR INCOME TAX PURPOSES
• the individual co-owners in a co-ownership
report their shares of the income from the
property owned in common by them in their
individual tax returns for the year, and
• the co-ownership is not considered as a
separate taxable entity or corp
TA X A B L E A S U N R E G I S T E R E D
PARTNERSHIP; when
should the co-owner invest the income of the
co-ownership in any income producing
activities, after partition
- taxable as corp.
INCOME
INCOME; defin ed
amount of money coming to a person or REALIZATION OF INCOME
corporation within a specified time, whether for
payment of services, interest or profit from
investment. TEST OF REALIZATION
Unless otherwise specified, income
m
IT INCLUDES
1. increase in inventory at the end of the
taxable year (but increase in the value of
real property is merely an increase in the
capital, and not as an income) ACTUAL VS. CONSTRUCTIVE
2. transfer of appreciated to employee for
services rendered; and RECEIPT
3. just compensation paid by government for
property acquired by expropriation.
IN SALE OF
R E A L
PROPERTY
does not exceeds 25% of
exceeds 25% of the selling price
the selling price
• if the lawyer is self-employed, the driver WHO ARE LIABLE TO PAY FOR FBT
shall be taxed only as to his wage, not
including the value of the free board and • THE EMPLOYER; if received by managerial
lodging and supervisory employees. but allowed to
PROVIDED: the same as business expense
1. the board and lodging is given • T H E E M P L O Y E E ; f o r r a n k - a n d - fi l e
within the premises of the place of employees, subject to NIT and withholding. in
business of the employer; and the sense, it is not subject to FBT.
2. it is given as a condition of
employment WHEN FRINGE BENEFIT IS NOT SUBJECT
TO FRINGE BENEFIT TAX
OTHERWISE: 1. those received by rank-and-file employees
- the value of the board and lodging 2. required by the nature of or necessary to
shall be included in the gross of the the trade, business or profession of the
employer. employer
3. given for the convenience or advantage of
FRINGE BENEFIT the employer
any good, service or other benefits furnished 4. authorized and exempted from income tax
or granted in cash or in kind by an employer to under the code or any soecial laws
an individual employee. 5. contribution of the employer for the benefit
of the employee to retirement, insurance
EXAMPLES OF FRINGE BENEFIT, and hospitalization benefit plans (but in
such as, but not limited to the ff: excess, shall be subject to FBT. ie. in
1. housing excess than what is required by SSS or
2. expens e accoun t (eto yung GSIS)
expenses incurred by a 6. de minimis benefits
managerial employee which he 7. RR no 3-98: for housing units
can be reimbursed) • situated inside or adjacent to the
3. vehicle of any kind premises of a business or factory
4. household personnel, such as (deemed adjacent to the remises of
maid, driver and others the business if; it is located within the
5. interest on loan at less than the ma xi mum 5 0 me ter s f r om the
market rate to the extent of the perimeter of the business enterprise.
difference between the market • temporary housing unit fir 3 months or
rate and actual rate granted less
6. membership fees, dues and other
expenses borne by the employer DE MINIMUS BENEFITS; defined
for the employee in social and limited to facilities or privileges
athletic clubs or other similar furnished or offered by an employer to
organizations his employee that are
7. expenses for foreign travels 1. relatively of small value; and
8. holiday and vacation expenses 2. o ff e r e d o r f u r n i s h e d b y t h e
9. educational assistance to the employer as a means of promoting
employee or his dependents the health, goodwill, contentment,
10. life or health insurance and other or efficiency of his employees.
non-life insurance premiums or
similar amounts in excess of what PROFESSIONAL INCOME
the law allows fees received by a professional from the
practice of his profession
SPECIAL TREATMENT OF FRINGE BENEFIT PROVIDED: That there is no emp-emp
TAX relationship between him and his
client.
GEN RULE: 32% fringe benefit tax - otherwise, it is deemed
compensation income.
EXE:
• 25% FBT: if received by NRANET/B WHY THE NEED TO DISTINGUISH AGAINST
• 15% FBT: received by an alien individual COMPENSATION INCOME
employed by a R/AHQ, ROHQ, Offshore - in compensation income, no allowable
banking units,mor foreign petroleum service deduction is allowed.
contractor or sub-contractor, or any of their
Filipino individual employees who are
employed and occupying same position as
those held by the alien employees.
CASH DIVIDEND
is disbursement to shs of the accumulated RENTAL INCOME
earnings, and the corporation parts
irrevocably with all interest therein. LEASE OF PERSONAL PROPERTY
- when declared and paid to the
shs, such cash becomes the
absolute property of the shs and
cannot be reached by creditors of
the shs.
PROPERTY DIVIDEND
is a dividend payable in property, which
may be investments in shares of stock of a
corporation, or real property, or some
other property owned by the corporation,
paying the dividend
HOWEVER
if such amounts are held by the insurer
under an agreement to pay interest
thereon,
TAXPAYER WHO MAY AVAIL OF THE the interest payments shall be
XCLUSION included in gross income.
PROVIDED
1. The recipient was selected
without any action on his part
to enter the contest or
proceeding; and
2. The recipient is not required to
render substantial futur e
services as a condition to
receiving the prize or award.
DEDUCTIBLE
a reasonable allowance for tra vel
expenses, here and abroad, while away
from home
in pursuit of trade, business or
profession
RR NO 10-2002 INTEREST
LIMITATION OF THE AMOUNT TO BE the amount paid by a debtor to his creditor for
DEDUCTIBLE FROM THE GROSS the use or forbearance of money
the amount of interest expense paid or
• IF ENGAGED IN SELLING GOODS; incurred within a taxable year on
amount to be deducted shall not indebtedness in connection with the
exceed .5% of the gross receipt taxpayer's trade, business or exercise
of profession,
• IF ENGAGED IN SELLING SERVICES; - shall be allowed as deduction from
amount not more than 1% of its gross the taxpayer's gross income
receipt.
REQUISITES FOR DEDUCTIBILITY
POLITICAL CAMPAIGN EXPENSES 1. there must be a valid and existing
indebtedness
NOT DEDUCTIBLE 2. the indebtedness must be that of the
- as it is not directly attributable, to the taxpayer
development, management, operation 3. the interest must be legally due and
and/or conduct of a trade, business or stipulated in writing
profession 4. interest expense must be paid or
incurred during the taxable year
TRAINING EXPENSES 5. the indebtedness must be connected
with the taxpayer's TB/P
6. the interest payment arrangement must
not be between related taxpayers as
expressed in Sec. 34(B)(2)(b), in re to
Sec. 36(B)
7. the interest is not expressly disallowed
by law to be deducted from the
taxpayer's gross income (ie. interest on
indebtedness to finance petroleum
operations
NOTE: SUBSTANTIATION REQUIREMENT 8. the amount of interest deducted from
no deduction from gross income shall be gross income does not exceed the limit
allowed, unless the taxpayer shall substantiate set forth in the law. (33%)
it with sufficient evidence of
1. t h e a m o u n t o f t h e e x p e n s e s b e i n g NON-DEDUCTIBLE INTEREST
deducted; and EXPENSE
2. the direct connection or relation of the
expenses being deducted to the • INTEREST PAID IN ADVANCE
development, management, operation and/
or conduct of the TBP EXE:
if the entire amount of principal
FURTHERMORE: Esso vs Commissioner obligation has been paid on the
C ON D I TI O N F OR E X P E N S E S TO B E year the debt was incurred and the
DEDUCTIBLE (BUSINESS TEST) interest paid
1. t h e e x p e n s e m u s t b e o r d i n a r y a n d - the entire amount of interest
necessary corresponding to the principal is
2. it must be paid and incurred within taxable deductible
year
3. paid and incurred while carrying trade or if only a portion of the principal
business has been paid
- interest expense to be deducted
shall only be in an amount
corresponding to the amount the
principal paid.
here, the amount deductible for NOTE: once the taxpayer elects to
the interest expense shall be treat the interest as an interest
- 100k. (50% of principal obligation expense, by deducting it to the
x interest paid) gross income, he can no longer
apply the same as capital
• NO DEDUCTION SHALL BE ALLOWED expenditure.
BETWEEN RELATED PARTIES - otherwise, would constitute
double tax benefits which is not
THE FF ARE RELATED PARTIES authorized under the law.
1. m e m b e r s o f t h e f a m i l y,
brother/sister, whether full or • REDUCTION OF INTEREST EXPENSE/
half blood INTEREST ARBITRAGE
2. between an individual and a
corporation, in which more the law provides that interest
than 50% in value of its OCS expense shall be reduced by 33%
is owned directly or indirectly of the interest interest income.
by such individual
3. between grantor and fiduciary FORMULA:
of any trust Interest Income
4. between fiduciary of a trust X 33%
and beneficiary of a trust, if LESS: interest expense
the same person is th e i nte rest exp ense all owed as
grantor with respect to each deduction
trust
QUERY: if no interest income, is
• IF THE INDEBTEDNESS WAS the whole amount of interest
INCURRED TO FINANCE PETROLEUM expense deductible?
OPERATION
TAXES
all taxes, national or local, paid or accrued
INTEREST SUBJECT TO SPECIAL during the taxable year in connection with TB/P
RULES of the taxpayer are deductible from gross
income.
• INTEREST PAID IN ADVANCE
REQUISITES FOR DEDUCTIBILITY
• I N TE R E S T P E RI OD I C AL LY 1. payment must be for taxes
AMORTIZED 2. taxes are imposed by law upon
the taxpayer
• INTEREST EXPENSE INCURRED TO 3. taxes must be paid or accrued
ACQUIRE PROPERTY FOR USE OF during the taxable yea r in
TB/P connection with the taxpayer's TB/
P; and
IN HERE; 4. taxes are not specifically excluded
OPTIONAL TREATMENT OF bylaw from being deducted from
INTEREST EXPENSE the taxpayer's gross income
the taxpayer has the option to:
1. use the interest expense as a NON-DEDUCTIBLE TAXES
deduction; or 1. Philippine income tax
2. t r e a t i t a s a c a p i t a l 2. Foreign income tax, should the
expenditure subject to taxpayer avail of the tax credit
allowance and depreciation benefit.
3. Estate and donor's taxes
SHOULD TAXPAYER OPT TO 4. Special assessments on real
T R E AT I T A S I N T E R E S T property OR taxes assed against
EXPENSE local benefits of a kind tending to
- the full amount may be deducted increase the value of the property
in the year it was incurred assessed.
5. Electric energy consumption tax
OTHERWISE; IF HE OPT IT AS
CAPITAL EXPENDITURE
- he can only deduct the periodic
amortization of such expenditure
LIMITATIONS LIMITATION
FOR RC AND DC FOR NRAET/B
- only when they should - the allowed deduction for
signify in the return their taxes shall only be up to
desire to avail of the said the extent of taxes
credit incurred in connection with
- for the amount of income their income from sources
taxes paid or incurred by within the Phil
them during the taxable
y
F O R E S TAT E A N D
PARTNERSHIP
- to avail the tax credit
benefit, the distributable
share of the income of
such partnership or trust is
reported for purposes of
income tax.
FORMULA
GROSS INCOME (PHIL)
GROSS INCOME (WORLD)
X income tax due in Phil
= Tax Credit
GEN RULE:
not deductible in the sense that the ff items are
not related to the TB/P of the taxpayer
shall belong to or inures to the benefit of - hence, it can be deduced that the
any member, organizer, officer or any partnership did not earn any income
specific person; other than from the exercise of
6. Business league chamber of commerce, or profession.
board of trade, not organized for profit and
no part of the net income of which inures to JOINT-VENTURE
the benefit of any private stock-holder, or see qualifications
individual;
7. Civic league or organization not organized
for profit but operated exclusively for the
promotion of social welfare;
8. A nonstock and nonprofit educational
institution;
9. Government educational institution;
10. Farmers' or other mutual typhoon or fire
insurance company, mutual ditch or
irrigation company, mutual or cooperative
telephone company, or like organization of
a purely local character, the income of
which consists solely of assessments,
dues, and fees collected from members for
the sole purpose of meeting its expenses;
and
11. Farmers', fruit growers', or like association
organized and operated as a sales agent
for the purpose of marketing the products of
its members and turning back to them the
proceeds of sales, less the necessary
selling expenses on the basis of the
quantity of produce finished by them;
LSO:
OTHERWISE:
Treated as taxable corporation. same
treatment for taxable corp.
- subject to RCIT and their share in the
profit shall be deemed as dividend
subject to FIT