Tax 1 and 2 Reviewer (ATTY SABABAN)

Taxation law review notes
- Atty. Francis J. Sababan -

COVERAGE OF TAXATION LAW REVIEW
I. Basic Principles of
Constitutional Liitations
a) Due process clause which
could be either substantive
due process and procedural
due process clause
b) Equal protection clause
Read:
Ormoc Sugar
Central vs. City reasurer !!
SCR" #$%
iu vs. C" %$& SCR" &'(
c) "rticle ))) sec. & o* the &+('
Constitution , non-
impairment clause
d) "rticle ))) sec. . , *reedom o*
religion
e) "rticle ))) sec. !$ , non-
payment o* poll ta/
*) "rticle 0) sec. !( par. ! ,
*le/ible tari** clause
g) "rticle 0) sec. !( par. % ,
e/emption *rom real property
ta/
Read:
1errera vs. 2ue3on City %
SCR" &(#
"bra vs. 1ernando &$' SCR"
&$4
"bra 0alley vs. "quino .! SCR"
&$#
5hilippine 6ung Center vs.
2ue3on City 4%% SCR" &&+
h) "rticle 0) sec. !( par. 4 ,
quali*ied ma7ority in ta/
e/emption
i) )nternational double ta/ation
C)R vs. 8ohnson %$+ SCR"
('
7) Doctrine o* equitable recoupment
9) Doctrine o* Set-o** or
compensation in ta/ation
Republic vs. :ambulao 4 SCR" #!!
Domingo vs.
;arlitos ( SCR" 44%
<rancia vs. )"C &#! SCR" '.%
Calte/ vs. CO" !$( SCR" '!#
5hile/ vs. C)R !+4
SCR" #('
II. Incoe Ta! La"
Section !!-!# o* the =ational )nternal
Revenue Code
a) Read in the commentaries or magic notes
the di**erent 9inds o*:
&. )ncome a/payers
!. )ncome a/es
%. Sources o* )ncome sec. 4! o* =)RC
- )ncome a/payers
a) )ndividuals
b) Corporation
c) Estates and rusts ,
-)ndividuals are classi*ied
Resident Citi3ens sec. !% >")? sec
!4 >") >a)
=on-Resident Citi3ens sec !% >@)?
!4 >") >b) !! >E)
Overseas Contract Aor9ers Sec. !%
>C)? !4 >") >b)
Resident "liens Rev. Reg. sec .? !%
>D)? !4 >") >c)
=on-Resident "liens Engaged in
trade or business sections !. >") >&)
=on-Resident "liens =ot Engaged in
trade or business sec. !. >@)
"liens Employed in :ulti-=ational
Corporations sec. !. >C) and Rev.
Reg. &!-!$$&
"liens Employed in O**shore
@an9ing Bnits sec !. >D)
"liens Employed in petroleum
Service Contractors C
Subcontractors sec. !. >E)
-Corporate )ncome a/payers
Domestic Corporations sec. !% >E)? and
sec !' o* =)RC
Resident <oreign Corporations sec. !!
>1) and >!()"
=on-Resident <oreign Corporations sec.
!! >&) and !( >@)
-Estates and rusts sec. #$-## o* =)RC
Di**erent Dinds o* )ncome a/
&. =et )ncome a/ secs. !4 >")? !. >")
>&)? !#? !' >") >@) >C)? !( >") up to %
rd

par. %& and %! >")
!. ;ross )ncome a/ secs. !. >@) *irst
part and !( >@) >&)
%. <inal )ncome a/es sec. .' >")
4. :inimum Corporate )ncome a/ o*
!E o* the ;ross )ncome secs. !' >E)?
!( >") >!)
.. )mproperly "ccumulated Earnings
a/ o* &$E o* its ta/able income sec.
!+ =)RC Rev. Reg. !-!$$&
Optional Corporate )ncome a/ o*
&.E o* its gross income sections !'
>") 4
th
to &$
th
par. "nd !( ">&) but
only up to the 4
th
paragraph
&
-5roceed to section 4! and !% o* the
=)RC
=DC vs. Comm &.& SCR" 4'!
Comm. 0s. )"C &!' SCR" +
-hen go to sec. %+ o* =)RC
Cala3ans vs. Comm. &44 SCR" ##4
RR '-!$$%
-hen proceed to sec. !4 >")? !. >") >&)?
!. @?C?D?E? !' "?@?CF !( >") >&)? !( >")
>#) and sec .& >D)
-hen continue to sec !4 @ &? !. @?C?D?EF
!' >D) >&)
-hen go to se. !4 >@) >!) sec. '%
Comm. 0s. :anning ## SCR" &4
"nscor vs. Comm. %$& SCR" &.!
-Sec. !. >") >!)? !. @? C? C? E? sec. !' >D) >4)F
!( >") >') >D)F %! @ >') >a)
- hen you go to sec. !4 C? !." >%)F !. @? C?
D? E? !' D >!)F !( >") >') >C)F !( @ >.) >C)
R" ''&' sec. &!' =)RC
- hen you go to sec. !4 D >&)F !. >") >%)F !.
>@) last par. !' >D) >.)
China @an9 vs. Court o* "ppeals %%# SCR"
GGGF RR '-!$$%
-Bpon reading sec. !4 >D) >!) read RR &%-&+++
-Bpon reading sec. !' >") go to sec. !! >@)
@atangas vs. Collector &$! 5hil. (!!
Evangelista vs. Collector &$! 5hil &4$
Reyes vs. Comm. !4 SCR" &+(
Ona vs. @autista 4. SCR" '4
Obillos vs. Comm &%+ SCR" 4%#
5ascua vs. Comm. &## SCR" .#$
"*isco vs. Comm. %$! SCR" &
-Bpon reading sec. !' >C) o* =)RC see R" +%%'
then go to sec. %! >@) >') >b) o* =)RC? sec. &%%
par >o) o* 6;C? sec. &.4 o* the 6;C.
5agcor vs. @asco &+' SCR" .!
:actan vs. Cebu !#& SCR" ##'
6R vs. City o* :anila %4! SCR" #+!
-5roceed to sections !' >D) >&)? !' >D) >!)? !'
>D) >.) read R" +%%'? !( >") >') >b)? !( >@) >.)
>C)? !' >D) >4)? >!() >") >') >d)? !( >@) >.) >b)
:arubeni vs. C)R &'' SCR" .$$
5roctor C ;amble vs. Comm &#$ SCR" .#$
Same case 5roctor and ;amble on the
:otion *or Reconsideration !$4 SCR" %''
Aonder vs. Comm &#$ SCR" .'%
-5roceed to sec. !'>D) >.)
then sections !' >E) and !( >") >!)
-;o to sec. !( >") >%) read RR &.-!$$!
-;o to sec. !( >") >4) see R" +%%'
-hen see sec !( >") >.) see :arubeni vs.
Comm &'' SCR" .$$
-5roceed to sec. !(>@) >.) >a) and sec %! >@) >')
>a)
Read :itsubishi vs. Comm &(& SCR"
!&4
-hen go to sec. !+ and Rev. Reg. !-!$$&
-Bpon reading sec. %! >@) & and !? read sec. (.
par >e)? sec. &$(" and sec. &!% o* the =)RC
-5roceed to sec. %% read Rev. Reg. %-+(
-then go to sec. %4 >") >&) >a) see "guinaldo vs.
Comm. &&! SCR" &%#? RR &$-!$$!
-Bnder Sec. %4 >@) read RR &%-!$$$
-Bpon reading sec. 4+ read @anas vs. C" %!.
SCR" !.+ and <ilipina vs. Comm. %&# SCR"
4($
-Bpon reading sec. #$-##? read Ona vs.
@autista 4. SCR" '4
III. Estate Ta!
-Sections (4-+' see sec. &$4
-Bpon reading sec. (. >@) read 0idal
de Roces vs. 5osadas .( 5hil. &$(
Di3on vs. 5osadas .' 5hil 4#.
-Sec. (. >;) compare with sec. &$$
-sec. (. >1) compare with sec. (# >C)
-Bpon reading sec. (# see RR !-!$$%
-Bpon reading sec. +4 see :arcos vs.
Sandiganbayan !'% SCR" 4'
IV. #onors Ta! La"
- Sections +(-&$4
- ; and Cumulative methods o* *iling donorHs
ta/ returns sections ++ >")? &$% >") >&) and
RR !-!$$%
- Sections &$$ and (. >+)
V. Value A$$e$ Ta!
- Sections &$.-&&.
-Read R" +%%'
-Read "@"D"D" vs Comm.
;R &#($.#? Sept. &? !$$.
VI. Ree$ies %n$er t&e Internal Re'enue
Co$e
-Sections !$!-!!+
-RR &!-++
5hoeni/ vs Comm &4 SCR" .!
@asilan vs. Comm. !& SCR" &'
Iabut vs. <lo7o &&. SCR" !'(
Bnion Shipping vs. Comm &(. SCR"
.4'
Comm. vs. :J !$. SCR" &(4
Comm. vs. 5hilamli*e !44 SCR"
Comm. vs. C" C @5) %$& SCR" 4%.
!
@5) vs. Comm. %#% SCR" (4$
-5rescription sections !$% and !!! o* =)RC?
sec. &+4 o* the 6;C? sec. !'$ o* the 6;C?
sec. &#$% o* ari** and Customs Code
-5rotest sec. !!( o* =)RC and RR &!-++
sec. &+. o* 6;C? !.! 6;C? sec. !%&% o*
ari** C Customs Code and R" '#.&
VII. Local Ta!ation
- Sections &!(-&+# o* 6;C
-5roceed &
st
to sec. &(# read @ulacan vs.
C" !++ SCR" 44!
-hen proceed to &('
-hen to &.&
-&!(
-Bnder sec. &%% >e) read 5alma vs.
:alangas 4&% SCR" .'!
-Bnder &%% >h) read 5ililia vs. 5etron &+(
SCR" (!
-Bnder &%% >i) read <irst 1oldings Co. vs.
batangas City %$$ SCR" ##&
-Bnder &%% >l) read @utuan vs. 6O %!!
SCR" ($.
-Bnder &%' read sec. &+% o* 6;C
:isamis vs. Cagayan de Oro &(&
SCR" %(
Reyes vs. San 5ablo City %$. SCR"
%.%
:eralco vs. 6aguna %$# SCR" '.$
56D vs. Davao City %#% SCR" .!!
- Co-relate sec. &%+ and &4' o* 6;C
- Bnder sec. &4$ o* the 6;C see sec. &!.
o* the )nternal Revenue Code
- Bnder sec. &.$ o* the 6;C read the
*ollowing:
5hil. :atch vs. Cebu (& SCR" ++
"llied hread vs. :anila &%% SCR"
%%(
Sipocat vs. Shell &$. 5hil. &!#%
)loilo @ottles vs. )loilo City &#4 SCR"
#$'
VIII. Real Propert( Ta!
- Sections &+'-!+4
- Sec. !%.
6R vs. :anila %4!
SCR" #+!
Cebu City vs.
:actan !#& SCR" ##'
IX. Tariff ) Custos Co$e
- Special Customs Duty sec. %$&-%$4 o* CC
- Regu9ar Customs Duty sec. &$4 o* CC
- R" '#%&

X. Court of Ta! Appeals
- R" &&!. as amended by R" +!(!
%
Rules in t&e Classroo*
&. do not be absent
i* you are absent? you have to transcribe
what happened in class when you were out.
he ne/t meeting you attend class?
consider yoursel* a resident o* balic-balic?
babali9bali9an 9a sa recit.
E/ception: i* you get married.
!. read the assignment. Aag 3apote ang aral.
%. holiday , ma9e up class probably on a
Sunday
4. allowed to glance at your notes? wag lang
pahalataKgarapal
.. materials:
codal
commentaries >any author will do)
magic notes >Sababan 6ecture and 2C")
@oo9 stand
Co'era+e of Ta!ation La" Re'ie"*
&. @asic 5rinciples including Constitutional
5rovisions
!. )ncome a/
%. Estate a/
4. DonorHs a/
.. Remedies
#. 6ocal a/
'. Real 5roperty a/
(. ari** and Customs Code
+. Court o* a/ "ppeals
&$. 0" >although not part o* the coverage o* the
@ar E/ams? questions have been as9ed since
&+++)
itle .?# and ' are always included in the
coverage
=o computations in the bar
here are only & or ! questions in the @ar
about @asic 5rinciples
Ahat are the *avorite topics in the @arL
&! questions on )ncome a/
(-&$ questions on remedies
(-&$ questions allocated to the ' topics
BA,IC PRINCIPLE,*
a/ation is an inherent power o* the State.
-* Ahat do you mean by )=1ERE=L
A* he power to ta/ is not provided *or in the law?
statute or constitutionF it depends on the e/istence
o* the state. =o law or legislation *or the e/ercise
o* the power to ta/ by the national government.
-* Do local governments e/ercise this inherent
powerL
A* =o. Only the =ational ;overnment e/ercises
the inherent power to impose ta/es.
-* he ta/ing power o* local governments is a
DE6";"ED power. Delegated by whomL
A* Delegated by Congress through law in case o*
autonomous regions? and delegated by the
constitution in case o* 6;Bs not considered an
autonomous region.
Cities, provinces and municipalities power
granted under "rt. J Sec. .C# o* the Constitution
Autonomous Regions power con*erred by
Congress through law. "rt. J Sec. !$ M! o* the
Constitution is a non-sel*-e/ecuting provision.
hus the power is granted by Congress because
said provision requires an enabling law.
"rticle J? Section . is sel*-e/ecuting thus the
power is granted by the constitution.
CON,TIT%TIONAL LI.ITATION,
Due Process Clause
-* why is it a limitation to the power to ta/L
A* he due process clause as a limitation to the
power to ta/ re*ers both to substantive and
procedural due process. Substantive due process
requires that a ta/ statute must be within the
constitutional authority o* Congress to pass and
that it be reasonable? *air and 7ust.
5rocedural due process? on the other hand?
requires notice and hearing or at least the
opportunity to be heard.
E/: On Substantive Due 5rocess- when the
Congress passes a law e/empting the &%
th
month
pay *rom ta/ but with the concurrence only o* the
ma7ority o* the quorum , law would be invalid
because the Constitution provides that any grant
o* ta/ e/emption shall be passed with the
concurrence o* the ma7ority o* all the members o*
the Congress.
-* Does it *ollow that the adverse party must
always be noti*iedL
A* =o. "s a rule? notice and hearing or the
opportunity to be heard is necessary only when
e/pressly required by law. Ahere there is no
such requirement? notice and the opportunity to be
heard are dispensable.
E/. @e*ore Oct. &? &++.? you can secure a
RO without noti*ying the adverse party. )* you
are a suspect in a criminal case? you have the
right to have an opportunity to be heard >i* there is
a law).
4
@e*ore 8uly &? &++(? no notice need be
given to a party declared in de*ault. "*ter the
amendment? the party declared in de*ault has to
be noti*ied o* subsequent proceedings albeit
without the right to participate therein.
)n the case o* a search warrant? the person to
be searched was not noti*ied. he person
searched cannot claim that there was a violation
o* due process because there is no law requiring
that the person to be searched should be noti*ied.
Regarding delinquent ta/ payers? be*ore
levy? there must be notice.
RE"SO=:
=o provision o* law requires notice to the
adverse party. )* the adverse party is noti*ied? he
may abscond. hus? in adversarial proceedings? in
connection with procedural due process? the
adverse party need not be noti*ied all the time.
Equal Protection Clause
"s a rule? ta/payers o* the same *ooting are
treated ali9e? both as to privileges con*erred and
liabilities imposed. Di**erence in treatment is
allowed only when based on substantial
distinction. Di**erence in treatment not based on
substantial distinction is *rowned upon as Nclass
legislation.O his is violated when ta/payers
belonging to the same classi*ication are treated
di**erently *orm one anotherF and ta/payers
belonging di**erent classi*ications are treated
ali9e.
Requirements of Reasonable Classification:
&) here must be substantial distinctions that
ma9e a real di**erence.
!) )t must be germane or relevant to the
purpose o* the law.
%) he distinction or classi*ication must apply
not only to the present but also to *uture
situations.
4) he distinction must apply to persons?
things and transactions belonging to the
same class.
E/: )n one case? a ta/ ordinance was
assailed on the ground that the ordinance *ailed to
distinguish a wor9er *orm casual? permanent or
temporary. he SC said that the ordinance was
invalid because o* the *ailure to state the said
classi*ication.
)n PEOPLE v. CAYA the Supreme Court
mandated the requisites *or a valid classi*ication.
!" v. CO"R O# APPEAL$ %&'( $CRA )*+,
-* what happened in the city o* OlonggapoL
A* he Congress? with the approval o* the
5resident? passed R" '!!'? an act creating
the conversion o* the military bases into other
productive uses.
-* Aho was the 5resident at that timeL
A* 5resident Ramos
-* Ahat were signedL
A* R" '!!'? EO +' and EO +'-"
he *irst led to the creation o* the Subic
Special Economic Pone >SSEP). he latter set
the limitations and boundaries o* the
application o* the incentives >no ta/es? local
and national? shall be imposed within SSEP.
)n lieu thereo*? %E o* the ;ross )ncome shall
be remitted to the national govHt) to those
operating their businesses within the said
area.
-* Aho are the petitioners and what was their
contentionL
A* he petitioners are <ilipino businessmen who
are operating their business outside the
secured area. he petitioners contended that
the law in question was violative o* their right
to equal protection o* laws since they are also
<ilipino businessmen.
1: he Supreme Court ruled that there was
no violation since the classi*ication was based
on a substantial distinction.
he element invo9ed here is element M&
that there must be substantial distinction in
the classi*ication o* ta/payers on whom the
ta/ will be imposed.
he Court observed that those *oreign
businessmen operating within the secured
area have to give a larger capital to operate in
the secured area >to spur economic growth
and guarantee employment).
OR-OC $".AR CE/RAL vs. C!R
-* Ahat did the municipality o* Ormoc doL
A* he City Council o* Ormoc passed a
:unicipal Ordinance =o.4 imposing upon any
and all centri*ugal sugar milled at the Ormoc
Sugar Central a municipal ta/ on the net sale
o* the same to the Bnited States and other
*oreign countries.
-* Did the owner accept this impositionL
A* =o. the ta/ due was paid under protest? then
*iled a complaint against the City o* Ormoc.
1: he Supreme Court said there was a
violation o* the equal protection clause. he
element invo9ed here was element M%? that it
must be applicable to both present and *uture
circumstances. he Supreme Court said that
one must go to the provision itsel*? in the case
at bar? there was a violation o* element M%
because the law was worded in such a way
that it only applies to Ormoc Sugar Central
.
alone and to the e/clusion o* all other sugar
centrals to be established in the *uture.
"DE =OE: 5eople vs. Cayat
Freedom of Religion
)t )nvolves % hings:
&. *reedom to choose religion
!. *reedom to e/ercise oneHs religion
%. prohibition upon the national government
to establish a national religion
-* Ahich one limits the power to ta/L
A* 5rohibition upon the national government to
establish a national religion because this will
require a special appropriation o* money coming
*rom the national treasury which is *unded by the
ta/es paid by the people.
Non-impairment Clause
-* Ahat are the sources o* obligation in the Civil
CodeL
A* 6aw? Contracts? 2uasi-Contracts? Delict?
2uasi-Delict.
-* Ahat is the obligation contemplated in this
limitationL
A* hose obligations arising *rom contracts.
;eneral Rule: he power to ta/ is pursuant to
law? there*ore? the obligation to pay ta/es is
imposed by law? thus the non-impairment clause
does not apply.
Iou have to determine *irst the source o*
obligation:
&. )* the law merely provides *or the
*ul*illment o* the obligation then the law is not the
source o* the obligation.
!. Ahen the law merely recogni3es or
ac9nowledges the e/istence o* an obligation
created by an act which may constitute a contract?
quasi-contract? delict? and quasi-delict? and its
only purpose is to regulate such obligation? then
the act itsel* is the source o* the obligation? not the
law.
Ahen the law establishes the obligation and
also provides *or its *ul*illment? then the law itsel*
is the source o* the obligation
-* So? in what instance does the non-impairment
o* contracts clause becomes a limitation to the
power to ta/L
A* it is when the ta/payer enters into a
compromise agreement with the government. )n
this instance? the obligation to pay the ta/ is now
based on the contract between the ta/payer and
the government pursuant to their compromise
agreement.
a9e =ote: the requirement *or its application: the
parties are the government and private individual.
Poll Tax
-* Ahat is a poll ta/L
A* )t is a ta/ o* a *i/ed amount on individuals
residing within a particular territory? whether
citi3ens or not? without regard to their property or
to the occupation in which they may be engaged.
)t is a ta/ imposed on persons without any
quali*ications. persons may be allowed to pay
even i* they are not quali*ied as to age or property
ownership.
E/ample o* 5oll a/: Community a/ Certi*icate
under Section &#! o* the 6ocal ;overnment Code.
-* Ahy is it a limitation to the power to ta/L
A* )t is a limitation to the power to ta/ because
Congress is prohibited *rom passing a law
penali3ing with imprisonment a person who does
not pay poll ta/. >*unds *or sending a person to 7ail
is ta9en *rom the national treasury which is *unded
by the ta/es paid by the people)
Exemption from payment of Real Estate Tax
-* Ahat is the requirement *or e/emption *rom
payment o* real property ta/ under the &+%.? &+'%
and &+(' ConstitutionL
A* Art. 0, $ec )) %&,, (1&2 Constitution ,
Cemeteries? churches and parsonages or
convents appurtenant thereto? and all lands?
buildings and improvements used EJC6BS)0E6I
*or RE6);)OBS? C1"R)"@6E or EDBC")O="6
purposes shall be e/empt *or ta/ation.
Art. +, $ec. (* %&,, (1*& Constitution ,
charitable institutions? churches? parsonages or
convents appurtenant thereto? mosque? and non-
pro*it cemeteries? and all lands? buildings? and
improvements "CB"66I? D)REC6I? and
EJC6BS)0E6I used *or RE6);)OBS and
C1"R)"@6E purposes shall be e/empt *rom
ta/ation.
Art. 0, $ec. )+ %&,, (1+* Constitution ,
charitable institutions? churches? and parsonages
or convents appurtenant thereto? mosque? non-
pro*it cemeteries? and all lands? buildings? and
improvements "CB"66I? D)REC6I and
EJC6BS)0E6I used *or RE6);)OBS?
EDBC")O="6 and C1"R)"@6E purposes
shall be e/empt *rom ta/ation.
3ERRERA v. 4C56OAR7 O# A$$E$$-E/
#
>&+%. Constitution)
-* Ahat is involved in this caseL
A* " charitable institution? St. CatherineHs
1ospital. he hospital was previously e/empt
*rom ta/ation until it was reclassi*ied and
subsequently assessed *or the payment o*
real property ta/.
he contention o* the respondent is that
the hospital was no longer a charitable
institution because it accepts pay-patients? it
also operates a school *or midwi*ery and
nursing? and a dormitory. Since it is not
e/clusively used *or charitable purposes it is
not e/empt *rom ta/ation.
1: he Court ruled that petitioner is not liable
*or the payment o* real estate ta/es. )t is a
charitable institution? thus e/empt *rom the
payment o* such ta/.
he hospital? schools and dormitory are
all e/empt *ro ta/ation because they are
incidental to the primary purpose o* the
hospital.
=OE: this arose during the &+%. Constitution.
NE/empted by virtue o* incidental purposeO
was merely coined by the Supreme Court. hus? it
does not apply to other ta/es e/cept Real Estate
a/.
PRO8!/CE O# A6RA v. 3ER/A/7O
A " religious institution was involved in this
case? the Roman Catholic @ishop o* @angued?
)nc. >bishop *iled declaratory relie* a*ter
assessed *or payment o* ta/). he respondent
7udge granted the e/emption *rom ta/es o*
said church based only on the allegations o*
the complaint without conducting a
hearingKtrial. he assistant prosecutor *iled a
complaint contending that petitioner was
deprived o* its right to due process.
SC: the Court ordered that the case be remanded
to the lower court *or *urther proceedings. he
Court observed that the cause action arose under
the &+'% Constitution? not under the &+%.
Constitution >note the di**erence). a/ e/emption
is not presumed. )t must be strictly construed
against the ta/payer and liberally construed in
*avor o* the government.
A6RA 8ALLEY COLLE.E !/C. v. A4"!/O
A* "n educational institution is involved in
this case. he ground *loor o* the school was
leased to =orthern :ar9eting Corp.? a
domestic corporation. he !
nd
*loor thereo*
was used as the residence o* the school
director and his *amily.
he 5rovince o* "bra now contends that
since the school is not e/clusively used *or
educational purposes? the school is now liable
to pay real estate ta/.
1: he Court held that the school is
5"R)"66I liable *or real estate ta/.
&. Residence , e/empt by virtue o*
incidental purposeF 7usti*ied because it is
necessary.
!. Commercial , not e/empt because it is
not pursuant to the primary purposeF not
*or educational purposes.
-* is the doctrine in the case o* 1errera the same
with this caseL
A* =O. in the 1errera case? the e/emption was
granted to all the real property >hospital? school
and dorm). @ut in this case? the Supreme Court
made a quali*ication. he Supreme Court said it
depends.
=OE: both cases arose under the &+%.
Constitution despite having been decided in &+((.
-* "t present? do we still apply the e/emption
*rom ta/ by virtue o* the Doctrine o* )ncidental
5urposeL
A* =ot anymore. he cause o* action in said
case arose under the &+%. Constitution and it
does not apply to the provisions o* the &+('
Constitution.
P3!L!PP!/E L"/. CE/ER v. 4"E9O/ C!Y
A* " charitable institution? a hospital. )t is
provided in the charter o* the 6ung Center o*
the 5hilippines is a charitable institution.
1owever? part o* its building was leased to
private individuals and the vacant portion o* its
lot was rented out to Elliptical Orchids.
Respondent contends that since the hospital
is not used actually? directly? an d e/clusively
*or charitable purposes? it is liable to pay real
estate ta/es.
1: he Supreme Court held that the
petitioner is liable to pay ta/ *or those parts
leased to private individuals *or commercial
purposes. <or the part o* the hospital used *or
charitable purposes >whether *or pay or non-
pay patients)? petitioner is e/empt *rom
payment o* real estate ta/.
=OE: petitioner contended that the pro*its
derived *rom the lease o* its premises were used
*or the operation o* the hospital. he Court held
that the use o* the pro*its does not determine
e/emption? rather it is the use o* the property that
determines e/emption.
'
he case o* 1errera does not apply because
said case arose under the &+%. Constitution and
the present case arose under the &+('
Constitution. he requirements *or e/emption are
di**erent. )n the &+%. Constitution? the property
must be EJC6BS)0E6I used *or religious?
educational or charitable purposes. Bnder the
&+(' Constitution? the property must be used
"CB"66I? D)REC6I? and EJC6BS)0E6I *or
religious? educational and charitable purposes.
-* Aas the doctrine laid down in "bra 0alley
a**irmed in the 6ung Center caseL
A* Ies. he Supreme Court unconsciously
applied a doctrine laid down by the &+%.
Constitution. he Supreme Court reiterated the
ruling in the "bra 0alley case which arose under
the &+%. Constitution. he Supreme Court made
a quali*ication? it held that it depends on whether
or not the use is incidental to the primary purpose
o* the institution.
=OE: at present? Ne/emption *rom ta/ by virtue
o* incidental purposeO is not applicable to all ta/es
including real estate ta/.
CO-- v. $C :O3/$O/ and $O/$, !/C.
)mportant :
&. international double ta/ation
!. importance o* international ta/ treaty
%. implication o* most *avored nation clause
-* Ahat is the corporation involved in this caseL
A* " domestic corporation >DC).
SC 8ohnson and Sons? )nc. entered into a
license agreement with SC 8ohnson and Sons
B.S." >=on-Resident <oreign Corp? =R<C)
whereby the *ormer was allowed to use the
latterHs trademar9 and *acilities to manu*acture
its products. )n return? the DC will pay the
=R<C royalties as well as payment o*
withholding ta/.
" case *or re*und o* overpaid withholding
ta/ was *iled. "pparently? the DC should have
paid only &$E under the most *avored nation
clause.
1: he Supreme Court coined the term
)nternational Double a/ation or )nternational
8uridical Double a/ation.
-* Ahat prompted the SC to coin such termL
A* @ecause a single income >ta/ royalties
paid by a DC) was sub7ected to ta/ by two
countries? the 5hilippines income ta/ and the
B.S. ta/.
)nternational 8uridical Double a/ation
applies only to countries where the ta/
liabilities o* its nationals are imposed on
income derived *rom sources coming *rom
within and without.
-* )s there an instance where international
double ta/ation does not applyL
A* Ies. )* it involves nationals o* countries
wherein the ta/ liability is imposed only *rom
income derive *rom sources within and not
including those derived *rom sources without.
>E/: Swit3erland)
he controversy in the case at bar involves
the income ta/ paid in the 5hilippines.
"*ter paying !.E? the BS *irm discovered
that they are entitled to &$E under the most
*avored nation clause. he question is: was
the ta/ paid under similar circumstances with
that o* the R5-Aest ;ermany reatyL
he C" and Court o* "ppeals ruled that
it was paid under similar circumstances. he
phrase re*erred to the royalties in payment o*
income ta/. he Supreme Court ruled that the
lower courtsH interpretation o* the phrase was
erroneous. Rather? the phrase applies to the
application o* matching credit.
-* Ahat is matching ta/ creditL
A* R5-;ermany reaty provides *or that !$E
o* the ta/ paid in the 5hilippines shall be
credited to their ta/ due to be paid in
;ermany.
he &$E does not apply because there is
no matching credit. hus? there is no similarity
in the circumstances.
E-%ITABLE RECO%P.ENT AN# #OCTRINE
OF ,ET/OFF
Equitable Recoupment
his doctrine provides that a claim *or re*und
barred by prescription may be allowed to o**set
unsettled ta/ liabilities. his is not allowed in this
7urisdiction? because o* common law origin. )*
allowed? both the collecting agency and the
ta/payer might be tempted to delay and neglect
the pursuit o* their respective claims within the
period prescribed by law.
-* Ahat is the doctrine o* Equitable
RecoupmentL
A* Ahen the claim *or re*und is barred by
prescription? the same is allowed to be credited to
unsettled ta/ liabilities.
>Sir gives an illustration *ound in page % o* magic
notes)
-* )s the rule absoluteL Reason
A* Ies? the rule is absolute. he rationale behind
this is to prevent the ta/payer and government
o**icial *rom being negligent in the payment and
collection o* ta/es. >*urthermore? you have to be
(
honest *or this to wor9? hence? the government is
preventing corruption)
here is no e/ception at all otherwise? the @)R
would be *looded with so many claims.
Set-off
5resupposes mutual obligation between the
parties. )n ta/ation? the concept o* set-o** arises
where a ta/payer is liable to pay ta/ but the
government? *or one reason or another? is
indebted to the said ta/payer.
-* Ahat do you mean by SE-O<<L
A* his presupposes mutual obligations between
the parties? and that they are mutual creditors and
debtors o* each other. )n ta/ation? the concept o*
ta/ation arises where a ta/payer is liable to pay
ta/es but the government? *or one reason or
another? is )=DE@ED to said ta/payer.
REP"6L!C v. -A-6"LAO L"-6ER CO.
-* Ahat is the liability o* :ambulaoL
A* hey are liable to pay *orest charges
>under the old ta/ code).
=OE: under our present ta/ code? the =)RC? we
do not have *orest charges as the same was
abolished by 5resident "quino.
-* Ahat did the lumber company doL
A* he lumber company claimed that since
the government did not use the re*orestation
charges it paid *or re*orestation o* the
denuded land covered by its license? the
amount paid should be reimbursed to them or
at least compensated or applied to their
liability to pay *orest charges.
1: he Court ruled that the re*orestation
charges paid is in the nature o* ta/es.
he principle o* compensation does not
apply in this case because the parties are not
mutually creditors and debtors o* each other.
" claim *or ta/es is not a debt? demand?
contract or 7udgment as is allowed to be set-
o** under the statute o* set-o** which is
construed uni*ormly? in the light o* public
policy? to e/clude the remedy in connection or
any indebtedness o* the State or any
municipality to one who is liable *or ta/es.
=either are they a proper sub7ect *or
recoupment since they do not arise out o*
contract or the same transaction sued on.
;eneral Rule: no set-o** is admissible against
demands *or ta/es levied in general or local
governmental purposes.
Reason: a/es are not in the nature o* contracts
or debts between the ta/payer and the
government? but arises out o* a duty to? and are
positive acts o* the government to the ma9ing and
en*orcing o* which? the consent o* the individual is
not required.
a/es cannot be the sub7ect matter o*
compensation.
7O-!/.O v. .ARL!O$
-* Ahat is being collected in this caseL
A* Estate and inheritance ta/es.
=OE: we do not have inheritance ta/es anymore
because the same was abolished by 6olo
:acoy.
-* Aho is the administratri/L
A* he surviving spouse.
-* Ahat did the surviving spouse doL
A* he surviving spouse suggested that the
compensation to which the decedent was
entitled to as an employee o* the @ureau o*
6ands be set-o** *rom the estate and
inheritance ta/es imposed upon the estate o*
the deceased.
1: @oth the claim o* the government *or
estate and inheritance ta/es and the claim o*
the >intestate) *or the services rendered have
already become overdue hence demandable
as well as *ully liquidated? compensation
there*ore ta9es place by operation o* law? in
accordance with "rt. &!'+ and &!+$ o* the
Civil Code and both debts are e/tinguished to
the concurrent amount.
Compelling Reason: Congress has
enacted R" !'$$? allocating a certain sum o*
money to the estate o* the deceased.
#RA/C!A v. !AC
-* his happened in what cityL
A* 5asay City
-* Ahat is the ta/ being collectedL Aho is
collecting the sameL
A* 5ayment *or real estate ta/es *or the
property o* <rancia. )t appears that petitioner
was delinquent in the payment o* his real
estate ta/ liability. he same is being
collected by the reasurer o* 5asay.
-* Ahat is the suggestion o* petitionerL
A* Suggested that the 7ust compensation *or
the payment o* his e/propriated property be
set-o** *rom his unpaid real estate ta/es. >the
other part o* his property was sold at a public
auction)
1: he *actual milieu o* the case does not
7usti*y legal compensation.
he Court has consistently ruled that
there can be no o**-setting o* ta/es against
the claims that the ta/payer may have against
the government. " ta/payer cannot re*use to
+
pay a ta/ on the ground that the government
owes him an amount.
)nternal Revenue ta/es cannot be the
sub7ect o* compensation because the
government and the ta/payer are not mutually
creditors and debtors o* each other? and a
claim *or ta/es is not a debt? demand? contract
or 7udgment as is allowed to be compensated
or set-o**.
<urthermore? the payment o* 7ust
compensation was already deposited with
5=@ 5asay? and the ta/es were collected by a
local government? the property was
e/propriated by the national government. >di**
parties? not mutual creditors and debtors o*
each other.)
CALE; P3!L v. COA
-* Ahat is being collectedL
A* Calte/Hs contribution to the Oil 5rice
Stabili3ation <und >O5S<).
CO" sent a letter to Calte/ as9ing the
latter to settle its unremitted collection stating
that until the same is paid? its claim *or
reimbursement *rom the O5S< will be held in
abeyance.
-* Ahy is Calte/ entitled to reimbursementL
A* @ecause o* the *luctuation o* the oil prices
in the :iddle East and Europe. Calte/ wanted
to o**-set its unremitted collection *rom its
reimbursements.
1: he Court did not allow the set-o**? and
reiterated its ruling in the case o* :ambulao
and <rancia. <urthermore? R" #+.! e/pressly
prohibits set-o** *rom the collection o*
contributions to the O5S<. he Court li9ewise
stated that Calte/ merely acted as agent o*
the government in collecting contributions *or
the O5S< because such is being shouldered
by the consumers when they purchase
petroleum products o* oil companies? such as
Calte/.
a/ation is no longer envisioned as a
measure merely to raise revenues to support
the e/istence o* the government. a/es may
be levied *or regulatory purposes such as to
provide means *or the rehabilitation and
stabili3ation o* a threatened industry which is
vested with public interest? a concern which is
within the police power o* the State to
address.
P3!LE; -!/!/. CORP v. CO--
he petitioner is liable *or the payment o*
e/cise ta/es? which it wanted to be set-o** *rom its
pending claim *or a 0" )nput creditKre*und.
he Court did not allow set-o**. a/es cannot
be the sub7ect o* compensation *or the simple
reason that the government and ta/payer are not
mutual creditors and debtors o* each other. a/es
are not debts.
<urthermore? in the instant case? the claim *or
0" re*und is still pending. he collection o* a ta/
cannot await the results o* a lawsuit against the
government.
#O%BLE TAXATION

Double ta/ation is allowed because there is
no prohibition in the Constitution or statute.
Obno/ious double ta/ation is the synonym o*
double ta/ation.
Elements o* Double a/ation:
&) 6evied by the same ta/ing authority
!) <or the same sub7ect matter
%) <or the same ta/ing period and
4) <or the same purpose
here is no double ta/ation i* the ta/ is levied
by the 6;B and another by the national
government. he two >!) are di**erent ta/ing
authorities.
6;Bs are e/pressly prohibited by the
provisions o* R" '&#$ or the 6;C o* &++& *rom
levying ta/ upon: >&) the =ational ;overnmentF
>!) its agencies and instrumentalitiesF >%) 6;Bs
>sec.&&%>o)).
he =ational ;overnment? pursuant to the
provisions o* R" (4!4 o* the a/ Re*orm "ct o*
&++'? can levy ta/ upon ;OCCs? agencies and
instrumentalities >Section !' c))? although income
received by the ;overnment *orm:
&) any public utility or
!) the e/ercise o* any essential
governmental *unction
is e/empt *rom ta/.
0IN#, OF INCO.E TAXPA1ER,
-* ;enerally? how many 9inds o* income
ta/payers are thereL
A* Bnder section !!" o* =)RC? there are three
>%)? namely:
&. individualF
!. corporateF
%. estate and trust.
I. IN#IVI#%AL TAXPA1ER
-* 1ow many 9inds o* individual ta/payers are
thereL
A* here are seven >'). =amely:
&. Resident Citi3en >Q!%" and !4")F
&$
!. =onresident Citi3en >Q!%@ and !4")F
%. OCA and Seaman >Q!%C and !4")F
4. Resident "lien >Q!!<? !%D and !4")F
.. =onresident "lien Engaged in rade or
@usiness >Q!!;? !%D and !.")
#. =onresident "lien =O Engaged in rade
or @usiness >Q!!;? !%D and !.@)
'. "liens Engaged in :ultinational
Companies? O**shore @an9ing Bnits?
5etroleum Service Contractors >Q!.C?D
and E)
Resident Citien !RC"
-* 1ow many types o* RCL
A* here are two >!)? namely:
&. RC residing in the 5hilippinesF and
!. <ilipino living abroad with no intention to
reside permanently therein.
-* )* you are abroad? and you have the intention
to permanently reside therein? can you still be
considered a RCL
A* Ies. )* such intention to permanently reside
therein was not mani*ested to the Commissioner
and the *act o* your physical presence therein?
you may still be considered a RC.
#C$ and Seamen
OCA was used and not O<A in the CR5?
because the classi*ication shall cover only those
<ilipino citi3ens wor9ing abroad with a contract.
=s are not covered.
" <ilipino seaman is deemed to be an OCA
*or purposes o* ta/ation i* he receives
compensation *or services rendered abroad as a
member o* the complement o* a vessel engaged
e/clusively in international trade.
Consequently? i* he is not a member o* the
complement or even i* he is but the vessel where
he wor9s is not e/clusively engaged in
international trade? said seaman is not deemed to
be an OCA. 1e is either a RC or a =RC
depending on where he stays most o* the time
during the ta/able year.
)* he stays in the 5hilippines most o* the time
during the ta/able year? he is considered a RC?
otherwise? a =CR.
)* you are a seaman in the BS =avy? you are
not the one being re*erred to.
he importance o* ascertaining whether or not
a seaman is a RC or a =RC? is that i* he is a RCm
he is ta/able on "66 income derived *rom all
sources within and without. )* he is a =RC? he is
ta/able only on income derived *orm sources
within the 5hilippines.
-* Ahat is the signi*icance o* using OCAL
A* )t only covers <ilipinos who wor9s abroad with
a contract. )t does not cover =s.
-* Ahat is the status o* a =L
A* Since they are not covered by this
classi*ication? they are considered RC because
they wor9 abroad without a contract and they
have not mani*ested their intention to permanently
reside abroad. >distinguish *rom an immigrant)
Requirements *or a seaman to be considered an
OCA:
&. must be a member o* the compliment o* a
vesselF
!. the vessel must be e/clusively engaged in
international trade or commerce.
Resident %lien !R%"
"n individual whose residence is within the
5hilippines and who is not a citi3en thereo*.
)ntention to reside permanently in the
5hilippines is not a requirement on the part o* the
alien.
he requirement under RRM! is that he is
actually present in the 5hilippines? neither a
so7ourner? a traveler? not a tourist.
Ahether heHs a transient or not is determined
by his intent as to the nature and length o* his
stay.
-* )s the intention to permanently reside in the
5hilippines necessaryL
A* =o? so long as he is not a so7ourner? tourist or
a traveler.
Non-Resident %lien Engaged in Trade or
&usiness !NR%ET&"
" *oreigner not residing in the 5hilippines but
who is engaged in trade or business here.
RR !-+( has e/panded the coverage o* the
term? Nengaged in trade or businessO to include
the e/ercise o* a pro*ession. <urthermore? by the
e/press provision o* the law? a =R" who is neither
a businessman nor a pro*essional but who come
to and stays in the 5hilippines *or an aggregate
period o* more than &($ days during any calendar
year is deemed to a =R"E@ in the 5hilippines.
&&
-* 1ow many typesL
A* here are three >%) types? namely:
&. =R" engaged in trade or business
>!.a&)F
!. =R" who practices a pro*ession
>Revenue Regulation !-+()F
%. *oreigner who comes and stays in the
5hilippines *or an aggregate period o*
:ORE 1"= &($ days during any
calendar year.
-* Ahat is the status o* a Chinese who stays
here *or !$$ days in !$$&L
A* =R"E@
-* Suppose he stayed here *or &$$ days in !$$$
and another &$$ days in !$$&L
A* 1e is not a =R"E@. o be considered as
such? he must stay *or an aggregate period o*
more than &($ days during a calendar year.
-* Ahat is the income ta/ applicable to said
ta/payerL
A* =et )ncome a/ >=)) on all its income
derived *orm sources within the 5hilippines.
Non-Resident %lien Not Engaged in Trade
or &usiness
-* 1ow many 9indsL
A* Only one.
he reason why the =R"=E@ are included
in any income ta/ law is because they may be
deriving income *orm sources within the
5hilippines.
hey are sub7ect to ta/ based on their
;ROSS )=CO:E received *orm all sources within
the 5hilippines.
%liens Employed by Regional or %rea
'eadquarters ( Regional #perating
'eadquarters of )ultinational Companies*
%liens Employed by #ffs+ore &an,ing
-nits !%liens Employed by )#P"
Status: either a R" or =R" depending on their
stay here in the 5hilippines.
heir status may either be R" or =R"
because Section !. C and D does not distinguish.
6iable to pay &.E *rom ;ross )ncome
received *rom their employer
)ncome earned *rom all O1ER sources shall
be sub7ect to the pertinent income ta/? as the case
may be.
%liens Employed in )ultinational and
#ffs+ore &an,ing -nits
-* 1ow are they classi*iedL
A* )* they derived income *rom other sources
aside *rom their employer? you may classi*y them
either as R"? =R"E@? or =R"=E@.
%liens Employed in Petroleum Ser.ice
Contractors and Subcontractors
Status: "6A"IS =R". )* they derive income
*rom other sources? such income shall be sub7ect
to the pertinent income ta/? as the case may be.
)ncome derived or coming *rom their employer
shall be sub7ect to a ta/ o* &.E o* the gross.
II. CORPORATE TAXPA1ER
&. 7omestic Corporation %7C, , created or
organi3ed under 5hilippine laws.
!. Resident #oreign Corporation %R#C, ,
corporation created under *oreign law?
and engaged in trade or business.
%. /onresident #oreign Corporation %/R#C,
, created under *oreign law? and =O
engaged in trade or business.
-* Ahat are deemed corporations under the
=)RCL
A* he term corporation shall include
partnerships? no matter how created or organi3ed?
7oint stoc9 companies? 7oint accounts?
associations? or insurance companies? but DOES
=O includes general pro*essional partnerships
and a 7oint venture or consortium *ormed o* the
purpose o* underta9ing construction pro7ects or
operations pursuant to or engaging in petroleum?
coal? geothermal or consortium agreement under
a service contract with the ;overnment.
&. 5artnerships and others no matter how
created
!. 8oint Stoc9 Companies
%. 8oint "ccounts
4. "ssociations
.. )nsurance Companies
C!R v. CO"R O# APPEAL$
he phrase no Nmatter how created or
organi3edO was interpreted.
Even i* the partnership was pursuant to law or
not? whether nonstic9? nonpro*it? it is still deemed
a corporation.
Reason: because o* the possibility o* earning
pro*its *orm sources within the 5hilippines.
&!
-* "re partnerships always considered
corporationsL )s there no e/ceptionL
A* ;eneral Rule: a partnership is a corporation.
E/ception: ;eneral 5ro*essional 5artnerships
>;55)
-* Ahat is a ;55L
A* )t is a partnership *ormed by persons *or the
sole purpose o* e/ercising their pro*ession? no
part o* the income o* which in derived *rom any
trade or business. >what i* a partner has other
businesses not related to the ;55L R read section
!# quoted hereunder)
wo >!) Dinds o* ;55 *ormed *or:
&) E/ercise o* a pro*ession , not a
corporationF e/empt *rom Corporate
)ncome a/ >C))
!) E/ercise o* a pro*ession and engaged in
trade or business , a corporationF sub7ect
to C)
A/ v. 7EL RO$AR!O
general rule: a partnership is a corporation
e/ception: ;55
e/ception to the e/ception: i* the ;55 derives
income *rom other sources? it is considered a
corporation? thus liable to pay corporate income
ta/.
Rule:
&. i* the income is derived *rom other
sources and such income is sub7ect to =E
)=CO:E "J? it is not e/empt and it is
considered a corporation.
!. i* the income is derived *rom other
sources and such income is sub7ect to <)="6
)=CO:E "J? it is still EJE:5 and it is not
deemed a corporation. > separate return *or this. )t
will not re*lect in the ;55Hs )R)
S his is pursuant to the *act that <) will not
re*lect in the )R o* the ;55 since the withholding
agent is liable *or the payment o* the <).
-* Ahat is the importance o* 9nowing whether
the corporation is e/empt or notL
A* o determine their ta/ liability. his is
important to determine the ta/ liability o* the
individual partners o* the ;55.
$ection )0 %(
st
paragrap<, provides: Na ;55
as such shall not be sub7ect to the =et )ncome
a/TO however? NTpersons engaging in business
as partners in a ;55 shall be liable *or income ta/
only in their separate and individual capacities.O
)n short? each partner will be paying =)? and
the distributive shares they will be receiving *rom
the net income o* the ;55 will be included in the
gross income o* the partner.
-* )* the ;55 is deemed a corporation? will the
partners have to pay *or the income ta/L
A* =o. as *ar as the share o* the ;55 is
concerned? it is considered a ta/able dividend
which is sub7ect to <).
-* )s a 7oint venture a corporationL
A* ;enerally? yes? it is a corporation.
-* Corporation J and Corporation I 7oined
together. 1ow many corporations do we haveL
A* hree? namely Corporation J? I? and JUI. the
7oint venture has a separate and distinct
personality *rom the two corporations.
-* Ahen is a 7oint venture not considered a
corporationL
A* )t is not deemed a corporation when it is
*ormed *or the purpose o* underta9ing a
>NconstructionL) pro7ect or engaging in petroleum?
gas? and other energy operations pursuant to NLO
or consortium agreement under a service contract
with the government.
Domestic Corporation
)s one created or organi3ed in the 5hilippines
or under its laws.
a/able on all income derived *rom sources
within or without the 5hilippines.
Resident Foreign Corporation
<oreign corporations engaged in trade or
business in the 5hilippines.
a/able *or income derived within the
5hilippines.
Non-Resident Foreign Corporation
<oreign corporations not engaged in trade or
business in the 5hilippines.
a/able *or income derived within the
5hilippines.
@oth DC and R<C are liable *or the payment
o* the *ollowing:
&) =) , =et )ncome a/
!) <) , <inal )ncome a/
&%
%) &$E income ta/ on corporations with
properly accumulated earnings.
4) :C) >:inimum Corporate )ncome a/)
o* !E o* the ;ross )ncome
.) Optional Corporate )ncome a/ o* &.E o*
the ;ross )ncome
" =R<C is liable *or payment o* the **:
&) ;)- ;ross )ncome a/
!) <) , <inal )ncome a/
III. TR%,T AN# E,TATE
-* 1ow many *or eachL
A* Seven >') 9inds *or each because the trust or
estate will be determined by the status o* the
trustor? grantor? or creator? or o* the decedent.
he status o* the estate is determined by the
status o* the decedent at the time o* his deathF so
an estate? as an income ta/payer can be a citi3en
or an alien.
Ahen a person who owns property dies? the
*ollowing ta/es are payable under the provision o*
income ta/ law:
&) )ncome a/ *or )ndividuals , to cover the
period beginning 8anuary to the time
o* death.
!) Estate )ncome a/ , i* the property is
trans*erred to the heirs.
%) )* no partition is made? )ndividual or
Corporate )ncome a/? depending on
whether there is or there is no
settlement o* the estate. )* there is?
depending on whether the settlement
is 7udicial or e/tra7udicial.
:udicial $ettlement
&) During the pendency o* the settlement?
the estate through the e/ecutor?
administrator? or heirs is liable *or the
payment o* ES"E )=CO:E "J >Se/?
#$ >%)).
!) )* upon the termination o* the 7udicial
settlement? when the decision o* the court
shall have become *inal and e/ecutory?
the heirs still do not divide the property?
the *ollowing possibilities may arise:
a) )* the heirs contribute to the estate
money? property or industry with the
intention to divide the pro*its between
and among themselves? an
B=RE;)SERED 5"R=ERS1)5 is
created and the estate becomes liable
*or payment o* C) >Evangelista vs.
Collector >&$! 5hil &4$))
b) )* the heirs without contributing
money? property or industry to
improve the estate? simply divide the
*ruits thereo* between and among
themselves? a CO-OA=ERS1)5 is
created and )ndividual )ncome a/
>))C) is imposed on the income
derived by each o* the heirs? payable
in their separate and individual
capacity >5ascual vs. CO:: >&#.
scra .#$) and Obillos vs. CO:: >&%+
SCR" 4%#))
E=tra>udicial $ettlement and if /O $ettlement
Some possibilities may arise. he income ta/
liability depends on whether or not the
unregistered partnership or co-ownership is
created.
Trust
rusts can be created by will? by contract or
by agreement. he status o* a trust depends
upon the status o* the grantor or trustor or creator
o* the trust. 1ence? a trust can also be a citi3en or
an alien.
-* Ahere the trust earns income and such
income is not passive? who among the parties
mentioned is liable *or payment o* income ta/
thereonL
A* he RBS itsel*? through the trustee or
*iduciary but only i* the trust is irrevocable.
)* it is revocable? or *or the bene*it o* the
grantor? the liability *or the payment o* income ta/
devolves upon the trustor himsel* in his capacity
as individual ta/payer.
0IN#, OF INCO.E TAX
-* 1ow many 9inds o* income ta/L
A* here are Si/ >#)? namely:
&. =et )ncome a/ >=))F
!. ;ross )ncome a/ >;))F
%. <inal )ncome a/ ><))F
4. :inimum Corporate )ncome a/ o* !E o*
the ;ross )ncome >:C))
.. )ncome a/ on )mproperly "ccumulated
Earnings sub7ect to &$E o* the a/able
)ncomeF
#. Optional Corporate )ncome a/ o* &.E
on the ;ross )ncome
I. NET INCO.E TAX
-* what is the *ormulaL
&4
A* ;ross )ncome , Deductions and 5ersonal
E/emptions V a/able )ncome
a/able )ncome / a/ Rate V =et )ncome
a/able =et )ncome , a/ Credit V
a/able =et )ncome Due
=et )ncome means ;ross )ncome less
deductions and
<ormula:
;)
- deductions
=et )ncome
/ a/ Rate
)ncome a/ Due
-* Ahat is the rateL
A* )ndividual: %!E
Corporation: %.E
=OE: the *ormula allows *or deduction? personal
e/emptions and ta/ credit.
-* Ahat are the other terms *or =)L
A* =)RC:
a. ta/able income
b. gross income >wlang 9asunod)
only income ta/ *rom improperly accumulated
earnings does not use this term.
&. C<": Nto be included in the gross incomeO
!. Revenue Regulations and Statutes:
a. ordinary way o* paying income ta/F
b. normal way o* paying income ta/ .
C+aracteristics/
-* Aho are not liable to pay =)L
A* &. =R"=E@ >liable *or ;))F
!. =R<C >;) also)F
%. Aith certain modi*ications? "E:O5? i*
they derive income *rom other sourcesF
-* )s the ta/able net income sub7ect to
withholding ta/L
A* )t is sub7ect to withholding ta/ i* the law says
so.
-* Ahat i* the law is silentL
A* )* the law is silent? it is not sub7ect to
withholding ta/.
-* Ahat is another term *or withholding ta/L
A* )t is also 9nown as the creditable withholding
ta/ system under the income ta/ law.
-* Do we have to determine i* there is an actual
gain or lossL
A* Ies because the *ormula *or deductions? etc.
-* )* you *ail to pay? will you be held liableL
A* Ies? you will be held liable.
II. GRO,, INCO.E TAX 2GIT3
-* Ahat is the *ormulaL
A* ;ross )ncome / Rate
-* 1ow many ta/payers pay by way o* the
grossL
A* here are two >!)
individual - =R"=E@
corporation - =R<C
=OE: the *ormula does not allow any deduction?
personal e/emptions and ta/ credit.
C+aracteristics/
=R"=E@ and =R<C? though not engaged in
trade or business? are liable to pay by way o* the
gross *or any income derived in the 5hilippines.
Ahile not engaged in trade or business? there is a
possibility that they may earn income in the
5hilippines.
-* )s this sub7ect to withholding ta/L
A* Ies? it is sub7ect to withholding ta/ because
the persons liable are *oreigners. his rule is
"@SO6BE
=OE: there are two >!) ways o* paying ta/es
depending on which side o* the bench you are.
III. FINAL INCO.E TAX 2FIT3
-* Ahat is the *ormulaL
A* >Each )ncome) / >5articular Rate)
Bnli9e in the gross income ta/ where you add
all the income *rom all the sources and multiply
the sum thereo* by the rate o* !.E or %.E? as the
case may be? in *inal income ta/? you cannot 7oin
all the income in one group because each income
has a particular rate.
A* %.E as the case may be.
=OE: li9e ;)? the *ormula does not allow
deductions? personal e/emptions? and ta/ credit.
C+aracteristics/
&.
-* Aho are liable to pay <)L
A* "ll ta/payers are liable to pay <) provided
the requisites *or its application are present.
-* Do you still have to pay =)L
A* =o. i* you are liable *or <)? no need to pay
=) or else there will be double ta/ation.
=OE: as time passed by? the number o* <)
increased.
be*ore &+'+ , proceeds *rom the sale o* real
property not e/empt? it is sub7ect to =) or ;)? as
the case may be.
a*ter &+'+ , capital gains ta/. 5roceeds *rom
the sale o* real property is e/empt.
-* )* you *ail to pay? will you be liableL
A* =o. the withholding agent is liable to pay <).
Case o* 8uday? Richard and Regine
<or one to be liable *or the payment o* =)?
the income must be derived on the basis o* an
employer , employee relationship.
Employer , Employee Relationship
>% Cs):
&. contractF
!. controlF
%. compensationF
1owever? in the case o* celebrities? there is no
employer , employee relationship? they are
merely receiving royalties. Royalties are sub7ect to
*inal withholding ta/? thus the agent is liable to
pay. >so? distinguish nature o* income? whether
royalty or compensation)
RB6E:
&. *or =)? whether or not sub7ect to
Creditable Aithholding a/ >CA)? the
ta/payer is always liable i* he *ails to pay.
!. *or ;) and <)? absolute liability to pay is
upon the withholding agent.
-* Ahy is it that the rate o* withholding is always
lower? and why is it that the rate o* ;) and <) is
always equalL
A*
&. =) allows deductionsF
!. ;) and <) do not allow deductions.
-* Do you have to determine whether there is an
actual loss or gainL
A* =o need to determine because the *ormula
does not allow deductions. ;ain is presumed. =o
liability *or *inal withholding ta/ e/cept *or the sale
o* shares o* stoc9. >L)
IV. .INI.%. CORPORATE INCO.E TAX
2.CIT3
-: Ahat is the *ormulaL
A* ;ross )ncome / !E
-: Aho pays this ta/L
A* DC and R<C only.
-* :ay it be applied simultaneous with =)L
A* =o. there must be a computation o* the =)
*irst then apply which ever is higher. he :C) is
paid in lieu o* the =).
Reason: to discourage corporations *rom claiming
too many deductions.
V. OPTIONAL CORPORATE INCO.E TAX
-* Bnder what section is this *oundL
A* Section !'" 4
th
paragraph and Section !(
">&) 4
th
paragraph.
-* )s this applicable nowL
A* =o. this is not yet implemented.
-* o what 9ind o* ta/payer does this applyL
A* o DC and R<C.
-* Ahat 9ind o* ta/es are applicable or imposed
upon the &
st
*ive individual ta/payersL
A* Only two >!) 9inds are applicable out o* the si/
>#) 9inds o* income ta/es.
1. =)F
2. <)F
-* Ahat 9ind o* income ta/ will apply to
"E:O5L
A* ;enerally? only one 9ind? &.E <) with
respect to income derived *rom their employer.
)ncome *rom other sources:
&. Determine the status o* the "E:O5F
a. =)
b. <)
!. =R"=E@
a. ;)
b. <)
-* Ahat 9ind o* income ta/ applies to DCL
A* Only *our >4) 9inds will apply out o* the si/ >#)
&. =)
!. <)
%. :C)
4. )mproperly "ccumulated Earnings
&#
-* :ay all o* these be applied simultaneouslyL
A* =o. only the =)? <) and )mproperly
"ccumulated Earnings be applied simultaneously.
=) and :C) cannot be applied simultaneously.
Only one will apply? whichever is higher between
the two.
-* Ahat 9ind o* ta/ will apply to =R<CL
A* Out o* the si/ >#) 9inds? only two >!) will apply:
&. ;)
!. <)
-* Ahat is the signi*icance o* 9nowing the
classi*ication o* these ta/payersL
A*
&. to determine the 9ind o* income ta/
applicable to themF
!. to determine their ta/ liability.
-* Bnder Section !%? who are liable *or income
within and income withoutL
A* Only
&. RC
!. DC
he rest o* the ta/payers will be liable *or
income coming *rom sources within.
)ncome *rom sources without? no liability?
there*ore e/empt.
=OE: he income ta/payer is not a RC or a DC.
Determine i* the income came *rom sources within
or without to 9now the ta/payerHs liability.
)* the *acts are speci*ic? do not quali*y your
answer. "nswers must be responsive to the
question.
-* )s section 4! relevant to all the ta/payersL
A* =O. SEC)O= 4! )S =O :"ER)"6 O "66
ta/payers? particularly the RC and DC because
these two are liable *or both income within and
without.
Section 4! is applicable only to ta/payers who
are liable *or income within? the rest o* the
ta/payers are otherwise e/empt.
-* Section 4!>")>&) provides *or how many 9inds
o* interestsL
A* )t establishes two >!) 9inds o* interests?
namely:
&. interest derived *rom sources within the
5hilippines.
!. interest on bonds? notes or other interest
bearing obligations o* residents? corporate
or otherwise.
-* Ahat is the determining *actor in order to
9now i* the income is *rom withinL
A*
&. location i* the ban9 is *rom within the
5hilippines >pursuant to a Revenue Reg.)
!. residence o* the obligor >whether an
individual or a corp.) , contract o* loan
with respect to the interest earned
thereon.
<or e/ample the borrower is a =R"E@? he
borrowed money *rom a R". he interest earned
by the loan will be considered as an income
without. R" is not liable to pay ta/ since R" is
liable only *or income within? there*ore e/empt
*rom paying the ta/.
/A!O/AL 7E8ELOP-E/ CO. v. C!R
<: he =ational Development Company
>=DC) entered into a contract with several
8apanese shipbuilding companies *or the
construction o* &! ocean-going vessels. he
contract was made and e/ecuted in o9yo.
he payments were initially in cash and
irrevocable letters o* credit. Subsequently?
*our promissory notes were signed by =DC
guaranteed by the ;overnment.
6ater on? since no ta/ was withheld *rom
the interest on the amount due? the @)R was
collecting the amount *rom =DC.
he =DC contended that the income was
not derived *rom sources within the
5hilippines? and thus they are not liable to
withhold anything. =DC said that since the
contract was entered into and was e/ecuted
in 8apan? it is an income without.
1: he governmentHs right to levy and collect
income ta/ on interest received by a *oreign
corporation not engaged in trade or business
within the 5hilippines is not planted upon the
condition that the activity or labor and the sale
*rom which the income *lowed had its situs in
the 5hilippines. =othing in the law >Section
4!>&)) spea9s o* the act or activity o*
nonresident corporations in the 5hilippines? or
place where the contract is signed. he
residence o* the obligor who pays the interest
rather than the physical location o* the
securities? bonds or notes or the place o*
payment is the determining *actor o* the
source o* the income. "ccordingly? i* the
obligor is a resident o* the 5hilippines? the
&'
interest paid by him can have no other source
than within the 5hilippines.
-* Suppose a =R<C? an )ndonesian *irm?
becomes a stoc9holder o* two corporations? a DC
and a R<C? and both corporations declared
dividends? what is the liability o* the )ndonesian
*irm i* the same received the dividendsL
A*
&. Dividends received *rom DC: the
)ndonesian *irm is liable to pay ta/es.
=R<C? under the law? is liable i* the
income is derived *rom sources within.
>Sec 4!a)
!. Dividends received *rom R<C: the
)ndonesian *irmHs liability will depend on
amount o* gross income *rom sources
within the 5hilippines.
he =R<C will be liable to pay income ta/ i* the
*ollowing requisites are present:
&. at least .$E is income *rom sources
withinF
!. the &
st
requisite is *or the three >%)
preceding ta/able years *rom the time o*
declaration o* the dividends.
)n the absence o* any or both requisites?
the income will be considered *rom sources
without? thus e/empting the )ndonesian *irm *rom
payment o* income ta/.
-* Same scenario? but this time the shares o*
stoc9 o* the two corporations were being disposed
o**. Ahat is the ta/ liability o* the )ndonesian *irmL
A*
&. sale o* shares o* stoc9 o* DC: the
)ndonesian *irm will be liable *or the
payment o* ta/es because the income is
*rom sources within.
!. sale o* shares o* stoc9 o* R<C: the liability
will depend on where the shares o* stoc9
were sold. >me7o :alabo sa notes? please
be guided accordingly)
-* <ilipino E/ecutive? assigned to 1ong Dong?
receiving two salaries? one *rom the 5hilippines?
the other *rom 1D. he per*ormance o* the 7ob
was in 1D. )s he liable *or both salariesL
A* =o? he is not liable *or the two incomes.
1is status is an OCA >note *acts: wor9ing in 1D
under contract). he compensation he received is
not sub7ect to ta/ pursuant to Section 4!>c).
Compensation *or labor or personal services
per*ormed in the 5hilippines is considered an
income within. Ahen it comes to services? it is the
place where the same is rendered which is
controlling. )n the case at bar? the services were
rendered abroad? thus it is an income derived
*rom sources without? irrespective o* the place o*
payment.
-* Suppose a DC hired a =R<C to advertise its
products abroad. Ahat is the liability o* the
=R<CL Aill there be a withholding ta/ imposedL
A* he income is derived *rom sources without
since the services in this case were per*ormed
abroad. "s such? the =R<C is not liable and
there*ore e/empt *rom the payment o* ta/. )* the
=R<C is not sub7ect to =)? then it is not also
sub7ect to withholding ta/.
-* Ahat is the controlling *actorL
": he controlling *actor is the place where the
services were per*ormed and not where the
compensation there*ore was received.
RENTAL, AN# RO1ALTIE,
income *rom sources within
-* ;ranted by whoL
A* =R<C
-* Suppose you are the *ranchise holder? how
much is the withholdingL
A* %.E >;))
2: i* the *ranchise is granted by R<C? how much is
the withholdingL
": &$E >=)) and in some cases &.E
Section 4!>4) :E:OR)PE <OR REC)
>CEDS:)
a. right o*? or the right to use
copyright? patents? etc
b. industrial? commercial? scienti*ic
equipment
c. supply o* 9nowledge
d. supply o* services by nonresident
e. supply o* technical assistance
*. supply o* technical advice
g. right to use: motion picture *ilms?
etc.
-* Ahat is the rule as regards the sale o* real
propertyL
A* ;ains? pro*its? and income *rom the sale o*
real property located within the 5hilippines
considered income within.
-* Ahat about the sale o* personal property?
what is the ruleL
A* Determine *irst i* the property is produced or
merely purchased.
&(
&. it the property is manu*actured in the
5hilippines and sold abroad? or vice-
versa? it is an income partly within and
partly without.
!. i* the property is purchased? considered
derived entirely *rom the sources within
the country where it is sold.
EJCE5)O=: shares o* stoc9 o* domestic
corporation? it is an income within wherever it is
sold.
C#))0SS0#NER .1 0%C
-: Ahat is the issue hereL
A* hey cannot determine i* the business
e/pense was incurred in the 5hilippines.
-* i* you are the @)R? and the ta/payer is not
sure? will you disallow the deductionL
A* =o. determine it pro rata.
<ormula: ;) *rom within
;) *rom without
E/ample: &$$?$$$
&?$$$?$$$
V &$E
1ence? &$E is the ratable share in the
deduction. )* the deduction being as9ed is
&$$?$$$ not all o* it will be allowed. Only
&$?$$$ or &$E o* &$$?$$$ will be allowed as
deduction.
CAPITAL GAIN, AN# LO,,E,
Section %+
-* Ahat is capital assetL
A* Capital asset is an asset held by a ta/payer
which is not an ordinary asset.
he *ollowing are ordinary assets:
&. stoc9 in trade o* the ta/payer or other
property o* a 9ind which would properly
be included in the inventory o* the
ta/payer i* on hand at the close o* the
ta/able yearF
!. property held by the ta/payer primarily *or
sale to customers in the ordinary course
o* trade or businessF
%. property used in trade or business o* a
character which is sub7ect to the
allowance *or depreciation provided in
subsection &.
4. real property used in trade or business o*
the ta/payer.
"ll other property not mentioned in the *oregoing
are considered capital assets.
-* Ahat is a capital gainL Ahat is a capital lossL
A* Capital gains are gains incurred or received
*rom transactions involving property which are
capital assets. Capital losses are losses incurred
*rom transactions involving capital assets.
-* Ahat is ordinary gainL Ordinary lossL
A* Ordinary gains are those received *rom
transactions involving ordinary assets. Capital
losses are losses incurred in transactions
involving ordinary assets.
-* Ahat is the relevance o* ma9ing a distinctionL
A* )t is relevant because Section %+@?C? and D
apply to capital assets only.
&. time when property was held >%+@)
>holding period applies only to
individuals)F
!. limitations on capital losses >%+C)F
%. =et Capital Carry-Over >%+D)
I. CAPITAL A,,ET,
-* Ahat is the holding periodL
A* )* capital asset is sold or e/changed by an
individual ta/payer? only a certain percentage o*
the gain is sub7ect to income ta/.
)t is the length o* time or the duration o* the
period by which the ta/payer held the asset.
-* Ahat is the requirementL
A*
&. the ta/payer must be an individual.
Section %+@ states Nin case o* a ta/payer?
other than a corporation..O
!. property is capital in nature.
-* Ahat is the termL
A* &$$E i* the capital asset has been held *or not
more than &! monthsF >short term)
.$E i* the capital asset has been held *or
more than &! months. >long term)
=OE: the holding period applies to both gains
and losses.
-* Do you include capital gains in your )RL
A* ;eneral rule: yes? include in )R.
EJCE5:
&. gains in sales o* shares o* stoc9 not
traded in stoc9 e/change>section !4)F
!. capital gains *rom sale o* real
property>section !4).
-* Ahen will the holding period not applyL
A*
&. property is an ordinary asset
!. ta/payer is a corporation
&+
%. sale o* real property considered as
ordinary asset
II. LI.ITATION ON CAPITAL LO,,E,
synonymous to %4D C loss capital rule
this applies to individual and corporate
ta/payer
-* Ahat is the loss limitation ruleL
A* 5ursuant to Section %+ C? losses *rom sales
or e/change o* capital assets may be deducted
only *rom capital gains? but losses *rom the sale or
e/change o* ordinary assets may be deducted
*rom capital or ordinary gains. >applies to
individual and corporation)
-* )n connection with %4 D? 6osses in "llowable
Deduction? what is the rationale behind this ruleL
A* )* it is otherwise? it will run counter with the
rule that the loss should always be connected with
the trade or business? capital losses are losses
not connected to the trade or business? thus it is
not deductible
-* what is your remedyL
A* %+ D? net capital loss carry-over
-* Ahat is the rationale in allowing ordinary loss
to be deducted *rom either the capital gains or
ordinary gainsL
A* )t is already included in )R? the gross income
less deductions hence it already carries with it
the deduction
A?E /OE: =ormally i* the loss is an ordinary
loss there is no carry over.
E=cept: a. %4D%
b. i* the loss is more than ;)

III. NET CAPITAL LO,, CARR1/OVER
-* Ahat are the requirementsL
A*
&. ta/payer is an individualF
!. paid in the immediately succeeding yearF
%. applies only to short term capital gainF
4. capital loss should not e/ceed net income
in the year that it was incurred.
-* 1ow does net capital loss carry-over di**er
*rom net operating loss carry-over under Section
%4 D >%)L
A* Bnder the net capital loss carry-over rule? the
capital loss can be carried over in the immediate
succeeding year. )n net operating loss carry-over
rule? capital loss can be carried over to the ne/t
three >%) succeeding calendar year *ollowing the
year when the loss was incurred.
=OE: only &.E o* the loss will be carried over? i*
the loss is greater than the gains.
)n net operating loss carry-over there is an
e/ception to the % year carry-over period. )n case
o* mines other than oil and gas wells? the period is
up to . years.
-* Ahat is a short saleL
A* Sale o* property by which the ta/payer cannot
come into the possession o* the property. EJ:
shares
C%2%3%NS .1 C0R
<: he ta/payer inherited the property *ro
her *ather and at the tie o* the inheritance it
was considered a capital asset. )n order to
liquidate the inheritance? the ta/payer decided
to develop the land to *acilitate the sale o* the
lots.
): Aas the property converted to ordinary
assetL
1: he conversion *rom capital asset to
ordinary asset is allowed because Section %+
is silent.
-* "re you allowed to convert ordinary asset to
capital assetL
A* ;eneral rule: it is not allowed. Read Revenue
Regulation '-!$$%
he case at bar still applies despite o* the
issuance o* said Revenue Regulation.
-* Ahat is the conversion prohibited in the
Revenue RegulationL
A* Conversion o* real estate property.
-* Ahat is the rationaleL
A* Section !4 D , *inal income ta/ o* #E i* the
real estate is capital asset. )* it is an ordinary
asset? it will be sub7ect to income ta/ o* %!E *or
individual ta/payer? and %.E i* the ta/payer is a
corporation.
-* Ahat are the properties involve in the RR '-
!$$%L
A* &. those property *or sale by the realtors
!. real property use in trade or business not
necessary realtors
-* hat is the conversion allowed by the
Revenue RegulationL )s there an instance when
an ordinary asset may be converted to capital
assetL
A* Ies? provided that the property is an asset
other the real property? and it has been idle *or
two >!) years.
!$
,ECTION 45
TAX ON IN#IVI#%AL,
-* Ahat is the ta/ mentioned in section !4L
A* =)
-* Ahat is ta/able incomeL
A* >memori3e section %&) it is the pertinent items
o* gross income speci*ied in the =)RC? less the
deductions andKor personal and additional
e/emptions? i* any? authori3ed *or such types o*
income by the =)RC or other laws. )t re*ers to =)
because it allows deductions.
-* Ahat do you mean by the phrase Nother than
@? C? and DOL
A* )t means that i* the elements o* passive
income are present? the ta/payer has to pay <).
-* Aho are the ta/payers mentioned in section
!4L
A*
&. RC
!. =RC
%. OCA
4. R"
"dditionally? under Section !.? =R"E@
-* Ahat is the ta/ liability o* =R"E@L
A* Section !.>&) =R"E@ is sub7ect to income
ta/ in the same manner as those individuals
mentioned in Section !4.
-* Ahat about Domestic CorporationsL
A*
&. Sec. !' "?@? and C
!. Sec. !#- ;55 is not sub7ect to income
ta/.
-* Ahat about Resident <oreign CorporationsL
A* Sec !(>l) it is sub7ect to %.E =et )ncome a/
-* Ahat about =on Resident *oreign Corporation
and =on Resident "lien not engaged in rade or
@usinessL
A* =ot Sub7ect to =et )ncome a/ but they are
liable *or ;ross )ncome ta/.
-* Do legally married husband and wi*e need to
*ile separately or 7ointlyL
A* )t depends i*:
&. 5ure compensation income- separate
!. =ot 5ure compensation income- 7oint
Passi'e Incoe
!nterest, Ro@alties, priAes and Ot<er Binnings
0nterest
-* @an9 )nterest? what is the requirementL
A* he ban9 must be located in the 5hils.
because the income must be derived *rom
sources wKin.
-* Do you include this in your )RL
A* =oW because it is sub7ect already to <). he
ban9 is the one liable *or the payment o* this.
=OE: 6iability *or =)? ;)? and :C) will
depend on the elements present.
-* Aho are liable *or ban9 interestL
A*
&. RC X
!. =RCX Sec. !4 @&
%. R" X
4.=R"E@
..=R"=E@ Sec. !. >!.E)
#."E:O5
'.DC
(.R<C
+.=R<C
-* Ahat is the rate o* interestL
A* <) o* !$E
-* )s there a lower rateL
A* ' Y E i* under E<CDS
-* Ahat i* the depositor is non resident alienL
A*
-AKin , <)
- AKout- e/empt
-* Ahat is the rule on pre- terminationL
A* )* it is pre terminated be*ore .
th
year a <)
shall be imposed on the entire income and shall
be deducted and withheld by the depositary ban9
*rom the proceeds o* the long term deposit based
on the remaining maturity thereo*
a. 4 yrs to less than . yrs , .E
b.% yrs to less than 4 yrs- &!E
c. 6ess than % yrs- !$E
-* Does it apply to all individualsL
A* =oW )t does not apply to &$ =R<C and =R"
and =R"E@ because they are liable to ;).
=OE: i* the depositary is a =on resident it is
e/empt
Resident citi3en is liable to pay ta/ *or ban9
interest earned abroad >=))
!&
-* )* the money earns interest in abroad who is
liableL
A* RC and DC only by =)? the rest are e/empt.
=o <) abroad because we do not have
withholding agent abroad.
-* :C) applies to DC and R<C in relation to
ban9 interestL
A* )* the ban9 interest is derived abroad? R<C is
e/empt but DC is liable.
)mpose =) i* it is higher than the :C)?
otherwise apply :C) i* itHs higher than the =)
Pries
Requirements:
&. 5ri3es must be derived *rom sources wKin
the 5hils.
!. it must be more than 5 &$?$$$
-* Aho are liableL ><))
A*
&. RC
!. =RC
%. OCA
4. R"
.. =R"E@
#. "E:O5 >RC? =R"E@)
=ot 6iable
&. =R"=E@- liable *or ;) at !. E
!. "E:5O5 >=R"=E@- ;))
%. DC- =) !' D is silent
4. R<C =) law is silent !("'a
.. =R<C sub7ect to ;)
-* Ahen can we apply =) in 5ri3esL
A* &. Ahen the ta/payer is RC? R<C and DC
!. <or DC and RC it must be derived *rom
income abroad R<C it must be derived
*rom income wKin
%. amount is more than 5&$?$$$
=OE: )* the pri3e is derived *rom sources wKin
but it is below 5 &$?$$$ it is not sub7ect to ta/. )*
derived *rom sources abroad? most o* them are
e/empt e/cept *or RC and DC who are liable wKin
and wKout.
-6 )s it possible *or RC and DC to pay :C)L
A* Ies i* :C) is higher than =).
$innings
-* Do we apply the 5&$? $$$ req.L
A* =o? we do not apply it only applies to pri3es. )t
must not pertain to illegal gambling.
hus? the only requirement is it must be
derived *rom income wKin.
-* Aho are liableL ><))
A*
&. RC
!. =RC
%. OCA
4. R"
.. =R"E@
#. "E:O5 >R"? =R"E@)
=ot liable to <)L
& =R"=E@- ;)
! "E:O5 >=R"=E@- ;))
% DC- law is silent =)
4 R<C- law is silent
. =R<C- ;)
-* Ahen does =) apply to winningsL
A*
&. )* a/payer is DC or RC
!. )ncome is derived abroad
%. a/payer is R<C and income wKin.
=OE: )* income abroad? most 5 are e/empt
e/cept DC and RC
-* :C) applies whenL
A* )t is higher than the =)
Royalties
Requirement:
he income is *rom wKin
RateL !$E. 6ower rateL &$E on boo9s?
literary wor9s and musical compositions.
-* Iou are a writer *or Snoop Dogg are you liable
*or <)L Ahat i* *or "pril @oyL
A* 6iable *or =) i* )ncome abroad li9e a writer *or
Snoop. Ahile <) i* *or "pril @oy.
-* Aho are liable ><))L
A*
&. RC
!. =RC
%. OCA
4. R"
.. =R"E@
#. "E:O5 >RC? =R"E@)
=ot 6iableL
&. =R"=E@
!. "E:O5
%. DC
4. R<C
!!
.. =R<C
=OE: 6ower rate o* &$E applies to all e/cept
=R"=E@
-* Ahen do we apply =) to RoyaltiesL
A*
&. 5 is RC or DC
!. )ncome is *rom wKout
%. 5 is R< and income is wKin
)* income is *rom sources abroad all are
e/empt e/cept RC and DC
Di.idends
Con*ined with cash andKor property dividends.
-* Ahat are dividendsL
A* "ny distribution made by Corporation to its
stoc9holders outside o* its earnings or pro*its and
payable to its stoc9holders whether in money or in
property >Sec. '%)
CO--. vs. -A//!/.
-* Ahere did it come *romL
A* shares come *rom another shareholder
-* Ahat are the dividends includedL
A* Sec. !4 re*ers to cash or property dividend
1: <or stoc9 Dividends to be e/empt it must
come *rom the pro*it o* the corporation.
$tocC 7ividends it is the trans*er o* the surplus
pro*it *rom the authori3ed capital stoc9s.
-* "ssuming that there are . )ncorporators? the
Corporation has a 5. : "uthori3ed Capital stoc9.
)t distributed & : stoc9 dividends? is it ta/ableL
A* =O? the dividends did not go to the Stoc9
holder but to the "uth Capital Stoc9. Only cash
and 5rop Stoc9 go to the Stoc9 holder.
Sec !4 @ does not mention stoc9 dividends
because it is not sub7ect to <) but it is sub7ect to
=) under Section '%.
-* )s there an e/ception when stoc9 dividends
are not ta/ableL
A* IES? i* the shares o* stoc9s are cancelled and
redeemed meaning it was reacquired by the corp.
A/$COR CA$E
the stoc9holders cannot escape the payment o*
ta/es
Requirement:
;en Rule- the dividends must be distributed by a
DC.
E/cept- Regular operating- always a *oreign corp.
Ahat rate: &$E <)
-* Aho are liableL
A*
&. RC
!. =RC
%. OCA
4. R"
.. =R"E@
#. "E:O5 >RC? =R"E@)
=ot liableL
&. =R"=E@
!. "E:O5
%. DC
4. R<C
.. =R<C
Shares o* association and partnership is
ta/able
-* Determine the ta/ liability o* the *ollowingL
A*
&. DC a Stoc9holder o* DCV E/empt
!. R<C stoc9holder o* DCV E/empt also
%. DC stoc9holder o* R<V 6iable *or =).
Capital 4ains From Sale of S+ares of Stoc,
Not Traded !567C"
1. Sub7 to <)
2. Determine whether there is a loss or a
gain because the ta/ is impose upon the
net capital gains reali3ed *rom the sale?
barter? or e/change or other disposition o*
the shares o* stoc9 in a domestic corp.
3. )t is uni*ormly imposed on all ta/payer
4. not sub7 to wKholding ta/.
Requirements:
&. Shares o* stoc9 o* a DC
!. )t must be capital asset
%. must not be traded in the stoc9 mar9et
!. R last part: Capital ;ains reali3ed by
=R"=E@ in the 5hils. *rom the sale o* shares o*
stoc9 in any DC and real prop shall be sub7. to the
income ta/ prescribed under Sub sec >c) and >d)
o* Sec. !4.
SEC. !4 @ &C!: )* the elements are present
=R"=E@ and =R<C are liable to pay ;).
E/cept: under !4 C *or =R"=E@. Ahat do you
mean by the phrase N the provisions o* %+
notwithstandingOL
!%
)t re*ers to the holding period. Ahen it comes
to capital gains *rom sale o* shares o* stoc9 not
traded and capital gains *rom the sale o* real prop.
he holding period does not apply because the
basis will be those provided in !4 C C D and not
under %+@ >;S5 or <:0)
ELE.ENT 78 T&e s&are is a s&are in #C
-* Ahat i* the share is *rom *oreign corpL
A* Determine the income considered. )* income
wKin read Sec. 4! >E)
)* the shares sold are that o* a *oreign corp it
is sub7 to the ** rules:
a. sold in the 5hilsV its income wKin
b. sold in abroadV wKout
c. Shares o* stoc9 in a Dc is always
considered an income wKin regardless where it
was sold.
-* Shares o* <oreign Corp sold in 5hils. AhoHs
liableL Ahat ta/L
A* =ot sub7 to <) because one o* the elements
is not present . Shares not being that o* a DC.
1ence: a) RC? =RC? OCA? =R"E@?
"E:O5 >R"? =R"E@) will pay =). DC and R<C
b) =R"=E@ and =R<C will pay ;)
-* Shares o* <oreign Corporation sold abroadL
A* )t will be considered an income wKout.
hus:
most o* them will be e/empt
e/cept RC and DC liable to pay =)
ELE.ENT 7 4 NOT TRA#E# OR ,OL# IN T9E
,TOC0 .AR0ET
i* sold in the stoc9 mar9et- it is not sub7 to <)
i* sold in the stoc9 mar9et? it will be sub7 to
percentage ta/? in lieu o* =).
ELE.ENT 7 : It ust ;e a capital asset.
-* Ahen is it considered an ordinary assetL
A* &. Ahen the bro9er or dealer
a. used it in trade or business
b. held *or sale in the ordinary course
o* trade or business
!. to all other assets? it will be considered a
capital asset
=OE: i* all elements are present it will be sub7 to
<)
)* the shares are ordinary asset
&. Ordinary shares in DC- income wKin
a. :ost o* the ta/payer will pay =)
e/cept =R<C and =R"=E@
!. Ordinary assets o* *oreign corporations
a. )ncome within i* sold in the 5hils: most
will pay e/cept =R"=E@ and =R<C
b. )ncome wKout i* sold abroad: most will
be e/empt e/cept RC and DC
:C)
-* Ahen is a R<C sub7 to =)L
A*
&. Sale o* shares o* stoc9 o* a <oreign corp
in the 5hil.
!. sale o* shares o* stoc9 o* DC which are
ordinary asset
DC and R<C are sub7 to :C) which may be
imposed i* the =) is lower than the :C)!E
:C) will be imposed i* :C) is higher than =).
Capital 4ains From Sale of Real Property
!567D"
)n %+ @ the holding period does not apply
because the basis o* income ta/ is the gross
selling price >;S5) or the <air mar9et value ><:0)
whichever is higher- #E <)
Requirements:
&. he real prop must be sold wKin the 5hils
and located in the 5hils.
!. )t must be a capital asset
%. he seller must be an individual? estate or
trust or a DC
R<C not liable *or <) but liable to pay =) i*
all the elements are present.
=R<C liable to pay ;) and not <)
=R"=E@ liable to pay <) are all elements
are present.
ELE.ENT 7 : T&e real prop ust ;e a capital
asset
-* Ahen considered a capital assetL
A* Read R.R. '- !$$%
-* Ordinary asset- shall re*er to all real property
speci*ically e/cluded *rom the de*inition o* capital
asset under Sec. %+
A* Other property not mentioned are capital
asset.
-* Ahat i* all the elements are not presentL
!4
A*
most will be liable to pay =)
E/cept =R"=E@ and =R<C liable *or ;)
-* :ay a RC be liable to pay =) even i* all the
elements are presentL
A* IES? disposition made to the ;ovt. hus? the
ta/payer has the option o* paying %!E =) or #E
<)
-* Ahich is more advantageousL
A* )t depends determine *irst i* thereHs a loss or a
gain.
)* thereHs a gain choose to be ta/ed at #E <).
)n this case the gain is always presumed.
)* thereHs a loss choose to be ta/ed at %!E
because losses may be considered an allowable
deduction .
Other transactions are covered:
&. sale
!. barter
%. e/change
4. other disposition
=OE: )* the prop is under mortgage contract and
the mortgagee is a ban9 or *inancial inst? the <)
does not apply because the property is not yet
trans*erred because thereHs a period o*
redemption
)* a*ter a year the mortgagor *ailed to redeem
the property that is the only time that the <) will
apply because thereHs now a change o*
ownership. )* redeemed wKin & yr period <) will
not apply because thereHs no change o*
ownership.
)* the mortgagee is an individual the <) is
imposed whether or not there is a trans*er o*
ownership.
Exceptions !567!D6""
-* Ahat i* the prop being sold was a movie
house? can he claim *or the e/ceptionL
A* the prop covered by the e/emption is a
residential lot
-* Aho can claim the e/emptionL
A* Only the ta/payer mentioned in Sec. !4
Requirements:
&. he purpose o* the seller is to acquire
new residential real prop
!. the privilege must be availed o* wKin &(
mos. <rom the sale
%. Comm. must be in*ormed wKin %$ days
*rom the date o* sale with the intention to
avail o* the e/emption
4. the ad7usted basis or historical cost o* the
residence sold shall be carried over to the
new residence.
.. the privilege must be availed only once
every &$ yrs
#. Certi*ication o* the brgy. Capt where the
ta/payer resides that indeed the prop sold
is the principal residence o* the ta/ payer
>RR &%- ++)
-* Ahat i* the property is worth &$ : and it was
sold only *or !:? what will happen to the unused
portion or pro*itL
A* )* the proceeds are not *ully utili3ed? the
portions o* the gain is sub7 to <)
,EC. 4<A RATE, OF INCO.E TAX
-* 1ow many income ta/es are paid by a DCL
A*
&. =)
!. :C)
%. <)
4. &$E)mproperly "ccumulated
Earnings
.. Optional corporate income ta/ o* &.E o*
the gross
DC liable *or *ive? but the optional is not yet
applicable so only 4.
-* 1ow many can be applied simultaneouslyL A*
O=6I %
&. =)? <) and &$E )"E
!. :C)? <)? &$E )"E
,EC. 4< 2B3 PROPRIETAR1 E#%CATIONAL
IN,T. ) 9O,P.
Aho are the ta/payersL
&. =on- 5ro*it 5roprietary Educl. )nst and
!. =on 5ro*it 5roprietary 1ospital
-* Ahat i* the school or hospital is non pro*it
only? is it e/emptL
A* =o? sub7ect to &$E on their ta/able income
e/cept those covered by subsection >D)
5RO0)DED that gross income *rom unrelated
business? trade or activity must not e/ceed .$E o*
its total gross income derived by such educational
inst or hospital *rom all sources
Requirements:
&. )t is a private school or hospital
!. it is stoc9 corp
%. it is non pro*it
4. that gross income *rom unrelated
business? trade or activity must not
!.
e/ceed.$E o* its total gross income
derived by such educational inst or
hospital *rom all sources
.. has permit to operate *rom DECS?
ESD"? or C1ED
-* Ahat do you mean by unrelated trade
business or activityL
A* )t means any trade? @usiness? or activity which
is not substantially related to the e/ercise or
per*ormance by such entity o* its primary purpose
or per*ormance
-* :ay a school or hospital be e/empt *rom
paying ta/L Ahat are the reqL
A*
&. )t must be non- stoc9 and non- pro*it
!. the assets property and revenues must be
used actually? directly? and e/clusively *ro
the primary purpose
-* Bnder what lawL )s it the constitution or the
=)RC which provides *ro the e/emptionL
A* )t is under Sec. %$ o* =)RC and not under
Sec.4 "rt. &4 o* the Constitution. he provision o*
the =)RC is the speci*ic law which prevails over
the Constitution which is the general law.
e/empt *rom all ta/es and custom duties
-* Ahat about e/emption *rom real property
ta/L
A* "rt. # Sec. !( o* the Constitution:
charitable institution churches? T.and all lands
buildings? actually directly and e/clusively used *or
religious? charitable? and educational purposes
shall be e/empt *rom ta/ation.
=ot Sec. 4 o* "rt. &4 o* the
Constitution.
-* Iou donated a property to a school will you be
liable *or donorHs ta/L
A* not liable i* it *alls under Sec. &$& >%) o* the
=)RC
RE2. <OR EJE:5)O= O DO=ORS "J:
&. it must be non-stoc9? non-pro*it educational
inst.
!. not more than %$E o* the prop donated shall
be used by such donee *or admin purposes.
%. paying no dividends
4. governed by trustees who donHt receive any
compensation
.. devoting all its income to the accomplishment
and promotion o* the purposes stated in its
"rticles o* )ncorporation
-* Ahat about e/emption *rom 0"L
A* Sec. &$+ >m) o* R-0"

-* Ahat about e/emption *ro 6oc ;ov CodeL
A* )* its non-stoc9? non-pro*it educational inst. )t
may be e/empted *rom local ta/ation.
-* )s "rt &4 Sec. 4 o* the Consti obsoleteL
A* =O? i* the law is silent apply the Consti.
,EC. 4:* GOCC= AGENCIE,= IN,T of t&e
GOVT.
;E= RB6E: Sub7 to ta/.
EJCE5)O=S:
&. ;S)S
!. SSS
%. 51)C
4. 5CSO
5";COR no longer included.
-* )* the ;OCC is not one o* those enumerated
does it *ollow all o* its income is automatically
sub7ect to ta/L
A* =O. Bnder Sec %!. @ >') income derived *rom
any public utility or *rom the e/ercise o* essential
government *unction accruing to the ;ovt o* the
5hils or to any political subd. "re there*ore
e/empt *rom income ta/.
here*ore? even i* the ;OCC is one o* those
enumerated under Sec. !' it may still be e/empt
under Sec. %! b'b i* its per*orming governmental
*unction
=OE: 5agcor vs. @asco case
-* Ahat is the di**erence between Sec. !' C
and %! b'bL
A*
&. Sec !' C e/empts those enumerated
without any quali*ication.
!. Sec. %!b'b quali*ication must concur
be*ore it may be e/empted.
-* Can the government impose ta/ on itsel*L
A* )t depends on who the ta/ing authority is. )*
the ta/ing authority is the =ational ;ovt. as a rule?
IES.
E/ceptions
&. those entities enumerated under Q!' C
!. those ;OCC *alling under Q%!b'b
)* the ta/ing authority is the local government
units? as a rule =O. 6;BHs are e/pressly
prohibited *rom levying ta/ against: >Sec &%%>o)
&. =ational ;ovt.
!. )ts agencies and instrumentalities
!#
%. local government units
E/ception: Sec &.4 o* 6;C says that 6;BHs
may *i/ rate *or the operation o* public utilities
owned and maintained by the within their
7urisdiction.
PAL CA$E :ul@ )' )''0
1: he SC used &%% >o)an e/ception to pay
ta/? real estate ta/? imposed by City o*
5"ranaque on =")". he SC said that the
airport is not an agency or ;OCC but mere
instrumentality o* the ;ovt.
his is ;ross ignorance o* the law Sec.
&%% >o) is *or local ta/ation not real property
ta/ation which is the one involved in the
present case.
=OE: :actan- Cebu "irport case
SEC1 68 D!9"
-* 1ow many possible incomes were
mentionedL
A* wo >!): ban9 interest and royalties
RE2:
&. @an9 interest must be received by a Domestic
Corp
!. Royalties derived *rom sources within
-* Ahen it comes to ban9 interest? what is the
di**erence i* the ta/payer is an individual or
corporationL
A* )* individual? they may be e/empt *rom the
payment o* interest in case o* long term deposit
e/cept =R"=E@
)* DC? they are not e/empt *rom long tem
deposit.
-* Ahat about royaltiesL
A* )* individual? have a lower rate o* &$Eon
boo9s? other literary and musical compositions.
DC have no lower pre*erential rate.
SEC 68 D6/ C%P0T%2 4%0NS FR#) S%2E #F
S'%RES N#T TR%DED
SEC 68 D:/ EFCDS
-* Ahat is the e/panded *oreign currencyL
A* )t is a ban9 authori3ed by the @S5 to transact
business in the 5hilippine Currency as well as
acceptable *oreign currency or both.
-* Ahat is the ta/ to be paidL
A* =ormally it is =) because it is sub7 under Sec
!' D% and !( "
-* Aho is the income earnerL
A* Depositary ban9s
-* E/empt *rom what 9ind o* transactionL
A* <rom *oreign currency transaction. )* it
involves *oreign currency transaction it is not
e/empt but sub7ect to %. E =)
-* Aho are the other partiesL
A*
&. O** shore ban9ing units
!. branches o* *oreign ban9s
%. local commercial ban9
4. Other depositary ban9s under E<CDS
.. =on- residents
i* the above enumeration are the parties? then
depositary ban9 will be e/empt *rom paying the
=)
Foreign Currency 2oan
-* Aho is the lenderL @orrowerL
A* 6ender- E<CDS
@orrower- RC
EJE:5
O**shore ban9ing units
Other depositary ban9s under E<CDS
e/emption o* =R *rom E<CDS:
-* Aho is the income earnerL
A* =on Residents whether individual or
Corporations
-* Derived *rom whomL
A* Depositary @an9 under E<CDS
=OE: Sec. !4 @ =onresident e/empt *rom ban9
interest under E<CDS
-* Ahat is the di**erence between !4 b& *rom !'
D%
A* )n !4 @&? =R is e/empt only *rom ban9 interst
derived *rom E<CDS while !'D% e/empts =R
*rom any income *rom transactions with depositary
ban9 under E<CDS
SEC1 68 D!7)- )nter-corporate dividends- e/empt
68 D; Capital 4ains from sale of Real Prop1
-* Ahat is the ta/L
A* #E <)
-* Ahat is the di**erence i* the seller is an
individual and a DCL
!'
A* )ndividual can sell all 9inds o* real property
DC can only dispose land andKor buildings.
SEC 68 !E" )C0T
-* "pplicable to whomL
A* DC and R<C
-* Can it be applied simultaneously with =)L
A* =O? imposed in lieu o* the =)? whichever is
higher.
-* Ahat is the RationaleL
A* to prevent corporations *rom claiming too
many deductions
-* Ahen will it be imposedL
A*
&. On the 4
th
year immediately ** the year
in which such corp commenced its
business.
!. Ahen the :C) is higher than the =)
-* Ahat is the carry over ruleL
A* Sec !' E! states the carry over rule.
)n order to avail: only in the year where the
:C) is greater than the =).
Sec 6< %9
-* Ahat Dinds o* ta/es are paid by the R<CL
A* =)
:C)
Sec1 6< &6 )C0T on RFC
same with Sec. !'
Sec1 6< %:- 0NT2 C%RR0ER
Dind:
&. "ir carrier
!. ships
"n intl. carrier doing business in the 5hils.
shall pay ! Y E on its ;ross 5hil @illings >;5@)
-* )s !( "% the ;en. rule or the E/ceptionL
A* )t is the general rule because it is under !( "%
;5@ is in the nature o* <)? applies only i* all
the requirements are present.
R<C will be liable *or =)? hence a R<C
engaged in common carriage does not pay ;5@
but =)
)ncome without: EJE:5
0nternational Carrier/
;5@ re*ers to the amount o* revenue derived
*rom: carriage o* persons? e/cess baggage?
cargo and mail originating *rom the 5hils in a
continuous and uninterrupted *light? irrespective o*
the place o* sale or issue and the place o*
payment o* the tic9ets or passage document.
RE2:
&. Originating *rom the 5hils.
!. Continuous and uninterrupted *lightF
%. )rrespective o* the place o* sale or issue
and the place o* the payment o* tic9ets or
passage document.
-* Do you consider landing rights to determine
liabilityL >RR &.-!$$!)
A*
&.)* originates *rom the 5hils and has landing
rights- O=6)=E- R<C
!.=o landing rights- O<<6)=E- =R<C
-* )* there are stopovers? is it still uninterruptedL
A* IES? provided that the stopover does not
e/ceed 4( hrs.
-* Ahen will the place o* sale o* tic9ets matter as
to the ta/payers liabilityL
A* he place o* tic9ets is material only i* the two
other elements are not present to be able to 9now
i* its sub7 to =) or e/empt.
Re.alidated= exc+anged or indorsed tic,ets
RE2:
&. he passenger boards a plane in a port or
point in the 5hils.
!. he tic9ets must be revalidated?
e/changed? or indorsed to another airline.
-* Ahat i* itHs the same airline but di**erent
planeL
A* ;5@ does not apply? it must be to another
airline
-* Ahat i* it did not originate *rom the 5hils.L
A* Determine i* its income within or without.
i* tic9et was purchased in the 5hils. it is
income within hence apply =)
i* purchased outside? it is income without?
hence e/empt
Transs+ipment
!(
RE2:
*light originates *rom the 5hils
transshipment o* passenger ta9es place at
any port outside the 5hils.
the passenger trans*erred on another airline
-* 1ow do you apply ;5@L
A* Only the aliquot portion o* the cost o* the
tic9et corresponding to the leg *lown *rom the
5hils to the point o* transshipment shall *rom part
o* the ;5@.
-* )s it liable *or the whole *lightL
A*
<rom the 5hils to the point o* transshipment? it
is income wKin
<rom transshipment to *inal destination? its
income wKout- EJE:5
0nternational S+ipping
;5@ means gross revenue whether *rom
passenger? cargo? mail
RE2:
it must originate *rom the 5hils.
up to *inal destination
- regardless o* the place o* sale or payments o*
passenger or *reight documents
Sec6< %!7" #FF S'#RE &%N>0N4 -N0TS
O@BHs
&. only acceptable *oreign currencies
!. always a *oreign corporation >sub7 to =))
e/cept M%
%. E/empt i* income is derived by the O@B
*rom E<CDS
4. 5arties:
a) local commercial ban9s
b) <oreign ban9 branch
c) =on Residents
d) O@B in the 5hils.
Di**erence with E<CDS:
E<CDS
&. "cceptable *oreign currency? 5hil.
Currency or both
!. Can be a domestic or *oreign corporation
%. E/empt i* income derived by DC or R<C
*rom E<CDS
4. 5arties:
a) local commercial ban9s
b) <oreign ban9 branch
c) =on Residents
d) O@B in the 5hils
e) Other ban9s under E<CDS
FOREIGN C%RRENC1 LOAN
&$E <)
)*: 6ender- O@B
@orrower- Resident Citi3en
EJCE5:
&. O@B
!. 6ocal Commercial @an9s
ransactions o* =on Residents:
&. )ncome earner: =on- Residents
!. 6ender: O@BHs
=OE: =on resident e/empt *rom transactions
with O@BHs and E<CDS
,EC. 4> A? TAX ON BRANC9 PROFIT,=
RE.ITTANCE,
pro*its based on the total pro*its applied or
earmar9ed *ro remittance remitted by a branch to
its head o**ice
Sub7 to &.E ta/
E/cept: those activities which are registered with
5EP"
=OE: )nterests? Dividends? Rents? Royalties
including remuneration *or technical sevices?
salaries? wages? premiums? annuities?
emoluments? or casual gains? pro*its? income
and capital gains received by a *oreign
corporation during each ta/able year *rom all
sources within shall not be treated as branch
pro*its B=6ESS the same are e**ectively
connected with the conduct o* its trade or
business.
&ranc+ Profit Remittance
wo ways to receive income ><C)
&. @ranch
!. Subsidiaries
=OE:
&. Ahen a <C establishes branch? it is
always a <C
!. Ahen a <C establishes DC? it is a R<C
-6 )t is in addition to =)- AhyL
A* =) because it is R<C
-6 Ahat 9ind o* ta/ is imposed under !( ".L A*
&.E <)
-* 1ow do you apply the rateL
A* multiplied to the total pro*it applied or
earmar9ed *or remittance wKo deductions
!+
)t applies *or branches that are:
&. the pro*it remitted is e**ectively connected
with the conduct o* its trade or business in
the 5hils.
!. One not registered with 5EP"
-AR"6E/! CA$E
<: " branch was established with ";C5? there
was investment with ";C5
-* Did the petitioner participate with the
negotiationL
A* =O
-* Ahat did the petitioner payL
A* &.E @ranch 5ro*it Remittance a/ >@5R)
&$E )ntercorporate Dividends
-* AhatHs the issueL
A* 5etitioner maintains that there was
overpayment o* ta/es? thus the same was
as9ing *or a re*und o* ta/ erroneously paid.
-* )s is sub7 to <)L
A* =O? e/empt i* petitioner is R<C
1: -not correct to pay &.E
o be liable *or @5R
&. )t is a R<C
!. @ranch did not participate in negotiations
,EC. 4> A@a
Regional or area headquarters >Sec. !! DD)
shall not be sub7ect to ta/ e/empt *rom income ta/
i* the requisites are present.
-* Ahat are the requisitesL
A*
&. the 12 do not earn or derive income *rom
the 5hils.
!. "cts only as supervisory?
communications? coordinating centre *or
their a**iliates? subsidiary or branches in
the "sia- 5aci*ic Region and other *oreign
mar9ets.
,EC. 4> A@;
Regional Operating 12 are ta/able and liable
to pay &$E ta/able income.
Regional Operating 12 is a branch
established in the 5hils by a multinational
company engaged in any o* the services:
&. ;en. "dministration and 5lanning
!. @usiness 5lanning and Coordination
%. Sourcing and procurement o* Raw
materials and components.
4. Corporate <inance and "dvisory Services
.. :ar9eting Control and sales promotion
#. raining and personal management
'. logistic services
(. research and development services and
product development
+. technical support and maintenance
&$. data processing and communication and
business development
Rationale: Ahy liableL @ecause the claim *or
e/emption o* resident airlines shall be
minimi3ed
,EC. 4>A<a Interests an$ Ro(alties*
!$E<)
)nterests under E<CDSV ' Y E
,ec. 4>A<; Incoe $eri'e$ un$er EFC#,
8. )ncome derived *rom *oreign currency
transactions with:
a) =on Residents
b) O@B
c) 6ocal commercial ban9
d) <oreign ban9 branches
e) Other depository ban9 under the E<CDS
"s a ;en Rule: the above transaction is
E/empt
EJCE5)O=: )ncome *rom such transaction as
may be speci*ied by the secretary o* <inance?
upon recommendation by the :onetary @oard to
be sub7ect to regular income ta/ payable by any
ban9s.
4. )nterest income *rom *oreign currency loans
granted by depository ban9 under said
E<CDS to others shall be sub7ect to &$E <)
E/empt i* granted to:
&. Other O@B in the 5hils? and
!. Other depository ban9 under the E<CDS
S SEC. !( "'c: Capital ;ains *rom Shares
o* Stoc9s not raded in the Stoc9
e/change
S .E or &$E as the case maybe
,EC 4>A<$* INTERCORPORATE #IVI#EN#,
DC- R<CV EJE:5? not sub7 to ta/
%$
,EC 4> B8
-* Ahat 9ind o* ta/L
A* %.E ;) on the ** income
&. )nterest
!. Dividends
%. Rents
4. Royalties
.. Salaries
#. 5remiums> e/cept reinsurance premiums)
'. annuities
(. emoluments
+. Other *i/ed and determinable ;ains? pro*its
and income.
,EC 4> B4 Non Resi$ent Cineato+rap&ic fil
o"ner= lessor or $istri;utor
liable *or !.E ;)
,EC 4> B: Non Resi$ent o"ner or lessor of
Vessels c&artere$ ;( P&ilippine Nationals.
liable *or 4 Y ;)
Elements:
&. Chartered to <ilipino Citi3ens or
Corporations
!. "pproved by :"R)="
,EC. B253 Non Resi$ent O"ner or Lessor of
Aircraft= .ac&iniries= an$ ot&er EAuipents.
liable *or ' &K! E ;)
,EC 4> ;?a Interest on Forei+n Loans
:ust be read with Sec. %! @'a
)nterest on <oreign 6oans? i* the lender is
&. =R<C liable to !$E <)
!. <oreign ;ovt. E/empt because it is an
e/clusion >Sec %! b'a: income derived by
a *oreign govHt *rom investments in the
5hils on loans? stoc9s? bond? and other
domestic securities or *rom interest on
deposits in ban9s by:
a) <oreign govt.
b) <inancing inst owned controlled or
en7oying? re*inancing *rom *oreign
govtF and
c) )nter nation or Regional *inancial inst
established by *oreign govt.
CO--!$!O/ER O# !/ER/AL RE8. vs.
-!$"6!$3! -EAL CORP. %(+' $CRA )(D,
<: "tlas :ining entered into a 6oan and Sales
Contract with :itsubishi :etal Corp. > "
8apanese Corp.) *or the purposes o* pro7ected
e/pansion o* the productivity capacity o* the
*ormerHs mines in Cebu. he contract provides
that :itsibushi will e/tend a loan to "tlas in
the amount !$ : dollar? so that "tlas will be
able install a new concentrator *or copper
production.
-:itsubishi to comply with its obligation?
applied *or a loan *rom E/port- )mport @an9 o*
8apan >E/im @an9) and *rom consortium o*
8apanese ban9s.
5ursuant to the contract "tlas paid interst
to :itsubishi where the corresponding &.E
ta/ thereon was withheld and only remitted to
the ;ovt.
Subsequently :itsubishi *iled a claim *or
ta/ credit requesting that the same be used as
payment *or its e/isting liabilities despite
having e/ecuted a waiver and disclaimer o* its
interest in *avor o* "tlas earlier on. )t is the
contention o* :itsubishi that it was the mere
agent o* E/im @an9 which is a *inancing inst
owned and controlled by the 8apanese ;ovt.
he status o* E/imban9 as a government
controlled inst became the basis o* the claim
*ro e/emption by :itsubishi *or the payment o*
interest on loans.
): AO= :itsubishi is a mere agent o* E/imban9
1: =O. he contract between the parties does not
contain any direct re*erence to E/im @an9? it
is strictly between :itsubishi as creditor and
"tlas as the seller o* copper. he ban9 has
nothing to do with the sale o* copper to
:itsubishi. "tlas and :itsubishi had reciprocal
obligations- :itsubishi in order to *ul*ill its
obligations had to obtain a loan? in its
independent capacity with E/im ban9. 6aws
granting e/emption *rom ta/ are construed
strictly against the ta/payer and liberally in
*avor o* the ta/ing authority.
,EC. 4> #? ; INTERCORPORATE #IVI#EN#,*
<) &.E imposed on the amount o* cash and
or prop dividends received *rom a domestic
corporation.
SB@8 O 1E CO=D))O=: the country where
the =R<C is domiciled allows a credit against the
ta/ due *rom the =R<C ta/es deemed paid or
deemed to have been paid in the 5hils.
;en rule: %. E <)
E/ception: &.E under the Nta/ deemed paid ruleK
reciprocity ruleK ta/ sparring ruleO
:3O/$O/$ CA$E
! Dinds o* Categories:
%&
&
st
: 8apan? BS? ;ermany? 5hils liable *or income
within and income without
!
nd
: countries liable only *or income within.
-AR"6E/! Case: ! )ssues
&. )s the payment o* &$E <) correctL
- =o because it was a branch and R<C but still
:arubeni was =R<C under the old law which is
liable to pay %.E? but SC said liable only to !.E
because o* the ta/ treaty
Iou cannot re*und right away &.E @5R
and &$E )nter-corporate Dividends ta/ has
di**erent basis
)n 5C; who are involved
- DC >5C; 5hil) and =R<C >5C; BS)
- DC declares dividends to =R<C
- %.E was withheld and remitted to the @)R
Ahat did they discoverL >a*ter paying)
- they discovered that they are liable only *or
&.E so they have a re*und o* !$E
-* )n the &
st
case did the SC allowed the re*undL
A* =O? denial anchored on ! grounds:
&. One claiming *or re*und was not the
proper party
!. here was a showing or proo* as to the
e/istence o* the Nta/ deemed paidO rule
-* )n !
nd
case was there a re*undL
A* IES? the SC reversed itsel*
&. )ncome ta/ is <): the withholding agent
is the proper party because he is liable to
pay said ta/es
!. actual proo* o* payment not necessary?
what is necessary is the law o* the
domicile o* the country providing *ro ta/
credit equal to !$E o* the ta/ deemed
paid.
-* Ahat is the rate i* the law is silentL
A* %.E <)
he rate will only be &.E i* thereHs a law
recogni3ing the same but this re*ers to the case o*
those belonging to the *irst category.
EA/7ER CA$E
-* Aho are the partiesL
A* DC>Aander) and <C >;la/o)- they belong
to di**erent categories
he @)R tried to collect %.E because the
law is totally silent about the ta/ credit
1: he SC said that the ta/ should be &.E which
applies ! instances:
&. <oreign law do not provide *or ta/ credit-
%.E
!. law provides but the law is silent- &.E
%. law is silent because there is no law- &.E
4. law is silent because thereHs no law
because the sub7 matter is not ta/able-
&.E
,EC. 4B IAET
A* &$E o* the gross income >ta/able income)
)t is imposed upon the improperly
accumulated ta/able income o* the corporation
-* "pplies to what CorpL
A* to DC only under RR !- !$$&> classi*ied as
closely held corporations)
-* )s it in the nature o* sanctionL
A* Ies? it is imposed to compel the corporation to
declare dividends.
-* AhyL
A* because i* pro*its are distributed to the
shareholders? they will be liable *or the payment o*
Dividends ta/. =ow? i* the pro*its are undistributed
the shareholders will not incur liability on ta/es
with respect to the undistributed pro*its o* the
Corp.
- )n a way it is in the *orm o* deterrent to the
avoidance o* ta/ upon shareholders who are
supposed to pay dividends ta/ on the earnings
distributed to them.
-* Ahat is ta/able incomeL
A* SEC. %& de*ines ta/able income as the
pertinent items o* gross income speci*ied in this
Code? less the deductions andKor personal and
additional e/emptions? i* any? authori3ed *or such
types o* income by this Code or other special law
-* Ahen not liable to pay )"EL
A* here are ! groups o* DC e/empt *rom
payment o* )"E >RR!-!$$&)
A, Corporations failure to declare dividends
because of reasonable needs of business
reasonable needs means are construed to
mean immediate needs o* the business including
reasonable anticipated needs
-* Ahat constitutes reasonable accumulation o*
the corporationHs earningsL E/amplesL
%!
A*
&. allowance *or the increase in the
accumulation o* earnings up to &$$E o*
the paid- up capital o* the corporation.
!. earnings reserved *or the de*inite
corporate e/pansion pro7ects or programs
approved by the @oard
%. Earnings reserved *ro buildings? plants? or
equipment? acquisition approved by the
@oard
4. Earnings reserved *or compliance with
any loan agreement or pre- e/isting
obligations
.. Earnings required by law or other
applicable statutes to be retained.
#. )n case o* subsidiaries o* *oreign
corporation? all undistributed earnings or
pro*its intended or reserved *or
investments
=OE: the corporations belonging in the &
st
group
are normally liable but they can show that the
accumulation o* earnings is 7usti*ied *or
reasonable needs o* business? they incur no
liability and e/empt *rom payments o* the same.
6, Corporations B<ic< are e=empt B<et<er or not
it is for reasonable needs of t<e business:
&. @an9s? and other non- ban9 *inancial
intermediaries.
!. )nsurance companies
%. 5ublicly- held corporations
4. a/able partnerships
.. ;eneral 5ro*essional 5artnerships
#. =on- ta/able 7oint- ventures
'. Enterprises registered with
a) 5EP"
b) @ases Conversion Devt "ct o* &++! >R"
+!!')
c) Special Economic Pone declared by law
-* Ahat is a closely- held corporationsL
A* Those corporation at least .$E in value o* the
outstanding capital stoc9 or at least .$E o* the
total combined voting power all classes o* stoc9
entitled to vote is owned directly? or indirectly by
or *or not more than !$ individuals
=OE: 5ublicly held Corp. has more than !$
shareholders
-* Ahat is the time *or paying this ta/L
A* Calendar Iear: 8an !.? !$$.- Dec %&? !$$..
oday is !$$#. Iou have & year to declare a*ter
the close o* the ta/able year. !$$# is the grace
period. Iou will pay on 8anuary !$$'.
-* )* youHre not mentioned to be e/empted? will
you still be liableL
A* =o? i* you invo9e ad7ustments
,EC :C. EXEE.PTION, FRO. TAX ON
CORPORATION,
Determine the CorporationsH e/emptions
under Sec. %$ !' C and !!@.
&. Sec %$? the corporations shall not be
ta/ed under this title >ta/ on income) in
respect to income receive by them as
such.
!. Sec !'? the corporations enumerated are
always e/empt. hus e/emption is
unconditional
%. Sec !!@ ;55? as a general rule is not a
corporation
4. e/cept i* it earns income *rom other
business
8oint 0enture wK service contract wK
government not a corporation? otherwise? it is
liable.
"ssignment: Sec. %.
"ugust !&? !$$# , :idterms
"ugust &4? !$$#
-* Ahat is the reason *or not including the
corporations e/empt under section !'C and
Section !!@ under Section %$L
A* @ecause there is an e/emption which does
not apply to all e/empt corporation.
he e/emption under Section %$ is not
absolute while the e/emption under Section !' C
is absolute and without any conditions. )n
addition? Section !!@ provides that a 7oint venture
is generally ta/able unless it has a service
contract with the government? a generally ta/able
corporation cannot be 7oined with the group as
generally not ta/able corporation. ;eneral
5ro*essional 5artnership is e/empt but the
e/emption is not the same as provided by Section
%$.
"DE =OE: 6as 5aragraph o* Section %$.
e/emption to the e/emption: income o*
whatever 9ind and character o* the *oregoing
organi3ations *rom:
&. any o* their properties? real or personalF
!. any activities conducted *or pro*it
regardless o* the disposition o* said income?
shall be sub7ect to ta/.
%%
-* Enumerate the e/empt corporations under
Section %$F Ahat is the requirementL
A*
&. 6abor? agricultural or horticultural
organi3ation not organi3ed principally *or
pro*itF
!. :utual savings ban9 not having a capital
stoc9 represented by shares? and
cooperative ban9 without capital stoc9
organi3ed and operated *or mutual
purpose and without pro*itF
%. a bene*iciary society? order or association?
operating *or the e/clusive bene*it o* the
members such as *raternal organi3ation
operating under lodge system. >lodge
system: operating world wide) or a mutual
old association or a non-stoc9
corporation:
a. organi3ed by employeesF
b. providing *or the payment o* li*e?
sic9ness? accident or other e/clusive
bene*its to its employees and their
dependentsF
4. Cemetery >a) company owned and >b)
operated e/clusively *or the bene*it o* its
membersF
.. =on-stoc9 corporation or association
organi3ed and operated e/clusively *or
Religious? Charitable? Scienti*ic? "rtistic or
Cultural purposes? or *or the
Rehabilitation o* 0eterans >RCS"CR)? no
part o* its net income or asset shall
belong ot or inure to the bene*it o* any
member? organi3er? o**icer? or any speci*ic
personF
#. @usiness league? chamber o* commerce?
or @oard o* trade? >a) not organi3ed *or
pro*it and >b) no part o* the net income o*
which inures to the bene*it o* any stoc9
holder or individualF
'. Civil league or organi3ation not organi3ed
*or pro*it but operated e/clusively *or the
promotion o* social wel*are.
C!R vs. Y-CA
-* Ahat is the basis o* :anila @)R *or the
imposition o* the ta/L
A* last paragraph o* Section %$? because I:C"
was conducting an activity *or pro*it.
<: the C" and the C" invo9ed the doctrine laid
down in 1errera and "bra 0alley case which
involves an e/emption *rom the payment o*
Real property a/.
1: he SC revised the ruling. I:C0" is liable to
pay income ta/ applying the last paragraph o*
Section %$.
I:C" )s e/empt *rom the payment o*
property ta/? but not to income ta/ on rentals
*rom its property.
he ta/ code speci*ically mandates that
the income o* e/empt organi3ations >under
section %$) *rom any o* their properties? real or
personal? shall be sub7ect to ta/? including the
rent income o* the I:C" *rom its real prop.
(. a non-stoc9 and non pro*it educational
institutionF
+. govHt educational institutionF
&$. <armerHs or other mutual typhoon or *ire
insurance company? mutual ditch or
irrigation company? or li9e organi3ation o*
a purely local character? the income o*
which consists solely o* assessment?
dues and *ees? collected *rom members
*or the sole purpose o* meeting its
e/pensesF
&&. <armerHs? *ruit growerHs or li9e association
organi3ed and operated as a sales agent
*or the purpose o* mar9eting the products
o* its members and turning bac9 to them
the proceeds o* sales? less the necessary
selling e/penses on the basis o* the
quantity o* produce *inished by them.
"DE =OE: income o* sales agent is e/empt.
,ection :8* TAXABLE INCO.E
C9APTER VI* CO.P%TATION OF GRO,,
INCO.E
,ECTION :4* GRO,, INCO.E
-* Ahat is the ta/ treatmentL "re these ta/able
incomeL "re these included in the gross incomeL
)s it included in the )RL )s it sub7ect to =)L
A* Sec. %! " answers the questions.
-* Ahat is the income ta/ re*erred to hereL
A* =). he section re*ers only to the payment
o* =). )t spea9s o* the =).
-* )* the is mentioned under Section %! "? does it
*ollow that it is automatically included in the ;)L
A* =o? Section %! " states NE/cept when
otherwise provided in this titleO
-* Ahat are the income that are not included? not
sub7ect to =)L
A*
&. )ncome that are sub7ect to <).
%4
!. )ncome that are considered an e/clusionF
and
%. )ncome that are e/empt.
-* Ahen do you not apply Sec. %! "L
A* it applies to all e/cept:
&. =R"=E@
!. =R<C
S they do not pay =)? they pay by way o* ;).
-* Ahat are included in the ;ross incomeL
A*
91 Compensation for services in B<atever
form paid including but nor limited to fees,
salaries, Bages, commissions, and similar
items. F$ec. &) A %(,G
-* Ahat is compensationL
A* all remuneration *or services per*ormed by an
employee *or his employer under an employer-
employee relationship.
"DE =OE: compensation is included in the
)R i* the ta/payer is not liable *or =). hus? i*
sub7ect to =)? included in the )R.
-* )s there an instance where the salaries o* a
RC is not included in the )RL
A* Ies? i* the salary is sub7ect to <)? li9e when
the RC is employed in :ultinational? o**shore
ban9ing? and petroleum companies.
61 .ross !ncome derived from t<e conduct of
trade or business or t<e e=ercise of a
professionH F$ec. &) A %),G
-* Ahat is the income ta/ hereL
A* =)? included in the )R.
:1 .ains derived from dealings in propert@.
F$ec. &) A %&,G
-* Did the law distinguishedL
A* =o? the law did not distinguished between real
and personal property.
"DE =OE:
&. Sale o* real property
!. Sale o* shares o* stoc9 >personal prop.)

i* the elements are present? sub7ect to <).
hus? it is not included in the )R? the withholding
agent will be responsible *or this.
-* )ncome *orm the sale o* property? do you
include this in the )RL
A* it depends
a. i* sub7ect to <)? not included. Aithholding
agent accomplish the *orms
sub7ect to <) i* the *ollowing elements are
present:
&. it is a capital assetF
!. located in the 5hil.: and
%. sold by individual? trust? estate? DC.
b. i* sub7ect to =)? included in the )R.
Elements are not present? li9e when the
real prop. is an ordinary asset or when it is capital
asset i* the ta/payer is R<C.
"DE =OE: R-R &'-!$$%
Real property sale sub7ect to <A? the buyer
accomplishes the )R.
71 interestH F$ec. &) A %D,G
-* Ahat interest is being re*erred to hereL
A* interest which is included in the computation
o* gross income is interest earned *rom lending
money and interest *rom ban9 deposit which does
not constitute passive income.
@an9 interest *rom sources? without or abroad.
-* @an9 interest *rom Solid @an9? is it included in
the )RL
A* =o? because it is included or considered an
income within? thus sub7ect to <). hus? not
included in the )R.
;1 Rents. F$ec. &) A %2,G
sub7ect to =)? included in the )R.
?1 RoyaltiesF ZSec. %! " >#)[
-* Ahat is being re*erred to hereL
A* royalties which does not constitute passive
income. Royalties derived *rom income without. ,
sub7ect to =). hus not included in the )R.
-* Aho are the ta/payersL
A* 6iable *rom income wKin and wKout and the
rest are e/empt.
&. RC
!. DC
81 7ividends. F$ec. &) A %*,G
-* Ahat 9ind o* dividendsL
A* one that does not constitute a passive
income.
"DE =OE:
&. DC individual ta/payer V <)
!. DC , DC C R<C V EJE:5
%.
%. DC , =R<C V <A
only dividends issued by a <C to an individual
ta/payer >RC OR R") is included in the
computation o* the gross income. hus? included
in the )R.
<1 Annuities. F$ec. &) A %+,G
-* Ahat 9ind o* annuitiesL
A* annuities which are not e/empt *rom ta/ are
included in the computation o* the gross income.
>included in the )R)
1. PriAes and Einnings F$ec. &) A %1,G
-* Ahat 9ind o* pri3es and winningsL
A*
a. those that does not constitute passive
incomeF and
b. those that are not considered as an
e/clusion. hus? e/empt.
Passi.e 0ncome
&. 5ri3es , derived *rom sources within and
over &$?$$$.$$
!. Ainnings , derived *rom sources within.
E/empt:
a. winnings: 5CSO and 6otto winnings.
b. pri3es:
those primarily *or recognition o* >&)religious?
>!)charitable? >%)scienti*ic? >4)educational?
>.)artistic? >#)literary? >')civic achievement are
e/empt 5RO0)DED:
&. the recipient was selected without any
action on his part to enter the contest or
proceedingsF and
!. the recipient is not required to render
substantial *uture services as a condition
to receiving the pri3e or award.
pri3es and awards granted to athletes are also
e/empted provided:
&. local or international sports competition or
tournamentF
!. held in the 5hilippines or abroadF and
%. sanctioned by the national sports
association.
-* Ahen is a pri3e sub7ect to =)L
A* &. when derived *rom income withoutF
!. when less than &$?$$$.$$F
%. when the income earner is a DC or RC.
-* Ahen is winning sub7ect to =)L
A* &. Ahen derived *rom income withoutF
!. when the income earner is a DC or RC.
9@1 Pensions F$ec. &) A %(',G
-* Ahat 9ind o* pensionL
A* )ncluded in the gross income i* not e/empt
S never sub7ect to *it >L)
991 PartnerIs distributive s<are from t<e net
income of t<e general professional
partners<ip %.PP,.

-* Ahat is being re*erred toL
A* ;55 e/empt *rom payment o* corporate
income ta/
shares o* partners sub7ect to =) , Sec. !#
,EC :4 B EXCL%,ION, FRO. GRO,,
INCO.E
-* Ahat do you mean by e/clusionsL "re these
e/empt *rom income ta/L
A* these are not included in the gross income?
1BS? e/empt.
"DE =OE: E/emptions? e/clusions?
deductions? have the same characteristics all
ta/ do not apply.
91 2ife insurance ASec1 :9 & !9"B
A* only one requirement *or e/emption: that the
proceeds o* the li*e insurance be payable upon
the death o* the insured.
-* Does it matter who the bene*iciary is or paid in
a lump sun or single sumL
A* =o. it does not matter.
E/ception: amounts held by the insurer under an
agreement to pay interest thereon? the interest
payment shall be included in the gross income.
61 %mount recei.ed by insured as return
of premium ASec1 :6 & !6"B
-* i* the insurance is payable within a certain
time? say &$ years and therea*ter the insured did
not die? how much will be e/cludedL
A* only the amount received by the insured as a
return o* the premiums.
E/. & : , &$$ thousand V capital
)t is e/empt >&$$D)
%#
+$$D is ta/able.
-* Ahy is it e/cludedL
A* because the amount received merely
represents a return o* capital.
-* is this sub7ect to Estate a/ under Sec. (. EL
do we have the same requirementL
A* no? the requirement *or e/emption is not the
same under Section (. E.
:1 Proceeds of life insurance/ decedent
insured +imself= inclusion or exclusion Cill
depend on C+o t+e beneficiary is1
a. the bene*iciary is the estate.
S sub7ect to Estate ta/? included in the
gross estate regardless o* whether or not the
designation o* the bene*iciary is revocable or
irrevocable.
b. the bene*iciary is a third person other than the
estate.
b.& Revocable Designation sub7ect to
estate ta/? included in the gross estate.
Reason: because o* the insuredHs power to
modi*y or change the bene*iciary.
b.! )rrevocable Designation not sub7ect to
Estate ta/? not included in the gross estate.
Reason: the insured loses the power to
control? modi*y and change the bene*iciary.
-* )s it sub7ect to 0"L
A* &. =on-li*e insurance , yes? sub7ect to 0"
under &$( >").
!. 6i*e insurance , =O? sub7ect to percentage
ta/ under Sec. &!% o* the a/ Code.
71 4ifts= &equest and De.ises ASec1 :6 &
!:"B
-* Ahy is the donee e/empt *rom income ta/L
A* @ecause the law classi*y it as an e/clusion?
not important to 9now whether property is real or
personal.
Ahat is e/empted is the Nvalue o* property
acquired by gi*t? bequest or deviseO
"DE =OE:
". ;)<S are e/cluded because they are
sub7ect to donorHs ta/.
@. @E2BES and DE0)SE are e/cluded
because they are sub7ect to ES"E ta/.
-* what is included in the gross incomeL
A* income *rom such property.
gi*t? bequest? devise or descent o* income
*rom any property in case o* trans*ers o* divided
interest.
;1 Compensation for inDuries or sic,ness
ASec1 :6 & !7"B
-* is this the same as those provided under the
wor9menHs compensation act >wca)L
A* IES. here are % groups:
a. 1ealth or accident insurance or those under
wor9menHs compensation.
b. personal in7uries and sic9nessF and
c. Damages to prevent in7uries and sic9ness.
-* Ahat does in7ury includeL
A* he term in7ury includes death? even i* not
in7ured? i* the person dies this will be available.
-* when will the damages recovered be e/emptL
A* ;eneral Rule: all damages awarded are ta/
e/empt.
E/ception: damages representing loss o*
income.
-* Ahy is it considered an e/clusionL
A* because this is 7ust an indemni*ication *or the
in7uries or damages su**ered.
?1 0ncome exempt under a treaty ASec1 :6 &
!;"B
-* Ahat is e/cludedL
A* income o* any 9ind required by treaty binding
upon the 5hil. ;overnment.
81 Retirement benefits= pensions=
gratuities ASec1 :6 & !?"B
-* Ahy do we need to distinguish retirement pay?
separation pay and terminal leave payL
A* because they have di**erent requirements *or
e/emption.
-* Ahat is retirement payL
A* the sum o* money received upon reaching the
ma/imum age o* employment.
a. Bnder R"4+&' >with Retirement 5lan)
&. the private bene*it plan is approved by the
@)R >RR!-+()F
!. the retiring o**icial or employee has been
in the service o* the same employer *or
the last &$ yearsF
%. he is at least .$ years old at the time o*
retirementF and
4. the o**icial or employee avails
himsel*Khersel* o* the bene*it only once.
%'
b. Bnder R"'#4& >without retirement plan)
&. the retiring o**icial employee is at least #$
years old but not more than #. years oldF
!. the employee or o**icial must have served
the company *or at least . yearsF
S entitled to &. days salary and Y o* the &%th
month pay *or every year o* service.
"DE =OE: the retirement bene*its under
R"4+&' and R"'#4& are e/empt *rom income ta/
provided the requirements are present.
,EC. :4 B2@32c3
retirement bene*its given by *oreign
government? *oreign corporation? public as well as
private to RC? =RC? R" residing permanently in
the 5hilippines - e/empt without *urther
quali*ications , automatic e/clusions.
,EC. :4 B2@32$=e=f3
retirement bene*its given by the 5hilippine
;ovHt through the ;S)S? SSS and 50"O are
e/empt without *urther quali*ications V automatic
e/clusions.
"ugust !&? !$$#.
- midterms #-( pm until sec %! @>#) =)RC.
"ugust !(? !$$#.
"=SAERS V :)DER:S
;ross )ncome include both capital and
ordinary gains? Sec. %& says gross income-
deductions? that which is ordinary loss.
- may be deducted *rom capital gains and ordinary
gains.
-* Ahat is separation payL
A* on given when one is terminated *rom the
service because o* >&) illness? >!)death? >%)
physical incapacity or in7ury? or >4) causes beyond
the control o* the employee.
-* "re there any requirement *or separation pay
granted by *oreign govHt or corpL
A* =one? the separation pay granted by the
a*orementioned institutions are e/empt without
*urther quali*ications >Nother similar bene*itsO).
-* is separation pay an e/clusion? there*ore?
e/emptL
A* =o.
;E=ER"6 RB6E: Separation pay not e/empt
>L)
E/ception:
&. "utomatic e/clusions? thus e/empt i* due to:
a. illness
b. death
c. physical incapacity or in7ury.
!. Conditional e/clusion
a. causes beyond the control o* the
employee- e/cluded
b. within employeeHs control , included.
E/amples:
&. registration , C@" provides separation
pay? within the control V included.
!. installation o* labor saving devises or
ban9ruptcy , beyond the control V
e/cluded.
-* Ahat is terminal leave payL
A* the accumulated vacation leave and sic9
leave bene*its converted to cash or money to be
given either every year or upon retirement or
separation.
erminal 6eave 5ay granted upon retirement or
separation:
S uder 5D!!$? 65 in the ;ovHt or in the
5rivate Sector shall be e/empt *rom income
ta/ i* given or granted upon retirement or
separation.
65 granted on a yearly basis:
&. employee in the private sector:
a. accumulated sic9 leave , sub7ect to
income ta/.
b. "ccumulated vacation leave: i* more
than &$ days >meaning && pataas) ,
sub7ect to income ta/F
S)* &$ days or less , e/empt.
!. ;ovHt Employee:
S governing law: EO !+& o* 5res. Estrada? R:C
&#-!$$$.
Rule: ;ovHt wor9ers >both o**icers or non-o**icers)
granted 65 on a yearly basis e/empt *rom
income ta/.
there is no quali*ication as to vacation or sic9
leave.
a9e =ote o* % cases.
S be reminded o* EO !+&? Sec. !. '(.! par.
+'? RR!-+(? RR&#-!$$ >%).
Case of 9ialcita
retired *rom DO8? contention: 65 should be
e/empt *rom income ta/ pursuant to the old law.
SC: on a di**erent ground , 65 is e/empt
because it is similar to Retirement pay? thus
%(
e/empt but the rulingHs application is limited only
to DO8 employees.
6orromeo case:
Same as the Pialcita case
)ssues: AO= the 65 is sub7ect to income ta/ and
AO= CO6" and R"" are includedL
SC: RB6ED 65 is E/emptW
:odi*ied: the rule applies not only to DO8 o**icers
but also to CSC commissioners.
CO--!$$!O/ER v. CA$AJE7A
- Casta\eda ,D<" o**icer in 5hil. Embassy in
England.
&. 65 is e/empt.
!. Ruling applies to D<" o**icers.
-* Does the rule or decision applies to ;ovHt
o**icials onlyL
A* =o. 5D!!$: E/emption applies to both private
and public sectors>L)
it does not matter i* 65 is vacation or sic9
leave.
RR!-+(? Sec. !.'(.& par. >a)>')
S 8"=? &++( , the rule applies to both private
and public sectors.
EO!+& >SE5.? !$$$)
S O**icer in govHt receiving 65 is always
e/empt whether or not vacation or sic9 leave is
granted.
:odi*ied RR!-+(:
S 65 will only apply to private sectors
S i* granted on a yearly basis , may be sub7ect
to ta/: 0"C")O= 6E"0E
&. :ORE 1"= &$ D"IS V "J"@6E
!. 6ESS 1"= &$ D"IS V EJE:5
<1 )iscellaneous items !Sec1 :6 & !8"
!a" income deri.ed by foreign 4o.Et ASec1
:6 & !8" !a"B
-* Ahat 9ind o* incomeL
A*
&. investments in:
a. loans
b. stoc9s
c. bonds
d. other domestic securities
!. interest *rom deposits in @an9s in the
5hilippines.
-* Aho are income earnersL
A*
&. *oreign government
!. *inancing institutions owned? controlled or
en7oying re-*inancing *rom *oreign govHtsF
and
%. intHl or regional *inancial institutions
established by *oreign govHts >established
in the 5hilippines)
"DE =OE: i* plain *oreign corp.? sub7ect to <)
!$E.
EJ":56ES o* e/clusions:
a. @runei ;ovHt earns interest by depositing
money in :a9ati @an9 , E/clusion.
b. S:C- Stoc9 dividends to %. @runei ;ovHt.
e/clusion
c. )ncome derived by the ;ovHt or its political
subdivisions >Sec. %! @ >') >b)
a. e/ercise o* public utility
b. e/ercise o* any essential govHt *unction.
S accruing to the govHt.
d pri3es and awards >Sec. %! @ ' c)
S primarily *or religious? charitable?
scienti*ic? educational? artistic? literary or civic
achievements:
&. recipient was selected without any action
on his part to enter the contest or
proceedingsF
!. the recipient was not required to render
substantial *uture services as a condition
to receive the pri3e or award.
D. pri3es and awards in sports >Sec. %!@ ' d)
&. granted to athletesF
!. local or intHl competitionsF
%. held here or abroadF
4. sanctioned by the natHl sports associations.
E. &%
th
month pay and other bene*its >Sec. %!@ '
e)
-* Do you include Christmas bonus in your )RL
A* =o? because the law says &%
th
month pay and
Nother bene*itsOKOsimilar bene*itsO , /mas bonus is
included in the category.
-* Aho can increase the %$?$$$ limitL
A* he Sec. o* <inance.
-* "pplicable to whomL
A*
&. govHtF and
!. 5rivate institutions.
<. ;S)S? SSS? :edicare and other contributions
>Sec. %! @ ' *)
must be deducted *rom the ;) not =) because
it is an e/clusion.
%+
-creditable withholding ta/ is an e/clusion- must
be deducted *irst *rom the ;) be*ore you compute
the =). Otherwise? you are including in the ;)
something that is e/cluded *rom the same.
;. ;ains *rom the Sale o* bonds? debentures? or
other Certi*icate o* indebtedness. >Sec. %! @ ' g)
-* Ahy . yearsL
A* certi*icate o* indebtedness is similar to @an9
)nterest in a long term deposit.
- Sec. %! @ ' g is similar or the same as !4 @ in
long term deposit.
1. ;ains *rom redemption o* shares in mutual
*und >Sec. %! @ ' h)
&. <iscal Iear , means an accounting period o* &!
months ending on the last day o* any month other
than December.
!. Calendar year , a period o* &! months
beginning on 8anuary and ending on December.
-* @usiness e/pense incurred in <ebruary !$$#?
is it possible to include it *or "pril !$$#L
A* yes? it is possible or it is possible i* *iscal year
is employed? i* it *alls under the *iscal year and all
the elements are present.
- related to trade or business.
RE"SO=: Capital loss has no connection to the
trade or business.
"DE =OE:
*or ta/payers liable *or income within and
without >RC C DC))? they can claim deduction
*or e/penses incurred within and without.
*or ta/payers who are liable only *or income
within? they can claim a deduction *or
e/penses incurred within the 5hilippines.
Sec. %4 " EJ5E=SES
&. <or those business e/penses not enumerated
under ". Iou need to prove that it is an ordinary
and necessary e/pense.
!. <or those enumerated under "? all you have to
prove is that it is incurred during the ta/able year.
<eb. &!? !$$' >Sec. %4 "? E/penses)
-* Did the law de*ine what is reasonableL
A* =o. *or salaries and wages all that is required
by law is *or it to be reasonable.
- *or other *orms o* compensation? there must be
services actually rendered.
%4-0N2D# Case
<: involves a corporation engaged in selling *ish
nets? and the corporation have a land sold through
a bro9er.
there was substantial pro*its gained *rom the
sale o* a land which was sold by a bro9er. he
pro*it was in turn given to the wor9ers as special
bonus.
the corporation claimed the bonus as a
deduction.
)SSBE: Should the deduction be allowedL
1: he SC did not allow the deduction? *or other
*orms o* compensation? it must be made or given
*or services actually rendered.
in this case? it was proven that the sale was not
made by the employees? no e**ort or services
actually rendered by them because the sale was
made through a bro9er.
-* Reasonable ravel E/penses? Ahat is the

requirementL
A*
&. ravel must be in pursuit o* business?
trade or pro*ession.
!. ravel e/pense while away *rom home.
-* )s there a travel e/pense which was not in
pursuit o* businessL
A* yes? those which are considered as *ringe
bene*its ><@)? e/penses *or *oreign travel is
considered a <@ only i* it is not in pursuit o* the
trade or business.
-* can you claim it under Sec. %4 " >&)>a)>ii)L
A* =o? you can claim it under Sec. %4 " >&)>a)>i)
last paragraph.
-* Reasonable "llowances *or rentals *or meralco
bills? requirementsL
A*
&. required as a condition *or the
continued use or possession? *or the
purpose o* the trade? business or
possession o* the property.
!. ta/payer has not ta9en any title or no
equity other than a lessor.
4$
-* Reasonable allowance *or entertainment?
amusement and recreation e/penses? what is the
requirementL
A*
&. connected with the development?
management? and operation o* the trade
>DO:)F
!. Does not e/ceed the limits or ceiling
set by the Secretary o* <inanceF and
%. =ot contrary to law? morals? good customs?
public policy or public order.
-* 1ow about bribe? 9ic9bac9s? and other similar
payments
A* even without this provisions? 9ic9bac9s will not
pass the requirement o* >i) ordinary and >ii)
necessary hence not deductible
EXPEN,E, ALLOWABLE TO PRIVATE
E#%CATIONAL IN,TIT%TION
-* Ahy only private educational institution is
mentioned and no other ta/payersL
A* it re*ers to section !' *or 5rivate Educational
)nstitution given to the educational institution.
;E=ER"6 RB6E: %# " >!) and %# " >%)
e/penditures *or capital outlays not deductible as
business e/pense
EJCE5)O=: 5rivate Educ. )nstitution can claim it
under Sec. %4 " >!)
B%,INE,, EXPEN,E 's. ALLOWANCE FOR
#EPRECIATION
@BS)=ESS EJ5E=SE
&. =o carry-over
!. can be claimed *or one year only.
%. i* the amount o* capital outlay is substantial? it
cannot accommodate all o* the e/penses
incurred.
ALLOWANCE FOR #EPRECIATION
&. here is carry over
!. you can claim it *or a longer period depending
on the li*e span o* the property.
%. it can accommodate all o* the e/penses
incurred.
ta/payerHs allowable deduction *or interest
e/pense shall be deducted by an amount equal to
4!E >RR &$-!$$$) o* the interest income sub7ect
to <).
-* Aho claims this deductionL
A* the debtor claims this deduction.
-* Ahat 9ind o* interest is thisL
A* interest on loan.
interest on debt - when one borrows money to
*inance his business interest in connection with
the ta/payerHs pro*ession trade or business.
RED)SCOB=)=; O< 5"5ERS : >Sec. %4 @ ! a)
a borrower or ta/payer can claim the interest
paid in advance as itemi3ed deduction when he
*iled his income ta/ return >)R) depending on
whether or not the principal obligation has been
paid.
&. i* the entire amount or entire principal obligation
has been paid , the entire amount o* interest can
be claimed as itemi3ed deduction.
!. i* only Y o* the obligation had been paid? then
the entire amount o* Y o* that interest can be
claimed as a deduction.
%. i* no payment had been paid on the principal
obligation? the advance interest paid cannot be
claimed as a deduction on the years that it was
paid.
RE2B)RE:E=S <OR RED)SCOB=)=; O<
5"5ERS:
&. incurred within the ta/able year.
!. individual ta/payer reporting income on a cash
basis.
=o deduction shall be allowed in respect to
the *ollowing interest:
&. i* within the ta/able year an individual ta/payer
reporting income on the cash basis incurs an
indebtedness on which an interest is paid in
advance or through discount or otherwise.
!. i* both ta/payer and the person to whom the
payments has been made or is to be made are
persons speci*ied under Sec. %# >@):
a. member o* a *amily
b. bet. an individual and a corp.? more than .$E in
advance o* the outstanding stoc9 o* which is
owned directly or indirectly by or *or such
individualF
c. @et. ! corp.? more than .$E in value o* the
outstanding stoc9 o* each o* which is owned?
directly or indirectly? by or *or the same individual.
d. bet. the grantor and a *iduciary o* any trustF
e. bet. the *iduciary o* a trust and the *iduciary o*
another trust i* the same person is a grantor with
respect to each trustF or
4&
*. bet. a *iduciary o* trust and a bene*iciary o* such
trust.
-* Aho are not allowed to claim interest under
sec %# @L
A* interest incurred between related parties.
-* Ahat i* hal*-brotherL
A* not allowed to claim deduction *or interest.
"DE =OE: interest incurred *rom the
e/ploration o* petroleum re*ers not 7ust in interest
incurred on loan o* money but also interest
incurred *or installment payments.
-* Aho are related partiesL
A* individuals and corporations.
O5)O="6 RE":E= O< )=ERES
EJ5E=SE:
&. interest incurred to acquire property used in
trade? business or e/ercise o* pro*ession can be
claimed a an itemi3e deductionT
a. on interestF or
b. depreciation >as capital e/penditureL)
-* Ahat is this interest incomeL
A* the money borrowed was deposited in a ban9
so that it will warn interest. >RR&%-!$$$)
)66BSR")O=:
&. loan o* &: *rom a ban9 with an interest o* !$E
!. !$E o* &: is 5hp!$$?$$$ but you cannot claim
this whole amount as a deduction.
%. when you deposited the &: in the ban9? it
earned a ban9 interest sub7ect to <) worth
5hp&$?$$$.$$.
4. 4!E >RR) o* &$?$$$ V 4?!$$ >RR +%%')
.. 5hp!$$D-4?!$$V 5hp&+.?($$K this is the
amount you can claim as a deduction.
:5 C TAXE,*
RE2B)S)ES:
&. ta/es must paid or incurred within the ta/able
year
!. it must be incurred in connection with trade or
business.
%. can be claimed as:
a. a deductionF or %4 C &C!
b. ta/ credit %4 C %C'
-* Ahere should it be deductedL
A*
&. i* claimed as a deduction? it should be
deducted *rom the gross incomeF
!. i* claimed as a ta/ credit? it should be
deducted *rom the =et )ncome a/ due
>bottom o* the *ormula)
)ERC-RF DR-4 C%SE
- Discount o* senior citi3ens
SC: discount claimed by senior citi3ens shall
create a ta/ credit and must be deducted at the
bottom o* the *ormula.
-* Ahat is a ta/ deductionL E/ampleL
A* e/ample is business ta/.
ta/ deduction is allowed i* the ta/es were paid
or incurred within the ta/able year and it must be
connected to the trade? business or pro*ession o*
the ta/ payer.
-* Aho are entitled to claim itL
A* those liable to pay =). >a/ credit only *or
=))
-* Ahat is a ta/ creditL
A* re*ers to the ta/payerHs right to deduct
*rom the income ta/ due the amount o*
ta/ the ta/payer paid to *oreign country?
sub7ect to limitations.
-* Ahat is the ta/ credit being re*erred to under
%4 C >%)L
A* credit against ta/es *or ta/es o* *oreign
country.
-* Ahat are the other ta/ credit under the codeL
A*
&. R" #4.! , selling goods and commodities to
senior citi3ens? the discount claimed is treated as
a ta/ credit.
!. income ta/ paid to *oreign country.
%. )nput ta/ on 0at
4. Creditable wKholding ta/ system under =)
.. a/ credit certi*icate.
2: Aho are allowed to claim itL
": RC and DC only.
-* suppose you paid the &$$D =) to BS? can you
claim as a deduction the whole &$$DL what is the
*ormulaL
same procedure *or >&) income ta/ paid to
*oreign countryF >!) estate ta/ paid to *oreign
countryF and >%) DonorHs ta/ paid to *oreign
country.
A* Forula*
SE5 &
;) *rom sources wKin
4!
=): GGGGGGGGGGGGGGGGGGGGG
;) *rom entire world
SE5 !
2uotient / R"E V amount wKc can be claimed as
a deduction
A* you cannot claim the whole &$$D? you can only
claim the product o* the quotient times the rate
"DE =OE: deduct at the bottom o* the *ormula
> sa computation ng ;))
-* Suppose you are a RC? you pay =) to BS? will
you be able to claim it as a ta/ deductionL
A* &. generally? you can claim it as ta/ credit.
!. you can claim under Sec. %4 C >&) b
i* the ta/payer did not signi*y in his return his
intention to avail himsel* o* the bene*it o* ta/ credit
*or ta/es paid to *oreign country.
ta/es incurred not related to the trade or
business? you have the option to:
a. claim it as ta/ creditF or
b. claim it as a deduction
law gives you this privilege.
-* Ahen is ta/es not allowed as a deductionL
A* Sec. %4 C >&)
&. )ncome ta/F
!. )ncome ta/ imposed by authority o*
any *oreign countryF
%. Estate and DonorH ta/F and
4. ta/es assessed against local bene*its o* a
9ind tending to increase the value o* the
property.
-* Aho are not allowed to claim deductionsL
A* Bnder %4 C >%) - =RC? =R"F and =KR<C
"DE =OE:
&. =R"E and =<C , allowed deduction only i* and
to the e/tent that they are connected with income
*rom sources within the 5hils.
!. a/es that had been allowed as deduction but
are later in re*unded should be treated as part o*
the gross income during the year that it is
received >%4 & last paragraph)
-* Ahich would you chooseL a/ credit or
deductionL
A* ta/ credit because it is deducted *rom the
ta/able income while deductions are deducted
*rom the ;).
<OR:B6": ;)-DEDBC)O= V =E )=CO:E /
R"E V "J"@6E =E )=CO:E , "J CRED))
:5 # LO,,E,
-* )s always a requirement that it is incurred in
pursuit o* trade? bus. or pro*essionL
A* =o. Sec. %4 D>&) provides *or ! 9inds o* losses:
a. incurred in pursuit o* trade? bus. or
pro*essionF
b. property connected with t?b?p? i* the
loss arises *rom *ire? storms? shipwrec9s
or other casualties or *rom robbery? the*t
or embe33lement >arising *rom natural
calamity).
A*
&. 6oss actually sustained during the
ta/able year
!. =ot compensated *or by insurance or
other *orms o* indemnity.
%. =ot claimed as a deduction *or estate
ta/ purposes.
-* his is your itemi3ed deduction which can
be claimed as a deduction *romL
A* ;ross income
"DE =OE:
he itemi3ed deduction o* losses? however? is
not con*ined to section %4@. it is also *ound under
section (#" >&) >e) which also pertains to
deductions available under the estate ta/ law.
6osses within si/ >#) months a*ter the death o*
the decedent can be claimed as itemi3ed
deduction o* losses under Section %4@. 1owever?
may be claimed as deduction under estate ta/
return provided that the same are not claimed as
itemi3ed deduction o* losses under Section %4@.
-* 1ow many carry-overs do we have under the
CodeL
A* %. =amely:
&. Section !' E >%!) Carry *orward o*
e/cess minimum a/
!. Section %+ D =et Capital 6oss Carry-
over
%. Section %+ D % =et Operating 6oss
Carry-Over.
0IN#, OF LO,,E, AN# T9EIR CARR1/
OVER,*
%1 #RD0N%RF 2#SS G N#2C# % K& above,
4%
-* Ahy is there a need *or a carry over under
Sec. %4 D M when you can claim the loss *rom
both capital and ordinary lossL
A* i* the loss e/ceeds the income *or the ta/able
year? you cannot deduct the entire amount o* loss
*rom your income *or that year so the e/cess may
be deducted *or the ta/able year *ollowing the
loss.
B. CAPITAL LO,, D NET CAPITAL LO,,
CARR1 OVER % K ) above,
NET C%P0T%2 2#SS
C%RRF-#HER
NET #PER%T0N4
2#SS C%RRF-#HER
&. ta/payers is an
individual only not
corporation.
!. involves net capital
loss
%. carry-over as loss
*rom sale o* capital
asset in the ne/t
succeeding year
4. can only be
deducted *rom capital
gains.
&. ta/payer may be an
individual or corpF
!. losses incurred or
connected with or @F
%. @usiness losses
not previously o**-set
as a deduction *rom
the ;) carried over as
such *or the ne/t %
consecutive yearsF
4. can be deducted
*rom capital gains
andKor ordinary gains.
NET OPERATING LO,, CARR1
RE2B)RE:E=S:
&.=et operating loss o* the business or enterprise
incurred wKin the ta/able year
!. not previously o**-set as a deduction *rom the
;)
%. carried over as a deduction *rom the ;) *or the
ne/t % consecutive ta/able years immediately
*ollowing the year o* such loss.
-* Can the period be e/tendedL
A* yes? *or mines other than oil and gas well.
&. net operating loss wKout the bene*it
incentives provided by lawF
!. incurred in any o* the *irst &$ years o*
operation.
%. carried over as a deduction *rom the ;)
*or the ne/t . years *ollowing such loss.
4. no substantial change in the ownership
o* the business or enterprise.
-* Ahat is the limitL
A* '.E o* the nominal value o* outstanding
shares is held by or on behal* o* the same
personsK corporation
individual no problem? problem lies with
corporations or enterprises.
"@"=DO=:E= 6OSSES
&. contract area where petroleum operations are
underta9en is partially or wholly abandonedF
all >&) accumulated e/ploration and >!)
development e/penditures pertaining thereto shall
be allowed as a deduction.
!. a producing well is subsequently abandoned:
unamorti3ed cost and undepreciated cost o*
equipment directly used therein shall be allowed
as a deduction in the years it was abandoned.
"DE =OE:
&. i* abandoned well is reentered and production
is resumedF or
!. i* equipment or *acilities are restored into
service in the year o* resumption or restoration
and shall amorti3ed or depreciated.
-* Ahat is the a/ bene*it ruleL
A* 6ast 5ar. o* Sec. %4 E >&): recovery o* bad
debts previously allowed as deduction in the
preceding year shall be included as part o* the
gross income in the year o* recovery to the e/tent
o* the income ta/ bene*its o* said deduction.
-* Ahat is a @ad DebtL
A* @ad debts shall re*er to those debts resulting
*rom the worthlessness or incollectibility in whole
or in part o* amounts due the ta/payer by others?
arising *rom money lent or *rom uncollectible
amounts o* income *rom goods sold and services
rendered.
C9INA BAN0 V,. CA
bad debts can only be claimed i* pursuant to a
contract o* loan
- no bad debts *or loss o* instruments.
-* Aho claims itL
A* a. creditor
b.money lender
-* Ahat year can it be claimedL
A* can be claimed in the year it was actually sit
ascertained to be worthless and charged o**?
meaning cancelled in the boo9s o* account.
44
-* Do you need to *ile an action be*ore you can
claimL
A* =o? all you have to do is prove that you did
e/ert e**ort to claim or recover the same.
-* Ahat cannot be deducted as bad debtsL
A*
&. debts not incurred in connection with the
trade? business and pro*ession o* ta/payer.
!. transactions? mered into between
parties mentioned under Section %# >@)
namely.
a) between members o* the *amily
b) between an individual who owns more
than %$E o* outstanding capital stoc9 o*
a corporation and that corporation
c) between two >!) corporations more that
.$E o* the outstanding capital stoc9 o*
which is owned by or *or the same
individual
d) between a grantor and *iduciary o* any
trust
e) between two >!) *iduciaries o* two >!)
trusts who has the same grantor
*) between a *iduciary o* a trust and above
*iduciary o* such trust
$EC"R!!E$ 6ECO-!/. EOR3LE$$
&. ascertained to be worthless and charged
o** within the ta/able year
!. capital asset
%. ta/payer? other than a @an9 or trust
company incorporated under 5hil. 6aws
4. substantial part o* business is the receipt
o* deposit
.. considered as a loss *rom the sale o*
capital assets on the last day o* such ta/able
year
:5 F #EPRECIATION
-* Ahat is depreciationL
A* )t is the gradual dimension in the service or
use*ul value o* tangible property due *rom
e/haustion? wear and tear and normal
obsolescence.
-* Ahat 9ind o* property is involvedL
A* &. Real property e/cept parcel o* land
!. 5ersonal 5roperty
RE4"!$!E$:
&. depreciation deduction must be reasonable
!. *or the e/haustion? wear and tear? including
reasonable allowance *or obsolescence
%. property used in the trade o* business
-* Ahat do you mean by Nreasonable allowanceOL
A* it shall include? but not limited to? an allowance
computed in accordance with rules and
regulations prescribed by the Secretary o*
<inance? upon recommendation o* the
Commissioner? under any o* the *ollowing
methods:
&.Straight-line method
!.Declining balance method
%.Sum-o*-the-year-digital methodF and
4.any other method which may be prescribed
by the Secretary o* <inance upon
recommendation o* the Commissioner
#EPRECIATION OF PROPERTIE, %,E# IN
PETROLE%. OPERATION,
&. properties directly related to production
o* petroleum
!. allowed under >&) straight line or >!)
declining balance method
%. use*ul li*e o* properties used or related
to production o* petroleum shall be ten
>&$) years or such shorter li*e as
may be permitted by the
Commissioner.
4. *or property not used directly in the
production o* petroleum >&) depreciated
under the straight line method? and use*ul li*e
is only *ive >.) years
#EPRECIATION OF PROPERTIE, %,E# IN
.INING OPERATION,
"66OA"=CE <OR DE5REC)")O=:
&.all properties used in mining operations other
than petroleum operations shall be computed as
*ollows:
a. i* the e/pected li*e is ten >&$) years or less ,
normal rate o* depreciation
b. i* the e/pected li*e is more than ten >&$) years ,
depreciated over any number o* years between
*ive >.) years and the e/pected li*e.
RE4"!RE-E/$:
&. depreciation is allowed as a deduction
*rom #&F and
!. contractor noti*ies the Commissioner at
the beginning o* the depreciation period
which depreciation rate shall be used.
DE5REC)")O= DEDBC)@6E @I =R"E@ OR
R<C
reasonable allowance *or the deterioration o*
property
4.
1. arising out o* its use or
employment
2. or non-use in the business? trade
or pro*ession
3. property is located in the
5hilippines
:5 G #EPLETION OF OIL an$ GA, WELL, an$
.INE,
only deduction which is a not sel* e/ecuting
deduction
-* Ahat is depletionL
A* the e/haustion wear and tear o* natural
resources as in mines? oil? and gas wells
the natural resources called Nwasting assetsO
DE5REC)")O= vs DE56E)O=
&.involves property &. involves natural
resources
!. ordinary wear and
tear o* equipments
!. ordinary wear and
tear o* natural
resources

"DE =OE:
Equipment used in mining operation is
deductible in depreciation
-* :ethod *or computing depletionL
A* cost depletion method
-* to whom allowedL
A* only mining entities owning economic interest
in mineral deposits
Economic interest: capital investments in
mineral deposits
:59 C9ARITABLE ) OT9ER CONTRIB%TION,
"DE =OE:
&.unique because deducted *rom the ta/able net
income and not *rom the gross income
second step o* the *ormula deduction
-* Aho is claiming the deductionL
A* the donor
-* Aho are the DoneesL
A* &.;overnment o* the 5hilippines or any o*
its agencies or any political subdivision
thereo* e/clusively *or public purpose
!. "ccredited Domestic corporation or
association organi3ed and operated
e/clusively *or religions? lion? charitable?
scienti*ic? youth and sports development?
cultural or educational purposes or *or
the rehabilitation o* veterans? or to social
wel*are institution? or to non government
organi3ation and no part o* its net income
inures to the bene*it o* any private stoc9 holder
or individual
-* 1ow many 9inds o* deductionL
A* wo >!) 9inds:
&.partial deduction
&$E o* ta/able income in case o* an
individual
.E o* ta/able income in case o*
corporations
!. *ull Ktotal deduction
-* Ahich o* the two 9inds is the ;eneral
RuleL
A* ;eneral Rule: 5artial deduction
E/ception: otal K<ull deduction
-* Suppose :r. " made a cash donation o* 5&:.
1ow much can he claim as a deductionL
A* <irst determine the ta/able income o* :r "
since he is an individual? he can only deduct &$E
o* his ta/able income.
2: Ahat i* the Donee is not one o* those
mentioned under the law? can he claim a
deductionL
": =o.
"DE =OE: Donee is never an individual.
-* )* the Donor is a pure compensation income
earner and he donates 5&$$?$$$ to the church?
can he claim it as a deductionL
A* =o. pure compensation income earner can
only claim a deduction under Sec %4 :
-* )* Donee is the 5hilippine ;overnment? what is
the requirementL
A* it must be made e/clusively *or public purposes
-* Ahat i* the Donee is a provinceL
A* there must be a quali*ication that it is *or public
purpose
-* )* the Donee is a Domestic Corporation?
what is the requirementL
A* no part o* its income inures to the bene*it o*
any private shareholder or individual
-* Ahat are those contributions which can be
deductible in *ullL
A* &.Donations to the ;overnment , no con*lict
with partial >di**erent requirement)
4#
5artial donated *or e/clusively public
purposes
<ull? used in underta9ing priority activities
o* =ED"
!.Donations to certain <oreign
)nstitutions or )nternational Organi3ations
in compliance with agreement? treaties
or commitment entered into by the
5hilippine ;overnment and such donees
%.Donations to "ccredited =on
government organi3ations =on
government organi3ation? non pro*it domestic
corporation
RE2B)RE:E=S:
&. organi3ed and operated e/clusively *or
scienti*ic? research? educational? character
building and youth and sport development? health?
social wel*are? cultural or charitable purposes or a
combination thereo*
!. no part o* the net income o* which inures to the
bene*it o* any private individual
%. uses the contributions directly *or the active
conduct o* the activities constituting the purpose
or *unction *or which it is organi3ed and operated
4. annual administrative e/pense does not
e/ceed %$E o* the total e/penses and
.. in case o* dissolution? the assets o* which
would be distributed to:
a) another non pro*it domestic corporation
organi3ed *or similar purpose or purposes
b) to the state *or public purpose
c) distributed by the court to another
organi3ation to be used in such a manner
which would accomplish the general purpose
*or within the dissolve organi3ation was
organi3ed
:5I RE,EARC9 AN# #EVELOP.ENT
)n the old law? this is not allowed as a
deduction. o remedy this? they *elt that those
should be a separate deduction *or research and
development.
RE2B)S)ES:
ta/ payer may treat research and development
e/penditures as ordinary and necessary e/penses
provided:
&. it is paid or incurred during the ta/able year
!. incurred in connection with trade? business or
pro*essionF and
%. not chargeable to capital account.
-* reated as such whenL
A* during the ta/able year it is paid or incurred
A-OR!9A!O/ O# CERA!/ RE$EARC3 A/7
7E8ELOP-E/ E;PE/7!"RE$
at the election o* the ta/payer? the *ollowing
shall or may be treated as de*erred e/penses:
a. paid or incurred by the ta/payer in connection
with his trade? business or pro*essionF
b. not treated as e/penses under par & and
c. chargeable to capital account but not
chargeable to property o* a character which is
sub7ect to depreciation or depletion
-* 1ow to compute ta/able income:
": de*erred e/penses shall be allowed as
deduction ratably distributed over a period o* not
less than &$ months as may be elected by the
ta/payer >beginning with the month the
ta/payer *irst reali3es bene*its *rom e/penditures.)
the election or option may be e/ercised *or any
ta/able year a*ter the e**ectivity o* the code but
not later than the time prescribed by law *or *iling
the return *or such ta/able year.
6):)")O= O= DEDBC)O=
-* Ahen not deductibleL
A* &."ny e/penditure *or the
>&) acquisition or improvement o* land or
>!) *or the improvement o* property to be
used in connection with research and
development o* a character which is
sub7ect to depreciation and depletion and
o**ice site
!. "ny e/penditure paid or incurred *or
the purpose o* undermining the
e/istence? location? e/tent or quality o*
any deposit o* one or other mineral including
oil or gas.
not *or mineral e/ploration
:5 E PEN,ION TR%,T
-* Claimed by AhomL
A* the employer
-6 Ahat is a 5ension rust contributionL
A* a deduction applicable only to employer on
account o* its contribution to a private pension
plan *or the bene*it o* its employee deduction is
purely business in character.
-* RequisitesL
A*
4'
&.the employer must have established a pension
or retirement plan to provide *or the payment or
reasonable pension o* his employees
!. pension plan must be reasonable and actually
soundF
%. it must be *unded by the employer
4. the amount contributed must no longer be
sub7ect to his control or disposition
.. the amount has not yet been allowed as a
deduction and
#. the amount has or is apportioned in equal parts
over a period o* &$ consecutive years beginning
with the year in which the trans*er or payment is
made.
:5 0 A##ITIONAL RE-%IRE.ENT, FOR
#E#%CTIBILIT1 OF CERTAIN PA1.ENT,
allowed as a deduction only i* shown that the
ta/ required to be deducted and withheld there
*rom has been paid to the @)R in accordance with
Section .( and Section (&
:5 L OPTIONAL ,TAN#AR# #E#%CTION
?!/7$ O# 7E7"C!O/$:
&.)temi3ed deduction
!.Optional Standard Deduction
%.5ersonal K"dditional Deduction
O5)O="6 S"=D"RD DEDBC)O=:
can be availed o* by an individual who may
elect a standard deduction in an amount not
e/ceeding &$E o* his gross income
may apply in lieu o* the other deductions
under Section %4
the ta/payer must signi*y in his return his
intention to elect the optional standard deduction?
otherwise? he shall be considered as having
availed o* the itemi3ed deduction.
-* Aho can claim this deductionL
A* all individual ta/payers e/cept non resident
alien not engaged in trade or business
>=R"=E@)
Reason: he is not liable to pay by way o* the =)?
thus? *ollows he cannot claim this deduction
because he is liable to pay by way o* ;).
"DE =OE:
can co-e/ist with personal and K or additional
e/emption
:5 . PRE.I%. PA1.ENT, ON 9EALT9
AN# FOR 9O,PITALIGATION IN,%RANCE OF
AN IN#IVI#%AL TAXPA1ER
*or >&) 1ealth and Kinsurance
>!) 1ospitali3ation
RE2B)RE:E=S:
&. amount o* premiums? paid by ta/payer
*or himsel* and members o* his *amily?
!. amount o* premiums should not e/ceed
>&) 5!?4$$ per *amily or >!) 5!$$ a month
%. gross income o* the *amily *or the ta/able
year is not more than 5!.$?$$$
-* Aho can avail o* this deductionL
A* &.individual ta/payer earning purely
compensation income during the yearF
!. individual ta/payer availing itemi3ed or
optional standard deductionF and
%. individual ta/payer earning both
compensation income and income *rom
business
,ECTION :? ALLOWANCE FOR PER,ONAL
EXE.PTION FOR IN#IVI#%AL TAXPA1ER
-* Ahen do we apply thisL
A* apply i* individual ta/payer is paying by way o*
=)
-6 Aho are ta/payerL
A* those mentioned under Section !4 >")
&. RC
!. =RC
%. OCA
4. R"
all can claim both personal and additional
e/emption

-* Ahy not include =R"E@L Can the latter
claim any e/emptionL
A* =R"E@ is not included because Section %. "
re*ers to Section !4 "
=R"E@ can claim personal deductions but not
additional e/emptions pursuant to Sec %. D
RE2B)RE:E=S:
&.=R"E@ should *ile a true and accurate
return
!. the amount to be claimed as personal
e/emptions should not e/ceed the amount
provided *or under 5hilippine 6aws
"DE =OE:
"E:O5: can be a R" or =R"E@
BA,IC PER,ONAL EXE.PTION,*
&. Single individualF or individual 7udicially
decreed as legally separated with no quali*ied
dependents.
4(
!$? $$$
!. <or head o* the *amily , can be single or
legally separated with quali*ied dependents.
!.? $$$
%. <or each married individual , i* only one o* the
spouse? earns or derives gross income? only such
spouse can claim the personal e/emption.
%!? $$$
-* Aho is the Nhead o* the *amilyOL
A* &.unmarried or legally separated man or
woman
!. Aith >&) one or both parties or
>!) Aith one or more brothers and sisters
>%) with one or more legitimate? recogni3ed?
natural or legally adopted children
%. living with and dependents upon him *or
their chie* support
4. whose such brother or sisters or children
are
>&) not more than && years old and
>!) not gain*ully employed?
>%) unmarried
.. OR? regardless o* age? the same are
incapable o* sel* support because o* mental or
physical de*ect.
-* Ahy do we have to determine who the
head o* the *amily isL
A* only legally separated individuals can
claim additional e/emptions i* they have
quali*ied dependents.
"DE =OE:
R.". '4%! and RR !-+(: a senior citi3en can
also be a dependent.
-* Can a widower claim e/emptionsL
A* e/emptions must be strictly construed?
widower not included in the list under
Section %. " , but can claim under sec
%.@
widower? married or used to be married
:"RR)ED )=D)0)DB"6S
each legally married individuals can claim the
personal e/emption. 1usband and wi*e V
5#4?$$$
-* Aho are allowed to claimL
A* =ormally ? it is the husband who claims
unless he e/ecutes a waiver that the wi*e
will claim the same >RR!-+()
Additional E=emptions: %&26,
-additional e/emption o* 5(?$$$ *or each
dependent not e/eceeding *our >4)
2: Aho can claim the sameL
": &.:arried couples: only one o* the spouses
can claim itF
!.legally separated individuals: can be
claimed by the spouse who has custody o* the
child or children
the additional e/emption claimed by both
shall not e/ceed the ma/imum additional
e/emption herein allowed.
-* De*ine NdependentsO
A* legitimate? illegitimate or legally adopted child
chie*ly dependent upon and living with the
ta/payer i* such dependent is >&) not more than
!& years o* age? >!) unmarried? and >%) not
gain*ully employed or >4) i* such dependent?
regardless o* age is incapable o* sel* support
because o* mental or physical de*ect.
-* Ahat i* widower has illegitimate children?
can claim additional e/emptionL
A* can claim? can be considered as head o*
the *amily wK dependent
-* Ahat i* the children are temporarily away
*rom the parentsL
A* still considered living with parents? can
claim e/emption
C3A/.E O# $A"$: %$EC &2 C,
-* Rec9oning 5eriodL
A* end o* the year or close o* such year when
such change o* status occurred.
"DE =OE:
always choose the higher amount o* e/emption
i* you are *iling a return covering the period within
which the change o* status occurred
&. i* the ta/payer should >&) marry or >!) have
additional dependents during the ta/able year? he
may claim the corresponding e/emption in *ull *or
the year.
!llustration:
&.Single 8an &? !$$.
!.:arried 8une &? !$$. , on "pril &.? !$$# ,
status: legally married can claim 5 %!?$$$
!. i* the ta/payer should die during the ta/able
year? estate can claim personal e/emption.
)llustration
&.8an. !.? !$$. ta/payer married wK one child
can claim on "pril &.? !$$#
4+
5%!?$$$U
5(?$$$
)n this case? as i* the change o* status occurred
at the close o* ta/able year. )* ta/payerHs spouse
or child dies within the ta/able year or the
dependentHs became >&) gain*ully employed >!)
got married or >%) became !& as i* the change as
status occurred at the close o* ta/able year.
!llustration:
&. a/payerHs tragic story wi*e died 8an. !.? !$$.
and child died the ne/t day then another child
eloped and get married.
!. a/payer despite the tragedy can claim ton o*
money on "pril &.? !$$#.
5 %!?$$$
5 &#?$$$ >(?$$$ per child)
4(?$$$
,ection :@. Ites not #e$ucti;le
:@ A. .eneral Rule: )n computing net income? no
deduction shall be allowed:
>&) 5ersonal? living or *amily e/penses , not
related to trade or business
>!) Section %# " >!) and Section %# " >%) .eneral
Rule: =o deductions allowed *or
&. "ny amount paid out *or new buildings or *or
permanent improvements? or betterments? made
to increase the value o* any property or estate
!. "ny amount e/panded in restoring property
or in ma9ing good the e/haustion thereo* *or
which an allowance is or has been made.
E=ceptions:
&. Option granted to 5rivate Educational
)nstitution to deduct the same as capital
outlays.
"DE =OE:
"mount paid *or new buildings? can be
deducted i* it involves intangible drilling and
development cost incurred in petroleum
operations >Sec %4 # >")
PRE.I%., PAI# ON LIFE IN,%RANCE
POLIC1 *
&. covering the li*e o* any o**icer or
employee or any person *inancially
invested in any trade o* business carried
on by the ta/payer.
!. ta/payer is directly or indirectly the
bene*iciary under such policy.
LO,,E, FRO. ,ALE, OR EXC9ANGE, OF
PROPERT1 %betBeen related parties,
&) between *amily members
-* Aho is considered the N*amily o* the ta/payerLO
A* a. brothers and sister >whole is Y blood)
b. spouses
c. ancestors
d. lineal descendants
-* are uncles or nieces includedL
A* no
IN #ONORH, TAX
Relatives includes relatives by consanguinity
within the 4
th
civil code. =ephew is a stranger and
relative ang nephew.
!) individual and corporations
;en. Rule: =O DEDBC)O=
E/cept: distribution in liquidation or less
than .$E o* the outstanding capital stoc9
%) wo corporations
4) ;rantor or <iduciary
.) wo *iduciaries o* two trust
#) <iduciary and bene*iciary o* trust
,ec. :< ,pecial pro'isions re+ar$in+
$e$uctions of insurance copanies.
Codal 5rovisions
Section %(: 6osses <rom Aash Sales o* Stoc9 or
Securities
-* Ahat is a wash saleL
A* )t is a sales or other disposition o* stoc9
securities where substantially identical securities
are purchased within #& days? beginning %$ days
be*ore the sale and ending %$ days a*ter the sale.
-* Ahat periodL
A* #& day period beginning %$ days be*ore and
ending %$ days a*ter the sale
-* 8an !$ you purchased share o* stoc9? and
disposed o* the same on <eb .? !$$.. )s this a
wash saleL
A* =o
-* )* it is a loss in wash sale? happensL
A* General Rule* >Sec &%& RR =o. !)
gains *rom wash sale are ta/able but
losses are non-deductible
E=ception:
unless claim is made by a dealer in stoc9 or
securities and with respect to a transaction made
in the ordinary course o* the business o* such
dealer
-* Reason why losses in wash sale cannot be
deductedL
.$
} P40,000
A* &. to avoid too much speculation
in the mar9et
!. ta/payer not telling the truth?
because he may say he incurred
a loss instead o* a gain
,ection 5C. #eterination of Aount an$
Reco+nition of Gain or Loss
4ENER%2 R-2E/ his is totally irrelevant i*
the income is sub7ect to *it. )n *it gain is
presumed.
EICEPT/ sale o* shares o* stoc9 where you
have to determine actual gain or loss
-* Ahen is there a gainL
A* e/cess o* the amount reali3ed over the basis
or ad7usted basis *or determining gain. >amount
reali3ed *rom the sale or other disposition o*
property)
-* Ahen is there a lossL
A* the amount reali3ed is not in e/cess o* @ or
"@
0llustration/ &+(' @ar >8uan dela Cru3 sold
7ewelry *or %$$?$$$ ) contract o* sale
amount reali3ed is %$$?$$$
-* Ahat will be the basis o* the gainL
A* Sec. 4$ @ >&)? property was acquired by
purchase
Cost: purchase price U e/penses
-* )* there is a gain? is the whole gain sub7ect to
income ta/L
A* it depends
i* ordinary asset V &$$E is sub7ect to
income ta/
i* capital assets
a. short term>less than &! months) : &$$E
ta/able
b. long term >more than &! months): .$E
ta/able
-* suppose property sold is a parcel o* land will
the rule be the sameL
A* =o? and it depends
ordinary asset: apply the cost
capital asset: #E <:0 or selling price
which ever is higher
2: Do we apply the holding periodL
": =o? holding period does not apply to the sale o*
real property. his is an absolute rule:
)* realty is ordinary , holding period does
not apply.
)* realty is capital asset , #E <:0 or selling
price applies.
1olding period applies only to sale o* personal
property which is a capital asset e/cept sale o*
shares o* stoc9s.
1olding period also do not apply to
corporations.
-* )* the property is acquired through
inheritance? what is the basisL
A* Sec 4$ @ >!) *air mar9et value or price as o*
the date o* acquisition.
-* Suppose it was a sale o* personal property? do
we apply the same principlesL
A* =o.
-* Ahat i* it involves a sale o* real propertyL
A* "pply the same principles
Suppose it was a result o* swindling? the*t?
robbery or esta*a? do we apply the same
principlesL
A* 6aw is silent? ta9e note o* the old C)" ruling on
this one
-* <eb &4? !$$#? your ;; gave you a 7ewelry in
Sept your ;; brea9s up with you. ;; request
the 7ewelry be returned but you already sold it
*or 5!$$?$$$. Aill the entire 5!$$?$$$ be
included in gross incomeL
A* @asis: >&) same as i* it would be in the hands o*
the Donor ><:0 as o* date o* acquisition)F or
>!) last owner who did not acquire the same
by gi*t >cost)
-* )* it involves a parcel o* landL
A* apply the same rules Section 4$ @ >4) what is
the basisL
&. 5roperty was acquired *or less
than an adequate consideration in
money or moneys worth: the basis
would be the amount paid by the
trans*eree *or the property.
-* Section 4$ @ >.) what is the basisL A* 4$ C >.)
i* the property was acquired in a transaction
where gain or loss is not recogni3ed >pursuant to
a merger or consolidation plan)
a. corporation? party to a merger or
consolidation? e/changes property solely
*or stoc9s in another corporation? also a
party to the merger or consolidation
b. is a party to the merger or consolidation?
solely *or the stoc9s o* another
.&
corporation also a party to the merger or
consolidation? or
c. Security holder o* a corporation? party to
a merger or consolidation? e/changes his
securities solely *or stoc9 or security in
another corporation? also a party to the
merger or consolidation. , person
trans*ers property to corporation to gain
control
5C C EXC9ANGE OF PROPERT1
.E/ERAL R"LE: )n sale or e/change o*
property? the control amount o* gain or loss shall
be recogni3ed.
&. gain is ta/able
!. losses are deductible
E=ception: )* permanent to a merger or
consolidation plan? no gain or loss shall be
recogni3ed
&. gain is e/empt
!. losses are not deductible
RE4"!$!E$:
&. the transaction involves a contract o*
e/change
!. the parties are members o* the merger or
consolidation
%. the sub7ect matter is only limited or
con*ined with the one provided *or by law
:erger and Consolidation in corporation code
and ta/ code are not the same.
Sec 4$ >!) >a)
a corporation which is a party to a merger
or consolidation? e=c<anges propert@ solel@
for stocC in a corporation which is a party to
the merger or consolidation
!llustration:
rans*eror gives &:
rans*eree gives '$$?$$$ V not
ta/ble gain 5%$$?$$$
)* other property received by trans*eree >4$ C
>%) >a) RA/$#EREE
i* the party receives not 7ust the sub7ect
matter permitted to be received: lie i* the party
receives money and Kor property? the gain? i*
any? but not the loss? shall be recogni3ed
>meaning ta/able) but in an amount not in
e/cess o* the sum o* the money and the <:0
o* such other property received.
>4$ C >%) >b) RA/$#EROR
&.rans*eror corporation receives money and K or
property? distributes it pursuant to the merger or
consolidation plan
no gain to the corporation shall be recogni3ed
!. rans*eror corporation receives money and K or
property? does not distribute it pursuant to the
merger or consolidation plan
the gain shall be recogni3ed but in an amount
not in e/cess o* the sum o* such money and the
<:0 o* such other property so received.
-* Ahat is the ruleL
A* 4$ C >%) >a)
&. gain ta/able
!. loss not deductible
4$ C >%) >b)
!t depends on <oB distributed:
&. pursuant to the merger or consolidation
plan:
gain e/empt
loss not deductible
!. not pursuant to merger or consolidation
plan:
gain ta/able
loss not deductible.
,ec 5C C 283 2;3
a shareholder e=c<anges stocC in a
corporation which is a party to a merger or
consolidation? solel@ for t<e stocC of anot<er
corporation which is a party to the merger or
consolidation
,ec 5C C 243 2c3
a security holder o* a corporation which is a
party to the merger or consolidation?
e=c<anges <is securities in suc< corporation,
solel@ for stocC securities in anot<er
corporation.
he rule is similar in 4$ C >%)? >a)? >b) and >c)
although di**erent property are involve? that is why
the last paragraph o* 4$ C is a separate
paragraph.
here*ore? Sec 4$ C >%) >a?b?c) the rule is
&. gain e/empt
!. loss not deductible
5Cc last para+rap&
the trans*eree becomes a stoc9holder?
parties are not members o* the merger
the individual wants to be a shareholder but
does not want to purchase shares but willing
to give up property as a result o* the
.!
e/change ? the person gains control o* the
corporation
he rule is:
a. gain is e/empt
b. loss not deductible
Requisites:
&. here is " contract o* e/change
where property was trans*erred by the
person in e/change o* stoc9 or unit o*
participation in a corporation.
!. "s a result? the person alone or
together with others >not e/ceeding o*
4 persons) gains control o* the
corporation.
-* Ahat is controlL
A* ownership o* stoc9s in a corporation
possessing at least .&E o* total voting
power.
,ec 5C B 2?3
non applicability o* income ta/ is only
temporary
Reason : @asis will be 4$ C >.)
&. 4$ C >.) >a) rans*eror
basis o* stoc9 or securities received by the
trans*eror: same as the basis o* the property?
stoc9 or securities e/changed:
decreased by the >&) money and >!) <:0 o*
the property receivedF and
increased by >a) amount treated as dividend
and >b) amount o* gain recogni3ed
!. 4$ C >.) >b) rans*eree
as it would be in the hands o* trans*eror
increased by the amount o* gain recogni3ed.
,ec 5C 2c3 253 Assuption of Lia;ilit(
&. a/payer? in connection with the
e/changes described , receives
securities or stoc9s permitted >no gains
recogni3ed) , it is sole consideration o*
the same , the other party assumes
liability o* the same , the acquisition o*
liability not treated as money and K or
other property , the e/change still *alls
within the e/ceptions.
!. )* amount o* liabilities assumed U amount
o* liabilities to which property is sub7ected
to e/ceeds - ad7usted basis o* the
property trans*erred , the e/cess shall be
considered a gain *rom the sale o* a
capital asset or o* property which is not a
capital asset? as the case may be.
,ECTION 58 INVENTORIE,
Purpose: Change o* inventory to determine
clearly the income o* any ta/payerK to re*lect the
true income.
Limitation:
&. once every % years
!. approval o* the secretary o* *inance
,ection 5: Accountin+ Perio$s
&. <iscal year
!. use o* calendar year
a. no annual accounting
b. does not 9eep boo9s o* account
c. individuals
Bse o* method as in the opinion o* the
commissioner clearly re*lects the income:
&. no accounting method has been
employed
!. the method does not clearly re*lect the
income
,ec 55 Perio$ in "&ic& ites of Gross Incoe
inclu$e$ an$ ,ec 5? Perio$ for "&ic&
#e$uctions an$ Cre$it TaIen
Bnder Sec 44 amount o* all items o* gross
income shall be included in the gross income
*or the ta/able year in which they are received
by the ta/payer
Bnder Sec 4. deductions shall be ta9en *or
the ta/able year in which Npaid or accruedO or
Npaid or incurred.O
Sec 44 and Sec 4. are mentioned in the code
because o* the death o* the person.
!llustration:
<acts: ta/payer dies in the middle o* the year
8anuary &? !$$# , 8une &.? !$$#
8une !#? !$$# to Dec %&? !$$# the estate
is the ta/payer
So the income and deductions *rom 8an &
to 8une !.?? included in the computation
,ection 5@ C&an+e of Accountin+ Perio$
-* Aho is the ta/payerL
A* corporation >ta/payer other than individual)
-* Ahat 9inds o* accounting periodL
A* &.*iscal year
!. calendar year
-* Changes contemplatedL
A* &. *iscal to calendar
!. calendar to *iscal
%. *iscal to another *iscal
.%
with the approval o* the Commissioner? net
income shall be computed on the basis o* the
new accounting period.
-* Calendar to calendar? correctL
A* not correct statement
,ection 5< 2A3
a=pa@er: Corporation
&. <iscal to calendar
separate *inal or ad7usted return shall be
made *or the period between the so close o*
the last *iscal year *or which the return was
made and >!) the *ollowing Dec %&.
!. Calendar to <iscal
made *or the period between the close o* the
last calendar year and the date designated as
the close o* the *iscal year.
%. <iscal to *iscal
made *or the period between the close o* the
*ormer *iscal year and the date designated as
the close o* the new *iscal year.
<ile return indicating the change in
accounting method
,ection 5> Accountin+ for Lon+ Ter
Contracts
-* Aho are the pro*essionals involvedL
A* applies to architects and engineers
-* Ahat is a long term contractL
A* it means building? installation or construction
contracts covering a period in e/cess o* one >&)
year.
-* @asis o* incomeL
A* a. persons whose gross income is derived in
whole or in part *rom such contract shall
report such income upon the basis o*
percentage o* consumption.
b. the return shall be accompanied by a
certi*icate o* architects or engineers showing
the percentage o* completion
c. deduction o* e/penditures made during the
ta/able year? on account o* the contract is
allowed
,ection 5B Installent Basis
contemplates a seller o* the property
-* )s it important to 9now i* the property is
personal or realL
A* Ies
-* Sale o* Real 5roperty is it important to 9now i*
it is a casual sale or regular saleL
A* =o
Requirement: he initial payments do not e/ceed
!.E o* the selling price.
-* )* the initial payment e/ceeds !.E what do you
call itL
A* called de*erred sale
-* ConsequenceL
A* you must pay the whole amount o* the ta/
-* Sale o* 5ersonal 5roperty? is it important to
9now i* it is a casual or regular saleL
A* Ies
Casual $ale <as Requirements:
&. selling price e/ceeds 5&?$$$
!. initial payment not e/ceeding
!.E selling price
Regular sale no requirements
Case of &aJas
&. sub7ect matter
!. sold by way
%. agreement
4. cash deposit
.. post dated promissory notes
>installments)
%. &
st
installment promissory note was
disconnected
4. !
nd
installment e/changed with cash -
these two e/ceeds the selling price
.. you only compute cash
1: )nitial payment e/ceeds !.E installment basis
is not applicable
RR )H $ection (*2: )n payment by way o*
installment promissory note? bills o* e/change and
chec9s will not be considered in computing the
!.E initial downpayment.
,ection ?C Allocation of Incoe an$
#e$uctions
tremendous power o* the Commissioner to
allocate the income and deduction o* several
corporations having the same interest.
-* Same interestL
A* stoc9holders substantially the same
.4
-* 6imitationsL
A* =one
hat is why it is a great source o* corruption
,ection ?8 In$i'i$ual Returns
W&o are reAuire$ to fileJ 2ITR3
&. RC
!. =RC
%. R"
4. =R"E@ , sources within
-* Aho is not mentioned in Sec .& but liable to
pay by way o* =)L
A* OCAK seaman
E=ception:
RC OR "6)E=S: engaged in trade or practice o*
pro*ession in 5hil. Shall *ile )R regardless o* the
amount o* gross income.
-* )* O<A is e/empt *rom *iling a return? what is
he required to *ileL
A* )n*ormation Return
-* who are not required to *ile a returnL
A*
a. an individual whose gross income does
not e/ceed his total personal and
additional e/emptions *or dependents
b. wor9er >compensation income earners)
regardless o* the amount o* compensation
shall not required to *ile )R because the
management *iles it. >RR %-!$$!)
c. individuals whose sole income is sub7ect
to <)
d. individuals who are e/empt *rom income
ta/
E=ception: )
&. the management *iles an incorrect return
!. the employee has two or more employer
?8 A 2:3
A* not required to *ile )R may be required to *ile
in*ormation return
?8 B / W&ere to fileJ
&. authori3ed agent ban9
!. revenue district o**icer
%. collection agent
4. duly authori3ed treasurer o* the city or
municipality where ta/payer resides or has
principal place o* business
.. o**ice o* commissioner , i* no legal
residence or place o* business in 5hil
?8 C
-* Ahen to *ileL
A* *iled on or be*ore the &.
th
day o* "pril each
year
.& C >&) , =) 5ayers using CI
two days provided >calendar)
&. on "pril &.F or
!. be*ore "pril &. >8anuary? <eb or :arch)
not December because the calendar year is not
yet over
<iscal year: &.
th
day o* the 4
th
month *ollowing the
close o* the *iscal year.
?8 C 243 in$i'i$uals su;Kect to ta! on capital
+ains
E=ception: ;eneral Rules Sec .(
&. Sale o* shares o* stoc9s
return *iled within %$ days a*ter each
transaction and
<inal consolidated return on or be*ore "pril &.
!.Sale o* Real 5roperty
return *iled within %$ days *ollowing each sale
?8 # 9us;an$ an$ Wife
&. 5ure compensation income earner , separate
return RR &5)''' , pure compensation income
earner regardless o* amount o* income not *ile
)R.
!. =ot pure compensation: 7oint return
?8 E. Return of Parent to Inclu$e Incoe of
C&il$ren
unmarried minor receives income *rom property
received *rom living parent , included in the
parentHs )R.
E=ception:
&.DonorHs ta/ has been paid
!.5roperty e/empt *rom donorHs ta/
?8 F. Persons %n$er #isa;ilit(
-* Aho ma9es the returnL
A*
&.duly authori3ed agent
!. duly authori3ed representatives
%. guardians
4.other persons charged with the care o* his
person or property
both incapacitated ta/payer and agent will
be liable *or:
&.erroneous return
!. *alse or *raudulent return
?8 G ,i+nature Presue$ Correct
prima *acie evidence the return was actually
signed by the ta/payer
..
,ection ?4 Corporation Return
go bac9 to Sec .& " >!)
General Rule* Sec .( <inal )ncome
a/
return and creditable withholding ta/ return
is *iled monthly
E=ception: Sale o* Shares o* Stoc9s
>Sec .& " >!)) Sale o* Real 5roperty
RR -&'-!$$%: Sale o* Real 5roperty sub7ect
to *inal withholding ta/? the buyer is deemed
the agent.
$ale of $<ares of $tocCs
-* Reasons *or *iling <inal )ncome ta/ or <inal
Consolidated ReturnL
A* Reasons:
1. <) whose actual determination o* gain
or loss
2. in connection with Sec !4 C the basis o*
the ta/ is not the gross income but the
net capital gains reali3ed.
!n connection Bit< $ec D':
actual determination o* loss or gain
*ile a return within %$ days *rom date o*
transaction
TA0E NOTE* )n all other income sub7ect to <)?
the gains are presumed
INCO.E OF .INOR,
-* :inor below &(: Aill it be included in the
:inorHs )RL
A* it depends
1. income *rom property received *rom
parents included in parentHs )R
E=cept:
a.DonorHs ta/ paid
b.5roperty e/empt *rom donorHs ta/
!. income *rom minorHs own industry
:inorHs )R accomplished by guardian or
parents
-* i* the individual is e/empt *rom income ta/? can
be required to *ile a returnL
A* ;eneral Rule: =o
E=ceptions:
&.engaged in trade or businessF or
!.e/ercise o* pro*ession , Sec .& " >!)
,EC ?4 CORPORATION RET%RN,
A.Requirements
a/payer: DC or R<C >e/cept =R<C)
)R <iled: &. RBE "=D "CCBR"E
a. quarterly income ta/ return
b. *inal or ad7usted income ta/ return
<iled by:
&.5residentF
!.0ice 5resident
%. Other principal o**icer
)R must be sworn by such o**icer and the
treasurer or assistant treasurer
6. a=able Year
&. *iscalF or !. calendar
corporation cannot change accounting method
employed without the approval or prior approval o*
the commissioner >Sec 4')
C. Return of Corporation Contemplator@
7issolution or Recognition
&.Aithin %$ days a*ter:
a. the adoption by the corporation o* a
resolution or plan *or its dissolutionF or
b. liquidation o* the whole or any part o* its
capital stoc9? including a corporation which
has been noti*ied o* possible involuntary
dissolution by the SECF or
c. *or its reorgani3ation
!.Render a correct return veri*ied under oath
setting *orm:
a. *orms o* the resolution or planF
b. such other in*ormation prescribed
%.Secure a ta/ clearance *rom the @)R and *ile it
with the SEC
4.herea*ter? SEC issued a Certi*icate o*
Dissolution or Reorgani3ation.
7. $ale of $tocCs L !R
loo9 at the previous notes about it
,ection ?: E!tension of Tie to File Returns
-* o whom grantedL
A* Corporations
.rounds: :eritorious case
sub7ect to the provisions o* Sec .# ime
E/tension
,ection ?5 Returns or Recei'ers= Trustees in
BanIruptc( or Assi+nees
the a*orementioned persons shall ma9e
returns o* net income as and *or such
corporation in the same manner and *orm as
such organi3ation is required to ma9e.
.#
,ection ?? Returns of General Professional
Partners&ip
*ile a return o* its income setting *orth
&. items o* gross income and o* deductions
allowed by this title >itle )) , a/ on
)ncome)
!. =ames o* partners
%. a/payer identi*ication number >)=)
4. address o* partners
.. shares o* each partners
;55 is e/empt *rom corporate income ta/
-* Ahy is the ;55 obliged to *ile a returnL
A* to determine the shares o* each partners
,ection ?@ Pa(ent an$ Assessent of
Incoe Ta! for In$i'i$uals an$ Corporations
A. Pa@ment of a=
-* Aho pays the ta/ o* tramp vesselsL
A* &.the shipping agents and or the husbanding
agent
!.in their absence? the captains thereo*
those people are required to *ile a return and
pay the ta/ due be*ore departure
-* Ahat is the e**ect o* *ailure to *ile the return
and pay the ta/ dueL
A* &.@ureau o* Customs may hold the vessel and
prevent its departure until:
a. proo* o* payment o* ta/ is presentedF or
b. a su**icient bond is *iled to answer *or the
ta/ due.
!nstallment Pa@ments
a/ due: more than 5!?$$$
a/payer: individuals only >other than
corporation)
Elect to pay the ta/ in two >!) equal
installments
a. &
st
installment: paid at the time the return
is *iled
b. !
nd
installment on or be*ore 8uly &.
*ollowing the close o* the calendar year
-* Ahat is the e**ect o* non payment on the date
*i/edL
A* he whole amount o* ta/ unpaid becomes due
and demandable together with the
delinquency penalties.
Pa@ment of capital gains ta= :
-: 5aid whenL
A* on the date the return is *iled
Avail e=emption for capital gains:
a.no payments shall be requiredF
b.i* you *ail to quali*y *or e/emption , ta/ due
shall immediately become due and
payable and sub7ect to penalties
c. seller pays ta/ , submit intention or proo* o*
intent within si/ >#) months *rom the
registration o* document trans*erring
-* when is the real property entitled to re*undL
A* upon veri*ication o* compliance with the
requirements *or e/emption.
Report gains on installments under Sec 4+
, ta/ due *rom each installment payment shall
be paid within %$ days *rom the receipt o*
such payments.
=o registration o* document trans*erring
real property
&. without a certi*ication *rom commissioner
or his duly authori3e representative that
a.trans*er has been reported
b.ta/ has been paid
6. Assessment and Pa@ment of 7eficienc@ a=
Return is *iled? the commissioner e/aminer and
assess the correct amount o* ta/
ta/ de*iciency discovered shall be paid upon
notice and demand *rom the commissioner.
& !/$A/CE$ CO/E-PLAE7
&. *ile the return and pay the ta/
!. *ile the return but not pay the ta/
%. not *ile the return and not pay the ta/
,ection ?< Wit&&ol$in+ of Ta! at ,ource
A. Eit<<olding of a=es
sub7ect to the Rules and Regulations the
Section o* <inance may promulgate? upon
recommendation o* commissioner: Require the
*iling up o* certain income ta/ return by certain
income payees.
-* Enumeration is all about whatL
A6 Enumer ation about <inal )ncome a/
E=cept: ;ross )ncome a/
&. !. @ >=R"=E@)
!. !( @ >=R<C)
@. Aithholding o* Creditable a/ at Source
he Sec. o* <inance? upon
recommendation o* the commissioner
require the withholding o* a ta/ on the items
o* income payable to natural or 7uridical
persons? residing in the 5hil? by payor-
corporationK personT the same shall be
credited against the income ta/ liability o*
the ta/payer *or the ta/able year. "t the
.'
rate o* not less than &E but not more than
%!E thereo*.
-* Ahat is the ma/imumL
A* :a/imum: now %.E pursuant to R" +%%'
-* Ahen will you allow withholding beyond &.EL
A*
<or =) &.E is the ma/imum
&. <) , the amount o* withholding is totally
!. ;) - equal to the amount o* ta/
a= #ree Covenant 6ond
the bonds? mortgages? deeds o* trust or other
similar obligations o*
DC or R<C
contains a contract or provision where the
obligor >debtor) agrees to pay the ta/ imposed
herein
normally between the creditor and debtor
-* Aho pays the ta/L
A* Creditor pays the ta/ by virtue o* an agreement
the debtor assumes the liability and the creditor is
now *ree *rom payment o* ta/ be*ore it can
trans*er the property to the buyer.
,ection ?> Returns an$ Pa(ent of Ta!es
Wit&&el$ at ,ource
A. 4uarterl@ Returns and Pa@ment of a=es
Eit<<eld at $ource
&. covered by a return and paid to:
a. authori3ed agent ban9
b. revenue district o**icer
c. collection agent
d. duly authori3ed treasurer o* city or
municipality where withholding agent has:
&. his legal residenceF or
!. principal place o* businessF or
%. i* corporation ? where principal
o**ice is located
!.a/ deducted and withheld
held as a special *und in trust *or the
government until paid to the collecting o**icers.
%.Return *or *inal withholding ta/
*iled and paid within !. days *rom the close o*
each calendar quarter
4.Return *or Creditable withholding ta/es
*iled and paid not later than last day o* the
month *ollowing the close o* the quarter during
which withholding was made
.. Commissioner? with approval o* Sec <inance
require withholding agents to pay or deposit
ta/es at more *requent intervals where necessary
to protect the interest o* the government
6. $tatement of !ncome Pa@ments -ade and
a=es Eit<<eld
Aithholding agent shall *urnish payee a
written statement showing:
&. income or other payments made by A1"
during such quarter or year and
!. amount o* ta/ deducted and withheld
statement given simultaneously upon payment
at the request o* the payee.
Creditable Bit<<olding ta=es
&. corporate payee , not later than the !$
th
day *ollowing the close o* the quarter
!. individuals payee , not later than :arch &
o* the *ollowing year
#inal Eit<<olding ta=es
the statement should be given to the payee
on or be*ore 8anuary %& o* the succeeding
year.
C. Annual !nformation Return
Aithholding agent shall submit to the
commissioner an annual in*ormation return
containing :
&. the list o* payees and income required
!. amount o* ta/es withheld *rom each payees
%. other pertinent in*ormation required
Final Wit&&ol$in+ Ta!* AIR
*iled on or be*ore 8anuary %& o* the
succeeding year
Creditable Bit<<olding ta=: A!R
not later than :arch & o* the year *ollowing the
year *or which the annual report is being
submitted
Commissioner may grant A1" reasonable
e/tension o* time to *urnish and submit the return
required herein.
7. !ncome of Recipient
&. )ncome upon which any creditable ta/ is
required to be withheld at source shall be
included in the return o* its recipient.
!. the e/cess o* the amount o* ta/ so
withheld over the ta/ due on his return
shall be re*unded
%. income ta/ collected at source is less
than the ta/ due on his return , di**erence
shall be paid
4. all ta/es withheld
.(
&. considered trust *und
!. maintained in separate account
%. not commingled with other *unds o*
A1"
E. Registration Bit< Register of 7eeds
=o registration o* any document trans*erring
real property shall be e**ected by the Register
o* Deeds unless the commissioner or his duly
authori3e representative has certi*ied that the
trans*er >&) has been reported and >!) ta/ due
has been paid
Register o* Deeds requires payment o* ta/
be*ore trans*er o* property
,ection ?B Ta! on Profits Collecti;le fro
O"ner of ot&er Persons
a/ imposed under this title upon gains? pro*its
and income not *alling under the *oregoing and not
returned and paid by virtue o* the *oregoing
shall be assessed by personal return
!ntent and Purpose of t<is itle
&. "ll gains? pro*its and income o* a ta/able
class shall be charged and assessed with
the corresponding ta/.
!. Said ta/ be paid by the owner o* the
gains? pro*it or income or the person
having the receipt? custody? control or
disposal o* the same
7etermination of OBners<ip:
determined as o* the year *or which a return
is required to be *iled
C9APTER X* E,TATE, AN# TR%,T,
,ection @C* Iposition of Ta!
1. Estate property o* the decedent
created by an agreement? trust or by last
will and testament
2. rust agreement? contract or last will
and testament
$tatus:
&. Estate: same status as decedent
!. rust: same status as the grantor
!ncome ta=pa@er is t<e Estate:
income o* the estate pending partition or no
partition at all:
<ree Cinds of partition:
&. 7udicial
!. e/tra 7udicial partition
%. or no partition at all
7uring partition Estate earns income:
&. individual , income ta/
!. corporation , corporate income
ta/
%. estate >a/payer V 5)
a.)mpose )ncome as i* 5 is individual
b.)mpose income as i* 5 is corporation
c.)mpose income as i* estate itsel*
depends whether there is a >&) 7udicial >!)e/tra
7udicial partition or >%) no partition at all
Ahen there is a 7udicial settlement which is *inal
and e/ecutory but no partition:
TCo possibilities/
&.Creation o* unregistered partnership
)ncome o* the Estate: corporate income ta/
!.Creation o* Co-ownership
)ncome o* the Estate: )ncome ta/ on individual
-co-owner liable in their individual company
Ponce Case/
1: "*ter *inality heirs did not divide the property?
the applicable income ta/ is corporate income ta/
because they contributed money to engage in real
estate.
,ECTION @8 TAXABLE INCO.E >)mportant)
Ma=able income of t<e estate or trust s<all be
computed in t<e same manner and on t<e same
basis as ill t<e use of an individual.N
,ection @4* Applies $urin+ Pen$enc( of E!tra
Eu$icial ,ettleent
5ersonal E/emption >5!$?$$$)
)ndividual it will depend whether heKshe is
classi*ied as single? head o* the *amily or
married
Estate regardless
$pecial deductions:!ncome distributed to t<e <eirs
i* you distribute nothing you cannot claim
this special deductions
i* there is a distribution? the heir shall be
liable to pay whether individual capacity
i* there is no distribution? heirs are not liable
to pay anything
Special deduction not apply i* individual ta/ is
paid by the Estate itsel*.
Pa@ment: made by e/ecutor? administrator? to
creditor to preserve the estate
,ec. @8 an$ ,ec @4
does not apply i* estate is sub7ect to
income or corporate income ta/
it applies i* the estate pays itsel* during the
pendency o* the 7udicial settlement
.+
Basis* ,ec @C C
Nduring the period o* administration or settlement
o* the estate.O
Ta!pa(er is a Trust*
-6 Ahen liable to pay income ta/L
A* )* the trust is revocable >i* revocable? Sec #&
and #! also apply)
Parties:
&.;rantor Kcreator Ktrustor
!.*iduciary K trustee
%.bene*iciary K 6es 2ui trust
-* Aho is liable to pay ta/:
A* )* trust revocable:
obligation o* the trustee
liability o* trust itsel* and not personal
Liabilit@ of trustee:
)* trust irrevocable
obligation o* the grantor
personal liability o* the grantor as an
individual
TWO WA1, OF REPORTING INCO.E*
P%R,%ANT TO RR4 D 28B5B3
&. report only once
>building paid once)
!. a*ter the span o* !. years
>payment o* building divided per year)
E,TATE TAX*
&.Sec #$
!.Real Estate a/
%. Estate a/
trans*er ta/ impose on the =et Estate *or
the trans*er o* property to the heirs or
bene*iciary whether real? personal? tangible or
intangible
: 0IN#, OF TRAN,FER TAX*
&.Estate a/
!. DonorHs a/
%. Sec &%. o* 6;B rans*er o* Real 5roperty
-* Ae donHt have inheritance ta/ and donees ta/?
whyL
A* &+'% :arcos issued 5.D. #+
E/plain: Sec (4? rate is ma/ o* !$E o* net be*ore
the rate is #$E plus additional amount.
resulted to many gimi9s through ta/ avoidance
scheme? li9e creating a *amily corporation >only
ta/able is the stoc9holders which is e/empt)
Congress enacted R" '44+ decreased #$E to
%.E and then R" (4!4 , %.E to !$E
-* =ow is it sa*e to create a *amily corporationL
A* =o more.
-* =ow: )ba na ang scheme , which is better sale
or donationL
A*
&.Sale o* R5 considered capital assets
#E to &..E doc. a/ '.. E better
!.Sale o* R5 considered ordinary asset
.E to .!E as per use may be
%.Donation i* given to all compulsory heir
relative lower than !$E which is &.E
stranger: %$E so go with !$E
-* Aho are the ta/payersL
A* Sec &$4 Estate and Donors
&.Estate
a. RC
b.=RC
c. R"
d. =R"
!. DonorHs a/
a. RC
b.=RC
c. R"
d. =R"
e. DC
*. <C
" corporation cannot die o* a natural death.
-* Ahat is the reason *or classi*ying the
ta/payersL
A*
&. =R" and Estate
!. =R" and <C Donors V property outside
5hil e/empt
%. all? other than these % , ta/able w in and
wKout
-* )s Section &$4 relevant to all ta/payersL
A* =o? material only to =R" and <C
$ection ('D speaCs of intangible personal
propert@ located in t<e P<ilippines.
&.<ranchise which must be e/ercised in the
5hilippinesF
!.S.O.@. issued by a Domestic corporationF
%.S.O.@. issued by *oreign corporation at least
(.E o* the business o* which is located in the
5hilippines. , do not con*use with 4! >!
nd
par)
4.S.O.@. o* *oreign corporation which acquired
a business situs in 5hil
..S.R. in business? partnership or industry
established in the 5hils
-* =R"? ;erman donates SOS o* <; to <ilipina
g*? is it sub7ect to donorHs ta/L
A* it depends >you must quali*y)
&.Sub7ect to donorHs ta/ i*:
&.S.O.@. <; at least (.E o* business located
in the 5hil
#$
!.S.O.@. <; which acquired a business situs in
5hil
!.E/empt
&.personal property outside o* 5hilF or
!.intangible personal property net ta/able i*
*ollowing requisites concern:
A decedent at t<e time of <is deat< or t<e donor
at t<e time of donation Bas a citiAen and resident.
&.o* a *oreign country which at the time o* his
death or donation did not impose a trans*er ta/
o* any manner? in respect o* intangible personal
property o* citi3ens o* 5hilippines not residing in
that *oreign countryF or
!. the laws o* the *oreign country allows a
similar e/emption *rom trans*er or death ta/es
o* every character or description in respect o*
intangible personal property owned by citi3ens
o* the 5hilippines not residing in that *oreign
country.
-* Ahat i* citi3en o* one country and resident o*
another country will the e/emption applyL
A* =o? law requires that he must be a citi3en and
resident o* the *oreign country.
Campos Rueda Case/
<: =R" died , married to :oroccan man? so she
was a :oroccan resident.
Donated SS in DC , administrator claims
e/emption? ground: )n :orocco? intangible
personal property o* <ilipinos not residing
therein is e/empt *rom trans*er ta/.
@)R contends: :orocco is not a country but a
colony o* Spain.
1: claim granted , even i* it is not a *ull pledged
state? or itHs a mere colony? what matter is that
the *oreign law provides *or an e/ception.
,ECTION >5 RATE, OF E,TATE TAX
-* Ahat is the *ormula *or Estate ta/L
A* ;ross Estate >Sec (.)
- Deductions >Sec (#)
--------------
=et Estate
/ Rate
-------------
a/able net income
- a/ credit
---------------------
a/ due
Gross estate 2$efine3 D ,ec 8C5
gross estate include real and personal
property? whether tangible or intangible? or
mi/ed? wherever situated
/RA: 7ecedent O 7onor L propert@ situated
outside of P<ilippines not included on t<e
gross estate
,ection >? Gross Estate 2inclusion3
A.7ecedentIs interest
includes property >&) owned at the time o* death
and >!) property not owned at the time o* death
Classic e/ample: Bsu*ruct
-* i* terminated by the death o* usu*ructuary? is it
sub7ect to estate ta/L
A* =ot sub7ect to estate ta/
Reason: E/empt ransmission under Sec ('
>a)
merger o* the usu*ruct in the owner o* the
na9ed title
-* is there a con*lict between Sec (( a and Sec
(' aL 1ow do you reconcileL
A* =o con*lict
&.Section (' a contemplates a situation where
the usu*ruct is terminated.
!.Section ((a contemplates a usu*ruct *or a
*i/ed period. E/ contract o* lease
-* 1ow do you determine the value o* usu*ructL
A* Sec. (( a provides to determine the value o*
the right o* usu*ruct? ta9e into account the
probable li*e o* the bene*iciary.
-* Ahy de*inition o* gross estate is longer than
de*inition o* gross gi*tL
A* trans*er occurring a*ter death. estate ta/
absolute
Transfer during t+e life time
=ormally DonorHs ta/
3oBever t<ere are e=ceptions:
&.trans*er in contemplation o* death >(.@)
!.revocable trans*er >(. C)
%.trans*er *or insu**icient consideration
6. ransfer in contemplation of deat<
Roces case/
<: during li*etime? the *ollowing document were
instituted or e/ecuted simultaneously
&.will and !. donation
he heirs insisted to pay DonorHs ta/? 5osados
the collector tried to collect inheritance ta/.
unique t<ing: Donees were also the heirs in the
last will and testament
Donees wanted to pay donorHs ta/ because it is
always lower than the estate ta/ e/cept when
the donee is a stranger
1: this is a trans*er in contemplation o* death
#&
Dion Case/
<: Deed o* Donation was e/ecuted
Di3on died several days therea*ter
son claims DonorHs ta/
1:rans*ers in contemplation o* death
-* Ahat are trans*ers deemed in contemplation o*
deathL
": &.5roperty was trans*erred during the li*etime
but the decedent:
a. retains possession or receive income or
*ruits o* propertyF or
b.retains the right to designate persons who
will possess the property or the right to
receive *ruits or income
c.Revocable rans*ers
(1re.ocable transfers are included in the gross
estate
Reason: the decedent retains tremendous
power and control over the property
!.0rre.ocable transfers are not included in the
gross estate: e/empt
Reason: the decedent losses control over the
property
/otice /ot Required because t<e person <as t<e
control over t<e propert@
7. Propert@ passing under general poBer of
appointment
same with *idel commissary substitution
% parties:
&.testator K decedent
!.&
st
heir
%.!
nd
heir
A?E /OE: o determine whether included in
Estate or not? 9now who has the choice to
designate the !
nd
heir:
i* decedent instructs the &
st
heir that he can
trans*er the property to whomever he wants
included in gross estate
&
st
heir choice , included in gross estate
E. Proceed of Life !nsurance
&.@ene*iciary is the estate
included in gross estate whether
designation is revocable or not
!.@ene*iciary is %
rd
person
revocable included
irrevocable not included
#. Prior !nterest
important only due to the codi*ication o* the
ta/ code @?C?E? included whether be*ore or a*ter
the e**ectivity o* the code
.. ransfer for insufficient consideration
-* Similar provision in Sec &$$ >DonorHs ta/) can
you apply the two >!) provisions
simultaneouslyL
A* =o? alternative application? one or the other but
not both.
<e application Bill depend on t<e time of
transfer or motive:
&.)* trans*erred because o* impending death
estate ta/
!.)* trans*er because o* generosity
DonorHs ta/
-* 5arcel o* land was sold *or less than adequate
consideration >adequate) to relative *or
5#$$?$$$ when <:0 is & million pesos. )s
this sub7ect to trans*er ta/L )s it sub7ect to
DonorHs ta/L
A* =o? Sec &$$ provides the property should be
other than real property re*erred to in Section
!4 >D)
=ot sub7ect to DonorHs ta/? the applicable ta/
is #E <)
-* Aill your answer be the same i* SOS are
soldL
A* =o? answer not the same? SOS not property
contemplated in Sec !4 D >&)
in this case? the amount by which the <:0
o* prop e/ceeds the value o* the consideration
shall be deemed a gi*t and included in the
computation o* the gross gi*t: sub7ect to
DonorHs a/
-* Ahat is the sub7ect matter in (. ;L
A* paragraphs (. @? (. C? (. D
$ale in good fait< as a defense:
&.under Section &$$ is not a de*ense
!. under Section (. ;? it is a de*ense
3. Capital of $urviving $pouse
correlate with Sec (# C
both spea9 o* legally married individual
pertains to the separate property o* spouse
who survived
capital used in its generic sense
surviving spouse may be man or woman
,ection >@ 2c3
to determine the limitations o*
&. <uneral E/pense
!. Ahether written notice is required
%. to determine whether gross value is at
least 5!$$?$$$ >Sec +$)
#!
4.to determine i* gross value is at least 4!
:
-* Aho are the ta/payers under (# "L
A* &.RC
!.=RC
%.R"
-* Aho is the ta/payer under (# @L
A* =R"
-* Ahy do we need to 9now thisL
A* =R" cannot avail o* the *ollowing deductions:
&.*amily income
!.standard deduction
%.hospitali3ation
4.retirement pay under R" 4+&'
%1 Deductions %lloCed to t+e Estate of a
Citien or Resident
&.E6) >e/penses? losses? indebtedness and
ta/es)
a) &."ctual <uneral E/pensesF or
!.amount equal to .E o* gross estate
apply whichever is lower
Limitation:
a)amount equal to .E o* gross estate
should not e/ceed 5!$$?$$$ >basis is the
gross value)
b) 8udicial E/penses
no limitation
Pa>onar vs Commissioner
): Ahether or not e/tra-7udicial e/penses may
be allowed as a deduction
1: his law has been copied *rom B.S. )n BS?
e/penses to be claimed as a deduction both
7udicial and e/tra 7udicial e/penses.
Claims against t<e estate
Estate is the debtor
Requirements:
&.at the time the indebtedness was incurred
the debt instrument was duly notari3edF
!.loan contracted within % days be*ore deathF
%.the administrator or e/ecutor shall submit a
statement showing the disposition o* the
proceeds o* the loan
Claims of t<e deceased against insolvent person
Estate is the creditor
Requirement:
the only requirement is that the >only) amount
o* loan is included in the gross estate
notari3ation and certi*ication not required
"npaid -ortgage, ta=es and losses
-* )n unpaid mortgage who is the mortgagorL
decedent mortgagor
&. Bnpaid mortgage
&.value o* the decedentHs interest in the
property is undiminished by such mortgageF
!.included in the value o* the gross estateF
!llustration:
& million <:0 but mortgage is only #$$?$$$
you include & million
!.Estate ta/
%.6osses
Requirements:
&.losses incurred during the settlement o* the
estateF
!.arising *rom *ire? storms? shipwrec9 or other
casualties? or *rom robbery? the*t or
unbe33lement
%.losses not compensated by insurance
4.losses not been claimed as a deduction *or
income as purpose
.. losses incurred not better than the last day
*or the payment o* the estate ta/
Propert@ Previousl@ a=ed
0anishing Deduction Return
Requirement:
&.person acquires the property by virtue o*
donation or inheritance
-* Ahat i* acquired through purchaseL
A* =ot apply? the property must be acquired by
inheritance or donation
!.Estate ta/ or DonorHs ta/ already paid by the
Estate o* the Decedent >&
st
par)
%."ny person who died within *ive >.) years prior
to the death o* the decedent
-* Ahat are the amountsL
A* 5rior Decedent died within:
&..years , !$E
!.4years , 4$E
%.% years -#$E
4. !years , ($E
.. & year -&$$E
-* Suppose the person died within & year and it
was inherited by son? suppose the son also
died within & year or may be ! years? should
we apply the vanishing deductionsL
A* =o more >last par Sec (# "!)
ransfer for Public "se
#%
amount o* all bequest? legacies? devises or
trans*ers
Recipient:government or any political
subdivision
e/clusively *or public purpose
a9e =ote: %$E o* which not used *or
administrative purpose is not a requirement
#A-!LY 3O-E
amount equivalent to the current <:0 o* the
<amily 1ome o* decedent.
Limit: <:0 should not e/ceeds & million
otherwise the e/cess will be sub7ect to estate
ta/.
Requirements: %RR )5)''&,
&.5erson is legally married
;R: i* single not allowed to claim
E/cept: i* head o* the *amily
!.<amily 1ome actual residence o* the
decedent
%.Certi*ication o* @arangay Captain o* locality
$A/7AR7 7E7"C!O/$
automatic: RR !-!$$% no requirement
provided the decedent is the one in (# >") >RC?
=RC? R")
-E7!CAL E;PE/$E$
Requirements:
&.amount not e/ceeding 5.$$?$$$
!.medical e/penses incurred by the decedent
within one >&) year prior to his death.
must be duly substantiated with receipt
RE!RE-E/ PAY "/7ER RA D1(*
%RE!RE-E/ PAY E!3 PR!8AE PLA/,
Requirements:
&.plan duly approved by the @)R
!.person at least .$ years old
%. &$ years in service
4. avail only once
A?E /OE: his is a deduction in the nature o*
e/emption? all other retirement plan is e/cluded
&1 Deductions %lloCed to Non resident
Estates
&.E6)
!.5roperty 5reviously ta/ed
%.rans*ers *or public use
C1 S+ares in t+e ConDugal Property
D1 )iscellaneous Pro.isions
<or =R": =o deduction allowed unless include
in the return the value at the time o* his death
that part o* his gross estate not situated in the
5hilippines. <or proper deduction must include
E. below
E1 Tax Credit for Estate Tax Paid to Foreign
Country
,ECTION >< EXE.PTION OF CERTAIN
AC-%I,ITION AN# TRAN,.I,,ION,
&. :erger o* usu*ruct in the owner o* the na9ed
titleF
!. transmission or delivery o* the inheritance or
legacy by the *iduciary heir or legatee to the
*ideicommissaryF
%. transmission *rom the *irst heir? legatee or
legacy donee in *avor o* another bene*iciary?
in accordance with the desire o* the
predecessorF
4. "ll bequest? devises? legacies or trans*ers to
>&) social wel*are >!) cultural and >%)
charitable institution
Requirements:
&.no part o* the net income insures to the
bene*it o* any individualF
!.not more than %$E o* donation >@D6) shall be
used by such institutions *or administration
purposes.
,ECTION >> #ETER.INATION OF T9E VAL%E
OF T9E E,TATE
A."sufruct
&.Determine value o* right o* usu*ruct:
consider the probable li*e o* the bene*iciary
based on the latest @asic Standard :ortality
able
6.Properties
*air mar9et value o* the Estate at the time o*
death
&.<:0 determined by Commissioner
!.<:0 schedule o* values *i/ed by the
5rovincial or City "ssessors
,ECTION >B NOTICE OF #EAT9 TO BE FILE#
-* Ahat is the @asisL
A* the gross estate o* the person
-*Ahen is the notice required to be *iledL
A* &.all cases o* trans*er sub7ect to ta/
!.although e/empt? when gross values o* the
estate e/ceeds 5!$$?$$$
-* Ahen *iledL
A* within two >!) months
&. a*ter decedentHs death
!.same period a*ter quali*ying as e/ecutor or
administrator
#4
give a written notice
-* )* the =et Estate is at least 5&#?$$$ will you in
*orm the commissionerL
A* yes? the gross is at least %-4 million
,ECTION BC E,TATE, TAX RET%RN,
-* Ahen required to *ile returnL
A* &.all cases o* trans*er sub7ect to ta/
!.even though e/empt? gross value o*
the estate e/ceeds 5!$$?$$$
%.regardless o* gross value o* the estate?
when the same consists o* registered or
registrable prop such as:
a.real property
b.motor vehicle
c. shares o* stoc9s
d. other similar property where clearance
*rom @)R necessary *or trans*er o*
ownership in the name o* the trans*eree
return must set *orth the *ollowing:
&.value o* the gross estate at time o* death
!.deductions allowed
%.in*ormation necessary to establish correct
ta/es
-* Ahat i* Estate is e/empt? is it required to *ile a
returnL
A* .eneral Rule: =o
E=ception:
a. gross value e/ceeds 5!$$?$$$
b.estate contains registrable property
-* i* the estate or gross estate e/ceeds ! million?
what is the requirementL
A* return must be duly certi*ied by a C5"
6. ime of #iling
*iled within # months *rom decedentHs death
within %$ days *or *iling the return
within %$ days a*ter promulgation o* such order
&.certi*ied copy o* the schedule o* partition and
!.order o* court approving the same
C. E=tension of ime
ime: %$ days
.rounds: meritorious cases
E<o grants: Commissioner
7. Place of filing:
return shall be *iled with:
&.authori3ed agent ban9
!.revenue district o**icer
%. collection o**icer
4. duly authori3ed treasurer
city or municipality in which decedent was
domiciled at the time o* his death
-* Ahat i* non residentL
A* =R with no legal residence here? with the o**ice
o* the commissioner.
-* 6et us say there are % compulsory heirs?
namely "? @? and C. " renounces his inheritance
coming *rom the parents? but " renounces his
inheritance in *avor o* his ! siblings? brother and
sister @ and C. )s this sub7ect to donorHs ta/L
A* =O. )t is e/empt.
-* @ut i* in the given e/ample? " said N) am
renouncing my inheritance? but ) am giving it to my
sister @O? is this sub7ect to donorHs ta/L
A* IES. Renunciation is to the disadvantage o*
the brother.
"J")O= B=DER 1E 6OC"6 ;O0ER=:E=
CODE:
&. 6ocal a/
!. Real 5roperty a/
LOCAL TAXATION %P(+0, (+*, t<en go to P(2(,
()+ doBn,
-* :ayor @inay o* :a9ati ordered the collection
o* elevator ta/ >*or elevator in the city hall). )s the
order o* :ayor @inay legally tenableL
A* =O. here should always be a ta= ordinance
a*ter conducting a public <earing. >Q&(#)
ta= ordinance
-* Can @)R collect the ta/ even in the absence o*
a revenue regulationL
A* IES.
-* Can a province? city? municipality or barangay
collect the ta/ i* there is no ta/ ordinanceL
A* =O.
-* Ahy is it that there should be a ta/ ordinance
as required by Q&(#L
A* he rationale is not mentioned in Q&(#? but i*
you read the other provisions o* the 6;C? you will
come to set o* conclusions o* the reason why
there must be a ta/ ordinance.
S )n most o* these provisions? it always say:
one5<alf if t<e toBn or municipalit@ s<all collect a
ta= of not e=ceeding (Q of t<e gross receipt.
"DE =OE: here is no e/act amountF hence? it
is the ta/ ordinance which will *i/ the e/act
amount.
#.
public <earing
)n Congress? the requirement is not absolute
>by discretion only). Bnder local ta/ation >last
phrase o* Q&(#)? the requirement is "@SO6BE.
REYE$ vs. $ECREARY %&)' $CRA D+0,
<: )n the municipality o* San 8uan >7ust beside
:andaluyong) there was a ta/ ordinance
passed. Reyes? a resident? claims that there
was no public hearing conducted? he
maintains that under Q&(# last phrase? there
should always be a public hearing.
1: he SC said: Nyes? that requirement is an
absolute one? but since the petitioner *ailed to
produce evidence to support his allegation? i*
there is no proo* presented other than his own
statement? we hereby rule that the ordinance
was passed in accordance to the procedure
mandated by lawO. Ahile it is true that a
public hearing is an absolute requirement? he
who alleges? must prove the same.
-* )* you donHt agree with the validity or the
constitutionality o* the ta/ ordinance? what will be
your remedyL
A* Aithin %$ days *rom the e**ectivity o* the
ordinance? the ta/payer should *ile an appeal with
the o**ice o* the Secretary o* the DO8 >Q&(')
REYE$ vs. $ECREARY %&)' $CRA D+0,
<: Reyes asserted the validity and
constitutionality o* the ta/ ordinance only a*ter
the lapse o* thirty >%$) days >perhaps his
lawyer was thin9ing that an ordinary statute
may be contested anytime with the RC? C"
or SC).
1: Aith regard to a ta/ ordinance? w have a
speci*ic rule? *ailure to assail the validity with
the speci*ic period o* time? is *atal to the
ta/payer. Since it was *iled beyond the %$day
period? we do not disturb the validity o* the
ordinance.
-* Aithin what period should the Sec. o* 8ustice
decideL
A* Aithin #$ days *rom the time the appeal was
*iled. <ailure to decide within this time? the
ta/payer has the remedy to *ile an action with the
regular courts.
S )* the decision was made within the #$ day
period? and receives the decision? his remedy is to
*ile an appeal within %$days *orm the receipt o* the
decision to court o* competent 7urisdiction RC.
S @eginning April )&, )''D? *rom the ruling o*
the RC? pursuant to R" +!(! >the law upli*ting
the standards o* the C")? the ruling o* RC on
local ta/ cases? is appealable to the C" en
banc.
AO "55E"6S DEC)DED @I 1E C" E=
@"=C:
&. decisions o* RC involving local ta/ cases
!. decision o* the Central @oard o*
"ssessment "ppeals.
S <rom C" en banc? the appeal must be *ile
with the SC within &.days.
S ;o to Q&.&:
he city could impose the ta/ already
imposed by the province o* by the municipality.
-* Ahat are the numerous ta/es imposable by
the province which a city now allowed to imposeL
A* hose enumerated in Q&%. to Q&4& o* the
6;C
Reasons why a municipality wanted to be
converted into a city:
&. Q&.&
!. Q!%% >real estate ta/)
S )n addition? the law says that the city could
increase the rate o* the ta/ by not more than .$E
o* the ma/imum EJCE5 those enumerated in
Q&%+:
a) pro*essional ta/
b) amusement ta/
A. General Principles %P()+5(&',
reiteration o* the constitutional ta/ provisions
notice that the constitutional limitations on
ta/ation do not only apply to the national
government but also to local government units.
B. #efinitions >Q&%!)
2ocal Taxing %ut+ority %P(&),
*or a province? it is the provincial board or
the provincial council >sangguniang
panlalawigan)
*or a city? we have the city council
>sangguniang panlusod)
*or the municipality? we have the
municipal council >sangguniang
pangbayan)
*or the barangay or barrio? we have the
barangay council.
##
C. Coon liitations on t&e ta!in+ po"er
of t&e LG%Hs >Q&%%)
S Bnder the old law this was Q. o* the 6ocal a/
Code.
-* Ahy commonL
A* @ecause the limitations or prohibitions apply
to all 6;Bs? the provinces? cities? municipalities
and barangays.
wo Common Crimes %under P(&&,
&. absolute prohibition
!. relative prohibition
)t shall be unlaw*ul *or the 6;Bs to collect:
01 !ncome a= E;CEP B<en levied on banCs
and ot<er financing institutions %P(&&%A,,
S the term Nother *inancing institution shall
include money changer? lending investor?
pawnshop %P(&(%E,,
S rate o* ta/: does not mention rate o* ta/?
so long as it is N*air? 7ust and reasonableO
S )t cannot be Nprohibited ta/ation? because
the element o* Nimposed by the same ta/ing
powerO is not present. One is imposed by the
national government and the other is by the
6;B.
001 7ocumentar@ $tamp a= %P(&&%6,,
S absolute prohibition
0001 Estate ta=, in<eritance, donations inter vivos,
donations mortis causa E;CEP in P(&2
%P(&&%C,,
S trans*er ta/ on the trans*er o* realty to be
imposed by provinces and cities >Q&%.)
=OE: this is not a real estate ta/? this is
a local ta/.
0H1 Custom duties, c<arges or fees for t<e
registration of vessels or s<ips, B<arfages fees
and B<arage dues E;CEP if t<e B<arf <ad been
establis<ed, maintained and operated b@ t<e
localit@ %P(&&%7,,
S whar*age due , is a custom *ee imposed
on the weight o* the cargoes.
S whar* , a pier
S special levy on public wor9s >Q!4$)
S allows provinces cities and municipalities
to impose a special real estate ta/ 9nown as
Nspecial levy or public wor9sO
S let us say the municipality established a
pier *or a minimal value o* 5&$:F out o*
5&$:? under Q!4$? #$E o* this may be
recoveredF the other 4$E may be recovered
by war*age due.
.1 a=, fee or c<arge for goods or commodities
coming out or passing t<roug< t<e territorial
>urisdiction even if in t<e guise of a toll or a fee
%P(&&%E,,
S an absolute prohibition
S commodities mar9eted in a public mar9et?
letHs say in the city o* 5asig? where the
commodities came *rom 6aguna then to
anay? Cainta? aytayF 7ust imagine i* each o*
the towns will impse &peso *or every head o* a
chic9en or .$cents *or every bundle o*
vegetable.
PAL-A 7E8I CORP v. -ALA/.A$
9A-6OA/.A 7EL $"R %((& $CRA 2*),
<: :unicipal council passed a ta/ ordinance
entitled Npolice surveillance *eeO which provide
that "66 motor vehicle passing through a
particular street in the town proper o*
:alangas which will lead to the pier or whar*
will pay a certain sum o* money whether it is
camote? copra? palay?or rice. One o* the
owners o* the motor vehicle is 5alma DevHt
Corp. carrying copra? banana and coconut to
be loaded in a ship doc9ed at pier o*
:alangas. he lawyer o* petitioner assailed
the validity o* the ordinance stating that it is a
clear violation o* Q&%%>E).
1: )t is not the title o* the ordinance which is
controlling but it is the essence o* the
substance o* the ta/ ordinance. he ta/
ordinance clearly violated Q&%%>E)? there*ore?
the SC had no option but to declare the ta/
ordinance null and void *or being in violation
o* the law.
H01 a=es, fees or c<arges on agricultural and
aquatic products B<en sold b@ marginal farmers
or fis<ermen %P(&&%#,,
-* Don "ntonio <lorendo? a person coming
*rom 5ampanga who settled in Davao City?
employed thousands o* wor9ers in the
di**erent banana plantation. Can the 6;B
impose ta/ on the agricultural product which is
a bananaL
A* IES. he 6;B can impose because Don
"ntonio is not a marginal *armer. )t is only
prohibited i* it is sold by a marginal *armer.
S :arginal <armer , a *armer or a
*isherman *or subsistence only? whose
immediate members are the immediate
members o* the *amily >Q&%&>5))
H001 a=, fee or c<arge on pioneer and non5
pioneer enterprise dul@ registered Bit< t<e board
of investments for a period of 0@rs and D@rs
respectivel@ %(&&%.,,
S relative prohibition because a*ter the
period? the 6;B concerned may now
impose the ta/.
H0001 E=cise ta= on articles and ta=, fees and
c<arges on petroleum products %P(&&%.,,
S relative prohibition since under Q&4%>1)? it
says there that ta/es which are prohibited
such as e/cise ta/? percentage ta/ and value
#'
added ta/ nonetheless? the 6;B may impose
a ta/ not e/ceeding !E o* the gross receipt
>*or cities %E).
S :y *ormer student an assistant in the city
legal attorney in a city in :etro :anila?
received a summon *rom the RC >on
complaint o* a supermar9et in :etro :anila)
questioning the validity o* the ta/ ordinance
under Q&4%>1) since the rate imposed was
%E
) said? Nineng? una *ile 9ayo ng motion to
dismiss. =a9 ng puta? absent 9a na naman
ata eh? you invo9e Q&.& stating that a city can
impose a ta/ higher than the rate provided *or
by law not more than .$E o* the ma/imum
>.$E o* the ma/imum o* !E is &? there*ore?
!U& is %E)O
6"LACA/ v. CA %)11 $CRA DD),
]*irst case decide by the SC which interpreted
both the 6;C and the =)RC.
<: he then governor? Obet 5anganiban together
with his provincial council passed an
ordinance imposing ta/ on quarrying under
the provision o* Q&%( o* the 6;C. he
problem is that the ordinance applies to "66
entities quarrying in the province. One o* the
ta/payers? Republic Cement obliged to pay
the ta/? argued that under Q&%( o* the 6;C?
the ta/ on quarrying on which the province
may be allowed shall only be with regard to
quarrying private land? and not only that but
under Q&%%>1)? there is a prohibition to
impose e/cise ta/ and ta/ on quarrying under
the )RC is an e/cise ta/.
1: he ta/ on quarrying allowed to provincial
governments shall only be with regard to
lands which are public lands? and since this is
a private ta/ on quarrying re*ers to a lot
without any distinction. 1ence? i* the 6;C
made a quali*ication as to the 9ind o* land
>where it says it should be public land)? by
implication? it should re*er to private land
under Q&.& >although the law did not
distinguish)F and since it is a ta/ by the
national government? it should be collected by
the @)R >not the 6;B)? and also the SC
agreed that it is an e/cise ta/ where 6;BHs
are prohibited *rom collectingF thus? the SC
declared the ta/ ordinance null and void *or
being contrary to law.
S Sir? why is it a problem when the law is
clear that under Q&%(? it shall only apply to
public landL
5erhaps the provincial council thought
that the sub7ect matter o* the ta/ ordinance
may be a sub7ect matter provided in any boo9
including the )RC? or worse? that it may
impose a ta/ on a sub7ect matter not
mentioned in any boo9.
:oral lesson: although a ta/ ordinance
may be passed even i* the sub7ect matter is
not provided *or in any law? it has to comply
with the limitations.
PERO/ v. PE/!LLA %(1+ $CRA +0,
] he *acts here arose under the old law under Q.
>now Q&%%) o* the local ta/ code >5D !%&)
<: 5etron has a *actoryKplant in 5enilla where the
raw materials petroleum products are being
converted into re*ined petroleum products.
he municipal council o* 5enilla imposed a ta/
by way o* a ta/ ordinance saying that they are
invo9ing the old Q&+ >now Q&4%>")) stating
that municipalities are authori3ed to impose
ta/ o* the manu*acture o* any commodity?
hence? since it is manu*acture o* a petroleum
product? the 6;B must e authori3ed.
1owever? 5etron ob7ected since under Q.
>now Q&%%>1))? the prohibition includes the
prohibition to impose e/cise ta/ and not only
that? under this par.? the ta/ on petroleum
products is an e/cise ta/. Bnder this par.? the
law is clear it does not only prohibit the
imposition o* ta/? *ee or charge over
petroleum products.
1: he controlling provision here the old Q&+
>now Q&4%>")) that 6;Bs are authori3ed to
impose the business ta/ *or the manu*acturing
over any 9ind o* commodity by and petroleum
product is Nany 9ind o* commodityO.
-* Ahat do you thin9L
A* ) donHt agree with this ruling because
between Q&%%>1) and Q&4%>")? it is the *ormer
which is more speci*ic.
0I1 8alue added ta= and percentage %P(&&%!,
E;CEP P(D&%3,
S Relative prohibition.
I1 a=, fee or c<arge on common carriers
B<et<er b@ land, Bater or air %P(&&%:,,
#!R$ 3OL7!/. CO. v.6AA/.A$ C!Y %&''
$CRA 00(,
] !
nd
SC ruling discussing both the )RC and 6;C.
<: his revealed to the public the e/istence o* !
very big oil pipelines coming *orm @atangas
City with a distance o* more than &$$9m? one
going to 5andacan Oil Depot and the other
one is going to @rgy. @icutan? aguig. he
@atangas City council deemed it necessary to
impose a ta/ on the gross receipt o* the &
st
holding company *or the operation o* the oil
pipeline? but the operator argued that the oil
pipeline is not a common carrier.
1: he SC reasoned out li9e in the case o*
Pa>unar v. Comm %&)+$CRA000,? saying that
Nwe have copied the code o* carrier law *orm
the BS where the de*inition o* a common
#(
carrier is one habitually carrying not only
individuals or passengers but also goods or
commodities? and since the oil pipelines is
habitually carrying petroleum products which
is a commodity? we rule this as a common
carrier which is under Q&%%>8)? 6;B is
prohibited *rom imposing ta/ on common
carriers? and not only that but under Q&'$ o*
the 6;C? the law is very e/plicit? that "66
6;Bs are prohibited to impose percentage ta/
on common carriersO. Aith that? the ta/
ordinance passed was declared null and void
*or being contrary to law.
I01 Premiums on re5insurance %P(&&%?,,
S absolute prohibition.
I001 a=, fee or c<arge on registration of motor
ve<icles and for t<e issuance of license and
permit for driving t<ereof E;CEP tric@cles.
%P(&&%L,,
6A"A/ C!Y v. LO %&)) $CRA +'2,
): Ahich *unction was delegated to the 6;BL
he 6O registering motor vehicles NorO the
6<R@ granting *ranchise and regulation o*
common carriersL
1: Bnder Q&%%>6)? the *unction o* the 6O is
prohibited? an there*ore what may be
delegated to the 6;B is the *unction o*
6<R@.
I0001a=, fee or c<arge on e=portation of products
and is actuall@ e=ported E;CEP under P(D&%C,
B<ere t<e L." is aut<oriAed to impose business
ta= on e=portation %P(&&%-,,
I0H1 a=, fee or c<arge on cooperatives dul@
registered under t<e cooperative cod %RA 01&+,
and 6usiness ?alaCalan %RA 0+(', %P(&&%/,,
S " cooperative is e/empt *rom local ta/?
provided it is duly registered with the
cooperative code and the cooperative
development authority NorO @usiness
Dala9alan >not 9al9alan)
IH1 a=, fee or c<arge over t<e national
government, political subdivisions and agencies
and instrumentalities of t<e government %P(&&%O,,
S Relative prohibition since it admits o* an
e/ception under Q&.4 o* the 6;C where it
says that a 6;B may be authori3ed to impose
a *ee or charge *or the operation o* a public
utility provided it is owned? maintained and
operated by such 6;B.
/A!A v. PARA/A4"E %:"LY )''0,
1: SC ruled in *avor o* the airport. 5aranaque
being a 6;B canHt impose ta/ on a
government instrumentality. "irport owned by
the government is not an agency? it being an
instrumentality.
-* :ay the government ta/ itsel* it the ta/ing
power is the local governmentL
A* =O. he local government cannot impose
ta/ on the national government? and with
more reason that it cannot impose a ta/ with
equal 6;B.
#. Ta!es t&at can eit&er ;e ipose$ ;(
Pro'inces or Cities
01 ta= on transfer of realt@ %P(&2,
=ote that this is not a real estate ta/? this is a
local ta/ *or the simple reason that it is not provide
*or under the topic o* real estate ta/ >Q&+(-!($)
6aw says Nit should not e/ceed Y o* &E o* the
considerationO >=OE: do not use 3onal value
since this is used only under the )RC? not the
6;C.
-* Since all the provinces and cities must *ollow
the limitation o* the rate >not e/ceeding Y o* &E)?
is it violative o* the equal protection clauseL
A* =O? because the sangguninan had to
determine the actual rate considering the status o*
the province.
-* Ahy is that :a9ati *i/ the rate o* '.E or %K4 o*
&EL
A* @ecause cities are authori3ed to increase the
rate o* .$E o* the ma/imum? that is .$E o* Y is
!.E >.$U!. is '.E).
=OE: Do not apply trans*er o* realty pursuant to
R" ##.' >C"R5) this is the Comprehensive
"grarian Re*orm 5rogram this is e/empt.
001 ta= on printing an publication %P(&0,
=ormally? a province cannot impose this
because the ta/ on business can only be imposed
by a city or municipality EJCE5 this one? on
printing and publication o* maga3ines and
periodicals.
0001 franc<ise ta= %P(&*,
he old national *ranchise ta/ under the old
ta/ code was already abolished.
Ae still have *ranchise ta/ other than this one?
9nown as national *ranchise ta/ provided *or in
the republic act granting *ranchise.
wo 9inds o* <ranchise a/:
&. local *ranchise ta/ >under 6;C Q&%')
!. national *ranchise ta/ >provided *or in the
statute or republic act authori3ing the
*ranchise)
#+
-* :ay 6;Bs impose local *ranchise ta/L
A* Ae have to consider here many supreme
court decisions and also Q&+% o* the 6;C.
Bnder Q&+%? it says there Nunless especially
provided *or in this code? e/emptions granted to
natural 7uridical persons are hereby withdrawn
>abolished) EJCE5:
&. local water districts
!. cooperatives registered under the
cooperative code >R" #+%()
%. non-pro*it and non-stoc9 educational
institution.
6A$CO v. PA.COR %(1* $CRA 2),
<: he city council passed a ta/ ordinance
imposing ta/ on 5";COR? an agency o* the
government. 5";COR ob7ected saying that
the local city is prohibited under the old local
authority act to impose ta/ on an agency o*
the government.
1: he SC declared null and void the ta/
ordinance saying :anila cannot do that.
CE6" v. -ACA/ %)0( $CRA 00*,
<: Cebu government was trying to collect real
estate ta/ *rom the :actan airport >note: real
property ta/ is a territorial ta/? meaning it
should only be collected within its territorial
7urisdiction). 6awyers o* :actan airport argued
that under Q&%>O)? Cebu? a 6;B? cannot
impose ta/ on an agency o* the government?
and they also invo9ed the ruling in @"SCO.
1: he lawyer o* :actan airport is devoid o* any
merit at all? it is &$$E erroneous since the real
estate ta/ is not a local ta/? hence? why
invo9e a SC ruling and codal provision which
can only be applied to local ta/. here*ore?
:actan airport should pay Real 5roperty a/.
@e*ore the codi*ication in &++& >to ta9e e**ect
8anuary &? &++!)? local ta/ation was embodied in
a separate boo9 9nown as 6ocal a/ Code >5D
!%&) while real property ta/ was provided *or in a
separate boo9 9nown as Real 5roperty a/ Code
>5D 4#4)
LR v. C!Y O# -A/!LA %&D) $CRA 01),
<: he :anila city government tried to collect
real property ta/ but the management o* the
6R said Nno you cannot do that to us since it
is e/clusively *or public useO.
1: =O? you are not e/clusively *or public use
since every time a person wants to use the
6R he has to pay.
-* Ahy not use the de*ense that it is owned by
the governmentL
A* @ecause in real estate ta/? the de*ense that it
is owned by the government is not a de*ense.
he 6;C in Q&++>@) and in Q!&'? both
provisions says that the basis *or the imposition o*
real estate ta/ is the "CB"6 BSE o* anybody
who is using that >maybe in the concept o*
usu*ructuary or in the concept o* a lessee? or in
the concept o* an owner)F the basis is not
ownership.
in Q&%4? the ta/es here must not only be
imposed by provinces? it may also be imposed by
cities in line with Q&.& those enumerated in
Q&%. to &4&.
CA.AYA/ 7E ORO ELECR!C CO. v. -!$A-!$
OCC!7E/AL %(+( $CRA &+,
] his was the prevailing rule *or more than
&$years *rom &+((
1: )n the *ranchise or the republic act? there are
only two >!) 9inds o* *ranchise? one is a
*ranchise which provide *or a condition that
this ta/ >re*erring to the *ranchise ta/) shall be
in lieu o* all other ta/es? and the other
*ranchise is the one which do not provide *or
such provisionF the province or the city can
impose local *ranchise ta/ i* the *ranchise
belong to the second e/ample.
REYE$ v. $A/ PA6LO C!Y %&'2 $CRA &2&,
] 1ere the SC uni*ormly ruled
1: " provision on e/emption under Q&+% donHt
only re*er to e/emptions provided *or by
di**erent statutes? but it includes those which
claim e/emptions by virtue o* the case o*
Caga@an de Oro >because SC decisions are
also laws).
PL7 v. 7A8AO %&0& $CRA *2',
<: he *ranchise holders o* Smart and ;lobe are
claiming e/emptions *rom the local *ranchise
ta/ because they are saying that they are
holding a *ranchise which says that it is a
*ranchise enacted by the house o* Congress
in &++. which carries with it an e/emption
*orm local *ranchise ta/.
1: @y the very e/plicit provision o* Q&+%? the
removal o* e/emptions granted by di**erent
statutes and also by SC decisions applies
only to statutes and decided by the SC on or
be*ore 8an. &? &++!? because Q&+% says
Nupon e**ectivity o* this lawO. <or e/emptions
covered by Q&+% there*ore? Smart and ;lobe
are authori3ed to claim e/emptions because
the statue >R" '$(!) was enacted on &++..
0H1 ta= on sand, gravel and ot<er quarr@
resources %P(&+,
'$
Ae are through with that in the case o*
6ulacan
H1 professional ta= %P(&1,
this must be correlated with the ta/ under
Q&4'.
=OE that this is an e/emption to the rule that
a city may increase the rate o* the ta/ under
Q&.& o* the 6;C? the increase is not allowed.
both Q&%+ and Q&4' are ta/es imposed on
persons e/ercising pro*essional calling.
,ection 8:B ,ection 85<
are to be imposed by
provinces and cities
are to be imposed by
municipalities and
cities
are applicable to
wor9ers who must
pass a government
e/amination >e.g.
engineers?
physicians? etc)
are applicable to
persons who are
wor9ing but are not
required to ta9e
government
e/aminations
there is a ma/imum
>5%$$)
=OE: it is not
always %$$? since
the e/act amt must
be *i/ed by the
ordinance.
)t does not provide
*or any amount? the
only requirement is
that it must be
reasonable
H01 amusement ta= %P(D',
under the )RC? there is also amusement ta/
under Q&!..
P6A v. 4"E9O/ C!Y %(&* $CRA &2+,
<: he city government enacted a ta/ ordinance
trying to collect amusement ta/ including
amusement ta/ on the 5@" >in "raneta?
Cubao)F but 5@" and Nno? we are already
paying amusement ta/ to the national
government through the @)R because o* Q&!.
o* the )RCO
1: 2C government can no longer collect on the
ground that it is already being collected by the
national government and secondly? in the
enumerations o* amusement under Q&4$? you
will never see pro*essional bas9etball. :ost o*
all? it is the intention o* the author that it is only
the national government.
]na9 ng putang 9atangahan yan.. the local ta/
code 5D !%& was enacted in &+'4 when we donHt
have any pro*essional bas9etball.. since
pro*essional bas9etball was born :ay &+'..
] ano ba dapt tama diyanL both the national
government and the 2C government can collect.
here is no violation o* the prohibited double
ta/ation? because the ta/ing powers are di**erent?
and not only that Q&4$ spea9s o* amusement ta/
on admission *ee but under Q&!.? it is abut gross
receipts.
H001 deliver@ van %P(D(,
-* Ahat i* not a delivery van? but Nsa9oO langL
A* he applicable ta/ is under Q&4%>;)
>peddlerHs ta/? one imposed by municipalities and
cities.
)* may dalang sasa9yan? yari siya ng province
sa ta/.
=OE: Q&%.-&4&? these are ta/es that can be
imposed by 5RO0)=CES and C))ES.
Q&4%-&.$ are ta/es to be imposed by
:B=)C)5"6))ES? which can also be imposed by
C))ES.
E. Ta!es t&at can eit&er ;e ipose$ ;(
.unicipalities or Cities
01 6usiness a= %P(D&%A53,,
a. manu*acturing? repac9ing? processing?
including the manu*acturer o* permitted
liquor and also its dealer
b. wholesaling
c. e/portation
d. retailing
e. contractorHs ta/
*. ta/ on ban9ing institution and *inancing
institution
g. peddlerHs ta/
h. the e/emption under Q&%%>i)
-* )* you have two branches? how many business
ta/es do you have to payL
A* Iou pay only one business ta/ >Q&4#)
!LO5!LO 6OLER$ v. !LO5!LO C!Y %(0D $CRA
0'*,
<: )lo-ilo @ottlers was already paying a business
ta/ on manu*acturing under Q&4%>") to the
city government by virtue o* a ta/ ordinance.
6ater on? they are obliged to pay by virtue o*
another ta/ ordinance imposing business ta/
on wholesaling. =aturally? )lo-ilo @ottlers
argued? Nhow could it be? i* you manu*acture? it
necessary *ollows that you sell the commodity
so? with the payment o* the business ta/ on
'&
manu*acturing? it carries with it the business o*
wholesalingO.
1: =O? you have to determine the mar9eting
system o* the company. )* wholesaling is also
being done in the place o* manu*acture? the
business ta/ on wholesaling should no longer
be paid it should only be the business ta/ on
manu*acturing. @ut i* the mar9eting system o*
the company provides that wholesaling shall
be done in a separate place >maybe several
9ilometers away)? the manu*acturer must still
pay the business ta/ on wholesale because
now it could be argued that they have the
separate business o* wholesaling.
-* On the business o* retailing? should the
business ta/ o* retailing be imposed by the city or
by the municipality NORO by the barangay in the
city or the barrio in the municipalityL
A* Q&4%>D) must be correlated with Q&.!? the ta/
to be imposed by the barangay.
)t depends:
a. city
S i* the gross receipt o* the retailer
e/ceeds 5.$ in a minimum o* one
year? it is the right and privilege o* a
city to impose the business ta/ on
retailing.
b. barangay
S i* the gross receipt o* the retailer did
not e/ceed 5.$? it is the barangay
council where the business o* retailing
is located.
c. municipality
not e/ceed 5%$ within a period o*
one year.
d. barrio
not e/ceed 5%$ within a period o*
one year.
=OE: hese distinctions do not apply in
wholesaling. hese are only *or retailing.
5aragraph 1: *or the imposition o* e/cise
ta/? percentage ta/ and value added ta/? the
municipality may impose a ta/ not e/ceeding !E
o* the gross receipt >with regard to a city? it may
go as *ar as %E)
001 -unicipalities in -etro -anila B<o can
increase t<eir rate %P(DD,
Right now there are only two municipalities:
&. San 8uan
!. 5ateros
0001 Professional a= %P(D*,
we are through with that
0H1 #ees for sealing and licensing of Beig<ts and
measures %P(D+,
H1 #is<er@ rentals, fees and c<arges %P(D1,
F. ,itus of Ta! >Q&.$)
he ta/ re*erred to in here is the business ta/
on wholesaling and retailing.
-* R<: is manu*acturing commodities? one o*
them is Swi*t hotdogs? this is being sold not only in
:andaluyong? :etro :anila? but also to the inter
country *rom @atanes to awi-tawi. Ahere should
the business ta/ o* wholesaling or the business
ta/ o* retailing be paidL Should it be in the
principal o**ice >:andaluyong) NorO the place
where the commodities are soldL
A* )t will be paid in the place where it had been
sold 5RO0)DED there is a branch o**ice or a
sales outlet >Q&.$>")).
)* it so happens that the company has a
*actory di**erent *rom the place where the principal
o**ice is located %$E should be pain in the
principal o**ice and '$E in the municipality or city
where the branch is located.
P3!L -AC3E$ v. CE6" %+( $CRA 11,
<: 5hil :atches were produced in =agtahan?
:anila. )n Cebu city? there was a warehouse
where the matches were stored. :any o* the
customers? by way o* wholesale in the
warehouse in Cebu City? they came *rom
di**erent towns o* the 0isayan Region. :ay
the business ta/ ordinance o* Cebu be
imposed on those transactions even i* the
buyers did not come *rom the territorial
7urisdiction o* CebuL
1: Since in this case the contract boo9ed and
paid? meaning? it was negotiated per*ected
and consummated in the warehouse where it
was located in Cebu City? the Cebu City
government has the right to collect business
ta/.
-* Ahat i* there is an agreement that
commodities would be delivered and that the
buyer would be waiting in some other town? is the
answer still the sameL
A* IES? the answer is still the same because
delivery to the carrier is delivery to the buyer
where delivery has been termed within the
territorial 7urisdiction o* Cebu.
'!
$3ELL v. CE6"CO, CA-AR!/E$ $"R %('2
P3!L ('0&,
<: he petroleum products were purchased at
the motor vehicle traversing the neighboring
towns o* Cebucot li9e @ason? Dimalaon? all
towns in Camarines =orte. he contract o*
sale was negotiated and per*ected in di**erent
municipalities where the motor vehicle o* Shell
was traveling.
1: "lthough the oil depot was located in
Cebucot? the said municipality cannot impose
ta/ on that because the contract o* sale was
negotiated and per*ected in the di**erent
nearby towns o* Camarines.
-* )s there a con*lict with the case o* $<ell and
P<il -atc<esL
A* =O=E. "s a matter o* *act? these two
decisions complement each other.
G. Ta!in+ Po"ers of t&e Baran+a( >Q&.!)
Only a minimal sum >*air and reasonable)
5ower to impose ta/:
&. On commercial breeding o* *ighting coc9s?
coc9*ights and coc9pits
S must be *or commercial purposes
!. On places o* recreation which charge
administration *ee
%. On billboards? signboards? neon signs and
outdoor advertisements
S especially *or the barrios and barangays
along the highway
4. <or barangay clearance
S i* you want to engage in the business o*
retailing or wholesaling i* barangay
captain will not approve that within
'days go to the municipal hall or city hall
*or approval
.. <or the use o* barangay property
S *or instance the barangay has a pla3a.
9. Coon Re'enue Raisin+ Po"ers >Q&.%-
&..)
-* Ahy commonL
A* "ll the 6;B could impose the same. @ut it
does not *ollow that all the provinces? cities?
municipalities could impose the same. Only the
6;B which operate? establish? maintain the entity
)* established by the province? it should only
be the province.
hese are:
&. service *ee and charges
S *or services rendered
!. public utility charges
S provided owned? operate and maintained
by them
%. toll *ees and charges
S ta/ or toll *or the use o* a bridge or a
street
5adua *iled a civil action in the :a9at)
RC trying to stop the government *orm collecting
a toll *ree in the South E/press including the =orth
e/pressway alleging that he is a**ected as a
ta/payer because he is *rom 5aranaque. 1e
argued that i* you use the property o* the
government li9e a street or a public pla3a? you do
not pay. 1e made the analogy? that i* you go to
6uneta? you do not pay the city government o*
:anila.
he :a9ati RC? the C" and SC had a
uni*orm ruling that the operator should be
prohibited *rom collecting *urther toll *ess because
i* the operator had already recovered his
investment and earned an income already? he
should be stopped. "s argue by the SC? it copied
the argument o* the lawyer >re: 6uneta).
S =OE: that Res 8udicata do not apply
here.
Ahen the ruling became *inal an
e/ecutory in &++%? the =orth and South E/press
were totally dismantled and totally destroyed by
the D5A1 to give way to the *inal and e/ecutory
ruling o* the Court? that )t should no longer be
collected.
"*ter several months? the government
announced in the radio that the party in the case
o* 5adua? mutually agreed that the collection shall
be resumed in order to have money *or the
maintenance and repair o* the highway.
E/ceptions to Q&.. >collection o* toll *ees)
&. members o* "<5
!. members o* the 5:5
%. post o**ice personnel delivering mail
4. physically handicapped
.. disabled citi3ens #. years and older.
I. Counit( Ta! >Q&.#)
)n the old days? 9nown as Nresidence ta/
certi*icate.
-* )* the <ilipino is a resident o* a *oreign country
>=RC)? is he liable to pay the community ta/
certi*icateL
A* =O? because the basis o* imposition o* this
ta/ is whether or not you are an inhabitant o* the
5hilippines. :eaning you are a resident o* the
5hilippines.
'%
-* Ahat about a *oreigner residing in the
5hilippines >R")L
A* IES. Iou have to pay unless the *oreigner is
a trans-investor *or not more than %months.
his is applied to both natural and 7uridical
persons.
Requirements:
1. *or a natural person at least &( years o*
age
2. *or corporations upon registration with
the SEC
-* Ahat i* you become &( in the month o*
8anuary or =ovember or DecemberL
A* <or those who celebrated their birthday be*ore
8uly & >that is up to 8une %$)? they are liable to
pay the ta/? *or this year.
<or those who celebrated their birthday on or
a*ter 8uly &? they are not yet liable to pay this year?
but have to wait until ne/t year.
-* )s there a di**erence *or those who reached &(
in the months o* 8an-<eb-:arch and those who
reached &( in the months o* "pril-:ay-8uneL
A* IES. <or those who celebrated birthdays in
the months o* 8an-<eb-:arch? they have a grace
period o* !$days within which to pay. hose who
celebrated their &(
th
birthday in the month o* "pril-
:ay-8une? they do not have any grace period at
all? they have to pay the ta/ immediately.
-* )* you have a community ta/ certi*icate *or this
year >!$$#)? can it be used only until December
%&? !$$#L
A* =O. )t shall be valid up to "pril &.? !$$'.
>Q&#%>C))
E. Accrual of t&e Ta! >Q&##)
8anuary &
-* Ahat i* the ta/ was only approved in the
month o* :ay !$$#? do you have to wait until
8anuary !$$'L
A* =O. Iou have the right to collect that in 8uly
&? because the law is saying that Nit should be
collected in the ne/t succeeding quarterO >Q&#')
:ayor @inay had a ta/ ordinance in :ay? sabi
ng mga bata niya: Nbosing? collect na tayo ng
8uneO.
@inay: Nhindi nga pupwede? maghintay pa
tayo ng 8uly &O.
-* Ahat i* the ta/ ordinance had been e/isting
*or several years alreadyL
A* he time o* accrual will always be 8anuary &.
RE.E#IE, %N#ER T9E INTERNAL REVEN%E
CO#E
&. Remedies o* the ;overnment
!. Remedies o* the a/payer
Remedies of t+e go.ernment/
&. "ssessment
!. Collection
Bnder the =)RC? assessment and collection have
! 9inds:
&. =ormalKOrdinary assessment and
collection , Sec. !$%? =)RC
!. "bnormalKE/traordinary assessment and
collection , Sec. !!!? =)RC
I. /ormalOOrdinar@ assessment and
collection
^ here was a return *iled and it is
not *raudulent and not *alse
II. AbnormalOE=traordinar@ assessment and
collection
^ here was:
&. an omission or *ailure to *ile the
returnF
!. i* there was a return *iled? it was
*raudulent? orF
%. the return was *alse
-* )s a *alse and *raudulent return presumedL
A* =O? *alse and *raudulent return is not
presumed. he burden o* proo* to prove that the
return was *alse and *raudulent lies against the
government through the @)R.
he mere *act that the return is erroneous will
not ma9e the return *raudulent? it must be proven
by the @)R.
-* Ahy is it important to 9now whether the
assessment is under normal or abnormal
conditionL
A* )t is important to 9now because the
prescriptive period between normal and abnormal
assessment di**er.
Prescripti.e Period for %ssessment
91 /ormalOOrdinar@ Assessment L & @ears from
t<e time t<e return <as been filed %not t<e
pa@ment of t<e ta=, %$ec. )'&, /!RC,
^ % Aays o* *iling the return under Sec. !$%?
=)RC:
'4
&. *iled be*ore the deadline >*or any ta/
under =)RC)
!. *iled on the date o* deadline
%. *iled a*ter the deadline
^ ! Aays o* counting the % year period o*
"ssessment:
&. i* return is *iled be*ore or on the day o* the
deadline? the prescriptive period starts on
the date o* the deadlineF
!. i* return is *iled a*ter the deadline? the
prescriptive period starts on the date the
return has been *iled.
S <or the calendar year o* !$$4? a return must
be *iled and paid *or =et )ncome a/ on or be*ore
"pril &.? !$$.. Since he was not able to meet the
deadline? the ta/payer is now being assessed *or
ta/ due *or !$$4. o minimi3e interest and
surcharges? it has been suggested by the @)R that
the ta/payer *ile a late return. Supposed he *iled
his return covering !$$4 on "pril &? !$$#. )n this
e/ample? the rec9oning point is the deadline o*
"pril &.? !$$.. he starting point o* the counting
the % yr. period is on the date the return is *iled
which is "pril &? !$$#.
S Suppose it is not a late *iling o* return? the
counting o* the period is on the date o* the
deadline which is "pril &..
61 AbnormalOE=traordinar@ Assessment
^ the government has ! options:
a. "ssess and Collect
S the prescriptive period *or
NassessmentO shall be &$ years *rom the
discovery o* none *iling or *alse or
*raudulent return >Sec. !!!? par. o? =)RC)
S the prescriptive period *or
NcollectionO shall be . years *rom the date
o* *inal assessment >Sec. !!!? par c?
=)RC)
b. Collect Aithout "ssessment through
8udicial "ction
S since there is Nno assessmentO there
is no prescriptive period *or assessment
S prescriptive period *or NcollectionO
shall be &$ years *rom the date o*
discovery o* none *iling o* return or *alse
or *raudulent return.
^ hese options are available only i* the
"ssessment is under the
"bnormalKE/traordinary Conditions.
hese are not available under
=ormalKOrdinary "ssessment
Prescripti.e Period for Collection
8. /ormalOOrdinar@ Collection , Sec. !$% did not
provide *or the prescriptive period *or the
collection
- )ntention o* the author: . years *rom
the date o* *inal assessment
Reasons: >Sababan agrees with the . year
prescriptive period)
5rescriptive period o* collection under &
st
option on "bnormal "ssessment is .
years *rom *inal assessment >Sec. !!!?
par c? =)RC)
&. under the old code o* &+%+? &+''? and
&+(.? i* the prescriptive period *or
collection under abnormal is % years?
then the prescriptive period *or
collection under normal is also %
years. )* now a days? it is . years in
abnormal? the prescriptive period *or
normal should also be . years.
!. to say that there is a prescriptive
period *or collection under "bnormal
and there is none under =ormal is too
abnormal. )t should be the other way
around.
61 AbnormalOE=traordinar@ Collection
a. assess and collect , . years *rom the
*inal assessment
b. collect without assessment through
7udicial action , &$ years *rom date o*
discovery o* none *iling? or *alse? or
*raudulent return.
-* 1ow to apply these periodsL
A* "nnual net income ta/ return *iled by
individual using a calendar year. he return
should be *iled on or be*ore "pril &.? !$$$. )t was
*iled on "pril &.? !$$$.
- Aithout stating the date o* *inal assessment?
can it be collected in !$$'L
A* Bnder normal condition? *irst determine the
date o* *inal assessment. )* the @)R *inally
assessed the ta/ in =ovember !$$&? then !$$' is
way beyond the .year period to collect. Count the
prescriptive period *or collection *rom the date o*
*inal assessment.
-* >same *acts) Supposed it was *inally assed on
:arch !$$%? can it be collected in !$$'L
A* Ies? because it is within the prescriptive
period o* .years.
6A$!LA/ v. CO--!$$!O/ER %)( $CRA (*,
<: Supposed the notice o* assessment was given
within the period but it was received by the
ta/payer outside the period.
'.
): Ahether or not the assessment is within the
period o* % years.
1: Ies. )t is within the period. )* the notice is sent
through registered mail? the running o* the
prescriptive period is NstoppedO. Ahat matters
is the sending o* the notice is made within the
period o* prescription.
^ )t is the sending o* the notice and not the
receipt that tolls the prescriptive period.
-* Ahat i* the return has been amended? how
would you compute the period o* assessmentL
A* =)RC is silent.
P3OE/!; v. CO--!$!O/ER %(D $CRA 2),
)* the amendment o* the return is substantial
as distinguished *rom super*icial? the counting o*
the prescriptive period is also amended. he
prescriptive period shall be rec9oned on the date
the substantial amendment was made. )* the
amendment is super*icial? the counting o* the
prescriptive period is still the original period.
Proce$ure for Assessent 2,ec. 44>= NIRC6
RR 84/BB3
Steps o* assessment
&. Sec. !!(? =)RC >! steps)
!. RR &!-++ >% steps)
! Steps under Sec. !!(? =)RC
&. 5re-assessment notice
!. <inal assessment notice
% Steps under RR &!-++
&. =otice o* )n*ormal Con*erence
!. 5reliminary "ssessment =otice
%. <ormal 6etter o* Demand and =otice to
5ay the a/
PROCE#%RE 2,ec. 44>= NIRC6 RR 84/BB3
&. Bpon receipt o* the notice o* in*ormal
con*erence? *ile a reply within &. days
*rom receipt o* noticeF
!. <ailure to *ile a reply? ! things may
happen:
a. @)R will send again the =otice o*
)n*ormal Con*erence or
b. @)R will send a 5reliminary =otice o*
"ssessment
%. Bpon receipt o* 5reliminary "ssessment
=otice >5"=)? *ile a reply within &. days
*rom receipt
4. <ailure to *ile a reply will result in either:
a. @)R will repeat 5"=
b. Declare the ta/payer in de*ault? and
send you a <inal "ssessment =otice
><"=)
.. Bpon receipt o* <"=? ta/payer may *ile a
protest within %$ days.
-* )s <"= the one appealable to the Court o* a/
"ppeals >C")L
A* =O. his is because Q!!(? =)RC and RR &!-
++ requires the e/haustion o* administrative
remedy o* protest. "*ter the receipt o* <"= or
*ormal demand within %$days must *ile a protest
be*ore the o**ice o* the commissioner o* internal
revenue.
FOR., OF PROTE,T
&. 6ocal a/ >Sec. &!.? 6ocal ;overnment
Code >6;C))
!. Real 5roperty a/ >Sec. !.!? 6;C)
%. ari** and Customs Code >Sec. !%&%? R"
'#.&)
^ )n all protest under the di**erent codes?
payment under protest is only necessary under
the NReal Estate a/O.
RR 96-KK
^ )* the ta/payer receives ! *inal assessments?
one under the =et )ncome a/ >=)) and the other
in 0". )* the ta/payer donHt want to *ile protest
under 0" but want to *ile a protest under =).
he ta/payer in order to be allowed to *ile a
protest under the =) must *irst pay the 0"
where he does not intend to *ile a protest.
^ his is not Npayment under protestO because?
payment under protest is the one mentioned in
Real 5roperty a/ under Sec. !.!? 6;C.
Bnder =)RC? 5rotest is re*erred to as:
&. disputing o* *inal assessment or
!. *ile a motion *or reconsideration or
reinvestigation
-* Ahat should be done a*ter *iling a protestL
A* Count #$days is the period to *ile the
necessary documents and receipts in support o*
the protest.
-* Ahat is the e**ect o* *ailure to *ile the
supporting documentsL
A* <ailure to *ile the necessary and supporting
documents within the #$day period? to be counted
on the day the protest is *iled? the *inal
assessment shall become *inal and e/ecutory.
L On the .&
st
day you *iled the necessary
document? you have to count another period?
'#
which is &($ days *rom the day you *iled the
necessary documents.
Relevance o* the &($ Days: &($ days is
the time given to the @)R to decide the case
-* Supposed it did not decide the case within
&($daysL
A* Do not invo9e the 6ascano case because it
was re7ected by R" +!(!
)n the 6ascano case? be*ore you *ile an appeal
although the &($ days have lapsed? you have to
wait *or the @)R to ta9e positive action.
he case was ruled only by the C"? hence it
is not a law. he 7urisdiction o* the C" has been
amended by R" +!(!.
R" +!(! provides that in case o* inaction o*
the commissioner a*ter the lapse o* &($days?
remedy is to *ile an appeal.
RR &!-++ says that a*ter lapse o* &($days but
within %$days a*ter &($days? that is the time to *ile
an appeal.
-* Supposed the @)R rule within &($L
A* Aithin %$days *rom receipt o* the decision *ile
an appeal to the C" sitting in division.
-* Supposed the C" decided not in your *avorL
A* <ile a motion *or reconsideration within
&.days to the same division deciding the case.
-* Supposed the C"? in division decided not in
you *avorL
A* <ile an appeal to the C" sitting en banc.
-* Supposed the C" en banc decided not in
your *avorL
A* <ile an appeal within &.days *rom receipt o*
decision to Supreme Court.
-* During the pendency o* the protest in the
o**ice o* the Commissioner? supposed you receive
a notice o* collection? levy andK or distraint? what is
your remedyL
A*
(. YA6E$ v. CO--!$$!O/ER %(2' $CRA
)*+,
). "/!O/ $3!PP!/. L!/E$ v.
CO--!$$!O/ER %(+2 $CRA 2D*,
YA6E$ v. CO--!$$!O/ER %(2' $CRA )*+,
<: he ta/payer receives a notice o* collection
while waiting *or the decision o* his protest.
1e then *iled an NappealO with the C"
contending his protest has been denied
because he did not receive a decision but
receive a notice o* collection. Simultaneously?
the @)R *iled be*ore the C<) an Nordinary civil
actionO *or the collection o* sum o* money.
Ahen the 7udge o* the C<)? was about to
conduct the hearing o* the case? the ta/payer
*iled an in7unction with the SC to prohibit the
7udge o* the C<) contending that a single
cause o* action is pending in two courts? one
in the C" and another in C<).
1: )n7unction was granted prohibiting the 8udge o*
the C<) and requiring the 8udge to trans*er the
records to the C" saying that the remedy
made by the ta/payer was the correct
remedy.
-* Aas the appeal made on timeL
A* Ies? when the @)R *iled an ordinary action?
the protest is deemed denied. 1ence an appeal is
a proper remedy.
"/!O/ $3!PP!/. L!/E$ v. CO--!$$!O/ER
<: he ta/payer was waiting *or the decision o*
his protest. @ut instead? he received a notice
o* collection. )mmediately? he *iled a :otion
*or Reconsideration and Clari*ication as9ing
whether his protest has been denied. he
@)R did not reply or answer but instead *iled
an Ordinary Civil "ction be*ore the C<).
Ahen the ta/payer received summons? he did
not answer but instead *iled an "ppeal be*ore
the C".
): Ahether or not the remedy o* "ppeal was the
correct remedy and Ahether or not it was *iled
on time.
1: Ies. he remedy o* appeal is the correct
remedy and the appeal was *iled on time. he
rec9oning period within which to *ile an appeal
is the time the ta/payer received the
summons.
Ahile an "ppeal is pending be*ore the C"? the
C" will determine:
&. )* the decision was made within &($ days?
whether the appeal was made within %$
days *rom the receipt o* the said decision?
or
!. i* there was no decision a*ter the lapse o*
&($ days? whether the appeal was made
within %$ days upon the e/piration or the
lapse o* the &($-day period.
-* 5ending appeal with the C"? can the @)R
amend the *inal assessmentL
A* ! SC1OO6S O< 1OB;1:
&. ."ERRERO v. CO--!$$!O/ER %(1
$CRA )2,
!. 6AA/.A$ v. COLLECOR %(')
P3!L +)),
."ERRERO v. CO--!$$!O/ER %(1 $CRA )2,
''
9* =o. @ecause it is no longer the disputed
assessment.
6AA/.A$ v. COLLECOR %(') P3!L +)),
9* Ies. )n order to avoid multiplicity o* suits
^ "CCORD)=; O 8BS)CE 0)B;:
6AA/.A$ v. COLLECOR %(') P3!L +)), is
t<e better ruling
PROTE,T %N#ER LOCAL TAX 2,ec. 8B?= LGC3
^ Bnder =)RC? protest is *iled in the O**ice o*
the Commissioner
^ Bnder 6;C? protest is *iled with the same City
or 5rovincial or :unicipal reasurer who issued
the assessment
5eriod to *ile 5rotest
#$ days *rom receipt o* assessment
-* )* the treasurer did not decide within a #$day
period? remedyL
A* ;o to the court o* competent 7urisdiction
>RC)
-* )* the RC decided not in you *avorL
A* <ile an appeal with C" en banc >beginning
"pril !%? !$$4)
-* )* the C" decided not in your *avorL
A* "ppeal to the SC.
=OE:
5ursuant to R" +!(!? direct appeal to C" en
banc can be made *rom:
&. Decision o* the RC involving local
ta/ation e/ercising appellate 7urisdiction
!. Decision o* the Central @oard o*
"ssessment "ppeal e/ercising appellate
7urisdiction.
PROTE,T %N#ER REAL PROPERT1 TAX
2,ecs. 44@= 4:C= an$ 4?43
Remedy shall be the same
,ec. 4?4= LGC
)* the ta/payer receives a =otice o*
"ssessment *rom municipal? city? or
provincial treasurer? the remedy is to *ile a
protest but there must be *irst 5ayment
Bnder 5rotest.
- his is the only instance where
payment under protest is necessary
-* 1ow is payment under protest madeL
A* "t the bac9 o* the receipt there will be an
annotation that there was a payment under
protest within #$days *rom receipt o* the notice o*
assessment within the same treasurer who issued
the assessment.
-* )* the treasurer rules against the ta/payer?
remedyL
A* he remedy is to *ile an appeal to the 6ocal
@oard o* "ssessment within %$days *rom the
receipt o* the decision.
-* <rom the decision o* the 6ocal @oard o*
"ssessmentL
A* "ppeal should be made to the Central @oard
o* "ssessment "ppeal.
^ @eginning "pril !%? !$$4? the ruling o* the
Central @oard o* "ssessment "ppeal is no longer
*inal. )t can now be appealed to the C"? sitting
en banc.
PROTE,T %N#ER T9E TARIFF AN#
C%,TO., CO#E 2TCC3 2,ec. 4:8:= as
aen$e$ ;( RA <@?83
^ <ormerly? the automatic appeal under the
CC applied only to protestF but now a days? the
automatic appeal applies to both protest and
*or*eiture.
<or <or*eiture Bnder the ari** and Customs Code
^ Re*ers to the Order o* the Collector
con*iscating the imported goods or commodities
Doctrine of Primary Lurisdiction
)* the Collector ordered the *or*eiture o* the
imported commodities the order o* the Collector
shall be to the e/clusion o* all government o**ices
and authority.
)mporter o* Chemical? under the CC? the
custom duties is only 5!' but the collector says it
should be 5.!. he importer will then *ile a
protest with the O**ice o* the Collector.
)n the old days? there is an automatic appeal
*rom the decision o* the collector under protest.
@ut under R" '#.&? the remedy o* automatic
appeal is applicable to both protest and *or*eiture.
). !n bot< cases of protest and forfeiture, if t<e
importer lose t<e case and t<e government Bins,
t<e remed@ is to file an appeal Bit<in (2 da@s
before t<e Office of t<e Commissioner.
<rom the ruling o* the Commissioner? the
importer should *ile an appeal within %$
days be*ore the C"? sitting in division.
<rom the ruling o* the C" in division? the
importer should *ile an :R within &. days
'(
be*ore the same division hearing the
case.
<rom the ruling o* the C" in division?
deciding on the :R? the importer should
*ile an appeal within &. days be*ore the
C" sitting en banc.
<rom the C" en banc? appeal to SC
within &. days.
)). !f t<e importer5ta=pa@er Bins t<e case, t<e
government lose t<e case, $ec. )&(& of CC as
amended b@ RA *02(, t<ere s<all be an
automatic revieB Bit<in (2 da@s.
-* Ahere should the automatic review be madeL
A* )t depends. 5ublish the value o* the
commodity.
&. )< 5. :)66)O= OR :ORE ,
"BO:")C RE0)EA S1"66 @E
@E<ORE 1E SECRE"RI O< 1E
DE5. O< <)="=CE.
!. )< 6ESS 1"= 5. :)66)O= ,
"BO:")C RE0)EA S1"66 @E
@E<ORE 1E O<<)CE O< 1E
CO::)SS)O=ER
-* Suppose the commissioner decide or did not
decide within %$days? what happensL
A* )* the commissioner reverses the ruling o* the
collector? the ruling is *inal and e/ecutory.
)* the commissioner a**irms or did not decide
within %$days? there shall be an automatic appeal
be*ore the sec. o* *inance.
-* @etween the two which will be appealed to the
C"L
A* he decision o* the secretary which passes
through the o**ice o* the commissioner >R" +!(!)
@ut not all the decision o* the secretary which
passes the o**ice o* the commissioner a**irms or
did not decide within %$days and appealed be*ore
the secretary o* *inance will appeal to the C" be
allowed.
here are % instances when the Secretary o*
<inance renders a decision appealable to the
C":
&. decision o* the Secretary by virtue o*
automatic review passing through the
Commissioner
!. cases o* anti-dumping duty? where the
anti-dumping duty was ordered by the
Secretary
%. decision o* the Secretary o* <inance on
countervening duty.
CO.PRO.I,E 2,ec. 4C5= NIRC3
% 2uestions as9ed in !$$4 @"R:
&. :ay the ;overnment compromise
criminal cases and civil casesL
!. Supposed the corporation is already
dissolved? can the stoc9holder be obliged
to payL
%. Suppose the civil case *iled by the @)R is
*inal and e/ecutor? can it be sub7ect to
compromiseL
CAN T9ERE BE CO.PRO.I,E IN*
8. C)0)6 C"SESL
- IES? )= "=I S";E O< 1E
5ROCEED)=;
- EJCE5 A1E= 1E C)0)6 C"SE )S
"6RE"DI <)="6 "=D EJECBORI
@EC"BSE ) A)66 @E 0)O6")0E
O< 1E SE5"R")O= O< 5OAERS
4. CR):)="6 C"SESL
- IES? EJCE5:
a. )< "6RE"DI <)6ED )= COBR
>RC) ORF
b. )< ) )=0O60ES <R"BD
:. )< 1E COR5OR")O= )S "6RE"DI
D)SSO60ED? C"= 1E SOCD1O6DER @E
1E6D 6)"@6E O 5"I "JL
- ;E=ER"6 RB6E: =O
- EJCE5:
a. )< ) )S 5RO0E= 1" 1E
"SSES O< 1E CO5OR")O=
)S "DE= @I O=E
SOCD1O6DER ORF
b. )< 1E SOCD1O6DER D)D
=O 5"I 1)S B=5")D
SB@SCR)5)O=
:inimum "mount to be Compromised >Sec. !$4)
&. )* the ground is *inancial incapacity o* the
ta/payer? the minimum shall not be less
than &$E o* the original assessment.
!. )* based on other grounds? the minimum
amount shall not be lower than 4$E o* the
original assessment.
-* Can it be lower than that prescribed by lawL
A* "s a rule? no. EJCE5? i* allowed by the
evaluation board consisting o* the:
a) commissionerF and
b) deputy commissioner.
)nstances when the <inal "ssessment becomes
*inal and e/ecutor:
&. )* the ta/payer did not *ile the protest on
time
!. <ailure to submit the supporting
documents within the #$-day period
'+
%. "*ter the lapse o* the &($-day period? you
did not *ile an appeal within the %$-day
period to the C"
4. "n appeal was *iled but made beyond the
reglementary period to appeal
.ET9O#, OF COLLECTION 2,EC. 4C?3
8. :udicial Action
a. Civil
b. Criminal
4. Administrative Action
a. Distraint
b. 6evy
c. a/ lien
-* Ahy is it important to 9now whether the *inal
assessment is under normal or abnormal
conditionsL
A* )t is important because o* the requirement
under Q!!!. )* the *inal assessment becomes *inal
and e/ecutory? the government >@)R) can e/ercise
the remedies under Q!$. in any order or
simultaneously >Q!$'). @ut it is not always the
case? because the right o* the government to
collect is limited in case o* abnormal
assessmentKcollection under Q!!!. Bnder the
second option? the right o* the government is
limited to 7udicial action either civil or criminal.
"dministrative remedies such as distraint? levy? or
ta/ lien is not available under such condition.
-* )n distraint? levy or ta/ lien? is the &$ year
period o* collection applicableL
A* =o? only the .year period should apply.
Distraint
Dinds:
&. Constructive >Sec. !$#)
!. Distraint o* )ntangible >Sec. !$()
%. "ctual >Sec. !$'? par. a? and Sec. !$+)
8. Constructive 7istraint
^ he distraining o**icer shall ma9e a list o* the
personal property o* the property to be distraint in
the presence o* the owner o* the property or the
person in possession o* the property.
^ he owner shall be requested to sign the
receipt.
-* Ahat i* the owner re*uses to sign the receiptL
A* Sec. !$#: he distraining o**icer shall
require ! individuals within the neighborhood with
the warning that they should not allow the
ta/payer to dispose? trans*er? or sell the property
sub7ect o* distraint.
;rounds *or Constructive Distraint >Sec. !$#):
&. he ta/payer intends to leave the
5hilippines
!. he ta/payer leaves the 5hilippines
%. he ta/payer ceases or retires *rom
business
4. he ta/payer obstructs the collection o*
the ta/.
^ 1ESE ;ROB=DS "6SO "=SAER 1E
2BES)O=: A1" "RE 1E "J"@6E
5ER)OD 6ESSER 1"= &! :O=1SL
4. 7istraint of !ntangible Propert@
6imited to % )ntangible 5roperties:
&. Shares o* stoc9s
!. @an9 accounts
%. Credits and debits
$<are of stocCs
^ Aarrant o* distraint *urnished to the
ta/payer or the o**icer o* the corporation with
the warning that the property is sub7ect o*
distraint and it should not dispose o* it.
6anC Accounts
ta/payer or the o**icer o* the ban9 with the
warning that the ta/payer should not be
allowed to withdraw.
7ebits and Credits
debtor and creditor
:. Actual 7istraint
^ 5ersonal property shall be physically
ta9en by the distraining o**icer.
^ Aithin &$ days *rom the receipt o* the
warrant? a report o* the distraint shall be
submitted to the @)R >Sec. !$'? par a last
par.)
^ he property sub7ect o* distraint shall be
sold at a public auction EJCE5 ban9
accounts and debits and credits.
S =otice o* sale shall be by posting in !
conspicuous place? stating the date and
the place o* the sale >=o publication
requirement)
^ Sec. !&&: a*ter the sale and within !
days? a report shall be made to the @)R
-* )* the property sold is a personal property? is
there a right o* redemptionL
($
A* =O. he rule is absolute.
-* )* the property is a personal property? is there
a right o* preemptionL
A* SEC. !&$: @e*ore the scheduled sale? the
ta/payer is allowed to recover the property by
paying all the property by paying all the proper
charges as well as the interest? cost and
penalties.
During the Scheduled "uction Sale? ! hings may
happen:
&. here is bidder and the bid is enough
!. here is no bidder or there is a bidder but
the bid is not enough
-* Ahat is the relevance o* 9nowing the
di**erenceL
A* &. !f t<ere is a bidder and t<e bid is enoug<
S )n case o* insu**iciency? there shall be
*urther distraint to cover the liability. >Q!&')
S )n case o* e/cess? the e/cess shall be
returned to the ta/payer.
!. !f t<ere is no bidder or t<e bid is not
enoug<.
S )t will be purchase by the government and
the later sold in a public auction again >Q!&!)
S )n case o* insu**iciency? no *urther
distraint? Q!&' applies only i* there was a
bidder.
S )n case o* e/cess? the e/cess shall not be
returned to the ta/payer but shall be remitted
to the national treasury.
2e.y
^ Other than the delinquent ta/payer?
warrant o* levy is served to the register o*
deeds having 7urisdiction over the real
property >Sec. !&%)
^ Aithin &$ days *rom the receipt o* the
warrant? a report o* the levy shall be submitted
to the @)R >Sec. !$' >b) last par)
=otice o* Sale in 5ublic "uction:
&. 5osting in ! conspicuous places
!. 5ublication in newspaper o* general
circulation once a wee9 *or % consecutive
wee9s.
-* )s there a right o* pre emptionL
A* Ies? Q!&%.
-* )s there a right o* redemptionL
A* Ies.
! hings may happen in a 5ublic "uction:
&. here is a bidder and the bid is enough
!. here is no bidder or the bid is not
enough
-* Ahat i* there is no bidder or the bid is not
enoughL
A* <or*eiture shall be made >Q!&.)
% De*initions o* <or*eiture under the )nternal
Revenue Code
&. 0iolation o* E/cise a/ 6aw >Sec. !!4)
!. )* there is no bidder or the bid is not
enough >Sec. !&.)
%. he order o* the Collector to con*iscate
imported commodities >Sec. !%&%? CC)
Relevance o* the Choice o* Aords:
^ Bnder sec. !&!? the law says NpurchaseO
^ Bnder sec. !&.? the law says N*or*eitureO
S under !&.: the real property shall be
automatically registered in the name o*
the ;overnment >*or*eiture)
S under !&!: the real property is not
automatically registered in the name o*
the ;overnment >purchase)
-* )* sold at a private sale? what is the
requirementL
A* here must be an approval o* the Secretary o*
<inance >Q!&#)
-* "*ter sale? i* there was de*iciencyL
A* here shall be no *urther levy? because Q!&.
says that it shall be to the total satis*action o* the
ta/payer.
-* "*ter sale? i* there was an e/cessL
A* )t shall not be returned to the ta/payer but
shall be remitted to the national treasury.
,ec. 48<* this is only true i* there was no bidder
or the bid was not enough because o* the
provisions o* the Secs. !&!? !&.? and !&#
,ec. 48>* no court shall issue an in7unction to
restrain the collection o* ta/ under this code
Determine what 9ind o* in7unction is re*erred to
here:
&. 5rohibitory , re*erred in Sec. !&(
because it restrains the collection o* ta/.
!. :andatory
-* )s the provision limited to Nta/ under this
codeOL
A* 6imited to internal revenue ta/es. EJCE5:
C" >Regular Court) R" &&!. and +!(!: C"
is authori3ed to issue in7unction to restrain the
(&
collection o* ta/es or *ees collected under other
code.
-* )s the rule o* distraint or levy the same under
local ta/ationL
A* Ies? local ta/.
S Q&'. *or D)SR")=
S Q&'# *or 6E0I
-* 1ow about real property ta/L
A* =o? distraint is not authori3ed >Q!.#? 6;C)?
because the remedy is only :udicial Action and
Lev@.
Tax 2ien
^ =on payment o* ta/? the government has the
right to claim a lien over the property o* the
ta/payer
&. =)RC , Sec. !&+? =)RC
!. 6ocal a/ , Sec. &'%? =)RC
%. Real 5roperty a/ , Sec. !.'? =)RC
-* Supposed a parcel o* land is about to be
levied by the government? but the same is being
*oreclosed by the mortgagee? which o* the !
obligee? the government or the mortgagee shall
be pre*erredL
A* Q!&+? last portion: he government is
the pre*erred one i* the lien is annotated and
recorded in the registry o* deed. )n the absence
o* annotation in the registry o* deeds? the
mortgagee is pre*erred.
-* Do we have the same rule under 6ocal a/
and Real 5roperty a/L
A* =O. @oth Q&'% and Q!.'? the government is
always the pre*erred one. he lien can only be
removed by payment o* ta/? interest and penalty.
,ec. 44C* approving o* *iling an ordinary civil
action *or violation o* the internal revenue code
^ he approval must be made by the
Commissioner o* )nternal Revenue
'03#N .1 REP-&20C !:6@ SCR% ;87"
F* "n ordinary civil action *or violation o* the ta/
code was *iled in the city o* San <ernando.
@ut the *iling was only approved by the
Revenue Regional Director o* Central 6u3on.
he plainti** opposed the *iling in the court on
the ground that it should be approved by the
Commissioner and the Revenue RD.
9* Sec. !!$ should be read with Sec. ' o* the
=)RC
S ;eneral Rule: powers and *unctions
o* the Commissioner may be delegated
but not to a position lower than a Division
Chie*
S Bnder Sec. '? there are powers which
can not be delegated
a) 5ower to recommend to the
Secretary o* <inance to issue
rules and regulation
b) 5ower to decide a case o* *ist
impression
c) 5ower to enter into a compromise
agreement
d) 5ower to assign @)R o**icer in the
place o* production sub7ect to
income ta/
S Since the case does not *all under the
prohibited delegation? the *iling o* the
case is legal and tenable.
^ Decision o* the Commissioner o* )nternal
Revenue >C)R) is appealable to C".
-* Ahen is a decision o* the cir appealable to the
Secretary o* <inanceL
A* Q4? on matters o* interpretation o* ta/ laws.
,EC. 44:* ,%,PEN,ION OF T9E R%NNING OF
PRE,CRIPTIVE PERIO#
-* " <ilipino ta/payer went to Canada? a*ter
&.years he went bac9? he is being assessed by
the @)R under normal assessment. 1as the right
o* the government to asses the ta/ already
prescribedL
A* =O. Ahen he went to Canada? the running o*
the prescribed period is suspended.
-* Ahat i* the change o* address is within the
5hilippines? say only *rom manila to 5asay City? is
the running o* the prescriptive period suspendedL
A* )n order that the running o* the prescriptive
period will not be suspended? especially i* the
change is district o**ice? Q!!% provides that the
ta/payer must send a written notice o* change o*
address to the @)R.
)n the absence o* the written notice? the period
will be suspended.
-* Change o* address is *rom 5hilippines to
abroadL
A* he period will be suspended.
Other ;rounds *or Suspension:
&. During collection i* there is no property
*ound? the period is suspended
(!
!. )* the @)R is prohibited *rom ma9ing
assessment such when the sub7ect
property is under litigation
%. )n distraint o* levy? the @)R o**icer canHt
locate the property
CLAI. FOR REF%N# 2,EC 44B3
Aritten claim *or re*und:
&. Sec. !!+? =)RC
!. Sec. &&!? 0"
%. Sec. &%#? 6ocal a/
4. Sec. !.%? Real 5roperty a/
.. =one e/cept sec. &#$%? ari** and
Custom
Written clai for refun$ un$er t&e input ta!
2,ec. 8843
L 5eriod is also ! years *rom the close o* the
ta/able quarter when the transaction was made
-* Can we apply Q!!+ to 0"L
A* Ies? because there is no con*lict. Q&&! is
re*und under input ta/ system.
Q!!+ is re*und *or:
&. errors in payment orF
!. collected without authorityF or
%. assessment without authority.
L he period to claim re*und is !years.
#octrine of EAuita;le Recoupent
^ )* a ta/payer is entitled to a written claim *or
re*und but the prescriptive period to claim has
lapsed? the ta/payer is allowed to credit his written
claim *or re*und which he *ailed to recover to his
e/isting ta/ liability.
Computed *romF
a. )ndividual , counted on the day the ta/
has been paid
&. paying by way o* withholding ta/
system? the rec9oning point is the end
o* the ta/able year.
!. paying by way o* installment?
rec9oning point is the date the last
installment is paid.
%. i* sold to public auction through
distraint or levy? the date the
proceeds is applied to the satis*action
o* the ta/ liability.
b. Corporation
&. E/isting
- &++!? ]]] v. Commissioner >!$.
SCR" &(4)
- &++.? Commissioner v. 5hilam li*e
>!44 SCR" 44#)
- &++(? Commissioner v. C" >%$&
SCR" 4%.)
!. =on-e/isting
- !$$&? @5) v. Commissioner >%#%
SCR" (4$)
&. E/isting , the counting o* the prescriptive
period is ! years on the day the annual
ad7usted return is *iled? because it is at
that day that the ta/ liability is 9nown.
!. =on-e/isting , the counting o* the
prescriptive period should also be
rec9oned on the day the annual return is
*iled. @ut the corporation is no longer
required to wait till the ta/able period is
over to *ile the return. Bpon receipt o* a
notice *rom the SEC to dissolve the
corporation? within %$ days therea*ter? a
return should be *iled.
-* Suppose there is a supervening event? and
the ta/payer was not able to *ile a written claim o*
re*und within the periodL
A* Regardless o* supervening event? a written
claim *or re*und must be *iled within !years.
-* Suppose the ! year period is about to e/pire
and there is no decision yet as to your re*undL
A* Remedy is to *ile an appeal be*ore the C"
>deemed a denial)
-* Suppose the @)R decided within ! years
against the re*undL
A* "ppeal within %$days *rom the decision?
provided it is still within the ! year period.
-* Suppose there is only !&days remaining a*ter
receiving the decision? when to *ile an appealL
A* Aithin !&days be*ore the end o* the ! year
period.
^ " written claim *or re*und should be *iled
within ! years
^ Sec !$4 >c) last phrase: in case o* over
payment a written claim is not necessary because
a return constitutes a written claim *or re*und.
-* :ay the commissioner o* internal revenue
open the ban9 account o* a ta/payerL
A* ;eneral Rule: =O. EJCE5:
&. o determine the gross value o* the
estateF and
!. o enter into a compromise agreement.
>under Q!$4>"))
(%
^ he written claim *or re*und to determine the
gross value o* the estate because the ta/payer is
already dead
)n case o* compromise? there must be consent.
(4

Tax 1 and 2 Reviewer (ATTY SABABAN)

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Tax 1 and 2 Reviewer (ATTY SABABAN)

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Taxation law review notes

- Atty. Francis J. Sababan -

-* Reasonable ravel E/penses? Ahat is the

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