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Law 124 Common Outline 1st Sem 15-16 (AAM Approved)
Law 124 Common Outline 1st Sem 15-16 (AAM Approved)
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LAW 124
TAXATION
1st Semester SY 2015- 2016
3 units
Day
TTH
T
F
T
Time
3:00-4:30 pm
6:00-9:00 pm
6:00-9:00 pm
6:00-9:00 pm
Room
CTC 408
SOM 106
SOM 210
CTC 206
Lecturer
Leny O. Matorre
Danny L. Chan
Eduardo Victor J. Valdez
Eduardo Victor J. Valdez
Email Address
legaltaxconsulting@gmail.com
dchan@ateneo.edu
evaldez@ateneo.edu
evaldez@ateneo.edu
I. COURSE DESCRIPTION
An introduction to the basic principles of taxation, specifically the common provisions on
income tax, value added tax, excise tax, estate tax, documentary tax, capital gains tax, and
donors tax; rudimentary strategies in tax sheltering and minimization of tax assessments; and
rudimentary tax calculations.
II. LEARNING OUTCOMES
By the end of the course the students will have an overview of Philippine tax law that will
enable them to:
1. Appraise transactions with tax implications from the legal perspective.
2. Formulate the appropriate legal approach to tax issues involving questions of law.
3. Evaluate tax situations using the appropriate legal standards and criteria.
III. COURSE OUTLINE
GENERAL PRINCIPLES OF TAXATION
I. Meaning, Nature, Basis, Characteristics and Purpose of Taxation
A. Survey of Philippine Taxes/ Overview of Philippine Tax System
1. Internal Revenue taxes
National Internal Revenue Code (NIRC), as amended
2. Local/municipal taxes
Local Government Code BK II
3. Tariff/duties
Tariff and Customs Code, as amended
4. Taxes/incentives under special laws
B. Meaning of Tax/Taxation
1. Taxation/act of levying tax/inherent power of the state
2. Tax distinguished from other terms
a. license and regulatory fee
b. special assessment
c. toll
d. penalty
e. tariff/customs duties
3. Obligation to pay tax vs. obligation to pay debt
Art. 1279, New Civil Code
C. Essential Characteristics of Tax
D. Theory and Basis of Taxation
1. Necessity Theory
2. Benefit-received principle
E. Purpose/Objectives of Taxation
1. General/fiscal/revenue
2. Non-revenue/special or regulatory
F. Classification of Taxes
1. As to scope
a. National internal revenue taxes
b. Local real property tax, municipal taxes
2. As to who shoulders the burden of the tax
a. Direct taxes
b. Indirect taxes
3. As to object or subject matter of tax
a. Property
b. Personal
c. Poll/capitation
d. Excise
4. As to manner of computing the tax
a. Ad valorem
b. Specific
5. As to graduation or rate
a. Proportional/flat rate
b. Progressive
c. Regressive
G. Aspects of Taxation
1. Levy/imposition by legislative body
2. Collection/administration
3. Payment
a. Pay as you earn
b. Pay as you are assessed
c. Pay as you file
d. Pay as you transact
H. Tax Systems
1. Classification
a. Progressive/regressive system of taxation
b. Progressive system v. progressive rate of tax
2. Basic principles of a sound tax system (meaning of neutral tax)
II. Nature and Limitations of the Power of Taxation
A. Nature of the Power of Taxation
1. Inherent in sovereignty/ distinguished from police power and eminent
domain
2. Exclusively legislative in nature
3. Subject to inherent and constitutional limitations
4. Who may question the validity of a tax measure or expenditure of taxes
(taxpayers suit)
B. Inherent Limitations
1. Purpose must be public in nature
2. Prohibition against delegation of taxing power/exceptions
a. Delegation to local governments
Sec. 5, Art. X, Philippine Constitution
b. Delegation to the President
Sec. 28 (2), Art VI, Philippine Constitution
c. Delegation to administrative agencies
3. Exemption of government entities, agencies, and instrumentality
Sec. 27(C), NIRC
4. International comity
Sec. 2, Art. II, Philippine Constitution
5. Limitation of territorial jurisdiction
C. Constitutional Limitations
1. Due process of law
Sec. 1, Art. III, Philippine Constitution
2. Equal protection of the laws
Sec. 1, Art. III, Philippine Constitution
3. Uniformity and equity in taxation
Sec. 28(1), Art. VI, Philippine Constitution
4. Prohibition against imprisonment for nonpayment of poll tax
Sec. 20, Art. III, Philippine Constitution
5. Prohibition against impairment of obligation of contracts
Sec. 10, Art. III, Philippine Constitution
Sec. 11, Art. XIII, Philippine Constitution
6. Prohibition against infringement of religious freedom
Sec. 5, Art. III, Philippine Constitution
American Bible Society v. City of Manila (101 Phil. 386)
7. Prohibition re: appropriation of proceeds of taxation
Sec. 29, Art. VI, Philippine Constitution
8. Prohibition against taxation of religious, charitable entities and educational
entities
Sec. 28(3), Art. VI, Philippine Constitution
9. Prohibition against taxation of non-stock, non-profit educational institutions
Sec. 4 (3) and (4), Art. XIV, Philippine Constitution
Sec. 28(3), Art. VI, Philippine Constitution
Secs. 27(B) and 30(H) of NIRC
C.
D. Withholding Taxes
E.
F.
Other Taxes
1. Percentage Taxes
2. Documentary Stamp Taxes
3. Excise Taxes
Tax Evasion
Sec. 254, NIRC
C.
Tax Avoidance
Judicial Remedies
INCOME TAXATION
I. What is Income Tax?
A. Nature of Income Tax/Object/Subject of the Tax
B.
Sources of Income
1. Capital/labor/exchange of capital
2. Income derived from whatever source
C.
Taxable Income
1. Requisites for taxability
2. Recognition of income for tax purposes
a. When is income realized?
b. Tests to determine realization of income
i. Severance test
ii. Substantial alteration of interest test
iii. Flow of wealth test
3. Kinds/classification of taxable income or gain
a. Capital gain
b. Ordinary gain
i. Business income
ii. Income from trade/practice of profession
C.
Passive Income
1. Interest income
a. Taxable interest income
b. Exclusions
2. Rentals/leases
3. Royalties
a. What are royalties?
b. How are royalties earned?
4. Dividends
a. What is dividend income?
b. Kinds of dividend income
i. Cash dividend
ii. Stock dividend
iii. Property dividends
iv. Liquidating dividends
v. Disguised dividend
c. Exclusions
i. income exempt under tax treaty
ii. passive income of foreign government
5. Annuities and proceeds of life insurance/other types of insurance
a. Taxable income
b. Exclusions
i. Proceeds from life insurance
ii. Return of premium paid
iii. Compensation for injuries or sickness
6. Prizes and Winnings/Awards/Rewards
a. Taxable items
b. Exclusions/exemptions
i. Philippine Charity Sweepstakes and lotto winnings
ii. Prizes and awards in sports competition
iii. Prizes and awards: religious, charitable, scientific, artistic, literary
7. Gifts/Bequests/Devises
8. Other types of passive income
a. Found treasure regular rate
b. Refund of tax/recovery of bad debt previously deducted regular tax rate
c. Damages
D. Gains Derived from Dealings in Property
1. Types of gain/kinds of property
a. Capital gain v. ordinary gain
b. Net capital gain v. net capital loss
E.
Gross Income Derived from the Conduct of Trade or Business or the Exercise of
Profession
1. Computation of taxable income
2. Exclusions
a. Income exempt under a treaty
b. Income derived by the government/political subdivision from exercise of
essential governmental function
F.
3. Kinds of deductions
a. Itemized individual/corporations
b. Optional standard individuals only
c. Special deductions
4. Substantiation requirements
Sec. 34(1)(b), NIRC
B.
C.
Estate Tax
B.
Donors Tax
20 percent
20 percent
20 percent
20 percent
20 percent
GRADE EQUIVALENTS
Final Mark
A
B+
B
C+
C
D
F
W
Numerical Equivalent
92-100
87-91
83-86
79-82
76-78
70-75
Below 70
Overcut