Syllabus

TAXATION 1
New Era College of Law
Professor Loverhette Jeffrey P. Villordon
II. Income taxation
A. Income tax systems
1. Global tax system
2. Schedular tax system
3. Semi-schedular or semi-global tax system
B. Features of the Philippine income tax law
1. Direct tax
2. Progressive
3. Comprehensive
4. Semi-schedular or semi-global tax system
C. Criteria in imposing Philippine income tax
1. Citizenship principle
2. Residence principle
3. Source principle
D. Taxable period
1. Calendar period
2. Fiscal period
3. Short period
E. Kinds of taxpayers
1. Individual taxpayers
a. Citizens
i. Resident citizens
ii. Non-resident citizens
b. Aliens
i. Resident aliens
ii. Non-resident aliens
a) Engaged in trade or business
b) Not engaged in trade or business
c. Special class of individual employees (i.e. Minimum wage earner)
2. Corporations
a. Domestic corporations
b. Foreign corporations
i. Resident foreign corporations
ii. Non-resident foreign corporations
c. Joint venture and consortium
3. Partnerships
4. General professional partnerships
5. Estates and trusts
6. Co-ownerships
F. Income taxation
1. Definition
2. Nature
3. General principles
G. Income
1. Definition
2. Nature
3. When income is taxable
a. Existence of income
b. Realization of income
i. Tests of realization
ii. Actual vis--vis constructive receipt
c. Recognition of income
4. Tests in determining whether income is earned for tax purposes
a. Realization test
b. Claim of right doctrine or doctrine of ownership, command, or control
c. Economic benefit test, doctrine of proprietary interest
d. Severance test
e. All events test

H. Gross income
1. Definition
2. Concept of income from whatever source derived
3. Gross income vis--vis net income vis--vis taxable income
4. Classification of income as to source
a. Gross income and taxable income from sources within the Philippines
b. Gross income and taxable income from sources without the Philippines
c. Income partly within or partly without the Philippines
5. Sources of income subject to tax
a. Compensation income
b. Fringe benefits
i. Special treatment of fringe benefits
ii. Definition
iii. Taxable and non-taxable fringe benefits
c. Professional income
d. Income from business
e. Income from dealings in property
i. Types of properties
a) Ordinary assets
b) Capital assets
ii. Types of gains from dealings in property
a) Ordinary income vis--vis capital gain
b) Actual gain vis--vis presumed gain
c) Long term capital gain vis--vis short-term capital gain
d) Net capital gain, net capital loss
e) Income tax treatment of capital loss
i) Capital loss limitation rule (applicable to both corporations and
individuals)
ii) Net loss carry-over rule (applicable only to individuals)
f) Dealings in real property situated in the Philippines
g) Dealings in shares of stock of Philippine corporations
i) Shares listed and traded in the stock exchange
ii) Shares not listed and traded in the stock exchange
h) Sale of principal residence
f. Passive investment income
i. Interest income
ii. Dividend income
a) Cash dividend
b) Stock dividend
c) Property dividend
d) Liquidating dividend
iii. Royalty income
iv. Rental income
a) Lease of personal property
b) Lease of real property
g. Annuities, proceeds from life insurance or other types of insurance
h. Prizes and awards
i. Pensions, retirement benefit, or separation pay
j. Income from any source whatever
i. Forgiveness of indebtedness
ii. Recovery of accounts previously written-off when taxable/when not taxable
iii. Receipt of tax refunds or credit
iv. Source rules in determining income from within and without
a) Interests
b) Dividends
c) Services
d) Rentals
e) Royalties
f) Sale of real property
g) Sale of personal property
h) Shares of stock of domestic corporation
6. Situs of income taxation
7. Exclusions from gross income
a. Rationale for the exclusions
b. Taxpayers who may avail of the exclusions
c. Exclusions distinguished from deductions and tax credit

d. Under the Constitution, i.e. Income derived by the government or its political subdivisions
from the exercise of any essential governmental function
e. Under the Tax Code
i. Proceeds of life insurance policies
ii. Return of premium paid
iii. Amounts received under life insurance, endowment or annuity contracts
iv. Value of property acquired by gift, bequest, devise or descent
v. Amount received through accident or health insurance
vi. Income exempt under tax treaty
vii. Retirement benefits, pensions, gratuities, etc.
viii. Winnings, prizes, and awards, including those in sports competition
f. Under special laws (i.e. Personal Equity and Retirement Account)
8. Deductions from gross income
a. General rules
i. Deductions must be paid or incurred in connection with the taxpayers trade,
business or profession
ii. Deductions must be supported by adequate receipts or invoices (except standard
deduction)
iii. Additional requirement relating to withholding
b. Return of capital (cost of sales or services)
i. Sale of inventory of goods by manufacturers and dealers of properties
ii. Sale of stock in trade by a real estate dealer and dealer in securities
iii. Sale of services
c. Itemized deductions
i. Expenses
a) Requisites for deductibility
i) Nature: ordinary and necessary
ii) Paid and incurred during taxable year
b) Salaries, wages and other forms of compensation for personal services
actually rendered, including the grossed-up monetary value of the fringe
benefit subjected to fringe benefit tax which tax should have been paid
c) Travelling/transportation expenses
d) Cost of materials
e) Rentals and/or other payments for use or possession of property
f) Repairs and maintenance
g) Expenses under lease agreements
h) Expenses for professionals
i) Entertainment/Representation expenses
j) Political campaign expenses
k) Training expenses
ii. Interest
a) Requisites for deductibility
b) Non-deductible interest expense
c) Interest subject to special rules
i) Interest paid in advance
ii) Interest periodically amortized
iii) Interest expense incurred to acquire property for use in
trade/business/profession
iv) Reduction of interest expense/interest arbitrage
iii. Taxes
a) Requisites for deductibility
b) Non-deductible taxes
c) Treatments of surcharges/interests/fines for delinquency
d) Treatment of special assessment
e) Tax credit vis--vis deduction
iv. Losses
a) Requisites for deductibility
b) Other types of losses
i) Capital losses
ii) Securities becoming worthless
iii) Losses on wash sales of stocks or securities
iv) Wagering losses
v) Net Operating Loss Carry-Over (NOLCO)
v. Bad debts
a) Requisites for deductibility
b) Effect of recovery of bad debts

vi. Depreciation
a) Requisites for deductibility
b) Methods of computing depreciation allowance
i) Straight-line method
ii) Declining-balance method
iii) Sum-of-the-years-digit method
vii. Charitable and other contributions
a) Requisites for deductibility
b) Amount that may be deducted
viii. Contributions to pension trusts
d. Optional standard deduction
i. Individuals, except non-resident aliens
ii. Corporations, except non-resident foreign corporations
iii. Partnerships
e. Personal and additional exemption (R.A. No. 9504, Minimum Wage Earner Law)
i. Basic personal exemptions
ii. Additional exemptions for taxpayer with dependents
iii. Status-at-the-end-of-the-year rule
iv. Exemptions claimed by non-resident aliens
f. Items not deductible
i. General rules
ii. Personal, living or family expenses
iii. Amount paid for new buildings or for permanent improvements (capital
expenditures)
iv. Amount expended in restoring property (major repairs)
v. Premiums paid on life insurance policy covering life or any other officer or
employee financially interested
vi. Interest expense, bad debts, and losses from sales of property between related
parties
vii. Losses from sales or exchange or property
viii. Non-deductible interest
ix. Nondeductible taxes
x. Non-deductible losses
xi. Losses from wash sales of stock or securities
g. Exempt corporations
i. Propriety educational institutions and hospitals
ii. Government-owned or controlled corporations
iii. Others
I. Taxation of resident citizens, non-resident citizens, and resident aliens
1. General rule that resident citizens are taxable on income from all sources within and without the
Philippines vs. Treatment of Non-resident citizens
2. Taxation on compensation income
a. Inclusions
i. Monetary compensation
a) Regular salary/wage
b) Separation pay/retirement benefit not otherwise exempt
c) Bonuses, 13th month pay, and other benefits not exempt
d) Directors fees
ii. Non-monetary compensation (Fringe benefit not subject to tax)
b. Exclusions
i. Fringe benefit subject to tax
ii. De minimis benefits
iii. 13th month pay and other benefits, and payments specifically excluded from
taxable compensation income
c. Deductions
i. Personal exemptions and additional exemptions
ii. Health and hospitalization insurance
iii. Taxation of compensation income of a minimum wage earner
a) Definition of statutory minimum wage
b) Definition of minimum wage earner
c) Income also subject to tax exemption: holiday pay, overtime pay, night-shift
differential, and hazard pay
3. Taxation of business income/income from practice of profession
4. Taxation of passive income
a. Passive income subject to final tax
i. Interest income

ii. Royalties
iii. Dividends from domestic corporations
iv. Prizes and other winnings
b. Passive income not subject to final tax
5. Taxation of capital gains
a. Income from sale of shares of stock of a Philippine corporation
i. Shares traded and listed in the stock exchange
ii. Shares not listed and traded in the stock exchange
b. Income from the sale of real property situated in the Philippines
c. Income from the sale, exchange, or other disposition of other capital assets
J. Taxation of non-resident aliens engaged in trade or business
1. General rules
2. Cash and/or property dividends
3. Capital gains
K. Individual taxpayers exempt from income tax
1. Senior citizens
2. Minimum wage earners
3. Exemptions granted under international agreements
L. Taxation of domestic corporations
1. Tax payable
a. Regular tax
b. Minimum Corporate Income Tax (MCIT)
i. Imposition of MCIT
ii. Carry forward of excess minimum tax
iii. Relief from the MCIT under certain conditions
iv. Corporations exempt from the MCIT
v. Applicability of the MCIT where a corporation is governed both under the regular
tax system and a special income tax system
2. Allowable deductions
a. Itemized deductions
b. Optional standard deduction
3. Taxation of passive income
a. Passive income subject to tax
i. Interest from deposits and yield, or any other monetary benefit from deposit
substitutes and from trust funds and similar arrangements and royalties
ii. Capital gains from the sale of shares of stock not traded in the stock exchange
iii. Income derived under the expanded foreign currency deposit system
iv. Inter-corporate dividends
v. Capital gains realized from the sale, exchange, or disposition of lands and/or
buildings
b. Passive income not subject to tax
4. Taxation of capital gains
a. Income from sale of shares of stock
b. Income from the sale of real property situated in the Philippines
c. Income from the sale, exchange, or other disposition of other capital assets
5. Tax on proprietary educational institutions and hospitals
6. Tax on government-owned or controlled corporations, agencies or instrumentalities
M. Taxation of resident foreign corporations
1. General rule
2. With respect to their income from sources within the Philippines
3. Minimum Corporate Income Tax
4. Tax on certain income
a. Interest from deposits and yield, or any other monetary benefit from deposit substitutes,
trust funds and similar arrangements and royalties
b. Income derived under the expanded foreign currency deposit system
c. Capital gains from sale of shares of stock not traded in the stock exchange
d. Inter-corporate dividends
N. Taxation of non-resident foreign corporations
1. General rule
2. Tax on certain income
a. Interest on foreign loans
b. Inter-corporate dividends
c. Capital gains from sale of shares of stock not traded in the stock exchange
O. Improperly accumulated earnings of corporations
P. Exemption from tax on corporations
Q. Taxation of partnerships

R. Taxation of general professional partnerships

S. Withholding tax
1. Concept
2. Kinds
a. Withholding of final tax on certain incomes
b. Withholding of creditable tax at source
III. Estate tax
1. Basic principles
2. Definition
3. Nature
4. Purpose or object
5. Time and transfer of properties
6. Classification of decedent
7. Gross estate vis--vis net estate
8. Determination of gross estate and net estate
9. Composition of gross estate
10. Items to be included in gross estate
11. Deductions from estate
12. Exclusions from estate
13. Tax credit for estate taxes paid in a foreign country
14. Exemption of certain acquisitions and transmissions
15. Filing of notice of death
16. Estate tax return
IV. Donors tax
1. Basic principles
2. Definition
3. Nature
4. Purpose or object
5. Requisites of valid donation
6. Transfers which may be constituted as donation
a) Sale/exchange/transfer of property for insufficient consideration
b) Condonation/remission of debt
7. Transfer for less than adequate and full consideration
8. Classification of donor
9. Determination of gross gift
10. Composition of gross gift
11. Valuation of gifts made in property
12. Tax credit for donors taxes paid in a foreign country
13. Exemptions of gifts from donors tax
14. Person liable
15. Tax basis