Tax Review Meeting 1

02-16-19

DOCUMENTARY STAMP TAX

- tax on privilege to enter a transaction; not on the document

4 most important types of DST:

1.) Original issuance of shares of stocks P2.00 for every 200 par
- during incorporation (not IPO)
- DST is paid 5 days following the month when the transaction happened
ex. Feb 1 -> Mar 5
if notarized on Feb 28 -> Mar 5
an attorney's strategy would be to notarize it on Mar 1 -> Apr 5
- basis for computation: minimum subscribed shares
ex. 5,000,000 total authorized capital stock
1,250,000 min subscribed 25%
312,500 min paid-up 25%

2.) Subsequent transactions P1.50 for every 200 par

- i.e. sales of stock

3.) Debt Instruments P1.50 for every 200 of the issue price
- i.e. loan agreement

4.) DST collected on real property 1.50% of higher of SP and FMV

- also applies to donation of real property
use SP indicated in deed of absolute sale
FMV - higher between Zonal Value which can be found in the BIR website and Assessed
Value in the Tax Declaration

When 1 party is exempt from payment of tax, the pther party is liable.
RA 9243 - new DST law

List of Exempt Transactions from DST (check RA 9243 for complete list)
* Sale, Barter, Trade of Sale of Stock listed on the stock market
* Bank deposits without fixed term or maturity
* tax-free exchange ( Sec 40.C.2)

SALE OF SHARES OF STOCK

Listed 6/10 of 1% of FMV or SP whichever is higher

- 10% minimum public ownership
-final tax; automatic in PSE
- also subject to DST of 1.50 for every 200 par

Unlisted 15% of Gross Income

- also subject to DST of 1.50 for every 200 par
SP SP or FMV whichever is higher
less: Cost FMV in this case is the BV
Income BV = Total SHE over # of outstanding shares
X 15% Cost - usually the par value; how much you bought the stock
Tax
Procedure:
 (1) Have the deed of absolute sale notarized
(2) File 2 returns: Income Tax and DST
(3) Secure an eCAR (Certificate Authorizing Registration) from the BIR
(4) Present the eCAR to the Corporate Secretary to record the transfer in the books of the corp

SALE OF REAL PROPERTY

- must be classified as capital assets
-subject to 1.5% DST
Rate 6% of FMV or SP whichever is higher
If real property is used in the business, it is subject to business income
-graduated tax rate
-VAT/OPT
Procedure:
(1) Have the deed of absolute sale notarized
(2) File 2 returns: Income Tax and DST
(3) Secure an eCAR (Certificate Authorizing Registration) from the BIR
(4) Present the eCAR to the Registry of Deeds to record transfer of property

DONATION OF REAL PROPERTY

-now same rate as sale of real property
-subject to 1.5% DST also
Rate 6% of FMV or SP whichever is higher

DONATION OF SHARES
- listed shares are usually not donated because you will be paying a higher tax(at 6%) if you donate it than
when you sell it where you will only pay 6/10 of 1% of SP
Unlisted 6% of FMV or ABV
-also subject to DST of 1.5 for every 200 par - subsequent transfer of shares
Adjusted BV
Per accounting - recorded at acquisition cost
Per tax - must be recorded at appraised value

TIPS FOR VAT

Just know what's
- vatable
- vat-exempt
- zero-rated
- effectively zero-rated

PRINCIPLES OF TAXATION
Taxation: act of levying tax
Primary purpose: revenue for the gov't
Secondary purpose: regulation/ control

!!! Memorize the ff !!!

- What is tax
- Primary purpose
-...
-... contri.
- general levying
-... public needs
- 7 properties
- Theory - existence of gov't
- Basis - reciprocal duty of gov't and citizenry
Characteristics
1.) Inherent
2.) Legislative
3.) Constitutional and inherent limitations

3 Basic Principles
- Fiscal adequacy
- Theoretical justice burden = ability to pay
- Administrative feasibility
convenient, effective, and just

Tax evasion
- use of illegal/ fraudulent means to lessen or avoid payment
Tax avoidance
- legally-permitted means

SITUS OF TAXATION
- for property tax: location of property
- for business income: place of business
- for donor's tax: residence of donor
- for estate tax: residence of the deceased at time of death

!!! Assignment for next meeting: study/memorize Sec 23 (principles)

Examples of exempt:
1. Seaman
- if employed in vessel engaged exclusively in int'l trade = exempt
2. Alien employed by corp registered in PH; but only does work abroad
- can only be taxed for transactions within PH;
place of business is what matters, not where corp
was incorporated; therefore all his income is
exempt

TYPES OF TAXPAYERS
Individuals
Corporations
Estates
Trusts

CORPORATIONS
- does not just include registered corporations
- also JVs of 5 or more people
(Sec 22 A&B)
- does not include general professional partnerships and a
joint venture or consortium formed for the purpose of
undertaking construction projects or engaging in
petroleum, coal, geothermal and other energy operations

GR: Partnerships are taxed as corporations

Exception: GPPs.
not taxable; only distributive shares of every partner in the partnerhip
(individual shares subject to graduated rates; business income)
Expenses
1.) Itemized deduction
2.) Other standard deductions 40% (no need for receipts; better)
- may only be claimed once
(either partnership/partner)

NR Citizen (Sec 22.E)

180-day rule (Sec 25.A)
- affects the residency of an alien (more than 180d)
- no need for stay to be continuous; = NRAETB
- conclusive presumption
*For NRANETB's FWT, an assigned witholding agent is responsible (purpose: convenience).
This witholding agent/ local payor will apply for a one-time TIN in RDO 39.
He is the one primarily responsible for unpaid balances/ delays in payment.

PASSIVE INCOME

Dividend Income from Domestic Corporation 10%

Interest Income on Peso Deposit 20%
Interest Income on Dollar Deposit 15%
Interest Income on Long-Term Deposit EXEMPT If pre-terminated, outright 20%
Royalty on Books 10%
All other Royalties 20%
Prizes exceeding Php 10,000 20% For less than, Php 10,000 subject to graduated tax rate
All winnings 20% now includes lotto and sweepstakes tickets

For Non-resident Citizens

Interest Income on Dollar Deposit EXEMPT

For Non-resident Aliens Not Engaged in Trade or Business subject to 25% final tax on all income in PH
Interest Income on Dollar Deposit EXEMPT

For Non-resident Aliens Engaged in Trade or Business

Dividend Income from Domestic Corporation 20%

Topics for next meeting:

Income Tax, VAT, Estate Tax, Donor's Tax (+ maybe Excise Tax)
* To follow: process flow and IT rate

Other reminders:
> Bring your hard copy of the tax code (NIRC+TRAIN)
> NO laptops allowed in class.
> Review/ memorize lessons discussed during the 1st meeting