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Doctrines on Taxation for the

2018 Bar Examinations

I. General Principles

Taxpayer's Suit
1.a. A taxpayer is allowed to sue where there is a claim that public funds are illegally
disbursed, or that the public noney is being dellected to any improper purpose, or that
there is wastage of public funds through the enforcement of an invalid or unconstitutional
law. A person suing as a taxpayer, however, must show that the act complained of
directly involves the illegal disbursement of public funds derived from taxation. He must also
prove that he has sufficient interest in preventing the illegal expenditure of money
raised by taxation and that he will sustain a direct injury because of the enforcement
of the questioned statute or contract.
1.b. For a taxpayer's suit to prosper, two requisites must be inet: (1) public funds
derived from taxation are disbursed by a political subdivision or instrumentality and in doing
so, a law is violated or some irregularity is committed; and, (2) the petitioner is directly
affected by the alleged act. As to the second requisite, the Supreme Court, in recent
cases, has relaxed the stringent "direct injury test" bearing in mind that locus standi is a
procedural technicality, By invoking "transcendental importance", "paramount public
interest", or "far-reaching implications", ordinary citizens and taxpayers were allowed to sue
even if they failed to show direct injury. In cases where serious legal issues were raised
or where public expenditures of millions of pesos were involved, the Supreme
Court did not hesitate to give standing to taxpayers.
1.c. A taxpayer need not be a party to the contract to challenge its validity. As
long as taxes are involved, people have a right to question contracts
entered into by the government. (). del Castillo, Mambo vs. Lara, GR No.
165109 dated December 14, 2009)

Tux vs. Fee

2. An ordinance which imposes a fee to regulate certain construction activities of

identified special projects, including "cell sites" or telecommunications towers is
regulatory in nature, and not primarily revenue-raising. Thus, the fee imposed in
the sald ordinance is not a tax. If the generating of revenue is the primary
purpose of the ordinance and regulation is merely incidental, the imposition is a
tax; but if regulation is the primary purpose, the fact that incidentally revenue is
also obtained does not make the imposition a tax. (Smart vs. Municipality of
Malvar, Batangas, GR No. 204429 dated February 18, 2014)

Tax Treaties
3. The BIR cannot deprive a taxpayer the benefits of a lower tax rate under
a tax treaty for failure to strictly comply with a treaty relief application under
Revenue Memorandum Order ("RMO") No. 1.2000. The obligation to comply with a
tax treaty must lake precedence over the objective of RMO No. 1-2000.
The BIR must not impose additional requirements that would negate the
availment of the reliefs provided for under international agreements. More so,
when the tax treaty does not provide for any pre-requisite for the availment of the
benefits under said agreement. (Deutsche Bank AG Manila Branch vs. CIR, GR No.
188550 dated August 19, 2013)

Non-retroactivity of Rulings Rule under Seca 246 of the NIRC

4.a. Any revocation, modification or reversal of a ruling or circular issued by
the Commissioner of Internal Revenue ("CIR") shall not be given retroactive
application if the revocation, modification or reversal will be prejudicial to a
taxpayer, except: (a) where the taxpayer deliberately misstates or omits material
facts from his return or any document required of him by the Bureau of
Internal Revenue; (b) where the facts subsequently gathered by the Bureau
of Internal Revenue are materially different from the facts on which the
ruling is based; or (c) where the taxpayer acted in bad faith (Sec. 246 of the
NIRC)
4.b. Under Sec. 246, taxpayers may rely upon a mile or ruling issued by the CIR
from the time the rule or ruling is issued up to its reversal by the CIR or the
Supreme Court. The reversal is not given retroactive effect This, in essence, is the
doctrine of operative fact. There must, however, be a rule or ruling issued by the
CIR that is relied upon by the taxpayer in good faith. A mere administrative
practice, not formalized into a rule or ruling, will not suffice because such a mere
administrative practice may not be uniformly and consistently applied. An
administrative practice, if not formalized as a rule or ruling, will not be known to the
general public and can be availed of only by those within formal contacts with the
government agency (CIR vs. San Roque Power Corporation, GR No. 187485 dated
October 8. 2013)
4.c. In order for Sec. 246 to apply, the ruling must be issued to the taxpayer invoking the
same. (CIR vs. Filinvest Development Corporation, GR No. 16.3653 dated July 19,
2011) But, if the ruling issued is a general interpretative rule, all tuxpayers may rely on
the ruling and invoke Sec. 246, if proper,

An example of a general interpretative rule is BIR Ruling No. DA-489-03 dated

December 10, 2003. BIR Ruling No. DA 489-03 is a general interpretutive rule because
it was a response to a query made, not hy a particular taxpayer, but by a government
agency tasked with processing tax refunds and credits, that is, the One Stop Shop Inter-Agency
Tax Credit and Drawbuck Center of the Department of Finance. This government
agency is also the addressee, or the entity responded to, in BIR Ruling No. DA-489-03.
Thus, while this government agency mentions in its query to the CIR the administrative
claim of Lazi Bay Resources Development, Inc., the agency was in fact asking the CIR
what to do in cases like the tax claim of Lazi Bay Resources Development, Inc., where
the taxpayer did not wait for the lapse of the 120-day period. (CIR vs. San Roque
Power Corporation, GR No. 187405 dated February 12, 2013)

4.d. Sec. 246 is not limited to a reversal only by the CIR because this Section expressly
states, "Any revocation, modification or reversal" without specifying who made the
revocation, modification or reversal. Hence, a reversal by
the Supreme Court is covered under Sec. 246. (CIR vs. San Roque, GR No. 187485
dated February 12, 2013)

Tax Rulings

5.a. The powers of the Commissioner may be delegated, subject to certain

exceptions, to a subordinate official with a rank of division chief or higher. Thus, as a
general rule, a BIR ruling need not be signed or issued by the CIR. However, there are
two (2) rulings which must be issued or signed by the CIR in order to be valid: (1)
rulings of first impression; and, (2) rulings which reverse, revoke or modify any
existing ruling of the BIR. (Sec 7(b) of the NIRC)

A case of first impression is a case in which an issue that has not

previously been considered or decided by a higher court. This means that
there is no legally binding authority by which the case must be decided.

5.b. A ruling of the CIR may be appealed to the Secretary of Finance

("SOF") by filing a Request for Ruling Review within thirty (30) days
from receipt of the unfavorable ruling. (DOF Department Order No.
23-2001 dated October 25, 2001)
5.c. The rule on exhaustion of administrative remedies, particularly, appeal
to the SOF, may be dispensed with if, among others: (1) the question involved is
purely legal; (2) when there are circumstances indicating the urgency of judicial
intervention; and, (3) when exhaustion will result in an exercise in futility (BDO vs
Republic, GR No. 198756 dated January 13, 2015)
2

5.d. The ruling of the SOFor the ruling of the CIR (if appeal to the
SOFmay be dispensed with) is appealable to the Court of Tax Appeais
("CTA"). The CTA has undoubted jurisdiction to pass upon the
constitutionality or validity of a tax law or regulation when raised by the
taxpayer as a defense in disputing or contesting an assessment or claiming a
refund. The CTA may likewise take cognizance of cases directly challenging
the constitutionality or validity of a tax law or regulation or administrative
issuance (revenue orders, revenue memorandum circulars, rulings).Jurisdictional
basis under RA No. 9282 is "other matters arising under the NIRC or other laws
administered by the BIR" (BDO VS. Republic, GR No. 198756 dated August 16,
2016)

Compromise and Abatement

6.a. The taxpayer may compromise a tax liability by: (a) paying 40% of the basic
assessed tax on the ground of doubtful validity of an assessment, or (b) paying 10%
of the basic assessed tax on the ground of financial incapacity. A criminal violation that
has already been filed in court or a criminal violation involving fraud cannot be the
subject of a compromise between the BIR and the taxpayer: (Sec. 204(A)
of the NIRC)
6.b. A compromise penalty is an amount paid by the taxpayer in lieu of
criminal prosecution. It is an amount paid to compromise a violation of the penal
provisions of the NIRC. Since a compromise is in the nature of a contract, it is now a
well settled doctrine that a compromise penalty cannot be imposed or collected
without the agreement or conformity of the taxpayer, (Wonder Mechanical
Engineering Corporation vs. CTA, GR Nos. L-22805 & L-27858 dated June 30,
1975)

6.c. Good faith and honest belief that one is not subject to tax on the basis of
previous interpretation of government agencies tasked to implement the tax law,
are sufficient justification to delete the imposition of surcharges and interest (CIR vs.
St Luke's Medical Center, Inc., GR Nos. 195909 and 195960 dated September 26,
2012)
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7.a. The CIR may abate or cancel a tax liability when: (a) the tax or any portion thereof
appears to be unjustly or excessively assessed; or (b) the administration and
collections costs involved do not justify the collection of the amount due. The CIR has
the sole power or authority to abate taxes. (Sec. 204(B)and Sec. 7(c) of the NIRC)

7.. Under Revenue Regulations ("RR" No. 15-2006 dated September 27, 2006, an
application for abatement is considered approved only upon issuance of a termination
letter. Based on the guidelines of RR No. 15-2006, the last step in the tax abatement
process is the issuance of the termination letter. The presentation of the termination
letter is essential as it proves that the taxpayer's application for tax abatement has been
approved. Thus, without a termination letter, a tax assessment cannot be considered closed and
terminated. (. del Castillo, Asiatrust Development Bank, Inc. vs. CIR, GR No. 201530 dated
April 19, 2017)
Concept of "Excise Tax"

8. Excise tax may refer to: (a) specific and ad valorem tax on articles enumerated under
the NIRO or on goods manufactured or produced in the Philippines for domestic sales or
consumption or for any other disposition and to things imported; or (b) a tax imposed upon the
performance of an act, the enjoyment of a privilege, or the engaging in an occupation,
profession or business. (CIR vs. Pilipinas Shell Petroleum Corporation, GR NO. 188497
dated February 19, 2014)

Tax Treatment of the 20% Senior Citizen's Discount

9.a. The grant of a tax deduction scheme covering the 20% Senior Citizen's discount
under Republic Act (RA) No. 9257 is constitutional as a valid exercise of police power. Even
if RA No. 9258 does not provide for a peso for peso reimbursement of the 20% discount given by
private establishments, no constitutional infirmity obtains because, being a valid exercise of police power,
payment of just compensation is not warranted. The 20% discount is intended to improve the
welfare of senior citizens who, at their age, are less likely to be gainfully employed,
more prone to illnesses and other disabilities, and, thus, in need of subsidy in purchasing hasic
commodities. It may not be amiss to mention also that the discount serves to honor senior citizens
who presumably spent the productive years of their lives
on contributing to the development
and progress of the nation. This distinct cultural Filipino practice of honoring the
elderly is an integral part of this law.

9.b. The grant of the 20% discount as a tax deduction scheme is not an exercise of the
power of eminent domain. It does not purport to appropriate or burden specific
properties, used in the operation or conduct of the business of private establishments,
for the use or benefit of the public, or senior citizens for that matter, but merely
regulates the pricing of goods and services relative to, and the amount of profits or
income/gross sales that such private establishments may derive from, senior citizens. (.
del Castillo, Manila Memorial Park inc. vs. DSWD, GR No. 175356 dated December 3, 2013)
.

Non-impairment Clause of the Constitution

10. A subsequent law may repeal á tax exemption under a franchise or special
law and the same will not violate the non-impairment clause under the
Constitution. A franchise partakes the nature of a grant, which is beyond the
purview of the non-impairment clause of the Constitution. While the Supreme
Court has, not too infrequently, referred to tax exemptions contained in special
franchises as being in the nature of contracts and a part of the inducement for
carrying on the franchise, these exemptions, nevertheless, are far from being strictly
contractual in nature.

Contractual tax exemptions, in the real sense of the term and where the non-impairment clause of
the Constitution can rightly be invoked, are those agreed to by the taxing authority in
contracts, such as those contained in government bonds or debentures, lawfully
entered into by them under enabling laws in which the government, acting in its
private capacity, sheds its cloak of authority and waives its governmental immunity.
Truly, tax exemptions of this kind may not be revoked without impairing the obligations
of contracts. Article XII, Sec. 11, of the 1987 Constitution, like its precursor
provisions in the 1935 and the 1973 Constitutions, is explicit that no franchise for the
operation of a public utility shall be granted except under the condition that such
privilege shall be subject to amendment, alteration or repeal by Congress as and
when the common good so requires. (MERALCO vs. Province of Laguna, GR
No. 131359 doted May 5, 1999)

CIR's power to Interpret the Provisions of the NIRC

11. The Voluntary Arbitrator has no jurisdiction to settle tax matters. The
Voluntary Arbitrator's jurisdiction is limited to labor disputes. The issues
raised before the Panel of Voluntary Arbitrators are: (1) whether the cash
conversion of the gasoline allowance shall be subject to fringe benefit tax
or the graduated income tax rate on compensation; and, (2) whether the
company wrongfully withheld income tax on the converted gas allowance. Under Sec. 4
of the NIRC, the CIR shall have the exclusive and original jurisdiction to interpret the
provisions of the NJRC and other tax laws, subject to review by the SOF.
Consequently, if the company and/or the union desire/s to seek clarification of
these issues it/they should have requested for a tax ruling from the BIR. (Honda
Cars Philippines, Inc. vs. Honda Cars Technical Specialist Supervisors Union, GR No.
204142 dated November 19, 2014)

JI. Income Tax

Proprietary Non-profit Hospitals under Sec. 27(B) vs. 30(E) of the NIRC
12.a. In order to be exempt from income tax as a charitable institution under Sec.
30(E), the charitable institution must be: (1) A non-stock corporation or association;
(2) Organized exclusively for charitable purposes; (3) Operated exclusively for
charitable purposes; and, (4) No part of its net income or asset shall belong to or inure
to the benefit of any member, organizer, officer or any specific person.
12.b. In order to be exempt from income tax as a charitable Institution under Sec.
30(E) of the NIRC, the non-stock non-profit hospital must be "organized and operated
exclusively for charitable purposes. It cannot be disputed that a hospital which receives
approximately P1.73 billion from paying patients is not an institution operated
exclusively" for charitable purposes. Thus, insofar as it's as its revenues from paying patients
are concerned, St. Luke's is not "operated exclusively" for charitable purposes.
tar t w
IR,
12.c. Income from paying patients is considered income from an activity conducted for
profit. The last paragraph of Sec. 30 of the NIRC provides that: "income of whatever
kind and character of the foregoing organizations from any of their properties, real or
personal, or from any of their activities conducted for profit regardless of the disposition
made of such income, shall be subject to income tax." Based on the foregoing, the
hospital, insofar as its income from paying patients, is considered a proprietary non-
profit hospital which is subject to the 10% income tax based on taxable income
under Sec. 27(B) of the NIRC. (. del Castillo, CIR vs. St. Luke's Medical Center,
Inc., GR No. 203514 dated February 13, 2017; CIR vs. St. Luke's Medical
Center, Inc., GR Nos. 195909 and 195960 dated September 26, 2012)
Proprietary Non-profit Educational Instutions under Sec, 27(B) of the
NIRC
13. A proprietary educational institution is entitled only to the reduced rate of 10%
corporate income tax, The reduced rate is applicable only if: (1) the proprietary
educational institution is non-profit; and, (2) its gross income from unrelated trade,
business or activity does not exceed 50% of its total gross income. (CIR vs. De La Salle
University, GR No. 196596 dated November 9, 2016)

B) Proprietary Educational Institutions and Hospitals. - Proprietary educational institutions

and hospitals which are nonprofit shall pay a tax of ten percent (10%) on their taxable
income except those covered by Subsection (D) hereof: Provided, that if the gross income
from unrelated trade, business or other activity exceeds fifty percent (50%) of the total gross
income derived by such educational institutions or hospitals from all sources, the tax
prescribed in Subsection (A) hereof shall be imposed on the entire taxable income

Non-stock Non-profit Educational Institutions under the Constitution vs. Sec. 30(H) of
the NIRC

14.a. All revenues and assets of non-stock, non-profit educational institutions used
actually, directly, and exclusively for educational purposes shall be exempt from
taxes and duties. (Sec. 4(3), Art XIV of the Constitution)

(3) All revenues and assets of non-stock, non-profit educational institutions used
actually, directly, and exclusively for educational purposes shall be exempt from
taxes and duties. Upon the dissolution or cessation of the corporate existence of
such institutions, their assets shall be disposed of in the manner provided by law.

Proprietary educational institutions, including those cooperatively owned, may

likewise be entitled to such exemptions subject to the limitations provided by law
including restrictions on dividends and provisions for reinvestment.

14.b. The last paragraph of Sec. 30 of the NIRC is without force and effect with respect
to non-stock, non-profit educational institutions, provided, that the non-stock, non-profit
educational institutions prove that its assets and revenues are used actually, directly
and exclusively for educational purposes. The tax-exeniption constitutionally
granted to non-stock, non-profit educational institutions, is not subject to limitations
imposed by law. The tax exemption granted by the Constitution to non-stock, non-
profit educational institutions is conditioned only on the actual, direct and exclusive
use of their assets, revenues and income for educational purposes. To avail of the
exemption, the taxpayer must factually prove that it used actually, directly and
exclusively for educational purposes the revenues or income sought to be exempted.

Notwithstanding the provisions in the preceding paragraphs, the income of whatever kind
and character of the foregoing organizations from any of their properties, real or personal, or
from any of their activities conducted for profit regardless of the disposition made of such
income, shall be subject to tax imposed under this Code.

14.c. A plain reading of the Constitution would show that Article XIV, Sec. 4(3)
does not require that the revenues and income must have also been sourced
from educational activities or activities related to the purposes of an educational
institution. The phrase all revenues is unqualified by any reference to the source
of revenues. Thus, so long as the revenues and income are used actually, directly
and exclusively for educational purposes, then said revenues and income shall be
exempt from taxes and duties, (CIR VS. De La Salle University, GR No. 196596 dated
November 9, 2016)

Deposits and Deposit Substitutes

15 A Bureau of Internal Revenue ("BIR") ruling which states that all
government bonds are deposit substitutes regardless of the number of lenders is
not valid because it completely disregards the "20 or more lender rule" found under
Sec. 22(Y) of the NIRC. The tërmy "deposit substitutes" means an alternative form of
obtaining funds from the public. The term "public" means borrowing from twenty (20) or
more individual or corporate lenders at any one time. Moreover, the phrase "at any
one time does not mean at the point of origination alone. From the point of view
of the financial market, the phrase at any one time" for purposes of determining
the "20 or more lender rule" would mean every transaction executed in the
primary or secondary market in connection with the purchase or sale of
securities.
The term 'deposit substitutes' shall mean an alternative from of obtaining funds from the
public (the term 'public' means borrowing from twenty (20) or more individual or corporate
lenders at any one time) other than deposits, through the issuance, endorsement, or
acceptance of debt instruments for the borrowers own account, for the purpose of relending
or purchasing of receivables and other obligations, or financing their own needs or the needs
of their agent or dealer.

15.b. If the bonds are considered deposit substitutes (20 or more lenders), the interest
income is generally subject to the 20% Final Withholding Tax..If the bonds are not
considered deposit substitutes (19 or less lenders), the interest income forms part
of gross income and is subject to the regular income tax rates. (BDO vs.
Republic, GR No. 198756 dated January 13, 2015)

16.a. Sec. 244BY2) of the NIRC provides that interest from any currency bank deposit
and yield or any other monetary benefit from deposit substitutes and from trust funds
and similar arrangements is subject to a 20% Final Withholding

16.b. Interest of members' savings and time deposits with duly registered cooperatives
are not subject to income and withholding tax. Sec, 24(B)(1) of the NIRC applies to
interest paid by banks and does not cover interest paid by cooperatives. Moreover,
members' deposits with the cooperatives are not currency bank deposits nor
deposit substitutes.

16.c. The legislative intent under RA No. 6938 ("Cooperative Code of the Philippines")
is to give cooperatives a preferential tax treatment and tax exemption under Arts. 61
and 62 of RA No. 6938. This tax exemption should be construed to extend to members
of cooperatives. Subsequently, Article 61 of RA 9520 (which amends RA No. 6938).
now specifically provides that members of cooperatives are not subject to final taxes on
their deposits. This affirms the previous interpretation of the BIR (in two BIR Rulings
cited by the Supreme Court that Sec. 24 does not apply to cooperatives and confirms that
such ruling/interpretation carries out the leylullive i Castillo, Dumaguete Cathedral Credit
Cooperative vs. CIR, GR No. 182722 voted January 22, 2010) !

Capital Gains Tax

17. For domestic corporations, the 6% capital gains tax only applies to the sale of land
und/or buildings in the Philippines held as a capital asset. It does not include the sale of
machineries and equipment which should be in to the 30% Regular Corporation Income Tax.
(SMI-ED Technology Corporation, Inc. vs. CIR, GR No 17170 diled November 12, 2014)

18.a. It is settled that the transfer of property through expropriation proceedings is a

sale or exchange within the meaning of Secs, 24(D) and 56(A)(3) of the NIRC, and
profit from the transaction constitutes capital gain. Since capital gains tax is a tax on
passive income, it is the seller, or respondents in this case, who are able to shoulder
the thix.

18.b. In fact, the BIR in BIR Ruling No. 476-2013 dated December 18, 2013, has
constituted the DPWH AS a withholding agent tasked to withhold the 6% final
withholding tax in the expropriation of real property for infrastructure projects. Thus,
as far as the government is concerned, the capital gains tax in expropriation
proceedings remains a liability of the seller, as it is a tax on the seller's.gain from the
sale of real property.

18.c. If only part of the property of the owners was expropriated, the amount of capital gains
tax cannot be awarded to the owners as consequential damages. Consequential damages are
only awarded if as a result of the expropriation, the remaining property of the owner suffers from
impairment or decrease in value. Given that the payment of capital gains tax on the
transfer of the subject property has no effect on the increase or decrease in
value of the remaining property, it can hardly be considered as consequential damages
that may be awarded to owners. (1. del Castillo, Republic vs. Spouses Salvador, GR No.
205428 dated June 7, 2017)

Gross Philippine Billings Tax

19.a. An offline international carrier with no landing rights in the Philippines,
is not liable to the 2.5% Gross Philippine Billings Tax ("GPBT"). The Gross
Philippine Billings Tax attaches only when the carriage of persons, excess
baggage, cargo, and mail originated from the Philippines in a continuous and
uninterrupted flight, regardless of where the passage documents were sold. Thus, to be
liable to the 2.5% GPBT the international carrier must have landing rights in the
Philippines. If the offline carrier (has no landing rights in the Philippines) sells tickets in
the Philippines through an agent, the offline carrier becomes as a resident foreign
corporation subject to the 30% Regular Corporate Income Tax. If a tax treaty is
applicable, it must be considered in applying the correct income tax rate. (Air Canada
vs. CIR, GR No. 169507 dated January 11, 2016)

19.b. Sec. 28(A)(3)(a) of the NIRC as amended by RA No. 10378 provides that
international carriers doing business in the Philippines may avail of a preferential
rate or exemption from the 2.5% Gross Philippine Billings Tax on the basis of an
applicable tax treaty or international agreement to which the Philippines is a signatory
or on the basis of reciprocity such that an international carrier, whose home country
grants income tax exemption to Philippine carriers, shall likewise be exempt from the
2.5% Gross Philippine Billings Tax. (Sec. 1 of RA No. 10378 dated July 23,
2012)

Withholding Taxes
.

20. If the taxpayer claims bonuses as a deduction in its income tax return, the
withholding tax on the said bonuses should be withheld and remitted to the BIR
in the year of accrual and not during the year of payment. The obligation of the
payor employer to deduct and withhold the related withholding tax on bonuses
arises at the time the income was paid or accrued or recorded as an expense
in the payor's/employer's books, whichever comes first. (ING Bank N.V. Vs!
CIR, GR No: 167679 dated July 22, 2015)

Fringe Benefiis Tax

21.a. PAGCOR's exemption from direct and indirect taxes under its Charter
- Presidential Decree No, 1869 does not cover exemption from Fringe
Benefits Tax ("FBT"), The FBT is treated as a final income tax on the employee
that shall be withheld and paid by the employer on a calendar quarterly basis. As
such, PAGCOR is a mere withholding agent inasmuch as the FBT is imposed on
PAGCOR's employees who receive the fringe benefit PAGCOR's liability as a
withholding agent is not covered by the tax exemptions under its Charter.
21.b. A fringe benefit may be exempt from FBT if the same is required by the nature of,
or is necessary to the trade, business or profession of the employer, or when the
fringe benefit is for the convenience or advantage of the employer.

21.. The amount paid by PAGCOR for amenities such as playing rights to golf clubs is
not a fringe benefit subject to the FBT. The membership of PAGCOR to these golf clubs
and other organizations are intended to benefit its customers and not its employees.
Aside from this, the membership is under the name of PAGCOR, and as such, cannot
be considered as fringe benefits because it is the customers and not the employees of PAGCOR who
benefit from such memberships. Considering that the payments of membership dues and fees are not
borne by PAGCOR for its employees, they cannot be considered as fringe benefits which are subject to
FBT under Sec. 33 of the NIRC. (CIR VS. Secretary of Justice and PAGCOR, GR No. 177387
dated November 9, 2016)

Capital Assets

22.2. The term "capital assets" means property held by the taxpayer (whether or not connected
with his trade or business), but does not include stock in trade of the taxpayer or other property of a kind
included in the inventory of the taxpayer if on hand at the
which would properly be
close of the taxable year, or property held by the taxpayer primarily for sale to
customers in the ordinary course of his trade or business, or property used in the trade
or business, of a character which is subject to the allowance for depreciation provided in
Sec. 34(F); or real property used in trade or business of the taxpayer. (Sec. 39(A)
(1) of the NIRC)

22.b. An equity investment is a capital, not ordinary, asset of the investor the sale or
exchange of which results in either a capital gain or a capital loss. Shares of stock like
the other securities defined in Sec. 22(T) of the NIRC, would be ordinary assets only to
a dealer in securities or a person engaged in the purchase and sale of, or an active
trader (for his own account) in, securities. In the hands, however, of another who holds
the shares of stock by way of an investment, the shares to him would be capital assets.
When the shares held by such investor become worthless, the loss is deemed to be a
loss from the sale or exchange of capital assets.

Only Individual taxpayers are eligible to Capital loss carryover of 12

months.

22.c. The loss limitation rule under Sec. 39(C) of the NIRC provides that capital
losses are allowed to be deducted only to the extent of capital gains, i.e., gains
derived from the sale or exchange of capital, assets, and not from; any other income of
the taxpayer. (China Banking Corporation vs. CA, GR No. 125508 dated July 19, 2000):

23. The buildings, machineries and equipment of a Philippine Economic

Zone Authority ("PEZA")-registered corporation whose primary purpose is to
engage in the business of manufacturing ultra high-density microprocessor unit
package" but did not commence business operations are capital assets. They are not
among the exclusions enumerated in Sec. 39(A)(1) of the NIRC. None of the properties
were used in the taxpayer's trade or ordinary course of business because the taxpayer
never commenced operations. They were not part of the inventory. None of them were
stocks in trade. Based on the definition of capital assets under Sec. 39 of the NIRC,
they are capital assets. (SM ED Technology Corporation, Inc. vs. CIR, GR No. 175410
dated November 12, 2014)

Deductions

24.a. in order to be considered as a deductible business expense, the following

requisites must concur: (a) the expense must be ordinary and necessary; (b) it must
have been paid or incurred during the taxable year; (c) it must have been paid or
incurred in carrying on the trade or business of the taxpayer; and, (d) it must be
supported by receipts, records or other pertinent papers.

24.5. On the other hand, a sworn declaration of loss must be filed with the BIR within
forty-five (45) days from the date of occurrence in order to substantiate a deduction for
casualty loss. (H. Tamounting Pawnshop, Inc. vs. CIR, GR No. 173373 dated
July 29, 2013). * .
24.C. Any amount paid or payable which is otherwise deductible from, or taken into
account in computing gross inconie shall be allowed as a deduction only if it is
shown that the withholding tax required to be deducted and withheld therefrom
has been paid to the BIR. (Sec. 34(K) of the NIRC)

Rules on Political Contributions

31.a. Any contribution in cash or in kind to any candidate, political party or coalition of parties for
campaign purposes. provided the same is duly reported to the COMELEC, is exempt from
donor's tax. (Sec. 99(C) of the NIRC in relation to Sec. 13 of RA No. 7166)

31.b. Unutilized /excess campaign funds, that is, campaign contributions net of the candidate's
campaign expenditures. shall be considered as subject to income tax. Corollary thereto, failure
to submit statement of expenditures to the COMELEC subjects the entire contributions to
income tax. Since, the candidate will be precluded from claining expenditures as
"deductions" from his campaign contributions. (Revenue Regulations No. 7-2011
doted February 16, 2011)

· 31.c. Political contributions which are not utilized during the campaign period is
subject to Donor's tax. Also, political contributions made by a corporation is subject to
Donor's tax. (Revenue Memorandum Circular No. 30-2016 dated March 14, 2016)