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TAX NIRC and Remedies Atty Lumbera PREBAR Trans From UP
TAX NIRC and Remedies Atty Lumbera PREBAR Trans From UP
Q: What are the taxes covered by the NIRC? Q: Ano ba yung remedies na topic?
A: Ito yung mga solusyon/remedy kung paano
A: Income tax & VAT / % tax nagcocollect ang gobyerno ano ang karapatang ng
gobyerno o tao, yan ang remedies. This is purely
Magasawa ‘yang Income tax & VAT procedural
Q: What else are covered by the NIRC? Under the LGC for Ordinary local and RPT there are also
remedies.
Donor’s Tax
Estate Tax For national taxation you study what are the taxes and
how they are collected, same with Local Taxation.
--
--
Ang VAT ka either or yan ng Percentage tax
From the POV of a taxpayer, how do we look at tax? Ito
Q: What are the internal revenue taxes? kasi POV ng batas, let’s take the POV of the taxpayer
A:
Income tax So kung ikaw ay tao or corporation meron kang kita, kasi
VAT/% (percentage)Tax hindi pwedeng wala kang kita, kapag wala kang kita
Donor’s Tax mamamatay ka wala kang gagastusin.
Estate Tax
Excise Tax Basta kayo ay kumita meron yang income tax
DST consequence at kapag ang kita mo ay sa trade/business
meron kang income tax or VAT or percentage tax
Q: Are they all covered when you are alive?
A: Yes, except for estate tax. Yung estate tax lang yung At kapag ikaw ay kumikita, meron kang expense at kapag
tax na binabayaran kapag namatay ka may expense ka may ibang kumikita.
Estate tax is imposed on your estate because of the So the cycle is, revenue – expense kapag ikaw ay kumite,
transfer of your property when you die. kailangan mo gumastos and when you spend you create
income for others, when this entity spends it create
Q: What are the taxes related to business? incomes for another. And this is infinte.
A:
Income Tax So when you spend, the person you spent on your expense
VAT/percentage tax needs to pay income tax for another and VAT/% Tax as
Excise Tax well.
And whether you are in trade/business when you execute Ngayon dahil may kita ka at gumastos ka, meorng natira.
a document specifically provided by the tax code, you May savings ka.
impose the DST
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Q: Ano gagawin mo savings? Kapag ikaw ngayon ay di nagbayad ng buwis na national
A: Idedeposit mo sa bank taxes, then the government will collect and when the
government collects you have rights and procedures na
If you deposit this, and kung ano anong investments you susundin, same with local taxes dito papasok yung
create income and tax is also paid. REMEDIES.
When you invest, there’s tax. When your investments Q: Are all income taxable?
realize income may tax na naman A: No.
Now, if you have excess if buhay ka, ito ang mga Q: When is income taxable?
possibilities. A: It must ACTUALLY or CONSTRUCTIVELY
received
Kapag mabait ka at ikaw ay namigay, ipinamigay mo ang
assets mo, aba babayad ka ng DONOR’S TAX Ang susunod natin ay, kapag sinabi niyong realized or
constructively received yung pag rerealize niyo ng income
At kapag ikaw ay namatay “dedo” at lahat ng assets mo it it depends on the accounting system
will transfer to your heirs by way of succession so you pay
ESTATE TAX. Because sa accounting system merong cash basis and
accrual basis
If you execute documents for these transactions, then you
pay DST. Kapag cash basis, ibig sabihin nito income which is
actually received sa listahan Ninyo as income
If you import or produce goods, then excise tax will be
paid. When you say accrual basis even income which is
constructively received may be part of your income
Q: Kalian papasok ang LGC 1991 when we talk about
an individual or corporation? Q: Ano yung actually received?
A: Cash basis. In every day living ang napera sa palad ko
A: When you are engaged in t/b you will have to pay local 1k, at cash basis ang computation 1k ang rerecognize mo
taxes like business tax
Q: Ano yung constructively received?
Now when we talk about RP you acquire when you are A: ex: Payment on installment, ang ibabayad sayo ay
still alive, on a yearly basis you play RPT installment so kung accrual basis ka, yung future
installments which will be receivables are part of the
Local taxes come in if you are engaged in t/b or if you income
acquire real properties.
For easier understanding, look at your wallet wala kang
-- trabaho and you are a student living on allowance, if your
parents give you 1k then you declare 1k as your income
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because it is ACTUALLY RECEIVED, if may All income and expenses PRIOR to and all income and
regularity in receiving the 1k and you are using the accrual expenses AFTER and BEYOND the 12 month period you
basis even the 1k basis you receive on a daily basis in the cannot consider computing for that taxable period
future you can receive it as income
All transactions prior to and after the specific taxable 12
Yung accounting basis na ginagamit, ginagamit ito for month period, you will never recognize for the present
revenue side and expense side period.
So if you’re using cash basis sa revenue side s akita side, So we only recognize income within the period of the 12
kailangan sa expense side CASH KA DIN months, within the taxable period
If accrual basis ang gamit mo as your accounting basis in Kung ikaw ay tao (individual) laging CALENDAR
recognizing income kailangan sa expense side accrual YEAR.
basis ka din
If you are a corporation pwede kang calendar/fiscal year
Kasi kapag pinagbalibaliktad mo, di mo maiintindihan
ang pera mo ngayon Q: As a corporation, kailangan ka namimili kung
calendar year or fiscal year?
In simple terms, magkano sa isang side ang kita mo, A: From the time you incorporate, you file your certificate
magkano ang gastos mo of registration and AOI with the SEC, from that time you
declare kung calendar/fiscal year
Q: Anong period ginagamit yung accounting methods
na ito? Q: Can you change if you are a corporate taxpayer
from calendar year or fiscal year within the 12 month
A: meron tayong taxable period period?
Sa income tax, yung taxable period laging 12 months na A: sa tao whether engaged in t/b or not, calendar year
CALENDAR YEAR or FISCAL YEAR.
As a corporate taxpayer yes you can change, pero bago ka
Kapag calendar year, alam natin ito It begins jan and payagan ng BIR na mag shift from calendar year to fiscal
ending December 31. year or fiscal year or calendar year, kailangan mo ng
permiso and you will be required to file short returns
Q: What is fiscal year?
Q: What are short returns?
A: “12 month period that does not end on December 31”
from the law masyado daw itong complicated A: So kung ikaw ay gumagamit ng calender year, Jan. 1,
2020-Dec. 31 2021, ‘yan yung calendar year mo so you
Pwede namang sabihin na: are declaring income and expenditures from Jan 1, 2020-
dec. 31, 2020
Beginning any month ending after the 12 month period,
but this starts ng first day of the month, hindi ka pwede In the middle of the year, September 2020 you wanted to
mag April 5 kailagan April 1, so February 1 ending on shift from calendar year to fiscal year at ang sabi mo ay
Jan. 31 the following year gusto mo mag shift ng fiscal year
PERO LAGI YANG 12 MONTHS. Beginning November 1 2020 – October 31, 2021 so may
overlapping
So when you look at the picture if you’re using calendar
year, you have January – December, sa 12 months you Q: Ano gagawin Ninyo?
divide it into two parts revenue side and expense side
The BIR will require you to file a short return doon sa Nov
If you’re using the fiscal year same. 1 2020 – October 31, 2020
For purposes of income tax for both calendar and fiscal Q: Bakit?
year we recognize the income and expense within the 12
month period
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A: Pagdating mo ng nov. 1, 2021 covered ng calendar Whether from legal or illegal sources
year, kasi puputulin mo so kailangan mo mag file ng short
return Q: If illegal ang sources, can the govt tax?
A: Yes, di porket illegal ang sources it is because income
Let’s do it the other way around, SHIFT. is from both legal and illegal sources
Q: How do you recognize income? Meron ding tao na ang source of income is purely exercise
A: It must be realized, actually or constructively of profession or trade or business ang tawag sayo ay SEP
(Self employed professional) or if you are engaged in trade
Once you say it’s income, you take note. Is it taxable? or business (Self employed individual)
Take note of who you are a taxpayer, source of income: is Q: Paano kung madami kang business?
it within or without, study the items of inclusions, A: It does not matter, SEI pa din ang tawag sayo,
exclusions and exceptions and we have the capital gains, pagsasamahin lang ang kita mo
ordinary gains etc and we have the concept of deductions
Meron ding tao na mixed ang income
Once you determine na taxable siya, you ask anong
klaseng income tax babayaran ko at anong rate Meaning compensation + exercise of profession,
compensation + trade/business, compensation + exercise
-- of profession + trade or business
Q: Why?
A: Because all corporations are presumed to to be
established for t/b
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If you are exercising a profession and you put up a NRC
partnership, then ang tawag sa inyo is a corporate tax Exercise of profession – RA
payers. SEP
So ganon ang itsura niya, sa taas yung GPP which Q: Sino ang taxpayer?
is a corporate taxpayer which is not subject to A: The estate, hindi yung namatay
corporate tax but sa baba yung individuals subject
to income tax depende sa shares nila because that Following the same concept, ang trust, trust fund. From
is their income the time the grantor creates the trust, it is held by a trustee
who is under obligation to preserve the fund/trust and
2) General co-partnership subsequently transfer it to the beneficiary
➔ Definitely subject to tax
➔ It is engaged in t/b, the only exemption is the GPP That transition period while the trust is held by the
not this one trustee, it is called an individual taxpayer
Q: How are they classified under the code? Now, for corporations
A: These are the taxpayers based on income, but how are
they classifies under the taxcode. CORPORATION DC (Domestic
corporation)
Ang mga tao they are classified as GPP RFC (Resident foreign
corporation)
EE-ER relationship KINDS OF GCP NRFC (Non-resident
This is CIE TAXPAYERS foreign corporation)
(compensation income
earner) RC
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Idk pero ganyan drawing ni ma’am sa board, pero to Q: What is the definition of residence?
avoid confusion ito siya. --
• Self-Employed individual – selling service, no EE-ER A citizen of the Philippines who establishes to the
relationship, usually from trade or business satisfaction of the commissioner the fact of his physical
presence abroad with a definite intention of residing
• Mixed Income Earner – there is a profession, there is therein
an EE-ER, there could be trade or business
Keywords: wala sa pilipinas, at may intention na
KINDS OF TAXPAYERS manirahan permanently sa labas ng pilipinas
2. Corporate Taxpayers
a. Domestic Corporation A seaman is considered as NRC kasi wala namang
b. Resident foreign corporation bahay sa pier.
c. Non-resident foreign corporation
Partnerships – they are treated as corporate taxpayers ➔ Not residing in the phil but he is also not residing
somewhere else, he is not earning income from
Two kinds of partnerships under the tax code: the Philippines
i. General Professional Partnership: exercise of profession --
of the partners and no part of its income is derived from
trade or business; not subject to corporate income tax, May mababasa kayo sa taxcode, na sa loob ng 1 taxable
only the individuals are after distribution period within 12 months na ang isang tao ay pwedeng ma-
consider differently dalawang klaseng classification
ii. General Co-partnership – subject to tax, same rates within in 12 months, this is a NRC.
as DC
o Joint venture agreements are also subject to tax A citizen who has been previously considered as non-
resident citizen and who arrives in the Philippines at
--- any time during the taxable year to reside permanently
in the Philippines shall likewise be treated as a non
Q: Who is a resident citizen? resident citizen for the taxable year in which he arrives
in the Philippines with respect to his income derived
A: A RC is a citizen of the Republic of the Philippines from sources abroad until the date of arrival in the
who resides in the Philippines Philippines
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Sec 22 G: Non-resident alien: means an individual
If you were formerly a NRC and then sometime during whose residence is not within the Philippines, and who
the year, you decide babalik ka na ng Pilipinas, is not a citizen thereof
permanently, sep. 8, 2020
A: alien siya, not residing, not engaged in t/b
Let’s say immigrant ako, sabi ko sep 8, 2020 babalik na
ako sa pinas, permanently residing in the Philippines There are certain criteria to determine kung NRAETB and
NRAETB
Q: Ano ang tawag sakin?
A: From jan – sep 8, 2020 – NRC ako Q: May Nakita na ba kayo na RA na engaged in t/b sa
listahan natin?
Pero from sep 9, 2020 – matapos ang period, RC na ako A: Wala
THIS IS THE ONLY INSTANCE IN THE TAX Q: Meron bang RA not engaged in t/b sa listahan
CODE NA MACCLASSIFY ANG ISANG natin?
INDIVIDUAL DIFFERENTLY WITHIN ONE A: Wala
TAXABLE PERIOD
Kasi ang batas di na ‘yan nag cclassify pa pero yung NRA
Note: memorize the NRC, if you are not a NRC you are a meron pa ‘yang distinction
RC.
Kasi ang RA, walang distinction kasi kung kumakain or
Sa tax kasi, walang nasa boundary isa lang ang nagbabakasyon or walang ginagawa kung di kumainn
classification walang gray area dito, this is very crucial, maghapon, or nakatira ka dito at nag ttrade or business
yung how do you classify taxpayers, so kapag di ka walang distinction ang batas
kasama sa 5 types ng NRC, you are a resident citizen
Pero kapag NRA may classification pa
Q: But what is the keyword you have to look for?
A: it is the intention to reside permanently, somewhere Pero kung alien ka nakatira ka sa pilipinas, permanently
else that is the bottomline KUMIKITA sayo ang gobyerno, walang tao na di
gumagastos so resident ka dito and you don’t work here,
If you do not have any intention to reside permanently pinapadala lang sayo pera, eh kikita sayo ang gobyerno
outside the Philippines, you are a RC kasi madami ka gagastusin and when you spend, kikita
-- gobyerno sayo, so whether or not engaged in t/b it does
not matter, taxable ka sa pilipinas
Q: What is a RA?
A: Q: So how do we distinguish a NRAETB and
NRANETB?
SECTION 22 (F) RESIDENT ALIEN : an individual
whose residence is within the Philippines and who is A: These are the rules:
not a citizen thereof
1. If an alien stays in the Philippines for an
➔ Not a citizen of the Philippines and is residing in aggregate period of 180 days or more, then the
the Philippines alien is considered as a NRAETB
ALIENS EMPLOYED IN OFFSHORE BANKING Incorporated under foreign laws but is not engaged in
UNITS, OIL PETROLEUM SERVICE trade or business within the Philippines (22 I)
CONTRACTORS AND MULTI-NATIONAL
COMPANIES
➔ Also known as expats For purposes of discussion ang counterpart ng RFC is
➔ They are CIE, they are employed in OBu, opsc, NRAETB and ang NRFC is NRAETB
MNC but the companies are here in the
Philippines, tapos merong alien na employed by Q: So how do you determine, how do we distinguish
the companies located here in the Philippines between RFC and NRFC?
➔ Pag tinignan mo ginagawa nila sa buhay, nag
tatrabaho sila sa company na nasa Pilipinas, A: Kanina sabi ko sa NRAETB v. NRAETB, 5 yun. dito,
kapag tinignan mo, dapat RA sila because nag same lang alisin niyo yung 180 day period. Yung 4 na
tatrabaho sila sa pinas, pero di sila nakatira dito, natitira dito mo malalaman if the corporation is engaged
malamang nakatira sila dito, they are easily in t/b or not engaged in t/b
considered as RA.
➔ However, under the law, sec. 25 nakalagay diyan 1. Principle of habituality
if any alien is employed under the 3 companies,
the law does not classify them as RA they are If an alien engages/enters in commercial
NRANETB, they are called the special ones. transactions in a more or less regular basis
within a taxable period, then he is considered
-- as a NRAETB
Q: What is a FC?
A: Incorporated under any law, under than Philippine law
TAXPAYER TAXABLE TAXABLE
Section 22 (D) FOREIGN – when applied to a FROM FROM
corporation means corporation, which is not SOURCES SOURCES
domestic WITHIN WITHOUT
RC YES YES
Q: What is a RFC? NRC YES NO
RA YES NO
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NRAETB YES NO sources within the Philippines bears to its gross income
NRANETB YES NO from all sources.
So ang concept natin kung ano ang nasa loob ng territory (c) The supply of scientific, technical, industrial or
ng pilipinas within, kung ano ang nasal abas- without commercial knowledge or information;
Pero yang concept na ‘yan nag apply ‘yan kung ang pinag (d) The supply of any assistance that is ancillary and
uusapan ay bagay, pero kapag income, hindi natin subsidiary to, and is furnished as a means of enabling
pwedeng literal iapply ang within and without the application or enjoyment of, any such property or
right as is mentioned in paragraph (a), any such
Under the law, naka specify ‘yan under section 42 of the equipment as is mentioned in paragraph (b) or any such
tax code. knowledge or information as is mentioned in paragraph
(c);
SEC. 42. Income from Sources Within the
Philippines.- (e) The supply of services by a nonresident person or
his employee in connection with the use of property or
(A) Gross Income From Sources Within the rights belonging to, or the installation or operation of
Philippines. - The following items of gross income any brand, machinery or other apparatus purchased
shall be treated as gross income from sources within the from such nonresident person;
Philippines:
(f) Technical advice, assistance or services rendered in
(1) Interests. - Interests derived from sources within conne c t ion wi t h t e chni c a l management or
the administration of any scientific, industrial or
Philippines, and interests on bonds, notes or other commercial undertaking, venture, project or scheme;
interest-bearing obligation of residents, corporate or and
otherwise;
(g) The use of or the right to use:
(2) Dividends. - The amount received as dividends:
(a) from a domestic corporation; and (i) Motion picture films;
(b) from a foreign corporation, unless less than fifty (ii) Films or video tapes for use in connection with
percent (50%) of the gross income of such foreign television; and
corporation for the three-year period ending with the
close of its taxable year preceding the declaration of (iii) Tapes for use in connection with radio
such dividends or for such part of such period as the broadcasting.
corporation has been in existence) was derived from
sources within the Philippines as determined under the (5) Sale of Real Property. - Gains, profits and income
provisions of this Section; but only in an amount which from the sale of real property located in the Philippines;
bears the same ration to such dividends as the gross and
income of the corporation for such period derived from
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(6) Sale of Personal Property - Gains; profits and (D) Taxable Income From Sources Without the
income from the sale of personal property, as Philippines. - From the items of gross income
determined in Subsection (E) of this Section. specified in Subsection (C) of this Section there shall
be deducted the expenses, losses, and other deductions
(B) Taxable Income From Sources Within the properly apportioned or allocated thereto and a ratable
Philippines. - part of any expense, loss or other deduction which
(1) General Rule. - From the items of gross income cannot definitely be allocated to some items or classes
specified in Subsection (A) of this Section, there shall of gross income.
be deducted the expenses, losses and other deductions
properly allocated thereto and a ratable part of The remainder, if any, shall be treated in full as taxable
expenses, interests, losses and other deductions income from sources without the Philippines.
effectively connected with the business or trade
conducted exclusively within the Philippines which (D) Income From Sources Partly Within and Partly
cannot definitely be allocated to some items or class of Without the Philippines.- Items of gross income,
gross income: Provided, That such items of deductions expenses, losses and deductions, other than those
shall be allowed only if fully substantiated by all the specified in Subsections (A) and (C) of this Section,
information necessary for its calculation. The shall be allocated or apportioned to sources within or
remainder, if any, shall be treated in full as taxable without the Philippines, under the rules and regulations
income from sources within the Philippines. prescribed by the Secretary of Finance, upon
recommendation of the Commissioner. Where items of
(2) Exception. - No deductions for interest paid or gross income are separately allocated to sources within
incurred abroad shall be allowed from the item of gross the Philippines, there shall be deducted (for the purpose
income specified in subsection (A) unless indebtedness of computing the taxable income therefrom) the
was actually incurred to provide funds for use in expenses, losses and other deductions properly
connection with the conduct or operation of trade or apportioned or allocated thereto and a ratable part of
business in the Philippines. other expenses, losses or other deductions which
cannot definitely be allocated to some items or classes
(C) Gross Income From Sources Without the of gross income. The remainder, if any, shall be
Philippines. - The following items of gross income included in full as taxable income from sources within
shall be treated as income from sources without the the Philippines. In the case of gross income derived
Philippines: from sources partly within and partly without the
Philippines, the taxable income may first be computed
(1) Interests other than those derived from sources by deducting the expenses, losses or other deductions
within the Philippines as provided in paragraph (1) of apportioned or allocated thereto and a ratable part of
Subsection (A) of this Section; any expense, loss or other deduction which cannot
definitely be allocated to some items or classes of gross
(2) Dividends other than those derived from sources income; and the portion of such taxable income
within the Philippines as provided in paragraph (2) of attributable to sources within the Philippines may be
Subsection (A) of this Section; determined by processes or formulas of general
apportionment prescribed by the Secretary of Finance.
(3) Compensation for labor or personal services Gains, profits and income from the sale of personal
performed without the Philippines; property produced (in whole or in part) by the taxpayer
within and sold without the Philippines, or produced (in
(4) Rentals or royalties from property located without whole or in part) by the taxpayer without and sold
the Philippines or from any interest in such property within the Philippines, shall be treated as derived partly
including rentals or royalties for the use of or for the from sources within and partly from sources without
privilege of using without the Philippines, patents, the Philippines.
copyrights, secret processes and formulas, goodwill,
trademarks, trade brands, franchises and other like Gains, profits and income derived from the purchase of
properties; and personal property within and its sale without the
Philippines, or from the purchase of personal property
(5) Gains, profits and income from the sale of real without and its sale within the Philippines shall be
property located without the Philippines. treated as derived entirely form sources within the
country in which sold: Provided, however, That gain
from the sale of shares of stock in a domestic
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corporation shall be treated as derived entirely form Meron din tayong salitang gross revenues, gross income
sources within the Philippines regardless of where the at meron ding taxable income.
said shares are sold. The transfer by a nonresident alien
or a foreign corporation to anyone of any share of stock Q: Ano bang difference niyan?
issued by a domestic corporation shall not be effected
or made in its book unless: A: So kunware ang business mo, tapsilugan.
(1) the transferor has filed with the Commissioner a Gross receipts/sales – 1,000, 000
bond conditioned upon the future payment by him of Cost of sales (400,000)
any income tax that may be due on the gains derived ____________________________
from such transfer, or Gross Income = 600, 000
Deductions (350,000)
(2) the Commissioner has certified that the taxes, if any, ____________________________
imposed in this Title and due on the gain realized from
such sale or transfer have been paid. It shall be the duty Taxable income: 250, 000
of the transferor and the corporation the shares of which
are sold or transferred, to advise the transferee of this Bawat benta mo ng tapsilog = gross sales, so bibilangin
requirement. mo sa isang taon (12 months) ilang tapsi ang nabenta, so
100 pesos/unit nagbenta ka buong taon so 10,000 units so
➔ Five parts ‘yan A-E 1M. Yan ang benta mo ng tapsilog.
➔ A: Gross income from within the Philippines
➔ B: Taxable income from within the Philippines Siyempre doon sa tapsilog, may puhunan ka, ang tawag
➔ C: gross income from without or outside of the doon, cost of sales. Ang puhunan mo baka.
Philippines
➔ D: Taxable income from without Lahat ng gastos mo para maproduce mo si tapsilog, let’s
➔ E: Yung E, partly within and within say 400k. So Magkano gross income mo? 600k
Q: Do you need to read it all? Si 600k after cost of sales – ito yung nakadefine sa tax
A: No, you only read one portion, ano gusto mo yung code.
within or without. Kapag binasa niyo yung within, lahat
ng wala doon, without. Ngayon babawasan mo siya ng deductions, say kuryente,
telepono, pasweldo ng tao so 350,000k so magkano suma
So yung A, ang kaversus niya is C yung B (within) and total mo? 250k.
kawithout is D. Ang E, mix nila.
Yung 250k yun ang lalagyan mo ng tax. Yan taxable
Q: Gross income v. Taxable income? income mo.
A:
Taxable- all the legitimate expenses had already been Para maintindihan mo ‘yan, sa sec 42 ang pinag uusapan
deducted ano yung gross income within, ano yung taxable income
within,ano yung gross income without, within, ano yung
Gross Income – ito yung “kita” Ninyo, wala pang tax. within, without na mixed.
Q: Ano naman yung gross sales and gross receipts? So ispecify natin, nasa sec. 24,25,26,27,28 ‘yan. Iisa lang
ang salita diyan.
Tignan natin.
Kapag ang tanong sa inyo, depending the source of
So merong gross receipts/gross sales income, when is it subject to tax in the Philippines, ito
lang ang sagot
Q: Ano yung gross receipts?
A: Serbisyo ang binenta mo, kapag sales ang binenta mo TAXPAYER TAXABLE TAXABLE
ay goods FROM FROM
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SOURCES SOURCES Where the property is located, so if ang royalty we realize
WITHIN WITHOUT that because of the usage, so if the property being used is
RC YES YES located in the Philippines it is within, regardless of where
NRC YES NO it is paid
RA YES NO
NRAETB YES NO Q: What about interest on loans?
NRANETB YES NO
A: Iba yung rule, because the debtor/creditor may be in
TAXPAYER TAXABLE TAXABLE the Philippines or baliktad, or parehong wala sa pilipinas
FROM FROM pero dito nagbayaran sa pilipinas
SOURCES SOURCES
WITHIN WITHOUT There are 4 possibilities, letter B yan under section 42
DC YES YES interest. Dalawang klase, interest on loans and bank
NRFC YES NO deposits
RFC YES NO
In bank deposits, if the bank that issues or paid the
interests is located in the Philippines it is within, if the
Among all the kinds of taxpayers, only a RC is subject to
bank is outside, it is income without.
tax from all income derived from within and without and
a DC, the rest of the taxpayers are subject to income tax
Yung interest on loans, medyo mahirap ‘yan intindihin
are subject only to income within.
These are the scenarios.
Their income from without, NRC, RA, NRAETB,
1) Debtor: inside the Philippines, creditor is
NRANETB, NRFC, RC shall be subject to tax only from
Outside the Philippines
income derived from within the Philippines.
2) Creditor: inside the Philippines, debtor is outside
the Philippines
Q: So how do we determine if the income is within or
3) Both debtor & creditor are outside the
without? Let us summarize the rules.
Philippines
4) Both debtor & creditor are inside the Philippines
Unahin natin ang compensation, if the service is
rendered within the Philippines then any income realized
Q: How de we determine here?
is within, regardless of where the payment of the
A: Pag nagbayaran sila ng utang, sino kumikita?
compensation is, if the service is rendered outside the
CREDITOR.
Philippines, it is income WITHOUT, kahit saan pa ang
bayad sa loob ng pilipinas or sa labas. KEYWORD IS:
Q: Sino ang gumagastos/debor?
Where the service is rendered.
A: Debtor.
Q: BPOS?
Q: Sino magbabayad ng buwis?
A: Creditor, kasi siya ang kumita.
A: Saan nagrerender ng service? Sa Pilipinas, so income
within ‘yan kahit sa ibang bansa pa ang nagbabayad niyan
So ang tanong, yung binayad ba ni debtor kay creditor is
within or without.
Let’s talk about RP and Tangible personal property
➔ Where the property is located
--
➔ If the property is located in the Philippines,
regardless saan nagbayaran, it is income within
FIRST SCENARIO: D (Philippines) nagbayad ng
the Philippines
interest on the loan, outside the Philippines kay creditor
➔ If located outside the Philippines, any income
derived therefrom is income without
Q: Sino ang kumita?
A: Creditor.
Q: Royalties, rentals, real property, tangible personal
property?
Q: Nasan si creditor?
A: USA.
A: Sa apat na ito, iisa ang rule.
Ang thinking natin, nasa labas, without.
HUA MULAN
• Creditor
-- o RC & DC: Taxable
o All others, not taxable
Next, ang nagbayad ng utang ay nasa labas ng pilipinas
DEBTOR: Domestic corporation (within)
Q: Sinong kumita? • Creditor: All are taxable.
A: Si creditor, na nasa pilipinas.
DEBRTOR: RFC (Within)
Sabi ng utak natin. WITHIN. • CREDITOR: All are taxable.
Q: Is this the way how we determine? Q: Ano ang rason kung bakit ang nagbayad na debtor
A: NO. THAT IS NOT THE RULE. It depends on who resident ng pilipinas, within?
is the debtor. A: Kung ikaw ay residente ng pilipinas at ikaw ay
nagbayad ng interest ng utang mo, sabi ng batas within
THIS IS THE ONLY RULE: If the debtor is a Resident ‘yan dahil malamang ang binayad mo kinita mo sa
of the Philippines, all interests on loans, paid by the debtor pilipinas, kaya within
regardless of who the creditor is, is considered as derived
from within Philippine sources. Regardless of where the Kung ikaw ay NR at nagbayad ng utang na may interest
debtor/creditor is the only rule to determine if within or ang pinambayad mo ng utang na may interest ay hindi
without is dependent on who the debtor is, if the debtor is galing sa pilipinas, kaya ang tawag dito ay income from
the resident of the Philippines, it is within without.
Scenario 1; May branch sa pilipinas which is a RFC That’s how you apply the exception to the rule.
Scenario 2; Principal place of business nasa USA, no
employees appointed, no agents so ang tawag sakanya If Mr. A, the stockholder is a resident citizen, 23k within
NRFC taxable, 77k, taxable
Nung 2019 nagbigay ng 100,000 pesos worth of dividends If Mr. A is a NRC, RA, NRAETB, NRANETB only the
kay A, the stockholder, ang tanong kay Mr. A nung 23k is taxable
tumanggap ba siya ng 100,000 take note di ang branch nag
issue ang main branch ang nag issue, is it within or If DC, same rule with RC.
without?
If NRFC, FC = 23k is only taxable.
If we follow the general rule, lahat ng 100k within. So. --
RC, NRC, RA, NRANETB, NRAETB, DC, RFC, FC –
TAXABLE, kahit sino pa ang stockholder KINDS OF INCOME AND WHAT KIND OF TAX
DO WE IMPOSE AND WHAT RATE (Sections 24-30
Let us apply the exception to the rule. of the tax code)
HUA MULAN
Ang sabi sa section 24, the income from within or without (1) Income tax of RC: All income from WITHIN and
of a RC other than B – C – D shall be subject to tax under without the Philippines, taxable as income under A. If
the succeeding paragraph, lahat daw ng kita ng RC will fall under purely compensation or “others”, tsaka
whether sa loob or labas ng pilipinas, na hindi income sa kapag wala sa B,C & D. So sa B, kapag yung source is
B, C, D ang tax sa A. foreign, dito nay an sa A. Kapag Sa C naman, kapag
listed in SE, dito na din yan sa A. Kapag sale of
Q: Ano ba yung tax sa letter A? ORDINARY assets, or assets na OUTSIDE the
Philippines, A na din yan mahuhulog
A: Let’s take the case of a resident citizen, whether the
RC is a CIE, SEP, SEI, MIE A: All income, na wala sa B, C, D. lahat ng klase ng
income na wala diyan, andito.
Q: Ano yung letter B?
A: Passive income. Kung ikaw ay CIE (this is introduced by the train law)
• The only thing you pay is net income tax.
Q: What are the passive income of an individual?
A: Interests on bank deposits, prices and winnings and Q: What is NIT?
dividends. A; Ito yung nasa codal nan aka schedule
Ang tax dito, FWT. Yung 20% - 35%, yan yung schedular type. There is no
fixed rate vs global system of taxation, in which case it is
Q: Ano yung letter C? a fixed rate.
A: Capital gains on shares of stock in a corporation.
Schedular, may schedule. Global: uniform fixed rate.
Ang tax dito FWT.
Dito sa pilipinas, semi schedular, semi global.
Q: Ano yung letter D?
A: Capital gains on sale of real property located within the May global dito, like VAT, % tax, donor’s tax & estate
Philippines. tax kasi fixed rates pero sa income tax, merong schedular
and merong fixed rates
Ang tax dito, FWT/CGT
Q: What is NIT?
Sabi ng batas, lahat ng kita mo na wala sa B, C, D nasa A. A: Sa loob ng 12 months, kukunin mo kita mo babawasan
ng deductions is equivalent to the taxable net income
Kapag RC ka lahat ng kita mo sa labas at loob ng pilipinas multiplied by the rates
na wala sa B, C, D nasa A.
(Gross Income – Allowable Deductions) = Taxable net
Pag wala sa B, C, D nasa A. income x % (rates) = tax due)
Let me explain So ang sweldo mo, compensation income earner ka, you
apply the NIT system schedular rates and this is the
Q: Ano yung A? formula
A: All income, other than B, C, D. Nasa A.
When you are a SEP/SEI these are all under A, meaning
Q: Anong ang tax na nasa A? Yung wala sa B, C, D, so exercise of profession or t/b under the train law may
anong tax ang babayaran mo. options ka.
Here are the rules introduced by the train law. If your gross receipts or gross sales, do not exceed 3M
meaning lahat ng kinita mo sa isang taon na 12 months,
hindi lalampas ng 3M, may 2 options ka.
Q: So ano yung A?
Option 1 – 8% applied on your gross sales/receipts
SECTION 24
(A) Rates on income tax on individual citizens and Option 2 – you may choose the NIT system
individual resident aliens of the Philippines
HUA MULAN
The choice is with the taxpayer, if and only if your GS/GR 2. SEP/SEI
do not exceed 3M • You file 4 returns and 1 annual return
• If less than 3M ang GR/GS you have a
Q: When do you choose? choice between
A: At the start of the year, before the filing of the first 1) 8% on the gross
quarterly return. If you do not choose, the default rate is 2) NIT
NIT. • If the GR/GS annually is more than 3M the
only choice is NIT
Kasi if engaged in t/b 4 returns plus 1 annual return, so if
you choose the option 1, the 8% the GR/GS is in excess 3. MIE – compensation = NIT
of 250k, so it is in excess of 250k, so meron kang minus • t/b or exercise of profession
250k, so kapag di ka namili ng 8, ang default rate mo is 1) if less than 3M GR/GS annually you have
NIT. achoice between: NIT and 8% on the gross
(but the 8% is not subject to the 250k
Number 2, namili ka ng NIT. deduction)
2) if more the GR/GS are more than 3M the
Q: Can you change from NIT to 8% and vice versa? only choice is NIT
A: No, once the choice is done or you did not choose so
NIT you cannot change within the year, next year na ulit. Examples
Q: Which is better? 1) Si lumbera may salary = NIT (sa pilipinas) meron
A: Depende sa financial operations. ding salary sa USA = NIT
2) Si lumbera may business tapsilugan, ang kinita
-- nitong tapsilugang sa pilipinas, 1.5 ito na ang GR,
3) Sa law office 1.4 ang kinita ko na nasa pilipinas
So 8% in excess of 250,000. Kapag NIT ang pinili mo,
wala ka nitong 250k na minus, because if you look at the • So yung 1.5 (tapsi) and 1.4(law office) iadd
rates the 20% starts with the 250k, you still benefit from ko so 2.9M, so pwede ako mamili kung 8%
the 250k, but walang minus 250k or NIT, kasi pasok
• Pero kung sobra ako ng 3.6M halimbawa ang
If more than 3M ang GS/GR wala kang choice, NIT ka
total nung law office and sa tapsilugan NIT
talaga
na ‘yan
--
--
Sa USA si lumbera
If you are a mixed income earner, yung Compensation mo
1) May sweldo = NIT
NIT yan, FOREVER ‘yan yung t/b mo or exercise of
2) Sa tapsilugan – 1.5M
profession, depende
3) Law office- 1.2M
If not more than 3M, pwede ka mamili 8% or NIT
Lahat yan, taxable because lumbera is a resident citizen,
so all income within and without are taxable.
If more than 3M – NIT
Q: Anong tax?
If you are a mixed income earner, if you choose 8%/NIT
A: NIT
wala yang in excess of 250k, this does not exists but if
SEP/SEI ka pwede yung 250k
Q: Bakit?
A : The NIT v 8% is not applicable, because lahat ng
This is your Income under column A.
kinita ko, other than compensation is more than 3M, so
NIT.
SUMMARY That is the meaning of the income of a RC, other than B,
C, D andoon sa A may choice ka between NIT or 8% if
1. CIE -> NIT (20%-35%) not more than 3M, if more than 3M no choice NIT ka na
(GI – AD) = TNI x % = tax due
--
HUA MULAN
WITHOUT.
Let us proceed with letter B.
Q: Taxable?
Q: What is letter B? A: Yes.
A: Passive income.
Q: Nasa B ba?
Q: What is passive income? A: No, because B is only from passive income derived
A: from Philippine sources
1) Royalties Q: So nasaan?
2) Interests on bank deposits A: Nasa A.
3) Prizes and winnings
4) Dividends Q: What rate?
A: NIT.
So in addition sa kita lumbera, may royalties sa libro, na
distributed in the Philipines and binili niyo lahat so 100k --
So passive income is subject to FWT at the rate of 10% Next, prizes and winnings when we speak of this as
but if the royalties are not from literary/musical passive income this is in games of chance. Ito yung raffle,
compositions it is 20% sugal so on and so forth
Meron din akong royalties na sa states naman naproduce Q: What are the rules? PCSO winnings?
at doon binebenta, ang kinita ko doon is 50,000 pesos, ang EXEMPTED?
sabi natin kanina, pag wala sa B nasa A, ang nasa B A: 10,000 pesos and below exempted, more than 10,000
royalties from Philippine sources, since ang royalties na pesos they are already subject to tax
ito nasa USA, so wala sa B so nasa A, so magiging NIT.
Pagsasama samahin mo siya, as if part siya derived from Q: Winnings and prizes other than PCSO?
Philippine sources A: 10k below, subject to tax but under column A
Q: Bakit hindi siya pwede sa FWT sa states? Iisa lang ang PCSO and lotto winnings: 10k and below,
A: eh pano mo wiwithhold yun, eh US government yun exempt, more than 10k subject to tax under column B at
but that is without prejudice to the tax due to the US. the rate of 20%
Note: all discussions are referring to a resident citizen, so Q: What does capital asset v ordinary asset mean?
taxable sa within and without.
A:
-- SECTION 39 (A) (1): The term “capital assets” means
property held by the taxpayer, whether or not connected
PART 2 with his trade or business but does not include:
HUA MULAN
Yung ibinebenta mo na goods? Yung tapislog, yan ang So if you purchased a stove and used it in your t/b mo, ang
goods FMV is 5k at naibenta mo ng 500 pesos, lugi ka ng 4,500
(ordinary loss)
Inventory subject to depreciation: meron kang stove,
electric fan, kawali, sandok, tables, chairs, tasa, baso, Hindi puhunan ang pinaguusapan, ang pinaguusapan sa
pinggan, kutsara, tinidor, ‘yan ang subject to depreciation oras ng bentahan ng asset is magkano ang FMV nung
binebenta mo vs the selling price, if there is a gain and the
Sa #4 yung land and building asset is a capital asset, capital gain. if there is a loss,
capital loss
Ito ang ORDINARY assets.
If ordinary asset, lugi – ordinary loss. If ordinary asset,
Q: Kung ikaw ang mayari ng tapsilugan, ano ang benta kita = ordinary loss
capital assets mo?
There is a clincher, section 100. Kapag ikaw ay nagbenta
A: Bahay mo, stove sa bahay mo, tapsilog na niluto mo sa ng lugi, ikaw at namimigay ng libre, if you sell at a loss
bahay mo, may electric fan ka sa bahay mo. when the asset sold is in connection with and used in t/b
and you sell it at a loss, you are liable to pay donor’s tax.
SAME ASSETS, but the assets are not used in the t/b
therefore they are not ordinary assets Nagbenta ka ng lugi, you incurred a loss but because
nalugi ka namigay ka ng libre, so yung pinamigay mong
-- libre, bayad ka ng donor’s tax.
Q: Ano ang relevance ng capital and ordinary assets? SEC. 100. Transfer for Less Than Adequate and Full
A: Kasi kapag nagbenta ka, kapag binenta mo yung Consideration. - Where property, other than real
dalawang assets capital at ordinary, iba ang tax property referred to in Section 24(D), is transferred for
repurcussions less than an adequate and full consideration in money
or money's worth, then the amount by which the fair
Kapag binenta mo ang capital assets at ikaw ay may tubo, market value of the property exceeded the value of the
ang tawag dito capital assets consideration shall, for the purpose of the tax imposed
by this Chapter, be deemed a gift, and shall be included
Kapag binenta mo ang capital assets mo ng lugi, capital in computing the amount of gifts made during the
loss calendar year. Provided, however, That a sale,
exchange, or other transfer of property made in the
Kapag ang ordinary asset mo binenta mo ng may tubo, ordinary course of business (a transaction which is a
ordinary gains bona fide, at arm’s length, free from any donative
intent), will be considered as made for an adequate and
Kapag ordinary asset mo binenta mo ng lugi, ordinary loss full consideration in money or money’s worth.
So if you have a stove, bought it at 10k but the value today If the consideration is more than the FMV, then you
is 5k and you sold it for 7k, may tubo ka pa dito. realized a gain. If the consideration is less than the FMV
you incurred a loss
HUA MULAN
In the sale of assets/goods ordinarily held for sale to SEC. 127. Tax on Sale, Barter or Exchange of Shares
customers, if they are sold for insufficient consideration, of Stock Listed and Traded through the Local Stock
bayad ka 6% donor’s tax between the difference of the Exchange or through Initial Public Offering. -
fmv and consideration.
(A) Tax on Sale, Barter or Exchange of Shares of Stock
Benta ng lugi, namigay ng libre bayad ka ng donor’s tax. Listed and Traded through the Local Stock Exchange.
[4] - There shall be levied, assessed and collected on
This is the background, wag kalilimutan. every sale, barter, exchange, or other disposition of
shares of stock listed and traded through the local stock
When you are faced with a bar problem involving asset at exchange other than the sale by a dealer in securities, a
binenta ang unang gagawin, capital asset ba or ordinary tax at the rate of six-tenths of one percent (6/10 of 1%)
asset. of the gross selling price or gross value in money of the
shares of stock sold, bartered, exchanged or otherwise
Q: How do you distinguish the two? disposed which shall be paid by the seller or transferor.
A: Sec. 39 is the rule
(B) Repealed under Section 6 of Republic Act No.
If sold at a gain, then you realize a gain. the gain is 11494, otherwise known as the "Bayanihan to Recover
taxable. As One Act."
If you incurred a loss, it is not deductible. (C) Return on Capital Gains Realized from Sale of
Shares of Stocks. –
But if you sell an asset/goods which are used ordinaly held
in sale to customers, nagbenta ka ng libre namigay ka (1) Return on Capital Gains Realized from Sale of
bayad ka donor’s tax at 6%, basis of 6% is the difference Shares of Stock Listed and Traded in the Local Stock
between FMV and consideration Exchange.- It shall be the duty of every stock broker
who effected the sale subject to the tax imposed herein
-- to collect the tax and remit the same to the Bureau of
Internal Revenue within five (5) banking days from the
UNDER LETTER C date of collection thereof and to submit on Mondays of
each week to the secretary of the stock exchange, of
So if you sale the asset which is shares of stock in a which he is a member, a true and complete return which
domestic corporation and these are capital asset, not shall contain a declaration of all the transactions
traded to the stock exchange, it is FWT @ 15% rate effected through him during the preceding week and of
taxes collected by him and turned over to the Bureau
So if you sell shares of stocks in a foreign corporation, Of Internal Revenue.
wala siya sa C at meron kang kita, the tax is under A, and
NIT if applicable (2) Return on Public Offerings of Shares of Stock.- In
case of primary offering, the corporate issuer shall file
Q: What if you share SS and the same is traded? the return and pay the corresponding tax within thirty
A: Wala sa C, kasi traded. (30) days from the date of listing of the shares of stock
in the local stock exchange. In the case of secondary
Q: So ano ang repurcussions? offering, the provision of Subsection (C) (1) of this
A: wala sa income tax provisions Section shall apply as to the time and manner of the
payment of the tax.
Here, you will apply section 127 of the tax code, and it is
percentage tax at the rate of .6 of 1% of the gross selling (D) Common Provisions. - any gain derived from the
price. sale, barter, exchange or other disposition of shares of
stock under this Section shall be exempt from the tax
If traded, wala sa C pero wala sa A because the income imposed in Sections 24(C), 27(D)(2), 28(A)(8)(c), and
tax provisions will never apply, what you apply is section 28(B)(5)(c) of this Code and from the regular
127 where the tax is percentage tax which is .6% of the individual or corporate income tax. Tax paid under this
gross selling price Section shall not be deductible for income tax
purposes.
HUA MULAN
Whether tubo or lugi, if traded there is always a tax Q: May income na ba?
because the basis is the GSP (GROSS SELLING PRICE) A: Wala pang income because it was not realized, mere
increase in the value of the property is not income because
So section 100 will never apply kahit ibenta mo ng lugi, it is not yet realized. So when the value of the property
kapag traded ang shares of stock, do not apply letter C, do increases in value, it is paper profit and not income
not apply letter A. What is applicable is section 127 of the
tax code. --
Which means that whether tubo or lugi, percentage tax Ngayon 1M bili ko, FMV: 1.7M, nabenta ko 2M.
will have to be paid.
Q: Magkano kinita ko?
-- A: 300k each.
Technically sa batas, 6% between the FMV and GSP, pero Tapsilugan sa pilipinas, ordinary asset wala sa D, because
yung FMV madami yan, yang yung mga assessor’s value, it is ordinary so nasa A. Ang itatax is 300 na tubo
GSP, zonal or assessed value.
Tapsilugan sa states is an ordinary asset, dahil ordinary,
The highest one is the basis. wala sa D, nasa A. Ang itatax ang 300k, so ordinary gains.
HUA MULAN
zonal valuation, kung ano pinakamataas, yun ang basis ng
CGT of 6% A:
1. You sell your actual principal residence, located
In other words, when the property sold, under tubo or lugi in the Philippines
if under letter D, bayad ka ng buwis. 2. Within 30 days from the sale, you inform the BIR
that you are availing of the exemption
3. Within 18 months from the sale, you buy or build
-- another actual principal residence in lieu of the
one you sold using the proceeds of the sale
Next, yung bahay sa states, LUGI. 4. You avail of the exemption once every 10 years
5. The historical cost is considered as to how much
Q: Ano gagawin ko? is exempted from tax or subjected to income tax
A: wala kang income, eh di wala ka maiilagay sa column
A. Eh di wala kang income tax Q: What is actual principal residence?
A: Place where even though one is absent, he has the
Eh nagbenta ka ng lugi, namigay libre. Punta ka section intention of returning to. It does not require continuous,
100 uninterrupted sale
-- Q: Why 30 days?
A: Because the CGT is due within 30 days from sale, so
Tapsilugan sa pilipinas, binenta mo ng lugi. Wala kang if you want to avail the exemption you have to inform the
income. Pero dahil nagbenta ka lugi, namigay ka libre BIR that you will not pay for the CGT
donor’s tax
Q: What happens if you don’t use the proceeds doon
-- sa pagpapagawa ng bahay, example: ang benta ng
bahay 5M, ang nagamit mo lang 3M?
Tapsilugan sa states, binenta mo ng lugi. Donor’s tax.
Section 100. A: Bayad ka 6% sa 2M
Tapsilugan sa states & pilipinas:both ordinary, nasa A When you sell in favor of the government, nasa codal ito,
both when there is a sale of RP in favor of the govt, you have
the option to choose what tax you pay – hindi ka libre sa
Kapag binenta mo ‘yan ng lugi, yung bahay sa pilipinas buwis, if the buyer of your property is the govt then the
CGT ang tax, pero yung tatlo binenta mo ng lugi wala taxpayer owner can choose between CGT of 6% which is
kang income tax, so nasa section 100 ang tax mo nagbenta based on the FMV/GSP/ZV/TX DEC or you choose the
ng lugi, namigay ng libre kaya magbayad ka ng donor’s tax under column A, income tax.
tax.
The typical sale in favor of the government happens in
-- expropriation proceedings these are involuntary sales.
Let’s go back to LETTER D , CGT on RP located in the So here, yung property mo nabili mo ng 1M, so you sold
Philippines, the tax due is 6% based on the FMV etc etc it involuntarily through expropriation so ang nakuha sa’yo
whichever is higher, tubo or lugi, bayad ka ng buwis. isa 200 square meters, yung 200 square meters na ‘yan
ang magiging basis ng bayad sayo ng just compensation
The exception is when you sell your actual principal is the fair market value yung nasa tax dec, let’s say the
residence FMV is 500k, so babayaran ka ng gobyerno ng 500k. the
Q: What are the requisites to be exempt from CGT sale in involuntary
when you sell your actual principal residence?
HUA MULAN
Q: If you are the taxpayer owner, ano ang babayaran A: When the right of redemption prescribes and there is
niyong buwis? consolidation in the name of the highest buyer, before
consolidation CGT must be paid
A: mamimili ka.
--
Q: Ano ang options?
A: Now how do we tax a NRC?
Q: Anong basehan ng NIT kapag namili ka? (E) NON RESIDENT CITIZEN
A: So kung NIT ang pinili mo, magkano mo ibinebenta, o A citizen of the Philippines who establishes to the
it’s 500k, ang FMV is 500k so 0 ang tubo mo so kapag satisfaction of the commissioner the fact of his physical
pinili mo ang NIT, hindi sinasabi ng batas na libre sa presence abroad with a definite intention of residing
buwis, pero wala kang tax payment therein
Q: Bakit wala kang tax if NIT? o A citizen of the Philippines who leaves the Philipines
A: Kasi ang basis ng NIT is tubo, eh wala namang tubo. during the taxable year to reside abroad, either as an
500k ang kinita mo, 500k lang ang nasa tax dec. immigrant or for employment on a permanent basis
THE LAW DOES NOT SAY YOU ARE EXEMPT. o A citizen of the Philippines who works and derives
income from abroad and whose employment thereat,
If you choose 8% ng 500,000 agreed may babayaran kang requires him to be physically present abroad most of
buwis. the time during the taxable year
If you are a NRC, WALANG TAX ang nasa US. Only As a general rule, aliens are not allowed to own real
ang pilipinas ang may tax properties in the Philippines there are exceptions to the
rule: 1) by way of succession and inheritance 2) purchase
Q: Saan mag fafall? of condominium units 3) if you were a former citizen, may
A: CGT Tax, under letter A limitation ito
Kapg binenta ko ng lugi ng 500k, lahat ng ‘yan may tax. Q: anong pagkakataon nag apply yung exemption if
NRC, may CGT (doon sa real property na capital in nature you are a NRANETB?
na nasa pilipinas), may donor’s tax etc.
A: Yung special aliens, yung OBUS, multinational
-- companies and petroleum
We still apply the CGT 6% EXCEPTION. This is They are in the Philippines, at dahil employed sila, they
applicable, foreclosure of mortgage, expropriation acquire real property such as condominium units, bumili
proceedings, so long as the real property is in the ulit ng bago, so the requisites for the exemption of CGT
Philippines. may be applicable to them
-- --
Let’s talk about resident alien. SAME na SAME ang RC SUMMARY OF INDIVIDUAL TAXPAYERS
and the RA, walang pinagkaiba ang tax ng RA and RC.
They are taxed in the same manner completely Kinds of w/i w/ou A B C D
Taxpaye n t
Q: Can we apply the exception from the CGT to a rs
resident alien? RC NIT/8 FW FW FW
A: Yes. % T T T
NRC NIT/8 FW FW FW
-- % T T T
RA NIT/8 FW FW FW
NRAETB, same rules % T T T
NRAET/ NIT/8 FW FW FW
When the dividends are issued by a domestic corporation B % T T T
to a RC, NRC, RA the tax is at 10% but when the taxpayer NRANET GIT = FW FW
is a NRAET/B the rate is increased to 20%, this is the B 25% T T
only difference. Estate of
trust
--
NRANETB --
HUA MULAN
➔ This exemption from tax on interest on long term
Now let’s talk about domestic corporations. deposits do not cover CORPORATIONS
Kinds of w/i w/ou A B C D ➔ This is applicable only if the taxpayer is an
Taxpayer n t individual
s
DC 30 FW FW FW Next, CGT on shares of stocks and property same rules sa
% T T T individual but the exemption from CGT of 6% does not
NIT 20% apply to a corporate taxpayer, exemption from tax of
RFC interest income do not also apply to a domestic taxpayer
NRFC
--
Ang tatandaan niyo kapag corporate taxpayer they realize Corporations have additional taxes like MCIT and IAET,
income because of their t/b. walang corporation na tinayo no applicable to individuals
para maging corporation lang
The AOIS, may purpose lagi and the income is always
derived from t/b so we call that ordinary income Q: What is the difference between MCIT and IAET?
A: MCIT is 2% on the gross, IAET is 10%
Meron din silang letter A, pero fixed ang rate 30% NIT
MCIT is in lieu of 30% NIT of the corporation, kapalit.
Meron din silang passive income So ang isang corporation ang babayaran is NIT of 30% or
MCIT of 2%
Q: What are the passive income for individuals?
A: Interests, royalties, prizes and winnings & dividends Ang IAET naman, is in addition hindi siya kapalit. MCIT
is in lieu of, kapalit ng NIT so ang tax ng corporation is
Pagdating sa corporation, wala silang prizes and winnings MCIT or NIT
and no royalties from sale or musical compositions
IAET is in addition to karagdagag babayaran if meron
Q: Why? kang improperly accumulated earnings
A: Hindi naman sila pwede magkaron ng intellectual
creations, wala ding board resolution na iaauthorize yung --
president tumaya sa lotto
Unahin natin yung MCIT.
So ang passive income lang ay interests, and royalties
Ang sabi sa batas, a domestic corporation is subject of 2%
Ang dividends wala din. MCIT of the gross income beginning the fourth year
following the commencement of its operations provided
Meron kasing inter-corporate dividends tax that the 2% on the gross is higher than the NIT of 30%.
= P66,000 this is the corporate tax due NIT So beginning the fourth year following the
commencement of operations pagdating ng 2019 at lugi
ka pa din
Gross sales kasi tapsilugan, meaning magkano ang
nabebenta mo sa isang taon. Say, 2M a year babawasan Nung 2019 2.9M ang kita, 2.5 ang deductions lugi ka pa
ng cost of sales 1.3 million, so 700,000 ang tawag dito din ng 400,000 so ang NIT mo is 0 pa din
gross income babawas ng deductions under section 34 of
the tax code 480,000 so 220,000 yung 220,000 yung So 5 taon ka na, lugi ka ng lugi sabi ng gobyerno kung
taxable net income yan ang imumultiply ng 30%. So gusto mo malugi pa, bahala ka na sa buhay pero sa 2019
66,000 ang corporate tax due. BAYAD SA GOBYERNO on the fourth year from your commencement, dito
66,000 kung NIT. magbabayad ka na ng MCIT so 2.9 M x 2%, ito na ang
tax na babayaran mo, kasi mas mataas yung MCIT mo
2015 2016 2017 2018 2019 kaysa NIT. So on the fifth year kung ano mas mataas
1.5M 1.8M 2.3M 2.6 GS 2.9 GS MCIT or NIT, wala akong pake kung lugi ka.
GS GS GS
Q: Pano kung nakarecover at tumubo?
(1.8M) (1.9M) (2.1) D (2.5) – D A: Eh edi bayad ka ng NIT
deductions - D (2.5) -D _______ _______
____ _______ Q: Kailangan ba lugi ng lugi?
(500k) x (400k) x A: No.
(300k) x (100k) (200k) x 30% = 0 30% = 0
30 % = 0 x 30% 30% = 0 NIT NIT In 2015-2018 LUGI ka (SAME AMOUNTS SA TABLE)
NIT = 0 NIT , in 2019 2.9 M ang GS and 2.1M, so 800k na, so 800k x
NIT Here, 30 % = 240K, so if on the gross 2.9Mx 2% = 58,000
2.9 x 2%
= 58,000 So NIT is higher than MCIT, so you pay the NIT.
this is
your It does nto matter what happened sa past four years, basta
MCIT pagdating on the fifth dalawa na ang icocompute mo
tax due MCIT and NIT BASTA on the fifth year of operations,
hindi malulugi sayo ang gobyerno
PERSONAL NOTE: Feel ko nagkamali si ma’am sa
2016-2019 na illustration, cause it cannot be lugi kung Q: What is IAET (Improperly accumulated earnings
mas malaki ang gross sales mo kaysa sa deductions so tax)?
the amounts should have been shifted, nevertheless
same pa din naming in essence A: These are earnings of a corporate taxpayer retained
beyond reasonable business needs
So for the year of 2015 sa tapsilugan ko, ang gross income
ko, ay 1.5M, ang allowable deductions 1.8M ang This is related to dividends.
mangyayare 300k multiply it to 30%, wala 0 ang tax.
Ang isang corporation si XYZ may shareholders siya,
tapos kapag kumite ‘yan may income yan na pwede
iretain for its business operation and expansion.
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Ang di niya gagamitin sa BO, expansion. According to When it comes to dividends, D-D exempt, D-RFC exempt
the corporation code, hindi mo pwede ‘yan iretain 100%. pa din. For capital gains under C same.
Kapag niretain mo ‘yan ang tawag diyan you retained it
beyond your reasonable business needs, so if you don’t But for D, not applicable.
give it to stockholders, nawawala yung 10% na kikitain
ng govt sa stockholder kaya ang sabi ng batas, kapag MCIT is applicable, IAET is N/A because this is only a
pinamigay mo kikita ako, kapag nagdamot ka at ayaw mo branch here in the Philippines
ipamigay sa stockholders merong kapalit, 10% IAET, ang
magbabayad na ngayon ang corporation. So the --
corporation is liable for 10% IAET.
When it comes to NRFC we have GIT fixed at 30% for
Yung kinita may tax na ‘yan na NIT, so may kit ana govt, corporate taxpayers, same for A & B, C is FWT and D is
kasi nagbayad na ‘yan sa govt. Kapag yung kita ng corp N/A because it they cannot own real property in the
ibibigay sa tao (stockholders) kikita ng pangalawa ang Philippines
gobyerno under column B, dividends issued by a DC, the
tax is FWT subject to 10% rate However, D-NRFC for dividends for FWT 15%, MCIT is
and IAET is N/A
Kinds of w/i w/o ICD MCI IAE BPR Meron tayong section 30 of the tax code. Nasulat diyan,
Taxpaye n ut T T T T 11 corporations
rs
DC E 2% FW FWT SEC. 30. Exemptions from Tax on Corporations. -
(DC- GI T The following organizations shall not be taxed
DC) under this Title in respect to income received by
RFC E 2% N/A 15% them as such:
(DC- GI
RFC (A) Labor, agricultural or horticultural
) organization not organized principally for profit;
NRFC FW N/A N/A N/A
T (B) Mutual savings bank not having a capital stock
15% represented by shares, and cooperative bank
without capital stock organized and operated for
Q: Ano naman ang tax ng RFC? mutual purposes and without profit;
A: Subject to tax only from income within at the rate of
NIT 30%, Same. FWT of 20% on interests on all bank (C) A beneficiary society, order or association,
deposits, including interest on long term deposits, operating for the exclusive benefit of the members
ordinary royalties such as a fraternal organization operating under the
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lodge system, or mutual aid association or a Q: anong nature nung 11 corporations under section
nonstock corporation organized by employees 30?
providing for the payment of life, sickness, accident, A: Non-stock & non-profit organizations
or other benefits exclusively to the members of such
society, order, or association, or nonstock Ang sabi sa batas, lahat ng income as such of the 11
corporation or their dependents; corporations shall be exempt from income under this title.
(D) Cemetery company owned and operated Q: So anong klaseng tax sila exempted?
exclusively for the benefit of its members; A: Lahat ng income ng 11 corporations
Notwithstanding the provisions in the preceding These are the organizations that we have.
paragraphs, the income of whatever kind and
character of the foregoing organizations from any Q: Ano sabi ng constitution?
of their properties, real or personal, or from any of A: The constitution covers both, charitable institutions
their activities conducted for profit regardless of the
disposition made of such income, shall be subject to (3) Charitable institutions, churches and parsonages or
tax imposed under this Code. convents appurtenant thereto, mosques, non-profit
cemeteries, and all lands, buildings, and improvements,
actually, directly, and exclusively used for religious,
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charitable, or educational purposes shall be exempt So nagsale of paintings yung home for the aged. Kumita
from taxation. ng 1M pesos.
So here is the home for the aged mat Building 1, 2, 3, may Q: Anong tax?
office, may kitchen at parking lot A: NIT of 30%
1) Kapag ang topic ay RPT, alin diyan ang exempt? Next, nilagyan ang 1M at 2M sa bank kumita ng interest
A: Lahat ‘yan exempted, kasi lahat sila ADE even earnings ng 20,000 pesos
incidental use
Q: Income?
On the side of the home for the aged, may A: Yes.
pinagrerentahan. May mcdo, Jollibee, KFC and milk tea.
Q: Taxable?
Q: Is this exempt, the rented portion? A: Yes
A: Under the constitution, it is not ADE so it is not
exempted from RPT. Q: Why?
A: Kasi sabi ng section 30 an income conducted for profit
On the answer to the question of the RPT, use the shall be subject to tax
constitution not the tax code.
Q: Anong tax?
Q: When do we use the tax code? A: Passive income, on interests of bank deposits
A: Ang home for the aged may activities yan, gumagawa
ng basahan/painting Q: What rate?
A: 20%
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So we have 1M – exempt (A) The merger of usufruct in the owner of the naked
2M – NIT title;
20,000 – FWT
➔ Ito ang tax repurcussions (B) The transmission or delivery of the inheritance or
➔ Ito lahat ginamit pang improve pang pintura, legacy by the fiduciary heir or legatee to the
pambili ng computers, devoted for charitable fideicommissary;
purposes
(C) The transmission from the first heir, legatee or
Q: Sa paggamit nito, exempted ba sila from tax? donee in favor of another beneficiary, in accordance
A: No. because under sec 30 income of whatever kind with the desire of the predecessor; and
from R/P property or activity conducted for profit
regardless of disposition shall no longer be exempt from (D) All bequests, devises, legacies or transfers to social
tax. welfare, cultural and charitable institutions, no part of
the net income of which inures to the benefit of any
Therefore, even if these two which are subject to tax individual: Provided, however, That not more than
which are used and devoted for charitable purposes, thirty percent (30%) of the said bequests, devises,
because section 30 states that they are subject to tax, they legacies or transfers shall be used by such institutions
will not be exempted by reason of usage for charitable for administration purposes.
purpose
SEC. 101. Exemption of Certain Gifts. - The
-- following gifts or donations shall be exempt from
the tax provided for in this Chapter:
Si Mr. X nag donate ng 500,000 sa home for the aged.
➔ Is it income on the part of the home for the aged? (A) In the Case of Gifts Made by a Resident. –
YES
➔ Is it taxable income? No. (1) Gifts made to or for the use of the National
o BASIS: Sec. 32 (b) (3) Government or any entity created by any of its agencies
which is not conducted for profit, or to any political
(B) Exclusions from Gross Income. - The following subdivision of the said Government; and
items shall not be included in gross income and shall be
exempt from taxation under this Title: (2) Gifts in favor of an educational and/or charitable,
religious, cultural or social welfare corporation,
(3) Gifts, Bequests, and Devises. - The value of institution, accredited nongovernment organization,
property acquired by gift, bequest, devise, or descent: trust or philanthropic organization or research
Provided, however, That income from such property, institution or organization: Provided, however, That
as well as gift, bequest, devise or descent of income not more than thirty percent (30%) of said gifts shall be
from any property, in cases of transfers of divided used by such donee for administration purposes. For
interest, shall be included in gross income. the purpose of this exemption, a 'non-profit educational
➔ One of the exclusions is gifts bequests and and/or charitable corporation, institution, accredited
devises nongovernment organization, trust or philanthropic
➔ So if we talk about gifts/donations whether mortis organization and/or research institution or organization'
causa/inter vivos from the POV of the recipient it is a school, college or university and/or charitable
is income but it is not subject to tax because it is corporation, accredited nongovernment organization,
an item of exclusion trust or philanthropic organization and/or research
institution or organization, incorporated as a non-stock
Q: is it subject to donor’s tax if inter vivos? And estate entity, paying no dividends, governed by trustees who
tax if mortis causa? receive no compensation, and devoting all its income,
whether students' fees or gifts, donation, subsidies or
A: This is not in the constitution, this is under sec. 87 for other forms of philanthropy, to the accomplishment and
estate tax and sec. 10 for estate tax promotion of the purposes enumerated in its Articles of
Incorporation. [4]
SEC. 87 Exemption of Certain Acquisitions and
Transmissions. –-The following shall not be taxed: (B) In the Case of Gifts Made by a Nonresident not a
Citizen of the Philippines. –
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(1) Gifts made to or for the use of the National A: Meaning, hindi dapat gamitin for pampasweldo ng tao,
Government or any entity created by any of its agencies telepono, supplies, maintenance of the organization.
which is not conducted for profit, or to any political
subdivision of the said Government. Q: Nung nag donate si X ng 500,000. Can X claim it as
a deduction on his gross income?
(2) Gifts in favor of an educational and/or charitable,
religious, cultural or social welfare corporation, A: Kung si X ay tao at Purely CIE, he cannot claim it as
institution, foundation, trust or philanthropic deduction, this is not allowed as far as a CIE is concerned
organization or research institution or organization:
Provided, however, That not more than thirty percent Kung si X ay tao at siya ay SEP/SEI or MIE but limited
(30%) of said gifts shall be used by such donee for to the t/b side he can claim as deduction but only up to the
administration purposes. extent of 10% of his taxable income prior to his deduction
(C)Tax Credit for Donor's Taxes Paid to a Foreign If X is a corporate taxpayer, he can claim up to 10% of his
Country.– taxable income prior to this deduction
(1) In General. - The tax imposed by this Title upon a This is found under section 34 h
donor who was a citizen or a resident at the time of
donation shall be credited with the amount of any (H) Charitable and Other Contributions. –
donor's tax of any character and description imposed by
the authority of a foreign country. (1) In General. - Contributions or gifts actually paid or
made within the taxable year to, or for the use of the
(2) Limitations on Credit. - The amount of the credit Government of the Philippines or any of its agencies or
taken under this Section shall be subject to each any political subdivision thereof exclusively for public
purposes, or to accredited domestic corporation or
of the following limitations: associations organized and operated exclusively for
religious, charitable, scientific, youth and sports
(a) The amount of the credit in respect to the tax paid development, cultural or educational purposes or for
to any country shall not exceed the same proportion of the rehabilitation of veterans, or to social welfare
the tax against which such credit is taken, which the net institutions, or to non-government organizations, in
gifts situated within such country taxable under this accordance with rules and regulations promulgated by
Title bears to his entire net gifts; and the Secretary of finance, upon recommendation of the
Commissioner, no part of the net [43] income of which
(b) The total amount of the credit shall not exceed the inures to the benefit of any private stockholder or
same proportion of the tax against which such credit is individual in an amount not in excess of ten percent
taken, which the donor's net gifts situated outside the (10%) in the case of an individual, and five percent (%)
Philippines taxable under this title bears to his entire in the case of a corporation, of the taxpayer's taxable
net gifts. income derived from trade, business or profession as
computed without the benefit of this and the following
Here is the answer. subparagraphs.
Q: Is the gift of 500k, whether inter vivos or mortis (2) Contributions Deductible in Full. -
causa subject to tax? Notwithstanding the provisions of the preceding
subparagraph, donations to the following institutions or
A: The answer is in the tax code NOT in the constitution. entities shall be deductible in full:
According to the tax code, the donation of the 500k shall
not be subject to DT or ET provided that not more than (a) Donations to the Government. - Donations to the
30% of the gift is used by charitable institution for Government of the Philippines or to any of its agencies
administration purposes or political subdivisions, including fully-owned
government corporations, exclusively to finance, to
Subject to DT/ET provided we comply with the 30% provide for, or to be used in undertaking priority
restriction. activities in education, health, youth and sports
development, human settlements, science and culture,
Q: What is the meaning of administration purposes? and in economic development according to a National
Priority Plan determined by the National Economic and
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Development Authority (NEDA), In consultation with best accomplish the general purpose for which the
appropriate government agencies, including its dissolved organization was organized.
regional development councils and private
philanthropic persons and institutions: Provided, That Subject to such terms and conditions as may be
any donation which is made to the Government or to prescribed by the Secretary of Finance, the term
any of its agencies or political subdivisions not in 'utilization' means:
accordance with the said annual priority plan shall be
subject to the limitations prescribed in paragraph (1) of (i) Any amount in cash or in kind (including
this Subsection; administrative expenses) paid or utilized to accomplish
one or more purposes for which the accredited
(b) Donations to Certain Foreign Institutions or nongovernment organization was created or organized.
International Organizations. - donations to foreign
institutions or international organizations which are (ii) Any amount paid to acquire an asset used (or held
fully deductible in pursuance of or in compliance with for use) directly in carrying out one or more purposes
agreements, treaties, or commitments entered into by for which the accredited nongovernment organization
the Government of the Philippines and the foreign was created or organized.
institutions or international organizations or in
pursuance of special laws; An amount set aside for a specific project which comes
within one or more purposes of the accredited
(c) Donations to Accredited Nongovernment nongovernment organization may be treated as a
Organizations. -The term 'nongovernment utilization, but only if at the time such amount is set
organization' means a non-profit domestic corporation: aside, the accredited nongovernment organization has
established to the satisfaction of the Commissioner that
(1) Organized and operated exclusively for scientific, the amount will be paid for the specific project within
research, educational, character-building and youth and a period to be prescribed in rules and regulations to be
sports development, health, social welfare, cultural or promulgated by the Secretary of Finance, upon
charitable purposes, or a combination thereof, no part recommendation of the Commissioner, but not to
of the net [22] income of which inures to the benefit of exceed five (5) years, and the project is one which can
any private individual; be better accomplished by setting aside such amount
than by immediate payment of funds.
(2) Which, not later than the 15th day of the third month
after the close of the accredited nongovernment (3) Valuation. - The amount of any charitable
organizations taxable year in which contributions are contribution of property other than money shall be
received, makes utilization directly for the active based on the acquisition cost of said property.
conduct of the activities constituting the purpose or
function for which it is organized and operated, unless (4) Proof of Deductions. - Contributions or gifts shall
an extended period is granted by the Secretary of be allowable as deductions only if verified under the
Finance in accordance with the rules and regulations to rules and regulations prescribed by the Secretary of
be promulgated, upon recommendation of the Finance, upon recommendation of the Commissioner.
Commissioner;
So if may donation in favor of a charitable institution,
(3) The level of administrative expense of which shall, income tax is a NO. pero babawian ka sa donor’s tax at
on an annual basis, conform with the rules and estate tax.
regulations to be prescribed by the Secretary of
Finance, upon recommendation of the Commissioner, Exempted from income tax but subject to DT/ET tax. Ito
but in no case to exceed thirty percent (30%) of the total ang meaning of these rules
expenses; and
--
(4) The assets of which, in the event of dissolution,
would be distributed to another non-profit domestic Religious institution. Simbahang katoliko.
corporation organized for similar purpose or purposes,
or to the state for public purpose, or would be mcdo
distributed by a court to another organization to be used Reading area Simbahan parsonage
in such manner as in the judgment of said court shall +
jabee
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office engaged in the supply and distribution of water and/or
generation and transmission of electric power;
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Q: Can the donor claim it as a deduction? mcd Building 1 Build Buildin
A: o ing 2 g3 GY DOR
M M
Kung si X ay tao at Purely CIE, he cannot claim it as
deduction, this is not allowed as far as a CIE is concerned
jabe
Kung si X ay tao at siya ay SEP/SEI or MIE but limited e LIBRAR Office
to the t/b side he can claim as deduction but only up to the Y
extent of 10% of his taxable income prior to his deduction
kfc Canteen
If X is a corporate taxpayer, he can claim up to 10% of his
taxable income prior to this deduction
MT Parking lot
This is found under section 34 h
--
Q: Alin dyan ang exempted sa RPT?
Let us now proceed to educational institutions. A: building 1, 2, 3 may library, merong office may
canteen, may parking lot, may gym, dormitory
3 kinds.
1) Non-stock non profit educational institutions Q: Bakit?
2) Proprietary educational institutions A: Actually, directly & exclusively used
3) Government institutions
Q: Basis?
Q: NSNPEI, what is the constitutional limitation? A: Constitution and LGC
A: All assets, all revenues and assets as well as all lands,
buildings and improvements of a NSNPEI ADE used to Q: What is not exempted from RPT?
educational purposes, shall be exempt from taxes and A: mcdo, jabee, kfc, at milk tea
duties
Q : Reason?
Between this constitutional provision and sa charitable A: It is not used for ADE.
and religious, sa charitable and religious ang exempted
lang Land, buildings and assets. Here, revenues (kita) ---
kasama.
Income naman, let’s say tuition fee 10M.
Same sila ng ADE, but here the exemption is broader
because the exemption here includes RPT and all internal Q: Is this income?
revenue taxes (income tax, donors tax etc) so mas A: Yes
malawak ang exemption
Q: Is it taxable income?
(3) All revenues and assets of non-stock, non-profit A: If you look at the constitution, yung kit ana 10M, basta
educational institutions used actually, directly, and gamitin sa education purpose, libre sa tax pero ang sab isa
exclusively for educational purposes shall be exempt section 30, income as such ng eskwelahan from the
from taxes and duties. Upon the dissolution or primary purpose such as tuition fee, NO TAX.
cessation of the corporate existence of such institutions,
their assets shall be disposed of in the manner provided But there’s a big difference between the two
by law.
Sa constitution kailangan mo gamitin. ADE for
educational purpose
So here is a school, NSNPEI. Let us say XYZ school, so
may building 1, 2, 3 may library, merong office may
Ang sabi sa section 30, hindi gamit ang pinaguusapan, ang
canteen, may parking lot, may gym, dormitory tapos sa
sinasabi dito the source of the income that matters, it is
gilid pinarerentahan, mcdo, jabee, kfc, at milk tea
what determines that determines the exemption,
regardless of use if the source is income as such, that will
be exempt.
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A: You follow the sale rules, yung income tax lang ang
Constitution Section 30 nagbabago.
SEC. 30 DOES NOT APPLY TO NSNPEI Q: RPT, alin diyan ang exempted?
A: SAME with NSNPEI
Q: What if you donate?
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Q: Basis?
A: No constitution, LGC lang. Tuition fee = 10M (related trade or activity)
Rentals = 2M (unrelated)
Q: Rented portion?
A: Not exempt. Same reason, basis is LGC lang not Total – 12M/2 = 6M
constitution.
If the income from unrelated t/a does not exceed 50% of
Q: Sa tuition fee, 10M. What do we apply? the total income, then the preferential rate applies
(B) Proprietary Educational Institutions and tuition fee= 2M, Rentals = 10M. So, definitely more than
Hospitals.– 50% yung kita from unrelated trade or activity, so the
preferential rate of 10% does not apply, but the 30% NIT
Proprietary educational institutions and hospitals applies.
which are nonprofit shall pay a tax of ten percent (10%)
on their taxable income except those covered by SAME RULES SA DONATIONS.
Subsection (D) hereof: Provided, That beginning July
1, 2020 until June 30, 2023, the tax rate herein imposed --
shall be one percent (1%): Provided, further, That if the
gross income from 'unrelated trade, business or other GOVERNMENT EDUCATIONAL INSTITUTION
activity' exceeds fifty percent (50%) of the total gross ➔ UP does not fall under here, because may separate
income derived by such educational institutions or charter yun.
hospitals from all sources, the tax prescribed in
Subsection (A) hereof shall be imposed on the entire Q: May Nakita na ba kayo sa constitution na
taxable income. For purposes of this Subsection, the exemption ng govt educational constitution from tax?
term 'unrelated trade, business or other activity' means
any trade, business or other activity, the conduct of A: Wala kahit isa.
which is not substantially related to the exercise or
performance by such educational institution or hospital Under section 30 of the tax code, there is a specific
of its primary purpose or function. 'Proprietary' means provision.
a private hospital, or any private school maintained and
administered by private individuals or groups with an Ang nakasulat doon, they are exempt from income tax
issued permit to operate from the Department of from income as such, the exemption is 30% NIT but
Education (DepEd), or the Commission on Higher income from whatever kind or character from real or
Education (CHED), or the Technical Education and personal property or for an activity conducted for profit
Skills Development Authority (TESDA), as the case by GEI regardless of disposition, shall be subject to tax
may be, in accordance with existing laws and
regulations. For NSNPEI the constitution applies, for PEI no specific
provision but we apply the LGC of 1991 and the tax code
for GEI, we apply section 30 of the tax code walang
A: Sec. 27B for under the tax code. You call the 10M for constitution.
the tuition fee as related trade or activity.
mcd Building 1 Build Buildin
On the other hand, yung kinita mo sa rentals they are o ing 2 g3 GY DOR
called as unrelated trade/business activity. M M
In other words, the preferential rate of 10% NIT may kfc Canteen
apply.
A: Since your basis is ONLY the LGC, the reason is not A: wala
because it is ADE but because it is real property owned
by the republic of the Philippines and because the mcdo
beneficial use does not pertain to a non-exempt entity Bldg 1 Bldg 2
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Q: But what is the basis?
A: Sec. 32 par. b (7)
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Q: Deductions? (4) Interests;
SEC. 32. Gross Income. - Q: What is the effect if the income is included?
A: Taxable.
(A) General Definition. - Except when otherwise
provided in this Title, gross income means all income Q: Effect if excluded?
derived from whatever source, including (but not A: Not subject to tax
limited to) the following items:
BASIC RULE: All income is subject to tax unless
(1) Compensation for services in whatever form exempted by law or excluded from the computation of the
paid, including, but not limited to fees, salaries, gross income the taxpayer
wages, commissions, and similar items;
• There is an EE-ER relationship Section 32 A is not a closed list. Ang code ko dito.
• Considered as CIE so the tax is NIT CG2DIR2AP3
• You do not VAT here, but because there
is an EE-ER relationship Gross income from whatever source derived, whether
legal or illegal sources which are but not limited to
(2) Gross income derived from the conduct of trade or CG2DIR2AP3
business or the exercise of a profession;
• exercise of profession, no EE-ER 1. C – compensation for services rendered including
relationship fees commissions and other similar items
• This means SEP ka, the taxpayer can 2. G- ross income from exercise of profession or t/b,
exercise the option of NIT/8% if GR/GS Gains derived from dealings in property
does not exceed 3M, if it exceeds it is only 3. D – ividends
NIT 4. Interests: loans, banks, deposit substitutes, bank
• Less than 3M, you choose 8%, there is no deposits, investments
VAT nor percentage tax 5. R- entals, royalties
• Less than 3M, you choose NIT, no vat but 6. Annuities
there is % tax 7. Prizes and winnings, partner’s distributive share
• If GR/GS exceeds 3M, you are subject to in the GPP, pensions
NIT and the 12% VAT is applied to you,
and there is no percentage tax Dalawang bagay ang hindi tinatax, income excluded and
(3) Gains derived from dealings in property; exempted.
(5) Income Exempt under Treaty. - Income of any kind, (f) Benefits received from the GSIS under Republic Act
to the extent required by any treaty obligation binding No. 8291, including retirement gratuity received by
upon the Government of the Philippines. government officials and employees.
(6) Retirement Benefits, Pensions, Gratuities, etc.- 1. Proceeds of life insurance policy received by
the insured/heirs in case of his death, provided
(a) Retirement benefits received under Republic Act that if there is payment of interest on the
No. 7641 and those received by officials and proceeds of the life insurance, then the interest
employees of private firms, whether individual or shall be included and subject to tax
corporate, in accordance with a reasonable private
benefit plan maintained by the employer: Provided, Mr. X took out a life insurance policy
That the retiring official or employee has been in the • Premium: 5000 per month
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• Proceeds: 1M in case of death If the beneficiary is irrevocable, other than the 4. IT IS
• ROP: 500K EXCLUDED and not subject to estate tax
• Interest earnings: 10%
2. Return of premium: This is subject not subject
Beneficiaries: wife and children to income tax except when the policy expressly
provides therefore
Namatay si X, napunta sa wife and children yung
proceeds.
3. Gifts, bequests and devises
Q: Yung 1M, 500k, 10% INCOME?
A: 1M, proceeds: This is income, other line of thought This could be inter vivos/mortis causa.
daw is that it’s not income because it’s just a
compensation for the death Q: Kaninong POV?
A: Sa recipient’s POV
ROP- this is not income this is just mere return of capital.
So all GBD are excluded, but if there is income on the
10% interest is INCOME. property the income is subject to income tax
Q: which among them are taxable? Let’s say minana mo is apartment, yung rentals doon is
A: 1M – excluded, ROP: No tax because its #2 in the list taxable the apartment is not.
which is return of premim
Let us summarize the rules.
10% Interest is subject to tax, it is under letter A. because
this is not passive income. Kapag binigyan mo boyfriend/girlfriend/friend mo ng
isang gift intervivis/mortis causa excluded sa income tax.
Kapag may namatay, automatic may income tax may
kasunod yan na estate tax we are talking about the same Q: Tandaan niyo, bawi bawi system kung exempted sa
amount but two topics income tax saan ka babawian?
Q: Yung 1M, 500k and 10% will they form part of the A: Magbabayad ka ng donor’s tax/estate tax.
gross estate of X and form part of the estate tax?
Kapag ang binigyan mo charitable institution,
(E) Proceeds of Life Insurance. - To the extent of the religious/NSNPEI
amount receivable by the estate of the deceased, his
executor, or administrator, as insurance under policies Q: Included or excluded in income tax?
taken out by the decedent upon his own life, A: No tax here
irrespective of whether or not the insured retained the
power of revocation, or to the extent of the amount Q: Sa donor’s or ET?
receivable by any beneficiary designated in the policy A: No tax subject to the 30% rule na not more than 30%
of insurance, except when it is expressly stipulated that will be used with admin purposes
the designation of the beneficiary is irrevocable.
Q: What if you give to the govt?
A: No tax under income.
A: It depends on the designated beneficiary
Q: Under DT/ET and the govt is the receiver?
If the beneficiary is himself, his estate, executor or A: No tax. No qualification
administrator whether designation is
revocable/irrevocable you have to include in the gross Q: What if you give a contribution for election
estate, so it is taxable. campaigns?
If the beneficiary is any person other than the 4 (yung NOTE: walang ET dito, alangan naman patay
estate, exec, admin, himself) if it is revocable, include in bibigyan mo.
the gross estate – TAXABLE
Not subject to donor’s tax and income tax, provided the
ff: are complied with
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a) It is given for campaign purposes Since nandito tayo sa retirement benefits, I will discuss
b) It is fully utilized for authorized campaign something about employment.
expenditures as provided by the COMELEC rules
c) The creditable withholding tax, the SOSE 1. Retrenchment
(statement of contributions and expenditures) is 2. Redundancy
filed by losing/winning candidates 3. Installation of labor saving devices
d) The creditable withholding tax of 5% is withheld 4. Business losses
by the BIR and remitted 5. Automation of business process
4. Income exempt under a treaty ➔ These are some of the grounds for termination of
5. Damages employees and these are valid causes for
termination
COMPENSATION FOR SICKNESS/DEATH. ➔ If you are terminated based on this, there is
separation pay
Let us summarize the rules.
Q: Is separation pay subject to tax?
Keyword: reparation of damage A: Not taxable because these are causes beyond the
control of the employee
Kung work related at ikaw ay nireimburse at ikaw ay
nagkasakit or namatay, if not work related kung meron In addition if an employee dies, whatever retirement
kang accident/insurance coverage or health card at ikaw benefits due the employee by reason of his death and
ay nireimburse ng ginastos mo sa pagkakasakit mo na received by the heirs is not subject to tax because this is
hindi work related, this is also excluded beyond the control of the employee
When we speak of property insurance, building insurance, If you are dismissed for cause, wala ka matatanggap but
fire insurance, motor vehicle insurance. Otherwise, kung if you are given financial assistance it is taxable.
may insurance and you are reimbursed for the damages,
di ka subjected to tax. If you are dismissed without cause and the final judgment
when you filed the case is reinstatement + moral,
6. Retirement benefits exemplary damages, atty’s fees and costs of suit.
With private retirement plan (private sector) Q: Alin diyan ang taxable?
• At least 50 yrs of age A: You will receive pay when you are rehired, this is
• 10 yrs of service taxable.
• Approved by the BIR
• No part of the fund is used for any other Moral damages: taxable
purpose, other than for the benefit of the Atty’s fees and costs of suit:
employees • If reimbursed for the cost: not taxable
o APAT YAN NA DAPAT • Kapag sumobra, taxable yung sobra
ICOCOMPLY
o If complied with, excluded. Q: What if in lieu of reinstatement, separation pay
+moral + exemplary damages + attys fees and costs of
Private sector (no private retirement plan) suit. Alin ang taxable?
• Atleast 60 yrs of age
• 20 yrs of service A: separation pay: not subject to tax, because it is a cause
o Excluded from the computation of beyond the control of the employee
gross income
MD, ED are subject to tax attys fees and costs of suits if
Let’s go to the government sector. they are no in excess of the actual expense sa attys fees
and costs of suits, then the excess is subject to income tax
Lahat ng retirements, All retirement benefits NO TAX.
Including conversion of your leave credits into cash lahat 7) prizes and winnings
ng ‘yan wala. This is a benefit you get when you are
employed by the government.
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Q: What is the difference between prizes and winnings
here doon sa passive income (2) Gross income derived from the conduct of trade or
business or the exercise of a profession;
A: sa passive income, sa games of chance • exercise of profession, no EE-ER
relationship
Here in sports competitions, yung sanctioned by the • This means SEP ka, the taxpayer can
national sports commission exercise the option of NIT/8% if GR/GS
does not exceed 3M, if it exceeds it is only
The professional boxers are not covered by the exclusion, NIT
yun ay kanilang kita in the exercise of profession. • Less than 3M, you choose 8%, there is no
VAT nor percentage tax
Professional basketball players, SEP yan • Less than 3M, you choose NIT, no vat but
there is % tax
Q; What are the prizes and winnings excluded? • If GR/GS exceeds 3M, you are subject to
A: NIT and the 12% VAT is applied to you,
1) prizes and winnings sanctioned by the national and there is no percentage tax
sports commission (3) Gains derived from dealings in property;
2) prizes and winnings in recognition of various
purposes, charitable, religious, scientific, (4) Interests;
educational, literary provided that the winner did
not actively participate in the contest and no (5) Rents;
requirement of future service
• you are usually nominated here (6) Royalties;
3) 13th month pay and other benefits: 90,000 (7) Dividends;
4) Other misc. items, income of the govt from govt
functions (8) Annuities;
5) Income of foreign govt from investment in the
Philippines (9) Prizes and winnings;
• Yung pilipinas madaming utak yan, so china
nagpautang any interest payment made to (10) Pensions; and
chine is considered income of the foreign
govt from investments in the Philippines. (11) Partner's distributive share from the net income of
This is not subject to tax the general professional partnership.
We now take up FRINGE BENEFITS, de minimis
Kapag wala diyan sa listahan nay an, taxable yan. Kapag benefits and basic compensation
included naman hahanapin mo kung nasa A, B, C D para
malaman niyo kung nasaan ang tax Q: Paano kung employee ka under an EE-ER
relationship and there are other benefits on top of your
PART 3 compensation income, in other words may sweldo ka,
tapos may mga add ons, how do we treat the add-ons?
SEC. 32. Gross Income. -
In income taxation, unlike the labor code ang daming
(A) General Definition. - Except when otherwise employees here tatlo lang.
provided in this Title, gross income means all income
derived from whatever source, including (but not KINDS OF EMPLOYEES
limited to) the following items: 1. Managerial/supervisory employees
2. Rank and file
(2) Compensation for services in whatever form 3. Minimum wage earners
paid, including, but not limited to fees, salaries,
wages, commissions, and similar items; EEs Basic Within Outside 90k FB
• There is an EE-ER relationship Pay limits limits
• Considered as CIE so the tax is NIT M/S C- E C- FBT
• You do not VAT here, but because there NIT NIT
is an EE-ER relationship
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R&F C- E E C- ➔ But in the private sector, ang sick leave is taxable
NIT NIT benefit and ang VL is not taxable when it does not
MWE SMW- E E C- exceed 10 days
E NIT
2. Medical allowance to dependents of EEs
(taxpayer) but not exceeding 1,500 per
semester/6 months
3. Rice subsidy 2000 pesos per month, 1 sack of
rice equivalent to 2k/month
Q: How are they subjected to tax? 4. Uniform and clothing allowance 6,000 pesos
per YEAR
A: They receive their basic pay, lahat naman ng 5. Actual medical assistance not exceeding
empleyado may basic pay. 10k/year
6. Achievement awards in the form of tangible
Yun managerial/supervisory we call the basic pay as person property other than cash/gift
compensation income, and the tax due is NIT. certificates not exceeding 10k/year
7. Gifts given during Christmas/major
Yung rank and file meron din yang basic pay, at yun ay anniversary celebrations 5k/year
compensation and the tax due is NIT. 8. Daily meal allowance, not exceeding 25% of
the basic minimum
Kapag minimum wage earner ka, we call your basic pay 9. Benefits received by a EE in pursuant to a
as statutory minimum wage and the same is exempt from CBA not to exceed 10k pesos
income tax. NASA BATAS YAN.
So ito yung limits na nakasulat sa batas, if the benefits are
On top of the basic pay, an employee may receive de given at nag exceed sa limit, ano ang gagawin sa sobra.
minimis benefits ang DMB benefits may limit yan, within
the limits and beyond limits. Ito ang rule, yung sobra lumilipat ang tinatawag natin dito
ay other benefits. Yung DMB within limits, not subject to
Ang libre sa batas eh yung within provided for by law, so tax all employees. If nag exceed sa limits provided for by
lahat ng add-ons na DMB, meron yang within the limits law, tumatawid sa kabila, ang tawag doon ay other
provided for by law and lampas sa limit, kailangan alam benefits. Kapag ikaw ay may sobra at tumawid na yung
Ninyo ano ang laman ng batas. other benefits meron ‘yang limits ang unang limit diyan is
yung 90,000 for 13th month pay and other benefits
Enumerate natin. We have 12 items of DMB.
So if you’re a M/S EE and your other benefits exceed
Q: Ano ang limits nung 12? 90,000 yung sobra will be part of your compensation
A: subject to NIT, unless considered siyang fringe benefits,
which if FB siya it will be subjected to FBT subject to
1. Monetized vacation leave not exceeding 10 FBT 35%
days
➔ If 10 days or less it is DMB when converted to Now if a R/F has other benefits not exceeding 90,000
cash, so not taxable yung 90k kasi ang limit, exempted yan pero kapag nag
➔ Pero if sick leave, walang DMB lahat ng sick exceed sa 90k, ang tawag doon ay compensation at yan ay
leave benefits na monetized is not a DMB so tinatax kasama ng compensation mo. Anything ing excess
taxable but sa government walang limit ang VL of the 90,000 will be part of your compensation subject to
at SL, kahit anong leave icoconvert sa cash if you NIT at inaadd yan sa basic mo.
are part of the govt sector, lahat ng yon DMB.
➔ In the government sector, naiipon yung VL pag di If you’re a MWE and other benefits do not exceed 90k,
mo naubos ang bakasyon mo ng isang taon, exempt and lahat ng sobra sa 90k, it shall be subject to
dagdag ng dagdag yan difference ng govt sector NIT.
at private sector. In the govt lahat ng credits kung
ano mang leave na ‘yan ng govt sector pag Dati if MWE ka, and if may other benefits ka and nag
pinagsama sama at converted to cash, this is not eexceed sa 30k (before ito yung limit), you are no longer
subject to tax considered a MWE, likewise if the MWE whether
nagexceed sa 30k limit or di nagexceed if the MWE has
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other sources of income, pero MWE ka pero may sari sari na NIT, when the ER gives it to the EE the tax will be
store ka ang interpretation dati ng BIR, and MWE ka and withheld and considered for purposes of computing the
your other benefits exceed the limits provided for by law, fringe benefit tax at the end of the year.
and you have other kinds of income di ka na MWE, so
yung MWE is taxable pero exempted ka sa DMB is --
exempted, yung sa limits exempted but the excess is
taxable. This is decided to be a null and void opinion Remember our discussions on aliens employed in OBUs,
already. THIS HOLDS NO WATER. OPSC, and multinational companies. The alien is an
employee, the ER’s place of business is in the Philippines,
Now, once you’re a MWE your MWE is forever exempt they are NRANETB but in reality they are here in the
your DMB is exempt assuming that you have DMB in Philippines in pursuant to a EE-ER, If you are the alien
excess of the limits, yung sobra will form part of other employed here because you are an employee the tax
benefits, together with the excess of your DMB do not imposed is GIT 25% as the general rule, but because of
exceed the 90k limit, exempt. So kung meron lang excess, the veto by the president itong tatlong to, yung sweldo nila
yung excess lang ang taxable compensation income nila will be treated as subject to net
income tax just like a M/S who is a filipino citizen.
Now when we talk about employee benefits, the
exceptions to the rule, meaning any benefit you receive as Meron multinational company na nasa pilipinas, one
an employee and that benefit is furnished by the employer employee niya is filipino resident citizen may counterpart
for the convenience of the employer, or the benefit siya na expat yung expat, ito yun yung NRANETB dahil
extended by the employer to the employee is necessary in pareho silang employed, yung filipino when we look at
the trade/business of the employer, DO NOT APPLY the table ang tax ng Fil RC is NIT under the old code, dati
THE TABLE AT ALL. Meaning whatever the employee naman si NRANET, 15% GIT.
receives is not considered as income and therefore, not
subject to tax. Now, under the train law, inalis yung 15% GIT
INALIS YUN. Under the train law the filipino is taxed
If the benefit extended by the ER to the EE is for the as NIT at yung expat is subjected to NIT.
benefit of the ER, or the benefit is necessary in
carrying on the t/b of the employer, any time of benefit Because they are occupying top management positions,
shall not be treated as income and therefore NOT sigurado they are receiving fringe benefits.
SUBJECT TO TAX.
Q: So what will be the tax treatment of a filipino
-- citizen in fringe benefits?
Q: What are fringe benefits? Under the old code, walang FBT ang expats.
A: These are extended by a ER to an EE on top of the
basic pay, on top of the DMB, 13th month pay and other Ngayon, under the present law, subject na din siya sa FBT
benefits. These are normally given to M/S employees and of 35%.
the tax rate is 35% based on the grossed up monetary
value. It used to be 32%, but it has been increased to 35% ITEMS OF DEDUCTIONS
based on the grossed up monetary value of the benefit.
Number one concept in deductions: only income subject
Q; Ano yung mga typical fringe benefits? to NIT is allowed to claim the deduction. BASIC RULE.
Isang rule lang.
A: Housing privileges, motor vehicles, equipment,
personnel assigned to you, membership in exclusive Q: So, when we look at our table. Sino sino ang may
clubs, travel (plane tickets) and all other benefits extended deductions?
by the EE-ER other than DMB, 13TH month pay and other
benefits Is a RC allowed to claim deductions?
The tax is 35% FBT and withheld by the employer, this is Yes, but only for column A subject to NIT so lagat ng
in the nature of a withholding tax. Because all EE benefits income niya within and without basta NIT, so kung 8%
subject to tax, lahat yan withholding tax, even if nakasulat ang pinili mow ala ka ng deductions
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A: No deductions allowed because everything is in the
NRC: For income within, under column A subject to NIT. nature of a final tax.
NRAETB under column A for income here subject to Q: What kinds of deductions are allowed
NIT.
If you are an individual: RC, NRC, RA, NRAETB,
Q: What about a NRANETB? NRANETB and you are CIE no deductions allowed. The
A: No deduction is allowed because the tax is on the train law removed personal and additional exemptions so
gross. wala na siyang exemptions, wala ng deduction
Q: What about the special types of aliens? If you are an individual or SEP/SEI because you are
A: They are subject to deductions, because NIT na nga engaged in t/b and you are engaged in the exercise of
ang tax nila. profession without an EE-ER relationship then you have
the option to be taxed not if you’re gross exceeds do not
Q: What about a DC? exceed 3M, the tax due is either 8% or NIT at the option
A: Yes, under column A because the tax due is NIT at the of the taxpayer. If the taxpayer chooses 8% there is no
rate of 30% deduction, but if the taxpayer chooses NIT, the deductions
may either be
For RFC, entitled ba siya?
A: Yes. Under column A, NIT. OPTIONAL STANDARD DEDUCTION OR
ITEMIZED DEDUCTION under section 34
Q: What about a NRFC?
A: Because the tax due is on the gross, GIT 30 no If your gross receipts exceed 3M, your tax due is NIT and
deductions allowed therefore, your deductions at the option of the taxpayer
maybe either OSD/ITEMIZED DEDUCTIONS.
--
If you’re a person and you’re a mixed income earner, we
Q: Now, what deductions are allowed? apply the same rules. For your CIE no deductions and for
A: Therefore, if you were a RC and we are talking about your t/b or exercise of profession part same lang doon sa
income from BCD it is not subject to deduction because naunang discussion.
FWT ‘yan, kasi pag tanggap mo ng income bawas na ang
buwis If you are NRANETB, you are not entitled to any
deduction this does not apply.
Q: What about NRC income under BCD?
A: No. Now we go to DC, if we’re talking about a DC subject to
tax within and without and the tax due is NI of 30% for
Q: NRA income from BCD? their income under column, their deductions will either be
A: No deductions OSD or ITEMIZED DEDUCTIONS
Q: NRAETB income from BCD? For RFC for their income within and falling under column
A: No. A and subject to NIT, there is an available deduction. So
the deductions will either be OSD/ID
Q: NRANETB in trade/business income under BCD?
A: No deductions If you’re NRFC you are not entitled to any deduction at
all.
Q: Income for DC under BCD?
A: No deductions --
Q: RFC income for BC? Remember all taxpayers will NIT can have deductions,
A: No deductions then ask yourself, sino lang ang pwede magkaron ng
deductions. As you can see, the income subject to NIT
Q: NRFC? lang pwede mag claim ng deduction. Ngayon ano ang
entitled na deductions
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A: In OSD, no documentation needed in ID, you need
When you look at our table of deductions, it is only a supporting documents to prove the expense, tandaan niyo
taxpayer engaged in t/b is entitled to claim deductions ang deductions in the nature of gastos, expenses
There are only two types of deductions allowed under the So when you are availing of itemized deductions, they are
rule: optional standard deduction and itemized deductions supported by documents proving that you actually spent
the expenditure.
Wala ng personal exemptions, if you are a CIE wala na
kayong deductions except for remittances to the govt, The itemized deductions must be necessary in the
pagibig, philhealth, 90k limit, 13th month pay, SSS, GSIS, trade/business of the taxpayer.
union dues, medicare – hindi nay an tinatax na pwede
ibawas sa sweldo, but ang CIE walang OSD or ID They must be actually paid or incurred by the taxpayer in
the year for which you are computing your tax due.
Kapag CIE ito lang idededuct sayon a walang tax
➔ PAGIBIG There are two sides, revenue and expense within a 12
➔ PHIC month period whether fiscal/calendar only the revenues
➔ SSS realized within this period shall form part of the gross
➔ GSIS income and only expenditures incurred/paid within the 12
➔ Union dues month period shall be considered.
➔ 13th month pay and other benefits not exceeding
90k If you choose 40% OSD, No need for documentation. But
o Yan lang ang deductions, but not in itemized deductions there must be documents.
deductions from gross income they are
legitimate remittances to the government Q: What does actually paid/incurred mean?
A: pwedeng cash method/accrual method
--
If cash basis, the revenue side must actually be received
Q; What is OSD? and expense side must be paid
A: 40% of gross income or gross receipts or gross sales.
If accrual side, you may realize income constructively
Walang concept yan it is everybody allowed to claim received and expenses must be actually incurred, ‘yan ang
deductions can claim 40% ibig sabihin ng cash and accrual system of accounting.
In other words, when a taxpayer claims OSD as the form The choice is upon the taxpayer.
of deduction, kung ako kita niya is 1M, then 40% is
400,000 so 600k nalang ang imumultiply sa taxable rate
Q: When do you make a choice?
Q: What is the scenario of the taxpayer? A; At the start of the taxable period, upon filing of the first
A: If the taxpayer chooses OSD, then he will never incur quarterly return nakalagay na don anong deduction iaavail
any loss, because it is always 60% of his income will be mo, if you want OSD indicate it there, if by default hindi
subjected to tax. You will never incur a loss, there will ka namili ang default na deduction mo itemized
never be a possibility at all of you not paying any tax deduction.
because 60% of your income is taxable, that will be
subject to tax depending on the applicable rates. Once the choice is made/defaulted it is IRREVOCABLE
within the same taxable period. Your option is available
-- again for the next taxable period.
(a) The income tax provided for under this Title; (a) The amount of the credit in respect to the tax paid
or incurred to any country shall not exceed the same
(b) Income taxes imposed by authority of any foreign proportion of the tax against which such credit is taken,
country; but this deduction shall be allowed in the case which the taxpayer's taxable income from sources
of a taxpayer who does not signify in his return his within such country under this Title bears to his entire
desire to have to any extent the benefits of paragraph taxable income for the same taxable year; and
(3) of this subsection (relating to credits for taxes of
foreign countries);
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(b) The total amount of the credit shall not exceed the (c) All other information necessary for the verification
same proportion of the tax against which such credit is and computation of such credits.
taken, which the taxpayer's taxable income from
sources without the Philippines taxable under this Title (D) Losses. -
bears to his entire taxable income for the same taxable
year. (1) In General. - Losses actually sustained during the
taxable year and not compensated for by insurance or
(5) Adjustments on Payment of Incurred Taxes. - If other forms of indemnity shall be allowed as
accrued taxes when paid differ from the amounts deductions:
claimed as credits by the taxpayer, or if any tax paid is
refunded in whole or in part, the taxpayer shall notify (a) If incurred in trade, profession or business;
the Commissioner; who shall re-determine the amount
of the tax for the year or years affected, and the amount (b) Of property connected with the trade, business or
of tax due upon such re-determination, if any, shall be profession, if the loss arises from fires, storms,
paid by the taxpayer upon notice and demand by the shipwreck, or other casualties, or from robbery, theft or
Commissioner, or the amount of tax overpaid, if any, embezzlement.
shall be credited or refunded to the taxpayer. In the case
of such a tax incurred but not paid, the Commissioner The Secretary of Finance, upon recommendation of the
as a condition precedent to the allowance of this credit Commissioner, is hereby authorized to promulgate
may require the taxpayer to give a bond with sureties rules and regulations prescribing, among other things,
satisfactory to and to be approved by the Commissioner the time and manner by which the taxpayer shall submit
in such sum as he may require, conditioned upon the a declaration of loss sustained from casualty or from
payment by the taxpayer of any amount of tax found robbery, theft or embezzlement during the taxable year:
due upon any such redetermination. The bond herein Provided, however, That the time limit to be so
prescribed shall contain such further conditions as the prescribed in the rules and regulations shall not be less
Commissioner may require. than thirty (30) days nor more than ninety (90) days
from the date of discovery of the casualty or robbery,
(6) Year in Which Credit Taken. - The credits provided theft or embezzlement giving rise to the loss.
for in Subsection (C)(3) of this Section may, at the
option of the taxpayer and irrespective of the method of (c) No loss shall be allowed as a deduction under this
accounting employed in keeping his books, be taken in Subsection if at the time of the filing of the return, such
the year which the taxes of the foreign country were loss has been claimed as a deduction for estate tax
incurred, subject, however, to the conditions prescribed purposes in the estate tax return.
in Subsection (C)(5) of this Section. If the taxpayer
elects to take such credits in the year in which the taxes (2) Proof of Loss. - In the case of a nonresident alien
of the foreign country accrued, the credits for all individual or foreign corporation, the losses deductible
subsequent years shall be taken upon the same basis shall be those actually sustained during the year
and no portion of any such taxes shall be allowed as a incurred in business, trade or exercise of a profession
deduction in the same or any succeeding year. conducted within the Philippines, when such losses are
not compensated for by insurance or other forms of
(7) Proof of Credits. - The credits provided in indemnity. The secretary of Finance, upon
Subsection (C)(3) hereof shall be allowed only if the recommendation of the Commissioner, is hereby
taxpayer establishes to the satisfaction of the authorized to promulgate rules and regulations
Commissioner the following: prescribing, among other things, the time and manner
by which the taxpayer shall submit a declaration of loss
(a) The total amount of income derived from sources sustained from casualty or from robbery, theft or
without the Philippines; embezzlement during the taxable year: Provided, that
the time to be so prescribed in the rules and regulations
(b) The amount of income derived from each country, shall not be less than thirty (30) days nor more than
the tax paid or incurred to which is claimed as a credit ninety (90) days from the date of discovery of the
under said paragraph, such amount to be determined casualty or robbery, theft or embezzlement giving rise
under rules and regulations prescribed by the Secretary to the loss; and
of Finance; and
3) Net Operating Loss Carry-Over. - The net operating
loss of the business or enterprise for any taxable year
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immediately preceding the current taxable year, which (5) Losses From Wash Sales of Stock or Securities. -
had not been previously offset as deduction from gross Losses from 'wash sales' of stock or securities as
income shall be carried over as a deduction from gross provided in Section 38.
income for the next three (3) consecutive taxable years
immediately following the year of such loss: Provided, (6) Wagering Losses. - Losses from wagering
however, That any net loss incurred in a taxable year transactions shall be allowed only to the extent of the
during which the taxpayer was exempt from income tax gains from such transactions.
shall not be allowed as a deduction under this
Subsection: Provided, further, That a net operating loss (7) Abandonment Losses. -
carry-over shall be allowed only if there has been no
substantial change in the ownership of the business or (a) In the event a contract area where petroleum
enterprise in that - operations are undertaken is partially or wholly
abandoned, all accumulated exploration and
(i) Not less than seventy-five percent (75%) in nominal development expenditures pertaining thereto shall be
value of outstanding issued shares., if the business is in allowed as a deduction: Provided, That accumulated
the name of a corporation, is held by or on behalf of the expenditures incurred in that area prior to January 1,
same persons; or 1979 shall be allowed as a deduction only from any
income derived from the same contract area. In all
(ii) Not less than seventy-five percent (75%) of the paid cases, notices of abandonment shall be filed with the
up capital of the corporation, if the business is in the Commissioner.
name of a corporation, is held by or on behalf of the
same persons. (b) In case a producing well is subsequently
abandoned, the un-amortized costs thereof, as well as
For purposes of this subsection, the term 'net operating the un-depreciated costs of equipment directly used
loss' shall mean the excess of allowable deduction over therein , shall be allowed as a deduction in the year such
gross income of the business in a taxable year. well, equipment or facility is abandoned by the
contractor: Provided, That if such abandoned well is re-
Provided, That for mines other than oil and gas wells, entered and production is resumed, or if such
a net operating loss without the benefit of incentives equipment or facility is restored into service, the said
provided for under Executive Order No. 226, as costs shall be included as part of gross income in the
amended, otherwise known as the Omnibus year of resumption or restoration and shall be
Investments Code of 1987, incurred in any of the first amortized or depreciated, as the case may be.
ten (10) years of operation may be carried over as a
deduction from taxable income for the next five (5) (E) Bad Debts. -
years immediately following the year of such loss. The
entire amount of the loss shall be carried over to the (1) In General. - Debts due to the taxpayer actually
first of the five (5) taxable years following the loss, and ascertained to be worthless and charged off within the
any portion of such loss which exceeds the taxable taxable year except those not connected with
income of such first year shall be deducted in like profession, trade or business and those sustained in a
manner form the taxable income of the next remaining transaction entered into between parties mentioned
four (4) years. under Section 36 (B) of this Code: Provided, That
recovery of bad debts previously allowed as deduction
(4) Capital Losses. - in the preceding years shall be included as part of the
gross income in the year of recovery to the extent of the
(a) Limitations. - Loss from sales or Exchanges of income tax benefit of said deduction.
capital assets shall be allowed only to the extent
provided in Section 39. (2) Securities Becoming Worthless. - If securities, as
defined in Section 22 (T), are ascertained to be
(b) Securities Becoming Worthless. - If securities as worthless and charged off within the taxable year and
defined in Section 22 (T) become worthless during the are capital assets, the loss resulting therefrom shall, in
taxable year and are capital assets, the loss resulting the case of a taxpayer other than a bank or trust
therefrom shall, for purposes of this Title, be company incorporated under the laws of the
considered as a loss from the sale or exchange, on the Philippines a substantial part of whose business is the
last day of such taxable year, of capital assets. receipt of deposits, for the purpose of this Title, be
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considered as a loss from the sale or exchange, on the life of the depreciable property as specified in the
last day of such taxable year, of capital assets. agreement shall not be effective for taxable years prior
to the taxable year in which notice in writing by
(F) Depreciation. – certified mail or registered mail is served by the party
initiating such change to the other party to the
(1) General Rule. - There shall be allowed as a agreement:
depreciation deduction a reasonable allowance for the
exhaustion, wear and tear (including reasonable Provided, however, that where the taxpayer has
allowance for obsolescence) of property used in the adopted such useful life and depreciation rate for any
trade or business. In the case of property held by one depreciable and claimed the depreciation expenses as
person for life with remainder to another person, the deduction from his gross income, without any written
deduction shall be computed as if the life tenant were objection on the part of the Commissioner or his duly
the absolute owner of the property and shall be allowed authorized representatives, the aforesaid useful life and
to the life tenant. In the case of property held in trust, depreciation rate so adopted by the taxpayer for the
the allowable deduction shall be apportioned between aforesaid depreciable asset shall be considered binding
the income beneficiaries and the trustees in accordance for purposes of this Subsection.
with the pertinent provisions of the instrument creating
the trust, or in the absence of such provisions, on the (4) Depreciation of Properties Used in Petroleum
basis of the trust income allowable to each. Operations. - An allowance for depreciation in respect
of all properties directly related to production of
(2) Use of Certain Methods and Rates. - The term petroleum initially placed in service in a taxable year
'reasonable allowance' as used in the preceding shall be allowed under the straight-line or declining-
paragraph shall include, but not limited to, an balance method of depreciation at the option of the
allowance computed in accordance with rules and service contractor.
regulations prescribed by the Secretary of Finance,
upon recommendation of the Commissioner, under any However, if the service contractor initially elects the
of the following methods: declining-balance method, it may at any subsequent
date, shift to the straight-line method.
(a) The straight-line method;
The useful life of properties used in or related to
(b) Declining-balance method, using a rate not production of petroleum shall be ten (10) years of such
exceeding twice the rate which would have been used shorter life as may be permitted by the Commissioner.
had the annual allowance been computed under the
method described in Subsection (F) (1); Properties not used directly in the production of
petroleum shall be depreciated under the straight-line
(c) The sum-of-the-years-digit method; and method on the basis of an estimated useful life of five
(5) years.
(d) Any other method which may be prescribed by the
Secretary of Finance upon recommendation of the (5) Depreciation of Properties Used in Mining
Commissioner. Operations. - an allowance for depreciation in respect
of all properties used in mining operations other than
(3) Agreement as to Useful Life on Which Depreciation petroleum operations, shall be computed as follows:
Rate is Based. - Where under rules and regulations
prescribed by the Secretary of Finance upon (a) At the normal rate of depreciation if the expected
recommendation of the Commissioner, the taxpayer life is ten (10) years or less; or
and the Commissioner have entered into an agreement
in writing specifically dealing with the useful life and (b) Depreciated over any number of years between five
rate of depreciation of any property, the rate so agreed (5) years and the expected life if the latter is more than
upon shall be binding on both the taxpayer and the ten (10) years, and the depreciation thereon allowed as
national Government in the absence of facts and deduction from taxable income: Provided, That the
circumstances not taken into consideration during the contractor notifies the Commissioner at the beginning
adoption of such agreement. The responsibility of of the depreciation period which depreciation rate
establishing the existence of such facts and allowed by this Section will be used.
circumstances shall rest with the party initiating the
modification. Any change in the agreed rate and useful
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(6) Depreciation Deductible by Nonresident Aliens exploration and development expenditures shall not
Engaged in Trade or Business or Resident Foreign exceed twenty-five percent (25%) of the net income
Corporations. - In the case of a nonresident alien from mining operations computed without the benefit
individual engaged in trade or business or resident of any tax incentives under existing laws. The actual
foreign corporation, a reasonable allowance for the exploration and development expenditures minus
deterioration of Property arising out of its use or twenty-five percent (25%) of the net income from
employment or its non-use in the business trade or mining shall be carried forward to the succeeding years
profession shall be permitted only when such property until fully deducted.
is located in the Philippines.
The election by the taxpayer to deduct the exploration
(G) Depletion of Oil and Gas Wells and Mines. – and development expenditures is irrevocable and shall
be binding in succeeding taxable years.
(1) In General. - In the case of oil and gas wells or
mines, a reasonable allowance for depletion or 'Net income from mining operations', as used in this
amortization computed in accordance with the cost- Subsection, shall mean gross income from operations
depletion method shall be granted under rules and less 'allowable deductions' which are necessary or
regulations to be prescribed by the Secretary of finance, related to mining operations. 'Allowable deductions'
upon recommendation of the Commissioner. Provided, shall include mining, milling and marketing expenses,
That when the allowance for depletion shall equal the and depreciation of properties directly used in the
capital invested no further allowance shall be granted: mining operations. This paragraph shall not apply to
Provided, further, That after production in commercial expenditures for the acquisition or improvement of
quantities has commenced, certain intangible property of a character which is subject to the
exploration and development drilling costs: (a) shall be allowance for depreciation.
deductible in the year incurred if such expenditures are
incurred for non-producing wells and/or mines, or (b) In no case shall this paragraph apply with respect to
shall be deductible in full in the year paid or incurred amounts paid or incurred for the exploration and
or at the election of the taxpayer, may be capitalized development of oil and gas.
and amortized if such expenditures incurred are for
producing wells and/or mines in the same contract area. The term 'exploration expenditures' means
expenditures paid or incurred for the purpose of
'Intangible costs in petroleum operations' refers to any ascertaining the existence, location, extent or quality of
cost incurred in petroleum operations which in itself any deposit of ore or other mineral, and paid or incurred
has no salvage value and which is incidental to and before the beginning of the development stage of the
necessary for the drilling of wells and preparation of mine or deposit.
wells for the production of petroleum: Provided, That
said costs shall not pertain to the acquisition or The term 'development expenditures' means
improvement of property of a character subject to the expenditures paid or incurred during the development
allowance for depreciation except that the allowances stage of the mine or other natural deposits. The
for depreciation on such property shall be deductible development stage of a mine or other natural deposit
under this Subsection. shall begin at the time when deposits of ore or other
minerals are shown to exist in sufficient commercial
Any intangible exploration, drilling and development quantity and quality and shall end upon
expenses allowed as a deduction in computing taxable commencement of actual commercial extraction.
income during the year shall not be taken into
consideration in computing the adjusted cost basis for (3) Depletion of Oil and Gas Wells and Mines
the purpose of computing allowable cost depletion. Deductible by a Nonresident Alien individual or
Foreign Corporation. - In the case of a nonresident alien
(2) Election to Deduct Exploration and Development individual engaged in trade or business in the
Expenditures. - In computing taxable income from Philippines or a resident foreign corporation, allowance
mining operations, the taxpayer may at his option, for depletion of oil and gas wells or mines under
deduct exploration and development expenditures paragraph (1) of this Subsection shall be authorized
accumulated as cost or adjusted basis for cost depletion only in respect to oil and gas wells or mines located
as of date of prospecting, as well as exploration and within the Philippines.
development expenditures paid or incurred during the
taxable year: Provided, That the amount deductible for (H) Charitable and Other Contributions. –
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(c) Donations to Accredited Nongovernment
(1) In General. - Contributions or gifts actually paid or Organizations. -The term 'nongovernment
made within the taxable year to, or for the use of the organization' means a non-profit domestic corporation:
Government of the Philippines or any of its agencies or
any political subdivision thereof exclusively for public (1) Organized and operated exclusively for scientific,
purposes, or to accredited domestic corporation or research, educational, character-building and youth and
associations organized and operated exclusively for sports development, health, social welfare, cultural or
religious, charitable, scientific, youth and sports charitable purposes, or a combination thereof, no part
development, cultural or educational purposes or for of the net [22] income of which inures to the benefit of
the rehabilitation of veterans, or to social welfare any private individual;
institutions, or to non-government organizations, in
accordance with rules and regulations promulgated by (2) Which, not later than the 15th day of the third month
the Secretary of finance, upon recommendation of the after the close of the accredited nongovernment
Commissioner, no part of the net [43] income of which organizations taxable year in which contributions are
inures to the benefit of any private stockholder or received, makes utilization directly for the active
individual in an amount not in excess of ten percent conduct of the activities constituting the purpose or
(10%) in the case of an individual, and five percent (%) function for which it is organized and operated, unless
in the case of a corporation, of the taxpayer's taxable an extended period is granted by the Secretary of
income derived from trade, business or profession as Finance in accordance with the rules and regulations to
computed without the benefit of this and the following be promulgated, upon recommendation of the
subparagraphs. Commissioner;
(2) Contributions Deductible in Full. - Notwithstanding (3) The level of administrative expense of which shall,
the provisions of the preceding subparagraph, on an annual basis, conform with the rules and
donations to the following institutions or entities shall regulations to be prescribed by the Secretary of
be deductible in full: Finance, upon recommendation of the Commissioner,
but in no case to exceed thirty percent (30%) of the total
(a) Donations to the Government. - Donations to the expenses; and
Government of the Philippines or to any of its agencies
or political subdivisions, including fully-owned (4) The assets of which, in the event of dissolution,
government corporations, exclusively to finance, to would be distributed to another non-profit domestic
provide for, or to be used in undertaking priority corporation organized for similar purpose or purposes,
activities in education, health, youth and sports or to the state for public purpose, or would be
development, human settlements, science and culture, distributed by a court to another organization to be used
and in economic development according to a National in such manner as in the judgment of said court shall
Priority Plan determined by the National Economic and best accomplish the general purpose for which the
Development Authority (NEDA), In consultation with dissolved organization was organized.
appropriate government agencies, including its
regional development councils and private Subject to such terms and conditions as may be
philanthropic persons and institutions: Provided, That prescribed by the Secretary of Finance, the term
any donation which is made to the Government or to 'utilization' means:
any of its agencies or political subdivisions not in
accordance with the said annual priority plan shall be (i) Any amount in cash or in kind (including
subject to the limitations prescribed in paragraph (1) of administrative expenses) paid or utilized to accomplish
this Subsection; one or more purposes for which the accredited
nongovernment organization was created or organized.
(b) Donations to Certain Foreign Institutions or
International Organizations. - donations to foreign (ii) Any amount paid to acquire an asset used (or held
institutions or international organizations which are for use) directly in carrying out one or more purposes
fully deductible in pursuance of or in compliance with for which the accredited nongovernment organization
agreements, treaties, or commitments entered into by was created or organized.
the Government of the Philippines and the foreign
institutions or international organizations or in An amount set aside for a specific project which comes
pursuance of special laws; within one or more purposes of the accredited
nongovernment organization may be treated as a
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utilization, but only if at the time such amount is set
aside, the accredited nongovernment organization has The election provided by paragraph (2) hereof may be
established to the satisfaction of the Commissioner that made for any taxable year beginning after the
the amount will be paid for the specific project within effectivity of this Code, but only if made not later than
a period to be prescribed in rules and regulations to be the time prescribed by law for filing the return for such
promulgated by the Secretary of Finance, upon taxable year. The method so elected, and the period
recommendation of the Commissioner, but not to selected by the taxpayer, shall be adhered to in
exceed five (5) years, and the project is one which can computing taxable income for the taxable year for
be better accomplished by setting aside such amount which the election is made and for all subsequent
than by immediate payment of funds. taxable years unless with the approval of the
Commissioner, a change to a different method is
(3) Valuation. - The amount of any charitable authorized with respect to a part or all of such
contribution of property other than money shall be expenditures. The election shall not apply to any
based on the acquisition cost of said property. expenditure paid or incurred during any taxable year
for which the taxpayer makes the election.
(4) Proof of Deductions. - Contributions or gifts shall
be allowable as deductions only if verified under the (3) Limitations on Deduction. - This Subsection shall
rules and regulations prescribed by the Secretary of not apply to:
Finance, upon recommendation of the Commissioner.
(a) Any expenditure for the acquisition or improvement
(I) Research and Development.- of land, or for the improvement of property to be used
in connection with research and development of a
(1) In General. - A taxpayer may treat research or character which is subject to depreciation and
development expenditures which are paid or incurred depletion; and
by him during the taxable year in connection with his
trade, business or profession as ordinary and necessary (b) Any expenditure paid or incurred for the purpose of
expenses which are not chargeable to capital account. ascertaining the existence, location, extent, or quality
The expenditures so treated shall be allowed as of any deposit of ore or other mineral, including oil or
deduction during the taxable year when paid or gas.
incurred.
(J) Pension Trusts. - An employer establishing or
(2) Amortization of Certain Research and Development maintaining a pension trust to provide for the payment
Expenditures. - At the election of the taxpayer and in of reasonable pensions to his employees shall be
accordance with the rules and regulations to be allowed as a deduction (in addition to the contributions
prescribed by the Secretary of Finance, upon to such trust during the taxable year to cover the
recommendation of the Commissioner, the following pension liability accruing during the year, allowed as a
research and development expenditures may be treated deduction under Subsection (A)(1) of this Section) a
as deferred expenses: reasonable amount transferred or paid into such trust
during the taxable year in excess of such contributions,
(a) Paid or incurred by the taxpayer in connection with but only if such amount (1)has not theretofore been
his trade, business or profession; allowed as a deduction, and (2) is apportioned in equal
parts over a period of ten (10) consecutive years
(b) Not treated as expenses under paragraph (1) hereof; beginning with the year in which the transfer or
and payment is made.
(c) Chargeable to capital account but not chargeable to (K) Additional Requirements for Deductibility of
property of a character which is subject to depreciation Certain Payments. - Any amount paid or payable which
or depletion. is otherwise deductible from, or taken into account in
computing gross income or for which depreciation or
In computing taxable income, such deferred expenses amortization may be allowed under this Section, shall
shall be allowed as deduction ratably distributed over a be allowed as a deduction only if it is shown that the
period of not less than sixty (60) months as may be tax required to be deducted and withheld therefrom has
elected by the taxpayer (beginning with the month in been paid to the Bureau of Internal Revenue in
which the taxpayer first realizes benefits from such accordance with this Section 58 and 81 of this Code.
expenditures).
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(L) Optional Standard Deduction (OSD). - In lieu of the ➔ They must also be reasonable in amount +
deductions allowed under the preceding Subsections, necessary in the t/b + actually paid and incurred
an individual subject to tax under Section 24, other than + supported by documents: REQUIREMENTS
a nonresident alien, may elect a standard deduction in OF ITEMIZED DEDUCTION
an amount not exceeding forty percent (40%) of his ➔ ONE THING IN COMMON: all are business
gross sales or gross receipts, as the case maybe. In the related expenditures, expense is related to the
case of a corporation subject to tax under Sections business you are engaged in
27(A) and 28 (A)(1), it may elect a standard deduction ➔ may tapsilugan ka, sa gitna ng bundok walang
in an amount not exceeding forty percent (40%) of its kuryente so you cannot claim kuryente as a
gross income as defined in Section 32 of this Code. necessary expense
Unless the taxpayer signifies in his return his intention ➔ may parlor ka, pwede ka ba mag claim ng suka,
to elect the optional standard deduction, he shall be ng asinn aanhin mo ang asin at suka sa parlor,
considered as having availed himself of the deductions that’s the concept, hindi kailangan imemorize
allowed in the preceding Subsections. Such election kailangan nag iisip ka yan ba ay related na
when made in the return shall be irrevocable for the expense sa business ko, if the answer is yes it is
taxable year for which the return is made: Provided, allowed and falling under the items of deduction
That an individual who is entitled to and claimed for ➔ yesterday, I told you about items of exclusions,
the optional standard deduction shall not be required to and we said that when we have items of
submit with his tax return such financial statements exlcusions, these are items of income but they do
otherwise required under this Code: Provided, further, not form part of gross income the effect is no
That a general professional partnership and the partners income tax due, now how do we compare items
comprising such partnership may avail of the optional of exclusions with items of deductions
standard deduction only once, either by the general
professional partnership or the partners comprising the ITEMS OF EXCLUSIONS v DEDUCTIONS
partnership [4]: Provided, finally, That except when the ➔ E: items of income but the law provides they
Commissioner otherwise permits, the said individual should not be considered in computing gross
shall keep such records pertaining to his gross sales or income, so no tax due
gross receipts, or the said corporation shall keep such ➔ D: Itemized deductions, items of expenditures,
records pertaining to his gross income as defined in gastos and both items of exlcusions and
Section 32 of this Code during the taxable year, as may exemptions have the effect of reducing your tax
be required by the rules and regulations promulgated due and because of that, both of that both of that
by the Secretary of Finance, upon, recommendation of are items of exemption and must be construed
the Commissioner. [22] strictly against the taxpayer
But take note, that some of the revenue side of Y will be Yes.
coming from the expense side of X, not all but some. • When X pays B the rental, is it income on the part
of B? Yes.
Ang business ni X is tapsilugan (sale of goods) si Y • B is engaged in rentals of property, thus, he is a
empleyado, cook siya SEI, so he is subject to column A for NIT/8%
depending on the total GR during the year
Q: Ano ang kinikita ni Mr. X? • Likewise Y rents from Mr. B the house from
A: Habang nagbebenta si X ng tapsilog, yan ang kanyang which he stays for 10,000 monthly, this is income
revenue side. on the part of Mr. B and subject to tax for NIT/8%
depending on the threshold of 3M.
Tapsilog sold to customers, ‘yan ang kanyang revenue • When Y pays B, 10k monthly rentals Y cannot
side claim it as a deduction because Y as a
compensation income earner is not entitled to any
Q: What are the expense side of Mr. X, which would deduction
amount to itemized expenditures? • The tapsilugan wherein he pays rentals, of 20k,
sabi ni X kay B, bibilhin ko nalang ‘yan purchase
A:
for 3M pesos, so X purchased from B the
tapsilugan, land and building which he used to
E – business expenses
rent and paid 3M to Mr. B, when X pays B 3M
• Expenses for salaries, wages of employees pesos, is that income on the part of B?
• So si X pinasweldo niya ng basic pay si Y. So si Yes.
Y nung sumweldo, tumanggap ng basic pay. Ang
tanong kay X, is it a necessary business expense? B engaged in t/b will fall under column A, and
Is it a deduction? depending on the 3M threshold, B is liable for tax
for 8% or NIT if applicable yung option otherwise
A: Yes, may document (payroll), necessary in t/b, NIT
actually paid and reasonable in amount
• Can X claim the same as deduction in the DEPRECIATION
tapsilugan business? Yes.
• On the part of Y, is it subject to tax? • Q: Can X claim 3M as a deductible expense?
If Y is a M/S or R & F he is subjected to tax. The A: No, it is in the nature of a capital expenditure.
tax is NIT. But if Y is a MWE, the basic pay
which is the considered as the SMW is not subject Capital expenditure: is never allowed as a
to tax deduction, in lieu thereof, Mr. X can depreciate
• On top of the basic pay, X pays Y DMB, is it and claim depreciation expense of the asset as
deductible expense on the part of X? the alolowable deduction
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• Basic rule: if the taxpayer engage din t/b acquires REASONABLE ALLOWANCE FOR UTILITIES
assets used in his t/b the asset acquired is in the • Utilities: kuryente, tubig telepono internet si Mr.
nature of an ordinary asset, the purchase price X
that he spent for the purchase of the property is • Si Mr. Y nagbabayad din ng kuryente, tubig
not allowed as a business expense deduction telepono internet na binabayaran sa bahay na
because X acquires ownership of the asset. In lieu nirerentahan dati na ngayon binili na niya
however, we call it capital expenditure.
Q: If Mr. X pays these utilities, can X claim this as
In lieu of the business expense deduction that he deductible expenses?
is not allowed to claim, he can claim depreciation
expense. A: Yes. These are deductible business expenses
Q: How does he claim depreciation? Q: Can Y claim kuryente, tubig telepono internet as a
A: deduction?
A: CIE, not entitled to claim any deduction
There are two modes: straight light method and
depreciation method. We use straightline method in the MARKETING EXPENDITURES
Philippines
Si X nagpagawa ng posters, tarp, signage. Ang signage
Q: Depreciation period? 30k, ang posters, tarps nakalagay X tapsilog may kawali
A: Real property: 15-20 years na nakadrawing for 2k.
for tangible personal property: 5 years Q: Can X claim the expense for the posters for
legitimate business expense?
In this case, the 3M purchase price, 20 years then its A: Yes.
3M/20 years 150k/year as a deduction but not as business
expense but as a depreciation expense Q: the signage?
A: No, because it is a capital expenditure but pwede
-- depreciation expense as a deduction
So nagbayad ng interest on loans para iexpand ang tapsi A: None, because paid/not paid Y is not entitled to claim
business deduction
Q: Can X claim this as a deduction under interest on On the part of C, he can claim the bad debt expense of
loans? 55,000 pesos.
A: Yes
--
--
Now, nung hindi nakabayad si Mr. C, two years after
Q: Si Mr. Y nangutang din kay Mr. C ng 50k bayad nagbayad si Mr. X ng 110,000. Remember that Mr. C
ng 5k interest. Nagbayad si Y kay Mr. C, ano ang already claimed 110,000 as bad debt. Natapos ang
income ni Mr. C? dalawang taon, binayaran na ni Mr. X.
A: Limang libong interest Q: What is the effect of the subsequent recovery of the
bad debt from the POV of Mr. C?
Q: Taxable?
A: When he was subsequently paid, we have this rule of
A: Yes under A TAX BENEFIT RULE. When bad debt is previously
claimed as form of deduction by the creditor and
Q: Can mr. y claim the interest expense paid to Mr. subsequently paid by the debtor after claiming it as
C? deduction and the creditor according to the TBR shall
A: No, because Y is a CIE and cannot claim any deduction consider the amount paid/indebetedness recovered as part
of his gross income on the year of recovery
Baliktarin natin.
On the part of X, when he paid 100k + 10 interest, 2 years
May utang si X kay Mr. C, hindi siya nagbayad. after the due date
May utang si Y kay Mr. C hindi nagbayad Q: What is the effect on the part of Mr. X?
A: On the date, that it became due and it was not paid Mr.
Q: What is the tax effect to Mr. X and Y if they failed X cannot claim any interest expense but when he paid it
to pay the interest? two years after then he can claim the interest expense of
10,000 on the year na nagbayad siya
A: wala, wala sila bayad
--
Q: What is the tax consequence if X failed to pay Mr.
C? Now let’s go to Mr. Y.
A: The tax consequence is on Mr. C the creditor and Mr.
C calls it bad debts. Same thing, When Mr. Y failed to pay Mr. C 55,000. We
said Mr. C can claim bad debt as a deduction. So nag
Kapag bad debts ang tax payer na nag cclaim neto is the claim si Mr. C ng bad debt as deduction
creditor, if interest expense yung debtor ang nagclaim and
only on the interest Two years after nagbayad si Mr. Y ng 55,000
The creditor claiming bad debt claims the whole debt, plus Q: What is the effect of the subsequent recovery of the
the interest. bad debt that was previously claimed and allowed as a
deduction byMr. C?
Q: so, magkano yung bad debt?
A: 110,000 on the part of Mr. C as bad debt expense A: the 55k is declared as part of the gross income of Mr.
C on the year of recovery. We apply the TBR.
--
--
When Mr. Y pays Mr. C 2 years after, the 55k.
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(b) If both the taxpayer and the person to whom the
Q: What is the effect on Mr. Y? payment has been made or is to be made are persons
A: Nothing, Mr. Y is a CIE so he cannot claim any specified under Section 36 (B); or
deduction.
(c) If the indebtedness is incurred to finance petroleum
-- exploration.
In interest, we know the concept of tax arbitrage. Yan ang ibig sabihin ng tax arbitrage, ang ibig sabihin
niyan yung interest expense na 10,000 which can be
Q: What is tax arbitrage? claimed by mr. X as interest expense deduction pwede
A: Applicable only on interest on loans. pang mabawasan ang 10k ng 33% ng any interest income
subject to final withholding tax.
Sabi natin interest on loans incurred in connection with
t/b may be claimed as deduction by the debtor who paid Kung ito ang 10k nna interest na binayaran ni Mr. X kay
the interest expense. Mr. C, so si X gumastos ng 10,000 at yung 10k na ginastos
ni Mr. X pwede niyang i-claim as deduction sa tapsilugan
In tax arbitrage ang sinasabi ng batas ay, yung amount business.
interest expense allowed as a deduction shall be further
reduced by 33% of any interest income subjected to final Pero ang sabi ng batas yung 10k na idededuct ni Mr. X
withholding tax. When you look at section 34, hanapin from his tapsi income ay babawasan ng 33% ng interest
Ninyo wala kasing tax arbitrage section 34 (b) on interest income subject to final withholding tax. In other words,
expense Mr. X has one side, may utang nagbayad ng 10k na
interest on the other side ng buhay ni Mr. X meron siyang
(B) Interest. - deposit sa bank ni 1M.
(1) In General. - The amount of interest paid or incurred Ang bank nagbigay ng interest income sa deposit niya ng
within a taxable year on indebtedness in connection 5,000 pesos as kita. 10,000 gastos.
with the taxpayer's profession, trade or business shall
be allowed as deduction from gross income: Provided, Sabi natin sa batas, si interest income on bank deposits
however, That the taxpayer's otherwise allowable under column B, it is passive income subject to final
deduction for interest expense shall be reduced by 33% withholding tax.
of the interest income subjected to final tax: Provided,
finally, That if the interest income tax is adjusted in the Meron siyang 5,000 na kita, 10,000 na gastos
future, the interest expense reduction rate shall be
adjusted accordingly based on the prescribed standard Ang 33% ng 5,000 is 1700 so yung 1700 ang 33% ng
formula as defined in the rules and regulations to be 5,000. So yung 10,000 – 1700 ang pwede ideduct na
promulgated by the Secretary of Finance, upon the interest expense ay 8,300 pesos. Yun ang ibig sabihan ng
recommendation of the Commissioner of Internal tax arbitrage
Revenue. [45]
Q: What is the effect of tax arbitrage?
(2) Exceptions. - No deduction shall be allowed in A: Interest expense is reduced, if it is applied the higher
respect of interest under the succeeding subparagraphs: the tax will be kasi liliit ang deduction
HUA MULAN
On the part of Mr. Y nagbayas siya ng tariff & customs 2019: 20k
duties kasi nag import siya ng stove. He cannot claim
deductions because he is a CIE 2020: 0 book value
A: Nothing, he is not allowed to claim deduction it was So now its 2018, si Mr. M magnanakaw, ninakaw si motor
just a return of his taxes. Kay X meron because he was nung 2019 ang stove?
previously allowed to claim it as deduction
Q: magkano motor nung 2019?
-- A: 20K
Si Mr. X may motor bought in 2015 for 100k, 100k cannot These are casualty losses.
be claimed as a business expense but in lieu thereof it can
be claimed as a depreciation expense for 5 years. 100k/5 Q: What are casualty losses?
= 20k/year. He cannot claim it as a business expense A:
because its in the nature of a capital expenditure. Arising from theft, robbery, embezzlement, fire, storm
shipwreck or any other natural calamity provided that the
Q: How do we depreciate? loss sustained is related to t/b, and the same is not
A: straight line method. recovered completely and not compensated for by
insurance
So by 2016 the book value of the motorcycle is 80,000.
--
2017: book value is 60, 000
So ninakaw ni X yung motor nung 20k ang value at stove
2018: 40,000 nung 30k ang value.
HUA MULAN
Q: So magkano Nawala kay Mr. X? No effect kay Mr. Y, no income. Because he is a CIE.
A: 50k, ang tawag diyan casualty loss. TBR does not apply
Mr. X can claim 50k for the loss of motorcycle and stove --
for the year of 2019.
-- CHARITABLE & other CONTRIBUTIONS
Nanakaw ni Mr. M yung stove ni Mr. Y. Ang value ng Si Mr. X nagbigay sa gobyerno, religious & charitable at
stove is 3k nalang, so Y sustained 3k as a loss. Y cannot nagbigay sa NSNPEI nagbigay siya each 1M
claim it as a casualty loss because Y is a CIE is not
allowed to claim any deduction Q: Can Mr. claim 1M donation to the govt as donation
to the govt as tapsilugan income?
But when it comes to X because the assets are used in his
tapsi business and the loss is incurred in connection with A: Yes, in full provided it is a priority project of the govt
his tapsi business, X can claim 50k as casualty loss if not a priority project he can only claim up to 10% if he
expense deduction is an individual, and if a corp up to 5% as a form of
deduction
--
If Y on the other hand will be the donor, he cannot claim
Two years after or in 2021, dumating si Mr. M humingi any deduction as he is a CIE
ng kapatawaran kay Mr. X and binabalik na niya, pero
yung motorcycle, 3k nalang ang value and the stove is PENSIONS
valued at 2k, pero tinanggap ni Mr. X mga ito.
May retirement fund si Mr. X nag cocontribute siya ng
Q: What is the effect of the subsequent recovery of premiums and contributions.
property which was a subject of casualty loss as a form
of deduction? Q: Can X claim the contributions to the employment
fund of employees as a deduction?
A: We apply the tax benefit rule. When X recovered the
lost property, after claiming the casualty loss as a A: Yes
deduction. Mr X in pursuant to the TBR shall declare the
5k as income in 2021. Q: Income on the part of Y?
A: Yes.
In summary
Nagretire si Mr. Y and nakatanggap ng benefits.
Q: Ano ano ang deductions na pwede applyan ng
TBR? Q: Is this income on the part of Y? Is it subject to tax?
A: A:
1) Bad debts claimed as a deductin and subsequently
recovered Depende, if there is a private retirement plan and he
2) Taxes claimed as deduction and subsequently rendered service for 10 years and at least 50 years old, and
refunded approved by the BIR so this is income but it is not subject
3) casualty loss claimed as deduction and to tax
subsequently recovered
If there is no retirement fund maintained by the employer
-- and the EE retires, this is not subject to tax if Mr. Y is at
least 60 yrs of age and 20 yrs of service continuously
Nung ninakaw ni Mr. M ang stove ni Mr. Y, Mr. Y cannot
claim 3k as a deduction because he is a CIE and is not RESEARCH AND DEVELOPMENT
entitled to deduction ➔ Professional fees you pay for legal services
➔ Nag pa feasible study si X about tapsilog,
Two years later, Mr. M sinauli si stove for the value of nagpaseminar siya sa mga empleyado niya
500 pesos. ➔ This is allowed as a deduction on the part of X
➔ Y cannot avail of this deduction, 0 deductionn
siya ito ang bottomline because he is a CIE
HUA MULAN
-- So we have two personalities, the seller and the buyer.
Kapag ikaw ay seller, income tax payer ka kasi
In deductions: kumita ka. Kapag ikaw ay buyer, ikaw ay gumastos.
• Business related expenditures
• Necessary in t/b So from the POV of the seller and buyer, whenever
• Actually paid or incurred there is sale of goods and sale of service or
• Reasonable in amount importation, the government imposes the general rate
of tax of 12% this is added to the gross selling
If you do not spend anything, you cannot claim any price/gross receipts
deduction at all.
12% is added to the value of the goods.
--
VALUE ADDED TAX Ang tawag ni seller sa 12% is output. Output is the
➔ This is in the nature of a tax on the business value added tax on sales
Q: If you are a CIE, Do you have VAT? Kung ikaw naman ay bumili from a seller, kapag
A: No. no business binenta ni seller sayo, si seller nagpapatong ng 12%
SEP & SEI – you have VAT because you have t/b Ang tawag ni buyer sa 12% na same sa 12% ni seller
If you are MIE meron kang VAT component because is input value added tax on sales
engaged in t/b
When the buyer buys and paid the input of 12%
Corporations also have VAT because they are engaged in
t/b Q: Ano gagawin niya sa goods niya na binili?
A: The buyer sells also
--
Q: when the buyer sells, Ano ang mga binebenta
VAT applies to all kinds of taxpayers, it only applies to niya?
income within kahit sa RC and DC because walang VAT A: There are 3 possibilities
outside, we do not have jurisdiction
• Xpn: compensation income earner 1) Bumili ka ng raw materials ginawa mo to create a
product
Yung VAT it involves 3 transactions 2) Bumili ka ng product inenhance mo ang product,
1) Sale of goods in the course of t/b binenta mo ang enhanced product
2) Sale of service in the course of t/b 3) Bumili ka ng product, wala kang ginawa yung
3) Importation of goods (walang importation of same na product binenta mo
service)
• Whether it is in connection with t/b or not, basta --
ang goods dumating sa pilipinas sa bureau of
customs, mag aapply ng excise tax if applicable, Bumili ka ng raw materials, may ginawa ka para
VAT and TCD maproduce si pentelpen at binenta mo
Kapag binenta mo ‘yan subsequently may VAT ulit Bumili ka ng pentelpen, nilagyan mo ng ribbon etc
inenhance mo binenta mo si enhance product
VAT is in the nature of an indirect tax which is passed
on and on, infinity ‘yan. Bawat sale transaction, may Bumili ka ng pentelpen,wala kang ginawa binenta mo sya
VAT. as is
Sa income tax, you have gross income/gross receipts nag Never nangyayari na lug isa income tax side and VAT
benta ka ng tapsi, may resibo kang inissue na O.R. para payable ka, kasi kaya ka nalugi madami ka nagastos.
malaman ang GR mo
--
Sa VAT ang katapat ng GR mo is 12% output, so kung
ikaw ay may resibo sa benta ng tapsi kailangan So output- input = VAT payable if excess output VAT,
nakareflect ang 12% that is output refund or credit if there is excess input
Meron kang cost of sales, ikaw naman ang buyer bumili • ‘yan ang formula
ka ng toyo, suka, baka, bigas, mantika to produce the --
tapsilog. So meron kang cost of sales expense, ang
katapat non sa VAT 12% input 0 RATED AND EXEMPT TRANSACTIONS
So here sa income tax, kung may GR – cost of sales = Q: What is 0 rated trsxns?
gross income, sa gross income wala ng VAT. Gross A: Not subject to VAT in all transactions
income – allowable deductions to arrive at the Taxable net
income multiply by the rates kapag tayo and then 30% if The input VAT is allowed to be credited against output
corporation, then you arrive at your net income tax due. VAT
A: Kapag nag iimport ka kasi, this is prejudicial to the Tignan niyo yung threshold, kapag lampas na sa threshold
govt and economy because nag cocompete sa locally vatable na.
manufactured goods ang inimport mo eh hindi naman
pwede pagbawalan ang importation, so para madeter ito Yung par. BB, pinaka mahalaga ito yung 3M. If within
bayad ng VAT the VAT period the GR/GS of the taxpayer exceed 3M, it
is not exempted from VAT. Kahit ano ang binebenta mo,
Kapag benta palabas ng pilipinas, it’s beneficial to the as long as your GS/GR exceed 3M pesos, it is subjected
economy because when you export, you promote locally to VAT.
manufactured products so as a reward 0 rated transaction
ito. Q: What is the relevance of the 3M threshold of 109
BB to the 3M threshold for income tax purposes?
Q: What else is the benefit received by the govt from
export sales? A:
A: ang bayad sayo, foreign currency. Kapag import,
palabs naman ang foreign currency. Yung export sales, If you are SEP/SEI does not exceed 3M yung GR/GS then
better for the economy because money comes in, in import the option of 8% or NIT available, but if you choose 8%
money comes out. That’s why encouraged and export below 3M pa din so no VAT
sales in a way na govt provided 0 rated tax
Kapag nag exceed ka ng 3M, under 109 BB di ka na
Q: Ano naman ang example ng exempt transactions? exempted from VAT kaya yung NIT mo magbabayad ka
A: Not subject to VAT at a specific stage. You will find a pa ng VAT.
lot, A-Z section 109. You do not need to memorize this,
look at the important once, ano ang exempt transactions. --
Nakasulat sa 109 yung sale of goods in the original state. You have to file for the input VAT/credit it if at the end
of the year, kahit carryover ka ng carryover hindi mo siya
In the original state nanghuli ng bangus, VATABLE? pwede i-claim ng matagal na panahon, otherwise it will
Hindi. be waived
(b) if the laws of the foreign country of which the Sa isang taon, January to December. Si Mr. X nagbigay
decedent or donor was a citizen and resident at the time ng
of his death or donation allows a similar exemption • February: 800k binigyan niya si Mr. A
from transfer or death taxes of every character or • Nung May: 800k binigay sa anak niya na si Mr.
description in respect of intangible personal property B
owned by citizens of the Philippines not residing in that • June: nagpakasal si anak niya na isa, binigyan din
foreign country. ng 800k
• November: nag bar ang anak binigyan ng 800k
The term 'deficiency' means:
Q: Paano nacocompute ang donor’s tax?
(a) the amount by which tax imposed by this Chapter
exceeds the amount shown as the tax by the donor upon A: cumulative within a taxable period, on a per transaction
his return; but the amount so shown on the return shall basis at 6%
first be increased by the amount previously assessed (or
Collected without assessment) as a deficiency, and Nung February nagbigay ng 800k yan yung gross gift
decreased by the amounts previously abated, refunded
or otherwise repaid in respect of such tax, or Q: May allowable deduction?
(b) if no amount is shown as the tax by the donor, then A: Wala, no transfer for public use so. 800k net gift.
the amount by which the tax exceeds the amounts
previously assessed, (or collected without assessment) 800 – 250k = 550,000 taxable net gift.
as a deficiency, but such amounts previously assessed,
or collected without assessment, shall first be decreased 550k x 6% = 33, 000 babayaran sa BIR within 30 days
by the amount previously abated, refunded or otherwise from gift
repaid in respect of such tax.
Q: Who pays the donor’s tax?
-- A: Donor ang nagbabayad
Here is the CLINCHER. Nung May nagregalo ulit kay B ng 800k, since the law
states that it is cumulative but on a per-transaction basis,
Donor’s tax is the only tax imposed on a per transaction so you add the previous gifts
basis within the period of January- December every year
– the computation is per transaction per gift pero So May
nagcocompute ka cumulatively from January to 800,000 yung binigay kay B
December 800,000 ung binigay kay A
____ --
ESTATE TAX
48,000 -> this is the net donor’s tax.
➔ Ito mga buwis na binabayaran ng patay
-- ➔ All others, taxes when you are living, INCOME
TAX, VAT, DONOR’S TAX
Nung June, 800k ulit dinonate.
Q: Ano ang estate tax?
A: Tao lang ang involved, hindi pwedeng corporation.
800k (June)
800k The transfer is mortis causa. The basis is the FMV at the
800k time of death.
____
Q: What FMV are we talking about?
2.4M A: FMV as stated in the tax declaration, assessed value as
(0) -> deductions stated in the tax dec, zonal valuation as provided in the
_____ BIR if real properties
2.4 M gross gift
(250k) If tangible personal property – appraised value is the basis
48k -> taxable donor’s tax Gross estate – allowable deductions = Taxable net estate
x6% = estate tax due (less tax credit if any)
RP
TPP
➔ You know if nasa loob or labas
--
Claims against insolvent persons STANDARD DEDUCTION
➔ Increased to 5M, up to 5M ito ha, if your gross
Q: Sinong namatay? estate is 5M you cannot claim 5M as standard
A: deduction
Creditor namatay ng di nabayaran ng buhay na may utang, ➔ In case of a NRA, no standard deduction allowed,
namatay siya ng di pa siya nababayaran now, 500k is allowed
And the same house and lot by reason of death will be In all of these type of taxes, internal revenue taxes ‘yan eh
subjected to estate tax from the POV of several decedents. we create double taxation in the broad sense
We realized there is so much impact of estate tax on the Q: What are the instances?
property.
A: Yung property located outside the Philippines (in
Namatay ako, may estate tax sakin., Yung anak ko estate tax) are subjected to tax in the Philippines, subject
namatay may estate tax ulit anak ko nung lilipat sa apo ko. to tax where it is located in the country
So, the law recognizes the impact, to reduce the impact of In the cases of aliens, properties located in the Philippines
double taxation, one of the remedies provided by law is are subject to tax here and because they are citizens of
the vanishing deduction another country, it is also subjected to tax, there.
Q: Why is it called property previously taxed? Same rules in the donor’s tax and income tax, more
A: Kasi tinax sa akin, tapos sa POV ng anak ko it was specifically in income tax in RC and aliens because here
previously taxed the income from within the Philippines are subject to
income tax in the Philippines and subjected to income tax
Q: Why is it called vanishing deduction? in the country where they are citizens of
A: So if namatay ako, lumbera ang tawag sakin prior
decedent. Yung bahay at lupa ko kasama sa computation In RC and DC, the income without are taxable here in the
ng estate tax, bayad Philippines and subjected to tax doon sa country where it
is derived from
Napunta sa anak ko (present decedent), namatay anak ko
kaya bayad na naman ng estate tax. So the law provides for remedies to lower the double
taxation in the broad sense
Kapag namatay ang apo ko, bayad na naman ng estate tax.
So every time may namamatay, specific property will bear In income taxation we have
the impact of estate tax. • Tax credit
• Reciprocity rule
There is a prior decedent involving a specific property for
which estate tax has been paid (sa akin si lumbera), In donor’s tax we have
namatay ang anak ko, we call him the present decedent, • Tax credit
magcocompute na naman tayo ng estate tax, one of the • Reciprocity rule
gross estate deductions is property previously taxed or
vanishing deduction so the POV is nasa anak, so it is the In estate tax
same specific property has been previously taxed nung • Tax credit
ako ay namatay. • Reciprocity rule
• Vanishing deductions
Q; How does it work?
A: If the period of time between the death of the previous PART 4
decedent and present decedent is:
REMEDIES FOR INTERNAL REVENUE TAXES
0-1 Yr: 100% deduction
1-2 yrs: 80% Taxes covered:
2-3 yrs: 60%
• Income tax
3-4 yrs: 20%
• VAT or % tax
If lampas ng 5 years, THE DEDUCTION IS • Donor’s tax
COMPLETELY VANISHED. Meaning the estate of my • Estate tax
child is no longer entitled to deduction of PPT when the • Excise Tax
HUA MULAN
• DST
So let’s go back to the return, yung returns nasa BIR
-- website, it is always presumed to be filed in good faith.
This is a disputable presumption.
MAJOR TOPICS UNDER REMEDIES
A. Protest cases A return has a
B. Collection cases • Original return
• Civil • Amended return
• Criminal
C. Refund cases
• Under VAT
• Regular Q: What is an amended return?
A: You are referring to the original return, but because of
-- certain reasons you have to change the data that was in the
original return
Let’s start with Protest Cases
Q: What is the effect of filing an amended return?
A. Protest cases A: will be consolidated with the original return filed.
Yung internal revenue taxes, lahat ‘yan ay covered by Q: what is the reason why the taxpayer is prohibited
returns: income tax return, estate tax return, etc. All have from filing a return when there is a notice of
returns unlike local taxes na walang return, because all investigation received?
local taxes are pain on January 1.
A: if you would be allowed to amend after receipt of the
Q: Why? notice of investigation, mag aamend ka to suit the notice
A: Because local taxes are automatic and accrue every of investigation. You will correct your return because you
January 1 and are due on or before January 20. are being investigated, bawal ‘yun.
--
HUA MULAN
But we have a substituted filing for CIE, meaning if your Estate tax: 1 year from death
income arises purely from compensation, purely CIE ka
then it is your employer who will file the return for you Q: What is the consequence when you could not pay
and on your behalf. on the due date?
1. Purely CIE A: You pay the penalty of 25%, plus the interest is 12%
2. No income other than compensation paid or double the interest rate BSP approved rate per annum
pursuant to a EE-ER
3. Only one employer for a year And the surcharge of 50% in case of bad faith or fraud
Jan – May you work kay ER A, July nag employ ka kay So kapag lumampas ka ng isang araw, may penalty ka
B. Hindi pwede ang substituted filing. That is limited only agad 25% penalty + 12% per annum computed daily
to CIE.
Q: Saan ka naman nagbabayad?
If you are an individual who is a SEP/SEI or MIE basta A:
engaged to t/b you are required to file 4 returns, 3
quarterly returns Income tax: place of business, where you are working.
➔ CIE ka: sa pinagtatrabahuhan mo the BIR region
Q: Kailan? which has jurisdiction over your place of work
A: May, Aug, Nov 15 ➔ SEP/SEI/MIE ka: place where your business is
located
And the last final return is on or before April 15 the ➔ Corporation: place of business
following year ➔ VAT: Place of business
➔ Donor’s tax: residence of the donor, because it is
Tandaan niyo kapag ikaw ay tao, bawal ang fiscal lahat the donor who pays for the tax due
yan calendar. January to December within the periods ➔ Estate tax: place where the decedent died.
SEC. 5. Power of the Commissioner to Obtain (D) To take such testimony of the person concerned,
Information, and to Summon, Examine, and Take under oath, as may be relevant or material to such
Testimony of Persons. - In ascertaining the inquiry; and
correctness of any return, or in making a return
when none has been made, or in determining the (E) To cause revenue officers and employees to
liability of any person for any internal revenue tax, make a canvass from time to time of any revenue
or in collecting any such liability, or in evaluating district or region and inquire after and concerning
tax compliance, the Commissioner is authorized: all persons therein who may be liable to pay any
internal revenue tax, and all persons owning or
(A) To examine any book, paper, record, or other having the care, management or possession of any
data which may be relevant or material to such object with respect to which a tax is imposed.
inquiry;
The provisions of the foregoing paragraphs
(B) To obtain on a regular basis from any person notwithstanding, nothing in this Section shall be
other than the person whose internal revenue tax construed as granting the Commissioner the
liability is subject to audit or investigation, or from authority to inquire into bank deposits other than
any office or officer of the national and local as provided for in Section 6(F) of this Code.
governments, government agencies and
instrumentalities, including the Bangko Sentral ng SEC. 6. Power of the Commissioner to Make
Pilipinas and government-owned or -controlled Assessments and Prescribe Additional
corporations, any information such as, but not Requirements for Tax Administration and
limited to, costs and volume of production, receipts Enforcement. -
HUA MULAN
natural or juridical, under observation or
(A) Examination of Return and Determination of surveillance if there is reason to believe that such
Tax Due. After a return has been filed as required person is not declaring his correct income, sales or
under the provisions of this Code, the receipts for internal revenue tax purposes. The
Commissioner or his duly authorized representative findings may be used as the basis for assessing the
may authorize the examination of any taxpayer and taxes for the other months or quarters of the same
the assessment of the correct amount of tax, or different taxable years and such assessment shall
notwithstanding any law requiring the prior be deemed prima facie correct.
authorization of any government agency or
instrumentality [4]: Provided, however, That When it is found that a person has failed to issue
failure to file a return shall not prevent the receipts and invoices in violation of the
Commissioner from authorizing the examination of requirements of Sections 113 and 237 of this Code,
any taxpayer. or when there is reason to believe that the books of
accounts or other records do not correctly reflect
The tax or any deficiency tax so assessed shall be the declarations made or to be made in a return
paid upon notice and demand from the required to be filed under the provisions of this
Commissioner or from his duly authorized Code, the Commissioner, after taking into account
representative. the sales, receipts, income or other taxable base of
other persons engaged in similar businesses under
Any return, statement of declaration filed in any similar situations or circumstances or after
office authorized to receive the same shall not be considering other relevant information may
withdrawn: Provided, That within three (3) years prescribe a minimum amount of such gross receipts,
from the date of such filing, the same may be sales and taxable base, and such amount so
modified, changed, or amended: Provided, further, prescribed shall be prima facie correct for purposes
That no notice for audit or investigation of such of determining the internal revenue tax liabilities of
return, statement or declaration has in the such person.
meantime been actually served upon the taxpayer.
(D) Authority to Terminate Taxable Period. - When
(B) Failure to Submit Required Returns, it shall come to the knowledge of the Commissioner
Statements, Reports and other Documents. - When that a taxpayer is retiring from business subject to
a report required by law as a basis for the tax, or is intending to leave the Philippines or to
assessment of any national internal revenue tax remove his property therefrom or to hide or conceal
shall not be forthcoming within the time fixed by his property, or is performing any act tending to
laws or rules and regulations or when there is obstruct the proceedings for the collection of the tax
reason to believe that any such report is false, for the past or current quarter or year or to render
incomplete or erroneous, the Commissioner shall the same totally or partly ineffective unless such
assess the proper tax on the best evidence proceedings are begun immediately, the
obtainable. Commissioner shall declare the tax period of such
taxpayer terminated at any time and shall send the
In case a person fails to file a required return or taxpayer a notice of such decision, together with a
other document at the time prescribed by law, or request for the immediate payment of the tax for the
willfully or otherwise files a false or fraudulent period so declared terminated and the tax for the
return or other document, the Commissioner shall preceding year or quarter, or such portion thereof
make or amend the return from his own knowledge as may be unpaid, and said taxes shall be due and
and from such information as he can obtain through payable immediately and shall be subject to all the
testimony or otherwise, which shall be prima facie penalties hereafter prescribed, unless paid within
correct and sufficient for all legal purposes. the time fixed in the demand made by the
Commissioner.
(C) Authority to Conduct Inventory-taking,
Surveillance and to Prescribe Presumptive Gross (E) Authority of the Commissioner to Prescribe
Sales and Receipts. - The Commissioner may, at any Real Property Values. –The Commissioner is
time during the taxable year, order inventory- hereby authorized to divide the Philippines into
taking of goods of any taxpayer as a basis for different zones or areas and shall, upon mandatory
determining his internal revenue tax liabilities, or consultation with competent appraisers both from
may place the business operations of any person, the private and public sectors, and with prior notice
HUA MULAN
to affected taxpayers, determine the fair market
value of real properties located in each zone or area, (3) A specific taxpayer or taxpayers subject of a
subject to automatic adjustment once every three request for the supply of tax information from a
(3) years through rules and regulations issued by the foreign tax authority pursuant to an international
Secretary of Finance based on the current convention or agreement on tax matters to which
Philippine valuation standards: Provided, That no the Philippines is a signatory or a party of:
adjustment in zonal valuation shall be valid unless Provided, That the information obtained from the
published in a newspaper of general circulation in banks and other financial institutions may be used
the province, city or municipality concerned, or in by the Bureau of Internal Revenue for tax
the absence thereof, shall be posted in the provincial assessment, verification, audit and enforcement
capitol, city or municipal hall and in two (2) other purposes.
conspicuous public places therein: Provided,
further, That the basis of any valuation, including In case of a request from a foreign tax authority for
the records of consultations done, shall be public tax information held by banks and financial
records open to the inquiry of any taxpayer. [4] For institutions, the exchange of information shall be
purposes of computing any internal revenue tax, the done in a secure manner to ensure confidentiality
value of the property shall be, whichever is the thereof under such rules and regulations as may be
higher of: promulgated by the Secretary of Finance, upon
recommendation of the Commissioner.
(1) The fair market value as determined by the
Commissioner; or The Commissioner shall provide the tax
information obtained from banks and financial
(2) The fair market value as shown in the schedule institutions pursuant to a convention or agreement
of values of the Provincial and City Assessors. upon request of the foreign tax authority when such
requesting foreign tax authority has provided the
(F) Authority of the Commissioner to Inquire into following information to demonstrate the
Bank Deposit Accounts and Other Related foreseeable relevance of the information to the
information held by Financial Institutions. [5] - request:
Notwithstanding any contrary provision of
Republic Act No. 1405, Republic Act No. 6426, (a) The identity of the person under examination or
otherwise known as the Foreign Currency Deposit investigation;
Act of the Philippines, and other general or special
laws, the Commissioner is hereby authorized to (b) A statement of the information being sought,
inquire into the bank deposits and other related including its nature and the form in which the said
information held by financial institutions of: foreign tax authority prefers to receive the
information from the Commissioner;
(1) A decedent to determine his gross estate; and
(c) The tax purpose for which the information is
(2) Any taxpayer who has filed an application for being sought;
compromise of his tax liability under Section
204(A)(2) of this Code by reason of financial (d) Grounds for believing that the information
incapacity to pay his tax liability. requested is held in the Philippines or is in the
possession or control of a person within the
In case a taxpayer files an application to jurisdiction of the Philippines;
compromise the payment of his tax liabilities on his
claim that his financial position demonstrates a (e) To the extent known, the name and address of
clear inability to pay the tax assessed, his any person believed to be in possession of the
application shall not be considered unless and until requested information;
he waives in writing his privilege under Republic
Act No. 1405, Republic Act No. 6426, otherwise (f) A statement that the request is in conformity with
known as the Foreign Currency Deposit Act of the the law and administrative practices of the said
Philippines, or under other general or special laws, foreign tax authority, such that if the requested
and such waiver shall constitute the authority of the information was within the jurisdiction of the said
Commissioner to inquire into the bank deposits of foreign tax authority then it would be able to obtain
the taxpayer. the information under its laws or in the normal
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course of administrative practice and that it is in national and regional accreditation boards may
conformity with a convention or international appeal such denial to the Secretary of Finance, who
agreement; and shall rule on the appeal within sixty (60) days from
receipt of such appeal. Failure of the Secretary of
(g) A statement that the requesting foreign tax Finance to rule on the Appeal within the prescribed
authority has exhausted all means available in its period shall be deemed as approval of the
own territory to obtain the information, except application for accreditation of the appellant.
those that would give rise to disproportionate
difficulties. (H) Authority of the Commissioner to Prescribe
Additional Procedural or Documentary
The Commissioner shall forward the information as Requirements. - The Commissioner may prescribe
promptly as possible to the requesting foreign tax the manner of compliance with any documentary or
authority. To ensure a prompt response, the procedural requirement in connection with the
Commissioner shall confirm receipt of a request in submission or preparation of financial statements
writing to the requesting tax authority and shall accompanying the tax returns.
notify the latter of deficiencies in the request, if any,
within sixty (60) days from receipt of the request. SEC. 7. Authority of the Commissioner to Delegate
Power. - The Commissioner may delegate the
If the Commissioner is unable to obtain and provide powers vested in him under the pertinent provisions
the information within ninety (90) days from receipt of this Code to any or such subordinate officials
of the request, due to obstacles encountered in with the rank equivalent to a division chief or
furnishing the information or when the bank or higher, subject to such limitations and restrictions
financial institution refuses to furnish the as may be imposed under rules and regulations to
information, he shall immediately inform the be promulgated by the Secretary of Finance, upon
requesting tax authority of the same, explaining the recommendation of the Commissioner: Provided,
nature of the obstacles encountered or the reasons however, That the following powers of the
for refusal. Commissioner shall not be delegated:
The term “foreign tax authority,” as used herein, (a) The power to recommend the promulgation of
shall refer to the tax authority or tax administration rules and regulations by the Secretary of Finance;
of the requesting State under the tax treaty or
convention to which the Philippines is a signatory or (b) The power to issue rulings of first impression or
a party of. to reverse, revoke or modify any existing ruling of
the Bureau;
(G) Authority to Accredit and Register Tax Agents.
- The Commissioner shall accredit and register, (c) The power to compromise or abate, under Sec.
based on their professional competence, integrity 204 (A) and (B) of this Code, any tax liability:
and moral fitness, individuals and general Provided, however, That assessments issued by the
professional partnerships and their representatives regional offices involving basic deficiency taxes of
who prepare and file tax returns, statements, Five hundred thousand pesos (P500,000) or less, and
reports, protests, and other papers with or who minor criminal violations, as may be determined by
appear before, the Bureau for taxpayers. Within rules and regulations to be promulgated by the
one hundred twenty (120) days from January 1, Secretary of finance, upon recommendation of the
1998, the Commissioner shall create national and Commissioner, discovered by regional and district
regional accreditation boards, the members of officials, may be compromised by a regional
which shall serve for three (3) years, and shall evaluation board which shall be composed of the
designate from among the senior officials of the Regional Director as Chairman, the Assistant
Bureau, one (1) chairman and two (2) members for Regional Director, the heads of the Legal,
each board, subject to such rules and regulations as Assessment and Collection Divisions and the
the Secretary of Finance shall promulgate upon the Revenue District Officer having jurisdiction over
recommendation of the Commissioner. the taxpayer, as members; and
Individuals and general professional partnerships (d) The power to assign or reassign internal revenue
and their representatives who are denied officers to establishments where articles subject to
accreditation by the Commissioner and/or the excise tax are produced or kept.
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of these districts shall be under the supervision of a
SEC. 8. Duty of the Commissioner to Ensure the Revenue District Officer.
Provision and Distribution of Forms, Receipts,
Certificates, and Appliances, and the SEC. 10. Revenue Regional Director. - Under rules
Acknowledgment of Payment of Taxes. - and regulations, policies and standards formulated
by the Commissioner, with the approval of the
(A) Provision and Distribution to Proper-Officials. Secretary of Finance, the Revenue Regional
– Any law to the contrary notwithstanding, it shall director shall, within the region and district offices
be the duty of the Commissioner, among other under his jurisdiction, among others:
things, to prescribe, provide, and distribute to the
proper officials the requisite licenses; internal (a) Implement laws, policies, plans, programs, rules
revenue stamps; unique, secure and non-removable and regulations of the department or agencies in the
identification markings (hereafter called unique regional area;
identification markings), such as codes or stamps,
be affixed to or form part of all unit packets and (b) Administer and enforce internal revenue laws,
packages and any outside packaging of cigarettes and rules and regulations, including the assessment
and bottles of distilled spirits; labels and other and collection of all internal revenue taxes, charges
forms; certificates; bonds; records; invoices; books; and fees;
receipts; instruments; appliances and apparatus
used in administering the laws falling within the (c) Issue Letters of authority for the examination of
jurisdiction of the Bureau. For this purpose, taxpayers within the region;
internal revenue stamps, or other markings and
labels shall be caused by the Commissioner to be (d) Provide economical, efficient and effective
printed with adequate security features. service to the people in the area;
Internal revenue stamps, whether of a bar code or (e) Coordinate with regional offices or other
fuson design, or other markings shall be firmly and departments, bureaus and agencies in the area;
conspicuously affixed or printed on each pack of
cigars and cigarettes and bottles of distilled spirits (f) Coordinate with local government units in the
subject to excise tax in the manner and form as area;
prescribed by the Commissioner, upon approval of
the Secretary of Finance. (g) Exercise control and supervision over the
officers and employees within the region; and
To further improve tax administration, cigarette
and alcohol manufacturers shall be required to (h) Perform such other functions as may be
install automated volume-counters of packs and provided by law and as may be delegated by the
bottles to deter over-removals and misdeclaration of Commissioner.
removals.
SEC. 11. Duties of Revenue District Officers and
(B) Receipts for Payment Mode. – It shall be the Other Internal Revenue Officers. - It shall be the
duty of the Commissioner or his duly authorized duty of every Revenue District Officer or other
representative or an authorized agent bank to internal revenue officers and employees to ensure
whom any payment of any tax is made under the that all laws, and rules and regulations affecting
provisions of this Code to acknowledge the payment national internal revenue are faithfully executed
of such tax, expressing the amount paid and the and complied with, and to aid in the prevention,
particular account for which such payment was detection and punishment of frauds of delinquencies
made in a form and manner prescribed therefor by in connection therewith.
the Commissioner.
It shall be the duty of every Revenue District Officer
SEC. 9. Internal Revenue Districts. - With the to examine the efficiency of all officers and
approval of the Secretary of Finance, the employees of the Bureau of Internal Revenue under
Commissioner shall divide the Philippines into such his supervision, and to report in writing to the
number of revenue districts as may from time to Commissioner, through the Regional Director, any
time be required for administrative purposes. Each neglect of duty, incompetency, delinquency, or
malfeasance in office of any internal revenue officer
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of which he may obtain knowledge, with a statement SEC. 15. Authority of Internal Revenue Officers to
of all the facts and any evidence sustaining each Make Arrests and Seizures. - The Commissioner,
case. the Deputy Commissioners, the Revenue Regional
Directors, the Revenue District Officers and other
SEC. 12. Agents and Deputies for Collection of internal revenue officers shall have authority to
National Internal Revenue Taxes. - The following make arrests and seizures for the violation of any
are hereby constituted agents of the Commissioner: penal law, rule or regulation administered by the
Bureau of Internal Revenue. Any person so arrested
a) The Commissioner of Customs and his shall be forthwith brought before a court, there to
subordinates with respect to the collection of be dealt with according to law.
national internal revenue taxes on imported goods;
➔ if no return, pwede na mag file ng Assessment
b) The head of the appropriate government office
and his subordinates with respect to the collection Q: Paano yung assessment?
of energy tax; and A:
c) Banks duly accredited by the Commissioner with Ang unang iniissue is letter of authority to investigate,
respect to receipt of payments internal revenue within 15 days you will be required to answer, whether
taxes authorized to be made thru banks. you reply or not, the BIR will then issue the PAN whether
you reply or not, the BIR within 15 days shall issue the
Any officer or employee of an authorized agent FAN.
bank assigned to receive internal revenue tax
payments and transmit tax returns or documents to Q: What is a FAN?
the Bureau of Internal Revenue shall be subject to A: A notice from the BIR providing for the amount of tax
the same sanctions and penalties prescribed in that is required of you to pay.
Sections 269 and 270 of this Code.
Q: What is being collected by the govt?
SEC. 13. Authority of a Revenue Officer. - Subject A: You have filed the return and paid the tax, ang
to the rules and regulations to be prescribed by the sinisingil is deficiency, yung kakulangan ng bayad
Secretary of Finance, upon recommendation of the
Commissioner, a Revenue Officer assigned to Under the train law, inalis yung PAN ginawang
perform assessment functions in any district may, preliminary conference but there was one BIR ruling na
pursuant to a Letter of Authority issued by the binalik si PAN, so this is still the process.
Revenue Regional Director, examine taxpayers
within the jurisdiction of the district in order to The sequence must be followed
collect the correct amount of tax, or to recommend LA-> PAN -> FAN
the assessment of any deficiency tax due in the same ➔ If not followed, violation of due process
manner that the said acts could have been ➔ And thus, pwedeng hindi siya valid
performed by the Revenue Regional Director
himself. Q: Requisites of FAN?
A:
SEC. 14. Authority of Officers to Administer Oaths
and Take Testimony. - The Commissioner, Deputy 1. Writing
Commissioners, Service Chiefs, Assistant Service • Nakalagay na it is a final demand letter
Chiefs, Revenue Regional Directors, Assistant 2. Addressed to the taxpayer
Revenue Regional Directors, Chiefs and Assistant • The address you registered in the BIR records
Chiefs of Divisions, Revenue District Officers, unless you change it.
special deputies of the Commissioner, internal • If you did not officially change it and you
revenue officers and any other employee of the changed the address and there is no proof that
Bureau thereunto especially deputized by the BIR knows you changed address, yun pa din yun.
Commissioner shall have the power to administer you cannot invoke the fact that you changed your
oaths and to take testimony in any official matter or business address
investigation conducted by them regarding matters 3. Providing for the basis for in fact and in law for
within the jurisdiction of the Bureau. the computation of the tax
➔ Anong tax, basis in tax code and period covered
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➔ If wala to, FAN is not valid.
4. Providing for the amount of tax The waiver is a contract between taxpayer and BIR. The
➔ Principal amount, interest, penalty or surcharge if waiver extends the PP of assessment.
any
➔ If there is a surcharge imposed, the BIR found Q: Should it be notarized, yung waiver?
that you committed fraud A: Yes, it should be duly notarized.
➔ Surcharge = fraud
5. The due date --
6. Demand to pay
➔ Nakasulat doon, kalian mo dapat bayaran the date Let’s take the case of lumbera, for purposes of
is specific prescriptive period of assessment we are taking about the
➔ If di ka halimbawa nakabayad sa due date, may final return.
bagong penalties pero bawal ngayon na
pagsabayin na singilin yung deficiency penalty at Lumbera isa SEP, due date for return is April 15, 2020 to
file the final return.
7. Issued within the prescriptive periods of
assessment Date of filing: feb 14, 2020 ako nag file
Q: What are the PP of assessment? Q: Until when can the BIR issue the fan?
If filed with good faith. 3 years, if before due date 3 years Q: What if I filed April 15, 2020?
from due date if you file the return exactly on due date= A: April 15, 2023 kasi 3 years from filing
3 years from due date
Q: What if I filed on sep 28, 2020?
If late mo nafile after the due date = 3 years from actual A: BIR can issue Fan sep 28, 2023
date of filing
Here good faith ito.
If you filed the return in bad faith/fraudulent return then
the prescriptive period is 10 years from the BIR discovery Q: What if bad faith naman ako nag file ng maaga?
of the fraudulent return, if you did not file a return at all, Feb 14, 2020? BIR discovered it on 2025
then the BIR has two choices
1) File a return for you A: BIR will not apply the 3 year period, BIR will now use
2) No return and BIR will issue a FAN within 10 the prescriptive period of 10 years, so until 2035 BIR can
years form the BIR discovery of non-filing issue a FAN
Q: Who files the waiver? No filing = discovery from non-filing is 2025, so 10 yrs
A: Taxpayer, and he applies for it from discovery so until 2035 BIR can issue a FAN
Q: Requisites? --
A:
1) Executed before expiration of the original period When these dates are about to expire and the BIR did not
2) Signed by the taxpayer and accepted by the BIR issue a FAN, the taxpayer and BIR can execute a valid
with the authorized BIR personnel waiver, before the periods expire yung 3 yr and 10 yrs as
3) Date of signing, application and acceptance the case may be they must make a waiver within these
should be indicated on the face of the waiver periods. The extension has no limit. Kailangan before
4) 3 original copies (isa sa BIR, isa sa records ng expiration of the periods of assessment yung execution ng
kaso, isa sa taxpayer ) waiver
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-- And kung sino matalo, punta sa CTA en banc within 15
So BIR issued the FAN, so ngayon nasa taxpayer na ulit. days from the receipt of the order denying the motion for
reconsideration. You can file a MR with the CTA
So the taxpayer received the FAN.
From CTA the prejudiced party can go to the SC, you can
Q: What is the remedy of the taxpayer? also file a MR here.
A: Protest – this is admin in nature, venue is BIR. This is
not a court proceeding Q: Paano binibibilang yung 180 days?
There are instances na kulang documents, so you will be Q: Basis of the rule?
given time by the BIR to complete the documents, a A: Taxes are the lifeblood of the government, therefore
period not exceeding 60 days. However, the BIR will not you cannot prevent the government to collect even if you
direct you to do this, so since ikaw nag aargue, dapat alam have a pending protest.
mo anong documents.
So habang may admin case, the BIR can file a case for
Now, in that case the BIR may require you to submit collection civil/criminal and pwedeng sabay yan
within 60 days from receipt of the order requiring you to
submit So civil case, BIR is the plaintiff and the taxpayer is the
defendant
Q: How do you count the 180 day period when you are
required to submit the documents? Q: Saan finifile itong case na ito?
A: this is filed in the ordinary courts.
A: so you received the FAN, you have 30 days to file the
protest masipag ka you filed it on the 10th, sabi ng BIR uy We have the
kulang ang documents mo, submit the documents within
60 days. First level courts: MTC, Metc, MTCC
If you submitted it by mail, ang ginamit ng batas ay In tax collection cases, the govt may initiate the complaint
received so from the time the BIR actually received the before these courts.
documents, this is what you consider in counting the 180
day period. No original tax collection in SC & CA.
If the BIR received, and after the 180 days from receipt, Q: Which court has jurisdiction over a civil case for
you MAY (pwede kang) mag CTA or you wait for the tax collection?
decision of the BIR. A:
Q: What is to your effect to your pending protest case? MTC – below 6 yrs
A: RTC – 6 yrs 1 day
CTA
Sa kabilang case may protest ka na pwede umabot sa
court, sa kabila yung other case nag fifile ng collection --
ang BIR.
REFUND CASES
Only when nasa CTA na both, pwede na mag consolidate
para makaiwas for conflicting decisions over the FAN ➔ This means sobra ang naibayad ng taxpayer kaya
issued. ka nagpaparefund.
➔ There are two types of refund under the tax code
--
1) Refund of excess input VAT in 0 rated
Q: What about criminal cases? transactions
A: Issuance of a FAN is not needed to file a criminal case o May tapsilugan ka, 1M ang benta, 120k
because you are being charged for the penal provisions ang output VAT
under the tax code o Gastos mo 600k, 72k ang VAT (12%)
o Ang tawag sa 72k is input VAT
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o 1M-600k = 400k is kita Dati ang rule may non-action na 120, so diba 2 yrs
o Sa VAT side output – input = 48k ang from the close of the quarter when you had the
tawag dito is excess output VAT bayad transaction, you have to file the claim of refund from
BIR this end of the quarter within 2 yrs. Nagfile ka ng
-- maaga, dati kapag ang BIR nag act from filing within
120 days then you MUST go up to the CTA division
✓ Kumita ka ng 400M, VAT is 48k. this is your within 30 days. THIS RULE IS NO LONGER
output. APPLIED.
✓ Gastos mo 600k, 72k ang VAT mo. Input ito.
✓ Sa income tax side, lugi ka ng 200k kaya wala ka Now it’s 2: 90: 30
bayad walang tax ➔ The 90 day period is no longer non-action
✓ Sa VAT side meron kang output-input = 24k ➔ From the time the taxpayer files refund within 2
which is excess input VAT in vatable yrs from the close of the quarter when you had the
transactions, so sobra binayad mo sa gobyerno excess input VAT, then the BIR is required to
✓ Pwede mo yan icredit sa next quarter or refund, decide within 90 days
pero wala ng refund crediting nalang ito. ➔ So from the end of the quarter where you had
✓ These are regular VATABLE TRANSACTIONS excess IV and you filed within the 2 yr period, the
BIR must decide within 90 days
-- ➔ After the expiration of the 90 day period and there
is a decision and then you go up to the CTA en
Ito naman si 0 rated. division.
➔ In other words, now THERE WILL ALWAYS
BPO siya call center, sa Ortigas. BE A DECISION issued by the BIR on your
• Clients: overseas lahat, foreign clients claim for your refund
➔ Under the tax code, if the BIR personnel does not
So you render service here for foreign clients, wala kang act within the 90 day period he will be
domestic sale of service administratively charged
Benta is 1M, dahil overseas export yan ang output mo ay 2) ORDINARY CLAIMS FOR REFUND
0. Hindi mo pwede singilin ng VAT ang foreign clients
mo kasi nasa ibang bansa, pero meron ka pa ding gastos. ➔ Found under section 229
Gastos: rentals, nagrerenta ka ng lugar sa BPO mo 600k SEC. 229. Recovery of Tax Erroneously or Illegally
Collected.- no suit or proceeding shall be maintained in
So sa income tax side kita ka ng 400k, bayad ka ng buwis. any court for the recovery of any national internal
revenue tax hereafter alleged to have been erroneously
Dito sa 600 nagbayad ka ng input tax, kasi rentals yan eh, or illegally assessed or collected, or of any penalty
so ang input is 72k. claimed to have been collected without authority, of
any sum alleged to have been excessively or in any
Meron kang 72k excess input VAT in 0 rated manner wrongfully collected without authority, or of
transactions. any sum alleged to have been excessively or in any
manner wrongfully collected, until a claim for refund
In vatable transactions, when you have excess input VAT or credit has been duly filed with the Commissioner;
you have more input than output. But in 0 rated but such suit or proceeding may be maintained,
transactions, pwede icredit output v. input kaya may whether or not such tax, penalty, or sum has been paid
excess ka. under protest or duress.
Q: What is your remedy? In any case, no such suit or proceeding shall be filed
A: refund of excess input VAT in 0 rated transactions after the expiration of two (2) years from the date of
payment of the tax or penalty regardless of any
You must file it within 2 years from the quarter that you supervening cause that may arise after payment:
incurred the excess input VAT in 0 rated transactions. Provided, however, That the Commissioner may, even
This is an administrative claim for refund without a written claim therefor, refund or credit any
tax, where on the face of the return upon which
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payment was made, such payment appears clearly to Q: Anong itsura niya?
have been erroneously paid.
A: You paid taxes, so you have two years para mag file
Q: What are the grounds? ng refund sa BIR. So nag file ka within the 2 yr period for
A: admin claim in the BIR.
1. Illegally assessed taxes
2. Illegally collected taxes There is no requirement here for the BIR to decide,
3. Erroneously assessed taxes walang nakalagay sa batas non so now you will wait.
4. Erroneously collected taxes
So you filed the refund to the BIR which is admin in
This applies to all internal revenue taxes. nature within the 2 yr period, you have to comply with the
judicial naman, (kasi kailangan ADMIN + JUDICIAL to
Here may element of illegality, in the first kind of refund be entitled to refund) kapag nag decide ang BIR ng last
no illegality may sumobra lang. day nalang before the 2 yr period ends wala kang 30 days,
because ang sabi ng batas it must be filed within the last
Here under the second kind, there is the element of day ng 2 yrs
illegality.
So kung last day ngayon, tapos denial nareceive mo from
-- BIR today dapat mag fifile ka din sa COURT; same day
Tandaan, you must file admin claim for refund within 2 If may 5 days before mag end yung 2 yr period you
years and the judicial claim for refund within 30 days receive the denial from the BIR, wala kang 30 days pa din.
from the denial of your claim for refund. May 5 days kanalang so you must file the judicial claim
for refund within the same 2 yr period
In all of these proceedings you always start with admin
before judicial, ang pwede lang pumunta diretso ng Nakatanggap ka ng denial, meron kang 20 days left within
judicial is the govt. pero the rest of the proceedings, laging the 2 yr period you’re supposed to file, wala kang 30 days
may portion ng admin before ka mag judicial. hanggang 20 days left lang to comply with the judicial
claim for refund.
--
40 days yung natitira sa 2 yr period nung natanggap mo
Here sa refund of excess refund in 0 rated trnsxns. It is yung denial, you only have 30 days within the 30 day
filed within 2 yrs yung admin claim and hen you file period because you need to file the judicial claim of
within 30 days from denial sa CTA en banc. refund from the date of receipt of your refund within 30
days provided it is within the 2 yr period.
--
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