Professional Documents
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TAXATION LAW REVIEW - Abrc Lec 2017
TAXATION LAW REVIEW - Abrc Lec 2017
Ø Last three previous bar exam focused on Income Tax & Tax Remedies
Ø Pacquiao Case – Disputed Assessment – never been asked in the Bar Exam
Ø General Principles
Ø Law on Income Tax 85%-90%
Ø Tax Remedies
Ø Estate Tax
Ø Donor’s Tax
Ø Custom Duties – RA 10863 Custom Modernization & Tariff Act (Forecast 2017
bar question 2-3)
Ø Section 127 (A) – Sale of shares of stock listed and traded in local stock
exchange subject to Percentage Tax
Ø Read carefully Section 135 (C) – Entities which by law are exempt from direct
and indirect taxes
Ø Section 22-83
Ø Section 25 (B) Non-resident alien not engaged in trade or business within the
Philippines – Taxed on Gross Income
Ø Net Income Taxation (General Rule) A method or system of Income Taxation that
is fair, just and reasonable as the taxpayer is allows to claim deductions, and
grant additional personal exemptions. It minimizes fraud by virtue of the
examination of the taxpayer if the claims are indeed deductible – Tax base Net
Income – Section 31
Ø Section 24 (A.1.a) Resident citizen (Taxable Income from all sources within &
without the Philippines)
Ø Section 24 (A.1.b) Non-resident citizen (Taxable Income from all sources within
the Philippines); expenses incurred within, it follows that it can claim additional
personal exemptions
Ø Section 25 (B) Non-resident alien not engaged in trade or business within the
Philippines (Taxable Income from all sources within the Philippines)
Ø Jurisprudence: Aggregate of more than 180 days stay in the Philippines (though
not actually engaged in trade or business within the Phil) in contemplation of law
he is considered as non-resident alien engaged in trade or business within the
Philippines; By virtue Totality Rule, continuous stay is not required
Ø Income Tax Situs - Jurisprudence: State adopted a Comprehensive Tax Law, that
practically employed all the possible criterion in determining the tax liability of
the a taxpayer; Residence, Place & Nationality
Ø Test of Taxable Income – The right to receive the tax due under the law and not
the actual receipt of the tax that determine the tax liability of the taxpayer;
Constructive receive of income – Section 24 (A.2); Section 26; Section 73 (D);
Income not actually receive, however taxable; Requisites: (1) Credited to the
account of the taxpayer, (2) Unconditional, valid & enforceable. Example: Cash or
property dividends; Share of a partner in the net income of GPP; Share of a
partner in the net income of a taxable Business Corporation.
Ø All Events Test – determining whether the income is taxable. Requisites: (1)
Unconditional, (2) Susceptible of accurate estimate, (3) Reasonable amount. The
expenses for deduction must be claim within the taxable year when it incurred.
Ø Fiscal Year Theory – accounting period of 12 months ending on the last day of
any month other than December
Ø It finds support in the Constitution, that the State should evolve a progressive
income tax rate
Ø Methods of Collection
Ø Two role of withholding agent: (1) Agent of the taxpayer in filing the tax return;
(2) Agent of the government for withholding the tax due
Ø Tax credit vs. Deductible Tax Credit: Former, reduces taxpayer’s tax liability;
Latter, reduces taxpayer’s taxable income
Ø Withholding Tax is a Final Tax – a full settlement of tax liability, if the income
subjected to withholding tax is the only income of the taxpayer
Ø Section 24(B) – Branch Profit Remittance Tax – Final Tax on the profit
earmarked remittance
Ø Section 27 (D.5) – 6% Capital Gains Tax on the sale of Real Property – a final tax
Ø Capital Gains from Sale of Shares of Stock – not traded in local stock exchange
(5%-10% final tax)
Ø Section 25, 27 & 28 – Interest Income subject to final tax; Derived from foreign
currency deposit
Ø Prizes – the amount is more than 10k
Ø Filing – Section 51 (C) - Individual Taxpayer - Pay as you file rule – Annually
Ø Section 75 & 76 – Procedure: Shall file quarterly income tax return in cumulative
basis and thereafter shall file a final adjustment return
Ø Taxpayers that did not required to file an income tax return: (1) Compensation
earners whose wages is subjected to withholding tax; (2) The income subjected
to withholding tax is the only source of income of the taxpayer – requisites: one
employer in the Philippines & the tax withheld must equal to tax due
Ø General definition of Gross Income – Section 32 (A); All income derived from
whatever sources – Legal or Illegal; A total income from all sources before
deductions, exemptions or other tax reduction, derived from whatever source
Ø Section 33 (B) Fringe Benefit defined. (1) Housing; (2) Expense Account; (3)
Vehicle of any kind; (4) Household personnel (maid & driver) – paid by the
employer; (5) Membership fees; (6) Expense for foreign travel; (7) Holiday &
Vacation expenses; (8) Educational assistance (employee or dependents); (9)
Life or Health Insurance premium
Ø Fringe benefit given to the employees for the advantage or convenience of the
employer – not subject to fringe benefit tax
Ø Long Term Deposit – 5 years term; Depositor must be individual; The depository
must be a bank, not a finance company; Minimum of 10,000 deposit
Ø Section 32 (A.3) Gains derived from the sale, barter or exchange of real property;
Lease not included
Ø Capital Asset – property of the taxpayer whether or not used in trade or business
Ø Ordinary Asset – primarily used in the ordinary course of business of the
taxpayer
Ø Reason why to know Capital Asset vs. Ordinary Asset – Capital transaction that
presupposes that the subject of sale is a capital asset
Ø Section 39 (B,C & D): Holding Period Rule – Individual; Capital Loss Limitation –
Individual/Corporation; Net Capital Loss Carry Over – Individual
Ø When subject to final tax? (1) Individual taxpayer must be a recipient; (2)
Non-resident foreign corporation not engaged in trade or business – must be a
recipient
Ø Exception (subject to tax): (1) changed in the stockholders interest or right in the
net asset of the corporation; (2) Other than stock dividends; (3) Usufructuary
under Section 566 Civil Code – natural right to receive the industrial fruits; (4)
Redemption of shares of stocks; (5) Stock dividends declaration; (6) Disguise
Dividends – in the sense that the dividends declared and issued by the
Corporation is in the guise of evading tax liability
Ø Section 27 (C) – Government and Controlled Corporation: GSIS, SSS, Phil. Health
Insurance & PCSO
Ø Holding Period Rule (Capital – If sold within 12 months – it may claim as gain or
loss at 100%, BUT if sold more than 12 months- it can only claim as gain or loss
at 50%
Ø Capital Loss Limitation – loss sustained is deductible only from Capital Gain; not
applicable to bank and trust companies; since capital transaction it is not
connected in the trade or business of the taxpayer; cannot be claim as deduction
for being not connected in the trade or business of the taxpayer
Ø Net Capital Loss Carry Over – loss sustained during a taxable year shall be
treated as a loss in succeeding taxable year
Ø Capital Gains Tax of 6%: Section 24 (D) – Individual Taxpayer; Tax on Presumed
Gain from the sale of Capital Asset; Tax base Gross Selling Price or current Fair
Market Value/Zonal Value; Gain by legal fiction. Section 27 (D.5) Domestic
Corporation Taxpayer; Tax on Presumed Gain from the sale of lands and
buildings; Not actually used in the trade or business; Tax base Gross Selling
Price or current Fair Market Value/Zonal Value; Cost cannot claim as deduction.
EVEN IF it will incurred an actual loss, still liable for 6% Capital Gains Tax on
presumed gain from the sale of Capital Asset. The tax base is the Gross Selling
Price, therefore, no deductions allowed.
Ø Section 24 (D) vs. Section 27 (D.5) – Former, Individual Taxpayer; Presumed Gain
from the sale of Real Property; Includes Pacto De Retro & Conditional Sale; Has
Tax Avoidance provision under Section 24 (D) par. 2, the proceeds of the sale
will be used to construct new principal residence, Requisites: (1) Within 18
months from the date of the sale will construct new principal residence, (2)
Within 30 days, notice must be given to the BIR from the date of the sale, (3) The
construction of new principal residence can only be avail once in every 10 years.
The latter, Domestic Corporation Taxpayer; Presumed Gain from the sale of
Lands and Buildings; No conditional sale included; No Tax Avoidance provision
IF Actually, IF
Directly, sell/sol
Exclusively d for
Use for the profit in
purpose ordinary
they are busines
created- s-
To include:
Acredited
NGO’s;
Research
Org.; Cultural
Org.;
Philanthropi
c Org.; Social
Welfare Org.
Ø Even if incurred net loss or no income, still liable for 2% MCIT. Since the tax
imposed is on Gross Income, expenses are not recognized. Moreover,
deductions and additional & personal exemptions are not allowed. The purpose
of imposing MCIT is to forestall or end the over claiming of deductions of
Corporations.
Ø Jurisprudence: Immediacy Test – the reason for holding back the declaration of
corporate profit or earnings is to reserve such earnings for immediate
reasonable needs of the corporation.
Ø Since tax on taxable income, deductions and additional & personal exemptions
are allowed.
Ø Sparing – before the Corporate Income Tax is 30% reduces to 15% final
withholding tax to attract more investors.
Ø Tax Credit – Corporate investor must prove that the 15% final withholding tax
allowed as tax credit in the foreign country, otherwise the dividends is subject to
30% regular income tax.
Ø Jurisprudence: Purpose of the imposition of the tax is to equalize the tax burden
between Foreign Corporation and Domestic Corporation. The transaction is
effectively connected with the conduct of trade or business of the corporation.
However, subject to limitation provided by law (RP-GERMANY Treaty) – the tax
that will be imposed is not more than 10%.
Ø Life Insurance Proceeds vs. Section 85 E – Included in the Gross Estate of the
decedent. Except if it is expressly provided that the designation of the
beneficiary is irrevocable – the insurance proceeds is excluded from the Gross
Estate.
Ø Gifts of minimal value vs. Donation Inter Vivos – Donors Tax; Donation Mortis
Causa – Estate Tax
Ø Sections 203 – Prescription Period to Assess Tax (3 years from filing of Tax
Return)
Ø Jurisprudence: the reckoning period for the assessment of tax is from the filing
of the substantially amended income tax return
Ø Section 223 – Suspension of the running of the prescriptive period to Assess &
Collect Taxes: Request for Reinvestigation – on the ground of newly discovered
evidence
Ø Request for Reconsideration does not toll the running of the prescriptive period
to Assess & Collect Taxes
Ø Requisites of Request for Reinvestigation: (1) Duly approved by the BIR; (2) Must
be in Writing; (3) Made before the expiration of 3 years; and (4) Authorized and
signed by the Taxpayer
Ø PAN can be dispense with: (1) The finding is the result mathematical error in
computing the tax; (2) There is a discrepancy between the amount withheld and
the amount actually remitted by the withholding agent; (3) When the taxpayer
carried over the excess creditable withholding tax against tax liabilities for the
taxable quarters of the succeeding taxable year; (4) In cases of excise tax has
not been paid; and (5) Article locally purchased or imported by an exempt person
has been sold, transferred or traded to non-exempt person
Ø The decision or resolution covered by Rule 65 are those which patently unjust,
oppressive, whimsical and grave abuse of discretion amounting to lack or
excess of jurisdiction