I

Income tax – tax on yearly profits arising from property, profession, trades or offices or
as a tax on a person’s income, emoluments, profits, and the like.
 For 2021, all income tax is payable until the 15th day of the 4th month of the
preceding year which is April 15, 2022. Because it is a holiday, the next working
day, April 18, 2022.

Concepts of Income
 Without income for the taxable year, there is nothing to tax.
o Except MWEs or income less that 250k
 Receipts are not considered as income.
 Advance payments are not revenue. Especially if cash basis.
 Borrowed money is not part of taxable income. Ibabalik mo rin kasi.

When is income recognized?

If it has been received either actually or constructively.

Test in determining of income is earned for tax purposes

 Realization test – the earning process is complete and exchange has taken place.
Nagbenta ka ng property and binayaran ka. An exchange has taken place and
income is realized.
 Control test – the power to dispose your income. Binigyan ka ng tseke and hindi
mo na-encash. It is non-transferrable and you cannot control it because it is not
yet in cash form – still not income.
 Economic benefits test – share of stocks in Petron. Hangga’t hindi siya binebenta,
wala kang gain. Wala kang economic benefit sa pag-ho-hold mo and hindi ka
taxable. Unless magbigay ng dividend ang Petron. It is subject to final tax. Hindi
siya kasama sa computation ng gross, net, and taxable income.
 Severance test – taxable income if the capital is exchanged for something to
value. Once you sever that capital, it is already taxable income
 All events test - combination of any of the prior tests.

Accounting method – set of rules for determining when and how income is reported as
well as deductions.
 Cash basis – expenses is deductible in the year it was paid regardless of the
year it was incurred.
o Deduction starts kung kalian mo siya binayaran.
 Accrual method – expenses are deductible in the current year when they are
incurred.
o Deduction starts kung kailan mo siya nakuha.
 Installment – a person who regularly sells of otherwise disposes of personal
property on the installment plan may return as income in any taxable year that
proportion of the installment payments actually received that year.
 Deferred payment – deductions for depreciation may be advanced to an earlier
date.
o Depreciation!!! Pwedeng isama as deductible expense.
 Percentage of completion – if upon the completion of a long-term contract, it is
found that the taxable net income arising from it has not been clearly reflected for
any year/s, the CIR may permit or require an amended return.
o If you’re an architect in a five-year contract for a building, then you are
paid based on how much you’ve completed every year. For example, 20%
 lang nagawa mo for the first year, then your income will be the equivalent
of that 20%.

Income from performance of service is treated as income from within the

Philippines if the service is actually performed in the Philippines.

Gross income
 Compensation for service in whatever form paid, including, but not limited to fees,
salaries, wages, commissions, and similar items;
 Gross income derived from the conduct of trade or business or the exercise of a
profession;
 Gains derived from dealings in property;
 Interests;
 Rents;
 Royalties;
 Dividends;
 Annuities;
 Prizes and winnings (more than 10k sa lotto);
 Pensions; and
 Partner’s distributive share from the net income of the general professional
partnership.

Gross income – all income derived from whatever source after subtracting exclusion
(money from insurance. Hindi siya kasama sa gross kasi allowable exclusion siya)
Net income – gross income minus items subject to final taxes (ayang nasa taas. May
withholding agents na kasi sila)
Taxable income – net minus deductions (i.e.travel expenses) if any

Compensation income
 All remuneration for
 Services performed by an employee for his employer
 Under an employer-employee relationship
 Unless excepted under the provisions of NIRC

Fringe benefits – means any good, service, or other benefit furnished or granted in cash
or in kind by an employer to an individual employee (hindi taxable ang rank-and-file
employees - the ordinary members of an organization as opposed to its leaders or
managers) such as, but not limited to, the following:
 Housing;
 Expense account;
 Vehicle of any kind;
 Household personnel, such as maid, driver, and others;
 Interest on loan at less than market rate to the extent of the difference between
the market rate and actual rate granted;
 Membership fees, dues, and other expenses borne by the employer for the
employee in social and athletic clubs or other similar organizations;
 Expenses for foreign travel;
 Holiday and vacation expenses;
 Educational assistance to the employee or his dependents; and
 Life or health insurance and other non-life insurance premiums or similar
amounts in excess of what the law allows.
 Effective January 1, 2018 onwards, a final tax of thirty-five percent (35%) is
hereby imposed on the grossed-up monetary value of fringe benefit furnished or granted
to the employee (except rank and file employees defined herein) by the employer,
whether an individual or a corporation.

When are fringe benefits not taxable?

 Fringe benefits which are authorized and exempted from tax under special laws;
 Contributions of the employer for the benefit of the employee to retirement,
insurance, and hospitalization benefit plans;
 Benefits given to the rank and file employees, whether granted under a collective
bargaining agreement or not; and
 De minimis benefits as defined in the rules and regulations to be promulgated by
the Secretary of Finance, upon recommendation of the Commissioner.

II
Provisions indirectly affecting taxation
i. Due process
ii. Religious freedom
iii. Press freedom
iv. Non-impairment of obligations of contracts
v. Ex-post facto law prohibition

Stages/Aspects of Taxation
1. Assessment (Levy) – determination of the persons, property, or excises to be taxed,
the sum or sums to be raised, the due date thereof and the time and manner of levying
and collecting taxes
2. Collection – the manner of enforcement of the obligation on the part of those who are
taxed.

The two processes constitute the tax system.

C. Characteristics of a valid tax

Kinds of Taxes
1. As to object
a) Personal (capitation or poll) – taxes of fixed amount upon all persons of a certain
class within the jurisdiction of the taxing power without regard to the amount of
their property or occupations or businesses in which they may be engaged in. i.e.
community tax
b) Property – taxes on things of property of a certain class within the jurisdiction of
the taxing power. i.e. real estate tax
c) Excise – charges imposed upon the performance of an act, the enjoyment of a
privilege, or the engagement in an occupation. i.e. income tax, VAT, estate tax,
donor’s tax
2. As to burden/incidence
a) Direct tax – tax wherein the incidence as well as the impact or burden of the tax
faces on one person. i.e.income tax, community tax, donor’s tax, estate tax
b) Indirect tax – tax wherein the liability for the payment of tax falls on one person
but the burden thereof can be shifted or passed to another person. i.e. VAT,
percentage taxes, customs, duties, excise taxes on certain goods.
3. As to purpose
 a) General/Fiscal/Revenue – tax imposed for the general purposes of the
government such as raising revenues for governmental needs. i.e. income tax,
VAT, and almost all taxes
b) Special/Regulatory – tax imposed for general purposes such as to achieve some
social or economic needs. i.e. educational fund tax under Real Property Taxation

4. Sources of Tax Laws

General Concepts in Taxation

1. Prospectivity – tax laws, including rules and regulations, operate prospectively unless
otherwise legislatively intended by express terms or by necessary implication. Except in
the following cases:
a) Where the taxpayer deliberately misstates or omits material facts from his return
or any document required of him by the Bureau of Internal Revenue
b) Where the facts subsequently gathered by the Bureau of Internal Revenue are
materially different from the facts on which the ruling is based
c) Where the taxpayer acted in bad faith.

2. Imprescriptibility. General rule is that taxes are imprescriptible (cannot be taken away)
as they are the lifeblood of the government. Exception is that tax statutes may provide
for statute of limitations.

Situs of taxation
a) In general – literally means “place of taxation”. The general rule is that the taxing
power cannot go beyond the territorial limits of the taxing authority. Basically, the
state where the subject to be taxed has a situs may rightfully levy and collect the
tax.
b) Estate tax – tax on the right of the deceased person to transmit his/her estate to
his/her lawful heirs and beneficiaries at the time of death and on certain transfers,
which are made by law as equivalent to testamentary disposition. It is not a tax
on property. It is a tax imposed on the privilege of transmitting property upon the
death of the owner. The Estate Tax is based on the laws in force at the time of
death notwithstanding the postponement of the actual possession or enjoyment
of the estate by the beneficiary.
c) Donor’s tax –tax on a donation or gift, and is imposed on the gratuitous transfer
of property between two or more persons who are living at the time of the
transfer.
d) Business tax -
e) Property tax – levy that is imposed primarily upon land and buildings.
f) Excise tax – tax on the production, sale or consumption of a commodity in a
country. Applicable on goods manufactured or produced in the Philippines for
domestic sale or consumption or for any other disposition; and in goods imported.
g) Sales of property – If you buy property in the Philippines, you can expect to pay
several fees, including: Capital Gains Tax: 6% of the residence's sales price,
zonal value or fair market value, whichever is highest. This is normally paid by
the seller, but in some instances the buyer pays it, or it ends up rolled into the
sales price.
h) Income tax – levied on the earnings of companies and individuals are referred to
as income taxes. Earnings subject to income taxes can come from diverse
sources, including wages, salaries, dividends, interest, royalties, rents, gambling
winnings, and product sales.

Double taxation
a) Strict sense
 b) Broad sense
c) Tax treaties as relief – To eliminate double taxation, a tax treaty resorts to two
major methods: first, by allocating the right to tax between the contracting states;
and second, where the state of source is assigned the right to tax, by requiring
the state of residence to grant a tax relief either through exemption or tax credit.

Thus, a tax treaty sets out the respective rights to tax of the state of source or
situs and the state of residence with regard to certain classes of income or
capital. In some cases, an exclusive right to tax is conferred on one of the
contracting states; however, for other items of income or capital, both states are
given the right to tax, although the amount of tax that may be imposed by the
state of source is limited.

Escape from Taxation

a) Shifting the tax burden – the taxpayer transfers the tax burden to the purchaser
or supplier by increasing the sales price or depressing the purchase price during
the process of commodity exchange.
b) Tax avoidance vis-a-vis Tax evasion
c) Abatement of taxes – compromise involves the payment of a certain percentage
of the tax liability while abatement means cancellation so there will be no
payment of the tax liability.

Exemption from taxation

Kinds of taxation

Classification of statutory exemptions

1. Members of judiciary not exempt from taxation
2. Implied tax exemption
3. Contractual tax exemption – contractual tax exemptions, in the real sense of the term
and where the non-impairment clause of the Constitution can rightly be invoked, are
those agreed to by the taxing authority in contracts, such as those contained in
government bonds or debentures, lawfully entered into by them under enabling laws
4. Revocation of tax exemption – It shall be deemed revoked if there are material
changes in the character, purpose, or method of operation of the corporation or
association which are inconsistent with the basis for its income tax exemption.
5. Equitable recoupment – allows a taxpayer whose claim for refund has prescribed to
offset tax liabilities with his claim of overpayment. ... Jessie brought into the Philippines
a foreign-made luxury car, and paid less than the actual taxes and duties due
6. Prohibition on compensation and set off
7. Compromise
8. Tax Amnesty

Construction and Interpretation of Tax laws, Rules and Regulations

1. Construction and interpretation of tax laws
a) General rule
b) Prescription in civil cases
c) Prescription in criminal cases
d) Strictissimi juris, and exemptions
e) Construction of penal provisions of tax laws
f) Construction of revenue regulations

Taxpayer’s suit
a) Nature and concept
 b) Citizen’s suit – Any Filipino citizen in representation of others, including minors or
generations yet unborn, may file an action to enforce rights or obligations under
environmental laws.
c) Locus standi
d) Doctrine of transcendental importance
e) Ripeness for judicial determination

III
Income - an amount of money coming to a person or corporation within a specified time
whether as payment for services, interests, or profits from investment.

Nature of Income
Income is the fruit of capital or labor severed from the tree.

Income vs Capital
 Capital
o Wealth or fund
o Is the tree
o Not taxable
 Income
o Profit or gain
o Is the fruit
o Taxable

What is taxable income?

Section 31. The term ‘taxable income’ means the pertinent items of gross income
specified in this Code, less the deductions, if any, authorized for such types of income
by this Code or other special laws.

Taxable = gross income - deductions

Income tax – tax on yearly profits arising from profession, trade, or office. You pay it
because you have the privilege to pay.

Exclusion – hindi na isasama. SSS, life insurance, etc.

Deduction – isasama sa gross, pero imemenos na siya later on.

In computing the net taxable income, hindi na isasama ang exemptions and deductions.

Income tax is progressive – the ability to pay depends on the amount of income you
have.

Income tax systems

 Global – unitary or single tax rate. Donor’s tax is an example. A car’s value given
to another is subject to a final tax of 6%. Hindi na siya mag-iiba.
 Schedular – different tax rates. Sa income tax.
 Semi-global or semi-schedular – combination of global and schedular. Ito sa
Philippines.

Passive income – subject to final tax rates such as rental income.

255,000 – 250,000 = 5,000
5,000 x 20% = 1,000 ang tax rate na babayaran mo

Basic features of the income tax law

 Direct tax – it is not transferrable. The burden cannot be shifted.
 Progressive – tax rate decreases as tax base increases
 Comprehensive – imposed on all forms of income regardless of nature
 Semi-schedular or semi-global – income may be subject to final tax or a tax rate.

Situs of taxation
 Domiciliary theory – location of the income earner
 Nationality theory – country where the income earner is a citizen
 Source – income where the activity is produced took place.

Mobilia sequuntur personam – the tax laws of the country follows the income earner.

Basis of taxability of income on individuals

 Citizenship
 Residence
 Place where the income is derived

Gross income – total income without any deductions

Net income – income less allowable deductions
Passive income – examples: interest, dividends, royalties

Income tax on individuals

 Resident citizens receiving income from sources within or outside the Philippines
 Non-resident citizens receiving income from sources within the Philippines
 Aliens, whether resident of not, receiving income from sources within the
Philippines

Income tax on non-individuals

 Domestic corporations receiving income from sources within and outside the
Philippines
 Foreign corporations receiving income from source within the Philippines
  Estates (naiwan ng mga deceased na hindi pa nadi-distribute sa heirs) and trusts
engaged in trade or business
Who are citizens of the Philippines?
Section 1. The following are citizens of the Philippines:
 Those who are citizens of the Philippines at the time of the adoption of this
constitution.
 Those whose fathers and mothers are citizens of the Philippines;
 Those born before January 17, 1973 of Filipino mothers who elect Philippine
citizenship upon reaching the age of majority; and
 Those who are naturalized in accordance with law (i.e. Basketball player Andray
Blatche)

Classification of citizens for income tax purposes

 Resident citizen – taxable if income is derived within our without the Philippines
 Non-resident citizen – taxable if income is derived within the Philippines
o A citizen of the Philippines who establishes to the satisfaction of the
Commissioner the fact of his physical presence abroad with a definite
intention to reside therein
o A citizen of the Philippines who leaves the Philippines during th taxable
year to reside abroad, either as an immigrant or for employment on a
permanent basis
o A citizen of the Philippines who works and derives income from abroad
and whose employment thereat requires him to be physically present
abroad most of the time during the taxable year.
o A citizen who has been previously considered as a non-resident citizen
and who arrives in the Philippines at any time during the year to reside
permanently in the Philippines will likewise be treated as a non-resident
citizen during the taxable year in which he arrives in the Philippines with
respect to his income derived from sources abroad until the date of his
arrival in the Philippines.
 Overseas contract workers including seafarers – taxable if income is derived
within the Philippines

Sec 2(c), Revenue Regulations No. 1-79. Non-resident is a person who stayed abroad
for an aggregate of more than 183 days.

Aliens
 Resident alien – foreigner, actually present in the Philippines
 Non-resident alien
o Engaged in trade or business in the Philippines
o Not engaged in trade or business in the Philippines

Who are not required to file income tax returns?

 An individual earning purely compensation income who taxable income does not
exceed 250k
 An individual whose income tax has been withheld correctly by his employer,
provided that such individual has only one employer for the taxable year
 An individual whose sole income has been subjected to final withholding tax or
who is exempt from income tax pursuant to the Tax Code and other special laws.
 An individual who is a minimum wage earner.

Who can be taxed?

 Individual – resident, citizen, alien
  Corporations – domestic, foreign
 Estates – unsettled property of deceased individuals
 Trusts – between beneficiary, trustee and trustor

Basis of taxability of income of corporations

 Is the corporation domestic or foreign?
 If the corporation is foreign, is it a resident or non-resident?
 Is it engaged in business in the Philippines or not?

Taxable year
 Calendar year – an accounting period of 12 months ending in December 31
 Fiscal year – an accounting period of 12 months ending on the last day of any
month other than December
 Short period – fractional part of a year

IV
How are tax laws construed?
They are construed strictly against the government and liberally in favor of the
taxpayer. However, if the language of the tax laws is clear and unequivocal, they must
be given their literal application and applied without interpretation.

Statute of Limitations – it tells the time the party is allowed to file a case or claim. If you
sleep on your rights to file a case, that’s on you. It can be waived!!!
Prescription – the lapse of time. The period of time is already timed up.

How are prescription in civil cases construed?

They are liberally construed in favor of the taxpayers to protect them from the
taxing authority.

How is prescription in criminal cases construed?

What does strictissimi juris mean and how does it apply in taxation?
It is according to the strictest interpretation of the law. Tax exemptions are a
privilege, that’s why they are construed in favor of the government and strictly against
the taxpayers. Pwedeng kunin ito pabalik.

Are there exemptions in the strictissimi juris rule?

 The statute granting exemptions provides liberal construction
 In case of special taxes relating to special cases, affecting only special classes of
persons
 Exemptions refer to public property
 Exemptions to charitable and educational institutions or their property
 Cases of exemptions in favor of a government political subdivision or
instrumentality
 Tax refund bases on solution indebiti
How are penal provisions of tax laws construed?
They are strictly construed against the taxing authority. The limitation should not
be presumed.
How are revenue regulations construed?
RR is issued by BIR (promulgated by DOF secretary upon recommendation of
the BIR Commissioner) and technically not a law. It guides the taxpayers and exec
department in applying tax laws. It has the force and effect of tax laws.

Taxpayer’s suit – a case that can be filed by a taxpayer. He or she can assail the
validity of the law because there is a danger that the wealth of the Philippines is spent in
an unconstitutional way.

Citizen’s suit – a suit that involves the constitutionality of the law and it affects the public
in general.

Locus standi – it can be waived!!! It is a mere procedural factor. As opposed to

substantial law, it is not as strict.

Requisites of the suits – you can file a case if it involves a constitutional issue
 Taxpayer’s suit – public money will be deflected in an improper purpose
 Voter’s suit – obvious interest in the validity of the election law in question
 Concerned citizen suit – issues raised are of transcendental importance which
must be settled early. For example, as a voter.
 Legislator’s suit – claim that the official action infringes upon prerogatives as a
legislator

Doctrine of transcendental importance – it is so important that it raises constitutional

questions. Even if you are not directly affected, you can still file without locus standi.

Ripeness for judicial determination – there must be personal injury that needs to be
adjudicated immediately. If there is a delay, the people concerned can be affected.
Justice delayed is justice denied bestie.

Powers and duties of the BIR

 Assessment and collection of taxes
 Enforcement of forfeitures, penalties, and fines
 Give effect to supervisory and police powers of tax laws

Jurisdiction, power, and functions of the CIR (Caesar Dulay)

 He has the right to assess and collect taxes
 Searches and seizures kasi may delegated police powers siya
 Can file tax evasion cases
 Supervise and control subordinate units like regional and district offices of BIR

In Batangas, Revenue Region 9A (CABAMIRO) – Cavite, Batangas, Mindoro, Romblon

tayo. Ang Revenue District natin sa Batangas ay divided into two: Revenue District
Office No. 58 (Batangas City, West Batangas) and Revenue District Office No. 59 (Lipa
City, East Batangas)

Powers and authorities of CIR

Powers
 Interpret tax laws and decide on tax
cases
 Obtain information,
summon/examine, take testimony of
Authority
 Inventory, surveillance
 Terminate taxable period
 Inquire into bank deposits
 Accredit and register tax agents
 persons
 Make assessments and prescribe
requirements for tax administration
and enforcement
 Assign revenue officers and other
employees
 Prescribe additional procedural or
documentary requirements
 Delegate powers to revenue officers
 Assign revenue officers
 Compromise, abate, refund, or
credit taxes

Can a revenue officer enter into a house to inspect articles subject to excise taxes?
He/she can. But of course up to code pa rin if may alam siyang violation of any
penal law in connection to tax. The persons searched and properties seized because of
the power of the office of BIR will be brought in court to be dealt with.

Constructive restraint – another police power of the BIR. Pwede niyang ipagbawal na
huwag galawin ang gamit mo because it is subject to investigation.

Power to obtain information and summon/examine and take testimony of persons

 Make a return when none has been made
 Determine liability of any person for any internal revenue tax
 Collect from any person liable
 Evaluate tax compliance
 Suspend business operations of a taxpayer
 Prescribe real property values
 Inquire into bank deposits accounts
 Interpret tax laws and decide tax cases.

Ascertain correctness of return in case of a

Letter of authority
person
 Issued by the Revenue Regional  Fails to file the required return
Director  Willfully files a false or fraudulent
 To examine taxpayers within the return
jurisdiction of the district to collect
the right amount of tax
 Recommend assessment of any
deficiency tax due

V
Exemption from taxation wine-waive ng ng state ang right niya to collect from the
taxpayers. Taxation is the rule and exemption is the exception. Without taxation, the
government can neither endure nor exist.

Kinds of tax exemption

 As to clarity
o Express
o Implied
 As to extent
o Total
o Partial
 Coverage
 According to intent
 According to source
o Constitutional
o Statutory
o Treaty
 o Contractual
o Licensing ordinance

Examples of tax exemptions

 Pioneer enterprises registered with the Bureau of Investments to encourage teir
proliferation resulting in more employment and more goods which will ead to
collection of more taxes
 Income of duly registered cooperatives
 Income derived by companies in Specific Economic Zones

Are members of the judiciary exempt from taxation?

No!!! In Nitafan v. CIR 152 SCRA 284, a judge in a Metro Manila RTC cited that
the Consitutition provides salaries of judges shall be fixed by law and not be decreased.
Therefore, taxes should not be deducted from his pay. However, kahit meron silang
fiscal autonomy, it does not give them immunity from taxation. Lifeblood theory, bestie.

Implied tax exemption – failure to include a subject or object from taxation. It does not
apply in the Philippines. It does not apply in the Philippines. Tax exemptions are the
enemy of the country.

Contractual tax exemption – this results from the rendition of the subject or object of
taxation of a service or exchange from exemption. There is a contract from the
government which states that you are no longer taxable.

Revocation of tax exemption – ang nag-i-impose ng tax laws is Congress. So, kung sino
ang nag-grant pwede niya ring kunin as an act of liberality by the government which
gave it away in the first place in the form of a law.

Equitable recoupment
 Income tax is 1,000,000 for 2021. Later on, reassessment said that 750,000 lang
ang dapat bayaran. Hindi siya agad na-file for tax refund and nag-prescribe na
‘yong period. Can you apply it or set it off to the next tax pays? Hindi na. Hindi
siya applied in the Philippines. If you slept on your rights, then that’s on you.
 Prohibition on compensation and set off

Republic v. Mambulao Lumber – payment of taxes is not in the nature of contractual

obligations between the state and the taxpayer, but grows out of a duty which does not
require the consent of the taxpayer.

Compromise – it is a contract. To end possible litigation, compromise happens.

Tax amnesty
 Immunity from all civil, criminal, and administrative liabilities.
 The state forgives you from not paying taxes.
 It applies only to the past and not to the future.
 Waiver! Only the Congress can give tax amnesties.
 There is a current tax amnesty in estate taxes. If you did not settle your estate
until the time was prescribed, then you will have penalty. In estate tax amnesty,
binigyan niya ng forgiveness ang hindi pagbayad ng tax on time. 5,000 na lang
babayaran mo. Existing pa rin ito until June 2023.

How do we construe tax laws?

In case of doubt, tax laws are construed against the government and in favor of
the taxpayer. It is because the power to tax has the power to destroy.
Prescription in civil cases
General rule, it is imprescriptible. However, it can prescribe sometimes. To
safeguard taxpayers from unreasonable examinations and assessments, the country
has a statute of limitations. Statute of limitations only allows a certain amount of time for
the state to assess and examine them.