PRELIM: INTAX NOTES with God, all things are possible

LESSON 1: BASIC CONCEPTS OF - The act of a government

TAXATION in claiming privately-
owned property to be
o Rationale of Taxation
used for the benefit of
- Const of maintaining a civilized overall public.
society
- Symbiotic relationship 3. Power of Taxation
- Power of government to
collect taxes from the citizens
o Primary Purpose o Even without a
- Raise revenue to defray the provision, government
necessary expenses of the can still exercise this
government power
o Sin taxes (vices)

o Secondary Purposes
🔍︎: Sin Taxes
✓ To redistribute wealth

✓ To attract more employment - An excise tax on specific

goods and services due to
✓ To complement the police power their ability, or perception, to
be harmful or costly to
→ Can taxation be used to control
society.
inflation?
- Ex. Tobacco, alcohol,
gambling
o THREE INHERENT POWERS OF
THE STATE

1. Police Power o DIFFERENCE BETWEEN A BILL

- Concerns the general welfare AND LAW
of the citizens, including o BILL – draft/ proposal/
health suggestion
- Enables the state to prohibit o LAW – rules put into effect
all things hurtful to the
comfort, safety, and welfare
of society o BRANCHES OF THE
GOVERNMENT
2. Power of Eminent Domain
- Taking (of the Government) ✓ Legislative
of one private property to - Law-making branch
convert for public use
- Cannot be prevented but will ✓ Executive
be exchanged for just - Law-enforcing branch
compensation
✓ Judicial
🔍︎: Expropriation Proceedings

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PRELIM: INTAX NOTES with God, all things are possible

- Interpreting branch o AMEND – minor change; repeal an

act/part and re-enact another
o REPEAL – entire act is abrogated;
o LEGISLATIVE PROCESS: major change
CONCERNING TAX LAWS
 As long as the appeal emanates
I. Legislative Branch from that of the house of
- proposed bill will undergo the representatives.
legislative process for both chambers:  If the President approves of the bill,
it will become a law
1. House of Representatives /  But if the president decides not to
Lower House sign the bill, it will become a law
- Creates laws automatically after some time.

2. House of Senate / Upper House II. Executive Branch

- May only amend/expand but
not repeal the laws  Department of Finance:

1. Bureau of Customs
2. Bureau of Internal Revenue (BIR)
🔍︎: THE PROCESS (IN GENERAL)
III. Judicial Branch
 HOUSE OF REPRESENTATIVES
1. Preparation/Drafting  Quasi-Judicial Body
2. First Reading - Has ability to interpret the bill
3. Committee Consideration/Action - BIR Commissioner
4. Second Reading
5. Third Reading
6. Transmittal to Senate  If there are issues concerning the
interpretation of tax laws (by BIR),
 HOUSE OF SENATE the exhaustion of administrative
1. Senate Action (same process) remedy must be followed.
2. Conference Committee
3. Transmittal to President

🔍︎: When an administrative remedy is

 PRESIDENT (or DEPT. OF provided by law, relief must be
FINANCE) sought after exhausting this remedy
1. Presidential Action before judicial intervention may be
(approved/vetoed) availed of.
2. Action on Approved
3. Action on Vetoed
🔍︎: THE PROCESS:

🔍︎: Definitions 1. BIR

2. Court of Tax Appeals
o VETOED – refuse to accept/allow 3. Supreme Court

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PRELIM: INTAX NOTES
 If straight to Supreme Court, case
will be dismissed.
o CREATION OF TAX BILLS
Art. VI, Sec. 24, 1987 Constitution:
- “All appropriation, revenue or
tariff bills, bills authorizing
increase of the public debt, bills f
local application, and private bills
shall originate exclusively in the
House of Representatives, but
the Senate may propose or
concur with amendments.”
o CONSOLIDATION OF BILLS
Tolentino v. Secretary of Finance, G.
R. No. 115455, 25 August, 1994:
- “The contention of petitioners is
that in enacting Republic Act No.
7716, or the Expanded Value-
Added Tax Law, Congress
violated the Constitution
because, although H. No. 11197
had originated in the House of
Representatives, it was not
passed by the Senate but was
simply consolidated with the
Senate version (S. No. 1630) in
the Conference to produce the
bill which the President signed
into law.”
o POSSIBLE EXTENT OF
AMENDMENT
Tolentino v. Secretary of Finance, G.
R. No. 115455, 25 August 1994:
- “To begin with, it is not the law –
but the revenue bill – which is
required by the Constitution to
“originate exclusively” in the
with God, all things are possible
House of Representatives. It is
important to emphasize this,
because a bill originating in the
House may undergo such
extensive changes in the Senate
that the result may be a rewriting
of the whole.”
o APPLICATION OF TAX LAWS
 General Rule: Prospectively
applied
 Exception: Retroactive
effect is expressly declared
o INTERPRETING TAX LAWS
Sec. 4, NIRC:
- “The power to interpret the
provisions of this Code and other
tax laws shall be under the
exclusive and original
jurisdiction of the
Commissioner, subject to
review by the Secretary of
Finance.”
o PROMULGATING RULES AND
REGULATIONS
Sec. 244, NIRC:
- “The Secretary of Finance, upon
recommendation of the
Commissioner, shall promulgate
all needful rules and regulations
for the effective enforcement of
the provisions of this Code.”
 Limitation:
“BIR Commissioner is empowered to
interpret our tax laws but NOT
EXPAND or ALTER them.”
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PRELIM: INTAX NOTES with God, all things are possible

 Local Taxes - The government need not

- Amilyar (local property taxes) to pay tax as they are the
- Made by LGU ones who collect and use
- LGUs are part pf executive and them
have separate code for taxes
d. International Comity (RMO
10-2019)
 National Internal Revenue Code - People of different
(NIRC) nationality or
- National tax laws representing foreign
country shall NOT pay
✓ If case is SILENT – use general rule the tax
e. Non-delegation of Power to
Impose Tax
o REVENUE REGULATION - Taxing power is
- Signed by: exclusively a
LEGISLATIVE function
1. Secretary of Finance – Benjamin
Diokno
2. BIR Commissioner – Romeo D. o CONSTITUTIONAL LIMITATIONS
Lumagui
a. Due Process Clause
CIR v. Fitness by Design, Inc. G.R.
- Serves as the interpretation of No. 215957, 9 November 2016:
tax laws
- Is not automatically followed; it - “The rationale behind the
must be checked if it coincides requirement that taxpayers
with the context of the original should be informed of the
provision facts and the law on which
the assessments are based
conforms with the
o LIMITATIONS ON POWER OF constitutional mandate that
TAXATION no person shall be deprived
of his/her property without
1. Inherent Limitations due process of law.
a. Public Purpose - Between the power of the
- Taxes must be used for State, to tax and an
projects benefitting the individuals right to due
public process, the scale favors the
right of the taxpayer to due
b. Territoriality process.”
- The State can only collect
b. Uniformity Clause
tax within its territory
British American Tobacco v.
Camacho, G.R. No. 163583, 15 April
c. Exemption of the
2009:
Government

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PRELIM: INTAX NOTES with God, all things are possible

- Uniformity of taxation, like the  There must be illegal

kindred concept of equal
protection, merely requires
that all subjects or objects
that or of taxation, similarly
situated, are to be treated
alike both in privileges and
liabilities.”
c. Progressive System
Art. VI. Sec. 28 (1), 1987
Constitution:
- “The rule of taxation shall be
uniform and equitable. The
Congress shall evolve a
progressive system of
taxation.”
 PUBLIC PURPOSE
Sec. 4(2), PD 1445, Government
Auditing Code of the Philippines:
- Government funds or
property shall be spent or
used solely for public
purposes.”
o PUBLIC PURPOSE: VIEW THAT
FITS MODERN STANDARD
disbursement of public funds.
 Petitioner is directly affected by
the alleged act
 Life Blood Doctrine
The Phil. Guaranty Co., Inc. v. CIR,
et al., G.R. No. L-22074, 30 April
1965:
- “The power to tax is an
attribute of sovereignty. It is a
power emanating from
necessity. It is a necessary
burden to preserve the
State’s sovereignty and a
means to give the citizenry
an army to resist an
aggression, a navy to defend
its shores from invasion, a
corps of civil servants to
serve, public improvement
designed for the enjoyment
of the citizenry and those
which come within the state’s
territory, and facilities and
protection which a
government is supposed to
provide.”

 Essential government o ESSENTIAL ELEMENTS OF TAX

functions  Enforced contribution
 Purposes designed to  Proportionate in character
promote social justice:  Generally payable in money
- Relocation of illegal  Levied by legislative body
settlers  Levied upon person, property,
- Providing low-cost right/privilege
housing  For public purpose
 Not unconstitutional
even if it only benefits
a limited number of o DIRECT DOUBLE TAXATION
persons - Happens when taxation is
repeated when ALL OF
THESE HAPPENS:
o TAXPAYERS’ SUIT – REQUISITES

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PRELIM: INTAX NOTES with God, all things are possible

 Imposed on same
subject matter  Administrative Feasibility
 For the same purpose - Effective enforcement
 By the same taxing
authority  Theoretical Justice
 Within the same - Ability to pay
jurisdiction
 During the same taxing
period o STAGES OF TAXATION
 Of the same  Levy/Imposition
kind/character  Assessment (self-assessment)
 Payment (pay as you file)
- Assessment and collection
o INDIRECT DOUBLE TAXATION - Refund
- Happens when taxation
repeats but these happen: o SITUS OF TAXATION
 Foreign tax credit - Place whet ethe tax should
 Tax exemption expressly be paid
provided - Jurisdiction of taxing
 Tax treaty authority
 Reciprocal tax treatment

 Example:
o COMPENSATION: OFF-SETTING Municipality of Cainta v. City of
OF TAXES Pasig, G.R. No. 1767703, 28 June
2017:

🔍︎: COMPENSATION – awarded to - “Under the Local

someone as a recompense for loss,
injury, or suffering.
 Compensation NOT Allowed:
 Government and taxpayers are
not creditors and debtors of each
other.
 Debts are due from the
government in its corporate
capacity.
 Taxes are due to the government
in its sovereign capacity.
o PRINCIPLES OF SOUD TAX
SYSTEM
 Fiscal Adequacy
- Tax revenue v. expenditure
Government Code (LGC),
local business taxes are
payable for every separate or
distinct establishment or
place where business subject
to the tax is conducted,
which must be paid by the
person conducting the
same.”
Sec. 150, Local Government Code:
- “… Businesses, maintaining
or operating branch or sales
outlet elsewhere shall record
the sale in the branch or
sales outlet making the sale
or transaction, and the tax
thereon shall accrue and

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PRELIM: INTAX NOTES
shall be paid to the
municipality where such
branch or sales outlet is
located…”
Different RDO (Revenue Regional
Office)
o IMPORTANCE OF SITUS
Sec. 248, NIRC:
(A) There shall be imposed, in
addition to the tax required to be paid,
a penalty equivalent to twenty-five
percent (25%) of the amount due, in
the following cases:
(1) Failure to file any return and
pay the tax due thereon as
required under the provisions of
this Code or rules and regulations
on the date prescribed; or
(2) Unless otherwise authorized
by the Commissioner, filing a
return with an internal revenue
officer other than those with
whom the return is required to
be filed; or xxx.”
o TAX EVASION V. TAX AVOIDANCE
 Tax Avoidance
- Tax minimization
- Legal means of reducing (or
totally) avoiding tax.
Sec. 99, NIRC:
“The tax for each calendar year shall
be six percent (6%) computed on
the basis of the total gifts in excess
of two hundred fifty thousand pesos
(P250,000) exempt gift made during
the calendar year.”
with God, all things are possible
 Tax Evasion
Sec. 254, NIRC:
“any person who willfully attempts
in any manner to evade or defeat
any tax imposed under this Code or
the payment thereof shall, in addition
to other penalties provided by law,
upon conviction thereof, be punished
by a fine not less than five
hundred thousand pesos
(P500,000) but not more than ten
million pesos (P10,000,000) and
suffer imprisonment of not less than
six (6) years but not more than ten
(10) years: Provided, that the
conviction or acquittal obtained
under this Section shall not be a bar
to the filing of a civil suit for the
collection of taxes.”
o SUBSIDIARY PENALTY
Sec. 280, NIRC:
- “If the person convicted for
violation of any of the
provisions of this Code has
no property with which to
meet the fined imposed upon
him by the court, or is unable
to pay such fine, he shall be
subjected to a subsidiary
personal liability at the rate
of one (1) day for each
eight pesos and fifty
centavos (P8.50) subject to
the rules established in
Article 39 of the Revised
Penal Code.”
o AMENDMENT OF ARTICLE 39,
RPC
Sec. 1, R.A. 10159:
- “Art. 39. Subsidiary Penalty.
– if the convict has no
property with which to meet
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the fine mentioned in
paragraph 3 of the next
preceding article, he shall be
subject to a subsidiary
personal liability at the rate
of one day for each amount
equivalent to the highest
minimum wage rate
PREVAILING IN THE
Philippines at the time of
the rendition of judgment
of conviction by the trial
court, subject to the following
rules.”
 LESSON: Avoid tax evasion
o INFORMER’S REWARD
Sec. 282, NIRC:
- “any person, except an
Internal Revenue official or
employee, or other public
official or employee, or his
relative within the sixth
degree of consanguinity, who
voluntarily gives definite
and sworn information, not
yet in the possession of
the Bureau of Internal
Revenue, leading to the
discovery of frauds upon
the internal revenue laws
or violations of any of the
provisions thereof, thereby
resulting in the recovery of
revenues, surcharges, and
fees and/or the conviction of
the guilty party and/or the
imposition of any of the fine
or penalty, shall be rewarded
in a sum equivalent to ten
percent (10%) of the
revenues, surcharges, or
fess recovered and/or fine or
penalty imposed and
collected or one million
with God, all things are possible
pesos (P1,000,000) per
case, whichever is lower.
- The same amount of reward
shall also be given to an
informer where the offender
has offered to compromise
the violation of law
committed by him and his
offer has been accepted by
the Commissioner and
collected from the
offender; xxx.”
o RULES ON CONSTRUCTION
 General Interpretation of Tax Laws
CIR v. Suyoc Consolidated Mining
Company, G.R. No. L-11527, 25
November 1958:
- “Tax laws should be
interpreted liberally in favor of
the taxpayer and strictly
against the government,
except in the matter of tax
exemptions.”
 Strictissimi Juris – Tax Amnesty
CIR v. Transfield Philippines Inc.,
G.R. No. 211449, 16 January 2019:
- “A tax amnesty, much like a
tax exemption, is never
favored nor presumed in law.
The grant of a tax amnesty is
akin to a tax exemption; thus,
it must be construed strictly
against the taxpayer and
liberally in favor of the
taxing authority.”
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LESSON 2: INDIVIDUAL TAXATION
o CLASSIFICATION OF TAXPAYERS
 As to citizenship:
 Citizens of the Philippines:
- Resident citizen (Within and
without)
- Nonresident citizen (Within)
 Aliens:
- Resident alien (Within)
- Nonresident alien engaged in
trade or business (Within)
- Nonresident alien NOT
engaged in trade or business
(Within)
o Within – taxable income is from
WIHTIN the Philippines
o Without – taxable income is from
OUTSIDE the Philippines
o NONRESIDENT CITIZEN
Sec. 22 (e), NIRC:
(1) 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.
(2) A citizen of the Philippines who
leaves the Philippines during the
taxable year to reside abroad,
either as an immigrant or for
employment on a permanent
basis.
(3) A citizen of the Philippines who
works and derives income from
abroad and whose employment
thereat requires him to be
physically present abroad most
with God, all things are possible
of the time during the taxable
year.
(4) A citizen who has been previously
considered as nonresident
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
nonresident citizen for 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.
(5) The taxpayer shall submit proof to
the commissioner to show his
intention of leaving the Philippines
to reside permanently abroad or
to return to and reside in the
Philippines as the case may be for
the purpose of this section.”
o MOST OF THE TIME
Sec. 2, RR 1-79:
- “Outside Philippines for not
less than 183 days in a
particular taxable year.”
 OVERSEAS CONTRACT WORKER
Sec. 23(C), NIRC:
- “An individual citizen of the
Philippines who is working
and deriving income from
abroad as an overseas
contract worker is taxable
only on income derived
from sources within the
Philippines: Provided, that a
seaman who is a citizen of
the Philippines and who
receives compensation for
services rendered abroad as
a member of the
complement of a vessel
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PRELIM: INTAX NOTES
engaged exclusively in
international trade shall be
treated as an overseas
contract worker.”
Sec. 2, RR 1-2011:
- “To be considered as an OCW or
OFW, they must be duly registered
as such with the Philippine
Overseas Employment
Administration (POEA) with a valid
Overseas Employment Certificate
(OEC).”
 NONRESIDENT ALIEN ENGAGED
IN TRADE/BUSINESS
Sec. 25(A), R.A. 8424:
- “A nonresident alien
individual who shall come to
the Philippines and stay
therein for an aggregate
period of more than one
hundred eighty (180) days
during any calendar year
shall be deemed a  Only one employer
nonresident alien doing
business in the Philippines.”
Sec. 25(B), NIRC:
- “There shall be levied,
collected and paid for each
taxable year upon the entire
income received from all
sources within the
Philippines by every
nonresident alien individual
not engaged in trade or
business within the
Philippines as interest, cash
and/or property dividends,
rents, salaries, wages,
premiums, annuities,
compensation, remuneration,
emoluments, or other fixed or
determinable annual or
with God, all things are possible
periodic or casual gains,
profits, and income, and
capital gains, a tax equal to
twenty-five percent (25%)
of such income.”
 CLASSIFICATION OF TAXPAYERS
 As to source of income:
 Purely compensation income
earner (BIR for 1700)
 Purely business or profession
income earner (BIR form 1701A)
 Mixed income earner (BIR form
1701)
 FILING OF INCOME TAX RETURN
(ITR)
 Self-assessment
 Pay as you file
 Substituted filing
 SUBSTITUTED FILING SYSTEM
 Purely compensation income
earner
 Issuance of BIR form No. 2316
 Consolidated income tax return
(BIR form 1700)
 8% TAX OPTION
Sec. 24 A.2.b, NIRC:
- “Self-employed individuals
and/or professionals shall
have the option to avail of an
eight percent (8%) tax on
gross sales or gross receipts
and other non-operating
income in excess of two
hundred fifty thousand
pesos (P250,000) in lieu of
the graduated income tax
rates under subsection (a)(2)
(a) of this section and the
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PRELIM: INTAX NOTES
percentage tax under section
116 of this code.”
- The option to be taxed at 8%
income tax rate is not
available to:
 A VAT-registered taxpayer,
regardless of the amount of gross
sales/receipts;
 Taxpayer who is subject to Other
Percentage Taxes under title V of
the tax code, as amended, except
those subject under section 116
of the same title.
 Partners of a general professional
partnership (GPP) by virtue of their
distributive share from GPP which is
already net of cost and expenses
cannot avail of the 8% income tax
rate option.
 PROPERLY INFORM THE BIR
- “ Unless the taxpayer
signifies the intention to elect
the 8% income tax rate in
the 1st quarter Percentage
and/or Income Tax Return, or
on the initial quarter return of
the taxable year after the
commencement of a new
business/practice of
profession, the taxpayer
shall be considered as
having availed of the
graduated rates. Such
election shall be
irrevocable and no
amendment of option shall
be made for the said
taxable year.”
 8% TAX OPTION – FS NOT
REQUIRED
- A taxpayer who signifies the
intention to avail of the 8%
with God, all things are possible
income tax rate option, and is
conclusively qualified for
said option at the end of
the taxable year (annual
gross sales/receipts and
other non-operating
income did not exceed the
VAT threshold
(Php3,000,000.00), shall
compute the final annual
income tax due based on
the actual annual gross
sales/receipts and other
non-operating income. The
said income tax due shall be
in lieu of the graduated rates
of income tax and the
percentage tax under Sec.
116 of the tax code, as
amended. The Financial
Statements (FS) is not
required to be attached in
the filing the final income tax
return. However, existing
rules and regulations on
bookkeeping and
invoicing/receipting shall still
apply.
 EFFECT OF EXCEEDING VAT
THRESHOLD
- A taxpayer shall
automatically be subject to
the graduated rates, even if
the flat 8% income tax rate
option is initially selected,
when taxpayer’s gross
sales/receipts and other
non-operating income
exceeded the VAT
threshold during the
taxable year. In such case,
his income tax shall be
computed under the
graduated income tax rates
and shall be allowed a tax
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PRELIM: INTAX NOTES
credit for the previous
quarter/s income tax
payment/s under the 8%
income tax rate option.
o VAT THRESHOLD = PHP 3,000,000
 MIXED INCOME
 Compensation Income; AND
 Income from Business or
Practice of Profession
 COMPENSATION INCOME
 Always subject to graduated
income tax rates
 INCOME FROM BUSINESS OR
PRACTICE OF PROFESSION
 Gross sales/receipts do not
exceed VAT threshold, graduated
income tax rates or 8% income
tax rate may be used.
 Gross sales/receipts exceed VAT
threshold, graduated income tax
rates shall be used.
 250,000 ANNUAL DEDUCTION
NOT APPLICABLE
- Reason: Such deduction is
already incorporated in the
graduated income tax rates.
 MINIMUM WAGE EARNERS
o MWE’s Exemptions:
 Minimum wage
 Holiday pay
 Overtime pay
 Night shift differential
 Hazard pay
with God, all things are possible
 STATUTORY MINIMUM WAGE
(SMW)
- Rate fixed by the regional
tripartite wage and
productivity board (RTWPB)
- Not uniform
 REVENUE REGULATION 2-1998
- “Holiday pay, overtime pay,
night shift differential pay,
and hazard pay earned by
the aforementioned MWE
shall likewise be covered by
the above exemption.
Provided, however, that an
employee who
receives/earns additional
compensation such as
commissions, honoraria,
fringe benefits, benefits in
excess of the allowable
statutory amount of
P30,000.00, taxable
allowances and other taxable
income other than the SMW,
holiday pay, overtime pay,
hazard pay, and night shift
differential pay shall NOT
enjoy the privilege of being
a MWE and, therefore,
his/her entire earnings are
not exempt from income
tax, and consequently, from
withholding tax.”
 EFFECT OF EXCEEDING THE
MINIMUM
Soriano v. Secretary of Finance,
G.R. No. 184450, 24 January 2017:
- “When the wages received
exceed the minimum wage
anytime during the taxable
year, the employee
necessarily loses the MWE
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PRELIM: INTAX NOTES
qualification. Therefore,
wages become taxable as
the employee ceased to be
an MWE. But the exemption
of the employee from tax
on the income previously
earned as an MWE
remains.”
 FILING OF INCOME TAX RETURN
 Know the deadlines of filing tax
returns
 PENALTY & INTEREST
o Penalty
NIRC Sec. 248. – Civil Penalties:
(A) There shall be imposed, in
addition to the tax required to be
paid, a penalty equivalent to
twenty-five percent (25%) of the
amount due, in the following cases:
(1) Failure to file any return and
pay the tax due thereon as
required under the provisions of
this code or rules and
regulations on the date
prescribed; or
(2) Unless otherwise authorized
by the Commissioner, filing a
return with an internal revenue
officer other than those with
whom the return is required to
be filed; or
(3) Failure to pay the deficiency
tax within the time prescribed for
its payment in the notice of
assessment; or
(4) Failure to pay the full or part
of the amount of tax shown on
any return required to be filed
under the provisions of this code
or rules and regulations, or the
with God, all things are possible
full amount of tax due for which
no return is required to be filed,
on or before the date prescribed
for its payment.
o Interest
NIRC, Sec. 249. Interest:
(A) In General – there shall be
assessed and collected on any
unpaid amount of tax, interest at
the rate of twenty percent (20%)
per annum, or such higher rate as
may be prescribed by rules and
regulations, from the date prescribed
for payment until the amount is fully
paid.
 IMPORTANCE OF BIR FORM 2307
o BIR Form 2307
- “A certificate to be
accomplished and issued
to recipients of income
subject to expanded
withholding tax paid by a
payor/withholding agent
including government money
payments made by a
government office showing
therein the monthly
breakdown of the total
income payments made and
the total taxes withheld and
remitted during the
quarter/period.”
- For EWT – this certificate in
turn should be attached to
the quarterly/annual income
tax return – BIR forms
1701Q/1701 for individuals,
or BIR form 1702Q/17702 for
non-individuals, in which
case, the amount of
withholding tax shall be
allowed as a tax credit
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against the income tax
liability of the income
recipient in the taxable
quarter or year in which the
income was earned or
received.”
 ESTATES AND TRUST
o Estates
🔍︎: All the money and property owned
by a particular person, especially at
death.
 SETTLEMENT OF ESTATE
 Judicial settlement of the estate
 Extra-judicial settlement of the
estate
 PROBATE PROCEEDING
Art. 838, Civil Code:
- “No will shall pass either real
or personal property unless it
is proved and allowed in
accordance with the rules of
court.”
 EXTRAJUDICIAL SETTLEMENT
Sec. 1, Rule 74, Rules of Court:
- “If the decedent left no will
and not debts and the heirs
are all of age, or the minors
are represented by their
judicial or legal
representatives duly
authorized for the purpose,
the parties may without
securing letters of
administration divide the
estate among themselves
as they see fit by means of
a public instrument filed in
with God, all things are possible
the office of the register of
deeds, and should they
disagree, they may do so in
an ordinary action of
partition.”
 ESTATES – WHAT SHOULD BE
TAXED?
 Properties left behind by the
decedent
 Same treatment as that of
individual taxpayer
 Income earned during probate
proceeding (judicial settlement
of the estate)
 BIR Form 1701, and BIR Form
1701Q
 TRUST
- Trust agreement is a legal
document containing, terms,
conditions, and provisions
that allows the trustor to
transfer ownership of assets
to the trustee to be held for
the trustor beneficiaries.
- Trustees will manage the
property and assets on
behalf of the beneficiary.
 TRUST BUSINESS
Manual of Regulations for Banks:
- “Trust business shall refer to
any activity resulting from a
trustor – trustee relationship
(trusteeship) involving the
appointment of a trustee by
a trustor for the
administration, holding,
management of funds,
and/or properties of the
trustor by the trustee for
the use, benefit, or
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PRELIM: INTAX NOTES with God, all things are possible

advantage of the trustor or

of others called - One income tax return
beneficiaries.”

- Separate computation on the

 TRUST AGREEMENT same form except for the
“Aggregate amount Payable/
(Overpayment).”
TRUSTOR TRUSTEE TRUSTOR/BENEFICIARY

- If it is impractical to file one

return, two separate returns
shall be filed.
o Prior to the actual transfer of
- Those income that cannot be
properties to the trustor/beneficiary,
identified as to who earns it,
those properties may generate
shall be reported by both
income.
spouses on 50:50 basis.

 IRREVOCABLE TRUST
 MANDATORY DEDUCTIONS –
 Cannot be modified
PAYROLL
 The asset involved is removed
 GSIS/SSS
from the trustor’s list of
 PHILHEALTH
properties
 PAG-IBIG CONTRIBUTIONS
 The asset will be distributed
 UNION DUES
according to the agreed plan
 WITHHOLDING TAX
 Taxable

 MARRIED TAXPAYERS
Sec. 51. D, NIRC:
- “Married individuals, whether
citizens, resident, or
nonresident aliens, who do
not derive income purely
from compensation, shall
file a return for the taxable
year to include the income of
both spouse, but where it is
impracticable for the
spouses to file one return,
each spouse may file a
separate return of income
but the returns so filed shall
be consolidated by the
Bureau for purposes of
verification for the taxable
year.”

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PRELIM: INTAX NOTES with God, all things are possible

retirement pay; and other income of similar

nature and compensation income.”

COMPENSATION IN KIND
RR-98:
“If services are paid for in a medium other
than money, the fair market value of the
thing taken in payment is the amount to be
included as compensation subject to
withholding.”
LESSON 3: WITHHOLDING TAX ON
COMPENSATION
LIVING QUARTERS OR MEALS
MANDATORY CONTRIBUTIONS
RR 2-98:
 GSIS
 PHILHEALTH  General Rule
 PAG-IBIG Contributions (HDMF)
“If a person receives a salary as
 Union Dues
remuneration for services rendered,
and in addition thereto, living
quarters or meals are provided the
COMPENSATION value to such person of the quarters
RR 2-98: or meals so furnished shall be added
to the remuneration paid for the
“In general, the term “compensation” means purpose of determining the amount
all remuneration for services performed by of compensation subject to
an employee for his employer under an withholding.”
employer-employee relationship.”

RR 2-98:
“The name by which the remuneration
for services is designated is immaterial.
Thus, salaries, wages, emoluments, and
honoraria, allowances, commissions (e.g.
transportation, representation,
entertainment, and the like); fees including
director’s fees, if the director is, at the same
time, an employee of the
employer/corporation; taxable bonuses and
the fringe benefits except those which are
subject to the fringe benefits tax under Se.
33 of the code; taxable pensions and
 Exception
“However, if living quarters or meals
are furnished to an employee for the
convenience of the employer, the
value thereof need not be included
as part of the compensation income”
NON-TAXABLE BENEFITS
 Do not include in the computation.
 Such as, among others:
- 13th-month pay, and other
benefits not exceeding a total of
Php90,000

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PRELIM: INTAX NOTES
- Compensation income of MWEs
including overtime pay, holiday
pay, night shift differential pay,
and hazard pay.
- Compensation for injuries or
sickness.
- Income exempt under the treaty.
YEAR-END TAX ADJUSTMENT
 The total tax withheld may not
match the correct annual tax due.
 Income of the employee must be
reckoned at the end of the year for
the necessary adjustment.
 Under-withholding: will be
automatically deducted from the
payroll.
 Over-withholding: will be refunded.
FAILURE OF A WITHHOLDING AGENT
TO COLLECT AND REMIT TAX
Sec. 251, NIRC:
“Any person required to withhold, account
for, and remit any tax imposed by this code
or who willfully fails to withhold such tax, or
account for and remit such tax, or aids or
abets in any manner to evade any such tax
or the payment thereof, shall, in addition to
other penalties provided for under this
chapter, be liable upon conviction to a
penalty equal to the total amount of the
tax not withheld, or not accounted for
and remitted.”
FAILURE OF A WITHHOLDING AGENT
TO REFUND EXCESS WITHHOLDING
TAX
Sec. 251, NIRC:
“Any employer/withholding agent who fails
or refuses to refund excess withholding tax
with God, all things are possible
shall, in addition to the penalties
provided in this title, be liable to a
penalty to the total amount of refunds
which was not refunded to the employee
resulting from any excess of the amount
withheld over the tax actually due on
their return.”
LESSON 4: DE MINIMIS BENEFITS
MEANING OF DE MINIMIS BENEFITS
See Revenue Regulation 2-98:
The term “de minimis benefits” which is
exempt from the fringe benefit tax shall, in
general, be limited to facilities or privileges
furnished or offered by a n employer to his
employees, provided such facilities or
privileges are of relatively small value and
are offered or furnished by the employer
merely as a means of promoting the
health, goodwill, contentment, or
efficiency of his employees.”
MONETIZED UNUSED VACATION LEAVE
Monetized unused vacation leave credits of
private employees not exceeding ten (10)
days during the year.
MONETIZED VALUED OF VACATION AND
SICK LEAVE
Monetized value of vacation and sick leave
credits paid to government officials and
employees.
17
PRELIM: INTAX NOTES
MEDICAL CASH ALLOWANCE
Medical cash allowance to dependents of
employees, not exceeding Php1,500 per
employee per semester or Php250 per
month;
ACTUAL MEDICAL ASSISTANCE
Actual medical allowance to cover medical
needs, annual medical check-up, maternity
assistance, and routine consultations not
exceeding Php10,000 per year.
RICE SUBSIDY
Rice subsidy of Php2,000 or one sack of
50kg. of rice per month amounting to not
more than Php2,000;
CLOTHING ALLOWANCE
Uniform and clothing allowance not
exceeding Php6,000 per annum.
LAUNDRY ALLOWANCE
Laundry allowance not exceeding Php300
per month.
EMPLOYEE ACHIEVEMENT AWARD
For the length of service or safety
achievement, which must be in the form
of tangible property other than cash or
gift certificates, with an annual monetary
value not exceeding Php10,000 received
by the employee under an established
written plan which does not discriminate in
favor of highly paid employees.
CHRISTMAS AND ANNIVERSARY GIFT
with God, all things are possible
Not exceeding Php5,000 per employee
per year.
DAILY MEAL ALLOWANCE
For:
Overtime Work
Night Shift
Graveyard Shift
- Not exceeding 25% of the
basic minimum wage on a
per region basis.
BENEFITS RECEIVED UNDER C.B.A. &
PRODUCTIVITY INCENTIVE SCHEMES
The total annual monetary value received
from both CBA and productivity incentive
schemes combined does not exceed
Php10,000 per employee per taxable
year.
If CBA benefits under a productivity
incentive scheme is equal or less than
Php10,000, it is treated as de minimis
benefit.
If it is more than Php10,000, it is treated as
“other benefits”.
EXCLUSIONS FROM GROSS INCOME
Sec. 32(B)(7)(e), NIRC:
“13th month pay and other benefits. –
gross benefits received by officials and
employees of public and private entities:
provided, however, that the total exclusion
under this subparagraph shall not
exceed ninety thousand pesos
(Php90,000). Xxx.”
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PRELIM: INTAX NOTES with God, all things are possible

payment thereof by the employer, PAGCOR

must sufficiently establish that the fringe
benefit is required by the nature of, or is
necessary to the trade, business or
profession of the employer, or when the
fringe benefit is for the convenience or
advantage of the employer.”

PAYMENT OF FBT
 Presumed to be withheld at source
 Paid by the employer
 Paid quarterly

MONETARY VALUE OF FRINGE

BENEFITS
 Paid Cash = 100%
LESSON 5: FRINGE BENEFIT TAX
 Payment for rent of residence = 50%
REASON FOR GIVING FRINGE  Paid in kind/property:
BENEFITS - Book value or fair market
value whichever is higher.
- To encourage loyalty and productivity.

VALUATION OF FRINGE BENEFITS

COVERAGE OF FBT
 Free use of employer’s property:
Philippine Duplicatoors, Inc. v. NLRC, et al.,  50% of the rental value
G.R. No. 110068, 11 November 1993:  50% of the depreciation
“These fringe benefits include payments for value (in the absence of
sick leave, vacation leave or maternity rental value)
leave; premium pay for work performed on
rest day and special holidays; premium pay
for regular holidays and night differential Presumed useful life:
pay; and cost of living allowances.”
 REAL PROPERTY:
20 years (5% of zonal value
or assessed value whichever
INSTANCES WHEN FBT IS NOT is higher)
APPLICABLE
Cir V. Secretary of Justice, et al., G.R. No.  PERSONAL PROPERTY:
177387, 9 November 2016: 5 years (20%)

“To avoid the imposition of the FBT on the

benefit received by the employee, and,
consequently, to avoid the withholding of the

19
PRELIM: INTAX NOTES
FRINGE BENEFIT TAX (PART 2)
EXEMPT HOUSING PRIVILEGES
 House privilege granted to the
military officials of the armed
forces of the Philippines.
 Housing unit situated within the
vicinity or adjacent to, not more
than 50 meters from the premises
of a business.
 Temporary housing for an
employee who stays in it for three
(3) months or less.
FRINGE BENEFIT – MOTOR VEHICLE
Revenue Regulations No. 3-98:
“If the employer purchases the motor
vehicle in the name of the employee, the
value of the benefit is the acquisition
cost thereof. The monetary value of the
fringe benefit shall be the entire value of the
benefit, regardless of whether the motor
vehicle is used by the employee partly
for his personal purpose and partly for
the benefit of his employer.”
“If the employer provides the employee with
cash for the purchase of a motor vehicle,
the ownership of which is placed in the
name of the employee, the value of the
benefits shall be the amount of cash
received by the employee. The monetary
value of the fringe benefit shall be the entire
value of the benefit regardless of whether
the motor vehicle is used by the employee
partly for his personal purpose and partly for
the benefit of his employer, unless the
same was subjected to a withholding tax
as compensation income.”
with God, all things are possible
“If the employer purchases the car on an
installment basis, the ownership of which is
placed in the name of the employee, the
value of the benefit shall be the
acquisition cost exclusive of interest,
divided by five (5) years. The monetary
value of the fringe benefit shall be the entire
value of the benefit regardless of whether
he motor vehicle is used by the employee
partly for his personal purpose and partly for
the benefit of his employer.”
“If the employer shoulders a portion of the
amount of the purchase price of a motor
vehicle the ownership of which is placed in
the name of the employee, the value of the
benefit shall be the amount shouldered
by the employer, the monetary value of the
fringe benefit shall be the entire value of the
benefit regardless of whether the motor
vehicle is used by the employee partly for
his personal purpose and partly for the
benefit of his employer.”
“If the employer owns and maintains a fleet
of motor vehicles for the use of the business
and the employees, the value of the
benefit shall be the acquisition cost of all
the motor vehicles not normally used for
sales, freight, delivery service, and other
non-personal used divided by five (5)
years. The monetary value of the fringe
benefit shall be fifty percent (50%) of the
value of the benefit.”
“If the employer leases and maintains a
fleet of motor vehicles for the use of the
business and the employees, the value of
the benefit shall be the amount of rental
payments for motor vehicles not normally
used for sales, freight, delivery, service, and
other non-personal use. The monetary
value of the fringe benefit shall be fifty
20
PRELIM: INTAX NOTES
percent (50%) of the value of the
benefit.”
“The use of aircraft (including helicopters)
owned and maintained by the employer
shall be treated as business use and not be
subject to the fringe benefits tax.”
“The use of yacht whether owned and
maintained or leased by the employer shall
be treated as taxable fringe benefit. The
value of the benefit shall be measured
based on the depreciation of a yacht at
an estimated useful life of 20 years.”
LESSON 6: CAPITAL GAINS TAXATION
ORDINARY ASSETS V. CAPITAL ASSETS
 Ordinary Assets
- Used (or sold) in a normal
course of business
- Subject to regular income tax
 Capital Assets
- Assets other than ordinary
assets
CAPITAL GAINS TAX ON REAL
PROPERTY
Sec. 24 (d) (1), NIRC:
“A final tax of six percent (6%) based on
the gross selling price or current fair market
value as determined in accordance with
section 6(E) of this code, whichever is
with God, all things are possible
higher, is hereby imposed upon capital
gains presumed to have been realized from
the sale, exchange, or other disposition of
real property located in the Philippines,
classified as capital assets, including pacto
de retro sales and other forms of conditional
sales, by individuals, including estates and
trusts.”
AUTHORITY OF THE COMMISSIONER TO
PRESCRIBE REAL PROPERTY VALUES
Sec. 6(e), NIRC:
“The commissioner is hereby authorized
to divide the Philippines into different
zones or areas and shall, upon mandatory
consultation with competent appraisers both
from the private and public sectors, and with
prior notice to affected taxpayers,
determine the fair market value of real
properties located in each zone or area.”
FAIR MARKET VALUE
Sec. 6(e), NIRC):
“For purposes of computing any Internal
Revenue Tax, the value of the property shall
be, whichever is the higher of:
(1) the fair market value as determined by
the Commissioner (Zonal Value);
(2) the fair market value as shown in the
schedule of values of the provincial and city
assessors (Assessed Value).”
CERTIFICATE AUTHORIZING
REGISTRATION
Sec. 58 (E), NIRC:
21
PRELIM: INTAX NOTES
“No registration of any document
transferring real property shall be effected
by the Register of Deeds unless the
commissioner or his duly authorized
representative has certified that such
transfer has been reported, and the capital
gains or creditable withholding tax, if any,
has been paid.”
 Is it necessary for a taxpayer to
have a gain in selling capital asset
before a capital gains tax will be
imposed?
PRESUMPTION OF GAIN
 Note that the tax base is the SP or
FMV whichever is higher.
 Even if the transaction resulted in
net loss CGT must still be paid.
 Actual gain is immaterial.
FILING AND PAYMENT
 Generally, within 30 days from the
date of sale of exchange.
 Installment payment: Within thirty
(30) days following the receipt of the
first down payment or following each
subsequent installment payment,
whichever is applicable.
 Foreclosure sale: Within 30 days
from the expiration of the
redemption period. (One year from
and after the date of sale)
 BIR Form 1706
SALE OF PRINCIPAL RESIDENCE
 How do you understand the term
principal residence?
with God, all things are possible
PRINCIPAL RESIDENCE
RR. 14-2000:
“The term ‘principal residence’ shall refer to
the dwelling house, including the land on
which it is situated, where the husband
and wife or an unmarried individual, whether
or not qualified as head of family, and
members of family reside. Actual occupancy
of such principal residence shall not be
considered interrupted or abandoned by
reason of the individual’s temporary
absence therefrom due to travel or studies
or work abroad or such other similar
circumstances. Such principal residence
must be characterized by permanency in
that it must be the dwelling house in
which, whenever absent, the said
individual intends to return.”
“Where the land is leased to the dwelling
house owner, only the dwelling house shall
be treated as principal residence of the
dwelling house owner.”
SALE OF PRINCIPAL RESIDENCE
o Primary domicile of the taxpayer
(house and lot)
- Exempt from 6% capital
gains tax
REQUISITES FOR TAX EXEMPTION
(SALE OF PRINCIPAL RESIDENCE)
 Seller must be citizen or resident
alien.
 It involves principal residence.
 Proceeds of the sale is used in
acquiring new principal residence.
 Notification to avail tax exemption
(within 30 days from sale).
22
PRELIM: INTAX NOTES with God, all things are possible

 Reacquisition of new principal - Initial payment = all amounts

residence within 18 months from the
date of sale.
 Capital gains tax deposited in
escrow account.
 Can be availed only once every ten
(10) years.
collected in the year of sale
 How are you going to compute for
the CGT to be paid if the initial
payment exceeds 25% of SP?

BASIS OF A NEW PRINCIPAL

RESIDENCE
o Proceeds Fully Utilized:
- Basis of old principal
residence plus additional cost
incurred in acquiring new
principal residence.

o Proceeds NOT fully utilized:

- Basis of old principal
residence x Percentage of
used proceeds

 Mr. Maoron purchased residential lot

amounting to P3,500,000. Later,
when the fair market value of the
said property is 4,500,000, he sold it
for P5,000,000. After (6) months
from the date of sale, he used the
entire proceeds to acquired his
principal residence. Will he be
required to pay capital gains tax? If
so, how much? If not, why?

INSTALLMENT PAYMENT OF CAPITAL

GAINS TAX
 Why is it important to allow
installment payment of capital gains
tax?

o Initial payment does NOT exceed

25% of the selling price:

23