TAXATION
peaceful society which is maintained by
➢ Defined as a State power, a legislative
process, and a mode of government
cost distribution.
AS A STATE POWER
➢ Taxation is an inherent power of the
state to enforce a proportional
contribution from its subject for public
purpose
➢ Automatic
➢ Constitution not needed
AS A PROCESS
➢ Taxation is a process of levying taxes by
the legislature of the state to enforce
proportional contribution from its subject
for public purpose
➢ Levying-pagpapataw
AS A MODE OF COST DISTRIBUTION
➢ Taxation is a mode by which the state
allocates its costs or burden to its
subjects who are benefited by its
spending
➢ Within its jurisdiction only
THEORY OF TAXATION
➢ Government’s necessity for funding
➢ Every government provides public
services including defense, public order
and safety, health, education, and social
protection among others
➢ System of government is indispensable
to every society
➢ Government cannot exist without a
system of funding
BASIS OF TAXATION
➢ Mutuality support between the people
and the government
➢ Government provides benefits to the
people through public services
➢ People provide the funds that finance
the government (taxes)
RECEIPT OF BENEFITS IS PRESUMED
➢ The receipt of benefits by the people is
conclusively presumed
➢ Every citizen or resident of the state
directly or indirectly benefits from public
services rendered by the government
➢ Daily free usage of public
infrastructures, access to public health
or educational services, protection and
security of person and property
➢ Simply comfort of living in a civilized and
the government
➢ Taxpayers cannot avoid payment of
taxes under the defense of absence of
benefit received
➢ Direct receipt or actual availment of
government services is not a
precondition to taxation
THEORIES OF ALLOCATION
1. Benefit received theory
a. The more benefit one receives
from the government, the more
taxes he should pay. (VAT)
2. Ability to pay theory
a. Taxpayers should be required to
contribute based on their relative
capacity to sacrifice for the
support of the government
(Income Tax)
b. Those who have more should be
taxed more even if they benefit
less
c. Those who have less shall
contribute less even if they
receive more of the benefits
ASPECTS OF THE ABILITY TO PAY THEORY
➢ Vertical Equity
o The extent of one’s ability to pay
is directly proportional to the
level of his tax base
o More income = more tax
o Gross concept
➢ Horizontal Equity
o Requires consideration of the
particular circumstance of the
taxpayer
o Less expense = more tax
o Net concept
THE LIFEBLOOD DOCTRINE
➢ Taxes are essential and indispensable
to the continued substance of the
government
➢ Without taxes, government would be
paralyzed for the lack of motive power to
activate or operate it
➢ Upon taxations depends the
government’s ability to serve people for
whose benefit taxes are collected
IMPLICATION OF THE LIFEBLOOD
DOCTRINE IN TAXATION
1. Tax is imposed even in the absence of a
constitutional grant
2. Claims for tax exemption are construed
against taxpayers
 3. Government reserves the right to
choose the objects of taxation
4. Courts are not allowed to interfere with
the collection of taxes
5. In income taxation:
a. Income received in advance is
taxable upon receipt
b. Deduction for capital
expenditures and prepayments
is not allowed as it defers the
collection of income tax
c. A lower amount of deduction is
preferred when a claimable
expense is subject to limit (lower
expense)
d. A higher tax base is preferred
when the tax object has multiple
tax bases (higher income)
INHERENT POWERS OF THE STATE
➢ Taxation power, police power, and
eminent domain
➢ Natural, inseparable, and inherent to
every government
➢ No government can sustain or
effectively operate without these powers
➢ The exercise of there powers by the
government is presumed understood
and acknowledged by the people from
the very moment they establish the
government
➢ Naturally exercisable by the government
even in the absence of an express grant
of power in the constitution
➢ Exists independently
TAXATION POWER
➢ Power of state to enforce proportional
contribution from its subjects to sustain
itself
POLICE POWER
➢ General power of state to enact laws to
protect the well-being of the people
➢ Regulation and restriction
EMINENT DOMAIN
➢ Power of state to take private property
for public use after paying just
compensation
➢ Cannot be avoided or rejected
➢ Ex: road widening
SIMILARITIES OF 3 POWERS OF STATE
1. Necessary attributes of sovereignty
2. Inherent to the state
3. Legislative in nature
4. All ways in which the state interferes
with private rights and properties (cash-
property)
5. Exist independently of the constitution
and are exercisable by the government
without a constitutional grant
a. Constitution may impose
conditions or limits for their
exercise
6. Presuppose an equivalent form of
compensation received by the persons
affects by the exercise of power
7. Exercise of these powers by the LGU
may be limited by national legislature
SCOPE OF TAXATION POWER
➢ Comprehensive
➢ Plenary
➢ Unlimited
➢ Supreme
o Taxation is not absolutely
unlimited.
LIMITATIONS OF THE TAXATION POWER
A. INHERENT LIMITATIONS
TERRITORIALITY OF TAXATION
➢ Public services are provided within the
boundaries of the state
➢ Government can only demand tax
obligations upon its subjects or
residents within its territorial jurisdiction
➢ Two-fold obligations of taxpayers:
o Filing of returns and payment of
taxes (tax return)
o Withholding of taxes on
expenses and its remittance to
the government (deduct)
➢ Exceptions:
o In income taxation, resident
citizens and domestic
corporations are taxable on
income derived both within or
outside the PH (Jollibee)
o In transfer taxation, resident
citizens, non-resident citizens,
and resident aliens are taxable
of transfer of properties located
within or outside the PH
INTERNATIONAL COMITY
➢ Countries of the world agreed to one
fundamental concept of co-equal
sovereignty where all nations are
deemed equal with one another
➢ No country is powerful that the other
➢ Each country observes mutual courtesy
or reciprocity between them
o Governments d not tax the
income and properties of the
governments
 o Governments give primacy to
their treaty obligations over their
own domestic tax laws
➢ Embassies or consular offices of foreign
government in the PH including
international organizations and their
non-filipino staff are not subject to
income taxes or property taxes
➢ Income of foreign government and
foreign government-owned and
controlled corporations are not subject
to income tax
PUBLIC PURPOSE
➢ Tax is intended for the common good
➢ Must be exercised absolutely for the
public purpose
➢ Cannot be exercised to further any
private interest
➢ Nakikinabang ang nakararami
EXEMPTION OF THE GOVERNMENT
➢ government normally does not tax itself
as this will not raise additional funds but
will only impute additional costs
➢ NIRC, gov properties and income from
essential public functions are not subject
to taxation
o Income of the gov from its
properties and activities
conducted for profit, including
income from government-owned
and controlled corporations is
subject to tax
NON-DELEGATION OF TAXING POWER
➢ Legislative taxing power is vested
exclusively in congress and is not
delegable.
➢ Legislative in nature
➢ Exceptions:
o Constitution, LGU are allowed to
exercise the power to tax to
enable them to exercise their
fiscal autonomy
o Tariff and customs code,
president is empowered to fix the
amount of tariffs to be flexible o
trade conditions
o Other cases that require
expedient and effective
administration and
implementation of assessment
and collection of taxes
B. CONSTITUTIONAL LIMITATIONS
OBSERVANCE OF DUE PROESS OF LAW
➢ No one should be deprived of his life,
liberty, or property without due process
of law
➢ Tax laws should neither be harsh nor
oppressive
➢ Aspects of due process:
o Substantive due process – tax
must be imposed only for public
purpose, collected only under
authority of a valid law and only
by the taxing power having
jurisdiction
o Procedural due process – should
be no arbitrariness in
assessment and collection of
taxes, and government shall
observe the taxpayer’s right to
notice and hearing
▪ Assessments shall be
made within 3 years from
the filing of return or from
the date or actual filing,
whichever is later
▪ Collection shall be made
within 5 years from the
date of assessment
EQUAL PROTECTION OF THE LAW
➢ No person shall be denied the equal
protection of the law
➢ This applies where taxpayers are under
the same circumstance and conditions
➢ Ex: balot & penoy
UNIFORMITY RULE IN TAXATION
➢ Uniform and equitable
➢ Taxpayers under dissimilar
circumstances should not be taxed the
same
➢ Taxpayers should be classified
according to commonality in attributes
➢ Each class is taxed differently
➢ Taxpayers under the same class are
taxed the same
➢ Uniformity is relative equality
PROGRESSIVE SYSTEM OF TAXATION
➢ Congress shall evolve a progressive
system of taxation
➢ Tax rates increase as the tax base
increases
➢ It is consistent with the taxpayer’s ability
to pay
➢ Aids in an equitable distribution of
wealth to society by taxing the rich more
than the poor
NON-IMPRISONMENT FOR NON-PAMENT
OF DEBT OR POLL TAX
➢ No one shall be imprisoned because of
his poverty and for inability to pay debt
➢ Except from escape from tax
➢ Applies only when debt is acquired by
the debtor in good faith
➢ Debt acquired in bad faith is a criminal
offense punishable by imprisonment
 ➢ Tax arises from law and a demand of
sovereignty
➢ Debt arises from private contracts
➢ Non-payment of tax compromises public
interest (crime)
➢ Non-payment of debt compromises
private interest
➢ Applies only to basic community tax
(sedula)
➢ Non-payment of additional community
tax is an act of tax evasion punishable
by imprisonment
NON-IMPAIRMENT OF OBLIGATION AND
CONTRACT
➢ State should not set aside its obligations
from contracts by the exercise of its
taxation power
➢ Ex: hindi na magbabayad ng utang ang
gov ng utang sayo dahil magbabayad ka
rin ng tax
FREE WORSHIP RULE
➢ PH gov adopts free exercise of religion
and does not subject its exercise to
taxation
➢ Properties and revenues of religious
institutions, tithes or offerings, are not
subject to tax
➢ Does not extend to income from
properties/activities of religious
institutions that are proprietary or
commercial in nature
EXEMPTION OF RELIGIOUS, CHARITABLE
OR EDUCATIONAL ENTITIES, NON-PROFIT
CEMETERIES, CHURCHES AND MOSQUES,
LANDS, BUILDINGS, AND IMPROVEMENTS
FROM PROPERTY TAX
➢ Applies for properties actually, directly,
and exclusively used for charitable,
religious, and educational purposes
➢ Doctrine of use:
o Only properties actually devoted
for religious, charitable, or
educational activities are exempt
from real property tax
NON-APPROPRIATION OF PBULIC FUNDS
OR PROPERTY FOR THE BENEFIT OF ANY
CHURCH, SECT, OR SYSTEM OF RELIGION
➢ Gov should not favor any particular
system of religion by appropriating
public funds or property in support
➢ Cannot donate to particular religion from
tax money
➢ Compensation to priests, imams, or
religious ministers working with military,
penal institutions, orphanages, or
leprosarium is not considered religious
appropriation
EXEMPTION FROM TAXES OF THE
REVENUES AND ASSETS OF NON-PROFT,
NON-SOCK EDUCATIONAL INSTITUTIONS
INCLUDING GRANTS, ENDOWMENTS,
DONATIONS, OR CONTRIBUTIONS FOR
EDUCATIONAL PURPOSES
➢ Constitution recognizes the necessity of
education in state building by granting
tax exemption on revenues and assets
of non-profit educational institutions
➢ Applies only on revenues and assets
that are actually, directly, and exclusively
devoted for educational purposes
➢ NIRC, exempts government educational
institutions from income tax and
subjects private educational institutions
to a minimal income tax
CONCURRENCE OF A MAJORITY OF ALL
MEMBERS OF CONGRESS FOR THE
PASSAGE OF A LAW GRANTING TAX
EXEMPTION
➢ Grants of tax exemption must proceed
only upon a valid basis
➢ In approval of an exemption law, an
absolute majority/majority of all member
of congress, not relative
majority/quorum majority, is required
➢ In withdrawal of tax exemption, only
relative majority is required
➢ Ex: 400 people
o 200+1 is valid
o Tax laws: 100+1 is relative
majority
o Tax exemptions: 200+1 is
absolute majority
NON-DIVERSIFICATION OF TAX
COLLECTIONS
➢ Tax collections should be used only for
public purpose
➢ Should never be diversified or used of
private purpose
NON-DELEGATION OF THE POWER OF
TAXATION
➢ Taxation power as part of lawmaking is
vested exclusively in congress
➢ Delegation may be made on matters
involving the expedient and effective
administration and implementation of
assessment and collection of taxes
➢ Administrative agencies: Department of
Finance and Bureau of Internal
Revenue
o Issues revenue regulations,
rulings, orders, or circulars to
interpret and clarify he
application of law
o They are not allowed to
introduce new legislations within
their quasi-legislative authority
NON-IMPAIRMENT OF THE JURISDICTION
OF THE SUPREME COURT TO REVIEW TAX
CASES
➢ All cases involving taxes can be raised
to and be finally decided by the supreme
court of the PH
➢ Hindi pwede tanggalin ang power ng
supreme court
APPROPRIATIONS, REVENUE, OR TARIFF
BILLS SHALL ORIGINATE EXCLUSIVELY IN
THE HOUSE OF REPRESENTATIVES, BUT
THE SENATE MAY PROPOSE OR CONCUR
WITH AMENDMENTS
➢ Laws that add income to the national
treasury and those that allows spending
must originate from the house of
representatives while senate may
concur with amendments
EACH LOCAL GOVERNMENT UNIT SHALL
EXERCISE THE POWER TO CREATE ITS
OWN SOURCES OF REVENUE AND SHALL
HAVE A JUST SHARE IN THE NATIONAL
TAXES
➢ LGU can make local taxes
STAGES OF THE EXERCISE OF TAXATION
POWER
1. LEVY OR IMPOSITION
➢ Enactment of a tax law by congress
called impact of taxation
➢ Legislative act in taxation
➢ Congress is composed of:
o House of representatives
o Senate
➢ Tax bills must originate from house of
representatives
➢ Each may have their own versions of a
proposed law which is approved by both
bodies
➢ Tax bills cannot originate exclusively
from senate
➢ Matters of legislative discretion in the
exercise of taxation
o Determining the object of
taxation
o setting the tax rate/amount to be
collected
o determining the purpose for the
levy which must be public use
o kind of tax to be imposed
o apportionment of the tax
between national and local gov
o situs of taxation
o method of collection
2. ASSESSMENT AND COLLECTION
➢ Tax law is implemented by the
administrative branch of the government
➢ Implementation involves
assessment/determination of the tax
liabilities of taxpayers and collection
➢ Incidence of taxation
➢ Administrative act of taxation
SITUS OF TAXATION
➢ Place of taxation
➢ Frame of reference whether the tax
object is within or outside the tax
jurisdiction of the taxing authority
➢ Examples:
o Business tax situs – where the
business is conducted/operated
o Income tax situs on services –
where they are rendered
o Income tax situs on sale of
goods – place of sale
o Property tax situs – location of
property
▪ Intangible: domicile of
owner unless property
acquired a situs
elsewhere
o Personal tax situs – place of
residence
OTHER FUNDAMENTAL DOCTRINES
MARSHALL DOCTRINE
➢ Power to tax involves the power to
destroy
➢ Taxation power can be used as an
instrument of police power, unless for
revenue only
➢ Ex: cigarettes
HOLME’S DOCTRINE
➢ Taxation of not the power to destroy
while the court sits
➢ Taxation power may be used to
build/encourage beneficial activities:
grant of incentives
➢ Ex: creation of ecozones with tax
holidays
PROSPECTIVITY OF TAX LAWS
➢ Tax laws are prospective in operation
➢ Income moving forward, not previous
➢ Income tax laws may operate
retrospectively if intended by congress
under justifiable conditions
NON-COMPENSATION OR SET-OFF
➢ Taxes are not subject to automatic set-
off or compensation
➢ Taxpayer cannot delay payment to wait
for the resolution of a lawsuit involving
his pending claim against government
 ➢ Pag may utang ang gov, bawal ➢ When same taxpayer is taxed twice by
compensate the same tax jurisdiction for the same
➢ Exceptions: thing
o Where taxpayer’s claim has
ELEMENTS OF DOUBLE TAXATION
already become due and
demandable such as when the ➢ Primary element
gov already recognized the o Same object
same and an appropriation for ➢ Secondary element
refund was made o Same type of tax
o Cases of obvious overpayment o Same purpose of tax
of taxes o Same taxing jurisdiction
o Local taxes o Same tax period
NON-ASSIGNMENT OF TAXES TYPES OF DOUBLE TAXATION
➢ Tax obligations cannot be ➢ Direct double taxation
assigned/transferred to another entity by o All elements of double taxation
contract exist
➢ Shall not prejudice the right of the gov to o Discouraged
collect ➢ Indirect double taxation
o At least one of the secondary
IMPRESCRIPTIBILITY IN TAXATION
elements of double taxation is
➢ Government’s right to collect taxes does not common
not prescribe unless law provides
ESCAPES FROM TAXATION
➢ Taxes do not prescribe
➢ Tax prescribes if not collected within 5 ➢ The means available to the taxpayer to
years from the date of assessment limit or even avoid the impact of taxation
➢ In absence of assessment, tax
prescribes if not collected by judicial CATEGORIES OFF ESCAPES FROM
action within 3 years from the date of TAXATION
return is require to be files A. THOSE THAT RESULT TO LOSS OF
➢ Taxes due from taxpayers who id not file GOVERNMENT REVENUE
a return or those who filed fraudulent
returns do not prescribe 1. TAX EVASION

DOCTRINE OF ESTOPPEL ➢ Any act to illegally reduce or avoid

payment of tax
➢ Misrepresentation ➢ Tax dodging
➢ Gov is not subject to estoppel
➢ Error of gov employee does not bind the 2. TAX AVOIDANCE
gov
➢ Any act that reduces or escapes taxes
JUDICIAL NON-INTERFERENCE by any legally permissible means
➢ Tax minimization
➢ Courts not allowed to issue order
against gov to collect taxes 3. TAX EXEMPTION

STRICT CONSTRUCTION OF TAX LAWS ➢ Immunity, privilege, freedom

➢ Granted by constitution, law, contract
➢ Not open for interpretation ➢ Tax holiday
➢ Taxation is the rule, exemption is the
exception B. THOSE THAT DO NOT RESULT LOSS OF
➢ Vague tax laws: GOVERNMENT REVENUE
o Against gov, in favor of tax
1. SHIFTING
payers
o Means no tax law ➢ Process of transferring tax burden to
➢ Vague tax exemption laws other taxpayers
o Against taxpayers, in favor of ➢ VAT – last consumer of item pays
gov ➢ Forms of shifting:
o Means no exemption law o Forward shifting – manufacturers
to wholesalers; retailers to
customers
DOUBLE TAXATION o Backward shifting – customers to
owners
o Onward shifting – any tax
shifting
2. CAPITALIZATION
➢ Adjustment of the value of an asset
caused by changes in tax rates (hindi
muna nila ibebenta)
➢ Value of a mining property will decrease
when mining output is subjected to
higher taxes (backward shifting)
3. TRANSFORMATION
➢ Elimination of wastes or losses by
taxpayer to form savings to compensate
for the tax imposition or increase in
taxes
➢ Reduce losses
➢ Dinidiskartehan nila para mababa ang
tax
TAX AMNESTY
➢ Chance to reform
➢ General pardon
➢ Absolute forgiveness
➢ Penalties + interests will be gone
➢ Covers civil + criminal liabilities
➢ Past violations
➢ Retrospective
➢ Conditional upon the taxpayer paying
the gov a portion of tax
TAX CONDONATION
➢ Tax remission
➢ Forgiveness of tax obligation under
justifiable grounds
➢ No payment required
➢ Covers civil liabilities
➢ Prospective
TAXATION LAW
➢ Any law arises from the exercise of
taxation power
TYPES OF TAXATION LAWS
1. TAX LAWS – provide for assessment
and collection of taxes
a. National Internal Revenue Code
b. Tariff and Customs Code
c. Local Tax Code
d. Real Property Tax Code
2. TAX EXEMPTION LAWS – grant certain
immunity from taxation
a. Minimum Wage Law
b. Omnibus Investment Code of
1987
c. Barangay Micro-Business
Enterprise Law
d. Cooperative Development Act
SOURCES OF TAXATION LAWS
1. Constitution
2. Statutes & Presidential Decrees
3. Judicial decisions/case laws
4. Executive orders & batas Pambansa
5. Administrative issuances
6. Local ordinance
7. Tax treaties & conventions with foreign
countries
8. Revenue regulations
TAX
➢ An enforced proportional contribution
levied by the lawmaking body of state to
raise revenue for public purpose
ELEMENTS OF A VALID TAX
➢ Levied by taxing power
➢ Must not violate constitutional & inherent
limitations
➢ Must be uniform & equitable
➢ Must be for public purpose
(pangkalahatan)
➢ Must be proportional in character (ability
to pay)
➢ Generally payable in money (cash)
CLASSIFICATION OF TAXES
A. AS TO PURPOSE
a. Fiscal/revenue tax – for general
purpose
b. Regulatory – to regulate, for
general welfare
c. Sumptuary – levied to achieve
social/economic objectives
B. AS TO SUBJECT MATTER
a. Personal, poll/capitation – on
persons; residents
b. Property tax – on properties;
real/personal
c. Excise tax/privilege tax –
imposed upon performance of an
act, enjoyment of privilege
C. AS TO INCIDENCE
a. Direct tax – both impact and
incidence of taxation rest upon
same taxpayer; statutory
taxpayer is economic taxpayer
b. Indirect tax – paid by any person
other than initial taxpayer;
statutory taxpayer is not
economic taxpayer (VAT)
D. AS TO AMOUNT
a. Specific tax – fixed amount
imposed on per unit basis; kilo,
liter, meter
b. Ad valorem – fixed proportion
upon value of tax object; estate
tax
E. AS TO RATE
 a. Proportional tax – flat/fixed rate; TAX TOLL
emphasizes equality (VAT, -demand of -demand of
donor’s tax, estate tax) sovereignty ownership
b. Progressive/graduated tax – -depends on needs -depends upon value
increasing rate as tax base of gov of property
increases; tax table basis -by gov -by gov & private
c. Regressive tax – decreasing tax entities
rates as tax base increase; not
applicable in PH TAX DEBT
d. Mixed tax – tax rates which is a -law -contracts
combination of any type of tax -imprisonment -non-imprisonment
above
F. AS TO IMPOSING AUTHORITY
a. National tax – by national TAX SPECIAL
government ASSESSMENT
-amount imposed on -levied on lands
i. Income tax – annual
persons adjacent to public
income, gains/profits
improvement
ii. Estate tax – gratuitous
transfers upon death
iii. Donor’s tax – gratuitous TAX TARIFF
transfer by living donor -amount imposed -import/export
iv. VAT – consumption tax commodities
collected by VAT
business taxpayers
TAX PENALTY
v. Other percentage tax –
-for support of gov -to discourage and
consumption tax act
collected by non-VAT
business taxpayers
vi. Excise tax – sin products: TYPES OF TAX SYSTEM
alcohol, cigarettes
A. AS TO IMPOSITION
vii. Documentary stamp tax –
tax on documents, 1. Progressive – income, local business taxes
instruments, loan
agreements, and papers 2. Proportional – corporate income &
evidencing the businesses
acceptance, assignment, 3. Regressive – not employed in PH
sale/transfer of obligation,
right or property incident B. AS TO IMPACT
b. Local tax – by municipal/local
1. Progressive – direct taxes: cannot be shifted;
gov
impacts more on the rich
i. Real property tax
ii. Professional tax 2. Regressive – indirect taxes: shifted by
iii. Business taxes, fees, business to customers
charges
iv. Community tax
v. Tax on banks LARGE TAXPAYERS
A. AS TO PAYMENT
TAX REVENUE 1. VAT – 200k per quarter last year
-amount imposed -all income
collections 2. excise tax – 1M tax paid last year
3. income tax – 1M annual income tax paid last
TAX LICENSE FEE year
-taxation power -police power
4. withholding tax – 1M annual withholding tax
-imposed to any -to regulate exercise
object to raise -before business payments/remittance from all types
revenue 5. percentage tax – 200k percentage tax
-after business paid/payable per quarter last year
6. documentary stamp tax – 1M aggregate
TAX REVENUE amount per year
-amount imposed -all income
collections
B. AS TO FINANCIAL CONDITIONS &
RESULTS OF OPERATIONS
1. gross sales – 1B total annual
2. net worth – 300M total at end of year
3. gross purchases – 800M total annual last
year
4. top corporate taxpayer listed and published
by SEC
INCOME
➢ Best measure of taxpayer’s ability to pay
tax
INCOME TAXATION
➢ Gross income/taxable income
➢ Taxable income = item of gross income
GROSS INCOME
➢ Any inflow of wealth that increases net
worth
ELEMENTS OF GROSS INCOME
1. Return on capital that increases net
worth
2. Realized benefit
3. Not exempted by law, contract, treaty
RETURN ON CAPITAL
➢ Wealth that increases net worth
➢ Subject to income tax
RETURN OF CAPITAL
➢ Maintains net worth
➢ Not taxable
*improvement in net worth = ability to pay tax
RECOVERY OF LOST CAPITAL
➢ Lost of capital = decrease
➢ Maintains net worth
RECOVERY OF LOST PROFITS
➢ Lost of profits = maintains/do not
decrease
➢ increases net worth
➢ return on capital
➢ insurance, legal suits, indemnity
contracts
CAPITAL ITEMS DEEMED WITH INFINITE
VALUE
➢ no measurement of value
➢ compensation for loss = return of capital
LIFE
➢ immeasurable by money
➢ exempt from income tax
➢ taxable return on capital from insurance:
o excess amount received over
premiums paid
o interest income from unpaid
balance of proceed of policy
o excess of proceeds received
over acquisition costs & premium
payments
HEALTH
➢ compensation for loss of health
➢ personal injuries
➢ return of capital
HUMAN REPUTATION
➢ moral damage
➢ indemnity as compensation for
impairment
➢ return of capital exempt from income
tax:
o oral defamation/slander
o alienation of affection
o breach of promise to marry
REALIZED BENEFIT
➢ Benefit
o Any form of advantage
o Increase in net worth
o Income, donation, inheritance
➢ Not benefits:
o Receipt of loan
o Discovery of lost properties
o Receipt of money/property to be
held in trust/remittance
➢ Realized
o Earned
o Sale/barter
REQUISITES OF REALIZED BENEFITS
1. Exchange
2. Involves another entity
3. Increases net worth
*you have ability t pay taxes if you have sale of
goods/services
*increase in fv of asset/decrease in liabilities
that increases net worth are not income for
taxation purposes
TYPES OF TRANSFERS
1. Bilateral transfers/exchanges – income
tax; onerous transactions
a. Sale
b. Barter
2. Unilateral transfers – transfer tax;
gratuitous transactions
 a. Succession (transfer upon
death)
b. Donation
3. Complex transactions
a. Partly
*FV-SP=Transfer Tax
*SP-Cost=Income tax
ANOTHER ENTITY
➢ Natural
➢ Juridical
TAXABLE ENTITIES
➢ Separate entities
o Relatives
o Corporations
o Partner & partnership
o Parent company & subsidiaries
o Sister companies
NOT TAXABLE ENTITIES
➢ Sales of home office to branch office
➢ Businesses of a proprietor
BENEFITS IN THE ABSENCE OF
TRANSFERS
➢ Not taxable
➢ Unrealized gains/holding gains
o Increase in value of investments
in equity/debt securities
o Increase in value of real
properties held
o Increase in value of foreign
currencies held/receivable
o Decrease in value of foreign
currencies denominated debt
o Birth of animal offspring,
accruals of fruits
o Increase in value of land due to
discovery of mineral reserves
RENDERING SERVICES
➢ Exchange but does not cause loss of
capital
➢ Item of gross income
EXEMPTION OF UNREALIZED INCOME
➢ Income realized in non-cash properties
are received in cash but taxpayer used
the same to acquire
➢ Taxable at FV of property received
MODE OF RECEIPT/REALIZATION
BENEFITS
1. Actual receipt – physical taking of
income (cash/property)
2. Constructive receipt – no physical taking
but effectively benefitted
a. Offset of debt in consideration for
the sale of goods/services
b. Deposit of income
c. Matured detachable interest
coupons on coupon bonds not
yet encashed
d. Increase in the capital of a
partner from the profit of
partnership
INFLOW OF WEALTH WITHOUT INCREASE
IN NET WORTH
➢ No benefit = no income
o Receipt of property in trust
o Borrowing of money under
obligation to return
▪ If no intention to return,
income
INDIVIDUAL TAXPAYERS
CITIZEN
➢ Citizens on feb 2, 1987
➢ Fathers/mothers are citizens of PH
➢ Born before jan 17, 1973
➢ Naturalized with law
NON-RESIDENT CITIZEN
➢ Physically present abroad with intention
to reside there
➢ Leaves PH during taxable year to reside
abroad; as immigrant/employee
permanently
➢ Works and derives income from abroad
& requires him to be physically present
abroad most of the time during taxable
year (183 days)
o If vacation, still resident
ALIENS
➢ Individuals who are not Filipinos
RESIDENT ALIEN
➢ Whose residence is within the PH and
who is not a citizen
➢ No definite intention as to his stay
➢ One who comes to the PH with definite
purpose that require an extended stay
and makes his home temporary in PH
➢ Acquired residence in PH retains his
status until he abandons the same and
actually departs from PH
 ➢ Stayed in the PH for more than 1 year
as of end of taxable year
NON-RESIDENT ALIEN
➢ Whose residence is not within the PH
and not a citizen
NON-RESIDENT ALIEN (ETB)
➢ Stayed in PH for more than 180 days
during taxable year
NON-RESIDENT ALIEN (NETB)
➢ Came to PH for a definite purpose which
may be promptly accomplished
➢ Stayed for not more than 180 days
during the year
ESTATE
➢ Properties, rights and obligations of a
deceased not extinguished by his death
o Estate under judicial settlement
– individual taxpayer; estate is
taxable on income of properties
o Estate under extra-judicial
settlement – exempt entities;
heirs are taxable on income of
properties
TRUST
➢ Agreement where grantor/trustor
transfers property to beneficiary, which
will be held under the management of
trustee/fiduciary
o Trusts that are irrevocably
designated by the grantor –
individual taxpayer; trust is
taxable on income of property
o Trusts that are designated as
revocable by the grantor – not
taxable entities, not considered
as individual taxpayer; grantor is
taxable on income of property
➢ If silent, revocable
NON-RESIDENT FOREIGN CORP.
➢ Does not operate or conduct business in
PH
➢ Transacts directly to residents outside
its branch
ONE-PERSON CORPORATION
➢ Single stockholder who may be natural
person, trust/estate
PARTNERSHIP
➢ Owned by two or more persons
➢ General Professional Partnership
o Not taxable
o Formed for the exercise of
profession
o Should be in same profession
➢ Business Partnership
o Formed for profit
o Taxable
JOINT VENTURE
➢ With particular purpose
➢ Exempt Joint Venture
o Formed for the purpose of
construction projects or engaged
in petroleum, coal, geothermal
and other energy operations
under a service contract with gov
➢ Taxable Joint Venture
o All other joint ventures are
taxable
CO-OWNERSHIP
➢ Formed to preserve property/divide it
income
➢ Not taxable
➢ Co-owners are taxable on their share of
income
➢ Taxable as corporation if reinvests the
income to other ventures/income-
producing properties

PRESUMPTIONS
CORPORATE TAXPAYERS
➢ If citizen = resident
DOMESTIC
➢ If alien = resident
➢ Corporation organized in accordance ➢ If NR alien = NETB
with PH laws ➢ If corp = domestic
➢ Incorporates in PH even in controlled by ➢ If foreign corp = non-resident
foreigners
FOREIGN
*calendar year – individual, corp
➢ Organized in a foreign law
*fiscal year – corp only
RESIDENT FOREIGN CORPORATION
➢ Operates and conducts business in PH
through permanent establishment
(branch)