Basic Taxation Law
1987 - the power is brought i
each LGU have the power to create
reveneus, to create taxes but does not mean
that
LGUs can select any taxing except
Sect 5, Art 10 can be subjected to limitations
as well.
Congress also has authority to
provide guidelines and limitations.
prohibition on a select kind of tax
1973 and 1987 are different in terms of
prohibition and granting of authority on
taxation.
local sangguniang concern
how power exercised.
- congress - by law
- lgu - by ordinance
if it will be valid for the local chief executive
to execute an executive order with the
purpose of generating funds for the LGU
concerned?
- the primary purpose is collect and
for public purpose.
- it remains legislative all throughout,
effected to issuance of ordinance.
legislative in nature, inherent, subject not
inherent, subject to delegation, delegation
by will of the people not absolute it is
subject to limitations.
concept of limitations of taxing powers:
- inherent subject to limitations;
inherent and constitutional
limitations.
- inherent - it exists even without
legislation, it will always be for
public purpose. Cannot subjecting
foreign governments to taxations it
will subject to international comity.
All countries are equal.
Inherent limitations:
1. public purpose
2. inherently legislative
3. territorial - not physical boundaries
of the State. It can affect aliens
residing in the Philippines, hence
not physical boundaries but the
subject and the jurisdiction of the
Philippines.
a. it can be another criterion -
the source of the income.
Where does income come
from? If property is owned by
the person, that income can
be subject to tax property. It
is situated here in the ph, it
can be owned by a person not
a citizen of the PH. So long as
the income is situated in the
PH, it can be subjected to tax.
It can even by an activity can
be considered income
derived from source or
situated from within.
b. tax on income - could be
earned by someone not a
citizen nor a resident as long
as justified by principles
(lifeblood, necessity, benefits
received protection theory)
4. international comity
5. exemption of government entities,
agencies and instrumentalities.
INCOME TAX
SEC. 22. Definitions
(A)Estate - properties of the deceased.
during period of settlement, haven’t
distributed yet to the heirs. It acquires a
separate personality on its own, it is
possible for the estate to be subjected to
income tax.
Basic Taxation Law

- Ona vs CIR. If any income would be 2. trade or business except profession

earned and would come be the 3. gains in property
income of the distributee. 4. interests
- during the period of administration 5. rents
or settlement of the estate. 6. royalties
7. dividends
(B)Corporations - 8. annuities
- there are entities exempt - purposes 9. prizes and winnings
of undertaking construction 10. pensions
projects, and energy consumption 11. included partner’s distributive share
under service contract with the from the net income of the GPP.
Government (no taxable personality)
- General professional partnership - opposite of gain and income is loss.
(GPP) - sole purpose of professional If the consideration is lower than the
services. market price of the property, then
- not a corporation liable for there will be no income but instead
corporation income tax. loss.
- income earned by the - others not included here are
partnership will still be considered are inclusions of gross
taxable. income.
- what about not expressly included in
B) The term 'corporation' shall include one person this list?
corporations [10], partnerships, no matter how created - CIR vs BOAC
or organized, joint-stock companies, joint accounts - not everything is covered in
(cuentas en participacion), associations, or insurance
companies, but does not include general professional
42 A, list of incomes sources
partnerships and a joint venture or consortium formed derived within the
for the purpose of undertaking construction projects or Philippines.
engaging in petroleum, coal, geothermal and other
energy operations pursuant to an operating
domestic, when applied to a corporation, means
consortium agreement under a service contract with
created or organized in the Philippines or under its
the Government. 'General professional laws.
partnerships’ are partnerships formed by persons
for the sole purpose of exercising their common foreign’, when applied to a corporation, means a
profession, no part of the income of which is derived corporation which is not domestic
from engaging in any trade or business.
(E) The term 'nonresident citizen' means;
SEC. 32. Gross Income (1) A citizen of the Philippines who establishes to the
(A)General Definition – Except when satisfaction of the Commissioner the fact of his
otherwise provided in this Title, gross physical presence abroad with a definite intention to
income means all income derived from
reside therein.
whatever source, including the following
(2) A citizen of the Philippines who leaves the
items:
1. Compensation for services in Philippines during the taxable year to reside abroad,
whatever form paid, but not limited either as an immigrant or for employment on a
to fees, salaries, wages, permanent basis.
commissions, and similar items.
Basic Taxation Law
(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 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 purpose of this Section.
resident alien' means an individual whose residence
is within the Philippines and who is not a citizen
thereof.
nonresident alien' means an individual whose
residence is not within the Philippines and who is not
a citizen thereof.
resident foreign corporation' applies to a foreign
corporation engaged in trade or business within the
Philippines.
(I) The term 'nonresident foreign corporation'
applies to a foreign corporation not engaged in trade
or business within the Philippines.
fiduciary' means a guardian, trustee, executor,
administrator, receiver, conservator or any person
acting in any fiduciary capacity for any person.
withholding agent' means any person required to
deduct and withhold any tax under the provisions of
Section 57.
shares of stock' shall include shares of stock of a
corporation, warrants and/or options to purchase
shares of stock, as well as units of participation in a
partnership (except general professional
partnerships), joint stock companies, joint accounts,
joint ventures taxable as corporations, associations
and recreation or amusement clubs (such as golf,
polo or similar clubs), and mutual fund certificates.
shareholder'shall include holders of a share/s of
stock, warrant/s and/or option/s to purchase shares of
stock of a corporation, as well as a holder of a unit of
participation in a partnership (except general
professional partnerships) in a joint stock company, a
joint account, a taxable joint venture, a member of an
association, recreation or amusement club (such as
golf, polo or similar clubs) and a holder of a mutual
fund certificate, a member in an association, joint-
stock company, or insurance company.
(N) The term 'taxpayer’ means any person subject to
tax imposed by this Title.
(O) The terms 'including’ and 'includes', when used
in a definition contained in this Title, shall not be
deemed to exclude other things otherwise within the
meaning of the term defined.
taxable year' means the calendar year, or the fiscal
year ending during such calendar year, upon the
basis of which the net income is computed under this
Title. 'Taxable year' includes, in the case of a return
made for a fractional part of a year under the
provisions of this Title or under rules and regulations
prescribed by the Secretary of Finance, upon
recommendation of the commissioner, the period for
which such return is made.
fiscal year' means an accounting period of twelve
(12) months ending on the last day of any month
other than December.
paid or incurred' and 'paid or accrued' shall be
construed according to the method of accounting
upon the basis of which the net income is computed
under this Title.
trade or business' includes the performance of the
functions of a public office.
securities' means shares of stock in a corporation
and rights to subscribe for or to receive such shares.
The term includes bonds, debentures, notes or
certificates, or other evidence or indebtedness, issued
by any corporation, including those issued by a
government or political subdivision thereof, with
interest coupons or in registered form.
Basic Taxation Law
dealer in securities' means a merchant of stocks or
securities, whether an individual, partnership or
corporation, with an established place of business,
regularly engaged in the purchase of securities and
the resale thereof to customers; that is, one who, as a
merchant, buys securities and re-sells them to
customers with a view to the gains and profits that
may be derived therefrom.
bank' means every banking institution, as defined in
Section 2 of Republic Act No. 337, [7] as amended,
otherwise known as the “General banking Act.” A
bank may either be a commercial bank, a thrift bank,
a development bank, a rural bank or specialized
government bank.
non-bank financial intermediary' means a financial
intermediary, as defined in Section 2(D)(C) of
Republic Act No. 337, [5] as amended, otherwise
known as the “General Banking Act,” authorized by
the Bangko Sentral ng Pilipinas (BSP) to perform
quasi-banking activities.
ordinary income' includes any gain from the sale or
exchange of property which is not a capital asset or
property described in Section 39(A)(1). Any gain from
the sale or exchange of property which is treated or
considered, under other provisions of this Title, as
'ordinary income' shall be treated as gain from the
sale or exchange of property which is not a capital
asset as defined in Section 39(A)(1). The term
'ordinary loss' includes any loss from the sale or
exchange of property which is not a capital asset. Any
loss from the sale or exchange of property which is
treated or considered, under other provisions of this
Title, as 'ordinary loss' shall be treated as loss from
the sale or exchange of property which is not a capital
asset.
statutory minimum wage’ shall refer to the rate fixed
by the Regional Tripartite Wage and Productivity
Board, as defined by the Bureau of Labor and
Employment Statistics (BLES) of the Department of
Labor and Employment (DOLE).
minimum wage earner” shall refer to a worker in the
private sector paid the statutory minimum wage or to
an employee in the public sector with compensation
income of not more than the statutory minimum wage
in the non-agricultural sector where he/she is
assigned.
SEC. 23. General Principles of Income Taxation in
the Philippines – except when otherwise provided in
this Code:
A citizen of the Philippines residing therein is taxable
on all income derived from sources within and without
the Philippines;
(B) A nonresident citizen is taxable only on income
derived from sources within the Philippines;
(C) 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
engaged exclusively in international trade shall be
treated as an overseas contract worker;
(D) An alien individual, whether a resident or not of
the Philippines, is taxable only on income derived
from sources within the Philippines;
(E) A domestic corporation is taxable on all income
derived from sources within and without the
Philippines; and
(F) A foreign corporation, whether engaged or not in
trade or business in the Philippines, is taxable only on
income derived from sources within the Philippines
SEC. 24. Income Tax Rates
SEC. 25. Tax on Nonresident Alien Individual
) Nonresident Alien Engaged in trade or Business
Within the Philippines. –
(1) In General. - A nonresident alien individual
engaged in trade or business in the Philippines shall
be subject to an income tax in the same manner as
an individual citizen and a resident alien individual, on
taxable income received from all sources within the
Philippines. A nonresident alien individual who shall
Basic Taxation Law

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 'nonresident alien doing business in the Philippines'.
Section 22 (G) of this Code notwithstanding

Capital Gains. - Capital gains realized from sale,

barter or exchange of shares of stock in domestic
corporations not traded through the local stock
exchange, and real properties shall be subject to the
tax prescribed under Subsections (C) and (D) of
Section 24.

Nonresident Alien Individual Not Engaged in

Trade or Business Within the Philippines.- 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 periodic or
casual gains, profits, and income, and capital gains, a
tax equal to twenty-five percent (25%) of such
income. Capital gains realized by a nonresident alien
individual not engaged in trade or business in the
Philippines from the sale of shares of stock in any
domestic corporation and real property shall be
subject to the income tax prescribed under
Subsections (C) and (D) of Section 24.
Basic Taxation Law
CORPORATION INCOME TAX
capital assets not subject to 6% lands or buildings of
domestic corproation
other real properties become subject to the ordinary
tax of the domestic corporation. (sec 27(a), NIRC) for
regular and ordinary income tax.
Distinguish between capital gains tax 6% in case of
individuals and gains capital tax to corporation:
corpo - 6% only on lands or buildings
- 15% capital gains tax, uniformly distributed
regardless of the status or classification
selling the shares of the corporation.
domestic and resident corporation
non-resident foreign corp - not engage in business.
minimum corporate income tax (mcit) - new tax
- a tax on gross income.
- creba vs romulo
- it is equal to 2% of the gross income of a
corporation at the close of each taxable
quarter
- payable instance when
- mcit is greater than the tax under
27a
- covers domestic and foreign corporations
which are subject to regular income tax.
- cannot be claimed as deduction
- carry forward of excess minimum tax –
any excess of the MCIT over the normal
income tax may be carried forward on an
annual basis and be credited against the
normal income tax for the 3 immediately
preceding taxable years.
- recovered as a tax credit, against
tax due under 27a or normal tax in
the next succeeding 3 years.
DOMESTIC CORPORATION
Special domestic corporations:
a. private education institution
i. subject to 10% on their taxable
income provided that its gross
income from unrelated trade,
business or other activity does not
exceed 50%
ii. it should be a non-stock, non-profit
educational institution.
Sec. 30. Exemptions from Tax on Corporations.
unless activities conducted for profit regardless of
the disposition made of such income, shall be
subject to tax imposed under this Code.
- exemption cannot be claimed.
- non-stock and nonprofit educational
institutions.
RESIDENT FOREIGN CORPORATIONS
- international air carriers
- tax on branch profits remittances.
SEC. 33. Special treatment of fringe benefit
DECEMBER 4, 2023.
SEC. 27 - SEC 30. NIRC: st lukes and DLSU cases
under corpo tax income
what is taxable source from properties, income from
activities conducted for profit.
- Sec. 30, E (usage of the income)
- 25% general rule
- sec. 27(B) not a general rule. taxes
10% instead.
- non-profit
Basic Taxation Law

- provided, unrelated trades - exemption when the fringe benefits is

of activities of gross recieved by the rank and file employee under
income exceed 50% special circumstances.
- exemption reqs: - fringe benefit is taxed under ordinary tax
- it is a nonstock, non profit except to managerial and supervisory up to
educational organization 35%
- is used actually, directly - premium payment or amount (e.g. insurance
and exclusively for package) – insurable interest of employer to
educational purposes. its managers as to its loss. To whom is it
- DLSU and st lukes can still be taxable paid? depends, to its estate, surviving
insofar as the revenues are used for spouse or children, parang income ng
educational purposes, if there is no proof, manager.
the exemption cannot be invoked. Exemption
is not available, the income is taxable. whether in cash or not, in whatever form (e.g fringe
- unless the school invokes exemption, so benefit given is a car, hence said amount of the car is
long as it can show proof that the exemption taxed.
reqs is met.
- without force and effect the minimis benefits - benefits … 3-98
- anything considered outside of the list, is not
LAW ON DEDUCTIONS: de minimis. (exclusive list)
SEC. 33. Special treatment of fringe benefit
(additional benefits) 13 month pay and other benefits:
- Imposition of tax – final tax of 35% imposed - gross benefits received by the officials and
on the grossed up monetary value of fringe employees of public and private entities.
benefit furnished or granted to employees PROVIDED, the total exclusion under 90k.
- UNLESS, necessary to the trade,
business or profession or the SEC. 34. Deductions from gross income. – except
employer, or when the fringe benefit for taxpayers earning compensation income arising
is for the convenience or advantage from personal services under an EE relationship
of the employer. - usage of services, paying them salaries or
- not limited to the ff. This means it is not wages
exclusive.
another deduction: Standard Deduction. – merelt
qualify only to employees, and the ones who gives optional to the taxpayer
this fringe benefit is the employer. - advantage, the tax payer has a ready
- only to managerial and supervisory amount to be used for taxable income.
employees. - for people engaged in trade, business

SEC. 36a. items not deductible

Basic Taxation Law
personal
deductions - remove from the tax that is something
that contributes to your everyday to day income. That
is also part of your capital and anything that
constitutes capital must not be subjected to legal tax.
in your business you put in something in the expense
in your investment something, its the opposite
you spend something in order to generate income,
match with its tax that helps generate its income.
that is when your services are rendered spending
spend something to sustain yourself, the amount
sec. 35 is already repealed. In its place is its
exception, sec 24(a), exemption from acts with P250k
every calendar year for individuals.
purpose: is so that the tax besides
progressive, the less can pay tax less also as to those
who have more. Removal of wisdom of individuals
congress passed what to send, minor
adjuration, simplification on tax.
There should be a disqualification and
qualification, in order to monitor dependents, whether
already of age, married or unmarried. Personal and
additional exemption removed
less monitoring, less paperworks, there
would be less submission of papers in qualifying a
dependent.
provision on the expenses
what your gonna spend is like acquiring a new asset,
utilize in the new operation. What kind of expenses to
your business, it is part of your capital, and should be
deducted from your tax base. Is it necessary? But the
law forbids this kind of expense
ordinary expenses and necessary expenses.
necessary expense is substantial, and used in many
years, abortion of expense should be matched to the
said portion equivalent or correspondents income
earned for the year.
there is a way to deduct, but not in one time business
expenses
what method is it: section 34(F): Depreciation.
- straight line method. – in an installment basis
34(a) main expenses
capital expenditure tangible
(F) Depreciation:
General Rule. - There shall be allowed as a
depreciation deduction a reasonable allowance for the
exhaustion, wear and tear (including reasonable
allowance for obsolescence) of property used in the
trade or business. In the case of property held by one
person for life with remainder to another person, the
deduction shall be computed as if the life tenant were
the absolute owner of the property and shall be
allowed to the life tenant. In the case of property held
in trust, the allowable deduction shall be apportioned
between the income beneficiaries and the trustees in
accordance with the pertinent provisions of the
instrument creating the trust, or in the absence of
such provisions, on the basis of the trust income
allowable to each
for the owner to recover its credit
building good will, prompting up sales in the future:
case of general foods on tang product
Basic Taxation Law
copmany filed CIR amount deduction,
itemized markerting advertising expense, incurred
during the year and a tax deduction. Is it deductible
business expense? It is allowed, but not in total, but it
is in the middle.
the idea of prohibition, by business expense, you
should not include the capital business expense,
something that is capital expenditure
cannot be deducted under 34(a) as a
business expense, instead it must be a negotiated
expense, that is not a tangible asset.
The BIR is correct.
can definite expense be deducted? those that are not
sec 34(a) but also what is ordinary expense.
REQUISITES: it should pass the reasonableness if
ordinary expense.
only up to 1M is reasonable that helps
generate income
What the law prohibits is extraordinary expense which
is already out of the ordinary expense.
tested as to the nature of the expense of simply an
ordinary expense?
Sec. 34(a), Sec. 37(b)
substantiation rule:
- the taxpayer shall substantiate the expense
being deducted with sufficient evidence such
as official receipts or other adequate records
showing:
1. the amount of expense being deducted and;
2. the direct connection or relation of the
expense being deducted to the development,
management, operation and/or conduct of
the trade, business or profession of the
taxpayer.
Taxpayer 40%
standard deduction method, sa malalaki na taxes
expanded the amount to 40% deduction, yielded
positive for the tax collection.
Losses
non deductible interest, and bad debts
expenses
rules on interest of deductions
net income - taxpayers governed by net income
taxation, we earn incomes not subject to net income.
We did not compute net income in sec 34
it is basic tax or final tax
whether or not it is deductible?
prohibited deductions. Can this be allowed in this
deduction? e.g. nightclubs or in any immoral places.
business expenses all the way down.
what is the tax base for employees – whatever is the
net income or salaries of employees.
compliance - how do you comply with your obligation,
to secure with the proper court.
- individual income tax return. Sec 51 except
when you are engaged in trade, business…
you may have imported tax income return
with tax due zero.
no tax due, no need to file income tax return
if there is a need to file a tax due, then file to the BIR
Basic Taxation Law

dividend, interest from land deposit, capital selling

dues, stockholder

when income is solely subject to final tax, since

withholding tax is one where there is active
participation on their part.

substituted filing system - the employer is the one

who files the income tax return for the employee

can you compel income tax return as an employee?

Yes, when you are not entitled in cases of
unwithholding

under withhold

ok na sobra sobra ang withholding, and at the end of

the year, ibabalik sayo.

sec 76, over withholding in the case of corporations

first quarter, nothing to return tax
- the withheld tax is then remitted to the BIR
as a whole na. That P250k.
- excess payment. What are you going to do
with your excess tax?
- to pay the balance of tax still due
- carry-over the excess credit
- be credited or refunded with the
excess amount paid, as the case
may be.

- irrevocability rule.

Finals

Exams: Written