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MEMORY AID IN TAXATION LAW
TAXATION LAW
I. GENERAL PRINCIPLES
POWER OF TAXATIONTAXATION – power by which thesovereign through its law-making bodyraises revenue to defray the necessaryexpenses of government from amongthose who in some measure areprivileged to enjoy its benefits and mustbear its burdens.
Two Fold Nature of the Power of
Taxatio1. It i s an inherent attribute ofsovereignty
2. It is legislative in character
Extet of Taxi! PowerSubject to constitutional and
inherent restrictions the power oftaxation is regarded as comprehensiveunlimited plenary and supreme.
SCOPE OF LEGISLATI"E TAXING POWER 1. !mount or rate of tax
2. !pportionment of the tax". #ind of tax$. %ethod of collection
5. &urpose's of its levy provided it isfor public purpose
6. Subject to be taxed provided it iswithin its jurisdiction
(. Situs of taxation
TAXES – enforced proportionalcontributions from the persons andproperty levied by the law-making bodyof the State by virtue of its sovereigntyin support of government and for publicneeds.
C#ARACTERISTICS OF TAXES1. forced charge)2. pecuniary burden payable in money)". levied by the legislature)$. assessed with some reasonable rule
of apportionment) *see theoreticaljustice+
,. imposed by the State within itsjurisdiction)
. levied for a public purpose.
R E$%ISITES OF A "ALI& TAX1. should be for a public purpose2. the rule of taxation shall be uniform". that either the person or property
taxed be within the jurisdiction ofthe taxing authority
$. that the assessment and collectionof certain kinds of taxes guaranteesagainst injustice to individualsespecially by way of notice andopportunity for hearing be provided
,. the tax must not impinge on theinherent and onstitutionallimitations on the power of taxation
T#EORIES AN& 'ASES OF TAXATION1. Life(lood Theor)
/axes are what we pay for civili0edsociety. ithout taxes the governmentwould be paraly0ed for lack of themotive power to activate and operate it.ence despite the natural reluctance tosurrender part of one3s hard-earnedincome to the taxing authorities every
person who is able to must contributehis share in the running of thegovernment. (CIR v. Algue, Inc.)
2. Ne*e++it) Theor)/he power to tax is an attribute of
sovereignty emanating from necessity. Itis a necessary burden to preserve theState3s sovereignty and a means to givethe citi0enry an army to resist anaggression a navy to defend its shoresfrom invasion a corps of civil servants toserve public improvements designed for
the enjoyment of the citi0enry and thosewhich come within the State3s territoryand facilities and protection which agovernment is supposed to provide.(Phil. Guaranty Co., Inc. v. CIR)
". 'eefit+,Prote*tio - Re*iro*it)Theor)/axation is described as a symbiotic
relationship whereby in exchange of thebenefits and protection that the citi0ensget from the 4overnment taxes arepaid. (CIR v. Algue, Inc.)
TAXATION LAW COMMITTEE CHAIRPERSON : Charmaine Torre ASST. CHAIRPERSON: Rhohail Ca!ro EDP : Rachelle Saya SUBJECT HEADS: Jemina
Sy, Casiano Ilagan, J., Ryan Co, E!"in Toes :#E#BERS: #ai$a %o&!es A'&, E!i'e Eni(&e', Chis$ian Ca)ea, Jh&n!ee*&illemo
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Note hile taxes are intended forgeneral benefits special benefits totaxpayers are not re5uired. /he4overnment renders no special or
commensurate benefit to any particularperson or property.
IS T#E POWER TO TAX T#E POWER TO &ESTRO/0
1. 1Power to tax i+ the ower tode+tro)2 *!arshall "ictum) # refersto the unlimitedness and the degreeor vigor with which the taxing powermay be employed to raise revenue.
- the financial needs of the State mayoutrun any human calculation so thepower to meet those needs by taxationmust not be limited even though taxes
become burdensome or confiscatory.
2. 1Power to tax i+ ot the ower tode+tro) while the Sure3e Court +it+2($olmes "ictum) 6 the power to taxknows no limit except those expresslystated in the onstitution.
!arshall and $olmes "ictum Reconciled !lthough the power to tax is almost
unlimited it must not be exercised in anarbitrary manner. If the abuse is sogreat so as to destroy the natural andfundamental rights of people it is theduty of the judiciary to hold such an actunconstitutional.
P%RPOSES AN& O'4ECTI"ES OF TAXATION1. Re5eue – basically the purpose of
taxation is to provide funds orproperty with which the Statepromotes the general welfare andprotection of its citi0ens.
2. No,Re5eue 67e)8 PR 9EP:
a. Promotion of general welfare
b. R egulationc. R eduction of social ine5uality
d. Encourage economic growth
e. Protectionism
POWER OF 4%&ICIAL R E"IEW IN TAXATION!s long as the legislature in
imposing a tax does not violateapplicable constitutional limitations orrestrictions it is not within the provinceof the courts to in5uire into the wisdomor policy of the exaction the motives
behind it the amount to be raised or the
persons property or other privileges tobe taxed.
/he court7s power in taxation islimited only to the application and
interpretation of the law.
Note /he principle o% &udicial non'inter%erence extends to theadministrative realm.
ASPECTS OF TAXATION1. 8evy or imposition of the tax *tax
legislation+2. 9nforcement or tax administration
*tax administration+
'ASIC PRINCIPLES OF A SO%N& TAX S/STE; 67 E/8
FAT:1. Fi+*al Ade
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4. Non-impairment of Contractsontractsmay not beimpaired
ontractsmay beimpaired
ontracts maybe impaired
5. ransfer of Propert! Ri"#ts/axes paidbecome partof publicfunds
No transferbut onlyrestraint inits exercise
/ransfer iseffected infavor of theState
$. %cope!ll personsproperty andexcises
!ll personspropertyrights andprivileges
nly upon aparticularproperty
S/STE;S OF TAXATIONGlo(al S)+te3 S*hedular S)+te3
! systememployed wherethe tax systemviewsindifferently thetax base andgenerally treats incommon allcategories oftaxable income ofthe individual.
! system employedwhere the income taxtreatment varies andis made to depend onthe kind or categoryof taxable income ofthe taxpayer.
! system whichtaxes all
categories ofincome exceptcertain passiveincomes andcapital gains. Itprescribes aunitary butprogressive ratefor the taxableaggregate incomesand flat rates forcertain passiveincomes derivedby individuals.
! system whichitemi0es the different
incomes and providesfor varied percentagesof taxes to beapplied thereto.
EXA;PLES OF TAXES LE"IE& WIT# A R EG%LATOR/ P%RPOSE= OR CO;'INE& EXERCISE OF POLICE POWER AN& T#E POWER OF TAXATION.
a. %otor vehicle registration feesare now considered revenue or taxmeasures.(Pal v. du, G.R No. *'+--,
August /,0)/his case reversed the doctrine
previously held in :epublic v. &hilippine:abbit ;us 8ines Inc. "2 S:! 211 tothe effect that motor vehicle
registration fees are regulatoryexactions and not revenue measures.
(. /he tax imposed on videogram
establishments is not only regulatory buta revenue measure because the earningsof such establishments have not beensubject to tax depriving the governmentof an additional source of income. (1iov. 2ideogram Regulatory 3oard, /4CRA 56)
*. /he ot political in character2. ivil in nature not subject to ex
post facto law prohibitions". >ot penal in character
TAXATION LAW COMMITTEE CHAIRPERSON : Charmaine Torre ASST. CHAIRPERSON: Rhohail Ca!ro EDP : Rachelle Saya SUBJECT HEADS: Jemina
Sy, Casiano Ilagan, J., Ryan Co, E!"in Toes :#E#BERS: #ai$a %o&!es A'&, E!i'e Eni(&e', Chis$ian Ca)ea, Jh&n!ee*&illemo
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TAXES ARE PERSONAL TO T#E TAXPA/ER
1. ! corporation7s tax delin5uencycannot be enforced against itsstockholders. 6Cororate Etit)
&o*trie::ception Stockholders may beheld liable for unpaid taxes of adissolved corporation?a. if it appears that the corporate
assets have passed into theirhands or
b. when the stockholders haveunpaid subscriptions to thecapital of the corporation
2. 9state taxes are obligations thatmust be paid by the executor oradministrator out of the net assetsand cannot be assessed against theheirs.:ception If prior to the paymentof the estate tax due the propertiesof the deceased are distributed tothe heirs then the latter issubsidiary liable for the payment ofsuch portion of the estate tax as hisdistributive share bears to the totalvalue of the net estate. (4ec. 0,Rev. Regs. No. 5'566-; see CIR vs.
Pineda G.R. No. *'558-+.4eptember /, 098))
CLASSIFICATION OF TAXES1. !s to subject matter?
a. Per+oal Tax – taxes are of fixedamount upon all persons of acertain class within thejurisdiction without regard toproperty occupation or businessin which they may be engaged.
b. Proert) Tax – assessed onproperty of a certain class
c. Ex*i+e Tax – imposed on theexercise of a privilege
d. Cu+to3+ &utie+ – duties chargedupon the commodities on theirbeing imported into or exportedfrom a country.
2. !s to burden?
a. &ire*t Tax – both the incidenceof or liability for the payment ofthe tax as well as the impact orburden of the tax falls on thesame person.
b. Idire*t Tax , /he incidence ofor liability for the payment ofthe tax falls on one person butthe burden thereof can be
shifted or passed on to another.". !s to purpose?
a. Geeral Tax – levied for thegeneral or ordinary purposes ofthe 4overnment
b. Se*ial Tax – levied for specialpurposes
$. !s to manner of computation?a. Se*ifi* Tax – the computation
of the tax or the rates of the taxis already provided for by law.
b. Ad 'a&orem Tax – tax upon the
value of the article or thingsubject to taxation) theintervention of another party isneeded for the computation ofthe tax.
,. !s to taxing authority?a. Natioal Tax – levied by the
>ational 4overnmentb. Lo*al Tax – levied by the local
government. !s to rate?
a. Pro!re++i5e Tax – rate oramount of tax increases as the
amount of the income or earningto be taxed increases.b. Re!re++i5e Tax – tax rate
decreases as the amount ofincome to be taxed increases.
c. Proortioate Tax – based on afixed proportion of the value ofthe property assessed.
I;POSITIONS NOT STRICTL/ CONSI&ERE& AS TAXES
1. Toll – amount charged for the costand maintenance of the propertyused.
2. Pealt) – punishment for thecommission of a crime.
3. Co3ro3i+e Pealt) – amountcollected in lieu of criminalprosecution in cases of taxviolations.
4. Se*ial A++e++3et – levied only onland based wholly on benefitaccruing thereon as a result ofimprovements or public worksundertaken by government withinthe vicinity.
TAXATION LAW COMMITTEE CHAIRPERSON : Charmaine Torre ASST. CHAIRPERSON: Rhohail Ca!ro EDP : Rachelle Saya SUBJECT HEADS: Jemina
Sy, Casiano Ilagan, J., Ryan Co, E!"in Toes :#E#BERS: #ai$a %o&!es A'&, E!i'e Eni(&e', Chis$ian Ca)ea, Jh&n!ee*&illemo
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5. Li*e+e or Fee – regulatoryimposition in the exercise of thepolice power.
6. ;ar!i Fee – exaction designed to
stabili0e the currency.7. &e(t – a sum of money due upon
contract or one which is evidencedby judgment.
8. Su(+id) – a legislative grant ofmoney in aid of a private enterprisedeemed to promote the publicwelfare.
9. Cu+to3+ dutie+ ad fee+ – dutiescharged upon commodities on theirbeing transported into or exportedfrom a country.
10. Re5eue – a broad term thatincludes taxes and income fromother sources as well.
11. I3o+t – in its general sense itsignifies any tax tribute or duty. Inits limited sense it means a duty onimported goods and merchandise.
Tax Se*ialA++e++3et
Imposed on personsproperty and excises
8evied only on land
&ersonal liabilityattaches on theperson assessed incase of non-payment
annot be made apersonal liability ofthe person assessed
>ot based on anyspecial or directbenefit
;ased wholly onbenefit
8evied and paidannually
9xceptional both asto time and locality
9xemption grantedis applicable (Art.2I, 4ec. 5(-) 08Constitution)
9xemption does notapply.>.;. If property isexempt from :eal&roperty /ax it isalso exempt fromSpecial !ssessment.
Tax Li*e+e Fee
;ased on the powerof taxation
9manates frompolice power
/o generaterevenue
:egulatory
!mount is unlimited !mount is limitedto the cost of *1+issuing the licenseand *2+ inspectionand surveillance
>ormally paid afterthe start of abusiness
>ormally paidbeforecommencement ofbusiness
/axes being thelifeblood of theState cannot besurrendered exceptfor lawfulconsideration
8icense fee may bewith or withoutconsideration
>on-payment does
not make thebusiness illegal butmaybe a ground forcriminalprosecution
>on-payment
makes the businessillegal
TEST IN &ETER;INING IF T#E I;POSITION IS A TAX OR A LICENSE FEE
If the purpose is primarily revenueor if revenue is at least one of the realand substantial purposes then theexaction is a tax. If the purpose isregulatory in nature it is a license.
(PA* v. du)
Tax &e(t
!n obligationimposed by law
reated by contract
@ue to thegovernment in itssovereign capacity
%ay be due to thegovernment but inits corporatecapacity
&ayable in money &ayable in moneyproperty or services
@oes not drawinterest except incase of delin5uency
@raws interest ifstipulated ordelayed
Not assignable !ssignable
Not subject tocompensation orset-off
Subject tocompensation orset-off
>on-payment ispunished byimprisonment
No imprisonment incase of non-payment(Art. III, 4ec. 56
TAXATION LAW COMMITTEE CHAIRPERSON : Charmaine Torre ASST. CHAIRPERSON: Rhohail Ca!ro EDP : Rachelle Saya SUBJECT HEADS: Jemina
Sy, Casiano Ilagan, J., Ryan Co, E!"in Toes :#E#BERS: #ai$a %o&!es A'&, E!i'e Eni(&e', Chis$ian Ca)ea, Jh&n!ee*&illemo
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e:cept in poll tax 08 Constitution)
Imposed only bypublic authority
an be imposed byprivate individual
TEST IN &ETER;INING IF T#E I;POSITION IS A TAX OR A LICENSE FEE
If the purpose is primarily revenue orif revenue is at least one of the realand substantial purposes then theexaction is a tax. If the purpose isregulatory in nature it is a license.(PA* v. du)
Tax &e(t
!n obligationimposed by law
reated by contract
@ue to thegovernment in itssovereign capacity
%ay be due to thegovernment but inits corporatecapacity
&ayable in money &ayable in moneyproperty or services
@oes not drawinterest except incase of delin5uency
@raws interest ifstipulated ordelayed
Not assignable !ssignable
Not subject tocompensation orset-off
Subject tocompensation orset-off
>on-payment ispunished byimprisonmente:cept in poll tax
No imprisonment incase of non-payment (Art. III,4ec. 56 08Constitution)
Imposed only bypublic authority
an be imposed byprivate individual
CO;PENSATION OR SET,OFFGeneral Rule /axes cannot be thesubject of compensation or set-off.
Reasons1. lifeblood theory2. taxes are not contractual
obligation but arise out of dutyto the government
3. the government and thetaxpayer are not mutuallycreditors and debtors of eachother. (7rancia v. IAC)
:ception hen both obligations aredue and demandable as well as fullyli5uidated and all the re5uisites for avalid compensation are present
compensation takes place by operationof law. ("omingo v. Garlitos)
&OCTRINE OF E$%ITA'LE R ECO%P;ENT NOT FOLLOWE& IN T#E P#ILIPPINES
! tax presently being assessedagainst a taxpayer which has prescribedmay not be recouped or set-off againstan overpaid tax the refund of which isalso barred by prescription. It is againstpublic policy since both parties areguilty of negligence.
Tax Toll
9nforcedproportionalcontributions frompersons and property
! sum of money forthe use ofsomething aconsideration whichis paid for the use ofa property which isof a public nature)e.g. road bridge
! demand ofsovereignty
! demand ofproprietorship
>o limit as to the
amount of tax
!mount of toll
depends upon thecost of constructionor maintenance ofthe publicimprovement used
Imposed only by theState
%ay be imposed by?*1+ 4overnment*2+ &rivate
individuals orentities
Tax Pealt)
9nforcedproportionalcontributions frompersons andproperty
Sanction imposed asa punishment forviolation of a lawor acts deemedinjurious) violationof tax laws may giverise to imposition ofpenalty
Intended to raiserevenue
@esigned to regulateconduct
%ay be imposedonly by the
government
%ay be imposed by?*1+ 4overnment
*2+ &rivate
TAXATION LAW COMMITTEE CHAIRPERSON : Charmaine Torre ASST. CHAIRPERSON: Rhohail Ca!ro EDP : Rachelle Saya SUBJECT HEADS: Jemina
Sy, Casiano Ilagan, J., Ryan Co, E!"in Toes :#E#BERS: #ai$a %o&!es A'&, E!i'e Eni(&e', Chis$ian Ca)ea, Jh&n!ee*&illemo
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individuals orentities
Tax Tariff
!ll embracing termto include variouskinds of enforcedcontributions uponpersons for theattainment ofpublic purposes
! kind of taximposed on articleswhich are tradedinternationally
TAXPA/ERS> S%IT! case where the act complained of
directly involves the illegal disbursementof public funds derive from taxation(
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to 4ec. 6+ o% theNIRC and theprinciple of mobiliaseBuuntur personam
;usiness tax &lace of business
9xcise or &rivilegetax
here the act isperformed or whereoccupation ispursued
Sales tax here the sale isconsummated
Income /ax onsider*1+ citi0enship*2+ residence and
*"+ source of income(4ec. +5, 008 NIRC)
/ransfer tax :esidence orciti0enship of thetaxpayer or locationof property
Aranchise /ax State which grantedthe franchise
SIT%S OF TAXATION OF INTANGI'LE PERSONAL PROPERT/
enera& Ru&e @omicile of the ownerpursuant to the principle of the mobiliaseBuuntur personam or movables followthe person.Exceptions1. hen the property has ac5uired a
business situs in another jurisdiction)2. hen an express provision of the
statute provide for another rule.Illustration Aor purposes of estateand donor7s taxes the followingintangible properties are deemedwith a situs in the &hilippines?
*1+ franchise which must beexercised in the &hilippines)
*2+ shares obligations or bondsissued by any corporationorgani0ed or constituted in the&hilippines in accordance withits laws)
*"+ shares obligations or bonds byany foreign corporation eighty-five percent *B,C+ of thebusiness of which is located inthe &hilippines)
*$+ shares obligations or bondsissued by any foreign corporationif such shares obligations orbonds have ac5uired a business
situs in the &hilippines) and(5) shares or rights in any
partnership business or industryestablished in the &hilippines.(4ec. 6+, 008 NIRC).
6@: EXE;PTION OF T#E GO"ERN;ENT!s a matter of public policy
property of the State and of itsmunicipal subdivisions devoted togovernment uses and purposes isdeemed to be exempt from taxationalthough no express provision in the law
is made therefor.
General Rule /he 4overnment is taxexe3t.- owever it can also tax itself.
R %LES81. !dministrative !gencies
A. 4overnmental function - taxexe3t unless when the lawexpressly provides for tax. (4ec.-5 38)
B. &roprietary function 6 taxa(le
unless exempted by law. (4ec.58C)
2. 4DsGeneral Rule Income is taxa(le atthe rate imposed upon corporationsor associations engaged in a similarbusiness industry or activity.:ception 4SIS SSS &I &SDand &!4D:. *Sec. 2(*+ >I:+
". 4overnment 9ducational InstitutionsA. &roperty or real estate tax 6
property actually directly andexclusively used for educationalpurposes 6 exe3t but incomeof whatever kind and characterfrom any of their propertiesreal or personal regardless ofthe disposition is taxa(le. (4ec.-6, last par., NIRC)
B. Income received by them assuch are exe3t from taxes.owever their income from anyof their activities conducted forprofit regardless of thedisposition is taxa(le. (4ec. -6,
last par., NIRC)
TAXATION LAW COMMITTEE CHAIRPERSON : Charmaine Torre ASST. CHAIRPERSON: Rhohail Ca!ro EDP : Rachelle Saya SUBJECT HEADS: Jemina
Sy, Casiano Ilagan, J., Ryan Co, E!"in Toes :#E#BERS: #ai$a %o&!es A'&, E!i'e Eni(&e', Chis$ian Ca)ea, Jh&n!ee*&illemo
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4. Income derived from any publicutility or from the exercise of anyessential governmental functionaccruing to the 4overnment of the
&hilippines or to any politicalsubdivision thereof is not included ingross income and exe3t fromtaxation. (4ec. -5(3)(8)(b), NIRC)
5. @onations in favor of governmentalinstitutions are considered as incomeon the part of the donee. oweverit is not considered as taxableincome because it is an e:clusionfrom the computation of grossincome. (4ec.-5 (3)(-), NIRC)
6. /he amount of all be5uestslegacies devises or transfers to or
for the use of the 4overnment orany political subdivision forexclusively public purposes isdeductible from the gross estate.(4ec.9 (A)(-), NIRC)
7. 4ifts made to or for the use of the>ational 4overnment or any entitycreated by any of its agencies whichis not conducted for profit or to anypolitical subdivision of the said4overnment are exe3t fromdonor7s tax. (4ec. 6(A)(5), NIRC)
8. 8ocal government units are
exre++l) rohi(ited by the 84from levying tax upon >ational4overnment its agencies andinstrumentalities and localgovernment units. 4ec. -- (o),*GCD
9. Enless otherwise provided in the8ocal 4overnment ode *84+ taxexemptions granted to all personswhether natural or juridicalincluding 4D except local waterdistricts cooperatives dulyregistered under :! >o. F"B non-stock and non-profit institutions arewithdraw upon effectivity of the84. (4ec. 0-, *GC)
10. :eal property owed by the:epublic of the &hilippines or any ofits political subdivisions except whenthe beneficial use thereof has beengranted for consideration orotherwise to a taxable person shallbe exe3t from payment of realproperty tax. (4ec. 5-+, *GC)
6: INTERNATIONAL
CO;IT/
/hese principles limit the authorityof the government to effectively imposetaxes on a sovereign state and itsinstrumentalities as well as on its
property held and activities undertakenin that capacity. 9ven where one entersthe territory of another there is animplied understanding that the formerdoes not thereby submit itself to theauthority and jurisdiction of the other.
'. CONSTIT%TIONAL LI;ITATIONSA. GENERAL OR IN&IRECTCONSTIT%TIONAL LI;ITATIONS
1. &ue Pro*e++ Clau+e /Art. ,,,0 %ec. 101 Constitution
Re
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4. No,Ifri!e3et Of Reli!iou+Freedo3 Ad Wor+hi 6 Art. ,,,0 %ec.50 1 Constitution
! license tax or fee constitutes acurtailment of religious freedom ifimposed as a condition for itsexercise. (American 3ible 4ocietyvs. City o% !anila, GR No. *'09-8,
April -6, 0/8)
5. No,I3air3et Of Cotra*t+ 6 Art.,,,0 %ec. 10 1 Constitution
>o law impairing the obligationof contract shall be passed. (4ec.6, Art. III, 08 Constitution)
/he rule however does not
apply to public utility franchises orright since they are subject toamendment alteration or repeal bythe ongress when the publicinterest so re5uires. (Cagayanlectric E *ight Co., Inc. v.Commissioner, GR No. 9659,4eptember 5/, 0/)
R %LES8A. hen the exemption isbilaterally agreed upon betweenthe government and the taxpayer 6
it cannot be withdrawn ithoutviolating the non-impairmentclause.
B. hen it is unilaterally granted bylaw and the same is ithdran byvirtue of another law 6 no violation.
C. hen the exemption is grantedunder a franchise 6 it may beithdran at any time thus not aviolation of the non-impairment ofcontracts
6. Pre+idetial ower to !ratrerie5e+= *o33utatio+ adardo+ ad re3it fie+ adforfeiture+ after *o5i*tio 6 AR.',,0 %EC. 10 1 C)N%,*,)N&ue
Pro*e++Eoticemust
therefore be givenin case offailure topay taxes
conferred andliabilitiesimposed.
rate. /hereshouldthereforebe no directdouble
taxation
'. SPECIFIC OR &IRECTCONSTIT%TIONAL LI;ITATIONS
?. No,I3ri+o3et For &e(t Or No,Pa)3et Of Poll Tax 6 Art. ,,,0 %ec.20 1 Constitution
9. Rule Re
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%+ed For Reli!iou+= Charita(le AdEdu*atioal Puro+e+. /Art. ',0%ec. 2/3 0 1 Constitution
/he constitutional provision
*above cited+ which grants taxexemption applies only to propertyor realty taxes assessed on suchproperties used actually directlyexclusively for religious charitableand educational purposes. (*ladocvs. Commissioner, GR No. *'056,
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/his constitutes a violation ofsubstantive due process.
Ele3et+8
a. the same property or subjectmatter is taxed twice when it shouldbe taxed only once.b. both taxes are levied for thesame purposec. imposed by the same taxingauthorityd. within the same jurisdictione. during the same taxing periodf. covering the same kind orcharacter of tax.(2illanueva vs. City o% Iloilo)
(2) Idire*t &uli*ate Taxatio – notlegally objectionable. /he absenceof one or more of the above-mentioned elements makes thedouble taxation indirect.
(3) &o3e+ti*, this arises when the taxesare imposed by the local or nationalgovernment *within the same state+
(4) Iteratioal, refers to theimposition of comparable taxes intwo or more states on the same
taxpayer in respect of the samesubject matter and for identicalperiods.
R E;E&IES OF &O%'LE TAXATION. Tax Sari! Rule 6 same dividend
earned by a >:A within the &hil. isreduced by imposing a lower rate of1,C *in lieu of the ",C+ on thecondition that the country to whichthe >:A is domiliced shall allow acredit against the tax due from the>:A taxes deemed to have been
paid in the &hil. *Sec.2B ; ,b+ *I:vs &rocter J 4amble+ (GR No.99-, "ec. 5, 00+
2. Tax dedu*tio+:ample? vanishing deduction underSection B*!+*2+ >I:
". Tax *redit+Instances under the NIRC
• Aor 2A1 purposes the tax on inputsor items that go into themanufacture of finished products*which are eventually sold+ may becredited against or deducted from
the output tax or tax on the finishedproduct.
• 7oreign income ta:es may becredited against the &hil. Income
tax subject to certain limitationsby citi0ens including members ofgeneral professional partnerships orbeneficiaries of estates or trusts* pro rata+ as well as domesticcorporations.
• ! tax credit is granted for estateta:es paid to a foreign country onthe estate of citi0ens and residentaliens subject to certain limitations.
• /he donorFs ta: imposed upon aciti0en or a resident shall be
credited with the amount of anydonor7s tax imposed by the authorityof a foreign country subject to
certain limitations.Tax Exe3tio+Pri*ile of Re*iro*it)Treatie+ with other +tate+
;ET#O&S R ESORTE& TO '/ A TAX TREAT/ IN OR&ER TO ELI;INATE &O%'LE TAXATION
FIRST ;ET#O&8 /he tax treaty sets outthe respective rights to tax by the state
of source or situs and by the state ofresidence with regard to certain classesof income or capital. In some cases anexclusive right to tax is conferred in oneof the contracting states) however forother items of income or capital bothstates are given the right to tax althoughthe amount of tax that may be imposedby the state of source is limited.SECON& ;ET#O&8 /he state of source isgiven a full or limited right to taxtogether with the state of residence. Inthis case the treaty makes it incumbentupon the state of residence to allowrelief in order to avoid double taxation.
TWO ;ET#O&S OF RELIEF ARE %SE& %N&ER T#E SECON& ;ET#O&8
. The exe3tio 3ethod- the incomeor capital which is taxable in thestate of source or situs is exemptedin the state of residence although insome instances it may be taken intoaccount in determining the rate of
tax applicable to the tax payer7s
TAXATION LAW COMMITTEE CHAIRPERSON : Charmaine Torre ASST. CHAIRPERSON: Rhohail Ca!ro EDP : Rachelle Saya SUBJECT HEADS: Jemina
Sy, Casiano Ilagan, J., Ryan Co, E!"in Toes :#E#BERS: #ai$a %o&!es A'&, E!i'e Eni(&e', Chis$ian Ca)ea, Jh&n!ee*&illemo
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remaining income or capital.*/hismay be done using the tax deductionmethod which allows foreign incometaxes to be deducted from gross
income in effect exempting thepayment from being further taxed.+
!. The *redit 3ethod, although theincome or capital which is taxed inthe state of source is still taxable inthe state of residence. /he tax paidin the former is credited against thetax levied in the latter.(Commissioner o% Internal Revenuev. 4.C
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income in order to avoid or reducetax liability.
9xample?
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A. 9xemptions from taxation arehi!hl) di+fa5ored in law and arenot re+u3ed.
B. e who claims as exemption must
be able to justify his claim by the*leare+t !rat of organic or statutelaw by word+ too lai to bemistaken. If ambiguous there is noexemption.
C. e who claims exemption shouldprove by *o5i*i! roof that heis exempted.
D. /axation is the rule) tax exemptionis the e:ception.
E. /ax exemption must be +tri*tl)*o+trued against the taxpayer andliberally in favor of the taxing
authority.f. /ax exemptions are not presumed.G. onstitutional grants of tax
exemption are +elf,exe*uti!.H. /ax exemptions are er+oal.
T#E FOLLOWING PARTA7E T#E NAT%RE OF TAX EXE;PTION 1. @eductions for income tax purposes2. laims for refund". /ax amnesty$. ondonation of unpaid tax liabilitiesN1 must be +tri*tl) *o+trued
against the taxpayer
W#EN EXE;PTIONS ARE CONSTR%E& LI'ERALL/ IN FA"OR OF GRANTEE1. hen the law so provides for such
liberal construction.2. 9xemptions from certain taxes
granted under special circumstancesto special classes of persons.
". 9xemptions in favor of thegovernment its political subdivisionsor instrumentalities.
$. 9xemptions to traditionalexemptees such as those in favor ofreligious and charitable institutions.
,. If exemptions refer to the publicproperty
$8 %ay a tax exemption be revokedGA8 Hes. It is an act of liberality whichcould be taken back by the governmentunless there are restrictions. Sincetaxation is the rule and exemptiontherefrom is the exception theexemption may be withdrawn by the
taxing authority. (!actan Cebu
International Airport Authority vs.!arcos, 59 4CRA 998)
R ESTRICTIONS ON R E"OCATION OF TAX EXE;PTIONS
A. No i3air3et *lau+e. here theexemption was granted to privateparties based on materialconsideration of a mutual naturewhich then becomes contractual andis covered by the non-impairmentclause of the onstitution.
B. Adhere*e to for3, if the taxexemption is granted by theonstitution its revocation may beeffected through onstitutionalamendment only
". here the tax exemption grant is in
the form of a special law and not bya general law even if the terms ofthe general act are broad enough toinclude the codes in the general lawunless there is manifest intent torepeal or alter the special law(Province o% !isamis riental vsCagayan lectric Poer and *ightCo. Inc)
NAT%RE OF TAX A;NEST/1. 4eneral or intentional overlooking by
the state of its authority to impose
penalties on persons otherwise guiltyof evasion or violation of a revenueor tax law.
2. &artakes of an absolute forgiveness ofwaiver of the government of its rightto collect.
". /o give tax evaders who wish torelent and are willing to reform achance to do so.
R%LES ON TAX A;NEST/
1. /ax amnestya+ like tax exemption it is never
favored nor presumedb+ construed strictly against the
taxpayer *must show completecompliance with the law+
2.4overnment not estopped from5uestioning the tax liability even ifamnesty tax payments were alreadyreceived.
Reason? 9rroneous application andenforcement of the law by publicofficers do not block subse5uentcorrect application of the statute. /he
TAXATION LAW COMMITTEE CHAIRPERSON : Charmaine Torre ASST. CHAIRPERSON: Rhohail Ca!ro EDP : Rachelle Saya SUBJECT HEADS: Jemina
Sy, Casiano Ilagan, J., Ryan Co, E!"in Toes :#E#BERS: #ai$a %o&!es A'&, E!i'e Eni(&e', Chis$ian Ca)ea, Jh&n!ee*&illemo
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government is never estopped bymistakes or errors of its agents.3asis? 8ifeblood /heory
".@efense of tax amnesty like insanityis a personal defense.Reason? :elates to the circumstances
of a particular accused and not thecharacter of the acts charged in theinformation.
Tax a3e+t) Tax exe3tio
Immunity from allcriminal civil andadministrativeliabilities arisingfrom non paymentof taxes
Immunity from civilliability only
!pplies only to pasttax periods henceretroactiveapplication
&rospectiveapplication
&OCTRINE OF I;PRESCRIPTI'ILT/!s a rule taxes are imprescriptible
as they are the lifeblood of thegovernment. owever tax statutes mayprovide for statute of limitations.
/he rules that have been adoptedare as follows?a. Nationa& ,nterna& Revenue Code /he statute of limitation forassessment of tax if a return is filed iswithin three 6B: )ear+ from the last dayprescribed by law for the filling of thereturn or if filed after the last daywithin three years from date of actualfilling. If no return is filed or the returnfiled is false or fraudulent the period toassess is within te )ear+ from discoveryof the omission fraud or falsity.
/he period to collect tax is withinthree )ear+ from date of assessment. Inthe case however of omission to file orif the return filed is false or fraudulentthe period to collect is within te )ear+from discovery without need of anassessment.
7. ariff and customs codeIt does not express any general
statute of limitation) it providedhowever that L7 hen articles haveentered and passed %ree o% duty or %inal
ad&ustment o% duties made, ithsubseBuent delivery, such entry and
passage %ree o% duty or settlement o%duties ill, a%ter the e:piration o% one
/1 !ear , %rom the date o% the %inal payment o% duties, in the absence o% %raud or protest, be %inal and conclusiveupon all parties, unless the liBuidationo% import entry as merely tentative.(4ec 96-,1CC)
c.+ (oca& overnment Code *ocal 1a:es, %ees, or charges shall
be assessed ithin five /5 !ears %romthe date they became due. In case o%
%raud or intent to evade the payment o%ta:es, %ees or charges the same may be
assessed ithin ten /1 !ears %romdiscovery o% the %raud or intent toevade payment. 1hey shall also becollected either by administrative or
&udicial action ithin five /5 !ears %rom date o% assessment (4ec. 0+. *GC)
TAX ENFORCE;ENT AN&A&;INISTRATION
SO%RCES OF TAX LAWS 67e)8 SPEC9TRA 'LT:1. Statutes2. Presidential @ecrees3. Executive Drders4. Constitution5. Court @ecisions6. Tax odes7. R evenue :egulations8. Administrative Issuances9. 'I: :ulings10. Local /ax Drdinance11. Tax /reaties and onventions
R E$%ISITES OF TAX R EG%LATIONS
1. :easonable2. ithin the authority conferred3. Not contrary to law$. %ust be published
N1 !dministrative regulations mustalways be in harmony with theprovisions of the law. In case ofdiscrepancy between the basic law andthe implementing rule or regulation theformer prevails.
NON,R ETROACTI"IT/ OF 'IR R %LINGS
TAXATION LAW COMMITTEE CHAIRPERSON : Charmaine Torre ASST. CHAIRPERSON: Rhohail Ca!ro EDP : Rachelle Saya SUBJECT HEADS: Jemina
Sy, Casiano Ilagan, J., Ryan Co, E!"in Toes :#E#BERS: #ai$a %o&!es A'&, E!i'e Eni(&e', Chis$ian Ca)ea, Jh&n!ee*&illemo
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General Rule? :ulings are notretroactive if they are prejudicial to thetaxpayer. (4ec. 5+9, NIRC):ceptions
1. here the taxpayer deliberatelymisstates or omits material factsfrom his return or any documentre5uired of him by the ;I:.
2. here the facts subse5uentlygathered by the ;I: is materiallydifferent from the facts on whichthe ruling is based.
". here the taxpayer acted in badfaith.
PRINCIPLE OF LEGISLATI"E APPRO"AL OF AN A&;INISTRATI"E INTERPRETATION T#RO%G#
R EENACT;ENThere a statute is susceptible of the
meaning placed upon it by a ruling ofthe government agency charged with itsenforcement and the legislaturethereafter reenacts the provisionwithout substantial change such actionis to some extent confirmatory that theruling carries out the legislativepurpose.
R %LE OF NO ESTOPPEL AGAINST T#E GO"ERN;ENTGeneral Rule /he 4overnment is not
estopped by the mistakes or errors of itsagents) erroneous application andenforcement of law by public officers donot bar the subse5uent correctapplication of statutes. (. Rodrigue,Inc. vs. Collector, *'5-6+,
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b. In the application of statute oflimitations
c. In the establishment of tax liensand
d. In estimating the revenues that maybe collected by government in thecoming year. (!amalateo,2ictorino. Revieer on 1a:ation,566+)
7 IN&S
1. SELF, ASSESS;ENT, one in which the taxis assessed by the taxpayer himself
2. &EFICIENC/ ASSESS;ENT, made by the taxassessor himself whereby the correct
amount of the tax is determinedafter an examination or investigationis conducted. /he liability isdetermined and assessed for thefollowing reason?a. amount ascertained exceeds that
which is shown as the tax by thetaxpayer in his return
b. no amount of tax is shown in thereturn
c. taxpayer did not file any returnat all
3. ILLEGAL AN& "OI& ASSESS;ENT,
assessment wherein tax assessor hasno power to assess at all
4. ERRONEO%S ASSESS;ENT, assessor haspower to assess but errs in theexercise thereof
'%R&EN OF PROOF IN PRE,ASSESS;ENT PROCEE&INGS/here is a presumption of
correctness and good faith on the part ofthe I:) thus the burden lies on thetaxpayer. Dtherwise the finding of theI: will be conclusive and he will assessthe taxpayer. /he same is true even if
the I: is wrong if the taxpayer doesnot controvert. (Cagayan Robina 4ugar!illing Co. vs. Court o% Appeals, GR.No. 55+/, ctober 5, 5666)Reasons8 a. lifeblood theory b. presumption of regularity in
performance of publicfunctions
N1 !ssessments by the ;I: must haveon its face the law and facts upon whichthe presumption is made.
PRINCIPLES GO"ERNING TAX ASSESS;ENTS
1. !ssessments are prima faciepresumed correct and made in goodfaith.2. It should be based on actual
facts.". It is discretionary on the part ofthe ommissioner.
$. /he authority of theommissioner to assess taxes may bedelegated except the power tomake final assessments.,. It must be directed to the rightparty.
Authorit) of a Re5eue Offi*er -pursuant to a 8etter of !uthority issuedby the :egional @irector
a. /o examine taxpayers withinthe jurisdiction of the district inorder to collect the correctamount of tax)
b. /o recommend the assessment ofany deficiency tax due in thesame manner that the said actscould have been performed by the:evenue :egional @irector.
General Rule income tax returns areconfidential.:ception in5uiry into income taxreturns may be authori0ed-
1. inspection is authori0ed uponwritten order of the &resident of the&hilippines)
2. inspection is authori0ed underAinance :egulations >o. "" of theSecretary of Ainance)
". production of the tax return ismaterial evidence in a criminal casewherein the government isinterested in the result) or
$. production or inspection thereof isauthori0ed by the taxpayer himself.
Networth ;ethod, inventory method ofincome tax verification.
• !pplies the accounting principle?assets 6 liabilities M networth
ondition for its use?1. taxpayer7s books do not clearly
reflect his income or the taxpayer
TAXATION LAW COMMITTEE CHAIRPERSON : Charmaine Torre ASST. CHAIRPERSON: Rhohail Ca!ro EDP : Rachelle Saya SUBJECT HEADS: Jemina
Sy, Casiano Ilagan, J., Ryan Co, E!"in Toes :#E#BERS: #ai$a %o&!es A'&, E!i'e Eni(&e', Chis$ian Ca)ea, Jh&n!ee*&illemo
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has no books or if he has books herefuses to produce them)
2. there is evidence of possible sourceor sources of income to account for
increases in networth)". there is a fixed starting point or
opening networth) and$. there must be proper adjustments to
conform with the income tax laws.
POWERS AN& &%TIES OF T#E CO;;ISSIONER I. SECTION @ *power to interpret tax lawand decide tax cases+
?. Iterret ro5i+io+ of thi+ Code adother tax law+ +u(e*t to re5iew of the
Se*retar) of Fia*e6$ua+i,le!i+lati5e:
2. &e*ide8 6$ua+i,udi*ial:a+ disputed assessmentb+ refunds of internal
revenue taxes fees and chargesc+ penalties imposed in
relation thereto
d) other matters arisingfrom this ode or other laws orportions thereof administered bythe ;I: subject to the exclusiveappellate jurisdiction of the /!(4ec. +)
II. SECTION *power to obtaininformation summon examine and taketestimony of persons+
B. For the Co33i++ioer toa+*ertai8
*a+ correctness of any return or inmaking a return where none hasbeen made
*b+ liability of any person for anyinternal revenue tax or incorrecting such liability
*c+ tax compliance /he ommissioner is authori0ed?1. to 9xamine any relevant ;ook paper
record or other data2. to Dbtain any information *costs
volume of production receipts salesgross income etc+ on a regular basisfrom?i. any person other than the person
under investigation or
ii. any office or officer of thenational'local government gov7tagencies and instrumentalities*;angko Sentral gov7t owned and
controlled corporations+ *e.g. 8/D:egister of @eeds+
". to Summoni. the person liable for tax or
re5uired to file a return orii. any officer or employee of such
person oriii. any person having in his
possession'custody'care-- the books of accounts-- accounting records of entriesrelating to the business of theperson liable for tax or any other
person-- to produce such bookspapers records and other dataand to give testimony
$. to take the /estimony of the personconcerned under oath as may berelevant to the in5uiry
,. to cause revenue officers andemployees to make a anvass of anyrevenue district or region
>othing in Section , shall beconstrued as granting the ommissioner
the authority to in5uire into bankdeposits other than as provided forunder sec. *A+ of the ode.
III. SECTION *power to makeassessments prescribe additionalre5uirements for tax administrationand enforcement+
@. Exa3iatio of retur+ addeter3iatio of tax due!. !fter a return has been filed the
ommissioner or his
representative may authori0ei.the 9xamination of any taxpayer
andii.the !ssessment of the correct
amount of tax);. A
ailure to file a return shall notprevent the commissioner fromauthori0ing the examination ofany taxpayer)
TAXATION LAW COMMITTEE CHAIRPERSON : Charmaine Torre ASST. CHAIRPERSON: Rhohail Ca!ro EDP : Rachelle Saya SUBJECT HEADS: Jemina
Sy, Casiano Ilagan, J., Ryan Co, E!"in Toes :#E#BERS: #ai$a %o&!es A'&, E!i'e Eni(&e', Chis$ian Ca)ea, Jh&n!ee*&illemo
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N !ny tax or deficiency tax soassessed shall be paid uponnotice and demand from theommissioner or his
representativeN !ny return statement or
declaration %iled in anyauthori0ed office shall not bewithdrawn) but within threeyears from date of filing thesame may be modifiedchanged or amended)provided that no notice foraudit or investigation of suchreturn has in the meantimebeen actually served upon thetaxpayer.
.Failure to +u(3it re
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H. Authorit) to ID/ be delegated+a+ power to :ecommend the
promulgation of rules andregulations by the Sec. ofAinance
b+ power to Issue rulings of firstimpression or to :everse revokemodify any existing rule of the;I:
c+ power to ompromise or !bateany tax liability
provided hoever that theregional evaluation board maycompromise?1. assessments issued by
regional offices involvingdeficiency taxes of &,KKKKKor less and
2. minor criminal violations asmay be determined by the
rules and regulations". discovered by regional and
district officials
Regional valuation 3oard iscomposed o% ?i. :egional @irector as hairmanii. !sst. :egional @irectoriii. eads of the 8egal !ssessment
and ollection @iv.iv. :evenue @istrict Dfficer having
jurisdiction over the taxpayer
d+ power to !ssign or reassigninternal revenue officers toestablishments wherearticles subject to excise taxare kept.
". SECTIONS = ?@= ?= ?= ?J *Dther&owers+
13. @uty to ensure the provision anddistribution of forms receiptscertificates and appliances andthe acknowledgment of payment of
taxes (4ec. )
TAXATION LAW COMMITTEE CHAIRPERSON : Charmaine Torre ASST. CHAIRPERSON: Rhohail Ca!ro EDP : Rachelle Saya SUBJECT HEADS: Jemina
Sy, Casiano Ilagan, J., Ryan Co, E!"in Toes :#E#BERS: #ai$a %o&!es A'&, E!i'e Eni(&e', Chis$ian Ca)ea, Jh&n!ee*&illemo
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14. !uthority to administer oaths and totake testimony (4ec. +)
15. !uthority to make arrests andsei0ures (4ec. /)
16. !uthority to employ assign orreassign internal revenue officersinvolved in excise tax functions toestablishments where articlessubject to excise tax are producedor kept (4ec. 9)
17. !uthority to assign or reassigninternal revenue officers and
employees of the ;I: to other orspecial duties connected with theenforcement or administration ofthe revenue laws (4ec. 8)
ARE LEGAL OFFICERS OF T#E 'IR A%T#ORIE& TO INSTIT%TE APPEAL PROCEE&INGS WIT#O%T T#E PARTICIPATION OF T#E SOLICITOR GENERAL0
>D. /he institution orcommencement before a proper court ofcivil and criminal actions andproceedings arising under the /ax:eform !ct which shall be conducted by
legal officers of the ;I: is not in dispute.!n appeal from such court however isnot a matter of right. It is still theSolicitor 4eneral who has the primaryresponsibility to appear for thegovernment in appellate proceedings.(Commissioner vs. *a 4uerte Cigar andCigarette 7actory, GR No. ++0+5,
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CRITERIA IN I;POSING INCO;E TAX1. CitiKe+hi Pri*ile 6 ! citi0en ofthe &hilippines is subject to &hilippine
income tax *a.+ on his worldwideincome if he resides in the &hilippinesor *b.+ only on his income from sourceswithin the &hilippines if he 5ualifies asnonresident citi0en.2. Re+ide*e Pri*ile 6 resident alienis liable to pay income tax on his incomefrom sources within the &hilippines butexempt from tax on his income fromsources outside the &hilippines.". Sour*e Pri*ile 6 !n alien is subjectto &hilippine income tax because hederives income from sources within the
&hilippines. /hus a nonresident alien isliable to pay &hilippine income tax onhis income from sources within the&hilippines such as dividend interestrent or royalty despite the fact that hehas not set foot in the &hilippines.
CLASSIFICATION OF TAXPA/ERS
Idi5idual+a. citi0ens
(1) resident citi0ens 6RC:
(2) non-resident citi0ens 6NRC:
b. aliens(1) resident aliens 6RA:
(2) non-resident aliens 6NRA:
#a$ engaged in trade orbusiness within the&hils. 6NRAET':
#b$ not engaged in trade orbusiness within the&hilippines 6NRANET':
Cororatio+
a. @omestic 6&C:
b. Aoreign(1) resident foreigncorporation 6RFC:
(2) non-resident foreigncorporation 6NRFC:
E+tate+Tru+t+Parter+hi+
A. IN&I"I&%ALS
W#O ARE TAXA'LE0
1. Re+idet CitiKe
2. No,re+idet CitiKe! non-resident citi8en means a
Ailipino citi0en?a. who establishes to the
satisfaction of the ommissionerthe fact of his physical presenceabroad with a definite intentionto reside therein)
b. who leaves the &hilippinesduring the taxable year to resideabroad either as an immigrantor for employment on apermanent basis)
c. who works and derives incomefrom abroad and whoseemployment thereat re5uireshim to be physically present
abroad most of the time duringthe taxable year)
d. who is previously considered as anon-resident and who arrives inthe &hilippines at anytime duringthe taxable year to residethereat permanently shall beconsidered non-resident for thetaxable year in which he arrivesin the &hilippines with respect tohis income derived from sourcesabroad until the date of hisarrival 4ec.55 (), NIRCD
N1 !n o5er+ea+ *otra*t worDer6OCW: is taxable only on incomederived from sources within the&hilippines. QSec. 2" *;+*+R
! +ea3a is considered as anD provided the followingre5uirements are met?
1. receives compensation for servicesrendered abroad as a member ofthe complement of a vessel) and
2. such vessel is engaged exclusivelyin international trade.
;ased on the above provisionsthere are three *"+ types ofnonresident citi0ens namely? *1+immigrants) *2+ employees of a foreignentity on a permanent basis) and*"+ overseas contract workers.Immigrants and employees of a foreignentity on a permanent basis aretreated as nonresident citi0ens fromthe time they depart from the&hilippines. owever overseas
contract workers must be physically
TAXATION LAW COMMITTEE CHAIRPERSON : Charmaine Torre ASST. CHAIRPERSON: Rhohail Ca!ro EDP : Rachelle Saya SUBJECT HEADS: Jemina
Sy, Casiano Ilagan, J., Ryan Co, E!"in Toes :#E#BERS: #ai$a %o&!es A'&, E!i'e Eni(&e', Chis$ian Ca)ea, Jh&n!ee*&illemo
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present abroad most of the timeduring the calendar year to 5ualify asnonresident citi0ens.
3. Re+idet alie ' means an individual
whose residence is within the&hilippines and who is not a citi0enthereof. 4ec.55 (7, NIRC)D
4. No,re+idet alie e!a!ed itrade or (u+ie++ withi thePhiliie+. 6NRAET':
! non-resident a&ien means anindividual whose residence is notwithin the &hilippines and who is nota citi0en thereof. 4ec.55 (G)D
/he term trade or 7usinessincludes the performance of thefunctions of a public office. 4ec. 55
(4)D /he term trade0 7usiness or
profession shall not includeperformance of services by thetaxpayer as an employee. 4ec. 55(CC)D
! non-resident alien individualwho shall come to the &hilippinesand stay therein for an aggregateperiod of more than 1BK days duringany calendar year shall be deemed anon'resident alien doing business inthe Philippines 4ection 55(G)
notithstanding 4ec. 5/(A)()D 5. No,re+idet alie ot e!a!ed i
trade or (u+ie++ withi thePhiliie+. 6NRANET':
ONL/ RESI&ENT CITIENS are taxablefor income derived from sources ithinand ithout the Philippines. !ll otherindividual income taxpayers are taxableonly for income derived from sourcesithin the Philippines.
Tax Rate+8 &lease refer to Aex A.
'. CORPORATIONS
W#O ARE TAXA'LE01. &o3e+ti* Cororatio 6 created or
organi0ed in the &hils. or under itslaw 4ec. 55(C), NIRCD
2. Re+idet Forei! Cororatio 6engaged in trade or business withinthe &hilippines 4ec. 55($), NIRCD
3. No,re+idet Forei! Cororatio 6not engaged in trade or business
within the &hilippines 4ec. 55(I),NIRCD
A Cororatio I*lude+81. &artnerships no matter
how created or organi0ed)2. oint-stock companies)3. oint accounts *cuentas
en participacion+$. !ssociations) or5. Insurance companies
4ec. 55(3), NIRCD.
Ex*lude+8. 4eneral professional
partnerships)!. oint venture or
consortium formed for the purpose
of undertaking construction projectsor engaging in petroleum coalgeothermal and other energyoperations pursuant to an operatingor consortium agreement under aservice contract with the4overnment.
CORPORATIONS EXE;PT FRO; INCO;E TAXATION 6FOR INCO;E R EALIE& AS S%C#: %N&ER NIRC. Tho+e eu3erated uder %ec. 3.
9xempt corporations are subjectto income tax on their income from
any of their properties real orpersonal or from any other activitiesconducted for profit regardless o%the disposition made o% such income.
!. With re+e*t to GOCC+= the generalrule is that these corporations aretaxable as any other corporationexcept?
a. 4SISb. SSSc. &Id. &SDe. &!4D: 4ec. 58 (C)D
3. Re!ioal or Area #ead
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taxable only for income derived fromsources ithin the &hilippines.
T! R"#$% &lease refer to A%%#! B.
C. ESTATES AN& TR%STS
ESTATE 6 refers to the mass of propertiesleft by a deceased person.
R %LES ON TAXA'ILIT/ OF ESTATEhen a person who owns property
dies the following taxes are payableunder the provisions of the income ta:la ?
1. Income tax forindividual under Sec. 2$ and 2, *to
cover the period beginning anuaryto the time of death+)2. 9state income taxunder Sec. K if the estate is underadministration or judicialsettlement.
ESTATES %N&ER 4%&ICIAL SETTLE;ENTA. &uri! the Pede*) of the
Settle3etGeeral Rule8 !n estate underjudicial settlement is subject toincome tax in the same manner asindividuals. Its status is the same asthe status of the decedent prior tohis death.Ex*etio+8. /he entitlement to personal
exemption is limited only to&2KKKK.
2. >o additional exemption isallowed.
". /he distribution to the heirs
during the taxable year of estateincome is deductible from thetaxable income of the estate.Such distributed income shallform part of the respectiveheirs7 taxable income.
here no suchdistribution to the heirs is madeduring the taxable year that theincome is earned and suchincome is subjected to incometax payment by the estate thesubse5uent distribution thereof
is no longer taxable on the partof the recipient.
'. TER;INATION OF T#E 4%&ICIAL SETTLE;ENT
6W#ERE T#E #EIRS STILL &O NOT &I"I&E T#E PROPERT/:. If the heirs contribute to the
estate money property orindustry with intention to dividethe profits between'amongthemselves an unregisteredpartnership is created and theestate becomes liable for thepayment of corporate incometax. (vangelista vs. Collector,GR No. *'0009, ctober /,0/8; Ja vs. Commissioner, GR
No. *'0-+5, !ay 5/, 085)!. If the heirs without contributing
money property or industry toimprove the estate simplydivide the fruits thereofbetween'among themselves aco-ownership is created andindividual income tax is imposedon the income received by eachof the heirs payable in theirseparate and individualcapacity. (Pascual vs.Commissioner, GR No. *'8--,
ctober , 0; billos vs.Commissioner, GR No. *'9,ctober 50, 0/)
ESTATES N ) %N&ER 4%&ICIAL SETTLE;ENT&ending the extrajudicial
settlement either of the followingsituations may arise?1. If the heirs contribute money
property or industry to the estatewith the intention of dividing theprofits between'among themselvesan unregistered partnership iscreated and the estate becomesliable for the payment of corporateincome tax) or
2. If the heirs without contributingmoney property or industry to theestate simply divide the fruitsthereof between'among themselvesa co-ownership is created andincome tax is imposed on the incomereceived by each of the heirspayable in their separate andindividual capacity.
TAXATION LAW COMMITTEE CHAIRPERSON : Charmaine Torre ASST. CHAIRPERSON: Rhohail Ca!ro EDP : Rachelle Saya SUBJECT HEADS: Jemina
Sy, Casiano Ilagan, J., Ryan Co, E!"in Toes :#E#BERS: #ai$a %o&!es A'&, E!i'e Eni(&e', Chis$ian Ca)ea, Jh&n!ee*&illemo
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TR%ST 6 ! right to the property whetherreal or personal held by one person forthe benefit of another.
W#EN TR%STS ARE TAXA'LE ENTITIES1. ! trust the income of which is to be
accumulated2. ! trust in which the fiduciary may at
his discretion either distribute oraccumulate the income.
R %LES ON TAXA'ILIT/ OF T#E INCO;E OF A TR%ST
1. /he income of the trust for thetaxable year which is to bedistributed to the beneficiaries #
%iling and payment o% ta: lie on the
bene%iciaries.2. /he income of the trust which isto be accumulated or held for futuredistribution whether consisting ofordinary income or gain from thesale of assets included in thePcorpusP of the estate 6 %iling o%return and payment o% ta: becomethe burden o% the trustee or
%iduciary.:ceptions?a. In the case of a revocable trust
the income of the trust will be
returned by the grantor. b. In a trust where the income is
held for the benefit of thegrantor the income of the trustbecomes income to the grantor.
c. In the case of trustadministered in a foreigncountry the income of the trust)undiminished by any amountdistributed to the beneficiariesshall be taxed to the trustee.
IRRE"OCA'LE TR%STS *irrevocable both as tocorpus and as to income+ 6
/rust itself through the trustee orfiduciary is liable for the payment ofincome tax. /axed exactly in the sameway as estates under judicial settlementand its status as an individual is that ofthe trustor. It is entitled to theminimum personal exemption *&2KKKK+and distribution of trust income duringthe taxable year to the beneficiaries isdeductible from the trust7s taxableincome.
R E"OCA'LE TR%STS 6 the trustor not thetrust itself is subject to the payment ofincome tax on the trust income.
EXE;PTION OF E;PLO/EES> TR%ST &rovided? 1. the employee7s trust must be part of
a pension stock bonus or profitsharing plan of the employer for thebenefit of some or all of hisemployees)
2. contributions are made to the trustby such employer or suchemployees or both)
". such contributions are made for thepurpose of distributing to such
employees both the earnings andprincipal of the fund accumulated bythe trust and
4. that the trust instrument makes itimpossible for any part of the trustcorpus or income to be used for ordiverted to purposes other than theexclusive benefit of such employees.(4ec. 963, NIRC)
/ax exemption is likewise to beenjoyed by the i*o3e of the e+iotru+t) otherwise taxation of those
earnings would result in a diminution ofaccumulated income and reducewhatever the trust beneficiaries wouldreceive out of the trust fund.(Commissioner vs. Court o% Appeals,Court o% 1a: Appeals and GC*Retirement Plans, GR No. 0/655, !arch5-, 005)
&. PARTNERS#IPS
7 IN&S OF PARTNERS#IP FOR TAX P%RPOSES %N&ER
T#E
NIRC1. Geeral Profe++ioalParter+hi+ 6GPP: - formed bypersons for?a. the sole purpose of exercising a
common profession and
b. no part of the income of which isderived from engaging in anytrade or business. 4ec. 55(3),NIRCD.
2. Taxa(le or 'u+ie++Parter+hi 6
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Sy, Casiano Ilagan, J., Ryan Co, E!"in Toes :#E#BERS: #ai$a %o&!es A'&, E!i'e Eni(&e', Chis$ian Ca)ea, Jh&n!ee*&illemo
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!ll other partnerships exceptgeneral professional partnerships nomatter how created or organi0ed.It includes unregistered joint
ventures and business partnerships.owever joint ventures are not
taxables as corporations when it is)*a+ undertaking construction projects*b+ engaged in petroleum coal andother energy operation under aservice contract with thegovernment
enera& co-partners#ips /CPare partnerships which are by lawassimilated to be within the contextof and so legally contemplated ascorporations. /he partnership itself
is subject to corporate taxation. /heindividual partners are consideredstockholders and therefore profitsdistributed to them by thepartnership are taxable as dividends.
/he taxable income for a taxableyear after deducting the corporateincome tax imposed therein shall bedeemed to have been actually orconstructively received by thepartners in the same taxable yearand shall be taxed to them in theirindividual capacity hether actually
distributed or not. 4ec. 8-("),NIRCD
LIA'ILIT/ OF A PARTNERS#IP
1. Geeral Profe++ioalParter+hi .- /hey are not sub&ectto income ta: but are re5uired tofile returns of their income for thepurpose of furnishing information asto the share of each partner in thenet gain or profit which eachpartner shall include in his individual
return. /he partnership shall act asthe withholding agent./he net income *income for
distribution+ shall be computed inthe same manner as a corporation.@ate of filing of the return is !pril1, of each year.
2. Taxa(le or 'u+ie++Parter+hi - /he income tax of thistype of &artnership is computed andta:ed li?e that o% a corporation. /his kind of partnership like aregular corporation is also re5uired
to file a 5uarterly corporate income
tax return. Ailing and payment of5uarterly return is within K daysafter the end of each 5uarter whilethe annual return is on or before
!pril 1, of the following year.
LIA'ILIT/ OF A PARTNER Rule+8
?. Share of a arter i !eeralrofe++ioal Parter+hi
a. 9ach partner shall report as gross income *business income+his distributed share actually orconstructively received in thenet income of the partnership.(4ec. 59, NIRC) Q/he same shareshall be subject to creditable
withholding tax of 1KC.R /heyare liable in their separate andindividual capacity .
b. Share of a partner in the lossof a general professionalpartnership may be taken by theindividual partner in his returnof income.
c. 9ach partner in a general
professional partnership shallreport as gross income hisdistributed share in the netincome of the 4&& based on hisagreed ratio whether he availsof itemi0ed or optional standarddeduction.
d. &ayments made to a partner ofa 4&& for services rendered shallbe considered as ordinarybusiness income subject to Sec.2$! *9ffective anuary 1 1FB2+
9. Share of a arter i Taxa(leor 'u+ie++ arter+hia. Share of a partner in the net
income of a taxable or businesspartnership *dividend+ shall besubject to a final tax as follows.
• :esident iti0en >on-
resident iti0en and:esident !lien *2KKK andonward+ 6 1KC (4ec. 5+35)
TAXATION LAW COMMITTEE CHAIRPERSON : Charmaine Torre ASST. CHAIRPERSON: Rhohail Ca!ro EDP : Rachelle Saya SUBJECT HEADS: Jemina
Sy, Casiano Ilagan, J., Ryan Co, E!"in Toes :#E#BERS: #ai$a %o&!es A'&, E!i'e Eni(&e', Chis$ian Ca)ea, Jh&n!ee*&illemo
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• >on-resident !lien engaged
in trade or business 6 2KC(4ec. 5/ A5)
• >on-resident alien not
engaged in trade or business6 2,C (4ec. 5/3)
b. Share of a partner in the lossof a taxable or businesspartnership maybe taken by theindividual partner in his returnof income.
c. &ayments made to a partner ofa business or taxable partnershipfor services rendered shall beconsidered as compensationincome subject to sec. 2$!.
7IN&S OF INCO;E TAXES%N&ER T#E NIRC
1. >et Income /ax2. Dptional orporate Income tax". %inimum orporate Income /ax$. Improperly !ccumulated 9arnings
/ax,. &referential :ates or Special :ates
of Income /ax. 4ross Income /ax(. Ainal Income /ax
B. Aringe ;enefits /axF. apital 4ains /ax
6?: NET INCO;E TAX
&EFINITION8 %eans gross income lessdeductions and'or personal andadditional exemptions (4ec. -, NIRC)
NET INCO;E TAX FOR;%LA9ntire Income*ess 9xclusions and Income subject
to Ainal /ax *e.g. &assive
Income+4ross Income*ess @eductions *and'or additional
exemptions if applicable+>et /axable Income
!ultiply by /ax :ate *C+
>et Income /ax @ue*ess /ax redit if any
Tax Still due= if a)
GROSS INCO;E
&EFINITION8 %eans all income derived fromwhatever source including but notlimited to the following /%ec. 32
a. ompensation)
b. 4ross income fromprofession trade or business)
c. 4ains form dealings inproperty)
d. Interests)e. :ents)f. :oyalties)g. @ividends)h. !nnuities)i. &ri0es and winnings)j. &ensions)k. &artner7s share in the
net income of the general
professional partnership
See Aex & for detailed discussionof items.
7 IN&S OF &I"I&EN&S?. Ca+h
ad Proert) &i5ided+Individual /axpayer
a. Arom @omestic orporations
• : >: :! 6? (4ec. 5+A)
• >:!9/; 6 9(4ec. 5/A5)
• >:!>9/; 6 9on gross income (4ec. 5/3)
b. Arom Aoreign orporations
• : >: :!>:!9/; 6 ,B9 (4ec. 5+,5/A)
• >:!>9/; 6 9on gross income (4ec. 5/3)
orporate /axpayera. Aoreign to @omestic orp. 6 B9
(4ec. -5A)b. @omestic to @omestic orp. 6
Exe3t) intercorporatedividends (4ec. 58")
c. @omestic to Aoreign orp. -
• :esident Aoreignorp. 6 Exe3t (4ec. 5 AD8d)
• >onresidentAoreign orp. 6 ? subjectto the condition stated in
TAXATION LAW COMMITTEE CHAIRPERSON : Charmaine Torre ASST. CHAIRPERSON: Rhohail Ca!ro EDP : Rachelle Saya SUBJECT HEADS: Jemina
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4ec. 5 3D /. Dtherwise itshall be taxed at B9. (4eeCommissioner vs. Procterand Gamble, GR No. 99-,
"ecember 5, 00)
9. Sto*D&i5ided+4eneral rule? Not subject to taxbecause it does not constituteincome) it represents transfer ofsurplus to capital account. (4ec.8-3, 008 NIRC)9xceptions?a. Sec. ("; 1FF( >I:
*1+ there is redemption orcancellation
*2+ the transaction involvesstock dividends and
#3$ the
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4. Co3e+atio for er+oal iurie+or +i*De++= whether () +uit ora!ree3etN1 ? /he phrase
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Ex*lu+io+Se*. B96':
&edu*tio+Se*. B@
:efer to flow of
wealth which are nottreated as part ofgross incomebecause?*1+ exempted by thefundamental law) *2+exempted by statute)*"+ do not comewithin the definitionof income
:efer to the
amounts which thelaw allows to besubtracted fromgross income inorder to arrive atnet income
&ertain to thecomputation of grossincome
&ertain to thecomputation of thenet income
Something earned orreceived by thetaxpayer which donot form part of grossincome
Something spent orpaid in earning ofgross income
&E&%CTIONS
&EFINITION? Items or amounts which thelaw allows to be deducted from grossincome in order to arrive at the taxableincome.
'ASIC PRINCIPLES GO"ERNING &E&%CTIONSa. /he taxpayer seeking a
deduction must point to somespecific provisions of the statuteauthori0ing the deduction) and
b. e must be able toprove that he is entitled to thededuction authori0ed or allowed.(Atlas Consolidated !ining E "ev.Corp. vs. Commissioner, GR No. *'590, on-resident foreigncorporation
CLASSES OF &E&%CTIONSIdi5idual+
a. with gross compensationincome from employer-employeerelationship only
*1+ premiumpayments on health and'orhospitali0ation insurance*2+ personaladditional exemptions
b. gross income frombusiness or practice of
profession*1+ DptionalStandard @eduction *DS@+*2+ Itemi0eddeductions*"+ premiumpayments on health and'orhospitali0ation insurance*$+ personaladditional exemptions
9. Cororatio+
• Itemi0ed @eductions
7 IN&S OF &E&%CTIONSa. Otioal +tadard dedu*tio+ 6OS&:
–1KC of the gross income. /he DS@ may be availed of
only by individuals *exceptnonresident alien+ who are notpurely compensation incomeearners.
b. Per+oal ad additioal exe3tio+!vailable only to individuals
*business income and compensation
income earners+.
TAXATION LAW COMMITTEE CHAIRPERSON : Charmaine Torre ASST. CHAIRPERSON: Rhohail Ca!ro EDP : Rachelle Saya SUBJECT HEADS: Jemina
Sy, Casiano Ilagan, J., Ryan Co, E!"in Toes :#E#BERS: #ai$a %o&!es A'&, E!i'e Eni(&e', Chis$ian Ca)ea, Jh&n!ee*&illemo
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>:!9/; may be entitled topersonal exemptions *only+ subjectto reciprocity i.e.
a. the country of which he is asubject or citi0en has an incometax law) and
b. the income tax law of hiscountry allows personalexemption to citi0ens of the&hilippines not residing thereinbut deriving income therefromand not to exceed the amountallowed in >I:.
/he personal exemption shall bee5ual to that allowed by the income
tax law of his country to a citi0en ofthe &hilippines not residing thereinor the amount provided in the >I:whichever is lower.
Idi5idual+ not etitled to the+eexe3tio+8
a. >on-resident !lien notengaged in trade or businessb. !lien individualemployed by :egional or !reaead5uarters of %ultinationalompanies
c. !lien individualemployed by Dffshore ;ankingEnitsd. !lien individualemployed by &etroleum Serviceontractor and Subcontractor
c. Ite3iKed dedu*tio+a. ordinary and necessary
expensesb. interestsc. taxesd. lossese. bad debtsf. depreciation of property)g. depletion of oil and gas wells
and mines)h. charitable and other
contributions)i. research and development) '. pension trust contributions of
employees) andk. premium payments on health
and'or hospitali0ation insurance.*/his is the only deduction which
a compensation income earnermay claim as a deduction.+
d. Se*ial dedu*tio+
a. private proprietary educationalinstitutions and hospitals thatare non-profit (4ec. -+ A, 5)
b. insurance companies (4ec. -8)c. estates and trusts (4ec. 9)
PERSONAL EXE;PTIONS
A. A3out+ of Per+oal Exe3tio+9%ec. 350 N,RC:
1. P 9= 6 Single individual ormarried individual judiciallydecreed legally separatedwithout 5ualified dependentchildren.
2. P 9= 6 ead of the family ormarried individual judiciallydecreed legally separatedwith 5ualified dependentchildren.
3. P B9= 6 Aor eac# legallymarried individual.
#ead of the Fa3il)
1. Enmarried or legally
separated person with one orboth parents or one or morebrothers or sisters or one ormore legitimate recogni0ednatural or legally adoptedchildren living with anddependent upon the taxpayer fortheir chief support) andKChie% support means morethan one-half of there5uirements for support.
2. here such brother 'sister or children are not morethan 21 years of age unmarriedand not gainfully employed orwhere such dependentsregardless of age are incapableof self 6 support because ofmental or physical defect.
&arents brothers sisters and seniorciti0en with the tax payer whetherrelative or not may 5ualify thetaxpayer to the personal exemption of&2,KKK as head of the family but not to
the additional e:emption o% P,666 .
TAXATION LAW COMMITTEE CHAIRPERSON : Charmaine Torre ASST. CHAIRPERSON: Rhohail Ca!ro EDP : Rachelle Saya SUBJECT HEADS: Jemina
Sy, Casiano Ilagan, J., Ryan Co, E!"in Toes :#E#BERS: #ai$a %o&!es A'&, E!i'e Eni(&e', Chis$ian Ca)ea, Jh&n!ee*&illemo
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'. Additioal Exe3tio for&eedet+ 9%ec. 350 N,RC:& BKKK 6 Aor each of the 5ualified
dependent children notexceeding four *$+ innumber.
/he additional exemption refersonly to 5ualified dependent childrensuch as legitimate recogni0ed naturalillegitimate and legally adopted.
/he proper claimant of theadditional exemption is the husbandbeing the head of the family exceptunder the following cases?
1. usbandis unemployed
2. usbandis working abroad like an DA ora seaman
3. usbandexplicitly waived hi s right of theexemption in favor of his wife inthe withholding exemptioncertificate.
! Seior CitiKe is?
1. anyresident citi0en of the
&hilippines2. at leastsixty K years old includingthose who have retired fromboth government offices andprivate enterprises and". has anincome of not more than Sixtythousand pesos *KKKK+ perannum subject to the review ofthe >ational 9conomic@evelopment !uthority *>9@!+every three years.
&arents and dependents 5ualifythe taxpayer to the personalexemption of &2,KKK as head of thefamily but not to the additionale:emption o% P,666 .
N1 >:!9/; may deduct personalexemption *not additionalexemption+ but only to the extentallowed by his country to Ailipinosnot residing therein and shall notexceed the aforementioned
amounts. >:!>9/; cannot claim
any personal or additionalexemptions.
C. Cha!e of Statu+ 9%ec. 350 N,RC:
1. If thetaxpayer should marry or shouldhave additional dependentsduring the taxable year he mayclaim the correspondingexemptions in full for such year.2. If thetaxpayer should die during thetaxable year his estate mayclaim the correspondingexemptions as if he died at theclose of such year.". If the
spouse or any dependent shoulddie or any dependent shouldmarry or become twenty-oneyears old during the year orshould become gainfullyemployed the taxpayer mayclaim the exemptions as if thespouse or dependent died or asif such dependent marriedbecame twenty one years old orbecame gainfully employed atthe close of such year.
4. Aor anyother event and for which thereare no specific rules applicablefrom the above-mentioned thestatus of the taxpayer at the endof the year shall determine hisexemptions. (strictly construedagainst the ta:payer)9xamples?
• became legallyseparated 6 can only claim &2KKKK
• 2, years old child
became incapacitated 6cannot claim additionalexemption
ITE;IE& &E&%CTIONS
A. OR&INAR/ AN& NECESSAR/EXPENSES
NECESSAR/ EXPENSE 6 appropriate and helpfulin the development of taxpayer3sbusiness and are intended to minimi0e
TAXATION LAW COMMITTEE CHAIRPERSON : Charmaine Torre ASST. CHAIRPERSON: Rhohail Ca!ro EDP : Rachelle Saya SUBJECT HEADS: Jemina
Sy, Casiano Ilagan, J., Ryan Co, E!"in Toes :#E#BERS: #ai$a %o&!es A'&, E!i'e Eni(&e', Chis$ian Ca)ea, Jh&n!ee*&illemo
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losses or to increase profits. /hese arethe day-to-day expenses.OR&INAR/ EXPENSE 6 normal or usual inrelation to the taxpayer7s business and
the surrounding circumstance.
R E$%ISITES OF '%SINESS EXPENSE TO 'E &E&%CTI'LE
1. ordinary and necessary)2. paid or incurred w'in thetaxable year)". paid or incurred in carrying on atrade or business)$. substantiated with officialreceipts or other ade5uate records.,. if subject to withholding taxesproof of payment to the ;ureau of
Internal :evenue must be shown.. must be reasonable *when theexpense is not lavish extravagant orexcessive under the circumstances+
(. must not be contrary to law publicpolicy or morals.
N1 hile illegal income will formpart of income of the taxpayerexpenses which constitute bribekickback and other similar paymentbeing against law and public policy arenot deductible from gross income.
(4ubsec. A, , c)
CAPITAL EXPEN&IT%RE 6 !n expenditure thatbenefits not only the current period butalso future periods. It is not deductiblebut depreciable e:cept if the taxpayeris a non-profit proprietary educationalinstitution which may elect either todeduct the capital expense ordepreciate it.
See Aex E 6 ;usiness 9xpenses
See Aex F 6 eiling on
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of interest income earned which hadbeen subjected to final withholdingdepending on the year when the interestincome earned vi0?
"BC - beginning anuary 1 2KKK andthereafter
Ai3 of Li3itatio8 /o discourage so-called
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6. Interest calculated for cost keepingon account of capital or surplusinvested in business which does notrepresent charges arising under
interest-bearing obligation.(. Interest paid when there is no
stipulation for the payment thereof.
OPTIONAL TREAT;ENT OF INTEREST EXPENSE!t the option of the taxpayer
interest incurred to acBuire propertyused in trade or business may beallowed as a deduction or treated ascapital e:penditure. 4ec -+ (3)(-),NIRCD
C. TAXES
/axes mean TAXES PROPER= andtherefore no deductions are allowed for?
1. interest2. surcharges
3. penalties or finesincident to delin5uency (4ec. 6,Rev. Reg. 5)
R E$%ISITES FOR &E&%CTI'ILIT/1. must be in connection with
taxpayer7s business)
2. tax must be imposed by law on andpayable by taxpayer *direct tax+)and
". paid or incurred during the taxableyear.
TAXES N ) &E&%CTI'LE1. income tax)2. estate and donor7s tax)". special assessments)$. excess electric consumption tax),. foreign income tax war profits and
excess profits tax if the taxpayer
makes use of tax credit) and6. final taxes being in the nature of
income tax.
N1 /axes allowed as deductionswhen refunded or credited shall beincluded as part of gross income in theyear of receipt to the extent of theincome tax benefit of said deduction.*1a: 3ene%it Rule+
Aor >:!9/; and :A taxes paid orincurred are allowed as deductions only
if and to the extent that they areconnected from income within the&hilippines.
EXCEPTIONS to re5uirement that onlysuch persons on whom the tax isimposed by law can claim deductionthereof?
1. /axes ofshareholder upon his interest as suchand paid by the corporation withoutreimbursement from him can beclaimed by the corporation asdeduction.
2. !corporation paying the tax for the holder its bonds or other obligation
containing a tax-free covenantclause cannot claim deduction forsuch taxes paid by it pursuant tosuch covenant.
TAX CRE&IT
&EFINITION8 right of an income taxpayer todeduct from income tax payable theforeign income tax he has paid to hisforeign country subject to limitation.
W#O CAN CLAI; TAX CRE&IT1. resident citi0ens of the &hilippines2. resident aliens under the principle of
reciprocity". domestic corporations which include
partnerships except generalprofessional partnership
$. beneficiaries of estates and trusts,. members of beneficiaries of local
partnerships
W#O ARE N ) ENTITLE& TO TAX CRE&IT1. non-resident citi0ens
2. resident aliens if withoutreciprocity". resident aliens whose income is
derived solely from sources withinthe &hilippines
$. foreign corporations *resident andnon-resident+
FOR;%LA FOR CO;P%TING LI;ITATION?. Per *outr) li3itatio
/axable income from foreign country O &hil. M /ax redit
/axable income income tax 8imit
TAXATION LAW COMMITTEE CHAIRPERSON : Charmaine Torre ASST. CHAIRPERSON: Rhohail Ca!ro EDP : Rachelle Saya SUBJECT HEADS: Jemina
Sy, Casiano Ilagan, J., Ryan Co, E!"in Toes :#E#BERS: #ai$a %o&!es A'&, E!i'e Eni(&e', Chis$ian Ca)ea, Jh&n!ee*&illemo
http://for.the.holder.its.bonds/http://for.the.holder.its.bonds/http://for.the.holder.its.bonds/http://for.the.holder.its.bonds/
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from all sources
9. O5er,all li3itatio /axable
income from outside sources O &hil. M /ax redit/axable income income tax 8imit from all sources
1he alloable ta: credit is the Kloeramount beteen the ta: creditcomputed under No. and No. 5.
W#EN CRE&IT FOR TAXES ;A/ 'E TA7EN/he credit for taxes provided by
Section "K*+*"+ to *F+ may ordinarily betaken either in the return for the year inwhich the taxes accrued or on which thetaxes were paid dependent uponwhether the accounts of the taxpayerare kept and his returns filed upon theaccrual basis or upon cash receipts anddisbursements basis.
LI;ITATIONS ON CRE&IT FOR FOREIGN TAXES1+ /he amount of credit in respect to
the taxes paid or accrued to anycountry shall not exceed the sameproportion of the tax against whichsuch credit is taken which the
taxpayer7s net income from sourceswithin such country taxable under/itle II *income /ax+ bears to hisentire net income for the sametaxable year) and
2+ /he total amount of the credit shallnot exceed the same proportion ofthe tax against which such credit istaken which the taxpayer7s netincome from sources without the&hilippines taxable under /itle II*Income /ax+ bears to his entire netincome for the same taxable year.
&. LOSSES
LOSSES – refer to such losses which do notcome under the category of bad debtsinventory losses depreciation etc. andwhich arise in taxpayer3s professiontrade or business.
R E$%ISITES FOR &E&%CTI'ILIT/1. !ctually sustained during the taxable
year
2. onnected with the trade businessor profession
". 9videnced by a close and completedtransaction
$. >ot compensated for by insurance orother form of indemnity
,. >ot claimed as a deduction forestate tax purposes
6. >otice of loss must be filed with the;ureau of Internal :evenue ithin+/ days %rom the date o% discoveryof the casualty or robbery theft orembe00lement.
N1 /he taxpayer7s failure to recordin his books the alleged loss proves thatthe loss had not been suffered hence
not deductible. (City *umber vs."omingo and Court o% 1a: Appeals, GRNo. *'9,
8/19/2019 Taxation Memaid (Beda)
38/132
San Beda College of Law1
MEMORY AID IN TAXATION LAW
(3) /here has been nosubstantial change in theownership of the business orenterprise.
/here is no substantialchange in the ownership ofthe business when?#a$ not less than (,C in
nominal value of theoutstanding issued sharesis held by or on behalf ofthe same persons) or
#b$ not less than (,C of thepaid up capital is held byor on behalf of the sameperson.
N1 /he " year period shallcontinue to run notwithstandingthat the cor