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TAX NOTES (LEGAL GROUND)

Lectures of Atty. Japar B. Dimampao

Supplement Bar Material

STATE POLICY

Declared Policy of the State: (CodeRD!"N)

1) to promote sustainable economic growth through the rationalization of the Philippine

internal revenue tax system, incluing tax aministration!") to provie, as much as possible, an e#uitable relief to a greater number of taxpayers in

orer to improve levels of isposable income an increase economic activity!

$) to create a robust environment for business to enable firms to compete better in the

regional as well as the global mar%et!

&) the State ensures that the 'overnment is able to provie for the nees of those uner its

(urisiction an care

T#E !$I$R$

1) Po%er& a'd dtie& of the !IR$

*he B+ shall be uner the supervision an control of the -./ an its powers an uties

shall comprehen: (CODE ACE"P)

1) the assessment!

") collection of all national internal revenue taxes, fees, an charges!

$) the enforcement of all forfeitures, penalties, an fines!

&) execution of (ugments in all cases ecie in favor by the 0* an orinary courts

2) give effect an to aminister the supervisory an police powers conferre to it by the

0oe an other laws

") PO*ERS of the Co++i&&io'er of the I'ter'al Re,e'e$

1) to interpret tax laws an to ecie tax cases 3Sec &)!

") to obtain information an to summon, examine, an ta%e testimony of persons 3Sec 2)!

$) to ma%e assessments an prescribe aitional re#uirements for tax aministration an

enforcement 3Sec 4)!

&) to elegate powers 3Sec 5)!

2) to aminister oaths an ta%e testimony 3Sec 1&)!

4) to ma%e arrests an seizures 3Sec 12)!

5) to assign or re6assign internal revenue officers 3Sec 14 7 15)

RE-UISITES O. A /ALID TAX REGULATION 38+M+**+.9 ./ *; P.

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.EATURES O. OUR PRESENT INCO0E TAXATION

-

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1) iniviual income taxation

") corporate income taxation

- What are the basic features of individual taxation (S$P$ .$ E$ 0$)

A

5)+niviual income taxation aopte the Schedlar &y&te+ of ta1atio'

Schedlar Sy&te+ of Ta1atio'E is a system employe where the income tax treatment

varies an mae to epen on the %in or category of the taxpayer?s taxable income (an vs! Del

Rosario"!

Characteristics of schedular system of taxation:

a) +t gives or accors ifferent tax treatment on the income of iniviual taxpayer

b) +t classifies income

#anifestations$ 3that uner the iniviual taxation we aopte the scheular system of

taxation)

6C7 !7 P7 D27 I7 R7 R7 D7 A7 P%7 P7 P8

>ner Sec $"3a), income may be categorize as follows:

1) compensation income,

") business income,

$) professional income,&) income erive from ealings in property,

2) interest income,

4) rent income,

5) royalties,

A) iviens,

I) annuities,

1J) prizes,

11) winnings,1") pensions, an

1$) partner?s istributive share from the net income of the general professional partnership

*his is the manifestation that as far as iniviual income taxation, the income is

categorize

98*he ta1 rate& are 2ro4re&&i,e i' character *his is clear uner Sec "& 3a) Kou will notice

there that the tax base increases as the tax rate increases

:80odified 4ro&& i'co+e a& re4ard& co+2e'&atio' ear'er Moifie because in eterminingthe taxable compensation income, the only allowable euctions are personal an aitional

exemption Kou cannot euct the allowable euctions uner Sec $& from gross compensationincome

But as regars those iniviual taxpayers that erive business, trae or professionalincome, we aopte the 'et i'co+e &y&te+$ *his is so because uner Sec $&, allo%a3le

dedctio'& may be claime by iniviual taxpayers who erive business trae an professional

income

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a) *niform tax treatmentE this is sub(ect to iminishing corporate tax rates of $& 3Nan 1,

1IIA), $$ 3Nan 1, 1III), $" 3Nan 1, "JJJ) See 0hapter +@, Sec "5)

b)Does not cateorize income

98orporate taxpayer, particularly domestic corporations are entitled to deductions So, insofar

as omestic corporation an resient foreign corporation is concerne, we aopte here the netincome tax system

9ew provisions uner A&"&: 1J tax on improperly accumulate earningsof a corporate taxpayer

:8Pay a& yo file &y&te+has also been employe

0orporate taxpayer is allowe to aopt calenar or fiscal year perio 0orporate

taxpayer files corporate income tax return #uarterly n it also files the so6

calle /+98 -N>S*;- ;*>9

+n the case of iniviual taxpayer, the payment shoul not be later than pril 12

of every taxable year +niviual taxpayers are not allowe to aopt the so6calle

/+S08 K; P;+.-

O +ndividual taxpayers are allowe to aopt only the calenar year perio while corporate

taxpayershave the option either the calenar year perio of the fiscal year perio

Cale'dar year 2eriodE this covers the perio of 1"6month commencing from Nan 1 an ening

-ec $1

.i&cal year 2eriodE this is also a 1"6month perio commencing on any month or ening on any

month other than -ec $1

DE.INITION O. CERTAIN TER0S

GROSS INCO0E TAXATIONE is a system of taxation, where the income is taxe at gross

*he taxpayers uner this system are not entitle to any euctions

+n general, we aopte the 'et i'co+e ta1atio'because uner Sec $&, taxpayers are allowe to

claim the so6calle 88.0*+.9S

GROSS INCO0EE means all income erive whatever source, incluing but not limite to thefollowing: 6STP"IRR"DAP"PS8

1 0ompensation for services!

" 'ross income from trae or business or the exercise of a profession!

$ 'ains erive from ealings in property!

& +nterests!

2 ents!

4 oyalties!

5 -iviens!A nnuities!

I Prizes an winnings!

1J Pensions! an

11 Partner?s istributive share from the net income of the general professional partnership

NET INCO0E TAXATIONE income is taxe at net *he taxpayer may claim allowableeuctions

INCO0EE all wealth which flows in the taxpayer other than a mere return of capital +t inclues

all income specifically escribe as gain or profit incluing gain erive from the sale or

isposition of capital asset

,*D+C+. D0+N++1N: +t also means gains erive from 31) capital, 3") labor, or 3$) both labor

an capital incluing gains erive from the sale or exchange of capital asset

.OUR (;) Sorce& of INCO0E=6Cla!S8

a 0apital

b 8abor

c Both labor an capital

&

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Sale of property

;xample of income erive from capital LLL +nterest +ncome

;xample of income erive from labor LLL 0ompensation +ncome

;xample of income erive from both capital an labor LLL +ncome of an inepenentcontractor *he inepenent contractor provies wor% force, provies capital an erives income

from such capital

O +n determinin the profit from the sale of property, you shoul always be guie by this

formula:

mount eceive .r ealize 8;SS 0ost of Property P./+*

TAXA!LE INCO0EE 3the ol term is 9et +ncome) E means all pertinent items of gross

income specifie in the *ax 0oe le&& the euctions anFor personal an aitional exemptions,

if any, authorize for such types of income by this 0oe or other special laws 3Sec $1 of the

* of 1II5)

Shoter @ersion:ll pertinent items of ross income less allo'a%le deductions!

-$

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" +ncome erive from business, trae or profession E in this regar, the common forms of

business are merchanising business, farming business, mining business an manufacturing

business

$ +ncome from sale or exchange of property 3either real or personal property)

& +nterest +ncome2 ent +ncome

4 oyalties5 -iviens, which may be receive from omestic or foreign corporation

A nnuities

I Prizes an winnings

1J Pensions

11 Partner?s istributive share in the net income of general professional partnership 3Professional

income of a partner)

? CO0PENSATION INCO0E

*ax Situs:Place 'here services are rendered So, if services are renere within the Phils, that

is a 8ocal +ncome +f it is a payment for services renere outsie the Phils, that is an income

without

0 E income from within an without are taxable90 E only compensation income from sources within is taxable

E same as 90

?!USINESS INCO0E60: .8a) Merchanising Business

b) /arming Business ax Situs$Place 'here these

c) Mining Business %usiness are underta4en

) Manufacturing Business

ax Situs$

31) if the goos are manufacture in the Phils n sol within the phils *his is consiere as

income derived purely within!

3") 'oos manufacture outsie the Phils an sol outsie E income derived purely without.

3$) 'oos manufacture within the Phils an sol outsie the Phils E income partly within and

partly without.

3&) 'oos manufacture outsie the Phils an sol within the Phils E income partly within and

partly without.

? INCO0E .RO0 SALE OR EXC#ANGE O. PROPERTY

+f it involvespersonal property, in etermining the tax situs, we have to consier

the place of sale

+n the case of sale of transport documents, tax situs is the place where the

transport ocument is sol 3B.0 0ase)

+f it involves real property, the tax situs is the place or location of the real

property So, if the property sol is situate within the Phils, the income erive

from such sale is consiere as income within

? INTEREST INCO0E

*ax Situs:RS+DNC of the D51R

Case$*here was this contract regaring the construction of ocean6going vessels *here was this

issuance of letter of creit an the payment of ownpayment ll the elements of the transactionstoo% place in Napan *he payment was mae in Napan *he letter of creit was execute in Napan*he elivery was mae in Napan *he de%tor is a domestic corp

+s the interest income on this loan evience by the letter of creit taxable to the Napanese

corp

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6.D$ '!, because the tax situs of interest income is not the activity %ut the residence of the

de%tor! he place 'here the contract of loan is executed is immaterial!

? RENT INCO0E*ax Situs: the P.C of property su%&ect of the contract of lease!

? ROYALTIES*ax Situs: the P.C 'here the intani%le property is *SD

? DI/IDENDaReceived from domestic corp E this is an income purely within

bReceived from forein corp E consier the income of the foreign corp in the Phils uring the

last preceing three 3$) taxable years!

rules$31) *he income is purely 'ithinif the income erive from the Phil sources is more than A2

3") +t ispurely 'ithoutif the proportion of its Phil income to the total income is less than 4J

3$) here should %e an allocationif it is more than 2J but not exceeing A2

? ANNUITIES

*ax Situs: the P.C 'here the contract 'as made

? PRI@ES AND *INNINGS

Prizes may %e iven on account of services renderedE in which case, the tax

situs is the 2lace %here the &er,ice& %ere re'dered

+f these prizes are not iven on account of services, the tax situs is the 2lace

%here the &a+e %a& 4i,e'

ax situs of 'inninsis the place where the same was given

?PENSION*ax Situs:P.C 'here this may %e iven on account of services rendered

?PRO.ESSIONAL INCO0E O. PRO.ESISONAL PARTNERS

*ax Situs:P.C 'here the exercise of profession is underta4en

GROSS INCO0E

GROSS INCO0EE means all income erive from whatever source, incluing but not limite

to the following:

)'L()!'06code STP"IRR"DAP"PS8

1 compensation for services

" gross income from trae or business or the exercise of a profession

$ gains erive from ealings in property

& +nterests

2 ents

4 oyalties

5 -iviens

A nnuities

I Prizes an winnings

1J Pensions an

5

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11 Partner?s istributive share from the net income of the general professional partnership (Sec!

78 of R of 9::;"

%+L()!'(6code LAGCIR08

1 procees of life insurance policy" amount receive by the insure as return of premium

$ gifts, be#uests, evises or escent& compensation for in(uries or sic%ness

2 income exempt uner treaty

4 retirement benefits, pensions, gratuities

and others: (.7 /7 R7 S7 S7 G)

a retirement benefits receive from foreign institution whether public or private

b veteran?s benefits

c retirement benefits receive from private firms whether iniviual or corporate

separation pay

e SSS

f 'S+S

5 miscellaneous items:

a prizes an awars given in recognition of religious, charitable, scientific, eucational,artistic, literary, or civic achievements

0.9-+*+.9S:

1 the recipient was selected 'ithout any action on his part to enter the contest or

proceeing" the recipient is not re

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$ ny amount expene in restoring property or in ma%ing goo the exhaustion thereof for

which an allowance is or has been mae! or

& Premiums pai on any life insurance policy covering the life of any officer or employee, or of

any person financially intereste in any trae or business carrie on by the taxpayer , iniviual

or corporate, when the taxpayer is irectly or inirectly a beneficiary uner such policy

1(ec. 23 B4.osses from sales or exchanes of property directly or indirectly >1 Between members of a family 3brother, sister of half or full bloo, spouse, ascenant, lineal

escenants)!

" ;xcept in case of istributions in li#uiation, between an iniviual an a corporation E more

than 2J in value of the outstaning stoc% of which is owne irectly, by or for such an

iniviual! or

$ ;xcept in case of istributions in li#uiation, between two corporations E more than 2J in

value of the outstaning stoc% of each of which is owne, irectly or inirectly, by or for same

iniviual, if either one of such corporation is a personal holing company or a foreign personal

holing company! or

& Between the grantor an a fiuciary of any trust! or

2 Between fiuciary of a trust an the fiuciary of another trust, if the same person is a grantor

with respect to each trust! or4 Between a fiuciary of a trust an a beneficiary of such trust

TAXA!LE INDI/IDUALS

RESIDENT CITI@ENS (RC)

+ncome from 'ithin and 'ithoutE taxable

NON"RESIDENT CITI@ENS (NRC)

+ncome from 'ithin

When an NRC returns to the Phils!3 his income may also %e taxed as ResidentCitizen or Non-Resident Citizen!

+llustration$, an .0

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O e must be an alien iniviual who is not resiing in the Phils an not engage in trae or

business in the Phils

O6e is one 'hose stay in the Phis!is not more than 9 days

SPECIAL NON"RESIDENT NOT ENGAGED IN TRADE OR !USINESS (SNRA"NET!)

5 Those employed by0(ROP)1 egional or rea ea#uarters of Multinational corporations!

" .ffshore Ban%ing >nits!

$ Petroleum Service 0ontractors

NON"RESIDENT ALIEN ENGAGED IN TRADE OR !USINESS (NRA"ET!)

E considered as enaed in trade or %usiness if his stay is more than 9 days

L

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Pro%lem$

obtaine a life insurance policy for B B is the presient of ?s corporation 0orp has

an insurable interest in the life of its officers, so premiums may be pai by the employer >pon

the eath of B, his esignate beneficiaries will receive the procees

a +s the amount representing the procees of the life insurance policy taxable

b

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?GI.TS7 !E-UESTS a'd DE/ISESB

ationale:

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O2overnment-o'ned and controlled corporations are no' su%&ect to corporate income tax,

except:

a SSS

b 'S+Sc Phil ealth +nsurance 0orp

P0S.e P'0.

Situation: municipality erive income from holing a fiesta

Rle: *he rule is settle that holing a town fiesta is consiere a proprietary function *herefore,

sai income is sub(ect to tax

Situation: municipality erive income from the operation of public mar%et, electric power

plant an other public utilities

Rle: *hat income is tax exempt

d. )ncome derived from investment in the #hils. 1=4 by foreign government or 1>4

financing institutions, owned, controlled or financed by foreign government, regionalor 124 international financing institutions established by foreign government

;R>+S+*;S:

9! Recipient must %e$a foreign government!

b financing institution owne, finance or controlle by foreign government!

c regional financing institution, international financing institution establishe by

foreign government!

" +t must %e an income derived from investment in the Phils

Sources of such income:

666 +t may be in the nature of bons So, foreign government here may be consiere the creitorE possible income here is the i'tere&t of 3o'd& 9ow, loans may be extene E possible income

here is i'tere&t o' loa'&

666 +f a forein overnment or financin institutionmae a eposit in a ban%, Phil currency

eposit E the income here is the nature of i'tere&t i'co+e

666 +f aforein overnmentmae an investment in a omestic corporation +t may be consiere a

stoc%holer n a stoc%hler is entitle to ivien ence, the di,ide'd i'co+e receive from

omestic corporation is ta1 e1e+2t

OO +f the recipient of such ivien is a re&ide't forei4' cor2oratio'that is also ta1 e1e+2t +t

is only sub(ect to tax if the recipient of such ivien is a 'o'"re&ide't forei4' cor2oratio'

Ca&e;=+MB9Q, which is a consortium of Napanese ban%s, extene a loan in the amount of

S"JM to Mitsubishi Metal 0orp, a Napanese corporation *he same amount was extene by

Mitsubishi as a loan to tlas 0orp, a omestic corporation

*he contract entere into between Mitsubishi Metal 0orp is enominate as Ccontract of

loan an saleD +t is a contract of loan because Mitsubishi woul len tlas S"JM +t is a contract

of sale because uner the contract tlas boun itself to sell the concentrates 3this is a mining

corp) that may be prouce by the concentrator machineFe#uipment purchase through the use of

the S"JM for a perio of 12 years

*his being a contract of loan, Mitsubishi is entitle to interest on loan

+SS>;:

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;8-: *here was no evience to the effect that Mitsubishi is an agent of ;=+MB9Q +t is a

mere allegation that has not been proven

+n a contract of loan, once the loan is consummate, the amount becomes exclusiveproperty of the borrower +t is no longer consiere the money of ;=+MB9Q ence, the

interest of such loan shoul be sub(ect to tax

*he lener is not a tax exempt entity *he creitor here is Mitsubishi an it is not a tax

exempt entity Such being the case, tax exemption must be strictly construe against the taxpayer

an liberally in favor of the government CLASSI.ICATION O. INCO0E

5$ CO0PENSATION INCO0Ean income erive uner an employee6 employer relationship

his may include the follo'in: 3*E!!"DROP)

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*ages, Emoluments, !onuses, !enefits, Director?s fee, *axable Retirement Benefits, Other

items of income of similar nature, *axable Pensions

O$etirement benefits may be sub6ect to tax, if it oes not comply with the provision of Sec $"

3b) par 4 subpar a

O #ensions may be sub6ect to tax, if it is given not in accorance with the conitions lai ownuner that exclusion provision

O !ther items of income of similar nature may include: (C#A0P)

0lothing allowance, ospitalization allowance, llowances for /oo, Meical allowance, Share

from the Profit sharing plan of the employee

O T%(T( T! D%T%$")'% ;&%T&%$ A' )'!"% )( !"#%'(AT)!' or '!T0

/in out whether it is receive uner an employer6employee relationship

ny payment receive uner an employer6employee relationship is compensation

income

OT%(T( T! D%T%$")'% T&%$% %+)(T( A' %"#L!:%$%"#L!:%%$%LAT)!'(&)#0 1AD4

1 ppointment 3selection an hiring)

" 0ompensation

$ -ismissal power

& 0ontrol test

N$!$: *he name or esignation of income is immaterial *he basis of the income is immaterial

an the manner by which it is pai, is also not important s lon as it is iven under an

employer-employee relationship3 then that is compensation income

A'%LLAT)!' !8 )'D%BT%D'%(( E 0onsiere as compensation income is the

inebteness ha been cancelle in consieration of the services renere

OOO Share of the employee from the PR10+ S6R+N2 P.N of the employer-0ompensation

income receive in consieration of services renere

TA+ L)AB)L)T: !8 T&% %"#L!:%% #A)D B: T&% %"#L!:%$ @0ompensation income

if pai uner an employer6employee relationship in consieration of services renere

#$%")"( #A)D B: T&% %"#L!:%$ !' T&% )'($A'% #!L): !8 T&%

%"#L!:%% @0ompensation income if the beneficiary esignate is the family of heirs of the

employee

OOO he %asis of the income is immaterial ;ven if it is pai in piece wor%, fixe rate orpercentage basis as long as it is pai uner an employer6employee relationship

$%

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1 0ompensation for services renere by independent service contractor *his may be treate as

trae or business income

" +ncome erive by professionals from the practice of profession uner professional

partnership *his is treate as professional income

OOO 8ringe benefit is considered as compensation income. *his is governe by Sec $$, *

1II5 *his is compensation income in the sense that this is receive uner an employer6employeerelatioship

D!T$)'% !8 A(& %

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Premiums 'ill %e taxed under Sec! 77 par!% no!9 it is state there: C8ife or health

insurance an other non6life insurance premiums or similar amounts in excess of what the

law allows

O+f the payment 'as received %y the employee 'hen he 'as no loner connected 'ith his

employer, it is still consiere compensation income

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$ 0ontributions of the employer for the benefit of the employee to retirement, insurance an

hospitalization benefits plans

& /ringe benefits which are authorize or exempte from tax uner special laws

2 *hose given for the convenience of the employer, incluing those which are re#uire by the

nature of the trae, business or profession of the employer (mployerFs Convenience Rule"

De minimis benefits3of relatively small value) E limite to facilities or privileges furnishe or

offere by employer to his employees merely as a means of promoting health, goowill,

contentment, or efficiency of employees, such as:

a Monetize unuse vacation leave creits not exceeing ten 31J) ays uring the year!

b Meical cash allowance to epenents of employees not exceeing P52J per semester of

P1"2 per month!

c ice subsiy of P$2J per month!

>niforms!

e Meical benefits

f 8aunry allowance of P12J per month!

g ;mployee achievement awars, for length of service of safety achievement in the form of

tangible personal property other than cash gift certificate, with an annual monetary value

not exceeing month of the basic salary of employee receiving the awar uner an

establishe written plan which oes not iscriminate in favor of highly pai employees!

h 0hristmas an ma(or anniversary celebrations for employees an their guests!

i 0ompany picnics an sports tournaments in the Philippines an are participate in

exclusively by employees! an( /lowers, fruits, boo%s or similar items given to employees uner special circumstances

on account of illness, marriage, birth of a baby, etc

5#rinciple of %mployer7s onvenience $ule0

6 fringe benefits may be exemptFnot sub(ect to tax if these are given for the benefit

or avantage of the employer

The following are the possible fringe benefits, which may be exempt under the %mployer7s

onvenience $ule0(# / # 0 T)

a ousing benefit

b @ehiclec ousehol personnel

Membership in a social or athletic club or similar organization

e *raveling expense benefit

O &ousing benefit E in etermining whether the same is exempt uner the employer?s

convenience rule, you have to consier the peculiar nature of the special nees of the employer$euisites for exemption0

1 +t must be mae as a condition for employmentL

" +t must beprovided 'ithin the premises of the employer

OOO *his may apply to a supervisor of a plant or a company

O+f the housin or livin

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O Traveling expense benefit E Peculiar nature re#uirement xample$ ;mployer sent his

employees abroa to atten a particular seminar to improve their technical %now6how

B R>;S*+.9: is a river of 0ongressman Magtanggol an he receive a monthly salary of

P2,JJJ an living #uarter allowance of P",2JJa

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ROYALTIES "J except in the

case of literary'or4s3 %oo4s and

musical

compositions 'hich

are su%&ect to 9Gfinal tax

Same as 0, 90,

"2

PRI@ES e1ceedi'4P57$

+f it is P93!

or less3 it is N1su%&ect to final tax

%ut the same must

%e included in otherincome 3eg

compensation,

business,professional)

"J

"J "2

*INNINGS except

PCS1 M .otto

"J "J "2

INTERESTS ON

!ANDEPOSITS7 etc

"J "J

"2

DI/IDENDS

RECEI/ED fro+do+e&tic cor2$7 etc$

Sub(ect toincreasing rates of

4 if receive in

1IIA! A in 1III!

an 1J in "JJJ

"J "2

S#ARE O. A

PARTNER i' the'et i'co+e after a

ta1 of a ta1a3le

2art'er&hi27 etc

6 o6

4, A 7 1J

"J "2

Ruestion: ow o you treat that share of a professional partner from the net income of a general6

professional partnership

nswer: *his shoul be taxe at the rate provie uner Sec"&, that is, 2 to $&

But as regards the share of a partner in the net income after tax of a taxable or

business partnership, that is one which is sub(ect to final tax

#$)E%( @may be exempt if given in sports competition an if given primary in recognition ofscientific, artistic, literary, eucational, religious, charitable, or civic achievement

INTEREST

$ules

1 +f it is an interest on forein currency deposit system3it is exempt

+f the recipient is non6resient iniviual 390, 96;*B, 969;*B)

" +f the recipient is a resident individual (RC3 R"3that is sub(ect to 52

$ +nterest income is also exempt ifit is an interest income on a long6 term eposit or long6term investment 3this must have a term of not less than 2 years)

)f the term is less than ? years it is sub6ect to the following rates:1 & years to less than 2 years 2

" $ years to less than & years 1"

$ 8ess than $ years "J

""

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D)*)D%'D $%%)*%D 8$!" D!"%(T) !$#!$AT)!'

1 his is exempt from tax ifthe recipient is a foreign government, financing institution,

regional financing institution, international financing institution establishe by foreign

government Gsee Sec$" 3B) 35) 3a)H

" +t is also exempt if the recipient of such ivien is another omestic corporation orresient foreign corporation Gsee Sec "A3)35)3)H

A#)TAL 9A)' D%$)*%D 8$!" (AL% !8 (&A$%( !8 (T!

Listed and traded through local stoc/ exchange @this is not sub(ect to income

tax but sub(ect to percentage tax of of 1 of the gross selling price

'ot listed and traded through local stoc/ exchangeE this is the one sub(ect to

income tax

9ot over P1JJ,JJJJJ 2

mount .ver P1JJ,JJJJJ 1J

+f the share of stoc4 is not listed and traded throuh local stoc4 exchane, the

basis of the tax is net capital gain So, you shoul first euct the capital loss

+f listed and traded throuh local exchane, there is no euction allowe

because the basis of the tax rate of of 1 of the gross selling price

he a%ove-mentioned tax rates apply to all individual taxpayers!

5 A#)TAL 9A)' D%$)*%D 8$!" T&% (AL% !8 $%AL #$!#%$T:6 *he real property involve must be consiere 0P+*8 SS;*

6 *he tax on capital gain erive from the sale of real property is 4 of the gross selling price or

zonal value which ever is higher

O CAPITAL ASSET property held %y the taxpayer 'hether or not connected in his trade or

%usiness except: (code SOUR)

1 Stoc% in trae or other property of any %in which woul be inclue in the inventoryof the taxpayer if on han at the en of the taxable year

" Property primarily hel for sale to customers in the .rinary course of trae or

business

$ Property >se in trae or business sub(ect to epreciation

& eal property use in trae or business

T *he efinition of capital asset says Creal property hel by the taxpayer whether or not

connecte with his trae or business except real property use in trae or businessD So, in

order to %e a capital asset3 the real property must %e one not used in trade or %usiness

T *hat is why, the sale of resiential house an lot is sub(ect to 4 of capital gains because it

is a real property not use in trae or business

T But, sale of real property by a real estate dealer is not a capital transactionbecause the

property involve is one primarily hel for sale to customer in the orinary course of trae

or business *hat is not a capital asset %ut an ordinary asset

T *his covers not only CsaleD of property! it also covers conitional sale of real property

incluing the so6calle pacto de retro sale uner rt 14J" of the 900, or isposition ofproperty locate in the Phils

T +f the %uyer is the overnment or any of its political su%-divisions or political aencies3

includin overnment o'ned and controlled corporations3the seller have the option to avail

"$

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the 4 or uner Sec "&3), wherein the basis uner sai section is taxable income so

euctions may be allowe *he cost of the property may be eucte but when you avail of

the 4, the basis is gross selling price or zonal value whichever is higher

T +s this a tax on the buyer or the seller+t is a tax on the seller But sometimes, through an agreement, p'ede nilan +-transfer sa

%uyer3 an there?s nothing that can prevent the seller from transferring the tax to the buyer inthe contract of sale

OT#ER INCO0E

O !T&%$ )'!"% includes6code R$I$D$O$8a ent income other than royalties

b +nterest income other than interest income on ban% eposit

c -ivien income

+ncome from .ther sources an this may inclue: (!IT"CDC)1 Ba ebts recovere

" +llegal gains erive from gambling

$ *ax funs

& 0ompensation for private property expropriate by the

government for public use

2 -amages

4 0ancellation of inebteness

5$ $%'T 6 0ompensation for the use of one?s property

6 *he payment may be in cash or in %in *he property involve is either

personal or real property

6 +n the case of personal intani%le property3sub(ect to final tax if it involves

intellectual property, copyright, traemar%s etc

T&% 8!LL!;)'9 !'(T)TT%( TA+ABL% $%'T )'!"%0

1 *he re4lar re'tmay be monthly, semi6annually or annually

" Additio'al re't i'co+ewhich inclues:

a !bligation of the lessor assumed by the lessee*he following are obligations which

may be assume by the lessee: 6R$I$D$I$O$8a1 eal property taxe on lease premises

a" .bligation to pay insurance premium on the insure lease premises

a$ +f the lessor is a corp, the obligation to istribute -iviens to its stoc%holers

a& .bligation to pay interest on the bons issue by the lessor

a2 .ther obligations of the lessor which may be assume by the lessee

b *alue of permanent improvements on leased premises *his may be reportethrough:

b1 1utriht methodat the time of permanent is complete, he may report that as

aitional rent income E /M@ of the builing or permanent improvement

b" Spread out method by allocating the epreciation among throughout the

remaining term of the lease

c. Advance rentals

c1 +f in the nature of the prepai rentals without restriction on the use of the

amount, it is taxa%le

c" +f it is in the nature of security eposit, it is taxa%lerent income if there is aviolation of the term of the lease

c$ +f it is in the nature of a loan to the lessor, it is not taxa%le

>. )'T%$%(T )'!"%E compensation for the use of money6

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6 +nterest income on ban% eposits is sub(ect to final tax

2. D)*)D%'D )'!"%E amount eclare, set asie an istribute by the Boar of -irectors

to stoc%holers, on eman or a fixe perio

lasses of Dividend$GC$L$I$P$S$S$HCash dividend

.i

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" 969*B

$ liens employe

M0

B .B>

0 PS0& 9/0

As regards corporate taxpayers, the following are entitled to claim allowabledeductions0

1 -0, which inclues private eucational institutions, non6profit hospital, government6owne

an controlle corps

" /0

ITE0I@ED DEDUCTIONS 6E7I$T7L7!7D7D7C7R7C81 ;xpenses 4 -epreciation

" +nterests 5 -epletion of oil, gas, wells an mines

$ *axes A 0haritable contributions

& 8osses I esearch 7 -evelopment

2 Ba ebts 1J 0ontribution to Pension *rust

O +n the case of individual taxpayers, they may avail of the optional standard deduction of 9G

of ross income

OCorporate taxpayersare not allowe to claim 1J optional stanar euctions

O ll iniviual taxpayers except the 9 iniviual may claim this optional stanar

euctions

O)temi-ed deduction may apply to corporate taxpayers as well as individual taxpayers

5 8'DA"%'TAL #$)')#L% )' D%DT)!'(

1 *he taxpayer must prove that there is law authorizing euctions

" *he taxpayer must prove that he is entitle to euctionsOOONR0C are not entitled to claim deductions

5$ EXPENSES

!$D)'A$: F '%%((A$: %+#%'(%(

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INDS O. ORDINARY F NECESSARY EXPENSES 6C$A$R$T$E$R$S$8

1 0ompensation for services renere

" vertising 7 promotional expenses

$ ent expenses& *ravelling expenses

2 ;ntertainment expenses4 epairs 7 maintenance expenses

5 Supplies an materials

!""!' $%ner the 0S BS+S, an expense is recognizewhen it is P+-

C+90>;-D E implies that the taxpayer employs the 00>8

BS+S >ner the 00>8 BS+S, income is recognize

when earne regarless of the receipt of the same an

the expense is recognize when incurre

b #ust %e paid or incurred in connection 'ith the trade3 %usiness or profession of the

taxpayer!

c #ust %e proven %y RC+PS!

SPECIAL RE-UISITES .OR DEDUCTI!ILITY O. T#ESE ORDINARY F

NECESSARY EXPENSES

=. !"#%'(AT)!' 8!$ (%$*)%( $%'D%$%D

*his must be reasona%le, meaning, this must not be ostensible

Ca&e 5: Partnership was sol to a corp an it was agree that the partners will serve the corp an

ma%e it appear that they rener services So, compensation for services was ostensibly mae by

the corp

#eld *hese is a mere ostensible salary or payment for services not actually renere

because that amount really forms part of the properties purchase by the corp

Ca&e 9: 0orporate officers succeee in selling the property of the corp So, profit was erive

therefrom Bonuses were given to these corporate officers

#eld *he rule is settle Bonuses must be given in goo faith *here must be services

renere because bonuses are aitional compensation +n this particular case, there was really no

services renere because that sale was mae through a bro%er *he corp mae it appear that it

was through the efforts of these corporate officers that brought about a successful sale of

property

5onuses must %e iven in ood faith and in determinin 'hether %onuses 'ill form part

of the compensation for services rendered3 you have to consider the 31) nature of the business, 3")the financial capacity of the taxpayer an 3$) the extent of the services renere

>. AD*%$T)()'9 A'D #$!"!T)!'AL %+#%'(%(

6 +t must be reasona%le!

Ca&e: Sugar -ev?t 0orp pai P1"2,JJJJJ to lgue 0orp representing promotional expenses

"5

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#eld *his is reasonable uner the circumstances because the particular buget sub(ect for

promotion involves million of pesos n uner that circumstances, the P1"2,JJJJJ is

reasonable as this may coincie with the efforts exerte consiering that the taxpayer has no

venture in that experimental pro(ect to establish that vegetables of investment company an this

involves millions of pesos

2. $%'T %+#%'(%a *he taxpayer must N1 %e the o'nerof the property or he has no e#uitable title over

the property

b *his is su%&ect to 'ithholdin tax!Kou cannot claim that the taxes suppose to be

withhel have not been pai or remitte to B+

C. T$A*%LL)'9 %+#%'(%(

6 *his must be incurred or paid 'hile Ka'ay from home)!

6 K6ome)oes not refer to your resience but to the station assignment or post

xample$ /rom home office to branch office, the traveling expenses incurre are

euctible n this inclues not only the transporatiotion expenses but also meal allowance anhotel accommoations

?. %'T%$TA)'"%'T %+#%'(%(

6 *his must not %e contrary to la'3 morals3 ood customs3 pu%lic policy or pu%lic order

6 ence, %ri%es3 4ic4%ac4s3 and similar payments are not deducti%le

6lso, the expenses incurre by the taxpayer in entertaining gov?t officials in 26star hotel to gain

political influence are not euctible

3. $%#A)$( A'D "A)'T%'A'% %+#%'(%(

6 1nly ordinary or minor repairs are deducti%le!

- xtra-ordinary repairs cannot %e claimed as deductionan in lieu of that, the taxpayer may not

be allowe to claim epreciation

- +f the cost of the repair increases the life of an asset for a period of more than one (9" year3 that

amount is consiere extra6orinary repair 1ther'ise3it is consiere orinary repair

G. (##L)%( A'D "AT%$)AL(

6his must %e actually consumed durin the taxa%le year!

6 RULE ON SU!STANTIATIONsimply re

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nswerFel:

9., because there is no obligation or inebteness +t is the fault of the employees in

case they faile to claim their salaries

Ruestion ":

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a" brothers an sisters

a$ escenants an ascenants

b %et'een t'o (8" corporations o'ned or controlled %y one individual!e must have a

controlling interest over these two corporations ., if one corp is consiere as

personal holing company of another corpc! %et'een a corp! and an individualL that individual o'ns or controls more than =G

of the outstandin capital stoc4 of the such corp! parties to a trust!

1 grant or fiuciary

" fiuciary of one trust an fiuciary of another trust but there is only one

grantor

$ beneficiary an fiuciary

OKour %nowlege of relate taxpayers is also important in etermining whether losses

are euctible or not +f losses 'ere incurred or paid in connections 'ith the

transactions %et'een these related taxpayers3 these are not deducti%le!

Ruestion: ow much interest expense is euctible

nswer: *he interest that may be claime as euctions shall be reuce

by:

a &1 6 Beginning Nanuary 1, 1IIA

b $I 6 Beginning Nanuary 1, 1IIIc $A 6 Beginning Nanuary 1, "JJJ of the income sub(ect to final tax

#P. 10 +NC1# S*5,C 1 0+N. $

1 interest on ban% eposit

" interest on eposit maintaine uner the foreign currency eposit system

So, if the interest income on ban% eposit amounte to P1JJ,JJJJJ n the total interest

expense incurre or pai by the taxpayer is P"JJ,JJJJJ +f this is incurre in 1IIA, &1 ofP1JJ,JJJJJ is P&1,JJJJJ *hat P"JJ,JJJJJ interest expense incurre or pai, shoul be

reuce to P&1 of that P1JJ,JJJJJ to arrive at P12I,JJJJJ which is the interest that may be

claime as euction

P"JJ,JJJJJ

6 &1,JJJJJ

66666666666666666666666 P12I,JJJJJ

*he rule has been establishe that S are N1 1RD+NRB 15.+2+1NS But the

Supreme Court in t'o (8" cases relaxed the distinction %et'een taxes and ordinary o%liations

1 *he interest on deficiency donor7s tax is deductible *he S0 explaine that taxes here areconsiere obligations or inebteness n it rule that we have to relax the istinction

between tax an orinary obligation in this respect

" )nterest on deficiency income tax can also be claimed as deductible interest expense

because taxes here are consiere orinary obligations

:$ TAXES

$%

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T&% 8!LL!;)'9 A$% '!'D%DT)BL% TA+%( 6S$I$N$E8

1 SPC+. SSSS#NE tax impose on the improvement of a parcel of lan

" +NC1# E *his inclues foreign income tax +n this regar, the so6calle foreign

income tax may be claime as a euction from gross income or this may be claime as taxcreit against Phil income tax +n the event that he claims that as tax creit, he can no

longer claim the same as euction

$ *axes which are N1 C1NNCD W+6 6 RD3 5*S+NSS 1R PR10SS+1N

10 6 PBR

& S 3 D1N1RFS 3see also iscussion on tax benefit rule)

TA+ A( D%DT)!'( vs. TA+ $%D)T

T *axes as euctions may be claime as euctions from gross income

T *ax creit is a euction from Phil income tax

T *ax as euction inclues those taxes which are pai or incurre in connection with the

trae, business or profession of the taxpayer owever, the sources of a tax creit is foreignincome tax pai, war profit tax, excess profit tax pai to the foreign country

T *he foreign income tax pai to the foreign country is not always the amount that may be

claime as tax creit because uner the limitation provie uner the *ax 0oe, it must not

be more than the ratio of foreign income to the total income multiplie by the Phil income

tax

T *axes are euctible only by the person upon whom the tax is impose

xcept$

1 Share holer

" corporate bons 6 tax free 0ovenant clause

The following are entitled to claim tax credit0

10 " -0

;$ LOSSES

CLASSI.ICATION O. LOSSES 6O$ C$ *$ C$ S$8

1 !$D)'A$: L!((%(E losses sustaine in the course of trae,

business or profession of the taxpayer

" A#)TAL L!((%(E the assets that must be involve there must be

capital assets

Ca2ital Lo&&e& i'clde the follo%i'4a 8oss arising from failure to exercise privilege to sell or buy property

b

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b Storm

c shipwrec%

.ther casualty losses

e obbery

f ;mbezzlementg *heft

2(#%)AL L!((%(E include the following$

a! loss arisin from voluntary removal of %uildins as an incident to rene'al or replacement

Problem:

Suppose the taxpayer ha a builing constructe on a parcel of lan e owne this

as well as the builing erecte thereon e ha business an his business was

conucte within the premises *hen, he ecie to remove such builing as to

construct a new builing for new business

+s the cost of emolition to give way to a new builing euctible loss YES$

Suppose purchase that parcel of lan of B an inclue in that sale was that of thebuiling emolish this builing in orer to construct a new builing +s the cost of

emolition euctible insofar as is concerne

NO$ *hat can only be claime as euctions if the one emolishing the same is thetaxpayer *he moment that is sol to another claim that as euctible loss *he

treatment here is, the cost of emolition shoul be capitalize in the selling price

E1ce2tio': may claim that as euctible loss if this was emolishe by value of a

court orer because the gov?t consiere this as a fire hazar, loss of useful value of

property or capital asset

T&% !""!' $%

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$ +f he faile to pay, refer the case to a lawyer!

& +f lawyer may sen a eman letter to the ebtor!

2 +f the ebtor still fails to pay the same, file an action in court for collection

+n provin that the de%tor is insolvent of %an4rupt, mere allegation of the same is notenough Kou shoul prove that the ebtor is inee ban%rupt or insolvent So, you may

secure a copy of that decision %y the SCor other agency as the case may be, eclaringthe ebtor as ban%rupt or insolvent n then there must be a eman letter sent to him

+n case the de%tor 'as ro%%ed, there must be apolice reportto that effect

*he de%tor may %e a NR0C, so you may argue that he may not be sue here ccoring

to the Supreme 0ourt, as a rule that is not an excuse Kou shoul still send a demand

letter to that NR0C +n other wors, there must %e dilient efforts to collect the

inde%tedness and to prove that in the near future such o%liation is no loner collecti%le

OOO +f the recovery of %ad de%ts3 resulted in a tax %enefit to the taxpayer, that is taxable+f it

did not result in any tax %enefit to the taxpayer, that is not taxable (TAX !ENE.IT

RULE)

9B ea the case ofPhil! Refinin Company vs! Commissioner, a 1IAI case

$ DEPRECIATION

he idea here is not to recover profit3 %ut to recover the cost of property invested in

%usiness

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K$ RESEARC# F DE/ELOP0ENT PROGRA0

This may not be claimed as deduction if the amount is:

1 Spent for the ac#uisition or improvements of lan or for the improvement or

evelopment of natural resources

" Pai or incurre for the purpose of ascertaining the existence, location, extent or

#uality of any natural resources li%e eposits of ore or other minerals incluing oil or gas

5$ CONTRI!UTION TO PENSION TRUSTS

$%

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b -epenent upon the taxpayer for chief support!

c >nmarrie!

9ot gainfully employe!

e 9ot more than "1 years ol except if physically or mentally incapacitate

T -epenent is consiere Cliving with the taxpayerD even if the former or the latter are not

physically together if that is brought about by force of circumstances xample if one of theparents will have to unergo by6pass operation in the >S

TChief S22ortE means more than 2J of the nees of the epenents are provie by the

taxpayer

Pro3le+: +f the chil or the brotherFsister got marrie an then he has foun to be physically or

mentally incapacitate, so bumali% si tatay at epenent sa tatay for chief support, can he #ualify

as epenent

A'&%er 9o,physical or mental defect applies only to ae re

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1 Personal, living or family expenses

" *hose which are consiere capital expenses Capital expendituresmay be one that may

increase the value of an asset

$ ;xtra6orinary repair expene to restore the property, or ma%ing goo its exhaustion

xtra-ordinary repairis one that may prolong the life of an asset for more than one 31) year

Kou cannot claim the same as euction +nstea, you may claim it as allowance for

epreciation

& Premiums pai on the life insurance policy of the officer or employee of the employer, when

the employer is irectly or inirectly esignate as beneficiary

2 8osses from sales or exchanges of property between relate taxpayers

RULES

T Premiums paid on the insurance policy of the officer or employee may %e claimed as

deduction %y the employer3+f the beneficiary is the family or the heirs of the officer or theemployee

T +t is not deducti%le on the part of the employer3 +f the beneficiary esignate irectly or

inirectly is the employer +f the %eneficiary desinated is the creditor or the heirs of the

employer3 the esignation is inirect! hence, that premium is not euctible

T .n the other han, on the part of the employees, these premiums may be a taxable

compensation income +t is taxa%le compensation income on the part of the employee if the

beneficiary esignate is the family of heirs of the employee

T Therefore,if these premiums are deducti%le on the part of the employer3 that is taxa%le on the

part of the employee! +f these premiums are not deducti%le on the part of the employer3 that is not

taxa%le on the part of the employee!

N$!$Personal3 livin and family expenses are deducti%lefor the simple reason that these are not

connecte with the business, trae or profession of the taxpayer +n lieu of the same, the taxpayer

may claim the so6calle CPersonal an itional ;xemptionD in the case of iniviual taxpayers

CORPORATE INCO0E TAXATION

CORPORATE TAXPAYER corporation, includes partnershipno matter how create

or organize, (oint account companies, insurance companies an other associations

)t excludes0GG227 /"c7 C" PGE"GH1 'eneral professional partnership!

" Noint venture for the purpose of unerta%ing construction pro(ects!

$ Noint consortium for the purpose of engaging in petroleum, geothermal another energy operations pursuant to a consortium agreement with the

government

TAX EXE0PT CORPORATIONSThe following organi-ations shall not be taxed in respect to income received by them as

such05 9eneral professional partnershipE evote to a common profession, must not engage in

a business!

9 Joint venturefor the purpose of unerta%ing construction pro(ects!

: Joint consortiumfor the purpose of engaging in petroleum, geothermal an other energy

operation pursuant to a consortium agreement uner service contract with the government

E there must be a consortium agreement with the government

$A

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;$ 8abor, agricultural or horticultural organization not organize principally for profit

T So, it may erive income from such business as long as it is merely incidental, the

organization is still exempt

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the purpose of mar%eting the proucts of its members, an turning bac% to them the

procees of sales, less the necessary selling expenses on the basis of the #uantity of

prouce finishe by them

KPMS>

5;$ non-stoc4 and non-profit educational institution

T *a%e note that the last paragraph of Sec $J! it provies, C9ot withstaning the

provisions in the preceing paragraphsD *his means that even thouh they are exempt3 as

reards certain income3 they may %e su%&ect to tax!

OO So, notwithstaning the provisions in the preceing paragraphs, the income of

'hatever 4ind and character of the foreoin oranizations from any of their properties3

real or personal3 or from any of their activities conducted for profit reardless of the

disposition made of such income3 shall %e su%&ect to tax!

OO *he implication is that if these tax exempt corps mentioned under nos! O to 9O3 made

an investment3 the income derived from such investment may %e su%&ect to tax!

T So, if they have real property and lease it to another, the rent income is sub(ect to tax

T+f they have deposit in a %an4, the interest income on the same is sub(ect to tax

T+f they sell property for profit, that is sub(ect to tax

So, the exemption oes not cover this income erive form such investment *hus, it

must be an income erive from their activities which may be the purpose for which they

are organize

OOO *he insertion of non6stoc%, non6profit eucational institution, to my min, is not in

accorance with the provision of rt1& Sec $ par $, because the 0onstitution provies

for a particular test for exemption an that is CuseD of the property So, if a non6stoc%,

non6profit eucational institution has interest income erive from ban% eposit, in viewof this provision 3Sec $J, 9+0), the B+ may impose a tax on the same, regarless ofthe use or isposition So, even if the interest on such eposit is use to achieve

eucational purposes, that will not exempt it from taxation *he 0onstitution says

Cactually, irectly an exclusively use for eucational purposesD, the meaning of this is,

as the procees or income is actually irectly an exclusively use for eucational

purposes, that may be exempt But uner Sec $J, no *hat must be connecte with the

purposes or purposes for which such institution has been forme or organize Since this

runs counter to rt 1& Sec & par $ of the 0onstitution, this Sec $J shoul be eclare

unconstitutional *he 0onstitution says CuseD but here 3Sec $J) it is regarless of the use

or isposition *his must yiel to that 0onstitutional provision

5

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5$ P0S. 3Phil 0harity Sweepsta%es .ffice)

5K$ P'0. 3Phil musement 7 'aming 0orp) Eno longer tax exempt as of "JJ56nob

9$ 9P.0. E special law

N$!$ he rule no' is settled3 2ovFt o'ned and controlled corps! re su%&ect to corporateincome tax except those mentioned under Sec! 8; par C!

PARTNERS#IP " *his is an association of two or more persons an they may contribute

money, property, or inustry to a common fun with the intention of

iviing the profits among themselves

Tests that will determine whether a partnership exists or not0

1 *here must be a contribution to a common fun

" *here must be an intention to ivie the profits among themselves

T Co-o'nership is not a partnership 0o6ownership, as a rule is a tax exempt because a co6ownership is forme an organize not for profit but for common en(oyment of the property

or for the preservation of the property

T Partnership is considered a corporate taxpayer *a%e note that this exclues general

professional partnership .nly partnership forme or organize for profit is exclue

T +f it is formed and oranized for the practice of common profession3 it is a tax-exempt

partnership!

T 0or purposes of taxation, this business partnership is taxable irrespective of whether it is

orally constitute or in writing an whether or not it is registere in the S;0

ase0 *he heirs of the ecent inherite the property *here was istribution of share But such

shares are hel uner single management +n fact the income of such property after istribution

was manage by one of the co6heirs

&eld0 *he fact that they agree that the shares shall be hel by the co6heir uner the

single management for profit, this accoring to the S0 convert the co6ownership in to a taxable

unregistere partnership 1na vs. ommissioner @ na doctrine4

ase0 *he heirs inherite the properties from their ecease mother *he property was

uner the aministration of an aministrator *his aministrator of the property was authorize to

sell these properties for profit, or lease properties for profit an engage in an income proucing

activities

&eld0

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business for profit, 1%vangelista vs. ommissioner @ %vangelista doctrine4.+f that happens, that

co6ownership will be taxe as unregistere

ase0 .belio Sr entere into a contract with .rtigas limite company >ner that contract,

.rtigas limite company will istribute parcels of lan to the 0hilren of .belio Sr for theirresiential houses fter the subivision of such parcel of lan to the chilren of .belio Sr, these

chilren ecie to sell this parcel of lan to

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ase0 B.0 is an offline international airline .ffline because it oes not rener any services

an no laning rights in the Phils

B.0 claime that it is not sub(ect to tax with respect to the sale of transport ocuments

or airline tic%ets in the Phils because it is an offline international airline +t oes not rener anyservice an it has no lening rights

&eld$ *he contention of B.0 is not tenable *he income erive from the sale of that

transport ocuments in the Phil is sub(ect to tax *he sub(ect of income may be property, activity

or service that prouce the same /or an income to be consiere as an income erive from

sources within the income must be erive from activity conucte or unerta%en in the Phil

+t is true that B.0 ha no property in the Phil from which its income may be erive

+t is true that B.0 i not rener any service in the Phil from which its income may be

erive But there was that activity that was unerta%en in the Phil from which income was

erive an that refers to the sale of transport ocument ccoring to the Supreme 0ourt, the

sale was mae in the Phil an the payment was mae in the Phil *his particular activity en(oys

protection of the Phil government So, it shoul share the buren of tax B.0 was consiere

oing business in the Phil uner this particular situation because there were series of transactions

mae in the Phil an B.0 was appointe a permanent agent in the Phil *his implies that thePhil an the B.0 ha no intention to establish continuous business here in the Phil 0ontinuity

of conuct is the peculiar circumstance referre to in the case

OO+f these were mere isolate transaction 3let?s moify the facts of the case) an B.0 has nopermanent agent in the Phil, such airline is not consiere oing business in the Philippines

emember, international carrier is taxe on gross Philippine billings

ase0 foreign vessel unloae cargoes in the Phil twice

&eld0

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T he 7OG3 77G 78G tax rates mentioned may not %e applied except if it is lo'er than the 8G

of ross income of such corporate taxpayer *his is calle Kminimum corporate income tax rate

of >K of gross income)!

%xample$ +f a corporate taxpayer has a gross income of P"JM " of that is P&JJ,JJJ +nthis case, the tax to be pai must not be lower than P&JJ,JJJ +f the net income is P"JM an the

euction is P1IM, we only have P1M Kou multiply that by $& because now is 1IIA, so thatwill give you P$&J,JJJ *his is the corporate income tax applying that tax rate 3$&) is lower

than " which is P&JJ,JJJ 3this is the amount suppose to be pai) pplying the minimum

corporate income tax rate of " if the gross income, the amount to be pai as tax is P&JJ,JJJ

T So, the C+i'i++ cor2orate i'co+e ta1 rate of 9J of 4ro&& i'co+eD means that the

corporate taxpayer must pay corporate income tax not lo'er than 8G of its ross income +f the

actual corporate income tax is lower than the " tax that is suppose to be pai, it is the "

minimum But, if the actual corporate income tax applying that $& is P4JJ,JJJ, this is the tax

that shoul be pai

SPECIAL RULES

A$ SPECIAL DC SOURCES Ta1 !a&e Ta1 Rate

1 PRI/ATE

EDUCATIONAL

INSTITUTION

+F. *axable +ncome

1IIA:1Jor$&

1III: $$

9 :9J

'otes0T ax rate is 9G if its income derived from unrelated trade3 %usiness or activity does N1

exceed =G of its ross total income!

T 5ut its income is su%&ect to 7OG tax rate if its income from unrelated3 trade or %usiness

or activity exceeds =G of its ross income

%xample0 +ts income erive from unrelate trae, business or activity amounte to P"JM n

income erive from relate trae, business or activity is P1JM So, the total income is P$JM +fthe allowable expenses amounte to P1JM, the taxable income now woul be P"JM

$HJ M 90 ,&$ 50 ::$:J

: :

I'co+e deri,ed fro+ I'co+e deri,ed fro+

U'related T!A Related T!A

So, the amount from unrelate *B 34445) is more than 2J of its gross income3P$JM) *hus, this P"JM taxable income is sub(ect to $& tax rate

But, if the income from relate *B is P"JM an its income erive from unrelate *B

is P1JM So:

Related T!A66666666666666 vs V66666666666666666U'related T!A

*he income from unrelate *B is not more than 2J of its gross income *hus, this P"JM is

sub(ect to P1J preferential tax rate

)'!"% D%$)*%D 8$!" $%LAT%D T$AD%, B()'%(( !$ AT)*)T:

T *his must be an income derived from an activity 'hich is su%stantially related to theperformance of educational functions *his may inclue income from boo%store, canteen or

ormitory

Sorce& Ta1 !a&e Ta1 Rate

"NON"PRO.IT

#OSPITAL +F. *axable +ncome

1IIA61Jor $&

1III6$$

&&

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"JJJ6$"

OOO/or purposes of non6profit hospital, this must be income derived from activities 'hich are

su%stantially related in achievin the primary purpose of that hospital, which is to rener services

to the public

*he explanation as to when the 1J or $& tax rate applies is the same as that of private

eucational institution

!$ SPECIAL R.C Sorce& Ta1 !a&e Ta1 Rate

1

INTERNATIONALAIR CARRIER

"

INTERNATIONAL

S#IPPING

I3+ncome

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OT#ER RULES

DC R.C NR.C

5$

INTEREST

INCO0E ON !AN

DEPOSIT

9J 9J

*his shoul be inclue in its gross income

&3ect to :;J ta1$ B>* in the case ofinterest on loans which have been mae on

or after ugust 1, 1IA4, the same is &3ect

to 9J fi'al ta1

9$ INTEREST

INCO0E ON !AN

DEPOSIT UNDERT#E EXPANDED

.OREIGN

CURRENCY

DEPOSIT SYSTE0

H$

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CASE

Marubeni 0orp is a foreign corp it has a branch here +t mae a irect investment in a -omestic

0orp, so it receive cash iviens -o we have to inclue that in that profit to be remitte an sub(ect to

12

#ELD

9. *his is not effectively connecte with the conuct of trae or business of their branch office

*hat shoul be exclue from the profits that shoul be remitte to that Marubeni 0orp *he conition is, it

must be an income or profit effectively connecte with the conuct of trae or business of such corp

through its branch office

H$ DI/IDENDS

RECEI/ED .RO0

DC

EXE0PT EXE0PT

? *hese iviens receive from -0 by

9/0 is &3ect to 5

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0apital *ransaction +nvolves 0apital sset

0P+*8 SS;* means property hel by the taxpayer whether or not connecte with his trae or business

;=0;P*: GS.>H

1 Stoc% in trae or property of the taxpayer which may be properly inclue in the inventory at

the en of the taxable year Ginventoriable property may inclue finishe goos, raw materials or wor% inprocessH

" Property primarily hel for sale to customers in the .rinary course of trae or business

$ Property >se in trae or business sub(ect to epreciation, which means that this must be

epreciable property

& eal property use in trae or business

*hese & properties enumerate are calle ORDINARY ASSETS$

ASSETS *#IC# ARE CONSIDERED AS CAPITAL ARE

1 Properties not inclue in those above enumerate

" Properties use in trae or business classifie as capital assets:a accounts receivable

b property for investment in stoc%c subivision of lots to tenants at the instance of the government *he sale of these subivie

lots at the instance of the govt to the tenants is consiere as 0apital *ransaction

+nterest of a partner in a partnership *he partner may transfer that interest to another an he

may erive gain therefrom, that is consiere as 0apital *ransaction

9B +t is therefore safe to say that all properties not use in trae or business are consiere as 0apital

ssets

Ca2ital A&&et ca' 3e Co',erted i'to a' Ordi'ary A&&et$

E1a+2le property was inherite by the heirs from their ecease parents *hat property isconsiere as 0apital sset

+n the event that this property 3a parcel of lan) is improve by the heirs substantially an sell the

same at a profit, sai capital property is now converte into an .rinary sset *he profit erive from the

sale of the lan which has been substantially improve by the heirs is consiere as orinary gain

Ordi'ary A&&et ca' 3e co',erted i'to a Ca2ital A&&et$

E1a+2le +f the taxpayer is engage in real estate business, if he ies, these properties will be

transmitte to his heirs n if the heirs will iscontinue the business of that ecease parent, that

properties which are orinarily hel for sale to customers maybe converte into a 0apital sset

.ACTORS that &hold 3e co'&idered i' DETER0INING %hether it i& CAPITAL or NOT

5$ It +ay 3e the ,ocatio' of the ta12ayer$

+n one case, if the taxpayer is engage in hotel management an he inherite (ewelry

from his parents an he?ll sell the same, the 0ourt sai that it is a 0apital *ransaction

+t woul be ifferent if the one selling a parcel of lan is a real estate ealer an he

evelope the same before this property may be sol to another, this time such taxpayer

is engage in a business, in which case that sale of parcel of lan is consiere as

.rinary *ransaction

9$ So+eti+e& the 2eriod or the e1te't of acti,itie& +ay 2lay a' i+2orta't role$

Ca&e

+f a taxpayer is engage in a lumber business an he has been unsuccessful for a perio of 11 yearsan he trie again on the 1" thyear *he sale that may be mae on the 1" thyear may not be consiere

orinary transaction

But those sales which, woul have been mae uring that 11 thyear when such taxpayer is engage

in trae or business may be consiere .rinary sset

+f the taxpayer stop his business an then unerta%e another business, that may be consiere

0apital *ransaction

&A

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SPECIAL CAPITAL TRANSACTIONS these transactions are eeme capital transactions

SPECIAL CAPITAL TRANSACTIONS INCLUDE

5$ .ailre to e1erci&e o2tio' or 2ri,ile4e to 3y or &ell 2ro2erty$

E1a+2le B offers his lan to B gives 2 ays within which to ma%e up his min to buy this

parcel of lan for P2JJ,JJJJJ 9ow, pays B P2,JJJ for giving him time to thin% whether he will

buy that uring the 2 ay6perio +f fails to buy the same, he incurre a loss an we call this

0apital 8oss So, the loss of is consiere a gain on the part of B because the latter receive that

P2,JJJ

So, failure to exercise option to buy may result in a capital loss on the part of the offeree or buyer

s regars the seller, the gain is consiere 0apital 'ain

9$ Di&tri3tio' of a&&et& or &hare& of &toc to &tocholder 2o' liidatio' of a cor2oratio'$

E1a+2le fter li#uiation, the stoc%holers are entitle to the return of their capital if there is still

something left +f mae an investment an the value of his shares of stoc% is P1JJ,JJJ, after li#uiation

of the corporate affairs, the corp gives P12J,JJJ *he gain of which is P2J,JJJ is consiere 0apital'ain

:$ Read&t+e't of 2art'er& i'tere&t i' a 2art'er&hi2$

E1a+2le partnership is earning a profit, let us say, P1JJ,JJJ *hen it increases to P1M So, the

partnership may rea(ust the partner?s interest in the partnership .r it may also arise if for

example, mae an aitional contribution So, ?s interest will change

9ow, in ma%ing rea(ustment of interest, the partner may erive gain therefrom, an that is a

0apital 'ain

;$ Retire+e't of 3o'd&$

E1a+2le *he ebtor issues bons an after one 31) year, he pays the same *he value of the bons

is P1JJ,JJJ >pon reemption, the ebtor pays P1"J,JJJ to the creitor So the P"J,JJJ is a gain to the

creitor an we consier that as a 0apital 'ain But if there is a loss, that is consiere as 0apital 8oss

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Before we answer that, we shoul %now these transactions where the gain is not recognize 3meaning it is

not taxable) an the loss is not recognize 3meaning, it is not euctible)

*he basic rule is, in the sale or exchange of property if there is a gain, the gain taxable! +f there is loss, theloss is euctible)

E1ce2tio' to the 3a&ic rle ('o 4ai' or lo&& &hall 3e reco4'ied)

5$ Tra'&actio'& +ade 2r&a't to 2la' of +er4er or co'&ideratio'$ Sometimes, we call this CTa1

E1e+2t Tra'&actio'&B or Tra'&actio'& Solely i' i'dB$

a corporation, party to merger or consoliation exchanges its properties solely for stoc% in corp,which is a party to the merger or consoliation

Ill&tratio'

Pro2erty

Cor2$ A Cor2$ ! 2ro2erty for Stoc

Stoc

b stoc%holer of a corp party to a merger or consoliation exchanges his stoc% solely for stoc% in

another corp party to that merger or consoliation

Ill&tratio'

Secrity or Stoc

Stocholder """""""""""""""""""""""" Cor2$ 5$ Stoc for Stoc

9$ Secritie& for &toc

:$ Secritie& for Secritie&

Secrity or Stoc

?? Sometimes, we call the above6mentione transactions as Tra'&actio'& &olely i' i'dB or Ta1

E1e+2t Tra'&actio'&B$

" +f a person alone or together with others or not exceeing four 3&) 3so, the total number shoul be five 32)

exchanges his property for stoc% in a corp an this person or persons, after this exchange, ac#uire

controlling interest over that corp *his means that they ac#uire at least 12 of the shares of stoc% of such

corp

6 *his is also a transaction solely in %in

-e&tio' Suppose these persons, at the time of transaction, alreay ac#uire controlling interest

over such corp, is the transaction or exchange taxable

A'&%er ;ven if these persons ac#uire controlling interest at the time of the transaction, the rule

is still applicable in which case that is still tax exempt

-e&tio' So, if these properties ac#uire uner this tax exempt transactions are subse#uently

ispose of, how will you etermine the basis

A'&%er *he basis of the stoc% or properties ac#uire uner this no gain, no loss recognize shallbe the same basis in the hans if the transferor

S22o&e the 2ro2erty %a& acired 'der tra'&actio'& %here 4ai' i& reco4'ied a'd lo&& i& 'otreco4'ied (GAIN RECOGNI@ED7 LOSS NOT RECOGNI@ED)

Tra'&actio' &olely i' i'd this means that there are other consieration given other than those

mentione uner transactions solely in %in 3nos 1 an " above, but cash is ae)

E1a+2le 0orp party merger or consoliation transfers its cash an property to 0orp B, also a

party to such merger or consoliation

0orp B, in exchange, transfers its stoc%s to 0orp

2"

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?*he basic istinction is in wash sale, the loss that may be incurre is not euctible, whereas in short sale,

the loss is euctible

TRANS.ER TAXES

;S**; 7 *>S*S

;S**; E refers to the mass of properties left by eceent or testator to his heirs or

beneficiaries

*>S* E is the right to the property, real or personal, exercise by one person for the benefit of another

parties

Parties to a *rust:

a Tr&tor or 4ra'tor6 one who create the trust

b Tr&tee or fidciaryE one who may hol the property for the benefit of other person %nown as3e'eficiary$ Sometimes, the fiuciary is also the nbeneficiary$

c Beneficiary

;state may be the sub(ect to tax, if it is uner your aministration +t may only be uner

aministration or settlement if the properties of the eceent are settle uner (uicial

settlement

+f the estate is uner extra6(uicial settlement, it is not sub(ect to tax because that will not

earn income consiering that the heirs agree to settle the estate extra6(uicially

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-e&tio'& +f there are two 3") trust create by one trustor or grantor, how o we tax the income of

that trust

A'&%er >ner the law, the taxable income of these two 3") trust must be consoliate *hat trustshoul be taxe as if they constitute one trust

Sitatio'

'rantor = create " trust .ne is trust create an the other is B trust *here is only one

beneficiary name K

8et us assume that the taxable income of trust is P1J,JJJ *he taxable income of B trust is

P"J,JJJ *he total taxable income is P$J,JJJ

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6 #ust e undi#inised ; said #!+tae9indetedness

3. #ust n!t include:A. an; inc!#e ta( u*!n inc!#e +ecei)ed a$te+ te deat !$ decedent. *+!*e+t; ta(es n!t acc+ued e$!+e is deat

'. an; estate ta(

LOSSES 2 $i+e4 st!+#4 si*"+ec !+ !te+ casualt;4 +!e+;4 te$t4 e#ele#ent

RULES:1. #ust n!t e c!#*ensated ; insu+ance%. #ust a)e een incu++ed du+in te settle#ent !$ te estate UT NOT LATER tan telast da; $!+ te *a;#ent !$ te estate ta( C #!s.3. n!t clai#ed as deducti!n in an inc!#e ta( +etu+n !$ te ta(ale estate

TA8ES "ic a+e n!t DEDU'TILE

1. inc!#e ta( !+ inc!#e +ecei)ed a$te+ deat%. *+!*e+t; ta(es n!t acc+ued e$!+e deat3. estate ta(

'O&/UTATION !$ VANISHING DEDU'TION FOR&ULA:INITIAL ASISGROSS ESTATE 8 E. L. I. T. and t+ans$e+s $!+ *ulic *u+*!ses

SHARE OF SURVIVING S/OUSERULES:1. te +!ss c!n,ual estate sall e di#inised ; e(*enses and ca+es E8'E/T t!se

ca+eale t! te e(clusi)e *+!*e+ties%. te NET a#!unt sall e di)ided int! t"! %3. J !es t! te su+)i)in s*!use and deducted $+!# te estate !$ te decedent

ALLOWALE DEDU'TIONS- NON-RESIDENT DE'EDENT ?ELIT-TVS@1. ELIT e(*enses4 l!sses4 indetedness4 ta(esFOR&ULA:

/HIL. GROSS ESTATEWORLD GROSS ESTATE ( E L I T

%. t+ans$e+ $!+ *ulic *u+*!ses

3. )anisin deducti!ns

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/A0&ENT OF ESTATE TA86 u*!n $ilin !$ te estate ta( +etu+n and e$!+e deli)e+; t! an; ene$icia+;

!$ is dist+iuti!ns sa+e !$ te estate6 E8TENSION: n!t t! e(ceed B ;ea+s6 I$ e(t+a-,udiciall; settled4 % ;ea+s

6 It #ust $ile !nd 2 n!t t! e(ceed d!ule te )alue t! e *aid

SUR'HARGE- %B $!+ late $ilin4 $!+ late *a;#ent- BK $!+ $ilin !$ $alse !+ $+audulent +etu+n

INTEREST 2 %K *e+ annu#

/ARTIES TO A DONATION1. DONOR 2 +atuit!usl; dis*!ses

%. DONEE 2 +ecei)es and acce*ts

=INDS OF DONATION1. /ERSONAL /RO/ERT0 2 #a; e !+all; !+ in "+itinE8'E/T: e(ceeds /B4KKK 2 d!nati!n and acce*tance #ust e in "+itin%. REAL /RO/ERT0 2 /ULI' DO'U&ENTA''E/TAN'E - sa#e deed !$ d!nati!n !+ se*a+ate inst+u#entM d!ne du+in te li$eti#e !$te d!n!+RULE: HUSAND AND WIFEG.R.: E)e+; d!nati!n et"een Husand and Wi$e du+in te #a++iae is VOID

E8'E/TION:1. d!nati!n #!+tis causa%. #!de+ate i$ts - $a#il; a$$ai+ i$ts c!#in $+!# te c!n,ual *+!*e+t; #ade ; !t s*!uses a+e ta(ale4 J t! eacs*!use

RULE !n INADEUATE 'ONSIDERATION i$ te *+!*e+t; t+ans$e++ed is +eal *+!*e+t; classi$ied as ca*ital asset4 te t+ans$e+ issu,ect t! ca*ital ains ta( !$ C and n!t t! d!n!+s ta( "e+e te c!nside+ati!n is $ictiti!us4 te enti+e )alue !$ te *+!*e+t; t+ans$e+ sall esu,ect t! d!n!+s ta(

te a#!unt ; "ic te )alue !$ te *+!*e+t; e(ceed te a#!unt !$ c!nside+ati!n salle dee#ed a i$t $!+ *u+*!ses !$ te d!n!+s ta(

VALUATION OF GROSS GIFTS- F&V at ti#e !$ d!nati!n1. Real /+!*e+t;- IR !nal )alue !+ F&V $i(ed ; cit;9*+!)incial assess!+ "ice)e+ is ie+%. Sa+es !$ St!cA. I$ listed 2 a)e+ae )alue at te date !$ d!nati!n. I$ n!t listed 2 !! )alue at te date !$ d!nati!n3. /e+s!nal /+!*e+ties 2 F&V at te ti#e !$ d!nati!n

F&V P *a"n )alue ( 3

E8E&/TIONS9ALLOWALE DEDU'TIONS1. DOWRIES

RULES:A. E(e#*t u* t! 1st/1K4KKKM

2A

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. Leiti#ate +ec!nied !+ leall; ad!*ted cild+enM'. &ade e$!+e #a++iae !+ "itin !ne ;ea+ te+e!$.2. GIFTS TO NATIONAL GOVT. or POL. SUB.

- n!t c!nducted $!+ *+!$it3. GIFTS TO E, C, R, C, S, N, T, P, or R orgs.

- n!t #!+e tan 3K used $!+ ad#inist+ati)e *u+*!ses- #a; e a sc!!l !+ n!n-st!c entit;

DEDUCTIONS ALLOWABLE

1. ENCUMBRANCES!+ d!nated *+!*e+t;4 i$ assu#ed ; te d!nee2. DIMINUTION !$ te d!nated *+!*e+t; as s*eci$ied ; te DONOR

RULE (o!r"s#$"% $oor&

1. Sa#e all!"ale deducti!ns as +esident d!n!+s e(ce*t tat te sa#e #ust e c!nnected"it d!nated *+!*e+t; situated in te /ils.%. NO deducti!ns $!+ Qd!"+ies

RULE #' Do"" #s S%rg"r

1. TA8 /A0ALE 2 3K !$ net i$tSTRANGER 2 !ne "! is n!t a +!te+4 siste+ "!le !+ al$-l!!d4 s*!use4 ancest!+4 linealdescendant !+ +elati)e ; 'ONSANGUINIT0 in te 'OLLATERAL LINE "itin te < t

de+ee.

RULE ON /OLITI'AL 'ONTRIUTIONS- c!nside+ed TA8ALE GIFTS- d!nee in tis case is dee#ed t! +ecei)e a $inancial ad)antae +atuit!usl;

AD&INISTRATIVE /ROVISIONS- d!n!+s ta( +etu+n #ust e $iled unde+ !at and in du*licate- $iled "itin 3K da;s $+!# date !$ d!nati!nE8TENSION: n!t e(ceedin 3K da;s- WHEN /AID- ti#e te +etu+n is $iledE8TENSION: n!t e(ceedin C #!s./ROVIDED 2 OND- d!ule te a#!unt !$ TA8

TA8 'REDIT $!+ d!n!+s ta( *aid t! a $!+ein c!unt+;- d!n!+ "as a Fili*in! citien !+ +esident alien at te ti#e !$ $!+ein d!nati!n

- d!n!+s ta(es !$ an; ca+acte+ !+ desc+i*ti!n a+e i#*!sed and *aid ; te aut!+it; !$ a$!+ein c!unt+;LI&ITATIONS:1. Te a#!unt !$ c+edit in +es*ect t! te ta( *aid t! an; c!unt+; sall NOT E8'EED tesa#e *+!*!+ti!ns !$ te ta( aainst "ic suc c+edit "as taen%. Te t!tal a#!unt !$ c+edit sall n!t e(ceed te sa#e *!+ti!n !$ te ta( aainst "icsuc c+edit is taen

Tra'&fer ta1e& i+2o&ed o' 4ratito& tra'&+i&&io' of 2ro2ertie& are

1 ;state tax

" -onor?s *ax

ESTATE TAXE tax impose on the right or privilege to transmit properties upon eath of a eceent ortestator

DONORS TAX tax impose on the right or privilege to transmit properties gratuitously in favor of

another who accepts the same *his transmission of properties occurs uring the lifetime of the onor an

the onee

ESTATE TAX

2I

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NATURE O. ESTATE TAXE +t is an excise tax since the sub(ect of the tax is the right or privilege to

transmit properties an not the property itself

PURPOSES O. ESTATE TAX to avoi the unue accumulation or concentration of wealth

1 *he primary purpose is to raise revenue in orer to support the government!" *o supplement income tax!

$ *o reuce successive ine#ualities in wealth, meaning, to achieve social e#uality

INDS O. ESTATE TAXPAYER

5$ Re&ide't e&tate ta12ayer inclues citizen of the Phils, resient alien who ie in the Phils, an such

alien, at the time of his eath, is a resient of the Phils!

9$ No'"re&ide't e&tate ta12ayer is limite to non6resient alien iniviual

eal properties, personal tangible properties an personal intangible properties of

resient eceent 3-) are taxe wherever situate

eal an personal tangible properties of non6resient eceent 39-) are taxable only if

they are locate in the Phils

eal an personal tangible properties of 9- are taxable only if they ac#uire tax situs in

the Phils

Per&o'al i'ta'4i3le 2ro2ertie& that are dee+ed to ha,e acired Phil$ &it& are 6.7 SO! (DC7 .C"

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eath was not a citizen of the Philippines, only that part of the entire gross estate which is situate in the

Philippines shall be inclue in his taxable estateD

The co+2o&itio' of the 4ro&& e&tate +ay i'clde

5$ Decede't& I'tere&t$3inclues yiels, fruits an interest)6 *he gross estate may inclue the fruits an income of the properties an that may

constitute the eceent?s interest6 +n the case of parcel of lan, it may prouce income in the form of harvest which harvest

may form part of the gross estate

6 +n the case of apartment, the rental of such apartment shoul also be inclue, not only

the value of the property

6 -iviens

6 Partnership profits6 ights of usufruct

9$ Tra'&fer 3y ,irte of 4e'eral 2o%er of a22oi't+e't

6 +t implies that if the transfer is mae uner special power of appointment that shoul be

exclue from gross estate

6 +n general power of appointment, the power is exercisable or in favor of the estate,

executor, aministrator or a creitor of the estate +f the power is exercisable other than

these 3estate, aministrator, aministrator or creitor of the estate), that may beconsiere as special power of appointment

:$ Re,oca3le Tra'&fer ny transfer mae by the eceent uring his lifetime where the eceent has

reserve the right to 8*;, M;9-, *;M+9*;, or ;@.Q; such transfer! it is sufficient that the

eceent ha the power to ;@.Q;, though he i not exercise such power

6 +rrevocable transfers shoul be exclue from gross estate

6 evocable transfers are transfers which are sub(ect to alteration, termination, amenment

or moification by the eceent

;$ Tra'&fer& for I'&fficie't Co'&ideratio'

6 *he amount that may form part of the gross estate is the ifference between the /M@ of

the property an the consieration givenE1a+2le +f the property has a /M@ of P1JJ,JJJ an the consieration given is only

P2J,JJJ, the ifference of P2J,JJJ represents insufficient consieration

S an Phil rmy

Note s regars the estate executor, aministrator or heirs as beneficiary, it is

immaterial whether the esignation is irrevocable or revocable

$ Tra'&fer i' Co'te+2latio' of Death

6 +f such transfer was inuce by the thought of eath principally, ;'-8;SS of

whether the eath is impening forthcoming or not

6 *9S/; may be one before, at the time of or even after the eceent?s eath6 $6K; P;S>MP*+.9 Gelete by P- 15J2 ug 1, 1IA4)

GM>69*, /, *61

S*

6B, B6S00HEXCEPTINS>EXCLUSIONS fro+ GROSS ESTATE

1) merger of >S>/>0* in the MQ;- *+*8;

") /+-;+0.M+SSK

$) transmission from 1stheir to another beneficiary6 will of the testator

&) B;R>;S*, -;@+S;;S, 8;'0+;S or *9S/;

6 S.0+8 8*>8 an 0+*B8; institutions

41

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6 no part of net income inures to any iniviual

6 not more than $J for amin purposes

DEDUCTIONS .RO0 GROSS ESTATE

DEDUCTIONS .RO0 GROSS ESTATE T#AT 0AY !E

1 0on(ugal euctions G/, N;, /;, M;, 0;, 8, >3MF+),*, S-, SP, 06+PH" bsolute euctions

$ ;xclusive euctions G@-, *6P>, >M, ;6;PH 3share of SS)

.*;S: GM6>, /, *61S*6B, '60+H

I$CONUGAL AND A!SOLUTE DEDUCTIONS i'clde

1 /amily home" Nuicial of funeral expenses

$ 0asualty losses

& +nebtenessFunpai claim against the estate

2 ccrue taxes 3before the eath of the eceent)

4 Stanar -euction

5 Separation pay given to the heirs of the eceent on account of eath

Di&c&&io'

5$ .a+ily ho+eE 3even unmarrie person may have a family home) sub(ect to the following conitions:a there must be only one 31) family home!

b there must be certification issue by the Barangay 0aptain that the eceent is a resient of an

own that family home in that particular locality!

c the amount that is euctible or the /M@ of the family home shoul not be more than P1M!

excess shall be sub(ect to tax

the /M@ must be inclue in the gross estate of the eceent

+f the /M@ of the family home is P2M, this shoul be inclue in the gross estate of the eceent Butwhen you claim euctions, you can only claim up to P1M

9$ ;xpenses which may be in the nature ofdicial e12e'&e& or f'eral e12e'&e&$

0edical e12e'&e& are also euctible sub(ect to the following conitions:

a the amount euctible, is limite only to P2JJ,JJJ!

b it must be incurre within one 31) year before the eath of the eceent!

c this must be substantiate by receipts

+n the case of funeral expenses, the amount euctible is the actual funeral expenses on the amount

which is not more than 2 of the gross estate whichever is lower, but in no case to excee P"JJ,JJJ

*here is no limitation as to amount with regar to (uicial expenses s long as it is pai or incurre in

connection with the preservation, aministration or settlement of the estate, it may be claime as

euctions Nuicial expenses also inclue extra6(uicial expenses

:$ 8osses that may arise from casualty or ca&alty lo&&e& such as fire, storm, shipwrec%, robbery,

embezzlement, theft an other casualty losses

*hese losses must be sustaine not later than six 34) months after the eath of the eceent

not compensate by insurance

;$ I'de3ted'e&& which parta%e of the nature of the '2aid clai+& a4ai'&t the e&tate$

*hese must be supporte by notarize ocuments *hese obligations must be incurre within three 3$)

years prior to eath of the eceent

nother inebteness which may be claime as euction is claim against insolvent persons ere, the

claimant is the eceent +n orer to be euctible, this claim must be inclue in the gross estate

euction from the gross estate shall be the collectible portion

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*he amount is P1M So, this may only be applie if the gross estate of the eceent is more than

P1M

H$ Se2aratio' 2ay given to the heirs of the eceent on account of eath

*he proceure is to inclue the amount in the gross estate an then claim this thereaftereuctions

II$ EXCLUSI/E DEDUCTIONS

*hese are euctions against exclusive properties

*hese may inclue: 3@P60;)

1 @anishing euctions E whether inherite or ac#uire by -onation

" *ransfer for public use$ .ther charges against the exclusive property

& ;ncumbrance on exclusive property

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