8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 1/51
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 2/51
XAVIER’S POISON REV
10. Scope of Taxing Power
a. It extends to:
i. Person, property or occupation.
ii. The amount or rate of tax.
iii. The purpose for which taxes shall be levied provided they
are public purposes.
iv. The kind of tax to be collected.v. The situs of taxation.
vi. The method of collection.
11. Is the power to tax the power to destroy?
a. The rule that the power to tax involves the power to destroy is
pertinent only when there is no power to tax a particular subject
and has no relation to a case where such right to tax exist.
b. While tax is said to be the power to destroy, it is by no means
unlimited. As long as it does not destroy the right to perform the
act or to use the property subject to tax. It is subject to inherent
and constitutional limitations.12. Power of Judicial Review in Taxation
a. GR: Courts cannot inquire into the wisdom of a taxing act.
Courts cannot review the wisdom or advisability of a tax. As
long as the legislature, in imposing a tax, does not violate
applicable constitutional limitations or restrictions, the courts
have no concern with the wisdom or policy of the exaction,
political or other collateral motives behind it, the amount to be
raised, or the persons, property or other privilege to be taxed.
b. Exception: It may interfere only to the application and
interpretation of the law.
13. Aspects of Taxationa. Levy or imposition of tax on persons, property or excises.
b. Collection of the taxes already levied.
14. Basic principles of a sound tax system
a. Fiscal Adequacy – sufficient to meet government expend
and other public needs.
b. Administrative Feasibility – Taxes should be capable of
effectively enforced.
c. Theoretical Justice – Taxes must be based on the taxp
ability to pay.
15. Tax v. other impositionsa. Toll – a demand of ownership. An amount charged for the
and maintenance of the property used. Tax is a dema
sovereignty for the purpose of raising public revenue.
b. Penalty – Penalty is punishment for the commission of a c
Tax is a civil liability.
c. Compromise – Amount collected as a compromise in
involving violations of the Tax Code. It cannot be l
imposed without consent from the taxpayer.
d. Special Assessment – It is levied only on land unlike tax w
is imposed on person, property and excises. It is based won benefit.
e. License Fee – Emanates from the police power of the state
f. Margin Fee – Only a currency measure designed to stabiliz
currency such as the exaction of certain fee.
g. Debt – An obligation created by contract. Tax is an oblig
created by law. Taxes are not debts. Taxes and debts cann
the subject of compensation because the government an
taxpayer are not mutually creditors and debtors of each oth
Debts are due to the Government in its corporate cap
Taxes are due to the Government in its sovereign capacity
h. Subsidy – Is a legislative grant of money in aid of a penterprise deemed to promote public welfare. It is not a tax
i. Custom duties and fees – These are duties charged
commodities on their being imported into or exported fr
country. Custom duties are taxes.
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 3/51
XAVIER’S POISON REV
j. Revenue – Includes not only taxes but income from other
sources as well.
k. Tribute – Synonymous with tax.
l. Impost – It signifies any tax, tribute or duty.
16. Taxes classified
a. Personal Tax – a.k.a capitation or poll tax. Taxes of fixed
amount upon all persons of a certain class within the jurisdictionof taxing power.
b. Property Tax – Taxes assessed on all property or all property of
a certain class within the jurisdiction of the taxing power.
c. Direct Tax – Taxes wherein both the incidence of or liability for
the payment of the tax as well as the impact or burden of the tax
falls on the same person. The burden cannot be shifted to
another person.
d. Indirect Tax – Taxes wherein the incidence of or liability for the
payment of the tax falls on one person but can be shifted or
passed to another person.
e. Excise Tax – Laid upon the manufacture, sale, or consumption
of commodities within the country,
f. General Tax – Taxes levied for the general or ordinary purposes
of the Government.
g. Special Tax – Taxes levies for special purpose.
h. Ad Valorem Tax – A tax upon the value of the article or thing
subject to taxation.
i. Custom Duties – duties charged upon the commodities on their
being imported into or exported from a country.
j. National Tax – Taxes levied by the National Government.
k. Local Tax – Taxes levied by the Local Government.17.Taxpayer‟s Suit
a. In order to justify a taxpayer‟s suits, it is necessary that public
funds should be involved. Thus, a taxpayer‟s suit would fail if
what are alleged to be illegally disposed of are objects
were acquired from private sources.
LIMITATIONS ON THE TAXING POWER
1. Inherent Limitations on the Taxing Power
a. They are called inherent limitations because they proceed
the very nature of the taxing power itself.i. Public purpose of taxes
1. Test for determining the public purpose in a t
a. Whether the thing to be furthered b
appropriation of public revenue
something which is the duty of the sta
a government, to provide.
b. Whether the proceeds of the tax will d
promote the welfare of the commun
equal measure.
ii. Non-delegability of taxing power1. GR: Taxing power cannot be delegated
2. EXCP:
a. Under the Constitution, the Congress
expressly authorize the president
within the specified limits, and subje
such limitations and restrictions as it
impose, tariff rates, import and e
quotas, tonnage and wharfage dues
other duties or imposts within
framework of the national develop
program of the government.
b. In case of Local Taxing Power, “Each
government unit shall have the pow
create its own sources of revenue a
levy taxes, fees and charges subje
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 4/51
XAVIER’S POISON REV
such guidelines and limitations as the
congress may provide, consistent with the
basic policy of local autonomy.
iii. Territoriality or situs of taxation
1. Taxing power is limited only to persons, property
or businesses within its jurisdiction.
a. Protection is a basic consideration that justifies the situs of taxation. The Person or
property must be within the protection of the
taxing state.
b. Mobilia Sequuntur Personam – (Movables
follow the person). According to this maxim,
the situs of personal property is the
domicile of the owner.
c. Legislative Power to fix situs – check!
iv. Tax Exemption of the government
1. GR: Income derived from any public utility or from
the exercise of any essential government function
accruing to the government or any political
subdivision is exempt from income tax. Moreover,
under the LGC, real property owned by the
Government or any of its political subdivisions is
exempt from real property tax.
a. EXCP: Unless, the beneficial use thereof is
granted for consideration or otherwise to a
taxable person.
v. International Comity
1. You know this!2. Constitutional Limitations
a. Due process clause, whether it be substantive or procedural.
b. Equal protection of the laws.
c. Freedom of speech and of the press.
d. Non-infringement of religious freedom and worship.
e. Non-impairment of contracts.
f. Non-imprisonment for debt or non-payment of poll tax.
g. Rule requiring that Appropriations, Revenue and Tariff bills
originate exclusively from the HR.
h. Uniformity, Equitability and Progressivity of taxation.
i. Limitations on the congressional power to delegate tpresident the authority to fix tariff rates, import and e
quotas, etc.
j. Tax exemptions of properties, AED used for religious, char
and educational purposes.
k. Voting requirement in connection with the legislative grant
exemption.
l. Non-impairment of the jurisdiction of the SC in Tax cases.
m. Exemption from taxes of the revenues and assets of educa
institutions, including grants, endowments, donations
contributions.
DOUBLE TAXATION AND TAX EXEMPTIONS
3. Double Taxation is defined as taxing the same property twice w
should be taxed but once. It is also defined as taxing the same p
twice by the same jurisdiction over the same thing.
a. There is no prohibition against double taxation
i. It is something not favored but is neverth
permissible. Double taxation is not forbidden b
Constitution.
b. Kinds of Double Taxation (Duplicate)
i. Direct Double Taxation – The same property is
twice when it should be taxed only once; both taxe
imposed on the same property or subject matter fo
same purpose by the same state, government or t
authority within the same jurisdiction or taxing d
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 5/51
XAVIER’S POISON REV
during the same taxing period and covering the same
kind or character of tax. (Legally Objectionable)
ii. Indirect Double Taxation – (Allowed)
c. Means employed to avoid double taxation
i. Tax Reliefs (Tax Deductions and Tax Credits)
ii. Foreign Tax Credit Method
d. Tax Exemptionsi. A grant of immunity, express or implied, to particular
persons or corporations from the obligation to pay taxes.
1. Kinds:
a. Constitutional Exemptions
i. Those which originate from the
Constitution.
b. Statutory Exemptions
i. Those which emanate from
legislation
1. Express Exemptions – when
they are expressly granted by
organic or statute law.
2. Implied Exemptions – When
they fall outside the scope of
the taxing provision itself.
ii. Principles governing Tax Exemption
1. Exemptions from taxation are highly disfavored in
law, and he who claims an exemption must be
able to justify his claim by the clearest grant of
organic or statute law. An exemption from the
common burden cannot be permitted to exist uponvague implications.
2. He who claims an exemption from his share of the
common burden in taxation must justify his claim
by showing that the legislature intended to ex
him by words too plain to be mistaken.
3. He who claims exemptions should prov
convincing proof that he is exempted.
4. Tax exemptions must be strictly construed
that the exemption will not be held conf
unless the terms under which it is granted cand distinctly show that such was the intent
the parties.
5. Constitutional grants of tax exemption are
executing.
iii. Tax Avoidance, Tax Evasion, Tax Fraud
1. Tax Avoidance – Is the minimization o
liabilities through legal means.
2. Tax Evasion – Is the minimization of tax liab
through illegal means.
3. Tax Fraud – Use of deceit to evade tax.
TAX LAWS AND REGULATIONS
4. Tax laws are civil in nature, not political.
a. Tax laws, not being penal in character, the rule in
Constitution against the passage of ex post facto laws c
be invoked.
5. Interpretation of Tax Laws
a. Tax Laws are construed in favor of the government.
b. In case of doubt, tax laws are strictly construed agains
Government and liberally in favor of the citizen bec
burdens are not to be imposed beyond what the sta
expressly and clearly import.
6. Sources of Tax Laws
a. Constitution
b. Tax Code such as the NIRC, Tariff and Custom Code, and
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 6/51
XAVIER’S POISON REV
c. Statutes
d. PD‟s
e. EO‟s
f. Court Decisions
g. RR‟s promulgated by the Department of Finance
h. Administrative Issuances of the BIR like RMC‟s.
i. BIR Rulings j. Local Tax Ordinances
k. Tax Treaties and Convention with foreign countries.
7. Publication Requirement
a. Not all sources of Tax Laws require publication in the OG as
provided in Art. 2 of the CC.
b. In Tañada v. Tuvera, “Interpretative regulations and those which
are merely internal in nature (i.e those which regulate only the
personnel of the admin agency and not the public, need not be
published.”
i. RMO, RMC, RAO and BIR Rulings do not require
publication.
8. Tax Law is a special law and prevails over a general law such as the
CC.
9. Tax Regulations are promulgated by the Secretary of Finance in order
to implement the provisions of the Tax Code.
a. Well settled is the rule that Admin Regulations must be in
harmony with the provisions of law. In case of discrepancy, the
basic law prevails.
10. Tax Rulings – Are the best guess of the moment and incidentally often
contain such well-considered and sound law.
11. Power of the CIR to interpret tax laws and to decide tax cases.a. The power to interpret the provisions of the tax code and other
tax laws shall be under the exclusive and original jurisdiction of
the Commissioner, subject to review by the Secretary of
Finance.
b. The power to decide disputed assessments, refunds of in
revenue taxes, fees or other charges, penalties impos
relation thereto or other matters arising under the NIRC or
laws or portions thereof administered by the BIR is vested
the Commissioner, subject to the exclusive appellate jurisd
of the CTA.
12. Non-Retroactivity of Rulingsa. GR: Rulings are not retroactive if they are prejudicial t
taxpayer.
b. EXCP:
i. Where the taxpayer deliberately misstates or
material facts from his return or any document requi
him by the BIR.
ii. Where the facts subsequently gathered by the B
materially different from the facts on which the rul
based.
iii. Where the taxpayer acted in bad faith.
I. Importance of Tax Remedies
1. Tax remedies play an important role in taxation whether it be
the standpoint of tax collection or for the purpose of enforc
taxpayer‟s right under the law.
2. Tax remedies exist to enhance the government‟s tax coll
efforts. It also safeguards against arbitrary action.
II. Rule on “No Injunction to restrain Tax Collection”
1. Injunction will not lie to restrain tax collection.2. Under the NIRC, No court shall have the authority to
injunction to restrain the collection of any national internal rev
tax, fee or charge imposed.
a. The rationale behind is that it opposes to the due pr
and equal protection clauses of the constitution.
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 7/51
XAVIER’S POISON REV
b. The exception to this rule is when the decision of CIR is
appealed to CTA and the appellate court is in opinion that
the collection of tax would jeopardize the interest of the
government and or the taxpayer, the court may suspend or
restrain the collection of tax.
III. Remedies of the Government
1. Tax Lien
a. It arises from the time tax became due and demandable.
2. Compromises
a. Cases when compromise is proper
i. When there is a reasonable doubt as to the validity of its
claim against the taxpayer.
ii. The financial position of the taxpayer demonstrates a
clear inability to pay the assessed tax.
b. Compromise v. Abatement
i. Compromise involves the reduction of the taxpayer‟sliability while Abatement is cancellation of taxpayer‟s
entire liability.
1. Abatement is proper
a. When the tax or portion thereof appears to
be unjustly or excessively assessed.
b. When the administration and collection
costs involved do not justify the collection of
the amount due.
c. Delegation of the power to compromise
i. GR: The power to compromise or abate shall not be
delegated by the CIR.
ii. EXC: It maybe delegated to a regional evaluation board if
the assessment issued by regional offices involves taxes
of less than 500k and minor criminal violations (To be
determined by Sec. of Finance).
d. May a case still be compromised even after Final Judgmen
i. No. When there is a final judgment, the governmen
already acquired vested right.
e. Compromise of Criminal Violations
i. All criminal violations may be compromised, exce
Those already filed in court and 2. Those involving f
f. Nature of Compromise penaltyi. It is a certain amount of money which the taxpayer
to compromise a tax violation. This is paid in li
criminal prosecution. Being voluntary in character,
only be collected if the taxpayer is willing to pay.
3. Distraint and Levy
a. Distraint is a remedy whereby the collection of taxes is enf
on the goods, chattels or effects and other personal prope
whatever character of a taxpayer, including stocks and
securities, debts, credits, bank accounts and interests in
rights to personal property.
i. Actual v. Constructive Distraint
1. Actual distraint is resorted when ther
delinquency in the payment.
2. Constructive Distraint is one where no a
delinquency is necessary.
b. Levy, the collection enforcement is effected on the real pro
and interests in or rights to real property of delinquent taxpa
4. Civil Action
a. Collection in cases where the assessment is final
unappealable
i. People v. Ledesma (Taxpayer‟s failure to disputassessment effectively by complying with the cond
laid down by the BIR.
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 8/51
XAVIER’S POISON REV
ii. Marcos II v. CA (Failure to file on time the required estate
tax returns and failure to question the assessment served
on them.
b. Collection cases where the BIR‟s decision is final, executory
and demandable
i. Failure to appeal the decision to the CTA.
c. Defenses precluded by final and executory assessment.i. Once the tax becomes collectible either because of
failure to protes or failure to appeal, the taxpayer is
precluded from interposing the following defense: 1.
Validity or legality of assessment, 2. Prescription of the
government‟s right to assess.
d. Collection thru the filing of the BIR‟s answer in the CTA
i. Aside from the filing of an ordinary civil action, taxes may
also be collected by the government through the filing of
an answer to the taxpayer‟s petition for review in cases
where the taxpayer‟s appeals to the CTA.
e. Collection thru application of a disputed tax against a refundable
tax.
i. Even if a tax being collected by the CIR is being
contested by the taxpayer, the same can be enforced by
set off or by applying it against the refundable tax that
may be due the taxpayer.
5. Criminal Action
a. As a collection remedy, is authorized under the NIRC. The
judgment shall not only impose the penalty but shall also order
payment of taxes subject of the criminal case as finally decided
by the CIR.b. The assessment is not necessary before a criminal charge can
be filed. The charge need only to prove the failure to file the
required tax return.
c. Req: No criminal action shall not be instituted withou
approval of the CIR.
IV. Statute of Limitations
1. Prescription of Governments Right to assess taxes.
a. Internal revenue taxes shall be assessed within three
after the last day prescribed by law for the filing of return.i. If the return is filed late, the 3 year period is counted
the date of actual filing.
2. When is a tax assessment deemed made?
a. A tax assessment is deemed made when a demand not
letter is released, mailed or sent to the taxpayer.
i. There is assessment when it contains not only
computation of tax liabilities, but also a deman
payment within a prescribed period.
3. Release of assessment notice or demand before the lapse of the
prescriptive period.a. As long as the release is effected before the prescriptio
assessment is deemed made on time even though the sa
actually received by the taxpayer after the expiration o
prescriptive period. The law does not require that the not
demand be received within the prescriptive period.
4. Important considerations on the prescription of the government‟s
to assess taxes.
a. Date of filing of tax return
i. The date of filing of tax return is important for purpo
determining whether or not the tax is assessed with
prescriptive period.
b. Effect of filing an amended return
i. If the amended return is substantially different fro
original return, the right of the BIR to assess the
counted from the filing of the amended return.
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 9/51
XAVIER’S POISON REV
ii. The prescriptive period starts to run from the filing of the
original return if the same is sufficient to enable the CIR
to determine the proper tax to be assessed.
c. Effect of filing a wrong return
i. In case the taxpayer files a wrong return, the 10 year
prescriptive period for cases where return is not filed
applies. It is as if no return was filed.d. Period applicable when the law does not require the filing of any
return
i. The CIR may, by appropriate regulations, require the
filing of necessary returns.
ii. In any event, with or without such regulations, it is to the
interest of the taxpayer to file said return if he/she wishes
to avail of the benefits of three year prescriptive period.
e. Applicable period if the taxpayer fails to file a return
i. The CIR may assess the tax anytime within 10 years
after the discovery of the omission.
f. Prescriptive period when there is fraud
i. When there is fraudulent filing of tax returns, the ten year
period applies, counted from the discovery of the fraud,
not from the filing of the fraudulent return.
5. Prescription of government‟s right to collect taxes
a. The government may collect taxes (by distraint or levy or by a
proceeding in court) within 5 years from the assessment of the
tax.
6. Principle of Equitable Recoupment IRT Tax collection
a. A principle invoke by the taxing authority by setting-off the
prescribed tax against a tax refund to which the taxpayer maybe entitled. This is not allowed in our jurisdiction for it would
encourage negligence on the part of the collecting officer who
would feel secure despite prescription in the thought that they
could always collect the prescribed tax through the expedie
set-off.
7. Interruption of the prescriptive period.
a. CTTWT
8. Rule of prescription in criminal cases
a. All violations of tax code shall prescribe after five years and
shall begin to run from the day of the commission of theviolation of the law, or from the discovery.
b. The defense of prescription can be raised by the accused e
if the case had already been decided by the lower court bu
appeal.
V. Taxpayers Remedies
1. Administrative protest (a.k.a protest against assessment) – Is a
remedy before payment. It differs from tax refund or credit becaus
can only be availed after he/she has paid the tax.
a. Procedures (R-R No. 12 – 99)b. Effect of taxpayers failure to file an administrative protest o
appeal BIR‟s decision to the CTA
i. Under the tax code, if the taxpayer fails to file an
administrative protest within the reglementary 30 da
period from the receipt of the assessment notice, the
assessment becomes final. It can no longer be dispu
either administratively or judicially through an appea
the CTA.
2. Refund or recovery of erroneously or illegally collected taxes
a. There must be a claim for refund or credit filed with the CIR
before maintaining a suit or proceeding for the recovery of
national internal revenue tax. The suit or proceeding shall b
filed after the expiration of two years from the date of paym
of tax or penalty.
b. A claim for refund is strictly construed against the claimant
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 10/51
XAVIER’S POISON REV
c. Tax Refund v. Tax Credit
i. Tax refund takes place when there is actually a
reimbursement of the tax. Tax Credit takes place when
the government issues a tax certificate or tax credit
memo covering the amount determined to be
reimbursable.
d. Is payment under protest necessary in claims for refund?i. In the case of Internal Revenue Taxes, payment under
protest is not necessary in order that tax recoveries may
be obtained.
e. Principle of Equitable Recoupment IRT Tax refunds
i. The principle of equitable recoupment allows the
taxpayer whose claim for a refund has been barred due
to prescription (lapse of more than two years from the
date of payment) to recover said tax by setting off the
prescribed refund against a tax that may be due and
collectible from him. This rule is not applicable in our
jurisdiction is not applicable it puts a premium on the
taxpayers neglect to enforce or assert his rights under
the law.
f. Legal capacity of withholding agents to claim tax refund
i. Corporate withholding agents in the Philippines of non-
resident foreign corporations are entitled to claim the
refund of excess withholding tax paid on the income of
said corporation in the Philippines.
ii. In one case, a withholding agent should be allowed to
claim this particular tax refund because under the law,
said agent is the one who is held liable for any violationof withholding tax law. In another case, A withholding
agent is merely a tax collector, not a taxpayer. His liability
is independent from the taxpayer.
Court of Tax Appeals
1. Salient Features
a. CTA is a judicial body. It is a regular court vested with exc
appellate jurisdiction over cases decided by Commission
Internal Revenue and Commissioner of Customs.
b. It is a court of special jurisdiction and as such it can only
cognizance of such matters as are clearly within its jurisdic
c. It is not strictly governed by the technical rules of evidence
2. Powers of the Court of Tax Appeals
a. To administer oaths
b. To receive evidence
c. To summon witnesses by subpoena and require the prod
of documents by subpoena duces tecum subject in all res
to the same restrictions and qualifications as apply in ju
proceedings of a similar nature.
d. To punish for contempt for the same cases under the
procedure and with the same penalties provided in the RuCourt.
e. To prescribe the form of writs and other processes.
f. To promulgate rules and regulations for the conduct
business,
3. Jurisdiction of the Court of Tax Appeals
a. Under RA 1125 Section 7, CTA exercise exclusive app
jurisdiction to review by appeals the:
i. Decisions of the CIR in cases involving dis
assessments, refunds of internal revenue taxes, fe
other charges, penalties imposed in relation thereother matters arising under the NIRC or other la
parts of laws administered by the BIR.
ii. Decisions of the Commissioner of Customs in c
involving liability of custom duties, fees or other m
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 11/51
XAVIER’S POISON REV
charges; seizure, detention or release of property
affected; fines, forfeitures or other penalties imposed in
relation thereto; or other matters arising under the
Custom law or other laws or parts of laws administered
by the BOC.
b. CTA also exercise ancillary jurisdiction such as the power to
issue writs of prohibition and injunction. This is onlysupplementary to its appellate jurisdiction.
4. Whose decisions are appealable?
a. Decisions of the CIR
b. Decisions of COC.
c. Decisions of Regional Director of BIR (RR No. 12 – 85)
5. What decisions are appealable?
a. Final decisions of the Commissioner
i. As held in one case, “The appealable decision is that the
letter of denial where the Commissioner not only
demanded payment of the amount assessed but wherein
he also gave the warning that in the event the taxpayer
failed to pay the same, the Commissioner would be
constrained to enforce the collection thereof by means of
the remedies prescribed by law.
1. The period to appeal should be counted from the
date of receipt of the taxpayer of the letter of
denial.
6. Thirty day prescriptive period to appeal (Jurisdictional purpose).
a. The thirty day prescriptive period under the law starts to run
from the date the taxpayer receives the appealable decision of
the Commissioner.i. If the taxpayer‟s request for reconsideration (e.g protest)
is denied or the original assessment is maintained, the
appealable decision is the decision denying the request
for reconsideration.
ii. The running of the prescriptive period is not interr
by a request for reconsideration if the request doe
advance new grounds not previously alleged.
7. Administrative Actions tantamount to appealable decisions.
a. The action of the Commissioner in collecting the ta
summary remedies during the pendency of the protest d
constitute a decision for lack of finality and that the appedecision was the subsequent action taken by the BIR w
filed a civil action for collection.
b. Provided that the commissioner advised the taxpayer to a
it to CTA.
c. Interlocutory orders are not appealable.
Local Taxation
8. Nature and Source of Local Taxing Power
a. The 1987 Constitution, Article X Section 5 provides that:
i. “Each local government unit shall have the powcreate its own sources of revenue and to levy taxes,
and charges subject to such guidelines and limitatio
the Congress may provide consistent with the pol
Local Autonomy. Such taxes, fees and charges
accrue exclusively to the local governments”
9. Grant of Local taxing power under existing law
a. The grant of taxing power to local government units is emb
in Section 129 of RA 7160 (Local Gov‟t Code of 1991)
substantially provides that:
i. “Each local government unit shall exercise its pow
create its own sources of revenue and to levy taxes,and charges subject to the provisions herein, cons
with the basic policy of local autonomy.”
10. Power to grant Local tax exemption
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 12/51
XAVIER’S POISON REV
a. Yes, Local Government Units can also grant tax exemptions,
RA 7160 substantially provides that:
i. “Local Government Units may, through ordinances duly
approved, grant tax exemptions, incentives or reliefs
under such terms and conditions as they may deem
necessary.”
1. Condonation is also in the nature of taxexemption. Ergo, LGU‟s may also grant.
11. Residual taxing powers of Local Governments
a. Although the LGC enumerates what specific types of taxes local
government units may impose, the same Code also grants
residual taxing powers to them.
i. This means that local governments can also impose
those taxes, fees and charges which do not fall within the
scope of taxes which are enumerated under the LGC, as
well as those which are levied on subjects or bases
which are not taxed under the NIRC or other applicable
laws. This residual taxing power is also subject to
constitutional limitation, other limitations provided under
the LGC, and the principle of preemption.
12. Principle of Preemption or the Exclusionary Rule
a. It refers to an instance wherein the National Government elects
to tax a particular area, impliedly withholds from the Local
Government the delegated power to tax the same field.
i. If the congress allow municipal corporations to cover
fields of taxation it already occupies then the doctrine of
preemption will not apply.
13. Fundamental Principles of Local taxing Powera. Taxation shall be uniform in each local government unit.
b. Taxes fees, charges and other impositions shall:
i. Be equitable (based on taxpayer‟s ability to pay)
ii. Be levied and collected for public purpose.
iii. Not be unjust, excessive, oppressive or confiscatory
iv. Not be contrary to law, public policy, national eco
policy, or in restraint of trade.
c. The collection of local taxes, fees, charges and
impositions shall in no case be let to any private person.
d. The revenue collected shall inure solely to the benefit of a
subject to disposition by the local government unit levyintax, fee, charge or other imposition unless otherwise provid
the LGC.
e. Each local government unit shall, as far as practicable, ev
progressive system of taxation.
14. Common Limitations on Local Taxing Power
a. LGU‟s cannot impose the following:
i. Income tax, except when levied on banks and
financial institutions
ii. Documentary stamp tax
iii. Taxes on estate, inheritance, gifts, legacies and
acquisitions mortis causa except as otherwise provid
the LGC.
iv. Custom duties, registration fees of vessels and wha
on wharves, tonnage dues and all other kinds of cu
fees, charges and dues except wharfage on wh
constructed and maintained by the local governmen
concerned.
v. Taxes, fees, charges and other impositions upon g
carried into or out of passing through, the ter
jurisdictions of local government units in the gu
charges for wharfage, tolls for bridges or otherwisother taxes, fees, or charges in any form whats
upon such goods or merchandise.
vi. Taxes, fees or charges on agricultural or aq
products when sold by marginal farmers or fisherme
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 13/51
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 14/51
XAVIER’S POISON REV
a. All Local Taxes, Fees and Charges shall be collected by the
provincial, city, municipal or barangay treasurer or their duly
authorized deputies.
b. The tax period of all local taxes shall be the calendar year.
c. All local taxes, fees and charges shall accrue on the first day of
January of each year, unless otherwise provided by the LGC.
d. All local taxes, fees and charges shall be paid within the firsttwenty days of January or of each of subsequent quarter as the
case may be.
i. The sanggunian concerned may extend the time of
payment if there is a justifiable reason.
e. Civil Remedies for the collection of taxes and revenues
i. Local Government Lien
ii. Civil Remedies
1. By administrative action through distraint of goods
and other personal property and by levy upon real
property and interest or rights to real property.
2. By Judicial Action.
a. All of these remedies may be pursued
concurrently or simultaneously at the
discretion of the LGU concerned.
18. Remedies of the taxpayer in Local taxation
a. Protest by means of appeal to the Secretary of Justice
i. Any question on the constitutionality or legality of a tax
ordinance or revenue measures may be raised on appeal
within 30 days from the effectivity thereof to the Secretary
of Justice.
b. Protest against the assessmenti. Through Local Treasurer.
c. Claim for refund or tax credit
Real Property Taxation
19. Nature and scope of local taxing power in real property taxation
a. Real Property Tax
i. A direct tax on the ownership of lands and buildin
other improvements thereon not specifically exem
and is payable regardless of whether the property is
or not.
b. The taxing power of local governments in real property tais a delegated power.
c. Municipalities and barangays are devoid of the power to ta
property. (Within Metro Manila)
20. Extent of Local Taxing Power
a. It extends not only to the imposition of the basic real pro
tax but also includes the imposition of the special levies.
21. Fundamental principles governing real property taxation
a. Real property shall be appraised at its current and fair m
value.
b. Real property shall be classified for assessment purpose o
basis of actual use.
c. Real property shall be assessed on the basis of a un
classification within each local government unit.
d. The appraisal, assessment, levy and collection of real pro
tax shall not be let to any private person.
e. The appraisal and assessment of real property sha
equitable.
22. Properties exempt from tax
a. Real properties owned by the government or any of its po
subdivisions except when its use is granted to a taxable pe
b. Real properties actually, directly and exclusively usereligious, charitable or educational purposes.
c. All machineries and equipment that are actually, directl
exclusively used by local water utilities and GOCC‟s engag
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 15/51
XAVIER’S POISON REV
the supply and distribution of water and or transmission of
electric power.
d. All real property owned by duly registered cooperatives.
e. Machineries used for environmental protection.
23. Administration of Real Property Tax
a. The primary responsibility for the proper, efficient and effective
administration of the real property tax is entrusted to theprovinces and cities, including the Municipalities within the
Metro Manila Area.
b. Basic Considerations relating to the administration of the real
estate tax
i. Administrative Requirements
1. Declaration of Real property by the owner or
administrator or in case of refusal, the provincial,
city or municipal assessor.
a. In case of transfer of real property
ownership, the owner must notify the
assessor within 60 days from the date of itstransfer.
2. The Local Government Code also provides for
other requirements to insure accurate assessment
such as statutory directives to the Registrar of
Deeds to report to the assessor the list of property
registered in the name of the owner.
ii. Listing of properties for assessment purposes
(Assessment Roll)
c. Real Property Tax Assessment in General
i. All real property, whether taxable or tax exempt, shall beappraised at the current and fair market value prevailing
in the locality where such property is situated.
ii. The provincial, city or municipal assessor shall undertake
a general revision of real property assessment within two
years after the effectivity of the LGC or three
thereafter.
1. Steps for the mandatory conduct of ge
revision of real property assessment:
a. The preparation of schedule of fair m
values
b. The enactment of ordinances (levyinannual ad valorem tax on real property
iii. Classes of Real Property for assessment purposes:
1. Residential, Agricultural, Commercial, Indu
Mineral, Timberland, Special
24. Remedies in Real Property Taxation
a. Remedies of Local Government
i. Tax Lien
ii. Administrative remedy in the collection of tax
1. A warrant of levy is issued by the PCM Trea
stating the delinquent owner‟s name or the p
having legal interest in the property.2. The sale or auction is advertised by post
notice at of bulletin board.
a. The proceeds of the sale shall be us
satisfy the government‟s claim. The e
will be returned to the owner.
3. The owner is given one year from the date
sale to redeem the property.
4. Civil Action for the collection of real property
b. Remedies of Taxpayer
i. Remedy against the assessment1. Appeal to the Local Board of Assessment Ap
a. The appeal must be made within 60
from the date of the receipt of the w
notice of assessment.
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 16/51
XAVIER’S POISON REV
2. Appeal to the Central Board of Assessment
Appeals
a. The appeal must be made within 30 days
after the receipt of the decision of the
LBAA.
ii. Administrative protest
1. By filing protest with the local treasurer. Thetaxpayer must pay first the tax.
2. The protest must be made within 30 days from the
payment of tax.
iii. Tax Refund or Credit
1. The claim for refund must be made within 2 years
from the date the taxpayer is entitled to such
reduction or adjustment.
25. Condonation of Real Property Taxes
a. In case of general failure of crops or substantial decrease in the
price of agricultural or agri-based products or calamity in any
province, city or municipality, the sanggunian concerned, byordinance duly approved, may condone or reduce wholly or
partially the taxes and interest for the succeeding years.
b. The President may also condone or reduce real property tax
and interest for any year in any province or city or a municipality
only when public interest so requires.
26. GROSS INCOME
a. General Statutory Definition
i. Section 32 of the NIRC defines Gross Income as all
income derived from whatever source, including but notlimited to the following items:
1. Compensation for services in whatever form paid,
including, but not limited to fees, salaries, wages,
commissions, and similar items.
2. Gross income derived from the conduct of tra
business or the exercise of a profession.
3. Gains derived from all dealings in property.
4. Interests
5. Rents
6. Royalties
7. Dividends8. Annuities
9. Prizes and Winnings
10. Pensions
11.Partner‟s distributive share from the net inco
the general professional partnership.
b. Gross Income taxation means the tax base is the total
income of an individual during the taxable year withou
deduction allowed.
c. Gross Income Taxation v. Net Income Taxation
i. Advantages of income tax based on gross income
one based on net income1. The procedure for the computation of the tax
simpler than in the case of taxation based o
income.
2. Less discretion will be allowed to the
examiners thereby minimizing graft.
3. Examination and/or investigation of tax retur
be made faster.
4. If coupled with an effective withholding tax s
would provide more returns to the governmen
ii. Disadvantages1. A taxpayer may derive gross income but suf
net loss.
2. The rule of taxation may not be equitable.
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 17/51
XAVIER’S POISON REV
3. If gross income were the basis, it may serve as a
disincentive to further employment.
d. Exclusions from Gross Income
i. Income received or earned but is not taxable as income
because it is exempted by law or by treaty. Receipts
which are not in fact income are also excluded from
Gross Income.
ii. Reasons for exclusion
1. They
a. Represent return of capital;
b. Are not income, gain or profit;
c. Are subject to another kind of internal
revenue tax;
d. Are income, gain or profits that are
expressly exempt from income tax.
iii. Taxpayers who may avail of the exclusions
1. All kinds of taxpayers - individuals, estates, trusts
and corporations, whether citizens, aliens, whetherresidents or non-residents.
iv. Exclusions
1. Proceeds of life insurance policies
a. Paid to the heirs or beneficiaries upon the
death of the insured, whether in a single
sum or otherwise.
b. Reason for exclusion: The contract of
insurance is a contract of indemnity, hence,
the proceeds thereof are considered
indemnity rather than a gain or profits.c. Instances when proceeds from insurance
are taxable:
i. Where proceeds are held by the
insurer under an agreement to pay
interest. The interest is includ
determination of gross income.
ii. Where the transfer is for va
consideration.
2. Amount received as return of premium
a. Paid by the insured under life insur
endowment, or annuity contracts,
during the term or at the maturity o
term of the contract or upon surrender
b. Reason for the exclusion: The retu
premium is a mere return of c
However, where the included in the
amount received exceed the aggr
premiums paid, the excess shall be inc
3. Value of property acquired by gift, bequest, d
or descent
a. The income from such property, as w
gift, bequest, devise, or descent of infrom property, in cases of transfe
divided interest, shall be included in
income.
b. The estate of the testator or the deced
subject to estate tax, while the he
beneficiary/ies are not required to
donee‟s tax as the same was a
abolished. The value of the bequest a
the devise received by the heir
beneficiary/ies is not included incomputation of their gross income
gifts, bequest and devises are exc
from gross income.
4. Compensation for injuries or sickness
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 18/51
XAVIER’S POISON REV
a. As compensation for personal injuries or
sickness, plus the amounts of any damages
received, whether by suit or agreement, on
the account of such injuries or sickness.
b. Example of damages recovered from
personal injuries: Moral damages for
personal injuries.
c. If the award of damages is to compensate
loss of property or an award of damages to
compensate loss of income / profits, such is
subject to tax.
5. Income exempt under Tax Treaty
a. Income of any kind, to the extent required
by any treaty obligation binding upon the
Government of the Philippines.
6. Retirement benefits, pensions, gratuities, etc.
a. Retirements benefits received under RA
7641 (Reasonable Private and BenefitPlan) and those received by officials and
employees of private firms in accordance
with reasonable private benefit plan.
b. Any amount received by an official or
employees or by his heirs from the
employer as a “consequence of separation
from service due to death, sickness or other
physical disability beyond the control of the
said official or employer.
c. Veterans Benefit, Benefits under SSS,Benefits received from GSIS.
7. Miscellaneous Items
a. Income derived by foreign government
(from investment in Philippines in loans,
stocks, bonds, or other dom
securities.)
i. Refers only to passive income.
foreign government engage
trade, income is taxable.
b. Income derived by the government
political subdivisions.
i. Income should accrue to
government. If the income is ret
by the Public Utility, it is not ex
The test is by looking at its ch
whether its income accrues t
government or not.
c. Prizes and awards in sports compe
sanctioned by the National S
Association, whether held in Phil or ab
i. This contemplates a par
competition, not a cumuachievement. E.g Sportsman o
year award does not qualif
exemption.
d. Prizes and awards
i. In recognition of Reli
Charitable, Scientific, Educa
Artistic, Literary or
Achievement but only if:
1. The recipient was se
without action on his part2. Recipient was not requi
render substantial
services as a conditio
receiving the prize or aw
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 19/51
XAVIER’S POISON REV
e. 13th month pay and other benefits (i.e
productivity incentives and xmas bonus).
The total exclusion shall not greater than
30,000.00.
f. GSIS, SSS medicare and other contribution
(PAG-IBIG, Union dues)
g. Gains from the sale of bonds, debentures
or other certificate of indebtedness with a
maturity of more than 5 years.
h. Gains from redemption of shares in mutual
fund.
INDIVIDUAL INCOME TAXATION
1. Classification of Individual Taxpayer
a. Resident Citizen
b. Non-Resident Citizen
c. Non-Resident Alien
d. Non-Resident Alien not engaged in Trade or Business.
2. General Principles of Income Taxation
a. A citizen of the Philippines residing therein is taxable on all
income derived from sources within and without the Philippines.
b. A non-resident citizen is taxable only on income derived from
sources within the Philippines.
c. An individual citizen of the Philippines who is working and
deriving income from abroad as an overseas contract worker is
taxable only on income from sources within the Philippines.
Provided, that a seaman who is a citizen of the Philippines and
who receives compensation for services rendered abroad as amember of the complement of a vessel engaged exclusively in
international trade shall be treated as an overseas contract
worker.
d. An alien individual, whether a resident or not of the Philip
is taxable only on income derived from sources withi
Philippines.
e. A domestic corporation is taxable on all income derived
sources within and without the Philippines.
f. A foreign corporation, whether engaged or not in tra
business in the Philippines, is taxable only on income de
from sources within the Philippines.
3. Categories of Income (Types of Income taxed)
a. Capital gain - are gains or income from the sale or exchangcapital assets. These include:
i. Income from dealings in shares of stock of domesticcorporation whether or not through the stock exchan
ii. Income from dealings in real property located in thePhilippines; and
iii. Income from dealings in other capital assets other thand (ii).
b. Ordinary gain - are gains or income from the sale or excha
of property which are not capital assets.i. Business income
ii. Compensation income
iii. Passive income
iv. Other income from whatever source derived i.e.
treasure.
c. The enumeration under Section 32 of the NIRC ca
simplified into five (5) categories:
i. Compensation Income - income derived from rend
of services under an employer-employee relationshi
ii. Professional Income - fees derived from engagingendeavor requiring special training as professiona
means of livelihood, which includes, but not limited t
fees of CPAs, lawyers, engineers and the like.
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 20/51
XAVIER’S POISON REV
iii. Business Income - gains or profits derived from rendering
services, selling merchandise, manufacturing products,
farming and long-term contracts.
iv. Passive Income - income in which the taxpayer merely
waits for the amount to come in, which includes, but not
limited to interest income, royalty income, dividend
income, prizes and winnings.
v. Gains from Dealings in Property – It includes all income
derived from the disposition of property whether real,
personal or mixed.
;or
d. General (part of gross income, subject to 5-32%)e. Compensation Incomef. Income from Businessg. Income from Exercise of Profession
4. Compensation Income
a. All remuneration for services performed by an employee for hisemployer, including the cash value of all remuneration paid in
any medium other than cash. It includes all remuneration for
services rendered by an employee for his employer unless
specifically excluded under the NIRC.
b. Forms of Compensation
i. Money
ii. in kind
c. Requisites for taxability
i. There must be an employer-employee relationship
ii. There must be payment of compensation or wages
d. Basis/Test
i. Existence of Employer-Employee relationship
1. Indicia or indication of or characteristic of
Employer-Employee relationship:
a. SEPADICO
5. FRINGE BENEFIT
a. Fringe benefit means any good, service or other benefitfurnished or granted in cash or in kind by an employer to anindividual employee, except rank and file employees, such but not limited to, the following:
i. Housing;
ii. Expense account;iii. Vehicle of any kind;iv. Household personnel, such as maid, driver and othev. Interest on loan at less than market rate to the exten
the difference between the market rate and actual ragranted;
vi. Membership fees, dues and other expenses borne bemployer for the employee in social and athletic clubother similar organizations;
vii. Expenses for foreign travel;viii. Holiday and vacation expenses;ix. Educational assistance to the employee or his
dependents; andx. Life or health insurance and other non-life insurance
premiums or similar amounts in excess of what the lallows.
b. Fringe Benefits Tax is a final withholding tax imposed o
grossed-up monetary value of fringe benefits furnished, gr
or paid by the employer to an employee. The Fringe bene
shall be treated as final tax of income of the employees.
i. It is determined by:
1. Valuation of the benefits granted
2. Determination of the proportion or percenta
the benefit which is subject to the FBT.
c. Benefits not subject to FBT
i. Fringe benefits which are authorized and exempted
tax under special laws.
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 21/51
XAVIER’S POISON REV
ii. Contributions of the employer for the benefit of the
employee to retirement, insurance and hospitalization
benefit plans.
iii. Benefits given to the rank and file employees, whether
granted under a collective bargaining agreement or not.
iv. De minimis benefits.
1. These are facilities or privileges furnished or
offered by an employer to his employees that are
of relatively small value and are offered or
furnished by the employer merely as a means of
promoting the health, goodwill, contentment, or
efficiency of his employee.
v. Fringe benefit is required by the nature of, or necessary
to the trade, business or profession of the employer.
vi. It is for the convenience or advantage of the employer.
1. Under this rule, allowances furnished to the
employee for, and as a necessary incident to, the
performance of his duties are not taxable.d. Benefits which are considered necessary to the business of the
employer or are granted for the convenience of the employer.
i. When a fringe benefit is given solely for the convenience
of the employer, the fringe benefit is exempt from FBT
because the employee does not recognize income from
the benefit.
1. Ex. Expenditure on housing of engineer within
factory premises is not subject to FBT
a. General Rule: If housing is located outside,
it is subject to FBT.b. Exception: If the nature of the Er‟s business
is hazardous to health of Ee, housing can
be located outside the factory without being
subject to FBT.
2. If employee is given housing allowance in
this will constitute compensation of the emp
(income from whatever source). However
qualifies as a Fringe Benefit, then it will be su
to FBT and the burden is shifted to Er (Tax o
Burden on Er)
e. Nature of Fringe Benefits Tax
i. Final tax imposed on the grossed-up monetary va
fringe benefit furnished/granted to the EE by the
whether an individual or corp. (payable by the emplo
f. Purpose of Fringe Benefits Tax
i. To shift the burden to Er (Tax on Ee, Burden on Er).
g. Who should pay the FBT?
i. Employer, whether an individual, professional partne
or corporation (Whether taxable or exempt, governm
or not) granting fringe benefits is subject to FBT, u
exempted.
h. Why is FBT collected from the employer?i. By express provision of law, The FBT is payable b
employer which shall be paid in the same mann
provided for under the NIRC.
i. FBT is not an additional tax on the employer.
j. Benefits subject to FBT.
i. Housing Privileges
1. Lease of residential property for the use o
employee as his usual place of residence.
2. Residential Property owned by employer
assigned to employee as his usual plaresidence.
3. Residential property purchased by employ
installment basis for the use of employer a
usual place of residence.
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 22/51
XAVIER’S POISON REV
4. Residential property purchased by ER and
ownership is transferred to EE as his usual place
of residence.
5. Residential property transferred to employee at
less than employer‟s acquisition cost.
ii. Household Expenses – refer to expenses of the
employee paid by the employer for household personnel
or other personal expenses, which shall include:
1. salaries of household helper
2. personal driver of the employee
3. payment for homeowner assoc., etc.
iii. Interest on loan at less than market rate
iv. Expenses for Foreign Travel
1. General rule:
a. Expenses for foreign travel insured by the
employee and/or family members of the
employee borne by the employer shall be
treated as taxable fringe benefits of theemployee.
i. Except:
1. Where the expenses for
foreign travel paid by the
employer for the employee
are for the purpose of
attending business meeting or
convention. The exemption
covers only the following
expenses:a. Inland travel expenses
except lodging cost in
hotel averaging US$
300 or less per
and
b. Cost of econom
business class
ticket.
v. Membership fees, dues and other expenses borne
employer for his employee, in social or athletic clu
other similar organizations.
vi. Life or Health Insurance
1. General rule:
a. The cost of life or health insurance
other non – life insurance premium
similar amounts in excess of what th
allows borne by the employer fo
employees shall be treated as ta
fringe benefits.
i. Except:
1. Contribution of the empfor the benefits of
employee pursuant to ex
laws.
2. The cost of premium bor
the employer for the
insurance of his employe
vii. Holidays and Vacation Expense
viii. Motor Vehicle
1. Motor vehicle purchased by employer in na
employee.2. “Cash for the purchased provided by
employer, the ownership is placed in the na
the employee
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 23/51
XAVIER’S POISON REV
3. Purchase on “Installment” basis, the ownership is
placed in the name of the employee.
4. “Portion” of purchased price shouldered by
employer
5. Fleet of motor vehicle “leased” by the employer
6. Fleet of Motor vehicles owned and maintained by
employer.
ix. Expense Account
1. Expenses incurred by the employee but paid by
his employer.
2. Expenses paid by the employee but reimbursed by
his employer.
a. Expense account not subject to FBT.
i. expenses duly receipted for in the
name of the employer and
ii. The expenditures do not partake the
nature of personal expenses
attributable to the employee.b.
x. Educational Assistance
1. General Rule: The cost of the educational
assistance to the employee or his dependents
which are borne by the employer shall be treated
as Taxable Fringe Benefits.
2. Exception:
a. Education granted to employee
i. Requisites:
1. Educational grant wherebythe study is directly connected
with the trade, business or
profession of the ER.
2. And there is a written co
obligating the EE to re
under the employment
certain period.
b. Educational Assistance granted to
dependents of the employee in the n
of educational assistance to
dependents of the employee throu
competitive scheme under a schola
program of the company.
k. MSR‟s
i. Managerial Employees – Is one who is vested
powers and prerogatives to lay down and ex
management policies and/or to hire, transfer, sus
layoff, recall, discharge, assign and /or disc
employees.
ii. Supervisory Employees – are those who, in the in
of the employer, effectively recommend such manaactions if the exercise of authority is not merely rou
or clerical in nature but require the use of indepe
judgment.
iii. Rank and File Employees – shall mean employees
are holding neither managerial nor supervisory po
as defined under the Labor Code of the Philippines.
6. Allowable deduction from gross income
a. Defined as: Items or amounts which the law allows t
deducted from gross income in order to arrive at the ta
income.i. Because deductions are strictly construed agains
taxpayer, one seeking a deduction must point to
specific provisions of the statute in which that dedu
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 24/51
XAVIER’S POISON REV
is authorized & must be able to prove that he is entitled to
the deduction which the law allows.
b. The following deductions are allowed to individual taxpayers:
i. Personal Exemption
1. Personal exemptions are arbitrary amounts
allowed, in the nature of a deduction from taxable
income, for personal, living or family expenses of
an individual taxpayer. They are considered to be
the equivalent of the minimum of subsistence of
the taxpayer.
a. Who are allowed personal exceptions?
i. Citizens
ii. Resident aliens
iii. Non-resident aliens engaged in trade
or business in the Philippines under
certain conditions
iv. Estates and trusts, which are treated
for purposes of personal exemptions,as a single individual
ii. Additional Exemption
1. A married person or a head of a family may claim
an additional exemption of P8,000 for each
dependent, not exceeding four (4).
2. The additional exemption shall be claimed by only
one of the spouses in the case of married
individuals.
3. In the case of legally separated spouses, it may be
claimed only by the spouse who has custody ofthe child or children.
a. Dependent
i. Refers only to the legiti
illegitimate or legally adopted ch
the taxpayer who is:
1. living with the taxpayer;
2. chiefly dependent upon
taxpayer for support;
3. not more than 21 yea
age;
4. not married; and
5. not gainfully employed
even though over 21
old, incapable of self-su
because of mental or ph
defect.
b. Memo: Personal and additional exem
are available only to business incom
compensation income earners.
iii. Premium payments on health and/or hospitaliinsurance.
1. Premium payments should not exceed P2,40
family or P200 a month for a taxable year.
2. Family has a gross income of not more
P250,000 for the taxable year.
3. In the case of married taxpayers, only the s
claiming the additional exemption for depen
shall be entitled to this deduction.
7. Business/Trade/Professional Income
a. Income coveredi. Income from trading, merchandising, manufacturi
mining
ii. Income from practice of profession
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 25/51
XAVIER’S POISON REV
1. Memo: The term “trade or business” includes the
performance of the functions of a public office.
[Section 22(S), NIRC]
b. Interest Income (A passive income subject to final tax)
i. An earning derived from depositing or lending of money,
goods or credits.
1. General rule: Interest received by a taxpayer,
whether usurious or not, is subject to income tax.
2. Except: When interest income is exempted by law
from income tax.
ii. Interest income derived by a resident individual from a
depositary bank under the expanded Foreign Service
deposit system – 7.5%.
1. Non-resident citizen not included.
iii. Interest income from long term deposit or investment
evidenced by certificates prescribed by BSP:
1. Exempt, if investment is held for more than 5years
2. If investment is pre-terminated, interest income on
such investment shall be subject to the following
rates:
a. 20% - If pre-terminated in less than 3 years
b. 12% - If pre-terminated after 3 years to less
than 4 years
c. 5% - If pre-terminated after 4 years to less
than 5 years.
c. Rental Income
i. Earnings derived from leasing of real estate as well as
personal property. It includes all other obligations
assumed to be paid by the lessee to the third pa
behalf of the lessor.
1. Lease of personal property
2. Lease of real property
a. Taxes paid by the tenant (lessee) to o
lessor for a business property are add
rent and constitute income taxable t
lessor.
d. Dividend Income
i. Dividends means any distributions made by a
corporation to its stockholders (SHs)) out of its ear
or profits and payable to its SHs in money or
property.
1. Cash Dividend
a. A dividend paid in cash and is taxa
the extent of the cash received.
2. Stock Dividend
a. A transfer of a portion of retained eato capital stock by action of stockhold
simply means the capitalization of ret
earnings.
i. General rule: A mere issuan
stock dividends is not subje
income tax, because it m
represents capital and it doe
constitute income to its rec
Before disposition thereof,
dividends are nothing burepresentation of interest in
corporate entity.
ii. Exceptions: When stock divid
are subject to tax;*
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 26/51
’
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 27/51
XAVIER’S POISON REV
2. To deduct allowance for
depreciation thereof.
ii. VAT Exempted (Only to
transactions)
1. Under Section 109(m),
Educational services rendered
by private educational
institutions, duly accredited by
the Department of Education,
Culture and Sports (DECS)
and the Commission on
Higher Education (CHED),
and those rendered by
government educational
institutions are VAT
Exempted.
b. Non-Profit Hospital
i. VAT Exempted under Section109(m), “Medical, dental, hospital
and veterinary services subject to
the provisions of Section 17 of
Republic Act No. 7716, as amended”
c. Proprietary educational institutions and
hospitals which are nonprofit shall pay a tax
of ten percent (10%) on their taxable
income except those covered by
Subsection (D) hereof: Provided, that if the
gross income from unrelated trade,business or other activity exceeds fifty
percent (50%) of the total gross income
derived by such educational institutions or
hospitals from all sources, the tax
prescribed in Subsection (A) hereof sh
imposed on the entire taxable income.
i. the term 'unrelated trade, bus
or other activity' means any
business or other activity,
conduct of which is not substa
related to the exercise
performance by such educa
institution or hospital of its pr
purpose or function. A "Propr
educational institution" is any p
school maintained and adminis
by private individuals or groups
an issued permit to operate fro
Department of Education, C
and Sports (DECS), or
Commission on Higher Edu
(CHED), or the Technical Educand Skills Development Aut
(TESDA), as the case may b
accordance with existing laws
regulations.
b. Resident Foreign Corporation
i. Corporations which are not domestic.
1. Special Resident Foreign Corporation
a. Taxable from all sources within
Philippines.
i. International Carriers*1. Taxable based on
Philippine Billings.
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 28/51
XAVIER’S POISON REV
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 29/51
XAVIER’S POISON REV
Not over P100,000………………………......… 5% On any amount in excess of P100,000……. 10% (d) Intercorporate Dividends. - Dividends received by a resident foreigncorporation from a domestic corporation liable to tax under this Code shall notbe subject to tax under this Title.
c. Non-Resident Foreign Corporationi. Special Non-Resident Foreign Corporation
1. GR: - Under Section 28(B), a foreign corporationnot engaged in trade or business in the Philippinesshall pay a tax equal to thirty-five percent (35%) ofthe gross income received during each taxableyear from all sources within the Philippines, suchas interests, dividends, rents, royalties, salaries,premiums (except reinsurance premiums),annuities, emoluments or other fixed ordeterminable annual, periodic or casual gains,profits and income, and capital gains, exceptcapital gains subject to tax
a. Non-Resident Lessor of CinematographicFilm
i. A cinematographic film owner,lessor, or distributor shall pay a taxof twenty-five percent (25%) of itsgross income from all sources withinthe Philippines.
b. Non-Resident Lessor of vessels charteredby Philippine Nationals
i. A nonresident owner or lessor ofvessels shall be subject to a tax offour and one-half percent (4 1/2%) ofgross rentals, lease or charter feesfrom leases or charters to Filipinocitizens or corporations, as approvedby the Maritime Industry Authority.
c. Non-Resident Lessor of Aircraft, Machineryand Equipment
i. Rentals, charters and other derived by a nonresident lessaircraft, machineries and equipment shall be subject to of seven and one-half perce1/2%) of gross rentals or fees.
3. Minimum Corporate Income Tax (MCIT)a. A tax at the rate of 2% based on gross income impos
domestic and resident foreign corporations not covered special income tax system, beginning the 4 th taxable yewhich such corporation commenced its business operatiois imposed whenever such corporation has (a) zero or negnet taxable income; or (b) the amount of minimum corpincome tax is greater than the normal income tax due fromcorporation.
b. Rationale of MCITi. This is designed to prevent corporations from esc
being taxed by including frivolous expenses in statement of income (Ex. Over statement of deprecexpense)
c. Nature of MCITd. MCIT is not an additional tax to the regular or normal income. Coverage of MCIT
i. Domestic Corp, Resident Foreign Corporation.f. When does a corporation start to be covered by the MCIT?
i. (When to begin or apply MCIT?) Beginning on thtaxable year immediately following the year in whichcorporation commenced its business operation
1. (Commencement of Business Operation: Issuance of BIR Certificate of Registration)
g. Suspension of the payment of MCITi. The Secretary of Finance is hereby authorize
suspend the imposition of the minimum corporate intax on any corporation which suffers losses on accoprolonged labor dispute, or because of force majeubecause of legitimate business reverses.
XAVIER’S POISON REV
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 30/51
XAVIER S POISON REV
ii. The Secretary of Finance is hereby authorized topromulgate, upon recommendation of the Commissioner,the necessary rules and regulation that shall define theterms and conditions under which he may suspend theimposition of the minimum corporate income tax in ameritorious case.
h. How is MCIT computed?i. MCIT Rate = 2% of gross income (GI)
1. Example: for 2006 calendar yearGI = P500,000 2% of GI =
P10,000TI = P27,000 35% of TI =
P9,4502006 IT = P10,000
i. When is MCIT reported and paid? j. Can the company claim the MCIT it paid as a deduction from
gross income?i. Yes
1. If regular income tax (35% of taxable income) isgreater than MCIT (2% of GI) Pay Regular IncomeTax.
a. You can deduct MCIT Carry Forward only ifRegular Income Tax is greater than MCITY
2. If regular income tax is less than MCIT.k. What is the carry forward provision under the MCIT?
i. Under Section (E) (2) of the NIRC, Any excess of theminimum corporate income tax over the normal incometax shall be carried forward and credited against thenormal income tax payable for the next three yearsimmediately succeeding the taxable year in which the
minimum corporate income tax was paid. (3 succeedingyears).
4. Improperly Accumulated Earnings Tax (IAET)a. The term 'improperly accumulated taxable income' means
taxable income' adjusted by:
i. Income exempt from tax;ii. Income excluded from gross income;iii. Income subject to final tax; andiv. The amount of net operating loss carry-over deducte
And reduced by the sum of:(1) Dividends actually or constructively paid; and(2) Income tax paid for the taxable year.
Provided, however , That for corporations using the calendar
basis, the accumulated earnings under tax shall not appimproperly accumulated income as of December 31, 1997. In theof corporations adopting the fiscal year accounting periodimproperly accumulated income not subject to this tax, shareckoned, as of the end of the month comprising the twelve (12)-mperiod of fiscal year 1997-1998.
b. Rationalei. If the earnings and profits were distributed
shareholders would then be liable for income tax; distribution were not made to them, they would inctax in respect to the undistributed earnings and pro
the corporation. It is a tax in the nature of a penalty corporation for the improper accumulation of its earand a deterrent to the avoidance of tax shareholders who are supposed to pay dividends.
c. What is the touchstone of liability?i. Section 29 of the NIRC provides that, There is im
for each taxable year, in addition to other taxes, equal to 10% of the improperly accumulated taincome of domestic and closely-held corporations
1. Only domestic and closely-held corporationliable for IAET.
d. Determination of reasonable needs of the businessi. The reasonable needs of the business is determined
1. Immediacy Testa. It states that the “reasonable needs
business” are the 1) immediate nee
XAVIER’S POISON REV
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 31/51
XAVIER S POISON REV
the business; and 2) reasonably anticipatedneeds (Ex.Expansion)
2. How to prove the “reasonable needs of thebusiness” : The corporation should prove that thereis 1) an immediate need for the accumulation ofthe earnings and profits; or 2) a direct correlationof anticipated needs to such accumulation ofprofits.
e. What constitute accumulation of earnings for the reasonableneeds of the business?
i. The following constitute accumulation of earnings for thereasonable needs of the business:
1. Allowance for the increase in the accumulation ofearnings up to 100% of the paid-up capital of thecorporation as of Balance Sheet date, inclusive ofaccumulations taken from other years;
2. Earnings reserved for definite corporate expansionprojects or programs requiring considerable capitalexpenditure as approved by the Board of Directorsor equivalent body;
3. Earnings reserved for building, plants orequipment acquisition as approved by the Boardof Directors or equivalent body;
4. Earnings reserved for compliance with any loancovenant or pre-existing obligation establishedunder a legitimate business agreement;
5. Earnings required by law or applicable regulationsto be retained by the corporation or in respect ofwhich there is legal prohibition against itsdistribution;
6. In the case of subsidiaries of foreign corporationsin the Philippines, all undistributed earningsintended or reserved for investments within thePhilippines as can be proven by corporate recordsand/or relevant documentary evidence.
f. Coverage of IAET
i. The improperly accumulated earnings tax shall apevery corporation formed or availed for the purpoavoiding the income tax with respect to shareholdethe shareholders of any other corporation, by permearnings and profits to accumulate instead of divided or distributed. (E.g Holding Company)
1. Closely-held corporations are those:a. at least 50% in value of the outsta
capital stock; orb. at least 50% of the total combined
power of all classes of stock entitled tois owned directly or indirectly by or fomore than 20 individuals. Domcorporations not falling under the afodefinition are, therefore, publiclycorporations.
g. Corporations not subject to IAETi. The IAET shall not apply to the following corporation
1. Banks and other non-bank financial intermed2. Insurance companies
3. Publicly-held corporations4. Taxable partnerships;5. General professional partnerships6. Non- taxable joint ventures7. Enterprises that are registered:
a. With the Philippine Economic Authority (PEZA) under R.A. 7916
b. Pursuant to the Bases ConversionDevelopment Act of 1992 under R.A. 7
c. Under special economic zones declarlaw which enjoy payment of special taon their registered operations or activitlieu of other taxes, national or local.
h. Prima facie instances of accumulation of profits beyonreasonable needs of a business and indicative of purpoavoid income tax upon shareholders.
XAVIER’S POISON REV
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 32/51
i. Investment of substantial earnings and profits of thecorporation in unrelated business or in stock or securitiesof unrelated business;
ii. Investment in bonds and other long-term securities; andiii. Accumulation of earnings in excess of 100% of paid-up
capital, not otherwise intended for the reasonable needsof the business. The controlling intention of the taxpayeris that which is manifested at the time of accumulation. A
speculative and indefinite purpose will not suffice. Themere recognition of a future problem or the discussion ofpossible and alternative solutions is not sufficient.Definiteness of plan/s coupled with action/s takentowards its consummation is essential.
5. Partnerships Taxed as Corporationsa. Partnership
i. Partnership is a contract whereby two or more personsbind themselves to contribute money, property, orindustry to a common fund with the intention of dividingthe profits among themselves.
b. Taxable Partnership
i. An ordinary business partnership is considered as acorporation and is thus subject to tax as such. Partnersare considered stockholders and, therefore, profitsdistributed to them by the partnership are considered asdividends.
ii. GR: Partnerships, no matter how created or organized,including joint ventures or consortiums, are taxable.
1. The term "corporation" shall include partnerships,no matter how created or organized, joint-stockcompanies, joint accounts (cuentas enparticipacion), association, or insurancecompanies, but does not include generalprofessional partnerships and a joint venture orconsortium formed for the purpose of undertakingconstruction projects or engaging in petroleum,coal, geothermal and other energy operations
pursuant to an operating consortium agreeunder a service contract with the Governmen
c. Exempt Partnershipi. GPP
1. General professional partnerships are not tabut partners are taxed on their sharpartnership profits actually or constructivelyduring the year. (Not subject to income tax)
a. Taxable as an entity - ordinary corpincome tax.
b. For purposes of computing distributive share of the partners, thincome of the GPP shall be computthe same manner as a corporation.
d. Elements constitutive of taxable partnershipi. The essential elements of a partnership are: (
agreement to contribute money, property, or industrcommon fund; and (2) an intent to divide the pamong the contracting parties.
e. Example of unregistered partnership taxable as corporation
i. Gatchalian v. Collector, 102 Phil 1401. Plaintiffs contributed money to buy a sweeps
ticket which subsequently won. The SupCourt held that they formed an unregispartnership. Plaintiffs formed a partnershipcivil nature since each of them contributed mto a common fund for the sole purpose of divequally the prize which they win.
f. Rules on Co-Ownershipi. If the activities of co-owners are limited to
preservation of the property and the collection oincome therefrom, in which case, each co-owner is individually on his distributive share in the income co-ownership.
ii. If the co-owners invest the income in business for they would be constituting themselves into a partnetaxable as a corporation.
XAVIER’S POISON REV
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 33/51
g. General Professional Partnership v. General/OrdinaryPartnership
GPP GPGeneral professional partnerships arepartnerships formed by persons forthe sole purpose of exercising theircommon profession, no part of theincome of which is derived from
engaging in any trade or business.[Section 22(B), NIRC]
All other partnerships no matter howcreatedor organized.
Persons engaging in business aspartners in a general professionalpartnership shall be liable for incometax only in their separate andindividual capacities. [Section 26,NIRC]
Taxable as an entity - ordinarycorporateincome tax.
Each partner shall report as grossincome his distributive share, actuallyor constructively received, in the netincome of the partnership. [Section26, NIRC]
Partners are considered stockholdersand, therefore, profits distributed tothem by the partnership areconsidered as dividends.
h. Joint Venturei. A joint venture is created when two corporations, while
registered and operating separately, were placed underone sole management which operated the businessaffairs of said companies as though they constituted asingle entity thereby obtaining substantial economy andprofits in the operation.
ii. A joint venture is not taxed as a corporation, just like ageneral professional partnership.1. Joint ventures are not taxable as corporations
when its purpose if a) undertaking constructionprojects; b) engaged in petroleum, coal and other
energy operation under a service contract wigovernment.
i. Other Corporate Tax Ratesi. Rates on sale of shares of stocks
1. Capital gains from sale of shares of stoctraded in the stock exchange (Whether RC, RA, NRAETB, NRANETB, DC, RFC, NRFC)
a. Not over P100,000 – 5% of the net c
gains realized during the taxable yearb. Over P100,000 – 10%
2. Gross Income Taxa. The term 'gross income' derived
business shall be equivalent to gross less sales returns, discounts allowances and cost of goods sold.
b. An income tax of thirty-five percent (35hereby imposed upon the taxable inderived during each taxable year frosources within and without the Philipby every corporation, as defined in S
22(B) of this Code and taxable undeTitle as a corporation, organized existing under the laws of the PhilipProvided , That effective January 1, the rate of income tax shall be thirtpercent (34%); effective January 1, the rate shall be thirty-three percent (and effective January 1, 2000 thereafter, the rate shall be thirpercent (32%).
c. In the case of corporations adoptinfiscal-year accounting period, the ta
income shall be computed without regthe specific date when specific spurchases and other transactions oTheir income and expenses for the year shall be deemed to have been e
XAVIER’S POISON REV
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 34/51
and spent equally for each month of theperiod.
3. Branch Profit Remittance Taxa. Shall be imposed on any profit remitted by
a branch to its head office.b. Branch will be subjected to ordinary
corporate tax as a resident foreigncorporation (35%). Afterwards, the profits
for remittance shall then be subject to 15%BPRT.
6. Tax-Sparing Credit Rulea. Tax reduced by the Philippines should be fully applied or
credited to the tax on dividend income received by the non-resident foreign corporation imposed by the country of itsdomicile. This serves as an incentive by reducing their taxliability in the Philippines and in their residence countries.
i. Ex. Domestic corporation paid cash dividend to non-resident foreign corporation (NRFC) organized in Brazil.This shall form part of NRFC‟s income therefore taxablealso in Brazil. The dividend received shall only be taxed
at 15% in the Phils (instead of 35%) if Brazil willreduce/credit at least 20% of the tax imposed in the Phils.from its tax imposed in Brazil. [See Section 28(5)(b)]
ii. If Brazil will credit/reduce less than 20% or will not creditany amount, then the Phils will tax the dividend at 35%(ordinary income tax).
iii. Phils. cannot give more than 15% tax credit because thelaw only allows such.
7. Tax-Exempt Corporations under the NIRCa. General Professional Partnershipsb. Joint ventures under a service contract with the governmentc. Government owned or controlled corporations
i. Government Service Insurance System (GSIS)ii. Social Security System (SSS)iii. Philippine Health Insurance Corporation (PHIC)iv. Philippine Charity Sweepstakes Office (PCSO)
v. Philippine Amusement and Gaming Corpo(PAGCOR)
d. Under Section 30 of the NIRC:i. Exemptions from Tax on Corporations.
1. Labor, agricultural or horticultural organizatioorganized principally for profit;
2. Mutual savings bank not having a capital represented by shares, and cooperative
without capital stock organized and operatemutual purposes and without profit;
3. A beneficiary society, order or associoperating fort the exclusive benefit of the memsuch as a fraternal organization operating the lodge system, or mutual aid associationnonstock corporation organized by emploproviding for the payment of life, sickaccident, or other benefits exclusively tomembers of such society, order, or associatinonstock corporation or their dependents;
4. Cemetery company owned and ope
exclusively for the benefit of its members;5. Nonstock corporation or association orga
and operated exclusively for religious, charscientific, athletic, or cultural purposes, or forehabilitation of veterans, no part of its net inor asset shall belong to or inures to the benany member, organizer, officer or any spperson;
6. Business league chamber of commerce, or of trade, not organized for profit and no part net income of which inures to the benefit oprivate stock-holder, or individual;
7. Civic league or organization not organizeprofit but operated exclusively for the promotsocial welfare;
8. A nonstock and nonprofit educational instituti9. Government educational institution;
XAVIER’S POISON REV
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 35/51
10. Farmers' or other mutual typhoon or fire insurancecompany, mutual ditch or irrigation company,mutual or cooperative telephone company, or likeorganization of a purely local character, theincome of which consists solely of assessments,dues, and fees collected from members for thesole purpose of meeting its expenses; and
11. Farmers', fruit growers', or like association
organized and operated as a sales agent for thepurpose of marketing the products of its membersand turning back to them the proceeds of sales,less the necessary selling expenses on the basisof the quantity of produce finished by them;
12. Notwithstanding the provisions in the precedingparagraphs, the income of whatever kind andcharacter of the foregoing organizations from anyof their properties, real or personal, or from any oftheir activities conducted for profit regardless ofthe disposition made of such income, shall besubject to tax imposed under this Code.
ALLOWABLE DEDUCTIONS FROM GROSS INCOME
1. Basic Principles
a. Deductions from gross income refer to items or amounts
authorized by law to be subtracted from pertinent items of gross
income to arrive at the taxable income.
b. The following are the conditions in order the taxpayer can claim
deductions:
i. Point to some specific provisions of the statute
authorizing the deduction
ii. Able to prove that he is entitled to the deductionauthorized or allowed;
iii. Any amount paid or payable which is otherwise
deductible from, or taken into account in computing gross
income or for which depreciation/amortization ma
allowed, shall be allowed as deduction only if it is s
that the tax required to be deducted and wit
therefrom has been paid to the BIR; (Sec. 34, NIRC
iv. Deductions for income tax purposes partake of the n
of tax exemptions hence, if tax exemptions are
strictly construed, then it follows that deductions
also be strictly construed.c. The following are the rules in claiming deductions:
i. Deductions must be paid or incurred in connection
the taxpayer‟s trade, business or profession
ii. Deductions must be supported by adequate recei
invoices (except standard deduction)
d. The following are not allowed to claim deductions:
i. NRA-ETB and NRFC since their tax base is
income.
ii. A RC, NRC, and RA whose income is p
compensation income are also not entitled to deduction except to premium payments on health a
hospitalization insurance.
2. The COHAN Rule Principle
a. Under this principle, taxpayers may use estimates when
can show that there is some factual foundation on which to
a reasonable approximation of the expense, they can prov
they had made a deductible expenditure but just cannot
how much that expenditure was. (Cohan v. Commissioner
(2d) 540)
i. It is the use of estimates or approximations of the am
of cash and other assets where the taxpayer
adequate records.
ii. If there is showing that expenses have been incurre
the exact amount thereof cannot be ascertained d
XAVIER’S POISON REV
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 36/51
the absence of receipts and vouchers of the expenditures
involved, the BIR will make an estimate of deduction that
may be allowable in computing the taxpayer's taxable
income bearing heavily against the taxpayer whose
inexactitude is of his own making. That disallowance of
50% of the taxpayer‟s claimed deduction is valid. (RMC
23-2000)
3. Deduction v. Exclusiona. Exclusion refers to a flow of wealth which does not form part of
the gross income because 1. It is exempted by the fundamental
law or by a statute and 2. It does not come within the definition
of income. Deduction (Allowable) refers to amounts which the
law allows as deductions from gross income in order to arrive at
net income or taxable income.
b. Exclusion is material to arrive at gross income while Deduction
is necessary to arrive at net or taxable income.
c. Exclusion refers to something that is earned and received which
do not form part of the gross income while Deduction is refers tosomething that is paid or incurred in earning or gross income.
4. Allowable Deduction v. Personal Exemptions
a. As to its nature
i. Allowable deduction is in the nature of business
expenses while Personal exemption is in the nature of
personal, living or family expenses.
b. As to its purpose
i. Allowable deduction‟s purpose is to recover or recoup the
cost of doing business while Personal exemption‟s
purpose is to recover the personal, living and family
expenses paid or incurred during the taxable year.
c. As to claimant
i. In Allowable deduction, it may be claimed by indi
and corporate taxpayers, except NRA-NETB and N
In Personal exemption, it may only be claimed b
individual taxpayer, except NRA-NETB.
d. As to amount
i. In Allowable deduction, the actual expenses pa
incurred in the conduct of trade, business or profes
In Personal exemption, arbitrary amounts grantapproximate the personal expenses that may be inc
by individual taxpayer.
5. Deductions allowed under the NIRC
a. Optional Standard Deduction
i. It is a scheme whereby a taxpayer is given the opt
deduct from his gross revenue or gross income a
sum equivalent to a percentage of such gross reven
gross income for purposes of computing the net ta
income on which the income tax rate will be applied
ii. The optional standard deduction is an amounexceeding:
1. 40% of the gross sales or gross receipts
qualified individual taxpayer; or
2. 40% of the gross income of a qu
corporation. (Sec. 34 [L], NIRC)
iii. Itemized deduction vs OSD
1. Itemized Deduction must be substantiate
receipts while OSD requires no proof of exp
incurred because the allowable deduction is
of gross sales or receipts or gross income a
case may be.
b. What are personal exemptions?
XAVIER’S POISON REV
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 37/51
i. These are arbitrary amounts allowed as deductions from
gross income of an individual representing personal,
living and family expenses of the taxpayer.
1. Basic Personal Exemption – the amount
subtracted from gross income which is allowed for
the theoretical personal, family, and living
expenses of an individual taxpayer regardless of
status, whether single or married individual judicially decreed as legally separated with no
qualified dependents or head of the family.
c. What are additional exemptions?
i. These are exemptions in addition to the basic personal
exemptions that are granted to certain individual who
have dependents that qualify them for this exemption.
d. Extraordinary (Special) Deductions
i. These are deductions usually allowed only for particular
business or enterprises and not to others, or may be
allowed for all but are not provided for under theprovisions of the NIRC but under special laws.
ii. The following are special deductions allowed under the
NIRC
1. Insurance Companies (They can deduct the..)
(Sec 37 of NIRC)
a. Non-Life:
i. Net additions, if any, required by law
to be made within the year to reserve
funds;
ii. Sum paid on the policy within the
year and annuity contracts other
than dividends provided that the
released reserve be treated as
income for the year of release.
3[A], NIRC)
b. Mutual Marine Insurance
i. Amounts repaid to policy holde
account of premiums previously
by them;
ii. Interest paid upon those am
between the date of ascertainand the date of its payment. (S
[B], NIRC)
c. Mutual insurance – mutual fire and m
employer‟s liability and mutual workm
compensation and mutual ca
insurance
i. Portion of the premium de
returned to the policy holders;
ii. Portion of the premium de
retained for the payment of loexpenses and reinsurance res
(Sec. 37[C], NIRC)
d. Assessment Insurance
i. Amount actually deposited
officers of the Government o
Philippines pursuant to law
addition to guarantee or re
funds. (Sec. 37[D], NIRC)
2. Estates and Trust
a. Amount of income paid, credite
distributed to the heirs/ beneficiaries; a
b. Amount applied for the benefit o
grantor. (Sec. 61, NIRC)
3. Losses from wash sales of stocks or securitie
XAVIER’S POISON REV
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 38/51
a. What is wash sales?
i. It is a sale or other disposition of
stock or securities where
substantially identical securities are
acquired or purchased within 61-day
period, beginning 30 days before the
sale and ending 30 days after the
sale.b. It is not deductible when:
i. A taxpayer who is not a dealer of
stocks in trade has disposed shares
and
ii. Within the period of 60(sixty) days
beginning 30 days before the date of
such sale and ending 30 days after
such date, the taxpayer has acquired
substantially identical stocks or
securities.1. General rule: not deductible
(since it is considered as
artificial loss) unless claim is
made by a dealer in
stock/securities & made in
ordinary course of business.
4. Certain capital losses but only from capital gains
a. Capital Lossesi. Losses from sale or exchange of
capital assets. Deductible to the
extent of capital gains only.b. Deductions allowed only to the extent of the
gains from such sales or exchanges of
capital assets (does not apply to banks and
trust companies).
i. Losses from sale or exchan
capital assets.
ii. Losses resulting f rom secu
becoming worthless and whic
capital assets.
iii. Losses from short sales of prop
iv. Losses due to failure to exe
privilege or option to buy oproperty.
5. Deductions allowed to private educa
institution
a. In addition to the expenses allowe
deduction, it has the option to trea
amount utilized for the acquisitio
depreciable assets for expansion of s
facilities as:
i. Outright expense (the entire amis deducted from gross income)
ii. Capital asset and deduct only
the gross income an am
equivalent to its depreciation
year. (Sec. 34 A [2], NIRC)
b. In addition to the expenses allowab
deductions, a private educational insti
has the option to elect either:
i. To deduct as expense
otherwise considered as c
outlays of depreciable assets f
expansion of school facilities.
ii. To capitalize asset & d
allowance for depreciation.
XAVIER’S POISON REV
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 39/51
ITEMIZED DEDUCTIONS
Who can claim itemized deductions?
o Corporations, whether domestic or (resident) foreign
o General Professional Partnerships
o Individuals engaged in trade, profession or business (citizen,
resident alien, non-resident alien doing business in the
Philippines)o Estates and trusts engaged in trade or business
o Proprietary educational institutions and hospitals (non-profit)
o Government-owned or controlled corporations
o Only individuals, except non-resident aliens, can elect between
itemized deductions and optional standard deduction.
6. Business Expense (Sec 34A)
a. Expenditure related to the business that is deductible in the year
incurred, in the same taxable year.
b. Requisites for deductibility
i. It must be ordinary and necessary
ii. It must be paid or incurred during the taxable yeariii. It must be paid or incurred in carrying on or which are
directly attributable to the development, management,
operation and/or conduct of the trade, business or
exercise of a profession.
iv. The amount must be reasonable
v. It must be substantiated with sufficient evidence, such as
official receipts or other adequate records, showing:
1. The amount of the expense being deducted, and
2. The direct connection or relation of the expense
being deducted to the development, management,operation and/or conduct of the trade, business
or profession of the taxpayer
vi. It is not contrary to law, public policy or morals.
vii. The tax required to be withheld on the amount p
payable must have been paid to the BIR by the tax
who is constituted as a withholding agent o
government.
c. Kinds of Business Expense
i. Compensation for personal service
1. Salaries, wages and other forms of compen
for personal services actually rendered, inclthe grossed-up monetary value of the
benefit subjected to fringe benefit tax whic
should have been paid.
2. Condition for its deductibility:
a. Services actually rendered;
b. Compensation is for such se
rendered; and
c. Reasonable.
ii. Travelling expenses
1. For travel expenses, here and abroad, whilefrom home, in the pursuit of trade, busine
profession.
2. Include meals and lodging, here and/or abroa
3. While away from home means away from pri
place of business
4. If the trip is undertaken for purposes othe
business or exercise of profession,
transportation expenses are personal exp
and the meals and lodging are living exp
and are not deductible.
5. Transportation expenses of an employee froresidence to his office and back are
deductible. They are personal expe
However, transportation expenses from his
XAVIER’S POISON REV
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 40/51
to his customer‟s place of business and back are
deductible. They are business expenses.
6. Requisites for deductibility of Travel expenses
a. Reasonable and necessary expenses;
b. Incurred or paid while Away from home;
and
c. In Pursuit of trade or business
iii. Representation and Entertainment Expenses1. Include “representation expenses and/or
depreciation or rental expense relating to
entertainment facilities.” (1st par., Sec. 2, Rev.
Regs. 110-2002)
2. Requisites for deductibility:
a. Substantiated with sufficient evidence;
b. Paid or incurred in the Pursuit of trade or
business ;
c. Not contrary to laws, morals and public
policy or public order;d. Paid or incurred During the taxable year;
e. Reasonable; and
f. Does not constitute Bribe, kickback or other
similar payments.
3. “Representation expenses” shall refer to expenses
incurred by a taxpayer in connection with the
conduct of his trade, business or exercise of
profession, in entertaining, providing amusement
and recreation to, or meeting with, a guest or
guests at a dining place, place of amusement,
country club, theater, concert, play, sporting eventand similar events or places.
4. “Entertainment facilities” shall refer to a yacht,
vacation home or condominium; and any other
similar item of real or personal property us
the taxpayer primarily for the entertain
amusement, or recreation of guests or emplo
(Sec. 2, RR 10-2002)
iv. Advertising and Promotional Expenses
1. Requisites for deductibility:
a. Substantiated with sufficient evidence;
b. All payments for the purchasepromotional giveaways, contest priz
similar material must be properly rece
and
c. All payments for services such as radi
TV time, print ads, talent fees, adver
expense or know-how must be subjec
withholding tax.
v. Rent Expense
1. Required as a condition for the continued u
possession, for purposes of the trade, busineprofession, of property to which the taxpaye
not taken or is not taking title or in which he h
equity other than that of a lessee, us
possessor.
2. Requisites for deductibility
a. Payment was made as a condition
continuous use of or possession o
property;
b. Taxpayer has not taken or is not takin
to the property or has no equity other
that of a lessee, user or possessor;c. Property must be used in the trad
business; and
XAVIER’S POISON REV
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 41/51
d. Subject to withholding tax (5%) if business
property the rental must be at least P500 in
case of non-business or residential property
the rental is at least P10,000 subject to 5%
tax.
vi. Cost of Materials and Supplies
1. Materials and supplies are deductible only to the
amount actually consumed or used in theoperation during the taxable year.
vii. Repairs
1. Repairs are allowed as deduction when it is minor
and ordinary. Major and extraordinary repairs are
capitalized and included in determining
depreciation expense.
a. Extraordinary repairs - those in the nature
of replacements, alteration, and expansion
to the extent that they arrest deterioration
and prolong the life of the property.
b. Ordinary repairs - those made to keep the
property ordinarily efficient working
condition and do not materially add to the
value of the property.
7. INTEREST
a. The amount of interest paid or incurred within a taxable year on
indebtedness in connection with the taxpayer's profession,
trade or business shall be allowed as deduction from gross
income. (Sec. 34, B (1)).
b. Requisites for deductibility:
i. There must be a valid and existing indebtedness.ii. The indebtedness must be that of the taxpayer.
iii. The interest must be legally due and stipulated in writing.
iv. The interest expense must be paid or incurred durin
taxable year.
v. The indebtedness must be connected with the taxp
trade, business or exercise of profession.
vi. The interest payment arrangement must not be be
related taxpayers.
vii. The interest is not expressly disallowed by law
deducted from the taxpayer‟s gross income. viii. The amount of interest deducted from gross income
not exceed the limit set forth in the law.
c. Deductible Interest Expense
i. Interest on taxes, such as those paid for deficien
delinquency, since taxes are considered indebted
(provided that the tax is a deductible tax, except
case of income tax). However, fines, penalties
surcharges on account of taxes are not deductibleinterest on unpaid business tax shall not be subjec
the limitation on deduction.
ii. Interest paid by a corporation on scrip dividends.
iii. Interest on deposits paid by authorized banks of the
to depositors, if it is shown that the tax on such in
was withheld.
iv. Interest paid by a corporate taxpayer who is liable
mortgage upon real property of which the
corporation is the legal or equitable owner, even tho
is not directly liable for the indebtedness.
d. Non-Deductible Interest Expense
i. Interest paid in advance through discount or otherw
case of cash basis taxpayer)
1. Allowed as deduction in the year the debt is p
XAVIER’S POISON REV
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 42/51
2. If indebtedness is payable in periodicamortizations, int. is deducted in proportion of theamt. of the principal paid.
ii. Payments made:1. Between members of a family (include only
brothers & sisters, spouse, ancestors, & linealdescendants).
2. Between an individual & a corp. more than
50% in value of outstanding stock is owned bysuch individual (except in case of distributionsin liquidation).
3. Between 2 corps. more than 50% in value ofoutstanding stock owned by same individual, ifeither one is a personal holding co. or a foreignholding co. during the taxable yr. preceding thedate of sale/exchange.
4. Between grantor & fiduciary of any trust.5. Between Fiduciary of a trust & the fiduciary of
another if same person is a grantor to eachtrust.
6. Between Fiduciary & a beneficiary of a trust.7. Indebtedness is incurred by a service
contractor to finance petroleum corp.8. Interest on preferred stock which in reality is
dividend.9. Interest on unpaid salaries and bonuses.10. Interest calculated for cost keeping on account
of capital or surplus invested in business whichdoes not represent charges arising underinterest-bearing obligation.
11. Interest paid when there is no stipulat ion forthe payment thereof
8. TAXESa. Nature and Scope
i. The word „taxes‟ means taxes proper and nodeduction should be allowed for amounts representing
interest, surcharge, or penalties incident to delinqu(Sec. 80, RR-2)
ii. The term “taxes” refers to national and local taxesmeans TAXES PROPER, hence, no deductionallowed for:
1. Interests2. Surcharges3. Penalties or fines incident to delinquency (se
Rev. Reg. 2)b. Requisites for deductibility:
i. It must be paid or incurred within the taxable year.ii. It must be paid or incurred in connection wi
taxpayer‟s trade, profession or business. iii. It must be imposed directly on the taxpayer.iv. It must not be specifically excluded by law
being deducted from the taxpayer‟s gross income.
c. Tax Deduction v. Tax Crediti. In Tax Deduction, the tax is deducted from gross in
while in Tax Credit, the tax is deducted from PhilIncome Tax.
ii. In Tax Deduction, only foreign income taxes maclaimed as credits; In Tax Credit, all taxes are allowbe deducted with the exception of the taxes expexcluded.
9. LOSSESa. Losses actually sustained during the taxable year an
compensated for by insurance or other forms of indemnity.b. Requisites for deductibility:
i. Loss belongs to the Taxpayer;ii. Actually sustained and charged off during the ta
year;iii. Evidenced by a closed and completed transaction;iv. Not compensated by Insurance or other form
indemnity;
XAVIER’S POISON REV
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 43/51
v. Not claimed as a deduction for Estate tax purposes incase of individual taxpayers; and
vi. If it is Casualty loss, it is evidenced by a declaration ofloss file within 45 days with the BIR.
c. Kinds of Lossesi. Ordinary Losses
1. Incurred in trade or business, or practice ofprofession;
2. Of property connected with trade, business orprofession, if the loss arises from storms,shipwreck, fires or other casualties, or fromrobbery, theft or embezzlement. (Casualty loss)
a. Total Destruction – the basis of the loss isthe net book value immediately precedingthe casualty to be reduced by the amount ofinsurance or compensation received;
b. Partial Destruction – the replacement costto restore the property to its normaloperating condition, but in no case shall thedeductible loss be more than the net book
value of the property as a whole,immediately before casualty. The excessover the net book value immediately beforethe casualty should be capitalized, subjectto depreciation over the remaining usefullife of the property.
ii. Net Operating Loss Carry-Over1. It is the excess of allowable deductions over gross
income of business for any taxable year which hadnot been previously offset as deduction from grossincome.
2. It shall be carried over as deduction from gross
income for the next 3 consecutive years followingthe year of such loss. Provided that:
a. The taxpayer was not exempt from incometax in the year of such net operating loss;and
b. There has been no substantial chanthe ownership of the business or enter
iii. Capital Losses – losses from sale or exchange of cassets. Deductible to the extent of capital gains only
d. Special Kinds of Lossesi. Wagering losses – deductible only to the extent of g
winnings deemed to only apply to individuals (Sec.[6], NIRC)
ii. Losses on wash sales of stocks – not deductible these are considered as artificial lossiii. Abandonment losses in petroleum operation
accumulated exploration and development expendpertaining thereto shall be allowed as a deduction
iv. Abandonment losses in producing well – the unamocost thereof, as well as the undepreciated coequipment directly used therein, shall be allowededuction in the year the well, equipment or faciabandoned
v. Losses due to voluntary removal of building incidrenewal or replacements – deductible expense
gross incomevi. Losses from sales or exchanges of property be
related taxpayers – losses are not deductible but are taxable.
vii. Losses of farmers – If incurred in the operation ofbusiness, it is deductible
viii. Loss in shrinkage in value of stock – If the stock corporation becomes worthless (not mere mfluctuations,) the cost or other basis may be deductthe owner in the taxable year in which the stock becworthless.
e. Non-deductible losses
i. Loss:1. In dealings between related taxpayers.2. From wash sales of stocks.3. Due to removal of buildings purchased
existing and not incident to renewal)
XAVIER’S POISON REV
10 BAD DEBTS b R i it f d d tibilit
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 44/51
10. BAD DEBTSa. Bad debts refer to debts resulting from the worthlessness or
uncollectibility, in whole or in part, of amount due to the taxpayerby others, arising from money lent or from uncollectible amountsof income from goods sold or services rendered. (Sec. 2, RR 5-99.
b. These are debts due to the taxpayer actually ascertained to beworthless and charged off in the books of the taxpayer within
the taxable year except those:i. Not connected with trade, business or profession; andii. Between related taxpayers
c. Requisites for deductibility:i. The debts are Uncollectible despite diligent effort exerted
by the taxpayer;ii. Existing indebtedness Subsisting due to the taxpayer
which must be valid and legally demandable;iii. Connected with the taxpayer‟s Trade, business or
practice of profession;iv. Actually Charged off in the books of accounts of the
taxpayer as of the end of the taxable year;
v. Actually Ascertained to be worthless and uncollectible asof the end of the taxable year; and
vi. Must not be sustained in a transaction entered intobetween Related parties.
d. Measure of Bad Debts deductiblei. The debtor has no property nor visible income;ii. The debtor has been adjudged bankrupt or insolvent;iii. There are numerous debtors with small amounts of debts
and further action on the accounts would entail expensesexceeding the amounts sought to be collected;
iv. The debt can no longer be collected even in the future;and
v. Collateral shares have become worthless.11. DEPRECIATION
a. Depreciation is the gradual diminution in the useful (service)value of tangible property used in trade, profession or businessresulting from exhaustion, wear and tear and obsolescence.
b. Requisites for deductibility:i. Reasonable;ii. Property Used in trade, business, or exercise
profession;iii. The allowance must be Charged off within the ta
year; andiv. Schedule on the allowance must be attached t
return.
12. DEPLETION OF OIL, GAS, WELLS AND MINESa. It is the exhaustion of natural resources like mines and ogas wells as a result of production or severance from mines or wells.
b. Theory and purpose of depletion allowancec. Who are entitled?
i. Annual depletion deductions are allowed only to mentities which own an economic interest in mdeposits. (Sec. 3, RR 5-76)
13. CHARITABLE AND OTHER CONTRIBUTIONSa. Requisites for deductibility
i. The contribution or gift must be Actually paid;
ii. It must be paid Within the taxable year;iii. It must be given to the organization Specified by lawiv. It must be Evidenced by adequate receipts or rec
andv. The amount of charitable contribution of property
than money shall be based on the Acquisition cost oproperty.
b. Kindsi. Ordinary or those which are subject to limitations
the amount deductible from gross income.ii. Special or those which are deductible in full from
income.
c. Donations/Contributions deductible in fulli. Donations to the Philippine government or to any of
political subdivisions according to a national priority determined by NEDA.
XAVIER’S POISON REV
ii Donations to foreign institutions or international i Revenue Expenditure it will be wholly deducte
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 45/51
ii. Donations to foreign institutions or internationalorganizations which are fully deductible in pursuance ofor in compliance with agreements, treaties orcommitments entered into by the Philippines or inpursuance of special laws.
iii. Donation to accredited non-governmental organization.iv. Donations of prizes and awards to Athletes (Sec. 1, RA
7549)
d. Contributions subject to limitationi. Donations that are not in accordance with the priority
plan.ii. Donations whose conditions are not complied with.iii. Donations to the Government of the Philippines or
political subdivision exclusive for public purposes.iv. Donations to domestic corporations organized
exclusively for:1. Scientific2. Educational3. Cultural4. Charitable
5. Religious6. Rehabilitation of veteran7. Social Welfare
e. Deductible under special laws (in full)i. Donations of prizes and awards to Athletes (Sec. 1, RA
7549) 14. RESEARCH AND DEVELOPMENT EXPENDITURES
a. A taxpayer may treat research or development expenditureswhich are paid or incurred by him during the taxable year inconnection with his trade, business or profession as ordinaryand necessary expenses which are not chargeable to capitalaccount. The expenditures so treated shall be allowed asdeduction during the taxable year when paid or incurred.
b. Taxpayer may either treat it as:
i. Revenue Expenditure – it will be wholly deducteordinary and necessary expense in the year it is pincurred
ii. Deferred Expense – allowed as deduction rdistributed over a period of at least 60 months stfrom the month benefits are received from expenditure. (Sec. 34 I [1 and 2], NIRC)
c. Requisites for taxability:i. Paid or incurred during the taxable yearii. Ordinary and necessary expenses in connection
trade business or professioniii. Not chargeable to capital account
d. Limitations on Deductioni. Not applicable to, EXCLUSIONS:
1. Any expenditure for the acquisitionimprovement of land, or for the important of to be used in connection w/ R&D of a chasubject to depreciation & depletion
2. Any expenditure paid/ incurred for the purpo
ascertaining the existence, location, extenquality of any deposit of ore or other miincluding oil or gas (exploration exp.)
15. PENSION TRUST CONTRIBUTIONa. Pension Trust Contributions – a deduction applicable only
employer on account of its contribution to a private pensionfor the benefit of its employee. This deduction is purely busin character.
b. Requisites for deductibility:i. The employer must have established a pensio
retirement plan to provide for the payment of reasopensions to his employees;
ii. The pension plan is reasonable and actuarially souniii. It must be funded by the employer;iv. The amount contributed must be no longer subject
control and disposition of the employer;
XAVIER’S POISON REV
v The payment has not yet been allowed as a deduction; 2 Report income received from all other so
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 46/51
v. The payment has not yet been allowed as a deduction;and
vi. The deduction is apportioned in equal parts over a periodof 10 consecutive years beginning with the year in whichthe transfer of payment is made.
c. Treatment of Income from Pension Plan & Deductible paymentto Pension Trust
i. Summary rules on Retirement Benefits Plan/ Pension
Trust1. EXEMPT FROM INCOME TAX – employees‟ trustunder Sec. 60(B)
2. EXCLUSION FROM GROSS INCOME – amountreceived by the employee from the fund uponcompliance of certain conditions under Sec.32(B)(6)
3. DEDUCTION FROM GROSS INCOME – a. amounts contributed by the employer
during the taxable year into the pensionplan to cover the pension liability accruingduring the year – considered as ordinary
and necessary expenses under Sec.34(A)(1).b. 1/10 of the reasonable amount paid by the
employer to cover pension liabilityapplicable to the years prior to the taxableyear, or so paid to place the trust in a soundfinancial basis – deductible under Sec. 34(J).
d. Special Deduction allowed to Insurance Companiesi. Special deductions: net additions required by law to
reserve funds & the sums other than dividends paid w/inthe yr. on policy & annuity contracts; released reserve
treated as income for the yr. of release.ii. Mutual Insurance Companies
1. Shall not report as income premium depositsreturned to policyholder
2. Report income received from all other soplus such portion of premium deposits retainthe companies for purposes other than paymlosses & expenses & reinsurance reserves.
iii. Mutual Marine Insurance Companies 1. Include in gross income, gross premiums col
& received by them less amounts paireinsurance; include as deductions am
repaid to policyholders on account of prempreviously paid by them & interest paid upon amounts between the ascertainment & paythereof.
16. ITEMS NOT DEDUCTIBLEa. In computing net income, no deduction shall in any ca
allowed in respect to:i. Personal, living or family expenses – these are per
expenses and not related to the conduct of tradbusiness
ii. Any amount paid out for new buildings of for permimprovements, or betterments made to increas
value of any property or estate – these are cexpenditures added to the cost of the property anperiodic depreciation is the amount that is considerdeductible expense
1. Note: Shall not apply to intangible drillingdevelopment costs incurred in petrooperations which are deductible under Subse(G) (1) of Sec. 34 of the NIRC
iii. Any amount expended in restoring property or in mgood the exhaustion thereof for which an allowancehas been made
iv. Premiums paid on any life insurance policy coverin
life of any officer or employee, or of any pfinancially interested in any trade or business carriby the taxpayer, individual or corporate, whentaxpayer is directly or indirectly a beneficiary underpolicy (Sec. 36 [A], NIRC)
XAVIER’S POISON REV
v Losses from sales or exchanges of property between iii Distribution to the heirs during the taxable year of
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 47/51
v. Losses from sales or exchanges of property betweenrelated parties (Sec. 36 [B], NIRC)
vi. Interest expense, bad debts, and losses from sales ofproperty between related parties
vii. Non-deductible interestviii. Non-deductible taxesix. Non-deductible lossesx. Losses form wash sales of stock or securities.
ESTATES AND TRUST
1. Estate
a. The mass of property, rights and obligations left behind by the
decedent upon his death.
i. Two classification of Estate
1. Estates not under judicial settlement - are subject
to income tax generally as mere co-ownership.
a. The tax liability on income of the co-
ownership levied directly on the co-owners.
Thus, the heirs shall include in theirrespective returns their distributive shares
of the net income of the estate.
2. Estates under judicial settlement - are subject to
income tax in the same manner as individual.
a. Income received during the settlement of
the estate is taxable to the fiduciary
(guardian, executor, trustee, and
administrator).
b. GR: Subject to income tax in the same manner as individuals.
c. EXCP:
i. Personal exemption is limited to only P20,000.
ii. No additional exemption is allowed.
iii. Distribution to the heirs during the taxable year of
income is deductible from the taxable income o
estate. (BIR Ruling 233-86)
2. Trust
a. An arrangement created by will or co-agreement under
title to property is passed to another for conservatio
investment with the income therefrom and ultimately the c
to be distributed in accordance with the directions of the cras expressed in the governing instrument.
b. Two (2) Kinds of Trust :
i. Irrevocable Trust - is considered as a separate taxp
ii. Revocable Trust - is one where at any time the pow
revest the title to any part of the corpus of the tr
vested:
iii. SEPARATE TAXABLE ENTITIES Sec. 60 (A):
1. Estates of deceased persons under administ
or settlement;
2. Trusts where the income is to be accumula
held for future distribution by the fiduciary;
3. Trusts where the income may be
accumulated or distributed at the discretion
fiduciary, and
4. Trusts where the income which is to be distr
currently by the fiduciary or is collected
guardian of an infant to be held or distribute
the court may direct.
iv. Rules on taxability
1. GR: Subject to income tax in the same mann
individuals. (Sec. 60 [A], NIRC)2. EXCP:
a. Personal exemption is limited to
P20,000. (Sec. 62, NIRC)
XAVIER’S POISON REV
b No additional exemption is allowed i Income received by estate
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 48/51
b. No additional exemption is allowed.
c. Distribution to the beneficiaries during the
taxable year of trust income is deductible
from the taxable income of the trust.
Deduction is allowed only when the
distribution is made during the taxable year
when the income is earned. (Sec. 61 [A],
NIRC)v. REQUISITIES FOR THE TAXABILITY OF TRUST:
1. It should be an irrevocable trust;
2. Tax must be imposed on the income of the trust,
3. The trust retains the income
c. Computation of Tax on estate and Trust
i. Computed in same manner & on the same basis as in the
case of an „individual‟.
1. Except:
a. Deduction allowed: amount of income of the
estate/trust for the taxable yr. w/c is to be
distributed currently by the fiduciary to the
beneficiaries & the amt. of the income
collected by a guardian of an infant w/c is to
be held./distributed as the court may direct:
i. Amt. allowed as deduction is
included as TI of the beneficiaries,
whether distributed or not
ii. Amt. allowed as deduction under this
subsection will not be allowed as
deduction under (b) hereof.
b. Additional deduction: amt. of the income ofthe estate/trust for its taxable yr., properly
paid/credited during such yr. to any legatee,
heir or beneficiary applies to cases of :
i. Income received by estate
deceased person during the p
of administration or settlement
estate
ii. Income w/c, in the discretion
fiduciary, may be either distribu
the beneficiary or accumulated
iii. Amt. deducted is included in TI legatee, heir or beneficiary.
ii. For trust administered in a foreign country: deductio
a) and b) not allowed provided, the amt. of in
included in the return of said trust shall not be includ
computing the income of the beneficiaries.
CAPITAL TRANSACTION
3. Capital Asset
a. The term "capital assets" means property held by the tax
(whether or not connected with his trade or business), butnot include stock in trade of the taxpayer or other property
kind which would properly be included in the inventory o
taxpayer if on hand at the close of the taxable year, or pro
held by the taxpayer primarily for sale to customers i
ordinary course of his trade or business, or property used
trade or business, of a character which is subject t
allowance for depreciation, or real property used in tra
business of the taxpayer.
i. Ordinary Asset
1. Properties held by the taxpayer in the purs
his profession, trade or business.
b. The term capital asset is defined by an exclusion of all or
assets. Thus, those properties not specifically excluded
statutory definition constitutes capital assets, the prof
XAVIER’S POISON REV
losses on the sale or the exchange of which are treated as capital asset sold for a year or less, the whole
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 49/51
g
capital gains or capital losses. Conversely, all those properties
specifically excluded are considered as ordinary assets and the
profits or losses realized must have to be treated as ordinary
gains or ordinary losses.
i. Accordingly, "Capital assets" includes property held by
the taxpayer whether or not connected with his trade or
business, but the term does not include any of thefollowing, which are consequently considered as
"ordinary assets":
1. Stock in trade of the taxpayer or other property of
a kind which would properly be included in the
inventory of the taxpayer if on hand at the close of
the taxable year
2. Property held by the taxpayer primarily for sale to
customers in the Ordinary course of trade or
business
3. Property Used in the trade or business of a
character which is subject to the allowance for
depreciation provided in the NIRC
4. Real property used in trade or business of the
taxpayer
c. Construction and Interpretation of Capital Assets
i. The statutory definition of "capital assets" practically
excludes from its scope, all property held by the taxpayer
if used in connection with his trade or business.
d. Special Rules on capital transactions
i. Holding period rule
1. Where the capital asset sold has been held by thetaxpayer for more than 12 months, the gain
derived therefrom is taxable only to the extent of
50%. Consequently, if the taxpayer held the
p y ,
shall be taxable. It is a form of tax avoidance
the taxpayer can exploit it in order to reduc
tax due. (Sec. 39 [B], NIRC)
ii. Capital and loss limitation rule
1. Under this rule, capital loss is deductible o
the extent of capital gain. This means that yo
only deduct capital loss from capital gain. If tno capital gain, no deduction is allowed bec
you cannot deduct capital loss from ordinary
iii. Net capital loss carry over (NELCO)
1. If any taxpayer, other than a corporation, su
in any taxable year a net capital loss, such lo
an amount not in excess of the net incom
such year) shall be treated in the succe
taxable year as a loss from the sale or exch
of a capital asset held for not more tha
months. (Sec. 39 (D), NIRC)
e. NELCO v. NOLCO
i. NELCO Arises from capital transactions me
involving capital asset; NOLCO Arises from ord
transactions meaning involving ordinary asset
f. Rule on disposition of principal residence
i. Sale or disposition of principal residence by an indi
is exempt from CGT provided the following requisite
present:
1. Sale or disposition of the old actual pri
residence;
2. By a citizen or resident alien;3. Proceeds from which is utilized in acquiri
constructing a new principal residence with
XAVIER’S POISON REV
calendar months from the date of sale or i. The gross selling price; or
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 50/51
disposition;
4. Notify the CIR within 30 days from the date of sale
or disposition through a prescribed return of his
intention to avail the tax exemption;
5. Can be availed of once every 10 years;
6. The historical cost or adjusted basis of his old
principal residence shall be carried over to thecost basis of his new principal residence;
7. If there is no full utilization, the portion of the gains
presumed to have been realized shall be subject
to capital gains tax; and
8. The 6% capital gains tax due shall be deposited
with an authorized agent bank subject to release
upon certification by the RDO that the proceeds of
the sale have been utilized. (RR No. 14-00)
a. The old residence should first be sold
before acquiring or constructing new
residence.
ii. Principal Resdience refers to the dwelling house,
including the land on which it is situated, where the
individual and members of his family reside, and
whenever absent, the said individual intends to return.
Actual occupancy is not considered interrupted or
abandoned by reason of temporary absence due to travel
or studies or work abroad or such other similar
circumstances.
INCOME TAX RULES ON DEALINGS IN PROPERTY4. Capital gains from sale or disposition of Real Property
a. A final tax of 6% shall be imposed based on the higher amount
between:
g g p
ii. Whichever is higher between the current fair m
value as determined by:
1. Zonal Value – prescribed zonal value o
properties as determined by the CIR; or
2. Assessed Value – the fair market value as s
in the schedule of values of the Provincial an
assessors (Sec. 24 D [1], NIRC)5. Gains and losses from dealings in property
a. From Sale of Stocks of Corporations –
i. Stocks Traded in the Stock Exchange – subject to
transaction tax of ½ of 1% on its gross selling price
ii. Stocks Not Traded in the Stock Exchange – subj
capital gains tax
b. From Sale of Real Properties in the Philippines – capita
derived is subject to capital gains tax but no loss is recog
because gain is presumed.
c. From Sale of Other Capital Assets - the rules on capital
and losses apply in the determination of the amount
included in gross income and not subject to capital gains ta
TAXPAYERS REQUIRED TO FILE INCOME TAX RETURN
6. Income Tax Returns
a. It is a report made by the taxpayer to the BIR on all g
income received during the taxable year, the allow
deduction including exemptions, the net taxable income
income tax rate, the income tax due, the income tax withh
any, and the income tax still to be paid or refundable.
7. Kinds of Income Tax Returna. Individual Income Tax Returns
b. Corporate Income Tax Returns
c. Capital Gains Tax Returns
XAVIER’S POISON REV
d. Withholding Tax Returns b. Every corporation subject to the tax under the code, e
8/10/2019 Xavier_s Poison Reviewer.docx
http://slidepdf.com/reader/full/xaviers-poison-reviewerdocx 51/51
e. Returns of General Professional Partnership
f. Fiduciary Returns
g. Information Returns
h. Electronically Filed Returns.
8. Individuals required to file a return
a. Every Filipino citizen residing in the Philippines
b. Every Filipino citizen residing outside the Philippines, on hisincome from sources within the Philippines
c. Every alien residing in the Philippines, on income derived from
sources within the Philippines
d. Every non-resident alien engaged in trade or business or in the
exercise of a profession in the Philippines
9. Substituted filing of Income Tax Return
a. It is when the employer„s annual return may be considered as
the ―substitute Income Tax Return (ITR) of an employee
inasmuch as the information provided in his income tax return
would exactly be the same information contained in the
employer„s annual return.
b. Conditions for the filing of substituted filing of the ITR
i. Employee receives purely compensation income,
regardless of amount, during the taxable year;
ii. He receives the income only from one employer;
iii. Income tax withheld is equal to income tax due;
iv. Employer filed information return showing the income tax
withheld on employees compensation income. (RR No.
3-2002)
10. Corporate Income Tax Return
a. GR: Every corporation subject to tax under the NIRC shall file acorporate tax return.
i. XPN: Foreign corporations not engaged in trade or
business in the Philippines (Sec. 52, NIRC)
foreign corporation not engaged in trade or business,
render, induplicate, a true and accurate quarterly incom
return and final or adjustment return. The returns shall be
by the president, vice-president or other principal officer
shall be sworn to by such officer and by the treasur
assistant treasurer. (Sec. 52, NIRC)
Top Related