COVERAGE OF TAXATION LAW REVIEW I. Basic Principles of Constitutional Liitations a) Due process clause which could be either substantive due process and procedural due process clause b) Equal protection clause ead! "r#oc Su$ar %entral vs. %ity Treasurer && S%A '() Tiu vs. %A )(* S%A *+, c) Article --- sec. * o. the */,+ %onstitution 0 non- i#pair#ent clause d) Article --- sec. 1 0 .reedo# o. reli$ion e) Article --- sec. &( 0 non-pay#ent o. poll tax .) Article 2- sec. &, par. & 0 3exible tari4 clause $) Article 2- sec. &, par. ) 0 exe#ption .ro# real property tax ead! 5errera vs. 6ue7on %ity ) S%A *,' Abra vs. 5ernando *(+ S%A *(8 Abra 2alley vs. Aquino 1& S%A *(' 9hilippine :un$ %enter vs. 6ue7on %ity 8)) S%A **/ h) Article 2- sec. &, par. 8 0 quali;ed #a<ority in tax exe#ption i) -nternational double taxation %- vs. Johnson )(/ S%A ,+ <) Doctrine o. equitable recoup#ent =) Doctrine o. Set-o4 or co#pensation in taxation epublic vs. >a#bulao 8 S%A '&& Do#in$o vs. ?arlitos , S%A 88) Francia vs. -A% *'& S%A +1) %altex vs. %"A &(, S%A +&' 9hilex vs. %- &/8 S%A ',+ II. Incoe Ta! La" Section &&-&' o. the @ational -nternal evenue %ode a) ead in the co##entaries or #a$ic notes the di4erent =inds o.! *. -nco#e Taxpayers &. -nco#e Taxes ). Sources o. -nco#e sec. 8& o. @-% - -nco#e Taxpayers a) -ndividuals b) %orporation c) Estates and Trusts 0 --ndividuals are classi;ed esident %iti7ens sec. &) AA)B sec &8 AA) Aa) @on-esident %iti7ens sec &) AC)B &8 AA) Ab) && AE) "verseas %ontract Dor=ers Sec. &) A%)B &8 AA) Ab) esident Aliens ev. e$. sec 1B &) AD)B &8 AA) Ac) @on-esident Aliens En$a$ed in trade or business sections &1 AA) A*) * Taxation law review notes - Atty. Francis J. Sababan - @on-esident Aliens @ot En$a$ed in trade or business sec. &1 AC) Aliens E#ployed in >ulti- @ational %orporations sec. &1 A%) and ev. e$. *&-&((* Aliens E#ployed in "4shore Can=in$ Enits sec &1 AD) Aliens E#ployed in petroleu# Service %ontractors F Subcontractors sec. &1 AE) -%orporate -nco#e Taxpayers Do#estic %orporations sec. &) AE)B and sec &+ o. @-% esident Forei$n %orporations sec. && A5) and A&,)A @on-esident Forei$n %orporations sec. && A*) and &, AC) -Estates and Trusts sec. '(-'' o. @-% Di4erent Ginds o. -nco#e Tax *. @et -nco#e Tax secs. &8 AA)B &1 AA) A*)B &'B &+ AA) AC) A%)B &, AA) up to ) rd par. )* and )& AA) &. ?ross -nco#e Tax secs. &1 AC) ;rst part and &, AC) A*) ). Final -nco#e Taxes sec. 1+ AA) 8. >ini#u# %orporate -nco#e Tax o. &H o. the ?ross -nco#e secs. &+ AE)B &, AA) A&) 1. -#properly Accu#ulated Earnin$s Tax o. *(H o. its taxable inco#e sec. &/ @-% ev. e$. &-&((* "ptional %orporate -nco#e Tax o. *1H o. its $ross inco#e sections &+ AA) 8 th
to *( th par. And &, AA*) but only up to the 8 th
para$raph -9roceed to section 8& and &) o. the @-% @D% vs. %o## *1* S%A 8+& %o##. 2s. -A% *&+ S%A / -Then $o to sec. )/ o. @-% %ala7ans vs. %o##. *88 S%A ''8 +-&(() -Then proceed to sec. &8 AA)B &1 AA) A*)B &1 CB%BDBEB &+ ABCB%I &, AA) A*)B &, AA) A') and sec 1* AD) -Then continue to sec &8 C *B &1 CB%BDBEI &+ AD) A*) -Then $o to se. &8 AC) A&) sec. +) %o##. 2s. >annin$ '' S%A *8 Anscor vs. %o##. )(* S%A *1& -Sec. &1 AA) A&)B &1 CB %B %B EB sec. &+ AD) A8)I &, AA) A+) AD)I )& C A+) Aa) - Then you $o to sec. &8 %B &1A A))I &1 CB %B DB EB &+ D A&)I &, AA) A+) A%)I &, C A1) A%) A ++*+ sec. *&+ @-% - Then you $o to sec. &8 D A*)I &1 AA) A))I &1 AC) last par. &+ AD) A1) %hina Can= vs. %ourt o. Appeals ))' S%A JJJI +-&(() -Epon readin$ sec. &8 AD) A&) read *)-*/// -Epon readin$ sec. &+ AA) $o to sec. && AC) Catan$as vs. %ollector *(& 9hil. ,&& Evan$elista vs. %ollector *(& 9hil *8( eyes vs. %o##. &8 S%A */, "na vs. Cautista 81 S%A +8 "billos vs. %o## *)/ S%A 8)' 9ascua vs. %o##. *'' S%A 1'( A;sco vs. %o##. )(& S%A * & Taxation law review notes - Atty. Francis J. Sababan - -Epon readin$ sec. &+ A%) o. @-% see A /))+ then $o to sec. )& AC) A+) Ab) o. @-%B sec. *)) par Ao) o. :?%B sec. *18 o. the :?%. 9a$cor vs. Casco */+ S%A 1& >actan vs. %ebu &'* S%A ''+ :T vs. %ity o. >anila )8& S%A '/& -9roceed to sections &+ AD) A*)B &+ AD) A&)B &+ AD) A1) read A /))+B &, AA) A+) Ab)B &, AC) A1) A%)B &+ AD) A8)B A&,) AA) A+) Ad)B &, AC) A1) Ab) >arubeni vs. %- *++ S%A 1(( 9roctor F ?a#ble vs. %o## *'( S%A 1'( Sa#e case 9roctor and ?a#ble on the >otion .or econsideration &(8 S%A )++ Donder vs. %o## *'( S%A 1+) -9roceed to sec. &+AD) A1) then sections &+ AE) and &, AA) A&) -?o to sec. &, AA) A)) read *1- &((& -?o to sec. &, AA) A8) see A /))+ -Then see sec &, AA) A1) see >arubeni vs. %o## *++ S%A 1(( -9roceed to sec. &,AC) A1) Aa) and sec )& AC) A+) Aa) ead >itsubishi vs. %o## *,* S%A &*8 -Then $o to sec. &/ and ev. e$. &- &((* -Epon readin$ sec. )& AC) * and &B read sec. ,1 par Ae)B sec. *(,A and sec. *&) o. the @-% -9roceed to sec. )) read ev. e$. )-/, -then $o to sec. )8 AA) A*) Aa) see A$uinaldo vs. %o##. **& S%A *)'B *(-&((& -Ender Sec. )8 AC) read *)-&((( -Epon readin$ sec. 8/ read Canas vs. %A )&1 S%A &1/ and Filipina vs. %o##. )*' S%A 8,( -Epon readin$ sec. '(-''B read "na vs. Cautista 81 S%A +8 III. Estate Ta! -Sections ,8-/+ see sec. *(8 -Epon readin$ sec. ,1 AC) read 2idal de oces vs. 9osadas 1, 9hil. *(, Di7on vs. 9osadas 1+ 9hil 8'1 -Sec. ,1 A?) co#pare with sec. *(( -sec. ,1 A5) co#pare with sec. ,' A%) -Epon readin$ sec. ,' see &- &(() -Epon readin$ sec. /8 see >arcos vs. Sandi$anbayan &+) S%A 8+ IV. #onors Ta! La" - Sections /,-*(8 - ? and %u#ulative #ethods o. ;lin$ donorKs tax returns sections // AA)B *() AA) A*) and &-&(() - Sections *(( and ,1 A/) V. Value A$$e$ Ta! - Sections *(1-**1 -ead A /))+ -ead ACAGADA vs %o##. ? *',(1'B Sept. *B &((1 VI. Ree$ies %n$er t&e Internal Re'enue Co$e -Sections &(&-&&/ - *&-// 9hoenix vs %o## *8 S%A 1& Casilan vs. %o##. &* S%A *+ Labut vs. Flo<o **1 S%A &+, Enion Shippin$ vs. %o## *,1 S%A 18+ %o##. vs. T>M &(1 S%A *,8 %o##. vs. 9hila#li.e &88 S%A %o##. vs. %A F C9- )(* S%A 8)1 C9- vs. %o##. )') S%A ,8( ) Taxation law review notes - Atty. Francis J. Sababan - -9rescription sections &() and &&& o. @-%B sec. */8 o. the :?%B sec. &+( o. the :?%B sec. *'() o. Tari4 and %usto#s %ode -9rotest sec. &&, o. @-% and *&-// sec. */1 o. :?%B &1& :?%B sec. &)*) o. Tari4 F %usto#s %ode and A +'1* VII. Local Ta!ation - Sections *&,-*/' o. :?% -9roceed * st to sec. *,' read Culacan vs. %A &// S%A 88& -Then proceed to *,+ -Then to *1* -*&, -Ender sec. *)) Ae) read 9al#a vs. >alan$as 8*) S%A 1+& -Ender *)) Ah) read 9ililia vs. 9etron */, S%A ,& -Ender *)) Ai) read First 5oldin$s %o. vs. batan$as %ity )(( S%A ''* -Ender *)) Al) read Cutuan vs. :T" )&& S%A ,(1 -Ender *)+ read sec. */) o. :?% >isa#is vs. %a$ayan de "ro *,* S%A ), eyes vs. San 9ablo %ity )(1 S%A )1) >eralco vs. :a$una )(' S%A +1( 9:DT vs. Davao %ity )') S%A 1&& - %o-relate sec. *)/ and *8+ o. :?% - Ender sec. *8( o. the :?% see sec. *&1 o. the -nternal evenue %ode - Ender sec. *1( o. the :?% read the .ollowin$! 9hil. >atch vs. %ebu ,* S%A // Allied Thread vs. >anila *)) S%A )), Sipocat vs. Shell *(1 9hil. *&') -loilo Cottles vs. -loilo %ity *'8 S%A '(+ VIII. Real Propert( Ta! - Sections */+-&/8 - Sec. &)1 :T vs. >anila )8& S%A '/& %ebu %ity vs. >actan &'* S%A ''+ IX. Tari) * Custos Co$e - Special %usto#s Duty sec. )(*-)(8 o. T%% - e$u=ar %usto#s Duty sec. *(8 o. T%% - A +')*
8 Taxation law review notes - Atty. Francis J. Sababan - Rules in t&e Classroo+ *. do not be absent i. you are absentB you have to transcribe what happened in class when you were out. The next #eetin$ you attend classB consider yoursel. a resident o. balic-balicB babali=bali=an =a sa recit. Exception! i. you $et #arried. &. read the assi$n#ent. Da$ 7apote an$ aral. ). holiday 0 #a=e up class probably on a Sunday 8. allowed to $lance at your notesB wa$ lan$ pahalataN$arapal 1. #aterials! codal co##entaries Aany author will do) #a$ic notes ASababan :ecture and 6FA) Coo= stand Co'era,e of Ta!ation La" Re'ie"+ *. Casic 9rinciples includin$ %onstitutional 9rovisions &. -nco#e Tax ). Estate Tax 8. DonorKs Tax 1. e#edies '. :ocal Tax +. eal 9roperty Tax ,. Tari4 and %usto#s %ode /. %ourt o. Tax Appeals *(.2AT Aalthou$h not part o. the covera$e o. the Car Exa#sB questions have been as=ed since *///) Title 1B' and + are always included in the covera$e @o co#putations in the bar There are only * or & questions in the Car about Casic 9rinciples Dhat are the .avorite topics in the CarO *& questions on -nco#e Tax ,-*( questions on re#edies ,-*( questions allocated to the + topics BA-IC PRINCIPLE-+ Taxation is an inherent power o. the State. .+ Dhat do you #ean by -@5EE@TO A+ The power to tax is not provided .or in the lawB statute or constitutionI it depends on the existence o. the state. @o law or le$islation .or the exercise o. the power to tax by the national $overn#ent. .+ Do local $overn#ents exercise this inherent powerO A+ @o. "nly the @ational ?overn#ent exercises the inherent power to i#pose taxes. .+ The taxin$ power o. local $overn#ents is a DE:A?ATED power. Dele$ated by who#O A+ Dele$ated by %on$ress throu$h law in case o. autono#ous re$ionsB and dele$ated by the constitution in case o. :?Es not considered an autono#ous re$ion. Cities, provinces and municipalities power $ranted under Art. M Sec. 1F' o. the %onstitution Autonomous Regions power con.erred by %on$ress throu$h law. Art. M Sec. &( P& o. the %onstitution is a non-sel.-executin$ provision. Thus the power is $ranted by %on$ress because said provision requires an enablin$ law. 1 Taxation law review notes - Atty. Francis J. Sababan - Article MB Section 1 is sel.- executin$ thus the power is $ranted by the constitution. CON-TIT%TIONAL LI/ITATION- Due Process Clause .+ why is it a li#itation to the power to taxO A+ The due process clause as a li#itation to the power to tax re.ers both to substantive and procedural due process. Substantive due process requires that a tax statute #ust be within the constitutional authority o. %on$ress to pass and that it be reasonableB .air and <ust. 9rocedural due processB on the other handB requires notice and hearin$ or at least the opportunity to be heard. Ex! "n Substantive Due 9rocess- when the %on$ress passes a law exe#ptin$ the *) th #onth pay .ro# tax but with the concurrence only o. the #a<ority o. the quoru# 0 law would be invalid because the %onstitution provides that any $rant o. tax exe#ption shall be passed with the concurrence o. the #a<ority o. all the #e#bers o. the %on$ress. .+ Does it .ollow that the adverse party #ust always be noti;edO A+ @o. As a ruleB notice and hearin$ or the opportunity to be heard is necessary only when expressly required by law. Dhere there is no such require#entB notice and the opportunity to be heard are dispensable. Ex. Ce.ore "ct. *B *//1B you can secure a T" without noti.yin$ the adverse party. -. you are a suspect in a cri#inal caseB you have the ri$ht to have an opportunity to be heard Ai. there is a law). Ce.ore July *B *//,B no notice need be $iven to a party declared in de.ault. A.ter the a#end#entB the party declared in de.ault has to be noti;ed o. subsequent proceedin$s albeit without the ri$ht to participate therein. -n the case o. a search warrantB the person to be searched was not noti;ed. The person searched cannot clai# that there was a violation o. due process because there is no law requirin$ that the person to be searched should be noti;ed. e$ardin$ delinquent tax payersB be.ore levyB there #ust be notice. EAS"@! @o provision o. law requires notice to the adverse party. -. the adverse party is noti;edB he #ay abscond. ThusB in adversarial proceedin$sB in connection with procedural due processB the adverse party need not be noti;ed all the ti#e. Equal Protection Clause As a ruleB taxpayers o. the sa#e .ootin$ are treated ali=eB both as to privile$es con.erred and liabilities i#posed. Di4erence in treat#ent is allowed only when based on substantial distinction. Di4erence in treat#ent not based on substantial distinction is .rowned upon as Qclass le$islation.R This is violated when taxpayers belon$in$ to the sa#e classi;cation are treated di4erently .or# one anotherI and taxpayers belon$in$ di4erent classi;cations are treated ali=e. Requirements of Reasonable Classifcation: ' Taxation law review notes - Atty. Francis J. Sababan - *) There #ust be substantial distinctions that #a=e a real di4erence. &) -t #ust be $er#ane or relevant to the purpose o. the law. )) The distinction or classi;cation #ust apply not only to the present but also to .uture situations. 8) The distinction #ust apply to personsB thin$s and transactions belon$in$ to the sa#e class. Ex! -n one caseB a tax ordinance was assailed on the $round that the ordinance .ailed to distin$uish a wor=er .or# casualB per#anent or te#porary. The S% said that the ordinance was invalid because o. the .ailure to state the said classi;cation. -n PEOPLE v. CAA! the Supre#e %ourt #andated the requisites .or a valid classi;cation. !"# v. CO#R! O$ APPEAL% &'() %CRA *+,- .+ what happened in the city o. "lon$$apoO A+ The %on$ressB with the approval o. the 9residentB passed A +&&+B an act creatin$ the conversion o. the #ilitary bases into other productive uses. .+ Dho was the 9resident at that ti#eO A+ 9resident a#os .+ Dhat were si$nedO A+ A +&&+B E" /+ and E" /+-A The ;rst led to the creation o. the Subic Special Econo#ic Sone ASSES). The latter set the li#itations and boundaries o. the application o. the incentives Ano taxesB local and nationalB shall be i#posed within SSES. -n lieu thereo.B )H o. the ?ross -nco#e shall be re#itted to the national $ovKt) to those operatin$ their businesses within the said area. .+ Dho are the petitioners and what was their contentionO A+ The petitioners are Filipino business#en who are operatin$ their business outside the secured area. The petitioners contended that the law in question was violative o. their ri$ht to equal protection o. laws since they are also Filipino business#en. 5! The Supre#e %ourt ruled that there was no violation since the classi;cation was based on a substantial distinction. The ele#ent invo=ed here is ele#ent P* that there #ust be substantial distinction in the classi;cation o. taxpayers on who# the tax will be i#posed. The %ourt observed that those .orei$n business#en operatin$ within the secured area have to $ive a lar$er capital to operate in the secured area Ato spur econo#ic $rowth and $uarantee e#ploy#ent). OR.OC %#/AR CE0!RAL vs. C"R .+ Dhat did the #unicipality o. "r#oc doO A+ The %ity %ouncil o. "r#oc passed a >unicipal "rdinance @o.8 i#posin$ upon any and all centri.u$al su$ar #illed at the "r#oc Su$ar %entral a #unicipal tax on the net sale o. the sa#e to the Enited States and other .orei$n countries. .+ Did the owner accept this i#positionO A+ @o. the tax due was paid under protestB then ;led a co#plaint a$ainst the %ity o. "r#oc. 5! The Supre#e %ourt said there was a violation o. the equal protection clause. The ele#ent + Taxation law review notes - Atty. Francis J. Sababan - invo=ed here was ele#ent P)B that it #ust be applicable to both present and .uture circu#stances. The Supre#e %ourt said that one #ust $o to the provision itsel.B in the case at barB there was a violation o. ele#ent P) because the law was worded in such a way that it only applies to "r#oc Su$ar %entral alone and to the exclusion o. all other su$ar centrals to be established in the .uture. TAGE @"TE! 9eople vs. %ayat Freedom of Religion -t -nvolves ) Thin$s! *. .reedo# to choose reli$ion &. .reedo# to exercise oneKs reli$ion ). prohibition upon the national $overn#ent to establish a national reli$ion .+ Dhich one li#its the power to taxO A+ 9rohibition upon the national $overn#ent to establish a national reli$ion because this will require a special appropriation o. #oney co#in$ .ro# the national treasury which is .unded by the taxes paid by the people. Non-impairment Clause .+ Dhat are the sources o. obli$ation in the %ivil %odeO A+ :awB %ontractsB 6uasi-%ontractsB DelictB 6uasi-Delict. .+ Dhat is the obli$ation conte#plated in this li#itationO A+ Those obli$ations arisin$ .ro# contracts. ?eneral ule! The power to tax is pursuant to lawB there.oreB the obli$ation to pay taxes is i#posed by lawB thus the non-i#pair#ent clause does not apply. Lou have to deter#ine ;rst the source o. obli$ation! *. -. the law #erely provides .or the .ul;ll#ent o. the obli$ation then the law is not the source o. the obli$ation. &. Dhen the law #erely reco$ni7es or ac=nowled$es the existence o. an obli$ation created by an act which #ay constitute a contractB quasi-contractB delictB and quasi-delictB and its only purpose is to re$ulate such obli$ationB then the act itsel. is the source o. the obli$ationB not the law. Dhen the law establishes the obli$ation and also provides .or its .ul;ll#entB then the law itsel. is the source o. the obli$ation .+ SoB in what instance does the non-i#pair#ent o. contracts clause beco#es a li#itation to the power to taxO A+ it is when the taxpayer enters into a co#pro#ise a$ree#ent with the $overn#ent. -n this instanceB the obli$ation to pay the tax is now based on the contract between the taxpayer and the $overn#ent pursuant to their co#pro#ise a$ree#ent. Ta=e @ote! the require#ent .or its application! the parties are the $overn#ent and private individual. Poll Tax .+ Dhat is a poll taxO A+ -t is a tax o. a ;xed a#ount on individuals residin$ within a particular territoryB whether citi7ens or notB without re$ard to their property or to the occupation in which they #ay be en$a$ed. , Taxation law review notes - Atty. Francis J. Sababan - -t is a tax i#posed on persons without any quali;cations. persons #ay be allowed to pay even i. they are not quali;ed as to a$e or property ownership. Exa#ple o. 9oll Tax! %o##unity Tax %erti;cate under Section *'& o. the :ocal ?overn#ent %ode. .+ Dhy is it a li#itation to the power to taxO A+ -t is a li#itation to the power to tax because %on$ress is prohibited .ro# passin$ a law penali7in$ with i#prison#ent a person who does not pay poll tax. A.unds .or sendin$ a person to <ail is ta=en .ro# the national treasury which is .unded by the taxes paid by the people) Exemption from payment of Real Estate Tax .+ Dhat is the require#ent .or exe#ption .ro# pay#ent o. real property tax under the */)1B */+) and */,+ %onstitutionO A+ Art. 1, %ec ** &'-, )2'3 Constitution 0 %e#eteriesB churches and parsona$es or convents appurtenant theretoB and all landsB buildin$s and i#prove#ents used EM%:ES-2E:L .or E:-?-"ESB %5A-TAC:E or EDE%AT-"@A: purposes shall be exe#pt .or taxation. Art. ,, %ec. )+ &'-, )2+' Constitution 0 charitable institutionsB churchesB parsona$es or convents appurtenant theretoB #osqueB and non-pro;t ce#eteriesB and all landsB buildin$sB and i#prove#ents A%TEA::LB D-E%T:LB and EM%:ES-2E:L used .or E:-?-"ES and %5A-TAC:E purposes shall be exe#pt .ro# taxation. Art. 1, %ec. *, &'-, )2,+ Constitution 0 charitable institutionsB churchesB and parsona$es or convents appurtenant theretoB #osqueB non-pro;t ce#eteriesB and all landsB buildin$sB and i#prove#ents A%TEA::LB D-E%T:L and EM%:ES-2E:L used .or E:-?-"ESB EDE%AT-"@A: and %5A-TAC:E purposes shall be exe#pt .ro# taxation. 4ERRERA v. 5C67OAR8 O$ A%%E%%.E0! A*/)1 %onstitution) .+ Dhat is involved in this caseO A+ A charitable institutionB St. %atherineKs 5ospital. The hospital was previously exe#pt .ro# taxation until it was reclassi;ed and subsequently assessed .or the pay#ent o. real property tax. The contention o. the respondent is that the hospital was no lon$er a charitable institution because it accepts pay-patientsB it also operates a school .or #idwi.ery and nursin$B and a dor#itory. Since it is not exclusively used .or charitable purposes it is not exe#pt .ro# taxation. 5! The %ourt ruled that petitioner is not liable .or the pay#ent o. real estate taxes. -t is a charitable institutionB thus exe#pt .ro# the pay#ent o. such tax. The hospitalB schools and dor#itory are all exe#pt .ro taxation because they are incidental to the pri#ary purpose o. the hospital. @"TE! this arose durin$ the */)1 %onstitution. QExe#pted by virtue o. incidental purposeR was #erely coined by the Supre#e %ourt. ThusB it does not apply to other taxes except eal Estate Tax. PRO9"0CE O$ A7RA v. 4ER0A08O .+ Dhat is involved in this caseO / Taxation law review notes - Atty. Francis J. Sababan - A A reli$ious institution was involved in this caseB the o#an %atholic Cishop o. Can$uedB -nc. Abishop ;led declaratory relie. a.ter assessed .or pay#ent o. tax). The respondent <ud$e $ranted the exe#ption .ro# taxes o. said church based only on the alle$ations o. the co#plaint without conductin$ a hearin$Ntrial. The assistant prosecutor ;led a co#plaint contendin$ that petitioner was deprived o. its ri$ht to due process. S%! the %ourt ordered that the case be re#anded to the lower court .or .urther proceedin$s. The %ourt observed that the cause action arose under the */+) %onstitutionB not under the */)1 %onstitution Anote the di4erence). Tax exe#ption is not presu#ed. -t #ust be strictly construed a$ainst the taxpayer and liberally construed in .avor o. the $overn#ent. A7RA 9ALLE COLLE/E "0C. v. A5#"0O .+ Dhat is involved in this caseO A+ An educational institution is involved in this case. The $round 3oor o. the school was leased to @orthern >ar=etin$ %orp.B a do#estic corporation. The & nd 3oor thereo. was used as the residence o. the school director and his .a#ily. The 9rovince o. Abra now contends that since the school is not exclusively used .or educational purposesB the school is now liable to pay real estate tax. 5! The %ourt held that the school is 9AT-A::L liable .or real estate tax. *. esidence 0 exe#pt by virtue o. incidental purposeI <usti;ed because it is necessary. &. %o##ercial 0 not exe#pt because it is not pursuant to the pri#ary purposeI not .or educational purposes. .+ is the doctrine in the case o. 5errera the sa#e with this caseO A+ @". in the 5errera caseB the exe#ption was $ranted to all the real property AhospitalB school and dor#). Cut in this caseB the Supre#e %ourt #ade a quali;cation. The Supre#e %ourt said it depends. @"TE! both cases arose under the */)1 %onstitution despite havin$ been decided in */,,. .+ At presentB do we still apply the exe#ption .ro# tax by virtue o. the Doctrine o. -ncidental 9urposeO A+ @ot any#ore. The cause o. action in said case arose under the */)1 %onstitution and it does not apply to the provisions o. the */,+ %onstitution. P4"L"PP"0E L#0/ CE0!ER v. 5#E:O0 C"! .+ Dhat is involved in this caseO A+ A charitable institutionB a hospital. -t is provided in the charter o. the :un$ %enter o. the 9hilippines is a charitable institution. 5oweverB part o. its buildin$ was leased to private individuals and the vacant portion o. its lot was rented out to Elliptical "rchids. espondent contends that since the hospital is not used actuallyB directlyB an d exclusively .or charitable purposesB it is liable to pay real estate taxes. 5! The Supre#e %ourt held that the petitioner is liable to pay tax .or those parts leased to private *( Taxation law review notes - Atty. Francis J. Sababan - individuals .or co##ercial purposes. For the part o. the hospital used .or charitable purposes Awhether .or pay or non-pay patients)B petitioner is exe#pt .ro# pay#ent o. real estate tax. @"TE! petitioner contended that the pro;ts derived .ro# the lease o. its pre#ises were used .or the operation o. the hospital. The %ourt held that the use o. the pro;ts does not deter#ine exe#ptionB rather it is the use o. the property that deter#ines exe#ption. The case o. 5errera does not apply because said case arose under the */)1 %onstitution and the present case arose under the */,+ %onstitution. The require#ents .or exe#ption are di4erent. -n the */)1 %onstitutionB the property #ust be EM%:ES-2E:L used .or reli$iousB educational or charitable purposes. Ender the */,+ %onstitutionB the property #ust be used A%TEA::LB D-E%T:LB and EM%:ES-2E:L .or reli$iousB educational and charitable purposes. .+ Das the doctrine laid down in Abra 2alley aTr#ed in the :un$ %enter caseO A+ Les. The Supre#e %ourt unconsciously applied a doctrine laid down by the */)1 %onstitution. The Supre#e %ourt reiterated the rulin$ in the Abra 2alley case which arose under the */)1 %onstitution. The Supre#e %ourt #ade a quali;cationB it held that it depends on whether or not the use is incidental to the pri#ary purpose o. the institution. @"TE! at presentB Qexe#ption .ro# tax by virtue o. incidental purposeR is not applicable to all taxes includin$ real estate tax. CO.. v. %C ;O40%O0 and %O0%, "0C. -#portant ! *. international double taxation &. i#portance o. international tax treaty ). i#plication o. #ost .avored nation clause .+ Dhat is the corporation involved in this caseO A+ A do#estic corporation AD%). S% Johnson and SonsB -nc. entered into a license a$ree#ent with S% Johnson and Sons E.S.A A@on-esident Forei$n %orpB @F%) whereby the .or#er was allowed to use the latterKs trade#ar= and .acilities to #anu.acture its products. -n returnB the D% will pay the @F% royalties as well as pay#ent o. withholdin$ tax. A case .or re.und o. overpaid withholdin$ tax was ;led. ApparentlyB the D% should have paid only *(H under the #ost .avored nation clause. 5! The Supre#e %ourt coined the ter# -nternational Double Taxation or -nternational Juridical Double Taxation. .+ Dhat pro#pted the S% to coin such ter#O A+ Cecause a sin$le inco#e Atax royalties paid by a D%) was sub<ected to tax by two countriesB the 9hilippines inco#e tax and the E.S. tax. -nternational Juridical Double Taxation applies only to countries where the tax liabilities o. its nationals are i#posed on inco#e derived .ro# sources co#in$ .ro# within and without. .+ -s there an instance where international double taxation does not applyO A+ Les. -. it involves nationals o. countries wherein the tax liability is i#posed only .ro# inco#e ** Taxation law review notes - Atty. Francis J. Sababan - derive .ro# sources within and not includin$ those derived .ro# sources without. AEx! Swit7erland) The controversy in the case at bar involves the inco#e tax paid in the 9hilippines. A.ter payin$ &1HB the ES ;r# discovered that they are entitled to *(H under the #ost .avored nation clause. The question is! was the tax paid under si#ilar circu#stances with that o. the 9-Dest ?er#any TreatyO The %TA and %ourt o. Appeals ruled that it was paid under si#ilar circu#stances. The phrase re.erred to the royalties in pay#ent o. inco#e tax. The Supre#e %ourt ruled that the lower courtsK interpretation o. the phrase was erroneous. atherB the phrase applies to the application o. #atchin$ credit. .+ Dhat is #atchin$ tax creditO A+ 9-?er#any Treaty provides .or that &(H o. the tax paid in the 9hilippines shall be credited to their tax due to be paid in ?er#any. The *(H does not apply because there is no #atchin$ credit. ThusB there is no si#ilarity in the circu#stances. E.%ITABLE RECO%P/ENT AN# #OCTRINE OF -ET0OFF Equitable Recoupment This doctrine provides that a clai# .or re.und barred by prescription #ay be allowed to o4set unsettled tax liabilities. This is not allowed in this <urisdictionB because o. co##on law ori$in. -. allowedB both the collectin$ a$ency and the taxpayer #i$ht be te#pted to delay and ne$lect the pursuit o. their respective clai#s within the period prescribed by law. .+ Dhat is the doctrine o. Equitable ecoup#entO A+ Dhen the clai# .or re.und is barred by prescriptionB the sa#e is allowed to be credited to unsettled tax liabilities. ASir $ives an illustration .ound in pa$e ) o. #a$ic notes) .+ -s the rule absoluteO eason A+ LesB the rule is absolute. The rationale behind this is to prevent the taxpayer and $overn#ent oTcial .ro# bein$ ne$li$ent in the pay#ent and collection o. taxes. A.urther#oreB you have to be honest .or this to wor=B henceB the $overn#ent is preventin$ corruption) There is no exception at all otherwiseB the C- would be 3ooded with so #any clai#s. Set-o 9resupposes #utual obli$ation between the parties. -n taxationB the concept o. set-o4 arises where a taxpayer is liable to pay tax but the $overn#entB .or one reason or anotherB is indebted to the said taxpayer. .+ Dhat do you #ean by SET-"FFO A+ This presupposes #utual obli$ations between the partiesB and that they are #utual creditors and debtors o. each other. -n taxationB the concept o. taxation arises where a taxpayer is liable to pay taxes but the $overn#entB .or one reason or anotherB is -@DECTED to said taxpayer. REP#7L"C v. .A.7#LAO L#.7ER CO. *& Taxation law review notes - Atty. Francis J. Sababan - .+ Dhat is the liability o. >a#bulaoO A+ They are liable to pay .orest char$es Aunder the old tax code). @"TE! under our present tax codeB the @-%B we do not have .orest char$es as the sa#e was abolished by 9resident Aquino. .+ Dhat did the lu#ber co#pany doO A+ The lu#ber co#pany clai#ed that since the $overn#ent did not use the re.orestation char$es it paid .or re.orestation o. the denuded land covered by its licenseB the a#ount paid should be rei#bursed to the# or at least co#pensated or applied to their liability to pay .orest char$es. 5! The %ourt ruled that the re.orestation char$es paid is in the nature o. taxes. The principle o. co#pensation does not apply in this case because the parties are not #utually creditors and debtors o. each other. A clai# .or taxes is not a debtB de#andB contract or <ud$#ent as is allowed to be set- o4 under the statute o. set-o4 which is construed uni.or#lyB in the li$ht o. public policyB to exclude the re#edy in connection or any indebtedness o. the State or any #unicipality to one who is liable .or taxes. @either are they a proper sub<ect .or recoup#ent since they do not arise out o. contract or the sa#e transaction sued on. ?eneral ule! no set-o4 is ad#issible a$ainst de#ands .or taxes levied in $eneral or local $overn#ental purposes. eason! Taxes are not in the nature o. contracts or debts between the taxpayer and the $overn#entB but arises out o. a duty toB and are positive acts o. the $overn#ent to the #a=in$ and en.orcin$ o. whichB the consent o. the individual is not required. Taxes cannot be the sub<ect #atter o. co#pensation. 8O."0/O v. /ARL"!O% .+ Dhat is bein$ collected in this caseO A+ Estate and inheritance taxes. @"TE! we do not have inheritance taxes any#ore because the sa#e was abolished by :olo >acoy. .+ Dho is the ad#inistratrixO A+ The survivin$ spouse. .+ Dhat did the survivin$ spouse doO A+ The survivin$ spouse su$$ested that the co#pensation to which the decedent was entitled to as an e#ployee o. the Cureau o. :ands be set-o4 .ro# the estate and inheritance taxes i#posed upon the estate o. the deceased. 5! Coth the clai# o. the $overn#ent .or estate and inheritance taxes and the clai# o. the Aintestate) .or the services rendered have already beco#e overdue hence de#andable as well as .ully liquidatedB co#pensation there.ore ta=es place by operation o. lawB in accordance with Art. *&+/ and *&/( o. the %ivil %ode and both debts are extin$uished to the concurrent a#ount. %o#pellin$ eason! %on$ress has enacted A &+((B allocatin$ a certain su# o. #oney to the estate o. the deceased. $RA0C"A v. "AC .+ This happened in what cityO A+ 9asay %ity .+ Dhat is the tax bein$ collectedO Dho is collectin$ the sa#eO *) Taxation law review notes - Atty. Francis J. Sababan - A+ 9ay#ent .or real estate taxes .or the property o. Francia. -t appears that petitioner was delinquent in the pay#ent o. his real estate tax liability. The sa#e is bein$ collected by the Treasurer o. 9asay. .+ Dhat is the su$$estion o. petitionerO A+ Su$$ested that the <ust co#pensation .or the pay#ent o. his expropriated property be set- o4 .ro# his unpaid real estate taxes. Athe other part o. his property was sold at a public auction) 5! The .actual #ilieu o. the case dose not <usti.y le$al co#pensation. The %ourt has consistently ruled that there can be no o4- settin$ o. taxes a$ainst the clai#s that the taxpayer #ay have a$ainst the $overn#ent. A taxpayer cannot re.use to pay a tax on the $round that the $overn#ent owes hi# an a#ount. -nternal evenue taxes cannot be the sub<ect o. co#pensation because the $overn#ent and the taxpayer are not #utually creditors and debtors o. each otherB and a clai# .or taxes is not a debtB de#andB contract or <ud$#ent as is allowed to be co#pensated or set-o4. Further#oreB the pay#ent o. <ust co#pensation was already deposited with 9@C 9asayB and the taxes were collected by a local $overn#entB the property was expropriated by the national $overn#ent. Adi4 partiesB not #utual creditors and debtors o. each other.) CAL!E< P4"L v. COA .+ Dhat is bein$ collectedO A+ %altexKs contribution to the "il 9rice Stabili7ation Fund A"9SF). %"A sent a letter to %altex as=in$ the latter to settle its unre#itted collection statin$ that until the sa#e is paidB its clai# .or rei#burse#ent .ro# the "9SF will be held in abeyance. .+ Dhy is %altex entitled to rei#burse#entO A+ Cecause o. the 3uctuation o. the oil prices in the >iddle East and Europe. %altex wanted to o4- set its unre#itted collection .ro# its rei#burse#ents. 5! The %ourt did not allow the set-o4B and reiterated its rulin$ in the case o. >a#bulao and Francia. Further#oreB A '/1& expressly prohibits set-o4 .ro# the collection o. contributions to the "9SF. The %ourt li=ewise stated that %altex #erely acted as a$ent o. the $overn#ent in collectin$ contributions .or the "9SF because such is bein$ shouldered by the consu#ers when they purchase petroleu# products o. oil co#paniesB such as %altex. Taxation is no lon$er envisioned as a #easure #erely to raise revenues to support the existence o. the $overn#ent. Taxes #ay be levied .or re$ulatory purposes such as to provide #eans .or the rehabilitation and stabili7ation o. a threatened industry which is vested with public interestB a concern which is within the police power o. the State to address. P4"LE< ."0"0/ CORP v. CO.. The petitioner is liable .or the pay#ent o. excise taxesB which it wanted to be set-o4 .ro# its pendin$ clai# .or a 2AT -nput creditNre.und. *8 Taxation law review notes - Atty. Francis J. Sababan - The %ourt did not allow set-o4. Taxes cannot be the sub<ect o. co#pensation .or the si#ple reason that the $overn#ent and taxpayer are not #utual creditors and debtors o. each other. Taxes are not debts. Further#oreB in the instant caseB the clai# .or 2AT re.und is still pendin$. The collection o. a tax cannot await the results o. a lawsuit a$ainst the $overn#ent. #O%BLE TAXATION
Double taxation is allowed because there is no prohibition in the %onstitution or statute. "bnoxious double taxation is the synony# o. double taxation. Ele#ents o. Double Taxation! *) :evied by the sa#e taxin$ authority &) For the sa#e sub<ect #atter )) For the sa#e taxin$ period and 8) For the sa#e purpose There is no double taxation i. the tax is levied by the :?E and another by the national $overn#ent. The two A&) are di4erent taxin$ authorities. :?Es are expressly prohibited by the provisions o. A +*'( or the :?% o. *//* .ro# levyin$ tax upon! A*) the @ational ?overn#entI A&) its a$encies and instru#entalitiesI A)) :?Es Asec.**)Ao)). The @ational ?overn#entB pursuant to the provisions o. A ,8&8 o. the Tax e.or# Act o. *//+B can levy tax upon ?"%%sB a$encies and instru#entalities ASection &+ c))B althou$h inco#e received by the ?overn#ent .or#! *) any public utility or &) the exercise o. any essential $overn#ental .unction is exe#pt .ro# tax. 1IN#- OF INCO/E TAXPA2ER- .+ ?enerallyB how #any =inds o. inco#e taxpayers are thereO A+ Ender section &&A o. @-%B there are three A))B na#ely! *. individualI &. corporateI ). estate and trust. I. IN#IVI#%AL TAXPA2ER .+ 5ow #any =inds o. individual taxpayers are thereO A+ There are seven A+). @a#ely! *. esident %iti7en AU&)A and &8A)I &. @onresident %iti7en AU&)C and &8A)I ). "%D and Sea#an AU&)% and &8A)I 8. esident Alien AU&&FB &)D and &8A)I 1. @onresident Alien En$a$ed in Trade or Cusiness AU&&?B &)D and &1A) '. @onresident Alien @"T En$a$ed in Trade or Cusiness AU&&?B &)D and &1C) +. Aliens En$a$ed in >ultinational %o#paniesB "4shore Can=in$ EnitsB 9etroleu# Service %ontractors AU&1%BD and E) Resident Citi!en "RC# .+ 5ow #any types o. %O A+ There are two A&)B na#ely! *. % residin$ in the 9hilippinesI and &. Filipino livin$ abroad with no intention to reside per#anently therein. *1 Taxation law review notes - Atty. Francis J. Sababan - .+ -. you are abroadB and you have the intention to per#anently reside thereinB can you still be considered a %O A+ Les. -. such intention to per#anently reside therein was not #ani.ested to the %o##issioner and the .act o. your physical presence thereinB you #ay still be considered a %. $C% and Seamen "%D was used and not "FD in the %T9B because the classi;cation shall cover only those Filipino citi7ens wor=in$ abroad with a contract. T@Ts are not covered. A Filipino sea#an is dee#ed to be an "%D .or purposes o. taxation i. he receives co#pensation .or services rendered abroad as a #e#ber o. the co#ple#ent o. a vessel en$a$ed exclusively in international trade. %onsequentlyB i. he is not a #e#ber o. the co#ple#ent or even i. he is but the vessel where he wor=s is not exclusively en$a$ed in international tradeB said sea#an is not dee#ed to be an "%D. 5e is either a % or a @% dependin$ on where he stays #ost o. the ti#e durin$ the taxable year. -. he stays in the 9hilippines #ost o. the ti#e durin$ the taxable yearB he is considered a %B otherwiseB a @%. -. you are a sea#an in the ES @avyB you are not the one bein$ re.erred to. The i#portance o. ascertainin$ whether or not a sea#an is a % or a @%B is that i. he is a % he is taxable on A:: inco#e derived .ro# all sources within and without. -. he is a @%B he is taxable only on inco#e derived .or# sources within the 9hilippines. .+ Dhat is the si$ni;cance o. usin$ "%DO A+ -t only covers Filipinos who wor=s abroad with a contract. -t does not cover T@Ts. .+ Dhat is the status o. a T@TO A+ Since they are not covered by this classi;cationB they are considered % because they wor= abroad without a contract and they have not #ani.ested their intention to per#anently reside abroad. Adistin$uish .ro# an i##i$rant) equire#ents .or a sea#an to be considered an "%D! *. #ust be a #e#ber o. the co#pli#ent o. a vesselI &. the vessel #ust be exclusively en$a$ed in international trade or co##erce. Resident &lien "R&# An individual whose residence is within the 9hilippines and who is not a citi7en thereo.. -ntention to reside per#anently in the 9hilippines is not a require#ent on the part o. the alien. The require#ent under P& is that he is actually present in the 9hilippinesB neither a so<ournerB a travelerB not a tourist. Dhether heKs a transient or not is deter#ined by his intent as to the nature and len$th o. his stay. .+ -s the intention to per#anently reside in the 9hilippines necessaryO A+ @oB so lon$ as he is not a so<ournerB tourist or a traveler. *' Taxation law review notes - Atty. Francis J. Sababan - Non-Resident &lien Engaged in Trade or 'usiness "NR&ET'# A .orei$ner not residin$ in the 9hilippines but who is en$a$ed in trade or business here. &-/, has expanded the covera$e o. the ter#B Qen$a$ed in trade or businessR to include the exercise o. a pro.ession. Further#oreB by the express provision o. the lawB a @A who is neither a business#an nor a pro.essional but who co#e to and stays in the 9hilippines .or an a$$re$ate period o. #ore than *,( days durin$ any calendar year is dee#ed to a @AETC in the 9hilippines. .+ 5ow #any typesO A+ There are three A)) typesB na#ely! *. @A en$a$ed in trade or business A&1a*)I &. @A who practices a pro.ession Aevenue e$ulation &-/,)I ). .orei$ner who co#es and stays in the 9hilippines .or an a$$re$ate period o. >"E T5A@ *,( days durin$ any calendar year. .+ Dhat is the status o. a %hinese who stays here .or &(( days in &((*O A+ @AETC .+ Suppose he stayed here .or *(( days in &((( and another *(( days in &((*O A+ 5e is not a @AETC. To be considered as suchB he #ust stay .or an a$$re$ate period o. #ore than *,( days durin$ a calendar year. .+ Dhat is the inco#e tax applicable to said taxpayerO A+ @et -nco#e Tax A@-T) on all its inco#e derived .or# sources within the 9hilippines. Non-Resident &lien Not Engaged in Trade or 'usiness .+ 5ow #any =indsO A+ "nly one. The reason why the @A@ETC are included in any inco#e tax law is because they #ay be derivin$ inco#e .or# sources within the 9hilippines. They are sub<ect to tax based on their ?"SS -@%">E received .or# all sources within the 9hilippines. &liens Employed by Regional or &rea (eadquarters ) Regional $perating (eadquarters of *ultinational Companies+ &liens Employed by $s,ore 'an-ing .nits "&liens Employed by *$P# Status! either a A or @A dependin$ on their stay here in the 9hilippines. Their status #ay either be A or @A because Section &1 % and D does not distin$uish. :iable to pay *1H .ro# ?ross -nco#e received .ro# their e#ployer -nco#e earned .ro# all "T5E sources shall be sub<ect to the pertinent inco#e taxB as the case #ay be. &liens Employed in *ultinational and $s,ore 'an-ing .nits *+ Taxation law review notes - Atty. Francis J. Sababan - .+ 5ow are they classi;edO A+ -. they derived inco#e .ro# other sources aside .ro# their e#ployerB you #ay classi.y the# either as AB @AETCB or @A@ETC. &liens Employed in Petroleum Ser/ice Contractors and Subcontractors Status! A:DALS @A. -. they derive inco#e .ro# other sourcesB such inco#e shall be sub<ect to the pertinent inco#e taxB as the case #ay be. -nco#e derived or co#in$ .ro# their e#ployer shall be sub<ect to a tax o. *1H o. the $ross. II. CORPORATE TAXPA2ER *. 8omestic Corporation &8C- 0 created or or$ani7ed under 9hilippine laws. &. Resident $oreign Corporation &R$C- 0 corporation created under .orei$n lawB and en$a$ed in trade or business. ). 0onresident $oreign Corporation &0R$C- 0 created under .orei$n lawB and @"T en$a$ed in trade or business. .+ Dhat are dee#ed corporations under the @-%O A+ The ter# corporation shall include partnershipsB no #atter how created or or$ani7edB <oint stoc= co#paniesB <oint accountsB associationsB or insurance co#paniesB but D"ES @"T includes $eneral pro.essional partnerships and a <oint venture or consortiu# .or#ed o. the purpose o. underta=in$ construction pro<ects or operations pursuant to or en$a$in$ in petroleu#B coalB $eother#al or consortiu# a$ree#ent under a service contract with the ?overn#ent. *. 9artnerships and others no #atter how created &. Joint Stoc= %o#panies ). Joint Accounts 8. Associations 1. -nsurance %o#panies C"R v. CO#R! O$ APPEAL% The phrase no Q#atter how created or or$ani7edR was interpreted. Even i. the partnership was pursuant to law or notB whether nonstic=B nonpro;tB it is still dee#ed a corporation. eason! because o. the possibility o. earnin$ pro;ts .or# sources within the 9hilippines. .+ Are partnerships always considered corporationsO -s there no exceptionO A+ ?eneral ule! a partnership is a corporation. Exception! ?eneral 9ro.essional 9artnerships A?99) .+ Dhat is a ?99O A+ -t is a partnership .or#ed by persons .or the sole purpose o. exercisin$ their pro.essionB no part o. the inco#e o. which in derived .ro# any trade or business. Awhat i. a partner has other businesses not related to the ?99O V read section &' quoted hereunder) Two A&) Ginds o. ?99 .or#ed .or! *) Exercise o. a pro.ession 0 not a corporationI exe#pt .ro# %orporate -nco#e Tax A%-T) &) Exercise o. a pro.ession and en$a$ed in trade or business 0 a corporationI sub<ect to %-T *, Taxation law review notes - Atty. Francis J. Sababan - !A0 v. 8EL RO%AR"O $eneral rule! a partnership is a corporation exception! ?99 exception to the exception! i. the ?99 derives inco#e .ro# other sourcesB it is considered a corporationB thus liable to pay corporate inco#e tax. ule! *. i. the inco#e is derived .ro# other sources and such inco#e is sub<ect to @ET -@%">E TAMB it is not exe#pt and it is considered a corporation. &. i. the inco#e is derived .ro# other sources and such inco#e is sub<ect to F-@A: -@%">E TAMB it is still EME>9T and it is not dee#ed a corporation. A separate return .or this. -t will not re3ect in the ?99Ks -T) W This is pursuant to the .act that F-T will not re3ect in the -T o. the ?99 since the withholdin$ a$ent is liable .or the pay#ent o. the F-T. .+ Dhat is the i#portance o. =nowin$ whether the corporation is exe#pt or notO A+ To deter#ine their tax liability. This is i#portant to deter#ine the tax liability o. the individual partners o. the ?99. %ection *1 &) st paragrap=- provides! Qa ?99 as such shall not be sub<ect to the @et -nco#e TaxXR howeverB QXpersons en$a$in$ in business as partners in a ?99 shall be liable .or inco#e tax only in their separate and individual capacities.R -n shortB each partner will be payin$ @-TB and the distributive shares they will be receivin$ .ro# the net inco#e o. the ?99 will be included in the $ross inco#e o. the partner. .+ -. the ?99 is dee#ed a corporationB will the partners have to pay .or the inco#e taxO A+ @o. as .ar as the share o. the ?99 is concernedB it is considered a taxable dividend which is sub<ect to F-T. .+ -s a <oint venture a corporationO A+ ?enerallyB yesB it is a corporation. .+ %orporation M and %orporation L <oined to$ether. 5ow #any corporations do we haveO A+ ThreeB na#ely %orporation MB LB and MYL. the <oint venture has a separate and distinct personality .ro# the two corporations. .+ Dhen is a <oint venture not considered a corporationO A+ -t is not dee#ed a corporation when it is .or#ed .or the purpose o. underta=in$ a AQconstructionO) pro<ect or en$a$in$ in petroleu#B $asB and other ener$y operations pursuant to QOR or consortiu# a$ree#ent under a service contract with the $overn#ent. Domestic Corporation -s one created or or$ani7ed in the 9hilippines or under its laws. Taxable on all inco#e derived .ro# sources within or without the 9hilippines. Resident Foreign Corporation Forei$n corporations en$a$ed in trade or business in the 9hilippines. Taxable .or inco#e derived within the 9hilippines. */ Taxation law review notes - Atty. Francis J. Sababan - Non-Resident Foreign Corporation Forei$n corporations not en$a$ed in trade or business in the 9hilippines. Taxable .or inco#e derived within the 9hilippines. Coth D% and F% are liable .or the pay#ent o. the .ollowin$! *) @-T 0 @et -nco#e Tax &) F-T 0 Final -nco#e Tax )) *(H inco#e tax on corporations with properly accu#ulated earnin$s. 8) >%-T A>ini#u# %orporate -nco#e Tax) o. &H o. the ?ross -nco#e 1) "ptional %orporate -nco#e Tax o. *1H o. the ?ross -nco#e A @F% is liable .or pay#ent o. the 4! *) ?-T- ?ross -nco#e Tax &) F-T 0 Final -nco#e Tax III. TR%-T AN# E-TATE .+ 5ow #any .or eachO A+ Seven A+) =inds .or each because the trust or estate will be deter#ined by the status o. the trustorB $rantorB or creatorB or o. the decedent. The status o. the estate is deter#ined by the status o. the decedent at the ti#e o. his deathI so an estateB as an inco#e taxpayer can be a citi7en or an alien. Dhen a person who owns property diesB the .ollowin$ taxes are payable under the provision o. inco#e tax law! *) -nco#e Tax .or -ndividuals 0 to cover the period be$innin$ January to the ti#e o. death. &) Estate -nco#e Tax 0 i. the property is trans.erred to the heirs. )) -. no partition is #adeB -ndividual or %orporate -nco#e TaxB dependin$ on whether there is or there is no settle#ent o. the estate. -. there isB dependin$ on whether the settle#ent is <udicial or extra<udicial. ;udicial %ettlement *) Durin$ the pendency o. the settle#entB the estate throu$h the executorB ad#inistratorB or heirs is liable .or the pay#ent o. ESTATE -@%">E TAM ASexB '( A))). &) -. upon the ter#ination o. the <udicial settle#entB when the decision o. the court shall have beco#e ;nal and executoryB the heirs still do not divide the propertyB the .ollowin$ possibilities #ay arise! a) -. the heirs contribute to the estate #oneyB property or industry with the intention to divide the pro;ts between and a#on$ the#selvesB an E@E?-STEED 9AT@ES5-9 is created and the estate beco#es liable .or pay#ent o. %-T AEvan$elista vs. %ollector A*(& 9hil *8()) b) -. the heirs without contributin$ #oneyB property or industry to i#prove the estateB si#ply divide the .ruits thereo. between and a#on$ the#selvesB a %"- &( Taxation law review notes - Atty. Francis J. Sababan - "D@ES5-9 is created and -ndividual -nco#e Tax A--%) is i#posed on the inco#e derived by each o. the heirsB payable in their separate and individual capacity A9ascual vs. %">> A*'1 scra 1'() and "billos vs. %">> A*)/ S%A 8)')) E>tra?udicial %ettlement and if 0O %ettlement So#e possibilities #ay arise. The inco#e tax liability depends on whether or not the unre$istered partnership or co-ownership is created. Trust Trusts can be created by willB by contract or by a$ree#ent. The status o. a trust depends upon the status o. the $rantor or trustor or creator o. the trust. 5enceB a trust can also be a citi7en or an alien. .+ Dhere the trust earns inco#e and such inco#e is not passiveB who a#on$ the parties #entioned is liable .or pay#ent o. inco#e tax thereonO A+ The TEST itsel.B throu$h the trustee or ;duciary but only i. the trust is irrevocable. -. it is revocableB or .or the bene;t o. the $rantorB the liability .or the pay#ent o. inco#e tax devolves upon the trustor hi#sel. in his capacity as individual taxpayer. 1IN#- OF INCO/E TAX .+ 5ow #any =inds o. inco#e taxO A+ There are Six A')B na#ely! *. @et -nco#e Tax A@-T)I &. ?ross -nco#e Tax A?-T)I ). Final -nco#e Tax AF-T)I 8. >ini#u# %orporate -nco#e Tax o. &H o. the ?ross -nco#e A>%-T) 1. -nco#e Tax on -#properly Accu#ulated Earnin$s sub<ect to *(H o. the Taxable -nco#eI '. "ptional %orporate -nco#e Tax o. *1H on the ?ross -nco#e I. NET INCO/E TAX .+ what is the .or#ulaO A+ ?ross -nco#e 0 Deductions and 9ersonal Exe#ptions Z Taxable -nco#e Taxable -nco#e x Tax ate Z @et -nco#e Taxable @et -nco#e 0 Tax %redit Z Taxable @et -nco#e Due @et -nco#e #eans ?ross -nco#e less deductions and For#ula! ?- - deductions @et -nco#e x Tax ate -nco#e Tax Due .+ Dhat is the rateO A+ -ndividual! )&H %orporation! )1H @"TE! the .or#ula allows .or deductionB personal exe#ptions and tax credit. .+ Dhat are the other ter#s .or @-TO A+ @-%! a. taxable inco#e b. $ross inco#e Awlan$ =asunod) only inco#e tax .ro# i#properly accu#ulated earnin$s does not use this ter#. &* Taxation law review notes - Atty. Francis J. Sababan - *. %FA! Qto be included in the $ross inco#eR &. evenue e$ulations and Statutes! a. ordinary way o. payin$ inco#e taxI b. nor#al way o. payin$ inco#e tax . C,aracteristics0 .+ Dho are not liable to pay @-TO A+ *. @A@ETC Aliable .or ?-T)I &. @F% A?-T also)I ). Dith certain #odi;cationsB AE>"9B i. they derive inco#e .ro# other sourcesI .+ -s the taxable net inco#e sub<ect to withholdin$ taxO A+ -t is sub<ect to withholdin$ tax i. the law says so. .+ Dhat i. the law is silentO A+ -. the law is silentB it is not sub<ect to withholdin$ tax. .+ Dhat is another ter# .or withholdin$ taxO A+ -t is also =nown as the creditable withholdin$ tax syste# under the inco#e tax law. .+ Do we have to deter#ine i. there is an actual $ain or lossO A+ Les because the .or#ula .or deductionsB etc. .+ -. you .ail to payB will you be held liableO A+ LesB you will be held liable. II. GRO-- INCO/E TAX 3GIT4 .+ Dhat is the .or#ulaO A+ ?ross -nco#e x ate .+ 5ow #any taxpayers pay by way o. the $rossO A+ There are two A&) individual - @A@ETC corporation - @F% @"TE! the .or#ula does not allow any deductionB personal exe#ptions and tax credit. C,aracteristics0 @A@ETC and @F%B thou$h not en$a$ed in trade or businessB are liable to pay by way o. the $ross .or any inco#e derived in the 9hilippines. Dhile not en$a$ed in trade or businessB there is a possibility that they #ay earn inco#e in the 9hilippines. .+ -s this sub<ect to withholdin$ taxO A+ LesB it is sub<ect to withholdin$ tax because the persons liable are .orei$ners. This rule is ACS":ETE @"TE! there are two A&) ways o. payin$ taxes dependin$ on which side o. the bench you are. III. FINAL INCO/E TAX 3FIT4 .+ Dhat is the .or#ulaO A+ AEach -nco#e) x A9articular ate) Enli=e in the $ross inco#e tax where you add all the inco#e .ro# all the sources and #ultiply the su# thereo. by the rate o. &1H or )1HB as the case #ay beB in ;nal inco#e taxB you cannot <oin all the inco#e in one $roup because each inco#e has a particular rate. .+ Dhat is the rateO A+ )1H as the case #ay be. @"TE! li=e ?-TB the .or#ula does not allow deductionsB personal exe#ptionsB and tax credit. C,aracteristics0 && Taxation law review notes - Atty. Francis J. Sababan - .+ Dho are liable to pay F-TO A+ All taxpayers are liable to pay F-T provided the requisites .or its application are present. .+ Do you still have to pay @-TO A+ @o. i. you are liable .or F-TB no need to pay @-T or else there will be double taxation. @"TE! as ti#e passed byB the nu#ber o. F-T increased. be.ore */+/ 0 proceeds .ro# the sale o. real property not exe#ptB it is sub<ect to @-T or ?-TB as the case #ay be. a.ter */+/ 0 capital $ains tax. 9roceeds .ro# the sale o. real property is exe#pt. .+ -. you .ail to payB will you be liableO A+ @o. the withholdin$ a$ent is liable to pay F-T. %ase o. JudayB ichard and e$ine For one to be liable .or the pay#ent o. @-TB the inco#e #ust be derived on the basis o. an e#ployer 0 e#ployee relationship. E#ployer 0 E#ployee elationship A) %s)! *. contractI &. controlI ). co#pensationI 5oweverB in the case o. celebritiesB there is no e#ployer 0 e#ployee relationshipB they are #erely receivin$ royalties. oyalties are sub<ect to ;nal withholdin$ taxB thus the a$ent is liable to pay. AsoB distin$uish nature o. inco#eB whether royalty or co#pensation) E:E! *. .or @-TB whether or not sub<ect to %reditable Dithholdin$ Tax A%DT)B the taxpayer is always liable i. he .ails to pay. &. .or ?-T and F-TB absolute liability to pay is upon the withholdin$ a$ent. .+ Dhy is it that the rate o. withholdin$ is always lowerB and why is it that the rate o. ?-T and F-T is always equalO A+ *. @-T allows deductionsI &. ?-T and F-T do not allow deductions. .+ Do you have to deter#ine whether there is an actual loss or $ainO A+ @o need to deter#ine because the .or#ula does not allow deductions. ?ain is presu#ed. @o liability .or ;nal withholdin$ tax except .or the sale o. shares o. stoc=. AO) IV. /INI/%/ CORPORATE INCO/E TAX 3/CIT4 .! Dhat is the .or#ulaO A+ ?ross -nco#e x &H .! Dho pays this taxO A+ D% and F% only. .+ >ay it be applied si#ultaneous with @-TO A+ @o. there #ust be a co#putation o. the @-T ;rst then apply which ever is hi$her. The >%-T is paid in lieu o. the @-T. eason! to discoura$e corporations .ro# clai#in$ too #any deductions. V. OPTIONAL CORPORATE INCO/E TAX .+ Ender what section is this .oundO &) Taxation law review notes - Atty. Francis J. Sababan - A+ Section &+A 8 th para$raph and Section &, AA*) 8 th para$raph. .+ -s this applicable nowO A+ @o. this is not yet i#ple#ented. .+ To what =ind o. taxpayer does this applyO A+ To D% and F%. .+ Dhat =ind o. taxes are applicable or i#posed upon the * st ;ve individual taxpayersO A+ "nly two A&) =inds are applicable out o. the six A') =inds o. inco#e taxes. 1. @-TI 2. F-TI .+ Dhat =ind o. inco#e tax will apply to AE>"9O A+ ?enerallyB only one =indB *1H F-T with respect to inco#e derived .ro# their e#ployer. -nco#e .ro# other sources! *. Deter#ine the status o. the AE>"9I a. @-T b. F-T &. @A@ETC a. ?-T b. F-T .+ Dhat =ind o. inco#e tax applies to D%O A+ "nly .our A8) =inds will apply out o. the six A') *. @-T &. F-T ). >%-T 8. -#properly Accu#ulated Earnin$s .+ >ay all o. these be applied si#ultaneouslyO A+ @o. only the @-TB F-T and -#properly Accu#ulated Earnin$s be applied si#ultaneously. @-T and >%-T cannot be applied si#ultaneously. "nly one will applyB whichever is hi$her between the two. .+ Dhat =ind o. tax will apply to @F%O A+ "ut o. the six A') =indsB only two A&) will apply! *. ?-T &. F-T .+ Dhat is the si$ni;cance o. =nowin$ the classi;cation o. these taxpayersO A+ *. to deter#ine the =ind o. inco#e tax applicable to the#I &. to deter#ine their tax liability. .+ Ender Section &)B who are liable .or inco#e within and inco#e withoutO A+ "nly *. % &. D% The rest o. the taxpayers will be liable .or inco#e co#in$ .ro# sources within. -nco#e .ro# sources withoutB no liabilityB there.ore exe#pt. @"TE! The inco#e taxpayer is not a % or a D%. Deter#ine i. the inco#e ca#e .ro# sources within or without to =now the taxpayerKs liability. -. the .acts are speci;cB do not quali.y your answer. Answers #ust be responsive to the question. .+ -s section 8& relevant to all the taxpayersO A+ @". SE%T-"@ 8& -S @"T >ATE-A: T" A:: taxpayersB particularly the % and D% because &8 Taxation law review notes - Atty. Francis J. Sababan - these two are liable .or both inco#e within and without. Section 8& is applicable only to taxpayers who are liable .or inco#e withinB the rest o. the taxpayers are otherwise exe#pt. .+ Section 8&AA)A*) provides .or how #any =inds o. interestsO A+ -t establishes two A&) =inds o. interestsB na#ely! *. interest derived .ro# sources within the 9hilippines. &. interest on bondsB notes or other interest bearin$ obli$ations o. residentsB corporate or otherwise. .+ Dhat is the deter#inin$ .actor in order to =now i. the inco#e is .ro# withinO A+ *. location i. the ban= is .ro# within the 9hilippines Apursuant to a evenue e$.) &. residence o. the obli$or Awhether an individual or a corp.) 0 contract o. loan with respect to the interest earned thereon. For exa#ple the borrower is a @AETCB he borrowed #oney .ro# a A. The interest earned by the loan will be considered as an inco#e without. A is not liable to pay tax since A is liable only .or inco#e withinB there.ore exe#pt .ro# payin$ the tax. 0A!"O0AL 8E9ELOP.E0! CO. v. C"R F! The @ational Develop#ent %o#pany A@D%) entered into a contract with several Japanese shipbuildin$ co#panies .or the construction o. *& ocean-$oin$ vessels. The contract was #ade and executed in To=yo. The pay#ents were initially in cash and irrevocable letters o. credit. SubsequentlyB .our pro#issory notes were si$ned by @D% $uaranteed by the ?overn#ent. :ater onB since no tax was withheld .ro# the interest on the a#ount dueB the C- was collectin$ the a#ount .ro# @D%. The @D% contended that the inco#e was not derived .ro# sources within the 9hilippinesB and thus they are not liable to withhold anythin$. @D% said that since the contract was entered into and was executed in JapanB it is an inco#e without. 5! The $overn#entKs ri$ht to levy and collect inco#e tax on interest received by a .orei$n corporation not en$a$ed in trade or business within the 9hilippines is not planted upon the condition that the activity or labor and the sale .ro# which the inco#e 3owed had its situs in the 9hilippines. @othin$ in the law ASection 8&A*)) spea=s o. the act or activity o. nonresident corporations in the 9hilippinesB or place where the contract is si$ned. The residence o. the obli$or who pays the interest rather than the physical location o. the securitiesB bonds or notes or the place o. pay#ent is the deter#inin$ .actor o. the source o. the inco#e. Accordin$lyB i. the obli$or is a resident o. the 9hilippinesB the interest paid by hi# can have no other source than within the 9hilippines. .+ Suppose a @F%B an -ndonesian ;r#B beco#es a stoc=holder o. two corporationsB a D% and a F%B and both corporations declared dividendsB what is the liability o. the &1 Taxation law review notes - Atty. Francis J. Sababan - -ndonesian ;r# i. the sa#e received the dividendsO A+ *. Dividends received .ro# D%! the -ndonesian ;r# is liable to pay taxes. @F%B under the lawB is liable i. the inco#e is derived .ro# sources within. ASec 8&a) &. Dividends received .ro# F%! the -ndonesian ;r#Ks liability will depend on a#ount o. $ross inco#e .ro# sources within the 9hilippines. The @F% will be liable to pay inco#e tax i. the .ollowin$ requisites are present! *. at least 1(H is inco#e .ro# sources withinI &. the * st requisite is .or the three A)) precedin$ taxable years .ro# the ti#e o. declaration o. the dividends. -n the absence o. any or both requisitesB the inco#e will be considered .ro# sources withoutB thus exe#ptin$ the -ndonesian ;r# .ro# pay#ent o. inco#e tax. .+ Sa#e scenarioB but this ti#e the shares o. stoc= o. the two corporations were bein$ disposed o4. Dhat is the tax liability o. the -ndonesian ;r#O A+ *. sale o. shares o. stoc= o. D%! the -ndonesian ;r# will be liable .or the pay#ent o. taxes because the inco#e is .ro# sources within. &. sale o. shares o. stoc= o. F%! the liability will depend on where the shares o. stoc= were sold. A#e<o >alabo sa notesB please be $uided accordin$ly) .+ Filipino ExecutiveB assi$ned to 5on$ Gon$B receivin$ two salariesB one .ro# the 9hilippinesB the other .ro# 5G. The per.or#ance o. the <ob was in 5G. -s he liable .or both salariesO A+ @oB he is not liable .or the two inco#es. 5is status is an "%D Anote .acts! wor=in$ in 5G under contract). The co#pensation he received is not sub<ect to tax pursuant to Section 8&Ac). %o#pensation .or labor or personal services per.or#ed in the 9hilippines is considered an inco#e within. Dhen it co#es to servicesB it is the place where the sa#e is rendered which is controllin$. -n the case at barB the services were rendered abroadB thus it is an inco#e derived .ro# sources withoutB irrespective o. the place o. pay#ent. .+ Suppose a D% hired a @F% to advertise its products abroad. Dhat is the liability o. the @F%O Dill there be a withholdin$ tax i#posedO A+ The inco#e is derived .ro# sources without since the services in this case were per.or#ed abroad. As suchB the @F% is not liable and there.ore exe#pt .ro# the pay#ent o. tax. -. the @F% is not sub<ect to @-TB then it is not also sub<ect to withholdin$ tax. .+ Dhat is the controllin$ .actorO A! The controllin$ .actor is the place where the services were per.or#ed and not where the co#pensation there.ore was received. RENTAL- AN# RO2ALTIE- inco#e .ro# sources within .+ ?ranted by whoO A+ @F% &' Taxation law review notes - Atty. Francis J. Sababan - .+ Suppose you are the .ranchise holderB how #uch is the withholdin$O A+ )1H A?-T) 6! i. the .ranchise is $ranted by F%B how #uch is the withholdin$O A! *(H A@-T) and in so#e cases *1H Section 8&A8) >E>"-SE F" E%-T A%EGSTT>) a. ri$ht o.B or the ri$ht to use copyri$htB patentsB etc b. industrialB co##ercialB scienti;c equip#ent c. supply o. =nowled$e d. supply o. services by nonresident e. supply o. technical assistance .. supply o. technical advice $. ri$ht to use! #otion picture ;l#sB etc. .+ Dhat is the rule as re$ards the sale o. real propertyO A+ ?ainsB pro;tsB and inco#e .ro# the sale o. real property located within the 9hilippines considered inco#e within. .+ Dhat about the sale o. personal propertyB what is the ruleO A+ Deter#ine ;rst i. the property is produced or #erely purchased. *. it the property is #anu.actured in the 9hilippines and sold abroadB or vice-versaB it is an inco#e partly within and partly without. &. i. the property is purchasedB considered derived entirely .ro# the sources within the country where it is sold. EM%E9T-"@! shares o. stoc= o. do#estic corporationB it is an inco#e within wherever it is sold. C$**1SS1$NER /2 1&C .! Dhat is the issue hereO A+ They cannot deter#ine i. the business expense was incurred in the 9hilippines. .+ i. you are the C-B and the taxpayer is not sureB will you disallow the deductionO A+ @o. deter#ine it pro rata. For#ula! ?- .ro# within ?- .ro# without Exa#ple! *((B((( *B(((B((( Z *(H 5enceB *(H is the ratable share in the deduction. -. the deduction bein$ as=ed is *((B((( not all o. it will be allowed. "nly *(B((( or *(H o. *((B((( will be allowed as deduction. CAPITAL GAIN- AN# LO--E- Section )/ .+ Dhat is capital assetO A+ %apital asset is an asset held by a taxpayer which is not an ordinary asset. The .ollowin$ are ordinary assets! *. stoc= in trade o. the taxpayer or other property o. a =ind which would properly be included in the inventory o. the taxpayer i. on hand at the close o. the taxable yearI &. property held by the taxpayer pri#arily .or sale to custo#ers in the ordinary course o. trade or businessI ). property used in trade or business o. a character which is sub<ect to the allowance .or depreciation provided in subsection *. &+ Taxation law review notes - Atty. Francis J. Sababan - 8. real property used in trade or business o. the taxpayer. All other property not #entioned in the .ore$oin$ are considered capital assets. .+ Dhat is a capital $ainO Dhat is a capital lossO A+ %apital $ains are $ains incurred or received .ro# transactions involvin$ property which are capital assets. %apital losses are losses incurred .ro# transactions involvin$ capital assets. .+ Dhat is ordinary $ainO "rdinary lossO A+ "rdinary $ains are those received .ro# transactions involvin$ ordinary assets. %apital losses are losses incurred in transactions involvin$ ordinary assets. .+ Dhat is the relevance o. #a=in$ a distinctionO A+ -t is relevant because Section )/CB%B and D apply to capital assets only. *. ti#e when property was held A)/C) Aholdin$ period applies only to individuals)I &. li#itations on capital losses A)/%)I ). @et %apital %arry-"ver A)/D) I. CAPITAL A--ET- .+ Dhat is the holdin$ periodO A+ -. capital asset is sold or exchan$ed by an individual taxpayerB only a certain percenta$e o. the $ain is sub<ect to inco#e tax. -t is the len$th o. ti#e or the duration o. the period by which the taxpayer held the asset. .+ Dhat is the require#entO A+ *. the taxpayer #ust be an individual. Section )/C states Qin case o. a taxpayerB other than a corporation..R &. property is capital in nature. .+ Dhat is the ter#O A+ *((H i. the capital asset has been held .or not #ore than *& #onthsI Ashort ter#) 1(H i. the capital asset has been held .or #ore than *& #onths. Alon$ ter#) @"TE! the holdin$ period applies to both $ains and losses. .+ Do you include capital $ains in your -TO A+ ?eneral rule! yesB include in -T. EM%E9T! *. $ains in sales o. shares o. stoc= not traded in stoc= exchan$eAsection &8)I &. capital $ains .ro# sale o. real propertyAsection &8). .+ Dhen will the holdin$ period not applyO A+ *. property is an ordinary asset &. taxpayer is a corporation ). sale o. real property considered as ordinary asset II. LI/ITATION ON CAPITAL LO--E- synonymous to 34D & loss capital rule this applies to individual and corporate taxpayer .+ Dhat is the loss li#itation ruleO A+ 9ursuant to Section )/ %B losses .ro# sales or exchan$e o. capital assets #ay be deducted only .ro# capital $ainsB but losses .ro# the sale or exchan$e o. ordinary assets #ay be deducted .ro# capital or ordinary $ains. Aapplies to individual and corporation) &, Taxation law review notes - Atty. Francis J. Sababan - .+ -n connection with )8 DB :osses in Allowable DeductionB what is the rationale behind this ruleO A+ -. it is otherwiseB it will run counter with the rule that the loss should always be connected with the trade or businessB capital losses are losses not connected to the trade or businessB thus it is not deductible .+ what is your re#edyO A+ )/ DB net capital loss carry-over .+ Dhat is the rationale in allowin$ ordinary loss to be deducted .ro# either the capital $ains or ordinary $ainsO A+ -t is already included in -TB the $ross inco#e less deductions hence it already carries with it the deduction !A@E 0O!E: @or#ally i. the loss is an ordinary loss there is no carry over. E>cept: a. )8D) b. i. the loss is #ore than ?-
III. NET CAPITAL LO-- CARR20 OVER .+ Dhat are the require#entsO A+ *. taxpayer is an individualI &. paid in the i##ediately succeedin$ yearI ). applies only to short ter# capital $ainI 8. capital loss should not exceed net inco#e in the year that it was incurred. .+ 5ow does net capital loss carry- over di4er .ro# net operatin$ loss carry-over under Section )8 D A))O A+ Ender the net capital loss carry- over ruleB the capital loss can be carried over in the i##ediate succeedin$ year. -n net operatin$ loss carry-over ruleB capital loss can be carried over to the next three A)) succeedin$ calendar year .ollowin$ the year when the loss was incurred. @"TE! only *1H o. the loss will be carried overB i. the loss is $reater than the $ains. -n net operatin$ loss carry-over there is an exception to the ) year carry-over period. -n case o. #ines other than oil and $as wellsB the period is up to 1 years. .+ Dhat is a short saleO A+ Sale o. property by which the taxpayer cannot co#e into the possession o. the property. EM! shares C&3&4&N5 /2 C1R F! The taxpayer inherited the property .ro her .ather and at the tie o. the inheritance it was considered a capital asset. -n order to liquidate the inheritanceB the taxpayer decided to develop the land to .acilitate the sale o. the lots. -! Das the property converted to ordinary assetO 5! The conversion .ro# capital asset to ordinary asset is allowed because Section )/ is silent. .+ Are you allowed to convert ordinary asset to capital assetO A+ ?eneral rule! it is not allowed. ead evenue e$ulation +-&(() The case at bar still applies despite o. the issuance o. said evenue e$ulation. .+ Dhat is the conversion prohibited in the evenue e$ulationO A+ %onversion o. real estate property. .+ Dhat is the rationaleO &/ Taxation law review notes - Atty. Francis J. Sababan - A+ Section &8 D 0 ;nal inco#e tax o. 'H i. the real estate is capital asset. -. it is an ordinary assetB it will be sub<ect to inco#e tax o. )&H .or individual taxpayerB and )1H i. the taxpayer is a corporation. .+ Dhat are the properties involve in the +-&(()O A+ *. those property .or sale by the realtors &. real property use in trade or business not necessary realtors .+ That is the conversion allowed by the evenue e$ulationO -s there an instance when an ordinary asset #ay be converted to capital assetO A+ LesB provided that the property is an asset other the real propertyB and it has been idle .or two A&) years. -ECTION 56 TAX ON IN#IVI#%AL- .+ Dhat is the tax #entioned in section &8O A+ @-T .+ Dhat is taxable inco#eO A+ A#e#ori7e section )*) it is the pertinent ite#s o. $ross inco#e speci;ed in the @-%B less the deductions andNor personal and additional exe#ptionsB i. anyB authori7ed .or such types o. inco#e by the @-% or other laws. -t re.ers to @-T because it allows deductions. .+ Dhat do you #ean by the phrase Qother the CB %B and DRO A+ -t #eans that i. the ele#ents o. passive inco#e are presentB the taxpayer has to pay F-T. .+ Dho are the taxpayers #entioned in section &8O A+ *. % &. @% ). "%D 8. A AdditionallyB under Section &1B @AETC .+ Dhat is the tax liability o. @AETCO A+ Section &1 A*) @AETC is sub<ect to inco#e tax in the sa#e #anner as those individuals #entioned in Section &8. .+ Dhat about Do#estic %orporationsO A+ *. Sec. &+ ABCB and % &. Sec. &'- ?99 is not sub<ect to inco#e tax. .+ Dhat about esident Forei$n %orporationsO A+ Sec &, Al) it is sub<ect to )1H @et -nco#e Tax .+ Dhat about @on esident .orei$n %orporation and @on esident Alien not en$a$ed in Trade or CusinessO A+ @ot Sub<ect to @et -nco#e Tax but they are liable .or ?ross -nco#e tax. .+ Do le$ally #arried husband and wi.e need to ;le separately or <ointlyO A+ -t depends i.! *. 9ure co#pensation inco#e- separate &. @ot 9ure co#pensation inco#e- <oint Passi'e Incoe "nterest, RoAalties, priBes and Ot=er Cinnings 1nterest .+ Can= -nterestB what is the require#entO )( Taxation law review notes - Atty. Francis J. Sababan - A+ The ban= #ust be located in the 9hils. because the inco#e #ust be derived .ro# sources wNin. .+ Do you include this in your -TO A+ @o[ because it is sub<ect already to F-T. The ban= is the one liable .or the pay#ent o. this. @"TE! :iability .or @-TB ?-TB and >%-T will depend on the ele#ents present. .+ Dho are liable .or ban= interstO A+ *. % \ &. @%\ Sec. &8 C* ). A \ 8. @AETC 1. @A@ETC Sec. &1 A&1H) '. AE>"9 +. D% ,. F% /. @F% .+ Dhat is the rate o. interestO A+ F-T o. &(H .+ -s there a lower rateO A+ + ] H i. under EF%DS .+ Dhat i. the depositor is non resident alienO A+ -DNin 0 F-T - DNout- exe#pt .+ Dhat is the rule on pre- ter#inationO A+ -. it is pre ter#inated be.ore 1 th year a F-T shall be i#posed on the entire inco#eand shall be deducted and withhellod by the depositary ban= .ro# the proceeds o. the lon$ ter# deposit based on the re#ainin$ #aturity thereo. a. 8 yrs to less than 1 yrs 0 1H b. ) yrs to lesss than 8 yrs- *&H c. :ess than ) yrs- &(H .+ Does it apply to all individualsO A+ @o[ it does not apply to *( @F% and @A and @ETC because they are liable to ?-T. @"TE! i. the depositary is a @on resident it is exe#pt resident citi7en liable to pay tax .or ban= interst earned abroad A@-T) .+ -. the #oney earns interst in abroad who is liableO A+ % and D% only by @-TB the rest are exe#pt. @o F-T abroad because we do not have withholdin$ a$ent abroad. .+ >%-T applies to D% and F% in relation to ban= interestO A+ -. the ban= interest is derived abroadB F% is exe#pt but D% is liable. -#pose @-T i. it is hi$her than the >%-TB otherwise apply >%-T i. its hi$her than the @-T Pri!es equire#ents! *. 9ri7es #ust be derived .ro# sources wNin the 9hils. &. it #ust be #ore than 9 *(B((( .+ Dho are liableO AF-T) A+ *. % &. @% ). "%D 8. A 1. @AETC '. AE>"9 A%B @AETC) @ot :iable *. @AETC- liable .or ?-T at &1 H &. AE>9"9 A@A@ETC- ?-T) ). D%- @-T &+ D is silent 8. F% @-T law is silent &,A+a 1. @F% sub<ect to ?-T )* Taxation law review notes - Atty. Francis J. Sababan - .+ Dhen can we apply @-T in 9ri7esO A+ *. Dhen the taxpayer is %B F% and D% &. For D% and % it #ust be derived .ro# inco#e abroad F% it #ust be derived .ro# inco#e wNin ). a#ount is #ore than 9*(B((( @"TE! -. the pri7e is derived .ro# sources wNin but it is below 9 *((B((( it is not sub< to tax. -. derived .ro# sources abroadB #ost o. the# are exe#pt except .or % and D% who are liable wNin and wNout. .7 -s it possible .or % and D% to pay >%-TO A+ Les i. >%-T is hi$her than @-T. %innings .+ Do we apply the 9*((B((( req.O A+ @oB we do not apply it only apllies to pri7es. -t #ust not pertain to ille$al $a#blin$. ThusB the only require#ent is it #ust be derived .ro# inco#e wNin. .+ Dho are liableO AF-T) A+ *. % &. @% ). "%D 8. A 1. @AETC '. AE>"9 AAB @AETC) @ot liable to F-TO * @A@ETC- ?-T & AE>"9 A@A@ETC- ?-T) ) D%- law is silent @-T 8 F%- law is silent 1 @F%- ?-T .+ Dhen does @-T apply to winnin$sO A+ *. -. Taxpayer is D% or % &. -nco#e is derived abroad ). Taxpayer is F% and inco#e wNin. @"TE! -. inco#e abroadB #ost T9 are exe#pt except D% and % .+ >%-T applies whenO A+ -t is hi$her than the @-T Royalties equire#ent! The inco#e is .ro# wNin ateO &(H. :ower rateO *(H on boo=sB literary wor=s and #usical co#positions. .+ Lou are a writer .or Snoop Do$$ are you liable .or F-TO Dhat i. .or April CoyO A+ :iable .or @-T i. -nco#e abroad li=e a writer .or Snoop. Dhile F-T i. .or April Coy. .+ Dho are liable AF-T)O A+ *. % &. @% ). "%D 8. A 1. @AETC '. AE>"9 A%B @AETC) @ot :iableO *. @A@ETC &. AE>"9 ). D% 8. F% 1. @F% @"TE! :ower rate o. *(H applies to all except @A@ETC .+ Dhen do we apply @-T to oyaltiesO A+ *. T9 is % or D% )& Taxation law review notes - Atty. Francis J. Sababan - &. -nco#e is .ro# wNout ). T9 is F and inco#e is wNin -. inco#e is .ro# sources abroad all are exe#pt except % and D% Di/idends %on;ned with cash andNor property dividends. .+ Dhat are dividendsO A+ Any distribution #ade by %orporation to its stoc=holders outside o. its earnin$s or pro;ts and payable to its stoc=holders whether in #oney or in property ASec. +)) CO... vs. .A00"0/ .+ Dhere did it co#e .ro#O A+ shares co#e .ro# another shareholder .+ Dhat are the dividends includedO A+ Sec. &8 re.ers to cash or property dividend 5! For stoc= Dividends to be exe#pt it #ust co#e .ro# the pro;t o. the corporation. %tocD 8ividends it is the trans.er o. the surplus pro;t .ro# the authori7ed capital stoc=s. .+ Assu#in$ that there are 1 -ncorporators the %orpo has a 91 > Authori7ed %apital stoc=. -t distributed * > stoc= dividendsB is it taxableO A+ @"B the dividends did not $o to the Stoc= holder but to the Auth %apital Stoc=. "nly cash and 9rop Stoc= $o to the Stoc= holder. Sec &8 C does not #ention stoc= dividends because it is not sub<ect to F-T but it is sub<ect to @-T under Section +). .+ -s there an exception when stoc= dividends are not taxableO A+ LESB i. the shares o. stoc=s are cancelled and redee#ed #eanin$ it was reacquired by the corp. A0%COR CA%E the stoc=holders cannot escape the pay#ent o. taxes equire#ent! ?en ule- the dividends #ust be distributed by a D%. Except- e$ular operatin$- always a .orei$n corp. Dhat rate! *(H F-T .+ Dho are liableO A+ *. % &. @% ). "%D 8. A 1. @AETC '. AE>"9 A%B @AETC) @ot liableO *. @A@ETC &. AE>"9 ). D% 8. F% 1. @F% Shares o. association and partnership is taxable .+ Deter#ine the tax liability o. the .ollowin$O A+ *. D% a Stoc=holder o. D%Z Exe#pt &. F% stoc=holder o. D%Z Exe#pt also ). D% stoc=holder o. FZ :iable .or @-T. Capital 6ains From Sale of S,ares of Stoc- Not Traded "789C# 1. Sub< to F-T )) Taxation law review notes - Atty. Francis J. Sababan - 2. Deter#ine whther there is a loss or a $ain because the tax is i#pose upon the net capital $ains reali7ed .ro# the saleB barterB or exchan$e or other disposition o. the shares o. stoc= in a do#estic corp. 3. -t is uni.or#ily i#posed on all taxpayer 4. not sub< to wNholdin$ tax. equire#ents! *. Shares o. stoc= o. a D% &. -t #ust be capital asset ). #ust not be traded in the stoc= #ar=et &1 last part! %apital ?ains reali7ed by @A@ETC in the 9hils. .ro# the sale o. shares o. stoc= in any D% and real prop shall be sub<. to the inco#e tax prescribed under Sub sec Ac) and Ad) o. Sec. &8. SE%. &8 C *F&! -. the ele#ents are present @A@ETC and @F% are liable to pay ?-T. Except! under &8 % .or @A@ETC. Dhat do you #ena by the phrase Q the provisions o. )/ notwithsatandin$RO -t re.ers to the holdin$ period. Dhen it co#es to capital $ains .ro# sale o. shares o. stoc= not traded and capital $ains .ro# the sale o. real prop. The holdin$ period does not apply because the basis will be those provided in &8 % F D and not under )/ C A?S9 or F>2) ELE/ENT 89 T&e s&are is a s&are in #C .+ Dhat i. the share is .ro# .orei$n corpO A+ Deter#ine the inco#e considered. -. inco#e wNin read Sec. 8& AE) -. the shares sold are that o. a .orei$n corp it is sub< to the 4 rules! a. sold in the 9hilsZ its inco#e wNin b. sold in abroadZ wNout c. Shares o. stoc= in a Dc is always considered an inco#e wNin re$ardless where it was sold. .+ Shares o. Forei$n %orp sold in 9hils. DhoKs liableO Dhat taxO A+ @ot sub< to F-T because one o. the ele#ents is not present . Shares not bein$ that o. a D%. 5ence! a) %B @%B "%DB @AETCB AE>"9 AAB @AETC) will pay @-T. D% and F% b) @A@ETC and @F% will pay ?-T .+ Shares o. Forei$n %orporation sold abroadO A+ -t will be considered an inco#e wNout. Thus! #ost o. the# will be exe#pt except % and D% liable to pay @-T ELE/ENT 8 5 NOT TRA#E# OR -OL# IN T:E -TOC1 /AR1ET i. sold in the stoc= #ar=et- it is not sub< to F-T i. sold in the stoc= #ar=etB it will be sub< to percenta$e taxB in lieu o. @-T. ELE/ENT 8 ; It ust <e a capital asset. .+ Dhen is it considered an ordinary assetO A+ *. Dhen the bro=er or dealer a. used it in trade or business )8 Taxation law review notes - Atty. Francis J. Sababan - b. held .or sale in the ordinary course o. trade or business &. to all other assetsB it will be considered a capital asset @"TE! i. all ele#ts are present it will be sub< to F-T -. the shares are ordinary asset *. "rdinary shares in D%- inco#e wNin a. >ost o. the taxpayer will pay @-T except @F% and @A@ETC &. "rdinray assets o. .orei$n corporations a. -nco#e within i. sold in the 9hils! #ost will pay except @A@ETC and @F% b. -nco#e wNout i. sold abroad! #ost will be exe#pt except % and D% >%-T .+ Dhen is a F% sub< to @-TO A+ *. Sale o. shares o. stoc= o. a Forei$n corp in the 9hil. &. sale o. shares o. stoc= o. D% which are ordinary asset D% and F% are sub< to >%-T which #ay be i#posed i. the @-T is lower than the >%-T&H >%-T will be i#posed i. >%-T is hi$her than @-T. Capital 6ains From Sale of Real Property "789D# -n )/ C the holdin$ period does not apply because the basis o. inco#e tax is the $ross sellin$ price A?S9) or the Fair #ar=et value AF>2) whichever is hi$her- 'H F-T equire#ents! *. The real prop #ust be sold wNin the 9hils and located in the 9hils. &. -t #ust be a capital asset ). The seller #ust be an individualB estate or trust or a D% F% not liable .or F-T but liable to pay @-T i. all the ele#ents are present. @F% liable to pay ?-T and not F-T @A@ETC liable to pay F-T are all ele#ents are present. ELE/ENT 8 ; T&e real prop ust <e a capital asset .+ Dhen considered a capital assetO A+ ead .. +- &(() .+ "rdinary asset- shall re.er to all real property speci;cally excluded .ro# the de;nition o. capital asset under Sec. )/ A+ "ther property not #entioned are capital asset. .+ Dhat i. all the ele#ents are not presentO A+ #ost will be liable to pay @-T Except @A@ETC and @F% liable .or ?-T .+ >ay a % be liable to pay @-T even i. all the ele#ents are presentO A+ LESB disposition #ade to the ?ovt. ThusB the taxpayer has the option o. payin$ )&H @-T or 'H F-T .+ Dhich is #ore advanta$eousO A+ -t depends deter#ine ;rst i. thereKs a loss or a $ain. -. thereKs a $ain choose to be taxed at 'H F-T. -n this case the $ain is always presu#ed. )1 Taxation law review notes - Atty. Francis J. Sababan - -. thereKs a loss choose to be taxed at )&H because losses #ay be considered an allowable deduction . "ther transactions are covered! *. sale &. barter ). exchan$e 8. other disposition @"TE! -. the prop is under #ort$a$e contract and the #ort$a$ee is a ban= or ;nancial instB the F-T does not apply because the property is not yet trans.erred because thereKs a period o. rede#ption -. a.ter a year the #ort$a$or .ailed to redee# the property that is the only ti#e that the F-T will apply because thereKs now a chan$e o. ownership. -. redee#ed wNin * yr period F-T will not apply because thereKs no chan$e o. ownership. -. the #ort$a$ee is an individual the F-T is i#posed whether or not there is a trans.er o. ownership. Exceptions "789"D8## .+ Dhat i. the prop bein$ sold was a #ovie houseB can he clai# .or the exceptionO A+ the prop covered by the exe#ption is a residential lot .+ Dho can clai# the exe#ptionO A+ "nly the taxpayer #entioned in Sec. &8 equire#ents! *. The purpose o. the seller is to acquire new residential real prop &. the privile$e #ust be availed o. wNin *, #os. Fro# the sale ). %o##. #ust be in.or#ed wNin )( days .ro# the date o. sale with the intention to avail o. the exe#ption 8. the ad<usted basis or historical cost o. the residence sold shall be carried over to the new residence. 1. the privile$e #ust be availed only once every *( yrs '. %erti;cation o. the br$y. %apt where the taxpayer resides that indeed the prop sold is the principal residence o. the tax payer A *)- //) .+ Dhat i. the property is worth *( > and it was sold only .or &>B what will happen to the unused portion or pro;tO A+ -. the proceeds are not .ully utili7edB the portions o. the $ain is sub< to F-T -EC. 5=A RATE- OF INCO/E TAX .+ 5ow #any inco#e taxes are paid by a D%O A+ *. @-T &. >%-T ). F-T 8. *(H-#properly Accu#ulated Earnin$s 1. "ptional corporate inco#e tax o. *1H o. the $ross D% liable .or ;veB but the optional is not yet applicable so only 8. .+ 5ow #any can be applied si#ultaneouslyO A+ "@:L ) *. @-TB F-T and *(H -AE &. >%-TB F-TB *(H -AE -EC. 5= 3B4 PROPRIETAR2 E#%CATIONAL IN-T. * :O-P. Dho are the taxpayersO *. @on- 9ro;t 9roprietary Educl. -nst and &. @on 9ro;t 9roprietary 5ospital )' Taxation law review notes - Atty. Francis J. Sababan - .+ Dhat i. the school or hospital is non pro;t onlyB is it exe#ptO A+ @oB sub<ect to *(H on their taxable inco#eexcept those covered by subsection AD) 9"2-DED that $ross inco#e .ro# unrelated businessB trade or activity #ust not exceed 1(H o. its total $ross inco#e derived by such educational inst or hospital .ro# all sources equire#ents! *. -t is a private school or hospital &. it is stoc= corp ). it is non pro;t 8. that $ross inco#e .ro# unrelated businessB trade or activity #ust not exceed1(H o. its total $ross inco#e derived by such educational inst or hospital .ro# all sources 1. has per#it to operate .ro# DE%SB TESDAB or %5ED .+ Dhat do you #ean by unrelated trade business or activityO A+ -t #eans any tradeB CusinessB or activity which is not substantially related to the exercise or per.or#ance by such entity o. its pri#ary purpose or per.or#ance .+ >ay a school or hospital be exe#pt .ro# payin$ taxO Dhat are the reqO A+ *. -t #ust be non- stoc= and non- pro;t &. the assets property and revenues #ust be used actuallyB directlyB and exclusively .ro the pri#ary purpose .+ Ender what lawO -s it the constitution or the @-% which provides .ro the exe#ptionO A+ -t is under Sec. )( o. @-% and not under Sec.8 Art. *8 o. the %onstitution. The provision o. the @-% is the speci;c law which prevails over the %onstitution which is the $eneral law. exe#pt .ro# all taxes and custo# duties .+ Dhat about exe#ption .ro# real property taxO A+ Art. ' Sec. &, o. the %onstitution! charitable institution churchesB X.and all lands buildin$sB actually directly and exclusively used .or reli$iousB charitableB and educational purposes shall be exe#pt .ro# taxation. @ot Sec. 8 o. Art. *8 o. the %onstitution. .+ Lou donated a property to a school will you be liable .or donorKs taxO A+ not liable i. it .alls under Sec. *(* A)) o. the @-% E6. F" EME>9T-"@ T" D"@"S TAM! *. it #ust be nonstoc=B non- pro;t educational inst. &. not #ore than )(H o. the prop donated shall be used by such donee .or ad#in purposes. ). payin$ no dividends 8. $overned by trustees who donKt receive any co#pensation 1. devotin$ all its inco#e to the acco#plish#ent and pro#otion o. the purposes stated in its Articles o. -ncorporation .+ Dhat about exe#ption .ro# 2ATO A+ Sec. *(/ A#) o. -2AT
.+ Dhat about exe#ption .ro :oc ?ov %odeO A+ -. its nonstoc=B non- pro;t educational inst. -t #ay be exe#pted .ro# local taxation. )+ Taxation law review notes - Atty. Francis J. Sababan - .+ -s Art *8 Sec. 8 o. the %onsti obsoleteO A+ @"B i. the law is silent apply the %onsti. -EC. 5;+ GOCC> AGENCIE-> IN-T of t&e GOVT. ?E@ E:E! Sub< to tax. EM%E9T-"@S! *. ?S-S &. SSS ). 95-% 8. 9%S" 9A?%" no lon$er included. .+ -. the ?"%% is not one o. those enu#erated does it .ollow all o. its inco#e is auto#atically sub<ect to taxO A+ @". Ender Sec )&. C A+) inco#e derived .ro# any public utility or .ro# the exercise o. essential $overn#ent .unctionaccruin$ to the ?ovt o. the 9hils or to any political subd. Are there.ore exe#pt .ro# inco#e tax. There.oreB even i. the ?"%% is one o. those enu#erated under Sec. &+ it #ay still be exe#pt under Sec. )& b+b i. its per.or#in$ $overn#ental .unction @"TE! 9a$cor vs. Casco case .+ Dhat is the di4erence between Sec. &+ % and )& b+bO A+ *. Sec &+ % exe#pts those enu#erated without any quali;cation. &. Sec. )&b+b quali;cation #ust concur be.ore it #ay be exe#pted. .+ %an the $overn#ent i#pose tax on itsel.O A+ -t depends on who the taxin$ authority is. -. the taxin$ authority is the @ational ?ovt. as a ruleB LES. Exceptions *. those entities enu#erated under U&+ % &. those ?"%% .allin$ under U)&b+b -. the taxin$ authority is the local $overn#ent unitsB as a rule @". :?EKs are expressly prohibited .ro# levyin$ tax a$ainst! ASec *))Ao) *. @ational ?ovt. &. -ts a$encies and instru#entalities ). local $overn#ent units Exception! Sec *18 o. :?% says that :?EKs #ay ;x rate .or the operationo. public utilities owned and #aintained by the within their <urisdiction. PAL CA%E ;ulA *( *((1 5! The S% used *)) Ao)an exception to pay taxB real estate taxB i#posed by %ity o. 9Aranaque on @A-A. The S% said that the airport is not an a$ency or ?"%% but #ere instru#entality o. the ?ovt. This is ?ross i$norance o. the law Sec. *)) Ao) is .or local taxation not real property taxation which is the one involved in the present case. @"TE! >actan- %ebu Airport case SEC2 8: D";# .+ 5ow #any possible inco#es were #entionedO A+ Two A&)! ban= interest and royalties E6! *. Can= interest #ust be received by a Do#estic %orp &. oyalties derived .ro# sources within ), Taxation law review notes - Atty. Francis J. Sababan - .+ Dhen it co#es to ban= interestB what is the di4erence i. the taxpayer is an individual or corporationO A+ -. individualB they #ay be exe#pt .ro# the pay#ent o. interest in case o. lon$ ter# deposit except @A@ETC -. D%B they are not exe#pt .ro# lon$ te# deposit. .+ Dhat about royaltiesO A+ -. individualB have a lower rate o. *(Hon boo=sB other literary and #usical co#positions. D% have no lower pre.erential rate. SEC 8: D80 C&P1T&3 6&1NS FR$* S&3E $F S(&RES N$T TR&DED SEC 8: D<0 EFCDS .+ Dhat is the expanded .orei$n currencyO A+ -t is a ban= authori7ed by the CS9 to transact business in the 9hilippine %urrencyas well as acceptable .orei$n currency or both. .+ Dhat is the tax to be paidO A+ @or#ally it is @-T because it is sub< under Sec &+ D) and &, A .+ Dho is the inco#e earnerO A+ Depositary ban=s .+ Exe#pt .ro# what =ind o. transactionO A+ Fro# .orei$n currency transaction. -. it involves .orei$n currency transaction it is not exe#pt but sub<ect to )1 H @-T .+ Dho are the other partiesO A+ *. "4 shore ban=in$ units &. branches o. .orei$n ban=s ). local co##ercial ban= 8. "ther depositary ban=s under EF%DS 1. @on- residents i. the above enu#eration are the partiesB then depositary ban= will be exe#pt .ro# payin$ the @-T Foreign Currency 3oan .+ Dho is the lenderO CorrowerO A+ :ender- EF%DS Corrower- % EME>9T "4shore ban=in$ units "ther depositary ban=s under EF%DS exe#ption o. @ .ro# EF%DS! .+ Dho is the inco#e earnerO A+ @on esidents whether individual or %orporations .+ Derived .ro# who#O A+ Depositary Can= under EF%DS @"TE! Sec. &8 C @onresident exe#pt .ro# ban= interest under EF%DS .+ Dhat is the di4erence between &8 b* .ro# &+ D) A+ -n &8 C*B @ is exe#pt only .ro# ban= interst derived .ro# EF%DS while &+D) exe#pts @ .ro# any inco#e .ro# transactions with depositary ban= under EF%DS SEC2 8: D"9)- -ntercorporate dividends- exe#pt 8: D= Capital 6ains from sale of Real Prop2 .+ Dhat is the taxO A+ 'H F-T .+ Dhat is the di4erence i. the seller is an individual and a D%O )/ Taxation law review notes - Atty. Francis J. Sababan - A+ -ndividual can sell all =inds o. real property D% can only dispose land andNor buildin$s. SEC 8: "E# *C1T .+ Applicable to who#O A+ D% and F% .+ %an it be applied si#ultaneously with @-TO A+ @"B i#posed in lieu o. the @-TB whichever is hi$her. .+ Dhat is the ationaleO A+ to prevent corporations .ro# clai#in$ too #any deductions .+ Dhen will it be i#posedO A+ *. "n the 8 th year i##ediately 4 the year in which such corp co##enced its business. &. Dhen the >%-T is hi$her than the @-T .+ Dhat is the carry over ruleO A+ Sec &+ E& states the carry over rule. -n order to avail! only in the year where the >%-T is $reater than the @-T. Sec 8> &; .+ Dhat Ginds o. taxes are paid by the F%O A+ @-T >%-T Sec2 8> '8 *C1T on RFC sa#e with Sec. &+ Sec2 8> &<- 1NT3 C&RR1ER Gind! *. Air carrier &. ships An intl. carrier doin$ business in the 9hils. shall pay & ] H on its ?ross 9hil Cillin$s A?9C) .+ -s &, A) the ?en. rule or the ExceptionO A+ -t is the $eneral rule because it is under &, A) ?9C is in the nature o. F-TB applies only i. all the require#ents are present. F% will be liable .or @-TB hence a F% en$a$ed in co##on carria$e does not pay ?9C but @-T -nco#e without! EME>9T 1nternational Carrier0 ?9C re.ers to the a#ount o. revenue derived .ro#! carria$e o. personsB excess ba$$a$eB car$o and #ail ori$initan$ .ro# the 9hils in a continouos and uninterrupted 3i$htB irrespective o. the place o. sale or issue and the place o. pay#ent o. the tic=ets or passa$e docu#ent. E6! *. "ri$inatin$ .ro# the 9hils. &. %ontinouos and uninterrupted 3i$htI ). irrespective o. the place o. sale or issue and the place o. the pay#ent o. tic=ets or passa$e docu#ent. .+ Do you consider landin$ ri$hts to deter#ine liabilityO A *1-&((&) A+ *. -. ori$inates .ro# the 9hils and has landin$ ri$hts- "@:-@E- F% 8( Taxation law review notes - Atty. Francis J. Sababan - &. @o landin$ ri$hts- "FF:-@E- @F% .+ -. there are stopoversB is it still uninterruptedO A+ LESB provided that the stopover does not exceed 8, hrs. .+ Dhen will the place o. sale o. tic=ets #atter as to the taxpayers liabilityO A+ The place o. tic=ets is #aterial only i. the two other ele#ents are not present to be able to =now i. its sub< to @-T or exe#pt. Re/alidated? exc,anged or indorsed tic-ets E6! *. The passen$er boards a plane in a port or point in the 9hils. &. The tic=ets #ust be revalidatedB exchan$edB or indorsed to another airline. .+ Dhat i. itKs the sa#e airline but di4erent planeO A+ ?9C does not applyB it #ust be to another airline .+ Dhat i. it did not ori$inate .ro# the 9hils.O A+ Deter#ine i. its inco#e within or without. i. tic=et was purchased in the 9hils. it is inco#e within hence apply @-T i. purchased outsideB it is inco#e withoutB hence exe#pt Trans,ipment E6! 3i$ht ori$inates .ro# the 9hils tranship#ent o. passen$er ta=es placeat any port outside the 9hils. the passen$er trans.erred on another airline .+ 5ow do you apply ?9CO A+ "nly the aliquot portion o. the cost o. the tic=et correspondin$ to the le$ 3own .ro# the 9hils to the point o. tranship#ent shall .ro# part o. the ?9C. .+ -s it liable .or the whole 3i$htO A+ Fro# the 9hils to the point o. tranship#entB it is inco#e wNin Fro# tranship#ent to ;nal destinationB its inco#e wNout- EME>9T 1nternational S,ipping ?9C #eans $ross revenue whether .ro# passen$erB car$oB #ail E6! it #ust ori$inate .ro# the 9hils. up to ;nal destination - re$ardless o. the place o. sale or pay#ents o. passen$er or .rei$ht docu#ents Sec8> &"9# $FF S($RE '&N@1N6 .N1TS "CEKs *. only acceptable .orei$n currencies &. always a .orei$n corporation Asub< to @-T) except P) ). Exe#pt i. inco#e is derived by the "CE .ro# EF%DS 8. 9arties! a) local co##ercial ban=s b) Forei$n ban= branch c) @on esidents d) "CE in the 9hils. Di4erence with EF%DS! EF%DS *. Acceptable .orei$n currencyB 9hil. %urrency or both 8* Taxation law review notes - Atty. Francis J. Sababan - &. %an be a do#estic or .orei$n corporation ). Exe#pt i. inco#e derived by D% or F% .ro# EF%DS 8. 9arties! a) local co##ercial ban=s b) Forei$n ban= branch c) @on esidents d) "CE in the 9hils e) "ther ban=s under EF%DS FOREIGN C%RRENC2 LOAN *(H F-T -.! :ender- "CE Corrower- esident %iti7en EM%E9T! *. "CE &. :ocal %o##ercial Can=s Transactions o. @on esidents! *. -nco#e earner! @on- esidents &. :ender! "CEKs @"TE! @on resident exe#pt .ro# transactions with "CEKs and EF%DS -EC. 5? A@ TAX ON BRANC: PROFIT-> RE/ITTANCE- pro;ts based on the total pro;ts applied or ear#ar=ed .ro re#ittance re#itted by a branch to its head oTce Sub< to *1H tax Except! those activities which are re$istered with 9ESA @"TE! -nterestsB DividendsB entsB oyalties includin$ re#uneration .or technical sevicesB salariesB wa$esB pre#iu#sB annuitiesB e#olu#entsB or casual $ainsB pro;tsB inco#e and capital $ains received by a .orei$n corporation durin$ each taxable year .ro# all sources within shall not be treated as branch pro;ts E@:ESS the sa#e are e4ectively connected with the conduct o. its trade or business. 'ranc, ProAt Remittance Two ways to receive inco#e AF%) *. Cranch &. Subsidiaries @"TE! *. Dhen a F% establishes branchB it is always a F% &. Dhen a F% establishes D%B it is a F% .7 -t is in addition to @-T- DhyO A+ @-T because it is F% .7 Dhat =ind o. tax is i#posed under &, A1O A+ *1H F-T .+ 5ow do you apply the rateO A+ #ultiplied to the total pro;t applied or ear#ar=ed .or re#ittance wNo deductions -t applies .or branches that are! *. the pro;t re#itted is e4ectively connected with the conduct o. its trade or business in the 9hils. &. "ne not re$istered with 9ESA .AR#7E0" CA%E F! A branch was established with A?F9B there was invest#ent with A?F9 .+ Did the petitioner participate with the ne$otiationO A+ @" .+ Dhat did the petitioner payO A+ *1H Cranch 9ro;t e#ittance Tax AC9T) *(H -ntercorporate Dividends .+ DhatKs the issueO A+ 9etitioner #aintains that there was overpay#ent o. taxesB thus the sa#e was as=in$ .or a re.und o. tax erroneously paid. 8& Taxation law review notes - Atty. Francis J. Sababan - .+ -s is sub< to F-TO A+ @"B exe#pt i. petitioner is F% 5! -not correct to pay *1H To be liable .or C9T *. -t is a F% &. Cranch did not participate in ne$otiations -EC. 5? AAa e$ional or area headquarters ASec. && DD) shall not be sub<ect to tax exe#pt .ro# inco#e tax i. the requisites are present. .+ Dhat are the requisitesO A+ *. the 56 do not earn or derive inco#e .ro# the 9hils. &. Acts only as supervisoryB co##unicationsB coordinatin$ centre .or their aTliatesB subsidiary or branches in the Asia- 9aci;c e$ionand other .orei$n #ar=ets. -EC. 5? AA< e$ional "peratin$ 56 are taxable and liable to pay *(H taxable inco#e. e$ional "peratin$ 56 is a branch established in the 9hils by a #ultinational co#pany en$a$ed in any o. the services! *. ?en. Ad#inistration and 9lannin$ &. Cusiness 9lannin$ and %oordination ). Sourcin$ and procure#ent o. aw #aterials and co#ponents. 8. %orporate Finance and Advisory Services 1. >ar=etin$ %ontrol and sales pro#otion '. Trainin$ and personal #ana$e#ent +. lo$istic services ,. research and develop#ent services and product develop#ent /. technical support and #aintenance *(.data processin$ and co##unication and business develop#ent ationale! Dhy liableO Cecause the clai# .or exe#ption o. resident airlines shall be #ini#i7ed -EC. 5?A=a Interests an$ Ro(alties+ &(HF-T -nterests under EF%DSZ + ] H -ec. 5?A=< Incoe $eri'e$ un$er EFC#- 9. -nco#e derived .ro# .orei$n currency transactions with! a) @on esidents b) "CE c) :ocal co##ercial ban= d) Forei$n ban= branches e) "ther depository ban= under the EF%DS As a ?en ule! the above transaction is Exe#pt EM%E9T-"@! -nco#e .ro# such transaction as #ay be speci;ed by the secretary o. FinanceB upon reco##endation by the >onetary Coard to be sub<ect to re$ular inco#e tax payable by any ban=s. 5. -nterst inco#e .ro# .orei$n currency loans $ranted by depository ban= under said EF%DS to others shall be sub<ect to *(H F-T 8) Taxation law review notes - Atty. Francis J. Sababan - Exe#pt i. $ranted to! *. "ther "CE in the 9hilsB and &. "ther depository ban= under the EF%DS W SE%. &, A+c! %apital ?ains .ro# Shares o. Stoc=s not Traded in the Stoc= exchan$e 1H or *(H as the case #aybe -EC 5?A=$+ INTERCORPORATE #IVI#EN#- D%- F%Z EME>9TB not sub< to tax -EC 5? B9 .+ Dhat =ind o. taxO A+ )1H ?-T on the 4 inco#e *. -nterest &. Dividends ). ents 8. oyalties 1. Salaries '. 9re#iu#sA except reinsurance pre#iu#s) +. annuities ,. e#olu#ents /. "ther ;xed and deter#inable ?ainsB pro;ts and inco#e. -EC 5? B5 Non Resi$ent Cineato,rap&ic Bl o"ner> lessor or $istri<utor liable .or &1H ?-T -EC 5? B; Non Resi$ent o"ner or lessor of Vessels c&artere$ <( P&ilippine Nationals. liable .or 8 ] ?-T Ele#ents! *. %hartered to Filipino %iti7ens or %orporations &. Approved by >A-@A -EC. B364 Non Resi$ent O"ner or Lessor of Aircraft> /ac&iniries> an$ ot&er ECuipents. liable .or + *N& H ?-T -EC 5? <@a Interest on Forei,n Loans >ust be read with Sec. )& C+a -nterest on Forei$n :oansB i. the lender is *. @F% liable to &(H F-T &. Forei$n ?ovt. Exe#pt because it is an exclusion ASec )& b+a! inco#e derived by a .orei$n $ovt .ro# invest#ents in the 9hils on loansB stoc=sB bondB and other do#estic securities or .ro# interest on deposits in ban=s by! a) Forei$n $ovt. b) Financin$ inst owned controlled or en<oyin$B re;nancin$ .ro# .orei$n $ovtI and c) -nter nation or e$ional ;nancial inst established by .orei$n $ovt. CO.."%"O0ER O$ "0!ER0AL RE9. vs. ."!%#7"%4" .E!AL CORP. &),( %CRA *)E- F! Atlas >inin$ enetered into a :oan and Sales %ontract with >itsubishi >etal %orp. A A Japanese %orp.) .or the purposes o. pro<ected expansion o. the productivity capacity o. the .or#erKs #ines in %ebu. The contract provides that >itsibushi will extend a loan to Atlas in the a#ount &( > dollarB so that Atlas will be able install a new concentrator .or copper production. ->itsubishi to co#ply with its obli$ationB applied .or a loan 88 Taxation law review notes - Atty. Francis J. Sababan - .ro# Export- -#port Can= o. Japan AExi# Can=) and .ro# consortiu# o. Japanese ban=s. 9ursuant to the contract Atlas paid interst to >itsubishi where the correspondin$ *1H tax thereon was withheld and only re#itted to the ?ovt. Subsequently >itsubishi ;led a clai# .or tax credit requestin$ that the sa#e be used as pay#ent .or its existin$ liabilities despite havin$ executed a waiver and disclai#er o. its interest in .avour o. Atlas earlier on. -t is the contention o. >itsubishi that it was the #ere a$ent o. Exi# Can= which is a ;nancin$ inst owned and controlled by the Japanese ?ovt. The status o. Exi#ban= as a $overn#ent controlled inst beca#e the basis o. the clai# .ro exe#ption by >itsubishi .or the pay#ent o. interst on loans. -! D"@ >itsubishi is a #ere a$ent o. Exi#ban= 5! @". The contract between the parties does not contain any direct re.erence to Exi# Can=B it is strictly between >itsubishi as creditor and Atlas as the seller o. copper. The ban= has nothin$ to do with the sale o. copper to >itsubishi. Atlas and >itsubishi had reciprocal obli$ations- >itsubishi in order to .ul;l its obli$ations had to obtain a loanB in its independent capacity with Exi# ban=. :aws $rantin$ exe#ption .ro# tax are construed strictly a$ainst the taxpayer and liberally in .avour o. the taxin$ authority. -EC. 5? #@ < INTERCORPORATE #IVI#EN#-+ F-T *1H i#posed on the a#ount o. cash and or prop dividends received .ro# a do#estic corporation. SECJ T" T5E %"@D-T-"@! the country where the @F% is do#iciled allows a credit a$ainst the tax due .ro# the @F% taxes dee#ed paid or dee#ed to have been paid in the 9hils. ?en rule! )1 H F-T Exception! *1H under the Qtax dee#ed paid ruleN reciprocity ruleN tax sparrin$ ruleR ;4O0%O0% CA%E & Ginds o. %ate$ories! * st ! JapanB ESB ?er#anyB 9hils liable .or inco#e within and inco#e without & nd ! countries liable only .or inco#e within. .AR#7E0" Case! & -ssues *. -s the pay#ent o. *(H F-T correctO - @o because it was a branch and F% but still >arubeni was @F% under the old law which is liable to pay )1HB but S% said liable only to &1H because o. the tax treaty Lou cannot re.und ri$ht away *1H C9T and *(H -ntercorporate Dividends tax has di4erent basis -n 9F? who are involved - D% A9F? 9hil) and @F% A9F? ES) - D% declares dividends to @F% - )1H was withheld and re#itted to the C- Dhat did they discoverO Aa.ter payin$) - they discovered that they are liable only .or *1H so they have a re.und o. &(H 81 Taxation law review notes - Atty. Francis J. Sababan - .+ -n the * st case did the S% allowed the re.undO A+ @"B denial anchored on & $rounds! *. "ne clai#in$ .or re.und was not the proper party &. There was a showin$ or proo. as to the existence o. the Qtax dee#ed paidR rule .+ -n & nd case was there a re.undO A+ LESB the S% reversed itsel. *. -nco#e tax is F-T! the withholdin$ a$ent is the proper party because he is liable to pay said taxes &. actual proo. o. pay#ent not necessaryB what is necessary is the law o. the do#icile o. the country providin$ .ro tax credit equal to &(H o. the tax dee#ed paid. .+ Dhat is the rate i. the law is silentO A+ )1H F-T The rate will only be *1H i. thereKs a law reco$ni7in$ the sa#e but this re.ers to the case o. those belon$in$ to the ;rst cate$ory. FA08ER CA%E .+ Dho are the partiesO A+ D%ADander) and F% A?laxo)- they belon$ to di4erent cate$ories The C- tried to collect )1H because the law is totally silent about the tax credit 5! The S% said that the tax should be *1H which applies & instances! *. Forei$n law do not provide .or tax credit- )1H &. law provides but the law is silent- *1H ). law is silent because there is no law- *1H 8. law is silent because therKs no law because the sub< #atter is not taxable- *1H -EC. 5D IAET .+ Dhat is the rateO A+ *(H o. the $ross inco#e Ataxable inco#e) -t is i#posed upon the i#properly accu#ulated taxable inco#e o. the corporation .+ Applies to what %orpO A+ to D% only under &- &((*A classi;ed as closely held corporations) .+ -s it in the nature o. sanctionO A+ LesB it is i#posed to co#pel the corporation to declare dividends. .+ DhyO A+ because i. pro;ts are distributed to the shareholdersB they will be liable .or the pay#ent o. Dividends tax. @owB i. the pro;ts are undistributed the shareholders will not incur liability on taxes with respect to the undistributed pro;ts o. the %orp. - -n a way it is in the .or# o. detterent to the avoidance o. tax upon shareholders who are supposed to pay dividends tax on the earnin$s distributed to the#. .+ Dhat is taxable inco#eO A+ SE%. )* de;nes taxable inco#e as the pertinent ite#s o. $ross inco#e speci;ed in this %odeB less the deductions andNor personal and additional exe#ptionsB i. anyB authori7ed .or such types o. inco#e by this %ode or other special law .+ Dhen not laible to pay -AETO 8' Taxation law review notes - Atty. Francis J. Sababan - A+ There are & $roups o. D% exe#pt .ro# pay#ent o. -AET A&-&((*) A- Corporations failure to declare dividends because of reasonable needs of business reasonable needs #eans are construed to #ean i##ediate needs o. the business includin$ reasonable anticipated needs .+ Dhat constitutes reasonable accu#ulation o. the corporationKs earnin$sO Exa#plesO A+ *. allowance .or the increase in the accu#ulation o. earnin$s up to *((H o. the paid- up capital o. the corporation. &. earnin$s reserved .or the de;nite corporate expansion pro<ects or pro$ra#s appoved by the Coard ). Earnin$s reserved .ro buildin$sB plantsB or equip#entB acquisition approved by the Coard 8. Earnin$s reserved .or co#pliance with any loan a$ree#ent or pre- existin$ obli$ations 1. Earnin$s required by law or other applicable statutes to be retained. '. -n case o. subsidiaries o. .orei$n corporationB all undistributed earnin$s or pro;ts intended or reserved .or invest#ents @"TE! the corporations belon$in$ in the * st $roup are nor#ally liable but they can show that the accu#ulation o. earnin$s is <usti;ed .or reasonable needs o. businessB they incur no liability and exe#pt .ro# pay#ents o. the sa#e. 7- Corporations C=ic= are e>empt C=et=er or not it is for reasonable needs of t=e business: *. Can=sB and other non- ban= ;nancial inter#ediaries. &. -nsurance co#panies ). 9ublicly- held corporations 8. Taxable partnerships 1. ?eneral 9ro.essional 9artnerships '. @on- taxable <oint- ventures +. Enterprises re$istered with a) 9ESA b) Cases %onversion Devt Act o. *//& AA /&&+) c) Special Econo#ic Sone declared by law .+ Dhat is a closely- held corporationsO A+ Those corporation at least 1(H in value o. the outstandin$ capital stoc= or at least 1(H o. thetotal co#bined votin$ power all classes o. stoc= entitled to vote is owned directlyB or indirectly by or .or not #ore than &( individuals @"TE! 9ublicly held %orp. has #ore than &( shareholders .+ Dhat is the ti#e .or payin$ this taxO A+ %alendar Lear! Jan &1B &((1- Dec )*B &((1. Today is &(('. Lou have * year to declare a.ter the close o. the taxable year. &((' is the $race period. Lou will pay on January &((+. .+ -. youKre not #entioned to be exe#ptedB will you still be liableO A+ @oB i. you invo=e ad<ust#ents -EC ;E. EXEE/PTION- FRO/ TAX ON CORPORATION- Deter#ine the %orporationsK exe#ptions under Sec. )( &+ % and &&C. 8+ Taxation law review notes - Atty. Francis J. Sababan - *. Sec )(B the corporations shall not be taxed under this title Atax on inco#e) in respect to inco#e receive by the# as such. &. Sec &+B the corporations enu#erated are always exe#pt. Thus exe#ption is unconditional ). Sec &&C ?99B as a $eneral rule is not a corporation 8. except i. it earns inco#e .ro# other business Joint 2enture wN service contract wN $overn#ent not a corporationB otherwiseB it is liable. Assi$n#ent! Sec. )1 Au$ust &*B &((' 0 >idter#s Au$ust *8B &((' .+ Dhat is the reason .or not includin$ the corporations exe#pt under section &+% and Section &&C under Section )(O A+ Cecause there is an exe#ption which does not apply to all exe#pt corporation. The exe#ption under Section )( is not absolute while the exe#ption under Section &+ % is absolute and without any conditions. -n additionB Section &&C provides that a <oint venture is $enerally taxable unless it has a service contract with the $overn#entB a $enerally taxable corporation cannot be <oined with the $roup as $enerally not taxable corporation. ?eneral 9ro.essional 9artnership is exe#pt but the exe#ption is not the sa#e as provided by Section )(. TAGE @"TE! :as 9ara$raph o. Section )(. exe#ption to the exe#ption! inco#e o. whatever =ind and character o. the .ore$oin$ or$ani7ations .ro#! *. any o. their propertiesB real or personalI &. any activities conducted .or pro;t re$ardless o. the disposition o. said inco#eB shall be sub<ect to tax. .+ Enu#erate the exe#pt corporations under Section )(I Dhat is the require#entO A+ *. :aborB a$ricultural or horticultural or$ani7ation not or$ani7ed principally .or pro;tI &. >utual savin$s ban= not havin$ a capital stoc= represented by sharesB and cooperative ban= without capital stoc= or$ani7ed and operated .or #utual purpose and without pro;tI ). a bene;ciary societyB order or associationB operatin$ .or the exclusive bene;t o. the #e#bers such as .raternal or$ani7ation operatin$ under lod$e syste#. Alod$e syste#! operatin$ world wide) or a #utual old association or a non-stoc= corporation! a. or$ani7ed by e#ployeesI b. providin$ .or the pay#ent o. li.eB sic=nessB accident or other exclusive bene;ts to its e#ployees and their dependentsI 8. %e#etery Aa) co#pany owned and Ab) operated exclusively .or the bene;t o. its #e#bersI 1. @on-stoc= corporation or association or$ani7ed and operated exclusively .or eli$iousB %haritableB Scienti;cB Artistic or %ultural 8, Taxation law review notes - Atty. Francis J. Sababan - purposesB or .or the ehabilitation o. 2eterans A%SA%)B no part o. its net inco#e or asset shall belon$ ot or inure to the bene;t o. any #e#berB or$ani7erB oTcerB or any speci;c personI '. Cusiness lea$ueB cha#ber o. co##erceB or Coard o. tradeB Aa) not or$ani7ed .or pro;t and Ab) no part o. the net inco#e o. which inures to the bene;t o. any stoc= holder or individualI +. %ivil lea$ue or or$ani7ation not or$ani7ed .or pro;t but operated exclusively .or the pro#otion o. social wel.are. C"R vs. .CA .+ Dhat is the basis o. >anila C- .or the i#position o. the taxO A+ last para$raph o. Section )(B because L>%A was conductin$ an activity .or pro;t. F! the %TA and the %A invo=ed the doctrine laid down in 5errera and Abra 2alley case which involves an exe#ption .ro# the pay#ent o. eal property Tax. 5! The S% revised the rulin$. L>%2A is liable to pay inco#e tax applyin$ the last para$raph o. Section )(. L>%A -s exe#pt .ro# the pay#ent o. property taxB but not to inco#e tax on rentals .ro# its property. The tax code speci;cally #andates that the inco#e o. exe#pt or$ani7ations Aunder section )() .ro# any o. their propertiesB real or personalB shall be sub<ect to taxB includin$ the rent inco#e o. the L>%A .ro# its real prop. ,. a non-stoc= and non pro;t educational institutionI /. $ovKt educational institutionI *(.Far#erKs or other #utual typhoon or ;re insurance co#panyB #utual ditch or irri$ation co#panyB or li=e or$ani7ation o. a purely local characterB the inco#e o. which consists solely o. assess#entB dues and .eesB collected .ro# #e#bers .or the sole purpose o. #eetin$ its expensesI **.Far#erKsB .ruit $rowerKs or li=e association or$ani7ed and operated as a sales a$ent .or the purpose o. #ar=etin$ the products o. its #e#bers and turnin$ bac= to the# the proceeds o. salesB less the necessary sellin$ expenses on the basis o. the quantity o. produce ;nished by the#. TAGE @"TE! inco#e o. sales a$ent is exe#pt. -ection ;9+ TAXABLE INCO/E C:APTER VI+ CO/P%TATION OF GRO-- INCO/E -ECTION ;5+ GRO-- INCO/E .+ Dhat is the tax treat#entO Are these taxable inco#eO Are these included in the $ross inco#eO -s it included in the -TO -s it sub<ect to @-TO A+ Sec. )& A answers the questions. .+ Dhat is the inco#e tax re.erred to hereO A+ @-T. The section re.ers only to the pay#ent o. @-T. -t spea=s o. the @-T. .+ -. the is #entioned under Section )& AB does it .ollow that it is auto#atically included in the ?-TO 8/ Taxation law review notes - Atty. Francis J. Sababan - A+ @oB Section )& A states QExcept when otherwise provided in this titleR .+ Dhat are the inco#e that are not includedB not sub<ect to @-TO A+ *. -nco#e that are sub<ect to F-T. &. -nco#e that are considered an exclusionI and ). -nco#e that are exe#pt. .+ Dhen do you not apply Sec. )& AO A+ it applies to all except! *. @A@ETC &. @F% W they do not pay @-TB they pay by way o. ?-T. .+ Dhat are included in the ?ross inco#eO A+ ;2 Compensation for services in C=atever form paid including but nor limited to fees, salaries, Cages, commissions, and similar items. G%ec. '* A &)-H .+ Dhat is co#pensationO A+ all re#uneration .or services per.or#ed by an e#ployee .or his e#ployer under an e#ployer- e#ployee relationship. TAGE @"TE! co#pensation is included in the -T i. the taxpayer is not liable .or @-T. ThusB i. sub<ect to @-TB included in the -T. .+ -s there an instance where the salaries o. a % is not included in the -TO A+ LesB i. the salary is sub<ect to F-TB li=e when the % is e#ployed in >ultinationalB o4shore ban=in$B and petroleu# co#panies. 82 /ross "ncome derived from t=e conduct of trade or business or t=e e>ercise of a professionI G%ec. '* A &*-H .+ Dhat is the inco#e tax hereO A+ @-TB included in the -T. <2 /ains derived from dealings in propertA. G%ec. '* A &'-H .+ Did the law distin$uishedO A+ @oB the law did not distin$uished between real and personal property. TAGE @"TE! *. Sale o. real property &. Sale o. shares o. stoc= Apersonal prop.)
i. the ele#ents are presentB sub<ect to F-T. ThusB it is not included in the -TB the withholdin$ a$ent will be responsible .or this. .+ -nco#e .or# the sale o. propertyB do you include this in the -TO A+ it depends a. i. sub<ect to F-TB not included. Dithholdin$ a$ent acco#plish the .or#s sub<ect to F-T i. the .ollowin$ ele#ents are present! *. it is a capital assetI &. located in the 9hil.! and ). sold by individualB trustB estateB D%. b. i. sub<ect to @-TB included in the -T. Ele#ents are not presentB li=e when the real prop. is an ordinary asset or when it is capital asset i. the taxpayer is F%. TAGE @"TE! - *+-&(() eal property sale sub<ect to FDTB the buyer acco#plishes the -T. 92 interestI G%ec. '* A &E-H 1( Taxation law review notes - Atty. Francis J. Sababan - .+ Dhat interest is bein$ re.erred to hereO A+ interest which is included in the co#putation o. $ross inco#e is interest earned .ro# lendin$ #oney and interest .ro# ban= deposit which does not constitute passive inco#e. Can= interest .ro# sourcesB without or abroad. .+ Can= interest .ro# Solid Can=B is it included in the -TO A+ @oB because it is included or considered an inco#e withinB thus sub<ect to F-T. ThusB not included in the -T. =2 Rents. G%ec. '* A &3-H sub<ect to @-TB included in the -T. B2 oyaltiesI ^Sec. )& A A')_ .+ Dhat is bein$ re.erred to hereO A+ royalties which does not constitute passive inco#e. oyalties derived .ro# inco#e without. 0 sub<ect to @-T. Thus not included in the -T. .+ Dho are the taxpayersO A+ :iable .ro# inco#e wNin and wNout and the rest are exe#pt. *. % &. D% :2 8ividends. G%ec. '* A &+-H .+ Dhat =ind o. dividendsO A+ one that does not constitute a passive inco#e. TAGE @"TE! *. D% individual taxpayer Z F-T &. D% 0 D% F F% Z EME>9T ). D% 0 @F% Z FDT only dividends issued by a F% to an individual taxpayer A% " A) is included in the co#putation o. the $ross inco#e. ThusB included in the -T. >2 Annuities. G%ec. '* A &,-H .+ Dhat =ind o. annuitiesO A+ annuities which are not exe#pt .ro# tax are included in the co#putation o. the $ross inco#e. Aincluded in the -T) 2. PriBes and Finnings G%ec. '* A &2-H .+ Dhat =ind o. pri7es and winnin$sO A+ a. those that does not constitute passive inco#eI and b. those that are not considered as an exclusion. ThusB exe#pt. Passi/e 1ncome *. 9ri7es 0 derived .ro# sources within and over *(B(((.(( &. Dinnin$s 0 derived .ro# sources within. Exe#pt! a. winnin$s! 9%S" and :otto winnin$s. b. pri7es! those pri#arily .or reco$nition o. A*)reli$iousB A&)charitableB A))scienti;cB A8)educationalB A1)artisticB A')literaryB A+)civic achieve#ent are exe#pt 9"2-DED! *. the recipient was selected without any action on his part to enter the contest or proceedin$sI and &. the recipient is not required to render substantial .uture 1* Taxation law review notes - Atty. Francis J. Sababan - services as a condition to receivin$ the pri7e or award. pri7es and awards $ranted to athletes are also exe#pted provided! *. local or international sports co#petition or tourna#entI &. held in the 9hilippines or abroadI and ). sanctioned by the national sports association. .+ Dhen is a pri7e sub<ect to @-TO A+ *. when derived .ro# inco#e withoutI &. when less than *(B(((.((I ). when the inco#e earner is a D% or %. .+ Dhen is winnin$ sub<ect to @-TO A+ *. Dhen derived .ro# inco#e withoutI &. when the inco#e earner is a D% or %. ;C2 Pensions G%ec. '* A &)(-H .+ Dhat =ind o. pensionO A+ -ncluded in the $ross inco#e i. not exe#pt W never sub<ect to ;t AO) ;;2 PartnerJs distributive s=are from t=e net income of t=e general professional partners=ip &/PP-.
.+ Dhat is bein$ re.erred toO A+ ?99 exe#pt .ro# pay#ent o. corporate inco#e tax shares o. partners sub<ect to @-T 0 Sec. &' -EC ;5 B EXCL%-ION- FRO/ GRO-- INCO/E .+ Dhat do you #ean by exclusionsO Are these exe#pt .ro# inco#e taxO A+ these are not included in the $ross inco#eB T5ESB exe#pt. TAGE @"TE! Exe#ptionsB exclusionsB deductionsB have the sa#e characteristics all tax do not apply. ;2 3ife insurance DSec2 <; ' ";#E .+ Dhat is the require#entO A+ only one require#ent .or exe#ption! that the proceeds o. the li.e insurance be payable upon the death o. the insured. .+ Does it #atter who the bene;ciary is or paid in a lu#p sun or sin$le su#O A+ @o. it does not #atter. Exception! a#ounts held by the insurer under an a$ree#ent to pay interest thereonB the interest pay#ent shall be included in the $ross inco#e. 82 &mount recei/ed by insured as return of premium DSec2 <8 ' "8#E .+ i. the insurance is payable within a certain ti#eB say *( years and therea.ter the insured did not dieB how #uch will be excludedO A+ only the a#ount received by the insured as a return o. the pre#iu#s. Ex. * > 0 *(( thousand Z capital -t is exe#pt A*((G) /((G is taxable. .+ Dhy is it excludedO A+ because the a#ount received #erely represents a return o. capital. 1& Taxation law review notes - Atty. Francis J. Sababan - .+ is this sub<ect to Estate Tax under Sec. ,1 EO do we have the sa#e require#entO A+ noB the require#ent .or exe#ption is not the sa#e under Section ,1 E. <2 Proceeds of life insurance0 decedent insured ,imself? inclusion or exclusion Fill depend on F,o t,e beneAciary is2 a. the bene;ciary is the estate. W sub<ect to Estate taxB included in the $ross estate re$ardless o. whether or not the desi$nation o. the bene;ciary is revocable or irrevocable. b. the bene;ciary is a third person other than the estate. b.* evocable Desi$nation sub<ect to estate taxB included in the $ross estate. eason! because o. the insuredKs power to #odi.y or chan$e the bene;ciary. b.& -rrevocable Desi$nation not sub<ect to Estate taxB not included in the $ross estate. eason! the insured loses the power to controlB #odi.y and chan$e the bene;ciary. .+ -s it sub<ect to 2ATO A+ *. @on-li.e insurance 0 yesB sub<ect to 2AT under *(, AA). &. :i.e insurance 0 @"B sub<ect to percenta$e tax under Sec. *&) o. the Tax %ode. 92 6ifts? 'equest and De/ises DSec2 <8 ' "<#E .+ Dhy is the donee exe#pt .ro# inco#e taxO A+ Cecause the law classi.y it as an exclusionB not i#portant to =now whether property is real or personal. Dhat is exe#pted is the Qvalue o. property acquired by $i.tB bequest or deviseR TAGE @"TE! A. ?-FTS are excluded because they are sub<ect to donorKs tax. C. CE6EEST and DE2-SE are excluded because they are sub<ect to ESTATE tax. .+ what is included in the $ross inco#eO A+ inco#e .ro# such property. $i.tB bequestB devise or descent o. inco#e .ro# any property in case o. trans.ers o. divided interest. =2 Compensation for inGuries or sic-ness DSec2 <8 ' "9#E .+ is this the sa#e as those provided under the wor=#enKs co#pensation act Awca)O A+ LES. There are ) $roups! a. 5ealth or accident insurance or those under wor=#enKs co#pensation. b. personal in<uries and sic=nessI and c. Da#a$es to prevent in<uries and sic=ness. .+ Dhat does in<ury includeO A+ The ter# in<ury includes deathB even i. not in<uredB i. the person dies this will be available. .+ when will the da#a$es recovered be exe#ptO A+ ?eneral ule! all da#a$es awarded are tax exe#pt. Exception! da#a$es representin$ loss o. inco#e. .+ Dhy is it considered an exclusionO 1) Taxation law review notes - Atty. Francis J. Sababan - A+ because this is <ust an inde#ni;cation .or the in<uries or da#a$es su4ered. B2 1ncome exempt under a treaty DSec2 <8 ' "=#E .+ Dhat is excludedO A+ inco#e o. any =ind required by treaty bindin$ upon the 9hil. ?overn#ent. :2 Retirement beneAts? pensions? gratuities DSec2 <8 ' "B#E .+ Dhy do we need to distin$uish retire#ent payB separation pay and ter#inal leave payO A+ because they have di4erent require#ents .or exe#ption. .+ Dhat is retire#ent payO A+ the su# o. #oney received upon reachin$ the #axi#u# a$e o. e#ploy#ent. a. Ender A8/*+ Awith etire#ent 9lan) *. the private bene;t plan is approved by the C- A&-/,)I &. the retirin$ oTcial or e#ployee has been in the service o. the sa#e e#ployer .or the last *( yearsI ). he is at least 1( years old at the ti#e o. retire#entI and 8. the oTcial or e#ployee avails hi#sel.Nhersel. o. the bene;t only once. b. Ender A+'8* Awithout retire#ent plan) *. the retirin$ oTcial e#ployee is at least '( years old but not #ore than '1 years oldI &. the e#ployee or oTcial #ust have served the co#pany .or at least 1 yearsI W entitled to *1 days salary and ] o. the *)th #onth pay .or every year o. service. TAGE @"TE! the retire#ent bene;ts under A8/*+ and A+'8* are exe#pt .ro# inco#e tax provided the require#ents are present. -EC. ;5 B3A43c4 retire#ent bene;ts $iven by .orei$n $overn#entB .orei$n corporationB public as well as private to %B @%B A residin$ per#anently in the 9hilippines - exe#pt without .urther quali;cations 0 auto#atic exclusions. -EC. ;5 B3A43$>e>f4 retire#ent bene;ts $iven by the 9hilippine ?ovKt throu$h the ?S-SB SSS and 92A" are exe#pt without .urther quali;cations Z auto#atic exclusions. Au$ust &*B &(('. - #idter#s '-, p# until sec )& CA') @-%. Au$ust &,B &(('. A@SDES Z >-DTE>S ?ross -nco#e include both capital and ordinary $ainsB Sec. )* says $ross inco#e-deductionsB that which is ordinary loss. - #ay be deducted .ro# capital $ains and ordinary $ains. .+ Dhat is separation payO A+ on $iven when one is ter#inated .ro# the service because o. A*) illnessB A&)deathB A)) physical incapacity or in<uryB or A8) causes beyond the control o. the e#ployee. 18 Taxation law review notes - Atty. Francis J. Sababan - .+ Are there any require#ent .or separation pay $ranted by .orei$n $ovKt or corpO A+ @oneB the separation pay $ranted by the a.ore#entioned institutions are exe#pt without .urther quali;cations AQother si#ilar bene;tsR). .+ is separation pay an exclusionB there.oreB exe#ptO A+ @o. ?E@EA: E:E! Separation pay not exe#pt AO) Exception! *. Auto#atic exclusionsB thus exe#pt i. due to! a. illness b. death c. physical incapacity or in<ury. &. %onditional exclusion a. causes beyond the control o. the e#ployee- excluded b. within e#ployeeKs control 0 included. Exa#ples! *. re$istration 0 %CA provides separation payB within the control Z included. &. installation o. labor savin$ devises or ban=ruptcy 0 beyond the control Z excluded. .+ Dhat is ter#inal leave payO A+ the accu#ulated vacation leave and sic= leave bene;ts converted to cash or #oney to be $iven either every year or upon retire#ent or separation. Ter#inal :eave 9ay $ranted upon retire#ent or separation! W uder 9D&&(B T:9 in the ?ovKt or in the 9rivate Sector shall be exe#pt .ro# inco#e tax i. $iven or $ranted upon retire#ent or separation. T:9 $ranted on a yearly basis! *. e#ployee in the private sector! a. accu#ulated sic= leave 0 sub<ect to inco#e tax. b. Accu#ulated vacation leave! i. #ore than *( days A#eanin$ ** pataas) 0 sub<ect to inco#e taxI W-. *( days or less 0 exe#pt. &. ?ovKt E#ployee! W $overnin$ law! E" &/* o. 9res. EstradaB >% *'-&(((. ule! ?ovKt wor=ers Aboth oTcers or non-oTcers) $ranted T:9 on a yearly basis exe#pt .ro# inco#e tax. there is no quali;cation as to vacation or sic= leave. Ta=e @ote o. ) cases. W be re#inded o. E" &/*B Sec. &. +,.& par. /+B &-/,B *'-&(( A)). Case of :ialcita retired .ro# D"JB contention! T:9 should be exe#pt .ro# inco#e tax pursuant to the old law. S%! on a di4erent $round 0 T:9 is exe#pt because it is si#ilar to etire#ent payB thus exe#pt but the rulin$Ks application is li#ited only to D"J e#ployees. 7orromeo case: Sa#e as the Sialcita case -ssues! D"@ the T:9 is sub<ect to inco#e tax and D"@ %":A and ATA are includedO S%! E:ED T:9 is Exe#pt[ >odi;ed! the rule applies not only to D"J oTcers but also to %S% co##issioners. CO.."%%"O0ER v. CA%!AKE8A - %asta`eda 0DFA oTcer in 9hil. E#bassy in En$land. *. T:9 is exe#pt. &. ulin$ applies to DFA oTcers. 11 Taxation law review notes - Atty. Francis J. Sababan - .+ Does the rule or decision applies to ?ovKt oTcials onlyO A+ @o. 9D&&(! Exe#ption applies to both private and public sectorsAO) it does not #atter i. T:9 is vacation or sic= leave. &-/,B Sec. &.+,.* par. Aa)A+) W JA@B *//, 0 the rule applies to both private and public sectors. E"&/* ASE9T.B &((() W "Tcer in $ovKt receivin$ T:9 is always exe#pt whether or not vacation or sic= leave is $ranted. >odi;ed &-/,! W T:9 will only apply to private sectors W i. $ranted on a yearly basis 0 #ay be sub<ect to tax! 2A%AT-"@ :EA2E *. >"E T5A@ *( DALS Z TAMAC:E &. :ESS T5A@ *( DALS Z EME>9T >2 *iscellaneous items "Sec2 <8 ' ":# "a# income deri/ed by foreign 6o/Ht DSec2 <8 ' ":# "a#E .+ Dhat =ind o. inco#eO A+ *. invest#ents in! a. loans b. stoc=s c. bonds d. other do#estic securities &. interest .ro# deposits in Can=s in the 9hilippines. .+ Dho are inco#e earnersO A+ *. .orei$n $overn#ent &. ;nancin$ institutions ownedB controlled or en<oyin$ re- ;nancin$ .ro# .orei$n $ovKtsI and ). intKl or re$ional ;nancial institutions established by .orei$n $ovKts Aestablished in the 9hilippines) TAGE @"TE! i. plain .orei$n corp.B sub<ect to F-T &(H. EMA>9:ES o. exclusions! a. Crunei ?ovKt earns interest by depositin$ #oney in >a=ati Can= 0 Exclusion. b. S>%- Stoc= dividends to ). Crunei ?ovKt. exclusion c. -nco#e derived by the ?ovKt or its political subdivisions ASec. )& C A+) Ab) a. exercise o. public utility b. exercise o. any essential $ovKt .unction. W accruin$ to the $ovKt. d pri7es and awards ASec. )& C + c) W pri#arily .or reli$iousB charitableB scienti;cB educationalB artisticB literary or civic achieve#ents! *. recipient was selected without any action on his part to enter the contest or proceedin$sI &. the recipient was not required to render substantial .uture services as a condition to receive the pri7e or award. D. pri7es and awards in sports ASec. )&C + d) *. $ranted to athletesI &. local or intKl co#petitionsI ). held here or abroadI 8. sanctioned by the natKl sports associations. E. *) th #onth pay and other bene;ts ASec. )&C + e) .+ Do you include %hrist#as bonus in your -TO A+ @oB because the law says *) th #onth pay and Qother bene;tsRNRsi#ilar bene;tsR 0 x#as bonus is included in the cate$ory. .+ Dho can increase the )(B((( li#itO 1' Taxation law review notes - Atty. Francis J. Sababan - A+ The Sec. o. Finance. .+ Applicable to who#O A+ *. $ovKtI and &. 9rivate institutions. F. ?S-SB SSSB >edicare and other contributions ASec. )& C + .) #ust be deducted .ro# the ?- not @-T because it is an exclusion. -creditable withholdin$ tax is an exclusion- #ust be deducted ;rst .ro# the ?- be.ore you co#pute the @-T. "therwiseB you are includin$ in the ?- so#ethin$ that is excluded .ro# the sa#e. ?. ?ains .ro# the Sale o. bondsB debenturesB or other %erti;cate o. indebtedness. ASec. )& C + $) .+ Dhy 1 yearsO A+ certi;cate o. indebtedness is si#ilar to Can= -nterest in a lon$ ter# deposit. - Sec. )& C + $ is si#ilar or the sa#e as &8 C in lon$ ter# deposit. 5. ?ains .ro# rede#ption o. shares in #utual .und ASec. )& C + h) *. Fiscal Lear 0 #eans an accountin$ period o. *& #onths endin$ on the last day o. any #onth other than Dece#ber. &. %alendar year 0 a period o. *& #onths be$innin$ on January and endin$ on Dece#ber. .+ Cusiness expense incurred in February &(('B is it possible to include it .or April &(('O A+ yesB it is possible or it is possible i. ;scal year is e#ployedB i. it .alls under the ;scal year and all the ele#ents are present. - related to trade or business. EAS"@! %apital loss has no connection to the trade or business. TAGE @"TE! .or taxpayers liable .or inco#e within and without A% F D%))B they can clai# deduction .or expenses incurred within and without. for taxpayers who are liable only .or inco#e withinB they can clai# a deduction .or expenses incurred within the 9hilippines. Sec. )8 A EM9E@SES *. For those business expenses not enu#erated under A. Lou need to prove that it is an ordinary and necessary expense. &. For those enu#erated under AB all you have to prove is that it is incurred durin$ the taxable year. Feb. *&B &((+ ASec. )8 AB Expenses) .+ Did the law de;ne what is reasonableO A+ @o. .or salaries and wa$es all that is required by law is .or it to be reasonable. - .or other .or#s o. co#pensationB there #ust be services actually rendered. &6.1N3D$ Case F: involves a corporation en$a$ed in sellin$ ;sh netsB and the corporation have a land sold throu$h a bro=er. there was substantial pro;ts $ained .ro# the sale o. a land which was sold by a bro=er. The pro;t was in turn $iven to the wor=ers as special bonus. 1+ Taxation law review notes - Atty. Francis J. Sababan - the corporation clai#ed the bonus as a deduction. -SSEE! Should the deduction be allowedO 5! The S% did not allow the deductionB .or other .or#s o. co#pensationB it #ust be #ade or $iven .or services actually rendered. in this caseB it was proven that the sale was not #ade by the e#ployeesB no e4ort or services actually rendered by the# because the sale was #ade throu$h a bro=er.
.+ easonable Travel ExpensesB
Dhat is the require#entO A+ *. Travel #ust be in pursuit o. businessB trade or pro.ession. &. Travel expense while away .ro# ho#e. .+ -s there a travel expense which was not in pursuit o. businessO A+ yesB those which are considered as .rin$e bene;ts AFC)B expenses .or .orei$n travel is considered a FC only i. it is not in pursuit o. the trade or business. .+ can you clai# it under Sec. )8 A A*)Aa)Aii)O A+ @oB you can clai# it under Sec. )8 A A*)Aa)Ai) last para$raph. .+ easonable Allowances .or rentals .or #eralco billsB require#entsO A+ *. required as a condition .or the continued use or possessionB .or the purpose o. the tradeB business or possession o. the property. &. taxpayer has not ta=en any title or no equity other than a lessor. .+ easonable allowance .or entertain#entB a#use#ent and recreation expensesB what is the require#entO A+ *. connected with the develop#entB #ana$e#entB and operation o. the trade AD">)I &. Does not exceed the li#its or ceilin$ set by the Secretary o. FinanceI and ). @ot contrary to lawB #oralsB $ood custo#sB public policy or public order. .+ 5ow about bribeB =ic=bac=sB and other si#ilar pay#ents A+ even without this provisionsB =ic=bac=s will not pass the require#ent o. Ai) ordinary and Aii) necessary hence not deductible EXPEN-E- ALLOWABLE TO PRIVATE E#%CATIONAL IN-TIT%TION .+ Dhy only private educational institution is #entioned and no other taxpayersO A+ it re.ers to section &+ .or 9rivate Educational -nstitution $iven to the educational institution. ?E@EA: E:E! )' A A&) and )' A A)) expenditures .or capital outlays not deductible as business expense EM%E9T-"@! 9rivate Educ. -nstitution can clai# it under Sec. )8 A A&) B%-INE-- EXPEN-E 's. ALLOWANCE FOR #EPRECIATION CES-@ESS EM9E@SE *. @o carry-over &. can be clai#ed .or one year only. 1, Taxation law review notes - Atty. Francis J. Sababan - ). i. the a#ount o. capital outlay is substantialB it cannot acco##odate all o. the expenses incurred. ALLOWANCE FOR #EPRECIATION *. There is carry over &. you can clai# it .or a lon$er period dependin$ on the li.e span o. the property. ). it can acco##odate all o. the expenses incurred. taxpayerKs allowable deduction .or interest expense shall be deducted by an a#ount equal to 8&H A *(-&((() o. the interest inco#e sub<ect to F-T. .+ Dho clai#s this deductionO A+ the debtor clai#s this deduction. .+ Dhat =ind o. interest is thisO A+ interest on loan. interest on debt - when one borrows #oney to ;nance his business interest in connection with the taxpayerKs pro.ession trade or business. ED-S%"E@T-@? "F 9A9ES ! ASec. )8 C & a) a borrower or taxpayer can clai# the interest paid in advance as ite#i7ed deduction when he ;led his inco#e tax return A-T) dependin$ on whether or not the principal obli$ation has been paid. *. i. the entire a#ount or entire principal obli$ation has been paid 0 the entire a#ount o. interest can be clai#ed as ite#i7ed deduction. &. i. only ] o. the obli$ation had been paidB then the entire a#ount o. ] o. that interest can be clai#ed as a deduction. ). i. no pay#ent had been paid on the principal obli$ationB the advance interest paid cannot be clai#ed as a deduction on the years that it was paid. E6E-E>E@TS F" ED-S%"E@T-@? "F 9A9ES! *. incurred within the taxable year. &. individual taxpayer reportin$ inco#e on a cash basis. @o deduction shall be allowed in respect to the .ollowin$ interest! *. i. within the taxable year an individual taxpayer reportin$ inco#e on the cash basis incurs an indebtedness on which an interest is paid in advance or throu$h discount or otherwise. &. i. both taxpayer and the person to who# the pay#ents has been #ade or is to be #ade are persons speci;ed under Sec. )' AC)! a. #e#ber o. a .a#ily b. bet. an individual and a corp.B #ore than 1(H in advance o. the outstandin$ stoc= o. which is owned directly or indirectly by or .or such individualI c. Cet. & corp.B #ore than 1(H in value o. the outstandin$ stoc= o. each o. which is ownedB directly or indirectlyB by or .or the sa#e individual. d. bet. the $rantor and a ;duciary o. any trustI e. bet. the ;duciary o. a trust and the ;duciary o. another trust i. the sa#e person is a $rantor with respect to each trustI or .. bet. a ;duciary o. trust and a bene;ciary o. such trust. .+ Dho are not allowed to clai# interest under sec )' CO 1/ Taxation law review notes - Atty. Francis J. Sababan - A+ interest incurred between related parties. .+ Dhat i. hal.-brotherO A+ not allowed to clai# deduction .or interest. TAGE @"TE! interest incurred .ro# the exploration o. petroleu# re.ers not <ust in interest incurred on loan o. #oney but also interest incurred .or install#ent pay#ents. .+ Dho are related partiesO A+ individuals and corporations. "9T-"@A: TEAT>E@T "F -@TEEST EM9E@SE! *. interest incurred to acquire property used in tradeB business or exercise o. pro.ession can be clai#ed a an ite#i7e deductionX a. on interestI or b. depreciation Aas capital expenditureO) .+ Dhat is this interest inco#eO A+ the #oney borrowed was deposited in a ban= so that it will warn interest. A*)-&((() -::ESTAT-"@! *. loan o. *> .ro# a ban= with an interest o. &(H &. &(H o. *> is 9hp&((B((( but you cannot clai# this whole a#ount as a deduction. ). when you deposited the *> in the ban=B it earned a ban= interest sub<ect to F-T worth 9hp*(B(((.((. 8. 8&H A) o. *(B((( Z 8B&(( A /))+) 1. 9hp&((G-8B&((Z 9hp*/1B,((N this is the a#ount you can clai# as a deduction. ;6 C TAXE-+ E6E-S-TES! *. taxes #ust paid or incurred within the taxable year &. it #ust be incurred in connection with trade or business. ). can be clai#ed as! a. a deductionI or )8 % *F& b. tax credit )8 % )F+ .+ Dhere should it be deductedO A+ *. i. clai#ed as a deductionB it should be deducted .ro# the $ross inco#eI &. i. clai#ed as a tax creditB it should be deducted .ro# the @et -nco#e Tax due Abotto# o. the .or#ula) *ERC.RI DR.6 C&SE - Discount o. senior citi7ens S%! discount clai#ed by senior citi7ens shall create a tax credit and #ust be deducted at the botto# o. the .or#ula. .+ Dhat is a tax deductionO Exa#pleO A+ exa#ple is business tax. tax deduction is allowed i. the taxes were paid or incurred within the taxable year and it #ust be connected to the tradeB business or pro.ession o. the tax payer. .+ Dho are entitled to clai# itO A+ those liable to pay @-T. ATax credit only .or @-T) .+ Dhat is a tax creditO A+ re.ers to the taxpayerKs ri$ht to deduct .ro# the inco#e tax due the a#ount o. tax the taxpayer paid to .orei$n countryB sub<ect to li#itations. .+ Dhat is the tax credit bein$ re.erred to under )8 % A))O '( Taxation law review notes - Atty. Francis J. Sababan - A+ credit a$ainst taxes .or taxes o. .orei$n country. .+ Dhat are the other tax credit under the codeO A+ *. A '81& 0 sellin$ $oods and co##odities to senior citi7ensB the discount clai#ed is treated as a tax credit. &. inco#e tax paid to .orei$n country. ). -nput tax on 2at 8. %reditable wNholdin$ tax syste# under @-T 1. Tax credit certi;cate. 6! Dho are allowed to clai# itO A! % and D% only. .+ suppose you paid the *((G @-T to ESB can you clai# as a deduction the whole *((GO what is the .or#ulaO sa#e procedure .or A*) inco#e tax paid to .orei$n countryI A&) estate tax paid to .orei$n countryI and A)) DonorKs tax paid to .orei$n country. A+ Forula+ STE9 * ?- .ro# sources wNin @-T! JJJJJJJJJJJJJJJJJJJJJ ?- .ro# entire world STE9 & 6uotient x ATE Z a#ount wNc can be clai#ed as a deduction A+ you cannot clai# the whole *((GB you can only clai# the product o. the quotient ti#es the rate TAGE @"TE! deduct at the botto# o. the .or#ula A sa co#putation n$ ?-) .+ Suppose you are a %B you pay @-T to ESB will you be able to clai# it as a tax deductionO A+ *. $enerallyB you can clai# it as tax credit. &. you can clai# under Sec. )8 % A*) b i. the taxpayer did not si$ni.y in his return his intention to avail hi#sel. o. the bene;t o. tax credit .or taxes paid to .orei$n country. taxes incurred not related to the trade or businessB you have the option to! a. clai# it as tax creditI or b. clai# it as a deduction law $ives you this privile$e. .+ Dhen is taxes not allowed as a deductionO A+ Sec. )8 % A*) *. -nco#e taxI &. -nco#e tax i#posed by authority o. any .orei$n countryI ). Estate and DonorK taxI and 8. taxes assessed a$ainst local bene;ts o. a =ind tendin$ to increase the value o. the property. .+ Dho are not allowed to clai# deductionsO A+ Ender )8 % A)) - @%B @AI and @NF% TAGE @"TE! *. @AE and @F% 0 allowed deduction only i. and to the extent that they are connected with inco#e .ro# sources within the 9hils. &. Taxes that had been allowed as deduction but are later in re.unded should be treated as part o. the $ross inco#e durin$ the year that it is received A)8 * last para$raph) '* Taxation law review notes - Atty. Francis J. Sababan - .+ Dhich would you chooseO Tax credit or deductionO A+ tax credit because it is deducted .ro# the taxable inco#e while deductions are deducted .ro# the ?-. F">E:A! ?--DEDE%T-"@ Z @ET -@%">E x ATE Z TAMAC:E @ET -@%">E 0 TAM %ED-T) ;6 # LO--E- .+ -s always a require#ent that it is incurred in pursuit o. tradeB bus. or pro.essionO A+ @o. Sec. )8 DA*) provides .or & =inds o. losses! a. incurred in pursuit o. tradeB bus. or pro.essionI b. property connected with tBbBpB i. the loss arises .ro# ;reB stor#sB shipwrec=s or other casualties or .ro# robberyB the.t or e#be77le#ent Aarisin$ .ro# natural cala#ity). .+ Dhat is the require#entO A+ *. :oss actually sustained durin$ the taxable year &. @ot co#pensated .or by insurance or other .or#s o. inde#nity. ). @ot clai#ed as a deduction .or estate tax purposes. .+ This is your ite#i7ed deduction which can be clai#ed as a deduction .ro#O A+ ?ross inco#e TAGE @"TE! The ite#i7ed deduction o. lossesB howeverB is not con;ned to section )8C. it is also .ound under section ,'A A*) Ae) which also pertains to deductions available under the estate tax law. :osses within six A') #onths a.ter the death o. the decedent can be clai#ed as ite#i7ed deduction o. losses under Section )8C. 5oweverB #ay be clai#ed as deduction under estate tax return provided that the sa#e are not clai#ed as ite#i7ed deduction o. losses under Section )8C. .+ 5ow #any carry-overs do we have under the %odeO A+ ). @a#ely! *. Section &+ E A)&) %arry .orward o. excess #ini#u# Tax &. Section )/ D @et %apital :oss %arry- over ). Section )/ D ) @et "peratin$ :oss %arry-"ver. 1IN#- OF LO--E- AN# T:EIR CARR20OVER-+ &2 $RD1N&RI 3$SS J N$3C$ & L' above- .+ Dhy is there a need .or a carry over under Sec. )8 D P when you can clai# the loss .ro# both capital and ordinary lossO A+ i. the loss exceeds the inco#e .or the taxable yearB you cannot deduct the entire a#ount o. loss .ro# your inco#e .or that year so the excess #ay be deducted .or the taxable year .ollowin$ the loss. B. CAPITAL LO-- F NET CAPITAL LO-- CARR2 OVER & L * above- NET C&P1T&3 3$SS C&RRI- $KER NET $PER&T1N6 3$SS C&RRI- $KER '& Taxation law review notes - Atty. Francis J. Sababan - *. taxpayers is an individual only not corporation. &. involves net capital loss ). carry-over as loss .ro# sale o. capital asset in the next succeedin$ year 8. can only be deducted .ro# capital $ains. *. taxpayer #ay be an individual or corpI &. losses incurred or connected with T or CI ). Cusiness losses not previously o4- set as a deduction .ro# the ?- carried over as such .or the next ) consecutive yearsI 8. can be deducted .ro# capital $ains andNor ordinary $ains. NET OPERATING LO-- CARR2 E6E-E>E@TS! *.@et operatin$ loss o. the business or enterprise incurred wNin the taxable year &. not previously o4-set as a deduction .ro# the ?- ). carried over as a deduction .ro# the ?- .or the next ) consecutive taxable years i##ediately .ollowin$ the year o. such loss. .+ %an the period be extendedO A+ yesB .or #ines other than oil and $as well. *. net operatin$ loss wNout the bene;t incentives provided by lawI &. incurred in any o. the ;rst *( years o. operation. ). carried over as a deduction .ro# the ?- .or the next 1 years .ollowin$ such loss. 8. no substantial chan$e in the ownership o. the business or enterprise. .+ Dhat is the li#itO A+ +1H o. the no#inal value o. outstandin$ shares is held by or on behal. o. the sa#e personsN corporation individual no proble#B proble# lies with corporations or enterprises. ACA@D"@>E@T :"SSES *. contract area where petroleu# operations are underta=en is partially or wholly abandonedI all A*) accu#ulated exploration and A&) develop#ent expenditures pertainin$ thereto shall be allowed as a deduction. &. a producin$ well is subsequently abandoned! una#orti7ed cost and undepreciated cost o. equip#ent directly used therein shall be allowed as a deduction in the years it was abandoned. TAGE @"TE! *. i. abandoned well is reentered and production is resu#edI or &. i. equip#ent or .acilities are restored into service in the year o. resu#ption or restoration and shall a#orti7ed or depreciated. .+ Dhat is the Tax bene;t ruleO A+ :ast 9ar. o. Sec. )8 E A*)! recovery o. bad debts previously allowed as deduction in the precedin$ year shall be included as part o. the $ross inco#e in the year o. recovery to the extent o. the inco#e tax bene;ts o. said deduction. ') Taxation law review notes - Atty. Francis J. Sababan - .+ Dhat is a Cad DebtO A+ Cad debts shall re.er to those debts resultin$ .ro# the worthlessness or incollectibility in whole or in part o. a#ounts due the taxpayer by othersB arisin$ .ro# #oney lent or .ro# uncollectible a#ounts o. inco#e .ro# $oods sold and services rendered. C:INA BAN1 V-. CA bad debts can only be claimed i. pursuant to a contract o. loan - no bad debts .or loss o. instru#ents. .+ Dho clai#s itO A+ a. creditor b.#oney lender .+ Dhat year can it be clai#edO A+ can be clai#ed in the year it was actually sit ascertained to be worthless and char$ed o4B #eanin$ cancelled in the boo=s o. account. .+ Do you need to ;le an action be.ore you can clai#O A+ @oB all you have to do is prove that you did exert e4ort to clai# or recover the sa#e. .+ Dhat cannot be deducted as bad debtsO A+ *. debts not incurred in connection with the tradeB business and pro.ession o. taxpayer. &. transactionsB #ered into between parties #entioned under Section )' AC) na#ely. a)between #e#bers o. the .a#ily b) between an individual who owns #ore than )(H o. outstandin$ capital stoc= o. a corporation and that corporation c)between two A&) corporations #ore that 1(H o. the outstandin$ capital stoc= o. which is owned by or .or the sa#e individual d) between a $rantor and ;duciary o. any trust e)between two A&) ;duciaries o. two A&) trusts who has the sa#e $rantor .) between a ;duciary o. a trust and above ;duciary o. such trust %EC#R"!"E% 7ECO."0/ FOR!4LE%% *. ascertained to be worthless and char$ed o4 within the taxable year &. capital asset ). taxpayerB other than a Can= or trust co#pany incorporated under 9hil. :aws 8. substantial part o. business is the receipt o. deposit 1. considered as a loss .ro# the sale o. capital assets on the last day o. such taxable year ;6 F #EPRECIATION .+ Dhat is depreciationO A+ -t is the $radual di#ension in the service or use.ul value o. tan$ible property due .ro# exhaustionB wear and tear and nor#al obsolescence. .+ Dhat =ind o. property is involvedO A+ *. eal property except parcel o. land &. 9ersonal 9roperty RE5#"%"!E%: *. depreciation deduction #ust be reasonable &. .or the exhaustionB wear and tearB includin$ reasonable allowance .or obsolescence '8 Taxation law review notes - Atty. Francis J. Sababan - ). property used in the trade o. business .+ Dhat do you #ean by Qreasonable allowanceRO A+ it shall includeB but not li#ited toB an allowance co#puted in accordance with rules and re$ulations prescribed by the Secretary o. FinanceB upon reco##endation o. the %o##issionerB under any o. the .ollowin$ #ethods! *.Strai$ht-line #ethod &.Declinin$ balance #ethod ).Su#-o.-the-year-di$ital #ethodI and 8.any other #ethod which #ay be prescribed by the Secretary o. Finance upon reco##endation o. the %o##issioner #EPRECIATION OF PROPERTIE- %-E# IN PETROLE%/ OPERATION- *. properties directly related to production o. petroleu# &. allowed under A*) strai$ht line or A&) declinin$ balance #ethod ). use.ul li.e o. properties used or related to production o. petroleu# shall be ten A*() years or such shorter li.e as #ay be per#itted by the %o##issioner. 8. .or property not used directly in the production o. petroleu# A*) depreciated under the strai$ht line #ethodB and use.ul li.e is only ;ve A1) years #EPRECIATION OF PROPERTIE- %-E# IN /INING OPERATION- A::"DA@%E F" DE9E%-AT-"@! *.all properties used in #inin$ operations other than petroleu# operations shall be co#puted as .ollows! a. i. the expected li.e is ten A*() years or less 0 nor#al rate o. depreciation b. i. the expected li.e is #ore than ten A*() years 0 depreciated over any nu#ber o. years between ;ve A1) years and the expected li.e. RE5#"RE.E0!%: *. depreciation is allowed as a deduction .ro# '*I and &. contractor noti;es the %o##issioner at the be$innin$ o. the depreciation period which depreciation rate shall be used. DE9E%-AT-"@ DEDE%T-C:E CL @AETC " F% reasonable allowance .or the deterioration o. property 1. arisin$ out o. its use or e#ploy#ent 2. or non-use in the businessB trade or pro.ession 3. property is located in the 9hilippines ;6 G #EPLETION OF OIL an$ GA- WELL- an$ /INE- only deduction which is a not sel. executin$ deduction .+ Dhat is depletionO A+ the exhaustion wear and tear o. natural resources as in #inesB oilB and $as wells the natural resources called Qwastin$ assetsR DE9E%-AT-"@ vs DE9:ET-"@ *.involves property *. involves natural resources &. ordinary wear &. ordinary wear '1 Taxation law review notes - Atty. Francis J. Sababan - and tear o. equip#ents and tear o. natural resources
TAGE @"TE! Equip#ent used in #inin$ operation is deductible in depreciation .+ >ethod .or co#putin$ depletionO A+ cost depletion #ethod .+ to who# allowedO A+ only #inin$ entities ownin$ econo#ic interest in #ineral deposits Econo#ic interest! capital invest#ents in #ineral deposits ;6: C:ARITABLE * OT:ER CONTRIB%TION- TAGE @"TE! *.unique because deducted .ro# the taxable net inco#e and not .ro# the $ross inco#e second step o. the .or#ula deduction .+ Dho is clai#in$ the deductionO A+ the donor .+ Dho are the DoneesO A+ *.?overn#ent o. the 9hilippines or any o. its a$encies or any political subdivision thereo. exclusively .or public purpose &. Accredited Do#estic corporation or association or$ani7ed and operated exclusively .or reli$ionsB lionB charitableB scienti;cB youth and sports develop#entB cultural or educational purposes or .or the rehabilitation o. veteransB or to social wel.are institutionB or to non $overn#ent or$ani7ation and no part o. its net inco#e inures to the bene;t o. any private stoc= holder or individual .+ 5ow #any =inds o. deductionO A+ Two A&) =inds! *.partial deduction *(H o. taxable inco#e in case o. an individual 1H o. taxable inco#e in case o. corporations &. .ull Ntotal deduction .+ Dhich o. the two =inds is the ?eneral uleO A+ ?eneral ule! 9artial deduction Exception! Total NFull deduction .+ Suppose >r. A #ade a cash donation o. 9*>. 5ow #uch can he clai# as a deductionO A+ First deter#ine the taxable inco#e o. >r A since he is an individualB he can only deduct *(H o. his taxable inco#e. 6! Dhat i. the Donee is not one o. those #entioned under the lawB can he clai# a deductionO A! @o. TAGE @"TE! Donee is never an individual. .+ -. the Donor is a pure co#pensation inco#e earner and he donates 9*((B((( to the churchB can he clai# it as a deductionO A+ @o. pure co#pensation inco#e earner can only clai# a deduction under Sec )8 > .+ -. Donee is the 9hilippine ?overn#entB what is the require#entO A+ it #ust be #ade exclusively .or public purposes .+ Dhat i. the Donee is a provinceO '' Taxation law review notes - Atty. Francis J. Sababan - A+ there #ust be a quali;cation that it is .or public purpose .+ -. the Donee is a Do#estic %orporationB what is the require#entO A+ no part o. its inco#e inures to the bene;t o. any private shareholder or individual .+ Dhat are those contributions which can be deductible in .ullO A+ *.Donations to the ?overn#ent 0 no con3ict with partial Adi4erent require#ent) 9artial donated .or exclusively public purposes FullB used in underta=in$ priority activities o. @EDA &.Donations to certain Forei$n -nstitutions or -nternational "r$ani7ations in co#pliance with a$ree#entB treaties or co##it#ent entered into by the 9hilippine ?overn#ent and such donees ).Donations to Accredited @on $overn#ent or$ani7ations @on $overn#ent or$ani7ationB non pro;t do#estic corporation E6E-E>E@TS! *. or$ani7ed and operated exclusively .or scienti;cB researchB educationalB character buildin$ and youth and sport develop#entB healthB social wel.areB cultural or charitable purposes or a co#bination thereo. &. no part o. the net inco#e o. which inures to the bene;t o. any private individual ). uses the contributions directly .or the active conduct o. the activities constitutin$ the purpose or .unction .or which it is or$ani7ed and operated 8. annual ad#inistrative expense does not exceed )(H o. the total expenses and 1. in case o. dissolutionB the assets o. which would be distributed to! a) another non pro;t do#estic corporation or$ani7ed .or si#ilar purpose or purposes b) to the state .or public purpose c) distributed by the court to another or$ani7ation to be used in such a #anner which would acco#plish the $eneral purpose .or within the dissolve or$ani7ation was or$ani7ed ;6I RE-EARC: AN# #EVELOP/ENT -n the old lawB this is not allowed as a deduction. To re#edy thisB they .elt that those should be a separate deduction .or research and develop#ent. E6E-S-TES! tax payer #ay treat research and develop#ent expenditures as ordinary and necessary expenses provided! *. it is paid or incurred durin$ the taxable year &. incurred in connection with tradeB business or pro.essionI and ). not char$eable to capital account. .+ Treated as such whenO A+ durin$ the taxable year it is paid or incurred A.OR!":A!"O0 O$ CER!A"0 RE%EARC4 A08 8E9ELOP.E0! E<PE08"!#RE% at the election o. the taxpayerB the .ollowin$ shall or #ay be treated as de.erred expenses! '+ Taxation law review notes - Atty. Francis J. Sababan - a. paid or incurred by the taxpayer in connection with his tradeB business or pro.essionI b. not treated as expenses under par * and c. char$eable to capital account but not char$eable to property o. a character which is sub<ect to depreciation or depletion .+ 5ow to co#pute taxable inco#e! A! de.erred expenses shall be allowed as deduction ratably distributed over a period o. not less than *( #onths as #ay be elected by the taxpayer Abe$innin$ with the #onth the taxpayer ;rst reali7es bene;ts .ro# expenditures.) the election or option #ay be exercised .or any taxable year a.ter the e4ectivity o. the code but not later than the ti#e prescribed by law .or ;lin$ the return .or such taxable year. :->-TAT-"@ "@ DEDE%T-"@ .+ Dhen not deductibleO A+ *.Any expenditure .or the A*) acquisition or i#prove#ent o. land or A&) .or the i#prove#ent o. property to be used in connection with research and develop#ent o. a character which is sub<ect to depreciation and depletion and oTce site &. Any expenditure paid or incurred .or the purpose o. under#inin$ the existenceB locationB extent or quality o. any deposit o. one or other #ineral includin$ oil or $as. not .or #ineral exploration ;6 G PEN-ION TR%-T .+ %lai#ed by Dho#O A+ the e#ployer .7 Dhat is a 9ension Trust contributionO A+ a deduction applicable only to e#ployer on account o. its contribution to a private pension plan .or the bene;t o. its e#ployee deduction is purely business in character. .+ equisitesO A+ *.the e#ployer #ust have established a pension or retire#ent plan to provide .or the pay#ent or reasonable pension o. his e#ployees &. pension plan #ust be reasonable and actually soundI ). it #ust be .unded by the e#ployer 8. the a#ount contributed #ust no lon$er be sub<ect to his control or disposition 1. the a#ount has not yet been allowed as a deduction and '. the a#ount has or is apportioned in equal parts over a period o. *( consecutive years be$innin$ with the year in which the trans.er or pay#ent is #ade. ;6 1 A##ITIONAL RE.%IRE/ENT- FOR #E#%CTIBILIT2 OF CERTAIN PA2/ENT- allowed as a deduction only i. shown that the tax required to be deducted and withheld there .ro# has been paid to the C- in accordance with Section 1, and Section ,* ;6 L OPTIONAL -TAN#AR# #E#%CTION @"08% O$ 8E8#C!"O0%: *.-te#i7ed deduction &."ptional Standard Deduction ', Taxation law review notes - Atty. Francis J. Sababan - ).9ersonal NAdditional Deduction "9T-"@A: STA@DAD DEDE%T-"@! can be availed o. by an individual who #ay elect a standard deduction in an a#ount not exceedin$ *(H o. his $ross inco#e #ay apply in lieu o. the other deductions under Section )8 the taxpayer #ust si$ni.y in his return his intention to elect the optional standard deductionB otherwiseB he shall be considered as havin$ availed o. the ite#i7ed deduction. .+ Dho can clai# this deductionO A+ all individual taxpayers except non resident alien not en$a$ed in trade or business A@A@ETC) Reason: he is not liable to pay by way o. the @-TB thusB .ollows he cannot clai# this deduction because he is liable to pay by way o. ?-T. TAGE @"TE! can co-exist with personal and N or additional exe#ption ;6 / PRE/I%/ PA2/ENT- ON :EALT: AN# HOR :O-PITALIIATION IN-%RANCE OF AN IN#IVI#%AL TAXPA2ER .or A*) 5ealth and Ninsurance A&) 5ospitali7ation E6E-E>E@TS! *. a#ount o. pre#iu#sB paid by taxpayer .or hi#sel. and #e#bers o. his .a#ilyB &. a#ount o. pre#iu#s should not exceed A*) 9&B8(( per .a#ily or A&) 9&(( a #onth ). $ross inco#e o. the .a#ily .or the taxable year is not #ore than 9&1(B((( .+ Dho can avail o. this deductionO A+ *.individual taxpayer earnin$ purely co#pensation inco#e durin$ the yearI &. individual taxpayer availin$ ite#i7ed or optional standard deductionI and ). individual taxpayer earnin$ both co#pensation inco#e and inco#e .ro# business -ECTION ;@ ALLOWANCE FOR PER-ONAL EXE/PTION FOR IN#IVI#%AL TAXPA2ER .+ Dhen do we apply thisO A+ apply i. individual taxpayer is payin$ by way o. @-T .7 Dho are taxpayerO A+ those #entioned under Section &8 AA) *. % &. @% ). "%D 8. A all can claim both personal and additional exemption
.+ Dhy not include @AETCO %an the latter clai# any exe#ptionO A+ @AETC is not included because Section )1 A re.ers to Section &8 A @AETC can clai# personal deductions but not additional exe#ptions pursuant to Sec )1 D E6E-E>E@TS! *.@AETC should ;le a true and accurate return &. the a#ount to be clai#ed as personal exe#ptions should not exceed the a#ount provided .or under 9hilippine :aws TAGE @"TE! AE>"9! can be a A or @AETC BA-IC PER-ONAL EXE/PTION-+ '/ Taxation law review notes - Atty. Francis J. Sababan - *. Sin$le individualI or individual <udicially decreed as le$ally separated with no quali;ed dependents. !" !!! &. For head o. the .a#ily 0 can be sin$le or le$ally separated with quali;ed dependents. #" !!! ). For each #arried individual 0 i. only one o. the spouseB earns or derives $ross inco#eB only such spouse can clai# the personal exe#ption. 3" !!! .+ Dho is the Qhead o. the .a#ilyRO A+ *.un#arried or le$ally separated #an or wo#an &. Dith A*) one or both parties or A&) Dith one or #ore brothers and sisters A)) with one or #ore le$iti#ateB reco$ni7edB natural or le$ally adopted children ). livin$ with and dependents upon hi# .or their chie. support 8. whose such brother or sisters or children are A*) not #ore than ** years old and A&) not $ain.ully e#ployedB A)) un#arried 1. "B re$ardless o. a$eB the sa#e are incapable o. sel. support because o. #ental or physical de.ect. .+ Dhy do we have to deter#ine who the head o. the .a#ily isO A+ only le$ally separated individuals can clai# additional exe#ptions i. they have quali;ed dependents. TAGE @"TE! .A. +8)& and &-/,! a senior citi7en can also be a dependent. .+ %an a widower clai# exe#ptionsO A+ exe#ptions #ust be strictly construedB widower not included in the list under Section )1 A 0 but can clai# under sec )1C widowerB #arried or used to be #arried >A-ED -@D-2-DEA:S each le$ally #arried individuals can clai# the personal exe#ption. 5usband and wi.e Z 9'8B((( .+ Dho are allowed to clai#O A+ @or#ally B it is the husband who clai#s unless he executes a waiver that the wi.e will clai# the sa#e A&-/,) Additional E>emptions: &'37- -additional exe#ption o. 9,B((( .or each dependent not execeedin$ .our A8) 6! Dho can clai# the sa#eO A! *.>arried couples! only one o. the spouses can clai# itI &.le$ally separated individuals! can be clai#ed by the spouse who has custody o. the child or children the additional exe#ption clai#ed by both shall not exceed the #axi#u# additional exe#ption herein allowed. .+ De;ne QdependentsR A+ le$iti#ateB ille$iti#ate or le$ally adopted child chie3y dependent upon and livin$ with the taxpayer i. such dependent is A*) not #ore than &* years o. a$eB A&) un#arriedB and A)) not $ain.ully e#ployed or A8) i. such dependentB re$ardless o. a$e is incapable o. sel. support because o. #ental or physical de.ect. +( Taxation law review notes - Atty. Francis J. Sababan - .+ Dhat i. widower has ille$iti#ate childrenB can clai# additional exe#ptionO A+ can clai#B can be considered as head o. the .a#ily wN dependent .+ Dhat i. the children are te#porarily away .ro# the parentsO A+ still considered livin$ with parentsB can clai# exe#ption C4A0/E O$ %!A!#%: &%EC '3 C- .+ ec=onin$ 9eriodO A+ end o. the year or close o. such year when such chan$e o. status occurred. TAGE @"TE! always choose the hi$her a#ount o. exe#ption i. you are ;lin$ a return coverin$ the period within which the chan$e o. status occurred $% i. the taxpayer should A*) #arry or A&) have additional dependents durin$ the taxable yearB he #ay clai# the correspondin$ exe#ption in .ull .or the year. "llustration: *.Sin$le Jan *B &((1 &.>arried June *B &((1 0 on April *1B &((' 0 status! le$ally #arried can clai# 9 )&B((( &. i. the taxpayer should die durin$ the taxable yearB estate can clai# personal exe#ption. -llustration *.Jan. &1B &((1 taxpayer #arried wN one child can clai# on April *1B &((' 9)&B(((Y 9,B((( -n this caseB as i. the chan$e o. status occurred at the close o. taxable year. -. taxpayerKs spouse or child dies within the taxable year or the dependentKs beca#e A*) $ain.ully e#ployed A&) $ot #arried or A)) beca#e &* as i. the chan$e as status occurred at the close o. taxable year. "llustration: *. TaxpayerKs tra$ic story wi.e died Jan. &1B &((1 and child died the next day then another child eloped and $et #arried. &. Taxpayer despite the tra$edy can clai# ton o. #oney on April *1B &(('. 9 )&B((( 9 *'B((( A,B((( per child) 8,B((( -ection ;A. Ites not #e$ucti<le ;A A. /eneral Rule: -n co#putin$ net inco#eB no deduction shall be allowed! A*) 9ersonalB livin$ or .a#ily expenses 0 not related to trade or business A&) Section )' A A&) and Section )' A A)) /eneral Rule: @o deductions allowed .or *. Any a#ount paid out .or new buildin$s or .or per#anent i#prove#entsB or better#entsB #ade to increase the value o. any property or estate &. Any a#ount expanded in restorin$ property or in #a=in$ $ood the exhaustion thereo. .or which an allowance is or has been #ade. E>ceptions: *. "ption $ranted to 9rivate Educational -nstitution to deduct the sa#e as capital outlays. TAGE @"TE! A#ount paid .or new buildin$sB can be deducted i. it involves intan$ible drillin$ and develop#ent +* } P40,000 Taxation law review notes - Atty. Francis J. Sababan - cost incurred in petroleu# operations ASec )8 ' AA) PRE/I%/- PAI# ON LIFE IN-%RANCE POLIC2 + *. coverin$ the li.e o. any oTcer or e#ployee or any person ;nancially invested in any trade o. business carried on by the taxpayer. &. taxpayer is directly or indirectly the bene;ciary under such policy. LO--E- FRO/ -ALE- OR EXC:ANGE- OF PROPERT2 &betCeen related parties- *) between .a#ily #e#bers .+ Dho is considered the Q.a#ily o. the taxpayerOR A+ a. brothers and sister Awhole is ] blood) b. spouses c. ancestors d. lineal descendants .+ are uncles or nieces includedO A+ no IN #ONORJ- TAX elatives includes relatives by consan$uinity within the 8 th civil code. @ephew is a stran$er and relative an$ nephew. &) individual and corporations ?en. ule! @" DEDE%T-"@ Except! distribution in liquidation or less than 1(H o. the outstandin$ capital stoc= )) Two corporations 8) ?rantor or Fiduciary 1) Two ;duciaries o. two trust ') Fiduciary and bene;ciary o. trust -ec. ;= -pecial pro'isions re,ar$in, $e$uctions of insurance copanies. %odal 9rovisions Section ),! :osses Fro# Dash Sales o. Stoc= or Securities .+ Dhat is a wash saleO A+ -t is a sales or other disposition o. stoc= securities where substantially identical securities are purchased within '* daysB be$innin$ )( days be.ore the sale and endin$ )( days a.ter the sale. .+ Dhat periodO A+ '* day period be$innin$ )( days be.ore and endin$ )( days a.ter the sale .+ Jan &( you purchased share o. stoc=B and disposed o. the sa#e on Feb 1B &((1. -s this a wash saleO A+ @o .+ -. it is a loss in wash saleB happensO A+ General Rule+ ASec *)* @o. &) $ains .ro# wash sale are taxable but losses are non-deductible E>ception: unless clai# is #ade by a dealer in stoc= or securities and with respect to a transaction #ade in the ordinary course o. the business o. such dealer .+ eason why losses in wash sale cannot be deductedO A+ *. to avoid too #uch speculation in the #ar=et &. taxpayer not tellin$ the truthB because he #ay say he incurred a loss instead o. a $ain +& Taxation law review notes - Atty. Francis J. Sababan - -ection 6E. #eterination of Aount an$ Reco,nition of Gain or Loss 6ENER&3 R.3E0 This is totally irrelevant i. the inco#e is sub<ect to ;t. -n ;t $ain is presu#ed. E5CEPT0 sale o. shares o. stoc= where you have to deter#ine actual $ain or loss .+ Dhen is there a $ainO A+ excess o. the a#ount reali7ed over the basis or ad<usted basis .or deter#inin$ $ain. Aa#ount reali7ed .ro# the sale or other disposition o. property) .+ Dhen is there a lossO A+ the a#ount reali7ed is not in excess o. C or AC 1llustration0 */,+ Car AJuan dela %ru7 sold <ewelry .or )((B((( ) contract o. sale a#ount reali7ed is )((B((( .+ Dhat will be the basis o. the $ainO A+ Sec. 8( C A*)B property was acquired by purchase %ost! purchase price Y expenses .+ -. there is a $ainB is the whole $ain sub<ect to inco#e taxO A+ it depends i. ordinary asset Z *((H is sub<ect to inco#e tax i. capital assets a. short ter#Aless than *& #onths) ! *((H taxable b. lon$ ter# A#ore than *& #onths)! 1(H taxable .+ suppose property sold is a parcel o. land will the rule be the sa#eO A+ @oB and it depends ordinary asset! apply the cost capital asset! 'H F>2 or sellin$ price which ever is hi$her 6! Do we apply the holdin$ periodO A! @oB holdin$ period does not apply to the sale o. real property. This is an absolute rule! -. realty is ordinary 0 holdin$ period does not apply. -. realty is capital asset 0 'H F>2 or sellin$ price applies. 5oldin$ period applies only to sale o. personal property which is a capital asset except sale o. shares o. stoc=s. 5oldin$ period also do not apply to corporations. .+ -. the property is acquired throu$h inheritanceB what is the basisO A+ Sec 8( C A&) .air #ar=et value or price as o. the date o. acquisition. .+ Suppose it was a sale o. personal propertyB do we apply the sa#e principlesO A+ @o. .+ Dhat i. it involves a sale o. real propertyO A+ Apply the sa#e principles Suppose it was a result o. swindlin$B the.tB robbery or esta.aB do we apply the sa#e principlesO A+ :aw is silentB ta=e note o. the old %-A rulin$ on this one .+ Feb *8B &(('B your ?? $ave you a <ewelry in Sept your ?? brea=s up with you. ?? request the <ewelry be returned but you already sold it .or 9&((B(((. Dill the entire 9&((B((( be included in $ross inco#eO +) Taxation law review notes - Atty. Francis J. Sababan - A+ Casis! A*) sa#e as i. it would be in the hands o. the Donor AF>2 as o. date o. acquisition)I or A&) last owner who did not acquire the sa#e by $i.t Acost) .+ -. it involves a parcel o. landO A+ apply the sa#e rules Section 8( C A8) what is the basisO *. 9roperty was acquired .or less than an adequate consideration in #oney or #oneys worth! the basis would be the a#ount paid by the trans.eree .or the property. .+ Section 8( C A1) what is the basisO A+ 8( % A1) i. the property was acquired in a transaction where $ain or loss is not reco$ni7ed Apursuant to a #er$er or consolidation plan) a. corporationB party to a #er$er or consolidationB exchan$es property solely .or stoc=s in another corporationB also a party to the #er$er or consolidation b. is a party to the #er$er or consolidationB solely .or the stoc=s o. another corporation also a party to the #er$er or consolidationB or c. Security holder o. a corporationB party to a #er$er or consolidationB exchan$es his securities solely .or stoc= or security in another corporationB also a party to the #er$er or consolidation. 0 person trans.ers property to corporation to $ain control 6E C EXC:ANGE OF PROPERT2 /E0ERAL R#LE: -n sale or exchan$e o. propertyB the control a#ount o. $ain or loss shall be reco$ni7ed. *. $ain is taxable &. losses are deductible E>ception: -. per#anent to a #er$er or consolidation planB no $ain or loss shall be reco$ni7ed *. $ain is exe#pt &. losses are not deductible RE5#"%"!E%: *. the transaction involves a contract o. exchan$e &. the parties are #e#bers o. the #er$er or consolidation ). the sub<ect #atter is only li#ited or con;ned with the one provided .or by law >er$er and %onsolidation in corporation code and tax code are not the sa#e. Sec 8( A&) Aa) a corporation which is a party to a #er$er or consolidationB e>c=anges propertA solelA for stocD in a corporation which is a party to the #er$er or consolidation "llustration: Trans.eror $ives *> Trans.eree $ives +((B((( Z not taxble $ain 9)((B((( -. other property received by trans.eree A8( % A)) Aa) !RA0%$EREE i. the party receives not <ust the sub<ect #atter per#itted to be received! lie i. the party receives #oney and Nor propertyB the $ainB i. anyB but not the lossB shall be reco$ni7ed A#eanin$ taxable) but in an a#ount not in excess o. the su# o. the #oney and the F>2 o. such other property received. A8( % A)) Ab) !RA0%$EROR +8 Taxation law review notes - Atty. Francis J. Sababan - *.Trans.eror corporation receives #oney and N or propertyB distributes it pursuant to the #er$er or consolidation plan no $ain to the corporation shall be reco$ni7ed &. Trans.eror corporation receives #oney and N or propertyB does not distribute it pursuant to the #er$er or consolidation plan the $ain shall be reco$ni7ed but in an a#ount not in excess o. the su# o. such #oney and the F>2 o. such other property so received. .+ Dhat is the ruleO A+ 8( % A)) Aa) *. $ain taxable &. loss not deductible 8( % A)) Ab) "t depends on =oC distributed: *. pursuant to the #er$er or consolidation plan! $ain exe#pt loss not deductible &. not pursuant to #er$er or consolidation plan! $ain taxable loss not deductible. -ec 6E C 394 3<4 a shareholder exchanges stock in a corporation which is a party to a #er$er or consolidationB solelA for t=e stocD of anot=er corporation which is a party to the #er$er or consolidation -ec 6E C 354 3c4 a security holder of a corporation &hich is a party to the mer'er or consolidation" exchanges his securities in such corporation, solely for stock securities in another corporation. The rule is si#ilar in 8( % A))B Aa)B Ab) and Ac) althou$h di4erent property are involveB that is why the last para$raph o. 8( % is a separate para$raph. aThere.oreB Sec 8( % A)) AaBbBc) the rule is *. $ain exe#pt &. loss not deductible 6Ec last para,rap& the transferee becomes a stoc(holder" parties are not members of the mer'er the individual wants to be a shareholder but does not want to purchase shares but willin$ to $ive up property as a result o. the exchan$e B the person $ains control o. the corporation aThe rule is! a. $ain is exe#pt b. loss not deductible equisites! *. There is A contract o. exchan$e where property was trans.erred by the person in exchan$e o. stoc= or unit o. participation in a corporation. &. As a resultB the person alone or to$ether with others Anot exceedin$ o. 8 persons) $ains control o. the corporation. .+ Dhat is controlO A+ ownership o. stoc=s in a corporation possessin$ at least 1*H o. total votin$ power. -ec 6E B 3@4 non applicability o. inco#e tax is only te#porary Reason : Casis will be 8( % A1) *. 8( % A1) Aa) Trans.eror basis o. stoc= or securities received by the trans.eror! sa#e +1 Taxation law review notes - Atty. Francis J. Sababan - as the basis o. the propertyB stoc= or securities exchan$ed! decreased by the A*) #oney and A&) F>2 o. the property receivedI and increased by Aa) a#ount treated as dividend and Ab) a#ount o. $ain reco$ni7ed &. 8( % A1) Ab) Trans.eree as it would be in the hands o. trans.eror increased by the a#ount o. $ain reco$ni7ed. -ec 6E 3c4 364 Assuption of Lia<ilit( *. TaxpayerB in connection with the exchan$es described 0 receives securities or stoc=s per#itted Ano $ains reco$ni7ed) 0 it is sole consideration o. the sa#e 0 the other party assu#es liability o. the sa#e 0 the acquisition o. liability not treated as #oney and N or other property 0 the exchan$e still .alls within the exceptions. &. -. a#ount o. liabilities assu#ed Y a#ount o. liabilities to which property is sub<ected to exceeds - ad<usted basis o. the property trans.erred 0 the excess shall be considered a $ain .ro# the sale o. a capital asset or o. property which is not a capital assetB as the case #ay be. -ECTION 69 INVENTORIE- Purpose: %han$e o. inventory to deter#ine clearly the inco#e o. any taxpayerN to re3ect the true inco#e. Limitation: *. once every ) years &. approval o. the secretary o. ;nance -ection 6; Accountin, Perio$s *. Fiscal year &. use o. calendar year a. no annual accountin$ b. does not =eep boo=s o. account c. individuals Ese o. #ethod as in the opinion o. the co##issioner clearly re3ects the inco#e! *. no accountin$ #ethod has been e#ployed &. the #ethod does not clearly re3ect the inco#e -ec 66 Perio$ in "&ic& ites of Gross Incoe inclu$e$ an$ -ec 6@ Perio$ for "&ic& #e$uctions an$ Cre$it TaKen Ender Sec 88 a#ount o. all ite#s o. $ross inco#e shall be included in the $ross inco#e .or the taxable year in which they are received by the taxpayer Ender Sec 81 deductions shall be ta=en .or the taxable year in which Qpaid or accruedR or Qpaid or incurred.R Sec 88 and Sec 81 are #entioned in the code because o. the death o. the person. "llustration: Facts: taxpayer dies in the #iddle o. the year January *B &((' 0 June *1B &((' June &'B &((' to Dec )*B &((' the estate is the taxpayer So the inco#e and deductions .ro# Jan * to June &1BB included in the co#putation -ection 6A C&an,e of Accountin, Perio$ .+ Dho is the taxpayerO +' Taxation law review notes - Atty. Francis J. Sababan - A+ corporation Ataxpayer other than individual) .+ Dhat =inds o. accountin$ periodO A+ *.;scal year &. calendar year .+ %han$es conte#platedO A+ *. ;scal to calendar &. calendar to ;scal ). ;scal to another ;scal with the approval o. the %o##issionerB net inco#e shall be co#puted on the basis o. the new accountin$ period. .+ %alendar to calendarB correctO A+ not correct state#ent -ection 6= 3A4 !a>paAer: Corporation *. Fiscal to calendar separate ;nal or ad<usted return shall be #ade .or the period between the so close o. the last ;scal year .or which the return was #ade and A&) the .ollowin$ Dec )*. &. %alendar to Fiscal separate ;nal or ad<usted return shall be #ade .or the period between the close o. the last calendar year and the date desi$nated as the close o. the ;scal year. ). Fiscal to ;scal separate ;nal or ad<usted return shall be #ade .or the period between the close o. the .or#er ;scal year and the date desi$nated as the close o. the new ;scal year. File return indicatin$ the chan$e in accountin$ #ethod -ection 6? Accountin, for Lon, Ter Contracts .+ Dho are the pro.essionals involvedO A+ applies to architects and en$ineers .+ Dhat is a lon$ ter# contractO A+ it #eans buildin$B installation or construction contracts coverin$ a period in excess o. one A*) year. .+ Casis o. inco#eO A+ a. persons whose $ross inco#e is derived in whole or in part .ro# such contract shall report such inco#e upon the basis o. percenta$e o. consu#ption. b. the return shall be acco#panied by a certi;cate o. architects or en$ineers showin$ the percenta$e o. co#pletion c. deduction o. expenditures #ade durin$ the taxable yearB on account o. the contract is allowed -ection 6D Installent Basis conte#plates a seller o. the property .+ -s it i#portant to =now i. the property is personal or realO A+ Les .+ Sale o. eal 9roperty is it i#portant to =now i. it is a casual sale or re$ular saleO A+ @o Requirement: The initial pay#ents do not exceed &1H o. the sellin$ price. .+ -. the initial pay#ent exceeds &1H what do you call itO A+ called de.erred sale ++ Taxation law review notes - Atty. Francis J. Sababan - .+ %onsequenceO A+ you #ust pay the whole a#ount o. the tax .+ Sale o. 9ersonal 9ropertyB is it i#portant to =now i. it is a casual or re$ular saleO A+ Les Casual %ale =as Requirements: *. sellin$ price exceeds 9*B((( &. initial pay#ent not exceedin$ &1H sellin$ price e$ular sale no require#ents Case of 'aLas *. sub<ect #atter &. sold by way ). a$ree#ent 8. cash deposit 1. post dated pro#issory notes Ainstall#ents) ). * st install#ent pro#issory note was disconnected 8. & nd install#ent exchan$ed with cash - these two exceeds the sellin$ price 1. you only co#pute cash 5! -nitial pay#ent exceeds &1H install#ent basis is not applicable RR *I %ection )+3! -n pay#ent by way o. install#ent pro#issory noteB bills o. exchan$e and chec=s will not be considered in co#putin$ the &1H initial downpay#ent. -ection @E Allocation of Incoe an$ #e$uctions tre#endous power o. the %o##issioner to allocate the inco#e and deduction o. several corporations havin$ the sa#e interest. .+ Sa#e interestO A+ stoc=holders substantially the sa#e .+ :i#itationsO A+ @one That is why it is a $reat source o. corruption -ection @9 In$i'i$ual Returns W&o are reCuire$ to BleL 3ITR4 *. % &. @% ). A 8. @AETC 0 sources within .+ Dho is not #entioned in Sec 1* but liable to pay by way o. @-TO A+ "%DN sea#an E>ception: % " A:-E@S! en$a$ed in trade or practice o. pro.ession in 9hil. Shall ;le -T re$ardless o. the a#ount o. $ross inco#e. .+ -. "FD is exe#pt .ro# ;lin$ a returnB what is he required to ;leO A+ -n.or#ation eturn .+ who are not required to ;le a returnO A+ a. an individual whose $ross inco#e does not exceed his total personal and additional exe#ptions .or dependents b. wor=er Aco#pensation inco#e earners) re$ardless o. the a#ount o. co#pensation shall not required to ;le -T because the #ana$e#ent ;les it. A )-&((&) c. individuals whose sole inco#e is sub<ect to F-T d. individuals who are exe#pt .ro# inco#e tax E>ception: -T +, Taxation law review notes - Atty. Francis J. Sababan - *. the #ana$e#ent ;les an incorrect return &. the e#ployee has two or #ore e#ployer @9 A 3;4 A+ not required to ;le -T #ay be required to ;le in.or#ation return @9 B 0 W&ere to BleL *. authori7ed a$ent ban= &. revenue district oTcer ). collection a$ent 8. duly authori7ed treasurer o. the city or #unicipality where taxpayer resides or has principal place o. business 1. oTce o. co##issioner 0 i. no le$al residence or place o. business in 9hil @9 C .+ Dhen to ;leO A+ ;led on or be.ore the *1 th day o. April each year 1* % A*) 0 @-T 9ayers usin$ %L two days provided Acalendar) *. on April *1I or &. be.ore April *1 AJanuaryB Feb or >arch) not Dece#ber because the calendar year is not yet over Fiscal year! *1 th day o. the 8 th #onth .ollowin$ the close o. the ;scal year. @9 C 354 in$i'i$uals su<Mect to ta! on capital ,ains E>ception: ?eneral ules Sec 1, *. Sale o. shares o. stoc=s return ;led within )( days a.ter each transaction and Final consolidated return on or be.ore April *1 &.Sale o. eal 9roperty return ;led within )( days .ollowin$ each sale @9 # :us<an$ an$ Wife *. 9ure co#pensation inco#e earner 0 separate return RR '6*((( 0 pure co#pensation inco#e earner re$ardless o. a#ount o. inco#e not ;le -T. &. @ot pure co#pensation! <oint return @9 E. Return of Parent to Inclu$e Incoe of C&il$ren un#arried #inor receives inco#e .ro# property received .ro# livin$ parent 0 included in the parentKs -T. E>ception: *.DonorKs tax has been paid &.9roperty exe#pt .ro# donorKs tax @9 F. Persons %n$er #isa<ilit( .+ Dho #a=es the returnO A+ *.duly authori7ed a$ent &. duly authori7ed representatives ). $uardians 8.other persons char$ed with the care o. his person or property both incapacitated taxpayer and a$ent will be liable .or! *.erroneous return &. .alse or .raudulent return @9 G -i,nature Presue$ Correct pri#a .acie evidence the return was actually si$ned by the taxpayer -ection @5 Corporation Return $o bac= to Sec 1* A A&) General Rule+ Sec 1, Final -nco#e Tax return and creditable withholdin$ tax return is ;led #onthly E>ception: Sale o. Shares o. Stoc=s +/ Taxation law review notes - Atty. Francis J. Sababan - ASec 1* A A&)) Sale o. eal 9roperty -*+-&(()! Sale o. eal 9roperty sub<ect to ;nal withholdin$ taxB the buyer is dee#ed the a$ent. %ale of %=ares of %tocDs .+ easons .or ;lin$ Final -nco#e tax or Final %onsolidated eturnO A+ easons! 1. F-T whose actual deter#ination o. $ain or loss 2. in connection with Sec &8 % the basis o. the tax is not the $ross inco#e but the net capital $ains reali7ed. "n connection Cit= %ec E(: actual deter#ination o. loss or $ain ;le a return within )( days .ro# date o. transaction TA1E NOTE+ -n all other inco#e sub<ect to F-TB the $ains are presu#ed INCO/E OF /INOR- .+ >inor below *,! Dill it be included in the >inorKs -TO A+ it depends *. inco#e .ro# property received .ro# parents included in parentKs -T E>cept: a.DonorKs tax paid b.9roperty exe#pt .ro# donorKs tax &. inco#e .ro# #inorKs own industry >inorKs -T acco#plished by $uardian or parents .+ i. the individual is exe#pt .ro# inco#e taxB can be required to ;le a returnO A+ ?eneral ule! @o E>ceptions: *.en$a$ed in trade or businessI or &.exercise o. pro.ession 0 Sec 1* A A&) -EC @5 CORPORATION RET%RN- A.Requirements Taxpayer! D% or F% Aexcept @F%) -T Filed! *. TEE A@D A%%EATE a. quarterly inco#e tax return b. ;nal or ad<usted inco#e tax return Filed by! *.9residentI &.2ice 9resident ). "ther principal oTcer -T #ust be sworn by such oTcer and the treasurer or assistant treasurer 7. !a>able ear *. ;scalI or &. calendar corporation cannot chan$e accountin$ #ethod e#ployed without the approval or prior approval o. the co##issioner ASec 8+) C. Return of Corporation ContemplatorA 8issolution or Recognition *.Dithin )( days a.ter! a. the adoption by the corporation o. a resolution or plan .or its dissolutionI or b. liquidation o. the whole or any part o. its capital stoc=B includin$ a corporation which has been noti;ed o. possible involuntary dissolution by the SE%I or c. .or its reor$ani7ation &.ender a correct return veri;ed under oath settin$ .or#! a. .or#s o. the resolution or planI b. such other in.or#ation prescribed ,( Taxation law review notes - Atty. Francis J. Sababan - ).Secure a tax clearance .ro# the C- and ;le it with the SE% 8.Therea.terB SE% issued a %erti;cate o. Dissolution or eor$ani7ation. 8. %ale of %tocDs M "!R loo= at the previous notes about it -ection @; E!tension of Tie to File Returns .+ To who# $rantedO A+ %orporations /rounds: >eritorious case sub<ect to the provisions o. Sec 1' Ti#e Extension -ection @6 Returns or Recei'ers> Trustees in BanKruptc( or Assi,nees the a.ore#entioned persons shall #a=e returns o. net inco#e as and .or such corporation in the sa#e #anner and .or# as such or$ani7ation is required to #a=e. -ection @@ Returns of General Professional Partners&ip ;le a return o. its inco#e settin$ .orth *. ite#s o. $ross inco#e and o. deductions allowed by this title ATitle -- 0 Tax on -nco#e) &. @a#es o. partners ). Taxpayer identi;cation nu#ber AT-@) 8. address o. partners 1. shares o. each partners ?99 is exe#pt .ro# corporate inco#e tax .+ Dhy is the ?99 obli$ed to ;le a returnO A+ to deter#ine the shares o. each partners -ection @A Pa(ent an$ Assessent of Incoe Ta! for In$i'i$uals an$ Corporations A. PaAment of !a> .+ Dho pays the tax o. tra#p vesselsO A+ *.the shippin$ a$ents and or the husbandin$ a$ent &.in their absenceB the captains thereo. those people are required to ;le a return and pay the tax due be.ore departure .+ Dhat is the e4ect o. .ailure to ;le the return and pay the tax dueO A+ *.Cureau o. %usto#s #ay hold the vessel and prevent its departure until! a. proo. o. pay#ent o. tax is presentedI or b. a suTcient bond is ;led to answer .or the tax due. "nstallment PaAments Tax due! #ore than 9&B((( Taxpayer! individuals only Aother than corporation) Elect to pay the tax in two A&) equal install#ents a. * st install#ent! paid at the ti#e the return is ;led b. & nd install#ent on or be.ore July *1 .ollowin$ the close o. the calendar year .+ Dhat is the e4ect o. non pay#ent on the date ;xedO A+ The whole a#ount o. tax unpaid beco#es due and de#andable to$ether with the delinquency penalties. PaAment of capital gains ta> : .! 9aid whenO A+ on the date the return is ;led ,* Taxation law review notes - Atty. Francis J. Sababan - Avail e>emption for capital gains: a. no pay#ents shall be requiredI b. i. you .ail to quali.y .or exe#ption 0 tax due shall i##ediately beco#e due and payable and sub<ect to penalties c. seller pays tax 0 sub#it intention or proo. o. intent within six A') #onths .ro# the re$istration o. docu#ent trans.errin$ .+ when is the real property entitled to re.undO A+ upon veri;cation o. co#pliance with the require#ents .or exe#ption. eport $ains on install#ents under Sec 8/ 0 tax due .ro# each install#ent pay#ent shall be paid within )( days .ro# the receipt o. such pay#ents. @o re$istration o. docu#ent trans.errin$ real property *. without a certi;cation .ro# co##issioner or his duly authori7e representative that a. trans.er has been reported b. tax has been paid 7. Assessment and PaAment of 8efciencA !a> eturn is ;ledB the co##issioner exa#iner and assess the correct a#ount o. tax tax de;ciency discovered shall be paid upon notice and de#and .ro# the co##issioner. ' "0%!A0CE% CO0!E.PLA!E8 *. ;le the return and pay the tax &. ;le the return but not pay the tax ). not ;le the return and not pay the tax -ection @= Wit&&ol$in, of Ta! at -ource A. Fit==olding of !a>es sub<ect to the ules and e$ulations the Section o. Finance #ay pro#ul$ateB upon reco##endation o. co##issioner! equire the ;lin$ up o. certain inco#e tax return by certain inco#e payees. .+ Enu#eration is all about whatO A7 Enu#er ation about Final -nco#e Tax E>cept: ?ross -nco#e Tax *. &1 C A@A@ETC) &. &, C A@F%) C. Dithholdin$ o. %reditable Tax at Source The Sec. o. FinanceB upon reco##endation o. the co##issioner require the withholdin$ o. a tax on the ite#s o. inco#e payable to natural or <uridical personsB residin$ in the 9hilB by payor- corporationN personX the sa#e shall be credited a$ainst the inco#e tax liability o. the taxpayer .or the taxable year. At the rate o. not less than *H but not #ore than )&H thereo.. .+ Dhat is the #axi#u#O A+ >axi#u#! now )1H pursuant to A /))+ .+ Dhen will you allow withholdin$ beyond *1HO A+ For @-T *1H is the #axi#u# *. F-T 0 the a#ount o. withholdin$ is totally &. ?-T - equal to the a#ount o. tax !a> $ree Covenant 7ond the bondsB #ort$a$esB deeds o. trust or other si#ilar obli$ations o. ,& Taxation law review notes - Atty. Francis J. Sababan - D% or F% contains a contract or provision where the obli$or Adebtor) a$rees to pay the tax i#posed herein nor#ally between the creditor and debtor .+ Dho pays the taxO A+ %reditor pays the tax by virtue o. an a$ree#ent the debtor assu#es the liability and the creditor is now .ree .ro# pay#ent o. tax be.ore it can trans.er the property to the buyer. -ection @? Returns an$ Pa(ent of Ta!es Wit&&el$ at -ource A. 5uarterlA Returns and PaAment of !a>es Fit==eld at %ource *. covered by a return and paid to! a. authori7ed a$ent ban= b. revenue district oTcer c. collection a$ent d. duly authori7ed treasurer o. city or #unicipality where withholdin$ a$ent has! *. his le$al residenceI or &. principal place o. businessI or ). i. corporation B where principal oTce is located &.Tax deducted and withheld held as a special .und in trust .or the $overn#ent until paid to the collectin$ oTcers. ).eturn .or ;nal withholdin$ tax ;led and paid within &1 days .ro# the close o. each calendar quarter 8.eturn .or %reditable withholdin$ taxes ;led and paid not later than last day o. the #onth .ollowin$ the close o. the quarter durin$ which withholdin$ was #ade 1. %o##issionerB with approval o. Sec Finance require withholdin$ a$ents to pay or deposit taxes at #ore .requent intervals where necessary to protect the interest o. the $overn#ent 7. %tatement of "ncome PaAments .ade and !a>es Fit==eld Dithholdin$ a$ent shall .urnish payee a written state#ent showin$! *. inco#e or other pay#ents #ade by D5A durin$ such quarter or year and &. a#ount o. tax deducted and withheld state#ent $iven si#ultaneously upon pay#ent at the request o. the payee. Creditable Cit==olding ta>es *. corporate payee 0 not later than the &( th day .ollowin$ the close o. the quarter &. individuals payee 0 not later than >arch * o. the .ollowin$ year $inal Fit==olding ta>es the state#ent should be $iven to the payee on or be.ore January )* o. the succeedin$ year. C. Annual "nformation Return Dithholdin$ a$ent shall sub#it to the co##issioner an annual in.or#ation return containin$ ! *. the list o. payees and inco#e required &. a#ount o. taxes withheld .ro# each payees ). other pertinent in.or#ation required Final Wit&&ol$in, Ta!+ AIR ;led on or be.ore January )* o. the succeedin$ year ,) Taxation law review notes - Atty. Francis J. Sababan - Creditable Cit==olding ta>: A"R not later than >arch * o. the year .ollowin$ the year .or which the annual report is bein$ sub#itted %o##issioner #ay $rant D5A reasonable extension o. ti#e to .urnish and sub#it the return required herein. 8. "ncome of Recipient *. -nco#e upon which any creditable tax is required to be withheld at source shall be included in the return o. its recipient. &. the excess o. the a#ount o. tax so withheld over the tax due on his return shall be re.unded ). inco#e tax collected at source is less than the tax due on his return 0 di4erence shall be paid 8. all taxes withheld *. considered trust .und &. #aintained in separate account ). not co##in$led with other .unds o. D5A E. Registration Cit= Register of 8eeds @o re$istration o. any docu#ent trans.errin$ real property shall be e4ected by the e$ister o. Deeds unless the co##issioner or his duly authori7e representative has certi;ed that the trans.er A*) has been reported and A&) tax due has been paid e$ister o. Deeds requires pay#ent o. tax be.ore trans.er o. property -ection @D Ta! on ProBts Collecti<le fro O"ner of ot&er Persons Tax i#posed under this title upon $ainsB pro;ts and inco#e not .allin$ under the .ore$oin$ and not returned and paid by virtue o. the .ore$oin$ shall be assessed by personal return "ntent and Purpose of t=is !itle *. All $ainsB pro;ts and inco#e o. a taxable class shall be char$ed and assessed with the correspondin$ tax. &. Said tax be paid by the owner o. the $ainsB pro;t or inco#e or the person havin$ the receiptB custodyB control or disposal o. the sa#e 8etermination of OCners=ip: deter#ined as o. the year .or which a return is required to be ;led C:APTER X+ E-TATE- AN# TR%-T- -ection AE+ Iposition of Ta! *. Estate property o. the decedent created by an a$ree#entB trust or by last will and testa#ent &. Trust a$ree#entB contract or last will and testa#ent %tatus: *. Estate! sa#e status as decedent &. Trust! sa#e status as the $rantor "ncome ta>paAer is t=e Estate: inco#e o. the estate pendin$ partition or no partition at all! !=ree Dinds of partition: *. <udicial &. extra <udicial partition ). or no partition at all 8uring partition Estate earns income: ,8 Taxation law review notes - Atty. Francis J. Sababan - *. individual 0 inco#e tax &. corporation 0 corporate inco#e tax ). estate ATaxpayer Z T9) a.-#pose -nco#e as i. T9 is individual b.-#pose inco#e as i. T9 is corporation c.-#pose inco#e as i. estate itsel. depends whether there is a A*) <udicial A&)extra <udicial partition or A)) no partition at all Dhen there is a <udicial settle#ent which is ;nal and executory but no partition! TFo possibilities0 *.%reation o. unre$istered partnership -nco#e o. the Estate! corporate inco#e tax &.%reation o. %o-ownership -nco#e o. the Estate! -nco#e tax on individual -co-owner liable in their individual co#pany Ponce Case0 5! A.ter ;nality heirs did not divide the propertyB the applicable inco#e tax is corporate inco#e tax because they contributed #oney to en$a$e in real estate. -ECTION A9 TAXABLE INCO/E A-#portant) N!a>able income of t=e estate or trust s=all be computed in t=e same manner and on t=e same basis as ill t=e use of an individual.O -ection A5+ Applies $urin, Pen$enc( of E!tra Gu$icial -ettleent 9ersonal Exe#ption A9&(B((() -ndividual it will depend whether heNshe is classi;ed as sin$leB head o. the .a#ily or #arried Estate re$ardless %pecial deductions:"ncome distributed to t=e =eirs i. you distribute nothin$ you cannot clai# this special deductions i. there is a distributionB the heir shall be liable to pay whether individual capacity i. there is no distributionB heirs are not liable to pay anythin$ Special deduction not apply i. individual tax is paid by the Estate itsel.. PaAment: #ade by executorB ad#inistratorB to creditor to preserve the estate -ec. A9 an$ -ec A5 does not apply i. estate is sub<ect to inco#e or corporate inco#e tax it applies i. the estate pays itsel. durin$ the pendency o. the <udicial settle#ent Basis+ -ec AE C Qdurin$ the period o. ad#inistration or settle#ent o. the estate.R Ta!pa(er is a Trust+ .7 Dhen liable to pay inco#e taxO A+ -. the trust is revocable Ai. revocableB Sec '* and '& also apply) Parties: *.?rantor Ncreator Ntrustor &.;duciary N trustee ).bene;ciary N :es 6ui trust .+ Dho is liable to pay tax! A+ -. trust revocable! obli$ation o. the trustee liability o. trust itsel. and not personal ,1 Taxation law review notes - Atty. Francis J. Sababan - LiabilitA of trustee: -. trust irrevocable obli$ation o. the $rantor personal liability o. the $rantor as an individual TWO WA2- OF REPORTING INCO/E+ P%R-%ANT TO RR5 F 39D6D4 *. report only once Abuildin$ paid once) &. a.ter the span o. &1 years Apay#ent o. buildin$ divided per year) E-TATE TAX+ *.Sec '( &.eal Estate Tax ). Estate Tax trans.er tax i#pose on the @et Estate .or the trans.er o. property to the heirs or bene;ciary whether realB personalB tan$ible or intan$ible ; 1IN#- OF TRAN-FER TAX+ *.Estate Tax &. DonorKs Tax ). Sec *)1 o. :?E Trans.er o. eal 9roperty .+ De donKt have inheritance tax and donees taxB whyO A+ */+) >arcos issued 9.D. '/ Explain! Sec ,8B rate is #ax o. &(H o. net be.ore the rate is '(H plus additional a#ount. resulted to #any $i#i=s throu$h tax avoidance sche#eB li=e creatin$ a .a#ily corporation Aonly taxable is the stoc=holders which is exe#pt) %on$ress enacted A +88/ decreased '(H to )1H and then A ,8&8 0 )1H to &(H .+ @ow is it sa.e to create a .a#ily corporationO A+ @o #ore. .+ @ow! -ba na an$ sche#e 0 which is better sale or donationO A+ *.Sale o. 9 considered capital assets 'H to *.1H doc. Tax +.1 H better &.Sale o. 9 considered ordinary asset 1H to 1&H as per use #ay be ).Donation i. $iven to all co#pulsory heir relative lower than &(H which is *1H stran$er! )(H so $o with &(H .+ Dho are the taxpayersO A+ Sec *(8 Estate and Donors *.Estate a. % b.@% c. A d. @A &. DonorKs Tax a. % b.@% c. A d. @A e. D% .. F% A corporation cannot die o. a natural death. .+ Dhat is the reason .or classi.yin$ the taxpayersO A+ *. @A and Estate &. @A and F% Donors Z property outside 9hil exe#pt ). allB other than these ) 0 taxable w in and wNout .+ -s Section *(8 relevant to all taxpayersO A+ @oB #aterial only to @A and F% %ection )(E speaDs of intangible personal propertA located in t=e P=ilippines. *.Franchise which #ust be exercised in the 9hilippinesI ,' Taxation law review notes - Atty. Francis J. Sababan - &.S.".C. issued by a Do#estic corporationI ).S.".C. issued by .orei$n corporation at least ,1H o. the business o. which is located in the 9hilippines. 0 do not con.use with 8& A& nd par) 8.S.".C. o. .orei$n corporation which acquired a business situs in 9hil 1.S.. in businessB partnership or industry established in the 9hils .+ @AB ?er#an donates S"S o. F? to Filipina $.B is it sub<ect to donorKs taxO A+ it depends Ayou #ust quali.y) *.Sub<ect to donorKs tax i.! *.S.".C. F? at least ,1H o. business located in the 9hil &.S.".C. F? which acquired a business situs in 9hil &.Exe#pt *.personal property outside o. 9hilI or &.intan$ible personal property net taxable i. .ollowin$ requisites concern! A decedent at t=e time of =is deat= or t=e donor at t=e time of donation Cas a citiBen and resident. *.o. a .orei$n country which at the ti#e o. his death or donation did not i#pose a trans.er tax o. any #annerB in respect o. intan$ible personal property o. citi7ens o. 9hilippines not residin$ in that .orei$n countryI or &. the laws o. the .orei$n country allows a si#ilar exe#ption .ro# trans.er or death taxes o. every character or description in respect o. intan$ible personal property owned by citi7ens o. the 9hilippines not residin$ in that .orei$n country. .+ Dhat i. citi7en o. one country and resident o. another country will the exe#ption applyO A+ @oB law requires that he #ust be a citi7en and resident o. the .orei$n country. Campos Rueda Case0 F! @A died 0 #arried to >oroccan #anB so she was a >oroccan resident. Donated SS in D% 0 ad#inistrator clai#s exe#ptionB $round! -n >oroccoB intan$ible personal property o. Filipinos not residin$ therein is exe#pt .ro# trans.er tax. C- contends! >orocco is not a country but a colony o. Spain. 5! clai# $ranted 0 even i. it is not a .ull pled$ed stateB or itKs a #ere colonyB what #atter is that the .orei$n law provides .or an exception. -ECTION ?6 RATE- OF E-TATE TAX .+ Dhat is the .or#ula .or Estate taxO A+ ?ross Estate ASec ,1) - Deductions ASec ,') -------------- @et Estate x ate ------------- Taxable net inco#e - Tax credit --------------------- Tax due Gross estate 3$eBne4 F -ec 9E6 $ross estate include real and personal propertyB whether tan$ible or intan$ibleB or #ixedB wherever situated 0RA: 8ecedent P 8onor M propertA situated outside of P=ilippines not included on t=e gross estate ,+ Taxation law review notes - Atty. Francis J. Sababan - -ection ?@ Gross Estate 3inclusion4 A.8ecedentJs interest includes property A*) owned at the ti#e o. death and A&) property not owned at the ti#e o. death %lassic exa#ple! Esu.ruct .+ i. ter#inated by the death o. usu.ructuaryB is it sub<ect to estate taxO A+ @ot sub<ect to estate tax Reason: Exe#pt Trans#ission under Sec ,+ Aa) #er$er o. the usu.ruct in the owner o. the na=ed title .+ is there a con3ict between Sec ,, a and Sec ,+ aO 5ow do you reconcileO A+ @o con3ict *.Section ,+ a conte#plates a situation where the usu.ruct is ter#inated. &.Section ,,a conte#plates a usu.ruct .or a ;xed period. Ex contract o. lease .+ 5ow do you deter#ine the value o. usu.ructO A+ Sec. ,, a provides to deter#ine the value o. the ri$ht o. usu.ructB ta=e into account the probable li.e o. the bene;ciary. .+ Dhy de;nition o. $ross estate is lon$er than de;nition o. $ross $i.tO A+ trans.er occurrin$ a.ter death. estate tax absolute Transfer during t,e life time @or#ally DonorKs tax 4oCever t=ere are e>ceptions: *.trans.er in conte#plation o. death A,1C) &.revocable trans.er A,1 %) ).trans.er .or insuTcient consideration 7. !ransfer in contemplation of deat= Roces case0 F! durin$ li.eti#eB the .ollowin$ docu#ent were instituted or executed si#ultaneously *.will and &. donation The heirs insisted to pay DonorKs taxB 9osados the collector tried to collect inheritance tax. unique t=ing: Donees were also the heirs in the last will and testa#ent Donees wanted to pay donorKs tax because it is always lower than the estate tax except when the donee is a stran$er 5! this is a trans.er in conte#plation o. death Di!on Case0 F! Deed o. Donation was executed Di7on died several days therea.ter son clai#s DonorKs tax 5!Trans.ers in conte#plation o. death .+ Dhat are trans.ers dee#ed in conte#plation o. deathO A! *.9roperty was trans.erred durin$ the li.eti#e but the decedent! a. retains possession or receive inco#e or .ruits o. propertyI or b.retains the ri$ht to desi$nate persons who will possess the property or the ri$ht to receive .ruits or inco#e c.evocable Trans.ers )2re/ocable transfers are included in the $ross estate Reason: the decedent retains tre#endous power and control over the property &.1rre/ocable transfers are not included in the $ross estate! exe#pt Reason: the decedent losses control over the property ,, Taxation law review notes - Atty. Francis J. Sababan - 0otice 0ot Required because t=e person =as t=e control over t=e propertA 8. PropertA passing under general poCer of appointment sa#e with ;del co##issary substitution ) parties! *.testator N decedent &.* st heir ).& nd heir !A@E 0O!E: To deter#ine whether included in Estate or notB =now who has the choice to desi$nate the & nd heir! i. decedent instructs the * st heir that he can trans.er the property to who#ever he wants included in $ross estate * st heir choice 0 included in $ross estate E. Proceed of Life "nsurance *.Cene;ciary is the estate included in $ross estate whether desi$nation is revocable or not &.Cene;ciary is ) rd person revocable included irrevocable not included $. Prior "nterest i#portant only due to the codi;cation o. the tax code CB%BEB included whether be.ore or a.ter the e4ectivity o. the code /. !ransfer for insuQcient consideration .+ Si#ilar provision in Sec *(( ADonorKs tax) can you apply the two A&) provisions si#ultaneouslyO A+ @oB alternative applicationB one or the other but not both. !=e application Cill depend on t=e time of transfer or motive: *.-. trans.erred because o. i#pendin$ death estate tax &.-. trans.er because o. $enerosity DonorKs tax .+ 9arcel o. land was sold .or less than adequate consideration Aadequate) to relative .or 9'((B((( when F>2 is * #illion pesos. -s this sub<ect to trans.er taxO -s it sub<ect to DonorKs taxO A+ @oB Sec *(( provides the property should be other than real property re.erred to in Section &8 AD) @ot sub<ect to DonorKs taxB the applicable tax is 'H F-T .+ Dill your answer be the sa#e i. S"S are soldO A+ @oB answer not the sa#eB S"S not property conte#plated in Sec &8 D A*) in this caseB the a#ount by which the F>2 o. prop exceeds the value o. the consideration shall be dee#ed a $i.t and included in the co#putation o. the $ross $i.t! sub<ect to DonorKs Tax .+ Dhat is the sub<ect #atter in ,1 ?O A+ para$raphs ,1 CB ,1 %B ,1 D %ale in good fait= as a defense: *.under Section *(( is not a de.ense &. under Section ,1 ?B it is a de.ense 4. Capital of %urviving %pouse correlate with Sec ,' % both spea= o. le$ally #arried individual ,/ Taxation law review notes - Atty. Francis J. Sababan - pertains to the separate property o. spouse who survived capital used in its $eneric sense survivin$ spouse #ay be #an or wo#an -ection ?A 3c4 to deter#ine the li#itations o. *. Funeral Expense &. Dhether written notice is required ). to deter#ine whether $ross value is at least 9&((B((( ASec /() 8.to deter#ine i. $ross value is at least 8& > .+ Dho are the taxpayers under ,' AO A+ *.% &.@% ).A .+ Dho is the taxpayer under ,' CO A+ @A .+ Dhy do we need to =now thisO A+ @A cannot avail o. the .ollowin$ deductions! *..a#ily inco#e &.standard deduction ).hospitali7ation 8.retire#ent pay under A 8/*+ A. 8eductions AlloCed to t=e Estate of a CitiBen or Resident *.E:-T AexpensesB lossesB indebtedness and taxes) a) *.Actual Funeral ExpensesI or &.a#ount equal to 1H o. $ross estate apply whichever is lower Limitation: a)a#ount equal to 1H o. $ross estate should not exceed 9&((B((( Abasis is the $ross value) b) Judicial Expenses no li#itation PaGonar /s Commissioner -ssue! Dhether or not extra-<udicial expenses #ay be allowed as a deduction 5! This law has been copied .ro# E.S. -n ESB expenses to be clai#ed as a deduction both <udicial and extra <udicial expenses. C. Claims against t=e estate Estate is the debtor Requirements: *.at the ti#e the indebtedness was incurred the debt instru#ent was duly notari7edI &.loan contracted within ) days be.ore deathI ).the ad#inistrator or executor shall sub#it a state#ent showin$ the disposition o. the proceeds o. the loan 8. Claims of t=e deceased against insolvent person Estate is the creditor Requirement: the only require#ent is that the Aonly) a#ount o. loan is included in the $ross estate notari7ation and certi;cation not required E. #npaid .ortgage, ta>es and losses .+ -n unpaid #ort$a$e who is the #ort$a$orO decedent #ort$a$or *. Enpaid #ort$a$e *.value o. the decedentKs interest in the property is undi#inished by such #ort$a$eI &.included in the value o. the $ross estateI "llustration: * #illion F>2 but #ort$a$e is only '((B((( you include * #illion /( Taxation law review notes - Atty. Francis J. Sababan - &.Estate tax ).:osses Requirements: *.losses incurred durin$ the settle#ent o. the estateI &.arisin$ .ro# ;reB stor#sB shipwrec= or other casualtiesB or .ro# robberyB the.t or unbe77le#ent ).losses not co#pensated by insurance 8.losses not been clai#ed as a deduction .or inco#e as purpose 1. losses incurred not better than the last day .or the pay#ent o. the estate tax PropertA PreviouslA !a>ed 2anishin$ Deduction eturn Requirement: *.person acquires the property by virtue o. donation or inheritance .+ Dhat i. acquired throu$h purchaseO A+ @ot applyB the property #ust be acquired by inheritance or donation &.Estate tax or DonorKs tax already paid by the Estate o. the Decedent A* st par) ).Any person who died within ;ve A1) years prior to the death o. the decedent .+ Dhat are the a#ountsO A+ 9rior Decedent died within! *.1years 0 &(H &.8years 0 8(H ).) years -'(H 8. &years 0 ,(H 1. * year -*((H .+ Suppose the person died within * year and it was inherited by sonB suppose the son also died within * year or #ay be & yearsB should we apply the vanishin$ deductionsO A+ @o #ore Alast par Sec ,' A&) /. !ransfer for Public #se a#ount o. all bequestB le$aciesB devises or trans.ers Recipient:$overn#ent or any political subdivision exclusively .or public purpose Ta=e @ote! )(H o. which not used .or ad#inistrative purpose is not a require#ent $A."L 4O.E a#ount equivalent to the current F>2 o. the Fa#ily 5o#e o. decedent. Limit: F>2 should not exceeds * #illion otherwise the excess will be sub<ect to estate tax. Requirements: &RR *6*(('- *.9erson is le$ally #arried ?! i. sin$le not allowed to clai# Except! i. head o. the .a#ily &.Fa#ily 5o#e actual residence o. the decedent ).%erti;cation o. Caran$ay %aptain o. locality %!A08AR8 8E8#C!"O0% auto#atic! &-&(() no require#ent provided the decedent is the one in ,' AA) A%B @%B A) .E8"CAL E<PE0%E% Requirements: *.a#ount not exceedin$ 91((B((( &.#edical expenses incurred by the decedent within one A*) year prior to his death. #ust be duly substantiated with receipt RE!"RE.E0! PA #08ER RA E2)+ &RE!"RE.E0! PA F"!4 PR"9A!E PLA0- Requirements: *.plan duly approved by the C- &.person at least 1( years old ). *( years in service /* Taxation law review notes - Atty. Francis J. Sababan - 8. avail only once !A@E 0O!E: This is a deduction in the nature o. exe#ptionB all other retire#ent plan is excluded 7. 8eductions AlloCed to 0on resident Estates *.E:-T &.9roperty 9reviously taxed ).Trans.ers .or public use C. %=ares in t=e Con?ugal PropertA 8. .iscellaneous Provisions For @A! @o deduction allowed unless include in the return the value at the ti#e o. his death that part o. his $ross estate not situated in the 9hilippines. For proper deduction #ust include E. below E. !a> Credit for Estate !a> Paid to $oreign CountrA -ECTION ?= EXE/PTION OF CERTAIN AC.%I-ITION AN# TRAN-/I--ION- *.>er$er o. usu.ruct in the owner o. the na=ed titleI &.trans#ission or delivery o. the inheritance or le$acy by the ;duciary heir or le$atee to the ;deico##issaryI ).trans#ission .ro# the ;rst heirB le$atee or le$acy donee in .avor o. another bene;ciaryB in accordance with the desire o. the predecessorI 8.All bequestB devisesB le$acies or trans.ers to A*) social wel.are A&) cultural and A)) charitable institution Requirements: *.no part o. the net inco#e insures to the bene;t o. any individualI &.not #ore than )(H o. donation ACD:) shall be used by such institutions .or ad#inistration purposes. -ECTION ?? #ETER/INATION OF T:E VAL%E OF T:E E-TATE A.#sufruct *.Deter#ine value o. ri$ht o. usu.ruct! consider the probable li.e o. the bene;ciary based on the latest Casic Standard >ortality Table 7.Properties .air #ar=et value o. the Estate at the ti#e o. death *.F>2 deter#ined by %o##issioner &.F>2 schedule o. values ;xed by the 9rovincial or %ity Assessors -ECTION ?D NOTICE OF #EAT: TO BE FILE# .+ Dhat is the CasisO A+ the $ross estate o. the person .+Dhen is the notice required to be ;ledO A+ *.all cases o. trans.er sub<ect to tax &.althou$h exe#ptB when $ross values o. the estate exceeds 9&((B((( .+ Dhen ;ledO A+ within two A&) #onths *. a.ter decedentKs death &.sa#e period a.ter quali.yin$ as executor or ad#inistrator $ive a written notice .+ -. the @et Estate is at least 9*'B((( will you in .or# the co##issionerO A+ yesB the $ross is at least )-8 #illion /& Taxation law review notes - Atty. Francis J. Sababan - -ECTION DE E-TATE- TAX RET%RN- .+ Dhen required to ;le returnO A+ *.all cases o. trans.er sub<ect to tax &.even thou$h exe#ptB $ross value o. the estate exceeds 9&((B((( ).re$ardless o. $ross value o. the estateB when the sa#e consists o. re$istered or re$istrable prop such as! *.real property &.#otor vehicle ). shares o. stoc=s 8. other si#ilar property where clearance .ro# C- necessary .or trans.er o. ownership in the na#e o. the trans.eree return #ust set .orth the .ollowin$! *.value o. the $ross estate at ti#e o. death &.deductions allowed ).in.or#ation necessary to establish correct taxes .+ Dhat i. Estate is exe#ptB is it required to ;le a returnO A+ /eneral Rule: @o E>ception: a. $ross value exceeds 9&((B((( b.estate contains re$istrable property .+ i. the estate or $ross estate exceeds & #illionB what is the require#entO A+ return #ust be duly certi;ed by a %9A 7. !ime of $iling ;led within ' #onths .ro# decedentKs death within )( days .or ;lin$ the return within )( days a.ter pro#ul$ation o. such order *.certi;ed copy o. the schedule o. partition and &.order o. court approvin$ the sa#e C. E>tension of !ime !ime: )( days /rounds: #eritorious cases F=o grants: %o##issioner 8. Place of fling: return shall be ;led with! *.authori7ed a$ent ban= &.revenue district oTcer ). collection oTcer 8. duly authori7ed treasurer city or #unicipality in which decedent was do#iciled at the ti#e o. his death .+ Dhat i. non residentO A+ @ with no le$al residence hereB with the oTce o. the co##issioner. .+ :et us say there are ) co#pulsory heirsB na#ely AB CB and %. A renounces his inheritance co#in$ .ro# the parentsB but A renounces his inheritance in .avor o. his & siblin$sB brother and sister C and %. -s this sub<ect to donorKs taxO A+ @". -t is exe#pt. .+ Cut i. in the $iven exa#pleB A said Q- a# renouncin$ #y inheritanceB but - a# $ivin$ it to #y sister CRB is this sub<ect to donorKs taxO A+ LES. enunciation is to the disadvanta$e o. the brother. TAMAT-"@ E@DE T5E :"%A: ?"2E@>E@T %"DE! *. :ocal Tax &. eal 9roperty Tax LOCAL TAXATION &R),1, ),+, t=en go to R)3), )*, doCn- /) Taxation law review notes - Atty. Francis J. Sababan - .+ >ayor Cinay o. >a=ati ordered the collection o. elevator tax A.or elevator in the city hall). -s the order o. >ayor Cinay le$ally tenableO A+ @". There should always be a ta> ordinance a.ter conductin$ a public =earing. AU*,') ta> ordinance .+ %an C- collect the tax even in the absence o. a revenue re$ulationO A+ LES. .+ %an a provinceB cityB #unicipality or baran$ay collect the tax i. there is no tax ordinanceO A+ @". .+ Dhy is it that there should be a tax ordinance as required by U*,'O A+ The rationale is not #entioned in U*,'B but i. you read the other provisions o. the :?%B you will co#e to set o. conclusions o. the reason why there #ust be a tax ordinance. W -n #ost o. these provisionsB it always say! one6=alf if t=e toCn or municipalitA s=all collect a ta> of not e>ceeding )S of t=e gross receipt. TAGE @"TE! There is no exact a#ountI henceB it is the tax ordinance which will ;x the exact a#ount. public =earing -n %on$ressB the require#ent is not absolute Aby discretion only). Ender local taxation Alast phrase o. U*,')B the require#ent is ACS":ETE. REE% vs. %ECRE!AR &'*( %CRA E,1- F! -n the #unicipality o. San Juan A<ust beside >andaluyon$) there was a tax ordinance passed. eyesB a residentB clai#s that there was no public hearin$ conductedB he #aintains that under U*,' last phraseB there should always be a public hearin$. 5! The S% said! QyesB that require#ent is an absolute oneB but since the petitioner .ailed to produce evidence to support his alle$ationB i. there is no proo. presented other than his own state#entB we hereby rule that the ordinance was passed in accordance to the procedure #andated by lawR. Dhile it is true that a public hearin$ is an absolute require#entB he who alle$esB #ust prove the sa#e. .+ -. you donKt a$ree with the validity or the constitutionality o. the tax ordinanceB what will be your re#edyO A+ Dithin )( days .ro# the e4ectivity o. the ordinanceB the taxpayer should ;le an appeal with the oTce o. the Secretary o. the D"J AU*,+) REE% vs. %ECRE!AR &'*( %CRA E,1- F! eyes asserted the validity and constitutionality o. the tax ordinance only a.ter the lapse o. thirty A)() days Aperhaps his lawyer was thin=in$ that an ordinary statute #ay be contested anyti#e with the T%B %A or S%). 5! Dith re$ard to a tax ordinanceB w have a speci;c ruleB .ailure to assail the validity with the speci;c period o. ti#eB is .atal to the taxpayer. Since it was ;led beyond the )(day periodB we do not disturb the validity o. the ordinance. /8 Taxation law review notes - Atty. Francis J. Sababan - .+ Dithin what period should the Sec. o. Justice decideO A+ Dithin '( days .ro# the ti#e the appeal was ;led. Failure to decide within this ti#eB the taxpayer has the re#edy to ;le an action with the re$ular courts. W -. the decision was #ade within the '( day periodB and receives the decisionB his re#edy is to ;le an appeal within )(days .or# the receipt o. the decision to court o. co#petent <urisdiction b T%. W Ce$innin$ April *', *((EB .ro# the rulin$ o. the T%B pursuant to A /&,& Athe law upli.tin$ the standards o. the %TA)B the rulin$ o. T% on local tax casesB is appealable to the %TA en banc. TD" A99EA:S DE%-DED CL T5E %TA E@ CA@%! *. decisions o. T% involvin$ local tax cases &. decision o. the %entral Coard o. Assess#ent Appeals. W Fro# %TA en bancB the appeal #ust be ;le with the S% within *1days. W ?o to U*1*! The city could i#pose the tax already i#posed by the province o. by the #unicipality. .+ Dhat are the nu#erous taxes i#posable by the province which a city now allowed to i#poseO A+ Those enu#erated in U*)1 to U*8* o. the :?% easons why a #unicipality wanted to be converted into a city! *. U*1* &. U&)) Areal estate tax) W -n additionB the law says that the city could increase the rate o. the tax by not #ore than 1(H o. the #axi#u# EM%E9T those enu#erated in U*)/! a) pro.essional tax b) a#use#ent tax A. General Principles &R)*,6)'(- a reiteration o. the constitutional tax provisions a notice that the constitutional li#itations on taxation do not only apply to the national $overn#ent but also to local $overn#ent units. B. #eBnitions AU*)&) 3ocal Taxing &ut,ority &R)'*- .or a provinceB it is the provincial board or the provincial council Asan$$unian$ panlalawi$an) .or a cityB we have the city council Asan$$unian$ panlusod) .or the #unicipalityB we have the #unicipal council Asan$$unian$ pan$bayan) .or the baran$ay or barrioB we have the baran$ay council. C. Coon liitations on t&e ta!in, po"er of t&e LG%Js AU*))) W Ender the old law this was U1 o. the :ocal Tax %ode. .+ Dhy co##onO A+ Cecause the li#itations or prohibitions apply to all :?EsB the provincesB citiesB #unicipalities and baran$ays. Two %o##on %ri#es &under R)''- *. absolute prohibition &. relative prohibition -t shall be unlaw.ul .or the :?Es to collect! /1 Taxation law review notes - Atty. Francis J. Sababan - 12 "ncome !a> E<CEP! C=en levied on banDs and ot=er fnancing institutions &R)''&A-- W the ter# Qother ;nancin$ institution shall include #oney chan$erB lendin$ investorB pawnshop &R)')&E-- W rate o. tax! does not #ention rate o. taxB so lon$ as it is Q.airB <ust and reasonableR W -t cannot be Qprohibited taxationB because the ele#ent o. Qi#posed by the sa#e taxin$ powerR is not present. "ne is i#posed by the national $overn#ent and the other is by the :?E. 112 8ocumentarA %tamp !a> &R)''&7-- W absolute prohibition 1112 Estate ta>, in=eritance, donations inter vivos, donations mortis causa E<CEP! in R)'3 &R)''&C-- W trans.er tax on the trans.er o. realty to be i#posed by provinces and cities AU*)1) @"TE! this is not a real estate taxB this is a local tax. 1K2 Custom duties, c=arges or fees for t=e registration of vessels or s=ips, C=arfages fees and C=arage dues E<CEP! if t=e C=arf =ad been establis=ed, maintained and operated bA t=e localitA &R)''&8-- W whar.a$e due 0 is a custo# .ee i#posed on the wei$ht o. the car$oes. W whar. 0 a pier W special levy on public wor=s AU&8() W allows provinces cities and #unicipalities to i#pose a special real estate tax =nown as Qspecial levy or public wor=sR W let us say the #unicipality established a pier .or a #ini#al value o. 9*(>I out o. 9*(>B under U&8(B '(H o. this #ay be recoveredI the other 8(H #ay be recovered by war.a$e due. /2 !a>, fee or c=arge for goods or commodities coming out or passing t=roug= t=e territorial ?urisdiction even if in t=e guise of a toll or a fee &R)''&E-- W an absolute prohibition W co##odities #ar=eted in a public #ar=etB letKs say in the city o. 9asi$B where the co##odities ca#e .ro# :a$una then to TanayB %aintaB TaytayI <ust i#a$ine i. each o. the towns will i#pse *peso .or every head o. a chic=en or 1(cents .or every bundle o. ve$etable. PAL.A 8E9J! CORP v. .ALA0/A% :A.7OA0/A 8EL %#R &))' %CRA 3+*- F! >unicipal council passed a tax ordinance entitled Qpolice surveillance .eeR which provide that A:: #otor vehicle passin$ throu$h a particular street in the town proper o. >alan$as which will lead to the pier or whar. will pay a certain su# o. #oney whether it is ca#oteB copraB palayBor rice. "ne o. the owners o. the #otor vehicle is 9al#a DevKt %orp. carryin$ copraB banana and coconut to be loaded in a ship doc=ed at pier o. >alan$as. The lawyer o. petitioner assailed the validity o. the ordinance statin$ that it is a clear violation o. U*))AE). 5! -t is not the title o. the ordinance which is controllin$ but it is the essence o. the substance o. the tax ordinance. The tax ordinance clearly violated U*))AE)B there.oreB the S% had no option but to declare the tax ordinance null and void .or bein$ in violation o. the law. K12!a>es, fees or c=arges on agricultural and aquatic products /' Taxation law review notes - Atty. Francis J. Sababan - C=en sold bA marginal farmers or fs=ermen &R)''&$-- .+ Don Antonio FlorendoB a person co#in$ .ro# 9a#pan$a who settled in Davao %ityB e#ployed thousands o. wor=ers in the di4erent banana plantation. %an the :?E i#pose tax on the a$ricultural product which is a bananaO A+ LES. The :?E can i#pose because Don Antonio is not a #ar$inal .ar#er. -t is only prohibited i. it is sold by a #ar$inal .ar#er. W >ar$inal Far#er 0 a .ar#er or a ;sher#an .or subsistence onlyB whose i##ediate #e#bers are the i##ediate #e#bers o. the .a#ily AU*)*A9)) K112 !a>, fee or c=arge on pioneer and non6pioneer enterprise dulA registered Cit= t=e board of investments for a period of 1Ars and EArs respectivelA &)''&/-- W relative prohibition because a.ter the periodB the :?E concerned #ay now i#pose the tax. K1112 E>cise ta> on articles and ta>, fees and c=arges on petroleum products &R)''&/-- W relative prohibition since under U*8)A5)B it says there that taxes which are prohibited such as excise taxB percenta$e tax and value added tax nonethelessB the :?E #ay i#pose a tax not exceedin$ &H o. the $ross receipt A.or cities )H). W >y .or#er student an assistant in the city le$al attorney in a city in >etro >anilaB received a su##on .ro# the T% Aon co#plaint o. a super#ar=et in >etro >anila) questionin$ the validity o. the tax ordinance under U*8)A5) since the rate i#posed was )H - saidB Qinen$B una ;le =ayo n$ #otion to dis#iss. @a= n$ putaB absent =a na na#an ata ehB you invo=e U*1* statin$ that a city can i#pose a tax hi$her than the rate provided .or by law not #ore than 1(H o. the #axi#u# A1(H o. the #axi#u# o. &H is *B there.oreB &Y* is )H)R 7#LACA0 v. CA &*22 %CRA EE*- c;rst case decide by the S% which interpreted both the :?% and the @-%. F! The then $overnorB "bet 9an$aniban to$ether with his provincial council passed an ordinance i#posin$ tax on quarryin$ under the provision o. U*), o. the :?%. The proble# is that the ordinance applies to A:: entities quarryin$ in the province. "ne o. the taxpayersB epublic %e#ent obli$ed to pay the taxB ar$ued that under U*), o. the :?%B the tax on quarryin$ on which the province #ay be allowed shall only be with re$ard to quarryin$ private landB and not only that but under U*))A5)B there is a prohibition to i#pose excise tax and tax on quarryin$ under the -% is an excise tax. 5! The tax on quarryin$ allowed to provincial $overn#ents shall only be with re$ard to lands which are public landsB and since this is a private tax on quarryin$ re.ers to a lot without any distinction. 5enceB i. the :?% #ade a quali;cation as to the =ind o. land Awhere it says it should be public land)B by i#plicationB it should re.er to private land under U*1* Aalthou$h the law did not distin$uish)I and since it is a tax by the national $overn#entB it should be collected by the C- Anot the :?E)B and also the S% a$reed that it is an excise tax where :?EKs are prohibited .ro# /+ Taxation law review notes - Atty. Francis J. Sababan - collectin$I thusB the S% declared the tax ordinance null and void .or bein$ contrary to law. W SirB why is it a proble# when the law is clear that under U*),B it shall only apply to public landO 9erhaps the provincial council thou$ht that the sub<ect #atter o. the tax ordinance #ay be a sub<ect #atter provided in any boo= includin$ the -%B or worseB that it #ay i#pose a tax on a sub<ect #atter not #entioned in any boo=. >oral lesson! althou$h a tax ordinance #ay be passed even i. the sub<ect #atter is not provided .or in any lawB it has to co#ply with the li#itations. PE!RO0 v. PE0"LLA &)2, %CRA ,1- c The .acts here arose under the old law under U1 Anow U*))) o. the local tax code A9D &)*) F! 9etron has a .actoryNplant in 9enilla where the raw #aterials petroleu# products are bein$ converted into re;ned petroleu# products. The #unicipal council o. 9enilla i#posed a tax by way o. a tax ordinance sayin$ that they are invo=in$ the old U*/ Anow U*8)AA)) statin$ that #unicipalities are authori7ed to i#pose tax o. the #anu.acture o. any co##odityB henceB since it is #anu.acture o. a petroleu# productB the :?E #ust e authori7ed. 5oweverB 9etron ob<ected since under U1 Anow U*))A5))B the prohibition includes the prohibition to i#pose excise tax and not only thatB under this par.B the tax on petroleu# products is an excise tax. Ender this par.B the law is clear it does not only prohibit the i#position o. taxB .ee or char$e over petroleu# products. 5! The controllin$ provision here the old U*/ Anow U*8)AA)) that :?Es are authori7ed to i#pose the business tax .or the #anu.acturin$ over any =ind o. co##odity by and petroleu# product is Qany =ind o. co##odityR. .+ Dhat do you thin=O A+ - donKt a$ree with this rulin$ because between U*))A5) and U*8)AA)B it is the .or#er which is #ore speci;c. 152 9alue added ta> and percentage &R)''&"- E<CEP! R)E'&4- W elative prohibition. 52 !a>, fee or c=arge on common carriers C=et=er bA land, Cater or air &R)''&;-- $"R%! 4OL8"0/ CO. v.7A!A0/A% C"! &'(( %CRA 11)- c & nd S% rulin$ discussin$ both the -% and :?%. F! This revealed to the public the existence o. & very bi$ oil pipelines co#in$ .or# Catan$as %ity with a distance o. #ore than *((=#B one $oin$ to 9andacan "il Depot and the other one is $oin$ to Cr$y. CicutanB Ta$ui$. The Catan$as %ity council dee#ed it necessary to i#pose a tax on the $ross receipt o. the * st holdin$ co#pany .or the operation o. the oil pipelineB but the operator ar$ued that the oil pipeline is not a co##on carrier. 5! The S% reasoned out li=e in the case o. Pa?unar v. Comm &'*,%CRA111-B sayin$ that Qwe have copied the code o. carrier law .or# the ES where the de;nition o. a co##on carrier is one habitually carryin$ not only individuals or passen$ers but also $oods or co##oditiesB and since the oil pipelines is habitually carryin$ petroleu# products which is a co##odityB we rule this as a co##on carrier which is under U*))AJ)B :?E is prohibited .ro# i#posin$ tax on /, Taxation law review notes - Atty. Francis J. Sababan - co##on carriersB and not only that but under U*+( o. the :?%B the law is very explicitB that A:: :?Es are prohibited to i#pose percenta$e tax on co##on carriersR. Dith thatB the tax ordinance passed was declared null and void .or bein$ contrary to law. 512Premiums on re6insurance &R)''&@-- W absolute prohibition. 5112 !a>, fee or c=arge on registration of motor ve=icles and for t=e issuance of license and permit for driving t=ereof E<CEP! tricAcles. &R)''&L-- 7A!#A0 C"! v. L!O &'** %CRA ,(3- -! Dhich .unction was dele$ated to the :?EO The :T" re$isterin$ #otor vehicles QorR the :TFC $rantin$ .ranchise and re$ulation o. co##on carriersO 5! Ender U*))A:)B the .unction o. the :T" is prohibitedB an there.ore what #ay be dele$ated to the :?E is the .unction o. :TFC. 51112 !a>, fee or c=arge on e>portation of products and is actuallA e>ported E<CEP! under R)E'&C- C=ere t=e L/# is aut=oriBed to impose business ta> on e>portation &R)''&.-- 51K2 !a>, fee or c=arge on cooperatives dulA registered under t=e cooperative cod &RA 12',- and 7usiness @alaDalan &RA 1,)(- &R)''&0-- W A cooperative is exe#pt .ro# local taxB provided it is duly re$istered with the cooperative code and the cooperative develop#ent authority QorR Cusiness Gala=alan Anot =al=alan) 5K2 !a>, fee or c=arge over t=e national government, political subdivisions and agencies and instrumentalities of t=e government &R)''&O-- W elative prohibition since it ad#its o. an exception under U*18 o. the :?% where it says that a :?E #ay be authori7ed to i#pose a .ee or char$e .or the operation o. a public utility provided it is ownedB #aintained and operated by such :?E. 0A"A v. PARA0A5#E &;#L *((1- 5! S% ruled in .avor o. the airport. 9aranaque bein$ a :?E canKt i#pose tax on a $overn#ent instru#entality. Airport owned by the $overn#ent is not an a$encyB it bein$ an instru#entality. .+ >ay the $overn#ent tax itsel. it the taxin$ power is the local $overn#entO A+ @". The local $overn#ent cannot i#pose tax on the national $overn#entB and with #ore reason that it cannot i#pose a tax with equal :?E. #. Ta!es t&at can eit&er <e ipose$ <( Pro'inces or Cities 12 ta> on transfer of realtA &R)'3- a @ote that this is not a real estate taxB this is a local tax .or the si#ple reason that it is not provide .or under the topic o. real estate tax AU*/,-&,() a :aw says Qit should not exceed ] o. *H o. the considerationR A@"TE! do not use 7onal value since this is used only under the -%B not the :?%. .+ Since all the provinces and cities #ust .ollow the li#itation o. the rate Anot exceedin$ ] o. *H)B is it violative o. the equal protection clauseO A+ @"B because the san$$uninan had to deter#ine the actual rate considerin$ the status o. the province. // Taxation law review notes - Atty. Francis J. Sababan - .+ Dhy is that >a=ati ;x the rate o. +1H or )N8 o. *HO A+ Cecause cities are authori7ed to increase the rate o. 1(H o. the #axi#u#B that is 1(H o. ] is &1H A1(Y&1 is +1H). @"TE! Do not apply trans.er o. realty pursuant to A ''1+ A%A9) b this is the %o#prehensive A$rarian e.or# 9ro$ra# b this is exe#pt. 112 ta> on printing an publication &R)'1- a @or#allyB a province cannot i#pose this because the tax on business can only be i#posed by a city or #unicipality EM%E9T this oneB on printin$ and publication o. #a$a7ines and periodicals. 1112 franc=ise ta> &R)'+- a The old national .ranchise tax under the old tax code was already abolished. a De still have .ranchise tax other than this oneB =nown as national .ranchise tax b provided .or in the republic act $rantin$ .ranchise. Two =inds o. Franchise Tax! *. local .ranchise tax Aunder :?% U*)+) &. national .ranchise tax Aprovided .or in the statute or republic act authori7in$ the .ranchise) .+ >ay :?Es i#pose local .ranchise taxO A+ De have to consider here #any supre#e court decisions and also U*/) o. the :?%. Ender U*/)B it says there Qunless especially provided .or in this codeB exe#ptions $ranted to natural <uridical persons are hereby withdrawn Aabolished) EM%E9T! *. local water districts &. cooperatives re$istered under the cooperative code AA '/),) ). non-pro;t and non-stoc= educational institution. 7A%CO v. PA/COR &)2+ %CRA 3*- F! The city council passed a tax ordinance i#posin$ tax on 9A?%"B an a$ency o. the $overn#ent. 9A?%" ob<ected sayin$ that the local city is prohibited under the old local authority act to i#pose tax on an a$ency o. the $overn#ent. 5! The S% declared null and void the tax ordinance sayin$ >anila cannot do that. CE7# v. .AC!A0 &*1) %CRA 11+- F! %ebu $overn#ent was tryin$ to collect real estate tax .ro# the >actan airport Anote! real property tax is a territorial taxB #eanin$ it should only be collected within its territorial <urisdiction). :awyers o. >actan airport ar$ued that under U*)A")B %ebuB a :?EB cannot i#pose tax on an a$ency o. the $overn#entB and they also invo=ed the rulin$ in CAS%". 5! The lawyer o. >actan airport is devoid o. any #erit at allB it is *((H erroneous since the real estate tax is not a local taxB henceB why invo=e a S% rulin$ and codal provision which can only be applied to local tax. There.oreB >actan airport should pay eal 9roperty Tax. a Ce.ore the codi;cation in *//* Ato ta=e e4ect January *B *//&)B local taxation was e#bodied in a separate boo= =nown as :ocal Tax %ode A9D &)*) while real property *(( Taxation law review notes - Atty. Francis J. Sababan - tax was provided .or in a separate boo= =nown as eal 9roperty Tax %ode A9D 8'8) LR! v. C"! O$ .A0"LA &'E* %CRA 12*- F! The >anila city $overn#ent tried to collect real property tax but the #ana$e#ent o. the :T said Qno you cannot do that to us since it is exclusively .or public useR. 5! @"B you are not exclusively .or public use since every ti#e a person wants to use the :T he has to pay. .+ Dhy not use the de.ense that it is owned by the $overn#entO A+ Cecause in real estate taxB the de.ense that it is owned by the $overn#ent is not a de.ense. The :?% in U*//AC) and in U&*+B both provisions says that the basis .or the i#position o. real estate tax is the A%TEA: ESE o. anybody who is usin$ that A#aybe in the concept o. usu.ructuary or in the concept o. a lesseeB or in the concept o. an owner)I the basis is not ownership. a in U*)8B the taxes here #ust not only be i#posed by provincesB it #ay also be i#posed by cities in line with U*1* b those enu#erated in U*)1 to *8*. CA/AA0 8E ORO ELEC!R"C CO. v. ."%A."% OCC"8E0!AL &),) %CRA ',- c This was the prevailin$ rule .or #ore than *(years .ro# */,, 5! -n the .ranchise or the republic actB there are only two A&) =inds o. .ranchiseB one is a .ranchise which provide .or a condition that this tax Are.errin$ to the .ranchise tax) shall be in lieu o. all other taxesB and the other .ranchise is the one which do not provide .or such provisionI the province or the city can i#pose local .ranchise tax i. the .ranchise belon$ to the second exa#ple. REE% v. %A0 PA7LO C"! &'(3 %CRA '3'- c 5ere the S% uni.or#ly ruled 5! A provision on exe#ption under U*/) donKt only re.er to exe#ptions provided .or by di4erent statutesB but it includes those which clai# exe#ptions by virtue o. the case o. CagaAan de Oro Abecause S% decisions are also laws). PL8! v. 8A9AO &'1' %CRA +3(- F! The .ranchise holders o. S#art and ?lobe are clai#in$ exe#ptions .ro# the local .ranchise tax because they are sayin$ that they are holdin$ a .ranchise which says that it is a .ranchise enacted by the house o. %on$ress in *//1 which carries with it an exe#ption .or# local .ranchise tax. 5! Cy the very explicit provision o. U*/)B the re#oval o. exe#ptions $ranted by di4erent statutes and also by S% decisions applies only to statutes and decided by the S% on or be.ore Jan. *B *//&B because U*/) says Qupon e4ectivity o. this lawR. For exe#ptions covered by U*/) there.oreB S#art and ?lobe are authori7ed to clai# exe#ptions because the statue AA +(,&) was enacted on *//1. 1K2 ta> on sand, gravel and ot=er quarrA resources &R)',- a De are throu$h with that in the case o. 7ulacan K2 professional ta> &R)'2- *(* Taxation law review notes - Atty. Francis J. Sababan - a this #ust be correlated with the tax under U*8+. a @"TE that this is an exe#ption to the rule that a city #ay increase the rate o. the tax b under U*1* o. the :?%B the increase is not allowed. a both U*)/ and U*8+ are taxes i#posed on persons exercisin$ pro.essional callin$. -ection 9;D -ection 96= are to be i#posed by provinces and cities are to be i#posed by #unicipalities and cities are applicable to wor=ers who #ust pass a $overn#ent exa#ination Ae.$. en$ineersB physiciansB etc) are applicable to persons who are wor=in$ but are not required to ta=e $overn#ent exa#inations there is a #axi#u# A9)(() @"TE! it is not always )((B since the exact a#t #ust be ;xed by the ordinance. -t does not provide .or any a#ountB the only require#ent is that it #ust be reasonable K12amusement ta> &R)E(- a under the -%B there is also a#use#ent tax under U*&1. P7A v. 5#E:O0 C"! &)'+ %CRA '3,- F! The city $overn#ent enacted a tax ordinance tryin$ to collect a#use#ent tax includin$ a#use#ent tax on the 9CA Ain AranetaB %ubao)I but 9CA and QnoB we are already payin$ a#use#ent tax to the national $overn#ent throu$h the C- because o. U*&1 o. the -%R 5! 6% $overn#ent can no lon$er collect on the $round that it is already bein$ collected by the national $overn#ent and secondlyB in the enu#erations o. a#use#ent under U*8(B you will never see pro.essional bas=etball. >ost o. allB it is the intention o. the author that it is only the national $overn#ent. cna= n$ putan$ =atan$ahan yan.. the local tax code 9D &)* was enacted in */+8 when we donKt have any pro.essional bas=etball.. since pro.essional bas=etball was born >ay */+1. c ano ba dapt ta#a diyanO b both the national $overn#ent and the 6% $overn#ent can collect. There is no violation o. the prohibited double taxationB because the taxin$ powers are di4erentB and not only that U*8( spea=s o. a#use#ent tax on ad#ission .ee but under U*&1B it is abut $ross receipts. K112 deliverA van &R)E)- .+ Dhat i. not a delivery vanB but Qsa=oR lan$O A+ The applicable tax is under U*8)A?) ApeddlerKs taxB one i#posed by #unicipalities and cities. -. #ay dalan$ sasa=yanB yari siya n$ province sa tax. @"TE! U*)1-*8*B these are taxes that can be i#posed by 9"2-@%ES and %-T-ES. U*8)-*1( are taxes to be i#posed by >E@-%-9A:-T-ESB which can also be i#posed by %-T-ES. E. Ta!es t&at can eit&er <e ipose$ <( /unicipalities or Cities *(& Taxation law review notes - Atty. Francis J. Sababan - 12 7usiness !a> &R)E'&A64-- a. #anu.acturin$B repac=in$B processin$B includin$ the #anu.acturer o. per#itted liquor and also its dealer b. wholesalin$ c. exportation d. retailin$ e. contractorKs tax .. tax on ban=in$ institution and ;nancin$ institution $. peddlerKs tax h. the exe#ption under U*))Ai) .+ -. you have two branchesB how #any business taxes do you have to payO A+ Lou pay only one business tax AU*8') "LO6"LO 7O!!LER% v. "LO6"LO C"! &)1E %CRA 1(+- F! -lo-ilo Cottlers was already payin$ a business tax on #anu.acturin$ under U*8)AA) to the city $overn#ent by virtue o. a tax ordinance. :ater onB they are obli$ed to pay by virtue o. another tax ordinance i#posin$ business tax on wholesalin$. @aturallyB -lo-ilo Cottlers ar$uedB Qhow could it beB i. you #anu.actureB it necessary .ollows that you sell the co##odity soB with the pay#ent o. the business tax on #anu.acturin$B it carries with it the business o. wholesalin$R. 5! @"B you have to deter#ine the #ar=etin$ syste# o. the co#pany. -. wholesalin$ is also bein$ done in the place o. #anu.actureB the business tax on wholesalin$ should no lon$er be paid it should only be the business tax on #anu.acturin$. Cut i. the #ar=etin$ syste# o. the co#pany provides that wholesalin$ shall be done in a separate place A#aybe several =ilo#eters away)B the #anu.acturer #ust still pay the business tax on wholesale because now it could be ar$ued that they have the separate business o. wholesalin$. .+ "n the business o. retailin$B should the business tax o. retailin$ be i#posed by the city or by the #unicipality Q"R by the baran$ay in the city or the barrio in the #unicipalityO A+ U*8)AD) #ust be correlated with U*1&B the tax to be i#posed by the baran$ay. -t depends! a. city W i. the $ross receipt o. the retailer exceeds 91(T in a #ini#u# o. one yearB it is the ri$ht and privile$e o. a city to i#pose the business tax on retailin$. b. baran$ay W i. the $ross receipt o. the retailer did not exceed 91(TB it is the baran$ay council where the business o. retailin$ is located. c. #unicipality W i. the $ross receipt o. the retailer did not exceed 9)(T within a period o. one year. d. barrio W i. the $ross receipt o. the retailer did not exceed 9)(T within a period o. one year. @"TE! These distinctions do not apply in wholesalin$. These are only .or retailin$. a 9ara$raph 5!.or the i#position o. excise taxB percenta$e tax and value added taxB the #unicipality #ay i#pose a tax not exceedin$ &H o. the $ross receipt Awith re$ard to a cityB it #ay $o as .ar as )H) *() Taxation law review notes - Atty. Francis J. Sababan - 112 .unicipalities in .etro .anila C=o can increase t=eir rate &R)EE- a i$ht now there are only two #unicipalities! *. San Juan &. 9ateros 1112 Professional !a> &R)E+- a we are throu$h with that 1K2 $ees for sealing and licensing of Ceig=ts and measures &R)E,- K2 $is=erA rentals, fees and c=arges &R)E2- F. -itus of Ta! AU*1() T The tax re.erred to in here is the business tax on wholesalin$ and retailin$. .+ F> is #anu.acturin$ co##oditiesB one o. the# is Swi.t hotdo$sB this is bein$ sold not only in >andaluyon$B >etro >anilaB but also to the inter country .ro# Catanes to Tawi-tawi. Dhere should the business tax o. wholesalin$ or the business tax o. retailin$ be paidO Should it be in the principal oTce A>andaluyon$) QorR the place where the co##odities are soldO A+ -t will be paid in the place where it had been sold 9"2-DED there is a branch oTce or a sales outlet AU*1(AA)). a -. it so happens that the co#pany has a .actory di4erent .ro# the place where the principal oTce is located b )(H should be pain in the principal oTce and +(H in the #unicipality or city where the branch is located. P4"L .A!C4E% v. CE7# &,) %CRA 22- F! 9hil >atches were produced in @a$tahanB >anila. -n %ebu cityB there was a warehouse where the #atches were stored. >any o. the custo#ersB by way o. wholesale in the warehouse in %ebu %ityB they ca#e .ro# di4erent towns o. the 2isayan e$ion. >ay the business tax ordinance o. %ebu be i#posed on those transactions even i. the buyers did not co#e .ro# the territorial <urisdiction o. %ebuO 5! Since in this case the contract boo=ed and paidB #eanin$B it was ne$otiated per.ected and consu##ated in the warehouse where it was located in %ebu %ityB the %ebu %ity $overn#ent has the ri$ht to collect business tax. .+ Dhat i. there is an a$ree#ent that co##odities would be delivered and that the buyer would be waitin$ in so#e other townB is the answer still the sa#eO A+ LESB the answer is still the sa#e because delivery to the carrier is delivery to the buyer where delivery has been ter#ed within the territorial <urisdiction o. %ebu. %4ELL v. CE7#CO!, CA.AR"0E% %#R &)(3 P4"L )(1'- F! The petroleu# products were purchased at the #otor vehicle traversin$ the nei$hborin$ towns o. %ebucot li=e CasonB Di#alaonB all towns in %a#arines @orte. The contract o. sale was ne$otiated and per.ected in di4erent #unicipalities where the #otor vehicle o. Shell was travelin$. 5! Althou$h the oil depot was located in %ebucotB the said #unicipality cannot i#pose tax on that because the contract o. sale was ne$otiated and *(8 Taxation law review notes - Atty. Francis J. Sababan - per.ected in the di4erent nearby towns o. %a#arines. .+ -s there a con3ict with the case o. %=ell and P=il .atc=esO A+ @"@E. As a #atter o. .actB these two decisions co#ple#ent each other. G. Ta!in, Po"ers of t&e Baran,a( AU*1&) a "nly a #ini#al su# A.air and reasonable) 9ower to i#pose tax! *. "n co##ercial breedin$ o. ;$htin$ coc=sB coc=;$hts and coc=pits W #ust be .or co##ercial purposes &. "n places o. recreation which char$e ad#inistration .ee ). "n billboardsB si$nboardsB neon si$ns and outdoor advertise#ents W especially .or the barrios and baran$ays alon$ the hi$hway 8. For baran$ay clearance W i. you want to en$a$e in the business o. retailin$ or wholesalin$ b i. baran$ay captain will not approve that b within +days $o to the #unicipal hall or city hall .or approval 1. For the use o. baran$ay property W .or instance the baran$ay has a pla7a. :. Coon Re'enue Raisin, Po"ers AU*1)-*11) .+ Dhy co##onO A+ All the :?E could i#pose the sa#e. Cut it does not .ollow that all the provincesB citiesB #unicipalities could i#pose the sa#e. "nly the :?E which operateB establishB #aintain the entity -. established by the provinceB it should only be the province. These are! *. service .ee and char$es W .or services rendered &. public utility char$es W provided ownedB operate and #aintained by the# ). toll .ees and char$es W tax or toll .or the use o. a brid$e or a street a 9adua ;led a civil action in the >a=at- T% tryin$ to stop the $overn#ent .or# collectin$ a toll .ree in the South Express includin$ the @orth expressway alle$in$ that he is a4ected as a taxpayer because he is .ro# 9aranaque. 5e ar$ued that i. you use the property o. the $overn#ent li=e a street or a public pla7aB you do not pay. 5e #ade the analo$yB that i. you $o to :unetaB you do not pay the city $overn#ent o. >anila. The >a=ati T%B the %A and S% had a uni.or# rulin$ that the operator should be prohibited .ro# collectin$ .urther toll .ess because i. the operator had already recovered his invest#ent and earned an inco#e alreadyB he should be stopped. As ar$ue by the S%B it copied the ar$u#ent o. the lawyer Are! :uneta). W @"TE! that es Judicata do not apply here. Dhen the rulin$ beca#e ;nal an executory in *//)B the @orth and South Express were totally dis#antled and totally destroyed by the D9D5 to $ive way to the ;nal and executory rulin$ o. the %ourtB that -t should no lon$er be collected. A.ter several #onthsB the $overn#ent announced in the radio that the party in the case o. 9aduaB #utually a$reed that the collection shall be resu#ed in order to have *(1 Taxation law review notes - Atty. Francis J. Sababan - #oney .or the #aintenance and repair o. the hi$hway. Exceptions to U*11 Acollection o. toll .ees) *. #e#bers o. AF9 &. #e#bers o. the 9>9 ). post oTce personnel deliverin$ #ail 8. physically handicapped 1. disabled citi7ens '1 years and older. I. Counit( Ta! AU*1') a -n the old daysB =nown as Qresidence tax certi;cate. .+ -. the Filipino is a resident o. a .orei$n country A@%)B is he liable to pay the co##unity tax certi;cateO A+ @"B because the basis o. i#position o. this tax is whether or not you are an inhabitant o. the 9hilippines. >eanin$ you are a resident o. the 9hilippines. .+ Dhat about a .orei$ner residin$ in the 9hilippines AA)O A+ LES. Lou have to pay unless the .orei$ner is a trans-investor .or not #ore than )#onths. a This is applied to both natural and <uridical persons. equire#ents! *. .or a natural person b at least *, years o. a$e &. .or corporations b upon re$istration with the SE% .+ Dhat i. you beco#e *, in the #onth o. January or @ove#ber or Dece#berO A+ For those who celebrated their birthday be.ore July * Athat is up to June )()B they are liable to pay the taxB .or this year. For those who celebrated their birthday on or a.ter July *B they are not yet liable to pay this yearB but have to wait until next year. .+ -s there a di4erence .or those who reached *, in the #onths o. Jan-Feb->arch and those who reached *, in the #onths o. April- >ay-JuneO A+ LES. For those who celebrated birthdays in the #onths o. Jan-Feb- >archB they have a $race period o. &(days within which to pay. Those who celebrated their *, th birthday in the #onth o. April->ay-JuneB they do not have any $race period at allB they have to pay the tax i##ediately. .+ -. you have a co##unity tax certi;cate .or this year A&((')B can it be used only until Dece#ber )*B &(('O A+ @". -t shall be valid up to April *1B &((+. AU*')A%)) G. Accrual of t&e Ta! AU*'') a January * .+ Dhat i. the tax was only approved in the #onth o. >ay &(('B do you have to wait until January &((+O A+ @". Lou have the ri$ht to collect that in July *B because the law is sayin$ that Qit should be collected in the next succeedin$ quarterR AU*'+) a >ayor Cinay had a tax ordinance in >ayB sabi n$ #$a bata niya! Qbosin$B collect na tayo n$ JuneR. Cinay! Qhindi n$a pupwedeB #a$hintay pa tayo n$ July *R. .+ Dhat i. the tax ordinance had been existin$ .or several years alreadyO *(' Taxation law review notes - Atty. Francis J. Sababan - A+ The ti#e o. accrual will always be January *. RE/E#IE- %N#ER T:E INTERNAL REVEN%E CO#E *. e#edies o. the ?overn#ent &. e#edies o. the Taxpayer Remedies of t,e go/ernment0 *. Assess#ent &. %ollection Ender the @-%B assess#ent and collection have & =inds! *. @or#alN"rdinary assess#ent and collection 0 Sec. &()B @-% &. Abnor#alNExtraordinary assess#ent and collection 0 Sec. &&&B @-% I. 0ormalPOrdinarA assessment and collection There was a return ;led and it is not .raudulent and not .alse II. AbnormalPE>traordinarA assessment and collection There was! *. an o#ission or .ailure to ;le the returnI &. i. there was a return ;ledB it was .raudulentB orI ). the return was .alse .+ -s a .alse and .raudulent return presu#edO A+ @"B .alse and .raudulent return is not presu#ed. The burden o. proo. to prove that the return was .alse and .raudulent lies a$ainst the $overn#ent throu$h the C-. The #ere .act that the return is erroneous will not #a=e the return .raudulentB it #ust be proven by the C-. .+ Dhy is it i#portant to =now whether the assess#ent is under nor#al or abnor#al conditionO A+ -t is i#portant to =now because the prescriptive period between nor#al and abnor#al assess#ent di4er. Prescripti/e Period for &ssessment ;2 0ormalPOrdinarA Assessment M ' Aears from t=e time t=e return =as been fled ¬ t=e paAment of t=e ta>- &%ec. *(', 0"RC- ) Days o. ;lin$ the return under Sec. &()B @-%! *. ;led be.ore the deadline A.or any tax under @-%) &. ;led on the date o. deadline ). ;led a.ter the deadline & Days o. countin$ the ) year period o. Assess#ent! *. i. return is ;led be.ore or on the day o. the deadlineB the prescriptive period starts on the date o. the deadlineI &. i. return is ;led a.ter the deadlineB the prescriptive period starts on the date the return has been ;led. W For the calendar year o. &((8B a return #ust be ;led and paid .or @et -nco#e Tax on or be.ore April *1B &((1. Since he was not able to #eet the deadlineB the taxpayer is now bein$ assessed .or tax due .or &((8. To #ini#i7e interest and surchar$esB it has been su$$ested by the C- that the taxpayer ;le a late return. Supposed he ;led his return coverin$ &((8 on April *B &(('. -n this exa#pleB the rec=onin$ point is the deadline o. April *1B &((1. The startin$ point o. the countin$ the ) yr. period is on *(+ Taxation law review notes - Atty. Francis J. Sababan - the date the return is ;led which is April *B &(('. W Suppose it is not a late ;lin$ o. returnB the countin$ o. the period is on the date o. the deadline which is April *1. 82 AbnormalPE>traordinarA Assessment the $overn#ent has & options! a. Assess and %ollect W the prescriptive period .or Qassess#entR shall be *( years .ro# the discovery o. none ;lin$ or .alse or .raudulent return ASec. &&&B par. oB @-%) W the prescriptive period .or QcollectionR shall be 1 years .ro# the date o. ;nal assess#ent ASec. &&&B par cB @-%) b. %ollect Dithout Assess#ent throu$h Judicial Action W since there is Qno assess#entR there is no prescriptive period .or assess#ent W prescriptive period .or QcollectionR shall be *( years .ro# the date o. discovery o. none ;lin$ o. return or .alse or .raudulent return. These options are available only i. the Assess#ent is under the Abnor#alNExtraordinary %onditions. These are not available under @or#alN"rdinary Assess#ent Prescripti/e Period for Collection 9. 0ormalPOrdinarA Collection 0 Sec. &() did not provide .or the prescriptive period .or the collection - -ntention o. the author! 1 years .ro# the date o. ;nal assess#ent easons! ASababan a$rees with the 1 year prescriptive period) 9rescriptive period o. collection under * st option on Abnor#al Assess#ent is 1 years .ro# ;nal assess#ent ASec. &&&B par cB @-%) *. under the old code o. */)/B */++B and */,1B i. the prescriptive period .or collection under abnor#al is ) yearsB then the prescriptive period .or collection under nor#al is also ) years. -. now a daysB it is 1 years in abnor#alB the prescriptive period .or nor#al should also be 1 years. &. to say that there is a prescriptive period .or collection under Abnor#al and there is none under @or#al is too abnor#al. -t should be the other way around. 82 AbnormalPE>traordinarA Collection a. assess and collect 0 1 years .ro# the ;nal assess#ent b. collect without assess#ent throu$h <udicial action 0 *( years .ro# date o. discovery o. none ;lin$B or .alseB or .raudulent return. .+ 5ow to apply these periodsO A+ Annual net inco#e tax return ;led by individual usin$ a calendar year. The return should be ;led on or be.ore April *1B &(((. -t was ;led on April *1B &(((. *(, Taxation law review notes - Atty. Francis J. Sababan - . Dithout statin$ the date o. ;nal assess#entB can it be collected in &((+O A+ Ender nor#al conditionB ;rst deter#ine the date o. ;nal assess#ent. -. the C- ;nally assessed the tax in @ove#ber &((*B then &((+ is way beyond the 1year period to collect. %ount the prescriptive period .or collection .ro# the date o. ;nal assess#ent. .+ Asa#e .acts) Supposed it was ;nally assed on >arch &(()B can it be collected in &((+O A+ LesB because it is within the prescriptive period o. 1years. 7A%"LA0 v. CO.."%%"O0ER &*) %CRA )+- F! Supposed the notice o. assess#ent was $iven within the period but it was received by the taxpayer outside the period. -! Dhether or not the assess#ent is within the period o. ) years. 5! Les. -t is within the period. -. the notice is sent throu$h re$istered #ailB the runnin$ o. the prescriptive period is QstoppedR. Dhat #atters is the sendin$ o. the notice is #ade within the period o. prescription. -t is the sendin$ o. the notice and not the receipt that tolls the prescriptive period. .+ Dhat i. the return has been a#endedB how would you co#pute the period o. assess#entO A+ @-% is silent. P4OE0"< v. CO.."%"O0ER &)E %CRA 3*- -. the a#end#ent o. the return is substantial as distin$uished .ro# super;cialB the countin$ o. the prescriptive period is also a#ended. The prescriptive period shall be rec=oned on the date the substantial a#end#ent was #ade. -. the a#end#ent is super;cialB the countin$ o. the prescriptive period is still the ori$inal period. Proce$ure for Assessent 3-ec. 55?> NIRC7 RR 950DD4 Steps o. assess#ent *. Sec. &&,B @-% A& steps) &. *&-// A) steps) & Steps under Sec. &&,B @-% *. 9re-assess#ent notice &. Final assess#ent notice ) Steps under *&-// *. @otice o. -n.or#al %on.erence &. 9reli#inary Assess#ent @otice ). For#al :etter o. De#and and @otice to 9ay the Tax PROCE#%RE 3-ec. 55?> NIRC7 RR 950DD4 *. Epon receipt o. the notice o. in.or#al con.erenceB ;le a reply within *1 days .ro# receipt o. noticeI &. Failure to ;le a replyB & thin$s #ay happen! a. C- will send a$ain the @otice o. -n.or#al %on.erence or b. C- will send a 9reli#inary @otice o. Assess#ent ). Epon receipt o. 9reli#inary Assess#ent @otice A9A@)B ;le a reply within *1 days .ro# receipt 8. Failure to ;le a reply will result in either! a. C- will repeat 9A@ b. Declare the taxpayer in de.aultB and send you a Final Assess#ent @otice AFA@) *(/ Taxation law review notes - Atty. Francis J. Sababan - 1. Epon receipt o. FA@B taxpayer #ay ;le a protest within )( days. .+ -s FA@ the one appealable to the %ourt o. Tax Appeals A%TA)O A+ @". This is because )*" +,-. and -- $-// re0uires the exhaustion of administrative remedy of protest% 1fter the receipt of F1+ or formal demand &ithin 3!days must file a protest before the office of the commissioner of internal revenue% FOR/- OF PROTE-T *. :ocal Tax ASec. *&1B :ocal ?overn#ent %ode A:?%)) &. eal 9roperty Tax ASec. &1&B :?%) ). Tari4 and %usto#s %ode ASec. &)*)B A +'1*) -n all protest under the di4erent codesB pay#ent under protest is only necessary under the Qeal Estate TaxR. RR ;8-MM -. the taxpayer receives & ;nal assess#entsB one under the @et -nco#e Tax A@-T) and the other in 2AT. -. the taxpayer donKt want to ;le protest under 2AT but want to ;le a protest under @-T. The taxpayer in order to be allowed to ;le a protest under the @-T #ust ;rst pay the 2AT where he does not intend to ;le a protest. This is not Qpay#ent under protestR becauseB pay#ent under protest is the one #entioned in eal 9roperty Tax under Sec. &1&B :?%. Ender @-%B 9rotest is re.erred to as! *. disputin$ o. ;nal assess#ent or &. ;le a #otion .or reconsideration or reinvesti$ation .+ Dhat should be done a.ter ;lin$ a protestO A+ %ount '(days is the period to ;le the necessary docu#ents and receipts in support o. the protest. .+ Dhat is the e4ect o. .ailure to ;le the supportin$ docu#entsO A+ Failure to ;le the necessary and supportin$ docu#ents within the '(day periodB to be counted on the day the protest is ;ledB the ;nal assess#ent shall beco#e ;nal and executory. "n the 1* st day you ;led the necessary docu#entB you have to count another periodB which is *,( days .ro# the day you ;led the necessary docu#ents. elevance o. the *,( Days! *,( days is the ti#e $iven to the C- to decide the case .+ Supposed it did not decide the case within *,(daysO A+ Do not invo=e the :ascano case because it was re<ected by A /&,& -n the :ascano caseB be.ore you ;le an appeal althou$h the *,( days have lapsedB you have to wait .or the C- to ta=e positive action. The case was ruled only by the %TAB hence it is not a law. The <urisdiction o. the %TA has been a#ended by A /&,&. A /&,& provides that in case o. inaction o. the co##issioner a.ter the lapse o. *,(daysB re#edy is to ;le an appeal. *&-// says that a.ter lapse o. *,(days but within )(days a.ter *,(daysB that is the ti#e to ;le an appeal. **( Taxation law review notes - Atty. Francis J. Sababan - .+ Supposed the C- rule within *,(O A+ Dithin )(days .ro# receipt o. the decision ;le an appeal to the %TA sittin$ in division. .+ Supposed the %TA decided not in your .avorO A+ File a #otion .or reconsideration within *1days to the sa#e division decidin$ the case. .+ Supposed the %TAB in division decided not in you .avorO A+ File an appeal to the %TA sittin$ en banc. .+ Supposed the %TA en banc decided not in your .avorO A+ File an appeal within *1days .ro# receipt o. decision to Supre#e %ourt. .+ Durin$ the pendency o. the protest in the oTce o. the %o##issionerB supposed you receive a notice o. collectionB levy andN or distraintB what is your re#edyO A+ ). A7E% v. CO.."%%"O0ER &)3( %CRA *+,- *. #0"O0 %4"PP"0/ L"0E% v. CO.."%%"O0ER &),3 %CRA 3E+- I&'ES /2 C$**1SS1$NER ";=C SCR& 8:># F! The taxpayer receives a notice o. collection while waitin$ .or the decision o. his protest. 5e then ;led an QappealR with the %TA contendin$ his protest has been denied because he did not receive a decision but receive a notice o. collection. Si#ultaneouslyB the C- ;led be.ore the %F- an Qordinary civil actionR .or the collection o. su# o. #oney. Dhen the <ud$e o. the %F-B was about to conduct the hearin$ o. the caseB the taxpayer ;led an in<unction with the S% to prohibit the <ud$e o. the %F- contendin$ that a sin$le cause o. action is pendin$ in two courtsB one in the %TA and another in %F-. 5! -n<unction was $ranted prohibitin$ the Jud$e o. the %F- and requirin$ the Jud$e to trans.er the records to the %TA sayin$ that the re#edy #ade by the taxpayer was the correct re#edy. .+ Das the appeal #ade on ti#eO A+ LesB when the C- ;led an ordinary actionB the protest is dee#ed denied. 5ence an appeal is a proper re#edy. %NION -:IPPING LINE- '. CO//I--IONER F! The taxpayer was waitin$ .or the decision o. his protest. Cut insteadB he received a notice o. collection. -##ediatelyB he ;led a >otion .or econsideration and %lari;cation as=in$ whether his protest has been denied. The C- did not reply or answer but instead ;led an "rdinary %ivil Action be.ore the %F-. Dhen the taxpayer received su##onsB he did not answer but instead ;led an Appeal be.ore the %TA. -! Dhether or not the re#edy o. Appeal was the correct re#edy and Dhether or not it was ;led on ti#e. 5! Les. The re#edy o. appeal is the correct re#edy and the appeal was ;led on ti#e. The rec=onin$ period within which to ;le an appeal is the ti#e the taxpayer received the su##ons. *** Taxation law review notes - Atty. Francis J. Sababan - Dhile an Appeal is pendin$ be.ore the %TAB the %TA will deter#ine! *. -. the decision was #ade within *,( daysB whether the appeal was #ade within )( days .ro# the receipt o. the said decisionB or &. i. there was no decision a.ter the lapse o. *,( daysB whether the appeal was #ade within )( days upon the expiration or the lapse o. the *,(-day period. .+ 9endin$ appeal with the %TAB can the C- a#end the ;nal assess#entO A+ & S%5"":S "F T5"E?5T! *. /#ERRERO v. CO.."%%"O0ER &)2 %CRA *3- &. 7A!A0/A% v. COLLEC!OR &)(* P4"L ,**- G%ERRERO '. CO//I--IONER 39D -CRA 5@4 :+ @o. Cecause it is no lon$er the disputed assess#ent. BATANGA- '. COLLECTOR 39E5 P:IL ?554 :+ Les. -n order to avoid #ultiplicity o. suits A%%"D-@? T" JEST-%E 2-TE?! '&T&N6&S /2 C$33ECT$R ";C8 P(13 >88# 1S T(E 'ETTER R.31N6 PROTE-T %N#ER LOCAL TAX 3-ec. 9D@> LGC4 Ender @-%B protest is ;led in the "Tce o. the %o##issioner Ender :?%B protest is ;led with the sa#e %ity or 9rovincial or >unicipal Treasurer who issued the assess#ent 9eriod to ;le 9rotest '( days .ro# receipt o. assess#ent .+ -. the treasurer did not decide within a '(day periodB re#edyO A+ ?o to the court o. co#petent <urisdiction AT%) .+ -. the T% decided not in you .avorO A+ File an appeal with %TA en banc Abe$innin$ April &)B &((8) .+ -. the %TA decided not in your .avorO A+ Appeal to the S%. @"TE! 9ursuant to A /&,&B direct appeal to %TA en banc can be #ade .ro#! *. Decision o. the T% involvin$ local taxation exercisin$ appellate <urisdiction &. Decision o. the %entral Coard o. Assess#ent Appeal exercisin$ appellate <urisdiction. PROTE-T %N#ER REAL PROPERT2 TAX 3-ecs. 55A> 5;E> an$ 5@54 e#edy shall be the sa#e -ec. 5@5> LGC -. the taxpayer receives a @otice o. Assess#ent .ro# #unicipalB cityB or provincial treasurerB the re#edy is to ;le a protest but there #ust be ;rst 9ay#ent Ender 9rotest. - This is the only instance where pay#ent under protest is necessary .+ 5ow is pay#ent under protest #adeO A+ At the bac= o. the receipt there will be an annotation that there was a pay#ent under protest within '(days .ro# receipt o. the notice o. **& Taxation law review notes - Atty. Francis J. Sababan - assess#ent within the sa#e treasurer who issued the assess#ent. .+ -. the treasurer rules a$ainst the taxpayerB re#edyO A+ The re#edy is to ;le an appeal to the :ocal Coard o. Assess#ent within )(days .ro# the receipt o. the decision. .+ Fro# the decision o. the :ocal Coard o. Assess#entO A+ Appeal should be #ade to the %entral Coard o. Assess#ent Appeal. Ce$innin$ April &)B &((8B the rulin$ o. the %entral Coard o. Assess#ent Appeal is no lon$er ;nal. -t can now be appealed to the %TAB sittin$ en banc. PROTE-T %N#ER T:E TARIFF AN# C%-TO/- CO#E 3TCC4 3-ec. 5;9;> as aen$e$ <( RA =A@94 For#erlyB the auto#atic appeal under the T%% applied only to protestI but now a daysB the auto#atic appeal applies to both protest and .or.eiture. For For.eiture Ender the Tari4 and %usto#s %ode e.ers to the "rder o. the %ollector con;scatin$ the i#ported $oods or co##odities Doctrine of Primary Nurisdiction -. the %ollector ordered the .or.eiture o. the i#ported co##odities the order o. the %ollector shall be to the exclusion o. all $overn#ent oTces and authority. -#porter o. %he#icalB under the T%%B the custo# duties is only 9&+ but the collector says it should be 91&. The i#porter will then ;le a protest with the "Tce o. the %ollector. -n the old daysB there is an auto#atic appeal .ro# the decision o. the collector under protest. Cut under A +'1*B the re#edy o. auto#atic appeal is applicable to both protest and .or.eiture. -. "n bot= cases of protest and forfeiture, if t=e importer lose t=e case and t=e government Cins, t=e remedA is to fle an appeal Cit=in )3 daAs before t=e OQce of t=e Commissioner. Fro# the rulin$ o. the %o##issionerB the i#porter should ;le an appeal within )( days be.ore the %TAB sittin$ in division. Fro# the rulin$ o. the %TA in divisionB the i#porter should ;le an > within *1 days be.ore the sa#e division hearin$ the case. Fro# the rulin$ o. the %TA in divisionB decidin$ on the >B the i#porter should ;le an appeal within *1 days be.ore the %TA sittin$ en banc. Fro# the %TA en bancB appeal to S% within *1 days. --. "f t=e importer6ta>paAer Cins t=e case, t=e government lose t=e case, %ec. *')' of !CC as amended bA RA +13), t=ere s=all be an automatic revieC Cit=in )3 daAs. .+ Dhere should the auto#atic review be #adeO A+ -t depends. 9ublish the value o. the co##odity. *. -F 91 >-::-"@ " >"E 0 AET">AT-% E2-ED S5A:: CE CEF"E T5E SE%ETAL "F T5E DE9T. "F F-@A@%E. &. -F :ESS T5A@ 91 >-::-"@ 0 AET">AT-% E2-ED S5A:: CE **) Taxation law review notes - Atty. Francis J. Sababan - CEF"E T5E "FF-%E "F T5E %">>-SS-"@E .+ Suppose the co##issioner decide or did not decide within )(daysB what happensO A+ -. the co##issioner reverses the rulin$ o. the collectorB the rulin$ is ;nal and executory. -. the co##issioner aTr#s or did not decide within )(daysB there shall be an auto#atic appeal be.ore the sec. o. ;nance. .+ Cetween the two which will be appealed to the %TAO A+ The decision o. the secretary which passes throu$h the oTce o. the co##issioner AA /&,&) Cut not all the decision o. the secretary which passes the oTce o. the co##issioner aTr#s or did not decide within )(days and appealed be.ore the secretary o. ;nance will appeal to the %TA be allowed. There are ) instances when the Secretary o. Finance renders a decision appealable to the %TA! *. decision o. the Secretary by virtue o. auto#atic review passin$ throu$h the %o##issioner &. cases o. anti-du#pin$ dutyB where the anti-du#pin$ duty was ordered by the Secretary ). decision o. the Secretary o. Finance on countervenin$ duty. CO/PRO/I-E 3-ec. 5E6> NIRC4 ) 6uestions as=ed in &((8 CA! *. >ay the ?overn#ent co#pro#ise cri#inal cases and civil casesO &. Supposed the corporation is already dissolvedB can the stoc=holder be obli$ed to payO ). Suppose the civil case ;led by the C- is ;nal and executorB can it be sub<ect to co#pro#iseO CAN T:ERE BE CO/PRO/I-E IN+ 9. %-2-: %ASESO - LESB -@ A@L STA?E "F T5E 9"%EED-@? - EM%E9T D5E@ T5E %-2-: %ASE -S A:EADL F-@A: A@D EME%ET"L CE%AESE -T D-:: CE 2-":AT-2E "F T5E SE9AAT-"@ "F 9"DES 5. %->-@A: %ASESO - LESB EM%E9T! a. -F A:EADL F-:ED -@ %"ET AT%) "I b. -F -T -@2":2ES FAED ;. -F T5E %"9"AT-"@ -S A:EADL D-SS":2EDB %A@ T5E ST"%G5":DE CE 5E:D :-AC:E T" 9AL TAMO - ?E@EA: E:E! @" - EM%E9T! a. -F -T -S 9"2E@ T5AT T5E ASSETS "F T5E %"9"AT-"@ -S TAGE@ CL "@E ST"%G5":DE "I b. -F T5E ST"%G5":DE D-D @"T 9AL 5-S E@9A-D SECS%-9T-"@ >ini#u# A#ount to be %o#pro#ised ASec. &(8) *. -. the $round is ;nancial incapacity o. the taxpayerB the #ini#u# shall not be less than *(H o. the ori$inal assess#ent. &. -. based on other $roundsB the #ini#u# a#ount shall not be lower than 8(H o. the ori$inal assess#ent. **8 Taxation law review notes - Atty. Francis J. Sababan - .+ %an it be lower than that prescribed by lawO A+ As a ruleB no. EM%E9TB i. allowed by the evaluation board consistin$ o. the! a) co##issionerI and b) deputy co##issioner. -nstances when the Final Assess#ent beco#es ;nal and executor! *. -. the taxpayer did not ;le the protest on ti#e &. Failure to sub#it the supportin$ docu#ents within the '(-day period ). A.ter the lapse o. the *,(-day periodB you did not ;le an appeal within the )(-day period to the %TA 8. An appeal was ;led but #ade beyond the re$le#entary period to appeal /ET:O#- OF COLLECTION 3-EC. 5E@4 9. ;udicial Action a. %ivil b. %ri#inal 5. Administrative Action a. Distraint b. :evy c. Tax lien .+ Dhy is it i#portant to =now whether the ;nal assess#ent is under nor#al or abnor#al conditionsO A+ -t is i#portant because o. the require#ent under U&&&. -. the ;nal assess#ent beco#es ;nal and executoryB the $overn#ent AC-) can exercise the re#edies under U&(1 in any order or si#ultaneously A)!23% 4ut it is not al&ays the case" because the ri'ht of the 'overnment to collect is limited in case of abnormal assessment5collection under )% 6nder the second option" the ri'ht of the 'overnment is limited to 7udicial action either civil or criminal% 1dministrative remedies such as distraint" levy" or tax lien is not available under such condition% .+ -n distraintB levy or tax lienB is the *( year period o. collection applicableO A+ @oB only the 1year period should apply. Distraint Ginds! *. %onstructive ASec. &(') &. Distraint o. -ntan$ible ASec. &(,) ). Actual ASec. &(+B par. aB and Sec. &(/) 9. Constructive 8istraint The distrainin$ oTcer shall #a=e a list o. the personal property o. the property to be distraint in the presence o. the owner o. the property or the person in possession o. the property. The owner shall be requested to si$n the receipt. .+ Dhat i. the owner re.uses to si$n the receiptO A+ Sec. &('! The distrainin$ oTcer shall require & individuals within the nei$hborhood with the warnin$ that they should not allow the taxpayer to disposeB trans.erB or sell the property sub<ect o. distraint. ?rounds .or %onstructive Distraint ASec. &(')! *. The taxpayer intends to leave the 9hilippines &. The taxpayer leaves the 9hilippines ). The taxpayer ceases or retires .ro# business 8. The taxpayer obstructs the collection o. the tax. **1 Taxation law review notes - Atty. Francis J. Sababan - T5ESE ?"E@DS A:S" A@SDE T5E 6EEST-"@! D5AT AE T5E TAMAC:E 9E-"D :ESSE T5A@ *& >"@T5SO 5. 8istraint of "ntangible PropertA :i#ited to ) -ntan$ible 9roperties! *. Shares o. stoc=s &. Can= accounts ). %redits and debits %=are of stocDs Darrant o. distraint .urnished to the taxpayer or the oTcer o. the corporation with the warnin$ that the property is sub<ect o. distraint and it should not dispose o. it. 7anD Accounts Darrant o. distraint .urnished to the taxpayer or the oTcer o. the ban= with the warnin$ that the taxpayer should not be allowed to withdraw. 8ebits and Credits Darrant o. distraint .urnished to the debtor and creditor ;. Actual 8istraint 9ersonal property shall be physically ta=en by the distrainin$ oTcer. Dithin *( days .ro# the receipt o. the warrantB a report o. the distraint shall be sub#itted to the C- ASec. &(+B par a last par.) The property sub<ect o. distraint shall be sold at a public auction EM%E9T ban= accounts and debits and credits. W @otice o. sale shall be by postin$ in & conspicuous placeB statin$ the date and the place o. the sale A@o publication require#ent) Sec. &**! a.ter the sale and within & daysB a report shall be #ade to the C- .+ -. the property sold is a personal propertyB is there a ri$ht o. rede#ptionO A+ @". The rule is absolute. .+ -. the property is a personal propertyB is there a ri$ht o. pree#ptionO A+ SE%. &*(! Ce.ore the scheduled saleB the taxpayer is allowed to recover the property by payin$ all the property by payin$ all the proper char$es as well as the interestB cost and penalties. Durin$ the Scheduled Auction SaleB & Thin$s #ay happen! *. There is bidder and the bid is enou$h &. There is no bidder or there is a bidder but the bid is not enou$h .+ Dhat is the relevance o. =nowin$ the di4erenceO A+ *. "f t=ere is a bidder and t=e bid is enoug= W -n case o. insuTciencyB there shall be .urther distraint to cover the liability. AU&*+) W -n case o. excessB the excess shall be returned to the taxpayer. &. "f t=ere is no bidder or t=e bid is not enoug=. W -t will be purchase by the $overn#ent and the later sold in a public auction a$ain AU&*&) W -n case o. insuTciencyB no .urther distraintB U&*+ applies only i. there was a bidder. W -n case o. excessB the excess shall not be returned to the taxpayer but shall be re#itted to the national treasury. **' Taxation law review notes - Atty. Francis J. Sababan - 3e/y "ther than the delinquent taxpayerB warrant o. levy is served to the re$ister o. deeds havin$ <urisdiction over the real property ASec. &*)) Dithin *( days .ro# the receipt o. the warrantB a report o. the levy shall be sub#itted to the C- ASec. &(+ Ab) last par) @otice o. Sale in 9ublic Auction! *. 9ostin$ in & conspicuous places &. 9ublication in newspaper o. $eneral circulation once a wee= .or ) consecutive wee=s. .+ -s there a ri$ht o. pre e#ptionO A+ LesB U&*). .+ -s there a ri$ht o. rede#ptionO A+ Les. & Thin$s #ay happen in a 9ublic Auction! *. There is a bidder and the bid is enou$h &. There is no bidder or the bid is not enou$h .+ Dhat i. there is no bidder or the bid is not enou$hO A+ For.eiture shall be #ade AU&*1) ) De;nitions o. For.eiture under the -nternal evenue %ode *. 2iolation o. Excise Tax :aw ASec. &&8) &. -. there is no bidder or the bid is not enou$h ASec. &*1) ). The order o. the %ollector to con;scate i#ported co##odities ASec. &)*)B T%%) elevance o. the %hoice o. Dords! Ender sec. &*&B the law says QpurchaseR Ender sec. &*1B the law says Q.or.eitureR W under &*1! the real property shall be auto#atically re$istered in the na#e o. the ?overn#ent A.or.eiture) W under &*&! the real property is not auto#atically re$istered in the na#e o. the ?overn#ent Apurchase) .+ -. sold at a private saleB what is the require#entO A+ There #ust be an approval o. the Secretary o. Finance AU&*') .+ A.ter saleB i. there was de;ciencyO A+ There shall be no .urther levyB because U&*1 says that it shall be to the total satis.action o. the taxpayer. .+ A.ter saleB i. there was an excessO A+ -t shall not be returned to the taxpayer but shall be re#itted to the national treasury. -ec. 59=+ this is only true i. there was no bidder or the bid was not enou$h because o. the provisions o. the Secs. &*&B &*1B and &*' -ec. 59?+ no court shall issue an in<unction to restrain the collection o. tax under this code Deter#ine what =ind o. in<unction is re.erred to here! *. 9rohibitory 0 re.erred in Sec. &*, because it restrains the collection o. tax. &. >andatory .+ -s the provision li#ited to Qtax under this codeRO A+ 8imited to internal revenue taxes% 9:.9;<: .<1 =-e'ular .ourt3 -1 $$# and /*: .<1 is authori>ed to **+ Taxation law review notes - Atty. Francis J. Sababan - issue in7unction to restrain the collection of taxes or fees collected under other code% .+ -s the rule o. distraint or levy the sa#e under local taxationO A+ LesB local tax. W U*+1 .or D-STA-@T W U*+' .or :E2L .+ 5ow about real property taxO A+ @oB distraint is not authori7ed AU&1'B :?%)B because the re#edy is only ;udicial Action and LevA. Tax 3ien @on pay#ent o. taxB the $overn#ent has the ri$ht to clai# a lien over the property o. the taxpayer *. @-% 0 Sec. &*/B @-% &. :ocal Tax 0 Sec. *+)B @-% ). eal 9roperty Tax 0 Sec. &1+B @-% .+ Supposed a parcel o. land is about to be levied by the $overn#entB but the sa#e is bein$ .oreclosed by the #ort$a$eeB which o. the & obli$eeB the $overn#ent or the #ort$a$ee shall be pre.erredO A+ U&*/B last portion! The $overn#ent is the pre.erred one i. the lien is annotated and recorded in the re$istry o. deed. -n the absence o. annotation in the re$istry o. deedsB the #ort$a$ee is pre.erred. .+ Do we have the sa#e rule under :ocal Tax and eal 9roperty TaxO A+ @". Coth U*+) and U&1+B the $overn#ent is always the pre.erred one. The lien can only be re#oved by pay#ent o. taxB interest and penalty. -ec. 55E+ approvin$ o. ;lin$ an ordinary civil action .or violation o. the internal revenue code The approval #ust be #ade by the %o##issioner o. -nternal evenue (14$N /2 REP.'31C "<8C SCR& =:9# F+ An ordinary civil action .or violation o. the tax code was ;led in the city o. San Fernando. Cut the ;lin$ was only approved by the evenue e$ional Director o. %entral :u7on. The plainti4 opposed the ;lin$ in the court on the $round that it should be approved by the %o##issioner and the evenue D. :+ Sec. &&( should be read with Sec. + o. the @-% W ?eneral ule! powers and .unctions o. the %o##issioner #ay be dele$ated but not to a position lower than a Division %hie. W Ender Sec. +B there are powers which can not be dele$ated a) 9ower to reco##end to the Secretary o. Finance to issue rules and re$ulation b) 9ower to decide a case o. ;st i#pression c) 9ower to enter into a co#pro#ise a$ree#ent d) 9ower to assi$n C- oTcer in the place o. production sub<ect to inco#e tax W Since the case does not .all under the prohibited dele$ationB the ;lin$ o. the case is le$al and tenable. Decision o. the %o##issioner o. -nternal evenue A%-) is appealable to %TA. **, Taxation law review notes - Atty. Francis J. Sababan - .+ Dhen is a decision o. the cir appealable to the Secretary o. FinanceO A+ U8B on #atters o. interpretation o. tax laws. -EC. 55;+ -%-PEN-ION OF T:E R%NNING OF PRE-CRIPTIVE PERIO# .+ A Filipino taxpayer went to %anadaB a.ter *1years he went bac=B he is bein$ assessed by the C- under nor#al assess#ent. 5as the ri$ht o. the $overn#ent to asses the tax already prescribedO A+ @". Dhen he went to %anadaB the runnin$ o. the prescribed period is suspended. .+ Dhat i. the chan$e o. address is within the 9hilippinesB say only .ro# #anila to 9asay %ityB is the runnin$ o. the prescriptive period suspendedO A+ -n order that the runnin$ o. the prescriptive period will not be suspendedB especially i. the chan$e is district oTceB U&&) provides that the taxpayer #ust send a written notice o. chan$e o. address to the C-. -n the absence o. the written noticeB the period will be suspended. .+ %han$e o. address is .ro# 9hilippines to abroadO A+ The period will be suspended. "ther ?rounds .or Suspension! *. Durin$ collection i. there is no property .oundB the period is suspended &. -. the C- is prohibited .ro# #a=in$ assess#ent such when the sub<ect property is under liti$ation ). -n distraint o. levyB the C- oTcer canKt locate the property CLAI/ FOR REF%N# 3-EC 55D4 Dritten clai# .or re.und! *. Sec. &&/B @-% &. Sec. **&B 2AT ). Sec. *)'B :ocal Tax 8. Sec. &1)B eal 9roperty Tax 1. @one except sec. *'()B Tari4 and %usto# Written clai for refun$ un$er t&e input ta! 3-ec. 9954 9eriod is also & years .ro# the close o. the taxable quarter when the transaction was #ade .+ %an we apply U&&/ to 2ATO A+ LesB because there is no con3ict. U**& is re.und under input tax syste#. U&&/ is re.und .or! *. errors in pay#ent orI &. collected without authorityI or ). assess#ent without authority. The period to clai# re.und is &years. #octrine of ECuita<le Recoupent -. a taxpayer is entitled to a written clai# .or re.und but the prescriptive period to clai# has lapsedB the taxpayer is allowed to credit his written clai# .or re.und which he .ailed to recover to his existin$ tax liability. %o#puted .ro#I a. -ndividual 0 counted on the day the tax has been paid *. payin$ by way o. withholdin$ tax syste#B the rec=onin$ point is the end o. the taxable year. &. payin$ by way o. install#entB rec=onin$ **/ Taxation law review notes - Atty. Francis J. Sababan - point is the date the last install#ent is paid. ). i. sold to public auction throu$h distraint or levyB the date the proceeds is applied to the satis.action o. the tax liability. b. %orporation *. Existin$ - *//&B ccc v. %o##issioner A&(1 S%A *,8) - *//1B %o##issioner v. 9hila# li.e A&88 S%A 88') - *//,B %o##issioner v. %TA A)(* S%A 8)1) &. @on-existin$ - &((*B C9- v. %o##issioner A)') S%A ,8() *. Existin$ 0 the countin$ o. the prescriptive period is & years on the day the annual ad<usted return is ;ledB because it is at that day that the tax liability is =nown. &. @on-existin$ 0 the countin$ o. the prescriptive period should also be rec=oned on the day the annual return is ;led. Cut the corporation is no lon$er required to wait till the taxable period is over to ;le the return. Epon receipt o. a notice .ro# the SE% to dissolve the corporationB within )( days therea.terB a return should be ;led. .+ Suppose there is a supervenin$ eventB and the taxpayer was not able to ;le a written clai# o. re.und within the periodO A+ e$ardless o. supervenin$ eventB a written clai# .or re.und #ust be ;led within &years. .+ Suppose the & year period is about to expire and there is no decision yet as to your re.undO A+ e#edy is to ;le an appeal be.ore the %TA Adee#ed a denial) .+ Suppose the C- decided within & years a$ainst the re.undO A+ Appeal within )(days .ro# the decisionB provided it is still within the & year period. .+ Suppose there is only &*days re#ainin$ a.ter receivin$ the decisionB when to ;le an appealO A+ Dithin &*days be.ore the end o. the & year period. A written clai# .or re.und should be ;led within & years Sec &(8 Ac) last phrase! in case o. over pay#ent a written clai# is not necessary because a return constitutes a written clai# .or re.und. .+ >ay the co##issioner o. internal revenue open the ban= account o. a taxpayerO A+ ?eneral ule! @". EM%E9T! *. To deter#ine the $ross value o. the estateI and &. To enter into a co#pro#ise a$ree#ent. Aunder U&(8AA)) The written clai# .or re.und to deter#ine the $ross value o. the estate because the taxpayer is already dead -n case o. co#pro#iseB there #ust be consent *&( Taxation law review notes - Atty. Francis J. Sababan - *&* Taxation law review notes - Atty. Francis J. Sababan - *&& Taxation law review notes - Atty. Francis J. Sababan - *&) Taxation law review notes - Atty. Francis J. Sababan - *&8 Taxation law review notes - Atty. Francis J. Sababan - *&1 Taxation law review notes - Atty. Francis J. Sababan - *&' Taxation law review notes - Atty. Francis J. Sababan - *&+ Taxation law review notes - Atty. Francis J. Sababan - *&, Taxation law review notes - Atty. Francis J. Sababan - *&/ Taxation law review notes - Atty. Francis J. Sababan - *)( Taxation law review notes - Atty. Francis J. Sababan - *)* Taxation law review notes - Atty. Francis J. Sababan - *)&