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Taxation law review notes

- Atty. Francis J. Sababan -


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 &not 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 -
*)&

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