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22/06/2015 18:18:00
Except:
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lrbs_ssbc-r_2009
Title I
22/06/2015 18:18:00
Sources of Income Tax Law
lrbs_ssbc-r_2009
1.
50 new rules
1.
Schedular
2.
Global
3.
4.
5.
6.
7.
Basis
8.
9.
10.
Substituted Filing
Answer:
lrbs_ssbc-r_2009
2.
3.
Covers:
i.
Domestic Corporations (Sec 27)
ii.
iii.
Distinguish: Schedular Tax System v. Global Tax System (p.15 UP Bar Ops
Reviewer)
lrbs_ssbc-r_2009
As to
Schedular
Tax Treatment
Different tax
treatment / rules
Classification of
Categorizes /
Global
Uniform tax
treatment / rules
Income
classifies income
Tax Rates
Applicability
Imposes different
tax rates
tax rates
Applies to individual
income taxation
lrbs_ssbc-r_2009
Imposes uniform
Applies to corporate
income taxation
What is the method of income taxation that allows deductions and grants personal
exemptions? (Allows Taxpayers to claim allowable deductions (Sec 34) & Grants personal
exemptions (Sec 35)) (2000 Q.10)
The tax base / the basis of the tax rates is net / taxable income
T/F: Our tax system does not use the gross income taxation
Under exceptional cases, we have adopted gross income taxation w/c applies to:
o
What is meant / discuss gross income taxation / what is gross income for
Distinction between gross income taxation and net income taxation: (p. 13
Dimaampao IT)
lrbs_ssbc-r_2009
As to
Gross Income
Taxation
Taxpayers claim
for deduction /
Allows no
deductions, grants no
exemption
exemptions
Tax base
Gross income
Net Income
Taxation
Allows deductions,
grants exemptions
Net / taxable
income
Applicability
1.
2.
NRFCs
Applies to the
Individual taxpayers
1.
2.
NRC: Non-resident
Citizen
3.
4.
NRA ETB
Corporate taxpayers
1.
DC: Domestic
Corporations
2.
RFCs: Resident
Foreign Corporations
lrbs_ssbc-r_2009
Dimaampao IT)
GIT
o
NIT
Just, fair & reasonable (RA 8424 Sec 2) = equitable relief to taxpayers,
1.
2.
Income Situs (Tan v. del Rosario) = Comprehensive income tax situs (RPN)
Residence (Sec. 23)
a.
Resident citizen
b.
c.
Resident corporation
NRA
iii.
b.
RA (amendment)
DC
lrbs_ssbc-r_2009
3.
period.
2 Accounting Periods:
lrbs_ssbc-r_2009
a.
b.
Fiscal Year an accounting period of 12 months, ending on the last day of any
month other than December (Sec. 22q)
o
Relevance of accounting periods: Tax Remedies (Sec. 229, Sec. 43 & 77b):
Prescriptive period for filing of tax refund is 2 yrs from the date of payment.
o
(Sec. 77b)
Individual
Progressive Rates (Sec. 28) tax rate increases as the tax base increases
o
Re: VAT & the constitutional provision that Congress shall provide for a
progressive tax system: direct taxes should be preferred, and indirect
taxes should be minimized as much as possible. The mandate of
Congress is not to prescribe, but merely a directive. Thus the VAT law
has been sustained. (Abakada Guro)
Corporate
Uniform Corporate Rate of 30% as applied to DC, RFCs (Sec. 27 & 28)
lrbs_ssbc-r_2009
2 Systems
1.
2.
lrbs_ssbc-r_2009
As to
Items of income
Creditable withholding
tax system
to FWT (focus on 6:
rendered e.g.
RPWIDS)
compensation income
1.
Royalties
(salaries, wages,
2.
commissions)
Winnings except
PCSO & lotto
4.
Interests Income on
Bank deposits
5.
Dividends received
from domestic
corporations - If
received by a DC or
RFC tax exempt
Received by
individual
taxpayers
Received by
NRFC
6.
Share of a partner
from the NIAT of a
business partnership
If received from
a GPP: part of
GI
Tax Withheld
lrbs_ssbc-r_2009
payable
- withholding agent:
employer
Income
liability
taxpayers liability
- has to be reported as
part of the gross income of
the taxpayer
TP is no longer required to
file IT returns
2.
lrbs_ssbc-r_2009
Creditable Tax
deducted, credited against taxpayers
income tax due / payable
Pay as You File System (Sec. 56A1) payment is done when you file your income
tax
1.
Individuals and Estates (Sec. 62) annual payment on or before Apr 15 (Sec 51c1)
2.
Corporate Domestic corporations file their IT quarterly (Secs 75 & 76) qualify by:
For the 1st, 2nd, and 3rd quarters, it must file the summary of its gross income
and expenses, which shall be reported on a cumulative basis. Thereafter, it shall
file its final adjustment return, showing the entire income for the whole taxable
year.
Improve the liquidity / cash flow of the government (cf: consistent with
Administrative Feasibility)
1.
2.
Administrative Feasibility
3.
Theoretical Justice
Any violation of the first 2 principles will not render the law invalid, because they
have no constitutional basis (unlike the principle of theoretical justice)
Substituted Filing of Income Tax Return (RR 3-2002) if an individual taxpayer has
complied with the following conditions, he is no longer required to file income tax return:
1.
2.
3.
The tax withheld by the employer should be equal or the same as the income tax due
If income tax due is more than tax withheld: required to file ITR
A compensation owner whose annual income is not more than P60K. (RR 32002) mere BIR regulation
lrbs_ssbc-r_2009
BIR Regulations are valid if they are consistent / in harmony with the tax
code
4.
Employer must file BIR form 1604 showing tax withheld on employees compensation
income
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Title II
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Sources: Only provides rules on sources within & without (Sec 23)
Tax base (WON you could claim deductions) (Secs 24 & 25: Individual, 27, 28:
Corporate)
o
TPs annual accounting period: Calendar year / fiscal year (Sec 43)
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Classificat
ion of Taxpayers
Sou
rces of
Ta
Ann
x base
income
Fili
ual
ax
ng of IT
Accounting
Rates
Return
Period
Individual
: Sec 23 a, b, c, d
Sec
23
Se
cs 24, 25
Sec
43
cf: Sec 22
Sec
ecs 24,
s 51, 52,
25, 27,
75 & 76
28
RC
W/n
GI
Less
: AD
Cale
ndar Year
(Sec
5-
Req
uired (Sec
32%
Progressive
24A1a)
51A1a)
Rates (Sec
Tax
24A1c)
IT
Payable
NRC
W/n2
GI
Less
Cale
ndar Year
: AD (Sec
5-
Req
uired (Sec
32%
Progressive
24A1b)
51A1b)
Rates (Sec
Tax
24A1c)
IT
Payable
RA
W/n3
GI
Less
: AD (Sec
24A1c)
1
2
3
Secs 34 & 35
Effective Jan 1, 1998
Effective Jan 1, 1998
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Calendar
Year
Req
32%
uired (Sec
Progressive
51A1c)
Rates (Sec
Tax
5-
24A1c)
Payable
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IT
NRA ETB4
W/n
(Sec 23D)
GI
Less
Calendar
Year
Req
uired
32%
: AD (Sec
Progressive
25A1)
5-
Rates (Sec
Tax
24A1c)
IT
Payable
NRA not
ETB
W/n
GI
(no AD/PE)
Calendar
Year
IT:
Not
required
2
5%
(Sec
51A1c)
Special
5% (b)
Offshore Banking
Units
2.
Regional HQ of
MNCs
3.
Employees of
petroleum
contractors/subco
n
Corporate
Se
e.g. Mr..., having stayed in the Phils for more than 180 days could only be
taxed on income from sources withinmay claim AD & PE, subject to recip,
may be taxed for his income earned during the CY, applying progressive
rates, required to file ITR.
5
aggregate stay in the Philippines for more than 180 days (Sec 25A1) e.g.
June 15-Dec 15 = 183 days
6
but may only claim PE subject to the rule on reciprocity (Sec 34)
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cs 27, 28
Sec 23 e, f
cf: Sec 22
DC
W/n
GI
Less
23)
CY/F
Y (Sec 23)
: AD
Tax
Req
niform
uired (Sec
Corpora
52A cf: 72
te IT
& 76)
Rate
30%7
27a)
RFC8
W/n
(Sec 23F)
GI
Less
CY/F
niform
Req
uired (Sec
Corpora
: AD
52A)
te IT
Tax
Rate
28A1)
30%9
NRFC
W/n
GI
(Sec 23F)
CY/F
IT: 30%
Req
uired
(Sec
28B1)
Special NRFCs
(Sec 28B2)
1.
NR Dist of
Cinematographic
GI
FIT:
Not
Required
25%
Films
2.
NR Lessor of
Vessels Chartered
to Phil Citizens
3.
FIT:
4.5%
NR Lessor of
lrbs_ssbc-r_2009
FIT:
7.5%
Equipment
Tax Base
Filing of ITR
Required
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2.
Reasonable
3.
4.
-
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Codal
PBC-PRP-WPD-PARI
1.
1.
Professional income
2.
2.
3.
Property Income
3.
Compensation Income
4.
Interests
4.
5.
Rents
5.
Rent Income
6.
Royalties
6.
Prizes
7.
Dividend Income*
7.
Winnings
8.
Annuities
8.
Pensions
9.
Prizes, winnings
9.
Dividend Income*
10.
10.
Pensions
Property Income
NI of GPP
11.
11.
Annuities
12.
Royalties
13.
Interests*
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Income
1.
Selection
Payment - compensation
Dismissal
Control
Taxable compensation income is not only limited to payment made in cash; payment
ER: Ordinary, unnecessary Expense (Sec 34A1) reasonable allowance for salaries and
wages, and other compensation for personal services actual rendered
lrbs_ssbc-r_2009
P30K (ER)
Death Benefit for the EE from the ER (Sec 32B qualifies Sec 32A) enumerates
exclusions from gross income
o
No income there
ER:
LIP paid by the taxpayer - May not be claimed as a deductible expense by the
ER if it is designated as the beneficiary (Sec 36A4 Non-deductible items )
lrbs_ssbc-r_2009
Beneficiary Designated
ER (expense)
EE (Income)
Executor, Administrator,
Estate
FBT, which is a FT
A 1: other forms of
(Sec 33 B 10)
Non-deductible expense
2.
Mgr/Sup: subject to
No taxable income
whether the ER is
directly/indirectly
No benefits received
designated as the
beneficiary (Sec 36 A 4)
Rationale: mere return on
capital
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1.
2.
3.
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Situation
ER-Cr
CR
Allowable deduction
EE-Dr
DR
Taxable compensation
income
of compensation for
rendered
ER-Cr
EE-Dr
Consideration: Liberality
(Donation)
(Sec 34 e)
No more donors tax10
Unpaid obligation of
P100K; Dr declared
capital transaction
insolvent, Cr agreed to
accept payment through
dacion en pago
Cr-corporation
Interest on capital /
Dr-SH
a non-deductible interest.
No exceptions. (RMC 17-
- must be condoned /
renounced w/o prejudice to
the Trust Fund doctrine
10
Abolished by PD 69
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Fringe Benefits*
Progressive Rates of
Final Tax
Must be reported by
Need not be
Compensation
Income
Rates
5-32%
Reporting
lrbs_ssbc-r_2009
Bar Qs
2001 # 1
2003 # 3
2004 # 5
2007 #
Recipient: mgrl, supervisory EEs (RR 3-98 adopted Labor Code defns), except
R&F EEs
Source: ER
Expense Account
iii.
Vehicle
iv.
Household personnel
v.
Interest on Loan**
vi.
Membership benefit in social / other athletic clubs
vii.
Expenses for foreign travel***
viii.
Holiday & vacation expenses
ix.
Educational benefit****
x.
Housing unit outside the business premises as long as adjacent (w/n a 50m
perimeter) from the business premises of the ER (RR 3-98)
2.
3 mos or less
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3.
14% - no
12% - no
0-11.99% - yes
***Expenses for foreign travel Requisites / Conditions / Situations under w/c expenses for
foreign travel may not be subject to FBT (RR 3-98):
a.
b.
c.
d.
1.
Agreement between mgr / supervisor that the EE will stay in the employ of the
ER within a certain period of time, as an expression of gratitude
2.
SSS
GSIS
3.
asked in 1995
lrbs_ssbc-r_2009
1.
2.
Contentment
Health
Efficiency
Goodwill
lrbs_ssbc-r_2009
Amount
P125
Type of FB
EE
300
Laundry Allowance
1,500 (NEW!)
5-2008, RR 10-2008)
4,000 (NEW!)
5-2008, 10-2008)
5,000
10,000
to dependents)
No minimum
1.
amended by RR 5-
2008, RR 10-2008)
lrbs_ssbc-r_2009
(compulsory retirement)
the EE
Reasonable
minimum wage
lrbs_ssbc-r_2009
Laptop
2.
Motor vehicle
3.
Courtesy discount
Sec 32 (Prof income, Business / Trade Income) cf: Sec 74 define self-employment income;
what are considered as self-employment income?
1.
Is business / trade income the same as gross income from gross sales /
receipts? NO.
Formula:
Gross sales12 / receipts13 :
Less: SD, SRA
Net Sales
Less: CGS & mfgd/ Cost of Sales
Gross Income from conduct of trade / business
1) Gross income from conduct of trade or business (32.A.2) - to come up with this start with GROSS
SALES or RECEIPTS
(2) Gross sales or receipts -. apply to sale of services. Deduct the COST OF INVESTMENT. If
manufacturing, cost of goods sold and manufactured. If merchandising, cost of sales. And also
deduct sales discounts, sales returns and allowances.
2.
Professional Income
3.
Gains Derived from Dealings in Property (Sec 32A) / Property Income cf: Secs 39 & 40
12
13
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Raw materials
Finished Goods
Work-in-process Goods
Exercises:
o
All properties held by the TP in connection with his trade / business are ordinary
assets FALSE. The definition of a capital asset includes properties held by a
TP in connection to his trade / business, but not covered by SOUR
E.g. Think other assets in B/S: Accounts receivable, collectibles,
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Change in business
1.
Reduces taxpayers taxable capital gain by 50% if capital asset is sold after the
12month holding period (Statute of Partial Exemption)
o
If the asset were an ordinary asset, the 12month holding period would
not be applicable
o
2.
lrbs_ssbc-r_2009
Principles:
Capital loss is deductible only from capital gain.
o
o
Rationale: Matching (of costs against revenues) principle - Capital loss is a nonbusiness connected expense, which is not an allowable deduction in Sec 34.
Only business expenses are deductible from ordinary income.
Application:
o
Individual
Corporate
3.
Scope
Applies toTP
Period (when Loss
deductible)
lrbs_ssbc-r_2009
Capital assets /
Ordinary asset /
transactions
transaction
Individual
Individual / Corporate
Net Capital Loss (definition in Sec 39A3) - the excess of the capital loss over capital
gain. (if the capital loss is more than the capital gain)
Statute of Partial Exemption - Long-term capital asset which may result in the
reduction of capital gain (held for more than 12 months)
How do you construe provisions of the Tax Code re: capital transactions?
A: Strictly construed against taxpayer holding the capital asset
Not all capital transactions are covered / subject to Special Rules, but are subject to
other certain special rules (Sec 24, 25, 26, 27):
1.
o
o
2.
lrbs_ssbc-r_2009
Sec 24D
Sec 27D5
Individual Taxpayers
Domestic Corporations
Tax Base
Tax Rate
6% (before 5%)
No option granted to
domestic corporations
Sec 199 of RA 7160 (LGC) amplified definition of machinery in the NCC: Machinery
tend to meet the needs of the business of the owner
1. Whether permanently attached / temporarily attached
2. Must be actually, directly and exclusively used to meet the needs of a particular business
/ authority e.g. the business of mining, agricultural, other business
14
lrbs_ssbc-r_2009
5 Conditions for Exemption under Sec 24D2 (1-4) and RR17-03 (5):
1.
Proceeds of the sale must be used to construct / purchase a new principal residence
2.
3.
Comply with the 18th month period within which to construct / purchase a new
principal residence
4.
5.
RDO & authorized agent bank should execute an ESCROW AGREEMENT with the seller
within 30 days from the lapse of the 18th month period, the seller could
withdraw the amount.
Presumptive Gain Principle (presumed gain) a.k.a. Gain by Legal Fiction (Sec 24D1)
even if the seller incurred a loss, he can still be made to pay the 6% CGT
remember: the tax base is the higher of the GSP / zonal value; cost not
deductible
applies only to sale of real property considered as capital asset; does not take
into account the costs / loss sustained by the seller because as far as the law is
concerned, there is a presumption that the seller acquired gain
exception to the rule that cost is allowed as deduction to the amount realized
(GR: Formula in Sec 40A)
Formula in Determining Taxable Gain from Deductible Loss from Sale of an Asset / Property
(Sec. 40A)
Selling Price / Amount Received or Realized
Less: Cost / Adjusted Basis - (determined by mode of acquisition)
Taxable Gain / Deductible Loss
How did you acquire the property that you disposed of? (to determine Cost / Adjusted
Basis): PIDI
Donation FMV of property at time of donation (same basis for the donor)
lrbs_ssbc-r_2009
Sec 40A) gain from initial sale is tax-exempt, but the subsequent sale is taxable
Situations covered:
o
1.
2.
3.
4.
lrbs_ssbc-r_2009
2.
3.
4 Groups:
o
4.
Subject:
o
Shares of stock
Securities
Stock options
Period:
o
30 days before the sale till 30 days after the sale a.k.a. 61-day sale
seller acquires substantially identical securities
Short Sale
Gain
Taxable
Loss
Not deductible
lrbs_ssbc-r_2009
2.
Foreign government
2.
3.
4.
Term: 5yrs
Denomination: P10K
Provisions on exemption
o
o
5.
ETB exempt
Interest income from FCDA system same whether individual / corporate taxpayer
lrbs_ssbc-r_2009
Tax Treatment
Rent Income
Royalties
Subject to regular
Subject to FIT
Must be reported
Need not be
tax
Reporting
reported
lrbs_ssbc-r_2009
1.
2.
lrbs_ssbc-r_2009
Type of Dividend
Source
Recipient
Tax Treatment
Cash, Property
Domestic
RC, NRC, RA
Dividend
Corporation
24B2)
NRA ETB
NRA NETB
Domestic
Tax-exempt (Sec
Corporation
27D)
RFC
Tax-exempt (Sec
28Ad)
NRFC
FC:
Any
Income derived
from sources w/n =
at least 50% of the
NI must be derived
from Phil sources
for the last 3
preceding taxable
yrs (Sec 42A2b)
Stock
tax exempt
rationale: no flow
of wealth so no
realized gain:
Transfer from
surplus account to
capital (Sec 73Bb)
lrbs_ssbc-r_2009
Exeption re: Redemption of Shares of stock may or may not result in taxable stock
dividend
Source: original capital investment / initial capital subscription redemption does not result
in a taxable gain, as it is merely a return on capital
Source: stock dividend declarations taxable since it may result in a flow of wealth, in such
time and manner essentially equivalent to the declaration of taxable dividend
There has to be flow of wealth so stock redemption may result into taxable income.
(Commissioner v. Andres Soriano Corp 301 SCRA 152)
Is stock dividend received by usufructuary taxable? 2 Views:
Massachusetts view: Tax-exempt
Pennsylvania view: Taxable in accord with Art 566 of the NCC: Usufructruary shall be
entitled to all natural, industrial & civil fruits of the usufruct. Stock dividends are fruits of
the thing in usufruct.
(Basrach v. SEIFERT 87 Phil Rep)
Disguised dividends in Income taxation Taxable
Board declared stock dividends declared not in accordance with the Corporation Law,
requiring presence of unrestricted R/E. But they made it appear that dividends declared
were stock dividends so they could evade the payment of tax on dividends.
RPWADS
RPWADS
Royalties
Prizes
lrbs_ssbc-r_2009
Winnings
Exempt:
o
PCSO
Lotto
Annuities
Dividends Received
Share of a partner from the NIAT of a Taxable Partnership (Sec 24B2 & 25A2)
Income subject to FIT income governed by the Final W/holding Tax system. Under this
system, the w/holding agent shall deduct and w/hold such tax on income. The recipient of
such an income is not required to report the same as part of his income because such final
tax w/held shall serve as full payment / settlement of the tax liability on income.
Income subject to CWT income governed by the Creditable W/holding Tax System.
Under this system, the w/holding agent shall deduct and w/hold such tax on income. The
recipient of such an income is required to report the same as part of his gross income.
Such tax w/held will not extinguish TPs tax liab on such income. The tax w/held can be
claimed by the TP as creditable tax.
Cash dividend received by an RC/RA from a DC is subject to FIT & not progressive
rates of 5-32% (Sec 24B2)
Rationale:
1.
Ensure collection of tax on dividend, which will immediately go to the coffers of govt.
(NIT: no assurance that individual TPs will report dividend income.
2.
Easier compliance: By shifting responsibility to the corporations, the BIR could easily
monitor the compliance. (NIT: It would be extremely difficult for the BIR to check
compliance with individual TP)
3.
4.
5.
Same reasons why Interest Income from bank deposits is subject to FIT (just
qualify individual TPs w/ the term depositors, and substitute banks for
corporations)
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Exclusions from GI
22/06/2015 18:18:00
Cf: Estate Tax (Sec 85e: WON proceeds of life insurance policy will be
included / excluded from the Gross Estate)
Included:
Gifts, Donations
Miscellaneous Items****
Donation: Donor-Donee
1.
2.
lrbs_ssbc-r_2009
1.
2.
Cf: Estate Tax (Sec 85e: WON proceeds of life insurance policy will be
included / excluded from the Gross Estate)
o
Included:
lrbs_ssbc-r_2009
Cf: Art 2219 par 7 was applied in the Filipinas Broadcasting case,
awarding moral damages to a corporation for defamation
Lost profit TAXABLE. He could have earned this if he were not hospitalized
A. Retirement Benefits
o
All retirement benefits received from the GSIS (given to public / govt
EEs) are EXEMPT.
B. Separation pay
o
Kinds
Sickness benefit
EE, hence all benefits received, including the so-called terminal leave pay
is exempt. The terminal leave pay covers monetized value of unused
VL/SL credits. (Zialcita case)
lrbs_ssbc-r_2009
construction. Due to the economic situation, it had to close its construction division and
layoff the employees in that division. A Co. has a retirement plan approved by the BIR,
which requires a minimum of 50 years of age and 10 years of service in the same employer
at the time of retirement.
There are 2 groups of employees to be laid off: 1) Employees who are at least 50
years of age and has at 10 years of service at the time of termination of employment. 2)
Employees who do no meet either the age or length of service A Co. plans to give the
following:
For category (A) employees - the benefits under the BIR approved plan plus an ex
For category (B) employees - one month for every year of service.
For both categories, the cash equivalent of unused vacation and sick leave credits.
A Co. seeks your advice as to whether or not it will subject any of these payments to
withholding tax. Explain your advice.
A:
All of the payments are not subject to income tax and should not also be subject to
withholding tax. The employees were laid off, hence separated for a cause beyond their
control. Consequently, the amounts to be paid by reason of such involuntary separation are
excluded from gross income, irrespective of whether the employee at the time of separation
has rendered less than ten years of service and/or is below fifty years of age.
(Section 32(B), NIRC)
Does it necessary follow that retirement benefits are exempt from estate tax? (Sec
86A7) YES. An allowable deduction from Gross Estate, by virtue of RA 7641 in relation to
the LC.
RA 7641 cf: RA 4917, 86A7 salient points:
Retirement benefits that may be given to EEs under the CBA or any other
agreement are exempt.
lrbs_ssbc-r_2009
Q: What are tax implications of receipt of GSIS benefits and their subsequent deposit in the
bank?
A: GSIS benefits are EXEMPT; If deposited in the bank, interest income therefore will be
subject to tax. (Same as SSS benefits)
****Miscellaneous Items
B. financing institution
financing institution extended loan to Mitsubishi Metal and used it to extend loan to a
Philippine corporation, Atlas Mining Corp. Mitsubishi Metal claimed that the interest income
was exempt since the amount likewise came from an exempt institution. Loan P20M Sale
Atlas will purchase mining equipment to be sold to Mitsubishi for P50M. BIR: Mitsubishi is
taxable. CTA: Mitsubishi is an agent of the EXIM Bank.
SC: Interest on the loan is taxable. The source is tax-exempt, therefore the interest
should not be taxed. However, there was no clear & convincing evidence that Mitsubishi was
indeed an agent of Japan. When the contract between Mitsubishi & EXIM was
consummated, the money ceased to belong to EXIM15 ; it was already owned by Mitsubishi.
The other contract of loan was executed between Mitsubishi & Atlas. Exemptions should be
construed strictly against the TP, hence it could claim no exemption.
15
From
Public utility
Accruing to:
GSIS
SSS
PCSO
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Requisites for
(C)
(D)
Exemption
Conditions must
concur:
SCRA-LEC:
Scientific,
Received by an
charitable, religious,
a competition whether
artistic, literary,
here or abroad
educational, civic
achievement
No action on his
Sanctioned by the
Unconditional
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cf: RA 7549:
The donor of such an amount, exempt from Donors Tax. (not yet in the Tax
Code; not in Sec 101A3)
Such amount can be claimed as a deductible contribution. (not yet in the Tax
Code; not in Sec 34H)
Indebtedness
Informers Reward
FCDA
Recipient
o
non-resident: exempt
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GPPs
SSS
Phil Health
PCSO
Charitable
Cultural
Athletic
Religious
Rehabilitation of veterans
Scientific Organizations
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IV of the Constitution: Actually, Directly & Exclusively used for such purposes The use of
the amount is the test of exemption.
Interest income from bank Deposits to avail of exemption from 20% FIT, the
non-stock, non-profit educational institution Cf: DOF 149-95
Cf: DOF 149-95: requires concurrence of the following conditions for exemption:
o
Resolution of the BOT that such amount will be used for expansion of
educational project
disposition)
charitable institution
religious organization
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Exempt
Property Tax (Art VI Sec 28 par 3 Consti; Lung Center of the Phils v. Roces)
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Is
Income
exempted
Tax (Sec 30
from
NIRC)
Religious
YES
Propert
y Tax
Donor
s Tax
ADE:
Estate
Tax
YES.
Actually,
Provided
directly,
complies with
exclusively*
NO
conditions
used for
religious
purposes
Educational Institution
Private
NO.
Subject
ADE:
directly,
preferential
exclusively*
if income from
its unrelated
NO
NO
May
NO
NO
YES,
Actually,
to 10%
corporate rate
used for
educational
purposes
activities is not
more than
50% of its
income.
Govern
ment
YES
(Sec 30i)
be exempt
from donors
tax
Non-
Yes
YES.
stock, non-
Provided
profit
complies with
3 Consti)
Charitabl
YES
conditions
ADE:
YES.
(Sec 30e,
Actually,
Provided
provided the
subject to last
directly,
complies with
30%
par)
exclusively*
used for
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conditions
requirement is
complied with
charitable
purposes
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9 Donations Exempt from Donors Tax (QARTIER-CPS) with conditions for exemption
Qualified Donees
Religious organization
Trust foundations
Research institution
Cultural organization
Philanthropic organization
Non-stock non-profit
Not more than 30% of the donation shall be used for admin purposes
Donations Mortis Causa (Sec 87D CSC) subject to condition: Not more than
Charitable Institution
Cultural
JV / Association need not comply with the formal requirements of the law
regarding the creation of a partnership. (Collector v. Gatchalian)
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Co-ownership not taxable; merely for the enjoyment of the co-owners (not for
profits) seemingly conflicting doctrines:
o
Significant Rules:
MCIT
IAET
corporate operations.
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Prolonged labor dispute strike that has lasted for more than
6months
Force majeure
Illustration:
o
Scope of Application:
o
DCs
RFCs
X:
Registered under the PEZA (RA 7916) and BCDA (RA 7227)
still subject to the preferred corporate tax of 5%
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Public corporations
Insurance companies
Scope of application:
Closed corporations not more than 20 stockholders
Acts that constitute doing trade / business & make a foreign corporation an RFC
RA 7042 Sec 3D (POASA)
o
Appointment of an agent
Soliciting contracts
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SC: The remittances is not taxable for not being effectively connected
with conduct of trade / business in the Philippines. The investment of
Marubeni-Japan in a domestic corporation is a business that is different &
distinct from the business carried out by Marubeni. Direct investment by
the mother company in the company has no direct connection with
conduct of trade/business of Marubeni-Philippines.
Tax sparing credit rule (Sec 28B5b) 15% of dividends from DCs
Subject to the condition that the country in which such foreign country is
domiciled shall allow credit against the tax due from NRFC, taxes deemed
paid in the Philippines (Deemed Paid Tax Credit)
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Motion for recon: The Tax Code does not allow actual grant
(Sec 28B5b). It merely says, shall adopt. No such word
as actual. Nor does any RR provide for this.
PREVAILING VIEW
P&G Phils was the w/holding agent insofar as the dividends was
concerned. Does it have legal personality to file a written claim
for refund? NO legal personality
Taxpayer
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cargo & baggages determines situs of income (no longer the place of sale), partially
amending rule on situs on sale of personal property (Sec 42A6 provides that situs is place of
sale)
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Allowable Deductions
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Allowable
Personal Exemption
Personal expenses
Deductions
Nature
Nature of business
expenses (except:
deductible contribution)
disallowance of family,
living & personal expenses
(Sec 36A1)
Amount
Actual business
P50,000 (uniform
as proven / substantiated
applies to married
by receipts
arbitrary amount
Claimant
Individual &
corporate TPs
Individual TPs
X:
1. NRA-NETB (Sec
2. NRA-ETB w/ no
Kind / Classification
deductions
2. Additional P/E:
1. Itemized
2. Optional
16
17
As amended by RA 9504
As amended by RA 9504
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Amendments introduced by RA 950418 re OSD:
tax base:
o
for Indiv TPs is now gross sales / receipts (previously gross income)
court cannot question the motive, object, expediency, necessity behind the passage of a tax
law.
Nature
Allowable Deduction
Exclusions from GI
Items of expenses,
Items of Income,
Income
Purpose
Exclusions are
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Exclusions are
determining Taxable
Income
18
Interest expense***
Depletion expense
(DOM)
X: (Sec 34A2)
Tax Benefit Rule applies to tax refund, recovery of bad debts written off
19
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Income tax
Donors tax
Estate tax
Illustration:
NIBT
Less: Tax refund granted the following year
NIAT
x Tax Rate
Income Tax Payable
[Tax
X Tax Rate applied
Tax Benefit]
Provisions on bad debts expense (Sec 34E) - included in the gross income in
the year of receipt or recovery to the extent of income tax benefit of said
reduction
Uncollectible not only in the current taxable year but also in the
future
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If bad debts were written off during a year when the corporation incurred net
loss, subsequent recovery of the bad debt does not result in taxable income,
because it will merely be a return on capital. (RR 5-99)
Insufficiency of collaterals
Amount if only P1K & debtor is residing faraway, the cost of collection will be
more than the amount
Change of Taxpayers Status (Sec 35C): 8 (2 fr 1st par, 2 fr 2nd par, 4 fr last par)
Marriage of the taxpayer during the taxable year ineffectual due to the
uniform personal exemption
Additional dependent
Death of taxpayer P/E can be claimed by his estate
Death of spouse ineffectual due to the uniform personal exemption
Death of dependent as if the dependent died at the close of the taxable year,
by legal fiction
Dependent becoming more than 21yrs of age during the taxable year as if the
dependent became more than 21yrs old at the close of the taxable year, by legal
fiction
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GR: Husband
X:
If the husband is jobless, and the wife is the breadwinner BBB (Bantay Bata
Brigade)
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General Principles
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Sec 42: Income Tax Situs / Location / Place (last asked: 1957)
GENERAL PRINCIPLES
Plenary
Supreme
Nature
Inherent
Simple: The power to tax co-exists with the State. It exists independently of
the Constitution. Such Constitutional limitations merely regulate imposed
limitations on the exercise of the power to tax. (p.14 footnote 17)
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(Yuchengco, BPI v.
Commissioner)
Legislative
Impressive: It is based on the theory that taxes are a grant of the people, and
this grant shall be made by the immediate representatives of the people. And
where the people have laid this power, then it shall remain to be exercised.
Explain the Symbiotic Relationship Theory between the State & its inhabitants as
Despite the natural reluctance to surrender part of ones income to the taxing
authorities, every person who is able to must contribute his share in the burden
of running the government. The government for its part is expected to re-spend
in the form of tangible & intangible benefits intended to improve the lives of the
people, and enhance their material & moral values.
Ability to Pay
Purposes:
Secondary: PIER
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The power to tax does not include the power to destroy as long as the Court sits.
Dimaampao)
Justice Marshall is correct that the power to tax includes the power to destroy if used
validly as an implementing
The power to tax may be used as an implement of the power of eminent domain.
For public use / purpose Has no concrete definition; Test cited: the ultimate
result, general welfare of the people. Special care and attention to Senior
Citizens may create social problems. Thus, it will in effect redound to the
general benefit of the people.
o
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Elderly
Underprivileged
Women
Children
Disabled
Tax Credit
liab
Deductible Tax
City Trust v. CA 234 SCRA 348 improved version of the lifeblood doctrine in
Taxes are the lifeblood of the nation, through which government agencies
continue to operate, and which the State continues its functions
absurdity, the claim of the taxpayer that there is tax deficiency must first be settled.
City Trust - 499 SCRA 77: different answer no, it will not bar such claim for refund.
Claim for refund and protest are governed by different rules. If the government made an
assessment, and subsequently the taxpayer files a written claim for refund,
Fiscal Adequacy -
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International Comity
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UP
PPA
Tax Evasion (Estate of Benigno Toda Jr. v. Commissioner) 3 Factors that concurs
Unlawful
Same
Taxpayer
Taxing authority
Taxable period
Nature of tax
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Same
Taxpayer
Taxable period
Subject: e.g. Royalties
Previous taxation
No previous VD
GR: Taxes are not subject to set-off (Mambulao Doctrine 1961, Francia v. Sia
doctrine 1997)
Taxes are not subject to set-off / compensation. A pending claim for tax credit /
tax refund can not be set off against the tax deficiency of the taxpayer. It may
only be allowed if the claim is demandable, due and liquidated. (Phoenix Mining
v. Commissioner)
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X: There was already a law appropriating an amount in payment of the claim of the
TP. [TP and government are not considered Drs-Crs of each other.] (Domingo v. Garlitos,
1962)
LESS-DAN-PTN
Veto power of the president re: appropriation, revenue & tariff bills (Art VI Sec
__, Par 2)
Exemption from income tax, property tax, customs duties of non-stock, nonprofit educational institutions (Art XIV, Sec 4 Par 3 of the Constitution)
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Special Fund collected, levied under special law shall only be used for such
purpose (prevents juggling of funds Art VI Sec 29 par 3)
Due Process must be observed in the imposition of tax (Art III Sec 1)
Appropriation, revenue and tariff bills shall originate exclusively in the house of
representatives. (Art VI Sec 24)
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