Beruflich Dokumente
Kultur Dokumente
STATE POLICY
THE B.I.R.
SOURCES OF REVENUES
The following taxes, fees and charges are deemed to be national internal
revenue taxes: (Code:IEVPEDO or EVE-PIDO)
1) Income tax;
2) Estate and donors taxes;
3) Value-added tax;
4) Other percentage taxes;
5) Excise taxes;
6) Documentary stamp taxes; and
7) Such other taxes as are or hereafter may be imposed and collected by
the Bureau of Internal Revenue
2
INCOME TAX
Q. What are the features of our present income taxation in the light of R.A
8424?
A. We adopted the so-called COMPREHENSIVE TAX SITUS Comprehensive
in the sense that we practically apply all possible rules of tax situs.
b) Place/Source
Used as a basis in taxing the income of a non-resident alien individual. We
can only tax his income derived from sources within and in taxing the same, we
consider the place where the income is derived.
Domestic corporation we can tax its income derived from sources within and
without.
On Non-resident citizen, they can only be taxed on their income derived from
the sources within tax situs is the place /source of income.
Taxpayer Sources
1. RC I/O (Sec. 23 [A])
2. NRC I (Sec. 23 [B])
3. OCW I (Sec. 23 [C])
4. ALIEN I (Sec. 23 [D])
4.1 NRA-ETB
4.2 NRA-NETB
4.3 ALIEN ERA-MNC
4.4 ALIEN OBUs
4.5 ALIEN PSCS
5. Domestic Corp. I (Sec. 23 [E])
6. Foreign Corp-RFC/NRFC I (Sec. 23 [F])
2] The tax rates are progressive in character. This is clear under Sec. 24 (a).
You will notice there that the tax base increases as the tax rate increases.
5] Under certain cases, we employ the pay as you earn system. This applies
to income subject to withholding tax.
* Individual taxpayers are allowed to adopt only the calendar year period while
corporate taxpayers have the option either the calendar year period of the fiscal
year period.
Calendar year period this covers the period of 12-month commencing from
Jan. 1 and ending Dec. 31.
Fiscal year period this is also a 12-month period commencing on any month
or ending on any month other than Dec. 31.
In general, we adopted the net income taxation because under Sec. 34,
taxpayers are allowed to claim the so-called ALLOWABLE DEDUCTIONS.
GROSS INCOME means all income derived whatever source, including but
not limited to the following: [STP-IRR-DAP-PS]
1. Compensation for services;
2. Gross income from trade or business or the exercise of a profession;
3. Gains derived from dealings in property;
4. Interests;
5. Rents;
6. Royalties;
7. Dividends;
8. Annuities;
5
NET INCOME TAXATION income is taxed at net. The taxpayer may claim
allowable deductions.
INCOME all wealth which flows in the taxpayer other than a mere return of
capital. It includes all income specifically described as gain or profit including
gain derived from the sale or disposition of capital asset.
JUDICIAL DEFINITION: It also means gains derived from (1) capital, (2) labor, or
(3) both labor and capital including gains derived from the sale or exchange of
capital asset.
Example of income derived from both capital and labor >>> Income of an
independent contractor. The independent contractor provides work force,
provides capital and derives income from such capital.
* In determining the profit from the sale of property, you should always be guided
by this formula:
TAXABLE INCOME (the old term is Net Income) means all pertinent items of
gross income specified in the Tax Code less the deductions and/or personal
and additional exemptions, if any, authorized for such types of income by this
Code or other special laws. (Sec. 31 of the TRA of 1997).
Shoter Version: All pertinent items of gross income less allowable deductions.
SOURCES/SITUS OF INCOME
* COMPENSATION INCOME
Tax Situs: Place where services are rendered. So, if services are rendered within
the Phils., that is a Local Income. If it is a payment for services rendered
outside the Phils., that is an income without.
RC income from within and without are taxable.
NRC only compensation income from sources within is taxable.
RA same as NRC.
Tax Situs:
(1) if the goods are manufactured in the Phils. And sold within the phils. This is
considered as income derived purely within.
(2) Goods manufactured outside the Phils. and sold outside income derived
purely without.
(3) Goods manufactured within the Phils. and sold outside the Phils. income
partly within and partly without.
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(4) Goods manufactured outside the Phils. and sold within the Phils. income
partly within and partly without.
* INTEREST INCOME
Tax Situs: RESIDENCE of the DEBTOR
HELD: NO, because the tax situs of interest income is not the activity but the
residence of the debtor. The place where the contract of loan is executed is
immaterial.
* RENT INCOME
Tax Situs: the PLACE of property subject of the contract of lease.
* ROYALTIES
Tax Situs: the PLACE where the intangible property is USED
* DIVIDEND
a. Received from domestic corp. this is an income purely within.
b. Received from foreign corp. consider the income of the foreign corp. in the
Phils. during the last preceding three (3) taxable years;
rules:
(1) The income is purely within if the income derived from the Phil. sources is
more than 85%
(2) It is purely without if the proportion of its Phil. income to the total income is
less than 60%
(3) There should be an allocation if it is more than 50% but not exceeding 85%
* ANNUITIES
Tax Situs: the PLACE where the contract was made
* PRIZES AND WINNINGS
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If these prizes are not given on account of services, the tax situs is
the place where the same was given.
Tax situs of winnings is the place where the same was given.
*PENSION
Tax Situs: PLACE where this may be given on account of services rendered
GROSS INCOME
GROSS INCOME means all income derived from whatever source, including
but not limited to the following:
*ALLOWABLE DEDUCTIONS
* NON-DEDUCTIBLE ITEMS
(Sec. 36 A)
1. Personal living or family expenses;
2. Amount paid for new buildings or permanent improvements, or betterment to
increase the value of any property or estate;
3. Any amount expended in restoring property or in making good the
exhaustion thereof for which an allowance is or has been made; or
4. Premiums paid on any life insurance policy covering the life of any officer or
employee, or of any person financially interested in any trade or business
carried on by the taxpayer , individual or corporate, when the taxpayer is
directly or indirectly a beneficiary under such policy.
TAXABLE INDIVIDUALS
When an NRC returns to the Phils., his income may also be taxed as
Resident Citizen or Non-Resident Citizen.
But if he is not in the Phils. from the period of January to December 1998, he
will be taxed as NRC for the said period.
If he will return to the Phils. and stay there from January t December 1999, he
will be taxed as RC for the same period.
* NRC must prove to the satisfaction of the BIR Commissioner the fact of
physical presence abroad with the intention to reside therein.
* When an NRC decides to return to the Phils., he must prove his intention to
reside here permanently.
* If an alien stays in the Phils. for a period of more than one (1) year, he is
considered as RA.
* He is one whose stay in the Phis.is not more than 180 days
> We can no longer tax his income from sources without. We can only tax his
income from sources within.
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ENTITLEMENT OF DEDUCTIONS
Gross Income
Less: Allowable deductions
=======================
Taxable Income
NRA-TB entitled to deductions because the tax base is gross income. Their
income is subject to 25% tax rate.
SNRA-NETB subject to 15% tax rate on their income in the from of:
S - Salaries
H - Honoraria
O - Other
W - Wages
E - Emoluments
R - Remuneration
Subject to tax if :
1. the insurer and insured agreed that the amount of the proceeds shall be
withheld by the insurer with the obligation to pay interest in the same, the
interest is the one subject to tax;
Example:
A transferred to B his life insurance policy. The value of the policy is P1
M. B paid a consideration amounting to P300,000. B continued paying the
premiums after the transfer such that the premiums amounted to P200,000.
Upon the death of the insured, the P1 M may be received by the heirs.
Problem:
A obtained a life insurance policy for B. B is the president of As
corporation. Corp. has an insurable interest in the life of its officers, so
premiums may be paid by the employer A. Upon the death of B, his designated
beneficiaries will receive the proceeds.
Answers:
b. Premiums of life insurance policy paid by the employer may form part of
compensation income; hence, taxable if the beneficiary designated are
the heirs or the family or the employees.
c. Proceeds of life insurance policy may be excluded from the gross estate of
the decedent under the following cases:
1. if the beneficiary designated is a 3 rd person and the designation is
irrevocable;
2. it is a proceed of a group insurance policy.
Problem:
A took out an endowment policy amounting to P1 M. He paid premiums
amounting to P800,000. Upon the maturity of the policy, A received that P1M.
How much is the taxable amount?
Answer:
That is P1,000,000. value of endowment policy
LESS: P 800,000. representing amount of premium
===============================================
P 200,000. taxable amount
But as regards damages representing loss of anticipated income, this is the one
that is taxable.
If damages are in the nature of moral, exemplary, nominal, temperate, actual and
liquidated damages, as a rule, these may not be subject to tax.
Example:
If a person suffered injury as a result of a vehicular accident, and an
action is filed in court, the Court awards the following:
Moral - P100,000.
Exemplary - P100,000.
Actual - P 60,000. (hospitalization expenses)
P 20,000. (repair of car)
P 60,000. (loss of income)
*** All damages awarded are tax-exempt except damages of representing loss of
income.
- VETERANS BENEFIT
* This may be given by the US Administration.
* The recipient must be a resident veteran.
The same is true with resident alien because we can only tax his income from
sources within.
The inclusion of NRC and RA in the enumeration are mere surplusage.
REQUISITES:
1. The private employee or official must be at least 50 years of age at the time of
his requirement;
2. He must have rendered at least 10 years of service to the employer at the
time of the retirement;
3. There must be reasonable private benefit plan established by the employer;
4. The reasonable private benefit plan must be approved by the BIR.
5. Reasonable private benefit plan may be in the nature of pension plan, profit
sharing plan, stock bonus plan, or gratuity;
6. The employer must give contribution and no amount shall inure to the
benefit of a particular employee or official. This must be established for the
common benefit of the employees or officials;
7. This can be availed of ONCE.
Example of no.3
a. Retrenchment of employees;
b. Installation of labor saving devises;
c. Dissolution of law firm.
*MISCELLANEOUS ITEMS
a. Prizes and Awards in Awards Competitions
REQUISITES:
1. Competition and tournament must be sanctioned or approved by
the National Sports Association;
2. The competition and tournament must also be approved by the
Philippine Olympic Committee, whether local or international;
whether held in the Phils or outside.(if not accredited- 20% tax)
* Government of the Republic of the Phils or Government of the Phils vs. National
Government
REQUISITES:
1. Recipient must be:
a. foreign government;
b. financing institution owned, financed or controlled by foreign
government;
c. regional financing institution, international financing institution
established by foreign government;
2. It must be an income derived from investment in the Phils.
ISSUE: Whether or not such interest on loan is subject to Phil. income tax
The lender is not a tax exempt entity. The creditor here is Mitsubishi and
it is not a tax exempt entity. Such being the case, tax exemption must be
strictly construed against the taxpayer and liberally in favor of the government.
When you claim exemption, you should prove it clear and categorical terms.
* The problem may be modified by the examiner. The examiner may clearly
state the Mitsubishi is an agent of EXIMBANK. The answer is, the interest on
loan is tax exempt. Mitsubishi then is considered as an extension of
EXIMBANK. It is as if the lender is EXIMBANK.
- If the term is not more than 5 years (5 years or less), the gain derived from the
sale, exchange and retirement of the same, may be subject to tax.
Illustration:
If you are a creditor, you may sell these bonds, debentures or certificates
of indebtedness to another. Hindi mo na mahintay ang maturity kasi long term.
If there is a gain on the sale of the same, it would be a tax exempt provided that
the bonds, etc., have a maturity or term of more than 5 years.
* Retirement benefits may be subject to tax, if it does not comply with the
provision of Sec. 32 (b) par. 6 sub.par a.
N.B. : The name or designation of income is immaterial. The basis of the income
is immaterial and the manner by which it is paid, is also not important. As long
as it is given under an employer-employee relationship, then that is compensation
income.
*** Share of the employee from the PROFIT SHARING PLAN of the employer-
Compensation income received in consideration of services rendered.
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*** The basis of the income is immaterial. Even if it is paid in piece work, fixed
rate or percentage basis as long as it is paid under an employer-employee
relationship.
*** Not all payments for services rendered are considered compensation income.
Only those paid under the employer-employee relationship.
Premiums will be taxed under Sec. 33 par.b no.10. it is stated there: Life
or health insurance and other non-life insurance premiums or similar
amounts in excess of what the law allows.
* Housing allowance may be exempt from tax if the living quarters are:
a. Provided with the premises of the employer.
b. It must be made as a condition of employment.
* Meal allowance may be exempt from tax if it is provided within the premises of the
employer.
* Privilege or purchase discount are tax exempt if it does not exceed of the basic
monthly salary of the employee. If it is more than , the excess may be as fringe
bene
* Medical or hospital allowance, clothing allowance, rice allowance may be exempt from
tax if the following requisites are present:
1. It must be of relatively small value (reasonable amount). (RSV)
2. It must be given for the following purposes: (CHEG)
a. To promote Contentment
b. To promote Health
c. To promote Efficiency
d. To promote Goodwill
4. Fringe benefits which are authorized or exempted from tax under special
laws.
5. Those given for the convenience of the employer, including those which are
required by the nature of the trade, business or profession of the employer
(Employers Convenience Rule)
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a. Monetized unused vacation leave credits not exceeding ten (10) days
during the year;
b. Medical cash allowance to dependents of employees not exceeding P750
per semester of P125 per month;
c. Rice subsidy of P350 per month;
d. Uniforms;
e. Medical benefits
f. Laundry allowance of P150 per month;
g. Employee achievement awards, for length of service of safety
achievement in the form of tangible personal property other than cash
gift certificate, with an annual monetary value not exceeding month of
the basic salary of employee receiving the award under an established
written plan which does not discriminate in favor of highly paid
employees;
h. Christmas and major anniversary celebrations for employees and their
guests;
i. Company picnics and sports tournaments in the Philippines and are
participated in exclusively by employees; and
j. Flowers, fruits, books or similar items given to employees under special
circumstances on account of illness, marriage, birth of a baby, etc.
The following are the possible fringe benefits, which may be exempt under the Employers
Convenience Rule: (H V H M T)
a. Housing benefit
b. Vehicle
c. Household personnel
d. Membership in a social or athletic club or similar organization
e. Traveling expense benefit
* If the housing or living quarters are provided outside the premises of the
employer, even if that is for the convenience of the employer, this is only exempt
up to 50% of the amount. So, 50% taxable, 50% exempt.
* Vehicle Exempt but depends upon the peculiar nature of the special needs
of the business of the employer.
Example: LBC or DHL business
ANSWER:
a. That should be subject to tax.
b. It should be excluded. Reason: Convenience of the employers rule.
BUSINESS Any activity that entails time, attention, effort for purposes of
livelihood or profit.
How about those who claim that they are professionals but are not
registered in the P. R. C., can they still be tax as such?
3. PASSIVE INCOME
1. Royalties
2. Prizes
3. Winnings
*** Do not include passive income in the income of your business or profession, or in your
compensation income. This is so because when you receive this income, the tax
had already been imposed and deducted.
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Question: How do you treat that share of a professional partner from the net
income of a general-professional partnership?
Answer: This should be taxed at the rate provided under Sec.24, that is, 5% to
34%.
But as regards the share of a partner in the net income after tax of a taxable or
business partnership, that is one which is subject to final tax.
INTEREST
Rules
1. If it is an interest on foreign currency deposit system, it is exempt.
If the recipient is non-resident individual (NRC, NRA-ETB, NRA-NETB).
2. If the recipient is a resident individual (RC, RA), that is subject to 7.5 %.
3. Interest income is also exempt if it is an interest income on a long- term
deposit or long-term investment (this must have a term of not less than 5
years).
Listed and traded through local stock exchange this is not subject to
income tax but subject to percentage tax of of 1% of the gross
selling price.
Not listed and traded through local stock exchange this is the one
subject to income tax.
If the share of stock is not listed and traded through local stock
exchange, the basis of the tax is net capital gain. So, you should
first deduct the capital loss.
- The tax on capital gain derived from the sale of real property is 6% of the gross
selling price or zonal value which ever is higher.
The definition of capital asset says real property held by the taxpayer
whether or not connected with his trade or business except real property
used in trade or business. So, in order to be a capital asset, the real
property must be one not used in trade or business.
That is why, the sale of residential house and lot is subject to 6% of capital
gains because it is a real property not used in trade or business.
But, sale of real property by a real estate dealer is not a capital transaction because the
property involved is one primarily held for sale to customer in the ordinary
course of trade or business. That is not a capital asset but an ordinary
asset.
This covers not only sale of property; it also covers conditional sale of real
property including the so-called pacto de retro sale under Art. 1602 of the
NCC, or disposition of property located in the Phils.
OTHER INCOME
c. Advance rentals
c.1. If in the nature of the prepaid rentals without restriction on the
use of the amount, it is taxable.
c.2. If it is in the nature of security deposit, it is taxable rent income if
there is a violation of the term of the lease.
c.3. If it is in the nature of a loan to the lessor, it is not taxable.
Example:
Outstanding stock Stock dividend Taxable
1. Preferred Common NT
2. Common Preferred NT
3. Preferred Preferred NT
4. Common Common NT
5. Preferred/Common Preferred T
6. Preferred/Common Common T
It is one which is made to appear as stock dividend when the truth of the
matter is that it is a dividend which is illegally declared, such a case, since the
purpose is to evade taxation, it is taxable.
Exceptions:
1. IT earning CI EE, ER REL
2. NRA-NTB
3. Aliens employed
A. RMC
B. OBU
C. PSC
4. NRFC
As regards corporate taxpayers, the following are entitled to claim allowable
deductions:
1. DC, which includes private educational institutions, non-profit hospital,
government-owned and controlled corps.
2. RFC
* In the case of individual taxpayers, they may avail of the optional standard
deduction of 10% of gross income
* All individual taxpayers except the NRA individual may claim this optional
standard deductions.
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1. EXPENSES
Example:
If you have business here in Manila and you also have business in Tawi-
tawi, what is the expense that you may incur in Tawi-tawi which you may not
possibly incur in Manila?
In Tawi-tawi, you may need people to guard your business. But here in
Manila, you may need not because of our new President-elect.
PAID to signify the fact that the taxpayer uses the CASH
BASIS. Under the CASH BASIS, an expense is recognized
when it is PAID.
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Case 1: Partnership was sold to a corp. and it was agreed that the
partners will serve the corp. and make it appear that they render services. So,
compensation for services was ostensibly made by the corp.
Held: The rule is settled. Bonuses must be given in good faith. There
must be services rendered because bonuses are additional compensation. In
this particular case, there was really no services rendered because that sale was
made through a broker. The corp. made it appear that it was through the efforts
of these corporate officers that brought about a successful sale of property.
3. RENT EXPENSE
a. The taxpayer must NOT be the owner of the property or he has no
equitable title over the property.
b. This is subject to withholding tax. You cannot claim that the taxes
supposed to be withheld have not been paid or remitted to BIR.
4. TRAVELLING EXPENSES
- This must be incurred or paid while away from home.
- Home does not refer to your residence but to the station assignment or post.
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Example: From home office to branch office, the traveling expenses incurred
are deductible. And this includes not only the transporatiotion expenses but
also meal allowance and hotel accommodations.
5. ENTERTAINMENT EXPENSES
- This must not be contrary to law, morals, good customs, public policy or public
order.
- If the cost of the repair increases the life of an asset for a period of more than
one (1) year, that amount is considered extra-ordinary repair. Otherwise, it is
considered ordinary repair.
2. INTEREST
Question 1:
What about that interest on unclaimed salaries of the employees, is that
interest deductions?
Answer/Held:
NO, because there is no obligation or indebtedness. It is the fault of the
employees in case they failed to claim their salaries.
Question 2:
What about that interest charged to the capital of the taxpayer, is that
deductible?
Answer:
Interest on cost-keeping purposes is not deductible. This does not arise
under an interest-bearing obligation.
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Question 3:
What about interest on preferred stock, is this deductible?
Answer:
As a rule, interest on preferred stock is not deductible, because there is no
obligation to speak of. It is in effect an interest on dividend. The reason why it is
not deductible is that the payment is dependent upon the profits of the corp. It
will only be paid if the corp. earn profits. And would not be paid of the corp.
incurs losses.
A. NO. You can only deduct the same when the installment is due a particular
year.
Related taxpayers:
a. members of the same family which includes:
a.1. spouses
a.2. brothers and sisters
a.3. descendants and ascendants
b. between two (2) corporations owned or controlled by one individual. He
must have a controlling interest over these two corporations. OR, if
one corp. is considered as personal holding company of another corp.
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So, if the interest income on bank deposit amounted to P100,000.00. And the
total interest expense incurred or paid by the taxpayer is P200,000.00. If this is
incurred in 1998, 41% of P100,000.00 is P41,000.00. That P200,000.00
interest expense incurred or paid, should be reduced to P41% of that
P100,000.00 to arrive at P159,000.00 which is the interest that may be claimed
as deduction.
P200,000.00
- 41,000.00
-----------------------
P159,000.00
The rule has been established that TAXES are NOT ORDINARY
OBLIGATIONS. But the Supreme Court in two (2) cases relaxed the distinction
between taxes and ordinary obligations.
1. The interest on deficiency donors tax is deductible. The SC explained that taxes
here are considered obligations or indebtedness. And it ruled that we have
to relax the distinction between tax and ordinary obligation in this respect.
2. Interest on deficiency income tax can also be claimed as deductible interest expense
because taxes here are considered ordinary obligations.
3. TAXES
2. This must be taxes paid or incurred in connection with the trade, business or
profession of the taxpayer.
*** Taxes that may be claimed as deductions may be national or local taxes.
34
2. INCOME TAX This includes foreign income tax. In this regard, the so-
called foreign income tax may be claimed as a deduction from gross
income or this may be claimed as tax credit against Phil. income tax. In
the event that he claims that as tax credit, he can no longer claim the
same as deduction.
4. ESTATE TAX, DONORS TAX (see also discussion on tax benefit rule)
The foreign income tax paid to the foreign country is not always the
amount that may be claimed as tax credit because under the limitation
provided under the Tax Code, it must not be more than the ratio of foreign
income to the total income multiplied by the Phil. income tax.
Taxes are deductible only by the person upon whom the tax is imposed
Except:
1. Share holder
2. corporate bonds - tax free Covenant clause
4. LOSSES
Problem:
Supposed the taxpayer had a building constructed on a parcel of land.
He owned this as well as the building erected thereon. He had
business and his business was conducted within the premises. Then,
he decided to remove such building as to construct a new building for
new business.
NO. That can only be claimed as deductions if the one demolishing the
same is the taxpayer. The moment that is sold to another claim that
as deductible loss. The treatment here is, the cost of demolition should
be capitalized in the selling price.
Exception:A may claim that as deductible loss if this was demolished
by value of a court order because the govt considered this as a fire
hazard, loss of useful value of property or capital asset.
The fire destroyed your property in 1995, no payment has been made
because the insurer and the insured were still under negotiation. It was
only in 1997 that they agreed on the amount. The amount agrees upon is
P100,000. The taxpayer may claim that casualty losses only in 1997 when
payment was actually made. This is the event that will complete the
transaction.
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5. BAD DEBTS
The debtor may be a NRFC, so you may argue that he may not be sued
here. According to the Supreme Court, as a rule that is not an excuse.
You should still send a demand letter to that NRFC. In other words, there
must be diligent efforts to collect the indebtedness and to prove that in the
near future such obligation is no longer collectible.
*** If the recovery of bad debts, resulted in a tax benefit to the taxpayer, that
is taxable. If it did not result in any tax benefit to the taxpayer, that is not
taxable. (TAX BENEFIT RULE)
N.B. Read the case of Phil. Refining Company vs. Commissioner, a 1989 case.
6. DEPRECIATION
The idea here is not to recover profit, but to recover the cost of property
invested in business. When the properties are used in trade, business or
profession of the taxpayer, the law considers or recognizes the gradual loss or
sale of property.
This involves natural resources such as oil, gas wells and mines. These are
non-replaceable assets.
The requisites for deductibility are the same as that of depreciation except
that the properties involved are natural resources
The idea here is not for profit but to recover the cost of investment through
this allowance for depletion.
* These are fully deductible if the contributions are given to the following: [F. A. G.]
1. Government or its political subdivisions, agencies or instrumentalities, for
the purpose of undertaking priority projects of the government;
These priority projects include: [S.H.E.]
a. Sports development, science and invention
b. Health and human settlement
c. Educational and economic development
3. Accredited NGO
The amount of charitable contribution that may be claimed as deduction may be:
IF the recipient of such contribution is any of the following DC formed or organized for:
[R.E.C.S.]
1. Religious purpose and rehabilitation of veterans
2. Educational purpose like educational corporations which are not qualified
as NGO
3. Charitable, cultural purpose
4. Scientific, sports development an social welfare purpose
Example:
If an individual taxpayer has a gross income of P100,000 and the
allowable deduction, except charitable contribution, is P50,000. The Charitable
contribution is P5,000.
REQUISITES OF DEDUCTIBILITY:
1. There must be a pension plan established by the employer;
2. The pension must be reasonable or sound;
3. Contribution must be given by the employer to that pension plan;
4. This must be for the benefit of the employees;
5. The plan must not be subject to the control of the employer.
Contribution to pension trust may refer to the current year or past years.
CURRENT YEAR- this is considered as ordinary & necessary expenses
Employer may also make a contribution to the pension plan in regard to the
services rendered for the past 10 years.
PERSONAL EXEMPTIONS
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PERSONAL EXEMPTIONS
PERSONAL EXEMPTION
This is an arbitrary amount in the nature of deductions from gross
compensation income.
2. Additional exemption
- This only applies to qualified dependent child and Php8,000.00 for every
children such as legitimate and illegitimate qualified dependent
children. child but not to exceed 4
the rule on
reciprocity.
/ / / But it
Personal within within must not X
Exemptio exceed the
n maximum
allowable
personal
exemption.
X
Additiona / / Rule on
l / within within reciprocity X
Exemptio does not
n apply.
1. Parents - One or both parents. Must be living with the taxpayer and
dependent upon the taxpayer for chief support.
- Parents must be natural parents.
Chief Support means more than 50% of the needs of the dependents are
provided by the taxpayer.
41
Problem: If the child or the brother/sister got married and then he has found
to be physically or mentally incapacitated, so bumalik si tatay at dependent sa
tatay for chief support, can he qualify as dependent?
Answer: No, physical or mental defect applies only to age requirement. Once
the child or brother/sister got married, he is automatically disqualified as
dependent.
CHANGE OF STATUS:
1. Death of spouse during the taxable year;
2. Death of dependent during the taxable year;
3. Death of the taxpayer during the taxable year; estate of the taxpayer may
claim the basic personal exemption;
4. Additional dependent during the taxable year;
5. Taxpayer got married during the taxable year;
6. Gainful employment of the dependent during the taxable year
7. Dependent became more than 21 years old during the taxable year.
There is a provision in the Tax Code, which is not so clear. For purposes of
head of the family, in the case of natural children or child, there is that word
acknowledged or recognized.
For purposes of the definition of head of the family, it is clear that to qualify as
dependent, the natural child or legitimate child must be acknowledged or
recognized by the taxpayer.
But in the definition of the dependent, dependent means legitimate,
illegitimate or legally adopted child or children. There is no word acknowledged
or recognized.
Was this deliberately omitted by our Congressmen? Does this imply that
since they have so may illegitimate children, they may not be required to
acknowledge or recognize them and they can claim this illegitimate child as
their dependent? This is not clear. If we will try to interpret the law literally,
there is no need of any recognition on the part of the taxpayer.
No. The intention of the law has always been to recognize this illegitimate
child and this is one way of compelling the taxpayers to recognize this child.
The President of the Republic of the Phils. cannot issue an executive order to increase the
basic personal exemption because the provision under the Old Tax Code
authorizing the President to increase the personal and additional exemption
upon the recommendation of the Sec. of Finance has been removed or deleted
by RA 8424.
Now, you can only increase the amount of personal and additional exemption
by legislative enactment.
NON-DEDUCTIBLE ITEMS
4. Premiums paid on the life insurance policy of the officer or employee of the
employer, when the employer is directly or indirectly designated as
beneficiary.
RULES:
Premiums paid on the insurance policy of the officer or employee may be
claimed as deduction by the employer, If the beneficiary is the family or the heirs
of the officer or the employee.
On the other hand, on the part of the employees, these premiums may be a
taxable compensation income. It is taxable compensation income on the part of
the employee if the beneficiary designated is the family of heirs of the employee.
Therefore, if these premiums are deductible on the part of the employer, that
is taxable on the part of the employee. If these premiums are not deductible on
the part of the employer, that is not taxable on the part of the employee.
N.B. Personal, living and family expenses are deductible for the simple reason
that these are not connected with the business, trade or profession of the
taxpayer. In lieu of the same, the taxpayer may claim the so-called Personal
and Additional Exemption in the case of individual taxpayers.
7. Cemetery company owned and operated exclusively for the benefit of its
members.
- This must be non-profit cemetery.
Example: Libingan ng mga Bayani
10. Civic league or organization not organized for profit but operated
exclusively for the promotion of social welfare.
Example: Piso for Pasig Foundation is not for profit. This is a civic
organization. Homeowners Association is subject to tax because that is
not organized for profit.
Take note that the last paragraph of Sec. 30; it provides, Not
withstanding the provisions in the preceding paragraphs. This means
that even though they are exempt, as regards certain income, they may be
subject to tax.
** The implication is that if these tax exempt corps mentioned under nos.
4 to 14, made an investment, the income derived from such investment
may be subject to tax.
So, if they have real property and lease it to another, the rent income is
subject to tax.
So, the exemption does not cover this income derived form such
investment. Thus, it must be an income derived from their activities
which may be the purpose for which they are organized.
institution has interest income derived from bank deposit, in view of this
provision (Sec. 30, NIRC), the BIR may impose a tax on the same,
regardless of the use or disposition. So, even if the interest on such
deposit is used to achieve educational purposes, that will not exempt it
from taxation. The Constitution says actually, directly and exclusively
used for educational purposes, the meaning of this is, as the proceeds
or income is actually directly and exclusively used for educational
purposes, that may be exempt. But under Sec. 30, no. That must be
connected with the purposes or purposes for which such institution has
been formed or organized. Since this runs counter to Art. 14 Sec. 4 par.
3 of the Constitution, this Sec. 30 should be declared unconstitutional.
The Constitution says use but here (Sec. 30) it is regardless of the use
or disposition. This must yield to that Constitutional provision.
N.B.: The rule now is settled, Govt owned and controlled corps. Are subject to
corporate income tax except those mentioned under Sec. 27 par C.
Case: The heirs of the decent inherited the property. There was distribution of
share. But such shares are held under single management. In fact the income
of such property after distribution was managed by one of the co-heirs.
Held: The fact that they agreed that the shares shall be held by the co-
heir under the single management for profit, this according to the SC convert
the co-ownership in to a taxable unregistered partnership. (Una vs. Commissioner
Una doctrine)
Case: The heirs inherited the properties from their deceased mother. The
property was under the administration of an administrator. This administrator
of the property was authorized to sell these properties for profit, or leased
properties for profit and engaged in an income producing activities.
Held: When these heirs inherited the property from their deceased mother, co-
ownership exists. At the particular stage, it is exempt from tax when the heirs
decided to invest such property in an income producing activity that co-
ownership is converted in to a taxable unregistered ownership (Sea vs.
Commissioner Sea doctrine)
Case: There was two sisters who form a common fund for the purpose of
engaging in a series of transaction for profit.
Case: Obelio Sr. entered into a contract with Ortigas limited company. Under
that contract, Ortigas limited company will distribute parcels of land to the
Children of Obelio Sr. for their residential houses. After the subdivision of such
parcel of land to the children of Obelio Sr., these children decided to sell this
parcel of land to Wide City Corp. Was there a taxable partnership formed by the
children of Obelio Sr.?
Case: Pascual and Dragon purchased 3 parcels of land from Bernardino and 2
parcels of land form Mr. Roque. Thereafter, the three parcels of land which were
purchased from Bernardino, were sold to Marimer Corp. with a profit of
P165,222.70 while the parcel of land purchased from Mr. Roque were sold at a
profit of P60,000 to Reyes.
Held: there was no partnership organized because this is just a mere sharing of
gross return. And as you have learned in partnership, the law says, the
partners share in the net profits of a taxable partnership. So, mere sharing of
gross return does not of itself establish a partnership.
Joint account When two persons form or create a common fund and such
persons engaged in a business for profit, this may result in a taxable
unregistered association or partnership.
But if two corporations are managed by one manager, and this 2 corporations
leased services, managed by one person and it has 2 separate accounts, it is
not an association formed which is subject to tax.
BOAC claimed that it is not subject to tax with respect to the sale of
transport documents or airline tickets in the Phils because it is an offline
international airline. It does not render any service and it has no lending rights.
Held: The contention of BOAC is not tenable. The income derived from
the sale of that transport documents in the Phil. is subject to tax. The subject of
income may be property, activity or service that produce the same. For an
income to be considered as an income derived from sources within the income
must be derived from activity conducted or undertaken in the Phil.
It is true that BOAC had no property in the Phil. from which its income
may be derived. It is true that BOAC did not render any service in the Phil. from
which its income may be derived. But there was that activity that was
undertaken in the Phil. from which income was derived and that refers to the
sale of transport document. According to the Supreme Court, the sale was made
in the Phil. and the payment was made in the Phil. This particular activity
enjoys protection of the Phil. government. So, it should share the burden of tax.
BOAC was considered doing business in the Phil. under this particular
situation because there were series of transactions made in the Phil. and BOAC
was appointed a permanent agent in the Phil. This implies that the Phil. and
the BOAC had no intention to establish continuous business here in the Phil.
Continuity of conduct is the peculiar circumstance referred to in the case.
48
**If these were mere isolated transaction (lets modify the facts of the case) and
BOAC has no permanent agent in the Phil., such airline is not considered doing
business in the Philippines. Remember, international carrier is taxed on gross
Philippine billings.
Held: We cannot consider that as resident foreign corp. These are mere isolated
transactions.
Held: That will not make such foreign corp. a resident foreign corp. because of
that absence of intention to establish continues business. It would be different
if it was coursed through the branch office of such foreign corp.
GENERAL RULES
Question: Can Congress pass a law imposing tax on the income of a RFC
derived from sources without?
The 34%, 33% 32% tax rates mentioned may not be applied except if it is lower
than the 2% of gross income of such corporate taxpayer. This is called
minimum corporate income tax rate of 2% of gross income.
SPECIAL RULES
Notes:
Tax rate is 10% if its income derived from unrelated trade, business or
activity does NOT exceed 50% of its gross total income.
But its income is subject to 34% tax rate if its income from unrelated, trade
or business or activity exceeds 50% of its gross income.
So, the amount from unrelated TBA (66.67%) is more than 50% of its
gross income (P30M). Thus, this P20M taxable income is subject to 34% tax
rate.
But, if the income from related TBA is P20M and its income derived from
unrelated TBA is P10M. So:
The income from unrelated TBA is not more than 50% of its gross income.
Thus, this P20M is subject to P10% preferential tax rate.
The explanation as to when the 10% or 34% tax rate applies is the same
as that of private educational institution.
50
*** For purposes of International Air Carrier, GROSS PHIL. BILLINGS refer
to the amount of gross revenue derived from carriage of persons, excess
baggage, cargo and mail originating from the Philippines in a continuous and
uninterrupted flight irrespective of the place of sale or issue, and the place of
payment of the ticket or passage document.
*** Lessor of CD and video is not included in no. 1. So, it is subject to 34% tax
rate.
*** Lessor of personal properties is not included in no. 2, so, it is also subject to
34% tax rate.
OTHER RULES
DC RFC NRFC
51
CASE:
52
HELD:
NO. This is not effectively connected with the conduct of trade or business of
their branch office. That should be excluded from the profits that should be remitted to
that Marubeni Corp. The condition is, it must be an income or profit effectively
connected with the conduct of trade or business of such corp. through its branch office.
Note: These incomes must be derived from the Phils. So, this is an interest income on
bank deposit maintained OUTSIDE the Phils., that is not subject to final tax but should
be included in the gross income of the DC.
Situation: NRFC received dividend, cash or property dividend from DC. That dividend
received from DC is subject to 15% FINAL WITHOLDING TAX.
This 15% may be imposed on this dividend received from DC if the foreign govt. of the NRFC
allows a tax credit at least 19% (1998), 18% (1999), 17% (2000). It should be credited from
the taxes deemed paid by this NRFC in the Phils.
So, if the foreign govt. does not allow a tax credit of at least 19%, the tax there is
not 15% but 34%. Thus, the tax spared or saved is 19% because normally the
tax is 34%. So, 34% less 15% equals 19%, that is the tax saved and that
represents the tax credit allowed by the foreign govt.
Question: Must the foreign govt. actually grant a tax credit or is it enough that the
foreign govt. allow such tax credit?
Answer: There is no statutory provision that requires actual grant. Neither is there a
Revenue Regulation requiring actual grant. It is clear that the provision of the
law says allows. So, it is enough to prove that the foreign corp. allows a tax
credit. It is not incumbent upon the foreign corp. to prove the amount actually
granted.
Question: Does a withholding agent or a subsidiary corp. have the personality to file a
written claim or refund?
Answer: The withholding agent has the personality to file a written claim for refund. A
withholding agent is technically a taxpayer because it is required to deduct and
withhold the tax, and it has the obligation to remit the same to the govt. So,
withholding agent is liable for tax. It has therefore the personality to file a
written claim for refund.
Withholding agent is not only an agent of the taxpayer but also an agent of the
53
CAPITAL ASSET means property held by the taxpayer whether or not connected with
his trade or business EXCEPT: [S.O.U.R.]
2. Property primarily held for sale to customers in the Ordinary course of trade
or business.
N.B. It is therefore safe to say that all properties not used in trade or business are
considered as Capital Assets.
Example: A property was inherited by the heirs from their deceased parents. That
property is considered as Capital Asset.
In the event that this property (a parcel of land) is improved by the heirs
substantially and sell the same at a profit, said capital property is now converted into
an Ordinary Asset. The profit derived from the sale of the land which has been
substantially improved by the heirs is considered as ordinary gain.
2. Sometimes the period or the extent of activities may play an important role.
Case:
If a taxpayer is engaged in a lumber business and he has been unsuccessful for
a period of 11 years and he tried again on the 12 th year. The sale that may be made on
the 12th year may not be considered ordinary transaction.
But those sales which, would have been made during that 11 th year when such
taxpayer is engaged in trade or business may be considered Ordinary Asset.
If the taxpayer stop his business and then undertake another business, that
may be considered Capital Transaction.
Example: B offers his land to A. B gives A 5 days within which to make up his
mind to buy this parcel of land for P500,000.00 Now, A pays B P5,000 for giving
him time to think whether he will buy that during the 5 day-period. If A fails to
buy the same, he incurred a loss and we call this Capital Loss. So, the loss of A
is considered a gain on the part of B because the latter received that P5,000.
So, failure to exercise option to buy may result in a capital loss on the part of
the offeree or buyer. As regards the seller, the gain is considered Capital Gain.
Example: After liquidation, the stockholders are entitled to the return of their
capital if there is still something left. If A made an investment and the value of his
shares of stock is P100,000, after liquidation of the corporate affairs, the corp. gives A
P150,000. The gain of A which is P50,000 is considered Capital Gain.
Now, in making readjustment of interest, the partner may derive gain therefrom,
and that is a Capital Gain.
4. Retirement of bonds.
Example: The debtor issues bonds and after one (1) year, he pays the same. The
value of the bonds is P100,000. Upon redemption, the debtor pays P120,000 to the
creditor. So the P20,000 is a gain to the creditor and we consider that as a Capital
Gain. But if there is a loss, that is considered as Capital Loss.
It is described as 61 days sale because here, 30 days before the sale, the seller
acquired substantially identical securities OR 30 days before the sale, he acquired
identical or substantially the same stocks or securities. Sale may also include
exchange or option to sell securities.
Example: Today is June 10, Now, here is A who is not a dealer in securities or
stocks. He sells securities.
55
You must find out whether 30 days before June 10, he purchased identical securities.
Or he ma not have purchased identical securities within that 30 day period before the
sale but it is possible that within 30 days after June 10, he may have purchased
identical securities.
The tax treatment here is, the gain is taxable, meaning that is classified as Capital Gain
because the seller is not engaged in such business. If there is a loss, since it is
classified as Capital Transaction, that is considered Capital Loss.
The capital gain is taxable but the capital loss incurred from wash sale transaction is
not deductible.
6. Short Sale a transaction wherein a person sells securities which he does not own
yet. The seller here is a mere speculator; he is selling securities which he is yet to
acquire, provided however, that he has ownership of the securities at the time of
delivery he has the right to transfer ownership. (See further discussion on p. 77).
So, the gain or loss may be 100% or 50% taxable deductible as the case may be.
Example: You sell your personal car. This is a capital transaction because the
asset involved is a capital asset. Let us say that you sell the car at P200,000 and the
cost of the car is P150,000. Here, there is a gain of P50,000.
You must find out the date of the acquisition and the date of sale or disposition.
If the date of acquisition and the date of sale fall within the 12 month period, this
P50,000 is P100,000 taxable. But if exceeding 12 months, this P50,000 is only tacable
up to P25,000. This is an example of tax avoidance.
N.B. This rule is applicable only to individual taxpayers. This is so because the
capital gain derived from capital transaction of corporate taxpayers is always 100%
recognized respective of the number of months during which the property was in the
possession of the corp. taxpayer.
N.B. This rule applies to individual and corporate taxpayers EXCEPT on banks
and trust companies because they are considered as dealer in securities as far as
issuance of bond and evidence of indebtedness are concerned.
Example: In 1996, the capital gain is P100,000 and capital loss is P200,000. SO,
there is a capital loss of P100,000 which may be carried over in 1997 by the taxpayer.
This net capital loss in 1996 may be claimed as deductions from the capital gain in
1997.
But if in 1996 the net income is P150,000 and the net capital loss is P100,000,
so the net capital loss does not exceed the net income. Thus, the entire amount of
P100,000 net capital loss can be carried over in 1997.
NO, because the law says during the succeeding taxable year. Tax exemption must be
strictly construed against the taxpayer and liberally in favor of the govt.
N.B. This rule applies to individual taxpayers.
In this regard, there is such a thing as no operating loss carry over. OPERATING
LOSS are losses incurred in the course of trade or business of the taxpayer. Net
operating loss may be carried over by the taxpayer, whether corporate or individual, to
the next three (3) consecutive years provided that during that year, such taxpayer is not
exempt from taxation and there must be no substantial change in ownership of the
corporation, in the case of the corporation. Substantial change may arise if less than
75% of the outstanding capital stock or paid up capital stock is held by the same
person.
Case: The BOI registered industries are allowed to carry over operating losses. This
time, those losses that were incurred during that period of 16 years operation may be
carried over to succeeding taxable year.
The rule that we have established is: expenses must be paid or incurred
during the taxable year. You can claim those expenses as deduction during the year
when the same were incurred or paid. The exception to this rule are net operating loss
carry-over and net capital loss carry-over.
Meaning of Terms:
In determining the gain or loss in the sale or exchange of property, this is the
basic formula:
Example:
2. If the property sold was previously acquired through inheritance, it is the fair
market value (FMV) of the property at the time of the acquisition.
57
At the time of acquisition means at the time of the death of the decedent or
testator.
3. If the property sold was acquired through donation, the basis shall be the same
as if it would be in the hands of the donor.
Situation:
A, the donor donated property to B, the donee. Subsequently, such donated property
was sold by the donee for P200,000. What must be the cost?
Answer:
The law says, the same basis in the hands of the donor. So, the donee should ask the
donor the basis.
It is also that A, the donor acquired the property from another either through purchase
or donation. So, you should ask A, the last donor, his basis.
4. If the property sold was acquired for less than an adequate consideration in
money or moneys worth, the basis of such property is the amount paid by the
transferee for the property.
Situation:
The seller acquired the property from A in the amount of P70,000. The FMV of said
property is P100,000. So, the seller here is the transferee and A is the transferor. The
seller sold the property at P200,000. What must be the cost?
Answer:
It is the amount paid by the transferee. And the amount paid by the transferee who
subsequently sold the property is P70,000. So, he will have a gain of P130,000.
*** Remember, it is not the FMV of the property but the amount paid bv the transferee.
Suppose the property was acquired in a transaction where gain or loss is not
recognized? (NO GAIN, NO LOSS RECOGNIZED)
Before we answer that, we should know these transactions where the gain is not
recognized (meaning it is not taxable) and the loss is not recognized (meaning, it is not
deductible).
The basic rule is, in the sale or exchange of property if there is a gain, the gain taxable;
If there is loss, the loss is deductible).
Illustration:
Property
Stock
Illustration:
Security or Stock
58
Security or Stock
2. If a person alone or together with others or not exceeding four (4) (so, the total
number should be five (5) exchanges his property for stock in a corp. and this person or
persons, after this exchange, acquired controlling interest over that corp. This means
that they acquired at least 15% of the shares of stock of such corp.
Answer: Even if these persons acquired controlling interest at the time of the
transaction, the rule is still applicable in which case that is still tax exempt.
Question: So, if these properties acquired under this tax exempt transactions are
subsequently disposed of, how will you determine the basis?
Answer: The basis of the stock or properties acquired under this no gain, no loss
recognized shall be the same basis in the hands if the transferor.
Suppose the property was acquired under transactions where gain is recognized
and loss is not recognized? (GAIN RECOGNIZED, LOSS NOT RECOGNIZED)
Transaction solely in kind this means that there are other consideration given other
than those mentioned under transactions solely in kind (nos. 1 and 2 above, but cash is
added).
Example: Corp. A party merger or consolidation transfers its cash and property to
Corp. B, also a party to such merger or consolidation.
Corp. B, in exchange, transfers its stocks to Corp. A.
Illustration:
Property and Cash
Property: P50,000
Cash: P50,000
Corp. A Corp. B P100,000
Let us say that FMV of stock given by Corp. B is P100,000. The value of the property
transferred by Corp. A is P50,000 while cash is also P50,000.
Now, you deduct the cost of the stock disposed of. Let us say that the cost of stock is
P80,000. So, Corp. B derived gain of P120,000. Is this taxable?
Answer:
YES, but only P100,000 is the amount that is taxable. This is so because of the
limitation that it must not exceed the total cash and the FMV of the property. And if you
add the FMV of the property and the total cash given, the total is P100,000.
Under the law, there is that limitation in transactions which involves not only the
property but also cash. The gain is recognized or taxable but the taxable gain must not
exceed the cash given and the FMV of the property which forms part of the
consideration.
59
On the other hand, supposed the cost of stock disposed of or transferred to Corp. A is
P250,000. So, there is a loss of P50,000, is this recognized or deductible? NO.
If this property received under this transactions which is not solely in kind is
subsequently disposed of, how do you determine the basis of that?
Answer: The basis of the property in the hands of the transferor less the FMV of
the property, less cash received plus the gain recognized, if any, plus the dividend that
may be treated as such, if there is any.
Transactions were gain is recognized and loss is not recognized (meaning, if there
is a gain, the gain is taxable and if the loss is not deductible) are: [W.I.R.N.]
1. Wash Sale
2. Illegal transactions
3. Those transactions involving Related taxpayers
4. Transactions Not solely in kind.
SHORT SALE
- this is also considered as Capital Transaction.
- Short sale is really an obligation payable not in cash but in goods. The
seller of securities or stock will decline. And if it declines, he earns profit.
However, if the price of securities increases, he incurs loss.
TRANSFER TAXES
ESTATE refers to the mass of properties left by decedent or testator to his heirs or
beneficiaries.
TRUST is the right to the property, real or personal, exercised by one person for the
benefit of another parties.
Parties to a Trust:
a. Trustor or grantor - one who created the trust
b. Trustee or fiduciary one who may hold the property for the benefit of other
person known as beneficiary. Sometimes, the fiduciary is also the nbeneficiary.
c. Beneficiary
The trust is revocable if the power to revest the title to the property of the trust
is vested:
1. in the grantor or in conjunction with other person who does not have the substantial
adverse interest in the disposition of the property
2. in any person who does not have substantial adverse interest in the disposition of the
property.
If the heirs decide to continue the business, such that the administrator
may manage the same, that will become an unregistered taxable
partnership.
Estate and trust may be taxed on the same manner and on the same
basis as in the case of individual taxpayers. So, they may claim the
deductions under Section 34 as long as these deductions were paid or
incurred in connection with the business of that estate or trust.
Questions: If there are two (2) trust created by one trustor or grantor, how do we tax
the income of that trust?
Answer: Under the law, the taxable income of these two (2) trust must be
consolidated. That trust should be taxed as if they constitute one trust.
Situation:
Grantor X created 2 trust. One is A trust created and the other is B trust. There
is only one beneficiary named Y.
61
Let us assume that the taxable income of trust A is P10,000. The taxable income
of B trust is P20,000. The total taxable income is P30,000. We will tax these 2 trust
separately but through consolidation.
In paying the tax after applying the applicable tax rate to the taxable income of
P30,000, the tax due should be apportioned to trust A and B.
So, for purposes of income tax, the taxable income of these 2 trust should be
consolidated, but for purposes of paying the tax, the tax due should be apportioned.
TRANSFER TAXES
DECEDENTS INTEREST
assets that are still owned by decedent at the time of death to the extent
of his equity or interest in any property whether as exclusive owner,
conjugal owner, or common owner.
JUDICIAL EXPENSES
1. accountants fee
2. appraisers fee
3. administrators fee
4. attorneys fee
5. docket fee
6. stenographers fee
7. other expenses of court hearings
RULES:
1. must not be compensated by insurance
2. must have been incurred during the settlement of the estate BUT NOT LATER than the
last day for the payment of the estate tax (6 mos.)
3. not claimed as deduction in an income tax return of the taxable estate
ALLOWABLE DEDUCTIONS
- NON-RESIDENT DECEDENT [ELIT-TVS]
1. ELIT (expenses, losses, indebtedness, taxes)
FORMULA:
PHIL. GROSS ESTATE
WORLD GROSS ESTATE x ELIT
2. transfer for public purposes
3. vanishing deductions
4. share of the surviving spouse
NOTICE OF DEATH
- if value exceeds Php20,000
- FILE notice with BIR within two mos. Of decedents death or within two mos. After
election of qualified executor or administrator
SURCHARGE
- 25% for late filing, for late payment
- 50% for filing of false or fraudulent return
PARTIES TO A DONATION
1. DONOR gratuitously disposes
2. DONEE receives and accepts
KINDS OF DONATION
1. PERSONAL PROPERTY may be orally or in writing
EXCEPT: exceeds P5,000 donation and acceptance must be in writing
2. REAL PROPERTY PUBLIC DOCUMENT
ACCEPTANCE - same deed of donation or separate instrument; done during the lifetime of
the donor
EXEMPTIONS/ALLOWABLE DEDUCTIONS
1. DOWRIES
RULES:
A. Exempt up to 1st P10,000;
B. Legitimate recognized or legally adopted children;
C. Made before marriage or within one year thereof.
2. GIFTS TO NATIONAL GOVT. or POL. SUB.
- not conducted for profit
3. GIFTS TO E, C, R, C, S, N, T, P, or R orgs.
- not more than 30% used for administrative purposes
- may be a school or non-stock entity
65
DEDUCTIONS ALLOWABLE
1. ENCUMBRANCES or donated property, if assumed by the donee
2. DIMINUTION of the donated property as specified by the DONOR
ADMINISTRATIVE PROVISIONS
- donors tax return must be filed under oath and in duplicate
- filed within 30 days from date of donation
EXTENSION: not exceeding 30 days
- WHEN PAID
- time the return is filed
EXTENSION: not exceeding 6 mos.
PROVIDED BOND- double the amount of TAX
ESTATE TAX tax imposed on the right or privilege to transmit properties upon death
of a decedent or testator
ESTATE TAX
NATURE OF ESTATE TAX It is an excise tax since the subject of the tax is the right
or privilege to transmit properties and not the property itself.
1. Resident estate taxpayer includes citizen of the Phils., resident alien who died in
the Phils., and such alien, at the time of his death, is a resident of the Phils;
2. Non-resident estate taxpayer is limited to non-resident alien individual.
Real and personal tangible properties of NRD are taxable only if they
acquire tax situs in the Phils.
Personal intangible properties that are deemed to have acquired Phil. situs are: [F,
SOB (DC, FC-85%, FC-SP), SR P]
If the personal intangible properties of a NRD does not belong to the above-
mentioned enumeration, they may not form part of his gross income or we may also
apply the doctrine of mobilia sequntur personam.
Question:
Suppose the personal intangible properties of NRD acquired tax situs in the
Phils., can this be exempt from real estate tax?
Answer:
YES, by applying the rule on reciprocity.
RULE ON RECIPROCITY the foreign country of that NRD does not impose or allows
exemption on tax on the properties of the citizens of the Phils. who died in that foreign
country.
The phrase does not impose and allows exemption are different from each other.
When we say does not impose, this means totally exempt. Allows exemption
means this may not cover all properties but only certain properties.
Case:
Country of Morocco has no international personality. If it grants exemptions to
the intangible personal properties if Filipino citizens who died in that country, will you
apply also that rule on reciprocity?
Held: YES. It does not matter whether the country has international personality or
not. What is important is it allows or grants exemption from estate tax.
Sec. 85, Gross Estate The value (FMV) of the gross estate of the decedent shall be
determined by including the value, at the time of his death, of all property, real or
personal, tangible or intangible, wherever situated: Provided, however, That in the case
of a non-resident decedent who at the time of his death was not a citizen of the
Philippines, only that part of the entire gross estate which is situated in the Philippines
shall be included in his taxable estate.
3. Revocable Transfer Any transfer made by the decedent during his lifetime where
the decedent has reserved the right to ALTER, AMEND, TERMINATE, or REVOKE. such
transfer; it is sufficient that the decedent had the power to REVOKE, though he did not
exercise such power.
- Irrevocable transfers should be excluded from gross estate.
- Revocable transfers are transfers which are subject to alteration,
termination, amendment or modification by the decedent.
Discussion:
1. Family home (even unmarried person may have a family home) subject to the
following conditions:
a. there must be only one (1) family home;
b. there must be certification issued by the Barangay Captain that the decedent is
a resident of and own that family home in that particular locality;
c. the amount that is deductible or the FMV of the family home should not be more
than P1M; excess shall be subject to tax
d. the FMV must be included in the gross estate of the decedent.
If the FMV of the family home is P5M, this should be included in the gross estate of
the decedent. But when you claim deductions, you can only claim up to P1M.
In the case of funeral expenses, the amount deductible is the actual funeral expenses
on the amount which is not more than 5% of the gross estate whichever is lower, but in
no case to exceed P200,000.
3. Losses that may arise from casualty or casualty losses such as fire, storm,
shipwreck, robbery, embezzlement, theft and other casualty losses.
These losses must be sustained not later than six (6) months after the death of the
decedent.
4. Indebtedness which partake of the nature of the unpaid claims against the estate.
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6. Standard deduction
The amount is P1M. So, this may only be applied if the gross estate of the
decedent is more than P1M.
Discussion:
a. Death of a decedent which must take place within FIVE YEARS from the death
of the prior incident or before gift was given.
Situation:
A died. B is the heir. Now, you may recall that properties acquired through
gratuitous title during the marriage is classified as exclusive property.
One of the properties of A which forms part of his gross estate had already been
taxed. This property will be transmitted to B by way of succession. If B died, take
note that one of his properties was acquired through inheritance from A and that is
an exclusive property. This property had already been taxed because that forms part
of the gross estate of A. Again, this same property may be subject to estate tax
because this exclusive property forms part of the gross estate of B. There seems to
be double taxation. That is why, the purpose of vanishing deduction is to mitigate
the harshness of double taxation. So, B may be entitled to that vanishing deduction
which may reduce his estate tax.
The condition set by law is that B must have died within the 5-year period. If B
died 6 years after the death of A, B can no longer claim such vanishing deductions.
c. Inclusion of the tax property in the gross estate of the prior decedent.
d. Previous taxation
The estate of A which included the property subject of vanishing
deduction had been taxed; meaning, that estate tax had been paid by prior
estate.
Question:
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So, if B died and the property is transmitted to C, his heir, that property is also
considered as exclusive property of C because it was acquired through inheritance.
Answer:
NO, because this had already been claimed by B. You can only claim vanishing
deduction once.
It is impossible that B acquired the property not through inheritance but
through donation. Donors tax had already been paid. This is an exclusive property
of B because under the law, property acquired during the marriage by gratuitous
title is an exclusive property and forms part of his gross estate.
YES. Here, B must have died within the 5-year period from the date of donation.
1. Real Property
The FMV equivalent to the value as determined by the BIR or zonal value OR
that of the value as determined by the provincial or city assessor whichever is higher.
2. Personal Property
a. Tangible Personal Property if not being sold; pawn value x 3; The FMV is
equivalent to the selling price of the property. (Brand new items)
b. Intangible Property includes interest, shares of stock
- It must be the FMV of the interest or shares of stock.
- If the intangible personal property is account receivable, it should be
Principal PLUS interest unpaid upon the death of the decedent except if
worthless)
- If it is in the nature of usufruct, we must take into consideration the
basic standard of mortality rate.
- American tropical experience table
- IF LISTED mean or ave. value between the highest and lowest stock
quotation
- IF NOT LISTED BOOK value
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DONORS TAX
DONORS TAX is an excise tax because what is being tax here is the right or privilege
to transmit or dispose of property gratuitously in favor of another.
- Tax imposed on the privilege of transmitting property by and living
person to another by way of donation
- Prevents avoidance of estate tax
b. The relatives of such priest or minister of the gospel within the 4 th degree, the
church, order, chapter, community, organization or institution to which such
priest or minister belongs.
c. A guardian with respect to donation made by a ward in his favor before the final
accounts of the guardianship have been approved, even if donor should die after
the approval thereof; nevertheless, any donation made by ward in favor of the
guardian when the latter is his ascendant, brother and sister, or spouse, shall
be valid.
d. Any physician, surgeon, nurse, health officers or druggist who took care of the
donor during his last illness.
e. Individuals, association & corporations not permitted by the law to receive
donations.
a. Parents who have abandoned their children or induced their daughters to lead a
corrupt or immoral life, or attempted against their virtue.
b. Any person who has been convicted of an attempt against the life of the donor,
his or her spouse, descendants or ascendants.
c. Any person who has accused the donor of a crime for which the law prescribes
imprisonment for 6 years or more, if the accusation has been found groundless.
d. Any heir full of age who, having knowledge of the violent death of the donor,
should fail to report it to an officer of the law within a month unless the
authorities have already taken action, this prohibition shall not apply to cases
wherein, according to law, there is no obligation to make an accusation.
e. Any person convicted of adultery or concubinage with the spouse of the donor.
f. Any person who by fraud, violation, intimidation, or undue influence should
cause the donor to make a donation or to change one already made.
g. Any person who by the same means prevents another from making a donation,
or from revoking one already made, or who supplants, conceals, or alters the
latters donation.
h. Any person who falsifies or forges a supposed donation of the decedent.
Under Art. 87 of the F.C., husband and wife are prohibited from making donation to
each other.
Example:
If the FMV of the property is P100,000 and P50,000 was the consideration given.
The difference of P50,000 is considered a donation.
* The amount received by a disinherited heir is subject to donors tax because he has no
right to such property and the same was gratuitously given, so there is no donative
intent.
Note: If there is no valid donation, the recipient is subject to income tax because of the
provision from whatever source derived.
NRD Real properties and personal tangible properties of a non-resident donor are
subject to donors tax only if they are located in the Phils Personal intangible
properties of NRD are subject to donors tax only if they acquire tax situs in the Phils
Personal Intangible properties that are deemed situated or acquire situs in the
Phils. are: GROSS GIFTS [F, SOB (DC, FC-85%, FC-SP), SR, P]
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Such shares, obligations or bonds acquires business situs in the Phils. if they
are used by such foreign corp. in furtherance
Rule on Reciprocity If the foreign country of that NRD does not impose, or
allows exemption on the donors tax on the properties of citizens of the Phils. who died
in that foreign country.
CUSTOMS LAW does not refer only to the provisions of Tariff and Customs Code. It
also includes other laws and regulations subject to enforcement by the Bureau of
Customs.
1. NIRC Sec. 107. Importation of goods or articles subject to VAT. The VAT must be
paid before these goods are released from Customs Custody.
2. NIRC Sec. 131. Importation of Articles subject to excise taxes. The payment of
excise tax must be made before the goods are released from Customs custody.
3. Regulations that may be issued by the CB, the implementation of such regulation is
vested in the Bureau of Customs.
Customs duties are duties which are charged upon commodities on their being
imported in or exported out of a country.
Tariff means a book of rates; a table or catalogue drawn usually in alphabetical order
containing the names of several states that hold commerce together.
1. BOC has the power to Prevent and suppress smuggling and other frauds upon BOC.
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Consistent with this power, the BOC may enter in a building, house, structure,
enclosure and warehouse. No search warrant is required. As long as they reasonably
believed that the place store smuggled goods, seizure or search may be made. But it
must be shown that the place must not constitute a dwelling place or unit. This is also
because if it is a dwelling place that is covered by the Constitutional provision where
warrant must be secured.
Situation: Suppose the watchman or security guard and his family live in that place
or building where smuggled goods are stored can there be seized without search
warrant? Can we consider that a dwelling place?
Answer: No, that will make the building a dwelling place. Even if it is outside of its
district such that it came from Zamboanga and was unloaded at Cebu, the collector of
Cebu may still seize the goods. What is only required is that it came from a port of entry
within the Phils.
2. Enforcement of the Tariff and Customs Law including other laws and regulation
affecting the administration of Tariff laws.
3. Recommend to the Sec. of Finance needed rules and regulations necessary for the
effective enforcement of the provisions of the TCC.
5. It has the exclusive and original jurisdiction over Seizure and forfeiture cases.
Meaning, to the exclusion of regular courts.
Articles subject to Customs duties:
Articles means wares, merchandise, goods and anything which may be made
subject of importation or exportation. Articles include Philippine money. So, if the
Philippine money is transmitted or taken out of the Phils. without authority from the
Central Bank, that may be the subject matter of seizure.
2. Prohibited articles:
a. Absolutely prohibited articles: (SWING)
1. those prohibited by Special Laws
2. Weapons of War
3. Insidious, obscene or immoral articles
4. Narcotic or prohibited drugs
5. Gambling devices
b. Qualifiedly prohibited meaning subject to restrictions or limitations. IF these
limitations are not complied with. They will be prohibited.
3. Duty free imported articles these are articles not subject to custom duties.
These are: (MASARAP)
a. Medals, badges used as trophies or awards
b. Animals and plants for experimental purposes
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c. Sample articles
d. Aquatic resources
e. Repair materials
f. Articles necessary for the take-off and landing of an airplane or for safe
navigation of vessels
g. Articles for Public exposition. Included here are historical books and personal
household effects
1. Regular or ordinary custom duties these are the ad valorem tax and specific tax.
For purposes of determining the ad valorem tax, the basis must be the home
consumption value. Home consumption value is the price stated in the commercial,
trade or sales invoice. If there is a reasonable doubt as to this value, recourse may be
had to the commercial and revenue attach report, the BOC should refer to the
available information that may help the BOC determine the applicable ad valorem tax.
Case: NCR-Japan has a subsidiary in the Phils. which is NCR-Phil. Ten adding
machines were imported from NCR-Japan and they used, for purposes for determining
ad valorem, the home consumption value, the price stated in the sales invoice. Instead,
we should refer to the commercial revenue attach report to determine the basis of that
ad valorem tax.
Dumping duty duty levied on imported goods where it appears that a specific kind or
class of foreign article being imported into or sold is likely to be sold in the Phils. at a
price less than its fair value.
The duty is equal to the difference between the actual purchase price and
the fair value of the articles in question in the country or exportation as
determined by the Sec. of Finance.
These are special duties imposed on imported articles. This may be imposed
subject to the ff. requisites:
1. There must be a deliberate and continuous sale of imported article in the Philippines
as price lower than the prices in the exporting country.
2. This must prejudice or cause or likely to cause injury to our local industry.
Situation: There are articles of foreign origin the prevailing price of which in the US
is equivalent to P100. These articles are sold or dumped in the Phils. at lower than the
prevailing price in the US because they are saleable in the U.S.
So, this will prejudice our local industries. In order to protect our local product
or to discourage people from buying this imported product, we should be impose special
duties in addition to the regular duties. Dumping duties should be imposed.
Marking duty duty on ad valorem basis imposed for improperly marked articles. The
requirement that foreign importation must be marked in any official language of the
Phils., the name of the country of origin of the article.
This may be imposed by the President of the Philippines when our goods
are discriminated against.
Question: What is the extent of the flexible power of the President of the Phils.
under the TCC?
Answer: That includes the power to impose discriminatory duties. The President
upon recommendation of the Tariff Commission may increase the tariff rates by not
more than 5x or meaning 500x of the tariff rates. He may also decrease the tariff rates
by not less than 50%.
He can only exercise these powers in the interest of the national economy,
national security and general welfare of the people.
2. Other duties:
a. Storage fee this is charged on the goods or articles stored in a warehouse
under the control and supervision of the BOC.
Articles owned by the government are exempt from storage fee is these
articles are stored in a government warehouse.
b. *Wharfage dues
Even if there is no wharf where the goods may be unloaded, wharfage
dues may still be imposed because it is not a duty or charge on the use of the
wharf. Even if the goods are unloaded in a private wharf or seashore, wharfage
dues still be imposed because this is a duty imposed on the cargoes or articles
which are unloaded. These are taxes. These are not really custom duties. The
significance of this is that when tax exemption is granted from all forms of taxes,
this may be included. If the exemption is only from custom duties, wharfage
dues is not included.
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e. Harbor fees
If these duties are not paid by the taxpayer, the government or the BOC has the
power to impose the following administrative sanctions:
(a) Articles, vessels, aircraft may be the subject matter of seizure if they are
unlawfully used in the importation of foods into the Philippines or exportation of
goods form the Phils.
Case:
Jose had a vessel, M/V Maria Victoria. It was unlawfully used for the
importation of cargo. When this was seized by the government, Jose raised the
defense of good faith.
Held:
(1) It is an action directed against the articles and in fact, the caption of the
case is Republic of the Phils. vs. M/V Maria Victoria. It is a proceeding in rem,
so good faith is not a defense.
(2) Even if the vessel did not carry the contraband, that may be the subject
matter of seizure if the vessel facilities the importation of that contraband.
It is not also required that the vessel must come from the foreign
country.
Case: Cruz was caught carrying a bulk of foreign currencies. These were seized
by the government because she had no license issued by the CB to carry said
sum of foreign currency.
Held: Cruz must prove that she had a license otherwise seizure was proper.
The burden of proof lies on the importer.
Sea stores must be in the place where it should be displayed. If these are kept
in the cabin of the crew, these may be the subject matter of seizure because
these are considered excessive.
(d) Unlawful transfer of cargoes from one vessel to another before reaching the point
of destination.
(i) Beast
(2) Judicial (a) Filing of civil action (a) Appeal to CTA, CA, SC
(b) Filing of criminal action (b) Filing of criminal
if there is fraud and it action against erring
must be serious Customs officials
Requisites:
Seizure cases: The issue here pertain to the validity of the importation because
you may raise the defense that these are not prohibited importation.
Protest: The issue here is the validity of the assessment or collection, or the
validity of the classification of articles where customs duties are imposed.
PROCEDURE IN PROTEST
TRANSFER TAXES
ESTATES & TRUSTS
ESTATE refers to the mass of properties left by decedent or testator to his heirs or
beneficiaries.
TRUST is the right to the property, real or personal, exercised by one person for the
benefit of another parties.
Parties to a Trust:
a. Trustor or grantor - one who created the trust.
b. Trustee or fiduciary one who may hold the property for the benefit of other
person known as beneficiary. Sometimes, the fiduciary is also the beneficiary.
c. Beneficiary
Estate may be the subject to tax if it is under administration. It may only be under
administration or settlement if the properties of the decedent are settled under judicial
settlement.
If the estate is under extra-judicial settlement, it is not subject to tax because that
will not earn income considering that the heirs agreed to settle the estate extra-
judicially.
The trust is revocable if the power to revest the title to the property of the trust
is vested:
1. In the grantor or in conjunction with other person who does not have substantial
adverse interest in the disposition of the property.
2. In any person who does not have substantial adverse interest in the disposition of
the property.
In irrevocable trust, you cannot transfer or revest the title of the property.
If the properties of the estate is not vested in a business, so the heirs are just co-
owners of the property, that is not taxable because co-ownership as a rule is not
taxable.
If the heirs decide to continue the business, such that the administrator may
manage the same, that will become an unregistered taxable partnership.
Estate and trust may be taxed on the same manner and on the same basis as in the
case of individual taxpayers. S, they may claim the deductions under Section 34 as long
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as these deductions were paid or incurred in connection with the business of that
estate or trust.
Question:
If these are two (2) trust created by one trustor or grantor, how do we tax the
income of that trust?
Answer:
Under the law, the taxable income of these two (2) trust may be consolidated.
That trust should be taxed as if they constitute one trust.
Situation:
Grantor X created 2 trust. One is A and the other is B. There is only one
beneficiary named Y.
Let us assume that the taxable income of trust A is P10,000. The taxable income
of B trust is P20,000. The total taxable income is P30,000. We will tax these 2 trust
separately but through consolidation.
In paying the tax after applying the applicable tax rate to the taxable income of
P30,000, the tax due should be apportioned to trust A and B.
So, for purposes of income tax, the taxable income of these 2 trust should be
consolidated, but for purposes of paying the tax, the tax due should be apportioned.
TRANSFER TAXES
ESTATE TAX tax imposed on the right or privilege to transmit properties upon death
of the decedent or testator.
ESTATE TAX
1. Resident estate taxpayer includes citizen of the Phils., resident alien who died in
the Phils., and such alien, at the time of his death, is a resident of the Phils.;
2. Non-resident estate taxpayer is limited to non-resident alien individual.
If the personal intangible properties of a NRD does not belong to the above-
mentioned enumeration, they may not from part of his income or we may also apply the
doctrine of mobilia sequntur personam.
Question:
Suppose the personal intangible properties of NRD acquired tax situs in the
Phils., can this be exempt from estate tax?
Answer:
YES, by applying the rule on reciprocity.
RULE ON RECIPROCITY the foreign country of that NRD does not impose or allows
exemption on estate tax on the properties of citizens of the Phils. who died in that
foreign country.
The phrase does not impose and allows exemtion are different from each
other.
When we say does not impose, this means totally exempt. Allows exemption
means this may not cover all properties but only certain properties.
Case:
Country of Morocco has no international personality or not. What is important is
it allows or grants exemption from estate tax.
Sec. 85. Gross Estate. The value of the gross estate of the decedent shall be
determined by including the value, at the time of his death, of all property, real or
personal, tangible or intangible, wherever situated. Provided, however, That in the case
of a non-resident decedent who at the time of his death was not a citizen of the
Philippines, only that part of the entire gross estate which is situated in the Philippines
shall be included in his taxable estate.
1. Decedents Interest.
- The gross estate may include the fruits and income of the properties and
that may constitute the decedents interest.
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3. Revocable Transfer
- Irrevocable transfer should be excluded from gross estate.
- Revocable transfers are transfers which are subject to alteration,
termination, amendment or modification by the decedent.
Example:
If the property has a FMV of P100,000 and the consideration given is only
P50,000, the difference of P50,000 represents that insufficient consideration.
Discussion:
b. there must be certification issued by the Barangay Captain that the decedent is
a resident of and own that family home, in that particular locality;
c. the amount that is deductible or the FMV of the family home should not be more
than P1M;
d. the FMV of the family home is P5M, this should be included in the gross estate
of the decedent. But when you claim deductions, you can only claim up to P1M.
3. Losses that may arise from casualty or casualty losses such as fire, storm,
shipwreck, robbery, embezzlement, theft and other casualty losses.
These losses must be sustained not later than six (6) months after the
death of the decedent.
4. Indebtedness which partake of the nature of unpaid claims against the estate.
There must be supported by notarized document. These obligations must
be incurred within three (3) years prior to the death of the decedent.
Another indebtedness which may be claimed as deduction is claim
against insolvent persons. Here, the claimant is the decedent. In order to
be deductible, this claim must be included in the gross estate.
6. Standard Deduction
The amount is P1M. So, this may only be applied if the gross estate and
the decedent is more than P1M.
1. * VANISHING DEDUCTION
- is an allowable deduction against the exclusive property of the decedent.
- May be claimed as deduction under the following conditions:
a. Death of the decedent which must take place within FIVE (5) YEARS from
the death of the prior incident.
Situation:
A died. B is the heir. Now, you may recall that properties acquired through
gratuitous title during the marriage is classified as exclusive property.
One of the properties of A which forms part of his gross estate had already been
taxed. This property will be transmitted to B by way of succession. If B died, take note
that one of his properties was acquired through inheritance from A and that is an
exclusive property. This property had already been taxed because that forms part of the
gross estate of A. again, this same property may be subject to estate tax because this
exclusive property forms part of the gross estate of B. There seems to be double
taxation. That is why, the purpose of vanishing deduction is to mitigate the harshness
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of double taxation. So, B may be entitled to that vanishing deduction which may reduce
his estate tax.
The condition set by law is that B must have died within the five-year period. If
B died 6 years after the death of A, B can no longer claim such vanishing deductions.
b. Identity of Property
So, there must be evidence to the effect that this is the same property which
forms part of he gross estate of A.
d. Previous taxation
The estate of A which included the property subject of vanishing deduction had
been taxed; meaning, that estate tax had been paid by prior estate.
Question:
So, if B died and the property is transmitted to C, his heir, that property is also
considered as exclusive property of C because it was acquired through inheritance.
Can C claim vanishing deduction?
Answer:
NO, because this had already been claimed by B. You can only claim vanishing
deduction at once.
If it is impossible that B acquired the property not through inheritance but
through donation. Donors tax had already been paid. This is an exclusive property of B
because under the law, property acquired during the marriage by gratuitous title is an
exclusive property and forms part of his gross estate.
YES. Here, B must have died within 5-year period from the date of donation.
2. Personal Property
a. Tangible Personal Property The FMV is equivalent to the selling price of the
property.
b. Intangible Personal Property includes interest, shares of stock.
- it must be the FMV of the interest or shares of stock
- If the intangible personal property is account receivable, it should be
Principal PLLUS interest unpaid upon the death of the decedent.
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TAX REMEDIES
If the tax law is silent on administrative remedies, the taxpayer may still
avail of the usual administrative remedies of protest and refund for
purposes of convenience and expediency.
In claiming for tax refund, the taxpayer have to file first a written claim
for refund with the BIR Commissioner.
Judicial Remedies:
IF the tax law is silent on judicial remedies, the government can still
avail of the usual judicial remedy. Example: filing an action for collection
with the court.
If the tax is silent on judicial remedies, the taxpayer may file a special
civil action for declaratory relief. But this does not apply as far as the
NLRC or the TCC is concerned because these particular tax laws are
explicit on this judicial remedies.
If the tax law is explicit on judicial remedies, the government should
observe the provisions of the law.
Example:
The filing of an action for collection with the Court must be
approved by the BIR Commissioner.
It is the discretion of the BIR to avail itself of remedies which may result
in the expeditious collection of taxes.
Case: Which is preferred, the claim of the government arising from tax lien or the
claim of the workers predicated on the judgment rendered by the NLRC?
Held: The claim of the government arising from tax lien is superior to the claim of a
private litigant predicated on a judgment.
Exception: The claim of the laborers may be superior under Art. 110 of the Labor
Code when the employer was declared bankrupt of judicial liquidation.
*In observing the provisions of the tax code in regard to distraint or levy,
the BIR cannot apply or invoke the presumption of regularity in
administrative proceedings.
So, if the procedure had been questioned by the taxpayer, it is not
for the taxpayer to prove that the procedures under the NLRC in regard
to distraint on levy had been complied with.
Requisites of Assessment:
1. Written notice stating that the amount is due as tax.
2. Written notice must contain a demand for the payment of such tax.
*The BIR can determine the tax liability of the taxpayer on the basis of
that so-called best evidence obtainable in the absence of said reports etc.
In one case, agents of the BIR used the books of account seized as a
result of raid by means of search warrant.
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Example: If it was received by the taxpayer in a particular date (Dec. 5, 1997), you
should count the prescriptive period for making an assessment from the date it was
mailed, released or sent by the BIR and not from the receipt of the notice of assessment
by the taxpayer.
The rule is, the BIR may collect taxes with or without prior
assessment.
Notes: The rule is if prior assessment has been made, the BIR can avail of the
administrative and judicial remedy. But if without prior assessment, the BIR can only
avail of the judicial remedies.
Return must be the one prescribed by the BIR. SO, if you file your Books
of Accounts in lieu of that return, that does not constitute return.
If the decision of the BIR is final and executory, the assessment made
cannot be questioned. The issue of prescription can no longer be raised
except if the BIR submitted the particular issue for the resolution of the
Court, that is considered as waiver on the part of the BIR and such issue
of prescription may be subject to resolution.
There is no provision in the TAX Code that prohibits the BIR from filing
an action for collection even if the resolution on the motion for
reconsideration on the assessment made is still pending.
When the case is pending before the CTA, collection may also be made by
filing of an answer to the petition for review with the CTA. This is
tantamount to a filing of collection of tax. This will also stop the running
of the prescriptive period for collection of taxes.
Collection of taxes is prescriptible.
1. The filing of an action requires the approval of the BIR Commissioner. Also, the filing
of civil action requires the approval of the BIR Commissioner. BUT this is not
jurisdictional. This is merely a formal defect which can be cured.
2. The purpose of filing criminal action is to impose statutory penalties.
3. The payment of tax liability does not extinguish the criminal liability of the taxpayer
arising from the violation of the provision of the Tax Code. This is so because the civil
liability arises from the failure of the taxpayer to pay and this does not arise from
felonious act.
4. The acquittal of the taxpayer from criminal liability does not carry with it the
extinguishments of civil liability.
5. The penalty of subsidiary imprisonment applies only to the failure of the taxpayer to
pay the penalties. But, the Tax Law is silent on the failure of the taxpayer to pay his
deficiency or delinquency tax.
In deficiency, the taxpayer filed a return but the same was deficient.
Deficiency is the difference between the tax due and the tax paid.
FIVE (5) years the prescriptive period for filing a criminal action for
violations of the provision of the Tax Code.
In the case of refusal to pay the tax, the 5-year prescriptive period will
commence to run from the date final notice or demand has been served
upon the taxpayer.
89
As regards violation of the Tax Code, if the violation is known the 5-year
prescriptive period shall commence to run from the date of the discovery
of the violation and the institution of judicial proceedings for
investigation and punishment. The law uses the conjunction and. So, it
will commence to run only from the time the BIR referred the case to the
Fiscals Office or City Prosecutor. In effect, it is always in the control of
the BIR.
BEFORE PAYMENT, the taxpayer may dispute or protest the assessment. He ma also
invoke the power of the BIR Commissioner to compromise tax liability.
IF the request for investigation or reconsideration has been denied by the BIR:
1. File a motion for reconsideration of the decision with the BIR; OR
2. Appeal the decision with the CTA.
*** Motion for reconsideration must raise new grounds, meaning grounds which have
not been raised in that request for reconsideration or reinvestigation. Otherwise, it is
just a pro-forma motion, it will not suspend the period within which to appeal the BIR
decision to the CTA which is 30 days from receipt of the BIR decision.
ISSUES that may be raised on appeal with the CTA >>> Questions of
Law or fact OR both
The taxpayer may, instead of filing a protest, file a written claim for refund.