TAXATION 2 NOTES - PRELIMS

TITLE II - TAX ON INCOME which is what is being referred to as the Title of this Code(NIRC) for these notes

2nd Discussion – November 12, 2019

Started with Section 49 – Installment Basis or Installment Method of Accounting
(in continuation of the method of accounting under Chapter VIII (8) – Accounting Periods and Methods of
Accounting (1st Discussion)
Again, the installment method of accounting is appropriate when collection of proceeds of sale will extend
over a relatively long period of time and there is a strong possibility that full collection will not be made.

However, there are also enumerations on who can use the installment method of accounting. In Section
49(A) – Sales of Dealers in Personal Property – this refers to those persons who are regularly selling
personal property on installment basis.

While Sec.49(B) talks about two transactions that are Sales of Realty and Casual Sales of Personalty. It is
conditioned when the initial payment does not exceed 25% of the selling price. “Initial Payments” are
payments received in cash or property other than the evidences of indebtedness of the purchased during
the taxable period in which the sale or other disposition is made. In other words, initial payments are total
payments received during taxable year for that particular installment sale, it does not only include the
down payment but all other payments made within the taxable year when it is made. Example: mohatag
kag downpayment karon of P50,000 and first payment monthly payment of P10,000, thus, initial payment
is the downpayment and monthly payment.

T.N. In letter A, taxpayer have the option for installment basis as long as it is regularly selling personal
property but in Sec.49(B), the initial payment must not exceed 25% of the selling price for real property
and casual sales of personal property.

Section 49(C) is only saying that you can also pay your capital gains stock in installment.

Section 49(D) refers to changing your method of accounting from accrual to installment basis.

Section 50. Allocation of Income and Deductions – refers to transfer “pricing?” that applies to corporation
with affiliates or subsidiaries or related corporations with transactions between affiliates or subsidiaries
wherein the Commissioner is empowered to allocate certain income or expenses among them.

CHAPTER IX – RETURNS AND PAYMENT OF TAX

Sec.51 – Individual Returns - Who are required to file an Income Tax Return? (Sec.51(A)(1) Requirements)
The following individuals are required to file an income tax return:

(a) Every Filipino citizen residing in the Philippines

(b) Every Filipino citizen residing outside the Philippines, on his income from sources within the
Philippines
(c) Every alien residing in the Philippines on income derived from sources within the Philippines
(d) Every nonresident alien engaged in trade or business (NRA – ETB) or in the exercise of profession
in the Philippines

In short, All except NRA – NETB.

Sec.51(A)(2) – Listing of Individuals who are not required to file an income tax return.

The following individuals are:

(a) An individual whose taxable income does not exceed P250,000 under Sec24(A)(2)(a): Provided,
that a citizen of the Philippines and any alien individual engaged in business or practice of
profession within the Philippines shall file an income tax return, regardless of the amount of
gross income; (T.N. Sec24(A)(2)(a) shows tax rate of 0% for income that does not exceed P250,000
– section51(A)(2)(a) is just a reflection of that provision wherein individuals are no longer required
to file an income tax return since their tax liability is only 0% - not nothing or exception but 0%)
(Rationale for citizen and alien engaged in trade or business or exercise of profession who are
required to file an income tax return regardless of the amount of gross income is for audit
purposes – so that it is easier to check and verify whether or not your taxable income did not
exceed P250,000 (mahog nga exception to the exception)
(b) An individual with respect to pure compensation income, as defined in Section32(A)(1) (or one
of the enumeration for Gross Income specifically compensation for services in whatever form
paid, including but not limited to fess, salaries, wages, commissions, and similar items) derived
from sources within the Philippines, the income tax on which has been correctly withheld under
the provisions of Section 79 (Income Tax Collected at Source) of this Code: Provided, that an
individual deriving compensation concurrently from two or more employers at any time during
the taxable year shall file an income tax return; (T.N. These are individuals falling under the
Substituted Filing System under Section51 – A(added by the TRAIN Law ) - those individuals
deriving purely compensation income from only one employer, and the amount of taxes withheld
on your salary is correct. So if you fall under that system, you do not need to file an income tax
return. Furthermore, as found in Section51 – A, Certificate of withholding filed by the respective
employers, duly stamped “received” by the BIR, shall be tantamount to the substituted filing of
income tax returns by said employees)
(c) An individual whose sole income has been subjected to final withholding tax pursuant to Section
57(A) or (Withholding of Tax at Source) of this Code (T.N. so if all your income is subject to final
withholding tax then you do not need to file an income tax anymore because final withholding
taxes have the effect of a final settlement of your tax liabilities);
Expanded further on Section 57(A) - Withholding of Final Tax on Certain Income. Made as an
assignment on what the sections are for the certain income subject to withholding of final tax.
(d) A minimum wage earner as defined in Section 22(HH) of this Code or an individual who is exempt
from income tax pursuant to the provisions of this Code and other laws, general or special.
(T.N. Why is it that minimum wage earners are not required to file an income tax return? Because
again, they are exempt from income tax with respect to their minimum wage)

Now going back to the Substituted Filing of Income Tax Returns, what were the conditions laid down here
in the codal, you have here:

1. Earning purely compensation income from only one employer during the taxable year
2. Amount of taxes withheld was correct provided you have no other income from other sources

But there is one requirement that is not commonly seen or emphasized in Section 51 and Section 51-A,
and that is if you have a spouse. If you have a spouse, they must also qualify under the Substituted Filing
System. Otherwise, you will be required to file an Income Tax Return.
Why is that? You have Section 51(D), with respect to Husband and Wife, married individuals whether
citizens, resident or nonresident aliens, who do not derive income purely from compensation, shall file a
return for the taxable year to include the income of both spouses (file jointly), but where it is
impracticable for the spouses to file one return, each spouse may file a separate return of income but the
returns so filed shall be consolidated by the Bureau for purposes of verification for the taxable
year(exception to that rule). (Unwritten rule for Substituted Filing System) (T.N. Joint filing but the
computation of the tax is separate, same tax return but separate computation)

Section51(B) – Where to file the Income Tax Return – Authorized agent bank, Revenue District Officer,
Collection Agency or duly authorized treasurer of the city or municipality in which such person has his
legal residence or principal place of business in the Philippines, or if there be no legal residence, or place
of business in the Philippines, with the Office of the Commissioner.

Section51(C) – When to file the Income Tax Return –

(1) Filed on or before the 15th day of April of each year covering income for the preceding taxable
year.
(2) (a) With respect to capital gains stock, it should be filed within 30days after each transaction and
a final consolidated return on or before April15 of each year covering all stock transactions of the
preceding taxable year (provided it is from the sale or exchange of shares of stock not traded
through a local stock exchange as prescribed under Section 24(C). (What makes this special is you
are required to file 30 days after each transaction and also a consolidated return, why is that?
Because before, sec24(c) used a graduated tax rate from 5 (if not over P100,000) to 10% but now
it has been a fixed 15% tax rate and apparently this provision has not been updated, but there are
still corporation that are subjected to the graduated tax rates. Because of the nature of the
graduated tax rates, you have to determine how much is that tax rates for the year, that is why
you have to file a consolidated return)
(b) From the sale or disposition of real property under Section24(D) shall file a return within 30
days following each sale or other disposition. (There is no annual return for this because the tax
rate is already fixed at 6%)

Section51(D) – Husband and Wife (already discussed earlier)

Section51(E) – Return of Parent to Include Income of Children – The income of unmarried minors derived
from property received from a living parent shall be included in the return of the parent, except when the
donor’s tax has been paid on such property or when the transfer of such property is exempt from donor’s
tax. (not really discussed)

Section51(F) – Persons Under Disability – If the taxpayer is unable to make his own return, an authorized
agent or representative or guardian or other person charged with the care of his person or property may
file instead but the principal and his representative assumes responsibility and incurs penalties provided
for erroneous, false or fraudulent returns. (not really discussed pud)

Section51(G) Signature Presumed Contract – The fact that an individual’s name is signed to a filed return
shall be prima facie evidence for all purposes that the return was actually signed by such individual.
Section 52. Corporation Returns –

(A) Requirements – Every corporation subject to the tax herein imposed, except foreign corporations
not engaged in trade or business in the Philippines, shall render, in duplicate, a true and accurate
quarterly income tax return and final or adjustment return in accordance with the provisions od
Chapter XII of this Title. (T.N. Nonresident Foreign Corporation are not required to file ITR. If you
look at Section 28(B)(1) Tax on NRFC – 30% while Section 25(B) NRA – NETB – 25%. Why is it that
NRA – NETB and NRFC are not required to file ITR? Aside from the obvious, non resident – unsaon
pag gukod? It woud be difficult to go after them. So what type of tax are they subject to? We go
back to Section 57 – kadto gi assignment, included in this listing is Section 25 and Section 28. Thus,
imposed as a final withholding tax on their income, that’s why they are no longer required to file
the Income Tax Return)
(T.N. also: There is also an interesting addition to the TRAIN Law which is that the Income Tax
Return shall consist a maximum of four(4) pages in paper form or electronic form...be filed by the
president, VP or other principal officer, shall be sworn to by such officer and by the treasurer or
assistant treasurer, and shall only contain the following information: (1) Corporate profile and
information; (2) Gross sale receipts or income from services rendered, or conduct of trade or
business except income subject to final tax as provided under this Code; (3) Allowable Deductions
under this Code; (4) Taxable income as defined in Section 31 of this Code; and (5) Income Tax Due
and Payable. – – – sumpay ra ni sa Section52(A)
(B) Taxable Year of Corporation. Legal basis in saying that a corporation may employ either calendar
year or fiscal year as a basis for filing its annual income tax return. Provided that the corporation
shall not change the accounting period employed without prior approval from the Commissioner
in accordance with the provisions of Section47 of this Code.
(C) Return of Corporation Contemplation Dissolution or Reorganization (if the corporation is about
to dissolve or has decided to dissolve, then under Sec52(C), the tax return can be filed within
30days after it has decided to dissolve or 30days from being told to dissolve)
(D) Return on Capital Gains Realized from Sale of Shares of Stock not Traded in the Local Stock
Exchange (this covers for corporation, same rule with the individual – 30days from each
transaction and you file an annual consolidated return, but it does not use April15 anymore but
15th day of 4th month following the close of the taxable year – because corp. can use fiscal year)
Additional info for Tax Remedies: When you talk about prescription of the period to assess,
usually this is counted from the deadline for the filing of the tax return or the date of actual filing,
whichever is later)

Section 53. Extension of Time to File Returns (self-explanatory per Atty.) The Commissioner may, in
meritorious cases, grant a reasonable extension of time for filing returns of income (or final and
adjustment) returns in case of corporations, subject to the provisions of Section 56 (Payment and
Assessment of Income Tax for Individuals and Corporations) of this Code.

Section 54. Returns of Receivers, Trustees in Bankruptcy or Assignees – For corporations undergoing
receivership or bankruptcy, it is the responsibility of the receiver or trustee to prepare the Income Tax
Return – net income in the same manner and form as such organization is required to make returns).
Section 55. Returns of General Professional Partnerships. – Every GPP shall file, in duplicate, a return of
its income, except income under Section32(B) of this Title, setting forth the items of the gross income and
the deductions allowed by this Title, and the names, TIN, addresses and shares of each of partners. (T.N.
GPP are not taxable corporations, they are mere pass through entity, but in Section 55, even if they are
not taxable corporations, they are still required to file an Income Tax Returns showing the computation of
their income for that year. Why is that? If you recall, GPPs are not taxable corporations, they are mere
flow through entity, it is the partners who are individually liable for the share of the income of the GPP.
But how do you determine what is the share of the individual partners? It is difficult, that is why GPPs are
still required to file an Income Tax Return in order to properly check or determine the partner’s individual
income.

3rd Discussion – November 18, 2019

(Will just be going through the important parts of each section – Atty. Yap)

Section 56. Payment and Assessment of Income Tax for Individuals and Corporations. –

(A) Payment of Tax. – (Pay as you file System)

(1) In General. – The total amount of tax imposed by this Title shall be paid by the person subject
thereto at the time the return is filed.
The shipping agents and/or the husbanding agents, and in their absence, the captains thereof
are required to file the return herein provided and pay the tax due thereon before their
departure in the case of tramp vessels. Upon failure of agents or captains to file ITR and pay
tax, the Bureau of Customs is hereby authorized to hold the vessel and prevent its departure
until proof of payment of the tax is present or a sufficient bond is filed to answer for the tax
due.
(2) Installment Payment – When the tax due is in excess of P2,000, the taxpayer other than a
corporation may elect to pay the tax in two (2) equal installments in which case, the first
installment shall be paid at the time the return is filed and the 2 nd installment, on or before
October 15 following the close of the calendar year.
If any installment is not paid on or before the date fixed for its payment, the whole amount
of the tax unpaid becomes due and payable, together with the delinquency penalties. (Per
Atty., he doesn’t know why it’s placed there considering that there is only for two installments)
(3) Payment of Capital Gains Tax – (Pay as you file system except when your transaction is exempted)
The total amount of tax imposed and prescribed under:
Sections 24(C) – Capital Gains from Sale of Shares of Stock Not Traded in the Stock Exchange
Sections 24(D) – Capital Gains from Sale of Real Property
Section 27(E)(2) – Minimum Corporate Income Tax on Domestic Corporations (MCIT on DC)
Specifically Carry Forward of Excess Minimum Tax
Section 28(A)(8/7)(c) – Tax on Certain Incomes Received by a Resident Foreign Corporation
Specifically Capital Gains from Sale of Shares of Stock Not Traded in the Stock Exchange
Section 28(B)(5)(c) – Tax on Certain Incomes Received by a Non-resident Foreign Corporation
Specifically Capital Gains from Sale of Shares of Stock Not Traded in the Stock Exchange

shall be paid on the, date the return prescribed therefor is filed by the person liable thereto.
 Provided: if the seller submits proof of his intention to avail himself of the benefit of
exemption of capital gains under existing special laws, no such payments shall be required

Provided further: that in case of failure to qualify for exemption under such special laws and
implementing rules and regulations, the tax due on the gains realized from the original transaction
shall immediately become due and payable, and subject to the penalties prescribed under applicable
provisions of this Code

Provided Finally: that if the seller, having paid the tax, submits such proof of intent within six
(6) months from the registration of the document transferring the real property, he shall be entitled
to a refund of such tax upon verification of his compliance with the requirements of such exemption.

2nd to the last, In case the taxpayer elects and is qualified to report the gain by installments
under Section 49 of this Code, the tax due from each installment payment shall be paid within thirty
(30) days from the receipt of such payments. (discussed installment option for capital gains)

Last na jud, No registration of any document transferring real property shall be effected by
the Register of Deeds unless the Commissioner or his duly authorized representative has certified that
such transfer has been reported, and the tax herein imposed, if any, has been paid. (discussed this
last paragraph, RoD requires CAR (Certificate Authorizing Registration) before real property can be
transferred – this provision is the legal basis)

Section 56(B) Assessment and Payment of Deficiency Tax. – After the return is filed, the Commissioner
shall examine it and assess the correct amount of the tax. The tax or deficiency income tax so discovered
shall be paid upon notice and demand from the Commissioner. The term deficiency in respect of a tax
imposed by this title means:

(1) The amount by which the tax imposed by this Title (Income Tax) exceeds the amount shown as
the tax by the taxpayer upon his return (imohang bayrunon mas dako ikumpara sa imong gi file);
but the amount so shown on the return shall be increased by the amounts previously assessed
(or collected without assessment) as a deficiency, and decreased by the amount previously
abated, credited, returned or otherwise repaid in respect of such tax; or
(2) If no amount is shown as the tax by the taxpayer upon his return, or if no return is made by the
taxpayer, then the amount by which the tax exceeds the amounts previously assessed (or
collected without assessment) as a deficiency, but such amounts previously assessed or collected
without assessment shall first be decreased by the amounts previously abated, credited, returned
or otherwise repaid in respect of such tax.

Discussion: Deficiency – pila imong short. Meaning of item number 1 – imohang bayrunon mas dako
kumpara sa imong gi file. Example, you actually owe the government 1M pesos but you only declared
P100K, then your deficiency would be P900,000. Meaning of item number 2 – if you fail to file a return,
whatever it is that is your tax due is your tax deficiency. That’s the concept of tax deficiency: pila ang na
short nimo og bayad sa government.
Section 57. Withholding of Tax at Source. – Withholding of Final Tax on Certain Incomes. – Subject to rules and
regulations, the Secretary of Finances may promulgate, upon the recommendation of the Commissioner, requiring
the filing of income tax return by certain income payees, the tax imposed or prescribed by:

Sec. 24(B)(1) – Tax on Certain Passive Income (FC & RA)– Interests, Royalties, Prizes and Other Winnings
Sec. 24(B)(2) – Tax on Certain Passive Income (FC & RA) – Cash and/or Property Dividends
Sec. 24(C) – Tax on Certain Passive Income (FC & RA) – Capital Gains from Sale of Shares of
Stock Not Traded in the Stock Exchange
Sec. 24(D)(1) – Tax on Filipino Citizen and Resident Alien – Capital Gains from Sale of Real Property
Sec. 25(A)(2) – Tax on Nonresident Alien Engaged in Trade or Business – Cash and/or Property
Dividends from a Domestic. Corp or Joint Stock Corp. or Insurance or Mutual Fund
Company...Joint Venture Taxable as a Corp. or Association, Interest, Royalties...
Sec. 25(A)(3) – Tax on Nonresident Alien Engaged in Trade or Business – Capital Gains
Sec. 25(B) – Tax on Nonresident Alien Not Engaged in Trade or Business (NRA-NETB)
Sec. 25(C) – Alien Individual Employed by Regional or Area HQ and Regional Operating HQ of Multinational Companies
Sec. 25(D) – Alien Individual Employed by Offshore Banking Units
Sec. 25(E) – Alien Individual Employed by Petroleum Service Contractor and Subcontractor
Sec. 27(D)(1) – Tax on Certain Passive Income (Domestic Corp.) – Interest from Deposits and Yields or any
other Monetary Benefit from Deposit Substitutes and from Trust Funds and Similar Arrangements and Royalties
Sec. 27(D)(2) – Tax on Certain Passive Income (Domestic Corp.) – Capital Gains from Sale of
Shares of Stock Not Traded in the Stock Exchange
Sec. 27(D)(3) – Tax on Certain Passive Income (Domestic Corp.) – Tax on Income derived under
the Expanded Foreign Currency Deposit System
Sec. 27(D)(5) – Tax on Certain Passive Income (Domestic Corp.) – Capital Gains realized from the
Sale, Exchange or Disposition of Lands and/or Buildings
Sec. 28(A)(4) – Tax on Resident Foreign Corporations – Offshore Banking Units
Sec. 28(A)(5) – Tax on Resident Foreign Corporations – Tax on Branch Profits Remittances
Sec. 28(A)(7)(a) – Tax on Certain Passive Income (Resident Foreign Corp.) – Interest from Deposits and Yield or any
other Monetary Benefit from Deposit Substitutes and from Trust Funds and Similar Arrangements and Royalties
Sec. 28(A)(7)(b) –Tax on Certain Passive Income (Resident Foreign Corp.) - Tax on Income
derived under the Expanded Foreign Currency Deposit System
Sec. 28(A)(7)(c) – Tax on Certain Passive Income (Resident Foreign Corp.) – Capital Gains
from Sale of Shares of Stock Not Traded in the Stock Exchange
Sec. 28(B)(1) – Tax on Nonresident Foreign Corporation(NRFC) such as interests, dividends, rents,
royalties (35%) of the gross income
Sec. 28(B)(2) – Tax on Nonresident Cinematographic Film Owner, Lessor or Distributor
Sec. 28(B)(3) – Tax on Nonresident Owner or Lessor of Vessels Chartered by Philippine Nationals
Sec. 28(B)(4) – Tax on Nonresident Owner or Lessor of Aircraft, Machineries and Other Equipment
Sec. 28(B)(5)(a) – Tax on Certain Passive Income (NRFC) – Interest on Foreign Loans
Sec. 28(B)(5)(b) – Tax on Certain Passive Income (NRFC) – Intercorporate Dividends
Sec. 28(B)(5)(c) – Tax on Certain Passive Income (NRFC) - Capital Gains from Sale of Shares of
Stock Not Traded in the Stock Exchange
Sec. 33 – Special Treatment of Fringe Benefit
Sec. 282 – Informer’s Reward to Persons Instrumental in the Discovery of Violations of the
National Internal Revenue Code and in the Discovery and Seizure of Smuggled Goods
Section 57(B) – Withholding of Creditable Tax a Source (Atty. Yap calls it also, Creditable Withholding Tax)

The Secretary of Finance may, upon the recommendation of the Commissioner, require the withholding
of a tax on the items of income payable to natural or juridical persons, residing in the Philippines, by
payor-corporation/persons as provided for by law, at the rate of not less than one percent (1%) but not
more than thirty-two percent (32%) thereof, which shall be credited against the income tax liability of the
taxpayer for the taxable year. (Provided: beginning January 1, 2019 it will be 15% not anymore 32%)

Discussion: From the name itself, creditable, meaning pwede nimong ma credit nimo against your other
income tax liabilities. You can credit these withholding taxes from your income tax liabilities, that’s why it
is called creditable withholding tax. Gave example: Jane selling P270 per box of lean and green coffee, and
Mr. Buena bought the coffee but he is listed as one of the top individual taxpayers in the province, so he is
required to withhold taxes on payment of certain goods, so when he bought the coffee from Jane, he only
pay P267.30 (because of the 1% of P270 which is P2.70). Jane complains why the payment is not in full but
Mr. Buena can justify that “I am advised by the Bureau of Internal Revenue that I am required to withhold
taxes on income payments to my supplier of goods. The 1% that I did not pay you is withheld or represents
that taxes withheld. So ingana ang porma sa withholding taxes, whenever you pay to your suppliers or
whenever someone is paying you and they are required to withhold, you will not receive or pay the full
amount because you are required to withhold. So what will Mr. Buena give to Jane since he did not pay
the full amount, well he is required to give a Certificate that he is withholding taxes. Certificate can be
found in form BIR 2307, this paper is not an ordinary piece of paper, it is as good as cash when it comes to
Jane being credited from her tax liabilities. Thus, purpose of Creditable Withholding Tax is to ensure that
there is collection of taxes when you are required to have it withhold.

Additional discussion:
By the way, this phrase “The Secretary of Finance may, upon the recommendation of the Commissioner”
means an issuance or revenue regulations which are issued by the secretary of finance upon the
recommendation of the commissioner. If you follow the current revenue regulations, the top 20,000
corporations and currently the top individual taxpayers are required to withhold 1% on their income
payments to their supplier of goods and 2% on their income payments to their supplier of services.
And those rates may be changed since there are also other types of creditable withholding tax. For
example, if you are renting properties, you are required to withhold 5%. Atty. Yap will not be specific or
detailed with the rates of withholding tax, what is important is that you understand the concept of
creditable withholding tax.

So what’s the difference between Final Withholding Tax and Creditable Withholding Tax?

In our example, Jane is still required to file her Income Tax Return and report her sale to Mr. Buena even
if it was subject to withholding tax, because the taxes withheld were only creditable withholding taxes
and not final withholding taxes. If you distinguish this from Interest on bank deposits, you are no longer
required to file an Income Tax Return on Interest Income from Interest Income from Bank Deposits
because it has already been subject to Final Withholding Taxes.

Section 58(A) – talks about Withholding Tax Returns. You have Quarterly Returns and Payments of Taxes
withheld. This was one of the amendments by the TRAIN Law, wherein instead of Monthly, it has become
Quarterly. But you are still required to remit monthly the withholding tax, not as a Tax Return but in the
form of an advance remittance which should be deducted in your quarterly withholding tax return.
Uban ani is just a reiteration of what has been discussed, such as Section 58(E) which is a reiteration of the
CAR (Certificate Authorizing Registration) Requirement.

Now, Section 59. Tax on Profits Collectible from Owner or Other Persons. This is just a general provision
similar to a catch all provision. As it provides –

All gains, profits, and income not falling under the foregoing and not returned and paid by virtue
of the foregoing or as otherwise provided by law shall be assessed by personal return under rules and
regulations to be prescribed by the Secretary of Finance, upon recommendation of the Commissioner.

Section 59 – continuation –

The intent and purpose of the Title is that all gains, profits and income of a taxable class, as
defined in this Title, shall be charged and assessed with the corresponding tax prescribed by this Title, and
said tax shall be paid by the owners of such gains, profits and income, or the proper person having the
receipt, custody, control, or disposal of the same. For purposes of this title, ownership of such gains,
profits, and income or liability to pay the tax shall be determined as of the year for which a return is
required to be rendered.

Example: Jane, seller of the coffee, siya ang naka ginansiya, so dili dapat si Mr. Buena ang pabayaron sa
income tax. The act of Mr. Buena in withholding the tax from Jane, did not make him liable for the tax,
since he was only acting as a withholding agent of the government. That’s why it’s called withholding
agent, since in effect, you are acting as an agent of the government in the collection of taxes.

CHAPTER X – ESTATES AND TRUSTS (as income taxpayers)

In the Philippines, no one usually uses trusts, but in the US, they even have anti-trust law. We rarely have
jurisprudence when it comes to taxation on trusts, mas common pa ang estates.

Income on trusts and Income of Estates are also taxable to the estates and trusts as taxpayers. For the
estate, they are considered as a separate taxpayer in the period of administration or settlement of estate.
Take Note However that Employee’s trusts which forms part on to the pensions, stock bonus, or profit
sharing plan are not considered as taxable trusts, it is exempt (Section 60(B)).

Now what is an employee’s trust? Taas ang enumeration ana but the main idea is that an employee’s trust
is a trust created for the benefit for some or all of the employees. The conditions imposed under Section
60(B) are conditions which try to restrict the distribution of the income of the employee’s trust. If you read
the conditions imposed, these are conditions which ensure that the income of the employee’s trust will
be used for the benefit of the employees. The purpose of that is to ensure that the employee’s trust will
not be abused because of its tax exemption.

If you read the conditions under Section 60(B)

First condition: Disposition of the Income, distributed to the employees

Second condition: If it is impossible, ... basta dapat purpose other than exclusive benefit of the employees
– mao nay importante.

(Hangak basahon, so read at your own pace)

Any income received by the employee from the employee’s trust will be taxable to the employee
concerned.

Provided: That any amount actually distributed to any employee

(in excess) Section32(B)(2) – Return of Premium

Any amount received by the employee from the employee’s trust is considered as taxable income but not
entirely because it excludes the amount considered as Return of Premium or Return of Contribution.
Example: if you are an employee who contributed P1,000 to the trust, and at the end of the year, you
received P1,500, how much is your taxable income? Of course, P500 ra ang income because the remaining
P1,000 represents return of premium or return of contribution. Correlate that with Section 32(B).

Section 60(C) – Computation and Payment of the Tax

When income of two or more trusts are consolidated, in other words, when are two or more trusts
considered as only a single entity, it is when both trusts are essentially the same; when are they essentially
the same? Maybe they have the same grantor maybe the trusts are for the same beneficiary. So if that’s
the case, the income of trusts, even if they are many, they are considered as one; they are consolidated.

Section 61 – Computation of Taxable Income.

How do you compute for the income of estates and trusts? Although they are artificial persons or juridical
entities, their tax is computed in the same way as individuals. Lahi ni siya sa General Professional
Partnership where their income is computed in the same way as corporations, even if they are considered
as a non-taxable corporation, ang GPP. But for estates and trusts, in computing their income, they are
computed in the same way as individuals, with special deductions allowed to trusts administered in the
Philippines. What are these special deductions allowed to trusts? So Review in the Itemized Deductions.
For estates and trusts in particular, those enumerated in Section 61.

Section 61 (A) – this refers to amount set aside to be distributed () by the fiduciary to the beneficiary. In
other words, trusts are allowed to deduct those amounts nga naka budget na daan. Kanang mga amounts
nga naka budget na daan para ihatag sa beneficiary, they can deduct that amount.

Section 61(B) – this refers to amounts to be distributed as directed by the court

Section 61(C) – this refers to amounts actually distributed – those without prior allocations.

Take note that this applies to trusts administered in the Philippines. So tulo na ka klase for special
deductions allowed to trusts: amount set aside to be distributed, amount to be distributed as directed by
court and amount actually distributed to the beneficiaries – those without prior allocation.

Section 62 talks about Personal Exemptions which has been repealed by the TRAIN Law.

Section 63. Revocable Trusts – they are not treated as separate taxpayer. Taxable income is taxed to the
Grantor. Kinsa ang grantor? Siya ang nag gama sa trusts. If you look at trusts as an artificial person, this
is composed of properties or rights to properties.

Section 64. Income for the Benefit of Grantor – so what does this mean or what’s the point of Section 64?
So if the trust is essentially for the benefit of the grantor or it may be for his benefit if he so desires, then it
is not treated as a separate taxpayer. The income will be taxed to the grantor. Gi tuyo ni para dili ma abuse
ang system of estates and trusts. If you look at the graduated tax rates for individuals, magkadako ang
income, magkadako ang tax rates. So what’s another option for you? Perhaps it’s better to divide your
properties. But how can you do that as an individual? Perhaps you could create a trust. But Section 63 and
Section 64 are safeguards to that practice.

Section 65. Fiduciary Returns – This is just an administrative requirement – Requirement for everyone
acting in a fiduciary capacity to file the tax return.

Section 66. – Is just a matter of reading.

If gi boringan mo sa gi discuss nato pag Chapter 10 mas boring jud ning Chapter 11. ^_^

CHAPTER XI – OTHER INCOME TAX REQUIREMENTS

Di na makaya sa tilaok ni Atty. Yap, leave it to us to read Section 67 to Section 72
Now you have here Section 73 with respect to Dividends. Wala jud ni na arrange sa TRAIN Law nga update
kay Section 24 pa gud ta nag hisgot og Dividends karon Section 73 na nag hisgot og usob. But anyway,
that’s life.

Now when you talk about DIVIDENDS, you have the definition under Section 73 (A) but it did not include
stock dividends. Stock dividends are found under Section 73(B), Take note that Stock Dividends are not
subject to income tax if they do not result in change of ownership.

*Bell* Assignment for next meeting supposedly and ichat lang. so follow up on this.