CHAPTER 19

TAXABLE INCOME
AND INCOME TAX
Net income per books versus taxable income

The net income per books is not necessarily the taxable

income. The net per books is determined by applying the rules in
accounting. The taxable income is determined by applying the
rules on income tax in the national internal revenue code. Thus,
one has to be familiar with items that follow, which are called
reconciling items:
(a) Items of revenues per books which are not taxable income;
(b) Items of taxable income which are not revenues, or not yet
revenues, in the books of accounts;
(c) Items of expenses per books which are not deductions from
gross income;
(d) Items of expenditures which are deductions from gross
income but which are not treated as expenses, or from which
expenses are recognized differently, in the books of accounts.
 While the national internal revenue code recognizes
accounting rules, however, the code, in certain specific cases,
may have different but definite rules. Some of those rules
have been part of the discussions in the earlier chapters of
this book. Additional rules on accounting methods and
accounting periods are in the Appendices.
This chapter will concentrate on the determination of
taxable income as determined by the rules in the National
Internal Revenue Code.
In the illustration that follow, the tax rules involved are:
1. Interest income on bank deposits is subjects to final tax. The interest
income is not included in the quarterly and year end computations for the
taxable income, and the final tax is not deductible from gross income.
2. Capital gain on sale of shares of stock of domestic corporation sold
directly to buyer is subject to the capital gain tax of 5% on the first P100,000
of the gain, and 10% on the excess;
Capital gain on sale of real property, in the Philippines if the taxpayer
payer is an individual, and wherever located, if the taxpayer is a domestic
corporation, is subject to capital gain tax at 6% of the selling price or fair
market value, whichever is higher, and whether there is a gain or loss on the
sale.
Both capital gains are not included in the quarterly and year end
computations of the income tax, and the capital gain tax is not deductible
from gross income.
3. Dividends from domestic corporations are subjects to final tax, when
received by an individual, and exempt from income tax, if received by a
domestic corporation. The dividend is not included in the quarterly and year
end computation of the income tax, and the tax on it is not deductible from
gross income.
4. Damage recovery that represents a recovery of lost profits is taxable.
5. A net capital gain is added to arrive at the taxable income. A net capital
loss is not deducted;
6. There is a deduction for bad debt not when a provision, based on an
estimate, is made in the books of accounts, but when the account receivable
is actually written off from the books.
7. A loss is deductible when actually sustained, but to the extent only that is
not compensated by insurance or any other kind of indemnity.
8. Contributions (when not fully deductible by provision of law) are
deductible, but must not exceed ten percent (10%), in the case of an
individual, and five percent(5%) in the case of a corporation, of taxable
income from business or profession before deduction for contribution;
9. Income tax is not deductible from gross income;
10. Interest for late payment of taxes deductible from gross income interest
expense, and not as tax. Sur charges and penalties on delinquent taxes are
not deductible from gross income.
11. Represent and entertainment expenses can be deducted from the gross
income at a maximum of one half percent (1/2%)of net sales in the case of
sale of goods and one percent (1%) of net revenues, in the case of sale of
services.
12. The taxable income of a general professional partnership is computed
following he rules for corporations. While the partnership is exempt from
income tax, the net income of the partnership is gross income to the
participating partner. To the extend of his distributive share from it.
 Consistency requires that if the partnership availed of the itemized
deductions in computing its net income, a partner must avail of the itemized
deductions on his other income, and if the partnership availed of the
Optional Standard Deduction, a partner must adopt the Optional Standard
Deduction on his other income.

Any one problem is short. The final solution (boxed) is short, in one spread
only, within one page, and easy to focus on. The computations in support of
certain figures in the solution are presented as schedules, also brief and
easily understood. As the reader follows the solution, it will dawn on him that
he had learned income taxation.
PROBLEM 1. INDIVIDUAL
Mr. Tristan Alegre is in trading business. He had the following cumulative data as at
the end of:
1st Q 2nd Q 3RD Q Year
Sales 600,000 1,300,000 2,100,000 3,000,000
Interest income 20,000 40,000 60,000 100,000
Gain on sale of assets 100,000 100,000 100,000 100,000
Cost of sales 240,000 520,000 840,000 1,200,000
Taxes 32,000 40,000 57,000 81,000
Bad debts 120,000
Depreciation 9,000 18,000 27,000 36,000
Losses 100,000 100,000 100,000
Miscellaneous 90,000 200,000 320,000 450,000
Contributions 60,000 120,000
Interest expense 8,000 16,000 24,000 32,000
Additional information:
1) Interest income was from bank deposits.
2) Gain from sale of asset was direct sale to a buyer of shares of stock of a
domestic corporation
3) Taxes included a capital gain and a final tax.
4) The bad debts expense in the books of accounts was the provision for
the year. The write off for the year for actual uncollectible accounts was
P40,000 in the third quarter.
5) Inventory lost during the third quarter had a cost of P300,000. the
insurance company paid P200,000 under the property of insurance.
6) Contributions in the third and forth quarters were to churches and
accredited charitable institutions.
The taxable income and income tax in the quarterly and year-
end returns: st nd rd
1 Q 2 Q 3 Q Year
sales 600,000 1,300,000 2,100,000 3,000,000
Less: cost of sales 240,000 520,000 840,000 1,200,000
Gross profit from sales 360,000 780,000 1,260,000 1,800,000
Taxes schedule 1 23,000 27,000 40,000 60,000
Interest expense 1,400 2,800 4,200 5.600
Bad debts (sch. 3) 40,000
40,000
Loss 100,000 100,000
100,000
Depreciation 9,000 18,000 27,000 36,000
Miscellaneous 90,000 200,000 320,000 450,000
total before contributions (sch.5)123,000 347,000 531,200 691,000
Net income before contributions 236,000 432,200 728,800 1,108,400
 1st Q 2nd Q 3rd Q Year

Less: Contributions (Sch.5) 60,000 110,840

Balance 997,560
Less: Personal exemption 50,000
Taxable income 236,600 432,200 668,800 947,560
Income tax 46,650 104,660 179.016 268,219
Less: income tax paid
first quarter (46,650) (46,650) (46,650)
Second quarter (58,010) (58,010)
Third quarter (74,356)
Due 46,650 58,010 74,356 89,203
On the solution:
1st Q 2nd Q 3rd Q Year
Schedule 1. taxes
Per books 32,000 40,000 57,000 81,000
Less:
Capital gain tax at 5% 5,000 5,000 5,000 5,000
Final tax on interest on bank
Deposit at 20% 4,000 8,000 12,000 16,000
Deductions 23,000 27,000 40,000 60,000
Schedule 2. interest
Per books 8,000 16,000 24,000 32,000
Less:
33% of P20,000 (6,600)
33% of P40,000 (13,200)
33% of P60,000 (19,800)
33% of P80,000 (26,400)
Deduction 1,400 2,800 4,200 5,600
Schedule 3. bad debts
Per books, the write off 40,000
Schedule 4. loss
Actual loss 300,000
Less: insurance recovery 200,000
Deduction 100,000
Schedule 5. Contributions
Contributions to churches
and charitable institutions were:
Actual P60,000 P120,000
10% of P728,800 P72,880
10% 0f P 1,108,400 P110,840
Allowed P60,000 P110,840
PROBLEM 2. CORPORATION
The Gain Corporation, a domestic corporation, in its seventh year of operations had the following data:
1st Q
2nd Q 3rd Q Year
Net sales 900,000 1,900,000 3,200,000 4,800,000
Dividend income 100,000 320,000 370,000
Gain on sale of assets 1,000,000 1,000,000 1,000,000 1,200,000
Other income 200,000 200,000
Cost of goods manufactured
And sold 360,000 750,000 1,280,000 1,920,000
Fringe benefit expense-to
Rank and file employees 462,000
Taxes 100,000 200,000 300,000 875,000
Entertainment expense 50,000
Contributions 10,000 50,000 60,000 70,000
Miscellaneous expenses 200,000 500,000 900,000 1,100,000
Loss on sale of assets 50,000 50,000 150,000
Additional information: 1st Q 2nd Q 3rd Q Year
1. Dividend were from
Resident corporations 100,000 200,000 300,000
Domestic corporations 40,000 70,000
Total 100,000 240,000 370,000
2. Sales of capital assets were:
Gain on bands of domestic corporations 200,000
Gain on sale of land (selling price of 4,000,000
And cost of 3,000,000 with a capital gain tax
Of 240,000) 1,000,000 1,000,000 1,000,000 1,000,000
Total gains 1,000,000 1,000,000 1,000,000 1,000,000
Loss on shares of resident
Corporation 50,000 50,000 150,000
3. other income was damage
Recovery from a competitor for
Predatory pricing-unfair competition 200,000 200,000
4. Taxes were:
Final tax on passive income 10,000
Capital gain tax on land in the
Philippines 230,000
others 100,000 200,000 300,000 617,600
Interest for late payment 10,000
Surcharges 8,000
Total 100,000 200,000 300,000 875,600
 0n the solution:
Schedule 1. dividend income
Dividend from resident corporations 100,000 200,000 300,000
Dividend from domestic corporations 0 0 0

Schedule 2. net capital gain

Gain on bonds of domestic
Corporations 200,000
Loss on shares of resident
Corporations 50,000 50,000 150,000
Net capital gain(loss) (50,000) (50,000) 150,000
The taxable income and income tax in the quarterly and year-
end returns
1st Q 2nd Q 3rd Q Year
Net sales 900,000 1,900,000 3,900,000 4,800,000
Cost of goods sold 360,000 750,000 1,280,000 1,920,000
Gross profit 540,000 1,150,000 2,620,000 2,880,000
Dividend income(sch. 1) 100,000 200,000 300,000
Net capital gain (sch. 2) 50,000
Other income (sch. 3) 200,000 200,000
Total 540,000 1,250,000 3,020,000 3,430,000
Fringe benefit expense 462,400
Taxes (sch.4) 100,000 200,000 300,000 617,600
Interest expense (sch. 4 also) 10,000
Entertainment expense (Sch,5) 24,000
Miscellaneous expense 200,000 500,000 900,000 1,100,000
Total before contributions 300,000 500,000 1,200,000 2,214,000
Net income before contributions 240,000 750,000 1,850,000 1,214,000
Less: contributions (Sch.6) 10,000 37,500 60,000 60,800
Taxable income 230,000 713,500 1,760,000 1,155,000
MCIT 2% (Sch. 7) 10,800 25,000 60,000 60,800
Normal tax at 30% 69,000 214,050 528,000 346,560
Whichever is higher 69,000 214,050 528,000 346,710
Less: income tax paid:
first quarter (69,000) (69,000) (69,000)
second quarter (145,050) (145,000)
Third quarter (322,950)
Due (refundable) 69,000 145,050 322,950 (190,440)
Schedule 3. other income
Damages for unfair competition is a
Recovery of lost profits, taxable 200,000 200,000
schedule 4. taxes
others 100,000 200,000 300,000 617,600
Interest.
Interest for late payment 10,000
Schedule 5. entertainment expense.
Actual 50,000
(1/2 of 1% of P4,800,000) 24,000
Allowed 24,000
Schedule 6. contributions
Total of income and
net capital gain 540,000 1,250,000 3,020,000 3,430,000
Total deductions
Before contributions 300,000 500,000 1,200,000 2,214,000
Net income before
Contributions 240,000 750,000 1,850,000 1,216,000
Actual 10,000 50,000 60,000 70,000
5% of P240,000 12,000
5% of P750,000 37,500
5% of P1,820,000 91,000
5% of P 1,216,000 60,300
allowed 10,000 37,500 60,000 60,300
Schedule 7. minimum corporate income tax

Gross profit 540,000 1,150,000 2,620,000 2,880,000

Gain on bands
Of domestic corporations 200,000
Dividend income (sch.2) 100,000 200,000 300,000
Other income (sch.3) 200,000 200,000
Gross income 540,000 1,250,000 3,020,000 3,580,000
MCIT at 2% 10,000 25,000 60,400 71,600
Problem 3. general professional partnership
d and e, a general professional partnership; with mr. d and mr.e both resident citizens the
Philippines, sharing equality on partnership gains and losses, had for a taxable year
Income
Professional fees earned 2,000,000
Gain on sale of capital asset held for six months 50,000
Expenses of operations:
Salaries and benefits of employees 530.000
Depreciation 40,000
Office supplies used 30,000
Repairs and maintenance 10,000
Electricity, water and light 180,000
Miscellaneous (condensed) 300,000
Loss on sale of capital assets held for 2 years 30,000
Withholding income tax on:
Partner d 46,500
 Partner d and e had the following data on
their own incomes

d e
Business gross income 200,000 100,000
Business expense 80,000 50,000

(quarterly data for the partnership and the partners are omitted)
The information return of the partnership would have shown;
Professional fees earned 2,000,000
Less: direct costs
salaries and benefits of employees 530,000
Depreciation 40,000
office supplies used 30,000
repairs and maintenance 10,000
electricity water and light 180,000 790,000
Gross income 1,210,000
Expenses-miscellaneous (condensed) 300,000
Net income from profession 910,000
Capital gain (100%) 50,000
Less: capital loss (100%) 30,000
net capital gain 20,000
Net distributable income 930,000
½ share of h or I 465,000
The taxable income of partners d and e, would have been computed, as follows
D E

Own gross income from business 200,000 100,000

Share in d and e distributable income 465,000 465,000
Total 665,000 565,000
Less:
Own business expenses (80,000) (50,000)
Basic personal exemption (50,000) (50,000)
Taxable income 535,000 465,000

(both partners d and e would take the itemized deductions because the partnership used the itemized
Deductions in computing its net income distributable to the partners.)
 Chapter 20
Filing of return and
payment of tax
The income tax return
An income tax return is a document in which the
taxpayer formally makes a report on his/its gross
income and deductions to the commissioner of
internal revenue. Normally, the income tax return is
prepared by the taxpayer. However, in case a
taxpayer fails to make and file a return at the time
prescribed by the law, or makes, willfully or
otherwise, a false or fraudulent return, the
commissioner of internal revenue will make the
return from his own knowledge and from such
information as he can obtain through testimony or
otherwise. A return so made will be prima facie good
and sufficient for all legal purposes, unless the
taxpayer proves the contrary.
Who are required to file an income tax
return?
below are individuals and entities required to fie income tax return:
1) Individual:
(a) citizen of the Philippines residing in the Philippines;
(b) Citizen of the Philippines residing outside the Philippines, on his income from
within the Philippines;
(c) Resident alien, on his income from within the Philippines;
(d) Non-resident alien engaged in trade or business, or in the practice of
profession, in the Philippines, on his income from within the Philippines.
2) Taxable estate or trust;
3) corporation:
(a) Corporation that is not exempt from income tax
(b) Corporation that is exempt from income tax, but which had not proof of
exemption. (the corporation is required to file the return, but is not required to pay
the tax)
4) General professional partnership
 Who are not required to file an income tax
return?
1. Individual who is exempt from income tax;
2. Individual whose sole income has been subjected to final withholding income
tax:
3. Individual whose gross income does not exceed the total personal and
additional exemptions (unless engaged in business or practiced of profession
within the Philippines, which case, regardless of the amount of gross income,
a tax return must be filed);
4. Individual whose compensation income does not exceed the statutory
minimum wage as fixed by the department of labor and employment (DOLE)
5. Individual, with respect to pure compensation income derived from within the
Philippines, qualified under revenue regulations 3-2002 for “substituted filing
of income tax return by employees receiving purely compensation”.
The substituted filing of income tax returns:
a) The income must be purely compensation income
within the Philippines during the year;
b) There was one employer only in the Philippines;
c) The contract income tax was withheld on the income;
d) The spouse is also entitled to substituted filing under
(a), (b), and (c), above;
e) The employer filed BIR form 1604CF with the BIR;
f) The employer issued BIR form 2316 to the employee,
with the signature of the employer and the employee.
 An individual deriving compensation income
concurrently from two or more employers at any time
during the taxpayer year must file an income tax return
The income tax return.
1 individual
a) A married person, whether citizen, resident alien or non-resident alien, will file only one income tax
return showing separately the income of both spouses, but where it is impracticable for the
spouses to file one consolidated return, each spouses may file a separate return, but the returns so
filed will be consolidated by the bureau of internal revenue;
b) A parent will include in his return the income of an unmarried minor child derived from property
receive from a living parent, except when the transfer of such property was except from the donor’s
tax, or not being exempt from the donor’s tax, the donor’s tax was paid;
c) If the taxpayer is unable to make his own return, the return may be made by his duly authorized
agent or representative or by the guardian or other person charged with the care of his person or
property. The authority of the agent or representative will be attached to the return.
 2.Estate or trust.
a) The fiduciary of the taxable income estate or trust files the income tax return
b) Should there be two or more joint fiduciaries, a return filed by one of the fiduciary would be
sufficient compliance with the requirements of the law.
3. Corporation
a) The income tax return of the corporation will be filed by the president, vice-president, or other
principal officer, and will be sworn to by the treasurer or assistant treasurer;
b) In cases where a receiver, trustee in bankruptcy or assignee is operating the property or
business of a corporation such receiver, trustee or assignee will make a return of net income as
and for such corporation, in the same manner and form as such organization is required to
make return. Any tax due on the income as returned by the receiver, trustee or assignee will be
assessed and collected in the same manner as if assessed directly against the organization for
which he acts.
4. General professional partnership.
the income tax return will be signed and filed by the principal officer of the partnership.
What must accompany the income tax return.
the laws and regulations prescribe what forms, statements and information will be filed with
the income tax return.
The CPA Certificate
In cases where CPA certificates is required, such CPA certificates will
contain statements of, nd answers to, the following:
1) Kinds and amounts of taxes payable by the taxpayer during the year;
2) Degree of relationship by consanguinity or affinity of the accountant to
the taxpayer, or to its president, manager, or principal stockholder;
3) Have all taxes due or assessed against the taxpayer been paid?
4) How much of such taxes or assessments still remain unpaid?
5) has the audit been made in accordance with generally accepted
auditing standards and procedures? If not, in accordance with what
accounting standards and procedures was the audit made? What was
the reason fro the omission of any of the audit procedures or the non-
compliance with accepted auditing standards?
When must the income tax returns be filed?
Figure 20-1. statements to accompany an income tax
return reporting income from business or profession
Quarterly gross income financial statements

Do not exceed 50,000 statements of net worth and operations

Exceed 50,000 but do not exceed 150,000 balance sheet and income statement

Exceed 150,000 1) balance sheet and income statement duly certified

public accountant
2) comparative income statement for the year and
preceding year;
3) schedule of income producing property and
and income therefrom;
4)others ( see page 20-11 of this chapter.)
 In the case of n individual whose income is purely compensation income, the return must be filed
on or before april 15, covering the income of the preceding year.
in the case of an individual with income from business or practice of profession, quarterly and
annual income tax returns must be filed, as follows;
First quarter-on or before april 15
Second quarter-on or before august
Third quarter-on or before November 15;
Annual-on or before April 15 of the succeeding year.
in the case of a taxable estate or trust, the income tax return must be filed on or before april 15,
covering the income of the preceding year.
in the case of a corporation, quarterly and annual income tax returns are required, as follows;
first quarter
Second quarter
Third quarter within sixty days after the close of the particular quarter

Annual on or before the fifteenth day of the fourth month following the close of the
taxable year(calendar or fiscal year)
A fiscal year is a period of twelve months ending on the last day of a month than December. example
a fiscal year from july 1 of a year to june 30 of the succeeding year
in case of a general professional partnership, the information return must be filed on or before
april 15, covering the operations of the preceding year.
Where must the return be filed?
the return must be filed with an authorized agent bank, revenue district officer, collection agent 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 is no legal residence or place of business in
the Philippines, with the office of the commissioner of internal revenue. Where the taxpayer has
branches,” place of business” means the principal place of business where the books of accounts are
kept. If filed other than with the proper place, as surcharge of twenty-five percent(25%) will be added
to the tax.
illustration. On the last day for filing of the income tax return and payment of income tax, mr. z a
resident of and with place of business in manila, was in davao city. He insisted on filing his return and
paying the tax of 5,000 with a bureau of internal revenue office in davao city. His total payment;
Income tax, per return 5,000
Add: surcharge of 25% for filing at
Wrong BIR office 1,250
Total 6,250
The payment of the tax
Pay as you file
under the payment “pay as you file system” the income tax shown on the return is filed. If the
taxpayer is other than a corporation and the income tax on the annual return exceeds two
thousand pesos (2000) such tax may be paid in two equal instalments, as follows;
First instalment-at the time the return is filed;
Second instalment-on or before july 15 following the close of the calendar year.
any creditable withholding tax (I,e.withholding tax on compensation income, or expanded
withholding income tax), will be credited against the tax due, or the first instalment of the tax, if the
taxpayer desires to pay in instalment,
illustration. mr. a had compensation income only the income tax withheld from his
compensation income was 6,000. the correct income tax computed at the end of the year, before
credit for withholding income tax, was 10,000. how may the tax be paid?
If mr. a wants to pay in one lump sum on or before april 15:
Income tax 10,000
less: income tax withheld 6,000
Due 4,000
If mr. a wants to pay in two instalments,
On or before april 15 july 15
Installments on the tax 5,000 5,000
Less: income tax withheld 5,000 1000
due 0 4,000
EFPS, electronic filing and payment system of income tax of large taxpayers.
by revenue regulation, large taxpayers must e-file their final adjustment income tax returns for the
calendar/fiscal year and e-pay the taxes due thereon through the EFPS on or before the fifteenth (15th)
day of the fourth month following the close of he taxable year.
The taxpayer must enrol in the EFPS. For judicial persons or artificial persons enrolment will be by
the officers required by the law to file returns for domestic corporations, the president, the vice
president or the other principal officers, for partnerships the managing partner, for joint ventures, the
managing head, and for resident corporations, the country manager). Electronic signatures of the tax
filer, or the authorized officers stated above, will be affixed to the return.
The taxpayer that will e-pay will enrol with any AAB (authorized agent bank) where he/it intends to
pay through the banks debit system that is capable of accepting e –payments.
 the filing of the return ahead of the payment of the tax due is still in
accordance with the pay as you file principle as long the payment of the tax is
made on or before the due date.
Large taxpayer means a taxpayer who
satisfies any of the following criteria:
a) Value added tax- business establishments with value added
tax paid or payable of at least one hundred thousand pesos
(100,000) for any quarter of the preceding taxable year;
b) excise tax- business establishments with excise tax paid or
payable of at least one million (1,000,000) for the preceding
taxable year;
c) Corporate income tax- business establishments with annual
income tax paid or payable of at least one million
(1,000,000) for the preceding taxable year;
d) Withholding tax- business establishments with Withholding
tax payment or remittance of at least one million
(1,000,000) for the preceding taxable year;
Appendix J
tax credit for foreign income tax
in determining the tax credit that may be allowed a taxpayer, the
foreign, the foreign income tax should be understood as tax proper only,
and no credit will be taken for any amount paid or incurred to the foreign
country which represents interest, surcharge penalty incident to
delinquency on the payment of the tax.
Who may be claim tax credit?
a tax credit on account of income tax paid or incurred to a foreign
country or countries is allowed to:
a) Resident citizens of the Philippines; and
b) Domestic corporations.
 Formulas on tax credit
1. One foreign country to which income tax was paid:
Limitation A:
The formula:
net income, foreign income foreign country Philippines income tax
Net income, world
2. Two or more foreign countries to which income taxes were paid:
a) Compute for limitation a by country
Find the total of limitation a
the total is tentative tax credit, limitation A
b) Limitation b
The formula:
net income, foreign income foreign country Philippines income tax
Net income, world
Compared with: total of foreign income taxes paid
The tentative tax credit limitation b is whichever is lower
c) Compare limitation A in a) with limitation B in b)
Tax credit to apply (final) is limitation B in b),
Tax credit to apply (final) is limitation A, or limitation B,
Whichever is lower

Illustration. B Co, a domestic corporation, had a taxable income from within the Philippine of 300,000
and from foreign country z of 100,000. an income tax 40,000 was paid to country z with interest and
surcharge of 5000. if B co, chose to take a tax credit for the income tax paid to country z, the philippine
income tax still due, after tax credit, would have been computed, a follows:
Taxable income before tax credit, country z 100,000
Taxable income before tax credit, Philippines 300,000
Taxable income, world 400,000
120,000
Income tax at 30%
Less: tax credit for foreign income tax
formula-
100,000/400,000 120,000 30,000
Foreign income tax paid 40,000
Allowed (whichever is lower) 30,000
Philippine income tax still due 90,000
while the income tax of the foreign country could be taken as a tax credit, the taxpayer has the
alternative of taking such tax as deduction from its gross in income.
illustration. If the preceding illustration the corporation chose a deduction, the computation for the
Philippine income tax due would have been:
Taxable income before income tax:
Country Z 100,000
Philippines 300,000
Total 400,000
Less:
Deduction for foreign income tax , country Z 40,000
Taxable income 360,000
Income tax at 30% 108,000
Illustration. Mr,. C a resident citizen of the
Philippines, had the following data on
income and income taxes paid:
Gross compensation income, Philippines (net of exclusions) 200,000
Taxable income, business, foreign country 300,000
Income tax withheld on compensation income 25,000
Foreign income tax paid 70,00
the Philippine income tax due after credit for foreign income tax would have been computed, as
follows:
gross compensation income, Philippines 200,000
Taxable income, foreign country 300,000
Total 500,000
Less: basic personal exemption 50,000
Taxable income 450,000
Income tax 110,000
Less:
Tax credit for foreign income tax-
Formula: 300,000/500,000 110,000 66,000
Actually paid 70,000
Allowed (whichever is lower) (66,000)
Income tax withheld on compensation income (25,000)
Income tax still due 19,000
Plate 9.
tax remedies
REMEDIES OF THE STATE (see P14 and
P15 for periods).
The return filed was not false or fraudulent
Assessment followed by collection.
Assessment should be made within three (3) years from the date of filing of the return (or from the last
day required by law fro filing, if the return was filed before such last day).
Collection should be made within five (5) years from the date of assessment by:
a) Summary proceedings of distraint and/or levy: or
b) Judicial proceedings.
Collection immediately.
Collection should be made within three (3) years from the date of filing of the return (or the last day
required by law for filing, if filed before the last day).
Collection should be by judicial proceedings.
No return was filed or the return was false or fraudulent
Assessment followed by collection.
Assessment should be made within ten (10) years from the date of discovery of the failure to
file return, or of the falsity or fraud in the return.

Collection should be made within five (5) years from the date of assessment by;
a) Summary proceedings of distraint and/levy; or
b) Judicial proceedings

Collection immediately.
Collection should be made within ten (10) years from the date of discovery of the failure to file
return, or of the falsity or fraud in the return.
Collection should be by judicial proceedings.
 Distraint involves the taking of personal
property, its sale at public auction, and the
application of the proceeds of the sale to
the payment of the tax. Levy involves the
taking of real property, its sale at public
auction, and the application of the
proceeds of the sale to the payment of the
tax.
REMEDIES OF THE TAXPAYER.
Remedy against an assessment. ( see P-16 for periods)
a) Protest the assessment with the bureau of internal revenue, with a submission of
documents supporting the protest;
b) Appeal the decision of the Commissioner on the protest to the Court of Tax Appeals:
c) Appeal the decision of the Court of Tax Appeals to the Supreme Court.

Remedy for tax erroneously or illegally paid. ( see p-17 for periods)
a) File a claim for refund with the bureau of internal revenue:
b) Appeal the decision of the Commissioner on the protest to the Court of tax Appeals;
c) Appeal the decision of the Court of Tax Appeals to the Supreme Court.