Taxation Law Review Notes (from Auie).doc

7/18/2019 Taxation Law Review Notes (from Auie).doc

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COVERAGE OF TAXATION LAW REVIEW

I. Basic Principles of Constitutional

Liitations

a) Due process clause which could be either

substantive due process and procedural due process clause

b) Equal protection clause

Read:

• Ormoc Sugar Central

vs. City reasurer !! SCR" #$%

• iu vs. C" %$& SCR" &'(

c) "rticle sec. & o* the &+(' Constitution , non-impairment clause

d) "rticle sec. , *reedom o* religion

e) "rticle sec. !$ , non-payment o* poll ta/

*) "rticle 0 sec. !( par. ! , *le/ible tari** clause

g) "rticle 0 sec. !( par. % , e/emption *romreal property ta/ Read:

• 1errera vs. 2ue3on City % SCR" &(#

•"bra vs. 1ernando &$' SCR" &$4

•"bra 0alley vs. "quino ! SCR" &$#

•5hilippine 6ung Center vs. 2ue3on

City 4%% SCR" &&+

h) "rticle 0 sec. !( par. 4 , quali*ied ma7ority

in ta/ e/emption

i) nternational double ta/ation

• CR vs. 8ohnson %$+ SCR" ('

7) Doctrine o* equitable recoupment

9) Doctrine o* Set-o** or compensation in

ta/ation• Republic vs. ambulao 4 SCR" #!!

• Domingo vs. ;arlitos ( SCR" 44%

• <rancia vs. "C &#! SCR" '%

• Calte/ vs. CO" !$( SCR" '!#

• 5hile/ vs. CR !+4 SCR" #('

II. Incoe Ta! La"

Section !!-!# o* the =ational nternal Revenue

Code

a) Read in the commentaries or magic notes thedi**erent 9inds o*:

&. ncome a/payers

!. ncome a/es

%. Sources o* ncome sec. 4! o* =RC- ncome a/payers

a) ndividuals

b) Corporation

c) Estates and rusts , -ndividuals are classi*ied

• Resident Citi3ens sec. !% >")? sec !4 >")

>a)

• =on-Resident Citi3ens sec !% >@)? !4 >")

>b) !! >E)

• Overseas Contract Aor9ers Sec. !% >C)? !4

>") >b)

• Resident "liens Rev. Reg. sec ? !% >D)? !4

>") >c)• =on-Resident "liens Engaged in trade or

business sections ! >") >&)

• =on-Resident "liens =ot Engaged in trade

or business sec. ! >@)

• "liens Employed in ulti-=ational

Corporations sec. ! >C) and Rev. Reg. &!-!$$&

• "liens Employed in O**shore @an9ing

Bnits sec ! >D)

• "liens Employed in petroleum Service

Contractors Subcontractors sec. ! >E)

-Corporate ncome a/payers

• Domestic Corporations sec. !% >E)? and sec !' o*

=RC

• Resident <oreign Corporations sec. !! >1) and

>!()"

• =on-Resident <oreign Corporations sec. !! >&)

and !( >@)

-Estates and rusts sec. #$-## o* =RC

Di**erent inds o* ncome a/

&. =et ncome a/ secs. !4 >")? ! >") >&)? !#?

!' >") >@) >C)? !( >") up to %rd par. %& and

%! >")

!. ;ross ncome a/ secs. ! >@) *irst part and!( >@) >&)

%. <inal ncome a/es sec. ' >")

4. inimum Corporate ncome a/ o* ! o*the ;ross ncome secs. !' >E)? !( >") >!)

. mproperly "ccumulated Earnings a/ o*

&$ o* its ta/able income sec. !+ =RC

Rev. Reg. !-!$$&

• Optional Corporate ncome a/ o* & o*

its gross income sections !' >") 4 th to &$th

par. "nd !( ">&) but only up to the 4th

paragraph

-5roceed to section 4! and !% o* the =RC

• =DC vs. Comm && SCR" 4'!

• Comm. 0s. "C &!' SCR" +

-hen go to sec. %+ o* =RC

• Cala3ans vs. Comm. &44 SCR" ##4 RR '-

!$$%

-hen proceed to sec. !4 >")? ! >") >&)? !

@?C?D?E? !' "?@?CF !( >") >&)? !( >") >#) and

sec & >D)-hen continue to sec !4 @ &? ! @?C?D?EF !'

>D) >&)

Page 1 of 79



-hen go to se. !4 >@) >!) sec. '%

• Comm. 0s. anning ## SCR" &4

• "nscor vs. Comm. %$& SCR" &!

-Sec. ! >") >!)? ! @? C? C? E? sec. !' >D) >4)F !( >")

>') >D)F %! @ >') >a)

- hen you go to sec. !4 C? !" >%)F ! @? C? D?

E? !' D >!)F !( >") >') >C)F !( @ >) >C) R" ''&'

sec. &!' =RC- hen you go to sec. !4 D >&)F ! >") >%)F ! >@)

last par. !' >D) >)

• China @an9 vs. Court o* "ppeals %%# SCR" GGGF

RR '-!$$%-Bpon reading sec. !4 >D) >!) read RR &%-&+++

-Bpon reading sec. !' >") go to sec. !! >@)

• @atangas vs. Collector &$! 5hil. (!!

• Evangelista vs. Collector &$! 5hil &4$

• Reyes vs. Comm. !4 SCR" &+(• Ona vs. @autista 4 SCR" '4

• Obillos vs. Comm &%+ SCR" 4%#

• 5ascua vs. Comm. &## SCR" #$

• "*isco vs. Comm. %$! SCR" &

-Bpon reading sec. !' >C) o* =RC see R" +%%' then go

to sec. %! >@) >') >b) o* =RC? sec. &%% par >o) o* 6;C?

sec. &4 o* the 6;C.

•5agcor vs. @asco &+' SCR" !

•actan vs. Cebu !#& SCR" ##'

•6R vs. City o* anila %4! SCR" #+!

-5roceed to sections !' >D) >&)? !' >D) >!)? !' >D) >)

read R" +%%'? !( >") >') >b)? !( >@) >) >C)? !' >D) >4)?>!() >") >') >d)? !( >@) >) >b)

• arubeni vs. CR &'' SCR" $$

• 5roctor ;amble vs. Comm &#$ SCR" #$

• Same case 5roctor and ;amble on the otion *or

Reconsideration !$4 SCR" %''

• Aonder vs. Comm &#$ SCR" '%

-5roceed to sec. !'>D) >)

then sections !' >E) and !( >") >!)

-;o to sec. !( >") >%) read RR &-!$$!

-;o to sec. !( >") >4) see R" +%%'-hen see sec !( >") >) see arubeni vs. Comm &''

SCR" $$

-5roceed to sec. !(>@) >) >a) and sec %! >@) >') >a)

• Read itsubishi vs. Comm &(& SCR" !&4

-hen go to sec. !+ and Rev. Reg. !-!$$&

-Bpon reading sec. %! >@) & and !? read sec. ( par >e)?

sec. &$(" and sec. &!% o* the =RC

-5roceed to sec. %% read Rev. Reg. %-+(-then go to sec. %4 >") >&) >a) see "guinaldo vs. Comm.

&&! SCR" &%#? RR &$-!$$!

-Bnder Sec. %4 >@) read RR &%-!$$$

-Bpon reading sec. 4+ read @anas vs. C" %! SCR" !+and <ilipina vs. Comm. %&# SCR" 4($

-Bpon reading sec. #$-##? read Ona vs. @autista 4

SCR" '4

III. Estate Ta!

-Sections (4-+' see sec. &$4

-Bpon reading sec. ( >@) read 0idal de Roces vs.

5osadas ( 5hil. &$(Di3on vs. 5osadas ' 5hil 4#

-Sec. ( >;) compare with sec. &$$

-sec. ( >1) compare with sec. (# >C)

-Bpon reading sec. (# see RR !-!$$%-Bpon reading sec. +4 see arcos vs.

Sandiganbayan !'% SCR" 4'

IV. #onors Ta! La"

- Sections +(-&$4

- ; and Cumulative methods o* *iling donorHs ta/

returns sections ++ >")? &$% >") >&) and RR !-!$$%

- Sections &$$ and ( >+)

V. Value A$$e$ Ta!

- Sections &$-&&

-Read R" +%%'-Read "@""D" vs Comm.

;R &#($#? Sept. &? !$$

VI. Ree$ies %n$er t&e Internal Re'enue Co$e

-Sections !$!-!!+

-RR &!-++

• 5hoeni/ vs Comm &4 SCR" !• @asilan vs. Comm. !& SCR" &'

• Iabut vs. <lo7o && SCR" !'(

• Bnion Shipping vs. Comm &( SCR" 4'

• Comm. vs. J !$ SCR" &(4

• Comm. vs. 5hilamli*e !44 SCR"

• Comm. vs. C" @5 %$& SCR" 4%

• @5 vs. Comm. %#% SCR" (4$

-5rescription sections !$% and !!! o* =RC? sec.

&+4 o* the 6;C? sec. !'$ o* the 6;C? sec. &#$% o*

ari** and Customs Code-5rotest sec. !!( o* =RC and RR &!-++ sec. &+ o*

6;C? !! 6;C? sec. !%&% o* ari** CustomsCode and R" '#&

VII. Local Ta!ation

- Sections &!(-&+# o* 6;C

-5roceed &st to sec. &(# read @ulacan vs. C" !++

SCR" 44!-hen proceed to &('

-hen to &&

-&!(

Page 2 of 79



-Bnder sec. &%% >e) read 5alma vs. alangas 4&%

SCR" '!-Bnder &%% >h) read 5ililia vs. 5etron &+( SCR"

(!

-Bnder &%% >i) read <irst 1oldings Co. vs.

batangas City %$$ SCR" ##&-Bnder &%% >l) read @utuan vs. 6O %!! SCR"

($

-Bnder &%' read sec. &+% o* 6;C

• isamis vs. Cagayan de Oro &(& SCR" %(

• Reyes vs. San 5ablo City %$ SCR" %%

• eralco vs. 6aguna %$# SCR" '$

• 56D vs. Davao City %#% SCR" !!

- Co-relate sec. &%+ and &4' o* 6;C

- Bnder sec. &4$ o* the 6;C see sec. &! o* the

nternal Revenue Code- Bnder sec. &$ o* the 6;C read the *ollowing:

• 5hil. atch vs. Cebu (& SCR" ++• "llied hread vs. anila &%% SCR" %%(

• Sipocat vs. Shell &$ 5hil. &!#%

• loilo @ottles vs. loilo City &#4 SCR" #$'

VIII. Real Propert( Ta!

- Sections &+'-!+4

- Sec. !%

• 6R vs. anila %4!

SCR" #+!

• Cebu City vs. actan

!#& SCR" ##'

IX. Tariff ) Custos Co$e

- Special Customs Duty sec. %$&-%$4 o* CC

- Regu9ar Customs Duty sec. &$4 o* CC

- R" '#%&

X. Court of Ta! Appeals

- R" &&! as amended by R" +!(!

Rules in t&e Classroo*

&. do not be absent i* you are absent? you have to transcribe what

happened in class when you were out.

he ne/t meeting you attend class? consider yoursel* a resident o* balic-balic? babali9bali9an 9a

sa recit. E/ception: i* you get married.

!. read the assignment. Aag 3apote ang aral.

%. holiday , ma9e up class probably on a Sunday4. allowed to glance at your notes? wag lang

pahalataKgarapal

. materials: codal

commentaries >any author will do)

magic notes >Sababan 6ecture and 2")

@oo9 stand

Co'era+e of Ta!ation La" Re'ie"*

&. @asic 5rinciples including Constitutional 5rovisions

!. ncome a/%. Estate a/4. DonorHs a/

. Remedies

#. 6ocal a/

'. Real 5roperty a/(. ari** and Customs Code

+. Court o* a/ "ppeals

&$. 0" >although not part o* the coverage o* the @ar

E/ams? questions have been as9ed since &+++)

itle ?# and ' are always included in the coverage

=o computations in the bar

here are only & or ! questions in the @ar about @asic5rinciples

Ahat are the *avorite topics in the @arL

M &! questions on ncome a/

M (-&$ questions on remedies

M (-&$ questions allocated to the ' topics

BA,IC PRINCIPLE,*

N a/ation is an inherent power o* the State.

-* Ahat do you mean by =1ERE=LA* he power to ta/ is not provided *or in the law?

statute or constitutionF it depends on the e/istence o* thestate. =o law or legislation *or the e/ercise o* the power to ta/ by the national government.

-* Do local governments e/ercise this inherent powerLA* =o. Only the =ational ;overnment e/ercises theinherent power to impose ta/es.

-* he ta/ing power o* local governments is a

DE6";"ED power. Delegated by whomLA* Delegated by Congress through law in case o*

autonomous regions? and delegated by the constitution in

case o* 6;Bs not considered an autonomous region.

N Cities, provinces and municipalities M power grantedunder "rt. J Sec. # o* the Constitution

► Autonomous Regions M power con*erred byCongress through law. "rt. J Sec. !$ ! o* the

Constitution is a non-sel*-e/ecuting provision. hus the

power is granted by Congress because said provision

requires an enabling law.

N "rticle J? Section is sel*-e/ecuting thus the power

is granted by the constitution.

Page 3 of 79



CON,TIT%TIONAL LIITATION,

Due Process Clause

-* why is it a limitation to the power to ta/LA* he due process clause as a limitation to the power to

ta/ re*ers both to substantive and procedural due process.

Substantive due process requires that a ta/ statute must be

within the constitutional authority o* Congress to pass andthat it be reasonable? *air and 7ust.

5rocedural due process? on the other hand? requires

notice and hearing or at least the opportunity to be heard.

E/: On Substantive Due 5rocess- when the Congress passes a law e/empting the &%th month pay *rom ta/ but

with the concurrence only o* the ma7ority o* the quorum ,

law would be invalid because the Constitution provides

that any grant o* ta/ e/emption shall be passed with theconcurrence o* the ma7ority o* all the members o* the

Congress.

-* Does it *ollow that the adverse party must always benoti*iedLA* =o. "s a rule? notice and hearing or the opportunity

to be heard is necessary only when e/pressly required by

law. Ahere there is no such requirement? notice and theopportunity to be heard are dispensable.

E/. @e*ore Oct. &? &++? you can secure a RO

without noti*ying the adverse party. * you are a suspect

in a criminal case? you have the right to have anopportunity to be heard >i* there is a law).

@e*ore 8uly &? &++(? no notice need be given to a

party declared in de*ault. "*ter the amendment? the partydeclared in de*ault has to be noti*ied o* subsequent

proceedings albeit without the right to participate therein.

n the case o* a search warrant? the person to be

searched was not noti*ied. he person searched cannot

claim that there was a violation o* due process becausethere is no law requiring that the person to be searched

should be noti*ied.

Regarding delinquent ta/ payers? be*ore levy?

there must be notice.

RE"SO=:

=o provision o* law requires notice to the adverse

party. * the adverse party is noti*ied? he may abscond.hus? in adversarial proceedings? in connection with

procedural due process? the adverse party need not be

noti*ied all the time.

Equal Protection Clause

N "s a rule? ta/payers o* the same *ooting are treatedali9e? both as to privileges con*erred and liabilities

imposed. Di**erence in treatment is allowed only when

based on substantial distinction. Di**erence in treatment

not based on substantial distinction is *rowned upon as

Pclass legislation.Q his is violated when ta/payers belonging to the same classi*ication are treated di**erently

*orm one anotherF and ta/payers belonging di**erent

classi*ications are treated ali9e.

Requirements of Reasonable Classification:&) here must be substantial distinctions that ma9e

a real di**erence.

!) t must be germane or relevant to the purpose o* the law.

%) he distinction or classi*ication must apply not

only to the present but also to *uture situations.

4) he distinction must apply to persons? things andtransactions belonging to the same class.

E/: n one case? a ta/ ordinance was assailed on the

ground that the ordinance *ailed to distinguish a wor9er *orm casual? permanent or temporary. he SC said that

the ordinance was invalid because o* the *ailure to state

the said classi*ication.

n PEOPLE v. CAA! the Supreme Court mandated the

requisites *or a valid classi*ication.

!"# v. CO#R! O$ APPEAL% &'() %CRA *+--* what happened in the city o* OlonggapoLA* he Congress? with the approval o* the 5resident?

passed R" '!!'? an act creating the conversion o* the

military bases into other productive uses.-* Aho was the 5resident at that timeLA* 5resident Ramos

-* Ahat were signedLA* R" '!!'? EO +' and EO +'-"

M he *irst led to the creation o* the Subic Special

Economic one >SSE). he latter set the limitations

and boundaries o* the application o* the incentives

>no ta/es? local and national? shall be imposed withinSSE. n lieu thereo*? % o* the ;ross ncome shall

be remitted to the national govHt) to those operating

their businesses within the said area.-* Aho are the petitioners and what was their

contentionLA* he petitioners are <ilipino businessmen who are

operating their business outside the secured area. he

petitioners contended that the law in question wasviolative o* their right to equal protection o* laws

since they are also <ilipino businessmen.

1: he Supreme Court ruled that there was noviolation since the classi*ication was based on a

substantial distinction.

he element invo9ed here is element & that

there must be substantial distinction in theclassi*ication o* ta/payers on whom the ta/ will be

imposed.

Page 4 of 79



he Court observed that those *oreign

businessmen operating within the secured area haveto give a larger capital to operate in the secured area

>to spur economic growth and guarantee

employment).

OROC %#/AR CE0!RAL vs. C"R-* Ahat did the municipality o* Ormoc doLA* he City Council o* Ormoc passed a unicipal

Ordinance =o.4 imposing upon any and allcentri*ugal sugar milled at the Ormoc Sugar Central a

municipal ta/ on the net sale o* the same to the

Bnited States and other *oreign countries.-* Did the owner accept this impositionLA* =o. the ta/ due was paid under protest? then *iled a

complaint against the City o* Ormoc.

1: he Supreme Court said there was a violation o*

the equal protection clause. he element invo9ed herewas element %? that it must be applicable to both

present and *uture circumstances. he Supreme Court

said that one must go to the provision itsel*? in the

case at bar? there was a violation o* element % because the law was worded in such a way that it

only applies to Ormoc Sugar Central alone and to the

e/clusion o* all other sugar centrals to be established

in the *uture."E =OE: 5eople vs. Cayat

Freedom of Religion

t nvolves % hings:

&. *reedom to choose religion

!. *reedom to e/ercise oneHs religion%. prohibition upon the national government to

establish a national religion

-* Ahich one limits the power to ta/LA* 5rohibition upon the national government to establisha national religion because this will require a special

appropriation o* money coming *rom the national treasury

which is *unded by the ta/es paid by the people.

Non-impairment Clause

-* Ahat are the sources o* obligation in the Civil CodeL

A* 6aw? Contracts? 2uasi-Contracts? Delict? 2uasi-Delict.

-* Ahat is the obligation contemplated in thislimitationLA* hose obligations arising *rom contracts.

;eneral Rule: he power to ta/ is pursuant to law?there*ore? the obligation to pay ta/es is imposed by law?

thus the non-impairment clause does not apply.

N Iou have to determine *irst the source o* obligation:

&. * the law merely provides *or the *ul*illment o* the obligation then the law is not the source o* the

obligation.

!. Ahen the law merely recogni3es or

ac9nowledges the e/istence o* an obligation created by anact which may constitute a contract? quasi-contract? delict?

and quasi-delict? and its only purpose is to regulate such

obligation? then the act itsel* is the source o* the

obligation? not the law.Ahen the law establishes the obligation and also

provides *or its *ul*illment? then the law itsel* is the

source o* the obligation

-* So? in what instance does the non-impairment o*

contracts clause becomes a limitation to the power to ta/LA* it is when the ta/payer enters into a compromise

agreement with the government. n this instance? theobligation to pay the ta/ is now based on the contract

between the ta/payer and the government pursuant to

their compromise agreement.

a9e =ote: the requirement *or its application: the parties

are the government and private individual.

Poll Tax

-* Ahat is a poll ta/LA* t is a ta/ o* a *i/ed amount on individuals residing

within a particular territory? whether citi3ens or not?without regard to their property or to the occupation in

which they may be engaged.

t is a ta/ imposed on persons without anyquali*ications. persons may be allowed to pay even i* theyare not quali*ied as to age or property ownership.

E/ample o* 5oll a/: Community a/ Certi*icate under

Section &#! o* the 6ocal ;overnment Code.

-* Ahy is it a limitation to the power to ta/LA* t is a limitation to the power to ta/ because Congress

is prohibited *rom passing a law penali3ing withimprisonment a person who does not pay poll ta/. >*unds

*or sending a person to 7ail is ta9en *rom the national

treasury which is *unded by the ta/es paid by the people)

Exemption from payment of Real Estate Tax

-* Ahat is the requirement *or e/emption *rom paymento* real property ta/ under the &+%? &+'% and &+('

ConstitutionLA* Art. 1, %ec ** &'-, )2'3 Constitution , Cemeteries?

churches and parsonages or convents appurtenant thereto?and all lands? buildings and improvements used

EJC6BS0E6I *or RE6;OBS? C1"R"@6E or

EDBC"O="6 purposes shall be e/empt *or ta/ation.

Page 5 of 79



Art. , %ec. )+ &'-, )2+' Constitution , charitable

institutions? churches? parsonages or convents appurtenantthereto? mosque? and non-pro*it cemeteries? and all lands?

buildings? and improvements "CB"66I? DREC6I?

and EJC6BS0E6I used *or RE6;OBS and

C1"R"@6E purposes shall be e/empt *rom ta/ation. Art. 1, %ec. * &'-, )2+ Constitution , charitable

institutions? churches? and parsonages or convents

appurtenant thereto? mosque? non-pro*it cemeteries? and

all lands? buildings? and improvements "CB"66I?DREC6I and EJC6BS0E6I used *or RE6;OBS?

EDBC"O="6 and C1"R"@6E purposes shall be

e/empt *rom ta/ation.

4ERRERA v. 5C67OAR8 O$ A%%E%%E0! >&+% Constitution)-* Ahat is involved in this caseLA* " charitable institution? St. CatherineHs 1ospital.

he hospital was previously e/empt *rom ta/ation

until it was reclassi*ied and subsequently assessed *or

the payment o* real property ta/.

he contention o* the respondent is that thehospital was no longer a charitable institution

because it accepts pay-patients? it also operates a

school *or midwi*ery and nursing? and a dormitory.

Since it is not e/clusively used *or charitable purposes it is not e/empt *rom ta/ation.

1: he Court ruled that petitioner is not liable *or

the payment o* real estate ta/es. t is a charitable

institution? thus e/empt *rom the payment o* suchta/.

he hospital? schools and dormitory are all

e/empt *ro ta/ation because they are incidental to the primary purpose o* the hospital.

=OE: this arose during the &+% Constitution.

PE/empted by virtue o* incidental purposeQ was

merely coined by the Supreme Court. hus? it does not

apply to other ta/es e/cept Real Estate a/.

PRO9"0CE O$ A7RA v. 4ER0A08O-* Ahat is involved in this caseLA " religious institution was involved in this case?

the Roman Catholic @ishop o* @angued? nc. >bishop

*iled declaratory relie* a*ter assessed *or payment o*

ta/). he respondent 7udge granted the e/emption

*rom ta/es o* said church based only on theallegations o* the complaint without conducting a

hearingKtrial. he assistant prosecutor *iled a

complaint contending that petitioner was deprived o* its right to due process.

SC: the Court ordered that the case be remanded to the

lower court *or *urther proceedings. he Court observedthat the cause action arose under the &+'% Constitution?

not under the &+% Constitution >note the di**erence). a/

e/emption is not presumed. t must be strictly construed

against the ta/payer and liberally construed in *avor o* the

government.

A7RA 9ALLE COLLE/E "0C. v. A5#"0O-* Ahat is involved in this caseL

A* "n educational institution is involved in thiscase. he ground *loor o* the school was leased to

=orthern ar9eting Corp.? a domestic corporation.

he !nd *loor thereo* was used as the residence o* the

school director and his *amily.he 5rovince o* "bra now contends that since

the school is not e/clusively used *or educational

purposes? the school is now liable to pay real estate

ta/.1: he Court held that the school is 5"R"66I

liable *or real estate ta/.

&. Residence , e/empt by virtue o* incidental

purposeF 7usti*ied because it is necessary.!. Commercial , not e/empt because it is not

pursuant to the primary purposeF not *or

educational purposes.

-* is the doctrine in the case o* 1errera the same with this

caseLA* =O. in the 1errera case? the e/emption was granted to

all the real property >hospital? school and dorm). @ut inthis case? the Supreme Court made a quali*ication. he

Supreme Court said it depends.

=OE: both cases arose under the &+% Constitutiondespite having been decided in &+((.

-* "t present? do we still apply the e/emption *rom ta/ by virtue o* the Doctrine o* ncidental 5urposeLA* =ot anymore. he cause o* action in said case arose

under the &+% Constitution and it does not apply to the

provisions o* the &+(' Constitution.

P4"L"PP"0E L#0/ CE0!ER v. 5#EO0 C"! -* Ahat is involved in this caseLA* " charitable institution? a hospital. t is provided

in the charter o* the 6ung Center o* the 5hilippines isa charitable institution. 1owever? part o* its building

was leased to private individuals and the vacant

portion o* its lot was rented out to Elliptical Orchids.

Respondent contends that since the hospital is notused actually? directly? an d e/clusively *or charitable

purposes? it is liable to pay real estate ta/es.

1: he Supreme Court held that the petitioner isliable to pay ta/ *or those parts leased to private

individuals *or commercial purposes. <or the part o*

the hospital used *or charitable purposes >whether *or

pay or non-pay patients)? petitioner is e/empt *rom payment o* real estate ta/.

Page 6 of 79



=OE: petitioner contended that the pro*its derived *rom

the lease o* its premises were used *or the operation o* thehospital. he Court held that the use o* the pro*its does

not determine e/emption? rather it is the use o* the

property that determines e/emption.

he case o* 1errera does not apply because said casearose under the &+% Constitution and the present case

arose under the &+(' Constitution. he requirements *or

e/emption are di**erent. n the &+% Constitution? the

property must be EJC6BS0E6I used *or religious?educational or charitable purposes. Bnder the &+('

Constitution? the property must be used "CB"66I?

DREC6I? and EJC6BS0E6I *or religious?

educational and charitable purposes.

-* Aas the doctrine laid down in "bra 0alley a**irmed

in the 6ung Center caseLA* Ies. he Supreme Court unconsciously applied adoctrine laid down by the &+% Constitution. he

Supreme Court reiterated the ruling in the "bra 0alley

case which arose under the &+% Constitution. he

Supreme Court made a quali*ication? it held that itdepends on whether or not the use is incidental to the

primary purpose o* the institution.

=OE: at present? Pe/emption *rom ta/ by virtue o* incidental purposeQ is not applicable to all ta/es including

real estate ta/.

CO v. %C ;O40%O0 and %O0%, "0C.mportant :

&. international double ta/ation

!. importance o* international ta/ treaty%. implication o* most *avored nation clause

-* Ahat is the corporation involved in this caseLA* " domestic corporation >DC).

SC 8ohnson and Sons? nc. entered into a license

agreement with SC 8ohnson and Sons B.S." >=on-Resident <oreign Corp? =R<C) whereby the *ormer

was allowed to use the latterHs trademar9 and

*acilities to manu*acture its products. n return? the

DC will pay the =R<C royalties as well as paymento* withholding ta/.

" case *or re*und o* overpaid withholding ta/

was *iled. "pparently? the DC should have paid only

&$ under the most *avored nation clause.1: he Supreme Court coined the term nternational

Double a/ation or nternational 8uridical Double

a/ation.-* Ahat prompted the SC to coin such termLA* @ecause a single income >ta/ royalties paid by a

DC) was sub7ected to ta/ by two countries? the

5hilippines income ta/ and the B.S. ta/.nternational 8uridical Double a/ation applies

only to countries where the ta/ liabilities o* its

nationals are imposed on income derived *rom

sources coming *rom within and without.-* s there an instance where international double

ta/ation does not applyLA* Ies. * it involves nationals o* countries wherein

the ta/ liability is imposed only *rom income derive*rom sources within and not including those derived

*rom sources without.

>E/: Swit3erland)

M he controversy in the case at bar involves theincome ta/ paid in the 5hilippines.

"*ter paying !? the BS *irm discovered that

they are entitled to &$ under the most *avored

nation clause. he question is: was the ta/ paid under similar circumstances with that o* the R5-Aest

;ermany reatyL

he C" and Court o* "ppeals ruled that it was

paid under similar circumstances. he phrase re*erredto the royalties in payment o* income ta/. he

Supreme Court ruled that the lower courtsH

interpretation o* the phrase was erroneous. Rather?

the phrase applies to the application o* matchingcredit.

-* Ahat is matching ta/ creditLA* R5-;ermany reaty provides *or that !$ o* the

ta/ paid in the 5hilippines shall be credited to their ta/ due to be paid in ;ermany.

he &$ does not apply because there is no

matching credit. hus? there is no similarity in the

circumstances.

E-%ITABLE RECO%PENT AN# #OCTRINE OF

,ET/OFF

Equitable Recoupment

his doctrine provides that a claim *or re*und barred

by prescription may be allowed to o**set unsettled ta/liabilities. his is not allowed in this 7urisdiction? because

o* common law origin. * allowed? both the collecting

agency and the ta/payer might be tempted to delay and

neglect the pursuit o* their respective claims within the period prescribed by law.

-* Ahat is the doctrine o* Equitable RecoupmentL

A* Ahen the claim *or re*und is barred by prescription?the same is allowed to be credited to unsettled ta/

liabilities.

>Sir gives an illustration *ound in page % o* magic notes)

-* s the rule absoluteL ReasonA* Ies? the rule is absolute. he rationale behind this isto prevent the ta/payer and government o**icial *rom

being negligent in the payment and collection o* ta/es.

Page 7 of 79



>*urthermore? you have to be honest *or this to wor9?

hence? the government is preventing corruption)here is no e/ception at all otherwise? the @R would

be *looded with so many claims.

Set-off

5resupposes mutual obligation between the parties.

n ta/ation? the concept o* set-o** arises where a ta/payer

is liable to pay ta/ but the government? *or one reason or another? is indebted to the said ta/payer.

-* Ahat do you mean by SE-O<<LA* his presupposes mutual obligations between the

parties? and that they are mutual creditors and debtors o*

each other. n ta/ation? the concept o* ta/ation arises

where a ta/payer is liable to pay ta/es but the

government? *or one reason or another? is =DE@ED tosaid ta/payer.

REP#7L"C v. A7#LAO L#7ER CO.-* Ahat is the liability o* ambulaoLA* hey are liable to pay *orest charges >under the

old ta/ code).

=OE: under our present ta/ code? the =RC? we do not

have *orest charges as the same was abolished by5resident "quino.

-* Ahat did the lumber company doLA* he lumber company claimed that since the

government did not use the re*orestation charges it paid *or re*orestation o* the denuded land covered by

its license? the amount paid should be reimbursed to

them or at least compensated or applied to their liability to pay *orest charges.

1: he Court ruled that the re*orestation charges

paid is in the nature o* ta/es.

he principle o* compensation does not apply in

this case because the parties are not mutuallycreditors and debtors o* each other. " claim *or ta/es

is not a debt? demand? contract or 7udgment as is

allowed to be set-o** under the statute o* set-o**

which is construed uni*ormly? in the light o* public policy? to e/clude the remedy in connection or any

indebtedness o* the State or any municipality to one

who is liable *or ta/es. =either are they a proper

sub7ect *or recoupment since they do not arise out o* contract or the same transaction sued on.

;eneral Rule: no set-o** is admissible against demands*or ta/es levied in general or local governmental

purposes.

Reason: a/es are not in the nature o* contracts or debts between the ta/payer and the government? but arises out

o* a duty to? and are positive acts o* the government to the

ma9ing and en*orcing o* which? the consent o* the

individual is not required.a/es cannot be the sub7ect matter o* compensation.

8O"0/O v. /ARL"!O%

-* Ahat is being collected in this caseLA* Estate and inheritance ta/es.

=OE: we do not have inheritance ta/es anymore

because the same was abolished by 6olo acoy.-* Aho is the administratri/LA* he surviving spouse.-* Ahat did the surviving spouse doLA* he surviving spouse suggested that the

compensation to which the decedent was entitled toas an employee o* the @ureau o* 6ands be set-o**

*rom the estate and inheritance ta/es imposed upon

the estate o* the deceased.

1: @oth the claim o* the government *or estate andinheritance ta/es and the claim o* the >intestate) *or

the services rendered have already become overdue

hence demandable as well as *ully liquidated?

compensation there*ore ta9es place by operation o* law? in accordance with "rt. &!'+ and &!+$ o* the

Civil Code and both debts are e/tinguished to the

concurrent amount.

Compelling Reason: Congress has enacted R"!'$$? allocating a certain sum o* money to the estate

o* the deceased.

$RA0C"A v. "AC -* his happened in what cityL

A* 5asay City-* Ahat is the ta/ being collectedL Aho is collecting the

sameLA* 5ayment *or real estate ta/es *or the property o*

<rancia. t appears that petitioner was delinquent in

the payment o* his real estate ta/ liability. he sameis being collected by the reasurer o* 5asay.

-* Ahat is the suggestion o* petitionerLA* Suggested that the 7ust compensation *or the

payment o* his e/propriated property be set-o** *romhis unpaid real estate ta/es. >the other part o* his

property was sold at a public auction)

1: he *actual milieu o* the case does not 7usti*y

legal compensation.he Court has consistently ruled that there can

be no o**-setting o* ta/es against the claims that the

ta/payer may have against the government. "ta/payer cannot re*use to pay a ta/ on the ground that

the government owes him an amount.

nternal Revenue ta/es cannot be the sub7ect o*

compensation because the government and theta/payer are not mutually creditors and debtors o*

each other? and a claim *or ta/es is not a debt?

Page 8 of 79



demand? contract or 7udgment as is allowed to be

compensated or set-o**.<urthermore? the payment o* 7ust compensation

was already deposited with 5=@ 5asay? and the ta/es

were collected by a local government? the property

was e/propriated by the national government. >di** parties? not mutual creditors and debtors o* each

other.)

CAL!E< P4"L v. COA-* Ahat is being collectedLA* Calte/Hs contribution to the Oil 5rice

Stabili3ation <und >O5S<).

CO" sent a letter to Calte/ as9ing the latter tosettle its unremitted collection stating that until the

same is paid? its claim *or reimbursement *rom the

O5S< will be held in abeyance.-* Ahy is Calte/ entitled to reimbursementLA* @ecause o* the *luctuation o* the oil prices in the

iddle East and Europe. Calte/ wanted to o**-set its

unremitted collection *rom its reimbursements.

1: he Court did not allow the set-o**? andreiterated its ruling in the case o* ambulao and

<rancia. <urthermore? R" #+! e/pressly prohibits

set-o** *rom the collection o* contributions to the

O5S<. he Court li9ewise stated that Calte/ merelyacted as agent o* the government in collecting

contributions *or the O5S< because such is being

shouldered by the consumers when they purchase

petroleum products o* oil companies? such as Calte/.a/ation is no longer envisioned as a measure

merely to raise revenues to support the e/istence o*

the government. a/es may be levied *or regulatory purposes such as to provide means *or therehabilitation and stabili3ation o* a threatened

industry which is vested with public interest? a

concern which is within the police power o* the State

to address.

P4"LE< "0"0/ CORP v. CO he petitioner is liable *or the payment o* e/cise

ta/es? which it wanted to be set-o** *rom its pending claim*or a 0" nput creditKre*und.

he Court did not allow set-o**. a/es cannot be the

sub7ect o* compensation *or the simple reason that the

government and ta/payer are not mutual creditors anddebtors o* each other. a/es are not debts.

<urthermore? in the instant case? the claim *or 0"

re*und is still pending. he collection o* a ta/ cannotawait the results o* a lawsuit against the government.

#O%BLE TAXATION

Double ta/ation is allowed because there is no

prohibition in the Constitution or statute.

Obno/ious double ta/ation is the synonym o* double

ta/ation.

Elements o* Double a/ation:

&) 6evied by the same ta/ing authority

!) <or the same sub7ect matter %) <or the same ta/ing period and

4) <or the same purpose

here is no double ta/ation i* the ta/ is levied by the6;B and another by the national government. he two

>!) are di**erent ta/ing authorities.

6;Bs are e/pressly prohibited by the provisions o* R" '&#$ or the 6;C o* &++& *rom levying ta/ upon: >&)

the =ational ;overnmentF >!) its agencies and

instrumentalitiesF >%) 6;Bs >sec.&&%>o)).

he =ational ;overnment? pursuant to the provisionso* R" (4!4 o* the a/ Re*orm "ct o* &++'? can levy ta/

upon ;OCCs? agencies and instrumentalities >Section !'

c))? although income received by the ;overnment *orm:

&) any public utility or!) the e/ercise o* any essential governmental

*unction

is e/empt *rom ta/.

0IN#, OF INCOE TAXPA1ER,

-* ;enerally? how many 9inds o* income ta/payers are

thereLA* Bnder section !!" o* =RC? there are three >%)?

namely:

&. individualF!. corporateF%. estate and trust.

I. IN#IVI#%AL TAXPA1ER

-* 1ow many 9inds o* individual ta/payers are thereLA* here are seven >'). =amely:

&. Resident Citi3en >!%" and !4")F

!. =onresident Citi3en >!%@ and !4")F%. OCA and Seaman >!%C and !4")F

4. Resident "lien >!!<? !%D and !4")F

. =onresident "lien Engaged in rade or @usiness

>!!;? !%D and !")#. =onresident "lien =O Engaged in rade or

@usiness >!!;? !%D and !@)

'. "liens Engaged in ultinational Companies?O**shore @an9ing Bnits? 5etroleum Service

Contractors >!C?D and E)

Resident Citien !RC"

-* 1ow many types o* RCLA* here are two >!)? namely:

Page 9 of 79



&. RC residing in the 5hilippinesF and

!. <ilipino living abroad with no intention to reside permanently therein.

-* * you are abroad? and you have the intention to

permanently reside therein? can you still be considered aRCLA* Ies. * such intention to permanently reside therein

was not mani*ested to the Commissioner and the *act o*

your physical presence therein? you may still beconsidered a RC.

#C$ and Seamen

OCA was used and not O<A in the CR5? because

the classi*ication shall cover only those <ilipino citi3ens

wor9ing abroad with a contract. =s are not covered.

" <ilipino seaman is deemed to be an OCA *or

purposes o* ta/ation i* he receives compensation *or

services rendered abroad as a member o* the complement

o* a vessel engaged e/clusively in international trade.Consequently? i* he is not a member o* the

complement or even i* he is but the vessel where he

wor9s is not e/clusively engaged in international trade?

said seaman is not deemed to be an OCA. 1e is either aRC or a =RC depending on where he stays most o* the

time during the ta/able year.

* he stays in the 5hilippines most o* the time during

the ta/able year? he is considered a RC? otherwise? a =CR.

* you are a seaman in the BS =avy? you are not theone being re*erred to.

he importance o* ascertaining whether or not a

seaman is a RC or a =RC? is that i* he is a RCm he is

ta/able on "66 income derived *rom all sources withinand without. * he is a =RC? he is ta/able only on income

derived *orm sources within the 5hilippines.

-* Ahat is the signi*icance o* using OCALA* t only covers <ilipinos who wor9s abroad with a

contract. t does not cover =s.

-* Ahat is the status o* a =LA* Since they are not covered by this classi*ication? they

are considered RC because they wor9 abroad without acontract and they have not mani*ested their intention to

permanently reside abroad. >distinguish *rom an

immigrant)

Requirements *or a seaman to be considered an OCA:

&. must be a member o* the compliment o* a vesselF

!. the vessel must be e/clusively engaged in

international trade or commerce.

Resident %lien !R%"

"n individual whose residence is within the5hilippines and who is not a citi3en thereo*.

ntention to reside permanently in the 5hilippines is

not a requirement on the part o* the alien.

he requirement under RR! is that he is actually

present in the 5hilippines? neither a so7ourner? a traveler?

not a tourist.Ahether heHs a transient or not is determined by his

intent as to the nature and length o* his stay.

-* s the intention to permanently reside in the5hilippines necessaryLA* =o? so long as he is not a so7ourner? tourist or a

traveler.

Non-Resident %lien Engaged in Trade or &usiness

!NR%ET&"

" *oreigner not residing in the 5hilippines but who isengaged in trade or business here.

RR !-+( has e/panded the coverage o* the term?

Pengaged in trade or businessQ to include the e/ercise o* a pro*ession. <urthermore? by the e/press provision o* the

law? a =R" who is neither a businessman nor a

pro*essional but who come to and stays in the 5hilippines*or an aggregate period o* more than &($ days during anycalendar year is deemed to a =R"E@ in the 5hilippines.

-* 1ow many typesLA* here are three >%) types? namely:

&. =R" engaged in trade or business >!a&)F

!. =R" who practices a pro*ession >Revenue

Regulation !-+()F

%. *oreigner who comes and stays in the 5hilippines*or an aggregate period o* ORE 1"= &($

days during any calendar year.

-* Ahat is the status o* a Chinese who stays here *or !$$ days in !$$&LA* =R"E@

-* Suppose he stayed here *or &$$ days in !$$$ and

another &$$ days in !$$&LA* 1e is not a =R"E@. o be considered as such? he

must stay *or an aggregate period o* more than &($ daysduring a calendar year.

-* Ahat is the income ta/ applicable to said ta/payerL

Page 10 of 79



A* =et ncome a/ >=) on all its income derived *orm

sources within the 5hilippines.

Non-Resident %lien Not Engaged in Trade or

&usiness

-* 1ow many 9indsLA* Only one.

he reason why the =R"=E@ are included in anyincome ta/ law is because they may be deriving income

*orm sources within the 5hilippines.

hey are sub7ect to ta/ based on their ;ROSS

=COE received *orm all sources within the5hilippines.

%liens Employed by Regional or %rea 'eadquarters

( Regional #perating 'eadquarters of

)ultinational Companies* %liens Employed by

#ffs+ore &an,ing nits !%liens Employed by )#P"

N Status: either a R" or =R" depending on their stayhere in the 5hilippines.

N heir status may either be R" or =R" because

Section ! C and D does not distinguish.

N 6iable to pay & *rom ;ross ncome received *rom

their employer

N ncome earned *rom all O1ER sources shall be

sub7ect to the pertinent income ta/? as the case may be.

%liens Employed in )ultinational and #ffs+ore

&an,ing nits

-* 1ow are they classi*iedLA* * they derived income *rom other sources aside *romtheir employer? you may classi*y them either as R"?

=R"E@? or =R"=E@.

%liens Employed in Petroleum Ser.ice Contractors

and Subcontractors

N Status: "6A"IS =R". * they derive income *rom

other sources? such income shall be sub7ect to the pertinent income ta/? as the case may be.

N ncome derived or coming *rom their employer shall be sub7ect to a ta/ o* & o* the gross.

II. CORPORATE TAXPA1ER

&. 8omestic Corporation &8C- , created or

organi3ed under 5hilippine laws.

!. Resident $oreign Corporation &R$C- ,

corporation created under *oreign law? andengaged in trade or business.

%. 0onresident $oreign Corporation &0R$C- ,

created under *oreign law? and =O engaged in

trade or business.

-* Ahat are deemed corporations under the =RCLA* he term corporation shall include partnerships? no

matter how created or organi3ed? 7oint stoc9 companies? 7oint accounts? associations? or insurance companies? but

DOES =O includes general pro*essional partnerships

and a 7oint venture or consortium *ormed o* the purpose

o* underta9ing construction pro7ects or operations pursuant to or engaging in petroleum? coal? geothermal or

consortium agreement under a service contract with the

;overnment.

&. 5artnerships and others no matter how created!. 8oint Stoc9 Companies

%. 8oint "ccounts

4. "ssociations

. nsurance Companies

C"R v. CO#R! O$ APPEAL% he phrase no Pmatter how created or organi3edQ was

interpreted.

Even i* the partnership was pursuant to law or not?

whether nonstic9? nonpro*it? it is still deemed a

corporation.Reason: because o* the possibility o* earning pro*its

*orm sources within the 5hilippines.

-* "re partnerships always considered corporationsL sthere no e/ceptionLA* ;eneral Rule: a partnership is a corporation.

E/ception: ;eneral 5ro*essional 5artnerships >;55)

-* Ahat is a ;55LA* t is a partnership *ormed by persons *or the sole

purpose o* e/ercising their pro*ession? no part o* theincome o* which in derived *rom any trade or business.

>what i* a partner has other businesses not related to the

;55L T read section !# quoted hereunder)

wo >!) inds o* ;55 *ormed *or:

&) E/ercise o* a pro*ession , not a corporationF

e/empt *rom Corporate ncome a/ >C)!) E/ercise o* a pro*ession and engaged in trade or

business , a corporationF sub7ect to C

!A0 v. 8EL RO%AR"Ogeneral rule: a partnership is a corporation

e/ception: ;55

Page 11 of 79



e/ception to the e/ception: i* the ;55 derives income

*rom other sources? it is considered a corporation? thusliable to pay corporate income ta/.

Rule:

&. i* the income is derived *rom other sources andsuch income is sub7ect to =E =COE "J? it is not

e/empt and it is considered a corporation.

!. i* the income is derived *rom other sources and

such income is sub7ect to <="6 =COE "J? it is stillEJE5 and it is not deemed a corporation. > separate

return *or this. t will not re*lect in the ;55Hs R)

U his is pursuant to the *act that < will not re*lect in

the R o* the ;55 since the withholding agent is liable*or the payment o* the <.

-* Ahat is the importance o* 9nowing whether the

corporation is e/empt or notLA* o determine their ta/ liability. his is important to

determine the ta/ liability o* the individual partners o* the

;55.

N %ection *1 &) st paragrap=- provides: Pa ;55 as such

shall not be sub7ect to the =et ncome a/VQ however?

PVpersons engaging in business as partners in a ;55

shall be liable *or income ta/ only in their separate andindividual capacities.Q

n short? each partner will be paying =? and the

distributive shares they will be receiving *rom the net

income o* the ;55 will be included in the gross income o* the partner.

-* * the ;55 is deemed a corporation? will the partnershave to pay *or the income ta/LA* =o. as *ar as the share o* the ;55 is concerned? it is

considered a ta/able dividend which is sub7ect to <.

-* s a 7oint venture a corporationLA* ;enerally? yes? it is a corporation.

-* Corporation J and Corporation I 7oined together.

1ow many corporations do we haveLA* hree? namely Corporation J? I? and JWI. the 7oint

venture has a separate and distinct personality *rom the

two corporations.

-* Ahen is a 7oint venture not considered a corporationLA* t is not deemed a corporation when it is *ormed *or

the purpose o* underta9ing a >PconstructionL) pro7ect or engaging in petroleum? gas? and other energy operations

pursuant to PLQ or consortium agreement under a service

contract with the government.

Domestic Corporation

s one created or organi3ed in the 5hilippines or

under its laws.

a/able on all income derived *rom sources within or

without the 5hilippines.

Resident Foreign Corporation

<oreign corporations engaged in trade or business in

the 5hilippines.

a/able *or income derived within the 5hilippines.

Non-Resident Foreign Corporation

<oreign corporations not engaged in trade or business

in the 5hilippines.

a/able *or income derived within the 5hilippines.

@oth DC and R<C are liable *or the payment o* the

*ollowing:&) = , =et ncome a/

!) < , <inal ncome a/

%) &$ income ta/ on corporations with properly

accumulated earnings.4) C >inimum Corporate ncome a/) o* !

o* the ;ross ncome

) Optional Corporate ncome a/ o* & o* the

;ross ncome

" =R<C is liable *or payment o* the **:

&) ;- ;ross ncome a/!) < , <inal ncome a/

III. TR%,T AN# E,TATE

-* 1ow many *or eachLA* Seven >') 9inds *or each because the trust or estate

will be determined by the status o* the trustor? grantor? or

creator? or o* the decedent.

he status o* the estate is determined by the status o*

the decedent at the time o* his deathF so an estate? as an

income ta/payer can be a citi3en or an alien.

Ahen a person who owns property dies? the

*ollowing ta/es are payable under the provision o* income

ta/ law:&) ncome a/ *or ndividuals , to cover the period

beginning 8anuary to the time o* death.

!) Estate ncome a/ , i* the property is trans*erred

to the heirs.%) * no partition is made? ndividual or Corporate

ncome a/? depending on whether there is

or there is no settlement o* the estate. *

Page 12 of 79



there is? depending on whether the

settlement is 7udicial or e/tra7udicial.

;udicial %ettlement

&) During the pendency o* the settlement? the estatethrough the e/ecutor? administrator? or heirs is

liable *or the payment o* ES"E =COE

"J >Se/? #$ >%)).

!) * upon the termination o* the 7udicial settlement?when the decision o* the court shall have become

*inal and e/ecutory? the heirs still do not divide

the property? the *ollowing possibilities may

arise:a) * the heirs contribute to the estate money?

property or industry with the intention to

divide the pro*its between and among

themselves? an B=RE;SERED5"R=ERS15 is created and the estate

becomes liable *or payment o* C

>Evangelista vs. Collector >&$! 5hil &4$))

b) * the heirs without contributing money? property or industry to improve the estate?

simply divide the *ruits thereo* between and

among themselves? a CO-OA=ERS15 is

created and ndividual ncome a/ >C) isimposed on the income derived by each o*

the heirs? payable in their separate and

individual capacity >5ascual vs. CO

>&# scra #$) and Obillos vs. CO >&%+SCR" 4%#))

E>tra?udicial %ettlement and if 0O %ettlement

Some possibilities may arise. he income ta/

liability depends on whether or not the unregistered

partnership or co-ownership is created.

Trust

rusts can be created by will? by contract or by

agreement. he status o* a trust depends upon the statuso* the grantor or trustor or creator o* the trust. 1ence? a

trust can also be a citi3en or an alien.

-* Ahere the trust earns income and such income is not passive? who among the parties mentioned is liable *or

payment o* income ta/ thereonLA* he RBS itsel*? through the trustee or *iduciary

but only i* the trust is irrevocable.

* it is revocable? or *or the bene*it o* the grantor? the

liability *or the payment o* income ta/ devolves upon the

trustor himsel* in his capacity as individual ta/payer.

0IN#, OF INCOE TAX

-* 1ow many 9inds o* income ta/LA* here are Si/ >#)? namely:

&. =et ncome a/ >=)F

!. ;ross ncome a/ >;)F

%. <inal ncome a/ ><)F4. inimum Corporate ncome a/ o* ! o* the

;ross ncome >C)

. ncome a/ on mproperly "ccumulated

Earnings sub7ect to &$ o* the a/able ncomeF#. Optional Corporate ncome a/ o* & on the

;ross ncome

I. NET INCOE TAX

-* what is the *ormulaLA* ;ross ncome , Deductions and 5ersonal E/emptions

X a/able ncome

a/able ncome / a/ Rate X =et ncome

a/able =et ncome , a/ Credit X a/able =etncome Due

=et ncome means ;ross ncome less deductions and

<ormula:;

- deductions

=et ncome

/ a/ Ratencome a/ Due

-* Ahat is the rateLA* ndividual: %!

Corporation: %

=OE: the *ormula allows *or deduction? personal

e/emptions and ta/ credit.

-* Ahat are the other terms *or =LA* =RC:

a. ta/able income b. gross income >wlang 9asunod)

M only income ta/ *rom improperly accumulated

earnings does not use this term.

&. C<": Pto be included in the gross incomeQ

!. Revenue Regulations and Statutes:

a. ordinary way o* paying income ta/F b. normal way o* paying income ta/ .

C+aracteristics/

-* Aho are not liable to pay =LA* &. =R"=E@ >liable *or ;)F

!. =R<C >; also)F

Page 13 of 79



%. Aith certain modi*ications? "EO5? i* they

derive income *rom other sourcesF

-* s the ta/able net income sub7ect to withholding ta/LA* t is sub7ect to withholding ta/ i* the law says so.

-* Ahat i* the law is silentLA* * the law is silent? it is not sub7ect to withholding ta/.

-* Ahat is another term *or withholding ta/LA* t is also 9nown as the creditable withholding ta/

system under the income ta/ law.

-* Do we have to determine i* there is an actual gain or lossLA* Ies because the *ormula *or deductions? etc.

-* * you *ail to pay? will you be held liableLA* Ies? you will be held liable.

II. GRO,, INCOE TAX 2GIT3

-* Ahat is the *ormulaLA* ;ross ncome / Rate

-* 1ow many ta/payers pay by way o* the grossLA* here are two >!)

individual - =R"=E@

corporation - =R<C

=OE: the *ormula does not allow any deduction?

personal e/emptions and ta/ credit.

C+aracteristics/

N =R"=E@ and =R<C? though not engaged in trade

or business? are liable to pay by way o* the gross *or any

income derived in the 5hilippines. Ahile not engaged intrade or business? there is a possibility that they may earn

income in the 5hilippines.

-* s this sub7ect to withholding ta/LA* Ies? it is sub7ect to withholding ta/ because the

persons liable are *oreigners. his rule is "@SO6BE

=OE: there are two >!) ways o* paying ta/es dependingon which side o* the bench you are.

III. FINAL INCOE TAX 2FIT3

-* Ahat is the *ormulaLA* >Each ncome) / >5articular Rate)

Bnli9e in the gross income ta/ where you add all theincome *rom all the sources and multiply the sum thereo*

by the rate o* ! or %? as the case may be? in *inal

income ta/? you cannot 7oin all the income in one group

because each income has a particular rate.

-* Ahat is the rateL

A* % as the case may be.

=OE: li9e ;? the *ormula does not allow deductions?

personal e/emptions? and ta/ credit.

C+aracteristics/

-* Aho are liable to pay <LA* "ll ta/payers are liable to pay < provided therequisites *or its application are present.

-* Do you still have to pay =LA* =o. i* you are liable *or <? no need to pay = or else there will be double ta/ation.

=OE: as time passed by? the number o* < increased.

N be*ore &+'+ , proceeds *rom the sale o* real property

not e/empt? it is sub7ect to = or ;? as the case may

be.

a*ter &+'+ , capital gains ta/. 5roceeds *rom the saleo* real property is e/empt.

-* * you *ail to pay? will you be liableLA* =o. the withholding agent is liable to pay <.

N Case o* 8uday? Richard and Regine

N <or one to be liable *or the payment o* =? theincome must be derived on the basis o* an employer ,

employee relationship.

Employer , Employee Relationship>% Cs):

&. contractF

!. controlF

%. compensationF

N 1owever? in the case o* celebrities? there is no

employer , employee relationship? they are merely

receiving royalties. Royalties are sub7ect to *inalwithholding ta/? thus the agent is liable to pay. >so?

distinguish nature o* income? whether royalty or

compensation)

RB6E:

&. *or =? whether or not sub7ect to Creditable

Aithholding a/ >CA)? the ta/payer is alwaysliable i* he *ails to pay.

!. *or ; and <? absolute liability to pay is upon

the withholding agent.

Page 14 of 79



-* Ahy is it that the rate o* withholding is always lower?and why is it that the rate o* ; and < is always equalLA*

&. = allows deductionsF

!. ; and < do not allow deductions.

-* Do you have to determine whether there is an actual

loss or gainLA* =o need to determine because the *ormula does notallow deductions. ;ain is presumed. =o liability *or *inal

withholding ta/ e/cept *or the sale o* shares o* stoc9. >L)

IV. INI% CORPORATE INCOE TAX

2CIT3

-: Ahat is the *ormulaLA* ;ross ncome / !

-: Aho pays this ta/LA* DC and R<C only.

-* ay it be applied simultaneous with =LA* =o. there must be a computation o* the = *irst then

apply which ever is higher. he C is paid in lieu o*

the =.

Reason: to discourage corporations *rom claiming too

many deductions.

V. OPTIONAL CORPORATE INCOE TAX

-* Bnder what section is this *oundLA* Section !'" 4th paragraph and Section !( ">&) 4th

paragraph.

-* s this applicable nowLA* =o. this is not yet implemented.

-* o what 9ind o* ta/payer does this applyLA* o DC and R<C.

-* Ahat 9ind o* ta/es are applicable or imposed upon

the &st *ive individual ta/payersLA* Only two >!) 9inds are applicable out o* the si/ >#)

9inds o* income ta/es.&. =F

!. <F

-* Ahat 9ind o* income ta/ will apply to "EO5LA* ;enerally? only one 9ind? & < with respect to

income derived *rom their employer.

ncome *rom other sources:

&. Determine the status o* the "EO5F

a. =

b. <

!. =R"=E@a. ;

b. <

-* Ahat 9ind o* income ta/ applies to DCLA* Only *our >4) 9inds will apply out o* the si/ >#)

&. =

!. <

%. C4. mproperly "ccumulated Earnings

-* ay all o* these be applied simultaneouslyLA* =o. only the =? < and mproperly "ccumulatedEarnings be applied simultaneously. = and C

cannot be applied simultaneously. Only one will apply?

whichever is higher between the two.

-* Ahat 9ind o* ta/ will apply to =R<CL

A* Out o* the si/ >#) 9inds? only two >!) will apply:

&. ;!. <

-* Ahat is the signi*icance o* 9nowing the classi*ication

o* these ta/payersLA*

&. to determine the 9ind o* income ta/ applicable to

themF

!. to determine their ta/ liability.

-* Bnder Section !%? who are liable *or income within

and income withoutLA* Only

&. RC

!. DC

N he rest o* the ta/payers will be liable *or incomecoming *rom sources within.

N ncome *rom sources without? no liability? there*ore

e/empt.

=OE: he income ta/payer is not a RC or a DC.

Determine i* the income came *rom sources within or

without to 9now the ta/payerHs liability.

N * the *acts are speci*ic? do not quali*y your answer.

"nswers must be responsive to the question.

-* s section 4! relevant to all the ta/payersLA* =O. SECO= 4! S =O "ER"6 O "66

ta/payers? particularly the RC and DC because these twoare liable *or both income within and without.

Page 15 of 79



N Section 4! is applicable only to ta/payers who are

liable *or income within? the rest o* the ta/payers areotherwise e/empt.

-* Section 4!>")>&) provides *or how many 9inds o*

interestsLA* t establishes two >!) 9inds o* interests? namely:

&. interest derived *rom sources within the

5hilippines.

!. interest on bonds? notes or other interest bearingobligations o* residents? corporate or otherwise.

-* Ahat is the determining *actor in order to 9now i* the

income is *rom withinL

A*

&. location i* the ban9 is *rom within the

5hilippines >pursuant to a Revenue Reg.)!. residence o* the obligor >whether an individual

or a corp.) , contract o* loan with respect to the

interest earned thereon.

N <or e/ample the borrower is a =R"E@? he

borrowed money *rom a R". he interest earned by the

loan will be considered as an income without. R" is not

liable to pay ta/ since R" is liable only *or income within?there*ore e/empt *rom paying the ta/.

0A!"O0AL 8E9ELOPE0! CO. v. C"R<: he =ational Development Company >=DC)

entered into a contract with several 8apanese

shipbuilding companies *or the construction o* &!

ocean-going vessels. he contract was made ande/ecuted in o9yo.

he payments were initially in cash and

irrevocable letters o* credit. Subsequently? *our

promissory notes were signed by =DC guaranteed by

the ;overnment.6ater on? since no ta/ was withheld *rom the

interest on the amount due? the @R was collecting

the amount *rom =DC.

he =DC contended that the income was notderived *rom sources within the 5hilippines? and thus

they are not liable to withhold anything. =DC said

that since the contract was entered into and was

e/ecuted in 8apan? it is an income without.1: he governmentHs right to levy and collect

income ta/ on interest received by a *oreign

corporation not engaged in trade or business withinthe 5hilippines is not planted upon the condition that

the activity or labor and the sale *rom which the

income *lowed had its situs in the 5hilippines.

=othing in the law >Section 4!>&)) spea9s o* the actor activity o* nonresident corporations in the

5hilippines? or place where the contract is signed.

he residence o* the obligor who pays the interest

rather than the physical location o* the securities?

bonds or notes or the place o* payment is thedetermining *actor o* the source o* the income.

"ccordingly? i* the obligor is a resident o* the

5hilippines? the interest paid by him can have no

other source than within the 5hilippines.

-* Suppose a =R<C? an ndonesian *irm? becomes a

stoc9holder o* two corporations? a DC and a R<C? and

both corporations declared dividends? what is the liabilityo* the ndonesian *irm i* the same received the dividendsLA*

&. Dividends received *rom DC: the ndonesian

*irm is liable to pay ta/es. =R<C? under the law?is liable i* the income is derived *rom sources

within. >Sec 4!a)

!. Dividends received *rom R<C: the ndonesian

*irmHs liability will depend on amount o* grossincome *rom sources within the 5hilippines.

he =R<C will be liable to pay income ta/ i* the

*ollowing requisites are present:&. at least $ is income *rom sources withinF

!. the &st requisite is *or the three >%) preceding

ta/able years *rom the time o* declaration o* the

dividends.

N n the absence o* any or both requisites? the

income will be considered *rom sources without? thus

e/empting the ndonesian *irm *rom payment o* incometa/.

-* Same scenario? but this time the shares o* stoc9 o* thetwo corporations were being disposed o**. Ahat is the ta/liability o* the ndonesian *irmLA*

&. sale o* shares o* stoc9 o* DC: the ndonesian

*irm will be liable *or the payment o* ta/es because the income is *rom sources within.

!. sale o* shares o* stoc9 o* R<C: the liability will

depend on where the shares o* stoc9 were sold.

>me7o alabo sa notes? please be guidedaccordingly)

-* <ilipino E/ecutive? assigned to 1ong ong? receiving

two salaries? one *rom the 5hilippines? the other *rom 1.he per*ormance o* the 7ob was in 1. s he liable *or

both salariesLA* =o? he is not liable *or the two incomes.1is status is an OCA >note *acts: wor9ing in 1 under

contract). he compensation he received is not sub7ect to

ta/ pursuant to Section 4!>c). Compensation *or labor or

personal services per*ormed in the 5hilippines isconsidered an income within. Ahen it comes to services?

it is the place where the same is rendered which is

controlling. n the case at bar? the services were rendered

Page 16 of 79



abroad? thus it is an income derived *rom sources without?

irrespective o* the place o* payment.

-* Suppose a DC hired a =R<C to advertise its products

abroad. Ahat is the liability o* the =R<CL Aill there be a

withholding ta/ imposedLA* he income is derived *rom sources without since the

services in this case were per*ormed abroad. "s such? the

=R<C is not liable and there*ore e/empt *rom the

payment o* ta/. * the =R<C is not sub7ect to =? then itis not also sub7ect to withholding ta/.

-* Ahat is the controlling *actorL

": he controlling *actor is the place where the serviceswere per*ormed and not where the compensation

there*ore was received.

RENTAL, AN# RO1ALTIE,

Nincome *rom sources within-* ;ranted by whoLA* =R<C

-* Suppose you are the *ranchise holder? how much is the

withholdingLA* % >;)

2: i* the *ranchise is granted by R<C? how much is the

withholdingL

": &$ >=) and in some cases &

Section 4!>4) EORE <OR REC

>CES)

a. right o*? or the right to use copyright? patents? etc

b. industrial? commercial? scienti*ic

equipment

c. supply o* 9nowledged. supply o* services by nonresident

e. supply o* technical assistance

*. supply o* technical advice

g. right to use: motion picture *ilms? etc.

-* Ahat is the rule as regards the sale o* real propertyLA* ;ains? pro*its? and income *rom the sale o* real

property located within the 5hilippines considered incomewithin.

-* Ahat about the sale o* personal property? what is theruleLA* Determine *irst i* the property is produced or merely

purchased.

&. it the property is manu*actured in the 5hilippines

and sold abroad? or vice-versa? it is an income

partly within and partly without.

!. i* the property is purchased? considered derived

entirely *rom the sources within the countrywhere it is sold.

EJCE5O=: shares o* stoc9 o* domestic corporation? it

is an income within wherever it is sold.

C#))0SS0#NER .1 0%C

-: Ahat is the issue hereLA* hey cannot determine i* the business e/pense was

incurred in the 5hilippines.-* i* you are the @R? and the ta/payer is not sure? will

you disallow the deductionLA* =o. determine it pro rata.<ormula: ; *rom within

; *rom without

E/ample: &$$?$$$ &?$$$?$$$

X &$

N 1ence? &$ is the ratable share in the deduction. *

the deduction being as9ed is &$$?$$$ not all o* it will be allowed. Only &$?$$$ or &$ o* &$$?$$$ will be

allowed as deduction.

CAPITAL GAIN, AN# LO,,E,

Section %+

-* Ahat is capital assetLA* Capital asset is an asset held by a ta/payer which isnot an ordinary asset.

he *ollowing are ordinary assets:&. stoc9 in trade o* the ta/payer or other property o*

a 9ind which would properly be included in the

inventory o* the ta/payer i* on hand at the close

o* the ta/able yearF

!. property held by the ta/payer primarily *or saleto customers in the ordinary course o* trade or

businessF

%. property used in trade or business o* a character

which is sub7ect to the allowance *or depreciation provided in subsection &.

4. real property used in trade or business o* the

ta/payer.

"ll other property not mentioned in the *oregoing are

considered capital assets.

-* Ahat is a capital gainL Ahat is a capital lossLA* Capital gains are gains incurred or received *rom

transactions involving property which are capital assets.

Capital losses are losses incurred *rom transactionsinvolving capital assets.

-* Ahat is ordinary gainL Ordinary lossL

Page 17 of 79



A* Ordinary gains are those received *rom transactions

involving ordinary assets. Capital losses are lossesincurred in transactions involving ordinary assets.

-* Ahat is the relevance o* ma9ing a distinctionL

A* t is relevant because Section %+@?C? and D apply tocapital assets only.

&. time when property was held >%+@) >holding

period applies only to individuals)F

!. limitations on capital losses >%+C)F%. =et Capital Carry-Over >%+D)

I. CAPITAL A,,ET,

-* Ahat is the holding periodLA* * capital asset is sold or e/changed by an individual

ta/payer? only a certain percentage o* the gain is sub7ect

to income ta/.t is the length o* time or the duration o* the period

by which the ta/payer held the asset.

-* Ahat is the requirementLA*

&. the ta/payer must be an individual. Section %+@

states Pin case o* a ta/payer? other than acorporation..Q

!. property is capital in nature.-* Ahat is the termLA* &$$ i* the capital asset has been held *or not morethan &! monthsF >short term)

$ i* the capital asset has been held *or more than

&! months. >long term)

=OE: the holding period applies to both gains and

losses.

-* Do you include capital gains in your RLA* ;eneral rule: yes? include in R.

EJCE5:

&. gains in sales o* shares o* stoc9 not traded instoc9 e/change>section !4)F

!. capital gains *rom sale o* real property>section

!4).

-* Ahen will the holding period not applyLA*

&. property is an ordinary asset!. ta/payer is a corporation

%. sale o* real property considered as ordinary asset

II. LIITATION ON CAPITAL LO,,E,

Nsynonymous to %4D loss capital rule

N this applies to individual and corporate ta/payer -* Ahat is the loss limitation ruleL

A* 5ursuant to Section %+ C? losses *rom sales or

e/change o* capital assets may be deducted only *romcapital gains? but losses *rom the sale or e/change o*

ordinary assets may be deducted *rom capital or ordinary

gains. >applies to individual and corporation)

-* n connection with %4 D? 6osses in "llowable

Deduction? what is the rationale behind this ruleLA* * it is otherwise? it will run counter with the rule that

the loss should always be connected with the trade or business? capital losses are losses not connected to the

trade or business? thus it is not deductible

-* what is your remedyLA* %+ D? net capital loss carry-over

-* Ahat is the rationale in allowing ordinary loss to be

deducted *rom either the capital gains or ordinarygainsL

A* t is already included in R? the gross income less

deductions hence it already carries with it the

deduction

!A@E 0O!E: =ormally i* the loss is an ordinary loss

there is no carry over. E>cept: a. %4D%

b. i* the loss is more than ;

III. NET CAPITAL LO,, CARR1/OVER

-* Ahat are the requirementsLA*

&. ta/payer is an individualF!. paid in the immediately succeeding yearF%. applies only to short term capital gainF

4. capital loss should not e/ceed net income in the

year that it was incurred.

-* 1ow does net capital loss carry-over di**er *rom net

operating loss carry-over under Section %4 D >%)LA* Bnder the net capital loss carry-over rule? the capital

loss can be carried over in the immediate succeeding year.n net operating loss carry-over rule? capital loss can be

carried over to the ne/t three >%) succeeding calendar year

*ollowing the year when the loss was incurred.

=OE: only & o* the loss will be carried over? i* the

loss is greater than the gains.

N n net operating loss carry-over there is an e/ception

to the % year carry-over period. n case o* mines other

than oil and gas wells? the period is up to years.

-* Ahat is a short saleLA* Sale o* property by which the ta/payer cannot come

into the possession o* the property. EJ: shares

Page 18 of 79



C%2%3%NS .1 C0R

<: he ta/payer inherited the property *ro her *ather

and at the tie o* the inheritance it was considered a

capital asset. n order to liquidate the inheritance? the

ta/payer decided to develop the land to *acilitate thesale o* the lots.

: Aas the property converted to ordinary assetL

1: he conversion *rom capital asset to ordinary

asset is allowed because Section %+ is silent.

-* "re you allowed to convert ordinary asset to capital

assetLA* ;eneral rule: it is not allowed. Read RevenueRegulation '-!$$%

he case at bar still applies despite o* the issuance o*

said Revenue Regulation.

-* Ahat is the conversion prohibited in the Revenue

RegulationLA* Conversion o* real estate property.

-* Ahat is the rationaleLA* Section !4 D , *inal income ta/ o* # i* the real

estate is capital asset. * it is an ordinary asset? it will be

sub7ect to income ta/ o* %! *or individual ta/payer? and% i* the ta/payer is a corporation.

-* Ahat are the properties involve in the RR '-!$$%LA* &. those property *or sale by the realtors

!. real property use in trade or business not necessary

realtors

-* hat is the conversion allowed by the RevenueRegulationL s there an instance when an ordinary asset

may be converted to capital assetLA* Ies? provided that the property is an asset other the

real property? and it has been idle *or two >!) years.

,ECTION 45

TAX ON IN#IVI#%AL,

-* Ahat is the ta/ mentioned in section !4LA* =

-* Ahat is ta/able incomeLA* >memori3e section %&) it is the pertinent items o*

gross income speci*ied in the =RC? less the deductions

andKor personal and additional e/emptions? i* any?authori3ed *or such types o* income by the =RC or other

laws. t re*ers to = because it allows deductions.

-* Ahat do you mean by the phrase Pother than @? C?and DQLA* t means that i* the elements o* passive income are

present? the ta/payer has to pay <.

-* Aho are the ta/payers mentioned in section !4LA*

&. RC

!. =RC

%. OCA4. R"

N "dditionally? under Section !? =R"E@

-* Ahat is the ta/ liability o* =R"E@LA* Section !>&) =R"E@ is sub7ect to income ta/

in the same manner as those individuals mentioned in

Section !4.

-* Ahat about Domestic CorporationsLA*

&. Sec. !' "?@? and C!. Sec. !#- ;55 is not sub7ect to income ta/.

-* Ahat about Resident <oreign CorporationsLA* Sec !(>l) it is sub7ect to % =et ncome a/

-* Ahat about =on Resident *oreign Corporation and

=on Resident "lien not engaged in rade or @usinessLA* =ot Sub7ect to =et ncome a/ but they are liable *or ;ross ncome ta/.

-* Do legally married husband and wi*e need to *ile

separately or 7ointlyLA* t depends i*:

&. 5ure compensation income- separate

!. =ot 5ure compensation income- 7oint

Passi'e Incoe

"nterest, Roalties, priBes and Ot=er innings

0nterest

-* @an9 nterest? what is the requirementLA* he ban9 must be located in the 5hils. because the

income must be derived *rom sources wKin.

-* Do you include this in your RLA* =oY because it is sub7ect already to <. he ban9 is

the one liable *or the payment o* this.

=OE: 6iability *or =? ;? and C will depend on

the elements present.

-* Aho are liable *or ban9 interestLA*

&. RC Z!. =RCZ Sec. !4 @&

%. R" Z

4. =R"E@

Page 19 of 79



. =R"=E@ Sec. ! >!)

#. "EO5'.DC

(. R<C

+. =R<C

-* Ahat is the rate o* interestLA* < o* !$

-* s there a lower rateLA* ' [ i* under E<CDS

-* Ahat i* the depositor is non resident alienLA*

-AKin , <

- AKout- e/empt

-* Ahat is the rule on pre- terminationLA* * it is pre terminated be*ore th year a < shall be

imposed on the entire income and shall be deducted and

withheld by the depositary ban9 *rom the proceeds o* the

long term deposit based on the remaining maturity thereo* a. 4 yrs to less than yrs ,

b. % yrs to less than 4 yrs- &!

c. 6ess than % yrs- !$

-* Does it apply to all individualsLA* =oY t does not apply to &$ =R<C and =R" and

=R"E@ because they are liable to ;.

=OE: i* the depositary is a =on resident it is e/empt

N Resident citi3en is liable to pay ta/ *or ban9 interestearned abroad >=)

-* * the money earns interest in abroad who is liableLA* RC and DC only by =? the rest are e/empt. =o <

abroad because we do not have withholding agent abroad.

-* C applies to DC and R<C in relation to ban9

interestLA* * the ban9 interest is derived abroad? R<C is e/empt

but DC is liable.

mpose = i* it is higher than the C? otherwise

apply C i* itHs higher than the =

Pries

Requirements:&. 5ri3es must be derived *rom sources wKin the

5hils.

!. it must be more than 5 &$?$$$

-* Aho are liableL ><)A*

&. RC

!. =RC

%. OCA4. R"

. =R"E@

#. "EO5 >RC? =R"E@)

=ot 6iable

&. =R"=E@- liable *or ; at !

!. "E5O5 >=R"=E@- ;)

%. DC- = !' D is silent4. R<C = law is silent !("'a

. =R<C sub7ect to ;

-* Ahen can we apply = in 5ri3esLA* &. Ahen the ta/payer is RC? R<C and DC

!. <or DC and RC it must be derived *rom income

abroad R<C it must be derived *rom income wKin

%. amount is more than 5&$?$$$

=OE: * the pri3e is derived *rom sources wKin but it is

below 5 &$?$$$ it is not sub7ect to ta/. * derived *rom

sources abroad? most o* them are e/empt e/cept *or RCand DC who are liable wKin and wKout.

-6 s it possible *or RC and DC to pay CLA* Ies i* C is higher than =.

$innings

-* Do we apply the 5&$? $$$ req.LA* =o? we do not apply it only applies to pri3es. t must

not pertain to illegal gambling.

N hus? the only requirement is it must be derived *romincome wKin.

-* Aho are liableL ><)A*

&. RC

!. =RC

%. OCA

4. R". =R"E@

#. "EO5 >R"? =R"E@)

=ot liable to <L& =R"=E@- ;

! "EO5 >=R"=E@- ;)

% DC- law is silent =4 R<C- law is silent

=R<C- ;

-* Ahen does = apply to winningsLA*

&. * a/payer is DC or RC

!. ncome is derived abroad

Page 20 of 79



%. a/payer is R<C and income wKin.

=OE: * income abroad? most 5 are e/empt e/cept DC

and RC

-* C applies whenLA* t is higher than the =

Royalties

Requirement:

N he income is *rom wKin

N RateL !$. 6ower rateL &$ on boo9s? literarywor9s and musical compositions.

-* Iou are a writer *or Snoop Dogg are you liable *or

<L Ahat i* *or "pril @oyLA* 6iable *or = i* ncome abroad li9e a writer *or

Snoop. Ahile < i* *or "pril @oy.

-* Aho are liable ><)LA*

&. RC

!. =RC

%. OCA4. R"

. =R"E@

#. "EO5 >RC? =R"E@)

=ot 6iableL

&. =R"=E@

!. "EO5%. DC4. R<C

. =R<C

=OE: 6ower rate o* &$ applies to all e/cept =R"=E@

-* Ahen do we apply = to RoyaltiesLA*

&. 5 is RC or DC

!. ncome is *rom wKout

%. 5 is R< and income is wKin

N * income is *rom sources abroad all are e/empt

e/cept RC and DC

Di.idends

N Con*ined with cash andKor property dividends.

-* Ahat are dividendsLA* "ny distribution made by Corporation to its

stoc9holders outside o* its earnings or pro*its and payable

to its stoc9holders whether in money or in property >Sec.

'%)

CO. vs. A00"0/-* Ahere did it come *romL

A* shares come *rom another shareholder -* Ahat are the dividends includedLA* Sec. !4 re*ers to cash or property dividend

1: <or stoc9 Dividends to be e/empt it must come *rom

the pro*it o* the corporation.

%tocD 8ividends it is the trans*er o* the surplus pro*it

*rom the authori3ed capital stoc9s.

-* "ssuming that there are ncorporators? the

Corporation has a 5 "uthori3ed Capital stoc9. t

distributed & stoc9 dividends? is it ta/ableLA* =O? the dividends did not go to the Stoc9 holder butto the "uth Capital Stoc9. Only cash and 5rop Stoc9 go to

the Stoc9 holder.

N Sec !4 @ does not mention stoc9 dividends because itis not sub7ect to < but it is sub7ect to = under Section

'%.

-* s there an e/ception when stoc9 dividends are notta/ableLA* IES? i* the shares o* stoc9s are cancelled and

redeemed meaning it was reacquired by the corp.

A0%COR CA%E Mthe stoc9holders cannot escape the payment o* ta/es

Requirement:;en Rule- the dividends must be distributed by a DC.

E/cept- Regular operating- always a *oreign corp.

N Ahat rate: &$ <

-* Aho are liableLA*

&. RC!. =RC

%. OCA

4. R"

. =R"E@#. "EO5 >RC? =R"E@)

=ot liableL&. =R"=E@

!. "EO5

%. DC

4. R<C. =R<C

N Shares o* association and partnership is ta/able

Page 21 of 79



-* Determine the ta/ liability o* the *ollowingLA*

&. DC a Stoc9holder o* DCX E/empt

!. R<C stoc9holder o* DCX E/empt also

%. DC stoc9holder o* R<X 6iable *or =.

Capital 4ains From Sale of S+ares of Stoc, Not Traded

!567C"

&. Sub7 to <

!. Determine whether there is a loss or a gain

because the ta/ is impose upon the net capital

gains reali3ed *rom the sale? barter? or e/changeor other disposition o* the shares o* stoc9 in a

domestic corp.

%. t is uni*ormly imposed on all ta/payer

4. not sub7 to wKholding ta/.

Requirements:

&. Shares o* stoc9 o* a DC

!. t must be capital asset%. must not be traded in the stoc9 mar9et

N ! R last part: Capital ;ains reali3ed by =R"=E@

in the 5hils. *rom the sale o* shares o* stoc9 in any DCand real prop shall be sub7. to the income ta/ prescribed

under Sub sec >c) and >d) o* Sec. !4.

N SEC. !4 @ &!: * the elements are present =R"=E@ and =R<C are liable to pay ;.

E/cept: under !4 C *or =R"=E@. Ahat do you mean by the phrase P the provisions o* %+ notwithstandingQL

N t re*ers to the holding period. Ahen it comes to

capital gains *rom sale o* shares o* stoc9 not traded and

capital gains *rom the sale o* real prop. he holding period does not apply because the basis will be those

provided in !4 C D and not under %+@ >;S5 or <0)

ELEENT 78 T&e s&are is a s&are in #C

-* Ahat i* the share is *rom *oreign corpLA* Determine the income considered. * income wKin

read Sec. 4! >E)

N * the shares sold are that o* a *oreign corp it is sub7

to the ** rules:a. sold in the 5hilsX its income wKin

b. sold in abroadX wKout

c. Shares o* stoc9 in a Dc is always considered an

income wKin regardless where it was sold.

-* Shares o* <oreign Corp sold in 5hils. AhoHs liableL

Ahat ta/L

A* =ot sub7 to < because one o* the elements is not

present . Shares not being that o* a DC.1ence: a) RC? =RC? OCA? =R"E@? "EO5 >R"?

=R"E@) will pay =. DC and R<C

b) =R"=E@ and =R<C will pay ;

-* Shares o* <oreign Corporation sold abroadLA* t will be considered an income wKout.

hus:

most o* them will be e/empte/cept RC and DC liable to pay =

ELEENT 7 4 NOT TRA#E# OR ,OL# IN T9E

,TOC0 AR0ET

N i* sold in the stoc9 mar9et- it is not sub7 to <

N i* sold in the stoc9 mar9et? it will be sub7 to percentage ta/? in lieu o* =.

ELEENT 7 : It ust ;e a capital asset.

-* Ahen is it considered an ordinary assetLA* &. Ahen the bro9er or dealer

a. used it in trade or business

b. held *or sale in the ordinary course o* trade or business

!. to all other assets? it will be considered a capital

asset

=OE: i* all elements are present it will be sub7 to <

* the shares are ordinary asset

&. Ordinary shares in DC- income wKin

a. ost o* the ta/payer will pay = e/cept

=R<C and =R"=E@

!. Ordinary assets o* *oreign corporationsa. ncome within i* sold in the 5hils: most will

pay e/cept =R"=E@ and =R<C

b. ncome wKout i* sold abroad: most will be

e/empt e/cept RC and DC

C-* Ahen is a R<C sub7 to =L

A*&. Sale o* shares o* stoc9 o* a <oreign corp in the

5hil.

!. sale o* shares o* stoc9 o* DC which are ordinaryasset

N DC and R<C are sub7 to C which may be

imposed i* the = is lower than the C! C will be imposed i* C is higher than =.

Capital 4ains From Sale of Real Property !567D"

Page 22 of 79



N n %+ @ the holding period does not apply because the basis o* income ta/ is the gross selling price >;S5) or the

<air mar9et value ><0) whichever is higher- # <

Requirements:&. he real prop must be sold wKin the 5hils and

located in the 5hils.

!. t must be a capital asset

%. he seller must be an individual? estate or trustor a DC

N R<C not liable *or < but liable to pay = i* all the

elements are present.

N =R<C liable to pay ; and not <

N =R"=E@ liable to pay < are all elements are present.

ELEENT 7 : T&e real prop ust ;e a capital asset

-* Ahen considered a capital assetLA* Read R.R. '- !$$%

-* Ordinary asset- shall re*er to all real propertyspeci*ically e/cluded *rom the de*inition o* capital asset

under Sec. %+A* Other property not mentioned are capital asset.

-* Ahat i* all the elements are not presentLA*

most will be liable to pay =E/cept =R"=E@ and =R<C liable *or ;

-* ay a RC be liable to pay = even i* all the

elements are presentLA* IES? disposition made to the ;ovt. hus? theta/payer has the option o* paying %! = or # <

-* Ahich is more advantageousLA* t depends determine *irst i* thereHs a loss or a gain.

* thereHs a gain choose to be ta/ed at # <. n this

case the gain is always presumed.

* thereHs a loss choose to be ta/ed at %! because

losses may be considered an allowable deduction .

Other transactions are covered:

&. sale!. barter

%. e/change

4. other disposition

=OE: * the prop is under mortgage contract and the

mortgagee is a ban9 or *inancial inst? the < does not

apply because the property is not yet trans*erred because

thereHs a period o* redemption* a*ter a year the mortgagor *ailed to redeem the

property that is the only time that the < will apply

because thereHs now a change o* ownership. * redeemed

wKin & yr period < will not apply because thereHs nochange o* ownership.

* the mortgagee is an individual the < is imposed

whether or not there is a trans*er o* ownership.

Exceptions !567!D6""

-* Ahat i* the prop being sold was a movie house? can

he claim *or the e/ceptionLA* the prop covered by the e/emption is a residential lot

-* Aho can claim the e/emptionLA* Only the ta/payer mentioned in Sec. !4

Requirements:

&. he purpose o* the seller is to acquire new

residential real prop!. the privilege must be availed o* wKin &( mos.

<rom the sale

%. Comm. must be in*ormed wKin %$ days *rom the

date o* sale with the intention to avail o* thee/emption

4. the ad7usted basis or historical cost o* the

residence sold shall be carried over to the new

residence.. the privilege must be availed only once every &$

yrs

#. Certi*ication o* the brgy. Capt where theta/payer resides that indeed the prop sold is the

principal residence o* the ta/ payer >RR &%- ++)

-* Ahat i* the property is worth &$ and it was sold

only *or !? what will happen to the unused portion or pro*itLA* * the proceeds are not *ully utili3ed? the portions o*

the gain is sub7 to <

,EC. 4<A RATE, OF INCOE TAX

-* 1ow many income ta/es are paid by a DCL

A*&. =

!. C

%. <4. &$mproperly "ccumulated Earnings

. Optional corporate income ta/ o* & o* the

gross

N DC liable *or *ive? but the optional is not yet

applicable so only 4.

Page 23 of 79



-* 1ow many can be applied simultaneouslyL A*

O=6I %&. =? < and &$ "E

!. C? <? &$ "E

,EC. 4< 2B3 PROPRIETAR1 E#%CATIONAL IN,T.) 9O,P.

Aho are the ta/payersL

&. =on- 5ro*it 5roprietary Educl. nst and!. =on 5ro*it 5roprietary 1ospital

-* Ahat i* the school or hospital is non pro*it only? is it

e/emptLA* =o? sub7ect to &$ on their ta/able income e/cept

those covered by subsection >D)

5RO0DED that gross income *rom unrelated

business? trade or activity must not e/ceed $ o* its totalgross income derived by such educational inst or hospital

*rom all sources

Requirements:&. t is a private school or hospital

!. it is stoc9 corp

%. it is non pro*it

4. that gross income *rom unrelated business? tradeor activity must not e/ceed$ o* its total gross

income derived by such educational inst or

hospital *rom all sources

. has permit to operate *rom DECS? ESD"? or C1ED

-* Ahat do you mean by unrelated trade business or activityLA* t means any trade? @usiness? or activity which is not

substantially related to the e/ercise or per*ormance by

such entity o* its primary purpose or per*ormance

-* ay a school or hospital be e/empt *rom paying ta/L

Ahat are the reqLA*

&. t must be non- stoc9 and non- pro*it!. the assets property and revenues must be used

actually? directly? and e/clusively *ro the primary

purpose

-* Bnder what lawL s it the constitution or the =RC

which provides *ro the e/emptionLA* t is under Sec. %$ o* =RC and not under Sec.4"rt. &4 o* the Constitution. he provision o* the =RC is

the speci*ic law which prevails over the Constitution

which is the general law.

M e/empt *rom all ta/es and custom duties

-* Ahat about e/emption *rom real property ta/L

A* "rt. # Sec. !( o* the Constitution: charitable

institution churches? V.and all lands buildings? actuallydirectly and e/clusively used *or religious? charitable? and

educational purposes shall be e/empt *rom ta/ation.

M =ot Sec. 4 o* "rt. &4 o* the Constitution.

-* Iou donated a property to a school will you be liable

*or donorHs ta/LA* not liable i* it *alls under Sec. &$& >%) o* the =RC

RE2. <OR EJE5O= O DO=ORS "J:

&. it must be non-stoc9? non-pro*it educational inst.

!. not more than %$ o* the prop donated shall be used

by such donee *or admin purposes.%. paying no dividends

4. governed by trustees who donHt receive any

compensation

. devoting all its income to the accomplishment and promotion o* the purposes stated in its "rticles o*

ncorporation

-* Ahat about e/emption *rom 0"LA* Sec. &$+ >m) o* R-0"

-* Ahat about e/emption *ro 6oc ;ov CodeLA* * its non-stoc9? non-pro*it educational inst. t may bee/empted *rom local ta/ation.

-* s "rt &4 Sec. 4 o* the Consti obsoleteLA* =O? i* the law is silent apply the Consti.

,EC. 4:* GOCC= AGENCIE,= IN,T of t&e GOVT.

;E= RB6E: Sub7 to ta/.

EJCE5O=S:

&. ;SS!. SSS

%. 51C

4. 5CSO

N 5";COR no longer included.

-* * the ;OCC is not one o* those enumerated does it

*ollow all o* its income is automatically sub7ect to ta/LA* =O. Bnder Sec %!. @ >') income derived *rom any

public utility or *rom the e/ercise o* essential government

*unction accruing to the ;ovt o* the 5hils or to any political subd. "re there*ore e/empt *rom income ta/.

here*ore? even i* the ;OCC is one o* those

enumerated under Sec. !' it may still be e/empt under

Sec. %! b'b i* its per*orming governmental *unction

=OE: 5agcor vs. @asco case

Page 24 of 79



-* Ahat is the di**erence between Sec. !' C and %!

b'bLA*

&. Sec !' C e/empts those enumerated without any

quali*ication.

!. Sec. %!b'b quali*ication must concur be*ore itmay be e/empted.

-* Can the government impose ta/ on itsel*LA* t depends on who the ta/ing authority is. * theta/ing authority is the =ational ;ovt. as a rule? IES.

E/ceptions

&. those entities enumerated under !' C

!. those ;OCC *alling under %!b'b

* the ta/ing authority is the local government units?

as a rule =O. 6;BHs are e/pressly prohibited *rom

levying ta/ against: >Sec &%%>o)&. =ational ;ovt.

!. ts agencies and instrumentalities

%. local government units

E/ception: Sec &4 o* 6;C says that 6;BHs may *i/rate *or the operation o* public utilities owned and

maintained by the within their 7urisdiction.

PAL CA%E ;ul *( *((1 1: he SC used &%% >o)an e/ception to pay ta/? real

estate ta/? imposed by City o* 5"ranaque on ="".

he SC said that the airport is not an agency or

;OCC but mere instrumentality o* the ;ovt.his is ;ross ignorance o* the law Sec. &%% >o) is

*or local ta/ation not real property ta/ation which is

the one involved in the present case.

=OE: actan- Cebu "irport case

SEC1 68 D!9"

-* 1ow many possible incomes were mentionedLA* wo >!): ban9 interest and royalties

RE2:&. @an9 interest must be received by a Domestic Corp

!. Royalties derived *rom sources within

-* Ahen it comes to ban9 interest? what is the di**erencei* the ta/payer is an individual or corporationLA* * individual? they may be e/empt *rom the payment

o* interest in case o* long term deposit e/cept =R"=E@* DC? they are not e/empt *rom long tem deposit.

-* Ahat about royaltiesLA* * individual? have a lower rate o* &$on boo9s?other literary and musical compositions. DC have no

lower pre*erential rate.

SEC 68 D6/ C%P0T%2 4%0NS FR#) S%2E #F

S'%RES N#T TR%DED

SEC 68 D:/ EFCDS

-* Ahat is the e/panded *oreign currencyLA* t is a ban9 authori3ed by the @S5 to transact

business in the 5hilippine Currency as well as acceptable

*oreign currency or both.

-* Ahat is the ta/ to be paidLA* =ormally it is = because it is sub7 under Sec !' D%

and !( "

-* Aho is the income earnerLA* Depositary ban9s

-* E/empt *rom what 9ind o* transactionLA* <rom *oreign currency transaction. * it involves

*oreign currency transaction it is not e/empt but sub7ect to

% =

-* Aho are the other partiesLA*

&. O** shore ban9ing units

!. branches o* *oreign ban9s%. local commercial ban9

4. Other depositary ban9s under E<CDS

. =on- residents

N i* the above enumeration are the parties? then

depositary ban9 will be e/empt *rom paying the =

Foreign Currency 2oan

-* Aho is the lenderL @orrowerLA* 6ender- E<CDS

@orrower- RC

EJE5

O**shore ban9ing units

Other depositary ban9s under E<CDS

N e/emption o* =R *rom E<CDS:

-* Aho is the income earnerLA* =on Residents whether individual or Corporations

-* Derived *rom whomLA* Depositary @an9 under E<CDS

=OE: Sec. !4 @ =onresident e/empt *rom ban9 interest

under E<CDS

-* Ahat is the di**erence between !4 b& *rom !' D%

Page 25 of 79



A* n !4 @&? =R is e/empt only *rom ban9 interst

derived *rom E<CDS while !'D% e/empts =R *rom anyincome *rom transactions with depositary ban9 under

E<CDS

SEC1 68 D!7)- nter-corporate dividends- e/empt

68 D; Capital 4ains from sale of Real Prop1

-* Ahat is the ta/LA* # <

-* Ahat is the di**erence i* the seller is an individual

and a DCLA* ndividual can sell all 9inds o* real property

DC can only dispose land andKor buildings.

SEC 68 !E" )C0T

-* "pplicable to whomLA* DC and R<C

-* Can it be applied simultaneously with =LA* =O? imposed in lieu o* the =? whichever is higher.

-* Ahat is the RationaleLA* to prevent corporations *rom claiming too many

deductions

-* Ahen will it be imposedLA*

&. On the 4th year immediately ** the year in

which such corp commenced its business.!. Ahen the C is higher than the =

-* Ahat is the carry over ruleLA* Sec !' E! states the carry over rule.

> n order to avail: only in the year where the C is

greater than the =.

Sec 6< %9

-* Ahat inds o* ta/es are paid by the R<CLA* =

C

Sec1 6< &6 )C0T on RFC

= same with Sec. !'

Sec1 6< %:- 0NT2 C%RR0ER

ind:

&. "ir carrier

!. ships

N "n intl. carrier doing business in the 5hils. shall pay

! [ on its ;ross 5hil @illings >;5@)

-* s !( "% the ;en. rule or the E/ceptionLA* t is the general rule because it is under !( "%

N ;5@ is in the nature o* <? applies only i* all the

requirements are present.

N R<C will be liable *or =? hence a R<C engaged in

common carriage does not pay ;5@ but =

N ncome without: EJE5

0nternational Carrier/

N ;5@ re*ers to the amount o* revenue derived *rom:

carriage o* persons? e/cess baggage? cargo and mail

originating *rom the 5hils in a continuous and

uninterrupted *light? irrespective o* the place o* sale or issue and the place o* payment o* the tic9ets or passage

document.

RE2:&. Originating *rom the 5hils.

!. Continuous and uninterrupted *lightF

%. rrespective o* the place o* sale or issue and the

place o* the payment o* tic9ets or passagedocument.

-* Do you consider landing rights to determine liabilityL>RR &-!$$!)A*

&. * originates *rom the 5hils and has landing rights-

O=6=E- R<C

!. =o landing rights- O<<6=E- =R<C

-* * there are stopovers? is it still uninterruptedLA* IES? provided that the stopover does not e/ceed 4(

hrs.

-* Ahen will the place o* sale o* tic9ets matter as to the

ta/payers liabilityL

A* he place o* tic9ets is material only i* the two other elements are not present to be able to 9now i* its sub7 to

= or e/empt.

Re.alidated> exc+anged or indorsed tic,ets

RE2:

&. he passenger boards a plane in a port or point inthe 5hils.

!. he tic9ets must be revalidated? e/changed? or

indorsed to another airline.

Page 26 of 79



-* Ahat i* itHs the same airline but di**erent planeLA* ;5@ does not apply? it must be to another airline

-* Ahat i* it did not originate *rom the 5hils.L

A* Determine i* its income within or without.i* tic9et was purchased in the 5hils. it is income

within hence apply =

i* purchased outside? it is income without? hence

e/empt

Transs+ipment

RE2:*light originates *rom the 5hils

transshipment o* passenger ta9es place at any port

outside the 5hils.

the passenger trans*erred on another airline

-* 1ow do you apply ;5@LA* Only the aliquot portion o* the cost o* the tic9et

corresponding to the leg *lown *rom the 5hils to the pointo* transshipment shall *rom part o* the ;5@.

-* s it liable *or the whole *lightLA*

<rom the 5hils to the point o* transshipment? it is

income wKin

<rom transshipment to *inal destination? its income

wKout- EJE5

0nternational S+ipping

N ;5@ means gross revenue whether *rom passenger?cargo? mail

RE2:it must originate *rom the 5hils.

up to *inal destination

- regardless o* the place o* sale or payments o*

passenger or *reight documents

Sec6< %!7" #FF S'#RE &%N?0N4 N0TS

O@BHs&. only acceptable *oreign currencies

!. always a *oreign corporation >sub7 to =)

e/cept %%. E/empt i* income is derived by the O@B *rom

E<CDS

4. 5arties:

a) local commercial ban9s b) <oreign ban9 branch

c) =on Residents

d) O@B in the 5hils.

Di**erence with E<CDS:E<CDS

&. "cceptable *oreign currency? 5hil. Currency or

both

!. Can be a domestic or *oreign corporation%. E/empt i* income derived by DC or R<C *rom

E<CDS

4. 5arties:

a) local commercial ban9s b) <oreign ban9 branch

c) =on Residents

d) O@B in the 5hils

e) Other ban9s under E<CDS

FOREIGN C%RRENC1 LOAN

N &$ <*: 6ender- O@B

@orrower- Resident Citi3en

EJCE5:

&. O@B!. 6ocal Commercial @an9s

ransactions o* =on Residents:

&. ncome earner: =on- Residents!. 6ender: O@BHs

=OE: =on resident e/empt *rom transactions with

O@BHs and E<CDS

,EC. 4? A@ TAX ON BRANC9 PROFIT,=

REITTANCE,N pro*its based on the total pro*its applied or earmar9ed*ro remittance remitted by a branch to its head o**ice

N Sub7 to & ta/

E/cept: those activities which are registered with 5E"

=OE: nterests? Dividends? Rents? Royalties including

remuneration *or technical sevices? salaries? wages?

premiums? annuities? emoluments? or casual gains? pro*its? income and capital gains received by a

*oreign corporation during each ta/able year *rom all

sources within shall not be treated as branch pro*its

B=6ESS the same are e**ectively connected with theconduct o* its trade or business.

&ranc+ Profit Remittance

wo ways to receive income ><C)

&. @ranch

!. Subsidiaries

=OE:

&. Ahen a <C establishes branch? it is always a <C

Page 27 of 79



!. Ahen a <C establishes DC? it is a R<C

-6 t is in addition to =- AhyLA* = because it is R<C

-6 Ahat 9ind o* ta/ is imposed under !( "L A*& <

-* 1ow do you apply the rateLA* multiplied to the total pro*it applied or earmar9ed *or remittance wKo deductions

t applies *or branches that are:

&. the pro*it remitted is e**ectively connected withthe conduct o* its trade or business in the 5hils.

!. One not registered with 5E"

AR#7E0" CA%E <: " branch was established with ";5? there was

investment with ";5-* Did the petitioner participate with the negotiationLA* =O-* Ahat did the petitioner payLA* & @ranch 5ro*it Remittance a/ >@5R)

&$ ntercorporate Dividends-* AhatHs the issueLA* 5etitioner maintains that there was overpayment o*

ta/es? thus the same was as9ing *or a re*und o* ta/

erroneously paid.

-* s is sub7 to <LA* =O? e/empt i* petitioner is R<C

1: -not correct to pay &

o be liable *or @5R

&. t is a R<C

!. @ranch did not participate in negotiations

,EC. 4? Aa

N Regional or area headquarters >Sec. !! DD) shall not

be sub7ect to ta/ e/empt *rom income ta/ i* the requisites

are present.

-* Ahat are the requisitesLA*

&. the 12 do not earn or derive income *rom the5hils.

!. "cts only as supervisory? communications?

coordinating centre *or their a**iliates? subsidiary

or branches in the "sia- 5aci*ic Region and other *oreign mar9ets.

,EC. 4? A;

> Regional Operating 12 are ta/able and liable to pay&$ ta/able income.

N Regional Operating 12 is a branch established in the

5hils by a multinational company engaged in any o* theservices:

&. ;en. "dministration and 5lanning

!. @usiness 5lanning and Coordination

%. Sourcing and procurement o* Raw materials andcomponents.

4. Corporate <inance and "dvisory Services

. ar9eting Control and sales promotion

#. raining and personal management'. logistic services

(. research and development services and product

development

+. technical support and maintenance&$. data processing and communication and business

development

Rationale: Ahy liableL @ecause the claim *or e/emptiono* resident airlines shall be minimi3ed

,EC. 4?A<a Interests an$ Ro(alties*

N !$<

N nterests under E<CDSX ' [

,ec. 4?A<; Incoe $eri'e$ un$er EFC#,

8. ncome derived *rom *oreign currency transactionswith:a) =on Residents

b) O@B

c) 6ocal commercial ban9

d) <oreign ban9 branchese) Other depository ban9 under the E<CDS

N "s a ;en Rule: the above transaction is E/empt

EJCE5O=: ncome *rom such transaction as may be

speci*ied by the secretary o* <inance? upon

recommendation by the onetary @oard to be sub7ect to

regular income ta/ payable by any ban9s.

4. nterest income *rom *oreign currency loans

N granted by depository ban9 under said E<CDS to

others shall be sub7ect to &$ <

E/empt i* granted to:&. Other O@B in the 5hils? and

!. Other depository ban9 under the E<CDS

Page 28 of 79



U SEC. !( "'c: Capital ;ains *rom Shares o*

Stoc9s not raded in the Stoc9 e/changeU or &$ as the case maybe

,EC 4?A<$* INTERCORPORATE #IVI#EN#,

N DC- R<CX EJE5? not sub7 to ta/

,EC 4? B8

-* Ahat 9ind o* ta/LA* % ; on the ** income

&. nterest

!. Dividends%. Rents

4. Royalties

. Salaries

#. 5remiums> e/cept reinsurance premiums)'. annuities

(. emoluments

+. Other *i/ed and determinable ;ains? pro*its and

income.

,EC 4? B4 Non Resi$ent Cineato+rap&ic fil o"ner=

lessor or $istri;utor

N liable *or ! ;

,EC 4? B: Non Resi$ent o"ner or lessor of Vessels

c&artere$ ;( P&ilippine Nationals.

N liable *or 4 [ ;

Elements:&. Chartered to <ilipino Citi3ens or Corporations

!. "pproved by "R="

,EC. B253 Non Resi$ent O"ner or Lessor of Aircraft=

ac&iniries= an$ ot&er Euipents.

N liable *or ' &K! ;

,EC 4? ;@a Interest on Forei+n Loans

N ust be read with Sec. %! @'a

nterest on <oreign 6oans? i* the lender is

&. =R<C liable to !$ <

!. <oreign ;ovt. E/empt because it is an e/clusion>Sec %! b'a: income derived by a *oreign govHt

*rom investments in the 5hils on loans? stoc9s?

bond? and other domestic securities or *rom

interest on deposits in ban9s by:a) <oreign govt.

b) <inancing inst owned controlled or en7oying?

re*inancing *rom *oreign govtF and

c) nter nation or Regional *inancial inst

established by *oreign govt.

CO"%"O0ER O$ "0!ER0AL RE9. vs. "!%#7"%4" E!AL CORP. &)( %CRA *)F-

<: "tlas ining entered into a 6oan and Sales Contractwith itsubishi etal Corp. > " 8apanese Corp.) *or

the purposes o* pro7ected e/pansion o* the

productivity capacity o* the *ormerHs mines in Cebu.

he contract provides that itsibushi will e/tend aloan to "tlas in the amount !$ dollar? so that "tlas

will be able install a new concentrator *or copper

production.

-itsubishi to comply with its obligation?applied *or a loan *rom E/port- mport @an9 o* 8apan

>E/im @an9) and *rom consortium o* 8apanese ban9s.

5ursuant to the contract "tlas paid interst to

itsubishi where the corresponding & ta/ thereonwas withheld and only remitted to the ;ovt.

Subsequently itsubishi *iled a claim *or ta/

credit requesting that the same be used as payment

*or its e/isting liabilities despite having e/ecuted awaiver and disclaimer o* its interest in *avor o* "tlas

earlier on. t is the contention o* itsubishi that it

was the mere agent o* E/im @an9 which is a

*inancing inst owned and controlled by the 8apanese;ovt.

he status o* E/imban9 as a government

controlled inst became the basis o* the claim *ro

e/emption by itsubishi *or the payment o* intereston loans.

: AO= itsubishi is a mere agent o* E/imban9

1: =O. he contract between the parties does not containany direct re*erence to E/im @an9? it is strictly

between itsubishi as creditor and "tlas as the seller

o* copper. he ban9 has nothing to do with the sale o*

copper to itsubishi. "tlas and itsubishi had

reciprocal obligations- itsubishi in order to *ul*illits obligations had to obtain a loan? in its independent

capacity with E/im ban9. 6aws granting e/emption

*rom ta/ are construed strictly against the ta/payer

and liberally in *avor o* the ta/ing authority.

,EC. 4? #@ ; INTERCORPORATE #IVI#EN#,*

N < & imposed on the amount o* cash and or propdividends received *rom a domestic corporation.

SB@8 O 1E CO=DO=: the country where the =R<C is domiciled allows a credit against the ta/ due

*rom the =R<C ta/es deemed paid or deemed to have

been paid in the 5hils.

;en rule: % <

E/ception: & under the Pta/ deemed paid ruleK

reciprocity ruleK ta/ sparring ruleQ

Page 29 of 79



;4O0%O0% CA%E ! inds o* Categories:

&st : 8apan? BS? ;ermany? 5hils liable *or income within

and income without

!nd : countries liable only *or income within.

AR#7E0" Case: ! ssues

&. s the payment o* &$ < correctL - =o because it was a branch and R<C but still arubeni

was =R<C under the old law which is liable to pay %?

but SC said liable only to ! because o* the ta/ treaty

N Iou cannot re*und right away M & @5R and

&$ nter-corporate Dividends ta/ has di**erent basis

n 5; who are involved- DC >5; 5hil) and =R<C >5; BS)

- DC declares dividends to =R<C

- % was withheld and remitted to the @R

Ahat did they discoverL >a*ter paying)

- they discovered that they are liable only *or & so

they have a re*und o* !$

-* n the &st case did the SC allowed the re*undLA* =O? denial anchored on ! grounds:

&. One claiming *or re*und was not the proper party

!. here was a showing or proo* as to the e/istenceo* the Pta/ deemed paidQ rule

-* n !nd case was there a re*undLA* IES? the SC reversed itsel*

&. ncome ta/ is <: the withholding agent is the

proper party because he is liable to pay said

ta/es!. actual proo* o* payment not necessary? what is

necessary is the law o* the domicile o* the

country providing *ro ta/ credit equal to !$ o*

the ta/ deemed paid.

-* Ahat is the rate i* the law is silentLA* % <

N he rate will only be & i* thereHs a law recogni3ing

the same but this re*ers to the case o* those belonging to

the *irst category.

GA08ER CA%E -* Aho are the partiesLA* DC>Aander) and <C >;la/o)- they belong to

di**erent categories

he @R tried to collect % because the law is

totally silent about the ta/ credit1: he SC said that the ta/ should be & which applies

! instances:

&. <oreign law do not provide *or ta/ credit- %

!. law provides but the law is silent- &%. law is silent because there is no law- &

4. law is silent because thereHs no law because the

sub7 matter is not ta/able- &

,EC. 4 IAET

-* Ahat is the rateLA* &$ o* the gross income >ta/able income)

N t is imposed upon the improperly accumulated

ta/able income o* the corporation

-* "pplies to what CorpLA* to DC only under RR !- !$$&> classi*ied as closely

held corporations)

-* s it in the nature o* sanctionLA* Ies? it is imposed to compel the corporation to

declare dividends.

-* AhyLA* because i* pro*its are distributed to the shareholders?

they will be liable *or the payment o* Dividends ta/. =ow?

i* the pro*its are undistributed the shareholders will notincur liability on ta/es with respect to the undistributed

pro*its o* the Corp.

- n a way it is in the *orm o* deterrent to the avoidanceo* ta/ upon shareholders who are supposed to paydividends ta/ on the earnings distributed to them.

-* Ahat is ta/able incomeLA* SEC. %& de*ines ta/able income as the pertinent itemso* gross income speci*ied in this Code? less the deductions

andKor personal and additional e/emptions? i* any?

authori3ed *or such types o* income by this Code or other

special law

-* Ahen not liable to pay "ELA* here are ! groups o* DC e/empt *rom payment o*

"E >RR!-!$$&)

A- Corporations failure to declare dividends because of reasonable needs of business

N reasonable needs means are construed to mean

immediate needs o* the business including reasonable

anticipated needs

-* Ahat constitutes reasonable accumulation o* the

corporationHs earningsL E/amplesL

Page 30 of 79



A*

&. allowance *or the increase in the accumulation o* earnings up to &$$ o* the paid- up capital o*

the corporation.

!. earnings reserved *or the de*inite corporate

e/pansion pro7ects or programs approved by the@oard

%. Earnings reserved *ro buildings? plants? or

equipment? acquisition approved by the @oard

4. Earnings reserved *or compliance with any loanagreement or pre- e/isting obligations

. Earnings required by law or other applicable

statutes to be retained.

#. n case o* subsidiaries o* *oreign corporation? allundistributed earnings or pro*its intended or

reserved *or investments

=OE: the corporations belonging in the &st group arenormally liable but they can show that the accumulation

o* earnings is 7usti*ied *or reasonable needs o* business?

they incur no liability and e/empt *rom payments o* the

same.

7- Corporations =ic= are e>empt =et=er or not it is for reasonable needs of t=e business:

&. @an9s? and other non- ban9 *inancialintermediaries.

!. nsurance companies

%. 5ublicly- held corporations

4. a/able partnerships. ;eneral 5ro*essional 5artnerships

#. =on- ta/able 7oint- ventures

'. Enterprises registered witha) 5E"

b) @ases Conversion Devt "ct o* &++! >R" +!!')

c) Special Economic one declared by law

-* Ahat is a closely- held corporationsLA* Those corporation at least $ in value o* the

outstanding capital stoc9 or at least $ o* the total

combined voting power all classes o* stoc9 entitled to

vote is owned directly? or indirectly by or *or not morethan !$ individuals

=OE: 5ublicly held Corp. has more than !$

shareholders

-* Ahat is the time *or paying this ta/LA* Calendar Iear: 8an !? !$$- Dec %&? !$$. oday is!$$#. Iou have & year to declare a*ter the close o* the

ta/able year. !$$# is the grace period. Iou will pay on

8anuary !$$'.

-* * youHre not mentioned to be e/empted? will you still

be liableLA* =o? i* you invo9e ad7ustments

,EC :D. EXEEPTION, FRO TAX ON

CORPORATION,

N Determine the CorporationsH e/emptions under Sec.

%$ !' C and !!@.&. Sec %$? the corporations shall not be ta/ed under

this title >ta/ on income) in respect to income

receive by them as such.

!. Sec !'? the corporations enumerated are alwayse/empt. hus e/emption is unconditional

%. Sec !!@ ;55? as a general rule is not a

corporation

4. e/cept i* it earns income *rom other business

N 8oint 0enture wK service contract wK government not a

corporation? otherwise? it is liable.

"ssignment: Sec. %

"ugust !&? !$$# , idterms

"ugust &4? !$$#

-* Ahat is the reason *or not including the corporations

e/empt under section !'C and Section !!@ under Section%$LA* @ecause there is an e/emption which does not apply

to all e/empt corporation.

he e/emption under Section %$ is not absolute whilethe e/emption under Section !' C is absolute and without

any conditions. n addition? Section !!@ provides that a

7oint venture is generally ta/able unless it has a servicecontract with the government? a generally ta/ablecorporation cannot be 7oined with the group as generally

not ta/able corporation. ;eneral 5ro*essional 5artnership

is e/empt but the e/emption is not the same as provided

by Section %$.

"E =OE: 6as 5aragraph o* Section %$.

N e/emption to the e/emption: income o* whatever 9ind and character o* the *oregoing organi3ations *rom:

&. any o* their properties? real or personalF

!. any activities conducted *or pro*it

N regardless o* the disposition o* said income? shall be

sub7ect to ta/.

-* Enumerate the e/empt corporations under Section %$F

Ahat is the requirementLA*

&. 6abor? agricultural or horticultural organi3ation notorgani3ed principally *or pro*itF

!. utual savings ban9 not having a capital stoc9

represented by shares? and cooperative ban9

Page 31 of 79



without capital stoc9 organi3ed and operated *or

mutual purpose and without pro*itF%. a bene*iciary society? order or association?

operating *or the e/clusive bene*it o* the

members such as *raternal organi3ation

operating under lodge system. >lodge system:operating world wide) or a mutual old

association or a non-stoc9 corporation:

a. organi3ed by employeesF

b. providing *or the payment o* li*e? sic9ness?accident or other e/clusive bene*its to its

employees and their dependentsF

4. Cemetery >a) company owned and >b) operated

e/clusively *or the bene*it o* its membersF. =on-stoc9 corporation or association organi3ed

and operated e/clusively *or Religious?

Charitable? Scienti*ic? "rtistic or Cultural

purposes? or *or the Rehabilitation o* 0eterans>RCS"CR)? no part o* its net income or asset

shall belong ot or inure to the bene*it o* any

member? organi3er? o**icer? or any speci*ic

personF#. @usiness league? chamber o* commerce? or

@oard o* trade? >a) not organi3ed *or pro*it and

>b) no part o* the net income o* which inures to

the bene*it o* any stoc9 holder or individualF'. Civil league or organi3ation not organi3ed *or

pro*it but operated e/clusively *or the promotion

o* social wel*are.

C"R vs. CA-* Ahat is the basis o* anila @R *or the imposition o*

the ta/LA* last paragraph o* Section %$? because IC" was

conducting an activity *or pro*it.

<: the C" and the C" invo9ed the doctrine laid down

in 1errera and "bra 0alley case which involves an

e/emption *rom the payment o* Real property a/.1: he SC revised the ruling. IC0" is liable to pay

income ta/ applying the last paragraph o* Section %$.

IC" s e/empt *rom the payment o* property

ta/? but not to income ta/ on rentals *rom its property.he ta/ code speci*ically mandates that the

income o* e/empt organi3ations >under section %$)

*rom any o* their properties? real or personal? shall be

sub7ect to ta/? including the rent income o* theIC" *rom its real prop.

(. a non-stoc9 and non pro*it educational institutionF+. govHt educational institutionF

&$. <armerHs or other mutual typhoon or *ire

insurance company? mutual ditch or irrigation

company? or li9e organi3ation o* a purely localcharacter? the income o* which consists solely o*

assessment? dues and *ees? collected *rom

members *or the sole purpose o* meeting its

e/pensesF&&. <armerHs? *ruit growerHs or li9e association

organi3ed and operated as a sales agent *or the

purpose o* mar9eting the products o* its

members and turning bac9 to them the proceedso* sales? less the necessary selling e/penses on

the basis o* the quantity o* produce *inished by

them.

"E =OE: income o* sales agent is e/empt.

,ection :8* TAXABLE INCOE

C9APTER VI* COP%TATION OF GRO,,

INCOE

,ECTION :4* GRO,, INCOE

-* Ahat is the ta/ treatmentL "re these ta/able incomeL

"re these included in the gross incomeL s it included in

the RL s it sub7ect to =LA* Sec. %! " answers the questions.

-* Ahat is the income ta/ re*erred to hereLA* =. he section re*ers only to the payment o* =.

t spea9s o* the =.

-* * the is mentioned under Section %! "? does it *ollow

that it is automatically included in the ;LA* =o? Section %! " states PE/cept when otherwise

provided in this titleQ

-* Ahat are the income that are not included? not

sub7ect to =LA*

&. ncome that are sub7ect to <.

!. ncome that are considered an e/clusionF and

%. ncome that are e/empt.

-* Ahen do you not apply Sec. %! "LA* it applies to all e/cept:

&. =R"=E@!. =R<C

U they do not pay =? they pay by way o* ;.

-* Ahat are included in the ;ross incomeLA*

91 Compensation for services in =atever form paid including but nor limited to fees, salaries, ages,commissions, and similar items. H%ec. '* A &)-I

-* Ahat is compensationL

Page 32 of 79



A* all remuneration *or services per*ormed by an

employee *or his employer under an employer-employeerelationship.

"E =OE: compensation is included in the R i* the

ta/payer is not liable *or =. hus? i* sub7ect to =?included in the R.

-* s there an instance where the salaries o* a RC is not

included in the RLA* Ies? i* the salary is sub7ect to <? li9e when the RC

is employed in ultinational? o**shore ban9ing? and

petroleum companies.

61 /ross "ncome derived from t=e conduct of tradeor business or t=e e>ercise of a professionJ H%ec. '* A&*-I

-* Ahat is the income ta/ hereLA* =? included in the R.

:1 /ains derived from dealings in propert. H%ec. '* A &'-I

-* Did the law distinguishedLA* =o? the law did not distinguished between real and

personal property.

"E =OE:

&. Sale o* real property!. Sale o* shares o* stoc9 >personal prop.)

N i* the elements are present? sub7ect to <. hus? it isnot included in the R? the withholding agent will beresponsible *or this.

-* ncome *orm the sale o* property? do you include this

in the RLA* it depends

a. i* sub7ect to <? not included. Aithholding agent

accomplish the *orms

M sub7ect to < i* the *ollowing elements are present:

&. it is a capital assetF

!. located in the 5hil.: and

%. sold by individual? trust? estate? DC. b. i* sub7ect to =? included in the R.

M Elements are not present? li9e when the real

prop. is an ordinary asset or when it is capital asset i* theta/payer is R<C.

"E =OE: R-R &'-!$$%

N Real property sale sub7ect to <A? the buyer

accomplishes the R.

71 interestJ H%ec. '* A &F-I

-* Ahat interest is being re*erred to hereLA* interest which is included in the computation o* gross

income is interest earned *rom lending money and interest

*rom ban9 deposit which does not constitute passiveincome.

@an9 interest *rom sources? without or abroad.

-* @an9 interest *rom Solid @an9? is it included in theRLA* =o? because it is included or considered an income

within? thus sub7ect to <. hus? not included in the R.

;1 Rents. H%ec. '* A &3-I

N sub7ect to =? included in the R.

@1 RoyaltiesF \Sec. %! " >#)]

-* Ahat is being re*erred to hereLA* royalties which does not constitute passive income.Royalties derived *rom income without. , sub7ect to =.

hus not included in the R.

-* Aho are the ta/payersLA* 6iable *rom income wKin and wKout and the rest are

e/empt.

&. RC

!. DC

81 8ividends. H%ec. '* A &+-I

-* Ahat 9ind o* dividendsLA* one that does not constitute a passive income.

"E =OE:

&. DC individual ta/payer X <!. DC , DC R<C X EJE5

%. DC , =R<C X <A

N only dividends issued by a <C to an individualta/payer >RC OR R") is included in the computation o*

the gross income. hus? included in the R.

<1 Annuities. H%ec. '* A &-I

-* Ahat 9ind o* annuitiesLA* annuities which are not e/empt *rom ta/ are includedin the computation o* the gross income. >included in the

R)

2. PriBes and Ginnings H%ec. '* A &2-I

-* Ahat 9ind o* pri3es and winningsL

Page 33 of 79



A*

a. those that does not constitute passive incomeFand

b. those that are not considered as an e/clusion.

hus? e/empt.

Passi.e 0ncome

&. 5ri3es , derived *rom sources within and over

&$?$$$.$$!. Ainnings , derived *rom sources within.

E/empt:

a. winnings: 5CSO and 6otto winnings. b. pri3es:

N those primarily *or recognition o* >&)religious?

>!)charitable? >%)scienti*ic? >4)educational? >)artistic?>#)literary? >')civic achievement are e/empt 5RO0DED:

&. the recipient was selected without any action on

his part to enter the contest or proceedingsF and

!. the recipient is not required to render substantial*uture services as a condition to receiving the

pri3e or award.

N pri3es and awards granted to athletes are alsoe/empted provided:

&. local or international sports competition or

tournamentF

!. held in the 5hilippines or abroadF and%. sanctioned by the national sports association.

-* Ahen is a pri3e sub7ect to =LA* &. when derived *rom income withoutF

!. when less than &$?$$$.$$F

%. when the income earner is a DC or RC.

-* Ahen is winning sub7ect to =LA* &. Ahen derived *rom income withoutF

!. when the income earner is a DC or RC.

9A1 Pensions H%ec. '* A &)(-I

-* Ahat 9ind o* pensionLA* ncluded in the gross income i* not e/empt

U never sub7ect to *it >L)991 PartnerKs distributive s=are from t=e net incomeof t=e general professional partners=ip &/PP-.

-* Ahat is being re*erred toLA* ;55 e/empt *rom payment o* corporate income ta/

N shares o* partners sub7ect to = , Sec. !#

,EC :4 B EXCL%,ION, FRO GRO,, INCOE

-* Ahat do you mean by e/clusionsL "re these e/empt

*rom income ta/LA* these are not included in the gross income? 1BS?

e/empt.

"E =OE: E/emptions? e/clusions? deductions? havethe same characteristics M all ta/ do not apply.

91 2ife insurance BSec1 :9 & !9"

-* Ahat is the requirementLA* only one requirement *or e/emption: that the

proceeds o* the li*e insurance be payable upon the death

o* the insured.

-* Does it matter who the bene*iciary is or paid in a

lump sun or single sumLA* =o. it does not matter.

E/ception: amounts held by the insurer under an

agreement to pay interest thereon? the interest payment

shall be included in the gross income.

61 %mount recei.ed by insured as return of

premium BSec1 :6 & !6"

-* i* the insurance is payable within a certain time? say

&$ years and therea*ter the insured did not die? how much

will be e/cludedLA* only the amount received by the insured as a return o* the premiums.

E/. & , &$$ thousand X capitalt is e/empt >&$$)

+$$ is ta/able.

-* Ahy is it e/cludedLA* because the amount received merely represents a

return o* capital.

-* is this sub7ect to Estate a/ under Sec. ( EL do wehave the same requirementLA* no? the requirement *or e/emption is not the same

under Section ( E.

:1 Proceeds of life insurance/ decedent insured

+imself> inclusion or exclusion ill depend on +o

t+e beneficiary is1

a. the bene*iciary is the estate.

U sub7ect to Estate ta/? included in the gross estate

regardless o* whether or not the designation o* the bene*iciary is revocable or irrevocable.

b. the bene*iciary is a third person other than the estate.

Page 34 of 79



b.& Revocable Designation M sub7ect to estate ta/?

included in the gross estate.Reason: because o* the insuredHs power to modi*y or

change the bene*iciary.

b.! rrevocable Designation M not sub7ect to Estate

ta/? not included in the gross estate.Reason: the insured loses the power to control?

modi*y and change the bene*iciary.

-* s it sub7ect to 0"LA* &. =on-li*e insurance , yes? sub7ect to 0" under &$(

>").

!. 6i*e insurance , =O? sub7ect to percentage ta/

under Sec. &!% o* the a/ Code.

71 4ifts> &equest and De.ises BSec1 :6 & !:"

-* Ahy is the donee e/empt *rom income ta/LA* @ecause the law classi*y it as an e/clusion? not

important to 9now whether property is real or personal.

Ahat is e/empted is the Pvalue o* property acquired

by gi*t? bequest or deviseQ

"E =OE:

". ;<S are e/cluded because they are sub7ect to

donorHs ta/.@. @E2BES and DE0SE are e/cluded because

they are sub7ect to ES"E ta/.

-* what is included in the gross incomeLA* income *rom such property.

N gi*t? bequest? devise or descent o* income *rom any property in case o* trans*ers o* divided interest.

;1 Compensation for inuries or sic,ness BSec1 :6

& !7"

-* is this the same as those provided under the

wor9menHs compensation act >wca)LA* IES. here are % groups:

a. 1ealth or accident insurance or those under wor9menHs compensation.

b. personal in7uries and sic9nessF and

c. Damages to prevent in7uries and sic9ness.

-* Ahat does in7ury includeLA* he term in7ury includes death? even i* not in7ured? i*

the person dies this will be available.

-* when will the damages recovered be e/emptLA* ;eneral Rule: all damages awarded are ta/ e/empt.

E/ception: damages representing loss o* income.

-* Ahy is it considered an e/clusionL

A* because this is 7ust an indemni*ication *or the in7uries

or damages su**ered.

@1 0ncome exempt under a treaty BSec1 :6 & !;"

-* Ahat is e/cludedLA* income o* any 9ind required by treaty binding upon

the 5hil. ;overnment.

81 Retirement benefits> pensions> gratuities BSec1 :6

& !@"

-* Ahy do we need to distinguish retirement pay?

separation pay and terminal leave payLA* because they have di**erent requirements *or

e/emption.

-* Ahat is retirement payLA* the sum o* money received upon reaching the

ma/imum age o* employment.

a. Bnder R"4+&' >with Retirement 5lan)&. the private bene*it plan is approved by the @R

>RR!-+()F

!. the retiring o**icial or employee has been in the

service o* the same employer *or the last &$yearsF

%. he is at least $ years old at the time o* retirementF

and

4. the o**icial or employee avails himsel*Khersel* o* the bene*it only once.

b. Bnder R"'#4& >without retirement plan)&. the retiring o**icial employee is at least #$ years

old but not more than # years oldF

!. the employee or o**icial must have served the

company *or at least yearsF

U entitled to & days salary and [ o* the &%th month pay *or every year o* service.

"E =OE: the retirement bene*its under R"4+&' and

R"'#4& are e/empt *rom income ta/ provided therequirements are present.

,EC. :4 B232c3

N retirement bene*its given by *oreign government?

*oreign corporation? public as well as private to RC? =RC?

R" residing permanently in the 5hilippines - e/emptwithout *urther quali*ications , automatic e/clusions.

,EC. :4 B232$=e=f3

N retirement bene*its given by the 5hilippine ;ovHt

through the ;SS? SSS and 50"O are e/empt without

*urther quali*ications X automatic e/clusions.

Page 35 of 79



"ugust !&? !$$#.- midterms #-( pm until sec %! @>#) =RC.

"ugust !(? !$$#.

"=SAERS X DERS

N ;ross ncome include both capital and ordinary

gains? Sec. %& says gross income-deductions? that which isordinary loss.

- may be deducted *rom capital gains and ordinary gains.

-* Ahat is separation payLA* on given when one is terminated *rom the service

because o* >&) illness? >!)death? >%) physical incapacity or

in7ury? or >4) causes beyond the control o* the employee.

-* "re there any requirement *or separation pay granted

by *oreign govHt or corpLA* =one? the separation pay granted by the

a*orementioned institutions are e/empt without *urther quali*ications >Pother similar bene*itsQ).

-* is separation pay an e/clusion? there*ore? e/emptLA* =o.

;E=ER"6 RB6E: Separation pay not e/empt >L)

E/ception:

&. "utomatic e/clusions? thus e/empt i* due to:

a. illness b. death

c. physical incapacity or in7ury.

!. Conditional e/clusiona. causes beyond the control o* the employee-

e/cluded

b. within employeeHs control , included.

E/amples:

&. registration , C@" provides separation pay?

within the control X included.

!. installation o* labor saving devises or ban9ruptcy , beyond the control X e/cluded.

-* Ahat is terminal leave payL

A* the accumulated vacation leave and sic9 leave bene*its converted to cash or money to be given either

every year or upon retirement or separation.

erminal 6eave 5ay granted upon retirement or

separation:

U uder 5D!!$? 65 in the ;ovHt or in the 5rivate

Sector shall be e/empt *rom income ta/ i* given or granted upon retirement or separation.

65 granted on a yearly basis:

&. employee in the private sector:

a. accumulated sic9 leave , sub7ect to income

ta/. b. "ccumulated vacation leave: i* more than &$

days >meaning && pataas) , sub7ect to

income ta/F

U* &$ days or less , e/empt.!. ;ovHt Employee:

U governing law: EO !+& o* 5res. Estrada? RC &#-

!$$$.

Rule: ;ovHt wor9ers >both o**icers or non-o**icers)

granted 65 on a yearly basis M e/empt *rom income

ta/.

M there is no quali*ication as to vacation or sic9 leave.

N a9e =ote o* % cases.

U be reminded o* EO !+&? Sec. !. '(.! par. +'?

RR!-+(? RR&#-!$$ >%).

Case of ialcitaN retired *rom DO8? contention: 65 should be e/empt

*rom income ta/ pursuant to the old law.SC: on a di**erent ground , 65 is e/empt because it is

similar to Retirement pay? thus e/empt but the rulingHs

application is limited only to DO8 employees.

7orromeo case:N Same as the ialcita case

ssues: AO= the 65 is sub7ect to income ta/ and AO=

CO6" and R"" are includedLSC: RB6ED 65 is E/emptY

odi*ied: the rule applies not only to DO8 o**icers but

also to CSC commissioners.

CO"%%"O0ER v. CA%!AE8A- Casta^eda ,D<" o**icer in 5hil. Embassy in England.

&. 65 is e/empt.

!. Ruling applies to D<" o**icers.

-* Does the rule or decision applies to ;ovHt o**icials

onlyLA* =o. 5D!!$: E/emption applies to both private and

public sectors>L)

it does not matter i* 65 is vacation or sic9 leave.

RR!-+(? Sec. !.'(.& par. >a)>')U 8"=? &++( , the rule applies to both private and

public sectors.

EO!+& >SE5.? !$$$)

U O**icer in govHt receiving 65 is always e/empt

whether or not vacation or sic9 leave is granted.

odi*ied RR!-+(:

U 65 will only apply to private sectors

Page 36 of 79



U i* granted on a yearly basis , may be sub7ect to ta/:

0"C"O= 6E"0E&. ORE 1"= &$ D"IS X "J"@6E

!. 6ESS 1"= &$ D"IS X EJE5

<1 )iscellaneous items !Sec1 :6 & !8"!a" income deri.ed by foreign 4o.t BSec1 :6 & !8"

!a"

-* Ahat 9ind o* incomeLA*

&. investments in:

a. loans

b. stoc9sc. bonds

d. other domestic securities

!. interest *rom deposits in @an9s in the 5hilippines.

-* Aho are income earnersLA*

&. *oreign government

!. *inancing institutions owned? controlled or en7oying re-*inancing *rom *oreign govHtsF and

%. intHl or regional *inancial institutions established

by *oreign govHts >established in the 5hilippines)

"E =OE: i* plain *oreign corp.? sub7ect to < !$.

EJ"56ES o* e/clusions:

a. @runei ;ovHt earns interest by depositing money ina9ati @an9 , E/clusion.

b. SC- Stoc9 dividends to %. @runei ;ovHt. e/clusion

c. ncome derived by the ;ovHt or its politicalsubdivisions >Sec. %! @ >') >b)

a. e/ercise o* public utility

b. e/ercise o* any essential govHt *unction.

U accruing to the govHt.

d pri3es and awards >Sec. %! @ ' c)U primarily *or religious? charitable? scienti*ic?

educational? artistic? literary or civic achievements:

&. recipient was selected without any action on his

part to enter the contest or proceedingsF!. the recipient was not required to render substantial

*uture services as a condition to receive the pri3e

or award.

D. pri3es and awards in sports >Sec. %!@ ' d)

&. granted to athletesF

!. local or intHl competitionsF%. held here or abroadF

4. sanctioned by the natHl sports associations.

E. &%th month pay and other bene*its >Sec. %!@ ' e)

-* Do you include Christmas bonus in your RL

A* =o? because the law says &%th month pay and Pother

bene*itsQKQsimilar bene*itsQ , /mas bonus is included inthe category.

-* Aho can increase the %$?$$$ limitL

A* he Sec. o* <inance.

-* "pplicable to whomLA*

&. govHtF and!. 5rivate institutions.

<. ;SS? SSS? edicare and other contributions >Sec. %!

@ ' *)N must be deducted *rom the ; not = because it is an

e/clusion.

-creditable withholding ta/ is an e/clusion- must be

deducted *irst *rom the ; be*ore you compute the =.Otherwise? you are including in the ; something that is

e/cluded *rom the same.

;. ;ains *rom the Sale o* bonds? debentures? or other Certi*icate o* indebtedness. >Sec. %! @ ' g)

-* Ahy yearsLA* certi*icate o* indebtedness is similar to @an9 nterestin a long term deposit.

- Sec. %! @ ' g is similar or the same as !4 @ in long term

deposit.

1. ;ains *rom redemption o* shares in mutual *und >Sec.

%! @ ' h)

&. <iscal Iear , means an accounting period o* &! months

ending on the last day o* any month other than December.

!. Calendar year , a period o* &! months beginning on8anuary and ending on December.

-* @usiness e/pense incurred in <ebruary !$$#? is it

possible to include it *or "pril !$$#LA* yes? it is possible or it is possible i* *iscal year is

employed? i* it *alls under the *iscal year and all the

elements are present.

- related to trade or business.

RE"SO=: Capital loss has no connection to the trade or

business.

"E =OE:

N *or ta/payers liable *or income within and without>RC DC))? they can claim deduction *or e/penses

incurred within and without.

Page 37 of 79



N *or ta/payers who are liable only *or income within?

they can claim a deduction *or e/penses incurredwithin the 5hilippines.

Sec. %4 " EJ5E=SES

&. <or those business e/penses not enumerated under ".

Iou need to prove that it is an ordinary and necessary

e/pense.

!. <or those enumerated under "? all you have to prove is

that it is incurred during the ta/able year.

<eb. &!? !$$' >Sec. %4 "? E/penses)

-* Did the law de*ine what is reasonableLA* =o. *or salaries and wages all that is required by law is

*or it to be reasonable.

- *or other *orms o* compensation? there must be services

actually rendered.

%40N2D# Case

<: involves a corporation engaged in selling *ish nets? and

the corporation have a land sold through a bro9er.Nthere was substantial pro*its gained *rom the sale o* a

land which was sold by a bro9er. he pro*it was in turn

given to the wor9ers as special bonus.

Nthe corporation claimed the bonus as a deduction.

SSBE: Should the deduction be allowedL

1: he SC did not allow the deduction? *or other *orms o* compensation? it must be made or given *or services

actually rendered.

Nin this case? it was proven that the sale was not made bythe employees? no e**ort or services actually rendered by

them because the sale was made through a bro9er.

N

-* Reasonable ravel E/penses? Ahat is the requirementLA*

&. ravel must be in pursuit o* business?

trade or pro*ession.!. ravel e/pense while away *rom home.

-* s there a travel e/pense which was not in pursuit o* businessLA* yes? those which are considered as *ringe bene*its

><@)? e/penses *or *oreign travel is considered a <@ only

i* it is not in pursuit o* the trade or business.

-* can you claim it under Sec. %4 " >&)>a)>ii)L

A* =o? you can claim it under Sec. %4 " >&)>a)>i) last

paragraph.

-* Reasonable "llowances *or rentals *or meralco bills?

requirementsL

A* &. required as a condition *or the continued

use or possession? *or the purpose o* the trade? business

or possession o* the property.

!. ta/payer has not ta9en any title or no equity other than a lessor.

-* Reasonable allowance *or entertainment? amusement

and recreation e/penses? what is the requirementLA*

&. connected with the development? management?

and operation o* the trade >DO)F

!. Does not e/ceed the limits or ceiling set by theSecretary o* <inanceF and

%. =ot contrary to law? morals? good customs?

public policy or public order.

-* 1ow about bribe? 9ic9bac9s? and other similar

paymentsA* even without this provisions? 9ic9bac9s will not pass

the requirement o* >i) ordinary and >ii) necessary hencenot deductible

EXPEN,E, ALLOWABLE TO PRIVATE

E#%CATIONAL IN,TIT%TION

-* Ahy only private educational institution is mentioned

and no other ta/payersLA* it re*ers to section !' *or 5rivate Educationalnstitution given to the educational institution.

;E=ER"6 RB6E: %# " >!) and %# " >%) e/penditures *or

capital outlays not deductible as business e/pense

EJCE5O=: 5rivate Educ. nstitution can claim it under

Sec. %4 " >!)

B%,INE,, EXPEN,E 's. ALLOWANCE FOR

#EPRECIATION

@BS=ESS EJ5E=SE&. =o carry-over

!. can be claimed *or one year only.

%. i* the amount o* capital outlay is substantial? it cannotaccommodate all o* the e/penses incurred.

ALLOWANCE FOR #EPRECIATION

&. here is carry over !. you can claim it *or a longer period depending on the

li*e span o* the property.

%. it can accommodate all o* the e/penses incurred.

Page 38 of 79



• ta/payerHs allowable deduction *or interest e/pense

shall be deducted by an amount equal to 4! >RR &$-

!$$$) o* the interest income sub7ect to <.

-* Aho claims this deductionLA* the debtor claims this deduction.

-* Ahat 9ind o* interest is thisLA* interest on loan.

Ninterest on debt - when one borrows money to *inance

his business interest in connection with the ta/payerHs pro*ession trade or business.

REDSCOB==; O< 5"5ERS : >Sec. %4 @ ! a)

Na borrower or ta/payer can claim the interest paid in

advance as itemi3ed deduction when he *iled his income

ta/ return >R) depending on whether or not the

principal obligation has been paid.

&. i* the entire amount or entire principal obligation has

been paid , the entire amount o* interest can be claimed

as itemi3ed deduction.

!. i* only [ o* the obligation had been paid? then the

entire amount o* [ o* that interest can be claimed as a

deduction.

%. i* no payment had been paid on the principal

obligation? the advance interest paid cannot be claimed as

a deduction on the years that it was paid.

RE2BREE=S <OR REDSCOB==; O<

5"5ERS:

&. incurred within the ta/able year.

!. individual ta/payer reporting income on a cash basis.

• =o deduction shall be allowed in respect to the

*ollowing interest:

&. i* within the ta/able year an individual ta/payer

reporting income on the cash basis incurs an indebtedness

on which an interest is paid in advance or throughdiscount or otherwise.

!. i* both ta/payer and the person to whom the paymentshas been made or is to be made are persons speci*ied

under Sec. %# >@):

a. member o* a *amily

b. bet. an individual and a corp.? more than $ inadvance o* the outstanding stoc9 o* which is owned

directly or indirectly by or *or such individualF

c. @et. ! corp.? more than $ in value o* the outstanding

stoc9 o* each o* which is owned? directly or indirectly? byor *or the same individual.

d. bet. the grantor and a *iduciary o* any trustF

e. bet. the *iduciary o* a trust and the *iduciary o* another

trust i* the same person is a grantor with respect to eachtrustF or

*. bet. a *iduciary o* trust and a bene*iciary o* such trust.

-* Aho are not allowed to claim interest under sec %# @LA* interest incurred between related parties.

-* Ahat i* hal*-brotherLA* not allowed to claim deduction *or interest.

"E =OE: interest incurred *rom the e/ploration o*

petroleum re*ers not 7ust in interest incurred on loan o*

money but also interest incurred *or installment payments.

-* Aho are related partiesLA* individuals and corporations.

O5O="6 RE"E= O< =ERES EJ5E=SE:

&. interest incurred to acquire property used in trade?

business or e/ercise o* pro*ession can be claimed a anitemi3e deductionV

a. on interestF or

b. depreciation >as capital e/penditureL)

-* Ahat is this interest incomeLA* the money borrowed was deposited in a ban9 so that it

will warn interest. >RR&%-!$$$)

66BSR"O=:

&. loan o* & *rom a ban9 with an interest o* !$

!. !$ o* & is 5hp!$$?$$$ but you cannot claim this

whole amount as a deduction.%. when you deposited the & in the ban9? it earned a

ban9 interest sub7ect to < worth 5hp&$?$$$.$$.

4. 4! >RR) o* &$?$$$ X 4?!$$ >RR +%%')

. 5hp!$$-4?!$$X 5hp&+?($$K this is the amount youcan claim as a deduction.

:5 C TAXE,*

RE2BSES:

&. ta/es must paid or incurred within the ta/able year

!. it must be incurred in connection with trade or business.

%. can be claimed as:

a. a deductionF or %4 C &!

b. ta/ credit %4 C %'

-* Ahere should it be deductedLA*

Page 39 of 79



&. i* claimed as a deduction? it should be

deducted *rom the gross incomeF!. i* claimed as a ta/ credit? it should be

deducted *rom the =et ncome a/ due >bottom o*

the *ormula)

)ERCRG DR4 C%SE

- Discount o* senior citi3ens

SC: discount claimed by senior citi3ens shall create a ta/

credit and must be deducted at the bottom o* the *ormula.

-* Ahat is a ta/ deductionL E/ampleLA* e/ample is business ta/.

Nta/ deduction is allowed i* the ta/es were paid or incurred within the ta/able year and it must be connected

to the trade? business or pro*ession o* the ta/ payer.

-* Aho are entitled to claim itLA* those liable to pay =. >a/ credit only *or =)

-* Ahat is a ta/ creditLA* re*ers to the ta/payerHs right to deduct *rom theincome ta/ due the amount o* ta/ the ta/payer paid

to *oreign country? sub7ect to limitations.

-* Ahat is the ta/ credit being re*erred to under %4 C >%)LA* credit against ta/es *or ta/es o* *oreign country.

-* Ahat are the other ta/ credit under the codeLA*

&. R" #4! , selling goods and commodities to senior

citi3ens? the discount claimed is treated as a ta/ credit.

!. income ta/ paid to *oreign country.%. nput ta/ on 0at4. Creditable wKholding ta/ system under =

. a/ credit certi*icate.

2: Aho are allowed to claim itL": RC and DC only.

-* suppose you paid the &$$ = to BS? can you claim

as a deduction the whole &$$L what is the *ormulaL

Nsame procedure *or >&) income ta/ paid to *oreign

countryF >!) estate ta/ paid to *oreign countryF and >%)

DonorHs ta/ paid to *oreign country.

A* Forula*

SE5 &

; *rom sources wKin

=: GGGGGGGGGGGGGGGGGGGGG

; *rom entire world

SE5 !

2uotient / R"E X amount wKc can be claimed as a

deduction

A* you cannot claim the whole &$$? you can only claim

the product o* the quotient times the rate

"E =OE: deduct at the bottom o* the *ormula > sa

computation ng ;)

-* Suppose you are a RC? you pay = to BS? will you be able to claim it as a ta/ deductionL

A* &. generally? you can claim it as ta/ credit.

!. you can claim under Sec. %4 C >&) b

Ni* the ta/payer did not signi*y in his return his intention

to avail himsel* o* the bene*it o* ta/ credit *or ta/es paid

to *oreign country.Nta/es incurred not related to the trade or business? you

have the option to:

a. claim it as ta/ creditF or

b. claim it as a deduction Nlaw gives you this privilege.

-* Ahen is ta/es not allowed as a deductionLA* Sec. %4 C >&)

&. ncome ta/F

!. ncome ta/ imposed by authority o* any *oreign

countryF

%. Estate and DonorH ta/F and4. ta/es assessed against local bene*its o* a

9ind tending to increase the value o* the property.

-* Aho are not allowed to claim deductionsLA* Bnder %4 C >%) - =RC? =R"F and =KR<C

"E =OE:

&. =R"E and =<C , allowed deduction only i* and to the

e/tent that they are connected with income *rom sources

within the 5hils.!. a/es that had been allowed as deduction but are later

in re*unded should be treated as part o* the gross income

during the year that it is received >%4 & last paragraph)

-* Ahich would you chooseL a/ credit or deductionLA* ta/ credit because it is deducted *rom the ta/able

income while deductions are deducted *rom the ;.

<ORB6": ;-DEDBCO= X =E =COE / R"E

X "J"@6E =E =COE , "J CRED)

:5 # LO,,E,

Page 40 of 79



-* s always a requirement that it is incurred in pursuit o*

trade? bus. or pro*essionLA* =o. Sec. %4 D>&) provides *or ! 9inds o* losses:

a. incurred in pursuit o* trade? bus. or pro*essionF

b. property connected with t?b?p? i* the loss arises

*rom *ire? storms? shipwrec9s or other casualties or *rom robbery? the*t or embe33lement >arising *rom

natural calamity).

-* Ahat is the requirementLA*

&. 6oss actually sustained during the ta/able year

!. =ot compensated *or by insurance or other *ormso* indemnity.

%. =ot claimed as a deduction *or estate ta/ purposes.

-* his is your itemi3ed deduction which can beclaimed as a deduction *romLA* ;ross income

"E =OE:N he itemi3ed deduction o* losses? however? is not

con*ined to section %4@. it is also *ound under section

(#" >&) >e) which also pertains to deductions available

under the estate ta/ law.N6osses within si/ >#) months a*ter the death o* the

decedent can be claimed as itemi3ed deduction o* losses

under Section %4@. 1owever? may be claimed as

deduction under estate ta/ return provided that the sameare not claimed as itemi3ed deduction o* losses under

Section %4@.

-* 1ow many carry-overs do we have under the CodeLA* %. =amely:

&. Section !' E >%!) Carry *orward o* e/cess

minimum a/

!. Section %+ D =et Capital 6oss Carry-over %. Section %+ D % =et Operating 6oss Carry-Over.

0IN#, OF LO,,E, AN# T9EIR CARR1/OVER,*

%1 #RD0N%RG 2#SS H N#2C# & M' above-

-* Ahy is there a need *or a carry over under Sec. %4 D

when you can claim the loss *rom both capital andordinary lossLA* i* the loss e/ceeds the income *or the ta/able year? you

cannot deduct the entire amount o* loss *rom your income*or that year so the e/cess may be deducted *or the

ta/able year *ollowing the loss.

B. CAPITAL LO,, NET CAPITAL LO,, CARR1

OVER & M * above-

NET C%P0T%2 2#SS

C%RRG-#IER

NET #PER%T0N4

2#SS C%RRG-#IER

&. ta/payers is anindividual only not

corporation.

!. involves net capitalloss

%. carry-over as loss *rom

sale o* capital asset in the

ne/t succeeding year

4. can only be deducted

*rom capital gains.

&. ta/payer may be anindividual or corpF

!. losses incurred or

connected with or @F

%. @usiness losses not

previously o**-set as adeduction *rom the ;

carried over as such *or

the ne/t % consecutive

yearsF4. can be deducted *rom

capital gains andKor

ordinary gains.

NET OPERATING LO,, CARR1 RE2BREE=S:

&.=et operating loss o* the business or enterprise incurred

wKin the ta/able year

!. not previously o**-set as a deduction *rom the ;%. carried over as a deduction *rom the ; *or the ne/t %

consecutive ta/able years immediately *ollowing the year

o* such loss.

-* Can the period be e/tendedLA* yes? *or mines other than oil and gas well.

&. net operating loss wKout the bene*it incentives

provided by lawF!. incurred in any o* the *irst &$ years o*

operation.

%. carried over as a deduction *rom the ; *or

the ne/t years *ollowing such loss.4. no substantial change in the ownership o*

the business or enterprise.

-* Ahat is the limitL

A* ' o* the nominal value o* outstanding shares isheld by or on behal* o* the same personsK corporation

N individual no problem? problem lies with corporationsor enterprises.

"@"=DO=E= 6OSSES

&. contract area where petroleum operations are

underta9en is partially or wholly abandonedF

Page 41 of 79



N all >&) accumulated e/ploration and >!) development

e/penditures pertaining thereto shall be allowed as adeduction.

!. a producing well is subsequently abandoned:

Nunamorti3ed cost and undepreciated cost o* equipmentdirectly used therein shall be allowed as a deduction in the

years it was abandoned.

"E =OE:&. i* abandoned well is reentered and production is

resumedF or

!. i* equipment or *acilities are restored into service in the

year o* resumption or restoration and shall amorti3ed or depreciated.

-* Ahat is the a/ bene*it ruleLA* 6ast 5ar. o* Sec. %4 E >&): recovery o* bad debts

previously allowed as deduction in the preceding year

shall be included as part o* the gross income in the year o*

recovery to the e/tent o* the income ta/ bene*its o* said

deduction.

-* Ahat is a @ad DebtLA* @ad debts shall re*er to those debts resulting *rom the

worthlessness or incollectibility in whole or in part o* amounts due the ta/payer by others? arising *rom money

lent or *rom uncollectible amounts o* income *rom goods

sold and services rendered.

C9INA BAN0 V,. CA

N bad debts can only be claimed i* pursuant to a contract

o* loan- no bad debts *or loss o* instruments.

-* Aho claims itLA* a. creditor

c. money lender

-* Ahat year can it be claimedLA* can be claimed in the year it was actually sit

ascertained to be worthless and charged o**? meaningcancelled in the boo9s o* account.

-* Do you need to *ile an action be*ore you can claimL

A* =o? all you have to do is prove that you did e/ert e**ortto claim or recover the same.

-* Ahat cannot be deducted as bad debtsLA*

&. debts not incurred in connection with the trade?

business and pro*ession o* ta/payer.

!. transactions? mered into between partiesmentioned under Section %# >@) namely.

a) between members o* the *amily

b) between an individual who owns more than

%$ o* outstanding capital stoc9 o* a corporationand that corporation

c) between two >!) corporations more that $ o*

the outstanding capital stoc9 o* which is

owned by or *or the same individuald) between a grantor and *iduciary o* any trust

e) between two >!) *iduciaries o* two >!)

trusts who has the same grantor

*) between a *iduciary o* a trust and above*iduciary o* such trust

%EC#R"!"E% 7ECO"0/ GOR!4LE%% &. ascertained to be worthless and charged o** within the ta/able year

!. capital asset

%. ta/payer? other than a @an9 or trust company

incorporated under 5hil. 6aws4. substantial part o* business is the receipt o*

deposit

. considered as a loss *rom the sale o* capital

assets on the last day o* such ta/able year

:5 F #EPRECIATION

-* Ahat is depreciationLA* t is the gradual dimension in the service or use*ul

value o* tangible property due *rom e/haustion? wear and

tear and normal obsolescence.

-* Ahat 9ind o* property is involvedL

A* &. Real property e/cept parcel o* land !. 5ersonal 5roperty

RE5#"%"!E%:&. depreciation deduction must be reasonable

!. *or the e/haustion? wear and tear? includingreasonable allowance *or obsolescence

%. property used in the trade o* business

-* Ahat do you mean by Preasonable allowanceQLA* it shall include? but not limited to? an allowance

computed in accordance with rules and regulations

prescribed by the Secretary o* <inance? upon

recommendation o* the Commissioner? under any o* the*ollowing methods:

&.Straight-line method

!.Declining balance method%.Sum-o*-the-year-digital methodF and

4.any other method which may be prescribed by the

Secretary o* <inance upon recommendation o* the

Commissioner

#EPRECIATION OF PROPERTIE, %,E# IN

PETROLE% OPERATION,

Page 42 of 79



&. properties directly related to production o* petroleum

!. allowed under >&) straight line or >!)

declining balance method

%. use*ul li*e o* properties used or related to production o* petroleum shall be ten >&$)

years or such shorter li*e as may be permitted by

the Commissioner.

4. *or property not used directly in the productiono* petroleum >&) depreciated under the straight line

method? and use*ul li*e is only *ive >) years

#EPRECIATION OF PROPERTIE, %,E# IN

INING OPERATION,

"66OA"=CE <OR DE5REC"O=:

&.all properties used in mining operations other than petroleum operations shall be computed as *ollows:

a. i* the e/pected li*e is ten >&$) years or less , normal

rate o* depreciation

b. i* the e/pected li*e is more than ten >&$) years ,

depreciated over any number o* years between *ive >)

years and the e/pected li*e.

RE5#"REE0!%:&. depreciation is allowed as a deduction *rom #&F and

!. contractor noti*ies the Commissioner at the beginning o* the depreciation period which

depreciation rate shall be used.

DE5REC"O= DEDBC@6E @I =R"E@ OR R<CN reasonable allowance *or the deterioration o* property

&. arising out o* its use or employment

!. or non-use in the business? trade or pro*ession

%. property is located in the 5hilippines

:5 G #EPLETION OF OIL an$ GA, WELL, an$

INE,

N only deduction which is a not sel* e/ecuting deduction

-* Ahat is depletionLA* the e/haustion wear and tear o* natural resources as in

mines? oil? and gas wells

Nthe natural resources called Pwasting assetsQ

DE5REC"O= vs DE56EO=

&.involves property &. involves natural

resources

!. ordinary wear andtear o* equipments

!. ordinary wear andtear o* natural

resources

"E =OE:

NEquipment used in mining operation is deductible indepreciation

-* ethod *or computing depletionLA* cost depletion method

-* to whom allowedLA* only mining entities owning economic interest inmineral deposits

NEconomic interest: capital investments in mineral

deposits

:59 C9ARITABLE ) OT9ER CONTRIB%TION,

"E =OE:&.unique because deducted *rom the ta/able net income

and not *rom the gross income

Nsecond step o* the *ormula deduction

-* Aho is claiming the deductionLA* the donor

-* Aho are the DoneesLA* &.;overnment o* the 5hilippines or any o* its

agencies or any political subdivision thereo*

e/clusively *or public purpose

!. "ccredited Domestic corporation or associationorgani3ed and operated e/clusively *or religions? lion?

charitable? scienti*ic? youth and sportsdevelopment? cultural or educational purposes or *or

the rehabilitation o* veterans? or to socialwel*are institution? or to non government

organi3ation and no part o* its net income inures

to the bene*it o* any private stoc9 holder or individual

-* 1ow many 9inds o* deductionLA* wo >!) 9inds:

&.partial deduction

N&$ o* ta/able income in case o* anindividual

N o* ta/able income in case o*

corporations!. *ull Ktotal deduction

-* Ahich o* the two 9inds is the ;eneral RuleLA* ;eneral Rule: 5artial deduction

E/ception: otal K<ull deduction

-* Suppose r. " made a cash donation o* 5&. 1ow

much can he claim as a deductionL

Page 43 of 79



A* <irst determine the ta/able income o* r " since he is

an individual? he can only deduct &$ o* his ta/ableincome.

2: Ahat i* the Donee is not one o* those mentioned under

the law? can he claim a deductionL": =o.

"E =OE: Donee is never an individual.

-* * the Donor is a pure compensation income earner and

he donates 5&$$?$$$ to the church? can he claim it as a

deductionLA* =o. pure compensation income earner can only claim a

deduction under Sec %4

-* * Donee is the 5hilippine ;overnment? what is therequirementLA* it must be made e/clusively *or public purposes

-* Ahat i* the Donee is a provinceLA* there must be a quali*ication that it is *or public

purpose

-* * the Donee is a Domestic Corporation? what is therequirementLA* no part o* its income inures to the bene*it o* any

private shareholder or individual

-* Ahat are those contributions which can be

deductible in *ullL

A* &.Donations to the ;overnment , no con*lict with partial >di**erent requirement)

N5artial donated *or e/clusively public

purposes

N<ull? used in underta9ing priority activities o*

=ED"

!.Donations to certain <oreign nstitutions or

nternational Organi3ations

Nin compliance with agreement? treaties or commitment entered into by the 5hilippine

;overnment and such donees

%.Donations to "ccredited =on governmentorgani3ations =on government organi3ation? non

pro*it domestic corporation

RE2BREE=S:

&. organi3ed and operated e/clusively *or scienti*ic?

research? educational? character building and youth and

sport development? health? social wel*are? cultural or charitable purposes or a combination thereo*

!. no part o* the net income o* which inures to the bene*it

o* any private individual

%. uses the contributions directly *or the active conduct o*

the activities constituting the purpose or *unction *or which it is organi3ed and operated

4. annual administrative e/pense does not e/ceed %$o* the total e/penses and

. in case o* dissolution? the assets o* which would be

distributed to:

a) another non pro*it domestic corporation organi3ed*or similar purpose or purposes

b) to the state *or public purpose

c) distributed by the court to another organi3ation to

be used in such a manner which would accomplishthe general purpose *or within the dissolve

organi3ation was organi3ed

:5I RE,EARC9 AN# #EVELOPENT

Nn the old law? this is not allowed as a deduction. o

remedy this? they *elt that those should be a separate

deduction *or research and development.

RE2BSES:

Nta/ payer may treat research and development

e/penditures as ordinary and necessary e/penses provided:

&. it is paid or incurred during the ta/able year

!. incurred in connection with trade? business or

pro*essionF and%. not chargeable to capital account.

-* reated as such whenLA* during the ta/able year it is paid or incurred

AOR!"A!"O0 O$ CER!A"0 RE%EARC4 A08 8E9ELOPE0! E<PE08"!#RE%

Nat the election o* the ta/payer? the *ollowing shall or

may be treated as de*erred e/penses:

a. paid or incurred by the ta/payer in connection with

his trade? business or pro*essionF b. not treated as e/penses under par & and

c. chargeable to capital account but not chargeable to

property o* a character which is sub7ect to depreciation

or depletion

-* 1ow to compute ta/able income:

": de*erred e/penses shall be allowed as deductionratably distributed over a period o* not less than &$

months as may be elected by the ta/payer >beginning with

the month the

ta/payer *irst reali3es bene*its *rom e/penditures.)

Page 44 of 79



Nthe election or option may be e/ercised *or any ta/able

year a*ter the e**ectivity o* the code but not later than thetime prescribed by law *or *iling the return *or such

ta/able year.

6"O= O= DEDBCO=-* Ahen not deductibleLA* &."ny e/penditure *or the

>&) acquisition or improvement o* land or >!)

*or the improvement o* property to be used inconnection with research and development o* a

character which is sub7ect to depreciation and

depletion and o**ice site

!. "ny e/penditure paid or incurred *or the purpose

o* undermining the e/istence? location? e/tent or

quality o* any deposit o* one or other mineral

including oil or gas.N not *or mineral e/ploration

:5 PEN,ION TR%,T

-* Claimed by AhomLA* the employer

-6 Ahat is a 5ension rust contributionLA* a deduction applicable only to employer on account o*

its contribution to a private pension plan *or the bene*it o*

its employee deduction is purely business in character.

-* RequisitesLA*

&.the employer must have established a pension or retirement plan to provide *or the payment or reasonable

pension o* his employees

!. pension plan must be reasonable and actually soundF

%. it must be *unded by the employer

4. the amount contributed must no longer be sub7ect to hiscontrol or disposition

. the amount has not yet been allowed as a deduction and

#. the amount has or is apportioned in equal parts over a

period o* &$ consecutive years beginning with the year inwhich the trans*er or payment is made.

:5 0 A##ITIONAL RE-%IREENT, FOR

#E#%CTIBILIT1 OF CERTAIN PA1ENT,

Nallowed as a deduction only i* shown that the ta/

required to be deducted and withheld there *rom has been paid to the @R in accordance with Section ( and Section

(&

:5 L OPTIONAL ,TAN#AR# #E#%CTION

@"08% O$ 8E8#C!"O0%:&.temi3ed deduction

!.Optional Standard Deduction

%.5ersonal K"dditional Deduction

O5O="6 S"=D"RD DEDBCO=:

Ncan be availed o* by an individual who may elect a

standard deduction in an amount not e/ceeding &$ o* his gross income

N may apply in lieu o* the other deductions under

Section %4

Nthe ta/payer must signi*y in his return his intention toelect the optional standard deduction? otherwise? he shall

be considered as having availed o* the itemi3ed

deduction.

-* Aho can claim this deductionLA* all individual ta/payers e/cept non resident alien not

engaged in trade or business >=R"=E@) Reason: he is not liable to pay by way o* the =? thus?*ollows he cannot claim this deduction because he is

liable to pay by way o* ;.

"E =OE:Ncan co-e/ist with personal and K or additional

e/emption

:5 PREI% PA1ENT, ON 9EALT9 AN#

OR 9O,PITALIHATION IN,%RANCE OF AN

IN#IVI#%AL TAXPA1ER

N *or >&) 1ealth and Kinsurance

>!) 1ospitali3ation

RE2BREE=S:

&. amount o* premiums? paid by ta/payer *or himsel* and members o* his *amily?!. amount o* premiums should not e/ceed >&) 5!?4$$

per *amily or >!) 5!$$ a month

%. gross income o* the *amily *or the ta/able year

is not more than 5!$?$$$

-* Aho can avail o* this deductionLA* &.individual ta/payer earning purely compensation

income during the yearF

!. individual ta/payer availing itemi3ed or optional

standard deductionF and%. individual ta/payer earning both compensation

income and income *rom business

,ECTION :@ ALLOWANCE FOR PER,ONAL

EXEPTION FOR IN#IVI#%AL TAXPA1ER

-* Ahen do we apply thisLA* apply i* individual ta/payer is paying by way o* =

-6 Aho are ta/payerL

Page 45 of 79



A* those mentioned under Section !4 >")

&. RC!. =RC

%. OCA

4. R"

Nall can claim both personal and additional e/emption -* Ahy not include =R"E@L Can the latter claim

any e/emptionLA* =R"E@ is not included because Section % " re*ersto Section !4 "

N=R"E@ can claim personal deductions but not

additional e/emptions pursuant to Sec % D

RE2BREE=S:

&.=R"E@ should *ile a true and accurate return

!. the amount to be claimed as personal e/emptions

should not e/ceed the amount provided *or under 5hilippine 6aws

"E =OE:

"EO5: can be a R" or =R"E@

BA,IC PER,ONAL EXEPTION,*

&. Single individualF or individual 7udicially decreed aslegally separated with no quali*ied dependents.

N !$? $$$

!. <or head o* the *amily , can be single or legallyseparated with quali*ied dependents.

N !? $$$

%. <or each married individual , i* only one o* thespouse? earns or derives gross income? only such spouse

can claim the personal e/emption.

N%!? $$$

-* Aho is the Phead o* the *amilyQLA* &.unmarried or legally separated man or woman

!. Aith >&) one or both parties or

>!) Aith one or more brothers and sisters >%) with one or more legitimate? recogni3ed?

natural or legally adopted children

%. living with and dependents upon him *or their

chie* support4. whose such brother or sisters or children are

>&) not more than && years old and

>!) not gain*ully employed?>%) unmarried

. OR? regardless o* age? the same are incapable o*

sel* support because o* mental or physical de*ect.

-* Ahy do we have to determine who the head o* the

*amily isL

A* only legally separated individuals can claim

additional e/emptions i* they have quali*ied dependents.

"E =OE:

NR.". '4%! and RR !-+(: a senior citi3en can also be a

dependent.

-* Can a widower claim e/emptionsLA* e/emptions must be strictly construed? widower not

included in the list under Section % " , but can claimunder sec %@

Nwidower? married or used to be married

"RRED =D0DB"6SNeach legally married individual can claim the personal

e/emption. 1usband and wi*e X 5#4?$$$

-* Aho are allowed to claimLA* =ormally ? it is the husband who claims unless he

e/ecutes a waiver that the wi*e will claim the same

>RR!-+()

Additional E>emptions: &'37-

-additional e/emption o* 5(?$$$ *or each dependent not

e/eceeding *our >4)

2: Aho can claim the sameL

": &.arried couples: only one o* the spouses can

claim itF!.legally separated individuals: can be claimed by the

spouse who has custody o* the child or children

Nthe additional e/emption claimed by both shall note/ceed the ma/imum additional e/emption hereinallowed.

-* De*ine PdependentsQA* legitimate? illegitimate or legally adopted child chie*ly

dependent upon and living with the ta/payer i* such

dependent is >&) not more than !& years o* age? >!)

unmarried? and >%) not gain*ully employed or >4) i* such

dependent? regardless o* age is incapable o* sel* support because o* mental or physical de*ect.

-* Ahat i* widower has illegitimate children? can claim

additional e/emptionLA* can claim? can be considered as head o* the

*amily wK dependent

-* Ahat i* the children are temporarily away

*rom the parentsLA* still considered living with parents? can claim

e/emption

C4A0/E O$ %!A!#%: &%EC '3 C--* Rec9oning 5eriodL

Page 46 of 79



A* end o* the year or close o* such year when such

change o* status occurred.

"E =OE:

Nalways choose the higher amount o* e/emption i* you

are *iling a return covering the period within which thechange o* status occurred

&. i* the ta/payer should >&) marry or >!) have additional

dependents during the ta/able year? he may claim thecorresponding e/emption in *ull *or the year.

"llustration:&.Single 8an &? !$$!.arried 8une &? !$$ , on "pril &? !$$# , status:

legally married can claim 5 %!?$$$

!. i* the ta/payer should die during the ta/able year? estatecan claim personal e/emption.

llustration

&.8an. !? !$$ ta/payer married wK one childcan claim on "pril &? !$$#

5%!?$$$W

5(?$$$

N n this case? as i* the change o* status occurred at the

close o* ta/able year. * ta/payerHs spouse or child dies

within the ta/able year or the dependentHs became >&)

gain*ully employed >!) got married or >%) became !& as i* the change as status occurred at the close o* ta/able year.

"llustration:

&. a/payerHs tragic story wi*e died 8an. !? !$$ andchild died the ne/t day then another child eloped and getmarried.

!. a/payer despite the tragedy can claim ton o* money

on "pril &? !$$#.

5 %!?$$$5 &#?$$$ >(?$$$ per child)

4(?$$$

,ection :. Ites not #e$ucti;le

: A. /eneral Rule: n computing net income? no

deduction shall be allowed:

>&) 5ersonal? living or *amily e/penses , not related totrade or business

>!) Section %# " >!) and Section %# " >%) /eneral Rule: =o deductions allowed *or

&. "ny amount paid out *or new buildings or *or

permanent improvements? or betterments? made to

increase the value o* any property or estate

!. "ny amount e/panded in restoring property or inma9ing good the e/haustion thereo* *or which an

allowance is or has been made.

E>ceptions:

&. Option granted to 5rivate Educational nstitution

to deduct the same as capital outlays."E =OE:

N"mount paid *or new buildings? can be deducted i* it

involves intangible drilling and development cost incurred

in petroleum operations >Sec %4 # >")

PREI%, PAI# ON LIFE IN,%RANCE

POLIC1 *

&. covering the li*e o* any o**icer or employee or

any person *inancially invested in any trade o*

business carried on by the ta/payer.

!. ta/payer is directly or indirectly the bene*iciaryunder such policy.

LO,,E, FRO ,ALE, OR EXC9ANGE, OF

PROPERT1 &beteen related parties-

&) between *amily members

-* Aho is considered the P*amily o* the ta/payerLQA* a. brothers and sister >whole is [ blood)

b. spouses

c. ancestors

d. lineal descendants-* are uncles or nieces includedLA* no

IN #ONOR, TAX

NRelatives includes relatives by consanguinity within the4th civil code. =ephew is a stranger and relative angnephew.

!) individual and corporations

;en. Rule: =O DEDBCO=E/cept: distribution in liquidation or less than

$ o* the outstanding capital stoc9

%) wo corporations4) ;rantor or <iduciary

) wo *iduciaries o* two trust

#) <iduciary and bene*iciary o* trust

,ec. :< ,pecial pro'isions re+ar$in+ $e$uctions of

insurance copanies.

Codal 5rovisions

Section %(: 6osses <rom Aash Sales o* Stoc9 or

Securities

-* Ahat is a wash saleLA* t is a sales or other disposition o* stoc9 securities

where substantially identical securities are purchased

Page 47 of 79

Z 54$?$$$



within #& days? beginning %$ days be*ore the sale and

ending %$ days a*ter the sale.

-* Ahat periodLA* #& day period beginning %$ days be*ore and ending %$

days a*ter the sale-* 8an !$ you purchased share o* stoc9? and disposed o*

the same on <eb ? !$$. s this a wash saleLA* =o

-* * it is a loss in wash sale? happensLA* General Rule* >Sec &%& RR =o. !)

gains *rom wash sale are ta/able but

losses are non-deductible E>ception:Nunless claim is made by a dealer in stoc9 or securities

and with respect to a transaction made in the ordinary

course o* the business o* such dealer

-* Reason why losses in wash sale cannot be deductedLA* &. to avoid too much speculation in

the mar9et!. ta/payer not telling the truth? because he

may say he incurred a loss instead o* a gain

,ection 5D. #eterination of Aount an$ Reco+nition

of Gain or Loss

4ENER%2 R2E/ his is totally irrelevant i* the

income is sub7ect to *it. n *it gain is presumed.

EJCEPT/ sale o* shares o* stoc9 where you have to

determine actual gain or loss

-* Ahen is there a gainLA* e/cess o* the amount reali3ed over the basis or

ad7usted basis *or determining gain. >amount reali3ed

*rom the sale or other disposition o* property)

-* Ahen is there a lossLA* the amount reali3ed is not in e/cess o* @ or "@

0llustration/ &+(' @ar >8uan dela Cru3 sold 7ewelry*or %$$?$$$ ) contract o* sale

Namount reali3ed is %$$?$$$

-* Ahat will be the basis o* the gainLA* Sec. 4$ @ >&)? property was acquired by purchase

NCost: purchase price W e/penses-* * there is a gain? is the whole gain sub7ect to income

ta/LA* it depends

Ni* ordinary asset X &$$ is sub7ect to income ta/

Ni* capital assetsa. short term>less than &! months) : &$$ ta/able

b. long term >more than &! months): $ ta/able

-* suppose property sold is a parcel o* land will the rule

be the sameLA* =o? and it depends

Nordinary asset: apply the cost

Ncapital asset: # <0 or selling price which ever

is higher

2: Do we apply the holding periodL

": =o? holding period does not apply to the sale o* real

property. his is an absolute rule:

N* realty is ordinary , holding period does not

apply.

N* realty is capital asset , # <0 or selling priceapplies.

N1olding period applies only to sale o* personal property

which is a capital asset e/cept sale o* shares o* stoc9s.

N1olding period also do not apply to corporations.

-* * the property is acquired through inheritance?

what is the basisLA* Sec 4$ @ >!) *air mar9et value or price as o* the date

o* acquisition.

-* Suppose it was a sale o* personal property? do we

apply the same principlesLA* =o.-* Ahat i* it involves a sale o* real propertyLA* "pply the same principles

Suppose it was a result o* swindling? the*t? robbery or esta*a? do we apply the same principlesL

A* 6aw is silent? ta9e note o* the old C" ruling on this

one

-* <eb &4? !$$#? your ;; gave you a 7ewelry in Sept

your ;; brea9s up with you. ;; request the 7ewelry

be returned but you already sold it *or 5!$$?$$$.

Aill the entire 5!$$?$$$ be included in grossincomeL

A* @asis: >&) same as i* it would be in the hands o* the

Donor ><0 as o* date o* acquisition)F or >!) lastowner who did not acquire the same by gi*t >cost)

-* * it involves a parcel o* landLA* apply the same rules Section 4$ @ >4) what is the

basisL

&. 5roperty was acquired *or less than an

adequate consideration in money or moneysworth: the basis would be the amount paid

by the trans*eree *or the property.

Page 48 of 79



-* Section 4$ @ >) what is the basisL A* 4$ C >)

N i* the property was acquired in a transaction wheregain or loss is not recogni3ed >pursuant to a merger or

consolidation plan)

a. corporation? party to a merger or consolidation?

e/changes property solely *or stoc9s in another corporation? also a party to the merger or

consolidation

b. is a party to the merger or consolidation? solely

*or the stoc9s o* another corporation also a party to the merger or consolidation? or

c. Security holder o* a corporation? party to a

merger or consolidation? e/changes his

securities solely *or stoc9 or security in another corporation? also a party to the merger or

consolidation. , person trans*ers property to

corporation to gain control

5D C EXC9ANGE OF PROPERT1

/E0ERAL R#LE: n sale or e/change o* property? the

control amount o* gain or loss shall be recogni3ed.&. gain is ta/able

!. losses are deductible

E>ception: * permanent to a merger or consolidation

plan? no gain or loss shall be recogni3ed&. gain is e/empt

!. losses are not deductible

RE5#"%"!E%:&. the transaction involves a contract o* e/change!. the parties are members o* the merger or

consolidation

%. the sub7ect matter is only limited or con*inedwith the one provided *or by law

Nerger and Consolidation in corporation code and ta/

code are not the same.NSec 4$ >!) >a)

Na corporation which is a party to a merger or

consolidation? e>c=anges propert solel for stocD ina corporation which is a party to the merger or consolidation

"llustration:

rans*eror gives &rans*eree gives '$$?$$$ X not ta/ble gain

5%$$?$$$

N* other property received by trans*eree >4$ C >%) >a)

!RA0%$EREE Ni* the party receives not 7ust the sub7ect matter

permitted to be received: lie i* the party receivesmoney and Kor property? the gain? i* any? but not the

loss? shall be recogni3ed >meaning ta/able) but in an

amount not in e/cess o* the sum o* the money and the

<0 o* such other property received.

>4$ C >%) >b) !RA0%$EROR

&.rans*eror corporation receives money and K or property? distributes it pursuant to the merger or

consolidation plan

Nno gain to the corporation shall be recogni3ed

!. rans*eror corporation receives money and K or property? does not distribute it pursuant to the merger or

consolidation plan

Nthe gain shall be recogni3ed but in an amount not in

e/cess o* the sum o* such money and the <0 o* suchother property so received.

-* Ahat is the ruleLA* 4$ C >%) >a)

&. gain ta/able

!. loss not deductible

N4$ C >%) >b) "t depends on =o distributed:&. pursuant to the merger or consolidation plan:

Ngain e/empt

Nloss not deductible

!. not pursuant to merger or consolidation plan:Ngain ta/able

Nloss not deductible.

,ec 5D C 283 2;3

Na shareholder e>c=anges stocD in a corporation

which is a party to a merger or consolidation? solel

for t=e stocD of anot=er corporation which is a partyto the merger or consolidation

,ec 5D C 243 2c3

N a security holder o* a corporation which is a party

to the merger or consolidation? e>c=anges =is securities in suc= corporation, solel for stocD securities in anot=er corporation.

Nhe rule is similar in 4$ C >%)? >a)? >b) and >c) althoughdi**erent property are involve? that is why the last

paragraph o* 4$ C is a separate paragraph.

Nhere*ore? Sec 4$ C >%) >a?b?c) the rule is&. gain e/empt

!. loss not deductible

5Dc last para+rap&

N the trans*eree becomes a stoc9holder? parties are

not members o* the merger

Nthe individual wants to be a shareholder but does

not want to purchase shares but willing to give up

Page 49 of 79



property as a result o* the e/change ? the person gains

control o* the corporation

Nhe rule is:

a. gain is e/empt

b. loss not deductibleRequisites:

&. here is " contract o* e/change where

property was trans*erred by the person in

e/change o* stoc9 or unit o* participation ina corporation.

!. "s a result? the person alone or together

with others >not e/ceeding o* 4 persons)

gains control o* the corporation.

-* Ahat is controlLA* ownership o* stoc9s in a corporation possessing at

least & o* total voting power.

,ec 5D B 2@3

Nnon applicability o* income ta/ is only temporary

Reason : @asis will be 4$ C >)

&. 4$ C >) >a) rans*eror

Nbasis o* stoc9 or securities received by the

trans*eror: same as the basis o* the property? stoc9 or securities e/changed:

Ndecreased by the >&) money and >!) <0 o* the

property receivedF and

Nincreased by >a) amount treated as dividend and >b)amount o* gain recogni3ed

!. 4$ C >) >b) rans*ereeNas it would be in the hands o* trans*eror increased

by the amount o* gain recogni3ed.

,ec 5D 2c3 253 Assuption of Lia;ilit(

&. a/payer? in connection with the e/changesdescribed , receives securities or stoc9s

permitted >no gains recogni3ed) , it is sole

consideration o* the same , the other party

assumes liability o* the same , the acquisition o* liability not treated as money and K or other

property , the e/change still *alls within the

e/ceptions.

!. * amount o* liabilities assumed W amount o* liabilities to which property is sub7ected to

e/ceeds - ad7usted basis o* the property

trans*erred , the e/cess shall be considered again *rom the sale o* a capital asset or o*

property which is not a capital asset? as the case

may be.

,ECTION 58 INVENTORIE,

Purpose: Change o* inventory to determine clearly the

income o* any ta/payerK to re*lect the true income.

Limitation:&. once every % years

!. approval o* the secretary o* *inance

,ection 5: Accountin+ Perio$s

&. <iscal year

!. use o* calendar year a. no annual accounting

b. does not 9eep boo9s o* account

c. individuals

NBse o* method as in the opinion o* the commissioner

clearly re*lects the income:

&. no accounting method has been employed

!. the method does not clearly re*lect the income

,ec 55 Perio$ in "&ic& ites of Gross Incoe inclu$e$

an$ ,ec 5@ Perio$ for "&ic& #e$uctions an$ Cre$it

TaJen

NBnder Sec 44 amount o* all items o* gross income

shall be included in the gross income *or the ta/able

year in which they are received by the ta/payer

NBnder Sec 4 deductions shall be ta9en *or theta/able year in which Ppaid or accruedQ or Ppaid or

incurred.Q

NSec 44 and Sec 4 are mentioned in the code becauseo* the death o* the person.

"llustration:<acts: ta/payer dies in the middle o* the year 8anuary &? !$$# , 8une &? !$$#

N8une !#? !$$# to Dec %&? !$$# the estate is the

ta/payer

NSo the income and deductions *rom 8an & to 8une!?? included in the computation

,ection 5 C&an+e of Accountin+ Perio$

-* Aho is the ta/payerLA* corporation >ta/payer other than individual)

-* Ahat 9inds o* accounting periodL

A* &.*iscal year !. calendar year

-* Changes contemplatedL

A* &. *iscal to calendar

!. calendar to *iscal

%. *iscal to another *iscal

Page 50 of 79



Nwith the approval o* the Commissioner? net income

shall be computed on the basis o* the new accounting period.

-* Calendar to calendar? correctL

A* not correct statement

,ection 5< 2A3

!a>paer: Corporation&. <iscal to calendarN separate *inal or ad7usted return shall be made *or

the period between the so close o* the last *iscal year

*or which the return was made and >!) the *ollowing

Dec %&.

!. Calendar to <iscal

Nseparate *inal or ad7usted return shall be made *or

the period between the close o* the last calendar year and the date designated as the close o* the *iscal year.

%. <iscal to *iscal

Nseparate *inal or ad7usted return shall be made *or the period between the close o* the *ormer *iscal year

and the date designated as the close o* the new *iscal

year.

N<ile return indicating the change in accountingmethod

,ection 5? Accountin+ for Lon+ Ter Contracts

-* Aho are the pro*essionals involvedLA* applies to architects and engineers

-* Ahat is a long term contractLA* it means building? installation or construction contracts

covering a period in e/cess o* one >&) year.

-* @asis o* incomeLA* a. persons whose gross income is derived in whole or

in part *rom such contract shall report such income

upon the basis o* percentage o* consumption.

b. the return shall be accompanied by a certi*icate o*

architects or engineers showing the percentage o*

completion

c. deduction o* e/penditures made during the ta/able

year? on account o* the contract is allowed

,ection 5 Installent Basis

Ncontemplates a seller o* the property

-* s it important to 9now i* the property is personal or realL

A* Ies

-* Sale o* Real 5roperty is it important to 9now i* it is a

casual sale or regular saleLA* =o

Requirement: he initial payments do not e/ceed ! o*

the selling price.

-* * the initial payment e/ceeds ! what do you call

itLA* called de*erred sale

-* ConsequenceLA* you must pay the whole amount o* the ta/

-* Sale o* 5ersonal 5roperty? is it important to 9now i* it

is a casual or regular saleLA* Ies

Casual %ale =as Requirements:&. selling price e/ceeds 5&?$$$

!. initial payment not e/ceeding !

selling price

NRegular sale no requirementsCase of &aKas

&. sub7ect matter !. sold by way

%. agreement

4. cash deposit

. post dated promissory notes >installments)%. &st installment promissory note was disconnected

4. !nd installment e/changed with cash - these two

e/ceeds the selling price. you only compute cash

1: nitial payment e/ceeds ! installment basis is not

applicable

RR *J %ection )+3: n payment by way o* installment

promissory note? bills o* e/change and chec9s will not be

considered in computing the ! initial downpayment.

,ection @D Allocation of Incoe an$ #e$uctions

Ntremendous power o* the Commissioner to allocate

the income and deduction o* several corporationshaving the same interest.

-* Same interestLA* stoc9holders substantially the same

-* 6imitationsLA* =one

Nhat is why it is a great source o* corruption

,ection @8 In$i'i$ual Returns

W&o are reuire$ to fileK 2ITR3

Page 51 of 79



&. RC

!. =RC%. R"

4. =R"E@ , sources within

-* Aho is not mentioned in Sec & but liable to pay byway o* =LA* OCAK seaman

E>ception:RC OR "6E=S: engaged in trade or practice o*

pro*ession in 5hil. Shall *ile R regardless o* the amount

o* gross income.

-* * O<A is e/empt *rom *iling a return? what is he

required to *ileLA* n*ormation Return

-* who are not required to *ile a returnLA*

a. an individual whose gross income does not

e/ceed his total personal and additionale/emptions *or dependents

b. wor9er >compensation income earners)

regardless o* the amount o* compensation shall

not required to *ile R because the management*iles it. >RR %-!$$!)

c. individuals whose sole income is sub7ect to <

d. individuals who are e/empt *rom income ta/

E>ception:

&. the management *iles an incorrect return

!. the employee has two or more employer

@8 A 2:3

A* not required to *ile R may be required to *ile

in*ormation return

@8 B / W&ere to fileK

&. authori3ed agent ban9

!. revenue district o**icer %. collection agent

4. duly authori3ed treasurer o* the city or

municipality where ta/payer resides or has principal

place o* business. o**ice o* commissioner , i* no legal residence or

place o* business in 5hil

@8 C -* Ahen to *ileLA* *iled on or be*ore the &th day o* "pril each year

& C >&) , = 5ayers using CI

Ntwo days provided >calendar)

&. on "pril &F or

!. be*ore "pril & >8anuary? <eb or arch)

N not December because the calendar year is not yet over

<iscal year: &th day o* the 4th month *ollowing the close

o* the *iscal year.

@8 C 243 in$i'i$uals su;ect to ta! on capital +ains

E>ception: ;eneral Rules Sec (

&. Sale o* shares o* stoc9s

Nreturn *iled within %$ days a*ter each transaction andN<inal consolidated return on or be*ore "pril &

!.Sale o* Real 5roperty

Nreturn *iled within %$ days *ollowing each sale

@8 # 9us;an$ an$ Wife

&. 5ure compensation income earner , separate return RR'6*((( , pure compensation income earner regardless o*

amount o* income not *ile R.!. =ot pure compensation: 7oint return

@8 E. Return of Parent to Inclu$e Incoe of C&il$ren

N unmarried minor receives income *rom property

received *rom living parent , included in the parentHs R.

E>ception:&.DonorHs ta/ has been paid!.5roperty e/empt *rom donorHs ta/

@8 F. Persons %n$er #isa;ilit(

-* Aho ma9es the returnLA*

&.duly authori3ed agent!. duly authori3ed representatives%. guardians

4.other persons charged with the care o* his person

or property

Nboth incapacitated ta/payer and agent will be liable*or:

&.erroneous return

!. *alse or *raudulent return

@8 G ,i+nature Presue$ Correct

N prima *acie evidence the return was actually signed by

the ta/payer

,ection @4 Corporation Return

Ngo bac9 to Sec & " >!)

General Rule* Sec ( <inal ncome

a/

Nreturn and creditable withholding ta/ return is *iled

monthly

E>ception: Sale o* Shares o* Stoc9s

>Sec & " >!)) Sale o* Real 5roperty

Page 52 of 79



NRR -&'-!$$%: Sale o* Real 5roperty sub7ect to *inal

withholding ta/? the buyer is deemed the agent.

%ale of %=ares of %tocDs-* Reasons *or *iling <inal ncome ta/ or <inal

Consolidated ReturnLA* Reasons:

&. < whose actual determination o* gain or loss

!. in connection with Sec !4 C the basis o* the

ta/ is not the gross income but the net capitalgains reali3ed.

"n connection it= %ec F(:Nactual determination o* loss or gainN*ile a return within %$ days *rom date o* transaction

TA0E NOTE* n all other income sub7ect to <? the

gains are presumed

INCOE OF INOR,

-* inor below &(: Aill it be included in the inorHs

RLA* it depends

&. income *rom property received *rom parents N

included in parentHs R E>cept:

a.DonorHs ta/ paid

b.5roperty e/empt *rom donorHs ta/

!. income *rom minorHs own industryNinorHs R accomplished by guardian or parents

-* i* the individual is e/empt *rom income ta/? can berequired to *ile a returnLA* ;eneral Rule: =o

E>ceptions:&.engaged in trade or businessF or

!.e/ercise o* pro*ession , Sec & " >!)

,EC @4 CORPORATION RET%RN,

A.Requirementsa/payer: DC or R<C >e/cept =R<C)

R <iled: &. RBE "=D "CCBR"E

a. quarterly income ta/ return

b. *inal or ad7usted income ta/ return

<iled by:

&.5residentF

!.0ice 5resident %. Other principal o**icer

NR must be sworn by such o**icer and the treasurer or

assistant treasurer

7. !a>able ear &. *iscalF or !. calendar

N corporation cannot change accounting method

employed without the approval or prior approval o* thecommissioner >Sec 4')

C. Return of Corporation Contemplator 8issolution or

Recognition&.Aithin %$ days a*ter:

a. the adoption by the corporation o* a resolution or

plan *or its dissolutionF or

b. liquidation o* the whole or any part o* its capitalstoc9? including a corporation which has been

noti*ied o* possible involuntary dissolution by the

SECF or

c. *or its reorgani3ation

!.Render a correct return veri*ied under oath setting *orm:

a. *orms o* the resolution or planF

b. such other in*ormation prescribed

%.Secure a ta/ clearance *rom the @R and *ile it with the

SEC

4.herea*ter? SEC issued a Certi*icate o* Dissolution or

Reorgani3ation.

8. %ale of %tocDs N "!R loo9 at the previous notes about it

,ection @: E!tension of Tie to File Returns

-* o whom grantedL

A* Corporations/rounds: eritorious case

Nsub7ect to the provisions o* Sec # ime E/tension

,ection @5 Returns or Recei'ers= Trustees in

BanJruptc( or Assi+nees

Nthe a*orementioned persons shall ma9e returns o*

net income as and *or such corporation in the same

manner and *orm as such organi3ation is required to

ma9e.

,ection @@ Returns of General Professional

Partners&ip

N *ile a return o* its income setting *orth&. items o* gross income and o* deductions allowed

by this title >itle , a/ on ncome)

!. =ames o* partners%. a/payer identi*ication number >=)

4. address o* partners

. shares o* each partners

N;55 is e/empt *rom corporate income ta/

-* Ahy is the ;55 obliged to *ile a returnL

Page 53 of 79



A* to determine the shares o* each partners

,ection @ Pa(ent an$ Assessent of Incoe Ta! for

In$i'i$uals an$ Corporations

A. Pament of !a>

-* Aho pays the ta/ o* tramp vesselsLA* &.the shipping agents and or the husbanding agent

!.in their absence? the captains thereo* Nthose people are required to *ile a return and pay the ta/

due be*ore departure

-* Ahat is the e**ect o* *ailure to *ile the return and paythe ta/ dueLA* &.@ureau o* Customs may hold the vessel and prevent

its departure until:

a. proo* o* payment o* ta/ is presentedF or b. a su**icient bond is *iled to answer *or the ta/

due.

"nstallment Pamentsa/ due: more than 5!?$$$

a/payer: individuals only >other than corporation)

Elect to pay the ta/ in two >!) equal installments

a. &st installment: paid at the time the return is *iled

b. !nd installment on or be*ore 8uly & *ollowing the

close o* the calendar year

-* Ahat is the e**ect o* non payment on the date *i/edLA* he whole amount o* ta/ unpaid becomes due and

demandable together with the delinquency penalties.

Pament of capital gains ta> :-: 5aid whenLA* on the date the return is *iled

Avail e>emption for capital gains:a. no payments shall be requiredF

b. i* you *ail to quali*y *or e/emption , ta/ due shall

immediately become due and payable and

sub7ect to penaltiesc. seller pays ta/ , submit intention or proo* o* intent

within si/ >#) months *rom the registration o*

document trans*erring

-* when is the real property entitled to re*undL A* upon veri*ication o* compliance with the

requirements *or e/emption.

NReport gains on installments under Sec 4+ , ta/

due *rom each installment payment shall be paid

within %$ days *rom the receipt o* such payments.

N=o registration o* document trans*erring real property

&. without a certi*ication *rom commissioner or his

duly authori3e representative that

a. trans*er has been reported

b. ta/ has been paid

7. Assessment and Pament of 8eficienc !a>N Return is *iled? the commissioner e/aminer and assess

the correct amount o* ta/Nta/ de*iciency discovered shall be paid upon notice and

demand *rom the commissioner.

' "0%!A0CE% CO0!EPLA!E8&. *ile the return and pay the ta/

!. *ile the return but not pay the ta/

%. not *ile the return and not pay the ta/

,ection @< Wit&&ol$in+ of Ta! at ,ource

A. Git==olding of !a>esNsub7ect to the Rules and Regulations the Section o* <inance may promulgate? upon recommendation o*

commissioner: Require the *iling up o* certain income

ta/ return by certain income payees.

-* Enumeration is all about whatLA6 Enumer ation about <inal ncome a/

E>cept: ;ross ncome a/

&. ! @ >=R"=E@)!. !( @ >=R<C)

@. Aithholding o* Creditable a/ at Source

Nhe Sec. o* <inance? upon recommendation o* the commissioner require the withholding o* a ta/

on the items o* income payable to natural or

7uridical persons? residing in the 5hil? by payor-corporationK personV the same shall be creditedagainst the income ta/ liability o* the ta/payer *or

the ta/able year. "t the rate o* not less than & but

not more than %! thereo*.

-* Ahat is the ma/imumLA* a/imum: now % pursuant to R" +%%'-* Ahen will you allow withholding beyond &LA*

<or = & is the ma/imum

&. < , the amount o* withholding is totally

!. ; - equal to the amount o* ta/

!a> $ree Covenant 7ond Nthe bonds? mortgages? deeds o* trust or other similar

obligations o*

DC or R<C

Ncontains a contract or provision where the obligor

>debtor) agrees to pay the ta/ imposed hereinNnormally between the creditor and debtor

-* Aho pays the ta/L

Page 54 of 79



A* Creditor pays the ta/ by virtue o* an agreement the

debtor assumes the liability and the creditor is now *ree*rom payment o* ta/ be*ore it can trans*er the property to

the buyer.

,ection @? Returns an$ Pa(ent of Ta!es Wit&&el$ at,ource

A. 5uarterl Returns and Pament of !a>es Git==eld at %ource&. covered by a return and paid to:

a. authori3ed agent ban9

b. revenue district o**icer

c. collection agentd. duly authori3ed treasurer o* city or municipality

where withholding agent has:

&. his legal residenceF or

!. principal place o* businessF or %. i* corporation ? where principal o**ice is

located

!.a/ deducted and withheldNheld as a special *und in trust *or the government until

paid to the collecting o**icers.

%.Return *or *inal withholding ta/N*iled and paid within ! days *rom the close o* each

calendar quarter

4.Return *or Creditable withholding ta/esN*iled and paid not later than last day o* the month

*ollowing the close o* the quarter during which

withholding was made

. Commissioner? with approval o* Sec <inance

N require withholding agents to pay or deposit ta/es at

more *requent intervals where necessary to protect the

interest o* the government

7. %tatement of "ncome Paments ade and !a>esGit==eld

NAithholding agent shall *urnish payee a writtenstatement showing:

&. income or other payments made by A1" during

such quarter or year and

!. amount o* ta/ deducted and withheldN statement given simultaneously upon payment at the

request o* the payee.

Creditable it==olding ta>es&. corporate payee , not later than the !$th day

*ollowing the close o* the quarter

!. individuals payee , not later than arch & o* the*ollowing year

$inal Git==olding ta>es

Nthe statement should be given to the payee on or

be*ore 8anuary %& o* the succeeding year.

C. Annual "nformation ReturnNAithholding agent shall submit to the commissioner an

annual in*ormation return containing :&. the list o* payees and income required

!. amount o* ta/es withheld *rom each payees

%. other pertinent in*ormation required

Final Wit&&ol$in+ Ta!* AIR

N*iled on or be*ore 8anuary %& o* the succeedingyear

Creditable it==olding ta>: A"RNnot later than arch & o* the year *ollowing the year *or which the annual report is being submitted

NCommissioner may grant A1" reasonable e/tension o*

time to *urnish and submit the return required herein.

8. "ncome of Recipient &. ncome upon which any creditable ta/ is

required to be withheld at source shall be

included in the return o* its recipient.!. the e/cess o* the amount o* ta/ so withheld over

the ta/ due on his return shall be re*unded

%. income ta/ collected at source is less than the ta/

due on his return , di**erence shall be paid4. all ta/es withheld

&. considered trust *und

!. maintained in separate account%. not commingled with other *unds o* A1"

E. Registration it= Register of 8eedsN=o registration o* any document trans*erring real

property shall be e**ected by the Register o* Deedsunless the commissioner or his duly authori3e

representative has certi*ied that the trans*er >&) has

been reported and >!) ta/ due has been paid

NRegister o* Deeds requires payment o* ta/ be*oretrans*er o* property

,ection @ Ta! on Profits Collecti;le fro O"ner of

ot&er Persons

Na/ imposed under this title upon gains? pro*its and

income not *alling under the *oregoing and not returnedand paid by virtue o* the *oregoing

shall be assessed by personal return

"ntent and Purpose of t=is !itle&. "ll gains? pro*its and income o* a ta/able class

shall be charged and assessed with the

corresponding ta/.

Page 55 of 79



!. Said ta/ be paid by the owner o* the gains? pro*it

or income or the person having the receipt?custody? control or disposal o* the same

8etermination of Oners=ip:

Ndetermined as o* the year *or which a return isrequired to be *iled

C9APTER X* E,TATE, AN# TR%,T,

,ection D* Iposition of Ta!

&. Estate N property o* the decedent created by an

agreement? trust or by last will and testament

!. rust Nagreement? contract or last will andtestament

%tatus:&. Estate: same status as decedent!. rust: same status as the grantor

"ncome ta>paer is t=e Estate:Nincome o* the estate pending partition or no

partition at all:

!=ree Dinds of partition:&. 7udicial!. e/tra 7udicial partition

%. or no partition at all

8uring partition Estate earns income:&. individual , income ta/!. corporation , corporate income

ta/

%. estate >a/payer X 5)a.mpose ncome as i* 5 is individual

b.mpose income as i* 5 is corporation

c.mpose income as i* estate itsel*

Ndepends whether there is a >&) 7udicial >!)e/tra 7udicial

partition or >%) no partition at all

Ahen there is a 7udicial settlement which is *inal and

e/ecutory but no partition:To possibilities/

&.Creation o* unregistered partnership

Nncome o* the Estate: corporate income ta/

!.Creation o* Co-ownershipNncome o* the Estate: ncome ta/ on individual

-co-owner liable in their individual company

Ponce Case/

1: "*ter *inality heirs did not divide the property? the

applicable income ta/ is corporate income ta/ because

they contributed money to engage in real estate.

,ECTION 8 TAXABLE INCOE >mportant)

!a>able income of t=e estate or trust s=all be computed in t=e same manner and on t=e same basis as ill t=e use of an individual.

,ection 4* Applies $urin+ Pen$enc( of E!tra u$icial

,ettleent5ersonal E/emption >5!$?$$$)

ndividual N it will depend whether heKshe is

classi*ied as single? head o* the *amily or married

Estate Nregardless

%pecial deductions:"ncome distributed to t=e =eirsNi* you distribute nothing you cannot claim this

special deductionsNi* there is a distribution? the heir shall be liable to

pay whether individual capacity

Ni* there is no distribution? heirs are not liable to pay

anything

NSpecial deduction not apply i* individual ta/ is paid by

the Estate itsel*.

Pament: made by e/ecutor? administrator? to creditor to

preserve the estate

,ec. 8 an$ ,ec 4

Ndoes not apply i* estate is sub7ect to income or

corporate income ta/

Nit applies i* the estate pays itsel* during the

pendency o* the 7udicial settlement

Basis* ,ec D C

Pduring the period o* administration or settlement o* theestate.Q

Ta!pa(er is a Trust*

-6 Ahen liable to pay income ta/LA* * the trust is revocable >i* revocable? Sec #& and #!also apply)

Parties:&.;rantor Kcreator Ktrustor !.*iduciary K trustee

%.bene*iciary K 6es 2ui trust

-* Aho is liable to pay ta/:A* * trust revocable:

N obligation o* the trustee

Nliability o* trust itsel* and not personal

Liabilit of trustee: * trust irrevocable

Nobligation o* the grantor Npersonal liability o* the grantor as an individual

TWO WA1, OF REPORTING INCOE*

Page 56 of 79



P%R,%ANT TO RR4 2853

&. report only once>building paid once)

!. a*ter the span o* ! years

>payment o* building divided per year)

E,TATE TAX*

&.Sec #$

!.Real Estate a/

%. Estate a/Ntrans*er ta/ impose on the =et Estate *or the

trans*er o* property to the heirs or bene*iciary

whether real? personal? tangible or intangible

: 0IN#, OF TRAN,FER TAX*

&.Estate a/

!. DonorHs a/

%. Sec &% o* 6;B rans*er o* Real 5roperty

-* Ae donHt have inheritance ta/ and donees ta/? whyLA* &+'% arcos issued 5.D. #+

E/plain: Sec (4? rate is ma/ o* !$ o* net be*ore the rateis #$ plus additional amount.

Nresulted to many gimi9s through ta/ avoidance scheme?

li9e creating a *amily corporation >only ta/able is the

stoc9holders which is e/empt)NCongress enacted R" '44+ decreased #$ to % and

then R" (4!4 , % to !$-* =ow is it sa*e to create a *amily corporationLA* =o more.

-* =ow: ba na ang scheme , which is better sale or

donationLA*

&.Sale o* R5 considered capital assets

N# to &. doc. a/ '. better

!.Sale o* R5 considered ordinary asset

N to ! as per use may be%.Donation i* given to all compulsory heir

N relative lower than !$ which is &

N stranger: %$ so go with !$

-* Aho are the ta/payersLA* Sec &$4 Estate and Donors

&.Estate

a. RC b.=RC

c. R"

d. =R"!. DonorHs a/

a. RC

b.=RC

c. R"d. =R"

e. DC

*. <C

N" corporation cannot die o* a natural death.-* Ahat is the reason *or classi*ying the ta/payersLA*

&. =R" and Estate

!. =R" and <C Donors X property outside 5hile/empt

%. all? other than these % , ta/able w in and wKout-* s Section &$4 relevant to all ta/payersLA* =o? material only to =R" and <C%ection )(F speaDs of intangible personal propertlocated in t=e P=ilippines.

&.<ranchise which must be e/ercised in the

5hilippinesF!.S.O.@. issued by a Domestic corporationF

%.S.O.@. issued by *oreign corporation at least (

o* the business o* which is located in the 5hilippines.

, do not con*use with 4! >!nd par)4.S.O.@. o* *oreign corporation which acquired a

business situs in 5hil

.S.R. in business? partnership or industry established

in the 5hils

-* =R"? ;erman donates SOS o* <; to <ilipina g*? is it

sub7ect to donorHs ta/LA* it depends >you must quali*y)&.Sub7ect to donorHs ta/ i*:

&.S.O.@. <; at least ( o* business located in the

5hil

!.S.O.@. <; which acquired a business situs in 5hil!.E/empt

&.personal property outside o* 5hilF or

!.intangible personal property net ta/able i* *ollowingrequisites concern:

A decedent at t=e time of =is deat= or t=e donor at t=etime of donation as a citiBen and resident.

&.o* a *oreign country which at the time o* his death or donation did not impose a trans*er ta/ o* any manner? in

respect o* intangible personal property o* citi3ens o*

5hilippines not residing in that *oreign countryF or

!. the laws o* the *oreign country allows a similar

e/emption *rom trans*er or death ta/es o* every

character or description in respect o* intangible

personal property owned by citi3ens o* the5hilippines not residing in that *oreign country.

-* Ahat i* citi3en o* one country and resident o* another country will the e/emption applyL

A* =o? law requires that he must be a citi3en and resident

o* the *oreign country.

Campos Rueda Case/

<: =R" died , married to oroccan man? so she was a

oroccan resident.

Page 57 of 79



Donated SS in DC , administrator claims e/emption?ground: n orocco? intangible personal property o*

<ilipinos not residing therein is e/empt *rom trans*er

ta/.

@R contends: orocco is not a country but a colonyo* Spain.

1: claim granted , even i* it is not a *ull pledged state? or

itHs a mere colony? what matter is that the *oreign law

provides *or an e/ception.

,ECTION ?5 RATE, OF E,TATE TAX

-* Ahat is the *ormula *or Estate ta/LA* ;ross Estate >Sec ()

- Deductions >Sec (#)

--------------

=et Estate/ Rate

-------------

a/able net income

- a/ credit---------------------

a/ dueGross estate 2$efine3 ,ec 8D5

Ngross estate include real and personal property?whether tangible or intangible? or mi/ed? wherever

situated

0RA: 8ecedent Q 8onor N propert situated outsideof P=ilippines not included on t=e gross estate

,ection ?@ Gross Estate 2inclusion3

A.8ecedentKs interest

Nincludes property >&) owned at the time o* death and >!)

property not owned at the time o* death

Classic e/ample: Bsu*ruct

-* i* terminated by the death o* usu*ructuary? is it sub7ect

to estate ta/LA* =ot sub7ect to estate ta/

Reason: E/empt ransmission under Sec (' >a)

Nmerger o* the usu*ruct in the owner o* the na9ed title

-* is there a con*lict between Sec (( a and Sec (' aL1ow do you reconcileL

A* =o con*lict

&.Section (' a contemplates a situation where theusu*ruct is terminated.

!.Section ((a contemplates a usu*ruct *or a *i/ed

period. E/ contract o* lease

-* 1ow do you determine the value o* usu*ructL

A* Sec. (( a provides to determine the value o* the right

o* usu*ruct? ta9e into account the probable li*e o* the bene*iciary.

-* Ahy de*inition o* gross estate is longer than de*inition

o* gross gi*tLA* trans*er occurring a*ter death. estate ta/ absolute

Transfer during t+e life time

N=ormally DonorHs ta/ 4oever t=ere are e>ceptions: &.trans*er in contemplation o* death >(@)

!.revocable trans*er >( C)

%.trans*er *or insu**icient consideration

7. !ransfer in contemplation of deat= Roces case/

<: during li*etime? the *ollowing document wereinstituted or e/ecuted simultaneously

&.will and !. donation

he heirs insisted to pay DonorHs ta/? 5osados the

collector tried to collect inheritance ta/.unique t=ing: Donees were also the heirs in the last will

and testament

Donees wanted to pay donorHs ta/ because it is always

lower than the estate ta/ e/cept when the donee is astranger

1: this is a trans*er in contemplation o* death

Dion Case/

<: Deed o* Donation was e/ecuted

Di3on died several days therea*ter

son claims DonorHs ta/1:rans*ers in contemplation o* death

-* Ahat are trans*ers deemed in contemplation o* deathL

": &.5roperty was trans*erred during the li*etime but the

decedent:a. retains possession or receive income or *ruits o*

propertyF or

b.retains the right to designate persons who will

possess the property or the right to receive *ruits or income

c.Revocable rans*ers) 1re.ocable transfers are included in the gross estate

Reason: the decedent retains tremendous power andcontrol over the property

!. 0rre.ocable transfers are not included in the gross

estate: e/empt Reason: the decedent losses control over the property

0otice 0ot Required because t=e person =as t=e control over t=e propert

8. Propert passing under general poer of appointmentN same with *idel commissary substitution

Page 58 of 79



% parties:

&.testator K decedent!.&st heir

%.!nd heir

!A@E 0O!E: o determine whether included in Estate or not? 9now who has the choice to designate the !nd heir:

Ni* decedent instructs the &st heir that he can trans*er the

property to whomever he wants included in gross estate

N&st heir choice , included in gross estate

E. Proceed of Life "nsurance&.@ene*iciary is the estate

Nincluded in gross estate whether designation isrevocable or not

!.@ene*iciary is %rd person

N revocable included Nirrevocable not included

$. Prior "nterest Nimportant only due to the codi*ication o* the ta/ code@?C?E? included whether be*ore or a*ter the e**ectivity

o* the code

/. !ransfer for insufficient consideration

-* Similar provision in Sec &$$ >DonorHs ta/) can you

apply the two >!) provisions simultaneouslyLA* =o? alternative application? one or the other but not

both.

!=e application ill depend on t=e time of transfer or

motive:&.* trans*erred because o* impending death

N estate ta/

!.* trans*er because o* generosity

NDonorHs ta/

-* 5arcel o* land was sold *or less than adequate

consideration >adequate) to relative *or 5#$$?$$$

when <0 is & million pesos. s this sub7ect to

trans*er ta/L s it sub7ect to DonorHs ta/LA* =o? Sec &$$ provides the property should be other

than real property re*erred to in Section !4 >D)

N=ot sub7ect to DonorHs ta/? the applicable ta/ is #

<

-* Aill your answer be the same i* SOS are soldLA* =o? answer not the same? SOS not property

contemplated in Sec !4 D >&)

Nin this case? the amount by which the <0 o* prop

e/ceeds the value o* the consideration shall be

deemed a gi*t and included in the computation o* thegross gi*t: sub7ect to DonorHs a/

-* Ahat is the sub7ect matter in ( ;L

A* paragraphs ( @? ( C? ( D%ale in good fait= as a defense:&.under Section &$$ is not a de*ense

!. under Section ( ;? it is a de*ense

4. Capital of %urviving %pouseNcorrelate with Sec (# C

Nboth spea9 o* legally married individual

Npertains to the separate property o* spouse whosurvived

Ncapital used in its generic sense

Nsurviving spouse may be man or woman

,ection ? 2c3

Nto determine the limitations o*

&. <uneral E/pense

!. Ahether written notice is required%. to determine whether gross value is at least

5!$$?$$$ >Sec +$)

4.to determine i* gross value is at least 4!

-* Aho are the ta/payers under (# "LA* &.RC

!.=RC

%.R"

-* Aho is the ta/payer under (# @LA* =R"

-* Ahy do we need to 9now thisLA* =R" cannot avail o* the *ollowing deductions:

&.*amily income!.standard deduction%.hospitali3ation

4.retirement pay under R" 4+&'

%1 Deductions %lloed to t+e Estate of a Citien or

Resident

&.E6 >e/penses? losses? indebtedness and ta/es)

a) &."ctual <uneral E/pensesF or !.amount equal to o* gross estate

Napply whichever is lower Limitation:

a)amount equal to o* gross estate should note/ceed 5!$$?$$$ >basis is the gross value)

b) 8udicial E/penses

Nno limitation

Pa?onar vs Commissioner : Ahether or not e/tra-7udicial e/penses may be

allowed as a deduction

Page 59 of 79



1: his law has been copied *rom B.S. n BS? e/penses

to be claimed as a deduction both 7udicial and e/tra 7udicial e/penses.

Claims against t=e estate

NEstate is the debtor

Requirements:&.at the time the indebtedness was incurred the debt

instrument was duly notari3edF!.loan contracted within % days be*ore deathF

%.the administrator or e/ecutor shall submit a

statement showing the disposition o* the proceeds o*

the loan

Claims of t=e deceased against insolvent personNEstate is the creditor

Requirement:Nthe only requirement is that the >only) amount o* loan

is included in the gross estate

Nnotari3ation and certi*ication not required

#npaid ortgage, ta>es and losses-* n unpaid mortgage who is the mortgagorL

Ndecedent mortgagor &. Bnpaid mortgage

&.value o* the decedentHs interest in the property is

undiminished by such mortgageF

!.included in the value o* the gross estateF "llustration:

& million <0 but mortgage is only #$$?$$$ you

include & million!.Estate ta/%.6osses

Requirements:&.losses incurred during the settlement o* the estateF!.arising *rom *ire? storms? shipwrec9 or other

casualties? or *rom robbery? the*t or unbe33lement

%.losses not compensated by insurance

4.losses not been claimed as a deduction *or incomeas purpose

. losses incurred not better than the last day *or the

payment o* the estate ta/

Propert Previousl !a>ed N0anishing Deduction Return

Requirement:&.person acquires the property by virtue o* donation or

inheritance-* Ahat i* acquired through purchaseLA* =ot apply? the property must be acquired byinheritance or donation

!.Estate ta/ or DonorHs ta/ already paid by the Estate o*

the Decedent >&st par)

%."ny person who died within *ive >) years prior to the

death o* the decedent

-* Ahat are the amountsLA* 5rior Decedent died within:

&.years , !$!.4years , 4$

%.% years -#$

4. !years , ($

. & year -&$$

-* Suppose the person died within & year and it was

inherited by son? suppose the son also died within &

year or may be ! years? should we apply thevanishing deductionsL

A* =o more >last par Sec (# "!)

!ransfer for Public #seNamount o* all bequest? legacies? devises or trans*ers

Recipient:government or any political subdivision

Ne/clusively *or public purpose

a9e =ote: %$ o* which not used *or administrative purpose is not a requirement

$A"L 4OE Namount equivalent to the current <0 o* the <amily

1ome o* decedent.

Limit: <0 should not e/ceeds & million otherwise the

e/cess will be sub7ect to estate ta/. Requirements: &RR *6*(('-&.5erson is legally married

;R: i* single not allowed to claimE/cept: i* head o* the *amily!.<amily 1ome actual residence o* the decedent

%.Certi*ication o* @arangay Captain o* locality

%!A08AR8 8E8#C!"O0% Nautomatic: RR !-!$$% no requirement provided the

decedent is the one in (# >") >RC? =RC? R")

E8"CAL E<PE0%E% Requirements:

&.amount not e/ceeding 5$$?$$$

!.medical e/penses incurred by the decedent within

one >&) year prior to his death.Nmust be duly substantiated with receipt

RE!"REE0! PA #08ER RA F2)+ &RE!"REE0! PA G"!4 PR"9A!E PLA0-

Requirements:&.plan duly approved by the @R

!.person at least $ years old%. &$ years in service

4. avail only once

Page 60 of 79



!A@E 0O!E: his is a deduction in the nature o*

e/emption? all other retirement plan is e/cluded

&1 Deductions %lloed to Non resident Estates

&.E6

!.5roperty 5reviously ta/ed%.rans*ers *or public use

C1 S+ares in t+e Conugal Property

D1 )iscellaneous Pro.isions

<or =R": =o deduction allowed unless include in the

return the value at the time o* his death that part o* hisgross estate not situated in the 5hilippines. <or proper

deduction must include E. below

E1 Tax Credit for Estate Tax Paid to Foreign Country

,ECTION ?< EXEPTION OF CERTAIN

AC-%I,ITION AN# TRAN,I,,ION,

&. erger o* usu*ruct in the owner o* the na9ed titleF!. transmission or delivery o* the inheritance or legacy

by the *iduciary heir or legatee to the

*ideicommissaryF

%. transmission *rom the *irst heir? legatee or legacydonee in *avor o* another bene*iciary? in accordance

with the desire o* the predecessorF

4. "ll bequest? devises? legacies or trans*ers to >&) social

wel*are >!) cultural and >%) charitable institution

Requirements:

&.no part o* the net income insures to the bene*it o* anyindividualF!.not more than %$ o* donation >@D6) shall be used

by such institutions *or administration purposes.

,ECTION ?? #ETERINATION OF T9E VAL%E

OF T9E E,TATE

A.#sufruct &.Determine value o* right o* usu*ruct:

Nconsider the probable li*e o* the bene*iciary based onthe latest @asic Standard ortality able

7.PropertiesN*air mar9et value o* the Estate at the time o* death

&.<0 determined by Commissioner !.<0 schedule o* values *i/ed by the 5rovincial or

City "ssessors

,ECTION ? NOTICE OF #EAT9 TO BE FILE#

-* Ahat is the @asisLA* the gross estate o* the person

-*Ahen is the notice required to be *iledLA* &.all cases o* trans*er sub7ect to ta/

!.although e/empt? when gross values o* the estate

e/ceeds 5!$$?$$$

-* Ahen *iledLA* within two >!) months

&. a*ter decedentHs death!.same period a*ter quali*ying as e/ecutor or

administrator

Ngive a written notice

-* * the =et Estate is at least 5&#?$$$ will you in *orm

the commissionerLA* yes? the gross is at least %-4 million

,ECTION D E,TATE, TAX RET%RN,

-* Ahen required to *ile returnLA* &.all cases o* trans*er sub7ect to ta/

!.even though e/empt? gross value o* the estatee/ceeds 5!$$?$$$

%.regardless o* gross value o* the estate? when the

same consists o* registered or registrable prop such

as:a.real property

b.motor vehicle

c. shares o* stoc9s

d. other similar property where clearance *rom@R necessary *or trans*er o* ownership in the

name o* the trans*eree

Nreturn must set *orth the *ollowing:&.value o* the gross estate at time o* death

!.deductions allowed

%.in*ormation necessary to establish correct ta/es

-* Ahat i* Estate is e/empt? is it required to *ile a

returnLA* /eneral Rule: =o

E>ception:a. gross value e/ceeds 5!$$?$$$

b.estate contains registrable property

-* i* the estate or gross estate e/ceeds ! million? what isthe requirementL

A* return must be duly certi*ied by a C5"

7. !ime of $iling

N*iled within # months *rom decedentHs deathNwithin %$ days *or *iling the return

Nwithin %$ days a*ter promulgation o* such order

&.certi*ied copy o* the schedule o* partition and

!.order o* court approving the same

C. E>tension of !ime!ime: %$ days

Page 61 of 79



/rounds: meritorious casesG=o grants: Commissioner

8. Place of filing:Nreturn shall be *iled with:

&.authori3ed agent ban9 !.revenue district o**icer

%. collection o**icer

4. duly authori3ed treasurer

Ncity or municipality in which decedent was domiciledat the time o* his death

-* Ahat i* non residentLA* =R with no legal residence here? with the o**ice o* the

commissioner.

-* 6et us say there are % compulsory heirs? namely "? @?

and C. " renounces his inheritance coming *rom the

parents? but " renounces his inheritance in *avor o* his !siblings? brother and sister @ and C. s this sub7ect to

donorHs ta/LA* =O. t is e/empt.

-* @ut i* in the given e/ample? " said P am renouncing

my inheritance? but am giving it to my sister @Q? is this

sub7ect to donorHs ta/LA* IES. Renunciation is to the disadvantage o* the

brother.

"J"O= B=DER 1E 6OC"6 ;O0ER=E=

CODE:&. 6ocal a/

!. Real 5roperty a/

LOCAL TAXATION &)1, )+, t=en go to )3), )*don-

-* ayor @inay o* a9ati ordered the collection o*

elevator ta/ >*or elevator in the city hall). s the order o* ayor @inay legally tenableLA* =O. here should always be a ta> ordinance a*ter

conducting a public =earing . >&(#)

ta> ordinance

-* Can @R collect the ta/ even in the absence o* a

revenue regulationLA* IES.

-* Can a province? city? municipality or barangay collectthe ta/ i* there is no ta/ ordinanceLA* =O.

-* Ahy is it that there should be a ta/ ordinance asrequired by &(#LA* he rationale is not mentioned in &(#? but i* you

read the other provisions o* the 6;C? you will come to set

o* conclusions o* the reason why there must be a ta/

ordinance.

U n most o* these provisions? it always say: one6=alf if t=e ton or municipalit s=all collect a ta> of not

e>ceeding )S of t=e gross receipt."E =OE: here is no e/act amountF hence? it is the

ta/ ordinance which will *i/ the e/act amount.

public =earing

n Congress? the requirement is not absolute >by

discretion only). Bnder local ta/ation >last phrase o*

&(#)? the requirement is "@SO6BE.

REE% vs. %ECRE!AR &'*( %CRA F1-<: n the municipality o* San 8uan >7ust beside

andaluyong) there was a ta/ ordinance passed.

Reyes? a resident? claims that there was no publichearing conducted? he maintains that under &(# last

phrase? there should always be a public hearing.

1: he SC said: Pyes? that requirement is an absolute

one? but since the petitioner *ailed to produceevidence to support his allegation? i* there is no proo*

presented other than his own statement? we hereby

rule that the ordinance was passed in accordance to

the procedure mandated by lawQ. Ahile it is true thata public hearing is an absolute requirement? he who

alleges? must prove the same.

-* * you donHt agree with the validity or theconstitutionality o* the ta/ ordinance? what will be your

remedyLA* Aithin %$ days *rom the e**ectivity o* the ordinance?

the ta/payer should *ile an appeal with the o**ice o* theSecretary o* the DO8 >&(')

REE% vs. %ECRE!AR &'*( %CRA F1-<: Reyes asserted the validity and constitutionality o*

the ta/ ordinance only a*ter the lapse o* thirty >%$)

days >perhaps his lawyer was thin9ing that an

ordinary statute may be contested anytime with the

RC? C" or SC).1: Aith regard to a ta/ ordinance? w have a speci*ic

rule? *ailure to assail the validity with the speci*ic

period o* time? is *atal to the ta/payer. Since it was*iled beyond the %$day period? we do not disturb the

validity o* the ordinance.

-* Aithin what period should the Sec. o* 8ustice decideLA* Aithin #$ days *rom the time the appeal was *iled.

<ailure to decide within this time? the ta/payer has the

remedy to *ile an action with the regular courts.

Page 62 of 79



U * the decision was made within the #$ day period?and receives the decision? his remedy is to *ile an appeal

within %$days *orm the receipt o* the decision to court o*

competent 7urisdiction M RC.

U @eginning April *', *((F? *rom the ruling o* the

RC? pursuant to R" +!(! >the law upli*ting the standards

o* the C")? the ruling o* RC on local ta/ cases? is

appealable to the C" en banc.

AO "55E"6S DECDED @I 1E C" E= @"=C:

&. decisions o* RC involving local ta/ cases

!. decision o* the Central @oard o* "ssessment"ppeals.

U <rom C" en banc? the appeal must be *ile with the

SC within &days.

U ;o to &&:

he city could impose the ta/ already imposed by the

province o* by the municipality.

-* Ahat are the numerous ta/es imposable by the

province which a city now allowed to imposeLA* hose enumerated in &% to &4& o* the 6;C

Reasons why a municipality wanted to be converted into a

city:

&. &&!. !%% >real estate ta/)

U n addition? the law says that the city could increase

the rate o* the ta/ by not more than $ o* the ma/imumEJCE5 those enumerated in &%+:

a) pro*essional ta/

b) amusement ta/

A. General Principles &)*6)'(-

N reiteration o* the constitutional ta/ provisions

N notice that the constitutional limitations on ta/ationdo not only apply to the national government but also to

local government units.

B. #efinitions >&%!)

2ocal Taxing %ut+ority &)'*- *or a province? it is the provincial board or the

provincial council >sangguniang panlalawigan) *or a city? we have the city council >sangguniang

panlusod)

*or the municipality? we have the municipal

council >sangguniang pangbayan)

*or the barangay or barrio? we have the barangay

council.

C. Coon liitations on t&e ta!in+ po"er of t&e

LG%s >&%%)

U Bnder the old law this was o* the 6ocal a/ Code.

-* Ahy commonLA* @ecause the limitations or prohibitions apply to all

6;Bs? the provinces? cities? municipalities and barangays.

wo Common Crimes &under )''-&. absolute prohibition

!. relative prohibition

t shall be unlaw*ul *or the 6;Bs to collect: 01 "ncome !a> E<CEP! =en levied on banDs and ot=er financing institutions &)''&A--

U the term Pother *inancing institution shall includemoney changer? lending investor? pawnshop

&)')&E--U rate o* ta/: does not mention rate o* ta/? so

long as it is P*air? 7ust and reasonableQU t cannot be Pprohibited ta/ation? because the

element o* Pimposed by the same ta/ing powerQ is

not present. One is imposed by the national

government and the other is by the 6;B. 001 8ocumentar %tamp !a> &)''&7--

U absolute prohibition 0001 Estate ta>, in=eritance, donations inter vivos,donations mortis causa E<CEP! in )'3 &)''&C--

U trans*er ta/ on the trans*er o* realty to beimposed by provinces and cities >&%)

=OE: this is not a real estate ta/? this is a local

ta/. 0I1 Custom duties, c=arges or fees for t=e registration of vessels or s=ips, =arfages fees and =arage dues

E<CEP! if t=e =arf =ad been establis=ed, maintained and operated b t=e localit &)''&8--

U whar*age due , is a custom *ee imposed on the

weight o* the cargoes.

U whar* , a pier

U special levy on public wor9s >!4$)U allows provinces cities and municipalities to

impose a special real estate ta/ 9nown as Pspeciallevy or public wor9sQ

U let us say the municipality established a pier *or a minimal value o* 5&$F out o* 5&$? under !4$?

#$ o* this may be recoveredF the other 4$ may be

recovered by war*age due..1 !a>, fee or c=arge for goods or commodities coming out or passing t=roug= t=e territorial ?urisdiction even if in t=e guise of a toll or a fee &)''&E--

U an absolute prohibition

Page 63 of 79



U commodities mar9eted in a public mar9et? letHs

say in the city o* 5asig? where the commodities came*rom 6aguna then to anay? Cainta? aytayF 7ust

imagine i* each o* the towns will impse &peso *or

every head o* a chic9en or $cents *or every bundle

o* vegetable. PALA 8E9K! CORP v. ALA0/A% A7OA0/A 8EL %#R &))' %CRA 3+*-<: unicipal council passed a ta/ ordinance entitled

Ppolice surveillance *eeQ which provide that "66motor vehicle passing through a particular street in

the town proper o* alangas which will lead to the

pier or whar* will pay a certain sum o* money

whether it is camote? copra? palay?or rice. One o* theowners o* the motor vehicle is 5alma DevHt Corp.

carrying copra? banana and coconut to be loaded in a

ship doc9ed at pier o* alangas. he lawyer o*

petitioner assailed the validity o* the ordinancestating that it is a clear violation o* &%%>E).

1: t is not the title o* the ordinance which is controlling

but it is the essence o* the substance o* the ta/

ordinance. he ta/ ordinance clearly violated&%%>E)? there*ore? the SC had no option but to

declare the ta/ ordinance null and void *or being in

violation o* the law.I01 !a>es, fees or c=arges on agricultural and aquatic

products =en sold b marginal farmers or fis=ermen&)''&$--

-* Don "ntonio <lorendo? a person coming *rom

5ampanga who settled in Davao City? employedthousands o* wor9ers in the di**erent banana

plantation. Can the 6;B impose ta/ on the

agricultural product which is a bananaLA* IES. he 6;B can impose because Don"ntonio is not a marginal *armer. t is only prohibited

i* it is sold by a marginal *armer.

U arginal <armer , a *armer or a *isherman *or

subsistence only? whose immediate members are theimmediate members o* the *amily >&%&>5))

I001 !a>, fee or c=arge on pioneer and non6pioneer enterprise dul registered it= t=e board of investments

for a period of 1rs and Frs respectivel &)''&/--U relative prohibition because a*ter the period? the

6;B concerned may now impose the ta/.I0001 E>cise ta> on articles and ta>, fees and c=arges on

petroleum products &)''&/--U relative prohibition since under &4%>1)? it says

there that ta/es which are prohibited such as e/cise

ta/? percentage ta/ and value added ta/ nonetheless?the 6;B may impose a ta/ not e/ceeding ! o* the

gross receipt >*or cities %).

U y *ormer student an assistant in the city legal

attorney in a city in etro anila? received asummon *rom the RC >on complaint o* a

supermar9et in etro anila) questioning the

validity o* the ta/ ordinance under &4%>1) since the

rate imposed was % said? Pineng? una *ile 9ayo ng motion to

dismiss. =a9 ng puta? absent 9a na naman ata eh? you

invo9e && stating that a city can impose a ta/

higher than the rate provided *or by law not morethan $ o* the ma/imum >$ o* the ma/imum o*

! is &? there*ore? !W& is %)Q

7#LACA0 v. CA &*22 %CRA FF*-_*irst case decide by the SC which interpreted both the6;C and the =RC.

<: he then governor? Obet 5anganiban together with

his provincial council passed an ordinance imposing

ta/ on quarrying under the provision o* &%( o* the6;C. he problem is that the ordinance applies to

"66 entities quarrying in the province. One o* the

ta/payers? Republic Cement obliged to pay the ta/?

argued that under &%( o* the 6;C? the ta/ onquarrying on which the province may be allowed

shall only be with regard to quarrying private land?

and not only that but under &%%>1)? there is a

prohibition to impose e/cise ta/ and ta/ on quarryingunder the RC is an e/cise ta/.

1: he ta/ on quarrying allowed to provincial

governments shall only be with regard to lands which

are public lands? and since this is a private ta/ onquarrying re*ers to a lot without any distinction.

1ence? i* the 6;C made a quali*ication as to the 9ind

o* land >where it says it should be public land)? by

implication? it should re*er to private land under &&>although the law did not distinguish)F and since it is

a ta/ by the national government? it should be

collected by the @R >not the 6;B)? and also the SCagreed that it is an e/cise ta/ where 6;BHs are

prohibited *rom collectingF thus? the SC declared the

ta/ ordinance null and void *or being contrary to law.

U Sir? why is it a problem when the law is clear that

under &%(? it shall only apply to public landL5erhaps the provincial council thought that the

sub7ect matter o* the ta/ ordinance may be a sub7ect

matter provided in any boo9 including the RC? or

worse? that it may impose a ta/ on a sub7ect matter not mentioned in any boo9.

oral lesson: although a ta/ ordinance may

be passed even i* the sub7ect matter is not provided

*or in any law? it has to comply with the limitations. PE!RO0 v. PE0"LLA &)2 %CRA 1-_ he *acts here arose under the old law under >now

&%%) o* the local ta/ code >5D !%&)<: 5etron has a *actoryKplant in 5enilla where the raw

materials petroleum products are being converted

into re*ined petroleum products. he municipal

council o* 5enilla imposed a ta/ by way o* a ta/ordinance saying that they are invo9ing the old &+

>now &4%>")) stating that municipalities are

authori3ed to impose ta/ o* the manu*acture o* any

Page 64 of 79



commodity? hence? since it is manu*acture o* a

petroleum product? the 6;B must e authori3ed.1owever? 5etron ob7ected since under >now

&%%>1))? the prohibition includes the prohibition to

impose e/cise ta/ and not only that? under this par.?

the ta/ on petroleum products is an e/cise ta/. Bnder this par.? the law is clear it does not only prohibit the

imposition o* ta/? *ee or charge over petroleum

products.

1: he controlling provision here the old &+ >now&4%>")) that 6;Bs are authori3ed to impose the

business ta/ *or the manu*acturing over any 9ind o*

commodity by and petroleum product is Pany 9ind o*

commodityQ.-* Ahat do you thin9LA* donHt agree with this ruling because between

&%%>1) and &4%>")? it is the *ormer which is more

speci*ic. 0J1 9alue added ta> and percentage &)''&"- E<CEP! )F'&4-

U Relative prohibition. J1 !a>, fee or c=arge on common carriers =et=er bland, ater or air &)''&;--

$"R%! 4OL8"0/ CO. v.7A!A0/A% C"! &'(( %CRA11)-_ !nd SC ruling discussing both the RC and 6;C.<: his revealed to the public the e/istence o* ! very big

oil pipelines coming *orm @atangas City with a

distance o* more than &$$9m? one going to 5andacan

Oil Depot and the other one is going to @rgy.@icutan? aguig. he @atangas City council deemed

it necessary to impose a ta/ on the gross receipt o*

the &st holding company *or the operation o* the oil pipeline? but the operator argued that the oil pipelineis not a common carrier.

1: he SC reasoned out li9e in the case o* Pa?unar v.Comm &'*%CRA111-? saying that Pwe have copied

the code o* carrier law *orm the BS where thede*inition o* a common carrier is one habitually

carrying not only individuals or passengers but also

goods or commodities? and since the oil pipelines is

habitually carrying petroleum products which is acommodity? we rule this as a common carrier which

is under &%%>8)? 6;B is prohibited *rom imposing

ta/ on common carriers? and not only that but under

&'$ o* the 6;C? the law is very e/plicit? that "666;Bs are prohibited to impose percentage ta/ on

common carriersQ. Aith that? the ta/ ordinance

passed was declared null and void *or being contraryto law.

J01 Premiums on re6insurance &)''&@--U absolute prohibition.

J001 !a>, fee or c=arge on registration of motor ve=iclesand for t=e issuance of license and permit for driving t=ereof E<CEP! triccles. &)''&L--

7A!#A0 C"! v. L!O &'** %CRA (3-

: Ahich *unction was delegated to the 6;BL he 6O

registering motor vehicles PorQ the 6<R@ granting*ranchise and regulation o* common carriersL

1: Bnder &%%>6)? the *unction o* the 6O is prohibited?

an there*ore what may be delegated to the 6;B is the

*unction o* 6<R@. J0001 !a>, fee or c=arge on e>portation of productsand is actuall e>ported E<CEP! under )F'&C- =eret=e L/# is aut=oriBed to impose business ta> one>portation &)''&-- J0I1 !a>, fee or c=arge on cooperatives dulregistered under t=e cooperative cod &RA 12'- and

7usiness @alaDalan &RA 1)(- &)''&0--U " cooperative is e/empt *rom local ta/? providedit is duly registered with the cooperative code and the

cooperative development authority PorQ @usiness

ala9alan >not 9al9alan) JI1 !a>, fee or c=arge over t=e national government, political subdivisions and agencies and instrumentalitiesof t=e government &)''&O--

U Relative prohibition since it admits o* an

e/ception under &4 o* the 6;C where it says that a6;B may be authori3ed to impose a *ee or charge *or

the operation o* a public utility provided it is owned?

maintained and operated by such 6;B. 0A"A v. PARA0A5#E &;#L *((1-1: SC ruled in *avor o* the airport. 5aranaque being a

6;B canHt impose ta/ on a government

instrumentality. "irport owned by the government is

not an agency? it being an instrumentality.-* ay the government ta/ itsel* it the ta/ing

power is the local governmentL

A* =O. he local government cannot impose ta/ onthe national government? and with more reason that itcannot impose a ta/ with equal 6;B.

#. Ta!es t&at can eit&er ;e ipose$ ;( Pro'inces or

Cities

01 ta> on transfer of realt &)'3-

N =ote that this is not a real estate ta/? this is a local ta/*or the simple reason that it is not provide *or under the

topic o* real estate ta/ >&+(-!($)

N 6aw says Pit should not e/ceed [ o* & o* theconsiderationQ >=OE: do not use 3onal value since this

is used only under the RC? not the 6;C.

-* Since all the provinces and cities must *ollow the

limitation o* the rate >not e/ceeding [ o* &)? is it

violative o* the equal protection clauseLA* =O? because the sangguninan had to determine theactual rate considering the status o* the province.

-* Ahy is that a9ati *i/ the rate o* ' or %K4 o* &L

Page 65 of 79



A* @ecause cities are authori3ed to increase the rate o*

$ o* the ma/imum? that is $ o* [ is ! >$W! is').

=OE: Do not apply trans*er o* realty pursuant to R"

##' >C"R5) M this is the Comprehensive "grarianRe*orm 5rogram M this is e/empt.

001 ta> on printing an publication &)'1-

N =ormally? a province cannot impose this because the

ta/ on business can only be imposed by a city or

municipality EJCE5 this one? on printing and

publication o* maga3ines and periodicals.

0001 franc=ise ta> &)'+-

N he old national *ranchise ta/ under the old ta/ codewas already abolished.

N Ae still have *ranchise ta/ other than this one? 9nown

as national *ranchise ta/ M provided *or in the republicact granting *ranchise.

wo 9inds o* <ranchise a/:

&. local *ranchise ta/ >under 6;C &%')!. national *ranchise ta/ >provided *or in the statute

or republic act authori3ing the *ranchise)

-* ay 6;Bs impose local *ranchise ta/LA* Ae have to consider here many supreme court

decisions and also &+% o* the 6;C.

Bnder &+%? it says there Punless especially provided*or in this code? e/emptions granted to natural 7uridical

persons are hereby withdrawn >abolished) EJCE5:

&. local water districts

!. cooperatives registered under the cooperative

code >R" #+%()%. non-pro*it and non-stoc9 educational institution.

7A%CO v. PA/COR &)2+ %CRA 3*-<: he city council passed a ta/ ordinance imposing ta/

on 5";COR? an agency o* the government.

5";COR ob7ected saying that the local city is

prohibited under the old local authority act to impose

ta/ on an agency o* the government.1: he SC declared null and void the ta/ ordinance

saying anila cannot do that.

CE7# v. AC!A0 &*1) %CRA 11+-<: Cebu government was trying to collect real estate ta/

*rom the actan airport >note: real property ta/ is a

territorial ta/? meaning it should only be collectedwithin its territorial 7urisdiction). 6awyers o* actan

airport argued that under &%>O)? Cebu? a 6;B?

cannot impose ta/ on an agency o* the government?

and they also invo9ed the ruling in @"SCO.1: he lawyer o* actan airport is devoid o* any merit

at all? it is &$$ erroneous since the real estate ta/ is

not a local ta/? hence? why invo9e a SC ruling and

codal provision which can only be applied to localta/. here*ore? actan airport should pay Real

5roperty a/.

N @e*ore the codi*ication in &++& >to ta9e e**ect8anuary &? &++!)? local ta/ation was embodied in a

separate boo9 9nown as 6ocal a/ Code >5D !%&) while

real property ta/ was provided *or in a separate boo9

9nown as Real 5roperty a/ Code >5D 4#4)

LR! v. C"! O$ A0"LA &'F* %CRA 12*-<: he anila city government tried to collect real

property ta/ but the management o* the 6R said Pnoyou cannot do that to us since it is e/clusively *or

public useQ.

1: =O? you are not e/clusively *or public use since

every time a person wants to use the 6R he has to pay.

-* Ahy not use the de*ense that it is owned by the

governmentLA* @ecause in real estate ta/? the de*ense that it is owned

by the government is not a de*ense.

he 6;C in &++>@) and in !&'? both provisions

says that the basis *or the imposition o* real estate ta/ isthe "CB"6 BSE o* anybody who is using that >maybe

in the concept o* usu*ructuary or in the concept o* a

lessee? or in the concept o* an owner)F the basis is notownership.

N in &%4? the ta/es here must not only be imposed by

provinces? it may also be imposed by cities in line with

&& M those enumerated in &% to &4&.

CA/AA0 8E ORO ELEC!R"C CO. v. "%A"% OCC"8E0!AL &)) %CRA '-_ his was the prevailing rule *or more than &$years *rom&+((

1: n the *ranchise or the republic act? there are only two

>!) 9inds o* *ranchise? one is a *ranchise which

provide *or a condition that this ta/ >re*erring to the*ranchise ta/) shall be in lieu o* all other ta/es? and

the other *ranchise is the one which do not provide

*or such provisionF the province or the city canimpose local *ranchise ta/ i* the *ranchise belong to

the second e/ample.

REE% v. %A0 PA7LO C"! &'(3 %CRA '3'-_ 1ere the SC uni*ormly ruled

1: " provision on e/emption under &+% donHt only

re*er to e/emptions provided *or by di**erent statutes?

Page 66 of 79



but it includes those which claim e/emptions by

virtue o* the case o* Cagaan de Oro >because SCdecisions are also laws).

PL8! v. 8A9AO &'1' %CRA +3(-

<: he *ranchise holders o* Smart and ;lobe areclaiming e/emptions *rom the local *ranchise ta/

because they are saying that they are holding a

*ranchise which says that it is a *ranchise enacted by

the house o* Congress in &++ which carries with itan e/emption *orm local *ranchise ta/.

1: @y the very e/plicit provision o* &+%? the removal

o* e/emptions granted by di**erent statutes and also

by SC decisions applies only to statutes and decided by the SC on or be*ore 8an. &? &++!? because &+%

says Pupon e**ectivity o* this lawQ. <or e/emptions

covered by &+% there*ore? Smart and ;lobe are

authori3ed to claim e/emptions because the statue>R" '$(!) was enacted on &++.

0I1 ta> on sand, gravel and ot=er quarr resources&)'-

N Ae are through with that in the case o* 7ulacan

I1 professional ta> &)'2-N this must be correlated with the ta/ under &4'.

N =OE that this is an e/emption to the rule that a city

may increase the rate o* the ta/ M under && o* the6;C? the increase is not allowed.

N both &%+ and &4' are ta/es imposed on personse/ercising pro*essional calling.

,ection 8: ,ection 85<

are to be imposed by

provinces and cities

are to be imposed by

municipalities and

cities

are applicable to

wor9ers who must

pass a governmente/amination >e.g.

engineers? physicians?

etc)

are applicable to

persons who are

wor9ing but are notrequired to ta9e

government

e/aminations

there is a ma/imum>5%$$)

=OE: it is not always%$$? since the e/act

amt must be *i/ed by

the ordinance.

t does not provide *or any amount? the only

requirement is that itmust be reasonable

I01 amusement ta> &)F(-

N under the RC? there is also amusement ta/ under &!.

P7A v. 5#EO0 C"! &)'+ %CRA '3-<: he city government enacted a ta/ ordinance trying

to collect amusement ta/ including amusement ta/ on

the 5@" >in "raneta? Cubao)F but 5@" and Pno? we

are already paying amusement ta/ to the nationalgovernment through the @R because o* &! o* the

RCQ

1: 2C government can no longer collect on the ground

that it is already being collected by the nationalgovernment and secondly? in the enumerations o*

amusement under &4$? you will never see

pro*essional bas9etball. ost o* all? it is the intention

o* the author that it is only the national government._na9 ng putang 9atangahan yan.. the local ta/ code 5D

!%& was enacted in &+'4 when we donHt have any

pro*essional bas9etball.. since pro*essional bas9etball was

born ay &+'._ ano ba dapt tama diyanL M both the national

government and the 2C government can collect. here is

no violation o* the prohibited double ta/ation? because the

ta/ing powers are di**erent? and not only that &4$ spea9so* amusement ta/ on admission *ee but under &!? it is

abut gross receipts.

I001 deliver van &)F)-

-* Ahat i* not a delivery van? but Psa9oQ langL

A* he applicable ta/ is under &4%>;) >peddlerHs ta/?

one imposed by municipalities and cities.* may dalang sasa9yan? yari siya ng province sa ta/.

=OE: &%-&4&? these are ta/es that can be imposed by

5RO0=CES and CES.

&4%-&$ are ta/es to be imposed byB=C5"6ES? which can also be imposed by

CES.

E. Ta!es t&at can eit&er ;e ipose$ ;( unicipalities

or Cities

01 7usiness !a> &)F'&A64--

a. manu*acturing? repac9ing? processing? includingthe manu*acturer o* permitted liquor and also its

dealer

b. wholesalingc. e/portation

d. retailing

e. contractorHs ta/

*. ta/ on ban9ing institution and *inancinginstitution

g. peddlerHs ta/

h. the e/emption under &%%>i)

Page 67 of 79



-* * you have two branches? how many business ta/esdo you have to payLA* Iou pay only one business ta/ >&4#)

"LO6"LO 7O!!LER% v. "LO6"LO C"! &)1F %CRA 1(+-<: lo-ilo @ottlers was already paying a business ta/ on

manu*acturing under &4%>") to the city government

by virtue o* a ta/ ordinance. 6ater on? they are

obliged to pay by virtue o* another ta/ ordinanceimposing business ta/ on wholesaling. =aturally? lo-

ilo @ottlers argued? Phow could it be? i* you

manu*acture? it necessary *ollows that you sell the

commodity so? with the payment o* the business ta/on manu*acturing? it carries with it the business o*

wholesalingQ.

1: =O? you have to determine the mar9eting system o*

the company. * wholesaling is also being done in the place o* manu*acture? the business ta/ on

wholesaling should no longer be paid it should only

be the business ta/ on manu*acturing. @ut i* the

mar9eting system o* the company provides thatwholesaling shall be done in a separate place >maybe

several 9ilometers away)? the manu*acturer must still

pay the business ta/ on wholesale because now it

could be argued that they have the separate businesso* wholesaling.

-* On the business o* retailing? should the business ta/

o* retailing be imposed by the city or by the municipalityPORQ by the barangay in the city or the barrio in the

municipalityL

A* &4%>D) must be correlated with &!? the ta/ to beimposed by the barangay.

t depends:

a. city

U i* the gross receipt o* the retailer e/ceeds

5$ in a minimum o* one year? it is theright and privilege o* a city to impose the

business ta/ on retailing.

b. barangay

U i* the gross receipt o* the retailer did note/ceed 5$? it is the barangay council

where the business o* retailing is located.

c. municipality

U i* the gross receipt o* the retailer did note/ceed 5%$ within a period o* one year.

d. barrio

U i* the gross receipt o* the retailer did note/ceed 5%$ within a period o* one year.

=OE: hese distinctions do not apply in wholesaling.

hese are only *or retailing.

N 5aragraph 1:*or the imposition o* e/cise ta/?

percentage ta/ and value added ta/? the municipality may

impose a ta/ not e/ceeding ! o* the gross receipt >with

regard to a city? it may go as *ar as %)

001 unicipalities in etro anila =o can increaset=eir rate &)FF-

N Right now there are only two municipalities:

&. San 8uan

!. 5ateros

0001 Professional !a> &)F+-

N we are through with that

0I1 $ees for sealing and licensing of eig=ts and measures &)F-

I1 $is=er rentals, fees and c=arges &)F2-

F. ,itus of Ta! >&$)

► he ta/ re*erred to in here is the business ta/ onwholesaling and retailing.

-* R< is manu*acturing commodities? one o* them is

Swi*t hotdogs? this is being sold not only inandaluyong? etro anila? but also to the inter country

*rom @atanes to awi-tawi. Ahere should the business ta/

o* wholesaling or the business ta/ o* retailing be paidL

Should it be in the principal o**ice >andaluyong) PorQthe place where the commodities are soldLA* t will be paid in the place where it had been sold

5RO0DED there is a branch o**ice or a sales outlet>&$>")).

N * it so happens that the company has a *actory

di**erent *rom the place where the principal o**ice is

located M %$ should be pain in the principal o**ice and'$ in the municipality or city where the branch is

located.

P4"L A!C4E% v. CE7# &) %CRA 22-<: 5hil atches were produced in =agtahan? anila. n

Cebu city? there was a warehouse where the matches

were stored. any o* the customers? by way o*

wholesale in the warehouse in Cebu City? they came*rom di**erent towns o* the 0isayan Region. ay the

business ta/ ordinance o* Cebu be imposed on those

transactions even i* the buyers did not come *rom theterritorial 7urisdiction o* CebuL

1: Since in this case the contract boo9ed and paid?

meaning? it was negotiated per*ected and

consummated in the warehouse where it was locatedin Cebu City? the Cebu City government has the right

to collect business ta/.

Page 68 of 79



-* Ahat i* there is an agreement that commodities

would be delivered and that the buyer would be waiting insome other town? is the answer still the sameLA* IES? the answer is still the same because delivery to

the carrier is delivery to the buyer where delivery has

been termed within the territorial 7urisdiction o* Cebu.

%4ELL v. CE7#CO!, CAAR"0E% %#R &)(3 P4"L)(1'-<: he petroleum products were purchased at the motor

vehicle traversing the neighboring towns o* Cebucot

li9e @ason? Dimalaon? all towns in Camarines =orte.

he contract o* sale was negotiated and per*ected in

di**erent municipalities where the motor vehicle o* Shell was traveling.

1: "lthough the oil depot was located in Cebucot? the

said municipality cannot impose ta/ on that because

the contract o* sale was negotiated and per*ected inthe di**erent nearby towns o* Camarines.

-* s there a con*lict with the case o* %=ell and P=il atc=esLA* =O=E. "s a matter o* *act? these two decisions

complement each other.

G. Ta!in+ Po"ers of t&e Baran+a( >&!)

N Only a minimal sum >*air and reasonable)

5ower to impose ta/:&. On commercial breeding o* *ighting coc9s?

coc9*ights and coc9pits

U must be *or commercial purposes!. On places o* recreation which charge administration*ee

%. On billboards? signboards? neon signs and outdoor

advertisements

U especially *or the barrios and barangays alongthe highway

4. <or barangay clearance

U i* you want to engage in the business o* retailing

or wholesaling M i* barangay captain will notapprove that M within 'days go to the municipal

hall or city hall *or approval

. <or the use o* barangay property

U *or instance the barangay has a pla3a.

9. Coon Re'enue Raisin+ Po"ers >&%-&)

-* Ahy commonLA* "ll the 6;B could impose the same. @ut it does not

*ollow that all the provinces? cities? municipalities could

impose the same. Only the 6;B which operate? establish?maintain the entity

* established by the province? it should only be the

province.

hese are:&. service *ee and charges

U *or services rendered

!. public utility charges

U provided owned? operate and maintained bythem

%. toll *ees and charges

U ta/ or toll *or the use o* a bridge or a street

N 5adua * iled a civil action in the a9at RC

trying to stop the government *orm collecting a toll *ree in

the South E/press including the =orth e/pressway

alleging that he is a**ected as a ta/payer because he is*rom 5aranaque. 1e argued that i* you use the property o*

the government li9e a street or a public pla3a? you do not

pay. 1e made the analogy? that i* you go to 6uneta? you

do not pay the city government o* anila.he a9ati RC? the C" and SC had a uni*orm

ruling that the operator should be prohibited *rom

collecting *urther toll *ess because i* the operator had

already recovered his investment and earned an incomealready? he should be stopped. "s argue by the SC? it

copied the argument o* the lawyer >re: 6uneta).

U =OE: that Res 8udicata do not apply here.

Ahen the ruling became *inal an e/ecutory in&++%? the =orth and South E/press were totally

dismantled and totally destroyed by the D5A1 to give

way to the *inal and e/ecutory ruling o* the Court? that t

should no longer be collected."*ter several months? the government announced

in the radio that the party in the case o* 5adua? mutually

agreed that the collection shall be resumed in order tohave money *or the maintenance and repair o* thehighway.

E/ceptions to & >collection o* toll *ees)

&. members o* "<5!. members o* the 55

%. post o**ice personnel delivering mail

4. physically handicapped

. disabled citi3ens # years and older.

I. Counit( Ta! >&#)

N n the old days? 9nown as Presidence ta/ certi*icate.

-* * the <ilipino is a resident o* a *oreign country

>=RC)? is he liable to pay the community ta/ certi*icateLA* =O? because the basis o* imposition o* this ta/ is

whether or not you are an inhabitant o* the 5hilippines.

eaning you are a resident o* the 5hilippines.

-* Ahat about a *oreigner residing in the 5hilippines

>R")L

Page 69 of 79



A* IES. Iou have to pay unless the *oreigner is a trans-

investor *or not more than %months.

N his is applied to both natural and 7uridical persons.

Requirements:&. *or a natural person M at least &( years o* age

!. *or corporations M upon registration with the

SEC

-* Ahat i* you become &( in the month o* 8anuary or

=ovember or DecemberLA* <or those who celebrated their birthday be*ore 8uly &

>that is up to 8une %$)? they are liable to pay the ta/? *or this year.

<or those who celebrated their birthday on or a*ter

8uly &? they are not yet liable to pay this year? but have to

wait until ne/t year.

-* s there a di**erence *or those who reached &( in the

months o* 8an-<eb-arch and those who reached &( in

the months o* "pril-ay-8uneLA* IES. <or those who celebrated birthdays in the

months o* 8an-<eb-arch? they have a grace period o*

!$days within which to pay. hose who celebrated their

&(th birthday in the month o* "pril-ay-8une? they do nothave any grace period at all? they have to pay the ta/

immediately.

-* * you have a community ta/ certi*icate *or this year >!$$#)? can it be used only until December %&? !$$#LA* =O. t shall be valid up to "pril &? !$$'. >&#%>C))

. Accrual of t&e Ta! >&##)

N 8anuary &

-* Ahat i* the ta/ was only approved in the month o* ay !$$#? do you have to wait until 8anuary !$$'LA* =O. Iou have the right to collect that in 8uly &?

because the law is saying that Pit should be collected in

the ne/t succeeding quarterQ >&#')

N ayor @inay had a ta/ ordinance in ay? sabi ng

mga bata niya: Pbosing? collect na tayo ng 8uneQ.

@inay: Phindi nga pupwede? maghintay pa tayo ng8uly &Q.

-* Ahat i* the ta/ ordinance had been e/isting *or several years alreadyLA* he time o* accrual will always be 8anuary &.

REE#IE, %N#ER T9E INTERNAL REVEN%E

CO#E

&. Remedies o* the ;overnment

!. Remedies o* the a/payer

Remedies of t+e go.ernment/

&. "ssessment

!. Collection

Bnder the =RC? assessment and collection have ! 9inds:

&. =ormalKOrdinary assessment and collection , Sec. !$%? =RC

!. "bnormalKE/traordinary assessment and

collection , Sec. !!!? =RC

I. 0ormalQOrdinar assessment and collectionN here was a return *iled and it is not

*raudulent and not *alse

II. AbnormalQE>traordinar assessment and collection

N here was:

&. an omission or *ailure to *ile the returnF!. i* there was a return *iled? it was

*raudulent? orF

%. the return was *alse

-* s a *alse and *raudulent return presumedLA* =O? *alse and *raudulent return is not presumed. he

burden o* proo* to prove that the return was *alse and

*raudulent lies against the government through the @R.he mere *act that the return is erroneous will not

ma9e the return *raudulent? it must be proven by the @R.

-* Ahy is it important to 9now whether the assessmentis under normal or abnormal conditionLA* t is important to 9now because the prescriptive

period between normal and abnormal assessment di**er.

Prescripti.e Period for %ssessment

91 0ormalQOrdinar Assessment N ' ears from t=e timet=e return =as been filed &not t=e pament of t=e ta>-&%ec. *(', 0"RC-

N % Aays o* *iling the return under Sec. !$%? =RC:

&. *iled be*ore the deadline >*or any ta/ under

=RC)

!. *iled on the date o* deadline%. *iled a*ter the deadline

N ! Aays o* counting the % year period o* "ssessment:

&. i* return is *iled be*ore or on the day o* thedeadline? the prescriptive period starts on the

date o* the deadlineF

!. i* return is *iled a*ter the deadline? the

prescriptive period starts on the date the returnhas been *iled.

U <or the calendar year o* !$$4? a return must be *iled

and paid *or =et ncome a/ on or be*ore "pril &? !$$.

Page 70 of 79



Since he was not able to meet the deadline? the ta/payer is

now being assessed *or ta/ due *or !$$4. o minimi3einterest and surcharges? it has been suggested by the @R

that the ta/payer *ile a late return. Supposed he *iled his

return covering !$$4 on "pril &? !$$#. n this e/ample?

the rec9oning point is the deadline o* "pril &? !$$. hestarting point o* the counting the % yr. period is on the

date the return is *iled which is "pril &? !$$#.

U Suppose it is not a late *iling o* return? the counting

o* the period is on the date o* the deadline which is "pril&.

61 AbnormalQE>traordinar Assessment N the government has ! options:

a. "ssess and Collect

U the prescriptive period *or PassessmentQ

shall be &$ years *rom the discovery o* none*iling or *alse or *raudulent return >Sec. !!!? par.

o? =RC)

U the prescriptive period *or PcollectionQ

shall be years *rom the date o* *inal assessment>Sec. !!!? par c? =RC)

b. Collect Aithout "ssessment through 8udicial

"ctionU since there is Pno assessmentQ there is no

prescriptive period *or assessment

U prescriptive period *or PcollectionQ shall be

&$ years *rom the date o* discovery o* none*iling o* return or *alse or *raudulent return.

N hese options are available only i* the"ssessment is under the "bnormalKE/traordinaryConditions.

hese are not available under =ormalKOrdinary

"ssessment

Prescripti.e Period for Collection

8. 0ormalQOrdinar Collection , Sec. !$% did not

provide *or the prescriptive period *or the collection- ntention o* the author: years *rom the date

o* *inal assessmentReasons: >Sababan agrees with the year prescriptive

period)

5rescriptive period o* collection under &st

optionon "bnormal "ssessment is years *rom *inalassessment >Sec. !!!? par c? =RC)

&. under the old code o* &+%+? &+''? and &+(?

i* the prescriptive period *or collection under

abnormal is % years? then the prescriptive period *or collection under normal is also %

years. * now a days? it is years in

abnormal? the prescriptive period *or normal

should also be years.

!. to say that there is a prescriptive period *or

collection under "bnormal and there is noneunder =ormal is too abnormal. t should be

the other way around.

61 AbnormalQE>traordinar Collectiona. assess and collect , years *rom the *inal

assessment

b. collect without assessment through 7udicial

action , &$ years *rom date o* discovery o* none *iling? or *alse? or *raudulent return.

-* 1ow to apply these periodsLA* "nnual net income ta/ return *iled by individualusing a calendar year. he return should be *iled on or

be*ore "pril &? !$$$. t was *iled on "pril &? !$$$.

- Aithout stating the date o* *inal assessment? can it becollected in !$$'LA* Bnder normal condition? *irst determine the date o*

*inal assessment. * the @R *inally assessed the ta/ in

=ovember !$$&? then !$$' is way beyond the year period to collect. Count the prescriptive period *or

collection *rom the date o* *inal assessment.

-* >same *acts) Supposed it was *inally assed on arch!$$%? can it be collected in !$$'LA* Ies? because it is within the prescriptive period o*

years.

7A%"LA0 v. CO"%%"O0ER &*) %CRA )+-<: Supposed the notice o* assessment was given within

the period but it was received by the ta/payer outsidethe period.

: Ahether or not the assessment is within the period o* %

years.

1: Ies. t is within the period. * the notice is sent

through registered mail? the running o* the prescriptive period is PstoppedQ. Ahat matters is the

sending o* the notice is made within the period o*

prescription.

N t is the sending o* the notice and not the receipt that

tolls the prescriptive period.

-* Ahat i* the return has been amended? how would youcompute the period o* assessmentLA* =RC is silent.

P4OE0"< v. CO"%"O0ER &)F %CRA 3*-* the amendment o* the return is substantial as

distinguished *rom super*icial? the counting o* the

prescriptive period is also amended. he prescriptive period shall be rec9oned on the date the substantial

amendment was made. * the amendment is super*icial?

Page 71 of 79



the counting o* the prescriptive period is still the original

period.

Proce$ure for Assessent 2,ec. 44?= NIRC6 RR 84/3

Steps o* assessment&. Sec. !!(? =RC >! steps)

!. RR &!-++ >% steps)

! Steps under Sec. !!(? =RC&. 5re-assessment notice

!. <inal assessment notice

% Steps under RR &!-++&. =otice o* n*ormal Con*erence

!. 5reliminary "ssessment =otice

%. <ormal 6etter o* Demand and =otice to 5ay the

a/

PROCE#%RE 2,ec. 44?= NIRC6 RR 84/3

&. Bpon receipt o* the notice o* in*ormal

con*erence? *ile a reply within & days *romreceipt o* noticeF

!. <ailure to *ile a reply? ! things may happen:

a. @R will send again the =otice o* n*ormal

Con*erence or b. @R will send a 5reliminary =otice o*

"ssessment

%. Bpon receipt o* 5reliminary "ssessment =otice

>5"=)? *ile a reply within & days *rom receipt4. <ailure to *ile a reply will result in either:

a. @R will repeat 5"=

b. Declare the ta/payer in de*ault? and sendyou a <inal "ssessment =otice ><"=)

. Bpon receipt o* <"=? ta/payer may *ile a protest

within %$ days.

-* s <"= the one appealable to the Court o* a/"ppeals >C")LA* =O. his is because !!(? =RC and RR &!-++

requires the e/haustion o* administrative remedy o*

protest. "*ter the receipt o* <"= or *ormal demand within%$days must *ile a protest be*ore the o**ice o* the

commissioner o* internal revenue.

FOR, OF PROTE,T&. 6ocal a/ >Sec. &!? 6ocal ;overnment Code

>6;C))

!. Real 5roperty a/ >Sec. !!? 6;C)%. ari** and Customs Code >Sec. !%&%? R" '#&)

N n all protest under the di**erent codes? payment

under protest is only necessary under the PReal Estatea/Q.

RR 96-LL

N * the ta/payer receives ! *inal assessments? one

under the =et ncome a/ >=) and the other in 0". * the ta/payer donHt want to *ile protest under 0" but want

to *ile a protest under =. he ta/payer in order to be

allowed to *ile a protest under the = must *irst pay the

0" where he does not intend to *ile a protest.

N his is not Ppayment under protestQ because?

payment under protest is the one mentioned in Real

5roperty a/ under Sec. !!? 6;C.

Bnder =RC? 5rotest is re*erred to as:

&. disputing o* *inal assessment or

!. *ile a motion *or reconsideration or reinvestigation

-* Ahat should be done a*ter *iling a protestLA* Count #$days is the period to *ile the necessarydocuments and receipts in support o* the protest.

-* Ahat is the e**ect o* *ailure to *ile the supporting

documentsLA* <ailure to *ile the necessary and supporting

documents within the #$day period? to be counted on the

day the protest is *iled? the *inal assessment shall become

*inal and e/ecutory.

> On the &st day you *iled the necessary document?

you have to count another period? which is &($ days *rom

the day you *iled the necessary documents.

Relevance o* the &($ Days: &($ days is the

time given to the @R to decide the case

-* Supposed it did not decide the case within &($daysLA* Do not invo9e the 6ascano case because it was

re7ected by R" +!(!

n the 6ascano case? be*ore you *ile an appealalthough the &($ days have lapsed? you have to wait *or

the @R to ta9e positive action.

he case was ruled only by the C"? hence it is not a

law. he 7urisdiction o* the C" has been amended by R"+!(!.

R" +!(! provides that in case o* inaction o* the

commissioner a*ter the lapse o* &($days? remedy is to *ile

an appeal.RR &!-++ says that a*ter lapse o* &($days but within

%$days a*ter &($days? that is the time to *ile an appeal.

-* Supposed the @R rule within &($LA* Aithin %$days *rom receipt o* the decision *ile an

appeal to the C" sitting in division.

-* Supposed the C" decided not in your *avorLA* <ile a motion *or reconsideration within &days to the

same division deciding the case.

Page 72 of 79



-* Supposed the C"? in division decided not in you*avorLA* <ile an appeal to the C" sitting en banc.

-* Supposed the C" en banc decided not in your *avorLA* <ile an appeal within &days *rom receipt o* decision

to Supreme Court.

-* During the pendency o* the protest in the o**ice o* the

Commissioner? supposed you receive a notice o*

collection? levy andK or distraint? what is your remedyLA*

). A7E% v. CO"%%"O0ER &)3( %CRA *+-*. #0"O0 %4"PP"0/ L"0E% v. CO"%%"O0ER

&)3 %CRA 3F+-

A7E% v. CO"%%"O0ER &)3( %CRA *+-<: he ta/payer receives a notice o* collection while

waiting *or the decision o* his protest. 1e then *iled

an PappealQ with the C" contending his protest has been denied because he did not receive a decision but

receive a notice o* collection. Simultaneously? the

@R *iled be*ore the C< an Pordinary civil actionQ

*or the collection o* sum o* money. Ahen the 7udgeo* the C<? was about to conduct the hearing o* the

case? the ta/payer *iled an in7unction with the SC to

prohibit the 7udge o* the C< contending that a single

cause o* action is pending in two courts? one in theC" and another in C<.

1: n7unction was granted prohibiting the 8udge o* the

C< and requiring the 8udge to trans*er the records tothe C" saying that the remedy made by the ta/payer was the correct remedy.

-* Aas the appeal made on timeLA* Ies? when the @R *iled an ordinary action? the

protest is deemed denied. 1ence an appeal is a proper

remedy.

#0"O0 %4"PP"0/ L"0E% v. CO"%%"O0ER<: he ta/payer was waiting *or the decision o* his

protest. @ut instead? he received a notice o*

collection. mmediately? he *iled a otion *or

Reconsideration and Clari*ication as9ing whether his protest has been denied. he @R did not reply or

answer but instead *iled an Ordinary Civil "ction

be*ore the C<. Ahen the ta/payer receivedsummons? he did not answer but instead *iled an

"ppeal be*ore the C".

: Ahether or not the remedy o* "ppeal was the correct

remedy and Ahether or not it was *iled on time.1: Ies. he remedy o* appeal is the correct remedy and

the appeal was *iled on time. he rec9oning period

within which to *ile an appeal is the time the ta/payer

received the summons.

Ahile an "ppeal is pending be*ore the C"? the C" will

determine:

&. * the decision was made within &($ days?whether the appeal was made within %$ days

*rom the receipt o* the said decision? or

!. i* there was no decision a*ter the lapse o* &($

days? whether the appeal was made within %$days upon the e/piration or the lapse o* the &($-

day period.

-* 5ending appeal with the C"? can the @R amend the*inal assessmentLA* ! SC1OO6S O< 1OB;1:

&. /#ERRERO v. CO"%%"O0ER &)2 %CRA*3-

!. 7A!A0/A% v. COLLEC!OR &)(* P4"L**-

/#ERRERO v. CO"%%"O0ER &)2 %CRA *3-9* =o. @ecause it is no longer the disputed assessment.

7A!A0/A% v. COLLEC!OR &)(* P4"L **-9* Ies. n order to avoid multiplicity o* suits

N "CCORD=; O 8BSCE 0B;:

7A!A0/A% v. COLLEC!OR &)(* P4"L **- is t=e better ruling

PROTE,T %N#ER LOCAL TAX 2,ec. 8@= LGC3

N Bnder =RC? protest is *iled in the O**ice o* theCommissioner N Bnder 6;C? protest is *iled with the same City or

5rovincial or unicipal reasurer who issued the

assessment

5eriod to *ile 5rotest

• #$ days *rom receipt o* assessment

-* * the treasurer did not decide within a #$day period?

remedyLA* ;o to the court o* competent 7urisdiction >RC)

-* * the RC decided not in you *avorLA* <ile an appeal with C" en banc >beginning "pril !%?

!$$4)

-* * the C" decided not in your *avorLA* "ppeal to the SC.

=OE:5ursuant to R" +!(!? direct appeal to C" en banc can be

made *rom:

Page 73 of 79



&. Decision o* the RC involving local ta/ation

e/ercising appellate 7urisdiction!. Decision o* the Central @oard o* "ssessment

"ppeal e/ercising appellate 7urisdiction.

PROTE,T %N#ER REAL PROPERT1 TAX 2,ecs.44= 4:D= an$ 4@43

• Remedy shall be the same

,ec. 4@4= LGC

• * the ta/payer receives a =otice o* "ssessment

*rom municipal? city? or provincial treasurer? the

remedy is to *ile a protest but there must be *irst5ayment Bnder 5rotest.- his is the only instance where payment

under protest is necessary

-* 1ow is payment under protest madeL

A* "t the bac9 o* the receipt there will be an annotationthat there was a payment under protest within #$days

*rom receipt o* the notice o* assessment within the same

treasurer who issued the assessment.

-* * the treasurer rules against the ta/payer? remedyLA* he remedy is to *ile an appeal to the 6ocal @oard o*

"ssessment within %$days *rom the receipt o* the

decision.

-* <rom the decision o* the 6ocal @oard o* "ssessmentLA* "ppeal should be made to the Central @oard o*

"ssessment "ppeal.

N @eginning "pril !%? !$$4? the ruling o* the Central

@oard o* "ssessment "ppeal is no longer *inal. t can

now be appealed to the C"? sitting en banc.

PROTE,T %N#ER T9E TARIFF AN# C%,TO,

CO#E 2TCC3 2,ec. 4:8:= as aen$e$ ;( RA <@83

N <ormerly? the automatic appeal under the CC

applied only to protestF but now a days? the automatic

appeal applies to both protest and *or*eiture.

<or <or*eiture Bnder the ari** and Customs Code

N Re*ers to the Order o* the Collector con*iscating the

imported goods or commodities

Doctrine of Primary Murisdiction

* the Collector ordered the *or*eiture o* the imported

commodities the order o* the Collector shall be to the

e/clusion o* all government o**ices and authority.

mporter o* Chemical? under the CC? the custom

duties is only 5!' but the collector says it should be 5!.

he importer will then *ile a protest with the O**ice o* theCollector.

n the old days? there is an automatic appeal *rom the

decision o* the collector under protest. @ut under R"'#&? the remedy o* automatic appeal is applicable to

both protest and *or*eiture.

. "n bot= cases of protest and forfeiture, if t=e importer

lose t=e case and t=e government ins, t=e remed is to file an appeal it=in )3 das before t=e Office of t=eCommissioner.

• <rom the ruling o* the Commissioner? the

importer should *ile an appeal within %$ days

be*ore the C"? sitting in division.

• <rom the ruling o* the C" in division? the

importer should *ile an R within & days be*ore the same division hearing the case.

• <rom the ruling o* the C" in division? deciding

on the R? the importer should *ile an appealwithin & days be*ore the C" sitting en banc.

• <rom the C" en banc? appeal to SC within &

days.

. "f t=e importer6ta>paer ins t=e case, t=e government lose t=e case, %ec. *')' of !CC as amended b RA +13), t=ere s=all be an automatic revie it=in )3das.

-* Ahere should the automatic review be madeLA* t depends. 5ublish the value o* the commodity.

&. < 5 66O= OR ORE , "BO"C

RE0EA S1"66 @E @E<ORE 1ESECRE"RI O< 1E DE5. O< <="=CE.

!. < 6ESS 1"= 5 66O= , "BO"C

RE0EA S1"66 @E @E<ORE 1E O<<CEO< 1E COSSO=ER

-* Suppose the commissioner decide or did not decide

within %$days? what happensLA* * the commissioner reverses the ruling o* the

collector? the ruling is *inal and e/ecutory.

* the commissioner a**irms or did not decide within

%$days? there shall be an automatic appeal be*ore the sec.o* *inance.

-* @etween the two which will be appealed to the C"LA* he decision o* the secretary which passes throughthe o**ice o* the commissioner >R" +!(!)

@ut not all the decision o* the secretary which passes

the o**ice o* the commissioner a**irms or did not decide

within %$days and appealed be*ore the secretary o* *inance will appeal to the C" be allowed.

here are % instances when the Secretary o* <inance

renders a decision appealable to the C":&. decision o* the Secretary by virtue o* automatic

review passing through the Commissioner

!. cases o* anti-dumping duty? where the anti-

dumping duty was ordered by the Secretary

Page 74 of 79



%. decision o* the Secretary o* <inance on

countervening duty.

COPROI,E 2,ec. 4D5= NIRC3

% 2uestions as9ed in !$$4 @"R:&. ay the ;overnment compromise criminal cases

and civil casesL

!. Supposed the corporation is already dissolved?

can the stoc9holder be obliged to payL%. Suppose the civil case *iled by the @R is *inal

and e/ecutor? can it be sub7ect to compromiseL

CAN T9ERE BE COPROI,E IN*

8. C06 C"SESL- IES? = "=I S";E O< 1E

5ROCEED=;- EJCE5 A1E= 1E C06 C"SE S

"6RE"DI <="6 "=D EJECBORI@EC"BSE A66 @E 0O6"0E O<

1E SE5"R"O= O< 5OAERS4. CR="6 C"SESL

- IES? EJCE5:

a. < "6RE"DI <6ED = COBR

>RC) ORF b. < =0O60ES <R"BD

:. < 1E COR5OR"O= S "6RE"DI

DSSO60ED? C"= 1E SOC1O6DER @E1E6D 6"@6E O 5"I "JL

- ;E=ER"6 RB6E: =O

- EJCE5:

a. < S 5RO0E= 1" 1E

"SSES O< 1E CO5OR"O= S"E= @I O=E SOC1O6DER

ORF

b. < 1E SOC1O6DER DD =O

5"I 1S B=5"D SB@SCR5O=

inimum "mount to be Compromised >Sec. !$4)

&. * the ground is *inancial incapacity o* theta/payer? the minimum shall not be less than

&$ o* the original assessment.

!. * based on other grounds? the minimum amount

shall not be lower than 4$ o* the original

assessment.

-* Can it be lower than that prescribed by lawLA* "s a rule? no. EJCE5? i* allowed by the evaluation

board consisting o* the:

a) commissionerF and

b) deputy commissioner.

nstances when the <inal "ssessment becomes *inal and

e/ecutor:

&. * the ta/payer did not *ile the protest on time

!. <ailure to submit the supporting documents

within the #$-day period%. "*ter the lapse o* the &($-day period? you did

not *ile an appeal within the %$-day period to the

C"

4. "n appeal was *iled but made beyond thereglementary period to appeal

ET9O#, OF COLLECTION 2,EC. 4D@3

8. ;udicial Actiona. Civil

b. Criminal4. Administrative Action

a. Distraint b. 6evy

c. a/ lien

-* Ahy is it important to 9now whether the *inalassessment is under normal or abnormal conditionsLA* t is important because o* the requirement under

!!!. * the *inal assessment becomes *inal and

e/ecutory? the government >@R) can e/ercise theremedies under !$ in any order or simultaneously

>!$'). @ut it is not always the case? because the right o*

the government to collect is limited in case o* abnormal

assessmentKcollection under !!!. Bnder the secondoption? the right o* the government is limited to 7udicial

action either civil or criminal. "dministrative remedies

such as distraint? levy? or ta/ lien is not available under

such condition.

-* n distraint? levy or ta/ lien? is the &$ year period o*

collection applicableLA* =o? only the year period should apply.

Distraint

inds:&. Constructive >Sec. !$#)

!. Distraint o* ntangible >Sec. !$()

%. "ctual >Sec. !$'? par. a? and Sec. !$+)

8. Constructive 8istraint

N he distraining o**icer shall ma9e a list o* the

personal property o* the property to be distraint in the presence o* the owner o* the property or the person in

possession o* the property.

N he owner shall be requested to sign the receipt.

-* Ahat i* the owner re*uses to sign the receiptLA* Sec. !$#: he distraining o**icer shall require !

individuals within the neighborhood with the warning thatthey should not allow the ta/payer to dispose? trans*er? or

sell the property sub7ect o* distraint.

Page 75 of 79



;rounds *or Constructive Distraint >Sec. !$#):

&. he ta/payer intends to leave the 5hilippines!. he ta/payer leaves the 5hilippines

%. he ta/payer ceases or retires *rom business

4. he ta/payer obstructs the collection o* the ta/.

N 1ESE ;ROB=DS "6SO "=SAER 1E

2BESO=: A1" "RE 1E "J"@6E 5EROD

6ESSER 1"= &! O=1SL

4. 8istraint of "ntangible Propert

6imited to % ntangible 5roperties:&. Shares o* stoc9s

!. @an9 accounts

%. Credits and debits

%=are of stocDsN Aarrant o* distraint *urnished to the ta/payer or

the o**icer o* the corporation with the warning that

the property is sub7ect o* distraint and it should notdispose o* it.

7anD AccountsN Aarrant o* distraint *urnished to the ta/payer or the o**icer o* the ban9 with the warning that the

ta/payer should not be allowed to withdraw.

8ebits and CreditsN Aarrant o* distraint *urnished to the debtor and

creditor

:. Actual 8istraint

N 5ersonal property shall be physically ta9en by

the distraining o**icer.N Aithin &$ days *rom the receipt o* the warrant? a

report o* the distraint shall be submitted to the @R

>Sec. !$'? par a last par.)

N he property sub7ect o* distraint shall be sold ata public auction EJCE5 ban9 accounts and debits

and credits.

U =otice o* sale shall be by posting in !

conspicuous place? stating the date and the placeo* the sale >=o publication requirement)

N Sec. !&&: a*ter the sale and within ! days? a

report shall be made to the @R

-* * the property sold is a personal property? is there a

right o* redemptionLA* =O. he rule is absolute.

-* * the property is a personal property? is there a right

o* preemptionL

A* SEC. !&$: @e*ore the scheduled sale? the ta/payer is

allowed to recover the property by paying all the property by paying all the proper charges as well as the interest?

cost and penalties.

During the Scheduled "uction Sale? ! hings mayhappen:

&. here is bidder and the bid is enough

!. here is no bidder or there is a bidder but the bid

is not enough

-* Ahat is the relevance o* 9nowing the di**erenceLA* &. "f t=ere is a bidder and t=e bid is enoug=

U n case o* insu**iciency? there shall be *urther distraint to cover the liability. >!&')

U n case o* e/cess? the e/cess shall be returned to

the ta/payer.

!. "f t=ere is no bidder or t=e bid is not enoug=.U t will be purchase by the government and the

later sold in a public auction again >!&!)

U n case o* insu**iciency? no *urther distraint? !&'

applies only i* there was a bidder.U n case o* e/cess? the e/cess shall not be returned

to the ta/payer but shall be remitted to the national

treasury.

2e.y

N Other than the delinquent ta/payer? warrant o*

levy is served to the register o* deeds having 7urisdiction over the real property >Sec. !&%)

N Aithin &$ days *rom the receipt o* the warrant? a

report o* the levy shall be submitted to the @R >Sec.!$' >b) last par)

=otice o* Sale in 5ublic "uction:

&. 5osting in ! conspicuous places

!. 5ublication in newspaper o* general circulationonce a wee9 *or % consecutive wee9s.

-* s there a right o* pre emptionLA* Ies? !&%.

-* s there a right o* redemptionLA* Ies.

! hings may happen in a 5ublic "uction:

&. here is a bidder and the bid is enough

!. here is no bidder or the bid is not enough

-* Ahat i* there is no bidder or the bid is not enoughLA* <or*eiture shall be made >!&)

% De*initions o* <or*eiture under the nternal Revenue

Code

&. 0iolation o* E/cise a/ 6aw >Sec. !!4)

Page 76 of 79



!. * there is no bidder or the bid is not enough

>Sec. !&)%. he order o* the Collector to con*iscate imported

commodities >Sec. !%&%? CC)

Relevance o* the Choice o* Aords:N Bnder sec. !&!? the law says PpurchaseQ

N Bnder sec. !&? the law says P*or*eitureQ

U under !&: the real property shall be

automatically registered in the name o* the;overnment >*or*eiture)

U under !&!: the real property is not

automatically registered in the name o* the

;overnment >purchase)

-* * sold at a private sale? what is the requirementLA* here must be an approval o* the Secretary o*

<inance >!&#)

-* "*ter sale? i* there was de*iciencyLA* here shall be no *urther levy? because !& says that

it shall be to the total satis*action o* the ta/payer.

-* "*ter sale? i* there was an e/cessLA* t shall not be returned to the ta/payer but shall be

remitted to the national treasury.

,ec. 48<* this is only true i* there was no bidder or the

bid was not enough because o* the provisions o* the Secs.

!&!? !&? and !&#

,ec. 48?* no court shall issue an in7unction to restrain the

collection o* ta/ under this code

Determine what 9ind o* in7unction is re*erred to here:

&. 5rohibitory , re*erred in Sec. !&( because it

restrains the collection o* ta/.

!. andatory

-* s the provision limited to Pta/ under this codeQLA* 6imited to internal revenue ta/es. EJCE5: C"

>Regular Court) M R" &&! and +!(!: C" is authori3edto issue in7unction to restrain the collection o* ta/es or

*ees collected under other code.

-* s the rule o* distraint or levy the same under localta/ationLA* Ies? local ta/.

U &' *or DSR"=U &'# *or 6E0I

-* 1ow about real property ta/LA* =o? distraint is not authori3ed >!#? 6;C)? becausethe remedy is only ;udicial Action and Lev.

Tax 2ien

N =on payment o* ta/? the government has the right toclaim a lien over the property o* the ta/payer

&. =RC , Sec. !&+? =RC

!. 6ocal a/ , Sec. &'%? =RC

%. Real 5roperty a/ , Sec. !'? =RC

-* Supposed a parcel o* land is about to be levied by the

government? but the same is being *oreclosed by the

mortgagee? which o* the ! obligee? the government or themortgagee shall be pre*erredLA* !&+? last portion: he government is the

pre*erred one i* the lien is annotated and recorded in the

registry o* deed. n the absence o* annotation in theregistry o* deeds? the mortgagee is pre*erred.

-* Do we have the same rule under 6ocal a/ and Real

5roperty a/LA* =O. @oth &'% and !'? the government is always

the pre*erred one. he lien can only be removed by

payment o* ta/? interest and penalty.

,ec. 44D* approving o* *iling an ordinary civil action *or

violation o* the internal revenue code

N he approval must be made by the Commissioner o* nternal Revenue

'03#N .1 REP&20C !:6A SCR% ;87"

F* "n ordinary civil action *or violation o* the ta/ codewas *iled in the city o* San <ernando. @ut the *iling

was only approved by the Revenue Regional Director

o* Central 6u3on. he plainti** opposed the *iling inthe court on the ground that it should be approved bythe Commissioner and the Revenue RD.

9* Sec. !!$ should be read with Sec. ' o* the =RC

U ;eneral Rule: powers and *unctions o* the

Commissioner may be delegated but not to a position lower than a Division Chie*

U Bnder Sec. '? there are powers which can

not be delegated

a) 5ower to recommend to the Secretary o* <inance to issue rules and regulation

b) 5ower to decide a case o* *ist

impression

c) 5ower to enter into a compromiseagreement

d) 5ower to assign @R o**icer in the place

o* production sub7ect to income ta/U Since the case does not *all under the

prohibited delegation? the *iling o* the case is

legal and tenable.

N Decision o* the Commissioner o* nternal Revenue

>CR) is appealable to C".

Page 77 of 79



-* Ahen is a decision o* the cir appealable to the

Secretary o* <inanceLA* 4? on matters o* interpretation o* ta/ laws.

,EC. 44:* ,%,PEN,ION OF T9E R%NNING OF

PRE,CRIPTIVE PERIO#

-* " <ilipino ta/payer went to Canada? a*ter &years he

went bac9? he is being assessed by the @R under normal

assessment. 1as the right o* the government to asses theta/ already prescribedLA* =O. Ahen he went to Canada? the running o* the

prescribed period is suspended.

-* Ahat i* the change o* address is within the

5hilippines? say only *rom manila to 5asay City? is the

running o* the prescriptive period suspendedLA* n order that the running o* the prescriptive periodwill not be suspended? especially i* the change is district

o**ice? !!% provides that the ta/payer must send a

written notice o* change o* address to the @R.

n the absence o* the written notice? the period will besuspended.

-* Change o* address is *rom 5hilippines to abroadLA* he period will be suspended.

Other ;rounds *or Suspension:&. During collection i* there is no property *ound?

the period is suspended

!. * the @R is prohibited *rom ma9ing assessmentsuch when the sub7ect property is under litigation

%. n distraint o* levy? the @R o**icer canHt locate

the property

CLAI FOR REF%N# 2,EC 443

Aritten claim *or re*und:

&. Sec. !!+? =RC

!. Sec. &&!? 0"%. Sec. &%#? 6ocal a/

4. Sec. !%? Real 5roperty a/

. =one e/cept sec. &#$%? ari** and Custom

Written clai for refun$ un$er t&e input ta! 2,ec. 8843

> 5eriod is also ! years *rom the close o* the ta/able

quarter when the transaction was made

-* Can we apply !!+ to 0"LA* Ies? because there is no con*lict. &&! is re*und

under input ta/ system.!!+ is re*und *or:

&. errors in payment orF

!. collected without authorityF or

%. assessment without authority.

> he period to claim re*und is !years.

#octrine of Euita;le Recoupent

N * a ta/payer is entitled to a written claim *or re*und but the prescriptive period to claim has lapsed? the

ta/payer is allowed to credit his written claim *or re*und

which he *ailed to recover to his e/isting ta/ liability.

Computed *romF

a. ndividual , counted on the day the ta/ has been

paid

&. paying by way o* withholding ta/ system?the rec9oning point is the end o* the ta/able

year.

!. paying by way o* installment? rec9oning

point is the date the last installment is paid.%. i* sold to public auction through distraint or

levy? the date the proceeds is applied to the

satis*action o* the ta/ liability.

b. Corporation

&. E/isting- &++!? ___ v. Commissioner >!$ SCR" &(4)

- &++? Commissioner v. 5hilam li*e >!44

SCR" 44#)- &++(? Commissioner v. C" >%$& SCR"

4%)

!. =on-e/isting- !$$&? @5 v. Commissioner >%#% SCR"

(4$)

&. E/isting , the counting o* the prescriptive period

is ! years on the day the annual ad7usted return is*iled? because it is at that day that the ta/ liability

is 9nown.

!. =on-e/isting , the counting o* the prescriptive

period should also be rec9oned on the day theannual return is *iled. @ut the corporation is no

longer required to wait till the ta/able period is

over to *ile the return. Bpon receipt o* a notice

*rom the SEC to dissolve the corporation? within%$ days therea*ter? a return should be *iled.

-* Suppose there is a supervening event? and theta/payer was not able to *ile a written claim o* re*undwithin the periodLA* Regardless o* supervening event? a written claim *or

re*und must be *iled within !years.

-* Suppose the ! year period is about to e/pire and there

is no decision yet as to your re*undLA* Remedy is to *ile an appeal be*ore the C" >deemed

a denial)

Page 78 of 79



-* Suppose the @R decided within ! years against the

re*undLA* "ppeal within %$days *rom the decision? provided it

is still within the ! year period.

-* Suppose there is only !&days remaining a*ter receiving the decision? when to *ile an appealLA* Aithin !&days be*ore the end o* the ! year period.

N " written claim *or re*und should be *iled within !years

N Sec !$4 >c) last phrase: in case o* over payment a

written claim is not necessary because a return constitutesa written claim *or re*und.

-* ay the commissioner o* internal revenue open the

ban9 account o* a ta/payerLA* ;eneral Rule: =O. EJCE5:

&. o determine the gross value o* the estateF and

!. o enter into a compromise agreement. >under

!$4>"))

N he written claim *or re*und to determine the gross

value o* the estate because the ta/payer is already dead

n case o* compromise? there must be consent.

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Taxation Law Review Notes (from Auie).doc