Taxation law review notes - Atty. Francis J. Sababan COVERAGE OF TAXATION LAW REVIEW I.

Basic Principles of Constitutional Li itations a) Due process clause which could be either substantive due process and procedural due process clause b) Equal protection clause ead! "r#oc Su$ar %entral vs. %ity Treasurer && S% A '() Tiu vs. %A )(* S% A *+, c) Article --- sec. * o. the */,+ %onstitution 0 non-i#pair#ent clause d) Article --- sec. 1 0 .reedo# o. reli$ion e) Article --- sec. &( 0 non-pay#ent o. poll tax .) Article 2- sec. &, par. & 0 .lexible tari.. clause $) Article 2- sec. &, par. ) 0 exe#ption .ro# real property tax ead! 3errera vs. 4ue5on %ity ) S% A *,' Abra vs. 3ernando *(+ S% A *(6 Abra 2alley vs. Aquino 1& S% A *(' 7hilippine 8un$ %enter vs. 4ue5on %ity 6)) S% A **/ h) Article 2- sec. &, par. 6 0 quali.ied #a9ority in tax exe#ption i) -nternational double taxation %- vs. Johnson )(/ S% A ,+ 9) Doctrine o. equitable recoup#ent :) Doctrine o. Set-o.. or co#pensation in taxation epublic vs. ;a#bulao 6 S% A '&& Do#in$o vs. <arlitos , S% A 66) Francia vs. -A% *'& S% A +1) %altex vs. %"A &(, S% A +&' 7hilex vs. %- &/6 S% A ',+ II. Inco e Ta! La" Section &&-&' o. the =ational -nternal evenue %ode a) ead in the co##entaries or #a$ic notes the di..erent :inds o.! *. -nco#e Taxpayers &. -nco#e Taxes ). Sources o. -nco#e sec. 6& o. =- % - -nco#e Taxpayers a) -ndividuals b) %orporation c) Estates and Trusts 0 --ndividuals are classi.ied esident %iti5ens sec. &) >A)? sec &6 >A) >a) =on- esident %iti5ens sec &) >@)? &6 >A) >b) && >E) "verseas %ontract Aor:ers Sec. &) >%)? &6 >A) >b) esident Aliens ev. e$. sec 1? &) >D)? &6 >A) >c) =on- esident Aliens En$a$ed in trade or business sections &1 >A) >*) =on- esident Aliens =ot En$a$ed in trade or business sec. &1 >@) Aliens E#ployed in ;ulti-=ational %orporations sec. &1 >%) and ev. e$. *&-&((* Aliens E#ployed in "..shore @an:in$ Bnits sec &1 >D) Aliens E#ployed in petroleu# Service %ontractors C Subcontractors sec. &1 >E) -%orporate -nco#e Taxpayers Do#estic %orporations sec. &) >E)? and sec &+ o. =- % esident Forei$n %orporations sec. && >3) and >&,)A =on- esident Forei$n %orporations sec. && >*) and &, >@)

Taxation law review notes - Atty. Francis J. Sababan -Estates and Trusts sec. '(-'' o. =- % Di..erent Dinds o. -nco#e Tax *. =et -nco#e Tax secs. &6 >A)? &1 >A) >*)? &'? &+ >A) >@) >%)? &, >A) up to ) rd par. )* and )& >A) &. <ross -nco#e Tax secs. &1 >@) .irst part and &, >@) >*) ). Final -nco#e Taxes sec. 1+ >A) 6. ;ini#u# %orporate -nco#e Tax o. &E o. the <ross -nco#e secs. &+ >E)? &, >A) >&) 1. -#properly Accu#ulated Earnin$s Tax o. *(E o. its taxable inco#e sec. &/ =- % ev. e$. &-&((* "ptional %orporate -nco#e Tax o. *1E o. its $ross inco#e sections &+ >A) 6 th to *(th par. And &, A>*) but only up to the 6th para$raph -7roceed to section 6& and &) o. the =- % =D% vs. %o## *1* S% A 6+& %o##. 2s. -A% *&+ S% A / -Then $o to sec. )/ o. =- % %ala5ans vs. %o##. *66 S% A ''6 +-&(() -Then proceed to sec. &6 >A)? &1 >A) >*)? &1 @?%?D?E? &+ A?@?%F &, >A) >*)? &, >A) >') and sec 1* >D) -Then continue to sec &6 @ *? &1 @?%?D?EF &+ >D) >*) -Then $o to se. &6 >@) >&) sec. +) %o##. 2s. ;annin$ '' S% A *6 Anscor vs. %o##. )(* S% A *1& -Sec. &1 >A) >&)? &1 @? %? %? E? sec. &+ >D) >6)F &, >A) >+) >D)F )& @ >+) >a) Then you $o to sec. &6 %? &1A >))F &1 @? %? D? E? &+ D >&)F &, >A) >+) >%)F &, @ >1) >%) sec. *&+ =- % - Then you $o to sec. &6 D >*)F &1 >A) >))F &1 >@) last par. &+ >D) >1) %hina @an: vs. %ourt o. Appeals ))' S% A GGGF +-&(() -Bpon readin$ sec. &6 >D) >&) read *)-*/// -Bpon readin$ sec. &+ >A) $o to sec. && >@) @atan$as vs. %ollector *(& 7hil. ,&& Evan$elista vs. %ollector *(& 7hil *6( eyes vs. %o##. &6 S% A */, "na vs. @autista 61 S% A +6 "billos vs. %o## *)/ S% A 6)' 7ascua vs. %o##. *'' S% A 1'( A.isco vs. %o##. )(& S% A * -Bpon readin$ sec. &+ >%) o. =- % see >o) o. 8<%? sec. *16 o. the 8<%. 7a$cor vs. @asco */+ S% A 1& ;actan vs. %ebu &'* S% A ''+ 8 T vs. %ity o. ;anila )6& S% A '/& A /))+ then $o to sec. )& >@) >+) >b) o. =- %? sec. *)) par A ++*+

-7roceed to sections &+ >D) >*)? &+ >D) >&)? &+ >D) >1) read A /))+? &, >A) >+) >b)? &, >@) >1) >%)? &+ >D) >6)? >&,) >A) >+) >d)? &, >@) >1) >b) ;arubeni vs. %- *++ S% A 1(( 7roctor C <a#ble vs. %o## *'( S% A 1'( Sa#e case 7roctor and <a#ble on the ;otion .or econsideration &(6 S% A )++ Aonder vs. %o## *'( S% A 1+) -7roceed to sec. &+>D) >1)

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Taxation law review notes - Atty. Francis J. Sababan then sections &+ >E) and &, >A) >&) -<o to sec. &, >A) >)) read *1-&((& -<o to sec. &, >A) >6) see A /))+ -Then see sec &, >A) >1) see ;arubeni vs. %o## *++ S% A 1(( -7roceed to sec. &,>@) >1) >a) and sec )& >@) >+) >a) ead ;itsubishi vs. %o## *,* S% A &*6 -Then $o to sec. &/ and ev. e$. &-&((* -Bpon readin$ sec. )& >@) * and &? read sec. ,1 par >e)? sec. *(,A and sec. *&) o. the =- % -7roceed to sec. )) read ev. e$. )-/, -then $o to sec. )6 >A) >*) >a) see A$uinaldo vs. %o##. **& S% A *)'? *(-&((& -Bnder Sec. )6 >@) read *)-&((( -Bpon readin$ sec. 6/ read @anas vs. %A )&1 S% A &1/ and Filipina vs. %o##. )*' S% A 6,( -Bpon readin$ sec. '(-''? read "na vs. @autista 61 S% A +6 III. Estate Ta! -Sections ,6-/+ see sec. *(6 -Bpon readin$ sec. ,1 >@) read 2idal de oces vs. 7osadas 1, 7hil. *(, Di5on vs. 7osadas 1+ 7hil 6'1 -Sec. ,1 ><) co#pare with sec. *(( -sec. ,1 >3) co#pare with sec. ,' >%) -Bpon readin$ sec. ,' see &-&(() -Bpon readin$ sec. /6 see ;arcos vs. Sandi$anbayan &+) S% A 6+ IV. #onors Ta! La" - Sections /,-*(6 - < and %u#ulative #ethods o. .ilin$ donorHs tax returns sections // >A)? *() >A) >*) and &(() - Sections *(( and ,1 >/) V. Value A$$e$ Ta! - Sections *(1-**1 - ead A /))+ - ead A@ADADA vs %o##. < *',(1'? Sept. *? &((1 VI. Re e$ies %n$er t&e Internal Re'enue Co$e -Sections &(&-&&/ *&-// 7hoenix vs %o## *6 S% A 1& @asilan vs. %o##. &* S% A *+ Iabut vs. Flo9o **1 S% A &+, Bnion Shippin$ vs. %o## *,1 S% A 16+ %o##. vs. T;J &(1 S% A *,6 %o##. vs. 7hila#li.e &66 S% A %o##. vs. %A C @7- )(* S% A 6)1 @7- vs. %o##. )') S% A ,6( -7rescription sections &() and &&& o. =- %? sec. */6 o. the 8<%? sec. &+( o. the 8<%? sec. *'() o. Tari.. and %usto#s %ode -7rotest sec. &&, o. =- % and *&-// sec. */1 o. 8<%? &1& 8<%? sec. &)*) o. Tari.. C %usto#s %ode and A +'1* VII. Local Ta!ation - Sections *&,-*/' o. 8<% -7roceed *st to sec. *,' read @ulacan vs. %A &// S% A 66& -Then proceed to *,+ -Then to *1*

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Taxation law review notes - Atty. Francis J. Sababan -*&, -Bnder sec. *)) >e) read 7al#a vs. ;alan$as 6*) S% A 1+& -Bnder *)) >h) read 7ililia vs. 7etron */, S% A ,& -Bnder *)) >i) read First 3oldin$s %o. vs. batan$as %ity )(( S% A ''* -Bnder *)) >l) read @utuan vs. 8T" )&& S% A ,(1 -Bnder *)+ read sec. */) o. 8<% ;isa#is vs. %a$ayan de "ro *,* S% A ), eyes vs. San 7ablo %ity )(1 S% A )1) ;eralco vs. 8a$una )(' S% A +1( 78DT vs. Davao %ity )') S% A 1&& - %o-relate sec. *)/ and *6+ o. 8<% - Bnder sec. *6( o. the 8<% see sec. *&1 o. the -nternal - Bnder sec. *1( o. the 8<% read the .ollowin$! 7hil. ;atch vs. %ebu ,* S% A // Allied Thread vs. ;anila *)) S% A )), Sipocat vs. Shell *(1 7hil. *&') -loilo @ottles vs. -loilo %ity *'6 S% A '(+ VIII. Real Propert( Ta! - Sections */+-&/6 - Sec. &)1 8 T vs. ;anila )6& S% A '/& %ebu %ity vs. ;actan &'* S% A ''+ IX. Tariff ) Custo s Co$e - Special %usto#s Duty sec. )(*-)(6 o. T%% e$u:ar %usto#s Duty sec. *(6 o. T%% A +')* X. Court of Ta! Appeals A **&1 as a#ended by evenue %ode

A /&,&

Taxation law review notes - Atty. Francis J. Sababan -

Taxation law review notes - Atty. Francis J. Sababan 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. The next #eetin$ you attend class? consider yoursel. a resident o. balic-balic? babali:bali:an :a sa recit. Exception! i. you $et #arried. &. read the assi$n#ent. Aa$ 5apote an$ aral. ). holiday 0 #a:e up class probably on a Sunday 6. allowed to $lance at your notes? wa$ lan$ pahalataK$arapal 1. #aterials! codal co##entaries >any author will do) #a$ic notes >Sababan 8ecture and 4CA) @oo: stand Co'era+e of Ta!ation La" Re'ie"* *. @asic 7rinciples includin$ %onstitutional 7rovisions &. -nco#e Tax ). Estate Tax 6. DonorHs Tax 1. e#edies '. 8ocal Tax +. eal 7roperty Tax ,. Tari.. and %usto#s %ode /. %ourt o. Tax Appeals *(. 2AT >althou$h not part o. the covera$e o. the @ar Exa#s? questions have been as:ed since *///) M M M Title 1?' and + are always included in the covera$e =o co#putations in the bar There are only * or & questions in the @ar about @asic 7rinciples Ahat are the .avorite topics in the @arL *& questions on -nco#e Tax ,-*( questions on re#edies ,-*( questions allocated to the + topics

BA,IC PRINCIPLE,* N Taxation is an inherent power o. the State.

-* Ahat do you #ean by -=3E E=TL A* The power to tax is not provided .or in the law? statute or constitutionF it depends on the existence o. the state. =o law or le$islation .or the exercise o. the power to tax by the national $overn#ent. -* Do local $overn#ents exercise this inherent powerL A* =o. "nly the =ational <overn#ent exercises the inherent power to i#pose taxes. -* The taxin$ power o. local $overn#ents is a DE8A<ATED power. Dele$ated by who#L A* Dele$ated by %on$ress throu$h law in case o. autono#ous re$ions? and dele$ated by the constitution in case o. 8<Bs not considered an autono#ous re$ion. N Cities, provinces and municipalities M power $ranted under Art. J Sec. 1C' o. the %onstitution

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Taxation law review notes - Atty. Francis J. Sababan Autonomous Regions M power con.erred by %on$ress throu$h law. Art. J Sec. &( O& o. the %onstitution is a non-sel.-executin$ provision. Thus the power is $ranted by %on$ress because said provision requires an enablin$ law. N Article J? Section 1 is sel.-executin$ thus the power is $ranted by the constitution.

CON,TIT%TIONAL LI.ITATION, Due Process Clause -* why is it a li#itation to the power to taxL A* The due process clause as a li#itation to the power to tax re.ers both to substantive and procedural due process. Substantive due process requires that a tax statute #ust be within the constitutional authority o. %on$ress to pass and that it be reasonable? .air and 9ust. 7rocedural due process? on the other hand? requires notice and hearin$ or at least the opportunity to be heard. Ex! "n Substantive Due 7rocess- when the %on$ress passes a law exe#ptin$ the *) th #onth pay .ro# tax but with the concurrence only o. the #a9ority o. the quoru# 0 law would be invalid because the %onstitution provides that any $rant o. tax exe#ption shall be passed with the concurrence o. the #a9ority o. all the #e#bers o. the %on$ress. -* Does it .ollow that the adverse party #ust always be noti.iedL A* =o. As a rule? notice and hearin$ or the opportunity to be heard is necessary only when expressly required by law. Ahere there is no such require#ent? notice and the opportunity to be heard are dispensable. Ex. @e.ore "ct. *? *//1? you can secure a T " without noti.yin$ the adverse party. -. you are a suspect in a cri#inal case? you have the ri$ht to have an opportunity to be heard >i. there is a law). @e.ore July *? *//,? no notice need be $iven to a party declared in de.ault. A.ter the a#end#ent? the party declared in de.ault has to be noti.ied o. subsequent proceedin$s albeit without the ri$ht to participate therein. -n the case o. a search warrant? the person to be searched was not noti.ied. The person searched cannot clai# that there was a violation o. due process because there is no law requirin$ that the person to be searched should be noti.ied. e$ardin$ delinquent tax payers? be.ore levy? there #ust be notice. EAS"=! =o provision o. law requires notice to the adverse party. -. the adverse party is noti.ied? he #ay abscond. Thus? in adversarial proceedin$s? in connection with procedural due process? the adverse party need not be noti.ied all the ti#e. Equal Protection Clause N As a rule? taxpayers o. the sa#e .ootin$ are treated ali:e? both as to privile$es con.erred and liabilities i#posed. Di..erence in treat#ent is allowed only when based on substantial distinction. Di..erence in treat#ent not based on substantial distinction is .rowned upon as Pclass le$islation.Q This is violated when taxpayers belon$in$ to the sa#e classi.ication are treated di..erently .or# one anotherF and taxpayers belon$in$ di..erent classi.ications are treated ali:e. Requirements of Reasonable Classification: *) There #ust be substantial distinctions that #a:e a real di..erence. &) -t #ust be $er#ane or relevant to the purpose o. the law. )) The distinction or classi.ication #ust apply not only to the present but also to .uture situations. 6) The distinction #ust apply to persons? thin$s and transactions belon$in$ to the sa#e class.

Taxation law review notes - Atty. Francis J. Sababan Ex! -n one case? a tax ordinance was assailed on the $round that the ordinance .ailed to distin$uish a wor:er .or# casual? per#anent or te#porary. The S% said that the ordinance was invalid because o. the .ailure to state the said classi.ication. -n PEOPLE v. CA A! the Supre#e %ourt #andated the requisites .or a valid classi.ication. !"# v. CO#R! O$ APPEAL% &'() %CRA *+,-* what happened in the city o. "lon$$apoL A* The %on$ress? with the approval o. the 7resident? passed A +&&+? an act creatin$ the conversion o. the #ilitary bases into other productive uses. -* Aho was the 7resident at that ti#eL A* 7resident a#os -* Ahat were si$nedL A* A +&&+? E" /+ and E" /+-A M The .irst led to the creation o. the Subic Special Econo#ic Rone >SSER). The latter set the li#itations and boundaries o. the application o. the incentives >no taxes? local and national? shall be i#posed within SSER. -n lieu thereo.? )E o. the <ross -nco#e shall be re#itted to the national $ovHt) to those operatin$ their businesses within the said area. -* Aho are the petitioners and what was their contentionL A* The petitioners are Filipino business#en who are operatin$ their business outside the secured area. The petitioners contended that the law in question was violative o. their ri$ht to equal protection o. laws since they are also Filipino business#en. 3! The Supre#e %ourt ruled that there was no violation since the classi.ication was based on a substantial distinction. The ele#ent invo:ed here is ele#ent O* that there #ust be substantial distinction in the classi.ication o. taxpayers on who# the tax will be i#posed. The %ourt observed that those .orei$n business#en operatin$ within the secured area have to $ive a lar$er capital to operate in the secured area >to spur econo#ic $rowth and $uarantee e#ploy#ent). OR.OC %#/AR CE0!RAL vs. C"R -* Ahat did the #unicipality o. "r#oc doL A* The %ity %ouncil o. "r#oc passed a ;unicipal "rdinance =o.6 i#posin$ upon any and all centri.u$al su$ar #illed at the "r#oc Su$ar %entral a #unicipal tax on the net sale o. the sa#e to the Bnited States and other .orei$n countries. -* Did the owner accept this i#positionL A* =o. the tax due was paid under protest? then .iled a co#plaint a$ainst the %ity o. "r#oc. 3! The Supre#e %ourt said there was a violation o. the equal protection clause. The ele#ent invo:ed here was ele#ent O)? that it #ust be applicable to both present and .uture circu#stances. The Supre#e %ourt said that one #ust $o to the provision itsel.? in the case at bar? there was a violation o. ele#ent O) because the law was worded in such a way that it only applies to "r#oc Su$ar %entral alone and to the exclusion o. all other su$ar centrals to be established in the .uture. TADE ="TE! 7eople vs. %ayat Freedom of Religion -t -nvolves ) Thin$s! *. .reedo# to choose reli$ion &. .reedo# to exercise oneHs reli$ion ). prohibition upon the national $overn#ent to establish a national reli$ion -* Ahich one li#its the power to taxL A* 7rohibition upon the national $overn#ent to establish a national reli$ion because this will require a special appropriation o. #oney co#in$ .ro# the national treasury which is .unded by the taxes paid by the people.

Taxation law review notes - Atty. Francis J. Sababan Non-impairment Clause -* Ahat are the sources o. obli$ation in the %ivil %odeL A* 8aw? %ontracts? 4uasi-%ontracts? Delict? 4uasi-Delict. -* Ahat is the obli$ation conte#plated in this li#itationL A* Those obli$ations arisin$ .ro# contracts. <eneral ule! The power to tax is pursuant to law? there.ore? the obli$ation to pay taxes is i#posed by law? thus the non-i#pair#ent clause does not apply. N Iou have to deter#ine .irst the source o. obli$ation! *. -. the law #erely provides .or the .ul.ill#ent o. the obli$ation then the law is not the source o. the obli$ation. &. Ahen the law #erely reco$ni5es or ac:nowled$es the existence o. an obli$ation created by an act which #ay constitute a contract? quasi-contract? delict? and quasi-delict? and its only purpose is to re$ulate such obli$ation? then the act itsel. is the source o. the obli$ation? not the law. Ahen the law establishes the obli$ation and also provides .or its .ul.ill#ent? then the law itsel. is the source o. the obli$ation -* So? in what instance does the non-i#pair#ent o. contracts clause beco#es a li#itation to the power to taxL A* it is when the taxpayer enters into a co#pro#ise a$ree#ent with the $overn#ent. -n this instance? the obli$ation to pay the tax is now based on the contract between the taxpayer and the $overn#ent pursuant to their co#pro#ise a$ree#ent. Ta:e =ote! the require#ent .or its application! the parties are the $overn#ent and private individual. Poll Tax -* Ahat is a poll taxL A* -t is a tax o. a .ixed a#ount on individuals residin$ within a particular territory? whether citi5ens or not? without re$ard to their property or to the occupation in which they #ay be en$a$ed. -t is a tax i#posed on persons without any quali.ications. persons #ay be allowed to pay even i. they are not quali.ied as to a$e or property ownership. Exa#ple o. 7oll Tax! %o##unity Tax %erti.icate under Section *'& o. the 8ocal <overn#ent %ode. -* Ahy is it a li#itation to the power to taxL A* -t is a li#itation to the power to tax because %on$ress is prohibited .ro# passin$ a law penali5in$ with i#prison#ent a person who does not pay poll tax. >.unds .or sendin$ a person to 9ail is ta:en .ro# the national treasury which is .unded by the taxes paid by the people) Exemption from payment of Real Estate Tax -* Ahat is the require#ent .or exe#ption .ro# pay#ent o. real property tax under the */)1? */+) and */,+ %onstitutionL A* Art. 1, %ec ** &'-, )2'3 Constitution 0 %e#eteries? churches and parsona$es or convents appurtenant thereto? and all lands? buildin$s and i#prove#ents used EJ%8BS-2E8I .or E8-<-"BS? %3A -TA@8E or EDB%AT-"=A8 purposes shall be exe#pt .or taxation. Art. ,, %ec. )+ &'-, )2+' Constitution 0 charitable institutions? churches? parsona$es or convents appurtenant thereto? #osque? and non-pro.it ce#eteries? and all lands? buildin$s? and i#prove#ents A%TBA88I? D- E%T8I? and EJ%8BS-2E8I used .or E8-<-"BS and %3A -TA@8E purposes shall be exe#pt .ro# taxation. Art. 1, %ec. *, &'-, )2,+ Constitution 0 charitable institutions? churches? and parsona$es or convents appurtenant thereto? #osque? non-pro.it ce#eteries? and all lands? buildin$s? and

Taxation law review notes - Atty. Francis J. Sababan i#prove#ents A%TBA88I? D- E%T8I and EJ%8BS-2E8I used .or %3A -TA@8E purposes shall be exe#pt .ro# taxation. E8-<-"BS? EDB%AT-"=A8 and

4ERRERA v. 5C67OAR8 O$ A%%E%%.E0! >*/)1 %onstitution) -* Ahat is involved in this caseL A* A charitable institution? St. %atherineHs 3ospital. The hospital was previously exe#pt .ro# taxation until it was reclassi.ied and subsequently assessed .or the pay#ent o. real property tax. The contention o. the respondent is that the hospital was no lon$er a charitable institution because it accepts pay-patients? it also operates a school .or #idwi.ery and nursin$? and a dor#itory. Since it is not exclusively used .or charitable purposes it is not exe#pt .ro# taxation. 3! The %ourt ruled that petitioner is not liable .or the pay#ent o. real estate taxes. -t is a charitable institution? thus exe#pt .ro# the pay#ent o. such tax. The hospital? schools and dor#itory are all exe#pt .ro taxation because they are incidental to the pri#ary purpose o. the hospital. ="TE! this arose durin$ the */)1 %onstitution. PExe#pted by virtue o. incidental purposeQ was #erely coined by the Supre#e %ourt. Thus? it does not apply to other taxes except eal Estate Tax. PRO9"0CE O$ A7RA v. 4ER0A08O -* Ahat is involved in this caseL A A reli$ious institution was involved in this case? the o#an %atholic @ishop o. @an$ued? -nc. >bishop .iled declaratory relie. a.ter assessed .or pay#ent o. tax). The respondent 9ud$e $ranted the exe#ption .ro# taxes o. said church based only on the alle$ations o. the co#plaint without conductin$ a hearin$Ktrial. The assistant prosecutor .iled a co#plaint contendin$ that petitioner was deprived o. its ri$ht to due process. S%! the %ourt ordered that the case be re#anded to the lower court .or .urther proceedin$s. The %ourt observed that the cause action arose under the */+) %onstitution? not under the */)1 %onstitution >note the di..erence). Tax exe#ption is not presu#ed. -t #ust be strictly construed a$ainst the taxpayer and liberally construed in .avor o. the $overn#ent. A7RA 9ALLE COLLE/E "0C. v. A5#"0O -* Ahat is involved in this caseL A* An educational institution is involved in this case. The $round .loor o. the school was leased to =orthern ;ar:etin$ %orp.? a do#estic corporation. The & nd .loor thereo. was used as the residence o. the school director and his .a#ily. The 7rovince o. Abra now contends that since the school is not exclusively used .or educational purposes? the school is now liable to pay real estate tax. 3! The %ourt held that the school is 7A T-A88I liable .or real estate tax. *. esidence 0 exe#pt by virtue o. incidental purposeF 9usti.ied because it is necessary. &. %o##ercial 0 not exe#pt because it is not pursuant to the pri#ary purposeF not .or educational purposes. -* is the doctrine in the case o. 3errera the sa#e with this caseL A* =". in the 3errera case? the exe#ption was $ranted to all the real property >hospital? school and dor#). @ut in this case? the Supre#e %ourt #ade a quali.ication. The Supre#e %ourt said it depends. ="TE! both cases arose under the */)1 %onstitution despite havin$ been decided in */,,. -* At present? do we still apply the exe#ption .ro# tax by virtue o. the Doctrine o. -ncidental 7urposeL A* =ot any#ore. The cause o. action in said case arose under the */)1 %onstitution and it does not apply to the provisions o. the */,+ %onstitution.

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Taxation law review notes - Atty. Francis J. Sababan P4"L"PP"0E L#0/ CE0!ER v. 5#E:O0 C"! -* Ahat is involved in this caseL A* A charitable institution? a hospital. -t is provided in the charter o. the 8un$ %enter o. the 7hilippines is a charitable institution. 3owever? part o. its buildin$ was leased to private individuals and the vacant portion o. its lot was rented out to Elliptical "rchids. espondent contends that since the hospital is not used actually? directly? an d exclusively .or charitable purposes? it is liable to pay real estate taxes. 3! The Supre#e %ourt held that the petitioner is liable to pay tax .or those parts leased to private individuals .or co##ercial purposes. For the part o. the hospital used .or charitable purposes >whether .or pay or non-pay patients)? petitioner is exe#pt .ro# pay#ent o. real estate tax. ="TE! petitioner contended that the pro.its derived .ro# the lease o. its pre#ises were used .or the operation o. the hospital. The %ourt held that the use o. the pro.its does not deter#ine exe#ption? rather it is the use o. the property that deter#ines exe#ption. The case o. 3errera does not apply because said case arose under the */)1 %onstitution and the present case arose under the */,+ %onstitution. The require#ents .or exe#ption are di..erent. -n the */)1 %onstitution? the property #ust be EJ%8BS-2E8I used .or reli$ious? educational or charitable purposes. Bnder the */,+ %onstitution? the property #ust be used A%TBA88I? D- E%T8I? and EJ%8BS-2E8I .or reli$ious? educational and charitable purposes. -* Aas the doctrine laid down in Abra 2alley a..ir#ed in the 8un$ %enter caseL A* Ies. The Supre#e %ourt unconsciously applied a doctrine laid down by the */)1 %onstitution. The Supre#e %ourt reiterated the rulin$ in the Abra 2alley case which arose under the */)1 %onstitution. The Supre#e %ourt #ade a quali.ication? it held that it depends on whether or not the use is incidental to the pri#ary purpose o. the institution. ="TE! at present? Pexe#ption .ro# tax by virtue o. incidental purposeQ is not applicable to all taxes includin$ real estate tax. CO.. v. %C ;O40%O0 and %O0%, "0C. -#portant ! *. international double taxation &. i#portance o. international tax treaty ). i#plication o. #ost .avored nation clause -* Ahat is the corporation involved in this caseL A* A do#estic corporation >D%). S% Johnson and Sons? -nc. entered into a license a$ree#ent with S% Johnson and Sons B.S.A >=on- esident Forei$n %orp? = F%) whereby the .or#er was allowed to use the latterHs trade#ar: and .acilities to #anu.acture its products. -n return? the D% will pay the = F% royalties as well as pay#ent o. withholdin$ tax. A case .or re.und o. overpaid withholdin$ tax was .iled. Apparently? the D% should have paid only *(E under the #ost .avored nation clause. 3! The Supre#e %ourt coined the ter# -nternational Double Taxation or -nternational Juridical Double Taxation. -* Ahat pro#pted the S% to coin such ter#L A* @ecause a sin$le inco#e >tax royalties paid by a D%) was sub9ected to tax by two countries? the 7hilippines inco#e tax and the B.S. tax. -nternational Juridical Double Taxation applies only to countries where the tax liabilities o. its nationals are i#posed on inco#e derived .ro# sources co#in$ .ro# within and without. -* -s there an instance where international double taxation does not applyL A* Ies. -. it involves nationals o. countries wherein the tax liability is i#posed only .ro# inco#e derive .ro# sources within and not includin$ those derived .ro# sources without. >Ex! Swit5erland) M The controversy in the case at bar involves the inco#e tax paid in the 7hilippines.

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Taxation law review notes - Atty. Francis J. Sababan A.ter payin$ &1E? the BS .ir# discovered that they are entitled to *(E under the #ost .avored nation clause. The question is! was the tax paid under si#ilar circu#stances with that o. the 7-Aest <er#any TreatyL The %TA and %ourt o. Appeals ruled that it was paid under si#ilar circu#stances. The phrase re.erred to the royalties in pay#ent o. inco#e tax. The Supre#e %ourt ruled that the lower courtsH interpretation o. the phrase was erroneous. ather? the phrase applies to the application o. #atchin$ credit. -* Ahat is #atchin$ tax creditL A* 7-<er#any Treaty provides .or that &(E o. the tax paid in the 7hilippines shall be credited to their tax due to be paid in <er#any. The *(E does not apply because there is no #atchin$ credit. Thus? there is no si#ilarity in the circu#stances. E-%ITABLE RECO%P.ENT AN# #OCTRINE OF ,ET/OFF Equitable Recoupment This doctrine provides that a clai# .or re.und barred by prescription #ay be allowed to o..set unsettled tax liabilities. This is not allowed in this 9urisdiction? because o. co##on law ori$in. -. allowed? both the collectin$ a$ency and the taxpayer #i$ht be te#pted to delay and ne$lect the pursuit o. their respective clai#s within the period prescribed by law. -* Ahat is the doctrine o. Equitable ecoup#entL A* Ahen the clai# .or re.und is barred by prescription? the sa#e is allowed to be credited to unsettled tax liabilities. >Sir $ives an illustration .ound in pa$e ) o. #a$ic notes) -* -s the rule absoluteL eason A* Ies? the rule is absolute. The rationale behind this is to prevent the taxpayer and $overn#ent o..icial .ro# bein$ ne$li$ent in the pay#ent and collection o. taxes. >.urther#ore? you have to be honest .or this to wor:? hence? the $overn#ent is preventin$ corruption) There is no exception at all otherwise? the @- would be .looded with so #any clai#s. Set-off 7resupposes #utual obli$ation between the parties. -n taxation? the concept o. set-o.. arises where a taxpayer is liable to pay tax but the $overn#ent? .or one reason or another? is indebted to the said taxpayer. -* Ahat do you #ean by SET-"FFL A* This presupposes #utual obli$ations between the parties? and that they are #utual creditors and debtors o. each other. -n taxation? the concept o. taxation arises where a taxpayer is liable to pay taxes but the $overn#ent? .or one reason or another? is -=DE@TED to said taxpayer. REP#7L"C v. .A.7#LAO L#.7ER CO. -* Ahat is the liability o. ;a#bulaoL A* They are liable to pay .orest char$es >under the old tax code). ="TE! under our present tax code? the =- %? we do not have .orest char$es as the sa#e was abolished by 7resident Aquino. -* Ahat did the lu#ber co#pany doL A* The lu#ber co#pany clai#ed that since the $overn#ent did not use the re.orestation char$es it paid .or re.orestation o. the denuded land covered by its license? the a#ount paid should be rei#bursed to the# or at least co#pensated or applied to their liability to pay .orest char$es. 3! The %ourt ruled that the re.orestation char$es paid is in the nature o. taxes.

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Taxation law review notes - Atty. Francis J. Sababan The principle o. co#pensation does not apply in this case because the parties are not #utually creditors and debtors o. each other. A clai# .or taxes is not a debt? de#and? contract or 9ud$#ent as is allowed to be set-o.. under the statute o. set-o.. which is construed uni.or#ly? in the li$ht o. public policy? to exclude the re#edy in connection or any indebtedness o. the State or any #unicipality to one who is liable .or taxes. =either are they a proper sub9ect .or recoup#ent since they do not arise out o. contract or the sa#e transaction sued on. <eneral ule! no set-o.. is ad#issible a$ainst de#ands .or taxes levied in $eneral or local $overn#ental purposes. eason! Taxes are not in the nature o. contracts or debts between the taxpayer and the $overn#ent? but arises out o. a duty to? and are positive acts o. the $overn#ent to the #a:in$ and en.orcin$ o. which? the consent o. the individual is not required. Taxes cannot be the sub9ect #atter o. co#pensation. 8O."0/O v. /ARL"!O% -* Ahat is bein$ collected in this caseL A* Estate and inheritance taxes. ="TE! we do not have inheritance taxes any#ore because the sa#e was abolished by 8olo ;acoy. -* Aho is the ad#inistratrixL A* The survivin$ spouse. -* Ahat did the survivin$ spouse doL A* The survivin$ spouse su$$ested that the co#pensation to which the decedent was entitled to as an e#ployee o. the @ureau o. 8ands be set-o.. .ro# the estate and inheritance taxes i#posed upon the estate o. the deceased. 3! @oth the clai# o. the $overn#ent .or estate and inheritance taxes and the clai# o. the >intestate) .or the services rendered have already beco#e overdue hence de#andable as well as .ully liquidated? co#pensation there.ore ta:es place by operation o. law? in accordance with Art. *&+/ and *&/( o. the %ivil %ode and both debts are extin$uished to the concurrent a#ount. %o#pellin$ eason! %on$ress has enacted A &+((? allocatin$ a certain su# o. #oney to the estate o. the deceased. $RA0C"A v. "AC -* This happened in what cityL A* 7asay %ity -* Ahat is the tax bein$ collectedL Aho is collectin$ the sa#eL A* 7ay#ent .or real estate taxes .or the property o. Francia. -t appears that petitioner was delinquent in the pay#ent o. his real estate tax liability. The sa#e is bein$ collected by the Treasurer o. 7asay. -* Ahat is the su$$estion o. petitionerL A* Su$$ested that the 9ust co#pensation .or the pay#ent o. his expropriated property be seto.. .ro# his unpaid real estate taxes. >the other part o. his property was sold at a public auction) 3! The .actual #ilieu o. the case does not 9usti.y le$al co#pensation. The %ourt has consistently ruled that there can be no o..-settin$ o. taxes a$ainst the clai#s that the taxpayer #ay have a$ainst the $overn#ent. A taxpayer cannot re.use to pay a tax on the $round that the $overn#ent owes hi# an a#ount. -nternal evenue taxes cannot be the sub9ect o. co#pensation because the $overn#ent and the taxpayer are not #utually creditors and debtors o. each other? and a clai# .or taxes is not a debt? de#and? contract or 9ud$#ent as is allowed to be co#pensated or set-o... Further#ore? the pay#ent o. 9ust co#pensation was already deposited with 7=@ 7asay? and the taxes were collected by a local $overn#ent? the property was expropriated by the national $overn#ent. >di.. parties? not #utual creditors and debtors o. each other.) CAL!E< P4"L v. COA -* Ahat is bein$ collectedL A* %altexHs contribution to the "il 7rice Stabili5ation Fund >"7SF).

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Taxation law review notes - Atty. Francis J. Sababan %"A sent a letter to %altex as:in$ the latter to settle its unre#itted collection statin$ that until the sa#e is paid? its clai# .or rei#burse#ent .ro# the "7SF will be held in abeyance. -* Ahy is %altex entitled to rei#burse#entL A* @ecause o. the .luctuation o. the oil prices in the ;iddle East and Europe. %altex wanted to o..-set its unre#itted collection .ro# its rei#burse#ents. 3! The %ourt did not allow the set-o..? and reiterated its rulin$ in the case o. ;a#bulao and Francia. Further#ore? A '/1& expressly prohibits set-o.. .ro# the collection o. contributions to the "7SF. The %ourt li:ewise stated that %altex #erely acted as a$ent o. the $overn#ent in collectin$ contributions .or the "7SF because such is bein$ shouldered by the consu#ers when they purchase petroleu# products o. oil co#panies? such as %altex. Taxation is no lon$er envisioned as a #easure #erely to raise revenues to support the existence o. the $overn#ent. Taxes #ay be levied .or re$ulatory purposes such as to provide #eans .or the rehabilitation and stabili5ation 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.. The petitioner is liable .or the pay#ent o. excise taxes? which it wanted to be set-o.. .ro# its pendin$ clai# .or a 2AT -nput creditKre.und. The %ourt did not allow set-o... Taxes cannot be the sub9ect o. co#pensation .or the si#ple reason that the $overn#ent and taxpayer are not #utual creditors and debtors o. each other. Taxes are not debts. Further#ore? in the instant case? the clai# .or 2AT re.und is still pendin$. The collection o. a tax cannot await the results o. a lawsuit a$ainst the $overn#ent. #O%BLE TAXATION Double taxation is allowed because there is no prohibition in the %onstitution or statute. "bnoxious double taxation is the synony# o. double taxation. Ele#ents o. Double Taxation! *) 8evied by the sa#e taxin$ authority &) For the sa#e sub9ect #atter )) For the sa#e taxin$ period and 6) For the sa#e purpose There is no double taxation i. the tax is levied by the 8<B and another by the national $overn#ent. The two >&) are di..erent taxin$ authorities. 8<Bs are expressly prohibited by the provisions o. A +*'( or the 8<% o. *//* .ro# levyin$ tax upon! >*) the =ational <overn#entF >&) its a$encies and instru#entalitiesF >)) 8<Bs >sec.**)>o)). The =ational <overn#ent? pursuant to the provisions o. A ,6&6 o. the Tax e.or# Act o. *//+? can levy tax upon <"%%s? a$encies and instru#entalities >Section &+ c))? althou$h inco#e received by the <overn#ent .or#! *) any public utility or &) the exercise o. any essential $overn#ental .unction is exe#pt .ro# tax. 0IN#, OF INCO.E TAXPA1ER, -* <enerally? how #any :inds o. inco#e taxpayers are thereL A* Bnder section &&A o. =- %? there are three >))? na#ely! *. individualF &. corporateF ). estate and trust. I. IN#IVI#%AL TAXPA1ER

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Taxation law review notes - Atty. Francis J. Sababan -* 3ow #any :inds o. individual taxpayers are thereL A* There are seven >+). =a#ely! *. esident %iti5en >S&)A and &6A)F &. =onresident %iti5en >S&)@ and &6A)F ). "%A and Sea#an >S&)% and &6A)F 6. esident Alien >S&&F? &)D and &6A)F 1. =onresident Alien En$a$ed in Trade or @usiness >S&&<? &)D and &1A) '. =onresident Alien ="T En$a$ed in Trade or @usiness >S&&<? &)D and &1@) +. Aliens En$a$ed in ;ultinational %o#panies? "..shore @an:in$ Bnits? 7etroleu# Service %ontractors >S&1%?D and E) Resident Citi en !RC" -* 3ow #any types o. %L A* There are two >&)? na#ely! *. % residin$ in the 7hilippinesF and &. Filipino livin$ abroad with no intention to reside per#anently therein. -* -. you are abroad? and you have the intention to per#anently reside therein? can you still be considered a %L A* Ies. -. such intention to per#anently reside therein was not #ani.ested to the %o##issioner and the .act o. your physical presence therein? you #ay still be considered a %. #C$ and Seamen "%A was used and not "FA in the %T 7? because the classi.ication shall cover only those Filipino citi5ens wor:in$ abroad with a contract. T=Ts are not covered. A Filipino sea#an is dee#ed to be an "%A .or purposes o. taxation i. he receives co#pensation .or services rendered abroad as a #e#ber o. the co#ple#ent o. a vessel en$a$ed exclusively in international trade. %onsequently? i. he is not a #e#ber o. the co#ple#ent or even i. he is but the vessel where he wor:s is not exclusively en$a$ed in international trade? said sea#an is not dee#ed to be an "%A. 3e is either a % or a = % dependin$ on where he stays #ost o. the ti#e durin$ the taxable year. -. he stays in the 7hilippines #ost o. the ti#e durin$ the taxable year? he is considered a %? otherwise? a =% . -. you are a sea#an in the BS =avy? you are not the one bein$ re.erred to. The i#portance o. ascertainin$ whether or not a sea#an is a % or a = %? is that i. he is a %# he is taxable on A88 inco#e derived .ro# all sources within and without. -. he is a = %? he is taxable only on inco#e derived .or# sources within the 7hilippines. -* Ahat is the si$ni.icance o. usin$ "%AL A* -t only covers Filipinos who wor:s abroad with a contract. -t does not cover T=Ts. -* Ahat is the status o. a T=TL A* Since they are not covered by this classi.ication? they are considered % because they wor: abroad without a contract and they have not #ani.ested their intention to per#anently reside abroad. >distin$uish .ro# an i##i$rant) equire#ents .or a sea#an to be considered an "%A! *. #ust be a #e#ber o. the co#pli#ent o. a vesselF &. the vessel #ust be exclusively en$a$ed in international trade or co##erce.

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Taxation law review notes - Atty. Francis J. Sababan Resident %lien !R%" An individual whose residence is within the 7hilippines and who is not a citi5en thereo.. -ntention to reside per#anently in the 7hilippines is not a require#ent on the part o. the alien. The require#ent under O& is that he is actually present in the 7hilippines? neither a so9ourner? a traveler? not a tourist. Ahether heHs a transient or not is deter#ined by his intent as to the nature and len$th o. his stay. -* -s the intention to per#anently reside in the 7hilippines necessaryL A* =o? so lon$ as he is not a so9ourner? tourist or a traveler. Non-Resident %lien Engaged in Trade or &usiness !NR%ET&" A .orei$ner not residin$ in the 7hilippines but who is en$a$ed in trade or business here. &-/, has expanded the covera$e o. the ter#? Pen$a$ed in trade or businessQ to include the exercise o. a pro.ession. Further#ore? by the express provision o. the law? a = A who is neither a business#an nor a pro.essional but who co#e to and stays in the 7hilippines .or an a$$re$ate period o. #ore than *,( days durin$ any calendar year is dee#ed to a = AET@ in the 7hilippines. -* 3ow #any typesL A* There are three >)) types? na#ely! *. = A en$a$ed in trade or business >&1a*)F &. = A who practices a pro.ession > evenue e$ulation &-/,)F ). .orei$ner who co#es and stays in the 7hilippines .or an a$$re$ate period o. ;" E T3A= *,( days durin$ any calendar year. -* Ahat is the status o. a %hinese who stays here .or &(( days in &((*L A* = AET@ -* Suppose he stayed here .or *(( days in &((( and another *(( days in &((*L A* 3e is not a = AET@. To be considered as such? he #ust stay .or an a$$re$ate period o. #ore than *,( days durin$ a calendar year. -* Ahat is the inco#e tax applicable to said taxpayerL A* =et -nco#e Tax >=-T) on all its inco#e derived .or# sources within the 7hilippines. Non-Resident %lien Not Engaged in Trade or &usiness -* 3ow #any :indsL A* "nly one. The reason why the = A=ET@ are included in any inco#e tax law is because they #ay be derivin$ inco#e .or# sources within the 7hilippines. They are sub9ect to tax based on their < "SS -=%";E received .or# all sources within the 7hilippines. %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 N Status! either a A or = A dependin$ on their stay here in the 7hilippines. A or = A because Section &1 % and D does not distin$uish.

Their status #ay either be

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Taxation law review notes - Atty. Francis J. Sababan N 8iable to pay *1E .ro# <ross -nco#e received .ro# their e#ployer sources shall be sub9ect to the pertinent inco#e tax? as the case

N -nco#e earned .ro# all "T3E #ay be.

%liens Employed in )ultinational and #ffs+ore &an,ing -nits -* 3ow are they classi.iedL A* -. they derived inco#e .ro# other sources aside .ro# their e#ployer? you #ay classi.y the# either as A? = AET@? or = A=ET@. %liens Employed in Petroleum Ser.ice Contractors and Subcontractors N Status! A8AAIS = A. -. they derive inco#e .ro# other sources? such inco#e shall be sub9ect to the pertinent inco#e tax? as the case #ay be. N II. -nco#e derived or co#in$ .ro# their e#ployer shall be sub9ect to a tax o. *1E o. the $ross. CORPORATE TAXPA1ER *. 8omestic Corporation &8C- 0 created or or$ani5ed under 7hilippine laws. &. Resident $oreign Corporation &R$C- 0 corporation created under .orei$n law? and en$a$ed in trade or business. ). 0onresident $oreign Corporation &0R$C- 0 created under .orei$n law? and ="T en$a$ed in trade or business. -* Ahat are dee#ed corporations under the =- %L A* The ter# corporation shall include partnerships? no #atter how created or or$ani5ed? 9oint stoc: co#panies? 9oint accounts? associations? or insurance co#panies? but D"ES ="T includes $eneral pro.essional partnerships and a 9oint venture or consortiu# .or#ed o. the purpose o. underta:in$ construction pro9ects or operations pursuant to or en$a$in$ in petroleu#? coal? $eother#al or consortiu# a$ree#ent under a service contract with the <overn#ent. *. 7artnerships and others no #atter how created &. Joint Stoc: %o#panies ). Joint Accounts 6. Associations 1. -nsurance %o#panies C"R v. CO#R! O$ APPEAL% The phrase no P#atter how created or or$ani5edQ was interpreted. Even i. the partnership was pursuant to law or not? whether nonstic:? nonpro.it? it is still dee#ed a corporation. eason! because o. the possibility o. earnin$ pro.its .or# sources within the 7hilippines. -* Are partnerships always considered corporationsL -s there no exceptionL A* <eneral ule! a partnership is a corporation. Exception! <eneral 7ro.essional 7artnerships ><77) -* Ahat is a <77L A* -t is a partnership .or#ed by persons .or the sole purpose o. exercisin$ their pro.ession? no part o. the inco#e o. which in derived .ro# any trade or business. >what i. a partner has other businesses not related to the <77L T read section &' quoted hereunder) Two >&) Dinds o. <77 .or#ed .or!

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Taxation law review notes - Atty. Francis J. Sababan *) Exercise o. a pro.ession 0 not a corporationF exe#pt .ro# %orporate -nco#e Tax >%-T) &) Exercise o. a pro.ession and en$a$ed in trade or business 0 a corporationF sub9ect to %-T !A0 v. 8EL RO%AR"O $eneral rule! a partnership is a corporation exception! <77 exception to the exception! i. the <77 derives inco#e .ro# other sources? it is considered a corporation? thus liable to pay corporate inco#e tax. ule! *. i. the inco#e is derived .ro# other sources and such inco#e is sub9ect to =ET -=%";E TAJ? it is not exe#pt and it is considered a corporation. &. i. the inco#e is derived .ro# other sources and such inco#e is sub9ect to F-=A8 -=%";E TAJ? it is still EJE;7T and it is not dee#ed a corporation. > separate return .or this. -t will not re.lect in the <77Hs -T ) U This is pursuant to the .act that F-T will not re.lect in the -T o. the <77 since the withholdin$ a$ent is liable .or the pay#ent o. the F-T. -* Ahat is the i#portance o. :nowin$ whether the corporation is exe#pt or notL A* To deter#ine their tax liability. This is i#portant to deter#ine the tax liability o. the individual partners o. the <77. N %ection *1 &)st paragrap=- provides! Pa <77 as such shall not be sub9ect to the =et -nco#e TaxVQ however? PVpersons en$a$in$ in business as partners in a <77 shall be liable .or inco#e tax only in their separate and individual capacities.Q -n short? each partner will be payin$ =-T? and the distributive shares they will be receivin$ .ro# the net inco#e o. the <77 will be included in the $ross inco#e o. the partner. -* -. the <77 is dee#ed a corporation? will the partners have to pay .or the inco#e taxL A* =o. as .ar as the share o. the <77 is concerned? it is considered a taxable dividend which is sub9ect to F-T. -* -s a 9oint venture a corporationL A* <enerally? yes? it is a corporation. -* %orporation J and %orporation I 9oined to$ether. 3ow #any corporations do we haveL A* Three? na#ely %orporation J? I? and JWI. the 9oint venture has a separate and distinct personality .ro# the two corporations. -* Ahen is a 9oint venture not considered a corporationL A* -t is not dee#ed a corporation when it is .or#ed .or the purpose o. underta:in$ a >PconstructionL) pro9ect or en$a$in$ in petroleu#? $as? and other ener$y operations pursuant to PLQ or consortiu# a$ree#ent under a service contract with the $overn#ent. Domestic Corporation -s one created or or$ani5ed in the 7hilippines or under its laws. Taxable on all inco#e derived .ro# sources within or without the 7hilippines. Resident Foreign Corporation Forei$n corporations en$a$ed in trade or business in the 7hilippines. Taxable .or inco#e derived within the 7hilippines. Non-Resident Foreign Corporation

*,

Taxation law review notes - Atty. Francis J. Sababan Forei$n corporations not en$a$ed in trade or business in the 7hilippines. Taxable .or inco#e derived within the 7hilippines. @oth D% and F% are liable .or the pay#ent o. the .ollowin$! *) =-T 0 =et -nco#e Tax &) F-T 0 Final -nco#e Tax )) *(E inco#e tax on corporations with properly accu#ulated earnin$s. 6) ;%-T >;ini#u# %orporate -nco#e Tax) o. &E o. the <ross -nco#e 1) "ptional %orporate -nco#e Tax o. *1E o. the <ross -nco#e A = F% is liable .or pay#ent o. the ..! *) <-T- <ross -nco#e Tax &) F-T 0 Final -nco#e Tax III. TR%,T AN# E,TATE

-* 3ow #any .or eachL A* Seven >+) :inds .or each because the trust or estate will be deter#ined by the status o. the trustor? $rantor? or creator? or o. the decedent. The status o. the estate is deter#ined by the status o. the decedent at the ti#e o. his deathF so an estate? as an inco#e taxpayer can be a citi5en or an alien. Ahen a person who owns property dies? the .ollowin$ taxes are payable under the provision o. inco#e tax law! *) -nco#e Tax .or -ndividuals 0 to cover the period be$innin$ January to the ti#e o. death. &) Estate -nco#e Tax 0 i. the property is trans.erred to the heirs. )) -. no partition is #ade? -ndividual or %orporate -nco#e Tax? dependin$ on whether there is or there is no settle#ent o. the estate. -. there is? dependin$ on whether the settle#ent is 9udicial or extra9udicial. ;udicial %ettlement *) Durin$ the pendency o. the settle#ent? the estate throu$h the executor? ad#inistrator? or heirs is liable .or the pay#ent o. ESTATE -=%";E TAJ >Sex? '( >))). &) -. upon the ter#ination o. the 9udicial settle#ent? when the decision o. the court shall have beco#e .inal and executory? the heirs still do not divide the property? the .ollowin$ possibilities #ay arise! a) -. the heirs contribute to the estate #oney? property or industry with the intention to divide the pro.its between and a#on$ the#selves? an B= E<-STE ED 7A T=E S3-7 is created and the estate beco#es liable .or pay#ent o. %-T >Evan$elista vs. %ollector >*(& 7hil *6()) b) -. the heirs without contributin$ #oney? property or industry to i#prove the estate? si#ply divide the .ruits thereo. between and a#on$ the#selves? a %"-"A=E S3-7 is created and -ndividual -nco#e Tax >--%) is i#posed on the inco#e derived by each o. the heirs? payable in their separate and individual capacity >7ascual vs. %";; >*'1 scra 1'() and "billos vs. %";; >*)/ S% A 6)')) E>tra?udicial %ettlement and if 0O %ettlement So#e possibilities #ay arise. The inco#e tax liability depends on whether or not the unre$istered partnership or co-ownership is created. Trust

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Taxation law review notes - Atty. Francis J. Sababan Trusts can be created by will? by contract or by a$ree#ent. The status o. a trust depends upon the status o. the $rantor or trustor or creator o. the trust. 3ence? a trust can also be a citi5en or an alien. -* Ahere the trust earns inco#e and such inco#e is not passive? who a#on$ the parties #entioned is liable .or pay#ent o. inco#e tax thereonL A* The T BST itsel.? throu$h the trustee or .iduciary but only i. the trust is irrevocable. -. it is revocable? or .or the bene.it o. the $rantor? the liability .or the pay#ent o. inco#e tax devolves upon the trustor hi#sel. in his capacity as individual taxpayer. 0IN#, OF INCO.E TAX -* 3ow #any :inds o. inco#e taxL A* There are Six >')? na#ely! *. =et -nco#e Tax >=-T)F &. <ross -nco#e Tax ><-T)F ). Final -nco#e Tax >F-T)F 6. ;ini#u# %orporate -nco#e Tax o. &E o. the <ross -nco#e >;%-T) 1. -nco#e Tax on -#properly Accu#ulated Earnin$s sub9ect to *(E o. the Taxable -nco#eF '. "ptional %orporate -nco#e Tax o. *1E on the <ross -nco#e I. NET INCO.E TAX

-* what is the .or#ulaL A* <ross -nco#e 0 Deductions and 7ersonal Exe#ptions X Taxable -nco#e Taxable -nco#e x Tax ate X =et -nco#e

Taxable =et -nco#e 0 Tax %redit X Taxable =et -nco#e Due =et -nco#e #eans <ross -nco#e less deductions and For#ula! <- deductions =et -nco#e x Tax ate -nco#e Tax Due -* Ahat is the rateL A* -ndividual! )&E %orporation! )1E ="TE! the .or#ula allows .or deduction? personal exe#ptions and tax credit. -* Ahat are the other ter#s .or =-TL A* =- %! a. taxable inco#e b. $ross inco#e >wlan$ :asunod) M only inco#e tax .ro# i#properly accu#ulated earnin$s does not use this ter#. *. %FA! Pto be included in the $ross inco#eQ &. evenue e$ulations and Statutes! a. ordinary way o. payin$ inco#e taxF b. nor#al way o. payin$ inco#e tax . C+aracteristics/

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Taxation law review notes - Atty. Francis J. Sababan -* Aho are not liable to pay =-TL A* *. = A=ET@ >liable .or <-T)F &. = F% ><-T also)F ). Aith certain #odi.ications? AE;"7? i. they derive inco#e .ro# other sourcesF -* -s the taxable net inco#e sub9ect to withholdin$ taxL A* -t is sub9ect to withholdin$ tax i. the law says so. -* Ahat i. the law is silentL A* -. the law is silent? it is not sub9ect to withholdin$ tax. -* Ahat is another ter# .or withholdin$ taxL A* -t is also :nown as the creditable withholdin$ tax syste# under the inco#e tax law. -* Do we have to deter#ine i. there is an actual $ain or lossL A* Ies because the .or#ula .or deductions? etc. -* -. you .ail to pay? will you be held liableL A* Ies? you will be held liable. II. GRO,, INCO.E TAX 2GIT3

-* Ahat is the .or#ulaL A* <ross -nco#e x ate -* 3ow #any taxpayers pay by way o. the $rossL A* There are two >&) individual - = A=ET@ corporation - = F% ="TE! the .or#ula does not allow any deduction? personal exe#ptions and tax credit. C+aracteristics/ N = A=ET@ and = F%? thou$h not en$a$ed in trade or business? are liable to pay by way o. the $ross .or any inco#e derived in the 7hilippines. Ahile not en$a$ed in trade or business? there is a possibility that they #ay earn inco#e in the 7hilippines. -* -s this sub9ect to withholdin$ taxL A* Ies? it is sub9ect to withholdin$ tax because the persons liable are .orei$ners. This rule is A@S"8BTE ="TE! there are two >&) ways o. payin$ taxes dependin$ on which side o. the bench you are. III. FINAL INCO.E TAX 2FIT3

-* Ahat is the .or#ulaL A* >Each -nco#e) x >7articular ate) Bnli:e in the $ross inco#e tax where you add all the inco#e .ro# all the sources and #ultiply the su# thereo. by the rate o. &1E or )1E? as the case #ay be? in .inal inco#e tax? you cannot 9oin all the inco#e in one $roup because each inco#e has a particular rate. -* Ahat is the rateL A* )1E as the case #ay be.

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Taxation law review notes - Atty. Francis J. Sababan ="TE! li:e <-T? the .or#ula does not allow deductions? personal exe#ptions? and tax credit. C+aracteristics/ -* Aho are liable to pay F-TL A* All taxpayers are liable to pay F-T provided the requisites .or its application are present. -* Do you still have to pay =-TL A* =o. i. you are liable .or F-T? no need to pay =-T or else there will be double taxation. ="TE! as ti#e passed by? the nu#ber o. F-T increased. N be.ore */+/ 0 proceeds .ro# the sale o. real property not exe#pt? it is sub9ect to =-T or <-T? as the case #ay be. a.ter */+/ 0 capital $ains tax. 7roceeds .ro# the sale o. real property is exe#pt. -* -. you .ail to pay? will you be liableL A* =o. the withholdin$ a$ent is liable to pay F-T. N %ase o. Juday? ichard and e$ine

N For one to be liable .or the pay#ent o. =-T? the inco#e #ust be derived on the basis o. an e#ployer 0 e#ployee relationship. E#ployer 0 E#ployee >) %s)! *. contractF &. controlF ). co#pensationF elationship

N 3owever? in the case o. celebrities? there is no e#ployer 0 e#ployee relationship? they are #erely receivin$ royalties. oyalties are sub9ect to .inal withholdin$ tax? thus the a$ent is liable to pay. >so? distin$uish nature o. inco#e? whether royalty or co#pensation) B8E! *. .or =-T? whether or not sub9ect to %reditable Aithholdin$ Tax >%AT)? the taxpayer is always liable i. he .ails to pay. &. .or <-T and F-T? absolute liability to pay is upon the withholdin$ a$ent. -* Ahy is it that the rate o. withholdin$ is always lower? and why is it that the rate o. <-T and F-T is always equalL A* *. =-T allows deductionsF &. <-T and F-T do not allow deductions. -* Do you have to deter#ine whether there is an actual loss or $ainL A* =o need to deter#ine because the .or#ula does not allow deductions. <ain is presu#ed. =o liability .or .inal withholdin$ tax except .or the sale o. shares o. stoc:. >L) IV. .INI.%. CORPORATE INCO.E TAX 2.CIT3

-! Ahat is the .or#ulaL A* <ross -nco#e x &E -! Aho pays this taxL A* D% and F% only.

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Taxation law review notes - Atty. Francis J. Sababan -* ;ay it be applied si#ultaneous with =-TL A* =o. there #ust be a co#putation o. the =-T .irst then apply which ever is hi$her. The ;%-T is paid in lieu o. the =-T. eason! to discoura$e corporations .ro# clai#in$ too #any deductions. V. OPTIONAL CORPORATE INCO.E TAX -* Bnder what section is this .oundL A* Section &+A 6th para$raph and Section &, A>*) 6th para$raph. -* -s this applicable nowL A* =o. this is not yet i#ple#ented. -* To what :ind o. taxpayer does this applyL A* To D% and F%. -* Ahat :ind o. taxes are applicable or i#posed upon the *st .ive individual taxpayersL A* "nly two >&) :inds are applicable out o. the six >') :inds o. inco#e taxes. 1. =-TF 2. F-TF -* Ahat :ind o. inco#e tax will apply to AE;"7L A* <enerally? only one :ind? *1E F-T with respect to inco#e derived .ro# their e#ployer. -nco#e .ro# other sources! *. Deter#ine the status o. the AE;"7F a. =-T b. F-T &. = A=ET@ a. <-T b. F-T -* Ahat :ind o. inco#e tax applies to D%L A* "nly .our >6) :inds will apply out o. the six >') *. =-T &. F-T ). ;%-T 6. -#properly Accu#ulated Earnin$s -* ;ay all o. these be applied si#ultaneouslyL A* =o. only the =-T? F-T and -#properly Accu#ulated Earnin$s be applied si#ultaneously. =-T and ;%-T cannot be applied si#ultaneously. "nly one will apply? whichever is hi$her between the two. -* Ahat :ind o. tax will apply to = F%L A* "ut o. the six >') :inds? only two >&) will apply! *. <-T &. F-T -* Ahat is the si$ni.icance o. :nowin$ the classi.ication o. these taxpayersL A* *. to deter#ine the :ind o. inco#e tax applicable to the#F &. to deter#ine their tax liability. -* Bnder Section &)? who are liable .or inco#e within and inco#e withoutL A* "nly

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Taxation law review notes - Atty. Francis J. Sababan *. % &. D% N N The rest o. the taxpayers will be liable .or inco#e co#in$ .ro# sources within. -nco#e .ro# sources without? no liability? there.ore exe#pt.

="TE! The inco#e taxpayer is not a % or a D%. Deter#ine i. the inco#e ca#e .ro# sources within or without to :now the taxpayerHs liability. N -. the .acts are speci.ic? do not quali.y your answer. Answers #ust be responsive to the question. -* -s section 6& relevant to all the taxpayersL A* =". SE%T-"= 6& -S ="T ;ATE -A8 T" A88 taxpayers? particularly the two are liable .or both inco#e within and without. % and D% because these

N Section 6& is applicable only to taxpayers who are liable .or inco#e within? the rest o. the taxpayers are otherwise exe#pt. -* Section 6&>A)>*) provides .or how #any :inds o. interestsL A* -t establishes two >&) :inds o. interests? na#ely! *. interest derived .ro# sources within the 7hilippines. &. interest on bonds? notes or other interest bearin$ obli$ations o. residents? corporate or otherwise. -* Ahat is the deter#inin$ .actor in order to :now i. the inco#e is .ro# withinL A* *. location i. the ban: is .ro# within the 7hilippines >pursuant to a evenue e$.) &. residence o. the obli$or >whether an individual or a corp.) 0 contract o. loan with respect to the interest earned thereon. N For exa#ple the borrower is a = AET@? he borrowed #oney .ro# a A. The interest earned by the loan will be considered as an inco#e without. A is not liable to pay tax since A is liable only .or inco#e within? there.ore exe#pt .ro# payin$ the tax. 0A!"O0AL 8E9ELOP.E0! CO. v. C"R F! The =ational Develop#ent %o#pany >=D%) entered into a contract with several Japanese shipbuildin$ co#panies .or the construction o. *& ocean-$oin$ vessels. The contract was #ade and executed in To:yo. The pay#ents were initially in cash and irrevocable letters o. credit. Subsequently? .our pro#issory notes were si$ned by =D% $uaranteed by the <overn#ent. 8ater on? since no tax was withheld .ro# the interest on the a#ount due? the @- was collectin$ the a#ount .ro# =D%. The =D% contended that the inco#e was not derived .ro# sources within the 7hilippines? and thus they are not liable to withhold anythin$. =D% said that since the contract was entered into and was executed in Japan? it is an inco#e without. 3! The $overn#entHs ri$ht to levy and collect inco#e tax on interest received by a .orei$n corporation not en$a$ed in trade or business within the 7hilippines is not planted upon the condition that the activity or labor and the sale .ro# which the inco#e .lowed had its situs in the 7hilippines. =othin$ in the law >Section 6&>*)) spea:s o. the act or activity o. nonresident corporations in the 7hilippines? or place where the contract is si$ned. The residence o. the obli$or who pays the interest rather than the physical location o. the securities? bonds or notes or the place o. pay#ent is the deter#inin$ .actor o. the source o. the inco#e. Accordin$ly? i. the obli$or is a resident o. the 7hilippines? the interest paid by hi# can have no other source than within the 7hilippines.

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Taxation law review notes - Atty. Francis J. Sababan -* Suppose a = F%? an -ndonesian .ir#? beco#es a stoc:holder o. two corporations? a D% and a F%? and both corporations declared dividends? what is the liability o. the -ndonesian .ir# i. the sa#e received the dividendsL A* *. Dividends received .ro# D%! the -ndonesian .ir# is liable to pay taxes. = F%? under the law? is liable i. the inco#e is derived .ro# sources within. >Sec 6&a) &. Dividends received .ro# F%! the -ndonesian .ir#Hs liability will depend on a#ount o. $ross inco#e .ro# sources within the 7hilippines. The = F% will be liable to pay inco#e tax i. the .ollowin$ requisites are present! *. at least 1(E is inco#e .ro# sources withinF &. the *st requisite is .or the three >)) precedin$ taxable years .ro# the ti#e o. declaration o. the dividends. N -n the absence o. any or both requisites? the inco#e will be considered .ro# sources without? thus exe#ptin$ the -ndonesian .ir# .ro# pay#ent o. inco#e tax. -* Sa#e scenario? but this ti#e the shares o. stoc: o. the two corporations were bein$ disposed o... Ahat is the tax liability o. the -ndonesian .ir#L A* *. sale o. shares o. stoc: o. D%! the -ndonesian .ir# will be liable .or the pay#ent o. taxes because the inco#e is .ro# sources within. &. sale o. shares o. stoc: o. F%! the liability will depend on where the shares o. stoc: were sold. >#e9o ;alabo sa notes? please be $uided accordin$ly) -* Filipino Executive? assi$ned to 3on$ Don$? receivin$ two salaries? one .ro# the 7hilippines? the other .ro# 3D. The per.or#ance o. the 9ob was in 3D. -s he liable .or both salariesL A* =o? he is not liable .or the two inco#es. 3is status is an "%A >note .acts! wor:in$ in 3D under contract). The co#pensation he received is not sub9ect to tax pursuant to Section 6&>c). %o#pensation .or labor or personal services per.or#ed in the 7hilippines is considered an inco#e within. Ahen it co#es to services? it is the place where the sa#e is rendered which is controllin$. -n the case at bar? the services were rendered abroad? thus it is an inco#e derived .ro# sources without? irrespective o. the place o. pay#ent. -* Suppose a D% hired a = F% to advertise its products abroad. Ahat is the liability o. the = F%L Aill there be a withholdin$ tax i#posedL A* The inco#e is derived .ro# sources without since the services in this case were per.or#ed abroad. As such? the = F% is not liable and there.ore exe#pt .ro# the pay#ent o. tax. -. the = F% is not sub9ect to =-T? then it is not also sub9ect to withholdin$ tax. -* Ahat is the controllin$ .actorL A! The controllin$ .actor is the place where the services were per.or#ed and not where the co#pensation there.ore was received. RENTAL, AN# RO1ALTIE, Ninco#e .ro# sources within -* <ranted by whoL A* = F% -* Suppose you are the .ranchise holder? how #uch is the withholdin$L A* )1E ><-T) 4! i. the .ranchise is $ranted by F%? how #uch is the withholdin$L A! *(E >=-T) and in so#e cases *1E Section 6&>6) ;E;" -RE F" E%-T

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Taxation law review notes - Atty. Francis J. Sababan >%EDSTT;) a. b. c. d. e. .. $. ri$ht o.? or the ri$ht to use copyri$ht? patents? etc industrial? co##ercial? scienti.ic equip#ent supply o. :nowled$e supply o. services by nonresident supply o. technical assistance supply o. technical advice ri$ht to use! #otion picture .il#s? etc.

-* Ahat is the rule as re$ards the sale o. real propertyL A* <ains? pro.its? and inco#e .ro# the sale o. real property located within the 7hilippines considered inco#e within. -* Ahat about the sale o. personal property? what is the ruleL A* Deter#ine .irst i. the property is produced or #erely purchased. *. it the property is #anu.actured in the 7hilippines and sold abroad? or vice-versa? it is an inco#e partly within and partly without. &. i. the property is purchased? considered derived entirely .ro# the sources within the country where it is sold. EJ%E7T-"=! shares o. stoc: o. do#estic corporation? it is an inco#e within wherever it is sold. C#))0SS0#NER .1 0%C -! Ahat is the issue hereL A* They cannot deter#ine i. the business expense was incurred in the 7hilippines. -* i. you are the @- ? and the taxpayer is not sure? will you disallow the deductionL A* =o. deter#ine it pro rata. For#ula! <- .ro# within <- .ro# without Exa#ple! *((?((( *?(((?((( X *(E N 3ence? *(E is the ratable share in the deduction. -. the deduction bein$ as:ed is *((?((( not all o. it will be allowed. "nly *(?((( or *(E o. *((?((( will be allowed as deduction. CAPITAL GAIN, AN# LO,,E, Section )/ -* Ahat is capital assetL A* %apital asset is an asset held by a taxpayer which is not an ordinary asset. The .ollowin$ are ordinary assets! *. stoc: in trade o. the taxpayer or other property o. a :ind which would properly be included in the inventory o. the taxpayer i. on hand at the close o. the taxable yearF &. property held by the taxpayer pri#arily .or sale to custo#ers in the ordinary course o. trade or businessF ). property used in trade or business o. a character which is sub9ect to the allowance .or depreciation provided in subsection *. 6. real property used in trade or business o. the taxpayer. All other property not #entioned in the .ore$oin$ are considered capital assets. -* Ahat is a capital $ainL Ahat is a capital lossL

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Taxation law review notes - Atty. Francis J. Sababan A* %apital $ains are $ains incurred or received .ro# transactions involvin$ property which are capital assets. %apital losses are losses incurred .ro# transactions involvin$ capital assets. -* Ahat is ordinary $ainL "rdinary lossL A* "rdinary $ains are those received .ro# transactions involvin$ ordinary assets. %apital losses are losses incurred in transactions involvin$ ordinary assets. -* Ahat is the relevance o. #a:in$ a distinctionL A* -t is relevant because Section )/@?%? and D apply to capital assets only. *. ti#e when property was held >)/@) >holdin$ period applies only to individuals)F &. li#itations on capital losses >)/%)F ). =et %apital %arry-"ver >)/D) I. CAPITAL A,,ET,

-* Ahat is the holdin$ periodL A* -. capital asset is sold or exchan$ed by an individual taxpayer? only a certain percenta$e o. the $ain is sub9ect to inco#e tax. -t is the len$th o. ti#e or the duration o. the period by which the taxpayer held the asset. -* Ahat is the require#entL A* *. the taxpayer #ust be an individual. Section )/@ states Pin case o. a taxpayer? other than a corporation..Q &. property is capital in nature. -* Ahat is the ter#L A* *((E i. the capital asset has been held .or not #ore than *& #onthsF >short ter#) 1(E i. the capital asset has been held .or #ore than *& #onths. >lon$ ter#) ="TE! the holdin$ period applies to both $ains and losses. -* Do you include capital $ains in your -T L A* <eneral rule! yes? include in -T . EJ%E7T! *. $ains in sales o. shares o. stoc: not traded in stoc: exchan$e>section &6)F &. capital $ains .ro# sale o. real property>section &6). -* Ahen will the holdin$ period not applyL A* *. property is an ordinary asset &. taxpayer is a corporation ). sale o. real property considered as ordinary asset II. LI.ITATION ON CAPITAL LO,,E, Nsynony#ous to )6D C loss capital rule N this applies to individual and corporate taxpayer -* Ahat is the loss li#itation ruleL A* 7ursuant to Section )/ %? losses .ro# sales or exchan$e o. capital assets #ay be deducted only .ro# capital $ains? but losses .ro# the sale or exchan$e o. ordinary assets #ay be deducted .ro# capital or ordinary $ains. >applies to individual and corporation) -* -n connection with )6 D? 8osses in Allowable Deduction? what is the rationale behind this ruleL A* -. 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

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Taxation law review notes - Atty. Francis J. Sababan -* what is your re#edyL A* )/ D? net capital loss carry-over -* Ahat is the rationale in allowin$ ordinary loss to be deducted .ro# either the capital $ains or ordinary $ainsL A* -t is already included in -T ? the $ross inco#e less deductions hence it already carries with it the deduction !A@E 0O!E: =or#ally i. the loss is an ordinary loss there is no carry over. E>cept: a. )6D) b. i. the loss is #ore than <III. NET CAPITAL LO,, CARR1/OVER -* Ahat are the require#entsL A* *. taxpayer is an individualF &. paid in the i##ediately succeedin$ yearF ). applies only to short ter# capital $ainF 6. capital loss should not exceed net inco#e in the year that it was incurred. -* 3ow does net capital loss carry-over di..er .ro# net operatin$ loss carry-over under Section )6 D >))L A* Bnder the net capital loss carry-over rule? the capital loss can be carried over in the i##ediate succeedin$ year. -n net operatin$ loss carry-over rule? capital loss can be carried over to the next three >)) succeedin$ calendar year .ollowin$ the year when the loss was incurred. ="TE! only *1E o. the loss will be carried over? i. the loss is $reater than the $ains. N -n net operatin$ loss carry-over there is an exception to the ) year carry-over period. -n case o. #ines other than oil and $as wells? the period is up to 1 years. -* Ahat is a short saleL A* Sale o. property by which the taxpayer cannot co#e into the possession o. the property. EJ! shares C%2%3%NS .1 C0R F! The taxpayer inherited the property .ro her .ather and at the tie o. the inheritance it was considered a capital asset. -n order to liquidate the inheritance? the taxpayer decided to develop the land to .acilitate the sale o. the lots. -! Aas the property converted to ordinary assetL 3! The conversion .ro# capital asset to ordinary asset is allowed because Section )/ is silent. -* Are you allowed to convert ordinary asset to capital assetL A* <eneral rule! it is not allowed. ead evenue e$ulation +-&(() The case at bar still applies despite o. the issuance o. said evenue -* Ahat is the conversion prohibited in the A* %onversion o. real estate property. evenue e$ulationL

e$ulation.

-* Ahat is the rationaleL A* Section &6 D 0 .inal inco#e tax o. 'E i. the real estate is capital asset. -. it is an ordinary asset? it will be sub9ect to inco#e tax o. )&E .or individual taxpayer? and )1E i. the taxpayer is a corporation. -* Ahat are the properties involve in the +-&(()L

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Taxation law review notes - Atty. Francis J. Sababan A* *. those property .or sale by the realtors &. real property use in trade or business not necessary realtors -* That is the conversion allowed by the evenue e$ulationL -s there an instance when an ordinary asset #ay be converted to capital assetL A* 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 tax #entioned in section &6L A* =-T -* Ahat is taxable inco#eL A* >#e#ori5e section )*) it is the pertinent ite#s o. $ross inco#e speci.ied in the =- %? less the deductions andKor personal and additional exe#ptions? i. any? authori5ed .or such types o. inco#e by the =- % or other laws. -t re.ers to =-T because it allows deductions. -* Ahat do you #ean by the phrase Pother than @? %? and DQL A* -t #eans that i. the ele#ents o. passive inco#e are present? the taxpayer has to pay F-T. -* Aho are the taxpayers #entioned in section &6L A* *. % &. = % ). "%A 6. A N Additionally? under Section &1? = AET@ tax in the sa#e #anner as those individuals

-* Ahat is the tax liability o. = AET@L A* Section &1>*) = AET@ is sub9ect to inco#e #entioned in Section &6. -* Ahat about Do#estic %orporationsL A* *. Sec. &+ A?@? and % &. Sec. &'- <77 is not sub9ect to inco#e tax. -* Ahat about esident Forei$n %orporationsL A* Sec &,>l) it is sub9ect to )1E =et -nco#e Tax

-* Ahat about =on esident .orei$n %orporation and =on esident Alien not en$a$ed in Trade or @usinessL A* =ot Sub9ect to =et -nco#e Tax but they are liable .or <ross -nco#e tax. -* Do le$ally #arried husband and wi.e need to .ile separately or 9ointlyL A* -t depends i.! *. 7ure co#pensation inco#e- separate &. =ot 7ure co#pensation inco#e- 9oint Passi'e Inco e "nterest, RoAalties, priBes and Ot=er Cinnings 0nterest

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Taxation law review notes - Atty. Francis J. Sababan -* @an: -nterest? what is the require#entL A* The ban: #ust be located in the 7hils. because the inco#e #ust be derived .ro# sources wKin. -* Do you include this in your -T L A* =oY because it is sub9ect already to F-T. The ban: is the one liable .or the pay#ent o. this. ="TE! 8iability .or =-T? <-T? and ;%-T will depend on the ele#ents present. -* Aho are liable .or ban: interestL A* *. %Z &. = %Z Sec. &6 @* ). A Z 6. = AET@ 1. = A=ET@ Sec. &1 >&1E) '. AE;"7 +. D% ,. F% /. = F% -* Ahat is the rate o. interestL A* F-T o. &(E -* -s there a lower rateL A* + [ E i. under EF%DS -* Ahat i. the depositor is non resident alienL A* -AKin 0 F-T - AKout- exe#pt -* Ahat is the rule on pre- ter#inationL A* -. it is pre ter#inated be.ore 1 th year a F-T shall be i#posed on the entire inco#e and shall be deducted and withheld by the depositary ban: .ro# the proceeds o. the lon$ ter# deposit based on the re#ainin$ #aturity thereo. a. 6 yrs to less than 1 yrs 0 1E b. ) yrs to less than 6 yrs- *&E c. 8ess than ) yrs- &(E -* Does it apply to all individualsL A* =oY -t does not apply to *( = F% and = A and = AET@ because they are liable to <-T. ="TE! i. the depositary is a =on resident it is exe#pt N esident citi5en is liable to pay tax .or ban: interest earned abroad >=-T)

-* -. the #oney earns interest in abroad who is liableL A* % and D% only by =-T? the rest are exe#pt. =o F-T abroad because we do not have withholdin$ a$ent abroad. -* ;%-T applies to D% and F% in relation to ban: interestL A* -. the ban: interest is derived abroad? F% is exe#pt but D% is liable. -#pose =-T i. it is hi$her than the ;%-T? otherwise apply ;%-T i. itHs hi$her than the =-T Pri es equire#ents!

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Taxation law review notes - Atty. Francis J. Sababan *. 7ri5es #ust be derived .ro# sources wKin the 7hils. &. it #ust be #ore than 7 *(?((( -* Aho are liableL >F-T) A* *. % &. = % ). "%A 6. A 1. = AET@ '. AE;"7 > %? = AET@) =ot 8iable *. = A=ET@- liable .or <-T at &1 E &. AE;7"7 >= A=ET@- <-T) ). D%- =-T &+ D is silent 6. F% =-T law is silent &,A+a 1. = F% sub9ect to <-T -* Ahen can we apply =-T in 7ri5esL A* *. Ahen the taxpayer is %? F% and D% &. For D% and % it #ust be derived .ro# inco#e abroad wKin ). a#ount is #ore than 7*(?(((

F% it #ust be derived .ro# inco#e

="TE! -. the pri5e is derived .ro# sources wKin but it is below 7 *(?((( it is not sub9ect to tax. -. derived .ro# sources abroad? #ost o. the# are exe#pt except .or % and D% who are liable wKin and wKout. -6 -s it possible .or % and D% to pay ;%-TL A* Ies i. ;%-T is hi$her than =-T. $innings -* Do we apply the 7*(? ((( req.L A* =o? we do not apply it only applies to pri5es. -t #ust not pertain to ille$al $a#blin$. N Thus? the only require#ent is it #ust be derived .ro# inco#e wKin.

-* Aho are liableL >F-T) A* *. % &. = % ). "%A 6. A 1. = AET@ '. AE;"7 > A? = AET@) =ot liable to F-TL * = A=ET@- <-T & AE;"7 >= A=ET@- <-T) ) D%- law is silent =-T 6 F%- law is silent 1 = F%- <-T -* Ahen does =-T apply to winnin$sL A*

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Taxation law review notes - Atty. Francis J. Sababan *. -. Taxpayer is D% or % &. -nco#e is derived abroad ). Taxpayer is F% and inco#e wKin. ="TE! -. inco#e abroad? #ost T7 are exe#pt except D% and -* ;%-T applies whenL A* -t is hi$her than the =-T Royalties equire#ent! N The inco#e is .ro# wKin N ateL &(E. 8ower rateL *(E on boo:s? literary wor:s and #usical co#positions. %

-* Iou are a writer .or Snoop Do$$ are you liable .or F-TL Ahat i. .or April @oyL A* 8iable .or =-T i. -nco#e abroad li:e a writer .or Snoop. Ahile F-T i. .or April @oy. -* Aho are liable >F-T)L A* *. % &. = % ). "%A 6. A 1. = AET@ '. AE;"7 > %? = AET@) =ot 8iableL *. = A=ET@ &. AE;"7 ). D% 6. F% 1. = F% ="TE! 8ower rate o. *(E applies to all except = A=ET@ -* Ahen do we apply =-T to oyaltiesL A* *. T7 is % or D% &. -nco#e is .ro# wKout ). T7 is F and inco#e is wKin N -. inco#e is .ro# sources abroad all are exe#pt except % and D%

Di.idends N %on.ined with cash andKor property dividends.

-* Ahat are dividendsL A* Any distribution #ade by %orporation to its stoc:holders outside o. its earnin$s or pro.its and payable to its stoc:holders whether in #oney or in property >Sec. +)) CO... vs. .A00"0/ -* Ahere did it co#e .ro#L A* shares co#e .ro# another shareholder -* Ahat are the dividends includedL

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Taxation law review notes - Atty. Francis J. Sababan A* Sec. &6 re.ers to cash or property dividend 3! For stoc: Dividends to be exe#pt it #ust co#e .ro# the pro.it o. the corporation. %tocD 8ividends E it is the trans.er o. the surplus pro.it .ro# the authori5ed capital stoc:s. -* Assu#in$ that there are 1 -ncorporators? the %orporation has a 71 ; Authori5ed %apital stoc:. -t distributed * ; stoc: dividends? is it taxableL A* ="? the dividends did not $o to the Stoc: holder but to the Auth %apital Stoc:. "nly cash and 7rop Stoc: $o to the Stoc: holder. N Sec &6 @ does not #ention stoc: dividends because it is not sub9ect to F-T but it is sub9ect to =-T under Section +). -* -s there an exception when stoc: dividends are not taxableL A* IES? i. the shares o. stoc:s are cancelled and redee#ed #eanin$ it was reacquired by the corp. A0%COR CA%E Mthe stoc:holders cannot escape the pay#ent o. taxes equire#ent! <en ule- the dividends #ust be distributed by a D%. Except- e$ular operatin$- always a .orei$n corp. N Ahat rate! *(E F-T

-* Aho are liableL A* *. % &. = % ). "%A 6. A 1. = AET@ '. AE;"7 > %? = AET@) =ot liableL *. = A=ET@ &. AE;"7 ). D% 6. F% 1. = F% N Shares o. association and partnership is taxable

-* Deter#ine the tax liability o. the .ollowin$L A* *. D% a Stoc:holder o. D%X Exe#pt &. F% stoc:holder o. D%X Exe#pt also ). D% stoc:holder o. FX 8iable .or =-T. Capital 4ains From Sale of S+ares of Stoc, Not Traded !567C" 1. 2. 3. 4. Sub9 to F-T Deter#ine whether there is a loss or a $ain because the tax is i#pose upon the net capital $ains reali5ed .ro# the sale? barter? or exchan$e or other disposition o. the shares o. stoc: in a do#estic corp. -t is uni.or#ly i#posed on all taxpayer not sub9 to wKholdin$ tax.

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Taxation law review notes - Atty. Francis J. Sababan equire#ents! *. Shares o. stoc: o. a D% &. -t #ust be capital asset ). #ust not be traded in the stoc: #ar:et N &1 last part! %apital <ains reali5ed by = A=ET@ in the 7hils. .ro# the sale o. shares o. stoc: in any D% and real prop shall be sub9. to the inco#e tax prescribed under Sub sec >c) and >d) o. Sec. &6. N SE%. &6 @ *C&! -. the ele#ents are present = A=ET@ and = F% are liable to pay <-T.

Except! under &6 % .or = A=ET@. Ahat do you #ean by the phrase P the provisions o. )/ notwithstandin$QL N -t re.ers to the holdin$ period. Ahen it co#es to capital $ains .ro# sale o. shares o. stoc: not traded and capital $ains .ro# the sale o. real prop. The holdin$ period does not apply because the basis will be those provided in &6 % C D and not under )/@ ><S7 or F;2) ELE.ENT 78 T&e s&are is a s&are in #C -* Ahat i. the share is .ro# .orei$n corpL A* Deter#ine the inco#e considered. -. inco#e wKin read Sec. 6& >E) N -. the shares sold are that o. a .orei$n corp it is sub9 to the .. rules! a. sold in the 7hilsX its inco#e wKin b. sold in abroadX wKout c. Shares o. stoc: in a Dc is always considered an inco#e wKin re$ardless where it was sold.

-* Shares o. Forei$n %orp sold in 7hils. AhoHs liableL Ahat taxL A* =ot sub9 to F-T because one o. the ele#ents is not present . Shares not bein$ that o. a D%. 3ence! a) %? = %? "%A? = AET@? AE;"7 > A? = AET@) will pay =-T. D% and F% b) = A=ET@ and = F% will pay <-T -* Shares o. Forei$n %orporation sold abroadL A* -t will be considered an inco#e wKout. Thus! #ost o. the# will be exe#pt except % and D% liable to pay =-T ELE.ENT 7 4 NOT TRA#E# OR ,OL# IN T9E ,TOC0 .AR0ET N N i. sold in the stoc: #ar:et- it is not sub9 to F-T i. sold in the stoc: #ar:et? it will be sub9 to percenta$e tax? in lieu o. =-T. ust ;e a capital asset.

ELE.ENT 7 : It

-* Ahen is it considered an ordinary assetL A* *. Ahen the bro:er 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 ="TE! i. all ele#ents are present it will be sub9 to F-T -. the shares are ordinary asset

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Taxation law review notes - Atty. Francis J. Sababan *. "rdinary shares in D%- inco#e wKin a. ;ost o. the taxpayer will pay =-T except = F% and = A=ET@ &. "rdinary assets o. .orei$n corporations a. -nco#e within i. sold in the 7hils! #ost will pay except = A=ET@ and = F% b. -nco#e wKout i. sold abroad! #ost will be exe#pt except % and D% ;%-T -* Ahen is a F% sub9 to =-TL A* *. Sale o. shares o. stoc: o. a Forei$n corp in the 7hil. &. sale o. shares o. stoc: o. D% which are ordinary asset N D% and F% are sub9 to ;%-T which #ay be i#posed i. the =-T is lower than the ;%-T&E ;%-T will be i#posed i. ;%-T is hi$her than =-T. Capital 4ains From Sale of Real Property !567D" N -n )/ @ the holdin$ period does not apply because the basis o. inco#e tax is the $ross sellin$ price ><S7) or the Fair #ar:et value >F;2) whichever is hi$her- 'E F-T equire#ents! *. The real prop #ust be sold wKin the 7hils and located in the 7hils. &. -t #ust be a capital asset ). The seller #ust be an individual? estate or trust or a D% N N N F% not liable .or F-T but liable to pay =-T i. all the ele#ents are present. = F% liable to pay <-T and not F-T = A=ET@ liable to pay F-T are all ele#ents are present. ust ;e a capital asset

ELE.ENT 7 : T&e real prop

-* Ahen considered a capital assetL A* ead . . +- &(() -* "rdinary asset- shall re.er to all real property speci.ically excluded .ro# the de.inition o. capital asset under Sec. )/ A* "ther property not #entioned are capital asset. -* Ahat i. all the ele#ents are not presentL A* #ost will be liable to pay =-T Except = A=ET@ and = F% liable .or <-T -* ;ay a % be liable to pay =-T even i. all the ele#ents are presentL A* IES? disposition #ade to the <ovt. Thus? the taxpayer has the option o. payin$ )&E =-T or 'E F-T -* Ahich is #ore advanta$eousL A* -t depends deter#ine .irst i. thereHs a loss or a $ain. -. thereHs a $ain choose to be taxed at 'E F-T. -n this case the $ain is always presu#ed. -. thereHs a loss choose to be taxed at )&E because losses #ay be considered an allowable deduction . "ther transactions are covered!

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Taxation law review notes - Atty. Francis J. Sababan *. &. ). 6. sale barter exchan$e other disposition

="TE! -. the prop is under #ort$a$e contract and the #ort$a$ee is a ban: or .inancial inst? the F-T does not apply because the property is not yet trans.erred because thereHs a period o. rede#ption -. a.ter a year the #ort$a$or .ailed to redee# the property that is the only ti#e that the F-T will apply because thereHs now a chan$e o. ownership. -. redee#ed wKin * yr period F-T will not apply because thereHs no chan$e o. ownership. -. the #ort$a$ee is an individual the F-T is i#posed whether or not there is a trans.er o. ownership. Exceptions !567!D6"" -* Ahat i. the prop bein$ sold was a #ovie house? can he clai# .or the exceptionL A* the prop covered by the exe#ption is a residential lot -* Aho can clai# the exe#ptionL A* "nly the taxpayer #entioned in Sec. &6 equire#ents! *. The purpose o. the seller is to acquire new residential real prop &. the privile$e #ust be availed o. wKin *, #os. Fro# the sale ). %o##. #ust be in.or#ed wKin )( days .ro# the date o. sale with the intention to avail o. the exe#ption 6. the ad9usted basis or historical cost o. the residence sold shall be carried over to the new residence. 1. the privile$e #ust be availed only once every *( yrs '. %erti.ication o. the br$y. %apt where the taxpayer resides that indeed the prop sold is the principal residence o. the tax payer > *)- //) -* Ahat i. the property is worth *( ; and it was sold only .or &;? what will happen to the unused portion or pro.itL A* -. the proceeds are not .ully utili5ed? the portions o. the $ain is sub9 to F-T ,EC. 4<A RATE, OF INCO.E TAX -* 3ow #any inco#e taxes are paid by a D%L A* *. =-T &. ;%-T ). F-T 6. *(E-#properly Accu#ulated Earnin$s 1. "ptional corporate inco#e tax o. *1E o. the $ross N D% liable .or .ive? but the optional is not yet applicable so only 6.

-* 3ow #any can be applied si#ultaneouslyL A* "=8I ) *. =-T? F-T and *(E -AE &. ;%-T? F-T? *(E -AE ,EC. 4< 2B3 PROPRIETAR1 E#%CATIONAL IN,T. ) 9O,P. Aho are the taxpayersL *. =on- 7ro.it 7roprietary Educl. -nst and &. =on 7ro.it 7roprietary 3ospital

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Taxation law review notes - Atty. Francis J. Sababan -* Ahat i. the school or hospital is non pro.it only? is it exe#ptL A* =o? sub9ect to *(E on their taxable inco#e except those covered by subsection >D) 7 "2-DED that $ross inco#e .ro# unrelated business? trade or activity #ust not exceed 1(E o. its total $ross inco#e derived by such educational inst or hospital .ro# all sources equire#ents! *. -t is a private school or hospital &. it is stoc: corp ). it is non pro.it 6. that $ross inco#e .ro# unrelated business? trade or activity #ust not exceed1(E o. its total $ross inco#e derived by such educational inst or hospital .ro# all sources 1. has per#it to operate .ro# DE%S? TESDA? or %3ED -* Ahat do you #ean by unrelated trade business or activityL A* -t #eans any trade? @usiness? or activity which is not substantially related to the exercise or per.or#ance by such entity o. its pri#ary purpose or per.or#ance -* ;ay a school or hospital be exe#pt .ro# payin$ taxL Ahat are the reqL A* *. -t #ust be non- stoc: and non- pro.it &. the assets property and revenues #ust be used actually? directly? and exclusively .ro the pri#ary purpose -* Bnder what lawL -s it the constitution or the =- % which provides .ro the exe#ptionL A* -t is under Sec. )( o. =- % and not under Sec.6 Art. *6 o. the %onstitution. The provision o. the =- % is the speci.ic law which prevails over the %onstitution which is the $eneral law. M exe#pt .ro# all taxes and custo# duties -* Ahat about exe#ption .ro# real property taxL A* Art. ' Sec. &, o. the %onstitution! charitable institution churches? V.and all lands buildin$s? actually directly and exclusively used .or reli$ious? charitable? and educational purposes shall be exe#pt .ro# taxation. M =ot Sec. 6 o. Art. *6 o. the %onstitution. -* Iou donated a property to a school will you be liable .or donorHs taxL A* not liable i. it .alls under Sec. *(* >)) o. the =- % E4. F" EJE;7T-"= T" D"=" S TAJ! *. it #ust be non-stoc:? non-pro.it educational inst. &. not #ore than )(E o. the prop donated shall be used by such donee .or ad#in purposes. ). payin$ no dividends 6. $overned by trustees who donHt receive any co#pensation 1. devotin$ all its inco#e to the acco#plish#ent and pro#otion o. the purposes stated in its Articles o. -ncorporation -* Ahat about exe#ption .ro# 2ATL A* Sec. *(/ >#) o. -2AT -* Ahat about exe#ption .ro 8oc <ov %odeL A* -. its non-stoc:? non-pro.it educational inst. -t #ay be exe#pted .ro# local taxation. -* -s Art *6 Sec. 6 o. the %onsti obsoleteL A* ="? i. the law is silent apply the %onsti. ,EC. 4:* GOCC= AGENCIE,= IN,T of t&e GOVT.

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Taxation law review notes - Atty. Francis J. Sababan <E= B8E! Sub9 to tax.

EJ%E7T-"=S! *. <S-S &. SSS ). 73-% 6. 7%S" N 7A<%" no lon$er included.

-* -. the <"%% is not one o. those enu#erated does it .ollow all o. its inco#e is auto#atically sub9ect to taxL A* =". Bnder Sec )&. @ >+) inco#e derived .ro# any public utility or .ro# the exercise o. essential $overn#ent .unction accruin$ to the <ovt o. the 7hils or to any political subd. Are there.ore exe#pt .ro# inco#e tax. There.ore? even i. the <"%% is one o. those enu#erated under Sec. &+ it #ay still be exe#pt under Sec. )& b+b i. its per.or#in$ $overn#ental .unction ="TE! 7a$cor vs. @asco case -* Ahat is the di..erence between Sec. &+ % and )& b+bL A* *. Sec &+ % exe#pts those enu#erated without any quali.ication. &. Sec. )&b+b quali.ication #ust concur be.ore it #ay be exe#pted. -* %an the $overn#ent i#pose tax on itsel.L A* -t depends on who the taxin$ authority is. -. the taxin$ authority is the =ational <ovt. as a rule? IES. Exceptions *. those entities enu#erated under S&+ % &. those <"%% .allin$ under S)&b+b -. the taxin$ authority is the local $overn#ent units? as a rule =". 8<BHs are expressly prohibited .ro# levyin$ tax a$ainst! >Sec *))>o) *. =ational <ovt. &. -ts a$encies and instru#entalities ). local $overn#ent units Exception! Sec *16 o. 8<% says that 8<BHs #ay .ix rate .or the operation o. public utilities owned and #aintained by the within their 9urisdiction. PAL CA%E ;ulA *( *((1 3! The S% used *)) >o)an exception to pay tax? real estate tax? i#posed by %ity o. 7Aranaque on =A-A. The S% said that the airport is not an a$ency or <"%% but #ere instru#entality o. the <ovt. This is <ross i$norance o. the law Sec. *)) >o) is .or local taxation not real property taxation which is the one involved in the present case. ="TE! ;actan- %ebu Airport case SEC1 68 D!9" -* 3ow #any possible inco#es were #entionedL A* Two >&)! ban: interest and royalties E4! *. @an: interest #ust be received by a Do#estic %orp

),

Taxation law review notes - Atty. Francis J. Sababan &. oyalties derived .ro# sources within -* Ahen it co#es to ban: interest? what is the di..erence i. the taxpayer is an individual or corporationL A* -. individual? they #ay be exe#pt .ro# the pay#ent o. interest in case o. lon$ ter# deposit except = A=ET@ -. D%? they are not exe#pt .ro# lon$ te# deposit. -* Ahat about royaltiesL A* -. individual? have a lower rate o. *(Eon boo:s? other literary and #usical co#positions. D% 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 expanded .orei$n currencyL A* -t is a ban: authori5ed by the @S7 to transact business in the 7hilippine %urrency as well as acceptable .orei$n currency or both. -* Ahat is the tax to be paidL A* =or#ally it is =-T because it is sub9 under Sec &+ D) and &, A -* Aho is the inco#e earnerL A* Depositary ban:s -* Exe#pt .ro# what :ind o. transactionL A* Fro# .orei$n currency transaction. -. it involves .orei$n currency transaction it is not exe#pt but sub9ect to )1 E =-T -* Aho are the other partiesL A* *. ".. shore ban:in$ units &. branches o. .orei$n ban:s ). local co##ercial ban: 6. "ther depositary ban:s under EF%DS 1. =on- residents N i. the above enu#eration are the parties? then depositary ban: will be exe#pt .ro# payin$ the =-T Foreign Currency 2oan -* Aho is the lenderL @orrowerL A* 8ender- EF%DS @orrower- % EJE;7T "..shore ban:in$ units "ther depositary ban:s under EF%DS N exe#ption o. = .ro# EF%DS!

-* Aho is the inco#e earnerL A* =on esidents whether individual or %orporations -* Derived .ro# who#L

)/

Taxation law review notes - Atty. Francis J. Sababan A* Depositary @an: under EF%DS ="TE! Sec. &6 @ =onresident exe#pt .ro# ban: interest under EF%DS -* Ahat is the di..erence between &6 b* .ro# &+ D) A* -n &6 @*? = is exe#pt only .ro# ban: interst derived .ro# EF%DS while &+D) exe#pts = any inco#e .ro# transactions with depositary ban: under EF%DS SEC1 68 D!7)- -nter-corporate dividends- exe#pt 68 D; Capital 4ains from sale of Real Prop1 -* Ahat is the taxL A* 'E F-T -* Ahat is the di..erence i. the seller is an individual and a D%L A* -ndividual can sell all :inds o. real property D% can only dispose land andKor buildin$s. SEC 68 !E" )C0T -* Applicable to who#L A* D% and F% -* %an it be applied si#ultaneously with =-TL A* ="? i#posed in lieu o. the =-T? whichever is hi$her. -* Ahat is the ationaleL A* to prevent corporations .ro# clai#in$ too #any deductions -* Ahen will it be i#posedL A* *. "n the 6th year i##ediately .. the year in which such corp co##enced its business. &. Ahen the ;%-T is hi$her than the =-T -* Ahat is the carry over ruleL A* Sec &+ E& states the carry over rule. > -n order to avail! only in the year where the ;%-T is $reater than the =-T. .ro#

Sec 6< %9 -* Ahat Dinds o. taxes are paid by the A* =-T ;%-T Sec1 6< &6 )C0T on RFC = sa#e with Sec. &+ F%L

Sec1 6< %:- 0NT2 C%RR0ER Dind! *. Air carrier &. ships

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Taxation law review notes - Atty. Francis J. Sababan N An intl. carrier doin$ business in the 7hils. shall pay & [ E on its <ross 7hil @illin$s ><7@) -* -s &, A) the <en. rule or the ExceptionL A* -t is the $eneral rule because it is under &, A) N N N <7@ is in the nature o. F-T? applies only i. all the require#ents are present. F% will be liable .or =-T? hence a -nco#e without! EJE;7T F% en$a$ed in co##on carria$e does not pay <7@ but =-T

0nternational Carrier/ N <7@ re.ers to the a#ount o. revenue derived .ro#! carria$e o. persons? excess ba$$a$e? car$o and #ail ori$inatin$ .ro# the 7hils in a continuous and uninterrupted .li$ht? irrespective o. the place o. sale or issue and the place o. pay#ent o. the tic:ets or passa$e docu#ent. E4! *. "ri$inatin$ .ro# the 7hils. &. %ontinuous and uninterrupted .li$htF ). -rrespective o. the place o. sale or issue and the place o. the pay#ent o. tic:ets or passa$e docu#ent. -* Do you consider landin$ ri$hts to deter#ine liabilityL > *1-&((&) A* *. -. ori$inates .ro# the 7hils and has landin$ ri$hts- "=8-=E- F% &. =o landin$ ri$hts- "FF8-=E- = F% -* -. there are stopovers? is it still uninterruptedL A* IES? provided that the stopover does not exceed 6, hrs. -* Ahen will the place o. sale o. tic:ets #atter as to the taxpayers liabilityL A* The place o. tic:ets is #aterial only i. the two other ele#ents are not present to be able to :now i. its sub9 to =-T or exe#pt. Re.alidated> exc+anged or indorsed tic,ets E4! *. The passen$er boards a plane in a port or point in the 7hils. &. The tic:ets #ust be revalidated? exchan$ed? or indorsed to another airline. -* Ahat i. itHs the sa#e airline but di..erent planeL A* <7@ does not apply? it #ust be to another airline -* Ahat i. it did not ori$inate .ro# the 7hils.L A* Deter#ine i. its inco#e within or without. i. tic:et was purchased in the 7hils. it is inco#e within hence apply =-T i. purchased outside? it is inco#e without? hence exe#pt Transs+ipment E4! .li$ht ori$inates .ro# the 7hils transship#ent o. passen$er ta:es place at any port outside the 7hils. the passen$er trans.erred on another airline -* 3ow do you apply <7@L

6*

Taxation law review notes - Atty. Francis J. Sababan A* "nly the aliquot portion o. the cost o. the tic:et correspondin$ to the le$ .lown .ro# the 7hils to the point o. transship#ent shall .ro# part o. the <7@. -* -s it liable .or the whole .li$htL A* Fro# the 7hils to the point o. transship#ent? it is inco#e wKin Fro# transship#ent to .inal destination? its inco#e wKout- EJE;7T 0nternational S+ipping N <7@ #eans $ross revenue whether .ro# passen$er? car$o? #ail

E4! it #ust ori$inate .ro# the 7hils. up to .inal destination - re$ardless o. the place o. sale or pay#ents o. passen$er or .rei$ht docu#ents Sec6< %!7" #FF S'#RE &%N?0N4 -N0TS "@BHs *. &. ). 6. only acceptable .orei$n currencies always a .orei$n corporation >sub9 to =-T) except O) Exe#pt i. inco#e is derived by the "@B .ro# EF%DS 7arties! a) local co##ercial ban:s b) Forei$n ban: branch c) =on esidents d) "@B in the 7hils.

Di..erence with EF%DS! EF%DS *. Acceptable .orei$n currency? 7hil. %urrency or both &. %an be a do#estic or .orei$n corporation ). Exe#pt i. inco#e derived by D% or F% .ro# EF%DS 6. 7arties! a) local co##ercial ban:s b) Forei$n ban: branch c) =on esidents d) "@B in the 7hils e) "ther ban:s under EF%DS FOREIGN C%RRENC1 LOAN N *(E F-T -.! 8ender- "@B @orrower- esident %iti5en EJ%E7T! *. "@B &. 8ocal %o##ercial @an:s Transactions o. =on esidents! *. -nco#e earner! =on- esidents &. 8ender! "@BHs ="TE! =on resident exe#pt .ro# transactions with "@BHs and EF%DS

6&

Taxation law review notes - Atty. Francis J. Sababan ,EC. 4? A@ TAX ON BRANC9 PROFIT,= RE.ITTANCE, N pro.its based on the total pro.its applied or ear#ar:ed .ro re#ittance re#itted by a branch to its head o..ice N Sub9 to *1E tax Except! those activities which are re$istered with 7ERA ="TE! -nterests? Dividends? ents? oyalties includin$ re#uneration .or technical sevices? salaries? wa$es? pre#iu#s? annuities? e#olu#ents? or casual $ains? pro.its? inco#e and capital $ains received by a .orei$n corporation durin$ each taxable year .ro# all sources within shall not be treated as branch pro.its B=8ESS the sa#e are e..ectively connected with the conduct o. its trade or business. &ranc+ Profit Remittance Two ways to receive inco#e >F%) *. @ranch &. Subsidiaries ="TE! *. Ahen a F% establishes branch? it is always a F% &. Ahen a F% establishes D%? it is a F% -6 -t is in addition to =-T- AhyL A* =-T because it is F% -6 Ahat :ind o. tax is i#posed under &, A1L A* *1E F-T -* 3ow do you apply the rateL A* #ultiplied to the total pro.it applied or ear#ar:ed .or re#ittance wKo deductions -t applies .or branches that are! *. the pro.it re#itted is e..ectively connected with the conduct o. its trade or business in the 7hils. &. "ne not re$istered with 7ERA .AR#7E0" CA%E F! A branch was established with A<C7? there was invest#ent with A<C7 -* Did the petitioner participate with the ne$otiationL A* =" -* Ahat did the petitioner payL A* *1E @ranch 7ro.it e#ittance Tax >@7 T) *(E -ntercorporate Dividends -* AhatHs the issueL A* 7etitioner #aintains that there was overpay#ent o. taxes? thus the sa#e was as:in$ .or a re.und o. tax erroneously paid. -* -s is sub9 to F-TL A* ="? exe#pt i. petitioner is 3! -not correct to pay *1E F%

To be liable .or @7 T *. -t is a F% &. @ranch did not participate in ne$otiations

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Taxation law review notes - Atty. Francis J. Sababan ,EC. 4? AAa N e$ional or area headquarters >Sec. && DD) shall not be sub9ect to tax exe#pt .ro# inco#e tax i. the requisites are present. -* Ahat are the requisitesL A* *. the 34 do not earn or derive inco#e .ro# the 7hils. &. Acts only as supervisory? co##unications? coordinatin$ centre .or their a..iliates? subsidiary or branches in the Asia- 7aci.ic e$ion and other .orei$n #ar:ets. ,EC. 4? AA; > e$ional "peratin$ 34 are taxable and liable to pay *(E taxable inco#e.

N e$ional "peratin$ 34 is a branch established in the 7hils by a #ultinational co#pany en$a$ed in any o. the services! *. <en. Ad#inistration and 7lannin$ &. @usiness 7lannin$ and %oordination ). Sourcin$ and procure#ent o. aw #aterials and co#ponents. 6. %orporate Finance and Advisory Services 1. ;ar:etin$ %ontrol and sales pro#otion '. Trainin$ and personal #ana$e#ent +. lo$istic services ,. research and develop#ent services and product develop#ent /. technical support and #aintenance *(. data processin$ and co##unication and business develop#ent ationale! Ahy liableL @ecause the clai# .or exe#ption o. resident airlines shall be #ini#i5ed ,EC. 4?A<a Interests an$ Ro(alties* N N &(EF-T -nterests under EF%DSX + [ E e $eri'e$ un$er EFC#,

,ec. 4?A<; Inco

8. -nco#e derived .ro# .orei$n currency transactions with! a) =on esidents b) "@B c) 8ocal co##ercial ban: d) Forei$n ban: branches e) "ther depository ban: under the EF%DS N As a <en ule! the above transaction is Exe#pt

EJ%E7T-"=! -nco#e .ro# such transaction as #ay be speci.ied by the secretary o. Finance? upon reco##endation by the ;onetary @oard to be sub9ect to re$ular inco#e tax payable by any ban:s. 4. -nterest inco#e .ro# .orei$n currency loans N $ranted by depository ban: under said EF%DS to others shall be sub9ect to *(E F-T

Exe#pt i. $ranted to! *. "ther "@B in the 7hils? and &. "ther depository ban: under the EF%DS

66

Taxation law review notes - Atty. Francis J. Sababan U U SE%. &, A+c! %apital <ains .ro# Shares o. Stoc:s not Traded in the Stoc: exchan$e 1E or *(E as the case #aybe

,EC 4?A<$* INTERCORPORATE #IVI#EN#, N D%F%X EJE;7T? not sub9 to tax

,EC 4? B8 -* Ahat :ind o. taxL A* )1E <-T on the .. inco#e *. -nterest &. Dividends ). ents 6. oyalties 1. Salaries '. 7re#iu#s> except reinsurance pre#iu#s) +. annuities ,. e#olu#ents /. "ther .ixed and deter#inable <ains? pro.its and inco#e. ,EC 4? B4 Non Resi$ent Cine N liable .or &1E <-T ato+rap&ic fil o"ner= lessor or $istri;utor

,EC 4? B: Non Resi$ent o"ner or lessor of Vessels c&artere$ ;( P&ilippine Nationals. N liable .or 6 [ <-T

Ele#ents! *. %hartered to Filipino %iti5ens or %orporations &. Approved by ;A -=A ,EC. B253 Non Resi$ent O"ner or Lessor of Aircraft= .ac&iniries= an$ ot&er EBuip N liable .or + *K& E <-T ents.

,EC 4? ;@a Interest on Forei+n Loans N ;ust be read with Sec. )& @+a

-nterest on Forei$n 8oans? i. the lender is *. = F% liable to &(E F-T &. Forei$n <ovt. Exe#pt because it is an exclusion >Sec )& b+a! inco#e derived by a .orei$n $ovHt .ro# invest#ents in the 7hils on loans? stoc:s? bond? and other do#estic securities or .ro# interest on deposits in ban:s by! a) Forei$n $ovt. b) Financin$ inst owned controlled or en9oyin$? re.inancin$ .ro# .orei$n $ovtF and c) -nter nation or e$ional .inancial inst established by .orei$n $ovt. CO.."%"O0ER O$ "0!ER0AL RE9. vs. ."!%#7"%4" .E!AL CORP. &),( %CRA *)FF! Atlas ;inin$ entered into a 8oan and Sales %ontract with ;itsubishi ;etal %orp. > A Japanese %orp.) .or the purposes o. pro9ected expansion o. the productivity capacity o. the .or#erHs #ines in %ebu. The contract provides that ;itsibushi will extend a loan to Atlas in the a#ount &( ; dollar? so that Atlas will be able install a new concentrator .or copper production. -;itsubishi to co#ply with its obli$ation? applied .or a loan .ro# Export- -#port @an: o. Japan >Exi# @an:) and .ro# consortiu# o. Japanese ban:s.

61

Taxation law review notes - Atty. Francis J. Sababan 7ursuant to the contract Atlas paid interst to ;itsubishi where the correspondin$ *1E tax thereon was withheld and only re#itted to the <ovt. Subsequently ;itsubishi .iled a clai# .or tax credit requestin$ that the sa#e be used as pay#ent .or its existin$ liabilities despite havin$ executed a waiver and disclai#er o. its interest in .avor o. Atlas earlier on. -t is the contention o. ;itsubishi that it was the #ere a$ent o. Exi# @an: which is a .inancin$ inst owned and controlled by the Japanese <ovt. The status o. Exi#ban: as a $overn#ent controlled inst beca#e the basis o. the clai# .ro exe#ption by ;itsubishi .or the pay#ent o. interest on loans. -! A"= ;itsubishi is a #ere a$ent o. Exi#ban: 3! =". The contract between the parties does not contain any direct re.erence to Exi# @an:? it is strictly between ;itsubishi as creditor and Atlas as the seller o. copper. The ban: has nothin$ to do with the sale o. copper to ;itsubishi. Atlas and ;itsubishi had reciprocal obli$ations;itsubishi in order to .ul.ill its obli$ations had to obtain a loan? in its independent capacity with Exi# ban:. 8aws $rantin$ exe#ption .ro# tax are construed strictly a$ainst the taxpayer and liberally in .avor o. the taxin$ authority. ,EC. 4? #@ ; INTERCORPORATE #IVI#EN#,* N F-T *1E i#posed on the a#ount o. cash and or prop dividends received .ro# a do#estic corporation. SB@J T" T3E %"=D-T-"=! the country where the = F% is do#iciled allows a credit a$ainst the tax due .ro# the = F% taxes dee#ed paid or dee#ed to have been paid in the 7hils. <en rule! )1 E F-T Exception! *1E under the Ptax dee#ed paid ruleK reciprocity ruleK tax sparrin$ ruleQ ;4O0%O0% CA%E & Dinds o. %ate$ories! *st ! Japan? BS? <er#any? 7hils liable .or inco#e within and inco#e without &nd ! countries liable only .or inco#e within. .AR#7E0" Case! & -ssues *. -s the pay#ent o. *(E F-T correctL - =o because it was a branch and F% but still ;arubeni was = F% under the old law which is liable to pay )1E? but S% said liable only to &1E because o. the tax treaty N Iou cannot re.und ri$ht away M *1E @7 T and *(E -nter-corporate Dividends tax has di..erent basis -n 7C< who are involved D% >7C< 7hil) and = F% >7C< BS) D% declares dividends to = F% )1E was withheld and re#itted to the @-

Ahat did they discoverL >a.ter payin$) - they discovered that they are liable only .or *1E so they have a re.und o. &(E -* -n the *st case did the S% allowed the re.undL A* ="? denial anchored on & $rounds! *. "ne clai#in$ .or re.und was not the proper party &. There was a showin$ or proo. as to the existence o. the Ptax dee#ed paidQ rule -* -n &nd case was there a re.undL A* IES? the S% reversed itsel.

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Taxation law review notes - Atty. Francis J. Sababan *. -nco#e tax is F-T! the withholdin$ a$ent is the proper party because he is liable to pay said taxes &. actual proo. o. pay#ent not necessary? what is necessary is the law o. the do#icile o. the country providin$ .ro tax credit equal to &(E o. the tax dee#ed paid. -* Ahat is the rate i. the law is silentL A* )1E F-T N The rate will only be *1E i. thereHs a law reco$ni5in$ the sa#e but this re.ers to the case o. those belon$in$ to the .irst cate$ory. GA08ER CA%E -* Aho are the partiesL A* D%>Aander) and F% ><laxo)- they belon$ to di..erent cate$ories The @- tried to collect )1E because the law is totally silent about the tax credit 3! The S% said that the tax should be *1E which applies & instances! *. Forei$n law do not provide .or tax credit- )1E &. law provides but the law is silent- *1E ). law is silent because there is no law- *1E 6. law is silent because thereHs no law because the sub9 #atter is not taxable- *1E ,EC. 4C IAET -* Ahat is the rateL A* *(E o. the $ross inco#e >taxable inco#e) N -t is i#posed upon the i#properly accu#ulated taxable inco#e o. the corporation

-* Applies to what %orpL A* to D% only under &- &((*> classi.ied as closely held corporations) -* -s it in the nature o. sanctionL A* Ies? it is i#posed to co#pel the corporation to declare dividends. -* AhyL A* because i. pro.its are distributed to the shareholders? they will be liable .or the pay#ent o. Dividends tax. =ow? i. the pro.its are undistributed the shareholders will not incur liability on taxes with respect to the undistributed pro.its o. the %orp. - -n a way it is in the .or# o. deterrent to the avoidance o. tax upon shareholders who are supposed to pay dividends tax on the earnin$s distributed to the#. -* Ahat is taxable inco#eL A* SE%. )* de.ines taxable inco#e as the pertinent ite#s o. $ross inco#e speci.ied in this %ode? less the deductions andKor personal and additional exe#ptions? i. any? authori5ed .or such types o. inco#e by this %ode or other special law -* Ahen not liable to pay -AETL A* There are & $roups o. D% exe#pt .ro# pay#ent o. -AET > &-&((*)

A- Corporations failure to declare dividends because of reasonable needs of business N reasonable needs #eans are construed to #ean i##ediate needs o. the business includin$ reasonable anticipated needs -* Ahat constitutes reasonable accu#ulation o. the corporationHs earnin$sL Exa#plesL A*

6+

Taxation law review notes - Atty. Francis J. Sababan *. allowance .or the increase in the accu#ulation o. earnin$s up to *((E o. the paid- up capital o. the corporation. &. earnin$s reserved .or the de.inite corporate expansion pro9ects or pro$ra#s approved by the @oard ). Earnin$s reserved .ro buildin$s? plants? or equip#ent? acquisition approved by the @oard 6. Earnin$s reserved .or co#pliance with any loan a$ree#ent or pre- existin$ obli$ations 1. Earnin$s required by law or other applicable statutes to be retained. '. -n case o. subsidiaries o. .orei$n corporation? all undistributed earnin$s or pro.its intended or reserved .or invest#ents ="TE! the corporations belon$in$ in the *st $roup are nor#ally liable but they can show that the accu#ulation o. earnin$s is 9usti.ied .or reasonable needs o. business? they incur no liability and exe#pt .ro# pay#ents o. the sa#e. 7- Corporations C=ic= are e>empt C=et=er or not it is for reasonable needs of t=e business: *. @an:s? and other non- ban: .inancial inter#ediaries. &. -nsurance co#panies ). 7ublicly- held corporations 6. Taxable partnerships 1. <eneral 7ro.essional 7artnerships '. =on- taxable 9oint- ventures +. Enterprises re$istered with a) 7ERA b) @ases %onversion Devt Act o. *//& > A /&&+) c) Special Econo#ic Rone declared by law -* Ahat is a closely- held corporationsL A* Those corporation at least 1(E in value o. the outstandin$ capital stoc: or at least 1(E o. the total co#bined votin$ power all classes o. stoc: entitled to vote is owned directly? or indirectly by or .or not #ore than &( individuals ="TE! 7ublicly held %orp. has #ore than &( shareholders -* Ahat is the ti#e .or payin$ this taxL A* %alendar Iear! Jan &1? &((1- Dec )*? &((1. Today is &(('. Iou have * year to declare a.ter the close o. the taxable year. &((' is the $race period. Iou will pay on January &((+. -* -. youHre not #entioned to be exe#pted? will you still be liableL A* =o? i. you invo:e ad9ust#ents ,EC :D. EXEE.PTION, FRO. TAX ON CORPORATION, N Deter#ine the %orporationsH exe#ptions under Sec. )( &+ % and &&@. *. Sec )(? the corporations shall not be taxed under this title >tax on inco#e) in respect to inco#e receive by the# as such. &. Sec &+? the corporations enu#erated are always exe#pt. Thus exe#ption is unconditional ). Sec &&@ <77? as a $eneral rule is not a corporation 6. except i. it earns inco#e .ro# other business Joint 2enture wK service contract wK $overn#ent not a corporation? otherwise? it is liable.

Assi$n#ent! Sec. )1 Au$ust &*? &((' 0 ;idter#s Au$ust *6? &(('

6,

Taxation law review notes - Atty. Francis J. Sababan -* Ahat is the reason .or not includin$ the corporations exe#pt under section &+% and Section &&@ under Section )(L A* @ecause there is an exe#ption which does not apply to all exe#pt corporation. The exe#ption under Section )( is not absolute while the exe#ption under Section &+ % is absolute and without any conditions. -n addition? Section &&@ provides that a 9oint venture is $enerally taxable unless it has a service contract with the $overn#ent? a $enerally taxable corporation cannot be 9oined with the $roup as $enerally not taxable corporation. <eneral 7ro.essional 7artnership is exe#pt but the exe#ption is not the sa#e as provided by Section )(. TADE ="TE! 8as 7ara$raph o. Section )(. N exe#ption to the exe#ption! inco#e o. whatever :ind and character o. the .ore$oin$ or$ani5ations .ro#! *. any o. their properties? real or personalF &. any activities conducted .or pro.it N re$ardless o. the disposition o. said inco#e? shall be sub9ect to tax.

-* Enu#erate the exe#pt corporations under Section )(F Ahat is the require#entL A* *. 8abor? a$ricultural or horticultural or$ani5ation not or$ani5ed principally .or pro.itF &. ;utual savin$s ban: not havin$ a capital stoc: represented by shares? and cooperative ban: without capital stoc: or$ani5ed and operated .or #utual purpose and without pro.itF ). a bene.iciary society? order or association? operatin$ .or the exclusive bene.it o. the #e#bers such as .raternal or$ani5ation operatin$ under lod$e syste#. >lod$e syste#! operatin$ world wide) or a #utual old association or a non-stoc: corporation! a. or$ani5ed by e#ployeesF b. providin$ .or the pay#ent o. li.e? sic:ness? accident or other exclusive bene.its to its e#ployees and their dependentsF 6. %e#etery >a) co#pany owned and >b) operated exclusively .or the bene.it o. its #e#bersF 1. =on-stoc: corporation or association or$ani5ed and operated exclusively .or eli$ious? %haritable? Scienti.ic? Artistic or %ultural purposes? or .or the ehabilitation o. 2eterans > %SA% )? no part o. its net inco#e or asset shall belon$ ot or inure to the bene.it o. any #e#ber? or$ani5er? o..icer? or any speci.ic personF '. @usiness lea$ue? cha#ber o. co##erce? or @oard o. trade? >a) not or$ani5ed .or pro.it and >b) no part o. the net inco#e o. which inures to the bene.it o. any stoc: holder or individualF +. %ivil lea$ue or or$ani5ation not or$ani5ed .or pro.it but operated exclusively .or the pro#otion o. social wel.are. C"R vs. .CA -* Ahat is the basis o. ;anila @- .or the i#position o. the taxL A* last para$raph o. Section )(? because I;%A was conductin$ an activity .or pro.it. F! the %TA and the %A invo:ed the doctrine laid down in 3errera and Abra 2alley case which involves an exe#ption .ro# the pay#ent o. eal property Tax. 3! The S% revised the rulin$. I;%2A is liable to pay inco#e tax applyin$ the last para$raph o. Section )(. I;%A -s exe#pt .ro# the pay#ent o. property tax? but not to inco#e tax on rentals .ro# its property. The tax code speci.ically #andates that the inco#e o. exe#pt or$ani5ations >under section )() .ro# any o. their properties? real or personal? shall be sub9ect to tax? includin$ the rent inco#e o. the I;%A .ro# its real prop. ,. a non-stoc: and non pro.it educational institutionF /. $ovHt educational institutionF *(. Far#erHs or other #utual typhoon or .ire insurance co#pany? #utual ditch or irri$ation co#pany? or li:e or$ani5ation o. a purely local character? the inco#e o. which consists solely

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Taxation law review notes - Atty. Francis J. Sababan o. assess#ent? dues and .ees? collected .ro# #e#bers .or the sole purpose o. #eetin$ its expensesF **. Far#erHs? .ruit $rowerHs or li:e association or$ani5ed and operated as a sales a$ent .or the purpose o. #ar:etin$ the products o. its #e#bers and turnin$ bac: to the# the proceeds o. sales? less the necessary sellin$ expenses on the basis o. the quantity o. produce .inished by the#. TADE ="TE! inco#e o. sales a$ent is exe#pt. ,ection :8* TAXABLE INCO.E

C9APTER VI* CO.P%TATION OF GRO,, INCO.E ,ECTION :4* GRO,, INCO.E -* Ahat is the tax treat#entL Are these taxable inco#eL Are these included in the $ross inco#eL -s it included in the -T L -s it sub9ect to =-TL A* Sec. )& A answers the questions. -* Ahat is the inco#e tax re.erred to hereL A* =-T. The section re.ers only to the pay#ent o. =-T. -t spea:s o. the =-T. -* -. the is #entioned under Section )& A? does it .ollow that it is auto#atically included in the <-TL A* =o? Section )& A states PExcept when otherwise provided in this titleQ -* Ahat are the inco#e that are not included? not sub9ect to =-TL A* *. -nco#e that are sub9ect to F-T. &. -nco#e that are considered an exclusionF and ). -nco#e that are exe#pt. -* Ahen do you not apply Sec. )& AL A* it applies to all except! *. = A=ET@ &. = F% U they do not pay =-T? they pay by way o. <-T. -* Ahat are included in the <ross inco#eL A* 91 Compensation for services in C=atever form paid including but nor limited to fees, salaries, Cages, commissions, and similar items. H%ec. '* A &)-I -* Ahat is co#pensationL A* all re#uneration .or services per.or#ed by an e#ployee .or his e#ployer under an e#ployere#ployee relationship. TADE ="TE! co#pensation is included in the -T to =-T? included in the -T . i. the taxpayer is not liable .or =-T. Thus? i. sub9ect

-* -s there an instance where the salaries o. a % is not included in the -T L A* Ies? i. the salary is sub9ect to F-T? li:e when the % is e#ployed in ;ultinational? o..shore ban:in$? and petroleu# co#panies.

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Taxation law review notes - Atty. Francis J. Sababan 61 /ross "ncome derived from t=e conduct of trade or business or t=e e>ercise of a professionJ H%ec. '* A &*-I -* Ahat is the inco#e tax hereL A* =-T? included in the -T . :1 /ains derived from dealings in propertA. H%ec. '* A &'-I -* Did the law distin$uishedL A* =o? the law did not distin$uished between real and personal property. TADE ="TE! *. Sale o. real property &. Sale o. shares o. stoc: >personal prop.) N i. the ele#ents are present? sub9ect to F-T. Thus? it is not included in the -T ? the withholdin$ a$ent will be responsible .or this. -* -nco#e .or# the sale o. property? do you include this in the -T L A* it depends a. i. sub9ect to F-T? not included. Aithholdin$ a$ent acco#plish the .or#s M sub9ect to F-T i. the .ollowin$ ele#ents are present! *. it is a capital assetF &. located in the 7hil.! and ). sold by individual? trust? estate? D%. b. i. sub9ect to =-T? included in the -T . M Ele#ents are not present? li:e when the real prop. is an ordinary asset or when it is capital asset i. the taxpayer is F%. TADE ="TE! N *+-&(()

eal property sale sub9ect to FAT? the buyer acco#plishes the -T . 71 interestJ H%ec. '* A &F-I

-* Ahat interest is bein$ re.erred to hereL A* interest which is included in the co#putation o. $ross inco#e is interest earned .ro# lendin$ #oney and interest .ro# ban: deposit which does not constitute passive inco#e. @an: interest .ro# sources? without or abroad. -* @an: interest .ro# Solid @an:? is it included in the -T L A* =o? because it is included or considered an inco#e within? thus sub9ect to F-T. included in the -T . ;1 Rents. H%ec. '* A &3-I N sub9ect to =-T? included in the -T . @1 oyaltiesF \Sec. )& A >')] oyalties derived .ro# inco#e without. 0 Thus? not

-* Ahat is bein$ re.erred to hereL A* royalties which does not constitute passive inco#e. sub9ect to =-T. Thus not included in the -T .

-* Aho are the taxpayersL A* 8iable .ro# inco#e wKin and wKout and the rest are exe#pt. *. %

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Taxation law review notes - Atty. Francis J. Sababan &. D% 81 8ividends. H%ec. '* A &+-I -* Ahat :ind o. dividendsL A* one that does not constitute a passive inco#e. TADE ="TE! *. D% individual taxpayer X F-T &. D% 0 D% C F% X EJE;7T ). D% 0 = F% X FAT N only dividends issued by a F% to an individual taxpayer > % " co#putation o. the $ross inco#e. Thus? included in the -T . <1 Annuities. H%ec. '* A &,-I -* Ahat :ind o. annuitiesL A* annuities which are not exe#pt .ro# tax are included in the co#putation o. the $ross inco#e. >included in the -T ) 2. PriBes and Ginnings H%ec. '* A &2-I -* Ahat :ind o. pri5es and winnin$sL A* a. those that does not constitute passive inco#eF and b. those that are not considered as an exclusion. Thus? exe#pt. Passi.e 0ncome *. 7ri5es 0 derived .ro# sources within and over *(?(((.(( &. Ainnin$s 0 derived .ro# sources within. Exe#pt! a. winnin$s! 7%S" and 8otto winnin$s. b. pri5es! N those pri#arily .or reco$nition o. >*)reli$ious? >&)charitable? >))scienti.ic? >6)educational? >1)artistic? >')literary? >+)civic achieve#ent are exe#pt 7 "2-DED! *. the recipient was selected without any action on his part to enter the contest or proceedin$sF and &. the recipient is not required to render substantial .uture services as a condition to receivin$ the pri5e or award. N pri5es and awards $ranted to athletes are also exe#pted provided! *. local or international sports co#petition or tourna#entF &. held in the 7hilippines or abroadF and ). sanctioned by the national sports association. A) is included in the

-* Ahen is a pri5e sub9ect to =-TL A* *. when derived .ro# inco#e withoutF &. when less than *(?(((.((F ). when the inco#e earner is a D% or %. -* Ahen is winnin$ sub9ect to =-TL A* *. Ahen derived .ro# inco#e withoutF

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Taxation law review notes - Atty. Francis J. Sababan &. when the inco#e earner is a D% or 9A1 Pensions H%ec. '* A &)(-I -* Ahat :ind o. pensionL A* -ncluded in the $ross inco#e i. not exe#pt U never sub9ect to .it >L) 991 PartnerKs distributive s=are from t=e net income of t=e general professional partners=ip &/PP-. -* Ahat is bein$ re.erred toL A* <77 exe#pt .ro# pay#ent o. corporate inco#e tax N shares o. partners sub9ect to =-T 0 Sec. &' %.

,EC :4 B EXCL%,ION, FRO. GRO,, INCO.E -* Ahat do you #ean by exclusionsL Are these exe#pt .ro# inco#e taxL A* these are not included in the $ross inco#e? T3BS? exe#pt. TADE ="TE! Exe#ptions? exclusions? deductions? have the sa#e characteristics M all tax do not apply. 91 2ife insurance BSec1 :9 & !9"C -* Ahat is the require#entL A* only one require#ent .or exe#ption! that the proceeds o. the li.e insurance be payable upon the death o. the insured. -* Does it #atter who the bene.iciary is or paid in a lu#p sun or sin$le su#L A* =o. it does not #atter. Exception! a#ounts held by the insurer under an a$ree#ent to pay interest thereon? the interest pay#ent shall be included in the $ross inco#e. 61 %mount recei.ed by insured as return of premium BSec1 :6 & !6"C -* i. the insurance is payable within a certain ti#e? say *( years and therea.ter the insured did not die? how #uch will be excludedL A* only the a#ount received by the insured as a return o. the pre#iu#s. Ex. * ; 0 *(( thousand X capital -t is exe#pt >*((D) /((D is taxable. -* Ahy is it excludedL A* because the a#ount received #erely represents a return o. capital. -* is this sub9ect to Estate Tax under Sec. ,1 EL do we have the sa#e require#entL A* no? the require#ent .or exe#ption is not the sa#e under Section ,1 E. :1 Proceeds of life insurance/ decedent insured +imself> inclusion or exclusion Dill depend on D+o t+e beneficiary is1 a. the bene.iciary is the estate.

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Taxation law review notes - Atty. Francis J. Sababan U sub9ect to Estate tax? included in the $ross estate re$ardless o. whether or not the desi$nation o. the bene.iciary is revocable or irrevocable. b. the bene.iciary is a third person other than the estate. b.* evocable Desi$nation M sub9ect to estate tax? included in the $ross estate. eason! because o. the insuredHs power to #odi.y or chan$e the bene.iciary. b.& -rrevocable Desi$nation M not sub9ect to Estate tax? not included in the $ross estate. eason! the insured loses the power to control? #odi.y and chan$e the bene.iciary. -* -s it sub9ect to 2ATL A* *. =on-li.e insurance 0 yes? sub9ect to 2AT under *(, >A). &. 8i.e insurance 0 ="? sub9ect to percenta$e tax under Sec. *&) o. the Tax %ode. 71 4ifts> &equest and De.ises BSec1 :6 & !:"C -* Ahy is the donee exe#pt .ro# inco#e taxL A* @ecause the law classi.y it as an exclusion? not i#portant to :now whether property is real or personal. Ahat is exe#pted is the Pvalue o. property acquired by $i.t? bequest or deviseQ TADE ="TE! A. <-FTS are excluded because they are sub9ect to donorHs tax. @. @E4BEST and DE2-SE are excluded because they are sub9ect to ESTATE tax. -* what is included in the $ross inco#eL A* inco#e .ro# such property. N $i.t? bequest? devise or descent o. inco#e .ro# any property in case o. trans.ers o. divided interest. ;1 Compensation for inEuries or sic,ness BSec1 :6 & !7"C -* is this the sa#e as those provided under the wor:#enHs co#pensation act >wca)L A* IES. There are ) $roups! a. 3ealth or accident insurance or those under wor:#enHs co#pensation. b. personal in9uries and sic:nessF and c. Da#a$es to prevent in9uries and sic:ness. -* Ahat does in9ury includeL A* The ter# in9ury includes death? even i. not in9ured? i. the person dies this will be available. -* when will the da#a$es recovered be exe#ptL A* <eneral ule! all da#a$es awarded are tax exe#pt. Exception! da#a$es representin$ loss o. inco#e. -* Ahy is it considered an exclusionL A* because this is 9ust an inde#ni.ication .or the in9uries or da#a$es su..ered. @1 0ncome exempt under a treaty BSec1 :6 & !;"C -* Ahat is excludedL A* inco#e o. any :ind required by treaty bindin$ upon the 7hil. <overn#ent. 81 Retirement benefits> pensions> gratuities BSec1 :6 & !@"C -* Ahy do we need to distin$uish retire#ent pay? separation pay and ter#inal leave payL A* because they have di..erent require#ents .or exe#ption.

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Taxation law review notes - Atty. Francis J. Sababan -* Ahat is retire#ent payL A* the su# o. #oney received upon reachin$ the #axi#u# a$e o. e#ploy#ent. a. Bnder A6/*+ >with etire#ent 7lan) *. the private bene.it plan is approved by the @- > &-/,)F &. the retirin$ o..icial or e#ployee has been in the service o. the sa#e e#ployer .or the last *( yearsF ). he is at least 1( years old at the ti#e o. retire#entF and 6. the o..icial or e#ployee avails hi#sel.Khersel. o. the bene.it only once. b. Bnder A+'6* >without retire#ent plan) *. the retirin$ o..icial e#ployee is at least '( years old but not #ore than '1 years oldF &. the e#ployee or o..icial #ust have served the co#pany .or at least 1 yearsF U entitled to *1 days salary and [ o. the *)th #onth pay .or every year o. service. TADE ="TE! the retire#ent bene.its under provided the require#ents are present. ,EC. :4 B2A32c3 N retire#ent bene.its $iven by .orei$n $overn#ent? .orei$n corporation? public as well as private to %? = %? A residin$ per#anently in the 7hilippines - exe#pt without .urther quali.ications 0 auto#atic exclusions. ,EC. :4 B2A32$=e=f3 N retire#ent bene.its $iven by the 7hilippine <ovHt throu$h the <S-S? SSS and 72A" are exe#pt without .urther quali.ications X auto#atic exclusions. Au$ust &*? &(('. - #idter#s '-, p# until sec )& @>') =- %. Au$ust &,? &(('. A=SAE S X ;-DTE ;S N <ross -nco#e include both capital and ordinary $ains? Sec. )* says $ross inco#e-deductions? that which is ordinary loss. - #ay be deducted .ro# capital $ains and ordinary $ains. -* Ahat is separation payL A* on $iven when one is ter#inated .ro# the service because o. >*) illness? >&)death? >)) physical incapacity or in9ury? or >6) causes beyond the control o. the e#ployee. -* Are there any require#ent .or separation pay $ranted by .orei$n $ovHt or corpL A* =one? the separation pay $ranted by the a.ore#entioned institutions are exe#pt without .urther quali.ications >Pother si#ilar bene.itsQ). -* is separation pay an exclusion? there.ore? exe#ptL A* =o. <E=E A8 B8E! Separation pay not exe#pt >L) Exception! *. Auto#atic exclusions? thus exe#pt i. due to! a. illness b. death c. physical incapacity or in9ury. A6/*+ and A+'6* are exe#pt .ro# inco#e tax

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Taxation law review notes - Atty. Francis J. Sababan &. %onditional exclusion a. causes beyond the control o. the e#ployee- excluded b. within e#ployeeHs control 0 included. Exa#ples! *. re$istration 0 %@A provides separation pay? within the control X included. &. installation o. labor savin$ devises or ban:ruptcy 0 beyond the control X excluded. -* Ahat is ter#inal leave payL A* the accu#ulated vacation leave and sic: leave bene.its converted to cash or #oney to be $iven either every year or upon retire#ent or separation. Ter#inal 8eave 7ay $ranted upon retire#ent or separation! U uder 7D&&(? T87 in the <ovHt or in the 7rivate Sector shall be exe#pt .ro# inco#e tax i. $iven or $ranted upon retire#ent or separation. T87 $ranted on a yearly basis! *. e#ployee in the private sector! a. accu#ulated sic: leave 0 sub9ect to inco#e tax. b. Accu#ulated vacation leave! i. #ore than *( days >#eanin$ ** pataas) 0 sub9ect to inco#e taxF U-. *( days or less 0 exe#pt. &. <ovHt E#ployee! U $overnin$ law! E" &/* o. 7res. Estrada? ;% *'-&(((. ule! <ovHt wor:ers >both o..icers or non-o..icers) $ranted T87 on a yearly basis M exe#pt .ro# inco#e tax. M there is no quali.ication as to vacation or sic: leave. N U Ta:e =ote o. ) cases. be re#inded o. E" &/*? Sec. &. +,.& par. /+? &-/,? *'-&(( >)).

Case of :ialcita N retired .ro# D"J? contention! T87 should be exe#pt .ro# inco#e tax pursuant to the old law. S%! on a di..erent $round 0 T87 is exe#pt because it is si#ilar to etire#ent pay? thus exe#pt but the rulin$Hs application is li#ited only to D"J e#ployees. 7orromeo case: N Sa#e as the Rialcita case -ssues! A"= the T87 is sub9ect to inco#e tax and A"= %"8A and ATA are includedL S%! B8ED T87 is Exe#ptY ;odi.ied! the rule applies not only to D"J o..icers but also to %S% co##issioners. CO.."%%"O0ER v. CA%!ALE8A - %asta^eda 0DFA o..icer in 7hil. E#bassy in En$land. *. T87 is exe#pt. &. ulin$ applies to DFA o..icers. -* Does the rule or decision applies to <ovHt o..icials onlyL A* =o. 7D&&(! Exe#ption applies to both private and public sectors>L) it does not #atter i. T87 is vacation or sic: leave. U &-/,? Sec. &.+,.* par. >a)>+) JA=? *//, 0 the rule applies to both private and public sectors.

E"&/* >SE7T.? &((() U "..icer in $ovHt receivin$ T87 is always exe#pt whether or not vacation or sic: leave is $ranted.

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Taxation law review notes - Atty. Francis J. Sababan ;odi.ied &-/,! U T87 will only apply to private sectors U i. $ranted on a yearly basis 0 #ay be sub9ect to tax! 2A%AT-"= 8EA2E *. ;" E T3A= *( DAIS X TAJA@8E &. 8ESS T3A= *( DAIS X EJE;7T <1 )iscellaneous items !Sec1 :6 & !8" !a" income deri.ed by foreign 4o.Ft BSec1 :6 & !8" !a"C -* Ahat :ind o. inco#eL A* *. invest#ents in! a. loans b. stoc:s c. bonds d. other do#estic securities &. interest .ro# deposits in @an:s in the 7hilippines. -* Aho are inco#e earnersL A* *. .orei$n $overn#ent &. .inancin$ institutions owned? controlled or en9oyin$ re-.inancin$ .ro# .orei$n $ovHtsF and ). intHl or re$ional .inancial institutions established by .orei$n $ovHts >established in the 7hilippines) TADE ="TE! i. plain .orei$n corp.? sub9ect to F-T &(E. EJA;78ES o. exclusions! a. @runei <ovHt earns interest by depositin$ #oney in ;a:ati @an: 0 Exclusion. b. S;%- Stoc: dividends to ). @runei <ovHt. exclusion c. -nco#e derived by the <ovHt or its political subdivisions >Sec. )& @ >+) >b) a. exercise o. public utility b. exercise o. any essential $ovHt .unction. U accruin$ to the $ovHt. d pri5es and awards >Sec. )& @ + c) U pri#arily .or reli$ious? charitable? scienti.ic? educational? artistic? literary or civic achieve#ents! *. recipient was selected without any action on his part to enter the contest or proceedin$sF &. the recipient was not required to render substantial .uture services as a condition to receive the pri5e or award. D. pri5es and awards in sports >Sec. )&@ + d) *. $ranted to athletesF &. local or intHl co#petitionsF ). held here or abroadF 6. sanctioned by the natHl sports associations. E. *)th #onth pay and other bene.its >Sec. )&@ + e) -* Do you include %hrist#as bonus in your -T L A* =o? because the law says *)th #onth pay and Pother bene.itsQKQsi#ilar bene.itsQ 0 x#as bonus is included in the cate$ory. -* Aho can increase the )(?((( li#itL A* The Sec. o. Finance. -* Applicable to who#L

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Taxation law review notes - Atty. Francis J. Sababan A* *. $ovHtF and &. 7rivate institutions. F. <S-S? SSS? ;edicare and other contributions >Sec. )& @ + .) N #ust be deducted .ro# the <- not =-T because it is an exclusion. -creditable withholdin$ tax is an exclusion- #ust be deducted .irst .ro# the <- be.ore you co#pute the =-T. "therwise? you are includin$ in the <- so#ethin$ that is excluded .ro# the sa#e. <. <ains .ro# the Sale o. bonds? debentures? or other %erti.icate o. indebtedness. >Sec. )& @ + $) -* Ahy 1 yearsL A* certi.icate o. indebtedness is si#ilar to @an: -nterest in a lon$ ter# deposit. - Sec. )& @ + $ is si#ilar or the sa#e as &6 @ in lon$ ter# deposit. 3. <ains .ro# rede#ption o. shares in #utual .und >Sec. )& @ + h) *. Fiscal Iear 0 #eans an accountin$ period o. *& #onths endin$ on the last day o. any #onth other than Dece#ber. &. %alendar year 0 a period o. *& #onths be$innin$ on January and endin$ on Dece#ber. -* @usiness expense incurred in February &(('? is it possible to include it .or April &(('L A* yes? it is possible or it is possible i. .iscal year is e#ployed? i. it .alls under the .iscal year and all the ele#ents are present. - related to trade or business. EAS"=! %apital loss has no connection to the trade or business. TADE ="TE! N .or taxpayers liable .or inco#e within and without > % C D%))? they can clai# deduction .or expenses incurred within and without. N .or taxpayers who are liable only .or inco#e within? they can clai# a deduction .or expenses incurred within the 7hilippines. Sec. )6 A EJ7E=SES *. For those business expenses not enu#erated under A. Iou need to prove that it is an ordinary and necessary expense. &. For those enu#erated under A? all you have to prove is that it is incurred durin$ the taxable year. Feb. *&? &((+ >Sec. )6 A? Expenses) -* Did the law de.ine what is reasonableL A* =o. .or salaries and wa$es all that is required by law is .or it to be reasonable. - .or other .or#s o. co#pensation? there #ust be services actually rendered. %4-0N2D# Case F! involves a corporation en$a$ed in sellin$ .ish nets? and the corporation have a land sold throu$h a bro:er.

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Taxation law review notes - Atty. Francis J. Sababan Nthere was substantial pro.its $ained .ro# the sale o. a land which was sold by a bro:er. The pro.it was in turn $iven to the wor:ers as special bonus. Nthe corporation clai#ed the bonus as a deduction. -SSBE! Should the deduction be allowedL 3! The S% did not allow the deduction? .or other .or#s o. co#pensation? it #ust be #ade or $iven .or services actually rendered. Nin this case? it was proven that the sale was not #ade by the e#ployees? no e..ort or services actually rendered by the# because the sale was #ade throu$h a bro:er. N -* A* easonable Travel Expenses? Ahat is the require#entL *. Travel #ust be in pursuit o. business? &. Travel expense while away .ro# ho#e. trade or pro.ession.

-* -s there a travel expense which was not in pursuit o. businessL A* yes? those which are considered as .rin$e bene.its >F@)? expenses .or .orei$n travel is considered a F@ only i. it is not in pursuit o. the trade or business. -* can you clai# it under Sec. )6 A >*)>a)>ii)L A* =o? you can clai# it under Sec. )6 A >*)>a)>i) last para$raph. -* A* easonable Allowances .or rentals .or #eralco bills? require#entsL purpose o.

*. required as a condition .or the continued use or possession? .or the the trade? business or possession o. the property. &. taxpayer has not ta:en any title or no equity other than a lessor.

-* easonable allowance .or entertain#ent? a#use#ent and recreation expenses? what is the require#entL A* *. connected with the develop#ent? #ana$e#ent? and operation o. the trade >D";)F &. Does not exceed the li#its or ceilin$ set by the Secretary o. FinanceF and ). =ot contrary to law? #orals? $ood custo#s? public policy or public order. -* 3ow about bribe? :ic:bac:s? and other si#ilar pay#ents A* even without this provisions? :ic:bac:s will not pass the require#ent o. >i) ordinary and >ii) necessary hence not deductible EXPEN,E, ALLOWABLE TO PRIVATE E#%CATIONAL IN,TIT%TION -* Ahy only private educational institution is #entioned and no other taxpayersL A* it re.ers to section &+ .or 7rivate Educational -nstitution $iven to the educational institution. <E=E A8 expense B8E! )' A >&) and )' A >)) expenditures .or capital outlays not deductible as business

EJ%E7T-"=! 7rivate Educ. -nstitution can clai# it under Sec. )6 A >&) B%,INE,, EXPEN,E 's. ALLOWANCE FOR #EPRECIATION @BS-=ESS EJ7E=SE *. =o carry-over &. can be clai#ed .or one year only.

1/

Taxation law review notes - Atty. Francis J. Sababan ). i. the a#ount o. capital outlay is substantial? it cannot acco##odate all o. the expenses incurred. ALLOWANCE FOR #EPRECIATION *. There is carry over &. you can clai# it .or a lon$er period dependin$ on the li.e span o. the property. ). it can acco##odate all o. the expenses incurred. taxpayerHs allowable deduction .or interest expense shall be deducted by an a#ount equal to 6&E > *(-&((() o. the interest inco#e sub9ect to F-T. -* Aho clai#s this deductionL A* the debtor clai#s this deduction. -* Ahat :ind o. interest is thisL A* interest on loan. Ninterest on debt - when one borrows #oney to .inance his business interest in connection with the taxpayerHs pro.ession trade or business. ED-S%"B=T-=< "F 7A7E S ! >Sec. )6 @ & a) Na borrower or taxpayer can clai# the interest paid in advance as ite#i5ed deduction when he .iled his inco#e tax return >-T ) dependin$ on whether or not the principal obli$ation has been paid. *. i. the entire a#ount or entire principal obli$ation has been paid 0 the entire a#ount o. interest can be clai#ed as ite#i5ed deduction. &. i. only [ o. the obli$ation had been paid? then the entire a#ount o. [ o. that interest can be clai#ed as a deduction. ). i. no pay#ent had been paid on the principal obli$ation? the advance interest paid cannot be clai#ed as a deduction on the years that it was paid. E4B- E;E=TS F" ED-S%"B=T-=< "F 7A7E S!

*. incurred within the taxable year. &. individual taxpayer reportin$ inco#e on a cash basis. =o deduction shall be allowed in respect to the .ollowin$ interest!

*. i. within the taxable year an individual taxpayer reportin$ inco#e on the cash basis incurs an indebtedness on which an interest is paid in advance or throu$h discount or otherwise. &. i. both taxpayer and the person to who# the pay#ents has been #ade or is to be #ade are persons speci.ied under Sec. )' >@)! a. #e#ber o. a .a#ily b. bet. an individual and a corp.? #ore than 1(E in advance o. the outstandin$ stoc: o. which is owned directly or indirectly by or .or such individualF c. @et. & corp.? #ore than 1(E in value o. the outstandin$ stoc: o. each o. which is owned? directly or indirectly? by or .or the sa#e individual. d. bet. the $rantor and a .iduciary o. any trustF e. bet. the .iduciary o. a trust and the .iduciary o. another trust i. the sa#e person is a $rantor with respect to each trustF or .. bet. a .iduciary o. trust and a bene.iciary o. such trust. -* Aho are not allowed to clai# interest under sec )' @L

'(

Taxation law review notes - Atty. Francis J. Sababan A* interest incurred between related parties. -* Ahat i. hal.-brotherL A* not allowed to clai# deduction .or interest. TADE ="TE! interest incurred .ro# the exploration o. petroleu# re.ers not 9ust in interest incurred on loan o. #oney but also interest incurred .or install#ent pay#ents. -* Aho are related partiesL A* individuals and corporations. "7T-"=A8 T EAT;E=T "F -=TE EST EJ7E=SE! *. interest incurred to acquire property used in trade? business or exercise o. pro.ession can be clai#ed a an ite#i5e deductionV a. on interestF or b. depreciation >as capital expenditureL) -* Ahat is this interest inco#eL A* the #oney borrowed was deposited in a ban: so that it will warn interest. > *)-&((()

-88BST AT-"=! *. loan o. *; .ro# a ban: with an interest o. &(E &. &(E o. *; is 7hp&((?((( but you cannot clai# this whole a#ount as a deduction. ). when you deposited the *; in the ban:? it earned a ban: interest sub9ect to F-T worth 7hp*(?(((.((. 6. 6&E > ) o. *(?((( X 6?&(( > /))+) 1. 7hp&((D-6?&((X 7hp*/1?,((K this is the a#ount you can clai# as a deduction. :5 C TAXE,* E4B-S-TES! *. taxes #ust paid or incurred within the taxable year &. it #ust be incurred in connection with trade or business. ). can be clai#ed as! a. a deductionF or )6 % *C& b. tax credit )6 % )C+ -* Ahere should it be deductedL A* *. i. clai#ed as a deduction? it should be &. i. clai#ed as a tax credit? it should be >botto# o. the .or#ula)

deducted .ro# the $ross inco#eF deducted .ro# the =et -nco#e

Tax

due

)ERC-RG DR-4 C%SE - Discount o. senior citi5ens S%! discount clai#ed by senior citi5ens shall create a tax credit and #ust be deducted at the botto# o. the .or#ula. -* Ahat is a tax deductionL Exa#pleL A* exa#ple is business tax. Ntax deduction is allowed i. the taxes were paid or incurred within the taxable year and it #ust be connected to the trade? business or pro.ession o. the tax payer. -* Aho are entitled to clai# itL A* those liable to pay =-T. >Tax credit only .or =-T)

'*

Taxation law review notes - Atty. Francis J. Sababan -* Ahat is a tax creditL A* re.ers to the taxpayerHs ri$ht to deduct .ro# the inco#e tax due the a#ount o. taxpayer paid to .orei$n country? sub9ect to li#itations. -* Ahat is the tax credit bein$ re.erred to under )6 % >))L A* credit a$ainst taxes .or taxes o. .orei$n country. -* Ahat are the other tax credit under the codeL A* *. A '61& 0 sellin$ $oods and co##odities to senior citi5ens? the discount clai#ed is treated as a tax credit. &. inco#e tax paid to .orei$n country. ). -nput tax on 2at 6. %reditable wKholdin$ tax syste# under =-T 1. Tax credit certi.icate. 4! Aho are allowed to clai# itL A! % and D% only. -* suppose you paid the *((D =-T to BS? can you clai# as a deduction the whole *((DL what is the .or#ulaL Nsa#e procedure .or >*) inco#e tax paid to .orei$n countryF >&) estate tax paid to .orei$n countryF and >)) DonorHs tax paid to .orei$n country. A* For ula* STE7 * <- .ro# sources wKin =-T! GGGGGGGGGGGGGGGGGGGGG <- .ro# entire world STE7 & 4uotient x ATE X a#ount wKc can be clai#ed as a deduction A* you cannot clai# the whole *((D? you can only clai# the product o. the quotient ti#es the rate TADE ="TE! deduct at the botto# o. the .or#ula > sa co#putation n$ <-) -* Suppose you are a %? you pay =-T to BS? will you be able to clai# it as a tax deductionL tax the

A* *. $enerally? you can clai# it as tax credit. &. you can clai# under Sec. )6 % >*) b Ni. the taxpayer did not si$ni.y in his return his intention to avail hi#sel. o. the bene.it o. tax credit .or taxes paid to .orei$n country. Ntaxes incurred not related to the trade or business? you have the option to! a. clai# it as tax creditF or b. clai# it as a deduction Nlaw $ives you this privile$e. -* Ahen is taxes not allowed as a deductionL A* Sec. )6 % >*) *. -nco#e taxF &. -nco#e tax i#posed by authority o. any .orei$n countryF ). Estate and DonorH taxF and

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Taxation law review notes - Atty. Francis J. Sababan 6. taxes assessed a$ainst local bene.its o. property. a :ind tendin$ to increase the value o. the

-* Aho are not allowed to clai# deductionsL A* Bnder )6 % >)) - = %? = AF and =K F% TADE ="TE! *. = AE and =F% 0 allowed deduction only i. and to the extent that they are connected with inco#e .ro# sources within the 7hils. &. Taxes that had been allowed as deduction but are later in re.unded should be treated as part o. the $ross inco#e durin$ the year that it is received >)6 * last para$raph) -* Ahich would you chooseL Tax credit or deductionL A* tax credit because it is deducted .ro# the taxable inco#e while deductions are deducted .ro# the <-. F" ;B8A! <--DEDB%T-"= X =ET -=%";E x :5 # LO,,E, -* -s always a require#ent that it is incurred in pursuit o. trade? bus. or pro.essionL A* =o. Sec. )6 D>*) provides .or & :inds o. losses! a. incurred in pursuit o. trade? bus. or pro.essionF b. property connected with t?b?p? i. the loss arises .ro# .ire? stor#s? shipwrec:s or other casualties or .ro# robbery? the.t or e#be55le#ent >arisin$ .ro# natural cala#ity). -* Ahat is the require#entL A* *. 8oss actually sustained durin$ the taxable year &. =ot co#pensated .or by insurance or other .or#s o. inde#nity. ). =ot clai#ed as a deduction .or estate tax purposes. -* This is your ite#i5ed deduction which can A* <ross inco#e be clai#ed as a deduction .ro#L ATE X TAJA@8E =ET -=%";E 0 TAJ % ED-T)

TADE ="TE! N The ite#i5ed deduction o. losses? however? is not con.ined to section )6@. it is also .ound under section ,'A >*) >e) which also pertains to deductions available under the estate tax law. N8osses within six >') #onths a.ter the death o. the decedent can be clai#ed as ite#i5ed deduction o. losses under Section )6@. 3owever? #ay be clai#ed as deduction under estate tax return provided that the sa#e are not clai#ed as ite#i5ed deduction o. losses under Section )6@. -* 3ow #any carry-overs do we have under the %odeL A* ). =a#ely! *. Section &+ E >)&) %arry .orward o. excess #ini#u# Tax &. Section )/ D =et %apital 8oss %arry- over ). Section )/ D ) =et "peratin$ 8oss %arry-"ver. 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. )6 D O when you can clai# the loss .ro# both capital and ordinary lossL

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Taxation law review notes - Atty. Francis J. Sababan A* i. the loss exceeds the inco#e .or the taxable year? you cannot deduct the entire a#ount o. loss .ro# your inco#e .or that year so the excess #ay be deducted .or the taxable year .ollowin$ the loss. B. CAPITAL LO,, E NET CAPITAL LO,, CARR1 OVER NET 2#SS #IER C%P0T%2 C%RRGNET #PER%T0N4 2#SS C%RRG#IER *. taxpayer #ay be an individual or corpF &. losses incurred or connected with T or @F ). @usiness losses not previously o..set as a deduction .ro# the <- carried over as such .or the next ) consecutive yearsF 6. can be deducted .ro# capital $ains andKor ordinary $ains. & M * above-

*. taxpayers is an individual only not corporation. &. involves capital loss net

). carry-over as loss .ro# sale o. capital asset in the next succeedin$ year

6. can only be deducted .ro# capital $ains.

NET OPERATING LO,, CARR1 E4B- E;E=TS! *.=et operatin$ loss o. the business or enterprise incurred wKin the taxable year &. not previously o..-set as a deduction .ro# the <). carried over as a deduction .ro# the <- .or the next ) consecutive taxable years i##ediately .ollowin$ the year o. such loss. -* %an the period be extendedL A* yes? .or #ines other than oil and $as well. *. net operatin$ loss wKout the bene.it incentives provided by lawF &. incurred in any o. the .irst *( years o. operation. ). carried over as a deduction .ro# the <.or the next 1 years .ollowin$ such loss. 6. no substantial chan$e in the ownership o. the business or enterprise. -* Ahat is the li#itL A* +1E o. the no#inal value o. outstandin$ shares is held by or on behal. o. the sa#e personsK corporation N individual no proble#? proble# lies with corporations or enterprises. A@A=D"=;E=T 8"SSES *. contract area where petroleu# operations are underta:en is partially or wholly abandonedF

'6

Taxation law review notes - Atty. Francis J. Sababan N all >*) accu#ulated exploration and >&) develop#ent expenditures pertainin$ thereto shall be allowed as a deduction. &. a producin$ well is subsequently abandoned! Nuna#orti5ed cost and undepreciated cost o. equip#ent directly used therein shall be allowed as a deduction in the years it was abandoned. TADE ="TE! *. i. abandoned well is reentered and production is resu#edF or &. i. equip#ent or .acilities are restored into service in the year o. resu#ption or restoration and shall a#orti5ed or depreciated. -* Ahat is the Tax bene.it ruleL A* 8ast 7ar. o. Sec. )6 E >*)! recovery o. bad debts previously allowed as deduction in the precedin$ year shall be included as part o. the $ross inco#e in the year o. recovery to the extent o. the inco#e tax bene.its o. said deduction. -* Ahat is a @ad DebtL A* @ad debts shall re.er to those debts resultin$ .ro# the worthlessness or incollectibility in whole or in part o. a#ounts due the taxpayer by others? arisin$ .ro# #oney lent or .ro# uncollectible a#ounts o. inco#e .ro# $oods sold and services rendered. C9INA BAN0 V,. CA N bad debts can only be clai#ed i. pursuant to a contract o. loan - no bad debts .or loss o. instru#ents. -* Aho clai#s itL A* a. creditor b.#oney lender -* Ahat year can it be clai#edL A* can be clai#ed in the year it was actually sit ascertained to be worthless and char$ed o..? #eanin$ cancelled in the boo:s o. account. -* Do you need to .ile an action be.ore you can clai#L A* =o? all you have to do is prove that you did exert e..ort to clai# or recover the sa#e. -* Ahat cannot be deducted as bad debtsL A* *. debts not incurred in connection with the trade? business and pro.ession o. taxpayer. &. transactions? #ered into between parties #entioned under Section )' >@) na#ely. a) between #e#bers o. the .a#ily b) between an individual who owns #ore than )(E o. outstandin$ capital stoc: o. a corporation and that corporation c) between two >&) corporations #ore that 1(E o. the outstandin$ capital stoc: o. which is owned by or .or the sa#e individual d) between a $rantor and .iduciary o. any trust e) between two >&) .iduciaries o. two >&) trusts who has the sa#e $rantor .) between a .iduciary o. a trust and above .iduciary o. such trust %EC#R"!"E% 7ECO."0/ GOR!4LE%% *. ascertained to be worthless and char$ed o.. within the taxable year &. capital asset ). taxpayer? other than a @an: or trust co#pany incorporated under 7hil. 8aws 6. substantial part o. business is the receipt o. deposit 1. considered as a loss .ro# the sale o. capital assets on the last day o. such taxable year

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Taxation law review notes - Atty. Francis J. Sababan :5 F #EPRECIATION -* Ahat is depreciationL A* -t is the $radual di#ension in the service or use.ul value o. tan$ible property due .ro# exhaustion? wear and tear and nor#al obsolescence. -* Ahat :ind o. property is involvedL A* *. eal property except parcel o. land &. 7ersonal 7roperty RE5#"%"!E%: *. depreciation deduction #ust be reasonable &. .or the exhaustion? wear and tear? includin$ reasonable allowance .or obsolescence ). property used in the trade o. business -* Ahat do you #ean by Preasonable allowanceQL A* it shall include? but not li#ited to? an allowance co#puted in accordance with rules and re$ulations prescribed by the Secretary o. Finance? upon reco##endation o. the %o##issioner? under any o. the .ollowin$ #ethods! *.Strai$ht-line #ethod &.Declinin$ balance #ethod ).Su#-o.-the-year-di$ital #ethodF and 6.any other #ethod which #ay be prescribed by the Secretary o. Finance upon reco##endation o. the %o##issioner #EPRECIATION OF PROPERTIE, %,E# IN PETROLE%. OPERATION, *. properties directly related to production o. petroleu# &. allowed under >*) strai$ht line or >&) declinin$ balance #ethod ). use.ul li.e o. properties used or related to production o. petroleu# shall be ten >*() years or such shorter li.e as #ay be per#itted by the %o##issioner. 6. .or property not used directly in the production o. petroleu# >*) depreciated under the strai$ht line #ethod? and use.ul li.e is only .ive >1) years #EPRECIATION OF PROPERTIE, %,E# IN .INING OPERATION, A88"AA=%E F" DE7 E%-AT-"=! *.all properties used in #inin$ operations other than petroleu# operations shall be co#puted as .ollows! a. i. the expected li.e is ten >*() years or less 0 nor#al rate o. depreciation b. i. the expected li.e is #ore than ten >*() years 0 depreciated over any nu#ber o. years between .ive >1) years and the expected li.e. RE5#"RE.E0!%: *. depreciation is allowed as a deduction .ro# '*F and &. contractor noti.ies the %o##issioner at the be$innin$ o. the depreciation period depreciation rate shall be used. DE7 E%-AT-"= DEDB%T-@8E @I = AET@ " F% N reasonable allowance .or the deterioration o. property 1. 2. 3. arisin$ out o. its use or e#ploy#ent or non-use in the business? trade or property is located in the 7hilippines pro.ession

which

''

Taxation law review notes - Atty. Francis J. Sababan :5 G #EPLETION OF OIL an$ GA, WELL, an$ .INE, N only deduction which is a not sel. executin$ deduction -* Ahat is depletionL A* the exhaustion wear and tear o. natural resources as in #ines? oil? and $as wells Nthe natural resources called Pwastin$ assetsQ DE7 E%-AT-"= vs DE78ET-"= *.involves property &. ordinary wear and tear o. equip#ents *. involves natural resources &. ordinary wear and tear o. natural resources

TADE ="TE! NEquip#ent used in #inin$ operation is deductible in depreciation -* ;ethod .or co#putin$ depletionL A* cost depletion #ethod -* to who# allowedL A* only #inin$ entities ownin$ econo#ic interest in #ineral deposits NEcono#ic interest! capital invest#ents in #ineral deposits :59 C9ARITABLE ) OT9ER CONTRIB%TION, TADE ="TE! *.unique because deducted .ro# the taxable net inco#e and not .ro# the $ross inco#e Nsecond step o. the .or#ula deduction -* Aho is clai#in$ the deductionL A* the donor -* Aho are the DoneesL A* *.<overn#ent o. the 7hilippines or any o. its a$encies or any political subdivision thereo. exclusively .or public purpose &. Accredited Do#estic corporation or association or$ani5ed and operated exclusively .or reli$ions? lion? charitable? scienti.ic? youth and sports develop#ent? cultural or educational purposes or .or the rehabilitation o. veterans? or to social wel.are institution? or to non $overn#ent or$ani5ation and no part o. its net inco#e inures to the bene.it o. any private stoc: holder or individual -* 3ow #any :inds o. deductionL A* Two >&) :inds! *.partial deduction N*(E o. taxable inco#e in case o. an N1E o. taxable inco#e in case o. &. .ull Ktotal deduction -* Ahich o. the two :inds is the <eneral A* <eneral ule! 7artial deduction Exception! Total KFull deduction uleL

individual corporations

-* Suppose ;r. A #ade a cash donation o. 7*;. 3ow #uch can he clai# as a deductionL

'+

Taxation law review notes - Atty. Francis J. Sababan A* First deter#ine the taxable inco#e o. ;r A since he is an individual? he can only deduct *(E o. his taxable inco#e. 4! Ahat i. the Donee is not one o. those #entioned under the law? can he clai# a deductionL A! =o. TADE ="TE! Donee is never an individual. -* -. the Donor is a pure co#pensation inco#e earner and he donates 7*((?((( to the church? can he clai# it as a deductionL A* =o. pure co#pensation inco#e earner can only clai# a deduction under Sec )6 ; -* -. Donee is the 7hilippine <overn#ent? what is the require#entL A* it #ust be #ade exclusively .or public purposes -* Ahat i. the Donee is a provinceL A* there #ust be a quali.ication that it is .or public purpose -* -. the Donee is a Do#estic %orporation? what is the require#entL A* no part o. its inco#e 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 <overn#ent 0 no con.lict with partial >di..erent N7artial donated .or exclusively public purposes NFull? used in underta:in$ priority activities o. =EDA &.Donations to certain Forei$n -nstitutions or -nternational "r$ani5ations Nin co#pliance with a$ree#ent? treaties or co##it#ent entered 7hilippine <overn#ent and such donees ).Donations to Accredited =on $overn#ent or$ani5ations =on non pro.it do#estic corporation require#ent)

into

by

the

$overn#ent

or$ani5ation?

E4B- E;E=TS! *. or$ani5ed and operated exclusively .or scienti.ic? research? educational? character buildin$ and youth and sport develop#ent? health? social wel.are? cultural or charitable purposes or a co#bination thereo. &. no part o. the net inco#e o. which inures to the bene.it o. any private individual ). uses the contributions directly .or the active conduct o. the activities constitutin$ the purpose or .unction .or which it is or$ani5ed and operated 6. annual ad#inistrative expense does not exceed )(E o. the total expenses and 1. in case o. dissolution? the assets o. which would be distributed to! a) another non pro.it do#estic corporation or$ani5ed .or si#ilar purpose or purposes b) to the state .or public purpose c) distributed by the court to another or$ani5ation to be used in such a #anner which would acco#plish the $eneral purpose .or within the dissolve or$ani5ation was or$ani5ed :5I RE,EARC9 AN# #EVELOP.ENT N-n the old law? this is not allowed as a deduction. To re#edy this? they .elt that those should be a separate deduction .or research and develop#ent. E4B-S-TES!

',

Taxation law review notes - Atty. Francis J. Sababan Ntax payer #ay treat research and develop#ent expenditures as ordinary and necessary expenses provided! *. it is paid or incurred durin$ the taxable year &. incurred in connection with trade? business or pro.essionF and ). not char$eable to capital account. -* Treated as such whenL A* durin$ the taxable year it is paid or incurred A.OR!":A!"O0 O$ CER!A"0 RE%EARC4 A08 8E9ELOP.E0! E<PE08"!#RE% Nat the election o. the taxpayer? the .ollowin$ shall or #ay be treated as de.erred expenses! a. paid or incurred by the taxpayer in connection with his trade? business or pro.essionF b. not treated as expenses under par * and c. char$eable to capital account but not char$eable to property o. a character which is sub9ect to depreciation or depletion -* 3ow to co#pute taxable inco#e! A! de.erred expenses shall be allowed as deduction ratably distributed over a period o. not less than *( #onths as #ay be elected by the taxpayer >be$innin$ with the #onth the taxpayer .irst reali5es bene.its .ro# expenditures.) Nthe election or option #ay be exercised .or any taxable year a.ter the e..ectivity o. the code but not later than the ti#e prescribed by law .or .ilin$ the return .or such taxable year. 8-;-TAT-"= "= DEDB%T-"= -* Ahen not deductibleL A* *.Any expenditure .or the >*) acquisition or i#prove#ent o. land or >&) .or the i#prove#ent o. property to be used in connection with research and develop#ent o. a character which is sub9ect to depreciation and depletion and o..ice site &. Any expenditure paid or incurred .or the purpose o. under#inin$ the existence? location? extent or quality o. any deposit o. one or other #ineral includin$ oil or $as. N not .or #ineral exploration :5 F PEN,ION TR%,T -* %lai#ed by Aho#L A* the e#ployer -6 Ahat is a 7ension Trust contributionL A* a deduction applicable only to e#ployer on account o. its contribution to a private pension plan .or the bene.it o. its e#ployee deduction is purely business in character. -* equisitesL A* *.the e#ployer #ust have established a pension or retire#ent plan to provide .or the pay#ent or reasonable pension o. his e#ployees &. pension plan #ust be reasonable and actually soundF ). it #ust be .unded by the e#ployer 6. the a#ount contributed #ust no lon$er be sub9ect to his control or disposition 1. the a#ount has not yet been allowed as a deduction and '. the a#ount has or is apportioned in equal parts over a period o. *( consecutive years be$innin$ with the year in which the trans.er or pay#ent is #ade.

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Taxation law review notes - Atty. Francis J. Sababan :5 0 A##ITIONAL RE-%IRE.ENT, FOR #E#%CTIBILIT1 OF CERTAIN PA1.ENT, Nallowed as a deduction only i. shown that the tax required to be deducted and withheld there .ro# has been paid to the @- in accordance with Section 1, and Section ,* :5 L OPTIONAL ,TAN#AR# #E#%CTION @"08% O$ 8E8#C!"O0%: *.-te#i5ed deduction &."ptional Standard Deduction ).7ersonal KAdditional Deduction "7T-"=A8 STA=DA D DEDB%T-"=! Ncan be availed o. by an individual who #ay elect a standard deduction in an a#ount not exceedin$ *(E o. his $ross inco#e N #ay apply in lieu o. the other deductions under Section )6 Nthe taxpayer #ust si$ni.y in his return his intention to elect the optional standard deduction? otherwise? he shall be considered as havin$ availed o. the ite#i5ed deduction. -* Aho can clai# this deductionL A* all individual taxpayers except non resident alien not en$a$ed in trade or business >= A=ET@) Reason: he is not liable to pay by way o. the =-T? thus? .ollows he cannot clai# this deduction because he is liable to pay by way o. <-T. TADE ="TE! Ncan co-exist with personal and K or additional exe#ption :5 . PRE.I%. PA1.ENT, ON 9EALT9 AN# GOR 9O,PITALIHATION IN,%RANCE OF AN IN#IVI#%AL TAXPA1ER N .or >*) 3ealth and Kinsurance >&) 3ospitali5ation E4B- E;E=TS! *. a#ount o. pre#iu#s? paid by taxpayer .or hi#sel. and #e#bers o. his .a#ily? &. a#ount o. pre#iu#s should not exceed >*) 7&?6(( per .a#ily or >&) 7&(( a #onth ). $ross inco#e o. the .a#ily .or the taxable year is not #ore than 7&1(?(((

-* Aho can avail o. this deductionL A* *.individual taxpayer earnin$ purely co#pensation inco#e durin$ the yearF &. individual taxpayer availin$ ite#i5ed or optional standard deductionF and ). individual taxpayer earnin$ both co#pensation inco#e and inco#e .ro# business ,ECTION :@ ALLOWANCE FOR PER,ONAL EXE.PTION FOR IN#IVI#%AL TAXPA1ER -* Ahen do we apply thisL A* apply i. individual taxpayer is payin$ by way o. =-T -6 Aho are taxpayerL A* those #entioned under Section &6 >A) *. % &. = % ). "%A 6. A Nall can clai# both personal and additional exe#ption

+(

Taxation law review notes - Atty. Francis J. Sababan -* Ahy not include = AET@L %an the latter clai# any exe#ptionL A* = AET@ is not included because Section )1 A re.ers to Section &6 A N= AET@ can clai# personal deductions but not additional exe#ptions pursuant to Sec )1 D E4B- E;E=TS! *.= AET@ should .ile a true and accurate return &. the a#ount to be clai#ed as personal exe#ptions should not exceed the a#ount provided .or under 7hilippine 8aws TADE ="TE! AE;"7! can be a A or = AET@

BA,IC PER,ONAL EXE.PTION,* *. Sin$le individualF or individual 9udicially decreed as le$ally separated with no quali.ied dependents. N &(? ((( &. For head o. the .a#ily 0 can be sin$le or le$ally separated with quali.ied dependents. N &1? ((( ). For each #arried individual 0 i. only one o. the spouse? earns or derives $ross inco#e? only such spouse can clai# the personal exe#ption. N)&? ((( -* Aho is the Phead o. the .a#ilyQL A* *.un#arried or le$ally separated #an or wo#an &. Aith >*) one or both parties or >&) Aith one or #ore brothers and sisters >)) with one or #ore le$iti#ate? reco$ni5ed? natural or le$ally adopted children ). livin$ with and dependents upon hi# .or their chie. support 6. whose such brother or sisters or children are >*) not #ore than ** years old and >&) not $ain.ully e#ployed? >)) un#arried 1. " ? re$ardless o. a$e? the sa#e are incapable o. sel. support because o. #ental or physical de.ect. -* Ahy do we have to deter#ine who the head o. the .a#ily isL A* only le$ally separated individuals can clai# additional exe#ptions i. they have dependents. TADE ="TE! N .A. +6)& and &-/,! a senior citi5en can also be a dependent. Section )1 A 0 quali.ied

-* %an a widower clai# exe#ptionsL A* exe#ptions #ust be strictly construed? widower not included in the list under but can clai# under sec )1@ Nwidower? #arried or used to be #arried

;A -ED -=D-2-DBA8S Neach le$ally #arried individuals can clai# the personal exe#ption. 3usband and wi.e X 7'6?((( -* Aho are allowed to clai#L A* =or#ally ? it is the husband who clai#s clai# the sa#e > &-/,) unless he executes a waiver that the wi.e will

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Taxation law review notes - Atty. Francis J. Sababan Additional E>emptions: &'37-additional exe#ption o. 7,?((( .or each dependent not execeedin$ .our >6) 4! Aho can clai# the sa#eL A! *.;arried couples! only one o. the spouses can clai# itF &.le$ally separated individuals! can be clai#ed by the spouse who has custody o. the child or children Nthe additional exe#ption clai#ed by both shall not exceed the #axi#u# additional exe#ption herein allowed. -* De.ine PdependentsQ A* le$iti#ate? ille$iti#ate or le$ally adopted child chie.ly dependent upon and livin$ with the taxpayer i. such dependent is >*) not #ore than &* years o. a$e? >&) un#arried? and >)) not $ain.ully e#ployed or >6) i. such dependent? re$ardless o. a$e is incapable o. sel. support because o. #ental or physical de.ect. -* Ahat i. widower has ille$iti#ate children? can clai# additional exe#ptionL A* can clai#? can be considered as head o. the .a#ily wK dependent -* Ahat i. the children are te#porarily away .ro# the parentsL A* still considered livin$ with parents? can clai# exe#ption C4A0/E O$ %!A!#%: &%EC '3 C-* ec:onin$ 7eriodL A* end o. the year or close o. such year when

such chan$e o. status occurred.

TADE ="TE! Nalways choose the hi$her a#ount o. exe#ption i. you are .ilin$ a return coverin$ the period within which the chan$e o. status occurred *. i. the taxpayer should >*) #arry or >&) have additional dependents durin$ the taxable year? he #ay clai# the correspondin$ exe#ption in .ull .or the year. "llustration: *.Sin$le Jan *? &((1 &.;arried June *? &((1 0 on April *1? &((' 0 status! le$ally #arried can clai# 7 )&?((( &. i. the taxpayer should die durin$ the taxable year? estate can clai# personal exe#ption. -llustration *.Jan. &1? &((1 taxpayer #arried wK one child can clai# on April *1? &((' 7)&?(((W 7,?(((

} P40,000

N -n this case? as i. the chan$e o. status occurred at the close o. taxable year. -. taxpayerHs spouse or child dies within the taxable year or the dependentHs beca#e >*) $ain.ully e#ployed >&) $ot #arried or >)) beca#e &* as i. the chan$e as status occurred at the close o. taxable year. "llustration: *. TaxpayerHs tra$ic story wi.e died Jan. &1? &((1 and child died the next day then another child eloped and $et #arried. &. Taxpayer despite the tra$edy can clai# ton o. #oney on April *1? &(('. 7 )&?((( 7 *'?((( >,?((( per child) 6,?(((

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Taxation law review notes - Atty. Francis J. Sababan ,ection :A. Ite s not #e$ucti;le :A A. /eneral Rule: -n co#putin$ net inco#e? no deduction shall be allowed! >*) 7ersonal? livin$ or .a#ily expenses 0 not related to trade or business >&) Section )' A >&) and Section )' A >)) /eneral Rule: =o deductions allowed .or *. Any a#ount paid out .or new buildin$s or .or per#anent i#prove#ents? or better#ents? #ade to increase the value o. any property or estate &. Any a#ount expanded in restorin$ property or in #a:in$ $ood the exhaustion thereo. .or which an allowance is or has been #ade. E>ceptions: *. "ption $ranted to 7rivate Educational -nstitution to deduct the sa#e as capital outlays. TADE ="TE! NA#ount paid .or new buildin$s? can be deducted i. it involves intan$ible drillin$ and develop#ent cost incurred in petroleu# operations >Sec )6 ' >A) PRE.I%., PAI# ON LIFE IN,%RANCE POLIC1 * *. coverin$ the li.e o. any o..icer or e#ployee or any person .inancially invested in any trade o. business carried on by the taxpayer. &. taxpayer is directly or indirectly the bene.iciary under such policy. LO,,E, FRO. ,ALE, OR EXC9ANGE, OF PROPERT1 &betCeen related parties*) between .a#ily #e#bers -* Aho is considered the P.a#ily o. the taxpayerLQ A* a. brothers and sister >whole is [ blood) b. spouses c. ancestors d. lineal descendants -* are uncles or nieces includedL A* no

IN #ONORI, TAX N elatives includes relatives by consan$uinity within the 6 th civil code. =ephew is a stran$er and relative an$ nephew. &) individual and corporations <en. ule! =" DEDB%T-"= Except! distribution in liquidation or less than 1(E o. the outstandin$ capital stoc: )) 6) 1) ') Two corporations <rantor or Fiduciary Two .iduciaries o. two trust Fiduciary and bene.iciary o. trust panies.

,ec. :< ,pecial pro'isions re+ar$in+ $e$uctions of insurance co %odal 7rovisions Section ),! 8osses Fro# Aash Sales o. Stoc: or Securities

-* Ahat is a wash saleL A* -t is a sales or other disposition o. stoc: securities where substantially identical securities are purchased within '* days? be$innin$ )( days be.ore the sale and endin$ )( days a.ter the sale.

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Taxation law review notes - Atty. Francis J. Sababan -* Ahat periodL A* '* day period be$innin$ )( days be.ore and endin$ )( days a.ter the sale -* Jan &( you purchased share o. stoc:? and disposed o. the sa#e on Feb 1? &((1. -s this a wash saleL A* =o -* -. it is a loss in wash sale? happensL A* General Rule* >Sec *)* =o. &) $ains .ro# wash sale are taxable but losses are non-deductible E>ception: Nunless clai# is #ade by a dealer in stoc: or securities and with respect to a transaction #ade in the ordinary course o. the business o. such dealer -* A* eason why losses in wash sale cannot be deductedL *. to avoid too #uch speculation in the #ar:et &. taxpayer not tellin$ the truth? because he #ay say he o. a $ain ,ection 5D. #eter ination of A

incurred a

loss

instead

ount an$ Reco+nition of Gain or Loss

4ENER%2 R-2E/ This is totally irrelevant i. the inco#e is sub9ect to .it. -n .it $ain is presu#ed. EJCEPT/ sale o. shares o. stoc: where you have to deter#ine actual $ain or loss -* Ahen is there a $ainL A* excess o. the a#ount reali5ed over the basis or ad9usted basis .or deter#inin$ $ain. >a#ount reali5ed .ro# the sale or other disposition o. property) -* Ahen is there a lossL A* the a#ount reali5ed is not in excess o. @ or A@ 0llustration/ */,+ @ar >Juan dela %ru5 sold 9ewelry .or )((?((( ) contract o. sale Na#ount reali5ed is )((?((( -* Ahat will be the basis o. the $ainL A* Sec. 6( @ >*)? property was acquired by purchase N%ost! purchase price W expenses -* -. there is a $ain? is the whole $ain sub9ect to inco#e taxL A* it depends Ni. ordinary asset X *((E is sub9ect to inco#e tax Ni. capital assets a. short ter#>less than *& #onths) ! *((E taxable b. lon$ ter# >#ore than *& #onths)! 1(E taxable -* suppose property sold is a parcel o. land will the rule be the sa#eL A* =o? and it depends Nordinary asset! apply the cost Ncapital asset! 'E F;2 or sellin$ price which ever is hi$her 4! Do we apply the holdin$ periodL A! =o? holdin$ period does not apply to the sale o. real property. This is an absolute rule! N-. realty is ordinary 0 holdin$ period does not apply. N-. realty is capital asset 0 'E F;2 or sellin$ price applies. N3oldin$ period applies only to sale o. personal property which is a capital asset except sale o. shares o. stoc:s.

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Taxation law review notes - Atty. Francis J. Sababan N3oldin$ period also do not apply to corporations. -* -. the property is acquired throu$h inheritance? what is the basisL A* Sec 6( @ >&) .air #ar:et value or price as o. the date o. acquisition. -* A* -* A* Suppose it was a sale o. personal property? do we apply the sa#e principlesL =o. Ahat i. it involves a sale o. real propertyL Apply the sa#e principles

Suppose it was a result o. swindlin$? the.t? robbery or esta.a? do we apply the sa#e principlesL A* 8aw is silent? ta:e note o. the old %-A rulin$ on this one -* Feb *6? &(('? your << $ave you a 9ewelry in Sept your << brea:s up with you. << request the 9ewelry be returned but you already sold it .or 7&((?(((. Aill the entire 7&((?((( be included in $ross inco#eL A* @asis! >*) sa#e as i. it would be in the hands o. the Donor >F;2 as o. date o. acquisition)F or >&) last owner who did not acquire the sa#e by $i.t >cost) -* -. it involves a parcel o. landL A* apply the sa#e rules Section 6( @ >6) what is the basisL *. 7roperty was acquired .or less than an adequate consideration in #oney or #oneys worth! the basis would be the a#ount paid by the trans.eree .or the property. -* Section 6( @ >1) what is the basisL A* 6( % >1) N i. the property was acquired in a transaction where $ain or loss is not reco$ni5ed >pursuant to a #er$er or consolidation plan) a. corporation? party to a #er$er or consolidation? exchan$es property solely .or stoc:s in another corporation? also a party to the #er$er or consolidation b. is a party to the #er$er or consolidation? solely .or the stoc:s o. another corporation also a party to the #er$er or consolidation? or c. Security holder o. a corporation? party to a #er$er or consolidation? exchan$es his securities solely .or stoc: or security in another corporation? also a party to the #er$er or consolidation. 0 person trans.ers property to corporation to $ain control 5D C EXC9ANGE OF PROPERT1 /E0ERAL R#LE: -n sale or exchan$e o. property? the control a#ount o. $ain or loss shall be reco$ni5ed. *. $ain is taxable &. losses are deductible E>ception: -. per#anent to a #er$er or consolidation plan? no $ain or loss shall be reco$ni5ed *. $ain is exe#pt &. losses are not deductible RE5#"%"!E%: *. the transaction involves a contract o. exchan$e &. the parties are #e#bers o. the #er$er or consolidation ). the sub9ect #atter is only li#ited or con.ined with the one provided .or by law N;er$er and %onsolidation in corporation code and tax code are not the sa#e. NSec 6( >&) >a) Na corporation which is a party to a #er$er or consolidation? e>c=anges propertA solelA for stocD in a corporation which is a party to the #er$er or consolidation

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Taxation law review notes - Atty. Francis J. Sababan "llustration: Trans.eror $ives *; Trans.eree $ives +((?((( X not

taxble $ain 7)((?(((

N-. other property received by trans.eree >6( % >)) >a) !RA0%$EREE Ni. the party receives not 9ust the sub9ect #atter per#itted to be received! lie i. the party receives #oney and Kor property? the $ain? i. any? but not the loss? shall be reco$ni5ed >#eanin$ taxable) but in an a#ount not in excess o. the su# o. the #oney and the F;2 o. such other property received. >6( % >)) >b) !RA0%$EROR *.Trans.eror corporation receives #oney and K or property? distributes it pursuant to the #er$er or consolidation plan Nno $ain to the corporation shall be reco$ni5ed &. Trans.eror corporation receives #oney and K or property? does not distribute it pursuant to the #er$er or consolidation plan Nthe $ain shall be reco$ni5ed but in an a#ount not in excess o. the su# o. such #oney and the F;2 o. such other property so received. -* Ahat is the ruleL A* 6( % >)) >a) *. $ain taxable &. loss not deductible N6( % >)) >b) "t depends on =oC distributed: *. pursuant to the #er$er or consolidation plan! N$ain exe#pt Nloss not deductible &. not pursuant to #er$er or consolidation plan! N$ain taxable Nloss not deductible. ,ec 5D C 283 2;3 Na shareholder e>c=anges stocD in a corporation which is a party to a #er$er or consolidation? solelA for t=e stocD of anot=er corporation which is a party to the #er$er or consolidation ,ec 5D C 243 2c3 N a security holder o. a corporation which is a party to the #er$er or consolidation? e>c=anges =is securities in suc= corporation, solelA for stocD securities in anot=er corporation. NThe rule is si#ilar in 6( % >))? >a)? >b) and >c) althou$h di..erent property are involve? that is why the last para$raph o. 6( % is a separate para$raph. NThere.ore? Sec 6( % >)) >a?b?c) the rule is *. $ain exe#pt &. loss not deductible 5Dc last para+rap& N the trans.eree beco#es a stoc:holder? parties are not #e#bers o. the #er$er Nthe individual wants to be a shareholder but does not want to purchase shares but willin$ to $ive up property as a result o. the exchan$e ? the person $ains control o. the corporation NThe rule is!

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Taxation law review notes - Atty. Francis J. Sababan a. $ain is exe#pt b. loss not deductible equisites! *. There is A contract o. exchan$e where property was trans.erred by the person in exchan$e o. stoc: or unit o. participation in a corporation. &. As a result? the person alone or to$ether with others >not exceedin$ o. 6 persons) $ains control o. the corporation. -* Ahat is controlL A* ownership o. stoc:s in a corporation possessin$ at least 1*E o. total votin$ power. ,ec 5D B 2@3 Nnon applicability o. inco#e tax is only te#porary Reason : @asis will be 6( % >1) *. 6( % >1) >a) Trans.eror Nbasis o. stoc: or securities received by the trans.eror! sa#e as the basis o. the property? stoc: or securities exchan$ed! Ndecreased by the >*) #oney and >&) F;2 o. the property receivedF and Nincreased by >a) a#ount treated as dividend and >b) a#ount o. $ain reco$ni5ed &. 6( % >1) >b) Trans.eree Nas it would be in the hands o. trans.eror increased by the a#ount o. $ain reco$ni5ed. ,ec 5D 2c3 253 Assu ption of Lia;ilit( *. Taxpayer? in connection with the exchan$es described 0 receives securities or stoc:s per#itted >no $ains reco$ni5ed) 0 it is sole consideration o. the sa#e 0 the other party assu#es liability o. the sa#e 0 the acquisition o. liability not treated as #oney and K or other property 0 the exchan$e still .alls within the exceptions. &. -. a#ount o. liabilities assu#ed W a#ount o. liabilities to which property is sub9ected to exceeds - ad9usted basis o. the property trans.erred 0 the excess shall be considered a $ain .ro# the sale o. a capital asset or o. property which is not a capital asset? as the case #ay be. ,ECTION 58 INVENTORIE, Purpose: %han$e o. inventory to deter#ine clearly the inco#e o. any taxpayerK to re.lect the true inco#e. Limitation: *. once every ) years &. approval o. the secretary o. .inance ,ection 5: Accountin+ Perio$s *. Fiscal year &. use o. calendar year a. no annual accountin$ b. does not :eep boo:s o. account c. individuals NBse o. #ethod as in the opinion o. the co##issioner clearly re.lects the inco#e! *. no accountin$ #ethod has been e#ployed &. the #ethod does not clearly re.lect the inco#e ,ec 55 Perio$ in "&ic& ite s of Gross Inco #e$uctions an$ Cre$it TaJen e inclu$e$ an$ ,ec 5@ Perio$ for "&ic&

++

Taxation law review notes - Atty. Francis J. Sababan NBnder Sec 66 a#ount o. all ite#s o. $ross inco#e shall be included in the $ross inco#e .or the taxable year in which they are received by the taxpayer NBnder Sec 61 deductions shall be ta:en .or the taxable year in which Ppaid or accruedQ or Ppaid or incurred.Q NSec 66 and Sec 61 are #entioned in the code because o. the death o. the person. "llustration: Facts! taxpayer dies in the #iddle o. the year January *? &((' 0 June *1? &((' NJune &'? &((' to Dec )*? &((' the estate is the taxpayer NSo the inco#e and deductions .ro# Jan * to June &1?? included in the co#putation ,ection 5A C&an+e of Accountin+ Perio$ -* Aho is the taxpayerL A* corporation >taxpayer other than individual) -* Ahat :inds o. accountin$ periodL A* *..iscal year &. calendar year -* %han$es conte#platedL A* *. .iscal to calendar &. calendar to .iscal ). .iscal to another .iscal Nwith the approval o. the %o##issioner? net inco#e shall be co#puted on the basis o. the new accountin$ period. -* %alendar to calendar? correctL A* not correct state#ent ,ection 5< 2A3 !a>paAer: Corporation *. Fiscal to calendar N separate .inal or ad9usted return shall be #ade .or the period between the so close o. the last .iscal year .or which the return was #ade and >&) the .ollowin$ Dec )*. &. %alendar to Fiscal Nseparate .inal or ad9usted return shall be #ade .or the period between the close o. the last calendar year and the date desi$nated as the close o. the .iscal year. ). Fiscal to .iscal Nseparate .inal or ad9usted return shall be #ade .or the period between the close o. the .or#er .iscal year and the date desi$nated as the close o. the new .iscal year. NFile return indicatin$ the chan$e in accountin$ #ethod ,ection 5? Accountin+ for Lon+ Ter -* Aho are the pro.essionals involvedL A* applies to architects and en$ineers -* Ahat is a lon$ ter# contractL A* it #eans buildin$? installation or construction contracts coverin$ a period in excess o. one >*) year. Contracts

+,

Taxation law review notes - Atty. Francis J. Sababan -* @asis o. inco#eL A* a. persons whose $ross inco#e is derived in whole or in part .ro# such contract shall report such inco#e upon the basis o. percenta$e o. consu#ption. b. the return shall be acco#panied by a certi.icate o. architects or en$ineers showin$ the percenta$e o. co#pletion c. deduction o. expenditures #ade durin$ the taxable year? on account o. the contract is allowed ,ection 5C Install ent Basis Nconte#plates a seller o. the property -* -s it i#portant to :now i. the property is personal or realL A* Ies -* Sale o. A* =o eal 7roperty is it i#portant to :now i. it is a casual sale or re$ular saleL

Requirement: The initial pay#ents do not exceed &1E o. the sellin$ price. -* -. the initial pay#ent exceeds &1E what do you call itL A* called de.erred sale -* %onsequenceL A* you #ust pay the whole a#ount o. the tax -* Sale o. 7ersonal 7roperty? is it i#portant to :now i. it is a casual or re$ular saleL A* Ies Casual %ale =as Requirements: *. sellin$ price exceeds 7*?((( &. initial pay#ent not exceedin$ &1E sellin$ price N e$ular sale no require#ents Case of &aKas *. sub9ect #atter &. sold by way ). a$ree#ent 6. cash deposit 1. post dated pro#issory notes >install#ents) ). *st install#ent pro#issory note was disconnected 6. &nd install#ent exchan$ed with cash - these two exceeds the sellin$ price 1. you only co#pute cash 3! -nitial pay#ent exceeds &1E install#ent basis is not applicable RR *J %ection )+3! -n pay#ent by way o. install#ent pro#issory note? bills o. exchan$e and chec:s will not be considered in co#putin$ the &1E initial downpay#ent. ,ection @D Allocation of Inco e an$ #e$uctions Ntre#endous power o. the %o##issioner to allocate the inco#e and deduction o. several corporations havin$ the sa#e interest. -* Sa#e interestL A* stoc:holders substantially the sa#e

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Taxation law review notes - Atty. Francis J. Sababan -* 8i#itationsL A* =one NThat is why it is a $reat source o. corruption ,ection @8 In$i'i$ual Returns W&o are reBuire$ to fileK 2ITR3 *. % &. = % ). A 6. = AET@ 0 sources within -* Aho is not #entioned in Sec 1* but liable to pay by way o. =-TL A* "%AK sea#an E>ception: % " A8-E=S! en$a$ed in trade or practice o. pro.ession in 7hil. Shall .ile -T a#ount o. $ross inco#e. -* -. "FA is exe#pt .ro# .ilin$ a return? what is he required to .ileL A* -n.or#ation eturn -* who are not required to .ile a returnL A* a. an individual whose $ross inco#e does not exceed his total personal and additional exe#ptions .or dependents b. wor:er >co#pensation inco#e earners) re$ardless o. the a#ount o. co#pensation shall not required to .ile -T because the #ana$e#ent .iles it. > )-&((&) c. individuals whose sole inco#e is sub9ect to F-T d. individuals who are exe#pt .ro# inco#e tax E>ception: -T *. the #ana$e#ent .iles an incorrect return &. the e#ployee has two or #ore e#ployer @8 A 2:3 A* not required to .ile -T #ay be required to .ile in.or#ation return re$ardless o. the

@8 B / W&ere to fileK *. authori5ed a$ent ban: &. revenue district o..icer ). collection a$ent 6. duly authori5ed treasurer o. the city or #unicipality where taxpayer resides or has principal place o. business 1. o..ice o. co##issioner 0 i. no le$al residence or place o. business in 7hil @8 C -* Ahen to .ileL A* .iled on or be.ore the *1th day o. April each year 1* % >*) 0 =-T 7ayers usin$ %I Ntwo days provided >calendar) *. on April *1F or &. be.ore April *1 >January? Feb or ;arch) N not Dece#ber because the calendar year is not yet over Fiscal year! *1th day o. the 6th #onth .ollowin$ the close o. the .iscal year.

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Taxation law review notes - Atty. Francis J. Sababan @8 C 243 in$i'i$uals su;Lect to ta! on capital +ains E>ception: <eneral ules Sec 1, *. Sale o. shares o. stoc:s Nreturn .iled within )( days a.ter each transaction and NFinal consolidated return on or be.ore April *1 &.Sale o. eal 7roperty Nreturn .iled within )( days .ollowin$ each sale @8 # 9us;an$ an$ Wife *. 7ure co#pensation inco#e earner 0 separate return RR '6*((( 0 pure co#pensation inco#e earner re$ardless o. a#ount o. inco#e not .ile -T . &. =ot pure co#pensation! 9oint return @8 E. Return of Parent to Inclu$e Inco e of C&il$ren

N un#arried #inor receives inco#e .ro# property received .ro# livin$ parent 0 included in the parentHs -T . E>ception: *.DonorHs tax has been paid &.7roperty exe#pt .ro# donorHs tax @8 F. Persons %n$er #isa;ilit( -* Aho #a:es the returnL A* *.duly authori5ed a$ent &. duly authori5ed representatives ). $uardians 6.other persons char$ed with the care o. his person or property Nboth incapacitated taxpayer and a$ent will be liable .or! *.erroneous return &. .alse or .raudulent return @8 G ,i+nature Presu e$ Correct N pri#a .acie evidence the return was actually si$ned by the taxpayer ,ection @4 Corporation Return N$o bac: to Sec 1* A >&) General Rule* Sec 1, Final -nco#e Tax Nreturn and creditable withholdin$ tax return is .iled #onthly E>ception: Sale o. Shares o. Stoc:s >Sec 1* A >&)) Sale o. eal 7roperty N -*+-&(()! Sale o. eal 7roperty sub9ect to .inal withholdin$ tax? the buyer is dee#ed the a$ent. %ale of %=ares of %tocDs -* easons .or .ilin$ Final -nco#e tax or Final %onsolidated eturnL A* easons! 1. F-T whose actual deter#ination o. $ain or loss 2. in connection with Sec &6 % the basis o. the tax is not the $ross inco#e but the net capital $ains reali5ed. "n connection Cit= %ec F(: Nactual deter#ination o. loss or $ain

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Taxation law review notes - Atty. Francis J. Sababan N.ile a return within )( days .ro# date o. transaction TA0E NOTE* -n all other inco#e sub9ect to F-T? the $ains are presu#ed INCO.E OF .INOR, -* ;inor below *,! Aill it be included in the ;inorHs -T L A* it depends 1. inco#e .ro# property received .ro# parents N included in parentHs -T E>cept: a.DonorHs tax paid b.7roperty exe#pt .ro# donorHs tax &. inco#e .ro# #inorHs own industry N;inorHs -T acco#plished by $uardian or parents -* i. the individual is exe#pt .ro# inco#e tax? can be required to .ile a returnL A* <eneral ule! =o E>ceptions: *.en$a$ed in trade or businessF or &.exercise o. pro.ession 0 Sec 1* A >&) ,EC @4 CORPORATION RET%RN, A.Requirements Taxpayer! D% or F% >except = F%) -T Filed! *. T BE A=D A%%B ATE a. quarterly inco#e tax return b. .inal or ad9usted inco#e tax return Filed by! *.7residentF &.2ice 7resident ). "ther principal o..icer N-T #ust be sworn by such o..icer and the treasurer or assistant treasurer 7. !a>able ear *. .iscalF or &. calendar N corporation cannot chan$e accountin$ #ethod e#ployed without the approval or prior approval o. the co##issioner >Sec 6+) C. Return of Corporation ContemplatorA 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 capital stoc:? includin$ a corporation which has been noti.ied o. possible involuntary dissolution by the SE%F or c. .or its reor$ani5ation &. ender a correct return veri.ied under oath settin$ .or#! a. .or#s o. the resolution or planF b. such other in.or#ation prescribed ).Secure a tax clearance .ro# the @and .ile it with the SE% eor$ani5ation.

6.Therea.ter? SE% issued a %erti.icate o. Dissolution or 8. %ale of %tocDs N "!R loo: at the previous notes about it

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Taxation law review notes - Atty. Francis J. Sababan ,ection @: E!tension of Ti e to File Returns

-* To who# $rantedL A* %orporations /rounds: ;eritorious case Nsub9ect to the provisions o. Sec 1' Ti#e Extension ,ection @5 Returns or Recei'ers= Trustees in BanJruptc( or Assi+nees Nthe a.ore#entioned persons shall #a:e returns o. net inco#e as and .or such corporation in the sa#e #anner and .or# as such or$ani5ation is required to #a:e. ,ection @@ Returns of General Professional Partners&ip N .ile a return o. its inco#e settin$ .orth *. ite#s o. $ross inco#e and o. deductions allowed by this title >Title -- 0 Tax on -nco#e) &. =a#es o. partners ). Taxpayer identi.ication nu#ber >T-=) 6. address o. partners 1. shares o. each partners N<77 is exe#pt .ro# corporate inco#e tax -* Ahy is the <77 obli$ed to .ile a returnL A* to deter#ine the shares o. each partners ,ection @A Pa( A. PaAment of !a> -* Aho pays the tax o. tra#p vesselsL A* *.the shippin$ a$ents and or the husbandin$ a$ent &.in their absence? the captains thereo. Nthose people are required to .ile a return and pay the tax due be.ore departure -* Ahat is the e..ect o. .ailure to .ile the return and pay the tax dueL A* *.@ureau o. %usto#s #ay hold the vessel and prevent its departure until! a. proo. o. pay#ent o. tax is presentedF or b. a su..icient bond is .iled to answer .or the tax due. "nstallment PaAments Tax due! #ore than 7&?((( Taxpayer! individuals only >other than corporation) Elect to pay the tax in two >&) equal install#ents a. *st install#ent! paid at the ti#e the return is .iled b. &nd install#ent on or be.ore July *1 .ollowin$ the close o. the calendar year -* Ahat is the e..ect o. non pay#ent on the date .ixedL A* The whole a#ount o. tax unpaid beco#es due and de#andable to$ether with the delinquency penalties. PaAment of capital gains ta> : -! 7aid whenL A* on the date the return is .iled Avail e>emption for capital gains: a. no pay#ents shall be requiredF ent an$ Assess ent of Inco e Ta! for In$i'i$uals an$ Corporations

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Taxation law review notes - Atty. Francis J. Sababan b. i. you .ail to quali.y .or exe#ption 0 tax due shall i##ediately beco#e due and payable and sub9ect to penalties c.seller pays tax 0 sub#it intention or proo. o. intent within six >') #onths .ro# the re$istration o. docu#ent trans.errin$ -* when is the real property entitled to re.undL A* upon veri.ication o. co#pliance with the require#ents .or exe#ption. N eport $ains on install#ents under Sec 6/ 0 tax due .ro# each install#ent pay#ent shall be paid within )( days .ro# the receipt o. such pay#ents. N=o re$istration o. docu#ent trans.errin$ real property *. without a certi.ication .ro# co##issioner or his duly authori5e representative that a. trans.er has been reported b. tax has been paid 7. Assessment and PaAment of 8eficiencA !a> N eturn is .iled? the co##issioner exa#iner and assess the correct a#ount o. tax Ntax de.iciency discovered shall be paid upon notice and de#and .ro# the co##issioner. ' "0%!A0CE% CO0!E.PLA!E8 *. .ile the return and pay the tax &. .ile the return but not pay the tax ). not .ile the return and not pay the tax ,ection @< Wit&&ol$in+ of Ta! at ,ource A. Git==olding of !a>es Nsub9ect to the ules and e$ulations the Section o. Finance #ay pro#ul$ate? upon reco##endation o. co##issioner! equire the .ilin$ up o. certain inco#e tax return by certain inco#e payees. -* Enu#eration is all about whatL A6 Enu#er ation about Final -nco#e Tax E>cept: <ross -nco#e Tax *. &1 @ >= A=ET@) &. &, @ >= F%) @. Aithholdin$ o. %reditable Tax at Source NThe Sec. o. Finance? upon reco##endation o. the co##issioner require the withholdin$ o. a tax on the ite#s o. inco#e payable to natural or 9uridical persons? residin$ in the 7hil? by payor-corporationK personV the sa#e shall be credited a$ainst the inco#e tax liability o. the taxpayer .or the taxable year. At the rate o. not less than *E but not #ore than )&E thereo.. -* Ahat is the #axi#u#L A* ;axi#u#! now )1E pursuant to A /))+ -* Ahen will you allow withholdin$ beyond *1EL A* For =-T *1E is the #axi#u# *. F-T 0 the a#ount o. withholdin$ is totally &. <-T - equal to the a#ount o. tax !a> $ree Covenant 7ond Nthe bonds? #ort$a$es? deeds o. trust or other si#ilar obli$ations o. D% or F% Ncontains a contract or provision where the obli$or >debtor) a$rees to pay the tax i#posed herein Nnor#ally between the creditor and debtor

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Taxation law review notes - Atty. Francis J. Sababan -* Aho pays the taxL A* %reditor pays the tax by virtue o. an a$ree#ent the debtor assu#es the liability and the creditor is now .ree .ro# pay#ent o. tax be.ore it can trans.er the property to the buyer. ,ection @? Returns an$ Pa( ent of Ta!es Wit&&el$ at ,ource

A. 5uarterlA Returns and PaAment of !a>es Git==eld at %ource *. covered by a return and paid to! a. authori5ed a$ent ban: b. revenue district o..icer c. collection a$ent d. duly authori5ed treasurer o. city or #unicipality where withholdin$ a$ent has! *. his le$al residenceF or &. principal place o. businessF or ). i. corporation ? where principal o..ice is located &.Tax deducted and withheld Nheld as a special .und in trust .or the $overn#ent until paid to the collectin$ o..icers. ). eturn .or .inal withholdin$ tax N.iled and paid within &1 days .ro# the close o. each calendar quarter 6. eturn .or %reditable withholdin$ taxes N.iled and paid not later than last day o. the #onth .ollowin$ the close o. the quarter durin$ which withholdin$ was #ade 1. %o##issioner? with approval o. Sec Finance N require withholdin$ a$ents to pay or deposit taxes at #ore .requent intervals where necessary to protect the interest o. the $overn#ent 7. %tatement of "ncome PaAments .ade and !a>es Git==eld NAithholdin$ a$ent shall .urnish payee a written state#ent showin$! *. inco#e or other pay#ents #ade by A3A durin$ such quarter or year and &. a#ount o. tax deducted and withheld N state#ent $iven si#ultaneously upon pay#ent at the request o. the payee. Creditable Cit==olding ta>es *. corporate payee 0 not later than the &(th day .ollowin$ the close o. the quarter &. individuals payee 0 not later than ;arch * o. the .ollowin$ year $inal Git==olding ta>es Nthe state#ent should be $iven to the payee on or be.ore January )* o. the succeedin$ year. C. Annual "nformation Return NAithholdin$ a$ent shall sub#it to the co##issioner an annual in.or#ation return containin$ ! *. the list o. payees and inco#e required &. a#ount o. taxes withheld .ro# each payees ). other pertinent in.or#ation required Final Wit&&ol$in+ Ta!* AIR N.iled on or be.ore January )* o. the succeedin$ year Creditable Cit==olding ta>: A"R Nnot later than ;arch * o. the year .ollowin$ the year .or which the annual report is bein$ sub#itted

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Taxation law review notes - Atty. Francis J. Sababan N%o##issioner #ay $rant A3A reasonable extension o. ti#e to .urnish and sub#it the return required herein. 8. "ncome of Recipient *. -nco#e upon which any creditable tax is required to be withheld at source shall be included in the return o. its recipient. &. the excess o. the a#ount o. tax so withheld over the tax due on his return shall be re.unded ). inco#e tax collected at source is less than the tax due on his return 0 di..erence shall be paid 6. all taxes withheld *. considered trust .und &. #aintained in separate account ). not co##in$led with other .unds o. A3A E. Registration Cit= Register of 8eeds N=o re$istration o. any docu#ent trans.errin$ real property shall be e..ected by the e$ister o. Deeds unless the co##issioner or his duly authori5e representative has certi.ied that the trans.er >*) has been reported and >&) tax due has been paid N e$ister o. Deeds requires pay#ent o. tax be.ore trans.er o. property ,ection @C Ta! on Profits Collecti;le fro O"ner of ot&er Persons

NTax i#posed under this title upon $ains? pro.its and inco#e not .allin$ under the .ore$oin$ and not returned and paid by virtue o. the .ore$oin$ shall be assessed by personal return "ntent and Purpose of t=is !itle *. All $ains? pro.its and inco#e o. a taxable class shall be char$ed and assessed with the correspondin$ tax. &. Said tax be paid by the owner o. the $ains? pro.it or inco#e or the person havin$ the receipt? custody? control or disposal o. the sa#e 8etermination of OCners=ip: Ndeter#ined as o. the year .or which a return is required to be .iled C9APTER X* E,TATE, AN# TR%,T, ,ection AD* I position of Ta! 1. Estate N property o. the decedent created by an a$ree#ent? trust or by last will and testa#ent 2. Trust Na$ree#ent? contract or last will and testa#ent %tatus: *. Estate! sa#e status as decedent &. Trust! sa#e status as the $rantor "ncome ta>paAer is t=e Estate: Ninco#e o. the estate pendin$ partition or no partition at all! !=ree Dinds of partition: *. 9udicial &. extra 9udicial partition ). or no partition at all 8uring partition Estate earns income: *. individual 0 inco#e tax &. corporation 0 corporate inco#e ). estate >Taxpayer X T7)

tax

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Taxation law review notes - Atty. Francis J. Sababan a.-#pose -nco#e as i. T7 is individual b.-#pose inco#e as i. T7 is corporation c.-#pose inco#e as i. estate itsel. Ndepends whether there is a >*) 9udicial >&)extra 9udicial partition or >)) no partition at all Ahen there is a 9udicial settle#ent which is .inal and executory but no partition! TDo possibilities/ *.%reation o. unre$istered partnership N-nco#e o. the Estate! corporate inco#e tax &.%reation o. %o-ownership N-nco#e o. the Estate! -nco#e tax on individual -co-owner liable in their individual co#pany Ponce Case/ 3! A.ter .inality heirs did not divide the property? the applicable inco#e tax is corporate inco#e tax because they contributed #oney to en$a$e in real estate. ,ECTION A8 TAXABLE INCO.E >-#portant) O!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.P ,ection A4* Applies $urin+ Pen$enc( of E!tra Fu$icial ,ettle ent 7ersonal Exe#ption >7&(?((() -ndividual N it will depend whether heKshe is classi.ied as sin$le? head o. the .a#ily or #arried Estate Nre$ardless %pecial deductions:"ncome distributed to t=e =eirs Ni. you distribute nothin$ you cannot clai# this special deductions Ni. 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 anythin$ NSpecial deduction not apply i. individual tax is paid by the Estate itsel.. PaAment: #ade by executor? ad#inistrator? to creditor to preserve the estate ,ec. A8 an$ ,ec A4 Ndoes not apply i. estate is sub9ect to inco#e or corporate inco#e tax Nit applies i. the estate pays itsel. durin$ the pendency o. the 9udicial settle#ent Basis* ,ec AD C Pdurin$ the period o. ad#inistration or settle#ent o. the estate.Q Ta!pa(er is a Trust* -6 Ahen liable to pay inco#e taxL A* -. the trust is revocable >i. revocable? Sec '* and '& also apply) Parties: *.<rantor Kcreator Ktrustor &..iduciary K trustee ).bene.iciary K 8es 4ui trust -* Aho is liable to pay tax! A* -. trust revocable! N obli$ation o. the trustee Nliability o. trust itsel. and not personal

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Taxation law review notes - Atty. Francis J. Sababan LiabilitA of trustee: -. trust irrevocable Nobli$ation o. the $rantor Npersonal liability o. the $rantor as an individual TWO WA1, OF REPORTING INCO.E* P%R,%ANT TO RR4 E 28C5C3 *. report only once >buildin$ paid once) &. a.ter the span o. &1 years >pay#ent o. buildin$ divided per year) E,TATE TAX* *.Sec '( &. eal Estate Tax ). Estate Tax Ntrans.er tax i#pose on the =et Estate .or the trans.er o. property to the heirs or bene.iciary whether real? personal? tan$ible or intan$ible : 0IN#, OF TRAN,FER TAX* *.Estate Tax &. DonorHs Tax ). Sec *)1 o. 8<B Trans.er o.

eal 7roperty

-* Ae donHt have inheritance tax and donees tax? whyL A* */+) ;arcos issued 7.D. '/ Explain! Sec ,6? rate is #ax o. &(E o. net be.ore the rate is '(E plus additional a#ount. Nresulted to #any $i#i:s throu$h tax avoidance sche#e? li:e creatin$ a .a#ily corporation >only taxable is the stoc:holders which is exe#pt) N%on$ress enacted A +66/ decreased '(E to )1E and then A ,6&6 0 )1E to &(E -* =ow is it sa.e to create a .a#ily corporationL A* =o #ore. -* =ow! -ba na an$ sche#e 0 which is better sale or donationL A* *.Sale o. 7 considered capital assets N'E to *.1E doc. Tax +.1 E better &.Sale o. 7 considered ordinary asset N1E to 1&E as per use #ay be ).Donation i. $iven to all co#pulsory heir N relative lower than &(E which is *1E N stran$er! )(E so $o with &(E -* Aho are the taxpayersL A* Sec *(6 Estate and Donors *.Estate a. % b.= % c. A d. = A &. DonorHs Tax a. % b.= % c. A d. = A e. D% .. F%

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Taxation law review notes - Atty. Francis J. Sababan NA corporation cannot die o. a natural death. -* Ahat is the reason .or classi.yin$ the taxpayersL A* *. = A and Estate &. = A and F% Donors X property outside 7hil exe#pt ). all? other than these ) 0 taxable w in and wKout -* -s Section *(6 relevant to all taxpayersL A* =o? #aterial only to = A and F% %ection )(F speaDs of intangible personal propertA located in t=e P=ilippines. *.Franchise which #ust be exercised in the 7hilippinesF &.S.".@. issued by a Do#estic corporationF ).S.".@. issued by .orei$n corporation at least ,1E o. the business o. which is located in the 7hilippines. 0 do not con.use with 6& >&nd par) 6.S.".@. o. .orei$n corporation which acquired a business situs in 7hil 1.S. . in business? partnership or industry established in the 7hils -* = A? <er#an donates S"S o. F< to Filipina $.? is it sub9ect to donorHs taxL A* it depends >you #ust quali.y) *.Sub9ect to donorHs tax i.! *.S.".@. F< at least ,1E o. business located in the 7hil &.S.".@. F< which acquired a business situs in 7hil &.Exe#pt *.personal property outside o. 7hilF or &.intan$ible personal property net taxable i. .ollowin$ requisites concern! A decedent at t=e time of =is deat= or t=e donor at t=e time of donation Cas a citiBen and resident. *.o. a .orei$n country which at the ti#e o. his death or donation did not i#pose a trans.er tax o. any #anner? in respect o. intan$ible personal property o. citi5ens o. 7hilippines not residin$ in that .orei$n countryF or &. the laws o. the .orei$n country allows a si#ilar exe#ption .ro# trans.er or death taxes o. every character or description in respect o. intan$ible personal property owned by citi5ens o. the 7hilippines not residin$ in that .orei$n country. -* Ahat i. citi5en o. one country and resident o. another country will the exe#ption applyL A* =o? law requires that he #ust be a citi5en and resident o. the .orei$n country. Campos Rueda Case/ F! = A died 0 #arried to ;oroccan #an? so she was a ;oroccan resident. Donated SS in D% 0 ad#inistrator clai#s exe#ption? $round! -n ;orocco? intan$ible personal property o. Filipinos not residin$ therein is exe#pt .ro# trans.er tax. @- contends! ;orocco is not a country but a colony o. Spain. 3! clai# $ranted 0 even i. it is not a .ull pled$ed state? or itHs a #ere colony? what #atter is that the .orei$n law provides .or an exception. ,ECTION ?5 RATE, OF E,TATE TAX -* Ahat is the .or#ula .or Estate taxL A* <ross Estate >Sec ,1) - Deductions >Sec ,') -------------=et Estate x ate ------------Taxable net inco#e

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Taxation law review notes - Atty. Francis J. Sababan - Tax credit --------------------Tax due Gross estate 2$efine3 E ,ec 8D5 N$ross estate include real and personal property? whether tan$ible or intan$ible? or #ixed? wherever situated 0RA: 8ecedent Q 8onor N propertA situated outside of P=ilippines not included on t=e gross estate ,ection ?@ Gross Estate 2inclusion3 A.8ecedentKs interest Nincludes property >*) owned at the ti#e o. death and >&) property not owned at the ti#e o. death %lassic exa#ple! Bsu.ruct -* i. ter#inated by the death o. usu.ructuary? is it sub9ect to estate taxL A* =ot sub9ect to estate tax Reason: Exe#pt Trans#ission under Sec ,+ >a) N#er$er o. the usu.ruct in the owner o. the na:ed title -* is there a con.lict between Sec ,, a and Sec ,+ aL 3ow do you reconcileL A* =o con.lict *.Section ,+ a conte#plates a situation where the usu.ruct is ter#inated. &.Section ,,a conte#plates a usu.ruct .or a .ixed period. Ex contract o. lease -* 3ow do you deter#ine the value o. usu.ructL A* Sec. ,, a provides to deter#ine the value o. the ri$ht o. usu.ruct? ta:e into account the probable li.e o. the bene.iciary. -* Ahy de.inition o. $ross estate is lon$er than de.inition o. $ross $i.tL A* trans.er occurrin$ a.ter death. estate tax absolute Transfer during t+e life time N=or#ally DonorHs tax 4oCever t=ere are e>ceptions: *.trans.er in conte#plation o. death >,1@) &.revocable trans.er >,1 %) ).trans.er .or insu..icient consideration 7. !ransfer in contemplation of deat= Roces case/ F! durin$ li.eti#e? the .ollowin$ docu#ent were instituted or executed si#ultaneously *.will and &. donation The heirs insisted to pay DonorHs tax? 7osados the collector tried to collect inheritance tax. unique t=ing: Donees were also the heirs in the last will and testa#ent Donees wanted to pay donorHs tax because it is always lower than the estate tax except when the donee is a stran$er 3! this is a trans.er in conte#plation o. death Di on Case/ F! Deed o. Donation was executed Di5on died several days therea.ter son clai#s DonorHs tax 3!Trans.ers in conte#plation o. death -* Ahat are trans.ers dee#ed in conte#plation o. deathL

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Taxation law review notes - Atty. Francis J. Sababan A! *.7roperty was trans.erred durin$ the li.eti#e but the decedent! a. retains possession or receive inco#e or .ruits o. propertyF or b.retains the ri$ht to desi$nate persons who will possess the property or the ri$ht to receive .ruits or inco#e c. evocable Trans.ers )1re.ocable transfers are included in the $ross estate Reason: the decedent retains tre#endous power and control over the property &.0rre.ocable transfers are not included in the $ross estate! exe#pt Reason: the decedent losses control over the property 0otice 0ot Required because t=e person =as t=e control over t=e propertA 8. PropertA passing under general poCer of appointment N sa#e with .idel co##issary substitution ) parties! *.testator K decedent &.*st heir ).&nd heir !A@E 0O!E: To deter#ine whether included in Estate or not? :now who has the choice to desi$nate the &nd heir! Ni. decedent instructs the *st heir that he can trans.er the property to who#ever he wants included in $ross estate N*st heir choice 0 included in $ross estate E. Proceed of Life "nsurance *.@ene.iciary is the estate Nincluded in $ross estate whether desi$nation is revocable or not &.@ene.iciary is )rd person N revocable included Nirrevocable not included $. Prior "nterest Ni#portant only due to the codi.ication o. the tax code @?%?E? included whether be.ore or a.ter the e..ectivity o. the code /. !ransfer for insufficient consideration -* Si#ilar provision in Sec *(( >DonorHs tax) can you apply the two >&) provisions si#ultaneouslyL A* =o? alternative application? one or the other but not both. !=e application Cill depend on t=e time of transfer or motive: *.-. trans.erred because o. i#pendin$ death N estate tax &.-. trans.er because o. $enerosity NDonorHs tax -* 7arcel o. land was sold .or less than adequate consideration >adequate) to relative .or 7'((?((( when F;2 is * #illion pesos. -s this sub9ect to trans.er taxL -s it sub9ect to DonorHs taxL A* =o? Sec *(( provides the property should be other than real property re.erred to in Section &6 >D) N=ot sub9ect to DonorHs tax? the applicable tax is 'E F-T -* Aill your answer be the sa#e i. S"S are soldL A* =o? answer not the sa#e? S"S not property conte#plated in Sec &6 D >*) Nin this case? the a#ount by which the F;2 o. prop exceeds the value o. the consideration shall be dee#ed a $i.t and included in the co#putation o. the $ross $i.t! sub9ect to DonorHs Tax

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Taxation law review notes - Atty. Francis J. Sababan -* Ahat is the sub9ect #atter in ,1 <L A* para$raphs ,1 @? ,1 %? ,1 D %ale in good fait= as a defense: *.under Section *(( is not a de.ense &. under Section ,1 <? it is a de.ense 4. Capital of %urviving %pouse Ncorrelate with Sec ,' % Nboth spea: o. le$ally #arried individual Npertains to the separate property o. spouse who survived Ncapital used in its $eneric sense Nsurvivin$ spouse #ay be #an or wo#an ,ection ?A 2c3 Nto deter#ine the li#itations o. *. Funeral Expense &. Ahether written notice is required ). to deter#ine whether $ross value is at least 7&((?((( >Sec /() 6.to deter#ine i. $ross value is at least 6& ; -* Aho are the taxpayers under ,' AL A* *. % &.= % ). A -* Aho is the taxpayer under ,' @L A* = A -* Ahy do we need to :now thisL A* = A cannot avail o. the .ollowin$ deductions! *..a#ily inco#e &.standard deduction ).hospitali5ation 6.retire#ent pay under A 6/*+ %1 Deductions %lloDed to t+e Estate of a Citi en or Resident *.E8-T >expenses? losses? indebtedness and taxes) a) *.Actual Funeral ExpensesF or &.a#ount equal to 1E o. $ross estate Napply whichever is lower Limitation: a)a#ount equal to 1E o. $ross estate should not exceed 7&((?((( >basis is the $ross value) b) Judicial Expenses Nno li#itation

Pa?onar vs Commissioner -! Ahether or not extra-9udicial expenses #ay be allowed as a deduction 3! This law has been copied .ro# B.S. -n BS? expenses to be clai#ed as a deduction both 9udicial and extra 9udicial expenses. Claims against t=e estate NEstate is the debtor

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Taxation law review notes - Atty. Francis J. Sababan Requirements: *.at the ti#e the indebtedness was incurred the debt instru#ent was duly notari5edF &.loan contracted within ) days be.ore deathF ).the ad#inistrator or executor shall sub#it a state#ent showin$ the disposition o. the proceeds o. the loan Claims of t=e deceased against insolvent person NEstate is the creditor Requirement: Nthe only require#ent is that the >only) a#ount o. loan is included in the $ross estate Nnotari5ation and certi.ication not required #npaid .ortgage, ta>es and losses -* -n unpaid #ort$a$e who is the #ort$a$orL Ndecedent #ort$a$or *. Bnpaid #ort$a$e *.value o. the decedentHs interest in the property is undi#inished by such #ort$a$eF &.included in the value o. the $ross estateF "llustration: * #illion F;2 but #ort$a$e is only '((?((( you include * #illion &.Estate tax ).8osses Requirements: *.losses incurred durin$ the settle#ent o. the estateF &.arisin$ .ro# .ire? stor#s? shipwrec: or other casualties? or .ro# robbery? the.t or unbe55le#ent ).losses not co#pensated by insurance 6.losses not been clai#ed as a deduction .or inco#e as purpose 1. losses incurred not better than the last day .or the pay#ent o. the estate tax PropertA PreviouslA !a>ed N2anishin$ Deduction eturn Requirement: *.person acquires the property by virtue o. donation or inheritance -* Ahat i. acquired throu$h purchaseL A* =ot apply? the property #ust be acquired by inheritance or donation &.Estate tax or DonorHs tax already paid by the Estate o. the Decedent >* st par) ).Any person who died within .ive >1) years prior to the death o. the decedent -* Ahat are the a#ountsL A* 7rior Decedent died within! *.1years 0 &(E &.6years 0 6(E ).) years -'(E 6. &years 0 ,(E 1. * year -*((E -* Suppose the person died within * year and it was inherited by son? suppose the son also died within * year or #ay be & years? should we apply the vanishin$ deductionsL A* =o #ore >last par Sec ,' A&) !ransfer for Public #se Na#ount o. all bequest? le$acies? devises or trans.ers Recipient:$overn#ent or any political subdivision

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Taxation law review notes - Atty. Francis J. Sababan Nexclusively .or public purpose Ta:e =ote! )(E o. which not used .or ad#inistrative purpose is not a require#ent $A."L 4O.E Na#ount equivalent to the current F;2 o. the Fa#ily 3o#e o. decedent. Limit: F;2 should not exceeds * #illion otherwise the excess will be sub9ect to estate tax. Requirements: &RR *6*(('*.7erson is le$ally #arried < ! i. sin$le not allowed to clai# Except! i. head o. the .a#ily &.Fa#ily 3o#e actual residence o. the decedent ).%erti.ication o. @aran$ay %aptain o. locality %!A08AR8 8E8#C!"O0% Nauto#atic! &-&(() no require#ent provided the decedent is the one in ,' >A) > %? = %? .E8"CAL E<PE0%E% Requirements: *.a#ount not exceedin$ 71((?((( &.#edical expenses incurred by the decedent within one >*) year prior to his death. N#ust be duly substantiated with receipt RE!"RE.E0! PA #08ER RA F2)+ &RE!"RE.E0! PA G"!4 PR"9A!E PLA0Requirements: *.plan duly approved by the @&.person at least 1( years old ). *( years in service 6. avail only once !A@E 0O!E: This is a deduction in the nature o. exe#ption? all other retire#ent plan is excluded &1 Deductions %lloDed to Non resident Estates *.E8-T &.7roperty 7reviously taxed ).Trans.ers .or public use C1 S+ares in t+e ConEugal Property D1 )iscellaneous Pro.isions For = A! =o deduction allowed unless include in the return the value at the ti#e o. his death that part o. his $ross estate not situated in the 7hilippines. For proper deduction #ust include E. below E1 Tax Credit for Estate Tax Paid to Foreign Country ,ECTION ?< EXE.PTION OF CERTAIN AC-%I,ITION AN# TRAN,.I,,ION, *. ;er$er o. usu.ruct in the owner o. the na:ed titleF &. trans#ission or delivery o. the inheritance or le$acy by the .iduciary heir or le$atee to the .ideico##issaryF ). trans#ission .ro# the .irst heir? le$atee or le$acy donee in .avor o. another bene.iciary? in accordance with the desire o. the predecessorF 6. All bequest? devises? le$acies or trans.ers to >*) social wel.are >&) cultural and >)) charitable institution A)

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Taxation law review notes - Atty. Francis J. Sababan Requirements: *.no part o. the net inco#e insures to the bene.it o. any individualF &.not #ore than )(E o. donation >@D8) shall be used by such institutions .or ad#inistration purposes. ,ECTION ?? #ETER.INATION OF T9E VAL%E OF T9E E,TATE A.#sufruct *.Deter#ine value o. ri$ht o. usu.ruct! Nconsider the probable li.e o. the bene.iciary based on the latest @asic Standard ;ortality Table 7.Properties N.air #ar:et value o. the Estate at the ti#e o. death *.F;2 deter#ined by %o##issioner &.F;2 schedule o. values .ixed by the 7rovincial or %ity Assessors ,ECTION ?C NOTICE OF #EAT9 TO BE FILE# -* Ahat is the @asisL A* the $ross estate o. the person -*Ahen is the notice required to be .iledL A* *.all cases o. trans.er sub9ect to tax &.althou$h exe#pt? when $ross values o. the estate exceeds 7&((?((( -* Ahen .iledL A* within two >&) #onths *. a.ter decedentHs death &.sa#e period a.ter quali.yin$ as executor or ad#inistrator N$ive a written notice -* -. the =et Estate is at least 7*'?((( will you in .or# the co##issionerL A* yes? the $ross is at least )-6 #illion ,ECTION CD E,TATE, TAX RET%RN, -* Ahen required to .ile returnL A* *.all cases o. trans.er sub9ect to tax &.even thou$h exe#pt? $ross value o. the estate exceeds 7&((?((( ).re$ardless o. $ross value o. the estate? when the sa#e consists o. re$istered or re$istrable prop such as! a.real property b.#otor vehicle c. shares o. stoc:s d. other si#ilar property where clearance .ro# @- necessary .or trans.er o. ownership in the na#e o. the trans.eree Nreturn #ust set .orth the .ollowin$! *.value o. the $ross estate at ti#e o. death &.deductions allowed ).in.or#ation necessary to establish correct taxes -* Ahat i. Estate is exe#pt? is it required to .ile a returnL A* /eneral Rule: =o E>ception: a. $ross value exceeds 7&((?((( b.estate contains re$istrable property -* i. the estate or $ross estate exceeds & #illion? what is the require#entL A* return #ust be duly certi.ied by a %7A

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Taxation law review notes - Atty. Francis J. Sababan 7. !ime of $iling N.iled within ' #onths .ro# decedentHs death Nwithin )( days .or .ilin$ the return Nwithin )( days a.ter pro#ul$ation o. such order *.certi.ied copy o. the schedule o. partition and &.order o. court approvin$ the sa#e C. E>tension of !ime !ime: )( days /rounds: #eritorious cases G=o grants: %o##issioner 8. Place of filing: Nreturn shall be .iled with! *.authori5ed a$ent ban: &.revenue district o..icer ). collection o..icer 6. duly authori5ed treasurer Ncity or #unicipality in which decedent was do#iciled at the ti#e o. his death -* Ahat i. non residentL A* = with no le$al residence here? with the o..ice o. the co##issioner. -* 8et us say there are ) co#pulsory heirs? na#ely A? @? and %. A renounces his inheritance co#in$ .ro# the parents? but A renounces his inheritance in .avor o. his & siblin$s? brother and sister @ and %. -s this sub9ect to donorHs taxL A* =". -t is exe#pt. -* @ut i. in the $iven exa#ple? A said P- a# renouncin$ #y inheritance? but - a# $ivin$ it to #y sister @Q? is this sub9ect to donorHs taxL A* IES. enunciation is to the disadvanta$e o. the brother. TAJAT-"= B=DE T3E 8"%A8 <"2E =;E=T %"DE! *. 8ocal Tax &. eal 7roperty Tax LOCAL TAXATION &R),1, ),+, t=en go to R)3), )*, doCn-* ;ayor @inay o. ;a:ati ordered the collection o. elevator tax >.or elevator in the city hall). -s the order o. ;ayor @inay le$ally tenableL A* =". There should always be a ta> ordinance a.ter conductin$ a public =earing. >S*,') ta> ordinance -* %an @A* IES. collect the tax even in the absence o. a revenue re$ulationL

-* %an a province? city? #unicipality or baran$ay collect the tax i. there is no tax ordinanceL A* =". -* Ahy is it that there should be a tax ordinance as required by S*,'L A* The rationale is not #entioned in S*,'? but i. you read the other provisions o. the 8<%? you will co#e to set o. conclusions o. the reason why there #ust be a tax ordinance.

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Taxation law review notes - Atty. Francis J. Sababan U -n #ost o. these provisions? it always say! one6=alf if t=e toCn or municipalitA s=all collect a ta> of not e>ceeding )S of t=e gross receipt. TADE ="TE! There is no exact a#ountF hence? it is the tax ordinance which will .ix the exact a#ount.

public =earing -n %on$ress? the require#ent is not absolute >by discretion only). phrase o. S*,')? the require#ent is A@S"8BTE. Bnder local taxation >last

RE E% vs. %ECRE!AR &'*( %CRA F,1F! -n the #unicipality o. San Juan >9ust beside ;andaluyon$) there was a tax ordinance passed. eyes? a resident? clai#s that there was no public hearin$ conducted? he #aintains that under S*,' last phrase? there should always be a public hearin$. 3! The S% said! Pyes? that require#ent is an absolute one? but since the petitioner .ailed to produce evidence to support his alle$ation? i. there is no proo. presented other than his own state#ent? we hereby rule that the ordinance was passed in accordance to the procedure #andated by lawQ. Ahile it is true that a public hearin$ is an absolute require#ent? he who alle$es? #ust prove the sa#e. -* -. you donHt a$ree with the validity or the constitutionality o. the tax ordinance? what will be your re#edyL A* Aithin )( days .ro# the e..ectivity o. the ordinance? the taxpayer should .ile an appeal with the o..ice o. the Secretary o. the D"J >S*,+) RE E% vs. %ECRE!AR &'*( %CRA F,1F! eyes asserted the validity and constitutionality o. the tax ordinance only a.ter the lapse o. thirty >)() days >perhaps his lawyer was thin:in$ that an ordinary statute #ay be contested anyti#e with the T%? %A or S%). 3! Aith re$ard to a tax ordinance? w have a speci.ic rule? .ailure to assail the validity with the speci.ic period o. ti#e? is .atal to the taxpayer. Since it was .iled beyond the )(day period? we do not disturb the validity o. the ordinance. -* Aithin what period should the Sec. o. Justice decideL A* Aithin '( days .ro# the ti#e the appeal was .iled. Failure to decide within this ti#e? the taxpayer has the re#edy to .ile an action with the re$ular courts. U -. the decision was #ade within the '( day period? and receives the decision? his re#edy is to .ile an appeal within )(days .or# the receipt o. the decision to court o. co#petent 9urisdiction M T%. U @e$innin$ April *', *((F? .ro# the rulin$ o. the T%? pursuant to A /&,& >the law upli.tin$ the standards o. the %TA)? the rulin$ o. T% on local tax cases? is appealable to the %TA en banc. TA" A77EA8S DE%-DED @I T3E %TA E= @A=%! *. decisions o. T% involvin$ local tax cases &. decision o. the %entral @oard o. Assess#ent Appeals. U U Fro# %TA en banc? the appeal #ust be .ile with the S% within *1days. <o to S*1*! The city could i#pose the tax already i#posed by the province o. by the #unicipality.

-* Ahat are the nu#erous taxes i#posable by the province which a city now allowed to i#poseL

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Taxation law review notes - Atty. Francis J. Sababan A* Those enu#erated in S*)1 to S*6* o. the 8<% easons why a #unicipality wanted to be converted into a city! *. S*1* &. S&)) >real estate tax) U -n addition? the law says that the city could increase the rate o. the tax by not #ore than 1(E o. the #axi#u# EJ%E7T those enu#erated in S*)/! a) pro.essional tax b) a#use#ent tax A. General Principles &R)*,6)'(N reiteration o. the constitutional tax provisions

N notice that the constitutional li#itations on taxation do not only apply to the national $overn#ent but also to local $overn#ent units. B. #efinitions >S*)&) 2ocal C. Co U Taxing %ut+ority &R)'*.or a province? it is the provincial board or the provincial council >san$$unian$ panlalawi$an) .or a city? we have the city council >san$$unian$ panlusod) .or the #unicipality? we have the #unicipal council >san$$unian$ pan$bayan) .or the baran$ay or barrio? we have the baran$ay council. on li itations on t&e ta!in+ po"er of t&e LG%Is >S*)))

Bnder the old law this was S1 o. the 8ocal Tax %ode.

-* Ahy co##onL A* @ecause the li#itations or prohibitions apply to all 8<Bs? the provinces? cities? #unicipalities and baran$ays. Two %o##on %ri#es &under R)''*. absolute prohibition &. relative prohibition -t shall be unlaw.ul .or the 8<Bs to collect! 01 "ncome !a> E<CEP! C=en levied on banDs and ot=er financing institutions &R)''&A-U the ter# Pother .inancin$ institution shall include #oney chan$er? lendin$ investor? pawnshop &R)')&E-U rate o. tax! does not #ention rate o. tax? so lon$ as it is P.air? 9ust and reasonableQ U -t cannot be Pprohibited taxation? because the ele#ent o. Pi#posed by the sa#e taxin$ powerQ is not present. "ne is i#posed by the national $overn#ent and the other is by the 8<B. 001 8ocumentarA %tamp !a> &R)''&7-U absolute prohibition 0001 Estate ta>, in=eritance, donations inter vivos, donations mortis causa E<CEP! in R)'3 &R)''&C-U trans.er tax on the trans.er o. realty to be i#posed by provinces and cities >S*)1) ="TE! this is not a real estate tax? this is a local tax. 0I1 Custom duties, c=arges or fees for t=e registration of vessels or s=ips, C=arfages fees and C=arage dues E<CEP! if t=e C=arf =ad been establis=ed, maintained and operated bA t=e localitA &R)''&8-U whar.a$e due 0 is a custo# .ee i#posed on the wei$ht o. the car$oes. U whar. 0 a pier U special levy on public wor:s >S&6()

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Taxation law review notes - Atty. Francis J. Sababan U allows provinces cities and #unicipalities to i#pose a special real estate tax :nown as Pspecial levy or public wor:sQ U let us say the #unicipality established a pier .or a #ini#al value o. 7*(;F out o. 7*(;? under S&6(? '(E o. this #ay be recoveredF the other 6(E #ay be recovered by war.a$e due. .1 !a>, fee or c=arge for goods or commodities coming out or passing t=roug= t=e territorial ?urisdiction even if in t=e guise of a toll or a fee &R)''&E-U an absolute prohibition U co##odities #ar:eted in a public #ar:et? letHs say in the city o. 7asi$? where the co##odities ca#e .ro# 8a$una then to Tanay? %ainta? TaytayF 9ust i#a$ine i. each o. the towns will i#pse *peso .or every head o. a chic:en or 1(cents .or every bundle o. ve$etable. PAL.A 8E9K! CORP v. .ALA0/A% :A.7OA0/A 8EL %#R &))' %CRA 3+*F! ;unicipal council passed a tax ordinance entitled Ppolice surveillance .eeQ which provide that A88 #otor vehicle passin$ throu$h a particular street in the town proper o. ;alan$as which will lead to the pier or whar. will pay a certain su# o. #oney whether it is ca#ote? copra? palay?or rice. "ne o. the owners o. the #otor vehicle is 7al#a DevHt %orp. carryin$ copra? banana and coconut to be loaded in a ship doc:ed at pier o. ;alan$as. The lawyer o. petitioner assailed the validity o. the ordinance statin$ that it is a clear violation o. S*))>E). 3! -t is not the title o. the ordinance which is controllin$ but it is the essence o. the substance o. the tax ordinance. The tax ordinance clearly violated S*))>E)? there.ore? the S% had no option but to declare the tax ordinance null and void .or bein$ in violation o. the law. I01 !a>es, fees or c=arges on agricultural and aquatic products C=en sold bA marginal farmers or fis=ermen &R)''&$--* Don Antonio Florendo? a person co#in$ .ro# 7a#pan$a who settled in Davao %ity? e#ployed thousands o. wor:ers in the di..erent banana plantation. %an the 8<B i#pose tax on the a$ricultural product which is a bananaL A* IES. The 8<B can i#pose because Don Antonio is not a #ar$inal .ar#er. -t is only prohibited i. it is sold by a #ar$inal .ar#er. U ;ar$inal Far#er 0 a .ar#er or a .isher#an .or subsistence only? whose i##ediate #e#bers are the i##ediate #e#bers o. the .a#ily >S*)*>7)) I001 !a>, fee or c=arge on pioneer and non6pioneer enterprise dulA registered Cit= t=e board of investments for a period of 1Ars and FArs respectivelA &)''&/-U relative prohibition because a.ter the period? the 8<B concerned #ay now i#pose the tax. I0001 E>cise ta> on articles and ta>, fees and c=arges on petroleum products &R)''&/-U relative prohibition since under S*6)>3)? it says there that taxes which are prohibited such as excise tax? percenta$e tax and value added tax nonetheless? the 8<B #ay i#pose a tax not exceedin$ &E o. the $ross receipt >.or cities )E). U ;y .or#er student an assistant in the city le$al attorney in a city in ;etro ;anila? received a su##on .ro# the T% >on co#plaint o. a super#ar:et in ;etro ;anila) questionin$ the validity o. the tax ordinance under S*6)>3) since the rate i#posed was )E - said? Pinen$? una .ile :ayo n$ #otion to dis#iss. =a: n$ puta? absent :a na na#an ata eh? you invo:e S*1* statin$ that a city can i#pose a tax hi$her than the rate provided .or by law not #ore than 1(E o. the #axi#u# >1(E o. the #axi#u# o. &E is *? there.ore? &W* is )E)Q 7#LACA0 v. CA &*22 %CRA FF*_.irst case decide by the S% which interpreted both the 8<% and the =- %. F! The then $overnor? "bet 7an$aniban to$ether with his provincial council passed an ordinance i#posin$ tax on quarryin$ under the provision o. S*), o. the 8<%. The proble# is that the ordinance applies to A88 entities quarryin$ in the province. "ne o. the taxpayers? epublic %e#ent obli$ed to pay the tax? ar$ued that under S*), o. the 8<%? the tax on quarryin$ on which the province #ay be allowed shall only be with re$ard to quarryin$ private land? and not only that but under S*))>3)? there is a prohibition to i#pose excise tax and tax on quarryin$ under the - % is an excise tax. 3! The tax on quarryin$ allowed to provincial $overn#ents shall only be with re$ard to lands which are public lands? and since this is a private tax on quarryin$ re.ers to a lot without any distinction. 3ence? i. the 8<% #ade a quali.ication as to the :ind o. land >where it says it should be public land)? by i#plication? it should re.er to private land under S*1* >althou$h the law did not distin$uish)F and since it is a tax by the national $overn#ent? it should be collected by the

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Taxation law review notes - Atty. Francis J. Sababan @- >not the 8<B)? and also the S% a$reed that it is an excise tax where 8<BHs are prohibited .ro# collectin$F thus? the S% declared the tax ordinance null and void .or bein$ contrary to law. U Sir? why is it a proble# when the law is clear that under S*),? it shall only apply to public landL 7erhaps the provincial council thou$ht that the sub9ect #atter o. the tax ordinance #ay be a sub9ect #atter provided in any boo: includin$ the - %? or worse? that it #ay i#pose a tax on a sub9ect #atter not #entioned in any boo:. ;oral lesson! althou$h a tax ordinance #ay be passed even i. the sub9ect #atter is not provided .or in any law? it has to co#ply with the li#itations. PE!RO0 v. PE0"LLA &)2, %CRA ,1_ The .acts here arose under the old law under S1 >now S*))) o. the local tax code >7D &)*) F! 7etron has a .actoryKplant in 7enilla where the raw #aterials petroleu# products are bein$ converted into re.ined petroleu# products. The #unicipal council o. 7enilla i#posed a tax by way o. a tax ordinance sayin$ that they are invo:in$ the old S*/ >now S*6)>A)) statin$ that #unicipalities are authori5ed to i#pose tax o. the #anu.acture o. any co##odity? hence? since it is #anu.acture o. a petroleu# product? the 8<B #ust e authori5ed. 3owever? 7etron ob9ected since under S1 >now S*))>3))? the prohibition includes the prohibition to i#pose excise tax and not only that? under this par.? the tax on petroleu# products is an excise tax. Bnder this par.? the law is clear it does not only prohibit the i#position o. tax? .ee or char$e over petroleu# products. 3! The controllin$ provision here the old S*/ >now S*6)>A)) that 8<Bs are authori5ed to i#pose the business tax .or the #anu.acturin$ over any :ind o. co##odity by and petroleu# product is Pany :ind o. co##odityQ. -* Ahat do you thin:L A* - donHt a$ree with this rulin$ because between S*))>3) and S*6)>A)? it is the .or#er which is #ore speci.ic. 0J1 9alue added ta> and percentage &R)''&"- E<CEP! R)F'&4U elative prohibition. J1 !a>, fee or c=arge on common carriers C=et=er bA land, Cater or air &R)''&;-$"R%! 4OL8"0/ CO. v.7A!A0/A% C"! &'(( %CRA 11)_ &nd S% rulin$ discussin$ both the - % and 8<%. F! This revealed to the public the existence o. & very bi$ oil pipelines co#in$ .or# @atan$as %ity with a distance o. #ore than *((:#? one $oin$ to 7andacan "il Depot and the other one is $oin$ to @r$y. @icutan? Ta$ui$. The @atan$as %ity council dee#ed it necessary to i#pose a tax on the $ross receipt o. the * st holdin$ co#pany .or the operation o. the oil pipeline? but the operator ar$ued that the oil pipeline is not a co##on carrier. 3! The S% reasoned out li:e in the case o. Pa?unar v. Comm &'*,%CRA111-? sayin$ that Pwe have copied the code o. carrier law .or# the BS where the de.inition o. a co##on carrier is one habitually carryin$ not only individuals or passen$ers but also $oods or co##odities? and since the oil pipelines is habitually carryin$ petroleu# products which is a co##odity? we rule this as a co##on carrier which is under S*))>J)? 8<B is prohibited .ro# i#posin$ tax on co##on carriers? and not only that but under S*+( o. the 8<%? the law is very explicit? that A88 8<Bs are prohibited to i#pose percenta$e tax on co##on carriersQ. Aith that? the tax ordinance passed was declared null and void .or bein$ contrary to law. J01 Premiums on re6insurance &R)''&@-U absolute prohibition. J001 !a>, fee or c=arge on registration of motor ve=icles and for t=e issuance of license and permit for driving t=ereof E<CEP! tricAcles. &R)''&L-7A!#A0 C"! v. L!O &'** %CRA ,(3-! Ahich .unction was dele$ated to the 8<BL The 8T" re$isterin$ #otor vehicles PorQ the 8TF @ $rantin$ .ranchise and re$ulation o. co##on carriersL 3! Bnder S*))>8)? the .unction o. the 8T" is prohibited? an there.ore what #ay be dele$ated to the 8<B is the .unction o. 8TF @. J0001 !a>, fee or c=arge on e>portation of products and is actuallA e>ported E<CEP! under R)F'&C- C=ere t=e L/# is aut=oriBed to impose business ta> on e>portation &R)''&.-J0I1 !a>, fee or c=arge on cooperatives dulA registered under t=e cooperative cod &RA 12',- and 7usiness @alaDalan &RA 1,)(- &R)''&0--

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Taxation law review notes - Atty. Francis J. Sababan U A cooperative is exe#pt .ro# local tax? provided it is duly re$istered with the cooperative code and the cooperative develop#ent authority PorQ @usiness Dala:alan >not :al:alan) JI1 !a>, fee or c=arge over t=e national government, political subdivisions and agencies and instrumentalities of t=e government &R)''&O-U elative prohibition since it ad#its o. an exception under S*16 o. the 8<% where it says that a 8<B #ay be authori5ed to i#pose a .ee or char$e .or the operation o. a public utility provided it is owned? #aintained and operated by such 8<B. 0A"A v. PARA0A5#E &;#L *((13! S% ruled in .avor o. the airport. 7aranaque bein$ a 8<B canHt i#pose tax on a $overn#ent instru#entality. Airport owned by the $overn#ent is not an a$ency? it bein$ an instru#entality. -* ;ay the $overn#ent tax itsel. it the taxin$ power is the local $overn#entL A* =". The local $overn#ent cannot i#pose tax on the national $overn#ent? and with #ore reason that it cannot i#pose a tax with equal 8<B. #. Ta!es t&at can eit&er ;e i 01 ta> on transfer of realtA &R)'3N =ote that this is not a real estate tax? this is a local tax .or the si#ple reason that it is not provide .or under the topic o. real estate tax >S*/,-&,() N 8aw says Pit should not exceed [ o. *E o. the considerationQ >="TE! do not use 5onal value since this is used only under the - %? not the 8<%. -* Since all the provinces and cities #ust .ollow the li#itation o. the rate >not exceedin$ [ o. *E)? is it violative o. the equal protection clauseL A* ="? because the san$$uninan had to deter#ine the actual rate considerin$ the status o. the province. -* Ahy is that ;a:ati .ix the rate o. +1E or )K6 o. *EL A* @ecause cities are authori5ed to increase the rate o. 1(E o. the #axi#u#? that is 1(E o. [ is &1E >1(W&1 is +1E). ="TE! Do not apply trans.er o. realty pursuant to A$rarian e.or# 7ro$ra# M this is exe#pt. 001 ta> on printing an publication &R)'1N =or#ally? a province cannot i#pose this because the tax on business can only be i#posed by a city or #unicipality EJ%E7T this one? on printin$ and publication o. #a$a5ines and periodicals. 0001 franc=ise ta> &R)'+N The old national .ranchise tax under the old tax code was already abolished. A ''1+ >%A 7) M this is the %o#prehensive pose$ ;( Pro'inces or Cities

N Ae still have .ranchise tax other than this one? :nown as national .ranchise tax M provided .or in the republic act $rantin$ .ranchise. Two :inds o. Franchise Tax! *. local .ranchise tax >under 8<% S*)+) &. national .ranchise tax >provided .or in the statute or republic act authori5in$ the .ranchise) -* ;ay 8<Bs i#pose local .ranchise taxL A* Ae have to consider here #any supre#e court decisions and also S*/) o. the 8<%. Bnder S*/)? it says there Punless especially provided .or in this code? exe#ptions $ranted to natural 9uridical persons are hereby withdrawn >abolished) EJ%E7T! *. local water districts

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Taxation law review notes - Atty. Francis J. Sababan &. cooperatives re$istered under the cooperative code > A '/),) ). non-pro.it and non-stoc: educational institution. 7A%CO v. PA/COR &)2+ %CRA 3*F! The city council passed a tax ordinance i#posin$ tax on 7A<%" ? an a$ency o. the $overn#ent. 7A<%" ob9ected sayin$ that the local city is prohibited under the old local authority act to i#pose tax on an a$ency o. the $overn#ent. 3! The S% declared null and void the tax ordinance sayin$ ;anila cannot do that. CE7# v. .AC!A0 &*1) %CRA 11+F! %ebu $overn#ent was tryin$ to collect real estate tax .ro# the ;actan airport >note! real property tax is a territorial tax? #eanin$ it should only be collected within its territorial 9urisdiction). 8awyers o. ;actan airport ar$ued that under S*)>")? %ebu? a 8<B? cannot i#pose tax on an a$ency o. the $overn#ent? and they also invo:ed the rulin$ in @AS%". 3! The lawyer o. ;actan airport is devoid o. any #erit at all? it is *((E erroneous since the real estate tax is not a local tax? hence? why invo:e a S% rulin$ and codal provision which can only be applied to local tax. There.ore? ;actan airport should pay eal 7roperty Tax. N @e.ore the codi.ication in *//* >to ta:e e..ect January *? *//&)? local taxation was e#bodied in a separate boo: :nown as 8ocal Tax %ode >7D &)*) while real property tax was provided .or in a separate boo: :nown as eal 7roperty Tax %ode >7D 6'6) LR! v. C"! O$ .A0"LA &'F* %CRA 12*F! The ;anila city $overn#ent tried to collect real property tax but the #ana$e#ent o. the 8 T said Pno you cannot do that to us since it is exclusively .or public useQ. 3! ="? you are not exclusively .or public use since every ti#e a person wants to use the 8 T he has to pay. -* Ahy not use the de.ense that it is owned by the $overn#entL A* @ecause in real estate tax? the de.ense that it is owned by the $overn#ent is not a de.ense. The 8<% in S*//>@) and in S&*+? both provisions says that the basis .or the i#position o. real estate tax is the A%TBA8 BSE o. anybody who is usin$ that >#aybe in the concept o. usu.ructuary or in the concept o. a lessee? or in the concept o. an owner)F the basis is not ownership. N in S*)6? the taxes here #ust not only be i#posed by provinces? it #ay also be i#posed by cities in line with S*1* M those enu#erated in S*)1 to *6*. CA/A A0 8E ORO ELEC!R"C CO. v. ."%A."% OCC"8E0!AL &),) %CRA ',_ This was the prevailin$ rule .or #ore than *(years .ro# */,, 3! -n the .ranchise or the republic act? there are only two >&) :inds o. .ranchise? one is a .ranchise which provide .or a condition that this tax >re.errin$ to the .ranchise tax) shall be in lieu o. all other taxes? and the other .ranchise is the one which do not provide .or such provisionF the province or the city can i#pose local .ranchise tax i. the .ranchise belon$ to the second exa#ple. RE E% v. %A0 PA7LO C"! &'(3 %CRA '3'_ 3ere the S% uni.or#ly ruled 3! A provision on exe#ption under S*/) donHt only re.er to exe#ptions provided .or by di..erent statutes? but it includes those which clai# exe#ptions by virtue o. the case o. CagaAan de Oro >because S% decisions are also laws). PL8! v. 8A9AO &'1' %CRA +3(F! The .ranchise holders o. S#art and <lobe are clai#in$ exe#ptions .ro# the local .ranchise tax because they are sayin$ that they are holdin$ a .ranchise which says that it is a .ranchise enacted by the house o. %on$ress in *//1 which carries with it an exe#ption .or# local .ranchise tax.

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Taxation law review notes - Atty. Francis J. Sababan 3! @y the very explicit provision o. S*/)? the re#oval o. exe#ptions $ranted by di..erent statutes and also by S% decisions applies only to statutes and decided by the S% on or be.ore Jan. *? *//&? because S*/) says Pupon e..ectivity o. this lawQ. For exe#ptions covered by S*/) there.ore? S#art and <lobe are authori5ed to clai# exe#ptions because the statue > A +(,&) was enacted on *//1. 0I1 ta> on sand, gravel and ot=er quarrA resources &R)',N Ae are throu$h with that in the case o. 7ulacan

I1 professional ta> &R)'2N this #ust be correlated with the tax under S*6+. N ="TE that this is an exe#ption to the rule that a city #ay increase the rate o. the tax M under S*1* o. the 8<%? the increase is not allowed. N both S*)/ and S*6+ are taxes i#posed on persons exercisin$ pro.essional callin$. ,ection 85< are to be i#posed by #unicipalities and cities are applicable to persons who are wor:in$ but are not required to ta:e $overn#ent exa#inations -t does not provide .or any a#ount? the only require#ent is that it #ust be reasonable

,ection 8:C are to be i#posed by provinces and cities are applicable to wor:ers who #ust pass a $overn#ent exa#ination >e.$. en$ineers? physicians? etc) there is a #axi#u# >7)(() ="TE! it is not always )((? since the exact a#t #ust be .ixed by the ordinance.

I01 amusement ta> &R)F(N under the - %? there is also a#use#ent tax under S*&1.

P7A v. 5#E:O0 C"! &)'+ %CRA '3,F! The city $overn#ent enacted a tax ordinance tryin$ to collect a#use#ent tax includin$ a#use#ent tax on the 7@A >in Araneta? %ubao)F but 7@A and Pno? we are already payin$ a#use#ent tax to the national $overn#ent throu$h the @- because o. S*&1 o. the - %Q 3! 4% $overn#ent can no lon$er collect on the $round that it is already bein$ collected by the national $overn#ent and secondly? in the enu#erations o. a#use#ent under S*6(? you will never see pro.essional bas:etball. ;ost o. all? it is the intention o. the author that it is only the national $overn#ent. _na: n$ putan$ :atan$ahan yan.. the local tax code 7D &)* was enacted in */+6 when we donHt have any pro.essional bas:etball.. since pro.essional bas:etball was born ;ay */+1. _ ano ba dapt ta#a diyanL M both the national $overn#ent and the 4% $overn#ent can collect. There is no violation o. the prohibited double taxation? because the taxin$ powers are di..erent? and not only that S*6( spea:s o. a#use#ent tax on ad#ission .ee but under S*&1? it is abut $ross receipts. I001 deliverA van &R)F)-

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Taxation law review notes - Atty. Francis J. Sababan -* Ahat i. not a delivery van? but Psa:oQ lan$L

A* The applicable tax is under S*6)><) >peddlerHs tax? one i#posed by #unicipalities and cities. -. #ay dalan$ sasa:yan? yari siya n$ province sa tax. ="TE! S*)1-*6*? these are taxes that can be i#posed by 7 "2-=%ES and %-T-ES. S*6)-*1( are taxes to be i#posed by ;B=-%-7A8-T-ES? which can also be i#posed by %-T-ES. E. Ta!es t&at can eit&er ;e i 01 pose$ ;( .unicipalities or Cities

7usiness !a> &R)F'&A64-a. #anu.acturin$? repac:in$? processin$? includin$ the #anu.acturer o. per#itted liquor and also its dealer b. wholesalin$ c. exportation d. retailin$ e. contractorHs tax .. tax on ban:in$ institution and .inancin$ institution $. peddlerHs tax h. the exe#ption under S*))>i) #any business taxes do you have to payL

-* -. you have two branches? how A* Iou pay only one business tax >S*6')

"LO6"LO 7O!!LER% v. "LO6"LO C"! &)1F %CRA 1(+F! -lo-ilo @ottlers was already payin$ a business tax on #anu.acturin$ under S*6)>A) to the city $overn#ent by virtue o. a tax ordinance. 8ater on? they are obli$ed to pay by virtue o. another tax ordinance i#posin$ business tax on wholesalin$. =aturally? -lo-ilo @ottlers ar$ued? Phow could it be? i. you #anu.acture? it necessary .ollows that you sell the co##odity so? with the pay#ent o. the business tax on #anu.acturin$? it carries with it the business o. wholesalin$Q. 3! ="? you have to deter#ine the #ar:etin$ syste# o. the co#pany. -. wholesalin$ is also bein$ done in the place o. #anu.acture? the business tax on wholesalin$ should no lon$er be paid it should only be the business tax on #anu.acturin$. @ut i. the #ar:etin$ syste# o. the co#pany provides that wholesalin$ shall be done in a separate place >#aybe several :ilo#eters away)? the #anu.acturer #ust still pay the business tax on wholesale because now it could be ar$ued that they have the separate business o. wholesalin$. -* "n the business o. retailin$? should the business tax o. retailin$ be i#posed by the city or by the #unicipality P" Q by the baran$ay in the city or the barrio in the #unicipalityL A* S*6)>D) #ust be correlated with S*1&? the tax to be i#posed by the baran$ay. -t depends! a. city U i. the $ross receipt o. the retailer exceeds 71(T in a #ini#u# o. one year? it is the ri$ht and privile$e o. a city to i#pose the business tax on retailin$. b. baran$ay U i. the $ross receipt o. the retailer did not exceed 71(T? it is the baran$ay council where the business o. retailin$ is located. c. #unicipality U i. the $ross receipt o. the retailer did not exceed 7)(T within a period o. one year. d. barrio U i. the $ross receipt o. the retailer did not exceed 7)(T within a period o. one year. ="TE! These distinctions do not apply in wholesalin$. These are only .or retailin$.

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Taxation law review notes - Atty. Francis J. Sababan N 7ara$raph 3! .or the i#position o. excise tax? percenta$e tax and value added tax? the #unicipality #ay i#pose a tax not exceedin$ &E o. the $ross receipt >with re$ard to a city? it #ay $o as .ar as )E) 001 .unicipalities in .etro .anila C=o can increase t=eir rate &R)FFN i$ht now there are only two #unicipalities! *. San Juan &. 7ateros

0001 Professional !a> &R)F+N we are throu$h with that

0I1 $ees for sealing and licensing of Ceig=ts and measures &R)F,I1 $is=erA rentals, fees and c=arges &R)F2F. ,itus of Ta! >S*1() The tax re.erred to in here is the business tax on wholesalin$ and retailin$.

-* F; is #anu.acturin$ co##odities? one o. the# is Swi.t hotdo$s? this is bein$ sold not only in ;andaluyon$? ;etro ;anila? but also to the inter country .ro# @atanes to Tawi-tawi. Ahere should the business tax o. wholesalin$ or the business tax o. retailin$ be paidL Should it be in the principal o..ice >;andaluyon$) PorQ the place where the co##odities are soldL A* -t will be paid in the place where it had been sold 7 "2-DED there is a branch o..ice or a sales outlet >S*1(>A)). N -. it so happens that the co#pany has a .actory di..erent .ro# the place where the principal o..ice is located M )(E should be pain in the principal o..ice and +(E in the #unicipality or city where the branch is located. P4"L .A!C4E% v. CE7# &,) %CRA 22F! 7hil ;atches were produced in =a$tahan? ;anila. -n %ebu city? there was a warehouse where the #atches were stored. ;any o. the custo#ers? by way o. wholesale in the warehouse in %ebu %ity? they ca#e .ro# di..erent towns o. the 2isayan e$ion. ;ay the business tax ordinance o. %ebu be i#posed on those transactions even i. the buyers did not co#e .ro# the territorial 9urisdiction o. %ebuL 3! Since in this case the contract boo:ed and paid? #eanin$? it was ne$otiated per.ected and consu##ated in the warehouse where it was located in %ebu %ity? the %ebu %ity $overn#ent has the ri$ht to collect business tax. -* Ahat i. there is an a$ree#ent that co##odities would be delivered and that the buyer would be waitin$ in so#e other town? is the answer still the sa#eL A* IES? the answer is still the sa#e because delivery to the carrier is delivery to the buyer where delivery has been ter#ed within the territorial 9urisdiction o. %ebu. %4ELL v. CE7#CO!, CA.AR"0E% %#R &)(3 P4"L )(1'F! The petroleu# products were purchased at the #otor vehicle traversin$ the nei$hborin$ towns o. %ebucot li:e @ason? Di#alaon? all towns in %a#arines =orte. The contract o. sale was ne$otiated and per.ected in di..erent #unicipalities where the #otor vehicle o. Shell was travelin$. 3! Althou$h the oil depot was located in %ebucot? the said #unicipality cannot i#pose tax on that because the contract o. sale was ne$otiated and per.ected in the di..erent nearby towns o. %a#arines.

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Taxation law review notes - Atty. Francis J. Sababan -* -s there a con.lict with the case o. %=ell and P=il .atc=esL A* ="=E. As a #atter o. .act? these two decisions co#ple#ent each other. G. Ta!in+ Po"ers of t&e Baran+a( >S*1&) N "nly a #ini#al su# >.air and reasonable)

7ower to i#pose tax! *. "n co##ercial breedin$ o. .i$htin$ coc:s? coc:.i$hts and coc:pits U #ust be .or co##ercial purposes &. "n places o. recreation which char$e ad#inistration .ee ). "n billboards? si$nboards? neon si$ns and outdoor advertise#ents U especially .or the barrios and baran$ays alon$ the hi$hway 6. For baran$ay clearance U i. you want to en$a$e in the business o. retailin$ or wholesalin$ M i. baran$ay captain will not approve that M within +days $o to the #unicipal hall or city hall .or approval 1. For the use o. baran$ay property U .or instance the baran$ay has a pla5a. 9. Co on Re'enue Raisin+ Po"ers >S*1)-*11)

-* Ahy co##onL A* All the 8<B could i#pose the sa#e. @ut it does not .ollow that all the provinces? cities? #unicipalities could i#pose the sa#e. "nly the 8<B which operate? establish? #aintain the entity -. established by the province? it should only be the province. These are! *. service .ee and char$es U .or services rendered &. public utility char$es U provided owned? operate and #aintained by the# ). toll .ees and char$es U tax or toll .or the use o. a brid$e or a street N 7adua .iled a civil action in the ;a:at- T% tryin$ to stop the $overn#ent .or# collectin$ a toll .ree in the South Express includin$ the =orth expressway alle$in$ that he is a..ected as a taxpayer because he is .ro# 7aranaque. 3e ar$ued that i. you use the property o. the $overn#ent li:e a street or a public pla5a? you do not pay. 3e #ade the analo$y? that i. you $o to 8uneta? you do not pay the city $overn#ent o. ;anila. The ;a:ati T%? the %A and S% had a uni.or# rulin$ that the operator should be prohibited .ro# collectin$ .urther toll .ess because i. the operator had already recovered his invest#ent and earned an inco#e already? he should be stopped. As ar$ue by the S%? it copied the ar$u#ent o. the lawyer >re! 8uneta). U ="TE! that es Judicata do not apply here. Ahen the rulin$ beca#e .inal an executory in *//)? the =orth and South Express were totally dis#antled and totally destroyed by the D7A3 to $ive way to the .inal and executory rulin$ o. the %ourt? that -t should no lon$er be collected. A.ter several #onths? the $overn#ent announced in the radio that the party in the case o. 7adua? #utually a$reed that the collection shall be resu#ed in order to have #oney .or the #aintenance and repair o. the hi$hway. Exceptions to S*11 >collection o. toll .ees) *. #e#bers o. AF7 &. #e#bers o. the 7;7 ). post o..ice personnel deliverin$ #ail 6. physically handicapped 1. disabled citi5ens '1 years and older.

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Taxation law review notes - Atty. Francis J. Sababan I. N Co unit( Ta! >S*1')

-n the old days? :nown as Presidence tax certi.icate.

-* -. the Filipino is a resident o. a .orei$n country >= %)? is he liable to pay the co##unity tax certi.icateL A* ="? because the basis o. i#position o. this tax is whether or not you are an inhabitant o. the 7hilippines. ;eanin$ you are a resident o. the 7hilippines. -* Ahat about a .orei$ner residin$ in the 7hilippines > A)L A* IES. Iou have to pay unless the .orei$ner is a trans-investor .or not #ore than )#onths. N This is applied to both natural and 9uridical persons.

equire#ents! 1. .or a natural person M at least *, years o. a$e 2. .or corporations M upon re$istration with the SE% -* Ahat i. you beco#e *, in the #onth o. January or =ove#ber or Dece#berL A* For those who celebrated their birthday be.ore July * >that is up to June )()? they are liable to pay the tax? .or this year. For those who celebrated their birthday on or a.ter July *? they are not yet liable to pay this year? but have to wait until next year. -* -s there a di..erence .or those who reached *, in the #onths o. Jan-Feb-;arch and those who reached *, in the #onths o. April-;ay-JuneL A* IES. For those who celebrated birthdays in the #onths o. Jan-Feb-;arch? they have a $race period o. &(days within which to pay. Those who celebrated their *, th birthday in the #onth o. April-;ay-June? they do not have any $race period at all? they have to pay the tax i##ediately. -* -. you have a co##unity tax certi.icate .or this year >&((')? can it be used only until Dece#ber )*? &(('L A* =". -t shall be valid up to April *1? &((+. >S*')>%)) F. N Accrual of t&e Ta! >S*'') January *

-* Ahat i. the tax was only approved in the #onth o. ;ay &(('? do you have to wait until January &((+L A* =". Iou have the ri$ht to collect that in July *? because the law is sayin$ that Pit should be collected in the next succeedin$ quarterQ >S*'+) N ;ayor @inay had a tax ordinance in ;ay? sabi n$ #$a bata niya! Pbosin$? collect na tayo n$ JuneQ. @inay! Phindi n$a pupwede? #a$hintay pa tayo n$ July *Q. -* Ahat i. the tax ordinance had been existin$ .or several years alreadyL A* The ti#e o. accrual will always be January *. RE.E#IE, %N#ER T9E INTERNAL REVEN%E CO#E *. &. e#edies o. the <overn#ent e#edies o. the Taxpayer

Remedies of t+e go.ernment/

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Taxation law review notes - Atty. Francis J. Sababan *. Assess#ent &. %ollection Bnder the =- %? assess#ent and collection have & :inds! *. =or#alK"rdinary assess#ent and collection 0 Sec. &()? =- % &. Abnor#alKExtraordinary assess#ent and collection 0 Sec. &&&? =- % I. 0ormalQOrdinarA assessment and collection N There was a return .iled and it is not .raudulent and not .alse

II. AbnormalQE>traordinarA assessment and collection N There was! *. an o#ission 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 presu#edL A* ="? .alse and .raudulent return is not presu#ed. The burden o. proo. to prove that the return was .alse and .raudulent lies a$ainst the $overn#ent throu$h the @- . The #ere .act that the return is erroneous will not #a:e the return .raudulent? it #ust be proven by the @- . -* Ahy is it i#portant to :now whether the assess#ent is under nor#al or abnor#al conditionL A* -t is i#portant to :now because the prescriptive period between nor#al and abnor#al assess#ent di..er. Prescripti.e Period for %ssessment 91 0ormalQOrdinarA Assessment N ' Aears from t=e time t=e return =as been filed &not t=e paAment of t=e ta>- &%ec. *(', 0"RCN ) Aays o. .ilin$ the return under Sec. &()? =- %! *. .iled be.ore the deadline >.or any tax under =- %) &. .iled on the date o. deadline ). .iled a.ter the deadline N & Aays o. countin$ the ) year period o. Assess#ent! *. i. return is .iled be.ore or on the day o. the deadline? 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 return has been .iled. U For the calendar year o. &((6? a return #ust be .iled and paid .or =et -nco#e Tax on or be.ore April *1? &((1. Since he was not able to #eet the deadline? the taxpayer is now bein$ assessed .or tax due .or &((6. To #ini#i5e interest and surchar$es? it has been su$$ested by the @- that the taxpayer .ile a late return. Supposed he .iled his return coverin$ &((6 on April *? &(('. -n this exa#ple? the rec:onin$ point is the deadline o. April *1? &((1. The startin$ point o. the countin$ the ) yr. period is on the date the return is .iled which is April *? &(('. U Suppose it is not a late .ilin$ o. return? the countin$ o. the period is on the date o. the deadline which is April *1. 61 AbnormalQE>traordinarA Assessment N the $overn#ent has & options! a. Assess and %ollect U the prescriptive period .or Passess#entQ shall be *( years .ro# the discovery o. none .ilin$ or .alse or .raudulent return >Sec. &&&? par. o? =- %) U the prescriptive period .or PcollectionQ shall be 1 years .ro# the date o. .inal assess#ent >Sec. &&&? par c? =- %)

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Taxation law review notes - Atty. Francis J. Sababan b. %ollect Aithout Assess#ent throu$h Judicial Action U since there is Pno assess#entQ there is no prescriptive period .or assess#ent U prescriptive period .or PcollectionQ shall be *( years .ro# the date o. discovery o. none .ilin$ o. return or .alse or .raudulent return. N These options are available only i. the Assess#ent is under the Abnor#alKExtraordinary %onditions. These are not available under =or#alK"rdinary Assess#ent Prescripti.e Period for Collection 8. 0ormalQOrdinarA Collection 0 Sec. &() did not provide .or the prescriptive period .or the collection - -ntention o. the author! 1 years .ro# the date o. .inal assess#ent easons! >Sababan a$rees with the 1 year prescriptive period) 7rescriptive period o. collection under *st option on Abnor#al Assess#ent is 1 years .ro# .inal assess#ent >Sec. &&&? par c? =- %) *. under the old code o. */)/? */++? and */,1? i. the prescriptive period .or collection under abnor#al is ) years? then the prescriptive period .or collection under nor#al is also ) years. -. now a days? it is 1 years in abnor#al? the prescriptive period .or nor#al should also be 1 years. &. to say that there is a prescriptive period .or collection under Abnor#al and there is none under =or#al is too abnor#al. -t should be the other way around. 61 AbnormalQE>traordinarA Collection a. assess and collect 0 1 years .ro# the .inal assess#ent b. collect without assess#ent throu$h 9udicial action 0 *( years .ro# date o. discovery o. none .ilin$? or .alse? or .raudulent return. -* 3ow to apply these periodsL A* Annual net inco#e tax return .iled by individual usin$ a calendar year. The return should be .iled on or be.ore April *1? &(((. -t was .iled on April *1? &(((. - Aithout statin$ the date o. .inal assess#ent? can it be collected in &((+L A* Bnder nor#al condition? .irst deter#ine the date o. .inal assess#ent. -. the @- .inally assessed the tax in =ove#ber &((*? then &((+ is way beyond the 1year period to collect. %ount the prescriptive period .or collection .ro# the date o. .inal assess#ent. -* >sa#e .acts) Supposed it was .inally assed on ;arch &(()? can it be collected in &((+L A* Ies? because it is within the prescriptive period o. 1years. 7A%"LA0 v. CO.."%%"O0ER &*) %CRA )+F! Supposed the notice o. assess#ent was $iven within the period but it was received by the taxpayer outside the period. -! Ahether or not the assess#ent is within the period o. ) years. 3! Ies. -t is within the period. -. the notice is sent throu$h re$istered #ail? the runnin$ o. the prescriptive period is PstoppedQ. Ahat #atters is the sendin$ o. the notice is #ade within the period o. prescription. N -t is the sendin$ o. the notice and not the receipt that tolls the prescriptive period.

-* Ahat i. the return has been a#ended? how would you co#pute the period o. assess#entL A* =- % is silent. P4OE0"< v. CO.."%"O0ER &)F %CRA 3*-. the a#end#ent o. the return is substantial as distin$uished .ro# super.icial? the countin$ o. the prescriptive period is also a#ended. The prescriptive period shall be rec:oned on the date the

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Taxation law review notes - Atty. Francis J. Sababan substantial a#end#ent was #ade. -. the a#end#ent is super.icial? the countin$ o. the prescriptive period is still the ori$inal period. Proce$ure for Assess ent 2,ec. 44?= NIRC6 RR 84/CC3

Steps o. assess#ent *. Sec. &&,? =- % >& steps) &. *&-// >) steps) & Steps under Sec. &&,? =- % *. 7re-assess#ent notice &. Final assess#ent notice ) Steps under *&-// *. =otice o. -n.or#al %on.erence &. 7reli#inary Assess#ent =otice ). For#al 8etter o. De#and and =otice to 7ay the Tax PROCE#%RE 2,ec. 44?= NIRC6 RR 84/CC3 *. Bpon receipt o. the notice o. in.or#al con.erence? .ile a reply within *1 days .ro# receipt o. noticeF &. Failure to .ile a reply? & thin$s #ay happen! a. @- will send a$ain the =otice o. -n.or#al %on.erence or b. @- will send a 7reli#inary =otice o. Assess#ent ). Bpon receipt o. 7reli#inary Assess#ent =otice >7A=)? .ile a reply within *1 days .ro# receipt 6. Failure to .ile a reply will result in either! a. @- will repeat 7A= b. Declare the taxpayer in de.ault? and send you a Final Assess#ent =otice >FA=) 1. Bpon receipt o. FA=? taxpayer #ay .ile a protest within )( days. -* -s FA= the one appealable to the %ourt o. Tax Appeals >%TA)L A* =". This is because S&&,? =- % and *&-// requires the exhaustion o. ad#inistrative re#edy o. protest. A.ter the receipt o. FA= or .or#al de#and within )(days #ust .ile a protest be.ore the o..ice o. the co##issioner o. internal revenue. FOR., OF PROTE,T *. 8ocal Tax >Sec. *&1? 8ocal <overn#ent %ode >8<%)) &. eal 7roperty Tax >Sec. &1&? 8<%) ). Tari.. and %usto#s %ode >Sec. &)*)? A +'1*) N -n all protest under the di..erent codes? pay#ent under protest is only necessary under the P eal Estate TaxQ. RR 96-LL N -. the taxpayer receives & .inal assess#ents? one under the =et -nco#e Tax >=-T) and the other in 2AT. -. the taxpayer donHt want to .ile protest under 2AT but want to .ile a protest under =-T. The taxpayer in order to be allowed to .ile a protest under the =-T #ust .irst pay the 2AT where he does not intend to .ile a protest. N This is not Ppay#ent under protestQ because? pay#ent under protest is the one #entioned in eal 7roperty Tax under Sec. &1&? 8<%. Bnder =- %? 7rotest is re.erred to as! *. disputin$ o. .inal assess#ent or &. .ile a #otion .or reconsideration or reinvesti$ation -* Ahat should be done a.ter .ilin$ a protestL

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Taxation law review notes - Atty. Francis J. Sababan A* %ount '(days is the period to .ile the necessary docu#ents and receipts in support o. the protest. -* Ahat is the e..ect o. .ailure to .ile the supportin$ docu#entsL A* Failure to .ile the necessary and supportin$ docu#ents within the '(day period? to be counted on the day the protest is .iled? the .inal assess#ent shall beco#e .inal and executory. > "n the 1*st day you .iled the necessary docu#ent? you have to count another period? which is *,( days .ro# the day you .iled the necessary docu#ents. elevance o. the *,( Days! *,( days is the ti#e $iven to the @to decide the case

-* Supposed it did not decide the case within *,(daysL A* Do not invo:e the 8ascano case because it was re9ected by A /&,& -n the 8ascano case? be.ore you .ile an appeal althou$h the *,( days have lapsed? you have to wait .or the @- to ta:e positive action. The case was ruled only by the %TA? hence it is not a law. The 9urisdiction o. the %TA has been a#ended by A /&,&. A /&,& provides that in case o. inaction o. the co##issioner a.ter the lapse o. *,(days? re#edy is to .ile an appeal. *&-// says that a.ter lapse o. *,(days but within )(days a.ter *,(days? that is the ti#e to .ile an appeal. -* Supposed the @- rule within *,(L A* Aithin )(days .ro# receipt o. the decision .ile an appeal to the %TA sittin$ in division. -* Supposed the %TA decided not in your A* File a #otion .or reconsideration within *1days to the sa#e division decidin$ the case. -* Supposed the %TA? in division decided not in you .avorL A* File an appeal to the %TA sittin$ en banc. -* Supposed the %TA en banc decided not in A* File an appeal within *1days .ro# receipt o. decision to Supre#e %ourt. your .avorL .avorL

-* Durin$ the pendency o. the protest in the o..ice o. the %o##issioner? supposed you receive a notice o. collection? levy andK or distraint? what is your re#edyL A* ). 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 *+,F! The taxpayer receives a notice o. collection while waitin$ .or the decision o. his protest. 3e then .iled an PappealQ with the %TA contendin$ his protest has been denied because he did not receive a decision but receive a notice o. collection. Si#ultaneously? the @- .iled be.ore the %Fan Pordinary civil actionQ .or the collection o. su# o. #oney. Ahen the 9ud$e o. the %F-? was about to conduct the hearin$ o. the case? the taxpayer .iled an in9unction with the S% to prohibit the 9ud$e o. the %F- contendin$ that a sin$le cause o. action is pendin$ in two courts? one in the %TA and another in %F-. 3! -n9unction was $ranted prohibitin$ the Jud$e o. the %F- and requirin$ the Jud$e to trans.er the records to the %TA sayin$ that the re#edy #ade by the taxpayer was the correct re#edy. -* Aas the appeal #ade on ti#eL A* Ies? when the @- .iled an ordinary action? the protest is dee#ed denied. 3ence an appeal is a proper re#edy. #0"O0 %4"PP"0/ L"0E% v. CO.."%%"O0ER

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Taxation law review notes - Atty. Francis J. Sababan F! The taxpayer was waitin$ .or the decision o. his protest. @ut instead? he received a notice o. collection. -##ediately? he .iled a ;otion .or econsideration and %lari.ication as:in$ whether his protest has been denied. The @- did not reply or answer but instead .iled an "rdinary %ivil Action be.ore the %F-. Ahen the taxpayer received su##ons? he did not answer but instead .iled an Appeal be.ore the %TA. -! Ahether or not the re#edy o. Appeal was the correct re#edy and Ahether or not it was .iled on ti#e. 3! Ies. The re#edy o. appeal is the correct re#edy and the appeal was .iled on ti#e. The rec:onin$ period within which to .ile an appeal is the ti#e the taxpayer received the su##ons. Ahile an Appeal is pendin$ be.ore the %TA? the %TA will deter#ine! *. -. the decision was #ade within *,( days? whether the appeal was #ade within )( days .ro# the receipt o. the said decision? or &. i. there was no decision a.ter the lapse o. *,( days? whether the appeal was #ade within )( days upon the expiration or the lapse o. the *,(-day period. -* 7endin$ appeal with the %TA? can the @- a#end the .inal assess#entL A* & S%3""8S "F T3"B<3T! *. /#ERRERO v. CO.."%%"O0ER &)2 %CRA *3&. 7A!A0/A% v. COLLEC!OR &)(* P4"L ,**/#ERRERO v. CO.."%%"O0ER &)2 %CRA *39* =o. @ecause it is no lon$er the disputed assess#ent. 7A!A0/A% v. COLLEC!OR &)(* P4"L ,**9* Ies. -n order to avoid #ultiplicity o. suits N A%%" D-=< T" JBST-%E 2-TB<! 7A!A0/A% v. COLLEC!OR &)(* P4"L ,**- is t=e better ruling PROTE,T %N#ER LOCAL TAX 2,ec. 8C@= LGC3 N Bnder =- %? protest is .iled in the "..ice o. the %o##issioner N Bnder 8<%? protest is .iled with the sa#e %ity or 7rovincial or ;unicipal Treasurer who issued the assess#ent 7eriod to .ile 7rotest '( days .ro# receipt o. assess#ent -* -. the treasurer did not decide within a '(day period? re#edyL A* <o to the court o. co#petent 9urisdiction > T%) -* -. the T% decided not in you .avorL A* File an appeal with %TA en banc >be$innin$ April &)? &((6) -* -. the A* Appeal to the S%. %TA decided not in your .avorL

="TE! 7ursuant to A /&,&? direct appeal to %TA en banc can be #ade .ro#! *. Decision o. the T% involvin$ local taxation exercisin$ appellate 9urisdiction &. Decision o. the %entral @oard o. Assess#ent Appeal exercisin$ appellate 9urisdiction. PROTE,T %N#ER REAL PROPERT1 TAX 2,ecs. 44A= 4:D= an$ 4@43 e#edy shall be the sa#e ,ec. 4@4= LGC

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Taxation law review notes - Atty. Francis J. Sababan -. the taxpayer receives a =otice o. Assess#ent .ro# #unicipal? city? or provincial treasurer? the re#edy is to .ile a protest but there #ust be .irst 7ay#ent Bnder 7rotest. - This is the only instance where pay#ent under protest is necessary

-* 3ow is pay#ent under protest #adeL A* At the bac: o. the receipt there will be an annotation that there was a pay#ent under protest within '(days .ro# receipt o. the notice o. assess#ent within the sa#e treasurer who issued the assess#ent. -* -. the treasurer rules a$ainst the taxpayer? re#edyL A* The re#edy is to .ile an appeal to the 8ocal @oard o. Assess#ent within )(days .ro# the receipt o. the decision. -* Fro# the decision o. the 8ocal @oard A* Appeal should be #ade to the %entral @oard o. Assess#ent Appeal. o. Assess#entL

N @e$innin$ April &)? &((6? the rulin$ o. the %entral @oard o. Assess#ent Appeal is no lon$er .inal. -t can now be appealed to the %TA? sittin$ en banc. PROTE,T %N#ER T9E TARIFF AN# C%,TO., CO#E 2TCC3 2,ec. 4:8:= as a <A@83 en$e$ ;( RA

N For#erly? the auto#atic appeal under the T%% applied only to protestF but now a days? the auto#atic appeal applies to both protest and .or.eiture. For For.eiture Bnder the Tari.. and %usto#s %ode N e.ers to the "rder o. the %ollector con.iscatin$ the i#ported $oods or co##odities Doctrine of Primary Murisdiction -. the %ollector ordered the .or.eiture o. the i#ported co##odities the order o. the %ollector shall be to the exclusion o. all $overn#ent o..ices and authority. -#porter o. %he#ical? under the T%%? the custo# duties is only 7&+ but the collector says it should be 71&. The i#porter will then .ile a protest with the "..ice o. the %ollector. -n the old days? there is an auto#atic appeal .ro# the decision o. the collector under protest. @ut under A +'1*? the re#edy o. auto#atic appeal is applicable to both protest and .or.eiture. -. "n bot= cases of protest and forfeiture, if t=e importer lose t=e case and t=e government Cins, t=e remedA is to file an appeal Cit=in )3 daAs before t=e Office of t=e Commissioner. Fro# the rulin$ o. the %o##issioner? the i#porter should .ile an appeal within )( days be.ore the %TA? sittin$ in division. Fro# the rulin$ o. the %TA in division? the i#porter should .ile an ; within *1 days be.ore the sa#e division hearin$ the case. Fro# the rulin$ o. the %TA in division? decidin$ on the ; ? the i#porter should .ile an appeal within *1 days be.ore the %TA sittin$ en banc. Fro# the %TA en banc? appeal to S% within *1 days. --. "f t=e importer6ta>paAer Cins t=e case, t=e government lose t=e case, %ec. *')' of !CC as amended bA RA +13), t=ere s=all be an automatic revieC Cit=in )3 daAs. -* Ahere should the auto#atic review be #adeL A* -t depends. 7ublish the value o. the co##odity. *. -F 71 ;-88-"= " ;" E 0 ABT";AT-% E2-EA S3A88 @E @EF" E T3E SE% ETA I "F T3E DE7T. "F F-=A=%E. &. -F 8ESS T3A= 71 ;-88-"= 0 ABT";AT-% E2-EA S3A88 @E @EF" E T3E "FF-%E "F T3E %";;-SS-"=E

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Taxation law review notes - Atty. Francis J. Sababan -* Suppose the co##issioner decide or did not decide within )(days? what happensL A* -. the co##issioner reverses the rulin$ o. the collector? the rulin$ is .inal and executory. -. the co##issioner a..ir#s or did not decide within )(days? there shall be an auto#atic appeal be.ore the sec. o. .inance. -* @etween the two which will be appealed to the %TAL A* The decision o. the secretary which passes throu$h the o..ice o. the co##issioner > A /&,&) @ut not all the decision o. the secretary which passes the o..ice o. the co##issioner a..ir#s or did not decide within )(days and appealed be.ore the secretary o. .inance will appeal to the %TA be allowed. There *. &. ). are ) instances when the Secretary o. Finance renders a decision appealable to the %TA! decision o. the Secretary by virtue o. auto#atic review passin$ throu$h the %o##issioner cases o. anti-du#pin$ duty? where the anti-du#pin$ duty was ordered by the Secretary decision o. the Secretary o. Finance on countervenin$ duty.

CO.PRO.I,E 2,ec. 4D5= NIRC3 ) 4uestions as:ed in &((6 @A ! *. ;ay the <overn#ent co#pro#ise cri#inal cases and civil casesL &. Supposed the corporation is already dissolved? can the stoc:holder be obli$ed to payL ). Suppose the civil case .iled by the @- is .inal and executor? can it be sub9ect to co#pro#iseL CAN T9ERE BE CO.PRO.I,E IN* 8. %-2-8 %ASESL - IES? -= A=I STA<E "F T3E 7 "%EED-=< - EJ%E7T A3E= T3E %-2-8 %ASE -S A8 EADI F-=A8 A=D EJE%BT" I @E%ABSE -T A-88 @E 2-"8AT-2E "F T3E SE7A AT-"= "F 7"AE S 4. % -;-=A8 %ASESL - IES? EJ%E7T! a. -F A8 EADI F-8ED -= %"B T > T%) " F b. -F -T -=2"82ES F ABD :. -F T3E %" 7" AT-"= -S A8 EADI D-SS"82ED? %A= T3E ST"%D3"8DE @E 3E8D 8-A@8E T" 7AI TAJL - <E=E A8 B8E! =" - EJ%E7T! a. -F -T -S 7 "2E= T3AT T3E ASSETS "F T3E %"7" AT-"= -S TADE= @I "=E ST"%D3"8DE " F b. -F T3E ST"%D3"8DE D-D ="T 7AI 3-S B=7A-D SB@S% -7T-"= ;ini#u# A#ount to be %o#pro#ised >Sec. &(6) *. -. the $round is .inancial incapacity o. the taxpayer? the #ini#u# shall not be less than *(E o. the ori$inal assess#ent. &. -. based on other $rounds? the #ini#u# a#ount shall not be lower than 6(E o. the ori$inal assess#ent. -* %an it be lower than that prescribed by lawL A* As a rule? no. EJ%E7T? i. allowed by the evaluation board consistin$ o. the! a) co##issionerF and b) deputy co##issioner. -nstances when the Final Assess#ent beco#es .inal and executor! *. -. the taxpayer did not .ile the protest on ti#e &. Failure to sub#it the supportin$ docu#ents within the '(-day period

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Taxation law review notes - Atty. Francis J. Sababan ). A.ter the lapse o. the *,(-day period? you did not .ile an appeal within the )(-day period to the %TA 6. An appeal was .iled but #ade beyond the re$le#entary period to appeal .ET9O#, OF COLLECTION 2,EC. 4D@3 8. ;udicial Action a. %ivil b. %ri#inal 4. Administrative Action a. Distraint b. 8evy c. Tax lien -* Ahy is it i#portant to :now whether the .inal assess#ent is under nor#al or abnor#al conditionsL A* -t is i#portant because o. the require#ent under S&&&. -. the .inal assess#ent beco#es .inal and executory? the $overn#ent >@- ) can exercise the re#edies under S&(1 in any order or si#ultaneously >S&(+). @ut it is not always the case? because the ri$ht o. the $overn#ent to collect is li#ited in case o. abnor#al assess#entKcollection under S&&&. Bnder the second option? the ri$ht o. the $overn#ent is li#ited to 9udicial action either civil or cri#inal. Ad#inistrative re#edies such as distraint? levy? or tax lien is not available under such condition. -* -n distraint? levy or tax lien? is the *( year period o. collection applicableL A* =o? only the 1year period should apply. Distraint Dinds! *. %onstructive >Sec. &(') &. Distraint o. -ntan$ible >Sec. &(,) ). Actual >Sec. &(+? par. a? and Sec. &(/) 8. Constructive 8istraint N The distrainin$ o..icer shall #a:e 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 The owner shall be requested to si$n the receipt. -* Ahat i. the owner re.uses to si$n the receiptL A* Sec. &('! The distrainin$ o..icer shall require & individuals within the nei$hborhood with the warnin$ that they should not allow the taxpayer to dispose? trans.er? or sell the property sub9ect o. distraint. <rounds .or %onstructive Distraint >Sec. &(')! *. The taxpayer intends to leave the 7hilippines &. The taxpayer leaves the 7hilippines ). The taxpayer ceases or retires .ro# business 6. The taxpayer obstructs the collection o. the tax. N T3ESE < "B=DS A8S" A=SAE T3A= *& ;"=T3SL 4. 8istraint of "ntangible PropertA 8i#ited to ) -ntan$ible 7roperties! *. Shares o. stoc:s T3E 4BEST-"=! A3AT A E T3E TAJA@8E 7E -"D 8ESSE

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Taxation law review notes - Atty. Francis J. Sababan &. @an: accounts ). %redits and debits %=are of stocDs N Aarrant o. distraint .urnished to the taxpayer or the o..icer o. the corporation with the warnin$ that the property is sub9ect o. distraint and it should not dispose o. it. 7anD Accounts N Aarrant o. distraint .urnished to the taxpayer or the o..icer o. the ban: with the warnin$ that the taxpayer should not be allowed to withdraw. 8ebits and Credits N Aarrant o. distraint .urnished to the debtor and creditor :. Actual 8istraint N 7ersonal property shall be physically ta:en by the distrainin$ o..icer. N Aithin *( days .ro# the receipt o. the warrant? a report o. the distraint shall be sub#itted to the @- >Sec. &(+? par a last par.) N The property sub9ect o. distraint shall be sold at a public auction EJ%E7T ban: accounts and debits and credits. U =otice o. sale shall be by postin$ in & conspicuous place? statin$ the date and the place o. the sale >=o publication require#ent) N Sec. &**! a.ter the sale and within & days? a report shall be #ade to the @-* -. the property sold is a personal property? is there a ri$ht o. rede#ptionL A* =". The rule is absolute. -* -. the property is a personal property? is there a ri$ht o. pree#ptionL A* SE%. &*(! @e.ore the scheduled sale? the taxpayer is allowed to recover the property by payin$ all the property by payin$ all the proper char$es as well as the interest? cost and penalties. Durin$ the Scheduled Auction Sale? & Thin$s #ay happen! *. There is bidder and the bid is enou$h &. There is no bidder or there is a bidder but the bid is not enou$h -* Ahat is the relevance o. :nowin$ the di..erenceL A* *. "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. >S&*+) U -n case o. excess? the excess shall be returned to the taxpayer. &. "f t=ere is no bidder or t=e bid is not enoug=. U -t will be purchase by the $overn#ent and the later sold in a public auction a$ain >S&*&) U -n case o. insu..iciency? no .urther distraint? S&*+ applies only i. there was a bidder. U -n case o. excess? the excess shall not be returned to the taxpayer but shall be re#itted to the national treasury. 2e.y N "ther than the delinquent taxpayer? warrant o. levy is served to the re$ister o. deeds havin$ 9urisdiction over the real property >Sec. &*)) N Aithin *( days .ro# the receipt o. the warrant? a report o. the levy shall be sub#itted to the @- >Sec. &(+ >b) last par) =otice o. Sale in 7ublic Auction! *. 7ostin$ in & conspicuous places &. 7ublication in newspaper o. $eneral circulation once a wee: .or ) consecutive wee:s.

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Taxation law review notes - Atty. Francis J. Sababan -* -s there a ri$ht o. pre e#ptionL A* Ies? S&*). -* -s A* Ies. there a ri$ht o. rede#ptionL

& Thin$s #ay happen in a 7ublic Auction! *. There is a bidder and the bid is enou$h &. There is no bidder or the bid is not enou$h -* Ahat i. there is no A* For.eiture shall be #ade >S&*1) bidder or the bid is not enou$hL

) De.initions o. For.eiture under the -nternal evenue %ode *. 2iolation o. Excise Tax 8aw >Sec. &&6) &. -. there is no bidder or the bid is not enou$h >Sec. &*1) ). The order o. the %ollector to con.iscate i#ported co##odities >Sec. &)*)? T%%) elevance o. the %hoice o. Aords! N Bnder sec. &*&? the law says PpurchaseQ N Bnder sec. &*1? the law says P.or.eitureQ U under &*1! the real property shall be auto#atically re$istered in the na#e o. the <overn#ent >.or.eiture) U under &*&! the real property is not auto#atically re$istered in the na#e o. the <overn#ent >purchase) -* -. sold at a private sale? what A* There #ust be an approval o. the Secretary o. Finance >S&*') is the require#entL

-* A.ter sale? i. there was de.iciencyL A* There shall be no .urther levy? because S&*1 says that it shall be to the total satis.action o. the taxpayer. -* A.ter sale? i. there was an excessL A* -t shall not be returned to the taxpayer but shall be re#itted to the national treasury. ,ec. 48<* this is only true i. there was no bidder or the bid was not enou$h because o. the provisions o. the Secs. &*&? &*1? and &*' ,ec. 48?* no court shall issue an in9unction to restrain the collection o. tax under this code Deter#ine what :ind o. in9unction is re.erred to here! *. 7rohibitory 0 re.erred in Sec. &*, because it restrains the collection o. tax. &. ;andatory -* -s the provision li#ited to Ptax under this codeQL A* 8i#ited to internal revenue taxes. EJ%E7T! %TA > e$ular %ourt) M A **&1 and /&,&! %TA is authori5ed to issue in9unction to restrain the collection o. taxes or .ees collected under other code. -* -s the rule o. distraint or levy the sa#e under local taxationL A* Ies? local tax. U S*+1 .or D-ST A-=T U S*+' .or 8E2I -* 3ow about real property taxL A* =o? distraint is not authori5ed >S&1'? 8<%)? because the re#edy is only ;udicial Action and LevA.

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Taxation law review notes - Atty. Francis J. Sababan Tax 2ien N =on pay#ent o. tax? the $overn#ent has the ri$ht to clai# a lien over the property o. the taxpayer *. =- % 0 Sec. &*/? =- % &. 8ocal Tax 0 Sec. *+)? =- % ). eal 7roperty Tax 0 Sec. &1+? =- % -* Supposed a parcel o. land is about to .oreclosed by the #ort$a$ee? which o. the pre.erredL A* S&*/? last portion! The $overn#ent is in the re$istry o. deed. -n the absence o. pre.erred. be levied by the $overn#ent? but the sa#e is bein$ & obli$ee? the $overn#ent or the #ort$a$ee shall be the pre.erred one i. the lien is annotated and recorded annotation in the re$istry o. deeds? the #ort$a$ee is

-* Do we have the sa#e rule under 8ocal Tax and eal 7roperty TaxL A* =". @oth S*+) and S&1+? the $overn#ent is always the pre.erred one. The lien can only be re#oved by pay#ent o. tax? interest and penalty. ,ec. 44D* approvin$ o. .ilin$ an ordinary civil action .or violation o. the internal revenue code N The approval #ust be #ade by the %o##issioner o. -nternal evenue

'03#N .1 REP-&20C !:6A SCR% ;87" F* An ordinary civil action .or violation o. the tax code was .iled in the city o. San Fernando. @ut the .ilin$ was only approved by the evenue e$ional Director o. %entral 8u5on. The plainti.. opposed the .ilin$ in the court on the $round that it should be approved by the %o##issioner and the evenue D. 9* Sec. &&( should be read with Sec. + o. the =- % U <eneral ule! powers and .unctions o. the %o##issioner #ay be dele$ated but not to a position lower than a Division %hie. U Bnder Sec. +? there are powers which can not be dele$ated a) 7ower to reco##end to the Secretary o. Finance to issue rules and re$ulation b) 7ower to decide a case o. .ist i#pression c) 7ower to enter into a co#pro#ise a$ree#ent d) 7ower to assi$n @- o..icer in the place o. production sub9ect to inco#e tax U Since the case does not .all under the prohibited dele$ation? the .ilin$ o. the case is le$al and tenable. N Decision o. the %o##issioner o. -nternal evenue >%- ) is appealable to %TA.

-* Ahen is a decision o. the cir appealable to the Secretary o. FinanceL A* S6? on #atters o. interpretation o. tax laws. ,EC. 44:* ,%,PEN,ION OF T9E R%NNING OF PRE,CRIPTIVE PERIO# -* A Filipino taxpayer went to %anada? a.ter *1years he went bac:? he is bein$ assessed by the @under nor#al assess#ent. 3as the ri$ht o. the $overn#ent to asses the tax already prescribedL A* =". Ahen he went to %anada? the runnin$ o. the prescribed period is suspended. -* Ahat i. the chan$e o. address is within the 7hilippines? say only .ro# #anila to 7asay %ity? is the runnin$ o. the prescriptive period suspendedL A* -n order that the runnin$ o. the prescriptive period will not be suspended? especially i. the chan$e is district o..ice? S&&) provides that the taxpayer #ust send a written notice o. chan$e o. address to the @- . -n the absence o. the written notice? the period will be suspended.

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Taxation law review notes - Atty. Francis J. Sababan -* %han$e o. address is .ro# 7hilippines to abroadL A* The period will be suspended.

"ther <rounds .or Suspension! *. Durin$ collection i. there is no property .ound? the period is suspended &. -. the @- is prohibited .ro# #a:in$ assess#ent such when the sub9ect property is under liti$ation ). -n distraint o. levy? the @- o..icer canHt locate the property CLAI. FOR REF%N# 2,EC 44C3 Aritten clai# .or re.und! *. Sec. &&/? =- % &. Sec. **&? 2AT ). Sec. *)'? 8ocal Tax 6. Sec. &1)? eal 7roperty Tax 1. =one except sec. *'()? Tari.. and %usto# Written clai for refun$ un$er t&e input ta! 2,ec. 8843 > 7eriod is also & years .ro# the close o. the taxable quarter when the transaction was #ade -* %an we apply S&&/ A* Ies? because there is no con.lict. S**& is re.und under input tax syste#. S&&/ is re.und .or! *. errors in pay#ent orF &. collected without authorityF or ). assess#ent without authority. > The period to clai# re.und is &years. to 2ATL

#octrine of EBuita;le Recoup ent N -. a taxpayer is entitled to a written clai# .or re.und but the prescriptive period to clai# has lapsed? the taxpayer is allowed to credit his written clai# .or re.und which he .ailed to recover to his existin$ tax liability. %o#puted .ro#F a. -ndividual 0 counted on the day the tax has been paid *. payin$ by way o. withholdin$ tax syste#? the rec:onin$ point is the end o. the taxable year. &. payin$ by way o. install#ent? rec:onin$ point is the date the last install#ent is paid. ). i. sold to public auction throu$h distraint or levy? the date the proceeds is applied to the satis.action o. the tax liability. b. %orporation *. Existin$ - *//&? ___ v. %o##issioner >&(1 S% A *,6) - *//1? %o##issioner v. 7hila# li.e >&66 S% A 66') - *//,? %o##issioner v. %TA >)(* S% A 6)1) &. =on-existin$ - &((*? @7- v. %o##issioner >)') S% A ,6() *. Existin$ 0 the countin$ o. the prescriptive period is & years on the day the annual ad9usted return is .iled? because it is at that day that the tax liability is :nown.

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Taxation law review notes - Atty. Francis J. Sababan &. =on-existin$ 0 the countin$ o. the prescriptive period should also be rec:oned on the day the annual return is .iled. @ut the corporation is no lon$er required to wait till the taxable period is over to .ile the return. Bpon receipt o. a notice .ro# the SE% to dissolve the corporation? within )( days therea.ter? a return should be .iled. -* Suppose there is a supervenin$ event? and the taxpayer was not able to .ile a written clai# o. re.und within the periodL A* e$ardless o. supervenin$ event? a written clai# .or re.und #ust be .iled within &years. -* Suppose the & year period is about to expire and there is no decision yet as to your re.undL A* e#edy is to .ile an appeal be.ore the %TA >dee#ed a denial) -* Suppose the @decided within & years a$ainst the A* Appeal within )(days .ro# the decision? provided it is still within the & year period. re.undL

-* Suppose there is only &*days re#ainin$ a.ter receivin$ the decision? when to .ile an appealL A* Aithin &*days be.ore the end o. the & year period. N A written clai# .or re.und should be .iled within & years

N Sec &(6 >c) last phrase! in case o. over pay#ent a written clai# is not necessary because a return constitutes a written clai# .or re.und. -* ;ay the co##issioner o. internal revenue open the ban: account o. a taxpayerL A* <eneral ule! =". EJ%E7T! *. To deter#ine the $ross value o. the estateF and &. To enter into a co#pro#ise a$ree#ent. >under S&(6>A)) N The written clai# .or re.und to deter#ine the $ross value o. the estate because the taxpayer is already dead -n case o. co#pro#ise? there #ust be consent.

*&(