Professional Documents
Culture Documents
University of Cebu
College of Law
UCLASS Bar Operations
Taxation Law Society
TAX LAW
BAR NOTES
2012
by:
Jamero, Jacinto
Orofeo, Daisy
Restauro, Ruth
Ruiz, Sharmine
Vallecera, Virgil
Velayo, Lovely
GENERAL PRINCIPLES
Scope
Basis
Affects all
persons,
property
and
privileges
Public
necessity
Affects all
persons,
property,
privileges,
and even rights
Public necessity
And the right of
the State and
the public to
self-protection
and selfpreservation
EMINENT
DOMAIN
Taking of
property for
public use.
No exaction
Compensatin
is paid by the
government
Direct benefit
Results in the
form of just
compensation
Contracts
Maybe
impaired
Property is
taken by
the
government
upon the
payment of
just
compensation
Affects only
the particular
property
comprehended
Necessity of
the public
for the
private
property
ASPECTS OF TAXATION
1. Levying or imposition of the tax, which is a
legislative act; and
2. Collection of the tax levied, which is essentially
administrative in character.
TAXES DISTINGUISHED FROM OTHER
IMPOSITIONS
1. Toll a demand of ownership, and an amount
charged for the cost and maintenance of
the property used; Tax is a demand of
sovereignty for the purpose of raising
public revenue.
2. Penalty a punishment for the commission of
a crime; Tax is a civil liability. A person is
criminally liable in taxation only because
he fails to satisfy his civil obligation to pay
taxes.
3. Special Assessment levied only on land
which cannot be made personal liability of
the person assessed and is based wholly
TAX
Imposed on persons,
property and excises
Personal liability
attaches on the person
assessed in case of
non-payment
Not based on any
special or direct
benefit
Levied and paid
annually
Exemption granted Is
applicable
(Art.VI, Sec. 28(3)
1987 Constitution)
SPECIAL ASSESSMENT
Levied only on land
Cannot be made a
personal liability of
the person assessed
Based wholly on benefit
Exceptional both as to
time and locality
Exemption does not
apply. (Note: If
property is exempt from
Real Property Tax, it is
Special
Assessment.)
TAX
Power of Taxation
To generate revenue
Inherent and
constitutional limitations
6. Effect of non-payment
LICENSE
TAX
2. IMPRESCRIPTIBILITY
3. DOUBLE TAXATION
1.
2.
3.
He
who
claims
exemption
should
convincingly prove that he is exempted.
Tax
exemption
must
be
strictly
construed.
when
certain
persons, property, or transactions
are, by express provision of law,
exempted from all or certain taxes
wither entirely or in part.
b) Implied Exemption or Exemption
by Omission when a tax is
levied on certain classes of
persons, properties, or transactions
without mentioning the other
classes.
As to Scope or Extent:
a) Total Exemption when certain
persons, property, or transactions
Exception:
When both obligations are due and
demandable as well as fully liquidated, and all
the requisites for a valid compensation take
place by operation of law. (Domingo vs.
Garlitos, G.R. No. L-18849, June 29, 1963)
Note: Compensation
was
allowed
in
one
exceptional case, that is, the case of
Domingo vs. Garlitos (supra). In the said
case,
compensation
was
recognized
because both the claim of the Government
for inheritance tax and the claim of the
estate for services rendered have already
become overdue and demandable and fully
liquidated. Further, an amount for the
claim of the estate had already been
appropriated by the Government.
There can be no offsetting of taxes against
The claims that a taxpayer may have
against the government, such as
reimbursement from the Oil Price
Stabilization Fund (OPSP). (Caltex Phils. vs.
COA, G.R. No. 92585, May 8, 1992)
8. TAX AMNESTY
and
excises within the territory of the
taxing power
Factors to Consider in Determining Situs of
Taxation:
1) Kind and classification of the taxes
2) Location of the subject matter of the tax
3) Domicile or residence of the person
4) Citizenship of the person
5) Source of income
6) Place where the privilege, business or
occupation is being exercised.
Situs of the Following Taxes:
1. Real Property Tax place where the
property is located
2. Personal Property Tax
a. tangible where it is physically
located
b. intangible mobilia sequuntur
personam
3. Tax on Person place where the
person is a resident or domicile of.
4. Income Tax interplay of the
citizenship, domicile, source of income
5. Exercise or Privilege Tax place
where the same is performed or the
privilege is exercised
6. Franchise Tax State which granted
the franchise
7. Business Tax where business is
conducted
8. Tax On Corporation where it is
incorporated
General Rule:
As to intangible personal
properties, like shares of stock, their situs
is in the domicile of the owner thereof
(mobilla sequuntur personam)
Exceptions: (a) When the property has
acquired a business situs in another
jurisdiction; or (b) When the law provides
for the situs of the subject of tax.
10
Exceptions:
1. Authority of the President to fix tariff rates,
customs duties, etc. (Art.VI, Sec.28 (2),
Consti.)
2. Delegation to local governments (Art. X,
Sec. 5, Consti.)
3. Delegation to administrative agencies
What is actually delegated is not the act
of levy but the assessment
5. TAX EXEMPTION OF GOVERNMENT
As a matter of public policy, property of
the State or any of its political subdivision
devoted to government uses and purposes
are generally exempt from taxation.
A.III, S.1
A.III, S.1
A.VI, S.20
A.III, S.10
A.III, S.20
A.VI, S.24
A.III, S.5
A. VI, S.28(2)
A.VI, S.28(3)
11
A.VI, S.28(2)
A.VIII,S.(1)
and A.VIII,
S.5(2b)
A.XIV, S.2(1)
and 4(4)
A.VI, S.27(2)
A. VI, S.27(2)
A. VI, S.29(2)
A. VI, S.29(3)
A.X, S. 6
A.III, S.5
12
13
when
the
public
so
The
non-impairment
clause,
which
provides that no law impairing the
obligations of contracts shall be passed, is
limited in application to laws that derogate
from prior acts or contracts by enlarging,
abridging or in any manner changing the
intention of the parties.
There is
impairment if a subsequent law changes
the terms of a contract between the
parties, imposes new conditions, dispenses
with those agreed upon or withdraws
remedies for the enforcement of the rights
of the parties.
As regards franchises,
Section 11, Article XII of the 1987
Constitution provides that no franchise or
right shall be granted except under the
condition that it shall be subject to
amendment, alteration or repeal by the
Congress when the common good so
requires. It has been previously held that
a franchise partakes the nature of a grant,
which is beyond the purview of the nonimpairment clause of the Constitution.
(Philippine
Amusement
and
Gaming
Corporation vs.
Bureau of
Internal
Revenue, G.R. No. 172087, March 15,
2011)
Under Section 11, Article XII of the 1987
Constitution, PAGCORs franchise is subject
to amendment, alteration or repeal by
Congress such as the amendment under
Section 1 of R.A. No. 9337. Hence, the
provision in said section withdrawing the
exemption of PAGCOR from corporate
income tax, which may affect any benefits
to PAGCORs transactions with private
parties, is not violative of the nonimpairment clause of the Constitution.
(Philippine
Amusement
and
Gaming
Corporation vs.
Bureau of
Internal
Revenue, G.R. No. 172087, March 15,
2011)
14
The
constitutional
exemption
applies only to property tax. Gifts are
subject to donors tax.
Actual use is necessary. To be exempt
from tax, the lands buildings and
improvements must not only be exclusively
but also actually and directly used for
religious and charitable purposes. (Prov of
Abrav vs. Hernando, No. L-49336 August
31, 1981)
USE overrides OWNERSHIP in that if
property although actually owned by a
religious,
charitable
or
educational
institution is actually used for a nonexempt purpose; the exemption from tax
of said property vanishes. HOWEVER, total
or
absolute
use
is
not
required,
INDCEDENTAL USE is enough.
12.
15
N. Kinds of Taxes
CLASSIFICATION OF TAXES
As to Subject Matter or Object
1) Personal Tax also known as capitation tax
or poll tax. This is a tax of a fixed amount
on individuals residing within a specified
territory without regard to their property,
occupation
or
business.
Example:
community tax
2) Property Tax imposed on property, real or
personal, in proportion to its value, or in
accordance with some reasonable method
of apportionment. Example: real estate
tax
3) Excise Tax imposed on the exercise of a
privilege, the performance of an act, or
engaging in an occupation, profession, or
business. Examples: income tax, estate
tax, donors tax, VAT
As to Burden
1) Direct Tax incidence and impact of taxation
fall to one person and cannot be shifted to
another. Examples: income tax, estate tax
2) Indirect Tax incidence and liability for the
tax fall to one person but the burden
thereof can be passed on to another.
Example: VAT
As to Purpose
1) General Tax also known as fiscal or revenue
tax. This is levied for ordinary or general
purpose of the government
2) Special Tax also known as regulatory or
sumptuary tax. This is levied for a special
purpose.
As to Determination of Amount
1) Specific Tax imposed based on a physical
unit of measurement as by number,
weight, length or volume.
2) Ad Valorem Tax imposed upon the value.
3) Mixed
As to Rate
1) Progressive Tax tax rate increases as the
tax base or bracket increases.
2) Regressive Tax tax rate decreases as the
tax base or bracket increases.
16
A.
INCOME TAXATION
17
6. Kinds of Taxpayers
a) Individual Taxpayers
(i) Resident Citizens
(ii) Non-resident Citizens
18
b) Corporations
(i) Domestic Corporation
Partnerships
19
f)
Co-ownerships
7. Income Taxation
8. Income
INCOME
All wealth which
flows into the
taxpayer other than
as a mere return of
Capital
Flow of Wealth
Source of Wealth
CAPITAL
Fund or property
which can be used
in producing goods
or services
Fund of property
Wealth
9. Gross Income
B. Classification of Taxpayer
INCOME all wealth that flows into the taxpayer
other than mere return of capital, actually
and constructively received.
INCOME TAX tax on all yearly profits arising
from property, profession, trades of offices,
or as a tax on a persons income,
emoluments, profits and the like
Requisites for income to be taxable:
(applies only to NIT)
1. There must be gain or profit.
2. The gain must be realized or received,
actually or constructively.
3. The gain must not be excluded by law
treaty from taxation.
A mere increase or decrease in the value
of property is not income or loss until after
the actual disposition of the property in
excess of its original cost.
Such increase or decrease is merely
treated as an unrealized increase or
decrease in capital as the case maybe.
Test on Taxability of Income
1. Flow of Wealth Test The determining factor
for the imposition of income tax is whether
any gain was derived from the transaction.
A. Individuals
1. Citizens
1.1 Resident Citizens (RC)
`
1.2 Non-Resident Citizens (NRC)
1.3 Overseas Filipino Workers (OFW)
2. Aliens
2.1 Resident Aliens (RA)
2.2 Non-Resident Aliens (NRA)
1. Engaged in trade or business within the
Philippines (NRAETB)
2. Not engaged in trade or business within
the Philippines (NRANETB)
2.3 Aliens employed by:
1. Regional or area headquarters (RHQ)
and Regional operating headquarters
(ROHQ) of multinational corporations
2. Offshore banking unit (OBU)
3. Petroleum service contractors and
subcontractors
B. CORPORATION
Includes:
a. Partnerships
b. Joint-stock companies
c. Joint accounts (cuentas en
participation)
d. Associations, or
e. Insurance companies(Sec. 22B)
Excludes:
20
Citizen
a. Resident Citizen
b. Non-resident
Citizen
c. OFW
Aliens
a. Resident Alien
b. Non-resident Alien
Engaged in trade
or business
Who comes &
stays in the Phils. for
an aggregate period
of 180 days during
any calendar year
(deemed to be a
NRAETB)
Not engaged in
trade or business
Taxable
Within
Taxable
Without
Domestic
Corporation
Resident Foreign
Corporations
Taxable
Within
Taxable
Without
21
2.
3.
Kinds of Dividends
A. Cash and Property Dividends
Individual Taxpayer
a. From Domestic Corporations
RC, NRC, RA 10% (Sec. 24A)
NRAETB 20% (Sec 25A2)
NRANETB 25% on gross income
(Sec. 25B)
b. From Foreign Corporations
RC, NRC, RA, NRAETB 5 to 32%
(Sec. 24, 25A1)
NRANETB 25% on gross income
(Sec. 25B)
Corporate Taxpayer
a. Foreign to Domestic Corporations
30% (Sec. 32A)
b. Domestic to Domestic Corporations
Exempt (Sec. 27D)
22
c.
The
23
h.
A. Foreign Government
B. Philippine Government
via PVAO, SSS & GSIS
C. Private Sector R.A
4917 (with a
retirement
plan)
RETIREMENT PAY
No Requirement
No Requirement
Requirements
1. Private retirement plan must be duly approved by the BIR.
2. Worker must be at least 50 years of age
3. Worker must have at least rendered service for 10 years
4. Benefits granted shall only be availed of once.
1. Worker must be at least 60 years old but not more than 65
years of age.
2. Worker must have served the company for at least 5
years.
SEPERATION PAY
A. Foreign Government
No Requirement
B. Philippine Government
or any private sector
Requirement:
that the cause of separation be any of the following:
1. Death
2. Sickness
3. Other Physical Disability
4. Beyond the control of the said official or employee
TERMINAL LEAVE BENEFITS
24
Exclusions
(Sec. 32B)
Refer to flow of wealth
which are not treated
as
part of gross income
due
to; (1) exempted by
statute; (3) not come
within the definition of
income
Pertain to the
computation of gross
income
Deductions
(Sec. 34)
Refer to the amounts
which the law allows
to be subtracted
from gross income in
order to arrive at net
income
Pertain to the
computation of the
net income
25
B. Allowable Deductions
(Sec. 34)
OF DEDUCTIONS:
Itemized Deductions
Personal and Additional Exemptions
Optional Standard Deduction
Special Deductions
Something spent or
pain in earning of
gross income
Personal
Exemptions
Arbitrary amounts
allowed by law
Pertain to personal
expenses
Recoup from personal,
family, and living
expenses
Individual taxpayers
ITEMIZED DEDUCTIONS
1. Expenses
2. Interest
26
3. Taxes
4. Losses
5. Bad Debts
6. Depreciation
7. Depletion of Oil and Gas Wells and
Mines
8. Charitable and Other Contributions
9. Research and Development
10. Pension Trust
11. Premium Payments on Health and/or
Hospitalization Insurance of an Individual
Taxpayer
The above mentioned itemized deductions
are
available to ALL taxpayers EXCEPT:
1. NRFC
2. NRANETB
B.1.1
EXPENSES
Requisites to be Deductible:
1. Ordinary and Necessary Expenses
Ordinary Expenses normal or usual in
the line of business
Necessary Expenses appropriate and
helpful in the development of taxpayers
business
2. Paid or incurred within the taxable year.
3. Must be reasonable
4. Must comply with substantiation
requirements
5. Must not be contrary to law, morals,
public policy or public order
6. Corresponding tax required to be
withheld has been remitted to the BIR
7. Directly attributable to the development,
management, operation and/or conduct
of business or exercise of profession,
including the following reasonable
allowances:
a. For salaries, wages and
compensation, including
grossed-up monetary value of
fringe benefit provided FB
taxes are paid.
Aguinaldo
Company
is
engaged
the
manufacture of fishnets. It sold a parcel
of land and profit was given as bonus to
its employees. The bonus cannot be
considered as a deductible salary because
no service was rendered by the
employees. The bonus given thereto
cannot be considered as salary or
compensation because no service was
c.
d.
For
entertainment
or
recreation connected to the
trade, business or profession
or directly related to or in
furtherance of the conduct of
the
business,
PROVIDED
however that the expense
incurred contrary to law,
morals, public policy or public
order shall not deductible
shall
be
Private
Educational
Institution,
for
expenditure for expansion of school
facilities, otherwise considered as capital
expenditure, may at its option:
1. Deduct the expenditure in the year
incurred (as business expense); or
2. Capitalize the expenditure and deduct
for depreciation
B. 1. 2
1.
2.
3.
4.
INTEREST
Requisites to be Deductible
Taxpayer is the debtor.
Debt must be related to the business or
profession of the taxpayer
Interest should be legally due.
Interest paid or accrued during the
taxable year.
P 200,000
33,000
P 167,000 (This shall
be the allowable deduction)
Note: This limitation shall apply regardless of
whether or not a tax arbitrage scheme was
entered into by the taxpayer or regardless of the
date when the interest bearing loan and the date
when the investment was made for as long as,
during the taxable year, there is an interest
expense incurred on one side and an interest
income earned on the other side, which interest
income had been subjected to final withholding
tax. This rule shall be observed irrespective of
the currency the loan was contracted and/or in
whatever currency the investments or deposits
were made. (Revenue Regulations No. 13-2000)
Optional Treatment of Interest Expense. At
the option of the taxpayer, interest
incurred to acquire property used in
trade, business or exercise of a
profession may be allowed as a deduction
or treated as a capital expenditure.
B. 1.3
TAXES
Requisites to be Deductible:
1. Related to the business of the taxpayer
2. Imposed by law on, and payable by,
taxpayer
3. Paid or incurred during the taxable year
Exceptions:
1. Income tax.
2. Income tax paid or occurred to any
foreign country, if the taxpayer is
claiming a tax credit for such foreign tax.
3. Estate or donors tax.
4. Taxes assessed against local benefits of a
kind tending to increase the value of the
property assessed (special assessment).
Taxes Which May Be Claimed As Tax Credit
1. Income tax subject to withholding system
where the withholding is not final
28
B. 1. 4
LOSSES
Requisites to be Deductible
1. Actually sustained during the taxable
year
2. Not compensated by insurance or
otherwise
3. Charged off during the taxable year
4. Not claimed as a deduction in an estate
tax return
5. Property connected with the trade or
business, if the loss arises from fires,
storms, shipwreck or other casualties or
from robbery, theft or embezzlement
B. 1. 5
Requisites to be Deductible:
1. Incurred
in
connection
with
the
taxpayers trade, profession or business
2. Actually ascertained to be worthless, and
3. Charged off within the taxable year.
Except:
a) Those not connected with profession,
trade or business, and
29
Straight-line
Cost- Salvage Value
Estimated Life
Declining Balance
Cost Depreciation
x Rate
Estimated Life
Sum of the Years digits (SYD)
Nth Period x (Cost-Salvage)
SYD
Full Deduction:
If made to the following:
1. Donations to the Government.
30
b.
B. 1. 10 PENSION TRUST
Shall be allowed as deduction, a
reasonable amount transferred or paid
into such trust during the taxable year in
excess of such contributions, but only if
such amount:
1. Has not thereof been allowed as a
deduction, and
2. Is apportioned in equal parts over
a period of 10 consecutive years
beginning with the year in which
the transfer or payment is made.
Claimed by management because this
is its contribution to the pension plan.
Summary of Rules on Retirement Benefits
Plan / Pension Trust
1. Exempt from Income Tax
employees trust under Sec.
60(B)
2. Exclusion from Gross Income
amount received by the
employee from the fund upon
compliance of certain conditions
under Sec. 32(B)(6)
3. Deduction from Gross Income
31
P 50,000
P 25,000
for
Each
Dependent
Not
Exceeding
4
a.
b.
3.
32
3.
D.
Exempt Corporations
33
A
General
Professional
Partnership, provided that no part of its
income is derived
from
engaging in any other trade or business
is exempt form corporate
income tax.
If it is complies with the above
mentioned conditions, then each persons
engaging
in business as partners in
a general professional partnership are
liable for the
payment of income tax in
their separate and individual capacity
If the conditions set by law are
not met, the exemption from corporate
income tax
is
withdrawn
and
the
partnership is subjected to tax as an
ordinary corporation
(Tan
vs.
Del
Rosario, GR No. 109289 October 3, 1994)
If it derives income from other
sources, the GPP nonetheless remains to
be
exempt from the payment of
corporate income tax if the income from
other sources has been subjected to
final income tax.
Petitioners purchased 24
parcels of land and erected apartments
for lease. The BIR collected corporate
income tax from the petitioners. SC
upheld the BIR for there
was
a
creation of an unregistered partnership
because the petitioners contributed
money,
property
with
the
intention to divide the profit. (Evangelista
Sisters v.
Collector
No.
L-9996
October 15, 1957)
Government-Owned or Controlled
Corporations (GOCCs)
General Rule: GOCCs are liable for the payment
of income tax.
Exceptions:
1. GSIS
2. SSS
3. PHIC
4. PCSO
5. Local Water Districts (pursuant to
Republic Act No. 10026)
D. 3
34
1.
35
36
d.
RATE
1. PASSIVE INCOME
a. Interest
20%FIT
20%FIT
10%FIT
20%FIT
5% - 32%
NET
Exempt
7 % FIT
Exempt
5%, 12% or
20% FIT
10% FIT
of 1%
Percentage
tax
5% or 10%
FIT
6% FIT
5% - 35%
NET
or 6% FIT
A. ON INDIVIDUALS
A.1 On Citizen And Resident Alien [Sec. 24
(B)]
TYPE OF INCOME
(only for income within)
b. Royalties
RATE
1. PASSIVE INCOME
a. Interest
20%FIT
b. Royalties
20%FIT
10%FIT
20%FIT
37
e.
If not preterminated
before 5 years
If preterminated
before 5 years
Exempt
Exempt
5%, 12% or
20% FIT
of 1%
Percentage
tax
5% or 10%
FIT
6% FIT
5% - 32%
NET
or 6% FIT
TYPE OF INCOME
(only for income within)
1. Salaries, wages, annuities,
compensation,
remuneration and other
emoluments, such as
honoraria and allowances,
received from such
regional or area
headquarters and regional
operating headquarters/
offshore banking unit/
petroleum service
contractor or
subcontractor
2. Other sources of income
within the Philippines
which are not received
from employers
If employee is a
Resident Alien
If employee is a
Nonresident Alien
Engaged in Trade or
Business
If employee is a
Nonresident Alien
NOT Engaged in Trade or
Business
3. Capital gains from
shares of sock
Traded in the stock
exchange
Not traded in the stock
exchange
4. Capital gains from sale of
real property
If sale was made in favor of
the government, kind of tax
to be paid shall be at the
option of the taxpayer
RATE
15% FIT
5-32% Net
5-32% Net
25%GIT
of 1%
Percentage
tax
5% - 10%
FIT
6% FIT
5% - 32%
Net
or 6% FIT
38
Region
other
Only
alien
individual
occupying
managerial and technical positions in
R&AHQ and ROHQ of multinational
companies, OBU and foreign PSC&S and
Filipinos
employed
in
the
same
establishment and occupying the same
positions as those aliens are subject to
the 15% final withholding tax based on
their gross income.
B. ON CORPORATIONS
B.1 ON DOMESTIC CORPORATION [Sec.27]
TYPE OF INCOME
(only for income within)
RATE
1. Passive Income
a. Royalties
b. Interest on currency bank
deposits
c. Interest income on
depository bank under the
Expanded Foreign
20%FIT
20%FIT
7%
39
Special Types of
Domestic Corporations
(for income within & without)
1. Non-profit Proprietary
Educational Institutions
& Hospitals
If income from unrelated
trade, business or activity
DOES NOT EXCEED 50%
of total gross income and
such institution is duly
accredited by DECS,
TESDA, CHED
2. GOCCs, Agencies or
Instrumentalities
Except: GSIS, SSS, PCSO
PHIC
6% FIT
RATE
30% NET
10% NET
30% NET
Exempt
RATE
1. Passive Income
a. Royalties
b. Interest on currency bank
deposits
c. Interest income on
depository bank under the
Expanded Foreign
Currency Deposit System
2. Capital Gains Tax from
shares of stocks
Traded in the stock
exchange
Not Traded in the stock
exchange
3. Income derived under the
Expanded Foreign Currency
Deposit System from foreign
currency transactions with
local commercial banks
(including interest income
from foreign currency loans)
4. Inter-corporate Dividends
(received by a domestic
corp.)
20%FIT
20%FIT
7%
of 1%
Percentage
tax
5% or 10%
FIT
10% FIT
Not subject
to tax
RATE
2%
10% FIT
40
Regional Operating
HQ
Offshore Banking
Unit (OBU)
Resident Foreign
Corp.
Acceptable Foreign
Currency
Offshore banking
units in
the Phils.
3.Local Commercial
Banks including
branches of foreign
banks
Exempt
(provided it
complies
with Sec.
22 DD)
10%
depository bank
(DB)
Under RR 9-98
Domestic corp.
Resident Foreign Corp.
Under RR 9-98
Philippine Currency
Acceptable Foreign
Currency
15%
2. Offshore banking
units in the Phils.
3. Local Commercial
banks including
branches of foreign
banks
4. Depository banks
2.
41
Any
C.
TYPE OF INCOME
(only for income within)
1. Interest on Foreign
Loans
2. Intercorporate
Dividends
(received from domestic
corps. Subject to tax
credit
of 17%)
3. Capital Gains Tax on
Sale
of Shares of Stocks
Traded in the stock
exchange
Not traded in the stock
exchange
FOREIGN
RATE
20% FIT
of 1%
Percentage
Tax
5% - 10% FIT
3.
4.
Housing
Expense Account
The
42
a.
b.
c.
d.
e.
f.
g.
h.
i.
j.
43
RATE
6% FIT
25% GIT or
6%
25% FIT
4 % FIT
7 % FIT
25% GIT
1/2 of 1%
Percentage
tax
5% - 10%
FIT
30% GIT
Rate:
44
2.
+
+
+
+
Total Income
Income tax paid/ payable for the taxable
year
Dividends actually or constructively
paid/issued from the applicable years
taxable income
Amount reserved for the reasonable
needs of the business as defined in the
Regulations
Tax Base of Improperly Accumulated
Earnings Tax
EVIDENCE OF PURPOSE TO AVOID INCOME
TAX
1. The fact that any corporation is a mere
holding company shall be prima facie
evidence of a purpose to avoid the tax
upon its shareholders or members.
Instances indicative of purpose to avoid
income tax upon shareholders;
45
a.
Coverage
MCIT is imposed on domestic and resident
foreign corporations;
a. Whenever such corporation has zero or
negative taxable income; or
b. Whenever the amount of MCIT is greater
than the normal income tax due from
such
corporation
determined
under
Section 27[A]
This scenario is possible if the corporation
obtained too much deduction.
Limitations
a. The MCIT shall apply only to domestic
and resident foreign corporations subject
to the normal corporate income tax
(income tax rates under Sec 27[A] of the
CTRP)
b. In the case of a domestic corporation
whose operations or activities are partly
covered under a special income tax
system and partly covered under a
special income tax system, the MCIT shall
apply on operations covered by the
regular corporate income tax system.
c. In computing for the MCIT due from a
resident foreign corporation, only the
gross income from sources within the
Philippines shall be considered for such
purpose.
Carry Forward of the Excess Minimum Tax
Any excess of MCIT over the normal
income tax can be carried forward on an
annual basis.
46
47
3.
4.
Gross Sales
Sales Return
Discount and Allowances
Cost of Goods Sold*
Gross Income
X 2%
Minimum Corporate Income Tax (MCIT)
B. Manufacturing
Gross Income = gross sales/ receipt
less sales returns, discounts and
allowances and cost of good sold.
Cost of Sales = All cost production of
finished goods, such as
1. Raw materials used;
2. Direct labor;
3. Manufacturing overhead;
4. Freight cost;
5. Insurance premiums;
6. Other costs incurred to bring the raw
materials to the factory or warehouse.
C. Services
Gross Income = Gross receipts less
sales returns, allowances, discounts and
cost of services
Cost of Services = All direct cost and
expenses necessarily incurred to provide
the service required by the customers
and clients including:
1. Salaries and employee benefits of
personnel, consultants and specialist
directly rendering the service;
2. Cost of facilities directly utilized in
providing the service.
Kinds of Business
A. Trading or Merchandising Concern
Gross Income = gross sales/ receipts
less sales returns, discounts and
allowances and cost of goods sold.
1.
2.
Cost of Sales =
Invoice cost of the goods sold;
Import duties;
Requisites:
48
Other Features:
Available only to firms whose ratio of:
Cost of sales
=55%
Gross sales or receipts from all sources
The election shall be irrevocable for three
(3) consecutive years.
Meaning of Gross Income
2. Corporations
a. On sale of shares of stock of a domestic
corporation not listed and traded thru a
local stock
exchanged, held as capital asset:
* In addition to the discussion on Capital Gains
under
Final Income Tax.
On the Net Capital
Gain
Not over P100,000
Amount in excess of
P100,000
Gross Income
* Cost of Goods Sold means all business
expenses directly incurred to produce the
merchandise to bring them to their
present location and use.
Capital assets, gains, and losses
CAPITAL GAINS TAX
1. Individuals
a. On sale exchange, held as capital asset of
shares of stock of a domestic corporation
not listed :
and traded thru a local stock
3.
5% FIT
10% FIT
6% FIT
4.
5% FIT
10% FIT
Gross Sales
Sales Return
Discount and Allowances
Cost of Goods Sold
6% FIT
49
4.
1.
2.
a.
b.
50
51
2.
Domestic
and
Resident
Foreign
Corporation
I. ACCOUNTING PERIODS
General Rule: Taxable income is computed upon
the basis of taxpayers annual accounting
period (fiscal or calendar year) in
accordance
with
the
method
of
accounting employed.
52
1.
2.
3.
4.
Long-term
Contracts:
building,
installation or construction contracts
covering a period in excess of 1 year.
Deductions from Gross Income: all
expenditures made during the taxable
year on account
being taken of the material and
supplies on hand at the beginning and
end of the taxable
period for use in connection with the
work under the contract but not yet so
applied.
Installment Basis
When Applicable:
1. Sales of dealers in personnel property
2. Sales of realty and casual sales
personality.
of
3.
4.
1.
53
Exception:
An individual deriving compensation
concurrently from two or more employers
at any time during the taxable year shall
file an income tax return
3. One whose sole income has been
subjected to final withholding tax.
4. One who is exempt from income tax
pursuant to the provisions of this Code
and other laws, general or special.
Who Shall File: (In Duplicate)
1. A resident citizen on his income from all
sources;
2. A non-resident citizen on his income
derived
from
sources
within
the
Philippines;
3. A resident alien on his income derived
from sources within the Philippines; and
4. A non-resident alien engaged in trade or
business in the Philippines on this
income derived from sources within the
Philippines.
N.B Under RR 3-2002, regardless of the gross
income of the compensation earner, the
employer shall be the one to file the
return.
Where
1.
2.
3.
4.
b.
CORPRATE
Every corporation,
Except foreign corporations
RETURNS
not engaged in trade or business in the
Philippines, shall render, a duplicate, a
true and accurate quarterly income tax
return and final or adjustment return.
A corporation may employ either calendar
year or fiscal year as a basis for filing
its annual income tax return.
Corporations using the Calendar Year shall file
its final consolidated income tax return
on or before April 15.
Corporations using Fiscal Year the final
consolidated income tax shall be filed on
or before the 15th day of the fourth
(4th) month following the close of
the taxable year.
Corporations deriving capital gains from the
sale or exchange of shares of stock not
traded thru a local stock exchange shall
file a return within thirty (30) days
after each transaction during the taxable
year on or before the 15th day of the
fourth (4th) month following the
close of the taxable year.
Every corporation whether using the fiscal
year or calendar year shall file quarterly
within 60 days following the close of
each quarter.
Unlike individuals, corporations are allowed
to change their taxable period from
calendar to fiscal or vice versa or fiscal to
fiscal
2.
Withholding Tax
54
a.
b.
c.
d.
II.
TRANSFER TAXES
A.
INCOME TAX
Tax on income
Rates
are
higher
-- 5% to
32%
More
exempti
ons
Estate Tax
55
GROSS ESTATE
Liable to Pay
A. Estate
When
Pending
Judicial
Settlement
B. Individual
Pending
Extra-Judicial
Settlement
when only a
coownership is
formed
(Obillos vs.
Comm. 149
SCRA 436)
Pending
Extra-Judicial
Settlement
When an
Unregistered
partnership
is
created
C. Corporation
What
Tax
imposed
Upon
individuals
Income Tax
Corporate
Income Tax
FORMULA
Gross Estate
Deductions
Net Taxable Estate
X Tax Rate
Estate Tax Due
X Tax Credit (If any)
NET ESTATE TAX DUE
1. Resident Citizen
2. Non-Resident Citizen
3. Resident Alien
4. Non-Resident Alien
SCOPE
All property of the
decedent
within and
without the
Philippines
Property located in the
Philippines
only
56
d.
Three
1.
2.
3.
Persons Involved:
Transferor;
1st transferee (decedent); and
2nd transferee. Where the transferor
grants authority to the 1st transferee to
determine the person who, upon the
Special Power of
Attorney
Transferor himself has
determined beforehand
who, upon the death of
the first transferee,
would next possess or
enjoy the
property.
Not included
No badge of ownership
Beneficiary
is
other
than
the
decedents
estate,
executor,
or
administrator, when designation of
beneficiary is REVOCABLE
Proceeds of life insurance are NOT
TAXABLE in the following cases:
57
f.
g.
Transfer
for
Insufficient
Consideration applicable only in cases
Beneficiary: estate,
represented by
administrator, executor of
heir
Proceeds form part
of the GROSS
ESTATE whether
the designation is
revocable or
irrevocable
Beneficiary:
3rd person
A.
RESIDENT CITIZENS, NONRESIDENT CITIZENS, AND NONRESIDENT ALIENS (RC, NC, & RA)
1.
a. Funeral Expenses
58
b. Judicial Expenses
59
Property
Previously
Taxed
or
Vanishing Deduction Return
A situation where property is transferred
either by way of inheritance or donation,
and the transferee dies within a period of
5 years from the date of inheritance or
donation.
Deduction is available to the decedent
transferee.
Called vanishing because as the interval
of the death between the 1st and the 2nd
decedent widens,
decreases.
Within 1 year
1-2 years
2-3 years
3-4 years
4-5 years
the
tax
deduction
DEDUCTION
TAXABLE
100%
80%
60%
40%
20%
0%
20%
40%
60%
80%
2.
3.
4.
5.
6.
60
Requisites:
1. Private benefit plan maintained by the
employer must be approved by the BIR;
2. Plan grants retirement benefits to
employees who have been in the service
of the employer for at least 10 years;
3. Retiring official or employee is not less
than 50 years of age at the time of his
retirement;
4. Benefit is availed of only once.
This is deductible from the gross estate
provided the same amount forms part of
the gross estate provided the same
amount forms part of the gross estate of
the decedent employee.
4. Family Home
The basis is FMV or zonal value whichever
is higher, however if it exceeds P1
million, the excess shall be subject to
estate tax.
Requisites:
1. Must have been the decedents family
home;
2. Such fact is certified to by the Barangay
Captain of the locality
B. NON-RESIDENT ALIEN
No deduction shall be allowed to a non-resident
alien, unless the executor, administrator
or anyone of the heirs includes in the
return the value at the time of his death
of that part of the gross estate of the
non-resident
not
situated
in
the
Philippines. (Section 86D, Tax Code of
1997)
Deductions available:
1.
2.
3.
ITEMS OF DEDUCTION
1. Expenses, Losses,
Indebtedness, and Taxes
(ELIT)
a. Funeral expenses
All
Proportional Application
(PA)
PA
b.
ALL
PA
ALL
PA
ALL
PA
ALL
PA
61
Property Previously
Taxed (PPT) or
Vanishing Deductions Return
(3)
(4)
(5)
(6)
(7)
Deduction of 100% or
80% or 60% or
40% or 20%
100%
NA
NA
NA
b.
Formula
x
-
Gross Estate
Deductions
Taxable Net Estate
Tax Rate
Estate Tax Due
Tax Credit (if any)
NET TAX DUE
NA
62
B.
Pay-as-you-file
procedure,
within
6
months from the decedents death; a
reasonable extension of 30 days for filing
of the return may be granted by the BIR
Commissioner in meritorious cases.
When the BIR Commissioner shall find
that payment on the due date will impose
undue hardship upon any heir, he may
extend the time for payment up to a
maximum of 5 years in case the estate is
settled judicially or in 2 years in case the
estate is settled extrajudicially.
If an extension is granted, the BIR
Commissioner may require the executor
or administrator or beneficiary to furnish
a bond in such amount not exceeding
double the amount not exceeding double
the amount of the tax and with such
sureties as the commissioner deems
necessary.
Donors Tax
A. BASIC PRINCIPLES
B. DEFINITION
Donors Tax is a tax on a donation or gift, and is
imposed on the gratuitous transfer of property
63
1.
2.
3.
H. CLASSIFICATION OF DONOR
(Sec. 99 (B), NIRC)
64
4.
2.
2.
i.
The amount of the credit in respect to the
tax paid to any country shall not exceed
the same proportion of the tax against
which such credit is taken, which the net
gifts situated within such country taxable
under the Donors Tax bears to his entire
net gifts; and
ii.
The total amount of the credit shall not
exceed the same proportion of the tax
against which such credit is taken, which
the donors net gifts situated outside the
Philippines taxable under the Donors tax
bears to his entire net gifts.
M. EXEMPTIONS OF GIFTS FROM DONORS
TAX
1. Gifts Made By Resident
a. Dowries or gifts on account of marriage
and before its celebration or within 1 year
thereafter by parents to each of their
legitimate, recognized natural, or adopted
children to the extent of the first P10,000
b. Gifts made to or for the use of national
government or any entity created by its
agency which is not conducted for profit or
any political subdivision of the said
government.
c. Gifts made in favor of educational and or
charitable,
religious,
cultural,
social
welfare institution, accredited NGO, trust
65
P100,00
0
200,000
500,000
1,000,00
0
3,000,00
0
5,000,00
0
10,000,0
00
OVER
BUT
NOT
OVER
PL
US
OF
EXCESS
OVER
2%
2,000
14,000
4%
6%
44,000
8%
204,000
10
%
12
%
15
%
404,000
1,004,00
0
P100,00
0
200,000
500,000
1,000,00
0
3,000,00
0
5,000,00
0
10,000,0
00
Stranger
30%
of the net
gifts
b
b)
P. CONTRIBUTION FOR ELECTION
PURPOSES
THE
TAX
EXEMPT
SHALL
Not a Stranger
From 2% to a maximum of
15%
of the net gift (see rates under
Sec. 99, NIRC)
500,000
1,000,00
0
3,000,00
0
5,000,00
0
10,000,0
00
BE
Exempt
Rate of Tax
Depends if donee or beneficiary is:
N. PERSON LIABLE
O. TAX BASIS
P100,00
0
200,000
66
DONORS
TAX
Estate Tax
1. Imposed on transfer
of properly thru
succession and
donation mortis
causa
2. Accrues on the date
of death of the
decedent
3. First sum
exempted
P200,000
Donors Tax
1. Imposed on
transfer of
property thru
donation
4. Rate: 5% to 20%
5. Time for payment is
within six (6)
months
after decedents
death
4. Rate: 2% to 15%
5. Time for payment
C.
2. Accrues at the
time the gift or
donation is made
3. First sum
exempted
P100,000
2.
3.
4.
5.
6.
7.
DESTINATION PRINCIPLE
The
destination
of
the
goods
determines taxation or exemption from
tax. Export sales of goods are subject
to 0% rate (or zero-rated), while
importations of goods are subject to
the 12% VAT.
67
FORMULA:
Output Tax Input Tax = VAT
Output Tax means the VAT due on the sale or
lease of taxable goods, properties or
services by any person registered or
required to register under the VAT
system.
Input Tax means the VAT due from or paid by
a VAT-registered person in the course of
his trade or business on importation of
goods or local purchase of goods,
properties, or services, including lease or
use of property, from a VAT-registered
person.
Different Ways of Computing VAT:
1. Cost deduction method refers to the
manner of computing the taxpayers VAT
liability by deducting his costs and
2.
68
ZERO-RATED
SALES
OF
GOODS
OR
PROPERTIES
2.
3.
Export Sales
(a) Sale and actual shipment of goods
from the Philippines to a foreign
country, irrespective of any shipping
arrangement that may be agreed
upon
which
may
influence
or
determine the transfer of ownership
of the goods so exported, paid for in
acceptable foreign currency or its
equivalent in goods or services, and
accounted for in accordance with the
rules and regulations of the Bangko
Sentral ng Pilipinas (BSP);
(b) Sale of raw materials or packaging
materials to a non-resident buyer for
delivery to a resident local exportoriented enterprise to be used in
manufacturing, processing, packing
or repacking in the Philippines of the
said buyers goods, paid for in
acceptable foreign currency, and
accounted for in accordance with the
rules and regulations of the BSP;
(c) Sale of raw materials or packaging
materials
to
an export-oriented
enterprise whose export sales exceed
70% of total annual production;
(d) Sale of gold to the BSP;
2.
3.
4.
5.
69
2.
3.
70
9.
10.
11.
12.
13.
14.
15.
16.
71
4.
5.
6.
7.
VAT-EXEMPT TRANSACTIONS
The following transactions shall be exempt from
VAT:
Republic Act No. 9337, as implemented by
Revenue Regulations No. 16-2005 and last
amended by Revenue Regulations No. 162011 dated October 27, 2011
A. Sale or importation of agricultural and
marine food products in their original
state, livestock and poultry of a kind
generally used as, or yielding or
producing foods for human consumption;
and breeding stock and genetic materials
therefor.
Meat, fruit, fish, vegetables and other
agricultural and marine food products
classified under this paragraph shall be
considered in their original state even if
they
have
undergone
the
simple
processes of preparation or preservation
for the market, such as freezing, drying,
salting, broiling, roasting, smoking, or
stripping, including those using advanced
F.
72
I.
J.
P.
73
or
international
U. Importation
of
capital
equipment,
machinery, spare parts, life-saving and
navigational equipment, steel plates and
other metal plates including marine-grade
aluminum plates to be used in the
construction,
repair,
renovation
or
alteration of any merchant marine vessel
operated or to be operated in the
domestic trade; (As amended by RR No.
4-2007)
V.
74
75
invoice
showing
the
information required under Sections 113
and 237 of the 1997 Tax Code
3. For the purchase of real property public
instrument (i.e., Deed of Absolute Sale,
Deed
of
Conditional
Sale,
Contract/Agreement
to
Sell,
etc.)
4.
A
VAT-registered
person
whose
registration has been cancelled (1) due to
retirement from or cessation of business,
or (2) due to changes in or cessation of
status may, within two (2) years from the
date of cancellation, apply for the
issuance of a tax credit certificate for any
unused input tax which he may use in
payment of his other internal revenue
taxes. However, he shall be entitled to a
refund if he has no internal revenue tax
liabilities against which the tax credit
certificate may be utilized.
Manner of Giving Refund
76
77
Invoicing
and
Recording
Deemed
Sale
Transactions
Transfer, use or consumption not in the
course of business of goods or properties
originally intended for sale or for use in
the course of business A memorandum
entry in the subsidiary sales journal to
record withdrawal of goods for personal
use is required.
Distribution or transfer to shareholders,
investors, or creditors An invoice shall
be prepared at the time of the occurrence
of the transaction.
Consignment of goods An invoice shall
be prepared at the time of the occurrence
of the transaction.
Retirement from or cessation of business
An inventory shall be prepared and
submitted to the Revenue District Office
(RDO) which has jurisdiction over the
taxpayers principal place of business not
later than 30 days after retirement or
cessation from business. An invoice shall
be prepared for the entire inventory,
which shall be the basis of the entry into
the subsidiary sales journal. The invoice
need not enumerate the specific items
appearing in the inventory, but it must
show the total amount. It is sufficient to
just make a reference to the inventory
regarding the description of the goods.
However, the sales invoice number should
be indicated in the inventory filed and a
copy thereof shall form part of this
invoice. If the business is to be continued
by the new owners or successors, the
entire amount of output tax on the
amount deemed sold shall be allowed as
input taxes. If the business is to be
liquidated and the goods in the inventory
are sold or disposed of to VAT-registered
buyers, an invoice or instrument of sale
or transfer shall to prepared citing the
invoice number wherein the tax was
imposed on the deemed sale. At the
same time the tax paid corresponding to
the goods sold should be separately
indicated in the instrument of sale.
CONSEQUENCES OF ISSUING ERRONEOUS
VAT INVOICE OR VAT OFFICIAL RECEIPT
If a person who is not VAT-registered issues an
invoice or receipt showing his TIN followed by the
word VAT, the erroneous issuance shall result to
the following:
1. The non-VAT person shall be liable to:
a.
2.
78
D.
2.
Covered Transactions
1. Original issue of shares of stock;
2. Sales, agreement to sell, memoranda of
sales, deliveries of transfers of shares or
certificates of stock;
3. All debt instruments;
4. All bills of exchange or drafts;
5. Life insurance policies;
6. Pre-need plans;
7. Policies
of
annuities,
or
other
instruments, where the annuity may be
made, transferred or redeemed.
Documents Exempt from DST
1. Sale, barter or exchange of shares of
stock listed and traded through the local
stock exchange for a period of five (5)
years from the effectively of this Act.
79
8.
3.
Not inherent
Exercised only if delegated to them by
law or Constitution
Not absolute; subject to limitations
provided for by law
80
81
B. CITIES
Cities are authorized specifically to
impose TFCs that provinces and municipalities
may levy, at rates that may be above the
maximum
established
for
provinces
and
municipalities but not exceeding 50% of such
maximum rates except the rates of professional
and amusement taxes (Section 151, LGC)
C. MUNICIPALITIES
(i) Tax on Various Type of Businesses
Municipalities may levy taxes, fees and charges
not otherwise levied by provinces.
1. Manufactures, assemblers, re-packers,
etc. of liquors, distilled spirit and wines.
82
3.
4.
5.
6.
7.
D. BARANGAYS
Barangays may tax, to the exclusion of the other
local government units:
1. Stores or retailers with fixed business
establishment with gross sales or receipts
of the preceding year of;
a) P50,000 barangays in cities
b) P30,000 in municipalities.
2. Service fees or charges for those
rendered in connection with the use of
barangay-owned properties
3. Barangay clearance
4. Other fees & charges on:
on
the
Taxing
83
2. Accrual of Tax
8. Taxpayers Remedies
9. Civil Remedies by the LGU for collection
of Revenues
[See discussion on Remedies for
Taxation under the TAX REMEDIES.]
Local
3. Time of Payment
84
Fundamental Principles
ii.
iii.
Rates of Levy
85
2.
3.
4.
and
Assessment
of
Real
3.
4.
5.
86
of
Property
as
Basis
of
87
2. Collection of Tax
The provincial,
collects the tax.
city,
3. Periods within
property tax
municipal,
which
to
or
barangay
collect
real
88
A. Adminsitrative
1. Lien (Sec 257, LGC) superior to all liens,
charges or encumbrances and is enforceable by
administrative
or
judicial
action.
It
is
extinguished only upon payment of tax and other
expenses.
2.Levy (Sec 258, LGC)
Procedure in effecting levy of real property:
1. Issuance of warrant by the LGU treasurer (on
or before or simultaneously with the institution of
civil action for collection of delinquent tax)
2. Advertise sale or auction (within 30 days after
service of warrant) by posting and publication
3. Sale
4. Report of Sale (within 30 days after sale_).
Remission of Tax
a) Condonation or reduction of Tax by the
President of the Philippines
Remission of Tax by the Sanggunian
F. Refund or Credit of Real Property Tax
Claim for tax refund or credit (Section 253,
LGC)
a. The taxpayer may file a written claim for
refund or credit with the provincial or city
89
(ii)
Appeal
to
the
Assesssment appeals
Central
Board
of
Local
Central
Board
of
Board
of
90
TAX REMEDIES
Tax Administration and Enforcement
Requisites for Tax Regulations:
(RALP)
1. Reasonable
2. Within Authority conferred
3. Not Contrary to Law
4. Must be Published
Note: However, internal regulations and
interpretative regulations need not be
published.
Retroactivity of BIR Rulings:
General Rule: Prospective
Exceptions:
1. Where no vested right will be
impaired;
2. Where the law allows retroactive
application; and
3. If there is bad faith on the part of the
taxpayer
TAX ADMINISTRATION
Refers to the manner and procedure of
assessing and collecting or enforcing tax
liabilities.
Agencies
1.
2.
3.
91
92
Assessment
2.
93
Exceptions:
1. Failure to file a return: ten (10)
years from the date of the discovery
of the omission to file the return
(Sec. 222[A]);
2. False or fraudulent return with
intention to evade the tax; ten (10)
years from the date of the discovery
of the falsity or fraud (Sec.222[A]);
Nothing in Section 222(A) shall be
construed to authorize the examination
and investigation or inquiry into any tax
return field in accordance with the
provisions of any tax amnesty law or
decree.
Fraud must be alleged and proved as a
fact. It must be the product of a
deliberate intent to evade taxes. It may
be established by the:
a.
Intentional
and
substantial
understatement of tax liability by
the taxpayer;
b.
Intentional
and
substantial
overstatement of deductions of
exemptions; and/or
c.
Recurrence
of
the
above
circumstances.
Point
of
3-year
Prescriptive
94
Amendment of Return
If the amendment return is
substantially different from the original return,
the prescriptive period shall be counted from the
filing of the amended return. But the said period
shall run from the filling of the original return if
the same is sufficiently complete to enable the
Commissioner to make a proper assessment.
(CIR vs. Phoenix Assurance Co. No. L-19727 May
20 1965)
When Substantive:
a) Substantial underdeclaration
(exceeding 30% of that
declared) of taxable sales,
receipts or income, or
b) A substantial overstatement
(exceeding 30% of actual
deductions) of deductions
(Sec. 24B)
a) If return is
filed on or before
the due date
b) If return is
filed beyond the
due date
c) If the return is
amended
Reckoning
deadline
point
is
the
Depends
whether
the
amendment id substantial
or superficial.
If substantial the day
return
amendment
is
made.
If superficial the day
when original return was
filed.
95
Collection
Within 10
years from
discover of
falsity,
fraud or
omission
96
2.
3.
4.
5.
6.
7.
8.
9.
in
1. Compromise
Cases
1.
2.
3.
4.
5.
6.
Exceptions
1. Withholding tax cases;
2. Criminal tax fraud cases;
3. Criminal violations already filed in court;
4. Delinquent accounts with duly approved
schedule of installment payments;
5. Cases
where
final
reports
of
reinvestigation or reconsideration have
been issued resulting to reduction in the
original assessment and the taxpayer is
agreeable to such decision.
6. Cases which become final and executory
after final judgment of a court. (Sec. 2,
Rev. Reg. 7-2001)
Minimum Compromise Rates (MCR) of Any
Tax Liability
1. In case of financial incapacity;
MCR = 10% of the basic assessed tax
2. Other cases:
MCR = 40% of the basic assessed tax
[Sec. 204 (A), 1997 NIRC]
Compromise of Criminal Violations
General Rule: All criminal violations under the
CTRP may be compromised.
Exceptions:
1. Those already filed in court
2. Those involving fraud [Sec. 204(B), 1997
NIRC].
Extent of the Commissioners Discretion to
Compromise Criminal Violations
1. Before the complaint is filed with the
Prosecutors Office:
97
3.
2.
Compromise Penalty
It us an amount of money which
the taxpayer pays to compromise a tax violation.
This is paid in lieu of criminal prosecution. A
taxpayer cannot be compelled to pay a
compromise penalty. If he does not want to pay
the CIR must institute a criminal action.
Compromise vs. Abatement
Compromise involves a reduction of the
taxpayers liability, while Abatement means that
the entire tax liability of the taxpayer is
cancelled.
When May the Commissioner Abate or
Cancel a Tax Liability
1. The tax or any portion thereof appears to
be unjustly or excessively assessed;
[Sec. 204(B), 1997 NIRC]
a. When
the
filing
of
the
return/payment is made at the wrong
venue;
b. When the taxpayers mistake in
payment of his tax is due to
erroneous written official advice of a
revenue officer;
c. When the taxpayer fails to file the
return and pay the tax on time due to
substantial losses from prolonged
labor
dispute,
force
majeure,
legitimate
business
reverses,
3.
2.
Distraint
98
of Distraint:
Constructive Distraint (Sec. 206);
Actual Distraint (Sec. 107 par A, sec 209)
Distraint of Intangible (Sec. 208)
1.
Constructive
Distraint
Made on the property
of any taxpayer,
whether delinquent or
not
The taxpayer is merely
prohibited from
disposing of his
property
Effected by requiring
the taxpayer to sign a
receipt of the property
of distraint or
garnishment
An immediate step for
collection of taxes
or by the revenue
officer preparing and
leaving a list of such
property
Not necessarily so
99
turn
over
to
the
Commissioner so much of
the bank accounts as may
be sufficient to satisfy the
claim of the government.
d. Debts and credits
i. Person owning debts;
ii.
Having in his possession or
under his control such credits; or
iii. Upon his agent.
The warrant of the distraint
shall be sufficient authority
to the person owing the
debts or having in his
possession or under his
control
any
credits
belonging to the taxpayer
to pay to the Commissioner
the amount of such debts
or credits.
Posting of Notice (Sec. 209, NIRC)
3.
4.
Levy
LEVY
Taking possession of Real
Property
The
government
must
notify
the
public at large by
posting,
no
publication
is
needed. (sec 209)
DISTRAINT
Immediately
after
the
sale,
the
purchaser becomes
the owner because
there is no right of
redemption in the
auction by way of
distraint after the
sale.
LEVY
Purchaser
has
an
inchoate
right.
The
owner
shall
not
be
deprived
of
the
possession
of
the
property and shall be
entitled to the rents and
other income until after
the expiration of the time
100
allowed
for
its
redemption. (sec. 214)
There is also a right of
pre-emption. (sec. 213,
par. 1)
Tax Lien
5.
DISTRAINT
Need not be directed
against
the
property
subject to tax
Property seized must be
owned by the taxpayer
Forfeiture
As
a remedy
of
the
government for violation of
the excise tax law where
the
property
will
be
confiscated
by
the
government.
It
is
101
6.
Civil Actions
When Restored To
1. When a tax is assessed but the
assessment
becomes
final
and
unappealable because the taxpayer fails
to file an administrative protest with the
CIR within 30 days from receipt; or
2. When a protest against assessment is
filed and a decision of the CIR was
rendered but the said decision becomes
final, executory, and demandable for
failure of the taxpayer to appeal the
decision to the CTA within 30 days from
receipt of the decision.
Where To File
102
1.
2.
Where To File
1. Court of Tax Appeals on criminal
offenses arising from violations of the
NIRC
or
TCC
and
other
laws
administrated by the BIR and the BOC,
where the principal amount of taxes and
fees, exclusive of charges and penalties
claimed is One million pesos and above.
2. Regional Trial Court, Municipal Trial
Court, Metropolitan Trial Court on
criminal offenses arising from violations
of the NIRC or TCC and other laws
administered by the BIR and the BOC,
where the principal amount of taxes and
fees, exclusive of charges and penalties
claimed is less than One million pesos or
where there is no specified amount
claimed.(Sec. 7, RA No. 9282)
103
Submission
of
documents within 60
day period is optional
to the taxpayer. That
the
relevant
supporting documents
mentioned in the law
refers
to
such
documents which the
taxpayer feels would
be
necessary
to
support his protest
and not what the
Commissioner
feels
should be submitted,
otherwise,
taxpayer
would always be at the
mercy of the BIR
which
may
require
production
of
such
documents
which
taxpayer
could not
produce.
(Standard
Chartered Bank vs.
CIR, CTA Case No.
5696, Aug. 16, 2007)
Protest is a vital
documents which is a formal
declaration of resistance of the
104
3.
4.
or
2.
3.
Tax Refund
The taxpayer asks for
restitution of the money
paid as tax
Two year period to file
claim with the CIR starts
Tax Credit
The taxpayer asks that
the money so paid be
applied to his existing
tax liability
Two-year period starts
from the date such
Protest
is
Not
105
2.
2.
106
NOTICE OF INFORMAL
CONFERENCE
FILES AN ANSWER
ACCEPT
PRE-ASSESSMENT NOTICE
Taxpayer REQUIRED TO FILE an Answer within 15 Days
FILES AN ANSWER
Payment of the
Assessed Tax
COMMISSIONERS INACTIONS
within 180 days
COMMISIONERS ACITON
DENIED, in whole or in
part
107
II.
A.
Civil Remedies of the Local Government Units (LGU) to Effect Collection of Taxes
1. Tax lien (Sec. 173, LGC) superior to all liens, charges or encumbrances
2. Distraint (Sec. 175, lGC0
3. Levy (Sec. 176, LGC)
4. Civil Action (Sec. 183, LGC)
5. Purchase of property by LGU concerned for the amount of the assessment made thereon, the tax
delinquencies shall be cancelled (Sec. 175, LGC).
Property distrained not disposed within 120 days from date of distraint considered sold to
the LGU concerned for the amount of the assessment made thereon, the tax delinquencies
shall be cancelled (Sec. 175, LGC)
Jurisdiction of Courts Over Local Taxation Cases
1. Court of Tax Appeals appellate jurisdiction
Trial Court in the
2. exercise of its appellate or original
jurisdiction.
3. Regional Trial Courts / Municipal
Trial Courts Regular judicial courts are
not prohibited from enjoining the
collection of local taxes, subject to Rule
58 (Preliminary Injunction) of the Rules
of the Court.
108
III.
REMEDIES
A.
Tax Remedies of the Local Government
Units
A.
Administrative
1. Real Property tax lien (Secs. 257, LGC)
superior to all liens, charges or
encumbrances;
2. Distraint (Sec. 254[A], 258 LGC);
3. Levy (Sec. 254[A], 258 LGC);
4. Purchase of property by local treasurer
for want of bidder (Sec. 263, LGC).
B. Judicial
3.
B.
I. ADMINISTRATIVE
1. Protest payment under protest is
required within 30 days to provincial, city,
or municipal treasurer.
109
POWERS OF THE
BOARD IN ITS
APPELATE
JURISDICTION
To summon witnesses;
To administer oath;
To take dispositions;
To issue subpoena and
subpoena duces tecum
EFFECT OF APPEAL
ON THE PAYMENT OF
REAL PROPERTY TAX
It shall in no case,
suspend the collection of
the corresponding realty
taxes
on
property
involved as assessed by
the Provincial or City
Assessor,
without
prejudice to subsequent
adjustment depending on
the final outcome of the
appeal
LBAAs DECISION.
The Board shall decide the appeal case
within 120 days from the date of receipt of the
appeal. After the hearing, the Board shall
render its decision based on evidences
submitted or on record.
APPEAL to the CENTRAL BOARD OF
ASSESSMENT APPEALS
The Petition shall be filed within 30 days after
receipt of the decision of the LBAA. The
Decision of the CBAA shall be Final and
Executory.
APPEAL to the COURT OF TAX APPEALS
(Petition for Review under Rule 42) within 30
days after the receipt of such decision or
ruling or after the expiration of the period
fixed by law.
MOTION for RECONSIDERATION of a NEW
TRIAL within 15 days from the decision of the
CTA by division.
PETITION FOR REVIEW ON CERTIORARI
under Rule 45 of Rules of Civil Procedure
110
No protest shall be
entertained UNLESS the
taxpayer first pays the
tax.
There shall be annoted
on the receipt paid
under protest
The tax paid under
protest shall be held in
trust by the Treasurer
GRANTED.
The amount or portion, of the
tax protested shall be refund or
applied to tax credit6 against
the protestants existing or
future tax liability
DENIED
INACTION
for a period of 60
LBAAs DECISION
The Board shall decide the appeal case within 120 days from the date of receipt of the appeal.
After the hearing, the Board shall render its decision based on evidences submitted or on record.
APPEAL to the CENTRAL BOARD OF ASSESSMENT APPEALS
The Petition shall be filed within 30 days after receipt of the decision of the LBAA. The Decision of
the CBAA shall be Final and Executory.
APPEAL to the COURT OF TAX APPEALS (Petition for Review under Rule 42) within 30 days
after the receipt of such decision or ruling or after the expiration of the period fixed by law.
MOTION for RECONSIDERTION of a NEW TRIAL within 15 days from the decision of the CTA by
division
111
TAX IS PAID
WRITTEN CLAIM FOR REFUND/CREDIT for taxes & interest shall be filed with the Provincial or City or
Municipal Treasurer within 2 years from the date the taxpayer is entitled to such reduction or adjustment
Provincial or City or Municipal Treasurers Decision shall be rendered within 60 days from receipt of
the written claim
GRANTS
DENIED
APPEAL to the LOCAL BOARD OF ASSESSMENT APPEALS. The petition under oath
shall be filed within 60 days from the date of receipt of the written notice together with the
copies of the tax declaration or documents in support of the appeal.
LBAAs DECISION. The Board shall decide the appeal case within 120 days from the date
of receipt of the appeal. After the hearing, the Board shall render its decision based on
evidences submitted or on record.
APPEAL to the CENTRAL BOARD OF ASSESSMENT APPEALS. Petition shall be filed
within 30 days after receipt of the decision of the LBAA. The decision of the CBAA shall be
Final and Executory.
APPEAL to the COURT OF TAX APPEALS (Petition for Review under Rule 42) within 30
days after the receipt of such decision or ruling of after the expiration of the period fixed by
law.
MOTION for RECONSIDERATION of a NEW TRIAL within 15 days from the decision of the
CTA by division
112
GENERAL CONCEPTS
TARIFF Customs duties, toll or tribute payable
upon merchandise to the government.
CUSTOM DUTIES Tax assessed upon
merchandise from exported to a foreign country.
(Garcia v. Executive Sec. 211 SCRA 227 [1992])
6.
7.
113
b.
c.
Vegetable products;
Animal or vegetable fats; oils and
their cleavage products; prepared
edible fats; animal or vegetable
waxes;
d. Prepared foodstuffs; beverages,
spirits and vinegar; tobacco and
manufactured
tobacco
substitutes;
e. Mineral products;
f. Products of chemical or allied
industries;
g. Plastics and articles thereof;
rubber and articles thereof;
h. Raw hides and skins; leather,
etc.;
i. Wood and articles of wood, etc.;
j. Pulp of wood, etc.;
k. Textiles and textile articles;
l. Articles of stone; plaster, cement,
etc.;
m. Footwear, headgear, etc.;
n. Natural
or
cultured
pearls
precious/semi-precious stones;
o. Base metals and articles of base
metals;
p. Machinery
and
mechanical
appliances; electric equipment;
sound recorders, etc.;
q. Vehicles, aircraft, vessels and
associated transport equipment;
r. Optical photographic, medical
surgical instruments, etc.;
s. Arms, ammunition, parts and
accessories;
t. Miscellaneous
manufactured
articles; and
u. Works of art, collectors pieces
arid antiques (Sec. 104, Title 1,
TCC)
2. Prohibited from Being Imported
(Prohibited Importation)
a. ABSOLUTELY PROHIBITED such
as; weapons of war; gambling
devices; narcotics or prohibited
drugs; immoral, obscene or
insidious articles, and those
prohibited under special laws
(Sec. 102, TCC)
b. QUALIFIEDLY
PROHIBITED
114
Special
customs
duties
are
additional import duties imposed on
specific kinds of imported articles
under certain conditions.
Rates
Difference
between
the
actual price and
the
normal
value of the
article.
COUNTERV
DISCRIMIN
MAKING
ALING
ATORY
DUTY
DUTY
DUTY
Imposed on
imported
items
granted
subsidy
or
subvention
upon
their
production,
manufacture
or
exportation
and
thus
allowing to
sell
prices
lower to the
detriment of
local
products.
Imposed
on
improper
ly
marked
articles
as to the
place of
origin of
said
goods.
Imposed
to
protect:
local
industries
against unfair
competition
posed
by
foreign
manufacturer
s
or
producers;
the
consumers
against
deception the
national
interest
Equivalent
to
the
bounty,
subsidy
or
subvention
5%
ad
valorem
of
articles
improper
ly
marked
clear
The
duty
shall
not
exceed 100%
ad valorem of
the articles
Imposing Authority
Special
Secretary of Commiss President of
committee
on Finance
ioner of the
anti-dumping
Customs Philippines
FLEXIBLE TARIFF CLAUSE
The President may fix tariff rates, import and
export quotas, etc. under TCC:
a. To increase, reduce or remove
existing protective rates of import
duty (including any necessary charge
in classification).
115
5.
7.
c.
TARIFF COMMISSION
FUNCTIONS OF THE TARIFF COMMISSION:
I. Investigative Powers
1. the administration of and the fiscal and
industrial effects of the tariff and customs
laws of this country now in force or which
may hereafter be enacted;
2. The relations between the rates of duty
on raw materials and the finished or
partly finished products;
3. The effects of ad valorem and specific
duties and of compound specific and ad
valorem duties;
4. All questions relative to the arrangement
of schedules and classification of articles
in the several schedules of the tariff law;
6.
8.
The
tariff
relations
between
the
Philippines
and
foreign
countries,
commercial
treaties,
preferential
provisions, economic alliances, the effect
of export bounties and preferential
transportation rates;
The volume of importations, compared
with
domestic
production
and
consumption;
Conditions, causes, and effects relating to
competition of foreign industries with
those of the Philippines, including
dumping and cost of production; and
In general, to investigate the operation of
customs and tariff laws, including their
relation to the national revenues, their
effect upon the industries and labor of
the country and to submit reports of its
investigation as provided.(Sec. 505, TCC)
II.
Administrative
Assistance
to
President and Congress (Sec. 506, TCC)
the
116
If decision is
adverse to the
protestant
Appeal by certiorari
with the SC within 15
days from notice
If decision is
adverse to the
government
Automatic Review by
the Commissioner
Automatic review by
the Sec. of Finance
If decision of
Commissioner or Sec.
of Finance is adverse
to the protestant, he
may appeal to the
CTA, CA and SC under
the same procedure on
the left
117
1.
Fraudulently
import
any
article
contrary to law,
2. Assist in so doing, or
3. Receive, conceal, buy, sell, facilitate,
transport, conceal or sell such article
knowing its illegal importation. (Sec.
3601, TCC)
4. Exportation in any manner contrary
to law. (Sec. 3514, TCC)
(i)
May
continue
beyond
the
maritime zone
(ii)
The vessel may be seized on the
high seas.
2. Over Imported Articles
a. Imported articles which may be subject
to seizure;
b. For violation of the tariff and customs
laws;
c. May be pursue in their transportation in
the Philippines by land, water or air;
d. Such jurisdiction may be exerted over
them at any place therein as maybe
necessary for the due enforcement of the
law. (2nd par.. Sec. 603, TCC).
CONTRABAND
articles
of
prohibited
importations or exportations. (Sec. 3514, TCC)
118
If decision is
adverse to the
government
Automatic Review by
the Commissioner
Memorandum 20-87:
In forfeiture/seizure proceedings or
in protest of the assessment, if is
adverse to the government, there
must be an automatic appeal
because nobody will appeal such
decision whether such is erroneous
or correct.
119
Distinction
between
the
Warrantless
Arrest / Seizure of the Officer of the
Customs and BIR:
BIR
Bureau of Customs
COMPOSITION
120
OF
COURT
OF
TAX
g.
121
2.
In collection
cases where
the
principal amount of taxes and fees,
exclusive of charges and penalties,
claimed is less than one million pesos
(P1, 000, 000, 00) shall be tried by
the proper Municipal Trial Court,
Metropolitan Trial Court and Regional
Trial Court.
b. Exclusive appellate jurisdiction in tax
collection cases
1. Over appeals from the judgments,
resolutions or orders of RTC in tax
collection cases originally decided by
them, in their respective territorial
jurisdiction.
2. Over petitions for review of the
judgments, resolutions, or orders of
the RTC in the exercise of their
appellate
jurisdiction
over
tax
collection cases originally decided by
the
Metropolitan
Trial
Courts,
Municipal Trial Courts, and Municipal
Circuit Trial Courts, in their respective
jurisdiction.
MODES OF APPEAL
1. By filing a petition for review under a
procedure analogous to that provided for
under Rule 42 of 1997 Rules on Civil
Procedure
122
not
automatically
suspend
collection unless CTA issues
suspension order at any stage of
proceedings.
(Blaquera
vs.
Rodriguez, 103 Phil. 267)
PROCEDURE:
1. Any party adversely affected by a ruling, order or
decision of a Division of the CTA may file a motion
for reconsideration or new trial before the same
Division within 15 days from notice.
2. Any party adversely affected by a resolution of a
Division
of the CTA on a motion for
reconsideration or new trial may file a petition for
review with the CTA en banc
3. Any party adversely affected by a decision or
ruling of the CTA en banc may file with the
Supreme Court a verified petition for review on
certiorari pursuant to Rule 45 of the 1997 Rules
on Civil Procedure.
NORMAL
(203)
JURISDICTION
A. exclusive appellate jurisdiction
1. Decisions of the commissioner the
commissioner of internal revenue in
cases
involving
disputed
assessments, refunds of internal
revenue taxes, fees or other charges,
penalties in relation thereto, or other
matters arising under the nirc or
other laws administered by the BIR.
a. Assessment period or assessment
Period of Assessment
Period of Collection
1.
Assess & collect
ABNORMAL
10yrs. from discovery of
5yrs. from date of receipt of
(222)
FFF
final assessment
- False
- Fraudulent
2.
Collect
w/o Assessment
10 yrs. from discovery of
Bar Operations 2012:
Acetothe Bar, Race
the Car!
- Failure
(JUDICIAL ACTION) For Private
FFF
and Personal Use Only 123
File
NO ASSESSMENT
Return (FFF)
DENIAL OF PROTEST
124
125
b.Refund (229)
Within 30 days from receipt of denial for refund, appeal via Rule
42 of the Rules of Court to the COURT OF TAX APPEALS
126
Within 60 days from filing of protest submit all relevant supporting documents
NOTE: Failure to do so shall render the assessment final
Within 30 days from receipt of denial for refund, appeal via Rule 42 of
the Rules of Court to the COURT OF TAX APPEALS
127
B.Refund 229
Within 30 days from receipt of denial for refund, appeal via Rule 42 of
the Rules of Court to the COURT OF TAX APPEALS
128
3. Decisions orders, or resolutions of the regional trial courts in local tax cases originally
decided or resolved by them in the exercise of their original or appellate jurisdiction.
A. Constitutionary of Tax Ordinance Requisites:
1) Public Hearing
2) Ordinance must not be unjust, excessive, confiscatory, oppressive
Public Hearing
Within 30 days
from receipt of
decision of appeal
Within 30 days from the decision of the RTC, appeal via Rule 42 of
the Rules of Court to the COURT OF TAX APPEALS
129
B. Assessment (195)
NORMAL
ABNORMAL
(fraud or intent to
evade
the
payment of taxes
fees or charges)
PROTEST OF ASSESSMENT
Period of Assessment
Period of Collection
130
131
Local Board of Assessment Appeals has 120 days from the receipt of
Appeal to decide
132
133
No sufficient evidence,
DISMISS
INVESTIGATION
Notice to Exporting member country
No Anti-Dumping Duty to be
imposed
134
No sufficient basis,
DISMISS
INVESTIGATION
135
REPUBLIC ACT 8800 An Act Protecting Local Industries By Providing Safety Measures To Be
Undertaken In Response To Increased Import And Providing Penalties For Violation Thereof
Request by the
President
Resolution by
House or Senate
Committee on Agriculture
House or Senate on
Trade & Commence
No duties to be
imposed
136
CITIZENS
RESIDENTS
PERIOD OF STAY
SOURCES OF
INCOME
NATURE OF INCOME
Compensation,
Business, Trade
Profession
(Including casual
gains, profits,
income, and capital
gains, prizes, of
P10,000 or less).
Not included are
items of income
subject to final tax
and or special tax
treatment.
Interest from any
currency bank
deposit and yield or
any other monetary
benefit from deposit
substitute and from
trust funds and
similar
arrangements,
royalties, prizes
(except amounting
to P10,000 or less)
and other winnings
(except PCSO and
lotto winnings)
Royalties on books, as
wellGENERAL
as either
literary
CATEGORIES
works
and
musical
composition
NONRESIDENTS
Permanently
stayed in the
Philippines or
may have
stayed outside
the Philippines
LESS THAN
183 DAYS
Stayed outside
the Philippines
for 183 DAYS
OR MORE
All Sources
ALIENS
RESIDENT
S
Stayed
within the
Philippines
for MORE
THAN 12
MONTHS
from date
of arrival
Within the
Phil
NRAETB
Stayed
within the
Philippines
for MORE
THAN 180
DAYS
Within the
Phil.
NRAETB
Stayed within
the Philippines
for 180 DAYS
OR LESS
Within the Phil.
Taxable Income
5% - 34% (1998)
5% - 33% (1999)
5% - 32% (2000)
(Normal Tax Rate)
Gross Income
(within 25%)
ALIENS
NRAETB
NRAETB
137
Gross income
(within) 7.5%
FWT (Exchange
Rate to be used
shall be the
opening rate on
remittance day)
Any income
from transaction
with depositary
banks under the
expanded FCDS
or OBU- Exempt
[Sec. 27 (D) (3)]
[Sec. 28 (A) (4)]
Gross income
(within) 705%
FWT
Exempt
5%
12%
20%
Gross
Income
(within)
20%
Year
1998
1999
2000
Gross
Income
(within)
25%
N.A
Gross
Income
(within)
25%
138
CITIZENS
RESIDENTS
SOURCE OF
INCOME
A. 15% Final
Withholding
Income Tax
(FWIT)
All Sources
NON-RESIDENTS
Within The
Phil.
B. Partners in a
general
professional
partnership
ALIENS
RESIDENTS
Within the
Phil.
NRAETB
Within the
Phil.
NRAETB
Within the
Phil.
1) A general, professional
partnership is not subject
to income tax. A partner in
a general professional
partnership is liable to
income tax only in his
separate and individual
capacity.
2) For purpose of computing
the distributive share of
the partners, the net
income of the partnership
is computed in the same
manner as a corporation.
3) Each partner shall report
as gross income his
distributive share actually
or constructively received
in the net income of the
partnership.
139
GENERAL CATEGORIES
CITIZENS
RESIDENTS
C. Foreign Source
Compensation. Income is
not subject to income tax.
NONRESIDENTS
ALIENS
RESIDENTS
NRAETB
NRAETB
140
GENERAL
CATEGORIES
SOURCE OF
INCOME
NATURE OF
INCOME
DOMESTIC CORPORATIONS
FOREIGN CORPORATIONS
RFC
NRFC
All Source
Taxable Base/Rate
141
In General
TAX INCOME
35% (Normal Domestic Rate)
34% - 1998
33% - 1999
32% - 2000
A. Transition Period
1) For Corp. Adopting fiscal year
accounting period, income and
expenses shall be deemed to have
been earned and spent equally for
each month of the period.
2) (Taxable Income/12mos.) x No. of
Mos. Covered by the tax rate x Tax
Rate.
B. Optional Corporate Tax Rate of 15%
of Gross Income
The President upon
recommendation of the Secretary
of Finance. May Effective January
1, 2000 allow corporations the
option to be taxed at 15% of the
income subject to certain
conditions.
C. Government or its Political
Subdivision
142
GENERAL
CATEGORIES
DOMESTIC CORPORATIONS
FOREIGN CORPORATIONS
RFC
Interest on currency
bank deposit and yield
or any other monetary
benefit from deposit
substitutes and from
trust funds and similar
arrangements royalties
NRFC
Interest Income on
foreign loans
contracted on or after
Aug. 1, 1986
(20%FWT)
Inter-corporate
dividends and income
from a taxable
partnership
Dividend received
from a domestic
corp. 15% FWT,
Provided foreign law
allows taxpayer
clause, otherwise it is
subject to normal
domestic rate
Dividends received
by a domestic
corporation not
subject to tax
143
Minimum Corporate
Income Tax (MCIT)
1) Gross Income
2% MCIT beginning on the fourth taxable year
immediately following the year in which such
corporation commenced its business operation.
2) Carry Forward of Excess MCIT to be carried
forward and provided against the normal income
tax [as computed under Sec. 27(A) for the (three (3)
succeeding taxable years.
3) The Secretary of Finance is authorized to suspend
MCIT on a corporation which suffers losses in
account ofa) Prolonged disputed; or
b) Force majeure
c) Legitimate business reverse; or
N.A
* Cost of Goods shall include all business expenses directly incurred to produce the merchandise to
bring them to their present location and use.
For manufacturing or merchandising, cost of goods sold shall include-(a) Raw materials used; (b) Direct
labor; (c) Manufacturing overhead; (d) Freight cost; (e) insurance premium; (f) Other cost to bring the raw
materials to the factory or warehouse
144
GENERAL CATEGORIES
Minimum Corporate Income
Tax (MCIT)
DOMESTIC OPERATIONS
FOREIGN CORPORATIONS
RFC
NRFC
Improperly Accumulated
Taxable Income means
taxable income adjusted
by:
Income exempt from
tax
Income excluded from
gross income
Income amount subject
to final tax
The amount of net
operating loss carry
over deducted.
And reduced by the
sum of:
Dividends actually or
constructively paid;
and
Income tax paid for the
taxable year
N.A
145
FOREIGN CORPORATIONS
RFC
International Carrier (within)
Gross Phil. Billings
NRFC
Non-Resident Owner
or Lessor or Sea
Vessel Chartered by
Philippine national
Gross rental lease
charter
Any income from
transaction with OBU
shall be exempt from
income tax
Non-Resident owner
or lessor of aircraft
machinery and other
equipment
Gross Rental or less
7.5%
N.A
Regional Operating
Headquarters
N.A
146
DC
147