2012 Bar Reviewer in Taxation

5/21/2018 2012 Bar Reviewer in Taxation

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I. General Principles

A. Definition and Concept of Taxation

As a process, it is a means by which the sovereign, through its

law-making body, raises revenue to defray the necessary expenses ofthe government. It is merely a way of apportioning the costs ofgovernment among those who in some measures are privileged toenjoy its benets and must bear its burdens.

As a power, taxation refers to the inherent power of the state to

demand enforced contributions for public purpose or purposes.

axation is a symbiotic relationship, whereby in exchange for

the protection that the citi!ens get from the government, taxes are

paid."

2. Nature of Taxation

1. It is an inherent attribute of sovereignty

2. It is legislative in character

3. Characteristics of Taxation

1. he power of taxation is an incident of sovereignty as it isinherent in the #tate, belonging as a matter of right to everyindependent government. It does need constitutional conferment.$onstitutional provisions do not give rise to the power to tax butmerely impose limitations on what would otherwise be an invinciblepower. %o attribute of sovereignty is more pervading, and at no pointdoes the power of government a&ect more constantly and intimately

all the relations of life than through the exactions made under it.'

2. he power to tax is inherent in the #tate, and the #tate is free

to select the object of taxation, such power being exclusively vested in

the legislature, except where the $onstitution provides otherwise.(

he $ongress may by law authori!e the )resident to x withinspecied limits, and subject to such limitations and restrictions as itmay impose, tari& rates, import and export *uotas, tonnage andwharfage dues, and other duties or imposts within the framework ofthe national development program of the +overnment.

ach local government unit shall have the power to create itsown sources of revenues and to levy taxes, fees, and charges subjectto such guidelines and limitations as the $ongress may provide,consistent with the basic policy of local autonomy. #uch taxes, fees,

and charges shall accrue exclusively to the local governments.


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1 Commissioner of Internal Revenue vs. Allegre, Inc., et al., L-28896, Feb. 17,19882 Churchill and Tait v. Concepcion, 34 Phil 969

3 Art. VI, Sec,28 (2); Art. X, Sec. ; Art. VI, Sec. 28. !"r. 2.4 Art. X, Sec.

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(. It is subject to $onstitutional and inherent limitations hence,

it is not an absolute power that can be exercised by the legislature

anyway it pleases.

4. Power of Taxation Compared With Other Powers

1.)olice )ower2.)ower of minent /omain

axation )olice )owerminent/omain

)urpose

0aising revenue)romote publicwelfare

aking of propertyfor

thru regulations public use

Amount of exaction

%o limit

1

2enefits

received

%oexaction,compensationpaid bythegovernment

%o special or direct

b %/irectbene

tresultsin the

formofjust

compensation

he impairment rulesubsist

ransfer of

propertyrights


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axes paid

b cope)ropertyis

taken

bythe

gov3t uponpayment ofjust

compensatio

n


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A&ects all persons,property and A&ects all persons,

A&ects only theparticular

exciseproperty, privileges,and

propertycomprehended

even rights

2


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2asis

)ublic necessity)ublic necessity andtheright of the state and

thepublic to self-protectionand self-preservation

)ublic necessity,private property istaken for public use

Authority which exercises the power

4nly by the

government or its

political subdivisions

4nly by the

governmen

t or its

political

subdivisi

ons

5ay begrantedto

publicservice,

companies, orpublic

utilities

E.

Purpos

e of

Tax

ation

"raising

o

provide

funds or

propert

y with

which

the

#tate

prom

otes

the

gener

al

welfa

re

and

prote

ction

of its

citi!e

ns.

'. %on-revenue6sp

ecialorregulatory

)romotionof +eneral7elfare

0egulation

0eductionof #ocialIne*uality

nc

ourageconomic+rowth

axati

on

may

be

used

as an

imple

ment

of

policepower

in

order

to

pro

mot

e

the

gen

eral

welf

are

of

the

people.8

As

in

the

cas

e oftax

es

levi

ed

on

exc

ise

s

andpri

vile

ges

like

thos

e

impose

d in

toba

cco

or

alco

holi

c

product

s or

amu

sem

ent places like

night clubs,

cabarets,

cockpits, etc.9

his is madepossiblethrough theprogressivesystem of taxation where

the objective isto prevent theunder-concentration ofwealth in thehands of few

individu

als.

Intherealm oftaxexempt

ionsandtaxreliefs,for

instance,the

purposeis tograntincentives orexemptions inorder toencourage

investments andtherebypromote

5 #eeLutz vs.

Araneta,98 Phil

148"$%Os

mea vs.Orbos,&.'.

.99886,

*"r.31,

1993

6

I$

the c"#e +

Calte !hils.

Inc. vs. COA

(&.'. .

92

8

,

*"

8,

1992),

it "#

hel%

th"t t"e# /"

"l# be

i/!#e% +r "re0l"tr


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!r!#e"#, +ri$#t"$ce,

i$thereh

"bilit"ti$"$%

#t"bili"ti

$+"

thre"te$e%

i$%#tr hichi# "ecte% ith!blic i$%#tr

lietheil

i$%#tr.

3


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the country3s economic growth.

e. )rotectionismIn some important sectors of the economy, asin the caseof foreign importations, taxes sometimes

provideprotection to local industries like protectivetari&s andcustoms

F. Principles of Sound Tax Sstem

". :iscal Ade*uacy

he sources of tax revenue should coincide with, and

approximate the needs of government expenditure. %either an excessnor a deciency of revenue vis-;-vis the needs of government wouldbe in keeping with the principle.

'. Administrative :easibility

ax laws should be capable of convenient, just and e&ectiveadministration

(. heoretical


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9 I$ " c"#e, the S!re/e 5rt hel% th"t10 ""ti$ i# " !er e/"$"ti$0 +r/ $ece##it. It i# " $ece##"r br%e$ t!re#ere the St"te#

#erei0$t "$% " /e"$# t 0ie the citie$r "$ "r/ t re#i#t "00re##i$, " $" t%e+e$% it# #hre# +r/ i$"#i$, " cr!# + ciil #er"$t# t #ere, !blici/!re/e$t# %e#i0$e% +r the e$:/e$t + the citie$r "$% th#e hich c/e

ith the St"te# territr "$% +"cilitie#, "$% !rtecti$ hich "4


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(. 2enets-)rotection heory"@

he basis of taxation is the reciprocal duty of protectionbetween the state and its inhabitants. In return for the contributions,

the taxpayer receives the general advantages and protection whichthe government a&ords the taxpayer and his property.

.


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11 "/!le I'5 !ri%e# +r #t"tte# + li/it"ti$ i$ the "##e##/e$t "$%cllecti$ + t"e# therei$ i/!#e%.


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3./ouble taxation

a. #trict sense

0eferred to as direct duplicate taxation, it means

1.axing twice

2.by the same taxing authority

3.within the same jurisdiction or taxing district

4. for the same purpose

5. in the same year or taxing period

6. some of the property in the

territory b.

2road

sense

0eferred to as indirect double taxation, it is taxation other than

direct duplicate taxation. It extends to all cases in which there is a

burden of two or more impositions.

c. $onstitutionality of double taxation

Bnlike in the Bnited #tates $onstitution, our $onstitution does

not prohibit double taxation.

Cowever, while it is not forbidden, it is something not favored.

#uch taxation should, whenever possible, be avoided and prevented.

In addition, where there is direct double taxation, there may be

a violation of the constitutional precepts of e*ual protection and

uniformity in taxation."'

he l" $ !re#cri!ti$, bei$0 " re/e%i"l /e"#re, #hl% be liber"ll c$#tre% t"r% !rtecti$ "# " crll"r, the ece!ti$# t the l" $ !re#cri!ti$ be #trictlc$#tre%. (CIR vs CA. &.'. . 1


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12 he "r0/e$t "0"i$#t %ble t""ti$ /" $t be i$e% here $e t" i#i/!#e% b the St"te "$% the ther i# i/!#e% b the cit, it bei$0 i%el rec0$ie%th"t there i# $thi$0 i$here$tl b$i# i$ the re=ire/e$t th"t lice$#e +ee# rt"e# be e"cte% ith re#!ect t the #"/e cc!"ti$, c"lli$0, r "ctiit b bth theSt"te "$% " !litic"l #b%ii#i$ there+. A$% here the #t"tte r r%i$"$ce i$=e#ti$, there i# $ i$+ri$0e/e$t + the rle $ e="lit (Cit# of *aguio v. +e Leon,2 S5'A 938)

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d. 5odes of eliminating double taxation

wo D'E methods of relief"(

xemption method he income or capital which is taxable at thestate of source orsitus is exempted at the state of residence,although in someinstances it may be taken into account indetermining the rateof tax applicable to the taxpayer3s remainingincome or capital

$redit methodAlthough the income or capital which is taxed inthe state of

source is still taxable in the state of residence,the tax paid inthe former is credited against the tax levied inthe latter. hebasic di&erence between the two methods isthat in theexemption method, the focus is on the income orcapital,

whereas the credit method focuses upon the tax.

13A t" tre"t re#rt# t #eer"l /eth%#. Fir#t, it #et# t the re#!ectie ri0ht# t t"+ the #t"te + #rce r #it# "$% + the #t"te + re#i%e$ce ith re0"r% t cert"i$


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cl"##e# + i$c/e r c"!it"l. I$ #/e c"#e#, "$ ecl#ie ri0ht t t" i# c$+erre% $$e + the c$tr"cti$0 #t"te#; heer, +r ther ite/# + i$c/e r c"!it"l, bth#t"te# "re 0ie$ the ri0ht t t", "lth0h the "/$t + t" th"t /" be i/!#e% bthe #t"te + #rce i# li/ite%. he #ec$% /eth% +r the eli/i$"ti$ + %blet""ti$ "!!lie# he$eer the #t"te + #rce i# 0ie$ " +ll r li/ite% ri0ht t t"t0ether ith the #t"te + re#i%e$ce. I$ thi# c"#e, the tre"tie# /"e it i$c/be$t!$ the #t"te + re#i%e$ce t "ll relie+ $ r%er t "i% %ble t""ti$.

7


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4.scape from taxation

a. #hifting of tax burden"

1) 7ays of shifting the tax burden

a. :orward shifting7hen the burden of the tax is transferred from afactor ofproduction through the factors of distributionuntil it nally

settles on the ultimate purchaser or consumer."8

b. 2ackward shifting7hen the burden of the tax is transferred fromthe consumeror purchaser through the factors of distributionto the factors

of production."9

c. 4nward shifting7hen the tax is shifted two or more times eitherforward or

backward."=

'E axes that can be shifted

4nly indirect taxes may be shifted"?direct taxes">cannot beshifted.

14 he tr"$#+er + the br%e$ + " t" b the ri0i$"l !"er r the $e $ h/the t" "# "##e##e% r i/!#e% t #/e$e el#e.15 Prce## b hich #ch t" br%e$ i# tr"$#+erre% +r/ #t"ttr t"!"er t

"$ther itht il"ti$0 the l".>h"t i# tr"$#+erre%i# $t the !"/e$t + the t", bt the br%e$ + the t"

16 "/!le17 *"$+"ctrer r !r%cer /" #hi+t t" "##e##e% t hle#"ler, h i$ tr$

#hi+t# it t the ret"iler, h"l# #hi+t# it t the ?$"l !rch"#er rc$#/er 16"/!le

5$#/er r !rch"#er /" #hi+t t" i/!#e% $ hi/ t ret"iler b !rch"#i$0 $l"+ter the !rice i# re%ce%, "$% +r/ the l"tter t the hle#"ler, r ?$"ll t the/"$+"ctrer r !r%cer17 "/!leh#, " tr"$#+er +r/ the #eller t the !rch"#er i$le# $e #hi+t; +r/ the!r%cer t the

hle#"ler, the$ t ret"iler, e h"e t #hi+t#; "$% i+ the t" i# tr"$#+erre% "0"i$ tthe !rch"#er b the ret"iler, e h"e three #hi+t# i$ "ll.


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18 e.0. VA

19 e.0. I$c/e t"8


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(E 5eaning of impact and incidence oftaxation

Impact of taxation Incidence of taxation

he point on which a tax isoriginally imposed. In so far as thelaw is concerned, the taxpayer is theperson who must pay the tax to thegovernment. Ce is also termed asthe statutory taxpayer-the one onwhom the tax is formally assessed.Ce is the subject of the tax.

he point onwhich the taxburden nallyrests or settledown. It takesplace whenshifting hasbeen e&ectedfrom the

statutorytaxpayer toanother.

b.axavoidance'

@

he exploitation of

the taxpayer of legally

permissible alternativetax rates or methods of

assessing taxable

property or income in

order to

avoid orreduce tax

liabilit

c. axevasion

he

use by the

taxpayer

of illegal

orfraudulent

means to

defeat or

lessen the

payment of

tax.

20 "l#

$$ "#@t"

/i$i/i"ti$; it i# $t!$i#he%b l"1 "l#$$"#@t"%%0i$0;iti#!$i#h"blebl"le/e$t#+t"e"#i$1.he e$%

t be"chiee%, i.e.!"/e$t +le## th"$th"t $$b thet"!"er t

be le0"ll%e, r!"i$0 $t" he$ it i##h$ th"tt" i# %e

2. A$"cc/!"$i$0 #t"te + /i$% hichi# %e#cribe%"# bei$0@eil, @i$b"% +"ith,@ill+l, r@%eliber"te"$% $t@"cci%e$t"l

3.A cr#e

+ "cti$ (r +"ilre +"cti$) hich i# $l"+l

I$%ici" + +r"% i$ t"e"#i$

1. F"ilre t %ecl"re +rt""ti$ !r!#e# tre "$%"ct"l i$c/e %erie% +r/b#i$e## +r t (2)c$#ectie e"r#; r

2. Sb#t"$ti"l $%er%ecl"r"ti$ + i$c/e t"retr$# + the t"!"er +r+r (4) c$#ectie e"r#c!le% ith $i$te$ti$"ler#t"te/e$t + %e%cti$#

i%e$ce t !re t"e"#i$Si$ce +r"% i# " #t"te +

/i$%, it $ee% $t be !re%b %irect ei%e$ce bt /"be !re% +r/ thecirc/#t"$ce# + the c"#e.

F"ilre + the t"!"er t%ecl"re +r t""ti$!r!#e# hi# tre "$% "ct"li$c/e %erie% +r/ hi#b#i$e## +r t (2)c$#ectie e"r# i# "$

i$%ic"ti$ + hi# +r"%le$ti$te$t t che"t the0er$/e$t + it# %e t"e#.('e!blic #. &$"le#, 13S5'A 638)

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8. xemption from taxation

a. 5eaning of exemption from taxation

It is the grant of immunity to particular persons or corporations

or to persons or corporations of a particular class from a tax whichpersons and corporations generally within the same state or taxingdistrict are obliged to pay. It is an immunity or privilege it is freedomfrom a nancial charge or burden to which others are subjected.''

2. %ature of tax exemption

1) It is a mere personal privilege of the grantee.

2) It is generally revocable by the government unless the

exemption is founded on a contract which is contract which isprotected from impairment.

3) It implies a waiver on the part of the government of its right

to collect what otherwise would be due to it, and so is prejudicial

thereto.

4) It is not necessarily discriminatory so long as the exemption

has a reasonable foundation or rational basis.

5) It is not transferable except if the law expressly provides so.

3.Finds of tax exemption

1)xpress'(

7hen certain persons, property or transactions are, by express

provision, exempted from all certain taxes, either entirely or in part.

'E Implied'

7hen a tax is levied on certain classes of persons, properties, or

transactions without mentioning the other classes.

'8

22e/!ti$ i# "lle% $l i+ there i# " cle"r !ri#i$ there+r.It i# $t $ece##"ril %i#cri/i$"tr "# l$0 "# there i# " re"#$"ble +$%"ti$ rr"ti$"l b"#i#. e/!ti$# "re $t !re#/e%, bt he$ !blic !r!ert i# i$le%,ee/!ti$ i# the rle "$% t""ti$

i# the ee/!ti$.23 r "Br/"tie ee/!ti$


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24 r ee/!ti$ b /i##i$25 t" ee/!ti$ b i/!lic"ti$

It /#t be e!re##e% i$ cle"r "$% $/i#t""ble l"$0"0e

26 er t" #t"tte /"e# ee/!ti$# bec"#e + /i##i$#.1


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(E $ontractual

Agreed to by the taxing authority in contracts lawfully entered

into by them under enabling laws.

d. 0ationale6grounds for exemption

0ationale for granting taxexemptions

Its avowed purpose is some publicbenet or interests which thelawmaking body considerssu&icient to o&set the monetaryloss entailed in the grant of theexemption.he theory behind the grant of taxexemptions is that such act willbenet the body of the people. It isnot based on the idea of lesseningthe burden of the individualowners of property.

+rounds forgranting taxexemptions

1) 5ay be basedon contract.'9

2) 5ay be based

on some groundof public policy.'=

3) 5ay be basedon grounds ofreciprocity or tolessen the rigors

of internationaldouble ormultiple

taxation.'?

e

.0evocatio

nofta

x exemption

It is

an act of

liberality

which

could be

taken back

by the

governmen

t unless

there are

restrictions. #ince

taxation is

the rule

and

taxation

therefrom

is the

exception

, theexemptio

n may be

withdraw

n by the

taxing

authority.'>

26 I$ #ch " c"#e, the!blic, hich i# re!re#e$te%b the 0er$/e$t i##!!#e% t receie " +lle=i"le$t there+r, i.e.ch"rter + " cr!r"ti$.27 i.e., t e$cr"0e$e i$%#trie# r t +#terch"rit"ble i$#titti$#. Cere,the 0er$/e$t $ee% $treceie "$ c$#i%er"ti$ i$retr$ +r the t"

ee/!ti$.+r t" ee/!ti$.e/!ti$ i# "lle% $l i+there i# " cle"r !ri#i$there+r.

29 actan Cebu

International Airport

Authorit# vs., arcos, 261

S5'A 667.

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9. $ompensation and #et-o&(@

+eneral 0ule

axes are not subject to set-o& or legal compensation. he

government and the taxpayer are not creditors and debtors or eachother. 4bligations in the nature of debts are due to the government inits corporate capacity, while taxes are due to the government in its

sovereign capacity.("

xception

7here both the claims of the government and the taxpayer

against each other have already become due and demandable as well

as fully li*uated.('

=. $ompromise

A contract whereby the parties, by reciprocal concessions, avoid

litigation or put an end to one already commenced.((

8.ax amnesty

a. /enition

A general pardon or intentional overlooking by the #tate of its

authority to impose penalties on persons otherwise guilty of evasion

or violation of a revenue to collect what otherwise would be due it

and, in this sense, prejudicial thereto.(

30 'e=i#ite# + 5/!e$#"ti$ i$ t""ti$

1.he t" "##e##e% "$% the cl"i/ "0"i$#t the 0er$/e$t be +ll li=i%"te%.2.he t" "##e##e% "$% the cl"i/ "0"i$#t the 0er$/e$t i# %e "$% %e/"$%"ble,

"$%

3.he 0er$/e$t h"% "lre"% "!!r!ri"te% +$%# +r the !"/e$t + the cl"i/(+omingo v. "arlitos,

L-189


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2.h#e i$li$0 +r"%.

34" "/$e#t, lie t" ee/!ti$, i# $eer +"re% $r !re#/e% i$ l" "$% i+0r"$te% b #t"tte /#t be c$#tre% #trictl "0"i$#t the t"!"er, h /#t #hc/!li"$ce ith the l".

he 0er$/e$t i# $t estopped+r/ =e#ti$i$0 the t" li"bilit ee$ i+ "/$e#t

t" !"/e$t# ere "lre"% receie%12


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b. /istinguished from tax exemption

ax amnesty ax exemption)artakes of an absolute forgivenessor waiver

he grant of immunity to particularpersons

by the +overnment of its right tocollect or corporations of a particularclass from awhat otherwise would be due itand, in this

tax of which persons andcorporations

sense, prejudicial thereto,particularly to tax

generally within the same state ortaxing

evaders who wish to relent and arewilling to district are obliged to pay.reform are given a chance to do soandtherefore become a part of the

society with aclean slate.

Immunity from all criminal, civiland Immunity from civil liability onlyadministrative liabilities arisingfrom non-

payment of taxes

Applies only to past tax periods,hence )rospective application

retroactive application

here is revenue loss since therewas actually taxes due but collectionwas waived by the government.

%one, becausethere was noactual taxes dueas the person or

transaction isprotected by taxexemption.

%ever favored nor

presumed in law, and isgranted by statute. heterms of the amnesty orexemption must bestrictly construedagainst the taxpayer

andliberally infavor of thegovernment.

rr$e# "!!lic"ti$ "$%

e$+rce/e$t + the l" b!blic Bcer# % $t blc#b#e=e$t crrect"!!lic"ti$ + the #t"tte.

he 0er$/e$t i# $eerestopped b /i#t"e# rerrr# b it# "0e$t#.

13


25/526

9. $onstruction and

Interpretation of a.

ax laws

1)+eneral 0ule

ax laws are liberally interpreted in favor of the taxpayer and

strictly against the government.

'E xception

1iberal interpretation does not apply to tax exemptions which

should be construed in strictissimi jurisagainst the taxpayer.(8

2. ax exemption and exclusion

1)+eneral 0ule

In the construction of tax statutes, exemptions are not favoredand are construed strictissimi juris against the taxpayer. (9 hefundamental theory is that all taxable propertyshould bear its sharein the cost and expense of the government.

axation is the rule and exemption. Ce who claims exemptionmust be able to justify his claim or right thereto by a grant express in

terms Gtoo plain to be mistaken and too categorical to bemisinterpreted.H If not expressly mentioned in the law, it must be atleast within its purview by clear legislative intent.

2)xceptions

1.he law itself expressly provides for a liberal constructionthereof.

2. In cases of exemptions granted to religious, charitable andeducational institutions or to the government or its agencies or to

public property because the general rule is that they are exemptedfrom tax.


26/526

35 'e"#$ Li+ebl% %ctri$e

36 Strict i$ter!ret"ti$ %e#$t "!!l t the 0er$/e$t "$% it# "0e$cie#37 Petiti$er c"$$t i$e the rle + strictissimi -uris ith re#!ect t the

i$ter!ret"ti$ + #t"tte#0r"$ti$0 t" ee/!ti$# t the P5. he rle $ #trict i$ter!ret"ti$ %e# $t "!!li$ the c"#e + ee/!ti$# i$ +"r + " !litic"l #b%ii#i$ r i$#tr/e$t"lit + the0er$/e$t Eaceda v. acaraig

14


27/526

3.ax rules and regulations

1)+eneral rule only

hey shall not be given retroactive application if the revocation,

modication or reversal will be prejudicial to the taxpayers.(=

d. )enal provisions of tax laws

ax laws are civil and not penal in nature, although there are

penalties provided for their violation.

he purpose of tax laws in imposing penalties for delin*uencies

is to compel the timely payment of taxes or to punish evasion or

neglect of duty in respect thereof.

5.%on-retroactive application to taxpayers

1)xceptions

A statute may operate retroactively provided it is expresslydeclared or is clearly the legislative intent. 2ut a tax law should not begiven retroactive application when it would be harsh and oppressive.

9. Scope and #imitation of Taxation

1. Inherent

1imitations a.

)ublic

)urpose(?

he tax must be used

1) for the support of the state or

2) for some recogni!ed objects of governments or

3) directly to promote the welfare of the community(>

37 Sec. 246

38 e#t i$ %eter/i$i$0 Pblic Pr!#e# i$ t"1.Gt e#t H hether the thi$0 t be thre"te$e% b the "!!r!ri"ti$ + !blic

ree$e i# #/ethi$0 hich i# the %t + the St"te, "# " 0er$/e$t.2. Pr/ti$ + &e$er"l >el+"re e#t H hether the l" !ri%i$0 the t" %irectl

!r/te# the el+"re + the c//$it i$ e="l /e"#re.he ter/ @!blic !r!#e i# #$$/# ith @0er$/e$t"l !r!#e; " !r!#e

"ecti$0 the i$h"bit"$t# + the #t"te r t"i$0 %i#trict "# " c//$it "$% $t


28/526

/erel "# i$%ii%"l#.A t" leie% +r " !ri"te !r!#e c$#titte# " t"i$0 + !r!ert itht %e!rce## + l".

he !r!#e# t be "cc/!li#he% b t""ti$ $ee% $t be ecl#iel !blic.Alth0h !ri"te i$%ii%"l# "re %irectl be$e?te%, the t" l% #till be "li%!ri%e% #ch be$e?t i# $l i$ci%e$t"l.

1


29/526

2. Inherently 1egislative

1)+eneral 0ule

axation is purely legislative, $ongress cannot delegate the

power to others. his limitation arises from the doctrine of separationof powers among the three branches of government.

2)xceptions

1)/elegation to localgovernments@

he power of local government units to impose taxes and fees is

always subject to the limitations which the $ongress may provide, the

former having no inherent power to tax."

he power to tax is primarily vested in the $ongress, however,in our jurisdiction, it may be exercised by local legislative bodies, nolonger merely by virtue of a valid delegation but pursuant to direct

authority conferred by #ection 8,'Article of the">?= $onstitution,subject to guidelines and limitations which $ongress may provide

which must be consistent with the basic policy of local autonomy.(

bE /elegation to the )resident

he power granted to $ongress under this constitutional

provision to authori!e the )resident to x within specied limits andsubject to such limitations and restrictions as it may impose, tari&rates and other duties and imposts include tari&s rates even forrevenue purposes only. $ustoms duties which are assessed at theprescribed tari& rates are very much like taxes which are fre*uently

imposed for both revenue-raising and regulatory purposes.8

cE /elegation to administrativeagencies

7ith respect to aspects of taxation not legislative in character.46

he te#t i# $t "# t h receie# the /$e, bt the ch"r"cter + the !r!#e +rhich it i# e!e$%e%; $t the i//e%i"te re#lt + the e!e$%itre bt r"ther thelti/"te.

I$ the i/!#iti$ + t"e#, !blic !r!#e i# !re#/e%.39 t""ti$ "# "$ i/!le/e$t + !lice !er40 Art. X. Sec. 41 *asco v. !A"COR42 "ch lc"l 0er$/e$t $it #h"ll h"e the !er t cre"te it# $ #rce# +ree$e# "$% t le t"e#, +ee# "$% ch"r0e# #b:ect t #ch 0i%eli$e# "$%li/it"ti$# "# the 5$0re## /" !ri%e, c$#i#te$t ith the b"#ic !lic + lc"l"t$/. Sch t"e#, +ee#, "$% ch"r0e# #h"ll "ccre ecl#iel t the lc"l


30/526

0er$/e$t#.43 CIAA v. arcos, 261 S5'A 66744 Art.VI, Sec. 28(2)45 "arcia vs. ecutive &ecretar#, et. "l., &.'. . 1


31/526

3.erritorial

1)#itus of axation=

1) 5eaning

1iterally means Gthe place of taxation.H

he place or the authority that has the right to impose and

collect taxes.?It is premised upon the symbiotic relation between thetaxpayer and the #tate.

bE #itus of Income ax

"E :rom sources within the)hilippines

'E :rom sources without the)hilippines

/etermined by the nationality, residence of the taxpayer and

source of income.>

(E Income partly within and

partly without the

)hilippines

Allocated or apportioned to sources within or without the

)hilippines.8@

5ert"i$ "#!ect# + the t"i$0 !rce## th"t "re $t re"ll le0i#l"tie i$ $"tre "ree#te% i$ "%/i$i#tr"tie "0e$cie#. I$ the#e c"#e#, there re"ll i# $ %ele0"ti$, t it

1) !er t "le !r!ert

2)!er t "##e## "$% cllect t"e#

3) !er t !er+r/ %et"il# + c/!t"ti$, "!!r"i#e/e$t r "%:#t/e$t#.Fr the %ele0"ti$ t be c$#titti$"ll "li%, the l" /#t be c/!lete i$ it#el+

"$% /#t #et +rth #Bcie$t #t"$%"r%#.

47 @It i# "$ i$here$t /"$%"te th"t t""ti$ #h"ll $l be eerci#e% $ !er#$#,!r!ertie#, "$% eci#e ithi$ the territr + the t"i$0 !er bec"#e

1." l"# % $t !er"te be$% " c$tr# territri"l li/it.

2.Pr!ert hich i# hll "$% ecl#iel ithi$ the :ri#%icti$ + "$ther #t"tereceie# $$e + the !rtecti$ +r hich " t" i# #!!#e% t be c/!e$#"ti$.Ceer, the +$%"/e$t"l b"#i# + the ri0ht t t" i# the c"!"cit + the

0er$/e$t t !ri%e be$e?t# "$% !rtecti$ t the b:ect + the t". A !er#$ /"be t"e%, ee$ i+ he i# t#i%e the t"i$0 #t"te, here there i# betee$ hi/ "$% thet"i$0 #t"te, " !riit + rel"ti$#hi! :#ti+i$0 the le.48 Commissioner vs. arubeni, &.'. . 137377, Gec.18, 2


32/526

th"t !r%ce% the i$c/e t !l"ce i# the #it# + t""ti$.

50 Fr the !r!#e + c/!ti$0 the t""ble i$c/e there+r/, here ite/# +0r## i$c/e "re #e!"r"tel "llc"te% t #rce# ithi$ the Phili!!i$e#, there #h"ll be%e%cte%(1) the e!e$#e#, l##e# "$% ther %e%cti$# !r!erl "!!rti$e% r "llc"te%

theret, "$%

17


33/526

cE #itus of )roperty axes

D"E axes on 0eal )roperty

he place where the property is located. he applicable concept

is lex situsor lex reisitae.8"

D'E axes on )ersonal)roperty

angible personal property Intangible personal property

7here the property is physically

located although the owner resides

in another jurisdiction.8'

he place where

the owner is

located. he

applicable

concept is

mobilia

sequuntur

personam.8(

dE#itus

ofxcise ax

D"E

state ax

D'E /onor3s ax

/etermined by the

nationality and

residence

of the

taxpayer

and the

place

where the

property is

located.

(b) "r"t"ble !"rt+ there!e$#e#,l##e# rther%e%cti$#hich c"$$t

%e?$itel be "llc"te% t#/e ite/# r cl"##e# +0r## i$c/e. here/"i$%er, i+ "$, #h"ll bei$cl%e% i$ +ll "# t""blei$c/e +r/ #rce# ithi$the Phili!!i$e#.

51 >e c"$ $l i/!#e!r!ert t" $ the!r!ertie# + " !er#$h#e re#i%e$ce i# i$ thePhili!!i$e#.

52 1 A/ Dr. 4673 /"ble#+llthe$err%/icile+the$erce!ti$#1.>he$ the !r!ert h"#

"c=ire% " b#i$e###it# i$ "$ther

:ri#%icti$;

2.>he$ "$ e!re##!ri#i$ + the #t"tte!ri%e +r "$ther rle.

18


34/526

eE #itus of 2usiness ax

he place where the act or business is performed or occupationis engaged in.

8

D"E #ale of 0eal )roperty

he place or location of the real property.88

D'E #ale of )ersonal )roperty

he place of sale.

D(E JA

7here the goods, property or services are destined,

used or consumed. d. International

$omity89

he property of a foreign state or government may not be taxedby another.8=

4here the tr"$#"cti$i# !er+r/e% bec"#e it i# th"t !l"ce th"t 0ie# !rtecti$he !er t le "$ eci#e !$ the !er+r/"$ce + "$ "ct r the e$0"0i$0 i$ "$

cc!"ti$ %e# $t %e!e$% !$ the %/icile + the !er#$ #b:ect t the eerci#e,$r !$ the !h#ic"l lc"ti$ + the !r!ert r i$ c$$ecti$ ith the "ct rcc!"ti$ t"e%, bt %e!e$%# !$ the !l"ce $ hich the "ct i# !er+r/e% rcc!"ti$ e$0"0e% i$.h#, the 0"0e + t""bilit %e# $t %e!e$% $ the lc"ti$ + the Bce, bt

"tt"che# !$ the !l"ce here the re#!ectie tr"$#"cti$ i# !er+ecte% "$%c$#//"te% (/ope0ell vs. Com. of Customs)

55 S, i+ the !r!ert #l% i# #it"te% ithi$ the Phil#., the i$c/e %erie% +r/#ch #"le i# c$#i%ere% "# i$c/e ithi$.56 5/it i# the re#!ect"ccr%e% t ther #erei0$ $"ti$#.57 he 0r$%# +r the "be "re

1.#erei0$ e="lit "/$0 #t"te#2. #"0e "/$0 #t"te# th"t he$ $e e$ter i$t the territr + "$ther, there i#

"$ i/!lie% $%er#t"$%i$0 th"t the !er %e# $t i$te$% t %e0r"%e it# %i0$it b


35/526

!l"ci$0 it#el+ $%er the :ri#%icti$ + the l"tter

3.+rei0$ 0er$/e$t /" $t be #e% itht it# c$#e$t # th"t it i# #ele## t"##e## the t" #i$ce it c"$$t be cllecte%

4.reci!rcit "/$0 #t"te#

19


36/526

5. xemption of +overnment ntities,

Agencies, and Instrumentalities

1.Agencies performing governmental functions - tax exempt8?

2. Agencies performing proprietary functions - subject to tax.

2. $onstitutional 1imitations

a. )rovisions /irectly A&ecting axation

"E )rohibition against imprisonment for non-

payment of poll tax

%o person shall be imprisoned for debt or non-payment of polltax.8>

'E Bniformity and e*uality of taxation

he rule of taxation shall be uniform and e*uitable. he

$ongress shall evolve a progressive system of taxation.9@

58 he ee/!ti$ "!!lie# $l t 0er$/e$t"l e$titie# thr0h hich the

0er$/e$t i//e%i"tel "$% %irectl eerci#e# it# #erei0$ !er#.59 " ee/!ti$ + !r!ert $e% b the 'e!blic + the Phili!!i$e# re+er# tthe !r!ert $e% b the 0er$/e$t "$% it# "0e$cie# hich % $t h"e #e!"r"te"$% %i#ti$ct !er#$"lit (1+C vs. Cebu Cit#) h#e cre"te% b #!eci"l ch"rter(i$cr!r"te% "0e$cie#) "re $t cere% b the ee/!ti$

60 Sec. 2


37/526

2


38/526

3) +rant by $ongress of authority to the

)resident to impose tari& rates

he $ongress may, by law, authori!e the )resident to x tari&

rates, import and export *uotas, tonnage and wharfage dues, and

other duties or imposts within the framework of the nationaldevelopment program of the government.9"

E )rohibition against taxation of religious,

charitable entities, and educational entities

#ubject to the conditions prescribed by law, all grants,endowments, donations or contributions used actually, directly andexclusively for educational purposes shall be exempt from tax.9'

5) )rohibition against taxation of non-stock,

non-prot institutions

All revenues and assets of non-stock, non-prot educational

institutions used actually, directly, and exclusively for educational

purposes shall be exempt from taxes and duties.9(

9E 5ajority vote of $ongress for grant of taxexemption

%o law granting any tax exemption shall be passed without the

concurrence of a majority of all the members of the $ongress.9

61 Art. 28 (2), Art. VI62 Sec. 4(4), Art. XIV.63 he ee/!ti$ 0r"$te% t $$-#tc, $$-!r?t e%c"ti$"l i$#titti$ cer#

i$c/e, !r!ert, "$%%$r# t"e#, "$% c#t/ %tie#. be ee/!t +r/ t" r %t, the ree$e, "##et#, !r!ert r %$"ti$ /#t be

#e% "ct"ll, %irectl "$% ecl#iel +r e%c"ti$"l !r!#e.I$ the c"#e r reli0i# "$% ch"rit"ble e$titie# "$% $$-!r?t ce/eterie#, the

ee/!ti$ i# li/ite% t !r!ert t".he #"i% c$#titti$"l !ri#i$ 0r"$ti$0 t" ee/!ti$ t $$-#tc, $$-!r?t

e%c"ti$"l i$#titti$ i# #el+-eecti$0." ee/!ti$#, heer, + !r!riet"r (+r !r?t) e%c"ti$"l i$#titti$# re=ire

!rir le0i#l"tie i/!le/e$t"ti$. heir t" ee/!ti$ i# $t #el+-eecti$0.L"$%#, Kil%i$0#, "$% i/!re/e$t# "ct"ll, %irectl, "$% ecl#iel #e% +r

e%c"ti$"l !r!#e% "re ee/!t +r/ !r!ert t", hether the e%c"ti$"li$#titti$ i# !r!riet"r r $$-!r?t63Sec. 4 (3), Art. XIV

Prcee%# + the #"le + re"l !r!ert b the '/"$ 5"thlic chrch i# ee/!t +r/i$c/e t" bec"#e the tr"$#"cti$ "# "$ i#l"te% $e (anila !olo Club vs. CTA)

I$c/e %erie% +r/ the h#!it"l !h"r/"c, %r/itr "$% c"$tee$ "# ee/!t+r/ i$c/e t" bec"#e the !er"ti$ + th#e e$titie# "# /erel i$ci%e$t"l t the!ri/"r !r!#e + the ee/!t cr!r"ti$ (&t. !aul /ospital of Iloilo vs. CIR)

>here the e%c"ti$"l i$#titti$ i# !ri"te "$% $$-!r?t (bt " #tccr!r"ti$), it i# #b:ect t i$c/e t" bt "t the !re+ere$ti"l r"te + te$ !erce$t(1


39/526

" =r/, bt + "ll /e/ber# + the 5$0re##.

21


40/526

=E )rohibition on use of tax levied for specialpurpose

All money collected or any tax levied for a special purpose shall

be treated as a special fund and paid out for such purpose only. If thepurpose for which a special fund was created has been fullled orabandoned the balance, if any, shall be transferred to the general

funds of the government.98

8) )resident3s veto power on appropriation,

revenue, tari& bills

he )resident shall have the power to veto any particular item

or items in an Appropriation, 0evenue or ari& bill but the veto shall

not a&ect the item or items to which he does not object.99

>E %on-impairment of jurisdiction of the#upreme $ourt

he $ongress shall have the power to dene, prescribe, and

apportion the jurisdiction of the various courts but may not deprive

the #upreme $ourt of its jurisdiction over cases enumerated in #ec.

89=hereof.

6Sec. 29(3), Art. VI

A$ e"/!le i# the il Price St"bili"ti$ F$% cre"te% $%er P.G. 196 t #t"biliethe !rice# + i/!rte% cr%e il. I$ " %eci%e c"#e, it "# hel% th"t here $%er "$eectie r%er + the Pre#i%e$t, thi# #!eci"l +$% i# tr"$#+erre% +r/ the 0e$er"l +$%t " @tr#t li"bilit "cc$t, the c$#titti$"l /"$%"te i# $t il"te%. he PSF,"ccr%i$0 t the crt, re/"i$# "# " #!eci"l +$% #b:ect t 5A "%it ( OsmeavsOrbos, et "l., &.'. . 99886, *"r. 31, 1993)66 Sec. 27(2), Art. VI

67 he S!re/e 5rt #h"ll h"e the +lli$0 !er#1. erci#e ri0i$"l :ri#%icti$ er c"#e# "ecti$0 "/b"##"%r#, ther !blic

/i$i#ter# "$% c$#l#, "$% er !etiti$# +r certir"ri, !rhibiti$, /"$%"/#, ="rr"$t, "$% h"be"# cr!#.

2.'eie, rei#e, reer#e, /%i+, r "Br/ $ "!!e"l r certir"ri, "# the l" r the'le# + 5rt /" !ri%e, ?$"l :%0/e$t# "$% r%er# + ler crt# i$

1. All c"#e# i$ hich the c$#titti$"lit r "li%it + "$ tre"t, i$ter$"ti$"l reectie "0ree/e$t, l", !re#i%e$ti"l %ecree, !rcl"/"ti$, r%er, i$#trcti$,r%i$"$ce, r re0l"ti$ i# i$ =e#ti$.

2.All c"#e# i$li$0 the le0"lit + "$ t", i/!#t, "##e##/e$t, r tll, r "$!e$"lt i/!#e% i$ rel"ti$ theret.

3. All c"#e# i$ hich the :ri#%icti$ + "$ ler crt i# i$ i##e.

4.All cri/i$"l c"#e# i$ hich the !e$"lt i/!#e% i# recl#i$ !er!et" r hi0her.

5.All c"#e# i$ hich $l "$ errr r =e#ti$ + l" i# i$le%.3. A##i0$ te/!r"ril :%0e# + ler crt# t ther #t"ti$# "# !blic i$tere#t /"

re=ire. Sch te/!r"r "##i0$/e$t #h"ll $t ecee% #i /$th# itht the c$#e$t+ the :%0e c$cer$e%.

4.r%er " ch"$0e + e$e r !l"ce + tri"l t "i% " /i#c"rri"0e + :#tice.


41/526

5. Pr/l0"te rle# c$cer$i$0 the !rtecti$ "$% e$+rce/e$t + c$#titti$"lri0ht#, !le"%i$0, !r"ctice, "$% !rce%re i$ "ll crt#, the "%/i##i$ t the !r"ctice +l", the i$te0r"te% b"r, "$% le0"l "##i#t"$ce t the $%er-!riile0e%. Sch rle# #h"ll!ri%e " #i/!li?e% "$% i$e!e$#ie !rce%re +r the #!ee% %i#!#iti$ + c"#e#,#h"ll be $i+r/ +r "ll crt# + the #"/e 0r"%e, "$% #h"ll $t %i/i$i#h, i$cre"#e, r/%i+ #b#t"$tie ri0ht#. 'le# + !rce%re + #!eci"l crt# "$% ="#i-:%ici"l

b%ie# #h"ll re/"i$ eectie $le## %i#"!!re% b the S!re/e 5rt.

22


42/526

10)+rant of power to the local governmentunits to create its own sources of revenue

ach local government unit has the power to create its own

revenue and to levy taxes, fees and charges subject to such guidelines

and limitations as the $ongress may provide.9?

""E :lexible tari& clause

his clause provides the authority given to the )resident to

adjust tari& rates under #ection @"9> of the ari& and $ustoms

$ode.=@

"'E xemption from real property taxes

$haritable institutions, churches and parsonages or convents

appurtenant thereto, mos*ues, non-prot cemeteries, and all lands,building, and improvements actually, directly andexclusively used forreligious, charitable or educational purposes shall be exempt from

taxation.="

6. A!!i$t "ll Bci"l# "$% e/!lee# + the D%ici"r i$ "ccr%"$ce ith the 5iilSerice L". (Art. VIII) 68Sec , Art. X

Lc"l 0er$/e$t $it# h"e $ !er t +rther %ele0"te #"i% c$#titti$"l 0r"$tt r"i#e ree$e, bec"#e h"t i# %ele0"te% i# $t the e$"ct/e$t r the i/!#iti$+ " t", it i# the "%/i$i#tr"tie i/!le/e$t"ti$.

he !er + lc"l 0er$/e$t $it# t i/!#e t"e# "$% +ee# i# "l"# #b:ect t

the li/it"ti$# hich 5$0re## /" !ri%e, the +r/er h"i$0 $ i$here$t !er tt".

*$ici!"l cr!r"ti$# "re /ere cre"tre# + 5$0re## hich h"# the !er tcre"te "$% "bli#h /$ici!"l cr!r"ti$#. 5$0re## there+re h"# the !er tc$trl er lc"l 0er$/e$t $it#. I+ 5$0re## c"$ 0r"$t t " /$ici!"l cr!r"ti$the !er t t" cert"i$ /"tter#, it c"$ "l# !ri%e +r ee/!ti$# r ee$ t"eb"c the !er (*asco vs. !A"COR)the Pre#i%e$t !$ the rec//e$%"ti$ + the "ti$"l c$/ic "$% Geel!/e$tAthrit i# e/!ere%

1) i$cre"#e, re%ce r re/e ei#ti$0 !rtectie r"te# + i/!rt %t,!ri%e% th"t the i$cre"#e #hl% $t be hi0her th"$ 1


43/526

%irectl "$% ecl#iel #e% +r reli0i#, ch"rit"ble r e%c"ti$"l !r!#e#, "$%th"t the $l c$#titti$"ll rec0$ie% ee/!ti$ +r/ t""ti$ + ree$e# "reth#e e"r$e% b $$-!r?t, $$-#tc e%c"ti$"l i$#titti$#

23


44/526

13) %o appropriation or use of public money

for religious purposes

%o public money or property shall be appropriated, applied,paid or employed, directly or indirectly for the use, benet, support ofany sect, church, denomination, sectarian institution, or system ofreligion or of any priest, preacher, minister, or other religious teacheror dignitary as such except when such priest, preacher, minister ordignitary is assigned to the armed forces or to any penal institution,or government orphanage or leprosarium.='

2. )rovisions Indirectly A&ecting axation

1) /ue process

%o person shall be deprived of life, liberty or property withoutdue process of law=(

x x x.

2) *ual protection

30 nor shall any person be denied the e*ual protection of thelaws.=

3) 0eligious freedom

%o law shall be made respecting an establishment of religion or

prohibiting the free exercise thereof. he free exercise and enjoyment

of religious profession and worship, without discrimination orpreference, shall be forever allowed.=8

E %on-impairment of obligations of contracts

%o law impairing the obligation of contract shall be passed.=9

hich "re "ct"ll, %irectl "$% ecl#iel #e% +r e%c"ti$"l !r!#e#.(Commissioner of InternalRevenue v. Court of Appeals, et "l., 298 S5'A 83)72Sec. 29(2), Art. VI

Pblic !r!ert /" be le"#e% t " reli0i# 0r! !ri%e% th"t the le"#e ill bett"ll $%er the #"/e c$%iti$# "# th"t t !ri"te !er#$# ("/$t + re$t).

5$0re## i# itht !er t "!!r!ri"te +$%# +r " !ri"te !r!#e.73 Sec. 1, Art. III74 Ibi%.75 Sec. Art. III

Lice$#e +ee#Mt"e# l% c$#titte " re#tr"i$t $ the +ree%/ + r#hi! "# the"re "ct"ll i$ the $"tre + " c$%iti$ r !er/it + the eerci#e + the ri0ht.

Ceer, the 5$#titti$ r the Free erci#e + 'eli0i$ cl"#e %e# $t !rhibiti/!#i$0 " 0e$er"ll "!!lic"ble #"le# "$% #e t" $ the #"le + reli0i# /"teri"l#b " reli0i# r0"$i"ti$. (#ee Tolentino vs&ecretar# of 2inance, 23 S5'A 63


45/526

he $$-i/!"ir/e$t rle, heer, %e# $t "!!l t !blic tilit +r"$chi#e #i$ce" +r"$chi#e i# #b:ect t "/e$%/e$t, "lter"ti$ r re!e"l b the 5$0re## he$ the!blic i$tere#t # re=ire#.

24


46/526

10. Sta$es of Taxation

1.1evy

/etermination of the persons, property or excises to be taxed,

the sum or sums to be raised, the due date thereof and the time andmanner of levying and collecting taxes.

'. Assessment and $ollection

he manner of enforcement of the obligation on the part of thosewho are taxed.==

he two processes together constitute the

Gtaxation system.H (. )ayment

he act of compliance by the taxpayer, including such options,schemes or remedies as may be legally available.

. 0efund

he recovery of any tax alleged to have been erroneously orillegally assessed or collected, or of any penalty claimed to have beencollected without authority, or of any sum alleged to have beenexcessively, or in any manner wrongfully collected.

%. Definition& Nature& and Characteristics of Taxes

/enitionaxes are the enforced proportionalcontributions frompersons and property levied by the law-making body of the#tate by virtue of its sovereignty for thesupport ofgovernment and for public needs.

%ature

$haracteristics

h

eyarenotarbitrar

y exactions butcontributions

levied by authorityof law, and by somerule of proportionwhich is intendedto ensureuniformity of contribution and ajust apportionmentof the burdens ofgovernment.


47/526

1. It is levied by the law-making body

of the #tate.=?

2. It is an enforced contribution.=>

3. It

is generallypayable inmoney.?@

77 hi# i$cl%e# !"/e$tb the t"!"er "$% i#re+erre% t "# t"

"%8he!ertt"i#"le0i#l"tie!erhich$%erthe5$#titti$$l5$0re##c"$eerci#ethr0hthee$"ct/e$t+l"#.Accr%i$0l,thebli0"ti$t!"t"e#i#"#t"ttrli"bilit.

7

l$t"r!"/e$t r

%$"ti$. Iti# $t%e!e$%e$t$ the ill r

c$tr"ct"l "##e$t, e!re##r i/!lie%, + the !er#$

t"e%. "e# "re $tc$tr"ct# bt !#itie "ct# +the 0er$/e$t.

2


48/526

4. It is proportionate in character.?"

5. It is levied on persons or property.?'

6. It is levied for public purpose orpurposes.?(

7. It is levied by the #tate which has

jurisdiction over the persons or property.?

12. 'e(uisites of a )alid tax

1) It should be for a public purpose

2) he rule of taxation should be uniform

3) ither the person or property taxed be within the jurisdiction

of the taxing authority

4) he assessment and collection be in consonance with the dueprocess clause

5) he tax must not infringe on the inherent and constitutional

limitations of the power of taxation.?8

13.Tax as distin$uished from other forms of exactions

1.ari&

5ay be used in three D(E senses

1.A book of rates drawn usually in alphabetical order containing

the names of several kinds of merchandise with the corresponding

duties to be paid for the same.

2. /uties payable on goods imported or exported.?9

3. he system or principle of imposing duties on theimportation6exportation of

goods.

80 " i# " !ec$i"r br%e$ H "$ e"cti$ t be %i#ch"r0e% "l$e i$ the +r/ +/$e hich /#t be i$ le0"l te$%er, $le## ="li?e% b l", #ch "# 'A 3


49/526

85 "e# "re the li+ebl% + the 0er$/e$t "$% #hl% be cllecte% itht$$ece##"r hi$%r"$ce. Kt their cllecti$ #hl% $t be t"i$te% ith "rbitr"ri$e##86 P.G. . 23'are classied accordingly

and are accorded di&erent tax treatments, in accordance withschedules characteri!ed by graduated tax rates. #ince these types ofincome are treated separately, the allowable deductions shall likewisevary for each type of income.

#chedular system

here are di&erent tax rates

+lobalsystem

here is a

single taxrate

here are di&erentcategories of taxable

inco

me he

re is

no need for

classicati

on as alltaxpayers

are

subjected

to a singletax rate.

Bsually

used in

the

income

taxatio

n of

Bsuallyapplied

to

corpora

tions.

individ

uals

c.

#emi-schedular orsemi-global tax

system

A syste

mwherethec

ompensation,businessor

professionalincome,capitalgainandpassiveincomenotsubjectto naltax, andotherincomeareaddedtogether toarrive

at thegrossincome,andafterdeducting thesum ofallowabledeductionsfrombusiness orprofessionalincome,capital

gain and passiveincome notsubject to naltax, and otherincome, in thecase of corporations, aswell as personaland additionalexemptions, inthe case of individualtaxpayers, thetaxable income issubjected to oneset of graduatedtax rates methodof taxation underthe law.


60/526

9

2 c

/!e$#"ti$,b#i$e#

# r!r+e##i$"l

i$c/e

93 "!!r"ch #e%i$ the Phili!!i$e#

3 2


61/526

2. :eatures of the )hilippine

Income ax 1aw a. /irect

tax

4ne assessed upon the property, person, business income, etc.of those who pay

them.

b. )rogressive

he tax rates increase as the tax base increases. In certain

cases, however, nal taxes are imposed on passive income.>

c. $omprehensive

he )hilippine Income tax law adopted the so-called

Gcomprehensive tax situsH K comprehensive in the sense that it

practically applies all possible rules of tax situs.

4. #emi-schedular or semi-global tax system>8

3.$riteria in Imposing )hilippine Income ax

1.$iti!enship )rinciple

A citi!en of the )hilippines is subject to )hilippine income tax

(1)on his worldwide income, if he resides in the )hilippines, or

(2) only on his income from sources within the )hilippines, if he

*ualies as nonresident citi!en.

2. 0esidence )rinciple

A resident alien is liable to pay income tax on his income from

sources within the )hilippines but exempt from tax on his income

from sources outside the )hilippines.c. #ource )rinciple

An alien is subject to )hilippine income tax because he derivesincome from sources within the )hilippines. hus, a nonresident alienis liable to pay )hilippine income tax on his income from sources

within the )hilippines>9despite the fact that he has not set foot in the)hilippines.


62/526

94 he i$%ii%"l i$c/e t" ##te/, i$ the /"i$, i# !r0re##ie i$ $"tre

95 #!r"96 #ch "# %ii%e$%, i$tere#t, re$t, r r"lt

3

3


63/526

4.ypes of )hilippine Income ax

1.)resumptive Income ax K A scale of income taxes is

imposed in relation to a group of person3s actual expenditure and

the presumed income.

2. $omposite ax K A tax consisting of a series of separate *uasi-personal taxes, assessed on the particular source of income with asuperimposed personal tax on the income as a whole.

3. Bnitary Income ax K Incomes are arranged according to

source. he separate items are added together and the rate applied to

the resulting total income.

5.axable )eriod

a. $alendar )eriod

A period of twelve D"'E months commencing from


64/526

97e. Feb. 1 t D"$. 31

34


65/526

6.Finds of axpayers

a. Individual axpayers

1)$iti!ens

1)0esident citi!ens>?

$iti!ens of the )hilippines who are residing therein.

bE %on-resident citi!ens>>

1. A citi!en of the )hilippines who establishes to the satisfactionof the $ommissioner of Internal 0evenue D$I0E the fact of his physicalpresence abroad with a denite intention to reside therein.

2.A citi!en of the )hils. who leaves the country during thetaxable year to reside abroad, either as immigrant or for employment

or on permanent basis.

3. A citi!en of the )hils. who works and derives from abroad andwhose employment thereat re*uires him to be physically presentabroad most of the time during the taxable year.

4.A citi!en who has been previously considered as non-resident

citi!en and who arrives in the )hils. at any time during the taxable

year to reside permanently in the country."@@

5.A citi!en who shall have stayed outside the )hils. for "?( days

or more by the end of the year."@"

i$c/e

99 ""ble +r i$c/e %erie% ithi$ the Phili!!i$e# b"#e% $ t""ble (i.e., $et)i$c/e

100 Ce #h"ll be c$#i%ere% " '5 +r the t""ble e"r i$ hich he "rrie# i$ the Phil#.

ith re#!ect t hi#

i$c/e %erie% +r/ #rce# "br"% $til the %"te + hi#"rri"l i$ the Phil#. 1


66/526

i$ter$"ti$"l tr"%e i# tre"te% "# "$ er#e"# c$tr"ct rer.Le$0th + #t" i# i$%ic"tie + i$te$ti$. A citie$ + the Phili!!i$e# h #h"ll h"e

#t"e% t#i%e the Phili!!i$e# +r 183 %"# r /re b the e$% + the e"r i# " $$-re#i%e$t citie$. Ci# !re#e$ce "br"%, heer, $ee% $t be c$ti$#. E''1-79

3


67/526

2)Aliens"@'

1)0esident aliens

hose whose residence are within the )hilippines but who are

not citi!ensthereof."@(bE %on-resident alien"@

hose not residing in the )hils. and who are notciti!ensthereof."@8

D"E ngaged in trade or

business An alien who stays in the )hilippines for

more than "?@ days."@9

1h"t /"4e# "$ "lie$ " re#i%e$t )r $)$-re#i%e$t "lie$ i#

hi# i$te$ti)$ ithre0"r%

t the le$0th"$%

$"tre + hi# #t". h#". $e h c/e# t the Phili!!i$e# +r " %e?$ite !r!#e hich i$ it# er $"tre/"

be !r/!tl "cc/!li#he% i# $t " re#i%e$t citie$.b. $e h c/e# t the Phili!!i$e# +r " %e?$ite!r!#e

hich i$ it#

er $"trel%

re=ire "$ ete$%e% #t", "$% t th"t e$%, /"e# hi# h/e te/!r"ril i$ the

Phili!!i$e#, bec/e# " re#i%e$t, th0h it /" be hi# i$te$ti$ "t "ll ti/e# t retr$t hi# %/icile "br"% he$ the !r!#e +r hich he c"/e h"# bee$ c$#//"te%r "b"$%$e%. (Sec. , '' 2)

Le$0th + #t" i# i$%ic"tie + i$te$ti$.A$ "lie$ h #h"ll h"e #t"e% i$ the Phili!!i$e# +r /re th"$ $e (1) e"r b the

e$% + the t""ble e"r i# " re#i%e$t "lie$A$ "lie$ h #h"ll c/e t the Phili!!i$e# "$% #t" +r "$ "00re0"te !eri% +

/re th"$ $e h$%re% ei0ht (18


68/526

104 A /ere N"ti$0 i$te$ti$, i$%e?$ite "# t ti/e, t retr$ t "$ther c$tr i#$t #Bcie$t t

c$#tittehi/ " tr"$#ie$t.Fr t" !r!#e#, " re#i%e$t "lie$ i#;

1.A$ "lie$ h lie# i$ the Phil#. ith $ %e?$ite i$te$ti$ t #t" "# " re#i%e$t.

2. $e h c/e# i$ the Phil#. +r %e?$ite !r!#e# hich i$ it# er $"tre l%

re=ire "$ ete$%e% #t" "$% t th"t e$%, /"e# hi# h/e te/!r"ril i$ the Phil#.3.A$ "lie$ h #t" ithi$ the Phil#. +r /re th"$ 12 /$th# +r/ the %"te + hi#

"rri"l i$ the Phil#. 1


69/526

D'E %ot engaged in trade or business

An alien who stays in the )hilippines for "?@ days or less."@=

(3)#pecial $lass of Individual mployees

1)5inimum wage earner

A worker in the private sector paid the statutory minimum

wage, or to an employee in the public sector with compensation

income of not more than the statutory minimum wage in the non-

agricultural sector where he6she is assigned."@?

2y virtue of the passage of 0.A. >8@, minimum wage earners

are exempted from the payment of the net income tax."@>

bE $orporations""@

"E /omestic corporations

$reated or organi!ed in the )hils. or under its laws."""

'E :oreign corporations

$reated, organi!ed or existing under any laws other than thoseof the )hils.

D"E 0esident

ngaged in trade or business""'within the )hils.

1


70/526

D'E %on-resident

%ot engaged in trade or business within the )hils.

c. )artnerships""(

)artnership is a contract whereby two or more persons bind

themselves to contribute money, property, or industry to a common

fund with the intention of dividing the prots among themselves.""

d. +eneral )rofessional )artnerships

:ormed by persons for the role purpose of exercising their

common profession, no part of the income of which is derived from

engaging in any trade L business.""8

e. statesand rusts

state rust

he mass of property, rights and

obligations left behind by the

decedent upon his death.""9

An arrangementcreated by willor co-agreementunder which titleto property ispassed toanother forconservation or

investment withthe income

therefrom andultimately the

corpus""= to bedistributed inaccordance withthe directions ofthe creator asexpressed in thegoverning

instrument.""?

113 A$ r%i$"r b#i$e##

!"rt$er#hi! i# c$#i%ere% "# "

cr!r"ti$ "$% i# th# #b:ect

t t" "# #ch. P"rt$er# "re

c$#i%ere% #tchl%er# "$%,

there+re, !r?t# %i#tribte% t

the/ b the !"rt$er#hi! "re

c$#i%ere% "# %ii%e$%#.114 P"rt$er#hi!#, $/"tterh cre"te% rr0"$ie%, i$cl%i$0 :i$te$tre# r c$#rti/#, "ret""ble. >h"t "re t""ble$re0i#tere% !"rt$er#hi!#Ohe S5 i$ vangelista v. CIR$45, Phil 14


71/526

i$cl%e i$ their re#!ectieretr$# their %i#tribtie#h"re# + the $et i$c/e +the e#t"te.

2. #t"te# $%er :%ici"l#ettle/e$t - "re #b:ectt i$c/e t" i$ the

#"/e/"$$er"#i$%ii%"l.

2- I$c/

e receie%

%ri$0 the#ettle/e$t +the e#t"te i#t""ble tthe ?%ci"r(0"r%i"$,eectr,

tr#tee, "$% "%/i$i#tr"tr).

3- he retr$ #hl% be?le% b eectr r"%/i$i#tr"tr + thetr#t.

117 !ri$ci!"l

118 (2) i$%# + r#t 38


72/526

f. $o-ownerships"">

It is created whenever the ownership of an undivided thing or

right belongs to di&erent persons.

7. Income

axation

a.

/enitio

n

A tax on all yearly prots arising from property, profession,

trade or business, or a tax on person3s income, emoluments, protsand the like."'@

b. %ature

It is generally regarded as an excise tax. It is not levied upon

persons, property, funds or prots but on the privilege of receiving

said income or prot.

1. Irrec"ble r#t - i# c$#i%ere% "# " #e!"r"te t"!"er.

2.'ec"ble r#t - i# $e here "t "$ti/e the !er t ree#t the title t "$!"rt + the corpus+

the tr#t i# e#te%

(1) i$ the 0r"$tr (cre"tr + the tr#t) either "l$e r i$ c$:$cti$ ith "$!er#$ $t h"i$0 " #b#t"$ti"l "%er#e i$tere#t i$ the %i#!#iti$ + #ch !"rt + thecr!# r the i$c/e there+r/; r

(2) i$ "$ !er#$ $t h"i$0 " #b#t"$ti"l "%er#e i$tere#t i$ the %i#!#iti$ +#ch !"rt + the cr!# r the i$c/e there+r/.

he t" #h"ll be i/!#e% $ t""ble i$c/e + the 0r"$tr.119&e$er"l rle 5-$er#hi! i# ee/!t +r/ i$c/e t" bec"#e the "ctiitie# +the c-$er# "re#"ll li/ite% t the @!re#er"ti$ + the !r!ertie# $e% i$ c//$ "$% thecllecti$ + the i$c/e there+r/.

ce!ti$# (>he$ c-$er#hi! i# #b:ect t t").

(1) >he$ the i$c/e + the c-$er#hi! i# i$e#te% b the c-$er# i$ theri$c/e-!r%ci$0 !r!ertie# r i$c/e-!r%ci$0 "ctiitie#, "$%

(2) >he$ there i# $ "tte/!t t %ii%e i$herite% !r!ert +r /re th"$ te$ (1


73/526

#e!"r"te "$% i$%ii%"l c"!"cit.Fili$0 + retr$

he $er# #h"ll re!rt "$% i$cl%e i$ their re#!ectie !er#$"l i$c/e t"retr$# their #h"re# + the $et i$c/e + the c-$er#hi!.

e#t t %eter/i$e hether c-$er#hi! i# " t""ble $re0i#tere% !"rt$er#hi!Fi$% t hether the heir# h"e /"%e #b#t"$ti"l i/!re/e$t# $ the i$herite%

!r!ert. I+ #, the i/!lic"ti$ i# th"t the ill e$0"0e i$ b#i$e## +r !r?t("$0eli#t" Gctri$e). I+ th"t h"!!e$#, the c-$er#hi! ill be t"e% "# "$$re0i#tere% !"rt$er#hi!.12


74/526

3.+eneral principles

1.A citi!en of the )hilippines residing therein is taxable on all

income derived from sources within and without the )hilippines.

2.A non-resident citi!en is taxable only on income derived fromsources within the )hilippines.

3.An individual citi!en of the )hilippines, who is working andderiving income from abroad as an overseas contract worker, istaxable only on income derived from sources within the )hilippines.)rovided, that a seaman who is a citi!en of the )hilippines and whoreceives compensation for services rendered abroad as a member ofthe complement of a vessel engaged exclusively in international tradeshall be treated as an overseas contract worker.

4.An alien individual, whether or not a resident of the)hilippines, is taxable only on income derived from sources within the

)hilippines.

5. A domestic corporation is taxable on all income derived from

sources within and without the )hilippines.

6. A foreign corporation, whether engaged or not in trade or

business in the )hilippines, is taxable only on income derived from

sources within the )hilippines.

8. Income

1./enition

It means cash or its e*uivalent coming to a person within aspecied period, whether as payment for services, interest or protfrom investment. It covers gain derived from capital, from labor, orfrom both combined, including gain from sale or conversion of capital

assets."'"

b. %ature

All wealth which Mows to the taxpayer other than a mere returnof capital.

It is an amount of money coming to a person6corporation withina specied time, whether as payment for services, interest or protfrom investment. Bnless otherwise specied, it means cash or itse*uivalent. Income can also be thought of as a Mow of the fruits of

oneNs labor."''


75/526

121It %e$te# the "/$t + /$e r !r!ert receie% b " !er#$ r cr!r"ti$ithi$ " #!eci?e% ti/e, hether "# !"/e$t +r #erice#, i$tere#t#, r !r?t# +r/i$e#t/e$t# (2isher vs. Trinidad, 43 Phil 973)

I$c/e i# $t /erel i$cre"#e i$ "le + !r!ert; bt " 0"i$, " !r?t i$ ece## +c"!it"l "# " re#lt + ech"$0e tr"$#"cti$#.122Con0i v. Court of Ta Appeals

4


76/526

Income includes earnings, lawfully or unlawfully ac*uired,without consensual recognition, express or implied, of an obligation torepay and without restriction as their disposition.

3.7hen income is taxable

1)xistence of income

here must be gain K a value received in the form of cash or its

e*uivalent as a result of rendition of service or earnings in excess of

capital invested."'(

2)0eali!ation of income

1)ests of 0eali!ation

Bnless income is deemed reali!ed, then there is no taxableincome.

0evenue is generally recogni!ed when both conditions are met

1.he earning process is complete or virtually complete and

2.An exchange has taken place."'

2)Actual vis-;-vis $onstructivereceipt

Actual receipt

Income may be actual receipt or

physical receipt.

$onstructi

ve receipt

7hen moneyconsideration orits e*uivalentisplaced at the

control of the

person whorendered theservice withoutrestrictionby the payor."'8

123A /ere e!ect"ti$ +!r?t# i# $t "$ i$c/e

A tr"$#"cti$ hereb

$thi$0 + ech"$0e"ble"le c/e# t r i#receie% b the t"!"er%e# $t 0ie ri#e t rcre"te t""ble i$c/e.

Ite/# r "/$t#receie% hich % $t "%%t the t"!"er# $et rthr re%$% t hi# be$e?t##ch "# "/$t# /erel%e!#ite% r e$tr#te% thi/ "re $t c$#i%ere% "#0"i$# (CIR vs. Tours

&pecialist,183 S5'A4


77/526

" !"rt$er i$ the !r?t# + " 0e$er"l !"rt$er#hi!41


78/526

3)0ecognition of income

1. here is income, gain or prot

2. he income, gain or prot is received or reali!ed during thetaxable year

3. he income gain or prot is not exempt from income tax

4)5ethods of accounting

1)$ash method vis-;-vis Accrualmethod

$ash method Accrual method

0ecognition of income and expensedependent on inMow or outMow of

cash."'9

+ains andprots areincluded ingross incomewhen earnedwhetherreceived or not,and expensesare allowed asdeductions when

incurred,although not yetpaid. It is theright to receiveand not theactual receiptthat determinesthe inclusion ofthe amount ingross income

bE


79/526

Installmentpayment /eferred payment

)ercentagecompletion

Appropriate whencollections extend

over relativelylong periods oftime and there isa strongpossibility thatfull collection willnot be made.

Initialpayments

exceed'8O ofthegrosssellingpriceandsuchtransaction

shall betreatedas cash

salewhichmakestheentiresellingpricetaxablein themonth

of sale. )ersonswho

segrossincomeisderivedfromlong-

termcon

tractsshallreportsuchincome

uponthebasi

s ofpercentage ofcompletion.

126 /e"$i$0, rec0$ie thei$c/e he$ "ct"ll receie thec"#h !"/e$t +r

the

#"le,"$%rec

0$i

ethee!e$#

e

he$"ct

"ll !" c"#h +r

the e!e$#e127 i$ l$0

ter/ c$tr"ct#

42


80/526

4. ests in determining whether income is

earned for tax purposes

1)0eali!ation test

%o taxable income until there is a separation from capital ofsomething of exchangeable value, thereby supplying the reali!ation or

transmutation which would result in the receipt of income."'?

2) $laim of right doctrine or /octrine of

ownership, command, or control

A taxable gain is conditioned upon the presence of a claim of

right to the alleged gain and the absence of a denite unconditional

obligation to return or repay.

he power to dispose of income is the e*uivalent of ownershipof it. he exercise of that power to procure the payment of income toanother is the enjoyment and hence, the reali!ation of the income byhim who exercises it. he dominant purpose of the revenue laws is thetaxation of income to those who earn or otherwise create the right toreceive it and enjoy the benet of it when paid.

3) conomic benet test, /octrine of

proprietary interest

Income reali!ed is taxable only to the extent that the taxpayer is

economically beneted.

Any economic benet to the employee that increases his networth is taxable.

E #everance test

here is no taxable income until there is a separation fromcapital of something which is of exchangeable value "'> therebysupplying the reali!ation or transmutation which would result in thereceipt of income. hus, income is not taxable unless separated or

severed from the capital or labor that bore it.


81/526

128 here /#t be #e!"r"ti$ +r/ c"!it"l + #/ethi$0 + ech"$0e"ble "le (e.0., #"le+ "##et)

129 isner vs. acomer, 22 JS 18943


82/526

9. +ross Income

a.

/enitio

n

All income derived during a taxable year by a taxpayer from

whatever source, whether legal or illegal,"(@including the following

items

1. +ross income derived from the conduct of trade or businessor the exercise of a

profession.

2. 0ents3. Interests

4. )ri!es and winnings

8.$ompensation for services in whatever form paid, including,but not limited

tofees, salaries, wages, commissions, and similar items

6.Annuities

7. 0oyalties

8. /ividends

9. +ains derived from dealings in property

10. )ensions

11. )artnerNs distributive share from the net income of the

general professional partnership."("

130 A# #ch, i$c/e i$cl%e# the +lli$0, "/$0 ther#

1.re"#re +$%;

2.P$itie%"/"0e# re!re#e$ti$0 !r?t l#t;3.A/$t receie% b /i#t"e;

4.5"$cell"ti$ + the t"!"er i$%ebte%$e##;

5.'ecei!t + #ri# i$tere#t;

6. Ille0"l 0"i$#;

7."e# !"i% "$% cl"i/e% "# %e%cti$ #b#e=e$tl re+$%e%;

8.K"% %ebt recer.

131 he "be e$/er"ti$ c"$ be #i/!li?e% i$t ?e () c"te0rie#


83/526

1.5/!e$#"ti$ I$c/e - i$c/e %erie% +r/ re$%eri$0 + #erice# $%er "$e/!ler-e/!lee rel"ti$#hi!.

2. Pr+e##i$"l I$c/e - +ee# %erie% +r/ e$0"0i$0 i$ "$ e$%e"r re=iri$0#!eci"l tr"i$i$0 "# !r+e##i$"l "# " /e"$# + lielih%, hich i$cl%e#, bt $tli/ite% t, the +ee# + 5PA#, l"er#, e$0i$eer# "$% the lie.

3. K#i$e## I$c/e - 0"i$# r !r?t# %erie% +r/ re$%eri$0 #erice#, #elli$0

/erch"$%i#e, /"$+"ctri$0 !r%ct#, +"r/i$0 "$% l$0-ter/ c$tr"ct#.4. P"##ie I$c/e - i$c/e i$ hich the t"!"er /erel "it# +r the "/$t tc/e i$, hich i$cl%e#, bt $t li/ite% t i$tere#t i$c/e, r"lt i$c/e, %ii%e$%i$c/e, !rie# "$%

44


84/526

b. $oncept of income from whatever sourcederived

Implies the inclusion of all income under the law, irrespective of

the voluntary or involuntary action of the taxpayer in producing the

gains."('

All income not expressly excluded or exempted from the class of

taxable income, irrespective of the voluntary or involuntary action of

the taxpayer in producing the income."((

c. +ross Income vis-;-vis %et Income vis-;-visaxable

Income

+ross

Income %et Income or axable IncomeAs to deductions

Allows nodeductions Allows deductions

As to exemptions+rants noexemptions +rants exemptions

As totax base

+ross Income %et Income

Advantages6/isadvantages

#implies the income

tax system

#ubstantial reduction in corruptionand tax evasion as the exercise of

discretion, to allow or disallowdeductions, is dispensed with.

5ore administratively feasible

/oes away with wastage of

manpower and supplies

$onfusingandco

mplexprocessof


85/526

ling income taxreturn

Julnerable to corruption onaccount of margin of discretion in

the grant of deductions

)rovides

e*uitable

releifs in the

form of

deductions,

exemptions

and tax

credit

ax audit

minimi!es fraud

i$$i$0#.. &"i$# +r/ Ge"li$0# i$

Pr!ert H It i$cl%e# "ll

i$c/e%erie% +r/the%i#!#iti$ +!r!ert

hether re"l,!er#$"l r/ie%.

132 It

i$cl%e# ille0"l 0"i$# "ri#i$0+r/ 0"/bli$0, betti$0,ltterie#,etrti$ "$% +r"%.

133 &tierre . 5I', 5Ac"#e

4


86/526

4. $lassication of Income as to #ource

1) +ross income and taxable income

from sources within the )hilippines

1) Interests

1) Interests derived from sources within the )hils.

2) Interests on bonds, notes or other interest-bearing

obligations of residents, corporate or otherwise."(

2) /ividends

1):rom a domestic corporation, and

2) :rom a foreign corporation 8@O or more of the grossincome of which for the (-year period ending with the closeof the taxable year preceding the declaration of suchdividends, or for such part of such period as the corporationwithin the )hils."(8has been in existence, was derived fromsources. It must beonly in an amount which bears the sameratio to such dividends as the gross income of thecorporation for such period derived from sources within the)hilippines bears to its gross income from all sources.

3) $ompensation for labor or personal services performed in the

)hils."(9

4) 0entals and 0oyalties from property located in the )hils . or

from any interest in such property, including rentals or royalties for K

1) he use of, or the right or privilege to use in the )hils.any copyright, patent, design or model, plan, secret formula orprocess, goodwill, trademark, trade brand or other like propertyor night

2) he use of, or the right to use in the )hils. any

industrial, commercial or scientic e*uipment

3)he supply of scientic, technical, industrial or

commercial knowledge or information

4) he supply of any assistance that is ancillary andsubsidiary to, and is furnished as a means of enabling theapplication or enjoyment of, any such property or right as ismentioned in paragraph DaE, any such e*uipment as ismentioned in paragraph DbE or any such knowledge orinformation as is mentioned in paragraph DcE


87/526

134 Sec. 42, (A)( 1)

135 I%. (A)(2)136 I%. (A)(3)

46


88/526

5) he supply of services by a nonresident person or hisemployee in connection with the use of property or rightsbelonging to, or the installation or operation of any brand,machinery or other apparatus purchased from such nonresidentperson

6) echnical advice, assistance or services rendered inconnection with technical management or administration of anyscientic, industrial or commercial undertaking, venture,project or scheme and

7) he use of, or the right to use

1. motion picture lms

2. lms or video tapes for use in connection withtelevision and

3. tapes for use in connection with radiobroadcasting

5) +ains, prots, and income from the sale of real propertylocated in the )hils. and

6) +ains, prots, and income from sale of personal property,

treated as derived entirely from the country where it is sold."(=

2) +ross income and taxable income

from sources without the )hilippines1) Interest other than those derived from sources within the

)hils.

2) /ividends other than those derived from sources

within the )hils. a. /ividends from foreign

corporations in general and

137 ce!ti$ t the rle 0"i$ +r/ the #"le + #h"re# + #tc i$ " %/e#ticcr!r"ti$ hich i# tre"te% "# %erie% e$tirel +r/ #rce# ithi$ the Phil#.re0"r%le## + here the #h"re# "re #l%.

P"##"0e + title te#t it i# the !re"ili$0 ie th"t i$ "#cert"i$i$0 the !l"ce + #"le,the %eter/i$"ti$ + here "$% he$ the title t the 0%# !"##e# +r/ the #eller tthe ber i# %eci#ie.

$/er"ti$ i$ Secti$ 42 $t "ll-i$cl#ie.I$ the c"#e + 5//i##i$er #. Kriti#h er#e"# Air"# 5r!r"ti$ (KA5) E149

S5'A 39, the S!re/e 5rt hel%@ Secti$ 37 ($ Secti$ 42) b it# l"$0"0e, %e# $t i$te$% the e$/er"ti$

t be ecl#ie. It /erel %irect# th"t the t!e# + i$c/e li#te% therei$ be tre"te% "#


89/526

i$c/e +r/ #rce# ithi$ the Phil#. " cr#r re"%i$0 + the #ecti$ ill #h th"t it%e# $t #t"te th"t it i# "$ "ll-i$cl#ie e$/er"ti$, "$% th"t $ ther i$% +i$c/e /" be # c$#i%ere%

he S!re/e 5rt +rther hel%@ he "b#e$ce + Ni0ht !er"ti$# t "$% +r/ the Phil#. i# $t %eter/i$"ti$ +

the #rce + i$c/e $ the #it# + i$c/e t""ti$. A%/itte%l, KA5 "# "$ -li$e i$ter$"ti$"l "irli$e "t the ti/e !erti$e$t t thi# c"#e. he te#t + t""bilit i# the#rce, "$% the #rce + "$ i$c/e i# th"t "ctiit hich !r%ce% the i$c/e.J$=e#ti$"bl the !"##"0e %c/e$t"ti$# i$ the#e c"#e# ere #l% i$ the Phil#."$% the ree$e there+r/ "# %erie% +r/ " b#i$e## "ctiit re0l"rl !r#e%ithi$ the Phil#.

47


90/526

2. /ividends derived from foreign corporations, 8@O or moreof the gross income of which for the (-year periodpreceding the declaration of dividends.

3) $ompensation for labor or personal services performed

outside the )hils.

4) 0entals or royalties from property located outside the )hils.or from any interest in such property including rentals or royalties forthe use of or for the privilege of using outside the )hils., patents, etc.

5) +ains, prots and income from the sale of real propertylocated outside the )hils.

6) +ains, prots and income from the sale of personal propertylocated outside the

)hils., and

7) Income derived from the purchase of personal property

within and its sale outside the )hils."(?

3) Income partly within or partly without

the )hilippines

1) Income from transportation such as foreign steamship

companies whose vessel touch the )hil. ports"(>and other servicesrendered partly within and partly outside the )hils. such as foreign

corporations carrying on the business of transmission of telegraphand cable messages between points outside the )hils."@

2) Income from the sale of personal property produced in wholeor in part by the taxpayer within and sold outside the )hils. orproduced by the taxpayer outside and sold within the )hils.


91/526

138 Sec. 42139 Sec. 163, 'e0l"ti$#

140 Sec. 164, i%.48


92/526

5.#ources of income subject to tax

1) $ompensation Income""

All remuneration for services performed by an employee for his

employer, including the cash value of all remuneration paid in anymedium other than cash."'

It includes all remuneration for services rendered by an

employee for his employer unless specically excluded under the

%I0$."(

2):ringe 2enets"

1)#pecial treatment of fringebenets

Applied to fringe benets given or furnished to managerial or

supervising employees and not to the rank and le."8

bE /enition

Any good, service or other benet furnished or granted in cash

or in kind by an employer to an individual employee, except rank and

le employee.

141 Fr/# + 5/!e$#"ti$

1./$e

2. i$ i$%5/!e$#"ti$ !"i% t "$ e/!lee + " cr!r"ti$ i$ it# #tc i# t be tre"te% "#

i+ the cr!r"ti$ #l% the #tc +r it# /"ret "le "$% !"i% t the e/!lee i$c"#h.

Lii$0 ="rter# +r$i#he% t the e/!lee i$ "%%iti$ t c"#h #"l"r. he re$t"l"le #hl% be re!rte% "# i$c/e.

*e"l#0ie$ t e/!lee, the "le there+ #b#titte# i$c/e.78(A) Iti$cl%e#1. S"l"rie# "$% "0e#

2. 5//i##i$#3.i!#

4. All"$ce#5. K$#e#

6. Fri$0e Ke$e?t# + r"$ "$% ?lee/!lee# It %e# $t i$cl%ere/$er"ti$ !"i%

Fr "0ricltr"l l"br !"i% e$tirel i$ !r%ct# + the +"r/ here the l"bri# !er+r/e%, r Fr %/e#tic #erice i$ " !ri"te h/e, rFr c"#"l l"br $t i$ the cr#e + the e/!lerQ# tr"%e r b#i$e##, rFr #erice# b " citie$ r re#i%e$t + the Phili!!i$e# +r " +rei0$ 0t r "$ i$tlr0"$i"ti$.


93/526

143 Sec. 2.78.1, '' 2-98144 Sec. 33

145 he +ri$0e be$e?t cere% re+er# t th#e e$:e% b /"$"0eri"l "$%#!eri#r e/!lee#146 Pr#"$t t 'ee$e 'e0l"ti$# . 3 H 98 (%"te% *" 21, 1998) i/!le/e$ti$0#ecti$ 33 + the " 5%e.

4

9


94/526

cE axable and non-taxable fringebenets

axable fringe benets %on-taxable fringe benets

"E Cousing )rivileges"E :ringe benets which areauthori!ed andexempted from tax under speciallaws

DaE 1ease of residential property forthe use of the employee as hisusual place of

'E $ontributions of the employerfor the

residence.

benet of the employee toretirement,

DbE 0esidential )roperty owned by

insurance and hospitali!ationbenet plans

employer and assigned toemployee as his

(E 2enets given to the rank andle

usual place of residence.employees, whether granted undera

DcE 0esidential property purchasedby

collective bargaining agreement ornot

EDe minimisbenetsemployer on installment basis forthe use ofemployer

as his usual place ofresidence. 8E 7hen the fringe benet is

re*uired by thenature of, or necessary to thetrade, business

DdE 0esidential property purchasedby or profession of the employer

0 and ownership is transferred to as

his usual place of residence.9E 7hen the fringe benet is fortheconvenience of the employer. hisis known

DeE 0esidential property transferredto

as mployer3s $onvenience0ule."88

employee at less than employer3sac*uisition

cost."9

'E Cousehold xpenses K refer toexpensesof the employee paid by theemployer forhousehold personnel or other


95/526

personal

expenses, which shall includeDaE

salaries of householdhelper

DbE personal driver of the

employeeDcE

payment for homeownerassoc.,

etc.(E Interest on loan at less than

market rate"=

146 $ H t""ble C#i$0 Fri$0e Ke$e?t#(1) C#i$0 !riile0e + /ilit"r Bci"l# + AFP

(2) C#i$0 $it, hich i# #it"te% i$#i%e r "%:"ce$t t the !re/i#e + "b#i$e## r +"ctr. A h#i$0 $it i# c$#i%ere% "%:"ce$t i+ it i# lc"te% ithi$ the

/"i// < /eter# +r/ the !eri/eter + the b#i$e## !re/i#e#.(3)C#i$0 be$e?t 0r"$te% t e/!lee# $ " te/!r"r b"#i# $t ecee%i$0three (3) /$th#

147 I+ the e/!ler le$%# /$e t hi# e/!lee


96/526

E xpenses for :oreign ravel

+eneral rule

xpenses for foreign travelinsured by the employee and6or

family members of the employeeborne by the employer shall betreated as taxable fringe benetsof the employee.

xcept

7here the expenses for foreigntravel paid by the employer forthe employee are for the purposeof attending business meeting or

convention. he exemption coversonly the following expenses

1) Inland travel expenses

except lodging cost in hotel

averaging B#P (@@ or less per

day"?and

2) $ost of economy or

business class airline ticket.">

5) 5embership fees, dues andother expenses borne by the

employer for his employee, insocial or athletic clubs or other

similar organi!ations.15

6)1ife or Cealth Insurance -

+eneral rule

he cost of life or health

insurance and other non K lifeinsurance premiums or similaramounts in excess of what the law

Free + i$tere#t r "t " r"te ler th"$ 12 (r !re"ili$0 /"ret r"te) the i$tere#t+re0$e b the e/!ler r the %iere$ce + the i$tere#t "##/e% b the e/!ler"$% the 12 r"te #h"ll be tre"te% "# t""ble +ri$0e be$e?t.

A!!lic"ble t i$#t"ll/e$t !"/e$t r l"$ ith i$tere#t r"te ler th"$ 12#t"rti$0 D"$"r 1, 1998. 1Sec. 32, I'5; Sec. 2.33 E5, '' 3-98the /eeti$0# r c$e$ti$#. Liei#e, %c/e$t# "$% ei%e$ce #hi$0 the b#i$e## !r!#e+ the e/!lee# tr"el /#t be !re#e$te% theri#e, the e$tire c#t ill be c$#i%ere%t""ble +ri$0e be$e?t.

149 Ceer, i+ the ticet i# " ?r#t cl"## $e, 3


97/526

t " +ri$0e be$e?t t".

150 he#e "re tre"te% "# t""ble Fri$0e Ke$e?t# + the e/!lee i$ +ll.1


98/526

allows borne by the employer forhis employees shall be treated astaxable fringe benets.

xcept

1)$ontribution of the

employer for the benets of the

employee pursuant to existing

laws."8"

2) he cost of premium borneby the employer for the groupinsurance of his employees.

7)Colidays and Jacation xpense

8)5otor Jehicle

1) 5otor vehicle purchased

by employer in name of employee.

2) G$ash for the purchasedprovided by the employer, theownership is placed in the nameof the employee

3) )urchase on GInstallmentHbasis, the ownership is placed inthe name of the employee

4) G)ortionH of purchased

price shouldered by employer

5) :leet of motor vehicle

GleasedH by the employer

6) :leet of 5otor vehicles

owned and maintained byemployer."8'

151 #ch "# '.A. 8287 (SSS) r '.A. 8291 (&SIS).

152 I$ c"#e Netter# ", b, c "$% %, re0"r%le## + hether the /tr ehicle i# #e% +r the

!er#$"l !r!#e + the e/!lee "$% !"rtl +r the be$e?t + hi# e/!ler, the /$et"r

"le #h"ll be the e$tire "le + the be$e?t.

153 J$%er letter# e "$% +, the Neet + /tr ehicle# i# +r the #e + the b#i$e##"$% the e/!lee#. he "le + the be$e?t #h"ll be the re$t"l !"/e$t# (e) r the


99/526

"c=i#iti$ c#t (+) + "ll /tr ehicle# $t $r/"ll #e% +r #"le#, +rei0ht, %elier#erice "$% $$-!er#$"l #e.

he #e + "cht hether $e% "$% /"i$t"i$e% r le"#e% b the e/!ler #h"llbe tre"te% "# t""ble +ri$0e be$e?t H the "le + the be$e?t #h"ll be /e"#re%b"#e% $ the %e!reci"ti$ + the R"cht "t "$ e#ti/"te% #e+l li+e + 2< r#.

2


100/526

9)xpense Account

1)xpenses incurred by the

employee but paid by his

employer.

2) xpenses paid by the

employee but reimbursed by his

employer."8(

10)ducational Assistance

+eneral 0ule he cost of theeducational assistance to theemployee or his dependents

which are borne by the employershall be treated as axable :ringe2enets.

xception

1) ducation granted to employee14

2) ducational Assistancegranted to the dependentsof the employee in the

nature of educationalassistance to thedependents of theemployee through acompetitive scheme undera scholarship program ofthe company.

he #e + "ircr"+t (i$cl%i$0 helic!ter#) $e% "$% /"i$t"i$e% b the e/!ler#h"ll be tre"te% "# @b#i$e## #e "$% $t #b:ect t FK.

153 !e$#e "cc$t $t #b:ect t FK.1)e!e$#e# %l recei!te% +r i$ the $"/e + the e/!ler "$%2)he e!e$%itre# % $t !"rt"e the $"tre + !er#$"l e!e$#e# "ttribt"ble t

the e/!lee.Per#$"l e!e$#e# + the e/!lee (lie 0rcerie#) !"i% +r r rei/br#e% b the

e/!ler "re t""ble +ri$0e be$e?t#, hether r $t %l recei!te% +r i$ the $"/e


101/526

+ the .'e!re#e$t"ti$ "$% r"$#!rt"ti$ All"$ce# ('AA) re+er# t ?e% "/$t#

hich "re re0l"rl receie% b the e/!lee# "# !"rt + their /$thl c/!e$#"ti$i$c/e. he "re $t tre"te% "# ""ble Fri$0e Ke$e?t# bt the #"/e "retre"te% "#

""ble 5/!e$#"ti$ I$c/e.154 'e=i#ite#1. %c"ti$"l 0r"$t hereb the #t% i# %irectl c$$ecte% ith the tr"%e,

b#i$e## r !r+e##i$ + the '.

2. A$% there i# " ritte$ c$tr"ct bli0"ti$0 the t re/"i$ $%er thee/!l/e$t +r " cert"i$

!eri%.

3


102/526

(E )rofessional Income

he fees received by a professional from the practice of his

profession, provided that there is no employer-employee relationship

between him and his clients.

E Income from 2usiness

he income derived from merchandising, mining, manufacturing

and farming operations.

5) Income from /ealings in )roperty

1)ypes of )roperties

(1)4rdinary assets

)roperties held by the taxpayer in the pursuit of his profession,trade or business

1. #tock in rade

2. )roperty of a kind which would properly be included in the

inventory if on hand at the close of the taxable year

3. )roperty held by the taxpayer primarily for sale to

customers in the ordinary course of trade or business

4. )roperty used in trade or business which in subject to theallowance for depreciation and

5. 0eal property used in trade or business."89

(2)$apital assets

)roperties not specically included in the statutory denition"8=

constitutes capital assets, the prots or losses on the sale or the

exchange of which are treated as capital gains or capital."8?

he statutory denition of Qcapital assetsQ pr

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2012 Bar Reviewer in Taxation

Documents