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Taxation

By

Prof. Abelardo T. Domondon

GENERAL PRINCIPLES OF TAXATION

1. When may the power to tax in!"#e thepower to #e$troy% When i$ exeri$e o& thepower to tax no t #e$t r"t i'e o& taxpayer ( $property%

SUGGESTED ANSWER:The power to tax n!l"de# the power to

de#troy$ where the tax # a %al d tax. Th# # #o

be!a"#e a taxpayer !o"ld not #ee& then" ll f !at on of the %al d tax #ole ly "pon theprem#e that the tax wll mpo%er#h hm.

The exer!#e of the power to tax # notde#tr"!t%e of taxpayer'# property where t # ann%al d tax $ wh !h %ol ate# the nhe rent or!on#t t"tonal l mtaton#. Th# # #o be!a"#ethere # a #ympathet ! !o"rt that #hall !ome to

the #"!!or of the taxpayer and de!lare #"!h taxa# n%ald.

). *i$"$$ the onept o& interpretat ion o&tax !aw$ a$ # i& &erent iate# & rom the onepto& interpretation o& tax exemption !aw$.

SUGGESTED ANSWER:

A tax !annot be mpo#ed "n le## t ##"pported by the !lear and expre## lan("a(e of a

#tat"te. )Da%ao G"lf *"mber +orporaton %.+omm##oner of ,n ternal Re%en"e$ et a l. $ -/

S+RA 01$ 223 ,n #hort$ n !a#e of do"bt$ tax law#m"#t be !on#tr"ed #tr !tly a(an#t the State andlberally n fa%or of the taxpayer. Th# # be!a"#etaxe#$ a# b"rden# wh!h m"#t be end"red by thetaxpayer$ #ho"ld not be pre#"med to (o beyondwha t the law exp re## ly and !lear ly de! lare#.)*n!oln Phl ppne *fe ,n#"ran!e +ompany$ ,n!.$et!.$ %. +o"rt of Appeal#$ et al.$ -/ S+RA -$ 3

4n the other hand$ when a tax #"n5"e#t onably mpo#ed$ a ! la m of exemptonform tax payment# m"#t be ! lear ly #hown andba#ed on lan("a(e n the law too plan to be

m#ta&en. )Da%ao G"lf *"mber +orporat on$supra 3

N4TES AND +466ENTS:The abo%e !on!ept# are al#o the holdn(

n )+omm##oner of ,nternal Re%en"e %. +o"rt ofAppeal#$ et al.$ G.R. No. 7807/9$ prom. ebr"ary-/$ 73 Th# # the +EN;4+4 !a#e.

"rthermore$ a re%er#al of a B,R r"l n(fa%orable to a taxpayer wo"ld not ne!e##ar ly!reate a perpet"al exempton n h # fa%or$ for

after all the (o%ernment # ne%er e#topped from!olle!tn( taxe# be!a"#e of m#ta&e# or error# onthe part of t# a(ent#. ) Ibid. 3

+. What #o yo" "n#er$tan# ,y the inherentan# on$ ti t" ti on a! !imi ta ti on $ a$ ,ein -re$ tr i ti 'e o& the otherwi $e "n!i mi te# an#

p!enary power o& taxation%

SUGGESTED ANSWER:The nherent and !on#tt"t onal

lmt at on# to the power of taxaton are

#afe("ard# wh!h wo"ld pre%ent ab"#e n theexer!#e of th# otherw#e "nl mted and plenarypower.

. What are the inherent !imi tation$ to thepower o& taxation%

SUGGESTED ANSWER:a. PUB*,+ PURP4SE. The tax re%en"e#

m"#t be "t l4U*D BE

RE+4GN,ED. Th# # #o n order to red"!e theamo"nt of money the (o%ernment # handl n(.There # %erty n the maxm$ or the(o%ernment$ exempton # the r"le and taxaton #the ex!epton.C

e. +46,T?. Re#pe!t #ho"ld be a!!ordedto other #o%ere(n naton#. The power of taxaton# a h(h pre ro(a t %e of #o%e re (n ty . Theproperte# of other #o%ere(n naton# wthn theter r to ry of the tax n( a" thor ty #ho"ld no t be#"b=e!t to taxaton a# a mea#"re of re#pe!t to a!oe5"al.

/. What are the on$tit"tiona! !imitation$on the power o& taxation%

SUGGESTED ANSWER:

a. GENERA* 4R ,ND,RE+T +4NST,TUT,4NA**,6,TAT,4NS:

a. *"e proe$$ !a"$e b. E0"a! protetion !a"$e !. Free#om o& the pre$$ d. Re!i-io"$ &ree#o me. Non2 impairment !a"$ef. Law2 ma3in- proe$$ :

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73 Bl l #ho"ld embra!e only one#"b=e!t

expre##ed n the ttle thereof -3 Three )/3 readn(# on three

#eparateday#

/3 Prnted !ope# n fnal formd#trb"ted

three )/3 day# before pa##a(e.(. Pre$i#entia! power to -rant

reprie'e$ $ !omm"taton# and pardon# andremttal of fne# and forfet"re after !on%!ton byfnal ="d(ment.

b. SPE+,,+ 4R D,RE+T +4NST,TUT,4NA**,6,TAT,4NS:

a. No impri$onment &or non2 paymento& a po!! tax

b. Taxation $ha!! ,e "ni&orm an#e0"ita,!e

!. +on(re## #hall e%ol%e a pro-re$$i'e$y$tem o& taxation

d. A!! appropriation4 re'en"e or tari &&

,i! !$ $ha!! ori-inate ex!"$i'e!y in the 5o"$eo& Repre$entati'e$4 b"t the Senate maypropo#e and !on!"r wth amendment#

e. The Pre$i#ent $ha!! ha'e the powerto 'eto any part i"! a r item or tem# n anappropraton$ re%en"e$ or tarff bl l$ b"t the %eto#hall not affe!t the tem or tem# to wh!h he doe#not ob=e!t

f. De !e-ate# power o& the Pre$ i#entto impo$ e t ar i& & ra te $ $ mpo rt and expor t5"ota#$ tonna(e and wharfa(e d"e#:

73 Dele(aton by +on(re## -3 Thro"(h a law /3 S"b=e!t to +on(re##onal l mt# and

re#tr!ton# F3 Wthn the framewor& of natonal

de%elopment pro(ram.(. Tax exe mp tion o& harit a,! e

in$ ti t" ti on$4 h"rhe$4 par$ona-e$ an#on'ent$ app"r tenant there to 4 m o$0"e$ 4an# a !! !an#$4 ,"i !# in-$ an# impro'ement$o& a!! 3in#$ at"a!!y4 #iret!y an# ex!"$i'e!y"$e# &or re! i-io"$4 harita,!e or e#"ationa!p"rpo$e$

h. No tax exempton wtho"t the!on!"rren!e of ma=or ty %ote of a ll member# of+on(re##

. No "#e of p"bl ! money or property forrel(o"# p"rpo#e# ex!ept f pre#t # a##(ned to

the armed for!e#$ penal n#t t"ton#$ (o%ernmentorphana(e or lepro#ar"m

=. 6oney !ol le!t ed on tax le% ed for a#pe!al p"rpo#e to be "#ed only for #"!h p"rpo#e$balan!e f any$ to (eneral f"nd#

&. The S"preme +o"rt# power to re%ew="d(m en t# or order# of lower !o"rt # n all !a#e#n%ol% n( the le(al ty of any tax$ mp o#e$a##e##ment or tol l or the le(al ty of any penaltympo#ed n relaton to the abo%e

l. A"thori ty o& !oa! -o'ernment "nit$to reate their own $o"re$ o& re'en"e4 to

!e'y taxe$4 &ee$ an# other har-e$ $",6etto -"i #e !i ne$ an# !i mi ta t ion$ i mpo$e# ,yCon-re$$ on$i$tent with the ,a$i po!iy o&!oa! a"tonomy

m. A"toma ti re!ea$e o& !oa!-o'ernment7$ 6"$t $hare in nationa! taxe$

n. Tax exemption o& a !! re'en"e$ an#a$$et$ o& non2 $to34 non2pro&i t e#"ationa!in$ ti t" ti on $ "$e # a t" a! !y 4 #ir e t! y an#ex!"$i'e!y &or e#"ationa! p"rpo$e$

o. Tax exemption o& a !! re'en"e$ an#a$$et$ o& proprie ta ry or oopera ti' ee#"ationa! in$tit"tion$ $",6et to!imit at io n$ pro'i# e# ,y !aw in!"#in -re$tr ition$ on #i'i#en#$ an# pro'i$ion$ &orrein'e$tment o& pro&i t$

p. Tax exemption o& -rant$4en#owm ent$ 4 #onat ion$ or ont ri ," t ion$"$e# at"a!!y 4 #i ret!y an# ex!"$i'e!y &ore#"ationa! p"rpo$e$ $",6et to on#it ion$pre$ri,e# ,y !aw.

8. Rep",! i At No. 9))9 reate# the S",i

Speia! Eonomi :one ;SSE:

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No. E5"al prote!ton of the law !la"#e ##"b=e!t to rea#onable !la## f!at on. , f the(ro"pn(# are !hara!ter

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The re(#traton re5"rement # a !entralfea t" re of the ;AT #y# tem. , t # de# (ned topro% de a re!ord of tax ! red t# be!a"#e anyper#on who # #"b=e!t to the payment of the ;ATpay# an np"t tax$ e%en a# he !olle!t# an o"tp"ttax on #ale# made or #er%!e# rendered. There(#traton fee # th"# more of an admn#trat%efee$ one not mpo#ed on the exer!#e of apr % le(e$ m"!h le## a !on# t t" t onal r(ht .)Tolent no %. Se!retary of nan!e$ et a l. $ and!ompan on !a#e#$ -/9 S+RA 1/83

1). Ai r! ine$4 In. wa$ -rante# a !e-i$ !at i'e&ra nhi$ e to oper at e $he# "! e# &!i-h t$er'ie$ ,etween ani !a an# Ce," an# 'ie2'er$a. I t wa$ $",6et to a & ranhi$e tax o&)? 0"a!i & ie# ,y the =ma-i wor#$4> whih=$ha!! ,e in !ie" o& a!! taxe$.>S",$e0"ent !y 4 Con-re$$ enate# Rep",!iAt No . 9918 4 the Expan#e# Ha !"e2 A##e#Tax ;EHAT< Law whih impo$e$ a 1? HATon a!! $er'ie$ o&&ere# ,y Air! ine$4 In.

Ai r! ine$4 In. a$$ai !$ the 'a! i# ity o&

R.A. No. 9918 &or ,ein- 'io!ati'e o& the non2impairment !a"$e. I t ite$ Commi$$ionero& Inter na! Re'en" e '. Lin-ay en G"!&E!etr i Power Co.4 In.4 et a!. 4 18 SCRA )9;1D< where i t wa$ he!# that the impo$i tiono& a tax on &ra nh i$ e ho!#e r$ with the= ma -i wor #$ > i$ 'io!a ti 'e o& th e non2impairment !a"$e.

The S"preme Co"rt in the Lin-ayenG"!& a$e he!# that harter$ or $peia! !aw$-rante# ,y the !e-i$!at"re are in the nat"reo& pri'ate ontrat$. R"!e on the ontentiono& Air!ine$4 In.

SUGGESTED ANSWER:The E;AT doe# no t % o la te the non

mpa rment ! la"#e. Tolent no %. Se!retary ofnan!e and t# !ompanon !a#e#$ -/9 S+RA 1/8$-F S+RA.1-2$ pro%de# the rea#on# why there #no %olaton:

a. Art!le @,,$ Se!. 77 of the +on#t t"tonpro% de# tha t the (ran t of a f ran!h#e for theoperat o n of a p"bl ! "tl ty # #"b=e! t toamendment. Alteraton or repeal by +on(re##when the !ommon (ood re5" re#

b. Not only ex # tn( law# b" t al#o there#er%aton of e##ental attr b"te# of #o%ere(nty# read nto !ontra!t# a# a po#t"late of the le(alorder

!. +on tra! t# m"# t be "nder#tood a#ha%n( been made n referen!e to the po##bleexer!#e of the r(htf "l a"thor ty of the(o%ernment and no obl (aton of !ontra!t !anextend to defeat that a"thorty

d. A lawf"l tax on a new #"b=e!t$ or ann!rea#ed tax on an old one$ doe# not nterferewth a !on tra!t or mpar # t# obl (at on$ wt h nthe meann( of the !on#t t" ton. E%en tho"(h#"!h taxaton may affe!t part!"lar !ontra!t#$ a#t may n!rea#e the debt of one per#on and le##enthe #e!"r ty of another$ or may mpo#e addt onal

b"rden# "pon one !la## and relea#e the b"rden#of another$ # t ll the tax m"#t be pad "n le##prohb ted by the !on#t t"ton$ nor !an t be #adtha t t mpa r# the ob l(a ton# of any ex # tn(!ontra!t n t# tr"e and le(al #en#e.1+ . er a! o w a$ -r an te # a & ra n hi$ e tooperate an e !etr i !i-ht an# power $er'iein Ca!am,a4 La-"na $ometime in 1D+ "n#erP.*. No. //1. n#er the & ranhi$e era!opay$ )? &ranh i$ e tax on o& it$ -ro$$reeipt$ an# =any !aw to the ontra rynotwi th$tan#in- ,e in ! ie" o& a! ! taxe$ an#a$$e$$m ent$ o& whate'er nat"re im po$e#,y any nationa! or !oa! a"thorit y orearnin-$4 reeipt$ 4 inome an# pri'i !e-e o&-eneration4 #i$tri,"tion an# $a!e o& e!etr i"rrent.> P"r$"ant to the Loa! Go'ernmentCo#e4 the pro' ine o& La-"na enate# anor#inane impo$in- a & ranhi$e o& /? o&1? o& the -ro$$ ann"a! reeipt$ o& ,"$ine$$en6 oy in- a & ranhi $e rea! i@ e# #"ri n- thepree#in- a!en#ar year within the pro'ine

in!"#in- i tie$ !oate# therein. R"!e on the'a!i#ity o& the tax or#inane.

SUGGESTED ANSWER:The tax ordnan!e # %ald. Under the now

pre%a l n( +on#t t"ton$ where there # nether a(rant nor prohb t on by #tat"te$ the tax powerm"#t be deemed to ex#t altho"(h +on(re## maypro%de #tat"tory l mtaton# and ("del ne#. Theba#! ratonale for the !"rrent r"le # to #afe("ardthe %abl ty and #elf #"ff!e n! y of lo!al(o%e rnment "n t# by dre!t ly (rant n( them(eneral and broad tax power#.

The *o!al Go%ernment +ode expl! t lya"thor

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="r d !al per#on# are wth dr awn wt h theeffe!t%ty of the *o!al Go%ernment +ode ex!eptwth re#pe!t to tho#e expre##ly en"me ra ted . )+tyGo%ernment of San Pablo$ *a("na$ et a l. $ %.Reye#$ et al.$ G.R. No. 7-0082$ 6ar!h -9$ 73

N4TES AND +466ENTS:,t # po##ble that the Bar 5"e#ton m(ht

!ome from one of the follown( area#:

Power o& !oa! -o'ernment$ to tax .*o!al (o%ernment# do no t ha%e the nheren tpower to tax ex!ept to the extent that #"!h powerm(ht be dele(ated to them ether by the ba#!law or #tat"te. Pre#ently$ "nder Art!le @ of the720 +on#t t"t on a (eneral dele(at on of thatpower ha# been (%en n fa%or of lo!al(o%ernment "nt#.

Ne%erthele##$ the f"ndamental law dd notntend the dele(a to n to be ab#ol"t e and"n!ond t ona l$ t he !on# t t" t onal ob=e! t %eob%o"#ly # to en#"re that$ whle lo!al(o%ernment "n t# are ben( #tren(thened andmade more a"tonomo"#$ the le(#lat"re m"#t #t l l

#ee to t that:a. the taxpayer wl l not be o%erb"rdened

or #addl ed w th m"l t pl e and "n rea#onabl empo#ton#

b. ea!h lo!al (o%ernment "nt wl l ha%e t#far #hare of a%alable re#o"r!e#

!. the re#o"r!e# of the natonal(o%ernment wll be "nd"ly d#t"rbed and

d. lo!al taxaton wl l be far$ "nform and="# t. )6an la Ele!tr ! +ompany %. Pro% n!e of*a("na$ et al.$ G.R. No. 7/7/9$ 6ay 9$ 73

The 6an la Ele!t r ! +ompany !a#edo!trne re%er#ed the holdn( n +ty Go%ernmentof San Pablo$ *a("na$ et al.$ %. Reye#$ et al.$ G.R.No. 7-0082$ 6ar!h -9$ 7 tha t m"n ! pal!orporaton# are %e#ted by the +on#tt"ton wththe power to tax. , t may be exer!#ed by lo!alle(#lat%e bode#$ no lon(er by %rt"e of a %al ddele(at on a# before$ b"t p"r#"ant to d re!ta"thorty !onferred by the +on#tt"ton.

The non2 impairment !a"$e .J"e$tiona,!e r"! in- . The non mpa rment!la"#e !annot be n%o&ed by f ran!h#e#$ a#fran!h#e# are alway# #"b=e!t to pol!e power$ a#wel l a# the power to tax )L3$ wh!h l&e pol !epower !annot be !on tra! ted away )L3. )+ tyGo%ernment of San Pablo$ *a("na$ et a l. $ %.Reye#$ et al.$ G.R. No. 7-0082$ 6ar!h -9$ 73

The a"thor !on#der# th# r"ln( to be5"e#tonable be!a"#e the taxn( power # nferorto the nonmparment !la"#e.

Whle the +o"rt ha#$ not too nfre5"ently$referred to tax exempton# !ontaned n #pe!alfran!h#e# a# ben( n the nat"re of !ontra!t# anda part of the nd"!ement for !arryn( o" t thefran!h#e$ the#e exempton#$ ne%erthele## farfrom ben( #tr!tly !ontra!t"al n nat"re.

Con$tit"tiona! tax exemption$ $ n thereal #en#e of the term and whe re the non

mparment !la"#e of the +on#t t"ton !an r (htlybe n%o&ed$ are tho#e a(reed to by the taxn(a"thorty n !ontra!t#$ #"!h a# tho#e !ontaned n(o%e rnment bond# or deben t" re#$ lawf"l lyen te red n to by them "nder enabl n( law# nwh !h the (o%ernmen t$ a!t n( n t# pr %at e!apa!ty #hed# t# !loa& of a"thor ty and wa%e#t# (o%ernment mm"nty.

Tr"ly$ tax exempton# of th# &nd may notbe re%o&ed wtho"t mpar n( the obl (aton# of!ontra!t#. A fran!h#e parta&e# of the nat"re of a(rant wh!h # not beyond the p"r%ew of the nonmparment !la"#e. ,ndeed the 720 +on#tt"tonl& e t# pre!"r#o r# the 7/9 and the 70/+on#tt"ton# # expl ! t that no fran!h#e for theoperat on of a p"b l ! " t l ty #ha ll be ( rantedex!ept "nder the !ond t on that #"!h pr% le(e#ha ll be #"b =e!t to amendment $ al te ra ton orrepeal by +on(re## a# and when the !ommon(ood #o re5"re#. )6an la Ele!tr ! +ompany %.Pro%n!e of *a("na$ et al.$ G.R. No. 7/7/9$ 6ay9$ 73

The reader should take note of theconfl ic t ing doctrines espoused by the Manila

Electric case and the City Goernment of !an"ablo# $aguna case. It may interest the reader

also to know tha t the ponente in the Mani la

Electric case is %ust ice %ose &itug# whi le the

ponente in the City Goernme nt of !an "ablo#$aguna is %ustice Minera Gon'aga( )eyes.

1. What i$ the onept o& #o",!e taxation%

a. 6EAN,NG. ,n t# (ener! #en#e$ th#mean# taxn( the #ame #"b=e!t or ob=e!t tw!ed"rn( the #ame taxable perod. ,n t# part!"lar#en#e$ t may mean d re!t d"pl!ate taxat on$wh !h # prohb t ed "nder the !on#t t "to nbe!a"#e t %ola te# the !on!ept of e5"alp ro te!t on $ "n formty and e5" tablene## oftaxat on. ,nd re!t d"pl !ate taxat on # no tanat he m

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1/. *e& ine internat iona! 6"ri#ia! #o",!etaxation.

SUGGESTED ANSWER:The mpo#ton of !omparable taxe# n two

or more #tate# on the #ame taxpayer n re#pe!t ofthe #am e #"b=e! t mat te r and for den t! al(ro"nd#.

Do"ble taxaton "#"ally ta&e# pla!e whena per#on # a re#dent of a !ontra!tn( #tate andder%e# n!ome from or own# !aptal n$ the other!ontra!tn( #tate and both #tate# mpo#e tax onthat n!ome or !aptal. )+omm##oner of ,nternalRe%en"e %. S.+. Iohn#on and Son$ ,n!.$ et al.$ G.R.No. 7-0789$ prom. I"ne -9$ 7

18. What are the metho#$ &or a'oi#ane oo",!e taxat ion% Exp!ain eah ,rie& !y ,"tomprehen$i'e!y.

SUGGESTED ANSWER:The follown( are the method# of a%odn(

do"ble taxaton:a. Tax t reat e# wh !h exempt fore(n

natonal# from lo!al taxaton and lo!al natonal#f rom fore(n taxat on "nder the p rn! p le ofre!pro!ty.

b. Tax !red t# where fore(n taxe# areallowed a# ded"!ton# from lo!al taxe# that ared"e to be pad.

!. Allown( fore(n taxe# a# a ded"!tonfrom (ro## n!ome.

N4TES AND +466ENTS:a. P"rpo#e o& tax treatie$ . To re!on!le

the natonal f #!al le(#laton# of the !ontra!tn(par t e# n orde r to help the taxpaye r a%o d#m"lt aneo"# taxaton n two dfferent="r #d!t on# . 6ore pre!#ely$ the tax !on%ent on#are drafted wth a %ew toward# the el mnaton ofnternatonal ="rd!al do"ble taxaton.

b. Ratonale &or a'oi #i n- #o", !etaxation . To en!o"ra(e the free f low of (ood#and #er% !e# and the mo%emen t of !ap tal$te!hnolo(y and per#on# be tween !o"nt re# $!ondt on# deemed % tal n !reatn( rob"#t anddynam! e!onome#. ore(n n%e#tment# w l lonly thr%e n a far ly pred!table and rea#onablentern at o nal n%e# tm en t !lm ate and theprote!t on a(an#t do"ble taxaton # !r"!al n!reatn( #"!h a !lmate.

!. 6ethod# re$or te# to ,y a tax t rea tyin or#er to e!iminate #o",!e taxation

r#t 6ethod : ,t #et# o"t the re#pe!t%er (ht# to tax of the #tate of #o"r!eor #t"# and of the #tate ofre# den!e w th re(ard to !ertan!la##e# of n!ome or !apta l. ,n#ome !a#e#$ an ex!l"#%e r (ht totax # !onf er re d on one of the!ontra! t n( # ta te# howe%er$ foro ther tem# of n!ome or !ap tal $bo th # ta te# are ( %en the r (ht to

tax$ al tho"(h the amo"nt of tax thatmay be mpo#ed by the #tate of#o"r!e # lmted.

Se!ond 6ethod : The #tate of #o"r!e #( %en a f"l l or lm ted r (ht to taxto(ether wth the #tate of re#den!e.,n th# !a#e $ the t reat e# ma&e tn!"m bent "pon the #tate ofre#den!e to allow rel ef n order toa%od do"bl e t axat o n. Twomethod# of relef are "#ed:

73 The e xe mp ti on m et ho d M then!ome or !aptal wh!h # taxable nthe #tate of #o"r!e or #t"# #exempted n the #tate of re#den!e$altho"(h n #ome n#tan!e# t may beta&en nto a!!o"nt n determnn( therate of tax appl!able to thetaxpaye r' # rema n n( n!ome or!aptal.

-3 The credi t method M altho"(h then!ome or !ap tal wh!h # taxed nthe #tate of #o"r!e # #t l l taxable n

the #tate of re#den!e$ the tax pad nthe former # !redted a(an#t the taxle%ed n the latter. )+omm##oner of,nternal Re%en"e %. S.+. Iohn#on andSon$ ,n!.$ e t al .$ G.R. No. 7-0789$prom. I"ne -9$ 73

Dffere n! e bet wee n t he exem pt o nmethod and the !red t method. The exemptonmethod fo!"#e# on n!ome or !aptal t#elf wh lethe !red t met hod fo!"#e# "pon the tax. .)+omm##oner of ,n te rnal Re%en"e % . S.+.Iohn#on and Son$ ,n!.$ et al.$ G.R. No. 7-0789$prom. I"ne -9$ 73

19. The RP2 We$ t Ger ma ny Tax Tre at ypro'i#e$ a 1? tax on roya!tie$. ,"texpre$$!y a! !ow$ a-ain$t German inomean# orpor at e tax o& ) ? o& the -ro$$roya!tie$ pai# "n#er the !aw o& thePhi! ippine$. On the other han# the RP2STax Trea ty #oe$ no t p ro'i #e &o r a $i mi !a rtax re# it in-. Th"$4 the tax on roya! ti e$earne# ,y .S. & i rm$ in the Phi !ippine$ mayeither ,e o& three rate$ )/ perent o& the-ro$$ amo"nt o& the roya !t ie$ 1/ perent

when the roya !ti e$ are pai# ,y a orporationre- i$ te re # wi th t he Phi!ip pi ne oar # o&In'e$ tm en t$ an# en-a -e # in pre &e rr e#

ar ea $ o& at i' it ie $ or t he !ow e$ t ra te o&Phi!ippin e tax tha t may ,e impo$e # onroya!tie$ o& the $ame 3in# pai# "n#er$i mi !a r ir"m$tane$ to a re$ i#ent o& athir# $tate.

ay .S. Corporation$ !aimen ti t! em e nt to t he = mo$ t &a 'o re # na tio n>tax rate o& 1? on roya! t ie$ a$ pro'i#e# inthe RP2S Tax Treaty in re!ation to the RP2We$t Germ any Tax T reaty% Exp! ai n wi threa$on$.

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SUGGESTED ANSWER:No. The ent t lement of the 78J rate by

U.S. f rm# de#p te the ab#en!e of a mat!hn(!redt )-8J for royalte#3 wo"ld dero(ate from thede#(n behnd the mo#t fa%ored naton !la"#e to(rant e5"alty of nternatonal treatment #n!e thetax b"rden lad "pon the n!ome of the n%e#tor #not the #ame n the two !o"ntre#. The #mlar tyn the ! r!"m#tan!e# of payment of taxe# # a!ondt on for the en=oyment of the mo#t fa%orednaton t reatment pre! #ely to "nder#!ore theneed for e5"alty of treatment. )+omm##oner of,nternal Re%en"e %. S.+. Iohn#on and Son$ ,n!.$ etal.$ G.R. No. 7-0789$ prom. I"ne -9$ 73

N4TES AND +466ENTS:a. Int en ti on ,e hin # a#o pt io n o&

pro'i$ion on =re !ie& & rom #o",!e taxat ion. >The ntenton #ho"ld be !on#dered n the l(ht ofthe p"rpo#e behnd the mo#t fa%ored na ton)6N3 !la"#e wh!h # to (rant to the !ontra!tn(party treatment not le## fa%orable than wh!h ha#been or may be (ran ted to the mo#t fa%oredC

amon( other !o"ntre#.The 6N # ntended to e# tabl #h the

prn!ple of e5"al ty of nternatonal treatment bypro% d n( tha t the ! t o"#e b l l.)Tolentno %. Se!retary of nan!e and !ompanon!a#e#$ -/9 S+RA 1/83

). A petition &or ertiora ri an#Korproh i, it io n ha!! en -i n- th e 'a!i#i ty o&Rep",! i At No . )4 amen# in- ertai npro'i$ion$ o& the NIRC ,y impo$in- $o2a!!e#$in taxe$ ;at"a!!y $pei& i taxe$< on theman"&at"re o& ,eer an# i-arette$.

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Rep. Arroyo har-e$ that ;1< in'io!ation o& R"!e HII I4 Se. +/ an# R"!e XHI I4Se. 1+ o& the r"!e$ o& the 5o"$e o&Repre$enta t i'e$4 the Cha ir 4 in $",mi t ti n-th e on& er en e om mi tt e e rep or t to t he5o"$e4 #i# not a! ! &or the yeas and nays# ,"t$imp!y a$3e# &or i t$ appro'a! ,y motion inor#er to pre'ent Rep. Arroyo &rom0"e$t ionin- the pre$ene o& a 0"or"m ;),*E there # no mpr#onment for fal"re to paya debt.

!. 64DE 4 PA?6ENT. Tax # (enerallypayable n money W>,*E debt may be payable nmoney$ property or #er%!e#.

d. ASS,GNAB,*,T?. A tax # not a##(nableW>,*E a debt # a##(nable.

e. ,NTEREST. A tax doe# not draw ntere#t"nle## deln5"ent W>,*E a debt draw# ntere#t f#tp"lated or delayed.

f. AUT>4R,T?. Taxe# are mpo#ed byp"bl ! a"thor ty W>,*E debt !an be mpo#ed bypr%ate nd%d"al#.

(. PRES+R,PT,4N. Pre#!rpt %e perod# fortax are determned "nder the N,R+ W>,*E debt$"nder the +%l +ode.

)8. Are there #i$ ti n ti on$ ,etween a taxan# a ! ien$e &ee% Why i$ i t i mpor tan t to

3now the #i$tintion$%

SUGGESTED ANSWERS:The follown( are the d#tn!ton# between

a tax and a l!en#e fee:a. PURP4SE: A tax # mpo#ed for re%en"e

p"rpo#e# W>,*E a l !en#e fee # mpo#ed forre("latory p"rpo#e#.

b. BAS,S: A tax # mpo#ed "nder thepower of taxaton W>,*E a l!en#e fee # mpo#ed"nder pol!e power.

!. A64UNT: There # no l m t a# to theamo"nt of a tax W>,*E the amo"nt of l !en#e feethat !o"ld be !olle!ted # lmted to the !o#t of thel !en#e and the expen#e# of pol !e #"r%e l lan!eand re("laton.

d. T,6E 4 PA?6ENT: Taxe# are normal lypad after the #tart of a b"#ne## W>,*E a l!en#efee before the !ommen!ement of b"#ne##.

e. EE+T 4 N4NPA?6ENT: al"re topay a tax doe# not ma&e the b"#ne## lle(alW>,*E fa l"re to pay a l !en#e fee ma&e# theb"#ne## lle(al.

f. SURRENDER: Taxe# ben( the lfebloodof the #tate$ !annot be #"rrendered ex!ept forlawf"l !on#deraton W>,*E a l!en#e fee may be#"rrendered wth or wtho"t !on#deraton.

, t # mportant to &now the d #tn!t on#be!a"#e the l m ta t on# for one may not be

appled to the other ex!ept n the n#tan!e wherere("latory taxe# are mpo#ed th"#$ the power totax # exer!#ed !o=ontly wth the pol !e power."r thermore$ exempt on f rom taxe# doe# no tn!l"de exempton from the payment of l !en#efee# and %!e %er#a.

N4TES AND +466ENTS:Re!all the d#tn!ton# between the power

of taxat on and pol !e power w th re#pe!t to:P"rpo#e$ amo"nt$ !ompen#aton$ property ta&en$

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wha t # done wt h the proper ty ta&en$ relat on tothe nonmparment !la"#e.

T5E CORT OF TAX APPEALS AN*TAX REE*IES

)9 . Wh at i$ t he Co"r t o& Ta x A pp ea !$%

What i$ the nat"r e o& the Co"rt o& TaxAppea!$% Why wa$ it reate#%

SUGGESTED ANSWER:a. The +o"rt of Tax Appeal# # the #pe!a l tax

!o"rt !reated "nder Rep"bl! A!t No. 77-9!ompo#ed of a Pre#dn( I"d(e and TwoA##o!ate I"d(e#$ apponted by the Pre#dentof the Phlpp ne# f rom nomnee# of theI"d!al and Bar +o"n!l.

b. ,t # not a mere admn # trat %e a(en!y ort r b"na l b" t a re(" la r !o" rt %e# ted w thex!l"#%e appellate ="r#d!ton o%er !a#e#ar#n( "nder the Natonal ,nternal Re%en"e

+ode and the Tarff and +"#tom# +ode.!. The +o"rt of Tax Appeal# wa# !reated:73 To pre%ent delay n the d #po# t on of tax

!a#e# by the then +o"rt# of r#t ,n#tan!e)now RT+#3$ n %ew of the ba!&lo( of !%l$!rmnal$ and !ada#tral !a#e# a!!"m"latn(n the do!&et# of #"!h !o"rt# and

-3 To ha%e a body wth #pe!al &nowled(e wh!hordnary I"d(e# of the then +o"rt# of r#t,n# tan!e )now RT+#3$ are no t l &e ly topo##e##$ th"# pro%dn( for an ade5"ateremedy for a #peedy determnat on of tax!a#e#.

). What i$ the 6"ri$#it ion o& the Co"rt o&

Tax Appea!$%

SUGGESTED ANSWER:a. The +o"rt of Tax Appeal# ha#

="r #d!t on o%e r de! # on# of the +omm##oner of,nternal Re%en"e o%er:

73 +a#e# n%ol%n( : a3 D#p"ted a##e##ment#

b3 Ref"nd of nternal re%en"etaxe#$ fee# or

other !har(e# !3 Penalte# mpo#ed n relatonthereto.

-3 4ther matter# ar#n( "nder:

a3 The Natonal ,nternalRe%en"e +ode$ or b3 4ther law or part of lawadmn#tered by

the B"rea" of ,nternalRe%en"e.

The appeal to the +o"rt of Tax Appeal#m"#t be f led w thn /8 day# from re!ept of the

+omm##oner'# ad%er#e de!#on. ,f there # node!#on$ the appeal #ho"ld be d#m##ed for la!&of ="r#d!ton.

b. The +o"rt of Tax Appeal# ha#="r #d!t on o%e r de! #on# of the +omm##oner of+"#tom# o%er:

73 +a#e# n%ol%n(: a3 *ab l ty for !"#tom# d"te#$

fee# or othermoney !har(e#$

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)D . On!y Commi$$ioner ($ & ina! #ei$ ion#enyi n- the #i$p"te i$ $",6 e t o& appea ! .Word# to the ef fe!t tha t the mat te r wo"ld bereferred to the +olle!ton Enfor!ement D%#onfor the ##"an!e of a warrant of le%y and d#trant# not a f nal de!#on appealable to +TA )Sol d+ement +orporaton %#. +o"rt of Tax Appeal#$ etal.$ +AGR SP No. //971$ ebr"ary -2$ 793.

E'en t he a t" a! i$$" an e o& a wa rr an t oi$ tr ai nt an# !e' y in er ta in a$ e$ $ti!!annot ,e on$i#ere# a & ina! #ei$ ion on a#i$p"te# a$$e$$m ent . ;Comm i$$i oner o &Interna! Re'en"e ' . nion Shippin- Corp. 41/ SCRA /9errn($ 798 4. 7810$ 98 ,ll. F08$ Ibid. 3

9. The !ommon owner#hp ofpropert y doe# not t#elf !reate apartner#hp between the owner#$ tho"(hthey may "#e t for p"rpo#e of ma& n((an#$ and they may$ w tho"t be!omn(partner#$ are amon( them#el%e# a# to themana(ement and "#e of #"!h propertyand the app l!at on of the pro!eed#therefrom.. )Sp"rlo!& %$. Wl#on$ 7F- S.W./1/$ 718 No. App. 7F$ Ibid. 3

b. The n!ome from the ren ta l of t heho"#e #hal l be t reated a# the n!ome of an

"nre(#tered partner#hp to be taxab le a# a!orporaton be!a"#e of the !lear ntenton of thebrother# to =on to(ether n a %ent"re for ma&n(money o"t of rental#.

The an#wer wo"ld be dfferent be!a"#ethe re wa# no nten t on to en te r n to a prof tma& n( %en t" re . They merel y formed a !oowner#hp. Th# # e%dent f rom the fol lown(a"thorte#:

Where the plant ff$ h# brother and$ andanother a(reed to be!ome owner# of a #n(letra!t of realty holdn( a# tenant# n !ommon$ andto d%de the prof t# of d#po#n( of t$ the brotherand the other not ben( en t tl ed to #hare nplantff'# !omm##on#$ no partner#hp ex#ted a#between the three parte#$ whate%er ther relatonmay ha%e been a# to th rd part e#. )6a(ee %.6a(ee$ 7-/ N.E. 10/$ -// 6a##. /F7 ! ted nPa#!"al %. +omm##oner of ,nternal Re%en"e$ 711S+RA 9183

1. Li,oro i$ a pratiin- !awyer who on 1/Apri ! 1DD/ &i! e# hi$ inom e tax re t" rn &o rthe year 1DD . pon exam inati on 4 the IR&o"n# hi$ re t" rn #e &i i en t o& P14 D . .On + Se pt em , er an# + No' em ,e r 1D D/ 4Li,oro wa$ noti&ie# o& hi$ tax #e&iieny. 5ere$ po n# e# wi th a pro te $t !e tt er #a te # 1D*eem,er 1DD/.

On 11 ay 1DD8 4 the Com mi $$ ionero& Interna! Re'en"e #enie# Li,oro($ prote$t&or !a3 o& !e-a! ,a$i$. 5e then $ea$ona,!y& i!e# a pet it ion &or re'iew ,e&ore the Co"rto& Tax Appea!$. On )D arh 1DD4 the CTAren#ere# a #ei$ ion #i$mi$$in- the appea!

whih Li,oro ree i' e# on )D a y 1D D.Th"$4 he ha # "nt i! 1+ B"ne 1D D to &i!e apeti tion &or re'i ew ,e&o re the Co"rt o&Appea!$.

On 11 B"ne 1DD4 in$tea# o& & i! in- apetition &or re'ie w with the Co"rt o&

Appea!$4 Li,oro &i !e# a Notie o& Appea! withthe Co"rt o& Appea!$4 an# on 1+ B"ne 1DD4a motion &or an exten$ion o& thirty ;+< #ay$to & i!e a peti t ion &or re'iew ,e&ore the Co"rto& Appea!$.

ay the Co"rt o& Appea!$ -rantLi,oro an ex te n$ion o& tim e to &i!e thepetition &or re'iew%

SUGGESTED ANSWER:?e#. The prohb t on a(an#t (rantn( an

exten#on of t me apple# only n a !a#e whereordnary appeal # re5"red to perfe!t an appealand noth n( more. >owe%er$ t # d f ferent n apetton for re%ew where the pleadn( # re5"redto be %erfed.

A pet t on for re%ew$ "nl &e an ordnaryappeal$ re5"re# !aref"l preparaton and re#ear!hn order to p"t "p a per#"a#%e and formdablepo#ton. ,n other word#$ the draftn( of a pettonfor re%ew en ta l # more t me and ef fo rt thanmerely f l n( a not!e of appeal. )*boro %. +o"rt ofAppeal#$ et al.$ G.R. No. 7877/- and

+omm##oner of ,nternal Re%en"e %. +o"rt ofAppeal#$ et al.$ Ian"ary -$ 7/3

N4TES AND +466ENTS:Se!. F$ R"le F/ of the 70 R"le# of +%l

Pro!ed"re pro%de#$ The appeal #hall be ta&enwth n ff teen )793 day# from not !e of the ...="d(m en t.. .. Upon proper mot on and thepayment of the f"l l amo"nt of the do!&et feebefore the expraton of the re(lementary perod$the +o"rt of Appeal# may (rant an addt onalperod of ffteen )793 day# only wthn wh!h to f lethe petton for re%ew. No f"rther exten#on #hallbe (ranted ex!ept for the mo#t !ompelln( rea#onand n no !a#e to ex!eed f f teen )793 day# .C)paraphra#n( #"ppled3

). I$ there a nee$$ity &or ana#m in i$ tra t i'e #e termi nat i on tha t a tax i$#"e ,e&ore ini t iat ion o& rimina! pro$e"tion&or tax e'a$ion%

SUGGESTED ANSWER:No$ be!a"#e of the fol lown( rea#on#$ wh!hd#tn (" #he# a !rm na l !har(e from ana##e##ment:

a. +rmnal !har(e need only be#"pported by a prima facie #hown( of fal"re tofle a re5"red ret"rn W>,*E the fa!t of fal"re to

fle a ret"rn need not be pro%en by ana##e##ment.

b. Before an a##e##ment # ##"ed$ there#$ by pra!t!e$ a prea##e##ment not!e #ent tothe taxpayer W>,*E #"!h # not #o wth a !rmnal!har(e. The !har(e # f led d re!t ly w th theDepartm ent of I"#t!e.

!. A !rmnal !omplant # n#t t"ted not todemand payment$ b"t to penal ,*E the p"rpo#eof the ##"an!e of an a##e##ment # to !olle!t thetax. )+omm##oner of ,nternal Re%en"e %. Pa#!or

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Realty and De%elopment +orporaton$ et al.$ G.R.No. 7-2/79$ I"ne -$ 73

N4TES AND +466ENTS:or ar examinat ion p"rpo$e$ ta&e

note of the d # tn! t on be tween the or t"neToba!!o !a#e )+omm##oner of ,nternal Re%en"e%. +o"rt of Appeal#$ et al.$ G.R. No. 77/--$ I"neF$ 713 on one hand wth the abo%e Pa#!or !a#eand that of Un(ab %. +"#$ 0 S+RA 200 )7283$wh !h allowed the tax e%a#on !a#e to pro!eednotwth#tandn( no #hown( of an admn#trat%efndn( that a tax # d"e. ,n Un(ab$ there wa# aprim a fac ie a ttempt to e%ade taxe# be!a"#e ofthe taxpayer'# fal"re to de!lare n h# n!ome taxret"rn h# n!ome der%ed from banana#apln(#$C W>,*E n the ort"ne Toba!!o !a#e$ there(#tered whole#ale pr!e of the (ood#$ appro%edby the B,R # pre#"med to be the a!t"al whole#alepr!e$ therefore$ not fra"d"lent and "nle## and"nt l the B,R ha# made a f nal determnaton ofwha t # #"ppo#ed to be the !or re!t taxe#$ thetaxpayer #ho"ld not be pla!ed n the !r"!ble of

!rmnal pro#e!"ton

+. What a re the tax a$e$ whi h m ay ,eth e $",6e t o& a omp ro mi $e $e tt !e m en t

with the IR%

SUGGESTED ANSWER:The follow n( may be the #"b=e! t mat te r of!omprom#e #ettlement:

a. Deln5"ent a!!o"nt#b. +a#e# "nder admn#trat%e prote#t

pendn( n the Re(onal 4ff!e#$ Re%en"e D#tr!t4ff!e#$ *e(al Ser%!e$ *ar(e Taxpayer Ser%!e)*TS3$ Enfor!ement Ser%!e )ES3$ Ex!#e TaxpayerSer%!e )ETS3 and +olle!ton Ser%!e )+S3

!. +% l tax !a#e# ben( d#p"ted beforethe !o"rt#$ e.(. +TA$ +A$ S+

d. +olle!ton !a#e# fled n !o"rt# ande. +rmnal % o lat on#$ other than tho#e

already fled n !o"rt$ or tho#e n%ol%n( !rmnaltax fra"d#. )Se!. -$ Re%. Re(#. No. 1-8883

N4TES AND +466ENTS:a. Tax a$e$ whih o"!# not ,e the

$",6et o& ompromi$e 73 Wthholdn( tax !a#e#-3 +rmnal tax fra"d !a#e#/3 +r mnal % olat on# a lready

fled n

!o"rt andF3 Deln5"ent a!!o"nt# wth d"ly

appro%ed #!hed"le of n#tall me ntpayment#. )Se!. -$ Re%. Re(#. No. 1-8883

F . On B"ne 1/ 4 1DD8 4 r. Gran t O. Nea! 4pai # h i$ i nome tax &o r the year 1DD/. Onarh 1/4 1DD4 he # i$o'ere# that the IRexe$$i'e!y o! !ete# & rom hi$ the amo"nto& P9/ 4 . . Th"$ 4 on th e $a me #a y he&i!e # wit h th e Comm i$ $io ne r o& In te rn a!

Re' en "e a w ri tt en !ai m &or re &" n# . OnA"-"$t 1/4 1DD he reei'e# theCommi$$ioner($ !etter #enyin- hi$ !aim &orre&"n#. On Septem ,er 1 4 1DD 4 or w ithi nthi rty ;+ < #ay$ & rom ree ip t o& the !e tte r4he & i!e# a pet it ion &or re'iew with the Co"rto& Appea!$ &or the re&"n# o& the P9/4..In on&ormane with the mater ia! #ata r"!e4he a! !e-e# that Set ion 11 o& Rep",!i AtNo. 11)/4 pro'i#e$ that a taxpayera#'er$e!y a&&ete# ,y a r"! in- or #ei$ion o&the Commi$$ioner o& Interna! Re'en"e mayappea ! to the Co"rt o& Tax Appea! $ wi th inthi rty ;+< #ay$ & rom reeipt o& the a#'er$e#ei$ion. *ei#e the a$e.

SUGGESTED ANSWER:The pe t t on #ho"ld be d#m##ed for

ha%n( been fled o"t of t me. Se!. --$ N,R+ of70 pro%de# that !o"rt a!ton for the re!o%eryof nternal re%en"e tax #ho"ld be f led wthn two)-3 year# from the date #"!h tax wa# pad.

The pet ton #ho"ld ha%e been f led no

later than I"ne 71$ 72. There wa# a# yet node!#on of the +omm##oner to be appealed b"tth# !on tent on # bere ft of mer t $ a# t wo"ldlea%e the taxpaye r at t he mer!y of the B,R+omm##oner wtho"t any po#t%e and expedentrel ef from the +o"rt. ,t # d#heartenn( eno"(hto a taxpayer to be &ept wat n( for an ndefnteper od for the r"l n($. , t wo"ld ma&e matter#more exa#peratn( for the taxpayer f the door# of="# t !e wo" ld be !lo#ed for #"!h a rel ef "nt l afte rthe +omm##oner$ wo"ld ha%e$ at h# per#onal!on%enen!e$ (%en h# (o #(nal. )+omm##onerof +"#tom#$ et al$ %. +o"rt of Tax Appeal#$ et al.$G.R. No. 2-172$ prom. 6ar!h 71$ 72$ "nrep.3

/. Ph i!i pp ine an3 o& Com m"ni a t ion$&i!e# i t$ 0"arter!y inome tax ret"rn$ &or the&ir$t an# $eon# 0"arter$ o& 1D/4 reportin-pro&i t$ an# pai# the tota ! inome tax o& P/mi!!io n. The t ax e$ #" e w er e $e tt !e # ,yapp!yin- the an3($ tax re#it memo$4 an#aor#in-!y4 the IR i$$"e# the appropriateTax *e,it emo$.

S",$ e0 "e nt !y 4 t he an 3 $"& &e re #!o$$e$ $o tha t wh en it &i!e# it$ Ann"a!In om e Tax Ret "r n$ &or th e ye ar 2 e n# e#*eem,er +14 1D/4 i t #e!are# a net !o$$ o&P)/ mi!!ion4 there ,y $howin- no tax!ia,i! ity . For the $"ee#in- year 4 en#in-

*eem ,er +14 1D8 4 it !i3ewi$e repor te# anet !o$$ o& P1 mi! !ion an# th"$ #e!are# noinome tax paya,!e &or the year.

*"rin- 1D/ an# 1D84 the an3earne# renta! inome &rom !ea$e#propert ie$ & rom where the !e$$ee$ withhe!#an# remitt e# to the IR withho!#in-re#i ta,!e taxe$ o& P)) tho"$an# &or 1D/4an# P)+ tho"$an# &or 1D8.

On A"-"$t 94 1D94 the an3re0 "e $t e # th e Com mi$ $i on er o& In te rn a!Re'en"e4 amon- other$ &or a tax re# it o&

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P/ mi! !ion repre$entin- the o'erpayment o&taxe$ in the &i r$ t an# $eon# 0"ar ter$ o&1D / . Th er ea & te r 4 on B"!y ) /4 1 D 4 th ean3 & i!e# a !aim &or re&"n# o& re#i ta,!etaxe$ withhe!# ,y i t$ !e$$ee$ & rom propertyren ta !$ in 1 D / an# in 1 D 8. oth there0"e$t an# the !aim were $ea$ona,!y & i!e#

withi n the ten ;1 < ye ar peri o# &or &i! in-!aim$ o& exe$$ 0"ar te r! y inom e taxpay me nt $ a$ pro'i# e# &or in RC 92 /i$$"e# ,y the then At-. IR Commi$$ioner.

On No'e m, er 14 1D the an3in$ti t"te# a Pet it ion &or Re'iew ,e&ore theCo"rt o& Tax Appea!$. Wo"!# the pet it ionpro$per %

SUGGESTED ANSWER:No. ,t wa# f led o"t of t me and #n!e the

taxpayer de!ded to a%al of the tax !redt t !o"ldnot anymore #ee& a ref"nd.

The two )-3 yea r pre#! r pt %e per od#ho"ld be !omp"ted from the t me of f l n( theAd="#tment Ret"rn and f nal payment of the tax

for the year. )Phl ppne Ban& of +omm"n!aton#%. +omm##oner of ,nternal Re%en"e$ et al.$ G.R.No. 77-8-F$ Ian"ary -2$ 73

The !lam for ref"nd #ho"ld be exer!#edwth n the tme fxed by law. REAS4N: TheB"rea" of ,nternal Re%en"e ben( anadmn#trat%e body enfor!ed to !ol le!t taxe#$ t#f"n! t on# #ho"l d not be "nd"l y delayed orhampered by n!dental matter#. ) Ibid. 3

The ##"an!e of R6+ 029 !han(n( the#tat"tory pre#!rpt%e perod of two )-3 year# toten )783 year# on ! la m# of ex!e## 5"ar te rl yn!ome tax payment# dd not merely nterpret thelaw$ rather t le(#lated ("delne# !ontrary to the#tat"te pa##ed by +on(re##.

Re%en"e 6emorand"m +r!"lar# are!on#dered admn#trat%e r"ln(# )n the #en#e ofmore #pe!f ! and le## (eneral nterpretaton# oftax law#3 wh!h are ##"ed from t me to t me bythe +omm##oner of ,nternal Re%en"e. , t #wdely a!!epted that the nte rp re tat o n pla!ed"pon a #tat"te by the exe!"t%e off !er#$ who#ed"ty t # to enfor!e t$ # ent t led to (reat re#pe!tby the !o"rt#. Ne%erthele##$ #"!h nterpretaton# not !on!l"#%e and wl l be (nored f ="d!al lyfo"nd to be erroneo"#. R"le# and re("laton###"ed by admn#trat%e off !al# to mplement alaw !annot (o beyond the term# and pro%#on# ofthe latter. "rther$ f"ndamental # the r"le that

the State !anno t be p"t n e#toppe l by them# ta&e# or er ro r# of t# of f !al# or a(ent#.)supra 3

nally$ Se!. 1 of the 700 N,R+ )nowSe!. 01 of the 70 N,R+3 p ro%de# tha t anyex!e## of the total 5"arterly payment# o%er thea!t"al n!ome tax !omp"ted n the ad="#tment orfnal !orporate n!ome tax ret"rn$ #hall ether )a3be ref"nded to the !orporat on$ or )b3 may be!redted a(an#t the e#tmated 5"arterly n!ometax l abl t e# for the 5"arter# of the #"!!eedn(taxable year. To ea#e the admn#traton of tax

!ol le!ton$ the#e remede# are n the alternat%eand the !ho!e of one pre!l"de# the other. Sn!ethe Ban& ha# !ho#en the tax !red t approa!h t!annot anymore a%al of the tax ref"nd.. )supra 3

8 . On B"!y 1 4 1D 8 4 th e IR i$$" e# toSa!" # H. 5i@o n a #e& i ie n y ino me ta xa$$e$$ment . Sine the a$$e$$ment wa$ noton te $t e #4 th e IR on Ban"a ry 1) 4 1D D 4$er 'e # wa rr an t$ o& #i$t ra in t an# !e' y too!! e t the tax #e& i ieny. For "n3nownrea$on$4 the IR #i# not proee# to #i$po$eo& the attahe# propertie$.

On No' em ,e r +4 1D D) 4 Sa!" # wr ot ethe IR re0"e$tin- a reon$i#eration o& hertax #e& i ieny a$$e$$ment . The IR4 in a!et te r #ate # A"-"$t 114 1DD 4 #enie#.On Ban"ary 14 1DD9 4 the IR &i! e# w ith theRTC a a$e to o!! e t the tax #e &i i eny .The omp!a in t wa$ $i-ne# ,y the Chi e& o&the Le-a! *i'i$ion o& the Re-ion an# 'eri & ie#,y the Re-iona! *iretor.

Sa!"# now $ee3$ the #i$mi$$a! o& the

a$e on the &o!!owin- -ro"n#$a. The omp!aint wa$ not & i!e# "pon

a"t hor it y o& the IR Commi$$ion er a$re0"ire# "n#er Setion )) o& the Tax Co#e

,. The ation ha$ a!rea#y pre$ri,e#.Re$o!'e the i$$"e$ rai$e#.SUGGESTED ANSWERS:

a. Re%en"e Admn#trat%e 4rder No. 789 #pe! f !al ly a" thor

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a. E&& e t o& $er 'i e o& wa rr an t oi$tra int or !e'y . The t mel y #er% !e of awar rant of d# tra nt or le%y #"#pend# the r"n nn(of the perod to !olle!t the tax def!en!y n the#en#e tha t the d#po# t on of the at ta!hedproperte# m(ht wel l ta&e t me to a!!ompl #h$extendn( e%en after the lap#e of the #tat"toryperod for !ol le!ton#. )Ad%ert#n( A##o!ate#$,n!.$ %. +o"rt of Appeal#$ 7// S+RA 019 Palan!a%. +omm##oner of ,nternal Re%en"e$ 77F Ph l.-8/3. ,n tho#e !a#e#$ the B,R d d not f le any!ol le!ton !a#e b"t merely rel ed on the #"mmaryremedy of d #tra nt and le%y to !olle!t the taxdef!en!y.

Th"#$ the enfor!ement of tax !ol le!t onthro"(h #"mmary pro!eedn(# may be !arred o"tbeyond the #tat"tory per od. )Rep"bl! of thePh lppne#$ et!. %. >

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Phl$ -/- Iohn#ton *"mber +o. %. +TA$ 787 Phl.7973

,f the prote#t # dened n whole or n partor n the n# tan!e where the +omm##oner of,nternal Re%en"e doe# not a!t wi thi n oneh"ndred e(hty )7283 day# from #"bm##on ofdo!"ment#$ the taxpayer ad%er#ely affe!ted mayappeal to the +o"rt of Tax Appeal# wthn thrty)/83 day# from re!ept of the #ad de!# on$ orfrom the lap#e of the one h"ndred e (hty )7283day#$ otherw#e the de!#on #hall be!ome fnal$exe!"tory and demandable. )la#t par.$ Se!. --2$N,R+ of 703

. Phi !ippine 5ome A$$"rane Corporationpai # #o"m entary $ tamp taxe$ on erta innon2 !i&e in$"r an e po!iie$ it i$$"e #.5owe'er 4 the premi"m$ were not pai#. Theompany on ,a$i$ the pro'i$ion$ o& Setion99 o& the In$"rane Co#e to the e&&et that 4=No tw it h$ t an #i n- an y a- re e me n t to th eontrary4 no po! iy or ontrat o& in$"ranei$$"e# ,y an in$"rane ompany i$ 'a! i#

an# , in#in- "n!e$$ an# "nt i! the premi"mthereo& ha$ ,een pai# xxx4> now !aim$ &ora re&"n# o& the #o"mentary $tamp$ i t pai#,ea"$e the po!iie$ ne'er ,eamee&&et i'e. Sho"!# the re&"n# ,e -rante#%A! te rnati 'e! y 4 o"!# there ,e a re&"n# oo"mentary $tamp tax payment$%

SUGGESTED ANSWER:No. Do!"mentary #tamp taxe# are le%ed

"pon the p r % le(e $ opport"n ty $ or fa! l ty toexe!"te !ertan n# tr"ment# rre#pe!t %e ofwhe th er the !on tra! t# are #"b#e5"en tl y de! laredto be re#!##ble$ %od$ %odable or "nenfor!eable.The do!"mentary #tamp taxe# are mpo#ed onthe mere ##"an!e of the pol !e# e%en f the#epol!e# #"b#e5"ently are !on#dered a# not %aldor bnd n( "nder the law. )Ph l pp ne >omeA##"ran!e +orporaton$ et al.$ %. +o"rt of Appeal#$et al.$ G.R. No. 77FF1$ prom. Ian"ary -7$ 73

D. Sho"!# intere$t ,e pai# where a tax i$re&"n#e# ,y the Go'ernment to a taxpayer%

SUGGESTED ANSWER:The r" le # that no n tere#t on ref"nd of

tax !an be awarded "nle## a"thor

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admn#tered by the B"rea" of ,nternal Re%en"e.Any per#on #o arre#ted #hall forthwth be bro"(htbefore a !o"rt$ there to be dealt wth a!!ordn( tolaw. )Se!. 7/$ N,R+ of 703

No #ear!h warrant or warrant of arre#t #re5"red "nder the do!trne of prmary ="r#d!tonwh !h po#t# that n te!hn!a l matte r# whe re theadmn#trat%e bode# ha%e obtaned expert#e$the !o"rt# wll defer. Th# # l &ew#e prem#ed onthe lfeblood theor y wh!h m and ate# themmedate !ol le!t on of taxe# to en#"re the!ontn"ed ex#ten!e of the State.

b. 6y an#wer wo"ld be dfferent be!a"#e!"#tom# a"thor t e# may #ear!h a dwell n( pla!eonly "pon a warrant ##"ed by a I"d(e of theapproprate !o"rt "pon #worn appl!aton #hown(probable !a"#e and part!"larly de#!rbn( thepla!e to be #ear!hed and per#on or thn( to be#eope *"x"ry$Prem"m 6ore and +hampon ! (arette# w thn

the #!ope of the amendatory law R.A. No. 019Fand #"b=e! ted them to the n!rea#ed tax ratere5" re# not !e$ hear n( and p"bl !at on.)+omm##oner of ,nternal Re%en"e %. +o"rt ofAppeal#$ et al.$ -17 S+RA -/13

N4TES AND +466ENTS:The r"l n(# and !r!"lar# prom"l(ated by

the +omm##one r do no t ha%e ret roa! t %eappl!at on f the re%o!at on$ modf !at on$ orre%er#al wo"ld be pre ="d! al to the taxpayer#.)Se!. -F1$ N,R+ of 70 +omm##oner of ,nternal

Re%en"e %. +o"rt of Appeal#$ et al.$ -10 S+RA9903

Exceptions : ,n# tan!e# when re%en"er"l n(# and re("laton# ha%e retroa!t %e effe!te%en f pre="d!al to the taxpayer:

a. W he re the taxpaye r del be ra te lym##tate# or omt# materal fa!t# from h# ret"rnor n any do!"ment re5"red of hm by the B,R

b. Where the fa!t# #"b#e5"ently (atheredby the B,R are materally dfferent from the fa!t#on wh!h the r"ln( # ba#ed$ or

!. Where the taxpayer a!ted n bad fa th.)Se!. -F1$ N,R+ of 703

/+. In what in$ tane$ m ay the "rea" o&In te rna ! Re'en"e $"$pen# or tem porar i! y!o$e th e ,"$ine$$ e$t a,! i$h me nt o& ataxpayer % 5ow !on- #oe$ the $"$pen$ion!a$t %

SUGGESTED ANSWER:

The +omm##oner or h# a" thor

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b. The power to ##"e r"l n(# of f r#tmpre##on or to re%er#e$ re%o&e$ or modfy anyex#tn( r"ln( of the B"rea"

!. The power to !omprom#e or abate$ anytax def!en! y$ Pro%ded$ howe% er$ tha ta##e##ment# ##"ed by the Re(onal 4ff!e#n%ol%n( ba#! def!en!y taxe# of P988$888.88 orle##$ and mnor !rmnal % o lat on# a# may bedeterm ned by r" le# and re("la t on# to beprom"l(ated by the Se!retary of nan!e$ "ponthe re!ommenda t on of the +omm##one r$d#!o%ered by re(onal and d#tr !t off !al#$ maybe !omprom#ed by a re(onal e%al"aton boardwh !h #hall be !om po#ed of the Re(onal Dre! to ra# +ha rman$ the A###tant Re(onal Dre!tor $head# of the *e(al$ A##e##ment and +olle!tonD%#on# and the Re%en"e D#tr!t 4ff!er ha%n(="r #d!t on o%e r the taxpayer $ a# member# and

d. The power to a## (n or rea##(nnternal re%en"e off!er# to e#tabl#hment# whereart !le# #"b=e!t to ex!#e tax are prod"!ed or&ept. )Se!. 0$ N,R+ of 70 !ted n Rep"bl! ofthe Phl ppne#$ et!. %. >,*E n!ome# proft or (an from the flow of wealth.)+omm##oner of ,nternal Re%en"e %. +o"rt ofAppeal#$ et al.$ G.R. No. 782901$ Ian"ary -8$73

+aptal # a f"nd of property ex#tn( at ann# tant of t me W>,*E n!ome # tha t f low of#er%!e# rendered by that !aptal by the paymentof money from t or any other benef t rendered bya f"nd of !aptal n relaton to #"!h f"nd thro"(h aperod of tme.

b. +aptal # wealth W>,*E n!ome # the

#er%!e of wealth and!. +aptal # the tree W>,*E n!ome # the

fr"t. )6adr(al %. Rafferty$ /2 Phl. F7F3

Real

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SUGGESTED ANSWER:Redempton # rep"r!ha#e$ a rea!5"#ton

of #to!& by a !orporaton wh!h ##"ed the #to!&n ex!han(e for proper ty$ whether or no t thea!5" red #to!& # !an!elled$ ret red or held ntrea#"ry.

E##ental ly$ the !orporat on (et# ba!ome of t# #to!&$ d#tr b"te# !a#h or property tothe #hareholder n payment for the #to!&$ and!ontn"e# n b"#ne## a# before. The redemptonof #to!& d%dend# pre%o"#ly ##"ed # "#ed a# a%e l fo r the !on#t r"! t %e d# tr b" ton of !a#hd%dend#. )+omm##oner of ,nternal Re%en"e %.+o"rt of Appeal#$ et al.$ G.R. No. 782901$ Ian"ary-8$ 73

N4TES AND +466ENT:

Taxa,i! ity o& re#emption ,y i$$"in-orp or at io n o& $ha re $ o& $to 3 . ,t ##"((e#ted tha t the Bar re%ewee (nore# the!on!ept# of taxab l ty of redempton of #hare# ##to!& by the ##"n( !orporaton a# d#!"##ed n+omm##oner of ,n ternal Re%en"e %. +o"rt of

Appeal#$ et al.$ G.R. No. 782901$ Ian"ary -8$ 7)the ANS+4R !a#e3$ where the pre#ent pro%#on#of the Tax +ode on tran#a!ton tax Se!. 7-0 )A3$N,R+ of 70Q $ and !ap tal (a n# tax fndappl!at on. The only !on!ept# that #ho"ld beretaned # the defn t on of redempton$ and theappl!abl ty of the ANS+4R !a#e !on!ept ofredempton where the #hare# of #to!& that areredeemed are ordnary a##et#. The tax treatmentof redempt on of #hare# of # to!&$ "nder thepre#ent pro% # on# of the Tax +ode #ha ll bed#!"##ed below.

Tax tre at me nt o& re#e mp tio n ,yi$$"in- orporation o& $hare$ o& $to3 "n#erthe pre$ent pro'i$ion$ o& the Tax Co#e4 not"n#er the &ormer pro'i$ion$ o& the Tax Co#ea$ interprete# in the ANSCOR a$e. The taxtreatment wo"ld be dependent "pon the follown(fa!tor#:

a. The nat"re of the #hare# of #to!& ben(d#po#ed of$ whether the #hare# are !aptal a##et#or ordnary a##et#

b. Whether or not the #hare# of #to!& arel#te d and trade d and l#ted n the #to!&ex!han(e.

Taxa,i!ity o& $a!e$4 ,arter orexhan-e o& $hare$ o& $to3$

a. Share# of # to!& are apita ! a$$et$an# not !i$te# an# tra #e # in the $to3

exhan-e. Where the #hare# of #to!& are !aptala##et# be!a"#e the #el ler # not en(a(ed n theb"#ne## of b"yn( and #ell n( #hare# of #to!& )adealer n #e!"r te#3$ and not l #ted and traded nthe #to!& ex!han(e$ the #ale # #"b=e!t to a 9Jtax on ne t !ap tal (a n no t o%er P788$888.88wh le the net !ap tal (an o%er P788$888 .88 ##"b=e!t to a tax of 78J. Note that the holdn(perod # not appled. The !aptal (an# tax # ann!ome tax be!a"#e the tax fal l# "nder t tle ,, ofthe Tax +ode$ enttled$ ,n!ome TaxC

b. Share# of #to!& whether apita! oror#inary a$$et$ ,"t are ! i$te# an# tra#e# nthe #to!& ex!han(e are #"b=e!t to the tran#a!tontax of of 7J of the (ro## #el ln( or tran#a!tonpr!e. The holdn( perod # not appl ed and thetran#a!ton tax # n l e" of all n!ome taxe# thatmay be !olle!ted.

!. Share# of #to!& or#inary a$$et$ ,"tnot ! i$te# an# tra#e# in the $to3 exhan-e.,f the #hare# of #to!& are ordnary a##et# be!a"#ethe #el ler # en(a(ed n the b"#ne## of b"yn(and #ell n( #hare# of #to!& )dealer n #e!"rte#3$the tran#a!ton #hall be #"b=e!t to n!l"#on n then!om e tax ret"rn dependn( on !ertan!r!"m#tan!e#. See d#!"##on on tax treatmentof redempton of #hare# of #o!& where the #hare#that are redeemed are ord nary a##et# and notl#ted and traded n the #to!& ex!han(e.

Tax tre at me nt o& re#e mp tio n o&$hare$ o& $ to3 where the $hare$ tha t a rere#eeme# are or#inary a$$et$ an# not ! i$te#an# tra#e# in the $to3 exhan-e .

Whether the tran#a!ton # to be #"b=e!t

to n!ome taxat on or not wo"ld be dependent"pon the nat"re and !hara!ter of the #hare# of#to!& that are the #"b=e!t of redempton.

,f t he #o"r!e # the or( na l !ap ta l#"b#!rpt on# "pon the e# tabl #hment of the!orporat on or f rom n t a l !apta l n%e#tment nan ex # tn( en te rpr #e $ the redempt on to the!on!"rrent %al"e of a!5"# t on # not #"b=e!t ton!ome taxat on$ a# t # not n!ome b"t a mereret"rn of !aptal.

4n the !ontrary$ f the redeemed #hare#are from #to!& d%dend de!laraton# other thana# n t al !aptal n%e#tment$ the pro!eed# of theredempt on # add t ona l weal th $ for t # no tmerely a ret"rn of !aptal b"t a (an therefrom.

The te#t for taxabl ty therefor$ a# wo"ldma&e the redempton e##ent al ly e5"%alent tothe d#tr b"ton of a taxable d%dend$C # whetherthe redempton re#"lted nto a f low of wealth. ,fno wealth # real

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mpo#ed for ea!h taxable year on the mproperlya!!"m"lated taxable n!ome of ea!h !orporaton$an mproperly a!!"m"lated earnn(# tax e5"al toten per!en t of the mproper ly a!!"m" la tedtaxable n!ome. Se!. - )A3$ N,R+ of 70Q

b. +orpora ton# !ia,!e &or theimproper!y a"m"!ate# earnin-$ tax . E%ery!orporaton formed or a%a led for the p"rpo#e ofa%odn( n!ome tax wth re#pe! t to t##hareho lder# or the #hareho lder# of ano ther!orporaton$ by permtt n( earnn(# and proft# toa!!"m"la te n#tead of ben( d%ded ord#trb"ted. Se!. - )B3 )73$ N,R+ of 70Q

!. Corporat ion$ exe mp t &rom theimproper!y a"m"!ate# earnin-$ tax

73 P"bl!lyheld !orporaton#-3 Ban and other nonban& fnan!al

ntermedare# and/3 ,n#"ran!e !ompane#. Se!. - )B3

)-3$ N,R+ of 70Qd. E'i#en e #et er mi na ti 'e o&

p"rpo$e to a'o i# tax "pon $hareho! #er$ .The fa!t that the earnn(# or prof t # of a

!orporaton are permtted to a!!"m"lated beyondthe rea#onable need# of the b"#ne## #hall bedetermna t %e of the p"rpo#e to a%od the tax"pon t# #hareholder# or member# "nle## the!orporaton$ by !lear preponderan!e of e%den!e$#hall pro%e the !ontrary. Se!. - )+3 )-3$ N,R+ of70Q

Rea$ona ,!e nee#$ o& ,"$ine$$n!l"de# the rea#onably ant!pated need# of theb"#ne##. Se!. - )E3$ N,R+ of 70Q

,n order to determne whether proft# area!!"m"lated for the rea#onable need# of theb"#ne## to a%od the #"rtax "pon #hareholder#$ tm"#t be #hown that the !ontro ll n( ntent on ofthe taxpayer # man fe# ted a t the t me of thea!!"m"la ton$ not ntent on# de!lared#"b#e5"ent ly$ wh!h are mere af ter tho"(ht#."rthermore$ the a!!"m"lated prof t# m"#t be"#ed wthn a rea#onable t me after the !lo#e ofthe taxable year. )+yanamd Phl ppne#$ ,n!. %.+o"rt of Appeal#$ et al.$ G.R. No. 782810$ prom.Ian"ary -8$ -8883

e. Te$t$ to #e te rm in e 6"$ti&i e#a"m"!ation not $",6et to tax.

73 Imme#iay Te$t. Rea#onableneed# of the b"#ne## C mean# themmedate need# of the b"#ne##$ and twa# (eneral ly held that f the !orpora tondd not pro%e an mmedate need for the

a!!"m"laton of the earnn(# and proft#$the a!!"m "laton wa# not for therea#onable need# of the b"#ne## and thepena lt y tax wo"l d appl y. )+yanam dPhlppne#$ ,n!. %. +o"rt of Appeal#$ et al.$G.R. No. 782810$ prom. Ian"ary -8$ -888! tn( 6an la Wne 6er!hant#$ ,n!. %.+omm##oner of ,nternal Re%en"e n t"rn!tn( 6erten#3

-3 =) to 1> R"!e. The rato of !"rrenta##e t# to !"r rent lab l t e# and theadopton of the nd"#try #tandard. The

rato of !"rrent a##et# to !"rrent l abl te## "#ed to determne the #"ff ! en!y ofwor& n( !ap tal . ,deall y$ the wor & n(!aptal #ho"ld e5"al the !"rrent l ablte#and the re m"# t be - "n t# of !"r renta##et# for e%ery "nt of !"rrent l ab l ty$hen!e the #o!alled - to 7C R"le. ) Ibid. 3

/3 =ar#ah!> Form"!a. Allow#re tent on a# wor& n( !ap tal re#er%e $#"f f !en t amo"nt# of l5"d a##e t# to!arry the !ompany thro"(h one operatn(!y!le. The form "la re5"re# anexamnaton of whether the taxpayer ha##"f f !en t l 5" d a##e t# to pay all t#!"rrent l ab l te# and any extraordnaryexpen#e# rea#onably ant ! pated$ p l"#eno"(h to operate the b"#ne## d"r n(one operatn( !y!le.

Operatin- y!e # the perod of tmet ta&e# to !on%ert !a#h nto rawmater a l#$ raw mater a l# nto n%entory$and n%entory nto #ale#$ n!l"dn( thet me t ta&e# to !olle!t payment for the

#ale#. There are %ar a t on# n theappl !aton of the BardahlC form"la$ #"!ha# a%era(e ope ra t n( !y!l e or pea&operatn( !y!le. ,n tme# when there #no re!"rren!e of a b"#ne## !y!le$ thewor& n( !ap tal need# !annnot bepred!ted wth a!!"ra!y.

Al tho"(h the Bardah lC form" la #wel l e#tabl #hed and ro" t ne ly app led bythe !o"rt#$ t # not a pre!#e r"le. , t #"#ed only for admn#trat%e !on%enen!e.)Ibid. 3

8. What i$ meant ,y the ar"a! metho# o&ao"ntin-%

SUGGESTED ANSWER:,n!ome # reportable when all the e%ent#

ha%e o!!"r red tha t f x the taxpayer'# r (ht tore!e %e the n!ome $ and the amo"nt !an bedetermned wth rea#onable a!!"ra!y. Th"# t #the r (ht to re!e%e n!ome$ and not the a!t"alre!e p t$ tha t de te rmne# when to n!l"de theamo"nt n (ro## n!ome.

+on#e5"ently$ the follown( are the re5"#te#:73 That the r (ht to re!e%e the n!ome

m"#t be %ald$ "n!ondtonal and enfor!eable$ .e.not !ontn(ent "pon f"t"re tme

-3 The amo"nt m"# t be rea#onab ly#"#!eptble of a!!"rate e#tmate and

/3 There m"#t be a rea#onableexpe!tat on that the amo"nt w ll be pad n d"e!o"r#e. ) lpna# ber +orporaton %. +o"rt ofAppeal#$ et al.$ G.R. No#. 772F2 7-F/00$ prom.4!tober 7-$ 73

N4TES AND +466ENTS:a. The two ;)< prinipa! ao"nt in-

metho#$ &or reo-nition o& inome are the 73a!!r"al method and the )-3 !a#h method.

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Under the a$h metho# n!ome # to be!on#tr"ed a# n!ome for tax p"rpo#e# only "pona!t"al re!ept of the !a#h payment. , t # a l#oreferred to a# the !a#h re!ept# andd#b"r#ement# methodC be!a"#e both the re!eptand d#b"r#ement# are !on#dered. Th"#$ n!ome# re!o(nandboo& on A"d t Pro!ed"re# andTe!hn5"e# M ;ol"me ,$ Re%#on -888$ pp./F3

81. What i$ a &r in-e ,ene&i t$ tax%

SUGGESTED ANSWER:A f nal w thhold n( tax mpo#ed on the

(ro##ed"p monetary %al"e of f rn(e benef t#f"rn#hed$ (ranted or pad by the employer to theemployee$ ex!ept ran& and f le employee#. )7 #t

par.$ Se!. -.// AQ$ Re%. Re(#. No. /23

8). What are on$i#ere# a$ & rin-e ,ene&i t$&or p"rpo$e$ o& taxation%

SUGGESTED ANSWER:

or p"rpo#e# of taxaton$ fr n(e benef tmean# any (ood$ #er% !e$ or other benef tf"rn#hed or ( ranted n !a#h or n & nd by anemployer to an nd%d"al employee )ex!ept ran&and f le employee#3$ #"!h a# b"t not l mted to:

a. >o"#n(b. Expen#e a!!o"nt!. ;eh!le of any &ndd. >o"#ehold per#onnel$ #"!h a# mad$

dr%er and other#e. ,ntere#t on loan at le## than mar&et

rate to the extent of the d f feren!e between themar&et rate and a!t"al rate (ranted

f. 6ember#h p fee#$ d"e# and othe rexpen#e# borne by the employer for theemployee n #o!al and ath let ! ! l"b# or other#mlar or(anolday and %a!aton expen#e#. Ed"!atonal a###tan!e to the employee

or h# dependent# and=. *fe or health n#"ran!e and other non

l fe n#"ran!e prem"m# or # m lar amo"nt# n

ex!e## of what the law allow#. Se!. // )B3$ N,R+of 70 7 #tpar.$ Se!. -.// )B3$ Re%. Re(#. No. /2Q

8+. What a re the 3in#$ o& & rin-e ,ene& it$tha t are no t $",6 e t to the & ri n-e ,ene&i t$tax%

SUGGESTED ANSWER:a. When the fr n(e benef t # re5"red by

the nat"re of$ or ne!e##ary to the trade$ b"#ne##or profe##on of the employer or

b. W hen the fr n(e bene f t # for the!on%enen!e or ad%anta(e of the employer. Se!./-)A3$ N,R+ of 70 7 #t par.$ Se!. -.// )A3$ Re%.Re(#. No. / 2Q

!. rn(e benef t# wh!h are a"thor

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f #"!h fa!l t e# are offered or f"rn#hed by theemployer merely a# a mean# of promotn( thehealth$ (oodwll$ !ontentment$ or eff!en!y of h#employee#. Se!. -.02$7 )A3 )/3$ Re%. Re(#. -2a# amended by Re%. Re(#. No. 2-888Q

8/. Wha t ar e on$i# er e# a$ d e min imis,ene&i t$ not $",6et to withho!#in- tax onompen$at ion inom e o& ,o th m ana-er ia !an# ran3 an# & i!e emp!oyee$ %

SUGGESTED ANSWER:The fol lown( #hall be !on#dered a# de

minimis beneft# not #"b=e!t to wthholdn( tax on!ompen#at on n!ome of both mana(er al andran& and fle employee#:

a. 6onet owe%e r$ f t heemployer pay# more than the !el n( pre#!rbedby the#e re("laton#$ the ex!e## #hall be taxableto the employee re!e%n( the benef t# only f#"!h ex!e## # beyond the P/8$888.88 !e ln($pro%ded$ f"r ther $ that any amo"nt ( %en by theemployer a# benef t# to t# employee#$ whether!la##fed a# de min imis benef t# or f rn(ebenef t#$ #hall !on#t t"te a# ded"!tble expen#e"pon #"!h employer. Se!. -.02.7 )A3 )/3$ Re%.Re(#. -2 a# amended by Re%. Re(#. No. 2-888Q

N4TES AND +466ENTS:The abo%e pro%#on of Re%. Re(#. No. 2

-888 l&ew#e modfed Se!. -.// )+3$ Re%. Re(#.No. /2$ wh!h en"mera te# the de min imisbeneft# exempt from frn(e beneft# taxe#.

88. The &o!!o wi n- wer e the e'e nt $ an#tran$ation$ o& Ro$a! in#a4 a re$i#ent a!ien4in )

a. Reei'e# P9. mi!!ion a$omm i$$i on$ &or ,ei n- the a-ent o& a tori3ey an# atre$$ e--y

,. Reei'e# P). mi! !ion a$ ,!a3mai!money &or not expo$in- the in#i$retion$ o&mo'ie atre$$ A!ma

. So!# her re$i#entia! on#omini"mat Aya!a A'en" e &or P+ mi!!ion. She,o"-h t the $ame in 1DD9 &or on!y P1mi!!ion

#. a#e a =3i!!in-> at the $to3ma r3 et whe n $he $o!# &or P/. mi!!ionPrim"$4 In. $hare$ whih were not t ra#e#

in the $to3 exha n- e. She ,o"-h t the$hare$ in 1D/ &or on!y P/4.

e. *"r in - her ,ir th #a y4 r $. Wa te rLi!y 4 the &am o"$ pro#"er -a'e her a tenarat #iamon# rin- worth P9/4.

&. Reei'e # P+84 . ann"a!$a!ary a$ P.R.O. o& Re-a! Pro#"tion$

-. Aw ar #e # P1. / mi!!io n #a ma -e $&rom the !i,e! $"it $he & i!e# a-ain$t atre$$Nata!ia

h . Wa$ $ent ,y Re-a! Pro#"t ion$ to5o! !ywoo#4 .S.A. to o,$er'e mo'ie ma3in-at 'ario"$ $t"#io$. She tra'e!e# at Re-a! ($expen$e thro"-h Fir$ t C!a$$ Air &a re4 an#Re-a ! $pent S/ . a #ay &or her ho te !an# aom mo #a tio n$ whih were a!!reim,"r$e# to Ro$a!in#a

i. Reei 'e# P9/ 4 . & rom Re-a !Pro#"t ion$ a$ $epara t ion pay when $he

wa$ te rminate# a$ the re$"!t o& herin'o!'ement in a we!! p",!ii@e# $an#a!

6. pon nomi natio n o& her &r ie n#4Ro$a! in#a wa$ awar#e# the ,e$t P.R.O. o&th e ye ar wit h th e ao mp an yi n- t ro ph y

wort h P/4 . an# a$h prie o&P1 4 . She wa$ re0"i re# to #e! i'er a t!ea$t 1) !et"re$ ,e&ore P.R.O.$

3 . Won a ,ran# new ere#e$ en@C8: worth P84/4. #"r in- a ra&& !e

on#"te# ,y a we!! 2 3nown $"permar3et!. P)/4. proee#$ o& a

,o"nin- he3 $he i$$"e# to her &rien# $.Cr i$ Ty4 who in$ti t"te# a r imina! a$e &or'io!ation o& .P. !-. )) an#

m. P/ 4 . whi h on$ ti t" te #the $a!e$ proee#$ o& the 6ewe!ry $he $to !e&rom mo'ie pro#"er4 A!in- Pepa.

1< What i tem$ are to ,e in!"#e# a$ part o&

Ro$a! in#a( 7$ ompen$at ion inome4 orinome &rom $e!&2 emp!oyment% Exp!ain.

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)< Wh y w er e th e it em $ yo" ex ! "# e# no tin!"#i,!e a$ part o& Ro$a!in#a ($ompen$ati on inome or inome & rom$e!&2 emp!oyment% Exp!ain.

SUGGESTED ANSWER:a. The fol lown( are the tem# to be n!l"ded a#part of Ro#alnda'# !ompen#aton n!ome be!a"#ethey were der %ed f rom employer employeerelaton#hp from Re(al Prod"!ton#:

7.3 The P/18$888.88 ann"al #alary a#P.R.4. of Re(al Prod"!ton#.

-.3 The !o#t of the r#t +la## Ar fareT!&et ex!eedn( the !o#t of ab"#ne## !la## t !&et for the tra%el to>ol lywood n p"r#"t by Ro#alnda ofRe(al# trade and b"#ne## #n!l"d b le a# part of Ro#a lnda'#!ompen#aton n!ome. )No. /$ /.7$Re%en"e A"dt 6emorand"m No. 7203.

/.3 The amo"nt remb"r#ed to Ro#alndafor meal# and lod(n( d"rn( her #tay

n the U.S.A. ex!eedn( U.S.O798.88per day or n the problem U.S.O/98.88per day form# par t of Ro#al nda '#!ompen#aton n!ome. )No. /$ /.-$,bd.3

The follown( are the tem# to be n!l"deda# part of Ro#alnda '# n!o me fro m #elfemployment en(a(ed n the b"#ne## of ben( ana(ent for a!tor# and a!tre##e#:

73 The P0.8 mllon !omm##on# for ben(the a(ent of a!tor 6&ey and a!tre##6e((y

-3 The P-.8 ml l on bla!&mal money #!on#dered a# other n!ome !omn(from #o"r!e# other than tho#ement oned n Se!. /)A3 of Re%en"eRe("laton No. -/ a# well a# n!omefrom what e% er #o"r!e der%ed.)Se!ton /- AQ$ N,R+ of 703 The#ame # t r"e w th the P-98$888.88pro!eed# of the bo"n!n( !he!& andthe P988$888.88 #ale# pro!eed# of the=ewel ry #he #tole. Th"#$ all n!om e#$ll e(al or le(al $ a re n! l"ded. orPhlppne tax p"rpo#e# all n!ome notexpre##ly ex!l"ded or exempted fromthe !la## of taxable n!ome$rre#pe! t %e of the %ol"n ta ry or

n%ol"ntary a!t on of the taxpayer nprod"!n( the n!ome are #"b=e!t ton!ome taxaton.

N4TES AND +466ENTS:The r"le # d fferent n the Unted State#.

,n +omm##oner of ,nternal Re%en"e %. Wl!ox$-21 U.S. F70$ the U.S. S"preme +o"rt held that a#wnd le r$ embe

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"nder the pro%#on# of Se!. -F )B37Q of the N,R+ of 70.

89. In 1DD4 an- Boe Li,y a&ter thi rty ;+

. P)/4. a$ ontr i,"t ion to theFir$t La#y($ =*otor &or the Poor>Pro-ram$

#. P+ /4 . wo rt h o& &oo# whi h

Wen#y per$ona! !y #i$ tr i," te# to &ami !i e$#i$p!ae# ,y !ahar in Pampan-a4 a a!amity2$tr i3en area #e!are# ,y the Pre$i#ent

e . P14 . #onat ion to her a! mamater4 the ni'er$ity o& the Phi! ippine$

& . P1/4. 'a!"e o& $poi!e# &oo#re$"!t in- &rom a ,rown2 o"t

-. P) /4 . "$t om$ #" ti e$ a n#'a!" e a# #e # ta xe $ on t he impo rt at io n o&&oo# heater$

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h. P1)4. pai# to thein#epen#ent CPA who a"#ite# Wen#y($oo3$ o& Ao"nt$

I. P+/4 . m e# ia! expen$e$ &o rone o& her wai ter$ who wa$ in 6"re# in a 6o,re!ate# ai#ent

6. P/4 . pai# a$ inter e$ t to her$i$ te r who !ent her P/ 4 . a$ par t o&the initia! apita!i@ation &or Wen#y($

3 . P+/4. intere$t payment$ &orthe ar Wen#y ,o"-ht on in$ta !!ment ,a$i$

whih ar wa$ ,o"-ht &rom a ar ompany,"t &inane# ,y CITTRST4 a ,an3a"thori@e# to oper at e ,y the an-3oSentra! n- Pi!ipina$ an#

!. P1/4. whih Wen#y $pent ino,$er'in- tren#$ in the &a$t&oo# ,"$ine$$ inthe nite# State$ an# E"rope.

a . Whih o& the a,o'e inome item$$ho"! # ,e reporte# ,y Wen#y on her )Inome Tax Ret"rn% Exp!ain.

,. Whih o& the a,o'e #i$,"r$ement$are proper !y #e#"t i, !e in omp"t in- the

taxa,!e inome o& Wen#y% Exp!ain.

SUGGESTED ANSWER:a. The fo llown( are the n!ome tem# to berepo rted by Wendy n her -888 n!ome taxret"rn:

73 P9 mllon (ro## re!ep t# fromoperaton of 6!Wendy'# P

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to a relef or(an% I !!"$trate ,y examp!e.

SUGGESTED ANSWER:

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The re!o%ery of bad debt# pre% o"# lyallowed a# ded"!t on n the pre!edn( year oryear# #hall be n!l"ded a# part of the taxpayer'#(ro## n!ome n the year of #"!h re!o%ery to theextent of the n!ome tax beneft of #added"!ton.

or example: ,f n the year the taxpayer!la med ded"!t on of bad debt# wr tten off $ hereal ,*E !aptal expendt"re# aretho#e n!"rred to mpro%e a##et# and beneft#for more than one taxable year. 4rdnaryexpen#e# are "#"al ly n!"r red d"r n( ataxable year and benef t# #"!h taxable year.Ne!e##ary expen#e# are tho#e wh!h areapproprate or helpf"l to the b"#ne##.

b. The follown( are the re5"#te# forded"!tblty of b"#ne## expen#e#:73 +omplan!e wth the b"#ne## te#t:

a3 6"#t be ordnary and ne!e##aryb3 6"#t be pad or n!"rred w thn the

taxableyear

!3 6"#t be pad or n!"rred n !arryn( ona trade or

b"#ne##.d3 6"#t not be brbe#$ &!&ba! or other

lle(alexpendt"re#

-3 +omplan!e wth the #"b#tantaton te#t.Proof by e%den!e or re!ord# theded"!t on# allowed by law n!l"d n(!omplan!e wth the b"#ne## te#t.

9/. In )4 ara4 In.4 in"rre#P+/4. in or#er to promote the $a!e o&it$ !ine o& !a#ie$ #re$$e$ whih were$peia!!y #e$i-ne # an# tar-e tt e# theHa!e nt in e( $ #ay ma r3 et &or t ha t ye ar . It

!i3ewi$e in"rre# P/ 4 . to prom oteit$ i ma-e in the !oa! m ar3et an# anotherP)/ 4 . to promo te the $a!e o& it$$hare$ o& $to3 whih i t wa$ o&&erin- to the-enera! p",!i &or $a!e.

I t a$3$ yo"r a#' ie on how to t rea tthe$e a#'erti$in- expen$e$.

SUGGESTED ANSWER:a. ,t #ho"ld ded"!t the P/98$888.88 from t# -888

(ro## n!ome a# ordnary and ne!e##aryexpen#e# be!a"#e the#e are ad%ert # n(expen#e# "#ed to #tm"late the !"rrent #aleof mer!hand#e.

b. ,t #ho"ld not ded"! t the P988$888. 88ad%er t #n( expen#e f rom t# -888 (ro##n!ome a# the#e are ad%ert # n( expen#e#de#(ned to #t m"l ate the f"t"re #ale ofmer!hand#e. The#e are expend t"re# norder to ! rea te or mantan #ome form of(oodwl l for 6ara$ ,n!.'# trade or b"#ne##.The#e expendt"re# are to be #pread o%er area#onable perod of t me be!a"#e they are!on#dered that a !aptal a##et wh!h ha# adeter m na ble lfe ha# been a!5"re d.)General ood# Phl#.Q$ ,n!. %. +omm##onerof ,nternal Re%en"e$ +TA +a#e No. F/21$prom. ebr"ary 2$ 7F3

!. ,t #ho"ld l &ew#e #pread the P-98$888.88 o%er

a rea#onable perod of t me be!a"#e the#eare expen#e# n!"rred to !reate a fa%orablema(e for the !orporaton to (enerate #ale# of t# #hare# of #to!&. The#e !on#t t"te !aptaln%e#tment be!a"#e the part!"lar ad%ert#n(expen#e wa# n!"r red n rela t on to the!aptal a##et or e5"ty of the !ompany. )Atla#+on#ol da ted 6n n( and De%el opment+orpora ton %. +omm##oner of ,n te rnalRe%en"e$ 78- S+RA -F13

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98 . i 3ey Corporat ion i$$"e# pre&erre#$hare$ with the &o! !owin- on#it ion =Theho!#er$ o& pre&erre# $hare$ $ha!! ,e entit !e#to an ann"a! 9? intere$t4 an# $ha!! ! i3ewi$epar ti i pa te in the -enera! #i$ tr i,"t ion oi'i#e n#$ to omm on $har e$. > In ) i 3ey Corpora ti on pai # P mi !! ion to it$pre&erre# $hareho!#er$ repre$entin- the 9?in tere$ t . I t $ee3$ yo"r a#'i $e whether ito"!# #e#"t the $ai# amo"nt &rom i t$ -ro$$inome. What wo"!# yo"r a#'ie ,e%

SUGGESTED ANSWER:,t # not allowed to ded"! t #ad ntere# t# .Prefer re d #hare# are !on#de red !apt alre(ardle## of the !ond t on# "nder wh!h #"!h#hare# are ##"ed and d % dend# or ntere#t#Cpad thereon are not allowed a# ded"!ton# fromthe (ro## n!ome of !orporat on#. )Re%en"e6emorand"m +r!"lar No. 70073

99. Ba34 / year$ o!# with 1 year$ $er'iewith hi$ em p! oy er4 #ei#e # to a'ai ! o& the

!i,era! ear !y 'o!"ntary ret i rement pro-ramo&&ere# ,y hi$ emp!oyer . The pro-ram wa$par t o& the pro &i t im pro'em ent pro-ram o &the ompany. The po$it ion$ o& tho$e who

wo"!# a'ai ! o& th e pro-ram wo"! # not ,e& i! !e# "p one they are 'aate# a$ a re$"! to& the 'o!"ntary ear !y ret i rement . Are anyamo"nt$ reei'e# ,y Ba3 a$ a re$"!t o& hi$a'ai!ment o& $"h pro-ram tax2 &ree% What$ho"!# ,e #one in or#er to ha'e hi$re ti re m en t pay ,e e xe mp t &ro m ta xa ti on%Exp!ain ,rie&!y.

SUGGESTED ANSWER:Any amo"nt he #ha ll re!e %e #ha ll be

#"b=e!t to tax$ !on#der n( that he # below 98year# of a(e and that h# ret rement # %ol"ntaryn !hara!ter.

or Ia!& to a%al of the tax exempton h#employer #ho"ld f reC hm. >en!e$ any amo"nthe wo"ld be re!e%n( wo"ld be a# a !on#e5"en!eof h# #eparaton for a !a"#e beyond h# !ontrol#"!h a# retren!hment. 7 #t par.$ Se!. -.02.7 )B37 b $ Re%. Re(#. No. -2Q

N4TES AND +466ENTS:a. Con#i ti on $ &or ex!" #i n- re ti re m en t,ene&i t$ &rom -ro$$ inome

73 Retrement beneft# re!e%ed "nder Rep"bl!

A!t No. 01F7 and tho#e re!e%ed by off!al#and employee# of pr%ate f rm#$ whethernd%d"al or !orporate$ n a!!ordan!e wththe employer'# rea#onable pr%ate benef tplan appro%ed by the B,R.

-3 Retrn( off!al or employeea3 ,n the #er%!e of the #ame employer for

at lea#t ten )783 year#b3 Not le## than f f ty )983 year# of a(e at

tme of retrement!3 A%a led of the benef t of ex!l"#on only

on!e. Se!. /- )B3 1 a $ N,R+ of

70Q. The retrn( off!al or employee#ho"ld not ha%e pre%o"#ly a%a led ofthe pr%le(e "nder the retrement planof the #ame or another employer. 7 #t

par.$ Se!. -.02 )B3 7 $ Re%. Re(#. No.-2Q

b. Separa ti on ; re ti rem ent < pay ex! "#e#&rom -ro$$ inome4 hene tax2 exempt .

73 Any amo"nt re!e %ed by an of f! al$employee or by h# her#$

-3 rom the employer/3 A# a !on#e5"en!e of #eparat on of #"!h

off!al or employee from the #er%!e of theemployer be!a"#e ofa3 Dea th$ #!&ne## or othe r phy# !al

d#abl ty orb3 or any !a"#e beyond the !ontrol of #ad

of f! a l or employee Se!. /- )B3 1 b $ N,R+ of 70Q$ #"!h a#retren!hm ent$ red"ndan!y and!e##aton of b"#ne##. 7 #t par.$ Se!.-.02 )B3$ 7 b $ Re%. Re(#. No. -2Q

9. What a re the pr i@ e$ tha t a re ex !"#e#&rom -ro$$ inome4 hene not taxa,!e%

SUGGESTED ANSWER:a. Pr

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amo"nt# of any dama(e# re!e%ed whether by#" t or a(reement on a!!o"nt of #"!h n="r e#.Se!. /- B F $ N,R+ o f 70 Se!. - .02 )B3 $ Re%. Re(#. No. -2Q

N4TES AND +466ENTS:The abo%e # the pre%al n( % ew. The

a"thor #"bmt# that the amo"nt of P7 m ll on$ben( n the nat"re of repla!ement of n!ome lo#t# taxable. Th# # #o$ be!a"#e ex!l"#on# are nthe nat"re of tax exempton#$ hen!e they m"#t be#tr!tly !on#tr"ed a(an#t the taxpayer.

. in 1D8 e! !a p"rha$e# a pare! 4 o& !an#a#6oinin- the City Camp La-oon in a-"ioCity &or P)./ mi! !ion. She inten#e# to ,"i !#her &ami!y home on the $ai# pare! o& !an#.n&ort"nate!y &or her 4 the em,an3ment wa$#e$ tr oy e# #"rin - th e B"!y 84 ) 1 &!a$ h&!oo#$ a"$in- ero$ion whih !e# to a#eteri ora ti on o& the m ar3et 'a !"e to on!yP1./ mi! !ion. The City A$$e$$or a$$e$$e#the proper ty &or tax p"rpo$e$ at P1.)

mi! !ion whi !e the IR @ona! 'a!"ation i$ P1.mi!!ion.

a . S"ppo$in- that on A"-"$t +14 )14the owner o& the a#6oinin- property,"y$ the p roper ty a t P1 .+ mi! !i on 4

wh at wo"! # ,e th e taxon$e0"ene$ to e! !a on$i#erin-that $he $"&&ere# a !o$$% Exp!ain.

,. Wo"! # yo"r an$wer ,e the $ame i&the -o'ernment expropr ia te# theproper ty at it$ pre$en t mar 3e t'a!"e o& P1./ mi!!ion% Why%

SUGGESTED ANSWERS:a. The par!el of land # a !aptal a##et of Bella.

Th# # #o be!a"#e t # not her #to!& n trade$or property n!l"dble a# part of her n%entoryat the end of the taxable year$ or propertyprmar ly held by her for #ale to !"#tomer# nthe ordnary !o"r#e of trade or b"#ne##$ orproperty "#ed n trade or b"#ne## #"b=e!t todepre!aton$ or real property "#ed by Bella nher trade or b"#ne##. )Se!. // AQ 7 $ N,R+of 703

+on#e5"ently$ rre#pe!t%e of the holdn(perod "nder the pro%#on# of Se!. / )B3 ofthe N,R+ of 70$ the !aptal (an# pre#"medto ha%e been real,*E the #o"r!e of net operatn(lo## !arryo%er are from the ordnary trade andb"#ne## of the taxpayer. Who may en=oy the!arry o %er : 4nly taxpa yer# other than!orporaton# may en=oy net lo## !arry o%er W>,*Eonly !orporat on# may en=oy the net operat n(lo## !arryo%er.

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!. Any taxpayer$ other than a !orporaton) nd% d"al# n!l"dn( tr"#t# and e#tate#3$ who#"#ta n# n any taxable year a net !apta l lo##from !aptal tran#a!ton# n%ol%n( !aptal a##et#)other than real property or #hare# of #to!& notl #ted or traded n the #to!& exhan(e3$ # allowedto t reat d"rn( the #"!!eed n( year #"!h ne t!aptal lo## a# a lo## from the #ale or ex!han(e ofa !aptal a##et )other than real property or #hare#of #to!& no t l# ted and t raded n the #to!&ex!han(e3$ held for more than twel%e month#.)Se!. / DQ$ N,R+ of 703

+. In 1DD/4 $. a Gan#a ,o"-ht a#ia mon # rin- wort h P9/4 . &or "$e#"ri n- her #e,"t . On Septem ,er /4 )1 4ha'in - no &"r th er "$e &or the rin-4 $he#ei# e# to $e!! it to r $. . Aya ma n &orP+/4 . . Witho"t -oin- intoari thmet ia! omp"tation$4 how $ho"!# $.Gan#a ,e taxe# on the $a!e o& her r in- .

SUGGESTED ANSWER:

The r n( # 6#. Ganda'# !apta l a##etbe!a"#e #he # not n the b"#ne## of b"yn( and#el l n( =ewe lry. She bo"(ht the r n( for herper#onal "#e and no t for t rade or b"#ne## .+on#e5"ently$ #he #ho"ld determne the net proftfrom the #ale# of t he r n( and appl y n( theholdn( perod #ho"ld report ffty per!ent )98J3 of#"!h net prof t n her n!ome tax ret"rn for 7a# part of ordnary n!ome. The holdn( perod#ho"ld be appled be!a"#e #he held the damondrn($ her !aptal a##et$ for more than twel%e )7-3month#.

. In 1D 4 China an3 in- Corpora t ionm a#e a /+? e0" ity in'e$tm ent in the Fir$ tCC Capita! ;A$ia< Lt#.4 a 5on-3on-$",$i#iar y en-a -e # in &inanin- an#in'e$tment with =#epo$i t2 ta3in-> &"nt ion.The in'e$tment amo"nte# toP184 )) 94 / 1. 4 on$i$tin - o& 18 4 $hare$ with a par 'a!"e o& P1 per $hare.

S",$ e0 "e nt !y 4 Fir$ t CC Capi ta !;A$ia

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$hare. P) mi! !ion o& the a"thor i@e# apita !$to3 were $",$ri,e#4 ,y 'ario"$$to3 ho! #e r$ in!" #i n- r . F!or e$ who$",$ri,e# &or $to3$ with par 'a!"e o& P1./mi! !ion. To &"!!y pay &or hi$ $",$ription4r. F!ore$ tran$&e rr e# in ) to X:Corpo ra ti on a pare ! o& !an# . It wa$$",$e0"ent !y #i$o'ere# ,y the "rea" o&Interna! Re'en"e that the pare! o& !an# ha#a &air mar3et 'a!"e o& on!y P1 mi!! ion.

a. Sine the 'a! "e o& the pare! o&!an# wa$ on !y P1 mi !!i on whi !e r. F!ore$reei'e# $hare$ o& $to3 worth P1./ mi! !ion#i # r. F!o re$ earn inom e amo"nt in- toP/ 4 . whi h $ho"! # ,e $",6e t toinome tax % On the other han#4 $ho"!# theorp or at io n ,e a!!o we # to #e# " t a !o$$amo"ntin- to P/4.%

,. What wo"! # ,e the tax t rea tm ent 4i& in ) 1 4 r . F!or e$ $o!# th e $ha re $ o&$to3 in X: Cor po ra ti on whi h ar e not!i$ te# or t ra#e# in the $ to3 exhan-e &o rP1.) mi!!ion%

. S"ppo$in- that in )1 X:Corporat ion $o!# the pare! o& !an# &or P1mi! !ion whih i$ i t$ @ona! 'a!"ation in )1.X: i$ not en-a-e # in the rea! e$tat e,"$ine$$. What wo"!# ,e the tax t reatment&or $"h a $a!e%

SUGGESTED ANSWER:a. 6r. lore# dd not earn any n!ome #"b=e!t

to tax nether dd @? n!"r a lo## wh!h t!o"ld ded"!t from t# -888 (ro## n!ome.

The tran#a!ton # &nown a# a tax freeex!han(e #olely n &nd$ hen!e no (an orlo## # re!o(n

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enhane# the 'a!"e o& the property S1/mi! !ion the 'a!"e o& !i &e in$"rane proee#$&rom an in$"rane ta3en o"t ,y *on Ce$aron hi$ own !i&e #e$ i-nat in- hi$ e$tate a$,ene&iiary &rom the Canton Swi$$In$"rane a t Canton4 Swi t@ er !an# P)/mi! !ion proee#$ o& !i &e in$"rane ta3en ,y*on Ce$ar on h i$ own !i &e & rom Phi!am! i &eIn$" ra n e in th e Phi!ip pi ne $ pa ya ,! e toarie! a$ irre'oa,!e ,ene&iiaryo"t$tan#in- ,an3 ,a!ane with Phi! ippinean3 o & Com mere in the amo"nt o& P/mi!!ion wit h Nane tt e a$ hi$ an#Ko r o2#epo$i tor . Share$ o& $to3 o& a 5on-3on-ompany ,"t mana-e# &rom the Phi !ippine$an# a P1/ mi!!ion apar tm en t !oat e# inani !a4 Phi !ippine$ whih he #onate# to hi$!o$e &rien# on Apri ! )/4 1DD $",6et to theon#i ti on th at th e &ri en # re mi t$ to *onCe$$ar a!! the renta!$ o& the property #"rin-the ! i&et ime o& *on Ce$ar.

a. Wh at $ho"! # ,e rep or te # a$ pa rt o&*on Ce$ar ($ -ro$$ e$ ta te an# what

#e#"tion$ are a!!owa,!e to#etermine hi$ net e$tate% Exp!ain.

, . Are the proee#$ o& the P)/ mi !! ion!i&e in$"rane to ,e on$i #ere# a$part o& the -ro$$ e$tate o& *on Ce$aror arie!($ inome% Why%

. S"ppo$in- ar ie! want$ to with#rawthe P/ mi !! ion &rom the ,an3 4 whata#'i$e $ho"!# yo" -i'e her%

#. I$ ar ie! ,ein- the $o!e ,ene&iiary!ia,! e &or the paym ent o & the e$ ta tetaxe$%

SUGGESTED ANSWER:a. Sn!e Don +e#ar wa# a nonre#dent de!edent

who at the tme of h# dea th wa# not a ! t a!enda$the P9 mll on ban& balan!e wth the Phl ppneBan& of +ommer!e$ the #hare# of #to!& n the>on(&on( !orporat on and the P79 ml lonapartment.The #hare# of #to!& ha%e a!5"red a b"#ne###t"# n the Ph lpp ne# be!a"#e the fore(n!orporaton # mana(ed from the Phl ppne#hen!e$ n!l"db le a# part of Don +e#ar '# '#(ro## e#tate.

The P79 mll on apartment # part of the(ro## e#tate be!a"#e t wa# tran#ferred n!ontemplat on of death. Don +e#ar ha#retaned for h# l fe the en=oyment of the fr" t#of the property. )Se!. 29 )B3$ N,R+ of 703

b. The pro!eed# of the P-9 mll on l fe n#"ran!e# nether part of the (ro## e#tate nor n!ometo 6ar!el. The pro!eed# are not part of thee#ta te be!a"#e the benef !ary # no t thee#tate of Don +e#ar$ h# exe!"tor oradm n #t ra to r and the de#(na t on of thebenef!ary # rre%o!able. )Se!. 29 )E3$ N,R+ of703 The P-9 mll on # not al#o n!ome to6ar!el be!a"#e l fe n#"ran!e pro!eed# padto benef!are# "pon the death of the n#"redare ex!l"#on# from (ro## n!ome. )Se!. /- BQ7 $ N,R+ of 703

!. , wo"l d ad% #e 6ar!el to fr# t #e!"re a!ertf!aton from the +omm##oner of ,nternalRe%en"e that the appropr ate e#tate taxe#were already pad. ,f the amo"nt to bew thdr awn doe# not ex!eed P-8$888.88$ #he#ho" ld #e!" re an a"tho r in o r#er to a rr i'e a t the ne te$tate $",6et to e$tate taxe$. QSe. 8 ;A