tax1 midterms tiu

7/23/2019 Tax1 Midterms Tiu

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TAXATION 1AY 2012-13

MIDTERMS PART 1

DATE: 06/23/12

So, our tax code, the most recent tax code is Republic Act 82 !"ic" i# t"eN$ti%&$l I&te'&$l Re(e&ue )%*e %+ 1,, which was e++ecti(e i& 1,,8. Itactually #upe'#e*e* t"e p'e(i%u# t$. c%*e# %+ 1,83 1, $&* t"e +i'#t t$.c%*e %+ 1,3, copied from the United States. So what you have in the Tax Code of

1997 effective 199 and not so !ood "#$ %ut it was somehow& some provisions inthe ($lue $**e* t$. !e'e $e&*e* i& 200 b Republic Act ,33. 'emem%erthe i&c'e$#e i& t"e $lue A**e* T$. +'% 104 t% 124. That was 'epu%lic (ct9))7, *++. "#$. (nd another $e&*e&t i#/but #till !e "$(e Republic Act82, it was $e&*e* i& p$'t, in so far as i&t'%*uci&5 t"e e.epti%& +'%t$.e# %+ i&iu !$5e i&c%e e$'&e'# . That was i& 2008-ul 6 2008 -Republic Act ,07 Those were the ma-or amendments. (ll the rest of 'epu%lic(ct * stays the same. /a0e sure your Tax Code is the amended one.

D% %u &%! t"e p%!e' %+ T$.$ti%&9 "$t i# t"e p%!e' %+ T$.$ti%&9 Taxation is the power %y which the soverei!n, throu!h its lawma0in! %ody, raisesrevenue to defray the necessary expenses of !overnment.

Taxation is inherent in every soverei!nty, exercised %y the le!islative %ranch of the

!overnment. 2xactin! %urdens upon su%-ects, o%-ects, transactions or activities. 3orthe purpose of raisin! revenues in order to meet the le!itimate needs of the!overnment.

;$(e %u bee& $++ecte* %+ t$.e#9 A'e %u !%'i&59 ;%! $'e %u $++ecte*9Student4 5(T ma6am 8uyin! in the fastfood.

So we cannot say that taxation will only affect those that are earnin! income.8ecause taxation is not -ust solely related to income taxation. 2arnin! income, wewill have income tax. 3or all other type of transactions, is affected somehow %yother tax. 3or a simple activity of purchase, value added tax affects almosteveryone in the consumer world. 3or every purchase that you ma0e, did you noticethat you are passed on with a tax# (ctually, it6s not the esta%lishments that arelia%le for the value added tax. Their lia%ility is only to remit whatever you have

shouldered. (s in fact, if you purchase a watch. ou purchased that watch at S/.:id you notice that the prices of these thin!s include the value added tax# ou arethe one that is %urden with this tax. (nd not the seller who6s !oin! to -ust remitwhat you shouldered. If you %uy a %oo0, if you ride a plane, there is always a taxattached to it.

So in short, the &$tu'e %+ t$.$ti%& %oils down to three nature1. Inherent prero!ative of the soverei!nty*. ;e!islative in character). Su%-ect to constitutional and inherent limitations

e !e'e #$i&5 t"$t t"e p%!e' %+ t$.$ti%& i# i&"e'e&t i& e(e' #%(e'ei5&t7" *% %u #$ #%9 I# it &%t c%&+i'e* b t"e )%&#tituti%&9So in short the !overnment will not !ive services without the payment of taxes. Sowe will have to %elieve that these politicians are not interested in taxes# Student4<f course they are

8ut for purposes of discussion, it is the State that is in need of taxes in order to runthe !overnment.

e<'e #$i&5 i&"e'e&t $&* &%t b t"e )%&#tituti%& but !"$t $'e t"e#ec%&#tituti%&$l p'%(i#i%&# #$i&5 $b%ut t$.$ti%&9 I# it &%t t"e St$te t"e 'i5"tt% t$.9Student4 The constitution when tal0in! a%out the taxation, it #et# liit# for thetaxation power.

"e& %u c%e i& p%i&t %+ tie !"e& t"e'e !$# &% )%&#tituti%& i& e++ect

*%e# it e$& t% #$ t"$t t"e'e i# #till t"e 'i5"t %+ t"e 5%(e'&e&t t% ip%#et$.e#9

Since it is not %ased on the confirmation of the constitution, the a%sence of theConstitution ma0e the !overnment relin=uish its ri!hts to impose taxes. The powerof taxation, one of the 0ey powers of the !overnment, is the most pervasive of allalthou!h police power is pervasive also. >ervasive in the sense, all the differentsta!es in our life are affected %y taxation.

It is primarily le!islative and only the le!islative can enact a law to impose taxes.(nd as mentioned, there are instance where it can %e dele!ated. ?e will discussthat when we reach inherent limitations.

The third nature of the power of taxation is that there are limitations.

"$t $'e t"e t!% cl$##e# %+ liit$ti%&#9 Inherent and Constitutional limitations.

?hen we say i&"e'e&t liit$ti%&# on the power of taxation it means that theri!ht to tax of the !overnment, there exist a limit to tax or restrictions. It doesnot need any law or provision for the limitation to apply. 3or example, every taxthat needs to %e imposed has for its purpose the !eneral welfare or for thepurpose of the common !ood. <therwise, if the le!islative %ranch will enact atax for the purpose of aidin! a private enterprise, that will %e ro%%ery in itssophisticated form. ou6re !ivin! someone else6s money for a private personand not for the !eneral welfare.

(nd the second limitation to tax is the )%&#tituti%&$l liit$ti%&# which arefound in our Constitution. ou were sayin! a while a!o that the provisions inthe Constitution simply refers not to !rant the power %ut simply to set out thelimitations to power of taxation. Such as# "Student6s example was uniformityand e=uality of taxation.$ So there are many Constitutional limitations, and oneof these is uniformity of imposin! taxes. That means for all types of su%-ects%elon! to the same class will have to %e su%-ected to the same rate.

"$t $'e t"e t"e%'ie# !"ic" !%ul* #upp%'t t"e p%!e' %+ t$.$ti%&9

=i+ebl%%* t"e%'9 Student4 Taxes are needed %y the !overnment in order to support the !overnmentand in order for it to survive.

<verused theory that came from various Supreme Court cases. ?hen there is a=uestion relatin! to whether an o%-ect, su%-ect or activity is su%-ect to tax,life%lood theory will come in. In the same way, if you are not sure of what to

answer whether a transaction is su%-ect to tax, you will pro%a%ly have onechance left to discuss the life%lood theory. 8ut mind you class, it will not apply

TAX MIDTERMS PART 1– JENNIFER, JASPER, REUVILLE, RYAN, JADE, KRISTEL, JARED, JAN, NEIL, JESSTONY | 1



at all times. The life%lood theory tells us that in order for the !overnment tosurvive it has to %e supported %y its people and taxes will %e the life%lood of every !overnment. (nd there are many cases where in it was illustrated andmany provisions in the tax code that somehow illustrate why collection of taxesis important to the !overnment and how it is implemented. 3or example!overnment throu!h 8I', our tax authority, cannot %e denied in the collectionof taxes. /eanin! to say that courts cannot file an in-unction to stop thecollection of taxes as it deems fit in a tax assessment, safe in one exception.ou will learn that in tax *. >ractically all cases and methods of collection will %esupported %y the !overnment unless it is for an ar%itrary ri!ht. Taxes will not %e

su%-ect to compensation or setoff. /eanin! to say, that if you have a claim forrefund with the !overnment for overpaid taxes and here comes an assessmentof underpaid taxes, you did not tell the !overnment that it should not proceedwith the levy of your property %ecause you have an existin! collecti%le from the!overnment, it cannot %e setoff 7 >%' t"e #iple 'e$#%& t"$t t$.p$e' $&*t"e 5%(e'&e&t $'e &%t *ebt%'# $&* c'e*it%'# %+ e$c" %t"e'7 There arefull of exceptions. "Tax *$

(nd another instance where the life%lood, the power of the tax is in relation to thepower to destroy. ?e will tal0 a%out that later.

)IR (#7 )TA7 )itt'u#t c$#e

3or purposes of our discussion, we are loo0in! into is how did the SC decide on

issues of re=uirin! the !ov6t to !ive %ac0 taxes that were supposedly erroneouslypaid# :id they !ive up easily to say that they should !ive %ac0 the taxes to thetaxpayer. Sure enou!h they would say that it6s the life%lood of the !ov6t, it6s whatthey use to pay for a civili@ed society and any form of relin=uishment of such ri!htsshould not %e decided so easily. In *++A this was finally resolved %y the SC.

MR )=EMEN)IO9 $# t"e li+ebl%%* t"e%' up"el* i& t"e c$#e %+ )IR (#7A=?@E9 "$t tpe %+ *e*ucti%&#9 "$t tpe %+ e$#ee&t9Tu%al4 :eductions for the expenses that they incurred in the purchase of theproperties of >BI;I>>I2 SUD(' 2ST(T2 and their venture in the experimental%usiness called 52D2T(8;2 <I; I52ST/2T C<'>. so they were claimin! for taxdeductions %ut..

O$ cl$## let e 5i(e %u $ b$c5'%u&* i& t$. *e*ucti%&# !%ul* $ctu$llbe #t'ictl l%%e* i&t% b t"e 5%(t7 "9?henever you claim expenses or tax deductions, it would not really lessen loweryour taxa%le income, which would %e translated to lower tax collection, in this casethere was a claim for promotional expenses, usually this are incurred durin! the%illin! of the corporation from the state while the operations are still !oin! on. ?hatwas claimed was an expense deduction.

$# it $ll%!e* b t"e IR9Student4 The 8I' C<//ISSI<2' contended that these expenses were notordinary, reasona%le, and necessary %usiness expenses. That6s why they disallowedthe tax deductions claim. Bowever when the case went up to the SC they said thatAl5ue #ucce##+ull p'%(e* t"$t t"e e.pe&#e# i&cu''e* !e'e +%' #uc"pu'p%#e# t"$t !%ul* be&e+it t"e ?O<T $l#% t"$t<# !" it *e#e'(e# t% be $*e*uctible ite bec$u#e it #$# "e'e t"$t t"e !e'e #ucce##+ul i&c%&(i&ci&5 i&(e#t%'# t% (e&tu'e i&t% t"e e.pe'ie&t$l bu#i&e## $&* it !ill

c%#t t"e illi%&# !"ic" t"e 5%(<t !ill $l#% be&e+it bec$u#e %+ t"e 'e(e&ue#$&* t"e B%b# t"$t !ill be c'e$te*7

<0, since you are already in )rd year, you will have su%-ects on corporation codewhere you will learn that in the operation of %usiness there are ) operational sta!es,and in the operational sta!es you would either sell the stoc0s if you want investors,if you cannot invest in it solely or with your family you will somehow have to hiresome%ody to sell your stoc0s successfully, some%ody who is really en!a!ed in that0ind of activity. There is a chance that they will %e denied. (side from the fact thatthey don6t want to !ive tax deductions, for expenses to %e considered as adeducti%le item it should %e %'*i&$' 'e$#%&$ble $&* &ece##$'7 T"%#e $'et"e 3 c'ite'i$# %u l%% i&t% +%' t"e *e*uctibilit %+ $& e.pe&#e7 If it6s

ordinary to the %usiness that you are en!a!ed in, is it necessary, is it reasona%le.So when you are in a pawnshop %usiness ordinarily you need a security !uard. >erowhen your %usiness is sellin! in the sidewal0 it wouldn6t %e necessary, reasona%le inamount, in fact it involves million expenses for a ten million investment..is theamount for promotional fees reasona%le# It6s not# Therefore it is allowed, %ut in thiscase it was found out to %e ordinary, necessary, reasona%le therefore it isdeducti%le. the doctrine was not upheld. you cannot ar!ue that %ecause of thelife%lood doctrine the 8I' correctly decided that it is not deducti%le. So it6s not in allcases that the life%lood doctrine is upheld.

"$t i# t"e &ece##it t"e%'9Student4 the second theory of the %asis of taxation is the necessity theory. It meansthat the %asis of taxation is deeply rooted from the ST(T2S6 necessity to raiserevenues to support pu%lic service. on the other hand the peoples6 necessity for

services and protection from the state in the form of infrastructure, navy, army, airforce and also for improvement in the economy and science and such needs of thepeople which they expect the !overnment to provide for them.

S% *% %u t"i& t"e 5%(<t !ill be Bu#ti+ie* t% '$i#e t"e cu''e&t t$.e# %+ c%'p%'$ti%&# !"ic" i# 304 i& %'*e' t% '$i#e 'e(e&ue# t% *e+e&* %u'Sc$'b%'%u5" S"%$l9Student4 In my opinion, I thin0 it would not %e necessary, I %elieve that if theadministrative side of collectin! taxes would %e done properly, we would haveenou!h %ud!et to fund our national defense, in fact I %elieve this is already in our%ud!et %ut somewhere alon! the way it went to the poc0ets of politicians.

"$t i# t"e #bi%tic 'el$ti%&#"ip t"e%'9Student4 It means that the people, althou!h they are %urdened or made tosurrender a part of their property to the !overnment, they should do so %ecause inturn the !overnment is !ivin! %ac0 compensation throu!h services.

So it6s a !ive and ta0e relationship %etween the !ov6t and the people. The !ov6t cansupport its people if the people will support the !ov6t, and support should %eproportional.

"e& %u $'e #$i&5 t"'%u5" t"e be&e+it# 'ecei(e* b t"e pe%ple c$& $pe'#%& !"% "$# &%t 'ecei(e* $& be&e+it +'% t"e 5%(Ct 'e+u#e t% p$t$.e#9Student4 (s we have discussed earlier, the power to tax is "C<U;:6T B2(' ?B(TSB2 S(I:$, and another reason is that it doesn6t mean that a person did not directly%enefit from the !overnment, it doesn6t mean that ultimately he wasn6t %enefited%ecause the principle %ehind pu%lic purpose is it is %oth the direct and indirect%enefit that a person receives, even if a person is not directly %enefited..The

development and the enhancement that the !ov6t provided the state of the peoplein !eneral is also considered.




<0 it is not re=uired for a person or taxpayer to %e lia%le to the !ov6t to support itthrou!h taxes, that he or she would receive a direct effect.. on the same note, evenif a person is directly %enefitin! from the !ov6t throu!h food allowances, etc. to theunderprivile!ed and that they are not payin! any taxes, the other taxpayers cannotsay that they should %e re=uired to pay taxes %ecause it6s a %alancin! situation,that6s why we have a pro!ressive system of taxation, the more you can afford. Themore you are lia%le to pay taxes. (s for minimum wa!e earners, they are alreadyexempt from payin! taxes.

"$t i# t"e p'i$' pu'p%#e %+ t$.$ti%&9Student4 They primary purpose of taxation is to raise revenues.

I# 'e(e&ue '$i#i&5 $& e.clu#i(e pu'p%#e %+ t"e p%!e' %+ t"e le5i#l$tu'e9;%! c$& %u' t$.$ti%& $++ect %u' l%c$l i&*u#t'ie#9Taxes in !eneral encoura!es the local industry %y !ivin! incentives li0e they don6tpay income tax for the first ) or years of operation to encoura!e investment fromoutside the country.

So we have the primary purpose of taxation, which is to raise revenues in order tomeet the services for the !ovt. in all 0inds of taxation whatever you call it, italways has the primary purpose of taxation which is to raise revenues such asestate taxes, when is it imposed# ?hen does it ta0e effect# So when some%ody

dies, automatically the state will %e interested in the property or the estate left %ythe decedent and it will %e su%-ected to estate tax. ?hat really is the purpose%ehind#, there should %e a %asis as well for imposin! tax %ecause it6s not incometax, all the decedent did was die, and now his estate is su%-ect to tax# There should%e another purpose aside from revenue reasons# 8ecause accordin! to the state itis a silent partner in the accumulation of wealth of the decedent, the decedent andhis estate received %enefits in perfectin! the property throu!hout its lifetime.

A&* $l#% $&%t"e' #ec%&*$' pu'p%#e %+ t$.$ti%& i# t"$t it !%ul* p'%tect %u'l%c$l i&*u#t' +'% !"$t9Student4 3rom the intervention ofE

<0, ima!ine the %usinesses in china, they could actually produce the same type of products which they would then sell at a lower price. ?here would they %uy theproducts9 So in order to protect the !rowth of our own local industry we can playaround with taxes, customs dues and tariffs in the importation of these products. If we would li0e to protect our local industry from this type of dumpin! of very cheapitems in the >hilippines, we can raise customs duties and tariffs or even impose%ans on certain products from enterin! into the country so we can en-oy our ownproducts produced %y our local manufacturers. The re!ulation %ecomes secondary,althou!h the collection of taxes has a revenue raisin! purpose.

A&* $&%t"e' #ec%&*$' pu'p%#e i#9Student4 3or re!ulation ma6am. 3or example ci!arettes there is excise tax cause it6s%ad for the health of the people. (nother would %e to reduce social ine=uality.in thesense that if you have more you will %e taxed more.

)%ul* %u 5i(e e $& e.$ple9Student4 The tax that you pay is proportionate to the income that you earn.

<0, to reduce social ine=uality, in the sense that if you earn more income you will%elon! to a hi!her tax %rac0et. (s your income increases your tax increases..%utactually it6s not happenin!..the !ap %etween the rich and the poor is widenin!.

I# 'e5ul$ti&5 $ pu'p%#e %+ t$.$ti%&9Student4 es that is a secondary purpose of taxation. 3irst taxation has the power todestroy for example ci!arettes, they are %ad for the %ody so in order for people toavoid smo0in!, hi!her taxes are imposed on ci!arette companies, and hi!her taxesmean hi!her prices thus hi!her prices mean people will !et discoura!ed to %uy.

So these are the same taxes imposed on ci!ars and li=uors..we are actuallydirectin! our taxes a!ainst the products itself not to the %usiness or producer%ecause all corporations whether involved in the production of these items or notwill %e slapped with the same tax rate in your taxa%le income..all your transactionswill %e imposed the same taxes. The difference would lie in that if you producethese items such as ci!ars and li=uors will %e slapped with an additional type of taxwhich is the excise tax. If you see the stamp on top of the ci!arette pac0 and thewines there is a stamp si!nifyin! they paid an excise tax. So not only the incometax paid %y ;ucio Tan, and not only the 5(T which is ultimately passed on to the%uyer %ut there is another type of tax. It would result to a hi!her price %ut actuallyin our country it6s not that %ad .even re!ulars smo0e, so they could really afford.

S% %u !e'e #$i&5 it i&(%l(e# t"e p%!e' t% *e#t'%9Student4 It also has the power not to destroy, li0e it may stren!then our local

industry %y !ivin! incentives.

;et6s tal0 a%out when it has the power to destroy and when not a power to destroy.

T% !"$t e.te&t i# t$.$ti%& $ll%!e* $# $ p%!e' t% *e#t'%9Student4 <nly in re!ulatory purpose..

;et6s ma0e it simple, t"e p%!e' t% t$. i&(%l(e# t"e p%!e' t% *e#t'% i+ it i#u#e* t% iplee&t t"e p%lice p%!e' %+ t"e #t$te &%t +%' pu'p%#e# t% '$i#e'e(e&ue7 8ecause if the purpose of the taxation involves only to raise revenue youcan never use it as a power to destroy, it %&l bec%e# $ p%!e' t% *e#t'% i+ iti# #%e"%! p%lice p%!e'7

ut !%ul* $ll iplee&t$ti%& %+ p%lice p%!e' %+ t"e #t$te c$'' !it" it t"ep%!e' t% *e#t'%9 %' !%ul* t"e'e be $& liit$ti%& t% t"$t p%!e'9Student4 es ma6am, as lon! as there is compliance to the su%stantial andprocedural re=uirements, prescri%ed %y the constitution then it would limit thepower to destroy.

So that would apply to every enactment of the tax law. It would have to follow therules on su%stantive and procedural due process, so even if it is the interest of the!ov6t to implement the police power of the state we have to consider if the law isvalid or not. <therwise the SC would not uphold it. 8ecause in your readin! youmay have read that the power to tax is not a power to destroy so lon! as the SCsits. It simply means to say that, so lon! as the SC is there to determine whetherthe exaction is valid or not in the implementation or re!ulation of a %usiness orentity, it will not involve the power to destroy. In more cases the power to destroy isonly used to re!ulate or limit what type of entities# b$#ic$ll t"%#e t"$t $'ei&iic$l t% t"e public %' 5e&e'$l !el+$'e77e.7 t"e cl%#u'e %+ B$5u$' b$'7

"$t $'e t"e 2 $#pect# %+ t"e p%!e' %+ t$.$ti%&9




Student4 that is the levyin!& imposition of taxes and the tax administration or thecollection of taxes.

A'e b%t" le5i#l$ti(e i& &$tu'e9Student4 o ma6am. <nly the imposition of taxes is le!islative in nature, theassessment and collection of taxes is under the executive dept.

A#pect# %+ t$.$ti%&

=e( %' ip%#iti%&

Dete'i&$ti%& %+ pu'p%#eIt is with Con!ress to determine the pu%lic purpose of its law. So at the enactmentsta!e, the court has no ri!ht to in=uire the wisdom&o%-ectivity of the law. It is onlyexclusive to the le!islative %ranch. 8ut once if there is a person =uestions the taxlaw or taxpayer6s suit, the court can eventually determine whether or not the law isfor pu%lic purpose.

Dete'i&$ti%& %+ t"e #ubBect# $&* %bBect# %+ t$.$ti%&So to what type of person, property or activity is the tax directed a!ainst. Thereshould determination of who are the su%-ects, what o%-ects, and what type of transaction.

3or example, the ;ocal Dovernment Code, insofar as the chapter on real property

tax is concerned, is only directed in determinin! what type of o%-ects su%-ect to realproperty tax. ou cannot see in the chapter a tax directed a!ainst an activity. Somay%e...

A&* !"$t el#e9

Dete'i&$ti%& %+ t"e $%u&t $&* '$te %+ t$.ou will notice that most of the taxes imposed %y the le!islative %ranch are in theform of rates. Usually, it is in the form of tax rates. 2x4 Income tax

A&*9

Dete'i&$ti%& %+ t"e i&* %+ t$. t% be c%llecte*

)$& %u 5i(e u# t"e *i++e'e&t t$.e# t"$t %u &%!9Student4 Income tax, excise tax... etc. "di ma0laro$If you6re en!a!ed in the %usiness of sellin! real properties, primary tax would %ethe income tax. Second, is the 5(T. Third, is the documentary stamp tax. (ndfinally, you will pay local transfer tax to the ;DU.

8ut it should %e within our taxin! -urisdiction

Dete'i&$ti%& $pp%'ti%&e&t %+ t"e t$.(pportionment of tax is determinin! what %rac0et of income would %e su%-ected tothe tax. 2xample4 Increasin! the 5(T rate from 1+F to 1*F.

Dete'i&$ti%& %+ t"e M$&&e' $&* M%*e %+ E&+%'cee&t $&* )%llecti%&(s a !eneral rule, it is from the le!islative %ranch. 8ut it is further expanded %y the8ureau of Internal 'evenue "8I'$ for its actual collection. In the tax code, you will

see that income taxes are to %e paid on the intervals of every =uarter of the year, itis already mandated %y the Con!ress. If it is provided %y the tax code that there

should %e withholdin! of taxes, %ut the tax code does not provide on how towithhold, it is now with the 8I' to formulate the manner and mode of collection.

A*i&i#t'$ti%&

A5e&cie# i&(%l(e*:

)$& t"e IR c%llect t$.e# !it"%ut $ t$. l$!9 o, althou!h the power of taxation inherent in every soverei!nty, %ut its definitionwould continue to say that it shall %e exercised %y the le!islative %ranch. It is purely

statutory. ?ithout a law, no tax can %e collected.

There must %e a law to collect taxes. In fact, if the law imposin! the tax is dou%tful,it should %e strictly construed a!ainst !overnment, and in favor of the taxpayer.

8ut it should %e other way around if the law is an exemptin! law, or amnesty, etc.

;et6s now proceed to the second aspect of taxation G Tax administration

"$t $'e t"e p$'ticul$' $5e&cie# i&(%l(e* i& t"e t$. $*i&i#t'$ti%&917 u'e$u %+ I&te'&$l Re(e&ue

Beaded %y its Commissioner, under the :epartment of 3inance. So wecould say that the Secretary of 3inance is more powerful than theCommissioner.

I+ $ )%i##i%&e' !ill i##ue $ 'uli&5 %' %pi&i%& $&* $ t$.p$e'ue#ti%&# it t"e Sec'et$' %+ >i&$&ce c$& %(e'tu'& t"e 'uli&5 %'%pi&i%&7

27 u'e$u %+ )u#t%# "same with 8I', headed %y its commissioner, under:<3$

37 P'%(i&ci$l )it $&* Mu&icip$l A##e##%'# $&* T'e$#u'e'#The third collectin! a!encies are the ;ocal Dov6t Units.

$#ic P'i&ciple# %+ $ S%u&* T$. S#te

?hat are the %asic principles of a sound tax system#17 >i#c$l $*eu$c

3or the first %asic principle, there has to %e fiscal ade=uacy to meet theneeds of the !overnment, expenditures and others. There is this revenuethat covers the expenses that needs to %e incurred %y the !overnment inorder to serve its people somehow it should %e, not necessary e=ual,ade=uate.

27 T"e%'etic$l Bu#tice %' eu$lit37 A*i&i#t'$ti(e +e$#ibilit

>i#c$l $*eu$c:

The sources of revenues of the !overnment comes from what# 'evenues must %eade=uate to support the service for the people.

There are 3 'e5ul$' #%u'ce# %+ ?%(e'&e&t 'e(e&ue#41. Taxes*. 8orrowin!s "international and local$




). Su%sidies comin! from forei!n !overnment.

I+ t"e 'e(e&ue# 5e&e'$te* i# %&l %&e "$l+ %+ t"e &ece##$' bu*5et +%' t"i#e$'<# e.pe&*itu'e# c$& !e #$ t"$t t"e'e i# $ #%u&* t$. ##te9o there is none %ecause it doesn6t coincide with and approximate the needs of the!overnment expenditures. It does not satisfy the fiscal ade=uacy re=uirement.

I+ it<# t"e %t"e' !$ $'%u&*9 T"e'e i# 100 illi%& i& 'e(e&ue# $&* %&l 0i& e.pe&*itu'e# i# t"e'e $ #%u&* t$. ##te9 #till &% #%u&* t$. ##teFIf the revenues would heavily come from taxes and it6s not ade=uately spent for the

needs of the pu%lic. It6s more taxes collected and lesser expenses, if more is !ivenand there is less expense then there would %e no sound tax system. "8ecause itwould violate the theoretical -ustice principle which states that the tax %urdenshould %e in proportion to the tax payer6s a%ility to pay, this will tantamount toconfiscation of property.$

/ore or less it should %e somewhere in %etween. There should %e no heavycollection of taxes without re!ards to need of the people and also there should %eno less taxes and hi!her expenses. <therwise you will always %e en!a!e in%orrowin!s from the ?orld 8an0.

I+ +i#c$l $*eu$c i& &%t et !%ul* it $e t"e t$. l$!# %+ %u' c%u&t'p%%'9

o cause when we say passin! tax laws, it6s the prero!ative of the con!ress. If it6salready passed %y the con!ress then it is constitutional however it may %e avoided

If there is fiscal is not met, it will not distur%ed the validity of the law which already%ein! implemented. The pro%lem is to meet the %alance %etween sourcin! therevenues and spendin! it.

"$t *%e# t"e%'etic$l Bu#tice e$&9 Abilit t% p$ ##teThe tax %urden should %e proportion to the taxpayers a%ility to pay.

So every tax law in our !overnment to have a sound tax system must follow thetheoretical -ustice re=uirement which are actually the a%ility to pay principle, somore income hi!her taxes. The e=uita%le system taxation, the %urden of taxationwill fall heavily on those %etter a%le to pay taxes.

"e& t"i# t"e%'etic$l Bu#tice %' eu$lit p'i&ciple i# &%t et !%ul* it $et"e t$. l$! i&($li*9If the theoretical -ustice or e=uality is not met and its proven that upon application%y the taxpayer that It6s not -ust, fair and reasona%le it may %e declared %y thecourt as unconstitutional, %ut hardly %ecause the power of taxation is unlimited inits scope. Scarcely declared as unconstitutional. 8ut once it has reached in theSupreme Court, which is vested with power to declare ?< a law isunconstitutional.

"$t i# t"e $*i&i#t'$ti(e +e$#ibilit p'i&ciple9Tax laws should %e capa%le of convenient, -ust and effective administration.

T"$t e(e' t$. l$! #"%ul* be c$p$ble %+ e++icie&t $&* e++ecti(e e&+%'cee&t%t"e'!i#e c%llecti%& c$&&%t be $*e7 E(e& t"e'e i# $ t$. l$! i+ t"ec%llecti%& $# t% %*e $&&e' $&* e$&# i# &%t p'%pe'l iplee&te* bt"e $*i&i#t'$ti(e b'$&c" %+ t"e 5%(e'&e&t it !ill &%t be&e+it t"e5%(e'&e&t7

3or there to a sound tax system, there must only %e a valid law o%servin!theoretical -ustice, fiscal ade=uacy as well as the

If there are some inade=uacies as to the administrative feasi%ility it will not ma0e

the law invalid as lon! as the law in itself is valid, -ust and reasona%le.

T"e #c%pe $&* liit$ti%& %+ t$.$ti%&:The #c%pe %+ t$.$ti%& are4

1. )%p'e"e&#i(e G in the sense that the power of taxation could not onlyaffect persons, properties, o%-ects and transactions, $ $l#% #ubBect%u' 'e#i*e&c e(e& i+ %u $'e &%t $ citiGe& %+ t"i# c%u&t'7

)$& $ &%& 'e#i*e&t $lie& be #ubBecte* t% c%u&it t$.9- ( non resident alien who has stayed in the >hilippines for more than )

mos. ?ill already %e covered %y the resident tax.- 2ven the properties that you own, you pay real property tax- If it has !enerated an income then you pay an income tax.

*. @&liite* G in the sense that even courts scarcely venture in declarin! itunconstitutional unless it is clearly so. In fact re!ular court cannot easilydeclare it unconstitutional and it is ultimately su%-ected to the review of theSC. 8ut at least the SC6s power to review tax laws can never %e HHHH. It6san interplay of power. Coe=ual %ranch. The role of the -udiciary is theresimply to review the constitutionality of the tax law.

I+ e(e' t"e'e i# $ l$! t$i&5 $!$ t"e c%&#tituti%&$l p%!e' %+ t"eS) t% *ecl$'e $ l$! u&c%&#tituti%&$lit !%ul* it p'%#pe'9− <, %ecause it is a !uaranteed ri!ht of the Supreme Court. <therwise

the there would %e no use for the SC. (nd SC6s decision forms part of the law of the land.

− The final interpretation %elon!s to the Supreme Court.

37 Ple&$'- meanin! it is complete in the sense that tax laws enacted will not%&l i*e&ti+ t"e #ubBect but $l#% #upplie# !"$t tpe %+ t$. !"$ti&* %+ t$. '$te t"e $%u&t t"e $pp%'ti%&e&t "%! it t% bec%llecte* i&clu*i&5 t"e 'ee*ie# $($il$ble t% t"e 5%(e'&e&t $&*t"e t$. p$e'7E.:

'emedy as to !overnment how will they !o after the tax evadersdetailed into the tax code, the manner of confiscation how manyyears#

Taxpayer4 ex. ?hat is the remedy if they erroneously char!ed.

7 Sup'ee i& c"$'$cte'- supreme only up to the extent to the selection of the #ubBect %+ t$.$ti%&7

Inherent ;imitation4




(s we said there is an inherent limitation as to taxation, there is no need forthe law or the constitution to identify these limitations since you can find themindirectly mentioned in the constitution. There are inherent limitation.

$7 Public pu'p%#e - only con!ress can enact taw laws, %ut must %e foundedon a pu%lic purpose. It the purpose in for a private individual then suchlaw will %e declared as unconstitutional.1. Is for the welfare of the nation and&or for !reater portion of the

population*. (ffects the area as a community rather than as individuals

). Is desi!ned to support the services of the !overnment for some of itsreco!ni@ed o%-ects.

Re+e' c$#e %+ =utG (#7 A'$&et$

Compared to the case the (tty. read. The law was enacted alone for thepurpose of imposin! a fee not really a tax for every feeds manufactured.The o%-ective of the law is to increase the fee for every stoc0 of feeds toreha%ilitate another private entity en!a!e in the same type of products.aturally that is unconstitutional %ecause its purpose is directly for the%enefit of a private enterprise and not for the pu%lic in !eneral. (nd feedsis not really for the people %ut for the animals.

A&* !"% 'e$ll *ete'i&e# t"e public pu'p%#e9

- Con!ress, %ut if there is any dou%t the court can intervene.

I# t"e #e&i%' citiGe&# $ct 5'$&ti&5 e.epti%& 204F %& t"epu'c"$#e $&* #c'$ppi&5 t"e 12 4 AT %& e*# pu'c"$#e# +%'public pu'p%#e9- es, %ecause even if it only %enefit the senior citi@ens in some way it

will affect the entire !eneral population since all of us will %e !ettin!old.

b7 I&"e'e&tl le5i#l$ti(e &%& *ele5$ti%& u&le## e.p'e##l #t$te* bt"e c%&#tituti%&7

c7 Te''it%'i$l Bu'i#*icti%&*7 I&te'&$ti%&$l c%ite7 E.epti%& %+ 5%(e'&e&t e&titie# $5e&cie# $&* i&#t'ue&t$litie#7

3or every tax law, it has to %e for the pu%lic purpose. 3or it to %e declared that it isfor the pu%lic purpose, the ultimate result must favor the !eneral pu%lic or for thecommon !ood. ot necessarily the direct result ri!ht after its implementation %ut ithas to %e the ultimate result.

In the case of >ascual, the construction was for&in a private entity which resulted tothe appreciation of the value&price of the private land. The SC declared such asunconstitutional.

It is inherently le!islative, we all a!reed to that. O&l t"e le5i#l$ti(e b'$&c"9

The power to tax is inherently legislative but there are exceptions.a) Delegation to the LGU – the Constitution provides for the delegation of the

taxing power to the Local Government Unit (Section 5 Article X !"#

Constitution$

Secti%& 7 E$c" l%c$l 5%(e'&e&t u&it #"$ll "$(e t"e p%!e't% c'e$te it# %!& #%u'ce# %+ 'e(e&ue# $&* t% le( t$.e#+ee# $&* c"$'5e# #ubBect t% #uc" 5ui*eli&e# $&* liit$ti%&#$# t"e )%&5'e## $ p'%(i*e c%&#i#te&t !it" t"e b$#icp%lic %+ l%c$l $ut%&%7 Suc" t$.e# +ee# $&* c"$'5e##"$ll $cc'ue e.clu#i(el t% t"e l%c$l 5%(e'&e&t#7

T"e p%!e' t% t$. b $ =?@ i# it i&"e'e&t %' *ele5$te* p%!e'9It is dele!ated.

I# t"e'e $ p'%b$bilit t"$t t"e =?@ !ill l%#e it# p%!e' t% t$.9 es.

I& t%t$lit *%e# it l%#e it# p%!e' t% t$.9 Ye#7 ;%!9The ;DU is under the executive %ranch of the !overnment.

ut "%! *% t"e iplee&t/c%llect t$.9 It is thru their le!islative %ranch, San!!unian! >an!lun!sod& >anlalawi!an&8ayan. This is an exception to the !eneral rule that the power to tax isinherently le!islative. The said power !iven to the ;DU is a dele!ated power. Inthe Constitution, every local !overnment !iven its fiscal autonomy is !iven thepower to create its own sources of revenue, the raisin! of revenue includes thepower to tax. ;DU do not have the power to tax without the provision on theConstitution. 8ut the Constitution itself does not !ive the ar%itrary power to the

;DU, it provides for a further re=uirement that the Con!ress should enact a law!rantin! the ;DU the power to tax. (nd what law is that# Such is the ;ocalDovernment Code of 1991 "'( 71A+$. There is a chapter there, the ;ocalTaxation and 'eal >roperty taxation. It is what !ives life to the ;DU.

b) Delegation to the President –the Constitution provides or thedelegation o the taxing power to the President !"ection #$ %rticle &' ($* Constitution)

Secti%& 287 T"e )%&5'e## $ b l$! $ut"%'iGe t"e P'e#i*e&t t%+i. !it"i& #peci+ie* liit# $&* #ubBect t% #uc" liit$ti%&# $&*'e#t'icti%&# $# it $ ip%#e t$'i++ '$te# ip%'t $&* e.p%'tu%t$# t%&&$5e $&* !"$'+$5e *ue# $&* %t"e' *utie# %' ip%#t#!it"i& t"e +'$e!%' %+ t"e &$ti%&$l *e(el%pe&t p'%5'$ %+ t"e?%(e'&e&t7 +le.ible t$'i++ cl$u#eF

D% %u t"i& t"$t Bu#t bec$u#e %u !e'e #$i&5 t"$t t"e )u#t%# $'e%'e e.pe'ie&ce* i& t"e #$i* +iel* t"$t<# !" t"e $'e 5i(e& t"e p%!e'$# $& e.cepti%&9 ;%! $b%ut t"e IR9 "$t i# t"e 'e$#%& !" #uc"p%!e' !$# *ele5$te* t% t"e P'e#i*e&t9 I# it 'e$ll $ *ele5$ti%& %+ t"e#$i* p%!e'9Unli0e the ;DU, as what we have discussed earlier, the dele!ation to the ;DU isthat they impose an ordinance for the implementation of a tax law to itsconstituents such is limited to the territorial %oundaries of the ;DU.

% do not thin& that it is a delegation' %t is the function of the resident' Just li0ethe power of the ;DU to tax, it is also in the Constitution. It i# !"$t !e c$llt"e +le.ible t$'i++ cl$u#e p%!e' %+ t"e P'e#i*e&t t% t$. %' ip%#e t$'i++ '$te#F7"e& 5e&e'$l %' public !el+$'e 'eui'e# up%& t"e 'ec%e&*$ti%& b

t"e NEDA t"e P'e#i*e&t c$& pe'+%' p%!e'# 'el$ti&5 t% cu#t% *utie#$&* $*Bu#te&t %+ t$'i++ '$te#7




A7 I&c'e$#e %' *ec'e$#e e.i#ti&5 p'%tecti(e 9F t$'i++ '$te#H t"ei&c'e$#e u#t &%t be %'e t"$& 100 pe'ce&t $* ($l%'e !"ic"e$&# it #"%ul* &%t be *%uble t"e e.i#ti&5 t$. %' t$'i++ '$te#7

7 M$ ip%#e u%t$# %' t%t$ll b$& t"e ip%'t$ti%&/e.p%'t$ti%& %+ p$'ticul$' p'%*uct# $&*

)7 It $ i&c'e$#e t"e t$'i++ '$te# but #uc" i&c'e$#e #"$ll &%t e.cee*t% 1047

This power of the >resident as provided in the Constitution has to %etranslated first into a law %y the Con!ress. Such has %een enactedalready as part of the Tariff and Customs law. In the said law, you will

find there the f lexi%le tariff clause providin! for proper !uidelines. Thereason why it is !iven to the >resident is +%' e.pe*ie&c 9Fpu'p%#e#7 In order to protect local industries, there is a need to %animportation of certain products from other countries. The >resident canma0e the 2xecutive <rders for such. <therwise, the >resident has towait for the Con!ress to act upon it. It is not really within the expertiseof the >resident %ut the law itself already sets the parameters. Theremust %e a 'ec%e&*$ti%& +'% t"e NEDAH $ public "e$'i&5 i#$l#% 'eui'e* +%' it t% be ($li*7

I+ %u 'eebe' t"e 104 AT !$# i&c'e$#e* t% 1247 "e'ei# it +%u&*9 EO %+ t"e P'e#i*e&t %' b t"e Dep$'te&t %+ >i&$&ce9 It is found in the revisions made in the *++ I'C. It is provided there

that the 1+F 5(T is increased %y the >resident to 1*F.cF Delegation to ad+inistrative agencies – it is not really a dele!ation. 8ut itis somehow a dele!ation since these administrative a!encies are !iven thepower to enforce tax and issue circulars, rules and re!ulations.

A'e t"e p$'t %+ t"e l$!# %+ t"e l$&*9 es, so lon! as it is within the confines of what the !eneral law defines.

,'- by the Co++issioner – impose taxes 'ec%e&* re!ulationscalled 'evenue 'e!ulationsDepart+ent o inance/ "ecretary o inance – i##ue# t"e'e5ul$ti%&#. Chec0s ?< if it is accordance with law.




DATE: 0/0/12

Te''it%'i$l u'i#*icti%&

;%! !ill te''it%'i$l Bu'i#*icti%& liit %& t"e p%!e' t% t$.9 So as a !eneral rule, our tax laws would operate only within the taxin! -urisdictionof the State. The effectivity of these laws would cease %eyond the territorial %ordersof the >hilippines so that our !eneral rule only when the persons, su%-ect matters,or o%-ects come within our State is su%-ect to our rules. That is the !eneral rule %ut

there are various exceptions.

In the case of Atl$# Mi&i&5, it involves 5alue (dded Tax. This 5alue (dded Tax,does this o%serve territoriality# So in the simplest e=uation, exports are not vata%lewhile imports are presumed that its consumption will %e in the >hilippines, arevata%le. ThatKs why with import tradin! !oods or property&personal property thatwill %e su%-ect to tax on top of the customs and duties that are collected %y the8ureau of Customs. Bowever, you en!a!e in the exports or sellin! of productsa%road&consumption a%road, it would not %e su%-ect to 5alue (dded Tax.

There were 2 p'i&ciple# discussed in the (tlas case. It was the De#ti&$ti%&P'i&ciple and the )'%##-%'*e' D%ct'i&e. /ore or less this two the :estination>rinciple and the Cross8order :octrine are the same in the sense that4

1. De#ti&$ti%& P'i&ciple says that !oods and services shall %e taxa%le only

in the country where it is consumed. So if it is consumed in the >hilippinesmeans itKs vata%le.*. )'%##-%'*e' D%ct'i&e says that no value added tax shall %e added or

shall form part of the cost of !oods that will %e destined for consumptionoutside the territorial %order of the >hilippines if it6s for exports. Those arethe * same principles.

"ile t$. %b#e'(e'# t"e 5e&e'$l 'ule %+ te''it%'i$lit but t"e'e $'ee.cepti%&#7 The exceptions would either %e one of these cate!ories4

17 "e'e t"e t$. l$!# !%ul* %pe'$te e(e& be%&* t"e te''it%'i$l Bu'i#*icti%& %+ %u' c%u&t'H %'

27 "e'e t"e t$. l$!# !%ul* &%t %pe'$te e(e& !it"i& t"e te''it%'i$l Bu'i#*icti%& %+ t"e c%u&t'7

Those are not the Deneral 'ule type.

)$& %u 5i(e e $& e.$ple %+ e$c"9 ?ho is an <3?# Can you say that an<3? is a resident citi@en# If an <3? stays outside of the country +%' %'e t"$&183 *$# *u'i&5 t"e t$.$ble e$' it !ill be ept $# $ &%&-'e#i*e&t citiGe&7

(n example of where the tax laws would operate still even %eyond the territorial -urisdiction of the >hilippines. ouKre correct in applyin! to the 'e#i*e&tcitiGe&. "9 Under&If you want to have a le5$l b$#i# Sec7 23 of your TaxCode provides that resident citi@ens are taxa%le on their income within the>hilippines and outside the >hilippines. If you want to 0now the rationale %ehindthe principle is %ecause a resident citi@en receives %enefit and protection fromthe !overnment full time %ecause he is a resident & not only a citi@en %ut also aresident. 3or example, /anny >ac=uiao. Be is a resident citi@en. Be is aCon!ressman of Saran!ani >rovince. If he earns from %oxin! a%road, thatincome is taxa%le in the >hilippines %ecause he remains to %e a resident citi@en,

worldwide income. 8ut if he chooses to %ecome a nonresident citi@en andaccordin! to Sec7 23 of the Deneral >rinciples of the Tax Code, a nonresident

citi@en is taxa%le only on income within the >hilippines %ecause he does notreceive full %enefit and protection from the >hilippine !overnment. <f course, itis another matter when can you treat /anny >ac=uiao or any individual for thatmatter as a nonresident citi@en or a resident citi@en. That is another matter.

A& e.$ple %+ !"e'e t"e t$. l$!# !%ul* &%t %pe'$te e(e& !it"i& t"ete''it%'i$l Bu'i#*icti%& %+ t"e P"ilippi&e#9 8ecause of international comity. (s we said that international laws forms part of thelaw of the land. 2ven if there is such a law, if an exemption is provided either %y amunicipal law or the tax code or an international tax treaty, then the tax law will not

%e made applica%le to the person !iven an exemption.

"$t i# t"e #itu# %+ t$.$ti%&9 A& e.$ple9 Situs would %e %ased on one factor alone. (!ree# Situs of taxation is the place of taxation. It is where& the State which has -urisdiction or dominion over a person orsu%-ect matter is the one ri!htfully allowed to levy and collect tax.

So in the >hilippines, we %ein! resident citi@ens, we are su%-ect to the -urisdiction of the >hilippine !overnment and our situs of tax is the >hilippines as a !eneral rule.?hat is a situs# It *%e# &%t *epe&* %& %&e +$ct%' $l%&e7 %t is not where )ouare residing onl)' %t is not what )our nationalit) or citi*enship is' %t is not wherethe source of income is' %t is a com+ination of different factors' ,e have a ver) complex situs of taxation that we have adopted'

S% !"$t $'e t"e *i++e'e&t +$ct%'# t% *ete'i&e t"e #itu#9 The different factors that you need to determine where the situs is4 !"$t i&* %+ t$. i# ip%#e* !"$t i# t"e #ubBect $tte' t"$t i# #ubBecte* t% t$. !"% t"epe'#%&# %' %bBect# t"$t 'ecei(e be&e+it $&* p'%tecti%& +'% t"e St$te. Thoseare thin!s you need to consider on top of the very %asic D%icili$' T"e%' wherethe residence is a person or a corporation, the &$ti%&$lit t"e%' or theciti@enship principle what the citi@enship of that person is and where the source of income or where the service was rendered. So it is an interplay of different factors.

(nd sometimes there would %e multiplicity of situs# ou need say there there ismore than one -urisdiction, there is more than one state, claimin! to levy andcollect the tax.

"$t c%ul* be t"e 'e$#%& !" ultiplicit %+ #itu# !%ul* $'i#e9 The income of 3ilipino citi@en here and his income a%road will %e su%-ect to>hilippine tax and his income a%road will %e su%-ect to forei!n tax. 8ecause thereare different concepts of residency for those tax.

3or example, if the >hilippines would treat a person as a resident of >hilippines& aciti@en and a resident %ecause he has stayed here for a num%er of days and it turnsout that he stays also in another country durin! the year for a num%er of months.That country, accordin! to their own laws would treat that person as a resident of their country, then %oth States would have a ri!ht to tax the income earned thereand here and we can also tax the income earned here and a%road. 8oth Stateswould have taxin! -urisdiction. Therefore, multiplicity of situs would arise. (nd also%ecause of the various concepts would arise of different tax on properties personalor real and multiple "#$ relationship of intan!i%le personal properties %ecauseintan!i%le personal properties do not follow the rule of where it is located %ecause itdoes not have physical presence. It cannot also at all times follow where the

domicile of the owner is %ecause at times it would have a different situs. Soexample, the prime "#$ of /c:onalds. ?hat state has the taxin! -urisdiction# Is it




the United States or the >hilippines# So %ecause of the lac0 of physical presence&physical pinpoint who alone havin! the ri!ht to tax.

N%! i& %'*e' t% $**'e## t"e ultiplicit %+ #itu# !"$t !ill t"e St$te *%9"$t el#e9 "$t $'e t"e %t"e' 'ee*ie#9

(nswer from previous transcripts4

How do tax laws address multiplicity of situs of taxation? !ene"er one

su#$ect matter and t!ere are two or more states taxin% t!e interest t!ere

are remedies&

1' #y %rantin% tax exemptio!2' tax deductions are allowed for forei%n tax payments ( i'e' if

t!e tax t!at !as #een paid and remitted #y mr' leal on t!e

interest !ere in t!e )!ils'* if t!at is a +apanese corp,+apanese

#an* t!ey may allow t!e taxes paid in t!e )!ils as a

"e"#$tio %&om t'ei& i$ome (e%o&e tax i! $omp#te" or

t!e ot!er way around' .sec 34 of tax code/ tax deduction is

claimed as an expense'3' allowin% forei%n tax credit (0llowin% forei%n tax credit is

deductin% t!e tax t!at you !a"e paid directly a%ainst t!e tax

lia#ility'!ic! is more fa"ora#le? orei%n tax credit #ecause you are

osettin% t!e tax paid directly a%ainst your lia#ility' ax

deduction is dierent ( you are claimin% as an expense only

an item w!ic! you !a"e paid'4' nterin% into #ilateral tax treaties #etween 2 states ( we !a"e

51 tax treaties entered into' i'e' w!ene"er an income is

earned #y a +apanese corporation !ere for 1 day ser"ice may

#e exempt from income tax in t!e )!ils' it can only #e taxed in

+apan'

3irst, %y !ivin! tax exemptions.

The second remedy to multiplicity of situs is enterin! into bil$te'$l i&te'&$ti%&$l$5'eee&t#, either to exempt fully an income earned here %y a &%&-'e#i*e&t%ecause it is already taxa%le a%road or to !rant partial exemption %y !ivin!preferential tax rates meanin! instead of )+F, it can %e 1+F, F or 1F.

There are other * remedies. Tax Credit and# Bave you read the case of CarlosSuperdru!# It was mentioned there T$. )'e*it. The allowance of tax credit simplymeans that the forei!n taxes that you have paid a%road for the income that is alsosu%-ected to tax in the >hilippines can %e offsetted a!ainst the >hilippine IncomeTax. 2xample, you are a resident of the >hilippines. In fact, you stayed here for 1+months durin! the year. ou went a%road for * months, you did a photo shoot,

earned >hp1 million. It was taxed a%road %ecause the service was performeda%road. ow, since you are a resident citi@en and accordin! to the law, you are

su%-ect to tax for worldwide income. That >hp1 million that you have earneda%road will %e included in your income earned durin! the 1+ month period of stayhere. 3ully taxa%le here in the >hilippines %ut a portion of that is already tax. Inorder to avoid dou%le taxation, forei!n tax that you have paid can %e offsetted astax credit a!ainst the >hilippine income tax due. 8ut the >hilippine income taxwould have a component that income that was earned a%road. Two taxes imposedTo avoid dou%le taxation, offsettin! is allowed to a certain extent and not full

(nd the fourth remedy is to !rant t$. *e*ucti%&#. T$. *e*ucti%& $ll%!e*cl$ii&5 $# e.pe&#e# t"e t$.e# %u "$(e p$i* $b'%$*7 Tax credit, it is the tax

offsetted a!ainst the tax due 8ut !"e& %u #$ t$. *e*ucti%& %' t$. e.pe&#e*e*ucti%& t"e t$. t"$t %u "$(e p$i* $b'%$* !ill %&l be cl$ie* $# $&e.pe&#e $5$i&#t %u' t$.$ble i&c%e $&* &%t *i'ectl t% t$.7

A# t% !"ic" i# bette'9 It will %e tax credit %ecause you can avail of the full %enefitwhat you have paid a%road.

So we have identified four remedies to address the multiplicity of situs.

/ovin! on, situs of income tax.D%icili$' t"e%' residenceCiti@enship or &$ti%&$lit t"e%'Source principal or place of income, which is usually for services rendered, activitiesperformed, %usinesses en!a!ed in

ow, tal0in! of domiciliary theory it creates a !eneral rule of domicile or residency?e are tal0in! in fact of aliens who are resident in the >hilippines and corporationsthat have ac=uired residence in the >hilippines.

" t"e&98ecause even if alien individuals or forei!n corporations, the mere fact that theyhave ac=uired residency in the >hilippines we use the domiciliary theory in order toapart -urisdiction over them.

Tal0in! of nationality theory LnamanM, we are tal0in! of the citi@ens who are notresidents %ut %ecause even if they are not residents of the >hilippines %ut %ecausethey are citi@ens of the >hilippines, we can tax their income earned in or out of the>hilippines. ( person outside of the >hilippines, we lose -urisdiction of the personusing domiciliar) theor) +ecause the) are not residents of the hilippines' 8ut%ecause of the nationality or citi@enship principle, we can tax their income even if they are not in the >hilippines.

If it is your nationality theory, resident citi@ens and domestic corporations.D%e#tic c%'p%'$ti%&# $'e %'5$&iGe* i& t"e P"ilippi&e# 'e5$'*le## %+ !"%t"e %!&e' i# "not the A++ sharin!$. ?e have plenty of corporations or!ani@ed inthe economic @ones 3ully owned %y forei!n individuals. (nd taxa%le within the>hilippines. The A++ is only for the reco!nition if it is a >hilippine Corporation ornot a >hilippine corporation.

Source rule will apply to all other. onresident citi@ens have only taxa%le incomeswhich are only here in the >hilippines. ?e don6t have -urisdiction %ecause state doesnot afford full protection and %enefits to these nonresident citi@ens.

"% $'e &%&'e#i*e&t citiGe&#9

TAX MIDTERMS PART 1– JENNIFER, JASPER, REUVILLE, RYAN, JADE, KRISTEL, JARED, JAN, NEIL, JESSTONY |



Immi!rant relatives who are stayin! a%road. 2ven if they have not ac=uired(merican citi@enship %ut %ecause of their immi!rant status. ;etKs say they stayed )months in the %e!innin! and months in the end of the year and 7 months total,they are still considered as nonresidents %ecause of their status as ii5'$&t#7They are only taxa%le if they have income which was !enerated here in the>hilippines. <verseas contract wor0ers, are not really exempt. They are actuallyoutside of the >hilippines %ecause of a permanent employment. They can %econsidered as nonresident citi@ens %ecause of their pe'$&e&t epl%e&t7

?e&e'$l P'i&ciple# %+ i&c%e t$.$ti%&:

37 A& i&*i(i*u$l citiGe& %+ t"e P"ilippi&e# !"% i# !%'i&5 $&* *e'i(i&5i&c%e +'% $b'%$* $# $& %(e'#e$# c%&t'$ct !%'e' i# t$.$ble %&l%& i&c%e +'% #%u'ce# !it"i& t"e P"ilippi&e#7 A #e$$& !"% i# $citiGe& %+ t"e P"ilippi&e# $&* !"% 'ecei(e# c%pe&#$ti%& +%'#e'(ice# 'e&*e'e* $b'%$* $# $ ebe' %+ t"e c%plee&t %+ $(e##el e&5$5e* e.clu#i(el i& i&te'&$ti%&$l t'$*e #"$ll be t'e$te*$# $& %(e'#e$# c%&t'$ct !%'e'7

I+ %uC'e $ t%u'i#t %+ +%'ei5& c%u&t $'e %u $ 'e#i*e&t citiGe& %' $&%&'e#i*e&t citiGe&9 ouKre a tourist and a talent scout discovered you and you were cast in the ama@in!Spiderman. (nd !iven talent fee, taxa%le in the >hils# Shootin! in the movie andre=uired physical presence for 1+months durin! the year, you are alreadyconsidered as nonresident in that particular year and not taxa%le in the >hilippines

of that talent fee earned a%road. ou can play when you reach income tax. ou canplay where you want to tax. o tax in 8runei daw Stay 7 months Tax free incomeSo much for 8runei.

Re#i*e&ce %' p%ll t$. i# b$#e* %& t"e 'e#i*e&c9 It6s not %ased on the nationality theory, not %ased on source of income %ut %ased onresidency or domicile. >oll tax, capitation, community tax, personal tax, cedula

( 3riend, forei!ner, met in 8oracay. Be as0ed you if he is lia%le for community tax.?hat will you say# ;ia%le or not# If he stayed in the >hilippines for months andmade 8oracay as temporary residence =i$ble %' &%t9'esidence, capitation or cedula is %ased on the residency not on nationality orsource. (s lon! as he is a resident, he will %e su%-ect to this 0ind of tax. 'esidencydoes not mean that he has to ma0e the >hilippines as his principal seat of residence. It only means to say that one is considered that he ma0es the >hilippines

his temporary stay. M%'e t"$& 3 %&t"# would ma0e him an alien individual lia%lealready for this type of tax.

3or property, !"e'e i# t"e #itu# +%' pe'#%&$l 'e$l t$&5ible $&* i&t$&5iblep'%pe't9Student4 3or real property, situs will %e where the property is located. >ersonal, willfollow the owner. I+ t$&5ible !"e'e it i# l%c$te* %' u#u$ll ept7 I&t$&5ible it!ill +%ll%! t"e %!&e'7

Student4 There are exceptions, for intan!i%le. If the law provides for the situs of such intan!i%le property. 2xample# 3orei!n corporations, "explained thorou!hly %yma6am later Diuna niya an! real property$

Re$l p'%pe't #itu# N where it is located

/r. >atindol has a real property located in Oorea. SubBect t% P"ilippi&e t$. %'&%t9(nswer4 3or real property, althou!h said it is su%-ect to tax where it is located, thatis the !eneral rule. ?e have also to consider different factors. The property islocated a%road %ut /r. >atindol is #till $ 'e#i*e&t t"e i&c%e 5e&e'$te* %+ t"e#$le %+ #uc" p'%pe't i# #ubBect t% P"ilippi&e i&c%e t$.7 @&le## %+ c%u'#e"e *eci*e* &%t t% *ecl$'e it7

In so far as personal intan!i%le, situs is follow where the owner resides. 8ut thereare some rules to %e followed.

2xample4 /r. P, nonresident (merican, not residin! in >hils. :urin! his stayhere, he %ou!ht shares in D/( and at that time he died, the certificatesrepresentin! his ownership was located in the US "place of residence$. exception that personal intan!i%le property follows the residence of the owner.

%ul* t"$t be #ubBect %+ t$. "e'e i& t"e P"ilippi&e#9 (nswer4 Still taxa%le here in the >hilippines %ecause he o%tained %enefits of the>hilippines. Bow did he %enefit# /ore on the domestic corporation which issuedthe shares. D/( is receivin! protection from !overnment. It will %e translatedinto the value of the shares of stoc0s and will %enefit whoever the holder of thestoc0s certificates. -he American was indirectl) +enefited' -he intangi+le propert) is related to a domestic corporation and hence will have situs here inthe hilippines'

ou were tal0in! a%out a forei!n corporation. ( forei!n corporation will have aforei!n situs. Situs outside the >hilippines. ( forei!n corporation is a corporationor!ani@ed a%road and receivin! protection and %enefits from a forei!n !overnment.ut i+ t"e >%'ei5& )%'p%'$ti%& %pe'$ti&5 %'e t"$t 84 %+ it# t'$&#$cti%&"e'e i& t"e P"ilippi&e# t"e& !e c$& c%&#i*e' t"e #"$'e# %+ #t%c# i##ue* bt"e c%'p%'$ti%& $# "$(i&5 #itu# "e'e i& t"e P"ilippi&e#7 "9 F of incomeis derived here in the >hilippines and transactions are receivin! protection and%enefits here in the >hilippines. ou don6t limit your thin0in! that if it is a forei!ncorporations, it does not operate here in the >hilippines. That is wron! thin0in!%ecause corporations, identified where they are or!ani@ed, %ut can do %usiness indifferent countries. If it turns out it is a forei!n corporation %ut doin! %usiness here,it can have >hilippines situs. In fact there are many corporations which areconsidered as forei!n corporations %ecause it is or!ani@ed in Bon! Oon! and othercountries. /eanin! it is or!ani@ed in countries where taxes are very low. 2xample,they or!ani@ed it in this country %ut the operation is in the >hilippines %ecause of cheaper la%or. That will !et situs within the >hilippines.

Supplement from previous transcripts4

recei"ed from forei%n corporation ( $o!i"e& t'e i$ome o% t'e

%o&ei) $o&po&atio i t'e P'i*ippie! "#&i) t'e *a!t

p&e$e"i) + taxa(*e ea&!-

.1/ !e income is purely within if t!e income deri"ed from t!e )!ilippine

sources is more t!an 85

.2/ t is purely without if t!e proportion of its )!il' income to t!e total

income is less t!an 5




.3/ There should be an allocation if it is more t!an 5 #ut not exceedin%

85 .partly wit!in and partly wit!out/

"Transcri%erKs notes$E.cepti%&# t% pe'#%&$l i&t$&5ible #itu#:1. ?hen the property has ac=uired a %usiness situs in the another -urisdiction*. ?hen an express provision of the statute provide for another rule

E.ci#e t$. %' *%&%'C# t$.. 8ased on the pl$ce &$ti%&$lit $&* 'e#i*e&ce.

Criteria are place, taxed upon properties located within the >hilippines.

3or &$ti%&$lit, taxed upon their properties wherever situated.

3or 'e#i*e&ce, tax upon their properties where situated.

'eason !iven %y (tty4 8ecause donorKs tax and excise tax is more on excisetaxation. ?hen you reach tax *, estate tax is different from income tax. "Su%-ect tosuccession and will %e thorou!hly discuss upon reachin! tax *$

..The entire estate here and a%road...?hy# 8ecause the law on succession is %asedonEand estate is %ased onEStudent4 the law where he is a citi@en.

(nd %usinesses where is the situs# ;et6s move on to i&te'&$ti%&$l l$! $&* $liit$ti%& t% t"e t$.i&5 p%!e' %+ t"e #t$te7

Student4 3orei!n comity all the states are e=ual such that we don6t tax forei!ndi!nitaries comin! into our country and they don6t also tax us.

There is already e=uality of the different states re!ardless of si@e and power andeven if we proceed on to tax the US(, the refusal to pay taxes would result in ussuin! the US( and states are immune from suits, the non sua%ility of states, that6swhy if they send in forei!n di!nitaries, am%assadors they will not %e su%-ect to taxin fact what they are %rin!in! in will not %e su%-ect to import taxes or customsduties. In so far as the ownership %y these forei!n states of em%assies are notsu%-ect to real estate taxes %ecause they are considered extensions of these states.

)$& t"e 5%(<t t$. it#el+9Student4 no, the rule is the !ov6t can6t tax itself %ecause it would %e li0e ta0in!money from their own poc0ets.

I& %u' #tu* %+ t"e c%&#tituti%& "$(e %u c%e up !it" $ p'%(i#i%&#t$ti&5 t"$t t"e c%&5'e## c$&<t p$## $ l$! t$.i&5 t"e 5%(<t9 (lthou!h theconstitution is silent on such matter, %ut con!ress deems it important to exempt the!ov6t, its instrumentalities.

A'e ?O))<# $l#% e.epte*9 Denerally, the national !overnment and its instrumentalities. ?ith re!ards toa!encies, =ualify if they are performin! !overnmental or proprietary functions.

The 'epu%lic of the >hilippines, its compositions li0e cities, provinces,municipalities... its instrumentalities... li0e the /I((, the fishin! ports operated %yinstrumentalities are !enerally exempt from taxation... instrumentality is not really

an a!ency, not a D<CC its somehow, any a!ency of the !ov6t not within the dep6t of trade, dept of national defense etc. %ut it is vested with special functions and -urisdiction empowered %y some or even all of the corporate powers found in thecorporation code and allowed to administer special funds !ivin! operationalautonomy usually throu!h a charter. It6s not a D<CC, it6s not an a!ency it6s exemptfrom taxation. 8ut when we tal0 a%out a!encies it6s !enerally exempt if it6sperformin! !overnmental soverei!n functions, %ut when it performs a patrimonial,private, proprietary functions it will %e su%-ect to tax.

Deneral rule all D<CCS are su%-ect to tax except if there is a law exemptin! them.

2x. ;i0e the Tax Code of the >hils. It !ives exemptions to four D<CCs4 the ?SIS,P"il"e$lt", SSS, P)SO pro%a%ly %ecause it6s for !eneral welfare and notproprietary.

(><C<' is still exempt %ut not %ecause of the Tax Code %ut %ecause of its charter.In so far as real property taxation is concerned, still the constitution is silent...%utcon!ress has laid down in the local !ov6t code that the '> its a!encies andinstrumentalities shall %e exempt from taxation so lon! as its %eneficial use is notleased out to a taxa%le person... in whatever capacity that property is held on to %ythe !ov6tE so lon! as it is not leased out to a taxa%le person.

"% i# $ t$.$ble pe'#%&9

;et6s move on to constitutional limitations there are * cate!ories the direct andindirect constitutional limitations.

The c$#e %+ =$5u&$4 "$t tpe %+ p'%pe't9 "$t c$p$cit9 "% %!&e* it9Student4 There was a warehouse and land and taxes were imposed in %oth. It was!ov6t owned and it was reserved for use for 8C.

"$t i# t"e #t$tu# %+ N)9It6s a D<CC. The land was reserved for use for their primary functions, they erecteda warehouseE They raised the propriety of taxin! %oth. The decision of SC was thatthe land was not actually rented, it was only reserved and the even if it was !iven to8C, it was still !ov6t owned and still exempt from tax %ut the warehouse was not!ov6t property so it is taxa%le.

(tty4 The classification of the land was a pu%lic land, for which ownership was

retained %y the !ovt. althou!h it leads me to =uestion why it was !iven exemption%y the sc, pro%a%ly %ecause it happened %efore the effectivity of the local !ov6tcode, %ecause it was expressly stated there that the '> its a!encies andinstrumentalities shall %e exempt from taxation so lon! as its %eneficial use is notleased out to a taxa%le person, and 8C was a D<CC, a taxa%le person leasin! theproperty.

@&i+%'it $&* euit i& t$.$ti%& $'e t"e t"e #$e9 A# $ liit$ti%&777;et me discuss uniformity first, all taxa%le $'ticle# %' p'%pe't %+ t"e #$e cl$###"$ll be t$.e* $t t"e #$e '$te not the same amount %ecause that6s notuniformity.

2x. I tax all students with 1++ pesosE It mi!ht %e minimal o %urdensome dependin!on the person. ( tax is uniform if operates with the same force and effect to all

su%-ects within the same class, as it is found in every place. meanin! to say if theSan!!unian will impose a tax it will %e considered uniform if that tax would operate




to all persons similarly situated wherever it is found in that -urisdiction. It shouldnot %e very specific to one person it should %e applied to all persons of the sameclass within the taxin! -urisdiction. Conversely naman we can say that articles of adifferent 0ind may %e taxed at a different rate.

8ut e=uity is different or the e=uality in the %urden or e=uita%ility of the tax, as yousay it depends on the a%ility to pay, it more or less is accomplished whenever the%urden of the tax falls e=ually and impartially upon the persons under that law.(lthou!h in my understandin! these are all e=uity. Uniformity is an e=uity.2=uita%ility is an e=uity. <ne is a hori@ontal e=uit. <ne is vertical e=uity. If you loo0

at Secti%& 2 of tax code enumerated there are the different taxes applica%le to anindividual taxpayer from 4 down to "writin! a dia!ram on the %oard$...These arethe different tax rates... and the %urden in each tax would %e different as to thenext %rac0et %ecause the F would only apply to income not exceedin! 1+,+++,1+F would apply to more than 1+,+++ %ut not more than )+,+++, 1F would applyto income more than )+,+++ %ut not more than 7+,+++.

8ut not more than )+, 1 percent would apply to the income of more than )+0 %ut

not more than 7+0. our *+ percent tax would apply to income of more than 7+0

%ut not more than 1+0, the * F would apply to income of more 1+0 %ut not

more than *+0, and the income more than *+0 is su%-ected to )+ F so lon! as

the income will not reach more than ++ 0 and any income more than ++0 is

su%-ected to the hi!hest tax rate.

If you loo0 into the %urden of taxes, this is the e=uity or the a%ility to y principle.8i!!er taxes on those who are %etter a%le to pay. T"e %'e i&c%e %u e$'&t"e "i5"e' t"e t$. '$te t"$t %u<* be ip%#e*7 T"i# i# t"e (e'tic$l euit %+ t"e euit$bilit %+ t"e t$.7

If you loo0 into the uniformity of the tax, %elon!in! to the same class, you loo0 intot"e "%'iG%&t$l euit %' u&i+%'it %+ t"e t$.7 -he income earners on this+rac&et will +e su+.ected to tax whether or not he is located in Lu*on/ 0isa)as/ or 1indanao as long as his income is more than 2& this uniform tax rate would appl)'

:iscussin! a%out the case "can6t hear what was the title$ involvin! the uniformity inthe 5(T. 5alue added tax is uniform %ecause it was uniformly applied to allconsumption of !oods and service, thus constitutional.

27 "$t i# p'%5'e##i(e ##te %+ t$.$ti%&9Taxation is pro!ressive when tax rate increases as the income of thetaxpayer increases.

• It6s not only in income taxation that pro!ressive system is

encoura!e, even in estate taxation and donors taxation you willnotice in the tax code that the hi!her the value of the estate, thehi!her the tax rate. Same applies as to tax on donations as tononstran!er or a relative.

A'e RE?RESSIE t$.e# p'%"ibite*9• 'e!ressive taxes are not prohi%ited however the constitution encoura!es

the pro!ressive system of taxation.• The constitution does not directly prohi%it the imposition of re!ressive

system of taxation.

"$t i# $ 'e5'e##i(e ##te %+ t$.$ti%&9

• The tax rate increases %ut the income decreases. There is no such system

in the >hilippines. (nd when you tal0 of re!ressive taxes it does notalways mean that there is a set of rates.

• 'e!ressive tax may refer to one rate of tax only. ot -ust the ar!ument

that 5(T is a re!ressive tax. It is not necessary HHH no escalation rate of 1*F, it6s a flat rate.

In the c$#e %+ T%le&ti&%:o It was said that it was a re!ressive tax, why# It6s not %ecause of the rates.

o 8ecause the %urden of 1*F is uniformly apply to all types of income

earners. The %urden of 1*F is hi!her for low income earner and lower tothose hi!h income earners.

o Compare the income of a -anitor vs. the C2<. The 1*F that would %e paid

%y the -anitor would %e heavily %urdensome as a!ainst his 1+0 income vs.the 1*F paid %y the one whose income is so %i!.

o 8ut the ar!ument of the SC sayin! that it6s not a re!ressive tax is, the vat

see0s to distri%ute to as many !oods and services as possi%le andmaintains the exemption of vats to the %asic !oods and services for the lowincome earners.

o So it still maintains that accordin! to the 5(T law, sec. 1+9 of tax code,

there are many exemptions !ranted to the %asic !oods and servicesafforda%le %y the low income earners.

o (nd also for the many exemptions provided %y the tax law, ex. ( parcel of

residential lot, if the amount will not reach to a 1.99m then it6s not

5ata%le, %ut if its 1.999m or *m its vata%le. It !ives a lee way to the lowincome earners to avoid the value added tax. 3or leased property notexceedin! 1*0 not su%-ect to vat %ut those condo units, they are alreadysu%-ect to vat.

o 3ne of the reasons wh) the constitutions provide the progressive s)stem

of taxation is for the government to concentrate more on the direct taxes+ecause it4s +ased on euit)'

I&*i'ect t$.o /ore %urdensome. So the constitution wants to minimi@e

o 2x7 AT t"e bu'*e& i# #"i+te* %& t"e ulti$te c%&#ue'7

E.ci#e t$. t"e pu'c"$#e %& T%b$cc% $lc%"%l $&* #$e #"i+te*$l#% t%

T"e c%&#ue'7 It<# #ubBect t% ($t $&* e.ci#e t$.7

). 2xemption of the religious/ charitable and educational entities, nonprofitcemeteries and churches from property taxation.

o 2xemption from real property taxes which are actuall)/ directl) and

exclusivel) used for the purpose.o 'eal properties4

;and, %uildin! and Improvements.

T"e#e 3 i&#tituti%&# $'e &%t e.ept +'% pe'#%&$l p'%pe't t$.7

>%' t"e#e i&#tituti%&# t% be e.ept +'% 'e$l p'%pe't t$. *% t"e &ee* t%be $ &%&-#t%c &%&-p'%+it i&#tituti%& %' c$& t"e be $ p'%p'iet$'i&#tituti%&9

o 8<TB "not sure a%out the answer.$




"% e&B%# $# +$' $# t"e e*uc$ti%&$l i&#tituti%& $'e c%&ce'&e* !"$t tpe%+ e*uc$ti%&$l i&#tituti%&# e&B%# 'e$l p'%pe't t$. e.epti%& %+ c%u'#e!it" t"e 'eui'ee&t t"$t ADEF9

o The constitution does not distin!uish, therefore the real property tax

exemption would %e en-oyed %y OT; &%&-#t%c &%&-p'%+it i&#tituti%&$&* %t"e' p'i($te p'%p'iet$' i&#tituti%&7

T"e te#t %+ e.epti%& i# it t"e %!&e'#"ip %+ t"e p'%pe't9o o as lon! as the property is (:2 for the purpose.

S% i+ %u "$(e $ p$'cel %+ l$&* t"$t %u "$(e le$#e* %ut t% #cie&t%l%57 >%''eli5i%u# pu'p%#e#7 T$.$ble %' &%t9

o Taxa%le %ecause the rent that you !et from the property is su%-ect to

income taxE

ADE Actu$ll Di'ectl $&* E.clu#i(el

S% i+ %u "$(e $ p$'cel %+ l$&* t"$t %u "$(e le$#e* %ut t% #cie&t%l%5'eli5i%u# pu'p%#e# &$l$&5F7 I# t"$t t$.$ble9 I< t$li&5 $b%ut t"e p'%pe't$&* &%t t"e i&c%e it 5e&e'$te#7Student4 It is exempt from real property tax, if it is (CTU(;;, :I'2CT; (:2PC;USI52; used for their reli!ious purposes.

S% t"e te#t +%' e.epti%& i# &%t t"e %!&e'#"ip but t"e u#e %+ t"e p'%pe't7

S% p!e*e *i$ &5$ 'e&te* l$&5 $&5 l$&* t% $ 'eli5i%u# c"$'it$ble %'e*uc$ti%&$l e&tit $&* ADE +%' t"$t pu'p%#e7 ut $&5 'e$liGe* 'e&t# $'e#ubBect %+ c%u'#e t% i&c%e t$.7

Class, re!ardless of who the owner is so lon! as the use is (, :, 2 for eitherreli!ious charita%le or educational purposes, that would %e exempt from realproperty tax. <; real property tax. The income !enerated from these is normallysu%-ect to income tax.

The c$#e %+ =u&5 )e&te' P"ilippi&e# tal0s a%out the incidental use of theproperty.

"e& %u #$ e.clu#i(e u#e *%e# it e$& t"e #%le $&* p'i$' u#e %+ t"ep'%pe't $l%&e9

Student4 It admits of activities. In the case, ;un! Center >hilippines is a nonstoc0,nonprofit entity and a portion of their %uildin! is vacant and another purpose isleased for commercial purposes. The issue in the case is whether the properties of ;un! Center >hilippines are exempt from real property taxes or not. (nswer4 It ispartially exempt. The portion of the %uildin! leased to private entities are notexempt as these are not (:2 used for charita%le purposes. <nly those that wereused %y ;un! Center are exempt from real property tax.

I# t"e =u&5 )e&te' #till c%&#i*e'e* $ c"$'it$ble i&#tituti%& *e#pite t"e +$ctt"$t it $*it# p$tie&t# !"% $'e p$i&59 8ecause the contention here is that it has lost its charita%le nature %ecause it hasleased its properties to commercial entities and %ecause it has admitted payin!patients.

Student4 It is still a charita%le institution. It does not lose its charita%le nature %ythe mere fact that it derives income from patients and lessees.

ut *%e# t"$t &%t $e it &%! $& %'*i&$' c%'p%'$ti%& 5e&e'$ti&5 i&c%e+'% it# $cti(itie#9Student4 (s lon! as the income !enerated is not used for a private purpose.

<0ay. ?hat defines a c"$'it$ble i&#tituti%& cl$## p'i$'il !%ul* be t"e$'ticle# %+ i&c%'p%'$ti%& $# 'e5i#te'e* i& t"e SE)7 I& +$ct i&#%+$' $#*ete'i&i&5 !"et"e' $ #c"%%l i# $ &%&-#t%c &%&-p'%+it i&#tituti%& %ul%% $t t"e $'ticle# %+ i&c%'p%'$ti%&7 Acc%'*i&5 t% t"e $'ticle# %+ i&c%'p%'$ti%& %+ =u&5 )e&te' it i# $ c"$'it$ble i&#tituti%&7 The fact that it is

admittin! payin! patients constitutin! +F of their availa%le %eds does not strip itof its charita%le nature %ecause the main purpose of ;C is really to admit the needypatients and it6s %&l i&ci*e&t$l t"$t %t"e' p$tie&t# !%ul* $($il %+ t"ei'#e'(ice#7

So lon! as that part of the real property is devoted for charita%le purposes, it isexempt from real property tax. 8ut the spaces leased to commercial entities would%e su%-ect to real property tax. (s to who would %e lia%le to pay for such tax, itwould %e su%-ect to a!reements %etween ;C and their lessees "in the leasecontract$.

The SC went on to say that (:2 means the direct, immediate and actual applicationof the property itself. ;C ar!ued that the income !enerated from the leasedproperties was used for the charita%le purpose. T"i# i# !'%&5 bec$u#e t"e b$#i#+%' t"e e.epti%& i# t"e *i'ect ie*i$te $&* $ctu$l $pplic$ti%& %+ t"ep'%pe't it#el+ &%t t"e p'%cee*# %' t"e $pplic$ti%& %+ t"e i&c%e7

The c$#e %+ Ab'$ $lle )%lle5e7Student4 The Colle!e was taxed "'eal property$ %ecause it rented out the first floorto orthern /ar0etin! Corporation and the *nd floor was used as the director6shome. The property was actually levied and sold at a pu%lic auction. (5C wanted tosee0 for the nullification of the sei@ure and the pu%lic auction %ecause it ar!ued thatthe property is incidentally used for educational purposes.

"$t *i* t"e S) #$ %& t"e u#e %+ t"e p'%pe't +%' t"e *i'ect%'<# "%e $&*t"e le$#e %+ t"e p'%pe't t% NM)9Student4 The use of the director and his family of the * nd floor was i&ci*e&t$l to theeducational purpose of the school. Bowever, the lease of the 1 st floor %y /C was

for a commercial purpose so they should %e taxed for that.

So incidental use of the property is allowed and it will come within the am%it of (:2use %ecause the incidental use was 'e$#%&$bl &ece##$'7

"$t $b%ut t"e c$#e %+ 'e(e'e&* >'7 )$#ii'% =l$*%c9Student4 This involves the donation of property from "some entity$ to a parishpriest. It was taxed ":onor6s tax$. The reverend claimed that it shouldn6t %e taxed.SC said that exemption only applies to real property tax. This tax is in the form of an excise tax, and does not come within the am%it of the exemption.

So if there is a donor who paid a donor6s tax, and the donee "a priest$ claims thathe is not lia%le for donee6s tax %ecause the donation was used for reli!iouspurposes.

I# "e c%''ect9




o %ecause the exception only applies to real property tax. This is an excise, notproperty tax.

ext constitutional limitation is that nonstoc0 nonprofit educational institutions areexempt from taxation on all revenues and assets (:2 used for educationalpurposes. ?hat is the extent of this exemption#Student4 as lon! as they are (:2 for educational purposes.

All t$.e#9Student4 o They are exempt from i&c%e p'%pe't *%&%'<# t$. $&* cu#t%#

*utie#7

"$t p'%pe'tie# %+ e*uc$ti%&$l i&#tituti%&# $'e &%t t$.$ble9Student4 (;; 2ven personal property.

The constitution is specific4 $ll 'e(e&ue# $&* $ll $##et# of nonstoc0, nonprofitinstitutions are exempt from taxes so lon! as it6s (:2 used for educationalpurposes.

"$t $'e t"e 'eui'ee&t# +%' $ #c"%%l t% be e.ept +'% i&c%e t$.9Student4 School must %e a school.

1 /ust %e private.* onGstoc0, nonprofit.) /ust %e accredited %y CB2:, :2CS. (ssets must %e used (:2 for educational purposes.

T"e c%&&%t$ti%& %+ t"e e.epti%& i# t"$t t"e #c"%%l i# %&l e.ept +'%*i'ect t$.e#7 USC is still lia%le to pay for 5(T Tuition fees are not 5(Ta%le %utwhen USC purchases appliances for example, it cannot claim that it is exempt frompayin! 5(T %ecause the appliances will %e (:2 used for educational purposes.

"9 8ecause the exemption only applies to direct taxes, 5(T is an indirect tax.

"$t tpe %+ p'%pe't i# e.ept +'% t$.9 "$t p'%pe't %+ t"ee*uc$ti%&$l i&#tituti%& i# &%t t$.$ble9 All $##et#9 E(e& pe'#%&$l p'%pe't9The constitution is specific that all income, all assets of nonstoc0 nonprofiteducational institutions are exempt from taxes as lon! as it is actually, directly andexclusively used for educational purposes.

"$t $'e t"e 'eui'ee&t# +%' $ #c"%%l t% be e.ept +'% i&c%e t$.9ot all schools are exempt from income tax. The re=uisites are as follows4

1. It should %e a private institution*. It should %e a nonstoc0 nonprofit educational institution). It should %e accredited %y !overnment institutions such as T2S:(, CB2:,

:2CS7 Re(e&ue# $&* $##et# u#t be $ctu$ll *i'ectl $&* e.clu#i(el

u#e* +%' t"e pu'p%#e7

<nce you have esta%lished all these re=uisites, then you can say that it is exemptfrom taxes.

The connotation of %ein! exempt from income tax means that it would only %e for

direct taxes.

ill t"e @&i(e'#it %+ S$& )$'l%# $ &%&-#t%c &%&-p'%+it e*uc$ti%&$li&#tituti%& be e.ept +'% AT %& it# pu'c"$#e#9 )$& t"e #upplie' %+ S$&)$'l%# p$## t"e AT t% S$& )$'l%#9 )$& S$& )$'l%# 'e+u#e t% p$ $lueA**e* T$. %& it# pu'c"$#e# u#i&5 t"e 'e$#%& t"$t it i# e.ept +'% t$.9 I+ S$& )$'l%# bu# $i'c%& +'% $& $ppli$&ce ce&te' c$& t"e $ppli$&ce ce&te'p$## t"e t$. t% S$& )$'l%#9es. 8ecause the exemption provided %y the constitution is an exemption on directtaxes and 5(T is an indirect tax. ?hatever vat forms part of the cost of the !oodpurchases. So lon! as it is the purchase price, then 5(T. It will have to pay. Theexemption is only for income tax.

It does not also include an exemption from withholdin! taxes. It cannot refuse topay withholdin! tax. Its exemption is only limited to its income and not my income.

ill t"e p$e&t b $'i#t% %+ it# 'e&t t% S$& )$'l%# be e.ept %+ i&c%et$.9 E(e& i+ it<# !it"i& t"e p'ei#e# %+ t"e #c"%%l9So the * re=uisites must %e met4

1. It must %e an i&ci*e&t$l $cti(it b t"e #c"%%l it#el+ *. (nd it must %e located within the campus.

I+ S$& )$'l%# !%ul* i&(e#t %u' tuiti%& +ee# t% %&e $'et pl$cee&ttie *ep%#it +%'ei5& e.c"$&5e i# t"e i&te'e#t #ubBect t% i&c%e t$.9In accordance with the %an0in! laws, whenever we ma0e investments of our money,you will notice that our deposits will earn interest, it will automatically %e su%-ect toincome tax. San Carlos cannot actually refuse payment of these 0inds of taxeswithout a valid le!al %asis %efore it can claim that it is exempt. The constitution isvery !eneral lan! in the sense that all assets, includin! deposits, will %e exempt if its (:2 used so that6s very de%ata%le. 8ut what is the fruits of these investments,the interest will %e used for educational purposes, why will it not %e exempt fromincome tax#

In the %pi&i%& %+ t"e Sec'et$' %+ >i&$&ce, the final withholdin! tax on pesodeposits, forei!n exchan!e, money mar0et placements are exempt from income taxif earned %y a &%&-#t%c &%&-p'%+it e*uc$ti%&$l i&#tituti%& so lon! as4

1. It will file an ample information every year*. It will su%mit audited financial statements). It will produce a certification comin! from the %an0 or financial institution

as to the income they have earned from the investments. ( certification of how it was actually utili@ed in the educational activities of

the school. ( %oard resolution comin! from the 8oard of Trustees as to the educational

purpose of the interest of such investments.

N%! "%! $b%ut p'%p'iet$' e*uc$ti%&$l i&#tituti%&#9"$t *% %u e$& b p'%p'iet$'9 In the nature %usiness which has the end of o%tainin! profit. Sec *78 of tax codeprovides partial exemption !ranted to proprietary institutions.

"$t i# t"i# e.epti%&9It is an exemption of income tax. <rdinarily, institutions or private entities aresu%-ect to )+F corporate income tax. ?hen you say corporate income tax, it doesnot mean tax only on corporations. It is a tax on all %usinesses or entities other

than sole proprietorships or other than those ran only %y 1 individual. ?hether wesay corporation, strict corporation, entity, foundation, institution or a partnership




that is taxa%le, it is su%-ect to corporate rate of )+F. Supposedly, educationalinstitutions will %e covered %y this %ecause it is not a sole proprietorship, it is anentity. 8ut %y virtue of constitution, nonstoc0, nonprofit educational institutionshas %een !ranted full exemption from )+F income tax while proprietary educationalinstitutions under section *78 of tax code provides for a p$'ti$l e.epti%& %+ 2047 It e$&# t% #$ t"$t p'%p'iet$' e*uc$ti%&$l i&#tituti%&# $'e #ubBect%&l t% $ t$. '$te %+ 104 bec$u#e t"e 204 i# $& e.epti%&7 (lthou!h it didnot say *+F %ut we presumed that the difference %etween )+F and 1+F is *+F.Sc"%%l# !ill be #ubBect t% 104 i&c%e t$.7

<n cu#t%# *utie# San Carlos will %e exempt from payin! taxes if what it importsare (:2 used for educational purposes such as computer units, pro-ectors, air con,etc. 3or all other cases such as motor vehicles, not exempt from tax.

E.epti%& +'% *%&%'<# t$. !"$t *% %u e$& b t"$t9 "% i# t"e *%&%'9The nonstoc0 nonprofit educational institution is the donee. The purpose is toencoura!e donations.

I+ $ *ece*e&t i& "i# !ill !'%te i& "i# !ill "e beue#t# $ ce't$i& p'%pe't t%@S) !ill t"e e#t$te be 'eui'e* t% p$ e#t$te t$. %& t"e p'%pe't *%&$te*9Transfers to nonstoc0 nonprofit institutions are still su%-ect to tax. 'eason4 Secti%& 8 p$'7 D7 the followin! shall not %e taxed4d$ all %e=uests, devises, le!acies or transfers to #%ci$l !el+$'e cultu'$l $&*c"$'it$ble i&#tituti%&# no part of the net income of which inures to the %enefit of any individual >rovided, however, That no more than )+ percent of the said%e=uests, le!acies or transfers shall %e used %y such institutions for administrationpurposes.

ow, Secti%& 30 of your tax code4 Sec 30 l$#t p$'$5'$p" of the tax code whichsays all entities otherwise exempt from income tax which includes nonstoc0 nonprofit educational institution are exempt from income tax. It is -ust %ut a repetitionof what the constitution provides, but i& t"e l$#t p$'$5'$p" it +u't"e' !e&t %&t% cl$'i+ t"$t $ll i&c%e *e'i(e* b t"e#e i&#tituti%&# i&clu*i&5 &%&-#t%c&%&-p'%+it e*uc$ti%&$l i&#tituti%&# !ill be #ubBect t% i&c%e t$. i+ it i# $&i&c%e *e'i(e* +'% t"e u#e %+ 'e$l pe'#%&$l p'%p7 A&* t"e i&c%e +'%t"e $cti(itie# c%&*ucte* +%' p'%+it $'e #ubBect t% i&c%e t$. 'e5$'*le## %+ t"e *i#p%#iti%& t"e'e%+7 So it would appear that if San Carlos earns income froman) of the activities mentioned/ it will +e su+.ect of income tax even if the proceeds

will +e used for educational purposes' The third is very understanda%le, if SanCarlos earns income %y holdin! concerts, then it will %e su%-ected to income tax%ecause the school should not %e en!a!ed in profita%le activities. 8ut what is=uestiona%le, is the use of real and personal property should %e su%-ect to taxre!ardless of the disposition

The first part of Secti%& 30 is somehow %ein! in conflict with the constitution%ecause the constitution provides that all assets so lon! as it is actually directly andexclusively used for education purposes are exempt from taxation. 8ut as of thisdate that provision of section )+ has not %een declared as unconstitutional thereforeit is still valid as of this date. A& i&c%e !it" t"e u#e %+ pe'#%&$l t"e u#e %+ 'e$l p'%pe't e(e& i+ it<# &%t +%' t"e pu'p%#e %+ p'%+it 'eebe' t"e t"i'*p$'$5'$p"/p"'$#e %+ $cti(itie# c%&*ucte* +%' p'%+it i# &%! *e+i&iti(e %+ u#e%+ 'e$l $&* pe'#%&$l p'%pe't #% +l$tl u#e %+ pe'#%&$l $&* u#e %+ 'e$l

p'%pe't #ubBect t% t$. $&* $cti(itie# c%&*ucte* +%' p'%+it $'e #ubBect t%t$. 'e5$'*le## %+ t"e *i#p%#iti%& %+ t"e p'%cee*#7

=et<# 5% t% p'%p'iet$' e*uc$ti%& i&#tituti%& "$# t"e c%&#tituti%& p'%(i*e*+%' t"e e.epti%& +%' t"e#e tpe %+ #c"%%l#9Student4 there is no direct constitutional provision that provides for exemption forproprietary educational institutions, however the constitution says that the con!ressmay !rant exemptions to them %ecause of the policy that we favor the !rowth of education so they are !ranted partial exemption.

=$!9 A&* t"$t i#9Student4 The tax code.

"ic" 5'$&t#9Student4 !rants that the proprietary educational institutions are partially exempt*+F from income tax so they are only lia%le to pay 1+F.

The constitution has no specific provision and what the exemption of proprietaryeducational institution, althou!h it directs con!ress to enact a law if it deems fit to!rant an exemption to this proprietary educational institutions.

">roprietary are those #t%c c%'p%'$ti%&# $lt"%u5" &%&-p'%+it e*uc$ti%&i&#tituti%&,$ and in accordance with Secti%& 2b of your tax code proprietaryeducational institution are only lia%le to 1+F income tax, !"e'e i# t"ee.epti%&9 The exemption is the difference %etween the normal )+F corporateincome tax as a!ainst their lia%ility of only 1+F.

S% !"$t $'e t"e 'eui'ee&t#9 Is the private education institution althou!h stoc0 it u#t #till be +%' &%&-p'%+it$cc'e*ite* !it" t"e *ul 'eui'e* 5%(e'&e&t $5e&c #uc" $# DE)S $&*);ED, and it# i&c%e %+ p'%p'iet$' e*uc$ti%&$l i&#tituti%& +'% %t"e'#%u'ce# e$&i&5 +'% &%& 'el$te* t% e*uc$ti%& $cti(itie# u#t &%t e.cee*04 %+ it# t%t$l 5'%## i&c%e %+ t"e #c"%%l7 So meanin! to say, other incomeshould not %e +.1F of the total earnin!s of the school, otherwise it will lose itsexemption it will now %e su%-ected to )+F tax of its whole income.

1 (lthou!h stoc0 must %e for nonprofit* (ccredited %y :2CS and CB2:) Income from other sources other than those related to educational

activities must not exceed +F of its total !ross income.

A'e p'%p'iet$' e*uc$ti%& i&#tituti%&# e.ept +'% i&c%e t$. %& t"ei'

i&(e#te&t *ep%#it#9 >roprietary education institutions are not !iven the sameexemption as nonstoc0 nonprofit educational institution, they are still su%-ect toincome tax althou!h at the lower rate of 1+F, that !oes throu!h as well that theywill not %e !iven the exemption on their interest derived from investment anddeposits. It will still %e fully su%-ected to the 7.F forei!n currency deposits and*+F of interest income from re!ular peso deposits, %ecause the opinion issued %ythe department of finance is only applica%le to nonstoc0 nonprofit educationinstitution and accordin! to the life%lood doctrine, the interpretation of taxexemptions it has to %e strictly construed a!ainst the tax payer.(!ain4

.It will file an ample information every year• It will su%mit audited financial statements

• It will produce a certification comin! from the %an0 or financial institution

as to the income they have earned from the investments

• ( certification of how it was actually utili@ed in the educational activities of the school




• ( %oard resolution comin! from the 8oard of Trustees as to the educational

purpose of the interest of such investments.

=et<# %(e %& t% t"e &e.t c%&#tituti%&$l liit$ti%& p'%"ibiti%& $5$i&#tip'i#%&e&t +%' &%&-p$e&t %+ p%ll t$.7Student4 (nyone who fails to pay for their cedula cannot %e prosecuted orimprisoned however for the other taxes that is re=uired one may%e su%-ect tocriminal prosecution.

(lthou!h the tax laws that we have in the >hilippines are not penal in nature, %utfor non compliance with our tax laws it carries with it criminal lia%ilities for ex. Taxevasion cases, etc., and it may result to imprisonment simply to penali@e theviolators of the tax law. 8ut insofar as this is the constitution already which providesfor the prohi%ition, there will %e no one who will %e imprisoned for the nonpaymentof poll tax. 8ut for other acts, it may lead to imprisonment of course, li0efalsification of the cedula. 3or nonpayment of poll tax on time and the due date ison or %efore the last day of 3e%ruary, any payment %eyond that day the punishmentis only payment of additional surchar!e, no imprisonment.

Re(e&ue bill u#t %'i5i&$te e.clu#i(el i& t"e "%u#e %+ 'ep'e#e&t$ti(e &%ti& t"e #e&$te7

In the c$#e %+ T%le&ti&%, what is re=uired in the constitution is the %ill itself ori!inate from the house, re!ardless if it6s superseded %y the senate version so lon!as it ori!inates initially from the house of representatives, it has met there=uirements. It i# t"e bill &%t t"e l$! !"ic" i# 'eui'e* t% c%e +'% t"e"%u#e %+ 'ep'e#e&t$ti(e# %t"e'!i#e i+ it i# t"e l$! !"ic" #"%ul* c%e +'%t"e "%u#e %+ 'ep# t"e (e'#i%& %+ "%u#e %+ 'ep# %u !%ul* "$(e t% liit t"e'i5"t %+ t"e #e&$t%'# t% p$## %& t"e ($li*it %+ t"e (e'#i%& %+ t"e "%u#e %+ 'ep#7

N%! !" *% %u t"i& it #"%ul* %'i5i&$te +'% t"e "%u#e %+ 'ep#9Student4 (side from the fact that it is provided for in the constitution, it6s %ecausethe representatives in the house of reps who $'e $ctu$ll %'e i& t%uc" !it" t"e'e$litie# %+ t"ei' 'e#pecti(e *i#t'ict# $&* t"ei' 'e#pecti(e c%&#titue&t# $# t%t"e &ece##$' 'e(e&ue# t"$t !ill be '$i#e* $&* $# t% !"$t c$& be $++%'*e*b t"ei' c%&#titue&t# %ut primarily it6s %ecause it is provided in the constitution.

=et<# %(e +%'!$'* t% t"e 5'$&ti&5 %+ t$. e.epti%&7?'$&ti&5: $b#%lute $B%'it: $ l$! u#t be p$##e* $5'ee* up%& b $B%'it%+ $ll t"e ebe'# %+ c%&5'e## (%ti&5 #ep$'$telit"*'$!$l %+ t$. e.epti%&: $B%'it %+ $ll ebe'# p'e#e&t (%ti&5#ep$'$tel p'%(i*e* t"e'e i# $ u%'u7

I+ !e #$ t"e'e $'e 232 ebe'# %+ t"e "%u#e $&* t"e #e&$te "$# 23 +%' $t%t$l %+ 2 $&* t% c%&#titute $ u%'u %u %&l &ee* %&e "$l+ plu# %&e7 i+ %&l 126 $tte&*e* "%! $& (%te# &ee*e* t% p$## t"e l$! 5'$&ti&5 t"ee.epti%&9Student4 a valid tax exemption law would %ase on the total num%er of thecon!ressmen, it would %e 1*7.

In order to pass a valid law !rantin! a tax exemption a%solute ma-ority is necessary,

ma-ority of all those mem%ers votin! #ep$'$tel !it"%ut 'e5$'* !it" t"e&ube' %+ i&*i(i*u$l# p'e#e&t *u'i&5 t"e eeti&5J

" *% %u t"i& #%9Student4 8ecause if the law re=uires ma-ority of the total num%er of the mem%ers of con!ress, it !%ul* &ee* $ "i5"e' &ube' %+ $B%'it7 8ecause if we ta0e a loo0at the !rant of tax exemption it6s not %eneficial to the !overnment %ecause %asicallytax is the life %lood of the !overnment, if the !overnment will !rant tax exemptionnecessarily it would %e the concern of all the mem%ers of con!ressE

ut !"$t $b%ut i+ it i# t"e !it"*'$!$l %+ t"e 5'$&t t$. e.epti%&9 S$ +%'e.$ple t"e'e i# $l'e$* $& e.epti%& 5'$&te*7 S$ +%' e.$ple t"e

p'%p'iet$' e*uc$ti%& i&#tituti%&# i# p$'ti$ll e.ept %+ 204 it# %&l li$blet% p$ 104 "e'e i# c%&5'e## !$&ti&5 t% ip%#e 304 t$. %& p'%p'iet$'e*uc$ti%& i&#tituti%&# &% %'e 204 e.epti%&7 "$t i# t"e 'eui'e*&ube' %+ (%te# i& %'*e' +%' c%&5'e## t% p$## ($li*l t"e l$!9 O' it c$&&%tbe p$##e* $t $ll9 %ul* it (i%l$te t"e &%& ip$i'e&t cl$u#e9Student4 its allowed ma6am, that exemption of proprietary education institutions isin a form of a law and con!ress enacted that law so they have the ri!ht to amend ormodify that law and the votin! percenta!e re=uired for the withdrawal of that taxexemption would %e ma-ority of mem%ers present. relative ma-ority

" i# it *i++e'e&t !it" 5'$&ti&59Student4 8ecause withdrawal would %e %eneficial to the !overnment

The !rantin! of tax exemptions class, in order to avoid the indiscriminate !rant of tax exemption con!ress has to %e rude %y strict ma-ority of all mem%ers. ot allmem%ers present. 5otin! separatelyE so even if durin! the meetin! only Q plus 1attended without considerin! the num%er of a%sences, we still commit Q plus 1%ased on the TOTA= p%pul$ti%& %+ t"e #e&$te $&* t"e "%u#e7 %f onl) a total 6 plus is present/ all of them must concur to the granting of tax exemption' 8ut inthe withdrawal of tax exemption, since it6s already favora%le to the !overnment, itonly re=uires the vote of the ma-ority of those present, %ut still it must alwayso%serve a =uorum.

In the !rantin! of tax exemptions, in order to avoid indiscriminate !rant of taxexemptions, con!ress has to %e ruled with a strict ma-ority "a%solute ma-ority$ of allmem%ers of con!ress votin! separately. So Q plus 1 of the total population of senate or con!ress. 8ut in the withdrawal of the !rant of tax exemptions, since thisis already favora%le to the !overnment, it will only re=uire a relative ma-ority whichmeans Q plus 1 of all the mem%ers present durin! the meetin! in which case, a

=uorum must %e o%served.

N%&-ip$i'e&t %+ t"e Bu'i#*icti%& %+ t"e #up'ee c%u't i& t$. c$#e#

"$t i# t"$t liit$ti%& %+ t"e p%!e' %+ c%&5'e## t% ip%#e t$.e#9 T"e S)"$# t"e p%!e' t% +i&$ll $*Bu*ic$te t$. c$#e#7 I+ c%&5'e## *eci*e# t% $e&*t"e c%&#tituti%& c$& it !it""%l* +%' t"e S) t"i# p%!e' t% *eci*e t"e+i&$lit t$. c$#e#9 o. It is provided in the constitution.

"$t i# t"e '%le %+ t"e S) i& #% +$' $# t"e p%!e' %+ c%&5'e## t% ip%#et$.e# i# c%&ce'&e*9The SC acts as the final ar%iter in tax cases. The constitution provides that con!ressis so powerful as to withhold and ta0e away the various powers of the different

courts that we have. 8ut it withholds from con!ress the power to ta0e away fromthe SC its role as the f inal ar%iter in tax cases, the power to review, revise, modify,




affirm any issues on the le!ality of taxes, the constitutionality of tax laws etc.P%!e' %+ c%&5'e## $ctu$ll #t%p# i& t"e e&$cte&t %+ t"e l$! but t"e +i&$l*ete'i&$ti%& !"et"e' it i# c%&#tituti%&$l %' &%t #till bel%&5# t% t"e S)7 T"e3 b'$&c"e# %+ t"e 5%(e'&e&t $'e #till c%-eu$l e$c" "$# $ '%le t% pl$7

The two remainin! limitations4

>le.ible t$'i++ cl$u#e K t"e *ele5$ti%& $*e t% t"e p'e#i*e&t i& #% +$' $#cu#t%# *utie# $&* t$'i++# $'e c%&ce'&e*7

The president is vested with authority %y law to increase tariff rates, even forrevenue purposes only.

Bowever, it %ear stressin! that the statutory power of the president to fix tariff rates, import or export =uotas, and tonna!e or wharfa!e dues must %e su%-ect tolimitations and restrictions indicated within the law itself. 3urthermore, suchdele!ation must %e in accord with the framewor0 of the national developmentpro!ram of the !overnment.

T"e te' L+le.ible t$'i++ cl$u#e< 'e+e'# t% t"e $ut"%'it 5i(e& t% t"ep'e#i*e&t t% $*Bu#t t$'i++ '$te# under section +* of the Tariff and CustomsCode, which is the ena%lin! law that made effective the dele!ation of the taxin!power to the >resident under the Constitution.

P%!e' t% '$i#e it# %!& #%u'ce# %+ 'e(e&ue# "$# bee& 5i(e& t% l%c$l5%(e'&e&t u&it#72very ;DU shall have local autonomy. They shall have their own power to raiserevenues. (ny collection must inure to the %enefit of the ;DU. In the ;DC, itprovides that you cannot pay to a private entity that6s why you cannot pay in %an0s.There are also limitations in the ;DC, such that you cannot collect income tax,customs and tariffs tax, etc.

:imaampao42ach local !overnment unit shall have the power to create its own sources of revenues and to levy taxes, fees and char!ed su%-ect to such !uidelines andlimitations as the Con!ress may provide, consistent with the %asic policy of localautonomy. Such taxes, fees and char!es shall accrue exclusively to the local!overnments.

:ele!ation of le!islative taxin! power to local !overnments is Bu#ti+ie* b t"e&ece##$' iplic$ti%& t"$t t"e p%!e' t% c'e$te p%litic$l c%'p%'$ti%&# +%'pu'p%#e# %+ l%c$l #el+-5%(e'&e&t c$''ie# !it" it t"e p%!e' t% c%&+e' %&#uc" l%c$l 5%(e'&e&t $5e&cie# t"e $ut"%'it t% t$.7

Bowever, despite the !rant of taxin! power to ;DU, -udicial admonition is !iven tothe effect that the tax so levied must %e for pu%lic purpose, uniform and must nottrans!ress any constitutional provision nor repu!nant to a controllin! statute.

Double taxation "to %e discussed more thorou!hly in the later parts$

INDIRE)T )ONSIT@TIONA= =IMITATIONS17 Due P'%ce## )l$u#e

Di$$p$%:

:ue process mandates that no person shall %e deprived of life, li%erty, orproperty without due process. The implication is that one may %e deprived

of property as lon! as the re=uirement of due process notice and hearin!have %een complied with.

Due p'%ce## i# u#u$ll (i%l$te* !"e'e t"e t$. ip%#e* i# +%' $p'i($te pu'p%#e $# *i#ti&5ui#"e* +'% $ public pu'p%#eH a tax isimposed on property outside the state and ar%itrary or oppressivemethods are used in assessin! and collectin! taxes. 8ut a tax does notviolate the due process clause, as applied to a particular taxpayer althou!hthe purpose of the tax will result in in-ury rather than a %enefit to suchtaxpayer.

The followin! situations are illustrative of violations of the due processclause4a. If the tax amounts to a confiscation of property%. If the su%-ect of the confiscation is outside the -urisdiction of the

taxin! authorityc. If the law is imposed for a purpose other than a pu%lic purposed. If the law is applied retroactively imposes un-ust and oppressive taxese. ?here the law is in violation of inherent limitations.

Sub#t$&ti(e $&* P'%ce*u'$l7

;%! *% %u #$ti#+ t"e 'eui'ee&t %+ #ub#t$&ti(e *ue p'%ce##9Student4 It should not contradict the constitution

"$t #"%ul* &%t c%&t'$*ict t"e c%&#tituti%&9The law itself.

;%! *% %u #$ti#+ t"e p'%ce*u'$l *ue p'%ce## 'eui'ee&t9Student4 It must not %e ar%itrarily passed.

The procedure for enforcin! a tax collection. The constitution provides that noperson shall %e deprived of his property without due process. <therwise stated, aperson can %e deprived of his property so lon! due process is o%served as theta0in! of the property. That is why the power to tax e=uals the power to destroy.ou are deprived of your property. :ue process would mean& it is a *fold thin! su%stantive due process and procedural due process 7 e' e$# t% u&*e'#t$&*t"$t !"e& it i# #ub#t$&ti(e *ue p'%ce## t"e l$! !"ic" t"e 5%(e'&e&t#ee# t% ip%#e u#t #$ti#+ t"e c%&#tituti%& it#el+ $&* t"e l$!# u#t &%t

c%&t'$*ict t"e c%&#tituti%&$l p'%(i#i%&7 ow, if that is satisfied, it does notmean also that the ta0in! of property would already %e within the due processclause %ecause there is still that procedural aspect. "e& %u #$ p'%ce*u'$l -t"$t e$&# t"$t t"e $tte' %+ e&+%'ci&5 t"e t$. l$!# u#t be Bu#t $&*'e$#%&$ble7 It u#t 5i(e t"e t$.p$e' t"e %pp%'tu&it t% be "e$'*7 A&%pp%'tu&it t% be "e$'* - t"$tC# !"e'e &%tice $&* "e$'i&5 'eui'ee&t i#'eui'e*7

3or example, you have a property, /r. 8autista which you have not paid realproperty taxes for 1+ years. (nd as part of the remedy of the !overnment is eitherto collect your delin=uent real property taxes or to levy your real property and sell itat a pu%lic auction.

)$& t"e 5%(e'&e&t *i'ectl $+te' %u +$ili&5 t% p$ t"e 'e$l p'%pe't t$.e#

t"$t $'e *eli&ue&t c$& t"e 5%(e'&e&t *i'ectl $pp'%p'i$te t"e 'e$lp'%pe't t"$t %u %!e $&* t'$&#+e' t"e title i& it# &$e9




?hen you say that there is no procedural due process o%served even if the ;ocalDovernment Tax Code allows the levy of real property for unpaid taxes %ut still theta0in! was without due process7 It !$# !it"%ut t"e 'eui'e* public $ucti%&t"e &%tice7 I+ %u' 'e$l p'%pe't !ill be t$e& t% $&#!e' +%' u&p$i* 'e$lp'%pe't t$.e# t"e'e "$# t% be &%tice t"$t %u' *eli&ue&t7 There has to %enotice that your property will %e "#$ and eventually to %e sold at the pu%lic auction.Be did not experience any of those therefore the ta0in! was without due process.Invalid.

;et me !ive you another example. That real property of yours has not %een paid in

taxes for 1+ years. ou were served&!iven an assessment only to your delin=uentproperty tax. (fter all, the !overnment proceeded to pu%lish a notice of pu%licauction sale in a newspaper of !eneral circulation.

D% %u t"i& t"$t "$# $l'e$* #$ti#+ie* t"e p'%ce*u'$l *ue p'%ce## $&* i&c$#e %+ public $ucti%& t"e p'%pe't !ill be #%l* t"e #$le i# c%&#i*e'e*($li*9 Public$ti%& +%' 20 *$# t"$t %u' p'%pe't !ill be #%l* $t public$ucti%&7 S% t"e ue#ti%& t"e'e i# !ill t"e public $ucti%& %pe'$te $# $ &%ticet% %u #i&ce &%tice i# 'eui'e*9 A&%t"e' ue#ti%& - i# it &%t $ &%tice t% t"e!"%le !%'l*9 I# t"e #$le ($li*9 )$& %u #till c%&te#t t"e ($li*it %+ t"e #$le9(ccordin! to the Supreme Court case, whenever it concerns real property that will%e levied and sold at pu%lic auction %ecause of unpaid real property taxes meanin!that your real property will %e made answera%le to unpaid taxes, pe'#%&$l &%ticei# 'eui'e* $t $ll tie#7 Ot"e'!i#e i+ t"$t i# &%t 5i(e& e(e& !it" t"epublic$ti%& it !ill &%t be ($li*7 Y%u c$& #till ue#ti%& t"e #$le7 ?hat is inpu%lication is notice to the whole world more applies to land titles not in ta0in! of property for tax "#$.

(nd in cases of issuances when the 'evenue :istrict <ffices that we have even the8I', in cases of issuances of administrative "#$, revenue circulars %y the 8ureau of Internal 'evenue, there are * thin!s that can happen. If the circulars issued %y the2xecutive 8ranch of the !overnment is #ipl $ 5e&e'$l iplee&t$ti%& %+ t"e'e5ul$ti%& t"$t t"e l$! p'%(i*e !it"%ut $**iti%&$l bu'*e&, it does not re=uirenotice and hearin!. The mere fact that it is issued, it is already enou!h. ut i+ t"eci'cul$' !%ul* ip%#e $**iti%&$l bu'*e&# t"$t pe&$ltie# !ill be ip%#e* bt"e IR it !ill 'eui'e &%tice $&* "e$'i&57 T"$t i# !"$t "$ppe&e* i& t"ec$#e %+ >%'tu&e T%b$cc%7 It c$& be #t'uc *%!& $# i&($li* +%' it# +$ilu'e t%&%ti+ t"e #ubBect %' pe'#%&# c%&ce'&#7

T"e c$#e %+ )$'l%# Supe'*'u5Student4 The case of Carlos Superdru!. There were !roups of private corporations,dru!stores, who assailed the Senior Citi@enKs (ct which !ranted them *+F taxcredit on those esta%lishments who were re=uired to !rant such discounts on SeniorCiti@ens. So the main point is that it amounts to confiscation of property %ecausethe previous Senior Citi@enKs (ct usually the discount was shouldered %y the!overnment %efore. The amount discounted will not shifted to the dru!stores. 8utin this case, the 2xpanded Senior Citi@enKs (ct does not !ive a tax refund %ut only atax credit. So in effect, only )*F of the *+F discount shall %e !ranted as a taxcredit to the dru!stores. So one of the issues in this case was due process wasfollowed in enactin! the law. /y understandin! was that the ri!ht to due processwas %ased in %alance with the power of the Statepolice power which the power tore!ulate the exercise of ri!hts and property. The su%-ect will %e into the interest of !eneral welfare. So the Court found that the credit that the !eneral welfare has

primacy %ecause a!ain, police power is that most unlimited power of the State. Ineffect, they cannot claim due process and in a sense the purpose of the law was

also valid %ecause it is !oes with the policy of the State to loo0 after the welfare of the Seniors of the society. (nd also that if only the petitioners rendered some timeto actually calculate the loss and their earnin!s, itKs not really confiscatory %ecausethey calculated it in such a manner that they assume that all their clients are seniorciti@ens, thus they should %e !ivin! discounts to all.

So this is merely a comparison of the previous Senior Citi@enKs act wherein they !etfull credit %ecause it was a tax credit scheme.

@&*e' t"e e.p$&*e* Se&i%' )itiGe&#< Act !"$t !$# $ll%!e* !$# +%' $&

*i#c%u&t 5'$&te* t% $ #e&i%' citiGe& !ill %&l be cl$ie* $# $ t$. e.pe&#e*e*ucti%&7

es, you "referrin! to LDalit 0a%a#M Dallito$ were ri!ht a%out the p'i$c %+ t"ep%!e' p%lice +%' t"e !el+$'e %+ t"e #e&i%' citiGe&#7

Eu$l P'%tecti%&$# t"e'e ($li* cl$##i+ic$ti%& i& t"e e&$cte&t %+ t"e Se&i%' )itiGe&#< Act9 es, all persons su%-ect to such law shall %e, so lon! as they are similarly situatedand in li0e circumstances, su%-ected similarly in accordance with the privile!eprovided %y the law and other provisions imposed %y it. So, e=ual protection amon!e=ual. ou don6t expect the same e=uality if you are %eyond that classificationalready.

I# eu$l p'%tecti%& %'e %& u&i+%'it "%'iG%&t$l euitF %' eu$lit(e'tic$l euitF9

In order to ma0e a valid classification, the classification must %e41 8ased on a su%stantial distinction. G So there is a su%stantial distinction

%etween individual taxpayer earnin! >1+, +++ income annually and anindividual taxpayer earnin! >++, +++ income annually.

* Dermane to the purpose of the law. G So if the purpose of the law is to tax%ased on the a%ility to pay, then the hi!her the income, the hi!her the tax.

) It must not only apply to present condition %ut also to future conditions. Gif there are others individual corporations would fall in the samecircumstance, the same should similarly apply

It must %e applied to all mem%ers of the same class. K S% i+ $ 'e#i*e&tcitiGe& i# #ubBecte* t% -324 t$. %& i&c%e !it"i& %' !it"%ute(e& $ R) !"% i# cu''e&tl %& $ t%u' !%ul* "$(e t% be #ubBecte*

!it" t"e #$e t$. '$te7

O'%c Su5$' )%p$& ( T'e$#u'e' %+ O'%cThe ordinance was so specific and cannot %e applied to future conditions, sounconstitutional.

N%&-ip$i'e&t %+ t"e %bli5$ti%&# %+ c%&t'$ct#"e& *% %u u#u$ll i&(%e #uc" p'%(i#i%&9 So the nonimpairment clause is usually invo0ed in issues of the !rantin! and thewithdrawal of exemption.

"$t $'e t"e 'eui'ee&t# +%' t"e t$.p$e' t% ($li*l i&(%e it91 There must a p'e-e.i#ti&5 c%&t'$ct7* ;et6s tal0 a%out the parties first, who are the parties of the contract# It

must %e bet!ee& t$.p$e' $&* 5%(e'&e&t7




) The su%se=uent law somehow alters or removes the exemption !ranted tothe tax payer. ?hen can there %e valid withdrawal of the tax exemption#

I# t"e 5'$&t %+ e.epti%& 'e(%c$ble %' i''e(%c$ble9 It is !enerally revoca%le. ut it bec%e# i''e(%c$ble !"e& t"e c%&t'$ct "$##%e #%'t %+ c%&#i*e'$ti%& i& +$(%u' %+ t"e 5%(e'&e&t .

T"e 5'$&t %+ e.epti%& t% &%&-p'%+it ceete'ie# i# b (i'tue %+ $ l$! t"eT$. )%*e7 )$& )%&5'e## !it"*'$! #uc" e.epti%&9 In that case class, )%&5'e## c$& !it"*'$! t"e e.epti%& bec$u#e t"e

e.epti%& 5'$&te* i& t"e +i'#t pl$ce !$# $ 5e&e'$l c%&ce##i%& t% $ll t"%#e&%&-p'%+it ceete'ie#7 There is no specific contract %etween this particular (8Cnonprofit cemetery and the !overnment, and there is also no consideration. oucannot also say that the contract is supported %y a consideration therefore it cannot%e withdrawn. ?hat is re=uired is S@STANTIA= )ONSIDERATION not simplysocial %enefit !enerated from the !rant of exemption. ot -ust minimalconsideration.

The reasons why o%li!ations in contract entered into %y the !overnment cannot %eimpaired when it is supported %y su%stantial consideration are4

1 T"e ?%(e'&e&t c$&&%t $'bit'$'il *% #% $t it# %!& !ill72 T"e ?%(e'&e&t *e#ce&t# i&t% t"e c$p$cit %+ t"e p'i($te pe'#%&7

"$t p%!e' %+ t"e St$te c$& ip$i' %bli5$ti%&#9 The police power G for the !eneral welfare.

"$t<# t"e &e.t liit$ti%&9N%-i&+'i&5ee&t %+ 'eli5i%u# +'ee*%

"$t *%e# it #$9 The tax law should not impair the exercise of one6s reli!ious %eliefs.

Ae'ic$& ible S%ciet (7 )it %+ M$&il$)$& t"e )ebu )it ?%(e'&e&t c%llect u&icip$l lice&#e +ee +'% )$t"%licT'$*e )e&te' +%' #elli&5 bible#9 es, what the Constitution see0s to prohi%it is the ip%#iti%& %+ t$.e# t"$t !%ul*liit 'eli5i%u# +'ee*%7 S% ip%#i&5 lice&#e +ee# $5$i&#t $ 'eli5i%& t"$t!%ul* !$&t t% "%l* $& $cti(it etc7 t"$t !%ul* be p'%"ibite*7 In the case of (merican 8i%le, it was actually the distri%ution of %i%les for a minimal profit durin!an activity, NOT i& $ #t%'e &%t i& $ e#t$bli#"e&t7 So the fact that the!overnment was tryin! to collect a license fee %efore a distri%ution for a minimumprofit, that would already limit the reli!ious freedom of this !roup. ut %u "$(e t%t$e i&t% c%&#i*e'$ti%& t"$t t"e )%&#tituti%& %&l #ee# t% p'%tect t"e'eli5i%u# A)TIITY %ut not the commercial underta0in! of the reli!ious sectors.So meanin! the Catholic Trade Center %elow, since it is already considered ascommercial entity, any sale would %e su%-ected to income tax, municipal license fee,5(T.

N% $pp'%p'i$ti%& +%' 'eli5i%u# pu'p%#e#Separation %etween the church and the State. The State should not support anyparticular reli!ion. 8ut there are four exceptions to the !eneral rule. TheDovernment may appropriate pu%lic funds to pay priests and ministers that are

assi!ned in particular places.

"$t $'e t"e#e pl$ce#91 The Dovernment orphana!es* ;eprosarium) (rmed 3orces >enal Institutions

ot in any way in support of a particular reli!ion, %ut as compensation for theirservices.

N% ip$i'e&t %+ t"e +'ee*% %+ t"e p'e##A'e t"e p'e## pe%ple e.ept +'% t$.$ti%&9 A'e t"e9 N% $&#!e'F

"$t i# &%t #upp%#e* t% be #ubBecte* t% t$.$ti%&9 I# it t"e $cti(it %' t"epe%ple9So the press people should not %e su%-ected to license fees or re=uirement of priorpayment of taxes, fees. <therwise, that would %e limitin! their freedom. ut it*%e# &%t e$& t"$t publi#"i&5 c%p$&ie# e$'&i&5 i&c%e i& *i#t'ibuti%& %+ &e!#p$pe'# $5$Gi&e# etc $'e e.ept +'% t$.7 T"e $'e &%t A"S!e'te"$ 5u* &i&% T"e $'e b$#ic$ll Bu#t lie $& i&*i(i*u$l t$.p$e't"e $'e #ubBect t% t$.7

8ut under the Tax Code, Section 119, one of the exemptions !ranted arenewspapers of !eneral circulation that are issued in re!ular interval so lon! as theynot principally devoted for profit. There are various exemption you can find in thelaw.

P%!e' %+ t"e P'e#i*e&t t% (et% $& p$'ticul$' ite/# i& $ 'e(e&ue %' t$'i++ bill

ow let6s !o to the distinction of the powers of the State.

A Taxation distin!uished from police power and eminent domainT$.$ti%& Ei&e&t D%$i& P%lice P%!e'

A# t% pu'p%#e The property

"!enerally

money$ is ta0en

for the support

of the

!overnment.

The property is

Lta0enM for pu%lic

use it must %e

compensated

The use of the

property is

Lre!ulatedM for

the purpose of

promotin! the

!eneral welfareit is not

compensa%le.

A# t%

c%pe&#$ti%&

It is assumed

that the

individual

receives the

e=uivalent of the

tax in the form

of protection and

%enefits he

receives from

the !overnment.

Be receives the

mar0et value of the

property ta0en from

him.

The person

affected receives

indirect %enefits

as may arise

from the

maintenance of a

healthy economic

standard of

society.

A# t% pe'#%&# <perates upon <perates on an <perates upon




$++ecte* "1$ (

community or

"*$ Class of

individuals.

individual as the

owner of a particular

property.

"1$ (

community or

"*$Class of

individuals.

A# t% t"e

$ut"%'it

!"ic"

e.e'ci#e# t"e

p%!e'

/ay %e exercised

only %y the

!overnment or

its political

su%divisions.

/ay %e4

"1$ 2xercised %y the

!overnment or its

political su%divisions

"*$ Dranted to pu%lic

service companies orpu%lic utilities.

/ay %e exercised

only %y the

!overnment or

its political

su%divisions.

A# t% t"e

$%u&t %+

ip%#iti%&

Denerally, there

is no limit on the

amount of tax

that may %e

imposed.

o amount imposed

%ut rather the owner

is paid the mar0et

value of property

ta0en.

(mount imposed

should not %e

more than

sufficient to

cover the cost of

the license and

necessary

expenses.

A# t% t"e

'el$ti%&#"ip t%

t"e

)%&#tituti%&#

Is su%-ect to

certain

constitutional

limitations.

Inferior to the

impairment

prohi%ition

!overnment cannot

expropriate private

property, which

under a contract it

had previously

%ound itself to

purchase from the

other contractin!

party.

'elatively free

from

constitutional

limitations.

E++ect Includin! the

prohi%ition

a!ainst

impairment ofthe o%li!ation of

contracts.

There is a transfer of

the ri!ht to property.

Is superior to the

impairment of

contract

provision.

Re+e''i&5 t% t"e )$t"%lic T'$*e i& @S)F)$& t"e )it ?%(e'&e&t $# t"e t% p$ Mu&icip$l =ice&#e >ee +%' #elli&5ible#9es. In the case of Catholic Trade, their purpose is for profit and not for reli!iouspurposes.

?hat the Constitution see0s to prohi%it is the ip%#iti%& %+ t$.e# t"$t !%ul*liit 'eli5i%u# +'ee*%7 The imposition of license fees a!ainst a reli!ion whowants t% "%l* $& $cti(it etc., the said prohi%ition will apply. In the case of (merican 8i%le, it was a forei!n, nonstoc0, nonprofit missionary. It was actually

the distri%ution of %i%les and other reli!ious articles for a minimal profit durin! anactivity, neither sold in a store nor in an esta%lishment. T"e +$ct t"$t t"e

5%(e'&e&t !$# t'i&5 t% c%llect $ lice&#e +ee be+%'e t"e #$i* *i#t'ibuti%&#uc" !ill $l'e$* be $ liit t% t"e 'eli5i%u# +'ee*% %+ t"i# 5'%up7 8UT youhave to ta0e into consideration that the Constitution only #ee# t% p'%tect t"e'eli5i%u# $cti(it but &%t t"e c%e'ci$l u&*e't$i&5 %+ t"e#e 'eli5i%u##ect#7 So meanin!, the Catholic Trade and St. >aul6s located in (yala, since they arealready considered as commercial entity, any sale is su%-ect to income tax, 5(T,municipal license fee etc.

N% $pp'%p'i$ti%& %+ public +u&* +%' 'eli5i%u# pu'p%#e#7 "$t *%e# it e$&9It means that the Con!ress shall not and cannot pass a law that would in any way

support a reli!ious !roup. It would seem to other reli!ions that the State is favorin!a reli!ion. (nd also there is a separation %etween the Church and the State.

The separation %etween the Church and the State. The state shall not support anyparticular reli!ion.

T"e c%i&5 %+ t"e P%pe i& t"e c%u&t'9 Public +u&*# !e'e #pe&t but P%pe !$# $cti&5 $# $ "e$* %+ $ St$te7 The pu%licfunds are for the support of the State.

8ut there are +%u' e.cepti%&# to the said rule.The State may appropriate pu%lic funds to pay priests, lay ministers etc. "dependin!on the reli!ion of the one who needs their services$ that are assi!ned in particularplaces4 orphana!es, leprosarium, in the armed forces and penal institutions wheresuch appropriation is for the priests or lay ministers6 compensation for the servicesthey have rendered "does not in any way refer to any support for any reli!ion$.

A'e t"e p'e## pe%ple e.ept +'% t$.$ti%&9 "$t i# t"i# +'ee*% %+ t"ep'e##9 D%e# it 'e+e' t% +'ee*% +'% t$.e#9 "$t i# &%t #ubBect t%t$.$ti%&9 I# it t"e $cti(it %' t"e pe%ple9 It is the activity. So the press people, if they !ather for an activity, they should not%e su%-ected to ant license fee and any re=uirement of prior payment of taxes orfees, otherwise, it will limit their freedom. >u%lishin! companies who are earnin! forthe distri%ution of these documents&papers&materials are not exempt from tax -ustli0e in ordinary companies. Under the tax code, one of the exemptions !ranted areon newspapers of !eneral circulation that are issued in re!ular intervals so lon! as itis not principally devoted to profit. There are various exemptions as found in yourtax code.

=et<# 5% t% t"e *i++e'e&t p%!e'# %+ t"e 5%(e'&e&t7 P%lice P%!e' Ei&e&tD%$i& $&* P%!e' %+ T$.$ti%&"ot transcription 0ay funny 0aayo ni na part. >asted the ta%le from /(/(;(T2<"'25I2?2'$$

T$.$ti%& Ei&e&tD%$i&

P%lice P%!e'

(uthority toexercisethe power

Dovernment or itspolitical su%divisions

1. Dovernment or itspoliticalsu%divisions

*. Dranted topu%licservicecompanies

or pu%licutilities

Dovernment or itspoliticalsu%divisions




>urpose 3or the support of the!overnment

Ta0in! forpu%lic use -ustcompensationis needed

'e!ulation, for thepromotion of!eneral welfarenot compensa%le

>ersonsaffected

<perates upon a41$ Community or*$ Class of

individuals

<n individualsas owners ofthe property

<perates upon a41$ Communit

y orClass of individuals

2ffect /oney contri%uted

%ecomes part of thepu%lic funds

Transfer of the

ri!ht toproperty

o transfer of title

only restraint onthe in-urious use of the property

8enefitsreceived

(ssumed thatindividuals receives thee=uivalent of the tax inthe form of protectionand %enefits receivedfrom the !overnment

'eceives themar0et valueof the propertyta0en fromhim

>erson affectedreceives indirect%enefits as mayarise from themaintenance of ahealthy economicstandard of society

(mount ofimposition

o limit on the amountof tax that may %eimposed

o amountimposed %utrather theowner is paid

the mar0etvalue of theproperty ta0en

(mount imposedshould not %e morethan sufficient tocover the cost of

the license andnecessary expenses

'elationship toConstitution

Su%-ect toconstitutionallimitations prohi%itiona!ainst the impairmentof the o%li!ation ofcontracts

Inferior to theimpairmentprohi%ition!overnmentcannotexpropriateprivateproperty whichunder acontract it hadpreviously%ound itself topurchase fromthe othercontractin!party

'elatively free fromconstitutionallimitationssuperior to theimpairment ofcontract provision

O& t$.e# c$& %u c%&#i*e' %u' t$.e# $# pe'#%&$l li$bilitie# %& %u' p$'t9es. Say for example, you or!ani@ed a corporation with your classmates. The saidcorporation did not pay the taxes.

)$& t"e t$.e# u&p$i* b t"e c%'p%'$ti%& bec%e %u' %!& pe'#%&$lli$bilit9 o. The corporation has a separate and distinct entity from the %oard of directors orstoc0 holders. It means that if the corporation cannot pay, the !overnment should

!o after the corporation first. If after the corporation cannot pay the taxes, that6sthe time the stoc0holders will %e lia%le for taxes.

S% *%e# it e$& t"$t t"e'e i# $ c"$&ce +%' t"e #t%c"%l*e'# t% be pe'#%&$llli$ble +%' t"e t$. &%t p$i* b t"e c%'p%'$ti%&9 es.

I& &%'$l c$#e#9 The stoc0holder is only lia%le up to the extent of his contri%ution. >ersonality of thestoc0holders and the corporation itself are separate and distinct. (s a !eneral rule,the stoc0holder will not %e held lia%le for the lia%ilities incurred %y the corporation.There are three types of %usinesses, a corporation, partnership and sole

proprietorship. I& $ c%'p%'$ti%& t"e li$bilitie# %+ t"e c%'p%'$ti%& !ill &%t bet"e li$bilit %+ t"e #t%c"%l*e'#7

EX)EPTION: O&l i+ it i# +%u&* %ut t"$t t"e $##et# %+ $ *i##%l(e* c%'p%'$ti%&"$(e bee& *i#t'ibute* t% t"e #t%c"%l*e'# !it"%ut t"e p$e&t %+ t$.e#7

"9T$. i# $ p'e+e''e* c'e*it7

:ifferent types of taxes. :erived from the national laws, the tax code, special laws,local and national taxes etc.

;%! *% %u *e+i&e t$.e#9Taxes are enforced contri%utions levied upon the person, property or the activitieswherein the person is en!a!ed into, %y the state which has the -urisdiction over theperson, property or activities or services done and is actually exercised %y the lawma0in! authority in order to meet the needs and demands of the constituents of the!overnment, %asically to raise revenues.

Taxes are enforced proportional contri%utions levied %y the state throu!h thele!islative %ranch %y virtue of its soverei!nty a!ainst persons, su%-ects or o%-ects orservices, in order to meet the demands of the !overnment and other pu%lic means.If you %rea0 it down, that constitutes the characteristics of taxes.

1$ It is an enforced contri%ution. ?e can never say it is voluntary. If it wasvoluntary then no one will pay their taxes

*$ It is proportional. ?hy# It6s %ased on the person6s a%ility to pay. It isdistri%uted to those who are %etter or a%le to pay

)$ Denerally paya%le in money. /oney as the standard of measure to %e used"since it is constant$. ou cannot offer your property for the payment of

your taxes EX)EPT i+ t"e 5%(e'&e&t "$# 'e$c"e* t"e li&e# $&* "$#t% 'e#%'t i& le(i&5 #uc" p'%pe't7 (nother would %e, in the past,certificate of %an0s were allowed as payment %ut nowadays it6s not feasi%leanymore, what we have ri!ht now are tax certificates for tax credits. oucan use such for the payment. ?here do you !et them# These are issuedto you in lieu of tax refunds for erroneously overpaid taxes. The!overnment will not reim%urse you it will only !ive a certificate indicatin!that this is the amount that you overpaid.

$ Imposed a!ainst persons, su%-ects or o%-ect under the -urisdiction of thestate

$ ;evied %y the state throu!h the le!islative %ranchA$ 3or pu%lic purpose

"$t $'e t"e 'eui#ite# t% $e t"e t$. l$! ($li*9

1$ It must %e for a pu%lic purpose*$ Uniform in taxation




)$ ?ithin the power&-urisdiction of the taxin! authority$ The assessment must %e in consonance with the due process clause$ Tax shall not infrin!e inherent and constitutional limitations

)l$##i+ic$ti%& %+ t$.e#1$ (s to su%-ect matter or o%-ect*$ (s to %urden of incidence)$ (s to the determination of the amount$ (s to purpose$ (s to the scope or authority imposin! the tax

A$ (s to !raduation or rate

DATE: 0/1/12

"$t i# t"e b$#i# %+ t$.$ti%& - &$ti%&$lit 'e#i*e&ce %' #%u'ce %+ i&c%e9I& $ll c$pit$ti%& %' p%ll t$.9Student4 'esidency

"$t i# p'%pe't t$.9 "$t i&* %+ p'%pe't9 "$t i# t"e b$#i# %+ t$.i&5t"e p'%pe't9 Ot"e' t"$& '$i#i&5 'e(e&ue9 M p%i&t i#: I# it bec$u#e it i#5e&e'$ti&5 i&c%e %' u#e* i& #%e +%' %+ p'i(ile5e9student4 Used in some form of privile!e.

Suc" $# !"$t9/ere ownership of a real property would su%-ect the owner to real property tax. <f course, we refer to the property itself.

Speci+ic e.$ple9 I& %u' c$#e %' #%eb%* el#e<# t"$t %u &%!9Student4 Some%ody else owns a lot.

"$t tpe %+ l%t9Student4 3or residence purposes maKam. 'esidential lot and then %ased on thevalue of the lot, a certain percenta!e will %e imposed as a tax.

A&* %u c$ll t"$t t$. $#9Student4 >roperty tax

P'%pe't t$.9

ItKs called real property tax. 8efore it was called real estate tax. 8ut in order toavoid confusion with estate tax on the privile!e of transmittin! property upondeath we now call it property tax on mere ownership of real property "#$. There isno, as of this date, there is no personal property tax. <nly real property tax. 'ealproperties are su%-ected to real property tax.

(ll of your taxes %ased on a real property, the personal property aside from mereownership is not the real property tax %ut rather some other form of tax either%ecause it is used in %usiness, %ecause of its value as computed in community of poll tax.

A&* t"e 3'* cl$## $cc%'*i&5 t% #ubBect $tte' i#9Student4 2xcise tax is that which that not fall with the meanin! of property taxand poll tax and the %asis of which is the residency or the personKs property %ut not

those which impose %ased on the tax of such individualKs properties

I# t"i# t"e #$e $# t"%#e ip%#e* %& $lc%"%l# ci5$'ette# $ut%%bile# Be!el'ie#9

Classification of taxes as accordin! to su%-ect matter may %e divided into )cate!ories. It $ be pe'#%&$l t$.7 It $ be p'%pe't t$. %' it $ be t"ec$tc"-$ll p'%(i#i%& %+ e.ci#e t$.7

>ersonal tax, as an example, is directed upon a person %y his residency in thecountry. That person may %e a citi@en, not a citi@en so lon! as he is considered aresident, and for aliens so lon! as he has stayed in the country for more than )

months. ThatKs the personal, poll, capitation tax or you call this cedula orresidence. (liens who have stayed in the >hilippines for more than ) months maystill %e exempt if they do not fall with the cate!ory of am%assadors, and therepresentatives of forei!n em%assy.

The second type of tax under su%-ect matter is the property tax. ?e only have oneproperty tax directed a!ainst property itself. ThatKs called a real property tax. (llother taxes directed a!ainst or may%e in some way related to property such as thetransmission of real properties or personal properties of a dead person to his heirs isnot a property tax %ecause the tax there is *i'ecte* $5$i&#t t"e p'i(ile5e %+ t'$&#itti&5 t"e p'%pe't7 (nother example with a personal property or a realproperty transmitted %y the livin! to another person thru donation. That is notproperty tax. (lthou!h it is computed %ased on what was valued&transmitted, %utthe tax itself is directed a!ainst the privile!e of ma0in! a donation.

A&* t"e c$tc"-$ll p'%(i#i%& !"ic" t"e E.ci#e T$. i# &%t e.$ctl t"e #$e $#e.ci#e t$. +%u&* u&*e' t"e T$. )%*e !"ic" 'e+e'# t% e.ci#e t$. %&ci5$'ette# $lc%"%l# $ut%%bile# $&* Be!el'ie#7 ?hat you find in the Tax Codeis a specific name of a 0ind of tax which is an excise tax. ?hat the excise tax that isc$te5%'iGe* "e'e $# eit"e' pe'#%&$l p'%pe't %' e.ci#e t$. i# $ 5e&e'$lcl$##i+ic$ti%& %+ $ll %t"e' t$.e# &%t pe'#%&$l but p'%pe't7

It $ i&clu*e $ll %t"e' t$.e# &%t 'e$l p'%pe't t$. &%t %u' 'e#i*e&ce t$.!"ic" i# i&c%e t$. $&* e.ci#e t$.7 "92xcise tax is imposed on the performance of an act, the en-oyment of a privile!e,the conduct of the %usiness, or the performance of a&exercise of a profession. So itmay %e income tax. It may %e donorKs tax. It may %e 5alue (dded Tax. It may %eall the others.

A# t% bu'*e& %' i&ci*e&ce:1. :irect*. Indirect

So the difference in the :irect and Indirect taxes is shiftin! of the %urden of the tax.In direct taxes, direct, it is when the Statutory Taxpayer is directly %urdened withthe tax. ?hen you say a Statutory Taxpayer, heKs the taxpayer identified %y the lawto pay the tax to the !overnment.?hile indirect taxes are some 0ind of taxes wherein the !overnment has theexpectation that such statutory taxpayer upon %(i&5 t"e t$. ip%#e* c$& #"i+tt"e bu'*e& t% #%e%&e el#e eit"e' t% $&%t"e' pe'#%& i& t"e p'%ce## %+ *i#t'ibuti%& %' *i'ectl t% t"e ulti$te c%&#ue'#7 2xample you said is the5alue (dded Tax %ecause under the law, it is the seller who is the statutory taxpayer%ut the seller can pass upon the value to a %uyer.

"$t $'e t"e %t"e' i&*# %+ i&*i'ect t$.e#9




2xcise taxes on fuels may %e passed on %y the seller of fuels to the international aircarrier consumers. >ercenta!e taxes practically sales in consumption taxes that areindirect taxes. (nd customs duties may %e passed as well.

A# t% t"e $%u&t %+ t$. t"e *ete'i&$ti%& %+ t"e $%u&t %+ t"e t$. "%!$'e t$.e# cl$##i+ie*9Student4 Specific tax imposed %y the head or num%er, or %y some standard of wei!ht or measurement. ex. 2xcise tax on to%accos, li=uors.

That may not hold true now with the law on multitiered law on alcohol and to%acco

products which impose tax on the value of the products. Specific tax an examplewould %e common carrier tax, fixed tax on passen!er -eepneys with a capacity of this much, is su%-ect to a fixed tax on this amount while passen!er -eepney or %uswith this num%er of capacity, this amount of tax.

T"e A* ($l%'e t$.9I&clu*i&5 'e$l p'%pe't t$.7 I# t"i# t"e ($lue $##e##e* %& 'e$l p'%pe't9

Speci+ic t$. i# t"e +i.e* $%u&t7 ItC# &%t $ '$te7 ( fixed amount of tax %asedon a num%er or head or specific wei!ht of measurement or any standard of value.

?hile on the other hand, an ad valorem tax is t"e +i.e* p'%p%'ti%& %' '$te %&t"e $##e##e* %& t"e ($lue %+ t"e p'%pe't it#el+ %' !"$te(e' t"e e.$ple"e "$# 5i(e& %& t"e ip%#iti%& %+ p'%pe't t"$t !$# $*e7

/ixed is %oth the imposition of specific and ad valorem.

(s to the next classification the purpose, you already 0now that there is a primarypurpose for taxation. There are secondary purposes. The !eneral, fiscal or revenuetype is that it is a primary purpose that taxation imposed in order to raise revenues.?hat special, re!ulatory or sumptuary purpose is the secondary purpose whereintaxation is used to re!ulate an activity, a %usiness, or promote !eneral welfare, etc.

(s to the scope or authority imposin! the tax self explanatory. ( tax may %eimposed %y the national !overnment. ?hat 0inds of taxes# Those found under theational Internal 'evenue Code, those found under the Tariff and Customs Code.<n the other hand, since the municipal or local !overnment has already %een !iventhe power to raise its own sources of revenues, they can impose&these local!overnment units can impose the tax thru tax ordinance. (nd all of these taxes are

found under the ;ocal Dovernment Code.

Ne.t )l$##i+ic$ti%&9Student4 The next classification is the !raduation or rate. 3irst, we have thepro!ressive in which the rate pro!resses as the income increases.

E.$ple9Student4 ?e have the income tax in which we have %rac0ets for a certain ran!e of income which also has a correspondin! rate.

Student4 Second is the 'e!ressive in which the rate increases as income decreases.It is not allowed in the >hilippines %ecause it is unfair to those who earn less.

So, re!ressive is where the income and tax are inversely proportion.

A&*9

Student4 ?e have proportional maKam. >roportional is neither re!ressive orpro!ressive. It is %ased on, for example you have a fixed rate. 3or example youhave taxes for corporations in which )+F tax rate as to their income. It is %asedalso on the property, su%-ect or o%-ect.

Re$l p'%pe't t$. i# it 'e5'e##i(e p'%5'e##i(e p'%p%'ti%&$l9It i# p'%p%'ti%&$l bec$u#e it i# $ +i.e* '$te %+ t$. b$#e* %& t"e ($lue %+ t"e'e$l p'%pe't t$.7

Di#ti&5ui#" t$.e# +'% lice&#e#7

Student4 (s to source4 >olice power for licenses power of taxation for taxes.

Student4 Second as to purpose4 ;icense for re!ulation taxes for revenue.

Student4 (s to amount4 tax it is unlimited while licenses they are fixed.

>i.e* t% !"$t e.te&t9To cover the cost of re!ulation.

Student4 (s to when paid4 licenses are paid %efore a %usiness can start taxes paid after the %usiness starts its operations.

"$t "$ppe&# !"e& t"e'e i# &% p$e&t9 "$t "$ppe&# i& c$#e# %+ &%&-p$e&t %+ lice&#e +ee# $&* &%&-p$e&t %+ t$.e#9onpayment of license fees will may a %usiness operation ille!al. ?hy# 8ecause itis supposed to %e paid on or %efore January *+ of every year prior to operations."ile &%&-p$e&t %+ t$.e#- it !ill &%t &ece##$'il $e $ bu#i&e## ille5$lbut t"e t$.p$e' !ill be #ubBect t% pe&$ltie#7

A'e t%ll +ee# t$.e#9o.

"$t $'e t%ll +ee#9 ;%! *% %u *i#ti&5ui#" t"e +'% t$.e#9

E.$ple9 E(e' tie %u e&te' $ buil*i&5 %u $'e 'eui'e* t% p$ t%ll9

T%ll +ee - A #u %+ %&e +%' t"e u#e %+ #%et"i&5 $ c%&#i*e'$ti%& !"ic"i# p$i* +%' t"e u#e %+ $ p'%pe't !"ic" i# %+ $ public &$tu'eH e757 '%$*b'i*5e

T%ll +ee i# $ *e$&* %+ p'%p'iet%'#"ip !"ile t$.e# $'e *e$&* %+ #%(e'ei5&t7 I&#%+$' $# !"% c$& c%llect t$.e# i# %&l t"e 5%(e'&e&t !"ilet%ll +ee# $be c%llecte* b t"e 5%(e'&e&t %' $ p'i($te i&*i(i*u$l %'p'i($te c%'p%'$ti%&7 T"e pu'p%#e %+ t$.$ti%& i# t% '$i#e 'e(e&ue# !"ile t"epu'p%#e %+ t%ll +ee i# t% c%(e' t"e c%#t %+ #uc" i&+'$#t'uctu'e7 In Ce%u, I amnot sure if we have toll fees for the use of %rid!es or roads. Co@ S'> has no toll fee%ut in /anila, there are plenty. ?e can say that toll fees are not taxes althou!h itspurpose if collected %y the !overnment, apart from the recovery of the cost, is toraise revenues for the !overnment %ecause it is su%-ected to value added tax. T%ll+ee# $'e t$.$ble7

Compromise >enalties are those !ranted %y the !overnment in lieu of a prosecutionfor the violation of the tax law.




So class, whenever a taxpayer fails to comply the provision of the tax code li0eincome tax, failure to pay on time or failure to file the tax return which is also aviolation will lead you to the payment, &%t %&l t% t"e *e+icie&c t"e'e i# but%u "$(e t% p$ 24 #u'c"$'5e7 T"e

1 24 04 i+ +'$u*ule&tF !"ic" i# b$#e* %& t$. %u *i* &%tp$ plu#

* 204 i&te'e#t pe' $&&u plu#) c%p'%i#e pe&$lt7

There are three additions, surchar!e, interest, and compromise penalty.The surchar!e and interest are provided %y the law. Compromise penalty is

somethin! that when they ne!otiate. It is imposed %y the 8ureau of Internal'evenue for you to avoid criminal prosecution. 8ut if you refuse to pay compromisepenalty, say you are only willin! to pay the %asic deficiency tax of surchar!e andinterest %ut not the compromise penalty fixed in amount. The !overnment cannotforced you to pay compromise penalty. (ll it can do is to proceed with the criminalprosecutions. Unli0e surchar!e and interest, it can %e pursued %y the !overnment.

"$t i# #peci$l $##e##e&t9Special (ssessment is a levy on a parcel of land that has %een directly %enefited %ythe pu%lic.

"$t i# 'e$ll t"e pu'p%#e %+ #peci$l $##e##e&t9 ot primarily for revenue purposes %ut in some way is li0e a toll fee for the!overnment to recover a part of the improvement made. ItKs directed to those landowner and directed to the land itself that is %enefited %y the structure made %y the

!overnment. ot directed to the !eneral welfare. It is the owner of the land who willpay. It is special as to time and place %ecause there must %e a special taxordinance. It is made %y the local !overnment and not %y Con!ress. ( specialhearin! has to %e made to !ive property owners to o%-ect. Special assessment willreach A+F value of the land. <nly the few will %e shoulderin! the cost of the pro-ectfor a period time over ten years. It also called a special levy. ( special form of property tax.

"% $ e.ept +'% #peci$l $##e##e&t9 Usually those who are e.ept from property tax.

(nd the second type of exemption !ranted for special levy, if the property that wasused %y the !overnment is a portion of the property donated %y the landowner%enefited %y pu%lic. <f course the property must %e !iven consideration which was

!iven to the donee.

;%! $b%ut $ *ebt9T$. Debt

$#i# 8ased on law8ased on contract or

-ud!ment

E++ect %+ &%&-p$e&t

Taxpayer may %e imprisoned forhis failure to pay the tax "except

poll tax$

o imprisonment forfailure to pay a de%t

M%*e %+ p$e&t

Denerally paya%le in money/ay %e paya%le inmoney, property or

services

A##i5&$bilit ot assi!na%le Can %e assi!ned

I&te'e#t:oes not draw interest unless

delin=uent:raws interest if

stipulated or delayed

Aut"%'it Imposed %y pu%lic authorityCan %e imposed %yprivate individuals

P'e#c'ipti%&>rescriptive periods for tax are

determined under the I'C

Civil code !overns theprescriptive period of

de%ts

So de%ts are %ased on contracts entered into %y !overnment or person while taxesare %ased on a statute. :e%ts %ear interest %ut only if stipulated into writin! asprovided %y the civil code. "ile t$.e# *% &%t $ctu$ll be$' i&te'e#t u&le## t"et$.p$e' bec%e# *eli&ue&t %' i# +%u&* t% p$ *e+icie&t it c$&&%t be#ubBect t% #tipul$ti%& i&#%+$' $# t$.$ti%& i# c%&ce'&e*7 :e%t are !enerallypaya%le in money althou!h it can still %e paid in 0ind li0e a property or dacion enpa!o while taxes are paya%le only in money unless it is in a formal tax creditcertificates.

The constitution provides that there can %e no imprisonment for nonpayment of de%ts and poll taxes. Its nonpayment will not result in imprisonment unless it iscorrelated with estafa. ?hile for taxes, there can %e imprisonment for violation of the tax code. ( poll tax is an exception. ( nonpayment of poll tax will not result inimprisonment. ThatKs why lawyers are not !ood de%tors. :o you 0now lawyers arenot usually !ranted credit cards# ;awyer 0a maKam# Dood%ye 8ecause lawyers0now there can %e no imprisonment for nonpayment of de%ts.

Debt# $'e $##i5&$ble $&* t"e c$& be #ubBect %+ c%pe&#$ti%& $&* %++#et7D%e# t"$t 'ule $ppl t% t$.e#9 I& t"e c$#e %+ >'$&ci$777The land was appropriate and expected -ust compensation. Be was a tax delin=uent.Be invo0ed that he tax delin=uency was extin!uished %ecause he expected -ustcompensation from his appropriated land. Be tried to offset the two amounts. TheSupreme Court said that in taxes, there is no de%torcreditor relationship. It cannot%e su%-ect to setoff

So !enerally, taxes are not su%-ect to compensation or setoff %etween the taxpayerand the !overnment %ecause the relationship is not that of a creditorde%tor. Taxesare a demand of soverei!nty of the repu%lic which has to %e paid withoutunnecessary interruption. So even if the taxpayer has existin! claims for refundfrom the !overnment which also happened in the case of >hilex /inin!, it cannot

have the defense that they can offset %y claimin! refunds.

Denerally, readin! in to the different cases it did allow setoff. (n exception is thecase of :omin!o

?here %oth of the claims of the !overnment and the taxpayer a!ainst each otherhave already %ecome due, demanda%le, $&* +ull liui*$te* compensation ta0esplace %y operation of law and %oth o%li!ations are extin!uished to their concurrentamounts. In the case of the taxpayer6s claim a!ainst the !overnment, the!overnment must have appropriated the amount thereto. ":omin!o vs. Darlitos,D.'. o. ;19, June *9, 19A)$

The taxpayer here died. There are two thin!s certain in life, death and taxes. <nthis case, an estate tax was due on the property left. :urin! his lifetime, he was a

!overnment employee and had unpaid compensation for services rendered. Then atthe point where the estate tax was already due, the unpaid services was already




is!erman 555

9fr'!olesaler :9

;oom 44

;esto#ar

< =0 < =0 < =0 < =0

1<12>11215<18>168

15<18>16831

appropriated %y !overnment for payment. It was already ready for release. It stilllife%lood doctrine which dominated. T"e 5%(e'&e&t !$# &%t !illi&5 t% !$it +%'t"e e#t$te t$. p$e&t7 "$te(e' !$# *ete'i&e* +%' t"e u&p$i* #e'(ice#%+ t$.p$e' !$# $l'e$* *ete'i&e* +%' %++#etti&5 $&* c%pe&#$ti%&7 Stillt"e 5%(e'&e&t !$# $t t"e $*($&t$5e %+ t"i# p%i&t7 I&#te$* %+ pu'#ui&5 t"e*e+icie&c t$.e# t"e'e !$# $l'e$* $%u&t $pp'%p'i$te* t"e 'eui'ee&t#!e'e $l'e$* p'e#e&t +%' #et-%++7 T"e $%u&t !$# *ue *e$&*$ble $&*liui*$te*. o point of payin! the heirs this amount of salary and wait for the heirsto pay the tax. There will %e a chance that no payment of tax will %e made.

Sub#i*9 ( pecuniary aid directly !ranted %y the !overnment to an individual or privatecommercial enterprise deemed %eneficial to the pu%lic not a tax althou!h a tax

Student4 ..!iven to a certain individual or private enterprises.

A# +$' $# 5%(<t i# c%&ce'&e* !e $'e i&te'e#te* i& +%'ei5& #ub#i*ie# %'5'$&t#777it<# &%t 'e$ll $ *%&$ti%& but $ 5'$&t %+ $i* bec$u#e $ *%&$ti%& i#5i(e& b $ p'i($te e&tit !"ile $ 5'$&t i# 5i(e& b t"e 5%(t7 $&* 'e(e&ue9Student4 Re(e&ue i# e&c%p$##i&5 bec$u#e it i&clu*e# #ub#i* t$.e# $&*t$'i++#7

A&* i&te'&$l 'e(e&ue $'e t"%#e +%u&* i& t"e I&te'&$l Re(e&ue )%*e %' t"eNIR) t$. c%*e9 )u#t%# *utie# $&* t$'i++#9Student4 It falls on those exported or imported into a country, while taxes are

%roader.

)u#t%# *utie# $&* t$'i++# $'e ip%#e* %& t"%#e ip%'te* $&* e.p%'te*%ut#i*e %u' c%u&t'7 $&* t"e 'e#t t"%#e $'e ite# #upp%#e* t% be !it"i& t"ec%u&t' l$&57 t$'i++# $'e #&%&%u# !it" cu#t%# $&* *utie# but t$'i++#c$& $l#% be c%&#i*e'e* $# 7

;et6s proceed to +%'# %+ e#c$pe +'% t$.$ti%&. There are six forms of escapefrom taxation4 shiftin!, capitali@ation, transformation, avoidance, exemption,evasion and only one is ille!al its tax evasion.

"$t i# #"i+ti&59Student4 Shiftin! is the transferrin! of the %urden of taxation from one person to

another, li0e when there are taxes on a sale it is usually the seller who is lia%le topay tax however the seller passes on the incidents of taxation to the consumer.

Shiftin! involves the transfer of the %urden of taxation from the statutory taxpayerto the consumer. it may %e a process of shiftin! or -ust one shift.

It i&(%l(e# 3 +$ct%'# !"ic" $'e9Student4 ip$ct #"i+ti&5 $&* i&ci*e&t# %+ t$.$ti%&7

The impact of taxation falls on the statutory taxpayer, !oin! throu!h anintermediate process of shiftin!, can transfer the %urden to the ultimate user whereit is already the incident of taxation it is when the %urden finally rests. There are )forms of shiftin! which are 1. forward shiftin!, *.%ac0ward and ). onward shiftin!.

Student4 >%'!$'* #"i+ti&5 i# t"e t'$&#+e' %+ bu'*e& t% t"e e&* u#e' +'% t"ep'%*uce' t% t"e *i#t'ibut%' $&* t"e c%&#ue' +i&$ll7

"e'e t"e bu'*e& %+ t$.$ti%& i# t'$&#+e''e* +'% t"e +$ct%'# %+ p'%*ucti%&t% t"e +$ct%' %+ *i#t'ibuti%& u&til it 'e#t# %& t"e +i&$l c%&#ue' %'pu'c"$#e'7 E.$ple9Student4 value added tax

$c!$'* #"i+ti&59Student4 3rom the consumer to the distri%utor then to the producer.

?here the %urden of taxation is transferred from the purchaser to the factors of

distri%ution until it falls unto the factors of production. it simply is the opposite of forward shiftin!.

E.$ple c$pit$liG$ti%&7 $&* %&!$'* #"i+ti&5 i#9Student4 %'e t"$& %&e #"i+ti&5 %+ t"e bu'*e&7

?hen the %urden of taxation is shifted * or more times throu!hout, it can %eforward or %ac0ward. 2xample4 value added tax. Ima!ine the fisherman what doeshe use to catch fish# The net, fishin! %oat, then he will %e sellin! his fish to inthe small fishin! port it will %e the manufactured. (t this point there is no 5(T%ecause there are certain aspects of sellin! of %asic consumptions that not su%-ectto vat in order for the tax to address the re!ressive issues, and marine food productin its ori!inal state is not vata%le. %ut when the sell that to the wholesaler it will%e su%-ect to vat, why# %ecause the fish is no lon!er in its ori!inal state, its alreadychopped, flavored. The wholesaler will pass on the vat if it sells to S/, if S/ sells it

in a resto%ar and when it is served to a person there is 5(T. If it was sold to thewholesaler for 1++pesos plus 1*"5(T$ it is already 11* in the hands of thewholesaler. If he sells it for 1+ plus 1"5(T$ puhunan is 1A. S/ sells it for *++plus *"5(T$ puhunan of the resto%ar is **, we sell it for )++ and it is this personwho will actually shoulder the taxes passed on which totals pesos. It is theprocess of forward shiftin!.

"$t *% %u u&*e'#t$&* %+ c$pit$liG$ti%&9Student4 Capitali@ation is when the consumer would reduce his price to the seller%ecause he 0nows that in the lon! run he would have to pay the difference of pricein taxes.

Capitali@ation is the 'e*ucti%& i& t"e p'ice %+ t"e t$. %bBect eui($le&t t% t"ec$pit$liGe* ($lue %+ t"e +utu'e t$.e# t"$t t"e pu'c"$#e' e.pect# t% be c$lle*up%& t% p$7 so in plain words the purchaser would actually re=uest the seller tolower the prices and it6s the pu'c"$#e' !"% i# $(%i*i&5 t"e t$. bec$u#e "e i#e.pecti&5 t"$t !"e& "e $l'e$* %!&# t"e p'%pe't "e !ill be $*e t% p$t$.e# 'el$ti&5 t% t"e pu'c"$#e7 t"$t<# !" it i# c$lle* b$c!$'* #"i+ti&5 i& $#e&#e it i# t"e pu'c"$#e' !"% $ctu$ll e#c$pe# t"e t$.$ti%&7 in the example inthe %oo0 if a real estate that is sold and the %uyer is expectin! to pay taxes and he




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wants to avoid payin! a hi!her value to the property and still %e re=uired to payfuture taxes, he may actually compute i& "i# i&* t"$t i& 10 e$'# t"e#e $'et"e t$.e# I< 5%i&5 t% p$ $&* I !$&t t"e #elle' t% #"%ul*e' t"e t$.77#% "e!$&t# t% #elli&5 p'ice t% be l%!e'e* b t"$t $%u&t7

)$pit$liG$ti%& i# $& e.$ple %+ b$c!$'* #"i+ti&57

A&* t'$&#+%'$ti%&9Student4 3or example he is sellin! a product and he thin0s that if he would add the5(T he would lose mar0et, "e !%ul* &%t i&clu*e t"e t$. $&* c%pe&#$te b

p'%*uci&5 %'e $t $ l%!e' c%#t7

?hen the manufacturer or seller who is actually imposed of the tax would fear theloss of mar0et, if he would add on the tax to the sellin! price, would insteadshoulder the %urden of the tax %y not passin! it on to his %uyers and insteadcompensate himself %y improvin! his process of production %y turnin! up moreunits at a lower cost.

A&* t$. $(%i*$&ce9Student4 It is when the taxpayer would use a certain scheme of avoidin! tax usin!lawful means.

"$t<# $&%t"e' &$e +%' t$. $(%i*$&ce9 t$. i&iiG$ti%&7 i& c%&t'$#t !"$ti# t$. e($#i%&9Student4 Tax evasion is when a taxpayer purposely, deli%erately would try to avoid

payin! taxes or lessen his taxes %y not declarin! proper income for taxation. it isfraudulent.

"$t<# $&%t"e' &$e +%' t$. e($#i%&9

T$. $(%i*$&ce i# t"e u#e %+ le5$l $&* pe'i##ible e$&# %' $lte'&$ti(eet"%*# %+ $##e##i&5 %u' t$. li$bilit it i# &%t b'e$i&5 t"e l$! it i# u#i&5t"e lette' %+ t"e l$! t% $(%i* t"e t$.7 "ile t$. e($#i%& i# +'$u*ule&tl$(%i*i&5 t% p$ %u' t$.e# t"e'e i# i&te&t t% *ep'i(e t"e 5%(t7 %+ t"e t$.e#7

8ut loo0in! at it, it would have to %e considered as tax avoidance.( real property in this case, may %e a parcel of land may%e considered as anordinary asset or a capital asset. It bec%e# c$pit$l i+ it i# &%t u#e* i& t'$*e %+ bu#i&e## but i+ it i# u#e* t"e $##et bec%e# %'*i&$' $##et7 That %uildin! and

parcel of land as far as the Insurance Company is concerned the asset is an<rdinary asset. (nd in ordinary assets corporation are taxa%le at )+F on profit. Soif the %uildin! is only +m and it was 9+m in the %oo0s of the corporation. If it issold for *++m the profit will %e 11+m and the tax would %e ))m.

N%! i& t"i# c$#e !$# "e $ble t% $(%i* t"e 339 )e(e'e# !$&t# t% $(%i*t"e 33 i# it p%##ible9

Toda "Ci%eles$ 9+m B (ltona!a 1++m B '/I *++m

So here the profit Toda would have is only 1+m and tax would %e )+F. In the c$#e%+ Alt%&$5$ it is a capital asset, %ecause a person in his personal ri!ht andcapacity would %e only %e usin! the %uildin! for personal use and the capital !ainstax for an individual is %&l 64 %+ t"e #elli&5 p'ice %' t"e >M !"ic"e(e' i#

"i5"e'7 "1++9+N1+/R)+FN)/$ "*++/R AF$1*/ N 9/

In contrast had it %een sold directly from Toda6s company to '/I for *++m less costof 9+m, as an ordinary asset it would %e su%-ected to )+F tax. So the tax would %e))m.

$# t"e'e $(%i*$&ce %' e($#i%& %+ t"e t$.9• There was, supposedly these avoidance scheme would have %een possi%le

if (ltona!a was not in any way a conduit simply with CIC "Toda6s company$and '/I if (ltona!a was really a third person to CIC and '/I.

• The factors of evasion are present %ecause '/I "even prior to the sale of

(ltona!a and CIC$ already paid * sets of +m to CIC and it was reflected inthe %oo0s of '/I and CIC.(nd the second factor, that (ltona!a on the same day that he %ou!ht the

%uildin! from CIC sold it to '/I. Simply to avoid the )+F tax on the *++m,%ecause CIC can never use the capital !ain tax of AF %ecause c$pit$l5$i& t$. i# %&l +%' c$pit$l $##et7

"$t $'e t"e t"'ee +$ct%'# t"$t c%&&%te t$. e($#i%&:1 The e&*# t% be $c"ie(e*, "i.e. the payment of less than that 0nown %y

the tax payer to %e le!ally due, or the nonpayment of tax when it isshown that a tax is due$

* (nd that is $cc%p$&ie* b $ #t$te %+ i&* which is wilful anddeli%erate. 8ad faith

3 That such $cti%& i# u&l$!+ul7 "i.e. he has not file a return or that the'etu'& !$# u&*e'#t$te* $&* t"e'e i# %(e' cl$i #% it !%ul* 'e#ult t%l%!e' p$e&t %+ t$.e# %' &% p$e&t $t $llF

E&*# t% be $c"ie(e* #t$te %+ i&* u&l$!+ul $cti%&


<rdinary G )+F of profit



In the c$#e %+ )IR (#7 P$#c%' it involves a false or fraudulent tax return as well.(nd ma-ority of the case discussed that an affidavit is not e=uivalent to anassessment of tax %ut nonetheless e(e& i& t"e $b#e&ce %+ $& $##e##e&t i& $+$l#e %' +'$u*ule&t t$. 'etu'&7 A& $##e##e&t i# &%t &ece##$' i& %'*e' t%+ile $ c'ii&$l c$#e $5$i&#t $ t$. p$e'7

"$t $'e t"e e(i*e&ce t% p'%(e t$. e($#i%&:• Is difficult to prove %ecause it is a state of mind. It %uilds on a thou!ht of

evadin! taxes.

1 >$ilu'e t% +ile t$. 'etu'&#2 @&*e' *ecl$'i&5 "i# i&c%e i& t"e t$. 'etu'&# +%' 2 '# %' %'e7

Bow was tax evasion proved in the case of 'epu%lic vs. Don@ales# "'efer to casedi!est$

• The declared income was very minimal, so those which he defended as

exempt from taxation %y a concessionaire within the military %ase were notdeclared %ut in fact loo0in! at the treaty a!reement, the exemptions forthe concessionaires !ranted not for income tax exemption %ut only forsome municipal license fee.

• Therefore his failure to declare for taxation purposes for * consecutive

years is an indication of his fraudulent intent and deprived the !overnmentfor taxes that would have %een collected.

•

:istin!uish tax avoidance and tax evasion4T$. $(%i*$&ce T$. e($#i%&

;e!al way of avoidin! the taxes. ot%rea0in! any law.I.e. transferrin! to another place.

Time depositin! money, that youonly withdraw the money after yrsthen it is tax free.

?hen you %rea0 the letter of the law.i.e. tries to avoid the payment of tax

"$t i# t$. e.epti%&9Drant of immunity to particular persons or corporations or persons of a particularclass from the tax which such persons or corporations within the same taxin!district would have %een o%li!ed to pay.

Certain class within certain district are exempted from taxes.

"$t i# t$. $&e#t9?hen the !overnment intentionally %(e'l%%# t"e (i%l$ti%&# %+ t"e t$.e# !"ic"$'e &%t p$i*7 It# $lie 5i(i&5 t"e t$. p$e' $ cle$& #l$te. 8ut it6s notautomatic amnesty without any consideration !iven to the !overnment.

It is not !ranted %y the !eneral law, %ut !ranted under a special law. (nd the lastamnesty the (tty. Tiu 0new of was !ranted last *++, where in tax payers areencoura!e to come out and apply for amnesty for a particular num%er of years. (nd

they only have to pay a certain percenta!e in the difference in their net worth fromone point to another.

2x. ( true %lue tax evader that is never cau!ht and you want to have apeace of mind so you apply. 8ut actually there is no %asis for the!overnment to assess your taxes %ecause you have never declared yourincome. So what the !overnment does is the tax amnesty for the last years. *++*+1+. The increase in your net worth %etween these years willonly %e taxed for example F in exchan!e for no prosecution for thoseyears.

8ut it6s not favoura%le for the !overnment to %e !ivin! tax amnesty every now andthen otherwise we won6t %e payin! taxes now and we will only %e waitin! foranother tax amnesty law.

"$t i# t"e &$tu'e %+ t$. e.epti%&91 It i# PERSONA= it c$&&%t be t'$&#+e''e*7* It is 8(S2: < C<T'(CT, so it cannot violate the nonimpairment of

contracts clause) It is a ?(I52' < TB2 >('T <3 TB2 D<52'/2T. It is D22'(;; '25<C(8;2, unless it is %ased on a contract It i# NOT NE)ESSARI=Y DIS)RIMINATORY %ecause p'e#ue*

t"$t t"e'e i# #ub#t$&ti$l *i#ti&cti%& bet!ee& t"%#e !"% $'ee.ept $&* t"%#e !"% $'e &%t7

A'e t$. e.epti%&# t'$&#+e'$ble9

N$tu'e %+ t$. e.epti%&

1 >ersonal/ere >rivile!e !ranted to certain classes of taxpayers. ot

transfera%le.2xample4 2xemption !ranted to the corporation will not include the

stoc0holders %ecause the corporation has a separate personality and the

exemption only applies personally to it.* 'evoca%le G 2xcept, when the exemption is founded upon a contract with a

valid and su%stantial consideration.7 ?aiver on the part of the !overnment to collect the taxes which it could

otherwise have collected and it is not necessaril) discriminator) +ecause it

is founded on a rational and su+stantial distinction +etween classes that

are exempt and those that are not'

8ersonal/ revoca+le/ waiver on the part of the government and not necessaril)

discriminator) as it is founded on su+stantial distinction

I# t"e p%!e' t% 5'$&t t$. e.epti%&# i&"e'e&t9Stu*e&t: Ye# bec$u#e t"e p%!e' t% t$. i# $& i&"e'e&t p%!e'7 T"e p%!e'&%t t% t$. lie!i#e i# &ece##$'il $& i&"e'e&t p%!e'7

I&#%+$' $# =?@<# $'e c%&ce'&e* i# t"e p%!e' t% 5'$&t t$. e.epti%&#i&"e'e&t9Student4 o.

=?@<# *% &%t "$(e t"e i&"e'e&t p%!e' t% t$.7 T"$t p%!e' i# *ele5$te*7 ?iththat dele!ated power to tax, comes the power to exempt @T %&l !it"i& t"ec%&+i&e# %+ t"e *ele5$te* p%!e'7




3or example, the ;DU6s are allowed to tax real property. ?ith that power comes thepower to identify real properties that are exempt from 'eal >roperty tax "levied %ythe ;DU$.

If they do not have the power to levy real property tax in the first place, theycannot say that these real properties are exempt.

2PC2>TI<4?hen the ena%lin! law dele!atin! the power to tax limits the !rantin! of exemptions to specific entities.

"$t #"%ul* be t"e b$#i# %+ $ ($li* 5'$&t %+ t$. e.epti%&9Student4 /ust o%serve pu%lic interest.

?'%u&*# +%' t$. e.epti%&# $ eit"e' be b$#e* %& c%&t'$ct public p%lic$&* 'ecip'%cit7 Di#cu## e$c"7Student4 Contract4 when the %asis for the !rant of tax exemption is a contractsupported %y a valid and su%stantial consideration.

'eciprocity4 ?hen the Dovernment enters into a %ilateral tax treaty with anotherstate !rantin! the same exemptions that the other state would !rant our 3ilipinosand domestic corporations en!a!in! in %usiness in their state.

'eciprocity not limited to tax treaties. The tax code also has reciprocity provisionssuch as estate taxation providin! that nonresident alien decedents who somehow

have intan!i%le properties in the >hilippines would not %e taxed if their laws providethat 3ilipino decedents with intan!i%les located in their territory would li0ewise not%e taxed.

>u%lic >olicy4 In order to -ustify the losses the !overnment incurs from noncollection of taxes, the %asis for tax exemptions must %e for pu%lic policy and thepurpose of the law !rantin! the exemption must %e for the pu%lic6s %enefit such asthe exemptions !ranted to nonstoc0 nonprofit educational institutions "in order tosupport education$.

2 i&*# %+ t$. e.epti%&#9Student4

1 2xpress4 ?hen the exemption !ranted is specifically stated.* Implied4 ?hen the law does not tax a certain person, property, or activity,

it is considered to %e an implied tax exemption.

2xemption %y omission should have %een a more appropriate term for implied taxexemption.

Sc%pe %+ e.epti%&#9Student4

1 Total4 ?hen a person, property or activity is exempted from (;; DIRE)Ttaxes. So the exemption does not include the payment of 5(T, since this isan indirect tax. U;2SS the law !rantin! the exemption specificallymentions that the exemption includes the payment of indirect taxes.e.!. all assets and revenues of nonstoc0 non profit educational institutions(:2 for educational purposes

* >artial4 exemption only applies to particular taxes. 2xample4 only real

properties are exempt, while all other taxes are collected.

e.!. exemption from real property tax of reli!ious, charita%le, and educationalinstitutions (:2 for that purpose.

A# t% t"e %bBect:

Tax exemptions may %e directed a!ainst persons or properties.2xample4

1 ( person is exempt from the payin! of residence tax %ecause he is %elow1 years old and he does not have a source of income

* 2xemption from real property tax of reli!ious institutions.

T$. e.epti%&# $# !e &%! $'e 'e(%c$ble7 "$t i# t"e e.cepti%&9Tax exemptions are !enerally revoca%le except if it is supported %y a contract with avalid and su%stantial consideration and when the !overnment would revo0e anexemption, %&l $ 'el$ti(e $B%'it %+ c%&5'e## p'e#e&t *u'i&5 t"e eeti&5i# 'eui'e*7

)%&#t'ucti%& %+ T$. E.epti%& =$!#It has to %e construed a!ainst the taxpayer and in favor of taxation due to the life%lood doctrine.

"$t $'e t$. 'ei##i%&#9T$. 'ei##i%& %' t$. c%&*%&$ti%& *e+i&e*The word LremitM means to desist or refrain from exactin!, inflictin! or enforcin!somethin! as well as to restore what has already %een ta0en. The remission of

taxes due and paya%le to the exclusion of taxes already collected does notconstitute unfair discrimination. Such a set of taxes is a class %y itself and the lawwould %e open to attac0 as class le!islation only if all taxpayers %elon!in! to oneclass were not treated ali0e. Juan ;una Su%d. v. Sarmiento, 91 >hil )7+ Thecondition of a tax lia%ility is e=uivalent to and is in the nature of a tax exemption.Thus, it should %e sustained only when expressly provided in the law. Suri!aoConsolidated /inin! v. Commissioner of Internal 'evenue, 9 SC'( 7*

T"e'e i# $ t$. c%&*%&$ti%& %' 'ei##i%& !"e& t"e St$te *e#i#t# %' 'e+'$i&#+'% e.$cti&5 i&+licti&5 %' e&+%'ci&5 #%et"i&5 $# !ell $# t% 'e*uce !"$t"$# $l'e$* bee& t$e&7 T"e c%&*%&$ti%& %+ $ t$. li$bilit i# eui($le&t t%$&* i# i& t"e &$tu'e %+ $ t$. e.epti%&7 T"u# it #"%ul* be #u#t$i&e* %&l!"e& e.p'e##e* i& t"e l$!7

e'#u#T$. $&e#t *e+i&e*( !eneral pardon or intentional overloo0in! %y the State of its authority t% ip%#epe&$ltie# %& pe'#%&# %t"e'!i#e 5uilt %+ t$. e($#i%& %' (i%l$ti%& %+ $'e(e&ue %' t$. l$!H p$'t$e# %+ $& $b#%lute +%'5i(e&e## %' !$i(e' b t"e5%(e'&e&t %+ it# 'i5"t t% c%llect !"$t i# *ue it $&* t% 5i(e t$. e($*e'# !"%!i#" t% 'ele&t $ c"$&ce t% #t$'t $ cle$& #l$teH &%t favored nor presumed inlaw if !ranted %y statute, terms of the amnesty must %e construed strictly a!ainstthe taxpayer and li%erally in favor of the !overnment.

"$t *% %u u&*e'#t$&* b c%p'%i#e9 I& !"$t c$#e !%ul* t"e5%(e'&e&t e&te' i&t% $ c%p'%i#e +$(%u'$ble t% b%t" p$'tie#9The situation actually is the taxpayer is actually lia%le. There are * !rounds for acompromise. In your civil code, (rticle *+* defines a compromise as a contract

where%y the parties, %y ma0in! reciprocal concessions, avoid a liti!ation or put anend to one already commenced. So tax compromise is enterin! into compromise




concessions to avoid liti!ation or put an end to one already commenced. So %othparties would meet halfway. There are * !rounds for a compromise4

1 >i&$&ci$l i&c$p$cit to pay the amount or the assessment. It may %e

reduced t% $ i&iu %+ 10 pe' ce&t7 ;et6s say the assessment is forthe payment of taxes for the past 1+ years, for example 1 million, %utloo0in! at the financial capacity of the taxpayer, it cannot afford. Socompromise can %e a!reed upon such that the taxpayer will only have top$ $ i&iu %+ 10 pe'ce&t +'% !"$t "$# bee& $##e##e* #uc"t"$t +'% t"e 1 illi%& "e !ill %&l be li$ble t% p$ 1000007 I# it+$(%u'$ble t% t"e t$.p$e'9 Ye#7 T"e'e i# $ *i#c%u&t %+ ,0 pe' ce&t7

I# it +$(%u'$ble t% t"e 5%(e'&e&t9 Ye# bec$u#e %+ &%t c%llecti&5$t $ll $t le$#t it c$& c%llect $ ce't$i& pe'ce&t$5e %+ !"$t "$# bee&$##e##e*7 ut %+ c%u'#e +i&$&ci$l i&c$p$cit "$# t% be *ul p'%(e&7

2 "e& t"e $##e##e&t %+ t"e 5%(e'&e&t i# %+ *%ubt+ul ($li*it7?hen it has %een hapha@ardly assessed. ?hen there has %een a=uestiona%le assessment, it will %e favoura%le for the !overnment to enterinto a compromise rather than pursuin! an unreasona%le assessment. T"eSup'ee )%u't $ *ecl$'e #uc" $& $##e##e&t i&($li* #% t"e5%(e'&e&t $ e&te' i&t% $ c%p'%i#e t"e'eb c%llecti&5 %&l $i&iu %+ 0 pe'ce&t %+ !"$t "$# bee& $##e##e*7

So this is not tax exemption, the taxpayer is still lia%le to pay for taxes.

"$t i# *%uble t$.$ti%&9Taxed twice %y same taxin! authority, same taxin! period, same su%-ect matter andfor the same purpose, within the same taxin! year. This is violative of theconstitution provision of due process and e=ual protection clause.

D%uble t$.$ti%&Me$&i&5 %+ *%uble t$.$ti%&

a Strict sense (direct duplicate taxation9direct dou+le taxation$ G"a$ Taxin! twice,"%$ 8y the same taxin! authority,"c$ ?ithin the same -urisdiction or taxin! district,"d$ 3or the same purpose,"e$ In the same year or taxin! period,"f$ Some of the property in the territory. "same su%-ect matter$8oth taxes must %e imposed on the same property or su%-ect matter.

% :road sense (indirect duplicate taxation9indirect dou+le taxation$ G taxation

other than direct duplicate. It extends to all cases in which there is a %urdenof two or more pecuniary impositions.

I# *%uble t$.$ti%& p'%"ibite* b t"e c%&#tituti%&9It does not outri!htly prohi%it dou%le taxation %ut it indirectly prohi%its direct dou%letaxation %ecause it violates due process clause and e=ual protection of laws.Alt"%u5" t"e'e i# &% !%'* *%uble i& t"e c%&#tituti%& %&ce $ pe'#%& i&(%e#t"$t t"e'e i# *%uble t$.$ti%& i& t"e #t'ict #e&#e it e$&# t% #$ t"$t "e i#i&(%i&5 t"e (i%l$ti%& %+ eu$l p'%tecti%& cl$u#e $&* t"e *ep'i($ti%& %+ "i#*ue p'%ce##7

ill$&ue($ (#7 )it %+ Il%il% ?R N%7 =-2621 Decebe' 28 1,68

3(CTS4

'elyin! on the passa!e of '( **A or the ;ocal (utonomy (ct, Iloilo enacted

<rdinance 11 Series of 19A+, imposin! a municipal license tax on tenement houses

in accordance with the schedule of payment provided %y therein. 5illanueva and the

other appellees are apartment owners from whom the city collected license taxes %y

virtue of <rdinance 11. (ppellees aver that the said ordinance is unconstitutional for

'( **A does not empower cities to impose apartment taxes that the same is

oppressive and unreasona%le for it penali@es those who fail to pay the apartment

taxes that it constitutes not only dou%le taxation %ut tre%le taxation and, that it

violates uniformity of taxation.

ISSU2S4

1 :oes the ordinance impose dou%le taxation#

* Is Iloilo city empowered %y '( **A to impose tenement taxes#

B2;:4

1 ?hile it is true that appellees are taxa%le under the I'C as real estate dealers,

and taxa%le under <rdinance 11, dou%le taxation may not %e invo0ed. This is%ecause the same tax may %e imposed %y the national !overnment as well as

%y the local !overnment. The contention that appellees are dou%ly taxed

%ecause they are payin! real estate taxes and the tenement tax is also devoid

of merit. ( license tax may %e levied upon a %usiness or occupation althou!h

the land or property used in connection therewith is su%-ect to property tax. In

order to constitute dou%le taxation, %oth taxes must %e the same 0ind or

character7 Re$l e#t$te t$.e# $&* te&ee&t t$.e# $'e &%t %+ t"e #$e

c"$'$cte'7

* '( **A confers local !overnments %road taxin! powers. The imposition of the

tenement taxes does not fall within the exceptions mentioned %y the same law.

It is ar!ued however that the said taxes are real estate taxes and thus, theimposition of more the 1 per centum real estate tax which is the limit provided

%y C( 1, ma0es the said ordinance ultra vires. The court ruled that the tax in

=uestion is not a real estate tax. It does not have the attri%utes of a real estate

tax. 8y the title and the terms of the ordinance, the tax is a municipal tax

which means an imposition or exaction on the ri!ht to use or dispose of

property, to pursue a %usiness, occupation or callin!, or to exercise a privile!e.

Tenement houses %ein! offered for rent or lease constitute a distinct form of

%usiness or callin! and as such, the imposition of municipal tax finds support in

Section * of '( **A.

"e& i# $& i&#t$&ce !"e& $ l$! !ill be *ecl$'e* $# u&c%&#tituti%&$l +%'bei&5 %pp'e##i(e u&'e$#%&$ble bec$u#e %+ *%uble t$.$ti%&9


http://philippinelaw.info/statutes/ra2264.html

http://philippinelaw.info/statutes/ca158.html

http://philippinelaw.info/statutes/ca158.html

http://philippinelaw.info/statutes/ra2264.html



(lthou!h the constitution does not directly prohi%it dou%le taxation %ut if a taxip%#iti%& i# (i%l$ti(e %+ t"e *ue p'%ce## $&* t"e eu$l p'%tecti%& cl$u#et"e& it $ be *ecl$'e* $# i&($li*7

"$t $'e t"e %*e# %+ t"e 5%(e'&e&t t% elii&$te *%uble t$.$ti%&9

)IR (#7 P'%cte' $&* ?$ble ?R N%7 66838 Decebe' 2 1,,13(CTS4>rocter and Dam%le >hilippine /anufacturin! Corporation declared dividendspaya%le to its parent company and sole stoc0holder, >rocter and Dam%le Co., Inc."US($ from which dividends the thirtyfive percent ")F$ withholdin! tax at sourcewas deducted. In 1977, private respondent filed with petitioner Commissioner of Internal 'evenue a claim for refund or tax credit. There %ein! no responsive actionon the part of the Commissioner, it filed a petition for review with CT(. In 19, theCT( rendered a decision orderin! petitioner Commissioner to refund or !rant the taxcredit.

<n appeal %y the Commissioner, the Court reversed the decision of the CT(. Thus, this petition

ISSU24?hether or not the issue on whether a withholdin! a!ent in the >hilippines is le!allyentitled to refund may%e raised for the first time on appeal %y the Dovernment.

B2;:4

The 8I' should not %e allowed to defeat an otherwise valid claim for refund %yraisin! this =uestion of alle!ed incapacity for the first time on appeal %efore this Court. This isclearly a matter of procedure. >etitioner does not pretend that >VD>hil., should it succeedin the claim for refund, is li0ely to run away, as it were, with the refund instead of transmittin! such refund or tax credit to its parent and sole stoc0holder. It iscommonplace that in the a%sence of explicit statutory provisions to the contrary, the!overnment must follow the same rules of procedure which %ind private parties. Itis, for instance, clear that the !overnment is held to compliance with the provisions of Circular o. 1 of this Court in exactly the same way that private liti!ants are held to suchcompliance, save only in respect of the matter of filin! fees from which the 'epu%licof the >hilippines is exempt %y the 'ules of Court.

M%*e# %+ elii&$ti&5 *%uble t$.$ti%&:1 Drant of Tax credits

2 Recip'%cit cl$u#e#) Tax treaties offsettin! of taxes in %etween countries. Tax expense deductions when the tax is claimed as an expense Drant of tax exemptions

Compare4 remedies for multiplicity of situs1 Tax exemptions* Taxes as expense deductions) Tax credits 2nterin! to %ilateral tax treaties

If %oth country would impose )+F, )+F. aturally its one income it should %esu%-ected to only one tax, if a tax has %een paid in the >hilippines usin! 1+F, then

the 1+F will %e offsetted a!ainst the )+F paya%le in U.S, %ottomline, what waspaid is 1+F in the >hilippines and *+F in the U.S. a total still of )+F, that6s one

way of eliminatin! dou%le taxation. So, is either !rantin! tax credit, reciprocityclauses, tax treaty %etween two states, tax expense deduction as we said when thetax paid is claimed as an expense, and num%er !rantin! tax exemptions.

Ou' t$. l$!# p%litic$l ci(il pe&$l i& &$tu'e9Student4 Civil in nature, in a sense that taxes, even if the country is occupied %yany other !overnment, still >hilippine taxation would apply.

>ower of taxation is !enerally for revenue raisin!, any provisions on imprisonment issimply to exact compliance from the tax payer. To ma0e tax payers pay the tax.

A'e t$.e# ip'e#c'iptible9 O' *% t"e "$(e p'e#c'ipti%&9The tax law in contrast with the civil code is more special, the civil code !rants for!eneral prescriptive period and since it is a !eneral law it will not %e applied totaxation law. Under the national internal revenue code there are prescriptionprovided, under the tariff and customs code there are prescriptions also provided.So that ma0es tax laws havin! a prescriptive period, and in some cases without.

%ul* %u !$&t t% "$(e t$. l$!# !it"%ut p'e#c'ipti%& pe'i%*9 ou are already A+ years old and you are the 8I' will send you a love letter as0in!you for the payment of deficiency taxes when you were * and earned multi millionin your law profession. :i%a#

In order to !ive peace of mind to the tax payers, and to encoura!e the !overnment

to collect the taxes within a specified period, there has to %e a prescriptive period.

@&*e' t"e t$. c%*e t"e 5%(e'&e&t i# %&l 5i(e& 3 e$'# t% $##e## *i'ectt$.e#7Under the local !overnment code, the local !overnment unit is only !iven yearsfrom the due date of the tax to assess direct taxes,

and under tariff and customs code the %ureau of customs is only !iven ) years fromthe final li=uidation of the import entry declaration to =uestion the payment of customs,

%eyond those period the !overnment can no lon!er in=uire into the correctness of the tax paid,

except if your tax return or tax payment is attended with fraud falsity or you havenot filed any return at all, it is somehow imprescripti%le %ecause your tax codeprovides that it shall %e 1+ years from the date of commission of the fraud ordiscovery. i.e. it was committed 11 years a!o, %ut the !overnment says that it onlyo%tained 0nowled!e today, the !overnment still has 1+ years from today to ma0ethe collect assessment, that ma0es it imprescripti%le %ecause 0nowled!e is a stateof mind.

(nd also insofar as +ili&5 c'ii&$l c$#e# +%' t$. (i%l$ti%&# t"e 5%(e'&e&t i#5i(e& e$'# p'e#c'ipti(e pe'i%* t% +ile $ c'ii&$l c$#e7

T% $##e##-3=?@ t% $##e##- cu#t%#- 3 +'$u* %' &%t +ile* $& 'etu'& $t$ll10 %' ip'e#c'iptibleF +ile $ c'ii&$l c$#e-

"e& i# t"$t e$'# c%u&te*9




>'% t"e c%i##i%& %+ t"e %++e&#e %' +'% t"e *i#c%(e' $&* t"ei&#tituti%& %+ t"e Bu*ici$l p'%cee*i&5#7 If the !overnment will say we onlydiscovered it today, will years start# ot yet, this years will only start from whenthe !overnment will file a case, discovery and filin! of the case. That ma0es itimprescripti%le.

Those imprescripti%le cases would only apply for fraud dealin! tax payments. <therthan that you can rely on the prescriptive period under the tax code.

"$t *% %u u&*e'#t$&* %& $&*$t%' $&* *i'ect%' p'%(i#i%&# %+ t"e t$.c%*e9/andatory provisions of the law are intended for the security of the pu%lic such thatif the circular etc. any issuance %y the !overnment !%ul* $++ect t"e li$bilit %+ t"e t$. p$e' it has to %e complied with otherwise noncompliance can ma0e theact of the !overnment or taxin! authority as invalid %ecause it6s a mandatoryprovision of the law. %ut if it6s a directory provision meanin! these are simplydirectives to the tax authorities to perform these steps not addin! any lia%ility to thetax payer nor penalty, noncompliance of which would not result to the act of thetax authority as invalid.

'ules and re!ulations for tax purposes insofar as 8I' is concerned we call it therevenue re!ulations. 'evenue re!ulations are in the nature of issuances these areformal issuances intendin! to clarify and explain the law %y its clarification andexplanation of the law and also to carry into effect its !eneral provisions for theadministration and procedure %y the tax authorities.

"% i# t"e i##ui&5 $ut"%'it +%' 'e(e&ue 'e5ul$ti%&#9Secretary of 3inance upon recommendin! approval comin! from the %ureau of internal revenue commissioner. So it6s not that the commissioner of internal revenuewill issue and si!n the revenue re!ulation, all he can do is come up with a *'$+t'e(e&ue 'e5ul$ti%&# su%mit it to the secretary of finance, may%e chan!ed, may%erevised %ut once approved the issuance %elon!s to the secretary of finance. %ut youwill see two si!natures, %oth of them.

the power of the commissioner of internal revenue to recommend the promul!ationof revenue re!ulations cannot %e dele!ated to his su%ordinates, cannot %edele!ated to his assistant, or to his deputy commissioners. it6s one of its power thatcannot %e dele!ated %ecause !enerally all powers of the commissioner can %edele!ated to his su%ordinates.

I& %'*e' +%' 'e5ul$ti%&# t% be ($li* !"$t u#t be c%plie*9Should not %e contrary to law, pu%lished in <fficial Da@ette must %e reasona%le andwithin the authority.

D%e# it "$(e t"e +%'ce $&* e++ect %+ t"e l$!9es

So, revenue re!ulations secretary of f inance upon the recommendin! approvalcomin! from the 8IT commissioner

;%! *i++e'e&t i# $*i&i#t'$ti(e %pi&i%&# $&* 'uli&5# $&* !"% i##ue# it9T"e $'e %+ le## 5e&e'$l i&te'p'et$ti%&# $# c%p$'e* t% 'ule# $&*'e5ul$ti%&#9

"$t *% t"e c%&t$i&9 i+ !e #$ t"$t 'e(e&ue 'e5ul$ti%&# i&te&*# t% cl$'i+$&* e.pl$i& t"e l$! $&* t% c$'' i&t% e++ect t"e 5e&e'$l p'%(i#i%&# +%'p'%pe' $*i&i#t'$ti%& $&* p'%ce*u'e %+ t"e l$! !"$t $'e t"e c%&te&t# %+ $*i&i#t'$ti%& 'uli&5#9A*i&i#t'$ti(e 'uli&5# $&* %pi&i%&# $'e %+ le## 5e&e'$l $&* le## +%'$li&te'p'et$ti%& %+ t"e l$! $**'e##i&5 i&*i(i*u$l #itu$ti%& $&* p'%ble#p'e#e&te* b t"e t$. p$e'# t"e#el(e#7 they cannot address hypothetical=uestions for the tax payers %ut rather only actual and real situations. it is less!eneral %ecause it6s not that you may write a letter as0in! for your tax implicationsfor a certain transaction that you have and you will %e answered.

;e c$&&%t *ele5$te t"$t p%!e' t% "i# #t$++7Student4 I thin0 he can dele!ate the authority to the prime ministerEto theCommissioner.

The power to i##ue $& %pi&i%& c$& be *ele5$te* t% t"e $##i#t$&tc%i##i%&e' $&* t% *eput c%i##i%&e'# e.cept i& 2 i&#t$&ces..

"$t tpe %+ 'uli&5# #"%ul* $l!$# be i##ue* b t"e )%i##i%&e' $&* &%%&e el#e9Student4 rulin!s of f irst impression.

"$t $'e 'uli&5# %+ +i'#t ip'e##i%&9Student4 ?hen there are no precedent cases.

A&* &ube' 29Student4 when it involves the revocation of existin! decisions.

The power to issue rulin!s and opinions can %e !enerally dele!ated except in *instances. In rulin!s of first impression, when the issue is novelE There is noprecedent as yet, and when it involves the revocation, reversal, clarification of existin! rulin!s. with the entry of Commissioner Oim Benares she issued a circularthat she would %e the only one to issue rulin!s even is it6s not anymore a rulin! of first impression and even if it6s not a case of revocation, reversal of existin!decisions. /eanin! she has to loo0 into all cases.

)$& t"e #ec'et$' %+ +i&$&ce i##ue $& %pi&i%&9

Student4 I thin0 the Secretary is restrained in promul!atin! re!ulations and rules

for taxation.

;e c$&&%t i##ue $& %pi&i%&9 =et u# #$ t"$t %u !'%te t% t"e IR )%i##i%&e' +%' $& %pi&i%& t"$t tu'&e* %ut t% be u&+$(%'$ble %& %u'p$'t but %u belie(e %t"e'!i#e c$& %u ele($te %u' ue#ti%&$ble %pi&i%&t% t"e #ec'et$' %+ +i&$&ce9Student4 es

"$t<# t"e *i++e'e&ce9Student4 The power of the Secretary of 3inance isE ;et6s say I6m a taxpayer,whenever I have =uestions for the 8I' commissioner and I don6t li0e to !o strai!htto the Secretary of 3inance for an opinion %ecause that is the power of thecommissioner, it6s -ust really an appeal to the secretary of finance that we as0 forhis opinion.

" *% %u t"i& t"e #ec'et$' !%ul* 5i(e %u $& %pi&i%&9




Student4 I thin0 it is one of the necessary conse=uences under his scope of authority %ein! the head of the dept.

ec$u#e t"e Sec'et$' %+ >i&$&ce "$# %+ t"e #upe'(i#%' $ut"%'it %(e' "i#)%i##i%&e'7

(dministrative interpretation forms part of the law of the land althou!h they are notactual le!islations.

)$& t"e Sec'et$' 'e(%e t"e 'uli&5# %+ "i# p'e*ece##%'9 O' t"ec%i##i%&e' 'e(%e t"e %pi&i%&# %+ "i# p'e*ece##%'9Student4 es

I& !"$t c$#e#9 "$t c%ul* be $ 'e$#%& +%' t"e Sec'et$' %+ >i&$&ce 'e(e'#et"e 'uli&5# %+ "i# p'e*ece##%'#9Student4 Su%se=uent chan!es in re!ulations..

S the possi%le reason the secretary of finance reverse the rulin!s of hispredecessors is when he %elieves there should have %een a different construction of the law other than what has %een issued. so he %elieves it was an erroneousinterpretation %y his predecessor, there has to %e a valid %asis.

it" 'e#pect t% t"e p'%#pecti(it $&* 'et'%$cti(it %+ %u' t$. l$!#9Student4 They are prospective in nature.

A# $ 5e&e'$l 'ule9Student4 (s a !eneral rule %ut it6s not a%solute. <ne of the exceptions is when ale!islation is passed that expressly provides for a retroactive effect on a tax law.Bowever this act of con!ress is under the limitations of the constitution that itshould not violate due process %ecause it should not impair vested ri!hts.

So the !eneral rule is that tax laws should %e prospectively applied except when thelaw itself provides for a retroactive effect %ut the exception to the exception is thatis that it can %e retroactively applied if it is not harsh and oppressive to thetaxpayer.

It can only %e allowed if it is not harsh and oppressive.

"e& $ 'e5ul$ti%& %' $& %pi&i%& i# i##ue* $&* #ub#eue&tl 'e(%e* b t"e

)%i##i%&e' c$& it "$(e $ 'et'%$cti(e $pplic$ti%&9 ;et me !ive you an example. ou sou!ht for an opinion whether your transaction istaxa%le or not. Commissioner issued a favora%le opinion sayin! that you transactionis not taxa%le. <n the %elief of that opinion, you did not pay taxes. (fterwards,another Commissioner came in, revo0in! the previous rulin! and %elieved that itwas incorrect. Be issued another opinion sayin! that transaction previously wasalready taxa%le.

)$& t"e'e be 'et'%$cti(e $pplic$ti%& %+ t"e l$!9 Ot"e'!i#e #t$te* c$& t"eIR c%llect t$.e# *u'i&5 t"e pe'i%* !"ic" %u $pplie* t"e e.epti%&7Student4 o

Deneral rule, there can %e no retroactive application of a repeal of a re!ulation, arulin! or an opinion. 8ut there are exceptions. ?hat are the exceptions#

Transcri%erKs notes4

W ?hen the taxpayer see0in! exemption applied it in %ad faith and thus a%le to!et the exemption

W ?hen the taxpayer see0in! exemption deli%erately omitted& misstated materialfacts leadin! to the !rant of exemption

W ?hen the su%se=uent findin!s of the 8I' are different from the facts presentwhen the rulin! was made

W RIn all cases, it is a%out the data presented %y the taxpayer

ouKre sayin! that when a taxpayer deli%erately mista0es or omits material facts inthe tax returns or in the information or document provided %y the 8I'. So,deli%erate omission of material facts.

?hen the facts su%se=uently !athered %y the 8I' are materially different from thefacts provided %y the taxpayer.

So there are three instances when the repeal or revocation of a re!ulation or arulin! would result to a retroactive application. Such that retroactive application will%e harsh and oppressive to the taxpayer. It will %e applied %ecause the taxpayer isin %ad faith, deli%erately omitted or misstated material facts in his tax returns ordocuments su%mitted to the 8I', or when the facts su%se=uently !ather %y the 8I'are materially different from the facts su%mitted %y the taxpayer.

So if you have read an opinion or in the future you will read an opinion, the lastsentence provided there %y the 8I' i# t"$t t"i# 'uli&5 #"$ll be i&($li* i+ it i#+%u&* %ut t"$t +$ct# $'e *i++e'e&t +'% !"$t !$# p'e#e&te*7 So itKs a clause

that will automatically declare invalid if su%se=uently it is found out that facts arematerially different.

;et me !ive you an example why tax laws are applied prospectively in the a%senceof or notwithstandin! express provisions of retroactivity. In July A, *++, '( 9+too0 effect. It provided there +,+++ tax exemption already for personal %ut the lawtoo0 effect only July A until :ecem%er "a period of A months$. >rior to that, the oldlaw was *+,+++ the old law was from January to July for A months. So whatexemption will %e applied# Is it *+0 or +0# The law did not say that it hasretroactive application therefore we cannot use the +0 exemption 7 E.epti%&#$'e #t'ictl c%&#t'ue* $5$i&#t t"e t$.p$e' !"$t it t%% pl$ce i# t"$t i##ue*$ )i'cul$' !"ic" e.pl$i&e* t"$t t"e e.epti%& c$& be $pplie* p'%-'$t$7>'% $&u$' t% ul t"e e.epti%& !ill be 207 >'% ul 6 t%Decebe' t"e e.epti%& !ill be 07 Si&ce it# e++ecti(it i# %&l 6 %&t"#

e$c" t"e t%t$l e.epti%& +%' t"e e$' +%' t"e i&*i(i*u$l t$.p$e' !ill be%&l 3 !"ic" i# "$l+ %+ 20 $&* 07 (ll employees would 0now that. (t theend of year, employees will 0now that they have an exempt income that is +0 forthe entire year. Bad it not for the clause that retroactive application of the law, thenthe entire +0 exemption will %e applied.

Deci#i%&# %+ t"e Sup'ee )%u't $&* t"e )%u't %+ T$. Appe$l# !ill +%' p$'t%+ t"e l$! %+ t"e l$&*7

;%! *% %u c%&#t'ue t$. l$!#9Transcri%erKs otes4W Taxation is statutory in nature. ?ithout tax law, no taxes imposed.W If there is a tax law that is clear "in imposin! tax$ then it must %e carried out.

IT will %e strictly construed a!ainst the tax payer %ecause he is clearly lia%le

under the law.




W 8ut once the provision is dou%tful, it is only when it will %e construed strictlya!ainst !overnment only when there is dou%t 8ecause tax laws are purelystatutory in nature, without a clear tax law, there can %e no tax. (lso %ecausetaxation is an exaction and a %urden.

If the tax law is very clear, there is no room for interpretation and it will %e appliedas it is. 8ut if dou%t exists, t"e& it !ill #t'ictl $ppl $5$i&#t t"e 5%(e'&e&t!"% "$* t"e %pp%'tu&it t% $e it cle$' $&* i& +$(%' %+ t$.p$e'7 T"$t i#*i++e'e&t +%' t$. e.epti%&7

T$. e.epti%& "%! *% %u c%&#t'ue it9Strictly a!ainst the tax payer %ecause taxation is the rule, exemption is theexception. (ll persons, property, and transaction should %ear a %urden a share inthe cost and expenses in runnin! the !overnment.

Strictly construed a!ainst the taxpayer and li%erally construed in favor of the!overnment. ;ife%lood doctrine In the same way amnesty is construed in that sameway, tax condonation, tax remission, etc. 2ven tax refunds are construed strictlya!ainst taxpayers %ecause it will diminish the funds of the !overnment.

2rase ) <nly until num%er *.

2xclusion is different from exemptions. ?e will discuss this later and found inSection )*% of your tax code. These are income excluded from your !ross income,no need to report to the !overnment. 2xclusions will also %e construed strictly

a!ainst taxpayer %ecause it will result in lesser funds for the !overnment.

T$. t'e$t (#7 T$. )%*eI+ t"e'e i# $ c%&+lict bet!ee& t"e t$. t'e$t $&* $& u&icip$l t$. l$! T$.c%*e =%c$l ?%(e'&e&t )%*e etc7F t"$t !e "$(e7 "ic" p'%(i#i%& !illp'e($il9?R: T$. t'e$t p'%(i#i%& !ill p'e($il7 Re$#%&: t% le##e& t"e e++ect %+ *%ublet$.$ti%&7 Y%u *%&<t "$(e t% l%% i&t% !"ic" %+ t"e t!% i# 'ece&t7 u#t t$ei&t% c%&#i*e'$ti%& t"$t t"e pu'p%#e %+ t"e t$. t'e$t i# (e' #peci$l7 It "$#t% p'e($il7 EX): @N=ESS t"e tax treaty provision is %urdensome.

If the municipal law is actually more favoura%le than a tax treaty, then the taxtreaty has not actually addressed the issue. The tax code now will prevail.

2xample4Under the tax code, all corporations "whether :C, '3C, '3C$ are su%-ect to a taxrate of )+F flat rate. 8ut the tax code provides that nonresident forei!ncorporation lessors of vessels, machineries, and aircraft "/5($ are su%-ect to 7.F.Some tax treaties provide that lease of commercial scientific e=uipment would=ualify as a royalty su%-ect to a tax rate of 1+F1F. ow here comes (8Ccorporation "a '3C$ sendin! its vessels to the >hilippines for lease to a domesticcorporation. "$t '$te #"%ul* be $pplie*9

TC4 )+F on '3C TC4 7.F on '3C lessors of /5(

TT4 1+F1F 'oyalties "inc. lease of /5($

The second one "the Tax code G 7.F$ %ecause the tax code is more favoura%le,under the exception.

TT4 +F 8usiness >rofit <rdinary Income

TT of +F will %e appliedS%u'ce# %+ t$. l$!#

1 'epu%lic (cts* <rdinances) SC decisions 'ules and re!ulations 2< of the >resident G example4 increase of 5(T rate from 1+F to 1*F

;et6s move on to income taxation.

I&c%e T$."$t i# i&c%e t$.9 It is a tax on all yearly profits arisin! from the use of property, profession, services,etc.

8efore you 0now what is taxa%le, you have to first 0now what income is. ?hat isincome# Income is all wealth which flows into the hands of the taxpayer other thana year return of capital. Therefore income tax is a tax on the wealth that flows tothe hands of the taxpayer.

>e$tu'e# %+ t"e P"ilippi&e i&c%e t$. l$!

Di'ect t$.It is a direct excise tax

P'%5'e##i(eA'e $ll i&c%e t$. p'%5'e##i(e9 N%7 S% !"ic" i&c%e t$. i# p'%5'e##i(e9 I&c%e t$. %& i&*i(i*u$l i# p'%5'e##i(e7 >%' c%'p%'$ti%& it<# p'%p%'ti%&$te$t 304 #% &%t $ll i&c%e t$.e# $'e p'%5'e##i(e7

um%er three...

)%p'e"e&#i(e t$. #itu#

ITEM N$ti%&$lit Re#i*e&ce S%u'ce#

'C P P P'C O O P

'( O P P

'(

"et%&net%$

O O P

:C P P P

'3C O P P

'3C O O P

(ll sources within are taxa%le in the >B.

Re#i*e&t +%'ei5& c%'p%'$ti%&#7 T$.$ble i& t"e P"ilippi&e#9es.

N%&-'e#i*e&t +%'ei5& c%'p%'$ti%&#9




ot nationals and not residents. es.

"$t i# c%&#i#te&t i# t"$t i+ t"e e$'& i&c%e i& t"e P"ilippi&e# t"e $'et$.$ble bec$u#e t"e P"ilippi&e# i# t"e #itu# %' pl$ce %+ t$.$ti%&7 T"e #t$tei& !"ic" it "$# Bu'i#*icti%& %(e' t"e #$i* c%'p%'$ti%& %' e&tit "$# t"e 'i5"tt% c%llect t$.e# &%t!it"#t$&*i&5 t"$t it i# $ &%& 'e#i*e&t $&* +%'ei5&c%'p%'$ti%& &%&-'e#i*e&t $lie& %' &$ti%&$l# %' citiGe&# %+ %u' c%u&t'.Ima!ine a corporation or!ani@ed outside the country, has not set foot in the country,%ut is still taxa%le in the country, the #%u'ce p'i&ciple !ill $ppl7

ou have a corporation "'oom +$ and you are the president. ou o%tained a loanfrom PX Corporation, said corporation is %ased in Japan. /onthly payments are 1/for principal and 1/ in interest. ?ho is earnin! income# ?hat income is this# Thereis interest income. ?e have to determine who is earnin! here, is it your corporationor the outside corporation# It i# t"e %ut#i*e c%'p%'$ti%&7 That outsidecorporation did not come here in the >hilippines to execute the contract. The si!nin!was conducted a%road. I# it t$.$ble i& t"e P"ilippi&e#9 Ye#7 )%&#i*e'i&5 t"$tit# #%u'ce i# +'% t"e P"ilippi&e#7 ?hen you are loo0in! into the taxa%ility of anincome, whose nationality would you loo0 into# The one earnin! the income or theone payin! the income# The one earnin! the income.

I# t"e i&te'e#t e$'&e* b t"e %ut#i*e c%'p%'$ti%& t$.$ble9 Ye#7 N%&-'e#i*e&t +%'ei5& c%'p%'$ti%&# $'e t$.$ble +%' i&c%e c%i&5 +'% !it"i&Ft"e P"ilippi&e#7 ou have to determine whether the interest was earned in the>hilippines. Section * of your Tax Code. The provision there states that situs of

income is !"e'e it i# e$'&e*7

SE)7 27 'nco+e ro+ "ources 0ithin the Philippines. 1

AF Gross 'nco+e ro+ "ources 0ithin the Philippines. The

followin! items of !ross income shall %e treated as !ross income from

sources within the >hilippines4

1F 'nterests. I&te'e#t# *e'i(e* +'% #%u'ce# !it"i& t"e

P"ilippi&e# $&* i&te'e#t# %& b%&*# &%te# %' %t"e' i&te'e#t-be$'i&5

%bli5$ti%& %+ 'e#i*e&t# c%'p%'$te %' %t"e'!i#eH

2F Dividends' The amount received as dividends4.

"a$ from a domestic corporation and

"%$ from a +%'ei5& c%'p%'$ti%&, unless less than fifty percent "+F$ of

the !ross income of such forei!n corporation for the threeyear period

endin! with the close of its taxa%le year precedin! the declaration of such

dividends or for such part of such period as the corporation has %een in

existence$ was derived from sources within the >hilippines as determined

under the provisions of this Section %ut only in an amount which %ears the

same ration to such dividends as the !ross income of the corporation for

such period derived from sources within the >hilippines %ears to its !rossincome from all sources.

3F "ervices Compensation for la%or or personal services performed in

the >hilippines

F -entals and -oyalties. 'entals and royalties from property located

in the >hilippines or from any interest in such property, includin! rentals or

royalties for "a$ The use of or the ri!ht or privile!e to use in the

>hilippines any copyri!ht, patent, desi!n or model, plan, secret formula or

process, !oodwill, trademar0, trade %rand or other li0e property or ri!ht

"%$ The use of, or the ri!ht to use in the >hilippines any industrial,

commercial or scientific e=uipment "c$ The supply of scientific, technical,industrial or commercial 0nowled!e or information "d$ The supply of any

assistance that is ancillary and su%sidiary to, and is furnished as a means

of ena%lin! the application or en-oyment of, any such property or ri!ht as is

mentioned in para!raph "a$, any such e=uipment as is mentioned in

para!raph "%$ or any such 0nowled!e or information as is mentioned in

para!raph "c$ "e$ The supply of services %y a nonresident person or his

employee in connection with the use of property or ri!hts %elon!in! to, or

the installation or operation of any %rand, machinery or other apparatus

purchased from such nonresident person "f$ Technical advice, assistance

or services rendered in connection with technical mana!ement or

administration of any scientific, industrial or commercial underta0in!,

venture, pro-ect or scheme and "!$ The use of or the ri!ht to use4 "i$/otion picture films

"ii$ 3ilms or video tapes for use in connection with television and

"iii$ Tapes for use in connection with radio %roadcastin!.

F "ale o -eal Property 7 Dains, profits and income from the sale of

real property located in the >hilippines and

6F "ale o Personal Property 7 Dains profits and income from the sale

of personal property, as determined in Su%section "2$ of this Section.

F Taxable 'nco+e ro+ "ources 0ithin the Philippines. –

1F General -ule. 3rom the items of !ross income specified in

Su%section "($ of this Section, there shall %e deducted the expenses,

losses and other deductions properly allocated thereto and a rata%le part of

expenses, interests, losses and other deductions effectively connected with

the %usiness or trade conducted exclusively within the >hilippines which

cannot definitely %e allocated to some items or class of !ross income4

rovided , That such items of deductions shall %e allowed only if fully

su%stantiated %y all the information necessary for its calculation.

The remainder, if any, shall %e treated in full as taxa%le income from

sources within the >hilippines.




2F 2xception' o deductions for interest paid or incurred a%road shall

%e allowed from the item of !ross income specified in su%section "($ unless

inde%tedness was actually incurred to provide funds for use in connection

with the conduct or operation of trade or %usiness in the >hilippines.

)F Gross 'nco+e ro+ "ources 0ithout the Philippines' The

followin! items of !ross income shall %e treated as income from sources

without the >hilippines4 "1$ Interests other than those derived from

sources within the >hilippines as provided in

para!raph "1$ of Su%section "($ of this Section "*$ :ividends other thanthose derived from sources within the >hilippines as provided in

para!raph "*$ of Su%section "($ of this Section ")$ Compensation for la%or

or personal services performed without the >hilippines "$ 'entals or

royalties from property located without the >hilippines or from any interest

in such property includin! rentals or royalties for the use of or for the

privile!e of usin! without the >hilippines, patents, copyri!hts, secret

processes and formulas, !oodwill, trademar0s, trade %rands, franchises and

other li0e properties and "$ Dains, profits and income from the sale of

real property located without the >hilippines.

DF Taxable 'nco+e ro+ "ources 0ithout the Philippines' ; 3rom

the items of !ross income specified in Su%section "C$ of this Section thereshall %e deducted the expenses, losses, and other deductions properly

apportioned or allocated thereto and a rata%le part of any expense, loss or

other deduction which cannot definitely %e allocated to some items or

classes of !ross income.

The remainder, if any, shall %e treated in full as taxa%le income from

sources without the >hilippines.

EF 'nco+e ro+ "ources Partly 0ithin and Partly 0ithout the

Philippines' ; Items of !ross income, expenses, losses and deductions,

other than those specified in Su%sections "($ and "C$ of this Section, shall

%e allocated or apportioned to sources within or without the >hilippines,under the rules and re!ulations prescri%ed %y the Secretary of 3inance,

upon recommendation of the Commissioner.

?here items of !ross income are separately allocated to sources within the

>hilippines, there shall %e deducted "for the purpose of computin! the

taxa%le income therefrom$ the expenses, losses and other deductions

properly apportioned or allocated thereto and a rata%le part of other

expenses, losses or other deductions which cannot definitely %e allocated

to some items or classes of !ross income.

The remainder, if any, shall %e included in full as taxa%le income from

sources within the >hilippines.

In the case of !ross income derived from sources partly within and partly

without the >hilippines, the taxa%le income may first %e computed %y

deductin! the expenses, losses or other deductions apportioned or

allocated thereto and a rata%le part of any expense, loss or other deduction

which cannot definitely %e allocated to some items or classes of !ross

income and the portion of such taxa%le income attri%uta%le to sources

within the >hilippines may %e determined %y processes or formulas of

!eneral apportionment prescri%ed %y the Secretary of 3inance.

Dains, profits and income from the sale of personal property produced "inwhole or in part$ %y the taxpayer within and sold without the >hilippines, or

produced "in whole or in part$ %y the taxpayer without and sold within the

>hilippines, shall %e treated as derived partly from sources within and

partly from sources without the >hilippines.

Dains, profits and income derived from the purchase of personal property

within and its sale without the >hilippines, or from the purchase of personal

property without and its sale within the >hilippines shall %e treated as

derived entirely form sources within the country in which sold4 rovided/

however , That !ain from the sale of shares of stoc0 in a domestic

corporation shall %e treated as derived entirely form sources within the

>hilippines re!ardless of where the said shares are sold.

The transfer %y a nonresident alien or a forei!n corporation to anyone of

any share of stoc0 issued %y a domestic corporation shall not %e effected or

made in its %oo0 unless4 "1$ the transferor has filed with the Commissioner

a %ond conditioned upon the future payment %y him of any income tax that

may %e due on the !ains derived from such transfer, or "*$ the

Commissioner has certified that the taxes, if any, imposed in this Title and

due on the !ain reali@ed from such sale or transfer have %een paid.

It shall %e the duty of the transferor and the corporation the shares of

which are sold or transferred, to advise the transferee of this re=uirement.

>F Deinitions. (s used in this Section the words <sale< or <sold<

include <exchange< or <exchanged< and the word <produced< includes

<created< , <fa+ricated< , <manufactured</ <extracted< , <processed< , <cured<

or <aged< .

ou should 0now that the protection or %enefit is received %y the %orrower. (nyactivity performed usin! the funds %orrowed, it has received %enefit or protectionfrom the !overnment. Therefore, it is taxa%le "%enefit principle$. The forei!ncorporation is not re!istered in the 8ureau of Internal 'evenue, it is up to thetaxpayer to withhold the tax.

S#te %+ T$.$ti%& Sc"e*ul$' $&* ?l%b$lF




5-32

Cr

3

0fter all deductions

A

Schedular Income Tax System G it i# !"e& %u p$ i& #ep$'$te #c"e*ule.Income from compensation, %usiness, from exercise of one6s profession, frominvestment etc. they will %e separately filed, deducted with different allowa%ledeductions and computed of different applica%le taxes.

Dlo%al Income Tax System G all source of income, whether it is sourced from activepursuit of %usiness such as income from services, exercise of one6s profession,%usinesses and all income from passive such as investments includin! "practical$!ames and other sources are to %e com%ined and %e deducted from whateverdeductions applica%le. If you are an individual tax payer, you will apply theindividual tax rate and if you are a corporation, you will apply the flat rate of )+F .

Di++e'e&ce: ?l%b$l ITS c%bi&e# e(e't"i&5 !"ile Sc"e*ul$' ITS #ep$'$te#*i++e'e&t i&c%e#?hat we have here is partly !lo%al ITS and partly scheduler ITS.(s illustrated4

Sc"e*ul$' (#7 ?l%b$l?l%b$l Sc"e*7 P?PS

)%p7

P'%+7

u#7

Ot"e' I&c7

P$##i(e

)$pit$l

(ll deductions F)*F or )+F

- Compensation income is sourced from renderin! services, from exercisin!one6s profession, from %usiness, other income, sideline, passive incomefrom investments and capital !ains. If we were followin! the !lo%al ITS, wewill add all of these and deduct the allowa%le deductions and multiply it

with the -324 t$. '$te %+ i&*i(i*u$l# %' 304 +%' c%'p%'$ti%&#7 Inscheduler ITS, there are different incomes. ?e apply tax rates for each.

- ?hy are we partly scheduler ITS and Dlo%al ITS#o ?e com%ine all the active income and su%-ect it to the )*F

individual tax rate or the )+F for corporations and su%-ect it tothe allowa%le deductions or expenses. ?e do not com%ine thepassive income %ecause it is still su%-ect to a final withholdin! tax.This means that whoever is the payor, for example a %an0 for theinterest we earn, will %e o%li!ated to withhold the moment theinterest is earned. (nd then this is already su%-ected with finalityand there is no need to add the income. Capital !ains is onlytaxed at the time there is transaction. This will not %e com%ined atthe end of the year.

?'%## i&c%e K !"e& t"e i&c%e i# t$.e* !it"%ut t"e be&e+it %+ *e*ucti&5t"e e.pe&#e#7 Applie# t% &%&-'e#i*e&t +%'ei5& c%'p%'$ti%&# bec$u#e t"e

$'e &%t e.pecte* t% *% bu#i&e## "e'e t"e'e+%'e t"e i&cu' e.pe&#e# "e'e i&t"e P"ilippi&e# t"e !ill be t$.e* $t 5'%##.

et income G when expenses are allowed to %e deducted

?e are !enerally followin! the net income taxation. The !overnment allows us to

deduct allowa%le deductions except in two types of tax payers. T"e#e $'et"e &%&-'e#i*e&t $lie&# *%e# &%t e.cee* 180 *$#i& t"ei' #t$F $&* &%&-'e#i*e&t +%'ei5&

c%'p%'$ti%&7

Dross income taxation is advanta!eous to the !overnment, it raises more revenues.It is disadvanta!eous to the tax payer %ecause you will not %e allowed to deduct theexpenses you have incurred

et income taxation is advanta!eous to the tax payer since he will %e allowed todeduct %ut such is disadvanta!eous to the !overnment since there is avenue forfraud, taxpayers mi!ht deduct expenses not related to their %usinesses.

>e$tu'e# %+ I&c%e T$.$ti%&- Draduated rates- >ro!ressive- /odified !ross income in a sense that some individuals who are not

en!a!ed in trade, %usiness or profession are not allowed to deduct%usiness expenses %ut it %ecomes modified when they deduct personalexemptions "sin!le or married$ with additional deductions for =ualifieddependents

- Doverned %y >ay as you file system. ?hen you file your income tax return,you are re=uired to pay immediately "then and there$

>e$tu'e# %+ c%'p%'$te i&c%e t$.$ti%&- ot !raduated rates- ot pro!ressive2 P'%p%'ti%&$te '$te %+ 304 'e5$'*le## %+ %u' #t$tu# %+ 'e#i*e&c %'

&$ti%&$lit- 3ollow net income tax 2PC nonforei!n corporations& nonresident aliens

not en!a!ed in trade or profession

- >ay as you file system except those corporations who have availed of theelectronic payin! system wherein they are !iven days in order to paytheir taxes

DATE: 0/21/12

"$t i# i&c%e9Income is all wealth which !oes to the hands of the taxpayer other than the merereturn of capital. This is, say for example, that you were a%le to close the deal forthe sale of >1+ million worth of property.

(ll wealth which flows into the hands of the taxpayer other than the return of capital. If you were a%le to sell >1+ million worth of property, the entire sellin!

price&proceeds is not income %ecause the cost of the property is the return of




capital. ou donKt consider it as profit. Unless the type of wealth which flows intoyou is for the payment of a service %ecause in service you cannot =uantify theaccount of service or the cost actually. If the service is for dancin!, and you werepaid >1+, +++ per dancin!, that ma0es income. ?hat else do you consider, themovement of your %ody itKs not.

Ot"e' t"$& e'e 'etu'& !"$t i# c$pit$l9 S% %u $'e t"e i&c%e %+ %u'p$'e&t#9 Di++e'e&ti$te i&c%e +'% c$pit$l7?hile capital is the tree, income is the fruit. So youKre thin0in! that income is the%yproduct of capital. If you have an existin! fund, any interest earned frominvestin! it will %e the flow of the fund which is of course, the interest income. If there is what you call wealth, income if it the wealth that you receive frominheritance that is your capital. The income would the service of the wealth orany flow outside of that wealth. (s you have said also, capital is the fund orproperty at an instant of time. ou can consider at any point in time with yourcapital is even if youKve "#$ you can consider what your net worth at one instant of time. ou can compute what your capital is for the day. So when you say income, itis the flow of services derived from that income within a specified period of time%ecause income is somethin! which includes the cost, as a !eneral rule. 3or taxpurposes, as well, income is considered within a specified time. Income tax forcorporate taxpayers, their income is considered on a yearly %asis. Individualtaxpayers, income is also considered on a yearly %asis unless if the income that youare considerin! is from one transaction alone which has to %e reported for final taxpurposes. So, those are the distinctions and the return of capital is nontaxa%le. So,example, if you pay premiums for an insurance and you would li0e to withdraw it

and the premium is returned to you, the premiums that you have paid, in the law itis not income %ut rather a return of capital. 8ut whenever an income is !iven toyou, it will %e taxa%le. Capital is nontaxa%le.

"$t $'e t"e #%u'ce# %+ c$pit$l9 "$t i&c%e c$& be *e'i(e* +'% $c$pit$l9 ?i(e e $& e.$ple9Income can %e derived from "1$ capital, "*$ la%or, ")$ %oth capital and la%or, and "$sale of property or dealin!s with properties. ?ith the income which you derivedfrom capital are those types of when you invest a certain fund or wealth that youhave and it will !enerate interest, dividends from shares of stoc0 investments andthese will %e considered income only "#$.

"$t tpe %+ i&c%e i# 5e&e'$te* +'% #e'(ice9 Y%u c$& 5i(e $& e.$ple7u#i&e## i# it pu'el +%' #e'(ice9

Compensation income, income for professional income %y the exercise of profession.

;%! $b%ut t"e c%bi&$ti%& %+ l$b%' $&* c$pit$l98oth investment of la%or and capital may produce income such as en!a!in! in%usiness.

(nd dealin! with property, the sale of "#$. ?ithout =uestion the sale of real orpersonal property.

ut i# t"i# $& e.clu#i(e li#t +'% !"e'e %u *e'i(e* %u' i&c%e9 S% !"$t$'e t"e %t"e' #%u'ce#9Investments is already part of income from capital. Ille!al activities may %e derivedfrom dealin!s with properties or from service. >ri@es or winnin!s so lon! as they arenot exclusions from !ross income. >ri@es and winnin!s, if not an exclusion from

!ross income and usually from investment in capital, so lon! as it is not from a pastservice rendered, then it can %e from other sources. So, I am sayin! that income is

not solely derived from these types. ot only from capital, from service, la%or andcapital or from dealin!s in property bec$u#e i&c%e c%(e'# $ll !e$lt" t"$t+l%!# i&t% t"e "$&*# %+ t"e t$.p$e' i&clu*i&5 t'e$#u'e# ille5$lt'$&#$cti%&# !i&&i&5# 'ecei(e* etc7

D% %u c%&#i*e' t"e p$e&t %+ t"e 5%(e'&e&t %+ Bu#t c%pe&#$ti%& +%'e.p'%p'i$ti%& i# $& i&c%e #ubBect t% t$.9 P'%pe't e.p'%p'i$te* +'% t"e5%(e'&e&t %u !e'e p$i* Bu#t c%pe&#$ti%&7 It i# &%t (%lu&t$' %& %u'p$'t t% #ell t"e p'%pe't but %u *e'i(e* &%&et"ele## Bu#t c%pe&#$ti%&7 I#

Bu#t c%pe&#$ti%& t$.$ble9 ut %u !e'e p$i*9

"$t $'e t"e 'eui'ee&t# %' c'ite'i$ +%' $& i&c%e t% be #ubBect t% t$.9There must %e profit.

D% %u $5'ee t"$t Bu#t c%pe&#$ti%& 'ecei(e* +'% t"e 5%(e'&e&t +'%t"e e.p'%p'i$ti%& %+ p'%pe't i# &%t i&c%e #ubBect t% t$.9 "$t *% %ut"i& cl$## #ubBect t% t$. %' &%t9 " *% %u t"i& it i# &%t #ubBect t% t$.bec$u#e it i# $& i&(%lu&t$' #$le9 Y%u "$(e &% p'%+it9The sale of real property in expropriation cases is still considered as an income. (sto whether or not it is su%-ect to tax, it is su%-ect to tax. (ny sale of real propertythat is considered as a capital asset is su%-ect to the AF capital !ains tax as a rule.8ut %ecause this is considered as su%-ect to the AF capital !ains tax %ased on thesellin! price or fair mar0et value without consideration of how much it actually coston the part of the seller. 8ut %ecause the purchaser is the !overnment, you are!iven freely an option whether to %e taxed at AF capital !ains tax %ased on the fairmar0et value or !ross sellin! price or the )*F tax on the net income. So, yousimply have to choose. ?ould I want to %e taxed at AF %ased on the sellin! price orfair mar0et value or would it %e favora%le on my part at )*F %ut since the %asisis not the sellin! price %ut the profit only. So even if the latter rates to )*F, orany of those rates except F is hi!her than AF %ut the %asis is only the profit. So,if the purchase price of the !overnment is say for example, >1 million, and your costin %uyin! is >1.* million, you %etter choose the )*F, you donKt pay any tax%ecause you did not !ain a profit, you lost. Unli0e the AF wherein you have payAF %ased on the fair mar0et value or the sellin! price without re!ard to how muchyou purchased the property. 8ut if the purchaser of that property is not the!overnment, not in an expropriation case, it has to %e paid at AF re!ardless of the"#$. That is -ust a special case lan! %ut it is taxa%le7 I belie(e t"$t %u "$(e $&*I $ e.pecti&5 t"$t %u "$(e 'e$c"e* t"$t p$'t i& e.clu#i%&# %+ 5'%##i&c%e7 A&* t"e li#t %+ e.clu#i%&# +'% 5'%## i&c%e *%e# &%t p'%(i*e t"$t

e.p'%p'i$ti%& 9F $'e e.clu*e* +'% 5'%## i&c%e 'i5"t9 D% &%t p'e#ue7

?e move on to the next topic 2xistence of Income

T'ue %' +$l#e9 O&l !"e& t"e'e i# p'%+it #"$ll t"e'e be t$.$ble i&c%e9ec$u#e i&c%e t$. i# $ t$. %& i&c%e7 it"%ut $& i&c%e %' p'%+it t"e'e#"$ll be &% i&c%e t$.9 T'ue %' +$l#e9

)'ite'i$ t% *ete'i&e i+ $& i&c%e i# t$.$ble7The +i'#t c'ite'i%& i# t"$t t"e'e u#t be i&c%e %' p'%+it. ou can only say thatthere is income or profit if the proceeds from the service, letKs say from the sale of aproperty less cost of property, there is a possi%ility of difference. /eanin! yoursellin! price is hi!her than the cost, and then you have a profit. ?ithout this profit,as a !eneral rule, that transaction is not su%-ect to income tax %ecause it contracts

taxes on the profit.




0ppreciate

)!p6* ost)!p1* *

Aross :) 5*

)!p .5*/

Cr 9 w!ic!e"er is !i%!er

D;

0ssessorEs CFce

)!p 4*)!p 6*

The exception would %e if the type of income tax, any of those enumerated in letterC, will %e computed on a presumed !ain and not on an actual !ain. There ispresumed !ain if the %asis of the tax is on the capital rather than on the profit.?hen will that happen# Capital !ains tax on real properties is classified as capitalasset %ecause as I have mentioned a while a!o, if what you are sellin! is a realproperty that is classified as capital asset not used in trade or %usiness, the taxthere is a AF capital !ains tax on the presumed !ain. This means AF tax on fairmar0et value or sellin! price, whichever is hi!her. If you have a real property whichyou have purchased for 1 million, you sold it at ++0 %ecause the property hasdepreciated in value. ou incurred a loss.

(s a !eneral rule, income tax will not %e applied. 8ut the %asis of the capital !ainstax is on the capital asset. It is on the sellin! price "++0$ or the fair mar0et value,whichever is hi!her. The fair mar0et value is not within our control unli0e the sellin!price which is in our control. ?e can provide for the sellin! price in the deed of salewhile the fair mar0et value is provided %y the 8I', (ssessorKs <ffice. ?hichever ishi!her will %e the %asis of tax. So if the fair mar0et value is A++0, the capital !ainstax will %e %ased on this amount. Is this a tax on income# ot really. 8ut thepresumption on a capital !ain tax is that there is a presumed !ain pro%a%ly %ecausereal properties appreciate in value as a !eneral rule. If this is case, this is not a taxon income %ut a tax on capital. ?hy# A++0 is a mere portion of 1m. >art of 1m isA++0 which is su%-ected to tax. The ++0 is the amount that you never recoveredfrom your cost. So that is -ust an example, %ut there are still others for the multiplechoices. Just thin0 if that is a tax on income or a presumed !ain of tax.

Nube' 27 T"e i&c%e %' p'%+it u#t be 'e$liGe* %' 'ecei(e* $ctu$ll %'c%&#t'ucti(el7 I# t"e'e $& *i++e'e&ce bet!ee& 'e$liGe* $&* 'ecei(e*9Student4 'eali@ed, for example is a property. ou sell if for 1m and after * years, itsvalue will appreciate to 1+million. ot unless you sell your property, you will nowreali@e the 1+m.

Transcri%erKs notes4•

2xample4 ou have an apartment. ou entered into a contract of lease for 1year. (ll rents paya%le at the end of the 1 year contract. Say for example,you started out the rent or leasin! out of your apartment July 1, *+1+.2ndin! June )+, *+11, midway for the calendar year. (t the end of thecalendar year, :ecem%er )1, *+1+. (re you expected to declare a taxa%leincome from leasin! your apartment as owner# 2S.

• The mere fact that you are a%le to lease out A months over 1* months, the

activity has %een finished from July 1 to :ecem%er )1, *+1+, your ri!ht tocollect has already ripened. It is already due. So you should at the end of the year declare it as a 'e$liGe* i&c%e7

"ile 'ecei(e* i&c%e i#9'eceived income may %e actual or constructive.

Student4 'eceived income "actual$, is when you actually receive the income. ItKsreally in your hands. ?hen you sell somethin!, cost is 1m and sold it at m. So

what you received is the actual money or property is in your hands. Constructivereceived, I will -ust try ma6am. ou are entitled to it %ut you donKt really actuallyhave it. 3or example is a corporation, you are entitled to your share. Stoc0 hasincrease from 1m to 1.m.

?hen you setup a corporation, it will have a separate and distinct personality. Sowhen you setup a corporation, the income of the corporation will not %e counted asincome of the stoc0holder. 3or example, 1+ million investments and throu!h time it!ained 1++million dividends. The value increased. Is it already considered as incomefor stoc0holder# ot yet. Corporation is not a !ood example.

Transcri%erKs notes41. (ctual receipt G income may %e actual receipt or physical receipt.*. Constructive receipt G occurs when money consideration or its e=uivalent ispl$ce* $t t"e c%&t'%l %+ t"e pe'#%& who rendered the service !it"%ut'e#t'icti%& b t"e p$%'7 "Sec. .1+(, '' 1A*++$

8ut in a >('T2'SBI> rather A& i&c%e 5$i&e* i& t"i# e$' !ill bec%&#i*e'e* $# c%&#t'ucti(el 'ecei(e* b t"e p$'t&e'# $&* !ill be e.pecte*t% be 'ec%'*e* i& t"e i&*i(i*u$l t$. 'etu'&# %+ t"e p$'t&e'#7 So if there is apartnership, di%a in a partnership there are re!ular withdrawin!, that is an incomeon individual partners. (t the end of the year, the partnership is not su%-ect to tax%ecause it is presumed that the !eneral professional partnership is not in it forprofit. So if the end of the year, it still reali@ed. If there 1m net income, and notdistri%uted it will %e considered as constructively received %y the individual partners.

So if there are partners, it will %e considered as 1m each on the individualpartners.

So let me !ive an example on constructive receipt of income, if you have a contractof lease and you are the lessor. (nd you have a misunderstandin! with the increaseon the monthly lease. (nd you refuse to receive the amount %ecause to you it is notsufficient. T"e le##ee %' te&$&t *ep%#ite* t"e $%u&t i& c%u't i& %'*e' t%$(%i* $& i&te'e#t !"ic" !ill be c%&#i*e'e* $# $& i&c%e e(e& i+ %u *i*&%t 'ecei(e it7 It i# $l'e$* !it"i& %u' *i#p%#$l7

'eceived of income is of course different from reali@ed income. To received, there isan actual or even not with you %ut it is still within your control. Re$liGe* i&c%e i#&%t et 'ecei(e* but %u "$(e $ 'i5"t %(e' it $l'e$* &%t t'$&#l$te* i&t%c$#" $&* p'%b$bl 'ecei($ble7 E.$ple %u "$(e 'e&*e'e* #e'(ice i&

$&u$' $&* $t t"e e&* %+ t"e e$' %u !ill "$(e t% cl%#e %u b%%# $&*'ep%'t it t% t$. $ut"%'itie#7 %ul* %u c%&#i*e' t"e $%u&t 'ecei(e* $# p$'t%+ %u' i&c%e9 Ye# bec$u#e %u "$(e $l'e$* 'e&*e'e* t"e #e'(ice7A&%t"e' e.$ple i# t"e c%&t'$ct %+ le$#e7 Y%u e&te' i& Decebe' 1 2011u&til N%( 30 2012 &%t p$i*7 A5'eee&t i# p$i* %& N%( 307 At t"e e&* %+ Dec1 2011 %u !ill be 'eui'e* t% 'ep%'t7 S"$ll %u c%&#i*e' it $# p$'t %+ %u'i&c%e9 Ye# t% $ ce't$i& e.te&t 1 %(e' 127 8y :ec. )1, you have alreadyrendered lease services for 1 month already7 E(e& i+ %u "$(e &%t 'ecei(e*p$e&t but #e'(ice i# 'e&*e'e* $# %+ *$te it i# $l'e$* 'ep%'t$ble $#i&c%e but &%t t"e e&ti'et7 'e$liGe*

(nyway there are different test."$t i# 'e$liG$ti%& te#t %' #e(e'$&ce te#t9

Student4 Test when income is actually received or reali@ed %y the person.




At !"$t p%i&t i& 'e$liG$ti%& te#t t"$t i&c%e %' 5$i& i# $l'e$* t$.$ble9'eali@ation test, principle is that there will %e no taxa%le income until and unlessthere is #ep$'$ti%& %' #e(e'$&ce +'% c$pit$l #%et"i&5 t"$t !"ic" i# %+ e.c"$&5e$ble ($lue7 So there is separation or severance from capital of anotherthin!. So 0un! man!ana0 sya or the tree of the fruit. Then that is the time that wesay there is a !ain or income is already taxa%le.

A&%t"e' #tu*e&t *% %u $5'ee9o, they are not considered as taxa%le amount. Stoc0 dividends is not a reali@edincome %ecause it still with the corporation.

;%! !%ul* %u e.pl$i& #t%c *i(i*e&*# t% %u' cl$##$te#9Stoc0 dividends, there is corporation and it !ained from it investments. The stoc0dividends are still with the corporation and it is not severed yet. Stoc0holders arenot free to dispose unli0e cash dividends.

So if cash dividend will %e made, there will %e an expectation of cash to %edistri%uted. <r there could %e property dividends, an expectation of property to %edistri%uted. So there is a severance from your capital investment and that dividendwill %e received. Unli0e when it is a stoc0E

...8ecause tomorrow the corporation may actually decline in its operation, it may %elosin!, it may come to a point when the capital will %e diminished, so lon! as it6s notdistri%uted it6s never within the full control of the stoc0holders, it $ be l%#t %(e'tie7 S% it<# &%t t$.$ble bec$u#e t"e'e i# &% 'e$liG$ti%&7

Ri5"t %+ cl$i t"e%'

In order for a !ain to %e taxa%le the condition is that there must %e the presence of $ cl$i %+ 'i5"t %(e' t"e $lle5e* 5$i& $&* #iult$&e%u#l t"e'ei& $b#e&ce%+ t"e u&c%&*iti%&$l %bli5$ti%& t% 'etu'& t"e $lle5e* 5$i& %' t% 'et$i& t"e$lle5e* 5$i& so that it will constitute an income. the presence of the claim of ri!htover the alle!ed !ain and the a%sence of an unconditional o%li!ation to return.

E.$ple98est example is the reali@ation test.

A&%t"e' e.$ple7 )$& %u *i#cu## t"e e.$ple i& P) (#7 ;e&$'e#7 T$.$ble%' &%t t$.$ble9 "9

Student4 It is taxa%le %ecause it is an income.

(ctually in that case it would center on fraud, whether there6s fraud and whetherthe payment of surchar!e would %e +F or the ordinary "SU'CB('D2 *F,interest *+F, compromise penalty "1+ or +F$ ...%ut we have to discuss the claimof ri!ht here. :i %a there was a deposit of 1+++ and it was erroneously made for1million dollars, thin0in! that it was due to him, it was fully withdrawn, and the taxreturn for that year was filed %ut without declarin! that 1 million as income. Therewas a declaration that althou!h it was not taxa%le it was not paid up taxes. The 8I'said that at the point when the tax return was filed, there was a full claim of ri!htover the alle!ed !ain and the a%sence of an unconditional o%li!ation to return it,!" !$# t"e'e $b#e&ce9 8ecause at the closin! of the period, :ec. )1, there wasnot yet a re=uirement from the depositor althou!h it will %e made to return thefollowin! year, but $# %+ t"$t cl%#i&5 t"$t pe'i%* t"e'e !$# $ +ull cl$i %+ 'i5"t %(e' t"e $lle5e* 5$i& $&* t"e $b#e&ce %+ $& u&c%&*iti%&$l %bli5$ti%&t% 'etu'& it7

Ec%&%ic be&e+it# te#t9Student4 2conomic %enefits test is any economic %enefit that increases the networth of the taxpayer is taxa%le income, whatever the source of the %enefit.

"$t *% %u e$& &et !%'t"9 It6s the value of the person whether natural or -uridical, it6s your assets minus yourlia%ilities, that6s your net worth so if somethin! comes to you increasin! your networth and it satisfies the economic %enefits test, it is taxa%le.

2xample4 you6re an employee of (8C corp., the corp. offered you to purchase stoc0s

to ma0e you a stoc0 holder. the current mar0et value of the (8C stoc0s is at 1*pesos per share, the option !iven to you was to %uy at A pesos per share, if youexercise your ri!ht to %uy.

ill it be t$.$ble9Student4 I thin0 it is taxa%le, %ecause the value of the stoc0s are actually at 1*pesos %ut you are %uyin! it at A pesos, so it will increase your net worth.

;%! !ill it i&c'e$#e %u' &et !%'t"9ou receive more value, when you %ou!ht the shares at A pesos only, you increaseyour net worth %y purchasin! assets.

If the option !iven to the employee was not exercised, there is no taxa%le income,%ecause no money came out of the employee, no asset was received, usually stoc0

options are !iven to !ain the loyalty of the employees to ma0e them stic0 to thecompany. if the employee exercised his ri!ht, !ives up A pesos of his assets inexchan!e for a share valued at 1* pesos, naturally his net worth, his assets minuslia%ilities, !ill i&c'e$#e !"ile t"e *i++e'e&ce bet!ee& t"e +$i' $'et ($lue!"ic" i# t"e $ctu$l #elli&5 p'ice %+ t"$t #"$'e i& t"e $'et i&u# t"e c%#t%+ 5etti&5 t"$t #"$'e 7t"e c%#t !$# %&l "$l+ %+ t"e $'et ($lue7 S% it<#$l'e$* $& i&c'e$#e i& t"e &et !%'t" $&* ec%&%ic be&e+it# te#t !$#c%plie* !it"7

'eco!nition of income, reali@ation of income, methods of accountin!. that is used %ythe taxpayer to compute the tax %ut usually for tax purposes there are threemethods of accountin!. The cash %asis method which is the easiest method tounderstand for nonaccountin! people. whenever you receive cash you reco!ni@e itas income, when you let !o of cash you reco!ni@e an expense and the difference is

the income under cash %asis of accountin!. while the accrual %asis of accountin!, itis not considered as receipt of cash at all times, so lon! as the HHHH has already%een !iven and !oods has already %een delivered and you have a claim of ri!ht overthat, there is already a receipt of all the HHHHH and when you can receive it %ut atthat point the services have already %een rendered income has already %eenearned. (nd in so far as deductions are considered, it does not matter when youincurred the expenses so lon! as you incurred the expense. ou !ot ten -anitors inyour company that already rendered 1 month of service and you haven6t paid theirsalaries, %u 'ec%5&iGe $& e.pe&#e9 es %ecause the services have already %eenrendered in your favor. ?hile the third method of accountin! is a com%ination of %oth, you -ust have to determine which %est serves its purpose.

=et<# %(e %& t% t"e *i++e'e&t i&*# %+ t$.$ble i&c%e9 "%! *% %u cl$##i+5$i&#9Student4 There are * classifications, the capital !ains and the ordinary !ains. forcapital !ains and ordinary !ains, it is important to properly differentiate the two soE




it would %e %est to use the ne!ative application of the tax code, capital !ains isdefined as those assets in the possession&owned %y the entity except the ), thosepropertyE

So whenever a taxpayer would earn an income or a !ain, it is has to %e classified if it is a capital !ain or ordinary !ain. usually the connotation of an ordinary !ain is itcomes from ordinary transactions, and an ordinary transaction will result from theuse of an ordinary asset, so you6d have to 0now what an ordinary asset is. (nordinary asset is not a capital asset, and accordin! to the %oo0 it is defined as if it6snot capital asset it has to %e ordinary asset. in your mind ordinary assets are thoseused in the usual trade or %usiness, exercise of profession..so it may %e the

ordinary asset will produce an ordinary transaction which will produce positively anordinary !ain, and these are your compensation income, income from %usiness andall income from the ordinary dealin!s of property and all other income not classifiedas a capital !ain. Capital !ains are classified as those arisin! from capitaltransactions. capital transactions resultin! in a capital !ains from dealin!s in sharesof stoc0s of domestic corp. not %y a %ro0er of securities, capital !ains arisin! fromreal properties classified as capital assets found in the >hil6s..not those realproperties owned %y a %usiness %ecause if it is owned %y %usiness those areordinary, and num%er ) all capital !ains arisin! from all other capital assets, it will%e discussed separately %ecause it has special rules not applica%le to ordinarytransactions and capital transactions involvin! shares of stoc0s and real propertiesclassified as capital assets.

" i# it ip%'t$&t t% *i#ti&5ui#" %'*i&$' 5$i&# +'% c$pit$l 5$i&#9

Student4 Usually %ecause the treatment of taxation for ordinary !ains are differentfrom the treatment of taxation to capital !ains. ordinary !ains usually are profitsarisin! from transactions while in capital !ains there is a presumption that it arisesfrom profits from capital transactions.

The importance in distin!uishin! %etween capital and ordinary !ains is %ecause wefollow a partly schedular and partly !lo%al income taxes. in !lo%al, all incomere!ardless of the type are taxed at the same rate, while in semi scheduler you haveto differentiate each and every type of income, in partly !lo%al and partly schedular,we only distin!uish %etween, com%inin! all ordinary transactions, com%inin! allcapital transactions, com%inin! the tax rate of income. and there is also importancein 0nowin! the type of income for purposes of complyin! when it is to %e paid,%ecause capital !ains is different in that case and in what type of tax returns to %eused, etc.

"$t i# 5'%## i&c%e9Student4 !ross income are income from whatever source.

Suc" $#9student4 Such as services rendered, income from %usiness.

D%e# it &ee* t% be 'ecei(e* i& c$#" t% be c%&#i*e'e* $# p$'t %+ 5'%##i&c%e9Dross income are all income from your profit or from whatever source derived. (ndit need not %e received in the form of cash for as lon! as it increases your net worthand it satisfy the economic %enefit test or the reali@ation test.

"$t *% %u e$& b i&c%e +'% !"$te(e' #%u'ce *e'i(e*9It is a catch all provision so lon! as income is reali@ed or received whether it comesfrom a le!al or ille!al transaction it will form part of your !ross income, U;2SS it is

!ranted an exemption or an exclusion in any part of the tax code tax, tax treaty orspecial law.

(;?(S '2/2/82' that there is that clause which provide that taxa%le unless thereis an exemption.

Di#ti&5ui#" 5'%## i&c%e +'% &et i&c%eDross Income et income

(llows no exemption and no deduction. The taxpayer is allowed to reduce the!ross income %y deductin! expensesand exemption.

2x. 2xemptions to certain individualsand additional exemptions dependents.

If you are en!a!e in sellin! furniture, durin! the year you imported furniture withthe value of 1m. our sales reached m from that 1m imported furniture. ourexpenses "commission, transportation etc.$ amounted *m. Bow much is your !rossincome and how much is you net income#

"In millions$Sellin! price4 ;ess cost of material used& capital4 1Dross Income4 ;ess4 expenses transpo, commission etc 4 *et income4 *

" *% %u "$(e t% *e*uct t"e c%#t %+ +u'&itu'e98ecause part of the m is simply a return of capital. our capital in order to!enerate sales of million is when you purchase first this inventory of furniture.Costin! 1m.

ot all the m is your profit %ecause you have to deduct your capital. So your !rossincome is m.

Retu'& %+ c$pit$l i# eit"e':• In the form of inventory

• In the form of properties

These are not part of your !ross income

In S2'5IC2S usually, how much is the !ross receipts will %e e=uivalent to !rossincome %ecause you :<6T have the return of capital. Unless you consider

depositin!# <r ;2:ID as a service, then return would %e the capital, !rossincome would %e capital interest G capital

• Dross income the m then net income is after he allowance or deduction

of the expenses of *m. So net income is only *.

Under our -urisdiction, we that we usually follow the net income tax method %utthere are tax payers who are taxa%le at !ross income. So there is an importance in0nowin! how much is !ross income and how much is net income. 8ecause ataxpayer may%e su%-ect to tax at net or at !ross.

?R: T$. p$e'# $'e #ubBect t% t$. b$#e* %& t"ei' &et i&c%e7XPN: "$t tpe# %+ t$. p$e'# $'e #ubBecte* t% t$. $t 5'%## i&c%e9

• '(2T8

• '3C




?hy# 3or the simple reason that they are en!a!e in a trade

or %usiness. "%ecause they have no expenses allowa%le to %ededucted$

)l$##i+ic$ti%& %+ i&c%e $# t% #%u'ce:• sources ?ITBI the >hilippines

• sources ?ITB<UT the >hilippines

• income >('T; within and without

"e'e i# t"e SIT@S O> IN)OME TAX9

:epends if the source of income is within or without.

Sec HH provides for the definition of !ross income and what it includes %ut only saysincludin! %ut not limited to. So there may%e %e other income that does not formpart of !ross income. ?hy is that so# 8ecause in the definition itself of !rossincome is income derived from whatever source.

So the important thin! is to 0now what are the exclusions. :ecause if it4s not anexclusion from gross income it would have to +e an inclusion. The exclusion from!ross income in so far as the tax code is concerned is an 2PC;USI52 ;IST. The otherexclusions is %e found under the constitution or in the special law or under a taxtreaty. 8ut it would help to 0now the list in the tax code.

The exclusion from !ross income in the tax code will start from incomefrom compensation, income from %usiness, income from the exercise of profession,interest, rents royalties etc. "will %e discussed in another topic, enumerate ra daw$

• (s part of

compensation income, as part of it is, frin!e %enefits

%usiness income,

professional income,

income from dealin!s in property

interest

dividends which are %oth income from investments

rents

royalties

pri@es and awards

annuities

pensions

Income from whatever source derived which can %e anythin! you can

thin0 of that increases the wealth of a certain person of corporation.o 2x. ou have a certain inde%tedness. (nd the creditor decided

to condone your de%t, is that considered as income on yourpart# (S4 if it increases your net worth the for!iveness of inde%tedness will %e considered as !ross income %ecause there=uires to part with a certain asset -ust to fulfil a certaino%li!ation. In fact it increased your net worth, %ecause assetG lia%ility N net worth.

o If a lia%ility has %een deducted %ecause it has %een condoned

or for!iven, thus it will increase your net worth and %ased onthe economic %enefit test an increase in net worth is a taxa%leincome.

o If you claim a tax refund from the !overnment. It will %e

taxa%le if you are !iven the money itself or a tax credit

certificate if it will result to the increase of your net worth.

T"e *i++e'e&t SIT@S %+ t"e#e i&c%e t"$t !e "$(e e&ue'$te*7

)%pe&#$ti%& i&c%e- t"e pl$ce !"e'e t"e #e'(ice i# 'e&*e'e* %'

pe'+%'e*7o Q: Y%u $'e $& EE %+ $ *%e#tic c%'p%'$ti%& $# p$'t %+ %u'

t'$i&i&5 %u !e'e 5i(e& $& $##i5&e&t c%&t'$ct t% be #e&ti& %u' p$'e&t c%p$& i& Au#t'$li$ +%' 2 %&t"#7T"e'e+%'e #e'(ice +%' t"e e&ti'e e$' %u !ill be %ut %+ t"ec%u&t' +%' 2 %#7 S% t"e'e+%'e #e'(ice# !ill be pe'+%'e*i& Au#t'$li$7 S% %u !e'e 5i(e& #$l$' i& t"e P"ilippi&e#$&* $ll%!$&ce# i& Au#t'$li$7 S% !"e'e i# t"e #itu# %+ t"ei&c%e *e'i(e* +'% Au#t'$li$9

(ns. (ustraliao Q: $'e t"e $ll%!$&ce# 'ecei(e* i& Au#t'$li$ #ubBect t%

P"ilippi&e i&c%e t$.9es

o (nswerin! a =uestion of situs of the income is different from

answerin! the =uestion whether or not it is taxa%le. Simplydeterminin! the situs it 0now where should it %e taxed. 8ut the=uestion of IS IT T(P(8;2, you not only answer the =uestion of where the situs is %ut you have to 0now what the status of theperson is. So you have to answer the two =uestion in whether it6staxa%le or not and what is the status of the taxpayer %ecause we0now that resident citi@en are taxa%le on income worldwide.

?ithin and without. So even if that * month income has the situsoutside he has to %e taxa%le in the >hilippines.

o Therefore we can conclude that determinin! the situs is very

important if the taxpayer s taxa%le only within. 8ecause if thetaxpayer is taxa%le on his worldwide income you may even for!etwhere the situs is.

o "% $'e t"e#e t!% t$. p$e' t$.$ble !it"i& $&* !it"%ut

t"e P"ilippi&e#9'C and :C ":omestic Corporation$ on its worldwideincome. So if the status of the tax payer is either of thetwo you don6t even have to 0now the situs of the income,<U SB<U;: <; (S?2' TB(T IT IS T(P(8;2.

'eminder4 aside from these *, in cases of status of all

other tax payer, you would have to reli!iously 0nowwhere the situs of income is.

u#i&e## i&c%e- i& t"e pl$ce %+ t"e u&*e't$i&5

?'%## I&c%e +'% u#i&e##

PX Corporation is a forei!n corporation doin! %usiness exclusively outside the>hilippines is not taxa%le %ecause the situs of its income is outside the >hilippines.

A 'e#i*e&t +%'ei5& c%'p%'$ti%& !it" %pe'$ti%&# !it"i& $&* !it"%ut t"eP"ilippi&e#!"e'e i# it# #itu#9Student4 Income from activity within the >hilippines will %e considered as havin!situs in the >hilippines and those income from activities outside the >hilippines will

have situs outside the >hilippines.




0D orp'

Gomestic

@I orp'

Jon-;esident

K19

K19 < interest

w,in L w,o

To answer on whether or not income is taxa%le in the >hilippines, we ta0e intoconsideration the followin!4

1 ?here is the situs G "within or without of the >hilippines$* Status of the taxpayer G"'esident forei!n corporation, domestic

corporations$'esident corporations are only taxa%le for income !enerated within the>hilippines.

P'%+e##i%&$l I&c%eStudent4 Situs is the place where the profession was exercised or where the service

was performed.

Re$l P'%pe'tie#Student4 Situs4 ?here the properties are located

8ut a resident citi@en will %e taxed for income !enerated %y sale of real propertieseven without the >hilippines even thou!h the situs of the 'eal >roperty is not withthe >hilippines. "8ecause taxa%ility is different from situs$

"e'e i# t"e Situ# %+ t"e #$le %+ pe'#%&$l p'%pe't9Student4 >lace of sale.

I> $ *%e#tic c%'p%'$ti%& #ell# $&u+$ctu'e* p'%*uct# i& t"e P"ilippi&e#!"e'e i# t"e #itu#9

Student4 >hilippines.

I+ #%l* %ut#i*e9Student4 <utside the >hilippines.

"ic" p$'t %+ t"e i&c%e i# t$.$ble9Student4 (ll of it.

If it is the sale of products in its ori!inal form, and sold without under!oin! anyprocess, you consider the situs of that to %e where the place of sale has ta0enplace.

8ut if it6s a manufactured product, it6s somehow different. ou consider where it6smanufactured and sold. If the product is manufactured and sold in the >hilippines,

then the situs of that sale is wholly within the >hilippines. If manufactured and soldoutside, the situs is wholly outside the >hilippines. If manufactured outside the>hilippines and sold here, then the situs is partly within and partly without.

There is no pro%lem for domestic corporations %ecause, income !enerated withinand without the >hilippines is taxa%le. 8ut for nonresident forei!n corporations, wereally need to strictly determine the situs %ecause income !enerated %y thesecorporations outside the >hilippines is not taxa%le.Ta0e note of the =uestion I6m as0in!, whether it6s the taxa%ility of the taxpayer orthe situs of the income.

"$t $b%ut t'$&#p%'t *%cue&t#9Student4 Situs is where the transport documents were sold.

These are tic0ets "airfare$. Situs is where it is sold, re!ardless of the destination.

"e'e i# t"e #itu# %+ i&te'e#t i&c%e9Student4 The situs is the residence of the de%tor.

"9Student4 If interest is !enerated, it is presumed that it will have situs where theactivity related to its !eneration was conducted.

So if the de%tor is a resident of the >hilippines, we can assume that the money wasused in the >hilippines and that income was !enerated in an activity conductedwithin the >hilippines.

A) *%e#tic c%'p%'$ti%&F $&* XY &%&-'e#i*e&t +%'ei5& c%'p%'$ti%&FXY le&t A) 1illi%&A) !ill &ee* t% p$ 1illi%& U i&te'e#t"e'e i# t"e #itu# %+ t"e i&te'e#t9Student4 Situs4 >hilippines %ecause de%tor corporation is a resident of the>hilippines.

I# t"e i&te'e#t t$.$ble i& t"e P"ilippi&e#9Student4 es

8alihon nato4A) *%e#ticF le&*# 1 t% XY +%'ei5& c%'p7FXY !ill &ee* t% p$ A) 1 Ui&te'e#t

"e'e i# t"e #itu# %+ t"e i&te'e#t9Student4 Situs is residence of de%tor, PX

T$.$ble i& t"e P"ilippi&e#9Student4 o

IT IS T(P(8;2 I TB2 >BI;I>>I2S 8ecause the income earner is a domesticcorporation, and -ust li0e a resident citi@en, it is taxa%le for income !enerated withinand without. (!ain, the difference %etween situs and taxa%ility.

"e'e i# t"e #itu# %+ 'e&t$l i&c%e9Student4 ?here the property rented is located.




2 Geclared

2 Geclared

8ut if property is rented outside of the >hilippines %ut is owned %y a resident citi@en,it is still taxa%le %ecause all income, within and without, of a resident citi@en istaxa%le.

"$t $b%ut T$. %& '%$lt i&c%e'oyalty income is the income derived from the use or exercise to the ri!ht of anintan!i%le property. "copyri!ht, patent, etc$

Student4 Situs of income from royalties is the place where the intan!i%le propertiesare used.

S% i+ YO@R b%% i# *i#t'ibute* %ut#i*e t"e c%u&t' $&* b$&&e* i& t"eP"ilippi&e# !"e'e i# t"e #itu#9Student4 <utside the >hilippines.

T$.$ble i& t"e P"ilippi&e#9Student4 es, %ecause I am a resident citi@en.

<ther examples4 3ranchise. /c:o, etc. Situs of income from franchise will %e whereit is used.

"$t $b%ut Di(i*e&*#9Student4 It depends on whether the dividends are comin! from a domestic orforei!n corporation.

I3 from domestic4 Situs purely within

If from forei!n4 consider the income of the forei!n corporation in the>hilippines durin! the last precedin! ) taxa%le years4"1$ The income is purely within if the income derived from >hilippinesources is more than F"*$ It is purely without if the proportion of its >hil. income to the total

income is less than +F")$ if it is more than +F %ut not exceedin! F it is partly within andpartly without.

Di(i*e&*a. received from domestic corporation G income purel) within%. received from forei!n corporation G c%&#i*e' t"e i&c%e %+ t"e+%'ei5& c%'p%'$ti%& i& t"e P"ilippi&e# *u'i&5 t"e l$#t p'ece*i&5 3

t$.$ble e$'#:"1$ The income is purel) within if the income derived from the>hilippine sources is more than F"*$ It is purel) without if the proportion of its >hil. income to thetotal income is less than +F")$ -here should +e an allocation if it is more than +F %ut notexceedin! F "partly within and partly without$

2xample4 (8C Corporation is a forei!n corporation. Its total worldwide !ross incomeis 1++/. Its !ross income from the >hilippines is million for the last precedin! )years while from outside of the >hilippines is 1A /. It declared *+ /illion stoc0dividends and it has stoc0holders so each will receive / each.

Total DI 1++/(8C Corp

"3orei!n$

>hil

<ther

DI

DI

/

1A/

St%c"%l*e

'

St$tu# %+ t"e

i&c%e e$'&e'

Situ# %+ t"e

*i(i*e&*

T$.$bilit

( 'esident citi@en >artly

within&partly

without

Taxa%le

8 onresident citi@en >artly

within&partly

without

Taxa%le in the

within part

C 'esident alien >artly

within&partly

without

Taxa%le in the

within part

: onresident alien

doin! trade or

%usiness

>artly

within&partly

without

Taxa%le in the

within part

2 onresident alien

not doin! trade or

%usiness

>artly

within&partly

without

Taxa%le in the

within part

(nother example4 if less than + percent from the >hilippinesTotal DI 1++/

(8C Corp

"3orei!n$

>hil

<ther

DI

DI

/

1A/

St%c"%l*e

'

St$tu# %+ t"e

i&c%e e$'&e'

Situ# %+ t"e

*i(i*e&*

T$.$bilit

( 'esident citi@en without Taxa%le8 onresident citi@en without ot Taxa%leC 'esident alien without ot Taxa%le: onresident alien

doin! trade or

%usiness

without ot Taxa%le

2 onresident alien

not doin! trade or

%usiness

without ot taxa%le

P'iGe# $&* i&&i&5#

>ri@es !iven on account of services rendered G place where the services wererendered

; %f not given on account of service rendered;place where the pri*e wasgiven

?innin!s not !iven on account of services rendered G place where the same wasgiven

- ?innin!s are those not !iven on account of services rendered while >ri@esmay%e !iven on account of services rendered or not !iven on account of services rendered.

- 2very time you receive somethin! and it is attached to a service that you

have rendered, it6s li0e a compensation for services you have rendered so




you %ac0 to the first rule, a compensation !iven is taxa%le where theservice has %een rendered. So pri@es !iven for services rendered is taxa%leon the place where such services were rendered while pri@es and winnin!snot for services rendered is taxa%le on the place where the same was!iven.

I+ %u !%& i& t"e @S 1M $'e %u t$.$ble i& t"e P"ilippi&e# i+ %u !e'e Bu#t%& ($c$ti%&9es, it is taxa%le in the >hilippines even if it has situs outside %ecause the person isa resident citi@en of the >hilippines "taxa%le for income within and without the>hilippines$. So I su!!est that you convert yourself to a nonresident %y notcomin! %ac0 to the >hilippines. Stay in the US for more than 1) days.

( nonresident citi@en is4Cate!ory )4 A citiGe& %+ t"e P"ilippi&e# !"% !%'# $&* *e'i(e# i&c%e +'%$b'%$* $&* !"%#e epl%e&t t"e'e$t 'eui'e# "i t% be p"#ic$llp'e#e&t $b'%$* %#t %+ t"e tie *u'i&5 t"e t$.$ble e$'7 Pe&#i%&

T$. Situ#: place where this +ay be given on account o servicesrendered

- Since pension is somethin! that is more related to a service such as thatyou have rendered in the past and you6re !iven retirement or pension paythen the situs is the place to where the services were rendered.

P'%+e##i%&$l i&c%e %+ p'%+e##i%&$l p$'t&e'#Tax Situs4 place where the exercise of profession is underta&en

- Since it is more on the exercise of a profession, it6s an activity, so it6swhere the activity or the profession is underta0en. It follows the placewhere such profession is exercised.

EX)=@SIONS >ROM ?ROSS IN)OME(re less of income which would have otherwise %een taxa%le had they not %eenexcluded. They are income or wealth which flows to the taxpayer %ut %ecause forsome reason, they are exempt. They will never form part of the !ross income thatwill %e taxed.

To encoura!e socially desira%le activities

Que': A'e t"e t"e #$e $# *e*ucti%&# t% 5'%## i&c%e $# t"e "$(e t"e#$e e++ect %+ 'e*uci&5 t"e 5'%## i&c%e9

:eductions are expenses which are an outflow of money comin! from the taxpayer.They are expenses which are deducti%le.

"$t<# t"e p'i&ciple be"i&* t"e e.clu#i%&9:yin! is not a %usiness. ou insure yourself with the expectation, and if it is atraditional life insurance policy it will only mature if the insurer will die, and youma0e someone as your %eneficiary, you will never !et the proceeds, it will %e yourheirs&%eneficiaries. So it6s not a %usiness, li0e you insure yourself then die insureyourself a!ain then die.. That is why it is an exclusion. In the hands of the heir or

%eneficiary receivin! the proceeds will not %e su%-ect to income tax. This is an

exclusion from !ross income, I am not sayin! that proceeds from life insurancepolicy is not taxa%le, it may form part of the estate of the deceased and may %esu%-ect to estate taxation. In the hands of the heirs or %eneficiary is not su%-ectedto taxation.

E.cepti%&# t% t"e 'ule:If the proceeds were used to secure a monetary o%li!ation Tiu4 really not anexception, %ecause there is an a!reement with the insured and the insurer towithhold the release of the proceeds up to a certain point in time, in the for%earanceof money rule if you use the money of someone else you pay usually on top of it aninterest, so that the insured and insurance company a!reed that only to a certain

point in time will the proceeds %e released even after maturity even after death%ecause the heirs mi!ht still %e too youn! or the insured would li0e the heirs toreceive it when they reach a certain a!e, $& i&te'e#t e$'&e* !it"i& t"$t pe'i%*!ill be c%&#i*e'e* $# i&c%e $l'e$* bec$u#e it i# t"e +'uit# %+ t"ep'%cee*# $l'e$* but t"e p'%cee*# it#el+ i# &%t t$.$ble7

If the proceeds are transferred for a valua%le considerations. I.e. %efore insured die,he sells his insurance pro%a%ly %ecause he canKt afford the premium anymore. If there is a transfer of policy from one person to another, what will occur is that therewould %e a transaction.

T"e t'$&#+e'ee pu'c"$#e it +%' $ p'ice i+ #"e "$# $l'e$* p$i* $ ce't$i&$%u&t %+ p'eiu %u $ #et it $t $ l%!e' p'ice !"$t i# t"e c%#t t% t"et'$&#+e'ee9

The cost to the transferee is the amount that she had !iven up in order to !et thepolicy plus the remainin! premiums that she will have to pay in order to finish thepolicy or to satisfy all the re=uirements, the taxa%le portion there is the difference%etween what the proceeds will %e, less the consideration paid upon purchase of theinsurance policy and the premiums that was su%se=uently paid.

Y%u &%! t"e c%&cept bet!ee& bui&5 $&* &%!i&5 "%! uc" %u' c%#t i#$&* #elli&5 it t% $&%t"e' pe'#%&9 ou naturally don6t want to sell it at a lower price. 3or someone who wants to %uy apolicy, what you will !ive up plus the premiums that you will pay should never %ee=ual to the face value of the proceeds. So any difference is already taxa%le%ecause they are su%-ectin! the transfer of the policy.

Retu'& %+ p'eiu#

Is not taxa%le for the sole reason that it6s a returns of capital. If you o%taininsurance you will have to pay premiums, and premiums as expected will %e lowerthan the face value, even if we total the premiums. If even %efore the maturity youli0e to return the policy, cancel it, any return of premiums will not %e taxa%le sincethis is only a return of capital and in fact you will have some loss %ecause not thewhole premiums paid. 8ut if you receive the premiums after the maturity,expectedly, you will not only receive %ac0 the premiums paid %ut on top of it theinterest from the investment %ecause most of the policy that we have now has aninvestment aspect of it. So for example you too0 out a life insurance policy whichre=uires you to pay premiums of 1++,+++ every year for the next ten years, that6s atotal of 1/, the face value is */, your accidental insurance %enefit is / which isdou%le the face value. ou can receive the */ if you have lived the policy on the*+th year from the first year of payment. If you cannot outlive the policy your heirswill receive the entire */, / in accidental death. If for example you reached thatcertain a!e or you have lived the *+ year maturity period you received the */, youspent it for vacation, how much is taxa%le how much is excluded# In this case, the




whole amount of proceeds after deductin! the premiums paid as this are merereturns of capital shall %e taxa%le. So if he has received the face value amount of */, 1/ for premiums is an exclusion, the difference is taxa%le.

8ut if he cannot outlive the policy for example he expires on the 19th year, the heirswill receive the entire amount of */ or / in accidental death it will not %e ataxa%le income on the part the heirs under cate!ory num%er 1 of exclusion.

The value of the property ac=uired %y !ift %e=uest devise or le!acy.

Item num%er ) refers only to !ratuitous transfers either %y virtue of an inter vivos

transfer or mortis causa transfer. If you tal0 a%out !ift !ivin! %y virtue of a servicerendered it does not fall under the exclusion %ecause it6s the payment for theservices.

" *% %u t"i& t"$t 5i+t 5i(i&5 $'e &%t c%&#i*e'e* $# i&c%e %& t"e p$'t%+ t"e 'ecipie&t *%&%'9The reason why it6s an exclusion from !ross income is %ecause it is already taxed inthe estate and donors taxation, since we have already eliminated donees tax andinheritance tax, and also there is no sense in %urdenin! the recipient of this !ifts,%e=uests, devises or le!acy. so lon! as that which is !iven or transferred does not initself also earn income then its fully exempt from income tax on the part of therecipient, otherwise stated, if the !ift would earn income, any income from the !iftis already taxa%le. example, i would !ive a !ift of an apartment unit, that apartmentunit that i have !iven as a !ift i will pay donors tax, the recipient will not pay any

income tax, will not pay any donees tax, if that which i have !iven is alreadyearnin! income in the form of a rent, there is already a tenant, and i have alsoassi!ned everythin! to that donee, then direct income !enerated will %e taxa%le.

Reti'ee&t be&e+it# pe&#i%&# $&* 5'$tuitie#7"e& !%ul* 'eti'ee&t be&e+it# pe&#i%&# $&* 5'$tuitie# be e.clu*e* +'%t"e 5'%## i&c%e %+ t"e 'eti'ee9* types4

• 'etirement under repu%lic act no. 7A1 which is art. *7 of the la%or code.

• 'easona%le retirement %enefit plan under the tax code + years of a!e 1+

years of service.

"<r collective %ar!ainin! a!reement, or employeremployee company policy etc.$

"$t $'e t"e 'eui'ee&t# +%' $ 'eti'ee&t p$ u&*e' 'e$#%&$ble'eti'ee&t be&e+it pl$& t% be e.ept9

• There must %e a reasona%le retirement %enefit plan set up %y the company

• The employee must at least render 1+ years of service

• The private employee or official must %e at least + years old

• They must %e availed only once. If you ta0e a *nd -o%, after retirement, if

you wor0 on the !overnment your *nd retirement will still %e exempted %utif you wor0 on the private sector your retirement %enefit will not %eexempted.

Re$#%&$ble 'eti'ee&t be&e+it pl$& u#t be $pp'%(e* b !"%9/ust %e approved %y the 8I'. (nd the employer on his own or to!ether with hisemployee must !ive contri%ution to the retirement %enefit plan.

Gits...

So lon! as that which is !iven or transferred does not in itself earn income, then itKs

fully exempt from income tax

<TB2'?IS2 stated, if the !ift earns an income, any income from the !ift is already

taxa%le, example4

(n apartment unit %ein! donated. The donor will pay donorKs tax. The recipient will

not pay doneeKs tax. 8ut if the apartment unit will %e earnin! an income in the form

of rent, that income will %e taxa%le.

'nco+e 2xe+pted ro+ a Treaty

Self;explanator)'''

-etire+ent ,eneits

"e& !%ul* 'eti'ee&t be&e+it# be e.clu*e* +'% t"e 5'%## i&c%e %+ t"e

'eti'ee9

Two types4

1 'etirement under '.(. 7A1, (rt. *7 of the ;a%or Code and the'easona%le 'etirement 8enefitKs (ct under the Tax Code

* 'etirement under the Collective 8ar!ainin! (!reement or the 2mployer

Company >olicy

"$t $'e t"e 'eui'ee&t# u&*e' t"e 'e$#%&$ble p'i($te be&e+it pl$& t% be

e.epte*9

1. There must %e a reasona%le private %enefit plan that is set up %y the company

"ou must first chec0 the >rivate %enefit plan first, in default the provisions in the

;a%or Code on 'etirement shall apply$

R The >rivate %enefit plan must %e approved %y the 8ureau of Internal 'evenue

"8I'$

− /ay %e in the nature of pension plan, profitsharin! plan, stoc0%onus plan

or simply !ratuity payments.

The employer, on his own or to!ether with the employee must !ive contri%ution tothe private %enefit plan. The plan must %e !eneral and not -ust applied to a specific

person and retirement %enefit can %e availed of in time of the retirement. It must %e

esta%lish for the %enefit of all the officers and employees of the company.

The 'etiree must %e at least + years of a!e. (nd must rendered at least 1+ years

of service and it is the first time that one must availed of a retirement that is tax

free. The next retirement must %e taxa%le already unless the next employer is the

!overnment for which, !overnment retirement is nontaxa%le.

"ituation7 ou retire at the a!e of + after renderin! 1+ years of service. The terms

of the C8( is that you can retire upon reachin! the a!e of + <' after renderin! 1

years of service.




E.clu#i%& +'% 5'%## i&c%e %' t$.$ble9

es, still exempted. The terms of the C8( is complied. The word <' renders the

term selective. It is favora%le to the employee.

(tty. TiuKs comment4 It may %e favora%le %ec. If you are hired in the a!e of , then

you may retire the next day %ut of course, retirement pay is computed %ased on the

num%er of years you rendered service.

The C8( can %e made %urdensome %ut not more %urdensome than what is provided

in the ;a%or Code A+ years of a!e minimum retirement or A years of a!e

Compulsory retirement.

Situ$ti%&: There is no C8(, no Company >olicy on 'etirement and no private

%enefit plan.

At t"e $5e %+ 60 !"ile 'e&*e'i&5 10 e$'# %+ #e'(ice c$& %u 'eti'e9 "$t

i# %u' le5$l b$#i#9

es, you can retire under the ;a%or Code provision on retirement. ou can retire at

the a!e of A+ as lon! as you rendered a minimum of years in service.

− 8ut even if you retire in the a!e of + while renderin! 1+ years of

service you cannot !et your retirement pay, %ut may rather !et aseparation pay.

Sep$'$ti%& p$ is Taxa%le unless

− It is occasioned %y death.

− 8y sic0ness

− disa%ility

− (ny authori@ed causes under the la%or Code " %ec. it is %eyond the

control of the employee$

Situ$ti%&: ou are part of the inhouse ;awyers of a company. (s part of their

la%or savin! measure, you were offered a separation pay.

I# t"$t #ep$'$ti%& p$ e.ept9

es. Separation is occasioned %y the la%or savin! measure. Such authori@ed cause is

%eyond the control of the employee hence exclusion from !ross income.

Situ$ti%&: onresident citi@en immi!rant in the U.S. ou reached the a!e of

retirement. ou want to ma0e >hilippines your retirement country. ouKre %rin!in!

with you pension money plus monthly money !iven for retirement.

I# t"$t #ubBect t% i&c%e t$. i& t"e P"ilippi&e#9

o, it is not su%-ect to income tax. 'etirement %enefits, pensions or !ratuities

received %y resident citi@ens, nonresident citi@ens and resident aliens from forei!n

institutions "private and pu%lic$ will %e exempt from income tax in the >hilippines.

P'iGe# $&* !i&&i&5#

Situ$ti%&: ou were shoppin! in (yala. ou were in a hurry. ou let other fill up

your coupon. ou did nothin! aside from shoppin!. ou won 1 million pesos. It is

a0in to receivin! a text messa!e tellin! you that you won.

I# it t$.$ble $##ui&5 %u 'ecei(e t"e 1 illi%&9

es, it is taxa%le. >ri@es and winnin!s to %e exempt must %e received on the

occasion of4

) 'e=uirements

1 on an achievement that is related to4 scientific, artistic, literary,charita%le

* no act to enter on your part to such contest or proceedin!) ot performed any su%stantial service as a precondition to

receive such amount.

2xample4 The C award received %y 2fren >enaflorida.

E.clu#i%&# %+ ?'%## I&c%e

I& #p%'t# c%petiti%&#"e& !%ul* $ p'iGe i& #p%'t# c%petiti%&# be e.epte*9It will %e exempt if it is authori@ed or confirmed %y the ational Sports (ssociationor >hilippine <lympic Committee, whether held locally or a%road.

So the winnin!s of /anny >ac=uiao, his already a professional %oxer, so he is

su%-ect to tax. So lon! as your situs of taxation and your status... If the winner is aresident citi@en, hence it is taxa%le in the >hilippines.

)%pe&#$ti%& +%' i&Bu'ie# $&* #ic&e##Student4 Compensation for in-uries and sic0ness, specifically, must %e related toin-uries and sic0ness. It may %e thru health insurance.

(ny compensation for in-uries and sic0ness suffered %y an employee is not,!enerally, su%-ect to tax %ecause the reason of it is to indemnify the in-ured.

:ama!es awarded %y the court

ill D$$5e# $!$'*e* b t"e c%u't be #ubBecte* t% t$.9Denerally <. There are many 0inds of dama!es G actual, moral, etc. (ctual

dama!es !iven %y the court is totally nontaxa%le %ecause it is a return of capital. Itis e=uivalent to the loss that you have suffered. 8ut for moral, exemplary dama!es,you have to 0now whether it arises from in-ury or sic0ness %ecause, if it is <T, it isnot covered %y the exclusion.

I&c%e *e'i(e* b t"e 5%(e'&e&t %' it# p%litic$l #ub*i(i#i%&#It is not taxa%le, so lon! as it is in the exercise of essential !overnmental functionand pu%lic utility.

I&c%e *e'i(e* i& t"e P; b $ +%'ei5& 5%(e'&e&t %' +i&$&ci&5 i&#tituti%&

I# it t$.$ble9

2xample4

(8C G :omestic Corporation ":e%tor$PX G 3orei!n Corporation "Creditor$




;oan is !ivenSitus in the >B %ecause the de%tor is domestic corporation.

T$. e.ept9<. The forei!n company has to

Reui#ite#:1 The Income earner must %e a forei!n !overnment, or a financial institution

owned, financed and controlled %y the forei!n !overnment, or a re!ionalfinancin! institution still esta%lished %y the forei!n !overnment.

* The income must %e an investment, not a %usiness. 2xample4 %y investin!

in stoc0s it !enerates dividends G so any form of investment in the >B!enerated %y forei!n !overnment or financial institution owned, financedand controlled %y the forei!n !overnment is excluded in !ross income.

?$i&# +'% t"e 'e*epti%& %+ #"$'e# %+ #t%c i##ue* b utu$l +u&*c%p$&

)%&t'ibuti%&# t% ?SIS SSS P$5-Ibi5 $&* u&i%& *ue#2xample4 If you have >hp1+,+++ income monthly and your monthly contri%ution is>hp1,+++. ou are only taxa%le to the amount of >hp9,+++.

e&e+it# i& t"e +%' %+ 13 t" %&t" p$ $&* %t"e' be&e+it#Separation pay G so lon! as the separations is received due to causes %eyond thecontrol of the employee, re!ardless of what a!e he received it or the num%er of

years of service, that is excluded from !ross income.

1)th /onth pay G Bow much is exempt# (ny %enefit that is not considered as are!ular salary every month is exempt only to the extent of >hp)+,+++ only.

?$i&# *e'i(e* +'% t"e #$le e.c"$&5e 'eti'ee&t %+ b%&*# *ebe&tu'e# %'%t"e' ce'ti+ic$te %+ i&*ebte*&e## !it" $ $tu'it %+ %'e t"$& e$'#If it has a maturity period of more than years "example4 certificate of timedeposit$, it is exempt.

@&*e' Speci$l =$!#e757 PEA-'e5i#te'e* e&te'p'i#e#777

De*ucti%&# +'% ?'%## I&c%e

Di#ti&5ui#" *e*ucti%&# +'% e.epti%&# $&* e.clu#i%&#7The return of capital is actually a deduction. Its proceeds plus return of capital G youhave the !ross income. Dross income is the difference of the proceeds and thereturn of capital.

$#ic p'i&ciple# 5%(e'&i&5 *e*ucti%&#$ T"e t$.p$e' #eei&5 $ *e*ucti%& u#t p%i&t t% #%e #peci+ic

p'%(i#i%&# %+ t"e #t$tute l$!F $ut"%'iGi&5 t"e *e*ucti%&72xample4 Section ) of tax code.

b ;e u#t be $ble t% p'%(e t"$t "e i# e&title* t% t"e *e*ucti%&$ut"%'iGe* %' $ll%!e*H $&*/eanin! to say, he satisfies the re=uirement. ?e 0now that salaries arededucta%le. (ny payment that you pay to your secretary is deducta%le.

ow, there you are, an individual "not en!a!ed in %usiness$ %ut you !ivesalary to your yaya. Can you deduct the salary of your yaya from yoursweldo in order to lessen your taxa%le income# o. ou must %e a%le toprove that you are allowed to deduct that one.

c De*ucti%&# $'e #t'ictl c%&#t'ue* $5$i&#t t"e t$.p$e' cl$ii&5 it

Di++e'e&t Vi&*# %+ De*ucti%&#777

Itemi@ed deductions are usually allowed to those taxpayers who are actuallyen!a!ed in a trade, %usiness or profession. ?hile en!a!in! in %usiness, you incur%usiness expenses. (s a professional, you incur %usiness "expenses#$ as a

professional "#$ you hire secretaries, wor0ers, rent a space etc. So if you are strictlyan employee without any other source of income, you cannot claim "#$ itemi@eddeductions.

"$t $'e t"e 5e&e'$l 'ule# +%' iteiGe* *e*ucti%&#9 Di#cu##e* e.te&#i(eli& )%'p%'$te I&c%e T$.$ti%&F

( /ust %e ordinary, necessary and reasona%le8 /ust %e paid or incurred in connection with the taxpayer6s trade, %usiness

or professionC /ust %e supported %y ade=uate receipts or invoices

Opti%&$l St$&*$'* *e*ucti%&# *i#cu##e* e.te&#i(el i& )%'p%'$te I&c%eT$.$ti%&F

- (s a default for a taxpayer en!a!ed in a trade, %usiness or profession, you

are allowed to deduct your %usiness expenses. 8ut you have the option tofore!o the deduction of item per item of %usiness expenses, in lieu of that,deduct the + F from you !ross income without =uestion "#$. if you havesales of 1/ and ++0 return of capitals from the inventory and !rossincome of ++0, +F of ++0 "*++0 !ross income$ can %e availed as adeduction. So you only have a taxa%le income of A+F ")++0$.

- If you cannot provide for ade=uate receipts or invoices for your expenses,do not %other with itemi@ed deductions. Such will %e disallowed. ou canopt for the <ptional Standard :eduction of +F. The Dovernment will not%e chec0in! on your expenses, it will only chec0 your income. That will %efavora%le also if you cannot or do not have expenses more than +F. 3orexample, you rendered services %ut you do not have puhunan. ou do notrent a space %ecause you conduct your %usiness at home with a secretary.Summin! up all the expenses incurred, you can only come up with 1++0,

you decide to claim for the optional standard deduction- 8ut such can only %e availed %y specific tax payers.- <nce chosen, it will %e irrevoca%le durin! the year of option. 8ecause every

taxpayer en!a!ed in trade, %usiness or profession is re=uired to reporttheir income every =uarter and consolidate it at the end of the year. If inthe first =uarter, you opt for the <S:. The second =uarter you reali@ed thatitemi@ed deduction is more advanta!eous, can you chan!e# o.

IteiGe* De*ucti%&# (#7 OSD

Sales >1,+++,+++'eturn&Cost "++,+++$DI > ++,+++:eduction *++,+++ ID %' OSD

> )++,+++




"% c$& $($il9( Individuals 2PC2>T nonresident aliens

a 8ut an individual who purely earns compensation income under an 222' relationship cannot avail such for the reason that <S: is only inlieu of itemi@ed deductions. Since they are not en!a!ed in a trade,%usiness or profession, they cannot claim itemi@ed deduction

8 Corporations, 2PC2>T nonresident forei!n corporationsa <ld law says that corporations are not allowed to claim <S: %ut now

with '( 9+, corporations are already allowed

% <ld law <S: is 1+F

Pe'#%&$l $&* A**iti%&$l e.epti%& *i#cu##e* e.te&#i(el i& )%'p%'$teI&c%e T$.$ti%&F

- 2very individual, whether he is simply an employee or earnin! income fromtrade, %usiness or profession or earnin! %oth types of income, %ecause heis an individual, he is always allowed the %asic personal exemption of 10and for every =ualified dependent "not exceedin! $ *0 each. 8ut you willreach a point where you will 0now that for nonresident aliens, they do nothave dependents in the >hilippines, that is why they are not allowed toclaim for the said exemption.

;e$lt" $&* ;%#pit$l P'eiu# *i#cu##e* e.te&#i(el i& )%'p%'$te I&c%eT$.$ti%&F

- <nly availa%le to individual tax payers

N%&-*e*uctible ite#( >ersonal, livin! or family expenses- ?hy are these not deducti%le# ot related to %usiness, trade or profession.

2.!. !rocery expenses, ni!ht life expenses etc.- The travel expenses to and from the office# It is already included in the

estimate of +0 "which is not reasona%le$ for personal, livin! or familyexpenses per year.

8 (mount paid for new %uildin!s or permanent improvements or %ettermentto increase the value of the property&estate "capital expenditures$

- So if you have a corporation and you will purchase a new %uildin!, it willoperate as an expansion, you cannot %e expected to entirely deduct thecost of the %uildin! from your operations. It is a capital expenditure and

will %enefit you in the future years. Therefore, its cost should also %ededucti%le or distri%uted over time.- If you have a %uildin! in which you expect to live for + years, the cost will

%e made deducti%le every year %ecause it is not ordinary to purchase a%uildin! every time unless you are in the %usiness of sellin! %uildin!s

- 2PC2>TI<4 when it is allowed to %e deducted in full "purchase of new%ld!s.$

o 2ducational institutions

C (mount expended in restorin! property or in ma0in! !ood the exhaustionthereof for which as allowance is or has %een made "ma-or repairs$

- <ther term for ma-or repairs N extraordinary repairs- These are repairs that are expected %enefit future years or extend the life

of an existin! asset. Same principles with 8.- 'eason why it is not deducti%le in the year of its incurrence# This will

distort the current operational income of taxpayers. ou will pay hi!hertaxes in the future years

- ou are only allowed to deduct expenses for a year which are incurred onthe said year.

: >remiums paid on life insurance policy coverin! life of any officer oremployee or of an person financially interested in any trade or %usinesscarried on %y the taxpayer, individual or corporate, when the taxpayer isdirectly or indirectly a %eneficiary under such policy

- ItYs not deducti%le since it will %asically return %ac0 to the company.?henever a company !ets a life insurance for its 0ey officers andemployees etc, the premiums that it will %e payin! to the insurancecompany for the life of its officers may or may not %e deducti%le. It isdeducti%le as a rule if the %eneficiary is the employee or his heirs. ?hy#

othin! can revert %ac0 to the company. The premium it paid, after thematurity or after the occurrence of the event "death$ proceeds will !o toother people. 8ut if it is the other way around, for the %enefit of theemployer, there is an expectation that company will %enefit, not only thepremiums, %ut also the face value "difference of premiums$. There is noloss.

TAXATION 1AY 2012-13

MIDTERMS PART 2

DATE: 0/28/12

8etween dealin!s or exchan!es of property %etween family mem%ers are notallowed %ecause they are not entered into in armKs len!th. It is not the same termsand conditions if they could have %een entered into %y other parties not related orthird persons.

"% $'e c%&#i*e'e* ebe'# %+ t"e +$il98rother or sister whether in full or half %lood, spouse, and ascendants and linealdescendants.

A'e t"e'e %t"e' *e$li&5#9 The losses existin! %etween or simulated losses, it willnot %e deducted, or otherwise, it will distort the taxa%le income of the taxpayer anddeprive the !overnment of the tax that will %e !iven. (ll these items enumerated inletter e from 1 to A are transactions %etween related taxpayers. (lthou!h it is onlyin Z1 are related %y %lood except the spouse, all others are related how#

W29;osses from sales or exchan!es of property, directly or indirectly %etween anindividual and a corporation more than +F in value of the outstandin! stoc0 of which is owned directly, %y or for such an individual.

S% $'e %u #$i&5 $ll #$le# %' e.c"$&5e# %+ p'%pe't bet!ee& $& i&*i(i*u$l$&* $ c%'p%'$ti%& i# &%t *e*uctible i+ t"e i&*i(i*u$l %!&# *i'ectl %'et"$& 04 %+ t"e %ut#t$&*i&5 #t%c# %+ t"e c%'p%'$ti%& i& $ll c$#e# &%e.cepti%&#9 e $'e &%t t$li&5 %+ #$le# but !e $'e t$li&5 %+ $& e.c"$&5e7"$tC# t"e %pe&i&5 p"'$#e92xcept "it does not include$ in cases of distri%utions of property in li=uidation.

"$t i# liui*$ti%&9?hen %usiness is "#$ and the transactions or the windin! up of %usiness affairs of

properties and dealin!s. The nondeducti%le loss does not include this.




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(8C Corporation owned %y /r. (, 8, C, :, and 2 entered into a transaction of salewhere it sold property to /r. ( for >1++/. The cost of the property is >1+/resultin! to a loss of >+/.

I# t"e P0M l%## *e*uctible i& t"e b%%# %+ t"e #elle' A) )%'p7 #% t"$t it!ill 'e*uce it# t$.$ble i&c%e9In order for the loss to %e considered as nondeducti%le, the individual with whomthe corporation is transaction with should own more than +F in value of theoutstandin! capital stoc0 of the corporation. In this case, the ownership of /r. ( in

(8C Corporation is only +F therefore the loss is still deducti%le. 8ut if /r. ( owns1F of (8C Corporation, then the loss will no lon!er %e deducti%le.

I+ t"e t'$&#$cti%& i# bet!ee& 2 c%'p%'$ti%&#9 I# t"e'e $& e.cepti%& t%*i#t'ibuti%&# i& liui*$ti%&92xcept in case of distri%utions in li=uidation where the transaction is %etween *corporations and the individual owns directly or indirectly each of the corporationownin! more than +F of the value of the outstandin! capital stoc0, the law says<T deducti%le. So there must %e an individual who owns %oth corporations morethan +F in order for the loss to %e consider <T deducti%le in order to ma0e the *corporations related taxpayers as well.

(8C Corporation is owned %y individuals (, 8, C, :, and 2. /a-ority owner is 8, A+Fholder. ?hile PX Corporation is owned %y ?, P, , X, and 8. 8 is a controllin!

stoc0holder in PX Corporation ownin! A+F interest.

I+ t"e t'$&#$cti%& 'e#ulte* i&t% $ l%## !it" t"e #$le %+ p'%pe't i# t"e l%##*e*uctible9So in this case, direct ownership of 8 in (8C is A+F while direct ownership of thesame person 8 in PX Corporation is A+F. 8oth ownerships is more than +F invalue of the outstandin! capital stoc0 in %oth corporations. The loss is <Tdeducti%le %ecause only one individual controls %oth corporations and the result,that controllin! the sale transaction.




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I+ !e c"$&5e t"i# 04 t"e %t"e' 04 i# t"e l%## *e*uctible9

Student4 If that is /aKam, the loss is deducti%le %ecause 8Ks ownership in PXCorporation is less than +F.




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D indirect 3

4

3Sti** De"#$ti(*e

ill t"e %!&e'#"ip i& b%t" c%'p%'$ti%&# be %'e t"$& 049Student4 es /aKam.

In PX Corporation, the ownership&the controllin! stoc0holder is not 8 alone, so thetransaction is not %etween related taxpayers in accordance with Sec. )A of you TaxCode. Therefore, the loss is deducti%le.

8ut it says here that the ownership of the same individual in %oth corporations may%e direct or indirect. ?e have illustrated direct ownership.

"$t *% %u e$& b i&*i'ect %!&e'#"ip9

;etKs say, it should only total 1++F. If 8 owns only 1+F here, we !ive :23 )+F. If /r. 8 owns 1++F of this one while the other stoc0holders only own 1 share eachresultin! to +F of ownership, it is possi%le class, %ecause you can fully own acorporation consistin! 1 share to other individuals to ma0e up the minimum mem%ers of the 8oard.

I+ %!&# t"e e&ti'e DE> )%'p%'$ti%& c$& !e #$ t"$t t"e#e 2 c%'p%'$ti%&#$'e 'el$te* t$.p$e'# $&* t"e l%## &%t *e*uctible9In this example, the ownership of 8, direct ownership is 1+F, indirect ownership is)+F. The total of only +F. Still not related taxpayers.

In (8C Corporation, it is /r. 8 who controls the corporation A+F direct ownership.In PX Corporation, there are individuals and 1 corporation who owns PX./a-ority owner of PX is :23 Corporation. Individual stoc0holders own or 1+ orF. /r. 8 ownin! 1+F. :23 Corporation is owned %y A+F /r. 8 and 1+F %y otherindividuals letKs say S, T, U, and 5.

I+ t"$t i# t"e #t'uctu'e !ill t"e l%## #u#t$i&e* b t"e #$le %+ p'%pe't be

*e*uctible9


d d %l



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D indirect 36

46

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D indirect 42

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Student4 ot :educti%le.

"9 "% i# t"e c%%& #t%c"%l*e' i& b%t" c%'p%'$ti%&#98. 8Ks ownership in (8C is more than +F. ?e need to esta%lish that he has morethan +F in PX to ma0e the loss nondeducti%le.

D%e# "e %!& %'e t"$& 04 i& XY9Student4 o /aKam.

T"e'e+%'e t"e l%## i#9Student4 :educti%le

Y%uC'e c"$&5i&5 %u' $&#!e'9Student4 es. :educti%le.

The loss is deducti%le %ecause the ownership of 8 is not more than +F.

S% !"$t i# t"e c%bi&e* %!&e'#"ip %+ i& XY )%'p%'$ti%&9 "$tC# "i#t%t$l #"$'e9 Di'ect %!&e'#"ip i#91+F

I&*i'ect %!&e'#"ip i#9)AF "e=uals AF. :educti%le$

I+ I c"$&5e t"i# t% 04 !ill t"$t c"$&5e %u' $&#!e'9If 8 owns 7+F of :23, his indirect ownership in PX is actually *F which is 7+F of A+F. That ma0es it a total of *F ma0in! the loss <T deducti%le %ecauseownership in the * corporations is more than +F in value of the outstandin!

capital stoc0.

So tracin! indirect ownership may !o as hi!h as layers of corporations. (ll youhave to do is compute what is the indirect ownership.

XY )%'p%'$ti%& i# %!&e* 604 b A) )%'p%'$ti%& $&* X Y $&* $t247 I+ $ P0M l%## i# #u#t$i&e* !ill t"e l%## be *e*uctible9 T"e %!&e' %+ XY i# ,04 i# A)7 St%c"%l*e'# %+ A) i# #till A ) D $&* E7 >%'5%t$b%ut t"i# %&e l$&57 ec$u#e t"e #t%c"%l*e'# %+ A) i# #till t"e #$e7 ItC#t"e #$e c%'p%'$ti%&7Student4 :educti%le /aKam

" *e*uctible9Student4 ondeducti%le /aKam

" NOT *e*uctible9

So youKre %asin! your answer on 8Ks presence.

Onowin! 8 owns A+F in (8C Corp. and 8 owns more than +F in PX Corp. otdeducti%le.




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Arantor,trustor

iduciary,trustoriduciary

DeneNciary

Still nondeducti%le for it is not the stoc0s of a stoc0holder that we are tal0in!a%out.

Transactions %etween two corporations, loo0 into the status loo0 into therelationship of the other corporation to the other party. If the other party is theholdin! company of the *nd party, then automatically that is not deducti%le. It will -ust result in the same thin!. The loss is simulated. The transaction is simulated.The *nd corporation in passin! hu!e income and few expenses to deduct, they enterinto simulated transactions to suffer losses and deduct the losses. In order tocontrol that, losses on related party transactions are not deducti%le.

"(dditional 3i!ure&:rawin!s for us to compute mentally durin! our class$

(nd the last two related part.et!ee& 5'$&t%' $&* +i*uci$' %+ $& t'u#tHet!ee& +i*uci$' %+ $ t'u#t $&* t"e +i*uci$' %+ $&%t"e' t'u#t i+ t"e #$epe'#%& i# $ 5'$&t%' !it" 'e#pect t% e$c" t'u#tHet!ee& $ +i*uci$' %+ $ t'u#t $&* $ be&e+ici$' %+ #uc" t'u#t7

This occurs in trusts relationship The transactions %etween the !rantor or trustor,%etween the trustee or fiduciary. ;oss resultin! from this transaction is notdeducti%le. ou are sayin! the transaction %etween the fiduciary and the %eneficiary.:i%a, a trustor will trust a property into a trustee in favor of a %eneficiary. If thetransaction is %etween these two parties, the loss is not deducti%le and thetransaction %etween two fiduciaries with the same !rantor is not deducti%le.

I&te'e#t e.pe&#e# $&* b$* *ebt# %etween related parties are not deducti%le. (sa !eneral rule, interest expenses and %ad de%ts form part of the itemi@ed expensesof Section ). 8ut if the transaction resultin! to the interest expenses, for example,

the loan is o%tained from a related party, then interest expense is not deducti%le. (s


t h l t d ti i tl th h t h di d Th t id t li d i t d % i d id t li t d i



to who are related parties is exactly the same as what we have discussed. Thatwould result to losses. Interest expenses %etween family mem%ers are notdeducti%le. Interest expense %etween an individual ownin! a corporation more than+F, not deducti%le. Interest expense %etween two corporations where oneindividual owns more than +F of %oth corporations, the interest expense and %adde%ts are not deducti%le.

=%##e# +'% !$#" #$le# %+ #t%c #ecu'itie# are !enerally not deducti%le %ecausethese are simulated transactions that are intended to ma0e the stoc0 exchan!eactive in tradin!. That is !enerally not deducti%le except if the seller is en!a!e in thesale of securities.

(nd others, such as &%&-*e*uctible i&te'e#t# t$.e# $&* l%##e# will %ediscussed when we reach itemi@ed deduction.

I. Oinds of Income taxpayer, is simply an introduction. "'eiteration of theSylla%us$1. Individual Taxpayers

a. Cit i@ens%. (liensc. Special Class of individual employees.

*. 2states and Trusts taxed similarly as individuals). Corporations

a. :omest ic%. 3orei!n

c. Joint ventures and consortiumsd. 2xempt corporations such as schools, cemetery

. >artnerships taxed similarly as corporations except !eneral professionalpartnerships %ecause these are exempt from tax

. Coownership may %e taxa%le or not taxa%le dependin! on incomederived from the coowned property.

<ur next outline refers to individual income taxation.

"$t $'e t"e 5e&e'$l p'i&ciple# $pplic$ble t% i&*i(i*u$l i&c%e9Section *)

1. ( resident citi@en is taxa%le on all income derived from sources within andwithout the >hilippines.

*. ( nonresident citi@en is taxa%le only on income derived from sourceswithin the >hilippines.

Sec. **"2$ enumerates who are nonresident citi@ens). (n overseas contract wor0er is taxa%le only on income from sources within

the >hilippines a seaman who is a citi@en of the >hilippines and whoreceives compensation for services rendered a%road as a mem%er of thecomplement of a vessel en!a!ed exclusively in the international trade shall%e treated as an overseas contract wor0er.

. (n alien individual, whether a resident or not of the >hilippines, is taxa%leonly on income derived from sources within the >hilippines.

. ( nonresident alien individual is taxa%le only on income derived fromsources within the >hilippines.

'esident citi@ens are taxa%le on all income derived from sources within and withoutthe >hilippines. The other class recited, resident citi@ens are taxa%le on all incomefrom sources within and without all others are taxa%le on all taxes within. 8ut we

have to enumerate into resident citi@ens, nonresident citi@ens, resident aliens, non

resident aliens en!a!ed in trade or %usiness and nonresident aliens not en!a!ed intrade or %usiness. es it is true that they are only taxa%le of income derived fromsources within. ;ater on we will discuss who are resident citi@ens, nonresidentciti@ens, resident aliens, nonresident aliens en!a!ed in trade or %usiness or nonresident aliens non en!a!ed in trade or %usiness.

<verseas contract wor0ers are considered nonresident citi@ens %ecause theirphysical presence is in a%road and they are employed a%road.

;%! $b%ut #e$e&9 "/aKam was lau!hin! while sayin! the word$(ll those seamen, they are always considered as nonresident citi@ens# onresident

%ut where do they reside# In the %oat or vessel. These %oats travel we cannot saythat they are always nonresident. If the %oat is doc0ed here, they are consideredresident citi@ens. I did not say international.

?e have to distin!uishedIn order for a seaman to %e =ualified as a nonresident overseas contract wor0er. Behas to %e a mem%er or a complement of a vessel that is exclusively en!a!ed ininternational shippin!. (nd he has to %e away from the country most of time durin!the year. <therwise, he will %e treated as a resident, taxa%le on income derivedfrom sources within and without the >hilippines.

There is no need to discuss who is a resident citi@en. It is a 3ilipino who resides inthe country and does not =ualify as a nonresident citi@en. They are purely receivin!compensation under an employeremployee relationship or purely in trade or

%usiness and one who is en!a!e in %oth.

" *% !e "$(e t% cl$##i+ t"e#e i&*i(i*u$l#9 8ecause later on, we will have to 0now who are allowed to deduct certain expensesor not.

"% i# $ &%&-'e#i*e&t citiGe&9There is an enumeration in Section **Sec. **"2$, the term Lnonresident citi@enM means4"1$ ( citi@en of the >hils. who esta%lishes to the satisfaction of the Commissioner

the fact of is physical presence a%road with a definite intention to reside therein"*$ ( citi@en of the >hilippines who leaves the >hilippines durin! the taxa%le year to

reside a%road, either as an immi!rant or for employment on a permanent %asis.")$ ( citi@en of the >hilippines who wor0s and derives income from a%road and

whose employment thereat re=uires him to %e physically present a%road mostof the time durin! the taxa%le year.

"$ ( citi@en who has %een previously considered as nonresident citi@en and whoarrives in the >hilippines at any time durin! the taxa%le year to residepermanently in the >hilippines shall li0ewise %e treated as a nonresident citi@enfor the taxa%le year in which he arrives in the >hilippines with respect to hisincome derived from sources a%road until the date of his arrival in the>hilippines.

"$ The taxpayer shall su%mit proof to the Commissioner to show his intention of leavin! the >hilippines to reside permanently a%road or to return to and residein the >hilippines as the case may %e for purpose of this Section.

" *% !e "$(e t% *i#ti&5ui#" $ &%&-'e#i*e&t t% $ 'e#i*e&t citiGe&98ecause an income of a nonresident earned outside of the >hilippines is nottaxa%le.


3irst type of non resident citi@en ( citi@en of the >hilippines who esta%lishes to the She applied as immi!rant for US( scheduled to depart ov 1 :urin! this period



)19

:topped

orin%

+uly

28Jo"'

Gec' 31

J;

:tatus ( J;

ncome to )!il ( )19.deri"ed from sources wit!in/

3irst type of nonresident citi@en. ( citi@en of the >hilippines who esta%lishes to thesatisfaction of the Commissioner the fact of is physical presence a%road with adefinite intention to reside therein

" i# t"e'e $ &ece##it t% i&+%' t"e )%i##i%&e' %' %u' l%c$l *i#t'ict%++ice t"e +$ct %+ %u' p"#ic$l p'e#e&ce $b'%$* $&* t"e +$ct t"$t %u $'e&%t i&te&*i&5 t% $e t"e P"ilippi&e# %u' 'e#i*e&ce9 In order to close or ma0e inactive your 8I' 'e!istration for the >hilippines.<therwise, for example, you have %een practicin! law in the >hilippines and madetax returns every year. ou decided to mi!rate without informin! the 8I'. They willcontinue to expect you su%mit your tax returns every year. In fact, they will,

wherever your last address was, sendin! over a letter as0in! you to file your taxreturns that you have not su%mitted. This is so %ecause %ased on the records youare still a resident of the >hilippines and you are still taxa%le on income within andwithout.

*nd type and )rd type of nonresident "<pinion of student4 8asically those who arewor0in! a%road P:$

"$tC# t"e *i++e'e&ce bet!ee& &ube' 2 $&* &ube' 39;et us say you !ot your visa today, and you are re=uired to leave the >hilippinesand live in a%road as an immi!rant within the year. ou !ot the tic0et and you arere=uired to live in the States as an I//ID'(T there. ovem%er 1, *+1+ youarrived there

A'e %u c%&#i*e'e* $# &%&-'e#i*e&t citiGe&92S "Immi!rant or permanently a%road para!raph *, Sec **$

<0, so when you6re a nurse you will %e considered as a nonresident citi@en %ecauseyou have to complete the 1) period. If you have an income from Jan. until today of >1 million, and prepared to leave on ov 1 then you earned income in US( fromov.* to Jan. )1 [1++,+++.

;%! uc" i&c%e i# t$.$ble9Student4 [1++,+++

She applied as immi!rant for US( scheduled to depart ov. 1. :urin! this periodshe earned >1 million. In the US( arrived ov *, she earned [1++,+++.

"$t i# t"e #t$tu# %+ t"e t$.p$e' $&* "%! uc" i# #ubBect t% P"ilippi&et$.9This is different than when you leave the country for employment where you shouldspend more than 1) days to %e taxa%le here. In this situation she is considered anonresident alien from the time she left as an immi!rant and even thou!h shespent more than 1) days in the country.

;%! uc" i# t$.$ble i& t"e P"il#79

Taxa%le only for 1 million. It doesn6t mean that a person is already an immi!rant hecan6t %e taxed anymore in the >hils. (s lon! as the income is !ained here, he can %etaxed.

Cate!ory num%er )"$t i+ "e #t$e* e.$ctl 183 *$#9 (lready considered as most of the taxa%le year. Balf of the year is 1*. days.

2mployee of (8C corp. you have to leave the country for a * year trainin!a!reement. ;eavin! July *, you will come %ac0 July *7 "*+1$. ou will %econtinually receivin! you salary plus allowances for livin! a%road. If you havesalaries totalin! >1 million, then your allowances and other income totalin![1++,+++.

I& 2012 !"$t i# %u' #t$tu# - 'e#i*e&t %' &%&-'e#i*e&t9 In *+1* he is still a resident citi@en.

;%! uc" i# t$.$ble9 Be will %e taxed for %oth >1 million and [1++,+++ %ecausehe is still a resident citi@en. Bis wor0 a%road is only permanent, he can6t %econsidered as an immi!rant or that his -o% is permanent, he is under cate!ory ).Therefore his stay here of 1) days already =ualifies him still as a resident citi@enand %ein! such he is taxa%le for income earned from within and outside the country.

I& 2013 !"$t i# "i# #t$tu#9 The entire year he was a%road so he will %e considered nonresident citi@en for thatyear.

;%! uc" i# t$.$ble i&c%e i& t"e P"il#9The income is Lcompensation incomeM and its situs is outside of the >hils. In *+1)the service is rendered a%road, no matter where the income is paid its situs is stilloutside the >hils.

I& 2019Student4 Be is a non resident citi@en. Be will already %elon! to the th cate!ory.Since for *+1) he was considered a nonresident citi@en.

"$t i# "i# #t$tu# i& 2019• 3ourth classification. 'C says that a citi@en that has previously

considered as a nonresident citi@en and who arrived in the countryanytime durin! the taxa%le in order to reside permanently in >hilippines isconsidered as 'C at the day of his arrival.

• So he is considered as a 'C up to July 7 only. So durin! this period an

income within is taxa%le. 8ut from the point that he has arrived he will %e


considered already a 'C and taxa%le already for income within and without o Calendar year starts January 1 and ends :ecem%er )1



+uly31

0u%31

:ept3

Cct31

Jo"3

Gec31

184

;

3P1M i! taxa(*e

.J;0 pre"ious year/

34156,666 i! NOT taxa(*e3P1M i! taxa(*e

J;;J;

considered already a 'C and taxa%le already for income within and withoutthe >hilippines.

Situ$ti%&: I+ %u' t'$i&i&5 c%&t'$ct +%' 2 e$'# i& t"e @S !%ul* #t$'t ul 12012 till u&e 30 201 #% %u le+t t"e c%u&t' u&e 2, 20127S$l$' +%' "$l+ %+ t"e e$' 10000777

• Since he left the country earlier and his stay outside of the country and his

stay outside of the country would total to 1 days. That6s more than the1) days. Be will %e considered as 'C even if it is only a temporaryemployment, "under the cate!ory num%er )## ot sure.$ :urin! the entiretaxa%le year of *+1*.

• (s we said under Sec. *) !eneral principle a 'C is only taxa%le for income

from sources within. So only 1 million would %e taxa%le. So you have toleave the country earlier under the cate!ory num%er ) %ecause durin! thatyear %ecause only income earned from sources within will %e taxa%le.

I&c%e %& 20139• Income will not %e taxa%le since you are 'C and the source of income is

without. Those income from within will %e taxa%le.I&c%e %& 2019

• (t the year or arrival he will %e considered as 'C up to the day of his

arrival on the condition of that he was treated as a nonresident in theprevious taxa%le year. (s a 'C from January 1 to June )+ only incomewithin are taxa%le. 3rom July 1 until :ecem%er )1, the income whetherwithin or without are taxa%le %ecause he reverted %ac0 to his status of %ein! a 'C.

A'e t$.$ble e$' $l!$# #t$'t# !it" $&u$' 19• 3or individuals 2S.

• Corporations have options to choose whether to have the calendar year or

the fiscal year.

o Calendar year starts January 1 and ends :ecem%er )1

o 3iscal year starts any day except January 1 and ends )A&)AA

days thereafter.

"$t i+ %u $''i(e l$te !it" le## t"$& t"e 183 *$# "e'e i& t"e P"ilippi&e#!ill %u #till be c%&#i*e'e* $# $ R)9

• es, same with the example earlier, he came %ac0 to the >hilippines July *

and he was a%road most of the time. Be will only %e considered as a 'Cup to the point of his arrival not for the entire year. The year of his arrivalis divided into 'C and 'C.

"I can6t hear -asper6s =uestion -ud. ;an! a0on! i%utan!$• 2xcept for cate!ory if you are a returnin! resident, %ecause it is unfair, if

you are previously considered as a 'C then in the year of arrival would itmatter if you came %ac0 earlier or later if income of the year of arrival isstill a continuin! income in the previous taxa%le years you are consideredas a 'C. 8UT this will only happen if in the previous taxa%le year you areconsidered as a 'C.

• ou have to indicate in your tax return that you are a nonresident citi@en.

• 'eturnin! resident mean that you have stayed out of the country for more

than A mos.

I+ "e $''i(e# u&e 30 but "e #till c%&ti&ue* t% 'ecei(i&5 #$l$' +'% "i#!%' %ut#i*e %+ t"e c%u&t'7 "$t !ill be t"e t'e$te&t %+ t"$t *el$e*#$l$'9

• If the income is sources from outside then the situs is where the service isrendered. So that salary is for the services he rendered while he wasoutside of the country. ou have t consider your income up to the point of arrival. So that is only considered as delayed payment and not delayedservice. So that income is <T T(P(8;2 %ecause it is income without.

• 'emem%er4 ?B2 TB2 S2'5IC2 IS '2:2'2: <T ?B2'2 TB2 S2'5IC2

IS '2:2'2:.

"% i# $ &%&-'e#i*e&t $lie&9 " i# $ RA t'e$te* $# $ 'e#i*e&t +%' t$.pu'p%#e#9

• Came to >hilippines for a definite purpose which in its nature may%e

promptly accomplished.• /ere transient

• ?hether he is a transient or a so-ourner or not is not determined %y his

intentions with re!ards to the len!th and nature of his stay.• I3 his intention to stay here in the >hilippines is for a definite purpose, for

example 'achel ?eiss, she is considered to %e a '( for tax purposes. 8utas '( we have to classify if they are 2T8 or 2T8.

I# t"e'e i# $ be&c"$' +%' t"e &ube' %+ %&t"# %+ #t$ t% bec%e $ RA73or '( do not use the 1+ or less %ecause that6s not for '(.

"% $'e 'e#i*e&t $lie&#9 '( are those who ma0e the >hilippines their temporary home country even

they have in the future the intention to !o %ac0 to their home country.2ither their intention to stay is indefinite or definite %ut for lon!er periodsof time to ma0e the >hilippines their temporary home country. They will %econsidered as '( for that purpose.

ot a mere transient or so-ourner


If the purpose is extended temporarily even if it is definite ot as yet %ecause in *+1+ he only stayed for one or less than a month 8ut for the



If the purpose is extended temporarily even if it is definite.

So we can6t say that there is no fix measurement of days or months of

stay. 8ut for practical purposes usually the tax authorities would re=uirethat there is at least a continuous stay of more than a year for forei!nindividual to %e considered as '(. 8ecause '( are taxed more similarly to'C than '(.

o E.: '( allowed to deduct personal exemptions while '(2T8

are totally not allowed %asic exemptions. Bowever '(2T8 areallowed only certain exemptions.

Di#ti&5ui#" bet!ee& $ NRA-ET $&* NRA-NET9

NRA-ET NRA-NET(n alien who stays in the >hilippinesfor %'e than 1+ days "?hethercontinuous or a!!re!ate.$

(n alien who stays in the >hilippinesfor 1+ days or le##. "?hethercontinuous or a!!re!ate.$

G )*F schedular rate *F final tax

2ntitled su%-ect to the rule onreciprocity

ot entitled

tax %ase is his gross income

• The distinction %etween '(2T8 <' '(2T8 has no bearing as to his

activities here in the >hilippines. So whether or not he is 2T8 <' 2T8 solon! as he stays in the country for more than 1+ days durin! the year hewill %e treated for tax purposes as a '(2T8. 8ut for those stay is 1+days or less even if they actually performed profession for a month %ut

%ecause their stay is 1+ days or less they will %e considered as '(2T8.

• So what is really important the total num%er of days that they have in the

country. Usually their passports are chec0ed for the num%er of days thatthey have stayed.

"% $'e #peci$l epl%ee#9

(re those employed %y a special corporation4

17 '(B\ of a multinational corporation27 '<B\ of a multinational corporation37 <ffshore %an0in! unit7 >etroleum service contractor.

Re#i*e&t $lie&

2ven if there is no num%er of days for an alien to %e considered as a resident, forpracticality, the 8I' would re=uire an alien to have stayed in the >hilippines for acontinuous 1 year in order for him to %e considered as a resident alien.

8ecause for aliens, individuals, they are considered on a year to year %asis]3romJan 1 G :ec )1

So for example4Client came to the country under a special wor0in! permit which he intends torenew every A months. Be came to the country on :ecem%er *+1+. Bis employmentis more than a year "indefinite$.

ut +%' t"e cl%#e %+ 2010 c$& !e $l'e$* c%&#i*e' "i $# $ 'e#i*e&t $lie&9

ot as yet %ecause in *+1+ he only stayed for one or less than a month. 8ut for theclose of *+11, he has stayed continuously for the entire *+11. 8y the time he fileshis tax return, he can already %e considered as a resident alien allowed to deductexpenses %ecause at the point of *+11 when he has filed his income tax return, hehas already stayed in the >hilippines for a continuous period of more than 1 year "1month for *+1+, and the whole of *+11$

If he decides to !o %ac0 to his home country %y *+1*, then he can still %econsidered a resident alien up to the point of his departure.

Speci$l epl%ee#A'e t"e $l!$# $lie& epl%ee# %' c$& t"e be >ilipi&% epl%ee#9Denerally4 only alien employees occupyin! mana!erial, supervisory, technicalpositions can %e special employees2xcept4 4 in cases where no alien individual can fill up that re=uirement would a3ilipino individual %e allowed to %ecome a special employee su%-ect to thepreferential, special tax rate of only 1F.

Special employees are those employees employed in special corporations employeesoccupyin! mana!erial, supervisory, technical positions.

Speci$l c%'p%'$ti%&# are the followin!41 'e!ional (rea Bead=uarters "'(B\$ of multinational corporations, defined

in Sec. *** 'e!ional <peratin! Bead=uarters "'<B\$ of /ultinational Corporations,defined in Sec. **

) <ffshore %an0in! units >etroleum service contractors

"$t *% %u u&*e'#t$&* $b%ut RA;Q# $&* RO;Q#9Student4 '(B\s do not earn income. It is exempt from tax %ecause it is nonoperational "does not earn anythin!$.

'<B\s, render services, earns income thus taxa%le.

Taxa%ility of resident citi@ens and nonresident citi@ens6 income

Same4 Draduated tax ratesSame4 Taxa%le on 2T income "deductions allowed$Same4 Income within >hilippines taxa%le<;4 'esident Citi@ens are taxa%le for their income !enerated outside the>hilippines>ossi%le income that individual taxpayers may earn4

)%pe&#$ti%& i&c%eIt is defined as all remuneration for services rendered %y an employee for hisemployer unless specifically excluded under the Tax Code. Draduated tax rate of F)*F.

'e=uisites41 There must %e 2'22 relationship.* >ayment must %e made for services rendered


/ust %e reasona%le and for services rendered otherwise it won6t %e deducti%le on monthly salary Can we consider this frin!e %enefit# es ?ill we add the 1++O in



7OUSIN8 ALLO9AN.E

:u#$' to D

32 of A9= of D

D .68/ ( 9onetary "alue to t!e

ax .32/1-32>68A9= 1

)136*

5 - Ct!er )68O is ;ent expense to ;

5 - Cnly %oes to

)68*,68

)1*

68O -

x32- Ao"Et

)68*

.1-32/

D>)32*

D>P68*

)1*

<

/ust %e reasona%le and for services rendered otherwise it won t %e deducti%le onthe part of the employer "8ecause %usiness expenses must %e ordinary, necessaryand reasona%le$.

D%ct'i&e %+ )$#" Eui($le&tIf the income !oes to the tax payer or employee in the form of property or anyother 0ind other than the standard of measure of value which is cash, then theremust %e e=uivalent to every property that is !iven. 3or every value received %y thetax payer or employee as a %enefit for %ein! hired or as compensation for servicerendered, there will %e an e=uivalent tax on that income, even if it is received in0ind. So, the e=uivalent value of the property of the property or %enefit received will

%e taxa%le as a rule. That6s as a rule %ecause we will encounter some exceptions tothe rule.

"$t $'e +'i&5e be&e+it#93rin!e %enefit is any !ood or services or %enefits !iven %y the employer to theemployee, except for ran0 and file employees.

3rin!e %enefits are su%-ect to frin!e %enefits tax. It6s not su%-ect to the re!ularcompensation tax that we have.

"$t $'e t"e *i++e'e&t i&*# %+ +'i&5e be&e+it#9Bousin!, expense account, vehicle of any 0ind, household personnel, interest onloan at less than mar0et rate, mem%ership fees, dues and other expenses %orne %y

the employer in social and athletic clu%s or other similar or!ani@ations, expenses forforei!n travel, holiday and vacation expenses, educational assistance to theemployee or his dependents, and life or health insurance and other nonlifeinsurance premiums or similar accounts in excess of the law allows. "Under Sec. ))of tax code$

;ist is not exclusive.

3rin!e 8enefits means any !ood, service or other %enefit furnished or !ranted incash or in 0ind %y an employer to an individual employee "except ran0 and fileemployee$ such as %ut not limited to the followin!4

1. Bousin!*. 2xpense account). 5ehicle of any 0ind. household personnel, such as maid, driver and others. Interest on loan at less than mar0et rate to the extent of the difference

%etween the mar0et rate and actual rate !rantedA. /em%ership fees, dues and other expenses %orn %y the employer for the

employee in social and athletic clu%s or other similar or!ani@ations7. 2xpenses in forei!n travel. Boliday and vacation expenses9. 2ducational assistance to the employee or his dependents and1+. ;ife or health insurance and other nonlife insurance premiums or similar

amounts in excess of what the law allows.

2very item here is the !eneral rule and each item has an exception.

2xample of housin! %enefit4ou are the president of (8C Corporation. ou are from a%road and as part of your

pac0a!e, you are !iven a monthly housin! allowance of 1++O on top of your

monthly salary. Can we consider this frin!e %enefit# es. ?ill we add the 1++O inthe computation of )*F income taxation from your compensation# <, %ut it issu%-ect to frin!e %enefits tax which is a final tax which means that it will no lon!er%e part of anyone6s !ross income for the purpose of taxation. So %ein! su%-ect tofinal tax, who is responsi%le for payin! this tax# The employer.

If this is !iven to ran0 and file employees, this shall form part of compensationhence su%-ect to income tax.

3rin!e %enefit does not form part of the !ross income of the nonran0 and file whileif it is received %y a ran0 and file employee, it is ordinary income which shall form

part of his !ross income su%-ect to income taxation at the end of the year.

NON-RANV >I=E NR >F RANV >I=E R>F3'ID 8223IT 8223ITSot part of DI >art of DI)*F tax on D/5 F)*F tax on compensation>aid %y 2' >aid %y 22

;%! t% c%pute:

The frin!e %enefit actually received %y the employee is in this case, AO. In order todetermine the frin!e %enefit tax "38T$ paid %y the employer, we need to find theDrossedup /onetary 5alue "D/5$ the amount actually paid %y the employer thatis /onetary 5alue "A F$ 3rin!e 8enefit Tax ")*F$. To determine the D/5, wedivide .A to the /onetary 5alue of the frin!e %enefit received %y the employeewhich in this case is AO. A+++&.A N 1++,+++. So, 1++,+++ is the Drossedup/onetary 5alue or the actual outflow of money of the employer in order to !ive youthe frin!e %enefit. So, it is always presumed that whatever is !iven to theemployee, it is AF of what the company actually suffered. 38T on the other handis D/5x.)* which in this case is )*O.

The reason why we only considered AO is %ecause it is presumed that only half isfor the %enefit of the employee while the other half is for %usiness purpose. T"i# i#t'ue %&l !it" ;%u#i&5 $&* e"icle $ll%!$&ce7


"$t i+ %u $'e 5i(e& $ "%u#e "elpe'9 20000V9 received, it6s your %enefit. So in this case since it is +F versus the mar0et rate of



"$t i+ %u $'e 5i(e& $ "%u#e "elpe'9 20000V9

SA=ARY %+ "%u#e"elpe'

38 >*+,+++ AF )*F of D/5 of 3838T 9,1* )*F >*+,+++&AF N >*9,1* x )*F N> 9,1*

>*9. 1* 1++F

38N*+,+++net of taxD/5N 38&.AN*9,1*38TND/5&.)*N 9,1*

The company may %e !ivin! you a motor vehicle41. 3or your use %ut ownership is not transferred to you*. It may lease a motor vehicle %ut ownership is not with you or the company). The company may %uy a vehicle, + F shouldered %y you and + F

shouldered %y the company

Deneral rule, in all these cases, since the employee was %enefited, it is su%-ect tofrin!e %enefits tax. 8ut if the user employee is en!a!ed in sales and mar0etin!, is itnot part of the trade, %usiness or profession of the employer# In this case, it isexempt from 38T %ecause its -o% description calls for the use of motor vehicles.

;%u#i&5 $ll%!$&ce7

D%e# &%t 5i(e %u %&e but %u !e'e $ll%!e* t% #t$ i& t"e #t$++ "%u#e+%' +'ee7 I# it #ubBect t% +'i&5e be&e+it t$.9If ran0 and file employee, no. if nonran0 and file, yes.

Common allowances the !eneral rule are su%-ect to frin!e %enefit tax if received %ythe nonran0 and file employee. su%-ect to the followin! exceptions

1. If it is for the convenience of the employer. 2xample, the employer is adoctor and he is on call * hours a day and he has an employee that isnonran0 and file. (nd they were !iven free housin! %enefit %eside thehospital, then that is exempt from frin!e %enefit tax %ecause it is for theconvenience of the employer.

*. If the housin! %enefit !iven is within + meter proximity on the companypremises then it is exempt from frin!e %enefit, it may %e more than + if itcan %e proven that the company premises is ha@ardous.

). Short travels %y the employees not exceedin! ) months are also exempted

from frin!e %enefits.

ou were allowed emer!ency loan %y the company, the emer!ency loan of 1 millionwas interest free. ou are re=uired only to pay the principal.

Y%u $'e t"e p'e#i*e&t %+ t"e c%p$&H !ill t"e'e be +'i&5e be&e+it t$. *ue%& t"e l%$&9es

I+ t"e l%$& !%ul* %&l l$#t +%' %&e e$' $&* it# %&e illi%& i& $%u&ti&te'e#t +'ee %' 0 i&te'e#t "%! uc" +'i&5e be&e+it t$. #"%ul* be p$i* bt"e c%p$&9The frin!e %enefit insofar as interest is concerned is when you are !ranted a loanwith an interest of less than the mar0et rate is the difference %etween the mar0et

rate and the interest char!ed %y your employer is the frin!e %enefit that you have

received, it s your %enefit. So in this case since it is +F versus the mar0et rate of 1*F the difference is 1*F, then 1*F of 1 million per annum is a total of 1*+,+++.

INTEREST M$'et$lue

>rincipal >1,+++,+++ ^1*F N >1*+,+++ 38 +F interest

38T N )*F of ">1*+,+++&AF$ N >A,71

S% "%! uc" i# t"e +'i&5e be&e+it t$. *ue i& +%'ul$9

The frin!e %enefit is )*F of the !rossed up monetary value of the interest for!one%y the employer.

If the employer would char!e AF interest, then the frin!e %enefit would %e A+0 ra,and the !rossed up monetary value would %e A+0 divided %y .A.

;%! *% $& e.pe&#e $cc%u&t be c%&#i*e'e* $ +'i&5e be&e+it9(ny personal expense shouldered %y the employer is considered as frin!e %enefit.?hen an employer would pay for the personal expenses for the employee, it is saidthat the employer is !ivin! additional salary or compensation to the employee so hecan purchase those items, %ut since the employee is non ran0 and file is thereforesu%-ect to frin!e %enefit tax. So if he !ive his employer every month 1++0 worth of !rocery receipts and the employer !ives him 1++0 in exchan!e for the receipts thatis frin!e %enefits, that6s the monetary value and any tax will %e computed )*F of

the !rossed up monetary value of 1++0. The only way the employer can escapefrin!e %enefit tax is when the expenses are incurred in relation to trade %usiness orprofession and it is fully supported %y official receipts and invoices.

I+ %u<'e t"e #$le# 'ep'e#e&t$ti(e %' e* 'ep7 $&* %u $'e 5i(e& $&$ll%!$&ce %+ "%! uc" t% #pe&* +%' *u'i&5 $ %&t" let<# #$ 20H i# 20#ubBect t% +'i&5e be&e+it t$.9 It6s not %ecause it is related to the nature of the %usiness or profession, and It will%e supported %y official receipts and invoices.

5ehicles, if it is leased %y a company in order to %e used exclusively %y the officer itwill %e su%-ect to frin!e %enefit tax and the monetary value is %ased on the rentalvalue. 8ut if the motor vehicle is !iven to the employee the monetary value orfrin!e %enefit is the ac=uisition cost of the motor vehicle. ?hatever is the outflow

from the company, it6s the monetary value to the employee, so if the company paysmonthly rent that6s the monetary value to the employee %ut if the company %uysthe vehicle for the use of an officer then the monetary value to the employee is theac=uisition cost if the car is %rand new. Same formula should %e followed, )*F of the !rossed up value.

Mebe'#"ip +ee#7If you -oin !olf clu%s etc. if the mem%ership is still in the name of the company thestoc0 certificate. It6s not a %enefit exclusive to the employees. 8ut if themem%ership is exclusively in the name of the officer or employee then that would%e su%-ect to frin!e %enefit tax, these are the social and athletic clu%s, these are notfor example lawyers who pay their I8> dues %ecause they are exempted from frin!e%enefits.

E.pe&#e# +%' +%'ei5& t'$(el7


If the travel is for %usiness purpose then the cost for the plane tic0et etc. will not %e



t e t a e s o %us ess pu pose t e t e cost o t e p a e t c et etc ot %esu%-ect to frin!e %enefit tax %ut if the travel is for personal purpose shouldered %ythe employer, entire cost will %e su%-ect to frin!e %enefit tax. If the employee willtravel on a %usiness trip the company shoulders the employees cost plus that of hisfamily, then only the portion relatin! to the other mem%ers of the family issu%-ected to frin!e %enefit tax.

In order to ma0e an exemption, ma0e sure that it is related to %usiness, and thereis an invitation from a%road to travel. 2xception to the exception is when the tic0etpurchased %y the employer is for first class, )+F of the cost of the tic0et is su%-ectto frin!e %enefit tax, even if it is for %usiness purposes. If it is for %usiness class

tic0et 1++F exempt from frin!e %enefit tax. 5acation expenses, all the time, su%-ectto frin!e %enefit tax %ecause it is not for %usiness purpose.

"$t tpe %+ epl%e' i# #ubBect t% +'i&5e be&e+it t$. u#t it $l!$# be $c%'p%'$ti%& p$'t&e'#"ip9 O' c$& it be $& i&*i(i*u$l epl%e'93or frin!e %enefit tax the employer may %e individual, partnership or corporation,exempt or not exempt. So re!ardless of the status of the employer, frin!e %enefittax will have to %e paid. ?hy# The tax is supposed to %e collected from theemployee %ut %ecause of the scheme of withholdin! it6s as if the employer did not!ive the full 1++F it only !ives AF withheld the )*F to remit it to the!overnment. Still the %urden is on the employee %ecause frin!e %enefit is part of the compensation and compensation an income of the employee not that of theemployer not of the individual company or partnership. So if the employee is ataxa%le individual the frin!e %enefit is paya%le re!ardless of their employer is.

E*uc$ti%&$l $##i#t$&ce7ou are !iven free scholarship of the company to study law.

The educational assistance as a !eneral rule is su%-ect to frin!e %enefit tax, theexception is when it will redounds to the %enefit of the %usiness of the company oremployer, and for the employee to render a certain period of service to theemployer as to compensate for the assistance !iven to the employee. It may not %e -ust any educational assistance pro!ram that will %e !iven it has to %e related to thetrade %usiness or profession of the employer company %y contract that theemployee will render future services in exchan!e for the educational assistance!iven.

So if he is employed %y a law office and he is !iven an educational assistance to %ea chef, it6s su%-ect to frin!e %enefit tax %ecause it is in no way related to the%usiness of le!al profession.

;%! $b%ut e*uc$ti%&$l $##i#t$&ce t% *epe&*e&t# $'e t"e#e #ubBect t%+'i&5e be&e+it t$.92ducational assistance to dependents are su%-ect to frin!e %enefits tax.

1.$ 8ecause the dependents are not !ivin! services to the %enefit of the%usiness of the employer

*.$ It cannot %e in relation to the trade %usiness of the employer).$ (nd the dependents cannot in anyway si!n a valid contract to render future

services to the employer.

2xception4 when the !ivin! out of the educational assistance to the dependents isthrou!h a competitive scheme, cannot -ust %e ar%itrary or rendered %y anyone whocan !et an educational assistance and %y maintainin! a certain !rade or a passin!

!rade then that would %e considered as exempt from frin!e %enefit tax.

A&* +i&$ll t"e i&#u'$&ce# $'e i&#u'$&ce# #ubBect t% +'i&5e be&e+it t$.9If the %eneficiary is the employee or his heirs, it is su%-ect to frin!e %enefit tax.

If it is the company itself is the %eneficiary, it is not deducti%le, if it not deducti%le itis not taxa%le... Two way thin!... If it6s not deducti%le then it is not taxa%le. If it6staxa%le then it is deducti%le.

E.clu#i%&# %+ ?'%## I&c%e

>'i&5e e&e+it SubBect T$.777

=i+e %' "e$lt" i&#u'$&ce $&* %t"e' &%&-li+e i&#u'$&ce p'eiu# %' #iil$'$%u&t# i& e.ce## %+ !"$t t"e l$! $ll%!#

(s a rule, you have to determine whether the %eneficiary is the company itself. So if the %eneficiary is the company itself, "it is not deducta%le di%a on part of thecompany$ therefore it should not %e taxa%le on part of the employee. That6s a twoway thin!. If it is not deducti%le, then it should not %e taxa%le. If it is taxa%le, thenit should %e deducti%le.

So you have an insurance policy ta0en up %y the company in favour of its employeeand the company itself is made a %eneficiary. There is really no %enefit there to theemployee nor his heirs or estate. Therefore, it is not taxa%le. If the %eneficiary isthe estate or heirs of the employee, it may %e taxa%le to frin!e %enefit tax U;2SS

if it falls under !roup insurances.

?'%up i&#u'$&ce# $'e &%t #ubBect t% $& tpe %+ t$. !"9 8ecause the %enefit is not directed to any employee of the company. In !roupinsurance, you cannot claim unless your heirs will use it to claim if there issomethin! happen to you.

3rin!e %enefit tax is paid on a =uarterly %asis %y the company. It is actually a tax forthe %enefit of the employee %ut held %y the company.

Stu*e&t: "$t i+ t"e %!&e'#"ip i# t'$&#+e' t% t"e epl%ee9I thin0 there are scenarios for frin!e %enefit on motor vehicle. The easiest that wecan thin0 of is that the company will lease some motor vehicle for your use. So themonthly rentals paid %y the company will %e the frin!e %enefits on the employee.

8ut there are times that the company would purchase the vehicle. The entire cost isshouldered %y the company the ownership stays with the company. Use is for theemployee. Is there really monetary %enefit for the employee# The answer is none.8ut there is a monetary 5(;U2. The value there is that the employee is en-oyin! fortheir use. ?hat is the value to the employee# /otor vehicles have life of five "$years. So whatever the ac=uisition cost is, divided %y five "$ years, is the annual%enefit received %y the employee.


STO.K OPTIONSE;I)=E



KIA 56: #!e

Cwners!ip .o'/)1** 5 Dusiness

5 )ersonal

> )1*D

> 32 f .1*,68/

> )47*5

@MQ:= Q: .C );:'/

)2*,0;

Gi'Misted in :toc xc!an%e

9= > )5',s!are

:toc Cption Cer > )2'

;L #uys > )1* -.)5-)2/

> )3*

D > 32 of .)3*,68/ > )1*412

5 Dusiness

> 5O D

> 32 of .)5*,68/

> 23*52

O9NERS7IP IS YOURS

Cwners!ip)5*

1*,yr 5 )ersonal

E;I)=E

(c=uisition Cost N>1,+++,+++;ife of motor vehicles N years8enefit N *++,+++ &year ">1,+++,+++& years$\uarterly 8enefit N >+,+++ ">*++,+++&$\trly 38T N )*F of ">+,+++&AF$ N >*),*9

E.$ple:

(c=uisition Cost4 1,+++,+++

;ife4 years(nnual 8enefit4 >*++,+++&year+F 8usiness+F >ersonal "2xclusive$4 1++,+++ "Su%-ect to 38T$

It must %e exclusive

38T N )*F P "1++,+++&AF$ for the entire )ear

E.$ple: T"e ?l%be )$#e

;isted in Stoc0 2xchan!e 1+++ shares3/5 N .++&share<ffer N *.++&share8enefit N ).++&share difference +etween the fair;mar&et value and the rate offered

+) the compan)

38 N 1+++shares P ).++&share38T N )*F P "38&AF$

I# t"e +'i&5e be&e+it *e*uctible e.pe&#e %& p$'t %+ t"e c%p$&9 The answeris 2S, %ecause it is simply part of the entire pac0a!e of compensation. The AF!oes directly to the employee, the )*F is withheld %y the company and as awithhold a!ent, it remits to the !overnment. So the entire 1++F is part of theentire compensation pac0a!e. So it part of the expenses deducti%le.

E.$ple: )%p$& #"%ul*e'# 04 %+ t"e $cui#iti%& c%#tou are the president and you as0ed the company to shoulder the +F of the priceof the motor vehicle that you6re !oin! to purchase. So if the motor vehicle is1,+++,+++, you pay ++,+++ and the company shouldered ++,+++. So there is afrin!e %enefit of ++,+++ to %e computed as4

Company Su%sidy4 ++,+++;ife4 years(nnual 8enefit4 >1++,+++&year+F 8usiness+F >ersonal "2xclusive$4 +,+++ "Su%-ect to 38T$

It must %e exclusive

38T N )*F P "+,+++&AF$ for the entire )ear

P'%pe't

I> %u $'e 5i(e& p'%pe't b %u' c%p$& let<# #$ M$&& ill$'*i#t'ibute* "%u#e# t% t"e epl%ee# "%! uc" ($lue #"%ul* be *ecl$'e*+%' >T9Student4 3airmar0et value of the property.

P'%i##%' &%te


If promissory note is !iven up, it is %ased on the discounted value of the promissory ii' Copy paste from '' )9 = Although the +enefit ma) +e



p y ! p p ynote. It is extreme cases lan!.

St%c#"e'e t% 5et t"e >M9If listed in Stoc0 2xchan!e G >hilippine Stoc0 2xchan!eIf not listed G refer to the financial statement of the corporation. 3/5 is e=uivalentto the %oo0 value of a nonlisted corporation.

8<<O 5(;U2 N "C(>IT(; ST<COS >'<3ITS$&T<T(; U/82' <3 SB('2S

It is not fixed, %ut %ased on yearly operation.

)$&cell$ti%& %+ i&*ebte*&e## i& +$(%u' %+ #e'(ice# 'e&*e'e*If you have an existin! inde%tedness to the company that is cancelled, is thatconsidered taxa%le compensation# ;et6s say you have an inde%tedness of 1,+++,+++to the company, the company thru 8<: decided to cancel your inde%tedness.

T$.$ble9 T% !"$t tpe %+ t$.9 I&c%e t$. %' &%t i&c%e t$.9Student4 I thin0 it is income tax, ma6am.

)$& +%'5i(e&e## be c%&#i*e'e* $# $ 5i+t9 S% i&c%e t$. %' *%&%'<# t$.9(s a !eneral rule class, for!iveness of a de%t or cancellation of inde%tedness issu%-ect to income tax %ecause the de%tor is no lon!er re=uired to pay, his assetswould no lon!er %e decreased %y the payment, and it is as if he !ained somethin!.

If the reason for the cancellation of inde%tedness is %ecause service rendered in thepast or future, that is consider part of the compensation. 8UT if it is purely!ratuitous in nature, it is su%-ect to donor6s tax.

"% p$# *%&%'<# t$.9 The donor.

P'eiu# p$i*If the %eneficiary of the life insurance policy is the estate or the heirs of theemployee, it is possi%le on the part of the employee that it is a deducti%le expenseon the part of the employer. 8ut if the %eneficiary is the employer, the premiumpayments made %y the employer is not taxa%le on the part of the employee %ecausethere is no %enefit on the part of the employee6s estate or heirs and is not adeducti%le expense %ecause it will %oil down to the %enefit of the employer. ou willsee that if it is taxa%le then it is deducti%le if not taxa%le then not deducti%le aswell.

P'eiu: 2state&heirs 2'

Taxa%le G 22 ot taxa%le G 22

:educti%le 2' ot deducti%le 2'

E.clu#i%&# +'% +'i&5e be&e+it t$.1F 13t" %&t" p$ $&* %t"e' be&e+it# $&* p$e&t#

a. ot exceedin! )+0 are exempt from tax2F >'i&5e be&e+it# &%t #ubBect t% t$.

$7 e&e+it# 5'$&te* t% '$& $&* +ile epl%ee#i. ot su%-ect to tax %ut it does not mean that these

%enefits will not at all %e su%-ect to tax. It may not %esu%-ect to frin!e %enefit tax %ut it may %e su%-ected to

compensation tax

py p g )exempt from >:-/ it ma)/ however/ still form part of theemplo)ee4s gross compensation income which is su+.ect to income tax/ which is reuired to +e covered +) thewithholding tax on wages?

b7 )%&t'ibuti%&# %+ t"e epl%e' +%' t"e be&e+it %+ t"eepl%ee t% 'eti'ee&t i&#u'$&ce $&* "%#pit$liG$ti%&be&e+it pl$&#

i. In short, !roup plans or policiesc7 >'i&5e be&e+it# !"ic" $'e $ut"%'iGe* %' e.epte* u&*e'

#peci$l l$!#

*7 Epl%e'<# c%&(e&ie&ce 'ule $# 'eui'e* b t"e &$tu'e %+ t"e t'$*e bu#i&e## %' p'%+e##i%& %+ t"e epl%e'

"ee under 31$)e7 De i&ii# be&e+it# be&e+it# 'el$ti(el %+ #$ll $%u&t

liite* t% +$cilitie# %' p'i(ile5e# +u'&i#"e* %' %++e'e* b t"eepl%e' t% "i# epl%ee# e'el $# $ e$&# %+ p'%%ti&5"e$lt" 5%%*!ill c%&te&te&t %' e++icie&c %+ t"eepl%ee#

i. These are of relatively small value intended to promotehealth, !oodwill, contentment or efficiency of theemployees

ii. \uestion4 (re de minimis %enefits !iven to ran0 and fileand nonran0 and file employees exempt from tax#(ssumin! that it is in the ran!e of the minimum allowed

%y law. ?hether or not the recipient is a ran0 and file ornonran0 and file employee, is always exempt from taxprovided that it is in the ran!e "minimum$ allowed %ylaw. It is not su%-ect to income or any other tax.

iii' :ifferent 0inds (:elow@ evenue regulations mentioned +) Att)' -iu +) date' Bighlighted ones were mentioned +) Att)' -iu$

RR N%7 2-,8The followin! payments or %enefits paid or provided %y the employer are taxexempt, and thus, not su%-ect to withholdin! tax41. 'etirement %enefits received under 'epu%lic (ct 7A1 and those

received %y officials and employees of private firms under a reasona%le private%enefit plan maintained %y the employer which meets the followin!re=uirements4

a. The plan must %e reasona%lea The %enefit plan must %e approved %y the 8I'a The retirin! official must have %een in the service of the same

employer for at least ten "1+$ years and is not less than fifty "+$years of a!e at the time of retirement, and

a The retirin! official or employee should not have previously availed ofthe privile!e under the retirement %enefit plan of the same or anotheremployer.

*. (ny amount received %y an employee or %y his heirs from the employer due todeath, sic0ness or other physical disa%ility or for any cause %eyond the controlof said employee, such as retrenchment, redundancy or cessation of %usiness.(mounts received %y reason of involuntary separation will %e exempt fromincome tax even if the employee, at the time of separation, had rendered lessthan ten "1+$ years of service and&or is %elow fifty "+$ years of a!e.


). Social security %enefits, retirement !ratuities, pensions and other similar c. 8enefits !iven to the ran0 and file, whether !ranted under a



%enefits received %y residents or nonresident citi@ens or aliens who come toreside permanently in the >hilippines from forei!n !overnment a!encies andother institutions, private or pu%lic.

. >ayment of %enefits under the law of the United States administered %y theUnited States 5eterans (dministration.

. >ayment of %enefits made under the Social Security System (ct of 19.A. 8enefits received from the DSIS (ct of 19)7, and the retirement !ratuity

received %y !overnment officials and employees.7. 'emuneration paid for a!ricultural la%or. 'emuneration paid for domestic services. Bowever, the services of household

personnel furnished %y the employer to an employee who is holdin! mana!erialor supervisory position, shall %e su%-ect to the 3rin!e 8enefits Tax.

9. 'emuneration paid for la%or which is occasional, incidental or irre!ular, anddoes not promote or advance the employer6s trade or %usiness

1+. Compensation for services %y a citi@en or resident of the >hilippines for aforei!n !overnment or an international or!ani@ation

11. (ctual, moral, exemplary and nominal dama!es in connection with a final -ud!ment or compromise a!reement arisin! out of or related to an employeremployee relationship.

1*. ;ife insurance proceeds paid to the heirs or %eneficiaries upon death of theemployee. Bowever, interest payments a!reed under the policy for the amountswhich are held %y the insured will %e included in the !ross income.

1). (mounts received %y the insured as a return of premium1. Compensation for in-uries or sic0ness

1. Income exempt under any treaty o%li!ation %indin! upon the >hilippine!overnment1A. 3acilities or privile!es are of relatively small value which are offered or

furnished %y the employer merely as a means of promotin! the health,!oodwill, contentment or efficiency of his employees. Thus, if livin! =uarters ormeals are furnished to an employee for the convenience of the employer, thevalue of such %enefits need not %e included as part of compensation income.

17. (dvances or reim%ursements for travellin!, representation and other ordinaryand necessary expenses incurred %y the employee in the performance of hisduties, if the employee is re=uired to account&li=uidate for said expenses. Theexcess of actual expenses over advances made shall %e treated as taxa%leincome if such amount is not returned to the employer.

1. The moneti@ed value of unutili@ed vacation leave credits of ten "1+$ days or lesswhich were paid to the employee durin! the year.

19. DSIS, SSS, /edicare and >a!i%i! contri%utions and union dues of individualemployees

*+. Thirteenth "1)th$ month pay and other %enefits such as Christmas %onus,productivity incentive %onus, loyalty awards, !ifts and other %enefits of similarnature to the extent that the total amount thereof does not exceed >)+,+++.

RR 3-,8

Bowever, the followin! %enefits are not covered %y the 38T.a. 3rin!e %enefits which are authori@ed and exempted from income

tax under the Code or under special law. Separation %enefitswhich are !iven to employees who are involuntarily separatedfrom wor0 are not su%-ect to 38T.

%. Contri%utions of the employer for the %enefit of the employee toretirement, insurance and hospitali@ation %enefit plans

collective %ar!ainin! a!reement or notd. e minimis %enefitse. 8enefits !ranted to employee as re=uired %y the nature of, or

necessary to the trade, %usiness or profession of the employerf. 8enefits !ranted for the convenience of the employer

(lthou!h the %enefit may %e exempt from 38T, it may, however, still form part of theemployee6s !ross compensation income which is su%-ect to income tax, which isre=uired to %e covered %y the withholdin! tax on wa!es.

_e minimis< %enefits refer to facilities or privile!es furnished or offered %y anemployer to his employees that are of relatively small value and are offered orfurnished %y the employer merely as a means of promotin! the health, !oodwill,contentment or efficiency of his employees, such as the followin!4

M%&etiGe* u&u#e* ($c$ti%& le$(e c'e*it# %+ epl%ee# &%t

e.cee*i&5 te& 10F *$# *u'i&5 t"e e$'H Me*ic$l $ll%!$&ce +%' epl%ee<# *epe&*e&t# &%t e.cee*i&5 P12

pe' %&t"H Rice #ub#i* %+ P30

@&i+%' $ll%!$&ce

Me*ic$l be&e+it#

=$u&*' $ll%!$&ce %+ P10 pe' %&t"

Epl%ee $c"ie(ee&t $!$'*# i& t"e +%' %+ $ t$&5ible p'%pe't

!it" $& $&&u$l %&et$' ($lue &%t e.cee*i&5 Z %+ t"e b$#ic #$l$'

%+ epl%eeH )"'i#t$# $&* $B%' $&&i(e'#$' celeb'$ti%& +%' epl%ee# $&*

t"ei' 5ue#t#H )%p$& pic&ic# $&* #p%'t# t%u'&$e&t# i& t"e P"ilippi&e#

e.clu#i(el p$'ticip$te* i& b epl%ee#

>l%!e'# +'uit# %' #iil$' ite# 5i(e& u&*e' #peci$l ci'cu#t$&ce#

e757 ill&e## $''i$5e etc7

In addition, t"e +%ll%!i&5 +'i&5e be&e+it# $'e $l#% &%t #ubBect t% >T %ecausethey are necessary to the %usiness of the employer, or !ranted for the convenienceof the employer4

o Bousin! privile!e of military officials of the (3> located inside or

near the military camps.o ( housin! unit which is situated inside or at most + meters from

the perimeter of the %usiness premises.o Temporary housin! for an employee for ) months or less.

o 2xpenses of the employee which are reim%ursed %y the employer

if they are supported %y receipts in the name of the employer anddo not parta0e the nature of a personal expense of the employee.

o /otor vehicles used for sales, frei!ht, delivery service and other

nonpersonal useso The use of aircraft "includin! helicopters$ owned and maintained

%y the employero 8usiness expenses which are paid for %y the employer for the

forei!n travel of his employees in connection with %usinessmeetin!s or conventions. The expenses should %e supported %ydocuments provin! the actual occurrences of themeetin!s&conventions, or official communications from %usinessassociates


` The /?2 wor0in! in the private sector is paid the Statutory /inimum ?a!e



RR 10-2008

M%&etiGe* u&u#e* ($c$ti%& le$(e c'e*it# of employees not exceedin! ten"1+$ days durin! the year and the moneti@ed value of leave credits paid to!overnment officials and employees

- )%&(e'te* le$(e c'e*it#9- Di++e'e&ti$te +'% p'i($te $&* 5%(e'&e&t epl%ee#- >%' ?%(e'&e&t epl%ee#: $l!$# e.ept +'% t$.- >%' p'i($te #ect%': $& c%&(e'#i%& %+ le$(e c'e*it# i# $l!$#

#ubBect t% t$.7 "$t i# %&l #ubBect b t"e *e i&ii# be&e+it i#t"e +i'#t 10 *$# %+ t"e #$i* le$(e c'e*it t"e 'e#t $'e t$.$ble

$l'e$*7- I+ %u "$(e 100 ($c$ti%& le$(e# 10 *$# $'e e.epte* 'e$i&i&5

,0 i# t$.$ble

Me*ic$l c$#" $ll%!$&ce to *epe&*e&t# %+ epl%ee# not exceedin!>7+.++ per employee per semester or >1* per month

- MAM TI@: !/% 'eui'i&5 $& %++ici$l 'eceipt e(i*e&ci&5 t"$t %uu#e* it +%' e*ic$l c$#" $ll%!$&ce %+ %u' *epe&*e&t#7

- ut +%' EMP=OYEES t"e#el(e#9 10 +%' Actu$l Me*ic$l All%!$&cec%p$& c$&&%t 5i(e 10 c$#" t% t"e epl%ee it u#t be b !$%+ 'eibu'#ee&t7

Rice #ub#i* of >1,++.++ or one "1$ sac0 of +0!. rice per month amountin!to not more than >1,++.++@&i+%'# $&* cl%t"i&5 $ll%!$&ce not exceedin! >,+++.++ per annum

Actu$l e$'l e*ic$l be&e+it# not exceedin! >1+,+++.++ per annum

=$u&*' $ll%!$&ce not exceedin! >)++.++ per monthEpl%ee# $c"ie(ee&t $!$'*#, e.!., for len!th of service or safetyachievement, which u#t be i& t"e +%' %+ $ t$&5ible pe'#%&$l p'%pe't%t"e' t"$& c$#" %' 5i+t ce'ti+ic$te, !it" $& $&&u$l %&et$' ($lue &%te.cee*i&5 P10000700 received %y the employee under an esta%lished writtenplan which does not discriminate in favor of hi!hly paid employees

- T"e c$tc" "e'e i# t"$t t"e #$i* $!$'* #"%ul* be i& t"e +%' %+ $t$&5ible pe'#%&$l p'%pe't

- I+ #$i* $!$'* i# 5i(e& i& c$#" e(e& i+ it i# bel%! 10 t"e !"%le($lue i# #ubBect t% t$.

?i+t# 5i(e& *u'i&5 )"'i#t$# $&* $B%' $&&i(e'#$' celeb'$ti%&# notexceedin! >,+++.++ in cash per employee per annum

>l%!e'# +'uit# b%%# %' #iil$' ite# !iven to employees under specialcircumstances, e.!., on account of illness, marria!e, %irth of a %a%y, etc..

- N%t 'epe$te* #$ 2011 RR but M$C$ Tiu t"i&# &$ t"i# i# #tilli&clu*e*

D$il e$l $ll%!$&ce +%' %(e'tie !%' not exceedin! twenty five percent"*F$ of the %asic minimum wa!e.

Thin!s to consider in treatin! de minimis %enefits4` :e minimis %enefits within the limit prescri%ed a%ove shall not %e considered indeterminin! the >h>)+,+++ ceilin! of Lother %enefits.M ` The excess, if any, shall form part of the >h>)+,+++.++ ceilin!, and any excessover >h>)+,+++.++ shall %e taxa%le.` The a%ove !uidelines are applica%le for %oth minimum wa!e earner and nonminimum wa!e earner employees. Under '' 1+*++, income payments to minimum wa!e earners are exempt from

withholdin! tax on compensation as follows "amendin! '' *9$4

"S/?$ as fixed %y the 'e!ional Tripartite ?a!e and >roductivity 8oard"'T?>8$&ational ?a!es and >roductivity Commission "?>C$, applica%le to theplace where the wor0er is assi!ned. ` ;%li*$ p$ %(e'tie p$ &i5"t #"i+t *i++e'e&ti$l p$ $&* "$G$'* p$earned %y the aforementioned /?2 shall li0ewise %e covered %y the a%oveexemption. P-4&'D2D5 ` I+ t"e ME e$'&# $**iti%&$l c%pe&#$ti%& i&c%e such ascommissions, honoraria, frin!e %enefits, %enefits in excess of the allowa%le

statutory amount of >)+,+++.++, taxa%le allowances and other taxa%le incomeother than the S/?, holiday pay, overtime pay, ha@ard pay and ni!ht shiftdifferential pay #"$ll &%t e&B% t"e p'i(ile5e %+ bei&5 $ ME $&* t"e'e+%'e"i#/"e' e&ti'e e$'&i&5# $'e &%t e.ept +'% i&c%e t$. $&*c%&#eue&tl +'% !it""%l*i&5 t$.7 ` ME# 'ecei(i&5 %t"e' i&c%e #uc" $# i&c%e +'% t"e c%&*uct %+t'$*e bu#i&e## %' p'$ctice %+ p'%+e##i%&, except income su%-ect to f inal tax,in addition to compensation income are &%t e.epte* +'% i&c%e t$. %&t"ei' e&ti'e i&c%e e$'&e* *u'i&5 t"e t$.$ble e$'7 T"i# 'ule&%t!it"#t$&*i&5 t"e SM ;%li*$ p$ %(e'tie p$ &i5"t #"i+t*i++e'e&ti$l p$ $&* "$G$'* p$ #"$ll #till be e.ept +'% !it""%l*i&5 t$.7 3rom the fore!oin!, it would seem that if you are a /?2 and you have other

income from wor0, all your income will %e su%-ect to tax. Bowever, if you are /?2and you have income from %usiness, your compensation income will still %eexempt from tax %ut your %usiness income will %e taxa%le. In order for ha@ard pay !iven to /?2 to %e exempted from tax, the employer isre=uired to attached to the /onthly 'emittance 'eturn of ?ithholdin! Tax onCompensation "8I' 3orm o. 1A+1C$ for return periods /arch, June, Septem%erand :ecem%er a copy of the list su%mitted to the nearest :<;2 'e!ional&>rovincial<ffices G <perations :ivision&Unit showin! the names of /?2s who received theha@ard pay, period of employment, amount of ha@ard pay per month and -ustification for payment of ha@ard pay as certified %y said :<;2&allied a!ency thatthe ha@ard pay is -ustifia%le.

REEN@E RE?@=ATIONS NO7 -2008 issued on (pril *), *++ further amends'evenue 'e!ulations "''$ os. *9 and )9, as last amended %y '' o. 1+*+++,with respect to L:e /inimis 8enefitsM.

- -ice subsidy o P (/677.77 or one !() sac8 o 67 8g. rice per +ontha+ounting to not +ore than P (/677.77 !i it exceeds/ the excesswill be taxed unless it will be acco++odated under the 378 beneit exe+pted by tax)

- %s explained5 i you have an inco+e o (78 and your rice subsidy is#8/ (.68 is exe+pt as de +ini+is beneit while the other 677 isexe+pt too since it is acco+odated by the 378 exe+ption.

- unior+ and clothing allowance not exceeding P 9/777.77 per annu+ are considered as :de +ini+is; beneits/

which are not su%-ect to the frin!e %enefit tax "per Section *.))"C$ of '' o. )9$and Income Tax as well as withholdin! tax on compensation income of %othmana!erial and ran0 and file employees "per Section *.7.1 "($")$"c$ and "d$ of ''o. *9$. The %enefits provided in the 'e!ulations shall apply to income earned

startin! the year *++.


?hat if lessee introduces leasehold improvements# ?hat



- Advice from 1am -iu@ if all of )our salar) is considered as taxa+le/ what )ou have to do or tell )our emplo)er that is to re;characteri*e a portion of )our salar)' %f )ou are receiving/ for example/ 2& a month/ reuest )our emplo)er that a part of it +e classified into the different allowance9s'

- %t4s a form of tax avoidance/ which is legal'

- ;%! $b%ut be'e$(ee&t $ll%!$&ce9o o. ot %ein! part of the de minimis %enefit and tax exemptions

are construed a!ainst tax payers, so therefore, it is taxa%le.

?'%## i&c%e +'% t'$*e bu#i&e## %' p'%+e##i%&Re&t$l i&c%e

- Is it su%-ect to the ordinary income tax or a passive income su%-ect to finaltax#

o (s a D', since the leasin! out of the property is on a re!ular

%asis, it is considered as an active income in pursuit of a %usiness.It is su%-ect to the ordinary income tax. Unless the income earneris a nonresident alien not en!a!ed in a trade or %usiness"?2I':$ since they are su%-ect to a final income tax of *Finstead of the )*F rate.

$F =e$#e %+ pe'#%&$l p'%pe'tbF =e$#e %+ 'e$l p'%pe'tcF T$. t'e$te&t %+

$7 =e$#e"%l* ip'%(ee&t# b le##ee

if the contract states that ownership will %elon! to thelessor after the expiration of the contract or lease term#i. The %enefit will %e received %y the lessor in the form

of the improvements and expenses were incurred %ythe lessee, so it will %e considered as part of theincome of the lessor, so taxa%le a!ainst the lessor.

b7 AT $**e* t% 'e&t$l/p$i* b t"e le##ee

(s a rule, whoever the lessee is, he is considered as a

customer. Be can %e passed on %y the 5(T. <n top of therent, there is 5(T collected. The 5(T collected is not

considered as part of the lessor6s income, since this will%e remitted to the !overnment.

c7 A*($&ce 'e&t$l/l%&5 te' le$#e

Considered as income# 2S

• 3or lon! term leases wherein advance rentals

are paid, even if the lease is not yet underta0enfor the next "n$ years, at the time of the receiptof the advance rental, it is already taxa%le2PC2>T for security deposits. Security depositsare not income, it is considered as a refunda%leamount at the end of the year. Security depositswill only %e taxa%le once these are applied tothe rent.

tax1 midterms tiu

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