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Reference: Vitug, Jose C. and Acosta, Ernesto D. Tax Law and Jurisprudence.
Manila: Rex Book Store, Inc. 2006. (Part I only, pp. 1-48)
I. CONCEPT
Case(s):
Philex Mining Corporation v. CIR (294 SCRA 687)
Caltex v. COA (208 SCRA 755)
A. Lifeblood Theory
B. Necessity Theory
Case(s):
Phil Guaranty Co., Inc. v. CIR (13 SCRA 775)
Ferdinand R. Marcos II v. CA (273 SCRA 47)
NPC v. City of Cabanatuan (401 SCRA 259)
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C. Benefits-Protection Theory (Symbiotic Relationship)
Case(s):
Commissioner v. Algue (158 SCRA 9)
D. Jurisdiction over Subject and Objects
A. Revenue-raising
B. Non-revenue/special or regulatory
Case(s):
Caltex v. Commission on Audit (208 SCRA 726)
A. Fiscal adequacy
B. Theoretical justice
C. Administrative feasibility
A. Inherent Limitations
1. Public Purpose
Case(s):
Pascual v. Sec. Public Works (110 Phil. 331)
Planters Products, Inc.v. Fertiphil Corporation (548 SCRA 485)
2. Inherently Legislative
Case(s):
Tio vs. Videogram Regulatory Board (151 SCRA 208)
Commissioner vs. Santos (277 SCRA 617)
Kapatiran v. Tan (163 SCRA 372)
Case(s):
LTO v. City of Butuan (322 SCRA 805)
Basco v. PAGCOR (197 SCRA 52)
2
b) Delegation to the President
Case(s):
Garcia v. Executive Secretary (210 SCRA 219)
ABAKADA v. Ermita (469 SCRA 1)
Case(s):
Maceda v. Macaraig (197 SCRA 771)
Osmea v. Orbos (220 SCRA 703)
Commissioner v. CA (261 SCRA 236)
3. Territorial
Case(s):
Iloilo Bottlers v. City of Iloilo (164 SCRA 607)
Smith vs. CIR (CTA Case No. 6268. Sep. 12, 2002)
4. International Comity
Case(s):
Manila International Airport Authority v. CA (495 SCRA 591)
Philippine Fisheries Development Authority v. CA (528 SCRA 706)
B. Constitutional Limitations
[Note that the Constitution does not grant the power to tax on the State, since the
power is inherent. Rather, it regulates and defines, rather than grant, the power.]
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b. Uniformity and Equity in Taxation: The rule of taxation shall be
uniform and equitable. The Congress shall evolve a progressive system of
taxation. (Sec. 28(1), Art.VI, Constitution)
Case(s):
Uniformity in Taxation
Case(s):
Abra Valley College v. Aquino (162 SCRA 106)
Lung Center of the Philippines v. Quezon City (433 SCRA 119)
4
g. Prohibition On Use Of Tax Levied For Special Purpose: All money
collected on any tax levied for a special purpose shall be treated as a
special fund and paid out for such purpose only. If the purpose for which a
special fund was created has been fulfilled or abandoned, the balance, if
any, shall be transferred to the general funds of the Government. (Sec. 29,
Art. VI, Constitution)
Case(s):
Osmea v. Orbos (220 SCRA 703)
Gaston v. Republic Planters Bank (158 SCRA 626)
Case(s):
Gonzales v. Macaraig (191 SCRA 452)
a. Due Process.
Case(s):
Tan v. Del Rosario (237 SCRA 324)
Sison v. Ancheta (130 SCRA 654)
b. Religious Freedom.
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Case(s):
American Bible Society v. City of Manila (101 Phil 386)
Tolentino vs. Sec. of Finance (235 SCRA 630)
Case(s):
Tolentino v. Sec. of Finance (235 SCRA 630)
A. Levy
C. Payment
D. Refund
A. As to Object
Case(s):
Villanueva v. City of Iloilo (26 SCRA 578)
Ass. of Customs Brokers v. Municipal Board (93 Phil 106)
B. As to Burden or Incidence
Case(s):
Tolentino v. Secretary of Finance (235 SCRA 630)
Philippine Acetylene v. Commissioner (20 SCRA 1056)
Maceda v. Macaraig (197 SCRA 771; 223 SCRA 217)
Comm. v. John Gotamco (148 SCRA 36)
CIR v. PLDT (478 SCRA 61)
C. As to Tax Rates
1. Specific tax
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2. Ad valorem
3. Mixed
D. As to Purposes
F. As to Graduation
2. Regressive
3. Proportionate (e.g. real estate tax (Sec. 233 Local Government Code))
B. Imprescriptibility
Case(s):
Wells Fargo v. Collector (70 Phil 325)
Commissioner v. BOAC (149 SCRA 395)
CIR vs. Japan Airlines (202 SCRA 450)
Tan v. Del Rosario (237 SCRA 324)
D. Double Taxation
1. Strict Sense
Case(s):
Alcan Packaging Starpack Corporation v. The Treasurer Of The City Of
Manila (C.T.A. AC NO. 17. September 11, 2006)
2. Broad Sense
Case(s):
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Villanueva v. City of Iloilo (26 SCRA 578)
Commissioner Of Internal Revenue vs. Solidbank Corporation (416 SCRA
436)
Case(s):
China Banking Corporation v. Court Of Appeals, Court Of Tax Appeals, and
CIR (403 SCRA 634)
Commissioner Of Internal Revenue v. S.C. Johnson And Son, Inc. (309 SCRA
87)
2. Tax avoidance
Case(s):
Delpher Trades Corp. v. IAC (157 SCRA 349)
Yutivo v. CTA (1 SCRA 160)
3. Tax evasion
Case(s):
Republic v. Gonzales (13 SCRA 633)
CIR v. Estate of Benigno Toda (438 SCRA 290)
Case(s):
Tolentino v. Sec. of Finance (235 SCRA 630)
CIR v. PLDT (478 SCRA 61)
CIR vs. John Gotamco and Sons, Inc. (148 SCRA 36)
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i. Express
ii. Implied
iii. Contractual
Case(s):
Philex Mining Corp. vs. CIR (294 SCRA 687)
CIR vs. ESSO Standard Eastern, Inc. (172 SCRA 364)
G. Taxpayers Suit
Case(s):
Pascual v. Sec. of Public Works, 110 Phil. 331
Dumlao v. Comelec (95 SCRA 392)
Lozada and Igot v. Comelec (120 SCRA 337)
Gonzales v. Marcos (65 SCRA 624)
H. Compromises
I. Tax Amnesty
1. Definition
A. Tax Laws
1. General Rule
2. Exception
1. General Rule
Case(s):
CIR v. YMCA (298 SCRA 83)
2. Exceptions
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Case(s):
Maceda v. Macaraig (197 SCRA 771)
Maceda v. Macaraig (223 SCRA 217)
1. Administrative rules and regulations are intended to carry out not to modify
the law.
Case(s):
CIR v. C.A., R.O.H Auto Prodcuts Phil., Inc., et.al. (240 SCRA 368)
Case(s):
CIR vs. CA, CTA and Fortune Tobacco (261 SCRA 236)
Case(s):
CIR v. Telefunken Semiconductor Philippines, Inc. (249 SCRA 401)
CIR v. Mega General Merchandising Corp. (166 SCRA 166)
CIR v. Burroughs (142 SCRA 324)
ABS-CBN v. CTA (108 SCRA 142)
Case(s):
CIR v. Benguet Corporation (463 SCRA 28)
Case(s):
CIR vs. CA, CTA and Fortune Tobacco (261 SCRA 236)
Case(s):
BPI Leasing Corporation v. CA, CTA and CIR (416 SCRA 4)
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Part 2: Income Taxation
References: 1. Mamalateo, Victorino C., Philippine Income Tax. Manila: Rex Bookstore,
Inc. 2010 Edition.
1. Direct tax
2. Progressive tax
3. Comprehensive
1. Citizenship principle
2. Residence principle
3. Source principle
1. Calendar Year
2. Fiscal Year
3. Short Period
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II. CONCEPT OF INCOME
1. Existence of income
2. Realization of income
a. Tests of Realization
3. Recognition of Income
Sec. 44, RR 2
1. Realization Test
Eisner v. Macomber (252 US 189)
Fisher v. Trinidad (43 Phil 973)
4. Severance Test
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III. KINDS OF TAXPAYERS
1. Citizens
a. Resident citizens
b. Non-resident citizens
2. Aliens
a. Resident aliens
b. Non-resident aliens
e. Co-ownerships
b. Taxable JV consortium
4. Foreign Corporations
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b. Non-resident foreign corporation
1. Compensation income
2. Fringe Benefits
4. Professional Income
i. Type of properties
aa. ordinary assets
bb. capital assets
What is capital asset
14
Sec. 39 (B), NIRC
ii. Types of gains from dealings in property
aa. Ordinary income v. capital gain
Exceptions:
15
Revenue Memo Order 26-92
Rev. Regs. 18-2001
Rev. Memorandum Ruling No. 01-01
Rev. Memorandum Ruling No. 01-02
Illegal transactions
Sec. 96, RR 2
Definition of shares
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Sec. 22 (L), NIRC
Sec. 24(C), NIRC
Sec. 27(D)(2), NIRC
Sec. 28(A)(7)(c), NIRC
Sec. 55, RR 2
Rev. Regs. 6-2008
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Sec. 32(A)(6)
Sec. 42(A)(4)
d. Rental income
Sec. 32 (A)(5) NIRC
Sec. 74, 79, 58 RR 2
Limpan v. CIR (17 SCRA 703)
i. Lease of Personal Property
ii. Lease of real property
iii. Tax Treatment of
aa. Leasehold improvements by lessee
bb. VAT added to rental/paid by the lessee
cc. Advance rental/long term lease
7. Annuities/Proceeds from life insurance/other types of insurance
Sec. 32(A)(8), NIRC
Sec. 48 RR 2
8. Prizes and awards
Sec. 32(A)(9), NIRC
9. Pensions/retirement benefits/separation pay
Sec. 32(A)(10), NIRC
10. Income from any source whatever
a. Forgiveness of indebtedness
Sec. 30, RR 2
b. Recovery of accounts previously written off
Sec. 34(E)(1), NIRC
c. Receipt of tax refunds or credit
Sec. 34(C)(1), NIRC
d. Income from any source whatever
D. Situs/Sources of Income (Mamalateo, pp. 64-74)
1. Meaning of situs of income
2. Classification of income as to source
Sec. 42, NIRC
Sec. 152-165, RR2
a. Gross or taxable income from sources within the Philippines
Sec. 42(A), (B), NIRC
Sec. 28(A)(3)(a)(b), NIRC
Commissioner v. JAL (202 SCRA 450)
Commissioner v. BOAC (149 SCRA 395)
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NDC v. Commissioner (151 SCRA 472)
Howden v. Collector (13 SCRA 601)
b. Gross or taxable income from sources without the Philippines
Sec. 42 (C) and (D), NIRC
c. Income partly within/partly without the Philippines
Sec. 42 (E), NIRC
3. Source Rules in determining income from within and without
a. Interests residence of debtor
b. Dividends residence of corporation paying dividend
c. Services place of performance of service
d. Rentals and royalties location of property or interest in such
property
e. Sale of real property location of real property
f. Sale of personal property
g. Shares of stock of domestic corporation
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d. Value of property acquired by gift, bequest, devise or descent
e. Amounts received through accident or health insurance
Sec. 32(B)(4), NIRC
Sec. 63 RR2
f. Income exempt under tax treaty
Sec. 32(B)(5), NIRC
g. Certain passive income of foreign governments from their Philippine
investments
Section 32 (B)(7,a) NIRC as amended by RA 8424
Com. V. Mitsubishi Metal (181 SCRA 214)
h. Interest income from long term deposit or investment
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RR 6-08 dated April 22, 2008
6. Under a Tax Treaty
7. Under special laws
B. Exempt Corporations (Mamalateo, pp. 170-177)
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Gutierrez v. Collector (14 SCRA 33)
g. Expenses under lease agreements (Sec. 74, RR 2)
h. Expenses for professionals (Sec. 69, RR 2)
i. Entertainment expenses (RR 3-98)
RR 10-2002 (Ceilings for entertainment, amusement and
recreational expenses (July 10, 2002)
j. Political campaign expenses
k. Training Expenses
2. Interest
Sec. 34 (B), NIRC
RR 13-00
Secs. 78-79 RR2
a. Requisites for deductibility
Com. v. Prieto (109 Phil 592)
Kuenzle v. Coll (28 SCRA 365)
b. Non-deductible interest expense
c. Interest subject to special rules
Sec. 34(B)(2), NIRC
aa. Interest paid in advance
bb. Interest periodically amortized
Sec. 34(B)(3), NIRC
cc. Interest expense incurred to acquire property for use in
trade/business/profession
3. Taxes
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Sec. 93-101 and 104, RR2
RR 12-77
7. Depletion
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Sec. 3, RR 5-76
a. Definition
b. Requisites for deductibility
E. Personal and additional exemptions (R.A. 9504, Minimum Wage Earner Law)
1. Basic personal exemptions
2. Additional exemptions for taxpayer with dependents
3. Status-at-the-end-of-the-year rule
F. Items not deductible
1. Personal, living or family expenses
2. Amount paid for new buildings or for permanent improvements (Capital
expenditures)
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3. Amount expended in restoring property
4. Premiums paid on life insurance policy covering life or any other officer or
employee financially interested
5. Interest expense, bad debt and losses from sales of property between related
parties
Sec. 36 NIRC
B. Tax Base
1. Taxable income
a. Compensation Income, Business and Professional Income, Capital gain not
subject to Final Tax, Passive income not subject to final tax and other
income LESS
b. Deductions
c. Exemptions (in case of individuals)
2. Gross Income
a. Under NIRC - Generally, passive income subject to final tax
b. Under special laws PEZA, SBMA registered entities
3. HIGHEST between Gross selling price, fair market value per tax declaration
and zonal value per BIR in case of capital asset
Section 6(E), NIRC
4. Gain from sale of Real property
5. Net capital gain in case of sale of shares not listed and traded in the stock
exchange
C. Tax Rates
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1. Individuals
a. Graduated income tax rates on taxable income
b. Capital gains Flat rate
i. on sales of shares of stock of domestic corporation (except dealers in
securities
aa. of 1% Gross selling price listed shares
bb. 5% for 1st 100,000 and 10% in excess of 100,000 of Net Capital
Gains shares not listed and exchanged in stock exchange
ii. on sale of real property classified as capital asset by individual Flat
rate of 6%
c. Passive income subject to final tax at preferential rates
2. Corporations
a. Domestic
i. Regular of normal income tax rate flat rate (30% starting 2009)
ii. MCIT
Sec. 27, NIRC
RR 9-98
RR 12-07
iii. Domestic corporations entitled to preferential tax rates
aa. Proprietary educational institutions 10% of taxable income
bb. Foreign Currency deposit unit of local universal or commercial
bank 10% final tax
cc. Firms taxed under special income tax regimes (e.g., registered
entities under PEZA law (RA 7916) and Bases Conversion and
Devt. Act (RA 7227) 5% final tax on gross income
iv. Resident Foreign Corporations (RFC)
aa. General Rule: 30% of net taxable income from sources within the
Philippines
bb. Exempt entities
1. Regional Area Headquarters
2. Representative Office
cc. RFCs subject to preferential tax rates
1. International Carrier 2 % on Gross Philippine billings
2. Offshore banking units (OBUs) 10% final tax
3. Regional Operating Headquarters 10% net taxable income
4. Foreign currency deposit unit in Philippines of foreign bank
10% final tax
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5. Branch of foreign corp. registered with PEZA, SBMA, CDA, etc.
5% final tax on gross income
6. Qualified Service Contractor and sub-contractor engaged in
petroleum operations in the Philippines
P.D. 87
P.D. 1354
b. Non-resident (NRC)
Sec. 22(E), NIRC
Sec. 23(C); 24(A.1,b)
2. Aliens
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B. Taxation of Income of Resident Citizens:
1. General Rule:
a. Residents who are Citizens Taxable on income from ALL sources (within
and without the Philippines)
b. Resident Aliens - taxable on income from sources WITHIN the Philippines
Regular salary/wage
Directors Fees
RMC 34-08
ii. Non-monetary compensation income
RR 3-98, as amended by
RR 10-00 dated Dec. 14, 2000
RR 5-08 dated April 17, 2008
RR 010-08 dated July 8, 2008
iii. 13th month pay and other benefits and payments specifically excluded
from taxable compensation income
Sec. 32(B)(7,e), NIRC
c. Deductions
Sec. 35, NIRC
i. Personal Exemptions and Additional Exemptions
Sec. 35, NIRC
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RA No. 9504
RR 10-2008
Pansacola vs. CIR (507 SCRA 81)
ii. Health and hospitalization insurance
Sec. 34(M), NIRC
3. Taxation of Compensation Income of a Minimum Wage Earner
Republic Act No. 9504
Definition of Statutory Minimum Wage
Definition of Minimum Wage Earner
Income also subject to tax exemption: holiday pay,
overtime pay, night shift differential, and hazard
4. Taxation of Business Income/Income from the Practice of Profession
Formula: (pure business/professional income)
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i. Interest income
Sec. 24(B), NIRC
30
ii. Exception
Sec. 24 (D,2), NIRC
RR 13-99, as amended by RR 14-00
RMC 45-02
c. Income from the sale / exchange / other disposition of other capital
assets
i. Special rules to be applied
Sec. 39 (B) (D), NIRC
1. General Rule:
Income from sources within the Philippines are taxed exactly as income of
resident citizens, except as indicated below.
2. Exceptions:
b. Income from sources outside of the Philippines not subject to Phil. income
tax
D. Taxation of Non-resident Aliens Engaged in Trade or Business in the Philippines
Sec. 25(A), NIRC
1. General Rule:
They are taxed exactly as resident citizens but only on their income from
sources within the Philippines., except as indicated below. Their income from
foreign sources are exempt from Philippine income tax.
2. Exceptions:
31
Sec. 24(B), NIRC
RR 10-98
1. General Rule: Gross income (i.e. WITHOUT deductions) from Philippine sources
shall be taxes at the fixed FLAT rate of 25%.
Sec. 25(B), NIRC
2. Exceptions:
a. Capital gain from sale of shares of stock exactly the same as resident
citizens
b. Capital gain from sale of real property situated in the Philippines exactly
the same as resident citizens
1. Senior citizens
RA No. 7432
RA 9257
Rev. Regs. 4-2006
Carlos Superdrug v. DSWS (526 SCRA 130)
32
3. Aliens employed by petroleum contractors / subcontractors
Sec. 25(E), NIRC
33
a. Passive Income Subject to Final Tax
b. Passive Income NOT Subject to Final Tax
3. Taxation of Capital Gains
a. Income from sale of shares of stock
RR-6-08
b. Income from the sale of real property situated in the Philippines
c. Income from the sale / exchange / other disposition of other capital
assets
2. Taxation of NRFCs:
Section 28(B), NIRC
CIR vs. Procter and Gamble (204 SCRA 377; 160 SCRA 560)
34
X. RETURNS AND PAYMENT OF TAX (Mamalateo, pp. 354 379)
B. Corporate regular returns (Sec. 52, Sec. 53, Sec. 56, NIRC)
3. When to file
4. Where to file
5. When to pay
35