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1
TAXATION
1
ATTY.
BELLO
ALC
D
2017
30%
tax
on
sale,
lease
or
disposition
of
videograms
is
for
a
public
purpose.
Taxation
correlation
with
the
lifeblood
theory.
could
be
a
tool
to
implement
the
States
public
power.
Tax
was
imposed
primarily
Without
revenue
raised
from
taxation,
the
government
will
not
survive,
resulting
in
to
answer
the
need
to
regulate
the
video
industry
due
in
part
to
rampant
film
detriment
to
society.
Without
taxes,
the
government
would
be
paralyzed
for
lack
of
piracy,
violation
of
IP
rights
and
proliferation
of
porn.
motive
power
to
activate
and
operate
it.
A
tax
does
not
cease
to
be
valid
merely
because
it
regulates,
discourages
or
even
definitely
deters
the
activities
taxed.
2. Necessity
Theory:
The
existence
of
government
is
a
necessity
that
it
cannot
continue
w/out
the
means
to
pay
its
expenses
so
it
has
the
right
to
compel
all
b. Promotion
of
General
Welfare:
E.g.
for
strengthening
industries
citizens
and
property
within
its
limits
to
contribute.
3. The
Benefits-Protection
Theory
LUTZ
v.
ARANETA,
98
PHIL.
148
(1955)
So
called
Symbiotic
Relationship
theory
Petitioners
in
this
case
assail
the
legality
of
taxes
imposed
by
CA
567
(Sugar
Reciprocal
duties
of
protection
and
support
between
State
and
Adjustment
Act).
Lutz,
Judicial
Administrator
of
Ledesmas
estate
goes
to
court
to
inhabitants
recover
from
CIR
taxes
paid
on
the
ground
that
the
said
tax
is
unconstitutional
for
Inhabitants
pay
taxes
and
in
return
receive
benefits
and
protection
from
being
levied
exclusively
for
the
benefit
of
the
sugar
industry;
thus,
there
is
no
public
the
State
purpose
to
speak
of.
4. Jurisdiction
over
subject
and
object
Tax
collected
on
land
devoted
to
cultivation
of
sugar
cane,
which
tax
shall
accrue
The
person
or
property
taxed
must
be
within
the
competent
authoritys
exclusively
and
for
the
aid
and
support
of
the
sugar
industry,
is
valid.
Tax
levied
taxing
jurisdiction
with
a
regulatory
purpose,
to
provide
means
for
the
rehabilitation
and
stabilization
o Situs,
source
or
territoriality
(location
of
economic
activity,
of
the
threatened
sugar
industry.
Since
sugar
production
is
one
of
the
great
location
of
property,
source
of
income)
industries
of
the
nation,
its
promotion,
protection
and
advancement
therefore
o Citizenship
redounds
greatly
to
the
general
welfare.
o Residence
The
protection
of
a
large
industry
constituting
one
of
the
great
sources
of
the
states
wealth
and
therefore
directly
of
indirectly
affecting
the
welfare
of
so
great
a
Scope
of
the
Legislative
Taxing
Power
portion
of
the
population
of
the
State
is
affected
to
such
extent
by
public
interests
1. Person,
property
or
occupation
to
be
taxed
as
to
be
within
the
police
power
of
the
sovereign
2. Amount
or
rate
of
the
tax
3. Purposes
for
which
taxes
shall
be
levied
(public
purposes)
c. Reduction
of
Social
Inequality:
Made
possible
by
progressivity
4. Kind
of
tax
to
be
collected
those
who
are
able
to
pay
should
shoulder
the
bigger
portion
of
the
5. Apportionment
of
the
tax
tax
burden
6. Situs
of
taxation
d. Encourage
Economic
Growth:
Tax
exemptions
and
tax
reliefs
are
7. Method
of
collection
granted
as
incentives
or
exemptions
in
order
to
encourage
investments
and
thereby
promote
economic
growth
Is
the
power
to
tax
the
power
to
destroy?
e. Protectionism:
E.g.
Taxes
like
protective
tariffs
and
customs
duties
Power
to
tax
involves
the
power
to
destroy
but
this
principles
is
pertinent
only
when
there
is
no
power
to
tax
a
particularly
subject
and
has
no
relation
to
a
Theory
and
Basis
of
Taxation
case
where
such
right
to
tax
exists
This
principles
does
not
refer
to
the
purposes
for
which
taxing
power
may
be
1. Lifeblood
theory:
used
but
to
the
degree
of
vigor
with
which
the
taxing
power
may
be
employed
in
order
to
raise
revenue
COMMISSIONER
OF
INTERNAL
REVENUE
v.
ALGUE,
241
Phil.
829
(1988)
Algue
declared
in
his
income
tax
return
promotional
fees
as
expenses
that
are
Constitutional
Restrains
Re:
Taxation
is
the
power
to
destroy
deductible
to
his
gross
income.
CIR
disallowed
the
deduction
but
Algue
was
able
to
The
power
to
tax
is
unlimited
because
a
legislative
body
having
the
power
to
prove
that
such
was
a
legitimate
expense
that
is
necessary
and
reasonable.
tax
a
certain
subject
matter
actually
imposes
such
a
burdensome
tax
as
The
burden
is
on
the
taxpayer
to
prove
that
validity
of
a
claimed
deduction,
in
effectually
destroy
the
right
to
perform
the
act
or
to
use
the
property
subject
2
TAXATION
1
ATTY.
BELLO
ALC
D
2017
to
the
tax,
the
validity
of
the
enactment
depends
upon
the
nature
and
Power
of
Taxation
Compared
with
Other
State
Powers
character
of
the
right
to
destroy.
Taxation
Eminent
Domain
Police
Power
The
power
to
tax
is
not
the
power
to
destroy
in
accordance
with
constitutional
Purpose
To
support
govt
For
public
use
Promote
general
restrains
welfare,
public
It
must
be
used
justly
and
not
treacherously
health,
public
Power
of
Judicial
Review
in
Taxation
morals
and
public
Courts
cannot
acquire
into
the
wisdom
of
a
taxing
act
safety
As
long
as
the
legislature
does
not
violate
applicable
constitutional
limitations,
Compensation
Protection
and
Just
compensation
Maintenance
for
courts
have
no
concern
with
the
wisdom
or
policy
of
the
exaction,
the
political
benefits
received
public
order
or
other
collateral
motives
behind
it,
the
amount
to
be
raised
or
the
persons,
from
govt
property
or
other
privileges
to
be
taxed.
Persons
Operate
upon
a
Operates
on
individual
Operate
upon
a
Courts
power
in
taxation
is
limited
only
to
the
application
and
interpretation
Affected
community
or
a
class
property
owner
community
or
a
of
the
law
of
individuals
class
of
individuals
This
principles
of
judicial
non-interference
also
extends
into
the
administration
Authority
w/c
Exercised
only
by
the
May
be
exercised
by
Exercised
only
by
realm
exercises
govt
or
its
political
public
services
the
govt
or
its
power
subdivisions
corporation
or
public
political
subdivisions
Aspects
of
Taxation
utilities
if
granted
by
1. Levy
-
a
legislative
power
which
includes
the
determination
of
persons,
law
property
or
excises
to
be
taxed,
the
sum
or
sums
to
be
raised,
the
due
date
Amount
of
Generally
no
limit
to
No
imposition;
rather
Limited
to
cost
of
thereof
and
the
time
and
manner
of
levying
and
collecting
taxes
imposition
the
amount
of
tax
it
is
the
property
regulation
2. Collection
manner
or
enforcement
of
the
obligation
on
the
part
of
those
who
that
may
be
imposed
owner
of
who
will
be
are
taxed
paid
just
compensation
Basic
Principles
of
Sound
Tax
System
1. Theoretical
Justice
Principles
mandate
that
taxes
must
be
just,
reasonable
and
fair
Taxes
Distinguished
From
Other
Impositions
Taxation
must
be
based
on
TPs
ability
to
pay
(progressive)
Violation
of
this
principle
could
result
in
unconstitutionality
of
the
tax
Toll
Toll
is
a
demand
of
ownership;
tax
is
a
imposition
(under
the
Constitution,
taxes
shall
be
uniform
and
equitable)
demand
of
sovereignty
2. Fiscal
adequacy
Penalty
Tax
is
a
civil
liability
and
it
only
becomes
a
Sources
of
government
revenue
should
be
sufficient
to
meet
government
criminal
liability
when
there
is
non-
expenditures
and
other
public
needs
payment;
penalty
is
a
punishment
for
the
Even
if
the
tax
law
fails
to
observe
this
principle,
in
that
tax
proceeds
are
commission
of
a
crime
insufficient
to
meet
spending,
the
tax
law
is
still
valid
Compromise
or
compromise
penalty
An
amount
collected
as
a
compromise
in
3. Administrative
Feasibility
cases
involving
violations
of
the
Tax
code,
Should
be
capable
of
being
effectively
enforced
rules
or
regulations.
It
cannot
be
imposed
Tax
laws
should
close
loopholes
for
tax
evasion
and
deter
corruption
of
by
the
commissioner
tax
officials
Special
assessment
1)
levied
only
on
a
land
2)
cannot
be
made
No
law
requiring
compliance
with
this
principle
a
personal
liability
3)
based
wholly
on
a
benefit
and
4)
is
exceptional
both
as
to
time
and
locality;
tax
exemptions
under
Sec.
28(3)
of
Art
VI
of
the
Constitution
do
not
apply
to
special
assessments;
LGC
3
TAXATION
1
ATTY.
BELLO
ALC
D
2017
provides
that
SAs
do
not
apply
to
Tribute
Synonymous
with
tax
but.
Implied
as
properties
exempt
from
the
basic
real
something
from
the
government
to
some
property
tax
under
Sec.
234
form
of
sovereignty
License
fee
a) License
fee
emanates
from
the
Impost
In
the
general
sense,
it
signifies
any
tax,
police
power;
taxation
is
a
power
tribute
or
duty;
in
the
limited
sense,
it
b) Purpose
is
to
regulate
not
to
means
a
duty
on
imported
goods
and
raise
revenue
merchandise
c) Amount
of
exaction
or
charge
*motor
vehicle
registration
was
ruled
to
Classification
of
Taxes
be
a
tax
because
such
was
collected
for
Personal
Tax
Also
known
as
capitation
or
poll
the
construction
and
maintenance
of
Taxes
of
a
fixed
amount
upon
al
persons
of
a
certain
class
highways
plus
expenses
of
LTO
within
the
jurisdiction
of
the
taxing
power
w/out
regard
to
**3
kinds
of
licenses:
the
amount
of
their
property
or
the
occupations
or
1) licenses
for
the
regulation
of
businesses
which
they
may
be
engaged
useful
occupations
Property
Tax
Assessed
on
all
property
or
all
property
of
certain
class
within
2) licenses
for
the
regulation
or
the
jurisdiction
of
the
taxing
power
restriction
of
non-useful
e.g.
real
property
tax
occupations
or
enterprises
Direct
Tax
Taxes
wherein
both
the
incidence
of
or
liability
for
the
3) licenses
for
revenue
only
payment
of
the
tax
as
well
as
the
impact
or
burden
of
the
tax
Margin
Fee
Not
a
tax
but
a
currency
measure
designed
falls
on
the
same
person
to
stabilize
the
currency
such
as
the
E.g.
income
tax
where
the
person
subject
to
tax
cannot
shift
exaction
of
a
certain
fee
under
RA
2069
on
the
burden
of
the
tax
to
another
person
->
estate
and
donors
the
remittance
of
profits
earned
in
the
gift
taxes
country
Indirect
Tax
Taxes
within
the
incidence
of
or
the
liability
of
the
payment
Debt
Debt
is
an
obligation
that
is
created
by
of
the
tax
falls
on
one
person,
but
the
burden
thereof
can
be
contract
while
tax
is
imposed
by
law.
Thus,
shifted
or
passes
on
to
another
person
taxes
cannot
be
set-off
or
compensated
E.g.
sales
tax
(VAT)
under
the
Civil
Code.
When
the
seller
passes
on
the
burden
to
the
buyer,
it
is
not
Regulatory
Fees
An
exaction
may
both
be
a
tax
and
a
against
the
rule
that
provides
that
taxes
are
personal
regulatory
fee.
(Tio
v.
Videogram)
liabilities
so
payment
thereof
cannot
be
transferred.
He
is
Subsidy
A
subsidy
is
a
legislative
grant
of
money
in
only
shifting
the
tax
burden
and
not
the
liability
to
pay
it
to
aid
of
private
enterprise
deemed
to
the
purchaser
as
part
of
the
cost
of
the
goods
or
services
sold
promote
public
welfare.
It
is
not
tax
a) When
consumer
or
end-user
is
tax
exempt,
such
exemption
although
it
may
be
necessary
to
raise
the
covers
only
those
which
he
is
directly
liable;
hence,
he
cannot
money
to
pay
the
subsidy
by
means
of
a
claim
for
exemption
for
the
payment
of
sales
tax
or
refund
tax.
Subsidies
are
sometimes
given
in
lieu
such
tax
passed
on
to
him
of
tax
exemptions.
b) When
the
transaction
itself
is
the
one
that
is
tax-exempt
but
Custom
duties
and
fees
They
are
taxes
but
charged
upon
through
error
seller
pays
the
tax
and
shifts
it
to
the
buyer,
he
commodities
on
their
being
seller
gets
the
refund
but
he
must
hold
it
in
trust
for
the
imported/exported
but
tax
is
a
broader
buyer
term
which
includes
other
taxes
as
well
c) When
the
exemption
from
the
indirect
tax
is
given
to
the
Revenue
It
is
a
broad
term
and
it
includes
not
only
contractee
but
the
evident
intention
is
to
exempt
the
taxes
but
other
incomes
as
well
contractor
so
that
such
contractor
may
no
longer
shift
or
pass
4
TAXATION
1
ATTY.
BELLO
ALC
D
2017
on
any
tax
on
the
contractee,
the
contractor
may
claim
tax
Taxpayers
Suit
exemption
on
the
transaction
d) When
a
it
is
the
intention
of
the
law
to
exempt
an
indirect
The
taxpayer
has
the
right
to
file
an
action
questioning
the
validity
or
tax,
the
buyer
has
the
right
to
be
reimbursed
the
amount
of
constitutionality
of
a
statute
or
law
on
the
theory
that
the
expenditure
of
the
taxes
the
sellers
passed
to
him
public
funds
by
an
officer
or
the
Government
for
the
purpose
of
administering
Excise
Tax
Laid
upon
the
manufacture,
sale
or
consumption
of
or
implementing
an
unconstitutional
or
invalid
law
constitutes
a
misapplication
commodities
or
even
upon
licenses
to
purse
certain
of
such
funds
occupations
and
upon
corporate
privileges
A
duly
elected
Senator
and
taxpayer
has
the
legal
capacity
to
file
an
action
General
Tax
Levied
for
the
general
or
ordinary
purposes
of
the
questioning
the
legality
of
a
claimed
refund
of
indirect
taxes
(Maceda
v.
government.
Macaraig)
E.g.
internal
revenue
taxes
A
derivative
or
representative
suit
filed
by
a
group
of
taxpayers
who
are
Special
Tax
Taxes
levied
for
special
purposes
also
concilors
of
a
city
where
it
appeared
that
there
was
an
illegal
E.g.
additional
1%
real
estate
tax
levied
under
RA
5447
for
the
disbursement
of
public
funds
emanating
from
such
taxes
was
held
valid
(City
benefit
of
the
public
school
system
Council
of
Cebu
City
v.
Cuizon
et
al.)
All
money
collected
on
any
tax
levied
for
a
special
purpose
In
order
to
justify
such
suit,
public
funds
should
be
involved
so
an
action
will
shall
be
treated
as
a
special
fund
and
paid
out
for
such
fail
if
what
are
alleged
to
be
illegally
disposed
are
objects
which
were
acquired
purpose
only
from
private
sources
(Joya
et
al
v.
PCGG
et
al)
Specific
Tax
A
tax
imposed
on
specific
sum
by
the
hear
or
number
or
by
some
standard
or
weight
or
measurement
and
which
requires
B. LIMITATIONS
ON
TAXING
POWER
no
assessment
beyond
a
listing
and
classification
of
the
1. Inherent
Limitations
on
Taxing
Power
subject
to
be
taxed
They
proceed
from
the
very
nature
of
the
taxing
power
itself
E.g.
alcohol,
tobacco
Such
limitations
exist
whether
declared
or
not
declared
in
the
written
Ad
Valorem
Tax
upon
the
value
of
the
article
or
thing
subject
to
taxation
constitution
Tax
a. Public
purpose
of
taxes
E.g.
real
property
tax
o Legislature
is
without
the
power
to
appropriate
revenues
for
Custom
Duty
sometimes
used
in
the
general
sense
as
synonymous
anything
but
for
public
purposes
Duties
with
tax
o Public
money
can
only
be
spent
for
a
public
purpose
Duties
charged
upon
commodities
imported/exported
o Tests:
National
Tax
Taxes
levied
by
the
national
government
WoN
thing
to
be
furthered
by
the
appropriation
of
public
Local
governments
have
a
just
share
in
these
taxes
which
are
revenue
is
something
which
is
the
duty
to
the
state
as
a
automatically
released
to
them
government
to
provide
Local
Tax
Levied
by
LGUs
subject
to
guidelines
and
limitations
provided
WoN
the
proceeds
of
the
tax
will
directly
promote
the
by
the
Congress
welfare
of
the
community
in
equal
measure
Progressive
Taxes
imposed
whereby
the
rate
or
amount
of
tax
increases
o E.g.
infrastructure,
charity,
self-help
projects
for
the
destitutes,
Tax
as
the
amount
of
income
or
earning
to
be
taxed
increases
tax
levied
for
the
upliftment
of
the
sugar
industry
Regressive
Taxes
whereby
the
tax
rate
decreases
as
the
amount
of
b. Inherently
legislative
Tax
income
or
earning
to
be
taxed
increases
o To
whom
can
be
delegated:
Proportionate
Tax
based
on
a
fix
proportion
of
the
value
of
the
subject
being
i. President
Tax
taxed
Authorization
of
President
to
fix
E.g.
real
estate
tax
which
is
a
fixed
proportion
of
the
value
of
a. Tariff
rates
the
property
assessed
b. Improt
and
export
quotas
c. Tonnage
an
wharfage
dues
5
TAXATION
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d. Other
duties
and
imposts
within
the
development
o Manner
of
paying
taxes
program
of
the
Government
o Etc.
Flexible
tariff
clause
(Sec.
401
TCCP):
in
the
interest
of
o What
cannot
be
delegated:
national
economy,
general
welfare
and/or
national
Selection
of
property
to
be
taxed
security,
the
President
upon
the
recommendation
of
Determination
of
the
purposes
for
which
taxes
shall
be
the
NEDA
is
empowered:
levied
o To
increase,
reduce
or
remove
existing
Fixing
of
the
rate
of
taxation
protective
rates
of
import
duty,
provided
that
Rules
of
taxation
in
general
the
increase
should
not
be
higher
than
100%
c. Territoriality
or
situs
of
taxation
ad
valorem
o Situs
Principle
in
General
place
of
taxation
o To
establish
import
quota
or
to
ban
imports
of
o The
State
where
the
subject
to
be
taxed
has
a
situs
may
any
commodity
rightfully
levy
and
collect
the
tax.
o To
impose
additional
duty
on
all
imports,
not
Exceptions
exceeding
10%
ad
valorem
-
Where
the
tax
laws
operate
outside
the
territorial
ii. LGUs
each
LGU
has
the
power
to
create
its
own
revenue
jurisdiction
of
the
taxing
state
e.g.
taxation
of
and
levy
taxes,
fees
and
charges
subject
to
such
guidelines
resident
citizens
on
their
foreign
source
income
and
limitations
as
the
Congress
may
provide
(Art
X,
Sec
5,
-
Where
tax
laws
do
not
operate
within
the
territorial
1987
Constitution)
jurisdiction
e.g.
waiver
of
taxing
jurisdiction
via
treaty
or
international
comity
MACTAN
INTL
AIRPORT
AUTHORITY
v.
MARCOS,
261
SCRA
667
(1996)
o Situs
of
income
tax
City
of
Cebu
tries
to
collect
from
MCIAA
claiming
that
the
latter
is
a
GOCC
so
its
tax
Domiciliary
theory
based
on
residence
exemption
was
already
removed
by
the
LGC.
Nevertheless,
Court
ruled
in
favor
of
Nationality
theory
based
on
citizenship
MCIAA
emphasizing
the
fact
that
the
power
of
LGUs
to
tax
is
limited
and
subject
to
Source
rule
where
the
activity
that
produced
the
guidelines.
income
took
place
The
power
to
tax
is
primarily
vested
in
Congress;
however,
in
our
jurisdiction,
it
o Situs
of
property
taxes
may
be
exercised
by
local
legislative
bodies,
no
longer
by
virtue
of
a
valid
Real
property
lex
rei
situs
or
where
the
property
is
delegation
as
before,
but
pursuant
to
direct
authority
conferred
by
Sec.
5,
Art
X
of
located
the
Constitution.
Under
the
latter,
the
exercise
of
the
power
may
be
subject
to
such
Personal
Property
mobilia
sequntur
personam
or
guidelines
and
limitations
as
the
Congress
may
provide
which,
however,
must
be
where
movable
follows
owner;
movables
follow
consistent
with
the
basic
policy
of
local
autonomy.
domicile
of
the
owner
Currently,
Titles
I
(Local
Taxation)
and
II
(RPT)
of
Book
II,
LGC
of
1991
prescribe
the
d. Exemption
of
the
Government
from
Taxes
guidelines
and
limitations
of
local
taxing
power
o Government
cannot
tax
itself
o Sec.32(B)(7)(b):
income
derived
from
any
public
utility
or
iii. Administrative
Agencies
from
the
exercise
of
any
essential
government
function
For
the
delegation
to
be
valid,
the
law
must
be
accruing
to
the
Government
of
the
Philippines
or
to
any
complete
in
itself
and
must
set
forth
the
sufficient
political
subdivision
thereof
standards
e. International
comity
Examples:
Sec.
244
of
the
NIRC
authorizes
the
SOF
o Harmonious
and
productive
relationships
among
the
various
upon
recommendation
of
the
CIR,
to
promulgate
states
should
be
maintained
needful
rules
and
regulations
for
the
effective
o Certain
representatives
of
foreign
states
stationed
and
enforcement
of
the
NIRC
property
of
such
foreign
states
found
within
our
territory
be
o Manner
n
which
returns,
information
and
exempted
from
taxation
from
taxation
reports
is
prepared
and
reported
o Sec.
159
of
LGC:
Diplomatic
and
consular
representatives
are
exempted
from
community
tax
6
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7
TAXATION
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o Both
license
fee
and
tax
imposed
on
business
or
occupation
for
It
is
an
immunity
or
privilege;
it
is
freedom
from
a
financial
charge
or
burden
to
selling
the
same
article
which
others
are
subjected
o Local
tax
levied
on
the
sale
or
disposal
of
an
article
v.
Tax
on
the
Exemption
allowed
only
if
the
law
clearly
provides
for
it;
not
presumed
business
of
selling
such
product
Not
violative
of
equal
protection
clause
so
long
as
there
is
a
substantial
o Tax
imposed
both
on
the
occupation
of
fishing
and
the
fishpond
itself
distinction
o Local
tax
on
storage
of
copra
v.
Sales
tax
Rationale:
Among
others,
to
confer
a
benefit
to
a
particular
class
which
the
o Additional
1%
tax
v.
Penalty
thereof
legislature
feels
outweighs
the
foregone
revenue
o Income
tax
v.
Tax
on
dividends
Grounds
for
granting
exemptions:
o May
be
based
on
a
contract,
e.g.
petroleum
service
contract
under
Means
Employed
to
Avoid
Double
Taxation
PD
987
Unilateral:
Tax
reliefs,
tax
deductions,
tax
credits,
tax
exemption,
allowance
on
o May
be
based
on
public
policy,
e.g.
to
encourage
new
industries
(e.g.
the
principle
of
reciprocity
MCIT
exemption
for
4
years
of
operation)
or
to
foster
charitable
o Applies
also
to
resident
aliens
provided
that
the
reciprocity
institutions
requirement
is
satisfied:
o May
be
based
on
international
reciprocity
(e.g.
exemption
of
foreign
Alien
invidividual
WoN
resident
in
the
PH
only
those
vessels
from
excise
tax
on
petroleum
products
destined
for
income
derived
within
the
Philippines
are
taxable
consumption
outside
PH)
Foreign
corporation
WoN
engaged
in
trade
or
business
in
Nature:
the
Philippines
-
same
o Personal
to
the
grantee
Bilateral:
tax
treaty
o Generally
revocable
by
government
(unless
exemption
founded
on
a
o Treaty
override:
Sec
34(B)(5)
contractual
tax
exemption
o Treaty
provision
mitigates,
if
not
entirely
avoids,
double
taxation
o Considered
a
waiver
by
the
government
of
sovereign
right
to
collect
o Purpose
of
treaty:
facilitate
international
trade
and
investment
by
taxes
lowering
tax
barriers
o Not
necessarily
discriminatory
(e.g.
class
legislation)
so
long
as
Income
Exclusions:
Treaty
Override
exemption
has
reasonable
foundation
or
rational
basis
o Non-transferrable
US
Kinds:
RP
o Express
when
certain
persons,
property
or
transactions
are
by
express
provisions
of
law,
exempted
from
certain
taxes,
in
while
or
in
USCo
Know-How
PhilCo
part
o Implied
when
a
tax
is
levied
on
certain
classes
without
mentioning
other
classes
Misnomer
because
there
is
no
exemption
by
implication;
exemption
must
be
expressed
in
clear
and
unmistakable
Royalties
subject
to
US
Income
Royalties
subject
to
30%
final
language,
what
is
involved
here
is
the
rule
on
strict
Tax
withholding
tax
construction
of
tax
imposition
in
favor
of
TP
Revocation:
o General
Rule:
a
tax
exemption
may
be
revoked
by
the
government
International
Juridical
Double
Taxation
anytime
Since
taxation
is
the
rule
and
exemption
therefrom
is
the
Tax
Exemptions
exception,
the
exemption
thus
may
be
withdrawn
at
the
Grant
of
immunity
to
a
particular
class
or
persons
from
a
tax
which
persons
pleasure
of
the
taxing
authority.
Mactan
Cebu
Intl
Airport
generally
within
the
same
state
or
taxing
district
are
obliged
to
pay
Authority
v.
Marcos,
261
SCRA
667
(1996)
8
TAXATION
1
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o Exception:
a
contractual
tax
exemption
cannot
be
revoked
anytime
He
who
claims
an
exemption
must
be
able
to
justify
his
claim
or
right
without
impairing
the
obligation
of
contracts
thereto
by
a
grant
express
in
terms
too
plain
to
be
mistaken
and
too
The
only
exception
to
this
is
where
the
exemption
was
categorical
to
be
misinterpreted
granted
to
private
parties
based
on
material
consideration
Deductions,
exclusions,
condonations
and
claims
for
refund
are
akin
of
a
mutual
nature,
which
then
becomes
contractual
and
is
to
exemption;
hence,
strictly
construed
against
TP
thus
covered
y
the
non-impairment
clause
of
the
Constitution.
SEA-LAND
SERVICES,
INC.
v.
COMMISSIONER
OF
INTERNAL
REVENUE,
G.R.
NO.
122605,
APRIL
30,
2001
D. CONSTRUCTION
OF
TAX
STATUTES
SEA-LAND
claims
that
it
is
exempted
from
paying
income
tax
under
the
RP-US
Military
Bases
Agreement
so
it
is
claiming
a
refund;
nevertheless,
transport
or
1. Construction
of
Tax
Laws
shipment
of
household
goods
is
not
within
the
scope
of
the
exemption.
A
tax
cannot
be
imposed
without
clear
and
express
words
for
that
Laws
granting
exemption
from
tax
are
construed
strictissimi
juris
against
the
TP
and
purpose
so
they
are
not
to
be
implied
liberally
in
favor
of
the
taxing
power.
He
who
seeks
to
be
thus
privileged
must
MANILA
RAILROAD
v.
COLLECTOR
OF
CUSTOMS,
52
PHIL.
950
(1929)
justify
it
by
words
too
plain
to
be
mistaken
and
too
categorical
to
be
Classification
of
dust
shield/dust
guard
in
terms
of
taxation
misinterpreted.
In
case
of
doubt,
tax
statutes
are
construed
most
strongly
against
the
Government
and
in
favor
of
the
TP
because
burdens
are
not
to
be
imposed
beyond
what
the
Exceptions:
statute
expressly
and
clearly
import
o When
the
law
itself
provides
for
a
liberal
construction
COMMISSIONER
OF
INTERNAL
REVENUE
v.
FIREMENS
FUND
INS.
CO.,
148
SCRA
315
(e.g.
laws
granting
fiscal
incentives
for
foreign
(1987)
investments)
Firemans
Fund
Insurance
Company
erroneously
affixed
the
required
doc
stamps
in
o In
case
of
exemptions
granted
to
religious,
charitable
its
insurance
policies.
CIR
wants
to
collect
payment
for
penalties
due
to
such
and
education
institutions
or
to
the
government,
its
violation.
agencies
or
to
public
property
because
they
are
Doc
stamps
were
considered
paid
already
giving
emphasize
to
the
fact
that
the
real
generally
exempt
from
taxation
purpose
for
such
provisions
is
the
collection
of
taxes.
Thus,
the
purchase
of
stamps
is
the
form
of
payment
made
that
considered
just
a
means
to
an
end
that
will
MACEDA
v.
MACARAIG,
G.R.
NO.
882291,
MAY
31,
1991
insure
that
the
corresponding
tax
has
been
paid
for
such
document
while
Issue:
WON
NPC
the
tax
exemption
of
NPC
as
to
indirect
taxes
has
ceased.
Court
cancellation
of
the
stamps
is
to
obviate
the
possibility
that
said
stamps
will
be
riled
that
it
did
not.
reused
for
similar
documents
for
similar
purposes.
There
appears
to
be
no
dispute
The
rule
on
strict
construction
cannot
be
applied
with
respect
to
the
interpretation
on
the
fact
that
the
documentary
stamps
have
been
paid
for
already
by
the
of
laws
granting
exemptions
to
NPC.
The
rule
on
strict
interpretation
does
not
apply
company.
in
the
case
of
exemptions
granted
to
political
subdivisions
or
instrumentalities
of
In
case
of
doubt,
a
statute
levying
a
tax
should
be
interpreted
in
favor
of
the
tax
the
government.
payer
because
burdens
are
not
to
be
imposed,
nor
presumed
to
be
imposed
beyond
what
statutes
expressly
and
clearly
import.
3. Construction
and
Interpretation
of
IRRs
Authority
of
the
SOF,
in
conjunction
with
CIR,
to
promulgate
rules
Tax
laws
nevertheless
are
not
promulgated
in
order
to
encourage
tax
and
regulations
beyond
question.
Such
rules
and
regulations,
as
well
evasion
or
tax
avoidance
as
administrative
opinions
and
rulings,
ordinarily
should
deserve
weight
and
respect
by
courts
2. Construction
of
Tax
Exemptions
COMMISSIONER
OF
INTERNAL
REVENUE
v.
CA,
240
SCRA
368
(1995)
Strictly
Construed
against
TP
ROH
product
claimed
to
tax
amnesty
but
BIR
collected
for
tax
deficiency
positing
Exemptions
are
not
favored
and
are
construed
stictissimi
juris
against
that
the
tax
amnesty
includes
only
assessments
by
the
BIR
after
promulgation
of
EO
the
TP
41.
EO
41
is
explicit
and
requires
only
a
simple
application
of
its
provisions.
If
it
had
not
9
TAXATION
1
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D
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been
intended
to
include
tax
liabilities
already
assessed
prior
to
the
EO,
the
law
Tax
Avoidance
v.
Tax
Evasion
could
have
simply
provided
in
its
exclusionary
clauses
but
it
did
not.
Tax
avoidance
is
permissible;
tax
evasion
is
illegal
However,
IRRs,
rulings
and
other
issuances
must
not
override,
but
must
remain
Tax
avoidance
occurs
when
taxpayers
take
advantage
of
legally
permissible
consistent
with,
the
law
they
seek
to
apply
and
implement.
They
are
intended
to
alternative
tax
rates
or
methods
of
assessing
taxable
carry
out,
neither
to
supplant
nor
to
modify,
the
law.
property/income/transactions
in
order
to
avoid
or
minimize
tax
liability
Tax
Avoidance
4. Liberal
Construction
v.
Strict
Construction:
When
Applicable?
Minimization
of
tax
liabilities
through
legal
means
COMMISSIONER
OF
INTERNAL
REVENUE
v.
PILIPINAS
SHELL
PETROLEUM
CORP,
G.R.
Attempt
to
minimize
taxes
does
not
necessarily
constitute
fraud.
A
TP
may
NO.
192398,
SEPT.
29,
2014
diminish
his
liability
by
any
means
which
the
law
permits
Issue:
WoN
DST
should
be
paid
in
lieu
of
a
merger
as
regards
transfer
of
real
E.g.
Donation
property
DST
is
due
on
all
conveyances,
deeds,
instruments,
or
writings
whereby
any
land,
COMMISSIONER
OF
INTERNAL
REVENUE
v.
ESTATE
OF
TODA,
438
SCRA
290
(2004)
tenement
or
other
realty
sold
shall
be
granted,
assigned,
transferred
or
otherwise
conveyed
to
the
purchaser
or
purchasers,
or
to
any
other
person
or
persons
designated
by
such
purchaser
or
purchasers.
CIC
Altonaga
RMI
In
SEA-LAND,
there
is
a
law
that
provides
for
tax
exemption
so
the
case
called
for
a
P200M
strict
construction.
On
the
other
hand,
CIR
v.
PILIPINAS
SHELL
involves
a
law
that
levies
tax,
specifically
DST,
on
certain
subjects.
As
a
general
rule,
a
tax
law
should
be
Taxpayers
Position
strictly
construed.
A
liberal
construction
then
is
used
in
determining
WoN
a
certain
P300M
individual/transaction
is
subject
to
an
exemption
while
construction
should
be
CIC
selling
price:
P100
against
the
government
in
trying
to
know
WoN
a
certain
subject/individual
is
subject
Land
and
Cost:
P25
to
such
a
tax.
The
latter
situation
is
obviously
different
from
that
class
that
is
Bldg.
Gain:
P75
exempted
since
in
the
first
place,
the
subject
in
this
circumstance
is
not
taxed
so
Tax
(35%):
P26.25
there
is
no
way
that
it
could
be
exempted
to
something
it
is
not
supposedly
subject
to.
Altonaga
selling
price:
P200
Cost:
P100
E. ESCAPE
FROM
TAXATION
Gain:
P100
Tax
(5%):
P5
Shifting
Shifting
transfer
of
tax
burden
from
the
person
directly
liable
for
the
tax
to
TOTAL
TAX:
P31.25
someone
else
(e.g.,
the
buyer)
Shifting
to
tax
burden
is
generally
prohibited
under
the
law
What
is
shifted
is
the
tax
burden,
not
the
liability
for
the
tax
(i.e.,
person
directly
liable
for
the
tax
remains
liable
WoN
the
tax
burden
is
shifted)
Only
indirect
taxes
are
shifted
(e.g.
VAT,
excise
tax,
percentage
tax)
Impact
and
Incidence
Impact
of
taxation
is
the
point
on
which
a
tax
is
originally
imposed.
From
governments
perspective,
the
statutory
taxpayer
(i.e.
the
person
directly
liable
to
pay
the
tax)
is
the
person
who
must
pay
the
tax
to
the
government
Incidence
of
Taxation
is
the
point
on
which
the
tax
burden
finally
settles
(e.g.,
final
consumer
in
transactions
subject
to
VAT)
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o Scheme
was
entered
into
to
convert
P100M
gain
from
ordinary
gain
(subject
to
35%
tax)
to
a
capital
gain
(subject
to
5%
tax)
CIC
Altonaga
RMI
Examples
of
tax
evasion
o Under-declaration
of
taxable
value
Dummy
o Mis-declaration
of
dutiable
goods
o Substantial
under-declaration
of
taxable
income
for
consecutive
years
coupled
with
substantial
overstatement
of
deductions
o Simulated
sales
Land
and
o Keeping
of
two
or
more
books
of
accounts
P200M
Bldg.
Examples
of
tax
avoidance
BIRs
Position
-
Postponing
sale
of
capital
asset
to
take
advantage
go
holding
period
rule
which
CIC
selling
price:
P200
reduces
capital
gain
by
50%
Cost:
P25
Gain:
P175
DELPHER
TRADES
CORP.
v.
IAC,
157
SCRA
349
(1988)
Tax
(35%):
P61.25
Estate
planning
scheme
resorted
to
by
taxpayers
in
converting
their
property
to
shares
BIR
v.
TP:
P61.25
v.
P31.25
of
stock
in
a
corporation
which
they
themselves
owned
and
controlled
valid.
By
virtue
of
the
deed
of
exchange,
the
taxpayers
saved
on
estate
tax.
The
legal
right
of
taxpayers
to
decrease
the
amount
of
what
otherwise
could
be
his
taxes
or
altogether
avoid
them
by
means
which
the
law
permits
cannot
be
doubted.
Factors
Considered
in
disregarding
intermediate
sale
to
Altonaga
o Sale
to
A
and
Sale
to
RMI
executed
on
the
same
day
(first
sale
was
even
notarized
ahead
of
the
second
sale)
o As
early
as
May
1989,
CIC
received
P40M
partial
payment
from
RMI
(sale
occurred
in
Aug
1989),
indicating
that
the
true
buyer
was
RMI,
not
A
o A
was
a
close
associate
of
toda
(majority
shareholder
of
CIC)
Tax
Evasion
Means
used
to
minimize
taxes
are
fraudulent
and
illegal
Tax
evasion
is
a
term
that
connotes
fraud
through
the
use
of
pretenses
or
forbidden
devices
to
lessen
or
defeat
taxes
Elements
o The
end
to
be
achieved,
i.e.,
payment
of
less
than
that
known
by
the
TP
to
be
legally
due,
or
paying
no
tax
when
it
is
shown
that
tax
is
due
o An
accompanying
state
of
mind
which
is
described
as
being
evil,
in
bad
faith,
willful,
deliberate,
and
not
accidental
o A
course
o
action
(or
omission)
that
is
unlawful
SC
Findings
in
CIR
v.
Estate
of
Toda
o All
elements
of
tax
evasion
are
present
o First
sale:
tax
ploy,
a
sham,
and
without
business
purpose
and
economic
substance
o First
sale
was
entered
into
for
no
other
purpose
than
to
evade
taxes
11
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Is
the
gain
income
then?
NO
applying
their
case
CIR
v.
GLENSHAW
GLASS
CO.,
348
U.S.
426
(1955)
all
realized
gains
unless
specifically
-
Informer
collects
2M
reward.
Income?
NO
exempted
There
was
an
economic
gain
Glenshaw
Glass
But
it
was
not
derived
from
capital
or
from
labor
so
it
was
not
a
taxable
income
Cash
payment
for
damages
-
$800,000
-
Lucky
winner
collects
brand
new
Honda
Civic.
Income?
NO.
Prize
not
derived
from
Punitive
(2/3):
$475,470
capital
or
from
labor
Compensatory
(1/3):
$324,530
There
was
an
economic
gain
But
it
was
not
derived
from
capital
or
labor
+
-
*Macomber
test
is
problematic
(too
narrow;
does
not
cover
items
that
are
clearly
income)
U.S.
v.
KIRBY
LUMBER
CO.,
284
U.S.
1
(1931)
Buy-back
by
issuer
of
bonds
at
less
than
par
Glenshaw
Glass
Co.
Hartford
Empire
Co.
TPs
contention
relying
on
the
definition
in
Eisner
v.
Macomber,
the
TP
argued
that
(Plaintiff)
(Defendant)
while
the
transaction
improved
its
balance
sheet,
it
did
not
produce
any
gain
that
Manufacturer
of
glass
Machinery
used
b y
was
severed
from
its
capital
bottles
and
containers
Glenshaw
Antitrust
lawsuit
Held:
we
see
nothing
to
be
gained
form
the
discussion
of
judicial
definitions.
The
TP
has
realized
within
the
year
an
accession
to
income,
if
we
take
words
in
their
plain
popular
meaning
as
they
should
be
taken
here
Cancellation
of
debt
is
a
taxable
income
since
there
was
en
economic
gain.
TP
contention:
2/3
of
the
damage
awards
(punitive
portion)
constituted
In
a
balance
sheet,
it
will
be
labeled
as
a
gain
that
will
go
to
the
net
worth.
punishment
on
the
wrongdoer
and,
under
the
gross
income
definition
In
Macomber,
this
punitive
portion
of
the
damages
should
not
be
treated
as
income
HELVERING
v.
BRUUN,
309
U.S.
461
(1940)
derived
either
from
capital
or
labor;
only
the
1/3
portion
which
compensated
for
TP
cancelled
a
lease
and
forfeited
a
leasehold
improvement
for
nonpayment
of
loss
of
profits
could
be
treated
as
derived
from
capital
or
from
labor
rentals,
the
tenant
having
erected
a
building
that
added
about
$50,000
to
the
value
Issue:
Whether
money
received
as
exemplary
damages
for
fraud
or
as
punitive
2/3
of
the
property.
portion
of
a
treble
damage
antitrust
recover
must
be
reported
by
a
taxpayer
as
Contention
of
TP:
the
increase
in
value
(represented
by
the
forfeited
leasehold)
was
gross
income
not
severed
from
his
investment
or
received
for
his
separate
use,
benefit
and
Held:
damage
awards
taxable
in
their
entirety
disposal
(citing
Eisner
v.
Macomber)
Court
cast
aside
Macomber
definition
of
income
stating
that
it
was
not
meant
to
There
was
an
economic
gain
but
when
will
the
TP
be
taxed
provide
a
touchstone
to
all
future
gross
income
questions:
Held:
while
economic
gain
is
not
always
taxable,
realization
of
gain
need
not
be
in
Instead,
court
stated
that
Congress
had
applied
not
limitations
as
to
the
source
of
cash
derived
from
sale
of
an
asset.
Gain
may
occur
as
a
result
of
taxable
receipts,
nor
restrictive
labels
as
to
their
nature
Exchange
of
property
Congress
intended
to
tax
all
gains,
which
court
described
as
all
accessions
to
Payment
of
the
TPs
indebtedness
wealth,
clearly
realized,
and
over
which
the
taxpayers
have
complete
dominion
Relief
from
a
liability
The
mere
fact
that
the
payments
were
extracted
form
the
wrong-doers
as
Other
profit
realized
from
the
completion
of
a
transaction
punishment
for
unlawful
conduct
cannot
detract
form
their
character
as
taxable
TP
received
back
his
land
with
a
new
building
on
it,
which
added
an
ascertainable
income
to
the
recipients
amount
to
its
value.
It
is
not
necessary
to
recognition
of
taxable
gain
that
he
should
RESTATED:
Congress
intended
to
tax
all
gains,
except
those
specifically
exempted
be
able
to
sever
the
improvement
begetting
the
gain
from
his
original
capital.
If
The
catch-all
provision
of
IRC
32(A)
(from
whatever
source
derived)
is
that
were
necessary,
no
income
could
arise
from
the
exchange
of
property;
broad/sweeping
whereas
such
gain
has
always
been
recognized
as
realizable
taxable
gain.
Source
is
irrelevant
(income
tax
is
source-blind)
The
touchstone
to
all
income
questions
become
simple
enrichment
(accessions
to
wealth)
all
gains
are
taxable
(at
least
if
clearly
realized),
13
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whether
traceable
to
labor,
to
capital,
or
to
mere
good
fortune
Glenshaw
glass:
all
accessions
to
wealth,
clearly
realized
and
over
which
taxpayers
have
complete
dominion
JAMES
v.
U.S.,
366
U.S.
213
(1961)
Why
is
A
not
taxable,
while
B
is
taxable
(Because
of
the
realization
-What
is
the
income
of
a
government
official?
requirement)
-
Supplemental
income
-Is
a
bribe
taxable
income?
HELVERING
v.
BRUUN,
supra
TP
cancelled
a
lease
and
forfeited
a
leasehold
improvement
for
nonpayment
of
Gross
income
includes
gains
from
illegal
sources.
(embezzled
money
is
taxable
rentals,
the
tenant
having
erected
a
building
that
added
about
$50,000
to
the
value
income
of
the
embezzler
in
the
year
of
embezzlement)
of
the
property.
Unlawful,
as
well
as
lawful,
gains
are
comprehended
within
the
term
gross
income
Contention
of
TP:
the
increase
in
value
(represented
by
the
forfeited
leasehold)
was
A
gain
constitutes
taxable
income,
when
its
recipient
has
control
over
it
that,
as
a
not
severed
from
his
investment
or
received
for
his
separate
use,
benefit
and
practical
matter,
he
derives
readily
realizable
economic
value
from
it
disposal
(citing
Eisner
v.
Macomber)
When
a
TP
acquires
earnings,
lawfully
or
unlawfully,
and
has
actual
command
over
Gain
may
occur
as
a
result
of
exchange
of
property,
payment
of
the
taxpayers
it,
he
has
received
income
which
he
is
required
to
report,
even
though
it
may
still
indebtedness
and
relief
from
all
liability,
or
other
profit
realized
from
the
be
claimed
that
he
is
not
entitled
to
retain
the
money
and
may
be
required
to
completion
of
a
transaction.
The
fact
that
the
gain
is
a
portion
of
the
value
of
return
the
same
property
received
by
the
taxpayer
in
the
transaction
does
not
negative
its
realization.
B. REALIZATION
REQUIREMENT
HELVERING
v.
HORST,
311
U.S.
112
(1940)
Horst,
Sr.
detached
interest
coupons
and
donated
same
to
Horst,
JR
prior
to
due
SEC.
38,
REV.
REGS.
2
date.
Horst,
Jr.
presented
coupons
and
collected
interest
payment
at
maturity.
Issue:
Whether
gift
of
coupons
to
Jr.
is
realization
of
taxable
income
to
Sr.
SECTION
38.
Bases
of
computation.
Approved
standard
methods
of
accounting
will
The
gift,
during
the
donors
taxable
year,
of
interest
coupons
detached
from
the
be
ordinarily
regarded
as
clearly
reflecting
income.
A
method
of
accounting
will
not,
bonds
delivered
to
the
done
and
later
in
the
year
paid
at
maturity
is
taxable
income
however,
be
regarded
as
clearly
reflecting
income
unless
all
items
of
gross
income
and
in
the
hands
of
the
donor
all
deductions
are
treated
with
reasonable
consistency.
All
items
of
gross
income
shall
The
power
to
dispose
of
income
is
equivalent
of
ownership.
The
exercise
of
that
be
included
in
the
gross
income
for
the
taxable
year
in
which
they
are
received
by
the
power
to
procure
the
payment
of
income
to
another
is
the
enjoyment
and
hence
taxpayer
and
deductions
taken
accordingly,
unless
in
order
clearly
to
reflect
income
the
realization
of
the
income
by
him
who
exercises
it
such
amounts
are
to
be
properly
accounted
for
as
of
a
different
period.
For
instance,
in
The
realization
rule,
w/c
is
founded
on
administrative
convenience,
GENERALLY
any
case
in
which
it
is
necessary
to
use
an
inventory,
no
accounting
in
regard
to
postpones
taxability
until
final
enjoyment
of
the
income
which
is
usually
receipt
purchases
and
sales
will
correctly
reflect
income
except
an
accrual
method.
A
taxpayer
of
it
by
the
TP
is
deemed
to
have
received
items
of
gross
income
which
have
been
credited
to
or
set
HOWEVER,
the
enjoyment
of
the
income
may
occur
when
TP
has
made
such
use
or
apart
for
him
without
restriction.
On
the
other
hand,
appreciation
in
value
of
property
is
disposition
of
his
power
to
receive
or
control
the
income
as
to
procure
in
its
place
not
even
an
accrual
of
income
to
a
taxpayer
prior
to
the
realization
of
such
appreciation
other
satisfactions
which
are
of
economic
worth
through
sale
or
conversion
of
the
property.
(For
methods
of
accounting
and
COTTAGE
SAV.
ASSN
v.
CIR,
499
U.S.
554
(1991)
determination
of
accounting
period,
see
Sections
166
to
169
of
these
regulations.)
Exchange
of
mortgages
resulted
to
realized
losses
Rationale
for
realization
requirements:
-
A
acquired
prop.
In
Jan
2005
for
P1M.
FMV
of
prop
in
Dec.
2005
is
P2M:
there
is
an
Avoid
annual
valuation
economic
gain
only
on
paper.
No
realization
yet
o To
avoid
the
cumbersome,
abrasive,
and
unpredictable
administrative
task
of
valuing
assets
annually
to
determine
whether
their
value
has
-
B
acquired
prop
in
Jan
2005
for
P1M.
Sold
for
cash
in
Dec.
2005
for
P2M.
appreciated
or
depreciated,
1001(a)
of
the
Code
(similar
to
NIRC
40(a))
-
Already
realized
the
taxable
economic
gain
defers
the
tax
consequences
of
a
gain
or
loss
in
property
until
it
is
realized
through
the
sale
or
disposition
of
the
property
Serves
administrative
convenience
14
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o This
rule
serves
administrative
convenience
because
in
contrast
a
change
CIR
v.
MINZER,
279
F.2d
338,
(5th
CIR.
1960)
in
the
investments
form
or
extent
can
be
easily
detected
by
a
taxpayer
or
Commissions
derived
by
an
insurance
broker
on
life
insurance
policies
procured
on
his
an
administrative
officer
own
life
are
taxable
income
Problems
that
would
arise
in
the
absence
of
the
realization
requirement:
o Problem
of
annual
property
appraisals
REV.
RUL.
79-24,
1979-1
C.B.
60
o Problem
of
liquidity
Lawyer
and
housepainter
exchanging
services;
landlord
and
artist
exchanging
apartment
o Forced
liquidation
usage
and
a
painting
When
does
realization
occur?
When
the
TP
has
enjoyed
the
benefit
of
the
economic
gain
2. Tax-Free
Return
of
Capital
When
is
the
TP
deemed
to
have
enjoyed
the
benefit
of
the
economic
gain?
Not
all
receipts
of
money
are
income;
to
arrive
at
income,
there
must
be
B.I.G.;
paper
profits
excluded
therefrom
an
amount
representing
return
of
capital
(Rev
Regs.
2
36:
Sale,
exchange
or
other
disposition
Income,
in
the
broad
sense,
means
all
wealth
which
flows
into
the
taxpayer
o Benta,
puhunan,
tubo
other
than
as
mere
return
of
capital
o Head
or
tail?
Basis
recovery
o Sunog!!!!
Sale
or
exchange
of
property
is
typical
example
Examples
of
return
of
capital/basis
recovery:
C. OTHER
RELEVANT
CONCEPTS
Sale
or
exchange
of
property
1. Tax-Free
Imputed
Income
v.
Taxable
Barter
Gradual
basis
recovery
through
depreciation
Imputed
income
is
excludable
from
gross
income,
not
on
the
basis
of
a
specific
Certain
indemnities
Code
provision,
but
results
from
long
standing
administrative
practice
Damages
under
certain
instances
House
painting
example
Other
instances
Rationale
for
exemption
(administrative
convenience,
e.g.
difficulty
of
valuing
imputed
income)
CLARK
v.
CIR,
40
B.T.A.
333
(1939)
Differentiate
tax-free
imputed
income
from
taxable
barter
Reimbursement
by
tax
adviser
to
client
for
erroneous
tax
advice
resulting
to
payment
of
o Ex.
Lap
dance
in
exchange
for
legal
services;
see
Rev
Regs
2
41:
taxes
client
neednt
have
paid
where
services
are
paid
for
with
something
other
than
money,
the
FMV
of
the
thing
taken
in
payment
is
the
amount
to
be
included
as
BIR.
RUL.
51-00
(OCT.
30,
2000)
income
Return
to
employees
of
their
contributions
to
a
qualified
retirement
plan
o Endorsement
in
exchange
for
cosmetic
surgery
example
-
Should
be
upon
retirement
or
else
such
will
constitute
benefits
that
shall
be
taxed
o See
e.g.,
Rev.
Rul.
79-24
BIR
RUL.
184-90
(SEPT.
20,
1990)
Damages
in
lieu
of
lost
profits
damages,
however
that
compensate
the
taxpayer
for
SEC.
41,
REV.
REGS
2.
lost
profits
are
includable
in
gross
income.
(damages
for
breach
of
contract
constitute
taxable
income
to
the
extent
that
such
damages
compensate
loss
of
anticipated
profits
SECTION
41.
Compensation
paid
other
than
in
cash.
Where
services
are
paid
for
with
and
non-taxable
to
the
extent
that
the
same
represent
a
return
of
capital
or
investment)
something
other
than
money,
the
fair
market
value
of
the
thing
taken
in
payment
is
the
REV.
RUL.
81-277,
1981-2
C.B.
14
amount
to
be
included
as
income.
If
the
services
were
rendered
at
a
stipulated
price,
in
Payment
by
a
contractor
of
a
sum
of
money
to
a
buyer
in
exchange
for
a
release
of
the
the
absence
of
evidence
to
the
contrary,
such
price
will
be
presumed
to
be
the
fair
value
buyers
claims
against
the
contractor
for
failure
to
fulfill
the
contract
for
construction
of
of
the
compensation
received.
Compensation
paid
an
employee
of
a
corporation
in
its
a
plant
constitutes
a
return
of
capital
rather
than
gross
income
to
the
buyer.
stock
is
to
be
treated
as
if
the
corporation
sold
the
stock
for
its
market
value
and
paid
the
employee
in
cash.
When
living
quarters
are
furnished
in
addition
to
cash
salary,
the
rental
value
of
such
quarters
should
be
reported
as
income.
15
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1
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16
TAXATION
1
ATTY.
BELLO
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2017
BIR
RUL.
76-89
(APRIL
17,
1989)
Waiver
of
interest
by
bank
generally
should
have
been
subject
to
income
tax.
HOWEVER,
it
was
held
that
the
debtor
did
not
realize
income
from
the
forgiveness
of
indebtedness
because
even
after
the
condonation
it
remained
insolvent
(although
the
debtors
net
worth
improved)
OLD
COLONY
TRUST
CO.
v.
CIR,
279
U.S.
716
(1929)
discharge
by
third
parties
Employer
pays
the
income
taxes
of
a
keyman;
discharge
by
a
third
person
of
an
obligation
to
him
is
equivalent
to
receipt
by
the
person
taxed
Such
constitutes
taxable
income
since
they
were
paid
upon
valuable
consideration
which
is
his
services
derived
from
his
labor.
BIR
RUL.
85-95
(JUNE
13,
1995)
Old
Colony
as
applied:
5%
final
withholding
tax
on
interest
assumed
by
the
borrower
constitutes
additional
income
of
the
nonresident
bondholders
17
TAXATION
1
ATTY.
BELLO
ALC
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2017
III. GROSS
INCOME
taxable
bonuses
and
fringe
benefits
except
those
which
are
subject
to
the
fringe
benefits
tax
under
Sec.
33
of
the
Code;
taxable
pensions
and
retirement
pay;
and
other
income
of
a
similar
nature
constitute
compensation
income.
A. INCLUSIONS
The
basis
upon
which
the
remuneration
is
paid
is
immaterial
in
determining
whether
the
SECTION
32(A)
remuneration
constitutes
compensation.
Thus,
it
may
be
paid
on
the
basis
of
piece-
SEC.
32.
Gross
Income.
-
work,
or
a
percentage
of
profits;
and
may
be
paid
hourly,
daily,
weekly,
monthly
or
(A)
General
Definition.
-
Except
when
otherwise
provided
in
this
Title,
gross
income
annually.
means
all
income
derived
from
whatever
source,
including
(but
not
limited
to)
the
Remuneration
for
services
constitutes
compensation
even
if
the
relationship
of
following
items:
employer
and
employee
does
not
exist
any
longer
at
the
time
when
payment
is
made
(1)
Compensation
for
services
in
whatever
form
paid,
including,
but
not
limited
to
fees,
between
the
person
in
whose
employ
the
services
had
been
performed
and
the
salaries,
wages,
commissions,
and
similar
items;
individual
who
performed
them.
(2)
Gross
income
derived
from
the
conduct
of
trade
or
business
or
the
exercise
of
a
(1)
Compensation
paid
in
kind.
Compensation
may
be
paid
in
money
or
in
some
profession;
medium
other
than
money,
as
for
example,
stocks,
bonds
or
other
forms
of
property.
(3)
Gains
derived
from
dealings
in
property;
If
services
are
paid
for
in
a
medium
other
than
money,
the
fair
market
value
of
the
(4)
Interests;
thing
taken
in
payment
is
the
amount
to
be
included
as
compensation
subject
to
(5)
Rents;
withholding.
If
the
services
are
rendered
at
a
stipulated
price,
in
the
absence
of
(6)
Royalties;
evidence
to
the
contrary,
such
price
will
be
presumed
to
be
the
fair
market
value
of
(7)
Dividends;
the
remuneration
received.
If
a
corporation
transfers
to
its
employees
its
own
stock
(8)
Annuities;
as
remuneration
for
services
rendered
by
the
employee,
the
amount
of
such
(9)
Prizes
and
winnings;
remuneration
is
the
fair
market
value
of
the
stock
at
the
time
the
services
were
(10)
Pensions;
and
rendered.
(11)
Partner's
distributive
share
from
the
net
income
of
the
general
professional
partnership.
a. Limited
Choice
and
Restricted
Property
1. Compensation:
Special
Problems
on
In-Kind
Compensation
U.S.
v.
DRESCHER,
179
F.2d
863
(2nd
Cir.
1950)
Taxability
of
in-kind
benefits
(i.e.
receipts
in
a
form
other
than
conventional
An
annuity
purchased
by
the
employer
for
the
employee
is
taxable
income
to
the
cash
payment)
employee
in
the
year
purchase
by
the
employer
(and
not
in
the
year
of
pay-out
to
o Generally
includable;
32
embraces
cash
and
non-cash
benefits
alike
the
employee)
despite
the
fact
that
that
the
policies
were
non-assignable
and
were
(see
e.g.
32(A)(1):
compensation
for
services
in
whatever
form
retained
in
the
possession
of
the
employer
paid)
Non-assignability
and
retention
by
employer
do
not
effect
immediate
taxability,
o Receipt
of
in-kind
benefits
often
presents
valuation
difficulties
not
although
they
may
have
affect
the
valuation
of
the
includable
income
encountered
when
cash
is
received
Amount
includable
is
value
greater
than
zero
although
less
than
the
premium
o E.g.
legal
services
in
exchange
for
chicken
cost
of
$5,000
The
stakes:
tax
now
or
tax
later
(time
value
of
money)
SEC
2.78.1(A)
AND
(1),
REV.
REGS
2-98
(APRIL
17,
1998)
A
loose
end:
SECTION
2.78.1.
Withholding
of
Income
Tax
on
Compensation
Income.
o Suppose
that
B&L
had
simply
given
Drescher
$5,000
in
1939
as
cash
bonus
and
(A)
Compensation
Income
Defined.
In
general,
the
term
"compensation"
means
all
that
Drescher
had
then
purchased
the
annuity
on
his
own.
In
that
case,
remuneration
for
services
performed
by
an
employee
for
his
employer
under
an
Drescher
clearly
would
have
to
report
as
income
the
$5,000.
Should
the
result
employer-employee
relationship,
unless
specifically
excluded
by
the
Code.
be
different
if
the
employer
buys
the
annuity
and
delivers
it
to
Drescher?
The
name
by
which
the
remuneration
for
services
is
designated
is
immaterial.
Thus,
o Note
that
taxing
income
in
kind
is
equivalent
to
treating
employees
as
if
he
or
salaries,
wages,
emoluments
and
honoraria,
allowances,
commissions
(e.g.
she
received
income
in
cash
and
then
used
the
cash
to
buy
an
item
in
question
transportation,
representation,
entertainment
and
the
like);
fees
including
director's
o Economic
benefit:
you
look
forward
to
something
youll
received
(security
at
fees,
if
the
director
is,
at
the
same
time,
an
employee
of
the
employer/corporation;
present)
18
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BIR
Rul.
9-04
(Sept.
13,
2004)
2.4
Business
premises
of
the
employer
means
the
place
where
the
employee
Under
ESAP,
all
employees
were
offered
Australian
registered
shares
in
ANZ
performs
a
significant
portion
of
his
duties
or
where
the
employer
conducts
a
Bank
free
of
charge.
These
were
subject
to
disposal
restriction
and
forfeiture
significant
portion
of
his
business.
In
case
of
doubt,
the
criteria
to
be
used
shall
be
(a)
clause
at
the
time
of
the
grant
so
they
shall
not
be
taxed
until
the
disposal
time,
more
than
50%
of
the
employee's
work
time
or
(b)
value
of
business,
more
than
restriction
is
lifted.
50%
of
the
production
of
the
said
employee.
Dividends
should
be
recognized
on
the
date
payment
is
approved
since
when
they
are
declared,
the
stockholder
already
has
right
thereto
2.5
Notwithstanding
the
provisions
of
the
preceding
paragraphs,
if
an
employee
is
Stock
dividends
are
not
income
since
there
is
no
distribution
of
the
assets
of
provided
by
his
employer
with
company
housing
or
living
quarters
outside
the
the
corporation.
They
only
create
a
change
in
the
composition
of
the
business
premises,
and
such
employee,
because
of
his
position
in
the
employer-
stockholders
equity,
that
is,
a
transfer
from
retained
earnings
to
capital
stock.
company,
also
uses
said
house
or
living
quarters
for
the
benefit
of
the
latter,
like
entertaining
and
putting
up
houseguests
and
guest
of
the
employer-company,
then
b. Forced
Consumption:
Convenience
of
the
Employer
Rule
fifty
percent
(50%)
of
such
allowance,
rental
value,
or
depreciation
if
the
living
quarters
are
owned
by
the
employer,
shall
be
added
to
the
compensation
paid
to
such
employee
and
be
subject
to
the
withholding
tax
on
wages.
The
employer
may
SEC.
2.78.1(A)(2),
REV.
REGS,
2-98
(APRIL
17,
1998)
deduct
the
said
housing
expense
as
a
business
expense.
(2)
Living
quarters
or
meals.
If
a
person
receives
a
salary
as
remuneration
for
services
rendered,
and
in
addition
thereto,
living
quarters
or
meals
are
provided,
the
2.6
Privileges
such
as
"courtesy
discounts"
on
purchases
of
company
merchandise
of
a
value
to
such
person
of
the
quarters
and
meals
so
furnished
shall
be
added
to
the
value
not
to
exceed
1/2
basic
month's
salary
of
an
employee
or
an
officer
shall
not
be
remuneration
paid
for
the
purpose
of
determining
the
amount
of
compensation
added
to
the
remuneration
of
the
employee.
subject
to
withholding.
However,
if
living
quarters
or
meals
are
furnished
to
an
employee
for
the
convenience
of
the
employer,
the
value
thereof
need
not
be
2.7
Entertainment
of
and
gifts
to
company
officers
and
employees
shall
not
be
a
included
as
part
of
compensation
income.
deductible
expense
except
for
Christmas
and
major
anniversary
celebrations
(e.g.
SEC.2,
REV.
AUDIT
MEM.
ORDER
1-87
(APRIL
23,
1987)
25th
year
of
company's
establishment),
sports
tournament,
company
picnics
not
to
2.
Housing
and
Meals
exceed
one
a
year
provided
that
the
value
of
the
gift
when
it
is
not
a
service
award
for
length
of
service
shall
not
exceed
in
value
of
1/2
month's
of
the
basic
salary
of
the
2.1
If
an
employee
receives
a
remuneration
for
services
salaries
and/or
allowances
employee
receiving
the
gift.
and
in
addition
thereto
living
quarters
and/or
meals,
the
value
to
such
person
of
the
quarters
and
meals
so
furnished
shall
be
added
to
the
remuneration
otherwise
paid
for
the
purpose
of
determining
the
amount
of
compensation
subject
to
withholding
BENAGLIA
v.
CIR,
36
B.T.A.
838
(1937)
tax.
Whether
meals
and
lodging
provided
to
a
hotel
manager
for
the
proper
performance
of
his
duties
because
he
was
on
call
taxable
income
2.2
The
value
of
lodging
furnished
to
an
employee
by
or
on
behalf
of
the
employer
No.
Benefits
merely
incidental;
imposed
upon
TP
as
a
working
condition
for
the
shall
be
excluded
from
the
employee's
gross
income,
if
the
lodging
is
furnished
in
the
convenience
of
the
employer
business
premises
of
the
employer;
and
the
employee
is
required
to
accept
such
Convenience
of
the
employer
rule
idea
behind
doctrine
is
that
in-kind
benefits
lodging
as
a
condition
of
his
employment.
should
not
be
taxed
if
furnished
by
the
employer
to
enable
the
employee
to
perform
the
job
satisfactorily
(such
benefits
are
known
as
working
conditions)
23
The
value
of
meals
furnished
to
an
employee
by
or
on
behalf
of
his
employer
shall
Other
examples
of
working
conditions:
spacious
office
of
the
successful
law
firm
be
excluded
from
the
employee's
gross
income
if
the
meals
are
furnished
on
the
partner,
tastefully
decorated
with
modern
art;
trips
to
France,
enjoyed
by
airline
business
premises
of
the
employer
and
the
meals
are
furnished
for
the
convenience
pilot
who
works
the
NY
to
Paris
route;
plays
attended
by
theatre
critic
with
tickets
of
the
employer.
Meals
furnished
without
charge
to
an
employee
as
regarded
as
supplied
by
producers
furnished
for
the
convenience
of
the
employer
where
they
are
furnished
to
the
Kleinwachters
conundrum
employee
during
his
work
day
to
have
the
employee
available
for
work
during
his
meal
period.
19
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distribution
of
earnings
or
profits.
dividend
paid
in
stock
of
another
corporation
is
not
a
stock
dividend,
even
though
the
(C)
Dividends
Distributed
are
Deemed
Made
from
Most
Recently
Accumulated
stock
distributed
was
acquired
through
the
transfer
by
the
corporation
declaring
the
Profits.
-
Any
distribution
made
to
the
shareholders
or
members
of
a
corporation
shall
dividends
of
property
to
the
corporation
the
stock
of
which
is
distributed
as
a
dividend.
be
deemed
to
have
been
made
form
the
most
recently
accumulated
profits
or
surplus,
Where
a
corporation
declares
a
dividend
payable
in
a
stock
of
another
corporation,
and
shall
constitute
a
part
of
the
annual
income
of
the
distributee
for
the
year
in
which
setting
aside
the
stock
to
be
so
distributed
and
notifying
the
stockholders
of
its
action,
received.
the
income
arising
to
the
recipients
of
such
stock
is
its
market
value
at
the
time
the
(D)
Net
Income
of
a
Partnership
Deemed
Constructively
Received
by
Partners.
-
The
dividend
becomes
payable.
Scrip
dividends
are
subject
to
tax
in
the
year
in
which
the
taxable
income
declared
by
a
partnership
for
a
taxable
year
which
is
subject
to
tax
warrants
are
issued.
under
Section
27
(A)
of
this
Code,
after
deducting
the
corporate
income
tax
imposed
therein,
shall
be
deemed
to
have
been
actually
or
constructively
received
by
the
SECTION
252.
Stock
dividends.
A
stock
dividend
which
represents
the
transfer
of
partners
in
the
same
taxable
year
and
shall
be
taxed
to
them
in
their
individual
capacity,
surplus
to
capital
account
is
not
subject
to
income
tax.
However
a
dividend
in
stock
may
whether
actually
distributed
or
not.
constitute
taxable
income
to
the
recipients
thereof
notwithstanding
the
fact
that
the
SEC.
250-256,
REV.
REGS
2
officers
or
directors
of
the
corporation
(as
defined
in
Section
84)
choose
to
call
such
SECTION250.
Dividends.
Dividends,
for
the
purpose
of
the
law,
comprise
any
distribution
as
a
stock
dividend.
The
distinction
between
a
stock
dividend
which
does
distribution
whether
in
cash
or
other
property,
in
the
ordinary
course
of
business,
even
not,
and
one
which
does,
constitute
income
taxable
to
the
shareholder
is
the
distinction
though
extraordinary
in
amount,
made
by
a
domestic
or
resident
foreign
corporation,
between
a
stock
dividend
which
works
no
change
in
the
corporate
entity,
the
same
joint-stock
company,
partnership,
joint
account
(cuentas
en
participacion),
association,
interest
in
the
same
corporation
being
represented
after
the
distribution
by
more
or
insurance
company
to
the
shareholders
or
members
out
of
its
earnings
or
profits
shares
of
precisely
the
same
character,
and
a
stock
dividend
where
there
either
has
accumulated
since
March
1,
1913.
been
a
change
of
corporate
identity
or
a
change
in
the
nature
of
the
shares
issued
as
Although
interest
on
certain
Government
bonds
and
other
similar
obligations
is
not
dividends
whereby
the
proportional
interest
of
the
shareholders
after
the
distribution
is
taxable
when
received
by
a
corporation,
upon
amalgamation
with
the
other
funds
of
the
essentially
different
from
his
former
interests.
A
stock
dividend
constitutes
income
if
it
corporation,
such
income
loses
its
identity
and
when
distributed
to
shareholders,
is
gives
the
shareholder
an
interest
different
from
that
which
his
former
stock
holdings
taxable
to
the
same
extent
as
other
dividend.
represented.
A
stock
dividend
does
not
constitute
income
if
the
new
shares
confer
no
A
taxable
distribution
made
by
a
corporation
to
individual
stockholders
or
members
different
rights
or
interests
than
did
the
old
the
new
certificates
plus
the
old
shall
be
included
is
the
gross
income
of
the
distributees
when
the
cash
of
other
property
representing
the
same
proportionate
interest
in
the
net
assets
of
the
corporation
as
did
is
unqualifiedly
made
subject
to
their
demand.
Dividends,
in
cash
or
other
property
the
old.
received
by
an
individual,
are
subject
to
tax
in
his
hands
in
the
same
manner
another
income.
SECTION
253.
Sale
of
stock
received
as
dividends.
Stock
issued
by
a
corporation,
as
a
Dividends,
whether
in
cash
or
other
property,
received
by
a
domestic
or
resident
foreign
dividend,
does
not
constitute
taxable
income
to
a
stockholder
in
such
corporation,
but
corporation
from
a
domestic
corporation
are
taxable
only
to
the
extent
of
25
per
cent
gain
may
be
derived
or
loss
sustained
by
the
stockholder,
whether
individual
or
thereof
in
accordance
with
Section
24
of
the
Code.
Dividends
received
by
a
domestic
corporate,
from
the
sale
of
such
stock,
which
gain
or
loss
will
be
treated
as
arising
from
corporation
from
a
foreign
corporation,
whether
resident
or
nonresident,
are
taxable
to
the
sale
or
exchange
of
a
capital
asset.
(See
Section
34
of
the
Code.)
The
amount
of
gain
the
extent
that
they
constitute
income
from
sources
within
the
Philippines,
as
provided
derived
or
loss
sustained
from
the
sale
of
such
stock,
or
from
the
sale
of
the
stack
with
in
Section
37
(a)
(2)
(b)
of
the
Code.
Dividends
paid
by
the
domestic
corporation
to
a
respect
to
which
it
is
issued,
shall
be
determined
in
accordance
with
the
following
rules:
nonresident
foreign
corporation
are
taxable
in
full.
(For
definition
of
the
different
(a)
Where
the
stock
issued
as
dividend
is
all
or
substantially
the
same
character
or
classes
of
corporations,
see
Section
84
of
the
Code).
preference
as
the
stock
upon
which
the
stock
dividend
is
paid,
the
cost
of
each
share
(or
when
acquired
prior
to
March
1,
1913,
the
fair
market
value
as
of
such
date)
will
be
the
SECTION
251.
Dividends
paid
in
property.
Dividends
paid
in
securities
or
other
quotient
of
the
cost
(or
such
fair
market
value)
of
the
old
shares
of
stock
divided
by
the
property
(other
than
its
own
stock),
in
which
the
earnings
of
a
corporation
have
been
total
number
of
the
old
and
new
shares.
invested,
are
income
to
the
recipients
to
the
amount
of
the
full
market
value
of
such
(b)
Where
the
stock
issued
as
a
dividend
is
in
whole
or
in
part
of
a
character
or
property
when
receivable
by
individual
stockholders.
When
receivable
by
corporations,
preference
materially
different
from
the
stock
upon
which
the
stock
dividend
is
paid,
the
amount
of
such
dividends
includible
for
purposes
of
the
tax
on
corporations
are
the
cost
(and
when
acquired
prior
to
March
1,
1913,
the
fair
market
value
as
of
such
specified
in
Section
24
of
the
Code.
(See
also
Section
250
of
these
regulations).
A
date)
of
the
old
shares
of
stock
shall
be
divided
between
such
old
stock
and
the
new
21
TAXATION
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ATTY.
BELLO
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D
2017
stock,
in
proportion,
as
nearly
as
may
be,
to
the
respective
value
of
each
class
of
stock,
distributions
made
by
a
corporation
in
complete
cancellation
or
redemption
of
all
of
its
old
and
new,
at
the
time
the
new
shares
of
stock
are
issued,
and
the
cost
(or
when
stock
in
accordance
with
a
bona
fide
plan
of
liquidation
under
which
the
transfer
of
all
acquired
prior
to
March
1,
1913,
the
fair
market
value
as
of
such
date)
of
each
share
of
the
assets
under
liquidation
is
to
be
complete
within
a
reasonable
time
from
the
date
of
stock
will
be
the
quotient
of
the
cost
(or
such
fair
market
value
as
of
March
1,
1913)
of
the
first
distribution,
usually
not
to
exceed
one
year
from
the
time
of
such
first
the
class
to
which
such
share
belongs
divided
by
the
number
of
shares
in
that
class.
distribution.
If
the
amount
received
by
the
stockholder
in
liquidation
is
less
than
the
cost
(c)
Where
the
stock
with
respect
to
which
a
stock
dividend
is
issued
was
purchased
at
or
other
basis
of
the
stock,
the
loss
in
the
transaction
is
deductible
to
the
extent
allowed
different
times
and
at
different
prices
and
the
identity
of
the
lots
can.
not
be
in
Section
34(c)
of
the
Code.
determined,
any
sale
of
the
original
stock,
will
be
charged
to
the
earliest
purchases
of
such
stock,
and
any
sale
of
dividend
stock
issued
with
respect
to
such
stock
will
be
Wise
&
Co.,
Inc.
v.
Meer
(JUNE
30,
1947)
ordinary
v.
liquidating
dividend
presumed
to
have
been
made
from
the
stock
issued
with
respect
to
the
earliest
Determining
element
is
whether
the
distribution
was
in
the
ordinary
course
of
purchased
stock,
to
the
amount
of
the
dividend
chargeable
to
such
stock.
business
and
with
intent
to
maintain
the
business
as
a
going
concern,
or
after
(d)
Where
the
stock
with
respect
to
which
a
stock
dividend
is
declared
was
purchased
at
deciding
to
quit
with
intent
to
liquidate
different
times
and
at
different
prices,
and
the
dividend
stock
issued
with
respect
to
Ordinary
dividend:
if
the
distribution
is
in
the
nature
of
a
recurring
return
on
stock
such
stock
can
not
be
identified
as
having
been
issued
with
respect
to
any
particular
lot
Liquidating
dividend:
if
the
corporation
is
really
winding
up
its
business
or
of
such
stock,
then
any
sale
of
such
dividend
stock
will
be
presumed
to
have
been
made
recapitalizing
or
narrowing
its
activities,
the
distribution
is
treated
as
in
complete
or
from
the
stock
issued
with
respect
to
the
earliest
purchased
stock,
to
the
amount
of
the
partial
liquidation
and
as
payt
by
the
corporation
to
the
SH
for
his
stock
stock
dividend
chargeable
to
such
stock.
What
is
at
stake?
o If
ordinary
dividend
receipt
of
ordinary
dividend
then
was
not
subject
to
SECTION
254.
Declaration
and
subsequent
redemption
of
a
stock
dividend.
A
true
income
tax
(subject
to
income
tax
now
at
10%)
stock
dividend
is
not
subject
to
tax
on
its
receipt
in
the
hands
of
the
recipient.
o If
liquidating
dividend
amount
in
excess
of
the
TPs
cost
basis
taxable
gain;
if
Nevertheless,
if
a
corporation,
after
the
distribution
of
a
stock
dividend,
proceeds
to
TPs
cost
basis
exceeds
the
amount
distributed,
TP
realizes
a
deductible
loss
cancel
or
redeem
its
stock
at
such
time
and
in
such
manner
as
to
make
the
Only
the
excess
is
taxable
gain
(or
loss)
because
a
liquidating
dividend
is
distribution
and
cancellation
or
redemption
essentially
equivalent
to
the
distribution
of
treated
as
a
sale
or
exchange
of
stock
a
taxable
dividend,
the
amount
received
in
redemption
or
cancellation
of
the
stocks
Where
a
corporation
distributes
all
of
its
assets
in
complete
liquidation
in
shall
be
treated
as
a
taxable
dividend
to
the
extent
of
the
earnings
or
profits
exchange
for
the
surrender
by
shareholders
of
their
shares,
a
transaction
accumulated
by
such
corporation
since
March
1,
1913.
takes
place
which
is
no
different
in
essence
from
a
sale
of
the
tame
stock
to
third
persons
SECTION
255.
Sources
of
distribution.
For
the
purpose
of
income
taxation
every
CIR
v.
CA
(JAN.
20,
1999)
distribution
made
by
a
corporation
is
made
out
of
earnings
or
profits
to
the
extent
Illustration
of
dividend
equivalence
rules
(cancellation
or
redemption
of
thereof
and
from
the
most
recently
accumulated
earnings
or
profits.
In
determining
the
previously
issued
non-taxable
stock
dividend
at
such
time
and
in
such
manner
as
to
source
of
a
distribution,
consideration
should
be
given
first,
to
the
earnings
or
profits
of
make
the
distribution
and
cancellation
or
redemption
essentially
equivalent
to
a
the
taxable
year;
second,
to
the
earnings
or
profits
accumulated
since
February
28,
taxable
dividend)
1913,
only
in
the
case
where,
and
to
the
extent
that,
the
distribution
made
during
the
Tax-free
reclassification
of
shares
taxable
year
are
not
regarded
as
out
of
the
earnings
or
profits
of
the
taxable
year
and
all
Tax-free
exchange
of
commons
for
prefs
under
certain
conditions
the
earnings
or
profits
accumulated
since
February
28,
1913,
have
been
distributed;
CIR
v.
Manning
(Aug.
6,
1975)
and,
fourth,
to
sources
other
than
earnings
or
profits
only
after
the
earnings
or
profits
have
been
distributed.
A
stock
dividend
cannot
be
declared
out
of
outstanding
corporate
stock,
but
only
from
retained
earnings
SECTION256.
Distribution
in
liquidation.
In
all
cases
where
a
corporation
(as
defined
A
case
of
constructive
distribution
of
taxable
dividends
in
the
guise
of
a
non-taxable
in
Section
84)
distributes
all
of
its
property
or
assets
in
complete
liquidation
or
stock
dividend
distribution
dissolution,
the
gain
realized
from
the
transaction
by
the
stockholder,
whether
The
series
of
transactions
was
equivalent
to
a
distribution
of
E&P
to
the
individual
or
corporate,
is
taxable
to
the
extent
recognized
in
Section
34(b)
of
the
Code.
stockholders,
who
turned
around
and
used
the
proceeds
to
purchase
the
For
this
purpose,
the
term
"complete
liquidation"
includes
any
one
of
a
series
of
shareholdings
of
the
deceased
shareholder
22
TAXATION
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ATTY.
BELLO
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2017
BIR
Rul.39-02
(Nov.
11,
2002)
interest
payments
shall
be
included
in
gross
income.
TA
is
planning
to
decrease
its
authorized
capital
stock.
Pursuant
to
this,
shares
shall
be
surrendered
and
cancelled
in
exchange
for
real
and
persona,
tangible
(2)
Amount
Received
by
Insured
as
Return
of
Premium.
-
The
amount
received
by
the
and
intangible
properties.
insured,
as
a
return
of
premiums
paid
by
him
under
life
insurance,
endowment,
or
TA
shall
not
be
liable
for
income
tax
either
on
its
receipt
of
the
surrendered
annuity
contracts,
either
during
the
term
or
at
the
maturity
of
the
term
mentioned
in
shares,
or
its
transfer
for
Distributed
Assets
to
TMBC
as
liquidated
dividends.
A
the
contract
or
upon
surrender
of
the
contract.
liquidating
corporation
does
not
realize
gain
or
loss
in
partial
or
complete
liquidation.
(3)
Gifts,
Bequests,
and
Devises.
_
The
value
of
property
acquired
by
gift,
bequest,
No
DST
is
also
due.
Transfer
of
property
is
not
subject
to
DST
on
sale
or
devise,
or
descent:
Provided,
however,
That
income
from
such
property,
as
well
as
gift,
transfer
real
property.
So
is
transfer
of
Loan
portfolio.
bequest,
devise
or
descent
of
income
from
any
property,
in
cases
of
transfers
of
divided
Only
transfer
or
assignment
of
any
mortgage
which
stands
as
security
for
its
interest,
shall
be
included
in
gross
income.
Loan
Portfolio
shall
be
subject
to
DST
It
shall
be
the
stockholder
who
shall
realize
capital
gain
or
loss
when
a
(4)
Compensation
for
Injuries
or
Sickness.
-
amounts
received,
through
Accident
or
corporation
distributes
its
assets
as
liquidating
dividends
since
they
are
treated
Health
Insurance
or
under
Workmen's
Compensation
Acts,
as
compensation
for
as
payments
in
exchange
for
stocks
or
shares
so
any
gain
or
profit
realized
personal
injuries
or
sickness,
plus
the
amounts
of
any
damages
received,
whether
by
thereby
shall
b
taxed.
suit
or
agreement,
on
account
of
such
injuries
or
sickness.
Liquidating
gain
or
loss
is
in
the
nature
of
capital
gain
or
loss,
as
the
case
may
be,
and
therefore
treated
in
the
manner
stated
in
Sec.
39
of
the
NIRC.
(5)
Income
Exempt
under
Treaty.
-
Income
of
any
kind,
to
the
extent
required
by
any
Liquidating
gain
is
subject
to
ordinary
income
tax
rates.
treaty
obligation
binding
upon
the
Government
of
the
Philippines.
8. Annuities
(6)
Retirement
Benefits,
Pensions,
Gratuities,
etc.-
9. Prizes
and
winnings
10. Pensions
(a)
Retirement
benefits
received
under
Republic
Act
No.
7641
and
those
received
by
11. Share
in
GPPs
Income
officials
and
employees
of
private
firms,
whether
individual
or
corporate,
in
accordance
with
a
reasonable
private
benefit
plan
maintained
by
the
employer:
Provided,
That
the
retiring
official
or
employee
has
been
in
the
service
of
the
same
SEC.
26.
Tax
Liability
of
Members
of
General
Professional
Partnerships.
-
A
general
employer
for
at
least
ten
(10)
years
and
is
not
less
than
fifty
(50)
years
of
age
at
the
professional
partnership
as
such
shall
not
be
subject
to
the
income
tax
imposed
under
time
of
his
retirement:
Provided,
further,
That
the
benefits
granted
under
this
this
Chapter.
Persons
engaging
in
business
as
partners
in
a
general
professional
subparagraph
shall
be
availed
of
by
an
official
or
employee
only
once.
For
purposes
of
partnership
shall
be
liable
for
income
tax
only
in
their
separate
and
individual
capacities.
this
Subsection,
the
term
'reasonable
private
benefit
plan'
means
a
pension,
gratuity,
stock
bonus
or
profit-sharing
plan
maintained
by
an
employer
for
the
benefit
of
some
For
purposes
of
computing
the
distributive
share
of
the
partners,
the
net
income
of
the
or
all
of
his
officials
or
employees,
wherein
contributions
are
made
by
such
employer
partnership
shall
be
computed
in
the
same
manner
as
a
corporation.
for
the
officials
or
employees,
or
both,
for
the
purpose
of
distributing
to
such
officials
Each
partner
shall
report
as
gross
income
his
distributive
share,
actually
or
and
employees
the
earnings
and
principal
of
the
fund
thus
accumulated,
and
wherein
constructively
received,
in
the
net
income
of
the
partnership.
its
is
provided
in
said
plan
that
at
no
time
shall
any
part
of
the
corpus
or
income
of
the
fund
be
used
for,
or
be
diverted
to,
any
purpose
other
than
for
the
exclusive
benefit
B. EXCLUSIONS
of
the
said
officials
and
employees.
(B)
Exclusions
from
Gross
Income.
-
The
following
items
shall
not
be
included
in
gross
(b)
Any
amount
received
by
an
official
or
employee
or
by
his
heirs
from
the
employer
income
and
shall
be
exempt
from
taxation
under
this
title:
as
a
consequence
of
separation
of
such
official
or
employee
from
the
service
of
the
employer
because
of
death
sickness
or
other
physical
disability
or
for
any
cause
(1)
Life
Insurance.
-
The
proceeds
of
life
insurance
policies
paid
to
the
heirs
or
beyond
the
control
of
the
said
official
or
employee.
beneficiaries
upon
the
death
of
the
insured,
whether
in
a
single
sum
or
otherwise,
but
if
such
amounts
are
held
by
the
insurer
under
an
agreement
to
pay
interest
thereon,
the
23
TAXATION
1
ATTY.
BELLO
ALC
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2017
(c)
The
provisions
of
any
existing
law
to
the
contrary
notwithstanding,
social
security
(i)
Benefits
received
by
officials
and
employees
of
the
national
and
local
benefits,
retirement
gratuities,
pensions
and
other
similar
benefits
received
by
government
pursuant
to
Republic
Act
No.
6686;
resident
or
nonresident
citizens
of
the
Philippines
or
aliens
who
come
to
reside
(ii)
Benefits
received
by
employees
pursuant
to
Presidential
Decree
No.
851,
as
permanently
in
the
Philippines
from
foreign
government
agencies
and
other
amended
by
Memorandum
Order
No.
28,
dated
August
13,
1986;
institutions,
private
or
public.
(iii)
Benefits
received
by
officials
and
employees
not
covered
by
Presidential
decree
No.
851,
as
amended
by
Memorandum
Order
No.
28,
dated
August
13,
1986;
and
(d)
Payments
of
benefits
due
or
to
become
due
to
any
person
residing
in
the
(iv)
Other
benefits
such
as
productivity
incentives
and
Christmas
bonus:
Provided,
Philippines
under
the
laws
of
the
United
States
administered
by
the
United
States
further,
That
the
ceiling
of
Thirty
thousand
pesos
(P30,000)
may
be
increased
Veterans
Administration.
through
rules
and
regulations
issued
by
the
Secretary
of
Finance,
upon
recommendation
of
the
Commissioner,
after
considering
among
others,
the
effect
(e)
Benefits
received
from
or
enjoyed
under
the
Social
Security
System
in
accordance
on
the
same
of
the
inflation
rate
at
the
end
of
the
taxable
year.
with
the
provisions
of
Republic
Act
No.
8282.
(f)
GSIS,
SSS,
Medicare
and
Other
Contributions.
-
GSIS,
SSS,
Medicare
and
Pag-ibig
(f)
Benefits
received
from
the
GSIS
under
Republic
Act
No.
8291,
including
retirement
contributions,
and
union
dues
of
individuals.
gratuity
received
by
government
officials
and
employees.
(g)
Gains
from
the
Sale
of
Bonds,
Debentures
or
other
Certificate
of
Indebtedness.
-
(7)
Miscellaneous
Items.
-
Gains
realized
from
the
same
or
exchange
or
retirement
of
bonds,
debentures
or
other
certificate
of
indebtedness
with
a
maturity
of
more
than
five
(5)
years.
(a)
Income
Derived
by
Foreign
Government.
-
Income
derived
from
investments
in
the
Philippines
in
loans,
stocks,
bonds
or
other
domestic
securities,
or
from
interest
(h)
Gains
from
Redemption
of
Shares
in
Mutual
Fund.
-
Gains
realized
by
the
investor
on
deposits
in
banks
in
the
Philippines
by
(i)
foreign
governments,
(ii)
financing
upon
redemption
of
shares
of
stock
in
a
mutual
fund
company
as
defined
in
Section
institutions
owned,
controlled,
or
enjoying
refinancing
from
foreign
governments,
and
22
(BB)
of
this
Code.
(iii)
international
or
regional
financial
institutions
established
by
foreign
governments.
1. Life
Insurance
(b)
Income
Derived
by
the
Government
or
its
Political
Subdivisions.
-
Income
derived
Proceeds
of
life
insurance
paid
to
heirs
or
beneficiaries
of
insured
exempt
from
any
public
utility
or
from
the
exercise
of
any
essential
governmental
function
o Interest,
however,
on
the
proceeds
taxable
accruing
to
the
Government
of
the
Philippines
or
to
any
political
subdivision
thereof.
o Amounts
Amounts
received
by
insured
as
return
of
premium
exempt
(c)
Prizes
and
Awards.
-
Prizes
and
awards
made
primarily
in
recognition
of
religious,
o Simplest
form
of
estate
planning
charitable,
scientific,
educational,
artistic,
literary,
or
civic
achievement
but
only
if:
o Fastest
way
liquidity
(i)
The
recipient
was
selected
without
any
action
on
his
part
to
enter
the
contest
o Estate
tax
heirs
settlement
of
estate
or
proceeding;
and
2. Gifts,
Bequests
and
Devises
(ii)
The
recipient
is
not
required
to
render
substantial
future
services
as
a
condition
to
receiving
the
prize
or
award.
Sec.32
(B)(3)
Gifts,
Bequests,
and
Devises.
_
The
value
of
property
acquired
by
gift,
bequest,
devise,
or
descent:
Provided,
however,
That
income
from
such
property,
as
(d)
Prizes
and
Awards
in
sports
Competition.
-
All
prizes
and
awards
granted
to
well
as
gift,
bequest,
devise
or
descent
of
income
from
any
property,
in
cases
of
athletes
in
local
and
international
sports
competitions
and
tournaments
whether
held
transfers
of
divided
interest,
shall
be
included
in
gross
income.
in
the
Philippines
or
abroad
and
sanctioned
by
their
national
sports
associations.
CIR
v.
Duberstein,
363
US
278
(1960)
(e)
13th
Month
Pay
and
Other
Benefits.
-
Gross
benefits
received
by
officials
and
Illustration
of
non-taxable
gift
vs.
taxable
compensation
for
services
rendered
employees
of
public
and
private
entities:
Provided,
however,
That
the
total
exclusion
under
this
subparagraph
shall
not
exceed
Thirty
thousand
pesos
(P30,000)
which
shall
Court
found
that
the
Cadillac
was
a
recompense
for
Dubersteins
past
services,
or
cover:
an
inducement
for
him
to
be
of
further
service
in
the
future
When
is
a
payment
a
non-taxable
gift
and
when
is
a
payment
taxable
compensation
24
TAXATION
1
ATTY.
BELLO
ALC
D
2017
for
services
rendered?
Murphy
v.
US,
No.
05-5249
(DC
Cir.
Aug.
22,
2006)
compensation
for
emotional
o Mere
absence
of
a
legal
or
moral
obligation
to
make
such
a
payment
does
not
distress:
non-taxable
return
of
human
capital
theory
mean
it
is
a
gift
Whether
the
compensation
for
emotional
distress
and
injury
to
professional
o If
the
payment
proceeds
primarily
from
the
constraining
force
of
any
moral
or
reputation
is
taxable
income(
note:
none
of
the
award
was
for
lost
wages
or
legal
duty,
or
from
the
incentive
of
anticipated
benefit
of
an
economic
diminished
earning
capacity)
nature,
it
is
not
a
gift
Held:
not
excludable
because
damages
were
not
awarded
on
account
of
physical
o A
gift
in
the
statutory
sense,
on
the
other
hand,
proceeds
from
a
detached
injuries
(she
received
the
award
of
on
account
of
her
mental
distress
and
and
disinterested
generosity,
out
of
affection,
respect,
admiration,
charity
or
reputational
loss,
not
her
bruxism
or
other
physical
symptoms)
like
impulses
However,
IRC
104(a)(2)
is
unconstitutional
as
applied
to
Murphys
award
because
Hornung
v.
CIR,
supra
compensation
for
a
non-physical
injury
is
not
income
under
the
16th
amendment
if
Corvette
received
was
in
exchange
of
the
promotional
benefits
it
is
unrelated
to
lost
wages
or
earnings
Thus,
taxable
Application
of
in
lieu
of
doctrine:
in
lieu
of
what
were
the
damages
awarded?
Was
Murphys
award
of
compensatory
damages
a
substitute
for
a
normally
3. Compensation
for
Injuries
or
Sickness
untaxed
personal
quality,
good
or
asset?
The
damages
were
awarded
to
make
Murphy
emotionally
and
reputationally
Elements:
(
32(B)(4)):
whole
and
not
to
compensate
her
for
lost
wages
or
taxable
earnings
of
any
kind.
o (i)
damages
received;
The
emotional
well-being
and
good
reputation
she
enjoyed
before
they
were
o (ii)
whether
by
suit
or
agreement;
diminished
by
her
former
employer
were
not
taxable
as
income
o (iii)
on
account
of;
and
Murphy
v.
US,
No.
05-5249
(DC.
Cir.
July
3,
2007)(on
rehearing)
involuntary
o (iv)
personal
injuries
or
sickness
conversion
theory;
zero
basis
in
human
capital
-
e.g.
tricycle
driver
got
hit
by
bus
driver,
asks
for
damages
Award
not
excludable
under
IRC
104(a)(2)
o actual
damages-
exempt
Award
is
not
part
of
gross
income
as
defined
by
IRC
61
(although
Congress
o moral
damages
exempt
cannot
make
a
thing
income
which
is
not
so
in
fact,
it
can
label
a
thing
income
and
o exemplary
damages
not
exempted
tax
it,
so
long
as
it
acts
within
its
constitutional
authority)
o lost
earnings
exempt
The
tax
upon
the
ward
is
an
excise
and
not
a
direct
tax
subject
to
the
PM:
personal
injuries
apportionment
requirement
of
Article
I,
Section
9
of
the
Constitution.
The
tax
is
uniform
throughout
the
U.S.
and
therefore
passes
constitutional
muster
Sec.32
(B)(4)
Compensation
for
Injuries
or
Sickness.
-
amounts
received,
through
Murphys
situation
seems
akin
to
an
involuntary
conversion
of
assets;
she
was
Accident
or
Health
Insurance
or
under
Workmen's
Compensation
Acts,
as
compensation
forced
to
surrender
some
part
of
her
mental
health
and
reputation
in
return
for
for
personal
injuries
or
sickness,
plus
the
amounts
of
any
damages
received,
whether
by
monetary
damages.
CF.
26
U.S.C.
1033
(property
involuntarily
converted
into
suit
or
agreement,
on
account
of
such
injuries
or
sickness.
money
is
taxed
to
extend
of
gain
recognized)
AR
($70k)
basis
(zero)
=
gain
($70k)
OGilvie
v.
US,
519
US
79
(1996)
an
interpretation
of
on
account
of
Whether
the
gross
income
exclusion
provision
applies
to
punitive
damages
received
BIR
Rul.
57-83
(April
12,
1983)
by
plaintiff
in
a
tort
suit
for
personal
injuries
WoN
backwages,
allowances
and
benefits
such
as
cost
of
living
and
13th
month
pay
Held:
TPs
punitive
damages
were
not
received
on
account
of
personal
injuries;
should
be
taxed
hence
gross-income-exclusion
provision
does
not
apply
and
the
damages
are
General
rule:
they
are
forms
of
compensation
taxable
BUT
liberal
construction
was
called
for
to
protect
the
employees
who
were
Exclusionary
provision
applies
only
to
those
personal
injury
lawsuit
damages
that
deprived
of
the
payment
of
their
wages.
were
awarded
by
reason
of,
or
because
of,
the
personal
injuries,
and
not
to
punitive
damages
that
do
not
compensate
injury,
but
are
private
fines
levied
by
civil
injuries
to
punish
reprehensible
conduct
and
to
deter
its
future
occurrence
25
TAXATION
1
ATTY.
BELLO
ALC
D
2017
4. Retirement
Benefits,
Pensions,
Gratuities,
etc.
(e)
13th
Month
Pay
and
Other
Benefits.
-
Gross
benefits
received
by
officials
and
employees
of
public
and
private
entities:
Provided,
however,
That
the
total
exclusion
Sec.32
under
this
subparagraph
shall
not
exceed
Thirty
thousand
pesos
(P30,000)
which
shall
(6)
Retirement
Benefits,
Pensions,
Gratuities,
etc.-
cover:
(i)
Benefits
received
by
officials
and
employees
of
the
national
and
local
(a)
Retirement
benefits
received
under
Republic
Act
No.
7641
and
those
received
by
government
pursuant
to
Republic
Act
No.
6686;
officials
and
employees
of
private
firms,
whether
individual
or
corporate,
in
(ii)
Benefits
received
by
employees
pursuant
to
Presidential
Decree
No.
851,
as
accordance
with
a
reasonable
private
benefit
plan
maintained
by
the
employer:
amended
by
Memorandum
Order
No.
28,
dated
August
13,
1986;
Provided,
That
the
retiring
official
or
employee
has
been
in
the
service
of
the
same
(iii)
Benefits
received
by
officials
and
employees
not
covered
by
Presidential
decree
employer
for
at
least
ten
(10)
years
and
is
not
less
than
fifty
(50)
years
of
age
at
the
No.
851,
as
amended
by
Memorandum
Order
No.
28,
dated
August
13,
1986;
and
time
of
his
retirement:
Provided,
further,
That
the
benefits
granted
under
this
(iv)
Other
benefits
such
as
productivity
incentives
and
Christmas
bonus:
Provided,
subparagraph
shall
be
availed
of
by
an
official
or
employee
only
once.
For
purposes
of
further,
That
the
ceiling
of
Thirty
thousand
pesos
(P30,000)
may
be
increased
this
Subsection,
the
term
'reasonable
private
benefit
plan'
means
a
pension,
gratuity,
through
rules
and
regulations
issued
by
the
Secretary
of
Finance,
upon
stock
bonus
or
profit-sharing
plan
maintained
by
an
employer
for
the
benefit
of
some
recommendation
of
the
Commissioner,
after
considering
among
others,
the
effect
or
all
of
his
officials
or
employees,
wherein
contributions
are
made
by
such
employer
on
the
same
of
the
inflation
rate
at
the
end
of
the
taxable
year.
for
the
officials
or
employees,
or
both,
for
the
purpose
of
distributing
to
such
officials
and
employees
the
earnings
and
principal
of
the
fund
thus
accumulated,
and
wherein
Retirement
under
the
Labor
Code
(Art.
287)
in
the
absence
of
a
qualified
retirement
its
is
provided
in
said
plan
that
at
no
time
shall
any
part
of
the
corpus
or
income
of
the
plan
fund
be
used
for,
or
be
diverted
to,
any
purpose
other
than
for
the
exclusive
benefit
Retirement
upon
reaching
the
retirement
age
established
in
the
CBA
or
other
of
the
said
officials
and
employees.
applicable
employment
contract
Upon
reaching
60
years,
but
not
beyond
65
years,
which
is
the
compulsory
(b)
Any
amount
received
by
an
official
or
employee
or
by
his
heirs
from
the
employer
retirement
age
as
a
consequence
of
separation
of
such
official
or
employee
from
the
service
of
the
Has
served
at
least
5
years
employer
because
of
death
sickness
or
other
physical
disability
or
for
any
cause
beyond
the
control
of
the
said
official
or
employee.
Retirement
benefits
from
a
qualified
retirement
plan
(
32(B)(6)(a)):
conditions
for
exemption
(c)
The
provisions
of
any
existing
law
to
the
contrary
notwithstanding,
social
security
There
is
a
reasonable
private
benefit
plan
benefits,
retirement
gratuities,
pensions
and
other
similar
benefits
received
by
Retiring
official
or
employee
has
been
in
the
service
of
the
employer
for
at
resident
or
nonresident
citizens
of
the
Philippines
or
aliens
who
come
to
reside
least
10
years
permanently
in
the
Philippines
from
foreign
government
agencies
and
other
Retiring
official
or
employee
is
not
less
than
50
yrs.
Old
at
the
time
of
institutions,
private
or
public.
retirement
Exemption
benefit
is
availed
only
once
(d)
Payments
of
benefits
due
or
to
become
due
to
any
person
residing
in
the
Philippines
under
the
laws
of
the
United
States
administered
by
the
United
States
Separation
benefits
from
involuntary
separation
(
32(B)(6)(b)):
conditions
for
Veterans
Administration.
exemption
Official,
employee
or
their
heirs
receive/s
separation
pay
from
employer
(e)
Benefits
received
from
or
enjoyed
under
the
Social
Security
System
in
accordance
Separation
is
because
of
death,
sickness,
other
physical
disability,
or
for
any
with
the
provisions
of
Republic
Act
No.
8282.
cause
beyond
the
control
of
the
official
or
employee
(f)
Benefits
received
from
the
GSIS
under
Republic
Act
No.
8291,
including
retirement
Other
exempt
retirement
benefits
gratuity
received
by
government
officials
and
employees.
Those
received
by
resident
and
non-resident
citizens
and
aliens
who
come
to
reside
in
the
Philippines
from
foreign
government
agencies
and
other
(7)
Miscellaneous
Items.
-
institutions,
private
or
public
26
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SECTION
1.
Scope
Pursuant
to
Section
245
and
72
of
the
National
Internal
Revenue
SECTION
3.
Benefits
Exempted
from
Income
Tax.
For
purposes
of
determining
the
Code
(NIRC),
as
amended,
in
relation
to
Section
3
of
Republic
Act
No.
7833,
these
taxable
compensation
income,
the
following
benefits
shall
be
excluded
from
the
gross
Regulations
are
hereby
promulgated
to
implement
the
provisions
of
Section
28
(b)
(9)
compensation
income,
viz:
(6)
of
the
NIRC,
as
amended,
excluding
from
the
computation
of
gross
compensation
income,
for
purposes
of
determining
taxable
compensation
income,
the
13th
month
pay
a)
13th
month
pay
equivalent
to
the
mandatory
one
(1)
month
basic
salary
of
officials
and
other
benefits.
and
employees
of
the
Government
(whether
national
or
local),
including
government-
owned
and
-controlled
corporations,
and
of
private
offices
received
after
the
12th
SECTION
2.
Definition
of
Terms.
For
purposes
of
these
Regulations,
the
following
month
pay
beginning
CY
1994;
and
definitions
of
words
and
phrases
are
hereby
adopted:
b)
Other
benefits,
such
as,
Christmas
bonus
given
by,
private
offices
to
their
officials
and
a)
"Act"
refers
to
Republic
Act
No.
7933.
employees,
productivity
incentives
bonus,
loyalty
award,
gifts
in
cash
or
in
kind
and
other
benefits
of
similar
nature
actually
received
by
officials
and
employees
of
both
b)
"Exclusions"
shall
mean
the
total
benefits
which
are
not
included
in
the
Government
and
private
offices
in
an
amount
not
exceeding
Twelve
Thousand
Pesos
computation
of
gross
compensation
income
for
purposes
of
determining
taxable
(12,000.00)
for
one
(1)
calendar
year.
compensation
income
and
are,
therefore,
exempt
from
the
withholding
tax
on
wages.
The
above-stated
exclusions
[(a)
and
(b)]
shall
cover
benefits
paid
or
accrued
beginning
c)
"Gross
compensation
income"
means
all
remunerations
for
services
performed
by
January
1,
1994
but
shall
be
limited
only
to
an
amount
not
exceeding
Twelve
Thousand
an
employee
for
his
employer,
whether
paid
in
cash
or
in
kind,
unless
specifically
Pesos
(P12,000.00)
in
the
case
of
the
"other
benefits"
contemplated
under
paragraph
excluded
under
Secs.
27
and
28
of
the
NIRC,
as
amended.
(b)
above,
provided,
however,
that
when
added
to
the
13th
month
pay,
the
total
28
TAXATION
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amount
of
tax
exempt
benefits
shall
not
exceed
Thirty
Thousand
Pesos
(P30,000.00).
other
benefits
of
employees
through
the
annualized
computation
prescribed
in
Section
71(8)(2)(b)
of
Revenue
Regulations
No.
6-82,
as
amended
by
RR
No.
4-93,
implementing
ILLUSTRATIONS:
R.A.
No.
7497,
otherwise
known
as
the
"Final
Withholding
Tax
on
Compensation
Income."
CASE
NO.
1.
(b)
Refund/Credit
to
Employees
of
Excess
Taxes
Withheld.
Any
excess
in
the
taxes
During
CY
1994,
Mr.
"A",
and
official
of
a
private
corporation,
received
the
following
withheld
resulting
from
the
annualized
computation
shall
be
credited/refunded
to
the
13th
month
pay
and
other
benefits
from
his
employer,
such
as:
employees.
In
return,
the
employer
is
entitled
to
deduct
the
amount
refunded/credited
from
the
remittable
amount
of
taxes
withheld
from
compensation
income
in
the
13th
month
pay
P30,000.00
current
month
in
which
refund/credit
was
made,
and
in
the
succeeding
months
Other
benefits:
thereafter
until
the
amount
refunded/credited
by
the
employer
is
fully
repaid.
Christmas
bonus
P15,000.00
14th
month
pay
30,000.00
ILLUSTRATIONS:
Mid-year
productivity
bonus
10,000.00
55,000.00
1.The
year-end
adjustment
computation
resulted
to
a
REFUND.
TOTAL
BENEFITS
RECEIVED
for
CY
1994
P
85,000
(aa)Employee
with
Only
One
Employee
During
the
Year.
========
ABC
COMPANY
Employee
"A"
(single)
In
this
illustration,
Mr.
"A"
shall
only
be
exempted
on
his
13th
month
pay
of
P30,000.
His
"other
benefits"
amounting
to
P55,000
are
subject
to
the
withholding
tax
on
wages.
Salaries
P78,000.00
13th
month
pay
12,000.00
CASE
NO.
2.
Other
Benefits
10,000.00
On
the
other
hand,
Mr.
"B",
a
government
employee,
received
the
following
13th
Gross
Compensation
month
pay
and
other
benefits,
such
as:
Income
P100,000.00
Less:
Non-taxable
13th
month
pay
P8,000.00
Benefits:
Other
benefits:
Productivity
incentives
bonus
P12,000.00
13th
month
pay
P12,000
Cash
gift
1,000.00
13,0000
Other
benefits
10,000
22,000.00
TOTAL
BENEFITS
RECEIVED
P
78,000.00
for
CY
1994
P
21,000
Less:
Personal
9,000.00
========
Exemption
Taxable
Mr.
"B"
shall
only
be
exempt
on
a
total
of
P20,000.00,
representing
13th
month
pay
of
Compensation
P69,000.00
P8,000.00
plus
"other
benefits"
of
P12,000.00
only.
Tax
Due
P7,785.00
SECTION
4.
Computation
of
Refundable/Creditable
Taxes
Withheld
on
the
Exempt
13th
Less:
Tax
Withheld
(13,675.00)
Month
Pay
and
Other
Benefits.
(a)
In
general.
The
employer
shall
compute
the
refundable/creditable
amount
of
taxes
withheld
on
the
exempt
13th
month
pay
and
AMOUNT
TO
BE
(P
5,890.00)
29
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REFUNDED
by
========
ABC
CO.
to
Employee
*Other
Benefits
"A"
ABC
Co.
P10,000
on
or
before
DEF
Co.
3,000
JANUARY
25,
1995
OR
TO
BE
CREDITED
against
Taxes
P13,000
10,000
30,000.00
Withheld
due
from
P101,000.00
the
Employee
for
LESS:
Personal
Exemption
9,000.00
Succeeding
Month/s
Taxable
Compensation
Income
P92,000.00
Beginning
following
Sample
Computation
TAX
DUE
TAX
WITHHELD
No.
1
(cc).
ABC
Co.
P11,965.00
DEF
Co.
P3,279.66
(15,244.66)
AMOUNT
TO
BE
REFUNDED
BY
DEF
Co.
to
EMPLOYEE
B
on
or
before
JANUARY
25,
1995
(P3,089.66)
(bb)
Employee
with
Successive
Employment
Within
the
Year.
OR
Employee
"B"
(single)
TO
BE
CREDITED
against
Taxes
Withheld
due
from
Employee
for
Succeeding
Month/s
beginning
January
1995
(Please
see
Sample
Computation
No.
1
(cc).
ABC
Co.
DEF.
Co.
(Previous
Employer)
(Present
Employer)
(cc)
Crediting
of
Refundable
Amounts
Against
Taxes
Withheld
Due
From
Jan.-June,
1994
Nov.-Dec.,
1994
Employees
For
The
Succeeding
Month/s.
Amount
of
refund
to
be
credited
against
taxes
withheld
due
from
Employee
Salaries/Allowances
P78,000.00
Salaries
P20,000.00
"B"
[Based
on
Sample
Computation
No.
1
(bb)
above)
beginning
January,
1995
P
13th
Month
Pay
12,000.00
13th
month
pay
8,000.00
3,089.66
Other
Benefits
10,000.00
Other
Benefits
3,000.00
Computation
of
Taxes
Withheld
for
the
month
of
P100,000.00
P31,000.00
January,
1995
Less:
Personal
ADD:
Income
From
Salaries/Allowances
Exemption
9,000.00
Previous
Employer
100,000.00
Taxable:
P10,000.00
LESS:
Tax
Required
to
be
Withheld
for
the
Net
Taxable
Non
Taxable
month
of
January,
1995
Income
91,000.00
Benefits:
(Use
Line
2
Col.
8
of
the
13th
Month
Pay
Withholding
Tax
Table):
P1,359.66
TAX
DUE
P11,965.00
ABC
Co.
P12,000
TAX
WITHHELD
P11,965.00
Less:
Refund
for
CY
1994
due
to
DEF
Co.
8,000
P20,000
Non-Taxability
of
Bonus
and
30
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Form
W-2
showing
the
name
and
address
of
the
employer,
employer's
TIN,
name
and
the
month
of
termination/month
of
last
payment
of
compensation
during
the
address
of
the
employee,
taxpayer/employee's
TIN,
amount
of
exemptions
claimed,
the
year
of
termination;
sum
of
compensation
paid
(excluding
the
total
non-taxable
benefits),
the
amount
of
tax
c) Employees
(non-resident
citizen)
whose
services
are
rendered
abroad;
and
due
and
the
amount
of
tax
withheld
during
the
calendar
year.
d) Alien
employees
subject
to
final
withholding
tax.
The
statement
must
be
signed
by
both
the
employer
or
other
authorized
officer
and
the
SECTION9.
Transitory
Provision.
Employers
who
have
already
given
the
13th
month
employee
and
shall
contain
a
written
declaration
that
it
is
made
under
the
penalties
of
pay
and
"other
benefits"
to
their
employees
and
had
withheld
and
remitted
the
tax
due
perjury.
thereon
prior
to
the
approval
of
R.A.
No.
7833
on
December
8,
1994
shall,
in
annualizing
and
computing
the
annual
income
and
the
tax
due
from
their
employees,
exclude
the
If
the
employer
is
the
Government
of
the
Philippines,
its
political
subdivision,
agency
or
13th
month
pay
and
"other
benefits",
which
shall
be
limited
only
to
an
amount
not
instrumentality
or
government-owned
or
controlled
corporation,
the
statement
shall
be
exceeding
Twelve
Thousand
Pesos
(P12,000.00)
in
the
case
of
the
"other
benefits"
signed
by
the
duly
designated
officer
or
employee.
contemplated
under
Sec.
3,
par,
(b)
of
these
Regulations
and
provided,
further,
that
when
the
amount
of
these
said
"other
benefits"
is
added
to
the
"13th
month
pay"
SECTION
8.
Annual
Return
of
Income
Tax
Withheld
on
Compensation.
Every
employer
contemplated
under
Sec.
3,
par.
(a)
also
of
these
Regulations,
the
total
amount
of
tax
or
other
person
required
to
deduct
and
withhold
the
tax
shall,
on
or
before
January
31st
exempt
benefits
shall
not
exceed
Thirty
Thousand
Pesos
(P30,000.00).
of
the
succeeding
year,
file
with
either
the
Collection
Agent
or
authorized
Municipal
Treasurer
or
Revenue
District
Officer
or
Commissioner
of
Internal
Revenue
the
Annual
Return
of
Income
Tax
Withheld
on
Compensation
[BIR
1743-1R
(Annex
"A")]
to
be
SECTION
10.
Repealing
Clause.
All
laws,
decrees,
orders,
rules,
and
regulations
and
submitted
with
an
alphabetical
list
of
employees
both
in
duplicate
copies.
other
issuances
inconsistent
with
the
"Act"
and
these
Regulations
are
hereby
amended,
modified
or
repealed
accordingly.
The
Annual
Return
of
Income
Tax
Withheld
on
Compensation
must
show
the
following:
SECTION
11.
Effectivity.
These
Regulations
shall
take
effect
fifteen
(15)
days
after
its
a) Withholding
agent's
registered
name,
address
and
taxpayer's
identification
publication
in
a
newspaper
of
general
circulation.
number
(TIN);
b) Amount
and
date
of
remittance
for
the
12
months
of
one
calendar
year;
and
Footnotes
c) Name
of
Bank,
Bank
Code/ROR
(if
any).
*
The
maximum
allowable
deduction
for
"Other
Benefits"
is
P12,000.00.
However,
since
The
alphabetical
list
of
employees
must
show
the
following:
the
total
13th
month
pay
and
'other
benefits'
should
not
exceed
P
30,000,
only
a) Name
and
TIN
of
employees/taxpayers;
P10,000.00
'other
benefits"
can
be
added
to
P
20,000,
representing
Mr.
"B's"
total
13th
b) Gross
compensation
paid
by
all
present
and
previous
employers
for
the
month
pay
from
his
previous
and
present
employers.
calendar
year
segregating
the
taxable
from
the
non-taxable
compensation
income;
c) Amount
of
exemptions;
d) Tax
required
to
be
withheld
computed
in
accordance
with
Section
21(a)
of
the
Tax
code;
e) Tax
withheld
by
all
present
and
previous
employers
for
the
calendar
year;
and
f) Adjustment,
if
any.
The
alphabetical
list
of
employees
shall
be
prepared
indicating
separate
listings
of
the
following:
32
TAXATION
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RMC
36-94
(Dec.
14,
1994)
"For
purposes
of
reimbursing
the
officials
or
employees
who
may
have
received
the
benefits
covered
by
this
Act
before
its
effectivity,
the
withholding
agents
are
hereby
Subject
:
Publishing
the
full
text
of
Republic
Act
No.
7833
-
an
Act
excluding
the
benefits
authorized
not
to
deduct
the
withholding
taxes
in
the
immediately
succeeding
payroll
mandated
pursuant
to
Republic
Act
No.
6686
and
Presidential
Decree
No.
851,
as
periods
corresponding
to
the
amount
previously
withheld
from
the
benefits.
amended,
and
other
benefits
from
the
computation
of
gross
compensation
income
for
purposes
of
determining
taxable
compensation
income,
amending
for
the
purpose
"Sec.
3.
The
Secretary
of
Finance
shall,
upon
the
recommendation
of
the
Commissioner
Section
28
(b)
(8)
of
the
National
Internal
Revenue
Code,
as
amended.
of
Internal
Revenue,
promulgate
the
necessary
rules
and
regulations
for
the
effective
implementation
of
the
provision
of
this
Act.
To:
All
Internal
Revenue
Officers
and
Others
Concerned.
For
the
information
and
guidance
of
all
concerned,
quoted
hereunder
is
the
full
text
of
Republic
Act
No.
"Sec.
4.
All
laws,
decrees,
orders,
rules
and
regulations
and
other
issuances
inconsistent
7833:
"REPUBLIC
ACT
NO.
7833
with
this
Act
are
hereby
repealed
or
amended
accordingly.
"AN
ACT
TO
EXCLUDE
THE
BENEFITS
MANDATED
PURSUANT
TO
REPUBLIC
ACT
NO.
6686
"Sec.5.
This
Act
shall
take
effect
fifteen
(15)
days
after
its
complete
publication
in
the
AND
PRESIDENTIAL
DECREE
NO.
851,
AS
AMENDED,
AND
OTHER
BENEFITS
FROM
THE
Official
Gazette
or
in
any
two
(2)
newspapers
of
general
circulation,
whichever
comes
COMPUTATION
OF
GROSS
COMPENSATION
INCOME
FOR
PURPOSES
OF
DETERMINING
earlier.
TAXABLE
COMPENSATION
INCOME,
AMENDING
FOR
THE
PURPOSE
SECTION
28
(b)(8)
OF
THE
NATIONAL
INTERNAL
REVENUE
CODE,
AS
AMENDED.
SALIENT
FEATURES
"Sec.
1.
A
new
sub-paragraph
to
be
known
as
sub-paragraph
(F)
is
hereby
inserted
at
1. Before
the
amendment
of
Section
28
(b)
(8)
of
the
National
Internal
Revenue
Code
the
end
of
Section
28
(b)
(8)
of
the
National
Internal
Revenue
Code,
as
amended,
which
(NIRC)
by
R.A.
No.
7833,
the
following
benefits
received
by
officials
and
employees
shall
read
as
follows:
of
both
public
(national
and
local)
and
private
offices,
viz:
"(i)
Benefits
received
by
officials
and
employees
of
the
national
and
local
governments
a.
Annual
Christmas
bonus
equivalent
to
one
(1)
month
basic
salary
and
additional
cash
pursuant
to
Republic
Act
No.
6686.
gift
of
One
Thousand
Pesos
(P1,000.00)
received
by
National
and
Local
Government
officials
and
employees
starting
CY
1988
in
accordance
with
R.A.
No.
6686;
"(ii)
Benefits
received
by
employees
pursuant
to
Presidential
Decree
No.
851,
as
amended
by
Memorandum
Order
No.
28,
dated
August
13,
1986;
b.
Benefits
received
by
employees
pursuant
to
P.D.
No.
851
,
as
amended
by
Presidential
Memorandum
Order
No.
28
dated
August
13,
1986
requiring
all
employers
to
pay
all
their
rank-and-file
employees
a
13th
month
pay
not
later
than
December
24
"(iii)
Benefits
received
by
officials
and
employees
not
covered
by
Presidential
Decree
of
every
year;
No.
851,
as
amended;
and
c.
Benefits
received
by
officials
and
employees
not
covered
by
P.D.
No.
851,
as
"(iv)
Other
benefits
such
as
productivity
incentives
and
Christmas
bonus
in
an
amount
amended;
and
not
exceeding
Twelve
Thousand
Pesos
(P12,000)
which
shall
be
integrated
in
the
13th
month
pay
solely
for
purposes
of
this
Act.
d.
Other
benefits
such
as
productivity
incentives
and
Christmas
bonus
in
an
amount
not
exceeding
Twelve
Thousand
Pesos
(P12,000.00)
which
shall
be
integrated
in
the
13th
"Provided,
however,
That
the
exclusion
shall
only
apply
to
the
first
Thirty
Thousand
month
pay
solely
for
purposes
of
R.A.
No.
7833.
were
taxable
compensation
income
Pesos
(P30,000).
under
Section
21(a)
in
relation
to
Section
72,
both
of
the
NIRC,
as
amended,
subject
to
withholding
tax
under
Revenue
Regulations
No.
6-82,
as
amended
by
Revenue
"Sec.
2.
The
exclusion
herein
provided
shall
cover
benefits
paid
or
accrued
beginning
Regulations
No.
4-93.
January
1,
1994.
cdasia
33
TAXATION
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ATTY.
BELLO
ALC
D
2017
2.
Under
sub-paragraph
(F)
of
Section
28
(b)
(8)
of
the
NIRC,
as
amended
by
R.A.
No.
Mid-year
productivity
7833,
the
13th
month
pay
and
other
benefits
aforestated,
received
by
officials
and
incentive
bonus
5,000
8,000
employees
of
the
National
Government,
Local
Government
Units
and
agencies,
including
government-owned
and
controlled
corporations,
as
well
as
by
officials
and
---
---
employees
of
private
corporations
and
entities,
are
exempt
from
income
tax,
and
TOTAL
P18,000
consequently
from
the
withholding
tax
on
wages.
Provided,
that
the
exclusions/exemptions
from
gross
compensation
income
shall
cover
the
13th
month
Less:
P12,000
maximum
exemption
for
pay
and
"other
benefits"
in
the
aggregate
amount
not
exceeding
P30,000
received
by
other
benefits
as
contemplated
under
the
officials
and
employees
paid
or
accrued
beginning
January
1,
1994.
The
aforesaid
Sec.
1(F)(iv)
of
RA
7833
(12,000)
"other
benefits
"
as
contemplated
under
Section
1
(F)
(iv)
of
R.A.
No.
7833
shall
not
exceed
P12,000,
which
amount
shall
be
integrated
in
the
13th
month
pay.
Accordingly,
TAXABLE
OTHER
BENEFITS
SUBJECT
TO
benefits
in
excess
of
P30,000.00
shall
be
taxable
and
subject
to
the
withholding
tax
only
WITHHOLDING
TAX
ON
WAGES
P6,000
insofar
as
the
amount
in
excess
of
P30,000.00.
Illustration:
II.
Computation
of
total
benefits
excluded/exempted
from
withholding
tax
on
wages
when
the
"other
benefits"
are
integrated
in
the
13th
month
pay.
During
CY
1994,
Mr.
"X",
an
employee
of
a
private
corporation,
received
the
following
13th
month
pay
and
other
benefits
from
his
employer,
such
as:
13th
month
pay
P15,000
13th
month
pay
P15,000.00
Plus:
Maximum
allowable
exemption/
Christmas
bonus
10,000.00
exclusion
of
P12,000
for
Other
benefits:
"other
benefits"
as
contemplated
Gift
in
kind
2,000.00
under
Sec.
1
(F)
(iv)
of
RA
7833
Additional
cash
gift
1,000.00
(please
refer
to
Computation
Mid-year
productivity
No.
I
above)
12,000
incentive
bonus
5,000.00
---
TOTAL
P33,000.00
TOTAL
EXCLUSIONS/EXEMPTION
FROM
Under
the
amendment
introduced
by
R.A.
No.
7833
to
Section
28(b)(8)
of
the
NIRC,
wherein
TAXABLE
COMPENSATION
INCOME
P27,000
sub-paragraph
(F)
has
been
inserted
at
the
end
thereof,
the
computation
of
the
amount
of
======
the
benefits
which
shall
be
excluded/exempted
from
the
taxable
compensation
income
and/or
those
subject
to
withholding
tax
on
wages,
if
any,
shall
be
as
follows:
3.
For
purposes
of
reimbursing
the
officials
and
employees
of
the
income
taxes
withheld
I. Computation
of
whether
the
full
amount
of
subject
"other
benefits",
as
and
already
remitted
to
the
BIR,
the
following
guidelines
shall
be
followed:
contemplated
under
Section
1
(F)
(iv)
of
RA
7833,
is
exempt
from
withholding
tax
on
wages.
a.
Employers
who
have
already
given
the
13th
month
pay
and
other
benefits
to
their
employees,
and
had
withheld
and
remitted
the
tax
due
thereon
prior
to
the
approval
of
R.A.
No.
7833
(December
8,
1994)
shall,
in
annualizing
and
computing
the
annual
Christmas
bonus
P10,000
income
and
the
tax
due
from
their
employees,
exclude
the
13th
month
pay
and
other
Plus:
Other
benefits:
benefits.
Any
excess
in
the
tax
withheld
shall
be
refunded
by
the
employer
to
the
Gift
in
kind
P
2,000
respective
employees
or
credited
against
the
tax
required
to
be
withheld
from
the
Additional
cash
gift
1,000
compensation
of
the
employees
beginning
January,
1995.
The
employer
shall
then
be
34
TAXATION
1
ATTY.
BELLO
ALC
D
2017
allowed
to
credit
and
deduct
from
its
subsequent
remittances
of
taxes
withheld
on
o Exclusion
capped
at
P30,000
compensation
income
of
their
employees
for
the
succeeding
months;
o Excess
is
taxable
Gains
from
redemption
of
shares
in
mutual
fund
b.
Taxes
withheld
on
the
13th
month
pay
and
other
benefits
given
last
November,
which
should
otherwise
be
remitted
by
the
employer-withholding
agent
on
December
12,
1994,
CIR
v.
Mitsubishi
Metal
Corp.
(Jan
22,
1990)
shall
no
longer
be
remitted
to
the
BIR.
Said
withheld
amount
should
be
refunded
to
the
Mitsubishi
Metal
not
an
agent/conduit
of
Eximbank
employees
concerned;
and
Loan
from
Eximbank
was
made
on
its
own
independent
capacity
Therefore,
exclusion
under
32(B)(7)(a)
does
not
apply
c.
The
exemption/exclusion
provided
for
under
R.A.
No.
7833
shall
cover
the
13th
month
-
Its
from
one
pocket
to
another
pay
and
"other
benefits"
in
the
aggregate
amount
not
exceeding
P30,000
received
by
the
-
Must
be
from
the
exercise
of
PV
officials
and
employees
paid
or
accrued
beginning
January
1,
1994,
provided,
however,
that
the
aforesaid
"other
benefits"
as
contemplated
under
Sec.
1
(F)
(iv)
of
R.A.
No.
7833
6. Gains
from
the
Sale
of
Bonds,
Debentures
or
Other
Certificates
of
Indebtedness
shall
not
exceed
P12,000
which
amount
shall
be
integrated
in
the
13th
month
pay.
Sec.32
(B)(7)
Miscellaneous
Items.
It
is
desired
that
this
Circular
be
given
as
wide
a
publicity
as
possible.
(g)
Gains
from
the
Sale
of
Bonds,
Debentures
or
other
Certificate
of
Indebtedness.
Gains
realized
from
the
same
or
exchange
or
retirement
of
bonds,
debentures
or
other
certificate
of
indebtedness
with
a
maturity
of
more
than
five
(5)
years.
5. Income
Derived
by
Foreign
Government
Nippon
Life
Ins.
Inc
v.
CIR,
CTA
Case
No.6142
(Feb.4,
2002)
Gains
as
the
term
is
used
therein
in
32(B)(7)(g)
does
not
include
interest
since
it
Sec.32
(B)(7)
Miscellaneous
Items.
-
clearly
refers
to
gains
from
the
sale
of
bonds,
debentures
and
other
certificates
of
indebtedness
(a)
Income
Derived
by
Foreign
Government.
-
Income
derived
from
investments
in
NB:
interest
is
periodic
income
derived
from
the
forbearance
of
money;
gain
from
the
Philippines
in
loans,
stocks,
bonds
or
other
domestic
securities,
or
from
interest
the
sale
of
bonds
is
income
derived
form
the
conversion
of
an
asset
on
deposits
in
banks
in
the
Philippines
by
(i)
foreign
governments,
(ii)
financing
NB:
interest
is
income
derived
from
the
continuance
of
the
bond
investment;
gain
institutions
owned,
controlled,
or
enjoying
refinancing
from
foreign
governments,
and
from
sale
of
bonds
is
income
derived
from
the
termination
of
the
bond
investment
(iii)
international
or
regional
financial
institutions
established
by
foreign
governments.
Enumeration:
Income
derived
by
foreign
government
Income
derived
by
the
government
of
its
political
subdivisions
to
be
exempt,
income
must
be
from:
o Public
utility
or
o The
exercise
of
any
essential
government
function
Prizes
and
awards
in
recognition
of
religious,
charitable,
scientific,
educational,
artistic,
literary
or
civic
achievement,
provided
o Selection
o Substantial
future
services
Prizes
and
awards
in
sports
competition
o The
sports
completion
or
tournament
must
be
sanctioned
by
the
relevant
NSA
13th
month
pay
and
other
benefits
35
TAXATION
1
ATTY.
BELLO
ALC
D
2017
36
TAXATION
1
ATTY.
BELLO
ALC
D
2017
(i)
A
reasonable
allowance
for
salaries,
wages,
and
other
forms
of
compensation
for
expenditures
otherwise
considered
as
capital
outlays
of
depreciable
assets
incurred
personal
services
actually
rendered,
including
the
grossed-up
monetary
value
of
fringe
during
the
taxable
year
for
the
expansion
of
school
facilities
or
(b)
to
deduct
allowance
benefit
furnished
or
granted
by
the
employer
to
the
employee:
Provided,
That
the
final
for
depreciation
thereof
under
Subsection
(F)
hereof.
tax
imposed
under
Section
33
hereof
has
been
paid;
1. Non-Deductible
Personal
Expenses
v.
Deductible
Business
Expenses
(ii)
A
reasonable
allowance
for
travel
expenses,
here
and
abroad,
while
away
from
home
in
the
pursuit
of
trade,
business
or
profession;
Smith
v.
CIR,
40
B.T.A.
1038
(1939)
TPs
argued
that
since
Mrs.
Smith
would
have
been
unable
to
leave
her
child
and
(iii)
A
reasonable
allowance
for
rentals
and/or
other
payments
which
are
required
as
a
take
job
but
for
the
services
of
a
nursemaid
the
latters
fee
should
be
regarded
as
condition
for
the
continued
use
or
possession,
for
purposes
of
the
trade,
business
or
a
necessary
business
expense
profession,
of
property
to
which
the
taxpayer
has
not
taken
or
is
not
taking
title
or
in
If
the
nursemaids
fee
allowed
because
essential
to
the
TPs
employment,
then
by
which
he
has
no
equity
other
than
that
of
a
lessee,
user
or
possessor;
extension
all
consumption
expenditures
food,
shelter,
clothing,
recreation
which
enable
TPs
to
carry
on
the
days
activities
must
become
deductible
as
well
(iv)
A
reasonable
allowance
for
entertainment,
amusement
and
recreation
expenses
Yet
these
are
the
very
essence
of
those
personal
expenses
the
deductibility
of
during
the
taxable
year,
that
are
directly
connected
to
the
development,
management
which
is
expressly
denied
and
operation
of
the
trade,
business
or
profession
of
the
taxpayer,
or
that
are
directly
Pevsner
v.
CIR,
628
F.2d
467
(5th
Cir.
1980)
related
to
or
in
furtherance
of
the
conduct
of
his
or
its
trade,
business
or
exercise
of
a
Test
for
deductibility:
cost
of
clothing
is
deductible
as
a
business
expense
only
if:
profession
not
to
exceed
such
ceilings
as
the
Secretary
of
Finance
may,
by
rules
and
2. the
clothing
is
a
type
specifically
required
as
a
condition
of
employment
regulations
prescribe,
upon
recommendation
of
the
Commissioner,
taking
into
account
3. it
is
not
adaptable
to
general
usage
as
ordinary
clothing
the
needs
as
well
as
the
special
circumstances,
nature
and
character
of
the
industry,
4. it
is
not
so
worn
trade,
business,
or
profession
of
the
taxpayer:
Provided,
That
any
expense
incurred
for
Rudolph
v.
US,
supra
entertainment,
amusement
or
recreation
that
is
contrary
to
law,
morals
public
policy
or
Deductibility
of
a
combined
business-pleasure
trip
depends
on
a
subjective
standard
public
order
shall
in
no
case
be
allowed
as
a
deduction.
whether
the
TPs
primary
purpose
was
business
or
personal
Schultz
v.
CIR,
16
T.C.
401
(1951)
(b)
Substantiation
Requirements.
-
No
deduction
from
gross
income
shall
be
allowed
Entertainment
expenses
are
deductible
only
if
they
are
in
fact
ordinary
and
necessary
under
Subsection
(A)
hereof
unless
the
taxpayer
shall
substantiate
with
sufficient
expenses
for
carrying
on
a
trade
or
business
and
to
the
extent
that
they
are
primarily
evidence,
such
as
official
receipts
or
other
adequate
records:
(i)
the
amount
of
the
social
and
personal
in
nature
and
bear
no
direct
relation
to
the
operation
of
a
business
expense
being
deducted,
and
(ii)
the
direct
connection
or
relation
of
the
expense
being
such
expenditures
may
not
be
deducted.
deducted
to
the
development,
management,
operation
and/or
conduct
of
the
trade,
business
or
profession
of
the
taxpayer.
NIRC
34(A)(1)(a)(iv):
cap
on
entertainment
expenses;
non-deductibility
of
entertainment
expenses
that
are
contrary
to
law,
public
morals,
public
policy
(c)
Bribes,
Kickbacks
and
Other
Similar
Payments.
-
No
deduction
from
gross
income
or
public
order
shall
be
allowed
under
Subsection
(A)
hereof
for
any
payment
made,
directly
or
NIRC
34(1)(1)(c):
non-deductibility
of
bribes,
kickback
and
other
similar
indirectly,
to
an
official
or
employee
of
the
national
government,
or
to
an
official
or
payments
employee
of
any
local
government
unit,
or
to
an
official
or
employee
of
a
government-
owned
or
-controlled
corporation,
or
to
an
official
or
employee
or
representative
of
a
2. Travel
Expenses
While
Away
from
Home
foreign
government,
or
to
a
private
corporation,
general
professional
partnership,
or
a
-
Conditions
for
deductibility
of
traveling
expenses
similar
entity,
if
the
payment
constitutes
a
bribe
or
kickback.
Reasonable
and
necessary
Expenses
incurred
while
away
from
home
(2)
Expenses
Allowable
to
Private
Educational
Institutions.
-
In
addition
to
the
expenses
Expense
must
be
incurred
in
pursuit
of
business;
there
must
be
direct
allowable
as
deductions
under
this
Chapter,
a
private
educational
institution,
referred
to
connection
between
the
expense
and
the
carrying
on
of
the
trade
or
under
Section
27
(B)
of
this
Code,
may
at
its
option
elect
either:
(a)
to
deduct
37
TAXATION
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business
of
the
taxpayer
or
his
employer;
expense
must
be
necessary
or
Whether
deductible
current
expense
or
non-deductible
CAPEX
is
a
question
of
appropriate
to
the
development
and
pursuit
of
the
business
or
trade
timing:
deduct
now
or
spread
out
What
to
use?
Depends
on
the
circumstance.
It
one
is
at
loss
already,
theres
CIR
v.
Flowers,
326
U.S.
465
(1946)
nose
use
of
going
for
the
deduction
anymore
since
there
will
no
tax
to
pay.
Contention
of
CIR:
The
word
home
must
be
understood
to
refer
to
the
TPs
place
of
business
(as
opposed
to
TPs
actual
residence)
Held:
although
SC
did
not
decide
upon
the
meaning
of
home
sustained
the
Mt.
Morris
Drive-In
Theatre
Co.
v.
CIR,
25
T.C.
MT.
MORRIS
v.
MIDLAND
EMPIRE
disallowance
on
the
ground
that
the
expense
in
question
had
been
incurred
by
the
272
(1955)
TP
for
his
own
convenience
rather
than
for
business
reasons
TP
constructed
an
open-air
theatre
on
A
case
of
replacement
or
addition
Appropriate
test
of
deductibility
was
whether
the
travel
had
been
motivated
by
the
sloping
land
without
including
in
the
Cost
incurred
in
response
to
an
exigencies
of
business
or
by
considerations
of
personal
preference
construction
of
any
drainage
system
event
somehow
resembling
a
-
Because
TP
could
have
chosen
to
live
in
Mobile,
thereby
avoiding
the
need
for
TP
spent
$8,224
to
construct
a
drainage
natural
disaster
(e.g.,
oil
seepage)
travel,
the
expenses
were
found
to
be
self-imposed
and
personal
system
extending
into
and
over
adjacent
Need
for
drainage
system
What
is
the
bottom
line
of
this
case>
land
belonging
to
another
in
compromise
forseeable
and
obvious
o Commuting
expenses,
while
certainly
a
matter
of
business
exigency,
have
of
a
pending
lawsuit
against
it
based
Oil
seepage
unforseeable
never
been
deductible
upon
allegations
that
TPs
use
of
its
own
o Daily
commuting
expenses
is
personal
and
not
deductible
property
had
caused
accelerated
and
Hantzis
v.
CIR,
638
F.2d
248
(1st
CIR.
1981)
concentrated
drainage
onto
the
adjacent
Held:
deduction
disallowed;
Ms.
Hantzis
had
no
business
home
in
Boston
to
be
land
away
from
Held:
the
cost
of
drainage
system
was
TP
who
pursues
temporary
employment
away
from
location
of
his
usual
residence
CAPEX
and
was
not
deductible
either
as
but
has
not
business
connection
with
that
location
is
not
away
from
home
for
an
ordinary
and
necessary
business
purposes
of
travel
expense
deduction
expense
or
as
a
loss
While
Ms.
Hantzis
plainly
occupied
two
homes
during
the
summer
months,
the
Midland
Empire
Packing
Co
v.
CIR,
14
T.C.
635
home
in
Boston
was
maintained
as
a
matter
of
personal
choice
rather
than
business
(1950)
necessity
Issue
was
whether
the
cost
of
lining
It
followed
that
her
transportation
and
added
living
costs
in
NYC
were
not
basement
walls
with
concrete
to
prevent
deductible
as
travel
expense
oil
seepage
created
by
a
neighboring
Hantzis
merely
confirms
the
holding
in
Flowers
that
long-distance
commuting
refinery
should
be
treated
as
a
deductible
even
combined
with
meals
and
lodging
expense
does
not
qualify
as
travel
repair
or
a
CAPEX
Held:
deductible
repair
3. Deductible
Current
Expenses
v.
Non-Deductible
Capital
Expenditures
INDOPCO,
Inc.
v.
CIR,
503
U.S.
79
(1992)
Whether
certain
professional
expenses
incurred
by
a
target
corporation
in
the
course
of
Statutory
basis:
non-deductible
CAPEX:
36(A)(2)
a
friendly
takeover
are
deductible
by
that
corporation
as
ordinary
and
necessary
Expenditures
whose
benefit
extends
beyond
current
taxable
year
not
business
expenses
or
CAPEX
deductible
CIR
v.
General
Foods
(Phil.),
Inc.
(April
24,
2003)
E.g.
Land
and
buildings,
machinery
and
equipment,
patents
and
trademarks
Advertising
to
stimulate
the
current
sale
of
merchandise
or
use
of
services
Present
payment
for
future
economic
benefit
should
be
capitalized
rather
deductible
current
expense
than
deducted
as
current
expenses
Advertising
designed
to
stimulate
the
future
sale
of
merchandise
or
use
of
services
-
CAPEX
recovered
by
way
of
depreciation
or
amortization
CAPEX
Statutory
basis:
non-deductible
CAPEX:
36(A)(2)
38
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and
(2)
the
amount
can
be
determined
with
reasonable
accuracy
2. Underlying
indebtedness
must
be
in
connection
with
the
trade
or
business
or
exercise
of
profession
3. There
must
be
an
indebtedness
4. There
should
be
an
interest
expense
paid
or
incurred
upon
such
indebtedness;
5. The
indebtedness
must
be
that
of
the
TP;
6. The
indebtedness
must
be
connected
with
the
taxpayers
trade,
business
or
B. Interest
exercise
of
profession;
7. The
interest
expense
must
have
been
paid
or
incurred
during
the
taxable
year;
Sec.34(B)
8. The
interest
must
have
been
stipulated
in
writing;
9. The
interest
must
be
legally
due;
(B)
Interest.-
10. The
interest
payment
arrangement
must
not
be
between
related
parties
under
36(B)
11. The
interest
must
not
be
incurred
to
finance
petroleum
operations;
and
(1)
In
General.
-
The
amount
of
interest
paid
or
incurred
within
a
taxable
year
on
12. In
case
of
interest
incurred
to
acquire
property
used
in
trade,
business
or
exercise
indebtedness
in
connection
with
the
taxpayer's
profession,
trade
or
business
shall
be
of
profession,
the
same
was
not
treated
as
a
capital
expenditure
allowed
as
deduction
from
gross
income:
Provided,
however,
That
the
taxpayer's
otherwise
allowable
deduction
for
interest
expense
shall
be
reduced
by
an
amount
equal
to
the
following
percentages
of
the
interest
income
subjected
to
final
tax:
Paper
Ind.
Corp.
of
the
Phil.
v.
CA
(Dec.
1,
1995)
The
Tax
Code
does
not
prohibit
the
deduction
of
interest
on
a
loan
incurred
for
Forty-one
percent
(41%)
beginning
January
1,
1998;Thirty-nine
percent
(39%)
beginning
acquiring
machinery
and
equipment.
Neither
does
the
Tax
Code
compel
the
January
1,
1999;
and
Thirty-eight
percent
(38%)
beginning
January
1,
2000;
capitalization
of
interest
payments
on
such
a
loan
NB:
34(B)(3)
now
gives
the
TP
the
option
to
deduct
currently
or
capitalize
interest
(2)
Exceptions.
-
No
deduction
shall
be
allowed
in
respect
of
interest
under
the
incurred
to
acquire
property
used
in
trade,
business
or
exercise
of
a
profession
succeeding
subparagraphs:
CIR
v.
Vda.
de
Prieto
(Sept.
30,
1960)
Although
interest
payment
for
delinquent
taxes
is
not
deductible
as
tax
under
Section
(a)
If
within
the
taxable
year
an
individual
taxpayer
reporting
income
on
the
cash
basis
30(c)
of
the
Tax
Code
[now
34(C)
and
section
80
of
the
Income
Tax
Regulations,
the
incurs
an
indebtedness
on
which
an
interest
is
paid
in
advance
through
discount
or
taxpayer
is
not
precluded
thereby
from
claiming
said
interest
payment
as
deduction
otherwise:
Provided,
That
such
interest
shall
be
allowed
a
a
deduction
in
the
year
the
under
section
30(b)
of
the
same
Code
[now
34(b)]
indebtedness
is
paid:
Provided,
further,
That
if
the
indebtedness
is
payable
in
periodic
amortizations,
the
amount
of
interest
which
corresponds
to
the
amount
of
the
principal
Rev.
Regs.
13-2000
(Nov.
20,
2000)
amortized
or
paid
during
the
year
shall
be
allowed
as
deduction
in
such
taxable
year;
Subject:
Implementing
Section
34(B)
of
the
Tax
Code
of
1997
on
the
Requirements
for
(b)If
both
the
taxpayer
and
the
person
to
whom
the
payment
has
been
made
or
is
to
be
Deductibility
of
Interest
Expense
from
the
Gross
Income
of
a
Taxpayer.
made
are
persons
specified
under
Section
36
(B);
or
To:
All
Internal
Revenue
Officers
and
Others
Concerned
(c)If
the
indebtedness
is
incurred
to
finance
petroleum
exploration.
SECTION
1.
Scope.
Pursuant
to
the
provisions
of
Section
244
of
the
Tax
Code
of
1997,
these
(3)
Optional
Treatment
of
Interest
Expense.
-
At
the
option
of
the
taxpayer,
interest
Regulations
are
hereby
promulgated
to
implement
the
provisions
of
Section
34(B)
of
the
incurred
to
acquire
property
used
in
trade
business
or
exercise
of
a
profession
may
be
same
Code
on
the
requirements
for
deductibility
of
interest
expense
from
the
gross
allowed
as
a
deduction
or
treated
as
a
capital
expenditure.
income
of
a
corporation
or
an
individual
engaged
in
trade,
business
or
in
the
practice
of
profession.
Requisites
for
deductibility
1. Paid
or
incurred
within
the
taxable
year
40
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related
taxes
shall
be
fully
deductible
from
gross
income
and
shall
not
be
subject
to
the
limitation
(2)
If
both
the
taxpayer
and
the
person
to
whom
the
payment
has
been
made
or
is
to
be
deduction
heretofore
mentioned.
Thus,
such
interest
expense
incurred
or
paid
shall
not
made
are
persons
specified
under
Sec.
36(B)
of
the
Tax
Code
of
1997,
viz:
be
diminished
by
the
percentage
of
interest
income
earned
which
had
been
subjected
to
final
withholding
tax.
(i)
Between
members
of
a
family.
For
purposes
of
this
paragraph,
the
family
of
an
individual
shall
include
only
his
brothers
and
sisters
(whether
by
the
whole
or
half-
(d)
Other
cases
where
interest
expense
is
not
deductible
from
gross
income.
No
blood),
spouse,
ancestors
and
lineal
descendants;
or
interest
expense
shall
be
allowed
as
deduction
from
gross
income
in
any
of
the
following
cases:
(ii)
Between
an
individual
and
a
corporation
more
than
fifty
percent
(50%)
in
value
of
the
outstanding
stock
of
which
is
owned,
directly
and
indirectly,
by
or
for
such
(1)
If
within
the
taxable
year,
an
individual
taxpayer
reporting
income
on
the
cash
basis
individual;
or
incurs
an
indebtedness
on
which
an
interest
is
paid
in
advance
through
discount
or
otherwise:
Provided,
That
such
interest
shall
be
allowed
as
a
deduction
in
the
year
the
(iii)
Between
two
corporations
more
than
fifty
percent
(50%)
in
value
of
the
outstanding
indebtedness
is
paid:
Provided,
further,
That
if
the
indebtedness
is
payable
in
periodic
stock
of
each
of
which
is
owned,
directly
or
indirectly,
by
or
for
the
same
individual;
or
amortization,
the
amount
of
interest
which
corresponds
to
the
amount
of
the
principal
amortized
or
paid
during
the
year
shall
be
allowed
as
deduction
in
such
taxable
year.
(iv)Between
the
grantor
and
a
fiduciary
of
any
trust;
or
Illustration:
Mr.
Cruz,
a
self-employed
individual,
consistently
employs
the
cash-basis
(v)Between
the
fiduciary
of
a
trust
and
the
fiduciary
of
another
trust
if
the
same
person
accounting
method
in
keeping
his
books
of
accounts.
Assuming
that
on
January
1,
1998,
is
a
grantor
with
respect
to
each
trust;
or
he
contracted
a
loan
of
P1,000,000
from
XYZ
Bank
for
use
in
his
business
operations.
Terms:
(vi)
Between
a
fiduciary
of
a
trust
and
a
beneficiary
of
such
trust.
Payable
in
two
(2)
years
at
15%
interest
per
annum,
payable
in
advance.
On
January
1,
(3)
If
the
indebtedness
on
which
the
interest
expense
is
paid
is
incurred
to
finance
1998,
he
received
from
the
bank
the
proceeds
of
his
loan
in
the
sum
of
P700,000,
net
of
petroleum
exploration
in
the
Philippines.
The
non-deductible
interest
expense
herein
interest
paid
in
advance
in
the
amount
of
P300,000.
referred
to
pertains
to
interest
or
other
consideration
paid
or
incurred
by
a
Service
Contractor
engaged
in
the
discovery
and
production
of
indigenous
petroleum
in
the
In
general,
the
interest
expense
shall
be
taken
for
the
taxable
year
in
which
"paid
or
Philippines
in
respect
of
the
financing
of
its
petroleum
operations,
pursuant
to
Section
incurred"
or
"paid
or
accrued"
depending
upon
the
method
of
accounting
upon
the
23
of
P.D.
No.
8,
as
amended
by
P.D.
No.
87,
otherwise
known
as
"The
Oil
Exploration
basis
of
which
the
net
income
is
computed,
unless
in
order
to
clearly
reflect
the
income,
and
Development
Act
of
1972."
the
deduction
should
be
taken
as
of
a
different
period.
Thus,
a
self-employed
individual
is
allowed
to
deduct
from
his
gross
income
the
entire
amount
of
interest
expense
(e)
Optional
treatment
of
interest
expense
on
capital
expenditure.
At
the
option
of
actually
paid
during
the
taxable
year.
However,
if
the
interest
expense
is
paid
in
advance
the
taxpayer,
interest
expense
on
a
capital
expenditure
incurred
to
acquire
property
and
the
accounting
method
used
by
the
self-employed
individual
is
the
cash-basis
used
in
trade,
business
or
exercise
of
a
profession
may
be
allowed
as
a
deduction
in
full
accounting
method,
such
interest
expense
paid
in
advance
shall
only
be
allowed
as
in
the
year
when
incurred,
the
provisions
of
Sec.
36
(A)(2)
and
(3)
of
the
Tax
Code
of
deduction
in
the
year
when
he
has
fully
paid
his
liability.
So
that
if
the
said
debtor
has
1997
to
the
contrary
notwithstanding,
or
may
be
treated
as
a
capital
expenditure
for
fully
paid
his
loan
as
of
the
end
of
the
taxable
year
1999,
his
interest
expense
paid
in
which
the
taxpayer
may
claim
only
as
a
deduction
the
periodic
amortization
of
such
advance
on
January
1,
1998
in
the
amount
of
P300,000
shall
only
be
allowed
as
expenditure.
deduction
from
his
gross
income
in
the
taxable
year
1999.
SECTION5.
Repealing
Clause.
The
provisions
of
any
revenue
regulations
or
any
On
the
other
hand,
even
if
the
interest
expense
is
paid
in
advance
but
the
indebtedness
revenue
issuance
or
ruling
inconsistent
with
these
Regulations
are
hereby
repealed,
is
payable
in
periodic
amortization,
the
amount
of
interest
expense
which
corresponds
amended,
or
modified
accordingly.
to
the
amount
of
the
principal
amortized
or
paid
during
the
respective
years
1998
and
1999
shall
be
allowed
as
deduction
in
such
respective
taxable
years.
SECTION
6.
Effectivity
Clause.
These
Regulations
shall
take
effect
immediately.
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TAXATION
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Non-deductible
interest
-
Interest
Arbitrage
Prepaid/advance
interest
of
cash-basis
individual
Anti-tax
arbitrage
provision:
interest
otherwise
deductible
reduce
by
33%
of
TP
and
recipient
of
interest
are
related
parties
under
section
36(B)
interest
income
subject
to
final
tax
Interest
to
finance
petroleum
exploration
(capitalized
under
special
rules)
o Back-to-back
loans:
TP
takes
out
loan;
uses
proceeds
to
purchase
government
securities;
interest
income
from
government
securities
subject
to
20%
FWT;
interest
expense
on
loan
deductible
from
gross
Related
Party
transactions:
income
(tax
benefit
is
32%/35%);
tax
advantage
is
15%
Between
members
of
a
family
o Tax
arbitrage
avoided
by
imposing
limit
on
deductible
business
Between
an
individual
and
a
corp.
more
than
50%
in
value
of
the
expense
outstanding
stock
of
which
is
owned
by
or
for
such
individual
Rationale:
1997,
banks
and
financial
advisers
used
to
take
advantage
over
this.
Between
grantor
and
fiduciary
of
any
trust
They
acquire
loan
and
use
the
proceeds
for
buying
securities.
So
you
have
an
Between
fiduciary
of
a
trust
and
fiduciary
of
another
trust,
if
the
interest
expense
on
one
hand
and
an
interest
income
on
the
other.
same
person
is
grantor
with
respect
to
each
trust
Between
fiduciary
of
trust
and
a
beneficiary
of
such
trust
BIR
Rul.
No.
006-00
(Jan.5,
2000)
Limitation
applies
regardless
of
whether
or
not
a
tax
arbitrage
scheme
was
entered
into
C. Taxes
by
TP
or
regardless
of
the
date
of
the
interest
bearing
loan
and
the
date
when
the
investment
was
made,
for
as
long
as
during
the
taxable
year,
there
is
an
interest
Sec.
34(C)
expense
incurred
on
one
side
and
an
interest
income
earned
on
the
other
side,
which
interest
income
had
been
subjected
to
final
withholding
tax
(C)
Taxes.
-
Illustration:
1. Interest
income
from
time
deposit
in
BPI
in
2007:
P100,000
(subjected
to
20%
(1)
In
General.
-
Taxes
paid
or
incurred
within
the
taxable
year
in
connection
with
the
FWT)
taxpayer's
profession,
trade
or
business,
shall
be
allowed
as
deduction,
except
o Interest
expense
form
business
loan:
P120,000
o Formula:
interest
expense
38%
of
interest
income
subjected
to
final
(a)
The
income
tax
provided
for
under
this
Title;
tax
=
allowable
interest
expense
o P120,000
P38,000
=
P82,000
(b)
Income
taxes
imposed
by
authority
of
any
foreign
country;
but
this
deduction
shall
2. TP
took
out
a
loan
for
P1m;
interest
at
10%
p/a
be
allowed
in
the
case
of
a
taxpayer
who
does
not
signify
in
his
return
his
desire
to
have
o Uses
P1M
loan
proceeds
to
purchase
T-bills
paying
interest
at
10%
to
any
extent
the
benefits
of
paragraph
(3)
of
this
subsection
(relating
to
credits
for
p/a,
subject
to
20%
final
tax
taxes
of
foreign
countries);
o For
every
P1.00
of
interest
income
earned
from
T-bills,
TP
pays
tax
of
P0.20
(c)
Estate
and
donor's
taxes;
and
o For
every
P1.00
of
interest
expense
claimed
as
a
deduction,
income
tax
liability
is
reduced
by
P0.30
(d)
Taxes
assessed
against
local
benefits
of
a
kind
tending
to
increase
the
value
of
the
o P0.30
tax
benefit
vs.
P0.20
tax
paid
=
P0.10
tax
advantage/revenue
property
assessed.
leak
3. With
anti-tax
arbitrage
provision
in
palce,
TP
can
deduct
only
P0.62
(P1.000
interest
expense
less
38%
of
P1.00
interest
income)
Provided,
That
taxes
allowed
under
this
Subsection,
when
refunded
or
credited,
shall
be
o Tax
benefit
of
P0.62
interest
expense
is
P0.186
included
as
part
of
gross
income
in
the
year
of
receipt
to
the
extent
of
the
income
tax
o Tax
paid
on
P1.00
interest
income
is
P0.20
benefit
of
said
deduction.
o Tax
loop
hole
is
plugged
by
anti-arbitrage
provision
43
TAXATION
1
ATTY.
BELLO
ALC
D
2017
(2)
Limitations
on
Deductions.
-
In
the
case
of
a
nonresident
alien
individual
engaged
in
condition
precedent
to
the
allowance
of
this
credit
may
require
the
taxpayer
to
give
a
trade
or
business
in
the
Philippines
and
a
resident
foreign
corporation,
the
deductions
bond
with
sureties
satisfactory
to
and
to
be
approved
by
the
Commissioner
in
such
sum
for
taxes
provided
in
paragraph
(1)
of
this
Subsection
(C)
shall
be
allowed
only
if
and
to
as
he
may
require,
conditioned
upon
the
payment
by
the
taxpayer
of
any
amount
of
tax
the
extent
that
they
are
connected
with
income
from
sources
within
the
Philippines.
found
due
upon
any
such
redetermination.
The
bond
herein
prescribed
shall
contain
such
further
conditions
as
the
Commissioner
may
require.
(3)
Credit
Against
Tax
for
Taxes
of
Foreign
Countries.
-
If
the
taxpayer
signifies
in
his
return
his
desire
to
have
the
benefits
of
this
paragraph,
the
tax
imposed
by
this
Title
(6)
Year
in
Which
Credit
Taken.
-
The
credits
provided
for
in
Subsection
(C)(3)
of
this
shall
be
credited
with:
Section
may,
at
the
option
of
the
taxpayer
and
irrespective
of
the
method
of
accounting
employed
in
keeping
his
books,
be
taken
in
the
year
which
the
taxes
of
the
foreign
(a)
Citizen
and
Domestic
Corporation.
-
In
the
case
of
a
citizen
of
the
Philippines
and
of
a
country
were
incurred,
subject,
however,
to
the
conditions
prescribed
in
Subsection
domestic
corporation,
the
amount
of
income
taxes
paid
or
incurred
during
the
taxable
(C)(5)
of
this
Section.
If
the
taxpayer
elects
to
take
such
credits
in
the
year
in
which
the
year
to
any
foreign
country;
and
taxes
of
the
foreign
country
accrued,
the
credits
for
all
subsequent
years
shall
be
taken
upon
the
same
basis
and
no
portion
of
any
such
taxes
shall
be
allowed
as
a
deduction
in
the
same
or
any
succeeding
year.
(b)
Partnerships
and
Estates.
-
In
the
case
of
any
such
individual
who
is
a
member
of
a
general
professional
partnership
or
a
beneficiary
of
an
estate
or
trust,
his
proportionate
share
of
such
taxes
of
the
general
professional
partnership
or
the
estate
or
trust
paid
or
(7)Proof
of
Credits.
-
The
credits
provided
in
Subsection
(C)(3)
hereof
shall
be
allowed
incurred
during
the
taxable
year
to
a
foreign
country,
if
his
distributive
share
of
the
only
if
the
taxpayer
establishes
to
the
satisfaction
of
the
Commissioner
the
following:
income
of
such
partnership
or
trust
is
reported
for
taxation
under
this
Title.
(a)
The
total
amount
of
income
derived
from
sources
without
the
Philippines;
An
alien
individual
and
a
foreign
corporation
shall
not
be
allowed
the
credits
against
the
tax
for
the
taxes
of
foreign
countries
allowed
under
this
paragraph.
(b)
The
amount
of
income
derived
from
each
country,
the
tax
paid
or
incurred
to
which
is
claimed
as
a
credit
under
said
paragraph,
such
amount
to
be
determined
under
rules
(4)
Limitations
on
Credit.
-
The
amount
of
the
credit
taken
under
this
Section
shall
be
and
regulations
prescribed
by
the
Secretary
of
Finance;
and
subject
to
each
of
the
following
limitations:
(c)
All
other
information
necessary
for
the
verification
and
computation
of
such
credits.
(a)
The
amount
of
the
credit
in
respect
to
the
tax
paid
or
incurred
to
any
country
shall
not
exceed
the
same
proportion
of
the
tax
against
which
such
credit
is
taken,
which
the
In
General
taxpayer's
taxable
income
from
sources
within
such
country
under
this
Title
bears
to
his
Taxes
paid
or
incurred
in
connection
with
the
TPs
trade,
business
or
entire
taxable
income
for
the
same
taxable
year;
and
profession
are
deductible
Exception:
the
following
taxes
are
not
deductible
(b)
The
total
amount
of
the
credit
shall
not
exceed
the
same
proportion
of
the
tax
o Income
tax
against
which
such
credit
is
taken,
which
the
taxpayer's
taxable
income
from
sources
o Foreign
taxes,
if
TP
elects
FTC
without
the
Philippines
taxable
under
this
Title
bears
to
his
entire
taxable
income
for
o Donors
and
estate
tax
the
same
taxable
year.
o Special
assessments
imposed
by
an
LGU
over
an
adjoining
landowner
who
is
benefitted.
This
seldom
happens
Examples:
Local
business
taxes
(5)
Adjustments
on
Payment
of
Incurred
Taxes.
-
If
accrued
taxes
when
paid
differ
from
Why
would
a
taxpayer
choose
a
tax
credit
over
a
deduction?
the
amounts
claimed
as
credits
by
the
taxpayer,
or
if
any
tax
paid
is
refunded
in
whole
or
in
part,
the
taxpayer
shall
notify
the
Commissioner;
who
shall
redetermine
the
o Tax
benefit
has
an
effective
rate
o Deduction:
Tax
benefit
is
the
entire
P1
amount
of
the
tax
for
the
year
or
years
affected,
and
the
amount
of
tax
due
upon
such
redetermination,
if
any,
shall
be
paid
by
the
taxpayer
upon
notice
and
demand
by
the
Commissioner,
or
the
amount
of
tax
overpaid,
if
any,
shall
be
credited
or
refunded
to
Foreign
Tax
Credits
the
taxpayer.
In
the
case
of
such
a
tax
incurred
but
not
paid,
the
Commissioner
as
a
Granted
when
there
is
foreign
source
income
+
tax
foreign
and
domestic
44
TAXATION
1
ATTY.
BELLO
ALC
D
2017
Resident
citizens
and
domestic
corporations
are
taxed
on
income
from
within
NIRC
uses
the
term
loss
in
three
distinct
ways;
and
without
the
Philippines
(23(A)
&
(E))
a) Casualty
-
TP
parting
of
something
of
value
(money
or
property)
as
a
result
of
If
a
resident
citizen
or
a
domestic
corporation
derive
both
Philippine
source
an
identifiable
event
e.g.,
abandonment
of
property
(
34(D)(7),
expenditure
and
foreign
source
income,
it
is
possible
that
they
may
be
subject
to
tax
in
of
funds
or
a
casualty
(
34(D)(1)),
obsolescence
loss
(medicines
not
sold
but
more
than
one
country
about
to
expire
already)
o The
right
of
a
foreign
country
to
tax
income
derived
from
any
activity
b) Excess
of
deductions
over
items
of
income
e.g.,
NOL
under
34(D)(3);
such
of
a
TP
within
its
territorial
boundary
may
coincide
with
the
loss
could
be
composed
of
hundreds
or
even
thousand
of
distinct
items
of
Philippines
right
to
tax
the
same
TP
on
the
basis
of
citizenship
or
income
and
deduction
residency
c) Sale
exchange
or
other
disposition
of
property
Gain/loss
=
AR-AB
(
40)
o Ex.
fight
purse
of
Manny
Pacquiao
earned
in
a
boxing
match
in
the
U.S.
Result:
Types
of
deductible
losses
under
section
34(D):
o International
double
taxation
exists
when
a
single
item
of
income
is
Losses
incurred
in
trade,
business
or
profession
(
34(D)(1))
subject
to
income
tax
by
more
than
one
country
Casualty
losses
and
losses
from
robbery,
theft
&
embezzlement
(
34(D)(3))
Remedies
to
eliminate
or
mitigate
effects
of
double
taxation:
NOL-
law
allows
carry-over
of
NOLs
under
certain
conditions
(
34(D)(3)
o Granting
a
credit
for
foreign
taxes
paid
(unilateral
mechanism)
-
Capital
losses
governed
by
39
34(C)(3),
subject
to
the
limitation
set
forth
in
subsection
(C)(4)
Losses
from
wash
sales
-
38
o Allowing
foreign
taxes
paid
as
a
deduction
against
income
(unilateral
Wagering
losses
deductible
only
to
the
extent
of
wagering
gains
mechanism)
-
34(C)(1)(b)
Abandonment
losses
covered
by
special
laws
(e.g.
PD
87)
o Income
tax
treaties
(bilateral
mechanism)
-
32(B)(5)
Foreign
tax
credit
available
only
to
resident
citizens
and
domestic
corporation
1. Casualty
Losses
(not
available
to
non-resident
citizens,
aliens
and
foreign
corporation
because
they
are
not
taxable
on
foreign
source
income)
Sec.
34(D)
FTC
applies
only
if
there
is
foreign
source
income
and
income
tax
on
the
foreign
source
income
is
paid
to
another
jurisdiction
(D)
Losses.
-
*
YOU
MUST
INVOKE
THE
TAX
CREDIT
(1)
In
General.
-
Losses
actually
sustained
during
the
taxable
year
and
not
compensated
for
by
insurance
or
other
forms
of
indemnity
shall
be
allowed
as
deductions:
CIR
v.
Lednicky
(July
31,
1964)
An
alien
resident
who
derives
income
wholly
from
sources
within
the
Philippines
(a)
If
incurred
in
trade,
profession
or
business;
may
not
deduct
form
gross
income
the
income
taxes
he
paid
to
his
home
country
for
the
taxable
year
An
alien
residents
right
to
deduct
from
gross
income
the
income
taxes
he
paid
to
a
(b)
Of
property
connected
with
the
trade,
business
or
profession,
if
the
loss
arises
from
foreign
government
is
given
only
as
an
alternative
to
his
right
to
claim
a
tax
credit
fires,
storms,
shipwreck,
or
other
casualties,
or
from
robbery,
theft
or
embezzlement.
for
such
foreign
income
taxes;
so
that
unless
he
has
a
right
to
claim
such
tax
credit
if
he
chooses,
he
is
precluded
from
said
deduction
The
Secretary
of
Finance,
upon
recommendation
of
the
Commissioner,
is
hereby
An
alien
resident
is
not
entitled
to
tax
credit
for
foreign
income
taxes
paid
when
his
authorized
to
promulgate
rules
and
regulations
prescribing,
among
other
things,
the
income
is
derived
wholly
from
sources
within
the
Philippines
time
and
manner
by
which
the
taxpayer
shall
submit
a
declaration
of
loss
sustained
What
they
should
have
done:
they
should
have
just
claimed
foreign
tax
credit
in
the
from
casualty
or
from
robbery,
theft
or
embezzlement
during
the
taxable
year:
US
for
their
income
in
the
Philippines.
Provided,
however,
That
the
time
limit
to
be
so
prescribed
in
the
rules
and
regulations
shall
not
be
less
than
thirty
(30)
days
nor
more
than
ninety
(90)
days
from
the
date
of
D. Losses
discovery
of
the
casualty
or
robbery,
theft
or
embezzlement
giving
rise
to
the
loss.
45
TAXATION
1
ATTY.
BELLO
ALC
D
2017
(c)
No
loss
shall
be
allowed
as
a
deduction
under
this
Subsection
if
at
the
time
of
the
(i)
Not
less
than
seventy-five
percent
(75%)
in
nominal
value
of
outstanding
issued
filing
of
the
return,
such
loss
has
been
claimed
as
a
deduction
for
estate
tax
purposes
in
shares,
if
the
business
is
in
the
name
of
a
corporation,
is
held
by
or
on
behalf
of
the
the
estate
tax
return.
same
persons;
or(ii)
Not
less
than
seventy-five
percent
(75%)
of
the
paid
up
capital
of
the
corporation,
if
the
business
is
in
the
name
of
a
corporation,
is
held
by
or
on
behalf
of
(2)
Proof
of
Loss.
-
In
the
case
of
a
nonresident
alien
individual
or
foreign
corporation,
the
same
persons.
the
losses
deductible
shall
be
those
actually
sustained
during
the
year
incurred
in
business,
trade
or
exercise
of
a
profession
conducted
within
the
Philippines,
when
such
"For
purposes
of
this
subsection,
the
term
'not
operating
loss'
shall
mean
the
excess
of
losses
are
not
compensated
for
by
insurance
or
other
forms
of
indemnity.
The
secretary
allowable
deduction
over
gross
income
of
the
business
in
a
taxable
year.
of
Finance,
upon
recommendation
of
the
Commissioner,
is
hereby
authorized
to
promulgate
rules
and
regulations
prescribing,
among
other
things,
the
time
and
manner
Provided,
That
for
mines
other
than
oil
and
gas
wells,
a
net
operating
loss
without
the
by
which
the
taxpayer
shall
submit
a
declaration
of
loss
sustained
from
casualty
or
from
benefit
of
incentives
provided
for
under
Executive
Order
No.
226,
as
amended,
robbery,
theft
or
embezzlement
during
the
taxable
year:
Provided,
That
the
time
to
be
otherwise
known
as
the
Omnibus
Investments
Code
of
1987,
incurred
in
any
of
the
first
so
prescribed
in
the
rules
and
regulations
shall
not
be
less
than
thirty
(30)
days
nor
more
ten
(10)
years
of
operation
may
be
carried
over
as
a
deduction
from
taxable
income
for
than
ninety
(90)
days
from
the
date
of
discovery
of
the
casualty
or
robbery,
theft
or
the
next
five
(5)
years
immediately
following
the
year
of
such
loss.
The
entire
amount
of
embezzlement
giving
rise
to
the
loss;
and
the
loss
shall
be
carried
over
to
the
first
of
the
five
(5)
taxable
years
following
the
loss,
and
any
portion
of
such
loss
which
exceeds,
the
taxable
income
of
such
first
year
shall
Losses
under
34(D)(1):
conditions
for
deductibility
be
deducted
in
like
manner
form
the
taxable
income
of
the
next
remaining
four
(4)
Actually
sustained
in
the
year
claimed
years.
Not
compensated
for
insurance
or
other
forms
of
indemnity
Property
is
connected
with
a
trade,
business
or
profession
and
loss
arises
from
Net
operating
loss
(NOL):
excess
of
allowable
deductions
over
gross
income
of
fire,
storm
the
business
in
a
taxable
year
Property
is
connected
with
a
trade,
business
or
profession
and
loss
arises
from
NOLs
may
be
carried
over
as
a
deduction
from
gross
income
for
the
next
three
the
fire,
storm,
shipwreck,
or
other
casualty
or
from
theft
consecutive
taxable
years
immediately
following
the
year
of
loss
Sworn
declaration
of
loss
filed
within
45
days
(Rev.
Regs.
12-77);
failure
to
file
Provided,
there
has
been
no
substantial
change
in
ownership
of
the
business
results
in
disallowance
enterprise
o Must
substantiate
loss
through
adequate
records
o Change
in
shareholders:
corporation
will
still
benefit
o There
needs
to
be
basis
for
the
BIR
to
verify
if
there
was
really
a
loss
o Merger
and
consolidation:
there
is
a
transfer
from
one
entity
to
another
2. NOLCO
-
More
allowable
deductions
than
gross
income:
Net
operating
loss
-
Started
in
1997
TP
can
carry
over
NOL
to
3
succeeding
years
-
NOL
will
be
an
additional
deduction
-
Provided
that
there
should
be
no
substantial
change
in
the
ownership
(3)
Net
Operating
Loss
Carry-Over.
-
The
net
operating
loss
of
the
business
or
enterprise
for
any
taxable
year
immediately
preceding
the
current
taxable
year,
which
had
not
been
previously
offset
as
deduction
from
gross
income
shall
be
carried
over
as
a
deduction
from
gross
income
for
the
next
three
(3)
consecutive
taxable
years
immediately
following
the
year
of
such
loss:
Provided,
however,
That
any
net
loss
incurred
in
a
taxable
year
during
which
the
taxpayer
was
exempt
from
income
tax
shall
not
be
allowed
as
a
deduction
under
this
Subsection:
Provided,
further,
That
a
net
operating
loss
carry-over
shall
be
allowed
only
if
there
has
been
no
substantial
change
in
the
ownership
of
the
business
or
enterprise
in
that
-
46
TAXATION
1
ATTY.
BELLO
ALC
D
2017
substantial
change
in
ownership
(75%
rule),
NOL
deductible
in
the
hands
of
the
transferee
If
NOL
transfers
from
TP
who
sustained
and
accumulated
the
same
to
another
TP
via
merger,
consolidation,
or
business
combination,
and
there
is
substantial
PICOP
v.
CA
change
in
ownership,
NOL
is
lost
NOLCO
allowed
only
if
there
has
been
no
substantial
change
in
the
ownership
of
the
business
enterprise
Illustration
of
substantial
change
in
ownership
rule
(see
NOLCO
charts)
3. Realized
v.
Unrealized
losses
BIR
Rul.
No.
206-90
(Oct.30,
1990)
Conversion
of
dollar
denominated
loans
to
pesos
at
the
prevailing
exchange
rate
Not
taxable
income
because
such
increase
has
not
yet
been
realized.
The
increase
in
value
can
only
be
realized
when
there
is
severance
of
the
gain
already.
It
is
also
the
same
to
obtaining
losses.
Annual
decline
in
value
of
a
property
is
not
normally
allowed
as
a
deduction.
The
loss
is
only
deductible
for
the
year
it
was
actually
sustained
and
that
is
during
the
year
in
which
the
loss
occurs
as
evidenced
by
a
complete
transaction.
There
has
PICOP
claimed
P44M
of
to
be
a
taxation
even
that
should
happen.
RPPMs
NOL
as
a
deduction
BIR
Rul.
No.
144-85
(Aug.
26,
1985)
against
its
1977
gross
Losses
that
arose
from
matured
but
unremitted
principal
repayments
of
loans
R
S/H
P
S/H
income
affected
by
debt
restructuring
program
in
the
Philippines
To
grant
PICOPs
claimed
The
increase
in
value,
i.e.,
the
gain,
could
only
be
taxed
when
a
disposition
of
the
deduction
would
be
to
property
occurred
which
was
of
such
a
nature
as
to
constitute
a
realization
of
such
permit
PICOP
to
purchase
a
gain,
that
is,
a
severance
of
the
gain
from
the
original
capital
invested
in
the
PICOP
tax
deduction
and
RPPM
to
property.
The
same
conclusion
obtains
as
to
losses.
The
annual
decrease
in
the
peddle
its
accumulated
value
of
property
is
not
normally
allowable
as
a
loss.
Hence,
to
be
allowable
the
operating
loss
loss
must
be
realized.
NOL
PICOP
established
the
rule
that
NOLCO
is
available
4. Losses
from
sales
or
exchanges
(to
be
taken-up
in
XV
below)
only
to
the
TP
which
E. Bad
Debts
Important
rules
(PICOP
codified)
NOL
is
always
available
as
a
deduction
in
the
hands
of
the
TP
who
sustained
Sec.
34(E)
and
accumulated
the
NOL,
regardless
of
the
change
in
ownership
(Rev
Regs.
14-01
2.2)
(E)
Bad
Debts.
-
NOL
is
retained
also
if
the
TP
who
sustained
and
accumulated
the
NOL
is
involved
in
a
merger
and
the
same
TP
is
the
surviving
entity
(1)
In
General.
-
Debts
due
to
the
taxpayer
actually
ascertained
to
be
worthless
and
If
NOL
transfers
from
the
TP
who
sustained
and
accumulated
the
same
to
charged
off
within
the
taxable
year
except
those
not
connected
with
profession,
trade
another
TP
via
merger,
consolidation,
or
business
combination,
and
there
is
no
or
business
and
those
sustained
in
a
transaction
entered
into
between
parties
47
TAXATION
1
ATTY.
BELLO
ALC
D
2017
mentioned
under
Section
36
(B)
of
this
Code:
Provided,
That
recovery
of
bad
debts
a
corporation
or
an
individual
engaged
in
trade
or
business
or
a
professional
engaged
in
previously
allowed
as
deduction
in
the
preceding
years
shall
be
included
as
part
of
the
the
practice
of
his
profession.
gross
income
in
the
year
of
recovery
to
the
extent
of
the
income
tax
benefit
of
said
deduction.
SECTION
2.
Definition
of
Terms.
For
purposes
of
these
regulations,
the
following
words
and
phrases
shall
have
the
following
meaning,
viz:
(2)
Securities
Becoming
Worthless.
-
If
securities,
as
defined
in
Section
22
(T),
are
ascertained
to
be
worthless
and
charged
off
within
the
taxable
year
and
are
capital
a.
"Bad
debts"
shall
refer
to
those
debts
resulting
from
the
worthlessness
or
assets,
the
loss
resulting
therefrom
shall,
in
the
case
of
a
taxpayer
other
than
a
bank
or
uncollectibility,
in
whole
or
in
part,
of
amounts
due
the
taxpayer
by
others,
arising
from
trust
company
incorporated
under
the
laws
of
the
Philippines
a
substantial
part
of
money
lent
or
from
uncollectible
amounts
of
income
from
goods
sold
or
services
whose
business
is
the
receipt
of
deposits,
for
the
purpose
of
this
Title,
be
considered
as
rendered.
a
loss
from
the
sale
or
exchange,
on
the
last
day
of
such
taxable
year,
of
capital
assets.
b.
"Securities"
shall
mean
shares
of
stock
in
a
corporation
and
rights
to
subscribe
for
Requisites
for
deductibility
or
to
receive
such
shares.
The
term
includes
bonds,
debentures,
notes
or
certificates,
or
There
must
be
an
existing
indebtedness
due
to
the
taxpayer
which
must
be
other
evidence
of
indebtedness,
issued
by
any
corporation,
including
those
issued
by
a
valid
and
legally
demandable
government
or
political
subdivision
thereof,
with
interest
coupons
or
in
registered
form.
The
same
must
be
connected
with
the
taxpayers
trade,
business
or
practice
of
profession;
c.
"Actually
ascertained
to
be
worthless"
In
general,
a
debt
is
not
worthless
simply
The
same
must
not
be
sustained
in
a
transaction
entered
into
between
related
because
it
is
of
doubtful
value
or
difficult
to
collect.
Worthlessness
is
not
determined
by
parties
enumerated
under
NIRC
36(B)
an
inflexible
formula
or
slide
rule
calculation
but
upon
the
exercise
of
sound
business
judgment.
The
determination
of
worthlessness
in
a
given
case
must
depend
upon
the
The
same
must
be
actually
charged
off
the
books
of
accounts
of
the
taxpayer
particular
facts
and
the
circumstances
of
the
case.
as
of
the
end
of
the
taxable
year;
and
The
same
must
be
actually
ascertained
to
be
worthless
and
uncollectible
as
of
A
taxpayer
may
not
postpone
a
bad
debt
deduction
on
the
basis
of
a
mere
hope
of
the
end
of
the
taxable
year
ultimate
collection
or
because
of
a
continuance
of
attempts
to
collect
notes
which
have
long
become
overdue,
and
where
there
is
no
showing
that
the
surrounding
When
is
an
indebtedness
actually
ascertained
to
be
worthless?
circumstances
differ
from
those
relating
to
other
notes
which
were
charged
off
in
a
No
hard
and
fast
rule;
facts
and
circumstances
prior
year.
While
a
mere
hope
probably
will
not
justify
postponement
of
the
deduction,
Debt
no
worthless
simply
because
it
is
doubtful
value
or
difficult
to
a
reasonable
possibility
of
recovery
will
permit
the
account
to
be
carried
along
collect
notwithstanding
that
the
probabilities
are
that
the
debt
may
not
be
collected
at
all.
The
Deduction
may
not
be
postponed
on
the
basis
of
a
mere
hope
of
creditor
may
offer
evidence
to
show
some
expectation
that
the
debt
would
have
been
ultimate
collection
paid
in
the
intervening
years,
and
that
subsequently,
the
hope
was
shattered
or
appeared
to
have
been
unfounded.
If,
for
example,
the
creditor
could
show
that
during
Rev.
Regs.
5-99
(March
10,
1999)
the
years
he
attempted
to
collect
the
debt,
the
debtor
had
property
the
title
of
which
was
in
dispute
but
which
would
enable
him
to
pay
his
debts
when
the
title
was
cleared,
SUBJECT
:
Implementing
Section
34(E)
of
the
Tax
Code
of
1997
on
the
Requirements
the
creditor
would
be
entitled
to
defer
the
deduction
on
the
ground
that
there
was
no
for
Deductibility
of
Bad
Debts
from
Gross
Income
genuine
ascertainment
of
worthlessness.
Thus,
accounts
receivable,
the
amount
whereof
is
insignificant
and
the
collection
of
TO
:
REVENUE
REGULATIONS
NO.
05-99
which
through
court
action
may
be
more
costly
to
the
taxpayer,
may
be
written-off
as
All
Internal
Revenue
Officers
and
Others
Concerned
bad
debts
even
without
conclusive
evidence
that
the
taxpayer's
receivable
from
a
debtor
has
definitely
become
worthless.
SECTION
1.
Scope.
Pursuant
to
the
provisions
of
Section
244
of
the
Tax
Code
of
1997,
these
Good
faith
does
not
require
that
the
taxpayer
be
an
"incorrigible
optimist"
but
on
the
regulations
are
hereby
promulgated
to
implement
the
provisions
of
Section
34(E)
of
the
other
hand,
he
may
not
be
unduly
pessimistic.
Creditors
do
not
have
to
wait
until
some
same
Code
on
the
requirements
for
deductibility
of
bad
debts
from
the
gross
income
of
48
TAXATION
1
ATTY.
BELLO
ALC
D
2017
turn
of
the
wheel
of
fortune
may
bring
their
debtors
into
affluence.
The
taxpayer
may
from
the
debtor
and
who
shall
issue
a
statement
under
oath
showing
the
propriety
of
strike
a
middle
course
between
pessimism
and
optimism
and
determine
debts
to
be
the
deductions
thereon
made
for
alleged
bad
debts.
Thus,
where
the
surrounding
worthless
in
the
exercise
of
sound
business
judgment
based
upon
as
complete
circumstances
indicate
that
a
debt
is
and
uncollectible
and
that
legal
action
to
enforce
information
as
is
reasonably
ascertainable.
The
taxpayer
need
not
have
perfect
payment
would
in
all
probability
not
result
in
the
satisfaction
of
execution
on
a
discernment.
judgment,
a
showing
of
those
facts
will
be
sufficient
evidence
of
the
worthlessness
of
the
debt
for
the
purpose
of
deduction.
d.
"Actually
charged
off
from
the
taxpayers
books
of
accounts"
This
phrase
means
that
the
amount
of
money
lent
by
the
taxpayer
(in
the
course
of
his
business,
trade
or
Exception:
In
the
case
of
banks,
however,
in
lieu
of
requisite
No.
5
above,
the
Bangko
profession)
to
his
debtor
had
been
recorded
in
his
books
of
account
as
a
receivable
has
Sentral
ng
Pilipinas
(BSP),
thru
its
Monetary
Board,
shall
ascertain
the
worthlessness
and
actually
become
worthless
as
of
the
end
of
the
taxable
year,
that
the
said
uncollectibility
of
the
bad
debts
and
it
shall
approve
the
writing
off
of
the
said
receivable
has
been
cancelled
and
written-off
from
the
said
taxpayer's
books
of
account.
indebtedness
from
the
banks'
books
of
accounts
at
the
end
of
the
taxable
year.
The
A
mere
recording
in
the
taxpayer's
books
of
account
of
estimated
uncollectible
accounts
bank
though
should
still
comply
with
requisites
Nos.
1-4
as
enumerated
above
before
it
does
not
constitute
a
write-off
of
the
said
receivable,
hence,
shall
not
be
a
valid
basis
for
can
avail
of
the
benefit
of
deduction.
its
deduction
as
a
bad
debt
expense.
In
no
case
may
any
bad
debt
deduction
be
allowed
unless
the
facts
pertaining
to
the
money
or
property
lent
and
its
cancellation
or
write- Also,
in
no
case
may
a
receivable
from
an
insurance
or
surety
company
be
written-off
off
from
the
taxpayer's
accounting
records,
after
having
been
determined
that
the
same
from
the
taxpayer's
books
and
claimed
as
bad
debts
deduction
unless
such
company
has
has
actually
become
worthless,
have
been
complied
with
by
the
taxpayer.
been
declared
closed
due
to
insolvency
or
for
any
such
similar
reason
by
the
Insurance
Commissioner.
cda
SECTION
3.
Requisites
for
Valid
Deduction
of
Bad
Debts
From
Gross
income.
General
Rule.
In
general,
the
requisites
for
deductibility
of
bad
debts
are:
SECTION
4.
Tax
Benefit
Rule.
The
recovery
of
bad
debts
previously
allowed
as
deduction
in
the
preceding
year
or
years
shall
be
included
as
part
of
the
taxpayer's
gross
(1)
There
must
be
an
existing
indebtedness
due
to
the
taxpayer
which
must
be
valid
and
income
in
the
year
of
such
recovery
to
the
extent
of
the
income
tax
benefit
of
said
legally
demandable;
deduction.
(2)
The
same
must
be
connected
with
the
taxpayer's
trade,
business
or
practice
of
Example:
If
in
the
year
the
taxpayer
claimed
deduction
of
bad
debts
written-off,
he
profession;
realized
a
reduction
of
the
income
tax
due
from
him
on
account
of
the
said
deduction,
his
subsequent
recovery
thereof
from
his
debtor
shall
be
treated
as
a
receipt
of
realized
(3)
The
same
must
not
be
sustained
in
a
transaction
entered
into
between
related
taxable
income.
Conversely,
if
the
said
taxpayer
did
not
benefit
from
the
deduction
of
parties
enumerated
under
Sec.
36(B)
of
the
Tax
Code
of
1997;
the
said
bad
debt
written-off
because
it
did
not
result
to
any
reduction
of
his
income
tax
in
the
year
of
such
deduction
(i.e.
where
the
result
of
his
business
operation
was
a
net
(4)
The
same
must
be
actually
charged
off
the
books
of
accounts
of
the
taxpayer
as
of
loss
even
without
deduction
of
the
bad
debts
written-off),
then
his
subsequent
recovery
the
end
of
the
taxable
year;
and
thereof
shall
be
treated
as
a
mere
recovery
or
a
return
of
capital,
hence,
not
treated
as
receipt
of
realized
taxable
income.
(5)
The
same
must
be
actually
ascertained
to
be
worthless
and
uncollectible
as
of
the
end
of
the
taxable
year.
SECTION
5.
Securities
Becoming
Worthless.
If
securities,
as
defined
under
Sec.
2(b)
hereof,
held
as
capital
asset,
are
ascertained
to
be
worthless
and
charged
off
within
the
Before
a
taxpayer
may
charge
off
and
deduct
a
debt,
he
must
ascertain
and
be
able
to
taxable
year,
the
loss
resulting
therefrom
shall
be
considered
as
a
loss
from
the
sale
or
demonstrate
with
reasonable
degree
of
certainty
the
uncollectibility
of
the
debt.
The
exchange
of
capital
asset
made
on
the
last
day
of
such
taxable
year.
The
taxpayer,
Commissioner
of
Internal
Revenue
will
consider
all
pertinent
evidence,
including
the
however,
has
to
prove
through
clear
and
convincing
evidence
that
the
securities
are
in
value
of
the
collateral,
if
any,
securing
the
debt
and
the
financial
condition
of
the
debtor
fact
worthless.
in
determining
whether
a
debt
is
worthless,
or
the
assigning
of
the
case
for
collection
to
This
rule,
however,
is
not
true
in
the
case
of
banks
or
trust
companies
incorporated
an
independent
collection
lawyer
who
is
not
under
the
employ
of
the
taxpayer
and
who
under
the
laws
of
the
Philippines,
a
substantial
part
of
whose
business
is
the
receipt
of
shall
report
on
the
legal
obstacle
and
the
virtual
impossibility
of
collecting
the
same
deposits.
49
TAXATION
1
ATTY.
BELLO
ALC
D
2017
life
tenant.
In
the
case
of
property
held
in
trust,
the
allowable
deduction
shall
be
SECTION6.
Repealing
Clause.
The
provision
of
any
revenue
regulations,
revenue
apportioned
between
the
income
beneficiaries
and
the
trustees
in
accordance
with
the
memorandum
order,
revenue
memorandum
circular
or
any
other
revenue
issuances
pertinent
provisions
of
the
instrument
creating
the
trust,
or
in
the
absence
of
such
inconsistent
with
these
Regulations
are
hereby
repealed,
amended,
or
modified
provisions,
on
the
basis
of
the
trust
income
allowable
to
each.
accordingly.
(2)
Use
of
Certain
Methods
and
Rates.
The
term
reasonable
allowance
as
used
in
the
SECTION
7.
Effectivity
Clause.
These
Regulations
shall
take
effect
fifteen
(15)
days
preceding
paragraph
shall
include,
but
not
limited
to,
an
allowance
computed
in
after
publication
in
any
newspaper
of
general
circulation.
accordance
with
rules
and
regulations
prescribed
by
the
Secretary
of
Finance,
upon
recommendation
of
the
Commissioner,
under
any
of
the
following
methods:
Phil.
Refining
Co.
v.
CA
(May
8,
1996)
Mere
testimony
of
the
accountant
of
the
TP
explaining
the
worthlessness
of
the
(a)
The
straight-line
method;(b)
Declining-balance
method,
using
a
rate
not
exceeding
debts
is
self-serving;
worthlessness
of
debts
sought
to
be
deducted
must
be
twice
the
rate
which
would
have
been
used
had
the
annual
allowance
been
computed
substantiated
under
the
method
described
in
Subsection
(F)
(1);(c)
The
sum-of-the-years-digit
method;
Mere
allegations
cannot
prove
the
worthlessness
of
debts
sought
to
be
deducted;
and(d)
any
other
method
which
may
be
prescribed
by
the
Secretary
of
Finance
upon
no
documentary
evidence
presented
(e.g.,
collection
letters,
field
reports,
referral
recommendation
of
the
Commissioner.
of
letter
to
lawyers,
police
report
that
owners
bankrupt
due
to
fire
that
engulfed
store
or
that
the
owner
was
murdered,
etc.)
(3)
Agreement
as
to
Useful
Life
on
Which
Depreciation
Rate
is
Based.
Where
under
Steps
to
be
undertaken
generally
by
the
TP
to
prove
that
he
exerted
diligent
efforts
rules
and
regulations
prescribed
by
the
Secretary
of
Finance
upon
recommendation
of
to
collect
the
debts
the
Commissioner,
the
taxpayer
and
the
Commissioner
have
entered
into
an
agreement
-
sending
of
statement
of
accounts
in
writing
specifically
dealing
with
the
useful
life
and
rate
of
depreciation
of
any
-
sending
of
collection
letters
property,
the
rate
so
agreed
upon
shall
be
binding
on
both
the
taxpayer
and
the
-
giving
the
account
to
a
lawyer
for
collection
national
Government
in
the
absence
of
facts
and
circumstances
not
taken
into
-
filing
a
collection
case
in
court
consideration
during
the
adoption
of
such
agreement.
The
responsibility
of
establishing
Fernandez
Hermanos,
Inc.
v.
CIR
(Sept.
30,
1969)
the
existence
of
such
facts
and
circumstances
shall
rest
with
the
party
initiating
the
No
bad
debt
could
arise
where
there
is
no
valid
and
subsisting
debt
modification.
Any
change
in
the
agreed
rate
and
useful
life
of
the
depreciable
property
There
was
no
due
date
as
specified
in
the
agreement
shall
not
be
effective
for
taxable
years
prior
to
the
taxable
Case
involved
advances
made
by
one
company
to
an
affiliate
year
in
which
notice
in
writing
by
certified
mail
or
registered
mail
is
served
by
the
party
Lender-TP
did
not
expect
to
be
repaid
initiating
such
change
to
the
other
party
to
the
agreement:
In
consideration
for
the
advances,
TP
entitled
to
15%
of
net
profits
Thus,
if
there
were
no
profits,
there
was
no
obligation
to
repay
the
advances
Provided,
however,
that
where
the
taxpayer
has
adopted
such
useful
life
and
depreciation
rate
for
any
depreciable
and
claimed
the
depreciation
expenses
as
F. Depreciation
deduction
from
his
gross
income,
without
any
written
objection
on
the
part
of
the
Commissioner
or
his
duly
authorized
representatives,
the
aforesaid
useful
life
and
Sec.
34(F)
depreciation
rate
so
adopted
by
the
taxpayer
for
the
aforesaid
depreciable
asset
shall
be
considered
binding
for
purposes
of
this
Subsection.
(F)
Depreciation.
(4)
Depreciation
of
Properties
Used
in
Petroleum
Operations.
An
allowance
for
(1)
General
Rule.
There
shall
be
allowed
as
a
depreciation
deduction
a
reasonable
depreciation
in
respect
of
all
properties
directly
related
to
production
of
petroleum
allowance
for
the
exhaustion,
wear
and
tear
(including
reasonable
allowance
for
initially
placed
in
service
in
a
taxable
year
shall
be
allowed
under
the
straight-line
or
obsolescence)
of
property
used
in
the
trade
or
business.
In
the
case
of
property
held
by
declining-balance
method
of
depreciation
at
the
option
of
the
service
contractor.
one
person
for
life
with
remainder
to
another
person,
the
deduction
shall
be
computed
as
if
the
life
tenant
were
the
absolute
owner
of
the
property
and
shall
be
allowed
to
the
However,
if
the
service
contractor
initially
elects
the
declining-balance
method,
it
may
at
50
TAXATION
1
ATTY.
BELLO
ALC
D
2017
(b)
Depreciated
over
any
number
of
years
between
five
(5)
years
and
the
expected
life
if
(G)
Depletion
of
Oil
and
Gas
Wells
and
Mines.
-
the
latter
is
more
than
ten
(10)
years,
and
the
depreciation
thereon
allowed
as
deduction
from
taxable
income:
Provided,
That
the
contractor
notifies
the
(1)
In
General.
-
In
the
case
of
oil
and
gas
wells
or
mines,
a
reasonable
allowance
for
Commissioner
at
the
beginning
of
the
depreciation
period
which
depreciation
rate
depletion
or
amortization
computed
in
accordance
with
the
cost-depletion
method
shall
allowed
by
this
Section
will
be
used.
be
granted
under
rules
and
regulations
to
be
prescribed
by
the
Secretary
of
finance,
upon
recommendation
of
the
Commissioner.
Provided,
That
when
the
allowance
for
(6)
Depreciation
Deductible
by
Nonresident
Aliens
Engaged
in
Trade
or
Business
or
depletion
shall
equal
the
capital
invested
no
further
allowance
shall
be
granted:
Resident
Foreign
Corporations.
In
the
case
of
a
nonresident
alien
individual
engaged
in
Provided,
further,
That
after
production
in
commercial
quantities
has
commenced,
trade
or
business
or
resident
foreign
corporation,
a
reasonable
allowance
for
the
certain
intangible
exploration
and
development
drilling
costs:
(a)
shall
be
deductible
in
deterioration
of
Property
arising
out
of
its
use
or
employment
or
its
non-use
in
the
the
year
incurred
if
such
expenditures
are
incurred
for
non-producing
wells
and/or
business
trade
or
profession
shall
be
permitted
only
when
such
property
is
located
in
mines,
or
(b)
shall
be
deductible
in
full
in
the
year
paid
or
incurred
or
at
the
election
of
the
Philippines.
the
taxpayer,
may
be
capitalized
and
amortized
if
such
expenditures
incurred
are
for
producing
wells
and/or
mines
in
the
same
contract
area.
From
a
valuation
standpoint:
decrease
in
value
of
assets
through
the
passage
of
time,
wear
and
tear
of
obsolescence
'Intangible
costs
in
petroleum
operations'
refers
to
any
cost
incurred
in
petroleum
From
financial
reporting/tax
standpoint:
allocation
of
the
cost
of
an
asset
to
operations
which
in
itself
has
no
salvage
value
and
which
is
incidental
to
and
necessary
periods
in
which
the
asset
expected
to
be
used
for
the
drilling
of
wells
and
preparation
of
wells
for
the
production
of
petroleum:
Provided,
That
said
costs
shall
not
pertain
to
the
acquisition
or
improvement
of
property
Basilan
Estates,
Inc.
v.
CIR
(Sept.
5,
1967)
of
a
character
subject
to
the
allowance
for
depreciation
except
that
the
allowances
for
Basilan
Estates,
Inc.
claimed
deductions
for
the
depreciation
of
its
assets
up
to
1949
depreciation
on
such
property
shall
be
deductible
under
this
Subsection.
on
the
basis
of
their
acquisition
cost
As
of
1/1/50
it
changed
the
depreciable
value
of
said
assets
by
increasing
it
to
Any
intangible
exploration,
drilling
and
development
expenses
allowed
as
a
deduction
in
conform
with
the
increase
in
cost
for
their
replacement
computing
taxable
income
during
the
year
shall
not
be
taken
into
consideration
in
Accordingly,
from
1950
to
1953
it
deducted
from
gross
income
the
value
of
computing
the
adjusted
cost
basis
for
the
purpose
of
computing
allowable
cost
depreciation
computed
on
the
reappraised
value
depletion.
Issue:
Whether
depreciation
shall
be
determined
on
the
acquisition
cost
or
on
the
re-appraised
value
of
the
assets
(2)
Election
to
Deduct
Exploration
and
Development
Expenditures.
-
In
computing
Held:
Income
ax
law
does
not
authorize
the
depreciation
of
an
asset
beyond
its
taxable
income
from
mining
operations,
the
taxpayer
may
at
his
option,
deduct
51
TAXATION
1
ATTY.
BELLO
ALC
D
2017
exploration
and
development
expenditures
accumulated
as
cost
or
adjusted
basis
for
"solely
a
matter
of
legislative
grace."
22(22)
Hence,
the
taxpayer
has
the
burden
of
cost
depletion
as
of
date
of
prospecting,
as
well
as
exploration
and
development
justifying
the
allowance
of
any
deduction
claimed.
23(23)
As
in
connection
with
all
expenditures
paid
or
incurred
during
the
taxable
year:
Provided,
That
the
amount
other
tax
controversies,
the
burden
of
proof
to
show
that
a
disallowance
of
deductible
for
exploration
and
development
expenditures
shall
not
exceed
twenty-five
depletion
by
the
Commissioner
is
incorrect
or
that
an
allowance
made
is
percent
(25%)
of
the
net
income
from
mining
operations
computed
without
the
benefit
inadequate
is
upon
the
taxpayer,
and
this
is
true
with
respect
to
the
value
of
the
of
any
tax
incentives
under
existing
laws.
The
actual
exploration
and
development
property
constituting
the
basis
of
the
deduction.
24(24)
This
burden-of-proof
rule
expenditures
minus
twenty-five
percent
(25%)
of
the
net
income
from
mining
shall
be
has
been
frequently
applied
and
a
value
claimed
has
been
disallowed
for
lack
of
carried
forward
to
the
succeeding
years
until
fully
deducted.
evidence.
It
had
burden
of
establishing
the
components
of
the
amount
of
P1,738,974.57:
The
election
by
the
taxpayer
to
deduct
the
exploration
and
development
expenditures
is
what
were
the
particular
expenses
made
and
the
corresponding
amount
of
each,
so
irrevocable
and
shall
be
binding
in
succeeding
taxable
years.
that
it
may
be
determined
whether
the
expenses
were
actually
made
and
whether
the
items
are
properly
part
of
cost
of
mine
development,
or
are
actually
'Net
income
from
mining
operations',
as
used
in
this
Subsection,
shall
mean
gross
depreciable
items.
income
from
operations
less
'allowable
deductions'
which
are
necessary
or
related
to
mining
operations.
'Allowable
deductions'
shall
include
mining,
milling
and
marketing
H. Charitable
and
Other
Contributions
expenses,
and
depreciation
of
properties
directly
used
in
the
mining
operations.
This
paragraph
shall
not
apply
to
expenditures
for
the
acquisition
or
improvement
of
Sec.
34(H)
property
of
a
character
which
is
subject
to
the
allowance
for
depreciation.
(H)
Charitable
and
Other
Contributions.
-
In
no
case
shall
this
paragraph
apply
with
respect
to
amounts
paid
or
incurred
for
the
exploration
and
development
of
oil
and
gas.
(1)
In
General.
-
Contributions
or
gifts
actually
paid
or
made
within
the
taxable
year
to,
or
for
the
use
of
the
Government
of
the
Philippines
or
any
of
its
agencies
or
any
political
The
term
'exploration
expenditures'
means
expenditures
paid
or
incurred
for
the
subdivision
thereof
exclusively
for
public
purposes,
or
to
accredited
domestic
purpose
of
ascertaining
the
existence,
location,
extent
or
quality
of
any
deposit
of
ore
or
corporation
or
associations
organized
and
operated
exclusively
for
religious,
charitable,
other
mineral,
and
paid
or
incurred
before
the
beginning
of
the
development
stage
of
scientific,
youth
and
sports
development,
cultural
or
educational
purposes
or
for
the
the
mine
or
deposit.
rehabilitation
of
veterans,
or
to
social
welfare
institutions,
or
to
non-government
organizations,
in
accordance
with
rules
and
regulations
promulgated
by
the
Secretary
of
The
term
'development
expenditures'
means
expenditures
paid
or
incurred
during
the
finance,
upon
recommendation
of
the
Commissioner,
no
part
of
the
net
income
of
development
stage
of
the
mine
or
other
natural
deposits.
The
development
stage
of
a
which
inures
to
the
benefit
of
any
private
stockholder
or
individual
in
an
amount
not
in
mine
or
other
natural
deposit
shall
begin
at
the
time
when
deposits
of
ore
or
other
excess
of
ten
percent
(10%)
in
the
case
of
an
individual,
and
five
percent
(%)
in
the
case
minerals
are
shown
to
exist
in
sufficient
commercial
quantity
and
quality
and
shall
end
of
a
corporation,
of
the
taxpayer's
taxable
income
derived
from
trade,
business
or
upon
commencement
of
actual
commercial
extraction.
profession
as
computed
without
the
benefit
of
this
and
the
following
subparagraphs.
(3)
Depletion
of
Oil
and
Gas
Wells
and
Mines
Deductible
by
a
Nonresident
Alien
(2)
Contributions
Deductible
in
Full.
-
Notwithstanding
the
provisions
of
the
preceding
individual
or
Foreign
Corporation.
-
In
the
case
of
a
nonresident
alien
individual
subparagraph,
donations
to
the
following
institutions
or
entities
shall
be
deductible
in
engaged
in
trade
or
business
in
the
Philippines
or
a
resident
foreign
corporation,
full;
allowance
for
depletion
of
oil
and
gas
wells
or
mines
under
paragraph
(1)
of
this
Subsection
shall
be
authorized
only
in
respect
to
oil
and
gas
wells
or
mines
located
(a)
Donations
to
the
Government.
-
Donations
to
the
Government
of
the
Philippines
or
within
the
Philippines.
to
any
of
its
agencies
or
political
subdivisions,
including
fully-owned
government
corporations,
exclusively
to
finance,
to
provide
for,
or
to
be
used
in
undertaking
priority
Consolidated
Mines
Inc
v.
CTA
(Aug.
29,
1974)
activities
in
education,
health,
youth
and
sports
development,
human
settlements,
As
an
income
tax
concept,
depletion
is
wholly
a
creation
of
the
statute
21(21)
science
and
culture,
and
in
economic
development
according
to
a
National
Priority
Plan
52
TAXATION
1
ATTY.
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determined
by
the
National
Economic
and
Development
Authority
(NEDA),
In
(i)
Any
amount
in
cash
or
in
kind
(including
administrative
expenses)
paid
or
utilized
to
consultation
with
appropriate
government
agencies,
including
its
regional
development
accomplish
one
or
more
purposes
for
which
the
accredited
nongovernment
councils
and
private
philantrophic
persons
and
institutions:
Provided,
That
any
donation
organization
was
created
or
organized.(ii)
Any
amount
paid
to
acquire
an
asset
used
(or
which
is
made
to
the
Government
or
to
any
of
its
agencies
or
political
subdivisions
not
in
held
for
use)
directly
in
carrying
out
one
or
more
purposes
for
which
the
accredited
accordance
with
the
said
annual
priority
plan
shall
be
subject
to
the
limitations
nongovernment
organization
was
created
or
organized.
prescribed
in
paragraph
(1)
of
this
Subsection;
An
amount
set
aside
for
a
specific
project
which
comes
within
one
or
more
purposes
of
(b)
Donations
to
Certain
Foreign
Institutions
or
International
Organizations.
-
donations
the
accredited
nongovernment
organization
may
be
treated
as
a
utilization,
but
only
if
to
foreign
institutions
or
international
organizations
which
are
fully
deductible
in
at
the
time
such
amount
is
set
aside,
the
accredited
nongovernment
organization
has
pursuance
of
or
in
compliance
with
agreements,
treaties,
or
commitments
entered
into
established
to
the
satisfaction
of
the
Commissioner
that
the
amount
will
be
paid
for
the
by
the
Government
of
the
Philippines
and
the
foreign
institutions
or
international
specific
project
within
a
period
to
be
prescribed
in
rules
and
regulations
to
be
organizations
or
in
pursuance
of
special
laws;
promulgated
by
the
Secretary
of
Finance,
upon
recommendation
of
the
Commissioner,
but
not
to
exceed
five
(5)
years,
and
the
project
is
one
which
can
be
better
(c)
Donations
to
Accredited
Nongovernment
Organizations.
-
the
term
'nongovernment
accomplished
by
setting
aside
such
amount
than
by
immediate
payment
of
funds.
organization'
means
a
non
profit
domestic
corporation:
(3)
Valuation.
-
The
amount
of
any
charitable
contribution
of
property
other
than
(1)
Organized
and
operated
exclusively
for
scientific,
research,
educational,
character- money
shall
be
based
on
the
acquisition
cost
of
said
property.
building
and
youth
and
sports
development,
health,
social
welfare,
cultural
or
charitable
purposes,
or
a
combination
thereof,
no
part
of
the
net
income
of
which
inures
to
the
(4)
Proof
of
Deductions.
-
Contributions
or
gifts
shall
be
allowable
as
deductions
only
if
benefit
of
any
private
individual;
verified
under
the
rules
and
regulations
prescribed
by
the
Secretary
of
Finance,
upon
recommendation
of
the
Commissioner.
(2)
Which,
not
later
than
the
15th
day
of
the
third
month
after
the
close
of
the
accredited
nongovernment
organizations
taxable
year
in
which
contributions
are
When
are
charitable
and
other
contributions
deductible
in
full?
received,
makes
utilization
directly
for
the
active
conduct
of
the
activities
constituting
Donations
to
the
National
Government,
its
agencies
or
political
subdivisions
the
purpose
or
function
for
which
it
is
organized
and
operated,
unless
an
extended
and
fully-owned
government
corporations
period
is
granted
by
the
Secretary
of
Finance
in
accordance
with
the
rules
and
regulations
to
be
promulgated,
upon
recommendation
of
the
Commissioner;
PARTIAL
FULL
Donation
exclusively
for
public
purpose
Donation
for
exclusive
use
in
undertaking
(3)
The
level
of
administrative
expense
of
which
shall,
on
an
annual
basis,
conform
with
priority
activities
in:
the
rules
and
regulations
to
be
prescribed
by
the
Secretary
of
Finance,
upon
(i)
education
recommendation
of
the
Commissioner,
but
in
no
case
to
exceed
thirty
percent
(30%)
of
(ii)
health
the
total
expenses;
and
(iii)
youth
and
sports
devt
(iv)
human
setlements
(v)
science
and
culture
and
(4)
The
assets
of
which,
in
the
even
of
dissolution,
would
be
distributed
to
another
(vi)
economit
devt
nonprofit
domestic
corporation
organized
for
similar
purpose
or
purposes,
or
to
the
In
accordance
with
NPP
of
NEDA
state
for
public
purpose,
or
would
be
distributed
by
a
court
to
another
organization
to
be
used
in
such
manner
as
in
the
judgment
of
said
court
shall
best
accomplish
the
general
purpose
for
which
the
dissolved
organization
was
organized.
o If
not
compliant
with
2
reqts
for
full
deductibility,
still
deductible
but
with
limitation
(10%/5%
cap)
Subject
to
such
terms
and
conditions
as
may
be
prescribed
by
the
Secretary
of
Finance,
the
term
'utilization'
means:
53
TAXATION
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Donations
to
certain
domestic
corporations
or
associations,
social
welfare
institutions,
NGO
Donor- Deductible
taxpayer
Govt
In
full
PARTIAL
FULL
Donations
to
Donation
to
accredited
NGOs
organized
(1) accredited
domestic
and
operated
exclusively
for
Deductible
Certain
Foreign
corporations
or
associations
(i)
scientific
In
full
Institutions
organized
and
operated
and
(ii)
research
exclusively
for
(iii)
educational
Deductible
(i) religious
(iv)
character-building
and
youth
and
Accredited
In
full
(ii) charitable
sports
development
NGOs/Donee
(iii) scientific
(v)
health
Institutions
(iv) youth
and
sports
devt
(vi)
social
welfare
(v) cultural
or
educational
(vii)
cultural
or
charitable
purposes,
or
a
purposes,
or
combination
thereof,
no
part
of
the
net
(vi) rehabilitation
of
veterans
income
of
which
inures
to
the
benefit
of
Others
Not
(2) social
welfare
institutions
any
private
individual
deductible
(3) NGOs
Direct
utilization
of
the
donation
on
or
before
the
15th
day
of
the
3rd
month
following
the
close
of
the
taxable
year
Annual
administrative
expense
must
not
exceed
30%
Donations
to
the
National
Government,
etc.
conditions
for
full
deductibility:
Distibution
of
assets
in
case
of
dissolution
Must
be
exclusive
use
in
undertaking
priority
activities
in
to
a
similar
institution,
to
the
state
for
o Education
public
purposes,
and
by
the
court
for
o Health
another
org.
to
be
used
in
manner
that
o Youth
and
sports
development
would
best
accomplish
the
general
o Human
settlements
purpose
of
the
dissolved
org
o Science
and
culture
o Economic
development
Donations
foreign
institutions
or
international
organizations
which
fully
AND,
in
accordance
with
the
NPP
of
the
NEDA
deductible
in
compliance
with
existing
treaties
or
special
law
o If
not
compliant
with
the
2
reqts
above,
still
deductible
but
with
limitation
(10%/5%
of
taxable
income
without
the
benefit
of
the
charitable
contribution)
Donations
to
accredited
NGOs/done
institutions:
conditions
for
full
deductibility
Organized
and
operated
exclusively
for
scientific,
research,
educational,
character-building
and
youth
and
sports
development,
health,
social
welfare,
cultural
or
charitable
purposes,
or
a
combination
thereof,
no
part
of
the
net
income
of
which
inures
to
the
benefit
of
any
private
individual
54
TAXATION
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ATTY.
BELLO
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Direct
utilization
of
the
donation
on
or
before
the
15th
day
of
the
third
month
from
such
expenditures).
following
the
close
of
the
taxable
year
of
the
done
institution
Annual
administrative
expense
must
not
exceed
30%
The
election
provided
by
paragraph
(2)
hereof
may
be
made
for
any
taxable
year
Distribution
of
assets
in
case
of
dissolution
to
a
similar
institution,
to
the
state
beginning
after
the
effectivity
of
this
Code,
but
only
if
made
not
later
than
the
time
for
public
purposes,
and
by
a
court
of
law
to
another
organization
to
be
used
in
prescribed
by
law
for
filing
the
return
for
such
taxable
year.
The
method
so
elected,
and
manner
that
would
best
accomplish
the
general
purposes
of
the
dissolved
org.
the
period
selected
by
the
taxpayer,
shall
be
adhered
to
in
computing
taxable
income
for
the
taxable
year
for
which
the
election
is
made
and
for
all
subsequent
taxable
years
unless
with
the
approval
of
the
Commissioner,
a
change
to
a
different
method
is
BIR
Rul.
19-01
(May
10,
2001)
authorized
with
respect
to
a
part
or
all
of
such
expenditures.
The
election
shall
not
apply
Whether
or
not
international
organizations
with
home
offices
based
abroad
are
to
any
expenditure
paid
or
incurred
during
any
taxable
year
for
which
the
taxpayer
qualified
to
be
granted
donee
institution
status
makes
the
election.
A
non-stock,
non-profit
corporation
or
organization
must
be
created
or
organized
under
Philippine
Laws
and
that
an
NGO
must
be
a
non-profit
domestic
corporation,
(3)
Limitations
on
deduction.
-
This
Subsection
shall
not
apply
to:
this
Office
is
of
the
opinion
that
a
foreign
corporation,
like
Conservation
International,
whether
resident
or
non-resident,
cannot
be
accredited
as
donee
(a)
Any
expenditure
for
the
acquisition
or
improvement
of
land,
or
for
the
improvement
institution.
of
property
to
be
used
in
connection
with
research
and
development
of
a
character
which
is
subject
to
depreciation
and
depletion;
and
I. Research
and
Development
(b)
Any
expenditure
paid
or
incurred
for
the
purpose
of
ascertaining
the
existence,
Sec.
34(I)
location,
extent,
or
quality
of
any
deposit
of
ore
or
other
mineral,
including
oil
or
gas.
(I)
Research
and
Development.
-
In
general
deductible
as
ordinary
and
necessary
expenses
during
the
year
when
R&D
expenses
paid,
or
incurred,
provided:
(1)
In
General.
-
a
taxpayer
may
treat
research
or
development
expenditures
which
are
o In
connection
with
the
trade,
business
or
profession
paid
or
incurred
by
him
during
the
taxable
year
in
connection
with
his
trade,
business
or
o Not
chargeable
to
a
capital
account
profession
as
ordinary
and
necessary
expenses
which
are
not
chargeable
to
capital
Election
to
defer
deduction
TP
may
defer
outright
deduction
and
elect
to
account.
The
expenditures
so
treated
shall
be
allowed
as
deduction
during
the
taxable
spread
out
deduction
over
a
period
not
less
than
60
months
(beginning
with
year
when
paid
or
incurred.
the
month
in
which
TP
first
realizes
benefits
from
such
expenditures)
o In
connection
with
trade,
business
or
profession
(2)
Amortization
of
Certain
Research
and
Development
Expenditures.
-
At
the
election
o Chargeable
to
a
capital
account,
but
not
to
property
of
a
character
of
the
taxpayer
and
in
accordance
with
the
rules
and
regulations
to
be
prescribed
by
the
which
is
subject
to
depreciation
or
depletion
Secretary
of
Finance,
upon
recommendation
of
the
Commissioner,
the
following
o Not
treated
as
outright
expense
research
and
development
expenditures
may
be
treated
as
deferred
expenses:
34(I)
and
election
to
defer
not
applicable
to
the
ff:
o Expenditure
for
acquisition
or
improvement
of
land
(expense
is
(a)
Paid
or
incurred
by
the
taxpayer
in
connection
with
his
trade,
business
or
capitalized
as
part
of
the
cost
of
the
land)
profession;(b)
Not
treated
as
expenses
under
paragraph
91)
hereof;
and(c)
Chargeable
o Improvement
of
property
to
be
used
in
connection
with
R&D
of
a
to
capital
account
but
not
chargeable
to
property
of
a
character
which
is
subject
to
character
subject
to
depreciation
or
depletion
depreciation
or
depletion.
o Expenditure
for
exploration
activities
(minerals,
oil
&
gas,
etc.)
In
computing
taxable
income,
such
deferred
expenses
shall
be
allowed
as
deduction
ratably
distributed
over
a
period
of
not
less
than
sixty
(60)
months
as
may
be
elected
by
3M
Phil.,
Inc.
v.
CIR
(Sept.
26,
1988)
the
taxpayer
(beginning
with
the
month
in
which
the
taxpayer
first
realizes
benefits
Although
the
Tax
Code
allows
payments
of
royalty
to
be
deducted
from
gross
income
as
55
TAXATION
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business
expenses,
it
is
CB
Circular
No.
393
that
defines
what
royalty
payments
are
with
this
Section
58
and
81
of
this
Code.
proper.
Hence,
improper
payments
of
royalty
are
not
deductible
as
legitimate
business
expenses.
34(A)(1)(b)
ordinary
and
necessary
business
expenses
must
be
substantiated
by
sufficient
evidence
(e.g.,
O/Rs
and
other
adequate
business
records);
J. Pension
Trusts
amount
of
expense
and
connection
with
trade,
business
or
profession
Reasonable
private
benefit
plan
34(K)
deduction
will
be
disallowed
if
TP
fails
to
withhold
taxes,
as
may
be
o Defined
benefit
plan
required
by
law
or
regulations,
and
remit
such
withheld
taxes
to
the
BIR
Benefits
to
be
received
by
retiring
employees
are
defined
or
fixed
upon
retirement
(e.g.,
2
months
salary
for
every
year
of
L. Optional
Standard
Deduction
service)
Employer
bears
investment
risk,
but
will
benefit
from
surpluses
Sec.
34(L)
o Defined
contribution
plan
(L)
Optional
Standard
Deduction.
-
In
lieu
of
the
deductions
allowed
under
the
Employers
annual
contribution
to
the
pension
plan
is
fixed
preceding
Subsections,
an
individual
subject
to
tax
under
Section
24,
other
than
a
Individual
accounts
are
set
up
for
participants
and
nonresident
alien,
may
elect
a
standard
deduction
in
an
amount
not
exceeding
ten
retirement
benefits
consist
of
aggregate
contributions
percent
(10%)
of
his
gross
income.
Unless
the
taxpayer
signifies
in
his
return
his
credited
to
individual
accounts
plus
investment
earnings
intention
to
elect
the
optional
standard
deduction,
he
shall
be
considered
as
having
Employee
bears
investment
risk
and
rewards
availed
himself
of
the
deductions
allowed
in
the
preceding
Subsections.
Such
election
Normal
cost
annual
employer
contributions
to
the
plan
(whether
defined
when
made
in
the
return
shall
be
irrevocable
for
the
taxable
year
for
which
the
return
is
benefit
or
defined
contribution)
deductible
as
ordinary
and
necessary
made:
Provided,
That
an
individual
who
is
entitled
to
and
claimed
for
the
optional
business
expenses
under
34(A)(1)
standard
deduction
shall
not
be
required
to
submit
with
his
tax
return
such
financial
Past
service
cost
deduction
is
spread
out
over
a
10-year
period
statements
otherwise
required
under
this
Code:
Provided,
further,
That
except
when
the
Commissioner
otherwise
permits,
the
said
individual
shall
keep
such
records
Sec.
34(J)
pertaining
to
his
gross
income
during
the
taxable
year,
as
may
be
required
by
the
rules
and
regulations
promulgated
by
the
Secretary
of
Finance,
upon
recommendation
of
the
(J)
Pension
Trusts.
-
An
employer
establishing
or
maintaining
a
pension
trust
to
provide
Commissioner.
for
the
payment
of
reasonable
pensions
to
his
employees
shall
be
allowed
as
a
Amendment
by
RA
9504:
deduction
(in
addition
to
the
contributions
to
such
trust
during
the
taxable
year
to
cover
the
pension
liability
accruing
during
the
year,
allowed
as
a
deduction
under
Subsection
(L)
Optional
Standard
Deduction.
-
In
lieu
of
the
deductions
allowed
under
the
preceding
(A)
(1)
of
this
Section
)
a
reasonable
amount
transferred
or
paid
into
such
trust
during
Subsections,
an
individual
subject
to
tax
under
Section
24,
other
than
a
nonresident
the
taxable
year
in
excess
of
such
contributions,
but
only
if
such
amount
(1)has
not
alien,
may
elect
a
standard
deduction
in
an
amount
not
exceeding
forty
percent
(40%)
theretofore
been
allowed
as
a
deduction,
and
(2)
is
apportioned
in
equal
parts
over
a
of
his
gross
sales
or
gross
receipts,
as
the
case
may
be.
In
the
case
of
a
corporation
period
of
ten
(10)
consecutive
years
beginning
with
the
year
in
which
the
transfer
or
subject
to
tax
under
section
27(A)
and
28(A)(1),
it
may
elect
a
standard
deduction
in
an
payment
is
made.
amount
not
exceeding
forty
percent
(40%)
of
it
gross
income
as
defined
in
Section
32
of
this
Code.
Unless
the
taxpayer
signifies
in
his
return
his
intention
to
elect
the
optional
K. Additional
Requirements
for
Deductibility
standard
deduction,
he
shall
be
considered
as
having
availed
himself
of
the
deductions
allowed
in
the
preceding
Subsections.
Such
election
when
made
in
the
return
shall
be
Sec.
34(K)
irrevocable
for
the
taxable
year
for
which
the
return
is
made:
Provided,
That
an
individual
who
is
entitled
to
and
claimed
for
the
optional
standard
shall
not
be
required
(K)
Additional
Requirements
for
Deductibility
of
Certain
Payments.
-
Any
amount
paid
to
submit
with
his
tax
return
such
financial
statements
otherwise
required
under
this
or
payable
which
is
otherwise
deductible
from,
or
taken
into
account
in
computing
gross
Code:
Provided,
further,
That
except
when
the
Commissioner
otherwise
permits,
the
income
or
for
which
depreciation
or
amortization
may
be
allowed
under
this
Section,
said
individual
shall
keep
such
records
pertaining
to
his
gross
sales
or
gross
receipts,
or
shall
be
allowed
as
a
deduction
only
if
it
is
shown
that
the
tax
required
to
be
deducted
the
said
corporation
shall
keep
such
records
pertaining
to
his
gross
income
as
defined
in
and
withheld
therefrom
has
been
paid
to
the
Bureau
of
Internal
Revenue
in
accordance
Section
32
of
this
Code
during
the
taxable
year,
as
may
be
required
by
the
rules
and
56
TAXATION
1
ATTY.
BELLO
ALC
D
2017
57
TAXATION
1
ATTY.
BELLO
ALC
D
2017
Nonresident
aliens
not
ETB
and
NRFCs
generally
subject
to
25/30%
flat
tax
on
V. TAXABLE
INCOME
Philippine
source
gros
income
Resident
citizen
taxable
on
a
net
basis
(with
the
benefit
of
deductions
and/or
SEC.
31.
Taxable
Income
Defined.
-
The
term
taxable
income
means
the
pertinent
items
personal
and
addl
exemptions)
of
gross
income
specified
in
this
Code,
less
the
deductions
and/or
personal
and
Resident
alien
taxable
on
a
net
basis
(with
the
benefit
of
deductions
and/or
additional
exemptions,
if
any,
authorized
for
such
types
of
income
by
this
Code
or
other
personal
and
addl
exemptions)
special
laws.
Nonresident
citizen
taxable
on
a
net
basis
basis
(with
the
benefit
of
deductions
and/or
personal
and
addl
exemptions)
Gross
Income
(
32(A))
P
xxx
Nonresident
alien
engaged
in
trade
or
business
in
the
Philippines
taxable
on
Less:
Deductions
(34;
itemized
or
OSD)
and/or
Addl
and
(xxx)
a
net
basis
(with
the
benefit
of
deductions
and/or
personal
and
addl
Personal
Exemptions
(
35)
exemptions)
Equals:
Taxable
Income
(
31)
P
xxx
Nonresident
alien
not
ETB
subject
to
flat
tax
of
25%
of
Philippines
gross
income
basis
(without
the
benefit
of
deductions
and/or
personal
and
addl
Individuals
earning
compensation
income
under
an
employer-employee
exemptions)
relationship:
Aliens
employed
by
RQHQs,
OBUs,
petroleum
service
contractors
subject
to
flat
tax
of
15%
on
Philippien
gross
income
(without
the
benefit
of
deductions
Gross
compensation
income
(
32(A)(1))
and/or
personal
and
addl
exemptions)
Less:
PPHI
(
34(M))
Less:
Personal
and
addl
exemptiosn
(
35)
Domestic
corporation
generally
taxable
on
a
net
basis
(with
the
benefit
of
Equals:
Taxable
Income
(
31)
deductions)
Resident
foreign
corporations
generally
taxable
on
a
net
basis
(with
the
Resident
citizens,
residents
aliens
and
nonresidents
citizens
ETB
or
exercising
a
benefit
of
deductions)
profession
Nonresident
foreign
corporations
generally
subject
to
35%
flat
tax
on
Philippine
gross
income
(without
the
benefit
of
deductions)
Gross
income
(
32)
Less:
Personal
and
addl
exemptions
(
35)
Less:
Itemized
deductions
or
optional
dtf.
Deduction
(
34)
Equals:
Taxable
income
(
31)
Domestic
corporations;
in
general
Gross
income
(
32)
Less:
itemized
deductions
or
OSD
(
34)
Equals:
Taxable
income
(
31)
Resident
foreign
corporations;
in
general:
Gross
income
(
32)
Less:
itemized
deductions
or
OSD
(
34)
Equals:
Taxable
income
(
31)
58
TAXATION
1
ATTY.
BELLO
ALC
D
2017
(A)
A
citizen
of
the
Philippines
residing
therein
is
taxable
on
all
income
derived
from
sources
within
and
without
the
Philippines;
(B)
A
nonresident
citizen
is
taxable
only
on
income
derived
from
sources
within
the
Philippines;
(C)
An
individual
citizen
of
the
Philippines
who
is
working
and
deriving
income
from
abroad
as
an
overseas
contract
worker
is
taxable
only
on
income
derived
from
sources
within
the
Philippines:
Provided,
That
a
seaman
who
is
a
citizen
of
the
Philippines
and
who
receives
compensation
for
services
rendered
abroad
as
a
member
of
the
complement
of
a
vessel
engaged
exclusively
in
international
trade
shall
be
treated
as
an
overseas
contract
worker;
(D)
An
alien
individual,
whether
a
resident
or
not
of
the
Philippines,
is
taxable
only
on
income
derived
from
sources
within
the
Philippines;
(E)
A
domestic
corporation
is
taxable
on
all
income
derived
from
sources
within
and
without
the
Philippines;
and
59
TAXATION
1
ATTY.
BELLO
ALC
D
2017
VII. INCOME
TAX
ON
INDIVIDUALS
Ramnani
v.
CIR
TP
won
a
money
judgment
in
the
amount
of
P65M
A. DEFINITIONS
CIR
sought
to
impose
a
30%
flat
tax
on
the
money
judgment
on
the
ground
that
TP
1. Resident
Citizens
and
Resident
Aliens
was
a
nonresident
alien
not
ETB
Held:
TP
is
a
resident
alien
(citing
Rev.
Regs.
25)
Sec.
22(F)
The
establishment
of
a
home
even
temporarily
here
in
the
Philippines
for
the
(F)
The
term
'resident
alien'
means
an
individual
whose
residence
is
within
the
accomplishment
of
a
purpose
even
if
he
has
the
intention
to
return
to
his
domicile
Philippines
and
who
is
not
a
citizen
thereof.
abroad
categorizes
on
individual
as
a
resident
Sec.
5,
Rev.
Regs.
2
TP
is
an
American
citizen
who
frequently
comes
to
the
Philippines
for
the
most
part
of
the
year
to
oversee
his
various
investments
as
shown
by
his
passport
entries
SECTION
5.
Definition.
A
"non-resident
alien
individual"
means
an
individual
The
BI
even
approved
the
change
of
his
status
of
admission
from
temporary
visitor
to
immigrant/resident
alien
under
sec.
13(e)
of
the
Philippine
Immigration
Act
(a)
Whose
residence
is
not
within
the
Philippines;
and
TP
has
paid
his
Community
Residence
Certificates
from
1987-1994
(b)
Who
is
not
a
citizen
of
the
Philippines.
Resident
Citizen
a
Filipino
individual
whose
residence
is
in
the
Philippines
An
alien
actually
present
in
the
Philippines
who
is
not
a
mere
transient
or
sojourner
is
a
Resident
alien
an
individual
whose
residence
is
in
the
Philippines
resident
of
the
Philippines
for
purposes
of
the
income
tax.
Whether
he
is
a
transient
or
but
who
is
not
a
citizen
thereof
(
22(f))
not
is
determined
by
his
intentions
with
regard
to
the
length
and
nature
of
his
stay.
A
mere
floating
intention
indefinite
as
to
time,
to
return
to
another
country
is
not
2. Non-Resident
Citizens
(
22(E))
sufficient
to
constitute
him
a
transient.
If
he
lives
in
the
Philippines
and
has
no
definite
intention
as
to
his
stay,
he
is
a
resident.
One
who
comes
to
the
Philippines
for
a
definite
Sec.
22(E)
purpose
which
in
its
nature
may
be
promptly
accomplished
is
a
transient.
But
if
his
purpose
is
of
such
a
nature
that
an
extended
stay
may
be
necessary
for
its
(E)
The
term
'nonresident
citizen'
means:
accomplishment,
and
to
that
end
the
alien
makes
his
home
temporarily
in
the
Philippines,
he
becomes
a
resident,
though
it
may
be
his
intention
at
all
times
to
return
(1)
A
citizen
of
the
Philippines
who
establishes
to
the
satisfaction
of
the
Commissioner
to
his
domicile
abroad
when
the
purpose
for
which
he
came
has
been
consummated
or
the
fact
of
his
physical
presence
abroad
with
a
definite
intention
to
reside
therein.
abandoned.
(2)
A
citizen
of
the
Philippines
who
leaves
the
Philippines
during
the
taxable
year
to
Garrison
v.
CA
reside
abroad,
either
as
an
immigrant
or
for
employment
on
a
permanent
basis.
TPs
were
born
in
the
Philippines,
repatriated
temporarily
to
the
U.S.,
returned
to
the
Philippines
and
presently
residing
herein
by
virtue
of
their
employment
in
the
(3)
A
citizen
of
the
Philippines
who
works
and
derives
income
from
abroad
and
whose
US
Naval
Base
in
Subic
employment
thereat
requires
him
to
be
physically
present
abroad
most
of
the
time
Some
have
married
Philippine
citizens,
have
children,
and
have
purchased
income
during
the
taxable
year.
producing
properties
in
the
Philippines
TPs
are
resident
aliens,
not
nonresident
aliens
The
fact
that
all
the
TPs
were
born
here,
repatriated
to
the
US
and
to
come
back,
in
(4)
A
citizen
who
has
been
previously
considered
as
nonresident
citizen
and
who
arrives
the
latest
in
1967,
and
to
stay
in
the
Philippines
up
to
the
present
time,
makes
the
in
the
Philippines
at
any
time
during
the
taxable
year
to
reside
permanently
in
the
TPs
resident
aliens
not
merely
transients
or
sojourners
Philippines
shall
likewise
be
treated
as
a
nonresident
citizen
for
the
taxable
year
in
which
he
arrives
in
the
Philippines
with
respect
to
his
income
derived
from
sources
The
TPs
intention
to
return
to
their
domicile
abroad
is
immaterial
because
they
abroad
until
the
date
of
his
arrival
in
the
Philippines.
have
resided
in
the
Philippines
for
quite
a
long
time
60
TAXATION
1
ATTY.
BELLO
ALC
D
2017
(5)
The
taxpayer
shall
submit
proof
to
the
Commissioner
to
show
his
intention
of
leaving
with
respect
to
the
income
he
derived
from
foreign
sources
from
the
date
he
actually
the
Philippines
to
reside
permanently
abroad
or
to
return
to
and
reside
in
the
departed
from
the
Philippines.
Philippines
as
the
case
may
be
for
purpose
of
this
Section.
A
Filipino
citizen
who
has
been
previously
considered
as
a
non-resident
citizen
and
who
arrives
in
the
Philippines
at
any
time
during
the
taxable
year
to
reside
therein
Physically
present
abroad
with
intention
to
reside
therein
permanently
shall
also
be
considered
a
non-resident
citizen
for
the
taxable
year
in
which
Leaves
the
Philippines
to
reside
abroad
as
immigrant
or
permanent
he
arrived
in
the
Philippines
with
respect
to
his
income
derived
from
sources
abroad
employee
until
the
date
of
his
arrival.
Works
and
derives
income
abroad
as
immigrant
or
permanent
employee
SECTION
3.
Proof
of
intention.
A
Filipino
citizen
who
leaves
the
Philippines
to
Works
and
derives
income
abroad;
physically
present
abroad
most
reside
abroad
either
as
an
immigrant
or
for
permanent
employment
or
a
contract
of
the
time
(i.e.,
at
least
183
days
in
a
taxable
year)
worker,
shall
submit
to
the
Commissioner
of
Internal
Revenue
proof
of
his
intention
of
Arriving
and
departing
nonresident
citizens
leaving
the
Philippines
to
reside
permanently
abroad.
A
returning
non-resident
citizen,
o OCWs
(
23(C))
a
special
class
on
the
other
hand,
must
present
proof
of
his
intention
to
return
to
and
reside
permanently
in
the
Philippines.
Such
proof
of
intention
shall
be
attached
to
his
income
Rev.
Regs.
1-79
(Jan.
8,
1979)
tax
return
(BIR
Form
No.
1701C)
and
may
consist
of
the
following:
SUBJECT
:
Regulations
Governing
the
Taxation
of
Non-resident
Citizens
(a) In
the
case
of
an
immigrant,
photostat
or
xerox
copy
of
his
foreign
visa.
TO
:
All
Internal
Revenue
Officers
and
Others
Concerned
(b) In
the
case
of
one
leaving
for
permanent
employment
abroad,
a
certificate
Pursuant
to
the
provision
of
Section
326
in
relation
to
Section
4
of
the
National
Internal
from
his
employer
showing
the
nature
and
duration
of
his
employment.
Revenue
Code
of
1977,
as
amended,
the
following
regulations
revising
Revenue
(c) In
the
case
of
a
contract
worker
Regulations
No.
9-73
to
implement
the
latest
amendments
to
Section
20
of
the
same
(1) Certificate
of
the
employer;
or
Code
by
P.D.
No.
1457
are
hereby
promulgated.
(2) Copy
of
the
contract
of
employment;
or
(3) Other
documentary
evidence.
SECTION
1.
Scope.
These
amended
regulations
shall
govern
the
manner
of
(d) In
the
case
of
a
returning
non-resident
citizen
taxation
of
non-resident
citizens
as
provided
for
under
Section
21
of
the
Tax
Code,
as
(1) Xerox
copy
of
his
passport
bearing
the
stamp
of
Philippine
amended,
and
shall
be
known
as
Revenue
Regulations
No.
1-79.
immigration
authorities
showing
that
he
is
a
returning
resident
as
distinguished
from
a
mere
Balikbayan.
SECTION
2.
Who
are
considered
as
nonresident
citizens.
(2) Other
documentary
evidence.
The
term
"non-resident
citizen"
means
one
who
establishes
to
the
satisfaction
of
the
Commissioner
of
Internal
Revenue
the
fact
of
his
physical
presence
abroad
with
the
SECTION
4.
Manner
of
filing
returns.
Every
non-resident
citizen
must
file
an
definite
intention
to
reside
therein
and
shall
include
any
Filipino
who
leaves
the
country
income
tax
return
covering
all
his
income
earned
abroad
on
BIR
Form
No.
1701C.
When
during
the
taxable
year
as:
husband
and
wife
are
both
non-resident
citizens,
only
one
return
containing
their
(a) Immigrant
one
who
leaves
the
Philippines
to
reside
abroad
as
an
consolidated
income
is
required
to
be
filed
on
BIR
Form
No.
1701C.
immigrant
for
which
a
foreign
visa
as
such
has
been
secured.
If
aside
from
the
foreign
income,
the
non-resident
citizen
also
derives
income
from
(b) Permanent
employee
one
who
leaves
the
Philippines
to
reside
abroad
Philippine
sources,
two
separate
returns
should
be
filed,
one
on
BIR
Form
No.
1701C
for
employment
on
a
more
or
less
permanent
basis.
covering
the
income
derived
from
foreign
sources
and
the
other
on
BIR
Form
No.
1701
(c) Contract
worker
one
who
leaves
the
Philippines
on
account
of
a
or
1701A,
as
the
case
may
be,
covering
the
income
from
sources
within
the
Philippines.
contract
of
employment
which
is
renewed
from
time
to
time
within
or
However,
if
the
Philippine
income
is
derived
solely
from
salaries,
wages,
remunerations
during
the
taxable
year
under
such
circumstances
as
to
require
him
to
be
or
other
similar
compensation
for
services
rendered
and
such
gross
income
does
not
physically
present
abroad
most
of
the
time
during
the
taxable
year.
To
be
exceed
P2,000,
if
the
taxpayer
is
single,
or
P3,333.33,
if
married
or
a
head
of
the
family,
considered
physically
present
abroad
most
of
the
time
during
the
taxable
the
non-resident
citizen
is
exempt
from
filing
an
income
tax
return
with
respect
to
such
year,
a
contract
worker
must
have
been
outside
the
Philippines
for
not
income.
less
than
183
days
during
such
taxable
year.
The
income
tax
return
of
non-resident
citizen
covering
his
taxable
income
earned
Any
such
Filipino
shall
be
considered
a
non-resident
citizen
for
such
taxable
year
abroad
shall
be
accompanied
by
a
copy
of
the
income
tax
return
filed
with
the
national
61
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government
of
the
foreign
country
of
his
residence
as
well
as
the
evidences
of
tax
5. Computation
of
tax.
The
computation
of
the
tax
due
from
a
non-
payment.
resident
citizen
on
income
derived
abroad
is
illustrated
as
follows:
Mr.
Juan
de
la
Cruz,
35
years
old,
Filipino,
married
to
Maria,
with
a
dependent
son,
Jose
SECTION
5.
Computation
of
income
and
tax.
and
a
resident
of
Los
Angeles,
California.
A. On
income
derived
from
all
sources
outside
the
Philippines.
For
U.S.
Federal
Income
Tax
purposes,
he
filed
a
joint
return
containing
the
following
1. What
to
include
as
gross
income.
The
gross
income
of
a
non- data
and
claimed
the
optional
standard
deductions
and
used
the
optional
tax
tablets:
resident
citizen
derived
from
sources
outside
the
Philippines
includes
Income:
all
income
enumerated
under
Section
29
of
the
National
Internal
Wage,
Salaries,
Tips,
Others
$7,814.65
Revenue
Code,
whether
or
not
such
income
is
exempted
from
income
Dividends
received
from
qualified
U.S.
tax
in
the
foreign
country
where
it
was
derived.
domestic
corporation
$482.50
less
If
the
income
is
in
foreign
currency
other
than
US
dollars,
it
shall
first
be
converted
into
exclusion
$200.00
282.50
US
dollars
at
the
average
annual
rate
of
exchange
of
the
foreign
currency
and
the
US
Interest
Income
on
savings
deposit
110.17
dollar
for
the
year
in
which
the
income
was
earned.
Income
other
than
wages
(Wife's
prize
2. Rate
of
tax.
Beginning
with
the
taxable
year
1978,
there
shall
be
in
photo
contest)
200.00
imposed
on
the
adjusted
gross
income
of
non-resident
citizen
a
tax
computed
as
follows:
TOTAL
GROSS
INCOME
$8,407.32
On
the
amount
not
exceeding
LESS:
Adjustment
to
income
(moving
$6,000
1%
expenses)
60.00
On
the
amount
exceeding
$6,000
but
not
exceeding
$20,000
$60.00
plus
Adjusted
Gross
Income
$8,347.32
2%
of
excess
TAX
DUE
PER
IRS
TABLES
$
325.00
over
$6,000.
Tax
payments
and
credits
On
the
amount
exceeding
Total
Federal
income
tax
$20,000
$340.00
plus
withheld
$484.30
3%
of
excess
Other
payments
(gasoline
over
$20,000.
tax,
etc.)
32.67
3. Computation
of
Adjusted
Gross
Income.
The
adjusted
gross
income
is
arrived
at
by
deducting
from
the
gross
income
the
Total
payments
and
credits
$516.97
following:
a. Personal
exemption
of
$2,000
if
the
non-resident
citizen
AMOUNT
REFUNDABLE
(191.97)
is
single
or
a
married
person
legally
separated
from
his
or
======
her
spouse,
or
$4,000
if
married
or
head
of
a
family;
For
Philippine
income
tax
purposes,
his
income
shall
be
computed
as
follows:
b. The
total
amount
of
the
national
income
tax
actually
paid
Gross
Income
$8,407.32
to
the
national
government
of
the
foreign
country
of
his
ADD:
Excluded
dividend
income
taxable
residence.
under
Philippine
Income
Tax
Law
200.00
4. Head
of
Family.
The
term
"head
of
family"
is
defined
as
"an
unmarried
man
or
woman
with
one
or
both
parents,
or
one
or
more
Total
Gross
Income
$8,607.32
brothers
or
sisters,
or
one
or
more
legitimate,
recognized
natural,
or
LESS:
adopted
children
living
with
and
dependent
upon
him
or
her
for
their
(a)
Personal
Exemption
as
chief
support
where
such
brothers,
sisters,
or
children
are
not
more
married
$4,000
than
twenty-one
years
of
age,
unmarried
and
not
gainfully
employed
(b)
Foreign
National
Income
or
where
such
children
are
incapable
of
self-support
because
they
are
Tax
paid
(Attach
copy
mentally
or
physically
defective.
of
Federal
Income
Tax
62
TAXATION
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Return
and
evidence
SECTION
8.
Effectivity.
These
regulations
shall
take
effect
immediately
and
of
payment)
325
shall
apply
to
income
earned
beginning
January
1,
1978.
Rev.
Regs.
5-01
(July
31,
2000)
Total
Deductions
[add
(a)
&
(b)]
4,325.00
ADJUSTED
GROSS
INCOME
SUBJECT
TO
TAX
$4,282.32
SUBJECT
:
Revoking
the
Requirement
for
Non-Resident
Citizens,
Overseas
Contract
=======
Workers
(OCWs)
and
Seamen
to
File
Information
Returns
on
Income
Derived
from
Tax
Due:
Sources
Outside
the
Philippines.
Adjusted
Gross
Income
$4,282.32
At
1%
rate
(not
over
$6,000.00)
x
.01
TO
:
All
Internal
Revenue
Officers
and
Others
Concerned.
Amount
payable
$42.82
B. On
income
derived
from
sources
within
the
Philippines.
SECTION
1.
1997,
in
relation
to
Section
23(B)
and
(C)
and
Section
51(A)(2)(d)
and
(A)(3)
The
tax
due
on
income
derived
by
a
non-resident
citizen
from
sources
within
the
of
the
same
Code,
these
Regulations
are
hereby
promulgated
to
repeal
Revenue
Philippines
shall
be
computed
in
the
same
manner
as
the
income
tax
payable
by
Memorandum
Order
No.
(RMO)
30-99
and
Revenue
Regulations
No.
(RR)
9-99,
resident
citizens
and
resident
aliens.
prescribing
the
filing
of
information
returns
by
non-resident
citizens,
overseas
contract
workers
(OCWs)
and
seamen
with
respect
to
their
income
derived
from
sources
outside
SECTION
6.
When
and
where
to
file.
The
return
must
be
filed,
and
the
tax
due,
the
Philippines.
if
any,
must
be
paid
on
or
before
April
15
following
the
year
for
which
the
return
is
being
filed
with
the
Philippine
Embassy
or
Office
of
the
Consulate
General
nearest
to
the
SECTION
2.
FILING
OF
INFORMATION
RETURNS
(BIR
FORM
1701C
OR
BIR
FORM
1703)
taxpayer's
place
of
residence
or
direct
to
the
Commissioner
of
Internal
Revenue,
BIR
NO
LONGER
REQUIRED.
Non-resident
citizens
who
are
exempt
from
tax
with
respect
Bldg.,
Diliman,
Quezon
City,
Philippines.
to
income
derived
from
sources
outside
the
Philippines
in
accordance
with
Section
23(B)
If
the
return
and
payment,
if
any,
are
sent
by
mail,
the
same
should
be
mailed
on
such
a
and
(C),
in
relation
to
Section
22
(E)
and
Section
51
(A)(2)(d)
and
(A)(3)
of
the
Tax
Code
date
as
to
reach
the
Philippine
Embassy,
Philippine
Consulate
General
or
the
of
1997,
but
who
are
nevertheless
mandated
to
file
information
returns
(BIR
Form
Commissioner
of
Internal
Revenue
on
or
before
April
15.
The
payment
should
be
made
1701C
or
the
new
computerized
BIR
Form
1703)
pursuant
to
RMO
30-99
and
RR
9-99,
in
the
form
of
an
international
money
order,
bank
draft
or
manager's
check
payable
to
shall
no
longer
be
required
to
file
the
same
on
their
income
derived
from
sources
the
Commissioner
of
Internal
Revenue.
outside
the
Philippines
beginning
taxable
year
2001.
If
the
return
is
filed
and
payment
of
the
tax
made
in
the
Philippines
by
or
for
the
non-
resident
citizen,
the
tax
may
be
paid
in
Philippine
currency,
the
dollar
amount
of
the
tax
SECTION3.
REPEALING
CLAUSE.
For
purposes
of
these
Regulations,
RMO
30-99
and
to
be
converted
into
pesos
at
the
rate
of
exchange
prescribed
by
Revenue
RR
9-99
are
hereby
repealed
accordingly.
Memorandum
Circular
No.
21-78
for
internal
revenue
tax
purposes.
When
the
tax
due
is
in
excess
of
two
hundred
dollars
(U.S.$200.00),
the
non- SECTION
4.
EFFECTIVITY
CLAUSE.
These
Regulations
shall
take
effect
(15)
days
after
resident
citizen
may
elect
to
pay
the
tax
in
two
equal
installments
in
which
case,
the
first
publication
in
any
newspaper
of
general
circulation.
installment
shall
be
paid
at
the
time
the
return
is
filed
and
the
second
installment,
on
or
before
the
fifteenth
day
of
July
following
the
close
of
the
calendar
year.
If
any
BIR
Rul.
33-00
installment
is
not
paid
on
or
before
the
date
fixed
for
its
payment,
the
whole
amount
of
Distinguished
between
a
nonresident
citizen
and
an
OCW
for
purposes
of
the
tax
unpaid
becomes
due
and
payable
together
with
the
delinquency
penalties.
applying
the
most
of
the
time
rule
For
the
exemption
on
foreign
source
income
to
apply,
an
individual
to
be
SECTION
7.
Repealing
Clause.
These
regulations
supersede
Revenue
considered
a
nonresident
citizen
must
be
physically
abroad
for
at
least
183
Regulations
No.
9-73
dated
November
26,
1973.
All
existing
rules,
regulations,
days
administrative
orders
and
general
circulars
or
portion
thereof,
which
are
inconsistent
As
regards
OCWs,
the
time
spent
abroad
is
not
material
for
tax
exemption
herewith
are
hereby
repealed,
amended
or
modified
accordingly.
purpose;
all
that
is
required
is
for
the
contract
to
be
registered
with
the
POEA
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3. Non-Resident
Aliens
Engaged/not
Engaged
in
Trade
or
Business
in
the
"The
additional
exemption
for
dependents
shall
be
claimed
by
only
one
of
the
spouses
Philippines
in
the
case
of
married
individuals.
Sec.
22(G)
"In
the
case
of
legally
separated
spouses,
additional
exemptions
may
be
claimed
only
by
(G)
The
term
'nonresident
alien'
means
an
individual
whose
residence
is
not
within
the
the
spouse
who
has
custody
of
the
child
or
children:
Philippines
and
who
is
not
a
citizen
thereof.
Provided,
That
the
total
amount
of
additional
exemptions
that
may
be
claimed
by
both
Secs.
5
and
6,
Rev.
Regs.
2
shall
not
exceed
the
maximum
additional
exemptions
herein
allowed.
SECTION
5.
Definition.
A
"non-resident
alien
individual"
means
an
individual
(a)
Whose
residence
is
not
within
the
Philippines;
and
"For
purposes
of
this
Subsection,
a
"dependent"
means
a
legitimate,
illegitimate
or
legally
adopted
child
chiefly
dependent
upon
and
living
with
the
taxpayer
if
such
(b)
Who
is
not
a
citizen
of
the
Philippines.
dependent
is
not
more
than
twenty-one
(21)
years
of
age,
unmarried
and
not
gainfully
employed
or
if
such
dependent,
regardless
of
age,
is
incapable
of
self-support
because
An
alien
actually
present
in
the
Philippines
who
is
not
a
mere
transient
or
sojourner
is
a
of
mental
or
physical
defect.
resident
of
the
Philippines
for
purposes
of
the
income
tax.
Whether
he
is
a
transient
or
not
is
determined
by
his
intentions
with
regard
to
the
length
and
nature
of
his
stay.
A
5. Minimum
Wage
Earner
mere
floating
intention
indefinite
as
to
time,
to
return
to
another
country
is
not
sufficient
to
constitute
him
a
transient.
If
he
lives
in
the
Philippines
and
has
no
definite
Sec.22(HH)
as
amended
by
Rep.
Act.
No.
9504
intention
as
to
his
stay,
he
is
a
resident.
One
who
comes
to
the
Philippines
for
a
definite
purpose
which
in
its
nature
may
be
promptly
accomplished
is
a
transient.
But
if
his
(HH)
the
term
'minimum
wage
earner'
shall
refer
to
a
worker
in
the
private
sector
paid
purpose
is
of
such
a
nature
that
an
extended
stay
may
be
necessary
for
its
the
statutory
minimum
wage,
or
to
an
employee
in
the
public
sector
with
compensation
accomplishment,
and
to
that
end
the
alien
makes
his
home
temporarily
in
the
income
of
not
more
than
the
statutory
minimum
wage
in
the
non-agricultural
sector
Philippines,
he
becomes
a
resident,
though
it
may
be
his
intention
at
all
times
to
return
where
he/she
is
assigned.
to
his
domicile
abroad
when
the
purpose
for
which
he
came
has
been
consummated
or
abandoned.
SECTION
6.
Loss
of
residence
by
alien.
An
alien
who
has
acquired
residence
in
the
Philippines
retains
his
status
as
a
resident
until
he
abandons
the
same
and
actually
departs
from
the
Philippines.
An
intention
to
change
his
residence
does
not
change
his
status
as
a
resident
alien
to
that
of
a
nonresident
alien.
Thus
an
alien
who
has
acquired
a
residence
in
the
Philippines
is
taxable
as
a
resident
for
the
remainder
of
his
stay
in
the
Philippines.
4. Dependent
Sec.
35(B)
as
amended
by
Rep.
Act.
No.
9504
(B)
Additional
Exemption
for
Dependents.
-
There
shall
be
allowed
an
additional
exemption
of
Twenty-five
thousand
pesos
(25,000)
for
each
dependent
not
exceeding
four
(4).
64