REMINDERS IN TAXATION

Justice Japar B. Dimaampao

1. 2% Minimum Corporate income tax applies even if the domestic corporation and
resident foreign corporation have n taxable income or incurred a net loss.

2. CTA can restrain collection of taxes if in its opinion it will jeopardize the interest of the
government or the taxpayer. The taxpayer must post a bond double the amount of tax
liability.

3. Damages are taxable only if the amount represents lost income or earnings/profits.

4. Contributions for election campaign are not subject to donor’s tax as these are
governed by election laws.

5. Extraterritorial Jurisdiction of Bureau of Customs requires that the violation must be

committed within the territorial waters of the Republic of the Philippines. Hot pursuit
means that the vessel may be seized or pursued even on the high seas beyond maritime
zone).

6. The CTA has jurisdiction over decisions of Customs Commissioner involving customs
duties, fees and money charges. However, it cannot pass upon order of Customers
Commissioner involving confiscation of immoral or indecent articles or magazines.

7. Decision of BIR involving PNOC’s unpaid taxes is cognizable by the CTA. Reason: CTA has
the necessary expertise to resolve such tax issue.

8. 6% Capital Gains Tax must be based on the higher amount between the gross selling
prize and the zonal value.

9. Revenue Memorandum Order No 41-91 states that actual consideration must be the
basis of sale of lots made through NHMFC and sale of lands made through the NHA.

10. Taxpayers who are not required to file income tax return:
(a) NRA-NETB;
(b) NRFC;
(c) Compensation earners under the substituted filing of ITR; and
(d) minimum wage earners.

11. Revocation trust arises when the right to the corpus of trust is (a) vested in the grantor;
and (b) vested in a person having no adverse financial interest over the corpus of such
trust.
12. Provinces have the power to impose tax on sand gravel and other quarry resources.
Municipalities have the power to impose taxes on fishponds/fishery rentals. Cities may
impose both.

13. Transfer for insufficient consideration is subject to donor’s tax except the transfer
involving real property classified as capital asset.

14. Basis of ad valorem duties must e the transaction value

15. Filing of civil and criminal action must be approved by the BIR Commissioner. This may
be delegated because this is not one of those which cannot be delegated as enunciated
in the case of RP vs. Hizon.

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16. Separation pay is tax-exempt only if received beyond the control of the employee or
official. Voluntary retirement benefit is subject to tax.

17. Prizes and Awards given to Filipino athletes, whether the competition is held abroad or
in the Philippines, are tax exempt. The sports tournament/competition must be
sanctioned by the National Sports Association.

18. Basis of property or shares of stock acquired through tax exempt exchanges in the
original or historical cost.

19. Gain from sale of shares of stock not listed and traded. LSE is considered as capital gain
subject to 5% - P100.000.00 (net capital gain); In excess of P100,000.00 (net capital gain)
– 10%

20. Cohan Rule – The BIR Commissioner has the power to disallow 50% of the expenses
claimed on the condition that there is really an expense paid or incurred but there was
no document showing that this expense was indeed paid or incurred. Belief by the BIR
as to such an expense is insufficient.

21. SUBSTITUTED FILING OF INCOME TAX RETURN

Individual taxpayers are no longer required to file ITR. According to BIR Rev. Reg. Nos.
3-2002 and 19-2002, the concept of substituted filing of ITR applies under the following
conditions:
a. Taxpayer must be a compensation earner; derives income solely from the rendition
of services;
b. Income is derived from services rendered in the Philippines; employer must conduct
business in the Phil.;
c. Tax withheld by the employer must be equal to the tax liability; and
d. Employer must file annual income tax information return which shows the amount
of tax withheld on this compensation income.
 Tax withheld by the employer is tantamount to the substituted filing of
individual tax return of the employees.

22. Power of the BIR Commissioner to compromise tax liabilities (Refer to Sec. 204)
Civil Liabilities – Conditions:
a. Doubtful assessment (minimum 40% compromise rate) e.g. jeopardy assessment
based on best evidence obtainable
b. Financial inability (minimum 10% compromise rate)

Criminal Liability – Conditions:

a. Absence of fraud
b. The case is not yet filed in court

23. Cases not subject to compromise:

a. Withholding tax cases
b. Criminal tax fraud cases;
c. Criminal violations already filed in courts;
d. Delinquent accounts with duly approved schedule of installment payments;
e. Protested accounts where the final reports result in reduction in the original
assessment and the taxpayer agreed to such decision by signing the required
agreement form for the purpose;
f. Cases which become final and executor after final judgment of the court where the
request is grounded on doubtful validity;
g. Estate tax cases where request is based on financial incapacity.

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 DEFINITION OF TERMS/ENUMERATION

1. FRINGE BENEFITS (Sec. 33) – Any good, service or other benefit. In cash or in kind, in
addition to basic salaries, furnished or granted by an employer to an individual
employee (managerial/supervisory employee), except a rank and file employee, such as
but not limited to HEVHIMEHEL.
a. Housing*
b. Expense account
c. Vehicle of any kind*
d. Household personnel such as maid, driver and others*
e. Interest on loans at less than market rate
f. Membership fees, dues and other expenses borne by the employer for the
employee in social & athletic clubs or other similar organizations*
g. Expenses for foreign travel*
h. Holiday and vacation expenses
i. Educational assistance to the employee or his dependents
j. Life or health insurance & other non-life insurance premiums or similar amounts in
excess of what the law allows.
(*subject to peculiar nature requirement)

2. DE MINIMIS BENEFITS – are facilities and privileges furnished or offered by an employer

to his employees that are of relatively small value and are offered or furnished by the
employer merely as a means of promoting the employee’s health, goodwill,
contentment and efficiency. These shall include:

3. ASSESSMENT – a written notice containing a demand for the payment o9f tax and must
be duly received by the taxpayer
a. Monetized unused vacation and sick leave credits of government employees;
b. Monetized 10-day vacation leave credits of private employee3s;
c. Medical cash allowance to dependents not exceeding P750.00/semester or
P125/month;
d. Rice subsidy of P1, 500.00 or one sack of 50 kg. rice per month;
e. Uniforms and clothing allowance not exceeding P4,000.00/annum;
f. Actual medical benefits not exceeding P10,000.00/annum;
g. Laundry allowance not exceeding P300.00/mo.
h. Employee achievement awards in the form of tangible personal property other
than cash or gift certificate with an annual monetary value not exceeding
P10,000.00 received by an employee under an established written plan which
does not discriminate in favor of highly paid employees;
i. Gifts

4. GROSS INCOME – refer to Sec. 32(a) – all income derived from whatever source.

5. NET INCOME – means gross income less allowable deductions and/or personal
exemptions.

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 6. WASH SALE – a 61-day sale made by a seller not a dealer in securities. 30 days before or
after the sale, there must be a purchase of identical or substantially the same stocks or
securities.

7. LARGE TAXPAYER – Sec. 245, a taxpayer who has unpaid withholding tax, corporate
income tax or excise taxes of at least one million pesos or more.

8. ORDINARY ASSET – covers stock in trade; property primarily held for sale in the ordinary
course of trade or business; property used in business subject to depreciation; and real
property used in trade or business.

9. CAPITAL ASSET – includes property held by the taxpayer whether or not connected with
his trade or business other than the aforestated ordinary assets.

10. IMPORTATION – begins from the time the vessel or aircraft carrying cargoes enters the
jurisdiction of the Republic of the Philippines with the intention to unload therein, and
ends the moment customs duties are paid or the legal permit to leave the country is
issued.

11. BERTHING FEES – fees imposed on vessel that is moored to or berths at national port.

12. “STRANGER” for purposes of donor’s tax – one who is not a spouse, brother, sister,
ascendant, descendant, collateral relative within the fourth civil degree.

13. VANISHING DEDUCTION – An exclusive deduction from the gross estate; allowed in
order to minimize the harshness of double taxation. Allowed as deduction under the
following conditions:
a. The death of the prior decedent must occur within the 6-year period;
b. The property has been previously taxed;
c. The property is included in the gross estate of the prior decedent;
d. The same property received from prior estate; no previous vanishing deduction.

14. SMUGGLING –refers to the importation of prohibited goods or articles. Criminal

prosecution requires actual and serious fraud.

15. INTERNATIONAL JURIDICAL DOUBLE TAXATION – exists under the following conditions:
a. the same item of income
b. Taxed by two or more states
c. The same subject matter
d. The same person
e. Identical taxable period

POWERS and DUTIES OF THE BIR (CEEG)

1. Assessment and Collection of all national internal revenue taxes, fees and charges;
2. Enforcement of all forfeiture, penalties and fines;
3. Execution of judgments in all cases declared in its favor (by the CTA and ordinary
courts);
4. Give effect to and administer the supervisory and police powers conferred to it by
the Tax Code and other laws.

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PRINCIPLES OF A SOUND TAX SYSTEM (FAT)
1. Administrative FEASIBILITY – tax laws must be capable of effective and efficient
enforcement and implementation;
2. Fiscal ADEQUACY – the proceeds of the tax must be sufficient to meet the needs of
the government.
3. THEORETICAL Justice – taxes must be just, fair, reasonable and equitable.

INHERENT LIMITATIONS ON THE POWER OF TAXATION (TIPEN)

1. Territoriality
2. International Comity
3. Public Purpose
4. Exemption from Taxation of agencies of the government, instrumentalities and
political subdivisions of the state
5. Non delegation of the power to tax.

SIGNIFICANT FEATURES OR CHANGES INTRODUCED BY RA 8424

1. Fringe benefits, under Sec. 33
2. 2% minimum corporate income taxation
3. 10% tax on improperly accumulated earnings
4. Resident alien, non-resident citizen are taxable only on their income derived from
sources within.

EQUITABLE PROVISIONS UNDER RA 8434

1. Provisions on deductions
2. Provisions on exclusions
3. Suspension of a 2% minimum corporate income tax under the following equitable
circumstances:
Labor Dispute
Force majeure
Business financial reverses

Exemption from the payment of the 6% capital gains tax

Conditions
a) The proceeds shall be used to conduct/purchase new principal residence
b) Comply with the thirty-day notice
c) Comply with the 16-month period
d) Can only be availed of once
e) Escrow agreement (RA 17-2003)

NON-REVENUE PURPOSES OF TAXATION (PIER)

1. Protect local industries;
2. Implement the police power of the state;
3. Encourage or promote local industries; and
4. Reduce social inequalities/insecurities.

PRINCIPLES OF LOCAL TAXATION (PUNNANIP)

1. Public Purpose
2. Uniformity Principled
3. Not to let the collection of taxes to a private person
4. Not unjust, excessive, oppressive or confiscatory
5. Ability to pay principle
6. Not contrary to law, economic policy, public policy or in restraint in trade
7. The proceeds of the tax shall Inure solely to the benefit of local government unit
8. Progressive Taxation

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SPECIAL CUSTOM DUTIES (CDMD)
1. Countervailing duty
2. Dumping duties – these are imposed to protect our local products against unfair
competition
3. Marking duties – imposed when articles are improperly marked.
4. Discriminatory duties – may be imposed by the President in the exercise of the flexible
powers under the Tariff and Customs Code. The flexible powers must be exercised in
the interest of:
a. National economy
b. General welfare of the people
c. National security

PROHIBITED ARTICLES (WINGS)

a. Weapons of War
b. Insidious Articles
c. Narcotic Drugs
d. Gambling devices
e. Those declared prohibited under Special laws

TAX EXEMPT ARTICLES (DUTY FREE ARTICLES) (PAPAS)

a. Personal and household effects
b. Articles for repair
c. Products/articles for public exposition/exhibits
d. Aquatic products for experimental purposes
e. Sample Articles

EXCLUSIONS FROM GROSS INCOME TAXATION (LAGCIRM)

a. Life insurance proceeds
b. Amount received as a return of premiums
c. Donations/Gifts
d. Compensation for injuries or sickness
e. Income exempt under treaty
f. Retirement benefits including separation pay
g. Miscellaneous item – income received by foreign government, prizes and awards.
Christmas bonus, 13th month pay and other benefits.

REQUISITES OF A VALID BIR REGULATION (CRUP)

a. Consistent with the provisions of the Tax Code
b. Reasonable
c. Useful and necessary
d. Published in the Official Gazette or a newspaper of general circulation

PURPOSES OF WITHHOLDING TAX SYSTEM (PIE)

a. To Provide convenient manner to the taxpayer to meet this probable tax liability
b. To Increase government cash flow
c. To Ensure collection of tax

REQUISITES OF TAXABLE INCOME (PNR)

a. Profit
b. Not excluded by the Tax Code or special law
c. Realized – actually or constructively realized.

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REQUISITES OF VALID ASSESSMENT (SND)
a. It must be Served upon the taxpayer
b. Must contain Notice
c. Written Demand settling forth the fixed (final) tax liability

REQUISITES OF VANISHING DEDUCTIONS (SPEND)

a. Same property received from the prior decedent
b. Property has been previously taxed
c. Exclusive Property
d. No previous vanishing deduction
e. Death of the prior decedent must occur within 5 years from death of prior decedent.

EXEMPTIONS FROM REAL PROPERTY TAX

a. Real property owned by the Republic of the Philippines or any of its political subdivisions
except when the beneficial use thereof has been granted, for consideration or otherwise,
to a taxable person.
b. Charitable Institutions, churches, parsonages or convents appurtenant thereto,
mosques, nonprofit or religious cemeteries and all lands, buildings, and improvements
actually, directory, and exclusively used for religious, charitable or educational purposes.
c. All machineries and equipment that are actually, directly and exclusively used by local
water districts and government-owned or controlled corporations engaged in the supply
and distribution of water and/or general and transmission of electric power.
d. All real property owned by duly registered cooperatives as provided for under R.A. No.
6938.
e. Machinery and equipment used for pollution control and environmental protection.

Good luck!!