UP LAW BOC 2016 REVIEWER CORRECTIONS AND SUPPLEMENTS, PART II
CIVIL LAW
CIVIL LAW
Page 62 - Provision
Article 177, FC on legitimated children: has
been amended by R.A. No. 9858 to read
“Children conceived and born outside of
wedlock of parents who, at the time of
conception of the former, were not
disqualified by any impediment to marry each
other, or were so disqualified only because
either or both of them were below eighteen
(18) years of age, may be legitimated.”
Page 100 - Table
Prescription for quieting of title is
Imprescriptible IF in the possession of the
plaintiff
Page 166 - Table
Limit as to donation of present property for
donations propter nuptias is “if xxx property
regime is other than ACP, limited to 1/5.”
Page 206 - Table
If due to the debtor’s fault, some prestations
are lost or become impossible, debtor to
perform that which the debtor shall choose
from among the remainder xxx”
Page 231 - Definition
Pactum Commissorium – automatic
appropriation
Page 243 - Table
Special form required by law for donations of
movables, threshold is P5000, not P500.
PAGE 1 OF 43
Page 390 - Enumeration
As to liability of the partners in general
partnership, insert “for partnership
obligations with all their property after
exhaustion of partnership assets”
Page 402 - Enumeration
Number (2) on exceptions to application of
sums received should be qualified – “When
the debtor declares, pursuant to Article 1252,
at the time of making the payment, to which
debt the sum must be applied, and if the
personal credit of the partner is more onerous
to him, it shall be so applied.”
Page 420 - Table + Definition
Contract of loan: “perfected not by mere
consent, but by delivery of the object of the
contract”
Commodatum: “so that the latter may use the
same for a certain time and return it”
Page 421
Par. 2 under who may be a bailor in
commodatum: “But the bailee may not lend
or lease the thing loaned to him to a third
person. However, members of his household
may use the thing loaned, unless there is a
stipulation to the contrary, or unless xxx”
Exceptions under (3) of Obligations of the
Bailee to be DELETED. There are no
exceptions to this.
 UP LAW BOC 2016 REVIEWER CORRECTIONS AND SUPPLEMENTS, PART II

MERCANTILE LAW
Incontestability Clause

MERCANTILE
When a life policy is made payable on the
death of the insured has already been in force
during the lifetime of the insured for a period
of 2 years from the date of its issue or of its last

LAW
reinstatement

Insurer cannot prove that the policy is:

(1) void ab initio or
(2) rescindable

By reason of
(1) fraudulent concealment by the insured
or his agent
(2) misrepresentation by the insured or his
agent [Sec. 48, Insurance Code]

Exceptions to the Incontestability Clause:

(1) Lack of insurable interest
(2) Cause of death is an excepted risk
(3) Non-payment of premiums
(4) Violation of conditions of policy
relating to military or naval service
(5) Fraud is of a vicious type such as a
scheme to kill the insured
(6) Cestui que vie failed to furnish proof of
death
(7) Prescription of action

PAGE 2 OF 43
 UP LAW BOC 2016 REVIEWER CORRECTIONS AND SUPPLEMENTS, PART II
TAXATION LAW
SUPPLEMENT
TAXATION OF NON-RESIDENT
ALIENS ENGAGED IN TRADE OR
BUSINESS
GENERAL RULES
Subject to an income tax in the same manner
as an individual citizen and a resident alien
individual on taxable income from all sources
within the Philippines
Nonresident alien doing business in the
Philippines: a non-resident alien individual who
shall come to the Philippines and stay therein
for an aggregate period of more than 180 days
during any calendar year
To engage in trade or business within the
Philippines is construed as signifying to follow
the employment or occupation which occupies
the time, attention, and labor, for the purpose
of a livelihood or profit. (Semple vs. Guenther,
96 N.W. 895, 896)
W hen personal exemptions allowed
A non-resident alien individual engaged in
trade, business, or in the exercise of a
profession in the Philippines shall be entitled
to a personal exemption, provided the
following conditions must be satisfied:
1) The country of which the non-resident alien
is a subject or citizen has an income tax law;
2) The income tax law of his country grants
personal exemptions to Filipinos who derive
income in such country but who are not
residing therein; and
3) He files a true and accurate statement of his
income from all sources within the Philippines.
Am ount of exem ptions allowed
PAGE 3 OF 43
The amount of personal exemptions allowed to
non-resident aliens shall be equal to the
exemptions allowed in the income tax law in
the country of which he is a subject or citizen,
to citizens of the Philippines not residing in
such country, not to exceed the amount fixed
as exemption for citizens of residents of the
Philippines. (Sec. 35(D), NIRC)
CASH AND/OR PROPERTY DIVIDENDS
The following shall be subject to an income tax
TAXATION LAW
of twenty percent (20%) on the total amount
thereof:
(a) Cash and/or property dividends from:
(1) A domestic corporation;
(2) A joint stock company;
(3) An insurance or mutual fund company;
(4) A regional operating headquarter of
multinational company;
(5) The share of a nonresident alien
individual in the distributable net
income after tax of a partnership
(except a general professional
partnership) of which he is a partner;
(6) The share of a nonresident alien
individual in the net income after tax of
an association, a joint account, or a
joint venture taxable as a corporation
of which he is a member or a co-
venturer;
(b) Interests
(c) Royalties (in any form); and
(d) Prizes (except prizes amounting to Ten
thousand pesos (P10,000) or less which
shall be subject to graduated tax) and
other winnings (except Philippine Charity
Sweepstakes and Lotto winnings);
EXCEPT:
(1) The following Royalties shall be subject to
a final tax of ten percent (10%) on the total
amount thereof:
(a) On books as well as other literary
works; and
(b) On musical compositions
 UP LAW BOC 2016 REVIEWER CORRECTIONS AND SUPPLEMENTS, PART II
(2) Cinematographic films and similar works
shall be subject to twenty-five percent
(25%) of the gross income
(3) Interest income from long-term deposit or
investment in the form of savings, common
or individual trust funds, deposit
substitutes, investment management
accounts and other investments evidenced
by certificates in such form prescribed by
the Bangko Sentral ng Pilipinas (BSP) shall
be exempt from the tax
But should the holder of the certificate pre-
terminate the deposit or investment before the
fifth (5th) year, a final tax shall be imposed on
the entire income and shall be deducted and
withheld by the depository bank from the
proceeds of the long-term deposit or
investment certificate based on the remaining
maturity thereof:
(i) Four (4) years to less than five (5) years -
5%;
(ii) Three (3) years to less than four (4) years -
12%; and
(iii) Less than three (3) years - 20%.
CAPITAL GAINS
Capital gains realized from sale, barter or
exchange of shares of stock in domestic
corporations not traded through the local stock
exchange, and real properties shall be subject
to the similar tax prescribed on citizens and
resident aliens.
(a) Sale, barter or exchange of Shares of stock
in domestic corporation not traded –
(1) Net over P100,000 – 5% of net capital
gains realized
(2) On any amount in excess of P100,000
– 10% of net capital gains realized
(b) Sale, barter or exchange of real properties
– 6% of gross selling price or current FMV
whichever is higher
PAGE 4 OF 43
NON-RESIDENT ALIENS NOT
ENGAGED IN TRADE OR BUSINESS
[N.B. The Bar Syllabus expressly
provides that this shall be excluded in
the coverage]
General rule: Non-resident aliens not
engaged in trade or business in the Philippines
are normally subject to final withholding tax of
twenty five percent (25%) from all sources
within the Philippines.
TAXATION LAW
Tax rates:
(1) 25% final withholding tax on the gross
amount of:
a. Interest
b. Cash and/or property dividends
c. Rents
d. Salaries, wages
e. Premiums
f. Annuities
g. Compensation, remuneration,
emoluments
h. Capital gains
i. Other fixed or determinable annual or
periodic or casual gains, profits, and
income
(2) 6% on capital gains presumed to have
been realized from the sale, exchange or
other disposition of real property located in
the Philippines, classified as capital assets,
including pacto de retro sales and other
forms of conditional sales. The tax base is
the higher between: a) the gross selling
price and b) the higher between the fair
market value determined by the
Commissioner of Internal Revenue and the
fair market value determined by the
Provincial or City Assessors
(3) In case of dispositions of real property
classified as capital assets to government
or any of its political subdivisions or
agencies or to government-owned and
controlled corporations, the tax to be
imposed shall be either of the following, at
 UP LAW BOC 2016 REVIEWER CORRECTIONS AND SUPPLEMENTS, PART II
the option of the taxpayer: a) rates under
Sec. 24(A)(2) of the NIRC or b) 6% final tax
based on the gross selling price or fair
market value, whichever is higher.
Special group of Aliens
(1) Alien individuals employed by:
(a) Regional or Area Headquarters
(RAHQ) and Regional Operating
Headquarters (ROHQ) established in
the Philippines by multinational
companies
Multinational company, defined àa
foreign firm or entity engaged in
international trade with affiliates or
subsidiaries or branch offices in the
Asia-Pacific Region and other foreign
markets
(b) Offshore Banking Units established in
the Philippines
(2) Alien individuals who are permanent
residents of a foreign country but who are
employed and assigned in the Philippines
by a foreign service contractor or by a
foreign service subcontractor engaged in
petroleum operations in the Philippines
Tax Rate and Base - 15% of gross income
received as salaries, wages, annuities,
compensation, remuneration and other
emoluments, such as honoraria and
allowances.
The same tax treatment shall apply to Filipinos
employed and occupying the same positions as
those of aliens employed by these
multinational companies, offshore banking
units and petroleum service contractors and
subcontractors.
Note that the coverage of the special
classification (and the corresponding tax rate)
PAGE 5 OF 43
is limited to income received as wages. Hence,
any income earned from all other sources within
the Philippines by the alien employees shall be
subject to the pertinent income tax (example:
sale of real property in the Philippines is
subject to 6% capital gain tax, imposed on the
gross selling price or fair market value of the
property at the time of the sale, whichever is
higher)
TAXATION LAW
INDIVIDUAL TAXPAYERS EXEMPT
FROM INCOME TAX
Individual Taxpayers exempt from income tax
are:
(1) Senior Citizens
(2) Minimum wage earners
(3) Exemptions granted under international
agreements
All individuals and entities claiming exemption
from imposition of taxes on income and,
consequently, from withholding taxes are
required to provide a copy of a valid, current
and subsisting tax exemption certificate or
ruling, as per existing administrative issuances
and any issuance that may be issued from time
to time, before payment of the related income.
The tax exemption certificate or ruling must
explicitly recognize the grant of tax exemption,
as well as the corresponding exemption from
imposition of withholding tax. Failure on the
part of the taxpayer to present the said tax
exemption certificate or ruling as herein
required shall subject him to the payment of
appropriate withholding taxes due on the
transaction. [RMC No. 8=2014]
SENIOR CITIZENS
Who covered: any resident citizen—
(a) At least 60 years old, and
(b) Who are considered minimum wage
earners under RA 9504 (Sec. 4 (b) RA 7432,
as amended by RA 9994) and/or the
aggregate amount of gross income earned
by the senior citizen during the taxable
 UP LAW BOC 2016 REVIEWER CORRECTIONS AND SUPPLEMENTS, PART II
year does not exceed the amount of his
personal exemptions (BPE and APE).
The exemption of a senior citizen does not
include exemption from final withholding tax
and other taxes. The senior citizen is subject to
value-added tax, other percentage tax, donor’s
tax, estate tax, excise tax on certain goods, and
documentary stamp tax.
MINIMUM WAGE EARNERS
Rule: they shall be exempt from payment of
income tax on their taxable income
Limit: however, if he receives “other benefits”
in excess of the allowable statutory amount of
P30,000 (now P82,000 under RA 10653), then
he shall be taxable on the exceeds benefits as
well as his salaries, wages, and allowances,
just like an employee receiving compensation
income beyond the statutory minimum wage.
EXEMPTIONS GRANTED UNDER
INTERNATIONAL AGREEMENTS (SEC.
32(B))
See RMC No, 31-2013, April 12, 2013 – taxation
of compensation income of Philippine
nationals and alien individuals employed by
foreign governments/embassies/diplomatic
missions and international organizations
situated in the Philippines
TAXATION OF DOMESTIC
CORPORATIONS
TAX PAYABLE
Taxes payable are:
(1) Regular tax
(2) Minimum Corporate Income Tax
REGULAR TAX
Normal Corporate Income Tax Rate: 30%of
Taxable Income (effective January 1, 2009)
PAGE 6 OF 43
Gross Income XXX
Less: Allowable Deductions XXX
Taxable Income XXX
MINIMUM CORPORATE INCOME TAX
(MCIT)
(1) Applies to domestic corporations and
RFCs.
(2) It is imposed whenever such corporations
have zero or negative taxable income or
TAXATION LAW
whenever the MCIT is greater than the
normal income tax due from such
corporations. (Rev. Reg. 9-98)
(3) Imposed upon any domestic corporation
beginning the fourth taxable year in which
such corporation commenced its business
operations. For purposes of the MCIT, the
taxable year in which business operations
commenced shall be the year when the
corporation registers with the BIR (not in
which the corporation started commercial
operations).
(4) Tax rate: 2% of the Gross Income
(5) For the purpose of computing MCIT, the
term gross income includes other items of
gross income realized or earned by the
taxpayer during the taxable period which
are subject to normal income tax. It
excludes income exempt from income tax
and income subject to final withholding
tax.
Imposition of MCIT
Gross Sales XXX
Less: Sales Returns XXX
Sales Discounts & XXX
Allowances XXX XXX
Cost of Goods Sold
MCIT GI XXX
COMPUTATION OF GROSS INCOME.—
The term “Gross Income” shall be equivalent
to gross sales less sales returns, discounts and
allowances and cost of goods sold. “Cost of
goods sold” shall include all business
 UP LAW BOC 2016 REVIEWER CORRECTIONS AND SUPPLEMENTS, PART II
expenses directly incurred to produce the
merchandise to bring them to their present
location and use.
If apart from deriving income from core
business activities there are other items of
gross income realized or earned by the
taxpayer which are subject to the normal
corporate income tax, they must be included as
part of gross income for computing MCIT. [Sec.
27 (E), NIRC; RR 12-2007]
This means that the term “gross income” will
also include all items of gross income
enumerated under Section 32(A) of the NIRC,
except: (a) income exempt from income tax,
and (b) income subjected to FWT.
The com putation by type of business.—
Merchandising/Manufacturing Service
Concerns Concerns
Net Sales P xxx Gross
receipts/revenuewithin the coverage of the MCIT.
P xxx
Less: Cost of Sales xxx Less: Direct costThese special corporations are:
of
xxx
Gross Income P xxx Gross
P xxx
“Net Sales” is gross sales less sales returns,
discounts and allowances.
“Direct cost of services” includes salaries of
personnel rendering the services, expenses on
the facilities directly utilized, cost of supplies,
and the like. “Direct costs and expenses” shall
only pertain to those costs exclusively and
directly incurred in relation to the revenue
realized by the sellers of services. These refer
to costs which are considered indispensable to
the earning of the revenue such that without
such costs, no revenue can be generated.
Pointers.—
PAGE 7 OF 43
MCIT is in the nature of a tax credit, not an
allowable deduction. Its purpose is to prevent
corporations from escaping being taxed by
including frivolous expenses in their statement
of income.
Is the Minim um Corporate Incom e Tax
(MCIT) an addition to the regular or
normal income tax?
No, the MCIT is not an additional tax. The MCIT
is compared with the regular income tax, which
TAXATION LAW
is due from a corporation. If the regular income
is higher than the MCIT, then the corporation
does not pay the MCIT.
Who are covered by MCIT?
The MCIT covers domestic and resident foreign
corporations which are subject to the regular
income tax. The term “regular income tax”
refers to the regular income tax rates under the
Tax Code. Thus, corporations which are subject
to a special corporate tax system do not fall
services(1) Corporations that are subject to ten percent
(10%) preferential tax rate: Proprietary
income educational institutions, nonprofit
hospitals, Offshore Banking Units (OBUs)
on their income from foreign currency
transactions which has been subjected to a
final income tax at 10% of such income,
and depository banks under the expanded
foreign currency deposit system on their
income from foreign currency transactions
which has subjected to final income tax at
10%; RFCs engaged in business as
Regional Operating Headquarters
(2) Firms under special income tax regime
such as those under the PEZA law [RA
7916], the Bases Conversion Development
Act [RA 7227] and forms enjoying Income
Tax Holiday (ITH) under EO No. 226;
(3) International carriers subject to tax at 2
½% of their gross Philippine billings;
 UP LAW BOC 2016 REVIEWER CORRECTIONS AND SUPPLEMENTS, PART II
Note: For domestic corporations whose
operations or activities are partly covered by
the regular income tax and partly covered
under a special income tax system, the MCIT
shall apply on operations covered by the
regular corporate income tax system.
MCIT gross incom e differentiated from
the normal tax gross income
The latter would include other incidental
income items, such as rent income, interest,
gain on sale of assets, certain tax refunds, etc.
What amount of incom e tax is paid by
the corporation to the BIR?
Whichever is higher between the normal tax
and the minimum corporate income tax
Illustration:
E Co., a domestic trading corporation, in its
fourth year of operations had a gross profit
from sales of P300,000 and net taxable
income of P100,000. How much was the
income tax paid by the corporation for the
year?
MCIT (P300,000 x 2%) P6,000
Normal income tax
(P100,000 x 30%) P30,000
Income Tax to be paid for the year
(whichever is higher) P30,000
Quarterly MCIT Com putation.—
The computation and the payment of MCIT
shall likewise apply at the time of filing the
quarterly corporate income tax. In the
computation of the tax due for the taxable
quarter, if the quarterly MCIT is higher than the
quarterly normal income tax, the tax due to be
paid for such taxable quarter at the time of
filing the quarterly corporate income tax return
shall be the MCIT.
PAGE 8 OF 43
Items allowed to be credited against quarterly
MCIT due: (a) CWT, (b) Quarterly income tax
payments under the normal income tax; and
(c) MCIT paid in the previous taxable
quarter(s).
Excess MCIT from the previous taxable year/s
shall not be allowed to be credited against the
quarterly MCIT tax due.
Annual Income Tax Computation.—
TAXATION LAW
The final comparison between the normal
income tax payable and the MCIT shall be
made at the end of the taxable year. The
payable or excess payment in the Annual
Income Tax Return shall be computed taking
into consideration corporate income tax
payment made at the time of filing of quarterly
corporate income tax returns whether this be
MCIT or normal income tax.
In the computation of annual income tax due,
if the normal income tax due is higher than the
computed annual MCIT, the following shall be
allowed to be credited against the annual
income tax: (a) quarterly MCIT payments, (b)
quarterly normal income tax payments, (c)
excess MCIT in the prior year/s (subject to the
prescriptive period allowed for its creditability),
(d) CWTs in the current year, (d) excess CWTs
in the prior year.
If in the computation of annual income tax
due, the computed annual MCIT due is higher
than the annual normal income tax due, the
following may be credited against the annual
income tax: (a) quarterly MCIT payments of
current taxable quarter, (b) quarterly normal
income tax payments in current year, (c) CWTs
in the current year, (d) excess CWTs in the prior
year.
Excess MCIT from the previous taxable year/s
shall not be allowed to be credited against the
 UP LAW BOC 2016 REVIEWER CORRECTIONS AND SUPPLEMENTS, PART II

annual MCIT due as the same can only be Illustration.—

applied against normal income tax. A domestic corporation had the following data
on computations of the normal tax (NT) and
Manner of Filing and Paym ent.— the minimum corporate income tax (MCIT) for
The MCIT shall be paid in the same manner five years.
prescribed for the payment of the normal
corporate income tax which is on a quarterly
and on a yearly basis. Yr 4 Yr 5 Yr 6 Yr 7 Yr 8
MCIT 80K 50K 30K 40K 35K
CARRY FORW ARD OF EXCESS NT 20K 30K 40K 20K 70K
MINIMUM TAX

TAXATION LAW
Any excess of the minimum corporate income
tax over the normal income tax shall be carried
forward on an annual basis. The excess can be The excess MCIT over NT carry-forward is
credited against the normal income tax in the shown below:
next three (3) succeeding taxable years. [Sec.
27(E)(2)] In the year to which carried forward,
the normal tax should be higher than the
MCIT.

Year 4 Year 5 Year 6 Year 7 Year 8

MCIT 80,000 50,000 30,000 40,000 35,000
NT 20,000 30,000 40,000 20,000 70,000
↓ ↓
NT is higher n/a n/a 40,000 n/a 70,000
Less: MCIT
carry-fwd > (40,000)* > (20,000)
> (20,000)

From Year 4

From Year 5

From Year 7

Tax Due 80,000 50,000 - 40,000 30,000

Arrow pointing downward means that the
normal tax is higher so that there can be an
excess MCIT carry-forward against it.
*Cannot carry forward an amount higher than
the NT, hence the excess of 60K from Year 4
was reduced to 40K. The unused P20,000
cannot be used in Year 8 because Year 8 was
beyond three years from Year 4.
RELIEF FROM THE MCIT UNDER
CERTAIN CONDITIONS (SEC. 27 (E),
NIRC)

PAGE 9 OF 43
 UP LAW BOC 2016 REVIEWER CORRECTIONS AND SUPPLEMENTS, PART II

The Secretary of Finance, upon the Gross Sales XXX

recommendation of the Commissioner, may Less: Sales Returns XXX
suspend the imposition of the MCIT upon SalesDiscounts& XXX
submission of proof by the applicant- Allowances XXX XXX
corporation that the corporation sustained Cost of Goods Sold
substantial losses on account of the following GI XXX
(LMB):
(1) Prolonged labor dispute (losses from a The election of the gross income tax option by
strike staged by employees that lasts for the corporation shall be irrevocable for three
more than 6 months and caused the (3) consecutive taxable years during which the
temporary shutdown of operations), or corporation is qualified under the scheme.

TAXATION LAW
(2) Force majeure (acts of God and other
calamity; includes armed conflicts like war For purposes of gross income tax, gross
or insurgency), or income should be the same as gross income
(3) Legitimate business reverses (substantial for purposes of MCIT in cases of trading,
losses due to fire, robbery, theft or other merchandising and manufacturing concern
economic reasons). business. However, for service enterprises,
gross income means gross receipts less sales
OPTIONAL GROSS INCOME TAX returns, discounts, allowances and cost of
(OGIT).— services.
Section 27 (A) of the NIRC provides for an
optional gross income tax of 15% based on Note: At present, the OGIT has not been
gross income. The President, upon the implemented in the Philippines.
recommendation of the Secretary of Finance,
may, effective January 1, 2000, allow domestic CORPORATIONS EXEMPT FROM THE
corporations the option to be taxed at fifteen MCIT: (BIPTENG)
percent (15%) of gross income as defined (1) Banks and other non-bank financial
therein, after the following conditions have intermediaries;
been satisfied: (2) Insurance companies;
(3) Publicly-held corporations;
Tax effort ratio 20% of GNP (4) Taxable partnerships;
Ratio of Income Tax collection 40% (5) General professional partnerships;
to total tax revenues (6) Non- taxable joint ventures; and
VAT tax effort 4% of GNP (7) Enterprises that are registered:
Ratio of Consolidated Public 0.90% (a) with the Philippine Economic Zone
Sector Financial Position Authority (PEZA) under R.A. 7916;
(CPSFP) to GNP (b) pursuant to the Bases Conversion and
Ratio of the Corporation’s Does not Development Act of 1992 under R.A.
Cost of Sales to Gross Sales exceed 55% 7227; and
(c) under special economic zones declared
by law which enjoy payment of special
tax rate on their registered operations
or activities in lieu of other taxes,
national or local.

PAGE 10 OF 43
 UP LAW BOC 2016 REVIEWER CORRECTIONS AND SUPPLEMENTS, PART II
Note: Words in regular letters are found in Sec.
29(B)(2) of the NIRC. Words in italics are
additions made by the revenue regulation to
consolidate Sec. 29 with other pertinent laws.
APPLICABILITY OF THE MCIT W HERE A
CORPORATION IS GOVERNED BOTH
UNDER THE REGULAR TAX SYSTEM
AND A SPECIAL INCOME TAX SYSTEM
For corporations whose operations or activities
are partly covered by the regular income tax
and partly covered under special income tax
system, the MCIT shall apply on operations by
the regular income tax system
ALLOWABLE DEDUCTIONS
ITEMIZED DEDUCTIONS
(1) Bad debts
(2) Expenses
(3) Losses
(4) Taxes
(5) Depreciation
(6) Interest
(7) Depletion of oil and gas wells and mines
(8) Charitable and other contributions
(9) Research and development
(10) Pension trusts
Optional standard deduction
Before RA 9504, effective July 6, 2009, OSD
only applied to individuals except non-resident
aliens.
But by virtue of RA 9504, it now also applies to
corporations, except non-resident foreign
corporation.
Moreover, the rate was increased from 10% to
40%.
A corporation is deemed to have elected to use
itemized deductions, unless it signifies in its
return its intention to elect optional standard
deduction. The election, when made, shall be
irrevocable for the taxable year for which the
return is made.
PAGE 11 OF 43
TAXATION OF PASSIVE INCOME
PASSIVE INCOME SUBJECT TO TAX
Note: (1) and (5) below are more appropriate for
the next section. The SC Syllabus, however,
included both in this section
PASSIVE INCOME SUBJECT TO TAX:
(1) Interest from deposits and yield or any
TAXATION LAW
other monetary benefit from deposit
substitutes and from trust funds and
similar arrangements and royalties
(2) Capital gains from the sale of shares of
stock not traded in the stock exchange
(3) Income derived from depository bank
under the expanded foreign currency
deposit system
(4) Inter-corporate dividends
(5) Capital gains realized from the sale,
exchange, or of lands and/or
buildings
Interest from deposits and yield or any
other m onetary benefit from deposit
substitutes and from trust funds and
similar arrangements and royalties
On any currency bank deposit, yield or any
other monetary benefit from deposit
substitutes, trust funds and similar
arrangements - 20%
Capital gains from the sale of shares of
stock not traded in the stock exchange
On sale, barter, exchange or other disposition
of shares of stock of a domestic corporation
not listed and traded through a local stock
exchange, held as a capital asset:
On the net capital gain:
(1) First P100,000: Final Tax of 5%
(2) On any amount in excess of P100,000:
plus 10% Final tax on the excess
 UP LAW BOC 2016 REVIEWER CORRECTIONS AND SUPPLEMENTS, PART II
Incom e derived from depository bank
under the expanded foreign currency
deposit system
Under the expanded foreign currency deposit
system (EFCDS) - 7.5%
Inter-corporate dividends
Dividends received from another domestic
corporation - exempt
Capital gains realized from the sale,
exchange, or disposition of lands
and/or buildings
On the sale, exchange or disposition of lands
and/or buildings which are not actually used in
the business of a corporation and are treated
as capital assets àOn the gross selling price,
or the current fair market value at the time of
the sale, whichever is higher, a final tax of 6%
Note: Tax treatment is the same as that of
individuals.
The capital gains tax is applied on the gross
selling price, or the current fair market value at
the time of the sale, whichever is higher. Any
gain or loss on the sale is immaterial because
there is a conclusive presumption by law that
the sale resulted in a gain.
PASSIVE INCOME NOT SUBJECT TO TAX
(1) Income derived by a depository bank under
the expanded foreign currency deposit
system from foreign currency transactions
with nonresidents, offshore banking units
in the Philippines, local commercial banks,
including branches of foreign banks that
may be authorized by the Bangko Sentral
ng Pilipinas (BSP) to transact business
with foreign currency depository system
units and other depository banks under the
expanded foreign currency deposit system
shall be exempt from income exempt from
income tax
PAGE 12 OF 43
Except: net income from transactions
specified by the Secretary of Finance upon
recommendation by the Monetary Board
BUT: Interest income from foreign currency
loans granted by such depository banks
under said expanded foreign currency
deposit system to residents, other than
offshore banking units in the Philippines,
shall be subject to a final tax at the rate of
10%.
TAXATION LAW
(2) Any income of nonresidents, whether
individuals or corporations, from
transactions with depository banks under
the expanded system shall be exempt from
exempt from income tax.
TAXATION OF CAPITAL GAINS
INCOME FROM SALE OF SHARES OF
STOCK
On sale, barter, exchange or other disposition
of shares of stock of a domestic corporation
not listed and traded through a local stock
exchange, held as a capital asset:
On the net capital gain:
(1) First P100,000: Final Tax of 5%
(2) On any amount in excess of P100,000:
plus 10% Final tax on the excess
If the shares are listed and traded in the stock
exchange, the sale is subject to other
percentage tax at a rate of ½ of 1% of the gross
selling price.
INCOME FROM THE SALE OF REAL
PROPERTY SITUATED IN THE
PHILIPPINES
 UP LAW BOC 2016 REVIEWER CORRECTIONS AND SUPPLEMENTS, PART II
Philippine & (iii) Income from the sale,
exchange, or other disposition of other
capital assets
On the sale, exchange or disposition of lands
and/or buildings which are not actually used in
the business of a corporation and are treated
as capital assets àOn the gross selling price,
or the current fair market value at the time of
the sale, whichever is higher, a final tax of 6%
Note: Tax treatment is the same as that of
individuals.
The capital gains tax is applied on the gross
selling price, or the current fair market value at
the time of the sale, whichever is higher. Any
gain or loss on the sale is immaterial because
there is a conclusive presumption by law that
the sale resulted in a gain.
Capital assets refer to property held by the
taxpayer but does not include:
1) Stock in trade or other property included in
the inventory if on hand at the close of the
taxable year;
2) Property primarily for sale to customers in
the ordinary course of trade or business;
3) Personal property used in the trade or
business and subject to depreciation; and
4) Real property used in the trade or
business.
TAX ON PROPRIETARY
EDUCATIONAL INSTITUTIONS AND
NON-PROFIT HOSPITALS
Tax Rate and Base – 10% on taxable income
(except on income subject to capital gains tax
and passive income subject to final tax) within
and without the Philippines
Caveat: If gross income from unrelated trade or
business or other activity exceeds 50%of total
gross income derived from all sources, the tax
rate of 30% shall be imposed on the entire
taxable income.
PAGE 13 OF 43
Unrelated trade, business or other activity – any
trade, business or other activity, the conduct of
which is not substantially related to the
exercise or performance by such educational
institution or hospital of its primary purpose or
function.
Proprietary educational institution – any private
school maintained and administered by private
individuals or groups with an issued permit to
operate from the DECS, CHED or TESDA, in
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accordance with existing laws and regulations.
[Sec. 27(B), NIRC]
Expenses allowed to private
educational institutions
A private educational institution may, in
addition to expenses allowable as deductions,
at its option, elect either: a) to deduct
expenditures otherwise considered as capital
outlays or depreciable assets incurred during
the taxable year for the expansion of facilities
or b) to deduct allowance for depreciation
thereof.
TAX ON GOVERNMENT-OWNED OR
CONTROLLED CORPORATIONS,
AGENCIES OR INSTRUMENTALITIES
FOR GOCCS:
General rule: GOCCs are taxable as any other
corporation engaged in similar business,
industry or activity, except:
(1) Government Service Insurance System
(GSIS)
(2) Social Security System (SSS)
(3) Philippine Health Insurance Corporation
(PHIC)
(4) Local water districts (LWDs)
(5) Philippine Charity Sweepstakes Office
(PCSO)
[Sec. 27(C), NIRC]
 UP LAW BOC 2016 REVIEWER CORRECTIONS AND SUPPLEMENTS, PART II
FOR INSTRUMENTALITIES AND
AGENCIES OF GOVERNMENT:
General rule: The government is exempt from
tax.
Exception: When it chooses to tax itself.
Nothing can prevent Congress from decreeing
that even instrumentalities or agencies of the
government performing governmental
functions may be subject to tax. Where it is
done precisely to fulfill a constitutional
mandate and national policy, no one can doubt
its wisdom. [Mactan Cebu Airport v Marcos,
1996]
If the taxing authority is the local gov’t unit
RA 7160 expressly prohibits LGUs from levying
tax on the Nat’l Gov’t, its agencies and
instrumentalities and other LGUs.
TAXATION OF RESIDENT FOREIGN
CORPORATIONS
GENERAL RULE
A resident foreign corporation is a corporation
organized under the laws of a foreign country,
which is engaged in trade or business in the
Philippines.
(a) A Philippine branch of a foreign
corporation duly licensed by the SEC is
considered a resident foreign corporation.
Thus, only the income of the Philippine
branch from sources within the Philippines
is subject to Philippine income tax.
(b) Marubeni v. Commissioner: As general rule,
the head office of a foreign corporation is
the same juridical entity as its branch in
the Philippines following the single entity
concept. Thus, the income from sources
within the Phils. of the foreign head office
shall thus be taxable to the Philippine
branch.
But, when the head office of a foreign
corporation independently and directly
PAGE 14 OF 43
invested in a domestic corporation without the
funds passing through its Philippine branch,
the taxpayer, with respect to the tax on dividend
income, would be the non-resident foreign
corporation itself and the dividend income shall
be subject to the tax similarly imposed on non-
resident foreign corporations.
Definition of “doing business” under the
Foreign Investm ent Act of 1991
The phrase "doing business" shall include
TAXATION LAW
soliciting orders, service contracts, opening
offices, whether called "liaison" offices or
branches; appointing representatives or
distributors domiciled in the Philippines or who
in any calendar year stay in the country for a
period or periods totaling one hundred eighty
[180] days or more; participating in the
management, supervision or control of any
domestic business, firm, entity or corporation
in the Philippines; and any other act or acts
that imply a continuity of commercial dealings
or arrangements and contemplate to that
extent the performance of acts or works, or the
exercise of some of the functions normally
incident to, and in progressive prosecution of
commercial gain or of the purpose and object
of the business organization: Provided,
however, That the phrase "doing business"
shall not be deemed to include mere
investment as a shareholder by a foreign entity
in domestic corporations duly registered to do
business, and/or the exercise of rights as such
investor; nor having a nominee director or
officer to represent its interests in such
corporation; nor appointing a representative or
distributor domiciled in the Philippines which
transacts business in its own name and for its
own account; [Sec. 3 (d)]
WITH RESPECT TO THEIR INCOME FROM
SOURCES WITHIN THE PHILIPPINES
Resident foreign corporations are subject to
any or some of the following:
(1) Capital Gains Tax
 UP LAW BOC 2016 REVIEWER CORRECTIONS AND SUPPLEMENTS, PART II
(2) Final Tax on Passive Income
(3) Normal Tax [OR] Minimum Corporate
Income Tax (MCIT) [OR] Gross Income Tax
(GIT)
(4) Branch Profit Remittance Tax
MINIMUM CORPORATE INCOME TAX
The discussion with respect to this topic
(income subject to normal tax, MCIT, or GIT)
under the subheading of domestic
corporations is equally applicable to resident
foreign corporations, both as to concepts and
computations, except that RFCs are taxed only
on income from sources within the Philippines.
(a) Normal Corporate Income Tax Rateà30%
of net taxable income from sources within
the Philippines [RA 9337]
(b) Minimum Corporate Income Tax
(MCIT)à2% of MCIT Gross Income from
sources within the Philippines. The MCIT is
imposed on RFCs underRFCsunder the
same conditions as domestic corporations.
[Sec. 28(A)(2)]
(c) Gross Income Tax (GIT)à The President,
upon the recommendation of the Secretary
of Finance, may allow resident foreign
corporations the option to be taxed at
fifteen percent (15%) of gross income within
the Philippines, under the same conditions
as domestic corporations. [Sec. 28(A)(1)]
TAX ON CERTAIN INCOME
INTEREST FROM DEPOSITS AND YIELD
OR ANY OTHER MONETARY BENEFIT
FROM DEPOSIT SUBSTITUTES, TRUST
FUNDS AND SIMILAR ARRANGEMENTS
AND ROYALTIES
On any currency bank deposit, yield or any
other monetary benefit from deposit
substitutes, trust funds and similar
arrangements – Final tax of 20%
INCOME DERIVED FROM A persons, excess baggage, cargo and mail
DEPOSITORY BANK UNDER THE
PAGE 15 OF 43
EXPANDED FOREIGN CURRENCY
DEPOSIT SYSTEM
Under the expanded foreign currency deposit
system (EFCDS) – Final tax of 7.5%
CAPITAL GAIN FROM SALE OF SHARES
OF STOCK NOT TRADED IN THE STOCK
EXCHANGE
On sale, barter, exchange or other disposition
of shares of stock ofstockof a domestic
corporation not listed and traded through a
TAXATION LAW
local stock exchange, held as a capital asset:
On the net capital gain:
(a) First P100,000: Final Tax of 5%
(b) On any amount in excess of P100,000:
plus 10% Final tax on the excess
INTERCORPORATE DIVIDENDS
Dividends received from a domestic
corporation liable to tax under the NIRC-
exempt
Exclude:
(1) International carrier
(2) Offshore banking units
(3) Branch profits remittances
(4) Regional or area headquarters and
regional operating headquarters of
multination companies
(Note: Expressly excluded as indicated in the SC
Syllabus. The following discussion is for
information purposes)
INTERNATIONAL CARRIER
Tax Rate and Base – 2.5% on Gross Philippine
Billings (GPB)
What is GPB.—
In the case of International Air Carriers, GPB
refers to the amount of:
(a) gross revenue derived from carriage of
originating from the Philippines in a
 UP LAW BOC 2016 REVIEWER CORRECTIONS AND SUPPLEMENTS, PART II
continuous and uninterrupted flight,
irrespective of the place of sale or issue
and the place of payment of the ticket or
passage document
(b) gross revenue from tickets revalidated,
exchanged and/or indorsed to another
international airline if the passenger
boards a plane in a port or point in the
Philippines
(c) for flights which originate from the
Philippines, but transshipment of
passenger takes place at any port outside
the Philippines on another airline, the
gross revenue consisting of only the aliquot
portion of the cost of the ticket
corresponding to the leg flown from the
Philippines to the point of transshipment
transshipment[RR 15-2002]
Air Canada vs. CIR (CTA Case No. 6572):
(a) A foreign airline company selling tickets in
the Philippines through their local agents
shall be considered as resident foreign
corporation engaged in trade or business
in the country.
(b) The absence of flight operations within the
Philippine territory cannot alter the fact
that the income received was derived from
activities within the Philippines.
(c) The test of taxability is the source, and the
source is that activity which produced the
income.
In the case of International Shipping, GPB
means:
Gross revenue whether for passenger, cargo or
mail originating from the Philippines up to
final destination, regardless of the place of
sale or payments of the passage or freight
documents.
PAGE 16 OF 43
OFFSHORE BANKING UNITS
Coverage of the Rule.—
Only income derived by offshore banking units
from foreign currency transactions with:
(1) non-residents,
(2) other offshore banking units
(3) local commercial banks including branches
of foreign banks that may be authorized by
the Bangko Sentral ng Pilipinas (BSP) to
transact business with offshore banking
units
Tax Rate.—
Exempt from all taxes, except net income from
such transactions as may be specified by the
TAXATION LAW
Secretary of Finance, upon recommendation by
the Monetary Board to be subject to the
regular income tax payable by banks
Exception: Interest income derived from foreign
currency loans granted to residents other than
offshore banking units or local commercial
banks, including local branches of foreign
banks that may be authorized by the BSP to
transact business with offshore banking units,
shall be subject only to a final tax at the rate of
10%.
BRANCH PROFITS REMITTANCES
Taxable transaction – any profit remitted by a
branch of a multinational corporation to its
head office
Tax Rate and Base – 15% final tax based on the
total profits applied or earmarked for
remittance without any deduction for the tax
component: (a) profits on activities which are
registered with the Philippine Economic Zone
Authority (PEZA) and (b) passive income gains
and profits received not directly connected
with the conduct of its trade or business in the
Philippines.
PROPOSED CHANGE IN WORDING: 15% final
withholding tax of any profit remitted by the
 UP LAW BOC 2016 REVIEWER CORRECTIONS AND SUPPLEMENTS, PART II
Philippine branch of a foreign corporation to its
head office based on the total profits applied
or earmarked for remittance without any
deduction for the tax component thereof,
except those registered with the following: a)
Philippine Economic Zone Authority (PEZA), b)
Subic Bay Metropolitan Authority (SBMA), c)
Clark Development authority (CDA), d) other
companies within the special economic zones.
Income not treated as branch profits unless
effectively connected with the conduct of trade
or business in the Philippines:
(1) Interests, dividends, rents, royalties
remuneration for technical services
(2) salaries, wages premiums, annuities,
emoluments
(3) other fixed or determinable annual,
periodic or casual gains, profits, income
(4) capital gains received during each taxable
year from all sources within the Philippines
Notes:
(1) imposed whether the head office of the
foreign corporation is located in a tax
treaty country, in a tax haven or other non-
treaty country.
(2) imposed only on the profits remitted by a
Philippine branch to the head office of a
foreign corporation.
REGIONAL OR AREA HEADQUARTERS
AND REGIONAL OPERATING
HEADQUARTERS OF MULTINATIONAL
COMPANIES
Regional or area headquarters: not subject to
income tax
Regional or area headquarters – a branch
established in the Philippines by multinational
companies and which headquarters do not
earn or derive income from the Philippines and
which act as supervisory, communications and
coordinating center for their affiliates,
PAGE 17 OF 43
subsidiaries, or branches in the Asia-Pacific
Region and other foreign markets.
Regional operating headquarters
(a) 10%of their taxable income
(b) a branch established in the Philippines by
multinational companies which are
engaged in any of the following services:
(1) general administration and planning
(2) business planning and coordination
(3) sourcing and procurement of raw
TAXATION LAW
materials and components
(4) corporate finance advisory services
(5) marketing control and sales promotion
(6) training and personnel management
(7) logistic services
(8) research and development services
and product development
(9) technical support and maintenance
(10) data processing and communications,
and
(11) business development.
TAXATION OF NON-RESIDENT
FOREIGN CORPORATIONS
GENERAL RULE
Except as otherwise provided, the tax is 30% of
the gross income (except certain passive
income)received during each taxable year from
all sources within the Philippines, such as
interests (except interests on foreign loans,
dividends, rents, royalties, salaries, premiums
(except reinsurance premiums), annuities,
emoluments or other fixed or determinable
annual, periodic or casual gains, profits and
income, and capital gains EXCEPT capital
gains on the sale of shares of stock (not listed
and traded through a local stock exchange), of
a domestic corporation which are subject to
the tax rates prescribed for individuals and
resident foreign corporations.
 UP LAW BOC 2016 REVIEWER CORRECTIONS AND SUPPLEMENTS, PART II
TAX ON CERTAIN INCOME
INTEREST ON FOREIGN LOANS
(1) on foreign loans contracted on or after
August 1, 1986 – 20%
(2) under the expanded foreign currency
deposit system (EFCDS) - exempt
INTERCORPORATE DIVIDENDS
(a) Intercorporate Dividend – 15%, as long as
the country in which the nonresident
foreign corporation is domiciled allows a
tax credit for taxes “deemed paid” in the
Philippines equivalent to at least15%
(b) 15% represents the difference between the
regular income tax of 30% on corporations
and the 15% tax on dividends (“tax sparing
credit”)
(c) If the country within which the NRFC is
domiciled does NOT allow a tax credit, a
final withholding tax at the rate of30% is
imposed on the dividends received from a
domestic corporation.
CAPITAL GAINS FROM SALE OF
SHARES OF STOCK NOT TRADED IN
THE STOCK EXCHANGE
On sale, barter, exchange or other disposition
of real property or on shares of stock of a
domestic corporation not listed and traded
PAGE 18 OF 43
through a local stock exchange, held as a
capital asset:
ON THE NET CAPITAL GAIN:
(a) First P100,000 Final Tax of 5%
(b) On any amount in excess of P100,000
plus Final Tax of 10% on the excess
Exclude:
(1) Film rentals and other payments to non-
resident cinematographic film owner,
TAXATION LAW
lessor or distributor
Final tax of 25% of gross income from all
sources within the Philippines
(2) Rental, lease and charter fees payable to
non-resident owner or lessor of vessels
chartered by Philippine nationals
Final tax of 4.5% of gross rentals, lease or
charter fees from leases or charters to
Filipino citizens or corporations, as
approved by the Maritime Authority
(3) Rentals, charter and other fees payable to
non-resident owner or lessor of aircraft
machineries and other equipment
Final tax of 7.5% of gross rentals or fees
 UP LAW BOC 2016 REVIEWER CORRECTIONS AND SUPPLEMENTS, PART II

Summary of Tax Bases and Rates of Special Corporations

Quick Glance

TAX
TYPE OF CORPORATION TAX BASE
RATE
Domestic Corporations
Proprietary Educational Institutions and Hospitals 10%
Taxable Income from all sources
(Non-profit)
Depository Banks (Foreign Currency Deposit Units)
(1) With respect to income derived under the Exempt (except that net income
expanded foreign currency deposit system from from such transactions is subject -
certain foreign currency TRANSACTIONS to the regular income tax payable
(2) With respect to interest income from foreign by banks)
currency loans to residents other than offshore
units in the Philippines or other depository banks Amount of interest income 10%
under the expanded system
Resident Foreign Corporations
International Carriers Gross Philippine Billings 2.5%
Offshore Banking Units
(1) With respect to income derived by offshore Exempt (except that net income
banking units from certain foreign currency from such transactions is subject -
transactions to the regular income tax payable
(2) With respect to interest income derived from by banks)
foreign currency loans granted to residents other
than offshore banking units or local commercial Amount of interest income 10%
banks
Resident Depository Bank (Foreign Currency Deposit
Units) Exempt (except that net income
(1) With respect to income derived under the from such transactions is subject -
expanded foreign currency deposit system from to the regular income tax payable
certain foreign currency transactions by banks)
(2) With respect to interest income from foreign
currency loans to residents other than offshore
Amount of interest income 10%
units in the Philippines or other depository banks
under the expanded system
Regional or Area Headquarters Exempt -
Regional Operating Headquarters of Multinational Taxable Income from within the 10%
Companies Philippines
Non-resident Foreign Corporations [EXCLUDED]
Non-resident cinematographic film owners, lessors or Gross Income from the 25%
distributors Philippines
Non-resident Owner or Lessor of Vessels Chartered by Gross Rentals, Lease and Charter 4.5%
Philippine Nationals Fees from the Philippines
Non-resident Owner or Lessor of Aircraft, Machineries Gross Rentals, Charges and Fees 7.5%
and Other Equipment from the Philippines

PAGE 19 OF 43
 UP LAW BOC 2016 REVIEWER CORRECTIONS AND SUPPLEMENTS, PART II
IMPROPERLY ACCUMULATED
EARNINGS OF CORPORATIONS
See: Sec. 29, as implemented by RR 2-2001
which prescribes rules governing the
imposition of IAET
Rule: There is imposed for each taxable year, in
addition to other taxes, a tax equal to 10% of
the improperly accumulated taxable income of
domestic and closely-held corporations formed
or availed of for the purpose of avoiding the
income tax with respect to its shareholders or
the shareholders of any other corporation, by
permitting the earnings and profits of the
corporation to accumulate instead of dividing
them among or distributing them to the
shareholders.
Rationale: It is a tax in the nature of a penalty
to the corporation for the improper
accumulation of its earnings, and a deterrent
to the avoidance of tax upon shareholders who
are supposed to pay dividends tax on the
earnings distributed to them. The touchstone
of the liability is the purpose behind the
accumulation of the income and not the
consequences of the accumulation.
Exception: The use of undistributed earnings
and profits for the reasonable needs of the
business would not generally make the
accumulated or undistributed earnings subject
to the tax.
W HAT IS MEANT BY “REASONABLE
NEEDS OF THE BUSINESS” IS
DETERMINED BY THE IMMEDIACY
TEST
Im m ediacy Test
It states that the “reasonable needs of the
business” are the
(1) immediate needs of the business; and
(2) reasonably anticipated needs.
PAGE 20 OF 43
How to prove the “reasonable needs of
the business”
The corporation should prove that there is
(1) an immediate need for the accumulation of
the earnings and profits; or
(2) a direct correlation of anticipated needs to
such accumulation of profits.
Composition
The following constitute accumulation of
TAXATION LAW
earnings for the reasonable needs of the
business:
(1) Allowance for the increase in the
accumulation of earnings up to 100% of
the paid-up capital of the corporation as of
Balance Sheet date,
(2) inclusive of accumulations taken from
other years;
(3) Earnings reserved for definite corporate
Expansion projects or programs requiring
considerable capital expenditure as
approved by the Board of Directors or
equivalent body;
(4) Earnings reserved for Building, Plant or
Equipment Acquisition as approved by the
Board of Directors or equivalent body;
(5) Earnings reserved for compliance with any
Loan Covenant or pre-existing obligation
established under a legitimate business
agreement;
(6) Earnings required by Law or applicable
regulations to be retained by the
corporation or in respect of which there is
legal prohibition against its distribution;
(7) In the case of subsidiaries of foreign
corporations in the Philippines, all
undistributed earnings intended or
reserved for Investments within the
Philippines as can be proven by corporate
records and/or relevant documentary
evidence.
 UP LAW BOC 2016 REVIEWER CORRECTIONS AND SUPPLEMENTS, PART II
W hat are examples of prima facie
instances of accumulation of profits
beyond the reasonable needs of the
business and indicative of purpose to
avoid incom e tax upon shareholders?
The following are such instances:
1) Investment of substantial earnings and
profits of the corporation in unrelated
business or in stock or securities of
unrelated businesses;
2) Investment in bonds and other long-term
securities;
3) Accumulation of earnings in excess of
100% of paid-up capital, not otherwise
intended for the reasonable needs of the
business.
Covered Corporations
Only domestic corporations classified as closely-
held corporations are liable for IAET.
Closely-held corporations are those:
(1) at least 50% in value of the outstanding
capital stock; or
(2) at least 50% of the total combined voting
power of all classes of stock entitled to
vote
(3) is owned directly or indirectly by or for not
more than 20 individuals. Domestic
corporations not falling under the
aforesaid definition are, therefore, publicly-
held corporations.
To determine whether the corporation is
closely held corporation, insofar as such
determination is based on stock ownership, the
following rules shall be applied:
(1) Stock Not Owned by Individuals. - Stock
owned directly or indirectly by or for a
corporation, partnership, estate or trust
shall be considered as being owned
proportionately by its shareholders,
partners or beneficiaries.
(2) Family and Partnership Ownership. - An
individual shall be considered as owning
PAGE 21 OF 43
the stock owned, directly or indirectly, by or
for his family, or by or for his partner.
For purposes of this paragraph, the ‘family
of an individual’ includes his brothers or
sisters (whether by whole or half-blood),
spouse, ancestors and lineal descendants.
(3) Option to Acquire Stocks. - If any person
has an option to acquire stock, such stock
shall be considered as owned by such
TAXATION LAW
person.
For purposes of this paragraph, an option
to acquire such an option and each one of
a series of option shall be considered as an
option to acquire such stock.
(4) Constructive Ownership as Actual
Ownership. - Stock constructively owned by
reason of the application of (a) or (c) shall,
for purposes of applying (1) or (2), be
treated as actually owned by such person.
But stock constructively owned by the
individual by reason of the application of
(b) shall NOT be treated as owned by him
for purposes of again applying such
paragraph in order to make another the
constructive owner of such stock.
BIR RULING 025-02
The ownership of a domestic corporation for
purposes of determining whether it is a closely
held corporation or a publicly held corporation
is ultimately traced to the individual
shareholders of the parent company.
Where at least 50% of the outstanding capital
stock or at least 50% of the total combined
voting power of all classes of stock entitled to
vote in a corporation is owned directly or
indirectly by at least 21 or more individuals, the
corporation is considered as a publicly-held
corporation, thus, exempt from IAET.
 UP LAW BOC 2016 REVIEWER CORRECTIONS AND SUPPLEMENTS, PART II
DETERMINATION OF REASONABLE
NEEDS OF THE BUSINESS:
An accumulation of earnings or profits
(including undistributed earnings or profits of
prior years) is unreasonable if it is not
necessary for the purpose of the business,
considering all the circumstances of the case.
To determine the “reasonable needs” of the
business in order to justify an accumulation of
earnings, the Regulations adhere to the so-
called “Immediacy Test” under American
jurisprudence as adopted in this jurisdiction.
Accordingly, the term “reasonable needs of the
business” means the immediate needs of the
business, including reasonably anticipated
needs. In either case, the corporation should
be able to prove: (a) an immediate need for the
accumulation of the earnings and profits, or (b)
the direct correlation of anticipated needs to
such accumulation of profits. Otherwise, such
accumulation would be deemed to be not for
the reasonable needs of the business, and the
penalty tax would apply.
Corporations no covered by and exempt
from IAET
1) Banks and non-bank intermediaries
2) Insurance companies
3) Publicly-held corporations
4) Taxable partnerships
5) General professional partnerships
6) Non-taxable joint ventures
7) Those registered with the PEZA, SBMA,
CDA, and in special economic zones.
TAX EXEMPT CORPORATIONS
(1) Government educational institutions.
(2) Non-stock and non-profit educational
institutions.
(3) Nonprofit labor, agricultural or
horticultural organizations
PAGE 22 OF 43
(4) Associations of farmers, fruit growers, and
the like whose primary function is to
market the product of their members
(5) Organizations with a purely local operation
whose income is derived only from
assessment, duties and fees collected from
their members to meet operational
expenses such as fire insurance company,
farmers’ or other mutual typhoon
associations, mutual ditch or irrigation
company and mutual or cooperative
TAXATION LAW
telephone company
(6) Non-stock corporation or association
organized and operated exclusively for
religious, charitable, scientific, athletic, or
cultural purposes or for the rehabilitation
of veterans, provided that no individual
person owns its assets or no individual
person receives benefit on its earnings
(7) Non-stock/ non-profit mutual savings
bank or non-stock/ non-profit cooperative
bank
(8) Non-profit civic league or organization
operating exclusively for the promotion of
social welfare
(9) Cemetery company owned and operated
exclusively for the benefit of its members
(10) Non-profit business league, chamber of
commerce, or board of trade
(11) Associations, orders, beneficiary societies
operating for the exclusive benefits of their
members. [Sec.30, NIRC]
NPC in general is subject to income tax;
PAGCOR is not subject to income tax [RA
9337]
QUALIFICATION FOR TAX EXEMPTION
UNDER SECTION 30 OF THE 1997
NIRC:
(1) It must be a non-stock corporation or
association organized and operated
exclusively for religious, charitable,
scientific, athletic or cultural purposes, or
for the rehabilitation of veterans.
 UP LAW BOC 2016 REVIEWER CORRECTIONS AND SUPPLEMENTS, PART II
(2) It should meet the following tests:
(a) Organizational Test – requires that the
corporation or association’s
constitutive documents exclusively
limit its purposes to one or more of
those described in paragraph (E) of
Section 30 of the 1997 NIRC.
(b) Operational Test – mandates that the
regular activities of the corporation or
association be exclusively devoted to
the accomplishment of the purposes
specified in paragraph (E) of Section
30 of the 1997 NIRC, as amended. A
corporation or association fails to meet
this test if a substantial part of its
operations may be considered
“activities conducted for profit”.
(3) All the net income or assets of the
corporation or association must be devoted
to its purpose/s and no part of its net
income or asset accrues to or benefits any
member or specified person.
(4) It must not be a branch of a foreign non-
stock, non-profit corporation.
[RMO No. 20-2013]
TAXATION OF PARTNERSHIPS
CLASSIFICATION OF PARTNERSHIPS
FOR TAX PURPOSES
(1) General Professional Partnerships (GPP)–
partnerships formed by persons for the
sole purpose of exercising their common
profession, no part of the income of which
is derived from engaging in any trade or
business. A GPP is exempt from income
tax. It is, however, required to file a tax
return for its income for the purpose of
furnishing information as to the share in
the gains or profits that each partner shall
include in his individual tax return.
(2) Other Partnerships (or General Co-
partnerships) – partnerships wherein all or
part of their income is derived from the
PAGE 23 OF 43
conduct of trade or business. An ordinary
business partnership is considered as a
corporation and is thus subject to
corporate tax of 30%. These partnerships
must also file quarterly income tax returns;
follow the rules on deductibility or non-
deductibility of expenditures incurred, etc.
Other Partnerships (or general co-
partnerships)
Rules:
TAXATION LAW
(1) The partnership is subject to the same rules
on corporations (capital gains tax, final tax
on passive income, normal tax, minimum
corporate income tax [MCIT] and gross
income tax [GIT]), but is not subject to the
improperly accumulated earnings tax
[IAET]. The partnership must file quarterly
and year-end income tax returns.
(2) The taxable income of the partnership, less
the normal corporate income tax (30%)
thereon, is the distributable net income of
the partnership.
(3) The share of a citizen or resident alien
individual partner in the distributable net
income after tax of a partnership is subject
to a final withholding tax of ten percent
(10%) whether distributed to the partners
or not.
(4) The share of a partner who is a non-
resident alien engaged in trade or business
in the Philippines in the distributable net
income after tax of a taxable partnership
shall be subject to a final withholding tax
of twenty percent (20%).
The share of a partner in the partnership’s
distributable net income of a year shall be
deemed to have been actually or constructively
received by the partners in the same taxable
year and shall be taxed to them in their
individual capacity, whether actually
distributed or not. [Sec. 73(D)] Such share will
be subjected to a final tax of 10% to be
withheld by the partnership. [Sec. 24(B)(2)]
 UP LAW BOC 2016 REVIEWER CORRECTIONS AND SUPPLEMENTS, PART II
CO-OW NERSHIP
There is co-ownership
(1) When two or more heirs inherit and
undivided property from a decedent.
(2) When a donor makes a gift of an undivided
property in favor of two or more donees.
When Co-ownership is not subject to tax
When the co-ownership’s activities are limited
merely to the preservation of the co-owned
property and to the collection of the income
from the property. The income derived by a co-
owner from the property shall be reported in
his individual tax return regardless of whether
such income is actually or constructively
received.
When Co-ownership is subject to tax
The following circumstances would render a
co-ownership subject to a corporate income
tax: (a) When a co-ownership is formed or
established voluntarily, or upon agreement of
the parties; (b) When the individual co-owner
reinvested his share, and (c) When the
inherited property remained undivided for
more than ten years, and no attempt was ever
made to divide to same among the co-heirs,
nor was the property under administration
proceedings nor held in trust, the property
should be considered as owned by an
unregistered partnership.
Automatically converted into an unregistered
partnership the moment the said common
properties and/or the incomes derived from
them are used as a common fund with intent to
produce profits for the heirs in proportion to
their respective shares in the inheritance as
determined in a project partition either duly
executed in an extrajudicial settlement or
approved by the court in the corresponding
testate or intestate proceeding. [Ona v. CIR,
May, 25 1972]
PAGE 24 OF 43
JOINT VENTURE AND CONSORTIUM
To constitute a” joint venture,” certain factors
are essential. Each party to the venture must
make a contribution, not necessarily of capital,
but by way of services, skill, knowledge,
material or money,; profits must be shared
among the parties; there must be a joint
proprietary interest and right of mutual control
over the subject matter of the enterprise; and
usually, there is single business transaction.
TAXATION LAW
An unincorporated joint venture is taxed likes a
corporation. The share of the joint venture
partners will no longer be taxable to them
because they partake of dividends if paid to a
domestic or resident corporation. However, an
unincorporated joint venture formed for the
purpose of undertaking a construction project
or engaging in petroleum operations pursuant
to the consortium agreement with the
Philippine Government is not subject to the
corporate income tax. Only the joint venture
partners will be taxed on their respective
shares in the income of the joint ventures.
Two elements necessary to exempt a
joint venture or consortium from tax
(1) The joint venture must be an
unincorporated entity formed by two or
more persons
(2) The joint venture was formed for the
purpose of undertaking a construction
project, or engaging in the petroleum and
other energy operations with operating
contract with the government.
TAXATION OF GENERAL PROFESSIONAL
PARTNERSHIPS
RULES
(1) A GPP is a partnership formed by persons
for the purpose of exercising their common
profession, no part of the income of which
is derived from engaging in trade or
 UP LAW BOC 2016 REVIEWER CORRECTIONS AND SUPPLEMENTS, PART II
business. A GPP as such shall not be subject
to the income tax. It is not a taxable entity
for income tax purposes.
(2) The partners shall only be liable for income
tax only in their separate and individual
capacities.
(3) For purposes of computing the distributive
share of the partners, the net income of the
GPP shall be computed in the same
manner as a corporation.
(4) The GPP may claim either itemized
deductions or it can opt to avail of the
optional standard deduction allowed to
corporations in claiming the deductions in
an amount not exceeding forty percent
(40%) of its gross income.
(5) If the partnership availed of the itemized
deduction in computing its net income, the
individual partners may still claim itemized
deductions from their share, provided,
that, the partner is precluded from
claiming the same expenses already
claimed by the GPP.
(6) If the GPP availed of the itemized
deductions, the partners are not allowed to
claim the optional standard deduction
from their share in the net income because
the optional standard deduction is a proxy
for all the items of deductions allowed in
arriving at the taxable income.
(7) Each partner shall report as gross income
his distributive share, actually or
constructively received, in the net income of
the partnership.
(8) The distributive share of a partner (actual or
constructive) shall be subject to a
creditable withholding income tax of 10% if
the amount share is not more than
P720,000 and 15% if the amount of the
share is more than P720,000. [RR 2- 1998]
(9) If the partnership sustains a net operating
loss, the partners shall be entitled to
deduct their respective shares in the net
operating loss from their individual gross
income.
PAGE 25 OF 43
GPP IS NOT A TAXABLE ENTITY
The GPP is deemed to be no more than a mere
mechanism or a flow-through entity in the
generation of income by, and the ultimate
mechanism distribution of such income to the
individual partners. [Tan v. Commissioner (Oct.
3, 1994)]
But the partnership itself is required to file
income tax returns for the purpose of
furnishing information as to the share in the
TAXATION LAW
gains or profits which each partner shall
include in his individual return. [RR 2- 1998]
The share of an individual partner in the net
profit of a general professional partnership is
deemed to have been actually or constructively
received by the partner in the same taxable year
in which such partnership net income was
earned, and shall be taxed to them in their
individual capacities, whether actually
distributed or not, at the graduated income tax
ranging from 5% to 32%.
Thus, the principle of constructive receipt of
income or profit is being applied to
undistributed profits of GPPs. The payment [to
the partners] of such tax-paid profits in
another year should no longer be liable to
income tax. [Mamalateo]
WITHHOLDING TAX
CONCEPT
Withholding tax is a method of collecting
income tax in advance from the taxable income
of the recipient of income. It is a systematic
way of collecting taxes at source, an
indispensable method of collecting taxes to
ensure adequate revenue for the government.
The withholding of income tax on
compensation income, on certain income
payments made to resident taxpayers, and on
income payments made to non-resident
 UP LAW BOC 2016 REVIEWER CORRECTIONS AND SUPPLEMENTS, PART II
taxpayers is very important for all taxpayers,
because the obligation to withhold and remit
the tax is mandatory and prescribed by law.
In the operation of the withholding tax system,
the payee is the taxpayer, the person on whom
the tax is imposed, while the payor, a separate
entity, acts no more than an agent of the
government for the collection of the tax in
order to ensure its payment. The amount
thereby used to settle the tax liability is
deemed sourced from the proceeds
constitutive of the tax base. In an ad valorem
tax, the tax paid or withheld is not deducted
from the tax base, except when the law clearly
spells out in defining the tax base.
The duty to withhold is different from the duty
to pay income tax. The revenue officers
generally disallow the expenses claimed as
deduction from gross income, if no withholding
of tax as required by law or the regulations was
withheld and remitted to the BIR within the
prescribed dates.
In addition, the withholding tax that should
have been withheld and remitted to the BIR as
well as the penalties for non-, late or erroneous
payment of the withholding tax such as
surcharges and deficiency interest are
assessed by the BIR. [Mamalateo]
W ITHHOLDING AGENT
Any person or entity who is required to deduct
and remit the taxes withheld to the
government.
(a) In general, any juridical person, whether or
not engaged in trade or business;
(b) An individual, with respect to payments
made in connection with his trade or
business. However, insofar as taxable sale,
exchange or transfer of real property is
concerned, individual buyers who are not
engaged in trade or business are also
constituted as withholding agents. In any
PAGE 26 OF 43
case, no Certificate Authorizing
Registration (CAR)/Tax Clearance
Certificate (TCL) shall be issued to the
buyer unless the withholding tax due on
the sale, transfer or exchange of real
property has been duly paid; ac. All
government offices, including GOCCs, as
well as local government units.
All income payments which are required to be
subjected to withholding tax shall be subject to
TAXATION LAW
the corresponding withholding tax rate to be
withheld by the person having control over the
payment and who, at the same time, claims
the expenses. [RR 30-2003]
Duties and Obligations of the
W ithholding Agent
(1) To Register - withholding agent is required
to register within ten (10) days after
acquiring such status with the Revenue
District office having jurisdiction where the
business is located
(2) To Deduct and Withhold - withholding
agent is required to deduct tax from all
money payments subject to withholding
tax
(3) To Remit the Tax Withheld - withholding
agent is required to remit tax withheld at
the time prescribed by law and regulations
(4) To File Annual Return - withholding agent
is required to file the corresponding
Annual Information Return at the time
prescribed by law and regulations
(5) To Issue Withholding Tax Certificates -
withholding agent shall furnish
Withholding Tax Certificates to recipient of
income payments subject to withholding
(Available, BIR Website)
(6) To submit an alphabetical list of
employees and list of payees on income
payments subject to creditable and final
withholding taxes which are required to be
attached as integral part of the Annual
Information Returns (BIR Form No. 1604-
 UP LAW BOC 2016 REVIEWER CORRECTIONS AND SUPPLEMENTS, PART II
CF/1604-E) and Monthly Remittance
Returns (BIR Form No. 1601-C, etc.). [RR
No. 1-2014, as clarified by RMC No. 5-
2014]
(7) For hospitals and clinics, to submit the
names and addresses of medical
practitioners in the following
classifications, every 15th day after the end
of each calendar quarter, to the Collection
Division of the Revenue Region for non-
large taxpayers and at the Large Taxpayers
Document Processing and Quality
Assurance Division (LTDP&QAD) in the
National Office or Large Taxpayers District
Office (LTDO) in the Region for large
taxpayers, where such hospital or clinic is
registered, using the prescribed format.
[RR No. 14-2013]
(8) In cases covered by substituted filing, to
furnish each employee with the original
copy of Certificate of Compensation/Tax
Withheld (BIR Form No. 2316) and submit
to the BIR the duplicate copy not later than
February 28 following the close of the
calendar year.
Withholding agents shall require all
individuals and entities claiming exemption
from imposition of taxes on income and,
consequently, from withholding taxes to
provide a copy of a valid, current and
subsisting tax exemption certificate or ruling,
as per existing administrative issuances and
any issuance that may be issued from time to
time, before payment of the related income.
The withholding agent’s failure to withhold
notwithstanding the lack of tax exemption
certificate or ruling shall cause the imposition
of penalties under Section 251 and other
pertinent Sections of the 1997 Tax Code. [RMC
No. 8-2014]
PAGE 27 OF 43
KINDS
W ITHHOLDING OF FINAL TAX OF
CERTAIN INCOMES
Subject to rules and regulations the Secretary
of Finance may promulgate, upon the
recommendation of the Commissioner,
requiring the filing of income tax return by
certain income payees, the tax imposed or
prescribed by specific section of the NIRC on
specified items of income shall be withheld by
payor-corporation and/or person and paid in
TAXATION LAW
the same manner and subject to the same
conditions as provided in Section 58 of the
NIRC.
W ITHHOLDING OF CREDITABLE TAX
AT SOURCE
The Secretary of Finance may, upon the
recommendation of the Commissioner, require
the withholding of a tax on the items of income
payable to natural or juridical persons, residing
in the Philippines, by payor-
corporation/persons as provided for by law, at
the rate of not less than one percent (1%) but
not more than thirty-two percent(32%), which
shall be credited against the income tax
liability of the taxpayer for the taxable year.
W ithholding of creditable tax (RR 2-
98)
(a) Under the creditable withholding tax
system, taxes withheld on certain income
payments are intended to equal or at least
approximate the tax due of the payee on
said income.
(b) The income recipient is still required to file
an income tax return, to report the income
and/or pay the difference between the tax
withheld and the tax due on the income.
(c) Taxes withheld on income payments
covered by the expanded withholding tax
and compensation income are creditable in
nature.
 UP LAW BOC 2016 REVIEWER CORRECTIONS AND SUPPLEMENTS, PART II
WITHHOLDING OF VAT
(1) On gross payments for the purchase of
goods
(2) On gross payments for the purchase of
services
(3) Payments made to government public
works contractors
(4) Payments for lease or use of property or
property rights to non-resident owners
FILING OF RETURN AND PAYMENT OF
TAXES WITHHELD
W HERE TO FILE AND PAY:
(1) Authorized agent bank;
(2) Collection Agent;
(3) the duly authorized Treasurer of the city or
municipality where the employer has his
legal residence or principal place of
business, or in case the employer is a
corporation, where the principal office is
located; or
(4) As Commissioner otherwise permits.
PERIOD FOR FILING AND PAYMENT:
(a) The return shall be filed and the payment
made within twenty-five (25) days from the
close of each calendar quarter.
(b) The Commissioner may, with the approval
of the Secretary of Finance, require the
employers to pay or deposit the taxes
deducted and withheld at more frequent
intervals, in cases where such requirement
is deemed necessary to protect the interest
of the Government.
TAXES AS SPECIAL FUND IN TRUST
The taxes deducted and withheld by employers
shall be held in a special fund in trust for the
Government until the same are paid to the said
collecting officers.
PAGE 28 OF 43
RETURN AND PAYMENT IN CASE OF
GOVERNMENT EMPLOYEES
If the employer is the Government of the
Philippines or any political subdivision, agency
or instrumentality thereof, the return of the
amount deducted and withheld upon any wage
shall be made by the officer or employee
having control of the payment of such wage, or
by any officer or employee duly designated for
the purpose.
STATEMENTS AND RETURNS
Every employer required to deduct and
TAXATION LAW
withhold a tax shall:
(1) Furnish to each such employee in respect
of his employment a written statement
confirming the wages paid by the employer
to such employee during the calendar year,
and the amount of tax deducted and
withheld and such other information as the
Commissioner may prescribe
(a) During the calendar year, on or before
January thirty-first (31st) of the
succeeding yea; or
(b) If his employment is terminated before
the close of such calendar year, on the
same day of which the last payment of
wages is made
(2) Submit to the Commissioner an annual
information return on or before January
thirty-first (31st) of the succeeding year
containing:
(a) A list of employees;
(b) The total amount of compensation
income of each employee;
(c) The total amount of taxes withheld
therefrom during the year,
accompanied by copies of the written
statements furnished to employees,
and such other information as may be
deemed necessary.
The Commissioner may grant to any employer
a reasonable extension of time to furnish and
submit the statements and returns required.
 UP LAW BOC 2016 REVIEWER CORRECTIONS AND SUPPLEMENTS, PART II
FINAL WITHHOLDING TAX AT SOURCE
Under the final withholding tax system, the
amount of income tax withheld by the
withholding agent is constituted as a full and
final payment of the income tax due from
payee on the said income (e.g., interest on
deposits, royalties, etc.). The liability for
payment of the tax rests primarily on the payor
as a withholding agent. Thus, in case of the
withholding agent’s failure to withhold the tax
or in case of under-withholding, the deficiency
tax shall be collected from him. The payee is
not required to file an income tax return for the
particular income, nor is he liable for the
payment of the tax. [Sec. 2.57, RR No. 2-98]
The finality of the withholding tax is limited
only to the payee’s income tax liability on the
particular income. It does not extend to the
payee’s other tax liability on said income, such
as when the said income is further subject to a
percentage tax, such as gross receipts tax in
the case of a bank.
INCOME PAYMENTS SUBJECT TO
FINAL W ITHHOLDING TAX:
(1) Income Payments to a Citizen or to a
Resident Alien Individual
(a) Interest on any peso bank deposit
(b) Royalties
(c) Prizes (except prizes amounting to
P10,000 or less which is subject to
tax under Sec. 25(A)(1) of the Tax
Code
(d) Winnings (except from Philippine
Charity Sweepstake Office and
Lotto)
(e) Interest income on foreign currency
deposit
(f) Interest income from long term
deposit
(g) Cash and/or property dividends
(h) Capital Gains presumed to have
been realized from the sale,
PAGE 29 OF 43
exchange or other disposition of
real property
(2) Income Payments to a Non-Resident Alien
Engaged in Trade or Business in the
Philippines
(a) On Certain Passive Income
(i) cash and/or property dividend
(ii) share in the distributable net
income of a partnership
(iii) Interest on any bank deposits
(iv) Royalties
TAXATION LAW
(v) Prizes (except prizes
amounting to P10,000 or less
which is subject to tax under
Sec. 25(A)(1) of the Tax Code.
(vi) Winnings (except from
Philippine Charity Sweepstake
Office and Lotto)
(b) Interest on Long Term Deposits
(c) Capital Gains presumed to have been
realized from the sale, exchange or
other disposition of real property
(3) Income Derived from All Sources Within
the Philippines by a Non-Resident Alien
Individual Not Engaged in Trade or
Business
(a) On gross amount of income derived
from all sources within the Philippines
(b) On Capital Gains presumed to have
been realized from the sale, exchange
or disposition of real property located
in the Philippines
(4) Income Derived by Alien Individual
Employed by a Regional or Area
Headquarters and Regional Operating
Headquarters of Multinational Companies
(5) Income Derived by Alien Individual
Employed by Offshore Banking Unit
(6) Income of Aliens Employed by Foreign
Petroleum Service Contractors and
Subcontractors
(7) Income Payment to a Domestic
Corporation
(a) Interest from any currency bank
deposits and yield or any other
 UP LAW BOC 2016 REVIEWER CORRECTIONS AND SUPPLEMENTS, PART II
monetary benefit from deposit
substitutes and from trust fund and
similar arrangements derived from
sources within the Philippines
(b) Royalties derived from sources within
the Philippines
(c) Interest income derived from a
depository bank under the Expanded
Foreign Currency Deposit (FCDU)
System
(d) Income derived by a depository bank
under the FCDU from foreign
transactions with local commercial
banks
(e) On capital gains presumed to have
been realized from the sale, exchange
or other disposition of real property
located in the Philippines classified as
capital assets, including pacto de
retro sales and other forms of
conditional sales based on the gross
selling price or fair market value as
determined in accordance with Sec.
6(E) of the NIRC, whichever is higher
(8) Income Payments to a Resident Foreign
Corporation
(a) Offshore Banking Units
(b) Tax on branch Profit Remittances
(c) Interest on any currency bank deposits
and yield or any other monetary benefit
from deposit substitute and from trust
funds and similar arrangements and
royalties derived from sources within
the Philippines
(d) Interest income on FCDU
(e) Income derived by a depository bank
under the expanded foreign currency
deposits system from foreign currency
transactions with local commercial
banks
(9) Income Derived from all Sources Within
the Philippines by a Non-Resident Foreign
Corporation
(a) Gross income from all sources within
the Philippines such as interest,
PAGE 30 OF 43
dividends, rents, royalties, salaries,
premiums (except re-insurance
premiums), annuities, emoluments or
other fixed determinable annual,
periodic or casual gains, profits and
income or capital gains
(b) Gross income from all sources within
the Philippines derived by a non-
resident cinematographic film owner,
lessor and distributor
(c) On the gross rentals, lease and charter
TAXATION LAW
fees derived by a non-resident owner or
lessor of vessels from leases or
charters to Filipino citizens or
corporations as approved by the
Maritime Industry Authority
(d) On the gross rentals, charter and other
fees derived by a non-resident lessor of
aircraft, machineries and other
equipment
(e) Interest on foreign loans contracted on
or after August 1, 1986
(10) Fringe Benefits Granted to the Employee
(except Rank and File)
Goods, services or other benefits furnished
or granted in cash or in kind by an
employer to an individual employee
(except rank and file) such as but not
limited to the following:
(a) Housing
(b) Vehicle of any kind
(c) Interest on loans
(d) Expenses for foreign travel
(e) Holiday and vacation expenses
(f) Educational assistance to employees
or his dependents
(g) Membership fees, dues and other
expense in social and athletic clubs or
other similar organizations – Health
insurance
(h) Informers Reward
 UP LAW BOC 2016 REVIEWER CORRECTIONS AND SUPPLEMENTS, PART II
CREDITABLE WITHHOLDING TAX
Taxes withheld on certain income payments
are intended to equal or at least approximate
the tax due of the payee on the income. The
income recipient is still required to file his
income tax return as prescribed in Section 51 of
the NIRC, wither to report the income and/or
pay the difference between the tax withheld
and the tax due on the income.
EXPANDED W ITHHOLDING TAX
A kind of withholding tax which is prescribed
on certain income payments and is creditable
against the income tax due of the payee for the
taxable quarter/year in which the particular
income was earned.
An income payment is subject to the expanded
withholding tax if the following conditions
concur:
An expense is paid or payable by the taxpayer,
which is income to the recipient thereof subject
to income tax;
(a) The income is fixed or determinable at
the time of payment;
(b) The income is one of the income
payments listed in the regulations that
is subject to withholding tax;
(c) The income recipient is a resident of
the Philippines liable to income tax;
and
(d) The payor-withholding agent is also a
resident of the Philippines.
Incom e paym ents subject to Expanded
W ithholding Tax:
(1) Professional fees / talent fees for services
rendered by the following individuals:
(a) Those individually engaged in the
practice of profession or callings
(b) Professional entertainers such as but
not limited to actors and actresses,
singers and emcees
PAGE 31 OF 43
(c) Professional athletes including
basketball players, pelotaris and
jockeys
(d) Directors involved in movies, stage,
radio, television and musical directors
(e) Insurance agents and insurance
adjusters
(f) Management and technical
consultants
(g) Bookkeeping agents and agencies
(h) Other recipient of talent fees
TAXATION LAW
(i) Fees of directors who are not
employees of the company paying such
fees whose duties are confined to
attendance art and participation in the
meetings of the Board of Directors
(2) Professional fees, talent fees, etc for
services of taxable juridical persons
(3) Rental of real property used in business
(4) Rental of personal properties in excess of P
10,000 annually
(5) Rental of poles, satellites and transmission
facilities
(6) Rental of billboards
(7) Cinematographic film rentals and other
payments
(8) Income payments to certain contractors
(a) General engineering contractors
(b) General building contractors
(c) Specialty contractors
(d) Other contractors like:
(i) Transportation contractors which
include common carriers for the
carriage of goods and
merchandise of whatever kind by
land, air or water, where the gross
payments by the payor to the
same payee amounts to at least
two thousand pesos (P2,000) per
month, regardless of the number
of shipments during the month
(ii) Filling, demolition and salvage
work contractors and operators of
mine drilling apparatus
(iii) Operators of dockyards
 UP LAW BOC 2016 REVIEWER CORRECTIONS AND SUPPLEMENTS, PART II

(iv) Persons engaged in the (10) Gross commission or service fees of

installation of water system, and customs, insurance, stock, real estate,
gas or electric light, hear or power immigration and commercial brokers and
(v) Operators of stevedoring, fees of agents of professional entertainers
warehousing or forwarding (11) Commission, rebates, discounts and other
establishments similar considerations paid/granted to
(vi) Printers, bookbinders, independent and exclusive distributors,
lithographers and publishers, medical/technical and sales
except those principally engaged representatives and marketing agents and
in the publication or printing of sub-agents of multi level marketing
any newspaper, magazine, review companies

TAXATION LAW
or bulletin which appears at (12) Income payments to partners of general
regular intervals, with fixed prices professional partnerships
for subscription and sale (13) Payments made to medical practitioners
(vii) Advertising agencies, exclusive of through a duly registered professional
payments to media partnership
(viii) Independent producers of (14) Payments for medical/dental/veterinary
television, radio and stage services thru hospitals/clinics/health
performances or shows maintenance organizations, including
(ix) Independent producers of direct payments to service providers
"jingles" (15) Gross selling price or total amount of
(x) Labor recruiting agencies consideration or its equivalent paid to the
(xi) Persons engaged in the seller/owner for the sale, exchange or
installation of elevators, central air transfer of real property
conditioning units, computer (16) Additional income payments to
machines and other equipment government personnel from importers,
and machineries and the shipping and airline companies or their
maintenance services thereon agents
(xii) Messengerial, janitorial, security, (17) Certain income payments made by credit
private detective and other card companies
business agencies (18) Income payments made by the top 10,000
(xiii) Persons engaged in landscaping private corporations to their purchase of
services goods and services from their
(xiv) Persons engaged in the collection local/resident suppliers other than those
and disposal of garbage covered by other rates of withholding
(xv) TV and radio station operators on (19) Income payments by government offices
sale of TV and radio airtime, and on their purchase of goods and services,
(xvi) TV and radio blocktimers on sale from local/resident suppliers
of TV and radio commercial spots (20) Tolling fees paid to refineries
(xvii) Persons engaged in the sale of (21) Payments made by pre-need companies to
computer services, computer funeral parlors
programmers, software (22) Payments made to embalmers by
developer/designer, etc. funeral parlors
(9) Income distribution to the beneficiaries of (23)Income payments made to suppliers of
estates and trusts agricultural products

PAGE 32 OF 43
 UP LAW BOC 2016 REVIEWER CORRECTIONS AND SUPPLEMENTS, PART II
(24) Income payments on purchases of
mineral, mineral products and quarry
resources
Income payments to RESPs (i.e., real estate
consultants, real estate appraisers and real
estate brokers) who passed the licensure
examination given by the Real Estate Service
under the Professional Regulations
Commission (PRC) are classified as
professional fees subject to 10%/15% EWT.
On the other hand, income payments to RESPs
(i.e., real estate consultants, real estate
appraisers and real estate brokers) who failed
or did not take up the licensure examination
given by the Real Estate Service under the PRC
are classified as commission/brokerage fees
subject to 10% EWT. [RR No. 10-2013]
It shall be the duty and responsibility of the
hospitals, clinics, HMOs and similar
establishments to withhold and remit taxes
due on the professional fees of their respective
accredited medical practitioners, paid by
patients who were admitted and confined to
such hospitals and clinics. [RR No. 14-2013]
The withholding tax on professional fees paid
to medical practitioners shall not apply
whenever there is proof that no professional
fee has in fact been charged by the medical
practitioner and paid by his patient, as shown
in a sworn declaration jointly executed by the
medical practitioner and his patient. [RR No.
14-2013]
W ITHHOLDING TAX ON
COMPENSATION
The tax withheld from income payments to
individuals arising from an employer-
employee relationship.
PAGE 33 OF 43
Compensation is any remuneration received for
services performed by an employee from his
employer under an employee-employer
relationship.
The different kinds of compensation
are:
(1) Regular compensation - includes basic
salary, fixed allowances for representation,
transportation and others paid to an
employee
TAXATION LAW
(2) Supplemental compensation - includes
payments to an employee in addition to
the regular compensation such as but not
limited to the following:
(a) Overtime Pay
(b) Fees, including director's fees
(c) Commission
(d) Profit Sharing
(e) Monetized Vacation and Sick Leave
(f) Fringe benefits received by rank & file
employees
(g) Hazard Pay
(h) Taxable 13th month pay and other
benefits
(i) Other remunerations received from an
employee-employer relationship
Exemptions from W ithholding tax on
compensation:
Remuneration as an incident of employment
(a) Retirement benefits received under RA
7641 (Retirement Pay Law) and those
received by officials and employees of
private firms, under a reasonable private
benefit plan.
(b) Any amount received by an official or
employee or by his heirs from the employer
due to death, sickness or other physical
disability or for any cause beyond the
control of the said official or employee
such as retrenchment, redundancy or
cessation of business
 UP LAW BOC 2016 REVIEWER CORRECTIONS AND SUPPLEMENTS, PART II
(c) Social security benefits, retirement
gratuities, pensions and other similar
benefits
(d) Payment of benefits due or to become due
to any person residing in the Philippines
under the law of the US administered US
Veterans Administration
(e) Payment of benefits made under the SSS
Act of 1954, as amended
(f) Benefits received from the GSIS Act of
1937, as amended, and the retirement
gratuity received by the government
employee
(g) Remuneration paid for agricultural labor
(h) Remuneration for domestic services
(i) Remuneration for casual labor not in the
course of an employer's trade or business
(j) Compensation for services by a citizen or
resident of the Philippines for a foreign
government or an international
organization
(k) Payment for damages – actual, moral,
exemplary damages received by an
employee or his heirs pursuant to a final
judgment or compromise agreement
arising out of or related to an employer-
employee relationship.
(l) Proceeds of Life Insurance – the proceeds
of life insurance policies paid to the heirs or
beneficiaries upon the death of the
insured, whether in a single sum or
otherwise; provided however, that interest
payments agreed under the policy for the
amounts which are held by the insured
under such an agreement shall be
INCLUDED in the gross income.
(m) Amount received by the insured as a return
of premium
(n) Compensation for injuries or sickness –
amounts received through accident or
health insurance or under Workmen’s
Compensation Acts, as compensation for
personal injuries or sickness, plus the
amount of any damages received whether
PAGE 34 OF 43
by suit or agreement on account of such
injuries or sickness.
(o) Income exempt under Treaty
(p) Thirteenth (13th) month pay and other
benefits (not to exceed P 30,000)
(i) Mandatory 1 month basic salary
received after the twelfth *12th) month
pay
(ii) Other benefits such as Christmas
bonus, productivity incentives, loyalty
award, gift in cash or in kind and other
TAXATION LAW
benefits of similar nature actually
received by officials and employees of
both government and private offices
including the Additional Compensation
Allowance (ACA) granted and paid to
all officials and employees of the
Nations Government (NGAs) including
State Universities and Colleges (SUCs),
Government-Owned-or-Controlled
Corporations (GOCCs), Government
Financial Institutions (GFIs) and Local
Government Units (LGUs)
(a) De minimis benefits, given in
excess of the ceilings prescribed in
regulations, shall be taxable to the
recipient –employee only if such
excess is beyond the P30,000
threshold.
(q) GSIS, SSS, Medicare and other
contributions – GSIS, SSS, Medicare and
Pag-Ibig contributions, and union dues of
individual employees
(r) Compensation income of MWEs who work
in the private sector and being paid the
statutory minimum wage (SMW), as fixed
by Regional Tripartitie Wage and
Productivity Board (RTWPB)/National
Wages and Productivity Commission
(NWPC), applicable to the place where
he/she is assigned
(s) Compensation income of employees in the
public sector with compensation income of
not more than the SMW in the non-
agricultural sector, as fixed by
 UP LAW BOC 2016 REVIEWER CORRECTIONS AND SUPPLEMENTS, PART II

RTWPB/NWPC, applicable to the place becomes due, demandable or legally

where he/she is assigned. enforceable.

TIMING OF WITHHOLDING Where income is not yet paid or payable but

The obligation of the payor to deduct and
withhold the tax arises at the time an income
payment is paid or payable, or the income
payment is accrued or recorded as an expense
or asset, whichever is applicable, in the payor’s
books, whichever comes first. The term
“payable” refers to the date the obligation
the same has been recorded as an expense or
asset, whichever is applicable, in the payor’s
books, the obligation to withhold shall arise in
the last month of the return period in which the
same is claimed as an expense or amortized
for tax purposes. [Mamalateo]

TAXATION LAW

PAGE 35 OF 43
 UP LAW BOC 2016 REVIEWER CORRECTIONS AND SUPPLEMENTS, PART II
REMEDIAL LAW
1) P. 31, survival of causes of action:
The examples had been reversed. The
action for damages was meant to appear
under a cause of action that survives,
while purely personal actions like those
for support was meant to appear under a
cause of action that does not survive.
2) P. 38, comparison of third-party
complaint and counterclaim: The
categorical statement that the counter
claim “may exceed in amount or be
different in kind from that sought in the
original complaint” is applicable to
compulsory counterclaims. The rule is not
as clear with permissive counterclaims.
3) P. 60, exceptions to proof of
service: The third exception is wrong. A
party in default cannot participate in the
trial, but is still entitled to notices [Rule 9,
Section 3].
4) P. 64, defense of prescription: Dino
v. Court of Appeals [G.R. No. 113564
(2001)] applies the Gicano doctrine and
allowed the dismissal of an action on the
ground of prescription even after
judgment on the merits, or even if the
defense was not raised at all so long as
the relevant dates are clear on the
record. The general rule is still that
the defense of prescription is waived if not
invoked. The exception is when there
are no new issues of fact arising in
connection with the question of
prescription, it may then be properly
invoked. Rule 9, Section 1 enshrines this
doctrine by providing that “[h]owever,
when it appears from the pleadings or
the evidence on record that […] the
action is barred […] by statute of
limitations, the court shall dismiss the
claim.” The exact words of the Court here
were, “[t]he dates of delivery and
institution of the action are undisputed.
There are no new issues of fact arising in
connection with the question of
prescription, thus carving out the
case at bar as an exception from
the general rule that prescription
PAGE 36 OF 43
if not impleaded in the answer is
deemed waived.”
5) P. 117, flowchart, appeals from
criminal cases: Where the penalty
imposed by the RTC is reclusion perpetua
or life imprisonment, appeal is by notice
of appeal to CA [Rule 122, Section 3(a)(c)
(People v. Mateo, G.R. No. 147678
(2004))]. Where the RTC imposed the
penalty of death, no notice of appeal is
necessary. The Court of Appeals will
automatically review the judgment [Rule
122, Section 3(d) and 122 Section 10].
On appeal, if the Court of Appeals
imposes reclusion perpetua or life
imprisonment, it will render and enter
judgment. Appeal to the Supreme Court
is by notice of appeal [Rule 124, Section
13(c)]. If the Court of Appeals imposes
death, it will render judgment but will not
enter, and will certify the case to the
Supreme Court for review [Rule 124,
Section 13(a)].
REMEDIAL
6) P. 117, flowchart, Ombudsman: In
Perez v. Office of the Ombudsman [G.R.
LAW
No. 131445 (2004)], the court found that
the nature of the case determines the
proper remedy and the appellate court
concerned when it comes to decisions or
orders of the Ombudsman. “If it is an
administrative case, appeal should be
taken to the Court of Appeals under Rule
43 of the Rules of Court. If it is a criminal
case, the proper remedy is to file with the
Supreme Court an original petition for
certiorari under Rule 65.” The finding in
Fabian v. Desierto is that Section 27 of
R.A. 6770 is unconstitutional for
“authorizing an appeal to this Court from
decisions of the Office of the Ombudsman
in administrative disciplinary
cases.” In Perez, the Court clarified that
“the procedure set out in Kuizon vs.
Ombudsman and Mendoza-Arce vs.
Ombudsman, requiring that petitions
for certiorari questioning the
Om budsm an’s orders or decisions
in criminal cases should be filed in
the Supreme Court and not the Court
of Appeals, is still the prevailing
rule.”
 UP LAW BOC 2016 REVIEWER CORRECTIONS AND SUPPLEMENTS, PART II
The finding in Carpio-Morales v. Court of
Appeals and Binay [G.R. No. 217126
(2015)] did not affect this rule. Firstly, the
Court made no such statement,
even after outlining the jurisprudence in
support of their ruling. Secondly, the
invalidation of the second paragraph of
Section 14, RA 6770 did not affect
petitions under Rule 65. This is because
the Court found that the second
paragraph of Section 14, R.A. 6770 allows
only the remedy of a Rule 45 appeal
from decisions or findings of the
Ombudsman (pp. 20-22). The Court said
that the offending paragraph
cannot be taken to mean a Rule 65
petition because the latter relates to an
error of jurisdiction, and not of judgment
(p. 21). That is why the Court applied its
ruling in Fabian – because the questioned
provision expanded the appellate
jurisdiction of the Supreme Court without
its consent, by providing that Rule
45 is the proper method of assailing
orders of the Ombudsman; not because
the provision related to Rule 65. In fact, it
stated, “[m]ore significantly, by
confining the remedy to a Rule 45
appeal, the provision takes away
the remedy of certiorari, grounded on
errors of jurisdiction, in denigration of the
judicial power constitutionally vested in
courts.” Thirdly, the subject of the Court’s
ruling in Binay, Jr. was the subject-matter
jurisdiction of the Court of Appeals in
relation to Rule 65 petitions for an
administrative case. Binay Jr. was
arguing before the Court of Appeals that
“he could not be held administratively
liable.” It related to Binay Jr. assailing
preventive suspension orders issued in
relation to administrative cases (footnote
17, p. 3) before the Court of Appeals. From
these facts, the Court of Appeals had
subject matter jurisdiction over
Rule 65 petitions in an
administrative case. While not
explicitly stated, the upholding of the
subject-matter jurisdiction of the Court of
Appeals over a Rule 65 petition in this
case (which was about the preventive
suspension order issued in an
administrative case) seemed to not
PAGE 37 OF 43
have affected Perez, Kuizon or Mendoza-
Arce.
To summarize:
Administrative Criminal
Case Case
To Court of Appeals Supreme
Court
Mode Appeal, Rule 43 Original
petition for
certiorari,
Rule 65
7) P. 122, proceedings after answer is
filed: Please note that if the effect of
FAME was the prevention of an appeal,
and the court finds the allegations to be
true, the court will treat it as if a timely
appeal had been filed.
8) P. 139, remedies of purchaser if
sale not effective (action to recover
property): In Villanueva v. Cherdan
Lending Investors Corp. [G.R. No. 177881
(2010)], the court found that a
purchaser’s right of possession is
recognized only as against the judgment
REMEDIAL
debtor and his successor-in-interest. It is
not so against persons whose right of
LAW
possession is adverse. When a third party
is in possession of the property
purchased, the possession is presumed to
be based on just title, “a presum ption
which may be overcome by the
purchaser in a judicial proceeding
for recovery of the property.”
Through that proceeding, the nature of
the adverse possession may be
determined. This is implied by Art. 433 of
the NCC. The exact words of the Court
were, “[o]ne who claims to be the owner
of a property possessed by another must
bring the appropriate judicial action for its
physical recovery.” Therefore, the last
remedy outlined specifically addresses
the exception in Section 33, Rule 39,
which provides that, “[t]he possession of
the property shall be given to the
purchaser or last redemptioner by the
same officer unless a third party is
actually holding the property
adversely to the judgment obligor.”
The Court in Villanueva cited BPI v. Icot,
DBP v. Prime Neighborhood Association,
 UP LAW BOC 2016 REVIEWER CORRECTIONS AND SUPPLEMENTS, PART II
Dayot v. Shell Chemical, and PNB v. Court
of Appeals.
9) P. 283: The reason for the “NOTE”
under the jurisdiction of the
Sandiganbayan is to alert the candidate
that the law had been amended,
specifically to change “PNP chief
superintendent and PNP officers of higher
rank” to “Officers of the PNP while
occupying the position of provincial
director and those holding the rank of
senior superintendent and higher.” In
other respects, the enumeration remains
the same. Please see page 13-14 of this
same reviewer for further clarity on the
enumeration.
10) P. 283-284, jurisdiction of the
MeTC, MTC, etc: In cases where the
only penalty provided by law is a fine, a
fine of not more than PHP4,000 will give
jurisdiction to the Metropolitan Trial
Courts, Municipal Trial Courts, and
Municipal Circuit Trial Courts. If the
amount of the fine exceeds four thousand
pesos, the Regional Trial Court shall have
jurisdiction. [SC Circular 09-94, June 14,
1994]
11) P. 287/288, control of prosecution,
effect of lack of intervention: AM
No. 02-2-07-SC (effective 2002) provides
that “Once so authorized to prosecute the
criminal action, the private prosecutor
shall continue to prosecute the case up to
end of the trial even in the absence of a
public prosecutor, unless the authority is
revoked or otherwise withdrawn.” Note,
however, that some cases still provide
that the presence of the public prosecutor
is still required. For support, see not only
People v. Beriales (1976), but also Mobilia
Products Inc. vs. Umezawa, G.R. No.
149357 (2005). In Mobilia, a motion for
reconsideration filed by the private
prosecutor without the conformity of the
public prosecutor and this was deemed to
not comply with the requirements of
giving public prosecutors control over
prosecution. In getting to that conclusion,
the Court made the statement, “The
public prosecutor may turn over the
actual prosecution of the criminal case, in
PAGE 38 OF 43
the exercise of his discretion, but he may,
at any time, take over the actual conduct
of the trial. However, it is necessary that
the public prosecutor be present at the
trial until the final termination of the
case; otherwise, if he is absent, it cannot
be gainsaid that the trial is under his
supervision and control.” A possible
resolution is that conduct of trial may be
done in the absence of a public
prosecutor, as provided in Rule 110,
Section 5, but that filing of MRs, offer of
evidence, etc requires the conformity of
the public prosecutor.
12) P. 289, cause of accusation: As
provided in the original copy, exemplary
damages may still be awarded, even
if the aggravating circumstances are not
alleged in the information. The basis,
however, is no longer Art. 2230 of the
NCC, but Art. 2229 [People v. Dalisay, G.R.
No. 188106 (2009)]
13) P. 298, review of preliminary
investigation: SOJ may review, on
petition or motu proprio. The SOJ’s
REMEDIAL
resolution may be brought before the
Supreme Court via Rule 65. Note, also,
LAW
that appeals to the Office of the President
from the DOJ are only for offenses
punishable by reclusion perpetua to death.
14) P. 312, waiver of right to be
present: The accused waives his right to
be present to the specific trial/hearing
date he is absent for without justifiable
cause of which he had notice, but waives
his right to all subsequent trial/hearing
dates until custody is regained. [Rule 115,
Section 1(c)]
15) P. 316, procedure of arraignment: If
the accused pleads guilty to a non-capital
offense, the court may receive evidence to
determine the penalty to be imposed. If
the accused pleads guilty to a capital
offense, the prosecution must not only
still prove the accused’s guilt beyond
reasonable doubt; the court must also
conduct a searching inquiry as to the
voluntariness of the plea.
 UP LAW BOC 2016 REVIEWER CORRECTIONS AND SUPPLEMENTS, PART II
16) P. 318, when accused may enter
plea of guilty to a lesser offense:
The team apologizes. Please note that
that last requisite provided, “[t]he penalty
for the lesser offense is not more than two
degrees lower than the imposable penalty
for the crime charged” is contained in a
Senate Bill that seems to have not yet
been enacted.
17) P. 326, denial vs. grant of MTQ:
Note that the grant of an MTQ disposes of
the criminal case on the merits when the
ground is the extinguishment of liability
or double jeopardy.
18) P. 330, exception to presence of
accused in trial: please replace the
citation of Lavides under the exception to
the exception with Carredo v. People, G.R.
No. 77542 (1990)
PAGE 39 OF 43
19) P. 339, where to appeal: Where the
RTC imposed the penalty reclusion
perpetua or life imprisonment, appeal is
by notice of appeal to CA [Rule 122,
Section 3(a)(c) (People v. Mateo, G.R. No.
147678 (2004))]. Where the RTC imposed
the penalty of death, no notice of appeal
is necessary. The Court of Appeals will
automatically review the judgment [Rule
122, Section 3(d) and 122 Section 10].
On appeal, if the Court of Appeals
imposes reclusion perpetua or life
imprisonment, it will render and enter
judgment. Appeal to the Supreme Court
is by notice of appeal [Rule 124, Section
13(c)]. If the Court of Appeals imposes
death, it will render judgment but will not
enter, and will certify the case to the
Supreme Court for review [Rule 124,
Section 13(a)].
REMEDIAL
LAW
 UP LAW BOC 2016 REVIEWER CORRECTIONS AND SUPPLEMENTS, PART II
LEGAL AND
JUDICIAL ETHICS
1. Reviewer, p. 11, E.2.A.(6)
ORIGINAL TEXT:
E.2. PUBLIC OFFICIALS WHO CANNOT
PRACTICE LAW OR WITH RESTRICTIONS
E.2.A. ABSOLUTE PROHIBITION
(6) Members of the Judicial Bar Council [Sec.
2, Art. IX-A, Consti];
COMMENT:
The team apologizes. The cited section in the
Constitution does not include members of the
JBC. They should not be included in the
enumeration.
2. Reviewer, p. 12, column 1:
Lawyer’s oath
ORIGINAL TEXT:
I, ___________________, do solemnly swear that:
I will maintain allegiance to the Republic of
the Philippines;
I will support its Constitution and obey the
laws as well as the legal orders of the duly
constituted authorities therein;
I will do no falsehood, nor consent to the
doing of any in court;
I will not wittingly or willingly promote or sue
any groundless, false or unlawful suit, nor
give aid nor consent to the same;
I will delay no man for money or malice, and
will conduct myself as a lawyer according to
the best of my knowledge and discretion with
all fidelity as well to the courts as to my
clients; and
I impose upon myself this voluntary
obligation without any mental reservation or
purpose of evasion. So help me God.
CORRECTED VERSION:
I, ___________________, do solemnly swear that:
I will maintain allegiance to the Republic of
the Philippines;
I will support its Constitution and obey the
laws as well as the legal orders of the duly
constituted authorities therein;
PAGE 40 OF 43
I will do no falsehood, nor consent to the
doing of any in court;
I will not wittingly or willingly promote or sue
any groundless, false or unlawful suit, nor
give aid nor consent to the same;
I will delay no man for money or malice, and
will conduct myself as a lawyer according to
the best of my knowledge and discretion with
all GOOD fidelity as well to the courts as
to my clients; and
I impose upon myself this voluntary
obligation without any mental reservation or
purpose of evasion. So help me God.
3. Reviewer, p. 47, column 2: When
there is no express contract
ORIGINAL TEXT:
NOTE: RA 5185. Sec. 6. Prohibition Against
Practice. A member of the Provincial Board or
City or Municipal Council shall not appear as
counsel before any court in any civil case
wherein the province, city or municipality, as
the case may be, is the adverse party:
Provided, however, That no member of the
Provincial Board shall so appear except in
behalf of his province in any civil case wherein
any city in the province is the adverse party
whose voters are en-franchised to vote for
provincial officials, nor shall such member of
the Provincial Board or City or Municipal
Council appear as counsel for the accused in
any criminal case wherein an officer or
employee of said province, city or municipality
is accused of an offense committed in relation
to the latter's office, nor shall he collect any
fee for his appearance in any administrative
proceedings before provincial, city or
municipal agencies of the province, city or
municipality, as the case may be, of which he ETHICS
is an elected official. The provisions of this
Sec. shall likewise apply to provincial
governors and city and municipal mayors.
COMMENT:
RA 5185 (Decentralization Act of 1967) has
been superseded by Section 90 of RA 7160
(Local Government Code of 1991). Note in
particular that local chief executives (except
Barangay) are now prohibited from practicing
their profession.
 UP LAW BOC 2016 REVIEWER CORRECTIONS AND SUPPLEMENTS, PART II

CORRECTED VERSION:

NOTE: RA 7160, Section 90. Practice of

Profession.
a) All governors, city and municipal
mayors are prohibited from practicing
their profession or engaging in any
occupation other than the exercise of
their functions as local chief
executives.
b) Sanggunian members may practice
their professions, engage in any
occupation, or teach in schools except
during session hours: Provided, That
Sanggunian members who are
also mem bers of the Bar shall
not:
1) Appear as counsel before any
court in any civil case wherein
a local government unit or
any office, agency, or
instrumentality of the
government is the adverse
party;
2) Appear as counsel in any
criminal case wherein an
officer or employee of the
national or local government
is accused of an offense
committed in relation to his
office.
3) Collect any fee for their COMMENT:
appearance in administrative
proceedings involving the Please note in BAR MATTER N0. 1645
local government unit of (RE: AMENDMENT OF RULE 139-B),
which he is an official; and dated October 13, 2015, the Supreme
4) Use property and personnel of Court issued new rules governing
the government except when administrative
the Sanggunian member disciplinary cases against lawyers. Under the
concerned is defending the new rules, investigation by the Solicitor
interest of the government. General is no longer required. Also, please
c) Doctors of medicine may practice note only the Supreme Court can dismiss
ETHICS
their profession even during official cases against lawyers. The provision in the
hours of work only on occasions of old Rule 139-B that the Board of Governors
emergency: Provided, That the can dismiss cases has been repealed by
officials concerned do not derive amendment.
monetary compensation therefrom.
The new rules under Bar Matter 1645 are as
4. Reviewer, p. 57, column 2: follows:
Procedure for Disbarment
1. Sections 1, 5, 12, 13, and 15 of Rule 139-B
ORIGINAL TEXT: of the Rules of Court are amended to read as
follows:

PAGE 41 OF 43
 UP LAW BOC 2016 REVIEWER CORRECTIONS AND SUPPLEMENTS, PART II
“RULE 139-B Disbarment and Discipline of
Attorneys
Section 1. How Instituted. - Proceedings for the
disbarment, suspension, or discipline of
attorneys may be taken by the Supreme Court
motu propio, or upon the filing of a verified
complaint of any person before the Supreme
Court or the Integrated Bar of the Philippines
(IBP). The complaint shall state clearly and
concisely the facts complained of and shall be
supported by affidavits of persons having
personal knowledge of the facts therein
alleged and/or by such documents as may
substantiate said facts.
The IBP shall forward to the Supreme Court
for appropriate disposition all complaints for
disbarment, suspension and discipline filed
against incumbent Justices of the Court of
Appeals, Sandiganbayan, Court of Tax
Appeals and judges of lower courts, or
against lawyers in the government service,
whether or not they are charged singly or
jointly with other respondents, and whether
or not such complaint deals with acts
unrelated to the discharge of their official
functions. If the complaint is filed before the
IBP, six ( 6) copies of the verified complaint
shall be filed with the Secretary of the IBP or
the Secretary of any of its chapter who shall
forthwith transmit the same to the IBP Board
of Governors for assignment to an
investigator.”
A. PROCEEDINGS IN THE INTEGRATED
BAR OF THE PHILIPPINES
“Section 5. Service or dismissal. - If the
complaint appears to be meritorious, the
Investigator shall direct that a copy thereof be
served upon the respondent, requiring him to
answer the same within fifteen (15) days from
the date of service.
If the complaint does not merit action, or if
the answer shows to the satisfaction of the
Investigator that the complaint is not
meritorious, the Investigator will recommend
to the Board of Governors the dismissal of the
complaint.
Thereafter, the procedure in Section 12 of this
Rule shall apply. No investigation shall be
PAGE 42 OF 43
interrupted or terminated by reason of the
desistance, settlement, compromise,
restitution, withdrawal of the charges, or
failure of the complainant to prosecute the
same, unless the Supreme Court motu propio
or upon recommendation of the IBP Board of
Governors, determines that there is no
compelling reason to continue with the
disbarment or suspension proceedings
against the respondent.”
(Amendment pursuant to Supreme Court
Resolution dated May 27, 1993 re Bar Matter
No. 356)
“Section 12. Review and recommendation by
the Board of Governors.
a) Every case heard by an investigator shall be
reviewed by the IBP Board of Governors upon
the record and evidence transmitted to it by
the Investigator with his report.
b) After its review, the Board, by the vote of a
majority of its total membership, shall
recommend to the Supreme Court the
dismissal of the complaint or the imposition
of disciplinary action against the respondent.
The Board shall issue a resolution setting
forth its findings and recommendations,
clearly and distinctly stating the facts and the
reasons on which it is based.
The resolution shall be issued within a period
not exceeding thirty (30) days from the next
meeting of the Board following the
submission of the Investigator's report.
c) The Board's resolution, together with the
entire records and all evidence presented and
submitted, shall be transmitted to the
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Supreme Court for final action within ten (10)
days from issuance of the resolution.
d) Notice of the resolution of the Board shall
be given to all parties through their counsel, if
any.”
B. PROCEEDINGS IN THE SUPREME
COURT
“Section 13. Investigation of complaints. - In
proceedings initiated by the Supreme Court,
 UP LAW BOC 2016 REVIEWER CORRECTIONS AND SUPPLEMENTS, PART II
or in other proceedings when the interest of
justice so requires, the Supreme Court may
refer the case for investigation to the Office of
the Bar Confidant, or to any officer of the
Supreme Court or judge of a lower court, in
which case the investigation shall proceed in
the same manner provided in sections 6 to 11
hereof, save that the review of the report of
investigation shall be conducted directly by
the Supreme Court.
The complaint may also be referred to the IBP
for investigation, report, and
recommendation.”
C. COMMON PROVISIONS
“Section 15. Suspension of attorney by
Supreme Court. - After receipt of respondent's
answer or lapse of the period therefor, the
Supreme Court, motu propio, or upon the
recommendation of the IBP Board of
Governors, may suspend an attorney from the
practice of his profession for any of the causes
specified in Rule 138, section 27, during the
pendency of the investigation until such
suspension is lifted by the Supreme Court.”
5. Reviewer, p. 63: E. Sanctions
ORIGINAL TEXT:
Under BM 1922 (2008), practicing members
of the bar are required to indicate in all
pleadings filed before the courts or quasi-
judicial bodies, the number and date of issue
of their MCLE Certificate of Compliance or
Certificate of Exemption, as may be
applicable, for the immediately preceding
compliance period.
Failure to disclose the required information
would cause the dismissal of the case and the
expunction of the pleadings from the records.
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COMMENT:
Please note Bar Matter No. 850 dated 17
February 2015, which generally requires
written entry of appearance indicating MCLE
compliance numbers. It reads as follows:
"B.M. No. 850 (Re: Rules on Mandatory
Continuing Legal Education for Active
Members of the Integrated Bar of the
Philippines). - Acting on the Letter dated
January 13, 2015 of Hon. Bernardo P. Pardo,
Chairperson, MCLE Governing Board,
submitting for the Court's approval the MCLE
Governing Board Resolution No. 007-2014,
the Court Resolved to REQUIRE all
members of the Integrated Bar of the
Philippines to file a written entry of
appearance indicating their MCLE
exemption or compliance number for
the current or immediately preceding
compliance period and date of
issuance thereof before appearing as
counsel or engaging in oral argument
in open court or before a quasi-
judicial body. However, counsels who
affixed their signatures in their
pleadings and indicated their MCLE
exemption or compliance number in
their pleadings need not file a
separate entry of appearance.
Henceforth, all counsels, including partners
of law firms whose names appear in the said
pleadings, shall also indicate their MCLE
exemption or compliance number.
This resolution shall take effect on March 1,
2015 following its publication in a newspaper
of general circulation."
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