INTRODUCTION

INCOME TAXATION
TO
THE CONCEPT OF INCOME

INCOME
-excellent object of taxation

INCOME FOR TAXATION PURPOSES

 GROSS INCOME
 Taxable Income
 Inflow of wealth that increases net worth
THE CONCEPT OF INCOME

ELEMENTS OF GROSS INCOME

1. Return in Capital that increases net worth
2. Realized benefit
3. Not Exempted by law, contract or treaty

RETURN ON CAPITAL
 CAPITAL
 Any wealth or property

VS
THE CONCEPT OF INCOME
CAPITAL ITEMS DEEMED WITH INFINITE VALUE
1. Life
2. Health
3. Human Reputation

RECOVERY OF LOSS OF CAPITAL LOSS OF PROFIT

LOST CAPITAL
VS. Decrease in net Does not decrease
RECOVERY OF worth net worth
LOST PROFIT Recovery maintains Recovery increases
net worth net worth
BENEFIT vs REALIZED

THE BENEFIT CONCEPT

 BENEFIT
 Advantage derived by the taxpayers
 Exist when there is an increase in net
worth

THE REALIZED CONCEPT

 REALIZED
 Earned
 Must have an undertaking or sacrifice
from the taxpayer
 I. THERE MUST BE AN
EXCHANGE
TRANSACTIONS
TYPES OF
TRANSFERS
Bilateral Transfers
• “exchanges
• Onerous transactions
• Earned or realized
• Subject to income tax II. THE TRANSACTION
Unilateral Transfers INVOLVES ANOTHER
• “transfers” ENTITY
• Gratuitous transaction
• Not realized
• Subject to transfer tax
ENTITY
III. IT INCREASES THE
Complex Transaction • Person, natural or judicial
• Partly gratuitous and partly • Maybe taxable entity or NET WORTH OF THE
onerous exempt entity RECIPIENT
 BENEFITS IN THE ABSENCE OF TRANSFERS
• Increase in wealth due to appreciation of properties or decrease in the
value of obligation in the absence if sale or barter is NOT TAXABLE
• Rendering service for a consideration is an exchange but does not
cause a loss of capital

BASIS OF EXEMPTION OF UNREALIZED INCOME

 MODE OF RECEIPT/REALIZATION BENEFITS
1. ACTUAL RECEIPT
- physical taking of the income in the form of cash or property
2. CONSTRUCTIVE RECEIPT
- no actual physical taking of the income but the taxpayer is
effectively benefited
NOT EXEMPTED BY LAW, CONTRACT, OR TREATY
• Items of gross income is not exempted by constitution, law,
contracts, or treaties from taxation

TYPES OF INCOME TAXPAYERS

INDIVIDUAL
1. Citizen
CORPORATIONS
a. Resident 1. Domestic Corporations
b. Non-Resident 2. Foreign Corporation
2. Alien a. Resident
a. Resident b. Non-Resident
b. Non-Resident
a. Engaged in Business
b. Not engaged in trade or
business
INCOME toTAXATION
INTRODUCTION
INDIVIDUAL INCOME
TAXPAYERS
INDIVIDUAL INCOME
TAXPAYERS

Resident Citizen
CITIZENS
Non-Resident Citizen
NON-RESIDENT CITIZEN
• CIR’s satisfaction - Visa
• Physical presence abroad - Work Contracts
• Intention to RESIDE ABROAD - Other documents

• Reside Abroad
• Immigrant
• Employment–permanent
• Classified: Non-Resident
• Reside here permanently
• Income derived from abroad= Taxable
(until his arrival)
INDIVIDUAL INCOME
TAXPAYERS

Resident Citizen
CITIZENS
Non-Resident Citizen

Resident Alien
ALIEN
RESIDENT ALIEN

• Not a citizen but residing here

• Reside here without definite intention to stay
• Purpose is to extend his stay here but temporarily
and will return to his domicile(UPON HIS ARRIVAL)
INDIVIDUAL INCOME
TAXPAYERS

Resident Citizen
CITIZENS
Non-Resident Citizen

Resident Alien
Non-Resident Alien Engaged in
ALIEN Business (NRA-ETB)
Non-Resident Alien
NON-RESIDENT ALIEN-NRA-
ETB
• Not a CITIZEN, Not RESIDING here

NON RESIDENT ALIENS ENGAGED IN BUSINESS

(NRA-ETB)

• If he stay >180 days during the year

INDIVIDUAL INCOME
TAXPAYERS

Resident Citizen
CITIZENS
Non-Resident Citizen

Resident Alien
Non-Resident Alien Engaged in
ALIEN Business (NRA-ETB)
Non-Resident Alien
Non-Resident Alien NOT
Engaged in Business (NRA-
NETB)
NON-RESIDENT ALIEN-NRA-
NETB
• Not a CITIZEN, Not RESIDING here

NON RESIDENT ALIENS NOT ENGAGED IN BUSINESS

(NRA-NETB)

• If he stay ≤180 days during the year

 ESTATE
Properties, rights, and
obligations of a deceased
person
Treated as individual taxpayer
TRUST
Property
IRREVOCABLE: ITP
REVOCABLE: Taxable to the
Grantor, thus not a taxpayer
CORPORATE INCOME
TAXPAYERS
CORPORATE INCOME
TAXPAYERS
CORPORATIONS
It shall includes:
• Partnerships, no matter how they organized
• Joint stock companies
• Joint accounts
• Association
• Insurance companies

• GENERAL PROFESSIONAL
PARTNERSHIP
• JOINT VENTURES:
• Construction Projects
• Petroleum • GOVERNMENT
• Coal
• Geothermal
• Other Energy Operations
CORPORATE INCOME
TAXPAYERS
CLASSIFICATION
DOMESTIC
CORPORATION

FOREIGN
RESIDENT FOREIGN CORP (RFC)
CORPORATION
NON-RESIDENT FOREIGN CORP (NRFC)

SPECIAL
CORPORATION
CORPORATE INCOME
TAXPAYERS
GENERAL PROFESSIONAL PARTNERSHIP
PARTNERSHIP
BUSINESS PARTNERSHIP

JOINT VENTURE

PRESERVATION/INCOME COLLECTION EXEMPTED

CO-OWNERSHIP
INCOME FROM PROPERTY REINVEST TO
OTHER PROPERTY OR VENTURE
SITUS OF TAXATION

TAXABLE INCOME
EARNED
CLASSIFICATIONS WITHOUT
WITHIN
(OUTSIDE)
RESIDENT CITIZEN
NON-RESIDENT CITIZEN
RESIDENT ALIEN
NON-RESIDENT ALIEN

DOMESTIC CORPORATION
RESIDENT FOREIGN CORPORATION
NON-RESIDENT FOREIGN CORPOATION
SITUS OF TAXATION

SITUS/PLACE OF
INCOME TAXATION
INTEREST INCOME DEBTOR’S RESIDENCE

ROYALTIES INTANGIBLE EMPLOYMENT

RENT INCOME LOCATION OF PROPERTY

SERVICE INCOME PLACE RENDERED

PERSONAL PROPERTY PLACE OF SALE

REAL PROPERTY PROPERTIES’ LOCATION
DOMESTIC SECURITIES INCOME WITHIN
FOREIGN SECURITIES INCOME WITHOUT
MANUFACTURING INCOME PLACE EARNED
SITUS OF TAXATION