NOTES IN TAXATION LAW II
Culled primarily from the lectures of Prof. Rizalina V. Lumbera
Source Rules
Taxpayer
Within
Individual
Resident Citizen (RC)
Non-Resident Citizen (NRC)
Resident Alien (RA)
Non-Resident Alien Engaged
in
Trade
or
Business
(NRAETB)
Non-Resident
Alien
Not
Engaged in Trade or Business
(NRANETB)
Corporation
Domestic Corporation (DC)
Resident Foreign Corporation
(RFC)
Non-Resident
Foreign
Corporation (NRFC)
RC and DC are taxable on all income derived
from sources within and without the PH.
Within/Without
Sec. 42 (A):
1. Interests on bank deposits: Bank in the
PH – within; Bank outside the PH –
without
2. Interests on bonds, notes, other
interest-bearing obligations: Depends
on the residence of the debtor. Kung NRC
si debtor, without. Kung RA si debtor,
within. Kung DC/RFC si debtor, within pa
rin.
3. Services: Where they are performed. If
they are performed in the PH – within; if
they are performed abroad – without
Daverick Pacumio
UST Faculty of Civil Law
Without
Example: Nagtatrabaho ka sa BPO. Ang kausap
mo, nasa India. The service is rendered here and
paid by the foreign company from india papunta
ng PH. Within or without? Within because the
service was rendered and performed here in the
PH, kahit na binayaran ka abroad.
4. Income on Sale of Real Property:
Where the property is located
Example: Binenta mo property mo sa kaibigan
mo sa US. Nagbayaran kayo sa US. Pero yung
property is in the PH. Within o without? Within.
5. Intangible personal property:
Example: Nagbenta ako ng shares of stocks. Eto
ka, si X, US citizen domiciled in the USA. The
shares of stocks nasa ABC Corp., nasa Paris. Pag
ibinenta ko si shares of stocks, within o without?
Without.
Example: Si X may shares of stocks sa SMC
(Phils.). ibinenta. Without o without? Within,
the law says it’s within.
Ang kinita sa PH (4M) ay mas mababa sa 50%
(8M) ng total na kinita (16M) kaya hindi lahat ng
100,000 ay within. I-proportion siya:
GR: When shares of stocks are sold, they follow
domicile of owner (but this is just a mere general
rule)
4M/16M x 100,000 = 25,000 ito lang ang within,
75,000 without.
The more specific rule is this: If we are talking
about shares of stocks in a domestic corporation,
because the law specifically says so, then the
shares of stocks in SMC will not follow the
domicile of the owner, and therefore, this will be
treated as income within.
Etong shares of stock in a domestic corporation,
pag may binenta, kahit sino ang nagbenta nyan,
yan ay lahat within.
6. Dividends: Issuing is DC – within;
Issuing is FC – within. Exception: Kung 3
years before inissue yung dividends, ang
kinita ng foreign corporation sa pilipinas
ay less than 50% of its total or gross
income, hindi lahat ay within. Yung
proportion lang nung kinita sa pilipinas sa
total na kinita nung corporation ang
within.
Example: XYZ, a foreign corporation based in the
US, issued 100,000 last 2020.
2019
2018
2017
Subtotal
Total
Kita from US Kita from PH
5M
2M
3M
1M
4M
1M
12M
4M
16M
16M/2 = 8M (50% of total na
kinita)
7. Rentals and Royalties: If property is in
the PH – within; if property is outside PH
– without
8. Income on Sale or Personal Property:
Gains, profits and income from the sale of
personal property produced (in whole or in part)
by the taxpayer within and sold without the
Philippines, or produced (in whole or in part) by
the taxpayer without and sold within the
Philippines, shall be treated as derived partly
from sources within and partly from sources
without the Philippines.
Gains, profits and income derived from the
purchase of personal property within and its sale
without the Philippines, or from the purchase of
personal property without and its sale within the
Philippines shall be treated as derived entirely
from sources within the country in which sold:
Provided, however, That gain from the sale of
shares of stock in a domestic corporation shall be
treated as derived entirely form sources within
the Philippines regardless of where the said
shares are sold.
9. Intercorporate Dividends (Sec. 27): DC
to DC – within but exempt from taxation;
DC to RFC – within but exempt from
taxation (Sec. 28 [A][No. 7][b])
INCOME TAX & DEDUCTIONS IN RELATION TO VAT & PERCENTAGE TAX OF TAXPAYERS
INDIVIDUAL
TAXPAYERS
Compensation
Income
Earner
(CIE)
TYPE OF
INCOME
Compensation
Income (CI)
Self-Employed
Professional
(SEP)/SelfEmployed
Individual (SEI)
w/
Gross
Receipts
(GR)/Gross
Sales (GS) not
exceeding P3M
(signify option
at
the
1st
quarter
otherwise,
default to NIT)
w/
GR/GS
exceeding P3M
CI
Income from
trade,
business,
or
profession w/
GR/GS
not
exceeding P3M
(signify option
at
the
1st
quarter
otherwise,
default to NIT)
Mixed
Income
Earner (MIE)
CORPORATIONS
(except NRFC)1
1
Income from
trade,
business,
profession
exceeding P3M
Income from
trade
or
business not
exceeding P3M
Income from
trade
or
business
exceeding P3M
TAXES PAID
No VAT
No % Tax
No deduction
P250,000
BENEFIT
N/A
No VAT
No VAT
No % Tax
No % Tax
OSD or ID
No deduction
N/A
Applicable
(This is the
most
beneficial
kasi no VAT,
no % tax pa)
NIT – no
choice
NIT
NIT
12%
VAT
No VAT
No VAT
No % Tax
OSD or ID
N/A
No % Tax
Percentage
Tax (3%)
No deduction
OSD or ID
N/A
N/A
8% of GR/GS
No VAT
No % Tax
No deduction
N/A
12%
VAT
No % Tax
OSD or ID
N/A
NIT
NO
VAT
Percentage
Tax (3%)
OSD or ID
N/A
NIT
12%
VAT
No % Tax
Net Income
Tax
(NIT)
which
is
gross income
– allowable
deductions =
taxable net
income x tax
rates
NIT
8% of GR/GS
in excess of
P250,000.00
Wala na in
excess
of
P250k kasi
provided na
sa NIT rates.
NIT
DEDUCTIONS
Because NRFC is subject to gross income tax which is a final tax of 30%.
RESIDENT CITIZENS
Taxable for income sourced from WITHIN and WITHOUT
Kinds of Income and Taxes
All income other than (B), Passive Income
Capital Gains on Capital Gains on
(C), and (D)
Interest on bank Sale of Shares of Sale
of
Real
deposits;
Stock
Property
Royalties;
Shares of stock;
Real property;
Prizes and winnings; In a DC;
Located in PH;
and
Capital Asset;
Capital asset;
Dividends derived Sold untraded in the Sold,
transferred,
from PH or issued by PSE
exchanged
DC
(A)
(B)
(C)
(D)
CIE: NIT
FINAL
WITHHOLDING
SEP/SEI w/ GR/GS not TAX
exceeding P3M: NIT or 8% of
GR/GS in excess of P250k
SEP/SEI w/ GR/GS exceeding
P3M: NIT
MIE on CI: NIT
MIE w/ GR/GS not exceeding
P3M: NIT or 8% of GR/GS
MIE w/ GR/GS exceeding
P3M: NIT
FINAL
WITHHOLDING
TAX
FINAL
WITHHOLDING
TAX
NOTES IN TAXATION LAW II
Culled primarily from the lectures of Prof. Rizalina V. Lumbera
a. All income within and without, other
than passive income, capital gains on
sale of share of stocks, and capital
gains on sale of real property shall be
subject to NIT or 8%, as the case may
be.
b. Passive income from within the PH:
FINAL TAX.
•
Interest on long-term deposits not
pre-terminated
for
5
years:
EXEMPT. If pre-terminated on the
4th year: 5%; if pre-terminated on
the 3rd year: 12%; if pre-terminated
on 2nd or 1st year: 20%;
If it is from without the PH, it is subject to NIT
or 8%. Why? We cannot make foreigners our
withholding agents.
Example: Lumbera has a peso account long term
deposit of 10 years. Hindi pinre-terminate. On
the 10th year, the period terminated and she
received interest income f P200,000.00. income?
Yes. Within or without? Within because interest
is from a local bank. Subject to tax? No.
Passive Income from outside the PH
received by a RC are subject to NIT or 8%, not
FWT.
What if the time deposit was pre-terminated on
the 4th year? Within or without? Within. Subject
to tax? Yes. What kind? FWT. What rate? 5%.
Passive incomes:
• Interests on bank deposits (peso
currency) – 20%;
Time deposit was pre-terminated on 3rd year.
Within or without? Within. Subject to tax? Yes.
What kind? FWT. What rate? 5%.
Example: Lumbera, may bank deposit, peso
account in BPI España, Manila. Kumita P100.00.
Income? Yes. Within o without? Within. Subject
to tax? Yes. What kind? FWT. Rate? 20%.
Time deposited was pre-terminated on 2nd year.
Within or without? Within. Subject to tax? Yes.
What kind? FWT. What rate? 20%.
Lumbera, may peso account in a US bank. Earned
interest (P100.00). within or without? Without.
Subject to tax? Yes. What kind? NIT or 8%. Kahit
gawin mo pa dollar account yan basta bank is in
the US, yung source niya is without, without yan
so NIT or 8%, not FWT.
•
Time deposit was for 1 year and expired. May
interest. Subject to tax? Yes. What kind? FWT.
What rate? 20%.
Ni-renew paulit ulit hanggang 5th year. Subject to
tax? Yes. What kind? FWT. What rate? 20%.
•
Interest on bank deposits (foreign
currency) – 10%;
Example: Lumbera, may bank deposit, dollar
account in BPI España, Manila. Kumita
USD10.00. Income? Yes. Within o without?
Within because a local bank issued the interest
income. Subject to tax? Yes. What kind? FWT.
Rate? 10%.
Daverick Pacumio
UST Faculty of Civil Law
Royalties: 20% except for literary
and musical compositions which is
10%;
Example: Lumbera gumawa libro, pinublish ng
Rex Bookstore, kumita siya royalties. Income?
Yes. Within or without? Within. Subject to tax?
Yes. What kind? FWT. What rate? 10%.
•
PCSO/Lotto
winnings
not
exceeding P10,000.00 – EXEMPT; if
exceeding P10,00.00 subject to 20%
FWT;
•
•
Other prizes and winnings: 20%
except prizes or winnings of
P10,000.00 or less which are subject
to NIT or 8%;
Dividends: Issued by DC: 10%;
Issued by FC: NIT or 8%
Example: Lumbera is a RC tumanggap ng
dividends P100,000.00 from a DC. Within or
without? Within. Subject to tax? Yes. What kind
of tax? FWT. What rate? 10%.
Lumbera is a RC tumanggap ng dividends
P100,000.00 from a FC. Within or without?
Within. Subject to tax? Yes. What kind of tax?
NIT or 8%. Note the application of the exception
(if less than 50% lang yung kinita ng FC from the
PH).
Capital Asset: Memorize Sec. 39 (A) (1). Bonus
question daw sa exam.
• Defined in the negative. Yung nakasulat
diyan ay yung ordinary assets. Yung wala
jan, yun ang capital assets.
• 4 lang ang ordinary assets.
• When you are involved with a problem
involving assets, ask kung ordinary or
capital siya. When we say capital, hindi
puhunan.
• The easiest distinction is: ordinary assets
– ginagamit sa trade or business.
• When you’re holding and using the asset
whether it is ordinary or capital, there is
no effect on the asset. The only effect that
may be had is depreciation of the asset.
• Increase in value of the asset is not
income, conversely, decrease in value of
the asset is not loss. You only realize
income or loss when you sell the asset.
• Basis of income or loss is the FMV at the
time of sale. Kung binili mo property mo
P1 million then binenta mo P3.5 million
pero FMV niya at the time na binenta mo
•
is P3 million, may income ka ng P500k.
May tax yan, income tax.
Kapag may loss ka, magbabayad ka pa rin.
Donor’s tax (Sec. 100). Pag nagbenta ka ng
lugi, namimigay ka ng libre.
Ordinary assets:
1. Stock in trade forming part of inventory –
Example: Mga paninda sa 7-eleven.
2. Primarily for sale to customers
3. Used in trade or business subject to
depreciation – Example: Mga aircon sa
tapsilugan.
4. Real property used in trade or business –
Example: Yung puwesto sa tapsilugan.
c. Sale of Shares of Stock:
If shares of stock sold are capital assets,
Capital Gains Tax of 15% FWT if not traded
through
the
local
stock
exchange;
Percentage Tax of 0.6 of 1% of the Gross
Selling Price if traded through the local stock
exchange (Sec. 127);
If the shares of stock sold are ordinary
assets: NIT or 8%;
Sale of SOS in a FC, all gains are subject to
NIT or 8%.
Requisites:
1. Shares of stock in DC;
2. Capital assets;
3. Sold untraded – Untraded: Hindi
ginagamit ang local stock exchange. Pag
ginagamit ang stock exchange, we apply
Sec. 127 (.6 of 1% of the Gross Selling
Price), not income tax.
Example:
Lumbera may shares of stock from SMC pero di
ginagamit sa trade or business. Binenta niya kay
Gregarius for P1.8M. FMV is P1.5M. may tubo ba?
Yes, P300k. Anong tax? FWT of 15% on the
P300k. babayaran is P45,000.
Kung binenta ni Lumbera traded (meaning gamit
ang stock exchange). Anong tax? Percentage tax
of 0.6 of 1% of the Gross Selling Price. Babayaran
is P10,800 lang. Laking diperensya.
Kung binenta ni Lumbera not traded at P1.3M.
Tubo? Lugi P200k. May income tax? Wala. May
tax? Yes, donor’s tax. How much? 6%.
Si Literal may SOS sa isang FC. Binili for P1M.
Book value is P1.5M, binenta at P1.8M. tubo? Yes,
P300k. within o without? Without. Taxable? Yes.
Anong tax? NIT or 8%. Nasa A.
d. Sale of Real Property
If the real property sold is within the PH and
is a capital asset, CGT of 6% FWT of the
FMV/Gross Selling Price/Zonal Valuation,
whichever is highest. If the real property is
an ordinary asset, NIT or 8%.
If the real property sold is outside the PH, it
is always subject to NIT or 8%, regardless of
whether it is capital or ordinary asset.
Requisites:
1. Located in the PH
2. Capital asset
3. Sold, transferred, or exchanged – Basta
ownership is transferred
Example:
May tapsilugan ka. May bahay. Yung tapsilugan,
nasa Dapitan. Binili mo ng P2 million. FMV now
is P4 million. Binenta mo ng P4.8 million. Tubo
o lugi? Tubo P800k. Anong klaseng asset?
Ordinary asset kasi used in T/B e. Income? Yes.
Within o without? Within. Subject to tax? Yes.
Anong column? A. Ordinary asset kasi. So, NIT o
8%.
Binenta mo ng P2.2 million. Tubo o lugi? Lugi.
May income? Wala. Subject to income tax? No.
Subject to tax? Yes, donor’s tax. Nagbenta ka ng
lugi, namigay ka ng libre.
May bahay ka, binili mo P 1 million. FMV is P4
million. Binenta mo P4.8 million. Anong asset?
Capital. Within the PH. Magkano tubo? P800k.
within o without? Within. Taxable? Yes. Anong
column? B. 6% FWT on P4.8 million.
May bahay ka, binenta mo P2.2 million. Tubo o
lugi? Lugi P1.8 million. Subject to income tax?
No. Itatax mo under column B? Yes. FWT of 6%
of P4 million or P2.2 million or zonal valuation,
whichever is highest. Even if you sell at a loss, if
you sell real property classified as capital asset
located in the Phils., you still pay 6% CGT.
May tapsilugan sa US. Binenta mo at P 4.8
million. May income? Yes P800k. Without.
Anong column? A. bakit wala sa D? kasi located
in the PH lang yung nasa D.
May tapsilugan ako sa US binenta ko at P1.2
million. May income? Wala. May tax? Donor’s
tax na. nagbenta ka ng lugi, namigay ka ng libre.
Column D covers involuntary sales. Example of
involuntary sales: Expropriation, foreclosure. In
involuntary sales, do we impose CGT? In
foreclosure of mortgage, pag finoreclose nung
mortgagee yung mortgage, may CGT na ba? Wala
pa. Wala pang transfer of ownership at the point
of mortgage. CGT shall be due counted from the
date the right to redeem the property has
expired. That’s the only time when the CGT shall
be due. Sino magbabayad CGT? Si buyer or the
highest bidder. The CGT is due after the
redemption period expires and it is the highest
bidder who pays for the CGT. Anong basis ng
CGT? Whichever is higher of the consideration
or the FMV or zonal value.
How about expropriation proceedings? Sino ang
magbabayad ng CGT? Yung nadaanan ng
expropriation. May choice ka ba sa babayaran?
Yes, either column A or column D. Anong pipiliin
mo? Column A nalang at NIT or 8%. Kasi wala ka
naman tubo. Bakit di nakasaad yan sa batas? Kasi
di naman pwede sabihin ng gobyerno na hindi ka
bubuwisan.
In C & D, since it is a FWT, the seller withholds
the tax. Yung seller yung nagbabayad. Yung
buyer nasakanya yung burden.
principal. Sino kay Alexis at Lumbera ang pwede
mag-avail ng exemption? Si Alexis kasi yun yung
actual principal residence niya e.
Sale of actual principal residence: Exempt
from CGT. Requirements are:
1. The real property must be the actual
principal residence of the taxpayer/seller;
2. Seller must inform the BIR of his intention
to avail of the exemption (within 30 days
from sale);
3. Seller must build or purchase another
principal residence within 18 months from
sale;
4. Proceeds from the sale should be used in
building/purchasing
new
principal
residence
5. 6% CGT will be applied proportionately to
proceeds not used for new principal
residence.
6. You avail of the exemption once every ten
(10) years.
7. The historical cost is considered or
carried-over sa pagbili or pagpapagawa.
Bahay at lupa lahat tayo magkakapatid. Bunso
natin si Michael. Si Michael tumira sa bahay
natin at nag-alaga sa ating mga magulang.
Namatay ang ating mga magulang. Binenta yung
house and lot. Sino pwede mag-avail ng
exemption? Si Michael. Dun siya nakatira eh. Di
naman natin tinitirhan yun eh actual principal
residence lang ni Michael yun. But may Michael
claim for exemption for the entire price? No.
Only his share.
Ilan dapat actual principal residence? Isa lang.
Paano kung marami ka bahay? What is the actual
principal residence? Domicile – where you
intend to return.
Pag may residence ka sa US. Pwede ka ba magavail ng exemption pag binenta mo? Hindi.
Dapat nandito. Ang tax non is column A or NIT
or 8%.
Corporate Taxpayers
3 kinds: 1. Domestic – subject to tax for income
within and without; 2. Resident Foreign; 3. NonResident Foreign
Meron din A,B,C,D. but exemption from CGT
never applies to corporate taxpayers.
Domestic Corporations (DC)
Bakit 18 months? Yan ang standard period ng
construction ng pagpapagawa ng panibagong
bahay.
Bakit once ever ten (10) years? 10 years ang
average ng Pilipino sa pagbili ng bahay at lupa.
Sa capital gains tax return, dun mo iindicate na
ika’y nag-aavail ng exemption.
Example:
Paano kung may lupa si Lumbera tapos nagtayo
si Alexis ng bahay sa lupa niya. Ang bahay at lupa
separate tax declarations yan. pag binenta yung
bahay at lupa sabay kasi accessory follows the
2
Pursuant to CREATE.
Walang corporation na tinayo that is not for
trade or business. So lahat ng income nila under
column A, tawag jan is operating income. Ang tax
jan ay NIT or CIT kasi corporations and the rate
is 30% but effective this June 2021, the rate is
25%2 but upon compliance with certain
conditions.
B (Passive Income) for individuals, apat.
1. Interest for bank deposits
2. Royalties
3. Prizes and winnings
4. Dividends
Pero pagdating sa corporation, eto lang:
1. Interest on bank deposits – 20% for local
currency. But foreign currency, 15%.
Long term deposits – kung individual
tumanggap, exempted siya. But kung
corporation yung tumanggap, this does not
apply.
2. Royalties – literary and artistic works do
not apply.
Note: From PH sources ang passive income.
“loss.” So sa dulo, walang binabayarang buwis.
That’s why pinasok si MCIT on 1997. Kaya by
2001, lahat ng corporations, nagbabayad ng
MCIT or NIT. And for corporations existing prior
to 1997, by 1998 nagbabayad na din dapat. Perfect
example ito na bawal malugi gobyerno.
This MCIT is in lieu of NIT/CIT. hindi pwedeng
magkasabay. One of the 2 lang.
Example:
Ang dividends, Inter-corporate dividends tax
(ICDT). Naka-hiwalay siya. This is final tax.
DC to DC = exempt. No tax.
C (CGT on sale of shares of stock in a DC)
Same lang sa individual.
D (CGT on sale of real property)
Same lang din sa individual. But, it is limited to
real property not directly used in the operations
because the assumption is if you are a corporate
taxpayer, especially real estate companies, all of
their assets are considered as ordinary assets.
Why is there this presumption? Eh bakit ka bibili
ng real property kung hindi mo naman pala
gagamitin sa business mo. Kaya may
presumption.
Minimum Corporate Income Tax (MCIT)
Under CREATE, 1% nalang. It used to be 2%, pero
1%.
When imposed: beginning 4th year following
commencement of the operations of the
corporation.
Kwento ni Prof. Lumbera regarding history of
MCIT: prior to 1997 in other jurisdictions the
MCIT is existent but not in our country. But in
1997, Juan Ponce Enrile introduced this MCIT.
Nung nag-reform ng Tax Code, tinignan nila
yung data ng corporate taxpayers. Napansin nila
maraming corporations na nagdedeclare ng
losses. They are filing returns pero ang nakasulat
XYZ corporation
Scenario 1
2017 – incorporated
• Revenue (gross income): P5,000,000.00
• Expenses: P3,000,000.00. very seldom for
businesses na kumita agad at the first year
of operations.
• Income: P2,000,000.00. Bayad? Yes.
Magkano? 30% NIT or P600,000.00.
2018
•
•
•
2019
•
•
•
Revenue: P6,000,000.00
Expenses: P2,500,000.00
Income: P3,500,000.00. Bayad buwis? Yes.
Magkano? 30% NIT or P1,050,000.00.
Revenue: P7,000,000.00
Expenses: P3,000,000.00
Income: P4,000,000.00. bayad? Yes.
Magkano? 30% NIT or P1,200,000.00.
2020
• Revenue: P8,000,000.00
• Expenses: P3,000,000.00
• Income: P5,000,000.00. bayad? Yes. HM?
30% NIT or P1,500,000.00.
2021
•
•
•
Revenue (gross income): P5,000,000.00
Expenses: P7,000,000.00
Loss: P2,000,000.00. Bayad? No. Lugi ka
eh. Lugi din gobyerno. BUT this is the 4th
year following the commencement of
your operations. So, sabi ng batas, hindi
pwedeng gobyerno din malugi. Ikaw
naalng malugi wag kami. So, bayad ka
MCIT
2%
of
P5,000,000.00
or
P100,000.00. provided, the 2% of the MCIT
is higher than NIT. Eh losses e. 0 yung NIT
vs. P100,000.00 yung MCIT. So, bayad ka
MCIT.
2022
•
•
•
•
Beginning this year, cocompute mo 2%
gross income vs. 30% NIT.
Revenue: P5,000,000.00
Expenses: P4,800,000.00
Income: P200,000.00. Magkano NIT?
P60,000.00. Magkano MCIT? P100,000
(2% of P5,000,000.00). ano mas mataas?
MCIT. Yan yung babayaran mo. So it
doesn’t matter whether kumita ka or
nalugi ka. Babayad ka pa rin.
Scenario 2
2017
•
•
•
Revenue: P5,000,000.00
Expenses: P6,000,000.00
Bayad buwis? No. 0 tax. Di pa applicable
MCIT.
2018
•
•
•
Revenue: P6,000,000.00
Expense: P6,500,000.00
Bayad buwis? No. 0 tax.
2019
•
•
•
Revenue: P7M
Expense: P9M
No tax
2020
• Revenue: P8M
• Expense: P10M
• No tax.
2021
•
•
Revenue: P5M
Expense: P7M
•
2022
•
•
•
Tax? Oo. Kung malulugi ka ng malulugi
sige bahala ka. Pero beginning this year,
bayad ka MCIT. How much? 2% of P5M or
P100k.
Revenue: P5M
Expense: P3.5M
MCIT = P100K; NIT = P450K. ano
babayaran? NIT. Kung ano mas mataas.
So on and so forth na yan beginning 2021.
It doesn’t matter whether you earned for
the first 4 years. Pagbibigyan ka ng
gobyerno maka-recover. Pero beginning
5th year onwards, magbabayad ka either
NIT or MCIT. Hindi pwedeng laging lugi
gobyerno.
Improperly Accumulated Earnings Tax
(IAET) in addition to other taxes.
• Under CREATE, 10% rate nalang siya. But
I think repealed na LOL. NOTE:
REPEALED na under CREATE si IAET.
DC issues dividends
Recipient is stockholder: Tax due = Column B
10% Final Withholding Tax. Withheld by the
corporation yan so i-tong ng corp yan at ireremit
sa gobyerno.
Pag ang corporation kumita sa dulo ng taon, iallocate nila yan sa operations, expansion, etc.
Yung net kita, ipapamigay sa stockholders thru
dividends. Pero hindi lahat ipapamigay because
the corporation has a right to retain its earnings.
Pag naging sakim ang corporation, nawawala
yung 10% FWT na dapat ibabayad nung SH na
nakatanggap ng dividends. By reason of that, pag
nagging sakim ang corporation, ang may
kasalanan kung bakit nawalan ng kita gobyerno,
yung corporation. So, babawi ang gobyerno thru
the IAET at the rate of 15%, now 10%. It is a tax
on the improperly accumulated earnings of a
corporation.
Exceptions to IAET:
1. Government
2. Insurance companies – Why? Because
assuming all risks insured against happen, they
are obligated to pay the insurance proceeds.
3. Banks
Resident Foreign Corporation (RFC)
• Subject to tax for income within.
• Same principles as DC.
• Note: CGT on sale of real property
inapplicable since they are prohibited
from owning properties under the
Constitution.
IAET not applicable to RFC. Why? Kasi ang RFC,
ang principal place of business nasa US. So, lahat
ng kita sa Pinas, need niya i-remit sa USA. Pwede
ba natin i-compel yung US corp na mother
company ni RFC na mag-declare ng dividends?
Hindi. Kaya hindi applicable ang IAET. The US
company is beyond our taxing jurisdiction.
Let’s say RC ka tumanggap ka dividends from
RFC. Anong column ulit? A. Hindi siya B. NIT
yung rate kung individual yung taxpayer. Hindi
pwedeng FWT kasi ang nag-issue FC.
Nung kumita RFC sa PH, tinax yan under column
A (NIT). Nung ni-remit niya sa US yung kita niya,
pwede ba natin bawalan yung branch dito? Hindi
pwede. Saka na-tax na natin sila ng isang beses.
And since hindi din natin pwede i-apply yung
IAET, edi lugi nanaman gobyerno. Pero di pwede
malugi diba? Bayad sila RFC ngayon ng Branch
Profit Remittance Tax (BPRT).
Branch Profit Remittance Tax: 15% FWT. Bakit
iniimpose ito? Para mapilitan yung corporation
na hindi na ilabas or i-remit sa US yung kinita
nila at paikutin nalang dito sa PH.
Condition: Tax Sparing Rule
Non-Resident Foreign Corporation (NRFC)
Gross Income = 30% FWT. Tong agad.
3
See St. Luke’s v. BIR.
CGT on sale of RP = not applicable
ICDT = DC-NRFC subject to 15% final tax.
MCIT: Inapplicable kasi yung tax is already at
30% on the gross income, regardless of the loss.
The expenses are not considered.
IAET: Inapplicable.
BPRT: Inapplicable.
Exemption of Certain Corporations (Sec. 30):
11 domestic corporations.
• They are exempt from NIT on income
received by them as such.
• Ang 11 corporations ay hindi papatawan
ng net income tax sa kita nila as such.
• Ano yung as such? Ibig sabihin niyan the
income of the 11 domestic corporations
pursuant to the primary purpose for
which each one of them was created as
stated in the AOI.
• Common denominator: Non-stock nonprofit incorporated in the PH (so, DC).
Defined in St. Luke’s Medical Center v.
BIR.
• Non-stock/non-profit: Governed by a
board of trustees. It is definitely earning
income (walang corp na tinatayo para
malugi). It has members, instead of
stockholders. Profits are not distributed
to members. In case of dissolution, assets
are not distributed to members.
• How do you know na non-stock or nonprofit? Sa Articles of Incorporation and
By-Laws. There is further need of proof
that it is a non-stock/non-profit.
2 tests:3
Operational Test: requires that the corporation
or association‟s constitutive documents
exclusively limit its primary purpose to those
described in Sec. 30 of the 1997 Tax Code.
Organizational Test: requires that the regular
activities of the corporation or association be
exclusively devoted to the accomplishment of
the purpose specified in Sec. 30 of the 1997 Tax
Code. "A corporation or association fails to meet
this test if substantial part of its operation are
considered "activities conducted for profit."
Income as such: Examples
1. Labor union – checkoff clause. Yung kinikita
nila from union fees, exempt from income tax.
2. Mutual savings banks – interest on loans
granted by them, exempted from income tax.
Last paragraph of Sec. 30: Notwithstanding the
provisions in the preceding paragraphs, income
of whatever kind and character of the
foregoing organizations from any of their
properties, real or personal, or from any of
their activities conducted for profit
regardless of the disposition made of such
income, shall be subject to tax imposed under
this Code.
• What kind of tax? Lahat ng types ng
buwis ng isang domestic corporation
(A,B,C,D).
Lahat ng corporations under Sec. 30, walang
babayarang tax sa kinita nila pursuant to their
primary purpose. Pero kung for profit, subject to
tax.
“Regardless of the disposition” does it only apply
to income from activities conducted for profit?
Or does it also apply to income earned “as such”?
• It applies to both.
pinapa-rent sa KFC, McDo, at Gong Cha. Sa
harap, kalye.
1. Real property tax: Pag RPT yung topic, Tax
Code is inapplicable. The Local Government
Code (LGC) is applicable.
Under the Constitution, CI, Churches, Convents,
Mosques, NP cemeteries, Parsonages, and all
their lands, buildings, and improvements
Actually, Directly, and Exclusively (ADE) used
for charitable, religious, and educational
purposes shall be exempt from tax (Art. VII, Sec.
28 [3]).
• This refers to real property tax. The
Constitution does not mention anything
about income tax. We find the exemption
from income tax in Section 30 of Tax
Code.
• ADE includes incidental use.
So, in the example given, ano lang yung
exempted? Yung 6 buildings na ADE for
charitable purposes. Yung entertainment, office,
pati yung parking areas, incidental use which is
included in ADE. Pero yung pinapa-rentahan sa
KFC, McDo, at Gong Cha, di exempt.
Correlate with NIT, Donor’s Tax, Estate Tax, and
Real Property Tax.
2. Income Tax: Let’s say kumikita yung HA from
production and sale of drugs P5M. they also earn
rental income from KFC, McDo, and Gong Cha
P6M.
Certain Organizations:4
1. Charitable
Example: Home for the aged (HA). May 6
buildings. First and second, occupied by the
female and male occupants. The third building is
an entertainment area. The fourth building is an
office. The fifth is the receiving area. The sixth is
the parking area. Sa gilid nung compound,
4
Laging tinatanong sa Bar exams. At least isa dito laging
may tanong sa exams.
Yung 5M, is it income? Yes. Within or without?
Within. Taxable? No, because it is considered as
income as such. Therefore, exempt from NIT.
Basis? Sec. 30.
Can you use as basis the Constitution? No. The
Constitutional provision refers to RPT only, not
income tax.
Yung 6M, is it income? Yes. Within o without?
Within. Taxable? Yes, because it is income from
property. Basis? Last paragraph of Sec. 30. What
kind of IT? Column A. CIT. Rate? 30% or 25%
now.
Yung 11M (total ng 5M + 6M), nilagay sa bank.
Kumita ng interest P30,000. Income? Yes. Within
o without? Within. Taxable? Yes. Basis? Sec. 30
last paragraph because this is an activity
conducted for profit. What kind of IT? Column
B, so final tax of 20%.
HA used the P6M and P30,000 in painting or
repainting the entire buildings and thus, devoted
for charitable purpose. Will this exempt the P6M
and P30,000 from tax?
• No. Regardless of the disposition nga
under Sec. 30 e.
3. Donation (Donee’s Side): Mr. X gave HA
P1M. Income? Yes. Within or without? Within.
Taxable? No. Why? Gifts, bequests, and devises
are items of exclusions. Basis? Sec. 32 par. B, no.
3, Tax Code. Item of exclusion yung donation. No
income tax.
Is it subject to Donor’s Tax if the mode of transfer
is inter vivos or Estate Tax if the mode of transfer
is mortis causa?
If inter vivos, is it subject to Donor’s Tax (DT)?
No. Basis? Sec. 101, par. A, no. 2. Provided: Not
more than 30% of said gifts is used by the HA for
administration purposes. Ibig sabihin, hindi
ginamit ni HA pampasweldo, janitorial supplies,
office supplies yung donation.
Ang Donor’s Tax, imposed on the Donor. So si
Mr. X magbabayad nyan kung sakali. Paano
ngayon kung ginamit ni HA more than 30% nung
P1M for admin purposes? It is the lookout of the
donor. Kung ginamit ni donee yung donation for
a purpose other than the required purpose, the
donor may revoke the donation under the Civil
Code to avoid the payment of the DT.
If mortis causa, is it subject to Estate Tax (ET)?
No, provided not more than 30% of the gift
mortis causa is used for admin purposes. Basis?
Sec. 87 (D).
NOTE: Point of view sa no. 3, ay HA or the
DONEE. Ngayon, let’s go to the point of view ng
DONOR.
4. Donation (Donor’s Side): Can X claim as
deduction P1M?
If Mr. X is a CIE, he may not deduct the P1M.
Why? CIEs are no longer entitled to deductions
under the TRAIN Law.
If Mr. X is an SEP/SEI, he may deduct up to 10%
of his taxable income prior to this deduction. Not
10% of the P1M, but 10% of Mr. X’s taxable income
prior to this deduction. Basis? Sec. 34(H).
If Mr. X is an MIE, he may also deduct up to 10%
of his taxable income prior to this deduction.
Basis is the same, Sec. 34 (H).
If X is a corp., up to the extent of 5% of the
amount of taxable income prior to this deduction
may be deducted.
Charitable
Institutions/Religious
Institutions: Same rules. Note: Same din sa
Charitable Hospitals.
RPT: ADE used …
IT: Sec. 30 – EXEMPT if as such.
Rentals & Interest on Bank Deposits: Sec. 30, last
par. – TAXABLE NIT and FWT.
Donation Inter Vivos/Mortis Causa: Income but
NOT TAXABLE because item of exclusion
• Not subject to DT/ET, subject to 30%
requirement.
Deductibility of gift IV/MC:
CIE – NOT DEDUCTIBLE
SEP/SEI/MIE – DEDUCTIBLE 10% of TI; (5% if
corp.)
Educational Institutions:
Non-Stock
Institutions
Non-Profit
Educational
Constitution: All revenues and assets, including
lands, buildings, and improvements of NSNPEIs
ADE used for educational purpose shall be
EXEMPT from taxes and duties.
DLSU v. BIR
Example: UST has main building, pay high
building, botanical garden, carpark, library,
leased portions of the carpark (Starbucks,
Pancake House, Subway).
Sa main building, pay high, botgar, library =
tuition fees ang kinikita (P50M).
Carpark, leased portions (McDo, etc.) = rental
income kinikita (P15M)
Sabi sa Consti., ALL revenues and assets are
exempt. This makes NSNPEIs different from
CI/RI.
Kasi, sa CI/RI, ang exemption lang sa tax ay RPT,
meaning referring ka lang sa assets. Pero sa
NSNPEI, ang exemption is IT, RPT, and Tariff
and Customs Duties.
Yung kita at assets ng NSNPEI, walang buwis.
LAHAT ng kita at properties pagaari ng NSNPEI
kasama ang land, building, at improvements na
ADE used for purpose, ay exempt sa IT, RPT,
TCD.
Let’s go back to UST. Sa RPT, ano exempted?
Main bldg., pay high, botgar, library. Bakit? ADE
used.
Ano ang income as such? Yung kinita na tuition
fees. Taxable? No. Basis? Consti. Basta ADE used
for educational purpose.
How about ang rental income. Taxable? No.
Basis? Consti din. Basta ADE used for
educational purpose.
So, anong nangyari sa Sec. 30?
Bale may dalawang provisions tayo na inaapply
for NSNPEI.
50M tuition fee – Under Sec. 30 (H), 50M is
income earned as such therefore, exempt.
Pag ginamit mo si Consti. 50M is EXEMPT as
long as ADE used.
15M rental income – Under Sec. 30 (H), 15M is
subject to tax (CIT). Basis? Last par. of Sec. 30.
Pag ginamit mo si Consti, EXEMPT as long as
ADE used.
So, there is a conflict between Sec. 30 and the
Consti. However, the case of DLSU v. CIR
resolved this conflict. Under Sec. 30 (H), the
exemption is based on the source of income.
However, under the Consti., the exemption is
based on the use of income. Sabi naman sa
Consti., regardless of source of income. Basta
ADE used si income for educational purposes.
This is the only time that the words ADE is used
when we talk about income because the
Constitution so states.
How do you know if the 50M and 15M is ADE
used for educational purposes? Audited financial
statements. So, even if the tuition fee is derived
from operating the school and UST cannot
provide proof that the tuition fee is ADE used for
educational purpose, then UST may not avail of
the exemption. So, si Sec. 30 (H) is no longer
applicable because of DLSU v. CIR. The
exemption of NSNPEIs is constitutionally
guaranteed such that all its revenues and assets
ADE used for educational purpose is EXEMPT
from RPT, IT, and TCD. Therefore, Sec. 30 (H) is
therefore declared unconstitutional. Kaya
there are only ten (10) exemptions under Sec.
30 of the Tax Code.
Now, kailangan maipakita sa audited financial
statements na yung income na 50M and 15M ay
may katapat na kung saan ginamit. If the NSNPEI
cannot show ADE use of these incomes, then
BOTH will be subjected to tax.
Real properties: EXEMPT provided ADE used
and beneficial use does not pertain to nonexempt entity. Basis: Sec. 234 (a), LGC of 1991.
Except: When the beneficial use pertains to a
non-exempt entity.
Real properties leased: subject to RPT because
beneficial use pertains to non-exempt entity.
Donation IV/MC: Same rules.
Deductibility of IV/MC: Same rules.
Pero yung real property leased, subject to RPT.
Proprietary Educational Institutions (Sec. 27
[b]) Note: Same din sa Proprietary Hospitals.
RPT: EXEMPT provided ADE used. Basis? LGC.
Real property for lease: Subject to RPT. Basis?
LGC of 1991 because not ADE.
P50M tuition fee: Under Sec. 27 (b), this is
income from related trade or activity (RTA).
P15M rental income: Under the same provision,
this is income from unrelated trade or activity
(UTA).
Total: P65M.
The rule is if income from UTA exceeds 50% of
total income, then the whole P65M is taxed at
30% CIT.
If income from UTA does not exceed 50% of total
income, then the whole P65M is taxed at 10%
preferential rate.
Thus, the exemption is not in full, but only
partial.
So, in our example, the tax sa P65M is 10% only
kasi the income from UTA (P15M) is not more
than 50% of total income.
Tuition fee income 50M: EXEMPT because
income as such under Sec. 30 (I).
Rental income 15M: NOT EXEMPT because
income from proprietary institutions under last
par. of Sec. 30.
So, between NSNPEI, PEI, and GEI, sino ang
pinaka-favored ng batas? NSNPEI. Why does the
law favor NSNPEI even more than GEIs? Second,
why are educational institutions more favored
than charitable or religious institutions? Under
the Constitution, the government is mandated to
educate its people in order to foster economic
growth. But the government admits it cannot
provide free education to everyone. Thus,
education is being shouldered by the private
sector, for which the government provides
incentives.
If this is the line of thought, why does the
government give incentives to CI/RI? Because no
religion teaches violence or bad things. Every
religion teaches peace. CI/RIs are partners of the
State in promoting peace and order. Thus, the
government
likewise
incentivizes
these
institutions because of their help.
NSNPEI, PEI, and GEIs are the most
important institutions. Know the tax
consequences of these institutions, in particular
the RPT, and IT.
“ADE” is used for RPT exemption. The only
instance “ADE” is used for IT is for NSNPEI.
Governmental Educational Institution (GEI)
Gross Income
Example: UP Diliman.
Items of Inclusions (Sec. 32 [A])
Rule: Pag hindi excluded, included. (CGDIRAP)
a. Compensation for services in whatever form
paid, including, but not limited to fees,
salaries, wages, commissions, and similar
items
b. Gross income derived from the conduct of
trade or business or the exercise of a
profession
c. Gains derived from dealings in property
d. Interests;
e. Rents;
f. Royalties;
g. Dividends;
h. Annuities;
i. Prizes and winnings;
j. Pensions; and
k. Partner's distributive share from the net
income of the general professional
partnership.
designation is revocable: include in gross estate
subject to estate tax.
Exclusions
4. Compensation for Injuries or Sickness:
Underlying reason here is reparation of damage.
1. Proceeds of Life Insurance Policy:
Buhay: No tax
Interest on Proceeds: Taxable, NIT.
So, for purposes of estate planning, designate
somebody other than the decedent, estate,
executor/administrator
and
make
the
designation of the beneficiary irrevocable so that
it would be excluded in the gross estate and not
subject to estate tax.
2. Return of Premium: It is mere return of
capital (balik taya).
3. Gifts, Bequests, and Devises: No income tax
because it is excluded.
Pero may counterpart. ET/DT at 6%.
Except: If in favor of CI/RI, Educational
Institutions Provided not more than 30% is used
for administration purposes.
5. Income exempt under treaty
6. Retirement Benefits: Retirement benefits
are given for services rendered.
Return of Premium: Excluded.
Patay (tinanggap ng beneficiaries): No tax
Interest on Proceeds: Taxable
Return of Premium: No tax, excluded.
Pag may namamatay, may income tax side at
estate tax side.
Estate Tax side (Sec. 85 [E]):
If designated beneficiary is himself, estate, or
executor/administrator: whether revocable or
irrevocable, it is included in gross estate.
Therefore, taxable.
If designated beneficiary is any person other than
himself, estate, or executor/administrator and
Private Sector w/ Private Retirement Plan (PRP):
a. At least 50 years old;
b. 10 years in service;
c. Retirement plan is approved by BIR; and
d. No part of the fund used for any purpose
other than for the benefit of the
employees.
Private Sector w/o PRP:
a. At least 60 years old;
b. 20 years in service.
Government sector: Lahat, no tax. Even the
commutation of leave credits.
7. Miscellaneous Items:
a. Income
Derived
by
Foreign
Government from Investments in the
PH
Example:
PH loaned from China 1 billion dollars
with 250 million interest. Creditor: China.
Debtor: PH. Nung binayaran ni PH ng
250M si China, China earned 250M.
within or without? Within. Debtor na
nagbayad ng interest is PH, so necessarily
within. Taxable or not? Dapat taxable but
sabi ng Sec. 32 (B) no. 7, excluded.
b. Income Derived by the Government or
its Political Subdivisions: from any
public utility or from the exercise of any
essential governmental function accruing
to the Government of the Philippines or
to any political subdivision thereof.
Paano yung income from proprietary
functions? Included. Taxable at column A
(CIT).
e. 13th Month Pay and Other Benefits:
Limit of 90k. Those in excess of 90K shall
be subject to tax already. The 90K
includes:
(i) Benefits received by officials and
employees of the national and local
government pursuant to Republic Act No.
6686 (Christmas bonus for government
officials);
(ii) Benefits received by employees
pursuant to Presidential Decree No. 851,
as amended by Memorandum Order No.
28, dated August 13, 1986 (13th Month Pay);
(iii) Benefits received by officials and
employees not covered by Presidential
decree No. 851, as amended by
Memorandum Order No. 28, dated
August 13, 1986; and
(iv) Other benefits such as productivity
incentives and Christmas bonus;
Deductions
c. Prizes and Awards: made primarily in
recognition of religious, charitable,
scientific, educational, artistic, literary, or
civic achievement but only if:
(i) The recipient was selected without any
action on his part to enter the contest or
proceeding; and
(ii) The recipient is not required to render
substantial future services as a condition
to receiving the prize or award.
Example: Ten Outstanding Young Men of
the Philippines. Winners therein are
being nominated. They do not enter the
competition.
d. Prizes and Awards in Sports
Competitions: All prizes and awards
granted to athletes in local and
international sports competitions and
tournaments whether held in the
Philippines or abroad and sanctioned by
their national sports associations.
1. Only income subject to NIT are allowed
deductions.
RC: Entitled to deductions under column A.
NRC: Under column A (basta within)
RA: Column A (basta within)
NRAETB: Column A (basta within)
NRANETB: NO DEDUCTIONS kasi lahat nakafinal tax.
DC: Column A
RFC: Column A
NRFC: NO DEDUCTIONS kasi lahat naka-final
tax.
2. Only income from TRADE OR BUSINESS is
allowed deductions.
Individuals
CIE: NO DEDUCTIONS
SEP/SEI: With deductions IF NIT. If SEP/SEI
chooses 8%, NO DEDUCTIONS because 8% is on
the gross diba?
MIE: Deductions only on business income
component and NIT. If business income
component is subject to 8%, NO DEDUCTIONS
allowed.
Gross Income – Allowable Deductions = taxable
net income x NIT rates = Tax Due.
3. Deductions are business-related expenses.
Individuals
CIE
• Tax due: NIT
• Deductions: NONE.
• 250k N/A
• No VAT, no % tax.
SEP/SEI whose income is not more than P3M
• Tax due: NIT or 8%.
• Deductions: If he chooses NIT, itemized
deductions under Sec. 34 or Optional
Standard Deduction of 40%
• 250K not applicable.
• No VAT, subject to % tax.
• If
SEP/SEI
chooses
8%,
NO
DEDUCTIONS.
• 250K applicable. This is the only instance
when 250K is applied. Kasi 8% is charged
on income in excess of 250K. So, for
example GR/GS is 3M, automatically
deduct the 250K.
• No VAT, no % tax.
SEP/SEI whose income more than P3M
• Tax due: NIT
• Deduction: Itemized deduction under
Sec. 34 or OSD of 40% of gross
sales/service.
• 250k not applicable.
• Subject to VAT, no % tax.
MIE on compensation income
• Tax due: NIT
• Deduction: NONE.
• 250k not applicable. Why is it
inapplicable?
Because
there
is
compensation income subject to NIT and
•
under the current graduated rates,
income 250K and below are not subject to
income tax. So, MIEs already benefit on
the 250K on their compensation income.
No VAT, no % tax.
MIE on trade or business income whose GR/GS
does not exceed P3M
• Tax due: NIT or 8%
• Deduction: If he chooses NIT, itemized
deduction under Sec. 34 or OSD of 40% of
gross sales or service.
• No VAT, subject to % tax.
• If MIE chooses 8%, NO DEDUCTIONS.
• 250K not applicable.
• No vat, no % tax.
MIE on trade or business income whose GR/GS
exceeds P3M
• Tax due: NIT
• Deduction: Itemized deduction under
Sec. 34 or OSD of 40% of gross sales or
service.
• 250K not applicable.
• Subject to VAT, no % tax.
Corporations
T/B income not more than 3M
• Tax due: CIT
• Deduction: ID or OSD
• 250k inapplicable
• No VAT, subject to % tax.
T/B income exceeding 3M
• Tax due: CIT
• Deduction: ID or OSD
• 250k inapplicable
• Subject to VAT, no % tax.
% tax and VAT, magkaaway. Pero parehas silang
tax on the sale or sales tax. But they cannot exist
in the same taxpayer. They cannot both be paid
by one taxpayer.
Deductions
2 Kinds:
1. Itemized Deductions (ID) (Sec. 34);
2. Optional Standard Deduction (OSD) – 40% of
gross income (GI) (GR/GS less cost of sales).
Thus, 60% of GI is taxable.
• There is no need for receipts.
• Subject to the option of the taxpayer,
whose option shall be indicated at the
first quarter. Once chosen, it is
irrevocable for the rest of the year.
• If you choose OSD, there won’t be any
operating loss because 60% of your GI
is automatically subjected to tax.
Pension trusts
Research and Development
Note: Default option is ID.
Note: Deductions are applied only in business or
operating income subject to NIT and not on
compensation income.
Memorize: Sec. 39, 32 (B), 34.
Itemized Deductions
Sec. 34: (EITLBDCPR)
Expenses
Interests
Taxes
Losses
Bad debts
Depreciation, Depletion
Charitable contributions
X (Employer): Tao (SEP/SEI/MIE) or Corp.
Business: Tapsilugan
Gross Sales: 10M
Cost of Sales: 6M
Gross Income: 4M
Expenses:
Requisites of Itemized Deductions: (NAR)
a. It must be Necessary in trade or
business.
b. It must be Actually paid or incurred.
c. It must be Reasonable in amount.
Best
proof:
Official
receipts.
These
documentary proof will show that the expense
incurred is NAR.
Deductions are applicable both to individual and
corporate taxpayers.
Pagdating sa deductions, always ask who
incurred the expense.
May two sides per taxable period (calendar year
or fiscal year): revenue side (kita – GR/GS/GI)
and expense side (gastos – EITLBDCPR which
can be ID or OSD)
Y (Employee): Tao (CIE)
1. Allowance for salaries, wages, and other forms of
compensation
Salary of Mr. Y: Is it deductible? Yes.
Salary of Mr. Y: Income within. Taxable. Column
A. NIT or exempt. If Mr. Y is minimum wage
earner (MWE), it is exempt.
13th Month Pay of Y: Deductible? Yes.
13th Month Pay of Y: Income within. Taxable? If not
exceeding 90K, no tax because it is an item of
exclusion. If exceeding 90K, the excess is taxable.
2. Reasonable allowance for rentals and/or other
expenses
Rental paid (40K) to lessor A: Income on A? Yes.
Within or without? Within. Taxable? Yes.
Column? A. What kind of tax? NIT or 8%, kung
SEP/SEI si A and hindi nag-exceed 3M rental niya
sa isang taon.
Rental paid (18K) to lessor A: Income on A? Yes.
Within or without? Within. Taxable? Yes.
Column? A. What kind of tax? NIT or 8%, kung
SEP/SEI si A and hindi nag-exceed 3M rental niya
sa isang taon.
40K paid by Mr. X: Is it deductible? Yes.
18K paid by Mr. Y: Is it deductible? No. Because Mr.
Y, being a CIE, is not allowed any deduction.
3. Utilities
Tubig, Telepono, Kuryente, Internet (20K per Tubig, Telepono, Kuryente, Internet (10K per
month) paid to utilities company
month) paid to utilities company
Utilities company: Income? Yes. Taxable? Yes. Utilities Company: Income? Yes. Taxable? Yes.
Column? A. CIT matic. Walang utility company na Column? A. CIT matic.
tao. Laging corporation.
20K paid by Mr. X: Deductible? Yes, it is necessary 18K paid by Mr. Y: Deductible? No, because Mr. Y,
in T/B.
being a CIE, is not allowed to claim deductions.
4.
Entertainment,
expenses
amusement,
recreation
Outing/Strat-planning: Hotel, Airfare, Busfare, Outing/Strat-planning: Hotel, Airfare, Busfare,
Food, Prof. Fees of Facilitator: Deductible? Yes, Food, Prof. Fees of Facilitator: Income? No. Why?
because it is necessary in the T/B.
Because it was necessary in maintaining the
business of the employer.
Y sent to seminar in HK, all expenses paid: Y sent to seminar in HK, all expenses paid:
Deductible? Yes, because it is necessary in the T/B. Income? No. Why? Because it was necessary in the
T/B of X.
X got a business permit and bribed the fixer Y was caught jaywalking. He bribed the policeman
P1,000.00.
P500.00.
Income on the fixer? Yes. Within or without? Income on policeman? Yes. Within or without?
Within. Taxable? Yes. What column? A. What Within. Taxable? Yes. What column? A. What
kind of tax? NIT or 8% because fixer is an SEP/SEI. kind of tax? NIT lang. Policeman is merely an
employee of the government.
Is the bribe deductible from X? No, because it is an Is the bribe deductible? No, because Mr. Y, being
illegal expense.
a CIE, is not allowed any deduction.
Let’s say X’s business is shabu and Y is the pusher.
The business is illegal, but it is legal to have an
employee. X bribed the police.
Is the bribe deductible? No, because it is an illegal
expense in an illegal business.
X pays Y his salary. Is this deductible? Yes, because
this is a legitimate expense in an illegitimate
business.
Rule:
Expenses which are contrary to law, morals, public
policy, customs, or traditions shall not be allowed
as deductions whether business is legal or illegal.
Legitimate expenses, whether business is legal or
illegal, are allowed as deductions.
Marketing expenses: Printing of flyers indicating
discounts on customers on 2:45AM (P3,000.00),
signages (P25,000.00).
Is the printing cost of flyers deductible? Yes,
because it is necessary in T/B and marketing
expenses incurred for the purpose of increasing
sales is deductible.
Is the cost for signages deductible? No, because it
is in the nature of a capital expenditure. However,
X can claim depreciation of the asset.
Yes to expense; No to depreciation. No to expense;
Yes to depreciation. Hindi pwedeng magsama ang
expense at depreciation. What do you depreciate?
Assets. When you bought the signage, naging asset
yan ng company. Yung P25,000.00 na ginastos mo,
kapalit ay asset which is P25k worth. Kumbaga, natransform yung asset of P25K into a signage. Pag
yung ginastos mo ay naging asset, it will become a
capital expenditure.
Capital expenditure: an expense incurred in
purchasing an ordinary asset or in extending the
beneficial or economic life of an existing asset or
in making good an already existing asset.
X buys kawali P50,000.00. Deductible as business Y buys kawali P10,000.00. Deductible? No, because
expense? No. This is a capital expenditure but X Mr. Y, as CIE, is not allowed deduction. Because of
may claim depreciation expense.
usage, asset depreciates, but he cannot claim
depreciation expense. But because of depreciation,
the FMV of the kawali decreases.
How do you depreciate the asset for purposes of
deduction? Value of the property divided by
number of years.
Personal property – 5 years.
Real property – 15 to 25 years.
Let’s say kawali worth P50k was bought in 2021. In
2022, P40k nalang value. By 2023, P30k nalang. By
2024, P20k. By 2025, P10k. By 2026, P0.00 book
value. So, depreciation expense per year is P10k.
and X may claim depreciation expense of P10k
until the book value reaches 0.00.
What is the effect of claiming depreciation
expense for period of 5 yrs? Parang na-recover mo
din yung asset mo worth P50k.
Interests: Interest sa utang. The taxpayer is the
debtor. Point of view is debtor. Dapat bayad si
debtor-taxpayer kay creditor.
X may utang kay C (creditor), P350K. ginamit ni X Y may utang kay C (creditor), P350K. Interest is
sa expansion/construction ng tapsilugan niya. 10% or P35K. Nagbayad si Y kay C, P35K interest.
Interest is 10% or P35K. Nagbayad si X kay C, P35K
interest.
Income on C? Yes. Within or without? Within.
Taxable? Yes. Column? A (note, interest on loans
nasa A. interest on bank deposits lang nasa B).
What kind of tax? NIT or 8% if C is SEP/SEI.
On part of X: Deductible? Yes. Why? Because the On part of Y: Deductible? No, because Mr. Y, being
interest on indebtedness is necessary in the T/B. a CIE, is not allowed deduction.
How much? P35K reduced by 33% of the interest
income subjected to final tax.
Tax Arbitrage Rule: The interest expense on the Is tax arbitrage applicable to Y? Never, because Mr.
part of the taxpayer as a deduction will be further Y is a CIE.
reduced in an amount equivalent to 33% of any
interest income from bank deposits of the taxpayer
(Sec. 34 [B] [1]). The P35k interest on loan shall be
further reduced by 33% of any interest income
subject to final withholding tax.
What interest income are subject to FWT? Interest
on bank deposits. Taxable under Column B. What
kind of tax? FWT at the rate of 20%. So, let’s say X
has bank deposit in his savings account. Interest
earnings = P2,000.00. ang P2k, ang tax niyan ay
FWT of 20% so, P400 lang yung tax jan. So, ang
napunta lang talaga sakanya ay P1,600.00. Ang 33%
ng P2,000.00 lang ang idededuct mo. 33% ng P2k
at P660.00. So, P35K, bawasan mo ng P660.00 =
P34,340.00 lang ang pwede mong i-deduct.
Lumbera, trabaho ay magpautang. Umutang si
Lumbera kay Gabriel P100,000.00, interest of
P5,000.00. Yung P50k na inutang ni Lumbera kay
Gabriel, pinautang niya kay Rebecca, ang interest
ay P10,000.00. Yung P30k, kay Adrian, interest ay
P4.5k. Yung P20k, kay Edielle, interest ay P4.5k. Sa
debtor side, may interest income si Lumbera na
P19,000.00. Pwede niya ba i-apply yung tax
arbitrage? No. The interest income of Lumbera is
not subject to FWT. It is subject to NIT. Pero yung
P19k na interest income ni Lumbera, babawasan
pa ng P5k na interest na binayad kay Gabriel
because P5k is considered cost of sales.
Bad Debts: Point of view is creditor. Hindi dapat
bayad si debtor kay creditor-taxpayer.
In 2016, X may utang kay C (creditor), P350K. Y may utang kay C (creditor), P350K. Interest is
Ginamit ni X sa expansion/construction ng 10% or P35K.
tapsilugan niya. Interest is 10% or P35K. payable on
2018.
If X failed to pay C P385k (principal + interest), If Y failed to pay C P385k (principal + interest),
may ginastos ba si X? Wala. So, wala siyang may ginastos ba si Y? Wala. So, wala siyang
expense therefore, wala siyang deductions.
expense therefore, wala siyang deductions.
May kita ba si C? Wala din. Therefore, no income May kita ba si C? Wala din. Therefore, no income
tax on C.
tax on C.
Dahil walang payment of P385k, ang tawag jan ay Can C claim bad debts expense for failure of Y to
bad debts which can be claimed by creditor C as pay P385k? Yes.
deduction.
Note: Dapat in connection with C’s business yung
pautang ni C kay X. Moreover, kapag si C at X ay
yung parties mentioned in Sec. 36 (B)
(Transactions at arms-length), bawal i-deduct
ni C yung unpaid obligation ni X.
Tax Benefit Rule: It is the effect when subsequent Tax Benefit Rule applies din. The POV is the
payment of the bad debt was made when the creditor (C). Wala tayong pakialam kay Y na CIE.
creditor has previously claimed the bad debt as a
deduction. Applies in:
a. Bad Debts subsequently refunded
b. Taxes subsequently refunded
c. Casualty Loss subsequently recovered
Let’s say nangutang si X kay C on 2016. Due date is Let’s say nangutang si Y kay C on 2016. Due date is
2018. X failed to pay. C may claim P385k as 2018. Y failed to pay. C may claim P385k as
deduction.
deduction.
What is the effect of the deduction on C’s point of What is the effect of the deduction on C’s point of
view? Na-reduce yung income tax due niya. This is view? Na-reduce yung income tax due niya. This is
the benefit received by C.
the benefit received by C.
Nung 2021, 3 years after due date, nagkapera si X. Nung 2021, 3 years after due date, nagkapera si Y.
Binayaran niya si Mr. C ng P385k.
Binayaran niya si Mr. C ng P385k.
Nung hindi nagbayad si X ng C, nagkaroon ng
benefit si C to deduct P385k and reduced his
income tax due. What is the effect of the recovery
of P385k after C deducted it in 2018? P385k will be
included as part of the gross income of C in 2021,
which is the year of recovery.
Nung hindi nagbayad si Y ng C, nagkaroon ng
benefit si C to deduct P385k and reduced his
income tax due. What is the effect of the recovery
of P385k after C deducted it in 2018? P385k will be
included as part of the gross income of C in 2021,
which is the year of recovery.
Let’s say nagbayad si X kay C on 2021 pero P200k
lang. Edi P200k yung idadagdag sa gross income ni
C pursuant to the Tax Benefit Rule.
Nung nagbayad si X kay C nung 2021. Can X claim Nung nagbayad si Y kay C nung 2021. Can Y claim
deductions? Yes, he may deduct P35k as interest deductions? No, because Mr. Y, being a CIE, is not
expense.
allowed deductions.
Losses (Casualty Losses: The loss must have arisen
out of theft, robbery, embezzlement, or any
natural calamity (floord, earthquake, fire, storm)
Let’s say kawali worth P50k was bought by X in Y buys kawali P10,000.00. Ninakaw ni M kawali ni
2021. In 2022, P40k nalang value. By 2023, P30k Y in 2024. FMV in 2024 is P1,600.00.
nalang. By 2024, P20k. By 2025, P10k. By 2026,
P0.00 book value.
Si kawali, ninakaw ni M on 2024. How much ang
book value on 2024? P20k. Magkanong ninakaw ni
M? P20k.
Income on M? Yes. Within or without? Within. Income on M? Yes, P1,600.00. Taxable? Yes.
Taxable? Yes. Column? A. What kind of tax? NIT Column? A. What kind of tax? NIT or 8% kung
or 8% kung business niya ay pagnanakaw.
business niya ay pagnanakaw.
On part of X, how much ang casualty loss? P20k. Can Y claim deduction of P1,600.00? No, because
deductible? Yes. How much? P20k.
CIE are not allowed deductions.
Can X continue claiming depreciation expense of
P10k in 2025 and 2026? No more. Nawala nga eh.
Depreciation is available only while using the
asset.
In 2027, nag-sisi si M. Binalik ang kawali pero sira.
FMV of sira-but-recovered kawali is P500.00.
What is the effect on X? Tax Benefit Rule applies.
X should declare P500.00 as income.
In 2027, nag-sisi si M. Binalik ang kawali pero sira.
FMV of sira-but-recovered kawali is P45.00. What
is the effect on Y? None. Nung nawala si kawali, di
naman nag-deduct si Y. Return of capital lang din
yan. Y cannot claim loss and conversely cannot
declare income.
Taxes: Must be incurred in connection with T/B.
On 2021:
X nagbayad ng RPT sa QC LGU worth P25k.
Y paid RPT P10k, Community Tax P100.00 in 2021.
Total = P10,100.00. Can Y claim as deduction? No,
X paid business tax on tapsilugan business worth because as CIE, Y is not allowed deductions.
P75k. Total taxes paid: P100k. May X claim this as
deduction? Yes.
After payment of RPT and BT, X requested for
refund. QC LGU refunded P44k on 2023.
What is the effect on X of the refund of P44k after QC LGU refunded P2,000.00 to Y. What is the
claiming deduction of P100k as deduction for effect? None.
taxes? The Tax Benefit Rule applies. X declares
P44k as part of X’s gross income in 2023.
Depletion: Applies in cases of businesses related
to utilization of natural resources.
Charitable Contributions: Donor side.
X donated P500k to DOH; P500k to Home for the Y donated P500k to DOH; P500k to Home for the
Aged; P500k to UST (NSNPEI); P500k to church.
Aged; P500k to UST (NSNPEI); P500k to church
Income on all these institutions? Yes. Taxable? No Income on all these institutions? Yes. Taxable? No
because it is an item of exclusion (Gifts, Bequests, because it is an item of exclusion (Gifts, Bequests,
Devises).
Devises).
Subject to DT/ET?
DOH – No.
Home for the Aged, UST, church – No, provided
that not more than 30% is used for administration
purposes.
Can X claim deduction?
Can Y claim deduction? No, because Y, being CIE,
DOH – in full, if priority government project as is not allowed deductions.
determined by NEDA. If not priority government
project, 10% of TI (from tapsilugan business) prior
to deduction, if individual or 5% of TI prior to
deduction, if corporation.
Home for the Aged, UST, Church: Deductible,
subject to 10%/5% restriction.
Pension Trust: Contributions of ER to retirement
fund of EEs whether in the nature of pension or
regular retirement.
X contributes to
deductible? Yes.
retirement
plan:
P100k. Y contributes to his own retirement plan.
Deductible? No, because Y, being CIE is not
allowed deductions.
Research and Development
Seminar fees, feasibility study fees sa tapsilugan Y wanted to invent paano maging ginto ang tanso.
business. Deductible? Yes.
Y paid feasibility study fee of P50k. Deductible?
No, because Y, being CIE, is not allowed
deductions.
All ID are business-related expenditures. Pag
nakakita kayo ng problem on deductions, always
look at the business and the nature of the
expense.
1. Business-related ba?
2. Yung bang expense ay may kapalit or
nattransform into an asset? Kung yes, it is
considered capital expenditure and thus, it is
not an expense, matic depreciation.
3. If there is an expense and it is reimbursed, the
reimbursement forms part of your gross
income in the year the reimbursement is
made.
4. CIE is not allowed to claim any deductions,
regardless of expenses.
When EITLBDCPR is greater than your gross
income, you incur net operating loss.
When X SEP/SEI, NOLCO does not apply.
When X is a corporation, NOLCO applies for 3
years.
Do not forget MCIT, beginning the 4th year
following the commencement of operations, if X
were a corporate taxpayer.
Items Not Deductible
Remember nos. 2 and 3 of Sec. 36, because these
are deemed capital expenditures. In lieu thereof,
you may claim capital expenses
NOTES IN TAXATION LAW II
Culled primarily from the lectures of Prof. Rizalina V. Lumbera
Value-Added Tax
Value-Added Tax (Secs. 105 to 115)
• Always married to income tax
Coverage of VAT:
1. Sale of goods (Gross Sales) – in the course
of trade of business;
2. Sale of service (Gross Receipts) – in the
course of trade or business;
3. Importation of goods – whether or not in
the course of trade or business. Basta nagimport ka, that act of importation is
considered a VATable transaction.
he should not impose 12% output VAT. Hindi
siya pwede mag-impose ng 12% output tax pero
sasagutin niya pa rin yan kasi presumed na
registered siya. He will shoulder the 12% output
VAT. Pwede naman output less input pero wala
naman talaga nagbayad sakanya ng output of
12%.
Paano kapag GR/GS does not exceed P3 million?
Edi hindi mo kailangan magpa-rehistro. You also
cannot credit input against the output.
Paano kapag pabibo at nagpa-register kahit
GR/GS does not exceed P3 million? Edi bayad ka
pa rin ng VAT and you can credit input against
output.
There is always a buyer and a seller.
Who are liable? Everybody is liable. Everybody
pays VAT.
Output tax: The VAT on sales (OS – output tax
for sales)
Input tax: The VAT on purchases (IP – input tax
for purchases)
If taxpayer is not engaged in trade or
business, no crediting of input against
output.
If taxpayer is engaged in trade or business
and he is VAT registered, he is allowed to
credit input against output.
• If you are not a VAT-registered person,
you cannot credit input against your
output.
Paano mo malalaman kung kailangan magparegister? If GR/GS exceeds P3 million (see Sec.
109 [BB]).
What if GR/GS exceeds P3 million pero di nagparehistro? The law does not exempt him. The law
presumes that he is VAT-registered. Moreover,
Daverick Pacumio
UST Faculty of Civil Law
Paano kapag madiskarte at hindi nagpa-register
ng VAT kasi GR/GS does not exceed P3 million?
Huwag ngiti, kalahati lang. Babayad ka pa rin
percentage tax of 1% until 2023 under CREATE
Law but will revert to 3% in 2023.
Mas okay ba percentage tax? Hindi rin. Kasi
walang crediting ng input against output. Sa
percentage tax, it’s a straight tax against the
gross.
Less than 3 million, maraming input VAT na
binayaran, bayad ka pa rin ng 1% percentage tax
on the gross sales. Pwede mo ba credit si input sa
percentage tax? Hindi.
Rates:
1. 12%;
2. 0%; and
3. Exempt.
Lahat ng taong nagbebenta, nagpapatong ng
12%. Lahat ng bumibili, pinatungan ng 12%.
X, employer-seller ng tapsilog, bawa’t benta ng
tapsilog, 12% patong. Yung kanyang pinamili,
e.g., bawang, sibuyas, kamatis, etc., siya ay
nagbayad ng 12%.
Si X nag-purchase ng services ng employee niya.
May VAT ba? Wala. Isa sa mga exempt
transactions ang services rendered pursuant to
EER (Sec. 109 [I]).
X (MIE/SEP/SEI), nagbenta kay Y (CIE) ng
tapsilog worth P200.00 + VAT at 12% or P24.00.
Ano ang tawag sa P24.00? Output tax. Ano tawag
ng P24.00 na binayaran ni Y on top of P200.00?
Input tax.
Mr. X sold tapsilog worth P10M. Nagdagdag ng
output (12%) P1.2M. Binayaran ng buyers yang
P1.2M as input VAT. However, walang effect
sakanila yan as taxpayers kung hindi sila engaged
in trade or business.
Does X have input side? Yes, because X has her
own expenses connected with her tapsilugan
business.
Mr. X activities
Gross Sales
VAT paid
Benta tapsilog
10M
1.2M – Buyer side, input VAT yan. Walang effect kasi
hindi engaged sa T/B sila buyers. Pero binayaran din
nila.
1.2M – Seller side, output VAT.
Input VAT on the part of Mr. X as seller. This may be
credited against his output VAT. If excess output
VAT = VAT payable. If excess input VAT = credit sa
next taxable qtr.
Walang output
Bili bawang, sibuyas, etc.
Service of employees
Lease of commercial space
480K
month
a Input VAT of 57,600. Bakit? Kasi only lease of
residential units ang exempt provided di exceeding
P15,000.00.
Lahat ng pinamili ni X kung saan siya ay
nagbayad ng input VAT, idededuct sa output
VAT. Yung result = VAT payable.
Paano kung lugi? When you result in excess
input VAT, lugi yan. In which case, ipa-refund
mo or ipa-credit sa susunod na quarter.
When you result in excess output VAT, you call
it VAT payable.
Income tax side
Benta
Puhunan
Less: expenses/allowable
(gastos)
GR/GS
Cost of sales/goods
Gross income
deductions Expenses/AD
VAT side
Output Tax (you got paid
12%)
Input VAT (you paid 12%)
Input VAT (you paid 12%)
Taxable net income if GI is Excess output VAT = VAT
more than AD = pay income payable
tax due
Never will it happen na
may taxable net income tas
wala kang babayarang
VAT.
NOL (GI is less than allowable Excess input VAT = two (2)
deductions) = Net operating choices:
loss = zero tax
1. Refund (no longer
But if corporation, apply the acceptable); or
NOLCO for 3 years, subject to 2. Credit in succeeding
application
of
MCIT quarters.
th
beginning the 4
year
following the commencement
of the operation
Proof: Receipts. Because if the receipts you
presented as a buyer representing your purchases
or expenses in the course of trade or business
(input) does not exist on the seller’s side, then
you may be liable for tax evasion.
Zero-Rated vs. Exempt
Zero-Rated
Exempt
Ang may zero-rated lang ay nasa Sec. 106 and Sec. Sec. 109. What is the nature of exempt
108 (B) They are VATable but at the rate of zero. transactions? It is not subject to VAT at a
In zero-rated transactions, the transaction is not particular stage only.
subject to VAT at all stages.
(A) Sale or importation of agricultural and
1. Export sales (Sec. 106);
marine food products in their original state,
2. Sale of service (Sec. 108 [B]).
livestock and poultry of or king generally
Example: Coach bags, wallets, etc. Ang raw used as, or yielding or producing foods for
materials ng Coach bags ay iniimport dito. Ang human consumption; and breeding stock and
bags, wallets ng Coach ay inaassemble dito sa genetic materials therefor.
Pilipinas. Ano ang binabayad? Sale of service. Ang
requirement ay ilalabas sa Pilipinas ang finished Products classified under this paragraph shall
product. This transaction is zero-rated.
be considered in their original state even if
they have undergone the simple processes of
What happens if after production, dinala sa preparation or preservation for the market,
Greenbelt shop ng Coach at dineretso sa market? such as freezing, drying, salting, broiling,
You break the cycle and everything will be roasting, smoking or stripping. Polished
subjected to 12% (the importation, sale of service, and/or husked rice, corn grits, raw cane sugar
and the sale of the bags/wallets will be subjected and molasses, ordinary salt and copra shall be
to 12%). Bakit mas mahal dito ang Coach bags? considered in their original state;
Kasi ni-rereimport mo yan dito and the
importation is VATable already. And when you Example:
sell it, it’s VATable again for sale of service.
Gregarius may manok na live. Binili ni Rebecca
Reason: Pag ang goods ay papasok, importation. P200.00. subject to VAT? No.
Nakakasira ng local products. (1) May additional
competition ang locally-made products. (2) Si Rebecca, ang ginawa sa manok, pinatay,
Moreover, dahil nag-iimport tayo, nagbabayad dinress, binenta sa palengke. Bumili si Tristan.
tayo ng foreign currency so, nababawasan ang VATable? No.
foreign currency reserves natin. Kaso, hindi
naman natin pwede bawalan mag-import. So, Si Rebecca, ang ginawa sa manok, tinimplahan,
what the government does is to exercise the power ginawang chicken barbeque flavor. Nilagay sa
of taxation as an adjunct of police power. So, we plastic, nakatinda. Bumili si Tristan. VATable? No.
tax importations.
Si Tristan, may resto. Yung isa, ginawang tinola. Si
These zero-rated transactions are beneficial to the barbeque, ginawang barbeque. Si tocino, nilagyan
economy.
ng kanin. Inorder ni Katya lahat. VATable? Yes.
Hindi na exempted yan. Hindi na in the original
state.
(I) Services rendered by individuals pursuant
to an employer-employee relationship;
(P)
1. Sale of real properties not primarily held for
sale to customers or held for lease in the
ordinary course of trade or business: By 2021,
still exempt, regardless of amount.
2. Real property utilized for low-cost and
socialized housing as defined by Republic Act
No. 7279, otherwise known as the Urban
Development and Housing Act of 1992, and
other related laws: By 2021, still exempt
regardless of amount.
3. Residential lot valued at P 1,500,000.00 and
below: By 2021, no longer exempt. So, VATable
na regardless of amount.
4. House and lot, and other residential
dwellings valued at P 2,500,000.00 and below:
By 2021, threshold is reduced to P 2M.
Q: Does this P 2M threshold apply to residential
lot?
A: No. Residential dwellings ang pinaguusapan.
Plus VAT exemption is strictly construed against
the taxpayer claiming exemption. So, residential
lots are no longer exempt.
Anong rationale? Sobra kasing kumokonti na
yung agricultural land sa Pilipinas. Most of the
lands are being converted into subdivisions.
Nagiging commercial yung agricultural land. Kaya
tinanggal yang P1.5 million, para i-deter o idiscourage ang realty companies to convert
agricultural lands to subdivisions. Eh bakit may
threshold yung residential house and lot and
dwellings? Kasi presumed na titirhan yang mga
yan.
NOTE: These thresholds only apply in sale of
ordinary assets, not capital assets.
Developer si Lumbera. Binenta ni Lumbera yung
house and lot P1.1 million kay Katya. VATable? No.
Si Katya engaged in real estate business binenta
kay JR ng P2 million. VATable? No. Si Katya
binenta kay JR ng P2.6 million. VATable? Yes.
Si JR, binenta yung house and lot na tinitirhan
niya. VATable? No. but subject to CGT of 6% on
the FMV or GSP.
(Q) Lease of a residential unit with a monthly
rental not exceeding P 15,000.00;
Nag-renta si Mr. X for tapsilugan business for
P14,000.00 monthly. VATable? Yes. Lease of
residential units lang ang exempt from VAT. For
commercial use yung lease.
Nagpapa-renta ng dorm si Lumbera P3,000.00
monthly. VATable on Lumbera’s part? Yes. Kasi
ang POV si Lumbera, as one engaged in business
of leasing residential units. Commercial ito on her
side. Pero kung POV yung nagrerenta, exempt
yan.
(Y) Association dues , membership fees, and
other assessments and charges collected by
Home
Owner’s
Associations
and
condominium corporations;
(AA) Sale of drugs and medicines prescribed
for
diabetes,
high
cholesterol,
and
hypertension beginning Jan 1, 2019;
(BB) Sale or lease of goods or properties or the
performance of services other than the
transactions mentioned in the preceding
paragraphs, the gross annual sales and/or
receipts do not exceed the amount of P
3,000,000.00;
In zero-rated transactions, the input VAT is In exempt transactions, the input VAT is not
allowed to be credited against output VAT.
allowed to be credited against the output VAT.
Example:
Example:
Isang manok, pinatay, ginawang adobo, binenta 2 manok binenta alive P5,000.00. VATable or not?
bilang adobosilog ng P8,000.00. VATable or not? No, it is exempt.
VATable. No longer in original state yan. Output
VAT = P960.00 (12% ng P8,000.00).
Sa pag-aalaga ng 3 manok, gumastos ng tubig,
kuryente P3,000.00. so bawa’t isang manok,
P1,000.00. Input VAT sa bawa’t isang manok,
P120.00. P360.00 input VAT
Sa pag-aalaga ng 3 manok, gumastos ng tubig,
kuryente P3,000.00. So bawa’t isang manok,
P1,000.00. Input VAT sa bawa’t isang manok,
P120.00.
Pwede ibawas yung P120.00 sa P960.00 so, Hindi pwede ibawas yung P120.00.
P840.00 nalang VAT payable. This is the first
benefit of zero-rated transactions.
2 manok, binenta ng live sa Japan P5,000.00. May
output VAT? Oo at 0%. Therefore, the output VAT
is zero (0). This is the second benefit of zerorated transactions.
Sec. 1125 – the third benefit of zero-rated Walang ganito ang VAT-exempt.
transactions
Isang manok na pinatay, binenta ng P800.00.
output VAT: P96.00.6 Input: P360.00.7 Allowed to
be credited diba? So -264.00. This is the excess
input VAT in zero-rated transactions. If the excess
input VAT is as a result of zero-rated transactions,
you do not credit this in the next quarter. Your
remedy is under Sec. 112, which allows the tax
refunds or tax credits of input tax.
5
Favorite sa Bar exams.
12% of 800.
7
Same example above.
6
This is the only Section or provision of law which
allows the filing of claims or refunds of input VAT
within two (2) years from close of quarter when
you had the zero-rated transaction.
There is a 90-day period within which the BIR will
act on the refund. If granted, manahimik ka
nalang at ngumiti. If denied, umiyak ka nalang.
Joke. Appeal ka sa CTA.
Donor’s Tax & Estate Tax
Sa tax code, there are three (3) transfer taxes:
VAT,
Donor’s – last transfer tax paid habang buhay ang tao, and
Estate Tax.
Income Tax – taxability is dependent on the source of the income. That’s why we have Sec. 42 (within
and without).
• NIT: Gross Income – Allowable Deductions = Taxable Net Income x rates (schedular or fixed) =
Tax Due.
• Rates are schedular or fixed.
VAT – taxability is dependent on the sale/import transaction.
Percentage Tax – taxability is dependent on the place of production, manufacture, and imposed at the
time of removal of goods from place of production.
Donor’s Tax and Estate Tax – taxability is dependent on the location of the property, whether it is within
or without.
Donor’s Tax
• Gross Gifts (GG) – Allowable Deductions = Taxable Net Gifts x Rates (6%) = Tax Due.
• Fixed at 6% of net gift in excess of P250,000.8
o Note: Per gift and per calendar year, compute Donor’s Tax. Ito lang yung tax na nakasulat
na per calendar year.
o Example: X gave the following in 2021:
To A (resident citizen): P800k (February)
To B: P800k (June)
To C: P800k (November)
To D: P800k (December)
DT is paid 30 days after each gift. So, bawa’t isang regalo, bayad ng buwis. Income tax,
bayad every quarter but there is an annual return if business income earner ka. So, how do
we compute?
8
Sec. 99 (A).
To A: GG nung February is P800k. allowable deductions? 0. Taxable net gift: P800k –
250,0009 = P550,000 x 6% = P33,000 donor’s tax due as of February.
•
•
•
•
•
•
To B: GG as of June is P1.6 million.10 Ito yun ibig sabihin ng calendar year. Allowable
deductions? 0. Taxable net gift as of June: P1.6 million – P250,000 = P1,350,000 x 6% =
P81,000 less previously paid DT (P33,000)11 = P48,000 donor’s tax due.
To C: GG as of November is P2.4 million. Deduction? 0. Taxable net gift as of November:
P2.4 million – P250,000 = P2,150,000 x 6% = P129,000 less previously paid DT (P81,000)12 =
P48,000 donor’s tax due.
To D: Sa December, sure yan P48,000 ang donor’s tax due. Basta same amount of donation.
So, yung una lang yung mababa. If you’re donating the same amount (parang dito, P800k
lahat), the same amount will be paid in the subsequent returns. This is the effect of the
TRAIN Law. Kasi fixed na ng 6%.
Donor’s tax speaks of transfers inter vivos. It may be donation, gift, basta inter vivos.
It is gratuitous.
Basis: Fair Market Value (FMV) at the time of gift (zonal value, assessed value [w/c is in the tax
declaration], FMV, whichever is highest).
We are talking about real properties, tangible personal properties, and intangible personal
properties.
Location of the properties
Kailangan ba donation ang tawag? No, even waivers, condonation of indebtedness, basta it is
without any consideration, will be treated by the tax code as donations.
X and Y gave A and B P500k.
Unang tanong: Ilan ang regalo? Apat. X to A (P125k); X to B (P125k); Y to A (P125k); Y to B (P125k). Bakit
P125k? Kasi ang nakasulat sa law on obligations and contracts, unless solidary, saka mo lang sasabihing
solidary. Otherwise, it is equal.
IT side:
X to A (P125k) A kumita ng P125k. Income? Yes. Within or without? Within. Subject to tax? No, it is an
item of exclusion (Sec. 32 [B] no. 3).
Deductible from gross income of X? No. Ang pwede mo lang i-deduct from gross income is donations in
favor of certain institutions (Sec. 34 [H]). Apply mo ‘tong sagot na ‘to for all.
DT side:
X to A (P125k). Subject to DT? No. It is less than P250k.
X to B (P125k). Subject to DT? No. It is less than P250k.
Y to A (P125k). Subject to DT? No. It is less than P250k.
Y to B (P125k). Subject to DT? No. It is less than P250k. kahit same year.
What if gift is P1 million?
X to A (P250k)
9
Ito yung excess of P250,000 na sinasabi.
P800k given to A + P800k given to B as of June.
11
Paid nung Feb.
12
Nung June.
10
X to B (P250k)
Y to A (P250k)
Y to B (P250k)
IT side: Same answers.
DT side:
Unang regalo ni X and Y, not subject. Pangalawang regalo ni X and Y, subject to DT. Kasi P500k na yun.
Kung gusto mong makatipid ng DT, magbibigay ka P500k kay A and B, ano gagawin mo para wala ka
bayarang buwis? Bigay mo P250k ng December 31 unang regalo, bigay mo pangalawang P250k ng January
1. Kung magbigay ka pa regalo after January 1, bayad ka na. This is tax avoidance. Pwede yan. kaso, meron
pa ring bawi gobyerno. May 1.5% documentary stamp tax, among other administrative expenses
(abogado, notaryo).
Gratuitous: Walang bayad na pera, bagay, service.
• Does it have to be called a donation, gift inter vivos? No. It is the nature of the transaction that
matters.
Sec. 100, as amended: Transfer for Less than Adequate and Full Consideration. - Where property,
other than real property referred to in Section 24(D), is transferred for less than an adequate and
full consideration in money or money's worth, then the amount by which the fair market value
of the property exceeded the value of the consideration shall, for the purpose of the tax imposed
by this Chapter, be deemed a gift, and shall be included in computing the amount of gifts made
during the calendar year. Provided, however, That a sale, exchange, or other transfer of property
made in the ordinary course of business (a transaction which is a bona fide, at arm’s length, free
from any donative intent), will be considered as made for an adequate and full consideration in
money or money’s worth.
• This one in red is the amendment made by TRAIN.
• Sa luma, pag nagbenta ka ng lugi, namigay ka ng libre, kaya bayad ka ng donor’s tax. This is
essentially what Sec. 100 means. Kaya some treat this as an “exception” to the gratuitous
disposition of property but this is not the case.
• Under the old law, walang pakialam kung related sa trade or business yung binenta.
o Example: May relo si RVL, worth P10,000, binenta kay Tristan P100. She sold it for less than
an adequate and full consideration in money or money’s worth. Nalugi ng P9,900.
Ipinamigay niya ng libre yung P9,900. Sabi sa dating batas, pag ganyan ang scenario,
magbabayad ng donor’s tax si Lumbera sa P9,900.
o Example: May kawali si X worth P50,000 sa tapsilugan niya. Nagdedepreciate siya every
year. On the third year, P30,000 nalang book value. Ibinenta niya kay Tristan ng P100 lang.
Ano ang tax effect/s on X? Kay X, tumigil siya magdepreciate di na siya makaka-claim ng
P10,000 depreciation expense. At dahil binenta niya ng lugi ang kawali, pinamigay ni X kay
Tristan ang P29,000 kaya bayad siya donor’s tax on P29,000.
• Ano yung naka-green? Anong ibig sabihin niyan? It means capital assets.
o Example: I have 2 houses. Isa bahay – capital asset (CGT under Sec. 24 [D]). Isa tapsilugan
– ordinary asset (Sec. 39). Parehas siya binili P10 million. Bahay – FMV is P6 million. Hindi
nagcclaim ng depreciation expense kasi capital asset. Tapsilugan – book value is P6 million.
May book value yung tapsilugan kasi ordinary asset, every year, nagcclaim ng depreciation
expense. Ibinenta ngayon kay Tristan P1 million each. Lugi P5 million.
•
•
•
o Ano ang tax consequences dun sa pagbenta ng bahay ng lugi? Capital Gains Tax of 6% on
the FMV or the Gross Selling Price (GSP), whichever is higher. So may CGT of 6% on P6
million (FMV).
Ano ang tax consequences dun sa pagbenta ng tapsilugan ng lugi? Under the old law, kesyo related
sa business o hindi ang binentang property, bayad ka.
o Pero sa TRAIN, dinagdag yung in red. Ano ang ibig sabihin nito? There must be donative
intent.
o Pag nagbebenta ka ng goods in the course of trade or business, kahit binenta lugi, basta in
the course of business, at arms’ length, bona fide, walang donative intent, then donor’s tax
is not imposed.
Example: Mag-eexpire na mga coke in cans na binebenta. Book value: P10 pero binebenta at P14
so may tubo ng P4 diba. Binenta niya buy 1 take 1 at P14. Lugi siya ng P3 per can. ordinarily, kung
old law ang inapply, liable ka for donor’s tax.
But under TRAIN, because this is a sale, exchange, or transfer of property made in the ordinary
course of business, a transaction bona fide, at arms’ length, at walang intention ipamigay ng libre
ang P3, the intention behind this sale is to prevent losses. Kesa maexpire lahat lugi ka P10 per can.
Therefore, no donor’s tax should be imposed. This is the new rule under TRAIN Law.
Sec. 100, old code: Transfer for Less than Adequate and Full Consideration. - Where property,
other than real property referred to in Section 24(D), is transferred for less than an adequate and
full consideration in money or money's worth, then the amount by which the fair market value
of the property exceeded the value of the consideration shall, for the purpose of the tax imposed
by this Chapter, be deemed a gift, and shall be included in computing the amount of gifts made
during the calendar year.
Kinds of Donors (either tao
or corporation. There is no
more distinction)
1. Resident Citizen or
Domestic Corporation –
taxable for property within
and without
Gross Gifts (GG) (FMV, ZV [if
real property], whichever is
highest)
Walang items of inclusions or
exclusions. There is no specific
items of inclusions or exclusions.
All gifts or transfers of property,
including Sec. 100.
Allowable Deductions13
All types of donors may avail of
these deductions, even the NRA.
Sa income tax, may OSD at
itemized deductions. Sa Donor’s
Tax, 2 lang.
Dati, tatlo yan. Dati may dowries
2. Non-Resident Citizen –
made on account of celebration
taxable for property within How do we determine location of of marriage pero ngayon 2
and without
properties?
nalang.
3. Resident Alien or
Resident
Foreign
Corporation – taxable for
property within and without
Pinakalugi sa lahat. Let’s say
si RA nakatira sa Pilipinas
nagdonate ng property sa US.
13
Sec. 101.
1.
Real property – gamitin ang 1.
Gifts made to or for the
mapa ng pilipinas. Pag nasa loob use
of
the
National
ng mapa, that is within. Pag nasa Government or any entity
labas ng mapa, that is without.
created by any of its agencies
which is not conducted for
2.
Tangible personal property profit, or to any political
– gamitin ulit ang mapa ng subdivision of the said
Pilipinas at ang mata. Pag nasa Government.
loob ng mapa, that is within. Pag
Taxable on
jurisdictions.
both
taxing
4. Non-Resident Alien or
Non-Resident
Foreign
Corporation – taxable for
property located within
Pag ikaw ay may property sa
Pilipinas, at dinonate mo yan
kahit kanino, taxable. You do
not consider the nationality
of the donee.
So, ang RC, NRC, RA, taxable
regardless of where property
is located. NRA is taxable
only on property located
within, subject to Sec. 104.
Walang
pinag-uusapang
engaged in trade or business
or not.
You can see the difference
between donors and income
tax earners.
There is double taxation in
the broad sense because pag
nagdonate ka ng property
kahit nasa Paris, France,
taxable
yan
without
prejudice to the same
property being taxed in
France.
nasa labas ng mapa, that is General Rule: EXEMPT if the
without.
donation is for exclusively public
purposes.
Nakikita ang real at tangible
personal properties.
Exception: If the donation is
made in favor of a proprietary
3.
Intangible
personal agency of the government, then
property (Sec. 104)
the donation is NOT EXEMPT.
• General rule: mobilia secuntur
personam; they follow the Iisa lang ang instance sa Tax
Code na ikaw ay walang
domicile of the owner.
• Exceptions: (1) When the babayarang buwis – kapag ikaw
shares of stocks have acquired ay namigay ng libre sa gobyerno.
a different situs by reason of
Gifts in favor of an
the benefit and protection 2.
they can be seen from another educational and/or charitable,
taxing jurisdiction; and (2) religious, cultural or social
corporation,
When the law itself provides a welfare
institution,
accredited
different situs.
nongovernment organization,
trust
or
philanthropic
General Rule:
organization
or
research
Sec. 104: If donor or decedent is institution or organization:
Provided, however, that not
NRA, the following are within:
more than 30% of said gifts
(1) Franchise which must be shall be used by such done for
administration purposes.
exercised in the Philippines;
(2) Shares, obligations or bonds
issued by any corporation or
sociedad anonima organized or
constituted in the Philippines;
(3) Shares, obligations or bonds by
any foreign corporation 85% of the
business of which is located in the
Philippines;
Contrast with Sec. 42: If dividends,
50%. Pag donor’s or estate tax, 85%
ang percentage.
(4) Shares, obligations, or bonds
issued by any foreign corporation
if such shares, obligations, or
bonds have acquired a business
situs in the Philippines; and
EXEMPT from payment of
ET/DT Provided, that not more
than 30% of the donation is used
by
the
institution
for
administration purposes.
How do they acquire PH situs?
When they are benefitting from
the protection of PH laws.
(5) Shares or rights in any
partnership, business or industry
established in the Philippines,
which are to be considered as
situated in the Philippines.
Exception:
Reciprocity
Rule
(baliktaran) which is in the last
sentence of Sec. 104, first par.
Example:
X is a US citizen. Mayron siyang
shares of stocks in SMC in the PH,
5 million. Dinonate niya kay
Tristan, who is a RC.
Unang tanong: Yun bang P5
million SOS ay within or without?
It is within (see [2] above). So,
subject to donor’s tax.
If we apply the exception
(reciprocity rule), ang sabi jan,
yung 5 million SOS will not be
subject to donor’s tax if, in the US,
walang donor’s tax sa same
properties owned by Filipino
citizens who are treated as NRA in
USA.
So, si X hindi natin itatax dito sa
PH kung sa USA, ang mga
Filipinos na NRA doon na may
SOS sa USA, ay hindi tinatax ng
USA.
Does it have to be full exemption?
No. it may be partial exemption.
Example, donor’s tax natin is 6%
but in the USA, 2% lang, then we
may only impose 2%.
Estate Tax
• Gross Estate – Allowable Deductions = Taxable Net Estate x Rates (6%) = Tax Due.
• Fixed at 6% of FMV (or assessed value [if applicable], zonal valuation, whichever is highest) at
time of death.
• Mortis causa
• Dependent on the location of the property. Parehas lang sa DT. Sec. 104 applies.
Kinds of Decedents
Gross Estate14
Resident Citizens – taxable May inclusions, exclusions, at
on property within and exemptions (Sec. 87).
without
Exemptions (Sec. 87):
Non-Resident Citizens – 1. The merger of usufruct in the
taxable on property within owner of the naked title;
and without
Sinong
namatay?
Yung
Resident Aliens – taxable on usufructuary. Pag namatay si
property within and without usufructuary,
cancelled
ang
usufruct, balik kay owner ang
Non-Resident
Aliens
– possession. Pag bumalik sa owner
taxable on property within, ang possession, wag mo isasama sa
subject to Sec. 104.
gross estate ni usufructuary yung
property subject of usufruct kasi di
Also results in double naman siya may-ari.
taxation in the broad sense.
Pag namatay si owner, ang kasali sa
GE niya is value of property at the
time of death. Buo.
2. The transmission or delivery of
the inheritance or legacy by the
fiduciary heir or legatee to the
fideicommissary
Sinong namatay? Si fiduciary heir.
Pag namatay si fiduciary heir, hindi
daw isasama yung property subject
of fideicommissary sa GE. Kasi ang
fiduciary heir, under obligation to
preserve the property and turn it
over to the fideicommissary heir.
So hindi may-ari si fiduciary nung
property
subject
of
fideicommissary.
14
Sec. 85.
Allowable Deductions
Itemized Deductions from GE:
For RC/NRC/RA
1. Claims against the estate;
Unang tinatanong jan, sinong
namatay? Si debtor. Si debtor
may
utang
di
nabayaran
nakamatayan na. Kaya hindi
pwedeng EJS yung estate ni
debtor kasi may utang.
2. Claims against
persons;
insolvent
Sinong
namatay?
Creditor.
Credit is intangible personal
property.
Parang
eleksyon,
dagdag bawas. You add the
credit/claims against insolvent
persons to the GE then you
deduct it to the GE. Bakit? Kasi
part ng GE niya yan. the creditor
owns the credit which is the
intangible personal property
thus, part of GE. Kung gusto niyo,
idagdag niyo wag niyo na ibawas.
Para happy si BIR.
3. Unpaid mortgage;
Sinong
namatay?
Debtormortgagor. Si debtor nagsangla
ng property nung buhay pa. same
lang
din.
Dagdag
bawas.
Idadagdag sa GE yung value of
mortgaged property at the time of
3. The transmission from the first debt. Ibabawas sa GE yung
heir, legatee or done in favor of unpaid mortgage loan.
another beneficiary, in accordance
with the desire of the predecessor 4. Unpaid taxes;
This is akin to a simple In SpecPro, pag ikaw ay namatay
substitution under the law on nang may utang na buwis, una
succession.
yang babayaran. Taxes is a form
of
indebtedness
to
the
4. All bequests, devises, legacies or government which survive death.
transfers to social welfare, cultural You may deduct these tax
and charitable institutions, no part liabilities.
of the net income of which inures
to the benefit of any individual, What’s the difference from taxes
provided, that not more that 30% as deduction from GI from taxes
of the said bequests, etc. shall be as deduction from GE? Sa GI, you
used by such institutions for may only deduct paid taxes and
administration purposes
business-related. Sa GE, you may
deduct unpaid taxes, and any
2
3
Inclusions (Sec. 85): (DT RP )
kind of unpaid tax, di kailangan
business-related.
1. Decedent’s interest;
5. Casualty losses;
Tinatanong lang magkano ba
extent ng karapatan ko sa property. Anong difference ng casualty loss
Kapag sa oras ng kamatayan, may dito sa casualty loss sa GI? Again,
degree of control ka sa property, sa GI, business-related yung
isama mo.
casualty loss. Casualty loss sa GE,
need not be business-related.
2. Transfer in contemplation of
death;
6. Standard deduction (P5M);
Mamamatay ka bukas, ibinenta mo Ang
standard
deduction,
ng lugi. It is the thought of death dinededuct mo sa GE.
that made you transfer the
property. Binenta mo property mo 7. Conjugal share of the
worth P10 million ng P1 million
surviving spouse;
lang. You impose estate tax, not
donor’s tax.
Mga exclusive property ng
decedent spouse, kasama sa GE
Magkano isasama sa GE?
niya. Ang conjugal property nila
ng surviving spouse, kasama sa
Difference between FMV at the GE.
time
of
death
less
the
consideration of the sale, and not Pag ACP, exclusive property of
the FMV at the time of sale. So, both spouses kasama.
kung FMV nung namatay: P10
million, less P1 million = P9 million As a form of deduction, you
ang isasama sa GE.
deduct the share of the living
spouse but the share of the living
3. Transfers
for
insufficient spouse is not ½.
consideration;
Let’s say husband has 10 million.
Kailan babayaran ang ET sa Wife has 6 million. So total 16
transfers
for
insufficient million. Husband dies. GE of H is
consideration? When do you 16 million. Wife dies, same GE.
subject transfer for insufficient Less conjugal share of SS. Pag
consideration to DT and when do namatay si H, 16 million less
you subject transfer for insufficient deduction nos. 1, 2, 3, 4, 5, and 9.
consideration to ET?
Let’s say P5.5 million si 1,2,3,4,5,
and 9. So, P10.5 million divided by
Pag ikaw ay nagbenta ng mas 2 = P5.25 million. This is the share
mababa sa tunay na presyo at ang of the SS which could be claimed
benta mo ay at the same time in as deduction.
contemplation of death (B),
revocable transfer (C), and 8. Family home (P10M);
property passing thru GPOA (D),
you pay estate tax.
Available lang kapag may family
home ka. Pag P6 million lang
Pag nagbenta ka real property ng property mo, di mo pwede ilugi at capital asset: Tax = 6% CGT claim buong P10 million.
Pag nagbenta ka lugi at in
contemplation of death/revocable
transfer/property passing thru
GPOA: estate tax 6%.
9. Transfers for public use;
10. Property previously taxed;
Vanishing deductions.
Magkano isasama sa GE?
Si Daverick, may ballpen. Natigok. Napunta ballpen kay
Gregarius, anak niya. Ang tawag
kay Daverick, prior decedent. Si
Gregarius, present decedent.
Namatay Gregarius, napunta
ballpen kay Franz. There is only 1
4. Revocable transfer;
property who bears the burden of
5. Property passing under GPOA; double and even triple taxation.
6. Proceeds of life insurance;
Thus,
vanishing
deduction
reduces double taxation in the
See item of exclusion no. 1, Sec. 32 broad sense. Ang pinag-uusapang
(B).
estate ngayon kay Gregarius.
Difference between FMV at the
time
of
death
less
the
consideration at the time of sale,
and not the FMV at the time of
sale.
IT side: Amount excluded is If the death of Daverick and the
principal amount. Interest is present decedent Gregarius is
taxable income. Premiums = ROP. within 1-2 years, then 80% of the
value of the property may be
Note: As a rule, the insured may deducted.
change beneficiary even without
the consent of the latter. The Within 2-3 years, 60%; within 3designation of beneficiary in a life 4 years, 40%; and within 4-5
policy is revocable unless the years, 20%. Beyond 5 years
insured expressly provides that it is namatay si Gregarius from
irrevocable.
Daverick’s death, his GE is not
entitled to claim this deduction.
7. Prior interests;
11. Amount received by the
heirs under RA 4917.
Dagdag bawas ulit. Kasi ang mayari ng retirement benefits ay si
empleyado kaso natigok. Kaya
kailangan idagdag.
For NRA
1. Claims against the estate;
Note: In proportion to the value
of the GE located in the PH versus
total GE. Because NRA is taxable
in the PH lang, the deduction
must be the in proportion to his
GE in the PH and his GE in other
countries. Example: Estate in PH
is P40 million. GE in USA is P30
million. Total is P70 million. CAE
ay P15 million. Anong gagawin?
40 million divided by 70 million x
15 million = P8,571,428.57 or P8.6
million lang ang pwede i-deduct.
2. Claims against
persons;
insolvent
Note: In proportion to the value
of the GE located in the PH versus
total GE. See discussion above.
3. Unpaid mortgage;
Note: In proportion to the value
of the GE located in the PH versus
total GE.
4. Unpaid taxes;
Note: In proportion to the value
of the GE located in the PH versus
total GE.
5. Casualty loss;
Note: In proportion to the value
of the GE located in the PH versus
total GE.
6. Conjugal share of surviving
spouse;
7. Transfers for public use;
8. Standard
(P500,000);
deduction
9. Property previously taxed.
Remedies
Under the NIRC, the typical proceedings are:
1. Protest case: In the nature of
administrative proceedings
2. Refund of excess input VAT in 0%
transactions
3. Due
process
on
issuance
of
assessments
4. Collection of internal revenue taxes
In remedies, 2 parties lang. government and
taxpayer. Walang third-party defendants, etc.
there is also no concept of damages, attorneys’
etc. because the cause of action is always arising
from payment of tax, which is an obligation
provided by law.
Moreover, the concept of estoppel does not
apply. even if the government commits a mistake
and by reason thereof, the taxpayer is prejudiced,
estoppel does not apply against the government.
In all procedures whether under the
NIRC/LGC/CMTA, the first step is always
administrative. Thus, we apply the doctrine of
exhaustion of administrative remedies before we
proceed to the courts. Within the administrative
portion, it is only the BIR which is involved, wlaa
nang iba. For local taxes, it is the assessor or the
treasurer. For TCD, it is the BOC.
The second-half of the procedure is judicial.
Here, we apply the doctrine of hierarchy of
courts.
Alisin sa utak ang CA. Walang jurisdiction ang
CA over anything involving tax. In lieu thereof,
we have the CTA consisting of Divisions and the
En Banc. You have to go to the Division and the
En Banc before you go to the SC.
Protest Cases
Paano ba nagsisimula ang problema ng tax? Una,
galing sa taxpayers. Internal revenue taxes (IRT)
are self-assessed (self-computed) and pay-asyou-file. All IRT are covered by a return. When
you file the return, you also pay the tax.
Ang local taxes, automatic pagdating ng January
1, nag-aaccrue and is payable on or before
January 20 of each year.
January, February, March, kalian i-file ang
return? May 31.
Ang tariff and customs duties, you do not file a
return. You file an import/export entry.
Pagdating ng goods sa BOC warehouse, an
assessment is issued by the BOC within 15 days
kasi time is of the essence in customs.
April, May, June = August 31
Return: A verified statement filed and executed
by the TX providing for material information
relative to the kind of tax being paid for. Verified
– pag maling information nilagay mo, you expose
yourself to perjury.
• All returns are presumed to have been
prepared and executed in good faith. This
is disputable. Thus, if the BIR finds
something wrong with the return you
filed, you can be sued.
Fiscal Year
When to file return:
Kailan ang last? On or before 15th day of the 4th
qtr ff the close of the FY. Paano? Si April 15, 15th
day of 4th month following December (close of
the CY). In our example (FY), ang final return is
to be filed ng May 15. Bilang ka apat na buwan
from the end of the year. Kung CY gamit mo, it’s
always April 15. Kung FY, bilang ka, hanapin mo
end ng fiscal year mot as dagdag ka 4 months, tas
15th day.
Income Tax
CIE: One (1) return on or before April 15 of the
following year, but, if you only have 1 employer
within the taxable year (January to December),
substituted filing applies. This means that your
employer is the one who files for you. Deadline
for employers in filing this substituted filing is
February 28.
Now, if you have 2 employers for one taxable
year, hindi ka pwede ng substituted so, you have
to file your return on or before April 15.
SEP/SEI/MIE: 3 quarterly returns. May 15,
August 15, November 15 + Annual return on April
15 the following year.
Corporation: 3 quarterly returns within 60 days
from end of each Q + 1 consolidated return on or
before April 15 of the ff year.
Example:
Calendar Year
July, August, September = November 30
Last return = April 15.
Nagsimula February.
February, March, April, kalian i-file return? June
30.
May, June, July = September 30
August, September, October = December 31
Estate Tax: 1 year from death. No need for notice
of death.
Donor’s Tax: 30 days from gift
VAT: monthly remittance w/in 10 days from each
month. QR within 25 days from close of each Q.
Amended Return: within 3 years from filing of
original return provided TX has not received any
notice of investigation. Meaning, wala pa
natatanggap si TX ng letter of authority to
investigate from BIR. Bakit? Eh syempre, kung
papayagan ka mag-amend, you fit it sa
investigation. Niloloko mo gobyerno.
While all returns are filed in good faith, there
may be fraudulent returns or non-filing or
returns.
Pag di nagfile ng return, the BIR may file a return
for you and your behalf based on the best
evidence available (see Secs. 5-15).
Dati, notice of informal conference. Dito, idiscuss sayo ng BIR yung initial findings,
incomplete documents. Wala na yan under
TRAIN. Under TRAIN, BIR will issue a notice of
discrepancy (NOD). Meaning, there is a
discrepancy between the return and the
documents presented where you will be required
to pay the discrepancy/file the return.
1. Filing of Return
What do you file? Return.
b. PAN – preliminary assessment notice. You are
given 15 days to reply.
When do you file? See the examples given above.
c. FAN – final assessment notice.
Where do you file? Revenue District Office
(RDO) which has jurisdiction over the
transaction. You check the BIR website for the
RDO. Wrong jurisdiction = refile and repay kasi
it is as if you did not file any return. Pero hindi
tumatanggap ng pera yung RDO. May accredited
banks yan kung saan kayo pwede magbayad.
What are the requisites of a valid FAN?
1. In writing
2. Addressed to the taxpayer – anong address?
The address indicated in the return. Kahit
umalis ka pa jan, unless you communicated
your change of address to the BIR, jan magserve ng FAN sa indicated address mo.
Effect of amended return to the original return:
Pinagsasama. Kailangan makita ng BIR bakit ka
nag-amend. Note na you do not amend para
pababain ang buwis. Kapag malaki binayad mo,
you do not amend. The remedy is to apply for a
tax refund. Do not use the amendment of a
return in order to refund taxes.
Pero may isang kaso hindi siya nagcommunicate ng address. Pero sa mga returns
niya, pinalitan niya yung address niya. Talo
BIR. The SC held that while there was true that
there was an original address, the taxpayer
also declared another address which negates
his intention to circumvent the address
already declared.
Gagawin ni BIR, tanungin, finile ba on time?
1 day late = penalty of 25% of principal tax due.
Yung P100 mo na due magiging 125. There is also
interest of 12% (computed daily). Hindi ito titigil
hangga’t hindi ka nagbabayad ng buo.
Surcharge = 50% if there is fraud, bad faith. This
fraud/BF is an element of a criminal offense.
3. Providing for the basis in fact and in law of the
assessment – nakasulat anong Sec. ng NIRC.
4. The amount of tax due (specified ang
principal, interest, penalty, surcharge)
5. The due date for the payment
6. The demand to pay
7. It must be signed by the duly authorized BIR
representative
8. Issued within the prescriptive period
2. Assessment: If BIR finds something wrong.
a. LA – letter of authority to investigate. You will
be required to submit documents. BIR is like a
fishing expedition. Wala pang findings yan. May
nakita palang pero di pa sasabihin. Pag di ka
sumunod, next step.
Until when can BIR issue FAN?
a. Filed in good faith and the same is filed
before due date – then BIR can issue the
FAN, 3 years from due date.
b. Exactly filed on due date – 3 years from due
date.
c. Filed after due date – 3 years from actual
date of filing.
d. Filed in bad faith or fraudulent return
(regardless whether before, exactly, or after
due date) –10 years from my discovery of
the filing of fraudulent return.
e. Non-filing of return – 10 years from its
discovery of the non-filing.
NOTE: The service of the FAN to the TX may
be beyond the periods. The issuance of the
FAN is the one which must be made within
the periods.
Waiver – pag mag-eexpire na yung
aforementioned periods at di pa nakakapagissue ng FAN si BIR, the BIR and TX may
waive the prescriptive periods by executing a
valid waiver.
transactions, which is in the nature of a FAN.
It is as if a FAN is likewise issued.
Is there a maximum period for a waiver?
None. May there be more than one waiver?
Yes.
9. Validly served to the taxpayer – personal
service or substituted service to a person of
sufficient discretion. Paano kung ayaw
tanggapin nung TX? Tawagin si barangay
captain para ma-witness at mag-execute
affidavit attesting na ayaw tanggapin ni TX.
May the BIR resort to mail or courier? Yes, as
long as the BIR can prove the receipt of the
FAN. Presumptive service does not apply here.
Can the BIR commissioner delegate the power to
issue assessment?
Requisites of a valid waiver:
1. The waiver should have been signed by
the taxpayer and the BIR before the
expiration of the original period
otherwise, there’s nothing more to
extend.
2. The date of acceptance on the part of the
taxpayer and the BIR should be indicated
on the face of the waiver – Why? Because
the dates should be prior to the expiration
of the original periods. You cannot extend
something that has already expired.
3. The signature signifying the acceptance
by the taxpayer and the agreement on the
part of the BIR should likewise be
indicated on the face of the waiver.
4. Should be executed in 3 copies, 1 goes to
the taxpayer, the other goes to the case
files and the last one goes to the BIR.
Why do you waive? Kasi pag matatapos na
yung periods at wala pang FAN, at ayaw mong
mag-execute ng waiver, the government loses
its right to collet at hindi pwede yun. the
government has its remedy too. It issues a
jeopardy assessment – based on an
incomplete and inaccurate audit of your
Deficiency Assessment = kulang na buwis
binayaran mo.
Note: Failure on the part of the BIR to abide by
the process (a), (b), (c) = denial of due process.
No right to collect. Di pwedeng (b), (a), and (c).
3. Protest: Once you receive the FAN, you file a
protest.
Where do you file? RDO.
Within what period? 30 calendar days from TX’s
receipt of FAN, non-extendible subject to the
rule on holidays and weekends. Tax laws are civil
in nature and are not suspended by reason of
war, etc. pag nahuli ka jan, it becomes a final
FAN. Di mo na mababago.
4. BIR’s Action on the Protest: Aaralin ni BIR
yun protest.
a. Grant protest – tapos na. panalo TX.
b. Deny protest – appeal CTA Division (step
5).
c. Partly granted/partly denied appeal CTA
Division (step 5).
d. Non-action within 180 days from the filing
of the protest. Note: Law does not provide
for period of time within which BIR may
decide on protest. But if the BIR does not
act within 180 days from receipt of the
protest, on the 181st day, you may
immediately file an appeal within 30 days
to the CTA (Non-Action Appeal).
o Pwede ka pumunta CTA Division.
You may wait for the BIR Decision
on the protest.
• NOTE: Actual appeal and non-action
appeal are mutually exclusive of each
other. In a case, nag-file si TX ng protest.
181st day, nag-antay. 31st day nag-appeal ng
appeal sa CTA. Shempre denied kasi out
of time. So after nyan, nag-issue si BIR ng
Decision. Nag-file nanaman si TX ng
appeal this time, sakto na. SC said that TX
may no longer appeal kasi they are
mutually exclusive of each other.
5. Appeal to the CTA Division: Pag natalo ka sa
BIR. 30 days from receipt of assessment.
6. Motion for Reconsideration/New Trial to
the CTA Div: 15 days from receipt of prejudicial
decision.
This is a sine qua non requirement before appeal
to en banc. Why is is a motion for new trial
allowed in the CTA? Because this is the first time
na may court. While the CTA is an appellate
court, the actual proceedings are in the nature of
trial on the merits. First time magkokorte.
a. Grant;
b. Deny;
c. Partly grant/partly deny
Failure on part of BIR to act within the 90
days period = BIR personnel shall be
administratively charged.
3. Appeal to CTA Division: 30 days from receipt
of TX of actual BIR decision denying the refund.
4. MNT/MR: 15 days from receipt of prejudicial
decision.
5. Appeal to CTA En Banc: 15 days from receipt
of prejudicial decision of CTA Div.
6. Petition for Review to the SC: 15 days from
receipt of prejudicial decision of CTA En Banc.
Refund of Illegally Assessed/Illegally
Collected (Sec. 229)
Sec. 112 vs. Sec. 229
Sec. 112
VAT
Zero-rated
There is no illegality
Sec. 229
Other taxes
Pertains to illegally
assessed/illegally
collected/erroneously
assessed/erroneously
collected taxes
Sa refund, mas mahigpit ang process. Same
proceeding lang
7. Appeal to the CTA En Banc: 15 days from
receipt of prejudicial decision of CTA Div.
1. Claim for refund
8. Petition for Review to the SC: 15 days from
receipt of prejudicial decision of CTA Div.
When to claim: 2 years from actual payment of
tax.
Refund of Excess Input VAT (Sec. 112)
1. Application for refund: 2 yrs from close of
quarter when 0% or effectively 0% sales are made
2. BIR Action:
2. BIR Action on Claim:
a. Grant;
b. Deny;
c. Partly grant/partly deny.
There is no inaction in this case
3. Appeal to CTA Div: 30 days from receipt by
TX of BIR Decision denying the refund provided
that the appeal to the CTA Div must be made
within 2 years from actual payment. Same 2 years
dun sa claim for refund. So, kapag natulog si BIR
sa claim for refund mo, appeal to CTA Div ka
agad.
Both administrative and judicial claim of
refund must be filed within 2 years from
actual payment of tax.
4. Motion for Reconsideration/New Trial to
the CTA Div: 15 days from receipt of prejudicial
decision.
5. Appeal to the CTA En Banc: 15 days from
receipt of prejudicial decision of CTA Div.
7. Petition for Review to the SC: 15 days from
receipt of prejudicial decision of CTA Div.
Collection of IRT
Administrative: Modes of collection are as
follows:
1. Lien,
2. Warrant of distraint;
3. Warrant of levy;
In case of warrant of distraint or levy, TX may opt
to
Pay tax due; or
TX may post bond double the amount of tax due.
4. Notice of garnishment;
5. Compromise; or
6. Suspension of taxable periods. (Procedure: See
Rule 39)
Note: Kailangan nakapag-issue siya ng FAN bago
maka-collect ng administrative. Moreover, let’s
say may pending protest si TX and nag-issue BIR
ng warrant of distraint or levy, then the protest is
deemed denied and TX has 30 days from receipt
of warrant of distraint/levy to appeal to CTA Div.
Judicial: Civil/criminal cases
Prescriptive Periods:
With assessment
Collection
a. Filed in good faith and the same is filed before 5 years from receipt by TX of FAN (Administrative
due date – then BIR can issue the FAN, 3 years or Judicial)
from due date.
b. Exactly filed on due date – 3 years from due
date.
c. Filed after due date – 3 years from actual date
of filing.
d. Filed in bad faith or fraudulent return
(regardless whether before, exactly, or after
due date) –10 years from my discovery of the
filing of fraudulent return.
e. Non-filing of return – 10 years from its
discovery of the non-filing.
Si (d) at (e), may exceptional periods of collection.
Without assessment
Collection
If there is a fraudulent return or non-filing of 10 yrs from discovery by BIR of filing of fraudulent
return, BIR has 2 options (see Sec. 222):
return or non-filing of return (Judicial collection
1. File a return on behalf of TX; or
only – the filing of a case is considered a judicial
2. Immediately collect
demand)
Where to file:
MTC and other
lower courts
RTC
CTA
P400,001.00 to below
Within Metro
P1,000,000.00 & above, exclusive of
P0.00 to P400,000.00 P1,000,000.00
Manila
interest, penalties and surcharges
P300,001.00 to below
Outside Metro
P1,000,000.00 & above, exclusive of
P0.00 to P300,000.00 P1,000,000.00
Manila
interest, penalties and surcharges
NOTE:
If main action is damages – inclusive of interests, penalties, etc.
If main action is not damages – exclusive of interests, penalties, etc.
Rules in civil collection cases:
a. If court of origin is MTC, prejudiced party appeals to RTC (15 days notice of appeal), then to CTA en
banc (30 days), then to SC (15 days).
b. If court of origin is RTC, prejudiced party appeals to CTA Div (30 days) then to CTA en banc (15 days)
then to SC (15 days).
c. If court of origin is CTA, appeal to CTA en banc (15 days) then SC (15 days).
Note: Walang MR/MNT sa CTA sa collection cases because the trial was conducted either in the
MTC/RTC, as the case may be. Except: If the CTA exercises exclusive original jurisdiction (P1 million and
above, exclusive of interest, penalties & surcharges).
Example:
Tristan, TX in QC. Inissuehan ng FAN P250,000 as principal, P100,000 interest, P100,000 other charges.
Where does BIR file collection case? MTC. Tatakbo yan hanggang SC. TX files Answer, otherwise, BIR
presents evid ex parte. Nag-decide si judge ng prejudicial to Tristan.
Ano gagawin ni Tristan? Appeal RTC (15 days notice of appeal). Natalo Tristan sa RTC. Punta si Tristan
sa CTA en banc deretso.
Ano gagawin ni Tristan sa FAN? I-protest sa BIR. Yung protest na ‘to tatakbo rin. Pwede ba sabihin ni
BIR na denied yung protest? Hindi. Na-deny si protest. San punta Tristan? CTA Division.
Saan magpapangita ang BIR at si Tristan? CTA. Can Tristan allege that similar parties, similar issues, so
dismissible isa? No. The one is a tax collection case and the other is an admin case. Magkaiba cause of
action niyan. So, there is no possibility of conflicting decisions.
Criminal cases
Rules in criminal cases:
a. If offense does not involve tax deficiency, we follow the usual rules on venue in criminal cases. (penalty
is 6 years, 1 day and below = MTC; more than 6 years, 1 day = RTC)
b. If the offense results to tax deficiency, we follow the jurisdictional amount above. So, the CTA, even in
criminal cases, has exclusive original jurisdiction in case tax deficiency is P1 million and above,
exclusive of interest, penalties, and surcharges.
c. If court of origin is MTC, prejudiced party appeals to RTC (15 days), then to CTA en banc (15 days),
then to SC (15 days).
d. If court of origin is RTC, prejudiced party appeals to CTA Div (15 days), then to CTA en banc (15 days),
then to SC (15 days).
e. If court of origin is CTA, appeal to CTA en banc (15 days) then SC (15 days).
LGC
•
•
Nag-iiba lang sa protest side because you file it with the treasurer.
Decisions of treasurer is not directly appealable to CTA. You go thru LBAA/CBAA.
Assignment: NIRC in table form. This will
form part of your final exams.
Note: Di daw kasama LGC, TCD sa final exams.