Slide 1
TAXATION
Presented by:
Atty. Bernardo A. Masangkay, Jr.
Slide 2
Taxation
 General principles of taxation
 Introduction to income taxation
 Income tax on individuals
 Income tax on corporations
 Filing, Penalties and Remedies


2
Slide 3
1
General Principles
3
Slide 4




INHERENT POWER OF A STATE
Power of tax – subject to inherent and constitutional limitation, the
power of taxation is regarded as supreme, plenary, unlimited and
comprehensive.
Police power – to legislate for the protection of the health, general
welfare, safety and morals of the public.
Power of eminent domain – to take private property for a public purpose
with just compensation.


General Principles
of Taxation
 Taxation is the exercise of sovereign power to raise revenue for the
expenses of the government

 STAGES OR COVERAGE OF TAXATION
 Levying or imposition of the tax
 Assessment
 Collection and payment
4
Slide 5
Taxation
Police Power
Eminent Domain
Non-impairment of
contract
Transfer of
Property Rights
Benefits received
Obligations in
contracts may not
be impaired by the
state where tax
exemptions are
bilaterally agreed
upon by the state
and the taxpayer
Taxes paid become
part of public
funds
No special or
direct benefits is
received by an
individual. The
public receives
the general
benefits of
protection of
person ,property,
and the promotion
of general welfare
Obligation in
contracts may be
impaired by the
government
Obligation in
contracts may be
impaired by the
government
No transfer but
only restraint in
the exercise of
property rights
no direct benefits
is received by an
individual. A
healthy economic
standard of
society is
attained.
Transfer is
effected in four
of the state.
Police Power
To promote the
general welfare
through
regulations
All persons,
property, rights,
privileges and
liberties
Exercised by the
government or its
political
subdivisions
Eminent Domain
To facilitate the
state’s need of
property for
public use
Only upon specific
property
A direct benefits
results in the
form of just
compensation to
the property
owner.
General Principles
of Taxation
Purpose
Taxation
To raise revenue
for the expenses
of state
Scope
All persons,
property, rights
and privileges
Authority which
exercises the
power
Exercised by the
government or its
political
subdivisions
Amount of exaction
No limit
Limited to the
cost of
regulation,
issuance of
license, and/or
surveillance
5
May be exercised
by public service
corporations or
private entities
operating
utilities if
granted by law
No exaction but
private property
is taken for
public use
Slide 6
d. Charitable institutions, churches and parsonages, or convents appurtenant
thereto mosques, no-profit cemeteries, and all lands, buildings and
improvements, actually directly or exclusively used for religious, charitable,
or educational purposes shall be exempt from taxation
e. No law granting any tax exemption shall be passed without the concurrence
of a majority of all the members of congress.
f. No law impairing the obligation of contracts shall be passed
g. No law shall be made respecting an establishment of a religion or
prohibiting the free exercise thereof
General Principles
of Taxation
 LIMITATIONS ON THE POWER TO TAX
 Constitutional limitations
 a. No persons shall be deprived of life, liberty, or property, without due
process of law nor shall any person be denied the equal protection of the
laws.
 b. The rule of taxation shall be uniform and equitable. The congress
shall evolve a progressive system of taxation.
 c. No persons shall be imprisoned for debt or non-payment of a poll tax.

6
Slide 7
j. The Supreme Court shall have the power to review, revise, reverse, modify,
or affirm an appeal or certiorari as the law or the Rules of Court may provide,
final judgments and orders of lower courts in all cases involving the legality
of any tax, imposts, assessment or toll any penalty imposed in relation
thereto
k. All revenues and assets of non-stock , non-profit educational institutions
used actually, directly and exclusively for educational purposes shall be
exempt from taxes and duties.
l. The President shall have the power to veto any particular item or items in
an appropriation, revenue, or tariff bill, but the veto shall not affect the
item or items to which he does not object.
General Principles
of Taxation
h. All appropriation, revenue or tariff bills shall originate exclusively in
the House of Representatives but the Senate may propose or concur with
amendments
i. The congress, may, by law authorize the President to fix within specified
limits and subject to such limitations and restrictions as it may impose,
tariff rates, import and export quotas, tonnage, and wharfage dues and other
duties or imposts within the framework of the national development program of
the Government
7
Slide 8
Inherent limitations
a. The levy must apply within territorial limits for the exercise of effective
tax jurisdiction
b. The tax must be for a public purpose
c. Exemption from taxation of the government, any political subdivision
thereof, or agencies performing purely government functions.
d. As a general rule, the taxing power of the legislative may not be delegated.
e. International comity – this principle limits the authority of the
government to effectively impose taxes on a sovereign state and its
instrumentalities as well as on its property held and activities undertaken in
that capacity.
f. Double taxation
General Principles
of Taxation
m. All money collected or any tax levied for a special purpose shall be
treated as a special fund and paid out for such purpose only. If the purpose
for which a special fund was created has been fulfilled or abandoned, the
balance, if any, shall be transferred to the general funds of the Government.
8
Slide 9









THEORY OR BASIS OF TAXATION
1. Life Blood theory – taxes are the lifeblood of the government. Without
taxes, no government can function.
2. benefits protection theory (Symbiotic Relationship) – taxes are what
we pay for a civilized or organized society, without taxes, the government
would be paralyzed for lack of the motive power to activate and operate
ESSENTIAL ELEMENTS OR CHARACTERISTICS OF A TAX
1. Enforced contribution
2. Exacted pursuant to legislative authority
3. For raising revenue for public needs
General Principles
of Taxation
 BASIC PRINCIPLES OF A SOUND TAX SYSTEM
 1. Fiscal Adequacy – the sources or revenue should be sufficient to meet
the demand of public expenditures
 2. Equality or Theoretical Justice – the tax imposed should be
proportionate to the taxpayer’s ability to pay
 3. Administrative Feasibility – the tax laws should be capable of
convenient, just, and effective administration.

9
Slide 10
CLASSIFICATION OF TAXES
Classification
Scope or exercising
authority
Example
National Tax
Subject matter or object
Local Tax
Personal, capitation, or
poll tax
Property tax
Excise tax
Who bears the burden of
the tax
Direct tax
Indirect tax
Description
Imposed by the National
Government
Imposed by LGUs
Fixed amount imposed upon
persons of a certain
class without regard to
property, trade, business
or occupation
Imposed on property
Imposed upon the
performance of an act,
exercise of a right, or
the engaging in business
or profession
The liability for the tax
(impact) and the burden
thereof (incidence) fall
on the same taxpayer
The liability or impact
for the tax falls on the
original taxpayer but the
burden or incidence
thereof is shifted to
another
General Principles
of Taxation
ESSENTIAL ELEMENTS OR CHARACTERISTICS OF A TAX
4. Proportionate in character or uniform
5. Payable in money
6. Imposed within the state’s jurisdiction
7. Personal to the taxpayer
10
Slide 11










NATURE OR CONSTRUCTION OF TAX LAWS
1. Tax laws are prospective, generally, but can have retrospective
application.
2. A statute will not be construed as imposing a tax unless it does so
clearly, and unambiguously.
3. Tax exemptions are to be construed strictly against the taxpayer.
4. Revenue laws are not political in nature
5. Legislative intention must be considered.
6. Tax laws are special laws, and prevail over general laws.
General Principles
of Taxation
Classification
Purpose
Example
General or revenue tax
Special tax
Rate applied
Proportionate
Progressive
Regressive
Measurement of the
amount due
Specific
Ad valorem
Description
Levied without a specific
or pre-determined purpose
Levied for a special
purpose
Based on a fixed
percentage of the tax
base
The tax rate increases as
the tax base increases
The tax rate decreases as
the tax base increases
Measured by number, or
based on weight or
physical measurement
Based on the value of the
property and may require
the intervention of
assessors and appraisers
11
Slide 12
5. Tax treaties and conventions with foreign countries
6. Rules and regulations promulgated by the Department of Finance, the Bureau
of Internal Revenue (BIR), Bureau of Customs
7. Administrative interpretations and opinions of tax officials particularly
those of the Commissioner of Internal Revenue.
FORMS OF ESCAPE FROM TAXATION
1. Shifting the burden of tax
2. Capitalization
3. Transformation
4. Tax exemption
5. Tax avoidance
6. Tax evasion
General Principles
of Taxation
 SOURCES OF TAX LAWS
 1. The 1987 Constitution
 2. tax statutes such as the National Internal Revenue Code (NIRC), the
Tariff and Customs Code, the VAT Law, the Revised Documentary Stamp Tax
Law, the Amended Excise Tax Law and portions of the Local Government Code
 3. Executive Orders on taxation and local tax ordinances
 4. Judicial decisions

12
Slide 13
SPECIAL ASSESSMENT
A special assessment is in the nature of a tax upon property levied according
to benefits conferred on the property. The whole theory of a special
assessment is based on the doctrine that the property against which it is
levied derives some special benefit from the improvement their property being
increased in value by the expenditure to an amount at least equal to the sum
they are required to pay.
CHARACTERISTICS OF SPECIAL ASSESSMENT
1. It can be levied only on land.
2. It cannot (at least in most states) be made a personal liability of the
person assessed.
3. It is based wholly on benefits
4. It is exceptional both as to time and locality.
General Principles
of Taxation
TAX AND LICENSE DISTINGUISHED
Purpose
Limitations on taxation
Amount
Effect of non-payment
Tax
To raise revenue
Subject to constitutional
and inherent limitations
on the power of tax
Unlimited
Does not make the
business illegal
License
To regulate action,
businesses, industries,
professions
Not subject to the
limitations on taxation
Limited to the cost of
regulation (licensing,
inspection, surveillance)
Makes the business
illegal
13
Slide 14
TAX AND TOLL DISTINGUISHED
TAX ADMINISTRATION
It is a system involving assessment, collection, and enforcement of taxes,
including the execution of judgment in all tax cases decided in favor of the
Bureau of Internal Revenue by the courts.
Tax
Demand for sovereignty
Imposed by the government
Toll
Demand of ownership or proprietorship
May be imposed by private persons or
entities
Largely based on the cost of the
property used, or on the cost of the
improvement used
Compensation charges by the owner for
the voluntary use of property/
improvements
May be based on income or on the value
of the property
Forced contribution
General Principles
of Taxation
TAX AND DEBT DISTINGUISHED
Tax
Source of obligations
Obligee
Forms of payment
Interest
Assignability
Compensation/ set-off
Incarceration for nonpayment
Law
Due to the government in
its sovereign capacity
Money
No interest except in
cases of delinquency
Not assignable
No
Yes, except for nonpayment of poll tax
Debt
Contract
Due to obligee under a
contract; may be due to
the government in its
corporate capacity
Money, property or
services
If stipulated or if the
payment is in delay
Generally assignable
Yes
No person can be
imprisoned for nonpayment of debts
(constitution)
14
Slide 15
The giving effect and the administering of the supervisory and police power
conferred to it by the Tax Code or other laws.
General Principles
of Taxation
POWER AND DUTIES OF THE BIR
The assessment and collection of all national internal revenue taxes, fees and
charges
The enforcement of all forfeitures, penalties, and fines connected therewith.
The execution of judgments in all cases decided in its favor by the Court of
Tax Appeals, and the ordinary court.
15
Slide 16
2
INTRODUCTION TO INCOME TAXATION
16
Slide 17











2. To mitigate the evils from the inequalities of wealth by a progressive
scheme of taxation which places the burden on those best able to pay
CHARACTERISTICS OF PHILIPPINE INCOME TAXATION
1. National tax
2. General tax
3. An excise tax
3. A direct tax
4. In general, a progressive tax for individual taxpayers
5. The income tax system is a comprehensive system
6. Semi-global or semi-schedular system
INCOME TAXATION
CONCEPT OF TAXATION
An income is one levied on the income from property or an occupation. It is
direct tax upon the thing called income.
PURPOSE OF INCOME TAX
The imposition of the income tax is intended;
1. To raise revenue to defray the expenses of the government; and
17
Slide 18






INCOME DISTINGUISHED FROM “CAPITAL”
Capital is a fund, income is a flow. Capital is wealth, while income is
the service (or fruit) of wealth. Capital is the tree, income the fruit.
Amounts received as a return of capital are not income.
THEORY OF
Under the
exist, it
something
SEPARABILITY OR SEVERANCE TEST OF INCOME
doctrine of severance test of income, in order that income may
is necessary that there be a separation from capital of
of exchangeable value.
INCOME TAXATION
MEANING OF INCOME
-Income means all wealth which flows into the taxpayer other than a mere
return of capital. Income is a gain derived from:
a) The use or employment of labor or capital, or both labor and capital;
and/or
b) From the sale or other disposition of assets or property (both ordinary and
capital).
18
Slide 19
REQUISITES FOR TAXABILITY OF INCOME
1. There must be a gain or profit whether in cash or its equivalent;
2. The gain must be realized or received; and
3. The gain must not be excluded by law or international treaty from taxation.
CLASSIFICATION OF INCOME ACCORDING TO SOURCE
For income tax purposes, the word “source” refers to the activity, or
property, or labor that gave rise or produced the income.
1. Income from sources within the Philippines;
2. Income from sources without the Philippines; and
3. Income from sources partly within and partly without the Philippines.
INCOME TAXATION
The concept of income requires a realization of gain.
The following are examples which do not give rise to income nor to a
realization of gain, and therefore no income tax shall be imposed:
1) Stock dividends;
2) Mere increase in the value of property.
19
Slide 20
How To Determine Income Within and Income Without
INCOME TAXATION
Income
Test Source of Income
Interest income
Residence of the debtor
Income from services
Place of performance
Rent
Location of property
Royalty
Place of use of intangible
Gain on sale of real property
Location of property
Gain on sale of personal property
Place of sale
purchased in one country and sold in
another
Dividend
A. From Domestic Corp.
Income within
B. From Foreign Corp.
Income without
Except: If 50% or more of the gross
income of the foreign corporation for
the preceding three (3) years prior to
the declaration of dividend or for
such part of such period as the
corporation has been in existence, was
derived from sources within the
Philippines, then part of the dividend
is income within.
Sale of domestic shares
Sale of foreign shares
Income from transportation and other
services rendered partly within and
partly without the Philippines
Income
within
=
(Phil.
Gross
Income/Total Gross Income) x Dividend
Income within
Income without
Partly within and partly without
Based on source, income is classified as follows:
1. Income from sources within the Philippines;
2. Income from sources without the Philippines; and
3. Income from sources partly within and partly without the Philippines.
20
Slide 21
INCOME TAX SYSTEM OF THE PHILIPPINES
The income tax system of the Philippines may be characterized under two
general categories, namely:
1. Gross income taxation, whereby a final tax is imposed on the gross amount
of specified types of income, such as interest income, royalty, prizes,
dividends, and capital gains. This is also known as the schedular system of
taxation.
2. Net income taxation, whereby certain deductions are allowed and subtracted
from the aggregate of incomes not subject to final tax, and the tax computed
is based on the resulting net income therefrom. This is also known as the
global system of taxation.
INCOME TAXATION
SITUS OF INCOME
The situs of the income is the place of taxation of the income or the country
which has jurisdiction to impose the tax. For income tax purposes, income may
be taxed in one or more or all of the following places or countries –
1. The place where the taxpayer is a citizen;
2. The place where the taxpayer is a resident; and
3. The place where the income is earned or derived.
21
Slide 22
STEPS ON HOW TO COMPUTE THE TAX OF AN INDIVIDUAL
INCOME TAXATION
Step 1: Type of
Returnable Income
Passive income
Income
Step 2: Type of
Generally, subject Subject to Final
Tax Liability
to Net Income
Tax (FWT)
Taxation
Step 3: Actual
Computation
EXC: NRANETB
Gross Income
xxx
Less: Deductions
(xxx) Net taxable
Passive income x
FT rate
Capital gains
Subject to Capital
Gains Tax (FWT)
“Capital gains”
x CGT rate
income xxx
then
Compute Tax (using
graduated rate
table)9
TYPES OF TAXABLE INCOME
ITR
“Returnable” Income
a. Compensation income
from being an employee
b. Income from trade,
business, or practice of
a profession
c. Gain from sale of
ordinary assets;
d. Net capital gain from
sale of “other capital
assets” and
e. Other taxable income
not subject to FT or
CGT.
FINAL TAX
FINAL TAX (CGT)
Passive Income subject
to Final Tax (“FT”)
Earned
without
any
further action on the
part of the taxpayer. Ex.
dividends,
interest
income on bank deposits
Capital Gains subject to
Capital Gains Tax
(“CGT”)
Arise from the sale of 2
types of capital assets,
namely:
a. Real property in the
Philippines classified as
capital asset; and
b. Shares of domestic
corporations
(provided
the seller or taxpayer is
not
a
dealer
in
securities)
22
Slide 23
3
INCOME TAX ON INDIVIDUALS
23
Slide 24
Non-Resident Citizen
a. Citizen who establishes the fact of
his physical presence abroad with a
definite intention to reside therein;
b. Citizen who leaves for abroad
either as an immigrant, or for
employment on a permanent basis;
c. Citizen who derives income from
abroad which requires him to be
physically present abroad most of the
time (≥ 183 days) during the year
(Sec. 22(E))
a)
Citizen working or deriving
income from abroad. Must be registered
with the POEA;
b)
Seaman who is a citizen and
works as a member of the complement of
a vessel engaged exclusively in
international trade (Sec. 22(F))
 Not a citizen but whose residence
is within the Philippines.
 His purpose in coming to the
Philippines requires an extended
stay in the country, and makes his
home temporarily in the
Philippines (ex. expatriates or
those employed in the
Philippines).

Not a mere transient or
sojourner as determined by his
intention regarding the nature and
length of stay.
OCW/OFW
Resident Alien
INCOME TAX
ON INDIVIDUALS
GENERAL CATEGORIES OF INDIVIDUAL TAXPAYERS
Resident Citizen
Under Sec. 1, Art IV of the 1987
Constitution, the following are
citizens of the Philippines:
(1) Those who are citizens at the time
of the adoption of the 1987
Constitution; or
(2) Those whose fathers and mothers
are citizens; or
(3) Those born before January 17, 1973
of Filipino mothers, and who elect
Philippine citizenship upon reaching
majority age; or
(4) Those who are naturalized in
accordance with law. AND
Whose residence is within the
Philippines
24
Slide 25
MWEs
Worker, whether in the public or
private sector, who is paid not more
than the statutory minimum wage (Sec.
22 (HH)).
INCOME TAX
ON INDIVIDUALS
I. RETURNABLE INCOME
Non-resident alien
ETB
Not a citizen, not a resident of the
Philippines

 If stay in the Philippines is
for > 180 days during the year
 If stay in the Philippines is for
≤ 180 days during the year (Sec.
25(A)(1))
Non-resident alien cinematographic
film owner, lessor, or distributor
Subcontractor, whether citizen,
resident alien, or NRAETB, of service
contractors engaged in petroleum
operations
Filipinos registered with the BOI
availing of the Income Tax Holiday
(“ITH”)
PEZA-registered individuals availing
of ITH incentive
PEZA-registered individuals availing
of 5% gross income tax (GIT) incentive
Individual registered as a BMBE
NETB
Special
Individual taxpayers
25
Slide 26
Special Individual Taxpayers
BOI-Registered Filipinos Availing of Income Tax Holiday (“ITH”)
All registered individuals shall be granted the ITH incentive to the extent
they are engaged in a preferred area of investment as declared by the Board of
Investments (BOI) under E.O. No. 226 (Omnibus Investments Code). exemption
from income taxes levied by the National Government. Registered individuals
may avail of the ITH to the extent they are engaged in a preferred area of
investment (either pioneer or non-pioneer).
To qualify for BOI registration, an individual must be engaged or is proposing
to engage:
1) in an area of activity listed in the Investment Priorities Plan (“IPP”);
2) if not so listed, at least fifty percent (50%) of its production is for
export if a
Philippine national, or at least seventy percent (70%) of its production is
for
export if a foreigner;
INCOME TAX
ON INDIVIDUALS
26
Slide 27
7) in rendering technical, professional or other services as may be determined
by the BOI which are paid for in foreign currency; or
8) in exporting television and motion pictures and musical recordings made or
produced in the Philippines, either directly or through an export trader.
Period of availment shall be as follows:
(1) New registered pioneer firms – for 6 years from commercial operations.
(2) New registered non-pioneer firms – for 4 years from commercial
operations.
(3) Expanding firms – for 3 years from commercial operations of the expansion.
In exceptional cases, existing firms undertaking new activities distinct from
existing operations may qualify as new projects subject to the setting up of
separate books of account.
INCOME TAX
ON INDIVIDUALS
2) if not so listed, at least fifty percent (50%) of its production is for
export if a Philippine national, or at least seventy percent (70%) of its
production is for export if a foreigner;
3) exporting part of its production under such terms and conditions and/or
limited
incentives as the BOI may determine;
4) producing or manufacturing a product which is used as input to an export
product;
5) export trading of export products bought by it from one or more export
producers;
6) rendering service to domestic and foreign tourists if listed in the IPP;
27
Slide 28
(1) If the average cost of indigenous raw materials used in the manufacture of
the registered product is at least fifty percent (50%) of the total cost of
raw materials for the preceding years prior to the extension unless the BOI
prescribes a higher percentage; or
(2) If the annual or average net foreign exchange savings or earnings
(“NFEE”) amount to at least US$500,000.00 during the first three (3) years
of operations to be determined by the BOI at the end of such three-year period.
PEZA-REGISTERED ENTERPRISES IN ECOZONES
1) Income Tax Holiday (“ITH”) – Individuals registered as ECOZONE (a)
Export Enterprises or (b) Free Trade Enterprises may choose to avail of this
incentive under E.O. No. 226.
INCOME TAX
ON INDIVIDUALS
In such cases, only sales of such registered products shall be entitled to the
ITH exemption. Export traders and service exporters shall be entitled to the
ITH if they will export products and services which are new exports for the
Philippines, or will serve new export markets.
Additional Period of Availment
For new registered firms, the ITH incentive may be extended for an extra year
for
each of the following cases, but in no case to exceed the total period of
eight (8)
years for pioneer registered enterprises.
28
Slide 29
2) Five (5%) on Gross Income (“5% GIT”) – 5% of the gross income earned by
the business enterprise within the ECOZONE shall be paid and remitted as
follows:
a) Three percent (3%) to the National Government;
b) Two percent (2%) which shall be directly remitted by the business
establishments to the treasurer’s office of the municipality or city where
the enterprise is located.
The 5% GIT shall be in lieu of all other taxes (national or local), except for
real property taxes on land owned by an ECOZONE developer/operator.
The 5% GIT shall be available to
(a) Individuals registered as ECOZONE (1) Export Enterprises or (2) Free Trade
Enterprises, upon expiry of the ITH if such individual chose to avail of the
ITH at the start of its operations; and
(b) Other individuals registered as ECOZONE (1) Developers/Operators25,
Export Enterprises, (3) Free Trade Enterprises, (4) Domestic Market
Enterprises26, (5) Utilities Enterprises27, (6) Facilities Enterprises28, or
(7)
Tourism Enterprises.
INCOME TAX
ON INDIVIDUALS
PEZA-registered entities enjoying ITH also enjoy the following incentives:
(a) exemption from duties and taxes on importation into the ECOZONE;
(b) exemption from payment of the RPT on machineries and equipment they
acquire or use in their production operations, during the first three (3)
years of use of such machinery and equipment; and
(c) exemption from payment of local taxes, licenses, and fees, except the real
estate tax.
29
Slide 30
2) Withholding tax on compensation income of employees of PEZA- registered
individuals; and
3) Fringe Benefits Tax (“FBT”) on fringe benefits given to managerial or
supervisory employees of PEZA-registered individuals
These taxes are not the taxes of a PEZA-registered entity. Instead, these are
taxes of a PEZA-registered entity’s payees which are withheld and remitted by
the PEZA-registered enterprise.
(b) On the other hand, income payments received from its customers related to
its registered activities, by a PEZA-registered enterprise, whether availing
the ITH or 5% GIT incentive, are exempt from the withholding tax.
(c) Income derived by an individual registered with the PEZA from its
registered activities shall be subject to such treatment as may be specified
in its terms of registration, i.e. (a) the ITH where such income shall be
exempt from the regular income tax; or (b) the 5% preferential GIT, if the
same has been approved.
INCOME TAX
ON INDIVIDUALS
(2) Export Enterprises, (3) Free Trade Enterprises, (4) Domestic Market
Enterprises, (5) Utilities Enterprises, (6) Facilities Enterprises, or (7)
Tourism Enterprises.
(a) The exemption from all other taxes under the ITH and 5% GIT regimes does
not include the following:
1) Withholding taxes at source (expanded withholding tax (“EWT”) and Final
Withholding Tax (“FWT”)) on income payments by PEZA- registered individuals;
30
Slide 31
(3) Income of Service Enterprises or providers (e.g. those providing customs
brokerage, transportation, parcel, janitorial, restaurant, banking, insurance
services, etc.) which are required by locator enterprises but which need not
be physically based inside the ECOZONE.
INDIVIDUALS REGISTERED AS BARANGAY MICRO BUSINESS ENTERPRISE (“BMBE”)
A Barangay Micro Business Enterprise or BMBE refers to any business entity or
enterprise engaged in the production, processing, or manufacturing of products
or commodities, including agro-processing, trading, and services, which
activities are barangay-based and micro-business in nature, and whose total
assets including those arising from loans but exclusive of the land on which
the particular business entity's office, plant and equipment are situated,
shall not be more than Three Million Pesos (₱3,000,000.00).
INCOME TAX
ON INDIVIDUALS
However, the following shall be subject to the regular internal revenue taxes
(i.e., regular individual income taxes; final taxes on bank deposits, capital
gains taxes, etc.):
(1) Income realized by registered individuals from activities which are not
registered;
(2) Income of all other persons and entities which are not registered (i.e.
income payments to entities in the Customs Territory31, to shareholders, and
to non-registered creditors, etc.)
31
Slide 32







Fiscal Incentives
Registered BMBEs can avail of the following incentives:
(1) Income tax exemption from income arising from the operations of the
enterprise;
(2) Exemption from the coverage of the Minimum Wage Law. BMBE employees
will still receive the same social security and health care benefits as
other employees;
(3) Priority to a special credit window set up specifically for the
financing requirements of BMBEs; and
(4) Technology transfer, production and management training, and marketing
assistance programs for BMBE beneficiaries.

INCOME TAX
ON INDIVIDUALS
Registration
The Department of Trade and Industry (“DTI”), through the Negosyo Center in
the city or municipality, shall have the sole power to issue the Certificate
of Authority for BMBEs to avail of the benefits under R.A. No. 9178.
Upon approval of registration of the BMBE, the Negosyo Center shall issue the
Certificate of Authority which shall be renewable every two (2) years. The DTI,
through the Negosyo Center, may charge a fee therefor which shall not be more
than One Thousand Pesos (₱1,000) to be remitted to the National Government.
32
Slide 33
However, the Following Income Payments to MWEs are Taxable and Subject to
Withholding:
1) Additional compensation received from his employer, other than the SMW,
holiday pay, overtime pay, hazard pay, and night shift differential pay, such
as (a) commissions, (b) honoraria, (c) fringe benefits, (d) benefits in excess
of the allowable statutory amount of “13th month pay and other benefits” of
₱90,000, (e) taxable allowances, and (f) other taxable income.
2) Income from the conduct of trade, business, or practice of a profession
(except income subject to final tax), in addition to his compensation income.
INCOME TAX
ON INDIVIDUALS
MINIMUM WAGE EARNERS (“MWEs)
MWEs shall be exempt from the payment of income tax on their statutory minimum
wage. Holiday pay, overtime pay, night shift differential pay, and hazard pay
received by such minimum wage earner shall likewise be exempted from income
tax.
An employee who has 2 or more employers each paying him an SMW, shall remain
to be an MWE exempt from income tax and withholding tax on the SMW he receives
from each employer.
33
Slide 34
3. The income subject to final WT is not returnable. This means that the
interest income in number (2) does not have to be reported or included in the
ITR of the taxpayer.
TAXATION OF PASSIVE INCOME
INCOME TAX
ON INDIVIDUALS
II. PASSIVE INCOME SUBJECT TO FINAL WITHHOLDING TAX (FWT)
Some types of income, collectively referred to as passive income, like
interest income, dividends, royalty income, etc. are subject to final
withholding taxes.
1. To be subject to the final withholding tax (“FWT”), (a) the income must
be taxable by the Philippine government and (b) the payor must be under the
jurisdiction of the BIR. This means that such income must necessarily be
sourced within the Philippines.\
2. The payor of the income must withhold the tax. In the case of interest
income on a bank deposit, the bank must withhold the tax.
34
Slide 35
2. Long-term deposit or investment certificate – Certificate of time deposit
or investment certificates with a maturity of at least 5 years issued by a
bank, and not by a non-bank financial intermediary. The exemption only covers
interest income. Any gain from trading such certificates is not covered by the
exemption.
-NRANETB shall not be exempt
-the LT deposit or investment certificate must be issued by a bank
-may be in the form of savings, common, or individual trust funds, deposit
substitutes, investment management accounts
-investment must have a maturity of at least 5 years from the time it is held
-investment must be held for at least 5 years for the interest income to be
exempt
INCOME TAX
ON INDIVIDUALS
1. Deposit substitutes – alternative form of obtaining funds from the public
other than deposits. “Public” means borrowing from 20 or more lenders at any
one time. Exs. Banker acceptances, PNs, repurchase agreements, government debt
instruments and securities.
If the debt instrument is not a deposit substitute, interest income shall not
be subject to a final withholding tax. Instead, the interest income shall be
included in the taxpayer’s ITR, and the same shall be subject to CWT.
35
Slide 36
3. Interest on foreign currency bank deposits
Interest on foreign currency deposit is taxable if received by an individual
taxpayer, except a non-resident individual, who may be a non-resident citizen
or a non-resident alien.
An OCW shall be exempt from the 15% final tax on interest income from a
foreign currency bank deposit in the Philippines. However, if the deposit
account is jointly in the name of an OCW and another individual (spouse or
dependent) who is a Philippine resident, only 50% of the interest income shall
be exempt, while the other 50% shall be subject to the 15% FWT.
4. Interest income from savings and time deposits of members with their credit
cooperative – exempt from the 20% FWT.
INCOME TAX
ON INDIVIDUALS
Pre-termination of investment
If the deposit or investment is pre-terminated before the 5th year, the entire
income shall be subject to final tax to be withheld by the depositary bank
from the proceeds of the long-term deposit or investment based on the holding
period of the taxpayer:
Less than 3 years
20%
3 years to less than 4 years
4 years to less than 5 years
12%
5%
36
Slide 37
6. Dividends received from a Foreign Corporation:
INCOME TAX
ON INDIVIDUALS
If received by:
RC
GR: Such dividend
is income without
Included in the
ITR
EXC: When dividend
is sourced partly
within and partly
without
100% of dividend
is included in the
ITR
NRC, RA, NRAETB
NRANETB
Exempt
Exempt
Part without shall
be exempt
Part without shall
be exempt
Part within shall
be included in the
ITR
Part within shall
be subject to a
25% FT
5. BIR Forms filed by the Payor of the Income
Monthly Remittance (Form 0619F)
Filed not later than the 10th day of
the month following the month when
withholding was made. Filed for the
first two (2) months of each calendar
quarter.
Filed not later than the last day of
the month following the close of the
quarter during which withholding was
made.
Quarterly Remittance (Form 1601FQ)
Attachment:
Quarterly
Alphabetical
List of Payees (QAP) reflecting the
name of the payees, their TIN, amount
of income paid to each, and FT
withheld from each.
Quarterly Remittance of FTs Withheld
on Interest paid on Deposits/Deposit
Substitutes/Trusts/Etc (Form 1602Q)
Filed not later than the last day of
the month following the close of the
quarter.
Filed on or before January 31 of the
year following the calendar year in
which the income payments subject to
FWTs were paid or accrued.
Annual Information Return of FWTs
(Form 1604-F)
Annual alphalist of payees, income
payments,
and FWTs shall be reflected in the
Schedules of Form 1604-F.
37
Slide 38





(b) Tax rate on net capital gain: 15%
(c) Withholding agent – The payor of the income
who, in this case, is the buyer.
(d) Who are subject? All individual taxpayers, except the following:
 (1) Dealers in securities. The gains from such sales by dealers shall
be included as ordinary income in their income tax returns;
 (2) Investors in shares of stock in a mutual fund company.
 (3) All other persons, whether natural or juridical, who are
specifically exempt from national internal revenue taxes under
existing investment incentives and other special laws.
(e) The sale, barter, or exchange of stock options is treated as a sale,
barter, or exchange of shares of stock not listed on the stock exchange.


INCOME TAX
ON INDIVIDUALS
III. CAPITAL GAINS SUBJECT TO FINAL TAX (ALSO KNOWN AS “CAPITAL GAINS TAX”)
A. On the Sale of Domestic Shares of Stock
1. Shares of stock in a domestic corporation not traded in the stock exchange.
(a) Tax Base – Net capital gain which is the excess of the amount realized on
the sale (selling price) over the basis or adjusted basis of the shares.
Selling price – the total consideration of the sale consisting of the sum of
money and/or the fair market value of property received, if any.
Adjusted basis – the basis of the shares sold plus expenses of
sale/disposition
Form 1707
Filed within thirty (30) days after
each transaction
Form 1707-A (Final Consolidated
Filed on or before April 15 of each
Return)
year covering all stock transactions
of the preceding year.
38
Slide 39
(3) All other persons, whether natural or juridical, who are specifically
exempt from national internal revenue taxes under existing investment
incentives and other special laws.
(4) Sellers of shares of a publicly-listed company which is non-compliant with
the mandatory minimum public ownership (“MPO”) – subject to the 15% capital
gains tax.
(5) Sellers of shares of stock in the stock exchange where the transaction
excludes the public by pre-arranging the sale or pre-determining the buyers.
Ex. Block sale - subject to the 15% capital gains tax.
(d) Kind of tax – Business tax. Strictly speaking, this is a tax on the sales
transaction and not on the income or gain from such sale.
(e) BIR Form to be filed by the Stockbroker who effected the sale:
INCOME TAX
ON INDIVIDUALS
2. Shares of stock listed and traded thru the local stock exchange
(a) Rate and Base – Six-tenths of one percent (6/10 of 1%) of the gross
selling price or gross value in money of the shares of stock sold.
(b) Withholding agent – The tax must be deducted and withheld by the
stockbroker who effected the sale at the stock exchange.
(c) Who are subject? All individual taxpayers, except the following:
(1) Dealers in securities;
(2) Investors in shares of stock in a mutual fund company;
Form No. 2552
Filed within five (5) banking days
from the date of collection
39
Slide 40
4. Who are Subject? All individual taxpayers.
5. Forced Sale to the State Under Eminent Domain – If the sale is made to the
government or any of its political subdivisions or agencies, or to governmentowned or –controlled corporations, the taxpayer may choose either (a) to have
the gain included in the ITR and taxed under the graduated rates or the 8% tax
under Section 24(A), or (b) to be subject to the capital gains tax under
Section 24(D).
6.Exemption from the Capital Gains Tax:
(a) Sale of raw lands to be used for “socialized housing” projects, or sold
under the Community Mortgage Program (CMP).
(b) Land transfers under the Comprehensive Agrarian Reform Law of 1988.
(c) Sale of principal residence, and subsequent acquisition or construction of
another principal residence:
INCOME TAX
ON INDIVIDUALS
B. On the Sale of Real Property Classified as Capital Assets
1. Transaction subject – Sale, transfer, or other disposition of real
property located in the Philippines, classified as capital assets, including
pacto de retro sales and other forms of conditional sales.
2. Rate and Base of Tax – Six percent (6%) of the gross selling price or
current fair market value of the property, whichever is higher. The fair
market value of the property is the higher of zonal value or assessor’s value.
3. Final Tax – The tax to be withheld by the payor (buyer) is a final tax and
the capital gain from the sale is not returnable.
40
Slide 41
5) The tax exemption can be availed of only once every 10 years.
Proceeds of sale not fully utilized – If the proceeds of the sale are not
fully utilized in the purchase or construction of a new residence in 6(c)
above, the portion of the gain presumed to have been realized on the sale
shall be subject to capital gains tax. The following formula is used to arrive
at the taxable portion:
Unutilized Amount x (Higher of GSP or FMV) = Taxable
Gross Selling Price (“GSP”)
Portion
7.BIR Form to be filed:
INCOME TAX
ON INDIVIDUALS
1) Sale by a natural person (individual) of his principal residence located in
the Philippines;
2) The proceeds of the sale must be fully utilized in acquiring or
constructing a new principal residence within 18 calendar months from the date
of sale;
3) The historical cost or adjusted basis of the real property sold or disposed
shall be carried over to the new principal residence built or acquired;
4) The taxpayer must notify the Commissioner within 30 days from the date of
sale or disposition of his intention to avail of the tax exemption;
Form 1706
Filed within thirty (30) days
following each sale, exchange, or
disposition of real property.
41
Slide 42













WITHHOLDING TAX ON INCOME PAYMENTS
TWO TYPES
Final Withholding Tax (“FWT”)
FTs on passive income
CGT on sale of domestic shares, and sale of real property classified as
capital asset.
Creditable Withholding Tax (“CWT”)
On compensation income
On certain income payments (EWT)
Withholding Tax System:
a) For the income payment to be subject to the CWT and to the FWT, the
following must concur:
(1) The income payment must be taxable to the payee; and
(2) The BIR must have jurisdiction over the payor of the income (in most
cases, this means that the income must be sourced within the Philippines).

INCOME TAX
ON INDIVIDUALS
Final Tax on Informer’s Reward
Informer – person (except a BIR employee, or other public employee, or his
relative within the 6th degree of consanguinity) who gives information that
leads to the discovery of frauds or violations of tax laws, which results in
the recovery of taxes, or in the conviction of the tax evader, or in a
compromise agreement with the BIR.
Reward = LOWER of (a) Ten percent (10%) of the revenues, surcharges, or fees
recovered and/or fine, or penalty imposed and collected, or the value of
smuggled and confiscated goods, OR (b) One million pesos (₱1,000,000) per case.
Final Tax = 10% of the reward.
42
Slide 43
d) The CWT withheld by the payor shall be allowed as a tax credit against the
income tax liability of the payee in the taxable year or quarter in which the
income was earned or received. There is no need for the taxpayer-claimant to
prove actual remittance by the withholding agent to the BIR. As long as the
taxpayer-claimant receives the BIR Form No. 2307 from his customer/client and
attaches the same to his ITR, the former can avail of a tax credit equivalent
to the amount reflected therein as tax withheld.
e) Time of withholding. When an income payment is paid or payable, or when it
is accrued or recorded as an expense or asset by the payor, whichever comes
first.
f) If the CWT is not withheld, the payor cannot use the payment as a deduction
in computing the net taxable income in the ITR.
INCOME TAX
ON INDIVIDUALS
b)Not all income payments are subject to creditable WT. Only those payments
specified or enumerated in the law or internal revenue regulations are subject
to the creditable withholding tax system.
c) The income subject to FWT is not returnable, i.e. not included in the ITR
of the recipient of the income.
On the other hand, the income subject to CWT shall be included in the ITR of
the payee of the income. The amount to be reported by the payee shall be gross
of the CWT.
43
Slide 44
4
INCOME TAX ON CORPORATIONS
44
Slide 45













pursuant to an operating or consortium agreement under a service contract
with the Government.
A corporation may be liable for at most seven (7) types of income taxes,
namely:
Standard Income Tax
Net Income Tax (on Ordinary Income)
Standard Income Tax Final Withholding Tax (on Passive Income)
Capital Gains Tax (on “Capital Gains”)
Penalty Income Tax
Minimum Corporate Income Tax (“MCIT”)
Improperly Accumulated Earnings Tax (“IAET”)
Special Income Tax
Gross Income Tax (“GIT”)
Branch Profits Remittance Tax (“BPRT”)
INCOME TAX
ON CORPORATIONS
Under Section 22(B) of the NIRC, the term “corporation” shall include:
a) partnerships, no matter how created or organized;
b) joint stock companies;
c) joint accounts (cuentas en participacion);
d) associations; or
e) insurance companies.
However, the term does not include:
a) General professional partnerships (GPPs) AND
b) joint venture or consortium formed for the purpose of (1) undertaking
construction projects or (2) engaging in energy operations
45
Slide 46
(2)
(a)
(b)
(c)
(d)
(e)
(f)
Resident Foreign corporations.
In general
Resident international carriers
OBUs
ROHQs/RHQs of MNCs
Service contractors/subcontractors engaged in petroleum operations
Ecozone enterprises
(3) Non-resident
(a) In general
(b) Non-resident
(c) Non-resident
(d) Non-resident
foreign corporation
owners/lessors of vessels chartered by Philippine nationals;
owners/lessors of aircraft, machineries, and other equipment;
cinematographic film owner, lessor, or distributor;
(4)Exempt Corporations
INCOME TAX
ON CORPORATIONS
Classification of Corporations
(1) Domestic corporations.
(a) In general
(b) GOCCs EXC: SSS, GSIS, PHIC, LWDs
(c) Taxable partnerships
(d) Proprietary educational institutions/Non-profit hospitals;
(e) FCDUs of domestic banks
(f) Service contractors/subcontractors engaged in petroleum operations
(g) Ecozone enterprises
(h) Exempt corporations
46
Slide 47
INCOME TAX
ON CORPORATIONS
Types of Income Subject to Tax
(a) Ordinary Income/Net Income – refer to “Ordinary Income” table
(b) Passive Income –
refer to “Passive Income” and “Intercorporate
Dividend” tables
(c) “Capital Gains”
47
Slide 48
BIR Forms filed by the Payor of the Passive Income
Monthly Remittance (Form 0619F)
Filed not later than the 10th day of
the month following the month when
withholding was made. Filed for the
first two (2) months of each calendar
quarter.
Quarterly Remittance (Form 1601- FQ)
Filed not later than the last day of
the month following the close of the
quarter during which withholding was
made.
Attachment:
Quarterly
Alphabetical
List of Payees (QAP) reflecting the
name of the payees, their TIN, amount
of income paid to each, and FT
withheld from each.
Quarterly Remittance of FTs Withheld
on Interest paid on Deposits/Deposit
Substitutes/Trusts/Etc (Form 1602Q)
Filed not later than the last day of
the month following the close of the
quarter.
Filed on or before January 31 of the
year following the calendar year in
which the income payments subject to
FWTs were paid or accrued.
Annual Information Return of FWTs
(Form 1604-F)
Annual alphalist of payees, income
payments, and FWTs shall be reflected
in the Schedules of Form 1604-F.
INCOME TAX
ON CORPORATIONS
48
Slide 49
(b)Shares listed and traded at the stock exchange:
6/10 of 1% based on the gross selling price.
BIR Form to be filed by the Stockbroker who effected the sale:
Notes:
(1) Final tax on capital gains on the sale of shares of stock applies to all
corporate taxpayers.
(2) The exceptions for individual taxpayers also apply for corporate taxpayers.
2. Sale of Real Property Classified as Capital Asset –
(a) Transaction subject – the sale, exchange, or other disposition of lands
and buildings which are not actually used in the business of the corporation
and treated as “capital assets”.
INCOME TAX
ON CORPORATIONS
Form No. 2552
Filed within five (5) banking days
from the date of collection
Capital Gains Tax on Capital Gains
1. Sale, exchange, or other disposition of domestic shares of stock:
(a) Not traded at the stock exchange:
By Domestic Corporation:
Net capital gain - 15%
By Foreign Corporation:
Net gain not over ₱100,000 - 5%
Amount if excess of ₱100,000
10%
BIR Forms to be filed:
Form 1707
Filed within thirty (30) days after
each transaction
Form 1707-A (Final Consolidated
Filed on or before the 15th day of the
Return)
4th month following the close of the
preceding taxable year.
49
Slide 50
(c) Exemptions from the CGT –
(1) Sale of raw lands to be used for “socialized housing” projects, or sold
under the Community Mortgage Program under R.A. No. 7279 (Urban Development
and Housing Act of 1992).
(2) Land transfers under the Comprehensive Agrarian Reform Law of 1988.
INCOME TAX
ON CORPORATIONS
(b)Tax rate and base –
(1) Seller is domestic corporation – Final tax of 6% based on the gross
selling price or FMV, whichever is higher. The FMV is the higher between the
Commissioner’s value and the Assessor’s value.
BIR Form to be Filed:
(2) Seller is RFC – Gain on sale is returnable, and subject to normal tax
rate (30%).
(3) Seller is NRFC – Final tax of 30% on the capital gain realized on the
sale.7
Form 1706
Filed within thirty (30) days
following each sale, exchange, or
disposition of real property.
50
Slide 51
(c) Exemptions from the CGT –
(1) Sale of raw lands to be used for “socialized housing” projects, or sold
under the Community Mortgage Program under R.A. No. 7279 (Urban Development
and Housing Act of 1992).
(2) Land transfers under the Comprehensive Agrarian Reform Law of 1988.
DOMESTIC COMPANIES SUBJECT TO SPECIAL TAX RATES
(1) Proprietary educational institutions - Proprietary educational
institutions are subject to a special tax rate of 10% of taxable net income
within and without the Philippines
(2) Hospitals which are non-profit - Hospitals which are non-profit are also
subject to a special tax rate of 10% of taxable net income within and without
the Philippines
Provided – the gross income from unrelated trade, business, or other activity
does not exceed 50% of the total gross income derived from all sources.
However, if it exceeds 50%, the normal tax rate will be applied on the entire
taxable income (i.e. 30%).
INCOME TAX
ON CORPORATIONS
(b)Tax rate and base –
(1) Seller is domestic corporation – Final tax of 6% based on the gross
selling price or FMV, whichever is higher. The FMV is the higher between the
Commissioner’s value and the Assessor’s value.
BIR Form to be Filed:
(2) Seller is RFC – Gain on sale is returnable, and subject to normal tax
rate (30%).
(3) Seller is NRFC – Final tax of 30% on the capital gain realized on the
sale.7
Form 1706
Filed within thirty (30) days
following each sale, exchange, or
disposition of real property.
51
Slide 52
“Income from foreign currency transactions” shall include interest income
from lending operations, including bank charges, commissions, service fees,
and net foreign exchange transaction gains.
(4)Service
Contractors/Subcontractor Engaged in Petroleum Operations
- Liable to an eight percent (8%) final tax on gross income derived from such
contract in petroleum operations.
Provided, however, that any income received from all other sources within and
without the Philippines in the case of domestic contractors/subcontractors,
shall be subject to the regular income tax under the Tax Code.
(5) Ecozone Enterprises
All business enterprises registered with the Philippine Economic Zone
Authority (“PEZA”), SBMA, or CDA and operating within the Special Economic
Zones (“ECOZONE”) availing the 5% GIT incentive shall be taxed 5% of gross
income on registered activities.
INCOME TAX
ON CORPORATIONS
(3)Final tax on income of a Foreign Currency Deposit Unit (“FCDU”) of a
local bank under the Expanded Foreign Currency Deposit System (“FCDS”)
a) Income from foreign currency loans granted to Philippine residents, (other
than OBUs or other depository banks) – 10% final tax
b) Interest income from foreign currency interbank deposits – 10% final tax
c) Income from foreign currency transactions with non-residents, OBUs, local
commercial banks, and branches of foreign banks authorized to transact
business under the FCDS - Exempt
52
Slide 53
3)Fringe Benefits Tax (“FBT”) on fringe benefits given to managerial or
supervisory employees of PEZA-registered entities.
These taxes are not the taxes of a PEZA-registered entity. Instead, these are
taxes of a PEZA-registered entity’s payees which are withheld and remitted by
the PEZA-registered enterprise.
(b) On the other hand, the BIR has ruled that all income payments received
from its customers related to its registered activities, by a PEZA-registered
enterprise, whether availing the ITH or 5% GIT incentive, are exempt from the
withholding tax.
(c) Income derived by an entity registered with the PEZA from its registered
activities shall be subject to such treatment as may be specified in its terms
of registration, i.e. (a) the ITH where such income shall be exempt from the
regular income tax; or (b) the 5% preferential GIT, if the same has been
approved.
However, the following shall be subject to the regular internal revenue taxes
(i.e., regular corporate income taxes; final taxes on bank deposits, capital
gains taxes, etc.):
INCOME TAX
ON CORPORATIONS
Three percent (3%) shall be paid to the National Government; Two percent (2%)
to the city or municipality where the enterprise is located.
(a) The exemption from all other taxes under the ITH and 5% GIT regimes does
not include the following:
1) Withholding taxes at source (expanded withholding tax (“EWT”) and Final
Withholding Tax (“FWT”)) on income payments by PEZA-registered entities;
2) Withholding tax on compensation income of employees of PEZA-registered
entities; and
53
Slide 54
(6) Tourism Enterprises registered with the Tourism Infrastructure and
Enterprise Zone Authority (“TIEZA”)
As an alternative to the Income Tax Holiday (“ITH”) a new Registered Tourism
Enterprise (RTE) within a Tourism Enterprise Zone may, in lieu of all national
and local taxes except real estate taxes and fees as may be imposed by the
TIEZA, pay a tax of five percent (5%) on its gross income earned from its
registered activities.
The 5% gross income tax shall be remitted as follows:
(a) One-third to be proportionally allocated among affected cities or
municipalities based on the area of the RTE;
(b) One-third to the National Government; and
(c) One-third to the TIEZA.
(7) Microfinance NGO
A duly registered and accredited Microfinance NGO shall pay a two percent (2%)
tax based on its gross receipts from microfinance operations in lieu of all
national taxes. However, the non-microfinance activities of Microfinance NGOs
shall be subject to all applicable regular taxes.
INCOME TAX
ON CORPORATIONS
(1) Income realized by registered entities from activities which are not
registered;
(2) Income of entities/individuals which are not registered (i.e. income
payments to entities in the Customs Territory, to shareholders, and to nonregistered creditors, etc.)
(3) Income of Service Enterprises or providers (e.g. those providing customs
brokerage, transportation, parcel, janitorial, restaurant, banking, insurance
services, etc.) which are required by locator enterprises but which need not
be physically based inside the ECOZONE.
54
Slide 55
Rules:
(1) Tickets revalidated, exchanged and/or indorsed to another international
airline form part of the Gross Philippine Billings if the passenger boards a
plane in a port or point in the Philippines;
(2) Provided, that for a flight or voyage which originates from the
Philippines, but transhipment of passenger takes place at any port outside the
Philippines on another carrier, only the aliquot portion of the cost of the
ticket corresponding to the leg flown from the Philippines to the point of
transhipment shall form part of the Gross Philippine Billings.
(3) Where a passenger, his excess baggage, cargo, and/or mail originally
commencing his flight or voyage from a foreign port alights or is discharged
in any Philippine port, and thereafter boards or is loaded on another
airplane/vessel owned by the same international carrier, the flight or voyage
from the Philippines to any foreign port shall be considered “originating
from the Philippines” if the time intervening between arrival to and
departure from the Philippines exceeds forty- eight (48) hours.
INCOME TAX
ON CORPORATIONS
 RESIDENT FOREIGN CORPORATIONS SUBJECT TO SPECIAL TAX RATES

 (1) International carriers doing business in the Philippines shall pay a
tax of two and one-half percent (2 ½ %) of Gross Philippine Billings
(“GPB”)

 GPB – Gross revenue derived from carriage of persons, excess baggage,
cargo and mail originating from the Philippines in a continuous and
uninterrupted flight, irrespective of the place of sale or issue and the
place of payment of the ticket or passage document;
55
Slide 56
Preferential Rates
Under R.A. No. 10378, an international carrier or shipper is subject to the
Gross Philippine Billings Tax of 2½ %, unless it is subject to a preferential
rate or exemption on the basis of an applicable tax treaty or international
agreement to which the Philippines is a signatory or on the basis of
reciprocity.
Note: However, such carriers may earn compensation or commission income from
the sale of passage documents to cover off-line8 flights/voyages of its
principal office, or on-line9 flights/voyages of other carriers. Such income
shall not be subject to the 2 ½% GPB tax, but shall be subject to the regular
rates of income tax.
(2)Offshore Banking Units
An offshore banking unit (“OBU”) shall mean a branch, subsidiary, or
affiliate of a foreign banking corporation which is duly authorized by the BSP
to transact offshore banking business in the Philippines.
INCOME TAX
ON CORPORATIONS
(a) If the failure to depart within 48 hours is due to reasons beyond the
control of the passenger such as when the next available flight or voyage
leaves beyond 48 hours, or such failure is due to force majeure, the flight or
voyage from the Philippines shall not be considered “originating from the
Philippines”;
(b) If the second aircraft/vessel belongs to a different international carrier,
the flight/voyage from the Philippines shall be considered originating from
the Philippines regardless of the length of the intervening period between
arrival to and departure from the Philippines.
56
Slide 57
(3) Regional or Area Headquarters, and Regional Operating Headquarters of
Multinationals
(a) Regional or area headquarters (“RHQ”) of multinationals shall not be
subject to income tax.
(b) Regional operating headquarters (“ROHQ”) shall pay a tax of ten percent
(10%) of their taxable income (in the ITR) .
Note: Any income derived from Philippine sources by an ROHQ when remitted to
the parent company shall also be subject to the tax on branch profit
remittances.
(4) Service Contractors/Subcontractors Engaged in Petroleum Operations
- Liable to an eight percent (8%) final tax on gross income derived from such
contract in petroleum operations
Note: Any income received from all other sources within the Philippines in the
case of foreign subcontractors shall be subject to the regular income tax
under the Tax Code.
INCOME TAX
ON CORPORATIONS
a) Income from foreign currency loans granted to Philippine residents, (other
than OBUs or other depository banks) – 10% final tax
b) Interest income from foreign currency interbank deposits – 10% final tax
c) Income from foreign currency transactions with non-residents, OBUs, local
commercial banks, and branches of foreign banks authorized to transact
business under the FCDS - Exempt
57
Slide 58
EXEMPT CORPORATIONS
The following organizations shall not be subject to income tax in respect to
income received by them as such:
(A) Labor, agricultural, or horticultural organizations not organized
principally for profit;
(B) Mutual savings bank not having a capital stock represented by shares; and
cooperative banks without capital stock organized and operated for mutual
purposes and without profit;
(C) A beneficiary society, order, or association, operating for the exclusive
benefit of the members such as a fraternal organization operating under the
lodge system, or a mutual aid association or a non-stock corporation organized
by employees providing for the payment of life, sickness, accident, or other
benefits exclusively to the members of such society, order, or association, or
non-stock corporation or their dependents;
INCOME TAX
ON CORPORATIONS
NON- RESIDENT FOREIGN CORPORATIONS SUBJECT TO SPECIAL TAX RATES
Note: Royalty is subject to the rate of 30% FT as it is not one of the items
of income subject to a special rate.
58
Slide 59
(G) Civic league or organization not organized for profit but operated
exclusively for the promotion of social welfare;
(H) A non-stock and non-profit educational institution;
(I) Government educational institutions;
(J) Farmers’ or other mutual typhoon or fire insurance company, mutual ditch
or irrigation company, mutual or cooperative telephone company, or like
organization of a purely local character, the income of which consists solely
of assessments, dues, and fees collected from members for the sole purpose of
meeting its expenses; and
(K) Farmers’, fruit growers’, or like association organized and operated as
a sales agent for the purpose of marketing the products of its members and
turning back to them the proceeds of sales, less the necessary selling
expenses on the basis of the quantity of produce finished by them.
INCOME TAX
ON CORPORATIONS
(D) Cemetery company owned and operated exclusively for the benefit of its
members;
(E) Non-stock corporation or association organized and operated exclusively
for religious, charitable, scientific, athletic, or cultural purposes, or for
the rehabilitation of veterans, no part of its net income or asset shall
belong to or inure to the benefit of any member, organizer, officer, or any
specific person;
(F) Business league, chamber of commerce, or board of trade, not organized for
profit and no part of the net income of which inures to the benefit of any
private stockholder or individual;
59
Slide 60
Income Subject to Tax of Exempt Organizations
The following income, of whatever kind and character, of the foregoing
organizations shall be subject to income tax:
1. From any of their properties, real or personal; or
2. From any of their activities conducted for profit.
The said income shall be taxable regardless of the disposition made of such
income.
Exceptions to Taxability of Income of Exempt Organizations
(a) The income of non-stock, non-profit educational institutions which are
proven to have been actually, directly, and exclusively used for educational
purposes is exempt from taxes.
INCOME TAX
ON CORPORATIONS
OTHER EXEMPT CORPORATIONS
(L) Child-caring or child-placing institutions licensed and accredited by the
Department of Social Welfare and Development (“DSWD”) to implement the
Foster Care Program under R.A. No. 10165, otherwise known as the “Foster Care
Act of 2012.”
(M) Duly registered cooperative on income from transactions with members and
non-members as long as the income is related to its main business or purpose.
Provided, those with accumulated reserves and undivided net savings exceeding
₱10 Million shall be exempt only on income from transactions with members.
60
Slide 61
For-Profit Corporations Enjoying Exemption from Tax
1)BOI-registered enterprise14 enjoying ITH.
(1) New registered pioneer firms – 6 years from commercial operations.
(2) New registered non-pioneer firms – 4 years from commercial
operations.
(3) Expanding firms – 3 years from commercial operations of the
expansion.
In exceptional cases, existing firms undertaking new activities distinct from
existing operations may qualify as new projects subject to the setting up of
separate books of account. In such cases, only sales of such registered
products shall be entitled to the ITH exemption.
INCOME TAX
ON CORPORATIONS
(b) The interest income from currency bank deposits and yield from deposit
substitute instruments of non-stock and non-profit educational institutions,
which income is used actually, directly, and exclusively in pursuance of their
purposes as an educational institution, shall be exempt from the 20% final tax
and from the 15% tax on interest income under the expanded foreign currency
deposit system (“EFCDS”).
(c) Duly registered cooperatives shall be exempt from all taxes on
transactions with insurance companies and banks, including but not limited to
the 20% final tax on interest deposits, and the 15% final tax on interest
income derived from a depository bank under the EFCDS.
61
Slide 62
(2) If the annual or average net foreign exchange savings or earnings
(“NFEE”) amount to at least US$500,000.00 during the first three
(3) years of operations to be determined by the Board at the end of such
three-year period.
2. PEZA-registered and TIEZA-registered enterprises availing of the ITH.
3)
Enterprises registered as Barangay Micro Business Enterprise (“BMBE”)
A Barangay Micro Business Enterprise or BMBE refers to any domestic business
entity or enterprise15 engaged in the production, processing, or manufacturing
of products or commodities, including agro-processing, trading, and services16,
which activities are barangay-based and micro- business in nature, and whose
total assets including those arising from loans but exclusive of the land on
which the particular business entity's office, plant and equipment are
situated, shall not be more than Three Million Pesos (₱3,000,000.00).
INCOME TAX
ON CORPORATIONS
Additional Period of Availment
For new registered firms, the ITH incentive may be extended for an extra year
for each of the following cases, but in no case to exceed the total period of
eight (8) years for pioneer registered enterprises.
(1) If the average cost of indigenous raw materials used in the manufacture of
the registered product is at least fifty percent (50%) of the total cost of
raw materials for the preceding years prior to the extension unless the BOI
prescribes a higher percentage; or
62
Slide 63
Tax Exemption
Income tax exemption from income arising from the operations of the enterprise.
A duly registered BMBE shall be exempt from income tax on income arising
purely from its operations as such BMBE. Provided, the income tax exemption
shall not apply to (a) income subject to final taxes, (b) capital gains
subject to the capital gains tax, and (c) compensation income (d)
income
from practice of a profession received directly from clients; and
(e) other income not effectively connected with the operations of the BMBE.
The LGUs are encouraged either to reduce the amount of local taxes, fees and
charges imposed or to exempt the BMBEs from local taxes, fees and charges (Sec.
7, R.A. No. 9178).
INCOME TAX
ON CORPORATIONS
Registration
The Department of Trade and Industry (“DTI”), through the Negosyo Center in
the city or municipality, shall have the sole power to issue the Certificate
of Authority for BMBEs to avail of the benefits under R.A. No. 9178.
Upon approval of registration of the BMBE, the Negosyo Center shall issue the
Certificate of Authority which shall be renewable every two (2) years. The DTI,
through the Negosyo Center, may charge a fee therefor which shall not be more
than One Thousand Pesos (₱1,000) to be remitted to the National Government.
63
Slide 64
Gross income (sale of goods) – The term “gross income” shall mean gross
sales less sales returns, discounts and allowances, and cost of goods sold.
“Cost of goods sold” shall include all business expenses directly incurred
to produce the merchandise to bring them to their present location and use.
Gross income (sale of services) – In the case of taxpayers engaged in the
sale of services, “gross income” means gross receipts less sales returns,
allowances, discounts, and cost of services. “Cost of services” shall mean
all direct costs and expenses necessarily incurred to provide the services
required by the customers and clients, including –
(a) Salaries and employee benefits of personnel, consultants, and specialists
directly rendering the service, and
(b) Cost of facilities directly utilized in providing the service such as
depreciation or rental of equipment used and cost of supplies.
Provided, that in the case of banks, “cost of services” shall include
interest expense.
INCOME TAX
ON CORPORATIONS
PENALTY TAXES IMPOSED ON CORPORATIONS
I. Minimum Corporate Income Tax (“MCIT”)
1.Who are subject?
(a) Domestic corporations, and
(b) Resident foreign corporations.
2. Rate and Base – Two percent (2%) of gross income. The taxpayer shall pay
whichever is higher between the MCIT and the regular corporate income tax
(“RCIT”).
64
Slide 65
5.
Domestic Corporations Not Subject to MCIT
The minimum corporate income tax (“MCIT”) shall apply only to domestic
corporations subject to the regular corporate income tax (30%).19 Accordingly,
the following shall not be subject to MCIT –
(a) Domestic corporations operating as proprietary educational institutions
subject to tax at ten percent (10%) on their taxable income;
(b) Domestic corporations engaged in hospital operations which are non- profit
subject to tax at ten percent (10%) on their taxable income;
(c) Domestic corporations engaged in business as depository banks under the
expanded foreign currency deposit system, otherwise known as Foreign Currency
Deposit Units (“FCDUs”) on their –
(1) Income from foreign currency transactions with non-residents, offshore
banking units in the Philippines, local commercial banks, including branches
of foreign banks, and other depository banks, and
INCOME TAX
ON CORPORATIONS
However, according to the regulations, the term “gross income” will also
include all items of gross income enumerated under Section 32, whether or not
derived from the taxpayer’s core business, except:
(a) Income exempt from income tax; and
(b) Income subject to final withholding tax.
3. Effectivity – The fourth (4th) taxable year immediately following the year
in which such corporation commenced its business.
4. Carry forward of excess minimum tax – Any excess of the MCIT over the
regular corporate income tax (“RCIT”) in a particular year shall be carried
forward and credited against the regular income tax for the three (3)
immediately succeeding taxable years.
65
Slide 66
a) Resident foreign corporations engaged in business as “international
carrier” subject to tax at 2.5% of their “Gross Philippine Billings”;
b) Resident foreign corporations engaged in business as Offshore Banking Units
(“OBUs”) on their –
(1) Income from foreign currency transactions with non-residents, other
offshore banking units, local commercial banks, including branches of foreign
banks, and
(2) Interest income from foreign currency loans granted to residents of the
Philippines, subject to final tax at ten percent (10%) of such income.
c) Resident foreign corporations engaged in business as regional operating
headquarters subject to tax at ten percent (10%) of their taxable income;
d) Firms that are taxed under special income tax regimes such as those PEZAand TIEZA-registered firms availing of the 5% GIT incentive.
INCOME TAX
ON CORPORATIONS
(2) Interest income from foreign currency loans granted to residents of the
Philippines under the expanded foreign currency deposit system, subject to
final tax at ten percent (10%) of such income.
(d) Firms that are taxed under special income tax regimes such as PEZA- and
TIEZA-registered firms availing of the 5% GIT incentive.
6. Resident Foreign Corporations Not Subject to MCIT –
The minimum corporate income tax shall apply only to resident foreign
corporations which are subject to the regular income tax (30%). Accordingly,
the MCIT shall not apply to the following –
66
Slide 67
Rules in Computation of MCIT
1) Excess MCIT, if any, for the year is computed annually, that is, in the 4th
quarterly (annual) return.
2) The quarterly tax shall be the higher of the RCIT or the MCIT.
3) IF the quarterly tax due is the MCIT, the excess MCIT from previous taxable
year(s) shall not be allowed to be credited. However, (1) creditable
withholding taxes, (2) quarterly income tax payments paid in the previous
quarter(s), and (3) excess tax credits of the prior year, are allowed as
credits against the quarterly MCIT due.
4) If the quarterly tax due is the RCIT, the (1) excess MCIT from previous
taxable year(s), (2) creditable taxes withheld, (3) quarterly income tax
payments paid in previous quarter(s), and (4) excess tax credits of the prior
year, are allowed as credits against the quarterly RCIT due.
INCOME TAX
ON CORPORATIONS
7. Relief From the Minimum Corporate Income Tax
The Secretary of Finance, upon the recommendation of the Commissioner, may
suspend imposition of the MCIT upon submission of proof that the corporation
sustained substantial losses on account of –
(a) A prolonged labor dispute;
(b) Because of “force majeure”;
(c) Because of legitimate business reverses.
67
Slide 68
The IAET is an additional tax to the regular corporate income tax imposed on
corporations under Title II of the Tax Code.
Corporations Subject to IAET
The tax is imposed on improperly accumulated taxable income earned starting
January 1, 1998 by domestic corporations (as defined under the Tax Code) which
are classified as closely-held corporations.
A branch of a foreign corporation is not liable for the IAET the same being a
resident foreign corporation.
Closely-held Corporations Defined.
These are corporations where at least fifty percent (50%) in value of the
outstanding capital stock or at least fifty percent (50%) of the total
combined voting power of all classes of stock entitled to vote is owned
directly or indirectly by or for not more than twenty (20) individuals.
INCOME TAX
ON CORPORATIONS
II. IMPROPERLY ACCUMULATED EARNINGS TAX
Concept of the Tax
In order to compel corporations to distribute or pay dividends to stockholders,
the retention or accumulation of earnings or profits beyond the reasonable
needs of the business is made subject to tax.
The IAET is imposed upon corporations which are formed or availed of for the
purpose of avoiding the income tax with respect to its stockholders or the
stockholders of any other corporation by permitting earnings and profits to
accumulate instead of being divided or distributed.
68
Slide 69
(g) Enterprises duly registered with the TIEZA under R.A. 9593, the PEZA under
R.A. 7916, and enterprises registered pursuant to the Bases Conversion and
Development Act of 1992 under R.A. 7227, as well as other enterprises duly
registered under special economic zones declared by law which enjoy payment of
special tax rates on their registered operations or activities in lieu of
other taxes, national or local.
Circumstances Indicative of Purpose to Avoid the Tax
(1) Dealings between the corporation and its shareholders, such as withdrawals
by the shareholders as personal loans;
(2) Expenditure of funds by the corporation for the personal benefit of the
shareholders;
(3) The investment by the corporation of undistributed earnings in assets
having no reasonable connection with the business;
(4) Advances in substantial sums made yearly to corporate officers who are at
the same time the stockholders;
INCOME TAX
ON CORPORATIONS
Corporations Not Subject to IAET
The IAET shall not apply to the following corporations:
(a)
(b)
(c)
(d)
(e)
(f)
Banks and other non-bank financial intermediaries;
Insurance companies;
Publicly-held corporations;
Taxable partnerships;
General professional partnerships;
Non-taxable joint ventures; and
69
Slide 70
(b) Allowance for the increase in the accumulation of earnings up to 100% of
the paid-up capital of the corporation as of the balance sheet date, inclusive
of accumulations taken from other years;
(c) Earnings reserved for definite corporate expansion projects or programs
requiring considerable capital expenditure as approved by the Board of
Directors or equivalent body;
(d) Earnings reserved for building, plants, or equipment acquisition as
approved by the Board of Directors or equivalent body;
(e) Earnings reserved for compliance with any loan covenant or pre-existing
obligation established under a legitimate business agreement;
(f)Earnings required by law or applicable regulations to be retained by the
corporation or in respect of which there is a legal prohibition against its
distribution;
INCOME TAX
ON CORPORATIONS
(5) Investment of substantial earnings and profits of the corporation in an
unrelated business or in the stock or securities of an unrelated business;
(6) Investment in bonds and other long-term securities;
(7) Accumulation of earnings in excess of 100% of paid-up capital, not
otherwise intended for the reasonable needs of the business.
Proper Accumulation of Profits
The following constitute accumulation of earnings for the reasonable needs of
the business:
(a) If retained for working capital needed by the business;
70
Slide 71
Plus:
1) Income
2) Income
3) Income
4) Amount
exempt from tax;
excluded from gross income;
subject to final tax;
of NOLCO deducted.
Less:
1) Dividends actually or constructively paid from applicable year’s taxable
income;
2) Income taxes paid or payable for the taxable year (both income tax in the
ITR and final taxes); and
3) Amounts reserved for the reasonable needs of the business from the
applicable year’s taxable income or 100% of paid-up capital, whichever is
higher.
Equals: IAET
Once the profit has been subjected to IAET, the same shall no longer be
subjected to IAET in later years even if not declared as dividend.
INCOME TAX
ON CORPORATIONS
(g) In the case of subsidiaries of foreign corporations in the Philippines,
all undistributed earnings intended or reserved for investments within the
Philippines as can be proven by corporate records and/or relevant documentary
evidence.
Tax Base or Basis of the Tax
The rate of the IAET is 10%. It is based upon the improperly accumulated
taxable income for each taxable year.
Formula –
Current Year’s Taxable Income
71
Slide 72
SPECIAL INCOME TAXES
The Tax Code presently has two types of special income taxes, namely the
branch profits remittance tax, and the gross income tax.
I. BRANCH PROFITS REMITTANCE TAX (“BPRT”)
(a) Transaction subject – Any profit remitted by a branch of a foreign
corporation to its head office (Sec. 28 (A) (5), NIRC).
This includes any income derived from Philippine sources by the Regional
Operating Headquarters of a multinational corporation when remitted to the
parent company (R.A. No. 8756).
(b) Rate and Base – Fifteen percent (15%) final tax on the total profits
applied or earmarked for remittance (gross of the BPRT), except those
activities which are registered with the –
(1) Philippine Economic Zone Authority (“PEZA”);
(2) Subic Bay Metropolitan Authority (“SBMA”);
(3) Clark Development Authority (“CDA”); and
(4) Tourism Infrastructure and Enterprise Zone Authority (“TIEZA”)
INCOME TAX
ON CORPORATIONS
Notwithstanding the imposition of IAET, profits which have been subjected to
IAET, when finally declared as dividends, shall nevertheless be subject to tax
on dividends imposed under the Tax Code except in those instances where the
recipient is not subject thereto.
Period For Payment of Dividend/Payment of IAET
The dividends must be declared and paid or issued not later than one (1) year
following the close of the taxable year. Otherwise, the IAET, if any, should
be paid within fifteen (15) days thereafter.
BIR Form 1704 (IAET Return) shall be filed within 15 days after the close of
the year immediately succeeding a taxpayer’s covered taxable year.
72
Slide 73




II. GROSS INCOME TAX (“GIT”)
Under Section 27(A) of the Tax Code, the President, upon recommendation of
the Secretary of Finance, may allow corporations the option to be taxed at
fifteen percent (15%) of gross income as defined in the Tax Code instead
of the 30% net income tax.
a. Corporations given the option – The option is available to domestic
and resident foreign corporations (Secs. 27 (A) and 28 (A) (1), NIRC).
b. Requisite conditions – The option is available after the following
conditions have been satisfied:
 1) A tax ratio effort of twenty percent (20%) of Gross National
Product (“GNP”);
 2) A ratio of forty percent (40%) of income tax collection to total
tax revenues;
 3) A VAT tax effort of four percent (4%) of GNP; and
 4) A 0.9 percent (0.9%) ratio of the Consolidated Public Sector
Financial Position (“CPSFP”) to GNP.



INCOME TAX
ON CORPORATIONS
(c) Income not treated as branch profits – Income which are not connected
with the trade or business in the Philippines shall not be treated as “branch
profits.”
Ex. Dividends from marketable securities
(d) Tax treaties. The 15% rate may be reduced by international treaties to
which the Philippines is a signatory.
(e) Forms to be filed. The same forms filed for the monthly remittance of
final taxes (BIR Form 0619F), for the quarterly remittance of final taxes (BIR
Form 1601-FQ) and the annual information return for FWTs (BIR Form 1604-F)
shall be filed in paying the BPRT. See pages 4 and 5 for the deadlines for
filing such forms.
73
Slide 74
INCOME TAX
ON CORPORATIONS
(c) Additional requisite – The option shall be available only to firms whose
ratio of cost of sales to gross sales or receipts from all sources does not
exceed fifty-five percent (55%)
(d) Period of irrevocability – The election of the gross income tax option by
the corporation shall be irrevocable for three (3) consecutive taxable years
during which the corporation is qualified under the scheme.
(e) Rate and base – Fifteen percent (15%) of gross income where gross income
shall be equivalent to gross sales less sales returns, discounts, and
allowances, and cost of goods sold.
74
Slide 75
5
FILING, PENALTIES AND REMEDIES
75
Slide 76
c. Every alien residing in the Philippines on income derived from sources
within the Philippines
d. Every non-resident alien engaged in the trade or business or in the
exercise of profession in the Philippines
2. INDIVIDUAL S NOT REQUIRING TO FILE INCOME TAX RETURN
a. An individual whose taxable income does not exceed P250,000 under the
graduated rate of Section 24(A)(2)(a) of the Tax Code. EXCEPT: a citizen of
the Philippines and alien individual engaged in business or practice of a
profession within the Philippines shall file an income tax return, regardless
of the amount of the gross income.
FILING
Income tax return – a sworn declaration of the income tax liability of a
taxpayer
INDIVIDUAL RETURNS
1. INDIVIDUAL REQUIRED TO FILE INCOME TAX RETURN
a. Every Filipino citizen residing in the Philippines
b. Every Filipino citizen residing outside the Philippines on his income from
sources within the Philippines
76
Slide 77
Purely compensation income from a single employer although the income tax of
which has been correctly withheld, but whose spouse does not qualify for
substituted filing must file an income tax return covering the income of both
spouses.
c. An individual whose sole income has been subjected to final withholding tax
pursuant to Section 57(A) of the Tax Code.
d. A minimum wage earner as defined in Section 22 (HH) of the Tax Code or an
individual who is exempt from income tax pursuant to the provisions of this
Code and other laws, general or special.
FILING
b. An individual receiving purely compensation income, regardless of amount,
from only one employer in the Philippines for the calendar year, the income
tax of which has been withheld correctly by the said employer (substituted
filing). EXCEPT: (1) an individual deriving compensation from two or more
employers concurrently of successively at any time during the taxable year
shall file an income tax return; and (2) individuals receiving
77
Slide 78
4. RETURN OF PARENT TO INCLUDE INCOME OF CHILDREN
The income of unmarried minors derived from property received from a living
parent shall be included in the return of the parent except: (1) when the
donor’s tax has been paid on such property; or (2) when the transfer of such
property is exempt from donor’s tax.
5. INDIVIDUAL RETURNS SHALL BE FILED IN DUPLICATE.
6. AUDITED FINANCIAL STATEMENTS WHICH MUST BE ATTACHED TO THE ANNUAL INCOME
TAX RETURN UPON FILING
FILING
3. HUSBAND AND WIFE
Married individual shall file a joint return to include the income of both
spouses, but where it is impracticable for the spouses to file one return,
each spouse may file a separate return of income but the returns so filed
shall be consolidated by the Bureau for purposes of verification for the
taxable year.
78
Slide 79
Preceding taxable years.
c. Schedule of income producing properties and corresponding incomes therefrom.
7. WHERE to FILE RETURN
The return shall be filed with:
a. An authorized agent bank (AAB); or
b. Revenue district officer, collecting agent, or duly authorized treasurer of
the city or municipality in which such person has his legal residence or
principal place of business in the Philippines, or if there be no legal
residence or place of business in the Philippines, with the Office of the
Commissioner.
FILING
6. AUDITED FINANCIAL STATEMENTS WHICH MUST BE ATTACHED TO THE ANNUAL INCOME
TAX RETURN UPON FILING
If gross sales, earnings, receipts, or output from business for the year
exceed P3M:
a. Balance Sheet and Profit or Loss Statement certified by an independent CPA.
b. Comparative profit or loss statements for the current and
79
Slide 80
2nd quarter – on or before August 15 of the current year
3rd quarter-on or before November 15 of the current year
4th quarter- on or before April 15 of the next year
c. Individuals subject to tax on capital gains:
1. From the sale of exchange or shares of stock not traded through a local
stock exchange – shall file a return within 30 days after each transaction,
and a final consolidated return on or before April 15 of each year covering
all stock transactions of the preceding year; and
2. From the sale or disposition of real property classified as capital asset,
the return shall be filed within 30 days following each sale or other
disposition.
FILING
8. WHEN TO FILE RETURN
a. The annual return must be filed on or before 15th day of April of each year
covering income for the preceding taxable year;
b. Individuals earning self-employment (business) income (whether solely or in
combination with employment or passive income not subject to final taxes) must
file quarterly returns as follows:
1st quarter – on or before May 15 of the current taxable year;
80
Slide 81
10. INSTALLMENT PAYMENT
When the tax due is in excess of P2,000 the taxpayer, other than a corporation,
may elect to pay the tax in 2 equal installments, in which case, the first
installment shall be paid at the time the return is filed, and the second
installment, on or before October 15 following the close of calendar year. If
any installment is not paid on or before the date fixed for its payment, the
whole amount of the tax unpaid becomes due and payable together with the
delinquency penalties.
11. FILING AN AMENDED RETURN
A return may be modified, changed or amended within 3 years from the date such
return is filed provided no notice for audit or investigation of such return
has, in the meantime been actually served upon the taxpayer.
FILING
9. WHEN THERE IS AN OVERPAYMENT IN THE FINAL ADJUSTED RETURN (ANNUAL RETURN)
The taxpayer has the following options:
a. For the overpayment to be refunded to him;
b. For him to be issued a Tax Credit Certificate; or
c. For the overpayment to be carried over as tax credit against his income tax
liabilities for the quarter of succeeding taxable years.
81
Slide 82
2. AUDITED FINANCIAL STATEMENTS WHICH MUST BE ATTACHED TO THE ANNUAL INCOME
TAX RETURN UPON FILING
If gross sales, earnings, receipts, or output from business for the year
exceed P3M:
a. Balance Sheet and Profit or Loss Statement certified by an independent CPA.
b. Comparative profit or loss statements for the current and preceding taxable
years.
c. Schedule of income producing properties and corresponding incomes therefrom.
FILING
CORPORATE RETURN
1. QUARTERLY AND FINAL ADJUSTED RETURNS
With the exception of foreign corporations not engaged in trade or business in
the Philippines, all other corporations shall file quarterly income tax
returns and a final adjusted return as follows:
1st, 2nd and 3rd quarters- not later than 60 days from the close of the
quarter
4th quarter-not later than 15th day of the 4th month following the close of
the taxable year
82
Slide 83
4. WHEN THERE IS AN OVERPAYMENT IN THE FINAL ADJUSTED RETURN (ANNUAL RETURN)
The corporation has the following options:
a. For the overpayment to be refunded to him;
b. For him to be issued a Tax Credit Certificate; or
c. For the overpayment to be carried over as tax credit against his income tax
liabilities for the quarter of succeeding taxable years.
5. FILING AN AMENDED RETURN
A return may be modified, changed, or amended within 3 years from the date
such return is filed provided no notice for audit or investigation of such
return has, in the meantime, been actually served the corporate taxpayer.
FILING
3. PLACE OF FILING
The quarterly income tax return and the final adjustment return shall be filed
with
a. An authorized agent bank (AAB); or
b. Revenue district officer, collecting agent, or duly authorized treasurer of
the city or municipality having jurisdiction over the location of the
principal office of the corporate filing the return or place where its main
books of accounts and other data from which the return is prepared are kept.
83
Slide 84
c. National government agencies
d. Enterprises enjoying fiscal incentives granted by other government agencies
e. Licensed local contractors
f. Top 5,000 individual taxpayers engaged in trade or business or practice of
a profession
g. Corporations with complete computerized system
h. Corporations with paid-up capital of 10M and above
I government offices
j. Government bidders
k. Large taxpayers
l. Top 20,000 private corporations
m. Stock brokers duly registered with the SEC, and insurance companies duly
registered with the SEC and licensed by the Insurance Commission
FILING
ELECTRONIC FILING AND PAYMENT SYSTEM (EFPS)
eFPS refers to the system developed and maintained by the BIR for
electronically filing tax returns, including attachments, if any, and paying
taxes due thereon specifically through the internet.
WHO ARE COVERED?
a. Taxpayer Account Management Program (TAMP) taxpayers
b. Accredited importers who or which are required to secure BIR-importer
clearance certificates (ICC) and BIR-customs broker clearance certificates
(BCC)
84
Slide 85
CONFIRMATION OF RECEIPT OF RETURNS, DOCUMENTS AND PAYMENT OF TAXES
The return is deemed filed, on the date appearing in, and after a FILING
REFERENCE NUMBER is generated and issued to the taxpayer via the eFPS. The
tax due thereon is deemed paid after a confirmation number is issued by the
AAB to the taxpayer and the BIR.
TIME AND PLACE OF SUBMITTING THE REQUIRED ATTACHMENTS
Taxpayers availing of eFPS shall submit all required attachments of applicable
BIR Forms to the RDO/LTAD/LTDO where they are registered within 15 days from
date of filing.
FILING
TIME OF PAYMENT OF TAXES
Following the “pay as you file
within banking hours of the day
of manual payment or within the
payment. However, no penalties
principle” the payment of taxes shall be made
the return was electronically filed for cases
day of e-filing for cases of electronic
shall be imposed for taxpayers who e-filed
earlier and paid at a later date but within the prescribed due date for the
applicable tax.
85
Slide 86













WHO ARE COVERED?
a. eBIRFORMs shall be available to all non-eFPS filers.
b. However, the following non-eFPS filers shall mandatorily use the
eBIRFORMs facility in electronically submitting and filing all their tax
returns:
Accredited tax agennts/practitioners and all its client-taxpayers
Accredited printers of principal and supplementary receipts or invoices
One-time transactions (ONETT) taxpayers
Those who shall file a “No Payment Return”
GOCC
LGUs except barangays
Cooperatives registered with the NEA and LWUA
FILING
ELECTRONIC BIR FORMS (eBIRFORMs)
eBIRFORMs refers to the 2 types of electronic services provided by the BIR
relative to the preparation, generation, and submission of tax returns;
1. Offline eBIRForms Package – a tax preparation software that allows the
taxpayaer and/or accredited tax agents (ATA) to accomplish or fill out tax
form offline.
2. Online eBIRFORMs Package – a filing infrastructure that accepts tax
returns submitted online and automatically coputes penalties for tax returns
submitted beyond the due date.
86
Slide 87










PENALTIES
It applies to all taxes
It applies also to withholding agents
CIVIL PENALTIES
1. SURCHAGES – percentage of the amount of tax due
2. INTEREST – there shall be assessed and collected on any unpaid amount
of tax interest, at the rate of double the legal interest rate for loans
or forbearance of any money in the absence of an express stipulation as
set by the BSP, from the date prescribed for payment until the amount is
fully paid.
3. OTHER PENALTIES
a. For failure to file an information return, statement, list, or any
required attachment – P1,000 for each such failure. The aggregate amount
to be imposed shall not exceed P25,000
PENALTIES
All taxpayers mandatorily required to file their returns using the eFPS or
eBIRFORMs who fail to do so, shall face the following penalties:
1. Penalty of P1,000 per return pursuant to Section 250 of the Tax Code
2. civil penalty to 25% of the tax due for filing a return in the wrong venue
pursuant to Section 248(A) of the Tax Code
3. inclusion of the non-compliant taxpayers in the BIR’s priority audit
program
87
Slide 88
SURCHARGE TABLE
PENALTIES
25% Surcharge
1. Failure to file any return and pay
the tax due thereon (within the
prescribed period for filing and
payment);
Involves a situation where the
taxpayer voluntarily files the return
beyond the prescribed period, but
before any notice is received from the
BIR.
2. Filing a return with an internal
revenue officer other than those with
whom the return is required to be
filed
3. Failure to pay the deficiency tax
within the time prescribed for its
payment in the notice of assessment
4. Failure to pay the full or part of
amount tax shown on any return
required to be filed, or before the
date prescribed for its payment
5. Pursuant to Section 248(A)(1) AND
(4) of the Tax Code (paragraphs (1)
and (4) above, in an amendment of
return by a taxpayer where an
additional tax is due per amended
return, the 25% penalty shall be
imposed based on the additional tax to
be paid per amended return.
50% Surcharge
1. Within neglect to file the return
within the period prescribed by the
Tax Code or by rules and regulations.
2. In case a false or fraudulent
return is wilfully made
A substantial underdeclaration of
taxable sales, receipts or income, or
a substantial overstatement of
deduction by 30% shall consitute a
prima facie evidence of falsity or
fraud
b. For failure of a withholding agent to collect and remit the tax-penalty in
the amount equal to the total amount of the tax not withheld.
c. For failure of a withholding agent to refund excess withholding taxes- any
employer/withholding agent who fails or refuses to refund excess withholding
tax shall be liable to a penalty equal to the total amount or refunds which
was not refunded.
88
Slide 89









ASSESMENT
Notice given to the taxpayer that the correct taxes have not been paid and
demanding payment. The assessment must state the facts and the law on
which its conclusion is based.
TIME OF ASSESSMENT
General Rule: within 3 years after the last day prescribed by law for
filing or from the date of filing the return, whichever is later.
Exception: the 3-year period can be extended in the following cases:
a. In case where a false or fraudulent return with intent to evade the tax
is filed:
Period of assessment = within 10 years after the discovery of the falsity
or fraud.
b. Where there is a failure or omission to file a return:
Period of assessment=within 10 years after the discovery of the failure or
omission.
REMEDIES
 REMEDIES
 Action available to:
 a. the BIR or government in enforcing collection of the proper taxes or
 b. the taxpayer in defending himself or itself against the unlawful
enforcement of tax laws.

 REMEDIES OF THE STATE
 ASSESSMENT
 COLLECTION
89
Slide 90







TIME OF COLLECTION
1. Within 5 years following the assessment; or
2. Within the period agreed upon between the taxpayer and the Commissioner
before the expiration of the 5-yr period; or
3. Within 10 years after the discovery of the fraud, falsity, or omission
even without assessment through a proceeding in court.
DISTRAINT-seizure of goods, chattels, or effects, and the personal
property, including stocks and other securities, debts, credits, bank
accounts, and interests in and rights to personal property in sufficient
quantity to satisfy the tax or charge, together with any increment thereto
incident to delinquency, and the expenses of the distraint and the cost of
the subsequent sale
REMEDIES
 c. Within any period agreed upon by the taxpayer and the Commissioner of
the BIR. Provided, such agreement is entered into before the expiration
of the 3-yr period for assessment.

 B. COLLECTION
 By distraint (seizure) of personal property
 By levy of real property
 By court action (civil or criminal)
 All may be pursued simultaneously
90
Slide 91
Province or city where the property is located and upon the delinquent
taxpayer.
TAX LIEN
When a taxpayer refuses or neglects to pay the tax, a lien accrues against all
properties and property rights of the taxpayer. However, such tax lien shall
not be valid against any mortagagee, purchaser, or judgment creditor until the
notice of lien is filed with the Register of Deeds.
COURT ACTION
a. Civil Action –for the collection of taxes, filed within 5 years of
assessment.
1. With the RTC, MTC – if principal amount of taxes (exclusive of charges and
penalties) is <P1,000,000
2. With the CTA- if the principal amount of taxes (exclusive of charges and
penalties) is ≥ P1,000,000
REMEDIES
LEVY ON REAL PROPERTY
May be made before, simultaneously, or after distraint.
The BIR shall prepare a duly authenticated certificate showing the name of the
taxpayer and the amounts of the tax and penalty due from him. Said
certificate shall operate with the force of a legal execution throughout the
Philippines.
Levy shall be effected by writing upon said certificate a description of the
property upon which levy is made. At the same time, written notice of the
levy shall be mailed to or served upon the Registry of Deeds of the
91
Slide 92
Or proceeding in court and for 60 days thereafter;
b. When the taxpayer requests for a reinvestigation which is granted by the
Commissioner;
c. When the taxpayer cannot be located in the address given by him in the
return filed upon which a tax is being assessesd or collected. However, the
running of the Statute of Limitations will not be suspended if the taxpayer
informs the Commissioner of any change in address;
d. When the warrant of distraint or levy is duly served upon the taxpayer, his
authorized representative, or a member of his household with sufficient
discretion, and no property could be located; and
e. When the taxpayer is out of the Philippines.
REMEDIES
b. Criminal actions-for the enforcement of penal provisions; filed within 5
years of assessment; may be filed during the pendency of an administrative
protest in the BIR.
SUSPENSION OF RUNNING OF STATUTE OF LIMITATION
The running of the Statute of Limitations in the assessment and the beginning
of distraint or levy or a proceeding in court for collection shall be
suspended:
a. For the period during which the Commissioner is prohibited from making the
assessment or beginning distraint or levy or
92
Slide 93
Issued on the basis of a mere Letter of Notice (LN) is void.
NOTICE FOR INFORMAL CONFERENCE
It is a written notice informing a taxpayer that the findings of the audit
conducted on his books of accounts s and accounting records indicate that
additional taxes or deficiency assessments have to be paid. The taxpayer
shall then have 30 days form the date of his receipt of the Notice for
Informal Conference to explain his side.
PRE-ASSESSMENT NOTICE OR PRELIMINARY ASSESSMENT NOTICE (PAN) AND FINAL
ASSESSMENT NOTICE (FAN)
When the Commissioner or his duly authorized representative finds that proper
taxes should be assessed, he shall first notify the taxpayer of his findings
in a PAN.
REMEDIES
II. REMEDIES OF THE TAXPAYER
LETTER OF AUTHORITY (LOA)
A LOA is the authority given to the appropriate revenue officer assigned to
perform assessment functions. The LOA empowers or enables said revenue
officer to examine the books of accounts and other accounting records of a
taxpayer for the purpose of collecting the correct amount of tax. Unless
authorized by the Commissioner or his duly authorized representative through a
LOA, an examination of the taxpayer cannot ordinarily be undertaken. Thus, a
Final Assessment Notice (FAN)
93
Slide 94
REMEDIES AGAINST ASSESSMENT
1. WHERE TAX HAS NOT BEEN PAID
REMEDIES
The PAN shall show in detail the fact and the law or jurisprudence on which
the proposed assessment is based.
The taxpayer is given 15 days to respond from date of receipt of the PAN. If
the taxpayer fails to respond to the PAN within the 15-day period or disagrees
therewith, the Commissioner or his duly authorized representative shall issue
the Formal Letter of Demand and Final Assessment Notice (FLD/FAN).
The FLD/FAN shall state the facts, the law, rules and regulations, or
jurisprudence on which the assessment is based; otherwise, the assessment
shall be void.
94
Slide 95








3. FILING A CRIMINAL ACTION AGAINST THE ERRING OR ABUSIVE BIR OFFICIAL.
4. APPLY FOR A TRO OR INJUNCTION WITH THE CTA.
III. REMEDIES AVAILABLE TO THE STATE AND TAXPAYER
Compromise
Mutual concession or settlement which can be entered into by the BIR and
the taxpayer even if a (civil) case has been filed in court
There is an offer to pay the taxpayer and an acceptable by the
Commissioner
Called a compromise penalty if paid in lieu of criminal prosecution.
REMEDIES
2. WHERE TAX HAS BEEN PAID
95
Slide 96
d. The demand notice allegedly failed to comply with the formalities
prescribed under Section 228 of the Tax Code; or
e. The assessment was made based on the “ Best Evidence Obtainable Rule”
under Section 6(B) of the Tax Code, and there is a reason to believe that the
same can be disputed by sufficient and competent evidence; or
f. The assessment was issued within the prescribed period for assessment as
extended by the taxpayer’s execution of a Waiver of the Statute of
Limitations. However, the validity or authenticity of such waiver is being
questioned or at issue, and there is strong reason to believe and evidence to
prove that the same is not authentic; or
g. The assessment is based on an issue where a court of competent jurisdiction
has made an adverse decision against the BIR. However, the Supreme Court has
not decided upon the case with finalit.
REMEDIES
GROUNDS FOR COMPROMISE
1. Reasonable doubt as to validity of the claim against the taxpayer:
a. the delinquent account or disputed assessment is one resulting from a
jeopardy assessment
b. The assessment is lacking in legal and/or factual basis; or
c. The taxpayer failed to file an administrative protest on account of the
alleged failure to receive notice of assessment, or
96
Slide 97
To 10% of the basic assessed tax.
b. For other cases (doubtful validity), a minimum compromise rate equivalent
to 40% of the basic assessed tax.
Approval of the compromise
a. Where the basic tax involved exceed P1,000,000 or
b. Where the settlement offered is less than the prescribed minimum rates, the
compromise shall be subject to the approval of the National Evaluation Board
which shall be composed of the Commissioner and 4 Deputy Commissioner.
Cases which may not be compromised
1. Withholding tax cases, in general;
2. Criminal tax fraud cases confirmed as such by the Commissioner of Internal
Revenue or his duly authorized representative
REMEDIES
2. Financial inability of the taxpayer to pay – the compromise must be
accompanied by a waiver under the Secrecy of Bank Deposit Law.
Amount of Compromise Settlement
The BIR has a schedule of compromise penalties for various violations of the
Tax Code. A compromise penalty may differ than the prescribed amounts as long
it is approved by the Commissioner, but shall not go below the following
minimum amounts:
a. For cases of financial incapacity, a minimum compromise rate equivalent
97
Slide 98
B. Abate or cancel a tax liability
The Commissioner has the authority to abate or cancel the surcharge, interest,
and compromise penalties.
Grounds to abate or cancel a tax liability
1. The tax or any portion thereof appears to be unjustly or excessively
assessed
The following are instances when the penalties and/or interest imposed on the
taxpayer may be abated or cancelled on the g rounds that the imposition
thereof is unjust or excessive:
a. When the filing of the return or payment of the tax is made at the wrong
venue;
b. When the taxpayer’s mistake in payment of his tax is due to the erroneous
written official advise of a revenue officer;
REMEDIES
3. Criminal violations already filed in court
4. Delinquent accounts with duly approved schedule of installment payment
5. Cases where final reports of reinvestigation or reconsideration have been
issued resulting to reduction in the original assessment, and the taxpayer is
agreeable to such decision by signing the required agreement form for the
purpose;
6. In general, (a) cases which have become final and executory (except where
compromise is requested on the grounds of financial incapacity) and (b) estate
tax cases (except where compromise is requested on the ground of doubtful
validity of the assessment.
98
Slide 99
2. The administration and collection costs involved do not justify the
collection of the amount due.
REMEDIES
c. When the taxpayer fails to file the return and pay the tax on time due to
substantial losses from prolonged labor dispute, force majeure, or legitimate
business reverses, or to other circumstances beyond the control of the
taxpayer. However, the abatement shall only cover the surcharges and the
compromise penalty, and not the interest imposed under Section 249 of the Tax
Code.
d. When the assessment, is the result of taxpayer’s non-compliance with the
law due to a difficult interpretation of said law.
99
Slide 100
4
Other Concerns?
100
Slide 101
“The hardest thing in the world to understand is the Income Tax”
-Albert Einstein
101
Slide 102
THANK YOU!
102