May 8, 2012

Foreign tax credit - - tax that you paid abroad and taken as credit for tax you pay here The top foreign tax credit higher than phil taxes paid by individual so who is that tax payer? Manny Pacquiao Sec 32 & 34 are mirror images of each other Expenses incurred related to business in phil - fine if youre able to determine expenses

SmithKline case Lets say you pay salary to a person in pHil in charge of asia-pacific operations Salary what kind of expense? Ordinary business expense If income side payment for his services. Where does he perform services? What do you do? You ALLOCATE!!! Phil. Guaranty Case Re-insurance company Insurer foreign insurer Re-insurer domestic company; paying premium doctrine in BOAC and Phil Guaranty Cases - not sale of tickets but sale of SERVICES - Phil Guaranty: - sale of service done in Phil E-P-C Contract Engineering 2 ways of characterizing : whether gives rise to royalties or service fees Procurement sale of personal property; takes place inside Construction if done here, then in Phil Philam life case Remember: Retention of Proprietary Interest Marubeni outlines what has to be done; or deliverables! Royalty the only thing they do is provide technical know-how - project owner in Phil never takes ownership of what Marubeni does Service Fees -- when Marubeni is contracted and comes up w deliverables, whatever deliverables are owned by project owner - W/N service provider retained proprietary interest if yes royalties if NO service fees licensor would want to protect own interest if foreign entity is OK that you hit engineering taxes, then well & good shows you dont want to take ownership

Tax Notes

Atty. Montero

Regina Gomez 2014

ACCOUNTING PERIODS & METHODS Calendar year On or before 15th day on 4th month following calendar year ; april 14 usually Fiscal year Any other period aside form calendar year Taxpayer calendar year CASH vs ACCRUAL - Y when received vs Y when earned - Expense paid expense incurred example: Employer was able to pay employee for 6 months nothing different bet cash & accrual; in sync But if last 6 mos., employer was not able to pay employee how does it affect , if its cash & if its accrual Once theres reasonable necessity in determining payable (case before) Short period return -example from calendar to fiscal most Japanese companies shifted from calendar to sept 30 when do you file new? -change to new year -death -dissolution 4/15 12/31 9/30-10/1 --- 9/30

you only report income at time building /project has been completed LONG-TERM CONTRACTS 5/ 50M 1year 2 year Acc expense: 20% 10M 50% 25M (running bal) 9M 20M Pay tax: 1M 5M -1M 3 4

INSTALLMENT BASIS Sale in installment diff cash or deferred payment

Tax Notes

Atty. Montero

Regina Gomez 2014

-sale on installment pay tax on how much you actually get paid, ex. 20% - you only pay 20% if cash sale you report what ? o if agreement : 30%

BANAS CASE if rest is payable in equal monthly installments doesnt change the fact that its a cash sale in what grounds is it a cash sale? They interpreted that discounting was a circumvention If you want to sell it as it were, its as good as cash ; so wait for a year, get cost of money example 10% of that, and if you want it converted to cash , me as buyer of check suffers 40k, will only be able to recover after the period But in this case they got check as face value, no deduction, which amount on check banas was able to get from BPI. Why can he not count in essense the 80%, -- may not be cash, but is a cash equivalent Distinguish this from situation: enter Deed of Sale, supposed to get 20% ; balance supposed to be paid for period of 5 years RETURNS and PAYMENTS of TAXES Individual Returns - Not required o Gross Y does not exceed personal and additional exemptions o Substituted Filing System: Purely compensation Elements: 1. Purely compensation Y 2. Tax that should have been due has already been withheld correctly by employer 3. Must have only 1 employer 3 requirements must concur!! the fact that employer already paid for you o Law says those whose income are already subject to final tax Regardless of how much exemptions; as long as you have business Y, you always have to file Y tax return Where to pay? o Bank o Revenue district offices o Anywhere? No, authorized agent bank or RDO WHERE YOU RESIDE When ? Calendar method for individual always!! Married couples - If not purely compensation o Not mandatory to file 1 ITR, can be separate Unmarried minor citizen o Y covered by parents except DONORS Tax

Tax Notes

Atty. Montero

Regina Gomez 2014

CORPORATIONS - all corporations except non-resident foreign corp, and JV in Petroleum o NRFC excempted bec all their income is subject to final withholding tax - When due CGT and Sales of shares of real property o 30 days from time of sale - WHEN filed? - If corp is dissolving must file w/in 30 days after ..for dissolution has been approved People v Kintanar - Gloria Kintanar forever living (pyramid scam) - Gloria admitted that where she lived, she didnt file return , but somewhere else - Defense: did not know what return was going to contain - Question: was there wilffull violation to not file return - Bec if youre under joint filing, assumption is you know whats to be contained in the return - Dissent: a willfull filing means theres an active participation; if husband testified said he filed w/o knowledge of wife.. - Negligent failure to file! SEC 76 Whats underlying assumption? A corporation may choose Filing quarterly returns mandated by law If quarterly returns reflect payment less than final adjustment return , law says: what you paid is less than what youre supposed to pay, obligation: - PAY Question: if what you paid is greater than what you have to pay, the excess is a form of credit: 3 options: - Carry-over - Credit - Refund Similar: Credit credit in form of tax credit certificate, refund is a form of cash! Carry-over what do you carry over and how? 1. first determine how much excess is

Q2 200

Q3 > 100 = Carry over

what does Sec 76 say regarding exercise of option? Last 2 options: credit or refund C/o option is irrevocable If you chose to carry-over, that option is irrevocable Year 1 100 Yr 2 C/O

Tax Notes

Atty. Montero

Regina Gomez 2014

Yr 3 R/T whats mindset of taxpayer, if in year 1,then chose to carry-over in Yr2, then in Yr 3 -, chose to refund. C/O will happen if youre not able to get benefit yet If year 2 excess still exceeds final adjustment return, then excess is still c/o.. thats why some taxpayers chose to R/T, but answer of law, even if youre not able to get benefit.. once you carry-over, you cant choose another option or refund or tax credit Even if fact of carry-over does not result in you not getting payment

WITHHOLDING TAX A B A is supposed to B 100, but under obligation to pay final withholding tax of 10%. What does A need to do? Pay B 90 bec 10% remitted to BIR. Whats obligation of A & B in terms of withholding and remittance? NOTHING. As far as A remits to BIR, nothing is to be done FINAL WITHHOLDING TAX! As far as B is concerned do NOTHING FWT closes obligation What about Y of Non Resident Corps? Code provides all are subject to FWT A is supposed to pay B. But this time, creditable withholding tax. Once A pays and remits to BIR>> not same as FWT Does A have to do anything? NONE B do anything? Report any Y? A: B will have to report Gross Y, 100, Then place deductions, to arrive at tax due. 10 will be a tax credit. The amount of 10 withheld by A and remitted to BIR is in essence an ADVANCE PAYMENT of B, A is deputized to be an agent of B. payment of 10 is a tax credit, hence, CREDITABLE WITHHOLDING TAX If theres

A Smart

B Prism (Non-Res For Corp; Malaysia) 75% paid Prism

25% withheld for BIR ; (based on 25% royalty) -- realized error wanted to get refund (should be 20% tax rate, not 25%) -- w/n he has authority to get refund? SC: yes. He is an authorized agent to get refund

Tax Notes

Atty. Montero

Regina Gomez 2014