Documente Academic
Documente Profesional
Documente Cultură
A. Taxation
a. Definition
i. It is the power by which the sovereign raises revenue to
defray the expenses of the government. It is a way of apportioning
the cost of government among those who in some measure are
privileged to enjoy its benefits and must bear its burden.
Necessity
iv. It is legislative in character (Scope of Legislative Taxing
Power)
ii.
Benefits
Received
Theory/Symbiotic Relationship Theory
Local Governments
Sec. 5, Art. X, Constitution: Section 5. Each local
government unit shall have the power to create its
own sources of revenues and to levy taxes, fees and
charges subject to such guidelines and limitations as
the Congress may provide, consistent with the basic
policy of local autonomy. Such taxes, fees, and
Theory/Compensation
d. Objectives
e. Aspects of Taxation
iii.
Collection This consists of the manner of
enforcement of the obligation on the part of those who are taxed.
Levy is taxation, strictly speaking, while the second and
third aspects may be referred to as tax administration. These
aspects together constitute the taxation system.
B.
Taxes
a. Definition
b. Nature of Taxes
i. It is a forced charge, imposition or burden. As such,
taxes operate in invitum, which means that it is in no way dependent
on the will or contractual assent, express or implied, of the person
taxed. They are not contracts but positive acts of the government.
i. Tax v. Debt
v. Tax v. Penalty
C.
E.
D.
c. Administrative Feasibility
It means that tax laws should be capable of convenient,
just and effective administration or enforcement at a reasonable
cost.
2.
d. Economic Efficiency
The system or power of collecting taxes should not exceed
the amount of tax collected.
3.
b. Constitutional Limitations
i. Due Process of Law
Sec. 1, Art. III of the Constitution provides in part that
(n)o person shall be deprived of life, liberty or property without due
process of law.
Substantive Requirement. The tax law should be valid;
should not be harsh, oppressive or confiscatory; must be for a public
purpose and imposed within territorial jurisdiction.
Procedural Requirement. This involves the compliance
with the fair and reasonable methods of procedure prescribed by
law. There must be no arbitrariness in assessment and collection
and that the taxpayer is entitled to right to notice and hearing.
ii. Equal Protection of Laws
All persons subject to legislation shall be treated alike
under like circumstances and conditions both in the privileges
conferred and obligations imposed.
The Constitution prohibits class legislation which
discriminates against some and favors others. As long as there are
rational or reasonable grounds for so doing, Congress may,
therefore, group the persons or properties to be taxed and it is
sufficient if all of the same class are subject to the same rate and
the tax is administered impartially upon them.
Classification to be valid must:
contracts
The above proceeds from the constitutional provision that
No law impairing the obligation of contracts shall be passed. (Sec.
10, Art. III)
purposes
Sec. 29(2) of Art. VI of the Constitution provides that (n)o
public money or property shall be appropriated, applied, paid, or
employed, directly or indirectly, for the use, benefit, or support of
any sect, church, denomination, sectarian institution, or system of
religion, or of any priest, preacher, minister or other religious
teacher or dignitary as such, except when such priest, preacher,
minister or dignitary is assigned to the armed forces, or to any penal
institution, or government orphanage or leprosarium.
The above limitation is based on the requirement that
taxes can only be levied for a public purpose. Note that what the
Constitution prohibits is the use of public money or property for the
benefit of any priest, etc. as such. When so employed in the armed
forces, any penal institution, or government orphanage or
leprosarium, they may receive their corresponding compensations
for services rendered in their non-religious capacity without
violating the constitutional prohibition.
viii. Exemption of religious, charitable and educational
entities, non-profit cemeteries, and churches from property
taxation
Sec. 28(3), Art. VI of the Constitution provides: Charitable
institutions, churches and parsonages or convents appurtenant
thereto, mosques, non-profit cemeteries and all lands, buildings and
improvements actually, directly, and exclusively used for religious,
charitable, or educational purposes shall be exempt from taxation.
Note that the exemption covers only property taxes and
not other taxes. (LLadoc v. CIR) The test of exemption is the use of
the property and not ownership. Thus, a property leased by the
owner to another who uses it exclusively for religious purposes is
exempt from property tax but the owner is subject to income tax on
rents received. Likewise, that if a property, although actually owned
by a religious, charitable or educational institution, is actually used
for a non-exempt purpose, the exemption from tax vanishes.
The use of the word exclusively means primary rather than
solely. Such that the exemption is not wholly or partly lost because
on certain occasions the property exempted or part of it is used for
social purposes or let out to others for entertainment.
F.
DOUBLE TAXATION
a. Prohibited sense v. Broad sense
(1) In its strict sense (referred to as direct duplicate taxation
or direct double taxation), double taxation means
taxing twice,
b. Nature of Exemption
e. Construction and Interpretation
(1) An exemption from taxation is a mere personal privilege of
the grantee. Thus, an exemption granted to a corporation
does not apply to its stockholders, the former being
considered as a legal entity with a personality separate and
distinct from the latter. Being personal in nature, a tax
exemption cannot be assigned or transferred by the person
to whom it is granted without the consent of the legislature.
(2) It is generally revocable by the government unless the
exemption is founded on a contract which is protected from
impairment. An exemption provided for in a franchise,
however, may be repealed or amended pursuant to the
Constitution.
(3) It implies a waiver on the part of the government of its right
to collect what otherwise would be due to it, and, in this
sense, is prejudicial thereto. Hence, it exists only by virtue of
an express grant and must be strictly construed.
(4) It is not necessarily discriminatory so long as the exemption
has a reasonable foundation or rational basis. Where,
however, no valid distinction exists, the exemption may be
challenged as violative of the equal protection guarantee or
the uniformity rule.
i. General Rule
In the construction of tax statutes, exemptions are not
favored and are construed strictissimi juris against the taxpayer. An
exemption from the common burden cannot be permitted to exist
upon vague implication or inference.
Taxation is the rule and exemption is the exception.
Therefore, he who claims must be able to justify his claim or right
thereto, by a grant expressed in terms too plain to be mistaken and
too categorical to be misinterpreted.
ii. Exceptions
In the following cases, however, the exemption statutes
are liberally construed:
(1) When the law itself expressly provides for a liberal
construction;
(2) When the exemption is in favor of the government itself or
its agencies;
(3) When the exemption is in favor of religious, charitable and
educational institutions because the general rule is that
they are exempt from tax.
d. Grounds
(1) Contract. Tax exemption may be based on contract in
which case the public represented by the government is
supposed to receive a full equivalent therefor. Ordinarily, the
H.
e. Publication
Not all sources of tax laws require publication as required
in Art. 2 of the Civil Code.
Interpretative regulations and those which are merely
internal in nature, i.e., those which regulate only the personnel of
the administrative agency and not the public, need not be published.
When an administrative agency renders an opinion by
means of a circular or memorandum it merely interprets a pre-
10
I.
b. Tax Avoidance
Tax avoidance is the tax saving device within the means
sanctioned by law. This method should be used by the taxpayer in
good faith and at arms length. (CIR v. The Estate of Toda)
Tax avoidance, often called tax planning or tax
minimization, is the use by the taxpayer of legally permissible
alternative tax rates or methods of assessing taxable property or
income, in order to avoid or reduce tax liability.
The term may be extended to include situations where a
person refrains from engaging in some activity or enjoying some
privilege in order to avoid the incidental taxation or to lower his tax
bracket for a taxable year. Thus, a man may change his residence to
References:
Law of Basic Taxation by Aban
The Fundamentals of Taxation by De Leon
Atty. Bathans Taxation Reviewer on General Principles of Taxation
Notes from Previous Batches based on Atty. Tius Syllabus
11
I.
Tax Rate
Tax
%
xx
Income Tax
Compensation Income
Tax Rate
Tax
xx
%
xx
II.
3.
2.
This system
JURISDICTION.
xx
xx
xx
xx
(xx)
xx
%
xx
Business Income
12
xx
%
xx
xx
Passive Income
Tax Rate
Tax
xx
%
xx
Business Income
Compensation Income
Total Income
Less: Deductions
Taxable Income
Tax Rate
Tax
xx
xx
xx
(xx)
xx
%
xx
in
PHILIPPINE
Passive Income
Tax Rate
Tax
applicable
Ex.:
Ex.:
is
III.
Direct Tax
The tax burden is borne by the income recipient
upon whom the tax is imposed. It is a tax demanded from
2.
Source Principle
4.
5.
Citizenship Principle
A citizen of the Philippines is subject to
Philippine income tax (a) on his worldwide income
from within and without the Philippines, if he resides
in the Philippines, or (b) only on his income from
sources within the Philippines, if he qualifies as a
nonresident citizen; hence, the income of a
nonresident citizen from sources outside the
Philippines shall be exempt from Philippine income
tax.
13
Residence Principle
a.
b.
c.
IV.
CITIZENS
V.
Taxablity
a.
TAXPAYER
RC
NRC
OCW
RA
NRA-ETB
NRA-NETB
b.
ALIENS
14
SOURCES OF
TAXABLE
INCOME
Within and
without
Within
Within
Within
Within
Within
TAX BASE
TAX RATE
Net Income
5% - 32&
Net Income
Net Income
Net Income
Net Income
Gross Income
5% - 32%
5% - 32%
5% - 32%
5% - 32%
25%
*Special Treatment:
- Resident citizens are the only taxpayers taxed for income
from sources within and without
- NRA-NETB are the only taxpayers subjected to a flat rate of
25% and tax base is gross income. The difference between net
income and gross income is that in gross income, deductions
and personal exemption are not yet availed of.
b.
SEC. 24. Income Tax Rates. (A) Rates of Income Tax on Individual Citizen and Individual Resident
Alien of the Philippines.
(1) An income tax is hereby imposed:
(a) On the taxable income defined in Section 31
of this Code, other than income subject to tax
under Subsections (B), (C) and (D) of this Section,
derived for each taxable year from all sources
within and without the Philippines be every
individual citizen of the Philippines residing
therein;
(b) On the taxable income defined in Section 31
of this Code, other than income subject to tax
under Subsections (B), (C) and (D) of this Section,
derived for each taxable year from all sources
within the Philippines by an individual citizen of
the Philippines who is residing outside of the
Philippines including overseas contract workers
referred to in Subsection(C) of Section 23 hereof;
and
(c) On the taxable income defined in Section 31
of this Code, other than income subject to tax
under Subsections (b), (C) and (D) of this Section,
derived for each taxable year from all sources
15
c.
VI.
INCOME TAX
5%
Over P500,000
*Based on Ability to Pay Principle in that, the higher the taxable income, the
higher the tax rate
EXAMPLE: how to get the tax base for one engaged in selling of
merchandise/goods?
Gross Sales
Cost of Goods Sold
Gross Income
Less:
Allowable Deductions/Operating Expense
Personal Exemptions
Net Income [taxable net income / basis (5-32%)]
200,000
100,000)
100,000
(40,000)
(50,000)
10,000
VII.
2.
3.
4.
5.
VIII.
Rent Income
Royalty Income
Gain on Sale of Real
Property
Situs of Taxation
Service Income
16
SITUS
Residence of the Debtor
If the obligor or debtor is a
resident of the Philippines, the
interest income is treated as
income within the Philippines.
It does not matter whether
the loan agreement is signed
in the Philippines or abroad or
the loan proceeds will be used
in a project inside or outside
the country.
Income within
Income within, if 50% or more
of the GI of the FC for the
preceding 3 years prior to the
declaration of the dividend
was derived from sources
within the Philippines.
b. Income without, if less than
50% of the GI of the FC for the
preceding 3 years prior to the
declaration of the dividend
was derived from sources
within the Philippines
Place of Performance of the Service
If the service is performed in
the Philippines, the income is
treated as from sources within
Gain
on
Sale
Domestic Shares
Stock
a.
of
of
the Philippines.
Location of Property
Place of use of intangible
Location of Real Property
If the real property sold is
located within the Philippines,
the gain is considered as
income from the Philippines
Purchase of personal property within
and its sale without the Philippines, or
purchase of personal property without
and its sale within the Philippines:
Any gain, profit or income
shall be treated as derived
entirely from sources within
the country in which sold.
Accordingly, if the goods are
shipped in a foreign port
under Free-on-Board (FOB)
shipping point arrangement,
title to the goods is
transferred at the foreign port
and any gain from the sale of
such goods to a Philippine
importer shall be treated as
income from sources outside
the Philippines
Personal property produced (in whole
or in part) by the taxpayer within the
Philippines and sold without the
Philippines, or produced (in whole or in
part) by the taxpayer without and sold
within the Philippines:
Any gain, profit or income
shall be treated as derived
partly from sources within and
partly from sources without
the Philippines
Income within
Gain, profit or income is
treated as derived entirely
from sources within the
Philippines, regardless of
where the said shares are
sold. Thus, a NRA who owns
shares of stocks of a domestic
corporation acquired through
a foreign stock exchange is still
liable to the Philippine income
tax even if such shares are
sold also through a foreign
stock exchange.
EXAMPLES:
1. INTEREST INCOME
Q: Mr. AAA (Non-Resident Citizen) lent money to Mr. BBB (resident
of Germany). Is the interest an income in the Phils? Taxable?
A: NO. Source of income is Germany (for interest income, situs of
taxation is the residence of the debtor)
5. RENT INCOME
2. DIVIDEND INCOME
6. ROYALTY INCOME
17
Q: if NRC?
IX.
Taxable Income
a.
X.
ii.
iii.
iv.
v.
vi.
vii.
viii.
ix.
x.
Meaning
Taxable income means the pertinent items of
gross income specified in the Tax Code, less the
deductions and/or personal and additional exemptions, if
any, authorized for such types of income by the Tax Code
or other special laws. (Sec. 31, NIRC)
b.
i.
XI.
Basic Types/Characters of Income; Filing of
ITRs and Payment of Tax
In general, it is important to know the types of income
realized by the taxpayer, since the Philippines has adopted the semiglobal or semi-schedular tax system. Under this tax system,
compensation income, business and professional income, capital
gains and passive income not subject to final income tax, and other
incomer are added together to arrive at the amount of gross income
of an individual, and after deducting the allowable deductions from
business and professional income, capital gains and passive income
not subject to final income tax, and other income as well as personal
and additional exemptions, if qualified, the graduated income tax
rates ranging from 5% to 32% are applied on the resulting net
taxable income to arrive at the income tax due and payable.
The basic types of income are:
Passive income;
Other income
18
Meaning
Ex.: Gross Income is 100,000 and you have 3
children. Total personal and additional
exemption is 125,000 (50k + 75k). Hence no
need to file a return.
c.
b.
c.
d.
19
WHEN TO FILE?
The return, covering income of the preceding taxable year,
shall be filed on or before April 15 of each year (Sec. 51[C]) or in
meritorious cases, within the extension which may be granted by
the Commissioner of Internal Revenue. (Sec 53)
7. FRINGE BENEFITS
f.
On or before April 15 means Jan 1 Apr 15. You cannot file at an
earlier date than Jan 1 since the taxpayer may still earn income.
d.
Requisites of Taxability
1.
2.
3.
e.
1. PROPERTY
BASIS
Fair market value (FMV) of the
property
*If there is a price stipulated,
it is the price stipulated that
will be followed in the
absence of contrary evidence
2. PROMISSORY NOTE OR
OTHER
EVIDENCE
OF
INDEBTEDNESS
3. STOCKS
4.
CANCELLATION
OF
INDEBTEDNESS IN FAVOR OF
SERVICES RENDERED
Fringe Benefits
20
on the said Ee since the same benefits form part of his taxable
income.
6.
21
Benefits Tax (FBT), hence, you still have to get the grossed-up
monetary value (GUMV) of the P68,000. GUMV is equal to
P100,000 (68,000 / 68%). To get the FBT, just multiply the GUMV
with 32% or simply deduct the amount received from the GUMV.
The FBT is 32,000 (100k 68k or 100k x 32%)
TRADE/BUSINESS INCOME
Manufacturing concern
Merchandising
Services
PROFESSIONAL INCOME
-
22
allowance
EXAMPLES:
Transportation
and
Representation
(RATA)
3. PASSIVE INCOME
PASSIVE INCOME is an income received on a regular
basis, with little effort required to maintain it. It is also the income
from "trade or business activities in which you do not materially
participate or Earnings from a business that does not require direct
involvement from the owner or merchant. [DM]
TAXATION MIDTERM NOTES|404 | marukoi.mhealler
6.
iii. Rates
Prizes
exceeding
Php10,000 (if it is 10,000 or
less, it NOT subject to final
tax but the same must be
included in other income)
Winnings derived from
sources
within
the
Philippines (except PCSO &
Lotto)
Interest on Bank Deposit
Substitutes, Trust Funds,
and
other
similar
arrangements***
Interest
from
Foreign
Currency Deposit Units
Dividends received from a
Domestic Corporation
Share of a partner in the NI
after tax of a taxable
partnership
Cash Reward to Informers
(Sec. 282, NIRC) 10% of tax
discovered or 1,000,000
whichever is lower
RC, NRC,
RA
20%
NRA-ETB
10%
10%
(literary
works,
books and
musical
compositio
ns)
(literary
works,
books and
musical
compositio
ns)
20%
20%
25%
20%
20%
25%
20%
20%
25%
7.5% (N/A
to NRC)
10%
20%
25%
10%
20%
25%
10%
10%
10%
20%
NRANETB
25%
23
2.
3.
5%
10%
EXAMPLES:
4. CAPITAL GAINS
Two types:
a. Capital Gains on sale of shares of stock
b. Capital Gains on sale of real property (capital assets)
Requisites of Capital Gains Tax:
1.
24
Tax Rate:
EXAMPLE:
If you have gross capital gain of Php 200T and the gross
capital losses amount to Php 400T, the result is ZERO NET CAPITAL
GAIN. The taxpayer cannot report such as losses nor claim for it to
be deductible from taxable income.
Exceptions
TAXABLE PORTION =
GSP or FMV, whichever is higher x
[Unutilized Proceeds/GSP]
25
5. OTHER INCOME
1.
2.
3.
4.
Addendum:
Preferential Tax Rates to Certain NRA-BETB:
Aliens employed by regional or
are headquarters of MNCs
Aliens employed by offshore
banking units
Aliens employed by petroleum
service
contractors
and
subcontractors
NOTE:
The same tax treatment shall apply to Filipino employees occupying
the same position as an alien employed in the following abovementioned MNCs (Multi National Corporations).
Any income earned from all other sources within the Philippines
shall be subject to pertinent income tax, as the case may be,
imposed under the NIRC
References:
The Fundamentals of Taxation by De Leon
Tax Law and Jurisprudence by Vitug and Acosta
Reviewer on Taxation by Mamalateo
Notes from previous batches based on Atty. Tius Syllabus
Atty. Bathans Taxation Reviewer
26
I.
fundamental law;
Legal Basis
b.
It is exempted by a
statute; and
c.
Nature
II.
Example:
c.
Rationale
DEDUCTION
a.
It is exempted by the
27
1.
2.
3.
Sec. 62, RR No. 2: Proceeds of life insurance are excluded from gross
income because they partake more of indemnity or compensation
rather than gain to the recipient.
28
III.
2.
Taxable
iv. Exception
-
a.
b.
ii. Taxability:
1.
2.
3.
29
Example:
Taxpayer X figured in an accident whereby he suffered
injuries. To avoid litigation, he was paid the following:
HOSPITAL EXPENSES excluded, not taxable
LOST SALARY FOR DURATION OF HOSPITALIZATION
excluded, not taxable
MORAL DAMAGES excluded, not taxable
PAYMENT FOR DAMAGED PROPERTY Included! Taxable!
The damages excluded are only those which are personal
to the taxpayer.
b.
c.
d.
e.
f.
g.
30
7. Miscellaneous Items
a.
Income of foreign governments - Income derived from
investments in the Philippines in loans, stocks, bonds or other
domestic securities or from interest on deposits in banks in the
Philippines by:
Foreign governments;
b.
Income Derived by the Government or its Political
Subdivisions. - Income derived from any public utility or from the
exercise of any essential governmental function accruing to the
Government of the Philippines or to any political subdivision
thereof.
c.
Prizes and Awards in recognition of religious and
charitable accomplishments
Conditions:
d.
e.
th
- END -
g.
Gains realized from the sale or exchange or retirement of
bonds
Gains realized from the sale or exchange or
retirement of bonds, debentures or other certificate of
indebtedness with a maturity of more than 5 years.
31