I.

General Principles of Taxation

A. Definition and concept of taxation
The inherent power of the sovereign exercised through the legislature to impose
burdens upon subjects and objects within its jurisdiction for the purpose of raising
revenues to carry out the legitimate objects of government [DOMONDON]
Is a mode by which the government make exactions for revenue in order to support its
existence and carry out legitimate objectives
B. Nature of taxation
The nature of the states power to tax is two-fold. It is both an inherent power and a
legislative power.
It is inherent in nature being an attribute of sovereignty. This is so, because without the
taxes, the states existence would be imperiled. There is thus, no need for a
constitutional grant for the state to exercise this power.
It is a legislative power because it involves the promulgation of rules. Taxation is a set
of rules, how much is the tax to be paid, who pays the tax, to whom it should be paid,
and when the tax should be paid. [ DOMONDON ]
Some authors add Subject to Constitutional and Inherent limitations so, 3 folds. Lol.
C. Characteristics of taxation
Enforced contribution not dependant on the will of the payer
Payable in money, generally.
Proportionate based on ability to pay
Levied on persons, properties, rights, acts, privileges or transactions.
Levied by- State, with jurisdiction over the over the subject
Levied for Public purpose
Legislative
EPP L4
D. Power of taxation compared with other powers
1. Police power
Gerochi vs. Doe, GR No. 159796, July 17, 2007 : [ THE EPIRA VALIDITY CASE]

The power to tax is an incident of sovereignty and is unlimited in its range,

acknowledging in its very nature no limits, so that security against its abuse is to be
found only in the responsibility of the legislature which imposes the tax on the
constituency that is to pay it. It is based on the principle that taxes are the
lifeblood of the government, and their prompt and certain availability is an
imperious need. Thus, the theory behind the exercise of the power to tax emanates
from necessity; without taxes, government cannot fulfill its mandate of promoting
the general welfare and well-being of the people.
On the other hand, police power is the power of the state to promote public
welfare by restraining and regulating the use of liberty and property.1 It is the most
pervasive, the least limitable, and the most demanding of the three fundamental
powers of the State. The justification is found in the Latin maxims salus populi est
suprema lex (the welfare of the people is the supreme law) and sic utere tuo ut
alienum non laedas (so use your property as not to injure the property of others).
As an inherent attribute of sovereignty which virtually extends to all public needs,
police power grants a wide panoply of instruments through which the State, as
parens patriae, gives effect to a host of its regulatory powers. We have held that
the power to "regulate" means the power to protect, foster, promote, preserve, and
control, with due regard for the interests, first and foremost, of the public, then of
the utility and of its patrons
The conservative and pivotal distinction between these two powers rests
in the purpose for which the charge is made. If generation of revenue is the
primary purpose and regulation is merely incidental, the imposition is a tax;
but if regulation is the primary purpose, the fact that revenue is incidentally
raised does not make the imposition a tax. [PDC v. Quezon City, APR 24,
1989]
2. Power of eminent domain
Eminent domain provides for just compensation? :D

E. Purpose of taxation
1. Revenue-raising
Primary purpose of taxation is to provide funds or property with which to promote
the general welfare and protection it its citizens.
Fees may be properly regarded as taxes even though they also serve as an
instrument of regulation... If the purpose is primarily revenue, or if revenue is, at
least, one of the real and substantial purposes, then the exaction is properly called
a tax. [PAL v. Edu, G.R. No. L- 41383 August 15, 1988]

2. Non-revenue/special or regulatory
Taxation is often employed as a device for regulation by means of which certain
effects or conditions envisioned by governments may be achieved. These regulatory
purposes are also known as Sumptuary. Thus, taxation can:
(1) Strengthen anemic enterprises or provide incentive to greater production
through grant of tax exemptions or the creation of conditions conducive to their
growth.
(2) Protect local industries against foreign competition by imposing additional taxes
on imported goods, or encourage foreign trade by providing tax incentives on
imported goods.
(3) Be a bargaining tool by setting tariff rates first at a relatively high level before
trade negotiations are entered into with another country.
(4) Halt inflation in periods of prosperity to curb spending power; ward off
depression in periods of slump to expand business.
(5) Reduce inequalities in wealth and incomes, as for instance, the estate, donor's
and income taxes, their payers being the recipients of unearned wealth or mostly in
the higher income brackets.
(6) Taxes may be levied to promote science and invention [see RA. No. 5448] or to
finance educational activities [see RA. No. 5447) or to improve the efficiency of
local police forces in the maintenance of peace and order through grant of subsidy
(see RA.No. 6141)].
(7) Be an implement of the police power to promote the general welfare.
In Lutz v. Araneta, 78 Phil 148, it has been held that the Sugar Adjustment Act is an
act enacted primarily under the police power and designed to obtain a readjustment
of the benefits derived by people interested in the sugar industry as well as to
rehabilitate and stabilize the industry which constitutes one of the great sources of
the country's wealth and, therefore, affects a great portion of the population of the
country.
Taxes may be levied with a regulatory purpose to provide means for rehabilitation
and stabilization of a threatened industry which is imbued with public interest as to

be within the police power of the State. [Caltex v. COA, G.R. No. 92585 May 8,
1992]
As long as a tax is for a public purpose, its validity is not affected by collateral
purposes or motives of the legislature in imposing the levy, or by the fact that it has
a regulatory effect [51 Am. Jur. 381-382.] or it discourages or even definitely deters
the activities taxed. The principle applies even though the revenue obtained from
the tax appears very negligible or the revenue purpose is only secondary. [see
United States vs. Sanchez, 340 U.S. 42; Tio vs. Videogram Regulatory Board, 151
SCRA 208, 1987]

F. Principles of sound tax system

1. Fiscal adequacy

The sources of tax revenue should coincide with, and approximate the needs
of, government expenditures. The revenue should be elastic or capable of
expanding or contracting annually in response to variations in public expenditures.

2. Administrative feasibility

Tax laws should be capable of convenient, just and effective

administration. Each tax should be capable of uniform enforcement by
government officials, convenient as to the time, place, and manner of payment, and
not unduly burdensome upon, or discouraging to business activity.

3. Theoretical justice

The tax burden should be in proportion to the taxpayers ability to pay.

This is the so-called ability to pay principle. Taxation should be uniform as well as
equitable

G. Theory and basis of taxation

1. Lifeblood theory
Taxes are the lifeblood of the government and their prompt and certain availability
is an imperious need. [CIR v. Pineda]
Taxes are the lifeblood of the government and so should be collected without
unnecessary hindrance... It is said that taxes are what we pay for civilized society.
Without taxes, the government would be paralyzed for lack of the motive power to
activate and operate it [CIR v. Algue, G.R. No. L-28896, February 17, 1988].

2. Necessity theory
The power of taxation proceeds upon theory that the existence of
government is a necessity; that is cannot continue without means to pay its

expenses; and that for those means it has the right to compel all citizens and
property within its limits to contribute.
The power to tax, an inherent prerogative, has to be availed of to assure the
performance of vital state functions. It is the source of the bulk of public funds.
[Sison v. Ancheta, G.R. No. L-59431, July 25, 1984]
The obligation to pay taxes rests upon the necessity of money for the
support of the state. For this reason, no one is allowed to object to or resist the
payment of taxes solely because no personal benefit to him can be pointed out
[Lorenzo v. Posadas, G.R. No. L-43082, June 18, 1937].

3. Benefits-protection theory (Symbiotic relationship)

This principle serves as the basis of taxation and is founded on the reciprocal
duties of protection and support between the State and its inhabitants.
Despite the natural reluctance to surrender part of one's hard earned income to the
taxing authorities, every person who is able to must contribute his share in the
running of the government. The government for its part is expected to respond in
the form of tangible and intangible benefits intended to improve the lives of the
people and enhance their moral and material values. This symbiotic relationship is
the rationale of taxation and should dispel the erroneous notion that it is an
arbitrary method of exaction by those in the seat of power. [CIR v. Algue]

4. Jurisdiction over subject and objects

The limited powers of sovereignty are confined to objects within the respective
spheres of governmental control. These objects are the proper subjects or objects of
taxation and none else.

H. Doctrines in taxation
1. Prospectivity of tax laws
Prospective as a general rule. Retroactive tax law is possible when expressed
and not oppressive.
2. Imprescriptibility
Does not prescribe unless the law clearly provides.
e.g. NIRC sec 203 and 222, LGC, Tarriff and Customs Code sec 1603
3. Double taxation

Means taxing twice the same taxpayer for the same tax period upon the
same thing or activity when it should be taxed but once, for the same
purpose and with the same kind of character of tax.
Direct Duplicate Taxation (STRICT SENSE)
PPP C-A-T
1. Same property or person (object)
2. Same purpose
3. Same period
4. Same character or kind of tax
5. Same government authority
6. Within the same territory, jurisdiction or taxing district
*this defeats the constitutional requirement of uniformity and equal
protection.
Indirect = one or more element above missing

4. Escape from taxation

a) Shifting of tax burden
*Only applicable to excise taxes
INWARD Producer (statutory taxpayer) shifts burden to Consumer
OUTWARD - Consumer (statutory taxpayer) shifts burden to
Producer
ONWARD both in and out lol
b) Tax avoidance
Legal use of tax regime to reduce tax to ones own advantage.
c) Tax evasion
END ACHIEVED MIND (BAD FAITH) UNLAWFUL (ACT/OM)
E-M-U
a.
The end to be achieved, i.e., the payment of less than that known by the taxpayer to be
legally due, or the non-payment of tax when it is shown that a tax is due;

b.
an accompanying state of mind which is described as being evil on bad faith, willful, or
deliberate and not accidental; and
c.

a course of action or failure of action which is unlawful. (Commissioner of Internal Revenue v. The

Estate of Benigno P. Toda, Jr., , etc., G. R. No. 147188, September 14, 2004)

5. Exemption from taxation

CIR vs. Acesite (Philippines) Hotel Corporation, G.R. No. 147295,
February 16, 2007
Pagcor Tax exempt all kind, Extends to ACESTITE (Franchise Holder, by law)
Digital Telecommunications Phils. Inc. vs. Province of Pangasinan,
GR No. 152534, February 23, 2007
In view of the unequivocal intent of Congress to exempt from real property
tax those real properties actually, directly and exclusively used by petitioner
DIGITEL in the pursuit of its franchise, respondent Province of Pangasinan can
only levy real property tax on the remaining real properties of the grantee
located within its territorial jurisdiction not part of the above-stated
classification.
Silkair (Singapore) PTE, Ltd vs. CIR, GR No. 173594, February 6,
2008
Fuel- Part of purchase price. Silkair cannot claim tax exemption in an indirect
tax where it is not the statutory tax payer.
Davao Oriental Electric Cooperative vs. Davao Oriental, GR No.
170901, January 20, 2009
No retroactive effect!
NAPOCOR vs. CBAA, LBAA of La Union, et al, GR No. 171470, January
30, 2009
Strict, Napocor was not Directly and Exclusively using the machines,
therefore no exemption.
CIR vs. PAL, GR No. 160528, October 9, 2006
Tax exempt on franchaise-pal

Zero liability on tax = payment of tax, all other exempt

San Pablo Manufacturing Corporation vs. CIR, GR No. 147749, June
22, 2006
The language of the exempting clause of Section 168 of the 1987 Tax Code
was clear. The tax exemption applied only to the exportation of rope, coconut
oil, palm oil, copra by-products and dessicated coconuts, whether in their
original state or as an ingredient or part of any manufactured article or
products, by the proprietor or operator of the factory or by the miller himself.
PAL vs. CIR, GR 198759, July 1, 2013

6. Compensation and set-off

General rule: Internal revenue taxes cannot be the subject of set-off or
compensation [Republic v. Mambulao Lumber, G.R. No. L-17725, February 28,
1962].
Reasons:
(1) This would adversely affect the government revenue system (Philex Mining v. CA
G.R. No. 125704. August 28, 1998).
(2) Government and the taxpayer are not creditors and debtors of each other. The
payment of taxes is not a contractual obligation but arises out of a duty to pay.
[Republic v. Mambulao Lumber (1962)]
Exception: If the claims against the government have been recognized and an
amount has already been appropriated for that purpose. Where both claims have
already become due and demandable as well as fully liquidated, compensation
takes place by operation of law under Art. 1200 in relation to Articles 1279 and
1290 of the NCC, and both debts are extinguished to the concurrent amount.
[Domingo v. Garlitos, G.R. No. L-18994, June 29, 1963]

7. Compromise - Commissioner
A contract whereby the parties, by making reciprocal concessions avoid litigation or
put an end to one already commenced. (Art. 2028, Civil Code). It involves a
reduction of the taxpayers liability.

Requisites of a tax compromise:

(a) The taxpayer must have a tax liability.
(b) There must be an offer (by the taxpayer or Commissioner) of an amount to be
paid by the taxpayer.
(c) There must be acceptance (by the Commissioner or the taxpayer, as the case
may be) of the offer in settlement of the original claim.
Generally, compromises are allowed and enforceable when the subject matter
thereof is not prohibited from being compromised and the person entering into it is
duly authorized to do so.
(1) In the National Internal Revenue Code, the Commissioner of Internal Revenue is
expressly authorized to enter, under certain conditions, into a compromise of both
the civil and criminal liabilities of the taxpayer [Sec. 204, NIRC].
(2) The power to compromise in respect of customs duties is, at best, limited to
cases where potestive authority is specifically granted such as in the remission of
duties by the Collector of Customs [Sec. 709, Tariff and Customs Code] and cases
involving imposition of fines, surcharges and forfeitures which may be compromised
by the Commissioner subject to the approval of the Secretary of Finance [Sec. 2316,
Tariff and Customs Code]
(3) No provisions exist under the Local Government Code, while the tax (not
criminal) liability is not prohibited from being compromised [see Arts. 2034 and
2035, Civil Code]; there is no specific authority, however, given to any public official
to execute the compromise so as to render it effective. [Vitug, p. 48]

8. Tax amnesty A tax amnesty partakes of an absolute forgiveness or waiver by the Government of
its right to collect what otherwise would be due it, and in this sense, prejudicial
thereto, particularly to give tax evaders, who wish to relent and are willing to reform
a chance to do so and become a part of the new society with a clean slate.[Republic
v. IAC (1991)]
A tax amnesty, much like a tax exemption, is never favored nor presumed in law.
If granted, the terms of the amnesty, like that of a tax exemption, must be
construed strictly against the taxpayer and liberally in favor of the taxing authority.
For the right of taxation is inherent in government. The State cannot strip itself of
the most essential power of taxation by doubtful words. He who claims an
exemption (or an amnesty) from the common burden must justify his claim by the
clearest grant of organic or state law. It cannot be allowed to exist upon a vague
implication. If a doubt arises as to the intent of the legislature, that doubt must be
resolved in favor of the state. [CIR v. Marubeni Corp.,372 SCRA 576, 2001]

9. Construction and interpretation of:

CIR vs. San Miguel Corporation, GR 184428, November 23, 2011
a) Tax laws
b) Tax exemption and exclusion
c) Tax rules and regulations

d) Penal provisions of tax laws

e) Non-retroactive application to taxpayers
Strict on Taxer Liberal on Taxed Strict on Tax Exempt.
I. Scope and limitation of taxation
1. Inherent limitations
a) Public purpose
The proceeds of the tax must be used for the support of the State or for
some recognized objects of the government or to promote the welfare of
the community
TESTS:
DUTY TEST- whether the thing to be furthered by the appropriation of public
revenue is something which is the duty of the State as a government to
provide.
PROMOTION OF THE GENERAL WELFARE TEST- will promote welfare? lol
CHARACTER OF THE DIRECT OF OBJECT OF EXPENDITURE- it is the

essential character of the direct object of the expenditure which must determine its
validity as justifying a tax and not the magnitude of the interests to be affected nor
the degree to which the general advantage of the community, and thus the public
welfare, may be ultimately benefited by their promotion. Incidental advantage to
the public or to the State, which results from the promotion of private enterprises or
business, does not justify their aid with public money. [Pascual v. Sec. of Public
Works, G.R. No. L-10405, December 29, 1960]

b) Inherently legislative
Philippine Fisheries Development Authority vs. CA, GR No. 150301,
October 2, 2007
c) Territorial
A state may not tax property lying outside its borders or lay an excise or privilege
tax upon the exercise or enjoyment of a right or privilege derived from the laws of
another state and therein exercise and enjoyed.

d) International comity
Comity- respect accorded by nations to each other because they are
sovereign equals. Thus, the property or income of a foreign state or
government may not be the subject of taxation by another state.
Deutsche Bank AG Manila Branch vs. CIR, GR No. 188550, August 19, 2013

This Court is now confronted with the issue of whether the failure to strictly
comply with RMO No. 1-2000 will deprive persons or corporations of the
benefit of a tax treaty.
HELD: NO.
e) Exemption of government entities, agencies, and
instrumentalities
City of Pasig vs. Republic, GR 185023, August 24, 2011

Phil. Fisheries Development Authority vs. CBAA, GR 178030, December 15,

2010

2. Constitutional limitations
CIR vs. Hon. Raul Gonzales, GR. 177279, October 13, 2010

J. Stages of taxation
(1) Levy or imposition This process involves the passage of tax laws or
ordinances through the legislature. The tax laws to be passed shall determine those
to be taxed (person, property or rights), how much is to be collected (the rate and
the base of tax), and how taxes are to be implemented (the manner of imposing
and collecting tax). It also involves the granting of tax exemptions, tax amnesties or
tax condonation.
(2) Assessment and Collection This process involves the act of administration
and implementation of tax laws by the executive through its administrative
agencies such as the Bureau of Internal Revenue or Bureau of Customs.
(3) Payment this process involves the act of compliance by the taxpayer in
contributing his share to pay the expenses of the government. Payment of tax also
includes the options, schemes or remedies as may be legally open or available to
the taxpayer.
(4) Refund A claim for refund must first be filed with the Commissioner of Internal
Revenue. A suit or proceeding may be filed within two years from the date of
payment of the tax or penalty regardless of any supervening cause that may arise
after payment. The Commissioner may, even without a written claim therefor,

refund or credit any tax, where on the face of the return, such payment appears
clearly to have been erroneously paid. [Sec. 229, NIRC]

K. Definition, nature, and characteristics of taxes

L. Requisites of a valid tax
(1) for a public purpose
(2) rule of taxation should be uniform
(3) the person or property taxed is within the jurisdiction of the taxing authority
(4) assessment and collection is in consonance with the due process clause
(5) The tax must not infringe on the inherent and constitutional limitations of the
power of taxation

M. Tax as distinguished from other forms of exactions

1. Tariff
2. Toll
3. License fee
4. Special assessment
5. Debt
N. Kinds of taxes
1. As to object
a) Personal, capitation, or poll tax
b) Property tax
c) Privilege tax
2. As to burden or incidence
a) Direct
b) Indirect
Silkair (Singapore) Pte Ltd vs. CIR, GR 166482, January 25,
2012
3. As to tax rates
a) Specific
b) Ad valorem
c) Mixed
4. As to purposes
a) General or fiscal
b) Special, regulatory, or sumptuary
5. As to scope or authority to impose
a) National internal revenue taxes
b) Local real property tax, municipal tax
6. As to graduation
a) Progressive

b) Regressive
c) Proportionate

1. Cagayan Electric Power & Light vs. CIR GR 60126 Sept 25 1985
2. Manila Electric Co. vs. City Government of San Pablo 306 SCRA 750
3. Tolentino vs. Secretary of Finance GR 155455 Aug 25 1994
4. Province of Abra vs. Hernando 107 SCRA 104
5. Abra Valley College vs. Aquino 162 SCRA 106
6. Lung Center of the Phil vs. QC GR 144104 June 29 2004
7. Lladoc vs. CIR GR L-19201 June 16 1964
8. Roman Catholic Bishop of Nueva Segovia vs. Provincial Board of Ilocos Norte 51
Phil 352
9. CIR vs. Bishop of the Missionary District of the Phil GR L-19445 Aug 31 1965
10. YMCA of Manila vs. Collector of Internal Revenue 33 Phil 217
11. CIR vs. CA GR 124043 Oct 14 1998

II. National Internal Revenue Code (NIRC) of 1997, as amended

RA 9504
A. Income taxation - Sections 22 to 83

Defs
1. Person individual, a trust, estate or corporation.
2. 'corporation' shall include
a. partnerships, no matter how created or

b. organized, joint-stock companies, joint accounts (cuentas

en participacion),
c. association, or
d. insurance companies,
i. but does NOT include
1. general professional partnerships and
2. a joint venture or consortium formed for the purpose
of undertaking construction projects or engaging in
petroleum, coal, geothermal and other energy
operations pursuant to an operating consortium
agreement under a service contract with the
Government.
ii. 'General professional partnerships' are partnerships
formed by persons for the sole purpose of exercising their
common profession, no part of the income of which is
derived from engaging in any trade or business.
3. The term 'domestic,' when applied to a corporation, means created or organized in the
Philippines or under its laws.
4. The term 'foreign,' when applied to a corporation, means a corporation which is not
domestic.

5. Non-Resident Citizens
(1) who establishes to the satisfaction of the Commissioner the fact of his physical
presence abroad with a definite intention to reside therein.
(2) who leaves the Philippines during the taxable year to reside abroad, either as an
immigrant or for employment on a permanent basis.
(3) works and derives income from abroad and whose employment thereat requires
him to be physically present abroad most of the time during the taxable year.
(4) A citizen who has been previously considered as nonresident citizen and who
arrives in the Philippines at any time during the taxable year to reside permanently in
the Philippines shall likewise be treated as a nonresident citizen for the taxable year in
which he arrives in the Philippines with respect to his income derived from sources
abroad until the date of his arrival in the Philippines.

(5) The taxpayer shall submit proof to the Commissioner to show his intention of
leaving the Philippines to reside permanently abroad or to return to and reside in the
Philippines as the case may be for purpose of this Section.
6. The term 'resident alien' means an individual whose residence is within the Philippines
and who is not a citizen thereof.
Aliens
(1) Resident Alien
An alien actually present in the Philippines who is not a mere transient or sojourner
is a resident for income tax purposes.
No/Indefinite Intention = RESIDENT: If he lives in the Philippines and has no definite
intention as to his stay, he is a resident. A mere floating intention indefinite as to
time, to return to another country is not sufficient to constitute him a transient.
Definite Intention = TRANSIENT: One who comes to the Philippines for a definite
purpose, which in its nature may be promptly accomplished, is a transient.
Exception: Definite Intention but such cannot be promptly accomplished; If his
purpose is of such nature that an extended stay may be necessary for its
accomplishment, and thus the alien makes his home temporarily in the Philippines,
then he becomes a resident.
(2) Non-resident Alien
Engaged in trade or business within the Philippines - If the aggregate period of his
stay in the Philippines is more than 180 days during any calendar year.
Not engaged in trade or business within the Philippines - If the aggregate period
of his stay in the Philippines does not exceed 180 days

a.

1. Income tax systems

a) Global tax system
b) Schedular tax system
c) Semi-schedular or semi-global tax system
2. Features of the Philippine income tax law
a) Direct tax
b) Progressive
c) Comprehensive
d) Semi-schedular or semi-global tax system
3. Criteria in imposing Philippine income tax
a) Citizenship principle

b) Residence principle
c) Source principle
4. Types of Philippine income tax
5. Taxable period
a) Calendar period
b) Fiscal period
c) Short period
6. Kinds of taxpayers
a) Individual taxpayers
(i) Citizens
(a) Resident citizens
(b) Non-resident citizens
(ii) Aliens
(a) Resident aliens
(b) Non-resident aliens
(1) Engaged in trade or business
(2) Not engaged in trade or business
(iii) Special class of individual employees
(a) Minimum wage earner RMC 7-2014
b) Corporations
(i) Domestic corporations
(ii) Foreign corporations
a) Resident foreign corporations
(b) Non-resident foreign corporations
(iii) Joint venture and consortium
c) Partnerships
d) General professional partnerships
e) Estates and trusts
f) Co-ownerships
7. Income taxation
a) Definition
b) Nature
c) General principles
8. Income
a) Definition
b) Nature
c) When income is taxable
(i) Existence of income
(ii) Realization of income
(a) Tests of realization
(b) Actual vis--vis constructive receipt
(iii) Recognition of income
(iv) Methods of accounting
(a) Cash method vis--vis accrual method

(b) Installment payment vis--vis deferred payment

vis--vis percentage completion (in long-term contracts)
d) Tests in determining whether income is earned for tax
purposes
(i) Realization test
(ii) Claim of right doctrine or doctrine of ownership,
command, or control
(iii) Economic benefit test, doctrine of proprietary interest
(iv) Severance test
(v) All events test
9. Gross income
a) Definition
b) Concept of income from whatever source derived
c) Gross income vis--vis net income vis--vis taxable income
d) Classification of income as to source
e) Sources of income subject to tax
(f) Situs of income taxation (see page 2 under inherent limitations, territorial)
(g) Exclusions from gross income
(h) Deductions from gross income
CIR vs. Isabela Cultural Corporation G.R. No. 172231, February 12, 2007
RR 16-2008
Carmelino Pansacola vs. CIR, GR No. 159991, November 16, 2006
Claim: Income in 1987 as credit
January 1, 1988.
10. Taxation of resident citizens, non-resident citizens, and resident aliens
RR 11-2012
RR 8-2012
RMC 20-2011
RR 10-2008
11. Taxation of non-resident aliens engaged in trade or business
On gross. 25%
12. Individual taxpayers exempt from income tax a) Senior citizens RA 9994

M.E. Holding Corporation vs. CA, GR No. 160193, March 3,

3008
CIR vs. Cental Luzon Drug Corporation, GR No. 159610, June
12, 2008
Bicolandia Drug Corp vs. CIR, GR No. 142299, June 22, 2006
Carlos Superdrug Corp vs. DSWD, GR No. 166494, June 29,
2007
b) Minimum wage earners RA 9504; RMC 23-2011
c) Exemptions granted under international agreements
13. Taxation of domestic corporations
Regular (32%)
Minimum Corporate Income Tax (2% of gross income)
(a) applies to domestic corporations and RFCs whenever such corporations
have zero or negative taxable income or whenever the MCIT is greater than the
normal income tax due from such corporations.
(b) Imposed upon any domestic corporation beginning the fourth taxable year
in which such corporation commenced its business operations. For purposes of the
MCIT, the taxable year in which business operations commenced shall be the year
when the corporation registers with the BIR (not in which the corporation started
commercial operations).
(c) Tax rate: 2% of the Gross Income

Gross Income Defined. For purposes of applying the [MCIT] provided

under Subsection (E) hereof, 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.
For trading or merchandising concern, cost of goods sold
shall include the invoice cost of the goods sold, plus import duties,
freight in transporting the goods to the place where the goods are
actually sold including insurance while the goods are in transit.
For a manufacturing concern, cost of goods manufactured
and sold shall include all costs of production of finished goods, such
as raw materials used, direct labor and manufacturing overhead,
freight cost, insurance premiums and other costs incurred to bring the
raw materials to the factory or warehouse.

In the case of taxpayers engaged in the sale of service, 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, however, that in the case of banks, cost of services shall
include interest expense.

Chamber of Real Estate and Builders Association vs. Romulo et., al, GR No.
160756, March 9, 2010
Valid! MCIT and CWT
CIR vs. PAL, GR 179259, September 25, 2013
Tax Exempt ang PAL cuz of its charter, incl MCIT
CIR vs. St. Lukes Medical Center, GR 195909, September 26, 2012
RR 1-2009
RR 1-2007
14. Taxation of resident foreign corporations

CIR vs. Citytrust Investment Phils, Inc., GR No. 139786,

September 27, 2006
South African Airways vs. CIR, GR No. 180356, February 16, 2010

Sales of passage doc = Doin biz in the PH, income in the PH

Inc in:RA 10378; 28 (a- 3a)
RR 15-2013
++BOAC CASE! :D
No landing
Sells tickets to PH through FIL ticket.
WON: IACariers = doin biz?
not
South African = controlling case

15. Taxation of non-resident foreign corporations

16. Improperly accumulated earnings of corporations
This is the income tax imposed on a corporation if its earnings and profits are accumulated (undistributed)
instead of being divided and distributed to its stockholders.
An improperly accumulated earnings tax (IAET) equal to 10% is imposed for each taxable year on the
improperly accumulated taxable income of each corporation.
It is imposed on domestic corporations which are classified as closely-held corporations.

17. Exemption from tax on corporations

18. Taxation of partnerships
19. Taxation of general professional partnerships
20. Withholding tax RR 2-98 as amended
RR 12-2013
CIR vs. SMART Communications, Inc. GR No. 179045-46,
August 25, 2010

NOTES
RCIT ( REGULAR CORPORATE INCOME TAX)
Formula:
Gross income

exclusions

= Gross Taxable Income

Gross Taxable income Allowable Deductions = Net Taxable income

Note 40 (c)