if the transaction is a sale transaction or if the transaction is onerous in character then it is the

amount of consideration as against FMV whichever is higher which means you have first to compare
the two whichever is higher then you have to compare the two again which ever is higher.(wa ko
kaabot sa sugod am late) when it comes to sale transaction or exchange. But when it comes for
example for the determination of the gross estate for the estate tax purposes or for donor’s tax
purposes for donation intervivos, it is whichever is higher between the two. The two would be
considered as the fair market value. That’s why sec 6E is very important taht is applicable to income
taxation, applicable to estate taxation, applicable likewise to donor’s taxation.

Sec 6F

Sec 6G- accredition of tax practitioners. Lawyers not included, because lawyers are not required to
get accredited by the BIR. Once you become lawyers you can automatically practice tax. You can
already do tax practice without doing through the process of accreditation provided that what you
are doing can be done only by a lawyer. What you are doing is something taht is not related to the
function of a CPA so that you are a CPA lawyer to sign audited financial statements cannot be done
by a lawyer. It can be done only by a CPA. Meaning if you are a CPA lawyer you still have to be
accredited. But if it can be done by a lawyer you don’t need any more to secure accreditation.
Special ang lawyers. Not required by this provision and the implementing rules to undergo the
accreditation process basta lawyer.

There was a case for that. At that time the DTI requested for the accreditation, ka yang lawyers are
not under the PRC. Lawyers are under the SC. Broad kayo ang practice of law.

Sec 7

Sec 8

Sec 9

BIR positions basaha lang

Sec12 the collection of taxes may be delegated to private parties like banks. The BIR can deputize
collection agents the local treasurers, even the buraue of customs taht it is going to be different
when we are dealing with local taxes. Because with respect to local taxes, the collection of the local
tax cannot be delegated to private parties. That’s why you cannot see banks collecting local taxes
why because of the prohibition under the Local Government Code that the collection of local taxes
cannot be left in the hands of the local taxes.

Sec 13 14

Sec 15 the power to arrest. The BIR personnel may have the power to arrest but that power is
limited only to excise tax matters.

Taxes as to subject matter – kinsa or unsa ang itax.

1. personal/poll/capitation – community tax

2. property – real property tax and the variants under the LGC. The variants are: idle land tax,
ad valorem tax imposed in idle lands ang computation ana pareho sa property tax
 3. excise/ transaction or privilege tax-

all internal revenue taxes are excise taxes as enumerated in sec 21 of the tax code

excise taxes sa title VI . Kini ang girefer sa sec 15. Ang girefer ana na ang BIR dunay power to arrest is
the excise taxes under title VI of the Tax code. Kay kini gud na excise tax may refer to taxes under
the local government code.

Under the tariff and customs duties basat wa makabayad, ginukdanay na. bisan asa itago pwd
dakpon without warrant. Pero the moment ang item toa na gali sa residential dwelling din a kasud
ang customs, warrant is necessary. Pero BIR bisag toa pa sa balay pwd without a warrant. But only if
the issue is aboutexcise tax.

Sec 21 contains the enumeration of what you would encounter in the subsequent titles and these
are considered as internal revenue taxes. The sources of internal revenues namely

1. income tax
2. estate and donor’s tax
3. value added tax
4. other percentage taxes
5. excise taxes
6. documentary stamp taxes

INCOME TAXATION

SEC 4 Power to interpret. How would the commissioner interpret? By making a ruling. By issuing a
revenue memorandum circular which means once issued, it has general application. These rulings
cannot be given retroactive application of rulings under sec246 of tax code-non retroactivity of
rulings. These are the interpretative rulings. What is the difference between a ruling and a revenue
regulation?

A ruling which is issued in line with the power to interpret under sec 4 would actually promulgate no
new rules. It will not promulgate new rules. It is intended only to interpret. The rule is already there.
Therefore, since it does not prescribe new rules, the ruling is not required to be published before it
becomes effective. But with respect to revenue regulations, before they are made effective they
should first be published to comply with the requirement under art 2 of the civil code.

So kani revenue regulation required to be published pursuant to the requirement under the civil
code.

Sec 246 are non retroactive

Exc: instances when rulings may be given retroactive application:

1. in case of misrepresentation- when the facts presented are materially different from what
are discovered upon verification
2. when it is favourable to the taxpayer
Income taxation sec 22- sec 83

Income- under Regulation no 2 sec 36 – any wealth that flows into the hands of the taxpayer other
than the mere return of capital. Capital is the tree income is the fruit.

Severance test-if the fruit is still attach to the tree there is no income tax to speak about. Income tax
applies only if there is a close and completed transaction. Severed from the tree.you bought a piece
of land for 1M, 10 years ago, after 10 years, the present FMV would naturally increase. And 1M na
land sa una 10 years after 20M na siguro na. duna kay gain. But is it taxable? NO, because it is still
unrealized. Applying the severance test wa pa sya msevered, the fruit is still with the tree. Therefore,
general rule no income tax to talk about yet. But once the fruit is severed from the tree, so that ang
selling price karon is 1M, gibaligya. This is a sale transaction nya 1M ra ang puhonan. Which one is
taxable? Only the 9M because the 9M is the fruit, the 1M is the tree which is the capital applying to
this definition of income.

When is there a taxable income? Because it is possible that there is an income but it is not taxable.
We should be talking of those income subject to tax.

Criteria for taxable income

1. when there is gain or profit. But if there is a loss, there is no profit, therefore general rule no
income tax to be applied. Such gain profit must be received or realized during the taxable
period. Possible man na narealize na pero wa pa mandawat. Nahalinan ka so naa na ka
income pero actually wa pa bayari. Imo na na earn ang income pero wa pa nimo nadawat.
Pero naahlin na kay there is already closed and completed transaction. In your oblicon dili
man required na maclose and completed ang transaction na masubject sa tax na nabayaran
ka, especially if the income is already realized. Human naman an transaction, except lang na
padung pa mubayad, especially when the transaction involves sale of goods. Receive or
realized this would admit accrual- means the income may be earned already but not yet
received. Likewise pertaining to expense, the expense may already be incurred buut not yet
paid.

Ex: Janitors nagserbisyo na pero wa pa nimo bayari at the end of the period. S ato pa obligation
na to nimo.

So you recognize the expense. In the same manner that nagserbisyo na ka or imo na gidiliver
ang goods. Halin na to pero wa pa ka bayari. There is already a closed and completed
transaction. Applying accrual method, then yyou recognize the income. That is what is referred
to as gain or profit. Although may not yet be received.

Realized pero wa pai receive bec receive here may refer to actual receive or constructive receive

Actual receive- over the counter

Constructive receive- you have deposits with the banks – it earns interest income you have not
received it actually but automatically credited to your account by the bank. Realized na to pero
wa pa nimo mareceive. Tax may also be imposed.
 2. Gain or profit received or realized through the taxable period
3. Not exempt under any law or treaty.
4. You have to be very sure taht there is really no law or treaty exempting that item from
income tax.

What are those not taxable? EXEMPT

The grant of exemption must be clear and categorical. The burden of proof is upon him that he is in
fact qualified under that exemption, otherwise the general rule shall apply which is taxation.

What are the items exempt under the law?

Sec 32B exclusions from gross income

Sec32A you will find there the items of gross income- general rule taxable. Are pensions taxable?
YES, provided in sec32A.

“Shal include but not limited to”- not exclusive

What is the difference of exclusions v exemptions v deductions? these 3 terms belong to the same
class. They can be generally called as exemptions. But for income tax purposes and only for income
tax purposes consider them as different terms.

The exclusions are sec32 B

Exemptions are the basic personal additional exemptions under sec 35 and deductions are in sec 34.

Basic personal exemption is 50,000.00 per individual whether married, head of the family or single

Additional exemption 25,000 per qualified dependent child for the first 4.

Exclusions in relation to the 3rd criterion to when can income be subject to tax. That the same shall
not be exempt under any law or treaty

Sec32B excluded from gross income effect is exempt

Income statement format. The condensed format of an income statement

Sales/revenues/receipts

Less: cost

Gross income

Less: deductions

_________________________________net income

1. Life insurance proceeds- sa life insurance proceeds. Wai labot property insurance. For this
exemption to apply kinahanglan jud nai mamatay. Somebody must die. Otherwise if no one
 dies even if there is that insurance policy and proceeds will be received, the exemption
would not apply.

Is it important to know who is the beneficiary for the exemption to apply? NO. For income tax
purposes. The issue as to who is the beneficiary is not relevant as far as income tax is concerned in
relation to life insurance proceed. Why? Because the law does not qualify. For as long as somebody
dies, and life insurance would be received by whoever is the beneficiary, the same is covered by tax
exemption. REASON: the same is not considered as an income but merely an INDEMNITY, for the life
lost. The amount of life insurance coverage is not enough to compensate the sorrow. EXEMPT

Asa man diay mu.apply ang issue on beneficiary? When it comes to the issue pertaining to the estate
tax. When it comes to life insurance proceeds let me give you the variations.

Ex: Keyman insurance. corporation x obtained an insurance policy covering the life of Mr.A to
Keyman insurance company. Bayad sya diha og premium. Unya ang beneficiary, assuming na dunay
insurance policy. Ang beneficiary is mao ang question dinhi. Assuming that the beneficiary is
company X, namatay si Mr. A who happens to be the president, empleyado na siya sa Corporation.
Pagkamatay ni A ang nakarecover si corporation Xas beneficiary. Is the life insurance proceed
exempt from income tax? YES. Whoever is the beneficiary, exempt sya basat naai namatay. What is
the reason because it is merely an indemnity for the life lost. Dili issue kung kinsa nagbayad sa
premium, dili issue kung kinsa ang beneficiary basta duna nai namatay nya life insurance proceed
sya.

Mucomplicate ni sya anng premium payment when it comes to whether this would be allowed as
deduction from gross income. Items of gross income, dapat kabalo mu kung unsa ang iapil sa items
from gross income. Muingon gali exclusions from gross income, ang effect ana kay exemption.
Excluded gali meaning not subject from income tax. Kanang sec 36A kana mao ang iapil sa taxable.

Though nai gain or profit ang insurance, there is no taxable income because it is exempt in
accordance to the law. There is profit because it could be na ang premium na gibayaran niabot lang
og 500,000 usa namatay pero ang life insurance coverage na nakuha 2M. Pila lanng ang puhunan
500,000. Ang excess is 1.5M. so duna sya gain or profit kung huna.huna.on. pero not considered as
such because it is an indemnity for the life lost.

2. RETURN OF PREMIUM. Why is it exempt? Because the premium return represents merely
the return of the capital which under the definition of income, pursuant to sec 36 (2) is not
considered an income therefore not taxable, because there is no gain or profit. Assuming
dunay nagpainsured. Nagbayad na syag premium. Kabayad sya 100,000. For whatever
reason narevoke ang policy. Gi.uli pero ang giuli 120,000 na. is it taxable or not? YES with
regard to the 20,000 which is excess of the premium paid, which is representing the fruit not
the tree.

Going back to life insurance. Karon kay kanang mga insurance policy, ang ilang ipang offer na
services, ang mga packages pwd man na kon ma out live ang term like after 15 or 20 years
makakobra ang insured. Wai namatay. Nakakobra. Is it taxble or not? Taxable with respect to the
excess of the premium. Over and above the premium’s paid, taxable. But the premium is not taxable
because it is covered by not by sec B1 but sec 32B2. That is a Mere return of the premium/ capital.
The excess is taxable.

Sec32 B (3) gift bequest and device- what’s the difference between the device and bequest? Ang
bequest- is about personal property

device – refers to real property

s actually pareha ni sila donations. But this may be refer to either donation inter vivos or donation
mortis causa.

Intervivos- subject to donor’s tax

Mortis causa- subject to estate tax

These are excluded from gross income because they are already subject to another types of taxes –
donor’s tax or estate tax. Mao nang gi.exlude

Can congress later on amend the law and impose income tax on donation or inheritance? Is it
possible?YES. if you apply the definition of income, there is an or profit sa inheritance, na exempt
sya because of item no 3. So that kunng wa ang item no 3 kay gi.amend sa balaod, pwd sya maigo sa
estate and donors tax at the same time income tax. But congress doesn’t want that to happen. Ang
gusto kausa lang maigo. Wa sya igo a sa income tax, that’s the reason why it is included from gross
income .nakakuha??hoooyyy!!!

Sec32B(4) injuries- GR: basta nai nasamad, na. accident. Unya bayaran sya whether actual, moral,
damages- exempt from income tax. REASON: wai nagnegosyo aron masamad, magpadisgrasya.
Compensation for injuries for damages not taxable.

Sec32B(5) exemption under treaty/ under international comity- is Manny Pacquiao subject to
income tax here in the Philippines? YES, but can avail of tax credit mechanism not only under our
law but also under our treaty with USA. Mao na ang exempt under treaty

Sec32B(6)retirement benefits – EXEMPT- retiring employee is not less than 50 years of age and must
be employed with the same employer for not less than 10 yrs, and must not have enjoyed the same
benefit before. This exemption can be enjoyed only once during lifetime in the person.

But there can be other retirement benefit exempt under the law, covered on the retirement benefit
plan, because on top of that it is possible that the employer will provide additional retirement
benefit on top of the basic to make his compensation packages ore attractive, to be able to retain
employees. So unsa man buhaton nya? Muprovide syag retirement benefit plan unya mucontribute
sya for the paln, and it is possible that he may ask the employees to contribute. So ang retirement
benefit coming from that plan may be exempt from income tax, provided tahth the same is
considered a reasonable retirement benefit plan as approved by the BIR pursuant to the conduct of
actual study.

So kanusa pa to maexempt on top of the minimum retirement benefit? When there is a reasonable
retirement benefit plan approved by the BIR. Unya dunay niretire nakakuha benefit coming from the
plan. Exempt sad sya
Sec32B(7)

a. EXEMPTION OF FOREIGN GOVERNMENTS – DUHA ni kabuok, including the corporations

controlled by the foreign governments earned income here in the phil. EXEMPT. The leading
case to this is Mitsubishi against CIR deicided in 1990.

Dunay banko controlled by the government of Japan. Nagpahuwam sya gnadto sa Mitsubishi Metal,
unya kani Mitsubishi Metal, duna sya transaction with the ATLAS here in Cebu. Ang Mitsubushi
mi.ingon na exempt sila na exempt sila under the provision of the law ka yang iya gihuwaman gikan
dri, and it is covered by that exemption but SC said NO, because ang transaction dinhi is merely
about relending ang gitax sa BIR ang transaction involving Mitsubishi ATLAS which is is not covered
by the exemption. Unsa ra man ang covered by the exemption? Ang transaction sa bank og
Mitsubishi because it is covered by that exemption under Sec32B(7)a. Dili lang kay foreign
government mismo, hasta ang mga corporation controlled and owned by the foreign government,
under what principle? International comity

b. Our own government- when our government performing essential governmental function.
But if the government is performing proprietary function, the effect is subject to income tax
under sec 27C. And the rate is 30% based on net income. The government is exempt only
from income tax if it performs essential governmental function
c. Sports competition –duha ni. Unsa to requirement para maexempt from income tax? That
the tournament is sanction by the National Sports organization and the latter must be
accredited by the Philippine Olympic Committee under RA 7549. Importante na. is Mannny
Pacquiao covered by that exemption?NO why not?kato ra mga amateur players ang covered
with that.
What about kanang muhatag og donations and reward sa mga nakadaog sa Olympics games,
are the donors exempt from donor’s tax? And is the reward subject to income tax? Pursuant
to RA 7549 EXEMPT from donor’s tax ang muhatag. On the part of the recipient exempt also
from income tax.

Conditions: that the recipient did not actively participate to get the award and not required
to render substantial service in the future, otherwise if he is required to render substantial
service in the future it becomes compensatory in character so it becomes subject to tax. Dili
sya compensation kay wa man sya naghago wa sya nagtrabaho. Pero pananglitan dunay
declamation contest, nakadaog og 1M is taht taxable? YES dunay active participation, that is
compensatory in character. GR: taxable. Pero karon nangita kung kinsay outstanding
individual para sa Magsaysay award unya dunay 1M cash component as part of the award. Is
that taxable? NO, because the presumption is ang search did not include any active
participation by the recipient. Ang pagsearch wa sya apil, siya ra ang gipangita nya nakitan
sya. But of course documentation possible ni,involve sya. Nagsubmit sya credential but that
is not active participation because of the search committee. So nai nakadaog. EXEMPT under
the section. In recognition
Separation pay – is it taxable? YES if it is voluntary resignation from employment, pero
involuntary termination of employment due to causes beyond the control of the employee.
EXEMPT basta voluntary due to retrenchment. REASON: once an employee is terminated
 from employment due to causes beyond his control, he needs protection from the
government through exemption.
Retirement benefit gani ang issue ato tanawon ang age requirement; the length of service

Sec32B(7)e
13th moth pay and other benefits are exempt- excluded from gross income. Not to exceed 30,000 on
top of diinimis benefits as mentioned in sec 33. Unsa nakalahi. Per item ang exemption sa di minimis
like rice subsidy 1500 per month. Pero ang rice subsidy is 2000 per month. Pila ra ang exempt? 1500
ang excess iapil sa item taxable. Ang excess mao ang icover sa 30,000.

Other benefits contemplated by law are the benefits not regularly given like incentives – not paid by
the employer every pay roll period. So kung nagdawat housing allowance regularly, din a sya apil dri.
The housing allowance is taxable. So kato lang bonuses. Productivity incentives kana mga pay
macove na sa 30,000 but the excess is taxable.